Petitioners Reply Brief — Baltimore & Ohio Railroad v. Equal Employment Opportunity Commission

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AUG 21 1981

No. 80-1929 ALEXAND. RL. STEVAS,

CLERK

IN THE

Supreme Cuurt of the United States

OCTOBER TERM, 1980

THE BALTIMORE AND OHIO RAILROAD Co, AND

THE CHESAPEAKE AND OHIO RAILWAY Co.,

+ Petitioners

EQUAL EMPLOYMENT OPPORTUNITY COMMISSION,

Respondent

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Fourth Circuit

PETITIONERS’ REPLY MEMORANDUM

THOMPSON POWERS

(Counsel of Record)

RONALD S. CooPER

MorGAN D. HopGson

PAUL q. ONDRASIK, JR.

STEPTOE & JOHNSON

1250 Connecticut Avenue, N.W.

Washington, D.C. 20036

JoserH B. GEYER

Baltimore & Ohio Railroad

Company and the Chesapeake

& Ohio Railway Company

100 North Charles Street

Baltimore, Maryland 21201

Attorneys for Petitioners

—————— —

Wiso « Eres PRINTING Co., lc. . 769-0096 « WASHINGTON, D.C, 20001

TABLE OF CONTENTS

TABLE OF AUTHORITIES . . . . . . . eee

r ea

1. A direct circuit conflict exists on the proper

interpretation of the “Good Faith Reliance”

— . A AS re OO

. This court should determine the proper stand-

ards governing a plaintiff's burden of proof in

. The Section 40) (2) issues merit this Court's

attention despite changes in the law ....................

. The Fourth Circuit’s flagrant disregard for the

district court’s findings of fact cannot be

TABLE OF CASES AND AUTHORITIES

Cases Page

Addison v. Huron Stevedoring Corp., 204 F.2d 88

(2d Cir.), cert. denied, 346 U.S. 877 (1953)...... 2

Aldendifer v. Continental Air Lines, Inc., 25 Empl.

Prac. Dec. J 31,535 (9th Cir, 19817777) 7

Carpenter v. Continental Trailways, 635 F.2d 578

REET Se st Sree ee Lis eeepc eee 6,8

City of McKeesport v. International Association of

Firefighters, 399 A.2d 798 (Pa. Commw. Ct.

11111 ͤ—— AA 3-4

County of Washington ». Gunther, 49 U.S.L.W.

, ethics enachaiiain 4

EEOC v. Eastern Airlines, Inc., No. 79-8960 (5th

Cir., Apr. 14, 1981), petition for certiorari filed,

50 U.S.L.W. 3013 (July 28, 1981) 5, 8-9

EEOC v. Sandia Corp., 639 F.2d 600 (10th Cir.

ere 9

EEOC v. Shell Oil Co., 687 F.2d 688 (9th Cir.

Fee 6. 7

Jensen v. Gulf Oil Refining & Marketing Co., 623

. 6, 9

Laffey v. Northwest Airlines, Inc., 567 F. 2d 429

r détiiamidhiidnercetedaoeie 2

Los Angeles Department of Water and Power v.

Manhart, 485 U.S. 702 (1978) ........ccc0000 4

Marshall v. Hawaiian Telephone Co., 575 F.2d 763

,, . i AR x

McCorstin v. United States Steel Corp., 621 F.2d

e ciaaesens 9

McDonnell Douglas Corp. v. Green, 411 U.S. 792

c a 4-5

Sikora v. American Can Co., 622 F.2d 1116 (3rd

r Ene a Sa ae 6

Smart v. Porter Paint Co., 680 F.2d 490 (7th Cir.

A ia ae Ee 6, 8-9

Texas Department of Community Affairs v. Bur-

dine, 49 U.S. L. W. 4214 (Mar. 4, 1981) 5

iii

TABLE OF CASES AND AUTHORITIES—Continued

Page

United Air Lines, Inc, v. McMann, 434 U.S. 192

11111 — cre ceininthiaibeanecadabeneani 7,8

Zinger v. Blanchette, 549 F.2d 901 (8rd Cir, 1977),

cert, denied, 484 U.S, 1008 (197) x

Statutes

Age Discrimination in Employment Act, 29 U.S.C.

