Petition for Writ of Certiorari — Toth v. USX Corp.

FILED’

OCT 26 @

PH F. SPANIOL, JR,

= CLERK

IN THE

Supreme Court of the United States

ANDREW TOTH, et ai.,

Petitioners,

VS.

USX CORPORATION,

Respondent.

PETITION FOR WRIT OF “ERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

LEON M. DesprRES

THOMAS H. GEOGHEGAN

Amy Louise BECKETT

DESPRES, SCHWARTZ & GEQGHEGAN

77 W. Washington Street—71 |

Chicago, IL 60602-2985

(312) 372-2511

Attorneys for Petitioners

Pandick Midwest, Inc., Chicago e (312) 733-6000

?

QUESTION PRESENTED

Whether this Court in Kaiser Steel Corporation v. Mullins

abolished the common-law exceptions to the illegality defense

in the law of contracts and thereby meant to create a new

federal “common law” that is opposed to the traditional law

of contracts?

il

PARTIES TO THIS PROCEEDING

The parties in the court below were twenty-two USX

employees, Andrew Toth, Jack Eckman, Harry Piasecki, Len

Hackett, Tim Trant, Robert Howell, Edward Sadlowski, Ernie

Clifford, Don Dalena, Jack Fabry, John Foley, Robert Kutch,

George Myers, Chuck Canelakes, C.T. Armstrong, Richard

Adylotte, Regis Fallon, Donald Walters, Kenneth Shorts,

Henry Cano, Victor Espinosa, and William Greenlee; and

USX Corporation.

TABLE OF CONTENTS

PAGE

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Reasons For Granting The WTrit..................cccccccseeeeeees 5

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Appendix:

A—Opinion and Judgment of the Court of

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B—Memorandum Opinion and Order

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iv

TABLE OF AUTHORITIES

Cases

Gibbs & S. Mfg. Co. v. Brucker, 111 U.S. 597

COBO cncisdinvececcsccscocesestcnrsnssenstiencersssenssssesieti

Golberg v. Sanglier, 639 P.2d 1347 (Wash.

Kaiser Steel Corp. v. Mullins, 455 U.S. 72

OT eiciiileicseanertetnhiadeeeniiieninitnadaaitianinmgenen

In re Leasing Consuitants, Inc., 592 F.2d 103

CCA, 2 BGT DD ecccenesscreereccccenccsscsssnscsnensessccssecee

Stamatiou v. U.S. Gypsum Co., 400 F.Supp.

431 (N.D. I11. 1975) afd, 534 F.2d 330

CCA, FAD TGD sierrinncinsbiniccitecsitibeihitdtihleedbtitatinsiin

Trailways Lines, Inc. v. Trailways, Inc., Joint

Council of the Amalgamated Transit Union

785 F.2d 101 (CA 3), cert. denied, 107 S.Ct.

QD CED cnnncecccencnscsreesssnesscsnssecesesencscsccesess

Statutes

Employee Retirement Income Security Act

of 1974 (ERISA) 29 U.S.C. Sections 1001-

Labor Management Relations Act of 1947

(LMRA) 29 U.S.C. Sections 185-186.........

Other

Corbin on Contracts, §§ 1518-1531,1534

(1960 and 1962 editions) ...............ccceeeeeeees

PAGE(S)

i,4,5.6,7,8,9

6

2,3

2,3

5,6

No.

IN THE

Supreme Court of the United States

ANDREW TOTH, et ai.,

Petitioners,

vs.

USX CORPORATION,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

JURISDICTION

The judgment of the Court of Appeals was made and

entered on August 25, 1989. The jurisdiction of this court is

invoked under 28 U.S.C. Section 1254(1).

|

2

STATUTES INVOLVED

The statutes involved in this case are the Employee

Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.

Sections 1001-1381, and the Labor Management Relations

Act of 1947 (LMRA), 29 U.S.C. Sections 185-186.

OPINIONS BELOW

The opinion of the United States Court of Appeals for

the Seventh Circuit is reported at 883 F.2d 1297 (CA7 1989)

It is reprinted in the Appendix (“App.”) at pages la-20a. The

opinion of the District Court is reported at 693 F. Supp. 693;

it is reprinted at App. 1b-20b.

STATEMENT OF CASE

The petitioners are 22 former employees of USX Corpo-

ration (“*“USX") who joined the staff of the United Steel

Workers of America (“Union”). They seek to enforce a

special USX leave-of-absence policy that has the effect of

granting each of them pension service credit for the time they

spent on the union staff after they left active employment

with USX. Without such a special policy, the petitioners

wouid not have the normal company pensions that other

USX employees receive and would Jose all or nearly all of

the value of their past service credit when they joined the

Union staff.

While the leave-of-absence policy is a standard industry

practice, USX was one of the few major steel-industry em-

ployers that did not have such a practice. It issued such a

policy only in October 1984, and even then, USX granted

pension service credit to only six of the 40 or so former USX

employees who were on the Union staff. Furthermore, USX

kept the policy a secret from the other Union staff members,

including petitioners.

Oe

3

When Andrew Toth and the other petitioners learned of

the policy in early 1987, they applied to USX for the pensions

to which they were entitled. USX rescinded the policy and

claimed that it was illegal under Section 302 of the Labor

Management Relations Act of 1947 (LMRA), 29 U.S.C.

§ 186, which prohibits any payment of money or any other

thing of value from an employer to an employee representa-

tive. However, USX said that it would continue paying

pensions to the six union staff members who had secretly

begun to receive them in 1984.

On March 12, 1988, Toth and the other Union staff

members filed suit against USX in the U.S. District Court

for the Northern District of Illinois and sought to enforce the

leave-of-absence policy as a pension plan or benefit under the

Employee Retirement Income Security Act (ERISA). USX

filed a motion to dismiss the ERISA action, raising the defense

that the payments sought by Toth and the others were illegal

payments under Section 302 of the LMRA. USX relied

chiefly on the decision of the Third Circuit in Trailways

Lines, Inc. v. Trailways, Inc., Joint Council of the Amalga-

mated Transit Union, 785 F.2d 101 (CA 3), cert. denied, 107

S.Ct. 400 (1986), which held that a similar type of policy was

illegal under Section 302 of the LMRA.

Toth and the other Union staff members replied to the

motion to dismiss with an additional statement of facts.

These facts included the following: USX had issued the

leave-of-absence policy to provide pensions to certain Union

staff members who had negotiated a concessionary collective

bargaining agreement in Fairfield, Alabama in December

1983. While USX paid pensions under this policy to only

six employees, all of them in the Alabama area, the policy

was written like the standard industry policy for union staff

members (literally dozens of major corporations have such

policies for employees who join the union staff). However,

the USX policy, unlike the standard policy, was not disclosed,

not placed in a collective bargaining agreement, and not

brought to the attention of Toth and the other Union staff

members.

4

Based on these facts, Toth and the others argued as

follows:

First, the leave-of-absence policy is a lawful payment

and not barred by Section 302 of the LMRA. Furthermore,

even if USX had intended the policy to be used secretly

and selectively, contrary to its terms, the policy was now

uncovered, and was lawful on its face, and lawful as applied

to the Toth group, who had not taken part in any illegal

scheme of any kind.

Second, even if the Court held that the policy were illegal,

because it was not negotiated in the proper manner by USX,

the wrongdoer, USX, could not raise the illegality defense

against a wholly innocent party. The parties were “not in

pari delicto,” or at equal fault, and since USX was wholly

guilty and the Toth staff members were wholly innocent, USX

could not raise its own misconduct as a defense to liability.

The U.S. District Court granted USX’s motion to dismiss

on the ground that all such policies were illegal under Section

302, as declared by the Third Circuit in Trailways. The

District Court also held that the principle of “not in pari

delicto” on which the Toth staff members relied had been

abolished by this Court in Kaiser Steel Corp. v. Mullins, 455

U.S. 72 (1982), although adding a cursory remark that it saw

no reason to apply the principle here anyway.

