Opinion
Civil Action No. 4:03CV-74-M.
May 13, 2004
MEMORANDUM OPINION ORDERS
This matter is before the Court upon the following motions: (1) Defendants/Counterclaim Plaintiffs' [Trustees'] Motion for Summary Judgment on Their Cause of Action to Confirm the ROD Decision [DN 30]; (2) Defendants' [Trustees'] Motion for Summary Judgment [DN 31]; (3) UMWA's Motion for Summary Judgment [DN 32]; and (4) Plaintiff's Motion for Summary Judgment [DN 33]. The parties have briefed the issues and the matters are ripe for determination. The Court has reviewed the parties' filings and the record herein and its rulings are set forth below.
I. BACKGROUND
Defendants Michael H. Holland, Marty D. Hudson, Elliot A. Segal, and A. Frank Dunham are Trustees of the United Mine Workers of America 1992 Benefit Plan ("the Trustees"). Peabody Coal Company ("Peabody") brings this action seeking to vacate a decision by the Trustees (ROD CA-066), which invalidated a portion of a prescription drug mail order program implemented by Peabody as plan administrator of the retiree benefit plan it is required to maintain pursuant to the Coal Industry Retiree Health Benefit Act of 1992 ("Coal Act"), 26 U.S.C. § 9701-9722 (2004). The Trustees and co-defendant, District 12, United Mine Workers of America, International Union, United Mine Workers of America ("UMWA"), have asserted counterclaims seeking, inter alia, a declaration that the Trustees' decision is valid and binding on Peabody. Each of the parties now moves for summary judgment on its respective claims.
Effective January 1, 2002, Peabody amended its retiree benefit plan, maintained pursuant to section 9711 of the Coal Act ("Coal Act Plan" or "Plan"), by implementing a mail order pharmacy program for maintenance prescription drugs. Prior to the amendment, beneficiaries paid a $5.00 co-payment per prescription up to a maximum of $50.00 per family per plan year. Under the new mail order pharmacy program, the $5.00 co-payment was waived for purchases of maintenance drugs from the mail order pharmacy, but the beneficiary continued to pay the $5.00 co-payment, plus a $10.00 surcharge, for purchases from a retail pharmacy. The $10.00 surcharge was waived, however, for beneficiaries residing in nursing homes and in cases where the beneficiary could document a legitimate inability to use the mail order pharmacy. In addition, beneficiaries were permitted to fill a maintenance prescription from a retail pharmacy twice before the $10.00 surcharge would be imposed.
"Maintenance" prescription drugs are those used on a long-term basis to treat chronic conditions such as high blood pressure, diabetes, asthma, and high cholesterol.
On March 27, 2002, the UMWA, as the representative of Coal Act Plan beneficiary Hazel Steele, filed a request for a Resolution of Dispute ("ROD") with the Trustees pursuant to Article III, Section (A)(10)(b) of the Plan. The UMWA complained that Peabody's implementation of the mail order pharmacy program violated Article IV of the Coal Act Plan, which provides that Peabody may only implement managed care and cost containment rules to the extent that such rules "will not result in a reduction of benefits or additional costs for covered services provided under the Plan." (Coal Act Plan, Article IV, Sec. B). In response, Peabody argued that the mail order program did not result in a reduction of benefits or additional costs, and that the Coal Act Plan specifically authorized the implementation of cost containment rules, including a mail order procedure for prescription drugs.
The Trustees deadlocked on the issue and, in accordance with established ROD procedures, the matter was referred to an arbitrator for final resolution. The arbitrator, Robert E. Nagle, adopted the Union Trustees' position that Peabody's imposition of a $10 surcharge on the purchase of maintenance prescription drugs from a retail pharmacy was inconsistent with the prescription drug coverage and cost containment provisions of the Coal Act Plan. Peabody now asks this Court to vacate the Trustees' decision.