§§ 621, et seq. (1976 and Supp. III 1979) .......... passim

§ 4(f) (1), 29 U.S.C. § 623 (f) (1) (1976) ..... 3

§ 4(f) (2), 29 U.S.C, § 623 (f) (2) (1976 and

r a 2, 5-9

§ 7(e), 29 U.S.C. § 626 (e) (1976) 1-3

Davis-Bacon Act, 40 U.S.C. §§ 276a, et seq. (1976)

,, ar a ERE Le 3

Fair Labor Standards Act, 29 U.S.C. §§ 201, et seq.

(1976 and Supp. III 1979) . . . . 3

Portal-to-Portal Act, 29 U.S. C. § 255, et seq. (1976

and Supp. III 1979)

3 10, 29 U.S.C. § 259 (1976) . . . 3

Title VII of the Civil Rights Act of 1964, 42 U.S.C.

§§ 2000e, et seq. (1976 and Supp. III 1979)........ 3-4

Section 713 (b), 42 U.S.C. 5 2000e-12(b)

% T 2 LY Ee 3

Statutes

Walsh-Healey Act, 41 U.S.C, §§ 35, et seq. (1976

e - - 3

Federal Rules of Civil Procedure

I eee 7, 9-10

Federal Regulations

29 C.F.R. § 1625.7(e), as reported in 3538 BNA

Pension Reporter (Aug. 3, 1981) (unpublished,

to be codified), at R- 286 . ..... .... 5

29 C. F. R. § 1625.9 (b) (1), as reported in 3538

BNA Pension Reporter (Aug. 3, 1981), (unpub-

lished, to be codified), at R-27 ..............ccccccns 6

TABLE OF CASES AND AUTHORITIES—Continued

Miscellaneous Page

Statement of J. Clay Smith, Jr., Acting Chairman

of the EEOC, before Subcommittee on the Depts.

of Commerce, Justice, State, the Judiciary and

Related Agencies of the House Committee on

Appropriations (March 11, 1981) 2

IN THE

Supreme Comet of the United States

OCTOBER TERM, 1980

No. 80-1929

THE BALTIMORE AND OHIO RAILROAD Co. AND

THE CHESAPEAKE AND OHIO RAILWAY Co.,

* Petitioners

EQUAL EMPLOYMENT OPPORTUNITY COMMISSION,

Respondent

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Fourth Circuit

PETITIONERS’ REPLY MEMORANDUM

Having persuaded the Court of Appeals to ignore the

district court’s findings of fact, the Equal Employment

Opportunity Commission (“EEOC”) now seeks to avoid

review of the decision below on two grounds: (1) lack of

“prospective significance” due to changes in the law; and

(2) the decision’s “fact-specific’ nature. This attempt

must fail for the reasons set forth below.

1. Neither ground relied on by EEOC affects the

undisputed circuit conflict on whether an “objective” or

“subjective” good faith standard governs the “good faith

reliance” defense available under Section 7(e) of the Age

Discrimination in Employment Act (“ADEA”), 29 U.S.C.

§ 626(e). Both the Second and District of Columbia Cir-

cuits have rejected the “objective” good faith standard

applied by the court below and the Ninth Circuit. Pet.

at 23-24. Rather, they have held that the “ ‘good faith’

of the statute requires . . . only an honest intention to

ascertain what the... Act requires and to act in accord-

ance with it.”' Contrary to EEOC’s contention, this

issue presents a pure question of law since, as the dis-

trict court noted, the government at no point contested

the petitioners’ subjective“ good faith reliance upon

Department of Labor interpretations of Section 4(f) (2)

of the ADEA. Pet. App. B at 39a.“ Indeed, at least

with respect to the lowering of the mandatory retire-

ment age, EEOC’s opposition implicitly concedes the

Companies’ subjective reliance on an opinion letter “gen-

erally supportive” of their actions,“ a hardly surprising

concession in view of the district court’s finding that the

letter in question “sanctioned . . . exactly what [the

Companies] did.” Pet. App. B at 39a-40a.

