McLendon v. Continental Group, Inc.

• Decision Date: 28 May 1987
• Docket Number: Civ. A. No. 83-1340.
• Citation: 660 F. Supp. 1553
• Parties: Cecil McLENDON, Don Vandertulip, Jimmie Cartharn, and Konrad Trojniar, on their own and on behalf of all others similarly situated, Plaintiffs, v. The CONTINENTAL GROUP, INC., a New York corporation incorporated in 1913; Continental Can Company, Inc., a Delaware corporation; the Continental Group, Inc., a New York corporation incorporated in 1982; and KMI Continental Inc., a New York corporation, Defendants.
• Court: U.S. District Court — District of New Jersey

660 F. Supp. 1553

Cecil McLENDON, Don Vandertulip, Jimmie Cartharn, and Konrad Trojniar, on their own and on behalf of all others similarly situated, Plaintiffs, v. The CONTINENTAL GROUP, INC., a New York corporation incorporated in 1913; Continental Can Company, Inc., a Delaware corporation; the Continental Group, Inc., a New York corporation incorporated in 1982; and KMI Continental Inc., a New York corporation, Defendants.

Civ. A. No. 83-1340.

United States District Court, D. New Jersey.

May 28, 1987.

Edwin C. Thomas, III, Dennis P.W. Johnson, Bell, Boyd & Lloyd, Chicago, Ill., Samuel W. Braver, Buchanan Ingersoll, P.C., Pittsburgh, Pa., Terrence Dwyer, Williams, Caliri, Miller & Otley, Wayne, N.J., Eugene L. Stewart, Stewart & Stewart, Washington, D.C., for defendants.

Stuart Israel, Miller, Cohen, Martens, & Ice, Southfield, Mich., Howard S. Simonoff, Tomar, Park, Seliger, Simonoff, Adourian & O'Brien, Haddonfield, N.J., for third party defendants.

Robert Plotkin, John G. Jacobs, Plotkin & Jacobs, Ltd., Chicago, Ill., George F. Galland, Davis, Barnhill & Galland, Chicago, Ill., Donald J. Volkert, Siff, Newman, Rosen & Parker, Newark, N.J., Daniel P. McIntyre, Falmouth, Me., for plaintiffs.

OPINION

SAROKIN, District Judge.

In Gavalik v. Continental Can Co., an action brought against Continental by former employees of its Pittsburgh plant, the Third Circuit held that Continental's adoption of a corporate "liability avoidance" program to reduce its unfunded pension exposure constituted a violation of ERISA. Plaintiffs in this action, on behalf of a nationwide class of former Continental employees, challenge the same program.

Before the court is plaintiffs' motion for partial summary judgment as to liability on their ERISA claims. Because the findings adopted by the Third Circuit in Gavalik preclude Continental from relitigating the issues that establish its ERISA liability, the court grants plaintiffs' motion.

I. BACKGROUND¹

In 1977, Continental and USW negotiated a collective bargaining agreement which made available two types of "Magic Number" pension benefits to employees who have been laid off for two years or who have been laid off as the result of a plant closing. An employee becomes eligible for "Rule of 65" benefits if he has twenty years of continuous service with Continental and if, at any time within two years of his last day worked, the employee's age and years of service total at least sixty-five years. Under the "Rule of 70/75" pension, an employee with fifteen years of continuous service could qualify if he either (a) was at least fifty years of age and had combined age and service totalling at least seventy years or (b) had combined age and service totalling at least seventy-five years. Such Magic Number benefits were not supported by a pension fund, but were payable out of ordinary revenues.

Continental experienced a sharp and steady decline in business during the mid-1970's. Plaintiffs present internal documents revealing that, in light of this decline, Continental considered potential unfunded liability for Magic Number pensions to be a serious problem. Continental responded by devising a "liability avoidance program" to control and reduce such costs. The program had two goals — to lay off employees who had not yet become eligible for pensions and to retain employees whose benefits had vested previously.

To achieve these objectives, Continental adopted a "cap and shrink" program, whereby employment at a plant was capped at a maximum number and then allowed to shrink through attrition. Continental, in deciding whether to cap a particular plant, examined various economic factors including potential pension liability. Continental determined an actual cap level by assessing the needed level of production to meet projected sales. The cap level limited employment to a specific name on the roster and was effective for five years. Continental designated as "permanently laid off" all employees below the cap-line, whether then at work or on temporary layoff. Such employees could not be recalled for five years, except under extraordinary circumstances. Furthermore, Continental instituted a "Red Flag" computer system to alert management whenever a permanently laid off employee inadvertently received a pay check.