The Toth group then appealed. The U.S. Court of

Appeals for the Seventh Circuit upheld the lower court's

dismissal of the case, but on quite different grounds. The

Seventh Circuit rejected the Third Circuit's decision in Trail-

ways and held that the typical leave-of-absence policy that

grants pension credit to Union staff is lawful under Section

302, in normal circumstances. However, the Seventh Circuit

held that while the policy is normally lawful, the policy in

this case was not lawful, because it was negotiated in secret

and not set out openly in a collective bargaining agreement

or with the proper full disclosure. The Seventh Circuit also

rejected the petitioners’ argument that the policy here could

still be enforced because the respective parties were “not in

pari delicto” or at equal fault. It agreed with the lower court

¢

5

that in Kaiser this Court had abolished the various common-

law exceptions to the illegality defense and had apparently

created a new federal common law that federal courts will

never enforce illegal contracts under any circumstances.

Again, the Seventh Circuit, like the lower court, added a

passing remark that it would not apply the principle anyway,

with the somewhat inexplicable comment that this case was

“like” Kaiser because in both cases the plaintiffs were

“innocent.”

REASON FOR GRANTING WRIT

|. This case raises an important issue of federal law which

only this Court can resolve: namely, whether this Court in

Kaiser Steel Corporation v. Mullins abolis hed the common-

law exceptions to the illegality defense in the law of

contracts and thereby meant to create a new federal

“common law” that is opposed to the traditional law of

contracts?

This is a very extraordinary case. The Seventh Circuit

has held that in Kaiser Steel Corporation v. Mullins, supra,

455 US. 72, this Court meant to throw out a major portion

of the law of contracts and replace it with a new federal

“common law.” Both the lower court and the Court of

Appeals agreed that this Court held in Kaiser that federal

courts may never enforce illegal contracts under any circum-

stances. The petitioners read Kaiser quite differently. It is

true that in Kaiser this Court stated flatly that “courts will

not enforce illegal contracts.” /d. at 82 But in a footnote, this

Court acknowledges implicitly that there are common-law

exceptions to this rule, at least to the extent that the majority

opinion cites with apparent approval “6 A Corbin on Con-

tracts, § 1518-1531,” which lists various common-law excep-

tions to the illegality defense, including the principle of “not

in pari delicto.” Id. at 82, n.7.

6

Obviously, the Kaiser decision is ambiguous, since two

courts have held that it did abolish the princijie of “not in

pari delicto,” in all cases and under all circumstances. This

Court should grant the petition here if only to make sure that

the lower courts realize that they have not been placed under

a new federal common law and that they still have their

equitable powers to do justice on a case-by-case basis under

the traditional common-law exceptions to the illegality

defense.

Until Kaiser, it had always been clear that federal courts

could invoke in the proper circumstances the various com-

mon-law exceptions to the illegality defense, including the

principle that the parties were “not in pari delicto” or at equal

fault. E.g., Gibbs & S. Mfg. Co. v. Brucker, 111 U.S. 597, 601

(1884); In re Leasing Consultants Inc. 592 F.2d 962, 969 (CA

5 1970); Stamatiou v. U.S. Gypsum Co., 400 F. Supp. 431,

439 (N.D. Ill. 1975), afd 534 F.2d 330(CA 7 1976). On the

other hand, since the Kaiser decision in 1982, there have

been no federal cases invoking these exceptions, although

state courts have continuously and frequently invoked the

doctrine of “not in pari delicto” in the same time. E.g.,

Golberg v. Sanglier, 639 P.2d 1347 (Wash. 1982).

While the Seventh Circuit said it would not apply the

doctrine of “not in pari delicto” anyway, even if not abolished,

it was a single cursory remark that this Court should ignore.

For one thing, in applying the doctrine of “not in pari delicto,”

the courts must engage in a detailed weighing of the facts,

which the Seventh Circuit opinion does not even remotely

attempt to do. See Corbin, supra, §1534, at-pp. 818-19.

Indeed, the only reason the Seventh Circuit gives for not

applying the doctrine is that this case is “like” the Kaiser

case, in that the plaintiffs of both cases are “innocent.”

Obviously, the plaintiffs in these cases are a/ways innocent,

or relatively innocent, or the courts would never even apply

the principle. The Seventh Circuit’s remark is so inexplicable,

so much of a non-sequitur, that it only underscores the

Bae RGA Silas acts Gab Mone 8S

7

Seventh Circuit’s main holding that the principle was abol-

ished in Kaiser and need not be considered here at all.

There are two main reasons for letting the Toth group

proceed with their argument that the parties in this particular

case are “not in pari delicto” or equal fault. Or to put it

another way, there are two strong reasons why public policy

would not be served by letting USX raise the illegality defense:

First, Toth and the other staff members are wholly

innocent, while USX has engaged in the most serious possible

criminal misconduct. USX has not committed some technical

violation of Section 302, depending on one’s view of Trail-

ways and other cases. Rather, USX has engaged in a scheme

to bribe and corrupt certain Union staff. But it could engage

in this scheme only by using Toth and the other staff members

as pawns, that is, by creating a leave-of-absence policy that

looked legal and seemed legal but would be only a cover for

making secret payments to the six in Alabama and would

never result in any service credit to Toth and the other staff.

Just as much as USX is criminally guilty here, the Toth

staff members are wholly innocent. They did not take part

in any illegal scheme, and indeed, they were the ones who

uncovered it. Furthermore, the Seventh Circuit has now

ruled, contrary to the Third Circuit in Trailways, that the

policy which the Toth group seeks to enforce 1s normally legal

and proper, if there is full disclosure of it and no unlawful

purpose. Clearly, with respect to the Toth group, USX had no

unlawful purpose. It was not seeking to bribe or improperly

influence them. Of course, it would be outrageous to permit

USX to pay off the six Union staff members in Alabama: this

would be clearly an illegal payment under Section 302 and

should not be enforced. However, ordinarily, and normally

the service credit that the Toth group seeks to receive is

lawful and appropriate, and is not an illegal windfall to them

in any way. It simply puts the Toth group on the same footing

as most other Union staff, and not only at the Steel Workers,

but also at the Mine Workers, the Auto Workers, and many

8

other major unions. Since the Toth group is wholly innocent,

there is absolutely no federal policy that would be violated

by letting them receive the credit here.

Second, the policy should be enforced, as a sanction or

financial penalty against USX. Indeed, it would be a mockery

of federal law, especially Section 302, to let USX raise its

own criminal conduct to get off the hook for a large civil

liability. Right now, in Alabama, a federal grand jury is

investigating USX’s conduct. But even if USX is indicted

and found guilty under Section 302, the maximum criminal

penalty that USX faces is only $15,000, 29 U.S.C. § 186(d).

That is nothing but carfare to USX, one of the biggest

corporations in the world. On the other hand, if the policy

here is enforced, USX wiil be liable for up to $1 to $2 million

in pensions it probably hoped that it would never have to

pay.

In other words, if USX is found to be guilty of a criminal

violation, there is no legal sanction that will offset the windfall

which the Seventh Circuit has given it. The purpose of

federal criminal law, including Section 302, should be to

punish, i.e., to make wrongdoing as costly as possible. The

Seventh Circuit and the District Court should be given the

discretion to punish here, by barring USX from raising the

illegality defense, and so this case should be remanded for a

full evidentiary hearing on this issue.

This case is just the opposite of Kaiser. In Kaiser, the

trustees of the UMW Pension Fund were suing to collect

pension contributions that were required under an illegal

“purchase-of-coal” clause, which had been negotiated in flat

violation of federal antitrust and labor law. Under such a

clause, the employer had to pay the UMW fund a certain

amount not only for each ton of “union” coal produced but

also for each ton of “non-union” coal. If the trustees could

have enforced the clauses anyway, then the federal law would

have become a dead letter. Applying the doctrine of not in

pari delicto would have rewarded the guilty parties, if not

9

the pension fund itself, then at least the UMW which had

negotiated the illegal clauses to benefit the fund.

The simple difference is that in Kaiser, the principle of

“not in pari delicto” would have frustrated federal policy,

whereas here, it would clearly promote it. By holding that

Kaiser has abolished the principle altogether, the Seventh

Circuit has deprived itself of the ability to do equity and

promote the real federal policy at stake when special circum-

stances demand it.

The most alarming effect of the Seventh Circuit decision

may be an increasing belief in the lower federal courts that

there is a new “federal common law,” that it supersedes the

traditional law of contracts, and that sometimes, perversely,

in the name of this new federal common law, even the most

important policies and interests of the federal criminal law

may be sacrificed. This Court should step in now to clear the

confusion and remand the case for a full evidentiary hearing

on the petitioners’ argument that the parties are “not in pari

delicto” or at equal fault.

