Petition for Writ of Certiorari — Marine Transport Lines, Inc. v. International Organization of Masters, Mates & Pilots
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No. YY SY Supreme cour, us,
ED
IN THE OCT 30 ies
Supreme Court of the United USPANIOL, JR,
OCTOBER TERM, 1989
thee
ae
MARINE TRANSPORT LINES, INC.,
Petitioner,
ee ac
INTERNATIONAL ORGANIZATION OF MASTERS,
MATES & PILOTS,
Respondent.
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
Of Counsel: MICHAEL D. BLECHMAN
425 Park Avenue
KAYE, SCHOLER, FIERMAN,
HAYS & HANDLER New York, New York 10022
425 Park Avenue (212) 836-8000
New York, New York 10022 Counsel of Record and
Eric A. Sisco Attorney for Petitioner
MORGAN, LEWIS & BOCKIUS Marine Transport Lines, Inc.
801 South Grand Avenue
Los Angeles, California 90017
D. Michael Underhill
MORGAN, LEWIS & BOCKIUS
1800 M Street, N.W.
Washington, D.C. 20036
Peter N. Popov
Marine Transport Lines, Inc.
150 Meadowland Parkway
Secaucus, New Jersey 07094
October 30, 1989
QUESTION PRESENTED
Whether the decisions below conflict with basic principles of
federal labor policy and contract interpretation, as well as with
prior decisions of the United States Supreme Court and other
federal courts of appeals, in:
(a)
(b)
(c)
finding that the duration of a written collective bar-
gaining agreement was extended orally, even though
there was no express oral agreement to extend, the sub-
ject of an extension was not even discussed and there is
no basis for finding that such an extension must be
necessarily implied;
holding that evidence of the parties’ pre-litigation
understanding that the collective bargaining agreement
had not been extended is irrelevant as a matter of law;
and
holding that the burden of proof may be reversed, so
that an agreement to extend the collective bargaining
agreement may be found based on the very absence of
evidence that the subject of an extension was ever dis-
cussed?
i
LIST OF PARTIES AND RULE 28.1 LIST
The parties to the proceeding below were petitioner Marine
Transport Lines, Inc. and respondent International Organiza-
tion of Masters, Mates & Pilots.
Pursuant to Supreme Court Rule 28.1, petitioner hereby
states that its parent company is Marine Transport Lines, Inc.,
and that it has no subsidiaries or affiliates except wholly-owned
subsidiaries.
TABLE OF CONTENTS
er
LIST OF PARTIES AND RULE 28.1 LIST ..........
ME ET EPID DRIED s oo c ccc cc cess cccccess
eee Saas aus ce vcscceccesesscess
EE AEDES TPT CETTE EEE
STATUTORY PROVISION INVOLVED ............
SIATEMENT OF THE CASE............ Teer eee
ek ccc cecccervees
I sce cece ccc ccccccsss
REASONS FOR GRANTING THE WRIT ...........
I. THE HOLDING BELOW, THAT THE
DURATION OF A WRITTEN COLLECTIVE
BARGAINING AGREEMENT MAY BE
FOUND TO HAVE BEEN EXTENDED
ORALLY WITHOUT ANY EXPRESS
AGREEMENT TO - THAT EFFECT,
DEPARTS FROM BASIC PRINCIPLES OF
LABOR LAW AND CONTRACTUAL
INTERPRETATION AND CONFLICTS
DIRECTLY WITH PRIOR DECISIONS OF
THIS COURT AND OTHER FEDERAL
Sg tS 6 eer
ii
iv
ll. THE HOLDING BELOW, THAT EVIDENCE
OF THE PARTIES’ PRE-LITIGATION
INTERPRETATION OF THEIR COLLEC-
TIVE BARGAINING - AGREEMENT IS
IRRELEVANT AS A MATTER OF LAW,
CONFLICTS WITH SUPREME COURT
PRECEDENT AND THE LAW OF OTHER
CTE o's vce wrcdsvececsecssctaeneuessces
lJ]. THE HOLDING BELOW, REVERSING THE
BURDEN OF PROOF, IS INCONSISTENT
WITH FUNDAMENTAL PRECEPTS OF
OUR LEGAL SYSTEM AND WITH THE
LAW OF OTHER FEDERAL COURTS OF
qf), JS) reer err rrr Tt terse
CONCLUSION 2. cc cccccccesesccsevecsscssssvesers
APPENDICES:
Appendix A: Order And Opinion of the United States
Court of Appeals for the Second Circuit (June 13,
Appendix B: Opinion and Order of the United States Dis-
trict Court for the Southern District of New York
(Conboy, J.) (September 29, 1988)..........+-++--:
Appendix C: Judgment of the United States Court of
Appeals for the Second Circuit (originally entered,
June 13, 1989; corrected and re-entered, October 20,
Appendix D: Order of the United States Court of
Appeals for the Second Circuit denying petition for
rehearing and suggestion for rehearing in banc (July
RS, Se ee errr irre ee eee
PAGE
12
15
17
C-]
TABLE OF AUTHORITIES
Cases: PAGE
Boldt v. International Union, UAW, 482 F.2d 985
(Temp. Baner. Ci. Age. 978) 6 occ e lc ccwss 1]
Cordingly v. Allied Van Lines, Inc., 563 F.2d 960 (9th
Ce MM Teh Cokes tes beck $uRsasaudueaten oxeek 14
Genesco, Inc. v. Joint Council 13, United Shoeworkers
of America, 341 F.2d 482 (2d Cir. 1965)............ 8
Gloeckner v. School Dist. of Baldwin, 405 Pa. 197, 175
PE Ads ceeds ee os + oo act He oh ee ek 9, 10n
Greater Kansas City Labor Pension Fund v. B.E.A.M.,
BUG. , Tae Bae ae? GR Git. TOR) no cc cccvccccccess 9
H.C. Lawton, Jr., Inc. v. Truck Drivers, Chauffeurs &
Helpers Local Union No. 384, 755 F.2d 324 (3d Cir.
STS Wes rees CHEN Ee ran ee eee ences 8
Heheman v. E.W. Scripps Co., 661 F.2d 1115 (6th Cir.
1981), cert. denied, 456 U.S. 991 (1982) ............ 11
Irwin v. Carpenters Health and Welfare Trust Fund for
California, 745 F.2d 553 (9th Cir. 1984)............ 8
Lerwill v. Inflight Services, Inc., 379 F. Supp. 690 (N.D.
Cal. 1974), aff’d, 582 F.2d 507 (9th Cir. 1978) ...... 9n
Linneman Constr., Inc. v. Montana Dakota Utilities
Ca... Fae Fie TSG Gh Ge. TOI, ovo ive cvcccvvcavs 14
Lodge No. 12 of District 37, IAM v. FMC Corp., 551 F.
Ge ES UO cc a iveccsesekcasceeuus 9n
Management Systems Assocs., Inc. v. McDonnell
Douglas Corp., 762 F.2d 1161 (4th Cir. 1985)....... 14
Vi
PAGE
Marine Transport Lines, Inc. v. International Organiza-
tion of Masters, Mates & Pilots, 636 F. Supp. 384
en ans oo own 04d bal ow 6 ue Kn ees oo 6n
Monroe Sander Corp. v. Livingston, 377 F.2d 6 (2d
Cir.), cert. denied, 389 U.S. 831 (1967)..... se eeeees 11
Old Colony Trust Co. v. City of Omaha, 230 U.S. 100
RO a re ik ee hae bade uh iii i ais 540s eee 14
Paragon Resources v. National Fuel Gas Distrib. Corp.,
og ee a 14
Sanchez v. Maher, 560 F.2d 1105 (2d Cir. 1977)....... 14
Textile Workers Union vy. Lincoln Mills, 353 U.S. 448
ad Garis acae a tire a all od bine vee occce dee 8
Transportation-Communications Employees Union vy.
Union Pacific R.R. Co., 385 U.S. 157 (1966) ....... 14n
Troy Mining Corp. v. Itmann Coal Co., 346 S.E.2d 749
Cee NG A ahd os weeiue cows ¥eebeveeseceews 9
United Steel Workers of America v. North Bend Termi-
ge Moe oe ©. ee, | 8, 16
Viacom Int’l, Inc. v. Lorimar Prods., Inc., 486 F. Supp.
oe a 14
Zenith Radio Corp. v. NLRB, 81 LRRM 2396 (7th Cir.
PR Mattel ee ced eGR Se oe ek b's bad Wek eee 8
Zink v. Pittsburgh & Midway Coal Mining Co., 374
oe OF cee Ba CO, hs PR, FOE onc ve cc cccccccses 9
Statutes:
eo Sg dev ené's seep eeud<s 2
ce at CU becedesveedceccwesederes 6, 8
IN THE
Supreme Court of the United States -
OCTOBER TERM, 1989
No. .
>
MARINE TRANSPORT LINES, INC.,
Petitioner,
—vs.—
INTERNATIONAL ORGANIZATION OF MASTERS,
MATES & PILOTS,
Respondent.
>
PETITION FOR A WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
OPINIONS BELOW
The Opinion of the United States Court of Appeals for the
Second Circuit is reported at 878 F.2d 41 and is reprinted as
Appendix A. The Opinion of the District Court for the South-
ern District of New York is reported at 696 F. Supp. 1, and is
reprinted as Appendix B.
JURISDICTION
The Opinion of the Court of Appeals for the Second Circuit
was dated and entered on June 13, 1989.' Petitioner then filed a
1 The judgment of the Court of Appeals was initially entered on June
13, 1989 and then corrected and re-entered on October 20, 1989. A
copy of the corrected judgment is annexed hereto as Appendix C.
2
timely petition for rehearing and suggestion for rehearing in
banc. On July 31, 1989, the Court of Appeals entered an order
denying the petition for rehearing.’
This Court has jurisdiction to review the judgment below by
writ of certiorari pursuant to 28 U.S.C. § 1254(1).
STATUTORY PROVISION INVOLVED
Section 301(a) of the Labor Management Relations Act, 29
U.S.C. § 185, which states as follows:
‘*Suits for violation of contracts between an employer and
a labor organization representing employees in an industry
affecting commerce as defined in this chapter, or between
any such labor organizations, may be brought in any dis-
trict court of the United States having jurisdiction of the
parties, without respect to the amount in controversy or
without regard to the citizenship of the parties.’’
STATEMENT OF THE CASE
The decisions of the courts below lay down some startling
propositions with respect to the interpretation of labor con-
tracts which conflict, not only with important labor law policies
underlying the Labor-Management Relations Act and well-
established federal principles of labor contract interpretation,
but also with decisions of the United States Supreme Court and
other federal courts of appeals. In particular, the Second Cir-
cuit’s decision would establish for the first time, as part of the
federal common law governing the interpretation of collective
bargaining agreements, that:
1. The duration of a written collective bargaining contract
can be deemed extended by an oral agreement even though
there is no express oral agreement to extend and no basis for
2 A copy of the order denying the petition for rehearing is annexed
hereto as Appendix D.
arguing that such extension must be necessarily implied from
what was orally agreed to;
2. Evidence of the parties’ conduct, showing that they in fact
understood that the duration of the collective bargaining con-
tract had nor been extended, must be disregarded as a matter of
law; and
3. The burden of proof may be reversed so that an agreement
to extend a party’s obligations under a collective bargaining
contract may be found based on the very absence of evidence
that the subject of an extension was ever discussed.
Petitioner Marine Transport Lines, Inc. respectfully submits
that, unless corrected, these holdings will significantly distort
the federal common law with respect to the interpretation of
labor contracts and will frustrate federal labor law policy by
undermining the enforceability of collective bargaining agree-
ments as written.
A. Statement of Facts
This case involves a dispute between an employer, Marine
Transport Lines, Inc. (“‘MTL’’), and a union, the International
Organization of Masters, Mates and Pilots (““MM&P’’), con-
cerning the termination date of a written collective bargaining
agreement between the parties known as the ‘‘Master Agree-
ment.’’ That agreement expressly provided that it had a termi-
nation date of June 15, 1984, but that it would be automatically
extended for an additional year unless either party gave notice
at least 60 days prior to that termination date of an intent to
modify, amend or terminate. (JA-1495).°
3 References to ‘‘JA’’ in this petition are to the Joint Appendix filed
by the parties in the Court of Appeals; references to ‘‘A’’ are to
Appendix A, the Court of Appeals Opinion; references to ‘‘B’’ are to
Appendix B, the District Court Opinion of Judge Conboy.
iii i
4
In late 1982, the parties orally agreed to modify certain wage
and related terms of the Master Agreement.* The purpose of
this oral agreement was to keep MTL’s labor costs competitive
so it could retain its contract with the U.S. Navy for the opera-
tion of nine ‘‘Sealift’’ vessels. Accordingly, the oral agreement
applied only to the Sealift vessels; and the reductions in wages
and other related benefits were to remain in effect until the
expiration of MTL’s contract with the Navy on May 7, 1985.
It is undisputed that the parties, in entering into the oral
agreement, never discussed an extension of the Master Agree-
ment’s June 15, 1984 termination date or the continuation
beyond that date of any contractual obligations, other than the
understanding that the four items specifically referred to in the
oral agreement would not be changed until May 7, 1985.°
It is also clear that an extension of the Master Agreement
beyond June 15, 1984 cannot be implied as a necessary conse-
quence of the fact that the oral agreement, which admittedly
amended the Master Agreement in four specific respects, was to
last until May 1985. For one thing, it is undisputed that MTL
simultaneously entered into substantially identical agreements
with its three other unions modifying their master agreements,
yet both MTL and those other unions agreed that the June 15,
1984 termination dates in those master agreements remained
unchanged even though the stated term of the amendments, like
4 Specifically, this oral understanding modified the Master Agreement
by: (1) rolling back and freezing the wage, overtime and penalty rates
paid to MM&P members at June 1981 levels; (2) eliminating certain
bonuses for service on diesel and automated vesseis; (3) reducing vaca-
tion time from 30 days for every 30 days worked to 13 days for every
30 days worked; and (4) reducing air transportation allowances from
first to economy class. These provisions were reduced to writing in a
draft agreement (JA-1595-96), which, while never executed, the parties
agree accurately sets forth (with one immaterial exception) the terms of
the oral agreement. (B-21-22 & n.11).
5 See B-32 (citing unrebutted testimony by MTL officials that ‘‘during
the 1982 negotiations [MTL] did not discuss with [MM&P] any aspects
of the Master Agreement except those they needed to modify to secure
the extension of the Navy contract’’).
5
the oral agreement with MM&P, was to May 7, 1985.° It is also
undisputed that, in 1974, MM&P itself entered into an agree-
ment with MTL which modified the manning provisions of the
then-existing Master Agreement (i.e., it lowered the required
number of officers from 5 to 4), and provided that the term of
this modification was to last beyond the termination date of the
Master Agreement (JA-645-47). Yet the parties clearly under-
stood that the manning amendment did not have the effect of
extending the term of the Master Agreement itself.’
The evidence also showed that in 1984, MM&P itself fully
understood that the termination date of the Master Agreement
had not been extended beyond June 15, 1984. Thus, on April 8,
1984, MM&P wrote a letter to ‘‘Marine Transport Line, USN’”’
(MTL’s Sealift tanker operation) declaring MM&P’s intent to
modify and amend the Master Agreement which, MM&P
expressly acknowledged, ‘‘expires at midnight, June 15, 1984.”’
(JA-1699). Subsequently, on June 13, 1984, seeking to disavow
its own April 8 termination letter, MM&P sent a second letter to
MTL claiming that the Master Agreement had been extended
for another year because MTL had not given the required notice
of an intent to terminate 60 days prior to June 15, 1984—which
it thereby confirmed was in fact the Master Agreement’s termi-
nation date.®
6 Each of the three other unions expressly acknowl«dged that its mas-
ter agreement terminated on June 15, 1984, and they all entered into
new collective bargaining agreements as of June 16, 1984. (JA-1783,
1803; see also JA-1831). The modifications applicable to the Sealift
vessels previously agreed to with these other unions were then applied
to modify the new collective bargaining agreement until May 7, 1985,
after which time the new collective bargaining agreements would
remain in effect without the modifications. (JA-1800, 1817, 1824).
7 Instead, the modification was interpreted as merely placing limits on
what could be negotiated under new collective bargaining agreements,
so that whatever else was or was not agreed to, the manning require-
ments could not be increased under subsequent collective bargaining
agreements. (JA-647, 853, 2996).
8 In the first district court opinion issued in this action, the late Judge
Weinfeld found that MM&P’s own April 8, 1984 letter was sufficient
B. Prior Proceedings
MTL brought this action under section 301 of the Labor
Management Relations Act (29 U.S.C. § 185) for a declaratory
judgment that the Master Agreement had terminated on June
15, 1984. In response, MM&P counterclaimed, alleging that, as
a result of its 1982 oral agreement with MTL, the term of the
Master Agreement had been extended by implication until May
7, 1985.° ~
At trial, the main factual issue in dispute was whether the
oral agreement was intended just to freeze wages or all of the
Master Agreement’s contractual terms.’° The union argued that
all the Agreement’s terms had been frozen to May 1985, from
which it could be inferred that the Agreement as a whole had
been extended to that date.'’ District Judge Conboy resolved
this key factual issue in favor of MTL. (B-37).'? Nonetheless,
and even though it was undisputed that the parties had never
discussed the matter, Judge Conboy concluded that the parties
intended to extend the duration of the Master Agreement to
to trigger termination under the Master Agreement and that the Master
Agreement therefore was not automatically extended by virtue of
MITL’s failure to give its own notice of termination. See Marine Trans-
port Lines, Inc. v. International Organization of Masters, Mates &
Pilots, 636 F. Supp. 384, 387-89 (S.D.N.Y. 1986).
9 MMé&P asserted three other counterclaims which were dismissed on
summary judgment by Judge Weinfeld in his 1986 opinion (reported at
636 F. Supp. 384).
10 See JA-1065 (statement by MM&P’s trial counsel that this was the
‘one and really only one significant dispute between the parties’’).
1] See JA-1400 (statement by MM&P’s counsel that the Master Agree-
ment should be deemed extended because ‘‘there [was]n’t much left of
the [M]aster [A]greement that [the parties hadn’t] already agreed to
extend’’).
12. The court of appeals noted that ‘‘Judge Conboy agreed with MTL
that MM&P had agreed only to wage reductions.”’ (A-9). However, the
court of appeals then dismissed the significance of this key finding by
inexplicably asserting that ‘‘MM&P’s line of contention and proof
[was] irrelevant to the outcome of the case.”’ (A-10).
ee
7
May 1985. (B-37). In reaching this conclusion, the-district court
disregarded as legally irrelevant MM&P’s 1984 letters evidenc-
ing its understanding that the Master Agreement had expired on
June 15, 1984. (See discussion infra at 12-14). In addition, the
district court placed the burden of proof on MTL and, on that
basis, proceeded to use the fact that the parties had never dis-
cussed whether or not MTL’s obligations under the Master
Agreement would be extended beyond June 15, 1984 as a basis
for finding that such an extension had in fact been agreed to.
(See discussion infra at 15-16).
