McLendon v. Continental Group, Inc., Civ. A. No. 83-1340.

• Court: United States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
• Writing for the Court: SAROKIN
• Citation: 749 F. Supp. 582
• Parties: Cecil McLENDON, Don Vandertulip, Jimmie Cartharn, Jr. and Konrad Trojniar, on Their Own Behalf and on Behalf of All Others Similarly Situated, Plaintiffs, v. The CONTINENTAL GROUP, INC., 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, Defendants.
• Docket Number: Civ. A. No. 83-1340.
• Decision Date: 07 June 1989

749 F. Supp. 582

Cecil McLENDON, Don Vandertulip, Jimmie Cartharn, Jr. and Konrad Trojniar, on Their Own Behalf and on Behalf of All Others Similarly Situated, Plaintiffs,
v.
The CONTINENTAL GROUP, INC., 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, Defendants.

Civ. A. No. 83-1340.

United States District Court, D. New Jersey.

May 10, 1989.

As Amended June 7, 1989.

749 F. Supp. 583

Plotkin & Jacobs, Ltd., Robert Plotkin, John G. Jacobs, Jonah Orlofsky, Rose A. Wehner, Chicago, Ill., Daniel P. McIntyre, Falmouth, Me.; Hoffman & Lazear, H. Tim Hoffman, Oakland, Cal., and Robert D. Allison, Chicago, Ill., for plaintiffs.

Bell, Boyd & Lloyd, Edwin C. Thomas, III, Dennis P.W. Johnson, Chicago, Ill., for defendants Continental Can Group, Inc., Continental Can Co., Inc., Continental Packaging Co., Inc., The Continental Group, Inc. and KMI Continental, Inc.

Buchanan Ingersoll, Samuel W. Braver, Pittsburgh, Pa., for defendants Continental Can Group, Inc., Continental Can Co., Inc., Continental Packaging Company, Inc., The Continental Group, Inc. and KMI Continental, Inc.

Riker, Danzig, Scherer, Hyland & Perretti, Nicholas deB. Katzenbach, Douglas S. Eakeley, Morristown, N.J., for defendants Continental Can Group, Inc., Continental Can Co., Inc., Continental Packaging Company, Inc. The Continental Group, Inc., KMI Continental, Inc.

AMENDED OPINION

SAROKIN, District Judge.

This is an action brought pursuant to Section 510 of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1140 (1982). Section 510 provides, 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, ... or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan....

Plaintiffs claim that defendants, through the implementation of a nation-wide scheme to avoid pension liabilities, prevented them from obtaining benefits under the pension plan in violation of § 510.

Introduction

The defendants¹ in this case found themselves in a declining market because of substantial changes in the can making industry. They further recognized that they faced substantial layoffs and huge potential unfunded pension liabilities as a result. They concluded that continued employment would permit large numbers of employees to qualify for those benefits unless action was taken to prevent them from doing so.

Accordingly, defendants developed a sophisticated computer program which enabled them to identify those employees who had not yet qualified and who therefore, should be and were targeted for dismissal. The same computer system kept track of the employees so laid off in order to prevent the resurrection of their rights through inadvertent recall.

The plan was shrouded in secrecy and executed company-wide at the specific direction of the highest levels of corporate management. It was intended to save hundreds of millions of dollars in unfunded pension liabilities. The evidence of the plan, its secrecy, and its execution comes from the files of the defendants themselves. The documents are more than a smoking gun; they are a fusillade.

749 F. Supp. 584

The evidence in support of plaintiffs' claims has been known to and possessed by the defendants since the inception of this case. Nonetheless, defendants have denied the existence of the plan and its implementation. For a corporation of this magnitude to engage in a complex, secret and deliberate scheme to deny its workers bargained-for pension benefits raises questions of corporate morality, ethics and decency which far transcend the factual and legal issues posed by this matter.

