Merk v. Jewel Food Stores Div. of Jewel Companies, Inc.

• Decision Date: 20 December 1991
• Docket Number: C,No. 881,AFL-CIO and CL,No. 90-2184,D,881,90-2184
• Parties: 138 L.R.R.M. (BNA) 2433, 60 USLW 2243, 120 Lab.Cas. P 10,972 Kelly MERK, Joseph Staszewski, and Vickie Menagh et al., on Behalf of Themselves and all Others Similarly Situated, Plaintiffs-Appellants, v. JEWEL FOOD STORES DIVISION OF JEWEL COMPANIES, INCORPORATED, American Stores Company, Incorporated, and United Food and Commercial Workers Union Localhartered by United Food and Commercial Workers International Union,efendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 889

945 F.2d 889

138 L.R.R.M. (BNA) 2433, 60 USLW 2243,

120 Lab.Cas. P 10,972

Kelly MERK, Joseph Staszewski, and Vickie Menagh et al., on Behalf of Themselves and all Others Similarly Situated, Plaintiffs-Appellants, v. JEWEL FOOD STORES DIVISION OF JEWEL COMPANIES, INCORPORATED American Stores Company, Incorporated, and United Food and Commercial Workers Union Local No. 881, Chartered by United Food and Commercial Workers International Union, AFL-CIO and CLC, Defendants-Appellees.

No. 90-2184.

United States Court of Appeals, Seventh Circuit.

Argued Dec. 13, 1990.

Decided Sept. 27, 1991.

Rehearing and Rehearing In Banc

Denied Dec. 20, 1991.

Daniel R. Formeller, William Cremer (argued), Francis Spina, David W. Groundwater, Tressler, Soderstrom, Maloney & Priess, Chicago, Ill., for plaintiffs-appellants.

Max G. Brittain, Jr. (argued), Marcia E. Goodman, John J. Murphy, Jr., Kovar, Nelson, Brittain, Sledz & Morris, Chicago, Ill., for Jewel Food Stores Div. of Jewel Companies, Inc. and American Stores Co., Inc.

Jairus M. Gilden, Neal D. Rosenfeld, Jonathan D. Karmel, Rosenfeld & Karmel, Chicago, Ill., for United Food and Commercial Workers Union Local No. 881, chartered by United Food and Commercial Workers Intern. Union, AFL-CIO and CLC.

Before CUDAHY, EASTERBROOK and RIPPLE, Circuit Judges.

CUDAHY, Circuit Judge.

This case involves application of the parol evidence rule to the unique context of collective bargaining agreements. Specifically, we must determine the legal significance of secret oral negotiations between union officials and company management that modify central terms of a collective bargaining agreement which was submitted to the union membership for ratification without any notice that it would be conditioned by additional terms.

I.

The relevant facts are as follows. Jewel Food Stores (Jewel) operates approximately 180 supermarkets in and around Chicago, employing over 15,000 workers who are represented by Local 881 of the United Food and Commercial Workers Union (the Union). In September 1982, Jewel and the Union began negotiating a new collective bargaining agreement (the CBA) to run from September 15, 1982 to June 15, 1985. Negotiations culminated in a contract which was reduced to writing and ratified by the Union membership on January 27, 1983. The CBA established wage rates, vacation leave and other terms of employment for the duration of the contract. Section 4.1 of the CBA, in particular, specified that "During the term of this Agreement, the Employer agrees to pay not less than the minimum wage rates set out in Appendix A."

Had the CBA embodied the entire agreement between the parties, this case would have been easily resolved. But the outcome of negotiations was not so straightforward. Anxious about the potential entry into the Chicago market of warehouse competitors such as Cub Foods, Jewel insisted that the CBA contain a "most favored nations" clause, a provision that would allow it to match the wages of unionized competitors opening in the Chicago market after the start of the contract term. The Union refused this demand throughout the negotiations, and the final compact did not include a most favored nations clause. Just before the CBA was approved, however, Union president Fred Burki and two Jewel representatives--Neil Petronella, chief negotiator, and Marsh Collins, corporate vice president--forged a secret deal at an informal hallway meeting late in the evening of January 23, 1983. The precise terms of that deal are in dispute: Union officials claim that all they promised was to "sit and discuss" Jewel's competitive position once Cub Foods entered the Chicago market whereas Jewel executives contend that they agreed to "an economic reopener with full reservation of rights." An economic reopener provision permits the company to reopen all economic terms of the CBA upon occurrence of the condition precedent. Negotiations may then proceed as if the parties were bargaining over a totally new contract, and both sides retain their respective economic weapons, including the Union's right to strike and the company's right to lock out or unilaterally implement a final offer after bargaining to impasse. Whatever the terms of the secret oral agreement between Union officials and Jewel management, both sides affirm that it was never disclosed to or ratified by the Union rank and file even though ratification is required under the Union constitution and bylaws.

