Sutton v. Weirton Steel Div. of Nat. Steel Corp.
| Decision Date | 08 July 1983 |
| Docket Number | 83-0040-W.,Civ. A. No. 83-0035-W |
| Citation | 567 F. Supp. 1184 |
| Court | U.S. District Court — Northern District of West Virginia |
| Parties | Eugene R. SUTTON, et al., Plaintiffs, v. WEIRTON STEEL DIVISION OF NATIONAL STEEL CORPORATION, et al., Defendants. Gerald W. BRUNNER, et al., Plaintiffs, v. NATIONAL STEEL CORPORATION, et al., Defendants. |
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John R. Spon, Jr., Keith A. Fournier, Spon & Fournier, Steubenville, Ohio, Eugene Green, Youngstown, Ohio, Geary Battistelli, Wheeling, W. Va., for plaintiffs.
David L. Robertson, Peter R. Rich, Weirton, W.Va., for ISU.
Carl H. Hellerstedt, Jr., Thorp, Reed & Armstrong, Pittsburgh, Pa., and Carl N. Frankovitch, Frankovitch & Anetakis, Weirton, W.Va., for Nat. Steel & Pension Plan.
Anthony F. Phillips, Gerald Kerner, New York City, for Joint Study Committee.
This litigation grows out of the activities in connection with a proposed employee buy-out plan for the Weirton Steel Division of National Steel Corporation. Defendant National Steel has filed a motion for summary judgment and Plaintiffs in these cases and in Dhayer, et al, v. National Steel Corporation, et al., C.A. No. 83-36-W (N.D. W.Va. filed April 8, 1983) have filed a motion to delay consideration of National's motion pursuant to Rule 56(f), Federal Rules of Civil Procedure.
The Court greatly appreciates the efforts of all counsel in the exhaustive briefing of the issues presented.
The record in this litigation includes the pleadings and exhibits thereto; various affidavits offered in support of as well as in opposition to this motion and other previous motions; and evidence adduced in the form of testimony and documents at two hearings conducted on April 13, 1983, at the Elkins point of holding Court and on April 27-29, 1983, at the Wheeling point of holding court. From these matters of record, the Court finds the following facts are significant to the issues to be decided:
The Weirton Division of National Steel is the single largest private sector employer in the State of West Virginia. At one time, shortly after World War II, the Division had 16,000 workers, but the recent market for steel produced in the United States has reduced employment to some 11,000 in 1980, and about 7,000 currently.
In March, 1982, National Steel announced it would no longer make significant capital investment in its Weirton Division facilities, and that those facilities would be "downsized" over a period of time with a resulting level of employment of 1,200 to 2,000 workers in the late 1980's. The President of National Steel indicated the announcement was not an attempt to win labor cost concessions, but reflected the business decision of National to place its investment capital in other areas. In addition to National's announced intention to downsize the Weirton facilities, the options for the Division seemed to include finding a buyer for the Weirton mill who would be interested in future steel production or to devise a plan for an employee buy-out. National's management indicated a willingness to explore either of these options.
On the day of National's announcement, the International Steelworkers Union announced its intention to work with Weirton Division management to study the possibilities of employee buy-out, and, if feasible, to open negotiations with National Steel. The Weirton Joint Study Committee was incorporated to study the employee buy-out option and coordinate related efforts. The Committee's board of directors consists of five representatives of the Weirton Division management team, twenty-one representatives of the International Steelworkers Union, and three representatives of the Independent Guard Union. Funds for the various activities of this Committee were raised from the unions involved, community donations, grants from the State of West Virginia, and other sources.
In April, 1982, after a competitive selection process, the Joint Study Committee hired the consulting firm of McKinsey & Co. to conduct a feasibility study on the economic viability of an independent, employee-owned Weirton Steel company. In July, 1982, McKinsey & Co. released a report concluding that such a venture could be successful, but only if labor and production costs were reduced and if substantial capital improvements could be effected over a period of ten years.
