Petition for Writ of Certiorari — United States Can Co. v. International Ass'n of Machinists & Aerospace Workers

Supreme Court brief1990

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No. CLERK 4

IN THE

Supreme Court of The United States

OCTOBER TERM, 1989

UNITED STATES CAN COMPANY,

a Georgia Corporation, CONTINENTAL

BEVERAGE PACKAGING, INC.,

a Delaware Corporation,

Petitioners,

INTERNATIONAL ASSOCIATION OF

MACHINISTS & AEROSPACE WORKERS, ef ai.

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF WISCONSIN

Ropy P. BIGGERT ROBERT A. CHRISTENSEN*

CHARLES C. JACKSON* STANLEY S. JASPAN

CARSON P. VEACH SUSAN R. MAISA

SEYFARTH, SHAW, FAIR- FOLEY & LARDNER

WEATHER & GERALDSON 777 East Wisconsin Avenue

55 East Monroe Street Milwaukee, WI 53202-5367

Chicago, IL 60603 (414) 271-2400

(312) 346-8000 ;

Attorneys for Petitioners Attorneys for Petitioner

United States Can Company Continental Beverage

Packaging. Inc.

*Counsel of Record

QUESTION PRESENTED

Does Section 301 of the Labor-Management Relations Act pre-

empt state-law, non-substantive remedies—even if characterized

as “nonnegotiable’’—invoked by a party to a collective bargaining

agreement to prevent anticipated violations of the contract?

STATEMENT REQUIRED BY RULE 28.1

United States Can Company is a wholly owned subsidiary of

Inter-American Packaging, Inc., a privately held corporation,

and is Inter-American Packaging, Inc.’s only subsidiary. United

States Can Company has no subsidiary companies. Inter-Ameri-

can Packaging, Inc. and United States Can Company do not have

any affiliate corporations. G.P. Acquisition Company, Inc. and its

wholly-owned subsidiary CCC Series 200, Inc., formerly affiliates

of Inter-American Packaging, no longer exist as corporate enti-

ties, having been merged into United States Can Company.

Continental Beverage Packaging, Inc., the company formerly

known as Continental Can Company, USA, Inc., is a wholly-

owned subsidiary of Continental Can Company, Inc. which, in

turn, is a wholly-owned subsidiary of Kiewit Continental Inc.

Kiewit Continental Inc. is a wholly-owned subsidiary of Kiewit

Holdings Group, Inc. which, in turn, is a wholly-owned subsidi-

ary of Kiewit U.S. Co. Kiewit U.S. Co. is a wholly-owned sub-

sidiary of Peter Kiewit and Sons’, Inc. Other United States affili-

ates (except for under 10% affiliates) are CWC Leasing, Inc.,

Continental Can Leasing, Inc. and Unicon Producing Company.

In addition, Kiewit Continental Inc. is a shareholder or partner

in numerous foreign companies which are engaged in the pack-

aging business outside the United States.

ill

TABLE OF CONTENTS

Page

en i

STATEMENT REQUIRED BY RULE 28.1 .......... ii

se ene iil

| s.r iV

ra l

ree 2

te 8. 2

ope yo! 3

REASONS FOR GRANTING THE WRIT........... 7

I. The Wisconsin Supreme Court’s Decision Con-

flicts With Prior Decisions Of This Court And

Pertinent Decisions Of The Federal Courts of

ere ee eee 8

II. Prompt Resolution Of This Conflict Is A Matter

Of Great National Importance .............. 13

hae pO G06 kc ene casas en canesas 16

APPENDIX

Decision of Wisconsin Supreme Court ............ 1A

Certification of the Wisconsin Court of Appeals .... 33A

Decision of Circuit Court of Racine County ....... 34A

TABLE OF AUTHORITIES Page

CASES:

Air Line Pilots Association y UAL Corp., 874 F.2d

Ga re ae PN do WC vdaneeeecenaebeusan< 9, 10

A/S Kreditt Finans vy. Cia Venetico De Navegacion,

560 F. Supp. 705 (E.D. Pa. 1983), aff'd, 729 F.2d

oe | eres Serr ere 14

Allis-Chaimers Corp. v. Lueck, 471 U.S. 262 (1985) . passim

Baldracchi v. Pratt & Whitney Aircraft Division, 814

F.2d 102 (2d Cir. 1987), cert. denied, 108 S. Ct.

SI a ee oe i ee es 9, 10

Belknap, Inc. v. Hale, 463 U.S. 491 (1983) ....... 2

Blumenthal v. Blumenthal, 303 Mass. 275, 21

a Chadha uence 464080 14

Brown v. Keystone Consolidated Industries, Inc., 680

T. Rae GUE Ge SOU ka ca nn cnccieces 13

Caterpillar v. Williams, 482 U.S. 386 (1987) .... 5, 6, 8, 9, 13

Clark v. Rossow, 134 Ariz. 490, 657 P.2d 903 (Ct.

EE Ga aa eee ek aier ce ek thes Coda 14

Deford v. Soo Line R.R., 867 F.2d 1080 (8th Cir.),

cert. denied, 109 S. Ct. 3265 (1989) ........ o 4 25, t& 3

Electrical Workers v. Hechler, 481 U.S. 851 (1987) . 9,11

Fall River Dyeing & Finishing Corp. v. NLRB, 482

Se EN Sc SubacaaGa va kas eee hanks. 8

Franchise Tax Board v. Construction Laborers Vaca-

Se FOU, Ge aes © RCSD 6 666s hia OA eR K bas 9

Gibson v. AT&T Technologies, Inc., 782 F.2d 686

(7th Cir.), cert. denied, 477 U.S. 905 (1986) .... 13

Howard Johnson Co. v. Detroit Local Joint Executive

Board, Hotel and Restaurant Employees, 417 U.S.

PE a Wan Sheed neck ehe ssid aakas uses 7,8

International Association of Machinists & Aerospace

Workers v. United States Can Co., 150 Wis. 2d

479, 441 N.W.2d 710 (1989) ................. passim

Page

Jackson v. Liguid Carbonic Corp., 863 F. 2d 111 (lst

Cir. 1988), cert. denied, 109 S. Ct. 3158 (1989) .. 13

Lever Bros. Co. v. International Chemical Workers

Union, 554 F.2d 115 (4th Cir. 1976)........... 8

Lingle v. Norge Division of Magic Chef, Inc., 108 S.

oe pli, Peery Serpe erry Try 9, 10, 11, 12, 13

Local 1266, International Association of Machinists

v. Panoramic Corp., 668 F.2d 276 (7th Cir. 1981). 8

Lueck v. Aetna Life Insurance Co., 116 Wis. 2d 559,

342 N.W.2d 699 (1984), rev'd, 471 U.S. 202

CRIs 5 sn eek twee heesnsetualteacenenenees 10

Milne Employees Association v. Sun Carriers, 714 F.

Supp. 1028 (N.D. Cal. 1989) ...........-.555. 13

Newberry v. Pacific Racing Association, 854 F.2d

tf. fs Paper yrs or re 13

Railway Labor Executives Association v. Pittsburgh

& Lake Erie R.R., 858 F.2d 936 (3d Cir. 1988) . 11

San Diego Building Trades Council v. Garmon, 359

is @: 7... Fee ee et ee 8

Serrano v. Jones & Laughlin Steel Co., LTV Corp.,

790 F.2d 1279 (6th Cir. 1986) ................ 8

Teamsters v. Lucas Flour Co., 369 U.S. 95 (1962). . 8

Terwilliger vy. Greyhound Lines, Inc., 1989 WL

ee Geen Se a ois bs sa ca ea ceeeeueaiss 12

United Food and Commercial Workers, Local 626 v.

Kroger Co., 778 F.2d 1171 (6th Cir. 1985), cert.

Gente, ‘GFP Ui. Bae Cae « kiana sch acnecin ces x

United Paperworkers International Union v. Misco,

a ei, rer er ere rey etre re 14

United States v. Tabor Court Realty Corp. 803 F.2d

1288, 1297 (3d Cir. 1986), cert. denied sub nom.,

McClellan Realty Co. v. United States, 483 U.S.

SCENE ho cb cncnnks Cepaen ee rakae ta 14

United Steelworkers of America v. Warrior & Gulf

Navigation Co., 363 U.S. 574 (1960)... 2.2.0...

Wells v. General Motors Corp., 881 F.2d 166 (Sth

REDS CCL SA KW US SAREE S VERS OER Cie

STATUTES:

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Uniform Fraudulent Conveyance Act, Wis. Stat.

§ 242 et seg. (1985-86), repealed and recreated,

Uniform Fraudulent Transfer Act, Wis. Stat.

ey I Ns eee ka ham kha ck obec

OTHER AUTHORITIES:

Leveraged Buyout Market Survey, Mergers & Acqui-

sitions (May/June 1989) ....................

Page

> NM NM

passim

NO.

IN THE

Supreme Court of The United States

OCTOBER TERM, 1989

UNITED STATES CAN COMPANY,

a Georgia Corporation, CONTINENTAL

BEVERAGE PACKAGING, INC.,

a Delaware Corporation,

Petitioners,

INTERNATIONAL ASSOCIATION OF

MACHINISTS & AEROSPACE WORKERS, et ai,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE SUPREME COURT OF WISCONSIN

OPINIONS BELOW

This petition seeks review of the majority (4-3) opinion and

judgment of the Supreme Court of Wisconsin which, with the

dissenting opinion, are reported as /nternational Association of

Machinists & Aerospace Workers v. United States Can Co., 150

Wis. 2d 479, 441 N.W.2d 710 (1989), and are reproduced in the

appendix to the petition (1A-32A). The certification of impor-

tance of the Wisconsin Court of Appeals is unreported and is

reproduced in the appendix (33A-39A). The opinion of the Cir-

cuit Court for Racine County is unreported and is reproduced in

the appendix (40A-44A).

JURISDICTION

The decision of the Wisconsin Supreme Court issued on June

27, 1989. This petition is therefore timely under 28 U.S.C.

§ 2101(c). Jurisdiction of this Court is invoked under 28 U.S.C.

§ 1257(a). The decision below is final in that it finally disposed of

the federal preemption issue. Bel/knap, Inc. v. Hale, 463 U.S. 491,

497-98 n.5 (1983).

STATUTORY PROVISIONS

Section 301(a) of the Labor-Management Relations Act

(“LMRA”), 29 U.S.C. § 185(a), provides as follows:

Suits for violation of contracts between an employer and

a labor organization representing employees in an industry

affecting commerce as defined in this chapter, or between

any such labor organizations, may be brought in any district

court of the United States having jurisdiction of the parties,

without respect to the amount in controversy or without

regard to the citizenship of the parties.

The pertinent provisions of the Wisconsin Fraudulent Convey-

ance Act (Wis. Stat. § 242 et seg. (1985-86), repealed and recreat-

ed by Uniform Fraudulent Transfer Act, Wis. Stat. § 242 et seq.

(1987-88) are:

242.01(3) “Creditor” is a person having any claim, wheth-

er matured or unmatured, liquidated or unliquidated, abso-

lute, fixed or contingent.

242.04 Contract producing insolvency, fraudulent. Every

conveyance made and every obligation incurred by a person

who is or will be thereby rendered insolvent is fraudulent as

to creditors without regard to his actual intent if the convey-

ance is made or the obligation is incurred without a fair

consideration.

242.05 Other specifications of legal fraud. Every convey-

ance made without fair consideration when the person mak-

ing t is engaged or is about to engage in a business or trans-

action for which the property remaining in his hands after

the conveyance is an unreasonably small capital, is fraudu-

lent as to creditors and as to other persons who become

creditors during the continuance of such business or trans-

action without regard to his actual intent.

242.07 Fraud in fact. Every conveyance made and every

obligation incurred with actual intent, as distinguished from

intent presumed in law, to hinder, delay or defraud either

present or future creditors, is fraudulent as to both present

and future creditors.

STATEMENT OF THE CASE

As respondents IAM and its local unions (“IAM”) argued

below,! this case presents issues of “far-reaching significance in

the fields of labor law [here, LMRA Section 301] and fraudulent

conveyance law” (IAM Br. at 2). Specifically, it raises the ques-

tion whether state laws—which provide remedies (characterized

as “nonnegotiable”) but no substantive rights—may be invoked

by a party to a collective bargaining agreement to block a lever-

aged buyout because it is anticipated that the transaction will

fraudulently violate rights grounded in the labor agreement. The

Wisconsin Supreme Court's resolution of this question conflicts

with controlling decisions of this Court and pertinent decisions

of the First, Sixth, Seventh and Eighth Circuits.

Respondent IAM filed suit on June 3, 1987 in the Wisconsin

Circuit Court, Racine County. The complaint alleged that U.S.

Can in the spring of 1987 agreed to buy the general packaging

division of Continental in a leveraged buyout which would be

accomplished by pledging the assets of the packaging division to

'The piaintiffs below and respondents in this Court are the Interna-

tional Association of Machinists & Aerospace Workers, [AM Locals

437 and 710, and IAM Districts 10 and 172. Suit was brought by these

labor unions on behalf of themselves and as authorized representatives

of all IAM employees of United States Can Company, Continental Can

Company, CCC Series 200, Inc., Inter-American Packaging, Inc. and

GP Acquisition Company, Inc.

various lenders and unreasonably encumbering these assets with

sixty-five million dollars of debt. Declining to pursue available

federal labor law remedies (see infra note 3), the IAM instead

claimed that it and its members located at facilities in both Wis-

consin and Illinois were ‘“‘creditors” of U.S. Can and Continental

‘under the collective bargaining agreements” for purposes of sec-

tion 242.01(3) of the Wisconsin fraudulent conveyance statute “‘in

the approximate amount of $19,950,000.” See R. 2, § 3; App.

14A-16A. The complaint alleges that this:

indebtedness is comprised of matured as well as unmatured

claims over the life of plaintiffs’ current collective bargaining

agreement for wages, vacation pay, sick leave pay, life,

health and accident insurance, pension contributions, and

other employee benefits, as well as claims asserted in various

grievance and arbitration proceedings, a// owed to the em-

ployees pursuant to the collective bargaining agreement.

See R. 2, © 3 (emphasis added). Additional indebtedness directly

to the IAM was claimed pursuant to the dues check-off and other

provisions of the agreement. Jd. § 4. As relief, the complaint

requested an order declaring the transaction “fraudulent” and

enjoining its completion. Jd. at p. 27. The companies interposed

various defenses, including that the IAM’s claims were

preempted by LMRA Section 30! and Sections 7, 8 and 10 of the

Nationai Labor Relations Act, 29 U.S.C. §§ 157-58 and 160. R.

