The Sixth Circuit yesterday provided additional guidance in this Circuit for interpreting collective bargaining agreements and preemption questions under the Labor Management Relations Act (LMRA). The three-judge panel in CNH America LLC v. International Union, et al. (6th Cir., Case No. 09-2001) (PDF), held that a Voluntary Employees’ Beneficiary Association (VEBA) trust fund agreement, which was part of a collective bargaining agreement (CBA) between the company and the union, could not be construed to contain a covenant not to sue where there was no language mentioning the alleged obliger or the nature of the obligation. The Court further held that the company’s state law claims against the union were not preempted under § 301 of the LMRA.
The majority opinion in CNH America was written by Judge Sutton, who remarked that the appeal was “one of a never-ending string of healthcare-benefit disputes in this circuit . . . .” (Judge Sutton, if you’ll recall from our blog post last week, is one of the panel judges scheduled to hear oral arguments on June 1, 2011 in the constitutional challenge to the mandate requiring individuals to purchase health insurance under the recently enacted Patient Protection and Affordable Care Act, Public Law 111-148.)
The CNH America decision related to an earlier lawsuit funded by the UAW in which a group of retirees obtained an injunction preventing CNH from terminating their healthcare benefits. See Yolton v. El Paso Tenn. Pipeline Corp., No. 02-75164 (E.D. Mich.). In the second lawsuit, at issue in the current appeal, CNH sued the UAW, claiming that by funding the prior Yolton litigation, the UAW had breached a covenant not to sue contained in the VEBA agreement. CNH also claimed that the UAW, during negotiations over the CBA, committed several state law torts.
CNH claimed specifically that the UAW had breached the third paragraph of the VEBA agreement by funding the earlier Yolton litigation. The Sixth Circuit, however, disagreed because “not a word in the paragraph even mentions the UAW or its obligations.” Judge Sutton wrote that “[w]e break no new contractual ground or any convention of meaning by insisting that a provision purporting to obligate the UAW to do something, or refrain from doing something, must mention the obliger (the union) and the nature of the obligation (not to sue) by name.”
The Sixth Circuit in CNH America also held that CNH’s state law claims (which included breach of an implied warranty of authority, negligent misrepresentation, and intentional misrepresentation) were not preempted by § 301 of the LMRA. See 61 Stat. 156, § 301, codified at 29, U.S.C. § 185(a). As the U.S. Supreme Court has recognized, § 301 preempts those claims which are “filed because a contract has been violated,” and pre-contractual conduct, amounting to a tort claim, not a breach of contract claim, does not come within § 301. Textron Lycoming Reciprocating Engine Div., Avco Corp. v. UAW, 523 U.S. 653, 655, 657-58 (1998) (PDF). The Sixth Circuit in CNH America concluded that all of CNH’s claims turned on the UAW’s pre-contractual conduct, and none of them required the district court to interpret the CBA. “All the district court must do is determine whether the UAW made these statements and whether CNH reasonably relied on them.” Even though the VEBA agreement may pertain to CNH’s damages, the Sixth Circuit recognized that when liability is governed by independent state law, the mere need to “look to” the CBA for damages computation is no reason to hold that the state law claim is defeated by § 301. As Judge Sutton wrote, “[w]e break no new ground in holding that a tort claim that turns entirely on extra-contractual or pre-contractual conduct is not preempted even when damages are calculated by looking to a collective bargaining agreement.”
Judge Daughtrey concurred in part and dissented in part. She agreed with the majority that the VEBA trust agreement did not contain a covenant not to sue, and thus the UAW’s funding of the Yolton litigation was not a breach of the CBA between the parties. However, she disagreed with the majority’s decision that CNH’s state claims against the UAW were not preempted by federal law.