Source: https://casetext.com/case/dependahl-v-falstaff-brewing-corp-2
Timestamp: 2020-02-26 13:21:57
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Matched Legal Cases: ['§ 1001', '§ 1132', '§ 1002', '§ 1002', '§ 1003', '§ 1144', '§ 6', '§ 1132', '§ 1140', '§ 15', '§ 1132', '§ 408', '§ 202', '§ 1961', '§ 408', '§ 408', '§ 408', '§ 408', '§ 1961', '§ 1961']

Dependahl v. Falstaff Brewing Corp., 653 F.2d 1208 | Casetext
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Full title:CHARLES W. DEPENDAHL, JR. AND WILLIAM J. HEALY, APPELLEES,…
653 F.2d 1208 (8th Cir. 1981)
holding state common law action for tortious interference with contract preempted
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Decided June 30, 1981. Rehearing and Rehearing En Banc Denied July 27, 1981.
Carroll J. Donohue, Harry B. Wilson, Mark G. Arnold (argued), Husch, Eppenberger, Donohue, Elson Cornfeld, St. Louis, Mo., for appellees, cross-appellants.
This appeal concerns federal issues arising under the Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. (1976) (ERISA), together with pendent state claims for tortious interference and fraud. Falstaff Brewing Corporation and Paul Kalmanovitz, controlling shareholder of Falstaff, appeal the district court's findings that Kalmanovitz interfered with the contractual relationship between Falstaff and three former executive officers, Charles W. Dependahl, Jr., William J. Healy, and John C. Calhoun, resulting in tortious Missouri common-law and ERISA statutory violations. Falstaff and Kalmanovitz also appeal the district court's award of punitive damages, attorney fees, and prejudgment interest. Finally, Falstaff and Kalmanovitz appeal the district court's discovery sanction of dismissing their counterclaims and affirmative defenses. The former executive officers cross-appeal the district court's failure to find fraud and tortious interference by Kalmanovitz with respect to their employment contracts. With respect to the direct appeal, we affirm the district court on its findings of ERISA violations, the award of attorney fees, and the imposition of discovery sanctions. We reverse the court on its award of punitive damages and its computation of prejudgment interest. With respect to the cross-appeal, we affirm the district court.
The Honorable John F. Nangle, United States District Judge, Eastern District of Missouri.
Dependahl and Healy filed suit against Falstaff and Kalmanovitz on August 8, 1975. A few months later, on January 13, 1976, Calhoun brought suit. Essentially, all three sought both common-law and ERISA statutory relief resulting from the termination of the severance payments and alleged interference with the CBS plan. In 1977, the parties entered into a settlement agreement which was enforced, pursuant to the terminated executives' petition, by the district court. Dependahl v. Falstaff Brewing Corp., 448 F. Supp. 813 (E.D.Mo. 1978). Pending appeal to this court, the parties both stated that they wished to try the case on its merits. This court then vacated the settlement order. Dependahl v. Falstaff Brewing Corp., 594 F.2d 869 (8th Cir. 1979).
On December 10, 1979, the district court, upon the former executives' motion, imposed discovery sanctions on Falstaff pursuant to Federal Rule of Civil Procedure 37(b). Dependahl v. Falstaff Brewing Corp., 84 F.R.D. 416 (E.D.Mo. 1979). The court struck Falstaff's affirmative defenses and counterclaims, due to Falstaff's refusal to properly and timely respond to interrogatories. Falstaff filed a timely notice of appeal from the order. On January 10, 1980, this court granted Falstaff leave to stay its appeal until the district court entered final judgment in the case.
On December 17, 1979, trial was commenced before the court, without a jury, and continued for six days. On February 15, 1980, after trial briefs were filed, the court took the matter under submission. On June 9, 1980, the court entered its order granting relief to the former executives on the ERISA and tortious-interference-with-contract claims, but denied relief on a fraud claim. Dependahl v. Falstaff Brewing Corp., 491 F. Supp. 1188 (E.D.Mo. 1980). Post-trial motions were denied by the court on July 2, 1980.
On July 15, 1980, the district court conducted a hearing on the amount of attorney fees to be awarded the former executives under the ERISA attorney fees statute. 29 U.S.C. § 1132(g) (1976). On August 28, 1980, the court entered its order and memorandum opinion awarding $149,175 in attorney fees, and expenses of $13,000. Dependahl v. Falstaff Brewing Corp., 496 F. Supp. 215 (E.D.Mo. 1980).
Next, the court found Kalmanovitz liable for punitive damages in the amount of $50,000 to each former executive for tortious interference with contract involving the severance payments and the CBS plan. The trial court concluded that Kalmanovitz did not act in good faith in terminating the former executives. Accordingly, the court refused to grant Kalmanovitz any commonlaw privilege to induce a breach of contract. Finally, the court dismissed Dependahl's and Healy's claims that Kalmanovitz fraudulently misrepresented that they would be retained after the takeover. The court found that no misrepresentations on continuing employment were made. Id. at 1198-99.
