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KAISER STEEL CORP. v. MULLINS ET AL.

decided: January 13, 1982.

KAISER STEEL CORP
v.
MULLINS ET AL.



CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT.

White, J., delivered the opinion of the Court, in which Burger, C. J., and Powell, Rehnquist, Stevens, and O'connor, JJ., joined. Brennan, J., filed a dissenting opinion, in which Marshall and Blackmun, JJ., joined, post, p. 89.

Author: White

[ 455 U.S. Page 74]

 JUSTICE WHITE delivered the opinion of the Court.

The issue here is whether a coal producer, when it is sued on its promise to contribute to union welfare funds based on its purchases of coal from producers not under contract with the union, is entitled to plead and have adjudicated a defense that the promise is illegal under the antitrust and labor laws.

I

The National Bituminous Coal Wage Agreement of 1974 is a collective-bargaining agreement between the United Mine Workers of America (UMW) and hundreds of coal producers, including steel companies such as petitioner Kaiser Steel Corp. The agreement required signatory employers to contribute to specified employee health and retirement funds. Section (d)(1) of Article XX required employers to pay specified amounts for each ton of coal produced and for each hour worked by covered employees. In addition, the section included a purchased-coal clause requiring employers to contribute to the trust specified amounts on "each ton of two thousand (2,000) pounds of bituminous coal after production by another operator, procured or acquired by [the employer]

[ 455 U.S. Page 75]

     for use or for sale on which contributions to the appropriate Trusts as provided for in this Article have not been made. . . ."*fn1 Section (d) also provided that employers would furnish the trustees with monthly statements showing the full amounts due the trust funds as well as the tons of coal produced, procured, or acquired for use or for sale. The parties agreed that if the clause requiring contributions based on purchased coal was held illegal by any court or agency, the union could demand negotiations with respect to a replacement for the invalidated provision.*fn2

Kaiser operates a steel mill in California and coal mines in Utah and New Mexico. Its mines produce only high-volatile coal, so it must purchase mid-volatile coal used in steel manufacturing from another producer. Since 1959, Kaiser has purchased virtually all of its mid-volatile coal requirements from Mid-Continent Coal and Coke Co. Mid-Continent's employees are represented by the Redstone Workers' Association, and their wages and benefits during the period covered by the 1974 Agreement were equal or superior to those required by the UMW contract. Nevertheless, the UMW has repeatedly attempted to become the collective-bargaining representative for Mid-Continent's employees. According to affidavits submitted by Kaiser, the purchased-coal clause was not taken into account in calculating the needs and

[ 455 U.S. Page 76]

     revenues of the various UMW trust funds during the negotiation of the 1974 Agreement.*fn3

Kaiser complied with its obligation under the 1974 contract to make contributions based on the coal it produced and the hours worked by its miners. It did not, however, report the coal that it acquired from others or make contributions based on such purchased coal. After the expiration of the 1974 contract, the trustees of the UMW Health and Retirement Funds, respondents here, sued Kaiser seeking to enforce the latter's obligation to report and contribute with respect to coal not produced by Kaiser but acquired from others. Jurisdiction was asserted under § 301 of the Labor Management Relations Act, 1947 (LMRA), 61 Stat. 156, 29 U. S. C. § 185, and § 502 of the Employee Retirement Income Security Act of 1974 (ERISA), 88 Stat. 891, 29 U. S. C. § 1132. Kaiser admitted its failure to report and contribute but defended on the ground, among others, that the agreement in these respects was void and unenforceable as violative of §§ 1 and 2 of the Sherman Act, 26 Stat. 209, 15 U. S. C. §§ 1 and 2, and § 8(e) of the NLRA, 73 Stat. 543, 29 U. S. C. § 158(e). The District Court did not pass on the legality of the purchased-coal agreement under either the Sherman Act or the NLRA. It nevertheless rejected Kaiser's defense of illegality and granted the trustees' motion for summary judgment. 466 F.Supp. 911 (1979). The Court of Appeals affirmed, 206 U. S. App. D.C. 334, 642 F.2d 1302 (1980), also rejecting Kaiser's defense without adjudicating the legality of the purchased-coal clause.

We granted Kaiser's petition for certiorari raising the question, among others, whether the Court of Appeals had

[ 455 U.S. Page 77]

     properly foreclosed its defense based on the illegality of its promise to report and contribute in connection with coal purchased from other producers. 451 U.S. 969 (1981). We now reverse.

II

There is no statutory code of federal contract law, but our cases leave no doubt that illegal promises will not be enforced in cases controlled by the federal law. In McMullen v. Hoffman, 174 U.S. 639 (1899), two bidders for public work submitted separate bids without revealing that they had agreed to share the work equally if one of them were awarded the contract. One of the parties secured the work and the other sued to enforce the agreement to share. The Court found the undertaking illegal and refused to enforce it, saying:

"The authorities from the earliest time to the present unanimously hold that no court will lend its assistance in any way towards carrying out the terms of an illegal contract. In case any action is brought in which it is necessary to prove the illegal contract in order to maintain the action, courts will not enforce it . . . ." Id., at 654.

