Petition for Writ of Certiorari — Envirodyne Industries, Inc. v. Lumpkin
Supreme Court brief1991
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9 4-2 ¢ 6 . AUG 15 1991
\ DEFice OF THE CLERK
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IN THE o
Supreme Court of the United States
OCTOBER TERM, 1991
>
ENVIRODYNE INDUSTRIES, INC.,
Petitioner,
—_vV.—
FRANK LUMPKIN, ETAL.,
Respondents.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
PETITION FOR WRIT OF CERTIORARI
Stanley B. Block Edwin B. Mishkin
(counsel of record) Richard F. Ziegler
Charles B. Wolf Daniel J.H. Greenwood
Michael I. Richardson CLEARY, GOTTLIEB, STEEN
VEDDER, PRICE, KAUFMAN & HAMILTON
& KAMMHOLZ One Liberty Plaza
222 North LaSalle Street New York, New York 10006
Chicago, Illinois 60601 (212) 225-2000
(312) 609-7500
Attorneys for Petitioner
i
QUESTIONS PRESENTED
If the petition for certiorari is granted, the questions pre-
sented are:
1. Whether, in light of this Court’s recent decision in
Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 59
U.S.L.W. 4688 (June 20, 1991) (No. 90-333) (to be reported
at 111 S. Ct. 2773 (1991)), the timeliness of federal claims for
employee benefits under a plan governed by the Employee
Retirement Income Security Act (ERISA), 29 U.S.C. § 1001
et seq., should be governed by the uniform limitations period
that is repeatedly provided in ERISA for closely analogous
claims, rather than the widely varying limitations periods that
are provided in state statutes of limitations?
2. Whether, if no uniform federal limitations period is to
be applied, this Court’s decision in UAW v. Hoosier Cardi-
nal Corp., 383 U.S. 696 (1966), and federal policy under
ERISA mandate that the timeliness of federal claims for
employee benefits be governed by the Illinois five year statute
of limitations for contracts not exclusively in writing (the
period concededly applicable under the law of the forum
state), rather than the different state limitations period that
the court below selected to achieve its preferred outcome?
r
PARTIES TO THE PROCEEDING
The parties to the proceeding, in addition to those named
in the caption, are a certified class of former employees of
WSC Corporation who were represented for the purpose of
collective bargaining by the Progressive Steel Workers Union
(‘‘“PSWU’’) or belonged to other bargaining units at the Wis-
consin Steel Mill who were plaintiffs below and are respon-
dents in this Court. The Wisconsin Steel Mill was operated
by an unincorporated division of International Harvester
Corporation (now known as Navistar, Inc.) until it was sold
in 1977 to EDC Holding Company, a wholly owned subsidi-
ary of petitioner Envirodyne Industries, Inc. and the parent
of WSC Corporation. The named class representatives are:
Frank Lumpkin, Rafael Alvarez, Delbert C. Auguston,
Wayne Schwartz, Felix Vasquez and John Randall.
The following information is provided pursuant to Rule
29.1 of the Court: Petitioner Envirodyne Industries, Inc. is a
corporation. Its parent corporation and sole shareholder is
Emerald Acquisition Corporation. A majority of the out-
standing shares of Emerald Acquisition Corporation common
stock are beneficially owned by Salomon Brothers Holding
Company Inc, a wholly owned subsidiary of Salomon Inc.
Envirodyne Industries, Inc. has no subsidiaries that are not
wholly owned subsidiaries or indirect wholly owned subsidi-
aries.
iil
TABLE OF CONTENTS
PAGE
GPRPRe ROCIO PRIVEE) . ccc ccc cccccccccccccs i
PARTIES TO THE PROCEEDING ..... bpheke dane ii
I PEED oo cece ccc ccceccccccccees vii
Ry. Ge Viii
Enc 6 he Seen cnacsececsccecesocese l
eet cae ree ddesectsesocseees ]
ce ceeeenectaveversveces 2
I MEIER, 5 ven wcccccccccecccccceuces 2
pn eS 2
PR CUTGRG Sane benecscoscsccscecsesss 3
B. The Seventh Circuit Decision ............... 4
REASONS FOR GRANTING THE WRIT .......... 5
POINT I
CERTIORARI SHOULD BE GRANTED TO
DETERMINE THE LIMITATIONS PERIOD FOR
ERISA ACTIONS IN ACCORDANCE WITH
CONGRESSIONAL INTENT AND TO ELIMI-
NATE THE APPLICATION OF WIDELY VARY-
ING STATE LAW RULES THAT FRUSTRATE
CONGRESS’ EXPLICIT PREEMPTION OF ‘‘ANY
Ns oc bcc bcedsesccecccese 5
A. The Seventh Circuit’s Decision Conflicts With
The Fundamental Teaching Of Lampf, Pleva: 5
iv
B. The Existing Law Concerning The Limitations
Period Applicable To ERISA § 502 Actions Is
Chaotic, Involving Periods Ranging From Two
TO: PO SE 6 wos oc Wb SkN 65sec cebsec uses
1.
The Courts Apply Widely Varying State
BP coe ens chun wee ga6he enc
The States Disagree On The Appropriate
Limitations Period For Contract Actions .
C. Lampf, Pleva’s Selection Of The Limitations
Period Contained In The Same Federal Statute
Directly Fits The ERISA Statutory Scheme...
1.
The Limitations Periods Contained In
ERISA, A Comprehensive Scheme
Expressly Intended To Preempt State Law,
Demonstrate Congressional Intent........
Virtually Identical ERISA Actions For
Employee Benefits Are Governed By The
Explicit Limitations Period Set Out Else-
GQ I ccc ackasecteaNeece ses
Sensible Administration Of Federal Benefits
Law Compels Application Of ERISA’s Explicit
BO OT eee eT eee ee
Bs
Uniformity Is Particularly Important
Because Of The Multi-State Nature Of
Much Litigation Under ERISA ..........
Lack Of Uniformity Wastes Judicial And
Pension Fund Resources .............0..
PAGE
10
1]
1]
14
16
16
18
PAGE
POINT I
CERTIORARI SHOULD BE GRANTED TO
CLARIFY THE RELATIONSHIP BETWEEN
THIS COURT’S DECISIONS IN LAMPF, PLEVA
AND HOOSIER CARDINAL WITH RESPECT TO
FEDERAL EMPLOYEE BENEFIT CLAIMS...... 19
A. The Court Should Clarify That Hoosier Cardi-
nal Does Not Apply To This Hybrid LMRA-
IE 4.6 bec c'ueceveudesse be baneeces 19
B. This Court Should Clarify The Tension
Between Hoosier Cardinal And Lampf, Pleva
With Respect To § 301 Claims Generally..... 21
POINT III
CERTIORARI SHOULD BE GRANTED BE-
CAUSE THE SEVENTH CIRCUIT’S DETERMI-
NATION OF THE APPROPRIATE LIMITA-
TIONS PERIOD UNDER ERISA AND SECTION
301 MISCONSTRUES FEDERAL POLICY UNDER
ERISA AND CONFLICTS WITH THIS COURT’S
DECISION IN HOOSIER CARDINAL AND THE
DECISIONS OF OTHER COURTS OF APPEAL . 22
A. The Seventh Circuit Misconstrued The Mean-
ing And Substance Of Federal Policy Under
Se ee EP Na eee eGuhvecbaswes cececus 23
1. The Seventh Circuit Improperly Rejected
The Applicable Limitations Period Under
State Law Without Finding That It Was
Contrary To Federal Policy ............. 23
2. The Seventh Circuit’s Analysis Of Federal
Policy Conflicts With ERISA, Its Legisla-
tive History, Hoosier Cardinal And Other
Federal Appellate Court Decisions ....... 25
vi
PAGE
B. The Seventh Circuit’s Application Of The
Written Contract Limitation Period To Claims
For Collectively Bargained Employee Benefits
Violates The Holding Of Hoosier Cardinal... 28
ET Sui os ina cuunnn Jekeeeevis case seas os 30
Vii
TABLE OF APPENDICES
PAGE
Appendix A: Opinion of the United States Court of
Appeals for the Seventh Circuit ....... la
Appendix B: Opinion of the United States District
Court for the Northern District of Illi-
nois On motion to dismiss ............ 32a
Appendix C: Opinion of the United States District
Court for the Northern District of IlIli-
nois On motion for rehearing.......... 40a
Appendix D: Text of relevant portions of ERISA ... 43a
Appendix E: Text of Illinois statutes of limitations
for actions on contracts entirely in writ-
ing and for actions on other contracts. 62a
Appendix F: Complaint in this action.............. 63a
Viii
TABLE OF AUTHORITIES
Cases PAGE
Adams v. Gould, Inc., 739 F.2d 858 (3d Cir. 1984),
cert. denied, 469 U.S. 1122 (1985) ................ 20
Agency Holding Corp. v. Malley-Duff & Assocs., Inc.,
ee es tic debe tes cétbocedbccsccses 17, 18
Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504
I i Ae ate ile ee aa ie Oe a a wit te LB a a die 00 11
Baird & Warner, Inc. v. Addison Indus. Park, Inc., 70
Ill. App. 3d 59, 387 N.E.2d 831 (lst Dist.
CE ite kites nite eee tea a aioe h'6 ew 5% 24, 29, 30
Biros v. Spalding-Evenflo Co., 934 F.2d 740 (6th Cir.
ali we Ua bade eae id 0b ave es ans ba Céeedeeeess 27
Brown v. Transamerica Freight Lines, 72 L.R.R.M.
a EN Es SE hos berenwee bese cneecatabasces 23, 24
Byrnes v. DeBolt Transfer, Inc., 741 F.2d 620 (3d Cir.
Pacts i PUG Selb kun th se aehed waCeMewk head alss 26
Central States Pension Fund v. Kraftco, Inc., 799 F.2d
1098 (6th Cir. 1986), cert. denied, 479 U.S. 1086
NEE cise bly Sneed. 6 Fab aS OSE Eb EO aee ek Rees 27
Central States S.E. & S.W. Areas Pension Fund v. Jor-
dan, 127 L.R.R.M. (BNA) 2795, 110 Lab. Cas.
(CCH) 4 10,779 (N.D. Ill. 1987), rev’d, 873 F.2d 149
Ce SNE ci ndddnvicet obanet eabarkkeekeetans 6, 9
Ceres Partners v. GEL Assocs., 918 F.2d 349 (2d Cir.
urs gilaia Wd E-Od ach 4 dd ede EAR Oa bee enh enwes 7, 17
PAGE
Connors v. Hallmark & Sons Coal Co., 935 F.2d 336
SE OE ern ee 26
Corkery v. SuperX Drugs Corp., 602 F. Supp. 42
SS OE TS 6.0 ee ke she ceed Neds déseeeecenss 9, 10
Cowden v. Montgomery County Soc’y For Cancer
Control, 591 F. Supp. 740 (S.D. Ohio 1984)....... 10
Dameron yv. Sinai Hosp. of Baltimore, Inc., 815 F.2d
ey ES oc Shas ound db teh 0ee~ cee needs 10, 26
DelCostello v. International Brotherhood of Teamsters,
ee EE MG d's 0.6 5.c 64-000 8008000% 13, 19, 20
Edwards v. Wilkes-Barre Pub. Co. Pension Trust, 757
F.2d 52 (3d Cir.), cert. denied, 474 U.S. 843 (1985) 8
Estate of Grant v. U.S. News & World Report, Inc.,
GP FH. Dem. BOS GAC. TSGBD. «cc ccccccccccccss 10
FMC Corp. v. Holliday, ___. U.S. ___., 111 S. Ct.
Re i eee ere ee 11, 16, 18
Fogerty v. Metropolitan Life Ins. Co., 850 F.2d 430
ce wG ink vcoke tan tral ve ker wensawes 26
Gavalik v. Continental Can Co., 812 F.2d 834 (3d
Cir.), cert. denied, 484 U.S. 979 (1987) ........... 9
Goodman v. Lukens Steel Co., 107 S. Ct. 2617 (1987) 30
Hawaii Carpenters Trust Funds v. Waiola Carpenter
Shop, Inc., 823 F.2d 289 (9th Cir. 1987).......... 8, 27
Heideman v. PFL, Inc., 904 F.2d 1262 (8th Cir. 1990),
cert. denied, ____ U.S. ___., 111 S. Ct. 676 (1991) )
Held v. Manufacturers Hanover Leasing Corp., 912
f& 8 og: Ye ee | errr rr errr rrr es 8, 16
In re EDC, Inc., 930 F.2d 1275 (7th Cir. 1991)...... 3
Jenkins v. Local 705 Int’! Brotherhood of Teamsters
Pension Plan, 713 F.2d 247 (7th Cir. 1983)........ 6
Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbert-
son, 59 U.S.L.W. 4688 (June 20, 1991) (No. 90-333)
(to be reported at 111 S. Ct. 2773 (1991)) ........ passim
LeBlanc v. G.D. Searle & Co., 178 Ill. App. 3d 236,
533 N.E.2d 41 (1st Dist. 1988), leave to appeal
denied, 125 lll. 2d 566, 537 N.E.2d §11 (1989)..... 17
Lumpkin v. Envirodyne Indus., Inc., 11 E.B.C. 2580
(N.D. Ill. Nov. 7, 1989) (available at 1989 WL
152300 and 1989 U.S. Dist. LEXIS 13303) ........ 17
Lumpkin v. Envirodyne Indus., Inc., 933 F.2d 449 (7th
eg | PRT Gree nny rae parr trerAy hm me 5, 495 om
McClure v. Zoecon, Inc., No. 90-1489 (Sth Cir. July
11, 1991) (available at 1991 WL 123896 and 1991]
Sas Sees EL Us oo ba eee needs cece s 9, 10
Merk v. Jewel Food Stores, 641 F. Supp. 1024 (N.D.
Ill. 1986), aff’d, 848 F.2d 761 (7th Cir.), cert.
Going, Fae Di GA, Fee CID sev oecbcccccecceses’s 23
Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58
TE Had ca hath acca stare nese eer eae dads aes 20
Miles v. New York State Teamsters Conference Pen-
sion and Retirement Fund, 698 F.2d 593 (2d Cir.
|. ear mera araT: FOE SI phn Py Saal, srgoyk Pewee 27
Nedd v. United Mine Workers of America, 556 F.2d
190 (3d Cir. 1977), cert. denied, 434 U.S. 1013
ners sda ed oleae he eee eee eee eee 21
Pratl v. Hawthorn-Mellody Farms Dairy, Inc., 53 WU.
App. 3d 344, 368 N.E.2d 767 (1st Dist. 1977) ..... 23
Xi
Reed v. United Transp. Union, 488 U.S. 319
Is br aicu'aktuila oore aria dala te ae ane care nea 13, 18
Robbins v. Iowa Road Builders Co., 828 F.2d 1348
(8th Cir. 1987), cert. denied, 487 U.S. 1234 (1988). 16
Salyers v. Allied Corp., 642 F. Supp. 442 (E.D. Ky.
PGE sob es Caan eee eee sheds ca ee ee ee ae 9
Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983)... 12
Smith v. ABS Indus., Inc., 653 F. Supp. 94 (N.D.
8 PP ee eT Cre rar ripe tae mr TA 20
Sparks v. Ryerson & Haynes, Inc., 638 F. Supp. 56
ic SE IG 6468 vcdkekvnavenvaned dogeen sone 8, 20
Strong v. Lewis, 204 Ill. 35, 68 N.E. 556 (1903)..... 17
Teamsters Pension Fund vy. John Tinney Delivery
SOPR Fae Cede Btm TG UE. SOS ov cc cuca dees 26
Textile Workers Union of America v. Lincoln Mills of
AGN, F353 Ud. GD CFS cic vhecsouscccsvanes 21
Trustees of Wyo. Laborers Health and Welfare Plan v.
Morgen & Oswood Constr. Co., 850 F.2d 613 (10th
Case < oc 4 eS Cae ees eka deabaretnaeeeweeles 24
UAW vy. Hoosier Cardinal Corp., 383 U.S. 696
SE 9.5 aca ened eakseedee eee Vandel eteeriases passim
Vernau v. Vic’s Mkt., Inc., 896 F.2d 43 (3d Cir.
FN Ati rived Cis Ox eeesstdeesneaet Keer 8, 9, 26
Wiison v. Garcia, 471 U.S. Zbl CISGS) ioc ccc cccecces 18, 30
Statutes, Regulations and Rules
Federal
Employee Retirement Income Security Act (ERISA),
ek ee ee ee DS | fe ee rae eel Pe >
Xil
PAGE
Employee Retirement Income Security Act (ERISA),
SN NG I lcs BEDE 65s ccceccecveweneen passim
Employee Retirement Income Security Act (ERISA),
Ts OD, bob ok keds ce ecvesees 12, 13
Employee Retirement Income Security Act (ERISA),
Cte os, BP Wc. B UFUS oc ccc cccecvecces y Ae ae
Employee Retirement Income Security Act (ERISA),
Ge OR > A 4
Employee Retirement Income Security Act (ERISA),
section. 4070, 29 U.S.C. § 1370 00... cc cc cc eves te ae
Employee Retirement Income Security Act (ERISA),
OP GE icis OO OOS 6s es osccveescnss a 13s 2
Judicial Improvements Act of 1990, Section 313, 28
a uae els vale lag dsd Caw ues Kawa ws IZ, 25
Labor Management Relations Act (LMRA), Section
ee ee es Oe es cb bask boda eee cab bedess passim
Multiemployer Pension Plan Amendments Act of 1980,
Pub. L. No. 96-364, Section 4301, 94 Stat. 1208
ae eu as ae kak sake ae Rae eS Ke 15
Racketeer Influenced and Corrupt Organizations Act
ee Oe ee, Oe a ceuesiweeedeeades ; 16
Securities Act of 1933, Section 18, 15 U.S.C. § 77r.. 13
Securities Exchange Act of 1934, Section 10(b), 15
ita sc cada e eee ehee rake a wees 7
Securities Exchange Act of 1934, Section 28, 15 U.S.C.
cE a rr ey See ne ae 13
Securities Exchange Commission Rule 10b-5, 17 C.F.R.
ere Pere Tere rr errr ree 7
Xlil
PAGE
Single Employer Pension Plan Amendments Act of
1986, Pub. L. No. 99-272, Section 11014, 100 Stat.
