2001 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

4-23-2001

Eichorn v. AT&T Corp

Precedential or Non-Precedential:

Docket 99-5791

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Recommended Citation

"Eichorn v. AT&T Corp" (2001). 2001 Decisions. Paper 87.

http://digitalcommons.law.villanova.edu/thirdcircuit_2001/87
Filed April 23, 2001 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

No. 99-5791 

KURT H. EICHORN; 

WILLIAM J. HUCKINS; T. ROGER KIANG; 

EDWARD W. LANDIS; ORLANDO NAPOLIT ANO, 

individually and on behalf of all others similarly situated; 

GILBERT G. DALEY; SUSAN H. DIBONA; 

BETH KING; MICHAEL S. ORATOWSKI; 

THOMAS L. SALISBURY; LAWRENCE W ALSH, 

individually and on behalf of all others similarly situated, 

 Appellants 

v. 

AT&T CORP; LUCENT TECHNOLOGIES, INC.; 

TEXAS PACIFIC GROUP 

On Appeal from the United States District Court 

for the District of New Jersey 

D.C. Civil Action Nos. 96-cv-03587 & 96-cv-04674 

(Honorable Mary Little Cooper) 

Argued December 12, 2000 

Before: SCIRICA and AMBRO, Circuit Judges, 

and POLLAK, District Judge* 

(Filed: April 23, 2001) 

_________________________________________________________________ 

* The Honorable Louis H. Pollak, United States District Judge for the 

Eastern District of Pennsylvania, sitting by designation. 
 NOEL C. CROWLEY, ESQUIRE 

 (ARGUED) 

 Crowley & Crowley 

 10 Park Place 

 Morristown, New Jersey 07960 

 Attorney for Appellants 

 JONATHAN E. HILL, ESQUIRE 

 (ARGUED) 

 KATHY A. LAWLER, ESQUIRE 

 Pitney, Hardin, Kipp & Szuch 

 P.O. Box 1945 

 Morristown, New Jersey 07962 

 JAMES E. TYRRELL, JR., ESQUIRE 

 (ARGUED) 

 SCOTT L. WEBER, ESQUIRE 

 Latham & Watkins 

 One Newark Center, 16th Floor 

 P.O. Box 10174 

 Newark, New Jersey 07101 

 Attorneys for Appellees, 

 AT&T Corp. and Lucent 

 Technologies, Inc. 

 DAVID M. FABIAN, ESQUIRE 

 (ARGUED) 

 Traflet & Fabian 

 264 South Street 

 Morristown, New Jersey 07960 

 Attorney for Appellee, 

 Texas Pacific Group 

 2 
OPINION OF THE COURT 

SCIRICA, Circuit Judge. 

In this appeal from the grant of summary judgment we 

must decide whether defendants AT&T Corp., NCR Corp., 

Lucent Technologies, and Texas Pacific Group's agreement 

to restrict the hiring of certain employees upon Lucent's 

sale of Paradyne Corp. was a violation of S 1 of the 

Sherman Antitrust Act. We also must decide whether this 

no-hire agreement which effectively cancelled the plaintiff 

employees' AT&T pension bridging rights violated S 510 of 

the Employee Retirement Income Security Act. W e hold the 

no-hire agreement was a valid covenant not to compete that 

was reasonable in scope and therefor e not a violation of S 1 

of the Sherman Act. But also we hold plaintif fs have 

presented sufficient prima facie evidence of AT&T and 

Lucent's specific intent to interfer e with an ERISA funded 

employee pension fund to survive summary judgment on 

the ERISA S 510 claim. 

I. 

In July 1995, AT&T, a long distance telephone and 

wireless services provider, decided to sell one of its 

affiliates, Paradyne Corp., a manufacturer of network 

access products for the telecommunications industry. 

Contemplating the sale, AT&T wanted to ensur e that

Paradyne remained a viable entity because A T&T and its 

other affiliates, including Lucent Technologies, purchased 

many of the network access products Paradyne 

manufactured. To make Paradyne mor e attractive to buyers 

as an ongoing business, AT&T adopted a human r esource 

plan that placed restrictions on Paradyne employees' ability 

to transfer to other divisions of AT&T ("the Preliminary 

Net"). Specifically, the Preliminary Net precluded an 

employee who voluntarily left Paradyne from being hired by 

any other division of AT&T. The pr emise for the hiring bar 

was AT&T's belief that one of Paradyne's most marketable 

assets was its skilled employees. The retention of 

 3 
Paradyne's employees, therefore, was considered essential 

for the sale of Paradyne. 

Shortly after adopting the Preliminary Net, A T&T 

consummated a business reorganization plan resulting in 

three independent companies: AT&T, Lucent Technologies, 

and NCR Corp. (the "trivestiture"). As part of the 

trivestiture, AT&T transferred ownership of Paradyne to 

Lucent. Consistent with the Preliminary Net, the Paradyne 

employees, now employed by Lucent, were pr ecluded from 

seeking re-employment at any other AT&T division or

affiliate after the trivestiture. 

On July 31, 1996, Lucent sold Paradyne to Texas Pacific 

Group. Before closing, Lucent agreed, on behalf of itself and 

the other former AT&T affiliates, that it would not hire, 

rehire, retain, or solicit the services of any Paradyne 

employee or consultant whose annual income exceeded

$50,000. This "Pre-Closing Net" was consistent with the 

understanding that Texas Pacific Group's interest in 

purchasing Paradyne was based on its desir e to acquire the 

technical skills of Paradyne's employees for a sufficient 

period of time to ensure a successful transition of

ownership. 

Once the deal was closed, Lucent and Texas Pacific 

Group entered a post-closing agreement ("Post-Closing Net") 

in which Lucent warranted on behalf of itself and the other 

AT&T affiliates that for 245 days (8 months) following the 

sale and the expiration of the Pre-Closing Net, it would not 

seek to hire, solicit or rehire any Paradyne employee or 

consultant whose compensation exceeded $50,000. The

eight month no-hire agreement had the practical effect of 

cancelling the Paradyne employees' accrued pension 

benefits under their former AT&T pension plans. Under the 

AT&T pension plan, employees were entitled to "bridging 

rights" which allowed them to retain their level of accrued 

pension benefits if they left AT&T and r eturned within six 

months. After six months, the bridging rights expir ed. 

Employees rehired after the six month period would need 

five years of employment to regain their pr evious pension 

levels. Because the Post-Closing Net barred Paradyne 

employees from returning to an A T&T affiliate for eight 

 4 
months, these employees automatically lost the bridging 

rights they had acquired under their AT&T pensions.

Before the sale was consummated, Texas Pacific Group 

hired an outside consultant to determine the benefit 

package it could offer the Paradyne employees. Paradyne's 

Vice-President of Human Resources, Sherril Claus Melio, 

who had previously held the same position when Paradyne 

was owned by AT&T and Lucent, assisted the consultant in 

drafting various benefit plan proposals. The consultant 

concluded that in order to make Paradyne financially 

competitive, Texas Pacific Group could not offer the same 

pension package AT&T had previously of fered its 

employees. Although Melio's exact role in T exas Pacific 

Group's decision is disputed, Texas Pacific Group 

ultimately decided not to offer a defined pension benefits 

program to its new employees. 