The court of appeals, with only two judges participating,’
affirmed the district court, concluding that the parties did
intend to extend the Master Agreement. (A-8). The court of
appeals also affirmed without discussion the district court’s
holdings that pre-litigation evidence of a party’s understanding
could be disregarded as legally irrelevant and that the burden of
proof could be shifted, merely stating that it would ‘‘eschew an
extensive analysis of the legal issues, for we agree with most of
what Judge Conboy wrote’’ (A-4); and that ‘‘[w]e agree with
most of Judge Conboy’s discussion of [MTL’s] points and will
not add our own.’’ (A-9).
\
REASONS FOR GRANTING THE WRIT
I. THE HOLDING BELOW, THAT THE DURATION OF A
WRITTEN COLLECTIVE BARGAINING AGREEMENT
MAY BE FOUND TO HAVE BEEN EXTENDED
ORALLY WITHOUT ANY EXPRESS AGREEMENT TO
THAT EFFECT, DEPARTS FROM BASIC PRINCIPLES
OF LABOR LAW AND CONTRACTUAL INTERPRETA-
TION AND CONFLICTS DIRECTLY WITH PRIOR
DECISIONS OF THIS COURT AND OTHER FEDERAL
COURTS OF APPEALS
It is well-established that the interpretation of collective
bargaining agreements under section 301 of the Labor-
13 Judge John Minor Wisdom of the United States Court of Appeals
for the Fifth Circuit, sitting by designation, participated in oral argu-
ment but subsequently disqualified himself. (A-1).
Management Relations Act, 29 U.S.C. § 185, is governed by
federal common law (Textile Workers Union v. Lincoln Mills,
353 U.S. 448, 456-57 (1957)); and that, in determining the sub-
stance of that federal law, traditional rules of contractual inter-
pretation apply to the extent they are not inconsistent with
federal labor policies. H.C. Lawton, Jr., Inc. v. Truck Drivers,
Chauffeurs & Helpers Local Union No. 384, 755 F.2d 324, 328
n.3 (3d Cir. 1985). See also United Steel Workers of America v.
North Bend Terminal Co., 752 F.2d 256, 259 (6th Cir. 1985).
One basic principle, recognized by several federal courts of
appeals prior to the Second Circuit’s decision in this case, is
that, in light of the strong federal policy in favor of written col-
lective bargaining agreements, the terms of such agreements
must be strictly construed. See Irwin v. Carpenters Health and
Welfare Trust Fund for California, 745 F.2d 553, 557 (9th Cir.
1984) (holding that written collective bargaining agreements,
including, in particular, termination clauses, should be strictly
construed, since ‘‘[jJudicial rewriting of labor contract terms
that are clear in both the language used and situations
addressed would undermine this private bargaining process
which federal labor policy promotes’’); Zenith Radio Corp. v.
NLRB, 81 LRRM 2396 (7th Cir. 1972) (federal labor policy
does not warrant presumption that a vague agreement to extend
most, but not all of the provisions of a written collective bar-
gaining agreement must be construed to also impliedly extend
the no-strike provision of the written agreement); Genesco, Inc.
v. Joint Council 13, United Shoeworkers of America, 341 F.2d
482, 486 (2d Cir. 1965) (stressing ‘‘the importance attached to
signed contracts in the field of collective bargaining”’ in declin-
ing to enforce alleged oral agreement).'*
14 As one district court has noted:
‘*Tolerating modifications [of written collective bargaining agree-
ments] through informal agreement or unspoken acquiesence. . .
creates the danger of substituting for collective bargaining a system
of subtle suggestions, coercion or intimidation. This is not what
Congress has mandated, and this Court may not formulate and
apply a rule which would so interpret the National Labor Relations
Act.”’
(footnote continued on following page)
“etait ei
9
It is a well-settled rule of contract interpretation, fully in
accord with the labor law policies referred to above, that in
order to change orally the express terms of a written contract,
the oral agreement to amend ‘‘must be of such spec ficity and
directness as to leave no doubt of the intention of the parties to
change what they previously solemnized by a formal docu-
ment.’’ E.g., Troy Mining Corp. v. Itmann Coal Co., 346
S.E.2d 749, 755 (W. Va. 1986); Gloeckner v. School Dist. of
Baldwin, 405 Pa. 197, 200, 175 A.2d 73, 75 (1961). Accord
Greater Kansas City Labor Pension Fund v. B.E.A.M., Inc.,
754 F.2d 297, 298 (8th Cir. 1985) (oral agreement to cancel
prior written contract must be ‘‘much more definite’’ than gen-
eral statements giving negotiator the impression such an agree-
ment was reached); Zink v. Pittsburgh & Midway Coal Mining
Co., 374 S.W.2d 158, 163-64 (Mo. Ct. App. 1964) (‘‘the under-
taking of obligations. . . said to have been created [by an oral
modification to a written agreement] must be positive, clear,
specific, definite and so unequivocal as to leave no doubt as to
the intention of the parties to change what had previously been
in writing’’).
Here, the decision of the court of appeals recognized that
‘‘there was no explicit, fully articulated agreement to extend the
[duration of] the Master Agreement.’’ (A-8). In fact, it is undis-
puted that the subject of extending the Master Agreement was
never even discussed by the parties. (JA-549-51, 1172). None-
theless, the court concluded that the parties intended to extend
the Master Agreement, relying on the principle that ‘‘[a]n
agreement to [orally] modify a [written] contract may be proven
circumstantially by the conduct of the parties.’’ (A-8). Yet the
only circumstances noted by the court had nothing to do with
Lerwill v. Inflight Services, Inc., 379 F. Supp. 690, 692 (N.D. Cal.
1974), aff'd, 582 F.2d 507, 513 (%h Cir. 1978). See also Lodge No. 12
of District 37, IAM v. FMC Corp., 551 F. Supp. 83, 91-92 (S.D. Tex.
1982) (parol evidence rule applied to collective bargaining agreements
because ‘‘[vjariation of written contracts by evidence of prior oral
agreements would serve only to undermine the integrity of the agree-
ments by interjecting an unnecessary element of uncertainty into the
collective bargaining process’’).
10
the parties’ actual conduct, but rather consisted solely of the
court’s own observations—not based on any findings by the
district court and without any citation to the record—that ‘‘it
suited MTL’s purposes”’ for the 1982 oral agreement to extend
the duration of the Master Agreement. (A-8).
Should this remain the law, federal courts in the Second Cir-
cuit, and possibly elsewhere, will have unfettered discretion to
circumvent the express terms of written collective bargaining
agreements and to modify those express terms based on nothing
more than the courts’ after-the-fact conception of what may
have ‘‘suited [the] purposes’’ of either party. That is contrary to
essential labor law policies, the decisions of other circuits cited
above and long-established principles of contract law.’
The decisions below also distort the federal common law gov-
erning the interpretation of labor contracts in that they evi-
dently assume that whenever an agreement modifying certain
aspects of a labor contract extends beyond the termination date
of the contract being modified, this necessarily means that the
15 The court of appeals in the opinion below failed to come to grips
with the conflict between its decision and established contract law
because it misconstrued the existing law. Thus, the court below charac-
terized Gloeckner v. School District of Baldwin, 405 Pa. 197, 175 A.2d
73 (1961), as requiring ‘‘evidence ‘of such specificity and directness as
to leave no doubt’ ’’ (A-7-8; emphasis added). However, the law as
established in Gloeckner and like cases is that, in order to establish an
oral amendment of a written contract, the oral agreement itself ‘‘must
be of such specificity and directness as to leave no doubt of the inten-
tion of the parties.’’ Gloeckner, 405 Pa. 197, 200, 175 A.2d 73, 75. In
other words, the parties must at least orally state, specifically and
directly, that they are modifying their written contract in a particular
way. A proper understanding of this unambiguous rule of law would
have required the court below either to decide the case in MTL’s favor
or at least to reject the controlling legal principle in some reasoned
manner, since the court of appeals conceded that ‘‘there was no
explicit, fully articulated agreement [between MTL and MM&P] to
extend the Master Agreement.”’ (A-8).
1]
parties intended to extend the term of the labor contract itself. '°
This assumption is contrary to the law of other federal courts of
appeals and, indeed, to prior decisions of the Second Circuit. In
fact, agreements fixing specific future employment terms for a
period which lasts beyond the term of a particular collective
bargaining agreement have not been deemed to extend the term
of the collective bargaining agreement itself. See Heheman v.
E.W. Scripps Co., 661 F.2d 1115, 1121 (6th Cir. 1981), cert.
denied, 456 U.S. 991 (1982) (promise of lifetime employment);
Boldt v. International Union, UAW, 482 F.2d 985 (Temp.
Emer. Ct. App. 1973) (cost of living adjustment catch-up
clause); Monroe Sander Corp. v. Livingston, 377 F.2d 6, 11 (2d
Cir.), cert. denied, 389 U.S. 831 (1967) (agreement not to move
shop or operation ‘‘at any time’’).
The decision below thus radically changes the legal ground
rules governing collective bargaining in this country. From now
on, every agreement which fixes a particular term of employ-
ment beyond the term of a collective bargaining agreement may
(at least in the Second Circuit) be taken as an unspoken agree-
ment to extend the collective bargaining agreement itself—
particularly when (as will generally be the case) a court can find
that such an extension would have ‘‘suited’’ one of the parties’
‘*purposes.’’ This change in the legal assumptions applicable to
collective bargaining—casually made by the court of appeals
without any discussion as to its impact—will introduce uncer-
tainty and constraints on negotiations which will inevitably
impede the collective bargaining process.
16 This non sequitur appears as follows in the district court’s opinion:
‘‘There is no dispute that the [oral] Sealift Agreement expired
simultaneously with the Navy Contract’s third extension [i.e., on
May 7, 1985]. This has been proven by clear and convincing evi-
dence. [citation omitted]. Thus, the duration of the Master Agree-
ment was extended in relation to the Sealift vessels, while the terms
of the Master Agreement not modified were made applicable to
those ships until the new termination date of May 7, 1985.’’ (B-30;
emphasis added).
12
Il. THE HOLDING BELOW, THAT EVIDENCE OF THE
PARTIES’ PRE-LITIGATION INTERPRETATION OF
THEIR COLLECTIVE BARGAINING AGREEMENT IS
IRRELEVANT AS A MATTER OF LAW, CONFLICTS
WITH SUPREME COURT PRECEDENT AND THE
LAW OF OTHER CIRCUITS
The district court—in a crucial ruling endorsed sub silentio
by the court of appeals—disregarded as legally ‘‘irrelevant’’
two letters sent by MM&P to MTL in Apri! and June 1984
which evidenced MM&P’s understanding that the Master
Agreement’s June 15, 1984 termination date had not been
changed.
The first letter, dated April 8, 1984, was sent by MM&P to
‘‘Marine Transport Line, USN’’ (MTL’s Sealift tanker opera-
tion), declaring MM&P’s intent to modify and amend the
Master Agreement which, MM&P expressly acknowledged,
‘expires at midnight, June 15, 1984.’’ (JA-1699).”’
In the second letter, sent to Marine Transport Lines, USN on
June 13, 1984, MM&P advised MTL that, ‘‘by virtue of the
provisions of [the Master Agreement] and your failure to serve
notice of termination pursuant thereto, such Collective Bar-
gaining Agreement has been renewed through June 15, 1985.”’
(JA-1705). This letter shows that, as of June 13, 1984, MM&P
assumed that MTL’s deadline for serving notice of termination
60 days prior to the termination date had already passed—an
assumption that would only have made sense if MM&P shared
MTL’s understanding that the termination date of the Master
Agreement was still June 15, 1984. Had the Master Agreement
actually been extended to May 1985—which Judge Conboy
concluded was the parties’ understanding—then MTL’s dead-
line for providing notice of termination would not have
occurred until March 1985, and MM&P’s June 13, 1984 letter
would have made no sense.
17 See also A-3 (statement in the Second Circuit opinion that ‘‘[o]n
April 8, MM&P informed MTL that the union intended to modify and
amend the Master Agreement wien if expired ir June, 1984’’) (empha-
sis added).
13
Notwithstanding such clear evidence of MM&P’s actual
understanding of the Master Agreement, Judge Conboy ruled
that the letters were ‘‘irrelevant’’ because, even though they
were written prior to the litigation, they post-dated the parties’
1982 oral agreement. (B-33). Specifically, in discussing the let-
ters, Judge Conboy ruled that, ‘‘even if [MM&P President]
Lowen possessed this subjective view of the Sealift Agreement
[i.e., that it did not impliedly extend the duration of the Master
Agreement], he failed to express it in 1982, at the time the par-
ties agreed to the modification. Beeause any such intent was not
expressed, it is irrelevant.’’ (B-33; emphasis added).'* Subse-
quently, the court of appeals, without discussion, placed its
imprimatur upon this holding by the district court by stating
broadly that it ‘‘agree[d] with most of what Judge Conboy
wrote.”’ (A-4).
This portion of the decisions below conflicts directly with the
settled principle recognized by this Court, the other circuits and
indeed other federal courts in the Second Circuit itself that
18 Judge Conboy also found the June 13, 1984 letter legally irrelevant
based on his a priori assumption that the Master Agreement had been
extended to May 1985 and the resulting determination that any evi-
dence to the contrary was a ‘‘legal nullity.’’ (B-34). As he put it:
‘This [June 13] letter is a dubious predicate for [MTL’s] claim [that
the letter showed MM&P’s understanding that the Master Agree-
ment expired on June 15, 1984], since it was a legal nullity. Because
section I(1) of the Master Agreement was incorporated fully into
the Sealift Agreement, MTL had until sixty days prior to May 7,
1985 to serve a notice of intent to renegotiate, amend or terminate
the Sealift Agreement. When the June 13, 1984 letter was written,
MTL’s time to indicate such intent had not in fact expired.’’ (B-34-
35).
It would, to say the least, have a disruptive effect on the interpretation
of collective bargaining agreements if this notion—that judicial
assumptions should outweigh highly probative evidence—were to
remain an integral part of the federal common law with respect to
labor contracts.
As for the April 8, 1984 letter, the district court found it had been
sent to MTL ‘‘mistakenly’’ (B-32), based solely on the testimony of a
witness who admitted he had no knowledge, direct or indirect, as to
how the letter came to be sent to MTL. (JA-652-61).
14
‘‘The practical interpretation of a contract by the parties,
manifested by their conduct for any considerable length of
time before it becomes a subject of controversy, is entitled
to great, if not controlling weight in the construction of
the contract.”’
Viacom Int’l, Inc. v. Lorimar Prods., Inc. , 486 F. Supp. 95, 98
n.5 (S.D.N.Y. 1980) (Weinfeld, J.). Accord Old Colony Trust
Co. v. City of Omaha, 230 U.S. 100, 118 (1913); Management
Systems Assocs., Inc. v. McDonnell Douglas Corp., 762 F.2d
1161, 1171 (4th Cir. 1985); Paragon Resources v. National Fuel
Gas Distrib. Corp., 695 F.2d 991, 997 (Sth Cir. 1983);
Cordingly v. Allied Van Lines, Inc., 563 F.2d 960, 964 n.9 (9th
Cir. 1977); Sanchez v. Maher, 560 F.2d 1105, 1108 (2d Cir.
1977); Linneman Constr., Inc. v. Montana Dakota Utilities
Co., 504 F.2d 1365, 1368 (8th Cir. 1974).
If left standing, the decisions below will inject into the federal
common law governing the interpretation of collective bargain-
ing agreements the odd notion that proof of pre-litigation con-
duct demonstrating the understanding and intent of the parties
is legally irrelevant, even though this Court and other federal
courts of appeals have uniformly recognized that such evidence
is of the highest probative value. The inevitable effect of this
ruling will be to insulate the interpretation of collective bargain-
ing agreements from the most reliable evidence as to the actual
intent of the parties, thereby undermining the efficacy and fair-
ness of labor contracts generally.”
19 The district court’s decision, endorsed by the Second Circuit, is also
at odds with the directive of this Court that ‘‘in order to interpret’’ the
meaning of a collective bargaining agreement, ‘‘it is necessary to con-
sider the scope of other related collective bargaining agreements, as
well as the practice, usage and custom pertaining to all such agree-
ments.’’ Transportation-Communications Employers Union v. Union
Pacific R.R. Co., 385 U.S. 157, 161 (1966).
Had the district court followed Transportation-Communications,
supra, it could not sensibly have reached the conclusion that the exten-
sion of the Master Agreement between MTL and MM&P was necessar-
ily implied by the parties’ 1982 oral agreement, since: (1) there was
undisputed evidence that MTL’s other unions fully recognized that
their 1982 modifications of their Master Agreements (each of which
extended to May 1985) did mos extend the June 15, 1984 termination
15
Ill. THE HOLDING BELOW, REVERSING THE BURDEN
OF PROOF, IS INCONSISTENT WITH FUNDAMEN-
TAL PRECEPTS OF OUR LEGAL SYSTEM AND
WITH THE LAW OF OTHER FEDERAL COURTS OF
APPEALS
Judge Conboy, in finding that MTL’s obligations under the
Master Agreement had been extended beyond June 15, 1984,
reasoned as follows:
‘‘[Rjegardless of how the [oral] Sealift Agreement ‘is
viewed, the burden to show intent to supercede the provi-
sions of the Master Agreement not addressed specifically
in the Sealift Agreement rests with the party arguing for
that result, MTL. . . . MTL has failed to show by even a
preponderance of the evidence an intent in the fall of 1982,
when the Sealift Agreement was agreed to, to reject the
provisions of the Master Agreement that were not modi-
fied. Both Rand and Murphy, the only MTL officials who
dealt with [MM&P President] Lowen, testified that during
the 1982 negotiations they did not discuss with Lowen any
aspects of the Master Agreement except those they needed
to modify to secure the extension of the Navy Contract.
See Tr. 625-27 (Murphy); id. at 678 (same witness, discus-
sing San Francisco meeting specifically); id. at 681 (same
witness); id. at 976 (Rand, discussing early November
meeting).’’
(B-31-32). The testimony cited to in the above excerpt from
Judge Conboy’s opinion states that there was mo discussion of
extending the Master Agreement beyond its stated expiration
date and no discussion regarding the Master Agreement’s termi-
nation clause.
date of their corresponding Master Agreements (see discussion supra at
4-5); and (2) there was undisputed evidence that, in 1974, MM&P itself
had entered into a ‘‘Manning Agreement’’ which modified the then-
existing Master Agreement in certain respects and which was to remain
in effect beyond the 1975 termination date of the Master Agreement,
but which MM&P nevertheless conceded did nos extend the term of the
Master Agreement. (See discussion supra at 5).
———————
16
In other words, the district court first assumed that the termi-
nation date of the Master Agreement had been extended by vir-
tue of the parties’ oral agreement to freeze four specific terms
of employment through May 1985, and then placed on MTL the
burden of proving that all of its other obligations under the
Master Agreement had not been extended. By thus standing on
its head the normal rule as to burden of proof, the court used
the very failure of the parties to discuss any extension of the
Master Agreement as the basis for concluding that the Master
Agreement had in fact been extended. (B-32).
