McLendon v. Continental Can Co.

• Decision Date: 14 August 1990
• Docket Number: AFL-CIO,No. 89-5596,89-5596
• Citation: 908 F.2d 1171
• Parties: , RICO Bus.Disp.Guide 7534, 12 Employee Benefits Ca 2049 Cecil McLENDON, Don Vandertulip, Jimmie Carthan, Jr. and Konrad Trojniar, on their own behalf and on behalf of all others similarly situated v. CONTINENTAL CAN COMPANY, a corporation, a New York corporation incorporated in 1913; Continental Can Company, Inc., a Delaware corporation; Continental Packaging Company, Inc., a Delaware corporation; The Continental Group, Inc., a New York corporation incorporated in 1982; and KMI Continental Inc., a New York corporation, Appellants, v. UNITED STEELWORKERS OF AMERICA,
• Court: U.S. Court of Appeals — Third Circuit

Page 1171

908 F.2d 1171

59 USLW 2136, RICO Bus.Disp.Guide 7534,

12 Employee Benefits Ca 2049

Cecil McLENDON, Don Vandertulip, Jimmie Carthan, Jr. and

Konrad Trojniar, on their own behalf and on behalf

of all others similarly situated v. CONTINENTAL CAN COMPANY, a corporation, a New York

corporation incorporated in 1913; Continental Can Company,

Inc., a Delaware corporation; Continental Packaging

Company, Inc., a Delaware corporation; The Continental

Group, Inc., a New York corporation incorporated in 1982; and KMI Continental Inc., a New York corporation, Appellants, v. UNITED STEELWORKERS OF AMERICA, AFL-CIO.

No. 89-5596.

United States Court of Appeals, Third Circuit.

Argued Jan. 18, 1990.

Decided July 26, 1990.

As Amended Aug. 14, 1990.

Nicholas DeB. Katzenbach (argued), Douglas S. Eakeley, Riker, Danzig, Scherer & Hyland, Morristown, N.J., for appellants.

Robert Plotkin (argued), John G. Jacobs, Plotkin & Jacobs, Ltd., Robert D. Allison, Chicago, Ill., Daniel P. McIntyre, Falmouth, Me., for appellees.

Before HIGGINBOTHAM, Chief Judge, and BECKER and NYGAARD, Circuit Judges.

OPINION OF THE COURT

NYGAARD, Circuit Judge.

In this class action based on Sec. 510 of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. Sec. 1140, and the Racketeer The district court, in its order dated June 15, 1989, specifically found that: (1) Continental instituted and maintained the liability avoidance plan found to be illegal under section 510 of ERISA in Gavalik v. Continental Can Co., 812 F.2d 834 (3d Cir.), cert. denied, 484 U.S. 979, 108 S.Ct. 495, 98 L.Ed.2d 492 (1987) as followed by McLendon v. The Continental Group, Inc., Civ. No. 83-1340 (D.N.J. May 10, 1989), as amended, 1989 WL 81523 (D.N.J. June 7, 1989); (2) Continental designed the liability avoidance program ("LAP") to prevent employees from attaining eligibility for layoff benefits to which they would become entitled under a 1977 agreement between Continental and the United Steelworkers of America ("USW"); (3) LAP was the determinative factor in laying off the St. Louis class members; and (4) Continental had failed to sustain their burden of proving that any of the 315 St. Louis class members would have lost work in any event. The district court ordered nationwide permanent injunctive relief barring prospective use of the LAP to violate section 510 of ERISA; entered a judgment of liability against Continental in favor of the St. Louis class members; requested a list of St. Louis steelworkers laid off pursuant to the discriminatory plan and ordered Continental to cooperate fully; retained jurisdiction to ensure compliance with the permanent injunction; appointed Professor George L. Priest of the Yale Law School as Special Master to handle settlement or damage claims and any remaining issues in the case; and ordered that Continental show cause why its "same-loss" defense should not be stricken at every plant nationwide and entered judgment accordingly. ¹ Continental raises four issues on appeal; whether the district court erred by: (1) presuming that the determinative factor of every layoff at every plant was the desire to defeat unfunded pension benefits; (2) using that presumption to find liability at 73 St. Louis; (3) rejecting Continental's "same-loss" defense at 73 St. Louis and all other plants and; (4) granting permanent injunctive relief.

Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Secs. 1961 et seq., defendant, The Continental Group ("Continental"), appeals from that portion of the district court order granting permanent injunctive relief to the plaintiff class of steelworkers. We have jurisdiction pursuant to 28 U.S.C. Sec. 1292(a)(1).

For the following reasons, we will affirm.

I. Factual Background ²

A. The Liability Avoidance Plan ("LAP" ).

Continental entered into a collective bargaining agreement with the United Steelworkers of America, AFL-CIO ("USW") in 1977. This agreement established two pension plans, the "70/75" pension and the "Rule of 65" pension. ³ These plans were commonly called "Magic Number" benefits because they accrued when the employee reached a certain age and a certain number of years of service. The plans provided layoff benefits to those employees experiencing a break in service for two years or more from plant shutdown, involuntary layoffs, or physical disability. Both plans were implemented on a plantwide seniority system.