Moreover, EEOC cannot dispute the “prospective im-

portance” of the “good faith reliance” defense issue. Re-

gardless of the future validity of involuntary retirements,

questions will arise as to whether employer actions other-

wise violative of the ADEA qualify for the Section 7(e)

exemption. In view of the recent increase in ADEA

charges, such questions, most likely, will arise with even

greater frequency.‘ Moreover, the importance of this

issue extends beyond the ADEA since the exemption also

1 Addison v. Huron Stevedoring Corp., 204 F.2d 88, 93 (2d Cir.),

cert, denied, 346 U.S. 877 (1953). Accord, Laffey v. Northwest

Airlines, Inc., 567 F.2d 429, 464 (D.C. Cir. 1976), cert. denied, 434

U.S. 1086 (1978).

2 The Companies do not concede that their actions did not also

satisfy an objective good faith standard as the district court

found. Pet. App. B at 37a-40a. Indeed, since the district court

adopted the same interpretation of the administrative materials as

the Companies, there can be no doubt that the Companies acted

in a reasonably prudent manner in relying on them.

3 Opp. at 12.

4 The Acting Chairman of the EEOC recently stated that charges

filed under the ADEA had increased from 5400 in fiscal year 1979

to 8800 in fiscal year 1980, a rise of over sixty percent. Statement

of J. Clay Smith, Jr., Acting Chairman of the EEOC, before Sub-

committee on the Depts. of Commerce, Justice, State, the Judiciary

and Related Agencies of the House Committee on Appropriations

(March 11, 1981), at 10-11.

applies to the Fair Labor Standards Act, 29 U.S.C.

§§ 201, et seqg., the Walsh-Healey Act, 41 U.S.C. 88 35,

et seqg., and the Davis-Bacon Act, 40 U.S.C. §§ 276a,

et seq.,° while a similarly worded exemption is found in

title VII, 42 U.S.C. § 2000e-12(b). This Court’s inter-

vention, therefore, is essential to insure uniformity on

this important question of federal law.

2. Rather than refuting the Companies’ contention that

title VII standards are inapplicable, EEOC’s opposition

underscores the need for ADEA standards that will pre-

clude the ADEA’s application to responsible business

decisions that were in no sense motivated by age animus.

EEOC has always conceded that the Companies’ actions

were not based on age as such, but on the employees’

entitlement to a pension and a continued source of in-

come. Opp. at 6. Nonetheless, using a mechanical “but

for“ analysis, EEOC asserts that the Companies’ actions

were discriminatory per se because entitlement to this

valuable fringe benefit was conditioned, in part, upon age.

For support, EEOC relies on title VII case law striking

down practices that were based on an impermissible cri-

terion plus a nondiscriminatory factor, i.e., the “sex plus”

cases. Opp. at 6.°

EEOC’s analysis, like that of the courts below,

ignores one salient fact—unlike title VII, the ADEA

explicitly sanctions employer action “based on reasonable

factors other than age.” ADEA N f) (1), 29 U.S.C.

623 (f) (1). Accordingly, the fact that pension entitle-

ment, rather than age, formed the basis for the Com-

panies’ action’ should take the retirements outside the

ADEA’s scope. City of McKeesport v. International As-

5 29 U.S.C. § 259.

* Significantly, EEOC, like the Fourth Circuit, fails to offer

any alternative to the Companies’ reasoned and humane response

to their economic crisis.

7 Indeed, any sugestion that pension entitlement did not form

the basis for the Companies’ action would be disingenous since

the parties expressly stipulated that fact prior to trial.

sociation of Firefighters, 399 A. 2d 798, 799 (Pa. Commw.

Ct. 1979). This conelusion is evident from this Court's

recent explanation of the significance of the exelusion of

the similarly worded Equal Pay Act defense from title

VII:

Title VII's prohibition of discriminatory employment

practices was intended to be broadly inclusive, pro-

scribing “not only overt discrimination but also

practices that are fair in form, but discriminatory

in operation.“ . . The structure of Title VII litiga-

tion, including presumptions, burdens of proof, and

defenses, has been designed to reflect this approach.

The (factor other than ser] defense of the Equal

Pay Act, however, was designed differently, to con-

fine the application of the Act to wage differentials

attributable to sex discrimination.

County of Washington v. Gunther, 49 U.S.L.W. 4623,

4626 (June 8, 1981) (citations omitted) (emphasis

added) .“ The Court’s intervention, therefore, is needed to

insure recognition of this basic distinction between the

ADEA and title VII.