This startling reversal of the burden of proof—which was
approved without comment by the court cf appeals—is con-
trary to one of the most basic axioms of American jurispru-
dence, viz., that a party asserting a claim for breach of contract
has the burden of proof. See, e.g., United Steelworkers of
America v. North Bend Terminal Co., 752 F.2d 256, 261 (6th
Cir. 1985) (‘‘the whole burden of proof is on the party alleging
breach of a collective bargaining agreement’’).
In reversing the burden of proof in this case, the courts below
have created an extremely dangerous precedent in the federal
common law of the interpretation of collective bargaining
agreements that, if allowed to stand by this Court, will invite
chaos and injustice in the future resolution of collective bar-
gaining disputes.
17
CONCLUSION
For the foregoing reasons, we respectfully request that a writ
of certiorari be granted.
Dated: October 30, 1989
/s/
Of Counsel:
KAYE, SCHOLER, FIERMAN,
HAYS & HANDLER
425 Park Avenue
New York, New York 10022
Eric A. Sisco
MORGAN, LEWIS & BOCKIUS
801 South Grand Avenue
Los Angeles, California 90017
D. Michael Underhill
MORGAN, LEWIS & BOCKIUS
1800 M Street, N.W.
Washington, D.C. 20036
Peter N. Popov
Marine Transport Lines, Inc.
150 Meadowland Parkway
Secaucus, New Jersey 07094
Respectfully submitted,
MICHAEL D. BLECHMAN
Michael D. Blechman
425 Park Avenue
New York, New York 10022
(212) 836-8000
Counsel of Record and
Attorney for Petitioner
Marine Transport Lines, Inc.
ne lhl sya lle lb ct IS a il
et eee eye eee oa) «
é
5
APPENDIX A
Order And Opinion of the United States Court of Appeals
for the Second Circuit (June 13, 1989)
A-l
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
—
No. 1072—August Term, 1988
(Argued April 25, 1989 Decided June 13, 1989)
Docket No. 89-7040
>
MARINE TRANSPORT LINES, INC.,
Appellant,
—V.—
INTERNATIONAL ORGANIZATION OF MASTERS,
MATES & PILOTS,
Appellee.
oe
Before:
OAKES, Chief Judge, and
MESKILL, Circuit Judge.*
aoe
Appeal from a judgment of the United States District Court
for the Southern District of New York, Kenneth Conboy,
Judge, holding that the parties had modified certain terms of
their collective bargaining agreement, including its expiration
date, with respect to the ‘‘Sealift’’ tankers operated by Marine
Transport Lines. 696 F. Supp. 1 (S.D.N.Y. 1988).
Judgment affirmed.
>
’ Immediately after oral argument, Judge John Minor Wisdom of the
United States Court of Appeals for the Fifth Circuit, who was sitting by des-
ignation, disqualified himself.
A-2
MICHAEL D. BLECHMAN, Kaye, Scholer, Fier-
man, Hays & Handler, New York, NY (Eric
A. Sisco, Morgan, Lewis & Bockius, Los
Angeles, CA, D. Michael Underhill, Francis
X. Coonelly, Morgan, Lewis & Bockius,
Washington, DC, Peter N. Popov, General
Counsel, Marine Transport Lines, Inc.,
Secaucus, NJ, of counsel), for Appellant.
MICHAEL H. GOTTESMAN, Bredhoff & Kaiser,
Washington, DC (Robert M. Weinberg, Ray-
mond C. Hurley, Bredhoff & Kaiser, Wash-
ington, DC, Seymour Waldman, Vladek,
Waldman, Elias & Engelhard, P.C., New
York, NY, Burton Epstein, International
Organization of Masters, Mates & Pilots,
Linthicum Heights, MD, of counsel), for
Appellee.
_
OAKES, Chief Judge:
The parties in this contract dispute are Marine Transport
Lines, Inc. (MTL), a shipowner, and the International Organi-
zation of Masters, Mates & Pilots (MM&P), which represents
deck officers in the merchant marine. In 1981, MTL and
MM&P signed a collective bargaining agreement covering the
deck officers employed by MTL. The agreement, called the
Master Agreement, ran for three years and was scheduled to
expire on June 15, 1984. It would be renewed automatically
from year to year unless either party gave notice at least sixty
days before the expiration date of an intention to modify,
amend, or terminate the agreement.
Halfway through the term of the Master Agreement, MTL
sought concessions from MM&P in order to obtain the renewal
of a contract under which MTL operated nine ‘‘Sealift’’ tankers
for the United States Navy. In November 1982, MTL and
MM&P agreed to modify certain terms of their Master Agree-
ment as it applied to the Sealift tankers. In this so-called Sealift
A-3
Agreement, the union accepted reductions in wages and other
benefits from January 1, 1983 through May 6, 1985, which cov-
ered the term of the new contract that MTL hoped to conclude
with the Navy.
The controversy between these parties arose in 1984. On
April 8, MM&P informed MTL that the union intended to
modify and amend the Master Agreement when it expired in
June, 1984. Then, on June 15, MTL announced that the Master
Agreement had expired and that the company no longer recog-
nized MM&P as the representative of its deck officers. The fol-
lowing day, MTL sued for a declaratory judgment that, because
of MM&P’s April 8th communication, the Master Agreement
had terminated on June 15, 1984. MM&P asserted four coun-
terclaims. The late Judge Edward Weinfeld granted summary
judgment to MTL on three of those counterclaims, including
MM&P’s assertion that the Master Agreement had been auto-
matically renewed. He found, however, that there was a factual
dispute between the parties concerning the scope of the Sealift
Agreement. Hence, MM&P’s counterclaim alleging that the
Sealift Agreement had extended the term of the Master Agree-
ment with respect to the nine tankers could not be resolved by
summary judgment. Marine Transp. Lines, Inc. v. Interna-
tional Org. of Masters, Mates & Pilots, 636 F. Supp. 384
(S.D.N.Y. 1986).
The case came to trial on MM&P’s remaining counterclaim
before Judge Kenneth Conboy, sitting without a jury. MTL’s
position was that the Sealift Agreement existed independently
of the Master Agreement and did not change the expiration date
of the Master Agreement. MM&P argued that, when the parties
concluded the Sealift Agreement, they intended that it should
extend the term of the Master Agreement with respect to the
Sealift tankers. Judge Conboy ruled in favor of MM&P,
Marine Transp. Lines, Inc. v. International Org. of Masters,
Mates & Pilots, 696 F. Supp. 1 (S.D.N.Y. 1988), and MTL filed
this appeal. We agree with the district court that the Sealift
Agreement modified the terms of the Master Agreement and
extended its term until May 7, 1985, with respect to the Sealift
tankers. We therefore affirm Judge Conboy’s decision.
A-4
BACKGROUND
Judge Conboy presented a detailed narrative of the facts in
this case. See Marine Transp. Lines, 696 F. Supp. at 1-14. We
will summarize the events here and refer the curious reader to
the district court opinion for additional details. We will also
eschew an extensive analysis of the legal issues, for we agree
with most of what Judge Conboy wrote. See id. at 14-28. In our
discussion below, we will focus instead upon the issues that, in
our opinion, merit further discussion.
The deck officers represented by MM&P are supervisory per-
sonnel under Section 2(11) of the National Labor Relations
Act, 29 U.S.C. § 152(11) (1982). MTL is therefore not obliged
to recognize or bargain with a representative of its captains and
mates. See 29 U.S.C. § 164(a); Marine Transp. Lines, 636 F.
Supp. at 386 & n.2, 388. Nevertheless, MTL and MM&P have,
since at least the 1960s, concluded a series of collective bargain-
ing agreements. The 1981 Master Agreement was the last in this
series.
Meanwhile, in 1974, MTL had concluded a five-year contract
with the Navy to operate its nine Sealift tankers. The Navy
reimbursed MTL for its labor costs, which MTL documented
by submitting a ‘‘Schedule A.’’ Schedule A enumerated ‘‘total
wages,’’ defined by the contract to include wages, pension and
welfare payments, vacation benefits, etc. The contract included
an escalation clause which committed the Navy to reimburse
MTL for increased labor costs. Whenever MTL’s labor costs
changed, the company sent the Navy a revised Schedule A.
MTL secured two-year renewals of its Navy contract in 1979
and 1981. In the early 1980s, however, the American merchant
marine was continuing to suffer hard times. Competition inten-
sified. In 1982, MTL faced a crisis: It had failed in three recent
attempts to win new contracts with the Navy. As the time for
renewing the Sealift tanker contract approached, MTL feared
that the Navy would open that contract to competitive bidding.
The company calculated that it could not bid successfully for
the contract (or persuade the Navy to renew the contract with-
out soliciting additional bids) unless it drastically reduced its
labor costs. Moreover, MTL’s corporate survival depended
A-5
upon continuing to operate the Sealift tankers. If MTL lost the
Navy contract, it would probably fail to obtain loans that it
needed to purchase a new ship, and it risked being liquidated by
its parent company, GATX Corp.’
Hoping to reduce its labor costs, MTL turned to its unions
and sought modifications in its collective bargaining agree-
ments. MTL asked MM&P for four concessions that would
apply only to deck officers working on the Sealift tankers: (1)
the reduction of wages to their level of June 16, 1981, with
wages frozen at that level for the duration of the upcoming
extension of MTL’s contract with the Navy (i.e., until May 7,
1985); (2) elimination of the ‘‘diesel and automation allow-
ance’’; (3) reductions in vacation entitlements; (4) job-related
travel in economy class, rather than first class. There were dis-
cussions between Thomas Murphy, MTL’s personnel manager,
and Robert Lowen, MM&P’s international president, in which
Murphy asserted that the deck officers’ jobs depended upon
agreeing to the concessions. Finally, on November 15, 1982,
officials of MTL and MM&P met and agreed orally upon the
changes proposed by MTL. This was the parties’ Sealift Agree-
ment. It included one concession to MM&P: The union would
have the right to shift costs, so long as the total, reduced com-
pensation remained unchanged.’
MTL negotiated with the Navy during this period and
described the concessions that it sought from its unions. It sub-
| For this appeal, MTL filed a statement disclosing interested parties
pursuant to Rule § 0.15 of the Court of Appeals for the Second Circuit.
According to the statement, MTL is now a publicly traded corporation with
no corporate parent.
2 ~ = The parties never executed a writing to reflect their agreement. In
June 1983, Murphy sent a draft ‘‘Memorandum of Agreement’’ to Lowen,
explaining that the Navy required a formal agreement ‘‘respecting the con-
tract changes pertaining to the Sealift Tankers.’’ Marine Transp. Lines, 696
F. Supp. at 12 & n.11. MTL and MM&P agree that the memorandum accu-
rately embodied the Sealift Agreement. However, Lowen did not sign the
memorandum because it included an additional, objectionable paragraph
that is irrelevant to the issues in this case. The memorandum also did not
include the concession to MM&P giving it the right to shift costs. The parties
agree that MM&P gained that right, but they disagree over its scope. See id.
at 15-16.
A-6
mitted a revised Schedule A showing projected reductions in
“‘total costs,’’ and it estimated that the concessions would
reduce annual operating costs by almost one million dollars per
vessel. On November 12, 1982, MTL stated that it already had
its unions’ agreement to the lower wages; it submitted addi-
tional revised Schedule A’s and assured the Navy that the fig-
ures would remain firm during the 1983-85 option period.
Immediately after the November 15th meeting with the MM&P
officials, MTL informed the Navy that the unions had agreed to
implement the changes on January 1, 1983, rather than on May
7, 1983, when the next extension would begin. MTL reiterated
that the new Schedule A would be ‘‘firm through May 1985.”’
MTL also weathered a storm with MM&P. It appeared that
Lowen had not complied with his union’s procedures for agree-
ing to modifications in contract terms under its ‘‘hardship
rule.” He intimated that MM&P might not be able to go
through with the deal. This led to an animated meeting of MTL
and MM&P officials during the Thanksgiving 1982 weekend.
MTL’s president, James Rand, agreed to provide the documen-
tary support needed by Lowen to justify the concessions, and
Lowen signed a letter for the Navy confirming the concessions
that his union had made.
The unions’ concessions satisfied the Navy. An internal gov-
ernment memorandum noted approvingly that, ‘‘under the
revision of MTL’s Schedule [sic] A which is to become effective
on 1 January 1983, total wages (including fringe benefits) will
actually decrease by approximately 30 percent in comparison
with the currently effective Schedule A.’’ On December 1, 1982,
the Navy exercised its option to renew its Sealift contract with
MTL for the period May 7, 1983 through May 6, 1985.
DISCUSSION
Judge Weinfeld identified the disputed issue on which sum-
mary judgment could not be granted as being ‘‘[w]hether or not
the oral Sealift Agreement was intended to extend the duration
of the Master Agreement as applied to the nine Sealift vessels.’’
Marine Transp. Lines, 636 F. Supp. at 389. After an eight-day
A-7
bench trial, Judge Conboy found that the Sealift Agreement
was ‘‘indisputably a modification’’ of the Master Agreement.
Marine Transp. Lines, 696 F. Supp. at 15. He held that the
existence of six modifying terms in the Sealift Agreement had
been proven by clear and convincing evidence. These six modi-
fications were: the four wage and benefit concessions sought by
MTL, the duration of the Sealift Agreement until May 7, 1985,
and the right of MM&P to make changes in the allocation of the
benefits. Jd. Judge Conboy concluded that ‘‘the parties
intended that the Sealift Agreement extend the entire Master
Agreement (as modified by the Sealift Agreement) with respect
to the Sealift vessels until May 7, 1985.’’ Jd. at 21. He therefore
dismissed MTL’s complaint for declaratory judgment as it
related to MM&P’s surviving counterclaim and entered judg-
ment in favor of MM&P. Other disputes between the parties
were, pursuant to a stipulation, referred to arbitration.
The intent of the parties to a contract is, there is little doubt,
a question of fact. See Lowell v. Twin Disc, Inc., 527 F.2d 767,
769-70 (2d Cir. 1975). In a bench trial, the court’s findings con-
cerning the intent of the contracting parties will accordingly not
be disturbed unless they are clearly erroneous. May v. Nevada
Irrigation Dist., 600 F.2d 1280, 1282 (9th Cir. 1979); Fed. R.
Civ. Pa. 52(a). This applies to all fact-finding; under Rule
52(a), there is no distinction between ‘‘subsidiary”’ and ‘‘ulti-
mate’’ facts. Pullman-Standard v. Swint, 456 U.S. 273, 287
(1982). These fundamental rules frame the issue for us in this
appeal: Judge Conboy’s conclusion that MM&P and MTL
intended to extend the duration of the Master Agreement, as
well as his findings concerning particular modifications of the
Master Agreement, were findings of fact, and we must there-
fore affirm these findings unless they are clearly erroneous. See
Amerdyne Indus. v. Pom, Inc., 760 F.2d 875, 877 (8th Cir.
1985).
MTL argues that an oral agreement to modify a contract
must be proven with evidence that is ‘‘so definite and unequivo-
cal as to leave no doubt as to the parties’ intent.’’ It cites, for
example, Amerdyne Industries, 760 F.2d at 877, in which the
Court of Appeals for the Eighth Circuit required ‘‘clear, une-
quivocal, and decisive evidence,’’ and G/oeckner v. School Dis-
A-8
trict of Baldwin, 405 Pa. 197, 200, 175 A.2d 73, 75 (1961), in
which the Supreme Court of Pennsylvania required evidence
‘of such specificity and directness as to leave no doubt.’’ MTL
argues further, of course, that MM&P’s proof in this case fell
short of this rigorous standard. The district court found, how-
ever, that MM&P had proven the modification of the Master
Agreement by clear and convincing evidence; accordingly, it
was unnecessary for the court to decide whether that high stan-
dard of proof was required. Marine Transp. Lines, 696 F.
Supp. at 15.
We agree with Judge Conboy that the Sealift Agreement
must be deemed a modification of the Master Agreement. The
evidence shows without any doubt that the parties intended to
‘‘amend’’—i.e., to modify—the Master Agreement when they
negotiated and concluded the Sealift Agreement. See id. at 15 &
n.12 (reviewing evidence and noting that the parties used the
term ‘‘amend’’ in lieu of ‘‘modify’’). The Sealift Agreement
thus was not a ‘‘side agreement’’ that existed independently of
the Master Agreement or that superseded it.
The evidence also shows that this modification of the Master
Agreement was not limited to the four wage and benefit conces-
sions sought by MTL; it was the intent of the parties to extend
the term of the entire Master Agreement as it applied to the nine
tankers. The fact that there was no explicit, fully articulated
agreement to extend the Master Agreement in this way is no
obstacle to this conclusion. An agreement to modify a contract
may be proven circumstantially by the conduct of the parties.
E.g., Byers Transp. Co. v. Fourth Nat’! Bank & Trust Co., 333
F.2d 822, 825 (10th Cir. 1964); Recon Car Corp. v. Chrysler
Corp., 130 A.D.2d 725, 729, 515 N.Y.S.2d 829, 833 (2d Dep’t),
appeal denied, 70 N.Y.2d 612, 518 N.E.2d 7, 523 N.Y.S.2d 496
(1987). MM&P points out that it suited MTL’s purposes in 1982
for the Sealift Agreement to extend the term of the Master
Agreement. MTL expected that MM&P would perform its side
of the bargain through the entire term of the Sealift Agreement;
indeed, MTL needed MM&P’s cooperation after June 15, 1984,
in order to hold labor costs firm for the Navy. Evidently, by
June 1984, MTL had decided that it could manage without the
union, but there is no credible evidence that MTL contemplated
; A-9
this step or communicated it to MM&P in the autumn of 1982.
Recognizing the district court’s opportunity to assess the wit-
nesses’ credibility, see Marine Transp. Lines, 696 F. Supp. at
19, we are convinced that Judge Conboy’s decision concerning
the scope of the Sealift Agreement was not clearly erroneous.
See Fed. R. Civ. P. 52(a); Unitec Corp. v. Beatty Safway Scaf-
fold Co., 358 F.2d 470, 474 (9th Cir. 1966).
MTL has repeated on appeal the arguments that it presented
to the district court. We agree with most of Judge Conboy’s dis-
cussion of these points and will not add our own. However, one
apparent ‘‘anomaly’’ received particular attention in oral argu-
ment before us and deserves more discussion here. This con-
cerns the significance of the fact that, on January 1, 1983, and
again on January 1, 1984, pursuant to the Master Agreement,
MTL increased the rate at which it contributed to the MM&P’s
Health and Benefit Plan.
MM&P claimed at trial that MTL and MM&P had agreed
during the 1982 negotiations to ‘‘lock in’’ al// of Schedule A’s
labor costs; this claim supposedly supported the union’s argu-
ment that the Sealift Agreement incorporated the entire Master
Agreement. MTL’s theory of the case was that the Sealift
Agreement had not incorporated the entire Master Agreement.
Therefore, in response to the union’s claim, MTL argued that
only the four, specified items had been locked in; it pointed to
its increased contributions to the Health and Benefit Plan as
evidence to support this argument. Marine Transp. Lines, 696
F. Supp. at 20. Judge Conboy agreed with MTL that MM&P
had agreed only to wage reductions, but he went on to say:
‘*Accordingly, this line of contention and proof is irrelevant to
the outcome of the action.’’ Jd. MTL complains that this legal
conclusion conflicts with the court’s own factual finding. It fol-
lows, continues MTL, that Judge Conboy’s factual finding con-
flicts as well with his ultimate conclusion that the Master
Agreement was extended.
