Faehnrich v. Bentz Metal Products

• Citation: 253 F.3d 283
• Decision Date: 07 June 2001
• Docket Number: No. 00-1320,00-1320
• Parties: (7th Cir. 2001) IN RE: BENTZ METAL PRODUCTS COMPANY, INC., Debtor-Appellee, APPEAL OF: LARRY FAEHNRICH, et al., Plaintiffs-Appellants, v. BENTZ METAL PRODUCTS COMPANY, INC., and BANK ONE, INDIANA, NATIONAL ASSOCIATION, a national banking association, as successor to NBD BANK, N.A., Defendants-Appellees
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 283

253 F.3d 283 (7th Cir. 2001)

IN RE: BENTZ METAL PRODUCTS COMPANY, INC., Debtor-Appellee,

APPEAL OF: LARRY FAEHNRICH, et al., Plaintiffs-Appellants, v. BENTZ METAL PRODUCTS COMPANY, INC., and BANK ONE, INDIANA, NATIONAL ASSOCIATION, a national banking association, as successor to NBD BANK, N.A., Defendants-Appellees.

No. 00-1320

In the United States Court of Appeals For the Seventh Circuit

Argued April 11, 2001

Decided June 7, 2001

Appeal from the United States District Court for the Northern District of Indiana, Fort Wayne Division. No. 99-C-449--William C. Lee, Chief Judge.

Before FLAUM, Chief Judge, and BAUER, POSNER, COFFEY, EASTERBROOK, RIPPLE, MANION, KANNE, ROVNER, DIANE P. WOOD, EVANS, and WILLIAMS, Circuit Judges.

EVANS, Circuit Judge.

Indiana law broadly protects the rights of workers ("mechanics and laborers employed in or about any shop, mill, wareroom, storeroom, . . . bridge, reservoir, . . . drainage ditch . . . or any other earth- moving operation . . . ." in the charming, though antiquated, language of the old Hoosier statute) against losing wages due when an employer encounters tough economic times. It does so by moving workers to the front of the company's creditor queue with a mechanic's lien that trumps the rights of other creditors to the company's assets. Today we consider whether that lien, established under Indiana Code sec. 32-8- 3-1 et seq., protects unionized workers to the same extent it undoubtedly protects the rights of nonunionized workers. We find that it does, a determination that compels us to overrule In re Bluffton Castings Corp., 186 F.3d 857 (7th Cir. 1999).

The 20 employee-plaintiffs in this suit are members of the United Automobile, Aerospace and Agricultural Implement Workers of America, Local 2298, and as such they are parties to a collective bargaining agreement with their employer, the Bentz Metal Products Company, Inc., of Fort Wayne, Indiana.

In 1996 an involuntary bankruptcy petition under 11 U.S.C. sec. 303 was filed against Bentz. While the bankruptcy was pending, the employees filed liens under Indiana law seeking to secure unpaid vacation pay owed to them under the CBA. Everyone agrees that unpaid vacation pay, like other employee fringe benefits, is treated the same as unpaid wages, and the parties have stipulated that the amount owed the employees is $12,700.38. The employees filed an adversary proceeding in bankruptcy court to determine the validity and priority of their liens. They named Bentz and its secured creditor, now Bank One, as defendants. Relying on our decision in Bluffton Castings, which is directly on point, the bankruptcy court quite naturally held that sec. 301 of the Labor Management Relations Act of 1947 (29 U.S.C. sec. 185(a) preempted the liens. The district court affirmed.

Graced with astute legal representation, the employees appealed, candidly acknowledging that what they were asking us to do was reconsider a ruling which a panel of the court recently issued. In this instance, they have convinced us to take this unusual step. Unusual, but not unheard of. It is well-established that on rehearing en banc, the full court may, and sometimes does, overrule a decision reached earlier by a three-judge panel in a separate case. See Mojica v. Gannett Co., 7 F.3d 552 (7th Cir. 1993) (en banc).

Two intertwined reasons compel the result we reach today. First, our examination of the relevant cases shows that this issue requires case-by-case factual analysis to determine the extent to which a state law claim will require interpretation of a CBA. The second is we believe that the controlling legal principle is stated too broadly in Bluffton Castings.

In Bluffton Castings the issue was, in part, whether a claim based on the same Indiana mechanic's lien statute at issue here was preempted under sec. 301. The panel, relying on language in Lingle v. Norge Division of Magic Chef, Inc., 486 U.S. 399, 410 n.10 (1988), concluded that it was. That language is that "[s]ection 301 governs claims founded directly on rights created by collective-bargaining agreements, and also claims 'substantially dependent on analysis of a collective-bargaining agreement.'" From this, the panel derived two alternative conditions under which preemption would result: "either because it depends on interpretation of a CBA or because the claim is founded on the CBA." Bluffton Castings, at 862. In what we conclude was too broad a reading of the phrase, the panel held that the mechanic's lien claims were "founded on the CBA" and thus preempted. We now hold, consistent with Lingle and Livadas v. Bradshaw, 512 U.S. 107 (1994), that a state law claim is not preempted if it does not require interpretation of the CBA even if it may require reference to the CBA.

