Opinion
03-CV-6248T
August 7, 2003
DECISION and ORDER
INTRODUCTION
Plaintiffs, a group of retirees from plants formerly owned by Bendix Corporation ("Bendix") in Michigan and Elmira, New York, seek payment of retirement benefits guaranteed to them by Bendix in a 1976 Guaranty agreement ("Guaranty"). Plaintiffs bring this action against defendant Honeywell International, Inc. ("Honeywell"), alleging that Honeywell, as the successor in interest to Bendix, has failed to honor its obligations under the Guaranty.
Plaintiff's complaint, which was originally filed in the District Court for the Eastern District of Michigan prior to the case's removal to this Court on May 27, 2003, also included ERISA claims under §§ 501(a) and/or 502(1). However, plaintiff's summary judgment motion proceeds solely on contract law grounds.
For determination is the plaintiffs' pending motion for summary judgment, originally filed October 25, 2002 while this case was venued in the Eastern District of Michigan. Plaintiffs moved for summary judgment on the grounds that the Guaranty at issue is clear and unambiguous. Honeywell had initially opposed the plaintiffs' motion on the grounds that sufficient discovery had not taken place and that the Guaranty was not clear or unambiguous. Subsequently, the parties substantially completed discovery, and Honeywell submitted a supplemental brief opposing plaintiff's motion and cross moved for summary judgment, arguing that Facet Enterprises, ("Facet") the Bendix spin-off to whom the plants were sold in 1976, is the primary obligor under a "guarantee of collection," from whom plaintiffs must seek recovery as a prerequisite to obtaining relief from Honeywell.
The Third-Party defendants in this action are past and present successors in interest to Facet.
For the reasons set forth below, I find that the Guaranty clearly and unambiguously requires Bendix and its successors in interest to provide full payment of premiums for the retirement benefits at issue in the event that Facet, or its successors in interest, do not provide benefits at the specified level. I further find that the Guaranty creates no obligation on the part of plaintiffs to first seek a remedy from Facet or Facet's successors in interest before pursuing Bendix or its successors on the Guaranty. Accordingly, the plaintiffs' motion for summary judgment is granted and Honeywell's motion for summary judgment is denied.
BACKGROUND
In 1976, the Bendix Corporation sold three of its plants; two located in Michigan and one located in Elmira, New York, to Facet Enterprises. A number of Bendix employees, wary of the potential stability of the "spin-off" Facet company, contemplated retiring early in order to preserve their Bendix retirement benefits. During this time, the employees were represented by the International Union, United Automobile, Aerospace Agricultural Implement Workers of America ("UAW") and three of its locals — Nos. 104, 604 and 771. As part of the sale and as the result of a collective bargaining agreement with the UAW, Bendix sought to dissuade employees from early retirement by guaranteeing retirees and hourly employees with at least ten years of credited service that they would continue to receive health and life insurance coverage at the levels in the then extant collectively bargained insurance agreement for the period of their retirement. This Guaranty was entered into on April 1, 1976.
By its terms, the Guaranty becomes operative when the insurance coverage provided to the affected retirees falls below the guaranteed level. The Guaranty further provides that the guaranteed level can be reduced only by agreement between the UAW and Facet Enterprises.
On May 28, 1976, Bendix sent all potentially covered employees a copy of the Guaranty with an explanatory letter. The letter, printed on Bendix Corporation stationery and signed by Vice President of Industrial Relations John M. O'Hare, clearly stated that, "the Guaranty means the following: (1) If you are a retiree or a terminated vested former employee . . . and left Bendix before April 1, 1916, certain pension benefits and payment of certain insurance premiums are guaranteed by Bendix for life . . . In the case of insurance, Bendix will make up any difference in insurance premiums necessary to provide coverage for benefits in effect through April 30, 1977, in the insurance agreement covering the above locations."
Ultimately, after changing hands several times over the course of several years, Honeywell is now the successor to Bendix, and Motor Components is the successor to Facet Enterprises. Throughout these changes, Facet and its successors continued to provide health and life insurance to the Bendix retirees at the levels covered by the Bendix Guaranty, or at a level subsequently agreed upon between a Facet successor and the UAW, in accordance with the provisions of the Guaranty.
