Retirement Heist

UNTIL RECENTLY, someone pausing at the Wal-Mart in Delmont, Pennsylvania, might have been greeted by Ed Peksa, who had retired years before from GenCorp, the former General Tire and Rubber Co., whose well-known jingle goes, “Sooner or later, you’ll own General.”

Peksa, a former marine, hadn’t planned on working at Wal-Mart in retirement, or traveling. But he ended up doing both. He needed the greeter job because he was no longer receiving the $320-a-month pension he’d earned after working a quarter-century in the tennis ball department at GenCorp. His former employer was keeping it all to pay for Peksa’s share of his retiree health coverage. The coverage had been company-paid when he retired, but the company had unilaterally begun charging very steep premiums. Peksa couldn’t drop the coverage, because he needed it to help cover his wife’s prescription drugs, so he began working thirty hours a week at Wal-Mart. He thought the job was pretty decent, since he got an hour for lunch and two fifteen-minute breaks a day.

He also ended up traveling to court, over and over, as the retirees tried to reverse the company’s decision. Though he didn’t know it, he was living out a process that the Varity human resources managers had so candidly discussed behind closed doors years ago: Companies had little to lose by unilaterally cutting benefits they had promised retirees in written contracts. The retirees might pass the hat and try to raise funds to file a suit, but even if they got that far, it would be easy for an employer to drag out a case until the employees died. And whatever the outcome, the company saves money in the meantime.

Such was the legal odyssey of the GenCorp retirees. In January 2000, the company, by then a manufacturer of aerospace products, began charging 2,063 hourly retirees health care premiums, despite a labor contract that promised them free coverage for life. John Van Dyke, a retired millwright, thought fighting back in court was the answer. “I was sure that once the judge saw the contract, it would be over,” he said. “How long could it take?”

Longer than many of them would be around. Frank Palumbo was one of the oldest. Born in 1914, he went to work for the General Tire and Rubber Co. when he was sixteen years old. In 1934, at age nineteen, he participated in the first sit-down strike to organize the rubber workers at the Akron, Ohio, plant. Always active in the union, he worked at the company for forty-four years until he retired in 1975, with a promise of lifetime medical coverage.

By the early 1990s, most of the retirees, like him, were on Medicare, so their company-paid benefits covered only prescription drugs and Medicare premiums and deductibles. Not a huge amount for the company, but critical for the retirees, most of whom had pensions in the low three digits.

In the mid-1990s, the company used a trick the Varity managers hadn’t thought of: It sent the retirees enrollment forms giving them a choice between remaining in their no-cost plan or switching to one with significant cost sharing.

Elderly but not demented, Palumbo and the other retirees of course chose to remain in their current plan. But perhaps with their failing eyesight, they didn’t notice, at the bottom of the form, a sentence in microscopic print. It said that the retiree acknowledged that the “benefits elected… replace benefits under the prior GenCorp/URN retiree medical plans.”

About five years after Palumbo returned the form, his January pension check arrived. It was smaller. A mistake? No. The company said it was beginning to deduct some of their pensions to help pay for their health coverage. The retirees pointed out that the contract said the company would provide lifetime coverage. GenCorp didn’t dispute that, but said “lifetime” didn’t mean “at no cost.”

Their union couldn’t help them because, when it negotiated a contract in 1994, the United Rubber Workers had agreed not to represent retirees in any future lawsuit in exchange for delaying an increase in benefits. Some unions have less noble reasons for not backing retirees. When negotiating compensation for current workers, some are tempted to toss the retirees, who don’t vote, overboard. Without a union to back them in court, the retirees face almost impossible odds. There are few attorneys who handle ERISA cases for plaintiffs. One reason is that an individual employee or retiree can’t afford the fees, and class actions can be hard to bring for a variety of reasons. Courts have interpreted ERISA as disallowing any punitive or pain-and-suffering damages, so there are no potential damages of this sort that attorneys can use to finance cases. All a plaintiff can win is restoration of the disputed benefit, if he’s still alive. The plaintiff’s attorney takes a risk, too: Thanks to the way in which courts have interpreted ERISA’s attorneys’ fee provision, it’s up to a judge to decide whether the plaintiff’s lawyer will be reimbursed for any of his time and expense.

