Opinion
No. HNT-L-446-08
Argued January 15, 2010
Decided February 3, 2010
Defendant's motion for summary judgment
Opposed.
Memorandum of Decision on Motion
This case involves a collective bargaining agreement and a retiree's health insurance.
Facts:
The Complaint in this matter alleges violations of the 1997-99 collective bargaining agreement ("CBA") between the defendant and plaintiff.
Plaintiff was a police officer who retired in 1999. The 1997-99 CBA included retiree health benefits at Article XXII of that agreement. Plaintiff was enrolled in the Traditional Plan. As of July 1, 2008, current employees and retirees would no longer be able to enroll in the Traditional Plan. Those who were already enrolled in that plan — like plaintiff — could switch to the Point of Service (POS) plan without any cost to them. They could, however, choose to remain in the Traditional Plan, provided they agreed to pay the excess premium between these two plans from that point in time. The plaintiff relies on Article XXIII, Section 5 of the CBA applicable when he retired. It states a retiree "shall continue to receive all health and medical benefits provided by the employer for the remainder of his life". The agreement also states that "such coverage shall be provided at the expense of the employer".
Count I of the Complaint alleges a violation of Section 5 of the Insurance clause of the CBA, because, as of July 1, 2008, plaintiff is paying premiums for the Traditional Plan in which he is enrolled — that is, he is paying premiums for a plan that has been for ten years premium free to him.
Count II of the Complaint alleges a violation of Section 5 of the Insurance clause, because as of July 1, 2008, plaintiff's co-pays for certain prescription drugs have increased. Count III alleges the plaintiff is a third party beneficiary of the CBA between the PBA and the Township and that the Township breached this agreement.
By order of May 28, 2009 this Court denied the defendant's motion for summary judgment in order to allow discovery on the extent of the changes and any promises made to the plaintiff by the Township. A renewed motion was originally returnable December 18, 2009. The Court carried the motion to allow the plaintiff to supplement his opposition which relied solely on the thirty days prior to a trial date provision of R. 4:46-1 and this Court's earlier denial of the defendant's motion.
Defendant's Arguments:
The defendant argues the CBA allowed it to require the plaintiff to pay premiums in order to maintain the Traditional Plan. It relies on the savings clause contained in the CBA which applied when the plaintiff retired. The savings clause states that "upon mutual consents of both the employer and the PBA the two parties may meet for the purpose of affecting a change or providing an addendum to any section of the Agreement." Article XXV Section 3. It also relies on a duration of agreement clause which states the agreement shall last from 1997 to 1999 and continue in full force until a successor agreement is signed. The defendant also relies on the 2009-2012 CBA which provides for eliminating the Traditional Plan with current retirees being required to pay the difference between Point of Service (POS) and Traditional Plan premiums.
The defendant cites N.J.S.A. 40A:10-22 andN.J.S.A. 40A:10-23, the applicable statutes, and International Union, United Auto, Aerospace Agricultural Implement Workers of America v. Skinner Engine Company, 188 F.3d 130 (3d Cir. 1999), as holding that insurance benefits exist only until a CBA expires unless the CBA clearly declares them inalterable for the life of a retiree. 188 F.3d at 141. The defendant argues that the holding in International Union and the Savings and Duration clauses in the CBA support summary judgment in its favor.
Plaintiff's Arguments: 1. Estoppel
The plaintiff relies on estoppel in his assertion that it was understood that the benefits would continue for retirees without changes, citing Middleton Township PBA v. Loigman, 162 N.J. 361 (2000). He also argues the defendant here should similarly be denied the opportunity to deny him post-retirement medical benefits. He relies on his deposition testimony showing the basis for his belief that the defendant could not change his health benefits since it "was understood by everybody . . . [t]he two guys that died since retirement, their wives were under the assumption that their health benefits would continue after their husbands died." Def's Exhibit 19, Peterson Dep. 100:25-101:4. He also asserted that there were "a lot of understandings between the Township Committee and the police department that weren't necessarily put down in writing." Id. at 108:18-109:6. The plaintiff states he relied on the language in the contract and conversations he had ten years ago about the contract, although he cannot remember the persons with which he spoke. Id. at 153:8-156:22. The plaintiff also emphasizes the many differences between the Point of Service Plan and the Traditional Plan which could lead him to pay more of his healthcare costs.
