Petition — Sutton v. Weirton Steel Division of National Steel Corp.

Supreme Court brief1984

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Ce ~ 1576 PILED |

MAR 23 1964

No, __ ALEXANDER L. STEVAS.

IN THE

Supreme Court of the Anited States

TERM, 1984

EuGENE R. Sutton, et al., Petitioners,

WEIRTON STEEL Division of National Steel Corporation

and

INDEPENDENT STEELWORKERS UNION

and

PENSION AGREEMENT BETWEEN

NATIONAL STEEL CORPORATION and

INDEPENDENT STEELWORKERS UNION, Respondents.

EDWARD DuayeRr, et al., Petitioners,

Vv.

WEIRTON STEEL Division of National Steel Corporation

and

INDEPENDENT STEELWORKERS UNION, Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

JOHN RANDOLPH SPON, JR.

Counse! of Record

KEITH A. FOURNIER

Spon & FouRNIER

Suite 904-911

AmeriTrust Bank Building

Steubenville, OH 43952

(614) 282-3600

Counsel for Petitioners

Eugene R. Sutton, et al., and

Petitioners Edward Dhayer, et al.

PRESS OF BYRON S. ADAMS PRINTING, INC., WASHINGTON, D.C. (202) 347-8203

QUESTION PRESENTED FOR REVIEW

Was the granting of Summary Judgment and Final Judg-

ment erroneous under the totality of circumstances of this

case, involving the largest Employee Stock Option Purchase in -

the history of the United States, wherein National Steel

Corporation, as employer and plan fiduciary, demanded 11th

hour amendments to the pension plan as essential considera-

tion for the sale of its own property, for reason that National

Steel Corporation violated the strict fiduciary standards im-

posed pursuant to Sections 404 and 406 of the Employees

Retirement Income and Security Act of 1974?

’

PEP aa ae

PARTIES APPEARING BEFORE THE UNITED STATES

COURT OF APPEALS FOR THE FOURTH CIRCUIT

Petitioners Eugene R. Sutton, et al., were Appellants be-

fore the United States Court of Appeals for the Fourth Circuit

in Case Nos. 83-1567 and 83-2002. Said Petitioners were the

Plaintiffs in the United States District Court for the Northern

District of West Virginia, Wheeling, West Virginia, in Civil

Action No. 83-0035-W. They were hourly employees of Re-

spondent National Steel Corporation.

Petitioners Edward Dhayer, et al., were Appellants before

the United States Court of Appeals for the Fourth Circuit in

Case No. 83-2004. Said Petitioners were the Plaintiffs in the

United States District Court for the Northern District of West

Virginia, Wheeling, West Virginia, in Civi! Action No. 88-

0036-W. They were salaried employees of Respondent Nation-

al Steel Corporation.

Respondent Weirton Steel Division of National Steel

Corporation, also referred to as National Steel Corporation,

was an Appellee before the United States Court of Appeals for

the Fourth Circuit and was a Defendant in the United States

District Court for the Northern District of West Virginia in the

cases mentioned above.

Respondent /ndependent Steelworkers Union was an

Appellee before the United States Court of Appeals for the

Fourth Circuit and was a Defendant in the United States

District Court for the Northern District of West Virginia in all

cases mentioned above.

Respondent Pension Agreement Between the National Steel

Corporation and the Independent Steelworkers Union was an

Appellee in the Sutton action in the United States District

Court for the Northern District of West Virginia, mentioned

above.

iii

TABLE OF CONTENTS

Page

QUESTION PRESENTED FOR REVIEW ...........ee00005 i

PARTIES APPEARING BEFORE THE UNITED STATES Court

OF APPEALS FOR THE FOURTH CIRCUIT ............ ii

BALD OP BAITS. i's vo cadbacidc ceicseaecvdecs iv, Vv

PETITION FOR A WRIT OF CERTIORARI ..........000055 1

IE hn Sis a So's doe) cae bean ehdawoeke 2

STATEMENT OF JURISDICTION ........cccccccccccccees 2

STATUTORY PROVISIONS INVOLVED ............0+: 2, 3, 4,5

OT SUMO. nc ccceescusbecenccsvcbees 5-13

REASONS FOR ALLOWANCE OF THE WRIT ............. 13-25

IN dels his cnc aul sane oaiede dh bae.s vee ewas 25-26

APPENDIX

Opinion of the United States Court of Appeals for the

Fourth Circuit (Case Nos. 83-1567 and 83-2003; 83-

1569 and 83-1895; 83-2004) .......... cece penne la-lla

Orders and Opinions of the United States District

Court of the Northern District of West Virginia in

the Sutton action (Case No. 83-0035-W) ...... 13a-52a

Orders and Opinion of the United States District Court

for the Northern District of West Virginia in the

Dhayer action (Case No. 83-0036-W) ........ 53a-83a

Orders and Judgment Entry of the United States Dis-

trict Court for the Northern District of West Virginia

(Case Nos. 83-0035-W and 83-0040-W) ....... 84a-97a

Judgment Entry of the United States District Court of

the Northern District of West Virginia (Case No.

SOD 65 Se ciicdcncvechbensadeseeies 98a-101a

Judgment pees of the United States Court of Ap

for the Fo Circuit (Case Nos. 83-1567 and 83-

0035-W, and 83-2004 and 83-0036-W; and No’s 83-

1569 and 83-0040) ..........cce cece ee eeees 103a-105a

Notices of Appeal (Case No. 83-0035-W) ..... 106a-llla

Notices of Appeal (Case No. 83-0036-W) ..... 112a-114a

Affidavit of William W. Willoughby ......... 115a-119a

Affidavit of David Kass ................0005 120a-122a

my ’

TABLE OF AUTHORITIES

CASES: Page

Adickes v. S. H. Kress & Company, 398 U.S. 144(1970) 15

ieee Beats Wards Co., 295 F.2d 346 (4th Cir.

Calhoun v. Falstaff Brewing C 478 F. Supp. 357

Sia

Dependahl v. Fals C 491 F. Supp. 1188

(Mo. 1980), m pe wee oO palling F 5d 1208

(8th Cir. 1981), cert. den. U.S. 968 (1981) .... 16

Donovan v. Bierwirth, 680 F.2d 263 (2nd Cir. 1982) . i. ae

Eaves v. Penn, 587 F.2d 453 (10th Cir. 1978) ...... 15, 20

Fentron Industires, Inc. v. National Shopmen Pension

Fund 674 F.2d 1300 (9th Cir. 1982) .............

Flinchbaugh v. Chicago Penumatic Tool Co., 531 F.

Sao. | TT MEE 04's bkis'n.ns Gad'p tenes baie ee cs 17

Freund v. Marshall & Ilisley Bank, 485 F. Supp. 629

a , SPM RP Reh CA ep

Harless v. First National Bank in Fairmont, 246 S.E.2d

270(S. Ct. of Ap a x! .Va. 1978), later 289 S. E.2d 692

(S. Ct. of App. W.Va. 1962) ......cccccceccscces 24

Hurn v. Oursler, 289 U.S. 238 (1983) .........ceeeee 24

Marshall v. Kelly, 465 F. Supp. 341 (Okla. 1978) ... 20, 22

McDougall v. Donovan, 552 F. Supp. 1206 (Ill. 1982) 20, 22

Meinhard v. Salmon, 164 N.E. 545 (Ct. of App. N.Y.

SEEN nvdundnd woe cotdnde ccaee ts sSn cnr canenies 17, 19

National Labor Relations Board v. Amazx Coal Co., 453

SPER COME» acs vca.s.cccoecnubiabebicneea’ 17, 19

Phoenix eavings s & Loan Inc. v. Aetna Casualty & Secu-

rity Co., 381 F.2d 245 (4th Cir. 1967) ...........

eee Sears, Roebuck & Co., 573 F.2d 976 (7th Cir.

United Mine Workers v. Gibbs, 383 U.S. 715 (1966) .. 24

UMWA Health & Retirement Funds v. Robinson, 455

Chi EE LADUE. ob becdars cbc decheseseautbaus 14

Table of Authorities Continued

FEDERAL STATUTES:

29 U.S.C. Section 1101 ...... eae Lila aide wie ae 14

eg TT a ee 20

29 U.S.C. Section 1104 (§ 404) .......... 13, 14, 17, 19, 20

29 U.S.C. Section 1106 (§ 406) ............. 20, 21, 22, 23

29 U.S.C. Section 1140 (§ 510) ....... ccc eee c eens 24

OTHER AUTHORITIES:

[1974] U.S. Code Cong. & Ad News 5089 (1974) ...... 22

West Virginia Code, Section 21-1A-l(a) ............. 24

IN THE

Supreme Court of the Anited States

TERM, 1984

nee

EUGENE R. Sutton, et al., Petitioners,

Vv.

WEIRTON STEEL Division of National Steei Corporation

and

INDEPENDENT STEELWORKERS UNION

and

PENSION AGREEMENT BETWEEN

NATIONAL STEEL CORPORATION and

INDEPENDENT STEELWORKERS UNION, Respondents.

EDWARD DHAYER, et al., Petitioners,

Vv.

WEIRTON STEEL Division of National Steel Corporation

and

INDEPENDENT STEELWORKERS UNION, Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

OPINIONS BELOW

The Opinions of the United States Court of Appeals for the

Fourth Circuit in Case Nos. 83-1567 and 83-2003, and 83-2004,

are contained in the Appendix at pages la to 12a.

The Opinions of the United States District Court for the

Northern District of West Virginia in Case Nos. 83-0035-W are

contained in the Appendix at pages 13a —- 52a.

The Opinions of the United States District Court for the

Northern District of West Virginia in Case No. 83-0036-W are

contained in the Appendix at pages 53a — 84a.

STATEMENT OF JURISDICTION

The Court’s jurisdiction is invoked under 28 U.S.C. Sec.

1254(1).

* Sec. 1254. Courts of Appeals; Certiorari; appeals; certi-

fied questions.

* Cases in the courts of appar may be reviewed by the

Supreme Court by the following methods:

(1) By writ of certiorari granted upon the petition of

ah ty to any civil action or criminal case before

or after rendition of judgment or decree;

STATUTORY PROVISIONS INVOLVED

Sec. 404. (a)(1) Subject to sections 403(c) and (d), 4042, and

4044, a fiduciary shall discharge his duties with respect to a

plan solely in the interest of the participants and beneficiaries

and—

(A) for the exclusive purpose of:

(i) providing benefits to participants and their benefi-

ciaries; and

(ii) defraying reasonable expenses of administering the

plan:

(B) with the care, skill, prudence, and diligence under the

circumstances then prevailing that a prudent man acting ina

like capacity and familiar with such matters would use imthe

conduct of an enterprise of a like character and with like aims;

minimize the risk of large losses, unless under the circum-

stances it is clearly prudent not to do so; and

(D) in accordance with the documents and instruments

governing the plan insofar as such documents and instruments

are consistent with the provisions of this title or title IV.

(2) In the case of an eligible individual account plan (as

defined in section 407(d)(3)), the diversification requirement of

paragraph (1)(C) and the prudence requirement (only to the

extent that it requires diversification) of paragraph (1)(B) is

not violated by acquisition or holding of qualifying employer

real property or qualifying employer securities (as defined in

section 407(d)(4) and (5)).

(b) Except as authorized by the Secretary by regulation,

no fiduciary may maintain the indicia of ownership of any

assets of a plan outside the jurisdiction of the district courts of

the United States.

ual accounts and permits a participant or beneficiary to ex-

ercise control over assets in his account, if a participant or

beneficiary exercises control over the assets in his account (as

determined under regulations of the Secretary)—

(1) such participant or beneficiary shall not be deemed to

be a fiduciary by reason of such exercise, and

(2) no person who is otherwise a fiduciary shall be liable

under this part for any loss, or by reason of any breach, which

results from such participant’s, or beneficiary’s exercise of

control.

PROHIBITED TRANSACTIONS

Sec. 406 (a) Except as provided in section 408:

(1) A fiduciary with respect to a plan shall not cause the

plan to engage in a transaction, if he knows or should know that

such transaction constitutes a direct or indirect—

(A) sale or exchange, or leasing, of any property between

the plan and party in interest;

(B) lending of money or other extension of credit between

the plan and a party in interest;

plan and a party in interest;

(D) transfer to, or use by or for the benefit of, a party in

interest, of any assets of the plan; or

(E) acquisition, on behalf of the plan, of any employer

security or employer real property in violation of section

407(a).

(2)No fiduciary who has authority or discretion to control or

manage the assets of a plan shall permit the plan to hold any

employer security or employer real property violates section

407(a).

(b) A fiduciary with respect to a plan shall not—

(1) deal with the assets of the plan in his own interest or for

his own account,

(2) inhis individual or any other capacity act in any transac-

tion involving the plan on behalf of a party (or represent a

party) whose interests are adverse to the interests of the plan

or the interests of its participants or beneficiaries, or

(3) receive any consideration for his own personal account

from any party dealing with such plan in connection with a

transaction involving the assets of the plan.

interest to a plan shall be treated as a sale or exchange if the

property is subject to a mortgage or similar lien which the plan

assumes or if it is subject to a mortgage or similar lien which a

party-in-interest placed on the property within the 10-year

period ending on the date of the transfer.

STATEMENT OF THE CASE

The issues which arise from these cases involve the largest

Employee Stock Option Purchase (ESOP) in the history of the

United States.

On the date these original actions were filed National Steel

Corporation owned and operated a facility known as the Weir-

ton Steel Division. Suffering the fate that is endemic in the

domestic steel industry in recent times, the Weirton Steel

Division became unprofitable and the work force steadily de-

clined. In view of the projected continued decline of the steel

industry and the fact that approximately $1 Billion Dollars in

capital improvements over the next ten years would be re-

quired to modernize the facility to competitive levels, National

Steel Corporation decided to divest itself of the Weirton

facility.

However, under a retirement program, known as “Plan 001”

and administered by National Steel, such a divestiture would

result in increased pension benefits to approximately 3,000

employees, in addition to extensive severance liabilities under

collective bargaining agreements and managerial personnel

policies. The total of such increased pensions and severance

liabilities would approximate $123 million.

The orchestration of this divestiture commenced on March 2,

1982, with the coercion of a threatened loss of jobs, when

National Steel Corporation announced its intention to sell the

Weirton Steel Division or reduce it to a finishing mill. This

action would have resulted in permanent loss of jobs for 85 per

cent of the existing employees. National also announced its

intention to immediately commence discussions with the Inde-

pendent Steelworkers Union, the Independent Guards Union,

and managerial employees of the Weirton Steel Division, for

the purpose of arranging an employee purchase of the Weirton

facility. On the same day, officials of the Independent Steel-

workers Union met with managerial employees of the Weirton

Steel Division to initiate discussions concerning the employee

buy-out desired by National Steel Corporation and the collec-

tive bargaining agreement which contained provisions relating

to retirement rights and benefits, and severance benefits for

affected hourly employees, including the Plaintiffs in the Sut-

ton action. The salaried employees, including the Plaintiffs in

the Dhayer action, were also participants in “Plan 001,” and

were promised similar severance and pension benefits under

National Steel’s managerial personnel policies.

Among the benefits offered by National Steel were in-

creased retirement benefits designated as “Increased Pension

- Rule of 65” and “Increased Pension - 70/80” benefits, which

had been extended to the employees for several years as an

inducement to remain in the employ of National Steel. While

one interpretation of these benefit provisions renders the

benefits as conditional, the express language, nevertheless,

established that the essence of the triggering condition giving

rise to the benefits was simply the termination of the

employer-employee relationship between National Steel and

the employee.

Specifically, the pension agreement’ stated, in pertinent

part, that an employee, who is otherwise eligible, is entitled to

an increased “Rule of 65” pension ifhis. . . service is broken by

reason of a layoff... or

. whose service is not broken and who is absent from

work by season & . a layoff and whose return to active

er or is declared u tkely by the Company .

. . . who has not been offered suitable long-term employ-

! The “Pension agreement” referred to throughout this petition has, due to

its length, been filed with this Honorable Court in a separate lodging.

Further, the Summary Plan Description, prepared by Na-

tional Steel Corporation, clearly stated, with reference to

“Rule of 65” benefits, that an otherwise eligible employee will

receive such benefits when

he has not been offered suitable long-term employment

with the Company.

Similarly, the pension agreement stated, in pertinent part,

that an employee who is otherwise eligible, is entitled to an

increased “70/80” pension if his

. . . Service is broken by reason of a permanent shutdown

of a plant, department or subdivision thereof or by reason

of a layoff... or

. . . whose service is not broken and who is absent from

work because of ...a layoly and whose return to active

employment is declared unlikely by the company .. .

Under the terms of “Plan 001,” employees who retire under

the “Rule 65” or “70/80” retirement provisions would receive

their regular pensions, plus an additional $4 Hundred per

month increase.

Likewise, severance benefits under the collective bargain-

ing agreement were conditioned, essentially, upon the termi-

nation of the employer-employee relationship between Nation-

al Steel Corporation and the employee. The collective bargain-

ing agreement’ between National Steel and the Independent

Steelworkers Union stated, in pertinent part:

When in the sole judgment of the Company, it decides to

close permanently a department or discontinue

permanently a substantial portion thereof and terminate

the employment of individuals, an employee whose em-

ployment is terminated either directly or indirectly as a

result thereof shall be entitled to severance allaow-

ance....