Still, the retirees who had worked at the Jeannette plant passed a hat and chipped in: $100 per couple. Mabel Kramer, a widow, chipped in $50. She’d begun working at the company in 1944, making gas masks for World War II soldiers. She was no longer receiving her pension of $179 a month, based on her husband’s thirty-four years with the company, because GenCorp deducted every cent to use for her health coverage, for which it was charging her $284 a month. She had to pay the company the remaining $105 from her $810 Social Security check.

The $12,000 the retirees collected would cover only a fraction of the cost of mounting a suit, but the retirees found a lawyer who was willing to take the case anyway: William Payne, a Pittsburgh attorney who had represented retirees over the years in more than sixty cases. One of the first cases he worked on, soon after getting out of law school in the late 1970s, was the now infamous Continental Can case, in which company managers had used a secret program with the code name “BELL,” which is a reverse acronym for “Let’s Limit Employee Benefits.” The can company used the system to identify older workers who were about to lock in bigger pensions and targeted those plants for closing. The case was a rare win for workers. It has been mostly downhill since. Payne has spent the rest of his career watching ERISA protections get eroded in the courts.

Payne and his law partner, John Stember, met the retirees at Dick’s Diner, a popular fuel stop just off the highway between Pittsburgh and Jeannette, and over coffee and cheesesteaks he cautioned them that the case could take a long time. The retirees were undaunted. Three, John Van Dyke, Stanley Wotus, and Ed Peksa, all veterans who had served in the Pacific during or after World War II, volunteered to be plaintiffs. Nor were Payne and Stember daunted by the cardboard boxes the retirees hauled with them, filled with decades-old documents they’d dredged out of basements, closets, and garages. They filed suit in October, and the first meeting with the judge was scheduled the following May. In the seventeen months since GenCorp had started charging them for health coverage, the retirees’ costs had doubled.

ROAD TRIP

The first court conference was in Akron, Ohio, 110 miles away. Van Dyke, who had the best eyesight, drove the other guys in the predawn darkness to rendezvous with Payne, who drove them the rest of the way in the minivan he usually used to take his sons to hockey practice. They had to pull over numerous times. Van Dyke had had part of his stomach removed following a bout of cancer in the 1990s and needed small, frequent meals. Others had prostate problems, and Wotus was taking several medications for blood pressure and heart problems. Peksa, who misjudged the insulin shots he was taking for his diabetes, at one point passed out in the backseat, prompting a quick pit stop at a gas station mini-mart for orange juice.

Despite their various pit stops, the retirees made it to the 9 A.M. court session on time. There, the eager retirees cited labor contracts promising lifetime coverage. But GenCorp, in court documents, maintained that “lifetime” didn’t mean “at no cost.” This kind of semantic game had become common. Another popular one was to say that “lifetime” referred not to the life of the retiree but to the life of the contract.

GenCorp argued that the retirees had knowingly released the company from its obligation to pay, and pointed to the enrollment forms retirees had filled out years earlier, saying coverage was “replaced.” In short, the retirees, not GenCorp, were trying to renege on a written agreement, company lawyers maintained.

The judge could have decided the case on the merits or sent it to trial. Instead, he insisted that the parties work it out. But when neither side budged, the judge scheduled a mediation meeting in Cleveland—a year later. A year passed. GenCorp then insisted that the retirees should include people from other locations, so several retirees traveled from Kentucky and Ohio, booking senior-discount rooms at the Holiday Inn. Kenneth Bottolfs, then in his eighties, came the farthest. His threeconnecting-flight trip from Waco, Texas, took eight hours.

When neither side backed down in this second mediation hearing, the judge ordered a third meeting. Eight months later, the retirees traveled to this third meeting, minus Wotus, who’d had a stroke. This meeting failed, too, so the judge finally ordered depositions and document production to proceed. This meant the retirees had to travel to Cleveland to be deposed by GenCorp lawyers. The May 2003 sessions took several hours each. The retirees whiled away their waits playing cards and trading war stories about their times at Okinawa and Iwo Jima.

END OF THE ROAD

The following August, the retirees’ lawyers filed to have the suit certified as a class action. Without this, even if the named plaintiffs won, no others would get their benefits restored. GenCorp opposed this. It said that the plaintiffs were too befuddled to represent the class. As was clear from their depositions, some had forgotten what they were thinking when they signed enrollment forms. One didn’t remember what was in GenCorp’s slide presentation explaining the benefit options eight years earlier.

