Donohue v. Custom Management Corp.

• Decision Date: 25 April 1986
• Docket Number: Civ. A. No. 84-497.
• Citation: 634 F. Supp. 1190
• Parties: John L. DONOHUE, Walter D. Jones, Benjamin F. Scheib, Joseph R. Smola, Anthony M. DiIanni, and Audrey C. Hunter, Individuals, Plaintiffs, v. CUSTOM MANAGEMENT CORPORATION and Custom Restaurant Corporation, corporations; John Metz and Robert Madigan, Individuals, Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

634 F. Supp. 1190

John L. DONOHUE, Walter D. Jones, Benjamin F. Scheib, Joseph R. Smola, Anthony M. DiIanni, and Audrey C. Hunter, Individuals, Plaintiffs, v. CUSTOM MANAGEMENT CORPORATION and Custom Restaurant Corporation, corporations; John Metz and Robert Madigan, Individuals, Defendants.

Civ. A. No. 84-497.

United States District Court, W.D. Pennsylvania.

April 25, 1986.

COPYRIGHT MATERIAL OMITTED

Jane A. Lewis, Thorp, Reed & Armstrong, Pittsburgh, Pa., for plaintiffs.

Kevin Lucas, Manion, McDonough & Lucas, Pittsburgh, Pa., for defendants.

MEMORANDUM AND ORDER

SIMMONS, District Judge.

I. Introduction

This action involves claims asserted by six individuals who were hired by Defendant Custom Restaurant Corporation ("CRC") in late 1981 and 1982 in connection with CRC's acquisition of certain delicatessens and restaurants from The Isaly Company ("Isaly"). Plaintiffs' employment was terminated on January 11, 1983, when the mounting economic losses incurred by CRC led to the elimination of their jobs and an assumption of their job duties by existing employees of Custom Management Corporation ("CMC"), the parent corporation of CRC. The staggering losses continued notwithstanding this cost-saving measure, and CMC was forced to abandon the restaurant business altogether by closing or selling all the delicatessens and restaurants and, in March 1985, selling all of the stock of CRC itself.

In their Complaint, Plaintiffs allege that the financially-compelled elimination of their jobs constituted violations of the Age Discrimination in Employment Act, 29 U.S.C. § 621 et seq. ("ADEA") (Count I), and the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. ("ERISA") (Count II), and also constituted a breach of an implied contract for "continued employment" with CRC (Count III). In addition to CMC and CRC, Plaintiffs have named as Defendants John Metz, the president of CMC, and Robert Madigan, a former acting president of CRC. Defendants now move for Summary Judgment on all counts.

II. Facts

CMC was founded in 1967, under the name of Customer Food Management Services, by Defendant John C. Metz. CMC is a contract management company which concentrates on providing institutional food and environmental (laundry, housekeeping, maintenance, grounds-keeping and security) services to health care establishments, schools and businesses. Prior to 1981, CMC maintains that it had never participated in the operation of public restaurant establishments as the business of CMC was centered on the management of institutional food and environmental service departments.

CRC was founded in 1981, as a wholly-owned subsidiary of CMC. Effective October 18, 1981, CRC acquired 26 Isaly delicatessens and 2 Sweet William restaurants from Isaly, which was then a subsidiary of the Clabir Corporation. Later, in May 1982, CRC acquired an additional 16 Sweet William restaurants from Isaly. CMC maintains that subsequent to its acquisition of the delicatessens and restaurants in October 1981, it intended to operate CRC as an independent corporation from its parent, CMC. Thus CMC established a completely separate management, accounting, and operational workforce for CRC.

Five of the six Plaintiffs, including Donohue, Scheib, Smola, DiIanni and Hunter, were hired by CRC on October 19, 1981, in connection with the initial restaurant acquisition. The sixth Plaintiff, Jones, was hired by CRC in May 1982, at the time of the second restaurant acquisition. All of the Plaintiffs had been employees of Isaly and were hired by CRC to assist in the management and operation of the newly-acquired restaurants. It is undisputed by Plaintiffs that at the time Isaly sold the delicatessens and restaurants to CRC, their jobs with Isaly had been eliminated and they had not been offered alternate employment with either Isaly or its parent corporation. It is also undisputed that CRC had no obligation whatsoever to hire Plaintiffs.

Unfortunately, during the first 6-8 months of its existence, CRC lost vast amounts of money in connection with the operation of the Isaly and Sweet William establishments. In the fiscal year ending June 30, 1982, CRC sustained a loss of $415,587, before payment of income taxes and intercompany management fees. By August 1982, CRC had lost nearly $700,000, a staggering amount given the fact that the restaurants acquired in 1981, had been purchased for their $1.7 million book value and a $887,000 note guaranteed by CMC. Defendants maintain that these mounting losses had escalated to a level at which they threatened the economic existence of both CRC and CMC.