- Judge Conboy’s use of the word ‘‘accordingly’’ telescoped
and somewhat obscured his reasoning; further explanation will,
we hope, clarify the point. The Sealift Agreement modified the
Master Agreement, as it applied to the Sealift tankers, in six dis-
tinct ways—the four wage and benefit reductions, the extension
ieee
A-10
until May 7, 1985, and MM&P’s right to_shift costs—and left
the rest of it unmodified. As the district court pointed out in
another context, ‘‘ ‘[m]odifications do not necessarily abrogate
the original contract entirely; indeed, the terms of the old con-
tract are still to be followed so far as not changed or as inconsis-
tent with the new terms.’ ’’ Jd. at 16 (quoting Robinson v.
Crosson, 149 Colo. 235, 238, 368 P.2d 791, 792-93 (1962)); see
also Chicago College of Osteopathic Medicine v. George A.
Fuller Co., 776 F.2d 198, 208 (7th Cir. 1985) (‘‘A modification
of a contract is a change in one or more respects which intro-
duces new elements into the details of the contract, cancels
some of them, but leaves the general purpose and effect undis-
turbed.’’); Beacon Terminal Corp. v. Chemprene, Inc., 75
A.D.2d 350, 354, 429 N.Y.S.2d 715, 717-18 (2d Dep’t) (‘‘The
modification of a contract results in the establishment of a new
agreement between the parties which pro tanto supplants the
affected provisions of the original agreement while leaving the
balance of it intact.’’), appeal denied, 51 N.Y.2d 706, 413
N.E.2d 369, 433 N.Y.S.2d 1026 (1980). Among the provisions
of the Master Agreement that the Sealift Agreement did not
modify were the scheduled increases in MTL’s contributions to
the Health and Benefit Plan. MTL did no more than fulfill an
existing obligation when it increased its contributions to the
Plan—an obligation that was carried over, unchanged, from
the original Master Agreement.
Thus, it was MM&P’s line of contention and proof that
appeared irrelevant to the outcome of the case—or, if relevant,
then of very little probative value. The ultimate issue was
whether MTL and MM&P intended to extend the duration of
the Master Agreement with respect to the Sealift tankers when
they concluded the Sealift Agreement. The union would have
gained little from proving that they agreed to Jock in all of the
items on Schedule A, rather than just the four items specified
by MTL. Consequently, MTL gained little from refuting
MM&P’s argument; in that sense, MTL’s proof was irrelevant.
Judgment affirmed.
a
APPENDIX B
Opinion and Order of the United States District Court
for the Southern District of New York (Conboy, J.)
(September 29, 1988)
B-1
APPENDIX B
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
85 Civ. 1360 (KC)
_s
MARINE TRANSPORT LINES, INC.,
Plaintiff,
-—-V.—
INTERNATIONAL ORGANIZATION OF MASTERS,
MATES, & PILOTS,
Defendant.
a
OPINION
Kenneth Conboy, District Judge:
In the early 1980s hard times fell upon the American mari-
time shipping industry. The international market for such ser-
vices was being increasingly dominated by foreign carriers,
principally, it was thought, because labor costs on American
vessels made them non-competitive. In such circumstances, the
shipping companies and unions sometimes found themselves in
common distress at the prospective loss of contracts and jobs.
In extreme circumstances, imminent bankruptcy of the com-
pany spurred the union to agree to drastic reductions in the
wages and benefits of its members in order to avert the dual
disaster of company collapse and discharge of ships’ crews. The
matter before the court is such a case.
The plaintiff shipper told its unions, including the defendant,
that a contract it had with the Navy to manage nine Sealift ves-
sels would not be renewed routinely by the Navy. To secure the
renewal, the plaintiff determined that it must offer to the Navy
a substantial reduction in labor costs. The defendant union
orally agreed to the reductions for a two year period, thereby
——_—,
B-2
protecting the jobs of the deck offices on those nine ships, and
the shipper consequently managed to secure its contract with
the Navy for another two years. At a subsequent date during
this two year term, the Master Collective Bargaining Agreement
between the shipper and the union, covering all of the shrpper’s
vessels, including the nine Sealift vessels, was by its terms
scheduled to expire unless renewed. The shipper declined to
negotiate a renewal, and later signed a new collective bargaining
agreement with a rival union. On the final day of the Master
Collective Bargaining Agreement, the shipper sent a letter to all
deck offers on its vessels, including the nine Sealift ships, and
advised them that the defendant union was no longer their bar-
gaining agent, and set forth unilateral terms and conditions for
continued employment.
The central issue remaining in the trial of this case is whether
the oral ‘‘Sealift Agreement’’ modified and extended the ‘‘Mas-
ter Agreement,’’ with respect to the Sealift vessels, as the defen-
dant union contends, or whether the Sealift Agreement merely
incorporated necessary terms of the Master Agreement and
existed independent of it, as the shipper contends. On this criti-
cal question, it should be noted at the outset that a written draft
of the oral Sealift Agreement does not explicitly incorporate the
Master Agreement, but does explicitly refer to certain of its
clauses.
The plaintiff, Marine Transport Lines, Inc. (‘‘MTL’’ or the
‘*Employer’’) instituted this action for a declaratory judgment
that its collective bargaining agreement with the defendant,
Internatiora! Organization of Masters, Mates, & Pilots, AFL-
CIO (‘‘MMP”’ or the ‘‘Union’’), terminated at midnight June
15, 1984. In an Opinion filed June 6, 1986, the late Honorable
Edward Weinfeld, U.S.D.J., granted MTL summary judgment
declaring that the collective bargaining agreement between the
parties (the ‘‘Master Agreement’’) expired according to its
terms on June 15, 1984. See Marine Transp. Lines v. Interna-
tional Org. of Masters, Mates, & Pilots, 636 F. Supp. 384, 389
(S.D.N.Y. 1986). Judge Weinfeld also granted summary judg-
ment to MTL dismissing the Union’s first counterclaim, that
the Master Agreement was extended for all purposes by its
terms, see id., summary judgment dismissing the Union’s third
i
4%
4
/
3
|
H
i
B-3
counterclaim, that the Union may recover for breach of the
Master Agreement on a theory of promissory estoppel, see id.
at 391, and judgment on the pleadings dismissing the Union’s
fourth counterclaim, based on a theory of tortious interference
with contract. See id. at 392. Judge Weinfeld refused to grant
summary judgment on the Union’s second counterclaim. See
id. at 390.
The second counterclaim involves the oral agreement entered
into between the parties, called the ‘‘Sealift Agreement.’’ See
id. at 386.
During the effective period of the Master Agreement, in
the fall of 1982, MTL requested wage and benefit conces-
sions by Union members working aboard nine vessels
operated by MTL under contract with the United States
Navy’s Marine [sic] Sealift Command. MTL told the
Union that the Navy would not renew its contract with
MTL unless the Union agreed to the requested labor cost
reductions.
Id.
This court conducted a bench trial of the Union’s second
counterclaim over eight trial days, from June 20, 1988 to July 1,
1988. This Opinion constitutes the court’s findings of fact and
conclusions of law, pursuant to Fed. R. Civ. P. 52.
Pursuant to an Order filed December 22, 1986, on the con-
sent of the parties, the court must decide whether the Sealift
Agreement extended the entire Master Agreement (as modified
by the oral agreement) between June 16, 1984 and May 7, 1985
with respect to the Sealift vessels. If the court decides that ques-
tion in the Union’s favor, all remaining issues (breaches,
defenses, remedies) will be submitted to arbitration. If the court
decides the initial question in the Employer’s favor, the court
will decide what breaches of the Sealift Agreement, if any,
MTL committed between June 16, 1984 and May 7, 1985. In
this latter event, the court will decide also whether MTL has any
defenses to any breaches found. The issue of remedies, if
appropriate, will be submitted to arbitration. On this question,
if reached, the court will determine merely the period between
June 16, 1984 and May 7, 1985 for which remedies are appro-
priate.
B-4
BACKGROUND
A. The Original Navy Contract
‘‘The Union. . . represents supervisory personnel, who are
not covered by the National Labor Relations Act’s guarantee of
the right to collective bargaining.’’ Marine Transp. Lines, 636
F. Supp. at 388 (citing, inter alia, 29 U.S.C. §§ 152(3), 152(11),
& 164(a)). Nevertheless, the Union, which predates the National
Labor Relations Act, has had collective bargaining agreements,
the Master Agreements, with a substantial number of employ-
ers, including MTL, for many years. Although it is unclear
when the parties first made a labor agreement, MTL and the
Union had had a Master Agreement at least as far back as the
middie of the 1960s. MTL and the Union entered into a Master
Agreement to run from June 16, 1972 to midnight June 15,
1975. Thereafter, MTL and the Union renewed the Master
Agreement in 1975, in 1978, and in 1981. Each renewal covered
a three-year period.
During the course of the ‘72-’75 Master Agreement, MTL
learned of the opportunity to bid on a contract to manage a
group of nine vessels, the Sealift vessels,' for the United States
Navy. However, a major impediment existed to MTL’s ability
to bid on the contract being offered by the Navy. Specifically,
in 1965, the Union had struck, seeking employment for a fifth
deck officer per ship. At the time, each ship was manned by
four MMP members (as well as employees of other unions).
The Union won this concession, and all MTL ships were carry-
| The United States Navy has described these vessels in this way:
The nine Sealift Class tankers are handy-sized . . . clean coated prod-
uct carriers propelled by twin medium speed diesels. These ships were
designed and constructed . . . specifically to meet long term Military
Sealift Command (MSC) requirements for economical handy size ton-
nage and have been continuously employed in MSC clean product ser-
vice on a worldwide basis since their delivery to the Government under
demise (bareboat) charters in 1974-5.
Defendant’s Exhibit 14 (Memorandum for file, dated Nov. 29, 1982, by
Frances C. Gapp & Charles C. Metzger, Contract Specialists, U.S.N.) at
para. 2.
th a Ae PS Sent Al
B-5
ing five MMP members in 1974. To secure the contract for the
Sealift vessels, MTL had to get MMP to agree to a cap of four
Union members per ship.
MTL approached the Union. The Union recognized that
accommodation was necessary, for it no longer enjoyed the vir-
tual monopoly position that it had enjoyed for almost one hun-
dred years. See Trial Transcript* at 177-78. The Union agreed to
modify the Master Agreement, as it applied to the Sealift ves-
sels, so that MTL could bid on the Sealift vessels, or tankers, in
accordance with the Navy’s terms.
MTL won the contract, and in 1974, entered into a five-year
contract with the Navy (the ‘‘Navy Contract’’) to manage the
Sealift tankers. MTL routinely submitted to the Navy a docu-
ment referred to as ‘‘Schedule A,’’ the principal device to iden-
tify and control labor costs on the vessels, for which the Navy
would be billed. Schedule A enumerates the various items calcu-
lated to establish the bulk, if not all, of the Contractor’s reim-
bursable labor costs, what the Navy refers to as ‘‘total wages,”’
see Defendant Exhibit’ 15 at Art. 3i(b): Non-Watch Allowance,
Basic Monthly Wage, Overtime, Pension & Welfare, Vacation,
Training Program, Feinberg Award,* and Payroll Taxes. In
other words, the usage of Schedule A by the parties to the Navy
Contract established each of the enumerated labor cost items as
components of the single contract construct, ‘‘total wages.”’
The manning concession made by the Union (four Union
members instead of five) continued in force on board the Sealift
tankers through the 1975-’78 and 1978-’81 Master Agreements.
The court notes parenthetically that MTL secured an extension
of the original Navy Contract for two years, from 1979 to 1981.
Whenever the Master Agreement created different labor costs,
whether wages or fringe benefits, MTL submitted a revised
2 The court will henceforth refer to the Trial Transcript as ‘‘Tr.
3 The court will refer henceforth to Union exhibits as ‘‘Dx
and to MTL exhibits as ‘‘Px Ri
4 The ‘‘Feinberg Award’’ is a contribution MTL makes to the Union’s
pension and welfare funds based on a formula involving vacation days. It is a
reduced percentage of contributions made for working days. See, e.g., Dx 55
(Deposition of Thomas Murphy) at 223-25.
B-6
Schedule A to the Navy. See, e.g., Dx 32 (Letter from J.P.
Hale, MTL Contract Specialist to Commander, MSC (May 6,
1982)) & Dx 33 (Letter from F.T. Hayden, MSC Director,
Chartering and Contract Operating Div. to MTL (undated));
Tr. 963-64 (testimony of James H. Rand, MTL President) (‘‘It
was MTL’s practice, if not the—a requirement of the contract,
to provide Military Sealift Command with a revised schedule or
a new Schedule A-1 or A-2 each time there was a material
change in our costs. And when I say material change, I’m think-
ing most keenly of a new contract with our labor unions. Those
contracts required approval by the Navy.’’); Dx 15 at Art. 6(k)
(‘‘All renewals or modifications of labor agreements negotiated
by the Contractor covering the operation of the tankers under
this Contract shall be submitted for approval by the Govern-
ment before the same shall be binding on the Government.’’).
MTL was awarded, without competitive bidding, two two-year
extensions of the Navy Contract, running from May 7, 1979 to
midnight May 6, 1981, and from May 7, 1981 to midnight May
6, 1983.
B. The 1982 Initial Discussions With MMP
In the early years of the 1980s, as has been noted, the Ameri-
can maritime industry found itself sailing upon turbulent eco-
nomic waters. By 1982, according to the United States Navy,
the American flag maritime industry faced an ‘‘extreme reces-
sion.’’ Dx 14 at para. 3(b); see also Dx 45 (telex from MTL to
all MTL vessels (June 15, 1984)) at 1-2 (‘‘[T]he U.S. flag ship-
ping industry has experienced a prolonged depression.’’). This
woeful state of affairs created a strong buyer’s market,
reflected in various requests for proposals (‘‘RFP’’), or solicita-
tions for contract bids, that the Navy issued in 1982. MTL bid
unsuccessfully on two ‘‘major’’ ship procurement programs, as
well as a third Navy contract, during the summer of 1982. See
Dx 41 at 2 (Letter from James H. Rand to MMP (Jan. 7,
1983)). MTL ‘‘bec[a]me aware’’ that a union with which it did
not contract ‘‘made substantial concessions to the companies
with which it has collective bargaining agreements. . . . These
concessions, which were applicable to both [sic] deck, engineer-
~
B-7
ing and radio officers, had the effect of reducing charter hire
[costs] to the Navy by thousands of dollars per day.’’ Jd. In
fact, in 1982 the Navy awarded contracts to ships having con-
tracts with the MMP only because the United States Govern-
ment faced ‘‘substantial prospective losses’’ if the Navy
awarded those contracts to others. See id.
MTL believed that the Navy would not routinely renew its
Navy Contract in 1983, but would instead put it up for competi-
tive bidding, and indeed, it learned that the Navy intended to
issue an RFP for the Sealift tankers contract, the Navy Con-
tract. MTL knew that it could not be the successful bidder with-
out reducing its labor costs.
MTL expressed grave concern about the potential loss of the
Navy Contract. ‘‘In ordinary times, the loss of this business
would be hard for MTL to bear and might well result in the
financial insolvency of MTL.’’ Jd. Loss of the Navy Contract
would ‘‘reduce MTL’s operating cash flow of [sic] 40-50%.”’
Px 30 at 2 (Memorandum from James H. Rand to file (Dec. 2,
1982)). In addition, MTL faced ‘‘special circumstances’’ during
1982. See Dx 41 at 2. Loss of the Navy Contract most likely
would have caused a commercial lender, Irving Trust Company
(coincidentally the trustee of a partnership owning the Sealift
tankers, see Dx 14 at para. 2(a)), to refuse to lend ten million
dollars to MTL to assist MTL to acquire a United States flag
bulkcarrier named the ‘‘Marine Princess.’’ See Dx 41 at 3; Px
30 at 2. In turn, MTL would lose fifteen million dollars that
another lender was prepared to make available, see Dx 41 at 3,
and thus would be unable to purchase the ship. Additionally,
MTL’s corporate parent, GATX Corporation, which had
announced on June 28, 1982 that it would ‘‘distribute the stock
of MTL to the GATX shareholders at or near the end of 1982,”’
would not ‘‘spin off’? MTL. See id. at 2-3. Instead, GATX
‘‘would proceed to liquidate MTL’s assets promptly.’’ Jd. at 3;
see id. at 2. GATX was determined ‘‘to withdraw from the
ocean shipping industry.’’ Jd. at 2. ‘‘[T]he non-extension of the
Navy Contract would have had a catastrophic eftect upon
[MTL].’’ Dx 42 (draft Memorandum of Sealift Agreement
accompanying June 6, 1983 letter from Thomas E. Murphy,
B-8
MTL Manager, Marine Personnel Div. to Captain Robert J.
Lowen, International President, MMP) (emphasis added).
MTL concluded that it needed to reduce Schedule A’s total
wages by approximately three thousand dollars per day in order
for the Navy to routinely renew the Navy Contract without
resorting to the RFP process. Before MTL could present a
reduced Schedule A to the Navy, it of course needed to secure
concessions from the four unions supplying manpower to the
Sealift tankers.
Thomas Murphy, at the time MTL’s ‘‘manager of the Marine
Personnel Department,’’ Tr. 555, was responsible for the
Employer’s collective bargaining. See id. Murphy determined
that four steps were necessary if MTL was to achieve the neces-
sary labor cost savings: wages must be ‘‘rolled back’’ to their
level of June 16, 1981, and remain at that level through the
duration of the upcoming extension; a certain allowance con-
tained in the Master Agreement, called the ‘‘diesel and automa-
tion allowance,’’ must be inapplicable to the Sealift tankers;
vacation entitlements must be cut drastically (from 30 to 13
days for each 30 days of employment for ship ‘‘Masters,’’ or
captains, and from 27 or 26 days to 13 days for each 30 days of
employment for other MMP members (collectively the
‘‘licensed deck officers,’’ or ‘‘L.D.O.s’’), see Dx 43 at
y XXVIII(1)(b) (1981-’84 Master Agreement)); and necessary
job-related travel must be made by economy class, rather than
first class. See Tr. 557-58. These reductions, by themselves and
through their ‘‘rippling effect’’ on wage-driven benefits, such
as pension and the Feinberg Award, would allow MTL to
remain competitive for the Navy Contract. Having already met
with representatives of one of the other three unions providing
manpower for the Sealift tankers, Murphy called on Captain
Robert Lowen, International President of MMP, in the early
fall of 1982.
Lowen understood that MTL wanted, in effect, to wipe out
the aggregate compounded wage increase of 27!/2% since June,
198! and cancel the 7'/2% increase anticipated for the following
June. Additionally, cost of living increases due would be elimi-
nated. See Tr. 197-98. Capt. Lowen characterized the wage
reductions aptly as ‘‘brutal, brutal hits,’’ id. at 198, ‘‘almost
a
B-9
unbelievable hits.’’ Jd. Lowen was concerned also that the
reduction in vacation days would be extremely problematic,
because it tied in to credit towards pension. See id. at 199. Mur-
phy, however, told Lowen of MTL’s lack of success earlier that
year on other Navy contracts, and grimly warned Lowen that
MMP
either swallowed very, very hard, extended the contract for
two years by amending at least the provisions that [MTL]
w[as] worried about, and we had the jobs for two more
years. Or, he said, [MTL and MMP] take the chance of
putting [the 1983-85 extension of the Navy Contract] out
to bid and we know that whatever [the cost] is now, it’s
going to end up less, and [MMP] dofes]n’t have the assur-
ance of the jobs.
