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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1989
- **Citation:** 493 U.S. 994

## Text

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
Ut MIE, Sricahtiecnatecscsrccntrcccesecereesar lb

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,

OO — ——

- ee

3a

No. 88-2889

te ane
cnet ead
susitul Hue ij
ef ; (i ake
: HF Ht init,

tei is
leah ane nae ale

files iF

He iat

Ht 438205

No. 88-2889

epApeseeg Jebennpaeuens; 4 tty 7)
Sess 585s vy Es s-stxs 4 | a}
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plan

|
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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

. *

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;
5

5
+
1

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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 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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_0568%3A1. Public record. Not legal advice.