? The Collective Bargaining agreement referred to throughout this peti-

tion has, due to its length, been filed with Honorable Court in a separate

lodging.

The Summary Plan Description, required by the Employee

Retirement Income Security Act of 1974, identified National

Steel Corporation as the administrator and trustee of the plan.

... [National] is the pen administrator, trustee and

ent for service of lega ess under the plan. . . . The

plan administrator has the re ibility to manage the

plan and act in the interest of the plan participants and

must carry out its duties in accordance with the fiduciary

standards of ERISA.

Despite the fact that National Steel Corporation was the

plan fiduciary, it continued to implement and orchestrate its

intent to deprive plan participants of the “Rule 65” and “70/80”

benefits provided for in the pension plan. The means to imple-

ment National Steel’s twin objective of unloading its own un-

profitable asset, the Weirton facility, and avoiding and abating

the promised benefits attendant to such a divestiture, was to

“negotiate with itself’ under a ruse of collective bargaining.

The vehicle by which this would be accomplished was the

creation of a joint committee comprised of National Steel man-

agerial employees and union representatives, to form what

later became known as the Weirton Joint Study Committee.

The managerial employees on the Committee were under the

day-to-day supervision of National Steel Corporation.

The Joint Study Committee commissioned the consulting

firm of McKinsey & Company to determine whether the Weir-

ton Steel Division could survive as an independent company.

On July 26, 1982, McKinsey and Company submitted a report

which concluded that survival was possible. However, the

report makes repeated reference to the risky nature of the

venture.

After the feasibility study was received, the Joint Study

Committee hired the actuarial firm of Towers, Perrin, Forster

& Crosby (hereinafter referred to as TPF&C) to examine

certain pension matters. The TPF &C report’ set forth Nation-

’The TPF&C report referred to throughout this petition has, due to its

length, been filed with Honorable Court in a separate lodging.

al Steel Corporation’s liability were it required to pay shut-

down benefits:

The actuarial present value on a Pre-Shutdown basis is

$452.8 million. This figure is significant as a starting

value, since it a ximates the measurement of plan

obligations as National currently measures itself. On a

Plant Shutdown basis (Weirton operations only), the

actuarial present value increases from $452.8 million to

$770.6 million. In other words, if National had shut down

Weirton on January 1, 1982, the total worth of the benefits

would have been $770.6 million. Of the $317.8 million

increase ($770.6 - $452.8 = $317.8), $123.2 million repre-

sents the worth of the $400 per month temporary supple-

ments.

The affidavit of TPF &C Actuary, David Kass, submitted in

opposition to the Motion for Summary Judgment, refers to this

unfunded shutdown liability as a plan asset.‘

The TPF&C report further noted that National Steel

Corporation’s desire to avoid that additional liability of over

$300 Million was a material consideration in establishing the

purchase price of the Weirton facility:

The employees of the Weirton Division of National Steel

Corporation are considering purchasing the Weirton Di-

vision from National. Unfunded pension obligations are

a factor in determining a purchase price.

The conclusion reached by the TPF &C report was confirmed

by the testimony of Carl Valdiserri. He testified as follows:

Now, during the period of time that the negotiations are

going on, this for the establishment of the . was there

also consideration being given to the liabilities or to the

pension fund liabilities?

A. Absolutely.

Accordingly, the purchase price ultimately established was

$66 Million, though the book value of the assets of the Weirton

* The affadavit of David Kass is a part of the record below and is found in

the appendix 120a-122a.

Division was $300 Million. The difference reflects considera-

tion given by National in exchange for the avoidance by Na-

tional of shutdown retirement benefits.

The negotiations concerning the price and other terms of

sale with National Steel was undertaken by the Joint Study

Committee, which had assured employees that it would negoti-

ate with National Steel to find a way to create an independent

Weirton without compromising their pensions. However, it

soon became apparent that a condition of sale imposed by

National Steel Corporation was an agreement to forego the

supplemental retirement benefits provided in the pension plan

and relied upon by older workers.

At the hearing on preliminary injunction, uncontroverted

evidence established that over 3,000 Weirton Division employ-

ees were eligible for “Rule of 65” and “70/80” benefits and that

the liability of National Steel for these benefits was a “grave

concern” to the Company. At the same hearing, evidence fur-

ther established that the General Counsel of National Steel’s

Weirton Division stated that National Steel would not agree to

a sale if the Company would be required to pay shutdown

benefits to employees of the newly created Weirton Steel

Company. This was confirmed by the testimony of Joseph

Robbins, a salaried employee at the Weirton Steel Division.

Robbins stated that the Weirton General Counsel advised the

salaried employees that the sale was conditioned on an agree-

ment to forego shutdown pension benefits. Notes taken by

employee Robbins at a meeting of salaried employees state, in

pertinent part:

Bill [Doepken, General Counsel of the Weirton Steel Divi-

sion] said that they would not complete a deal if they were

liable for these plans. National is demanding a contract

— to take the plant shutdown liability off their

The contract would have to be amended before a

sale.

Thus, the record is clear that, as a condition of sale, National

insisted that the employees forego the “70/80” and “Rule of 65”

retirement benefits promised in the retirement plan adopted

and administered by National. There was no evidence in the

record of the extent to which the Joint Study Committee

resisted National’s insistence that employees forego the shut-

down retirement benefits. Nor was there an opportunity to

develop any record with respect to the efforts, if any, made by

the union to protect the negotiated rights of its members.

What is clear in this abbreviated record is that the Joint Study

Committee and the union acquiesced in and accepted National

Steel’s terms with respect to the shutdown retirement provi-

sions.

The Agreement in Principle,’ reached between National

Steel Corporation and the Joint Study Committee, specified

that the sale of the Weirton facility would not give rise to either

“70/80” or “Rule of 65” retirement benefits. Under the agree-

ment, National’s shutdown liability would be limited to paying

supplemental shutdown payments, but not severance pay, in

the event of “a shutdown of Weirton of substantially all of its

facilities; in effect, that Weirton shall cease to exist within five

years from the closing date.” The agreement also contained the

following provisions:

National will neither reimburse Weirton nor pay Weirton

Division employees a severance allowance in connection

with +d closing or shutdown occurring on or after the clos-

ing date.

All union contracts with National will be amended to

provide that they be read in conjunction with the agree-

ment between the parties, and to the extent such contracts

are inconsistent with such agreement, they will be

amended. National will amend Plan 001 to provide that

the sale of the Weirton Division assets does not constitute

a shutdown and will amend its severance plans and poli-

cies for nonrepresented employees to provide that the sale

of the Weirton Division assets will not entitle such persons

to severance payments.

> The Agreement in Principle and ammendment thereto has been filed in a

separate lodging with this Honorable Court.

The Agreement, therefore, permits National Steel to divest

itself of the Weirton facility without incurring “Rule of 65” and

“70/80” retirement liability or the obligation to pay severance

benefits.

On this limited record, the District Court granted partial

Summary Judgments in favor of National Steel, its Retirement

Program, and the Independent Steelworkers Union. Finding

no just reason for delay, it entered Final Judgment, pursuant

to Federal Rule of Civil Procedure 54(b), on the issues that it

had considered.

The companion case, styled Brunner, et al. v. National

Steel, et al., was consolidated with the Sutton and Dhayer

cases in the Lower Court and concerns similar issues. A sepa-

rate writ of certiorari has been filed in that matter.

Appeal was made to the Fourth Circuit Court of Appeals,

which heard the matter on consolidation of all cases herein. On

December 30, 1983, the Fourth Circuit Court of Appeals

affirmed the judgments of the District Court, holding inter

alia, that:

1. No genuine issue of fact remained in dispute, save

one which the district court accepted as proved.

2. ERISA does not impose any fiduciary obligations to

maintain allegedly contingent berefits.

3. The accrued benefits secured by ERISA do not en-

compass unfunded, contingent early retirement

benefits or severance pay.

4. The ERISA Act was not designed to prohibit modifi-

cation of ancillary benefits.

5. The means, manner, mode, and timing of any 11th

hour amendments are not to be reviewed by fiducia-

ry standards.

6. National Steel Corporation did not transfer assets of

the plan to a party-in-interest, deal with plan assets

for their own account, or act in any [capacity in a

transaction involving the plan on behalf of a party

whose interests are adverse to the plan, and plain-

tiffs actuary’s affidavit opinion was not proof that

National Steel’s contingent liability was an asset of

the plan within the meaning of ERISA.

7. National Steel Corporation has not caused the bene-

fit plan to engage in a transaction with respect to the

contingent benefits.

8. The evidence conclusively established that the Inde-

pendent Steelworkers Union did not breach its duty

of fair representation.

9. The District Court committed only harmless error

by granting summary judgment to the Independent

Steelworkers Union without a pending motion under

“Rule 56” and without affording plaintiffs the notice

and protection afforded by Rules 12(b)(6) and 56.

10. The District Court committed only harmless error

by denying plaintiffs further discovery.

REASONS FOR ALLOWANCE OF THE WRIT

I. Section 404 Of The Employees Retirement Income And

Security Act Imposes Fiduciary Obligations And Restric-

tions Which Are Intended To Protect Participants And

Beneficiaries And Prohibit Plan Fiduciaries From Self-

Dealing. The Fourth Circuit By Failing To Extend Those

Fiduciary Obligations To This Transaction Erred As A

Matter Of Law.

The compelling reasons for allowance of this writ for review

commence with the obvious ramifications of the precedent

established by this case involving the largest Employee Stock

Option Purchase (ESOP) in the history of the United States.

Never before has this High Court been presented with these

unique first impression issues involving the duties and para-

meters of fiduciary conduct in an employee purchase con-

ditioned upon the fiduciary’s demanded 11th hour amendments

to a pension plan as essential consideration to the sale of its own

depleted facility.

The Fourth Circuit stated that issue succinctly in its opinion:

The critical question, therefore, is whether ERISA im-

poses any fiduciary obligations to maintain the con-

tingent benefits about which the appellants complain. If it

does, summary judgment was ina ate, esoues in

avoiding the payments through sale of the Division, Na-

tional’s self-motivation, which the district court assumed

for the purpose of this proceeding, cannot be reconciled

with its fiduciary duties.

However, the Court went on to narrowly define the reach of

fiduciary protection, and thus left undaunted the Northern

District’s sanction of National Steel’s tainted behavior, as a

matter of law, and without affording petitioners any reason-

able discovery in order to prove their assertions.

Section 404 of the Employee Retirement and Income Securi-

ty Act, 29 U.S.C. Section 1101 et seq., (hereinafter referred to

as “ERISA”), specifically states, in pertinent part:

Sec. 404(a)(1). . . a fiduciary shall discharge his duties

with respect to a plan solely in the interest of the partici-

pants and beneficiaries and ... (A) for the exclusive

—— of: (i) providing benefits to participants and their

ficiaries ...

In the instant case, the Fourth Circuit held that, as a matter

of law, it was not empowered to scrutinize National Steel

Corporation’s conduct within the above fiduciary mandate be-

cause:

The Act was not designed to prohibit modification of these

ancillary benefits.

and,

An employer may change such benefits without violoti

ERISA. a oe ol

for reason that National Steel Corporation has the right

—e or amend . . . unfunded contingent bene-

The Court Buttressed its ruling, primarily, upon United Mine

Workers of America Health and Retirement Funds v. Robin-

son, 455 U.S. 562 (1982). Petitioners submit that the Fourth

Circuit was in error for the following reasons:

First, by implication, the Robinson Court stated that

fiduciary review may be held if the collective bargaining proc-

ess itself is tainted to the extent that it violates any command of

Congress. In the instant case, National Steel Corporation

negotiated an ESOP agreement. The alleged negotiations oc-

curred between the National Steel Corporation and the Weir-

ton Joint Study Committee, which Committee was at all times

therein comprised, in part, of high-ranking National Steel

executive officers. Under such circumstances, the alleged “col-

lective bargaining” did not possess traditional elements of

confidentiality and arms-length negotiations.

Second, the alleged “collective bargaining” that occurred did

not primarily concern itself with the traditional benefits of

employment, but was concerned with the sale of the fiduciary’s

own property, which sale was conditioned upon 11th hour

amendments to the pension plan.

Petitioners submit that the District Court’s granting of a

summary judgment, while precluding discovery into the collec-

tive bargaining process itself under such suspect circum-

stances, contravenes the salutary objectives of ERISA." As so

aptly stated by one Court:

ee should be given a broad construction in order to

rry out its purposes of a interest toe

arGcine nts and =" aves v. Penn

453 (10th Cir. 1978

Collective bargaining, ae the unique circumstances of this

case, implicates fiduciary standards imposed by Section 404 of

ERISA for reason that the demanded amendments significant-

ly affected the plan participants’ imminent shut down benefits.

These benefits became imminent by the acts of the fiduciary

itself, when it announced its intent to terminate 85 percent of

the existing jobs. Rather than guard the participants’ immi-

nent contingent benefits, it acted solely in its own interest by

6“The standard laid down for District Courts in passing on motions for

summary judgment is strict.” Clarke v. Montgomery Ward & Company, 298

F. 2d 346, 348 (4th Cir. 1962). See, also Phoenix Savings & Loan, Inc. v.

Aetna Casualty & Surety Co., 381 F. 2d 245 (4th Cir. 1967); Adickes v. S.H.

Kress & Company, 398 U.S. 144 (1970).

demanding approval of amendments deleting those benefits

from a majority of the bargaining unit employees. This major-

ity was not eligible for “Rule 65” or “70/80” benefits. However,

the petitioners, who constituted a minority of the bargaining

unit, the older workers, had no choice in the matter.

Thirdly, the petitioners represented in the Dhayer case,

were not a part of the bargaining unit. Accordingly, their only

protection was reliance on National’s status as a fiduciary in its

relationship to their rights and benefits. That reliance was

sorely misplaced.

Amendments under certain circumstances have given rise to

judicial intervention under fiduciary standards in similarly

inequitable circumstances. In Calhoun v. Fallstaff Brewing

Corp., 478 F. Supp. 257 (Mo. 1979), Opinion After Trial Sub.

Nom. Dependahl v. Fallstaff Brewing Corp., 491 F. Supp.

1188 (Mo. 1980), Modified On Other Grounds, 653 F. 2d 1208

(8th Cir. 1981), Cert. Den. 454 U.S. 968 (1981), an employer

sought to require an amendment which would discontinue

severance benefits that otherwise would have been payable.

The Court denied the employer defendant’s motion for sum-

mary judgment and gave the plaintiffs the opportunity to

prove their allegations that such an action constituted a breach

of fiduciary duty. The Calhoun Court stated:

... an amendment of the plan as alleged by plaintiff

clearly violates its fiduciary duty. The fiduciaries are to

guard the interests of the participants and beneficiaries,

not those of the employer. . . to argue that the employer

may terminate such plans at any time without violating

the statute is clearly not supportable in the statutory

language nor in equity. 478 F. Supp. at 361.

The Amendment to “Plan 001” covering the Petitioners and

those similarly situated suffers the same vice as that con-

demned in Calhoun. The demanded 11th hour modification of

this pension agreement by the fiduciary for the sole purpose of

withdrawing a benefit which was imminent absent such an

amendment must give rise to fiduciary violations. To not apply

the standard set forth by Congress in Section 1104 to this

unique and novel sequence of events would violate the clear

remedial intention of the Act.’

The Fourth Circuit reasoning suffers several additional

flaws.

First, salaried employees, including the Dhayer petitioners,

were not even represented for collective bargaining purposes

and, with regard to these employees, National Steel, in its

status as administrator, simply unilaterally amended this plan

in order to deprive employees of these long-term entitlements.

There was no negotiation, choice, nor bargaining involved. The

older unionized employees, represented in the Sutton case,

had little choice in “bargaining” over these benefits.

This High Court in National Labor Relations Board v.

AMAX Coal Company, 453 U.S. 322 (1981) explains the critic-

al distinction between the conduct of a fiduciary and parties

engaged in collective bargaining:

“the atmosphere in which employee benefit trust funds

fiduciaries must operate, as mandated by Section

302(c)(5) and ERISA is wholly inconsistent with this

process of compromise and economic pressure.” 453 U.S.

at 336.

Here National Steel engaged in clear and unrelenting eco-

nomic pressure arguably accepted in the collective bargaining

context but which should be wholly inappropriate in any trust

setting. The hallowed words of Justice Cardozo ery out for

application in the context presented here, a trustee must be

held to a higher standard than the “morals of the marketplace.”

Mienhard vy. Salmon, 163 N.E. 545, 564 (Ct. of App. N.Y.

1928).

7A violation of Sec. 404 can only be discovered by careful analysis of

relevant facts. This was not done here. Donovan v. Bierwirth, 680 F. 2d 263

(2nd Cir. (1982), Flinchbaugh v. Chicago Pneumatic Tool Co., 531 F. Supp.

110 (Pa. 1982). Summary Judgment precluded developing the record herein

to develop this essential factual analysis.

National’s bargaining with Petitioner’s interests, in their

early retirement benefits and long term employment entitle-

ments states a classic case of breach of trust. It would state a

cause of action even if the common law concepts of fiduciary

duty and conflict of interest had not been specifically written

into the ERISA statute. For example, in the case of Roberts v.