Finally, even if title VII standards govern, the lower

court’s misapplication of McDonnell Douglas Corp. v.

Green, 411 U.S. 792 (1973), and its progeny still would

mandate reversal. Contrary to the EEOC’s assertion,

the courts below held that prima facie, rather than per

se, violations of the ADEA had been established. Pet.

App. at 6a, 29a. Nonetheless, neither court considered

whether the nondiscriminatory motives articulated by the

Companies were sufficient to rebut that prima facie show-

ing. Their failure to do so, whether viewed as. error

Los Angeles Dept. of Water & Power v. Manhart, 435 U.S. 702

(1978), relied on by EEOC, supports this view. There, the Court

did not hold that the “factor other than sex” defense was unavail-

able because sex was one factor considered by the employer in

requiring female employees to make larger contributions to a

pension fund. Rather, it based its holding on the fact that sex

was the only factor considered. 435 U.S. at 712-713. The decision

thus indicates that consideration of an impermissible criterion is

not fatal to the defense so long as that criterion, as here, does not

form the basis for the employer’s action.

under ADEA §4(f)(1) or under McDonnel Douglas,

not only rendered irrelevant the Companies’ nondiscrimi-

natory motivation, but also imposed upon them a burden

of rebuttal far in excess of that permitted under Teras

Department of Community Affairs v. Burdine, 49

U.S.L.W. 4214 (March 4, 1981).°

3. EEOC’s suggestion that the 1978 amendments to

the ADEA have deprived the Section 4(f) (2) issues of

prospective significance is both incorrect and disingen-

uous. Those amendments have no impact on the various

issues raised concerning the proper interpretation of the

language of Section 4(f) (2). Rather than altering the

exemption’s language, the amendments simply added a

clause to Section 4 f) (2) making it inapplicable to in-

voluntary age-based retirements. Thus, the interpreta-

tion questions raised will be recurring, albeit outside the

retirement context.

Nor can the continued significance of those issues to

pre-1978 retirements be lightly disregarded. As EEOC

is well aware, there still remain numerous pending and

potential lawsuits involving the legality of pre-1978 re-

tirements, one of which is also pending before this Court

on a petition for certiorari.’° The potential liability faced

by employers is massive. Not surprisingly then, as late

as July 28, 1981, EEOC itself viewed this area of suffi-

cient significance to promulgate an interpretation of Sec-

tion 4(f)(2) which addresses the applicability of the

® That EEOC supports such analysis is hardly surprising in light

of its interpretation of Section 4(f)(1), issued on July 28, 1981.

That interpretation would require an employer to prove affirma-

tively, rather than simply articulate, a reasonable factor other

than age for his actions. 29 C.F.R. § 1625.7(e), as reported in 353

BNA Pension Reporter (Aug. 3, 1981) (unpublished, be codi-

fied), at R-26.

10 That case, EEOC v. Eastern Airlines, Inc., No. 79-3960 (5th

Cir., Apr. 14, 1981), petition for cert. filed, 50 U.S.L.W. 3013

(July 28, 1981), involves a Section 4(f) (2) issue virtually identical

to that here presented concerning the proper interpretation of the

term “subterfuge” in the post-ADEA context. Pet. at 22-24.

1978 amendments to pre-1978 retirements. Despite hav-

ing lost the issue in all five Courts of Appeals that have

considered it, EEOC adhered to the position that the

1978 amendments invalidated retirements effected prior

to the amendments’ enactment. 29 C.F.R. § 1625.9(b)

(1), as reported in 353 BNA Pension Reporter (Aug.

8, 1981) (unpublished, to be codified), at R-27. Accord-

ingly, EEOC’s own recent actions belie its suggestion

that this is an area without “prospective importance.”

Moreover, those actions, like the complete disregard of

the official ADEA interpretations on which the Com-

panies relied, evidence the administrative lawlessness that

employers have been subjected to in this area.