The Board of Trustees is comprised of four members — two "Union Trustees" appointed by the UMWA and two "Employer Trustees" appointed by the Bituminous Coal Operators' Association ("BCOA"). In the event of a deadlock, the ROD is submitted to a neutral arbitrator for final resolution. This process requires both groups of Trustees to submit an "Opinion of Trustees" to the arbitrator, one of which is ultimately adopted by the arbitrator as the published ROD. The arbitrator may also submit additional comments which do not become part of the published ROD.
II. SUMMARY JUDGMENT STANDARD
In order to grant a motion for summary judgment, the Court must find that the pleadings, together with the depositions, interrogatories and affidavits, establish that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56. The moving party bears the initial burden of specifying the basis for its motion and of identifying that portion of the record which demonstrates the absence of a genuine issue of material fact.Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the moving party satisfies this burden, the non-moving party thereafter must produce specific facts demonstrating a genuine issue of fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).
Although the Court must review the evidence in the light most favorable to the non-moving party, the non-moving party is required to do more than simply show that there is some "metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Co., 475 U.S. 574, 586 (1986). The Rule requires the non-moving party to present " specific facts showing there is a genuine issue for trial." Fed.R.Civ.P. 56(e) (emphasis added). "The mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party]." Anderson, 477 U.S. at 252.
III. STANDARD OF REVIEW APPLICABLE TO THE TRUSTEES' DECISION
In deciding whether to vacate the Trustees' decision, the Court must first determine what level of deference that decision should be accorded. The Defendants argue that the Coal Act Plan is a "contract" within the scope of section 301 of the Labor Management Relations Act ("LMRA"), 29 U.S.C. § 185 (2004), and that the Trustees' role under the Coal Act Plan is therefore most analogous to that of an arbitrator in a labor dispute. As such, Defendants assert that the standard set forth in the Supreme Court's Steelworkers Trilogy applies. Under that standard, a court must enforce an arbitrator's award so long as the award "draws its essence" from the agreement and is not merely the arbitrator's "own brand of industrial justice." TVA v. Tennessee Valley Trades Labor Council, 184 F.3d 510, 515 (6th Cir. 1999) (citation omitted).Peabody disputes the Defendants' characterization of the Coal Act Plan as a "contract" within the meaning of section 301. According to Peabody, the role of the Trustees under the Coal Act Plan is most analogous to that of a plan administrator interpreting the provisions of a benefit plan maintained pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001-1461 (2004). As such, Peabody insists that the standard of review applicable to the Trustees' decision is that articulated by the Supreme Court in Firestone Tire Rubber Co. v. Bruch, 489 U.S. 101 (1989). Under the Firestone standard, a challenge to an ERISA plan administrator's denial of benefits is reviewed de novo unless the plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan.Firestone, 489 U.S. at 115. If a plan does grant such discretion, then a reviewing court applies an "arbitrary and capricious" standard. Hunter v. Caliber Sys., 220 F.3d 702, 710 (6th Cir. 2000) (citation omitted).
Finally, the Trustees (but not the UMWA) contend that this case should be decided within the framework of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1-16 (2004). Under the FAA, an arbitrator's award may be vacated where: (1) the award was procured by corruption, fraud, or undue means; (2) there was evident partiality or corruption in the arbitrators, or either of them; (3) the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. 9 U.S.C. § 10.
Although the Coal Act Plan in many ways resembles a collectively-bargained pension plan, the Court does not believe that the Plan is a "contract" within the meaning of section 301 of the LMRA. The Coal Act Plan was not a result of the collective bargaining process, but rather, was implemented pursuant to section 9711 of the Coal Act. Although Peabody and the UMWA negotiated certain provisions of the Coal Act Plan, including the ROD process and certain managed care and cost containment rules and procedures, (Decl. of Michael Buckner, ¶ 16), those negotiations could not have significantly affected the level of substantive health benefits to be provided by Peabody. This is because section 9711 of the Coal Act already required Peabody to provide benefits that were "substantially the same" as those provided as of January 1, 1992. Moreover, the negotiations pertaining to managed care and cost containment rules and procedures were not mandatory, but were merely permissive under the "safe harbor" provision set forth in section 9711(d) of the Coal Act. Therefore, despite the fact that certain provisions of the Coal Act Plan were negotiated, the Court does not believe that the Plan is a collective bargaining agreement within the scope of section 301.
