filed: July 21, 1992; As Corrected August 17, 1992. .
On Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. Nos. 90-03274, 90-04329 and 91-00382)
Before: Becker, Cowen, and Garth, Circuit Judges
In this appeal, we must determine the law to apply to a suit brought by employees of Mack Trucks, Inc., ("Mack"), who allege that Mack breached its contractual obligation, under a "buyout plan," to pay departing employees a lump sum of $75,000 and a year of continued benefits in exchange for the employees voluntarily leaving Mack's employ.
The district court applied state contract law in holding that Mack's buyout plan constituted a contract with accepting employees, which had been breached. We agree with the district court that the buyout plan, which did not require the creation of a new administrative scheme, did not implicate the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq, ("ERISA"). However, because the buyout plan resulted from negotiations between Mack and the employees' union ("union") over modifications to their collective bargaining agreement, we hold, contrary to the district court, that federal labor law preempts the employees' state law claims. We further hold that, under federal labor law, the employees may not yet bring their grievances to federal court because they have failed to exhaust their collective bargaining agreement's grievance procedures.
We will therefore vacate the district court's order which directed a verdict in favor of the employees with respect to their state law contract claims, and we will vacate the district court's order dated May 28, 1991 which established the employees' damages. We will also affirm the district court's order which directed a verdict in favor of Mack with respect to the employees' ERISA claim, and we will remand this case to the district court with instructions to dismiss the employees' complaint for failure of the employees to exhaust internal grievance procedures required by their collective bargaining agreement and by federal labor law.
In 1989, the management of Mack decided that economic conditions required the dismissal of Engineering Department employees. Mack recognized, however, that such layoffs would violate its collective bargaining agreement ("CBA") with the union. That CBA, negotiated in 1987, guaranteed continued employment for the 388 members of the union's Engineering Bargaining Unit ("EBU") until the CBA's expiration on October 27, 1992.
Acknowledging that the CBA could be modified only through negotiations with the union, Mack arranged a meeting with union representatives. Ensuing Discussions resulted in an agreement that satisfied both parties. Under this agreement, the sixty-nine most senior employees to voluntarily leave Mack's employ would receive a lump-sum payment of $75,000 and one year of continued benefits.
On December 18, 1989, the union held a meeting at which it presented the buyout plan to EBU members. Pursuant to an apparent agreement with Mack, the union did not inform its members of the buyout plan's 69-employee limit. Instead, the union implied that the buyout plan was available to all employee applicants.*fn1 At a second meeting on December 20, 1989, a union representative and a Mack representative answered questions about the buyout. Again, the employees were not told about the buyout plan's numerical limit.
A total of 144 members submitted applications for the buyout before the January 3, 1990 deadline. In light of the unexpectedly large response, the union asked Mack to consider exceeding the agreed-upon 69-employee limit. After some Discussion, Mack agreed to permit an additional eight people to participate in the buyout, bringing the total of employees to be bought out to seventy-seven. On January 8, 1990, Mack and the union held a joint meeting at which they notified those applicants who did not meet the seniority qualifications that they could not participate in the buyout.
Although the CBA contained a broad, mandatory grievance and arbitration procedure for the resolution of employer-employee disputes, eighteen applicants whose applications did not meet the seniority cutoff eschewed that procedure and instead brought suit in federal court against Mack, several Mack officials, and the union. The employees contended that Mack had breached its contractual obligation to provide each of them with a lump-sum $75,000 payment and benefits in exchange for their voluntary departure from Mack, and that the union, through its complicity with Mack in the buyout plan, had breached its duty of fair representation. Of the eighteen employees who brought suit, five voluntarily left Mack in 1990 in favor of other employment, two voluntarily retired, and eleven remained at Mack until March of 1991, when they participated in a subsequent negotiated buyout and received lump sum payments of $58,000 each.
The employees' complaint contained several alternate theories of relief, including claims under section 301 of the Labor Management Relations Act ("LMRA"), 29 U.S.C. § 185; ERISA; 29 U.S.C. §§ 1001 et seq.; state contract law; and state and federal tort law. After considering these various theories, the district court rejected the applicability of labor law, tort law and ERISA. Instead, the court held that Mack had entered into individual contracts with each of the plaintiff employees and that Mack had breached those contracts. The court therefore granted a directed verdict in the employees' favor on their state law breach-of-contract claim and dismissed the employees' claims against the union.
The case was tried before a jury, with the measure of damages as the only unresolved issue. At the close of all evidence, the district court instructed the jury to calculate the value of the buyout plan with respect to each employee by determining the value of the plan's payout (i.e., $75,000 plus some figure for benefits), and then subtracting from that figure the value of the CBA's guarantee of continued employment, which the buyout plan had required the employees to relinquish. The Judge emphasized that damages must be assessed as of the date of Mack's breach, January 8, 1990. The Judge also told the jury that the $58,000 payment received by eleven of the plaintiffs in a subsequent buyout was a proper setoff from damages.