That EEOC would attempt to avoid resolution of the

Section 4(f) (2) issues underscores its inability to counter

the Companies’ contentions on the merits. EEOC’s en-

tire “observe the terms” argument is that the terms of

the plans did not authorize involuntary early retire-

ment. That argument, based on a single sentence of tes-

timony seized out of context, is wholly specious. It ig-

nores not only the district court’s finding to the con-

trary,’ but also the parties’ stipulation that the retire-

ments were made on the basis of pension entitlement.

To suggest now that the retirements were made on the

basis of entitlement to a pension, but were not authorized

by the plans, is absurd. Indeed, not a single retiree has

has ever questioned the Companies’ authority, apart from

the ADEA, to require their early retirement.

11 EEOC v. Shell Oil Co., 637 F.2d 688 (9th Cir. 1981); Sikora

v. American Can Company, 622 F.2d 1116 (8rd Cir. 1980); Jensen

v. Gulf Oil Refining & Marketing Co., 623 F.2d 406 (5th Cir.

1980); Carpenter v. Continental Trailways, 635 F.2d 578 (6th

Cir. 1980); Smart v. Porter Paint Co., 630 F.2d 490 (7th Cir.

1980).

12 Pet. App. at 32a-33a, 37a. Rather than a single sentence of

testimony, the district court’s finding that the plans authorized

involuntary early retirement was based on the terms of the plans

themselves construed against extensive evidence of the plans’

historical operation.

Even apart from this fact, EEOC’s argument wholly

misses the point. As the Companies demonstrated, to the

extent the Fourth Circuit found irrelevant the historical

practice relied on by the district court in construing the

plans’ terms, the decision below is in direct conflict with

United Air Lines, Inc. v. McMann, 434 U.S. 192 (1977),

Aldendifer v. Continental Air Lines, Inc., 25 Empl. Prac.

Dec. {31,535 (9th Cir. 1981), and EEOC v. Shell Oil

Co., 637 F.2d 683 (9th Cir. 1981). Those decisions in-

terpreted plan language at least as ambiguous as that

in the Companies’ plans to authorize involuntary age-

based retirement on the basis of the plans’ historical op-

eration. See, Pet. at 15-16. On the other hand, to the

extent the Fourth Circuit refused to credit the district

court’s factual finding that the Companies “always had

the power to involuntarily retire their employees under

a consistent application of their plans,” “ its holding runs

afoul of Rule 52(a), Fed. R. Civ. Proc. Pet. at 25-26.

Finally, to the extent the Fourth Circuit’s holding was

based on the view that Section 4(f) (2) was unavailable

due to the discretionary nature of the retirements, its

holding conflicts with the five other circuits that have

considered the issue. Pet. at 19. EEOC's argument

simply fails to address any of these contentions.

In any event, EEOC’s suggestion that plan authoriza-

tion was lacking is wholly irrelevant. As the Companies

demonstrated on the basis of Section 4(f) (2)’s legislative

history, no such authorization is required. Pet. at 17-18.

Rather, since an employer’s right to separate an em-

ployee is never derived from a pension plan, the “observe

the terms” requirement, properly construed, requires

simply that an employer honor an employee’s pension

rights and pay the benefits provided by the plan. Id.

This the Companies plainly did.

The “subterfuge” arguments advanced by EEOC to

avoid review are even less convincing. As a threshold

matter, it is important to recognize that a circuit con-

18 Pet. App. at 37a.

flict, unaddressed by EEOC, exists on the question of

whether a plan paying substantial benefits can ever con-

stitute a “subterfuge.” Compare Zinger v. Blanchette,

549 F.2d 901 (8rd Cir. 1977), cert. denied, 434 US.

1008 (1978), and Marshall v. Hawaiian Tel. Co., 575

F.2d 763 (th Cir. 1978), with decision below. That

standard, which Justice White recognized as the proper

test in his concurring opinion in McMann," obviously

mandates reversal of the Fourth Circuit’s ruling.

