choose the jurisdiction.
The judge in Minneapolis rejected all the retirees’ arguments. She ruled that the case would remain there, because the company had 110 employees there. She said the retirees threatened to sue and hadn’t sued quickly enough, so couldn’t claim that Rexam was suing as a preemptive strike—there was nothing to preempt. She also made a nonlegal observation: She cited a $79 million liability for the benefits on Rexam’s balance sheet and said the company was harmed “because it cannot lower the liability unless it reduces the retirees’ benefits.”
Still, she found in a later decision that the language was ambiguous, rejecting the company’s motion for judgment on the papers alone, and she allowed the suit to move forward to a trial by jury, a move that may have led to a favorable settlement for the retirees. But the case was then assigned to Judge Patrick Schiltz, a former law clerk for Supreme Court Justice Antonin Scalia. Schiltz didn’t think the language in the contract was ambiguous and, rather than go to trial, where a jury would hear the facts, he invited Rexam to move for reconsideration, meaning it could file another motion asking the judge to decide the case on the papers alone. Rexam was happy to oblige. Schiltz concluded that the language in the documents was unambiguous for approximately 80 percent of the retirees, and clearly gave the company the right to unilaterally change the benefits that it had a contractual agreement to provide.
Occasionally, a judge will refuse to hear a case in the jurisdiction where it is originally filed and send it to another circuit. But this doesn’t occur often. Crown Cork & Seal, a Philadelphia-based packaging company that makes wrappers for such things as Mars bars and bottles of beer, sued its union retirees in U.S. district court in Chicago, but the judge wasn’t convinced that was where the case belonged.
“From day one, it seemed to me that Illinois was an unlikely home for this litigation,” Judge Milton Shadur told Crown’s lawyers, according to a transcript of a meeting he held in his chambers in August 2003 to determine whether the case should remain in Chicago or move to Cincinnati, where the retirees had countersued.
“I am not faulting you for this, but it’s pretty obvious why you chose the Seventh Circuit as your forum,” he said. “Because it’s very unfriendly to the idea of retiree benefits being vested at all.” He added that he was inclined to send the case to Pittsburgh. “You know, they [the retirees’ attorneys] want Ohio, because I think they view the Sixth Circuit on this subject of retirees as more favorable, but I am not going to give them that.”
“They shopped more than we did, Judge,” said James Rydzel, a lawyer with Jones Day, in Cleveland, representing Crown.
“Well, I am not sure about that,” the judge responded. He subsequently sent the case to Pittsburgh, where a number of the company’s retirees lived. The Crown retirees were initially hopeful because the case was assigned to a judge with a proworker reputation. However, the judge recused himself because his mother had worked in a factory at Continental Can, a predecessor company, and was potentially a member of the class. The next judge sent the case to Cincinnati, where it ultimately went to arbitration.
It may be routine for litigants to try to pick a favorable jurisdiction. If two parties sue each other, the courts generally hear the case that’s filed first. But a court can dismiss or transfer a case if it believes a company is “forum shopping” or suing retirees as a preemptive strike to deprive them of their rights, as “natural plaintiffs,” to sue in the court they would choose.
ACF Industries, a railroad-car maker headquartered in St. Charles, Missouri, took the additional step of provoking a retiree and then filing suit, claiming that the company was suing to protect itself. The company didn’t dispute that the contract promised health coverage at “$100 per month for life,” but said this referred only to the major medical coverage, not explicitly to the hospital/surgical portion.
And it maintained that St. Louis was the proper venue for the suit because “a substantial part of the activities and events giving rise to these claims occurred in this district.” Most of its 678 retirees and dependents lived four hundred miles away, in West Virginia, in the Fourth Circuit, which had ruled in favor of retirees in a similar case.
ACF, controlled by CEO Carl Icahn through an investment vehicle in New York, prepared its suit and had its legal guns lined up when its human resources vice president called up a retiree in Barboursville, West Virginia. Basil Chapman, a retired union representative, was sitting on his porch with his dog, Bo, enjoying a mild Friday in December, when he got the call. The executive told him that ACF was going to start charging the union retirees for their benefits. Chapman had been the chair of the union’s bargaining committee and had helped negotiate contracts in which the trade-off for lower salary increases was lifetime health coverage that would cost retirees a flat $100 a month.
“We have a contract. You can’t do that,” Chapman replied. “We will file in federal court against you bastards, I’ll guarantee you that.” That, in any case, was what ACF claimed, in court papers, Chapman had said, when it sued him the following Monday in federal district court in St. Louis. In its complaint, the company said Chapman had threatened them, and it was taking the step to protect itself from a lawsuit it anticipated from the retirees. “Defendant Chapman has already informed ACF that he plans to file a lawsuit concerning the amendments of the plan,” the complaint said.
The day after ACF sued the retirees, it sent them a letter, blaming a slump in the railcar-building-and-leasing industry, “particularly the covered hopper car producers. Because of this we are forced to make changes in our group insurance coverage.” And, by the way, it said, the plan documents gave the company the right to modify or revoke the benefits at any time.
Retirees were told to complete a form so that payments could be deducted from their pension checks; if they failed to return the form within two weeks, the company would terminate their benefits. Chapman worried that some of the less literate retirees “in the hollows” might not understand the letter or respond to it, and spent hours on the phone making sure they turned it in.
The Steelworkers union countersued in federal court in Huntington, West Virginia, to dismiss ACF’s complaint, contending that ACF had gone through “the charade of telephoning retiree Chapman about the cuts, just so it could provoke a predictable negative reaction and then use the reaction to immediately sue.”
The retirees’ suit also complained that ACF was suing not because it had been harassed but as a preemptive strike “to beat its own retirees to the courthouse,” and chose St. Louis because “ACF apparently believes that the Eighth Circuit is more favorable to employers in retiree medical benefits cases, and apparently feels that its chances are improved if it makes the retirees litigate hundreds of miles from their homes.”
In 2004, the court in St. Louis said that ACF’s move had “resulted in a proverbial race to the courthouse in order to deprive defendants of their choice of forum” and moved the case to federal court in Huntington, West Virginia. ACF may have lost its chosen venue, but it won the case anyway. The retirees appealed, and the case settled, with retirees paying more for their coverage than before.
Chapter 11
IN DENIAL
AFTER FORTY-TWO YEARS working in a coal mine, Elmer Daugherty could barely breathe. Doctors told him he had pneumoconiosis, commonly called black lung disease, a disabling, incurable ailment that has killed ten thousand miners over the past decade. His employer, Constellation Energy, provides disability and workers’ compensation for those injured or sickened on the job. It also provides black lung disease coverage, a benefit mandated by Congress.
Daugherty applied for black lung benefits in 2001, but the company denied his claim. Over the next three years, Daugherty was examined by nine different pulmonologists, underwent a battery of painful tests, and had more than thirty X-rays. Even though most of the doctors agreed he had black lung caused by his years in a coal mine, the company continued to deny his claim. He died in 2005.
Daugherty’s struggle to be awarded black lung benefits wasn’t unusual. Industry-wide, only fifteen claims in one hundred are paid. Providing benefits wouldn’t have put a dent in Constellation’s finances: Black lung is such a common outcome of working in coal mines that the federal government requires coal companies to pay into a central fund, run by the Labor Department, to finance the benefits.