Defendant's Reply:
In reply to the plaintiff's opposition, the defendant argues against estoppel and in favor of the new Point of Service health plan and charging for additional premiums for retirees who wish to remain in the Traditional Plan. It notes that the plaintiff acknowledged that under some circumstances the new health plan would result in him paying less, such as the visit fee for an in network doctor. Peterson Dep. 208:9-209:2. It emphasizes that the plaintiff failed to offer a certification supporting his contention that other police officers understood the retirement health benefits as continuous. It also takes issue with the vagueness of some of the plaintiff's statements about promises allegedly made.
Summary Judgment Standard:
A party is entitled to summary judgment if "the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law."R. 4:46-2(c).
"[A] determination whether there exists a `genuine issue' of material fact that precludes summary judgment requires the motion judge to consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational fact finder to resolve the alleged disputed issue in favor of the non-moving party." Brill v. Guardian Life Ins. Co.,142 N.J. 520, 530 (1995).
Analysis:
N.J.S.A. 40A:10-22 provides for retiree medical coverage as follows:
The continuance of coverage after retirement of any employee may be provided at rates and under the conditions as shall be prescribed in the contract subject, however, to the requirements set forth in N.J.S.A. 40A:10-23. The contribution required of any retired employee toward the cost of coverage may be paid by him to his former employer or in such manner as the employer shall direct.N.J.S.A. 40A:10-23 provides that retirees shall normally "pay for the entire costs of coverage" (with a 25% cap under certain circumstances). However, the statute does authorize the employer to bargain away its right to make retirees pay for coverage:
The employer may, in its discretion, assume the entire cost of such coverage and pay all of the premiums for employees . . . b. who have retired after 25 years or more of service credit in a State or locally administered retirement system and a period of service of up to 25 years with the employer at the time of retirement, such period of service to be determined by the employer and set forth in an ordinance or resolution as appropriate,
Plaintiff has the necessary twenty-five years of service and is eligible for paid retiree coverage. The question is thus what coverage is due him — the new Point of Service Plan, or the Traditional Plan.
1. Equitable Estoppel
Plaintiff first argues that defendant is equitably estopped from denying him free Traditional Plan coverage. Courts invoke equitable estoppel when required by the interests of justice. Middletown Twp. Policemen's Benevolent Ass'n Local No. 124 v. Twp. of Middletown, 162 N.J. 361 (2000). Estoppel can apply where "one may, by voluntary conduct, be precluded from taking a course of action that would work injustice and wrong to one who with good reason and in good faith has relied upon such conduct." Middletown, 162 N.J. at 367 (citations omitted). In determining whether to apply equitable estoppel to a governmental entity, a court must examine the action at issue to determine if it was ultra vires, 162 N.J. at 368. Generally speaking, equitable estoppel is rarely invoked against a governmental entity. Wood v. Borough of Wildwood Crest,319 N.J. Super. 650, 656 (App. Div. 1999) (citations omitted).
Here the Court finds the interests of justice do not favor the application of equitable estoppel. The plaintiff states the police had an understanding with the defendant and he may have spoken with someone about the CBA. Yet he does not point to a specific conversation, identify a speaker, or point to any action or inaction on which he relied when he retired. In fact he admitted he had "no specific recollection" of any conversation with any representative any other representative of Raritan Township as to the meaning of the wording in the contract before he retired. Plaintiff's Dep., T156-13 to 16. Neither did he "have any specific recollection of having any conversation about what this Collective Bargaining Agreement meant" with any identifiable person in the PBA.Id., T156-23 to T157-2. He recalled only one specific conversation — with his wife — but absolutely none with anyone else, in or outside the union or the Township. T157-3 to 15. This omission is all the more compelling because counsel actually suggested specific names to plaintiff and still plaintiff could still only remember the conversation with his wife. See generally Id. T156 and T57.
Moreover, the hearsay statements of widows of other officers are not evidence and do not remedy the lack of proof. R. 1:6-6. See Plaintiff's response to Material Facts, (SOMF) 94.