3, © 30; R. 6, © 30.

On July 24, 1987 the Circuit Court of Racine County granted

the joint motion of the companies “on the pleadings”’ to dismiss

the complaint. The trial court reasoned that the I[AM’s “undeni-

able basis for being in court” is the collective bargaining agree-

ment and that whatever rights the unions had as “‘creditors”’

derived completely from that agreement. Therefore, any state-law

claim brought on that “creditor” status must be pre-empted by

LMRA Section 301. See App. 5A, 42A. Following this Court’s

decisions in A/lis-Chalmers Corp. v. Lueck, 471 U.S. 202 (1985),

and Caterpillar, inc. v. Williams, 482 U.S. 386 (1987), the trial

court also rejected the IAM’s contention that it was merely as-

serting “independent” rights under the Wisconsin fraudulent con-

veyance act. The IAM’s characterization “‘does not change the

nature of the animal. The animal is still protection of rights guar-

anteed by the collective bargaining agreement.”’ See App. 43A.

The IAM appealed to the Wisconsin Court of Appeals and,

because this “case presents a potential conflict between federal

labor law and state policy as expressed by the [Wisconsin] legis-

lature’’ and “‘[t]he decision will have statewide, as well as nation-

wide, impact on mergers and acquisitions,” that court in turn

certified the following question to the Wisconsin Supreme Court:

‘Whether an action under the Uniform Fraudulent Conveyance

Act, ch. 242, Stats., is preempted by Sec. 301 of the Labor Man-

agement Relations Act when brought by a union and employees

against an employer.” See App. 2A, 35A, 39A.?

Four justices of the Wisconsin Supreme Court, notwithstand-

ing their reversal in Allis-Chalmers Corp., insisted that state-law

remedies are available for violations of collective bargaining

agreements and held that Section 301 did not preempt this action.

The Wisconsin Court acknowledged this Court’s directive in Cat-

erpillar, 482 U.S. at 400, that ‘Section 301 governs claims found-

ed directly on rights created by collective bargaining agreements,

and also claims ‘substantially dependent on analysis of a collec-

tive bargaining agreement.’ ’’ (emphasis added). See App. 10A.

Nonetheless, it ruled that Caterpillar did not apply to this state

law action to enforce the agreements here because substantial

interpretation was not required. The Court held that Wisconsin’s

fraudulent conveyance remedies—although not “‘substantive” but

?The Wisconsin Supreme Court also took on certification a separate

order which denied the [AM’s request to set aside the original dismissal.

Because it concluded that the complaint was improperly dismissed, the

Supreme Court did not consider that separate order in rendering its

decision. See App. 2A, n.1.

simply ‘“‘remed|[ies] to assist in the satisfaction of .. . substantive

claim[s]”—were ‘“‘nonnegotiable.”” Accordingly, such remedies

could never be pre-empted because, the Court believed, such “‘re-

medial” rights ‘are significant ones in the panoply of most states’

arsenals against those who would defraud creditors.” See App.

~14A-16A, 19A.

The Wisconsin Supreme Court also refused to hold the fraud-

ulent conveyance claims pre-empted even though the IAM’s

“creditor status’’ undeniably had its “genesis” in the ““employer-

employee status, which is defined by one or more collective bar-

gaining agreements.” The Court believed that ‘“‘whether that sta-

tus arose as the result of obligations to them under the collective

bargaining agreement is immaterial. It is the [creditor] status that

counts, not its origin.”’ See App. 4A, 14A, 21A. In this regard,

the Wisconsin Court expressly rejected the majority opinion in

Deford v. Soo Line R.R., 867 F.2d 1080 (8th Cir.), cert. denied,

109 S. Ct. 3265 (1989), which had, less than five months before,

held that an action to declare the transfer of assets pursuant to a

leveraged buyout fraudulent under the Minnesota Uniform

Fraudulent Transfer Act was pre-empted by the Railway Labor

Act.

In their dissent, Justices Ceci, Callow and Steinmetz were “‘at

a loss to undersiand how the majority could conclude [that the

complaint was not preempted by Section 301]. See App. 23A.

Fearing that “applying state law rules of contract interpretation”

would needlessly complicate and disrupt the “negotiation and

administration of collective bargaining agreements,” the dissent

emphasized that “the debts the unions are seeking to secure exist

solely because of the collective bargaining agreement.” See App.

23A-24A, 25A. Under Caterpillar and the Eighth Circuit’s deci-

sion in Deford, the fraudulent conveyance claims could not be

“separate” or independent because a determination of the IAM’s

claims, including “‘claims asserted in various grievance and arbi-

tration proceedings,” would “uxdoubtedly force the court io

construe the meaning and impact of the numerous provisions of

the collective bargaining agreement in light of the provisions and

definitions of the Uniform Fraudulent Conveyance Act.” Thus,

“the companies’ liability [“‘not just damages’’] under state law is

decided by reference to the collective bargaining agreement.”’ See

App. 25A, 27A, 28A & n.1 (emphasis in original).

REASONS FOR GRANTING THE WRIT

This case presents the question whether state-law claims which

are purely remedial and provide no “‘substantive’’ rights may be

invoked by a party to a collective-bargaining agreement to block

a sale of a business in order to prevent an allegedly fraudulent

violation of the agreement. The majority opinion of the Wisconsin

Supreme Court is contrary to an entire line of decisions by this

Court holding that Section 301 pre-empts state law claims seeking

to enforce rights contained in a collective bargaining agreement.

The Wisconsin Supreme Court also created a direct conflict with

the decision of the United States Court of Appeals for the Eighth

Circuit in Deford, as well as with decisions of the First, Sixth and

Seventh Circuits.

Prompt resolution of these conflicts is a matter of fundamental

importance. Until reversed or set aside, the Wisconsin Supreme

Court’s decision will needlessly inhibit and complicate the nego-

tiation and enforcement of innumerable collective bargaining

agreements. Under the Wisconsin Court’s holding, parties to such

agreements now have the option? of invoking state-law remedies

‘Absent this state-law enforcement mechanism, the Wisconsin Court

seemed to assume the IAM would be remediless. This assumption is

entirely misplaced. Under Section 301, a labor union fearing the conse-

quences of a sale of business may in appropriate circumstances invoke

arbitration, Howard Johnson Co. v. Detroit Local Joint Executive Board,

Hotel and Restaurant Employees, 417 U.S. 249 (1974), or may seek a

“status quo” injunction to determine the rights of the parties and pro-

tect the interests of workers under collective bargaining agreements. See

(Footnote continued on following page)

and needlessly complicating the otherwise orderly resolution of

routine disputes through negotiation, administration and enforce-

ment of labor contracts, to say nothing of disputes involving

leveraged buyouts where millions of dollars are commonly at

stake.

I. The Wisconsin Supreme Court’s Decision Conflicts With

Prior Decisions Of This Court And Pertinent Decisions Of

The Federal Courts Of Appeals.

This case is fundamentally a state-law action to enforce rights

under collective bargaining agreements. But this Court has con-

sistently held that ‘* ‘[s]tate law does not exist as an independent

source of private rights to enforce [such] contracts.’ ’’ Caterpillar,

482 U.S. at 394 (emphasis added). This is because “‘substantive

principles of federal labor law must be paramount in the area

covered by the statute.”’ Teamsters v. Lucas Flour Co., 369 U.S.

95, 103 (1962). Resort to state law is prohibited because “‘[t]he

(Footnote continued from previous page)

Howard Johnson, 417 U.S. at 258 n.3; Local 1266, International Associ-

ation of Machinists v. Panoramic Corp., 668 F.2d 276 (7th Cir. 1981)

(affirming preliminary injunction restraining completion of sale of cor-

porate assets pending a decision by an arbitrator on IAM’s claim that

sale violated applicable collective bargaining agreement to prevent

“frustration of arbitration” as required by Section 301). Accord United

Food and Commercial Workers, Local 626 v. Kroger Co., 778 F.2d 1171

(6th Cir. 1985), cert. denied, 479 U.S. 815 (1986) (recognizing right to

seek status quo injunction pending sale of stores under Section 301 but

denying relief on facts of case); Lever Bros. Co. v. International Chemi-

cal Workers Union, 554 F.2d 115 (4th Cir. 1976) (enjoining plant relo-

cation pending arbitration under Section 301).

Further, it can be an unfair labor practice for the purchasing entity to

refuse to bargain with the incumbent union or to hand it a fait accompli

as to working conditions. E.g., Fall River Dyeing & Finishing Corp. v.

NLRB, 482 U.S. 27 (1987) (requiring bargaining by successor employ-

er); Serrano vy. Jones & Laughlin Steel Co., LTV Corp., 790 F.2d 1279

(6th Cir. 1986) (holding that, under guidelines of San Diego Building

Trades Council v. Garmon, 359 U.S. 236 (1959), state-law fraud claims

related to closure of plant are preempted by National Labor Relations

Act).

possibility that individual contract terms might have different

meanings under state and federal law would inevitably exert a

disruptive influence upon both the negotiation and administration

of collective agreements.”’ Jd. Accordingly, “the pre-emptive

force of § 301 is so powerful as to displace entirely any state cause

of action ‘for violation of contracts between an employer and a

labor organization.’ *’ Franchise Tax Board v. Construction La-

borers Vacation Trust, 463 U.S. 1, 23 (1983). See also Lingle v.

Norge Division of Magic Chef, Inc., 108 S. Ct. 1877, 1881 (1988);

Caterpillar, 482 U.S. at 394; Electrical Workers v. Hechler, 481

U.S. 851, 856-57 (1987); Allis-Chalmers, 471 U.S. at 209-10.

Furthermore, the ‘policies that animate § 301” require that

“the pre-emptive effect of § 301 must extend beyond suits alleging

contract violations,” A/lis-Chalmers, 471 U.S. at 210-11, includ-

ing those in which the claims, though not breach of contract

claims per se, are “substantially dependent on analysis of a col-

lective-bargaining agreement.” Caterpillar, 482 U.S. at 394.

While it is true that there is no pre-emption as to “substantive

rights a State may provide to workers when adjudication of those

rights does not depend upon the interpretation of [collective-bar-

gaining] agreements,” Lingle, 108 S. Ct. at 1883, such “indepen-

dent,” “substantive” rights are not at issue in this case. The Wis-

consin Supreme Court held that Wisconsin’s fraudulent convey-

ance act “confers no substantive rights . . . It is not intended to.”

See App. 16A. Rather, the fraudulent conveyance act exists to

provide “but a remedy to assist in the satisfaction of [a] substan-

tive claim’’—here one having its “genesis” in the collective bar-

gaining agreement. See App. 4A, 16A.*

4The Wisconsin Court demonstrated its confusion between substan-

tive state rights which are independent of collective bargaining agree-

ments and state remedies which are dependent upon such agreements

by citing and relying upon Baldracchi v. Pratt & Whitney Aircraft Divi-

sion, 814 F.2d 102 (2d Cir. 1987), cert. denied, 108 S. Ct. 2819 (1988)

and Air Line Pilots Assoc. v. UAL Corp., 874 F.2d 439 (7th Cir. 1989).

(Footnote continued on following page)

Additionally, although the Wisconsin Court persists in its

view, as in Lueck v. Aetna Life Insurance Co., 116 Wis. 2d 559,

342 N.W.2d 699 (1984), rev'd, 471 U.S. 202 (1985), that the

remedies of the fraudulent conveyance act are “‘nonnegotiable,”’

see App. 16A, this characterization cannot defeat pre-emption in

an action, such as this one, to enforce collectively-bargained obli-

gations:

It is conceivable that a State could create a remedy that,

although nonnegotiable, nonetheless turned on the interpre-

tation of a collective bargaining agreement for its applica-

tion. Such a remedy would be pre-empted by § 301.

Lingle, 108 S. Ct. at 1882 n.7 (emphasis added). The state-law

remedy authorized in this case is, therefore, conceptually indis-

tinguishable from the Wisconsin tort remedy for bad-faith han-

dling of a claim for benefits under a collectively-bargained benefit

plan, also sanctioned by the Wisconsin Supreme Court, but

struck down by this Court in A/lis-Chalmers as preempted by

Section 301.5

Moreover, although the Wisconsin Supreme Court agreed that

the IAM’s very “‘status” as a “creditor” under Wisconsin law “‘is

defined by one or more collective bargaining agreements,” it went

(Footnote continued from previous page)

Rather than supporting the Wisconsin Supreme Court's holding here,

both cases, as in Lingle, merely held that state substantive rights were

not pre-empted by federal labor law. In Baldracchi, Section 301 was

held not to pre-empt the state substantive right to be free from retalia-

tory discharge. In Air Line Pilots, the Seventh Circuit rejected UAL

Corp.’s and the IAM’s claim that the Railway Labor Act pre-empted

the substantive requirements of Delaware takeover law.

‘The Wisconsin Supreme Court's attempt to salvage the state reme-

dies asserted here, because they are “significant ones in the panoply” of

state remedies, see App. 19A, cannot succeed in light of this Court's

holding that balancing of state and federal interests is “irrelevant” to

Section 301 pre-emption because Congress “has provided that federal

law must prevail.” A/lis-Chalmers, 471 U.S. at 214 n.9.

on to rule—in direct contravention of this Court’s precedents—

that “whether that status arose as the result of obligations to

them under the collective bargaining agreements is immaterial. It

is the [creditor] status that counts, not its origin.” See App. 4A,

19A, 21A. This further holding does even greater violence to the

purposes of the labor laws and the principles established by this

Court. Far from being “immaterial,” the “origin” of the [AM’s

creditor status—and petitioners’ duties—makes a// the difference,

especially where, as here, state law fails to confer independent,

“substantive” rights on those invoking it. See Hechler, 481-U.S.

at 861-62 n.5 (where the “ ‘nature and scope of the duty . . . owed

Plaintiff is determined by reference to the collective bargaining

agreement,’ ”’ the claim must be pre-empted by Section 3061);

Allis-Chalmers, 471 U.S. at 216 (Wisconsin tort remedy is pre-

empted because “the tort exists for breach of a ‘duty

devolv[ed] .. . by reasonable implication from the express terms

~ of the contract,’ the scope of which, crucially, is ‘ascertained from

2 consideration of the contract itself ... [T]he duties imposed

and rights established through the state tort derive from the

rights and obligations established by the contract.”’)

