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UNITED RUBBER v. GREAT AMERICAN INDUS.

September 20, 1979

UNITED RUBBER, CORK, LINOLEUM and PLASTIC WORKERS OF AMERICA, AFL-CIO, an unincorporated association, Plaintiff, against GREAT AMERICAN INDUSTRIES, INC., LINEAR, INC., RUBATEX CORP., and RUBATEX HOLDING CORP., Defendants.


The opinion of the court was delivered by: DUFFY

This diversity action was commenced in 1972 by United Rubber, Cork, Linoleum and Plastic Workers of America (hereinafter referred to as "United Rubber") representing the members of its former Local 204 who, until July 14, 1967, were employed by the defendant Linear, Inc. (hereinafter referred to as "Linear"). Plaintiff charges Linear with numerous violations of a Collective Bargaining Agreement (hereinafter referred to as "the Bargaining Agreement"), to which Local 204 and Linear were parties. The complaint also names as co-defendants Linear's parent corporation, Great American Industries, Inc. (hereinafter referred to as "Great American"), together with two of Great American's wholly-owned subsidiaries, the Rubatex Corporation (hereinafter referred to as "Rubatex"), and the Rubatex Holding Corporation (hereinafter referred to as "Rubatex Holding"). While the latter three co-defendants admittedly were not parties to the Bargaining Agreement, plaintiff, under numerous theories, seeks to impute Linear's liability under that Bargaining Agreement to these separate, Albeit related, corporations.

This case was the subject of a 15 day bench trial before the late Frederick van Pelt Bryan, District Judge, in the latter part of 1976. Judge Bryan, however, passed away before rendering a decision and following his death the case was assigned to me. Thereafter, in November 1978, the parties entered into a stipulation which provided, in essence, that rather than retrying the case, they would submit the case to me for a decision based upon the trial transcript, all the exhibits received into evidence by Judge Bryan and the various pre and post-trial memoranda submitted by the parties. In addition, the parties requested, and were granted, the opportunity to present a summation-type argument to the Court in order to extract the most relevant testimony, exhibits and arguments from the voluminous documents generated by this action.

BACKGROUND OF THE ACTION

 During the period relevant to the instant action, Great American was involved in a wide variety of business enterprises. These included the manufacture of various rubber component products for the automotive, aircraft and sporting goods industries, and the manufacture and distribution of finished sporting goods, food products and construction materials. Great American conducted its myriad of business activities through a complex of wholly-owned subsidiaries. See, e.g., Trial Exhibits 1-8, (hereinafter referred to as "Tr. Ex."). Great American's rubber manufacturing interests were quite profitably conducted through the efforts of Rubatex which, prior to October, 1962, was a division of Great American. Given Rubatex's financial success, Great American decided in 1961 to expand its interests in the rubber industry and acquired all the common stock of Linear, a rubber concern located in Dallas, Pennsylvania. *fn1" While Linear, like Rubatex, was engaged in the manufacture and distribution of specialized rubber products, its products were not duplicative of those produced by Rubatex and consequently appealed to a different product market.

 Prior to the acquisition, Linear had been something less than a profitable enterprise. In an effort to revive the severely distressed rubber concern, Great American expended vast sums in 1961 and 1962. Finally, in late December, 1962, after advancing to Linear over $ 700,000, Great American determined that it could no longer carry these sizable advances on its books. Having made these advances, however, Great American was unwilling to sell Linear to a purchaser outside the Great American complex. Consequently, it looked to Rubatex as the logical purchaser. Indeed, Rubatex was its very successful subsidiary in the rubber industry and if the business were at all salvageable, Rubatex had the requisite expertise and ready capital. Thus, in December 1962, Great American transferred its total investment in Linear to Rubatex. *fn2" Pre-Trial Order at P 7, (hereinafter referred to as "P.T.O.").

 After the transfer, Rubatex began where Great American had left off by continuing to pump funds into Linear. In order to maintain Linear as a viable enterprise, Rubatex was required to make substantial advances either directly to Linear or to its creditors. These advances continued from January, 1963 through September, 1966 the bulk of which occurred in 1965 and 1966.