By January 1983, the losses sustained by CRC continued to grow, and the CRC operation showed no signs of a "turn-around" toward profitability. Therefore, a decision was made to eliminate all CRC line management positions and to transfer the CRC management functions to CMC management employees in an effort to eliminate some of the losses associated with CRC operation. All of the line management positions in CRC above the unit manager level were eliminated and the personnel holding those positions were terminated. This included the Director of Operations position held by Plaintiff Jack Donohue; the Senior District Manager position held by Plaintiff Walter Jones; and the District Manager positions held by Plaintiffs Benjamin Scheib, Joseph Smola, and Anthony DiIanni.

Thus, on January 11, 1983, Plaintiffs were informed that their jobs were being eliminated, and that effective that date their employment with CRC was terminated. After January 11, 1983, the duties previously performed by these Plaintiffs were assumed and spread among at least nine (9) different CMC management employees, all of whom had been employed by CMC long before the October 1981 Isaly Acquisition. Of those assuming the CRC duties, four (4) were 40 years of age or older, and all had substantial experience in CMC's primary business of industrial food and environmental management.

III. Discussion

A. Age Discrimination Employment Act Claim

In deciding Defendants' Motion for Summary Judgment, the Court must resolve any doubts as to the existence of genuine issues of fact against the moving party and must view all reasonable inferences in the light most favorable to the party opposing the motion. U.S. v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962); Hollinger v. Wagner Mining Equipment Co., 667 F.2d 402, 405 (3d Cir. 1981); Ness v. Marshall, 660 F.2d 517, 519 (3d Cir.1981); Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir.1976), Cert. Denied, 429 U.S. 1038, 97 S.Ct. 732, 50 L.Ed.2d 748 (1977). Although the Third Circuit has emphasized that summary judgment is a drastic remedy, see Hollinger, 667 F.2d at 405, courts must grant the motion where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ P. 56(c). The establishment of a prima facie case of age discrimination does not necessarily defeat a motion for summary judgment. Doby v. Jones & Laughlin Steel, Inc., 624 F.Supp. 874 (W.D.Pa.) (Simmons, J.); Graham v. F.B. Leopold Company, Inc., 602 F.Supp. 1423 (W.D.Pa.1985); Pierce v. New Process Co., 580 F.Supp. 1543 (W.D.Pa.), aff'd Mem., 749 F.2d 27 (3d Cir.1984); Keller v. Bluemle, 571 F.Supp. 364 (E.D.Pa.1983), aff'd without opinion, 735 F.2d 1349 (3d Cir.1984); Fick v. Canterbury Coal Co., 568 F.Supp. 927 (W.D.Pa.1983).

The Defendants' burden in seeking summary judgment must be considered in light of the intermediate and ultimate burdens of proof provided for under the ADEA. The Act bars employers from discharging or otherwise discriminating against any individual, age forty to seventy, because of his age, but provides that it is not unlawful to discharge or otherwise discipline an individual for good cause. 29 U.S.C. §§ 623(a)(1), 623(f)(3).

Because of the similarity in language and purpose between the ADEA and Title VII, Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. employees (or former employees, as in the present action) alleging age discrimination are generally held to the same requirements for burden and allocation of proof as those alleging race or sex discrimination. See Texas Department of Community Affairs v. Burdine, 450 U.S. 248, 101 S.Ct. 1089, 67 L.Ed.2d 207 (1981); Massarsky v. General Motors Corp., 706 F.2d 111 (3d Cir.); cert. denied, 464 U.S. 937, 104 S.Ct. 348, 78 L.Ed.2d 314 (1983); Smithers v. Bailar, 629 F.2d 892 (3d Cir.1980). Therefore, in accordance with McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 688 (1973), the order of proof in this ADEA case requires that Plaintiffs establish a prima facie case of age discrimination by proving that: 1) he is within the protected age group of 40-70 years; 2) he was subject to adverse employment action; 3) he was qualified for the positions in question; and 4) younger employees were treated more favorably. Proof of these facts raises a rebuttable presumption of discrimination which Defendants may counter by presenting a legitimate, non-discriminatory reason for the employment action. Burdine, 450 U.S. at 254, 101 S.Ct. at 1094. Accord Duffy v. Wheeling Pittsburgh Steel Corp., 738 F.2d 1393 (3d Cir.), cert. denied, ___ U.S. ___, 105 S.Ct. 592, 83 L.Ed.2d 702 (1984); Bower v. State Equipment Division, 31 BNA FEP cases 825 (W.D.Pa.1983).

In cases (such as the instant action) involving reductions-in-force as opposed to individual discharges, courts have modified the Burdine/McDonnell Douglas analysis to address the fact that in most cases, a laid-off employee is not necessarily replaced, but rather his duties are either subsumed in the job responsibilities of other employees or are not performed at all. In these instances, the courts have generally required the Plaintiff, in order to establish a prima facie case, to show that he is in the protected age group and was laid off while younger employees working...