International Ass'n of Machinists & Aerospace Workers, IAM Local 437 v. U.S. Can Co.

• Decision Date: 27 June 1989
• Docket Number: No. 87-1784,87-1784
• Citation: 441 N.W.2d 710,150 Wis.2d 479
• Parties: , 132 L.R.R.M. (BNA) 2043, 114 Lab.Cas. P 11,917, 4 IER Cases 1081 INTERNATIONAL ASSOCIATION OF MACHINISTS & AEROSPACE WORKERS, IAM LOCAL 437, IAM Local 710, IAM District 10, IAM District 172, Individually and as authorized representatives of all IAM Employees of United States Can Company, Continental Can Company, CCC Series 200, Inc., Inter-American Packaging, Inc., and GP Acquisition Company, Inc., Plaintiffs-Appellants, v. UNITED STATES CAN COMPANY, a Georgia corporation, Continental Can Company, U.S.A., Inc., a Delaware corporation, CCC Series 200, Inc., a Delaware corporation, Inter-American Packaging, Inc., a Pennsylvania corporation, GP Acquisition Company, Inc., a Pennsylvania corporation, and John Doe's 1-100, collectively referring to the banks, and other lenders participating in the financing of the acquisition of Continental Can, packaging sector by United States Can Company, Defendants-Respondents.
• Court: Wisconsin Supreme Court

Page 710

441 N.W.2d 710

150 Wis.2d 479, 132 L.R.R.M. (BNA) 2043,

114 Lab.Cas. P 11,917,

4 IER Cases 1081

INTERNATIONAL ASSOCIATION OF MACHINISTS & AEROSPACE WORKERS,

IAM LOCAL 437, IAM Local 710, IAM District 10, IAM District

172, Individually and as authorized representatives of all

IAM Employees of United States Can Company, Continental Can

Company, CCC Series 200, Inc., Inter-American Packaging, Inc., and GP Acquisition Company, Inc., Plaintiffs-Appellants, v. UNITED STATES CAN COMPANY, a Georgia corporation,

Continental Can Company, U.S.A., Inc., a Delaware

corporation, CCC Series 200, Inc., a Delaware corporation,

Inter-American Packaging, Inc., a Pennsylvania corporation,

GP Acquisition Company, Inc., a Pennsylvania corporation,

and John Doe's 1-100, collectively referring to the banks,

and other lenders participating in the financing of the

acquisition of Continental Can, packaging sector by United

States Can Company, Defendants-Respondents.

No. 87-1784.

Supreme Court of Wisconsin.

Argued March 28, 1989.

Decided June 27, 1989.

Richard D. Wilkinson, argued, Stephen H. Skoller, Mary Jo Reich, and Lowenstein, Sandler, Kohl, Fisher & Boylan, on briefs, Roseland, N.J., and David Leo Uelmen and Previant, Goldberg, Uelmen, Gratz, Miller & Brueggeman, Milwaukee, for plaintiffs-appellants.

Robert A. Christensen, argued, Stanley S. Jaspan, and Foley & Lardner, Milwaukee, for Continental Can Co.

Carson P. Veach, argued, and Seyfarth, Shaw, Fairweather & Geraldson, Chicago, Ill., and Robert H. Bichler and Thompson & Coates, Ltd., Racine, for defendants-respondents, U.S. Can Co., CCC Series 200, Inc., Inter-American Packaging, Inc., and GP Acquisition Co., Inc.

HEFFERNAN, Chief Justice.

This is an appeal on certification of the court of appeals from a judgment of the circuit court for Racine county, which dismissed the complaint of the International Association of Machinists & Aerospace Workers (IAM), some of its local unions, and, in a represented capacity, all the IAM employees of those locals brought against United States Can Company and Continental Can Company. We reverse and remand for further proceedings. ¹

The issue certified to us by the court of appeals was stated as:

Whether an action under the Uniform Fraudulent Conveyance Act, ch. 242, Stats., is preempted by sec. 301 of the Labor Management Relations Act when brought by a union and employees against an employer.

Our response to this certified question must be: No. We conclude that this particular action involves only state law. The action is not preempted by the Labor Management Relations Act (LMRA).

Because the facts determine the application of the law, we recite them in some detail. The United States Can Company in the spring of 1987 agreed to buy the general packaging division of Continental Can Company in a highly leveraged buyout which, it is alleged, would encumber the assets of the packaging division with a debt of sixty-five million dollars, i.e., the purchasers would finance their acquisition primarily by the pledge to lenders of the assets being acquired.

The plaintiffs are the International Association, its local unions, and the union employees of the packaging division plants located in Racine, Wisconsin, and Danville, Illinois. We refer to the plaintiffs herein as "unions." The defendants are the United States Can Company, the acquiring corporation, the Continental Can Company, whose packaging division is being acquired, and an acquisition company which has been established apparently to manage takeovers such as this one. Also joined as defendants are the lending institutions which would finance the takeover. We refer to all of them as "companies."