The plaintiffs are former Paradyne employees who allege 

the Preliminary Net, as well as the Pre and Post-Closing 

Nets, collectively represent an unlawful group boycott in 

violation of S 1 of the Sherman Act. Additionally, they 

contend the defendants conspired to eliminate their

pension benefits thereby engaging in an illegal price fixing 

scheme in violation of S 1 of the Sher man Act. Furthermore, 

they allege the no-hire agreement, which effectively 

cancelled Paradyne employees' bridging rights under their 

AT&T pensions, violated S 510 of the Employee Retirement 

Income Security Act. 

In addressing these claims, the District Court held that 

plaintiffs failed to prove a violation ofS 1 of the Sherman 

Act and failed to produce sufficient prima facie evidence of 

AT&T and Lucent's specific intent to inter fere with an 

ERISA funded pension plan to support their S 510 claim. 

The court, therefore, granted defendants' motion for 

summary judgment. After the grant of summary judgment, 

plaintiffs filed a discovery motion in connection with an 

anticipated motion for class certification which the District 

Court denied. This appeal followed. 

II. 

The District Court had jurisdiction under 15 U.S.C.S 26 

and 29 U.S.C. S 1140 because plaintiffs' claims allege 

 5 
violations of S 1 of the Sherman Antitrust Act and S 510 of 

ERISA. We have jurisdiction under 28 U.S.C.S 1291. We 

exercise plenary review over the District Court's grant of 

summary judgment on plaintiffs' antitrust and ERISA

claims. Big Apple BMW, Inc. v. BMW of N. Am., Inc., 974 

F.2d 1358, 1363 (3d Cir. 1992), cert. denied, 507 U.S. 912 

(1993). We exercise plenary review over the District Court's 

legal determinations concerning class certification and 

review its factual findings for abuse of discretion. Bogus v. 

Am. Speech & Hearing Ass'n, 582 F.2d 277, 289 (3d Cir. 

1978). 

III. 

Section 1 of the Sherman Act provides: 

 Every contract, combination in the form of trust or 

 otherwise, or conspiracy, in restraint of trade or 

 commerce among the several states, or with for eign 

 nations, is hereby declared to be illegal. 

15 U.S.C. S 1 (1994). 

Under S 1, unreasonable restraints on trade are 

prohibited because they inhibit competition within the 

market. Bus. Elecs. Corp. v. Sharp Elecs. Corp. , 485 U.S. 

717, 723 (1988); United States v. Brown Univ., 5 F.3d 658, 

669 (3d Cir. 1993). In order to assert a cause of action 

under S 1, plaintiffs must prove they have suffered an 

antitrust injury that is causally related to the defendants' 

allegedly illegal anti-competitive activity. Brunswick Corp. v. 

Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). Once 

there is the finding of antitrust injury, courts examine the 

alleged illegal conduct under one of two distinct tests: per 

se violation or rule of reason. Under the per se test, 

"agreements whose nature and necessary effect are so 

plainly anti-competitive that no elaborate study of the 

industry is needed to establish their illegality" are found to 

be antitrust violations. Nat'l Soc'y of Pr of. Eng'rs v. United 

States, 435 U.S. 679, 692 (1978). For those activities not 

within the per se invalidity category, courts employ the rule 

of reason test. Under this test, plaintif fs have the burden of 

establishing that, under all the circumstances,"the

challenged acts are unreasonably r estrictive of competitive 

 6 
conditions" in the relevant market. Standard Oil Co. of N.J. 

v. United States, 221 U.S. 1, 28 (1911). "An analysis of the 

reasonableness of particular restraints includes the 

consideration of the facts peculiar to the business in which 

the restraint is applied, the nature of the restraint and its 

effects, and the history of the restraint and the reasons for 

its adoption." United States v. Topco Assocs., Inc., 405 U.S. 

596, 607 (1972). 

A. 

We hold the AT&T Preliminary Net was not a violation of 

S 1 of the Sherman Act. The District Court found that "as 

of . . . the date that the Preliminary Net was put into effect 

. . . , Lucent was a wholly-owned subsidiary of A T&T, and 

accordingly, the two companies were a singular entity that 

could not conspire to violate the Antitrust laws." Eichorn v. 

AT&T Corp., CA No. 96-3587, slip op. at *17 (D.N.J.

September 10, 1999). In Copperweld Corp. v. Independence 

Tube Corp., 467 U.S. 752 (1984), the Supr eme Court held 

the coordinated acts of a parent and its wholly owned 

subsidiary cannot themselves give rise to S 1 antitrust 

violations. The Court reasoned, "[a] par ent and its wholly 

owned subsidiary have a complete unity of inter est. Their 

objectives are common, not disparate; their general

corporate actions are guided or determined not by two 

separate corporate consciousnesses, but one." Id. at 771. 

Because the Preliminary Net was an inter nal restriction 

between a single corporation, AT&T, and its wholly owned 

subsidiaries, Lucent and NCR, and not an agr eement

between separate corporate identities, it was not a violation 

of S 1 of the Sherman Act. Id. at 769 ("An internal

agreement to implement a single unitary fir m's policies does 

not raise the antitrust dangers that S 1 was designed to 

police."). Although plaintiffs assert A T&T and Lucent were 

not motivated by a single "corporate consciousness"

because they were in the process of becoming separate 

entities, we believe that during the effective time period of 

the AT&T Preliminary Net, AT&T and Lucent retained a 

unified corporate interest for the purpose of antitrust 

analysis. It was not until AT&T divested all of its stock in 

Lucent and after the lapse of the Preliminary Net that the 

two companies became completely separate entities. 

 7 
As Supreme Court and our precedent make clear, only

anti-competitive actions between competitors give rise to 

Sherman Act liability. Copperweld, 467 U.S. at 771; Siegel 

Transfer, Inc. v. Carrier Exp., Inc. , 54 F.3d 1125, 1132 (3d 

Cir. 1995) ("The operations of a corporate enterprise 

organized into divisions must be judged as the conduct of 

a single actor."); Weiss v. Y ork Hosp., 745 F.2d 786, 813 (3d 

Cir. 1984), cert. denied, 470 U.S. 1060 (1985). As a single 

entity in a parent subsidiary relationship, the defendants in 

this case were incapable of conspiring to violate the 

antitrust laws through the Preliminary Net agreement. 

Siegel, 54 F.3d at 1132. 