Recognizing both that these benefit plans created substantial, unfunded pension liabilities, and that the steel beverage can market was dwindling, Continental developed the LAP to avoid unfunded liabilities by laying off workers close to eligibility for benefits. This program was also The BELL System is really two programs. BELL I involved a "cap and shrink" program. A "cap" is a workforce reduction scheme, accomplished by setting a maximum number of employees, and is designed to eliminate those employees approaching Magic Number benefits. Continental protected workers above the "cap-line" or those employees whose pension under the two plans had already vested. Workers below the cap-line were not usually vested and would not be rehired for a period of five years. ⁵ Numbered computer codes were assigned to these pension-risk employees to ensure that they would not be rehired prematurely. A "249" or "299" computer signal alerted Continental that an employee so designated could potentially cause it pension funding problems. A "shrink" refers to a workforce reduction from manufacturing or market conditions. BELL II instructed plant managers to shift business to plants with low unfunded pension liabilities or to plants that needed to retain vested employees. Continental employed scattergraphs ⁶ to identify plant employees close to vesting. The combination of BELL I and BELL II and a sophisticated computer guiding system allowed Continental to implement the LAP corporation-wide. This lawsuit primarily involves the implementation of the LAP at 73 St. Louis and its causal link with layoffs at that plant.

                known as the BELL System. 4   The LAP was executed by a computer tracking system which identified workers at a particular plant according to their age and years of service.  It operated nationwide
                

B. 73 St. Louis.

Continental's 73 St. Louis plant produced food, beverage and general packaging cans. Between 1965 and 1972, the plant employed 850 hourly workers. Pursuant to a requirements-output contract, 73 St. Louis supplied Anheuser-Busch's St. Louis brewery with steel cans. At first, this contract occupied 80-85% of the 73 St. Louis plant's capacity. In 1973 and 1974, Anheuser-Busch began using two-piece aluminum cans and its demand for steel cans from Continental declined and 73 St. Louis began losing money. In 1976, in an effort to keep the steel can industry competitive, Anheuser-Busch invited both Continental and American Can Company, Continental's chief competitor, to bid on its St. Louis business. Anheuser-Busch did not accept Continental's contractual demands ⁷ and awarded the contract to American. Continental produced its last cans for Anheuser-Busch at 73 St. Louis in 1979. When Continental lost the Anheuser-Busch business, it obtained a lower volume contract from Mead-Johnson, a manufacturer of infant formula, and converted 73 St. Louis from beverage to infant formula can production.

Dwindling profits from declining business volume caused Continental to institute measures designed to increase worker productivity.

These measures included a decrease in manning at the plant and the implementation of BELL I and BELL II. Continental laid off workers at 73 St. Louis in 1976, 1977 and 1980, reducing the workforce from 550 in 1976 to 237 by the end of 1980.

II. Procedural History

A. The Class Action.

Four former employees of Continental plants in Passaic, New Jersey and Chicago, Illinois filed this class action. The court certified a class of all participants in the Continental Pension Plan "who suffered [or will suffer] a break in pension service subsequent to December 1, 1977 ... as a result," in whole or in part, of that capping program [LAP], excluding persons who were employed at plants for which separate class actions had already been adjudicated. App. at 228a.

The class maintains they were laid off pursuant to LAP because they approached eligibility for Magic Number (Rule of 65 or 70/75) pension benefits and that although job openings became available, Continental kept them on permanent layoff to prevent them from achieving a vested right to their pension benefits. App. at 57. The complaint alleged that the LAP violated section 510 of ERISA as well as the Racketeer Influenced and Corrupt Organizations Act ("RICO").

B. Pre-Trial Rulings.

In 1987, plaintiff-appellees moved for partial summary judgment on two issues: existence of the LAP and its illegality under section 510 of ERISA. On the basis of this Court's decision in Gavalik, involving the same basic issues at Continental's Pittsburgh plant, the district court granted partial summary judgment, holding that Continental was collaterally estopped from relitigating issues establishing liability under section 510 of ERISA. See McLendon, 660 F.Supp. at 1564-65.

Later, the district court ordered the plaintiff class to produce a list of claimants, within forty-five days, who could satisfy the Gavalik criteria. ⁸ The district court also bifurcated the RICO and ERISA issues and ordered that the ERISA issues be tried first. Plaintiffs produced two lists totalling 2531 claimants. These claimants came from 45 different Continental plants. Within 30 days, Continental produced evidence opposing the Gavalik criteria and supporting a same-loss defense.

To structure the ERISA trial, the district court ordered the plaintiff class to identify the five plants with the largest number of claimants and to disclose evidence with respect to those plants. The court then decided that trials would proceed on a plant-by-plant...