Sears, Roebuck & Co. 573 F. 2d 976 (7th Cir. 1978), which

involved a company’s overreaching in negotiating with a for-

mer employee for rights to his invention, the court observed

that factors giving rise to a relationship of trust include “dis-

parity of age, education and business experience between the

parties,” as well as “the existence of an employment rela-

tionship and the exchange of confidential information from one

party to the other.” Also crucial was the fact that the employer

expected the employee to rely on various representations

made to him. 573 F. 2d at 983. Similar factors and a similar

reliance existed here.

That an employer continues to act as fiduciary of its employ-

ees’ pension plan, while engaged in a transaction affecting their

interests, is an additional factor which brings the specific pro-

visions of ERISA into play in this instance.

Second, the Fourth Circuit erroneously reasons that “. . . if

ERISA does not impose an obligation on National to main-

tain the contingent benefits, National in its capacity as an

employer could undertake to eliminate them.” Nothing in the

Act can be read as limiting fiduciary standards to vested bene-

fits or relegating shutdown retirement benefits to some lesser

standards of fiduciary duty. The issue presented in this case is

not whether National Steel Corporation would have been pro-

hibited from modifying these “ancillary benefits,” but, rather

how it went about this modification, namely, by demanding at

the 11th hour that, unless these benefits were amended out of

the plan, they would simply not sell the steel mill." The result

would have been the loss of jobs for all employees.

8 The 4th Cir. Court’s summary dismissal of Sec. 404 implications was

based solely on Fentron Industries, Inc. v. National Shopman Pension

Fund, 674 F. 2d 1300 (9th Cir. 1982). Contrary to the reasoning of the 4th

The determination of when the generic fiduciary obligations

of ERISA are implicated is admittedly a difficult task depen-

dent on factual shadings and particular circumstances of the

action under review. The Northern District Court, by its re-

fusal to allow discovery, and the Fourth Circuit’s affirmation of

the lower court’s decision precluded the type of record neces-

sary to fairly address and resolve the issue in a monumental

case of first impression.

Never before has our society been confronted with the rapid

transition from an industrial to a technological age, with its

resultant decline of industrial jobs and abandonment of old

industrial facilities. These sociological factors will precipitate

continued efforts by major corporations to unload unprofitable

facilities to desparate workers through ESOPs. While ESOPs

were originally intended to provide protection to industrial

workers, this case represents an ominous sign that ESOPs

may now be utilitized as a weapon against the older workers, in

particular.

In reaching its conclusion that Section 404 of the Employees

Retirement and Income Security Act was not violated in this

instance, the Fourth Circuit failed to consider the totality of

circumstances within which these amendments were exacted.

This High Court in its AMAX opinion explained:

“... @ trustee bears an unwavering duty of complete

loyalty to the rat: iciary of the trust, to the exclusion of

sts of all other parties. Restatement (Second of

Trusts Section 170(1) (1957); 2 A Scott, Law of Trusts

Section 170 (1967). To deter the trustee from al vempta-

tion and to preveni any fraggnst injury to the beneficia

the rule against a trus rx ay A his loyalties must be

enforced with ‘uncomprom rye, hr idity.’ Meinhard v

Salmon, 249 NY 458, 164, 16 164 NE 545, 346 (Cardozo C.J.)

A fiduciary cannot ‘contend ‘that, although he had con-

Cir., that opinion does not hold that modifying ancillary benefits never

violates or implicates Sec. 404. Rather, it holds that such amendments are

not “per se” violations. It is important to note that that decision was sent

back on Remand for a closer factual review by the District Court to ascertain

whether a breach of fiduciary obligations resulted. That is precisely what

your petitioners herein request.

flicting interests, he served his masters _— well or

that his primary loyalty was not weakened by t ll of

his secondary one.’ Woods v. City National Bank & Trust

sg ye tg 262, 269, 85 L Ed 820, 61S Ct. 493.” 453 U.S.

a , 330.

Referring to Section 404, the Court in Eaves v. Penn, Supra,

noted that the “. . . provisions embody a carefully tailored law

of trusts, including the familiar requirement of undivided

loyalty to beneficiaries. . . .” 585 F. 2d at 457. Here, National

Steel, though employer, administrator, fiduciary, and offeror

of the Weirton Division, acted to deprive beneficiaries of long-

term retirement benefits that would have otherwise been pay-

able. The Company acted solely in its own interest and to the

clear detriment of the plan participants. Neither the reasoning

nor the authority cited by the Court justifies this departure

from the Act. Accordingly, petitioners respectfully request

that this Writ for review be granted.

II. The Fourth Circuit Court Erred In Affirming The Lower

Court’s Failure To Find A Violation Of Section 1106 Of

ERISA In This Transaction.

In addition to the generic standards governing fiduciary

obligations, codified at 29 U.S.C. Section 1104, Congress also

specifically proscribed certain conduct by plan fiduciaries. In

McDougal v. Donovan, 552 F. Sup. 1206 (IL 1982), the Court

observed:

Rather than leaving all fiduciary transactions to be

judged by the general Section 1104 standard, Congress

also enacted Section 1106, which prohibited fiduciaries

from causing the plan to engage in certain specified

transactions. These prohibitions evidence Congressional

desire to prevent transactions that offer a — potential

for loss of ae assets or for insider abuse. Marshall v.

Kelly, 465 F. Sup. 341, 354, (W.D. Okla., 1979).” 552 F.

Sup. at 1214, 1215.

“Party-in-interest” is defined in 29 U.S.C. Section 1002(14)

and under the definition National is clearly a party in interest

since it is both a fiduciary and an employer of employees

covered by a benefit plan. This High Court further reiterated

the Congressional intent behind Section 1106 by stating in its

AMAX decision:

The legislative history of ERISA confirms that Congress

intended in particular to prevent trustees ‘from engagi

in actions where there would be a conflict of interest wit

the fund, such as representing any party dealing with the

fund.’ S Rep No. ae 18 31, 32 (1973). In short, the

fiduciary sions of ERISA were designated to prevent

a trustee Grom being put into a position where he has dual

loyalties, and herdore, he cannot act exclusively for the

ange of a plan’s participants and beneficiaries.’ H.R.

pn . Rep No. 93-1280, supra, at 309.” 453 U.S. a. 333,

Here, National Steel announced that it would divest itself of

the Weirton facility, thereby triggering shutdown retirement

benefits. National then engineered a transaction for the pur-

pose of relieving itself of such liability. National caused the

plan to relinquish an asset in the form of payments required to

be made to the plan for distribution to plan participants. Con-

trary to the explicit command of Section 1106, it acted in a

transaction affecting the plan in a manner adverse to the plan

beneficiaries. Perhaps even more incredible is that in so doing,

it benefitted itself as employer, while breaching its obligations

as fiduciary. The afidavit of the actuary, David Kass,’ is not all

the Petitioners submitted in support of their argument. How-

ever, having been precluded from discovery, they were unable

to develop a full record. The Fourth Circuit Court noted that a

prudent fiduciary might consider National’s contingent liabil-

ity but stated that “the actuary’s opinion is not proof that

National’s contingent liability is an asset of the plan within the

meaning of ERISA.” The argument is circuitous in that further

proof was not allowed because the Petitioners were precluded

from developing a record. Yet, again, based on a sparse and

undeveloped record, the Appellate Court summarily stated:

* Filed with this Court in the Appendix at 120a-122a.

National has not caused the benefit plan to engage in a

transaction with respect to the contingent benefits.

This is simply not the case. The plan was required to forfeit,

in order to accommodate the interest of National Steel

Corporation as employer, the sum of $300 Million, which would

in effect, be given to National Steel as a part of the sale.

Certainly, a loan of pian assets to the employer is prohibited by

Section 1106. see, e.g. Freund v. Marshall & Illsley Bank, 485

F. Supp. 629 (Wis. 1979), Marshall v. Kelly, 465 F. Supp. 341

(Okla. 1978). To reflect in the final sale price of the Weirton

facility the amount of the conditional benefits which would

have otherwise been paid to participants, but for amendments,

makes those benefits essential consideration for a contract to

sell the employers depleted facility. This is precisely the type

of behavior prohibited by Section 1106.

In affirming the narrow reading of the term “transaction”

utilized by the District Court, the Fourth Circuit clearly erred.

Certainly, if plan assets were used by the Company as security

for a sale by the Company of one of its divisions, Section 1106

was violated. Pursuant to McDougal v. Donovan, 552 F. Sup.

1206 (IL 1982), and its progeny, ERISA should be given a

liberal construction to further the policies of the Act. In fact,

the Congressional history reveals:

“The statute prohibits the direct or indirect transfer of any

plan income or assets to or for the benefit of a party-in-

interest. It also prohibits the use of plan income or assets

by or for the benefit of any party-in-interest. As in other

situations, this prohibited transaction may occur even

though there has not been a transfer of money or property

between the plan and a party-in-interest. Por example,

securities purchases or sales by a plan to manipulate the

price of the security to the advantage of a party-in-interest

constitutes a use by or for the benefit rf a party-in-interest

of any assets of the plan.” [1974] U.S. Code Cong. & Ad.

News 5089.

The transaction occurring in Weirton, West Virginia, used

plan assets, whether styled “vested,” “contingent,” or “ancilla-

ry,” to benefit National Steel Corporation in the sale of its own

depleted Weirton facility.

Even if the term “assets” is given a restrictive meaning, the

terms of Section 1106 were still violated. Section 1106(b)(2)

precludes a fiduciary from acting in a transaction on behalf of a

party whose interests are adverse to the plan participants and

beneficiaries. It was in National’s best interest to sell this Mill,

but it was not in the best interests of the petitioners to amend

these plans. The entire transaction was ridden with fiduciary

implications and violations.

Finally, the Appellate Court noted that “the Appellants

have cited no case in support of their position.” This was not the

case. Precedent was cited throughout the oral argument and

written briefs. However, there simply is no case directly on

point, and this is the reason that this Honorable Court is asked

to review the holding of the Fourth Circuit. This transaction,

which has resulted in the denial of Petitioners supplemental

pension and severance benefits, constitutes the largest em-

ployee purchase in history and could pave the way for further

abuse by employers who stand as fiduciaries in future employ-

ee purchases if left undaunted.

Throughout its opinion, the Fourth Circuit Court indicated a

concern for the Legislative history. It should be noted that the

Committee explicitly stated its desire “not to discourage early

retirement plans.” Without this Court’s intervention, the im-

pact of the Fourth Circuit opinion will be to create a chilling

effect on all early retirement plans which does not auger well

for the future of older workers in basic industries such as steel.

The conflict-of-interest provision, that the fiduciary not act

“on behalf of a party . . . whose interests are adverse to the

interests of the plan,” applies to “any transaction involving the

plan.” 29 U.S.C. Sec. 1106(b)(2). This was just such a transac-

tion and the actions of the fiduciary violated the Act. It is

submitted that the holding of the Fourth Circuit to the contra-

ry is in error.

III. The Court Below Erred In Affirming The Northern Dis-

trict’s Dismissal Of Pendent Claims.

In Paragraph V of its opinion, the Fourth Circuit summarily

affirmed the lower court’s dismissal of pendent State claims in

this action. No reason or explanation was given. On June 3,

1983, the trial court dismissed certain pendent claims which

alleged that the respondents conduct violated the substantial

public policy of the United States and the State of West Virgi-

nia. Respondents’ violation of specific provisions of ERISA

would contravene a substantial public policy of the State of

West Virginia, as a matter of law, because West Virginia

Code, Section 21-1A-1(a), deciares that it is the public policy of

the State to “protect the rights of individual employees. . . .”

It is clearly established under West Virginia law that an em-

ployer may be held liable in tort and contract for damages

occasioned by such employer’s acts when the unlawtul conduct

is motivated by factors which contravene the substantial public

policy of the State of West Virginia or the implied and ex-

pressed promises of the employer. Harless v. First National

Bank in Fairmont, 246 SE 2d 270 (W. Va. 1978); and later, 289

SE 2d 692.

Further, Section 510 of ERISA specifically states in perti-

nent part:

“It shall be unlawful for any person to discriminate

against a participant . . . for the purpose of interfering

with the attainment o —— to which such participant

may become entitled u the plan... .”

Clearly, National Steel did interfere with just such a right.

The right to supplemental benefits triggered by their own

actions. Thus, there is a common nucleus of operative facts

between the ERISA and pendent claims, in that the respective

claims are such that the expectation is that they would be

considered in one judicial proceeding. See, United Mine Work-

ers v. Gibbs, 383 U.S. 715 (1966). Further, the State law claims

were appropriate for Federal Court determination because

they formed a separate but parallel, ground for relief also

sought in the substantial Federal claim based on ERISA.

Hurn v. Oursler, 289 U.S. 238 (1933). The provisions of the

plan, deleted by forced amendment, gave rise to additional

benefits to these petitioners by right upon the severance of

their employment with the National Steel Corporation.

The dismissal of these pendent claims, as well as the sum-

mary affirmation of the lower court’s grant of final judgment,

constitutes a violation of substantial procedural due process.

Accordingly, this High Court is respectfully requested to

grant petitioners writ for review.

CONCLUSION

The Instant Petition presents this Honorable Court with

complex first impression legal issues involving the application

of fiduciary principles in the context of the largest employee

purchase in history. In so doing, it presents a unique opportun-

ity for this Court to chart a path for future transactions such as

this by defining the appropriate boundaries within which a

prudent fiduciary must operate in such a transaction.

Here, a Federal Trial Court refused to allow discovery and

on the basis of a sparse record, granted final judgment against

the aggrieved petitioners. The Fourth Circuit Court of

Appeals affirmed the trial court’s opinion and, thereby, con-

doned the conduct of the fiduciary by erroneously reasoning

that fiduciary principles, mandated both by Federal Law and

the Common Law which it codified, simply did not apply to this

transaction.

The petitioners assert that such judicial action simply

ignored all precedent enunciated by the Supreme Court in its

repeated opinions regarding the conduct of fiduciaries, as well

as the mandates of ERISA; the Act’s Congressional History

and every tenet of procedural Due Process.

For all of the above reasons, the Writ of Certiorari should be

granted.

Respectfully submitted,

JouN RANDOLPH Spon, JR.

Counsel of Record

KEITH A. FouRNIER

SPON & FOURNIER

Suite 904-911

AmeriTrust Bank Building

Steubenville, OH 43952

(614) 282-3600

Counsel for Petitioners

Eugene R. Sutton, et al., and

Petitioners Edward Dhayer, et al.

APPENDIX A

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 83-1567

No. 83-2003

Eugene R. Sutton; Raymond Ludewig; Paul D. Alexander;

Anthony J. Angelo; John P. Barlas; Thomas V. Barnhouse;

William Bell; Walter Eirrell; Pete Brier and

Camden Bumgarner, et al.,

Appellants,

Weirton Steel Division of National Steel Corporation; Inde-

pendent Steel Workers Union and Pension Agreement be-

tween the National Steel Corporation and

the Independent Steelworkers Union,

Appellees.

No. 83-1569

No. 83-1895

Gerald W. Brunner; Clarence Rifkee; Norman Clark;

James Hoge and all others similarly situated,

Appellants,

National Steel Corporation; Independent Ster' ‘ers Union;

Weirton Joint Study Committee, Inc. and Pensi. Agreement

between the National Steel Corporation and

the Independent Steelworkers Union,

Appellees.

No. 83-2004

Edward Dhayer; Edward Bittner; Richard Blancato and

James H. Browning, et al.,

Appellants,

Weirton Steel Division of National Steel Corporation and

Independent Steelworking Union,

Appellees.

Argued December 7, 1983

Before PHILLIPS and ERVIN, Circuit Judges, and BUTZ-

NER, Senior Circuit Judge.

Barry Laine (Anthony P. Sgambati, II, David Roloff, Green

Schiavoni, Murphy, Haines & Sgambati Co. L.P.A. on brief)

and John Randolph Spon, Jr. (Keith A. Fournier, Spon &

Fournier on brief) for appellants; Carl H. Hellerstedt, Jr.

(Joseph Mack, III, Brian J. Dougherty, Thorp, Reed & Arm-

strong on brief); David L. Robertson (William Kiefer, Peter

Rich, Bogarad & Robertson on brief); Anthony F. Phillips

(Gerald Kerner, Brian E. O’Connor, Laurence H. Lenz, .Jr.,

Willkie Farr & Gallagher on brief) for appellees.

Decided DEC 30 1983

BUTZNER, Senior Circuit Judge:

This appeal of consolidated cases arises out of an agreement

by National Steel Corp. to sell its Weirton Steel Division to a

new company, Weirton Steel Corp., which is owned by the

Division’s employees. The district court granted partial sum-

mary judgments in favor of National, its Retirement Program,

and the Independent Steelworkers Union.* Finding no just

reason for delay, it entered final judgment pursuant to Federal

Rule of Civil Procedure 54(b) on the issues that it had con-

sidered. The appellants, a minority of the employees at the

Division, assert that the district court erred by holding that

National did not violate the Employee Retirement Income

Security Act (ERISA), that the union did not breach its duty of

fari representation, that class certification was inappropriate,

and that the appellants were not entitled to injunctive relief.

We find no cause for reversal in these assignments of error

and affirm the judgments of the district court.