 Finally, on July 14, 1967, Linear perennially plagued by financial woes and the recent victim of a prolonged labor dispute terminated its manufacturing operations. This action, however, is not grounded in the financial decline of Linear, the reasons underlying its shutdown or even about its labor problems. Rather, the crux of the instant suit is Linear's Bargaining Agreement with United Rubber's affiliate Local 204. *fn3" In particular, the central issue is what effect, if any, the linear shutdown had upon the most recent Bargaining Agreement executed by Linear and Local 204 just three months prior to the shutdown.

 I. The Bargaining Agreement

 For many years Linear and Local 204 had been parties to successive collective bargaining agreements. P.T.O. P 3. Over the years the Bargaining Agreement underwent various modifications and amendments to reflect the increasingly complex relationship between employer and employee. While the earlier agreements focused primarily upon wages and working conditions, the later agreements came to include a wide variety of employee benefits including incentives, life insurance, hospitalization, pension and severance awards.

 The last Bargaining Agreement to run its full term expired on July 30, 1966. Thereafter, all manufacturing operations at Linear ceased when the parties failed to renew the Agreement. This work stoppage *fn4" continued from August 1, 1966 through April 12, 1967 at which time the parties renewed the Bargaining Agreement for a term to expire on April 14, 1971. *fn5" P.T.O. P 15.

 Linear resumed operations in April, 1967 on a reduced basis. Only 98 of the 264 individuals employed in July, 1966 were recalled by the management. Finally, after a brief and unsuccessful attempt to recapture that portion of the market it held prior to the work stoppage, Linear terminated its operations in July, 1967.

 Following the plant closing the liquidation of Linear commenced. The first occurrence was a filing by Local 204 of certain grievances for final and binding arbitration with the American Arbitration Association pursuant to the terms of the Bargaining Agreement. Tr. Ex. 53. These grievances charged, in essence, that Linear had failed to meet its obligations under the Bargaining Agreement with respect to a host of employee benefits. For reasons not made clear at trial, Local 204 abandoned the arbitration procedures set forth in the Bargaining Agreement and consequently never obtained a final resolution. P.T.O. PP 19, 20, 29.

 Apparently the next step taken by the Union was to initiate an amended charge of unfair labor practice against Linear with the National Labor Relations Board. Tr. Ex. 77. The end result of these procedures, including an appeal to the General Counsel of the National Labor Relations Board, was a withdrawal of the charges based in part on the following findings:

 
(1) The shutdown of the Linear plant was lawful Tr. Ex. 80;
 
(2) (T)he Employer has indicated its willingness to meet with the Union at any time to discuss the effects of termination (on employees) Tr. Ex. 80;
 
(3) (T)he Company had informed (two Union officials) on July 14 (1967) that the shutdown would be permanent . . . . Tr. Ex. 82; But see Tr.Ex. 86; and
 
(4) Although the Employer deemed it futile to proceed to arbitration in lieu of its financial condition the Union could have invoked arbitration. Tr. Ex. 80.

 In addition, quite apart from the arbitration procedures, by letter dated November 17, 1967 George Spohrer, Linear's local Pennsylvania attorney, informed the Union's legal representative that Linear was willing "to discuss the effects and the implications of the shutdown as it effects the rights of Union employees." Tr. Ex. 58. Mr. Spohrer went on to say that although there was "little point in pressing pending arbitration cases having to do with work rules . . . (concerning) the other arbitration cases having to do with vacation pays and other matters which are contractually due, it has always been our position that we do not propose to defend these honest claims." Id. The letter continues:

 
The Company has always taken the position that whatever is contractually due its employees under the terms of pre-existing bargaining contracts are valid, legal obligations. There seems little point in arbitrating what is clearly due. The problem is, of course, that Linear has no assets of any kind against which any of these sums could be paid.
 
Again, we stand ready to meet with you at any time in order to discuss any of these matters. As you know, Linear is completely insolvent, and all of its assets have been transferred in order to partially meet the obligations of secured creditors.