Ee cos. 55s ena aeo ek ae akeneeetane eee eal 15
State
Cal. Cav. Code $337 (West 196D) .. 2.6 ccccnccvvcss 9
Cal. Civ. Code § 339 (West 1982) .................- 9, 10
DA. Code Ann. § 12-301(7) (1961) .. 2... cece wecces 10
Ill. Ann. Stat. ch. 110, ¢ 13-205 (Smith-Hurd
ee em dee ee ee ae eed as ens eae 9, 23, 29
Ill. Ann. Stat. ch. 110, ¢ 13-206 (Smith-Hurd
62 ey Mk eye ON 9, 24, 29
Ill. Ann. Stat. ch. 110, ¢ 13-210 (Smith-Hurd 1984) .. 17
Ind. Code Ann. § 34-1-2-1 (Burns 1986)............. 9
Ind. Code Ann. § 34-1-2-2 (Burns 1986)............. 9, 10
lowa Code Ann. § 614.1 (West 1950 & Supp. 1991).. 9
Ky. Rev. Stat. Ann. § 413.120 (Michie/Bobbs-Merrill
ee eee ee eins Shack dete bd © 9
Ky. Rev. Stat. Ann. § 413.090 (Michie/Bobbs-Merrill
ee Less he wan pews 6a esd eee eee 9, 10
Md. Cts. & Jud. Proc. Code Ann. § 5-101 (1989).... 10
Legislative History and Other Materials
120 Cong. Rec. 29933 (August 22, 1974), reprinted in
1974 U.S. Code Cong. & Admin. News 5177, 5188
(93d Cong., 2d Sess.) (statement of Sen. Williams) . 12
120 Cong. Rec. 29942 (August 22, 1974) (statement of
gs thik AO ae 12
X1V
126 Cong. Rec. 20202 (July 29, 1980) (Joint Explana-
tion of $1076: Multiemployer Pension Plan Amend-
eee Tee Me Tc a dnd se oe eos eee be Rded ee tenes
H.R. 4200, 93d Cong., Ist Sess. § 698 (1973), reprinted
in 2 (pt. 1) Employee Retirement Income Security
Act of 1974 Legislative History 2102 (1976)........
H.R. Conf. Rep. No. 1280, 93d Cong., 2d Sess. 327,
reprinted in 1974 U.S. Code Cong. & Admin. News
oa ren rr nr er re
H.R. Rep. No. 533, 93d Cong., Ist Sess. 17, reprinted
in 1974 U.S. Code Cong. & Admin. News 4639, 4655
S. Rep. No. 127, 93d Cong., Ist Sess. 35, reprinted in
1974 U.S. Code Cong. & Admin. News 4838, 4871
PAGE
15
25
20
1]
11
IN THE
Supreme Court of the United States
OCTOBER TERM, 1991
oe
ENVIRODYNE INDUSTRIES, INC.,
Petitioner,
—_—V,—
FRANK LUMPKIN, ET AL.,
Respondents.
>
PETITION FOR A WRIT OF CERTIORARI
10 THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
Petitioner Envirodyne Industries, Inc. (‘‘Envirodyne’’)
respectfully prays that a Writ of Certiorari issue to review the
judgment and decision of the United States Court of Appeals
for the Seventh Circuit, entered in this proceeding on May
17, 1991.
OPINIONS BELOW
The opinion of the Court of Appeals for the Seventh Cir-
cuit (la)' is reported at 933 F.2d 449 (7th Cir. 1991). The
Memorandum Opinion and Order of the District Court for
the Northern District of Illinois, Eastern Division granting
respondents’ motion for certification of the class and grant-
ing petitioner’s motion to dismiss (32a), is reported unoffi-
cially at 11 Employee Benefits Cases 2580 (N.D. Ill. Nov. 7,
l References to the Appendix hereto are cited ‘‘__a’’.
2
1989), 1989 WL 152300 and 1989 U.S. Dist. LEXIS 13303.
The District Court’s Memorandum Opinion and Order deny-
ing respondents’ motion to reconsider the dismissal of the
action (40a), is reported unofficially at 1990 WL 7086 and
1990 U.S. Dist. LEXIS 451 (N.D. Ill. Jan. 18, 1990).
JURISDICTION
The judgment of the Court of Appeals for the Seventh Cir-
cuit was entered on May 17, 1991. The jurisdiction of this
Court is invoked pursuant to 28 U.S.C. § 1254(1).
STATUTES INVOLVED
The case involves Section 502 of the Employee Retirement
Income Security Act (‘‘ERISA’’), 29 U.S.C. § 1132, and Sec-
tion 301 of the Labor Management Relations Act
(‘“LMRA’’), 29 U.S.C. § 185, as well as the statutes of limi-
tation that are contained in ERISA Sections 413, 4003(e)(6),
4003(f)(S), 4070 and 4301, 29 U.S.C. §§ 1113, 1303(e)(6),
1303(f)(S5), 1370 and 1451, all of which provide that suits
brought under such sections must be brought within three
years after discovery but not more than six years from the
accrual of the claim being asserted, except in case of fraud or
concealment. The text of these statutory sections is set out in
full in the Appendix (43a). The decision below applied the
Illinois statute of limitations for actions on a contract entirely
in writing and considered the statute governing contracts not
entirely in writing, Ill. Ann. Stat. ch. 110, 44 13-205 and i3-
206 (Smith-Hurd 1984), each of which also is set out in the
Appendix (62a).
STATEMENT OF THE CASE
This action is brought by a plaintiff class consisting of
approximately 2,700 former employees of the Wisconsin Steel
Works against petitioner Envirodyne to recover benefits
under a collectively bargained employee benefit plan main-
tained by Envirodyne’s subsidiaries and to which Envirodyne
was not a party. The last in a series of related litigations, it
was filed nine years after the cause of action accrued and
over seven years after the same plaintiffs sued the mill’s pre-
vious owner to recover the same sums.
A. The Facts
In 1977, International Harvester Company (now Navistar
International Transportation Corporation) (‘‘Navistar’’) sold
its Wisconsin Steel Division to EDC Holding Company
(““EDC’’), a wholly-owned subsidiary of Envirodyne. The
transaction was structured as a leveraged buyout whereby
EDC paid $15 million and other consideration to acquire the
assets of the Division. EDC gave Navistar a mortgage cover-
ing certain assets in the amount of $50 million, and assumed
pension and contractual obligations that had accrued under
Navistar’s ownership.
In 1980, Navistar unexpectedly foreclosed on its mortgage,
causing EDC and its subsidiaries immediately to cease opera-
tions and file a petition under Chapter 11 of the Bankruptcy
Code which remains pending.” The bankruptcy spawned a
number of lawsuits.
In 1981, respondents sued Navistar, claiming that it was
responsible for the pension and welfare benefits accrued both
before and after the sale to EDC. This suit was settled in
1988 for $14.8 million. Respondents also filed claims for
these benefits in the Chapter 11 proceeding which were
released as part of the Navistar settlement. Respondents did
not join Envirodyne (which was never in Chapter 11) as a
defendant in their suit against Navistar.
In addition, respondents recovered the insured portion of
their pension benefits from the Pension Benefit Guaranty
2 As the Seventh Circuit observed in an opinion arising from the
debtor-in-possession’s claims against Navistar, EDC’s operation of the busi-
ness from 1977 through 1980 permitted ‘‘[s]Jome of the workers. . . [to]
h[o]ld on to their jobs for three more years. . . .”’ than otherwise would
have occurred. Jn re EDC, Inc., 930 F.2d 1275, 1281 (7th Cir. 1991).
4
Corporation (‘‘PBGC’’). In turn, the PBGC commenced an
action against Navistar and Envirodyne in 1981 to recoup the
benefits it paid.’
On February 17, 1989, nine years after EDC’s bankruptcy,
Over seven years after respondents commenced their lawsuit
against Navistar, and shortly after announcement of the
arm’s length sale of Envirodyne to its present owner, respon-
dents sued Envirodyne, asserting that it was the alter ego of
the bankrupt subsidiaries. On this theory, respondents claim
that Envirodyne is accountable for over $80 million in unpaid
pension and welfare benefits and interest charges which were
not collected from Navistar or the PBGC. Count I of the
Complaint seeks these benefits under section 502(a)(1)(B) of
ERISA, 29 U.S.C. § 1132(a)(1)(B), and Count II requests the
same relief under section 301 of the LMRA, 29 U.S.C. § 185.
Jurisdiction was predicated on these sections.
Envirodyne moved to dismiss the Complaint on the
grounds that the respondent class released its claims in set-
tling the action against Navistar and, alternatively, that the
claims were untimely. On November 7, 1989, the District
Court granted Envirodyne’s motion, holding that the release
of claims in the settlement agreement with Navistar barred
respondents’ claims against Envirodyne. Respondents filed a
motion to reconsider which was denied on January 19, 1990
upon essentially the same grounds as the original order. In
each decision, the District Court found it unnecessary to
reach the statute of limitations issue.
B. The Seventh Circuit Decision
On May 17, 1991, the United States Court of Appeals for
the Seventh Circuit reversed and remanded the case to the
District Court for further proceedings. The Seventh Circuit
considered the release to be ambiguous on its face and held
3. The PBGC’s claims against Envirodyne were based on Envirodyne’s
statutory liability to the PBGC as a parent company under ERISA § 4062, 29
U.S.C. § 1362, not on any alter ego theory. Early in the litigation, the PBGC
and Envirodyne reached agreement on Envirodyne’s statutory liability and
the case was settled as to Envirodyne.
|
that it was ‘‘necessary to define the parties’ intent by looking
to extrinsic and parol evidence’’ which was not sufficiently
contained in the record on appeal. (13a).
Addressing Envirodyne’s contention that the claims were
untimely, the Seventh Circuit further held that, under Section
502 of ERISA, the courts ‘‘must apply the most appropriate
state statute of limitations so long [as] it is consistent with
federal law and policy.’’ (28a). The Seventh Circuit recog-
nized that, in alter ego cases, the Illinois courts apply a five
year statute of limitations for contracts which are not exclu-
sively in writing. Nevertheless, the Court held that ‘‘as a mat-
ter of federal policy the longer [ten-year] statute of
limitations [for written contracts] should apply’’ and further,
that ‘‘there is no basis in federal law for characterizing their
claims as an oral contract for purposes of the statute of limi-
tations.’’ (30a).
Accordingly, the Seventh Circuit concluded that its ‘‘deci-
sion paves the way for the plaintiffs to present their case
against Envirodyne more fully in the district court.’’ (30a).
REASONS FOR GRANTING THE WRIT
POINT I
CERTIORARI SHOULD BE GRANTED TO DETERMINE
THE LIMITATIONS PERIOD FOR ERISA ACTIONS IN
ACCORDANCE WITH CONGRESSIONAL INTENT AND
TO ELIMINATE THE APPLICATION OF WIDELY
VARYING STATE LAW RULES THAT FRUSTRATE
CONGRESS’ EXPLICIT PREEMPTION OF “ANY AND
ALL”’ STATE LAWS
A. The Seventh Circuit’s Decision Conflicts With The Fun-
damental Teaching Of Lampf, Pleva.
The Seventh Circuit’s decision below applies a state law
statute of limitations to permit claims under ERISA to be
brought against a parent corporation on an alter ego theory
for a subsidiary’s benefit plan default—almost nine years
6
after the claim arose and was discovered and more than seven
years after plaintiffs commenced similar litigation against the
business’s former owner and filed claims in the subsidiary’s
bankruptcy proceedings. Yet ERISA itself explicitly sets three
years as the limitations period for actions on directly analo-
gous claims and expressly preempts ‘‘any and all’’ state law
provisions relating to employee benefit plans.
Writing a month before this Court’s decision in Lampf,
Pleva, Lipkind, Prupis & Petigrow vy. Gilbertson, 59
U.S.L.W. 4688 (June 20, 1991) (No. 90-333) (to be reported
at 111 S. Ct. 2773 (1991)), the Seventh Circuit did not con-
sider the limitations periods set out in ERISA itself as a pos-
sible source of federal law to govern claims under ERISA
§ 502.* Lampf, Pleva applied a uniform limitations period
from federal law to actions under Section 10(b) of the Securi-
ties Exchange Act of 1934, 15 U.S.C. § 78j(b), reversing
more than three decades of borrowing state law limitations
periods by the lower courts.
As Lampf, Pleva now makes clear, the courts must con-
sider federal as well as state sources of law in determining the
limitations period applicable to federal claims for which Con-
gress has not expressly provided a statute of limitations.
Indeed, the Court’s decision in Lampf, Pleva emphasizes that
a limitations period contained elsewhere in the federal statu-
tory scheme at issue is likely to provide the most compelling
evidence of the Congress’ intent and a better source of law
for the courts to apply than a forum state’s statute of limita-
tions for unrelated claims.
Critically, ERISA contains several identical limitations
periods for claims that are directly analogous to the ERISA
claim asserted here. Each of these periods provides claimants
three years from discovery of the claim, but not more than
4 In light of the Seventh Circuit’s unequivocal decisions applying only
state law in Central States S.E. & S.W. Areas Pension Fund v. Jordan, 873
F.2d 149 (7th Cir. 1989) and Jenkins v. Local 705 Int’l Brotherhood of
Teamsters Pension Plan, 713 F.2d 247 (7th Cir. 1983), and litigating prior to
Lampf, Pleva, the parties did not argue that federal law was applicable.
7
six years from accrual (except in case of fraud or conceal-
ment), to commence an action. ERISA §§ 413, 4003(e)(6),
4003(f)(5), 4070 and 4301, 29 U.S.C. §§ 1113, 1303(e)(6),
1303(f)(S), 1370 and 1451. Indeed, as discussed below, Con-
gress’ three year-six year limitations scheme was applicable to
the plaintiffs in this very case with respect to their successful
recovery of a portion of their benefits under the plan at issue
here. See part 1.C.2, infra, pp. 14-16. As with the securities
law scheme in Lampf, Pleva, these limitations periods apply
to claims each of which ‘‘is an integral element of a complex
web of regulations’’ and ‘‘target[s] the precise dangers that
are the focus of [§ 502]’’. Lampf, Pleva, 59 U.S.L.W. at
4690.
In disregarding the ERISA scheme, the Seventh Circuit’s
opinion conflicts with the fundamental instruction of Lampf,
Pleva. Moreover, the wide variance in the state limitations
periods selected by other lower courts is wholly at odds with
ERISA’s clear purpose: to create a uniform federal law gov-
erning employee benefits. Certiorari should be granted and
the decision below reversed or vacated to vindicate Congres-
sional intent in accord with Lampf, Pleva.
B. The Existing Law Concerning The Limitations Period
Applicable To ERISA § 502 Actions Is Chaotic, Involving
Periods Ranging From Two To Twenty Years.
Current law regarding the selection of the limitations
period to govern ERISA § 502 claims is in even more ‘‘disar-
ray’’ than was the case with the claims under the Securities
Exchange Act of 1934, § 10(b), 15 U.S.C. § 78j(b), at issue in
Lampf, Pleva. Ceres Partners v. GEL Assoc., 918 F.2d 349,
354-55 (2d Cir. 1990). The range of state law limitations
periods applied by the lower courts to actions under Rule
10b-5, 17 C.F.R. § 240.10b-5 (1990), promulgated thereun-
der, was one to ten years. See Ceres, 918 F.2d at 354-55. The
limitations periods applied to date by the lower courts to
ERISA claims vary even more widely—from three years to
fifteen years—and in states where the matter has not yet
arisen, the same state law periods vary from two to twenty
5
years.”
As was the case with securities law claims, a handful of
lower courts have departed from the automatic borrowing of
state law in setting the limitations period for ERISA claims.
The Third Circuit and a district court in the Sixth Circuit
have applied ERISA’s explicit limitations period, rather than
state law, to claims under the statute that were not expressly
governed by it. Edwards v. Wilkes-Barre Pub. Co. Pension
Trust, 757 F.2d 52, 55 (3d Cir.), cert. denied, 474 U.S. 843
(1985) (borrowing ERISA § 413 limitations period)®; Sparks
v. Ryerson & Haynes, Inc., 638 F. Supp. 56 (E.D. Mich.
1986) (borrowing ERISA § 413 limitations period).
Two other circuit courts have noted that they might reject
state limitations periods in favor of ERISA’s own provisions
if they were writing on a slate free of earlier decisions in their
circuits and this Court’s pre-Lampf, Pleva analysis, see
Hawaii Carpenters Trust Funds v. Waiola Carpenter Shop,
Inc., 823 F.2d 289, 297-98 (9th Cir. 1987); Held v. Manufac-
turers Hanover Leasing Corp., 912 F.2d 1197, 1201 n.4 (10th
Cir. 1990) (§ 510 action), but they perceived themselves
bound to apply state law periods. So far as we are aware
every Other lower court has borrowed one of a variety of
potentially applicable forum state statutes of limitations to
govern claims under ERISA § 502.
1. The Courts Apply Widely Varying State Law Periods.
Significantly, courts looking to state law sources disagree
on the appropriate state statute of limitations to apply to
ERISA actions. Thus, various federal courts have applied
5 This Court has never addressed the appropriate limitations period
under ERISA § 502.
6 The Third Circuit has not consistently looked to federal law. See
Vernau v. Vic’s Mkt., Inc., 896 F.2d 43, 45 (3d Cir. 1990) (in trustee’s § 502
action to recover past due contributions, applying three year Pennsylvania
wage payment and collection limitation period, without discussion of
Edwards or ERISA statutory limitations periods).
9
state limitations periods applicable to claims for damages for
withholding or detaining personal property, recovery of
wages, breach of contact and others.’ The majority of the cir-
cuits apply the forum state’s contract statute of limitations,
although in some states, including Illinois (the forum state
below), that period itself varies depending upon whether the
claim is on a written or oral contract.® The resulting law var-
ies widely from circuit to circuit and state to state—the
reported decisions apply limitations periods for essentially
7 For cases under § 502, see, e.g., Vernau v. Vic’s Mkt., Inc., 896
F.2d 43, 45 (3d Cir. 1990) (applying Pennsylvania wage payment and collec-
tion statute of limitations); Salyers v. Allied Corp., 642 F. Supp. 442, 444
(E.D. Ky. 1986) (withholding personal property or detaining personal prop-
erty); Central States S.E. & S.W. Areas Pension Fund v. Jordan, 127
L.R.R.M. (BNA) 2795, 110 Lab. Cas. (CCH) § 10,779 (N.D. Ill. 1987)
(unwritten contracts), rev’d, 873 F.2d 149, 152-54 (7th Cir. 1989) (written
contracts).
See also with respect to another section of ERISA that lacks an explicit
statute of limitations, § 510 (relating to claims for interference with protected
rights under ERISA), Gavalik v. Continental Can Co., 812 F.2d 834 (3d
Cir.), cert. denied, 484 U.S. 979 (1987) (applying residual limitations period
applicable to an employment discrimination claim); Clark v. Coats & Clark,
Inc., 865 F.2d 1237, 1241-42 (11th Cir. 1989) (wage recovery (two vears) and
enforcement of statutory rights (20 years)); Heideman v. PFL, Inc. , 904 F.2d
1262, 1267 (8th Cir. 1990), cert. denied, U.S. , 811 5. Cr. CS
(1991) (contracts); McClure v. Zoecon, Inc., No. 90-1489 (Sth Cir. July 11,
1991) (available at 1991 WL 123896 and 1991 U.S. Dist. LEXIS 14692)
(applying wrongful discharge period; dissent would apply contract period);
Corkery v. SuperX Drugs Corp., 602 F. Supp. 42, 45 (M.D. Fla. 1985)
(employee termination claims). 7
8 States that distinguish between written and unwritten contracts
include, for example, California, Cal. Civ. Code § 339 (West 1982) (two year
period for unwritten contracts), § 337 (four years, written contracts); Ken-
tucky, Ky. Rev. Stat. Ann. § 413.120 (Michie/Bobbs-Merrill 1972) (five
years, unwritten contracts), § 413.090 (15 years, written); Illinois, Ill. Ann.