In March 1982, National announced that it would reduce

capital expenditures, production capacity, and employment at

the Division. It also said it would consider a sale of the Division.

The Weirton Joint Study Committee, Inc., was then estab-

lished to study the possibility of forming a corporation owned

by employees to purchase the Division. The committee in-

cluded five representatives of management, twenty-one repre-

sentatives of the Independent Steelworkers Union, and three

representatives of the Independent Guard Union. The commit-

tee retained legal counsel and commissioned consultants to

make a feasibility study. It also engaged other firms to assist

with aspects of the proposed transaction requiring particular

expertise.

*Dhayer v. Weirton Steel Division of National Steel Corp., 571 F. Supp.

316 (N.D. W.Va. 1983); Sutton v. Weirton Steel Division of National Steel

Corp., 567 F. Supp. 1184 (N.D. W.Va. 1983).

The agreement of sale provided for modification of pension

and severance benefits contained in the collective bargaining

agreements for union employees and in National’s retirement

program and personnel policies for salaried nonunion employ-

ees. These benefits and the amendments are essentially the

same for all employees. union members approved the changes

in the bargaining agreements and other terms of sale. National

unilaterally changed its program and policies for nonunion

members.

The benefits and the amendments affecting them are fully

described in the opinions of the district court. For the purposes

of this appeal they can be recepitulated as follows. All workers,

whether they choose to work for the new company or not, will

retain the normal retirement benefits earned through service

with National before the sale. National will segregate all assets

attributable to the Division and establish a separate trust

available to pay normal retirement benefits to past and present

Division employees. The new company will be responible for

benefits accrued after the change in ownership. Whe an em-

ployee who has worked at both companies retires, his years of

service will be aggregated, an he will receive beneftis from

National and the new company in proportion to his service for

each.

In addition to normal retirement benefits, National provided

early retirement benefits and severance pay in the event of

shutdown or layoff for employees with the requisite combina-

tion of age and years of employment. For convenience, we will

refer to these benefits and severance pay collectively as con-

tingent benefits. These benefits were not funded. They were

payable, if at all, from National’s corporate treasury. The

agreement stipulates that the sale of the Division will not

trigger payment of the contingent benefits if within five years

of the sale Weirton Steel closes. Contingent benefits similar to

those formerly available at National will be provided by the

new company.

The appellants protest the agreement to eliminate Nation-

al’s obligation for the contingent benefits upon the sale of the

Division. It is their position that, regardless of their immediate

employment by the new company, their status as employees of

National will be terminated by the sale. In the absence of the

agreement, they insist, the sale would entitle them to the

contingent benefits. They point out that the shutdown benefits

alone, without the severance pay, would aggregate approxi-

mately $300,000,000 and that National has avoided this

liability.

Summary disposition of the issues presented in this appeal

was appropriate. All of the material facts, save one, were

established by uncontradicted evidence. To fill the hiatus occa-

sioned by the single dispute over a genuine issue of fact, the

district court accepted as proved the allegations that Nation-

al’s sole motivation for the sale was avoiding future pension

obligations. See Dhayer, 571 F. Supp. at 326; Sutton, 567 F.

Supp. at 1198. . .

Though permitted by 29 U.S.C. § 1108(c)(3) to serve as an

administator of its pension plan, National’s fiduciary obliga-

tions were not diminished by its dual role. Donovan v. Bier-

wirth, 680 F.2d 263, 271 (2d Cir. 1982). National was required

to discharge its fiduciary duties “solely in the interest of the

participants and beneficiaries.” 29 U.S.C. § 1104(a)(1). ER-

ISA’s requirements “insulate the trust from the employer’s

interest,” and, consequently, National was not permitted to

assume a position where it had “dual loyalties” in the adminis-

tration of the plan. NLRB v. Amax Coal Co., 453 U.S. 322,

333-34 (1981).

By retaining liability for all normal retirement benefits and

establishing a separate trust for their payment, National did

not violate any provision of ERISA or any fiduciary obligation

with respect to accrued benefits, which under the plan were

payable at age 65. The critical question, therefore, is whether

ERISA imposes any fiduciary obligations to maintain the con-

tingent benefits about which the appellants complain. If it

does, summary judgment was inappropriate, because in avoid-

ing the payments through sale of the Division, National’s seif-

motivation, which the district court assumed for the purpose of

this proceeding, cannot be reconciled with its fiduciary duties.

On the other hand, if ERISA does not impose an obligation on

National to maintain the contingent benefits, National in its

capacity as an employer could undertake to eliminate them.

Under ERISA’s vesting rules, only accrued benefits must be

nonforfeitable. 29 U.S.C. § 1053(a). With respect to the issues

raised by these appeals, ERISA defines an accrued benefit as

an “annual benefit commencing at normal retirement age.” 29

U.S.C. § 1002(23). The accrued benefits secured by ERISA do

not encompass unfunded, contingent early retirement benefits

or severance payments. The Act was not designed to prohibit

modification of these ancillary benefits. See H.R. Conf. R. No.

1280, 93d Cong., 2d Sess. 273, reprinted in 1974 U.S. Code

Cong. & Ad. News 5038, 5054; H.R. Rep. No. 807, 93d Cong.,

2d Sess. 60-61, reprinted ‘11 1974 U.S. Code Cong. & Ad New

4670, 4726. Rather, Congress believed that the “vesting of

these ancillary benefits would seriously complicate the admin-

istration and increase the cost of plans whose primary function

is to provide retirement income.” H.R. Rep. No. 807, 93d

Cong., 2d Sess. 60, reprinted in 1974 U.S Code Cong. & Ad

News 4890, 4935. An employer may change such benefits with-

out violating ERISA. See Fentron Industries, Inc v. National

Shopmen Pension Fund, 674 F.2d 1300, 1306 (9th Cir. 1982).

But cf. Dependahl v. Falstaff Brewing Corp, 491 F. Supp.

1188, 1196-97 (E.D. Mo. 1980), modified, 653 F.2d 1208 (8th

Cir. 1981). Any right to payment of benefits before normal

retirement age must be found in pertient employment agree-

ments. Fine v. Semet, 699 F.2d 1091, 1093 (11th Cir. 1983).

Consequently, National, in its capacity as an employer, did not

violate ERISA.

Also, National, in its capacity as a fiduciary, did not violate

ERISA. Congress authorized an employer to administer its

pension plan, and in the discharge of its duties with respect to

the plan, the employer must satisfy the exacting fiduciary

standards imposed by ERISA. Congress, however, has not

prohibited an employer who is also a fiduciary from exercising

the right accorded other employers to renegotiate or amend, as

the case may be, unfunded contingent benefits payable before

normal retirement age. The changes, accomplished in this

manner, are not to be reviewed by fiduciary standards.

These conclusions are sustained by United Mine Workers

Health and Retirement Funds v. Robinson, 455 U.S. 562,

573-76 (1982). Robinson dealt with the fiduciary obligations

imposed by § 302 of the Labor Management Relations Act, 29

U.S.C. § 186, on trustees of a fund for employee benefits.

Nevertheless, it is pertinent because the high fiduciary stand-

ards exacted by both the Labor Act and ERISA are essentially

the same. In Robinson, benefits created by the collective

bargaining agreement were changed by renegotiation. The

Court held that the changes were not to be reviewed under

fiduciary standards, cautioning: “[WJhen neither the

collective-bargaining process nor its end product violates any

command of Congress, a federal court has no authority to

modify the substantive terms of a collective-bargaining con-

tract.” 455 U.S. at 576.

Ill

In addition to the general fiduciary standards imposed by

§ 1104, Congress also prohibited fiduciaries from engaging in

certain specified conduct, including transferring assets of a

plan to a party in interest, dealing with assets for their owh

account, and acting in any capacity in a transaction involving

the plan on behalf of a party whose interests are adverse to the

plan. 29 U.S.C. § 1106. See NLRB v. Amaz Coal Co., 453 U.S.

322. 332-34 (1981). the appellants assert that the district court

erred by holding that National did not violate these provisions

of § 1106. They base their argument on two premises: first,

that National’s liability for the contingent benefits was an asset

of the plan; and, second, that National illegally caused the plan

to relinquish this asset by agreeing that the sale would not

trigger payment of the contingent benefits. The appellants

support their argument by the affidavit of an actuary who

expressed the opinion that National’s liability was an asset of

its pension fund.

It may well be that a prudent actuary would consider Na-

tional’s contingent liability for benefits in view of the domestic

steel market. Certainly responsible management would want

to know the magnitude of its exposure if the plant were shut

down. But the actuary’s opinion is not proof that National’s

contingent liability is an asset of the plan within the meaning of

ERISA. No provision of the Act requires this contingent liabil-

ity to be funded as an asset of the plan. The parties recognize

that if National should become liable for the contingent bene-

fits, the pension fund, which is dedicated to the payment of

normal retirement benefits, cannot be diverted for this pur-

puse. See Cutaiar v. Marchall, 590 F.2d 523, 528-30 (3d Cir.

1979). The only source of payment would be the company’s

treasury. National in its capacity as the manager of its business

can use its corporate treasury for general corporate business.

Conversely, in its capacity as a fiduciary, National is not re-

quired by ERISA to account for expenditures from its corpo-

rate treasury that are disbursed for general corporate pur-

poses.

National has not caused the benefit plan to engage in a

transaction with respect to the contingent benefits. The bene-

fit plan covers the employees of several divisions. The segrega-

tion of assets available for normal retirement of Division em-

ployees and the establishment of a separate trust for this

purpose is in essence a bookkeeping transaction. No funds held

by the pension plan will be depleted or recouped by the com-

pany because of the agreement not to trigger the contingent

benefits.

In short, ERISA does not impress a trust upon National’s

corporate treasury for the payment fo the contingent benefits.

The appellants have cited no case in support of their position. It

is the unfunded nature of National’s contingent liability that

distinguishes this case from the cases, on which the appellants

rely, where courts have found that fiduciaries have violated

§ 1106. See, e.g., Cutaiar v. Marchall, 590 F.2d 523 (3d Cir.

1979); McDougall v. Donovan, 522 F. Supp. 1206, 1212-16

(N.D. Ill. 1982). Accordingly, we conclude that the district

court correctly ruled that National did not violate § 1106.

The district court held that undisputed evidence established

that the Independent Stellworkers Union did not breach its

duty of fair representation by agreeing to the terms of sale.

The appellants assign error to this aspect of the court’s judg-

ment on both substantive and procedural grounds.

The union had a statutory duty to represent fairly all of the

Division employees in its bargaining with National. Ford

Motor Co. v. Huffman, 345 U.S. 330, 337 (1953). To establish a

breach of the duty of fair representation, the appellants must

show that the union’s conduct was arbitrary, discriminatory,

or in bad faith. Vaca v. Sipes, 386 U.S. 171, 190 (1967).

Confronted with the prospect of the loss of several thousand

jobs, the union through the Joint Committee participated in

negotiating the Division's sale. The union relied on the advice

of expert consultants. It agreed to the terms of sale only after

its members had ratified the changes in the bargaining agree-

ment that are the subject of the appellants’ complaint. the

agreement treats all unio members equally, although it has an

immediate effect on the appellants, who have sufficient service

to qualify for the contingent benefits.

It is enevitable in the give-and-take of collective bargaining

that some employees will fare worse than others. But a union

may compromise to achieve long-term advantages, even

though individual employees may be affected differently by the

10a

resulting agreement. See Humphrey v. Moore, 375 U.S. 335,

349-50 (1964); Ford Motor, 345 U.S. at 338; Ekas v. Carling

Nat'l Breweries, /nc., 602 F.2d 664, (4th Cir. 1979). In concert

with the district court, we hold that the evidence conclusively

establishes that the union’s conduct was not arbitrary, discrim-

inatory, or in bad faith. Consequently, the union did not breach

its duty of fair representation.

The appellants also contend that the court committed pro-

cedural error by granting summary judgment to the union

without a pending motion under rule 56 and without affording

them the notice and protection afforded by rules 12(b))6) and

56. They also protest the court’s denial of further discovery.

Ordinarily an assignment of error similar to the appellants’

would dictate vacating the district court’s judgment. But con-

sidering the procedures followed in this case and the volumi-

nous evidence the parties presented, we find no error that

survives application of the harmless error provisions of rule 61.

The trial court consolidated these cases for hearing, briefing,

and argument. It denied the union’s motion for judgment on

the pleadings without reaching the merits of the motion. In-

stead, the court noted the relationship between the alleged

illegal conduct of both National and the union, and it indicated

that these issues must be considered together. At the direction

of the court, all parties filed statement of issues, which in-

cluded the question of the union’s representation. This ques-

tion was again raised in National’s motion for summary judg-

ment. Consequently, we are satisfied that the appellants has

ample notice and full opportunity to participate without preju-

dice in the procedure that the court subsequently followed in

granting summary judgment.

lla

In view of our conclusions about the prinicpal issues raised

by the appellants, the remaining asssignments of error require

no discussion. The district court did not err by dismissing

pendent state claims or by denying class certification and in-

junctive relief.

The judgments of the district court are affirmed.

13a

APPENDIX B

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF WEST VIRGINIA

Civil Action No. 83-00-35-W

EUGENE R. SUTTON, et als.,

Plaintiffs

WEIRTON STEEL DIVISION OF NATIONAL

STEEL COPRORATION; INDEPENDENT STEEL

WORKERS UNION; PENSION AGREEMENT

BETWEEN THE NATIONAL STEEL CORPORATION

AND THE INDEPENDENT STEELWORKERS UNION,

Defendants.

Filed at U.S. District Court, Wheeling West Virginia

Thomas Strafford, Clerk

ORDER

On the 13 day of April, 1983, came the named plaintiffs by

counsel, and also came National Steel Corporation by counsel

and Independent Steelworkers Union by counsel, and thereup-

on in consideration of the matters offered in support of and in

opposition to Plaintiffs’ Motion for a Temporary Restraining

Order, Rule 65, Federal Rules of Civil Procedure, it is

ORDERED that said Motion for Temporary Restraining

Order be, and the same is hereby, DENIED for reasons ex-

pressed by the Court on the record.

It is further ORDERED that a Preliminary Injunction hear-

ing is scheduled in the above styled civil action for a day in the

week of April 25, 1983, a precise date to be ascertained by the

Court and communicated to counsel as far in advance of the

l4a

preliminary hearing date is possible, the Court being unable at

this time to establish a precise date for hearing Plaintiffs’

Motion for a Preliminary Injunction because of ongoing crimi-

nal jury trials.

ENTER: May 4th, 1983, as of April 13, 1983.

Robert E. Maxwell

United States District Judge

l5a

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF WEST VIRGINIA

Civil Action No. 83-0035-W

EUGENE R. SUTTON, et als.,

Plaintiffs

WEIRTON STEEL DIVISION OF NATIONAL

STEEL COPRORATION; INDEPENDENT STEEL

WORKERS UNION; PENSION AGREEMENT

BETWEEN THE NATIONAL STEEL CORPORATION

AND THE INDEPENDENT STEELWORKERS UNION,

Defendants.

Filed at U.S. District Court, Wheeling West Virginia

Thomas Strafford, Clerk

ORDER

On the 27th day of April, 1983, came all of the named parties

by counsel and thereupon the Court proceeded to consider all

matters presented in support of and in opposition to Plaintiffs

Motion for a Preliminary Injunction herein, and for the reasons

stated by the Court at the conclusion of the presentation of

evidence, supporting documents, affidavits and other plead-

ings by all parties, it is

ORDERED that Plaintiffs Motion for a Preliminary Injunc-

tion be, and the same is hereby, DENIED.

It is further ORDERED, in keeping with the oral motion

made by counel for plaintiffs at the outset of the Preliminary

Injunction hearing to file a First Amended Complaint herein,

that the said first amended complaint be, and the same if

hereby ORDERED filed and made a part of the above styled

civil action, said first amended complaint being offered for the

l6a

purpose of adding as a party defendant Pension Agreement

Between the National Steel Corporation and the Independent

Steelworkers Union as reflected in paragraph #173(a).

ENTER: May 4th, 1983, as of April 29, 1983.

Robert E. Maxwell

United States District Judge

I hereby certify that the annexed in instrument is a true and

correct copy of the orginal on file in my office, Attest: Thomas

F. Stafford, Clerk, U.S. District Court, Northern District of

West Virginia.

Sue O. Abraham

Deputy Clerk

17a

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF WEST VIRGINIA

Civil Action No. 83-0035-W

EUGENE R. SUTTON, et als.,

Plaintiffs

WEIRTON STEEL DIVISION OF NATIONAL

STEEL COPRORATION; et als,

Defendants.

Civil Action No. 83-0040-W

GERALD W. BRUNNNER et als.,

Plaintiffs

NATIONAL STEEL CORPORATION, et als,

Defendants.

U.S. DISTRICT COURT

FILED AT WHEELING, W. VA.

THOMAS F. STAFFORD

Clerk

MERMORANDUM OPINION AND ORDER

This litigation grows out of the activities in connection with a

proposed employee buy-out plan for the Weirton Steel Division

of National Steel Corporation. Defendant National Steel has

filed a motion for summary judgment and Plaintiffs in these

cases and in Dhayer, et al, v National Steel Coproration, et al.,

C.A. No. 83-36-W (N.D. W.Va. filed April 8, 1983) have filed a

motion to delay consideration of National's motion pursuant to

Rule 56(f), Federal Rules of Civil Procedure.

