ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Wednesday, March 20, 1996 TAG: 9603200036
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: Associated Press
Workers who file lawsuits accusing employers of using deception to cancel health insurance were handed a victory Tuesday by the Supreme Court.
The court ruled 6-3 in an Iowa case that federal law allows individuals to file such lawsuits on their behalf. The case involved employees and retirees of a farm equipment company that went into receivership and canceled their health care benefits.
Companies that operate employee benefit plans cannot ``participate knowingly and significantly in deceiving a plan's beneficiaries in order to save the employer money at the beneficiaries' expense,'' Justice Stephen G. Breyer wrote for the court.
The justices rejected Varity Corp.'s argument that it was ordered wrongly to reinstate health care benefits for its former employees.
Varity, based in Buffalo, N.Y., transferred money-losing farm equipment manufacturing operations of its subsidiary, Massey-Ferguson Inc., into a new company in 1986.
The new company, Massey Combines Corp., was created in Des Moines, Iowa, under a reorganization plan dubbed ``Project Sunshine.'' A federal judge later found that the company was insolvent the day it was created.
Employees were told that officials ``are all very optimistic that our new company has a bright future'' and that employee pay and benefits would remain unchanged.
Some employees agreed to transfer to the new company. Massey Combines was placed into receivership in 1988, and benefits for the employees and retirees were canceled.
A group of former employees and retirees sued Varity in federal court in Iowa, seeking restoration of benefits under the federal Employee Retirement Income Security Act.
A federal jury awarded the employees $46 million in damages, but a judge reduced the amount to $8.3 million. The judge called the restructuring ``a sucker punch on loyal employees who had given a lifetime of service.''
The 8th U.S. Circuit Court of Appeals ruled that the company could be held liable for breaching its fiduciary duty to the employees. But it revised the damage award, ruling that the former employees and retirees must be reinstated to the benefits plan and paid about $800,000 in back benefits.
On Tuesday, the Supreme Court upheld that ruling.
Varity could have canceled the employees' benefits, but it could not deceive them about the future of their benefits, the court said.
The justices rejected Varity's argument that it was not acting as a benefit plan administrator when it explained details of the transfer to them.
The court ruled that the employees could sue for themselves, rejecting Varity's argument that they could file such claims only on behalf of the benefit plan.
``It is hard to imagine why Congress would want to immunize breaches of fiduciary obligation that harm individuals by denying injured beneficiaries a remedy,'' Breyer wrote.
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