Stat. ch. 110 § 13-205 (Smith-Hurd 1984) (five years, unwritten), 4 13-206
(ten years, written); Indiana, Ind. Code Ann. § 34-]-2-1 (Burns 1986) (six
years, unwritten), § 34-1-2-2 (ten years, written contracts entered into after
1982; 20 years, written contracts entered into before 1982); and lowa, lowa
Code Ann. § 614.1.4 (West 1950 & Supp. 1991) (five years, unwritten),
§ 614.1.5 (ten years, written).
10
identical ERISA § 502 actions ranging from three to fifteen
9
years.
2. The States Disagree On The Appropriate Limitations
Period For Contract Actions.
The limitations period for § 502 claims still would not be
uniform even if every circuit court were to adopt the current
majority view characterizing such claims as contract actions,
because of the wide variation in the states’ limitations periods
for contract actions: state contract limitation periods range at
least from as short as two years to as long as twenty years.
See, e.g., Cal. Civ. Code § 339 (West 1982) (two year period
for oral contracts); Md. Cts. & Jud. Proc. Code Ann. § 5-
101 (1989) (three year contracts period); D.C. Code Ann.
§ 12-301(7) (1981) (three year contracts period); Ky. Rev.
Stat. Ann. § 413.090 (Michie/Bobbs-Merril! 1972) (15 year
contracts period); Ind. Code Ann. § 34-1-2-2 (Burns 1986)
(20 year period for written contracts entered into before
1982). This dramatic lack of consensus among the state legis-
latures as to the appropriate limitations period for contract
actions makes that body of law particularly inappropriate as
the source to govern federal claims under ERISA.
9 See, e.g., Estate of Grant v. U.S. News & World Report, Inc., 639
F. Supp. 342, 347-48 (D.D.C. 1986) (three years); Dameron v. Sinai Hosp. of
Baltimore, Inc., 815 F.2d 975, 981-82 (4th Cir. 1987) (three years); Cowden
v. Montgomery County Soc’y For Cancer Control, 591 F. Supp. 740, 754-55
(S.D. Ohio 1984) (15 years). In actions under ERISA § 510, which also lacks
an explicit statute of limitations, courts have gone even further—the Elev-
enth Circuit has applied limitations periods of both two and /wenty years to
different claims under this section in the same action. Clark, 865 F.2d at
1241-42 (action under § 510 claiming that employees were terminated to
avoid pension liabilities; court applied two year limitations period to back
wages claim and 20 year period to reinstatement claim); see also Corkery, 602
F. Supp. at 45 (two years); McClure, supra (two years).
1]
C. Lampf, Pleva’s Selection Of The Limitations Period Con-
tained In The Same Federal Statute Directly Fits The
ERISA Statutory Scheme.
ERISA and the LMRA form a comprehensive regulatory
scheme intended to create a uniform federal law governing
employee benefits. Alessi v. Raybestos-Manhattan, Inc., 451
U.S. 504, 523 (1981) (ERISA ‘‘establish[es] pension plan reg-
ulation as exclusively a federal concern’’). Reliance on widely
varying state law limitations periods disrupts this federal
interest in uniformity.
1. The Limitations Periods Contained In ERISA, A
Comprehensive Scheme Expressly Intended To Pre-
empt State Law, Demonstrate Congressional Intent.
As this Court held in Lampf, Pleva, the central task of the
courts in crafting a limitations period is to discern Congres-
sional intent. When Congress has enacted a general scheme
of federal law, Congress can be presumed to have intended
that the logic of that scheme itself, not extraneous and unre-
lated state law, will be the primary source of interstitial law-
making. As Lampf, Pleva holds, ‘‘consideration of state-law
alternatives [is] unnecessary where Congress has provided an
express limitations period for correlative remedies within the
same enactment.’’ 59 U.S.L.W. at 4691.
ERISA was enacted to provide a national solution to a
national problem. ‘‘Because of the interstate character of
employee benefit plans, the Committee believe it essential to
provide for a uniform source of law.’’ H.R. Rep. No. 533,
93d Cong., Ist Sess. 17, reprinted in 1974 U.S. Code Cong.
& Admin. News 4639, 4655; S. Rep. No. 127, 93d Cong., Ist
Sess. 35, reprinted in 1974 U.S. Code Cong. & Admin. News
4838, 4871.
In furtherance of this goal of national uniformity, ERISA
contains a preemption provision that is ‘‘conspicuous for its
breadth,’’ FMC Corp. v. Holliday, U.S. , os S
Ct. 403, 407 (1990), conclusively demonstrating Congressio-
nal intent to eliminate state legislation as a source of law in
12
the pension area. ERISA § 514, 29 U.S.C. § 1144"; 120
Cong. Rec. 29933 (August 22, 1974), reprinted in 1974 U.S.
Code Cong. & Admin. News 5177, 5188 (statement of Sen.
Williams) (‘‘It should be stressed that with the narrow excep-
tions specified in the bill, the substantive and enforcement
provisions . . . are intended to preempt the field for Federal
regulations, thus eliminating the threat of conflicting or
inconsistent State and local regulation of employee benefit
plans.’’); Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 98
(1983) (‘‘section [514]’s pre-emptive scope [is] as broad as its
language’’).
Thus, Congressional intent to create a uniform law is clear;
it is entirely anomalous to conclude that the limitations
period applicable to this uniform law must vary according to
the forum in which the suit is filed. Congress expected that
“fa body of Federal substantive law will be developed by the
courts to deal with issues involving rights and obligations
under private welfare and pension plans,’’ 120 Cong. Rec.
29942 (August 22, 1974) (statement of Sen. Javits), not that
the courts would simply absorb into Federal law the very
*‘multiple and potentially conflicting State laws,’’ id., that
Congress sought to preempt.
Lampf, Pleva rejects the presumption applied below that
where Congress fails to provide an explicit statute of limita-
tions it always intends that the courts borrow a limitations
period from an analogous statute of the forum state.'' As
discussed in the following section, the limitations periods
10 ERISA § 514 states, in pertinent part:
Except as provided in subsection (b) of this section, the provisions of
this title and title IV shall supersede any and all State laws insofar as
they may now or hereafter relate to any employee benefit plan
described in section 4(a) and not exempt under section 4(b).
11 Indeed, Congress itself has explicitly rejected this presumption, at
least as to statutes enacted after 1990. The Judicial Improvements Act of
1990, § 313, 28 U.S.C. § 1658 establishes a four year limitations period for
civil claims arising under Federal statutes enacted after its date where Con-
gress has not otherwise provided a limitations period. See Lampf, Pleva, 59
U.S.L.W. at 4691 n.10.
ee:
13
contained in ERISA itself clearly indicate Congress’ balanc-
ing of the competing interests involved in setting a statute of
limitations in precisely this context of employee benefit
claims. Thus, the Congressional limitations period is a far
‘*closer analogy,’’ Lampf, Pleva, 59 U.S.L.W. at 4689 (plu-
rality), id. at 4694 (Kennedy, J., dissenting) (each quoting
Reed v. United Transp. Union, 488 U.S. 319, 324 (1989) and
DelCostello v. International Brotherhood of Teamsters, 462
U.S. 151, 171 (1983)), a ‘‘closer fit,’? Lampf, Pleva, 59
U.S.L.W. at 4690 (plurality), and a more appropriate source
for interstitial lawmaking for ERISA actions than various
state statutes of limitations that were enacted with entirely
different considerations in mind. As the Lampf, Pleva Court
held, there is ‘‘no clearer indication of how Congress would
have balanced the policy considerations implicit in any limita-
tions provision than the balance struck by the same Congress
in limiting similar and related protections.’ Jd. at 4690.
The securities law claim at issue in Lampf, Pleva was judi-
cially created, unlike ERISA § 502. Nevertheless, the Lampf,
Pleva analysis is directly applicable here: ERISA is a compre-
hensive statutory scheme plainly intended to create a uniform
federal law in an important area of federal interest, and each
of § 502 and the other specific ERISA claims and their limi-
tations provisions is ‘‘an integral element of [the same] comp-
lex web of regulations.’’ Jd. at 4690. Indeed, the evidence of
Congress’ intention to avoid application of state law is even
more compelling here than in the context of the securities
claim at issue in Lampf, Pleva, since ERISA’s preemption
clause is far more powerful than that contained in the securi-
ties acts. Compare ERISA § 514, 29 U.S.C. § 1144 (supersed-
ing ‘‘any and all State laws’’ relating to employee benefit
plans) with Securities Exchange Act, § 28, 15 U.S.C. § 78bb
(allowing states concurrent regulatory jurisdiction); Securities
Act of 1933, § 18, 15 U.S.C. § 77r (similar).
14
2. Virtually Identical ERISA Actions For Employee Ben-
efits Are Governed By The Explicit Limitations
Period Set Out Elsewhere In ERISA.
Claims arising from a benefit plan often, as in this case,
involve a number of ERISA’s express rights of action,
because no single provision may authorize the full amount of
recovery sought by plan beneficiaries. No source of Congres-
sional intent suggests that Congress—having created a uni-
form period to govern claims for one portion of the
beneficiaries’ recovery—nonetheless intends to have their
claims for another portion of the same recovery, arising from
the identical facts and circumstances, governed by highly var-
iable state law limitations periods.
Thus, § 502, at issue here, provides for suits by beneficia-
ries against plans or their sponsors to enforce rights under
employee benefit plans. In practice—as in this action—such a
suit will ordinarily involve the uninsured portion of the bene-
fits, since a suit involving the insured portion is generally
brought under ERISA § 4003, which authorizes claims by
and against the PBGC. Claims are brought against the PBGC
if it has declined to pay insured benefits, and by the PBGC
after it has paid such benefits in order to recover its pay-
ments from other responsible parties. Significantly, suits
commenced by or against the PBGC are expressly governed
by the limitations periods in ERISA §§ 4003(e)(6) and
4003(f)(5), 29 U.S.C. §§ 1303(e)(6), 1303(f)(5). Each of those
subsections provides for a limitations period of three years
from discovery of the claim, but not more than six years
from accrual except in case of fraud or concealment.
Suits under § 4003 with respect to insured benefits are pre-
cisely analogous to suits commenced under § 502 to recover
the remaining uninsured portion of the same employee bene-
fits, since both involve disputes regarding contractual and
statutory obligations under the identical plan. Thus, the pol-
icy considerations regarding the applicable limitations periods
are identical and the periods should also be identical.
15
In contrast, application of a state law limitations period
can lead to the perverse result—as in this very case—that
plaintiffs would be permitted more time to bring suit to
recover the portion of their benefits which Congress chose to
leave uninsured than to sue the PBGC to obtain the federally
insured portion of their benefits, which Congress determined
was entitled to more protection. This turns the Congressional
scheme on its head.
Furthermore, all suits regarding breach of fiduciary duty or
an employer’s termination liability upon the termination of a
benefit plan, whether involving insured or uninsured benefits,
are also covered by explicit statutes of limitations providing
for the identical three year-six year period. ERISA §§ 413,
4070, 4301, 29 U.S.C. §§ 1113, 1370, 1451.
Indeed, each time Congress has amended ERISA to add a
statute of limitations, it has used this same three year-six year
period. Section 413, covering actions for breach of fiduciary
duty, was contained in the original House bill and in ERISA
as originally enacted. When Congress later expanded the sub-
stantive reach of the Act, it enacted new statutes of
limitations—each providing for the same period—to cover the
new claims. Thus, the Multiemployer Pension Plan Amend-
ments Act of 1980, Pub. L. No. 96-364, 94 Stat. 1208 added
ERISA § 4301 as a limitations period for ‘‘an action under
the bill.”’ 126 Cong. Rec. 20202 (July 29, 1980) (Joint Expla-
nation of $1076: Multiemployer Pension Plan Amendments
Act of 1980). Similarly, the limitations periods of §§ 4003
and 4070 were added by the Single Employer Pension Plan
Amendments Act of 1986, Pub. L. No. 99-272, § 11014, 100
Stat. 261-64 (1986), which comprehensively overhauled the
enforcement mechanisms of Title 1V (concerning plan termi-
nation insurance), and together with § 4301, they cover all
actions under Title IV.
In short, in Congressional revisions and enactments of var-
ious different parts of ERISA over a 12 year period, Con-
gress has repeatedly set the same three year-six year
limitations period to govern every claim for which it has con-
16
sidered the limitations question. Nothing in ERISA itself or
its legislative history suggests that by not specifying a limita-
tions period for § 502, Congress intended—after explicitly
preempting aii state law in this area, see supra, p. 11-12—to
bring in through the back door all the uncertainty and varia-
tion of state law by having federal courts look only to state
law to fill this lacuna in the enactment.
D. Sensible Administration Of Federal Benefits Law Com-
pels Application Of ERISA’s Explicit Limitation Period.
The remaining considerations in the Lampf, Pleva
analysis—the need for uniformity and predictability to serve
federal policy and judicial economy and the multistate nature
of actions under the relevant statute—compel the selection of
the ERISA limitations period for ERISA claims.
1. Uniformity Is Particularly Important Because Of The
Multi-State Nature Of Much Litigation Under
ERISA.
State by state determinations of the applicable limitations
period for claims under ERISA § 502 are particularly prob-
lematic because many benefit plans are multi-state. See, e.g.,
Robbins v. Iowa Road Builders Co., 828 F.2d 1348, 1353 n.3
(8th Cir. 1987), cert. denied, 487 U.S. 1234 (1988) (court
troubled by applying a state’s statute of limitations period to
claims regarding multi-state plan); Held v. Manufacturers
Hanover Leasing Corp., 912 F.2d 1197, 1199-1200, 1202-03
(10th Cir. 1990) (considering difficult choice of law issues in
determining which state’s law to apply); cf. FMC Corp. v.
Holliday, 111 S. Ct. at 408 (ERISA’s broad pre-emption
clause intended to avoid ‘“‘inefficiencies’’ that might result
from ‘‘an environment of differing State regulations’’). Even
small plans will often cover employees or plants in different
states—as is the case in the instant action.
As with RICO and the federal securities laws, actions
under ERISA § 502 (and LMRA § 301) are often multistate
in nature. Thus, the reasoning that compelled the Court to
17
apply a uniform federal limitations period to actions under
RICO, rather than looking to state law, is equally applicable
here:
The multistate nature of RICO indicates the desirability
of a uniform federal statute of limitations. With the
possibility of multiple state limitations [periods], the use
of state statutes would present the danger of forum
shopping and, at the very least, would ‘virtually guaran-
te[e] . . . complex and expensive litigation over what
should be a straightforward matter.’
Agency Holding Corp. v. Malley-Duff & Assocs., Inc., 483
U.S. 143, 154 (1987) (citations omitted).
Indeed, in states with ‘‘borrowing statutes,’’ different
plaintiffs may have different applicable limitations periods
even in the same action, resulting in a tremendous waste of
judicial and pension plan resources.’* For instance, in this
action, a relatively small single-employer benefit plan cover-
ing only one plant in Illinois involves beneficiaries who reside
in at least two states.”
Thus, even in a litigation involving a relatively simple bene-
fit plan, limitations periods of multiple states potentially are
12 Typical state borrowing statutes provide that where a cause of action
arises out-of-state, the forum shall apply the shorter of its own statute of lim-
itations or the statute of the other state. See, e.g., Ill. Ann. Stat. ch. 110,
4 13-210 (Smith-Hurd 1984). The borrowing statute often is interpreted to
preclude an out-of-state plaintiff from obtaining a longer limitations period
than could be obtained in his or her home state. See, e.g., Ceres Partners v.
GEL Assoc., 918 F.2d 349, 353 (2d Cir. 1990); Strong v. Lewis, 204 Ill. 35,
68 N.E. 556 (1903); LeBlanc v. G.D. Searle & Co., 178 Ill. App. 3d 236, 533
N.E.2d 41 (ist Dist. 1988), leave to appeal denied, 125 Ill. 2d 566, 537
N.E.2d 811 (1989) (Iilinois borrowing statute requires applying limitations
law of state of plaintiff's residence).
13. While no details regarding the members of the class appear in the
record in this action, the class certified is the same class as was certified in
Lumpkin v. International Harvester Co., 81 Civ. 6674 (N.D. IIl.). See Dis-
trict Court opinion on motion to dismiss (34a). The complaint in that action
alleges that ‘‘all or nearly all other plaintiff class members are citizens of IIli-
nois or Indiana.”’
18
involved. Not only does the District Court have to make a
separate determination of which statute to apply with respect
to each state, but the resulting limitations period in a single
lawsuit could vary from 2 to 20 years, depending on the acci-
dent of the individual plaintiffs’ current and former resi-
dences. As this Court has recognized, such a situation is a
powerful justification for application of uniform federal law.
Agency Holding, 483 U.S. at 150, 154; Reed v. United
Transp. Union, 488 U.S. 319, 326 (1989) (‘‘diversion of
resources to collateral statute-of-limitations litigation would
be foreign to the central purposes of [LMRDA] § 101(a)(2),
and thus we are persuaded that all claims under that provi-
sion should be characterized in the same way’’); Wilson v.
Garcia, 471 U.S. 261, 274 & n.33 (1985) (uniform law of lim-
itations necessary under 28 U.S.C. § 1983 to eliminate situa-
tion where ‘‘multiple periods of limitations would often apply
to the same case’’).
2. Lack of Uniformity Wastes Judicial And Pension
Fund Resources.
The wide variation in limitations periods makes rational
planning impossible for multi-state plans, sponsors and fidu-
ciaries, who may have unknown and certainly contingent lia-
bilities in uncertain amounts for indeterminate periods of
time, as well as for pensioners, who may lose actions for ben-
efits in mistaken reliance on longer statutes of limitations.
Furthermore, the uncertainty and opportunities for litiga-
tion tactics lead to delay and increased cost over a peripheral
issue. The burden of this delay and expense ultimately may
be borne by pension funds and their beneficiaries, contrary to
any intent of the statute. FMC Corp. v. Holliday, 111 S. Ct.
at 408. Thus, ERISA is a classic example of a statute where
‘*a uniform statute of limitations is required to avoid intoler-
able ‘uncertainty and time-consuming litigation.’ ’’ Agency
Holding Corp. v. Malley-Duff & Assocs. Inc., 483 U.S. 143,
150 (1987) (citing Wilson v. Garcia, 471 U.S. 261, 272
(1985)).
- . ree anil
19
POINT Il
CERTIORARI SHOULD BE GRANTED TO CLARIFY
THE RELATIONSHIP BETWEEN THIS COURT’S DECI-
SIONS IN LAMPF, PLEVA AND HOOSIER CARDINAL
WITH RESPECT TO FEDERAL EMPLOYEE
BENEFIT CLAIMS
A. The Court Should Clarify That Hoosier Cardinal Does
Not Apply To This Hybrid LMRA-ERISA Claim.
This action is a hybrid, involving not only the claim under
ERISA § 502 to enforce rights under the employee benefit
plans discussed in POINT I, but also a claim under LMRA
§ 301 to enforce a collective bargaining agreement.
