Toth v. USX Corp., 88-2889

• Citation: 883 F.2d 1297
• Decision Date: 25 August 1989
• Docket Number: No. 88-2889,88-2889
• Parties: 132 L.R.R.M. (BNA) 2275, 112 Lab.Cas. P 11,430 Andrew TOTH, et al., Plaintiffs-Appellants, v. USX CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1297

883 F.2d 1297

132 L.R.R.M. (BNA) 2275, 112 Lab.Cas. P 11,430

Andrew TOTH, et al., Plaintiffs-Appellants, v. USX CORPORATION, Defendant-Appellee.

No. 88-2889.

United States Court of Appeals,

Seventh Circuit.

Argued April 12, 1989.

Decided Aug. 25, 1989.

Thomas H. Geoghegan, Despres, Schwartz & Geoghegan, Chicago, Ill., for plaintiffs-appellants.

Richard M. Stanton, Jacobs, Burns, Sugarman & Orlove, Chicago, Ill., S.G. Clark, Billy M. Tennant, Pittsburgh, Pa., Luanne Ellison, Chicago, Ill., F.A. Flowers, III, Graham Beene, Burr & Foreman, Birmingham, Ala., for defendant-appellee.

Michael H. Gottesman, Bredhoff & Kaiser, Washington, D.C., for amicus curiae.

Before WOOD, Jr., CUDAHY and KANNE, Circuit Judges.

CUDAHY, Circuit Judge.

In this case we are asked to decide whether the defendant, USX Corporation ("USX"), may institute a leave policy, refuse all but six applications under the policy and then rescind the policy without formally consulting their workers' union (in this case, the United Steelworkers of America, AFL-CIO-CLC ("USWA", the "Union" )) or notifying other potentially eligible claimants. Fifteen former USX employees who were technically eligible under the new leave policy sue for monetary and equitable relief under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. Sec. 1001 et seq., and under the Labor Management Relations Act ("LMRA"), 29 U.S.C. Sec. 141 et seq.

USX argues that because its leave policy was illegal under the LMRA, the company did not violate ERISA by unilaterally revoking the policy. Plaintiffs, by contrast, argue that the leave policy did not violate the LMRA and that unilateral rescission was therefore unlawful under ERISA. They also assert that USX administered the policy in an arbitrary and discriminatory way--indeed, not even in accordance with the policy's own express terms (which the plaintiffs in any event viewed as discriminatory as well). Because the new leave of absence policy was allegedly adopted "by agreement with the USWA," the plaintiffs view the subsequent rescission as a breach of the company's agreement with a labor union in violation of the LMRA. The plaintiffs seek past benefits, damages, redress of fiduciary violations and a declaratory judgment that the LMRA does not prohibit the granting of the benefits at issue here.

Alternatively, plaintiffs argue that even if the leave policy did violate the LMRA, they are nonetheless entitled to relief on equitable grounds. They urge that they are not in pari delicto with USX, alleging that USX used the policy as a means of bribing a small number of union officials to agree to concessions in a contract negotiation. Accordingly, plaintiffs feel that USX should not be allowed to use its misdeed as a defense to this action.

I.

Because we are reviewing the district court's dismissal of the plaintiffs' complaint, we will take all well-pleaded allegations as true, permitting dismissal only if the plaintiff could not prove any set of facts upon which relief might be granted. Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Rankow v. First Chicago Corp., 870 F.2d 356, 367-68 (7th Cir.1989). As we have noted many times, the complaint merely serves to put the defendant on notice and is to be freely amended or constructively amended as the case develops, as long as amendments do not unfairly surprise or prejudice the defendant. Ash v. Wallenmeyer, 879 F.2d 272, 274 (7th Cir.1989); Walton v. Jennings Community Hosp., 875 F.2d 1317, 1320-21 n. 3 (7th Cir.1989). Clearly, if we can see at this early stage in the development of the case that there exists a material issue of fact that would render the case unsuitable for summary judgment later on, we would certainly refuse to permit dismissal. Similarly, just as we would draw inferences in favor of the nonmoving party in reviewing a grant of summary judgment, we give the plaintiffs the benefit of the doubt in reviewing the dismissal of their complaint. This is important as to several disputed issues of fact in this case.