THE CURRENT CONTROVERSY
Early in 2002, Motor Components advised the UAW that it was considering discontinuing retiree insurance benefits. On July 8, 2002, Motor Components sent letters to the Bendix retirees, advising them that effective September 1, 2002: (1) current life and health insurance coverage at the guaranteed levels would cease; (2) Medicare eligible retirees, spouses and dependents would be offered "Medigap coverage using Plan F" for 12 months with a monthly co-pay of $25; (3) non-Medicare eligible retirees, spouses and dependents would be offered a payment of $125 a month in lieu of any health insurance coverage; and (4) all retirees, spouses and dependents would be offered a conversion from the guaranteed term life insurance to a whole life policies at their (the retirees') expense.
These changes were unilaterally made, and occurred in the absence of an agreement between Motor Components and the UAW. Since 1976, the UAW has agreed to reduce retiree health and life insurance benefits only once: in 1995, the UAW and Purolator Products (a Facet successor and predecessor of Motor Components) had agreed to premium caps for employees retiring after October 23, 1995.
On September 1, 2002, Motor Components implemented the changes described in its July 8, 2002 letter. Honeywell has since disclaimed its obligations under Bendix Guaranty, and has refused to pay the difference between the premiums for insurance at the guaranteed levels, and the insurance premiums paid by Motor Components.
Plaintiffs now request that this Court grant summary judgment in their favor, finding that the terms of the Bendix Guaranty are clear and unambiguous, and that Honeywell is liable to plaintiffs to provide the health and life insurance benefits as provided by the Guaranty.
Honeywell cross moves for summary judgment, and argues that the Guaranty is a `"guaranty of collection," which requires plaintiffs to first seek relief from Facet or its successors in interest before attempting to enforce the Guaranty against Honeywell.
DISCUSSION
Rule 56(c) of the Federal Rules of Civil Procedure prescribes summary judgment where the evidence demonstrates that there is no genuine issue of fact and that the moving party is entitled to summary judgment as a matter of law. Fed.R.Civ.Proc. 56(c). Summary judgment is appropriate in a contract action where the contract at issue is clear and unambiguous, and the Court need not consider extrinsic evidence to interpret the parties' intent. See Consarc Corp. v. Marine Midland Bank. N.A., 996 F.2d 568, 573 (2d Cir. 1993) (granting summary judgment and noting that court need not "go beyond the four corners of the document" to interpret a clear and ambiguous contract). Where, as in this case, the agreement at issue was drafted by one of the parties, the agreement will be construed against the drafter. See generally Restatement (Second) of Contracts § 206 (2003).
THE GUARANTY
The Guaranty, which was drafted by Bendix and executed April 1, 1976, provides in relevant part:
(b) Bendix will pay, or cause to be paid, on behalf of each Protected Person, provided the terms and conditions of Article 3 are met, an insurance premium to provide, for the period of time installments of the Protected Amount are due such Protected Person, Insurance coverage equal to the excess, if any, of:
(i) insurance coverage such Protected Person is eligible to receive, or would have become eligible to receive, pursuant to the provisions of the Insurance Agreement in effect on the Divestiture Date (reduced in an amount equal to the reduction, if any, in the insurance coverage for such Protected Person below that provided for in the Insurance Agreement as of the Divestiture Date, pursuant to any agreement between Facet and the Union); over
(ii) any insurance coverage provided by the payment of premiums by Facet on behalf of such Protected Person.
The Article 3 requirements are: (1) that Bendix no longer owns Facet stock; (2) that a "Protected Person" has not been denied payment of a "Protected Amount" due to his/her act or omission or at the discretion of the trustee or other authorized person; (3) that a "Protected Person" has not received as "Transition Benefit" or "Bridge Benefit"; and (4) that the "Protected Person" has not become eligible under the terms of a "Letter of Understanding No. 22." Plaintiffs allege that the Article 3 conditions have each been met, or are inapplicable. Honeywell concedes that the first condition has been met, and despite lengthy discovery, has produced no evidence that the remaining conditions are unmet. Accordingly, I deem the Article 3 conditions met for purposes of this motion.