"[To] permit a recovery in this case is in substance to enforce an illegal contract, and one which is illegal because it is against public policy to permit it to stand. The court refuses to enforce such a contract and it permits defendant to set up its illegality, not out of any regard for the defendant who sets it up, but only on account of the public interest." Id., at 669.

The rule was confirmed in Continental Wall Paper Co. v. Louis Voight & Sons Co., 212 U.S. 227 (1909), where the Court refused to enforce a buyer's promise to pay for purchased goods on the ground that the promise to pay was itself part of a bargain that was illegal under the antitrust laws. "In such cases the aid of the court is denied, not for the benefit of the defendant, but because public policy demands that it

[ 455 U.S. Page 78]

     should be denied without regard to the interests of individual parties." Id., at 262.*fn4

Kaiser's position is that to require it to make contributions based on purchased coal would be to enforce a bargain that violates two different federal statutes, the Sherman Act and the NLRA. Sections 1 and 2 of the Sherman Act prohibit contracts, combinations, and conspiracies in restraint of trade, as well as monopolization and attempts to monopolize. Kaiser urges that the purchased-coal clause is illegal under these sections because it puts non-UMW producers at a disadvantage in competing for sales to concerns like Kaiser and because it penalizes Kaiser for shopping among sellers for the lowest available price.*fn5

Section 8(e) of the NLRA forbids contracts between a union and an employer whereby the employer agrees to cease doing business with or to cease handling the products of another employer. Kaiser submits that being forced to contribute based on its purchases of coal from other employers violates § 8(e), the hot-cargo provision, because it penalizes Kaiser for dealing with other employers who do not have a contract with the union and because the major purpose of prohibiting hot-cargo agreements is to protect employers like Kaiser from being coerced into aiding the union in its organizational or other objectives with respect to other employers.

The Court of Appeals, like the District Court, declined to pass on the legality of the purchased-coal clause under either the Sherman Act or the NLRA. It was apparently of the

[ 455 U.S. Page 79]

     view that even if the agreement was unlawful, the illegality defenses should not be sustained in this case. We disagree. None of the grounds offered by the Court of Appeals or by the respondents for rejecting Kaiser's defenses are persuasive.

We do not agree, in the first place, that if Kaiser's agreement to contribute based on purchased coal is assumed to be illegal under either the Sherman Act or the NLRA, its promise to contribute could be enforced without commanding unlawful conduct. The argument is that employers' contributions to union welfare funds are not, in themselves and standing alone, illegal acts and that ordering Kaiser to pay would therefore not demand conduct that is inherently contrary to public policy. Kaiser, however, did not make a naked promise to pay money to the union funds. The purchased-coal provision obligated it to pay only if it purchased coal from other employers and then only if contributions to the UMW funds had not been made with respect to that coal. Kaiser's obligation arose from and was measured by its purchases from other producers. If Kaiser's undertaking is illegal under the antitrust or the labor laws, it is because of the financial burden which the agreement attached to purchases of coal from non-UMW producers, even though they may have contributed to other employee welfare funds. It is plain enough that to order Kaiser to pay would command conduct that assertedly renders the promise an illegal undertaking under the federal statutes.

We do not agree that Kelly v. Kosuga, 358 U.S. 516 (1959), compels or even supports a contrary result. In that case, both petitioner and respondent were engaged in marketing onions. Petitioner agreed to buy a substantial portion of the onions owned by respondent. Petitioner and respondent mutually agreed that neither would deliver any onions to the futures market for the balance of the trading season. The agreement was for the purpose of fixing the price and limiting the amount of onions sold in the State of

[ 455 U.S. Page 80]

     Illinois, thereby "creating a false and a fictitious market" for that produce. Id., at 517. After petitioner defaulted on the payments due under the contract, respondent sued for the balance of the purchase price and was awarded summary judgment. Both the District Court and the Court of Appeals rejected petitioner's claim that his undertaking was unenforceable because part of the agreement violated the Sherman Act. This Court affirmed. The Court said that "[as] a defense to an action based on contract, the plea of illegality based on violation of the Sherman Act has not met with much favor," id., at 518, particularly where the plea is made by a purchaser in an action to recover from him the agreed price for goods sold. Various cases in this Court were cited to support the observation, and Continental Wall Paper Co. v. Louis Voight & Sons Co., 212 U.S. 227 (1909), where the defense was sustained, was distinguished as a case where a judgment for an excessive purchase price "would be to make the courts a party to the carrying out of one of the very restraints forbidden by the Sherman Act." Kelly v. Kosuga, supra, at 520. The Court went on to say that "[past] the point where the judgment of the Court would itself be enforcing the precise conduct made unlawful by the Act, the courts are to be guided by the overriding general policy . . . 'of preventing people from getting other people's property for nothing when they purport to be buying it.'" 358 U.S., at 520-521 (quoting Continental Wall Paper Co. v. Louis Voight & Sons Co., supra, at 271). Applying this approach to the facts before it, the Court observed:

"[While] the non-delivery agreement between the parties could not be enforced by a court, if its unlawful character under the Sherman Act be assumed, it can hardly be said to enforce a violation of the Act to give legal effect to a completed sale of onions at a fair price. . . . [Where,] as here, a lawful sale for a fair consideration constitutes an intelligible ...


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