 The apparent willingness of Linear to sit down with the Union and discuss the effects of the shutdown was again the subject of a letter by Mr. Spohrer to the Union's counsel dated June 19, 1968. Spohrer stated that although all of Linear's books and records had been shipped from the Dallas plant for storage elsewhere, he stood ready to respond to any specific inquiries of the Union concerning pension and other employee benefits. Tr. Ex. 62. It does not appear, however, that the Union ever accepted Spohrer's invitation concerning specific inquiries as to the various employee benefits.

 Meanwhile, in August 1967, Rubatex formed a wholly-owned subsidiary called Rubatex Holding for the specific purpose of taking title to the Linear plant and other assets which were the subject of a note, mortgage and financing statement (hereinafter collectively referred to as the "security agreements") held by Rubatex and executed by Linear in September, 1966. P.T.O. PP 21, 22. This was done in lieu of Rubatex commencing an expensive and time consuming foreclosure action upon the security agreements. Thereafter, Linear conveyed its plant and other assets to Rubatex Holding. P.T.O. P 23. From 1967 until the latter part of 1969, Rubatex Holding disposed of the assets formerly held by Linear. It appears that these assets were first applied to Linear's business obligations outside the Great American complex and only then were applied to reduce Linear's debt to Rubatex.

 Local 204 never directly attacked the validity of the security agreements upon which the sale of Linear's assets in lieu of foreclosure was premised. Nor did the Union ever file an involuntary bankruptcy for the insolvent Linear. It was not until October, 1972 that United Rubber decided to attack the manner in which Rubatex Holding disposed of Linear's assets charging for the first time that Local 204 was short changed in the bargain.

 Plaintiff seeks herein to collect the wages and benefits due its various members under the terms of the Bargaining Agreement executed by Linear and Local 204 on April 15, 1967. In particular, the Union claims that its members are entitled to:

 
(a) Unpaid vacation pay for 1966;
 
(b) Unpaid vacation pay for 1967;
 
(c) Unpaid contributions to an employee Supplemental Unemployment Benefits Fund (hereinafter "SUB") for 1966;
 
(d) Unpaid contributions to SUB for 1967;
 
(e) Unpaid premiums for Blue Cross Blue Shield insurance coverage and certain life insurance and hospitalization benefits; and
 
(f) Pension and/or Severance benefits on behalf of those members for whom these benefits had vested at the time Linear shutdown.

 The case at bar presents three quite distinct central issues. The threshold issue is whether United Rubber has standing to maintain the instant suit on behalf of the members of the now defunct Local 204. Next, assuming United Rubber is the proper party to prosecute the instant suit, the issue is whether Linear is liable for some or all of its obligations under the Bargaining Agreement after it permanently terminated all manufacturing operations in July, 1967. Finally, to the extent Linear may be liable under the Bargaining Agreement and given its present financial inability to meet these obligations, was the conduct of Great American, Rubatex and Rubatex Holding in the operation and ultimate liquidation of Linear such as to require these related corporations to satisfy Linear's labor obligations.

 II. Choice of Law

 Before addressing each of the issues delineated above, I turn briefly to the question of what body of substantive law shall govern these issues. Despite the voluminous memoranda and extensive arguments addressing the issues at bar, the parties have summarily decided that Pennsylvania Law (as the place of Linear's incorporation and its principal place of business) shall govern all issues raised in this diversity action. In part, I must disagree.

 There are two categories of issues raised by plaintiff which must be distinguished for purposes of determining the applicable law. First, plaintiff charges that Linear breached its Bargaining Agreement with Local 204 by failing to meet its financial obligations arising thereunder. Second, the Union urges that the monies owed its members under the Bargaining Agreement constitute wages and were entitled to a priority in the course of distributing Linear's assets upon its demise. Despite this preferred status, however, the Union charges that the sum total of Linear's assets were fraudulently conveyed and/or converted by Great American through the efforts of Rubatex and Rubatex Holding solely for their benefit. *fn6"