Tr. 203-04.
Lowen, Murphy, and possibly others had more discussions
about these proposals during the month of October. See Tr.
205. An important face-to-face meeting occurred subsequently,
on November 15, 1982,° see Tr. 671; id. at 997, at MMP’s head-
quarters. Lowen, Murphy, James Rand, MTL’s President, and
Allan Scott, MMP’s Vice President, attended this meeting. See
Tr. 205. The parties discussed MTL’s proposals, ‘‘which in
affect [sic] w[ould] amend the [Master Agreement] so that we
could remove the Sealift ships for a period of two years, and
lock them up, so that they would not be touched,’’ according to
Captain Lowen. Tr. 206. Lowen apparently was shown a copy
of a letter MTL had submitted to the Navy on November 12, in
which MTL falsely stated that it already had its unions’ agree-
ment to wage concessions, see supra note 5, and offered to hold.
Schedule A ‘‘firm for the option period 1983-1985.’’ See Dx 2
(Letter from H.A. Downing, MTL Executive Vice President, to
5 As the meeting between MTL and MMP occurred on the Monday
“<4 following a key meeting between MTL officials and the Military Sealift Com-
mand, November 12, 1982, see discussion infra in the text at 15-16, MTL’s
Statement to MSC in a letter dated November 12 that by then MTL had its
‘“‘unions’ agreement for the lower wages during the period [of the 1983-’85
extension of the Navy Contract],’’ see Dx 2 at !, was false.
ee
B-10
Admiral K.J. Carroll, Military Sealift Command (Nov. 12,
1982)). Lowen asked whether the escalation provision of the
original Navy Contract would apply. One of MTL’s representa-
tives told him it would not. See Tr. 346 (quoting Lowen deposi-
tion testimony). This meant that MTL would not be able to
submit revised Schedules A to the Navy during the 1983-’85
option period for the Navy Contract. MTL would continue to
recapture actual costs above the Contract Price through escala-
tion, but the amount recoverable through the escalation provi-
sion of the Navy Contract would be frozen. See generally
discussion infra at 50-69. Lowen told Rand and Murphy that he
found this ‘‘hard to believe.’’ See id. at 347 (quoting Lowen
deposition testimony).
Nevertheless, at the end of this meeting MMP agreed to
accept MTL’s proposals. MMP did, however, manage to
extract one concession from MTL. MMP, as well as the other
unions, apparently, negotiated the right to shift costs around,
to make ‘‘future changes in the various benefits as [MMP] may
desire so long as the total compensation remains unaffected.”’
Dx 6 at 2 (Letter from James H. Rand to Commander, Military
Sealift Command (Nov. 22, 1982)). The parties did not execute
a writing to reflect their agreement.
C. MTL’s Negotiations With the Navy
At the sarne time MTL was obtaining its unions’ agreements
to the concessions set forth above, it was engaged in discussions
with the Navy regarding the 1983-’85 extension of the Navy
Contract. As early as August 12, 1982, Rand discussed the
extension of the Navy Contract with MSC officials. See Rand
Dep. 51-52. In a letter dated October 26, 1982, MTL stated to
the Navy its belief ‘‘that the Navy is considering putting the
[Navy] [C]ontract out for bid in the near future.’’ Dx 1 (Letter
from H.A. Downing to Commander, Military Sealift Com-
mand (Oct. 26, 1982)). MTL asked the Navy to consider the
proposal included in the letter before putting the contract out
for bid. See id. The letter included two offers by MTL.
First, MTL submitted a handwritten revised Schedule A
which reflected the concessions it was in the process of obtain-
ee
B-11
ing from its unions. The letter stated: ‘‘The changes in Schedule
A (total wages) represented by these concessions (almost 35%
of the total wages) reduces the operating costs by almost $1 mil-
lion per Vessel per year as compared with our present Schedule
A.”’ Id. Michael C. Berkowitz, the composer of the October 26
letter, see Tr. 1114, then MTL’s general counsel, see id. at 1112,
asserted at the trial that he used the term ‘‘total wages’’ to
“‘refer specifically to the Schedule A total wages from the
[Navy] [C]ontract and so I used the term together with the
Schedule A in the parenthesis to indicate that I was specifically
referring to the Navy [C]ontract and that very limited defini-
tion, specific definition set forth I think in Article 31’’ of the
Navy Contract. Tr. 1119. The ‘‘very limited,’’ ‘‘specific’’ defi-
nition that Berkowitz referred to reads, in relevant part:
[T]he term ‘‘total wages’’ includes but is not limited to
basic wages, pension and welfare costs, vacation pay, and
any other fringe benefits or other payments, paid as a
result of collective bargaining agreements, and overtime at
the agreed percentage of 120% of base wages for licensed
officers, excluding Masters and Chief Engineers, and
100% of base wages for unlicensed personnel vice [sic]
actual overtime for each department of the tanker, and
related taxes, all as set forth in Schedule A.
Dx 15 (Navy Contract) Art. 31(b)(i) (emphasis added).
Second, MTL offered to restructure its contractual relation-
ship with the Navy, proposing to incorporate into the Navy
Contract some of the requirements the Navy had included in
recent RFPs for other contracts. Tr. 1041. This second proposal
‘‘would have required a two party negotiation,’’ id. at 1041-42,
which the Navy rejected because, due to time constraints, ‘‘any
negotiations about revisions in the [Navy] [C]ontract might
lend the appearance of a quid pro quo.’’ /d. at 1042.
Still, the Navy expressed interest in MTL’s first proposal. See
id. On November 12, 1982, Berkowitz and Captain Henry
Downing, who was then an Executive Vice President of MTL,
and MTL’s second-ranking operating officer behind Rand, see
Rand Dep. 8, traveled to the offices of the Military Sealift
Command in Washington, D.C., to meet with MSC officials.
B-12
See Tr. 43. They delivered to the Navy, on MTL’s behalf, a let-
ter from Capt. Downing in which MTL waived the ninety-day
notice period contained in Article 4(b) of the Navy Contract.°
See Dx 2 at 1; Dx 14 at Reference (A). MTL did this because the
Navy was
required to give [MTL] a 90-day notice if they were going
to put out a new RFP and our concern was that that
requirement would force them to go ahead and put out a
new RFP without having time to fully evaluate our offer to
renew the contract under the conditions that we were
offering them.
Tr. 45. Although notice would have been due to MTL by Febru-
ary 7, 1983, see Dx 14 at Reference (A), receipt of the Novem-
ber 12 letter waiving notice apparently encouraged the Navy to
move up the time when it would put out a RFP, because MTL
later operated under the belief that the Navy would proceed to
put out the RFP on December 1, 1982. See Tr. 216; id. at 593-
94; id. at 676. In any event, there is no dispute that MTL was
operating under severe time pressure, both from the Navy and
from GATX.
Downing’s impression of the November 12 meeting was that
the Navy was ‘‘willing to continue the discussion’? of MTL’s
proposal. Tr. 44. Because MTL had to act quickly, Downing
and Berkowitz went immediately to counsel’s offices at the con-
clusion of the meeting. See Tr. 1119-20. Berkowitz either wrote
out ‘‘in longhand,”’’ or ‘‘dictated,’’ see Tr. 1119-20, a letter to
Admiral Carroll thanking MSC for the meeting. See Dx 2 at 1.
Attached to the letter were two different typewritten proposed
Schedules A. See id. (attachments). The letter advised MSC:
‘*Both sets of figures [on the proposed Schedules A] are firm
for the option period 1983-1985, and we have our unions’
agreement for the lower wages during the period.’’ Jd. at 1.
6 ~=Article 4(b) reads, in relevant part:
The Government shall exercise . . . options [to extend the Navy Con-
tract] by giving notice confirmed in writing, not less than 90 days prior
to the termination of the then current contract period.
Dx 15 Art. 4(b).
B-13
On the following Monday, November 15, 1982, probably
after meeting with Lowen, see discussion supra at 12-13, MTL
sent MSC a telex in Capt. Downing’s name, though Downing
‘*probably’’ did not author the telex. See Tr. 52-53 & Dx. 5.
The telex stated that MTL was ‘‘pleased to advise that Schedule
A, delivered with our letter [dated] 12 November 1982, is firm
through May 1985.’’ Dx 5.
The same day James Rand sent another telex to MSC. This
telex notified the Navy in writing of an extra benefit MTL
would confer in order to retain the Navy Contract for the next
two-year period, i.e., it would implement the new labor costs on
January 1, 1983, rather than on May 7, 1983, when the 1983-’85
extension would begin. See Dx 3 (‘‘We are pleased to report to
you that our unions have agreed that the prices reflected in our
letter [dated] 12 Nov 82 and hand delivered to your office on
that day shall be effective as from 01 Jan 1983.’’). This was
confirmed by letter the next day. See Dx 4 (Letter from J.H.
Rand to Admiral K.J. Carroll (Nov. 16, 1982)).
Finally, on November 22, 1982, MTL sent MSC a letter,
apparently authored solely by Rand, see Tr. 1063-64, with input
from Murphy.’ See id. at 1064. The November 22 letter repre-
sented official notification, as required by Article 6(k) of the
Navy Contract, that MTL had ‘‘amended [its] union con-
tracts,”’’ effective January 1, 1983. See Dx 6 at 1. The letter went
on to list the modifications obtained, after which it stated: ‘‘Al]
of the unions have agreed to hold total compensation levels
firm through May 7, 1985, although we have agreed to such
future changes in the various benefits as the unions may desire
so long as the total compensation remains unaffected.’’ Dx 6 at
2. MTL did not send a copy of this letter to MMP. See Tr. 221-
22.
7 Murphy testified that he did not speak directly to Rand. Rather,
Murphy discussed the union agreements orally with Berkowitz. See Tr. 582-
84. Berkowitz apparently spoke with Rand, because he testified that he did
not recall drafting the November 22, 1982 letter (Dx 6). See Tr. 1137. Mur-
phy, coincidentally, ‘‘believe[s]’’ he saw the November 22 letter before it was
mailed, see Tr. $82, but does not have a recollection of ‘‘reviewing the let-
ter’’ before it was mailed. Jd. at 584.
B-14
D. The Second Round of Talks With MMP
After Lowen had agreed to MTL’s proposal at the November
meeting at MMP headquarters, MMP began notifying members
of the Offshore Advisory Council of the terms Lowen had
agreed to. See Tr. 211. ‘‘[I]t became apparent very rapidly that
there was going to be a lot of trouble.’’ Jd. The entire MMP
membership had recently approved a change in its rules, adopt-
ing what has been referred to as the ‘‘hardship rule.’’ That rule
states, in relevant part:
[T]he International President, in consultation with the
Offshore Advisory Council [is provided] with ongoing
authorization to amend or defer the wages, hours or work-
_ing conditions of the Master Offshore Contract for a
financially ailing company signatory thereto, and the
ongoing authorization to amend the agreement with an
individual company with contract terms other than those
of the Master Offshore Contract for the specific purpose
of staving off financial insolvency.
The company’s financial hardship shall be proved to the
satisfaction of the Organization prior to any amendment
or deferral of contract terms. Any such amendment or
deferral shall only be for a temporary period of time as
determined by the President and any such amendment may
be made with or without security and for other good and
valuable considerations.
Dx 53; see Tr. 184-85; id. at 214. The hardship rule provided the
only authorization for the International President, in consulta-
tion with the Offshore Advisory Council, to amend a previously
ratified contract. See Tr. 182-85. Members of the Offshore
Advisory Council complained, correctly, that MMP had not
received any written evidence to support MTL’s claim of hard-
ship. See id. at 212-15.
After speaking with counsel, see id. at 213, Capt. Lowen, on
his way to his home in California for Thanksgiving, asked
Lloyd Martin, MMP’s International Secretary-Treasurer, see
Martin Dep. 5, to call MTL to tell them that Lowen believed he
may have acted improperly in unilaterally, and without docu-
B-15
mentary support, agreeing to MTL’s proposals. See Tr. 213-14.
Martin called Murphy the Wednesday before Thanksgiving,
November 24. Murphy testified that Martin said he would see
Lowen in San Francisco and would try to get written confirma-
tion of MMP’s agreement, which MTL had to give to the Navy.
See Tr. 676.
The day after Thanksgiving, November 26, Martin called
Murphy again. Jd. Martin said he was having lunch with Lowen
and that Lowen had asked Martin to call Murphy to say he
could not go through with the deal. Jd. Murphy was ‘‘shocked,
surprised.’’ Jd. Martin said Lowen would not speak to Murphy
directly. See id. Murphy called Rand to inform him of this turn
of events. See id. at 977. Rand spoke with Lowen on the tele-
phone. See Tr. 215-16; id. at 978. Rand ‘‘demanded a meet-
ing.’’ Jd. at 978. Rand ‘‘didn’t offer [Lowen] a chance to say
very much.’’ Jd. Rand ‘‘was willing to go anywhere to have the
conversations’’ and ‘‘proposed to come out to San Francisco
and see [Lowen].”’ Jd. at 979. The time pressures on MTL were
great because MTL had been told by MSC that it should have
written confirmation of the unions’ agreements to MSC by
November 26. See Px 30 at 1.
The meeting occurred Thanksgiving weekend,’ at the offices
of MMP’s San Francisco local. Lowen, Martin, and Bill Lar-
8 While Lowen believes the meeting occurred on Sunday, see Tr. 218,
and Lloyd Martin, who also attended the meeting, see Tr. 220, believes it
took place on Saturday, see Martin Dep. 81, both stated that the MMP San
Francisco office, where the meeting was held, was closed. See Tr. 226
(Lowen); Martin Dep. 81. On the other hand, Murphy contradicted himself,
at first stating that the meeting tock place ‘‘[t]he weekend following Thanks-
giving,’’ Tr. 675, but later stating that the meeting occurred on Monday.
November 29. See id. at 677. Rand testified that the meeting occurred on the
2%h. See id. at 979. Rand and Murphy’s version appears at first to be sup-
ported by a letter of that date, discussed infra in the text at 21-22, that
Lowen provided Rand. See Dx 39. Actually, the letter also supports Lowen
and Martin’s version. Lowen testified that he typed the letter himself. See Tr.
226. Martin testified that while one secretary was called in to the office, she
did not do any typing. See Martin Dep. 81. The document supports this. On
inspection, it is obvious that the letter ‘‘d’’ in the word ‘‘amendments’’
beginning at the end of the third line of text of the letter is typed over either
an ‘‘e’’ or an “‘s.’’ See Dx 39. No competent secretary would leave a letter
B-16
sen, MMP’s west coast Vice President, see Tr. 220, met Rand
and Murphy. Martin later stated that Rand ‘‘was in a very high
tension hyperventilation [sic] state of mind and almost to the
point where we thought he might pass out from sheer excite-
ment and tension.’’ Martin Dep. 82. Lowen described Rand’s
presentation as ‘‘passion[ate].’’ See Tr. 220. Both Martin and
Lowen agree Rand stated something to the effect that GATX
would liquidate MTL if MTL did not secure the extension of
the Navy Contract. See Tr. 217-18; Martin Dep. 82; see also Dx
41 (Letter from Rand to Lowen at 3 (Jan. 7, 1983)) (ultimate
result of chain of consequences that would occur if MTL did
not secure the extension of the Navy Contract would be that
‘*GATX would proceed to liquidate MTL’s assets promptly’’);
cf. Tr. 979 (Rand testimony) (‘‘] took the opportunity to bring
[Lowen] up to date with my conversations with MTL’s sole
shareholder and was able to share with him my own estimation
of what the consequences, in a dim natural sort of sense, one
thing leading to another, what the consequences might be on
the company of Captain Lowen reneging on his agreement, we
not getting the renewal on the [Navy] [C]ontract.’’).
After Lowen had discussed the matter with Martin and Lar-
sen to satisfy himself that MTL qualified under MMP’s hard-
ship rule, see Tr. 220, Murphy gave Lowen a draft of a letter,
which had been composed either by Rand or Berkowitz, see id.
at 593-94, that MTL needed to provide to MSC. See id. at 226.
Murphy stated that MTL was ‘‘very anxious’’ to have Lowen
provide this letter. Tr. 593. Lowen provided the letter, which
stated that Lowen had reviewed MTL’s November 22 letter to
MSC, and that the November 22 letter correctly summarized
the amendments made to the Master Agreement, see Dx 39, typ-
ing it himself. See Tr. 226; discussion supra note 8. Lowen hand
delivered the letter right there, because Rand and Murphy indi-
that way. Second, there are no typist’s initials on the lower left-hand side of
the letter, where they would appear normally. Further, MMP wanted written
confirmation of Rand’s explanation of the consequences to MTL from loss
of the Navy Contract, to comply with the hardship rule. One could not be
composed at the meeting because there was no secretarial help available. See
Tr. 231.
B-17
cated ‘‘that they could not leave that office without hand carry-
ing the letter.’’ Tr. 230. Furthermore, Rand agreed to provide
MMP with a written explanation of the potentially disastrous
consequences that MTL would likely suffer if it lost the Navy
Contract. See Tr. 231. The letter was eventually provided. See
Dx 41.
E. The 1983-’85 Navy Contract Extension Confirmed
On November 29, 1982, two Navy contract specialists signed
a memorandum for internal files on the subject of ‘‘Justifica-
tion for Exercise of Third Option to extend Contract for Opera-
tion of the Sealift Class Tankers.’’ See generally Dx 14. The
memorandum referred, inter alia, to MTL’s November 12 letter
stating that ‘‘[b]oth sets of figures[, contained in Schedules A-1
and A-2,] are firm for the option period 1983-1985.’ See Dx 14
at para. 3(b). The memorandum stated: ‘‘[U]nder the revision
of MTL’s Schedule A which is to become effective on 1 January
1983, total wages (including fringe benefits) will actually
decrease by approximately 30 percent in comparison with the
currently effective Scheduie A.’’ Jd. para. 3(b). After making
various cost calculations and comparisons, see id. paras. 7-11,
the memorandum concluded that ‘‘exercise of the [two-year]
option [wa]s the most advantageous method of fulfilling the
Government’s need’’ for the services the Sealift tankers pro-
vided. See id. para. 14. Specifically. because the figures on the
new Schedule A would not change during the period of the
extension, and the base ‘‘Contract Price’’ could ‘‘be estimated
with a fair degree of certainty,’’ see Dx 14 at para. 3(a), the
Navy calculated the two-year ‘‘per diem,’’ or total cost to the
Navy, of the extension. See id. at para. 7.