The Guaranty defines a "Protected Person" as any retiree, deferred vested, or surviving spouse. The "Protected Amount" refers to the pension benefits which, by the terms of the pension plan, are payable for life. The "Divestiture Date" is April 1, 1976, the date Bendix transferred the two Michigan plants and the Elmira, New York plant to Facet Enterprises.
Plaintiffs contend that the Guaranty clearly and unambiguously promises payment of the difference between the premiums for the insurance coverage promised in their Insurance Agreement with Bendix, and the premiums paid on their behalf by Facet (or, in this case, Facet's successor-in-interest, Motor Components). Honeywell initially argued that the motion for summary judgment was premature as no discovery had been conducted, and moreover that the Guaranty is not clear and unambiguous.
Honeywell's initial opposition papers were filed prior to discovery in this case. The parties have since completed the bulk of their discovery, therefore defendant's initial argument that discovery has not been taken is now moot.
Honeywell further argues that the Guaranty is not clear and unambiguous, and that plaintiffs have admitted as much by stating that the Guaranty should "be read in the context of the relevant surrounding circumstances when determining whether such words are clear and unambiguous." Honeywell correctly implies that, where an agreement is clear and unambiguous on its face, the Court need not consider the circumstances which engendered it. However, Honeywell offers no evidence of any ambiguity in the Guaranty itself, and makes no argument that the circumstances surrounding the Guaranty's genesis would suggest an alternate interpretation of its terms.
Honeywell further argues that a question of fact exists as to whether the Guaranty was intended to vest benefits in Bendix retirees: that is, whether the Guaranty contained a promise by Bendix to vest benefits, or whether the retirees' right to benefits was extinguished or redefined by any and all subsequent collective bargaining agreements. This argument is without merit because the Guaranty clearly provides that the benefits it guarantees may only be reduced by an agreement between the UAW and Facet (for whom Motor Components is the successor). Such an agreement was made only once, in 1995, when the UAW and a Facet successor in interest agreed to a reduction in benefits.
Honeywell also asserts that the plaintiffs' motion should be denied because plaintiffs have not "exhausted their remedies" by first pursuing Motor Components directly as a primary obligor. Specifically, Honeywell argues that under Michigan Law, the Guaranty is a "guaranty of collection," requiring exhaustion of claims against the primary obligor, and not a "guaranty of payment." In the alternative, Honeywell argues that the Guaranty is ambiguous with respect to whether it creates an obligation of payment or of collection, and that express language is required to create such obligations. This argument is also without merit, as the Guaranty at issue does in fact contain express language creating a guaranty of payment: "Bendix will pay, or cause to be paid . . ." The Guaranty does not contain any conditional language or allusions to obligations by Facet that might suggest that it is a guaranty of collection. See, e.g., Cogsdill Enters., Inc. v. Mac Precision. Inc., No. 201884, WL 33441254 (Mich.App. June 3, 1999) (guaranty of payment where contract uses words, "guaranty timely payment"') (unpublished opinion); Director of Bureau of Michigan Workers' Disability Compensation v. Durant Enters., Inc., 491 N.W.2d 584, 629 (Mich.App. 1992) (finding guaranty of payment where contract promises "prompt and full payment of all liability").
Furthermore, the Guaranty neither creates nor alludes to any promise by Facet to provide Bendix retirees with any particular level of insurance coverage. Even if such a promise had been made by a separate agreement between Facet and Bendix, or between Facet and the UAW or retirees, Honeywell fails to demonstrate how that agreement could take precedence over the Guaranty and create a "hierarchy of obligors," something which the Guaranty does not contemplate.
Honeywell argues that the parenthetical phrase in Article 2(b)(i) of the Guaranty, stating that the guaranteed benefits will be "(reduced in any amount equal to the reduction, if any, in the insurance coverage for such Protected Person below that provided for in the Insurance Agreement as of the Divestiture Date, pursuant to any agreement between Facet and the Union), " somehow renders Facet the primary obligor. However, after careful review of the Guaranty, it is clear that this parenthetical phrase does exactly what it says it does: it provides the means by which the benefits guaranteed by Bendix may be reduced. This phrase does not, expressly or impliedly, comprise a promise by Facet never to reduce benefits without the UAW s consent.