GenCorp also accused the retirees of destroying evidence. The reason: They’d commingled their paperwork when they pooled their brochures in a cardboard box while searching for a lawyer. That constituted “spoliation,” GenCorp said, adding that it would “seek appropriate remedies at a later date.” Remedies in these situations can include charging retirees for a company’s legal fees.

Finally, GenCorp said the retirees should be denied class status because they were too dispersed, so that different legal standards governing different parts of the country would apply, and because the named plaintiffs were too sick to adequately represent everybody. The plaintiffs were, in fact, sick. Shortly after, in October 2003, Robert Berger, age sixty-nine, died. Polumbo died the next month, at eighty-nine. His widow, Mary Elizabeth, eighty-eight, volunteered to take his place. In December, the judge sided with GenCorp and denied the retirees’ request to be certified as a class.

The retirees had discovered another harsh reality: If he is so inclined, a judge can keep a case from ever reaching a trial. Judge Dan Polster had badgered the parties to settle and the retirees had to travel, time and again, to court hundreds of miles away, in some cases to attend incremental hearings that took only a short time.

The retirees figured that by denying the class action, the judge was just trying to get them to give up. But after this setback, the retirees rallied and signed up an additional 294 plaintiffs. They filed another suit in July 2004, in time to beat a statute of limitations that the company said was about to expire. The next month, the judge dismissed that case, telling the roughly four hundred retirees, mostly in their eighties, that each would have to file an individual case and pay the $150 filing fee for each one.

The retirees called the judge’s bluff. Payne and Stember filed four hundred individual suits, paying $60,000 in filing fees, rather than the $350 it would have cost if the judge hadn’t insisted on separate individual cases. They had to act fast: “They were dropping like flies,” Payne says. He told the judge that the average age of the retirees was eighty-two.

The judge’s reaction: He said he would grant each of the 342 retirees a trial. One at a time. Hearing one case individually, each month, minus vacation and holidays, would take years, and few of the retirees, whose average age was 82, would live long enough to see it be resolved.

The retirees were backed into a corner. They couldn’t appeal because an appeal can’t be made until a final judgment and there’s no final judgment until the end of a trial. They agreed to settle, and would pay a portion of their coverage. They did not, of course, get reimbursed for what they’d spent for the coverage over the prior six years.

The terms of the late 2005 settlement are confidential, but securities filings make one thing very clear: GenCorp accomplished exactly what the Varity HR managers had predicted would happen in these situations: It saved money. From 2000 to 2008, the company’s liabilities for retiree health care fell almost 70 percent, to $76 million, thanks to the number of retiree dropouts and deaths. And even with the settlement, the plan’s costs have continued to fall steadily. Every year after 2005, the retiree health plan actually contributed a total of $8.4 million to GenCorp’s quarterly earnings. Regardless of whether a company wins or loses its case, it always wins the game.

PREEMPTIVE STRIKE

As companies grew increasingly eager to cannibalize their retiree benefits over the past decade, they realized just how important it is to get their cases heard by the right court.

The first legal hurdle for many was that, like Varity, they had promised the benefits, often in writing. Ironically, one of their most powerful tools was federal pension law, which had been enacted in 1974 to protect employees and retirees. The ERISA law was intended to thwart employers who promised retiree benefits and then refused to pay them. Until then, pension and benefits agreements fell under state contract and trust laws. ERISA was supposed to be an improvement, because it overrode a patchwork of state laws.

The problem was that the law was written for pensions, so it had rules about funding and vesting. If someone had a vested right to a pension, the company couldn’t just decide not to pay it. But ERISA didn’t explicitly mention vesting of medical pensions. So employers argued that retiree health benefits weren’t vested but were merely the equivalent of a gratuity.

Until the early 1970s, all retiree benefits—pensions and medical coverage—fell loosely under state contract laws. If there was a dispute about benefits, the courts would examine the plan documents and handouts given to employees to see whether pensions and retiree health coverage were promised benefits, which must be paid, or, indeed, as employers later insisted, the equivalent of tips.

Employers attacked the problem of written promises by introducing ambiguity into the equation. They began inserting clauses, or sometimes a single sentence, into the technical documents that described the rules and workings of the benefits plans. These reservation-of-rights clauses state that the employer has reserved the right to change the benefits.

