McLendon v. Continental Group, Inc.

Decision Date22 January 1985
Docket NumberCiv. A. No. 83-1340.
Citation602 F. Supp. 1492
PartiesCecil McLENDON, Don Vandertulip, Jimmie Cartharn, and Konrad Trojaniar, Plaintiffs, v. CONTINENTAL GROUP, INC., Defendant.
CourtU.S. District Court — District of New Jersey





Rothbard, Harris & Oxfeld by Emil Oxfeld, Newark, N.J., Plotkin & Jacobs by Robert Plotkin, Chicago, Ill., for plaintiffs.

Williams, Caliri, Miller & Otley by Terrence Dwyer and Barry T. Moskowitz, Wayne, N.J., for defendant.

SAROKIN, District Judge.

This action is before the court on defendant's motion to dismiss Counts I and II of plaintiff's Amended Complaint for failure to state a claim, Fed.R.Civ.P. 12(b)(6), and for summary judgment on Counts III and IV of that Complaint. At issue are important legal questions involving the scope and application of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001, et seq. and the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961, et seq., in a civil context. Underlying these broad issues, however, are significant allegations that defendant laid off members of the plaintiff class illegally and, specifically to deprive them of particular employee benefits to which they were soon to become entitled. The case therefore involves a fundamental question regarding the extent to which an industry may effectuate economies by depriving employees of prospective benefits which they otherwise would have received but for the actions taken by their employer.


This is a class action brought on behalf of four named plaintiffs and all others similarly situated. Plaintiffs allege that they are all former employees of the defendant, each of whom was laid off as he approached the time at which he would become eligible for two varieties of "Magic Number" employee benefits, embodied in the 1977 collective bargaining agreement between defendant and the United Steel Workers ("USW"). These benefits are and would be available to employees who have been laid off for two years or who have lost their jobs as a result of a plant closing. An employee becomes eligible for "Rule of 65" benefits if, on the last day worked, he has twenty years of service with defendant and if, at any time within two years of his last day worked, the employee's age and years of service total at least sixty-five years. Similarly, 70/75 benefits are available to employees with at least fifteen years of service who are fifty years of age or older and whose age and service total seventy or more, or who are any age, with age and service totaling seventy-five or more. See Complaint, ¶¶ 11-13. It should be noted that for the purpose of these benefits, years of service include the first two years following a layoff. This so-called "creep provision" operates such that the rehiring of a laid-off employee for even one day commences a new two-year period, for the purposes of both calculating years of service and determining eligibility for Rule of 65 benefits. Aff. of Stephen C. Rexford, ¶¶ 16, 17, 19.

Plaintiffs contend that, in order to reduce the amount of Magic Number benefits to be paid to employees, defendant implemented a "capping program," the result of which was the layoff of hundreds of Continental employees who were close to satisfying, but had not yet satisfied, the requirements for such benefits. Furthermore, plaintiffs allege, defendant has not recalled these workers, despite the occurrence of job openings to which they were arguably entitled. This too, plaintiffs allege, was a series of decisions improperly motivated by a desire to avoid paying these types of benefits in the future. Complaint, ¶ 20.

In answer to these allegations, defendant essentially pleads economic necessity. During the 1970s, defendant contends, the can industry as a whole suffered a severe decline. Can purchasers began to manufacture their own cans or to utilize plastic containers or other alternatives to metal cans. Technological changes resulted in the conversion from three- to two-piece cans, requiring fewer workers to assemble. These circumstances caused decreases in production, plant closings and the layoff of workers. The can industry was forced to implement extensive austerity measures.