We next turn to plaintiffs' claim that the Pre and PostClosing Nets, collectively referred to as the no-hire 

agreement, represent an illegal gr oup boycott and a 

horizontal price fixing conspiracy under S 1 of the Sherman 

Act. Plaintiffs allege Lucent, AT&T and T exas Pacific Group 

horizontally competed for the plaintiff employees' technical 

skills and services. As competitors, they ar gue, the 

defendants conspired to suspend competition for plaintiffs' 

technical services with the purpose and the ef fect of locking 

them out of the labor market. See Anderson v. Shipowners 

Ass'n of the Pac. Coast, 272 U.S. 359 (1926) (agreement 

between most shipowners on Pacific coast to deny 

employment to any seaman who did not register with 

association was violation of S 1 of Sher man Act); Law v. 

Nat'l Collegiate Athletic Assoc., 134 F.3d 1010 (10th Cir.) 

(NCAA rule limiting salary of basketball coaches was per se 

violation of S 1 of Sherman Act), cert. denied, 525 U.S. 822 

(1998). By locking them out and effectively cancelling their 

entitlement to AT&T pension rights, plaintif fs argue the 

defendants conspired to fix the cost of labor in the market. 

In support, plaintiffs cite several Supr eme Court cases that 

hold horizontal group boycotts and price fixing conspiracies 

are per se violations of the Sherman Antitrust Act. See FTC 

v. Super. Ct. Trial Lawyers Assoc., 493 U.S. 411, 422 

(1990); Arizona v. Maricopa County Med. Soc'y , 457 U.S. 

332, 344-45 (1982); Broad. Music, Inc. v. Columbia Broad. 

Sys., Inc., 441 U.S. 1, 7-8 (1979). 

But the facts here are substantially dif ferent from the 

classic per se horizontal price fixing and gr oup boycott 

 8 
conspiracies the Court has generally found to be per se 

antitrust violations. Broad. Music, Inc. , 441 U.S. at 8 ("Easy 

labels [like price fixing] do not always supply ready 

answers."). Because of the fact specific inquiry required to 

assess antitrust liability under the Sherman Act, we will 

address each prong of the S 1 analysis. 

B. 

Private plaintiffs pursuing claims under S 1 of the

Sherman Act have standing when they suf fer an antitrust 

injury that is causally related to the defendants' allegedly 

illegal anti-competitive activity. Brunswick, 429 U.S. at 489. 

The Supreme Court has described antitrust injury as injury 

of 

 the type the antitrust laws were intended to pr event 

 and that flows from that which makes defendants' acts 

 unlawful. The injury should reflect the anti-competitive 

 effect either of the violation or of anti-competitive acts 

 made possible by the violation. It should, in short, be 

 the type of loss that the claimed violations . . . would 

 be likely to cause. 

Id. (internal quotes omitted). 

It is well established that an antitrust injury r eflects an 

activity's anti-competitive effect on the competitive market. 

Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 

344 (1990) ("The antitrust injury requir ement . . . ensures 

that a plaintiff can recover only if the loss stems from a 

competition-reducing aspect or ef fect of the defendant's 

behavior.") (emphasis in original). W e have consistently held 

an individual plaintiff personally aggrieved by an alleged 

anti-competitive agreement has not suffer ed an antitrust 

injury unless the activity has a wider impact on the 

competitive market. See, e.g., City of Pittsburgh v. West 

Penn Power Comp., 147 F.3d 256, 266-67 (3d Cir. 1998) 

(holding action that did not lessen competition in a 

"marketplace" was not antitrust injury); Barton & Pittinos, 

Inc. v. SmithKline Beecham Corp., 118 F.3d 178, 182 (3d 

Cir. 1997) (the determination of whether a party has 

suffered an antitrust injury "depends on how the market is 

defined"); Brader v. Allegheny Gen. Hosp. , 64 F.3d 869 (3d 

 9 
Cir. 1995). While a plaintiff may have individually suffered 

an injury as a result of defendants' actions, the antitrust 

laws were designed to protect market-wide anticompetitive 

activities. Atlantic Richfield, 495 U.S. at 338 (quoting Brown 

Shoe Co. v. United States, 370 U.S. 294, 320 (1902) ("The 

antitrust laws were enacted for the protection of 

competition, not competitors.") (emphasis in original)); see 

also Les Shockley Racing, Inc. v. Nat'l Hot Rod Ass'n., 884 

F.2d 504, 508 (9th Cir. 1989) (holding plaintiffs must "plead 

and prove a reduction of competition in the market in 

general and not mere injury to their own positions as 

competitors"). 

In dismissing plaintiffs' antitrust claims the District 

Court stated, 

 Plaintiffs apparently argue that the injury to 

 competition is that they are prevented fr om providing 

 their services to AT&T, Lucent or its affiliates. Put 

 simply, the antitrust laws are not concer ned with 

 injury to competitors (here the plaintif fs), but with 

 injury to competition. That these plaintiffs are 

 prevented from working at AT&T , Lucent or their 

 affiliates for the limited time period during which the 

 pre-closing and post-closing nets were in effect is not 

 an injury to competition. In our view, plaintif fs' 

 allegations of economic injury to themselves

 misperceive the nature of the injury which is required 

 to be established in order to sustain a claim under 

 Section 1 of the Sherman Act. 

Eichorn, CA No. 96-3587, slip op. at *20-21 (internal 

citations omitted). 

While employees who are precluded fr om selling their 

labor have not necessarily suffered an antitrust injury, 

"employees may challenge antitrust violations that are 

premised on restraining the employment market." Phillip 

Areeda & Herbert Hovenkamp, Antitrust Law P 377a (rev. 

ed. 1995) (footnotes omitted); see also Brian R. Henry, 

`Sorry, We Can't Hire You . . . We Promised Not To': The 

Antitrust Implications of Entering Into No-Hir e Agreements, 

11-Fall Antitrust 39 (1996) ("Most courts considering the 

issue have held that employees suffer `injury' recognized by 

 10 
the antitrust laws when their employment opportunities are 

restricted by a no-hire agreement between potential

employers, and thus have standing to sue the entity

imposing such a provision."). As a leading treatise on 

antitrust states: 

 Antitrust law addresses employer conspiracies 

 controlling employment terms precisely because they 

 tamper with the employment market and thereby 

 impair the opportunities of those who sell their services 

 there. Just as antitrust law seeks to pr eserve the free 

 market opportunities of buyers and sellers of goods, so 

 also it seeks to do the same for buyers and sellers of 

 employment services. It would be perverse indeed to 

 hold that the very object of the law's solicitude and the 

 persons most directly concerned--per haps the only 

 persons concerned--could not challenge the r estraint. 

 * * * 

 An employee overcomes the primary hurdle to standing 

 when he shows that the alleged violation restrains 

 competition in the labor market. Of course, he must 

 still show injury-in-fact that was proximately caused 

 by the violation and, in damage cases, that can be 

 quantified without undue speculation. 

Areeda & Hovenkamp, supra, at P 377c (footnotes omitted). 

In Anderson, the Supreme Court held that a seaman, on 

behalf of himself and other members of the seamen's union, 

could sue an association of most of the shipowners in the 

region when the shipowners' association adopted unduly 

strict regulations governing employment. 272 U.S. at 359. 

