Second Circuit Certifies Questions to New York’s High Court in Union’s Health Insurance Premium Contribution Dispute

In a 78-page opinion issued last week, the Second Circuit considered the legality of New York’s 2011 reduction of its contribution rates to retired former state employees’ health insurance premiums. The appellate panel declined to resolve the matter, and instead certified two questions to the New York Court of Appeals.

After New York decreased its insurance premium contributions, for the first time in almost 29 years, from 90% to 88% for individual coverage and from 75% to 73% for dependent coverage, unions, including the Civil Service Employees Association (CSEA) filed suit in December 2011. The order notes that the CSEA is the “union representing the largest bargaining unit of employees of New York State.” The defendants are the State of New York and several of its departments and officers.

The plaintiffs argued that the reduced contribution rates violate New York’s contractual obligation under the CSEA’s collective-bargaining agreements (CBAs). They brought claims for breach of contract under New York law and for contract impairment in violation of the Contract Clause of the U.S. Constitution.

The parties cross-moved for summary judgment before the district court. The court sided with the defendants, finding that “the CBAs unambiguously did not provide for the vesting of the State’s agreement to pay 90% of retirees’ individual coverage costs and 75% of their dependent coverage costs under [New York State Health Insurance Plan].” The instant appeal and ten others in related cases followed.

The panel explained that the CBAs do not expressly provide for a vested right to coverage at fixed contribution rates. In turn, the parties dispute whether there is a vested right, “or, at minimum, ambiguity with respect to such a right, as is necessary for the consideration of extrinsic evidence of the meaning of the CBAs…”

The panel described that “[m]oreover, even if Plaintiffs can establish that the State’s reduction of its contribution rates to retiree health-insurance premiums breached a contractual obligation, the resolution of both of their claims depends on whether the State, in reducing its contribution rates, merely breached its contract, permitting a remedy for breach under state law, or completely negated any such obligation so as to preclude plaintiffs from recovering damages under state law.”

The appellate court concluded that both of the plaintiffs’ claims “depend on aspects of New York law on which the State’s courts have not conclusively ruled and that meet our other criteria for certification.”

The court did, however, analyze the issues, first with regard to whether the plaintiffs had established that New York breached the CBAs by reducing its contribution percentages. It ruled, “[w]hile we regard the Plaintiffs’ textual arguments as plausible in light of the willingness of the New York Court of Appeals to infer vesting from the context of related CBA provisions, we do not regard those arguments as sufficiently compelling to predict that the New York Court of Appeals would endorse them.”

As to the availability of damages, the court concluded that because the operative statute’s language did not conclusively establish that the reduction of the State’s contribution rates to retirees’ premiums lack a repudiatory effect. The panel held that it was unclear whether the action “constitutes a remediable breach or an irremediable repudiation of contrary obligations provided for in the State’s CBAs.”

As to the plaintiffs’ constitutional contractual impairment claim, the court again forbore deciding one way or another. It noted that “‘[w]arnings against premature adjudication of constitutional questions bear heightened attention when a federal court is asked to invalidate a State’s law,’ as Plaintiffs ask that we do here.”

The plaintiffs are represented by the Civil Service Employees Association, Inc. and New York by its Office of the Attorney General.