It is also clear that this case would have been decided differ-

ently in at least four of the federal courts of appeals, none of

which has permitted a state-law claim to proceed where, as here,

the state law fails to confer substantive rights independent of the

labor contract. In Deford v. Soo Line R.R., 867 F.2d 1080, 1086

(8th Cir. 1988), cert. denied, 109 S. Ct. 3265 (1989), a decision

viewed as controlling by the dissent in this case, see App. 29A,

the Eighth Circuit analyzed Section 301 and Lingle to hold that

virtually identical claims under the Minnesota Fraudulent Trans-

fer Act must be preempted by the Railway Labor Act.® Although

On this basis, the Deford Court also concluded that the state-law suit

was removable to federal court, and criticized a contrary Third Circuit

decision, Railway Labor Executives Association v. Pittsburgh & Lake

Erie R.R., 858 F.2d 936 (3d Cir. 1988), as expressing an ‘“‘unnecessarily

(Footnote continued on following page)

the Eighth Circuit agrees with the Wisconsin Supreme Court that

state fraudulent transfer statutes are ‘not substantive in nature,”

867 F.2d at 1087, its holding is in stark conflict:

[In Lingle, t]he Court stated that a retaliatory discharge

claim is a substantive state claim, “which addresses purely

factual questions pertaining to the conduct of the employee

and the conduct and motivation of the employer.” Jd. 108

S.Ct. at 1882. Neither of these elements require a court to

interpret the terms of a collective bargaining agreement.

Thus, preemption was not warranted. The creditors rights

asserted by Deford, by contrast, directly involve the interpre-

tation of collective bargaining agreements.

* * *

In conclusion, Deford is essentially claiming that if the

sale of rail lines from Soo Line to Wisconsin Central is not,

in effect, unwound, the transaction will result in a breach of

Soo Line’s obligations under the existing collective bargain-

ing agreements. Thus, by asserting state law claims, Deford

seeks enforcement of the terms of the collective bargaining

agreements. The fraudulent conveyance act serves only as an

enforcement mechanism. We believe Deford is only trying to

invoke a state law remedy in place of the mandatory and

exclusive remedies of [federal law].

Id. at 1087-88. The Eighth Circuit is right and the Wisconsin

Supreme Court is wrong. At least three other circuits have agreed

with the Eighth Circuit’s analysis and disagreed with that of the

Wisconsin Supreme Court.’

(Footnote continued from previous page)

narrow” view of preemption principles in the removal context as applied

to claims brought by a labor union to secure contractual benefits under

the Pennsylvania Uniform Fraudulent Conveyance Act. Deford, 867

F.2d at 1086.

7See Terwilliger v. Greyhound Lines, Inc., 1989 WL 88968 (6th Cir.

Aug. 10, 1989) (state-law fraud claim is pre-empted where rights sought

to be vindicated arise, as here, solely under the terms of a collective

bargaining agreement; Lingle inapplicable because no state substantive

(Footnote continued on following page)

Thus, although the conflict in rationales is most vividly spelled

out in the Eighth Circuit’s decision in Deford, 867 F.2d at 1086,

it is quite clear that the specific question decided by the Wisconsin

Supreme Court of the proper reach of Section 301 preemption

would, on these facts, have been decided differently in any one of

four federal courts of appeals.

II. Prompt Resolution Of This Conflict Is A Matter Of Great

National Importance

Finally, not only is there a fundamental conflict on the question

presented here, but prompt resolution of the conflict is a matter

of great national importance with profound, immediate :mplica-

tions. The Wisconsin Supreme Court’s decision allowing fraud-

rights involved); Jackson v. Liquid Carbonic Corp., 863 F.2d 111 (lst

Cir. 1988), cert. denied, 109 S. Ct. 3158 (1989) (where state law would

look to a collective bargaining agreement to assess expectations of pri-

vacy, and state-law did not “create a right that is on its own terms

independent of [the] collective bargaining agreement” as in Lingle,

state-law drug test challenge is pre-empted by Section 301) (emphasis

added); Gibson v. AT&T Technologies, Inc., 782 F.2d 686 (7th Cir.),

cert. denied, 477 U.S. 905 (1986) (state-law fraud claim for willfully

withholding information regarding labor contract benefits is pre-empted

under A/lis-Chalmers). Cf. Wells v. General Motors Corp., 881 F.2d 166

(Sth Cir. 1989) (although free-standing, “extraneous promise concern-

ing .. . future employment eligibility” is not preempted by Section 301,

fraud claims addressing the “contents” of a labor contract are) (empha-

sis in original); Newberry v. Pacific Racing Association, 854 F.2d at 1142,

1150 (9th Cir. 1988) (state-law claims for breach of covenant of good

faith and fair dealing and intentional infliction of emotional distress are

pre-empted because resolution is dependent on analysis of the collective

bargaining agreement).

See also Milne Employees Association v. Sun Carriers, 714 F. Supp. 1028

(N.D. Cal. 1989) (employee state-law action against former employer

for fraudulently representing that trucking operations would remain

open is pre-empted by Section 301 because claim is “inextricably inter-

twined” with collective bargaining agreement); Brown v. Keystone Con-

solidated Industries, Inc., 680 F. Supp. 1212, 1218 (N.D. Ill. 1988)

(under Caterpillar, Hechler and Allis-Chalmers, claims for fraudulent

conveyance by employee “creditors” under a labor contract are ‘“‘obvi-

ously” pre-empted by Section 301).

ulent conveyance actions “will have statewide, as well as nation-

wide, impact on mergers and acquisitions.”” App. 39A. During

1988 there were 318 transactions, involving in excess of $42.9

billion, which were in the form of a leveraged buyout. See

Leveraged Buyout Market Survey, Merger & Aquisitions 64

(May/June i989).° If followed, the Wisconsin decision will also

have dramatic impact on countless mine-run disputes that would

also otherwise be “grist in the mills of the arbitrators.” United

Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 584

(1960). The “central role of arbitration” in labor disputes, A//is-

Chalmers, 417 U.S. at 219, will be undermined because parties to

collective bargaining agreements now have, under Wisconsin’s

rule, the option of avoiding arbitration and invoking the standing

to sue conferred by such agreements to obtain state-law, non-sub-

stantive judicial remedies to secure rights the agreements grant.

However, “[t]he parties [do] not bargain for facts to be found by

a court, but by an arbitrator ... [and sJhis is especially true when

it comes to formulating remedies.’ United Paperworkers Interna-

tional Union v. Misco, 484 U.S. 29, 52 (1987) (emphasis in origi-

nal).

Moreover, the Wisconsin Supreme Court’s decision will pro-

foundly complicate both the administration of innumerable exist-

‘Statutes similar to Wisconsin's fraudulent conveyance statute have

been adopted in 34 states. 7A U.L.A. 100, 120 (1989 Supp.). As the

Wisconsin Court of Appeals recognized, see App. 39A, “[l]everaged

buyouts are becomirg more common, as is the use of the UFCA to

prevent such buyouts. See, ¢.g. United States v. Tabor Court Realty

Corp., 803 F.2d 1288, 1297 (3d Cir. 1986), cert. denied, sub nom.,

McClellan Realty Co. v. United States, 107 S. Ct. 3229 (1987).”

And, as in Wisconsin, see App. 21, the jurisdictions which have address-

ed the issue have concluded that such statutes do not supply a substan-

tive cause of action. E.g. A/S Kreditt Finans v. Cia Venetico De

Navegacion, 560 F. Supp. 705, 711 & nn.14-15 (E.D. Pa. 1983), aff'd,

729 F.2d 1446 (3d Cir. 1984): Clark v. Rossow, 134 Ariz. 490, 657 P.2d

903, 904 (Ct. App. 1982); Blumenthal v. Blumenthal, 303 Mass. 275,

21 N.E.2d 244, 246 (1939).

ing national agreements and the negotiation of new ones. This

case demonstrates the point. The IAM here sues on behalf of its

locals located in both Illinois and Wisconsin. The Seventh Circuit

and district courts sitting in Illinois (see supra note 7) reject the

Wisconsin Court’s view that state-law remedies may be invoked

with respect to labor agreements. Therefore, depending upon

whether the forum is state or federal, employees in Wisconsin will

have different remedies under the same contact and, in all events,

the remedies of employees located in Illinois (where a fraudulent

conveyance statute has not been adopted) under the same con-

tract will differ from those of employees located in Wisconsin.

Lucas Flour, 369 U.S. at 103-4. Thus, until reversed, the Wiscon-

sin Supreme Court’s decision will needlessly complicate the ne-

gotiation and administration of new and existing labor contracts,

creating tactical opportunities and incentives for forum shopping

and other attempts to broaden the relief available under such

contracts in countless circumstances.

Significantly, this Court can end this potential confusion and

disruption without burdening its docket. Because the Wisconsin

Supreme Court’s decision so thoroughly misapprehends settled

principles—in precisely the way it did in Allis-Chalmers—it

would be entirely appropriate for the Court summarily to vacate

the decision of the Wisconsin Supreme Court and remand with

directions to dismiss the complaint.

CONCLUSION

For the reasons stated, this Court should grant the petition for

certiorari, summarily vacate the Wisconsin Supreme Court's de-

cision, and remand with directions that the complaint be dis-

missed as preempted. Alternatively, the Court should grant the

petition and give the case plenary consideration.

Ropy P. BIGGERT

CHARLES C. JACKSON*

CARSON P. VEACH

SEYFARTH, SHAW, FAIR-

WEATHER &

GERALDSON

55 East Monroe Street

Chicago, IL 60603

(312) 346-8000

Attorneys for Petitioner

United States Can Company

September 20, 1989

* Counsel of Record

Respectfully submitted,

ROBERT A. CHRISTENSEN*

STANLEY S. JASPAN

SUSAN R. MAISA

FoLey & LARDNER

777 East Wisconsin Avenue

Milwaukee, WI 53202-5367

(414) 271-2400

Attorneys for Petitioner

Continental Beverage Pack-

aging, Inc.

APPENDIX

No. 87-1784

STATE OF WISCONSIN : IN

SUPREME COURT

INTERNATIONAL ASSOCIATION OF MACHINISTS

& AEROSPACE WORKERS,

IAM LOCAL 437, [AM LOCAL 710,

IAM DISTRICT 10, IAM DISTRICT 172,

Individually and as authorized

representatives of all

IAM EMPLOYEES OF

UNITED STATES CAN COMPANY,

CONTINENTAL CAN COMPANY,

CCC SERIES 200, INC.,

INTER-AMERICAN PACKAGING, INC., and

GP ACQUISITION COMPANY, INC.,

Plaintiffs-Appellants,

UNITED STATES CAN COMPANY,

a Georgia corporation,

CONTINENTAL CAN COMPANY, U:S.A., INC.,

a Delaware corporation,

CCC SERIES 200, INC.,

a Delaware corporation,

INTER-AMERICAN PACKAGING, INC.,

a Pennsylvania corporation,

GP ACQUISITION COMPANY, INC.,

a Pennsylvania corporation, and

JOHN DOE’S 1-100,

collectively referring to the banks,

and other lenders participating in

the financing of the acquisition of

Continental Can, packaging sector by

United States Can Company,

Defendants- Respondents.

APPEAL from a judgment of the Circuit Court for Racine

County, STEPHEN A. SIMANEK, Circuit Judge. Reversed and

remanded.

HEFFERNAN, CHIEF JUSTICE. This is an appeal on certi-

fication of the court of appeals from a judgment of the circuit

court for Racine county, which dismissed the complaint of the

International Association of Machinists & Aerospace Workers

(IAM), some of its local unions, and, in a represented capacity,

all the IAM employees of those locals brought against United

States Can Company and Continental Can Company. We reverse

and remand for further proceedings. !

The issue certified to us by the court of appeals was stated as:

“Whether an action under the Uniform Fraudulent Convey-

ance Act, ch. 242, Stats., is preempted by sec. 301 of the Labor

Management Relations Act when brought by a union and em-

ployees against an employer.”

Our response to this certified question must be: No. We con-

clude that this particular action involves only state law. The ac-

tion is not preempted by the Labor Management Relations Act

(LMRA).

Because the facts determine the application of the law, we re-

cite them in some detail. The United States Can Company in the

spring of 1987 agreed to buy the general packaging division of

Continental Can Company in a highly leveraged buyout which,

it is alleged, would encumber the assets of the packaging division

with a debt of sixty-five million dollars, ie, the purchasers would

finance their acquisition primarily by the pledge to lenders of the

assets being acquired.

The plaintiffs are the International Association, its local

unions, and the union employees of the packaging division plants

‘Also taken on certification was an appeal from an order which de-

nied IAM’s motion to set aside the original dismissal. Because we con-

clude that the complaint was improperly dismissed, we need not con-

sider the subsequent motion and order separately appealed by IAM.

located in Racine, Wisconsin, and Danville, Illinois. We refer to

the plaintiffs herein as “unions.” The defendants are the United

States Can Company, the acquiring corporation, the Continental

Can Company, whose packaging division is being acquired, and

an acquisition company which has been established apparently to

manage takeovers such as this one. Also joined as defendants are

the lending institutions which would finance the takeover. We

refer to all of them as “companies.”

The unions for some time, not specifically disclosed in the

pleadings, have been the bargaining representatives of the em-

ployees and are parties to collective-bargaining agreements on

behalf of the workers with the Continental Can Company.

Because the unions assert that the buyout will leave a financial-

ly impaired employer, they have brought an action under Wis-

consin law, ch. 242, Stats., the Uniform Fraudulent Conveyance

Act (UFCA)? in a Wisconsin court to declare the transfer a fraud-

ulent one under the provisions of the act and to enjoin the defen-

dants “from selling, disposing, transferring or otherwise further

conveying or encumbering any of the assets” that may be ac-

quired by the transferee company. Other relief, including the ap-

pointment of a receiver to protect the employees and other credi-

tors, is sought. No damages are asked for.

The essence of their complaint is that the terms of the buyout

without fair consideration will leave the packaging division insol-

vent or inadequately capitalized, thus resulting in a constructive

fraud on creditors under UFCA. Intentional fraud is also alleged.

2The unions asserted claims under secs. 242.04, 242.05, and 242.07,

Stats., which provide:

242.04 Contract producing insolvency, fraudulent. Every convey-

ance made and every obligation incurred by a person who is or will

be thereby rendered insolvent is fraudulent as to creditors without

regard to his actual intent if the conveyance is made or the obliga-

tion is incurred without a fair consideration.