It is thus fair to conclude that plaintiff was not promised anything beyond the language in the contract. His vagueness does not suffice to create a prima facie showing of equitable estoppel against a government entity. See Middletown, 162 N.J. at 367; Wood, supra, 319 N.J. Super. at 656. Plaintiff's weak and vague showing clearly does not raise a factual issue as to misrepresentation or in particular reliance which is a mandatory element of estoppel. See, Skinner, supra, 188 F.3d at 144-145, 151-152, refusing to find a factual issue as to estoppel on far stronger facts which included actual testimony as to past practice from both union and company officials. To the same effect is Devine v. Trans. Comm., Int'l Union, 173 F.3d 94,97 (2nd Cir. 1999), finding no estoppel due to lack of reliance even where there was a fact issue on misrepresentation. Because the plaintiff did not provide a reasonable basis for reliance on the unwritten and unidentified "understanding," the Court will dismiss his equitable estoppel claim as a matter of law.
2. Contract Language
Further, his vagueness does not provide parol evidence which might warrant a factual hearing into the meaning of the contract. Conway v. Rte. 287 Associates, 187 N.J. 259 (2006). It is thus for the Court to determine the meaning of the contract based on the language of Article XXIII, Section 5 and the other portions of the contract documents executed by the PBA and Raritan Township.
Section 5 provides that any "employee who retires after twenty-five (25) or more years or service . . . shall continue to receive all health and medical benefits provided by the employer for the remainder of his life. Such coverage "shall be provided at the expense of the employer." The agreement does not state what medical benefits must be provided by the employer — the 1999 benefits, or the current benefits provided to all employees. It does not clearly say what time period "provided by the employer" refers to. Thus the agreement does not specifically obligate the defendant always to provide coverage equivalent to the Traditional Plan then in use. Nor does it exclude changes in benefits "provided by the employer," to other employees. This language certainly does not specify that the coverage shall be at "at the same level of coverage", or that coverage levels are "grandfathered", terms used in the 1999 Agreement and thereafter.
It is thus telling that another part of Article XXIII does contain specific grandfathering language absent from Section 5. Section 1 provides that "[t]he employer agrees to continue all insurance currently in effect . . ." at the same level of coverage . . . under the Township's then existing plan, with the exception of some modifications specifically set forth. Thus, the parties knew how to freeze coverage clearly when they wanted to.
Likewise, a subsequent amendment required retirees to live in the United States. However, retirees who lived outside this "country as of July 15, 2003", "shall be grandfathered into the coverage" SOMF, Exh. 10. This addition reflected two points, that the retiree insurance language could be changed, and again that the contracting parties knew how to use specific grandfathering language when they wanted to.
Other portions of the agreement also support the interpretation favored by the defendant. The agreement included a Savings Clause which stated "upon mutual consents of both the employer and the PBA the two parties may meet for the purpose of affecting a change or providing an addendum to any section of the Agreement." XXV Section 3. The Duration Clause provided that the "Agreement shall be effective from January 1, 1997 through December 31, 1999 and shall continue in full force and effect until a successor agreement is signed". In Skinner, supra, the Third Circuit determined a similar duration clause did not obligate an employer to maintain health benefits without any subsequent changes. 188 F.3d at 141. To read the agreement as immutably requiring the health benefits without any possibility for a subsequent change, would contradict the Savings Clause and especially the Duration Clause.
It is moreover clear from the further dealings between PBA and Raritan — none of which plaintiff challenged — that the terms of the 1997-1999 Agreement were not immutable. First, there was a 1998 Grievance filed by PBA on behalf of plaintiff, who was mentioned by name, and others resulting in an amendment to the contract clarifying to plaintiff's benefit that the 25 years of service specified in the 1997-1999 Agreement could include five years with other employers. Pietrefesa Cert., Exhibits 4 and 5. This amendment also provided dependent coverage for the first time.Id. Interestingly, this agreement specified it was not to be a precedent for other health benefits. This language was continued in future contracts. Pietrefesa Cert., ¶ 12 and SOMF Exh. 10.
