The opinion of the court was delivered by: SAROKIN
This action is before the court on defendant's motion to dismiss Counts I and II of plaintiff's Amended Complaint for failure to state a claim, Fed. R. Civ. P. 12(b)(6), and for summary judgment on Counts III and IV of that Complaint. At issue are important legal questions involving the scope and application of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001, et seq. and the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961, et seq., in a civil context. Underlying these broad issues, however, are significant allegations that defendant laid off members of the plaintiff class illegally and, specifically to deprive them of particular employee benefits to which they were soon to become entitled. The case therefore involves a fundamental question regarding the extent to which an industry may effectuate economies by depriving employees of prospective benefits which they otherwise would have received but for the actions taken by their employer.
This is a class action brought on behalf of four named plaintiffs and all others similarly situated. Plaintiffs allege that they are all former employees of the defendant, each of whom was laid off as he approached the time at which he would become eligible for two varieties of "Magic Number" employee benefits, embodied in the 1977 collective bargaining agreement between defendant and the United Steel Workers ("USW"). These benefits are and would be available to employees who have been laid off for two years or who have lost their jobs as a result of a plant closing. An employee becomes eligible for "Rule of 65" benefits if, on the last day worked, he has twenty years of service with defendant and if, at any time within two years of his last day worked, the employee's age and years of service total at least sixty-five years. Similarly, 70/75 benefits are available to employees with at least fifteen years of service who are fifty years of age or older and whose age and service total seventy or more, or who are any age, with age and service totaling seventy-five or more. See Complaint, para. 11-13. It should be noted that for the purpose of these benefits, years of service include the first two years following a layoff. This so-called "creep provision" operates such that the rehiring of a laid-off employee for even one day commences a new two-year period, for the purposes of both calculating years of service and determining eligibility for Rule of 65 benefits. Aff. of Stephen C. Rexford, para. 16, 17, 19.
Plaintiffs contend that, in order to reduce the amount of Magic Number benefits to be paid to employees, defendant implemented a "capping program," the result of which was the layoff of hundreds of Continental employees who were close to satisfying, but had not yet satisfied, the requirements for such benefits. Furthermore, plaintiffs allege, defendant has not recalled these workers, despite the occurrence of job openings to which they were arguably entitled. This too, plaintiffs allege, was a series of decisions improperly motivated by a desire to avoid paying these types of benefits in the future. Complaint, para. 20.
These austerity measures were primarily directed to reducing labor costs. For example, defendant attempted to limit the number of temporary employees hired, by controlling inventories and regulating the timing of vacations and use of overtime. Additionally, Continental employed a "cap and shrink" strategy, whereby plants would be allocated a maximum number of employees, which number would then shrink by attrition until the plant could be closed down. Defendant admits that "Continental undeniably did look at pension costs when deciding what plants to shut down and cap." However, it argues, "the decision to cap and shrink was not made solely on the basis of pension costs. A given plant's age, capital depreciation, condition, layout, machinery, customer base, manufacturing effectiveness and capability, product mix, geographical proximity to markets, proximity to transportation, lease provisions and numerous other factors were also considered." Rexford Aff., para. 29. Of course, employee benefits in general, and Magic Number benefits in particular, were a major expense incurred by Continental: Magic Number benefits provide for the payment of an employee's pension at an earlier age, in addition to a special monthly supplement payable until the age of 62 or the obtaining of other long-term employment. Additionally, these benefits were not paid out of a pension fund, but rather, were unfunded and thus payable out of a given year's revenues. Hence they are seen as particularly costly by the industry, including defendant.
