CURRAN, District Judge.
Forty-eight former salaried employees of Allis-Chalmers Corporation are suing the company in its corporate capacity and in its capacity as trustee of the Allis-Chalmers Salaried Employees Termination Pay Plan. They seek to overturn the defendant's decision to deny them severance benefits after Allis-Chalmers sold the operation in which they were employed to A-C Compressor, which continued to employ the plaintiffs at the same jobs and salaries, but with reduced benefits. In their complaint, as amended, the plaintiffs allege eleven causes of action:
COUNT I: Breach of an Employee Retirement Income Security Act of 1974 (ERISA) severance pay plan;
COUNT II: Violations of ERISA disclosure and fiduciary obligations;
COUNT III: Breach of Contract;
COUNT IV: Intentional Breach of Contract;
COUNT V: Violation of section 109.07 of the Wisconsin Statutes; claim for compensatory damages;
COUNT VI: Violation of section 109.07 of the Wisconsin Statutes; claim for punitive damages;
COUNT VII: Violation of section 109.03 of the Wisconsin Statutes;
COUNT VIII: Tortious breach of fiduciary duty;
COUNT IX: Breach of the duty to act fairly and in good faith;
COUNT X: Intentional interference with prospective economic activity;
COUNT XI: Intentional interference with the employment relationship of the plaintiffs and A-C Compressor Corporation.
They seek compensatory and punitive damages for these claims. This court has federal question jurisdiction over the claims raised under the Employee Retirement Income Security Act (ERISA), see 28 U.S.C. § 1331 and 29 U.S.C. § 1132, and diversity jurisdiction over the state common law and statutory claims. See 28 U.S.C. § 1332.
After removing this case from the Milwaukee County Circuit Court, the defendant answered and, after the close of discovery, moved for summary judgment on all claims. At the same time, the plaintiffs filed a cross motion for partial summary judgment of liability on Counts I, II, V & VI. Both motions are now fully briefed and ready for decision.
In support of its motion Allis-Chalmers has submitted authenticated documents and portions of the depositions of plaintiffs Ernst Henne, Richard Endres and Lawrence Wittman; of attorneys John Schleismann, Margaret Bruemmer and Richard Wolff; of vice president of finance for Allis-Chalmers, Ronald Burns; of president of A-C Compressor Corporation, William Conner; and of executive vice president and chief financial officer of A-C Compressor, Kenneth Gardner. Based on these documents, the defendant has compiled the following version of "undisputed" facts:
Allis-Chalmers, a manufacturing company based in West Allis, Wisconsin, suffered a severe decline in its business and substantial losses in the early 1980's. Many employees were laid off. In order to maintain its financial viability, Allis-Chalmers sold some of its business units, including the Compressor Operation, previously a part of its Equipment Services Division.
Although several buyers negotiated with Allis-Chalmers to purchase the operation, the ultimate purchaser, A-C Compressor Corporation, was formed by a "leveraged buy-out" management group which included William Conner, prior manager of the Compressor Operation, and Kenneth Gardner, controller of the Equipment Services Division. Their group, through its attorneys (Reinhart, Boerner, Van Deuren, Norris and Riselbach) approached Allis-Chalmers with a proposal in January, 1985.
Thereafter, Allis-Chalmers and the Conner group exchanged a series of drafts which ultimately led to the Asset Purchase Agreement. The initial draft, produced by Allis-Chalmers, contained language concerning numerous employee benefit plans. The next draft, prepared by the Reinhart firm, and all subsequent proposals eliminated virtually all reference to benefit plans at the purchaser's request.
During the negotiations, employee benefits were discussed briefly. Neither the principals of A-C Compressor, their attorneys nor the responsible attorneys for Allis-Chalmers (Margaret Bruemmer and Richard Wolff) could recall any specific discussion concerning benefit plans to be maintained by A-C Compressor after the sale.
The Asset Purchase Agreement was signed on Tuesday, February 25, 1985. Subsequently, members of the purchasing group interviewed other equity partners to finalize the financing necessary to close the deal by Friday, February 28, 1985. Absent the necessary funding, the transaction would have fallen through and the purchasers would have lost their down payment.