18a

The Court greatly appreciates the efforts of all counsel in the

exhaustive briefing of the issues presented.

The record in this litigation includes the pleadings and ex-

hibits thereto; various affidavits offered in support of as well as

in opposition to this motion and other previous motions; and

evidence adduced in the form of testimony and documents at

two hearings conducted on April 13, 1983, at the Elkins point of

holding court and on April 27-29, 1983, at the Wheeling point of

holding court. From these matters of record, the Court finds

the following facts are significant to the issues to be decided:

The Weirton Division of National Steel is the single largest

private sector employer in the State of West Virginia. At one

time, shortly after World War II, the Division had 16,000

workers, but the recent market for steel produced in the

United States has reduced employment to some 11,000 in 1980,

and about 7,000 currently.

In March, 1982 National Steel announced it would no longer

make significant capital investment in its Weirton Division

facilities, and that those facilities would be “downsized” over a

period of time with a resulting level of employment of 1,200 to

2,000 workers in the late 1980’s. The President of National

Steel indicated the announcement was not an attempt to win

labor cost concessions, but reflected the business decision of

National to place its investment capital in other areas. In

addition to National’s announced intention to downsize the

Weirton facilities, the options for the Division seemed to in-

clude finding a buyer or to devise a plan for an employee

buy-out. National’s management indicated a willingness to

explore either of these options.

On the day of National’s announcement, the International

Steelworkers Union announced its intention to work with

Weirton Division management to study the possibilities of

employee buy-out, and, if feasible, to open negotiations with

National Steel. The Weirton Joint Study Committee was incor-

porated to study the employee buy-out option and coordinate

related efforts. The Committee’s board of directors consists of

19a

five representatives of the Weirton Division management

team, twenty-one representatives of the Independent Guard

Union. Funds for the various activities of this Committee were

raised from the unions involved, community donations, grants

from the State of West Virginia, and other sources.

In April, 1982, after a competitive selection process, the

Joint Study Committee hired the consulting firm of McKinsey

& Co. to conduct a feasibility study on the economic viability of

an independent, employee-owned Weirton Steel company. In

July 1982, McKinsey & Co. released a report concluding that

such a venture could be successful, but only iflabor and produc-

tion costs were reduced and if substantial capital improve-

ments could be effected over a period of ten years.

The employee buy-out option preferred by the Joint Study

Committee and the one pursued included an Employee Stock

Ownership Plan (ESOP), which will allow the new employee

owned corporation to borrow funds to finance the sale from

National and permit employees who satify minimum hours of

work to earn shares of stock as initial loans are paid. An ESOP

presents an opportunity for significant tax savings for the

proposed company under the Internal Revenue Code.

As the employee buy-out plan progressed, the Joint Study

Commi:*tee hired other consultants to assist in formulating

various complex aspects of the procedure. These include the

law firm of Ludwig & Curtis, of San Francisco, to advise on the

structure of an ESOP; the law firm of Wilkie, Farr & Gal-

lagher, of New York, tc represent the Committee and the

proposed new corporation in negotiations with National Steel

regarding acquistion of the Weirton Division assets; the in-

vestment banking firm of Lazard Freres & Co., of New York,

to assist with all questions of finance; the accounting firm

Towers, Perrin, Foster & Crosby, of Pittsburgh, to conduct an

audit of National’s pension plans for Weirton Division employ-

ees. All of these consulting firms, and others involved in the

study, enjoy national or international reputations for expertise

in the fields for which they were hired.

20a

During the summer of 1983, the Independent Steelworkers

Union conducted elections which resulted in a new Union lead-

ership team, and by virtue thereof, new Union representation

on the Joint Study Committee. The former president of the

Union, Richard Arango, filed unfair labor practice charges

against National Steel and the Independent Steelworkers

Union with the National Labor Relations Board on April 5,

1983. The charges alleged representatives of the employer

(National Steel) have participated on a negotiating committee

which purports to represent bargaining unit employees in col-

lective bargaining negotiations with the employer. The Court

presumes the “negotiating committee” means the Joint Study

Committee, on which Arango formerly served as co-chairman

by virtue of his Union presidency. One of the Sutton plaintiffs,

William Willboughpy, served on the committee’s board of

directors until he was voted out of his Union office of Vice

Chairman, Tin Mill Division.

On March 11, 1983, National Steel and Wilkie, Farr & Gal-

lagher (the law firm hired to negotiate a sale of Weirton Divi-

sion assets for the Joint Study Committee) announced an

agreement in principle for the terms of sale from National to

Weirton Steel Corporation (the proposed employee-owned

company). The agreement has been amended by an addendum

announced April 8, 1983. During 1983, Wilkie, Farr & Gal-

lagher formed a “shell” corporation in the State of Delaware in

anticipation of the success of the employee buy-out venture.

In order to carry out the provisions of the agreement in

principle, as amended, and to implement the employee buy-

out, members of the Independent Steelworkers Union and the

Independent Guard Union must conduct an election to modify

existing collective bargaining agreements with National Steel.

Both the mechanisms of the employee buy-out and the implica-

tions of such a venture are extremely complex. In order to

inform union memberships of the various aspects of the propos-

al, the Joint Study Committee and its consultants have taken

steps to produce a “disclosure document” which they hope will

reveal all of the facts necessary to an understanding of the

2la

venture and its ramifications for the employees of the new

Weirton Steel company.

Should the employee buy-out be implemented, Weiton Steel

Corporation will succeed National Steels’s Weirton Division as

the largest private-sector employer in West Virginia. It will

also be one of the largest corporations in the United States and

the largest employee-owned corporation in the country. As all

the parties are aware, the venture (like any large corporate

undertaking) is not without risk. Consultants for the Joint

Study Committee believe success is possible, given certain

economic and social circumstances. However, it must be real-

ized that such expressions are only educated forecasts. Long

term success depends upon general economic trends, as well as

trends specifically involving markets for the products at the

Weirton facility.

For members of the Independent Steelworkers Union and

the Independent Guard Union, two personal choices must be

made before an employee-owned company can become a real-

ity. First, as mentioned earlier, a majority of the Union mem-

bers must decide to vote in favor of amendments to the existing

collective bargaining agreement which will reflect the terms of

sale from National to the New Weirton Steel company.

Second, each member must make a personal decision on

whether to become an employee of the new company. For some

workers, the second decision will be made more difficult be-

cause of the opportunity for immediate retirement from Na-

tional with totally predictable pension and other benefits for

the future. The terms of sale, as amended, include provisions

that employees meeting the chronological age and years of

service requirements, for some of the types of retirement in

the applicable pension plan, for some of the types of retirement

in the applicable pension plan, may elect to retire five days

after the union votes referred to above. Such decision to retire

will be effective as of April 30, 1983, a date before the transfer

of ownership, but a date set for accounting purposes.

All workers, whether they choose to work for the new com-

pany or not, will retain the pension benefits earned through

service with National Steel prior to the tranfer of ownership

(with the exception of certain “safety net” features to be dis-

cussed below) will be the responsibility of the new employee-

owned company. Plaintiffs express the concern that pension

rights earned after transfer to the new compnay will not be as

secure as those earned under National Steel, which has a

proven record of corporate stability.

Of course, the union members may decide not go forward

with the proposed employee buy-out and in such event the

underlying issues will be moot. While the alternative appears

to be massive unemployment in the tri-state community, the

workers may feel that the risks of a new steel production

venture in an uncertain market are too high. In short, the

ultimate decision on whether to go forward with the employee

buy-out rests with the members of the union through their

approval or disapproval of the terms of sale and other aspects

of the new venture.

STATEMENT OF THE ISSUES

This litigation focuses on the propriety of terms of sale

regarding pension and severance pay benefits for members of

the Independent Steelworkers Union. Amendments to exist-

ing pension and collective bargaining agreements must be

approved before a transfer of the Weirton Division from Na-

tional Steel to an employee-owned entity can be effected.

Defendant National Steel filed a proposed statement of the

issues and requested expeditious consideration of them. This

was followed by the instant motion for summary judgment.

Counsel for Plaintiffs in the Sutton case have also filed a

statement of the issues. The Court believes the issues pre-

sented by National's motion are fair statements of the major

claims of the complaint in Brunner and many of the claims in

Sutton, and those claims that should be decided before union

members are asked to vote on the proposed employee buy-out.

Not all of the issues raised in Sutton and Brunner are included

in the request for summary judgment, and, therefore, the

23a

Court views National's motion as a motion for partial summary

judgment. The remaining, less issues presented by the com-

plaints can be resolved through later proceedings.

As will be more carefully detailed below, the terms of sale

between National Steel and an employee-owned company spe-

cify that the transfer of ownership, without more, will neither

trigger entitlements to 70/80 retirements of Rule of 65 retire-

ments under the applicable pension plan nor establish sever-

ance allowance payments under the applicable collective

bargaining agreement. The terms also limit eligibility to 70/80

and Rule of 65 retirement after the transfer. The complaints in

Brunner and Sutton charge, inter alia, that the failure of the

transfer to trigger rights to these employee benefits violates

various provisions of the Employee Retirement Income Secu-

rity Act (ERISA), various other provisions of labor law, and

the terms of the applicable pension and collective bargaining

agreements. In general, the motion for summary judgment

presents the legal issue of whether the terms of sale, which are

proposed to amend existing pension and collective bargaining

agreements, deprive any Plaintiff of a right or benefit guaran-

teed by law.

From examination of the pleadings, the motion for summary

judgment, and other matters of record, the Court defines the

following two specific issues for resolution by this partial sum-

mary judgment proceeding:

1. Whether the terms of sale proposed to amend the Rule of

70/80,and Rule 65 retirement provisions of the pension agree-

ment between National Steel Corporation and the Indepen-

dent Steelworkers Union violates:

a. provisions of ERISA relating to prohibited trans-

actions;

b. provisions of ERISA relating to ficuciary duties im-

posed upon National Steel or the pension plan;

¢c. provisions of ERISA relating to vested accrued bene-

fits or non-forfeitable benefits;

24a

¢. provisions of the pension or collective bargaining

agreements, or

2. Whether the terms of sale proposed to amend severance

allowance provisions of the collective bargaining agreement

between National Steel Corporation and the Independent

Steelworkers Union violates:

a. provisions of ERISA relating to prohibited trans-

actions;

b. provisions of ERISA relating to fiduciary duties im-

posed upon National Steel;

¢c. provisions of ERISA relating to vested accrued bene-

fits or non-forfeitable benefits;

d. provisions of the collective bargaining -7reement, or

e. other provisions of labor law as specified in the com-

plaints.

As various points in the Brunner and Sutton complaints it is

alleged that National Steel and the Independent Steelworkers

Union acted in concert. Although the instant motion has been

propounded only be Defendant National Steel, the Court must

necessarily examine actions by the Union to reach the issues

persented.

It is important at this point to specify matters the Court does

not consider in its decision on the motion for partial summary

judgment. Several claims by the Plaintiffs have earlier been

resolved on motion to dismiss, and need not be further con-

sidered here. These include the claim that the Joint Study

Committee exceeded its corporate charter, as was alleged in

the Brunner complaint, and the claims that the actions of

Defendants violated the West Virginia Labor Management

Relations Act and other policies of the Government of West

Virginia, as alleged in the Sutton complaint.

In addition, as has previously been mentioned, Richard

Arango, who is not a party to this litigation, but who is repre-

sented by counsel who is represented by counsel who is also

25a

representing the Brunner. Plaintiff has filed unfair labor prac-

tice charges before the National Labor Relations Board

(NLRB). Several allegations charging violations of federal law

in the Brunner complaint at §§ 21, 36, and 43, and in the Sutton

complaint at §§ 210, etc., involve the same factual and legai

questions as have been presented to the NLRB in the above-

referenced unfair labor practices charges. The Court is of the

opinion that those claims which directly relate to the legality of

the Independent Steelworkers Union and the Independent

Guard Union joining forces with Weirton Division manage-

ment, through the Joint Study Committee, to negotiate terms

of the sale of the Weirton Steel Division to a proposed

employee-owned corporation should await a decision by the

NLRB, the administrative body having special competence in

this area.

Finally, the Court would note that this litigation has focus-

sed on the effects of the proposed sale on the Independent

Steelworkers Union and its members to the exclusion of mem-

bers of other unions and nonunion, salaried employees at the

Wierton Division of National. The answer of Defendant Union

in Sutton denies that all Plaintiffs in that civil action are actual-

ly members of the Union. That is a factual issue that must be

left for later resolution. This Opinion and Order will only affect

those Plaintiffs who are members of the Independent Steel-

workers Union who are production, maintenance, and hourly-

rated clerical employees. The litigation has also focussed on the

legality of the terms of sale which, if approved, will modify

terms of existing pension and collective bargaining agree-

ments to the exclusion of such terms of employment, compen-

sation, etc., for workers of the new employee-owned company

that may be negotiated by the Union and management repre-

sentatives of the proposed company.

ISSUES AFFECTING BOTH PENSION AND SEVERANCE

CLAIMS

The specific issues presented by the instant motion must be

decided in the context of an employer desiring to close a sub-

stantial portion of a major steelmaking plant and the employ-

ees taking steps to pursue an employee buy-out, with the

26a

support and aid of the community. There are some underlying

principles of law which will control the Court’s decision on both

the pension and severance allowance questions.

At the outset, the Court would note that unions are, and

should be, permitted to pursue unique procedures and mechan-

isms to avoid loss of employment for union members when

faced with crisis-type situations, such as an impending plant

closure. See United Steelworkers of America v. United States

Steel Corp., 492 F. Supp. 1, 9-10 (N.D. Ohio), affd in part,

rev'd in part, 631 F.2d 1264 (6th Cir. 1980). It has been held

that unions and employers in such circumstances may take

steps not contemplated in existing documents controlling nor-

mal labor relations. See Ekas v. Carling Nat'l Breweries, 602

F.2d 664, 666-667 (4th Cir. 1979), cert denied, 444 U.S. 1017

(1980). Indeed, the parties here are exploring relatively un-

charted waters. The employee buy-out, if approved and im-

plemented, apparently will result in the largest employee-

owned company in the nation.

All parties agree that the March 2, 1982, announcement by

National Steel that it would no longer invest in its Weirton

Division was not a ploy to coerce workers into giving labor cost

concessions. It was an economic decision by the corporation to

place its investment capital in other areas. It is further uncon-

troverted that National expressed willingness to explore an

employee buy-out or other option. (Bish Affidavit, Brunner

case, Paper 5, § 8); (Willoughby Affidavit, Sutton case, Paper

21, § 12); The Independent News, March 16, 1982, at 1 (Plain-

tiffs’ exhibit 10, hearing of April 27, 1983); Letter of Richard

Arango (Plaintiffs’ Exhibit 9, hearing of April 27, 1983). In

general, it would appear the employer and the employees took

appropriate positions and pursued appropriate activities in the

circumstances. Though not concerned with National’s econom-

ic decision to phase-out Weirton Division, employer and em-

ployees began to explore avenues to ameliroate the effects of

the decision. See generally, First National Maintenance

Corp. v. N.L.R.B., 452 U.S. 666 (1981).

27a

As earlier stated, the terms of sale at issue here must be

approved by a union vote as amendments to existing agree-

ments with the employer before they can be implemented.

There have been claims by Plaintiffs that it is unlawful to

modify in any way the employees rights created under an

existing agreement. (See, e.g., Sutton complaint at §§ 214,

219, 221; Brunner complaint, at § 48.) The collective bargain-

ing agreement (at Article XXI) contains provisions allowing

amendments and modifications. In addition, it is clearly per-

missible for union leadership to recommend to the membership

a modification to an existing agreement, See Ford Motor Co. v.

Huffman, 345 U.S. 330 (1953), even where the contract does

not provide for amendments. See Battle v. Clark Equipment

Co., 579 F.2d 1338, 1347 (7th Cir. 1978). Modifications to

existing contracts are frequently negotiated wher. the union is

faced with a plant closing or phase-out. Jd. and Ekas v. Carling

Nat. Breweries, supra, 602 F.2d at 666-67.

Further, it is not per se unlawful to modify prospective

pension or severance pay benfits, provided that no ERISA or

other labor law is violated by the change. See Fentron Indus-

tries v. Nat. Shopmen Pension Fund, 674 F.2d 1300, 1306 (9th

Cir. 1982). Nor is it impermissible to negotiate for changes in

such benefits when an employer announces a plant closing or

partial closing. N.L.R.B. v. North Carolina Coastal Motor

Lines, Inc., 542 F.2d 637, 638 (4th Cir. 1976).

It is the view of the Court that the issues of labor organiza-

tion law raised by these complaints boil down to whether the

Independent Steelworkers Union leadership’s acceptance of

the terms of sale, involving severance allowances and pension

benefits, as negotiated by the Joint Study Committee con-

sultants, and the expected Union recommendation to its mem-

bership that it vote in favor of the terms of sale, is a breach of

the Union’s duty of fair representation. (See Brunner com-

plaint at §§ 35-36, 45-48; Sutton complaint at §§ 200, 209-210,

212.)