The Court found the shipowners' agreement violated the 

antitrust laws because the regulations pr evented the "free 

exercise of the rights" of the seamen to engage in trade and 

commerce. Id. at 363 (quoting United States v. Colgate & 

Co., 250 U.S. 300, 307 (1919)). Because unr egistered 

seamen were precluded from working on any association 

ship, which constituted the majority of the ships in the 

region, they suffered an injury pr otected under the 

antitrust laws. 

While Anderson was decided many years befor e the 

 11 
Supreme Court detailed the antitrust injury r equirement in 

Brunswick,1 several courts since Brunswick have found that 

no-hire agreements which preclude employees from seeking 

employment from a third party employer can give rise to 

antitrust injury. In Cesnick v. Chrysler Corp. , 490 F. Supp. 

859 (M.D.Tenn. 1980), plaintiffs who wer e precluded from 

seeking re-employment at Chrysler when their division was 

sold to a third party suffered an antitrust injury. The Court 

reasoned that it "must conclude that the market for

employee skills is a market subject to the pr ovisions of the 

Sherman Act." Id. at 864. 

More recently in Roman v. Cessna Air craft Co., 55 F.3d 

542 (10th Cir. 1995), the Court of Appeals for the Tenth 

Circuit held that a plaintiff precluded from seeking 

employment as an airplane engineer with the Cessna 

Aircraft Company because of an agreement between Cessna 

and the Boeing Company not to hire each other's engineers 

suffered an antitrust injury. The Court r easoned that 

plaintiff 

 alleged that competition in the market for his services 

 as an employee had been directly impeded by 

 defendants' agreement not to compete for each other's 

 employees. He further alleges that he was injur ed by 

_________________________________________________________________ 

1. Several other courts prior to Brunswick held that employees barred 

from seeking employment from a thir d party employer because of a nohire agreement have standing to litigate aS 1 claim. See, e.g., Radovich 

v. Nat'l Football League, 352 U.S. 445 (1957) (coach precluded from 

working in National Football League because of agr eement among all of 

the teams in the league had standing); Quinonez v. Nat'l Assoc. of Secs. 

Dealers, Inc., 540 F.2d 824 (5th Cir. 1976) (plaintiff who was fired by 

securities dealer and was unable to find employment with another 

securities dealer because of agreement among dealer firms not to hire an 

employee who was discharged by another fir m suffered sufficient injury 

to proceed with antitrust claim); Tugboat, Inc. v. Mobile Towing Co., 534 

F.2d 1172, 1176 (5th Cir.) ("Ther e can be little doubt that an employee 

who is deprived of a work opportunity has been injur ed . . . because the 

selling of one's labor is a commercial interest."), reh'g denied, 540 F.2d 

1085 (5th Cir. 1976); Nichols v. Spencer Int'l Press, Inc., 371 F.2d 332 

(7th Cir. 1967) (plaintiff prohibited from seeking employment at 

competing employer because of agreement between employers in 

industry not to hire each other's employees suf fered injury sufficient to 

bring antitrust claim). 

 12 
 that agreement because it prevented him fr om selling 

 his services to the highest bidder . . . . W e believe this 

 is sufficient to allege antitrust standing. 

Id. at 545; see also Law, 134 F .3d 1010 (coach whose 

opportunities in employment market were impair ed by 

agreement among members of NCAA to limit the maximum 

compensation paid to coaches suffered antitrust injury). 

In a similar manner, plaintiffs her e allege they have been 

precluded from selling their services to three companies 

within the industry, NCR, AT&T and Lucent, and that the 

no-hire agreement interfered with their ability to attain 

pension benefits. Because the no-hire agr eement directly 

impeded plaintiffs' ability to sell their labor to at least three 

companies within the competitive market and ef fectively 

cancelled their AT&T pension benefits, we believe they have 

standing to litigate their S 1 claims. Roman, 55 F.3d at 545. 

To the extent the District Court held that plaintiffs did not 

suffer an antitrust injury and lacked standing to litigate 

their S1 claims, it was in error. 

C. 

Plaintiffs contend on appeal that the no-hir e agreement 

was a group boycott and a horizontal pricefixing 

conspiracy. See Klor's v. Broadway-Hale Stores, Inc., 359 

U.S. 207, 211 (1959). As direct competitors for their labor, 

plaintiffs argue, the defendants enter ed the no-hire 

agreement as part of a concerted effort to lock them out of 

employment and decrease labor costs by eliminating 

pension benefits. See Nat'l Soc'y of Pr of. Eng'rs, 435 U.S. at 

692 (quoting United States v. Container Corp. of Am., 393 

U.S. 333 (1969) ("[A]n agreement that`interfere[s] with the 

setting of price by free market forces' is illegal on its face.")). 

Plaintiffs maintain that group boycotts and horizontal price 

fixing schemes between competitors are per se violations of 

the antitrust laws because these agreements ar e manifestly 

uncompetitive and are "naked restraints of trade . . . [that 

have] no purpose except stifling of competition." White 

Motor Co. v. United States, 372 U.S. 253, 263 (1963); see 

also N. Pac. Ry. Co. v. United States, 356 U.S. 1, 19-20 

(1958). In support, they cite NCAA v. Bd. of Regents of the 

 13 
Univ. of Okla., 468 U.S. 85, 100 (1984), wher e the Supreme 

Court stated, 

 Horizontal price fixing . . . [is] or dinarily condemned as 

 a matter of law under an `illegal per se' appr oach 

 because the probability that these practices ar e anti- 

 competitive is so high . . . . In such circumstances a 

 restraint is presumed unreasonable without inquiry 

 into the particular market context in which it is found. 

While plaintiffs contend the no-hire agr eement was per se 

illegal because it was a horizontal group boycott and a price 

fixing conspiracy, we can find no support within the 

relevant case law for this label. Br oad. Music, Inc., 441 U.S. 

at 8 ("Easy labels do not always supply r eady answers."). 

The per se illegality rule applies only in those cases where 

the business practice in question is one, which on its face, 

has "no purpose except stifling of competition." White Motor 

Co., 372 U.S. at 263; see also N.W. Wholesale Stationers, 

Inc. v. Pac. Stationery & Printing Co., 472 U.S. 284, 289-90 

(1985) (per se rule confined to limited types of anticompetitive practices); Larry Muko Inc. v. S.W . Pa. Bldg. and 

Const. Trades Council, 670 F.2d 421, 429 (3d. Cir.)