Bendix's understanding of the Guaranty as a guarantee of payment is clearly illustrated by its May 28, 1976 letter to employees potentially covered by the Guaranty: "certain pension benefits and payment of certain insurance premiums are guaranteed by Bendix for life . . . In the case of insurance, Bendix will make up any difference in insurance premiums necessary to provide coverage." (emphasis added) In short, Bendix did not condition its promise upon the failure of its retirees to obtain relief from Facet or any of its successors: it simply promised to "make up any difference in insurance premiums necessary to provide coverage" to those employees willing to remain in the employ of an enterprise that was embarking on a risky new venture. As those employees weathered the company's transition from Bendix to Facet, that letter described, and in fact embodied, a covenant between them and Bendix, assuring them that their benefits would always be covered by the protective umbrella of the parent corporation. It was Bendix's promise to employees — not Facet's. Facet was not a party to that compact then, and therefore, Facet's successor cannot be said to have undertaken obligations as a primary obligor under the Guaranty now.
Finally, Honeywell argues that the plaintiffs' motion should be denied because the UAW "tacitly" agreed to the reductions in benefits made by Motor Components by its failure to "vigorously" challenge the reductions. This argument is without merit. The Guaranty created no affirmative obligation on the part of the UAW to demonstrate its lack of consent by "vigorously" challenging proposed reductions in benefits. Indeed, the UAW had little motivation to do so when the full payment of those benefits had been ensured by the Guaranty, and where the UAW knew that the proposed change could not be properly effected absent its consent. Therefore, I find that UAW s failure to "vigorously" challenge Motor Components' decision to reduce benefits did not give rise to an enforceable "agreement" to allow the plaintiffs' benefits to be reduced.
Accordingly, construing the Guaranty against Bendix's successor in interest, Honeywell, and affording its terms their reasonable and ordinary meaning, I find that the Guaranty clearly and unambiguously guarantees that Bendix (or its successors) will pay Protected Persons the difference between the premiums paid on their behalf by Facet (the interests of which have been succeeded to by Motor Components), and the amount of coverage promised to the Protected Persons under their Insurance Agreement. I further find that, by the Guaranty's express terms, the amount of insurance premiums owed to Protected Persons under the Guaranty is subject to change only if agreed upon by UAW and Facet's successor in interest, Motor Components. It is undisputed that UAW and a previous Facet successor-in-interest agreed upon a benefit reduction pursuant to a 1995 collective bargaining agreement. Accordingly, I find that Honeywell, as the admitted successor in interest to Bendix, is liable under the Guaranty to pay Protected Persons any and all difference, up to the full amount, between the premiums for the benefits described in the Guaranty, as reduced by the UAW-approved 1995 collective bargaining agreement, and the premiums currently paid on behalf of Protected Persons by Motor Components.
This holding does not prevent Honeywell from seeking or receiving contribution from third-party defendants with respect to its liability under the Guaranty. The liability, if any, of the third-party defendants, will be determined at a later time.
CONCLUSION
I find that the Guaranty entered into by Bendix on April 1, 1976 clearly and unambiguously promises that Bendix will pay, or cause to be paid, the difference between the premiums for the guaranteed amount of insurance coverage, and the amount of premiums paid by Facet or its successors, in the event that Facet or its successors failed to provide the guaranteed insurance coverage amount. I further find that the Guaranty creates no obligation on the part of plaintiffs to first seek a remedy directly from Facet or Facet's successors in interest, before pursuing Bendix or its successors on the Guaranty. I also observe that even the passage of twenty-seven years and a corporation's serial changing of hands cannot diminish the strength of a clear and unambiguous promise, one in consideration for which the plaintiffs contributed years of loyal service, and one that should have been honored without taxing them with the expense of this action. Accordingly, the plaintiffs' motion for summary judgment declaring Honeywell's liability under the Guaranty is granted, and Honeywell's cross motion for summary judgment is denied.ALL OF THE ABOVE IS SO ORDERED.