It is well established that labor unions have a statutory duty

to fairly represent all employees in the bargaining unit in

28a

collective bargaining and enforcement of bargaining agree-

ments. The duty includes an obligation to serve all members

without discrimination and to exercise union discretion with

good faith and honesty, and to avoid arbitrary conduct. Vaca v.

Sipes, 386 U.S. 171, 177 (1967). The breach of such duty occurs

only when a union’s conduct is arbitrary, discriminatory, or in

bad faith. Jd. at 190.

On the basis of reasoning set forth below, the Court con-

cludes that the proposed amendments to the pension agree-

ment and to severance pay allowance provisions in the collec-

tive bargaining agreement violate neither ERISA nor the

terms of existing agreements. Therefore, it cannot be said that

the Union will act in bad faith in recommending the terms of

sale, with the amendments to said agreements, to its mem-

bership. Because the amendments apply to all Union members

equally (indeed, most amendments apparently will affect all

employees at National’s Weirton Division, whether Indepen-

dent Steelworkers members or not), it cannot be said that the

Union acted with discrimination toward any sub-group of the

membership. See generally, Ekas v. Carling Nat. Breweries,

Inc., supra, 602 F.2d 664.

There is no doubt that the Joint Study Committee is union-

dominated. (See Articles of Incorporation, Exhibit to Affidavit

of Walter Bish, Brunner case, Paper 5.) The evidence adduced

at the two hearings on preliminary injunctive relief earlier

conducted has impressed the Court with the quality and scope

of consulting firms employed by the Joint Study Committee. It

appears that each major step in the complex process or arrang-

ing for the proposed employee buy-out — feasibility, financing,

auditing existing labor costs, corporate structure, terms of

sale, etc., — has been entrusted to firms with national or

international repurtations. Testimony adduced indicates that

the Committee extensively relied on the work of the experts

hired. Plaintiffs have made no specific allegation that the deci-

sion to recommend the severance allowance and pension bene-

fit amendments was arbitrary, and, under the circumstances,

it would appear that such an allegation would be insubstantial.

29a

In conclusion, the Court is satisfied that the Union violated

no duty of fair representation with regard to severance allow-

ance and pension benefit amendments in the Sutton and Brun-

ner cases.

In addition, union fiduciary duties in regard to employee

welfare plan participants and beneficiaries arising under ER-

ISA or other federal labor law are not necessarily when union

leadership participates in negotiations for amendments to ex-

isting agreements and recommends the products of such

negotiations to union membership. See NLRB v. Amazx Coal

Co., 453 U.S. 322 (1981), Carr v. Learner, 457 F.2d 135 (1st

Cir. 1976). See generally, UMWA Health & Retirement Funds

v. Robinson, 455 U.S. 562 (1982). This Court is of the view that

this principle applies in the instant, unique situation when

agents negotiate with the employer on behalf of a union-

dominated committee.

PENSION BENEFIT ISSUES

Under the existing pension agreement between National

Steel and the Independent Steelworkers Union, there are

eight distinct types of retirement, of methods of determining

eligibility for a pension.' For normal retirement; 62/15 retire-

ment; 30-year retirement, and 60/15 retirement, the plan parti-

cipant becomes elibible simply through acheivement of certain

' National Steel Corporation maintains a pension plan (referred to in the

record as Plan 001) for all types of employees (union and non-union) at

various corporate facility locations including the Weirton Division. A copy of

the plan has been made part of the record in each case before the Court as

Exhibit A, Affidavit of John A. McCreary. The Independent Steelworkers

Union has negotiated a pension agreement for their members which provides

substantially the same benefits as Plan 001. A copy of this agreement has

been made a part of the record in each case as Plaintiffs’ Exhibit 4, hearing of

April 27, 1983. Unless the corporate plan is specifically mentioned, the Court

relies upon the language of the Union pension agreement for all purposes

having to do with this motion for summary judgment. Thus, whether the

Court refers to pension plan or pension agreement, reference is made to the

Union pension agreement.

30a

chronological age and years of service factors. Participants

with 15 years of service who become permanently in-

capacitated, as defined in the plan, are eligible for permanent

incapacity retirement. Persons with 10 years with 10 years of

service whose continuous service is broken for any reason are

elibible to receive a deferred vested pension after reaching age

62 or 65, depending on the particpant’s age at the time service

was broken. The remaining types of retirement, rule of 65

retirement and 70/70 retirement, are the subject of the pension

issues in this litigation. While age and years of service are

aspects included in determining eligibility, other factors are as

follows:

70/80 Retirement

2.6 Any particpant who has not attained the age of 62 years

and who shall have had least 15 years continous service

and (i) shall have attained the age of 55 years and whose

combined age and years of continuous service shall

equal 70 or more, or (ii) whose combined age and years

of continuous service shall equal 80 or more, and

(a) whose continuous service is broken by reason of a

permanent shutdown of a plant, department or sub-

division thereof or by reason of a layoff or physical

disability, or

(b) whose continuous service is not broken and who is

absent from work by reason of:

(1) a layoff resulting from his election to be placed on

layoff status pursuant ot the provisions of the Basic

Agreement applicable in the event of a permanent

shutdown, or

(2) a physical disability or a lavoff other than a layoff

reulting from an election referred to above and

whose return to active employment is declared

unlikely by the Company, or

(ec) whose continous service is not broken and who, while on

layoff status by reason of his election to be placed on

(d)

3la

such status pursuannt to the provision of the Basic

Agreement applicable in the event of a permanent shut-

down, accepts a job with the Company and, prior to the

expiration of 90 consecutive calenday days from the

first day worked on such job, elects to retire, or

who considers that it would be in his interest to retire,

and the Company considers that such retirement would

likewise be in its best interest and it approves an appli-

cation for retirement under mutually satisfactory con-

ditions,

shall be eligible to retire on or after July 31, 1980 and shall

upon his retirement (hereinafter “70/80 retirement”) be

eligible for a pension.

Rule-of-65 Retirement

2.6 Any participant (i) who shall have had at least 20 years

(a)

(b)

(ec)

(d)

of continous service as of his last day worked, (ii) who

had not attained the age of 55 years, and (iii) whose

combined age and years of continuous service shall

equal 65 or more but less than 80, and

whose continuous service is broken by reason of a layoff

or disability, or

whose continuous service is not broken and who is

absent from work by reason of a layoff status pursuant

to the privisions of the Basic Agreement applicable in

the event of a permanent shutdown, or

whose continuous service is broken and who is absent

from work by reason of a physical disability or a layoff

other than a layoff resulting from an election referred to

above and whose return to active employment is de-

clared unlikely by the Company, or

who considers that it would be in his interest to retire,

and the Company considers that such retirement would

32a

likewise be in its interest and it approves an application

for retirement under mutually satisfactory conditions,

and who has not been offered suitable long-term employ-

ment as difined in Appendix A, shall be eligible to retire on or

after July 31, 1980, and shall upon his retirement (hereinaf-

ter “rule-of-65 retirement”) be eligible for a pension; pro-

vided, however, that if at the time of application ofr retire-

ment the Company has not yet determined whether the

participant will be offered suitable long-term employment,

the participant will not be eligible to retire until the earlier of

the date on which the Company advises the participant that

he will not be offered suitable long-term employment or the

date on which the particpant occurs a break in continous

service.

In addition, among the provisions in the plan for calculating

the amount of pension under the various types of retirement,

increased pensions are described for 70/80 and rule of 65. With

certain exceptions, the monthly amount determined under the

regular rules is now increased by $400.00 for beneficiaries of

70/80 and rule of 65 retirement.

The terms of sale from National to the employee-owned

company will require a number of changes in the existing

pension agreement, However, no change will be affected that

will decrease @» accrued benefit as determined under the

existing plan, am National Steel shall remain liable for all

accrued benefits “earned” prior to the closing date. Under the

terms of sale, National will segregate the liabilities and assets

of the existing fund attributable to Weirton Division employ-

ees (the existing fund covers employees at other National Steel

Divisions in addition to Weirton) and establish a separate trust

fund and insurance contract which will only be available to pay

benefits to Weirton Division employees, including those

already retired, those transfering to the new company, and

those on layoff status.

Those employees of National Steel who remain working

under the new employee-owned company will, in effect, look to

33a

both National and the new company for pension benefits upon

retirement. The terms of sale provide a method of calculating

benefits payable by each company, which is based on an in-

dividual’s years of service with each employer.

Especially pertinent to this litigation are the terms which

modify the eligibility for 70/80 retirement and rule of 65 retire-

ment and the increased pension benefits for these types of

retirement. For transferred employees only (those who were

employees of National and who choose to become employees of

the new company), conditions giving rise to eligibility for 70/80

and rule of 65 retirement will be limited to a permanent shut-

down, as defined in existing pension and collective bargaining

aggreements, which occurs within five years of the transfer of

ownership date for accounting purposes (May 1, 1983). The

increased pension ($400 per month) will only be payable if a

permanent shutdown occurs. The terms of sale also require

that the pension and collective bargaining agreements be mod-

ified to reflect the fact that the sale and transfer of ownership

does not constitute a shutdown for purposes of pension or

retirement benefits or severance allowance. (Thus, the sale

and transfer of ownership, without more, will not trigger elibi-

bility to any of these benefit programs. )

The Court earlier stated that it is not per se unlawful to alter

a pension plan with respect to prospective benefits, provided

the change doesn’t violate other ERISA requirements. The

Court must now decide whether the amendments proposed to

70/80 retirement and rule of 65 retirement violate the Act’s

minimum requirements for vesting, accured benefits, or non-

forfeitablility.

In general terms, the labor law provisions of ERISA provide

a system of safeguards designed to strengthen private employ-

ee pension and welfare bemefot benefit plans. (The provisions

of ERISA made part of the Internal Revenue Code are gener-

ally not at issue here.) ERISA does not require an employer to

offer any type of benefit, but if it does so, the plan must comply

with the minimum requirement of the Act.

34a

With regard to pensions, ERISA imposes no obligation ona

plan to pay benefits before an employee reaches normal retire-

ment age. Any right to earlier benefits must be found in the

individual agreement. Fine v. Semet, 699 F.2d 1091, 1093 (11th

Cir. 1983) (citing Pompano v. Michael Schiayone & Sons, 680

F.2d 911 (2nd Cir.), cert. denied, U.S. , 74

L.Ed.2d 607 (1982). Under ERISA, normal retirement age

means the earlier of normal retirement age under the plan or

thelater of the time the participant attains age 65 or reaches

the 10th anniversary of participation in the plan. 29 U.S.C.

§ 1002(24). The plan is issue defines normal] retirement age as

65.

An accrued benefit is the interest in the plan to which a

participant has become entitled. AmJr.2d Pension Reform Act

§ 73 (1975). In the case of a defined plan, such as at issue here, it

means an individual's right to a retirement benefit determined

under the plan, expressed in the form of an annual benefit

starting at normal retirement age. 29 U.S.C. § 1002(23)(A)

(emphasis supplied). A non-forfeitable pension benefit or right

is a claim obtained by a participant or his beneficiary to that

part of an immediate or deferred benefit under a pension plan

which arises from the participant’s service, which is uncondi-

tional, and which is legally enforceable against the plan. 29

U.S.C. § 1002(19) (emphasis supplied). In sum, ERISA is de-

signed to protect plan benefits for normal age retirement

which are unconditional.

Accrued benefits under ERISA do not include such things as

conditional benefits, permiums for medical and life insurance

payable as a lump sum, or the value of the right to receive early

retirement benefits. See H.R. Report No. 93-807, 93rd Cong.,

2d Sess. , reprinted in 1974 U.S. Code, Cong. & Ad.

News 4670, 4726. Am. Jur. 2d Pension Reform Act § 73 (1975).

See generally, Petrella v. NL Industries, 529 F. Supp. 1357,

1365-1366 (D.N.J. 1982). These are ancillary benefits which

may be amended or deleted without violating ERISA. /d.

35a

An examination of the eligibility requirements for 70/80 and

rule of 654 retirement reveals they are conditional and in the

nature of early retirement benefits and cannot be considered

non-forfeitable or as an accrued benefit. Capocci v. General

Motos Corp., 44 F. Supp. 1306, 1307-1308 (D. Hawaii 1978).

Since the increased $400.00 per month pension payment is

conditional upon eligbility for 70/80 or rule of 65 retirement, it

cannot be considered non-forfeitable. The Court has con-

sidered the potential applicability of 29 U.S.C. § 1056(a) and

finds that it does not require a contrary mandate on the issues

raised here.

Under ERISA, “vesting” is a term that is tied to the term

“accrued benefit.” To prevent any possible misunderstanding

of the Court’s language in the previous paragraph, the pro-

posed terms of sale with regard to 70/80 and rule of 65 retire-

ment and the increased pension payments thereunder do not

violate any minimum vesting standards under ERISA. This is

because the terms of sale affecting pensions do not disturb the

normal retirement benefit or the deferred vested pension

benefit, See 29 U.S.C. § 1053, and since the terms of sale

provide that all accrued benefits shall become vested upon

transfer of ownership. See 26 U.S.C. s411(d)(8).

In short, Congress did not intend to impose upon a plan a

requirement that any benefits be payable before reaching age

65 or the normal retirement age 965 in this case) under the

plan. Riley v. MEBA Pension Trust, 452 F.Supp. 117, 120

(S.D.N.Y.) aff'd, 586 F.2d 968 (2nd Cir. 1978).

Plaintiffs in the Sutton litigation also allege Defendants have

failed to provide sufficient information about the proposed

amendments and thus allege a violation of ERISA. The Court

is unable to find any provision of the Act that would mandate an

employer ot supply information regarding amendments before

the amendments are effected. 29 U.S.C. §§ 1022, 1024 See 29

C.F.R. §§ 2520.104b-3 and -4. Further, it appears uncon-

troverted that each member of the Independent Steelworkers

Union was supplied with a copy of the agreement in principle

setting forth the terms of sale (including those proposed ot

36a

amend pension agreements) prior to the Plaintiff also claim

amendments to the pension plan violate the basic terms of the

agreement itself. The corporate plan document includes addi-

tional administrative provisions beyond those included in the

Union pension agreement. Those provisions include, in Section

VIII, National’s power to amend or modify the program within

certain bounds not applicable here. (The Court presumes the

section on amendments is part of the pension agreement appli-

cable to Union members. In any case, all pension plans subject

to ERISA must include a provision for plan amendment. 29

U.S.C. § 1102(b).) The current collective bargaining agree-

ment also provides for amendments in Article XXI.

Plaintiffs allegation that the amendments violate the plan

itself would seem to assume that all provisions in the agree-

ment are “written in stone,” and never subject to change. Such

is not sound law. See generally, UMWA Health & Retirement

Funds v. Robinson, 455 U.S. 562 (1982). As the Court under-

stands, a proposed amendment would only violate the lan-

guage of the agreement when a particular individual's uncon-

ditioned rights are affected (or the amendment is unreason-

able). Rochester Corp. v. Rochester, 450 F.2d 118 (4th Cir.

1971). In other contexts, but in cases arising under ERISA,

the Supreme Court has said, “it is the claim to the benefit

rather than the benefit itself that must be ‘unconditional’ and

‘legally enforceable against the plan’” Alessi v. Raybestor-

Manhattan, Inc., 451 U.S. 504, 512 (1981). Nachman Corp. v.

P.B.G.C., 446 U.S. 359, 371 (1980). Since the Court has earlier

found that any rights a particular Plaintiff might have under

70/80 and rule of 65 retirement are contingent and conditional,

it must also find that a proposed amendment to the provisions

for these types of retirement do not violate the terms of the

agreement itself.

Further, the proposed changes must be seen as reasonable.

They are proposed in the context of an anticipated change in

ownership where the majority of active workers will immedi-

ately become employees of the new owner. Since a “shutdown”

of National’s Weirton Division is not anticipated, in any sense,

37a

it is reasonable to propose amendments which would clarify

existing language regarding shutdown and suitable long-term

employment. The present eligibility for 70/80 and rule of 65

retirement conditions also include such things as layoff, dis-

ability, and other matters involving the discretion of the em-

ployer. Since the amendments proposed only affect a situation

that would arise after a transfer of ownership, the Court must

find that eliminating such conditions are reasonable since they

are properly the concern of the relationship between the new

employer and the employee. (Indeed, it is uncontroverted that

it is presently the plan of the Union to demand substantially the

same pension benefits as presently exist from the new employ-

er.)

Plaintiffs have not directed the Court’s attention to any

provision of the collective bargaining agreement which would

preclude any amendments, or the specifically proposed amend-

ment, to the pension agreement. The Court perceives no

aspect of the collective bargaining agreement which would bar

pension agreement modifications. Therefore, the terms of.sale

that propose to amend the pension agreement do not violate

the terms of the collective bargaining agreeemet between Na-

tional Steel and the Independent Steelworkers Union.

The terms of sale negotiated on behalf of the Joint Study

Committee include what has been labelled by counsel as a

“safety net” feature. In effect, National will continue to offer

its former employees 70/80 and rule of 65 retirements if, and

only if, the new company should suffer a shutdown of sub-

stantially all of its facilities within five years of the closing or

transfer date. National Steel was not required to extend this

“safety net” feature of its former employees under ERISA.

This is merely a term of sale negotiators acting for the Joint

Study Committee were able to extract from National Steel on

behalf of those employees who will transfer employment to the

new company.

