February 20, 2018

Supreme Court Decides CNH Industrial N.V. v. Reese

On February 20, 2018, the U.S. Supreme Court decided CNH Industrial N.V. v. Reese, holding in a per curium opinion that collective-bargaining agreements are to be interpreted according to ordinary principles of contract law, including the rule that a contract is not ambiguous unless it is subject to more than one reasonable interpretation.

In 1998, CNH Industrial N.V. and CNH Industrial America LLC agreed to a collective-bargaining agreement, which provided health care benefits under a group benefit plan to certain employees who retired under the pension plan. The agreement expired by its terms in May 2004. At that time, a class of CNH retirees and surviving spouses filed a lawsuit seeking a declaration that their health care benefits vested for life.

The district court awarded summary judgment to CNH based on the Supreme Court’s decision in M&G Polymers USA, LLC v. Tackett, 574 U.S. --- (2015), which held that collective-bargaining agreements must be interpreted according to ordinary principles of contract law. On reconsideration, the district court awarded summary judgment to the retirees. The Sixth Circuit affirmed, holding that the collective-bargaining agreement was ambiguous and the court could therefore rely on extrinsic evidence in interpreting the contract. In so holding, the Sixth Circuit relied on a series of “Yard-Man inferences,” stemming from its decision in International Union, United Auto, Aerospace, & Agricultural Implement Workers of Am. v. Yard-Man, Inc., 716 F.2d 1476 (1983), which permitted courts to presume that collective-bargaining agreements vested retiree benefits for life. Although Tackett rejected these inferences as inconsistent with ordinary principles of contract law, the Sixth Circuit nevertheless looked to them to find an ambiguity in the contract.

In a per curium opinion, the Supreme Court reversed, holding that “[a] contract is not ambiguous unless it is subject to more than one reasonable interpretation, and the Yard-Man inferences cannot generate a reasonable interpretation because they are not ‘ordinary principles of contract law.’” The Court noted that no other Court of Appeals would find ambiguity in these circumstances, underscoring how the Sixth Circuit’s decision deviated from ordinary principles of contract law. Setting aside the Yard-Man inferences, the Court found the case “straightforward,” holding that the “only reasonable interpretation of the 1998 agreement is that the health care benefits expired when the collective-bargaining agreement expired in May 2004.” The Court therefore reversed and remanded for further proceedings consistent with its per curium opinion.

Download Opinion of the Court.

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