(Footnote continued on following page)

The unions claim they are proper plaintiffs and have a creditor

status by reason of Continental Can Company’s obligations to

them of $19,950,000 in matured or unmatured claims. While

counsel at oral argument was unable to respond with precision to

the components of this claimed obligation, the complaint makes

clear that the genesis of the relationship is the employer-employee

status, which is defined by one or more collective-bargaining

agreements. It is asserted that the obligation of the employer

consists of matured and unmatured claims for “wages, vacation

pay, sick leave pay, life, health and accident insurance, pension

contributions, and other employee benefits.” The unions, as

unions, separately assert that they are creditors of the employers

for dues checkoffs.

After the complaint was served, the companies responded by

moving to dismiss pursuant to sec. 802.06(3), Stats., on the

ground that “this action is preempted by Section 301 of the Labor

Management Relations Act, 29 U.S.C. sec. 185.’”

(Footnote continued from previous page)

242.05 Other specifications of legal fraud. Every conveyance

made without fair consideration when the person making it is en-

gaged or is about to engage in a business or transaction for which

the property remaining in his hands after the conveyance is an

unreasonably small capital, is fraudulent as to creditors and as to

other persons who become creditors during the continuances of

such business or transaction without regard to his actual intent.

242.07 Fraud in fact. Every conveyance made and every obliga-

tion incurred with actual intent, as distinguished from intent pre-

sumed in law, to hinder, delay or defraud either present or future

creditors, is fraudulent as to both present and future creditors.

‘29 U.S.C. sec. 185(a) provides:

“Suits for violation of contracts between an employer and a labor

organization representing employees in an industry affecting com-

merce as defined in this chapter, or between any such labor organi-

zations, may be brought in any district court of the United States

having jurisdiction of the parties, without respect to the amount in

controversy or without regard to the citizenship of the parties.”’

The trial judge, in deciding this motion, appropriately accepted

the facts alleged in the complaint as correct; and it is to these

facts, recited above, to which the parties have resorted in discuss-

ing this litigation.

The circuit judge reasoned that whatever rights the unions had

derived completely from their collective-bargaining agreements

and, therefore, any action brought on that creditor status was

preempted by the LMRA.* He said in his opinion from the bench

that “The claim is founded directly on rights created by the col-

lective bargaining agreement.”’ He stated the “resolution of the

dispute under 242 will require this Court to evaluate and interpret

a coliective bargaining agreement.”

After reviewing various decisions of the United States Supreme

Court, he concluded by stating:

‘“{A]pplying the rationale contained in the cases cited will

require this Court to accept the federal dictate—the federal

law dictate that a state court cannot step in and interpret and

decide this case in this forum.”

He stated he did not have “jurisdiction” to determine the dis-

pute because it would require interpretation of the collective-bar-

gaining agreements; and, therefore, the claim was dismissed.

The appeal by the unions from this order followed and was

subsequently certified to this court.

It appears to us that the resolution of this case hinges on the

proper characterization of the nature of the plaintiffs’ claim. If

We note that the circuit judge repeatedly typified preemption under

LMRA as preemption of the state forum. Preemption, if required under

sec. 301(a), is preemption of state law. The state forum may be utilized

for the litigation of a sec. 301(a) action if appropriate federal law 1s

applied. See Charles Dowd Box Co., Inc., v. Courtney, 368 U.S. 502

(1962), and Teamsters Local v. Lucas Flour Co., 369 U.S. 95 (1962),

both of which hold that a state forum has jurisdiction but incompatible

principles of state law must give way to the principles of federai labor

law.

the claim substantially implicates rights governed by sec. 301

under LMRA, federal law must be applied. If the claim is prop-

erly characterized as a state creditor’s action to obtain the reme-

dies afforded by UFCA and requires no substantial interpretation

of the collective-bargaining agreement as provided by Wisconsin

Statutes to protect creditors, Wisconsin law is applicable.

The mine-run case subject to preemption “is a contract claim

in which a party to the collective-bargaining agreement expressly

asserts that a provision of the agreement has been violated.” Elec-

trical Workers v. Hechler, 481 U.S. 851, 857 (1987). The case

before us does not have that simplistic characteristic.

We first note the posture of the claim that the unions are cred-

itors as defined by UFCA. The unions make that assertion for

their members and for themselves. Under the procedural posture

of the case, all parties agree that the allegations of the complaint

must be taken as true. Also, it should be noted that one of the

principal defendants, United States Can Company, denies any

information on which it could form a belief as to the creditor

status of the plaintiffs. Continental Can Company, the erstwhile

employer, denies that any of the plaintiffs are creditors except for

de minimis sums. Both of the principal defendants contend that

what is relevant is not just that plaintiffs are, or could be, credi-

tors, but that in any event they are creditors only by reason of

the preexisting collective-bargaining agreements.

Essentially, the argument of each side relies upon United States

Supreme Court cases. The unions, while recognizing the preemp-

tion of federal law in contract disputes over collective-bargaining

agreements, point to the exceptions that appear both explicitly

and implicitly in United States Supreme Court decisions that

demonstrate that not all controversies that arise between parties

to a collective-bargaining agreement are sec. 301 cases preempted

_ by federal law. They conclude this is not a sec. 301 case.

The companies adopt the general proposition that any claims

that are founded on rights created by collective-bargaining agree-

ments are preempted by federal labor law. They argue that what-

ever rights the unions have as creditors arise out of collective-bar-

gaining agreements.

The question of whether a claim exclusively involves state law

or whether it implicates federal law and thus is subject to preemp-

tion is a matter of law. Accordingly, we need not give special

deference to the determination of the trial judge. The controlling

question of law is, however, not a simple one, and its answer is

dependent upon federal law as stated by the United States Su-

preme Court and by other federal courts to the extent that they

appear to speak definitively on this question of the preemptive

effect of sec. 301. See Allis-Chalmers Corp. v. Lueck, 471 U.S. 202,

214 (1985).

The federal law is clear that, where there is a sec. 301 claim,

federal substantive law (irrespective of the forum) must control.

Teamsters Local v. Lucas Flour Co., 369 U.S. 95, 103 (1962), rules

out the application of incompatible state law and mandates that

federal law must prevail in a sec. 301 case, stating:

“The possibility that individual contract terms might have

different meanings under state and federal law would inevi-

tably exert a disruptive influence upon both the negotiation

and administration of collective agreements.”

Thus, Lucas makes it clear that individual contract terms must

have consistent meanings and that only uniform federal law is

likely to obtain that result.°

The 1985 case of A/lis-Chalmers, reversing a judgment of this

court, 1*6 Wis. 2d 559, 342 N.W. 2d 699 (1984), is highly inform-

‘In Lucas, the contract term under consideration was a compulsory-

arbitration provision. The United States Supreme Court held that the

Washington Supreme Court not only had jurisdiction of the sec. 301

claim, but also reached the correct ultimate result.

ative and emphasizes that not all disputes between parties to a

collective-bargaining agreement are to be governed by federal

law. The actual matter at issue—whether sec. 301 of the LMRA

preempts the state court action for bad-faith delay in making

disability-benefit payments—was, however, decided in favor of

preemption contrary to the decision of this court.

Allis-Chalmers attempted to summarize some of the principles

of sec. 301 preemption. Relying on Lucas Flour, supra, Allis-

Chalmers stated that:

“[A] suit in state court alleging a viclation of a provision

of a labor contract must be brought under sec. 301 and be

resolved by reference to federal law. A state rule that pur-

ports to define the meaning or scope of a term in a contract

suit therefore is pre-empted by federal labor law.” At 210.

It found that, because the collective-bargaining agreement itself

must be interpreted in terms of “good faith,” the state could not

add the gloss of breach-of-a-state-tort-duty to the collective-bar-

gaining contract and, therefore, there was preemption.

Allis-Chalmers went on to limit the possible scope of its rule

by stating:

“Of course, not every dispute concerning employment, or

tangentially involving a provision of a collective-bargaining

agreement, is pre-empted by sec. 301 or other provisions of

the federal labor law.”’ At 211.

It further stated:

“Clearly sec. 301 does not grant the parties to a collective-

bargaining agreement the ability to contract for what is ille-

gal under state law. In extending the pre-emptive effect of

sec. 301 beyond suits for breach of contract, it would be

inconsistent with congressional intent under that section to

- pre-empt state rules that proscribe conduct, or establish

rights and obligations, independent of a labor contract.”’ At

212.

The Allis-Chalmers court also said, in effect, that rights con-

ferred by state law that are nonnegotiable in a collective-bargain-

ing agreement are not subject to preemption.

In respect to the dispute before it, the United States Supreme

Court concluded that the duty of good faith was already an im-

plicit condition of the collective-bargaining agreement. That

agreement required insurance coverage by the employer, and

hence the question of good faith was “tightly bound with ques-

tions of contract interpretation that must be left to federal law.”

At 216.

The court specifically declined in A/lis-Chaimers to pass judg-

ment “on whether an independent, nonnegotiable, state-imposed

duty which does not create similar problems of contract interpre-

tation would be pre . 1pted under similar circumstances.” At

217, n. 11. As pointe | out above, however, a collective-bargaining

agreement cannot provide for terms illegal under general state

law.

It summarized the tenor of its holding, stating:

“It is perhaps worth emphasizing the narrow focus of the

conclusion we reach today. We pass no judgment on whether

this suit also would have bee. pre-empted by other federal

laws governing employment or benefit plans. Nor do we hold

that every state-law suit asserting a right that relates in some

way to a provision in a collective-bargaining agreement, or

more generally to the parties to such an agreement, neces-

sarily is pre-empted by sec. 301. The full scope of the pre-

emptive effect of federal labor-contract law remains to be

fieshed out on a case-by-case basis. We do hold that when

resolution of a state-law claim is substantially dependent up-

on analysis of the terms of an agreement made between the

parties in a labor contract, that claim must either be treated

as a sec. 301 claim, see Avco Corp. v. Aero Lodge 735, 390

U.S. 557 (1968), or dismissed as pre-empted by federal labor-

contract law.” At 220.

We believe that A/lis-Chalmers substantially “said it all” in

respect to preemption principles applicable to sec. 301. Cases

10A

subsequent to A/lis-Chalmers have, however, “fleshed out’ the

general principles set forth therein.

In Electrical Workers v. Hechler, 481 U.S. 851 (1987), the prin-

ciples of Allis-Chalmers were applied without significant modifi-

cation. There, the employee claimed that the union had breached

its duty to provide her a safe workplace. The Supreme Court

noted that, in the absence of an agreement, the duty would de-

volve upon the employer and, hence, the determination of wheth-

er the duty fell upon the union required interpretation of the

collective-bargaining agreement—a process, the court said, that

must yield to the application of uniform interpretations of the

federal law. Hechler reiterated the rule of Aliis-Chalmers that

there was preemption when the resolution of a state claim is

substantially dependent upon analysis of the terms of an agree-

ment made between the parties in a labor contract. Hechler at

859.

In the same court term as Hechler, the Supreme Court, in

Caterpillar Inc. v. Williams, 482 U.S. 386 (1987), decided that,

where employees had separate employment contracts and their

rights were not dependent on the interpretation or application of

the collective-bargaining contracts, the complaint for enforce-

ment did not require evaluation under sec. 301 and was not re-

movable to federal court.

While Caterpillar is not controlling in the instant case, its lan-

guage is instructive. The Court in Caterpillar, relying on A/l/is-

Chalmers, stated:

“[{A] plaintiff covered by a collective-bargaining agree-

ment is permitted to assert legal mghts independent of that

agreement, including state-law contract rights, so long as the

contract relied upon is mor a collective-bargaining agree-

ment.” At 396.

In contrast, the Court pointed out that:

“Section 301 governs claims founded directly on rights

created by collective bargaining agreements, and also claims

‘substantially dependent on analysis of a collective-bargain-

ing agreement.’ At 394.

LIA

It could be asserted that Caterpillar expands the Lucas Flour

test of preemption that arguably requires an express assertion that

a collective-bargaining agreement has been violated, and sup-

plants it with a test merely requiring that the claim be “founded

directly on rights created by collective-bargaining agreements.”

At 394.

We are not persuaded that the test 1s different than that utilized

in predecessor cases. The verbiage is slightly at variance, but the

significance of that variance is not made apparent by the Court

in Caterpillar. It is the facts there that constitute a significant

variance.

That Caterpillar does not alter the previously stated rule is

corroborated by the recent case of Lingle v. Norge Div. of Magic

Chef, Inc., 486 U.S. , 108 S. Ct. 1877 (1988). There, the

majority relied on the pre-Caterpillar formula that preemption

turns on whether the state-law claim can be resolved without

interpreting the collective-bargaining agreement. Lingle traced

the history of sec. 301 preemption from Charles Dowd Box Co.,

supra, Lucas Flour, supra, and Allis-Chalmers, supra, and con-

cluded that:

“lI}f the resolution of 2 state-law claim depends upon the

meaning of a collective-bargaining agreement, the applica-

tion of state law (which might lead to inconsistent results

since there could be as many state-law principles as there are

states) is pre-empted and federal labor-law principles—nec-

essarily uniform throughout the nation—must be employed

to resolve the dispute.” At 1881.

Thus, it appears that the proper test is not esoteric, but practi-

cal—does the adjudication of the state-law claim depend on the

interpretation of \ te collective-bargaining agreement?

Even so, recent precedent indicates that a court does not risk

preemption merely because some aspects of the collective-bar-

gaining agreement are examined in determining the state claim.

12A

In Lingle itself, the Court pointed out that a finding of parallelism

of some provisions of the collective-bargaining agreement with

facts necessary to resolve a state-law claim does not necessarily

compel sec. 301 preemption.

An opinion of the Court of Appeals for the Second Circuit in

Baldracchi v. Pratt & Whitney Aircraft Div., 814 F.2d 102 (2nd

Cir. 1987), was cited with approval in Lingle, at 1885. That case

held the fact that the terms of the collective-bargaining agreement

were relevant in furnishing the basis for making an appropriate

award of damages to an employee asserting a state claim did not

require a finding of preemption. It was held that Baldracchi’s

right not to be wrongfully discharged for filing a worker’s com-

pensation claim was not dependent upon the collective-bargaining

agreement, although, clearly, the measure of her redress—the

damages—was dependent upon wages established by that agree-

ment. Baldracchi referred to language in Allis-Chalmers that em-

phasized that “tangential” reference, or even dependence upon

the terms of a collective-bargaining agreement for some purposes,

did not impel a conclusion of preemption.

Baldracchi also seizes upon other points in the Supreme Court

opinions referred to herein, e.g., that some rights arising under

state law are nonnegotiable (see A/lis-Chalmers at 213 and 217 n.

