Barry v. Dymo Graphic Systems, Inc.

• Decision Date: 20 May 1985
• Citation: 478 N.E.2d 707,394 Mass. 830
• Parties: , 27 Wage & Hour Cas. (BNA) 1089 Lawrence BARRY et al. 1 v. DYMO GRAPHIC SYSTEMS, INC. et al. 2
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 707

478 N.E.2d 707

394 Mass. 830, 27 Wage & Hour Cas. (BNA) 1089

Lawrence BARRY et al. ¹ v. DYMO GRAPHIC SYSTEMS, INC. et al. ²

Supreme Judicial Court of Massachusetts,

Middlesex.

Argued March 4, 1985.

Decided May 20, 1985.

Marshall Simonds, Boston (Holly C. Laurent, Boston, with him), for defendants.

Warren H. Pyle, Boston (David B. Rome, Boston), for plaintiffs.

Joseph D. Alviani and Wayne S. Henderson, Boston, for New England Legal Foundation, amicus curiae, submitted a brief.

Before HENNESSEY, C.J., and WILKINS, ABRAMS, NOLAN and LYNCH, JJ.

NOLAN, Justice.

The defendants, Dymo Graphic Systems, Inc. (DGS), and Esselte Pendaflex Corporation (Esselte), appeal from a Superior Court judgment which awarded the plaintiff Lawrence Barry $3,577.50 damages for severance pay and the plaintiff Alain Hanover $1,123.08 damages for vacation pay, plus interest and costs to each plaintiff. The defendants also appeal from the judge's order that this case proceed on a "test case" basis with a stipulation DGS filed pursuant to the order. ³

The defendants' underlying obligation allegedly arises out of a plan for employee severance and vacation benefits. For the first time on appeal, the defendants raise the issue whether the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001-1461 (1982) (ERISA), preempts the application of State law to a determination of the defendants' obligation under this employee benefits plan. For the reasons stated below, we conclude that the judge properly ordered this case to proceed as a test case and that ERISA preempts the application of State law to this case. We remand this matter to the Superior Court to determine whether the defendants' interpretation of the plan was arbitrary and capricious.

We summarize the relevant facts as found below. In April, 1975, and October, 1976, DGS acquired Photon, Inc., and Xylogic Systems, Inc., respectively. Prior to the acquisitions, Barry was an employee of Photon and Hanover was an employee of Xylogic. They continued in substantially similar jobs with DGS after the acquisitions. During each acquisition, the president of DGS met with the employees of the prior concern and informed them that they would receive equal or better benefits and salary through employment with DGS. As part of the benefits, DGS credited former Xylogic and Photon employees with the years of service with their prior employers. In addition, DGS issued booklets to its employees in July, 1976, and July, 1977, which stated the benefits of DGS, including severance and vacation pay.

In March, 1977, Hanover, a supervisory employee, received a looseleaf manual entitled "Personnel Policies" (manual). This manual detailed the personnel benefits, policies, and practices of DGS. It indicated that the severance pay policy provided one week's pay for each year of service, "[i]f an employee's position is eliminated through reorganization or layoff, and he/she is forced to separate from the company through no fault of his/her own...." The vacation policy contained a vacation eligibility schedule and stated that "[v]acation credit may not be accrued or carried over from year to year." DGS, however, acquiesced in the carryover of and occasionally authorized employees to carryover vacation credits in order to accommodate production schedules.

Although DGS distributed the manual only to supervisory employees, it was available to all employees on request. Hanover read the manual, availed himself of the described benefits, and used it to explain personnel policies to employees under his supervision. Barry read the manual in the DGS personnel office in 1977, and again saw it in 1978.

On March 21, 1979, Barry, Hanover, and other DGS employees received a memorandum from the DGS president which informed them of the imminent takeover of DGS by Itek Corporation (Itek). The memorandum indicated that Itek would offer most DGS employees continued employment. DGS would provide severance benefits in excess of those delineated in the manual to those employees not offered continued employment with Itek. Employees offered continued employment with Itek would not be eligible for any severance benefits. The memorandum further provided that DGS would pay vacation time owed to those DGS employees who became employed by Itek. Barry and Hanover accepted employment with Itek upon the takeover on March 23, 1979.