The issues to be decided in this portion of the case arise from Continental's claim "that the illicit objective of the Liability Avoidance Program was not a determinative factor or that, if it arguably was, other factors clearly predominated and would have resulted in the same layoffs in any event". (Defendant's Trial Brief, p. 4). The Gavalik case, which this court has utilized to establish the guidelines for this matter, provides as follows:

Continental must then be afforded the opportunity to present evidence that as to any particular individual class member's request for relief, that individual is not so entitled because in the absence of Continental's illegal plan that individual would have been without work at the same time in any event. We do not foreclose an opportunity for Continental to submit its proofs collectively as to all of the plaintiffs. That is, if the proof as to each individual is the same, there is no requirement that Continental repeat the same evidence for each claimant. Continental must establish either collectively or individually that class members would have suffered the same loss of work even in the absence of the illegal plan. Continental's burden on this issue will be one of persuasion.

Gavalik v. Continental Can. Co., 812 F.2d 834, 866 (3d Cir.1987).

In view of the foregoing, this court concluded that it would be appropriate in the interests of efficiency and economy to determine the issues outlined above at a test trial involving one of the plants, since such determinations would dispose of other issues or render them moot. In addressing the factual matters presented, the court at the outset wishes to outline its view of the respective burdens upon the parties. Plaintiffs, of course, have the ultimate burden of proving that Continental acted with the specific intent to interfere with the attainment of Magic Number pension benefits in connection with layoff decisions. Plaintiffs must establish by a preponderance of the evidence that the avoidance of such pension benefits was a determinative factor in the layoffs by Continental. Defendants concede that they have the burden of both production and persuasion as to the alleged "same loss defense". If Continental were to prove that plaintiffs would have sustained the same loss in any event, plaintiffs would be unable to succeed, and thus the focus on this issue initially. The court proceeds on the basis that the respective burdens are subject to a preponderance of the evidence standard.

The court's factual findings are as follows:

Industry Background

Before the 1960's, almost all cans were three-piece tin-plated steel. A typical three-piece line for the making of such cans cost between $750,000 to $1,000,000. Additional equipment for end-making and lithography substantially increased that cost. Two-piece lines were much more expensive but required no separate lithography equipment, and because they needed only one end, certain expenses involved in three-piece equipment could be avoided. It was essential, because of the large capital investment, to maintain high levels of line utilization. It is undisputed that two-piece lines, while more expensive initially, were less labor intensive in actual operation.

In the 1960's, development of two-piece aluminum cans occurred, and the process permitted standard sized can bodies and bottoms to be formed at high speeds. It also eliminated the lithography, coating and coil departments required for three-piece can making. Plants which had been

749 F. Supp. 585

designed for three-piece production did not easily convert to two-piece aluminum can equipment, although such conversion was feasible depending upon specific conditions

There were three primary markets for can makers: food, general packaging and beverage. In the 1950's food cans were the largest segment of the domestic can business, but the beverage demand grew significantly because of beer and soft drinks. In the 1960's, the beverage market was the largest of the three and continued to be so through the relevant time period of this litigation.

One of the reasons that the food can business declined was because food canners began to self-manufacture their own cans. The Campbell's Soup Company, which was one of the nation's largest users of food cans, became one of the market's largest self-manufacturing companies. Other major consumers also began to meet their needs by self-manufacturing, and, indeed, they began to sell cans on the open market and competed with companies such as Continental and American Can Company. In addition, overall sales of canned food declined because consumers viewed it to be not as fresh as other types of food. Cheaper forms of packaging also replaced steel in the food market. Many of the small manufacturers which utilized cans went out of business. Therefore, there was a substantial reduction in the food can business for Continental as well as others in the industry.

General packaging was always the smallest part of the can industry, and this segment of the market was serviced by numerous manufacturers, including many smaller companies. Here again, substitute forms of packaging such as plastic reduced this market. Except for aerosol cans which briefly flourished and then diminished because of environmental considerations, most general line business declined for Continental.

The market for beer and soft drinks, however, sold in cans, substantially increased after World War II. Metal cans replaced glass as the package of choice in the beverage market. Can companies, including Continental, built a number of factories in response to that demand. Continental continued to concentrate on its proprietary three-piece steel cans during the early period and built many factories, particularly near customer locations in order to meet this demand. Continental opened 27 such plants between 1969 and 1971, and by 1974, 60 percent...