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Poor Drafting Results in Woes for Detroit Workers

In another blow to Detroit workers, GM has escaped liability on a 2007 obligation to pay $450 million to fund retiree medical benefits. GM was granted summary judgment after arguing its obligation to make the payment was extinguished by a later 2009 agreement entered into after it emerged from bankruptcy. The United Automobile, Aerospace, and Agricultural Implement Workers of America (UAW) sought relief under § 301 of the Labor Management Relations Act, 29 U.S.C. § 185. Judge Avern Cohn, who called the case a “pure issue of contract interpretation”, found that the 2009 agreement superseded all prior agreements and lacked any mention of the $450 million payment.

The issue began in 2006, when Old GM, the UAW, and GM retirees settled a class action lawsuit. The settlement provided for the establishment of a trust known as a “Voluntary Employees’ Beneficiary Association” (VEBA). In June 2007, Delphi (a GM spinoff), Old GM, and the UAW entered into a “Memorandum of Understanding” allocating responsibility between Old GM and bankrupt Delphi for Delphi retirees (most of whom worked for Old GM before the spin-off). Old GM was to make a contribution of $450 million. Specific conditions required to trigger the obligation included (a) a settlement agreement resolving Delphi and GM’s financial relationship and (b) consummation of a plan of reorganization proposed by Delphi. New GM argued that all required conditions were not fulfilled.

In 2008, Old GM, the UAW, and a class of retirees entered into a settlement agreement resolving a second class action suit. This 2008 agreement provided for the establishment of a second VEBA (the “New VEBA”), for the “[p]urpose” of transferring responsibility for GM and Delphi retiree medical benefits from Old GM to the New VEBA.” Importantly, this agreement did not reference to the $450 million payment obligation provided for in the 2007 MOU.

On June 1, 2009, Old GM filed for bankruptcy protection. Days later, New GM and the UAW entered into a settlement largely embodying the language of the 2008 agreement. This agreement, like the 2008 Agreement, conspicuously made no mention of the $450 million payment referred to in the 2007 MOU.

Before the court, New GM relied on contract provisions stating that New GM’s “sole” obligations are those listed in the 2009 agreement. In response, the UAW argued that none of the language in the 2009 agreement expressly extinguishes the 2007 MOU and its required $450 million payment. Undermining the UAW’s argument is the presence of an integration clause in the 2009 agreement, which sets forth the parties’ understanding that New GM has no obligations other than those set forth in the 2009 agreement.

Ultimately, Judge Cohn was sympathetic to the plight of the retirees but bound by what he viewed as a simple matter of contract interpretation. “The UAW’s efforts to turn the absence of language into language is reminiscent of the efforts to capture a ‘will o’ the wisp.’”

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