Section 9711(d) provides that "[t]he last signatory operator shall not be treated as failing to meet the requirements of subsection (a) or (b) if benefits are provided to eligible beneficiaries under managed care and cost containment rules and procedures described in section 9712(c) or agreed to by the last signatory operator and the [UMWA]." (emphasis added).
Of course, courts routinely find that contracts other than collective bargaining agreements are covered by section 301.See, e.g., Apponi v. Sunshine Biscuits, Inc., 809 F.2d 1210, 1215 (6th Cir. 1987) ("The term `contracts,' as used in section 301, is not limited to collective bargaining agreements but includes other agreements between employers and labor organizations."). The contracts at issue in those cases, however, are typically either a direct byproduct of the collective bargaining process, see id. at 1215 (holding that collectively-bargained pension plans are "contracts" for purposes of section 301), or are so clearly related to the "maintenance of labor peace" that jurisdiction under the LMRA is irrefutable.See Retail Clerks Local 128 v. Lion Dry Goods, Inc., 369 U.S 17, 29-30 (1962) (holding that strike settlement agreement was "contract" for purposes of section 301). The Court does not believe that the Coal Act Plan — a mandatory retiree benefit plan implemented pursuant to statute — falls into either category.
Nor is the Court convinced that the Firestone standard of review is applicable to the Trustees' decision in this case. While it is undisputed that the Coal Act Plan is an ERISA plan, the Firestone standard typically applies in actions maintained by plan beneficiaries under section 502(a) of ERISA (after exhausting any available administrative remedies) to recover benefits due to them under the terms of a plan, to enforce their rights under the terms of a plan, or to clarify their rights to future benefits under the terms of a plan. After the beneficiary has been denied benefits by the plan administrator, he or she may sue in federal court to overturn the administrator's decision. The court then determines whether the plan administrator had discretionary authority and, depending on the outcome of that inquiry, applies the appropriate standard of review — either de novo or "arbitrary and capricious."
The Trustees' decision in this case clearly does not fit within the ERISA "denial-of-benefits" framework described above. The Coal Act Plan does not delineate a claims procedure with respect to benefit determinations, but simply provides that "any disputes" will be resolved by the Trustees. Thus, rather than allowing Peabody to make initial benefit determinations which can then be appealed, the parties have opted for binding arbitration as the sole means of dispute resolution under the Plan.
Federal regulations governing claims procedures under ERISA expressly permit benefit plans to utilize binding arbitration as a means of dispute resolution. See 29 C.F.R. § 2560.503-1; 65 FR 70246, 70253-54 (November 21, 2000).
Under these facts, the Court agrees with the Trustees that the FAA provides the appropriate standard of review in this case. The FAA mandates the enforcement of arbitration agreements that are within the broad reach of the United States Constitution's Commerce Clause, Article I, § 8, cl. 3. Here, the Coal Act Plan gives the Trustees limited authority to "resolve any disputes . . . to assure consistent application of the Plan provisions which are identical to the benefits provisions of the 1992 Benefit Plan." (Coal Act Plan, Article III.A.(10)(b)). Without question, the role of the Trustees under the Coal Act Plan is that of an arbitrator. See Upshur Coals Corp. v. UMWA, 933 F.2d 225, 227 (4th Cir. 1991) (recognizing Trustees of the UMWA Health and Retirement Funds as arbitrators). Moreover, the Court is confident that the Coal Act Plan, through which Peabody provides health benefits to retired miners across the country through an assortment of service providers, is a "contract evidencing a transaction involving commerce" within the broad scope of the Commerce Clause. Therefore, the Trustees' decision will be reviewed under the FAA standard for vacating an arbitrator's award.
In Upshur, the court reviewed the Trustees' decision under the Steelworkers Trilogy standard advocated by the UMWA in this case. In that case, however, the Employer Benefit Plan at issue was expressly incorporated into the collectively-bargained 1984 NBCWA. Because the health benefits provided under the Coal Act Plan are essentially statutory and are not the result of collective bargaining, the FAA provides a more appropriate standard of review in this case.
