In a 2-1 decision, a three judge panel of the 6th U.S. Circuit Court of Appeals on Wednesday, September 2, ruled the U.S. District Court had erred when it ruled that the company was released from its obligation to provide retiree health benefits after it merged with a Korean firm in 2001.
The appellate court also said the district court should have considered the benefit plan documents before dismissing the case in October 2007.
Both decisions stem from a lawsuit filed in January 2007 on behalf of approximately 200 union and nonunion retirees claiming the company breached its collective bargaining agreement with hourly workers and fiduciary duties under the Employee Retirement Income Security Act when it terminated its retiree health benefits plan in May 2006.
The termination came three years after the company shut down the Ottawa, Ohio, plant where the retirees had worked. The plant, which had been owned by Netherlands-based Koninklijke Philips Electronics, was shut down in December 2002, approximately one year after Philips merged with Korea-based LG Electronics to form LG Philips Displays USA Inc.
All eligible retirees who retired before the plant closure continued to receive company-sponsored health benefits. However, benefits ended for those who retired after that date on May 31, 2006, about two weeks after LGP filed for protection under Chapter 7 of the U.S. Bankruptcy Code.
The U.S. District Court found that the transfer of assets that occurred as a result of the merger released the former Philips from its obligation to provide retiree health benefits under the union contract and ERISA.
The court also found that the company did not intend retiree health benefits to vest upon retirement, declining to review the summary plan description, which specified that employees vested in the benefits if they retired after their 55th birthday with at least 15 years of service.
The appellate court disagreed with both findings, saying the court did not address all of the facts presented in the case and remanded it to the lower court for further proceedings.
David Zoll at Zoll, Kranz & Borgess in Toledo, Ohio, who represented the retirees, said the case is significant because the union retirees were paying a substantial portion of the premium for their benefits, and that salaried retirees paid almost 100 percent.
“This wasn’t a case where they just wanted to get a free ride on behalf of their company,” he said.The retirees—union and nonunion—pursued the case because many of them could not obtain health care coverage at any price in the individual market, according to Zoll.
LGP’s attorney, Gregory Mersol, a partner at Baker & Hostetler in Cleveland, referred calls to the company’s headquarters in Korea, which did not respond to a request for comment.