("Generally the application of the per se rule has been 

limited to those `classic' boycotts in which a gr oup of 

business competitors seek to benefit economically by 

excluding other competitors from the marketplace."), cert. 

denied, 459 U.S. 916 (1982). The Supreme Court has been 

cautious in extending the per se approach to claims that 

fall outside certain previously enumerated categories of 

liability. See, e.g., Bd. of Regents of the Univ. of Okla., 468 

U.S. at 100 n.21 ("Judicial inexperience with a particular 

arrangement counsels against extending the r each of the 

per se rules."); Broad. Music, Inc. , 441 U.S. at 20 n.33 ("The 

per se rule is not employed until after considerable 

experience with the type of challenged restraint."); Maricopa 

County Med. Soc'y, 457 U.S. at 344 ("Experience with a 

particular kind of restraint enables the Court to predict 

with confidence that the rule of reason will condemn it."). 

Because of the fact specific inquiry involved in antitrust 

analysis, the Supreme Court has recognized that claims not 

within established categories of antitrust liability are more 

appropriately analyzed under the rule of r eason where 

 14 
courts can balance the effect of the alleged anti-competitive 

activity against its competitive purposes within the relevant 

product and geographic markets. 

Acknowledging this judicial hesitance to extend the per 

se rule to new categories of antitrust claims, we note there 

are no Supreme Court cases nor any federal cases that 

have applied the per se rule in similar factual 

circumstances. The only two federal cases that have

analyzed similar group boycott and price fixing claims have 

held that no-hire agreements executed upon the sale of a 

corporation are analyzed under the rule of r eason. Coleman 

v. Gen. Elec. Co., 643 F. Supp. 1229, 1243 (E.D. Tenn. 

1986), aff 'd, 822 F.2d 59 (6th Cir. 1987); Cesnick, 490 F. 

Supp. at 866-67. In Coleman, the 3M Corporation sold its 

ceramics division to General Electric. 643 F . Supp. at 1243. 

After closing, 3M and General Electric enter ed an 

agreement in which 3M warranted that it would not rehire 

any employee who voluntarily accepted a job with General 

Electric. Several ceramic division employees br ought suit 

alleging a group boycott that was per se invalid under S 1 

of the Sherman Act. Disagreeing, the court reasoned that 

"courts have refused to apply the `gr oup boycott' 

designation where the effect is not to drive out competition 

but to achieve some other goal, whether or not the goal 

withstands the rule of reason analysis." Id. (citing Smith v. 

Pro Football, Inc., 593 F.2d 1173, 1177-78 (D.C. Cir. 1979)). 

Because the agreement only precluded the plaintiffs from 

selling their services to one corporation, the court held it 

only had a "de minimus impact on the employment market 

in general," and the per se rule was "wholly inapplicable." 

Id. 

Similarly in Cesnick, former employees of Chrysler's NonAutomotive Air Conditioning Division sued underS 1 when 

Chrysler sold the division to the Fedders Corporation and 

agreed not to rehire its employees. 490 F. Supp. at 866. 

Although plaintiffs characterized the agr eement as a group 

boycott and a per se violation of S 1, the court stated, "[i]n 

the absence of any Supreme Court cases based on facts 

similar to those of this case, this Court will not accept the 

proposition that any conduct that can be characterized as 

a group boycott is a per se violation." Id. The court 

reasoned the Chrysler-Fedders' 

 15 
 agreement was designed to increase the likelihood that 

 Fedders would enjoy the services of the experienced 

 AirTemp employees, an obviously sound business 

 purpose. To the extent that the agreement effectively 

 restrained competition between Chrysler and Fedders 

 for employee services, a competition whose existence is 

 entirely conjectural, that effect was incidental as well 

 as de minimus. 

Id. at 866-67. 

Cognizant that there are no Supreme Court cases holding 

no-hire agreements entered upon the legitimate sale of a 

business to a third party are per se antitrust violations,2 

and recognizing that the only two federal courts that have 

addressed the issue have declined to apply the per se rule, 

we hold the no-hire agreement here is more appropriately 

analyzed under the rule of reason. As several courts have 

recognized, the per se rules of illegality ar e the exception to 

antitrust analysis and are only employed in certain

recognized categories. DeLong Equip. Co. v. Washington 

Mills Abrasive Co., 887 F.2d 1499, 1506 (11th Cir. 1989), 

cert. denied, 494 U.S. 1081 (1990). 

The District Court properly characterized the no-hire 

agreement as a common law covenant not to compete. As 

we discuss, courts have uniformly found that covenants not 

to compete should be examined under the rule of r eason. 

See, e.g., McDonald v. Johnson & Johnson, 722 F.2d 1370 

(11th Cir.), cert. denied, 469 U.S. 870 (1984); Consultants & 

Designers, Inc., v. Butler Serv. Group, Inc. , 720 F.2d 1553 

(11th Cir. 1983); Aydin Corp. v. Loral Corp., 718 F.2d 897 

(9th Cir. 1983); Lektro-Vend Corp. v. Vendo Co., 660 F.2d 

255 (7th Cir. 1981), cert. denied, 455 U.S. 921 (1982). 

Therefore, we will analyze plaintif fs' claims under the rule 

of reason so we can examine the effect of the defendants' 

agreement within the wider context of its competitive 

_________________________________________________________________ 

2. Similarly, we can find no cases in which a no-hire agreement entered 

into upon the sale of a business to a third party that resulted in the 

loss 

of employee benefits was found to be a horizontal price fixing conspiracy. 

See Broad. Music, Inc., 441 U.S. at 9-10 (quoting Topco Assocs., Inc., 405 

U.S. at 607-08 ("It is only after considerable experience with certain 

business relationships that courts classify them as per se violations.")). 

 16 
purposes and its impact on the relevant pr oduct and 

geographic markets. 

D. 

Under the rule of reason, we look at the totality of the 

circumstances surrounding an alleged anti-competitive 

activity, including facts peculiar to the relevant business, to 

determine the "nature or purpose" of the allegedly illegal 

restraint. Topco Assocs., Inc., 405 U.S. at 607. "The finder 

of fact must decide whether the questioned practice

imposes an unreasonable restraint on competition, taking 

into account a variety of factors, including specific 

information about the relevant business, its condition 

before and after the restraint was imposed and the 

restraint's history, nature and ef fect." State Oil Co. v. Khan, 

522 U.S. 3, 10 (1997) (citing Maricopa, 457 U.S. at 342). In 

applying this test, we examine the competitive significance 

of the alleged restraint to determine whether it has an anticompetitive effect on the market and is an unr easonable 

restraint on trade. Tunis Bros. Co. v. Ford Motor Co., 952 

F.2d 715, 722 (3d Cir. 1991), cert. denied, 505 U.S. 1221 

(1992). In this regard, covenants not to compete executed 

upon the sale of a business to a third party ar e generally 

not recognized as antitrust violations. See Bus. Elecs. Corp., 

485 U.S. at 730 n.4 ("The classic ancillary r estraint is an 

agreement by the seller of a business not to compete within 

the market."); Nat'l Soc'y of Prof 'l Eng'rs, 435 U.S. at 689; 

Lektro-Vend Corp., 660 F.2d at 265 ("The recognized

benefits of reasonably enforced noncompetition covenants 

are now beyond question."). As early as 1899, courts have 

recognized that covenants not to compete ar e not violations 

of S 1 of the Sherman Act because, 

 It [i]s of importance, as an incentive to industry and 

 honest dealing in trade, that, after a man ha[s] built up 

 a business with extensive good will, he should be able 

 to sell his business and good will to the best 

 advantage, and he could not do so unless he could 

 bind himself by an enforceable contract not to engage 

 in the same business in such a way as to prevent 

 injury to that which he was about to sell. 