10

CONCLUSION

For all the above reasons, this petition for a writ of

certiorari should be granted.

Respectfully submitted,

DesprRES, SCHWARTZ & GEOGHEGAN

By: Leon M. Despres

Thomas H. Geoghegan

Amy Louise Beckett

Attorneys for Petitioners

Despres, SCHWARTZ & GEOGHEGAN

Attorneys for Petitioners

77 W. Washington Street—71 1

Chicago, IL 60602-2985

(312) 372-2511

la

APPENDIX A

3n the

United States Court of Appeals

For the Seventh Circuit

No. 88-2889

ANDREW TOTH, et al.,

. Plaintiffs-Appellants,

v.

USX CORPORATION,

Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of I\linois, Eastern Division.

No. 88 C 2135—Nicholas J. Bua, /udge.

ARGUED Aprit 12, 1989—Decipep Aucust 25, 1989

Before Woop, JR., CUDAHY, and KANNE, Circuit Judges.

Cupany, Circuit Judge. In this case we are asked to

decide whether the defendant, USX ion (“USX”),

may institute a leave policy, refuse all but six applica-

tions under the policy and then rescind the policy without

formally consulting their workers’ union (in this case, the

United Steelworkers of Amevica, AFL-CIO-CLC (“USWA”,

the “Union”)) or other potentially eligible claim-

ants. Fifteen former who were technically

eligible under the new leave policy sue for monetary and

equitable relief under the pik Retirement Income

Security Act (“ERISA”), 29 U.S.C. § 1001 et seg., and

under the Labor Management Relations Act (““LMRA”’),

29 U.S.C. § 141 et seq.

2a

unilaterally revoiing the policy. Paint, RA and

that unilateral rescission was therefore unlawful under

—- They also yest gta ~ USX administered the

policy in an arbitrary agen erp Mg, A gle

even in accordance with the policy’s own express terms

(which the plaintiffs in any event viewed as

legedl adopted i Gumees ae ee A the

] “by agreement . ©

plaintiffs view the subsequent rescission as a breach of

$8 agreement with a labor union in violation

ofthe LMA, The plaintiffs seek past benefits, damages,

redress of fiduciary violations and a declaratory judgment

that the LMRA does not prohibit the granting of the

ppt ayghicna Ah

nelieg aad vitae the LB argue that even if the leave

the LMR, they are nonetheless en-

ot to relief on equi table ground, Tony y urge that they

are not in pari delitto with that USX used

the pellay 2s 0 saeamn of GEE OUD number of union

officials to agree to concessions in a contract negotiation.

Accordingly, plaintiffs feel that USX should not be allowed

to use its misdeed as a defense to this action.

Because we are reviewing the district court's dismissal

of the tiffs’ complaint. we will take all well-pleaded

al as true, permitting dismissal only if the plain-

tiff could not prove any set of facts upon w i

might be granted. Conley v. Gibson, U

Rankow v. First Chicago Corp., 870 F.2d 356, 367-68 (7th

Cir. 1989). As we have noted many many times, the complaint

ely

develops, as long as amendments do not unfairly sur-

prise or prejudice the defendant. Ash v. Wallenmeyer,

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6 No. 88-2889

set of facts upon which the plaintiffs could possibly win.

Thus, while we stress that the facts recited here have

not been proved (and that the court of course does not

take any position as to their ultimate truth), we will cer-

tainly consider, in connection with the motion to dismiss,

the possibility that the facts here alleged amounted to a

“sweetheart” deal. If under those facts the plaintiffs could

conceivably prevail, then they should be permitted to con-

tinue past the motion to dismiss.

IT.

We proceed to the central questions: Was USX’s re-

scinded leave policy in fact in violation of the LMRA—

and even if it was, could USX be barred from raising an

“illegality” defense if the igs | was not in pari delicto

by reason of participation in a bribery scheme?

A.

In rescinding its leave policy, the company took the posi-

tion that any extended leave policy would violate the

LMRA.* At issue are two provisions of section 302. Sub-

section (a) generally prohibits payments by employers to

union officials:

(a) It shall be unlawful for any employer .. . to pay,

lend, or deliver, or agree to pay, lend, or deliver, any

money or other thing of value—

4 The company cited two cases in reaching this conclusion—BASF

Wyandotte Corp. v. Local 227, International Chemical Workers

Union, 791 F.2d 1046 (2d Cir 1986), and Trailway Lines v. Trail-

ways, Inc. Joint yng 785 F.2d 101 ve Cir. 1986). While a,

ways might support y’s conclusion, it is puzzling that

the oy red cited BASF Wyandotte. In BASF Wyandotte, the

Second Circuit held that ‘‘no-docking” provisions poems gd

for time spent on union business) not violate section a

holding that, if anything, tends to support the notion that leave

Sea, of the sort involved in this case might be legal under the

Ta

No. 88-2889 : 7

(1) to any representative of any of his employees

who are employed in any industry affecting com-

merce; or

(2) to any labor organization, or any officer or em-

ployee thereof, which represents, seeks to represent,

or would admit to membership, any of the employees

of such employer who are employed in an industry

affecting commerce... .

29 U.S.C. § 186(a). However, subsection (c) lists excep-

tions to this general prohibition, including the exception

at issue here:

nd tag provisions of this section shall not be appli-

e

(1) in respect to any money or other thing of value

payable by an employer to any of his employees

whose established duties include acting openly for

such employer in matters of labor relations or pe.

sonnel administration or to any representative of his

employees, or to any officer or employee of a labor

oO ization, who is also an employee or former em-

ployee of such employer, as compensation for, or by

reason of, his service as an employee of such em-

ployer ....

29 U.S.C. § 186(c). It is fairly universally acknowledged

that a central purpose of section 302 as a whole was to

prevent employers from bribing union officials. See 93

Cong. Rec. 4805 (1947) (statement of Senator Ball, an

author of Senate amendment substantially adopted as sec-

tion 302 in final statute) (“The sole purpose of the amend-

—_ fi not to prohibit welfare egg to ae _

are legitimate trust funds, actually for

ems | benefits to the employees of the employers who

contribute to them, and that they shall not degenerate

into bribes.”’); see also Arroyo v. United States, 359 U.S.

419, 425-26 (1959) (“members of Congress who supported

the amendment were concerned with corruption of collec-

tive bargaining through ae 4 of employee represen-

tatives by employers [and] with extortion by employee

8a

8 No. 88-2889

representatives”); BASF Wyandotte Corp. v. Local 227,

Int'l Chem. Workers Union, 791 F.2d 1046, 1050 (2d Cir

1986) (same); Maxwell v. Lucky Constr. Co., Inc., 710

F.2d 1395, 1398 (9th Cir. 1983) (“congressional objective

in enacting § 302 was to inhibit corrupt practices in the

administration of employee welfare funds established

through the collective bargaining process”); Turner v.

Local 302, Int’l Bhd. of Teamsters, 604 F.2d 1219, 1227

(9th Cir. 1979) (“dominant purpose of § 302 is to prevent

employers from tampering with the loyalty of union of-

ficials and to prevent union officials from extorting tribute

from employers”). The exceptions listed in subsection (c)

have been carefully drafted with an eye to this underly-

ing goal.

The plaintiffs make a quite creditable ‘‘plain language”

nt based upon the exception delineated in section

302(cX1), which permits payments by an employer “to any

officer or employee of a labor organization, who is also

an employee or former employee of such employer, as

compensation for, or by reason of, his service as an em-

ployee of such employer.” (emphasis supplied). The plain-

tiffs are union officials who were once employed by USX.

The new leave policy arguably provided extended leaves

for former employees ‘“‘by reason of” their earlier service,

wee be seen in the company’s stated basis for the new

policy:

Under the [former] Leave of Absence Policy, bargain-

ing unit employees who accept full time employment

with the union are limited to a one-year leave of ab-

sence which may be extended for one additional year

before service breaks. Consequently, many of these

former employees never attain eligibility for a USS

nsion. Labor Relations is of the opinion that it is

in the Company interest that United Steelworkers of

America International Union (USW) representatives

with whom they deal be familiar with the United

States Steel facilities they represent. It is felt that

9a

No. 88-2889 - a: 9

there is a distinct advantage to be dealing with In-

ternational representatives who were formerly em-

ployed by United States Steel concerning potential

problems and/or grievances and implementation of the

various collective bargaining agreements. Thus it is

in the Com ’s interest to foster and promote the

at former employees who were granted

eaves of absence to work for USW.