Plaintiffs contend that the terms of sale, if carried out, will

result in a prohibited transaction an a violation of fiduciary

38a

duties under ERISA. (Brunner Complaint §§ 14, 16, 17, 30;

Sutton Complaint §§ 186, 211.)

These allegations appear to have several bases. First, one of

the Plaintiffs in Sutton asserts that the sole motivation of

National Steel in desiring to divest “obligations” to employees.

(Affidabit of Willoughby, Sutton case, Paper 21.) This allega-

tion is also made in the Brunner complaint at § 17. This asser-

tion is contrary to other evidence offered by Plaintiffs in sever-

al respects. (See, e.g., Letter of Richard Arango, Plaintiffs’

Exhibit 9, hearing of April 27, 1983; The Independent News,

March 16, 1982, at 1, Plaintiffs’ Exhibit 10, hearing of April 27,

1983; Proposals for Acquistion from National Steel, etc., at

Section III, Exhibit to amended complaint in Sutton, Paper 11;

National Steel Corporation Affadavit of Willoughby dated

June 28, 1983.) )

Second, Plaintiffs assert that “vested inchoate pension bene-

fits” are being “sold” or constitute part of the sale proposed

between National Steel and a new company. (See, e.g., Sutton

case, Paper 22 at § 3.) This assertion is directly contrary to

other evidence offered by Plaintiffs. The terms of sale pro-

posed in the agreement in principle announced March 11, 1983,

clearly indicate that all assets and liabilities of National Steel’s

pension that affect any former or present, Weirton Division

employee will be segregated and transferred to a separate

trust, fund, and/or insurance contract, which will be available

only to pay benefits to Weirton Division employees. No

“vested inchoate pension benefits” will be sold by National to

anyone. The Court recognizes that pension issues are a factor

considered by all parties to the proposed sale (See pension

calculations audit by Towers, Perrin, Forster & Crosby at 1,

Plaintiffs’ Exhibit 23, hearing of April 27, 1983.), but no pen-

sion “obligations” are being transferred from National Steel to

the new employee-owned company.

Grant of summary judgment is precluded where there is a

genuine dispute as to material facts in issue, even where the

assertions of the opposing party are fantastic or highly improb-

39a

able. Arnestein v. Porter, 154 F.2d 464 (2nd Cir. 1946). Here, it

is the opinion of the Court that the two sets of allegation set

forth above do not preclude summary judgment. The asser-

tions with regard to Nationa! Steel’s motivations for divesti-

ture are not disputed since there is only ‘a conflict in the

evidence offered by Plaintiffs. No Defendant has offered a

factual basis for National’s motivation. The assertions with

regard to a sale of “vested inchoate pension benefits” is in

conflict with credible and uncontroverted facts and must be

viewed as a mistake or a frivolous assertion designed merely to

avoid summary judgment. See Fed. Proc., L.Ed. § 62P550

(1981). A rational interpretation of the evidence presented by

Plaintiffs concerning National’s motivation would be that

avoiding furture pension obligations to employees of the Weir-

ton Division was one of the factors motivating National Steel to

consider “downsizing” or divesting the Division. In deciding

the prohibited transaction and fiduciary duty questions, how-

ever, the Court will assume that avoiding future pension

obligations was the sole motivation of National, as alleged by

Plaintiffs. The Court does not find that any vested pension

rights or benefits are being sold.

A third basis for the allegations of prohibited transaction or

fiduciary duty violations appears to be the earlier mentioned

fear of some Plaintiffs that some pension rights “earned” after

transfer to the new company will not be as secure as those

“earned” after transter to the new company will not be as

secure as those “earned” under National Steel. (Affidavit of

Willoughby, Sutton case, Paper 21, at §§ 7-9.) (Certain pension

benefits earned or accrued as an employee of the new company

will be insured by Pension Benefit Guaranty Corporation,

although the Court recognizes that some ancillary benefits are

not insured.)

A fourth basis for the allegations appear to be the assertion

that National Steel has not acted solely in the interests of

pension plan beneficiaries and participants. (See, e.g., Brun-

ner complaint at § 45; Sutton complaint at § 186.)

40a

Plan fiduciaries must discharge duties with respect to an

employee benefit plan solely in the interests of plan partici-

pants and beneficiaries. 29 U.S.C. § 1104. The fiduciary must

act for the exclusive purpose of providing benefits to benefici-

aries and must conduct the affairs of the plan with the care,

skill, prudence, and diligence under the circumstances that a

prudent man would use. Further the fiduciary must diversify

the plan in vestments so as to minimize the risk of large losses,

and must act in accordance with the documents and instru-

ments governing the plan insofar as they are consistent with

law. Id. In addition to the general fiduciary standards set forth

in § 1104, certain specific rules relating to defined prohibited

transactions are contained in 29 U.S.C. § 1106. A fiduciary is

not permitted to have the plan engage in certain direct or

indirect transactions with a party in interest. A plan fiduciary

is also not permitted to deal with plan assets in his own in-

terest, on behalf of persons whose interests are adverse to the

interests of the plan, or receive any personal consideration as a

result of plan transactions. /d.

According to the terms of the pension agreement, it is clear

that National Steel, as plan administrator, is a fiduciary and

must carry out duties with regard to plan management in

accordance with the fiduciary standards set forth above. An

examination of the more extensive corporate plan document

together with the Union pension agreement reveals that cer-

tain designated National employees administer the plan with

respect to payment of benefits, etc., but that the plan is fi-

nanced through contributions to a trust fund managed and held

by a separate entity.

It is th opinion of the Court that the duties with regard to

prohibited transactions apply directly to activities affecting

the fiscal assets of the plan funds. In other words, for the

provisions of 29 U.S.C. § 1106 to apply, there must be a

transaction involving the monies, property, or other assets of

the fund. See Donovan v. Bierwirth, 680 F.2d 263, 270 (2nd

Cir. 1982), cert. denied, ___ U.S. —_, 103 S.Ct. 488 (1983).

This notion flows from the very language of the statute itself

4la

(“A fiduciary ... shall not cause the plan to engage in a

transaction. . . , etc.) andis supported by the legislative histo-

ry. See H.R. Conf. Rep. No. 93-1280, 93rd Cong., 2d Sess.,

—_., reprinted in 1974 U.S. Code, Cong. & Ad. News, 5038,

5087-5089.

The segregation of National Steel pension fund assets relat-

ing to Weirton Division employees for transfer to a separate

trust account, as contemplated in the terms of sale, is not the

type of transaction, in the Court’s judgment, which would

invoke 29 U.S.C. § 1106. The Court earlier concluded that the

assets of a pension fund were not being sold in any manner and

neither the assets nor the liabilities of the National Steel pen-

sion fund were being transferred to the new company. The

Court now finds that the terms of sale under consideration do

not require a pension fund to conduct any transaction, prohi-

bited or not prohibited, such as would implicate 29 U.S.C.

§ 1106.

It would appear that Congressional intent with regard to the

more general fiduciary duties of 29 U.S.C. § 1104 also focussed

on activities affecting the fiscal assets of the plan. See H.R.

Rep. No. 93-533, 93rd Cong., 2d Sess., ___., reprinted in 1974

U.S. Code Cong. & Ad. News, 4639, 4659; S. Rep. No. 93-127,

98rd Cong., 2d Sess., __., ___., Reprinted in 1974 U.S. Code

Cong. & Ad. News, 4838, 4847 and 4864-4865. However, some

federal courts have expanded the expression of fiduciary duty

beyond transactions involving pension fund assets. Without

making a decision which would have predecential value in this

jurisdiction, it is the opinion of the Court that this hearing on

motion for summary jedgment requires acceptance of a liberal

view of ficuciary duties under § 1104 thus giving Plaintiffs’

opposition to the motion the broadest possible consideration.

The dichotomy between Congressional intent and judicial

treatment aside, it is firmly established that the standards for

review of fiduciary action when a § 1104 violation is alleged is

whether the action is arbitrary and capricious. See, e.g., Fen-

tron Industries v. Nat. Shopmen Pension Fund, 674 F.2d

1300, 1307 (9th Cir. 1982). Therefore, a violation of § 1104

42a

fiduciary standards must be based on a showing of bad faith or

some other indicia of arbitrary and capricious action. Jd. and

Schulist v. Blue Cross of Iowa, 553 F. Supp. 248 (N.D. II.

1982).

The Court’s earlier finding that the proposed amendments to

the pension agreement, inherent in the terms of sale, do not

violate ERISA’s vesting and non-forfeitability provisions pre-

cludes any contention that a fiduciary duty was breached on

the basis that some pension “obligation” will be limited or

forfeited if the terms of sale are approved. Petrella v. NL

Industries, supra, 529 F. Supp. at 1366-1367. Cf. Brug v.

Pension of Carpenters, etc., 669 F.2d 570, 574-576 (9th Cir.),

cert. denied, ___ U.S. ___, 74 L. Ed.2d 116 (1982) (amending

pension eligibility retroactively violates fiduciary duty on facts

presented).

Beyond this. the remaining contentions are that a fiduciary

duty may have been violated because avoiding prospective

pension obligations motivated National Steel; that pension

rights “earned” under employment with the new company may

not be as secure as those “earned” under National Steel, and

that National Steel has not acted solely in the interests of

pension plan beneficiaries and participants.

The Court believes that ERISA cannot be perceived as

requiring federal courts to weigh the potential success of one

company as opposed to another when divestiture of a plant

through sale to another entity is proposed. Plaintiffs’ search

for security of pension benefits to be earned in the future is

something that is not contemplated by ERISA (beyond insur-

ing certain minimal benefits protected by the Pension Benefit

Guaranty Corporation).

Plaintiffs’ contentions that fiduciary duties are violated be-

cause National was motivated to avoid prospective pension

benefits, and that National has not acted solely in the interests

of pension plan beneficiaries and participants suffer two fatal

defects. First, embracing Plaintiffs’ theory in toto would pre-

clude any company offering pension benefits from amending

43a

the plan in such a way as to limit or eliminate provisions for

benefits that are not vested or accrued. As stated before, such

is not the state of the law.

Second, Plaintiffs’ theory requires a view that every corpo-

rate decision arguably affecting pension benefits must be made

solely in the interests of pension plan beneficiaries and partici-

pants. In the context of a decision which limits or eliminates

prospective, conditional pension benefits, not required by the

vesting and non-forfeitability provisions of ERISA, such is not

the case.

The pension agreement specifies that National Steel is the

plan administrator and trustee of the pension plan. A “dual

loyalty” inherently exists when the employer (which is natural-

ly interested in keeping its costs for pension benefits at a

minimum) also acts as administrator or trustee of a pension

plan. However, ERISA contemplates and approves of such an

arrangement in certain circumstances by providing that one

may serve as a fiduciary in addition to being an officer, agent or

other representative of an employer. 29 U.S.C. § 1108(c)(3).

See Donovan v. Bierwirth, 538 F. Supp. 463, 468 (E.D.N.Y.

1981), affd as modified (on other grounds) 680 F.2d 263 (2nd

Cir. 1982), cert. denied, ___ U.S. —__, 103 S. Ct. 488 (1983).

Flinchbaugh v. Chicago Pneumatic Tool Co., 531 F. Supp. 110

(W.D. Pa. 1982). When acting on behalf of the pension fund,

there is no doubt that a fiduciary having such “dual loyalty”

must act solely to benefit participants and beneficiaries. How-

ever, itt is the Court’s opinion here that when a corporate

employer negotiates the terms of sale of a division, whose

employees are participants in a pension plan, the negotiations

that affect the terms and conditions of future pension benefits

(at least those that are not protected by ERISA’s vesting and

non-forfeitability provisions), do not implicate fiduciary duties

as to the pension fund. Such negotiations are distinct from

actually administering a plan and conducting transactions

affecting the monies and property of the plan’s fund. In other

words, the mere fact that a company has named itself as

pension plan administrator or trustee does not restrict it from

44a

persuing reasonable business behavior in negotiations con-

cerning pension benefits not otherwise affected by the require-

ments of ERISA. See N.L.R.B. v. Amax Coal Co., 453 U.S.

322, 333 n. 16 (1981). When the terms of the pension agreement

are negotiated by a labor organization and the employer and

ultimately controlled by a collectively bargainined agreement,

as here, the distinction between administering the pension

program (under a fidiciary duty) and creating or amending the

program through negotiations is even more clear. Se UMWA

Health & Retirement Funds v. Robinson, 455 U.S. 562 (1982).*

Even if a fiduciary duty were to be imposed on a corporate

employer in such a situation, the Court would have to find that

no duty was violated here. The Court earlier concluded that

the proposed amendments do not deprive any Plaintiff of a

vested or non-forfeitable benefit. The Court also concluded the

amendments proposed are reasonable under the circum-

stances. Finally, the Court would conclude that since all em-

ployees of the Weirton Division (not just those covered by the

pension agreement at issue) would be equally affected by the

proposed changes, there is no discrimination. On the facts

presented here, the action of National Steel in negotiation the

terms of sale that affect ancillary pension benefits was neither

arbitary or capricious, nor has there been a showing of bad

faith.

In conclusion, the Court finds that the terms of sale proposed

to amend the 70/80 and rule of 65 retirement provisions of the

pension agreement between National Steel and the Indepen-

? As earlier mentioned, the corporate pension agreement specifies that the

pension plan is administered by a committee of designated National employ-

ees and that most of the assets of the plan are held by a trust fund, managed

and held by a separate entity. It has occurred to the Court that since the

mr actually administering the pension fund may not be at all involved in

for the sale of the Weirton Division, no breach of fiduciary

rae under 29 U.S.C. § 1104 would arise because of a division of labor within

the corporation. However, the issues before the Court were framed to test

National’s participation in the events surrounding the proposed sale as a

corporate entity.

45a

dent Steelworkers Union do not violate provisions of ERISA

relating to vesting, accrued benefits, or non-forfeitability; do

not violate provisions of ERISA relating to prohibited trans-

actions; do not violate provisions of ERISA relating to fiducia-

ry duties imposed upon National Steel or the pension plan, and

od not violate provisions of the existing pension or collective

bargaining agreements. The Court earlier found that the

terms of sale do not violate other provisions of labor law.

SEVERANCE PAY ISSUES

The current collective bargaining agreement between Na-

tional Steel Corporation, Weirton Steel Division, and Defend-

ant Union and its members who are production, maintenance,

and hourly-rated plant clerical employees includes a provision

for severance pay. In brief, a severance allowance is payable to

employees who have accumulated three or more years of serv-

ice when the company permanently closes a department or

substantial portion thereof and the employment of individuals

is terminated, either directly or indirectly, as a result of the

department closure. There are exceptions to the severance

allowance if the employee accepts an offer of a job in another

department or is offered a job of the same job class in the same

department or requests a lower job class job in the same

department, etc. Payment of severance benefits in certain

circumstances may affect other benefits from the company.

(E.g., Payment of severance allowance may be deducted from

pension benefits.)

In the Brunner complaint, it is alleged that the agreement

that the sale of Weirton Division to a newly-formed, employee-

owned corporation will not trigger Defendant National Steel’s

obligation to make severance payments to employees is either

a breach of Defendant Union’s fiduciary obligations or duty of

fair representation. (Complaint §§ 44, 45, 46.) The amended

complaint in the Sutton matter does not mention severance pay

until the prayer for relief. It is therefore difficult, perhaps

impossible, to determine the basis for challenge in that civil

action. Based upon the pleadings, the motion for summary

46a

judgment under consideration, and other matters of record,

the severance pay issue may be properly stated as follows:

Whether a sale by an existing employer to another employer,

without more, should trigger an obligation of the existing

employer to pay severance benefits. Since both the Brunner

and Sutton complaints state rather sweeping allegations of

violations of ERISA, the Court will consider the issue both as

to ERISA and the labor law duties of unions.

In general, a severance allowance is payment by an employ-

er to an employee on termination of the employee’s employ-

ment. Black’s Law Dictionary, 1232 (5th Ed. 1979). Such pay-

ment is beyond wages and is usually designed to ease the

employee’s financial burdens while looking for a new job. See

Owens v. Press Publishing Co., 20 N.J. 537, 120 A.2d 442

91956).

Though not a retirement benefit, severance pay does come

within the reach of ERISA as an “employee welfare benefit

plan.” 29 U.S.C. §§ 1002(1) (citing 29 U.S.C. § 186 and the

benefits described therein), 1002(2)(B). Though the “vesting”

provisions of ERISA (which mainly apply to pension plans) do

not apply, other protective provisions of ERISA do apply, such

as the safeguards against discrimination, 29 U.S.C. § 1140,

and violation of fiduciary duties, 29 U.S.C. § 1104. Calhoun v.

Flastaff Brewing Co., 478 F. Supp. 357 (E.D. Mo. 1979).

Federal courts frequently look to the contract language of

severance pay benefits as a guide in determining whether

violations have occurred. See, e.g., Donnelly v. Aetna Life Ins.

Co., 465 F. Supp. 696 (E.D. Pa. 1979).

Unlike some severance pay provisions in collective bargain-

ing agreements, the one at issue here does not set forth a

purpose. Instead, Article XIV of the collective bargaining

agreement merely sets forth conditions, eligibility, methods of

determining the allowance, and other adminitrative provi-

sions. However, one can easily determine that the benefit is

designed to aid those whose employment is terminated.