 17 
United States v. Addyston Pipe & Steel, 85 F . 271, 280 (6th 

Cir. 1898), modified, 175 U.S. 211 (1899). 

In this vein, courts have characterized covenants not to 

compete executed upon the legitimate transfer of ownership 

of a business as ancillary restraints on trade. Id.; see also 

Bus. Elecs. Corp., 485 U.S. at 730 n.4; United States v. 

Empire Gas Corp., 537 F.2d 296, 307 (8th Cir. 1976)

("Covenants not to compete executed in conjunction with 

the purchase of a business allow the pur chaser to obtain 

the value of the good will for which he has paid."), cert. 

denied, 429 U.S. 1122 (1977). So long as these covenants 

are reasonable in scope, there is no antitrust violation 

under the rule of reason. See, e.g., Syntex Labs., Inc., v. 

Norwich Pharmacal Co., 315 F. Supp. 45, 56 (S.D.N.Y. 

1970) ("[I]t is hornbook law that a covenant not to compete 

ancillary to the sale of a business (or part of a business), 

when reasonably limited to time and territory, does not fall 

within the prohibitions of the Sherman Act."), aff 'd, 437 

F.2d 566 (2d Cir. 1971). 

The District Court found, 

 In our view, the pre-closing and post-closing nets at 

 issue here are a subset of common law covenants not 

 to compete. Moreover, it is clear that the no-hire 

 agreements imposed restrictions which wer e "ancillary 

 to legitimate transactions," and thus properly 

 considered an ancillary restraint. 

Eichorn, CA No. 96-3587, slip op. at *23 (internal citation 

omitted). 

We agree that the no-hire agr eement was not an 

unreasonable restraint of trade underS 1 of the Sherman 

Act. Frackowiak v. Farmers Ins. Co., Inc. , 411 F. Supp. 

1309, 1318 (D.Kan. 1976) ("Numerous Courts have 

recognized the general rule that agreements not to compete, 

entered into in conjunction with the ter mination of 

employment or sale of a business, do no offend the federal 

antitrust provisions if they are r easonable in duration and 

geographical limitation."). The primary purpose of the nohire agreement was to ensure that T exas Pacific Group, as 

the purchaser of Paradyne, could retain the skilled services 

of Paradyne's employees. Although the no-hir e agreement 

 18 
precluded the employees from seeking employment at an 

AT&T affiliate for 245 days, the primary purpose of the 

agreement was not anti-competitive. Contrary to plaintiffs' 

assertions, we can find no evidence to support their claim 

that the no-hire agreement was executed for the improper 

purpose of restraining trade and the cost of labor in the 

telecommunications industry. The primary purpose of the 

no-hire agreement was to ensure the successful sale of 

Paradyne to Texas Pacific Group which r equired workforce 

continuity.3 Any restraint on plaintiffs' ability to seek 

employment at AT&T and any effect on their pension 

bridging rights was incidental to the effective sale of 

Paradyne. 

Because the no-hire agreement was a legitimate ancillary 

restraint on trade, we must determine whether the eight 

month restriction from employment at an A T&T affiliate 

was reasonable or whether it went further than necessary 

to ensure the successful transition of ownership. Cesnick, 

490 F. Supp. at 868 (quoting Syntex Labs. , 315 F. Supp. at 

56) ("The question in every case [involving a covenant not to 

compete ancillary to the sale of a business] is whether the 

restraint is reasonably calculated to pr otect the legitimate 

interests of the purchaser in what he has purchased, or 

whether it goes so far beyond what is necessary as to 

provide a basis for the inference that its real purpose is the 

fostering of monopoly."). 

We do not think the eight month restriction on reemployment at an AT&T affiliate was unr easonably broad. 

It is reasonable to believe Texas Pacific Group would 

require the technical skills of these employees for at least 

this eight month period, if not longer, to ensure a

successful transition of ownership from Lucent. 

_________________________________________________________________ 

3. Plaintiffs contend the true motive of the no-hire agreement was not 

work force continuity but eliminating pension benefits to reduce Texas 

Pacific Group's costs. They argue that if work force continuity were 

really 

the motive, Texas Pacific Group could have offered enhanced benefits 

packages to entice the work force to remain with Paradyne rather then 

simply agreeing to cancel their AT&T pension benefits. But the existence 

of alternative means to achieve a legitimate business goal does not in 

itself mean the defendants' chosen course of action was uncompetitive 

and improper. 

 19 
Furthermore, the no-hire agr eement only precluded the 

plaintiffs from working at Lucent or an A T&T affiliate. The 

employees were free to leave Texas Pacific Group and seek 

employment elsewhere within the telecommunications 

industry. Significantly, there is no evidence in the record to 

support plaintiffs' claim that AT&T was the only employer 

in the market to whom they could sell their services. As the 

District Court found, there are over twenty other 

telecommunications firms that compete for plaintiffs' 

technical services. Furthermore, the market for plaintiffs 

with more generalized educational and work backgrounds 

includes "a vast number of jobs" nationwide. Eichorn, CA 

No. 96-3587, slip op. at *27-28 n.17. 

Therefore, we hold the no-hire agr eement was not an 

unreasonable restraint on trade. As an ancillary covenant 

not to compete, the no-hire agreement was reasonable in its 

restrictions on the plaintiffs' ability to seek employment 

elsewhere. Nat'l Soc'y of Prof 'l Eng'rs, 435 U.S. at 689. 

While the no-hire agreement essentially barred the 

plaintiffs' ability to retain their desirable AT&T pension 

benefits, S 1 of the Sherman Antitrust Act is not the 

appropriate vehicle here for redr ess. In formulating their 

claim in antitrust parlance, plaintiffs have argued their 

inability to work at their former jobs was a manifestly 

uncompetitive restraint on trade within the r elevant 

market. We disagree. In order to advance their antitrust 

claim, plaintiffs are forced to define narrowly the relevant 

market affected by the defendants' activity as, 

 potential employers within a 35 mile radius of 

 Holmdel/Middletown with the capacity and capability 

 of employing or utilizing large numbers of persons with 

 specialized experience in high speed data 

 communications equipment of the sort Paradyne 

 develops and makes . . . who can provide continuity of 

 the pension benefits which have accrued to [plaintiffs] 

 under the AT&T and/or Lucent pension plans. 

Eichorn, CA No. 96-3587, slip op. at *29-30 n.18. 

We believe this narrow market definition is inappropriate. 