On December 1, 1982, Military Sealift Command sent MTL a
telex notifying MTL of the Navy’s decision to exercise its third
option for the Navy Contract, for the period May 7, 1983 to
midnight May 6, 1985. See Dx 7. Rand sent a message to all the
Sealift tankers the next day to detail the concessions. See Px 49
Ex. I at 4 (Telex from Lowen to Sealift Deck Officers (Dec. 24,
1982)). The Navy telex was followed by a letter dated December
B-18
9, 1982? from Vice Admiral Carroll. See Dx 8. The letter
‘*serve[d] to confirm essential points of understanding and
agreement regarding the Government’s acceptance of certain
voluntary proposals recently submitted by MTL affecting man-
ning and contract payments effective as of 1 January 1983.’’ Jd.
at 1. MSC accepted ‘‘the revision of Schedule A recently sub-
mitted by MTL marked and identified as ‘Exhibit A-2 for 1983-
1985.’ . . . It is understood this Revised Schedule A will remain
firm from 1 January 1983 through May 1985 ”’ Jd. at 2.
On December 22, 1982, Rand sent a letter to the Com-
mander, Military Sealift Command, acknowledging receipt of
Vice Admiral Carroll’s letter and agreeing to the Navy’s terms.
See Dx 9. MTL specifically ‘‘thank[ed] MSC for its acceptance
of revised Schedule A.’’ Jd. at 2.
F. The Foreign Articles Problem
On Christmas Eve, 1982, Capt. Lowen sent a telex to all
Sealift Deck Officers to explain the circumstances leading to,
and to restate the particulars of, MMP’s concessions to MTL.
See Px 49 Ex. I; Px 50. The telex-urged
all Masters that the terms and conditions under which offi-
cers and crew signed Articles should be adhered to until
Articles are broken in a U.S. port. Upon voyage comple-
tion, or until the terms of the Articles run in the event of
non-return in accordance with the relevant portions of the
U.S. Code. [sic] If there is a dispute concerning overpay-
ment by a Master, MTL and the Navy can argue out
whether or not a Master can be ordered to violate a stature
[sic] of the United States Code.
Px 49 Ex. I at 4 (emphasis added). Capt. Lowen in substance
said that it would be illegal for MTL to impose the wage reduc-
tions on those men working on board any of the Sealift tankers
as of January 1, 1983.
9 The copy of the letter provided to the court is undated. See Dx 8.
The date is taken from Dx 9, Rand’s responsive letter of December 22, 1982.
See id.
B-19
MTL soon recognized that, in its haste to secure the extension
of the Navy Contract, it had agreed to reduce wage costs to the
Navy as of January first, despite its obligation to pay current
wages to the employees working under the ‘‘foreign articles,”’
to which Lowen had referred in his December 24 telex, for the
duration of their then current voyages. On December 30, 1982,
J.M. MacAulay, Fleet Director for the Sealift vessels, see Tr.
264-65, wrote MSC to advise MSC: ‘‘As some vessels are pres-
ently on foreign articles operating offshore, there will be some
time delay for some vessels until their return to a U.S. port or
when one year articles are terminated.’’ Dx 10 at 1 (Letter from
J.M. MacAulay to Department of the Navy (Dec. 30, 1982)).
MacAulay apparently had been given the task of persuading the
Navy to absorb these labor costs, because he had played no role
in negotiating the extension of the Navy Contract. See Tr. 300.
The letter stated that crew members under foreign articles ‘‘will
have legal rights to entitlements of existing pay scale, which will
present some difficulties in instituting the new [S]chedule [A]
on 1 January 1983.’’ Dx 10 at 1. MTL predicted an average cost
overrun ‘‘of approximately 4 months when wages of those
existing crew members now on foreign articles will continue.’’
The letter ended with MTL asking the Navy to modify the Navy
Contract: ‘‘Your understanding and agreement to the schedule
we intend to follow with the Sealift vessels will be greatly appre-
ciated.’’ Jd. at 3.
Admiral] Carroll responded to MacAulay’s letter in a letter
dated January 19, 1983.'° See Dx 11. He stated, in relevant part,
that
MTL notified MSC in previous correspondence, particu-
larly your letter of November 22, 1982, that the effective
date for the reduced wages identified in Exhibits A-1 and
A-2 for 1983-1985-attached to your letter of November 12,
1982 would be 1 January 1983. The option to extend the
contract period for an additional two years was predicated
on this understanding. As MSC has historically paid all
wage increases in accordance with Article 31, Escalation,
10 The court’s copy is not clear as to the date. The date is taken from
MMP'’s index of trial exhibits.
B-20
on the effective date stated in existing collective bargaining
agreements, we do not agree with your position that the
new wage rates will not be effected until Foreign Articles
are broken.
Id.
Rand testified that within a few days of receipt of the Janu-
ary 19 letter, @ called Admiral Carroll to explain MTL’s posi-
tion, and, after a briefing from his attorney, gave Admiral
Carroll ‘‘an informal legal briefing on foreign articles.’’ See Tr.
1103-05. Rand gave the following testimony:
Q. Admiral Carroll told you he was going to go ahead and
pay the bill?
Right.
He didn’t tell you why he was going to pay?
No.
Did you have an impression from Admiral Carroll as
to why he agreed to pay the bill after telling you in a
letter just a few days before that he wasn’t going to pay
the bill?
A. Because he admitted he owed it.
Tr. 1106.
This testimony is not entirely consistent with the documen-
tary evidence presented to the court. On February 11, 1983,
Rand signed a letter to Vice Admiral Carroll. See Dx 12. The
letter began: ‘‘In view of the assorted complexities contained in
the [Navy] Contract, I have asked my staff to assess the con-
tents in your letter of 19 January 1983 and prepare for me a for-
mal] response.’’ See id. at 1. The letter acknowledged that the
problem of reducing the wages of crew members on foreign
articles ‘‘was unexpected by either MTL ox its unions at the
time of our proposal.’’ Jd. at 3. MTL estimated the cost differ-
ence to be ‘‘between $600,000 and $900,000.’’ Jd. at 4. ‘“‘MTL
c{ould] ill afford to suffer a loss of this magnitude.’’ Jd. MTL
‘*request[ed] relief from the government on a dollar for dollar
basis in lieu of MTL attempting to absorb these extraordinary
costs.’’ Jd. MTL felt it ‘‘should not be held liable for the legally
binding implications of the [foreign] articles which were not
O>O >
B-21
anticipated by either party at the time the proposal [for exten-
sion of the Navy Contract] was accepted.’’ Jd.
On April 15, 1983, Admiral Carroll responded to the Febru-
ary il letter. See Dx 13. The letter granted MTL’s request for
monetary relief, ‘‘estimated to amount to $600,000.”’ Jd.
G. The June 1983 Memorandum
In a letter dated June 6, 1983, Thomas Murphy wrote Capt.
Lowen to inform him that ‘‘Military Sealift Command
require[d] formal Agreements respecting the contract changes
pertaining to the Sealift Tankers. This [wa]s necessary for bill-
ing purposes.’’ Dx 42. The letter included a draft agreement,
reproduced in the margin.'' See id. The draft had been prepared
11 The June 6 draft reads, in relevant part:
DRAFT
MEMORANDUM OF AGREEMENT
This AGREEMENT made as of the Ist day of January, 1983, by and between
Marine Transport Management, Inc. (formerly named Marine Transport
Lines, Inc.) (the ‘‘Company’’) and the International Organization of Mas-
ters, Mates and Pilots, (herein ‘‘Organization’’).
WITNESSETH THAT
WHEREAS, the Company’s contract (the [‘‘]Navy Contract’’) with the
United States of America to operate nine Sealift class tankers (the ‘‘Tank-
ers(’’]) has been extended to and including May 7, 1985;
WHEREAS, the Organization has been recognized as the sole collective bar-
gaining agent for the licensed Deck Officers aboard all vessels operated by
the Company including the Tankers and the parties have entered into a stan-
dard collective bargaining agreement (the ‘‘Standard Agreement’’) dated
June 16, 1981;
WHEREAS, the Company has represented to the Organization that in the
Company’s Judgement the Navy Contract would not have been extended if
the terms and conditions of the Standard Agreement were applicable to the
Navy Contract for the term of this Agreement and, because of the planned
spin-off of the Company from it’s [sic] corporate parent and a pending
financing the non-extension of the Navy Contract would have had a cata-
strophic effect upon the Company; and
(Footnote continued)
B-22
by Murphy and Berkowitz. See Murphy Dep. at 146-47; Tr.
605. Lowen testified that he agreed that the draft embodied
MMP’s agreement with MTL. He would have signed the June 6
draft but for the inclusion of a paragraph that is irrelevant to
this action. See Tr. 384-85; id. at 424. The irrelevant paragraph,
however, made Lowen ‘‘s[ee] red.’’ Jd. at 235-36. For that rea-
son, the June 6 draft ‘‘did not get signed. And [Lowen] could
think of no other document that was signed.’’ Tr. 235. Curi-
ously, it appears that ‘‘there was never any communication
between the parties [on the subject of the draft] after’’ the June
6 letter was sent. See Tr. 601 & 619 (Murphy testimony). It also
appears that there never were any conversations with the Navy
WHEREAS, in light of the foregoing circumstances the parties wish to effect
certain changes in the wages, hours and working conditions which shall be
applicable to the licensed Deck Officers employed aboard the Tankers;
Now, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency whereof are acknowl-
edged, it is hereby agreed as follows[:]
1. The term of this Agreement shall commence as of the date first written
above [and] shall end on May 8, 1985S.
2. All wages, overtime, penalty rates etc. applicable to the Tankers shall
be and shall remain during the Term the rates that were in effect on June 16,
1981.
3. The diesel and automation rates set forth in Section VIII 1. Second and
Third paragraph of the Standard Agreement shall not be applicable to the
Tankers.
4. The vacation schedule under Section XXVIII shall be amended to cover
all licensed Deck Officers accruing 13 days vacation for each 30 days employ-
ment.
S$. Transportation benefits under Section II § and Section XX will be econ-
omy class.
Tees
MARINE TRANSPORT INTERNATIONAL
MANAGEMENT, INC. ORGANIZATION OF MASTERS,
MATES & PILOTS, AFLCIO
By: BY:
The court notes that the draft says May 8, while the actual date of expiration
of the Navy Contract is May 7. See Dx 14. The difference is de minimis.
B-23
about the fact that the draft agreement had not been signed. See
Murphy Dep. 121. Nevertheless, the concessions that had been
negotiated in 1982 were implemented. See Tr. 236.
H. Events in 1984
In a letter dated March 12, 1984, Murphy wrote Lowen to
inform MMP that MTL intended to offer the Navy a proposal
in response to the Navy’s solicitation for bids on a new con-
tract. See Px 49 Ex. O at 1. The letter outlined the labor costs
that MTL planned to include. See id. at 1-2. These costs dif-
fered from those contained in the Master Agreement. The letter
ended with MTL’s hope that MTL’s offer would ‘‘be favorably
received’? by MMP and, subsequently, the Navy. See id. at 2.
On March 19, 1984, Murphy sent Lowen a second letter
regarding another Navy contract that was ‘‘up for grabs.’’ See
Murphy Dep. Ex. H. The letter warned ominously that ‘‘[t]here
is every indication that companies with labor organizations dif-
ferent from’’ MTL’s unions would ‘‘be going after this busi-
ness.’’ Jd. The letter included an attachment that compared
MTL’s ‘‘current payroll cost,’’ Schedule A, and the figures the
Employer felt it would have to bid at to win the contract. There
is a difference per ship per month of $15,591.18. See id.
On March 30, 1984, Murphy sent Lowen another letter. See
Px 49 Ex. P. This letter referred to the contracts referenced in
the March 12 and March 19 letters, and a third contract as well.
See id. The March 30 letter stated that it was ‘‘a follow-up”’ toa
telephone conversation between Murphy and Lowen that had
occurred on March 29. See id. The letter stated:
Military Sealift Command continues to insist that we must
have written confirmation from our unions indicating
approval of our offer. Enclosed is a letter that MM&P
gave us last year when we were going after the C-3 vessels.
I believe a similar letter having to do with the above RFP’s
would be acceptable to Military Sealift Command. Obvi-
ously, it will be disheartening if the Navy considered our
Company non responsive [sic] simply because we did not
have a letter.
Px 49, Ex. P.
B-24
On April 2, 1984, Captain Lowen provided the letter Murphy
requested, for all three contracts. See id. Ex. Q.
On April 8, 1984, MMP gave notice to all employers who had
agreed to the Master Agreement of its intention to modify and
amend the Master Agreement, set to expire at midnight June
15, 1984. See Px 17. The notice was sent to ‘‘Marine Transport
Lines—USN.”’ See id.; Tr. 455. Marine Transport Lines—USN
apparently is a subsidiary of MTL that manages the operation
of the Sealift vessels, though this is unclear. See Tr. 463 (quot-
ing Px 49 (Lowen Affidavit) at para. 40). It is located at the
same address as MTL. See Px 17.
Murphy wrote Lowen again on May 10, 1984. See Px 49 Ex.
R. Murphy’s May 10 letter stated that the Navy required some-
thing more specific than Lowen’s April 2 letters. Murphy
included a draft that MTL believed would satisfy the Navy. See
id. The letter further stated that MTL had to have the letter,
‘for something similar,’’ by May 15th. See id. Capt. Lowen
provided a letter that met MTL’s requirements on May 1Sth.
See Px 49 Ex. S. In fact, Murphy testified that he could not
recall, either way, whether MMP ever refused, during 1984, to
give MTL any letter it needed to bid on a Navy contract. See
Murphy Dep. 79.
On June 6, 1984, Murphy wrote Eugene O’Connor, Vice
President & Executive Secretary of Tanker Service Committee,
Inc., the bargaining agent for all employers who were parties to
the Master Agreement. See Dx 48. MTL informed O’Connor
that MTL was withdrawing the Tanker Service Committee’s
authority to negotiate on MTL’s behalf towards any new or
modified or extended Master Agreement, or to negotiate with
any labor organization other than the Nationa] Maritime
Union. See id.
On June 13, 1984, Lowen wrote Marine Transport Lines—
USN notifying it, first, that the Master Agreement was being
automatically renewed for one year, until June 16, 1985, and,
second, that the Sealift Agreement ran until May 7, 1985. See
Px 19. Lowen believed that, in the absence of a similar letter of
renewal, directed to Marine Transport Lines, Inc., MTL had
the right to serve a notice of termination of the Master Agree-
ment as it applied to MTL’s commercial fleet. See Tr. 501 &
B-25
Px 20. However, Lowen believed MTL had no right to termi-
nate the Sealift Agreement on June 16, 1984. See Tr. 501. The
purpose of Px 19, Lowen testified, was to extend the Sealift
Agreement from May 7, 1985 to June 16, 1985, s. that it would
expire simultaneously with the Master Agreement, as renewed.
See Tr. 502.
On June 15, 1984, MTL sent a telex, under Rand’s name, to
‘fall ships in the MTL fleet (Officers and Unlicensed Person-
nel).”’ See Dx 45. The telex announced that MTL had entered
new collective bargaining agreements with three of its unions,
and that MTL ‘‘ha[d] not renewed [its] contractual relationship
with the International Organization of Masters, Mates and
Pilots and that contract w[ould] expire on midnight, Eastern
Standard Time, on June 15, 1984.’ Jd. at 1. The telex stated
that ‘‘[t]he decision to change MTL’s labor affiliation as
regards deck officers was not made without careful thought.’”’
Id. ‘‘MTL’s unions, except for MM&P, have been eager to
meet the challenge [of a ‘‘depress[ed]’’ market for MTL’s ser-
vices]. Only the MM&P has been recalcitrant.’’ Id. at 2.
(emphases added).
The telex invited certain MMP members, see id. at 3; Tr. at
771-72, to stay with MTL. See Dx 45 at 2. MTL offered to pay
any fines MMP imposed on those choosing to remain with
MTL so long as they took ‘‘reasonable steps to avoid or mini-
mize the possibility of a fine by resigning from MM&P.”’ /d. at
2. MTL, having learned from the foreign articles episode that
MSC, see discussion supra Part F, also assured crew members
that those on foreign articles would not have their terms of
employment altered ‘‘for the duration of those articles.’’ Jd. at
3. The telex concluded with new work rules, or working condi-
tions, for licensed deck officers, applicable on June 16, 1984.
See id. at 3-7. MTL filed this action on June 16, 1984.
MMP members serving on the Sealift vessels were advised by
the Union to continue working. MTL, however, stopped recog-
nizing the Union, and refused to make payments towards vari-
ous Union benefit plans. On October 3, 1984, Capt. Lowen sent
a telex to ‘‘all MTL vessels’’ advising Union members to ‘‘cease
all work of any kind except for that involving security of [the]
B-26
vessel,’’ but to also remain on board the ships to protect their
jobs. See Dx 46.
LEGAL ANALYSIS
It is important to recognize that this action involves three sep-
arate, yet intertwined, contracts—the Master Agreement, the
Sealift Agreement, and the Navy Contract. MTL acknowledges
that the Sealift Agreement exists, but insists that it must be lim-
ited to its specific terms. MTL cites the legal proposition that
‘‘a reference by the contracting parties to an extraneous writing
for a particular purpose makes it a part of their agreement only
for the purpose specified.’’ Guerini Stone Co. v. P.J. Carlin
Constr. Co., 240 U.S. 264, 277 (1916) (emphasis added),
quoted in Lodges 743 & 1746, Int’l Ass’n of Machinists v.
United Aircraft Corp., 534 F.2d 422, 441 (2d Cir. 1975), cert.
denied, 429 U.S. 825 (1976); see United States v. Foster
Wheeler Corp., 639 F. Supp. 1266, 1270 (S.D.N.Y. 1986);
Rhode Island Hosp. Trust Nat’! Bank v. Ohio Casualty Ins.
Co., 613 F. Supp. 1197, 1210 (D.R.I. 1985), rev’d on other
grounds, 789 F.2d 74 (lst Cir. 1986).
This legal proposition is not, however, applicable to this
action. It applies only where there exists two contracts which
have distinct, though related, subject matters. See, e.g., Guerini
Stone Co., 240 U.S. at 265-66 (subcontract and main contract);
Lodges 743 & 1746, Int’! Ass’n of Machinists, 534 F.2d at 429
(collective bargaining agreement and ‘‘Strike Settlement Agree-
ment’’); Foster Wheeler Corp., 639 F. Supp. at 1267 (Letters of
Commitment and Letters of Credit); Rhode Island Hosp. Trust
Nat’! Bank, 613 F. Supp. at 1199-1202 (guaranty bond and dis-
tributor contract).
The Sealift Agreement, on the other hand, is indisputably a
modification’’ of the Master Agreement. See, e.g., Dx 42 (June
6, 1983 draft, supra note 11) (‘‘WHEREAS, . . . the Navy Con-
12 Although the parties use the term ‘‘amend’’ or one of its variants
almost exclusively, ‘tamend’’ is synonymous with ‘‘modify.’’ See Webster’s
Third New International Dictionary 68 (1986) (definition of amend); Black’s
Law Dictionary 74 (Sth ed. 1979) (definition of amendment).
