Retiree Health Settlement Approved By Court

The City of Omaha, Nebraska suffers from difficult long-term financial prospects impacted in part by the rising cost of healthcare benefits for various active and retired City employees. Before May 18, 2010, an assortment of collective bargaining agreements and ordinances required the City to offer 34 different benefit plans to active and retired employees. Under those plans, 84% of retirees paid no premium for healthcare coverage for themselves or their dependents.

On May 18, 2010, the Omaha City Council which (1) required retirees to pay premiums for healthcare calculated as a percentage of their city pension, and (2) reduced the number of healthcare plans from 34 to three – one for police, one for firefighters, and one for civilians. Beginning July 1, 2010, retirees would receive the same healthcare benefits as active employees.

The day the ordinance passed, four labor organizations and four individual retirees filed a nine-count declaratory judgment action against the City seeking to enjoin them from enforcing the ordinance. The plaintiffs sought class certification for all active and retired City employees who received health benefits from the City.

On June 10, 2010, a federal trial court entered a preliminary injunction enjoining the City from enforcing the ordinance. The Court permitted five retired firefighters represented by Maynard H. Weinberg to intervene and participate to protect their interests, and set up three “subclasses”:

(1) All former City employees who separated from employment for any reason and are entitled to and were receiving group healthcare coverage as City retirees as of May 18, 2010;

(2) All individuals who received group health coverage from the City because they were, or will be “covered dependents” or spouses or survivors of covered retirees; and

(3) All individuals who, as of May 18, 2010, were employed in positions within the City covered by CBAs or ordinances which entitle them to group health coverage when they retire or separate from City employment.

The certified class consisted of 10,286 active and retired city employees and their family members. Eventually a three-part settlement was reached: (1) Current retirees’ health insurance premiums were held at the rates the retirees were paying on the date the ordinance passed; (2) the City could reduce the number of healthcare plans to three by transferring retirees to the current plan available for active employees in the same bargaining unit; and (3) because retirees generally share the same plan as their active counterparts, retirees in each class received the right to elect a representative to represent them in future collective bargaining negotiations related to any potential changes to the health plans for such class. The retiree representative received the right to object to proposed changes to the applicable health plan negotiated by the unions and, upon a vote of the affected retirees, request that a neutral arbitrator review a claim that a proposed change is not “fair and reasonable to the retirees.” If the arbitrator finds a proposed change is not fair and reasonable, the applicable union may not approve the tentative CBA and must renegotiate.

A group of retirees challenged the settlement. Their primary argument was that there was an inherent conflict of interest between active employees and retirees, and that the same attorneys could not represent the entire class of plaintiffs.

The federal Eighth Circuit Court of Appeals upheld the settlement agreement. The Court reasoned: “Although we have noted the potential for conflict between the interests of active and retired employees, the challengers have failed to support their contention that such conflict requires separate counsel as a matter of law. Though not entirely consistent, the interests of the active and retired City employees aligned in many significant ways, not the least of which was their driving interest to enjoin the City’s enforcement of the ordinance. Indeed, as prospective retirees, the active employees shared an interest in protecting retiree rights.

“Expressly cognizant of the potential conflicts in this case, the District Court appointed individual retirees as class representatives and subdivided the class to mitigate those potential conflicts. To further protect the interests of retirees, the District Court permitted five retired firefighters to intervene with separate counsel and participate in settlement negotiations that focused extensively on protecting the retirees’ interests. Those negotiations yielded significant safeguards built into the settlement agreement that the District Court reasonably found adequate to protect the retirees from a future potential conflict, including a retiree representative during collective bargaining and a detailed arbitration process.

“Throughout the class action, the District Court monitored the efforts of the class representatives, class counsel, and the intervenors to ensure fair and adequate representation. After considering all of the objections to the settlement, the district court found ‘that although there are some conflicts within the classes, e.g., retired versus current employees, the parties have been well-represented during this process.’ The District Court was aware of the potential conflict and took reasonable steps to address the retirees’ concerns. Given the nature of this case and the potential conflict at issue, the District Court did not abuse its discretion in certifying the class or by ensuring fair and adequate representation for the entire class by means other than appointing separate counsel for each subclass.”

Professional Firefighters Ass’n of Omaha, Local 385 v. Zalewski, 2012 WL 1570826 (8th Cir. 2012).