11) and therefore cannot be inquired into by the federal law of

labor contracts. Baldracchi points out that the right to file a work-

er’s compensation claim is one of those rights. Baldracchi states

that, if LMRA is interpreted to deny employees in a collective-

bargaining unit a right to a state remedy enjoyed by employees

who are not represented in collective-bargaining units, the policy

of the federal labor act is turned “on its head.”’ 814 F.2d at 107.

From these cases, we derive fairly simple principles that, as

evidenced by divergent opinions of various federal cases, are not

simple of application. We deem the basic and controlling princi-

ples to be these: A state court has concurrent jurisdiction over a

13A

sec. 301 claim, subject to removal to a federal court; but, in any

forum, a sec. 301 claim is always subject to the application of

federal labor law.

If the claim does not require substantial interpretation of a

collective-bargaining agreement, the application of federal law is

not required. In determining whether the claim is preempted by

sec. 301, the Supreme Court has stated the following guidelines:

A suit brought in a state court directly alleging a violation

of a labor contract must be brought under sec. 301 and re-

solved by reference to federal labor law. Where the particu-

Jar dispute can only be resolved by interpretation of the col-

lective-bargaining agreement, it is a claim under sec. 301 and

is resolvable only by the federal labor law; however, there

must be more than a “tangential” reliance upon the collec- ~

tive-bargaining agreement. The dispute in question or the

issues for its resolution must be “tightly bound” to the inter-

pretation of the collective-bargaining agreement. When res-

olution of the state claim is substantially dependent upon the

analysis of terms in a collective-bargaining agreement, it

must be treated as a sec. 301 claim or dismissed; or, under

another formulation of the same rule, a state-law claim that

is “founded” directly on the collective-bargaining agreement

is a sec. 301 claim requiring resolution by federal labor law.

Having these “principles” in mind, we must determine their

effect on the case before us. Using these principles, we reach the

conclusion that this is not a sec. 301 case subject to preemption.

It is an action brought to assert a state-law right to set aside what

is alleged to be a fraudulent conveyance. Justice Stevens in foot-

note 12 of Lingle, at 1885—a unanimous decision—stressed that

the collective-bargaining agreement might well be the predicate

for determination of the extent or scope of the remedy to which a

worker might be entitled under state law and, to the extent that

the collective-bargaining agreement needed interpretation, federal

law would govern that interpretation, but that use of federal law

did not require preemption of the state claim.

14A

In the instant case, the plaintiff unions stress that the terms of

a collective-bargaining agreement need not be interpreted to give

them the remedy sought under UFCA. They merely need be

creditors—-present or potential, contingent or matured—and no

threshold amount is required. Whether their qualification as cred-

itors can be proved remains to be seen; but, under the posture of

this case, where the assertion is that the plaintiffs are creditors,

that pleaded fact must be assumed to be true.

DeFord vy. Soo Line Railroad Co., 867 F.2d 1080 (8th Cir.

1989), considered whether a Minnesota UFCA action challenging

a leveraged buyout was preempted by the Railway Labor Act.

The court relied upon the language of Allis-Chalmers and con-

cluded that the Minnesota state UFCA claim was entirely de-

pendent on rights afforded by the preexisting collective-bargain-

ing agreement and was, therefore, preempted. Chief Judge Don-

ald Lay, dissenting, relied upon footnote 12 in Lingle, referred to ~

above, and stated:

“Interpretation of the collective bargaining agreement is

required only to determine standing as a creditor, and to

determine the amount of damages. The state statute creates

an entitlement independent of the collective bargaining

agreement, and is not preempted by the RLA.” At 12.

We conclude that the analysis of Chief Judge Lay is the appro-

priate one under the guidelines of the Supreme Court itself. A

creditor is defined by UFCA, sec. 242.01(3), Stats.: “* ‘Creditor’

is a person having any claim, whether matured or unmatured,

liquidated or unliquidated, absolute, fixed or contingent.”

Creditors under UFCA include holders of unreduced tort

claims (Marcus v. Kane, 18 F.2d 722 (2nd Cir. 1927)), and em-

ployees with claims against their employer for services rendered

(Pallott v. LaSalle Roofing & Shingle Co., 254 N.Y.S. 748 (1931)).

Both actual and constructive fraud are addressed by the act.

While sec. 242.07 deals with conveyances that involve actual in-

tent to defraud, sec. 242.04 covers conveyances where insolvency

ISA

results, and sec. 242.05 covers conveyances that leave a business

with unreasonably small capita!. Fraudulent conveyances may be

blocked or annulled as provided by secs. 242.09 and 242.10. Con-

structive fraud claims under UFCA must also deal with the issue

of whether the conveyances were made for fair consideration. Jn

re Bossell, Van Vechten & Chapman, 30 Wis. 2d 20, 30, 139 N.W.

2d 639 (1966).

The companies emphasize that, under Running v. Widdes, 52

Wis. 2d 254, 190 N.W. 2d 169 (1971), UFCA is a statute that

confers no substantive rights, but rather confers remedies upon

creditors with existing substantive rights. The assertion is true but

irrelevant. We do not see the plaintiffs’ complaint as asserting that

UFCA gives them creditor status. Rather, the claim is that they

are creditors under the collective-bargaining agreements and are

seeking to have the same remedies that are afforded to other

creditors.®

As stated under the somewhat different, but pertinent, circum-

stances of Baldracchi, supra, it would be strange to deny workers

in collective-bargaining units the benefits of the remedies afforded

all other creditors by UFCA just because they are organized la-

borers. The most significant aspect of Running v. Widdes is given

no emphasis by the companies herein. The opinion stated that the

policy of the law is to benefit creditors and to give them a remedy

in the event of fraudulent transfers and, as a remedial statute,

UFCA should be liberally construed “to accomplish its purpose

of giving speedy relief against a fraudulent debtor.” At 259.

®As stated above, their assertion of creditor status under the proce-

dural posture of this case is not subject to question. Even the answer of

Continental Can acknowledges that the plaintiffs may be creditors, but

the answer brushes aside the legal significance of that status as a de

minimis one. We need not address the question of whether a claimant

whose claim is small can be barred from a plaintiff's status in a creditor’s

action to set aside a fraudulent conveyance. Suffice it to say no legal

basis for that distinction is argued, nor need it be, for under the plead-

ings here the plaintiffs are creditors.

16A

We see no force in the argument that UFCA is inapplicable

because it confers no substantive rights. It does not. It is not

intended to. What plaintiffs seek by use of UFCA is not the

substantive right of a claim as creditor, but a remedy to assist in

the satisfaction of that substantive claim.

We note that the case of United States v. Tabor Court Realty

Corp., 803 F.2d 1288 (3rd Cir. 1986), validates the use of a state

UFCA proceeding by a creditor to challenge a leveraged buyout.

The United States of America was a creditor for income taxes in

the Tabor case, where there was a conveyance of a major coal

producer’s assets and where the transaction jeopardized the abili-

ty of the United States to collect taxes. The court found it was

appropriate to apply Pennsylvania’s fraudulent conveyance act

for the protection of creditors to set aside the leveraged buyout.

Labor unions and their members should not be denied this same

remedial aspect of state law unless to afford such remedy in some

way impinges upon, or interferes with, the underlying and para-

mount philosophy of LMRA that the same federal legal stan-

dards be applied nationally to the interpretation and application

of collective-bargaining agreements. In this case, there is no evi-

dence of any impingement upon basic philosophies of LMRA.

We also consider other language appearing in several of the

opinions of the United States Supreme Court that impels the

conclusion we reach here.

It is rather obvious that, if the result sought to be achieved by

the state claim or action cannot be the subject of any collective-

bargaining agreement, it is nonnegotiable. Hence, the assertion of

such claim can have no effect on labor negotiations or on collec-

tive-bargaining agreements. See Allis-Chalmers at 211, 212. It

would be difficult to assert that an agreement to submit to, or be

victimized by, fraudulent conveyors is an agreement that could

be negotiated legally under any system of law by parties to a

collective-bargaining agreement. Certainly, the rights under

17A

UFCA are not rights that a party to this litigation contends may

be bargained away. Allis-Chalmers at 212 noted that sec. 301 does

not grant parties to a collective-bargaining agreement the ability

to contract for what is illegal under the state law or to forego

rights or obligations under state law that are independent of the

labor contract. We do not see the defendant companies claiming

that the right to assert the remedies of UFCA have been bar-

gained away or can be bargained away in any collective-bargain-

ing agreement. More to the point, the above language of A/lis-

Chalmers makes it clear that the right to use UFCA need not

hinge upon any possible interpretation of a collective-bargaining

agreement. Allis-Chalmers, at 217, made a significant point in

asserting that parties to a labor contract are free to bargain in

respect to what constitutes “good faith” in an insurance agree-

ment. If effect (sic), the Supreme Court concluded that, although

“good faith” was a concept of state tort law, it was bargainable

and negotiable in a collective-bargaining agreement because it

involved terms and conditions in respect to the timeliness and

methods of insurance benefit payments agreed upon in the collec-

tive-bargaining agreement.

It could be argued that a conveyance which is denominated as

a constructive fraud only by reason of its consequences—such as

undercapitalization or insolvency—could be an appropriate sub-

ject for labor negotiations. Such fraud after all is only of a type

that is presumed in law. The fraud alleged in the third count of

the complaint of the unions is brought under the provisions of

sec. 242.07, Stats., Fraud in fact. The allegation is one of inten-

tional fraud. Such conduct is proscribed by law and cannot be

negotiable. The purpose of a uniform federal labor law cannot be

furthered by any ratiocination that actual fraud is an appropriate

or negotiable subject of a collective-bargaining agreement.

The language of Judge Richard Posner in the recent case of Air

Line Pilots Assoc. International v. UAL Corporation, International

Association of Machinists & Aerospace Workers, Nos. 83-3308, 88-

18A

3377, and 88-3387 (7th Cir. 1989), is by analogy appropriate to

the use, in this case, of UFCA to control alleged illegal aspects of

a corporate takeover. The Seventh Circuit case involved the ap-

plicability of a Delaware anti-takeover law, which was invoked

to avoid a hostile leveraged buyout. It was claimed that the law

of the State of Delaware was preempted by the Railway Labor

Act, an act that has been interpreted to have as much preemptive

effect as sec. 301 actions under LMRA. The Seventh Circuit said

the Delaware law was not preempted and stated that preemption

would be contrary to public policy and that an anti-takeover

clause in a collective-bargaining agreement was a nullity. Judge

Posner wrote:

‘Although preemption does not seem required to further

the objectives of federal law, it could have a catastrophic

effect on the efforts of states to regulate takeovers, and this

consideration is germane since, realistically, a judgment

about preemption requires a weighing of federal and state

interests. See, e.g., Local 926, International Union of Oper

ating Engineers v. Jones, 460 U.S. 669, 676 (1983); Belknap,

Inc. v. Kale, supra, 463 U.S. at 498. Any firm that had a

collective-bargaining agreement with a significant fraction of

its work force could adopt anti-takeover measures with com-

plete impunity, simply by writing them into the collective-

bargaining agreement. Unionized firms would be immune to

hostile takeovers, if, as is common, [*24] the union feared

that a buyer of the company would seek to economize on its

labor costs by renegotiating the company’s collective-bar-

gaining agreements or even by selling off the company’s as-

sets to purchasers who would take free of any obligation

under such agreements. For us to create in the name of

preemption so enormous a loophole in state regulation, with-

out any evidence that the loophole is necessary to protect the

objectives of federal labor law, would be reckless. Like the

criminal law, the regulation of corporations is, as the Su-

preme Court reminded us in the CTS case, a matter of pri-

mary state responsibility. See 107 S. Ct. at 1550-52; see also

Cort v. Ash, 422 U.S. 66, 84-85 (1975). In such areas the

presumption is against federal preemption. California v.

19A

ABC American Corp., 57 U.S.L.W., 4425, 4427 (S. Ct. April

18, 1989). And presumption or not, we do not think that the

framers of the Railway Labor Act meant to deal the body

blow to state regulation of corporations that a finding of

preemption in this case would administer.” 1989 U.S. App.

Lexis 6521, 21.

In a vein similar to that of Judge Posner’s opinion, we have

already explained that these claimis require only tangential refer-

ence to the collective-bargaining agreement. No substantial inter-

pretation is required. On the other hand, we conclude that the

rationale for the objection to UFCA in this case on the ground

that it might interfere with the federai labor law goal of uniform-

ity is hard te understand. It would appear that the suppression of

fraud, presumed or factual, even in the civil sense, is so closely

related to the criminal law that the state has a substantial interest

that should not be tampered with unless the paramount interest

of the federal government in uniform labor law in the particular

case is demonstrated.’ It would appear that an area of state law

such as that which we have under consideration here—fraudulent

conveyances—is one in which the presumption should be against

federal preemption.

In respect to the arguments of the defendants thai the rights

afforded by UFCA are remedial only, we respond by pointing out

that the rights, because they are remedial, are significant ones in

the panoply of most states’ arsenals against those who would

defraud creditors. A substantial state interest is at stake that

should not be displaced upon a mere assertion that the

uniformity of federal labor laws will be put in jeopardy.

Defrauded creditors’ rights should not be allowed to go

7We point out that we do not balance the importance, in terms of

policy, of the state claim against the preemptive effect of federal law.

As Allis-Chalmers at 214, n. 8, makes clear, balancing or weighing of

the comparative importance of state law is irrelevant and inappropriate.

Rather, we state that an important state value should not be discarded

lightly unless there is preemption under the federal law.

20A

unvindicated by merely asserting that the use of UFCA raises the

spectre of non-uniform interpretations of collective-bargaining

agreements. There is no showing of such a consequence here.

Under the facts of this case, as well pleaded in the complaint, the

unions and their members are creditors and are entitled to assert

the remedy afforded by UFCA.

In conclusion, then, we hold that the cause of action asserted

is a State claim, not a sec. 301 claim subject to preemption. There

is no “substantial” dependency on a collective-bargaining agree-

ment. The right claimed at the most requires only “tangential”

reference to the collective-bargaining agreement. The rights arise

under the state statute, not under any collective-bargaining agree-

ment. There is no “intertwining.” The state claim arises under an

entirely separate aggregation of rights not even remotely con-

cerned with labor law—state or federal. Nor are the rights being

asserted in any way founded upon a substantial interpretation of

a collective-bargaining agreement, nor, as we point out, could

they be. The unions are not seeking directly to enforce their col-

lectively-bargained rights to wages or other benefits. Rather, they

seek to utilize UFCA to prevent their debtor from putting itself

in a posture that may fundamentally compromise its ability to

meet its obligations to its creditors; and there has been no show-

ing by the companies that this claim will require substantial in-

terpretation of the collective-bargaining agreement or that it will

impinge upon the acknowledged value in having uniform federal

labor law. There is simply no logical reason for this attempt to

preempt an important area of state creditor law.