IV. DISCUSSION
As explained earlier, the FAA provides that an arbitrator's decision will be vacated in any of the following circumstances: (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. 9 U.S.C. § 10. In the present case, Peabody does not allege that the Trustees' decision was tainted by fraud, corruption, or other misconduct. Therefore, the Court need not address the first three grounds for vacation set forth above, and will limit its analysis to determining whether the Trustees exceeded their powers under the Coal Act Plan, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
The Sixth Circuit, interpreting section 10(d) of the FAA, has noted that:
[W]here the record that was before the arbitrator demonstrates an unambiguous and undisputed mistake of fact and the record demonstrates strong reliance on that mistake by the arbitrator in making his award, it can be fairly said that the arbitrator `exceeded [his] powers, or so imperfectly executed them' that vacation may be proper.Nat'l Post Office Mailhandlers v. United States Postal Serv., 751 F.2d 834, 843 (6th Cir. 1985) (citations omitted). Applying this standard to the present case, Peabody contends that the Trustees' decision must be vacated because arbitrator Nagle relied on outdated RODs which interpreted the 1988 Employee Benefit Plan ("1988 EBP") previously maintained by Peabody. According to Peabody, this reliance constituted a "mistake of fact" because the 1988 EBP, unlike the Coal Act Plan, did not grant Peabody specific authority to implement cost containment measures. The Court disagrees.
The prior ROD decisions relied upon by arbitrator Nagle, ROD 88-322 and ROD 88-613, each involved a prescription drug program which required beneficiaries using non-network pharmacies to pay the full cost of their prescriptions up-front and then file a claim for reimbursement. In each case, the Trustees concluded that shifting the up-front cost of prescription drugs to the beneficiaries was inconsistent with the prescription drug coverage and cost containment provisions of the 1988 EBP. These prior RODs were entirely relevant to the present controversy because Article III of the 1988 EBP, like Article IV of the Coal Act Plan, expressly prohibited any "reduction of benefits or additional costs" for covered services.
Article IV of the Coal Act Plan allows Peabody to implement cost containment measures which "will not result in a reduction of benefits or additional costs for covered services provided under the Plan." (Coal Act Plan, Article IV, Sec. B). This language is identical to that found in Article III of the 1988 EBP, which prohibits "a reduction of benefits or additional costs for covered services provided. . . ." (1988 EBP, Article III, Sec. (A)(10)(g)(2)(v)).
Based on these prior RODs, arbitrator Nagle concluded that the mail order pharmacy program at issue here, like the reimbursement schemes at issue in the prior RODs, resulted in plan beneficiaries incurring prohibited "additional costs." While one may question the soundness of arbitrator Nagle's reasoning, it cannot be said that his decision was based upon a mistake of fact, or that he otherwise exceeded his powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. Accordingly, the Trustees' decision should not be vacated under section 10 of the FAA.
Although the FAA provides the appropriate standard of review in this case, the Court's conclusion would be no different under the Steelworkers Trilogy standard advocated by the UMWA. As stated earlier, under that standard an arbitrator's award will be overturned only where it fails to "draw its essence" from the contract. Tennessee Valley Trades Labor Council, 184 F.3d at 515 (citation omitted). "If an arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, the fact that a court is convinced he committed serious error does not suffice to overturn his decision." Way Bakery v. Truck Drivers Local No. 164, 2004 U.S. App. LEXIS 6652, *4 (6th Cir. 2004) (citation omitted). Here, arbitrator Nagle's decision clearly draws its essence from the Coal Act Plan. Article IV of the Plan allows Peabody to implement cost containment measures, but prohibits any "reduction of benefits or additional costs." After reviewing prior RODs which interpreted similar language in the 1988 EBP and 1988 NBCWA, arbitrator Nagle concluded that the $10 surcharge applicable to purchases from retail pharmacies constituted an "additional cost" prohibited by Article IV, Sec. B. Even if this was error, the Court is convinced that arbitrator Nagle was, at the very least, "arguably construing or applying" the express terms of the Coal Act Plan.