B-27
tract would not have been extended if the terms and conditions
of the [Master] Agreement were applicable to the Navy Con-
tract for the term of this Agreement . . . ; and WHEREAS, in
light of the foregoing circumstances the parties wish to effect
certain changes in the wages, hours, and working conditions
[detailed in the Master Agreement]’’); Dx 6 at 1 (Rand Novem-
ber 22 letter) (‘‘we have amended our union contracts’’); id. at 2
(‘‘Formal amendments to the union contracts are expected in
due course.’’); Dx 39 (Lowen November 29 letter (composed by
MTL, see discussion supra at 21-22)) (Subject: ‘‘Sealift Operat-
ing Contract . . . Amendments to Union Contracts’’); id.
(‘‘We have reviewed your letter of November 22, 1982 to Com-
mander, Military Sealift Commard, which letter summarized
the negotiated amendments to the agreements [sic]. In our opin-
ion you have correctly summarized those amendments.’’); Tr.
560 (testimony of Murphy, who negotiated the terms for MTL).
The modification is an oral one, as the parties never reduced
the agreement to writing. See discussion supra Background Part
G. A different rule of law than that cited by MTL applies to
such a contract modification, which the court will explicate fol-
lowing a brief discussion of the appropriate standard of proof.
The parties disagree as to the standard, or burden, of proof
that must be satisfied to show the terms of an oral modifica-
tion’? of a written contract. MTL argues that such terms must
be proven by ‘‘clear and convincing’”’ evidence. See, e.g., Amer-
dyne Indus. v. Pom, Inc., 760 F.2d 875, 877 (8th Cir. 1985)
(applying Arkansas law); Standard Alliance Indus. v. Black
Clawson Co., 587 F.2d 813, 829 (6th Cir. 1978) (applying Ohio
law), cert. denied, 441 U.S. 923 (1979); In re Indus. Car Mfg.
Co., 1 Bankr. 339, 343 (Bankr. E.D. Pa. 1979) (applying Penn-
sylvania law); Thaler v. I C I United States, Inc., 476 F. Supp.
67, 71 (W.D. Ky. 1979) (applying Kentucky law). MMP asserts
that it need prove such terms by the usual civil evidentiary stan-
dard of the preponderance of the evidence. See Barrett v. Bank
of Am., N.T. & S.A., 183 Cal. App. 3d 1362, 1371, 229 Cal.
Rptr. 16, 22 (4th Dist. Ct. App. 1986); Sullivan v. Mosner, 226
13 The parties do not dispute that ‘‘a written collective bargaining
agreement can be orally modified.”’ Certified Corp. v. Hawaii Teamsters &
Allied Workers, Local 996, $97 F.2d 1269, 1271 (9th Cir. 1979).
B-28
Md. 479, , 295 A.2d 482, 489 (1972). See generally
Addington v. Texas, 441 U.S. 418, 423-24 (1979) (explaining
that generally standard of proof in civil cases is mere prepon-
derance of evidence, but that ‘‘clear, unequivocal and convinc-
ing’’ standard is sometimes applied ‘‘to protect particularly
important individual! interests in various civil cases’’).
The court need not decide the question. The existence of all
six modifying terms in the Sealift Agreement are indeed proven
by clear and convincing evidence. Those terms are: reduction of
all wage rates, including penalty rates, premium rates, and the
Master’s Financial Responsibility Rate, to June 16, 1981 lev-
els;'* reduction of vacation benefits to 13 days for each 30 days
of employment; elimination of the diesel and automation rates;
transportation by economy class; a duration for the Sealift
Agreement until May 7, 1985, see, e.g., Dx 42, and the right of
MMP to make ‘‘changes in the various benefits.’’ See, e.g., Dx
6 at 2. The content of the first five of these modifications is also
proven by clear and convincing proof. The parties disagree as to
the content of the sixth. MTL argues that MMP could change
only the four substantive ‘‘benefits’’ modified by the Sealift
Agreement, while MMP argues that ‘‘benefits’’ refers to every-
thing in Schedule A. It is not necessary to resolve this disagree-
ment, given the ultimate reasoning of the court’s analysis.
MTL would have the court require MMP to show by clear
and convincing proof that the terms of the Master Agreement
not modified by the Sealift Agreement are incorporated into the
Sealift Agreement. This misconstrues the applicable law. The
applicable legal principle is so basic that it is nearly intuitive,
and is stated infrequently. As the court stated succinctly in
Robinson v. Crosson, 149 Colo. 235, 368 P.2d 791 (1962):
Modifications do not necessarily abrogate the original
contract entirely; indeed, the terms of the old contract are
still to be followed so far as not changed or as inconsistent
14 MMP did argue that the wage agreement was much broader, but the
documents show clearly that none of the rates of the various MMP benefit
plans were reduced by the Sealift Agreement. See Dx 2 (Schedule A-2); Px 36
Chart 3 (‘‘Comparison of Actual Benefit Fund Contributions to What Con-
tributions Would Have Been if June 16, 1981 Rates Had Been Restored as of
January 1, 1983 and Held Fixed’’).
B-29
with the new terms, and the governing contract may be
said to be composed of the new terms and the unchanged
terms of the old. An intention to discharge the old contract
is not presumed, and it must be made to appear that the
parties intended to terminate the old contract in its entirety
in order for it to be superceded completely by the new one.
149 Colo. at , 368 P.2d at 792-93, quoted in Fellers-
Schoonmaker Homes, Inc. v. Five Star Homes & Real Estate,
Inc., 158 Colo. 163, ____, 405 P.2d 677, 682 (1965); accord,
Teal v. Bilby, 123 U.S. 572, 578 (1887) (‘‘It is hardly pretended
by counsel . . . that it was not competent, after the written
contract was made and signed by the parties, for them to make
another verbal contract in regard to some parts of it, which to
that extent should be a substitute for the first one.’’) (emphasis
added); Corr v. Hoffman, 256 N.Y. 254, 258, 176 N.E. 383,
385 (1931) (where partnership continued after partnership for
term ended, ‘‘the copartnership was terminable at will but, so
long as it continued, the mutual rights and obligations of the
partners remained as defined in the written contract, except in
so far as particular provisions of the written articles might
thereafter be modified by agreement or might be intended to
apply only during the original fixed term’’) (dictum).
MTL cites District 2, Marine Engineers Beneficial Associa-
tion v. Falcon Carriers, Inc., 374 F. Supp. 1342 (S.D.N.Y.
1974), for the proposition that ‘‘[a]Jn oral agreement entered
into during the period of a written collective bargaining agree-
ment. . . may be incorporated into the written agreement only
when it is not inconsistent with the provisions of the writing.”’
Id. at 1348 n.2. MTL argues that the expiration date of the
Sealift Agreement, May 7, 1985, cannot be applied to extend
the terms of the Master Agreement not modified by the Sealift
Agreement, which terms had an expiration date of June 16,
1984, because it is inconsistent with the termination date of the
Master Agreement. The court declines to apply the stated prin-
ciple to these facts.
First, neither Falcon Carriers, Inc. nor the authority it relies
on, the Labor Relations Expediter, addresses the meaning of
the term ‘‘inconsistent.’” Under MTL’s interpretation, no sub-
B-30
ject covered by a written agreement could be modified orally,
except if the oral terms embody a mirror image of the written
terms, since any material variance can be denominated an
inconsistency. Instead, MTL argues the written agreement
could only be supplemented by the addition of completely new
terms. Such a proposition is rejected implicitly by numerous
cases recognizing that ‘‘a written collective bargaining agree-
ment can be orally modified.’’ Certified Corp. v. Hawaii Team-
sters & Allied Workers, Local 996, 597 F.2d 1269, 1271 (9th
Cir. 1979) (citing cases). Particularly relevant to this case, in
Certified Corporation the Ninth Circuit held that a ‘‘written
collective bargaining agreement . . . was orally modifiable as
to duration.’’ Jd.; see Trans, Inc. v. Gimbel Bros., No. 86-
2247, slip op. (E.D. Pa. Feb. 25, 1988) (LEXIS, Genfed library,
Courts file) (oral modification of duration term could be
proven). The court notes that no reported case has followed
Falcon Carriers, Inc. on this particular point.
Second, MTL’s assertion of this proposition is wholly incon-
sistent with the central thrust of its case. To apply the proposi-
tion in a consistent manner, the court would have to hold that
every term of the Sealift Agreement, including the agreement by
MMP to accept lower wages, was and is unenforceable.
Third, the policy presumably undergirding the proposition
stated in Falcon Carriers, Inc., suspicion of untrustworthy oral
agreements, and concern over the absence of sufficient expres-
sion of the parties’ intent to alter the writing, is not at risk in
this action. There is no dispute that the Sealift Agreement
expired simultaneously with the Navy Contract’s third exten-
sion. This has been proven by clear and convincing evidence.
See Trans, Inc., supra (oral modification of contract’s duration
term not proven by ‘‘clear, precise and convincing’’ evidence).
Thus, the duration of the Master Agreement was extended in
relation to the Sealift vessels, while the terms of the Master
Agreement not modified were made applicable to those ships
until the new termination date of May 7, 1985.
There is an alternative way to view the Sealift Agreement,
which reaches the same result. The Sealift Agreement may be
seen as a new collective bargaining agreement applicable to the
Sealift tankers. ‘‘{[A] collective bargaining agreement need not
B-31
be in writing in order to be enforceable.’’ Certified Corp., 597
F.2d at 1272; see H.J. Heinz Co. v. NLRB, 311 U.S. 514, 523-
26 (1941); Kaylor v. Crown Zellerbach, Inc., 643 F.2d 1362,
1367 (9th Cir. 1981); Rabouin v. NLRB, 195 F.2d 906, 910 (2d
Cir. 1952); 29 U.S.C. § 158(d) (1982). Where two collective bar-
gaining agreements are executed by the same parties and cover
the same subject matter, the latter supercedes the former only
as to inconsistent provisions in the two. See NLRB v. Interna-
tional Union of Operating Eng’rs, 323 F.2d 545, 546, 548 (9th
Cir. 1963) (‘‘The provisions of the[ ] two contracts are inconsis-
tent with each other and since the contracts were entered into by
the same parties and cover the same subject matter, it is a well
settled principle of law that the later contract supercedes the
former contract as to inconsistent provisions.’’) (emphasis
added); Bechtel Corp. v. Local 215, Laborers’ Int’l Union of N.
Am., 405 F. Supp. 370, 375 (M.D. Pa. 1975) (‘‘When two par-
ties. . . make a new agreement that is inconsistent with terms
of a previous one dealing with the same subject matter, the later
agreement operates to rescind and to discharge by substitution
the inconsistent parts of the earlier contract.’’), aff’d in rele-
vant part, 544 F.2d 1207 (3d Cir. 1976); cf. Jersey Cent. Power
& Light Co. v. Local Unions 327, 749, 1289, 1298, 1303, 1309 &
1314 of I.B.E.W., 508 F.2d 687, 702-033 & n.44 (3d Cir. 1975)
(dictum) (speaking of conciliation agreement and collective bar-
gaining agreement: ‘‘If the new agreement contains terms that
are clearly inconsistent with the previously existing contract
. , the fact of inconsistency is itself a sufficient indication
of intention to abrogate the old and substitute the new. . . . It
[the new agreement] operates as a discharge by substitution
only so far as the inconsistency extends.’’) (emphases in origi-
nal) (bracketed material in original) (ellipses in original) (quot-
ing 6A Corbin, Contracts § 1296 (1962)), vacated, 425 U.S. 987
(1976).
But regardless of how the Sealift Agreement is viewed, the
burden to show intent to supercede the provisions of the Master
Agreement not addressed specifically in the Sealift Agreement
rests with the party arguing for that result, MTL. The court pre-
sumes that on the issue of the applicable standard of proof on
this point, the parties would switch arguments, the Union argu-
B-32
ing for application of the ‘‘clear and convincing’’ standard, and
the Employer arguing for application of the ‘‘preponderance of
the evidence’’ standard. Again, it is not necessary for the court
to decide the question. MTL has failed to show by even a pre-
ponderance of the evidence an intent in the fall of 1982, when
the Sealift Agreement was agreed to, to reject the provisions of
the Master Agreement that were not modified. Both Rand and
Murphy, the only MTL officials who dealt with Lowen, testi-
fied that during the 1982 negotiations they did not discuss with
Lowen any aspects of the Master Agreement except those they
needed to modify to secure the extension of the Navy Contract.
See Tr. 625-27 (Murphy); id. at 678 (same witness, discussing
San Francisco meeting specifically); id. at 681 (same witness);
id. at 976 (Rand, discussing early November meeting). As a
matter of undisputed fact, the parties abided by all terms of the
Master Agreement, with the Sealift Agreement’s specific modi-
fications, from January 1, 1983 to June 15, 1984.
MTL presents five arguments for its theory of the case that
the Sealift Agreement superceded in toto the Master Agree-
ment, and was a free standing, complete and fully viable under-
standing, with only those elements of the Master Agreement
necessary to carry out the Sealift Agreement incorporated into
it.
MTL first argues that Lowen’s April 8, 1984 to ‘Marine
Transport Lines—USN”’ notifying MTL of the Union’s desire
to ‘‘modify and amend”’ the Master Agreement ‘‘which expires
at midnight, June 15, 1984,’’ see Px 17, demonstrates that the
full Master Agreement was not intended to be incorporated into
the Sealift Agreement. The difficulty with this interpretation is
clear, since the Sealift Agreement expired on May 7, 1985, and
it is questionable whether the notice was sent other than mistak-
enly. In this connection, Lowen testified that a secretary rou-
tinely sent out notices to every company with which MMP hada
contract. See Tr. 455-64. ‘‘Marine Transport U.S.N.’’ was
listed as one of the participating employers in the Master Agree-
ment. See Dx 43. The court accepts Lowen’s testimony that this
notice was sent mistakenly by MMP.
Furthermore, MTL would have been entitled to reject
Lowen’s letter and refuse to negotiate on new terms of the Mas-
B-33
ter Agreement, as those terms applied to the Sealift Agreement,
since modification of any contract can occur only on the mutual
agreement of the contracting parties to new terms.’° See Nyhus
v. Travel Management Corp., 466 F.2d 440, 445 (D.C. Cir.
1972) (‘‘The power to contract is also the power to modify the
effect of prior agreements by. mutual consent.’’). Witness the
Sealift Agreement itself. Where there is no agreement to mod-
ify, the original terms remain in force. The Sealift Agreement
ran from January 1, 1983 to May 7, 1985. Had MTL and MMP
negotiated a new Master Agreement in 1984, MTL could have
refused to apply those new terms to the Sealift tankers.
Finally, even if Lowen possessed this subjective view of the
Sealift Agreement, he failed to express it in 1982, at the time the
parties agreed to the modification. Because any such intent was
not expressed, it is irrelevant.
A contract has, strictly speaking, nothing to do with the
personal, or individual, intent of the parties. A contract is
an obligation attached by the mere force of law to certain
acts of the parties, usually words, which ordinarily accom-
pany and represent a known intent. If, however, it were
proved by twenty bishops that either party, when he used
the words, intended something else than the usual] meaning
which the law imposes upon them, he would still be held,
unless there were some mutual mistake, or something else
of the sort. Of course, if it appear by other words, or acts,
of the parties, that they attribute a peculiar meaning to
such words as they use in the contract, that meaning will
prevail, but only by virtue of the other words, and not
because of their unexpressed intent.
Hotchkiss v. National City Bank, 200 F. 287, 293 (S.D.N.Y.
1911) (L. Hand, J.), aff’d, 201 F. 664 (2d Cir. 1912), aff’d, 231
U.S. 50 (1913), cited in City of Yonkers v. Otis Elevator Co.,
15 Anthony Naccarato, who negotiated modifications to the Master
Agreement with MMP, on behalf of employers other than MTL, in the sum-
mer of 1982, understood this principle. See Naccarato Dep. 39-40 (stating
that neither MMP nor the employers agreeing to modifications could change
the terms of the modified agreement ‘‘without mutual agreement’’).
B-34
649 F. Supp. 716, 733 n.21 (S.D.N.Y. 1986), aff'd, 844 F.2d 42
(2d Cir. 1988); see also Republic Aviation Corp. v. Republic
Lodge No. 1987, Int’l Ass’n of Machinists, 10 Misc. 2d 783,
793, 169 N.Y.S.2d 651, 664 (Sup. Ct. 1957) (‘‘Disclosed intent,
not some undisclosed subjective intent or understanding, con-
trols contractual relationships.’’).
Various MTL witnesses testified that they also understood at
the time the modification was agreed to that the Master Agree-
ment’s unmodified terms being applied to the Sealift vessels up
until June 15, 1984 would not extend beyond that date. How-
ever, they never expressed this belief in 1982, not even to one
another. See Tr. 627 (Murphy testimony) (Murphy never
expressed this intention to Lowen); id. at 1000-01 (Rand testi-
mony) (Rand never expressed this intention to Lowen); id. at
999-1000 (Rand testimony) (Rand never expressed this intention
to Murphy). Moreover, the court finds that MTL officials were
simply not credible on this point, just as they were not credible
on other critical points relevant to this litigation. The court also
notes that the evidence is clear that MTL did not approach the
1982 negotiations with MMP or the Navy coolly, cautiously,
and systematically, but rather acted hastily, and with great
informality. MTL may even have made a false statement to the
Navy. See discussion supra at 12 & note 5. Indeed, MTL real-
ized after the Navy Contract extension had been agreed to that
it had made an error that would cost the company over one-half
million dollars, but for the Navy’s sympathetic benefaction. See
discussion supra Background Part F. Lastly, this court cannot
allow MTL to pick and choose when it will accept Lowen’s
unexpressed intentions, and when it will not.
MTL presents a sub-argument that Lowen’s attempt to auto-
matically renew the Sealift Agreement by his June 13, 1984 let-
ter, see Px 19, demonstrates that everything except the
specifically negotiated terms of the Sealift Agreement expired
on June 16, 1984. This letter is a dubious predicate for such a
claim, since it was a legal nullity. Because section I(1) of the
Master Agreement was incorporated fully into the Sealift
Agreement, MTL had until sixty days prior to May 7, 1985 to
serve a notice of intent to renegotiate, amend, or terminate the
B-35
Sealift Agreement. When the June 13, 1984 letter was written,
MTL’s time to indicate such intent had not in fact expired.
The same principle defeating MTL’s first argument, that
modification requires mutual consent, serves to refute its sec-
ond argument. MTL points to the prior history of MMP-MTL
collective bargaining and the Navy Contract, and argues that
after the parties modified the manning provision contained in
the 1972-’75 Master Agreement, allowing MTL to secure the
Original Navy Contract, see discussion supra Background Part
A, the parties still negotiated entirely new Master Agreements
in 1975, 1978, and 1981. All this evidence demonstrates is that a
modified contract may be modified a second time. Indeed, this
past history actually demonstrates the principle applicable here.
When new Master Agreements were entered, they incorporated
the unmodified term of the manning provision of the Navy
Contract.
MTL’s third argument relies on a comparison between the
oral modification entered between itself and MMP and written
modifications MMP entered in 1982 with other employers. In
those written modifications, MMP and the employers expressly
agreed that ‘‘[a]ll provisions of the [Master] Agreement not spe-
cifically modified or waived herein shalli continue in force and
effect.’’ Px 72 at § I11(6); Px 73 at § I11(6); Px 74 at § II1(6).