The plaintiffs' version of the facts, as described in the complaint, is roughly as follows: Prior to 1984, USX (through United States Steel Corporation, a division of USX) allowed its employees to continue accruing pension-benefit rights while they were on leave of absence from active employment for a period of up to two years. This policy applied, for example, to leaves of absence taken by employees in order to work for the Union. In 1984 USX changed its leave of absence policy, permitting former employees to accrue pension credit until retirement, whether they remained in the company's employ or left to work for the union. ¹ However, it imposed limits on this new policy:

such leave of absence shall be granted only to employees of United States Steel Corporation's current steel producing operations ... who (a) prior to January 1, 1978 left active employment with United States Steel Corporation in order to accept or continue employment with the International Union, (b) from the time of cessation of active employment until February 29, 1984 shall have continued in the active employment of the International Union and (c) shall continuously have held positions servicing bargaining units at the U.S. Steel Division in which [they] had been employed.

Complaint, Ex. A. Although this new policy was approved by the company in October of 1984, effective as of February 29, 1984, USX failed to inform the Union of its new policy until March 5, 1985; the plaintiffs were not informed about the existence of the policy until early 1987. (We note, however, that the company alleged at a meeting in September of 1987 that the new leave of absence policy was adopted by agreement with the Union--presumably meaning local representatives of the Union.) Prior to formally notifying the Union about the policy in 1985, USX approved benefits under the new policy for six Union employees, but has refused to apply the policy to any other applicants. ² The complaint further alleges that USX has "waived in practice" any limits on its extended leave policy, because it has "granted benefits to others who did not qualify" under the stated conditions and has "engaged in arbitrary, discriminatory and disparate treatment of some plaintiffs, in violation of its fiduciary duties under ERISA section 404." Complaint, p 47.

Shortly after plaintiffs applied for benefits under the new policy, USX rescinded the policy, asserting that recent opinions from the Third and Second Circuits had made it clear that the policy violated the LMRA. As of April, 1987, USX adopted a new policy, permitting pension credit to accrue only during leaves of absence of one year, renewable for "a further period of one year at the discretion of the Company." Complaint, Ex. B. The new policy permitted longer leaves only on the approval of the Corporate Policy Committee. The Union subsequently refused to represent the plaintiffs in their quest for benefits under the old policy.

In briefs filed in the district court and in this court, the plaintiffs have asserted one possible interpretation of the facts alleged in their brief--that the change in leave policy, applied as it was to a limited number of union officials, and kept secret from the Union itself as well as its members--was in effect a bribe of those officials. ³ The Union and USX make much of the fact that the "bribery scenario" was not itself spelled out in the complaint, but as we have noted above, notice pleading does not require that every possible interpretation of the facts be spelled out in the complaint. Nor are the plaintiffs required at this point to prove their allegations as they would be on a motion for summary judgment; our inquiry here is not whether the plaintiffs win but rather whether there is any set of facts upon which the plaintiffs could possibly win. Thus, while we stress that the facts recited here have not been proved (and that the court of course does not take any position as to their ultimate truth), we will certainly consider, in connection with the motion to dismiss, the possibility that the facts here alleged amounted to a "sweetheart" deal. If under those facts the plaintiffs could conceivably prevail, then they should be permitted to continue past the motion to dismiss.

II.

We proceed to the central questions: Was USX's rescinded leave policy in fact in violation of the LMRA--and even if it was, could USX be barred from raising an "illegality" defense if the company was not in pari delicto by reason of participation in a bribery scheme?

A.

In rescinding its leave policy, the company took the position that any extended leave policy would violate the LMRA. ⁴ At issue are two provisions of section 302. Subsection (a) generally prohibits payments by employers to union officials:

(a) It shall be unlawful for any employer ... to pay, lend, or deliver, or agree to pay, lend, or deliver, any money or other thing of value--

(1) to any representative of any of his employees who are employed in any industry affecting commerce; or

(2) to any labor organization, or any officer or employee thereof, which represents, seeks to represent, or would admit to membership, any of the employees of such employer who are employed in an industry affecting commerce....

29 U.S.C. Sec. 186(a). However, subsection (c) lists exceptions to this general prohibition, including the exception at issue here:

(c) The provisions of this section shall not be applicable

(1) in respect to any money or other thing of value payable by an employer to any of his employees whose established duties include acting openly for such employer in matters of labor relations or personnel administration or to any representative of his employees, or to any officer or employee of a labor organization, who is also an employee or former employee of such employer, as compensation for, or by reason of, his service as an employee of such employer....

...