This Court’s decision in UAW v. Hoosier Cardinal Corp.,
383 U.S. 696, 705-06 (1966), determined that in an action
brought under § 301 of the LMRA, the limitations period
ordinarily is to be determined by reference to the closest anal-
ogy in the law of the forum state.'* In De/Costello v. Interna-
tional Brotherhood of Teamsiers, 462 U.S. 151 (1983),
however, the Court limited Hoosier Cardinal, and held that
in a hybrid action alleging both breach of the collective bar-
gaining agreement and breach of the union’s duty of fair rep-
resentation, a uniform limitations period borrowed from the
NLRA would apply.
This action, like De/Costello, is a hybrid action involving
*‘inextricably interdependent’’ claims that should be governed
by the same statue of limitations. De/Costello, 462 U.S. at
14. Hoosier Cardinal upheld the application of Indiana’s limitations
period for unwritten contracts to an action under LMRA § 301 on a collec-
tive bargaining agreement, where reference to parol evidence was required to
establish plaintiffs’ standing to enforce it. As is shown in POINT III below,
Illinois law, like Indiana law, distinguishes between written and unwritten
contracts and applies its limitations period for unwritten contracts to actions
where parol evidence is necessary, including actions based on an alter ego
claim. Accordingly, the Seventh Circuit misapplied Hoosier Cardinal in
determining to disregard settled Illinois law and apply the written contracts
limitations period to this alter ego action.
20
164-65. As several lower courts have recognized, this type of
LMRA action to enforce pension benefits is virtually identical
to the parallel ERISA action and should be governed by the
same statute of limitations.'* Indeed, the Seventh Circuit in
the decision below applied the same limitations period to
both claims without discussion.
The legislative history also noted the close connection
between the two claims:
[With respect to suits to enforce benefit rights under the
plan or to recover benefits under the plan which do not
involve application of the Title I provisions, they may be
brought not only in U.S. district courts but also in State
courts of competent jurisdiction. All such actions in
Federal or State courts are to be regarded as arising
under the laws of the United States in similar fashion to
those brought under section 301 of the Labor Manage-
ment Relations Act of 1947.
Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 65-66
(1987) (quoting H.R. Conf. Rep. No. 1280, 93d Cong., 2d
Sess. 327, reprinted in 1974 U.S. Code Cong. & Admin.
News 5038, 5107).
As is shown in POINT I above, the appropriate limitations
period for the ERISA § 502 claim in this action is the three
year-six year period provided by Congress for other actions
under ERISA. Certiorari should be granted to clarify that
DelCostello limits Hoosier Cardinal at least to the extent that
both parts of this hybrid ERISA § 502-LMRA § 301 claim
should be governed by one limitations period: the three year-
six year limitations period set out in ERISA.
1S = See, e.g., Adams v. Gould, Inc., 739 F.2d 858 (3d Cir. 1984) (apply-
ing ERISA § 413 limitations period to LMRA § 301 claim), cert. denied, 469
U.S. 1122 (1985); Sparks v. Ryerson & Haynes, Inc., 638 F. Supp. 56 (E.D.
Mich. 1986) (combined ERISA/LMRA claim for pension benefits; court
applied ERISA § 413 period); Smith v. ABS Indus., Inc., 653 F. Supp. 94,
101 (N.D. Ohio 1986) (same); see also DelCostello v. International Brother-
hood of Teamsters, 462 U.S. 151 (1983) (borrowing uniform federal limita-
tions period for another type of hybrid § 301 action).
4
21
B. This Court Should Clarify The Tension Between Hoosier
Cardinal And Lampf, Pleva With Respect To § 301
Claims Generally.
Lampf, Pleva also applies to the LMRA § 301 claim in this
action, even if it is analyzed separately from the companion
ERISA claim. Lampf, Pleva requires that the courts look to
federal law for a limitations period where a claim is based on
a judicially implied cause of action. Hoosier Cardinal, on the
other hand, created a presumption that a missing limitations
period ‘‘is to be determined, as a matter of federal law, by
reference to the appropriate state statute of limitations. . .
unless [state law] is unreasonable or otherwise inconsistent
with national labor policy.’’ Hoosier Cardinal, 383 U.S. at
705-706.
The LMRA § 301 cause of action, though explicit, is func-
tionally equivalent to a judicially implied cause of action,
because Congress purposefully left the entire dimensions of
the action to the judiciary to create in a common law man-
ner. Textile Workers Union of America v. Lincoln Mills of
Alabama, 353 U.S. 448 (1957) (determining that § 301 creates
a federal law of collective bargaining agreements); see also
Nedd v. United Mine Workers of America, 556 F.2d 190, 203
(3d Cir. 1977), cert. denied, 434 U.S. 1013 (1978) (implying
right of action under another section of the LMRA; court
characterizes issue as ‘‘not unlike that considered in Textile
Workers’’). Since a § 301 claim is equivalent to an implied
right of action, this Court may conclude that, on further con-
sideration in light of Lampf, Pleva, that all § 301 claims
should be decided under a uniform federal statute of limita-
tions, rejecting the variable results which have flowed from
the Hoosier Cardinal decision.
Alternatively, since some claims brought under § 301 may
not implicate any other federal law or policy, Hoosier Cardi-
nal may retain vitality in those cases. At a minimum, this
Court should clarify that in those § 301 cases in which other
closely related federal statutes are implicated, as is the case
here, the best source of Congressional intent is such federal
22
law and Hoosier Cardinal does not require the use of state
limitations periods.
POINT Ul
CERTIORARI SHOULD BE GRANTED BECAUSE THE
SEVENTH CIRCUIT’S DETERMINATION OF THE
APPROPRIATE LIMITATIONS PERIOD UNDER ERISA
AND SECTION 301 MISCONSTRUES FEDERAL POLICY
UNDER ERISA AND CONFLICTS WITH THIS COURT’S
DECISiON IN HOOSIER CARDINAL AND THE
DECISIONS OF OTHER COURTS OF APPEAL
If state law continues to supply the limitations period for
federal employee benefit claims after Lampf, Pleva, a Writ
of Certiorari should issue because the Seventh Circuit’s selec-
tion of the state law period is based on a fundamental misap-
prehension of Congress’ intent in ERISA. Furthermore, it
stands in direct conflict with this Court’s decision in Hoosier
Cardinal and the decisions of other federal courts of appeal.
The Seventh Circuit’s decision conflicts with Hoosier Car-
dinal because the court rejected the limitations period which
concededly applies under Illinois law without finding that the
state law was inconsistent with national labor policy or other
federal interests. Moreover, the Seventh Circuit’s creation of
a novel and unsound federal policy conflicts with the deci-
sions of other courts of appeal and is not supported by
ERISA or its-legislative history. Indeed, the application of a
ten year period for written contracts to this action has no
basis in either federal or state law and, accordingly, consti-
tutes impermissible judicial legislation.
Finally, by applying a limitations period for written con-
tracts to a claim based upon a collective bargaining agree-
ment, the Seventh Circuit ignores a basic holding of Hoosier
Cardinal itself, that such claims are controlled by the limita-
tions period for contracts which are not exclusively in writ-
ing.
23
A. The Seventh Circuit Misconstrued The Meaning And Sub-
stance Of Federal Policy Under ERISA And § 301.
1. The Seventh Circuit Improperly Rejected The Applica-
ble Limitations Period Under State Law Without Find-
ing That It Was Contrary To Federal Policy.
In Hoosier Cardinal, this Court held that ‘‘the timeliness
of a § 301 suit . . . is to be determined, as a matter of fed-
eral law, by reference to the appropriate state statute of limi-
tations.’’ 383 U.S. at 704-05. The Court explained that:
[T)he characterization of [an] action for the purpose of
selecting the appropriate state limitations provision is
ultimately a question of federal law. But, there is no
reason to reject the characterization that state law would
impose unless that characterization is unreasonable or
otherwise inconsistent with national labor policy.
383 U.S. at 706 (citation omitted).
Under Illinois law, the five year statute of limitations for
actions On unwritten contracts would apply to respondents’
claims here. Ill. Ann. Stat. ch. 110, ¢ 13-205 (Smith-Hurd
1984). It is well-established that:
A contract cannot be said to be in writing unless the
parties thereto, as well as the terms and provisions
thereof, can be ascertained from the instrument itself. If
the party to a written contract is not named therein, the
contract is defective as containing only part of the agree-
ment.
Pratl v. Hawthorn-Mellody Farms Dairy, Inc., 53 Wl. App.
3d 344, 368 N.E.2d 767, 770 (ist Dist. 1977). Thus, under
Illinois law, as in Hoosier Cardinal, actions for breach of a
collective bargaining agreement are characterized as claims
based on unwritten contracts because ‘‘parol proof must be
resorted to, in order to show with whom the bargain was
made.’’ Jd.; see also Merk v. Jewel Food Stores, 641 F.
Supp. 1024, 1036 (N.D. Ill. 1986), aff’d, 848 F.2d 761 (7th
Cir.), cert. denied, 109 S. Ct. 393 (1988); Brown v. Trans-
24
america Freight Lines, 72 L.R.R.M. 2678, 2679 (N.D. Ill.
1969).
Similarly, where an action is based on alter ego theory, Illi-
nois law characterizes the claim as one based upon an unwrit-
ten contract, and applies the five year limitations period.
Baird & Warner, Inc. v. Addison Indus. Park, Inc., 70 Ill.
App. 3d 59, 387 N.E.2d 831, 843-44 (Ist Dist. 1979).'°
The Seventh Circuit acknowledged that, under Illinois law,
the five year statute applied to this action, but nevertheless
chose to reject that law. Instead, it borrowed the Illinois ten
year statute for actions based on contracts exclusively in writ-
ing. Ill. Ann. Stat. ch. 110, 4 13-206 (Smith-Hurd 1984), It
reached this result without expressly finding that Illinois law
is ‘‘unreasonable or otherwise inconsistent with national
labor policy,’’ the test articulated in Hoosier Cardinal. 383
U.S. at 706.
No such finding could be made. Manifestly, Illinois law
does not discriminate against federal interests. Contrast
Trustees of Wyo. Laborers Health and Welfare Plan vy.
Morgen & Oswood Constr. Co., 850 F.2d 613 (10th Cir.
1988) (rejecting Wyoming’s two year limitations period for
actions based on a federal statute where an eight year period
was permitted for analogous state actions). To the contrary,
16 The Baird & Warner court stated:
[E}]ven if the complaint were sufficient to state a cause of action in con-
tract, the ten year statute applicable to written contracts would not be
applicable. Neither Ruud nor Bliss [the alleged alter egos] were parties
to the contract; Baird could only seek to hold them liable in contract
by producing parol evidence showing that because of their relationship
to Addison, they should be held liable as if they were parties to the
contract. But where a person is not named in the written contract and
parol evidence is necessary to show the existence of the contractual
relationship, the contract is unwritten insofar as that person is con-
cerned and the limitations statute relating to written contracts is not
applicable.
Baird & Warner, 387 N.E.2d at 843-44. The same result applies here because
Envirodyne was not named in the collective bargaining agreement, and parol
evidence relating to its relationship with the bankrupt subsidiaries is required
to hold Envirodyne liable.
25
as shown below, Illinois law comports in every respect with
federal labor policy under ERISA and § 301.
2. The Seventh Circuit’s Analysis Of Federal Policy
Conflicts With ERISA, Its Legislative History,
Hoosier Cardinal And Other Federal Appellate Court
Decisions.
Even assuming that the Seventh Circuit implicitly made the
findings required by Hoosier Cardinal, it misapplied federal
policy. The Seventh Circuit asserted that application of Illi-
nois’ shorter, five year statute ‘‘would surely yield a result
anomalous with the legislative history and purpose of
ERISA.’’ (30a). Therefore, it concluded that ‘‘as a matter of
federal policy the longer statute of limitations should apply.’’
(29a).
There is no such federal policy. Despite its conclusory
invocation of ERISA’s legislative history, the Seventh Circuit
offered no authority for its view that the longest potentially
applicable statute should be borrowed. Indeed, no policy
expressed in ERISA or its legislative history requires a limita-
tions period as long as ten years.
To the contrary, the statute and legislative history show
that a five year period is not repugnant to ERISA. First,
ERISA itself uniformly provides for a three year and six year
limitations period for every claim covered by an express
period. ERISA §§ 502, 4003(e)(6), 4003(f)(5), 4070 and 4301;
29 U.S.C. §§ 1113, 1303(e)(6), 1303(f)(5), 1370 and 1451.
Second, in enacting ERISA, Congress rejected a five year
limitations period, contained in the Senate bill, and substi-
tuted the shorter three year period under § 413, 29 U.S.C.
§ 1113. H.R. 4200, 93d Cong., Ist Sess. § 698 (1973),
reprinted in 2 (pt. 1) Employee Retirement Income Security
Act of 1974 Legislative History 2102 (1976). Finally, in the
Judicial Improvements Act of 1990, Congress adopted a four
year limitations period for all statutes subsequently enacted
which do not contain a specific limitations period. 28 U.S.C.
§ 1658. Accordingly, it is difficult to fathom why application
26
of a five year statute of limitations under ERISA’s statutory
scheme would be ‘‘anomalous’’ as the Seventh Circuit sug-
gests.
Furthermore, the Seventh Circuit’s decision conflicts with
Hoosier Cardinal. That decision under § 301 expressly
approved the shorter limitations period governing oral con-
tracts to serve the goal of federal labor policy to achieve a
‘‘relatively rapid disposition of labor disputes.’’ 383 U.S. at
707. This Court rejected the union’s argument that applica-
tion of a six year period applicable to oral contracts was
repugnant to federal labor policy and that the longer limita-
tions period for written contracts should be applied.
Consistent with Hoosier Cardinal but in conflict with the
Seventh Circuit, some courts of appeal similarly have selected
shorter limitations periods, and rejected potentially applicable
longer periods, in suits under ERISA § 502. See, e.g.,
Fogerty v. Metropolitan Life Ins. Co., 850 F.2d 430, 432 (8th
Cir. 1988) (five year statute for breach of contract applicable
under ERISA; ten year statute for written contract for pay-
ment of money inapplicable); Vernau v. Vic’s Mkt., Inc., 896
F.2d 43, 45 (3d Cir. 1990), Byrnes v. DeBolt Transfer, Inc.,
741 F.2d 620, 625 (3d Cir. 1984) and Teamsters Pension
Trust Fund yv. John Tinney Delivery Serv. Inc., 732 F.2d 319,
322-23 (3d Cir. 1984) (each applying three year state statute
under § 301 and ERISA; six year statute inapplicable).
Moreover, the Seventh Circuit’s implicit conclusion, that
the five year limitations period under Illinois law is inade-
quate as a matter of federal policy, conflicts with the deci-
sions of four other Circuits.'’ Still other Circuits have
expressly approved a six year state limitations period as being
17. See Fogerty, supra (five year statute applicable under ERISA); Ver-
nau, supra, Byrnes, supra, and John Tinney Delivery Serv., supra (three year
statute applicable under ERISA); Connors v. Hallmark & Sons Coal Co.,
935 F.2d 336 (D.C. Cir. 1991) (applying three year statute under § 301 and
ERISA); Dameron v. Sinai Hosp. of Baltimore, Inc., 815 F.2d 975, 981-82
(4th Cir. 1987) (applying three year statute under ERISA).
27
fully consistent with federal policy under ERISA.’ Thus,
even if the Seventh Circuit correctly framed the issue as man-
dated by Hoosier Cardinal, it misapplied federal policy as
reflected in the decisions of other Circuits and Hoosier Cardi-
nal itself.
Furthermore, the Seventh Circuit’s decision is illogical. It
asserted that the longest imaginable limitations period should
apply because pensions accrue and are paid over many years,
and ERISA was passed for the purpose of protecting bene-
fits. (29-30a). However, these considerations cannot justify a
nine year delay in asserting a known claim.'? That an employ-
ee’s pension accrues over many years does not affect an indi-
vidual’s ability to enforce the employer’s pension obligation
within a reasonable time after the cause of action is known.
Indeed, respondents here promptly asserted claims for the
same benefits against Navistar.
In short, the Seventh Circuit’s version of ERISA policy is
ipse dixit, unsupported by reference to the statute iiself or its
legislative history. In ‘‘borrowing’’ a state limitations period
which would not apply under state law, the Seventh Circuit
engaged in unfettered legislation, following neither Congres-
sional intent nor the mandate of a state legislature. See
Lampf, Pleva, 59 U.S.L.W. at 4690 n.8 (‘‘we find no sup-
port in our cases for the practice of borrowing only a portion
of an express statute of limitations. Indeed, such a practice
comes close to the type of judicial policy making that our
borrowing doctrine was intended to avoid’’).
18 See, Hawaii Carpenters Trust Funds v. Waiola Carpenter Shop,
Inc., 823 F.2d 289, 297-98 (9th Cir. 1987); Biros v. Spalding-Evenflo Co.,
934 F.2d 740 (6th Cir. 1991); Central States Pension Fund v. Kraftco, Inc.,
799 F.2d 1098 (6th Cir. 1986), cert. denied, 479 U.S. 1086 (1987); Miles v.
New York State Teamsters Conference Pension and Retirement Fund, 698
F.2d $93 (2d Cir. 1983).
19 Moreover, as noted supra, many of the benefits sought in this case
are not pension benefits, as the Seventh Circuit assumed.
28
B. The Seventh Circuit’s Application Of The Written Con-
tract Limitation Period To Claims For Collectively Bar-
gained Employee Benefits Violates The Holding Of
Hoosier Cardinal.
In selecting the appropriate statute of limitations under
§ 301, Hoosier Cardinal characterized a claim for vacation
pay under a written collective bargaining contract as ‘‘one
not exclusively based upon a written contract’’ and applied
Indiana’s six year limitations period for breach of an oral
contract. 383 U.S. at 706-07. The Court applied this period
because the action was ‘‘based partly upon the written collec-
tive bargaining contract and partly upon the oral employment
contract each employee had made.”’ Jd. at 699. As the Court
explained:
Proof of the breach and measure of damages, however,
both depend upon proof of the existence and duration
of separate employment contracts between the employer
and each of the aggrieved employees. Hence, this § 301
suit may fairly be characterized as one not exclusively
based upon a written contract. Jd.
Id. at 706. Thus, it concluded that ‘‘we cannot agree that
federal law requires that this action be regarded as exclusively
based upon a written contract.’’ Jd.
The Seventh Circuit’s decision stands in direct conflict with
Hoosier Cardinal by holding that:
Despite the fact that some of the plaintiffs’ claims are
based on the collective bargaining agreement and are
brought under the LMRA, there is no basis in federal
law for characterizing their claims as an oral contract
for purposes of the statute of limitations.
(30a). On the contrary, Hoosier Cardinal requires that
respondents’ § 301 claim be characterized as an action based
upon an oral contract.” As shown in Point IJ, the same
result applies to the parallel ERISA § 502 claim.