Further, plaintiff does not effectively deny Defendant's SOMF 94 that there was no prescription by mail in benefit when he retired. His statement that he lacks knowledge does not constitute a denial under R. 4:46-2(b). In any event, he has not rebutted Mr. Pietrefesa's certification that said benefits were added after the supposedly "immutable" 1997-1999 agreement. Pietrefesa Cert., ¶ 33. Neither does he contest SOMF 99 that there is an inconsistency between his insistence of a permanency of the 1999 agreement and his claim that it was unlawful in 2005 to restrict a mail in prescription benefit which was nonexistent in 1999. R. 4:46-2(b); there is no record citation for this denial. Thus, plaintiff has effectively not challenged Pietrefesa's assertion that neither he nor the Township treated benefits as absolutely frozen after 1999.
Other circumstances of the Agreement support a conclusion also that the contract should be read to provide flexibility in changing benefits. First, the use of grandfathering terms elsewhere suggests a deliberate omission in Article XXIII, Section 5. Second, the statute, N.J.S.A. 40A:10-23, confers broad discretion on local governments to either assume or deny the cost of coverage. In fact, it expressly provides that there would be no retiree coverage unless the municipality affirmatively agrees to it. It thus makes retiree coverage an option, not a right. This ability to choose suggests that when a municipality optionally does provide coverage, it does not lose all discretion over health benefit levels.
Third, the Third Circuit's ruling in International Union, United Auto, Aerospace Agricultural Implement Workers of America v. Skinner Engine Company, 188 F.3d 130 (3d Cir. 1999), supports the defendant's interpretation of the agreement. In Skinner, the Court reviewed an agreement which provided that the company "will continue to provide Blue Cross-Blue Shield hospitalization and surgical coverage, all costs being borne by the Company." 188 F.3d at 135. The plaintiffs, retired employees, objected to modification of benefits after their retirement.Id. at 136. They argued their benefits were intended to be for life and the employer could not unilaterally terminate them.Id. at 139.
The Third Circuit found no presumption of lifetime benefits based on an application of traditional contract principles and the requirement that a plaintiff prove his or her case without supportive inferences. Id. at 140-141 (citing Anderson v. Alpha Portland Industries, Inc., 836 F.2d 1512, 1517 (8th Cir. 1988). The Court then found that a "plain reading of the phrases, "will continue" and "shall remain," certainly does not unambiguously indicate that the benefits will continue ad infinitum." Skinner, 188 F.3d at 141. The Court based this holding on durational clauses in the agreements which provided the agreements would last until the end of the agreed upon periods. Id. The Court also reasoned that the "will continue" and "shall remain" language in the agreement expressed an intent to continue previous practices but did not apply prospectively. Id. at 143.
Similarly here the agreement contains language which did not clearly obligate the employer to keep the benefits unchanged forever. The phrases in the agreement here, "shall continue," and "benefits provided by the employer," resemble the phrases on which the Third Circuit focused in Skinner. See 188 F.3d at 142. Similarly the phrases indicate an intent to continue the previously provided benefits for the length of the agreement, but not altered for the lives of all retirees. SeeId. Although the agreement in Skinner did not mandate the "benefits provided by the employer for the remainder of his life," both agreements contained durational clauses and involved permissive benefits which must be given effect. Both also did not involve a clear statutory mandate to continue prior benefit levels without alteration. Id. at 141-143. Therefore the language in the instant agreement, when the plaintiff retired, favors a reading as in Skinner that the employer did not agree to maintain unchanged health benefits for the plaintiff's lifetime even though, unlike Skinner, the employer may have been obligated to continue some benefits.
Fourth, the interpretation sought by plaintiff would run directly counter to the usual practices of municipalities. Generally speaking, municipal budgets are drawn on a year by year basis for each fiscal year. See N.J.S.A. 40A:4-8 which provides for annual budgets. Likewise, municipal contracts "shall be made for a period not to exceed twelve consecutive months" with exceptions being explicitly listed in the local public contracts law.N.J.S.A. 40A: 11-15. While there are exceptions to these rules, as in union contracts, these statutes, combined with the need for municipal fiscal flexibility, suggest that the law regarding municipal governance does not favor interpretation of a contract as according lifetime benefits. For this reason, in a case such as this where the language tends to militate against benefits anyway, or is at best unclear, the Court is obliged to construe an agreement in a fashion which preserves municipal flexibility.