Since Textile Workers Union of America v. Lincoln Mills, 353 U.S. 448 (1957), it has been clear that sec. 301 expresses a policy that the substantive law to apply in sec. 301 cases is federal law, which courts were directed to fashion from the policy of national labor laws. The preemptive effect of sec. 301 was first explored in Teamsters v. Lucas Flour Co., 369 U.S. 95 (1962), a case involving a claim for violating a collective bargaining agreement. The guiding principle behind sec. 301 preemption was that a contract should not have different meanings under federal law and the laws of various states. Today, it is well- understood that a claim for breach of a collective bargaining agreement is preempted. But in other cases, not based directly on a CBA, the scope of preemption continues to cause some bewilderment. The Supreme Court itself has noted, "We are aware . . . that the Courts of Appeals have not been entirely uniform in their understanding and application of the principles set down in Lingle and Lueck [Allis Chalmers Corp. v. Lueck, 471 U.S. 202 (1985)]." Livadas, at 124 n.18. The Court, however, declined, at that time, to make it clearer.

So we must do our best. While preemption is a strong federal policy, Congress has not exercised authority to occupy the entire field of labor legislation, and it did not explicitly declare the extent to which it intended sec. 301 to preempt state law. What has become clear is that preemption can extend beyond contract disputes to other state law claims if resolution of those claims is sufficiently dependent on an interpretation of a CBA. In Lueck, a claim based on the Wisconsin tort of bad faith in the handling of an insurance claim was preempted because the claim was substantially dependent on the interpretation of a CBA. Two years later, the Court made the statement relied on in Bluffton Castings: that sec. 301 governs claims "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, 482 U.S. 386, 394 (1987), (quoting Electrical Workers v. Hechler, 481 U.S. 851, 859 n.3 (1987)). But the Supreme Court has often cautioned that "not every dispute concerning employment, or tangentially involving a provision of a collective- bargaining agreement, is pre-empted by sec. 301 or other provisions of the federal labor law." Lueck, at 211.

Then in Lingle, a claim based on the Illinois tort of retaliatory discharge was found not to be preempted: "[W]e hold that an application of state law is pre-empted by sec. 301 of the Labor Management Relations Act of 1947 only if such application requires the interpretation of a collective-bargaining agreement." At 413. More recently, in Livadas, the Supreme Court said that a claim based on a California wage payment penalty statute should have been allowed to proceed even though the amount of the claim might be determined under the collective bargaining agreement. The mere need to look to the CBA for damage computation was said to be no reason to hold the state-law claim defeated by sec. 301. The issue is whether a state law conflicts or interferes with federal law. These principles were applied in a case under the Railway Labor Act, in which a state wrongful discharge was allowed to proceed. Saying the standard under the RLA was "virtually identical" to that in LMRA cases, the Supreme Court again cautioned that sec. 301 cannot be read broadly to preempt rights conferred on individual employees as a matter of state law. Hawaiian Airlines, Inc. v. Norris, 512 U.S. 246 (1994). The principles set out in these cases, as other courts have noted are sometimes easier to mouth than to apply, see, e.g., Foy v. Pratt & Whitney Group, 127 F.3d 229 (2nd Cir. 1997), involving as they do, claims reaching far beyond those clearly founded on rights created by CBAs--for instance, those for breach of a collective bargaining agreement.

In our case, as in Bluffton Castings, the employees' rights to the monies due, and the precise amount, depend on the collective bargaining agreement. Here, that sum is undisputed. Nevertheless, it remains true that the entitlement to the money due is laid out in the CBA. If entitlement or the amount due were seriously in dispute, as to these questions interpretation of the CBA would be necessary and would be resolved in the appropriate way--arbitration followed by confirmation, or a direct 301 suit in federal court if arbitration is not called for in the CBA. But whether the amount due is resolved, as here, by stipulation, or whether it is resolved through procedures set out in the CBA, the contract issues are separate from the claim the employees presented to the bankruptcy court. Once the contract issues are resolved, the employees can present their separate claim in bankruptcy for priority based on the Indiana mechanic's lien statute. The priority among creditors in a bankruptcy proceeding is not dependent on a CBA. It is not something which a collective bargaining agreement can or does dictate. No amount of interpretation of a CBA and no arbitrator's decision would, independent of ...