The employee buy-out option preferred by the Joint Study Committee and the one pursued includes an Employee Stock Ownership Plan (ESOP), which will allow the new employee-owned corporation to borrow funds to finance the sale from National and permit employees who satisfy minimum hours of work to earn shares of stock as initial loans are paid. An ESOP presents an opportunity for significant tax savings for the proposed company under the Internal Revenue Code.
As the employee buy-out plan progressed, the Joint Study Committee hired other consultants to assist in formulating various complex aspects of the procedure. These include the law firm of Ludwig & Curtis, of San Francisco, to advise on the structure of an ESOP; the law firm of Wilkie, Farr & Gallagher, of New York, to represent the Committee and the proposed new corporation in negotiations with National Steel regarding acquisition of the Weirton Division assets; the investment banking firm of Lazard Freres & Co., of New York, to assist with all questions of finance; the accounting firm of Towers, Perrin, Foster & Crosby, of Pittsburgh, to conduct an audit of National's pension plans for Weirton Division employees. All of these consulting firms, and others involved in the study, enjoy national or international reputations for expertise in the fields for which they were hired.
During the summer of 1982, the Independent Steelworkers Union conducted elections which resulted in a new Union leadership team, and by virtue thereof, new Union representation on the Joint Study Committee. The former president of the Union, Richard Arango, filed unfair labor practice charges against National Steel and the Independent Steelworkers Union with the National Labor Relations Board on April 5, 1983. The charges allege representatives of the employer (National Steel) have participated on a negotiating committee which purports to represent bargaining unit employees in collective bargaining negotiations with the employer. The Court presumes the "negotiating committee" means the Joint Study Committee, on which Arango formerly served as co-chairman by virtue of his Union presidency. One of the Sutton plaintiffs, William Willoughby, served on the committee's board of directors until he was voted out of his Union office of Vice-Chairman, Tin Mill Division.
On March 11, 1983, National Steel and Wilkie, Farr & Gallagher (the law firm hired to negotiate a sale of Weirton Division assets for the Joint Study Committee) announced an agreement in principle for the terms of sale from National to Weirton Steel Corporation (the proposed employee-owned company). The agreement has been amended by an addendum announced April 8, 1983. During 1983, Wilkie, Farr & Gallagher formed a "shell" corporation in the State of Delaware in anticipation of the success of the employee buy-out venture.
In order to carry out the provisions of the agreement in principle, as amended, and to implement the employee buy-out, members of the Independent Steelworkers Union and the Independent Guard Union must conduct an election to modify existing collective bargaining agreements with National Steel. Both the mechanisms of the employee buy-out and the implications of such a venture are extremely complex. In order to inform union memberships of the various aspects of the proposal, the Joint Study Committee and its consultants have taken steps to produce a "disclosure document" which they hope will reveal all of the facts necessary to an understanding of the venture and its ramifications for the employees of the new Weirton Steel company.
Should the employee buy-out be implemented, Weirton Steel Corporation will succeed National Steel's Weirton Division as the largest private-sector employer in West Virginia. It will also be one of the largest corporations in the United States and the largest employee-owned corporation in the country. As all the parties are aware, the venture (like any large corporate undertaking) is not without risk. Consultants for the Joint Study Committee believe success is possible, given certain economic and social circumstances. However, it must be realized that such expressions are only educated forecasts. Long term success depends upon the general economic trends, as well as trends specifically involving markets for the products produced at the Weirton facility.
For members of the Independent Steelworkers Union and the Independent Guard Union, two personal choices must be made before an employee-owned company can become a reality. First, as mentioned earlier, a majority of the Union members must decide to vote in favor of amendments to the existing collective bargaining agreement which will reflect the terms of sale from National to the new Weirton Steel company. Second, each member must make a personal decision on whether to become an employee of the new company. For some workers, the second decision will be made more difficult because of the opportunity for immediate retirement from National with totally predictable pension and other benefits for the future. The terms of sale, as amended, include provisions that employees meeting the chronological age and years of service requirements, for some of the types of retirement in the applicable pension plan, may elect to retire five days after the union votes referred to above. Such decision to retire will be effective as of April 30, 1983, a date before the transfer of ownership, but a date set for accounting purposes.
All workers, whether they choose to work for the new company or not, will...
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