 Turning first to the alleged breach of the Bargaining Agreement, it is now settled that given the enactment of the Labor-Management Relations Act (29 U.S.C. §§ 141 Et seq.) federal substantive law must govern its adjudication. Republic Steel v. Maddox, 379 U.S. 650, 652, 85 S. Ct. 614, 13 L. Ed. 2d 580 (1965). Indeed, this is true even where, as in the case at bar, a claim arising out of a breach of a collective bargaining agreement is couched in terms of a common law contract action. Papadopoulos v. Sheraton Park Hotel, 410 F. Supp. 217, 219 (D.C. Cir. 1976). Thus, while plaintiff chose to ignore the jurisdictional predicate set forth in the Labor-Management Relations Act (29 U.S.C. § 185), this does not alter the application of federal law. *fn7" Id. at 219.

 As to plaintiff's allegation that Linear's assets were fraudulently conveyed and/or converted by the Great American complex for its own benefit and at the expense of Local 204, a different result obtains. Jurisdiction in this action was grounded by plaintiff, both in its original and amended complaint, solely upon diversity of citizenship. Accordingly, the settled rule is that in determining which substantive law will apply, a federal court will look to the choice of law provisions of the forum. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941); Rosenthal v. Warren, 475 F.2d 438, 440 (2d Cir.), Cert. denied, 414 U.S. 856, 94 S. Ct. 159, 38 L. Ed. 2d 106 (1973). Whether the alleged fraudulent conveyances/conversions are viewed as essentially contractual in that they arose out of the Bargaining Agreement or simply tortious in nature, the result is the same. New York will apply the law of that state with the most significant contacts. See, e.g., Intercontinental Planning Ltd. v. Daystrom, 24 N.Y.2d 372, 300 N.Y.S.2d 817, 248 N.E.2d 576 (1969) (Contracts); Babcock v. Jackson, 12 N.Y.2d 473, 240 N.Y.S.2d 743, 191 N.E.2d 279 (1963) (Torts).

 It is quite evident that in the instant action Pennsylvania is the state with the most significant contacts and its substantive law should be applied. Pennsylvania serves not only as the state in which Linear was incorporated, *fn8" the Linear plant was located and the Bargaining Agreement was executed, but it is also the state in which Linear's assets were located in July, 1967 and where the assets, Arguendo, were fraudulently disposed of by the Great American corporate family. Accordingly, save the Bargaining Agreement and any liability thereunder, all issues will be determined by reference to Pennsylvania Law.

 III. Standing

 While defendants do not contend that United Rubber lacks the capacity to represent its members in a suit arising out of a Bargaining Agreement, they do argue that since plaintiff has, to date, failed to specifically identify those members of Local 204 it represents in this action, it is not the proper party to prosecute the particular claims raised herein. In particular, defendants argue that the rights United Rubber seeks to vindicate are inherently personal to the individual members of Local 204. Accordingly, they urge that the action should have been maintained as a class action, providing each member of Local 204 with notice of the pending action *fn9" and an opportunity to opt in or out of the class. Alternatively, they urge that the members of Local 204 should have commenced individual suits on their several claims. *fn10" Moreover, defendants urge that since many of the claims herein are keyed upon the number of years a particular individual was employed at Linear or the aggregate number of hours worked by an employee in a particular year, it is impossible for this Court to fashion any relief without the presence of the individual members either personally or through a class representative. I find none of these arguments persuasive and conclude that United Rubber, as Local 204's successor, is the proper party to prosecute this suit.

 Section 301 of the Labor-Management Relations Act, 29 U.S.C. §§ 141 Et seq., provides in pertinent part:

 
(a) Suits for violation of contracts between an employer and a labor organization representing employees in an industry affecting commerce as defined in this chapter, or between any such labor organizations, may be brought in any district court of the United States having jurisdiction of the parties, without respect to the amount in controversy or without regard to the citizenship of the parties.
 
(b) Any labor organization which represents employees in an industry affecting commerce as defined in this chapter and any employer whose activities affect commerce as defined in this chapter shall be bound by the acts of its agents. Any such labor organization may sue or be sued as an entity and in behalf of the employees whom it represents in the courts of the United States.