Moreover, even among those circuits that have rejected

the “substantial benefit” standard, there is a significant

conflict on the type of proof an employer must advance

to demonstrate that a post-ADEA plan is not an im-

permissible “subterfuge.” As the Companies’ petition

notes, the Sixth Circuit in Carpenter v. Continental Tail-

ways, 685 F.2d 578 (6th Cir. 1980), held that an em-

ployer need show only that his plan constituted a “legiti-

mate instrument” established to provide benefits for his

employees. That decision clearly conflicts with the de-

cision below. Furthermore, it conflicts with both de-

cisions relied on by EEOC—EEOC v. Eastern Air Lines,

Inc., supra, and Smart v. Porter Paint Co., supra. Those

decisions do little more than resurrect in the post-ADEA

retirement plan context,“ the business justification re-

quirement rejected by this Court for pre-Act plans in

McMann." That requirement, of course, renders Sections

14 United Air Lines, Inc. v. McMann, 434 U.S. at 207 (White, J.,

concurring). >

16 The Companies do not concede that their plans are post-ADEA

plans for purposes of Section 4) (2). In finding that the plans

did not constitute a “subterfuge,” the district court treated them

as pre-ADEA plans despite the post-ADEA reduction in the re-

tirement age since: (1) they predated the ADEA and paid sub-

stantial benefits; (2) the benefit levels of the plans had been im-

proved in connection with the age reduction; and (8) the age

reduction was merely a codification of the Companies’ historic

power to retire its employers involuntarily. Pet. App. at 36a-37a.

1% In any event, neither Smart v. Porter Paint Co., supra, nor

EEOC v. Eastern Air Lines, Inc., supra, support the decision

below. In indicating that an employer could avoid a subterfuge

4(f) (1) and 4(f) (2) redundant since an employer has no

need to rely on Section 4(f) (2) if his action is based

on a reasonable factor other than age. Accordingly, this

Court should grant certiorari not only to remove the

confusion in this area, but also to insure a meaningful

interpretation of each provision of the statute.’

4. EEOC’s repeated suggestion that the instant case

is too fact-specific to warrant review is wholly without

merit. Whatever validity that suggestion might have in

another context, it can have none where, as here, a

Court of Appeals’ actions have made a mockery of the

“clearly erroneous” standard. As demonstrated in the

Companies’ petition, the Fourth Circuit disregarded,

without finding “clearly erroneous,” key factual deter-

minations made by the district court on the actual op-

eration of the pension plans, the Companies’ motives in

engaging in the challenged actions, and the Companies’

finding on the basis of legitimate business reasons, they neces-

sarily rejected the Fourth Circuit’s view that any post-ADEA

action inconsistent with the ADEA’s goals necessarily constituted

a “subterfuge.” Pet. at 19-20. Moreover, while both cases arose

outside the context of an economically necessary force re-

duction, and thus, are distinguishable factually, Smart did discuss

the instant case and suggest that the “extensive evidence of a

business purpose [advanced] for lowering the normal retirement

age” was sufficient to avoid a “subterfuge” finding. Smart v. Porter

Paint Co., 630 F.2d at 496, n.4.

* The decisions relied on by the EEOC to support the position

that an employer cannot reduce his workforce by terminating older

employees—McCorstin v. U.S. Steel Corp., 621 F.2d 749 (5th Cir.

1980) and EEOC v. Sandia Corp., 639 F.2d 600 (10th Cir. 1980)—

are inapposite. In neither case was the question of whether the

employer’s actions were exempt under Section 4(f) (2) before the

court. While McCorstin did suggest in dicta that Section 4(f) (2)

was unavailable, it did not do so on the ground that such use of a

pension plan constituted an impermissible “subterfuge.” Rather,

its suggestion was based on the view, now discredited in the Fifth

Circuit and elsewhere, that retirements effected at an employer's

option were not exempt under Section 4(f) (2). See, e.g., Jensen v.

Gulf Oil Refining & Marketing Co., 628 F.2d 406 (9th Cir. 1980).

Thus, both decisions hold simply that a dicharge effected on the

basis of age violates the ADEA in the absence of an exemption.

good faith reliance upon official administrative interpre-

tations of the ADEA. Pet. at 24-26. To now refuse re-

view because of the factual complexity injected into this

case by the disregard of such findings would not only

reward the Fourth Circuit for its non-compliance with

Rule 52(a), Fed. R. Civ. Proc., but also permit appellate

courts to shield review of any controversial decision by

simply substituting their own factual judgments for

those of the district court.

CONCLUSION

For the reasons stated herein as well as those stated

in the Companies’ petition for a writ of certiorari, this

Court should grant the petition.

Respectfully submitted,