The only question of any real importance at this stage of the

litigaticn is the unions’ creditor status. Given the broad definition

of “‘creditor” that appears in sec. 242.01(3),* it cannot be doubted

8**242.01(3) ‘Creditor’ is a person having any claim, whether matured

or unmatured, liquidated or unliquidated, absolute, fixed or contin-

gent.”

2iA

that the plaintiffs here have the standing and the factual posture

under the complaint to bring this state action.

While their status as creditors in fact may be challenged upon

remand, whether that status arose as the result of obligations to

them under the collective-bargaining agreement is immaterial. It

is the status that counts, not its origin. To determine whether the

unions and their members are creditors, simpliciter, is a perfunc-

tory exercise not dependent upon any substantial interpretation

of collective-bargaining agreements. It is a determination that has

no dependency upon the application of federal labor law.

Upon remand, additional issues will be posed: Whether the

company has rendered itself insolvent by the transaction, whether

it will be unreasonably undercapitalized, whether the considera-

tion for the transfer was fair, and whether there was, as alleged,

constructive and actual fraud perpetrated on the creditors. At the

most, however, we anticipate that any references in future stages

of this litigation to collective-bargaining agreements will be “‘tan-

gential.”’ The claim is not predicated or dependent upon any pro-

vision of the agreement. What the unions and their employees

seek is an injunction to set aside or avert what is alleged to be a

fraudulent transaction. While this may involve complicated arith-

metical calculations and accounting procedures, we do not see a

possibility that, for the purposes of the remedy sought to be af-

forded by ch. 242, Stats. (UFCA), the collective-bargaining agree-

ment need be substantially considered. Federal preemption by the

application of federal labor law under sec. 301 of LMRA is inap-

propriate. This is not a dispute that, in its present state-claim

posture, implicates federal labor law.

By the Court.—Judgment reversed and cause remanded.

22A

No. 87-1784

STATE OF WISCONSIN : IN

SUPREME COURT

INTERNATIONAL ASSOCIATION OF MACHINISTS

& AEROSPACE WORKERS,

IAM LOCAL 437, IAM LOCAL 710,

IAM DISTRICT 10, IAM DISTRICT 172,

Individually and as authorized

representatives of all

IAM EMPLOYEES OF

UNITED STATES CAN COMPANY,

CONTINENTAL CAN COMPANY,

CCC SERIES 200, INC.,

INTER-AMERICAN PACKAGING, INC., and

GP ACQUISITION COMPANY, INC.,

Plaintiffs-Appellants,

UNITED STATES CAN COMPANY,

a Georgia corporation,

CONTINENTAL CAN COMPANY, U:S.A., INC.,

a Delaware corporation,

CCC SERIES 200, INC.,

a Delaware corporation,

INTER-AMERICAN PACKAGING, INC.,

a Pennsylvania corporation,

GP ACQUISITION COMPANY, INC.,

a Pennsylvania corporation, and

JOHN DOE’S 1-100,

collectively referring to the banks,

and other lenders participating in

the financing of the acquisition of

Continental Can, packaging sector by

United States Can Company,

Defendants-Respondents.

LOUIS J. CECI, J. (Dissenting.) I dissent. I would find that the

unions’ cause of action under the Uniform Fraudulent Convey-

23A

ance Act, ch. 242, Stats. (1985-86), is preempted by § 301 of the

Labor Management Relations Act (LMRA), 29 U.S.C. § 185,

because resolution of the unions’ cause of action before this court

will require substantial interpretation of the collective bargaining

agreement between the unions and Continental Can Company

(Continental). I am at a loss to understand how the majority

could conclude otherwise.

Section 301(a) of the LMRA, 29 U.S.C. § 185(a), provides:

Suits for violation of contracts between an employer and

a labor organization representing employees in an industry

affecting commerce as defined in this chapter, or between

any such labor organizations, may be brought in any district

court of the United States having jurisdiction of the parties,

without respect to the amount in controversy or without

regard to the citizenship of the parties.

In Textile Workers v. Lincoln Mills, 353 U.S. 448 451 (1957),

the United States Supreme Court held that § 301 not only pro-

vides federal court jurisdiction over controversies involving col-

lective bargaining agreements but also “authorizes federal courts

to fashion a body of federal law for the enforcement of these

collective bargaining agreements.” See aiso Lingle v. Norge Divi-

sion of Magic Chef, Inc., 108 $.Ct. 1877, 1880 (1988). The Court

later concluded that state courts have concurrent jurisdiction

over § 301 claims. Charles Dowd Box Co., Inc. v. Courtney, 368

U.S. 502 (1962). However, state as well as federal courts must

apply federal law in deciding such claims. Teamsters vy. Lucas

Flour Co., 369 U.S. 95, 102 (1962); Lingle, 108 S.Ct. at 1880 n. 2.

In Lucas Flour, the Court was confronted with the issue of

whether a collective bargaining agreement implicitly prohibited a

strike that had been called by the union. The Washington Su-

preme Court had -answered that question by applying state law

rules of contract interpretation. Lucas Flour, 369 U.S. at 102. The

24A

Court rejected that approach and held that § 301 mandated resort

to federal rules of law in order to ensure uniform interpretation

of collective bargaining agreements because “(t]he possibility that

individual contract terms might have different meanings under

state and federal law would inevitably exert a disruptive influence

upon both the negotiation and administration of collective agree-

ments.” Jd. at 103.

In Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 208 (1985), the

Court considered the issue of whether § 301 of the LMRA

preempted a state law tort action for bad-faith delay in making

disability bénefit payments due under a collective bargaining

agreement. The Court held that “[t]he interests in interpretive

uniformity and predictability that require that labor-contract dis-

putes be resolved by reference to federal law also require that the

meaning given a contract phrase or term be subject to uniform

federal interpretation.” /d. at 211. Consequently, since reference

to the collective bargaining agreement as to the manner in which

a benefit claim would be handled would necessarily have been

relevant to any allegation that the claim was handled in a dilatory

manner, the Court held that § 301 preempted the application of

the state law tort remedy. /d. at 218-19. The Court concluded by

holding “that when resolution of a state-law claim is substantially

dependent upor analysis of the terms of an agreement made be-

tween the parties in a labor contract, that claim must either be

treated as a § 301 claim, see Avco Corp. v. Aero Lodge 735, 390

U.S. 557 (1968), or dismissed as pre-empted by federal labor-con-

tract law.” Jd. at 220; see also Lingle, 108 S.Ct. at 1883-84 n. 10;

Caterpillar Inc. v. Williams, 482 U.S. 386, 394 (1987).

Therefore, § 301 of the LMRA preempts state law claims

which are founded directly on rights created by the collective

bargaining agreements or which are substantially dependent upon

analysis of a collective bargaining agreement. Caterpillar, 482

U.S. at 394; International Brotherhood of Electrical Workers vy.

Hechler, 481 U.S. 851, 859 n. 3 (1987); Evans v. Einhorn, 855

25A

F.2d 1245, 1251 (7th Cir. 1988); Ethridge v. Harbor House Res-

taurant, 861 F.2d 1389, 1396 (9th Cir. 1988). If the resolution of

a state law claim depends upon the meaning of a collective bar-

gaining agreement, the application of state law is preempted.

Lingle, 108 S.Ct. at 188i.

In the case before this court, the unions’ complaint expressly

sets Out that the debts the unions are seeking to secure exist solely

because of the collective bargaining agreement. Paragraphs | and

3 of the complaint state in part:

1... . Plaintiffs are creditors of defendants with respect to

wages, employee benefits, pension and welfare benefits, col-

lective bargaining dues ‘check-offs’, and other matured and

unmatured claims, pursuant to the collective bargaining

agreement between the IAM and the defendants. . . .

3. The IAM employees of the defendants are creditors of

defendants under the terms of the IAM Continental collective

bargaining agreement in the approximate amount of

$19,950,000. This indebtedness is comprised of matured as

well as unmatured claims over the life of plaintiffs’ current

collective bargaining agreement for wages, vacation pay, sick

leave pay, life, health and accident insurancz, pension con-

tributions, and other employee benefits, as well! as claims

asserted in various grievance and arbitration proceedings, a//

owed to the employees pursuant to the collective bargaining

agreement. -

(Emphasis added.) The unions’ complaint also sets out the basis

of its claims. Paragraphs 21, 25, and 27 of the complaint state:

21. As a result of defendant U.S. Can’s acquisition of the

Continental packaging sector pursuant to the merger trans-

action between the parties, defendants have made and will

make conveyances and incur obligations which will render

the surviving entity insolvent within the meaning of Section

4 of the Uniform Fraudulent Conveyance Act, Wis. Stat.

§ 242.04. These conveyances and obligations, as more fully

26A

set forth in paragraphs 11 through 17, supra, will render the

merged entity insolvent in that the fair saleable value of the

available, unemcumbered post-merger assets will be far less

than the amount that the post-merger enterprise will need to

pay its probable liabilities or its existing debts as they become

absolute and matured.

25. The transaction which defendants have completed, or

are about to complete, involves conveyances and obligations

on the part of defendants which will leave the surviving

merged entity severely and unreasonably undercapitalized

within the meaning of § 5 of the Uniform Fraudulent Con-

veyance Act, Wis. Stat. § 242.05. The property remaining in

the surviving entity’s hands upon completion of the merger

transaction will be so encumbered by pledges, liens, and se-

curity interests that the surviving entity will be left with

effectively no working capital, but will have insurmountable

debt.

27. The conveyances and transfers which defendants have

completed, or are about to complete, as part of the U.S. Can

acquisition of the Continental packaging sector have been

made to hinder, delay, or defraud plaintiffs, who are both

present and future creditors of defendants, within the mean-

ing of Section 7 of the Uniform Fraudulent Conveyance Act,

Wis. Stat. § 242.07.

Consequently, in order to determine whether U.S. Can’s acqui-

sition of Continental’s packaging division pursuant to the merger

transaction between the parties will render the surviving entity

insolvent, a circuit court would have to determine, under

§ 242.04, Stats., whether the present fair salable value of Conti-

nental’s assets is less than the amount that will be required to pay

Continental's liability on its existing debts as they become abso-

lute and matured. Furthermore, in order to determine whether

U.S. Can’s acquisition of Continental’s packaging division pursu-

ant to the merger transaction between the parties would leave the

aenaAR eta cere ae ae

27A

surviving entity severely and unreasonably undercapitalized un-

der § 242.05, Stats., the court would have to determine whether

the property remaining after the conveyance is an unreasonably

small capital. Finally, in order to determine whether U.S. Can’s

acquisition of Continental’s packaging division pursuant to the

merger transaction between the parties was made to hinder, de-

lay, or defraud the unions under § 242.07, Stats., the court would

have to determine the companies’ actual intent.

In order to resolve these issues, the court would have to bal-

ance Continental’s assets against its liabilities. To determine Con-

tinental’s liabilities, the court would have to interpret the terms

of the collective bargaining agreement to determine if the unions’

claim of $19,950,000 in matured and unmatured claims over the

life of the unions’ current collective bargaining agreement for

wages, vacation pay, sick leave pay, life, health and accident in-

surance, pension contributions, and other employee benefits as

well as claims asserted in various grievance and arbitration pro-

ceedings is correct. Making such a determination would undoubt-

edly force the court to consirue the meaning and import of the

numerous provisions of the collective bargaining agreement in

light of the provisions and definitions of the Uniform Fraudulent

Conveyance Act.!' Such substantial interpretation of the collective

bargaining agreement by a state court to determine rights under

state law would result in precisely the outcome that the doctrine

of preemption under § 301 is supposed to prevent.

'T note that:

“A collective-bargaining agreement may, of course, contain infor-

mation such as rate of pay and other economic benefits that might

be helpful in determining the damages to which a worker prevailing

in a State law suit is entitled. See Baldracchi v. Pratt & Whitney

Aircraft Div., United Technologies Corp., 814 F.2d 102, 106 (CA2

1987). Although federal law would govern the interpretation of the

agreement to determine the proper damages, the underlying state

law claim, not otherwise pre-empted, would stand. Thus, as a gen-

eral proposition, a state law claim may depend for its resolution

upon both the interpretation of a collective-bargaining agreement

(Footnote continued on following page)

28A

The possibility that individual contract terms might have

different meanings under state and federal law would inevi-

tably exert a disruptive influence upon both the negotiation

and administration of collective agreements. Because neither

party could be certain of the rights which it had obtained or

conceded, the process of negotiating an agreement would be

made immeasurably more difficult by the necessity of trying

to formulate contract provisions in such a way as to contain

the sarne meaning under two or more systems of law which

might someday be invoked in enforcing the contract. Once

the collective bargain was made, the possibility of conflicting

substantive interpretation under competing legal systems

would tend to stimulate and prolong disputes as to its inter-

pretation.

Lucas Flour, 369 U.S. at 103-104.

In Brown y. Keystone Consolidated Industries, Inc., 680 F.

Supp. 1212, 1216 (N.D. IIL, 1988), the United States District

Court was confronted with a situation similar to the one presently

before this court. Keystone Consolidated Industries, Inc. (Key-

stone), in order to alleviate its fiscal woes, allegedly conspired

with Frank L. Corral (Corral) to circumvent Keystone’s Chicago

Heights Steel Division’s (CHS Division) collective bargaining

agreement and its pension agreement with its employees by exe-

cuting a sham transaction in which Keystone would sell its CHS

Division to a purported “independent buyer” who in reality was

Corral, CHS Division’s vice president and general manager. In

(Footnote continued from previous page)

and a separate state law analysis that does not turn on the agree-

ment. In such a case, federal law would govern the interpretation

of the agreement, but the separate state law analysis would not be

thereby pre-empted.”

Lingle, 108 S.Ct. at 1885 n. 12 (emphasis added).

However, in the case before this court, the state law claim is not

separate because liability, not just damages, is decided by reference to

the collective bargaining agreement. The companies’ liability under state

law is decided by reference to the collective bargaining agreement. As a

result, Baldracchi is not applicable to the situation before this court.

29A

this manner, Keystone would allegedly continue to realize profits

from the operation of the CHS Division business without being

saddled with the obligations under its collective bargaining and

pension agreements. /d.

