Brown v. Keystone Consol. Industries, Inc.

Decision Date10 February 1988
Docket NumberNo. 86 C 7298.,86 C 7298.
Citation680 F. Supp. 1212
CourtU.S. District Court — Northern District of Illinois
PartiesLawrence A. BROWN, et al., Plaintiffs, v. KEYSTONE CONSOLIDATED INDUSTRIES, INC., et al., Defendants.



Harold E. Collins, Jonathan P. Geen, Harold E. Collins & Associates, Ltd., Chicago, Ill., for plaintiffs.

Alfred Winchell Whittaker, John M. Walker, Sally Whiteside, Kirkland & Ellis, Chicago, Ill., for Keystone Consol. Industries, Inc.

John P. Morrison, Michael J. Abernathy, Gregory J. Schroedter, Bell, Boyd & Lloyd, Chicago, Ill., for CHS Acquisition Corp. and Frank L. Corral.


ZAGEL, District Judge.

The plaintiffs, thirty-five former employees of the Chicago Heights Steel Division ("CHS Division") of Keystone Consolidated Industries, Inc. ("Keystone"), filed this seven count, first amended complaint ("Complaint") against Keystone, CHS Acquisition Corp. ("CHS Acquisition"), Frank L. Corral ("Corral") and the United Steelworkers of America ("Union"), seeking damages for violations of the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. sec. 621 et seq., the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. sec. 1961 et seq., as well as various state law claims under the doctrine of pendent jurisdiction.

Before the court are Keystone's motion to dismiss the Complaint in its entirety, and CHS Acquisition's and Corral's motion to dismiss certain counts and to strike various allegations in the remaining counts.1 For the reasons stated below, the defendants' motions are granted in part and denied in part.


It is axiomatic that "a complaint should not be dismissed under Rule 12(b)(6) `unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" R.E. Davis Chemical Corporation v. Diasonics, Inc., 826 F.2d 678, 684-85 (7th Cir.1987) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957) (footnote omitted)). Accordingly, the plaintiffs' "allegations must be taken as true and must be viewed, along with all reasonable inferences therefrom, in the light most favorable to the plaintiffs." Redfield v. Continental Casualty Co., 818 F.2d 596, 605-06 (7th Cir. 1987). This standard also applies to a motion to dismiss under Fed.R.Civ.P. 12(b)(1) for failure to allege sufficiently the existence of subject-matter jurisdiction. Local 705, International Brotherhood of Teamsters v. Willett, Inc., 614 F.Supp. 932, 933 n. 1 (N.D.Ill.1985).

In 1985, Keystone, which owned and operated CHS Division, was experiencing severe financial difficulties, and, as a result, was forced to search for alternative methods by which to pay its debts. Par. 8. Keystone's financial crisis was due in part to the employee benefits it was incurring in its business operations, including CHS Division. CHS Division employees were represented by the Union and were covered by a collective bargaining agreement ("CBA") and pension agreement ("Pension Agreement") which obligated Keystone to provide pension and other employment benefits that were substantial due to CHS Division's "mature" work force. Par. 9.

As if its financial woes were not problem enough, Keystone was also plagued by problems with the Union, the Internal Revenue Service and the United States Environmental Protection Agency. Pars. 10-11. Given these pressures, Keystone, in order to alleviate its fiscal woes, allegedly conspired with Corral "to circumvent the collective bargaining agreement and pension agreement then in force * * *" by executing a "sham" transaction in which Keystone would sell CHS Division to a purported "independent buyer" (in reality, Corral). Par. 11. In this manner Keystone would continue to realize profits from the operation of the CHS Division business without being saddled with the obligations under the CBA and Pension Agreement.

To this end, on September 20, 1985, Corral, CHS Division's vice president and general manager, as required by the CBA, notified the Union that "consideration is being given to the transfer of ownership of CHS Division." Complaint, Ex. C-1. Keystone and Corral also informed CHS Division employees that Keystone "was planning to sell out to an `independent company' and if all employees did not go along with the planned sale,CHS Division would shut down and liquidate * * * and that if they did go along with the sale, all employees who did not retire or take other employment would be hired by" the successor company. Par. 17.

On October 30, 1985, Corral, still vice president and general manager of CHS Division, incorporated CHS Acquisition with capital of only $100. Par. 19. About this same time, Keystone and the Union began negotiating an agreement regarding the effect of the sale of CHS Division on its employees; and on November 14, 1985, the Union and Keystone entered into a shutdown agreement ("Shutdown Agreement") which provided in part that:

(1) CHS Division would be sold to an "independent buyer" (Ex. A, par. 1);
(2) the sale would occur on December 19, 1985 and the plant would shut down at that time (Ex. A., par. 2);
(3) all CHS Division employees would be terminated at 11:00 p.m. on the date of sale (Ex. A, par. 3); and
(4) the CBA between the Union and Keystone would terminate at 11:00 p.m. on the date of the sale (Ex. A, par. 4).

