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Holodnak v. AVCO Corp.

decided: February 18, 1975.


Appeal by Avco Corporation, Avco-Lycoming Division, from a judgment by the United States District Court for the District of Connecticut, J. Edward Lumbard, Judge,*fn* vacating an arbitration award for partiality under 9 U.S.C. § 10, and granting appellee back pay, together with punitive damages and attorney's fees.

Kaufman, Chief Judge, Mansfield and Oakes, Circuit Judges.

Author: Kaufman

KAUFMAN, Chief Judge:

Although several points with little merit are before us, in the main we are presented with two issues requiring decision: whether the Government has become sufficiently entangled in the actions of a private party to warrant a requirement that such conduct conform to constitutional standards of behavior; and whether punitive damages are available against a private party which has failed to measure up to those standards. Avco Corporation's Avco-Lycoming Division [Avco] has appealed from a judgment by Judge Lumbard vacating an arbitration award for partiality under 9 U.S.C. § 10 (1970), and granting Michael Holodnak back pay in the amount of $9,113.24, together with punitive damages of $10,000 and attorney's fees. We reverse the award of punitive damages; in all other respects we affirm.


Michael Holodnak, a former employee of Avco at its Stratford, Connecticut plant and a member of Local 1010 of the United Auto Workers of America [the union], was discharged on May 29, 1969 after he published an article entitled Building a Union Local in the American Independent Movement [AIM] Newsletter. The article gave Holodnak's views on labor-mangement relations at Avco, and his opinion on the reasons unions lose their militancy. According to Avco, the statements made in the Newsletter violated Plant Conduct Rule 19, which provided for the discharge or suspension of any employee

making false, vicious and malicious statements concerning any employee or which affect the employee's relationship to his job, his supervisors or the company's products, property, reputation or goodwill in the community.

Local 1010 voted to refer the discharge to arbitration, and agreed to pay Edward Burstein, the union's attorney, to represent Holodnak.

At the hearing on July 17, 1969, before Burton Turkus, the permanent arbitrator under the agreement, Burstein met Holodnak for the first time, and then learned which rule Holodnak was accused of violating. During the arbitration proceeding, Turkus and the company representative seemed principally concerned with Holodnak's political views, and labored to convince him that the union's representation in the past had been effective. The arbitrator's one sentence unreasoned decision on November 22, 1969, cryptically stated that he found "just cause" for the discharge, as required by Article V, Section 1 of the collective bargaining agreement.

Holodnak then began this action against Avco and the union, seeking to vacate the arbitration award as well as to have himself reinstated and to recover damages. After a careful review of the record of the hearing before Arbitrator Turkus, see Saxis Steamship Co. v. Multifacs International Traders, Inc., 375 F.2d 577, 582 (2d Cir. 1967), Judge Lumbard concluded that the conduct of the arbitrator demonstrated evident partiality, and vacated the award pursuant to 9 U.S.C. § 10 (1970). He also found that the union had breached its duty of fair representation, and proceeded to consider Holodnak's claim for reinstatement and damages under § 301 of the Labor Management Relations Act, 29 U.S.C. § 185 (1970). Noting that the business of the Stratford plant was almost exclusively confined to defense contracting, and that the United States not only owned nearly all the land, buildings, and equipment, but also generally supervised the manufacture of the products utilized by the Government, the judge found sufficient government involvement in Avco's operations to warrant first amendment protection for Holodnak's rights of speech and press. His dismissal for a proper exercise of those rights, Judge Lumbard held, violated the "just cause" provision of the collective bargaining agreement. He denied reinstatement,*fn1 but awarded Holodnak back pay in the amount of $9,113.24, together with attorney's fees,*fn2 and punitive damages of $10,000.


We are in agreement with the decision of Judge Lumbard to set aside the arbitration award, to deny reinstatement, and to award Holodnak back pay and counsel fees, and accordingly we affirm as to these issues on the basis of his thorough opinion. Holodnak v. Avco Corporation, Avco-Lycoming Division, Stratford, Conn., 381 F. Supp. 191 (D. Conn. 1974). In light of the recent Supreme Court opinion in Jackson v. Metropolitan Edison Co., 419 U.S. 345, 95 S. Ct. 449, 42 L. Ed. 2d 477, 43 U.S.L.W. 4110 (1974), filed after Judge Lumbard's decision, however, it is necessary that we speak to the question of governmental action. For the reasons set forth below, we believe that the district court appropriately concluded that this issue is controlled by Burton v. Wilmington Parking Authority, 365 U.S. 715, 6 L. Ed. 2d 45, 81 S. Ct. 856 (1961).

In Jackson v. Metropolitan Edison Co., supra, the Supreme Court decided that the conduct of the Pennsylvania Public Utilities Commission in regulating electrical utilities would not support a finding of state action in a company's failure to provide a hearing before termination of service. Metropolitan Edison, a privately owned and operated Pennsylvania corporation, held a certificate of public convenience which subjected it to extensive regulation by the Commission. Its general tariff, filed with the P.U.C., gave the company the right to discontinue service "on reasonable notice and to remove its equipment in the case of nonpayment of bill . . . ." Catherine Jackson's account was terminated pursuant to that provision.

Justice Rehnquist, writing for the Court, postulated that with regard to regulated utilities, "the inquiry must be whether there is a sufficiently close nexus between the State and the challenged action of the regulated entity so that the action of the latter may be fairly treated as that of the State itself." 43 U.S.L.W. at 4112. Viewed from this perspective, the Court held, it was clear that Metropolitan's termination of service was not state action. In supplying electrical power, the utility was not exercising any function traditionally reserved to the state. And although the company had partial monopoly status, Justice Rehnquist stated that it may well have achieved that position through the economic forces of "high threshold capital requirements and virtually unlimited economy of scale," rather than by the state's intervention. Id. at n. 8. In any event, there was no evidence that the existence of competition would have assured Jackson an opportunity to contest the cut off in advance or otherwise avoid the interruption of service. Cf. Lucas v. Wisconsin Electric Power Co., 466 F.2d 638, 657 (7th Cir. 1972) (en banc), cert. denied, 409 U.S. 1114, 34 L. Ed. 2d 696, 93 S. Ct. 928 (1974). Finally, the Court indicated that Pennsylvania's mere assumption of some regulatory powers by no means entailed an obligation to assert them to ...

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