Alleging that defendant's actions with respect to the plaintiff class violate RICO and ERISA, plaintiffs bring this action seeking declaratory and injunctive relief as well as damages. Related actions have been brought in Los Angeles, California, Pittsburgh, Pennsylvania and in Alabama. The Los Angeles case, captioned Amaro v. Continental Can Company (No. 82-3984) was filed on August 9, 1982 and challenged Continental's practices of curtailing operations and laying off workers in order to prevent plaintiffs from attaining eligibility for particular employee benefits. This case was dismissed on December 15, 1982 on grounds of res judicata, based upon a prior arbitration between Continental and the USW concerning these layoffs, but, on January 23, 1984, the Court of Appeals for the Ninth Circuit reversed. 724 F.2d 747. The Pittsburgh case, Gavalik v. Continental Can Company (No. 81-1519) was filed on September 9, 1981 and challenged practices similar to those challenged here, as well as a particular instance in which plaintiffs alleged that defendant relocated a facility in order to deprive them of Magic Number benefits. In Gavalik, the court denied defendant's motion to dismiss for failure to exhaust grievance procedures set forth in the parties' collective bargaining agreement. Defendant's motion to strike plaintiff's jury demand was, however, granted and class certification was denied as untimely. In light of the latter ruling, another class action was filed by Continental employees on September 28, 1982, alleging generally the same facts and cause of action as in Gavalik. These two cases have been consolidated. Finally, the Alabama action, originally filed in state court and removed to the United States District Court for the Northern District of Alabama, Amosa v. Continental Group, Inc., CV80-L-1730S, differs from the Los Angeles and Pittsburgh cases in that it sets forth causes of action in common law breach of contract, fraud and civil conspiracy, rather than based upon ERISA. Furthermore, in the Alabama action, plaintiffs amended their complaint to name the USW as a defendant, alleging that if there existed a duty to exhaust arbitration remedies, the union had failed adequately to represent plaintiffs in doing so.
A. Counts III and IV: The ERISA Claims
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, this subchapter, section 1201 of this title, or the Welfare and Pension Plans Disclosure Act, or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan, this subchapter or the Welfare and Pension Plans Disclosure Act.
Defendant moves to dismiss these counts on two separate grounds. First, defendant argues that the Magic Number benefits here at issue are not the type of benefits covered by ERISA. Second, defendant claims that these counts should be dismissed because plaintiffs have failed to exhaust the arbitration remedy to which they must submit under the terms of the existing collective bargaining agreement.
The gravamen of defendant's argument that Magic Number benefits are not governed by the provisions of ERISA is the contention that these benefits are at their essence layoff benefits and not retirement benefits. Continental asserts that the legislative history shows such benefits to be beyond the purview of those wrongs which Congress intended to right when it passed ERISA.
This argument is wholly without merit. First, the language of the statute, as quoted supra, is perfectly clear on the scope of ERISA: it discusses employees' right "under the provisions of an employee benefit plan," and not just with respect to retirement plans. Indeed, ERISA defines "employee benefit plan" as "an employee welfare benefit plan or an employee pension benefit plan or a plan which is both an employee welfare benefit plan and an employee pension benefit plan." 29 U.S.C. § 1002(3). Furthermore, an "employee welfare benefit plan" is defined to include "medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment. . . ." 29 U.S.C. § 1002(1)(A). Defendant concedes that the plan here at issue involves "layoff benefits." Therefore the court concludes that the Magic Number benefits are governed by ERISA. See, e.g., Mamula v. Satralloy, 578 F. Supp. 563, 566 (S.D. Ohio 1983) (insurance plan for, inter alia, laid off employees based upon length of service falls within ERISA); EEOC v. Westinghouse Electric Corp., 577 F. Supp. 1029, 1034 (D.N.J. 1982) (layoff income and benefit plan a "welfare plan" within the terms of ERISA); Donovan v. Carlough, 576 F. Supp. 245, 246 (D.D.C. 1983) (underemployment benefit plan an employee welfare benefit plan under ERISA). See also Franchise Tax Board of the State of California v. Construction Laborers Vacation Trust for Southern California, 679 F.2d 1307, 1308-09 (9th Cir. 1982) (vacation trust fund a benefit plan under ERISA), vacated on other grounds, 463 U.S. 1, 103 S. Ct. 2841, 77 L. Ed. 2d 420 (1983); Dependahl v. Falstaff Brewing Co., 653 F.2d 1208, 1213-14 (8th Cir.) (whole-life insurance plan an employee welfare benefit plan under ERISA), cert. denied, 454 U.S. 968, 102 S. Ct. 512, 70 L. Ed. 2d 384 (1981); Blue Cross and Blue Shield of Alabama v. Peacock's Apothecary, Inc., 567 F. Supp. 1258, 1267 (N.D. Ala. 1983) (prescription drug benefit plans constitute employee benefit plans within the meaning of ERISA); Hayden v. Texas-U.S. Chemical Co., 557 F. Supp. 382, 385 (E.D. Tex. 1983) (permanent and total disability plan an employee welfare benefit plan as defined in ERISA); United Food and Commercial Workers Local 545 Health and Welfare Fund v. Health Enterprises of America, Inc., 543 F. Supp. 340, 341 (E.D. Mo. 1982) (health insurance plan an employee benefit plan within the meaning of ERISA); Petrella v. NL Industries, Inc., 529 F. Supp. 1357, 1361-62 (D.N.J. 1982) (severance pay plan a welfare plan for ERISA purposes). See generally Donovan v. Dillingham, 688 F.2d 1367, 1371 (11th Cir. 1982) (en banc).