Therefore, it is that the Leave of Absence

Policy be revised to permit granting leaves of absence

beyond two years... .

Complaint, Ex. A. In adopting the policy, the company

would arguably be providing for extended leave “‘by rea-

son of” a former employee's earlier service, which ren-

dered that employee familiar with the facilities and par-

ticular situations of company plants. Alternative-

ly, as plaintiffs’ argues, icy could be viewed

as “a ‘good will’ in recognition of plaintiffs’ past

ps ag for , and its purpose is to compensate,

or whole. It is.a true commercial payment ... .”

Brief of Plaintiffs-Appellants at 28. Of course, character-

in payment as a “ will” pa t brings it

pe y close to the of payment sought

to prohibit in section 302—but at this stage of the pro-

condiinga We: <tle Miter fer Stree ed gee cantor.

sort, if given “by reason of’ employees’ former employ-

ment with the company and administered in an above-

board, noncoercive manner, could fall within the plain lan-

guage of the 302(c) exception.

In Trailway Lines, Inc. v. Trailways, Inc. Joint Coun-

cil, 785 F.2d 101 (8d Cir. 1986), the Third Circuit con-

fronted a very similar “plain language” argument from

the union in that case, but came up with a somewhat dif-

ferent reading of the language of 302(cX1):

A logical reading of the statute makes clear that the

“payments to former employees’ exemption” of 302(cX1)

applies solely to payments made as “compensation for

10a

10 No. 88-2889

or by reason of” the former employees{’] past service

to the employer. . “ Clearly, an statute contem-

plates payments to former employees for past ser-

vices actually rendered by those former employees

while they were employees of the company. Just as

clearly, however, . . . pension fund benefits paid on

behalf of former employees serving as union officials

while on leave from Trailways are not compensation

for their past service to Trailways.

Id. at 106 (emphasis in original). Trailways involved a

collective bargaining agreement provision requiring Trail-

ways to contribute to a joint union-management pension

trust fund for employees who took leaves of absence from

the company to accept full-time union positions. In con-

cluding that this ment did not fall under the

302(cX1) exception, the Third Circuit took as obvious two

p itions—first, that the word “services” in the statute

ly means “ services,” and second, that any com-

pensation continuing beyond the time of an employee’s

“past” employment could not be “by reason of’’ employ-

ment. The first proposition is fairly clearly correct; the

statute of compensating employees or former em-

loyees for “service as an employee of such employer.”’

n the case of a former employee, this service would have

to have been completed ‘“‘as an employee”—i.e., in the

, while he or she was still employed by the employer.

second p ition, however, does not follow in any

obvious fashion the “plain language” of the statutory

phrase “‘by reason of.”

The district court in the case before us to have

accepted the Third Circuit’s reading— additionally

found two further reasons why the leave plan in this case

would not qualify under the section 302(cX1) exception.

First, the court attempted to distinguish a recent Second

Circuit opinion, BASF Wyandotte Corp. v. Local 227, In-

ternational Chemical Workers Union, 791 F.2d 1046 (2d

Cir. 1986), which held that “‘no-docking”’ provisions fall

under the section 302(cX1) exception. ‘“‘No-docking”’ pro-

visions permit employees to spend time during the work-

lla

No. 88-2889 11

day on union business without losing for those periods

of time. The district court viewed ‘ ing” i

as Gee Se eee because

aber gp: to employees the “no-docking”’ principle

nefit current yg Toth v. USX Corp., 693 F.

applies to paymen Tide so on A peer

tion , or on » pres-

of i aes os we

have noted, section cX1) on its face provides for pay:

this distinction

not seem sufficient to distinguish “no-docking” cases.5

Thus the fact that USX’s leave policy applies to former

pe yr does not mean that section 302(cX1) is inappli-

cable.

&

or Bell Atlantic,’ in the USX extended

leave program is maui, derailer.” Id. at

Again we respectfully t

district court, far whether or ne}. the USK pisn wea Of

> . for LJ

plan

|

|

cretionary is a disputed issue of fact

sition at this stage in the case. The language of the

itself is not discre map Bandag: it states in manda

that leaves of ’

ployees who meet the delineated criteria. Howeve

E

;

=

v Se

733

s The court in Trailways was also asked to decide the applicabil -

ity of section 302(cX5), an issue not raised i ore us.

® The court here refers to Communications Workers of America

v. Bell Atlantic Network Services, Inc., 670 F. 416 (D.D.C.

1987), in which the District Court for the District of Columbia held

that a long-term leave policy qualified under the section 302(cX1)

exception.

12a i

12 No. 88-2889

letter in which USX informed the Union about the changed

leave policy characterized the leave policy as entirely dis-

cretionary: 3

. . . please be advised that, effective February 29,

1984, United States Steel’s procedure was revised so

that Leaves of Absence applied for by International

Union Representatives may be permitted for longer

periods than those established in the Labor Agree-

ment, in designated circumstances, at the discretion

of the Company on a case-by-case basis. Pursuant to

the above policy, we have approved uests for

Leaves for six (6) International Union resen-

tatives....

signed to avoid. A reading of the phrase ‘“‘by reason of’

that would permit such entirely discretionary plans might

permit the ex to swallow the rule. But we do not

reach the di t question of how much discretion in the

employer is permissible under section 302, because it is

We are left, then, to consider the ing of the Third

Circuit as adopted by the district court. Third Cir-

cuit ruled that “the statute contemplates payments to

former employees for past services actually rendered by

those former employees while they were employees of the

y’”’ and that “pension fund benefits paid on behalf

of former employees serving as union officials while on

leave from Trailways [clearly] are not compensation for

their past service to Trailways.” 785 F.2d at 106 (empha-

l3a

13

No. 88-2889

the Third Circuit's restric-

language of section 302(cX1).° Indeed,

not

services” only, there remains

anes

ployment. We cannot

ie Sapien

Ponankie

Peer itself, nor in the

te

tive reading of

Pen om

still be “by reason

sis in original).? Granting that the word “services” in sec-

find eny a ~

history of the

tion 302(cX1) signifies “past

a further

the time

4a

::

Eat

usa tiptl

ui

ut pz

:

eal

Hata AL 208

am

a

i

specifically discussing subsection (cX1)

by Senator Ball, an author of section 302, does not give much en-

"Tes Gs Gale

(Footnote continued on following page)

l4a

14 No. 88-2889

inclusion of the term “former employee” within the sec-

tion would seem to indicate, to the contrary, that pay-

a

preventing bribery, and the specific exception of sec-

tion 302(cX1), permitting payments to former employees

ey payments are in some way motivated

One obvious instance in which cog ge foay Hoemg con-

i those conti-

a ee Sa ee ee of

ee ee er re-

marked in dissent in ways, all of the terms of em-

ployment for which unions bargain are rly deemed

pet ee nee yees work.

aS Pee Reon Donn by Judge

Columbia, who in Communications Workers of America v.

Bell Atlantic Network Services, Inc. ruled that benefits

granted employees who were on union leaves (for up to

penser hg gt, ap Fat — yor ey

15a

|

i

li

i

TEE

‘

t

i

aid to union welfare

in the original version

of ;

80th oe Sess. 29 (194 ’

No. 105, 80t Cong., ist Sess. 426-30 ( [Senate

ex

minority report from ouse stressed the

nature of a complete ban:

a

i

i“

ae

‘i

rt

at

. *

2

;

5

5

+

1

a

\

a

16 No. 88-2889

the opportunity to make voluntary provisions against

illness and can only increase reliance upon

the State. In the interest of sound governmental

checked by encouraging the formulation and adoption,

through voluntary t, of plans that will aid

citizens during ee

tress. preneneas eyanet arrangements

increase the reap the Federal Government

to its citizens i of distress.