20 There can be no doubt that, if Lampf Pleva does not compel a con-
trary result, Hoosier Cardinal applies to respondents’ § 301 claim. Both cases
involve claims for benefits under a written collective bargaining agreement
29
Indeed, the reasons for applying the oral contract period
here are even more compelling than in Hoosier Cardinal.
Respondents’ claims depend upon more than a showing of
their years of service and duration of employment which can
only be established by their separate employment contracts.
Envirodyne was not a signatory to the collective bargaining
agreement. Thus, respondents must also show that Enviro-
dyne was the employer under an alter ego theory. Even under
the Seventh Circuit’s own decision, it is clear that the evi-
dence required to support an alter ego claim goes far beyond
that required to establish a written contract. (25a).
Under these circumstances, as the Seventh Circuit recog-
nized, Illinois courts apply the limitations period for oral
contracts. Baird & Warner, Inc., quoted at fn. 16 supra.
However, the Seventh Circuit did not consider the reasons
why Illinois applies the shorter limitations period to an alter
ego case. The Seventh Circuit noted that written contract lim-
itations periods tend to be longer because proof of the con-
tract terms is presumably documented and, therefore, more
reliable. But the court completely failed to consider the
import of this policy consideration in an alter ego case where
the plaintiff must show that the documented relationships
ought to be set aside.” The problems of proof which caused
pursuant to § 301. Indeed, respondents here seek to recover vacation benefits
as did the plaintiffs in Hoosier Cardinal. Both cases involve state statutory
schemes which include separate statutes for breach of written contracts and
contracts that are not exclusively in writing. 383 U.S. at 705; Ill. Ann. Stat.
ch. 110. 44 13-205, 13-206 (Smith-Hurd, 1984). And, although respondents
here seek additional benefits such as enhanced pension payments, that fact
does not provide a valid basis for application of the ten year period of limita-
tion for written contracts. Entitlement to the pension, vacation, medical and
other benefits they seek requires proof of the existence and duration of sepa-
rate employment contracts. 383 U.S. at 707.
21 The Seventh Circuit even mistakenly concluded that a written con-
tract limitations period would apply because ‘‘presumably, the pension plan
in this case is at least written in part.’’ (29a). This standard reverses the
approach taken by Illinois law, Hoosier Cardinal and a host of other cases
which hold that a contract which is not exclusively in writing is deemed to be
an oral contract. See cases cited in Part III.A.1, supra, pp. 23-25.
30
the Illinois courts to adopt the shorter limitations period for
oral contracts in alter ego cases are manifestly present here.
Baird & Warner, Inc., supra. And it is widely recognized that
tort claims, such as the fraud or misrepresentation which
plaintiffs must prove here, should be subject to shorter limi-
tations periods than claims based solely upon written con-
tracts. See Goodman v. Lukens Steel Co., 107 S. Ct. 2617
(1987); Wilson v. Garcia, 471 U.S. 261 (1985).
In an increasingly fertile field of litigation, the Seventh Cir-
cuit’s mistaken creation of federal policy, at odds with deci-
sions of this Court in Hoosier Cardinal and Lampf, Pleva,
and the decisions of several other Circuits, threatens to cause
confusion and forum shopping.
CONCLUSION
For the foregoing reasons, the requested Writ of Certiorari
should issue.
Dated: August 15, 1991
/s/ STANLEY B. BLOCK
Stanley B. Block Edwin B. Mishkin
(counsel of record) Richard F. Ziegler
Charles B. Wolf Daniel J.H. Greenwood
Michael I. Richardson CLEARY, GOTTLIEB, STEEN
VEDDER, PRICE, KAUFMAN & HAMILTON
& KAMMHOLZ One Liberty Plaza
222 North LaSalle Street New York, New York 10006
Chicago, Illinois 60601 (212) 225-2000
(312) 609-7500
Attorneys for Petitioner
APPENDIX
la
APPENDIX A
IN THE
UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
—
Argued Oct. 26, 1990
Decided May 17, 1991
No. 90-1233
ed
FRANK LUMPKIN, ef al.,
Plaintiffs-A ppellants,
—_—VvV.—
ENVIRODYNE INDUSTRIES, INC.,
Defendant-Appellee.
Before:
BAUER, Chief Judge, and
CUMMINGS and RIPPLE, Circuit Judges.
>
CUMMINGS, Circuit Judge.
I. Background
This case requires us to untangle the legal positions of par-
ties disputing whether former employees of the Wisconsin
Steel Division (‘‘Division’’) should be awarded more than $40
million in lost pension benefits that they earned from 1977-
1980. The litigation before us represents but one chapter in a
complex cycle of litigation stemming from the sale of a steel
2a
plant in 1977.' The plaintiff class appeals Judge Moran’s
grani of Envirodyne’s motion to dismiss their case for vested
benefits earned between 1977 and 1980. Because this dis-
missal was granted on the basis of a failure to state a claim,
Fed.R.Civ.P. 12(b)(6), we construe the facts on appeal in a
light most favorable to the plaintiffs.
International Harvester (its name has since changed to
‘*Navistar’’ and it will be referred to as such) owned the
Division, which included a steel plant located in Chicago, Illi-
nois, the steel mill’s inventory and receivables, two iron-ore
mines, and a coal mine, for 75 years. In 1977, Navistar con-
cluded that the plant was no longer profitable for the corpo-
ration and began to look for a buyer. However, the plant did
not come unencumbered. Any prospective buyer of the Divi-
sion would not only receive a steel plant but also would
assume responsibility for over $62 million in unfunded pen-
sion liabilities, a considerable amount for any prospective
buyer to absorb.
In 1977, Navistar found an unlikely buyer, however, in
Envirodyne Industries, Inc., a small engineering company
located in Oak Brook, Illinois, interested in purchasing the
Division in order to test new environmental technologies.
Envirodyne also viewed the Division as serving certain short-
term pressing financial needs. Navistar’s sale of the Division
to Envirodyne was not a straight sale, however, and ulti-
mately the deal took the form of a transfer of title by Navis-
tar to two wholly-owned subsidiaries of Envirodyne, set up
specifically for the purpose of assuming control over the
Division. The two subsidiaries were named EDC Holding
Company (‘‘EDC’’), a subsidiary of Envirodyne, and WSC
Corporation (‘‘WSC’’), in turn a subsidiary of EDC. Under
the terms of the sale by Navistar, the two subsidiaries
| Still pending before this Court are appeals arising out of Judge
Moran’s decision in Pension Ben. Guaranty Corp. v. Envirodyne Industries,
Inc., 10 EBC 1458 (N.D.III.1988) that Navistar was held to be liable to the
plaintiffs for the employees’ pension benefits only to the date of sale. This
Court held recently that Navistar was not liable in fraud to EDC. In re EDC,
Inc., 930 F.2d 1275 (7th Cir.1991).
3a
assumed responsibility for the substantial unfunded amma
fund of the Division.
This arrangement endured from 1977 until 1980, when
EDC and WSC filed for bankruptcy under Chapter 11 of the
Bankruptcy Code and the Division closed. The bankruptcy
filing was precipitated by Navistar, which foreclosed on the
mortgages extended to EDC and WSC as part of the sale of
the Wisconsin Steel Division.’
The bankruptcy spawned a flurry of litigation, precipitated
by the claims brought by the creditors of EDC and WSC for
the debts due to them. In 1980, the logical defendant was not
the parent of the two subsidiaries, Envirodyne, which had yet
to grow into the Fortune 500 company which it has now
become, but Navistar, for it was Navistar that initiated and
leveraged the sale of the Division in the first place to Enviro-
dyne, a buyer that was alleged to be undercapitalized and
incapable of assuming sole responsibility for the huge pension
fund. Indeed, Lehman Brothers, which had prepared a report
reviewing the terms of the ultimate sale of the Division by
Navistar to EDC and WSC, stated unequivocally that the
deal smelled of fraud, and called for Envirodyne to take
responsibility for the pension benefits as opposed to the two
subsidiaries, set up presumably to insulate the parent from
liability for the pension fund.
A series of claims was subsequently brought against Navis-
tar. First, there were the claims brought by the creditors of
EDC and WSC for the debts of the two subsidiaries. Next
were two sets of pension claims for the pension monies due
to the former employees of the Division for benefits from the
period both before and after the sale of the Division. Under
the Employee Retirement Income Security Act of 1974
(““ERISA’’), 29 U.S.C. §§ 1081 et seq., the employees filed
claims for vested pension benefits with the Pension Benefit
Guaranty Corporation (‘‘PBGC’’), which acknowledged that
the claims were insured and proceeded to assume fiscal
responsibility for a portion of the claims. PBGC in turn filed
2 EDC and WSC could not afford to pay for the Wisconsin Steel Divi-
sion at once, so that Navistar extended credit to the purchasers in the form of
mortgages.
4a
suit against Navistar for indemnification for the pension
claims it had satisfied. The remaining claim against Navistar
was filed by Frank Lumpkin ef ai/., the class of former
employees of the Division, who filed claims for the pension
and contractual obligations not guaranteed by the PBGC and
running from 1977 through 1980.
These three lawsuits were subsequently consolidated by
Chief Judge Moran into what became known as Lumpkin I.
Before trial of these consolidated claims, Navistar settled
with the various parties for $14.8 million in February 1988.
Contained in the Settlement Agreement was a release, which
has since become crucial to the disposition of the instant
case. The release provided that ‘‘[t]he Settlement Agreement
settles all claims by or on behalf of members of the Settle-
ment Class in the Lumpkin class action and in the WSC
bankruptcy proceedings.’’ The Definitions section of the Set-
tlement Agreement identified the parties included in the Set-
tlement Agreement. They included Navistar, the Lumpkin
Class, EDC and WSC. Significantly, however, Envirodyne
Industries, Inc. was not named in the Settlement Agreement,
and the Lumpkin plaintiffs’ present claims hinge on a finding
that Envirodyne was not released by the terms of the Settle-
ment Agreement. This is a point to which we will return.
One important fact worth noting at the outset is that when
the settling parties presented the Settlement Agreement in dis-
trict court for a fairness hearing by Judge Moran, counsel to
the Lumpkin class pronounced in open court that the plain-
tiffs did not intend by the release to absolve Envirodyne of
potential liabilities. Plaintiffs’ counsel suggested also that it
wished to reserve its rights against Envirodyne even though
EDC and WSC were named explicitly in the release. At the
time of this statement, Judge Moran did not make any
explicit ruling on the viability of future claims by plaintiffs
against Envirodyne.
Following the Settlement Agreement, the other claims out-
side the Settlement went io trial. In Pension Ben. Guaranty
Corp. v. Envirodyne Industries, Inc., Judge Moran held that
Navistar was liable to the PBGC for the employees’ pension
benefits to the date of the 1977 sale and not after. 10 EBC
= ee eee
Sa
1458 (N.D.11.1988). The district judge determined further
that Navistar had no liability to the debtors-in-possession,
EDC and WSC. The decision rejected Envirodyne’s claim
that Navistar was liable to it for fraud, recognizing that
Envirodyne had the necessary information available and was
not an ‘‘unsophisticated old person relying on some glib-
tongued huckster.’’ 10 EBC at 1462. This Court recently
affirmed Judge Moran’s decision that Navistar was not liable
in fraud to EDC. In re EDC, Inc., 930 F.2d 1275 (7th
Cir.1991). In that decision, the Court, alluding to cases like
this one, acknowledged that ‘‘venturesome creditors might try
. to pierce the corporate veil and reach Envirodyne’s
assets and might even succeed.’’ Jn re EDC, Inc., 930 F.2d at
1279. Thus at the time the present litigation began, the plain-
tiffs had entered into the 1988 Settlement Agreement with
Navistar, whose pension liability had been limited as a matter
of law to the 1977 sale by Judge Moran’s decision in Pension
Ben. Guaranty Corp. v. Envirodyne Industries, Inc. See note
1 supra.
Remaining unrecovered as a result of the proceedings were
the pension benefits earned by the plaintiff class from the
time that the Division was sold in 1977 to the time that it
closed three years later in 1980. In an effort to recover these
benefits, the plaintiff class successfully petitioned for recerti-
fication for this class action suit against Envirodyne Indus-
tries, Inc., the parent corporation of the defunct subsidiaries
EDC and WSC. The plaintiffs brought this class action suit
under ERISA Section 502 (29 U.S.C. § 1132) and the Labor
Management Relations Act (‘‘LMRA’’) Section 301 (29
U.S.C. § 185) for uninsured pension and contract benefits for
the period from the date of sale in 1977 to the date of closure
in 1980. The basis for their claim against the parent corpora-
tion was that Envirodyne, as parent of EDC and WSC, was
liable for the lost benefits under a corporate law alter ego
theory. In other words, plaintiffs asserted that they should be
permitted to disregard the corporate form that would other-
wise insulate Envirodyne Industries from plaintiffs’ pension
claims against EDC and WSC.
6a
As mentioned earlier, Judge Moran, in a memorandum
‘order, certified a plaintiff class identical to the class in
Lumpkin I, but the plaintiffs’ claims did not advance much
further because Judge Moran in the same order proceeded to
grant Envirodyne’s motion to dismiss. The district judge
based his decision on several grounds. First and foremost, he
concluded that Envirodyne was released under the terms of
the Settlement Agreement. Although the Settlement Agree-
ment did not name Envirodyne Industries, there were, in
Judge Moran’s view, compelling reasons for insulating
Envirodyne from liability under the terms of the release. Cit-
ing the specific language of the release, he recognized that the
Settlement Agreement contained the statement that ‘‘all
claims’’ in both the class action and the bankruptcy proceed-
ing were released. According to this reasoning, if alter ego
claims could have been asserted against Envirodyne in the
bankruptcy proceeding, then claims against Envirodyne
would be barred under the plain terms of the settlement
release. See District Court Memorandum and Order of
November 7, 1989, at 9-10 (Plaintiffs’ App. A-10-A-11).
Additionally, Judge Moran found a more indirect means of
concluding that the Settlement Agreement precluded the
plaintiffs’ suit against Envirodyne. Since Navistar entered
into the Settlement Agreement on the condition that it would
be forever released for any further liabilities in the dispute,
subsequent litigation in this matter must be reviewed with an
eye to its possible effect on the validity of the release. If the
suit filed by the Lumpkin plaintiffs against Envirodyne could
expose Navistar to further liabilities, such a suit would vio-
late the terms of the Settlement Agreement. Judge Moran
recognized that the results of the 1988 trial in Pension Ben.
Guaranty Corp. v. Envirodyne Industries, Inc. made it highly
unlikely that Envirodyne, if held liable in a suit by the
Lumpkin class, could successfully obtain contribution from
Navistar. However, he went on to say that ‘‘when the bar-
gain was struck [in the Settlement Agreement] the trial had
not yet commenced, and the interested parties could not be
certain of the outcome.’’ Memorandum and Order of
November 7, 1989, at 10 (Plaintiffs’ App. A-11). Because he
_f$y$°$°™°™°m6= LL.
Ta
believed the Settlement Agreement cannot be viewed in hind-
sight, Judge Moran thought that its terms must be taken to
include the possibility that Envirodyne would proceed against
Navistar, and that the release specifically foreclosed this pos-
sibility. Jd.
Judge Moran concluded that the release prevented the
plaintiff class from bringing suit against Envirodyne, and
therefore he did not reach the statute of limitations defense
put forward by Envirodyne. As an alternative grounds for
dismissal, Envirodyne had claimed that the plaintiffs’ class
action was time-barred by the Illinois five-year statute of lim-
itations for disputes arising on an oral contract. The plaintiff
contends in response that the claims here are properly charac-
terized as controversy over the terms of a written contract, so
that the longer ten-year statute of limitations applies. If the
latter is true, then the plaintiffs’ action is not barred by the
statute of limitations.
After Judge Moran granted defendant’s motion to dismiss,
the plaintiffs filed a timely notice of appeal in this Court.’
On appeal, the plaintiffs asserted that the motion to dismiss
was improvidently granted on several grounds, and claimed
that as a matter of law the Settlement Release does not
immunize Envirodyne from suit. Because the release is assert-
edly ambiguous on its face, its proper construction hinges on
the outcome of a searching examination of the parties’ intent.
This appeal comes to us on the granting of a motion to dis-
miss, with an inadequate record for us to decide the question.
Therefore, we remand to the district judge to determine the
parties’ intent on the basis of a more developed evidentiary
record. Although Judge Moran declined to reach the statute
3. When plaintiffs first filed their notice of appeal, this Court ques-
tioned whether the appeal was timely. Upon review of plaintiffs’ jurisdic-
tional memorandum, filed in response to our order, we conclude that their
appeal was timely filed. The limitations period for filing was tolled from the
date of the district court’s denial of plaintiffs’ motion to reconsider the
court’s grant of the motion to dismiss. Fed.R.App.P. 4(a)(4)(iii). The district
court denied plaintiffs’ motion to reconsider on January 18, !990. The plain-
tiffs filed their notice of appeal on January 30, 1990. Plaintiffs had thirty
days to file their notice of appeal so that their appeal was timely.
8a
of limitations issue in the case, both parties briefed it, and we
decide it, because the plaintiffs’ claims may go forward on
the remand. We hold that the proper statute of limitations
under Illinois law for the plaintiffs’ action is ten years, since
the plaintiffs’ claims resemble claims on a written contract.
Therefore, their claims are not time-barred.
II. Analysis
A. The Federal Policy Underlying ERISA
Before reviewing the specific legal controversies at issue in
the case, it is worthwhile to place this case in perspective.
First and foremost, the dispute in this case arose in the
shadow of ERISA, the complex, comprehensive federal stat-
ute passed by Congress to protect the pension rights of
employees. Thus the dispute here arose between one party,
the plaintiff employees, whose right to pension benefits has
been explicitly protected by Congress in the enactment of a
comprehensive legislative scheme, and the defendant, a cor-
poration whose liability for such pension benefits is contested
under ERISA and under principles of both contract and cor-
porate law.
Whether plaintiffs’ claims under ERISA and Section 301 of
the LMRA are meritorious is not for us to decide. Our task
is limited to a review of Judge Moran’s decision to grant the
defendant’s motion to dismiss. Clearly the plaintiffs have
stated a cause of action under both federal statutes. First of
all, Section 301 of the LMRA authorizes district courts to
decide suits for violation of contracts between an employer
and a labor organization, and it is uncontested that plaintiffs
were representing all former employees belonging to the Pro-
gressive Steel Workers Union or other bargaining units.* In
turn, ERISA Section 502 provides for civil enforcement, per-
mitting pension plan beneficiaries to bring a private action to
recover benefits due to them under the terms of a benefit
plan. Specifically, ERISA provides that ‘‘[aJn employee bene-
4 Envirodyne does not challenge the jurisdiction of the district court
under the LMRA or ERISA (Defendant’s Br. at 1).
9a
fit plan may sue or be sued under this title as an entity.’’
ERISA Section 502(d)(1), codified at 29 U.S.C. § 1132(d)(1).