Cub Foods' entry into the Chicago market in 1983 precipitated this dispute. Shortly thereafter, Jewel announced the reopening of contract negotiations. On February 26, 1984, when negotiations reached impasse, Jewel unilaterally implemented its final offer, cutting the wages of its employees below levels mandated by the CBA. Jewel slashed wages by as much as $1.25 an hour and reduced vacation and personal day benefits as well. The Union immediately filed an unfair labor practice complaint and sued to compel arbitration. The district court ordered Jewel to arbitrate. After an arduous course of negotiations, the Union and Jewel finally resolved their longstanding dispute on the eve of expiration of the CBA: Jewel agreed to award backpay to its current employees while the Union pledged to relinquish its unfair labor practice complaint and the district court suit. At Jewel's insistence, however, the settlement abandoned the plaintiffs in this case--a class comprising approximately 2,000 Jewel employees who retired, quit or were fired during the protracted 15-month battle.

Claiming the back wages to which they believed they were rightfully entitled under the CBA, plaintiffs filed suit against the Union for breach of its duty of fair representation and against Jewel for breach of contract. The district court granted summary judgment for the Union, ruling that the Union owed no duty of fair representation to former employees. 641 F.Supp. 1024 (N.D.Ill.1986). In an interlocutory appeal, this Circuit upheld the district court's ruling, 848 F.2d 761 (7th Cir.1988), and the Supreme Court denied certiorari, 488 U.S. 956, 109 S.Ct. 393, 102 L.Ed.2d 382 (1988).

Plaintiffs' breach of contract action against Jewel, however, proceeded to a one-week jury trial. After the jury returned a verdict in favor of Jewel, plaintiffs moved for judgment notwithstanding the verdict and, in the alternative, for a new trial. The district court denied both motions, examining and rejecting each of plaintiffs' arguments in turn. Invoking the parol evidence rule, plaintiffs first contested the district court's admission of extrinsic evidence regarding the oral reopener to modify the provisions of the written CBA. But the district court submitted the parol evidence issue to the jury because it was not clear from the face of the CBA whether it was intended to embody the parties' entire agreement. The jury determined that the CBA was not integrated and the district court apparently agreed with this conclusion, upholding the jury's verdict as supported by the evidence. The district court also dismissed plaintiff's second argument, ruling that oral modifications to a written CBA do not violate national labor policy. Finally, it held that lack of ratification did not render the oral reopener agreement invalid. The jury found waiver of the ratification requirement based upon evidence of a past practice of adherence to unratified side agreements. The district court agreed with the jury's conclusion but broadly declared that, in any event, Jewel had a right to rely on the unratified oral reopener absent clear notice that the Union was acting in bad faith against the interests of its members.

On appeal, plaintiffs challenge the verdict against them on the following grounds. First, they claim that the district court improperly admitted evidence of the oral reopener agreement in violation of the parol evidence rule. Second, they argue that the oral reopener agreement should not have been enforced because it violated the Union's constitutional requirement that significant terms of the labor contract be ratified by union members. Third, they contend that section 8(d) of the Labor Management Relations Act (LMRA) and national labor policy militate against enforcement of a clandestine oral reopener agreement that contradicts the terms of the written and ratified CBA. Fourth, they maintain that the district court committed numerous evidentiary errors, entitling them to a new trial. Finally, they contest the district court's dismissal of their claim for punitive damages.

II.

We review the district court's denial of judgment notwithstanding the verdict de novo, applying federal common law (rather than the law of any state) to this suit for breach of a collective bargaining agreement. See Mohr v. Metro East Mfg. Co., 711 F.2d 69 (7th Cir.1983). For Congress has accorded labor contracts a special status, authorizing the courts to fashion a body of federal common law governing their enforcement. See Textile Workers Union v. Lincoln Mills, 353 U.S. 448, 456, 77 S.Ct. 912, 917-18, 1 L.Ed.2d 972 (1957) ("[T]he substantive law to apply in [breach of contract] suits under § 301(a) is federal law, which the Courts must fashion from the policy of our national labor laws."). This special solicitude reflects the fact that the collective bargaining agreement is more than a mere contract--it is "the charter instrument of a system of industrial self-government." United Steelworkers of America v. American Mfg. Co., 363 U.S. 564, 570, 80 S.Ct. 1343, 1347, 4 L.Ed.2d 1403 (1960) (Brennan, J., concurring). Ordinary common law contract principles, therefore, cannot simply be imported whole into the labor context and mechanistically applied to collective bargaining agreements. To foster industrial peace and stability, we must instead read collective bargaining agreements with sensitivity to considerations of national labor policy.

A. The Parol Evidence Rule

We must first determine...