This holding derives strength from the particular nature of these benefits: they are covered by the Continental Pension Plan, and are apparently referred to as pension benefits throughout that plan. Moreover, like pension benefits, they are triggered by the discontinuation of work by an employee of a certain age after a certain amount of service. Finally, in many cases, Magic Number benefits will result in the receipt of traditional pension benefits at an earlier age. It is clear, therefore, that these benefits are portrayed as pensions, are akin to pensions, and affect employees' pension rights. See generally 29 U.S.C. § 1002(2) (definition of pension plan); Commercial Mortgage Insurance, Inc. v. Citizens National Bank of Dallas, 526 F. Supp. 510, 515 (N.D. Tex. 1981) (broad definition of pension plan). See also Peckham v. Board of Trustees of the International Brotherhood of Painters and Allied Trades Union, 653 F.2d 424, 426 (10th Cir.1981) (plan was a "classic example of an ERISA employee pension benefit plan" where it "was established to provide retirement benefits for Employees. . . ."); Murphy v. Inexco Oil Co., 611 F.2d 570, 575 (5th Cir. 1980) (an employee pension benefit plan is one "designed for the purpose of paying retirement income whether as a result of their express terms or surrounding circumstances"); Bauman v. Bish, 571 F. Supp. 1054, 1063 (N.D. W.Va. 1983) (employee stock ownership plan deemed a pension plan).
This strengthens the conclusion that these benefits are covered by ERISA, even when it is construed as narrowly as defendant argues it should be. Defendant's motion to dismiss Counts III and IV on this ground is, therefore, denied.
The second ground urged by defendant in support of its motion to dismiss Counts III and IV of the Complaint presents more difficult questions. Defendant contends that plaintiffs should have exhausted the arbitration remedy available to them, and as they have not, their case should be dismissed. Defendant offers three bases for this contention: first, that the 1977 collective bargaining agreement between Continental and the USW requires such arbitration; second, that the behavior of related plaintiffs in similar actions demonstrates that arbitration is required; and third, that the caselaw establishes that claims such as these are not exempt from arbitration on the theory that they are statutory claims. Plaintiffs contend that they were not required to grieve or arbitrate a claim seeking to vindicate an unwaivable statutory right, arguing that this position derives support from both caselaw and from the legislative history of ERISA.
Plaintiffs' obligation to exhaust their arbitration remedy stems, argues defendant, from the 1977 collective bargaining agreement between the USW and Continental. Article 13 of that agreement creates a complex four-step grievance process, to handle "any difference between the Local Management and the Union or employees as to the interpretation or application of or compliance with this Agreement respecting wages, hours, or conditions of employment," including "any dispute over whether a complaint is subject to these procedures." Section 13.2. The Pension Agreement, in turn, provides that
If, during the term of this Agreement, any differences shall arise between the Company and any Employee who shall be an applicant for a lump sum retirement allowance, pension or deferred benefit as provided in this Agreement, as to whether or not such Employee is entitled to or as to the amount of such lump sum retirement allowance, pension or deferred benefit, such differences . . . may be taken up as a grievance in accordance with the applicable provisions of the Master Agreement. . . .
Defendant's Brief at 23-24.
Initially, the court notes that the language of the Agreement cited by defendant is entirely precatory: differences " may be taken up as a grievance." Although plaintiffs do not argue this point, the court reads this language as making a grievance procedure available to Continental employees, but not mandating that they utilize it. This being the case, and the court is unaware of any evidence to the contrary, plaintiffs' suit is well within the bounds of the collective bargaining agreement and pension agreement. For this reason alone, defendant's motion to dismiss must be denied. See generally John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 547, 11 L. Ed. 2d 898, 84 S. Ct. 909 (1964) (a party has no obligation to arbitrate issues which it has not contracted to arbitrate); Eberle Tanning Co. v. Section 63L, 682 F.2d 430, 433 (3d Cir. 1982) (citing cases).