The plaintiff class cites other sections of ERISA in support
of its claims. Section 203 sets forth the minimum vesting
standards for pension benefits. ERISA requires that ‘‘[e]ach
pension plan shall provide that an employee’s right to his
normal retirement benefit is nonforfeitable upon attainment
of normal retirement age.’” ERISA Section 203(a), codified at
29 U.S.C. § 1053. Section 204(g) protects accrued benefits
from being decreased by amendments to the specific pension
plan. ERISA Section 204(g)(1), codified at 29 U.S.C. § 1054.
Finally, the plaintiffs refer in their appeal to Section
206(d)(1), ERISA’s anti-alienation provision. This section,
heavily relied upon by the plaintiffs in their brief and at oral
argument, requires that ‘‘[e]Jach pension plan shall provide
that benefits provided under the plan may not be assigned or
alienated.’’ ERISA Section 206(d)(1), codified at 29 U.S.C.
§ 1056(d)(1).
The plaintiffs place particular weight on this last section,
the anti-alienation provision, which they believe protects the
employees of the Division from either expressly or impliedly
waiving their right to pension benefits by entering into the
Settlement Agreement. ERISA’s anti-alienation provision
assertedly protects them from such an unknowing waiver of
pension benefits, for the release, if it includes Envirodyne,
would operate to deny the plaintiffs their pension benefits for
the period after the Division was sold to the subsidiaries of
Envirodyne.
Plaintiffs’ analysis begs the question. The issue is not
whether the anti-alienation provision contained in ERISA
prevents plaintiffs from waiving their pension benefits. It
clearly does not. Rather, the question here is whether the
plaintiffs released their claims against Envirodyne by settling
their claims with EDC and WSC. Interpreting a settlement
agreement presents a question of contract law, in which
“‘[t]he primary object in construing a contract is to give
effect to the intention of the parties.’’ Air Line Stewards and
Stewardesses Ass’n v. American Airlines, Inc., 763 F.2d 875,
877-878 (7th Cir. 1985), certiorari denied, 473 U.S. 1059, cit-
10a
ing Schek v. Chicago Transit Auth., 42 Ill.2d 362, 364, 247
N.E.2d 886, 888 (1969). Absent clear language in the Settle-
ment Agreement to resolve a dispute over the proper con-
struction of a contract, a court may go outside the four
corners of the contract and consider extrinsic and parol evi-
dence presented by the parties. This requires the district court
to then conduct fact-finding so that it may resolve the ambi-
guities inherent in the contract. LaSalle Nat’! Bank v. Service
Merchandise Co., 827 F.2d 74, 78 (7th Cir. 1987).
The former employees of the Division, who comprise the
plaintiff class, have no other recourse to recover the pension
and welfare benefits due to them from their service to the
Division from 1977 to 1980. The anti-alienation provision,
while clearly manifesting Congress’s intent to protect workers
from unknowingly signing away their vested pension benefits,
does not impose a bar on settlement agreements wherein pen-
sion claims are knowingly and intentionally resolved by
employees. Fair v. International Flavors & Fragrances, Inc.,
905 F.2d 1114, 1115-1116 (7th Cir. 1990); Nichol v. Pullman
Standard, Inc., 889 F.2d 115, 121 (7th Cir. 1989). To apply
the anti-alienation provision in this case would establish the
untenable rule that ERISA prevents plaintiffs from ever
entering into a settlement in a dispute over lost pension bene-
fits.
The plaintiffs’ position, favoring a rigid application of the
anti-alienation provision, is not defensible. They cite the
Supreme Court’s recent decision in Guidry v. Sheet Metal
Workers Pension Fund, 493 U.S. 365, 110 S.Ct. 680, 107
L.Ed.2d 782, for the proposition that ‘‘there is mo exception
to this [anti-alienation] policy ever.’’ (Plaintiffs’ Br. at i9
(emphasis in original)). If this were true, then the Settlement
Agreement, in which the plaintiffs plainly recovered a portion
of their pension claims, would be invalid so long as any
amount of unrecovered pension benefits remained at issue.
This no-exception rule, if applied here, would render a Settle-
ment Agreement valid only on the continued approval of the
plaintiffs, a result that is svrely inconsistent with the whole
lla
purpose of encouraging settlement agreements to resolve legal
claims.
While the anti-alienation provision of ERISA does impose
a firm rule preventing pensioners from alienating their bene-
fits, this case is simply outside the realm of the provision.
The legal question in this case revolves not around the proper
construction of a specific provision in ERISA, but rather
around legal questions of corporate and contract law. As the
defendant rightly points out, the anti-alienation provision
protects individuals who pledge their pension benefits as col-
lateral or squander their benefits before retirement (Defen-
dant’s Br. at 20).° The Settlement Agreement in this case does
not fall into either category. Instead, the question on appeal
is whether the employees can recover pension benefits earned
between 1977 and 1980 from Envirodyne under the theory
that the release in the Settlement Agreement does not extend
to Envirodyne and that Envirodyne can be held liable for the
pension and welfare benefits under an alter ego theory.
B. Application of the Settlement Release to Envirodyne
1. The intent of the parties
Turning to the release itself, the question to be resolved
concerns the proper interpretation of a contract entered into
by informed parties represented by counsel. Should the
release be read broadly to include Envirodyne, even though
Envirodyne is nowhere named in the Settlement Agreement?
In construing the terms of a contract, a court is required to
engage in a two-fold inquiry. First, it is necessary to look to
the plain language of the provision at issue. Reviewing Illi-
nois law, this Court has noted that ‘‘[t]he starting point must
be the contract itself. If the language of the contract unam-
biguously provides an answer to the question at hand, the
S As support for their reading of the anti-alienation provision, the
defendant analogizes to an identical provision of the Internal Revenue Code,
Section 401(a)(13), which states that the I.R.C. anti-alienation provision
applies to arrangements where benefits are ‘‘anticipated, assigned (either at
law or equity), alienated or subject to attachment, garnishment, levy, execu-
tion or other legal or equitable process.’’ Treasury Reg.Sec. 1.401(a)-13(b).
12a
inquiry is over.’’ LaSalle Nat’l Bank v. Service Merchandise
Co., 827 F.2d 74, 78 (7th Cir. 1987). If the plain language of
the contract is ambiguous, then ‘‘the court must go on to
declare [the contract’s] meaning.’’ Jd. If the court finds that
a contract is ambiguous and that extrinsic evidence is undis-
puted, then the interpretation of the contract remains a ques-
tion of law for the court to decide. City of Clinton v.
Moffitt, 812 F.2d 341, 344 (7th Cir. 1987). However, if the
parties dispute the extrinsic evidence on an ambiguous con-
tract, then a fact-finder must be called upon to determine the
intent of the parties. Jd.; LaSalle Nat’! Bank, 827 F.2d at 78;
Air Line Stewards and Stewardesses Ass’n v. American Air-
lines, Inc., 763 F.2d 875, 878 (7th Cir. 1985).°
We hold that as a matter of law the release is ambiguous
on its face. Envirodyne is not identified by name as a settling
party, and the release, while it names WSC and EDC,
nowhere states that naming the subsidiaries operates to
release the parent corporation.
Judge Moran declined to examine fully the parties’ intent,
believing instead that ‘‘[t]he issue is not . . . their subjective
intent but the necessary implications of the bargain which
they made.’’ District Court Memorandum and Order of
November 7, 1989, at 9 (Plaintiffs’ App. A-10). In effect the
district court tacitly admitted by this statement that the plain
language of the release is insufficient to determine Enviro-
dyne’s status. However, to draw any conclusions conceining
the necessary implications of this bargain requires going
beyond the language contained in the writing itself. Therefore
6 This approach has been questioned in Riley v. American Family
Mut. Ins. Co., 881 F.2d 368 (7th Cir. 1989), where the Court recognized that
either federal common law or state contract law might govern the release of
rights under Title VII or other similar federal statutes. Jd. at 371. The Court
in Riley concluded that where plaintiffs execute a settlement release on the
advice of counsel and absent fraud or duress, they may release their rights
under Title VII. Jd. at 373-374. The critical difference, however, between
Riley and the case at hand is that the district judge in Riley made an explicit
finding that the release was unambiguous. See also Constant v. Continental
Tei. Co., 745 F Supp. 1374 (C.D.II. 1990) (same analysis applied to Age Dis-
crimination in Employment Act). Here Judge Moran made no specific find-
ing that the release contained in the Settlement Agreement was unambiguous.
l3a
it is mecessary to define the parties’ intent by looking to
extrinsic and parol evidence. The record on appeal is insuffi-
cient for us to ascertain the parties’ intent. This inquiry must
properly be carried out by the district court judge, who has
the parties and the evidence before him. In Air Line Stewards
and Stewardesses, this Court decided that although the settle-
ment agreement in a sex discrimination case was ambiguous
on its face, it did not provide for retroactive retirement credit
for employees upon consideration of extrinsic evidence. The
Court declined to remand for findings of fact, concluding
that the issues in the case had been fully briefed, and the
Court had before it all of the relevant extrinsic evidence. 763
F.2d at 879. We cannot do the same here, because the record
is incomplete. The district judge made no findings of fact,
and there may well be extrinsic evidence outside the record
on appeal that bears upon the proper determination of the
parties’ intent.
Although this Court cannot make factual findings concern-
ing the intent of the parties from this record, we can examine
the legal principles that will apply to the district court’s evi-
dentiary inquiry. First, it must be determined under applica-
ble law whether, as plaintiffs contend, a specific intent to
release is required for Envirodyne to be released from further
liabilities pursuant to the Settlement Agreement. Second, this
Court must decide whether Envirodyne is specifically
included in the release by virtue of the fact that it is the par-
ent corporation of two corporate entities named explicitly in
the release, EDC and WSC.
Envirodyne advances two arguments in support of its posi-
tion that the Settlement Agreement released it from the
instant lawsuit. The first is what plaintiffs call the ‘‘implied’’
or ‘‘general’’ release argument. It concerns the proper scope
to be given to a release as a matter of law. The plain lan-
guage of the release nowhere mentions Envirodyne. In order
to prevail, the defendant must demonstrate that such a
requirement is unnecessary and that, as a matter of law, a
generally worded release operates to release potential defen-
dants from all foreseeable claims. This was the ancient com-
mon law rule under which ‘‘a release extinguished the cause
l4a
of action to which it related,’’ and a release of one party
released all others jointly liable, without regard to the intent
of the parties. Zenith Radio Corp. v. Hazeltine Research,
Inc., 401 U.S. 321, 343, 91 S.Ct. 795, 808, 28 L.Ed.2d 77.
Unfortunately for Envirodyne, in the very same opinion, the
Supreme Court put that rule to rest, rejecting it in favor of
the rule set forth in the Second Restatement of Torts: ‘‘The
straightforward rule is that a party releases only those other
parties whom he intends to release.’’ Jd. at 347, 91 S.Ct. at
810.
The plaintiffs in this case assert that they did not intend to
release Envirodyne by entering into the Settlement Agree-
ment. Indeed, at the fairness hearing the plaintiffs’ attorney
announced to the district court that plaintiffs were reserving
their rights against Envirodyne. Before we conclude, how-
ever, that the rule in Zenith governs this case, a more search-
ing analysis is required.
In a case involving a federal cause of action, the extent to
which a release binds parties unnamed is an issue governed
by federal law. Locafrance U.S. Corp. v. Intermodal Systems
Leasing, Inc., 558 F.2d 1113 (2d Cir. 1977) (Oakes, J.).
However, because there is no general federal common law,
conflicting interpretations of this mandate have arisen among
the circuits. See Northwest Airlines, Inc. v. Transport Work-
ers Union, 451 U.S. 77, 101 S.Ct. 1571, 67 L.Ed.2d 750. The
Second Circuit in Locafrance favored a uniform federal
rule—namely, that a release of a joint tortfeasor or cocon-
spirator does not release others ‘‘unless the party signing the
release intended the others to be released.’’ Locafrance, 558
F.2d at 1115.
The Ninth Circuit disagrees. In Mardan Corp. v. C.G.C.
Music, Ltd., 804 F.2d 1454 (9th Cir. 1986), Judge Norris
readily acknowledged that the scope of the validity of a
release of a federal cause of action is governed by federal
law. Mardan, 804 F.2d at 1457. However, the court believed
that the governing federal law does not require the courts to
establish a uniform federal rule. Rather, the federal law in
this area arises through the incorporation of ‘‘state rules of
decision,’’ which ‘‘furnish an appropriate and convenient
15a
measure of the governing federal law.’’ Jd. at 1458. See
Burks v. Lasker, 441 U.S. 471, 486, 99 S.Ct. 1831, 1841, 60
L.Ed.2d 404 (in stockholders’ derivative suit brought under
federal law, state law should be applied).
Judge Norris’ point in Mardan is well-taken here. In fash-
ioning a federal rule of decision, courts must often look to
the applicable state law for guidance in areas where Congress
has not provided for a uniform federal rule. Therefore in
Mardan, where the purchaser of a musical instrument plant
brought an action against the vendor under the Comprehen-
sive Environmental Response, Compensation, and Liability
Act (““CERCLA”’’) (42 U.S.C. §§ 9601-9657 (1982)), the court
applied New York law, holding that the action was barred by
that state’s law of release.’ Jd. at 1461.
The Mardan rule makes sense, for the alternative presented
in Locafrance places the job of inventing a uniform federal
rule within the discretion of the first federal judges that gets
their hands on the issue. This leaves too much to chance. If
Congress intended federal courts to be bound by a single
standard when a federal cause of action arises, then it could
have provided for such a rule for cases where a federal cause
of action raises an accompanying question of interpretation
of a related legal position.
Turning then to state law, we must examine the law-of
release in Illinois. In Illinois, the law of release has been
reviewed by the courts in the area of tort law as a result of
the express provisions contained in the Illinois Contribution
Among Joint Tortfeasors Act (Ill.Rev.Stat. ch. 70, para. 302
(1989)), which provides in part (c):
When a release or covenant not to sue or not to enforce
judgment is given in good faith to one or more persons
liable in tort arising out of the same injury or the same
wrongful death, it does not discharge any of the other
tortfeasors from liability . . . unless its terms so provide
7 The majority included the appropriate caveat that state law will sup-
ply the content of the federal rule so long as the governing state law ‘‘does
not in any way appear to be aberrant or hostile to federal interests.’’ Mar-
dan, 804 F.2d at 1460.
l6a
but it reduces the recovery on any claim against the oth-
ers to the extent of any amount stated in the release
. . Or in amount of the consideration actually paid for
it, whichever is greater.
The Illinois Supreme Court has construed the Act as
applied to a generally worded release arising out of the settle-
ment of an action for personal injuries. A/sup v. Firestone
Tire & Rubber Co., 101 Ul.2d 196, 77 Ill.Dec. 738, 461
N.E.2d 361 (1984). There the injured plaintiffs, who were in
one car at the time of the accident, entered into a settlement
containing a general release of the driver and his parents,
who were in the other car, ‘‘and all other persons, firms, and
corporations, both known and unknown.”’ Jd. at 197, 77
Ill.Dec. 738, 461 N.E.2d 361. The release also posed ‘‘a
complete bar to all claims or suits for injuries or damages of
whatsoever nature resulting or to result from said accident.”’
Id. at 199, 77 Ill.Dec. 738, 461 N.E.2d 361. Subsequently,
after discovering that a defective tire might have precipitated
the accident, the plaintiff’s administrator filed suit against
the tire manufacturer.
On review, the Illinois Supreme Court held that the tire
manufacturer was not released, despite the apparent breadth
of the settlement language. In its analysis, the state court crit-
icized the common law rule whereby the release of one tort-
feasor released all joint tortfeasors, and relied instead upon
the Illinois Contribution Among Joint Tortfeasors Act. Rec-
ognizing the danger that plaintiffs may ‘‘unwitting[ly] dis-
charge . . . joint tortfeasors,’’ id. at 201, 77 Ill.Dec. 738,
461 N.E.2d 361, the court declined to release Firestone when
it was not named or specifically designated in the release. The
1984 opinion, by the court’s own admission, established a
new rule of decision under Illinois-law:
We judge that the widespread use of and reliance upon
general releases to discharge all tortfeasors, including
those not specifically identified in the release, require
that our decision here be made prospective in operation.
. . We accordingly hold that this decision will apply
17a
prospectively to releases from liability executed after the
date of the filing of this opinion.
Id. at 202-203, 77 Ill.Dec. 738, 461 N.E.2d 361 (citations
omitted). See also Stewart v. Village of Summit, 114 Ill.2d
23, 30, 101 Ill.Dec. 862, 865, 499 N.E.2d 450, 453 (1986)
(‘‘{Tjhe public policy of this jurisdiction is that no instrument
purporting to terminate the liability of a tortfeasor serves to
discharge any other tortfeasor from liability for the same
injury unless its terms so provide.’’).
In this case the plaintiff class has not brought a tort suit,
and the district court failed to find the analogy to tort law to
be persuasive. But the law to be applied is not the law of tort
but the law of release as applied to the proper interpretation
of a recorded settlement agreement. The 1988 settlement
release entered into by the plaintiffs should be interpreted in
light of pervasive legal trends rather than the antiquated com-
mon law rule.
Here the release entered into by the plaintiffs was of the
same general nature as the settlement release in Alsup. By
settling with Navistar, the plaintiffs, along with the other set-
tling parties agreed to settle ‘‘any and all claims, actions,
causes of action, rights or liabilities, including Unknown
Claims, by a Settlement Class Member or on behalf of a Set-
tlement Class Member or by anyone claiming through or
under a Settlement Class Member by way of subrogation or
otherwise, that have been asserted or could have been
asserted in the Chapter 11 bankruptcy proceed or of Jn re
Wisconsin Steel Company.’’ (Settlement Agreement at 4,
reprinted in Plaintiffs’ Br. at A-21). This is plamly a general
release that purports to resolve all claims, but it nowhere
mentions Envirodyne by name. Nor does the release mention
that Envirodyne is one of the parties that plaintiffs intend to
release. :
There are two separate questions concerning the release,
and the decisions of the Illinois Supreme Court in Alsup and
the Supreme Court’s requirement of a specific intent to
release in Zenith provide the appropriate framework for con-
struing the release in view of its facial ambiguity. This
SS
18a
requires the district court to give proper consideration to the
extrinsic evidence necessary to define the parties’ intent.
2. Envirodyne’s invocation of the alter ego doctrine
Our above conclusion does not wholly pave the way for
plaintiffs’ suit against Envirodyne to go forward, for Enviro-
dyne advances another argument in favor of its position. It is
what the plaintiffs characterize as the defendant’s ‘‘express’’
release argument—that the defendant is released because
WSC and EDC are specifically named in the Settlement
Agreement and because Envirodyne is the parent corporation
of the two subsidiaries, it benefits from the release under an
alter ego theory.
Envirodyne, in advancing this argument, seeks protection
from a doctrine whose purpose is to prevent a corporation
that has acted fraudulently or unjustly from protecting itself
from liability by shielding itself with the protective mantle of
the corporate form. Essentially, defendant’s argument is but
another way of restating the argument that the release of one
party operates to release all others. This time, however, the
defendant bases its argument on a principle of corporate
law—in short, the defendant has served up a red herring. As
we understand its approach to the a/ter ego doctrine, defen-
dant argues that if it is found to be the alter ego of the sub-
sidiaries, then its relation to the subsidiary is close enough
for Envirodyne to be considered a party to the release.