The unions for some time, not specifically disclosed in the pleadings, have been the bargaining representatives of the employees and are parties to collective-bargaining agreements on behalf of the workers with the Continental Can Company.

Because the unions assert that the buyout will leave a financially impaired employer, they have brought an action under Wisconsin law, ch. 242, Stats., the Uniform Fraudulent Conveyance Act (UFCA) ² in a Wisconsin court to declare the transfer a fraudulent one under the provisions of the act and to enjoin the defendants "from selling, disposing, transferring or otherwise further conveying or encumbering any of the assets" that may be acquired by the transferee company. Other relief, including the appointment of a receiver to protect the employees and other creditors, is sought. No damages are asked for.

The essence of their complaint is that the terms of the buyout without fair consideration will leave the packaging division insolvent or inadequately capitalized, thus resulting in a constructive fraud on creditors under UFCA. Intentional fraud is also alleged.

The unions claim they are proper plaintiffs and have a creditor status by reason of Continental Can Company's obligations to them of $19,950,000 in matured or unmatured claims. While counsel at oral argument was unable to respond with precision to the components of this claimed obligation, the complaint makes clear that the genesis of the relationship is the employer-employee status, which is defined by one or more collective-bargaining agreements. It is asserted that the obligation of the employer consists of matured and unmatured claims for "wages, vacation pay, sick leave pay, life, health and accident insurance, pension contributions, and other employee benefits." The unions, as unions, separately assert that they are creditors of the employers for dues checkoffs.

After the complaint was served, the companies responded by moving to dismiss pursuant to sec. 802.06(3), Stats., on the ground that "this action is preempted by Section 301 of the Labor Management Relations Act, 29 U.S.C. sec. 185." ³

The trial judge, in deciding this motion, appropriately accepted the facts alleged in the complaint as correct; and it is to these facts, recited above, to which the parties have resorted in discussing this litigation.

The circuit judge reasoned that whatever rights the unions had derived completely from their collective-bargaining agreements and, therefore, any action brought on that creditor status was preempted by the LMRA. ⁴ He said in his opinion from the bench that "The claim is founded directly on rights created by the collective bargaining agreement." He stated the "resolution of the dispute under 242 will require this Court to evaluate and interpret a collective bargaining agreement."

After reviewing various decisions of the United States Supreme Court, he concluded by stating:

[A]pplying the rationale contained in the cases cited will require this Court to accept the federal dictate--the federal law dictate that a state court cannot step in and interpret and decide this case in this forum.

He stated he did not have "jurisdiction" to determine the dispute because it would require interpretation of the collective-bargaining agreements; and, therefore, the claim was dismissed.

The appeal by the unions from this order followed and was subsequently certified to this court.

It appears to us that the resolution of this case hinges on the proper characterization of the nature of the plaintiffs' claim. If the claim substantially implicates rights governed by sec. 301 under LMRA, federal law must be applied. If the claim is properly characterized as a state creditor's action to obtain the remedies afforded by UFCA and requires no substantial interpretation of the collective-bargaining agreement as provided by Wisconsin statutes to protect creditors, Wisconsin law is applicable.

The mine-run case subject to preemption "is a contract claim in which a party to the collective-bargaining agreement expressly asserts that a provision of the agreement has been violated." Electrical Workers v. Hechler, 481 U.S. 851, 857, 107 S.Ct. 2161, 2165, 95 L.Ed.2d 791 (1987). The case before us does not have that simplistic characteristic.

We first note the posture of the claim that the unions are creditors as defined by UFCA. The unions make that assertion for their members and for themselves. Under the procedural posture of the case, all parties agree that the allegations of the complaint must be taken as true. Also, it should be noted that one of the principal defendants, United States Can Company, denies any information on which it could form a belief as to the creditor status of the plaintiffs. Continental Can Company, the erstwhile employer, denies that any of the plaintiffs are creditors except for de minimis sums. Both of the principal defendants contend that what is relevant is not just that plaintiffs are, or could be, creditors, but that in any event they are creditors only by reason of the preexisting collective-bargaining agreements.

Essentially, the argument of each side relies upon United States Supreme Court cases. The unions, while recognizing the preemption of federal law in contract disputes over collective-bargaining agreements, point to the exceptions that appear both explicitly and implicitly in United States Supreme Court decisions that demonstrate that not all controversies that arise between parties to a collective-bargaining agreement are sec. 301 cases preempted by federal law. They conclude this is not a sec. 301 case.

The companies adopt the general proposition that any claims that are founded on rights created by collective-bargaining agreements are preempted by federal labor law. They argue that whatever rights the unions have as creditors arise out of collective-bargaining agreements.

The question of whether a claim exclusively involves state law or whether it implicates federal law and thus is subject to preemption is a matter of law. Accordingly, we need not give special deference to the determination of the trial judge. The controlling question of law is, however, not a simple one, and its answer is dependent upon federal law as stated by the United...