Once the cap was in place, Continental tailored its business volume to meet the capped level of employment. Through the use of a computer tracking system, Continental authorized local plant managers to transfer business to plants with either low unfunded pension liability or plants that needed work to retain employees with vested Magic Number benefits.

The Gavalik litigation, instituted in 1981 in the U.S. District Court for the Western District of Pennsylvania, involved a challenge to the liability avoidance program by former employees of Continental's Pittsburgh plant who had been permanently laid off.² The Gavalik plaintiffs alleged that the institution and implementation of the program prevented their attainment of benefits in violation of § 510 of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1140. On September 24, 1985, after a bench trial solely on the issue of Continental's ERISA liability, the district court ruled in Continental's favor. The court found that Continental adopted the liability avoidance program, implemented it at Pittsburgh, and that a "motivating factor" behind that decision was a desire to prevent employees from attaining eligibility for Magic Number benefits. Gavalik v. Continental Can Co., Nos. 81-1519 and 82-1995, slip op. at 9-12, 17-19, 21 (W.D.Pa. Sept. 24, 1985) (Findings of Fact 51-70, 109-22, 141). The court concluded, though, that such conduct did not violate § 510 of ERISA. Id. at 21.

The Third Circuit reversed, finding that Continental's "maintenance of the liability avoidance program with the specific intent to interfere with class members' pension eligibility was in itself a classwide violation of ERISA entitling plaintiffs to injunctive relief." Gavalik v. Continental Can Co., 812 F.2d 834, 857 (3d Cir.1987). The court also held that Continental committed independent classwide violations by capping the Pittsburgh plant, by designating Pittsburgh employees as permanently laid off, and by instituting the red flag system in Pittsburgh. Id. at 862.

On April 15, 1983, the named plaintiffs, former employees of Continental plants in Passaic, New Jersey and Chicago, Illinois, filed this action against Continental. Plaintiffs allege that Continental's liability avoidance program violates § 510 of ERISA, as well as the Racketeer Influenced and Corrupt Organizations Act (RICO). On January 8, 1987, this court certified a class consisting of

all past or present members of the Continental Pension Plan who suffered a break in pension service subsequent to December 1, 1977, or who shall hereafter suffer a break in pension service, as a result, in whole or in part, of Continental's alleged Capping Program....³

Plaintiffs move for partial summary judgment as to liability on their ERISA claims.

II. DISCUSSION

Gavalik v. Continental Can Co., 812 F.2d 834 (3d Cir.1987) directs this court's determination of plaintiffs' motion. First, Gavalik, as Third Circuit precedent binding on this district, sets forth the legal requirements for establishing liability on a § 510 class action claim. Second, Gavalik, as an action involving claims "virtually identical" to those in this action, see id. at 847 n. 27, precludes Continental from relitigating factual issues that establish its liability under § 510.

A. Gavalik as legal precedent—Class action liability under § 510

1. Structure of § 510 class action litigation

Gavalik applies to § 510 class action litigation the methodology developed by the Supreme Court for structuring Title VII employment discrimination class actions. This methodology contemplates a two-phase trial: during the initial "liability" phase, the focus is on whether defendant has engaged in a pattern or practice of discrimination justifying an award of prospective injunctive relief to the class; during the second "remedial" phase, the focus is on the consequences of this discrimination and the entitlement to relief of individual class members. See Cooper v. Federal Reserve Bank, 467 U.S. 867, 875-76, 104 S.Ct. 2794, 2799, 81 L.Ed.2d 718 (1984); International Bhd. of Teamsters v. United States, 431 U.S. 324, 360-362, 97 S.Ct. 1843, 1867-68, 52 L.Ed.2d 396 (1977). Plaintiffs seek summary judgment on the liability phase of their § 510 claim.

2. Elements of liability under § 510

Section 510 provides in relevant part:

It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary ... of an employee benefit plan ... for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan.

This court understands Gavalik to require class action plaintiffs to prove three elements in order to prevail at the liability stage of a § 510 action — employer conduct, discriminatory intent, and causation.

Employer conduct. Section 510 prohibits discrimination against participants in benefit plans. In a class action context, plaintiffs must prove more than isolated acts of discrimination by an employer—the class representative must establish that discrimination was the employer's "standard operating procedure." See International Bhd. of Teamsters, 431 U.S. at 336, 97 S.Ct. at 1855; Gavalik, 812 F.2d at 852.

Discriminatory intent. Proof of specific intent to interfere with the attainment of pension eligibility is the essential element of a § 510 claim. See Gavalik, 812 F.2d at 851. As in other employment discrimination contexts, plaintiffs may prove discriminatory intent either circumstantially or directly. Circumstantial evidence is analyzed using the burden-shifting mechanism set forth in Texas Dept. of...