The Shutdown Agreement also set forth the specific effects of the sale on the benefits and pension rights of the CHS Division employees. Ex. A., pars. 5-19.

The following day, November 15, 1985, Corral, once again on behalf of CHS Division, told the Union that Keystone "intends to sell CHS Division on or before December 19, 1985." Complaint, Ex. C-3.

CHS Division employees were notified of the terms of the Shutdown Agreement by a letter dated December 16, 1985. Par. 25. This letter, like the previous communications from Keystone and Corral, failed to advise the plaintiffs of the "true" circumstances surrounding the execution of the Shutdown Agreement. Par. 25.

On December 19, 1985, CHS Acquisition purchased the assets of CHS Division from Keystone. Par. 13. At 11:00 p.m. that evening, in accordance with the terms of the Shutdown Agreement, all CHS Division employees, as well as the CBA and Pension Agreement, were terminated. The plaintiffs were not rehired and this suit followed.


The defendants move to dismiss the plaintiffs' Complaint on two grounds. First, the defendants argue that all of the plaintiffs' claims, except those under the ADEA, are preempted by federal labor law. Second, they contend that these allegations fail to state a claim upon which relief can be granted. Keystone also asserts that the plaintiffs fail to state a claim under the ADEA. Each of these contentions is addressed below.

A. Preemption Under Federal Labor Law

The defendants argue that the plaintiffs' causes of action for fraudulent misrepresentation, fraudulent conveyance, alter ego, and intentional interference with contractual relations, as well as their claim under RICO, are preempted by both sec. 301 of the Labor Management Relations Act (the "LMRA") 29 U.S.C. sec. 185, and section 8 of the National Labor Relations Act (the "NLRA"), 29 U.S.C. sec. 158.

Section 301 of the LMRA is intended to foster uniformity in the interpretation of labor agreements. Accordingly, sec. 301 preempts state law claims which "are founded directly on rights created by collective-bargaining agreements, and also claims `substantially dependent on analysis of a collective bargaining agreement.'" Caterpillar Inc. v. Williams, ___ U.S. ___, 107 S.Ct. 2425, 2431, 96 L.Ed.2d 318 (1987), quoting Electrical Workers v. Hechler, ___ U.S. ___, 107 S.Ct. 2161, 2166-67 n. 3, 95 L.Ed.2d 791 (1987); see also Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 220, 105 S.Ct. 1904, 1915, 85 L.Ed.2d 206 (1985).

Under the NLRA, on the other hand, a state law claim is preempted if it involves conduct which is actually or arguably protected or prohibited under sections 7 or 8 (see San Diego Building Trades Council v. Garmon, 359 U.S. 236, 245-46, 79 S.Ct. 773, 779-80, 3 L.Ed.2d 775 (1959); Wisconsin Department of Industry v. Gould Inc., 475 U.S. 282, 106 S.Ct. 1057, 1061, 89 L.Ed. 2d 223 (1986)), or conduct which, although not actually or arguably protected or prohibited under the NLRA, "Congress intended to leave unregulated and left `to be controlled by the free play of economic forces.'" Machinists v. Wisconsin Employment Relations Commission, 427 U.S. 132, 140, 96 S.Ct. 2548, 2553, 49 L.Ed.2d 396 (1976), quoting NLRB v. Nash-Finch Co., 404 U.S. 138, 144, 92 S.Ct. 373, 377, 30 L.Ed.2d 328 (1971); see also Local 926, International Union of Operating Engineers v. Jones, 460 U.S. 669, 676 n. 8, 103 S.Ct. 1453, 1459 n. 8, 75 L.Ed.2d 368 (1983).

The first prong of preemption under the NLRA, the so-called Garmon doctrine, is designed to protect the primary jurisdiction of the NLRB from the federal and state courts, (Keehr v. Consolidated Freightways, 825 F.2d 133, 136 (7th Cir.1987); Lingle v. Norge Division of Magic Chef, Inc., 823 F.2d 1031, 1042 (7th Cir.1987)), by providing the NLRB with exclusive jurisdiction to determine whether given conduct falls within the NLRA. See Garmon, 359 U.S. at 244-45, 79 S.Ct. at 779-80. Nevertheless, Garmon recognized that state regulation of conduct arguably within the NLRA was not preempted if the activity regulated is a mere peripheral concern of the labor laws, or if the regulated conduct touches interests so deeply rooted in local feeling that preemption cannot be inferred in the absence of "compelling congressional direction." Garmon, 359 U.S. at 243-44, 79 S.Ct. at 778-79.

In contrast, federal courts may exercise jurisdiction over claims under sec. 301 of the LMRA even if the conduct is arguably covered by the NLRA. See, e.g., Serrano v. Jones & Laughlin Steel Co., 790...

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