However, the alter ego doctrine, as invoked by Enviro-
dyne, does not work this way. Courts will allow plaintiffs to
pierce the corporate veil to impose liability on a defendant
who unjustly seeks protection in the corporate form. The
alter ego doctrine is a sword, not a shield, the basis for a
cause of action, not a defense. By asserting that the a/ter ego
doctrine applies to its case, Envirodyne essentially inculpates
itself by admitting that WSC and EDC are corporate shells
and that Envirodyne, the parent corporation, is the real party
at interest in the Settlement Agreement. Envirodyne’s wish to
be recognized as an alter ego of the subsidiaries here could
return to haunt it when the district court decides whether
19a
plaintiffs may pierce the corporate veil. By asserting that it is
an alter ego, Envirodyne may be barred from stating that it is
not an alter ego at a later stage of the litigation. In Goldstein
v. Scott, 108 Ill.App.3d 867, 872, 64 Ill.Dec. 374, 378, 439
N.E.2d 1039, 1043 (1982), the Illinois Appellate Court recog-
nized that a party may not assert that it is the alter ego and
then, when it is no longer advantageous to do so, deny it.
Goldstein involved a defendant church corporation, which
sued its liability insurer for coverage on a property damage
claim. A federal district court held in favor of the church
believing it to be the alter ego of the uninsured beneficial
owner of the property. Jd. at 871, 64 Ill.Dec. 374, 439
N.E.2d 1039. Subsequently, the church attempted to escape
liability for personal injuries caused by the property damage,
claiming that it was not the a/ter ego of the property owner.
Id. at 872, 64 lil.Dec. 374, 439 N.E.2d 1039. The state appel-
late court concluded that the church may not assert that it is
the alter ego and later deny it:
[The church] having sought the finding that it was [the
property owner’s] alter ego ... and having obtained
the finding it so vigorously sought is judicially estopped
from denying in this action that it is the [property own-
er’s] alter ego. ... A party cannot play ‘‘fast and
loose’. . . or blow “‘hot and cold’’ during the course
of litigation. When a party assumes a certain position in
a legal proceeding and succeeds in maintaining that posi-
tion, he may not thereafter assume a contrary position.
Id. at 872, 64 Ill.Dec. 374, 439 N.E.2d 1039, citing Finley v.
Kesling, 105 lll.App.3d 1, 60 Ill.Dec. 874, 433 N.E.2d 1112
(1982).
C. Proper Application of the A/ter Ego Doctrine
Were we to accept the defendant’s view of the alter ego
doctrine, the Court would be sanctioning the abuse of the
corporate form. In this case, the a/ter ego doctrine applies to
the plaintiffs’ theory of the case, for it is they who have
20a
alleged control, fraud and undercapitalization by defendant
in order to pierce the corporate veil.
In cases involving claims to pension benefits protected by
ERISA, it has been recognized that there is a federal interest
supporting disregard of the corporate form to impose liabil-
ity. ERISA protects workers from their employers’ attempts
to deny them pension benefits. As the First Circuit made
clear in Alman v. Danin, 801 F.2d 1 (1st Cir.1986), where it
allowed the plaintiffs to press forward with their suit against
the incorporators of an underfunded corporation, ‘‘ERJSA
. cannot be said to attach great weight to corporate
form,”’ id. at 3.
In reaching this conclusion, the A/man court first examined
the proper approach a court should take when it decides
whether to disregard the corporate entity where a federal
cause of action is asserted. First, the court noted that
although ‘‘[t]here is no litmus test in the federal courts gov-
erning when to disregard corporate form,’’ the Supreme
Court has stated that ‘‘the doctrine of corporate entity, rec-
ognized generally and for most purposes, will not be regarded
when to do so would work fraud or injustice.’”’ Jd. at 3,
quoting Taylor v. Standard Gas & Electric Co., 306 U.S.
307, 322, 59 S.Ct. 543, 550, 83 L.Ed. 669. Moreover, the
protection afforded by the corporate form might be undercut
by the overriding federal legislative policy reflected in the
particular statute providing an aggrieved party with a cause
of action.
The underlying congressional policy behind ERISA clearly
favors the disregard of the corporate entity in cases where
employees are denied their pension benefits. In Pension Ben.
Guaranty Corp. v. Ouimet Corp., 711 F.2d 1085 (1983), cer-
tiorari denied, 464 U.S. 961, 104 S.Ct. 393, 78 L.Ed.2d 337,
the First Circuit pierced the corporate veil to impose liability
upon the solvent members of a corporation that had declared
bankruptcy. The court emphasized that the congressional
intent of ERISA is to hold employers responsible for pension
benefits, so that when the corporate form poses a bar to lia-
bility, ‘‘concerns for corporate separateness are secondary to
what we view as the mandate of ERISA.’’ Jd. at 1093; see
2la
also Pension Ben. Guaranty Corp. v. Anthony Co., 537
F.Supp. 1048 (N.D.IlI.1982) (employer and parent were a sin-
gle employer for purposes of imposing liability for vested,
unfunded benefits; parent corporation obligated to make
good on deficiency from pension plan termination). Thus
under Ouimet Corp., the corporate form chosen by defen-
dant does not necessarily preclude plaintiffs from piercing the
corporate veil and suing Envirodyne. If justice would be
served and potential fraud nullified then plaintiffs should be
able to proceed against the party that has actual control of
WSC and EDC.
Conversely, widening the scope of the release so that it
applies to Envirodyne would undermine the above-articulated
reasons for piercing the corporate veil in the first place. In
Alman, the court recognized that the corporate veil may be
pierced more easily in ERISA cases than in pure contract
cases in order to promote the federal policies underlying the
statute: ‘‘Allowing [the parent] of a marginal [undercapita-
lized subsidiary] to invoke the corporate shield in circum-
stances where it is inequitable for them to do so and thereby
avoid financial obligations to employee benefit plans, would
seem to be precisely the type of conduct Congress wanted to
prevent.’’ Alman, 801 F.2d at 4.
The Ninth Circuit has previously upheld a district court’s
decision to disregard the corporate form so that plaintiffs in
that case would recover unpaid contributions to their pension
plan. Laborers Clean-Up Contract Admin. Trust Fund vy.
Uriarte Clean-Up Service, Inc., 736 F.2d 516 (9th Cir.1984).
The court recognized that the corporate defendant was a
dummy corporation set up for the purpose of carrying forth
the business of certain individual shareholders. In making
this determination, the Ninth Circuit identified three factors:
1) the amount of respect given to the separate identity of the
corporation by its shareholders; 2) the fraudulent intent of
the incorporators; and 3) the degree of injustice visited on the
litigants by respecting the corporate entity. Jd. at 524. The
court found that all three prongs of the test were satisfied, in
particular identifying the extent to which the incorporators
22a
undercapitalized the corporation so that the corporation was
unable to operate as a business or satisfy its debts.
Alman and Uriarte thus provide a framework for applying
the alter ego doctrine to determine whether its underlying
purposes have been met. The plaintiffs have yet to prove in
court their entitlement to benefits from Envirodyne. If they
are able to do so as a matter of law, it will be because they
have successfully shown that Envirodyne is the alter ego of
WSC and EDC so that the corporate form should be disre-
garded.
There is authority to suggest that the release of a subsidi-
ary does not prevent alter ego claims from being brought
against the parent. In Mesler v. Bragg Management Co., 39
Cal.3d 290, 702 P.2d 601, 216 Cal.Rptr. 443 (1985) (Mosk,
J.), the California Supreme Court construed a California
statute which, like the Illinois Contribution Among Joint
Tortfeasors Act, abrogated the common law rule that the
release of one party released all. The court concluded that the
plaintiff who settled with a subsidiary could still proceed
against the parent, rejecting earlier decisions construing the
same statutory provision. Contra M/V American Queen vy.
San Diego Marine Construction Corp., 708 F.2d 1483, 1490
(9th Cir.1983); Fuls v. Shastina Properties, Inc., 448 F.Supp.
983 (N.D.Cal.1978).
The Mesler court properly drew a distinction between cases
where the corporate veil is pierced so that a parent is held lia-
ble for the actions of a subsidiary and cases where the parent
attempts to evade liability by benefitting from a release that
applies to a subsidiary. In cases where the veil is pierced to
expose the parent to liability, it is not as though one corpora-
tion is held liable for the acts of another corporation; instead
a ‘‘hole’’ is ‘‘drilled in the wall of limited liability erected by
the corporate form.’’ Jd. 702 P.2d at 607, 216 Cal.Rptr. at
449. Aside from the liability of the parent where the alter ego
doctrine applies, the corporate form remains intact. There-
fore, the veil is pierced only to the extent that justice requires
and no further.
While permitting veil-piercing in the above equitable cir-
cumstances, the Mes/ler court addressed the situation in which
23a
the parent invokes the alter ego doctrine to benefit from a
release and escape liability. According to its rationale, if the
wall of the corporate form remains erect in all other respects,
‘‘when the plaintiff settles with only the subsidiary, the par-
ent’s liability continues. To hold otherwise would be to
defeat the policy of promoting justice that lies behind the
alter ego doctrine.’’ Jd. The opinion in Mesler provides a
credible argument that the a/ter ego doctrine can be invoked
to impose liability on a parent even when the plaintiff settles
with the subsidiary.®
Envirodyne claims that the equities favor its position, and
that the Settlement Agreement requires that it be relieved
from any further liabilities. However, Envirodyne’s desire to
remain insulated by the settlement release cannot bar the
plaintiffs’ claim to benefits, where Envirodyne provides the
only recourse for the plaintiffs to recover their vested pension
benefits. Therefore, justice can hardly be said to require that
the release be interpreted broadly so as to exonera‘e a party
unnamed in the release.
Moreover, Envirodyne does not contest the plaintiffs’
claim that the subsidiaries, WSC and EDC, were set up spe-
cifically for Envirodyne’s purchase of the Division. Yet the
plaintiffs allege that the corporate veil should be pierced
because the two subsidiaries were grossly undercapitalized
and appear to have been set up for no other reason than to
insulate the parent, Envirodyne, from potential claims against
the Division for pension benefits or other liabilities. See Pen-
sion Ben. Guaranty Corp. v. Envirodyne Industries, Inc., 10
EBC 1458, 1462 (N.D.III.1988). At least from the perspective
of Lehman Brothers, which issued a report concerning the
sale by Navistar of the Division to the two subsidiaries of
Envirodyne, the transaction was a fraud, and the report
demanded that Envirodyne assume responsibility for the pen-
8 The court in Mesler analogized to agency cases in different jurisdic-
tions in which a suit against the principal is not precluded by the release of
the agent. Mes/er, 39 Cal.3d at 303 n. 5, 702 P.2d at 608 n. 5, 216 Cal.Rptr.
at 450 n. S.
24a
sion benefits instead of insulating itself from liability by cre-
ating a corporate shell.
Because in all probability Envirodyne has not been released
by the Settlement Agreement, the plaintiffs will be able to
present their case for piercing the corporate veil in the district
court. In order .. prevail, the plaintiffs must satisfy the
requirements for piercing the corporate veil. Under Illinois
law, two factors are required:
[Flirst, there must be such unity of interest and owner-
ship that the separate personalities of the corporation
and the individual no longer exist; and second, circum-
stances must be such that an adherence to the fiction of
separate corporate existence would sanction a fraud or
promote injustice.
Koch Refining v. Farmers Union Central Exch., Inc., 831
F.2d 1339, 1345 (7th Cir.1987), certiorari denied, 485 U.S.
906, 108 S.Ct. 1077, 99 L.Ed.2d 237, quoting Gallagher v.
Reconco Builders, Inc., 91 lll.App.3d 999, 1004, 47 Ill.Dec.
555, 558-59, 415 N.E.2d 560, 563-564 (1980); see also Jn re
Kaiser, 791 F.2d 73, 75 (7th Cir.1986) (permitting a/ter ego
claims whenever reliance on the corporate form would
‘‘defeat some strong equitable claim’’), certiorari denied,
Wise v. Kaiser, 479 U.S. 1011, 107 S.Ct. 655, 93 L.Ed.2d
710. As to the first requirement of the Illinois a/ter ego doc-
trine, the plaintiff must show the degree of control by the
parent by ‘‘presenting evidence of misrepresentation; com-
mingling of funds, assets, or identities; undercapitalization;
failure to operate at arm’s length; and failure to comply with
corporate formalities.’ Koch Refining, 831 F.2d at 1345, cit-
ing Main Bank v. Baker, 86 Ill.2d 188, 205-206, 56 Ill.Dec.
14, 22, 427 N.E.2d 94, 102 (1981).
The second requirement of the Illinois a/ter ego doctrine—
that adherence to the corporate form would give rise to fraud
or injustice—will apply if the plaintiff proves the existence of
either fraud (such as intentional wrongdoing) or injustice.
Koch, 831 F.2d at 1345. However, proper application of Illi-
nois’ test for piercing the corporate veil invariably involves
factual questions to be determined by the circumstances of
‘ 25a
each case. Id., citing Stap v. Chicago Aces Tennis Team,
Inc., 63 Ill.App.3d 23, 28, 20 Ill.Dec. 230, 234, 379 N.E.2d
1298, 1302 (1st Dist.1978). In Koch Refining, this Court con-
ducted an individualized inquiry based on the lilinois alter
ego doctrine to conclude that a bankruptcy trustee can pierce
the corporate veil to bring an alter ego claim against the
debtor corporation’s shareholders.
D. The Possibility of Bringing Claims Against Envirodyne in
the Bankruptcy Proceeding
Envirodyne has two remaining arguments to support its
claim that the settlement release should operate to relieve it
from liability for the plaintiffs’ lost pension benefits. Rather
than addressing whether or not Envirodyne actually is
released, these arguments concern other provisions in the Set-
tlement Agreement. Defendant’s first argument addresses lan-
guage preventing ‘‘any and all claims . . . that -have been
asserted or could have been asserted in the Chapter 11 bank-
ruptcy proceeding.’’ (Settlement Agreement at 4, reprinted in
Plaintiff’s Br. at A-21). The question, then, is whether a
claim against Envirodyne ‘‘could have been asserted’’ in the
Chapter 11 bankruptcy proceeding.
At first glance, it would appear that the answer to the
question is ‘‘yes.’’ This Court has held previously that alter
ego claims may be brought in bankruptcy by the trustee of a
bankrupt corporation, Koch Refining v. Farmers Union Cen-
tral Exchange, Inc., 831 F.2d 1339, 1346 (7th Cir.1987).
However, the Court recognized that trustees had standing to
bring only those claims which apply to all creditors of the
debtor corporation generally. Jd. at 1349. As the Court in
Koch Refining stated:.‘‘If the liability is to all creditors of
the corporation without regard to the personal dealings
between such officers and such creditors, it is a general
claim,’’ id. Alternatively, the Court recognized that ‘‘the
trustee has no standing to bring personal claims of creditors.
A cause of action is ‘personal’ if the claimant himself is
harmed and no other claimant or creditor has an interest in
the cause,’’ id. at 1348 (emphasis in original).
26a
In the Chapter 11 proceeding, Jn re Wisconsin Steel Com-
pany, Nos. 80 B 3766 through 80 B 3773, Adversary No. 81
A 0442, 1989 WL 39995 (Bktcy.N.D.IIl.), the former employ-
ees of the Division comprised only one of the several credi-
tors in the proceeding. They were the only creditors to assert
claims for lost pension benefits. Their claims are properly
described as personal claims and not general claims. The
logic of Koch Refining therefore leads necessarily to the con-
clusion that plaintiffs’ alter ego claims against Envirodyne
could not have been asserted in the bankruptcy proceeding
because they were not claims of the creditors generally but
ERISA claims unique to the former employees.
E. Envirodyne’s Potential Claims Against Navistar
The final argument advanced by Envirodyne in its attempt
to show that it was released from claims by the plaintiffs
concerns the possibility that Envirodyne might bring claims
against Navistar as a result of this litigation. Plainly, the set-
tlement agreement releases Navistar from any further liabili-
ties stemming from its sale of the Division to the subsidiaries
of Envirodyne. Therefore, if as a result of this suit Navistar
were exposed to additional liability, plaintiffs’ suit would vio-
late the terms of the settlement agreement.
In his order granting Envirodyne’s motion to dismiss,
Judge Moran addressed the possibility that the defendant
would bring a claim against Navistar. He concluded that a
suit by Envirodyne against Navistar was a possibility at the
time that the plaintiffs entered into the settlement agreement.
Therefore, it was not, in Judge Moran’s view, relevant that
at the conclusion of the trial in Pension Ben. Guaranty Corp.
v. Envirodyne Industries, Inc., he held that Navistar was lia-
ble only for pension benefits accruing until 1977, the year the
Division was sold to the subsidiaries of the defendant. See
District Court Memorandum and Order of November 7,
1989, at 9-10 (Plaintiffs’ Br. at A-10-A-11).
The district court’s analysis was incomplete concerning
Navistar’s potential liability to Envirodyne, for Judge
Moran’s decision at trial does not provide the only bar to any
27a
suit Envirodyne might bring against Navistar. As the plain-
tiffs correctly point out, their a/ter ego claims against Enviro-
dyne are in fraud, alleging that Envirodyne knowingly set up
undercapitalized subsidiaries in order to escape any liabilities
for claims arising out of its acquisition of the Division.
Envirodyne cannot impute its fraud to another party. If it is
liable to the plaintiffs under an a/ter ego theory, then it is lia-
ble for its own improper intentional actions and cannot
obtain indemnification from Navistar.
Moreover, any right of contribution that Envirodyne might
have against Navistar is properly limited by the method this
Court has identified for determining contribution rights
under ERISA. Contrary to the plaintiffs’ assertion, a non-
settling defendant does possess a right of contribution under
ERISA. Donovan vy. Robbins, 752 F.2d 1170 (7th Cir.1985).
The Donovan Court identified this right to contribution, but
went on to reject the traditional rule that imposes no limit on
the non-settling defendant’s right to contribution. /d. at
1180. Instead, Donovan advocated the adoption of a rule
based on comparative fault. Under a comparative fault
regime, no party pays more than its adjudicated fair share.
As explained in Donovan:
[T]he court fixes the percentage of the plaintiff’s dam-
ages that is attributable to the fault of the settling defen-
dants, multiplies that percentage by the judgment
against the nonsettling defendants, and deducts the
resulting amount from the judgment.
Id. Judge Moran has in essence satisfied the comparative
fault inquiry recommended in Donovan by establishing that
Navistar was liable for pension benefits due to the plaintiffs
only up to the time of the sale of the Division.? Envirodyne
no longer has any possible claim against Navistar.'°
9 Judge Moran’s ruling is on appeal. See note | supra.
10 Although Donovan concludes that there is a right to contribution
under ERISA, this matter is still unsettled. In a 1989 district court decision,
28a
F. The Applicable Statute of Limitations
Because the district judge concluded that the sett'sment
release applied to Envirodyne, he saw no need to reach the
statute of limitations issue. However, because the Settlement
Agreement is ambiguous and requires additional fact-finding
to determine the parties’ intent, it is necessary to address the
statute of limitations. Envirodyne raises the issue as an
affirmative defense to the suit against it.