The jury awarded $4,150 to each of the eleven employees who had stayed at Mack and who had subsequently been bought out for $58,000. Two of the remaining employees received $83,700 each; two received $82,500 each; one received $73,025; one received $78,350; and one received $80,100.*fn2
Both parties filed post-trial JNOV motions. Mack also filed motions for reconsideration and for a new trial. In their post-trial motion, the employees asked the court to reconsider its holding that the buyout plan had not implicated ERISA. The employees also challenged the court's jury instruction on damages because, in the employees' view, the Judge had improperly suggested that post-breach wages earned by the employees who had remained at Mack should be set off from those employees' awards. In an order and opinion of August 26, 1991, the court rejected the employees' motion for JNOV and reiterated its holding that ERISA only applied to plans which, unlike the buyout plan in the present case, had been created for the purpose of providing ERISA benefits and which had required the establishment of an administrative scheme. The court also declined to reconsider its jury instruction because, in the court's view, the employees had waived that issue by not raising it at the time that the jury was charged.
Mack, in its post-trial motions, argued that the district court had erred in not applying federal law to the employees' complaint and that, accordingly, the district court should have dismissed the employees' suit in its entirety because the employees had failed to exhaust the CBA's internal grievance procedures before filing suit in federal court. Mack also argued that the evidence regarding the employees' damages had been insufficient to go to the jury.
In response, the district court, in denying Mack's motions, again held that the proposed buyouts had constituted contracts between Mack and individual employees rather than collectively bargained labor agreements, and that federal labor law therefore did not apply. The Judge also held that the jury had been presented with sufficient evidence with which to render a verdict.
The employees filed a timely notice of appeal, to which Mack filed a timely cross-appeal. They raise before us the issues raised in their post-trial motions.
We have appellate jurisdiction over the district court's August 26, 1991 order and opinion pursuant to 28 U.S.C. § 1291. Our standard of review is plenary.
The employees, in their action against Mack, invoked federal jurisdiction under ERISA and the Labor-Management Relations Act ("LMRA"), as well as the laws of the Commonwealth of Pennsylvania.*fn3 The district court, however, held that neither the LMRA nor ERISA applied, and instead went on to decide the case under state contract law.
As discussed below, and unlike the district court, we hold that the LMRA applies to the present case. Federal jurisdiction was therefore properly invoked by the employees under section 301 of the LMRA, 29 U.S.C. § 185. We observe, however, that if the district court had been correct in its holding that ERISA and federal labor law did not apply to this case, then the employees would have had no federal cause of action. In such a case, where the district court had concluded that the employees had no viable federal cause of action, the district court should have either dismissed the complaint or transferred the action to the Pennsylvania Court of Common Pleas pursuant to 42 Pa. Cons. Stat. Ann. § 5103(b).*fn4 See Weaver v. Marine Bank, 683 F.2d 744, 746 (1982). Instead, the district court issued a decision on the merits of the employees' state law contract claims. It did so despite this court's established rule that "once all federal claims have been dropped from a case, the case simply does not belong in federal court." Lovell Mfg. v. Export-Import Bank of the United States, 843 F.2d 725 (3d Cir. 1988). See also United Mine Workers v. Gibbs, 383 U.S. 715, 726, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966) ("Certainly, if the federal claims are dismissed before trial, even though not insubstantial in a jurisdictional sense, the state claims should be dismissed as well.").
Therefore, if we agreed with the district court that federal law did not control this case, we would be obliged to remand this case to the district court to dismiss the complaint or transfer the complaint to the Pennsylvania state court. However, holding, as we do, that the district court erred in ignoring the dictates of federal labor law, and determining, therefore, that the employees' complaint properly invoked section 301 of the LMRA, we will instead vacate the district court's orders and remand with instructions that the district court dismiss the employees' complaint on the grounds that the employees have failed to exhaust their CBA's internal grievance procedures.
In their complaint, the employees conceded that the buyout plan at issue in the present case resulted from negotiations between Mack and the union:
30. Plaintiffs, and each of them, at all times applicable hereto, were members in good standing of the United Auto Workers Union, Local 677, and were employed by Mack in the Engineering Bargaining Unit at the defendant's Allentown facility.
31. On or about December 18, 1989, defendant Mack, following collective bargaining as to the terms thereof with the [union], offered to 'all active Engineering Bargaining Unit Personnel' the option of voluntary termination from employment with Mack ...