This theme is consistent with the holding in Skinner,supra, which involved a far harsher contract change than the one in the instant matter. In Skinner the employer in question had eliminated life insurance and all payment of retiree and spouses health insurance premiums, while requiring increased co-pays for Medicare supplemental health insurance, prescription drugs, and deductibles. 188 F.3d at 136. Nonetheless, while recognizing "that the plight of the retirees in this case is unfortunate" 188 F.3d at 147, the court refused to follow other Circuit Court opinions which invoked the presumption of lifetime benefits established by the Sixth Circuit in International Union, United Automobile, Aerospace and Agricultural Implement Workers v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1984). Since, under ERISA (as here), there was no statutory requirement for permanent medical benefits, the Third Circuit instead found that "an employer's commitment to vest such benefit is not to be inferred lightly, it must be stated in clear and express language."Ibid. at 139. In other words, a contract which went beyond statutory requirements in conferring lifetime health benefits in even a harsher situation than the instant case was not to be construed as providing lifetime benefits unless it clearly so specified.
As suggested above, this Court agrees with the Third Circuit's approach to the policies which informed the statutory language. The statute in question, N.J.S.A. 40A:10-23, like ERISA does not mandate any payment of health coverage for retirees, embodies the policy, as specified in the Local Public Contracts Law and Annual Budget Law, supra, that normally municipalities are to be free from unalterable commitments. In some ways, this case is even stronger than Skinner, supra, since the public policy of municipal discretion is involved here while that case involved a private contract. Further, given the recognized need for flexibility in negotiated agreements as reflected in the state's statutory grant of discretion as to retiree benefits, this Court is loath to read the agreement as obligating the defendant to maintain the health benefits without change forever. Rising healthcare costs can force municipalities to change the way they provide healthcare. Properly read, the statute appears to favor interpreting agreements that do extend coverage to allow new ways to provide it given the rising costs. Given this circumstance, the actual language of the contract as a whole, and other changes over the years, this Court cannot interpret the "continue to receive all health and medical benefits" language in the contract as embodying an unalterable promise to keep the benefits at the same exact level.
Fourth, the above applies not only to the imposition of premiums for the Traditional Plan as referenced in Count I of the complaint, but the requirement that certain additional deductibles be paid as set forth in Count II. Further, summary judgment should be granted on Count II because it is unrebutted that the prescription benefits whose modification is the subject of that count were only added after the 1999 agreement expired and would not have in any event been preserved even if this Court had viewed the 1999 agreement as unalterable. Finally, the above likewise addresses the third party beneficiary count of the complaint. Even if this plaintiff is a beneficiary of the various union contracts, they do not preclude the change sought by defendant. Accordingly, summary judgment should be granted on the PBA contract claims.
3. The 2008 Agreement
At oral argument, plaintiff clarified another theory. Through counsel, he asserted that he had struck an additional agreement with the Township in 2008 when the Point of Service plan was substituted for the Traditional Plan. As stated in ¶ 34 of the Pietrefesa Certification, the Township extended a new deal to plaintiff and six other eligible retirees who had enrolled in Traditional Plan prior to July 1, 2008. That deal allowed them to remain in that plan, but only if they paid premiums as set forth in Exhibit 9 of the plaintiff's statement of material facts. An amount was set forth in SOMF Exhibit 9. As a result defendant has paid $647.52 quarterly or approximately $2,600 per year to remain in the Traditional Plan. He was one of only two retirees to opt to stay in the Traditional Plan. Pietrefesa Cert. ¶ 39.
Those facts set forth in the Pietrefesa Certification are also contained in ¶ 14 of defendant's statement of material facts which has been admitted by plaintiff.
Plaintiff argues that the statute does not give the municipality flexibility to charge premiums, that its options under 40A:10-23 are to exercise its discretion either to do nothing or "assume the entire cost of such coverage and pay all the premiums." Thus, he argues, if the Traditional Plan were to be provided at all, it had to be provided for free. He asserts this argument as separate and apart from any argument based on the statute or interpretation of the contract as addressed above.