 Nowhere does Section 301 require that a Union commence a suit on behalf of its members as a class action. On the contrary, the provision expressly authorizes the Union to sue As an entity on behalf of the employees it represents. See, e.g., Auto Workers v. Hoosier Corp., 383 U.S. 696, 699-700, 86 S. Ct. 1107, 16 L. Ed. 2d 192 (1966). This is equally true where the Union seeks to vindicate the individual rights of its members under a collective bargaining agreement. Smith v. Evening News Association, 371 U.S. 195, 198-200, 83 S. Ct. 267, 9 L. Ed. 2d 246 (1962). Indeed, in Smith the Court held that "(t)o exclude (individual claims) from the ambit of Section 301 would stultify the Congressional policy of having the administration of collective bargaining contracts accomplished under a uniform body of federal substantive law." Id. at 200, 83 S. Ct. at 270.

 Finally, the computation of individual claims which are keyed upon the number of years employed or the aggregate number of hours worked is a question of damages. This issue will be fully dealt with below. Suffice it to say at this juncture that whether the plaintiff can prove with reasonable certainty the amount due each of its members is irrelevant insofar as its standing to prosecute the suit is concerned.

 IV. Linear's Liability

 As previously mentioned, the last Bargaining Agreement between Local 204 and Linear to run full term expired in July, 1966. Finally, after a nine month work stoppage, the parties agreed to renew the Agreement in April, 1967. As renewed, the Bargaining Agreement was to run through April 14, 1971 and contained the following provisions which are the subject of the instant suit:

 
(a) Paid vacations for those Linear employees who met certain minimum requirements;
 
(b) Supplemental unemployment benefits;
 
(c) Blue Cross Blue Shield coverage and disability benefits; and
 
(d) Pension and Severance benefits.

 (A) 1966 Vacation Pay

 United Rubber claims that Linear owes various members of Local 204 a total of $ 52,000 which represents that vacation pay earned by its members prior to the work stoppage in July, 1966, but never paid by Linear thereafter. This claim was also the subject of a grievance, filed January 4, 1967, upon which the Union sought arbitration. In response to the grievance, however, Linear, through its attorney, stated to Local 204 that:

 
the company is not contesting the right of employees to vacation pays which were earned prior to the work stoppage July 30, 1966. We consider all vacation pay earned prior to this date to be valid and subsisting obligations of the company.

 The letter continues:

 
Accordingly, there is no necessity for the arbitration case involving this matter . . .. We hope you will inform the American Arbitration Association that this matter has been withdrawn. Tr. Ex. 85.

 This admission was renewed by Linear in the Bargaining Agreement executed on April 15, 1967 which provides:

 
The Management recognizes its legal obligations to pay accrued vacation payments for the year 1966 as soon as possible. . . . Tr. Ex. 53 at P 5 of signature page.

 Linear now attacks the claim on two grounds. First, it charges that the claim for 1966 vacation pay is barred by the applicable statute of limitations. Second, it attacks the claim on the ground that the plaintiff failed to prove the precise amount of vacation pay due and owing its members on July 30, 1966.

 It is clear that the timeliness of an action alleging a breach of a collective bargaining agreement is to be determined "as a matter of federal law," by reference to the forum state's statute of limitations together with any applicable tolling provisions. Auto Workers v. Hoosier Corp., supra, 383 U.S. at 704-05, 86 S. Ct. at 1113. New York, as the forum state, provides that an action upon a contract must be commenced within 6 years from the date the claim arises. N.Y.Civ.Prac.Law § 213(2) (McKinney 1972).

 Linear, applying the above period of limitation, argues that the claim for 1966 vacation pay accrued at the very latest as of July 30, 1966. This is the date upon which the Bargaining Agreement expired and the nine-month work stoppage began. Tr. Ex. 53. Linear reasons that since this was the last day in 1966 that any employees worked, all vacation pay for the year was due and computable as of that date and the claim had accrued. The defendants' argument concludes that since this action was not commenced until October 1972, the claim for 1966 vacation pay is untimely. I disagree.