As we recently stated, "[t]he outer boundaries of a product 

market are determined by the reasonable interchangeability 

 20 
of use or the cross-elasticity of demand between the 

product itself and substitutes for it." Queen City Pizza, Inc., 

v. Domino's Pizza, Inc., 124 F.3d 430, 436 (3d Cir.) (quoting 

Brown Shoe Co., 370 U.S. at 325), r eh'g denied, 129 F.3d 

724 (1997), cert. denied, 523 U.S. 1059 (1998). "The test for 

a relevant market is not commodities [in this case technical 

jobs] reasonably interchangeable by a particular plaintiff, 

but `commodities [technical employees] r easonably 

interchangeable by consumers [technology companies] for 

the same purposes.' " Id. at 438 (quoting United States v. 

E.I. DuPont Nemours and Co., 351 U.S. 377, 395 (1956)). 

Additionally, we have said "the relevant geographic market 

is the area in which a potential buyer may rationally look 

for the goods or services he or she seeks." Pa. Dental Assn. 

v. Med. Serv. Assn. of Pa., 745 F.2d 248, 260 (3d Cir. 1984), 

cert. denied, 471 U.S. 1016 (1985); see also Brokerage 

Concepts, Inc. v. U.S. Healthcare, Inc., 140 F.3d 494, 515 

(3d Cir. 1998). This geographic market must"conform to 

commercial reality." Acme Mkts., Inc. v. Wharton Hardware 

& Supply Corp., 890 F. Supp. 1230, 1239 (D.N.J. 1995) 

(citing Brown Shoe Co., 370 U.S. at 336). 

By defining the market so narrowly that it only includes 

the defendants, plaintiffs' proffer ed geographic and product 

markets are unrealistic.4 The market for the plaintiffs' labor 

is much broader. We agree with the District Court that the 

relevant market is not limited to AT&T and its affiliates but 

rather includes all those technology companies and 

network services providers who actively compete for

employees with the skills and training possessed by 

plaintiffs.5 

_________________________________________________________________ 

4. Plaintiffs argue they are under no obligation to define the relevant 

product and geographic markets because the defendants' conduct per se 

violated the antitrust laws. See Jefferson Parish Hosp. Dist. No. 2 v. 

Hyde, 466 U.S. 2, 15 (1984). Because we find this case is governed 

under the rule of reason, plaintiffs necessarily have the affirmative 

burden of proving the relevant pr oduct and geographic markets affected 

by the defendants' alleged uncompetitive activity. Ideal Dairy Farms Inc. 

v. John LaBatt, Ltd., 90 F.3d 737, 743 (3d Cir. 1996) (holding plaintiffs 

must present evidence from which rational person could conclude the 

relevant markets are actually what plaintiffs allege them to be). 

5. As previously noted, the District Court found there are over twenty 

companies that compete for employees with plaintif fs' technical skills. 

Additionally there are a "vast number of jobs" nationwide for plaintiffs 

with more generalized work and educational experience. Eichorn, CA No. 

96-3587, slip op. at *27-28 n.17. 

 21 
Because market realities reflect that the no-hire 

agreement did not have a significant anti-competitive effect 

on the plaintiffs' ability to seek employment within this 

broader telecommunications market nor that itfixed the 

cost of labor in the industry, we conclude it was not an 

antitrust violation under the rule of reason. 6 The antitrust 

laws were not designed to protect every uncompetitive 

activity, but rather only those activities that have anticompetitive effects on the market as a whole. Broad. Music, 

Inc., 441 U.S. at 23 ("Not all arrangements among actual or 

potential competitors that have an impact on price are per 

se violations of the Sherman Act or even unr easonable 

restraints."). While plaintiffs' loss of their pension benefits 

gives us pause, we believe they can seek redr ess through 

other statutes more adequately suited to their injury than 

S 1 of the Sherman Antitrust Act.7 Chambless v. Masters, 

_________________________________________________________________ 

6. Plaintiffs also attempt to characterize defendants' activity as an 

illegal 

exercise of relational market power. See Sullivan & Grimes, The Law of 

Antitrust: An Integrated Handbook S 2.4e2iv (2000); Warren S. Grimes, 

Market Definition in Antitrust Claims: Relational Market Power and the 

Franchisor's Conflict of Interest, 67 Antitrust L.J. 243 (1999). They 

contend AT&T offered a unique pension benefits program that essentially 

locked the plaintiffs into working for them. See Eastman Kodak Co. v. 

Image Technical Services, 504 U.S. 451 (1992). Claiming that AT&T was 

the only telecommunications company within the industry that offered 

such an extensive benefits program, plaintif fs maintain they were 

prevented from seeking employment at any other company, since to do 

so would result in the loss of valuable pension benefits. According to 

this 

argument, the no-hire agreement that precluded plaintiffs from working 

at an AT&T affiliate prevented them fr om working at the only company 

within the industry where they could receive these unique benefits. See, 

e.g., Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 

(1985); FTC v. Texaco, Inc., 393 U.S. 223 (1968). Central to plaintiffs' 

argument is the contention that the AT&T pension benefits are unique 

in the industry. We see no evidence for this in the record. Therefore, we 

need not address whether to extend the r elational market power analysis 

to the facts of this case. 

7. Although the no-hire agreement ef fectively cancelled the plaintiffs' 

AT&T benefits, these plaintiffs were free to seek employment elsewhere 

in the industry where pension benefits may have been available. But 

even though defendants' activity was not a pricefixing conspiracy under 

the Sherman Act, it may give rise to liability under S 510 of ERISA where 

a different analysis is involved. 

 22 
Mates & Pilots Pension Plan, 772 F.2d 1032, 1042 (2d Cir. 

1985) ("To the extent that the . . . [plaintiff 's antitrust 

claim] is based on diminished retirement benefits, it is 

essentially an ERISA matter."), cert. denied, 475 U.S. 1012 

(1986). 

IV. 

We now turn to whether the no-hir e agreement, which 

effectively cancelled plaintiffs' A T&T pension bridging 

rights, violated S 510 of ERISA. Section 510 of ERISA 

provides: 

 It shall be unlawful for any person to dischar ge, fine, 

 suspend, expel, discipline or discriminate against a 

 participant or beneficiary for exercising any right to 

 which he is entitled under the provisions of the 

 employee benefit plan . . . for the purpose of interfering 

 with the attainment of any right to which such 

 participant may become entitled under the plan. 

29 U.S.C. S 1140 (1994). 

Congress enacted S 510 "primarily to prevent 

unscrupulous employers from discharging or harassing 

their employees in order to keep them fr om obtaining 

vested pension benefits." DeWitt v. Penn-Del Directory Corp., 

106 F.3d 514, 522 (3d Cir. 1997). W e have held an 

employer violates S 510 when it acts with the specific intent 

to interfere with an employee's right to benefits. DiFederico 

v. Rolm Co., 201 F.3d 200, 204-05 (3d Cir . 2000). To prove 

a prima facie case under S 510 a plaintif f must show (1) 

that an employer took specific actions (2) for the purpose of 

interfering (3) with an employee's attainment of pension 

benefit rights. Gavalik v. Cont'l Can Co., 812 F.2d 834, 852 

(3d. Cir.), cert. denied, 484 U.S. 979 (1987). We held in 

DiFederico that once a plaintiff makes a prima facie 

showing, the employer has the burden of articulating a 

legitimate non-discriminatory reason for his conduct. Then, 

the burden shifts back to the plaintiff to show that the 

employer's rationale was not pre-textual and that the 

cancellation of benefits was the "deter minative influence" 

on the employer's actions. DiFederico, 201 F .3d at 205. 