House ee OE becae In the Senate, a

number of senators, Senators Ball and Taft,

issued Views their intention to pro-

a number of amendments— one that was

oa deo ae te one of such nd

exclusive a

their families and dependents . . Provided, That (A) such y

ments are held in for the purpose of paying, either rom

principal or income or both, for the benefit of employees, their

(Footnote continued on following page)

SS

l7a

Sea

BAe ils

> o z .

atte HHDEIT

oo BERD <SREESSESZEMSESE

EH noes

att Ht

vent corruption

freedom to join

106158.

the legislative

(and of subsequent

while still

tly solve

18a

p eppgegegeegupegaysy ppseqguiene

pT Bett Bone i

B33 4 ath unit ala

iti HT H ipalias

eta BE a

iH Penal nit it it

il Pea atts

bgsesbs i f

. 7 ii ale aH: maint ;

guishable from Trailways and our holding therefore does not <i-

rectly conflict with that of the Third Circuit.

'® Because of this crucial distinction, the case before us is distin-

part

gaining agreement. We leave to another the question

whether retroactive bargaining is sesiastnte.

in order to bribe union officials concessions when

with the thus the company should

not be permitted to raise y of the contract as a

defense here, in of the fact that the

plaintiffs were wholly innocent of any misdeeds.

However, as the district court out, we have firm

i from the Court on this issue. In Kaiser

tional labor policy” in refusing to permit an illegality

defense ened upae the NLRA. The Supreme Court re-

jected the reasoning of the appellate court and held that

the federal courts could not enforce promises that them-

selves violated the labor or antitrust laws. 455 U.S. at

82-83.

20a

20 No. 88-2889

It may be, as plaintiffs , that Kaiser has not en-

tirely foreclosed an in pari delicto t under some

circumstances. See id. at 81-83 & n.7. But the situation

in this case is directly analogous to that in Kaiser, and

if wholly innocent pension trustees were not entitled to

enforcement of a contract that arguably violated the NLRA,

neither can plaintiffs in the case before us require enforce-

ment of a company leave policy that violates the LMRA.

As we have noted, enforcing an illegal promise in order to

benefit third parties is not an appropriate way of punish-

ing any wrongdoing that may have occurred. —

Ill.

The leave pen at issue here was illegal, not because

it provided for a long term arrangement, but because it

was not properly bargained for and included as a term

of the collective bargaining agreement between the com-

pany and the Union. Because the plaintiffs cannot avail

themselves of an in pari delicto argument in this case,

the judgment of the district court is

AFFIRMED.

A true Copy:

Teste:

Clerk of the United States Court of

Appeals for the Seventh Circuit

lb

APPENDIX B

United States Bistrict Court

NORTHERN DisTRICT OF ILLINOIS

EASTERN DIVISION

—-~--

—

ANDREW ToTH, et al., )

Plaintiffs,

No. 88 C 2135

Vv.

| Honorable

USX CorporaTION, and UNITED Nicholas J. Bua

~ STEELWORKERS OF AMERICA, Presiding

AFL-CIO-CLC,

Defendants. |

MEMORANDUM ORDER

Defendant USX Corporation (*“USX”) and Defendant

United Steelworkers of America, AFL-CIO-CLC (“USWA”)

move this court pursuant to Rule 12(b)(6) of the Federal

Rules of Civil Procedure to dismiss plaintiffs’ complaint. For

the reasons stated herein, USX and USWA’s motions are

granted, and plaintiffs’ complaint is dismissed in its entirety.

2b

1. FACTS

Plaintiffs are 15 USWA staff representatives who were

active employees of USX prior to joining the union staff on

a full-time basis. Each began his employment with USX 30

Or more years ago and at various times prior to October 1977

left to become full-time USWA staff representatives.' Prior

to February 24, 1984, USX permitted its employees to leave

USX for a period of up to two years to assume full-time work

with USWA without requiring the employees to incur a

break in service. While on such a leave of absence, union

representatives accrue pension benefit rights as if they were

working for USX. At the end of the two-year period, union

representatives declining to resume employment with USX

suffer a break in service which adversely affects their rights

under the USX pension program.

On February 24, 1984, USX changed its leave of absence

policy. Under the revised policy, USX extended the leave of

absence period and permitted qualifying persons to remain

on such leave until they retired from either USX or USWA.

Union representatives that previously worked at a current

USX steel producing facility and left prior to January |, 1979

to assume full-time union positions servicing bargaining units

with which they had been associated during their tenure with

USX were eligible to apply. If selected to participate in the

extended leave plan by USX, such union representatives

would receive retroactive service credit as well as future

service credit for the duration of their union employment.

The plan revision makes clear that service credit attained

under the extended leave program “shall be determined solely

on the minimum formula” under the rules of governing the

relevant pension plan.

'Union records reveal that plaintiff Harry Piasecki left USX on

September 24, 1977 to begin full-time employment with USWA. Piasecki

was the last of the 15 plaintiffs to depart from USX to assume a full-time

position as a USWA staff representative.

3b

Over a year after adopting the extended leave policy,

USX forwarded USWA President Lynn Williams a letter

announcing the change. Oddly, the letter, dated March 5,

1985, notes that six union representatives had already applied

and were accepted under the revised program. Williams,

however, failed to relay this information to plaintiffs or other

eligible union representatives. As of February 1987, the only

applicants or participants in the revised program were the

six union officials to which reference is made in USX’s March

5, 1985 letter.

In early 1987, plaintiffs discovered for the first time that

a revised leave of absence policy existed and that they might

be eligible to receive pension benefits under it. Beginning in

March 1987 and continuing to the time the instant case was

filed, plaintiffs submitted applications to USX for participa-

tion in the new leave of absence program. All such applica-

tions, however, were denied. By letter dated April 28, 1987,

USX informed Williams that the extended leave of absence

program was being terminated because recent appellate deci-

sions indicated such long-term leave of absence plans violated

§ 302 of the Labor Management Relations Act. Rescission

of the policy, the letter explained, was simply intended to

conform USX’s practice with the current status of the law.

The letter indicated that although all pending applications

for participation in the revised program were being, denied,

“leaves of absence which previously had been granted pursu-

ant to such policy” were not being rescinded. On May 14,

i987, USX formally amended its leave of absence policy

abolishing the terms of the 1984 revision. The amendment

was made effective April 1, 1987.

Suffering this denial, plaintiffs approached USWA ofh-

cials for help in securing benefits provided under the 1984

plan. After a series of meetings, plaintiffs were informed that

USWA would not represent them in their quest for additional

pension benefits from USX. Plaintiffs responded by filing

the instant action.

4b

II. DISCUSSION

In Counts I-V of their complaints, plaintiffs assert a

variety of claims under the Labor Management Relations

Act (“LMRA”), 29 U.S.C. § 141 et seg., and the Employee

Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001

et seq., seeking monetary and equitable relief from USX.

Each of plaintiffs’ claims against USX is premised on the

adoption or revocation of the extended leave program. In

Count VI, plaintiffs seek damages from USWA for lost pen-

sion benefits as well as costs and fees incurred in litigating

the present case. Plaintiffs’ claims against the USWA are

based on the theory that USWA breached its duty of fair

representation by failing to promptly disclose information

concerning the 1984 revisions to USX’s-leave of absence

program and refusing to represent plaintiffs in their efforts to

secure benefits thereunder.

USX moves to dismiss Counts I-V on the ground that

the revised leave of absence program upon which plaintiffs’

claims rest is unlawful under § 302 of the LMRA, 29 U.S.C.

§ 186. USWA moves to dismiss Count VI on the basis that

it owes no duty of fair representation to individuals such as

plaintiffs who left the bargaining unit for which USWA

functions as an exclusive bargaining representative. Defen-

dants’ motions will be addressed in turn.

A. USX’s Motion to Dismiss

Section 302(A) of the LMRA, 29 U.S.C. § 186(a), pro-

vides in relevant part:

It shall be unlawful for any employer . . . to pay, lend, or

deliver, or agree to pay, lend, or deliver, any money or

other thing of value—

(1) to any representative of any of his employees who

are employed in an industry affecting commerce; or

(2) to any labor organization, or any officer or employee

thereof, which represents, seeks to represent, or would

Sb

admit to membership, any of the employees of such

employer who are employed in an industry affecting

commerce.

Section 302(b) of the LMRA, 29 U.S.C. § 186(b), contains

reciprocal provisions prohibiting labor organizations and

their officers or employees from requesting, receiving, or

agreeing to receive or “accept any payment, loan, or delivery

of any money or other thing of value prohibited by subsection

(a).”. The prohibitions contained in §§ 302(a) and (b) are

aimed at preserving the integrity of the collective bargaining

process by preventing employers from tampering with the

loyalty of union officials and union officials from “shaking

down” employers. Arroyo v. United States, 359 U.S. 419,

425-26, nn. 7-8 (1959).