General Motors, which figures so prominently in discussions about troubled pension plans, has played a big, largely unsung role in the dismantling of retiree health benefits, for both union and salaried employees, across all industries. In the 1980s, GM promised lifetime health coverage as an incentive to get employees to retire. A total of 84,000 salaried employees ultimately took the bait.

When GM later cut the benefits, retirees sued for breach of contract, pointing to the written promises: “Your basic health care coverage will be provided at GM’s expense for your lifetime.” You’d think a sixyear-old could decipher that. A contract, after all, is a contract. Without contracts, the U.S. economy would fall apart. Think how this would play out in a small claims court. Judge Judy would ask the plaintiffs, “Do you have a written agreement?” She’d then ask GM to explain why it reneged on the deal. “Your honor,” GM would say, “Sure, we promised, in writing, to pay for health coverage, but costs have gone up, and now we don’t want to pay.” Judge Judy would say, “I’m not interested in your problems. You’re an idiot. Judgment for the plaintiff.” Not so under ERISA.

A lower court ruled for the retirees. GM appealed, and the Sixth Circuit Court of Appeals in Cincinnati ruled in 1998 that it didn’t matter what the company had told people verbally, and it didn’t matter that the company gave prospective retirees brochures that advised them that health coverage would be provided “at GM’s expense for your lifetime.”

What mattered, the appeals court said, in Sprague v. General Motors, was that GM had added an escape clause to the summary of the plan documents (SPD) it gave the first group of retirees. The clause, included in the documents that few employees read, and even fewer understand, stated that GM “reserved the right” to make changes to the plan. “We see no ambiguity in a summary plan description that tells participants both that the terms of the current plan entitle them to health insurance at no cost throughout retirement and that the terms of the current plan are subject to change,” the court said.

But wait—there wasn’t any reservation-of-rights clause in the SPD that GM gave this group of retirees. Score one for the retirees? You’d think so. But with the elastic logic so common in ERISA decisions, the court of appeals concluded that this was a summary plan description; “as such, it was a summary, so wouldn’t include everything, including such things as reservation of rights clauses.”

Further, the court concluded that an employer didn’t even need to write down a reservation-of-rights clause. So, even if the documents didn’t include such a clause, the court must infer that the company intended to reserve the right to cut benefits.

As for the retirees, just because the company promised orally and in writing that their benefits were to be paid by GM, the court could not infer that GM intended to pay the benefits. “GM never told the early retirees that their health care benefits would be fully paid up or vested upon retirement. What GM told many of them, rather, was that their coverage was to be paid by GM for their lifetimes.” In other words, because GM didn’t use the word “vested,” the benefits weren’t.

“Interpretive gymnastics,” scoffed one of the dissenting judges. The three dissenting judges said the majority’s ruling gave employers a green light to lie to employees by luring them into early retirement with promises of health coverage, then canceling the benefits once the people had made an irrevocable decision to retire. “When General Motors was flush with cash and health care costs were low, it was easy to promise employees and retirees lifetime health care…. Rather than pay off those perhaps ill-considered promises, it is easier for the current regime to say those promises were never made. There is the tricky little matter of the paper trail of written assurances of lifetime health care, but General Motors, with the en banc majority’s assistance, has managed to escape the ramifications of its now-regretted largesse.”

For years, union retirees generally had greater security because their benefits were protected by negotiated contracts, which fall under the federal Labor–Management Relations Act, as well as ERISA. When employers tried to cut health benefits for union retirees—pointing to reservation-of-rights clauses—the courts generally concluded that the contracts, not the companies’ unilaterally created plan descriptions were what mattered.

But after the GM ruling, employers began to argue that the benefits for union retirees should be governed by the same pro-employer inference that was applied in that ruling. To enhance their chances of success, some companies started to use a strategy outlined by the Varity managers: creeping take-aways. This involves taking small steps—increase premiums a small amount, or perhaps start charging premiums in the future. The retirees and unions ignore them. Then, a few years later, the company cuts benefits in a big way, saying that the retirees’ prior lack of legal action signaled tacit agreement that the company could change the plan.

Another ploy companies have used in an effort to increase the chances of appearing before a sympathetic judge is to sue retirees preemptively as they cut the benefits.

Chuck Yarter, a retired miner living in the Sonoran Desert outside Marana, Arizona, learned that he was being sued in 2003 when he got a phone call from a process server who was lost. Yarter gave the guy directions to his stucco home, which sits at the end of an unnamed dirt road, with a distant view of the open-pit Silver Bell copper mine, where Yarter had been a mechanic on ore crushers.