The plaintiffs, thirty-five former employees of CHS Division,

alleged in part that they were preexisting creditors of Keystone

in that Keystone owed the plaintiffs substantial sums of money

in the form of pension and retirement benefits and contractual

obligations under their collective bargaining agreement. /d. at

1219. The plaintiffs further alleged that the conveyance of Key-

stone to CHS Acquisition, which was incorporated by Corra! and

represented as an “independent buyer,” was a false and fraudu-

lent conveyance entered into by those parties for the purpose of

avoiding the claims of the plaintiffs. Jd.

The district court held:

This cause of action, like the claim for common law fraud,

is preempted by both the LMRA and the NLRA. As the

plaintiffs’ allegations concede, they are only ‘preexisting

creditors’ of Keystone to the extent that Keystone owes

them monies under the terms of the CBA and Pension

Agreement. Indeed, the Shutdown Agreement also directly

addresses the plaintiffs’ eligibility for these benefits. Thus, it

would be necessary to analyze the terms of at least three

labor agreements in order to resolve the plaintiffs’ fraudulent

conveyance claim. Obviously, then, this cause of action is

preempted by sec. 301.

Id. at 1219 (emphasis in original).

In Deford v. Soo Line R. Co., 867 F.2d 1080, 1081-82 (8th Cir.

1988), employees adversely affected by the sale of a portion of a

railroad’s rail lines and a labor association brought an action

alleging common law creditors’ rights violations and a Minnesota

Uniform Fraudulent Transfer Act violation in state court. The

employees attempted to avoid removal of their action to federal

30A

court by arguing that the Minnesota Fraudulent Transfer Act

imposed duties and obligations on all creditors completely inde-

pendent of any collective bargaining agreement. Jd. at 1087.

The court of appeals found that the existence and extent of the

creditors’ rights asserted by the employees could be determined

only by interpreting the collective bargaining agreements. Jd. at

1086. The court noted that the employees, in their complaint,

predicated their claims upon entitlements to accrued but unpaid

wages, vacation pay, life and health insurance, pension contribu-

tions, and severance benefits arising “pursuant to continuing la-

bor contracts and employee protection agreements.” Jd. There-

fore, the court concluded that the creditors’ rights asserted by the

employees directly involved the interpretation of collective bar-

gaining agreements and were, therefore, preempted under the

Railway Labor Act (RLA), 45 U.S.C. §§ 151-188 (1982). Jd. at

1087.

Similarly, I would hold in the case before this court that the

unions’ cause of action under the Uniform Fraudulent Convey-

ance Act, ch. 242, Stats., is preempted by § 301 of the LMRA,

29 U.S.C. § 185, because resolution of the unions’ cause of action

before this court will require substantial interpretation of the col-

lective bargaining agreement between the unions and Continental

Can Company. The majority opinion is simply wrong when it

asserts that ‘‘any references in future stages of this litigation to

collective-bargaining agreements will be ‘tangential.’ ’’ Majority

op. at 28. és

For the above reasons, I respectfully dissent.

I am authorized to state that Justice William G. Callow and

Justice Donald W. Steinmetz join in this dissenting opinion.

31A

SUPREME COURT

OF WISCONSIN

P.O. BOX 1688

MADISON, WI 53701-1688

REMITTITUR

INTERNATIONAL ASSOCIATION OF |

MACHINISTS & AEROSPACE

WORKERS, IAM LOCAL 437, IAM

LOCAL 710,

IAM DISTRICT 10, IAM DISTRICT 172.

INDIVIDUALLY AND AS

AUTHORIZED REPRESENTATIVES

OF ALL IAM EMPLOYEES OF

UNITED STATES CAN COMPANY,

CONTINENTAL CAN COMPANY,

CCC SERIES 200, INC. ;

INTER-AMERICAN PACKAGING,

INC., AND GP ACQUISITION

COMPANY, INC.,

Plaintiffs-Appellants,

UNITED STATES CAN COMPANY,

A GEORGIA CORPORATION,

CONTINENTAL CAN COMPANY,

U.S.A., INC., A DELAWARE

CORPORATION,

CCC SERIES 200, INC.,

A DELAWARE CORPORATION,

INTER-AMERICAN PACKAGING,

INC., A PENNSYLVANIA

CORPORATION,

GP ACQUISITION COMPANY, INC.,

A PENNSYLVANIA CORPORATION,

AND JOHN DOE’S 1-100,

COLLECTIVE REFERRING TO THE

BANKS, AND OTHER LENDERS

PARTICIPATING IN THE

FINANCING OF THE ACQUISITION

OF CONTINENTAL CAN,

PACKAGING SECTOR BY

UNITED STATES CAN COMPANY,

Defendants-Respondents.

'APPEAL NO. 87-1784

-T.Ct. NO. 87-CV-1349

32A

THIS CAUSE WAS AN APPEAL TO REVIEW THE

JUDGMENT AND ORDER OF THE CIRCUIT COURT OF

RACINE COUNTY. UPON CONSIDERATION, IT IS OR-

DERED AND AJUDGED BY THIS COURT IN AN OPIN-

ION FILED ON JUNE 27, 1989, THAT:

JUDGMENT REVERSED AND CAUSE REMANDED.

NATHAN S. HEFFERNAN Wrote Decision/Opinion

WILLIAM G. CALLOW Joined Dissenting Opinion

DONALD W. STEINMETZ Joined Dissenting Opinion

LOUIS J. CECI Wrote Dissenting Opinion

THE APPEAL RECORD IS HEREBY RETURNED TO

THE CLERK OF CIRCUIT COURT FOR RACINE COUN-

TY.

I CERTIFY THAT THE ABOVE IS

A CORRECT TRANSCRIPT OF

THE ORIGINAL ORDER AND

JUDGMENT OF THE COURT IN

THE ABOVE-ENTITLED CAUSE.

DATED:

AUGUST 01, 1989.

/S/MLG

MARILYN L. GRAVES

CLERK, SUPREME COURT

33A

Office of the Clerk

- SUPREME COURT

STATE OF WISCONSIN

Hon. Stephen A. Simanek

Circuit Court of Racine

County

Racine County Courthouse September 13, 1988

Racine, WI 53403 Madison,

To David L. Uelmen Stephen H. Skoller

Previant, Goldberg, Uelmen, Lowenstein, Sandler, Kohl,

Gratz, Miller & Fisher & Boylan

Brueggeman 65 Livingston Ave.

P. O. Box 92099 Roseland, N.J. 07068

Milwaukee, WI 53202

The Court today announced an order in your case as follows:

No. 87-1784 International Ass’n of Machinists & Aerospace

Workers, et al. v. United States Can Company, et al.

The court having considered the request of the court of appeals

pursuant to sec. (rule) 809.61, Stats., that this court accept the

certification of this appeal;

IT IS ORDERED, the certification request is granted and ju-

risdiction of the appeal is accepted; and

IT IS FURTHER ORDERED, the briefs previously submitted

by the parties to the court of appeals may stand as the briefs of

the parties in this court. The parties shall submit 10 additional

copies of their briefs within 10 days of the date of this order. The

parties will be notified of the date and time for oral argument in

this appeal.

*Robert H. Bichler Robert A. Christensen

Emily S. Mueller Stanley S. Jaspan

Thompson & Coates, Ltd. Foley & Lardner

P. O. Box 516 777 E. Wisconsin Ave.

Racine, WI 53403 Milwaukee, WI 53202

Lawrence E. Flynn

Clerk of Courts

Racine County Courthouse MARILYN L. GRAVES

Racine, WI 53403 Clerk of Supreme Court.

34A

IN COURT OF APPEALS OF WISCONSIN

DISTRICT II

INTERNATIONAL ASSOCIATION OF |

MACHINISTS & AEROSPACE

WORKERS,

IAM LOCAL 437, IAM LOCAL 710,

IAM DISTRICT 10, IAM DISTR{iCT

172

individually and as authorized

representatives of all IAM

EMPLOYEES OF UNITED STATES

CAN COMPANY, CONTINENTAL

CAN COMPANY,

CCC SERIES 200, INC. INTER-

AMERICAN

PACKAGING, INC., AND GP

ACQUISITION

COMPANY, INC.,

_ CERTIFICATION

Plaintiffs-Appellants, |

No. 87-1784

UNITED STATES CAN COMPANY,

a Georgia corporation, CONTINENTAL

CAN COMPANY, U:S.A., INC., a

Delaware corporation, CCC SERIES

200, INC., a Delaware corporation,

INTER-AMERICAN PACKAGING,

INC., a Pennsylvania corporation

GP ACQUISITION COMPANY, INC.,

a Pennsylvania Corporation, and

JOHN DOE'S 1-100, collectively

referring to the banks, and other

lenders participating in the

financing of the acquisition of

Continental Can, packaging sector

by United States Can Company,

Defendants- Respondents.

Before Scott, C.J., Brown, P.J., and Nettesheim, J.

Pursuant to Rule 809.61, Stats., this court certifies the appeal

in this case to the Wisconsin Supreme Court for its review and

determination.

35A

ISSUE

Whether an action under the Uniform Fraudulent Conveyance

Act, ch. 242, Stats., is preempted by sec. 301 of the Labor Man-

agement Relations Act when brought by a union and employees

against an employer.

FACTS

The plaintiffs in this action are the International Association

of Machinists and Aerospace Workers, several of the union’s lo-

cal and district organizations, and the union employees of the

companies below (collectively IAM). The defendants include

United States Can Company (U.S. Can), Continental Can Com-

pany, U.S.A., Inc. (Continental Can), and several other corpora-

tions and unidentified lenders allegedly involved in the purchase

transaction. To the extent that the defendants are aligned, we will

refer to them collectively as ‘the companies.”

IAM brought this action under the Uniform Fraudulent Con-

veyance Act (UFCA), ch. 242, Stats.' IAM alleged that a

leveraged buyout of Continental Can by U.S. Can violated secs.

242.04, 242.05 and 242.07 of the UFCA. IAM alleged that it had

standing as a creditor because of the collective-bargaining agree-

ment.

The companies moved to dismiss the action on the ground that

it was preempted by sec. 30! of the Labor Management Relations

Act (LMRA), 29 U.S.C.A. sec. 185. The trial court granted the

motion, finding that: (1) the state action was based on rights

arising out of the collective-bargaining agreement; and (2) reso-

lution of the dispute would require interpretation of that agree-

ment.

'The UFCA was repealed and recreated by 1987 Wis. Act 192 (eff.

Apr. 8, 1988). Because this action was brought before the effective date,

all references to ch. 242, Stats., are as they existed prior to repeal.

36A

IAM then brought a motion for relief from judgment premised

upon discovery documents received on the day of the motion

hearing. IAM alleged that from these documents it first became

aware that U.S. Can, the successor corporation, had repudiated

the collective-bargaining agreement and that the alleged fraudu-

lent transactions took place thereafter. As a result of this knowl-

edge, IAM sought relief on the bases of surprise, newly discov-

ered evidence, misrepresentation or “other reasons justifying re-

lief.” Sec. 806.07(1)(a)-(c), (h), Stats. The motion for relief was

denied, and IAM appealed from the earlier judgment of dismissal

and the order denying its motion for relief.

PREEMPTION UNDER THE LMRA

Section 301 of the LMRA preempts state law claims which are

founded directly on rights created by collective-bargaining agree-

ments or which are substantially dependent upon analysis of the

terms of a collective-bargaining agreement. Caterpillar, Inc. vy.

Williams, 107 S. Ct. 2425, 2431 (1987). The purpose of preemp-

tion is to ensure uniform interpretation of collective-bargaining

agreements and to promote the peaceable, consistent resolution

of labor-management disputes. Lingle v. Norge Div. of Magic

Chef, Inc., 108 S. Ct. 1877, 1880 (1988).

A state claim is not preempted merely because its resolution

would require addressing the same set of facts which resolution

of a collective-bargaining dispute would require. /d. at 1883. Nor

is a dispute preempted by the LMRA when it tangentially in-

volves a provision of a collective-bargaining agreement. A//is-

Chalmers Corp. v. Lueck, 471 U.S. 202, 211 (1985).

The most recent pronouncement from the United States Su-

preme Court was Lingle, 108 S. Ct. 1877. The Court held that

the employee’s state law claim for retaliatory discharge was not

preempted, despite the existence of a provision in the collective

bargaining agreement requiring “just cause” for discharge. /d. at

37A

1882. This claim was distinguished from Lueck, 471 U.S. 202,

which involved the Wisconsin tort of bad faith in an insurance

claim. Lingle, 108 S. Ct. at 1881. The insurance was provided

through the collective-bargaining agreement, and the agreement

itself established the very rights and duties which the employee

was seeking to enforce. See id.

Another LMRA case argued extensively by the parties is

Baldracchi v. Pratt & Whitney Aircraft Di»., 814 F.2d 102 (2d Cir.

1987), cert. denied, 100 L.Ed.2d 920 (1988). Baldracchi, like

Lingle, dealt with a state retaliatory discharge claim. The signifi-

cant holding of Ba/dracchi is that interpretation of the collective-

bargaining agreement to determine the employee’s damages (rate

of pay, economic benefits, etc.) was tangential and did not consti-

tute “substantial dependence” on the agreement. /d. at 106. This

holding was approved by the Supreme Court in Lingle, 108 S. Ct.

at 1885 n.12.

PREEMPTION AND THE UFCA

IAM has alleged violations of three different provisions of the

UFCA: (1) sec. 242.04, Stats., regarding insolvency; (2) sec.

242.05, Stats., regarding undercapitalization; and (3) sec. 242.07,

Stats., regarding fraud in fact. The parties agree that IAM must

establish its status as a creditor of the companies to bring a claim

under the UFCA. “Creditor” is defined in sec. 242.01(3), Stats.,

as follows:

“Creditor” is a person having any claim, whether matured

or unmatured, liquidated or unliquidated, absolute, ‘ixed or

contingent.

IAM specifically alleged that the employees were creditors un-

der the terms of the collective bargaining agreement. Subsequent

to the alleged repudiation of the agreement, IAM bases the credi-

tor status on the fact of employment, i.e., the employees come to

work on Monday and get paid on Friday.

38A

IAM’s position is that the UFCA establishes state rights which

are independent of the collective bargaining agreement and thus

not preempted. See Lueck, 471 U.S. at 212-13. Furthermore, once

creditor status is proven, IAM argues that no further examination

of the collective bargaining agreement need take place. Emphasis

will shift instead to the transaction documents because IAM will

not have to prove the specific amount of the debt owed to the

employee to prove insolvency or undercapitalization. [AM also

contends that should proof of the debt under the collective bar-

gaining agreement be necessary, the interpretation would be tan-

gential as it was in Baldracchi.

