Gavalik v. Continental Can Co.
Decision Date | 19 February 1987 |
Docket Number | 85-3615,Nos. 85-3597,s. 85-3597 |
Parties | , 8 Employee Benefits Ca 1047 Robert GAVALIK, Frank Grelo, Joseph Urban, Anthony Ulyan, Donald A. Berger, Ronald Clarke, Henry Foster, George Patterson, Joseph Kellerman, Robert Pavlik, Phillip Farley, Thomas Riley, Thomas Warren and Francis Humenik v. CONTINENTAL CAN COMPANY. Albert J. JAKUB, Fred Cipriana, Jr., Anthony J. Bernardo, Thomas A. Mulligan, William T. Tarr, Donald W. Roberts, Ernest Wirbecki and George W. Stepanic on behalf of themselves and others similarly situated Alfred Borrelli, Jr., Michael Di Iorio, Anthony Folino, Thomas E. Johston, Robert Kapolka, John C. Kincel, Peter A. Rumain, Harry H. Smith, Melvin J. Smith, Jack A. Stull and Ernest B. Taddeo, on behalf of themselves and others similarly situated v. CONTINENTAL CAN COMPANY, a member of Continental Group, Inc. Appeal of Robert GAVALIK, et al. and Albert J. Jakub, et al. Appeal of CONTINENTAL CAN COMPANY, U.S.A., a member of the Continental Group, Inc. |
Court | U.S. Court of Appeals — Third Circuit |
Michael H. Gottesman, (Argued), Bredhoff and Kaiser, Washington, D.C., Roslyn M. Litman, Litman, Litman, Harris & Brown, P.A., Pittsburgh, Pa., for Robert Gavalik, et al. and Albert J. Jakub, et al.
Samuel W. Braver, James D. Morton, (Argued), Buchanan Ingersoll, Professional Corp., Pittsburgh, Pa., Eugene L. Stewart, (Argued), Stewart and Stewart, Washington, D.C., for Continental Can.
Before ADAMS, * WEIS and HIGGINBOTHAM, Circuit Judges.
This litigation originated in two separate class actions, Gavalik, et al. v. Continental Can Co., C.A. No. 81-1519, filed September 18, 1981, and Jakub, et al. v. Continental Can Co., C.A. No. 82-1995, filed September 27, 1982, alleging that the institution and implementation of a "liability avoidance" scheme by Continental Can ("Continental") operated to prevent employees from attaining eligibility for employee benefits in violation of Sec. 510 of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. Sec. 1140 (1982). 1 The cases were consolidated on January 17, 1984, and a single class action was certified. The trial of the consolidated action was bifurcated on the issues of liability and damages. The liability phase of the litigation commenced on July 22, 1985, and concluded on August 8, 1985. On September 24, 1985, the district court entered judgment for the defendant, and the plaintiffs appealed to this Court. Continental has cross-appealed asserting that plaintiffs' claims before the district court were barred by the applicable statute of limitations and/or plaintiffs' failure to exhaust their administrative remedies. We reject the contentions of the cross-appeal, and because we find that the district court misallocated the burdens of proof, we will reverse and remand for proceedings consistent with this opinion. 2
Continental Can is a corporation principally engaged in the business of manufacturing cans. Appellants and the class they represent 3 are former employees of Continental's Pittsburgh plant, which is the focus of this litigation. During the relevant period, appellants were all members of Local 4337 of the United Steelworkers of America, AFL-CIO ("USW"), which was their recognized collective bargaining agent.
A. The "Liability Avoidance" Program
In the mid-1970s, Continental began experiencing a steady decline in business. This decline was principally a result of new manufacturing processes that required fewer plants, the increasing use by the can industry of composite materials and aluminum instead of steel to produce cans, and a growing trend among Continental's customers to begin to manufacture their own cans. See FF 31-32. Continental, as part of an effort to control and reduce its anticipated costs in light of its declining business, 11 in 1976 devised a "liability avoidance" program. 12 In order to implement effectively this program, Continental developed an intricate system called the Bell System. The concept component of the Bell System, Bell I, had two complementary objectives: to identify Continental's unfunded pension liabilities so as to avoid triggering future vesting by placing employees who had not yet become eligible for break-in-service on layoff, and to retain those employees whose benefits had already vested. See FF 53, 59, 68.
Under Bell I, Continental developed a "cap and shrink" program. It defined a "cap" as a workforce reduction designed to reduce unfunded liabilities; a "shrink" was a workforce reduction resulting from market or manufacturing conditions. See FF 54. The decision whether to cap a particular plant was made on the basis of a variety of economic factors at the plant, including its potential employee benefits costs. The determination of an actual cap level was based on Continental's assessment of the needed level of production to meet projected sales. 13 The cap-line limited employment to a specific name on the seniority roster 14 and was effective for five years. Employees below the cap-line, whether then at work or on temporary layoff, were designated as "permanently laid off," and could not be recalled for five years 15 except under extreme circumstances, and then only with prior approval from the highest level of Continental's management. See FF 54-57. These employees were not informed by Continental that they would not be recalled.
To further effectuate the goals of the Bell System, Bell II instructed plant managers to adjust their business volume to the desired level of employment. In accordance with this plan, plant managers were authorized to shift business to plants that either had low unfunded pension liability or plants that needed the work in order to retain employees with vested 70/75 benefits. See FF 61, 63; Jt.App. at 1367. In addition, Bell II produced and employed Finally, in April of 1977, a "liability avoidance tracking system"--the "Red Flag" System--was instituted in order to prevent inadvertent recalls of employees designated as permanently laid off. Red Flag was tied to Continental's payroll system and was designed to generate automatically a red flag report to alert top Continental officials whenever a permanently laid off employee received a pay check either for actual hours worked or vacation. See FF 69-70.
scattergraphs--computerized charts that listed the age and service of Continental employees at a given time--to identify the unfunded 70/75 and Rule of 65 liabilities and to ascertain when payments under those plans would be triggered. By looking at a scattergraph, a plant...
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