Yarter waited in his yard, curious. He’d never been sued in his life. The approaching trail of dust told him the car was arriving. When the process server pulled up, Yarter’s dog wouldn’t let him out of the car, so after exchanging a few pleasantries, he handed the papers through the car window before trundling away through the saguaro and mesquite.

The papers told Yarter that his former employer, Asarco, was suing him and other retirees in federal court in Phoenix. Asarco, an integrated copper producer that was once known as American Smelting and Refining Co., said it was asking the court to agree that it had the right to cut the union retirees’ benefits.

Asarco, a unit of Grupo Mexico SA, didn’t dispute that it had a contract with the retirees to provide health care until they were eligible for Medicare. But it said the agreements had expired when the labor contracts had, sometime back in the 1990s. The company then sent a letter to its 901 union retirees and dependents, explaining that falling copper prices and rising health care costs left it no choice but to reduce their health coverage. “The continuing low copper price has caused Asarco severe financial distress…. As a result, Asarco is no longer in a position to continue to provide health plan benefits at the current levels.”

The retirees were in a slightly better position than the GenCorp retirees: Some could pile into a van and drive to Mexico for their prescription drugs; others, however, dropped out of the plan as prices spiraled and went on public programs. Yarter appreciated the irony: Not only did his health care costs rise but, as a taxpayer, he would ultimately be picking up the tab for others.

Gonzalo Frias, a retiree-defendant who was a shovel operator at the Ray Mine in Kearny, Arizona, had been president of the local United Steelworkers union when the contracts were negotiated, and said it was ludicrous to think the workers would have agreed to lower wages in exchange for health coverage until sixty-five if the agreement meant the company could pull the plug at any time. The Steelworkers supported the retirees in the lawsuit. “ ‘Unforeseen circumstances’ do not justify a breach of contractual obligations… to persons living on fixed income who can ill afford to pay the costs the company has shifted upon them,” they told the court. It added that the “alleged ‘severe financial distress’ has not prevented the company from paying its top management quite handsomely.”

Like the GenCorp retirees, the Asarco retirees ultimately settled, in 2007, agreeing to pay some of the benefits, with the amounts remaining unchanged for six years. It was a reprieve of sorts. They felt lucky to get that: The company, facing a number of environmental lawsuits, filed for bankruptcy in 2005 and emerged in 2010.

CIRCUIT BREAKER

In early 2002, Rexam, a maker of cans for beverages, including Diet Coke, made a tiny increase in retirees’ share of the cost of prescription drugs. For more than a year, retirees complained to the company that it had no right to change the negotiated agreements, which stated that “Company-paid major medical coverage will be provided for all retirees.” Successive contracts noted that the parties had agreed that “the Company will continue to pay the entire cost.” But the changes weren’t a big enough deal for the retirees to take legal action.

The company was also planning to make more major cuts in benefits. But rather than wait for the retirees to sue, it sued the retirees. Under legal rules, the first party to file generally gets to have its case heard in the location where it files the suit. So, suing the retirees first enhances a company’s chances to get the case heard in a circuit with pro-business judges.

In “declaratory judgment” suits, such as Rexam’s, the company asks a judge to rule that the company has the right to change the retiree health plans. Rexam pointed to a line in a booklet it gave retirees. It stated that the company “reserves the right to amend, modify or discontinue the plan in the future in conformity with applicable legislation.”

The retirees said the clause meant that if government legislation or regulations changed, then the plan might have to be modified accordingly. It didn’t give the company a right to unilaterally change the agreement. They pointed to another sentence stating that the right to modify the benefits “was subject to any applicable collective bargaining agreement.” In any case, the union wouldn’t go to the trouble of negotiating benefits for retirees if they assumed the employer could subsequently cancel the benefits at will. This was an inference in favor of union retirees.

Rexam filed in Minneapolis, within a conservative circuit. There was little logic to this from a geographic standpoint. Minnesota was home to only 100 of the 3,600 retirees, and the company—known as American National Can before Rexam bought it in 2000—is based in Chicago and has offices in Charlotte, North Carolina. It’s a subsidiary of Britain’s Rexam PLC.

The retirees, supported by the United Steelworkers of America, countersued in Toledo, Ohio, asking that the case be dismissed or transferred there. They said that Rexam had made a preemptive legal strike in order to 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.