Section 302(c) of the LMRA, 29 U.S.C. § 186(c), contains

a number of exceptions to the prohibitions outlined in

§§ 302(a) and (b). One such exception, found in § 302(c)(1),

reads as follows:

The provisions of this section shall not be applicable (1)

in respect to any money or other thing of value payable

by an employer to any of his employees whose established

duties include acting openly for such employer in matters

of labor ralations or personnel administration or to any

representative of his employees, or to any officer or

employee of a labor organization, who is also an em-

ployee or former employee of such employer, as compen-

sation for, or by reason of, his service as an employee of

such employer.

It is around the foregoing exception that the central

dispute between plaintiffs and USX exists. Plaintiffs, al-

though recognizing the revised leave program entails a trans-

fer of “money on other things of value” to union representa-

tives in the form of increased pension payments, contend

that the § 302(c\1) exception applies to the leave policy at

issue. USX asserts that it does not.

Recently, courts analyzing similar extended leave poli-

cies under § 302 have reached conflicting results. See Trail-

6b

ways Lines, Inc. v. Trailways, Inc., Joint Council, 785 F.2d

101 (3d Cir. 1986), cert. denied, 107 S. Ct. 403 (1986);

Communications Workers of America v. Bell Atlantic Network

Services, Inc., 670 F. Supp. 416 (D.D.C. 1987). In Trailways,

the Third Circuit invalidated a portion of a collective bargai-

ning agreement providing for payment of certain fringe bene-

fits to individuals who took indefinite leaves to assume full-

time union positions. The plan in Trailways permitted leave

employees to accumulate service credit toward their company

pensions as well as continue participation in the firm’s group

insurance plan while working as full-time union representa-

tives. Trailways, 785 F.2d at 103. The parties’ collective

bargaining agreement specified that pension fund contribu-

tions made by the employer under the program were to

be calculated on the basis of the salary being paid to the

participating union representative. Jd. at 106. After the

employer discontinued pension payments under the leave

plan, the union sued, arguing that the company had breached

the terms of the collective bargaining agreement.

The Trailways court, however, rejected the union’s

claims and held that the payments required under the leave

plan violated §302. The court observed that according

to the plain language of § 302(c\(1), payments to former

employees are permissible only if they are “in compensation

for, or by reason of, Ais service as an employee of such

employer.” Id. at 105 (emphasis added). The court reasoned

that a proper reading of § 302(c)(1) makes clear that the

exemption for payments to former employees applies only to

payments made in compensation for or reason of the former

employees’ past service to the employer. /d. at 106. Presum-

ably, payments contemplated by this exception encompass

pension and other benefits paid to retired employees of an

employer who later assume union positions. The court ruled

that the scope of permissible payments under § 302(c\1) is

limited to compensation for contemporaneous service to the

employer. Jd. Since such service could only be performed

7b

by a current employee of the employer and union representa-

tives on leave from their company jobs cannot be viewed as

current employees of the contributing employer, the court

held that pension payments on behalf of former employees

who assumed full-time union positions were not protected by

the § 302(c\(1) exemption. In reaching this conclusion, the

court observed:

Pension fund contributions made on behalf of union

officials on leave from Trailways are tantamount to direct

compensation paid to its employees or payments to the

union. While payments made on behalf of Union officials

who were once active employees of the employer but

who may never return to his employ may not at first blush

be the kinds of payment thought to lead to corruption of

union officials, the potential for such corruption, or at

least. the appearance of it, nevertheless remains.

Id. at 108 (citations omitted).

An opposite result under § 302(c1) was reached in

Communications Workers of America v. Bell Atlantic Network

Services, Inc., 670 F. Supp. 416 (D.D.C. 1987). Like Trail-

ways, the dispute focused on the terms of a leave of absence

provision in a collective bargaining agreement. The leave

plan in Bell Atlantic provided union officials on leave from

their employment with the utility certain fringe benefits for

a period of up to 18 years of union service. After highlighting

a number of differences existing between the plan in 7rai/ways

and the one before it,’ the court concluded that Trailways

was distinguishable. Jd. at 422-23. Under the plan at issue

in Bell Atlantic, the court was unable to detect any possibility

>The Bell Atlantic court noted the following differences: (1) the

Trailways pension fund was jointly administered by labor and management

while the Bell Atlantic plan was employer administered; (2) pension fund

contributions by Trailways were based on the current salaries earned by

the participating union officers where pension payments by Bell Atlantic

were calculated on the salaries last received by the union representatives

as a company employee; and (3) all Trailways employees accepting full-

time employment with the union automatically received leaves of indefinite

duration while leaves provided by Bell Atlantic could not exceed 18 years

and could be denied to employees whose services were needed by the

company.

8b

of bribery or extortion. However, the court believed that

features in the Trailways plan presented a greater risk of the

potential abuses § 302 was designed to prevent. /d. at 423.

Refusing to find Trailways applicable, the court turned

to its own analysis of § 302(c\(1). Significance was attached

to the fact that § 302(c\(1) distinguished between payments

to former employees “as compensation for” their service as

employees and payments made “by reason of” such services.

Id. at 419-20. Viewing cases upholding the validity of “no-

docking” provisions in collective bargaining agreements,’ the

court noted that important similarities existed. Jd. at 422-

23. “No-docking” provisions allow union officers who are

full-time company employees to take time off from work,

with pay, to conduct union business. The court observed

that payments to union officials under “no-docking” provi-

sions and payments made pursuant to extended leave pro-

grams are essentially identical in nature. Jd. at 423. In

neither case does the person perform services for the employer

during the time for which compensation is furnished. /d.

Instead, the compensated party actively engages in service

for the union. Jd. The amount of time spent on union work

was the only difference the court could discern between the

two types of provisions. Jd. The court emphasized that

decisions sustaining the validity of “no-docking” clauses were

based on the § 302(c\(1) exemption for paymenis made “by

reason of” services provided as an employee of the employer.

Id. Unable to find any significant distinction between the

type of services afforded employers under both types of

programs, the court concluded that fringe benefits provided

to leave employees who assumed full-time union positions

were § 302(c1) payments to former employees “by reason

‘In analyzing the leave program’s validity under § 302(c\1), the Bell

Atlantic court extensively reviewed the Second Circuit's decision in BASF

Wyandotte Corp. v. Local 227, Int'l Chem. Workers Union, 791 F.2d 1046

(2d Cir. 1986), and noted the Fifth Circuit's decision in NLRB v. BASF

Wyandotte Corp., 798 F.2d 849 (Sth Cir. 1986).

9b

of” their past service as Bell Atlantic employees. /d. at 423-

24.

Although this court agrees that little meaningful differ-

ence can be found between the nature of services provided

employers in exchange for payments required under “no-

docking” provisions and extended leave agreements, this

court is unable to ignore § 302(c)(1)’s language requiring that

the compensated individual be an actual employee of the

employer. As emphasized by the Second Circuit in addressing

‘the permissibility of “no-docking” provisions, “§ 302(c)(1) is

appropriately interpreted by focusing not on whether the

activities to be engaged in during the pay period directly

benefit the employer but on whether they are to be engaged

in by one who is a bona fide employee of the payor.” BASF

Wyandotte Corp. v. Local 227, Int'l Chem. Workers Union,

791 F.2d 1046, 1049 (2d Cir. 1986). The central distinction

between “no-docking clauses” and extended leave provisions

lies in the fact that payments made under the latter are made

to persons who are not employees of the company providing

compensation. Trailways, 785 F.2d at 106-07. Simply stated,

the § 302(c\1) exemption only applies to payments made to,

or on behalf of, present employees of the paying company.

Id.

In its struggle to meet this requirement, Bell Atlantic

seems to assert that since many union representatives often

return to their former jobs with the company, compensation

is permissible by reason of their future service as future

employees of the employer. Bell Atlantic, 670 F.Supp. at 423.

Although ambitious, nothing in § 302(c)(1) or its legislative

history supports such a construction. Rather, the plain

language of § 302(c\1) only permits payments to current

employees of the employer. BASF, 791 F.2d at 1049; Trail-

ways, 785 F.2d at 106-07. As such, this court is unable to

follow the decision in Bell Atlantic.