On July 11, 1979, the plaintiffs filed a complaint in the Superior Court and requested class certification. See Mass.R.Civ.P. 23, 365 Mass. 767 (1974). Barry alleged that DGS owed him and all other similarly situated former DGS employees for severance pay. Hanover alleged that DGS failed to compensate him and other similarly situated former DGS employees who did forgo, at DGS's request, taking vacation accrued prior to the date of the takeover by Itek. These obligations were based on an alleged contract under which DGS undertook to provide various benefits to its employees. DGS filed a memorandum in opposition to the motion for class certification in which it questioned the propriety of class certification. DGS requested the use of the test case approach, asserting that this approach was superior to class adjudication of the dispute. In ruling on class certification, the judge ordered that "the motion to certify is to be denied if the defendant files such a stipulation regarding liability and the statute of limitations.... If it is not so filed, the Motion is to be allowed." DGS filed a stipulation, waiving the statute of limitations and agreeing to be bound by a determination of liability. ⁴

1. The propriety of the test case procedure. The defendants assert that the judge improperly conditioned the denial of class certification on DGS's filing of the stipulation regarding liability. ⁵ The defendants argue that class certification was improper in this instance and, therefore, the judge could not properly threaten class certification to force the defendants to relinquish their right not to be bound in any future cases. The defendants' argument rests on a fallacious premise that the judge forced them to choose between an improper class certification or the test case procedure. As the premise fails, so does the defendants' argument.

The defendants' position, faced with a request for class certification, was no different than any other similarly situated litigant. They could acquiesce in or oppose the certification. In opposing the class certification, the defendants chose, as a matter of tactics, to request the test case procedure. That was not their only choice. The defendants could have opposed certification solely on the basis that the dispute was not an appropriate class action.

We have approved the test case procedure as it is outlined in Katz v. Carte Blanche Corp., 496 F.2d 747, 758-762 (3d Cir.), cert. denied, 419 U.S. 885, 95 S.Ct. 152, 42 L.Ed.2d 125 (1974). Carpenter v. Suffolk Franklin Sav. Bank, 370 Mass. 314, 322, 346 N.E.2d 892 (1976). A test case procedure only may be used if requested by the defendant. Katz v. Carte Blanche Corp., supra at 762. A stipulation such as that filed by DGS is an appropriate and intrinsic element of the test case procedure. Id. at 760-761 & n. 7. DGS, having initiated the test case procedure by request, cannot claim that it was error for the judge to follow the procedure delineated in Katz. DGS made a tactical choice and must live by that choice. The order for a test case procedure which conditioned the denial of class certification on DGS's filing a stipulation regarding liability was not erroneous.

2. ERISA preemption. As a threshold issue, we address the plaintiffs' argument that the defendants may not raise the issue of ERISA preemption for the first time on appeal. The extent to which ERISA preempts the application of State law to employee benefit plans determines whether this issue is properly raised. In Tosti v. Ayik, 386 Mass. 721, 725, 437 N.E.2d 1062 (1982), quoting Litton Business Syss., Inc. v. Commissioner of Revenue, 383 Mass. 619, 622, 420 N.E.2d 339 (1981), we stated that "[s]ubject matter jurisdiction may be raised for the first time on appeal as it 'cannot be conferred by consent, conduct or waiver.' " The jurisdictional issue in Tosti concerned the preemption of State libel law in the context of a labor dispute. "Federal labor law preempts State libel law to the extent that defamatory statements made in the context of a labor dispute are actionable only if made with knowledge of their falsity or with reckless disregard of the truth." Tosti, supra 386 Mass. at 723, 437 N.E.2d 1062, citing Old Dominion Branch No. 496, Nat'l Ass'n of Letter Carriers v. Austin, 418 U.S. 264, 273, 94 S.Ct. 2770, 2776, 41 L.Ed.2d 745 (1974), and Linn v. Plant Guard Workers Local 114, 383 U.S. 53, 61, 86 S.Ct. 657, 662, 15 L.Ed.2d 582 (1966). The application of State law to employee benefit plans is more extensively preempted under ERISA. The Supreme Court recently stated that in ERISA, "Congress applied the principle of pre-emption 'in its broadest sense to foreclose any non-Federal regulation of employee benefit plans,' creating only very limited exceptions to pre-emption." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 103 S.Ct. 2890, 2903, 77 L.Ed.2d 490 (1983), quoting 120 Cong.Rec. 29197 (remarks of Rep. Dent). The exceptions to preemption appear in 29 U.S.C. §§ 1003 and 1144. Neither provision applies to this case. ⁶ ERISA preempts "any and all State laws insofar as they may ... relate to any employee benefit plan." 29 U.S.C. § 1144(a). This is more extensive than the partial preemption of State libel law we faced in Tosti. We therefore conclude that the question whether ERISA preempts the application of State law to this dispute presents an issue of subject matter jurisdiction which may be raised for the first time on appeal. See Tosti, supra 386 Mass. at 725, 437 N.E.2d 1062.

That the defendants may raise the issue of...