MMP had the same intent in entering all of the modifications,
oral or written—to preserve jobs for its members.
MTL argues that the inclusion of the clauses continuing the
unmodified provisions of the Master Agreement in the written
modifications shows that Lowen did not intend the unmodified
provisions to continue as part of the Sealift Agreement. All that
these clauses demonstrate is that those employers acted more
cautiously than MTL did. (After all, they did secure written
agreements.) The applicable controlling legal principle, that
unmodified provisions are incorporated into the modified
agreement, creates terms that are implied in law. These other
agreements merely made such an obligation express. The
clauses are, in ultimate effect, as unnecessary as an explicit term
that states that the parties agree to carry out their obligations in
B-36
good faith and deal fairly with each other.'° MTL cannot show
by the absence of an explicit term in the Sealift Agreement con-
tinuing the Master Agreement’s unmodified provisions that
there was an expressed intent between MTL and MMP to super-
cede the Master Agreement in its entirety. In this regard, it is
immaterial whether Lowen entered those other contracts prior
to entering the Sealift Agreement. His ‘‘unexpressed thinking,”’
see Tr. 492 (remarks of MTL counsel), is irrelevant to discover-
ing the objective agreement these parties reached. See discus-
sion supra at 44-45.
MTL’s fourth argument relies on a line of cases that stand for
the proposition that parties may contract to provide that certain
obligations continue beyond the termination of the contract
itself. See, e.g., Weimer v. Kurz-Kasch, Inc., 773 F.2d 669, 676
(6th Cir. 1985); Bower v. Bunker Hill Co., 725 F.2d 1221, 1222
(9th Cir. 1984); International Union, UAW v. Yard-Man, Inc.,
716 F.2d 1476, 1479 (6th Cir. 1983), cert. denied, 465 U.S. 1007
(1984). Thus, according to MTL, MTL and MMP agreed that
the particular terms of the Sealift Agreement would survive
beyond expiration of the Master Agreement, while its other
terms would not.
These cases are inapposite. In each instance, they concern
agreements to pay certain benefits accrued by employees during
the period of the collective bargaining agreement at a time sub-
sequent to the expiration of the collective bargaining agree-
ment. See Weimer, 773 F.2d at 676 (retiree insurance benefits);
Bower, 725 F.2d at 1222 (retiree medical insurance); Yard-Man,
Inc., 716 F.2d at 1479 (retiree insurance benefits); see also John
Wiley & Sons v. Livingston, 376 U.S. 543, 552-55 (1964) (sever-
ance pay, vacation pay, and pension plan contributions). On
the other hand, the Sealift Agreement is intended to establish
the ‘‘wages, hours and working conditions which shall be appli-
cabie to the licensed Deck Officers employed aboard the
[Sealift] Tankers,’’ see Dx 42, supra note 11, for the duration of
the contract period established by the Sealift Agreement. The
16 “*{I]n every contract there exists an implied covenant of good faith
and fair dealing.’’ J. Calamari & J. Perillo, Law of Contracts § 11-38(b) at
509 (3d ed. 1987) (quoting Kirke La Shelle Co. v. Paul Armstrong Co., 263
N.Y. 79, 87, 188 N.E. 163, 167 (1933))
B-37
Sealift Agreement does not defer or extend payment of particu-
lar benefits.
MTL’s fifth and last argument, to which the parties devoted
a substantial amount of court time, derives from the fact that
after the Sealift Agreement was reached, on January 1, 1983
and again on January 1, 1984, pursuant to the Master Agree-
ment, MMP notified MTL that the rate of contribution for the
MMP Health and Benefit Plan must be raised, and MMP
demanded and received higher compensation. MTL offered this
evidence to rebut the Union’s claim that MTL had agreed, dur-
ing the course of the negotiations in 1982, to ‘‘lock in’’ all items
listed on Schedule A. The Union by that claim hoped to buttress
its argument that the entire Master Agreement was incorpo-
rated into the Sealift Agreement.
The court agrees with MTL that MMP agreed only to commit
to wage reductions. See discussion supra at 36-37 & note 14.
Accordingly, this line of contention and proof is irrelevant to
the outcome of the action. As the Sealift Agreement necessarily
incorporated all provisions of the Master Agreement which
were not inconsistent with its modified terms, it was entirely
appropriate that MMP demand that MTL pay the increases in
this rate that occurred as dictated by the Master Agreement.
The provision in the Master Agreement covering the health and
benefit rate continued to be applicable to the Sealift vessels
because the parties did not modify it.
In conclusion, it appears unequivocally that the parties did
abide by the Master Agreement, as modified by the particular
wage and benefit items of the Sealift Agreement, except for its
term of duration, for the period January 1, 1983 to June 15,
1984. The court concludes that the parties intended that the
Sealift Agreement extend the entire Master Agreement (as mod-
ified by the Sealift Agreement) with respect to the Sealift vessels
until May 7, 1985. In accordance with the court’s Order filed
December 22, 1986, all remaining issues are committed to arbi-
tration.
Although the general issue of escalation and MTL’s specific
right to collect payment from the Navy for the 1983 and 1984
B-38
increases in MMP’s health and benefit rates'’ has been found to
be immaterial to the resolution of this lawsuit, discussion of the
issue at some length is warranted, because the court’s broader
credibility determinations are based in some measure upon the
testimony offered on this issue.
The original Navy Contract contains an article entitled
‘*Escalation.’’ See Dx 15 Art. 31. That section required the
Contractor, MTL, to submit a Schedule A showing labor costs
on March 1, 1974. See id. Art. 31(a). Escalation would occur
under the following circumstances:
In the event that after 1 March 1974 the Contractor, as a
result of collective bargaining agreements, or as a result of
a change in the composition of the tankers’ crews or the
special maintenance riding crews, shall be required to pay
total wages to the special maintenance riding crews or to
the complement of the tankers in excess or less than those
shown in Schedule A, for the period commencing upon the
effective date, payment will be made by the Government
or credits by the Contractor for adjustments upward or
downward during that period, not less frequently than
every three months.
Id. Art. 31(d) (emphasis added); see discussion supra at 14-15
(definition of ‘total wages’’). As stated by P. Allen Benson,
MTL’s manager of fleet accounting, see Benson Dep. 5, ‘‘the
difference in [the base Schedule A and the current Schedule A]
was the amount of money billed under escalation.’’ Jd. at 11;
accord, Tr. 922 (Brunkhorst testimony); see, e.g., Dx 18.
Article 6(k) of the Navy Contract states that ‘‘[a]ll renewals or
modifications of labor agreements negotiated by the Contractor
covering the operation of the tankers under this Contract
17 The National Maritime Union’s health and benefit rate increased as
well. See Tr. 930; Px 36. Also, MTL actually paid approximately twenty-six
thousand dollars more in 1983 and 1984 (until June 15) to the health and
benefit plans of its other two unions with members working on the Sealift
vessels than it would have if the health and benefit rates of those other two
unions had been held ‘‘firm.’’ See Px 36.
Ee
B-39
shall be binding on the Government.’’ Dx 15 Art. 6(k) (empha-
ses added).
Karen Brunkhorst, MTL’s assistant manager of vessel
accounting, Tr. 915, testified that until March 1983, MTL sub-
mitted a revised Schedule A to the Navy ‘‘whenever the crew
complement changed, whenever the base rate changed, and gen-
erally if there was a large change in any of the calculations we
made to a benefit plan or if something other major changed.”’
Tr. 924; see id. at 963 (Rand testimony) (Navy Contract
‘“‘requirfed]’’ MTL to provide MSC with revisec Schedule A
‘‘each time there was a materiai change in’’ MTL’s costs, espe-
cially those resulting from new contracts with MTL’s labor
unions, which ‘‘required approval by the Navy’’). Brunkhorst,
however, also testified that MTL was required to submit a
revised Schedule A in situations ‘‘when the base wages
changed,’’ see Tr. 924 (emphasis added), not, as stated in Art.
31(d), when ‘‘total wages’’ changed. See Dx 15 Art. 31(d)
(quoted in discussion supra at 51).
It is uncontroverted that from March 1, 1983 to May 7, 1985,
MTL did not submit any revised Schedules A to the Navy. See
Tr. 922 (Brunkhorst); id. at 938-39 (same witness); Benson Dep.
39. The reason for this is the commitment MTL gave to the
Navy in the 1982 negotiations between MTL and the Navy. The
November 12 letter, referring to two alternative Schedules A
being submitted with that letter, states that ‘‘[b]oth sets of fig-
ures are firm for the option period 1983-1985.’’ Dx 2 at |
(emphasis added). On November 15, MTL’s Capt. Downing
sent a telex to MSC stating that ‘‘Schedule A, delivered with
our letter [dated] 12 November 1982, is firm through May
1985.’’ Dx 5 (emphasis added). On November 22, MTL sent
MSC a letter notifying the Navy, pursuant to Article 6(k) of the
Navy Contract, that ‘‘[aJll of the unions have agreed to hold
total compensation levels firm through May 7, 1985.’’ Dx 6 at
2. As a result of MTL’s commitment, the Navy was able to
compute to ‘‘a fair degree of certainty’’ the Contract Price of
extending the Navy Contract with MTL until May 7, 1985. See
B-40
Dx 14 para. 3(a). '§ The Navy then calculated a per diem cost for
the entire two year period of the extension. The per diem cost
included the base Contract Price, ‘‘Escalation of Total Wages,
Subsistence and Stores,’’ and Crew Overtime. See id. para. 7 &
NOTE (emphasis added). The Navy knew, because Schedule A
would be held ‘‘firm,’’ the absolute cost of escalation over the
two years.
When the Navy confirmed the extension of the Navy Con-
tract, it sent MTL a letter of ‘‘essential points of understanding
and agreement.’’ See Dx 8. This letter specifically stated: ‘‘It is
understood this Revised Schedule A will remain firm from 1
January 1983 through May 1985.’’ See id. at 2 (emphasis
added). Rand testified that MTL committed itself not to submit
any more Schedules A for the period January 1, 1983 until May
7, 1985. See Tr. 992."
On July 5, 1983, Rand, on behalf of MTL, executed Amend-
ment No. 19 to the Navy Contract. See Dx 15 Bates stamp
##100478-100481. Amendment No. 19 contained the modifica-
tions agreed to in the 1982 negotiations between MTL and the
Navy. Paragraph 4 stated various changes to Article 31(b) of
the Navy Contract, which defines the terms ‘‘total wages,”’
‘“stores,’’ and ‘‘subsistence.’’ See Dx 15 Art. 31(b). Paragraph
4(c) of Amendment No. 19 stated: ‘‘Effective 1 March 1983, the
Revised Schedule A per diem rate for each tanker is $5,008.63
for the period 1 March 1983 through 6 May 1985.’’ See id.
Bates stamp #100480. The figure $5,008.63, which cannot
increase, is derived by taking the yearly total for all the figures
on Schedule A-2 submitted with the November 12, 1982 letter,
$1,828,151.24, see Dx 2, and dividing that total by 365 to arrive
at a daily figure. See Dx 29 (‘‘Wages Escalation Based on
Revised Schedule ‘A’ Effective March 1, 1983’). Thus, from
18 The Contract Price could not be computed with complete accuracy
because the Navy did not possess the necessary January 1983 figures in
November 1982. See Dx 14 para. 3(a)
19 Because of the problem with foreign articles, see discussion supra
Background Part F, the Navy allowed an amendment of the extension
‘changing the date of implementation of reduced wages from January |,
1983 tc the termination of existing foreign articles."’ Dx 13
B-41
March 1, 1983 through May 6, 1985, MTL could recoup, under
the escalation provision of the Navy Contract, the difference
between the revised Schedule A ($5,008.63) and the base Sched-
ule A ($2,857.84). See Dx 29. This figure is $2,150.79 per ship
per day. See id. 7
The health and benefit rate for all MTL’s unions was a con-
stituent element of Schedule A. See Tr. 704 (testimony of Biago
Perillo, MTL payroll department manager—see Tr. 891). The
health and benefit rate was also part of what the Navy consid-
ered ‘‘total wages.”’ See discussion supra at 14-15 (definition of
“total wages’’). The figure of $5,008.63 includes a calculation
for MTL’s daily contribution to MMP’s Health and Benefit
Plan.
On January 1, 1983, there was an increase in the MMP health
and benefit rate, dictated by the Master Agreement, and on
January 1, 1984, another increase occurred. Counsel for MTL
calted these rises, collectively, ‘‘dramatic[ ].’’ See Tr. 1227.
These increases are reflected in certain charts MTL prepared for
trial. Between January 1, 1983 and June 15, 1984, MTL con-
tributed $541,058.70 above what it would have if the health and
benefit rate of its four unions had remained at the rate that
MTL had included with the Schedule A that was ‘‘firm.’’ See
Px 36 chart 4.” The figure for MMP alone was $194,350.15
above what otherwise would have been paid by MTL.
It is now necessary to turn to the billing practices of MTL
relating to the Navy Contract. Beginning with the original Navy
Contract, MTL billed the Navy for four categories of costs.
First, MTL billed a ‘‘bimonthly contract price invoice.’’ See Tr.
918. This contained the Contract Price (the basis for escalation)
paid by the government, and certain overtime calculations. See
id.; see also Benson Dep. 9. Second, MTL recouped its further
actual labor costs by submitting a ‘‘wage escalation invoice.”’
See Tr. 918-19; Benson Dep. 17-21. Third, MTL billed for esca-
lation in subsistence and stores. See Tr. 918; id. at 919. Finally,
20 Chart 4 speaks of Schedule A-1. This refers to Schedule A-1 submit-
ted with Rand’s November 12, 1982 letter, Dx 2 or Px 29. See Tr. 993. This
does not alter the calculations of additional health and benefit plan pay-
ments, because there is no difference in the Schedule A-1 and Schedule A-2
figures for this labor cost. See Dx 2; discussion infra in the text at 66-68
B-42
MTL billed for ‘‘assorted kinds of pass-through billings.’’ Tr.
918. This included, inter alia, ‘‘overtime for items that were
entirely within the[ ] [Navy’s] control.’’ Jd. at 921.
The wage escalation invoice was a monthly invoice. See id.;
Benson Dep. 11. With this invoice, MTL recouped the increase
in the actual labor costs above the 1974 Schedule A (the differ-
ence between the current Schedule A and the base Schedule A).
See Tr. 923. ‘‘Labor costs’’ includes all the figures on Schedule
A, including pension, and health and benefit. See, e.g., Dx 18;
Dx 19; Dx 20; Dx 21.
MTL pointed out that the Navy did in fact reimburse MTL
for the increased payments MTL made as a result of the rises in
MMP'’s (and the National Maritime Union's) health and benefit
rates, as well as increased payments made to the other unions’
health and benefit plans, see discussion supra note 17, occur-
ring after the Navy exercised the option to extend the Navy
Contract. See, e.g., Px 37; Px 38; Px 39; Px 40. Nevertheless,
the circumstances of that reimbursement are peculiar. Further-
more, there was inconsistent and evasive testimony presented
by MTL on the subject.
There are two unusual circumstances associated with the
reimbursement by the Navy of the increased health and benefits
payments MTL was making. First, MTL waited a full year
before submitting the first invoice seeking reimbursement. Sec-
ond, MTL created an entirely new invoice to recoup these sums.
MTL did not include the increases in health and benefit pay-
ments over the rates contained in Schedule A-2 on the wage
escalation invoices being submitted monthly to the Navy; see
Tr. 923; id. at 939, despite the fact that the wage escalation
invoices included a bill for the health and benefit payments as
they appeared in Schedule A-2. See Dx 2 & Dx 29. Instead,
MTL submitted these increases through separate ‘‘wage escala-
tion (adjustments)”’ invoices. See, e.g., Tr. 923; Px 37; Px 38;
Px 39. The form MTL used was ‘‘very similar to the wage esca-
lation invoice and it was adapted for this kind of billing.”’ Tr.
943. Brunkhorst testified that it would not be possible to
include these increases in the health and benefit rates on the
monthkly-wage escalation invoices MTL was sending the Navy
B-43
[b]ecause that is not the way the wage escalation invoice is
to be calculated. That is a specific invoice that is in the bill-
ing examples that goes with the contract and the form
must be followed. We cannot just change the form to fit
our needs.
Tr. 942-43. The court fails to see how a change in figures would
alter the ‘‘form’’ of the wage escalation invoice. However, such
a change would, it seems, change some of the dolar figures on
the invoice. Because the per diem escalation figure of $2,150.79
could not increase between March 1, 1983 and May 6, 1985, see
discussion supra at 54-55; Dx 29, the monthly wage escalation
invoice could only reflect certain figures—the number of ships
multiplied by the number of days in service. It appears from
MTL’s ‘‘wage escalation (adjustments)’’ invoices that it was
MTL’s practice to calculate a monthly debit total, and then cal-
culate separately any credits for items such as vacation or days
when any of the ships were being overhauled. See Px 37. If that
was MTL’s practice with respect to the wage escalation
invoices, then the wage escalation invoice would have to reflect,
somewhere, one of three figures after March 1, 1983:
$541,999.08 ($2,150.79 x 9 (ships) x 28 (days in February));
$580,713.30 ($2,150.79 x 9 x 30); or $600,070.41 ($2,150.79 x 9
x 31). Inclusion of the changes in MTL’s payments to the
health and bene it plans would produce different numbers.
Curiously, MTL did not bill the Navy in February, 1983 for
the increased cost it had incurred in the health and benefit pay-
ments in January, 1983. In fact, it was not until February 10,
1984 that MTL sent MSC one of these ‘‘wage escalation
(adjustments)’’ invoices. See Px 37. The February 10 invoice
covered the entire year of 1983. See Tr. 940; Px 37. Brunkhorst
had no valid explanation for this twelve-month delay in billing:
Q. It was not in the company’s interest to wait a whole
year before billing for monies that it actually sent out,
isn’t that right?
A. It depends if something else was going on at the time,
something maybe of greater monetary importance.
_2)
B-44
Is it your understanding that this delay with respect to
the submission of [the February 10 invoice] was
because of something else that was going on at that
time?
It’s very possible.
. Do you have some knowledge of that or are you just
speculating?
A. Items that were billed to the government were billed,
POP? OF 0
Tr. 942,
reasons.
Q.
of course, on a dollar amount priority, but they were
also done based on what was currently going on. We
did a lot of catch-up billing during that time. We had
extreme concentration on billing the Navy for past
overtime pass-through billings. We did go through—
well, cadets became billable at that time and we had to
retroactive [sic] bill back through I believe 1979 to
invoice the Navy for those. So that might have taken
priority over something else.
But is it true that after this first one was sent they were
sent on a quarterly basis, is that right?
That at is true.
Was there a difference in priorities that explains why
they were sent on a quarterly basis?
It’s possible.
Are you aware of any?
Things change in any department.
944. Rand attributed the delay to somewhat different
Do you know why it took 14 [sic] months for MTL to
send the bills to the Navy?
. 1 believe that at that time we were either just in the pro-
cess or had just—we were in the process of preparing
for or had just completed a physical move of the com-
pany or a physical change in our computer hardware. |
know there were 2 instances in this general time frame
B-45
where we had a lot of accounting
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