Aside from the conclusions reached in Trailways and

BASF. a second and perhaps more compelling reason exists

10b

for invalidating the present leave of absence plan under $302.

The leave policy, as revised in 1984, vests USX with exclusive

authority to determine which union representatives will be

accorded service credit toward their USX pensions. Unlike

the plans at issue in Trailways or Bell Atlantic, participation in

the USX extended leave program is completely discretionary.

Although the 1984 leave plan sets forth specific requirements

for determining applicant eligibility, USX retains absolute

control over which union representatives on leave from USX

will be allowed to participate in the plan.

Not only is the potential for bribery and abuse under

such a plan evident, plaintiffs argue in their response briefs

that the 1984 plan was adopted for the sole purpose of

bribing certain union officials in charge of negotiating a labor

agreement for a planned USX plant in Fairfield, Alabama.

Plaintiffs assert that to induce union negotiators to accept

substantial labor concessions in the Fairfield contract, USX

proposed changing its leave of absence program to allow the

negotiators to receive greater pension benefits. To ensure

that the benefits were only made available to certain union

officials, plaintiffs assert that the revised leave plan was not

included in the Fairfield collective bargaining agreement, but

instead was quietly adopted as part of a change in “corporate

policy.” Plaintiffs further claim that the rather unusual

requirements for participation in the leave program as well

as the discretionary nature of the plan existed so that only

the Fairfield negotiators would receive the extended pension

benefits. According to plaintiffs, this explains why six union

representatives were already enrolled in the plan when USX

first advised the union's president of the change in the leave

policy some twelve months after its adoption. Plaintiffs assert

that only after the plan was accidentally discovered by other

union representatives in March 1987, triggering a wave of

extended leave applications, did USX rescind its extended

leave policy on the basis of a Third Circuit case decided more

than a year earlier.

EO

lib

Although plaintiffs’ assertions pose serious questions

concerning potential criminal violations by certain USX and

USWA personnel, plaintiffs’ allegations of bribery coupled

with the unbridled power of USX to pick and choose which

union representatives would be accepted in the extended

leave plan foreclose any possibility that the revised policy

could be permissible under § 302. Not only does the plan

fail to comply with § 302(c\1)’s restriction that recipients of

“things of value” be actual employees of the paying employer,

the plan is allegedly designed to corrupt union negotiators.

Even ignoring plaintiffs’ contentions of actual bribery, the

exclusive control reserved by USX to select participants from

pools of eligible applicants presents an intolerable risk that

the extended leave plan will be used as an instrument of

corruption. Given the holding in Trailways and the nature

of the challenged plan, this court is compelled to find that

the extended leave plan adopted by USX in 1984 violates

§ 302 and is therefore unenforceable.

Plaintiffs assert that even if the leave policy violates

§ 302’s restrictions on payments to union representatives,

equity dictates that USX be required to pay pension benefits

on plaintiffs’ behalf as a penalty for using the leave program

to bribe the Fairfield negotiators. This argument fails for two

reasons. Although plaintiffs assert they are innocent third

parties and are not in pari delicto with USX, participation in

the leave program was discretionary. Even if this court were

to give effect to the invalid leave provision as a “penalty”

against USX, plaintiffs are unable to demonstrate they ever

possessed an absolute right to participate in the program.

Courts enforcing contracts deemed illegal under the theory

that one side is not in pari delicto with the other do not

rewrite the terms of the unlawful agreement to ensure that

the less culpable party obtains recovery. Moreover, because

members of the union employed at the Fairfield plant, rather

than union representatives, would suffer any injury resulting

12b

from the alleged bribery scheme, difficulty exists in identifying

the damages alleged!y caused to plaintiffs.

Second, federal courts do not sit to enforce promises or

agreements deemed illegal under the federal labor laws.

Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 77 (1982). In

Kaiser, a union fund trustee sought to enforce certain terms

of a collective bargaining requiring the employer to make

union fund contributions which violated § 8(e) of the NLRA,

29 U.S.C. § 158(e), the “hot cargo” provision of the Act. Jd.

at 76. Reversing the circuit court's affirmance of a judgment

compelling the employer to make the challenged payments

the Supreme Court declared that provisions in collective

bargaining agreements that violate the labor laws are unenfor-

ceable. Jd. at 77, 86. To hold otherwise, the Court observed,

would command unlawful conduct which is impermissible in

the federal courts. In coming to its holding, the Court stated

as follows:

There is no statutory code of federal contract law, but

our cases leave no doubt that illegal promises will not be

enforced in cases controlled by federal law.

The authorities from the earliest time to the present

unanimously hold that no court will lend its assistance

in any way towards carrying out the terms of an illegal

contract. In case any action is brought in which it is

necessary to prove the illegal contract in order to main-

tain the action, courts will not enforce it... To permit

a recovery in this case is in substance to enforce an illegal

contract ... The Court refuses to enforce such a contract

and it permits defendants to set up its illegality, not out

of any regard for the defendant who sets it up, but only

on account of the public interest.

Id. at 77.

Plaintiffs do not present nor is this court able to detect

any public interest which is served by enforcing the terms of

the unlawful leave program. Quite to the contrary, the public

13b

interest is best served by refusing to enforce pians designed

to promote corruption in the collective bargaining process.

As this court is unable to accept plaintiffs’ equitable argu-

ments for recovery and the revised leave plan under which

plaintiffs seek pension benefits is illegal under § 302, this

court is compelled to grant USX"s motion to dismiss counts

1-V of plaintiffs’ complaint.

B. USWA's Motion to Dismiss

Plaintiffs’ remaining claim in Count VI is directed solely

at USWA. Plaintiffs contend that USWA breached its statu-

tory duty to fairly represent them by failing to provide prompt

notice of the revised leave plan and failing to pursue USX

for benefits allegedly due plaintiffs under the revised leave

plan. Plaintiffs’ assertions rest on the theory that as employees

on leave from USX, they remained part of the bargaining

unit to which USWA owed a duty of fair representation.

The law has long been settled that a union owes a

statutory duty of fair representation only to those employees

for whom the union serves as exclusive representative.

Schneider Moving & Storage v. Robbin, 466 U.S. 364, 376

n.22 (1984); Vaca v. Sipes, 386 U.S. 171, 177, 180 (1967).

As the Seventh Circuit observed in Freeman v. Local Union

No. 135, 746 F.2d 1316, 1320-21 (7th Cir. 1984):

A union's statutory duty of fair representation is coexten-

sive with its authority under § 9(a) of the National Labor

Relations Act, 29 U.S.C. § 159(a), to act as the exclusive

representative of the collective bargaining unit. [Cita-

tions omitted.] The scope of the duty of fair representa-

tion, however, extends no further. If a union does not

serve as the exclusive agent for the members of the

bargaining unit with respect to a particular matter, there

is no corresponding duty of fair representation.

Thus, the very logic on which the duty of fair representation

is based establishes its limiting principle: a duty is only owed

14b

to those for whom a union acts as the exclusive bargaining

representative, and even then only as to matters which fall

within the union’s exclusive control. If persons are free to

pursue their interests on their own, i.e., are not subordinated

to the union’s exclusive control, “the rationale for the duty

of fair representation evaporate[s],” and the union owes them

no duty of fair representation. Freeman, 746 F.2d at 1321.

Retired employees lose their status as bargaining unit

members and are outside the union’s exclusive representation

authority. Allied Chemical & Alkali Workers v. Pittsburgh

Plate Glass, 404 U.S. 157, 180 n.20 (1971). As such, the

union is under no statutory duty to represent them. /d.;

Central States Pension Fund v. Central Transport, 472 U.S.

559 (1985). :

Similarly, union employees assuming supervisory posi-

tions depart from the bargaining unit represented by the

union and are no longer owed a duty of fair representation.

Merk v. Jewel Food Stores, F.2d , 128 LRRM 2608

(7th Cir. May 31, 1988); McTighe v. Mechanics Educ. Society,

772 F.2d 210 (6th Cir. 1985); Cooper v. General Motors Corp.,

651 F.2d 249 (Sth Cir. 1981). As noted by the Seventh

Circuit in Merk: “The Union owes no duty to those it does

not represent. If it does not have a duty to represent them

at all, it does not have a duty to represent them ‘fairly.”’