The plaintiffs filed suit against Envirodyne in February
1989, nine years after the Division went into bankruptcy.
ERISA itself does not impose a statute of limitations under
Section 502, the civil enforcement provision; therefore the
district court must apply the most appropriate state statute of
limitations so long it is consistent with federal law and pol-
icy. Wilson v. Garcia, 471 U.S. 261, 266-267, 105 S.Ct. 1938,
1941-1942, 85 L.Ed.2d 254; Central States, Southeast and
Southwest Areas Pension Fund v. Jordan, 873 F.2d 149, 152
(7th Cir.1989).
This Court has held previously that an employee’s claimed
eligibility for pension benefits is a creature of contract law.
Jenkins v. Local 705 International Brotherhocd of Teamsters
Pension Plan, 713 F.2d 247 (7th Cir.1983). Under Illinois
law, there are two separate statutes of limitations for actions
on contracts. For actions on oral contracts, the statute of
limitations is five years. Ill.Rev.Stat. ch. 110, para. 13-205
(1989). Alternatively, a ten-year statute of limitations applies
to actions on written contracts. Ill.Rev.Stat. ch. 110, para.
13-206 (1989).
Mutual Life Ins. Co. v. Yampol, 706 F.Supp. 596 (N.D.III.1989), Judge
Leinenweber concluded that ‘‘ERISA does not expressiy create a right of
contribution in favor of fiduciaries.”’ Yampol, 706 F.Supp. at 598. He
referred to the opposite conclusion in Donovan as dictum and concluded that
the fiduciary in that case had failed to satisfy the Supreme Court’s precondi-
tions for finding a federal right of contribution under a statute that does not
expressly create such aright. See Texas Industries, Inc. v. Radcliff Materials,
Inc., 451 U.S. 630, 101 S.Ct. 2061, 68 L.Ed.2d $00; Northwest Airlines, Inc.
v. Transport Workers Union, 451 U.S. 77, 10! S.Ct. 1571, 67 L.Ed.2d 750.
29a
To determine which statute of limitations properly applies,
the nature of the plaintiffs’ claims must be examined. The
plaintiffs have brought their suit under ERISA Section
502(a)(1)(B) for lost benefits due to them under the pension
plan. Presumably the pension plan in this case is at least writ-
ten in part, so that the Illinois ten-year statute of limitations
applies. Our conclusion is fully consistent with the decisions
of this Court in Jenkins and Jordan. Jenkins held that an
employee’s action to recover pension benefits based on the
written terms of a pension plan was governed by the Illinois
ten-year statute of limitations, 713 F.2d at 253, and Jordan
recognized that although the pension plan in that case was
based at least in part based on orally conducted collective
bargaining negotiations, an ERISA delinquency action was
still governed by the ten-year statute of limitations because
the longer statute of limitations ‘‘contribute[d] to the stability
of pension funds and . . . encourage[d] employers to meet
their obligations.’’ 873 F.2d at 154.
Despite this Court’s decisions in Jordan and Jenkins apply-
ing the ten-year statute of limitations to actions arising under
ERISA and the LMRA, Envirodyne argues that the shorter
limitations period should apply when an alter ego theory is
alleged, because parol evidence is indispensable, as the party
to be held liable is not named in the contract. As support,
defendant cites Baird & Warner, Inc. v. Addison Indus.
Park, Inc., 70 Ill.App.3d 59, 73, 26 Ill.Dec. 1, 13-14, 386
N.E.2d 831, 843-844 (1st Dist.1979). That case is distinguish-
able because it involved purely a matter of state law. The
application of a state statute of limitations to a federal cause
of action is ‘‘ultimately a question of federal law.’’ Jordan,
873 F.2d at 154, citing Jnternational Union, etc. v. Hoosier
Cardinal Corp., 383 U.S. 696, 86 S.Ct. 1107, 16 L.Ed.2d
192; Jenkins, 713 F.2d at 251. The decisions of the Illinois
courts regarding the applicability of the two statutes of limi-
tations are helpful but not binding, for they do not take into
consideration the national interests at stake. Jordan, 873 F.2d
at 154.
As explained above, as a matter of federal policy the
longer statute of limitations should apply, because the plain-
CO
30a
tiffs’ claims are for vested pension benefits that have alleg-
edly become due to them over a period of years. To truncate
the available period for claims by applying the shorter statute
of limitations would fly in the face of ERISA. Pension bene-
fits vest and accrue throughout the career of an employee.
They are often paid out over a period of several decades.
Moreover, the difference between the two statutes of limita-
tions may be explained by the fact that parties to a written
contract can demonstrate the existence of their bargained-for-
exchange over a longer period of time, for the agreement is
evidenced by the writing. An oral contract, on the other
hand, if not important enough to memorialize in writing, is
less deserving of legal protection over time, and liability may
be harder to prove, presumably because the parties must rely
on memory to recollect the terms of the oral agreement in
court.
Despite the fact that some of the plaintiffs’ claims are
based on the collective bargaining agreement and are brought
under the LMRA, there is no basis in federal law for charac-
terizing their claims as an oral contract for purposes of the
statute of limitations. See Trustees of Wyoming Laborers
Health and Welfare Plan v. Morgen & Oswood Constr. Co.,
850 F.2d 613, 621 (10th Cir.1988) (Wyoming’s ten-year stat-
ute of limitations for written contracts applies to actions
brought under ERISA and LMRA Section 301). Indeed, fed-
eral policy favors the protection of pension benefits, and it
would surely yield a result anomalous with the legislative his-
yry and purpose of ERISA to nip claims for vested pension
benefits in the bud through application of the shorter statute
of limitations.
III. Conclusion
This decision paves the way for the plaintiffs to present
their case against Envirodyne more fully in the district court.
We cannot decide the merits of the plaintiffs’ ERISA and
LMRA claims for lack of a sufficientiy developed record
Since the scope of the settlement release comes down to a
3la
question of the parties’ intent in view of the Settlement
Agreement’s ambiguity, the matter is remanded to the district
judge for a full evidentiary inquiry.
Cause remanded for further proceedings in accordance
with this opinion.
32a
APPENDIX B
IN THE
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
>
Nov. 7, 1989
No. 89 C 1330
>
FRANK LUMPKIN, RAFAEL ALVAREZ, DELBERT C. AUGUST-
SON, WAYNE SCHWARTZ, FELIX VASQUEZ and JOHN
RANDALL,
Plaintiffs,
ean ak
ENVIRODYNE INDUSTRIES, INC.,
Defendant.
>
MEMORANDUM AND ORDER
>
MORAN, District Judge. 2
In 1977 International Harvester Company sold its Wiscon-
sin Steel division in a structured arrangement by which EDC
Holding Company (EDC), a wholly-owned subsidiary of the
present Envirodyne Industries, Inc. (Envirodyne), purchased
the assets of the division, which were then held by various
subsidiaries of EDC. One of those subsidiaries, WSC Corpo-
ration (WSC), operated the steel facilities (Wisconsin Steel)
where the plaintiffs in this action were employed. In 1980
EDC and WSC sought bankruptcy protection and Wisconsin
Steel permanently closed. In the interim, after the EDC
33a
acquisition and prior to or as a result of the closure, employ-
ees had acquired pension and contractual rights, and they
had pre-existing rights from their employment at Interna-
tional Harvester which EDC and WSC Stéel had assumed as
part of the acquisition. The bankrupt companies could not
pay those obligations or the obligations to a host of credi-
tors, including International Harvester.
Those events led to others. The Pension Benefit Guaranty
Corporation (PBGC) accepted the responsibility of paying
ERISA pensions and sued International Harvester, claiming
on various grounds that International Harvester was liabie to
it for those pension obligations not only through the time of
sale but until Wisconsin Steel closed. The creditors of EDC
and WSC claimed in bankruptcy court that the International
Harvester was liable to the debtors-in-possession for all debts
they had accumulated, or at least (since the realizable assets
were but a small fraction of those debts) that International
Harvester’s claims should be subordinated. The former
employees sued International Harvester, Lumpkin, et al. v.
International Harvester Company, 81 C 6673, (Lumpkin J),
claiming that International Harvester was responsible to them
for pension and contractual obligations not guaranteed by
PBGC and arising through the entire period until the closure
of Wisconsin Steel. see
Ultimately all these disputes came together in this court
and they were set for trial. Shortly before trial the parties set-
tled Lumpkin I for $14.8 million. The other disputes went to
trial, and this court, about a year ago, determined that Inter-
national Harvester was liable to PBGC to the date of sale but
not thereafter, and that it was not liable to the debtors-in-
possession.
The former employees now bring this action against
Envirodyne, claiming uninsured pension and contract benefits
for the period from sale to closure, 1977-1980. As a threshold
matter they ask for certification of the same class as was cer-
tified in Lumpkin J, and that motion is granted. Envirodyne
agrees that class disposition is appropriate, but it believes
that the class should only include former employees covered
by Progressive Steel Workers Union (PSWU) contracts.
34a
Envirodyne has, conceptually, a point. The class representa-
tives are surrogates for the PSWU because that union disap-
peared with the demise of Wisconsin Steel. Presumably the
unions who are parties to other collective bargaining units
remain in being and are free to assert their claims, if they
wish. As a practical matter, however, the affected employees
are few in number and, divided among several unions, still
fewer are represented by any of the other unions. Plaintiffs
represent that those employees were covered by ‘‘me-too”’
collective bargaining contracts tied to the PSWU contract.
Judge Kocoras included them in the Lumpkin I class, and
there is every reason to believe that those unions acquiesced
in being represented by the class in that action. In the
absence of some indication that they do not so acquiesce in
this action, or some more compelling reason for exclusion
than those now presented, we see no reason for defining the
class any differently than in Lumpkin I.
Envirodyne’s motion to dismiss is another matter. Plain-
tiffs raise claims under both ERISA and § 301 of the Labor
Management Relations Act. Both claims rely upon plaintiffs’
belief that EDC and WSC were so insubstdfitial that they can
pierce the corporate veil and hold Envirodyne liable for the
obligations negotiated by WSC with the PSWU in the 1977-
1980 collective bargaining agreements. They claim, in short,
that Envirodyne was the alter ego of WSC. Envirodyne con-
tends that both claims are barred by a five-year limitations
period applicable to each and that, in any event, the claims
were released in the settlement of Lumpkin IJ. Plaintiffs con-
tend that the limitations periods are ten years and deny that
the claims were reieased. We believe that the claims were
released, for the reasons set forth below, and grant the
motion to dismiss. We therefore do not reach the limitations
issues.
Envirodyne has large’ managed to stay outside the mael-
strom of these various litigations. PBGC named Envirodyne
as a defendant because it was, due to common control, an
employer. Envirodyne subsequently settled with PBGC for an
undisclosed amount, in the context of a statutory scheme
which set a cap on liability related to net worth at the rele-
35a
vant time. Envirodyne’s net worth was then relatively mod-
est. It has since grown significantly, and during the trial
against International Harvester this court recalls some rum-
blings by the WSC creditors of proceeding in some fashion
against Envirodyne. Nothing came of it, and this action has
been the only attempt to reach Envirodyne for more than its
statutory liability as an employer upon termination of a plan.
At the time of the Lumpkin I settlement the plaintiffs had
class claims against International Harvester arising from both
their International Harvester and WSC periods of employ-
ment. They also had bankruptcy claims against WSC, arising
from the WSC period which WSC included in its claims
against International Harvester. While the WSC _ period
claims, whether viewed as claims directly against Interna-
tional Harvester or indirectly through WSC, were considera-
bly greater than the claims arising from the International
Harvester period, the settlement negotiations and the settle-
ment amount largely related to the benefits arising during the
International Harvester period, and the claims arising during
the WSC period were severely discounted. The results of the
trial substantially vindicated that approach.
In any event, at the time of the settlement International
Harvester had an interest in resolving both the direct plaintiff
claims and their bankruptcy claims which WSC was seeking
to advance. The Settlemei,t Agreement resolved ‘‘all claims’’
both in the class action which could have been asserted in the
bankruptcy proceeding. The class members were barred and
enjoined from prosecuting against International Harvester
‘either directly or indirectly’’ any claim related to the settled
claims. The WSC damage claims at trial were, consequently,
reduced by the prior settlement of the class claims.
Contemporaneously with the final order approving the set-
tlement, counsel for the class raised the possibility of a suit
against Envirodyne and noted that the class contended that
the settlement did not bar such a suit and that International
Harvester contended that it did (and this court noted, not
unreasonably, that we would not have to deal with it as a
related case if it were ever filed, but without considering that
we should deal with it irrespective of the related case rules).
36a
Class counsel, immediately after negotiating the settlement,
had, apparently, also written Envirodyne suggesting that the
parties negotiate settlement of the claims they now bring in
this action and threatening suit if the claims were not settled.
Envirodyne demurred, threatened to bring International Har-
vester, EDC and WSC into any contemplated action, and so
advised International Harvester. There, apparently, matters
stood until plaintiffs brought this action somewhat less than
a year later.
Defendant contends that plaintiffs cannot pursue an alter
ego claim against Envirodyne because a claim against Enviro-
dyne could well result in a claim against International Har-
vester in violation of the Settlement Agreement. Plaintiffs
respond that the scope of a release is primarily a matter of
intent, that Envirodyne was never explicitly released, thai
federal law does not require a reservation of rights to pre-
serve rights against an alter ego, that an alter ego is liable not
because it is the same company as the released entity but
because justice and equity require that the obligations of the
alter ego be recognized and that there is no indirect claim
against International Harvester.
The issue has been joined here to a considerable extent by
reference to emerging law respecting tortfeasors. The time
was when the release of one tortfeasor released ali, but the
wronged party could, upon settling with one tortfeasor, pre-
serve rights against others by using the right magic words,
covenanting not to sue, rather than releasing the party with
whom the settlement was being made. A specific reservation
of rights might, on occasion, be helpful. That the preserva-
tion of rights against one party should depend upon the
sophistication of the draftsman of the documents memorializ-
ing settlement with*® another was, for many courts, an exces-
sive reliance upon formalism. The federal courts (and federal
law controls here) rejected that doctrine and looked, instead,
to the intent of the parties. Zenith Radio Corp. v. Hazeltine
Research, Inc., 401 U.S. 321, 343-347 (1971). Reliance upon
that formalism in the states has been considerably diminished
in recent years by the enactment of contribution statutes.
37a
That history does not, however, answer the question of
whether a settlement of claims against one entity releases
claims against a related entity, although it has, apparently,
influenced that answer. In Stewart v. Village of Summit, 114
Ill.2d 23, 499 N.E.2d 450, 101 Ill.Dec. 862 (1986), for exam-
ple, the plaintiff used the right magic language in a settle-
ment of a tort claim against an employee and thereby
preserved a derivative claim against an employer, without any
consideration of whether the employer could thereafter seek
indemnification from the employee under either prior law or
recently enacted contribution legislation. A similar result was
reached against an alter ego defendant in a California tort
case, Mesler v. Bragg Management Co., 39 Cal.3d 290, 702
P.2d 601 (1985). The California Supreme Court there
described its perception of the reasons for the alter ego doc-
trine, reasons which the plaintiffs warmly embrace here,
although the court’s decision turned upon an interpretation
of the California contribution statute.
We are not, however, dealing with tort claims, and the
effect of a settlement with one tortfeasor is persuasive only
by analogy. We could just as well look to the effect of a
release of a debtor upon the liability of a guarantor or the
effect of the release of one obligor upon the liability of a co-
obligor. Or we could, as have some courts, analyzed the
effect of the settlement from the perspective of the fiction
upon which the alter ego concept rests—that, because of vari-
ous circumstances, the dominating party should be treated as
the same entity which was bound. That was the approach fol-
lowed in Allied Chemical Corp. v. Randall, 321 F.2d 320 (7th
Cir.1963), the logical result of that approach is that the dom-
inating party cannot be liable if there is no claim against the
dominated party. M/V American Queen v. San Diego Marine
Construction Corp., 708 F.2d 1483, 1490 (9th Cir.1983);
Rose Hall, Ltd. v. Chase Manhattan Overseas Banking, 576
F. Supp. 107, 130-131 (D.Del.1983), aff’d without opinion,
740 F.2d 956, 958 (3d Cir.1984), cert. denied, 469 U.S. 1159
(1985); Fuls v. Shastina Properties, Inc., 448 F. Supp. 983,
989 (N.D.Calif.1978). If that approach were followed here
the motion would have to be granted. WSC was the promi-
38a
sor. It has been released. Plaintiffs allege that various cir-
cumstances require that Envirodyne be answerable for WSC’s
obligation, but that obligation no longer exists.
Logic has, however, a limit in evaluating the impact of a
concept rooted in notions of fairness and justice and the
judicially-sanctioned belief that substance should triumph
over form. Perhaps we should consider that impact in light
of the bargain that was made. And we evaluate that impact
not from the perspective of Envirodyne’s alleged wrongdoing
in not making provision for plaintiffs’ benefits, but from the
perspective of the agreement the class made with Interna-
tional Harvester to settle their claims. From that perspective
we conclude that the motion should be granted.
Plaintiffs contend that they mever intended to release
Envirodyne and point to their contemporaneous assertions of
liability both to Envirodyne and in court. They were, how-
ever, also aware that both Envirodyne and International Har-
vester were contending that the release was total and that
plaintiffs could not proceed against Envirodyne. Clear it is
that plaintiffs hoped to preserve rights against Envirodyne.
The issue is not, however, their subjective intent but the nec-
essary implications of the bargain which they made.
Alter ego claims could have been brought in the bank-
ruptcy proceeding. Koch Refining v. Farmers Union Central
Exchange, Inc., 831 F.2d 1339 (7th Cir.1987), cert. denied,
___ U.S. ___, 108 S.Ct. 1077 (1988); Matter of Kaiser, 791
F.2d 73 (7th Cir.), cert. denied, 479 U.S. 1011 (1986). If
International Harvester bought its peace on post-sale claims
solely as to those asserted by the class against WSC, then
there was nothing to prevent the class from seeking to have
the same issues raise through claims against Envirodyne as
alter ego, with Envirodyne then asserting the employee claims
against International Harvester on the same grounds that the
debtors-in-possession were asserting with respect to all other
unfunded debts. That risk was, as a practical matter, reduced
by the imminence of trial; its realization depended upon judi-
cial assent to a tardy expansion of already complex disputes.
But it was conceptually, at least, a risk, and the class agreed
in broad language not to prosecute thereafter any claim,
39a
either directly or indirectly, against International Harvester.
In view of the results of the trial it is highly improbable that
Envirodyne could now proceed against International Har-
vester even were this action to proceed. But when the bargain
was struck the trial had not yet commenced, and the inter-
ested parties could not be certain of the outcome. We believe
that by the agreement that was made International Harvester
paid for the extinguishment of all class claims, however they
might be raised, and that the class assented.
40a
APPENDIX C
IN THE
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
>
Jan. 18, 19
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