On Wednesday, February 26, 1985, Allis-Chalmers announced that A-C Compressor had been formed and that the Compressor Operation employees would now work for A-C Compressor. Although the Plaintiffs had heard rumors that the Operation was being offered for sale, they were not directly involved in any of the negotiations and did not know the terms of the negotiations or sale.
By Friday, February 28, 1985, the funding was obtained and the closing occurred on that date.
Upon the sale of the Compressor Operation to A-C Compressor, Plaintiffs continued in their jobs without missing a minute of work. They also continued to receive the same salary and to perform the same duties as previously. The new company offered the prior Allis-Chalmers employees certain benefits, including vacation pay and a disability insurance plan. The amount of an employee's vacation entitlement under the A-C Compressor policy depends upon length of employment and, for that purpose, years at Allis-Chalmers were included. Thus, example, if an employee had 10 years of service with Allis-Chalmers before the sale, he was entitled to three weeks vacation from A-C Compressor. An employee hired by A-C Compressor from another source with 10 years experience would only be entitled to a one week vacation.
The disability plan provided by A-C Compressor had an eligibility period for coverage under which a new employee would not receive coverage until the first day of the following month. The Plaintiffs nevertheless received immediate coverage effective as of February 25, 1985.
A-C Compressor does not maintain a pension or termination pay plan.
Allis-Chalmers maintained numerous employee benefit plans for its salaried employees, including the Allis-Chalmers Termination Pay Plan ("the Plan"). The Plan in effect in 1977 contained the following relevant language regarding eligibility for termination benefits:
A Covered Employee whose employment with the Company is involuntarily terminated from active service (or during the first 90 days of an excused absence or leave of absence), other than ... termination following an offer of employment with credit for Company service with another employer who continues a former Company operation, ... shall be an "Eligible Employee" eligible for a termination payment. (emphasis supplied).
In 1982, the above-quoted provision of the Termination Pay Plan was amended to delete the phrase "with credit for company service."
Summaries of all Allis-Chalmers benefit plans were contained in an employee booklet, "Looking Beyond Your Paycheck." It described the Termination Pay Plan, and included the following:
You will not be eligible if your termination is for cause, if it follows an offer of continued employment with the Company at any location or follows an offer of employment with credit for service with Allis-Chalmers with another employer which continues a Company operation. The booklet also cautioned that it was only a summary of the Plan and that:
Complete details of the plan appear in the plan document, which governs its operation and administration. This plan document would take precedence, of course, if there should be any conflict between its provisions and the information in this booklet.
The benefits booklet was not revised to reflect the 1982 plan amendment.
As of February 1, 1985, further amendments to the Plan were adopted which, among other things, reduced the amount of benefits which an eligible employee could receive. A written announcement explaining these changes was sent to all employees, including Plaintiffs, on January 18, 1985.
By letter dated July 24, 1985, Plaintiffs, through their attorneys, requested termination pay benefits under the Termination Pay Plan. The Company considered their request and denied it by letter dated August 9, 1985. The denial was based on the language of Section 2 of the plan, as amended in 1982, which excludes from coverage employees who are terminated "following an offer of employment with another employer who continues a former Company operation." The Company explained that termination pay is intended as a buffer against loss of income for an individual facing a period of unemployment.
On August 26, 1985, Plaintiffs appealed the decision to the Allis-Chalmers Compensation and Benefits Committee-Review Committee. It denied the appeal, relying first upon the express exclusion contained in the Plan as amended in 1982. Addressing another contention in Plaintiffs' appeal, the Committee also noted that while the Looking Beyond Your Paycheck Handbook did not reflect the 1982 revision, it did state that the plan documents are controlling and "take precedence ... if there should be any conflict between its provisions and the information in the booklet."
The Committee further ruled that, even if the language of the 1977 plan governed, the same result would be reached because A-C Compressor both continued an operation and gave credit for Allis-Chalmers service for vacation and disability benefit purposes. Plaintiffs then filed the present action.
Allis-Chalmers Corporation's...