Merk, 128 LRRM at 2612-13.

USWA argues that application of the foregoing authority

conclusively establishes that no duty of fair representation

was owed plaintiffs. The union notes that under the plan

existing at the time each plaintiff left USX to become USWA

representatives, leaves of up to two years were permitted for

full-time union work. Failure to return to USX before

expiration of the two-year period resulted in a break in

service, Under this system, the last plaintiff to leave USX

broke service in early October 1979. USWA thus contends

that almost four and a half years before the revised leave plan

took effect, plaintiffs were ex-employees of USX and ex-

15b

members of the bargaining unit exclusively represented by

USWA. Like retirees or those assuming nonunionized man-

agement positions, USWA argues that once plaintiffs termi-

nated their employment relationship with USX, USWA’s role

as exclusive bargaining representative ceased and duty to

fairly represent ended. As such, USWA contends that it owes

plaintiffs no duty of fair representation.

Plaintiffs respond to USWA’s contentions by asserting

that the 1984 revised plan effectively reinstated them as

employees of USX “on leave.” Plaintiffs observe that employ-

ees on a leave of absence are presumed employees unless

objective evidence exists that the employment relationship

has been terminated. See Valley Rock Prod., Inc. v. NLRB,

590 F.2d 300, 303-04 (9th Cir. 1979). Because USWA

has presented no objective evidence that the employment

relationship between USX and plaintiffs ended, plaintiffs

assert this court must assume that their employee status

continued. ro

Courts interpreting the meaning of “employee” under

§ 9 of the NLRA for the purpose of determining voter eligibil-

ity in union certification elections focus on whether the

questioned individual possesses a “reasonable expectation of

employment.” Montgomery Ward & Co. v. NLRB, 668 F.2d

291, 298 (7th Cir. 1981); Choc-Ola Bottlers, Inc. v. NLRB,

478 F.2d 461,464 (7th Cir. 1973). As explained in Montgom-

ery Ward:

The “reasonable expectation of employment” standard

includes two elements that must be satisfied: . . . a subjec-

tive element—the employee’s intent or expectation—

and an objective element—the reasonableness of the

expectation.

Montgomery Ward, 668 F.2d at 298. Generally, an employee

on a leave of absence is presumed to have requisite expecta-

tion of future employment. Id. at 299; Trailmobile Division,

Pullman, Inc. v. NLRB, 379 F.2d 419, 423 (3d Cir. 1967).

This presumption attaches for the duration of the leave but

evaporates if the employee does not return to work after the

16b

leave expires. See Whiting Corp. v. NLRB, 200 F.2d 43 (7th

Cir. 1952) (employee on illness leave who failed to return to

work abandoned his employment). Workers who quit or

abandon their jobs lose their status as employees because

they no longer have the requisite expectation of future em-

ployment. J/d.; Montgomery Ward, 668 F.2d at 299. In

the absence of special! circumstances establishing a contrary

intention, a person who fails to resume his job after termina-

tion of leave abandons his employment. See Whiting Corp.,

supra.

‘ This court believes the foregoing principles are relevant

to the dispute at issue. Plaintiffs assert that their status as

employees on leave was revived when the revised leave policy

was adopted. Unfortunately, this assertion rests on the faulty

assumption that plaintiffs possessed an absolute right to

participate in the extended leave program. As earlier dis-

cussed, USX possessed exclusive control over which union

representatives participated in the revised leave plan. As

selection was purely at the discretion of USX and plaintiffs

were never chosen as plan participants, plaintiffs cannot

rely on the revised leave program to renew their status as

employees on leave. Thus, plaintiffs’ employment status

must be analyzed in light of the leave policy in effect at the

time each left USX for their USWA positions.

As previously noted by USWA, at the time each plaintiff

left USX to assume a union position, leaves of no more than

two years were available for full-time union work. The last

plaintiff to leave USX did so in 1977 and broke service in

early October 1979. At no time since leaving did any plaintiff

attempt to return to his former position at USX. Thus, as

of October 1979 all plaintiffs surrendered their status as

employees on leave and lost the presumption of continued

employment. Once the presumption is removed, the party

asserting a person’s continuing employee status carries the

burden of establishing that the employee had a reasonable

expectation of employment in the future. See Montgomery

Ward, 668 F.2d at 300. Aside from the revised leave program,

17b

plaintiffs assert no facts which may establish that they pos-

sessed an expectation they would return to USX as employees

or that such an expectation would be reasonable. To the

contrary, the facts, as pled by plaintiffs, strongly suggest that

plaintiffs abandoned their positions with USX when they

failed to resume their employment after their two-year leave

expired. Because plaintiffs fail to plead facts upon which a

reasonable expectation of future employment can be based,

plaintiffs are unable to establish that they continued to be

members of the bargaining unit exclusively represented by

USWA. As with others who have departed from USX with

no reasonable expectation of returning, plaintiffs, as former

employees, are not owed any duty of fair representation by

USWA.

Plaintiffs nevertheless contend that even if they were

former employees, the USWA owes them a duty of fair

representation because “the rights under the [leave] policy

relate back at least to the time of their active employment.”

This argument is misguided. The Supreme Court has consis-

tently reaffirmed the principle that since former employees

are not within the bargaining unit, the union owes them no

duty of fair representation. UMWA Health & Ret. Funds v.

Robinson, 455 U.S. 562, 574-575 (1982) (“former members

and their families may suffer from discrimination in collec-

tive-bargaining agreements because the um on need not

‘affirmatively ... represent [them] or...take into account

their interests in making bona fide economic decisions in

behalf of those whom it does represent’ ”) (quoting Pittsburgh

Plate Glass, 404 U.S. at 181 n.20); Central States Pension

Fund v. Central Transport, 472 U.S. 559 (1985) (union’s duty

does not extend to all fund participants but “is confined to

current employees employed in the bargaining unit in which

it has representation rights”). Unions are not required to

enforce the pension rights of former employees, even though

such rights were earned during a time when the employees

were in the bargaining unit and represented by the union.

18b

Next, plaintiffs argue that even if the union had no

duty to represent them, “it could voluntarily undertake such

representation,” and once having volunteered, would be gov-

erned by the duty of fair representation. First, even if a union

volunteers to represent a person outside the bargaining unit,

it is not bound by the statutory duty of fair répresentation.

International Union, United Auto Workers v. Yard-Man, 716

F.2d 1475 (6th Cir. 1983). Second, plaintiffs’ complaint is

devoid of any allegation that USWA volunteered to represent

plaintiffs. Instead, the complaint attacks the union because

it would not represent plaintiffs. Although plaintiffs point to

a letter sent by USWA President Williams to USX in response

to the revocation of the extended leave plan, the letter does

not contain any language indicating that USWA is pursuing

extended pension benefits on plaintiffs’ behalf. The document

at issue simply informs USX that the USWA will enforce all

leave rights established in the agreements it negotiates—the

two-year leave policy which appears in the current USWA-

USX collective bargaining agreement. Moreover, the letter

makes quite clear that the 1984 revised policy was USX’s

unilateral creation and thus not within its scope of

responsibility.

Finally, plaintiffs argue that since the union “induced”

them to leave their jobs at USX and forego earning additional

USX pension benefits, USWA acquired a duty to represent

plaintiffs in seeking pensions from their former employer.

This argument, however, suffers from several deficiencies.

Aside from the fact no authority exists for such a proposition,

plaintiffs’ complaint contains no trace of an allegation that

USWA compelled plaintiffs to give up their employment

with USX. Moreover, plaintiffs nowhere assert that USWA

prevented them from returning to USX prior to expiration

of their two-year leave. From all indications, plaintiffs on

their own accord chose to leave USX, to accept employment

with USWA, and to remain after termination of their two-year

leave of absence knowing that their employment relationship

19b

with USX would thereby be severed. Because plaintiffs are

unable to establish that USWA owed them a duty of fair

representation, plaintiffs’ claims against USWA fail, and

Count VI of plaintiffs’ complaint is dismissed.

20b

Ill. CONCLUSION

For the foregoing reasons, the motions of USX and

USWA are granted, and plaintiff's complaint is dismissed in

its entirety.

IT IS SO ORDERED.

NicuHo tas J. Bua

Judge, United States District Court

Dated: September |, 1988