However, even if the language of the agreement were as defendant reads it, arbitration would not be mandated in this instance. The court recognizes the strong public policy which favors arbitration in general. See, e.g., United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 578, 4 L. Ed. 2d 1409, 80 S. Ct. 1347 (1960); Southland Corp. v. Keating, 465 U.S. 1, 104 S. Ct. 852, 858, 79 L. Ed. 2d 1 (1984); Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 74 L. Ed. 2d 765, 103 S. Ct. 927 (1983); Sharon Steel Corp. v. Jewell Coal and Coke Co., 735 F.2d 775, 777-78 (3d Cir. 1984); Adams v. Gould, 687 F.2d 27, 31 (3d Cir. 1982), cert. denied, 460 U.S. 1085, 103 S. Ct. 1777, 76 L. Ed. 2d 348 (1983). However, that policy is inapplicable where, as here, the rights that plaintiffs seek to vindicate are not merely contractual, but arise from a federal statute. Such is the teaching of a triad of Supreme Court cases, the latest decided just this past term. In Alexander v. Gardner-Denver Co., 415 U.S. 36, 39 L. Ed. 2d 147, 94 S. Ct. 1011 (1974), the Court held that a discharged employee who had submitted his race discrimination claim to binding arbitration and lost could nonetheless institute suit under Title VII of the Civil Rights Act of 1964. The Court stated that the employee had both contractual and statutory rights which he was entitled to assert -- "two strings to his bow." 415 U.S. at 54. However, the existence of the former, even where a requirement of mandatory and binding arbitration, id. at 41-42, did not dilute the latter.
In submitting his grievance to arbitration, an employee seeks to vindicate his contractual right under a collective bargaining agreement. By contrast, in filing a lawsuit under Title VII, an employee asserts independent statutory rights accorded by Congress.
Id. at 49-50. Just as "final responsibility for the enforcement of Title VII is vested with federal courts," id. at 44, so is the arbitrator's jurisdiction, as well as his expertise, limited to interpreting the collective bargaining agreement. Id. at 53. Hence, the plaintiff in Alexander was able to bring his action in two separate fora. Logically, he could also have chosen one of these fora but not the other, as plaintiffs have done here. See, e.g., Marchese v. Shearson Hayden Stone, Inc., 734 F.2d 414, 419-21 (9th Cir. 1984) (action brought under Commodities Exchange Act); Peabody Galion v. Dollar, 666 F.2d 1309, 1319-23 (10th Cir. 1981); Smallwood v. National Can Co., 583 F.2d 419, 421 (9th Cir. 1978) (citing cases); Gibson v. Local 40, Supercargoes and Checkers of the International Longshoremen's & Warehousemen's Union, 543 F.2d 1259, 1266-67 n.14 (9th Cir. 1976); Leone v. Mobil Oil Corp., 173 U.S. App. D.C. 204, 523 F.2d 1153, 1155-59 (D.C. Cir. 1975); Waters v. Wisconsin Steel Works of International Harvester Co., 502 F.2d 1309, 1316 (7th Cir. 1974) (citing cases); Cobb v. Lewis, 488 F.2d 41, 47-49 (5th Cir. 1974) (citing cases).
The Court reinforced the Alexander holding in Barrentine v. Arkansas-Best Freight System, Inc., 450 U.S. 728, 67 L. Ed. 2d 641, 101 S. Ct. 1437 (1981). There, the Court held that employees who had unsuccessfully submitted their claim, for wages allegedly due, to an arbitration committee, as required by their collective bargaining agreement, could nonetheless bring a separate action, based upon the same facts, under the Fair Labor Standards Act, 29 U.S.C. § 201, et seq. The Court thus extended the Alexander holding to cases involving issues which, like those implicated by ERISA, are "at the heart of the collective bargaining process." 450 U.S. at 738. The Court based such decision first upon the fact that an employee's union might "without breaching its duty of fair representation, reasonably and in good faith decide not to support the claim vigorously in arbitration," this because "a union's objective is to maximize overall compensation of its members, not to ensure that each employee receives the best compensation deal possible." 450 U.S. at 742. Second, as in Alexander, the Court questioned the competence of arbitrators to decide statutory questions. Id. at 743, 101 S. Ct. at 1446.
Because the arbitrator is required to effectuate the intent of the parties rather than to enforce the statute, he may issue a ruling that is inimical to the public policies underlying the FLSA, thus depriving an employee of protected statutory rights.
. . . not only are arbitral procedures less protective of individual statutory rights but arbitrators very often are powerless to grant the aggrieved ...