 23 
The crucial threshold issue in this case is whether

defendants AT&T and Lucent8 had the specific intent to 

interfere with the Paradyne employees' pension benefit 

rights or whether the cancellation of the bridging rights was 

merely an incidental by-product of the sale of Paradyne. 

DeWitt, 106 F.3d at 523 ("[E]mployee must show that the 

employer made a conscious decision to interfer e with the 

employee's attainment of pension eligibility or additional 

benefits."). Plaintiffs allege the no-hir e agreement and its 

eight month restriction on re-employment was enacted for 

"the direct and immediate objective and with the singular 

purpose of eliminating the Paradyne pensions." In support 

of their claim, plaintiffs argue the eight month restriction 

on re-employment is suspiciously close to the six month 

vesting period of the AT&T pension plan and that this 

temporal proximity provides circumstantial evidence that 

the cancellation of the benefits was a motivating factor in 

the timing of the no-hire agreement. Additionally, they 

point to the role of Paradyne's Vice-Pr esident of Human 

Resources in proposing Texas Pacific Group's ultimate 

pension package for the Paradyne employees. Plaintif fs also 

cite a confidential memorandum between Larry Knoch and 

Linda Roussau of Lucent Technologies, which acknowledges 

the eight month restriction in the no-hir e agreement had 

the practical effect of cancelling the Paradyne employees' 

pension rights. Finally, plaintiffs point to the economic 

benefits that both Lucent and AT&T received from the nohire agreement, specifically that neither defendant was 

required to pay for pension benefits, as evidence of specific 

intent to interfere with an ERISA pension plan in violation 

of S 510. Turner v. Schering-Plough Corp., 901 F.2d 335, 348 

(3d. Cir. 1990) (savings to an employer that result from 

employees' termination might be viewed as a motivating 

factor sufficient to satisfy the intent element ofS 510 

liability). 

_________________________________________________________________ 

8. In their complaint plaintiffs did not allege that Texas Pacific Group 

violated S 510 of ERISA. App. at 92a, 157a ("Plaintiffs demand judgment 

. . . declaring the refusal of AT&T and Lucent to employ members of the 

Class until after the expiration of their pension bridging rights to be in 

violation of ERISA section 510, 29 U.S.C. S 1140."). 

 24 
Although the District Court found this evidence 

insufficient to support a finding of specific intent to 

interfere with the plaintiffs' benefit plans,9 Eichorn, CA No. 

96-3587, slip op. at *9-12, we believe at this stage of the 

proceedings plaintiffs have presented sufficient 

circumstantial evidence of intent to inter fere with their 

pension rights to create a genuine issue of material fact.10 

Turner, 901 F.2d at 347 ("Employee may show [a violation 

of S 510] . . . by circumstantial evidence."). As we held in 

DeWitt, "[i]n most cases, . . .`smoking gun' evidence of 

specific intent to discriminate does not exist. As a result, 

the evidentiary burden in these cases may also be satisfied 

by the introduction of circumstantial evidence." 106 F.3d at 

523 (quoting Gavalik, 812 F.2d at 851). Of course we 

express no opinion whether plaintiffs will prevail at trial 

under the preponderance of evidence standar d for S 510 

claims. DiFederico, 201 F.3d at 205 ("[If] employer carries 

its burden, the plaintiff then must persuade the court by a 

preponderance of the evidence that the employer's 

_________________________________________________________________ 

9. In its initial order granting summary judgment on the antitrust 

claims, the District Court found plaintiffs pr oduced enough evidence to 

survive a motion for summary judgment on the ERISA claim. Upon 

reconsideration, the District Court reversed its position stating it 

improperly relied on circumstantial evidence that the defendants 

experienced an overall economic gain from the no-hire agreement and 

sale of Paradyne. In re-examining the r elevant case law, the court said 

the proper inquiry should focus on the r eduction in actual benefit 

expenses caused by the termination of employees, rather than a broader 

assessment of the overall financial impact of ter mination on the 

employer's business. See Clark v. Coates & Clark , 990 F.2d 1217, 1224 

(11th Cir. 1993) ("[M]easures designed to reduce costs in general that 

also result in an incidental reduction in benefits expenses do not suggest 

discriminatory intent."). We agree with the Eleventh Circuit. But we hold 

that plaintiffs have produced sufficient evidence that both AT&T and 

Lucent received a direct and substantialfinancial gain from the 

cancellation of pension benefits, namely they wer e relieved from paying 

large sums for the pension benefits of the several Paradyne employees 

affected by the agreement. 

10. We believe a genuine issue of material fact exists only with the Pre 

and Post-Closing Nets' effect on the Paradyne employees' pension rights. 

Because the Preliminary Net did not prohibit plaintiffs from receiving 

their pension benefits as employees of Lucent T echnologies, it did not 

violate S 510 of ERISA. 

 25 
legitimate reason is pre-textual."). Because plaintiffs have 

submitted sufficient prima facie evidence to withstand 

defendant's motion for summary judgment, we will r everse 

and remand for further proceedings. 

V. 

Plaintiffs contend the District Court err ed when it denied 

their motion for additional discovery for a contemplated 

motion for class certification on their ERISAS 510 claim. In 

denying plaintiffs' motion the District Court stated, "[W]e do 

not find that . . . Third Circuit[ ] . . . [precedent] requires 

this Court to keep this matter open so that plaintif fs may 

engage in discovery and motion practice on the issue of 

class certification when the underlying claims have been 

dismissed with prejudice." Eichor n, CA No. 96-3887, slip 

op. at *18. Because we hold plaintiffs have submitted 

sufficient prima facie evidence to support their ERISA S 510 

claim, we believe they may be entitled to additional 

discovery to pursue a possible motion for class certification. 

Accordingly, we direct the District Court on remand to 

address plaintiffs' motion for additional discovery and any 

future motion for class certification under the requirements 

of Fed. R. Civ. P. 23(c). 

VI. 

For these reasons, we will affirm the District Court's 

dismissal of plaintiffs' antitrust claims. W e will reverse the 

grant of summary judgment on plaintiffs' ERISAS 510

claims. We will also reverse the Court's order denying 

plaintiffs' motion for additional discovery for an anticipated 

class certification motion and, on remand, direct the 

District Court to address this issue in accor dance with the 

requirements of Fed. R. Civ. P. 23(c). 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

 26