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ERISA Class Action Defense Cases-Nichols v. Alcatel: Fifth Circuit Affirms Denial Of Class Action Plaintiffs’ Motion For Preliminary Injunction Holding Plan Was A Welfare Plan Rather Than A Benefit Plan And Plaintiffs Not Likely To Prevail On Class Action

Class Action Plaintiffs Failed to Establish Likelihood of Success on the Merits of ERISA Violations Alleged in Class Action Complaint so District Court Properly Denied Request for Preliminary Injunction that Sought to Enjoin Employer from Implementing Changes to Benefit Plan Fifth Circuit Holds

Plaintiffs, retired employees of Alcatel USA, filed a putative class action against Alcatel alleging violations of ERISA (Employee Retirement Income Security Act); according to the class action complaint, Alcatel improperly eliminated retirement medical benefits of the putative class members and breached fiduciary duties owed to the class. Nichols v. Alcatel USA, Inc., ___ F.3d ___, 2008 WL 2469407, *1 (5th Cir. June 20, 2008). The class action divided the retirees into two groups – Salaried Retirees and Union Retirees: Alcatel provided Salaried Retires with a Salaried Retirees Benefit program and, under a collective bargaining agreement, agreed to provide medical benefits to Union Retirees. Id. The Fifth Circuit summarized the claims of the class action plaintiffs as follows: “The Salaried Retirees contend that the Benefit program is a pension plan and consequently subject to vesting under [ERISA]…. The Union Retirees contend that [Alcatel] does not have the right to increase the cost of retiree health benefits because they are fixed lifetime benefits which individually vested at the time of each retiree’s retirement based upon the agreement and course of action between the parties.” Id. Plaintiffs’ lawyers moved the district court for a preliminary injunction, which the district court denied. Id. Plaintiffs filed an interlocutory appeal and the Fifth Circuit affirmed.

The class action was precipitated by Alcatel’s announcement “that it planned to implement changes to certain of its retiree medical welfare benefit plans, including a gradual reduction over a three-year period in the amount of its contribution to the costs of medical benefits.” Nichols, at *1. Class action plaintiffs challenged the proposed changes to the plan and sought a preliminary injunction to prohibit Alcatel from implementing the changes. Id. We do not here discuss the case in further detail, as the Fifth Circuit opinion focuses on well-settled rules concerning preliminary injunctions. We note that in broad terms the Circuit Court agreed that plaintiffs were not likely to prevail on the merits and that the plan at issue was not a “pension” plan but, rather, a “welfare” plan. The full text of the opinion may be found here.