This claim, ingenious as it may be, must be rejected. The Township did literally conform to the statute. It did provide each retiree free insurance as the statute requires through the Point of Service Plan. Thus, Peterson could have had free insurance in accordance with the statute.
Under these circumstances, nothing bars the Township from offering, as an additional option, for the benefit of a few employees, an alternate plan which does require payment of premiums. Once it fulfilled its obligation under the statute for a free plan it could provide a further accommodation with costs and without violating the statute.
The above also makes common sense of the statute. Peterson's argument would result most likely in no option whatsoever. A town could literally comply with the statute by offering the new plan only. Such a course would unquestionably comply with the statutory mandate as interpreted above. Pietrefesa Cert., ¶ 34 and Exhibit 8 thereto. Nothing in the words or policy of the statute mandate the inflexible approach indicating by plaintiff with respect to the additional option offered by the Township.
The union has determined not to grieve the change.Ibid. at Exhibit 7.
4. Comparability
In denying the defendant's earlier motion for summary judgment as premature, the Court also focused on whether the Point of Service plan was so limited it effectively abrogated the insurance obligation undertaken in 1999 after the grievance. Currently the plaintiff is paying premiums of $647.52 per quarter to maintain his Traditional Plan. SOMF Exhibit 18, receipts. A comparison between the Point of Service Plan and the Traditional Plan appears in the record. Pietrefesa Cert., Exh. 9. The Traditional Plan coverage often resembles the POS in network coverage, except for the frequently lower coverage percentages on out of network charges. The Traditional Plan covers hospital inpatient care at 100% and the POS plan covers 100% in network and 60% out of network. Id. The Traditional Plan covers emergency room visits at 100% and the POS in and out of network covers them at 100% after a $25 copayment. The Traditional Plan covers outpatient alcohol abuse at 80% after the deductible. The POS covers at a higher level in network, 100%, and at 60% out of network. The Traditional Plan covers physician office visits at 80% after the deductible, the POS in network covers at 100% with a $5 copayment. Out of network the POS covers at 60% after the deductible.
The coverage offered by the new plan does not abrogate the insurance obligation because in network coverage in many respects mirrors the Traditional Plan. Although the plaintiff may pay more out of network, he would receive comparable coverage in network as he does with the Traditional Plan. Plaintiff has in fact admitted this when he agreed that he would pay substantially less under the POS plan than the Traditional Plan for in network services, and that the two Plans provide comparable levels of service. Response to SOMF ¶¶ 83 and 84.
Finally the plaintiff argues he relied on assurances that he would enjoy the benefits of the Traditional Plan for life. The Court previously discussed the vagueness of the plaintiff's oral testimony and absence of any indication the defendant or its agent provided a basis for reliance. Although the plaintiff "understood" he enjoyed the health benefits for life without any possibility of change, he has presented no proof of a solid foundation for or misunderstanding.
The following portion of a Seventh Circuit opinion, involving a total distribution of benefits, quoted in Skinner, aptly describes cases of this type:
It can be a terrible hardship for an elderly person who has been receiving benefits from a former employer suddenly to find the rug pulled out from under her. There is an element of betrayal as well, if the retiree/former employee understood that the "lifetime" health benefits were a form of deferred compensation for her work. But written agreements exist precisely because subjective understandings can vary so much from individual to individual. Pabst Brewing Co. v. Corrao, 161 F.3d 434, 442 (7th Cir. 1998), quoted in Skinner, supra, 188 F.3d at 147.
That the changes sought herein are in fact far less devastating than those accepted in Skinner or Pabst adds more force to these observations as to the proper construction of agreements. A premium of $647.52 per quarter, or reasonable alternative free plan will not defeat legitimate expectations engendered by the 1999 Agreement for retiree coverage.
Because the changes do not appear devastating, or a betrayal, as well as because language in the agreement is best read to allow the subsequent changes in insurance coverage and nothing appears justifying the application of an estoppel, the defendant's motion will be granted.
Based upon the foregoing, the defendant's motion for summary judgment is GRANTED.