The companies’ position is that IAM is seeking to enforce

rights which spring from the collective bargaining agreement. In

support, they cite to various out-of-state cases which characterize

the UFCA as establishing only remedies but no substantive

rights. See, e.g., Clark v. Rossow, 657 P.2d 903, 904 (Ariz. App.

Ct. 1982). The companies also urge preemption because without

the collective bargaining agreement, no creditor status can be

proven.

Our research has found only one case dealing with a fraudulent

conveyance claim and preemption under the LMRA. In Brown v.

Keystone Consol. Indus., 680 F. Supp. 1212 (N.D. Ill. 1988), the

district court dismissed the employees’ fraudulent conveyance

claim because they were preexisting creditors only by virtue of the

collective bargaining agreement. /d. at 1219. No significant anal-

ysis was done by the court, nor has the case been appealed to the

Seventh Circuit because other claims are still pending in the dis-

trict court. See id.

As regards the motion for relief from judgment, [AM argues

that the renunciation of the collective bargaining agreement in-

validates the trial court’s basis for preemption—the necessity of

using the agreement to establish creditor status. The companies

contend that the renunciation and timing of the financing was

39A

previously known to IAM. The trial court did not specifically

make a finding on IAM’s knowledge, basing its decision instead

on its opinion that preemption would still occur even with this

“new” evidence.

CONCLUSION

Leveraged buyouts are becoming more common, as is the use

of the UFCA to prevent such buyouts. See, e.g., United States ».

Tabor Court Realty Corp., 803 F.2d 1288, 1297 (3d Cir. 1986),

cert. denied sub nom. McClellan Realty Co. v. United States, 107

S. Ct. 3229 (1987). The use of the UFCA by unions and employ-

ees has appeared only once in a published decision, and the via-

bility of such claims has not yet been decided by any appellate

court.

This case presents a potential conflict between federal labor law

and state policy as expressed by the legislature. The decision will

have statewide, as well as nationwide, impact on mergers and

acquisitions.

As this appeal goes beyond our function as an error-correcting

court, it is more appropriately decided by the supreme court,

whose function is to declare the law and public policy of the state.

See State v. Mosley, 102 Wis.2d 636, 665-66, 307 N.W.2d 200,

216-17 (1981). We therefore respectfully certify the appeai in this

case to the Wisconsin Supreme Court pursuant to Rule 809.61,

Stats.

40A

STATE OF CIRCUIT COURT

WISCONSIN : BRANCH 2

INTERNATIONAL ASSOCIATION

OF MACHINISTS & AEROSPACE

WORKERS (“IAM”); IAM LOCAL

437, IAM LOCAL DISTRICT 172,

individually and as authorized repre-

sentatives of all IAM EMPLOYEES

OF UNITED STATES CAN COM-

PANY, CONTINENTAL CAN CO.,

€CC SERIES 200, INC., INTER-

AMERICAN PACKAGING, INC.,

and GP ACQUISITION CO., INC.,

Plaintiffs,

-VS-

UNITED STATES CAN COMPA-

NY, a Georgia corporation, CONTI-

NENTAL CAN COMPANY, U:S.A.,

INC., a Delaware corporation, CCC

SERIES 200, INC., a Delaware corpo-

ration, INTER-AMERICAN PACK-

AGING, INC., a Pennsylvania corpo-

ration, GP ACQUISITION COMPA-

NY, INC., a Pennsylvania corpora-

tion, and JOHN DOE’S 1-100, collec-

tively referring to the banks and other

lenders participating in the financing of

the acquisition of Continental Can pack-

aging sector by United States Can Co.,

Defendants.

: RACINE COUNTY

» Case No. 87-CV-1349

Proceedings held before the HONORABLE STEPHEN A.

SIMANEK, Circuit Court Judge-Branch 2, Racine County, Wis-

consin, on July 24, 1987.

41A

APPEARANCES:

Stephen H. Skoller and Kurt C. Kobelt, Attorneys at Law,

appearing on behalf of the Plaintiffs.

Robert Christensen, Susan Maisa and Deborah Patel, Attor-

neys at Law, appearing on behalf of Defendant, Continental

Can Company, U.S.A., Inc.

Emily Mueller, Carson P. Veach and Rody Biggert, Attor-

neys at Law, appearing on behalf of Defendant, United

States Can Company, CCC Series 200, Inc., Inter-American

Packaging Inc., GP Acquisition Company, Inc.

THE COURT: As I indicated earlier, the Court has had the

opportunity to review the briefs both in support and opposition

to the motion brought by the Defendants under Section 802.06(3)

for judgment on the pleadings, presumably either for failure to

state a claim upon which relief can be granted or a lack of subject

matter jurisdiction by this Court over this dispute because of the

preemption contained in the federal labor laws, specifically Sec-

tion 301 of the Labor Management Relations Act. I have also

now had the opportunity to hear oral argument presented on

behalf of both the moving party and the party in opposition to

the motion, and I must make a determination under the statute

whether or not judgment on the pleadings should be granted. In

order to do that, the Court must accept the allegations contained

in the complaint, the pleadings in dispute here as factually proven

and then determine whether or not based on those pleadings as a

matter of law the Plaintiff could prevail. We could go back with

respect to the theories and doctrines of the federal labor law and

the preemption doctrine back to the Garmon and San Diego

Building Trades case and subsequent cases to learn that one of

the cornerstones of the federal labor law is the attempt through

legislation to create—through federal legislation to create a uni-

formity in dealing with disputes between employers and employ-

ees and that frequently that striving for uniformity causes along

the way some inequities. Those inequities are lived with because

42A

of the overriding benefits of the uniformity. The Defendants in

this case have come to this Court asking this Court to dismiss the

Plaintiffs’ cause of action because this Court has no jurisdiction

over a dispute which the Defendants feel is preempted by Section

301 of the Labor Management Relations Act. The basis for that

motion is that the Plaintiffs’ claim here is a claim based upon the

collective bargaining agreement for which they seek redress

through the Uniform Fraudulent Conveyance Act, Chapter 242

of the Wisconsin Statutes. The Plaintiffs claim in opposition to

that motion to dismiss that this state action is not preempted

because they need not rely on rights created under the collective

bargaining agreement to pursue a remedy provided to creditors

under Chapter 242 and that in order to be preempted the Defen-

dants here must show that their claim is inextricably intertwined

with the rights created under the collective bargaining agreement

in order for the preemption to be triggered. As I indicated, I

heard the—I read the briefs and I have heard the arguments. It

is often difficult to articulate a cogent decision from the bench,

but I will try to be as articulate as I can be in rendering the

decision. I believe that the Defendants, here the moving parties,

have met their burden under 802.06(3) and have demonstrated to

the Court that they should be granted judgment on the pleadings.

I say that because I accept the argument offered by the Defen-

dants that this is an action which is grounded upon and entirely

based upon rights created in the collective bargaining agreement.

The attempt to obtain a remedy for an alleged violation or poten-

tial violation of those rights created under the collective bargain-

ing agreement through the auspices of the Uniform Fraudulent

Conveyance Act, Chapter 242, does not take the underlying claim

out of the arena which is preempted by the federal labor laws. The

claim remains the same, rights guaranteed to the employees

through their collective bargaining agreement, whether it be pen-

sion rights, wage rights, health insurance benefit rights or what-

ever other rights are guaranteed under that collective bar-

gaining agreement are the type of basis for a claim which the

43A

federal labor laws tell the state courts keep your hands off and

these disputes must be resolved in a uniform manner. I am

satisfied that whether we call the issue one of status to bring the

action under the Uniform Fraudulent Conveyance Act or wheth-

er we call it endorsement of a claim or utilization of a remedy or

whatever we call it, it is undeniable that the basis for being in

court is an agreement reached between the employees and the

employers to provide certain benefits to the employees and that

to guarantee compliance with those contractual obligations. This

matter was brought under the auspices of Chapter 242. It does

not change the nature of the animal. The animal is still protection

of rights guaranteed by the collective bargaining agreement. The

claim itself for which 242 gives a remedy is a claim entirely

founded on a collective bargaining agreement. Plaintiffs in this

lawsuit could not be creditors, but for the underlying rights ne-

gotiated by the Union with the employers in the collective bar-

gaining agreement. Their status then as a creditor under Chapter

242 is completely derived from negotiated rights contained or

negotiated benefits contained in the collective bargaining agree-

ment. Under these circumstances I believe in applying the ratio-

nale contained in the cases cited will require this Court to accept

the federal dictate—the federal law dictate that a state court can-

not step in and interpret and decide this case in this forum. I am

satisfied that the underlying right derives from the collective bar-

gaining agreement and a resolution of the dispute under 242 will

require this Court to evaluate and interpret a collective bargain-

ing agreement. It is clear that I do not have the authority to do

so based on the preemption doctrine as it is set forth in the statute

and as it is interpreted by the cases cited. The claim is founded

directly on rights created by the collective bargaining agreement,

and that language found in the Caierpillar case, the recent Su-

preme Court case decided June 9, 1987, tells this Court that I do

not have jurisdiction over this dispute. I am concerned every time

you read in the paper or hear in the financial news of a restruc-

turing or an LBO, you cannot escape the realization that that

44A

buy-out or restructuring is to make the remaining corporation

what the commentators like to call a lean and mean competitor.

To accomplish that, the ax falls often times first on the employees

by reduction in work force. I am not unaware of the jeopardy in

which the Plaintiffs here are placed or at least a potential jeop-

ardy, but the forum in which to exercise and protect those rights

created under the collective bargaining agreement is not under

Chapter 242 in the State of Wisconsin, Circuit Court Branch 2

for Racine County. The federal law has said the forum lies else-

where. Therefore, the Court will grant the motion of all named

Defendants who have joined the motion to dismiss. I will grant

that motion under 802.06(3). I suppose I could cite the string of

cases here on the record in the decision for the basis for this

decision; however, I think they have been discussed to a great

extent here, and in relying upon Caterpillar, relying upon Gibson

and relying upon Lueck, I believe the Defendants, here the mov-

ing parties, have met their burden. Motion granted.

45A

STATE OF CIRCUIT COURT: RACINE COUNTY

WISCONSIN :

INTERNATIONAL ASSOCIATION

OF MACHINISTS & AEROSPACE

WORKERS (“IAM”); IAM LOCAL

437, IAM LOCAL 710, IAM

DISTRICT 10, IAM DISTRICT 172,

individually and as authorized

representatives of ali IAM

EMPLOYEES OF UNITED |

STATES CAN COMPANY,

CONTINENTAL CAN CO., CCC

SERIES 200, INC., INTER-

AMERICAN PACKAGING, INC.,

and GP ACQUISITION CO.,INC., |

Plaintiffs, |

UNITED STATES CAN Case No. 87-CV-1349

COMPANY, a Georgia corporation,

CONTINENTAL CAN COMPANY,

U.S.A., INC., a Delaware

corporation, CCC SERIES 200, INC.,

a Delaware corporation, INTER-

AMERICAN PACKAGING, INC.,

a Pennsylvania corporation, GP

ACQUISITION COMPANY, INC., a

Pennsylvania corporation, and JOHN

DOE’s 1-100, collectively referring to

the banks and other lenders

participating in the financing of the

acquisition of Continental Can

packaging sector by United States Can

Co.,

Defendants.

46A

ORDER FOR JUDGMENT

The motion of defendants Continental Can Company USA,

Inc., United States Can Company, CCC Series 200, Inc., Inter-

American Packaging, Inc. and GP Acquisition Company, Inc. to

dismiss the above-encaptioned action on the ground that it is

preempted by sec. 301 of the Labor Management Relations Act,

29 U.S.C. § 185, having come on for hearing before the Court,

Stephen A. Simanek, presiding, at 1:00 in the afternoon of the

24th day of July, 1987; defendant Continental Can Company

USA, Inc. appearing by Robert A. Christensen and Susan R.

Maisa, defendants United States Can Company, CCC Series 200,

Inc., Inter-American Packaging, Inc. and GP Acquisition Com-

pany, Inc. appearing by Carson P. Veach, Rody P. Biggert and

Emily S. Miller; and plaintiff having appeared by Stephen H.

Skolier and Kurt Kobelt; and the Court having considered the

briefs of counsel, having heard the oral argument of counsel and

being fully advised in the premises;

IT IS HEREBY ORDERED That judgment be entered dis-

missing the above-encaptioned action without costs to any party

as against any other party.

BY THE COURT:

/S/ STEPHEN A. SIMANEK

Stephen A. Simanek

Circuit Judge—Branch 2

47A

STATE OF

WISCONSIN: CIRCUIT COURT

INTERNATIONAL ASSOCIATION

OF MACHINISTS & AEROSPACE

WORKERS (“IAM”); IAM LOCAL

437, IAM LOCAL 716, IAM DIS-

TRICT 10, IAM DISTRICT 172, indi-

vidually and as authorized representa-

tives of all IAM EMPLOYEES OF

UNITED STATES CAN COMPA-

NY, CONTINENTAL CAN CO.,

CCC SERIES 200, INC., INTER-

AMERICAN PACKAGING,

INC., and GP ACQUISITION CO.,

INC.,

Plaintiffs,

Vv.

UNITED STATES CAN COMPA-

NY, a Georgia corporation, CONTI-

NENTAL CAN COMPANY, U:S.A.,

INC., a Delaware corporation, CCC

SERIES 200, INC., a Delaware corpo-

ration, INTER-AMERICAN PACK-

AGING, INC., a Pennsylvania corpo-

ration, GP ACQUISITION COMPA-

NY, INC., a Pennsylvania corpora-

tion, and JOHN DOE’s 1-100, collec-

tively referring to the banks and other

lenders participating in the financing

of the acquisition of Continental Can

packaging sector by the United States

Can Co.,

Defendants.

: RACINE COUNTY

Case No. 87-CV-1349

48A

JUDGMENT

Upon the order of the Court dated 8-10-87, directing judgment

dismissing the complaint,

On motion of the attorneys for United States Can Company,

Continental Can Company USA, Inc., CCC Series 200, Inc., In-

ter-American Packaging, Inc., and GP Acquisition Company,

Inc.,

IT IS HEREBY ADJUDGED that the complaint of the plain-

tiffs in the above-encaptioned action be, and hereby is, DIS-

MISSED and that no party shall recover costs against any other

party.

Entered this 10th day of August, 1987.

BY THE COURT:

/S/_ YVONNE T. JONES —

Lawrence E. Flynn

Clerk of the Circuit Court

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.