These austerity measures were primarily directed to reducing labor costs. For example, defendant attempted to limit the number of temporary employees hired, by controlling inventories and regulating the timing of vacations and use of overtime. Additionally, Continental employed a "cap and shrink" strategy, whereby plants would be allocated a maximum number of employees, which number would then shrink by attrition until the plant could be closed down. Defendant admits that "Continental undeniably did look at pension costs when deciding what plants to shut down and cap." However, it argues, "the decision to cap and shrink was not made solely on the basis of pension costs. A given plant's age, capital depreciation, condition, layout, machinery, customer base, manufacturing effectiveness and capability, product mix, geographical proximity to markets, proximity to transportation, lease provisions and numerous other factors were also considered." Rexford Aff., ¶ 29. Of course, employee benefits in general, and Magic Number benefits in particular, were a major expense incurred by Continental: Magic Number benefits provide for the payment of an employee's pension at an earlier age, in addition to a special monthly supplement payable until the age of 62 or the obtaining of other long-term employment. Additionally, these benefits were not paid out of a pension fund, but rather, were unfunded and thus payable out of a given year's revenues. Hence they are seen as particularly costly by the industry, including defendant.

Alleging that defendant's actions with respect to the plaintiff class violate RICO and ERISA, plaintiffs bring this action seeking declaratory and injunctive relief as well as damages. Related actions have been brought in Los Angeles, California, Pittsburgh, Pennsylvania and in Alabama. The Los Angeles case, captioned Amaro v. Continental Can Company (No. 82-3984) was filed on August 9, 1982 and challenged Continental's practices of curtailing operations and laying off workers in order to prevent plaintiffs from attaining eligibility for particular employee benefits. This case was dismissed on December 15, 1982 on grounds of res judicata, based upon a prior arbitration between Continental and the USW concerning these layoffs, but, on January 23, 1984, the Court of Appeals for the Ninth Circuit reversed. 724 F.2d 747. The Pittsburgh case, Gavalik v. Continental Can Company (No. 81-1519) was filed on September 9, 1981 and challenged practices similar to those challenged here, as well as a particular instance in which plaintiffs alleged that defendant relocated a facility in order to deprive them of Magic Number benefits. In Gavalik, the court denied defendant's motion to dismiss for failure to exhaust grievance procedures set forth in the parties' collective bargaining agreement. Defendant's motion to strike plaintiff's jury demand was, however, granted and class certification was denied as untimely. In light of the latter ruling, another class action was filed by Continental employees on September 28, 1982, alleging generally the same facts and cause of action as in Gavalik. These two cases have been consolidated. Finally, the Alabama action, originally filed in state court and removed to the United States District Court for the Northern District of Alabama, Amosa v. Continental Group, Inc., CV80-L-1730S, differs from the Los Angeles and Pittsburgh cases in that it sets forth causes of action in common law breach of contract, fraud and civil conspiracy, rather than based upon ERISA. Furthermore, in the Alabama action, plaintiffs amended their complaint to name the USW as a defendant, alleging that if there existed a duty to exhaust arbitration remedies, the union had failed adequately to represent plaintiffs in doing so.

A. Counts III and IV: The ERISA Claims

Counts III and IV of plaintiffs' complaint request declaratory and injunctive relief and damages as a result of defendant's alleged violation of section 510 of ERISA, 29 U.S.C. § 1140. That section states, in pertinent part:

It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan, this subchapter, section 1201 of this title, or the Welfare and Pension Plans Disclosure Act, or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan, this subchapter or the Welfare and Pension Plans Disclosure Act.

Defendant moves to dismiss these counts on two separate grounds. First, defendant argues that the Magic Number benefits here at issue are not the type of benefits covered by ERISA. Second, defendant claims that these counts should be dismissed because plaintiffs have failed to exhaust the arbitration remedy to which they must submit under the terms of the existing collective bargaining agreement.

The gravamen of defendant's argument that Magic Number benefits are not governed by the provisions of ERISA is the contention that these benefits are at their essence layoff benefits and not retirement benefits. Continental asserts that the legislative history shows such benefits to be beyond the purview of those wrongs which Congress intended to right when it passed ERISA.

This argument is wholly without merit. First, the language of the statute, as quoted supra, is perfectly clear on the scope of ERISA: it discusses employees' right "under the provisions of an employee benefit plan," and not just with respect to retirement plans. Indeed, ERISA defines ...

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