Both the Brunner and Sutton actions challenge the proposed

terms of sale between National Steel and a new employee-

47a

owned corporation. Thus the issue here is limited to whether

the sale, without more, should trigger severance benefits. The

Court is satisfied that the proposal to amend the severance

benefit provisions of the collective bargaining agreement to

preclude payment of severance allowances solely on the basis

of the transfer of ownership violates neither ERISA nor the

terms of the agreement as currently written. Simply put, the

fundamental bases for this benefit are not necessarily put into

play by such a transfer; namely, the permanent closure of a

department or substantial portion thereof, and the termination

of employment as a direct or indirect result.

The testimony adduced at hearings thus far and several of

the documents submitted as exhibits lead the Court to believe

that all, or a substantial majority of all, the active employees of

National’s Weirton Steel Division will be offered an opportun-

ity to go to work for the proposed employee-owned company.

It can be said with certainty that any employee of National

Steel who becomes employed by the new employer following

the transition of ownership is not entitled to a severance allow-

ance under the contract or under ERISA. Pinto v. Zenith

Radio Corp., 480 F. Supp. 361 (N.D. Ill. 1979), aff'd, 618 F.2d

110 (7th Cir. 1980) (table). Also, the agreement in principle

containing the terms of sale from National Steel states that

National will remain !jable for outstanding and unrevealed

severance pay claims. fo say that any present employee of

National at Weirton, either active or on layoff, will have a valid

severance allowance claim that will be denied is purely specula-

tive and it cannot be said that the existing Plaintiffs in Sutton

and Brunner would be proper parties to such claims.

In large measure, the reasoning of the Court with regard to

prohibited transactions and other fiduciary duties of National

Steel under ERISA for pension benefit issues apply equally to

severance pay issues. Because no activity affecting the fiscal

assets of a welfare benefit plan is implicated with the proposed

amendments to severance allowance provisions in the agree-

ment, 29 U.S.C. § 1106 (prohibited transactions) cannot apply.

Indeed, the funding requirements of ERISA do not even apply

48a

to employee welfare benefits plans such as a severance pay

benefit, 29 U.S.C. § 1081, and there is no “fund” or group of

assets subject to the prohibited transaction provisions. Be-

cause severance pay benefits are not subject to ERISA’s visit-

ing and non-forfeitability requirements, there can be no breach

of fiduciary duty on the part of any party for proposing a limit

to such benefits on the basis that some “vested” right is cur-

tailed. The distinction between a corporate fiduciary duty

when administering a benefit plan and corporate activities in

connection with negotiating changes in a benefit plan which

were enunciated with regard to pension issues is applicable to

this discussion of severance pay benefits. Therefore, there has

been no violation of an ERISA-based fiduciary duty with re-

gard to the proposed severance pay amendment.

In conclusion, the Court finds that the terms of sale proposed

to amend the severance allowance provisions of the collective

bargaining agreement between National Steel and the Inde-

pendent Steelworkers Union do not violate provisions of ER-

ISA relating to vested, accrued benefits or non-forfeitability;

do not violate provisions of ERISA relating to prohibited

transactions; do not violate provisions of ERISA relating to

fiduciary duties, and do not violate provisions of the existing

collective bargaining agreement. The Court earlier found that

the terms of sale do not violate other provisions of labor law.

THE MOTION TO DELAY CONSIDERATION

The Counsel for Plaintiffs in these cases have filed a motion

to delay consideration of National’s motion for (partial) sum-

mary judgment until further discovery is completed.

Because the ruling of the Court is limited to issues surround-

ing the agreement in principle, as amended, which announced

the terms of sale between National and a proposed company;

and because the Court, for purposes of this Opinion and Order,

has considered Plaintiffs’ characterization of National’s

motivation for sale of the Weirton Division as true, there is no

need to delay a ruling on the issues as framed. Therefore,

Plaintiffs’ motion will be denied in part.

49a

There are other issues raised by the complaints not reached

herein. These include claims that additional pension supple-

ments have been given to certain employees upon demand, but

denied to Plaintiffs (Sutton complaint § 190), that Defendant

Independent Steelworkers Union has acted through unlawful-

ly elected officers (Sutton complaint § 210), and the earlier

mentioned claims embodied in charges of unfair labor practices

pending before the NLRB. As to the remaining issues, further

discovery may be necessary. Provided the discovery is accom-

plished within the framework established by the Federal Rules

of Civil Procedure and the Local Rules of this Court, Plaintiffs’

motion will be granted in part.

ORDER

The foregoing constitutes the Court’s findings of fact and

conclusions of law pursuant to Rule 52(a), Federal Rules of

Civil Procedure. Upon the reasoning and conclusions herein, it

ORDERED that the motion of Defendant National Steel

Corporation for partial summary judgment on the issues ear-

lier delineated is GRANTED. It is further

ORDERED that the motion of Plaintiffs’ to delay considera-

tion of National’s motion for summary judgment is DENIED in

part, and GRANTED in part, as earlier delineated.

Additionally, there are many other issues raised and sug-

gested by the complaints in Brunner and Sutton which are not

resolved to date. The Court will look to counsel for the various

parties to begin proceedings which will mature these matters

for speedy disposition.

ENTER: July 8th, 1983.

/s/

United States District Judge

50a

I hereby certify that the annexed instrument is a true and

correct copy of the original on file in my office. Attest: Thomas

F. Stafford, Clerk, U.S. District Court, Northern District of

West Virginia.

By:

Clerk of the Court

5la

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF WEST VIRGINIA

Civil Action No. 83-0035-W

EUGENE R. SUTTON, et als.,

Plaintiffs

WEIRTON STEEL DIVISION OF NATIONAL

STEEL COPRORATION; et ais,

Defendants.

Civil Action No. 83-0040-W

GERALD W. BRUNNNER et als.,

Plaintiffs

NATIONAL STEEL CORPORATION, et als,

Defendants.

U.S. DISTRICT COURT

FIELD AT WHEELING, W. VA.

Sep. 6, 1983

THOMAS F.. STAFFORD

Clerk

ORDER OF CORRECTION

To correct certain errors occurring in the Memorandum

Opinion and Order dated July 8, 1983, which was entered in

these civil actions, it is

52a

ORDERED that:

(1) On Page 16, the first typewritten characters on the

page be changed from 70/70 retirement to 70/80 retirement.

(2) On Page 19, in the second full paragraph appearing on

the page, the word “bemefot” be deleted completely.

(3) On Page 24, the last line in the second full paragraph

appearing on the page, Affidavit of Willoughby dated June 28, °

1983), be changed to news release dated March 2, and excerpt

from 1982 Annual Report, Exhibits to Affidavit of Willoughby

dated June 28, 1983, Sutton case, Paper 29A).

ENTER: September lst, 1983.

/s/

United States District Judge

I hereby certify that the annexed instrument is a true and

coorect copy of the original on file in my office. Attest: Thomas

F. Stafford, Clerk, U.S. District Court, Northern District of

West Virginia.

By:

Deputy Clerk

53a

APPENDIX C

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF WEST VIRGINIA

CIVIL ACTION NO. 80-0036-W

EDWARD DHAYER, et als,

Petitioners,

Vv.

WEIRTON STEEL DIVISION OF NATIONAL STEEL CORPORATION;

and INDEPENDENT STEELWORKERS UNION,

Defendants.

U.S. DISTRICT COURT

FILED AT WHEELING, W. VA.

SEP. 12 1983

THOMAS F’., STAFFORD

Clerk

Received 9/13/83

MEMORANDUM OPINION AND ORDER

This civil action concerns Defendant National Steel’s Weir-

ton Division (National) and activities in connection with a

proposed employee buy-out plan. Although there are quite a

few actions on this Court’s docket having some factual connec-

tion with the proposed employee buy-out plan, this civil action

has moved in procedural tandem with two other actions filed

within weeks of this action. They are Sutton, et al. v. National

Steel, et al., C.A. No. 83-35-W (filed March 30, 1983) and

Brunner, et al. v. National Steel, et al., C.A. No. 83-40-W

(filed Apr. 13, 1983). The Plaintiffs in both Brunner and Sutton

are members of the International Steelworkers Union (Union).

It appears that all Plaintiffs in this action are salaried employ-

ees at Weirton Division, and are not Union members. These

54a

three civil actions largely concern employee benefit plan ques-

tions — severance pay and early retirement pensions.

Pending before the Court are a motion to dismiss filed by

Defendant Union, an amended motion for summary judgment

propounded by Defendant National, and a motion to defer

ruling filed by Plaintiffs.

The record in this action includes the pleadings and exhibits

thereto, and various affidavits offered in support of and in

opposition to these motions. Believing that case law develop-

ing the common law principles of judicial notice and Rule 201,

Federal Rules of Evidence, authorizes, indeed, mandates

such, the Court will also consider testimony and exhibits

adduced at hearings conducted on April 13, 1983, at Elkins,

and on April 27-29, at Wheeling, in the earlier-mentioned

companion matters, Brunner and Sutton. See Kinnett Dairies

v. Farrow, 580 F.2d 1260, 1277 n. 33 (5th Cir. 1978). From

these matters of record, the Court finds the following facts are

significant to the issues to be decided:

The Weirton Division of National Steel is the single largest

private sector employer in the State of West Virginia. At one

time, shortly after World War II, the Division had 16,000

workers, but the recent market for steel produced in the

United States has reduced employment to some 11,000 in 1980,

and about 7,000 currently.

In March, 1982, National Steel announced it would no longer

make significant capital investment in its Weirton Division

facilities, and that those facilities would be “downsized” over a

period of time with a resulting level of employment of 1,200 to

2,000 workers in the late 1980’s. The President of National

Steel indicated the announcement was not an attempt to win

labor cost concessions, but reflected the business decision of

National to place its investment capital in other areas. In

addition to National’s announced intention to downsize the

Weirton facilities, the options for the Division seemed to in-

clude finding a buyer for the Weirton mill who would be in-

terested in future steel production or to devise a plan for an

55a

employee buy-out. National’s management indicated a willing-

ness to explore either of these options.

On the day of National’s announcement, the International

Steelworkers Union announced its intention to work with

Weirton Division management to study the possibilities of

employee buy-out, and, if feasible, to open negotiations with

National Steel. The Weirton Joint Study Committee was incor-

porated to study the employee buy-out option and coordinated

related efforts. The Committee’s board of directors consists of

five representatives of the Weirton Division management

team, twenty-one representatives of the International Steel-

workers Union, and three representatives of the Independent

Guard Union. Funds for the various activities of this Commit-

tee were raised from the unions involved, community dona-

tions, grants from the State of West Virginia, and other

sources.

In April, 1982, after a competitive selection process, the

Joint Study Committee hired the consulting firm of McKinsey

& Co. to conduct a feasibility study on the economic viability of

an independent, employee-owned Weirton Steel company. In

July, 1982, McKinsey & Co. released a report concluding that

such a venture could be successful, but only if labor and produc-

tion costs were reduced and if substantial capital improve-

ments could be effected over a period of ten years.

The employee buy-out option preferred by the Joint Study

Committee and the one pursued includes an Employee Stock

Ownership Plan (ESOP), which will allow the new employee-

owned corporation to borrow funds to finance the sale from

National and permit employees who satisfy minimum hours of

work to earn shares of stock as initial loans are paid. An ESOP

presents an opportunity for significant tax savings for the

proposed company under the Internal Revenue Code.

As the employee buy-out plan progressed, the Joint Study

Committee hired other consultants to assist in formulating

various complex aspects of the procedure. These include the

law firm of Ludwig & Curtis, of San Francisco, to advise on the

56a

structure of an ESOP; the law firm of Wilkie, Farr & Gal-

lagher, of New York, to represent the Committee and the

proposed new corporation in negotiations with National Steel

regarding acquisition of the Weirton Division assets; the in-

vestment banking firm of Lazard Freres & Co., of New York,

to assist with all questions of finance; the accounting firm of

Towers, Perrin, Foster & Crosby, of Pittsburgh, to conduct an

audit of National’s pension plans for Weirton Division employ-

ees. All of these consulting firms, and others involved in the

study, enjoy national or international reputations for expertise

in the fields for which they were hired.

On March 11, 1983, National Steel and Wilkie, Farr & Gal-

lagher (the law firm hired to negotiate a sale of weirton division

assets for the Joint Study Committee) announced an agree-

ment in principle for the terms of sale from National to Weirton

Steel Corporation (the proposed employee-owned company).

The agreement has been amended by an addendum announced

April 8, 1983. During 1983, Wilkie, Farr & Gallagher formed a

“shell” corporation in the State of Delaware in anticipation of

the success of the employee buy-out venture.

Should the employee buy-out be implemented, Weirton

Steel Corporation will succeed National Steel’s Weirton Divi-

sion as the largest private-sector employer in West Virginia. It

will also be one of the largest corporations in the United States

and the largest employee-owned corporation in the country. As

all the parties are aware, the venture (like any large corporate

undertaking) is not without risk. Consultants for the Joint

Study Committee believe success is possible, given certain

economic and social circumstances. However, it is realized that

such expressions are only educated forecasts. Long term suc-

cess depends upon the general economic trends, as well as

trends specifically involving markets for the products pro-

duced at the Weirton facility.

In order to carry out the provisions of the agreement in

principle, as amended, and to implement the employee buy-

out, members of the Independent Steelworkers Union and the

57a

Independent Guard Union must conduct an election, now

scheduled for a day certain, to modify existing collective

bargaining agreements with National Steel. Both the mechan-

isms of the employee buy-out and the implications of such a

venture are extremely complex. In order to inform union mem-

berships of the various aspects of the proposal, the Joint Study

Committee and its consultants have produced a “disclosure

document” which they urge reveals all of the facts necessary to

an understanding of the venture and its ramifications for the

employees of the new Weirton Steel company.

Testimony adduced at hearings thus far and several of the

documents submitted as exhibits lead the Court to believe that

all, or a substantial majority of all, the active employees of

National’s Weirton Steel Division will be offered an opportun-

ity to work for the proposed employee-owned company. It is

recognized that the McKinsey & Co. feasibility study has rec-

ommended reductions in the entire work force, and con-

siderable reductions in salaried workers to more closely match

the manpower ratios of competing steel manufacturers; how-

ever, it is the Court’s understanding that the reductions are to

be reached through natural attrition.

Should the members of the two unions vote to approve

proposed collective bargaining agreemerit modifications, each

Weirton employee — union and non-union — will then make

another important decision: whether to go to work for the new

company. For some, this decision will be made more difficult

because of the opportunity for immediate retirement from

National with totally predictable pension and other benefits for

the future. The terms of sale, as amended, include provisions

that employees meeting the chronological age and years of

service requirements for some of the types of retirement in the

applicable pension plan may elect to retire five days after the

union votes referred to above. Such election to retire will be

effective as of April 30, 1983, one day before May 1, 1983, the

accounting date established to be effective date of transfer of

ownership.

58a

All workers, whether they choose to work for the new com-

pany or not, will retain the pension benefits earned through

service with National Steel prior to the transfer of ownership.

Pension rights earned and accrued after the transfer of own-

ership (with the exception of certain “safety net” features to be

discussed below) will be the responsibility of the new

employee-owned company. Plaintiffs express the concern that

pension rights earned after transfer to the new company will

not be as secure as those earned under National, which has a

proven record of corporate stability.

The pension plan for salaried, non-union employees at Na-

tional Steel’s Weirton Division is referred to in the record as

National Steel Corporation Retirement Program, or Plan 001.

(Exhibit A, attached to the Affidavit, dated May 31, 1983, of

John A. McCreary, in support of National’s Motion for Sum-

mary Judgment.) In limited circumstances, salaried, non-

union Weirton Division employees may receive severance pay

upon separation from employment with National. National’s

severance benefits provisions are set forth in the Weirton

Division policy on termination of exempt salaried employees.

(Exhibit A, attached to the affidavit of John A. McCreary,

given June 21, 1983.)

STATEMENT OF THE ISSUES

This litigation focuses on the propriety of terms of sale

regarding pension and severance pay benefits for salaries

Weirton Division employees, who are not union members.

Defendant National Steel filed a proposed statement of the

issues and requested expeditious consideration of them. This

was followed by the motion for summary judgment, as

amended. Counsel for Plaintiffs have also filed a statement of

the issues. The Court believes the issues presented by Nation-

al’s motion are fair statements of the major claims of the

complaint, however, not every issue raised in the complaint is

included within the motion for summary judgment. Therefore,

the Court views National’s motion as a motion for partial

summary judgment. In contrast, the Court views Defendant

59a

Union’s motion to dismiss as one requesting complete relief (as

to the Union).

In general, the motion for summary judgment presents the

legal issue of whether the terms of sale, which are proposed to

amend existing pension or other emplyee welfare benefit

plans, deprive any Plaintiff of a right or benefit buaranteed by

law. The terms of sale (the earlier-mentioned agreement in

principle announced March 11, and amended April 8, 1983)

specify that the transfer of ownership, without more, will

neither trigger entitlements to 70/80 or rule of 65 retirement

under the applicable pension plan nor establish the basis for

severance allowance payments. The terms also limit eligibility

to 70/80 and rule of 65 retirements after the transfer.

The complaint charges the amendments that will be made in

accordance with the terms of sale violate various provisions of

the Employee Retirem

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