 Assuming, without deciding, that the claim for vacation pay did accrue as of July 30, 1966, *fn11" the statute of limitation would still not act as a bar to recovery under either of two theories. First, section 17-101 of the General Obligations Law provides that "(a)n acknowledgment or promise contained in a writing signed by the party to be charged" acts to revive the statutory period and extend an obligor's liability for another six years. N.Y.Gen.Oblig.Law § 17-101 (McKinney 1978). Linear made two such acknowledgments: one, in its letter to Local 204 dated March 13, 1967, (Tr. Ex. 85), and the other in the Bargaining Agreement itself. (Tr. Ex. 53 at P 5 of signature page). Thus, the action was well within this revived statutory period. *fn12"

 Second, quite apart from the provisions of section 17-101 cited above, Linear's letter of March 13, 1967 is sufficient to estop Linear from now seeking refuge behind the statute of limitations. Indeed, the letter admitted liability for the vacation pay and successfully requested that Local 204 withdraw its arbitration grievance. Since Local 204 reasonably relied, to its detriment, upon Linear's acknowledgment of its obligation in withdrawing its arbitration grievance which, if pursued, would have led to a final and binding resolution, estoppel is warranted.

 Turning finally to the amount of damages claimed by plaintiff, I find that under all the circumstances, plaintiff offered sufficient evidence at trial from which a reasonable approximation of the vacation pay due its members could be calculated.

 It is clear that an award of damages may not be premised upon mere speculation or guesswork. James Wood General Trading Establishment v. Coe, 297 F.2d 651 (2d Cir. 1961). It is equally clear, however, that once a plaintiff has demonstrated that he has been damaged, he need only demonstrate the amount of damages with reasonable certainty, W. L. Hailey & Co. v. Niagara County, 388 F.2d 746 (2d Cir. 1967), and a wrongdoer has no right to insist upon a mathematically precise evaluation of the damages suffered. Contemporary Mission, Inc. v. Famous Music Corp., 557 F.2d 918, 926-27 (2d Cir. 1977).

 There is no question that Local 204 has demonstrated its entitlement to 1966 vacation pay. Indeed, the "defenses" offered by Linear do not attack the merits of the claim itself. Rather, Linear attempts to set up the statute of limitations and plaintiff's "imprecise" calculation of damages to bar the recovery of an otherwise meritorious claim. Moreover, insofar as the precise computation of damages is concerned plaintiff offered the testimony of George Marsden, President and Bargaining Representative of Local 204. Marsden, by consulting various seniority lists, was able to compute the amount of vacation pay due the members of Local 204 as of July 30, 1966, Trial Transcript at 103-04 (hereinafter referred to as "Tr."), which he found to be $ 52,000. Since under the terms of the Bargaining Agreement these seniority lists were to be kept current by Linear (Tr. Ex. 57 § 7.2), and were properly authenticated at trial (Tr. at 121-33; 2166-67), they were clearly a reasonable and accurate basis upon which to make the instant computations. Suffice it to say that under the circumstances the plaintiff offered the best evidence available concerning the computation of damages.

 Furthermore, this same figure was reflected in the grievance filed by Local 204 in January 1967 to which Linear made no objection in its letter of March, 1967 and in which Linear admitted its liability. See Tr. Ex. 85. I find that this response, in the face of the $ 52,000 figure asserted by Local 204, was tantamount to an admission of the amount as well as the computations upon which it was premised.

 Linear blames the absence of any contrary evidence concerning this as well as the other claims asserted herein on the fact that after the cessation of operations at the Dallas, Pennsylvania plant, all its books and records were destroyed. While I need not pass upon the merits of Linear's explanation, it is sufficient to note that even if true, this excuse does not in and of itself vitiate plaintiff's claims for damages or its computations thereof. *fn13" Indeed, Linear could have offered the testimony of those persons familiar with its record entries insofar as the Union was concerned. Or at the very least, the defendant could have offered an alternative method of computation. Failing this, ...


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