We first address the issue of whether the district court abused its discretion in ordering that Falstaff's affirmative defenses and counterclaims be stricken as a discovery sanction pursuant to Federal Rule of Civil Procedure 37(b). Falstaff argues that the trial court's sanctions were unduly harsh, given the factual circumstances surrounding the interrogatories posited by the former executives. Falstaff also contends that a Rule 37(b) sanction may be imposed only if a Rule 37(a) order is in force. In Falstaff's view, no such order was in effect. Our review of the record leads us to a different conclusion concerning the factual circumstances surrounding the discovery sanctions.
(C) An order striking out pleadings or parts thereof, or staying further proceedings until the order is obeyed, or dismissing the action or proceeding or any part thereof, or rendering a judgment by default against the disobedient party:
[t]here is absolutely no excuse, however, for defendant's not having served the answers when plaintiffs renewed their request in March of 1979. To delay seven additional months during which time the answers were already prepared and ready for service is clearly inexcusable, especially in light of the obviously incomplete and evasive nature of these answers. Defendant clearly sought to delay and obstruct plaintiffs' legitimate discovery requests, a tactic which can not be tolerated under the voluntary scheme of discovery envisioned by the Federal Rules of Civil Procedure.
The district court further found that the March 27, 1978, Rule 37(a) order was still in force and "carried with it the implicit condition to answer fully and completely." Id. at 419. We agree with the trial court that a Rule 37(a) order was in effect at the time the sanctions were imposed. We recognize that a Rule 37(b) sanction should not be imposed by the trial court unless a Rule 37(a) order is in effect. See LaClede Gas Co. v. G. W. Warnecke Corp., 604 F.2d 561, 565 (8th Cir. 1979); Fisher v. Marubeni Cotton Corp., 526 F.2d 1338, 1341 (8th Cir. 1975). See generally 4A Moore's Federal Practice ¶ 37.03[2] (2d ed. 1980). The pre-requisite of a Rule 37(a) order insures that the party failing to comply with discovery is given adequate notice and an opportunity to contest the discovery sought prior to the imposition of sanctions. Here, Falstaff was apprised of its failure to comply in March 1978, over a year and a half before sanctions were imposed.
should not be construed to authorize dismissal of this complaint because of petitioner's noncompliance with a pretrial production order when it has been established that failure to comply has been due to inability, and not to willfulness, bad faith, or any fault of petitioner. [Footnote omitted.]
The issue before this court is not whether we would, as an original matter, have imposed the sanctions, but rather, whether the district court abused its discretion in doing so. See National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 642, 96 S.Ct. 2778, 2780, 49 L.Ed.2d 747 (1976). The district court clearly found that Falstaff's failure to comply was due to a willful, bad-faith effort on the part of Falstaff to delay and obstruct the lawsuit. Ante at 1212-1213, quoting 84 F.R.D. at 418-19. The record fully supports these findings, as it demonstrates defendant's "flagrant bad faith" and "counsel's `callous disregard' of their responsibilities." National Hockey League, 427 U.S. at 643, 96 S.Ct. at 2781. The district court's order of discovery sanctions against Falstaff is affirmed.
With regard to the merits of the case, Falstaff first argues that the CBS plan does not fall within the coverage of ERISA. The CBS plan is a whole-life insurance plan for which Falstaff purchased insurance on approximately a dozen of its higher ranking executives. Under the terms of the plan, the named beneficiaries of a covered executive are to receive annuity income benefits upon the executive's death, with Falstaff recovering the annual premiums previously paid, with interest. The district court found the plan to be a funded employee welfare benefit plan under ERISA, 29 U.S.C. § 1002(1) (1976). 491 F.2d at 1194-95.
Falstaff argues that the CBS plan is an excess benefit plan under 29 U.S.C. § 1002(36) and that it is unfunded. Under 29 U.S.C. § 1003(b)(5), excess benefit plans, if they are unfunded, are exempt from ERISA coverage. The district court found the CBS plan to be funded, and therefore did not reach the issue of whether the plan was an excess benefit or welfare benefit plan. 491 F. Supp. at 1195.
ERISA preempts state laws to the extent that they relate to employee benefits which are not exempt from federal regulation. See Alessi v. Raybestos-Manhattan, Inc., ___ U.S. ___, ___, 101 S.Ct. 1895, 1905, 68 L.Ed.2d 402 (1981). 29 U.S.C. § 1144 (1976) provides in pertinent part:
The Supreme Court recently has stated the criteria to be followed by a reviewing court in determining whether a state law is preempted by federal legislation. In Chicago and North Western Transportation Co. v. Kalo Brick Tile Co., 450 U.S. 311, 317, 101 S.Ct. 1124, 1130, 67 L.Ed.2d 258 (1981), the Court stated:
[W]hen Congress has chosen to legislate pursuant to its constitutional powers, then a court must find local law preempted by federal regulation whenever the `challenged state statute "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress."' Perez v. Campbell, 402 U.S. 637, 649 [ 91 S.Ct. 1704, 1711, 29 L.Ed.2d 233] (1971), quoting Hines v. Davidowitz, supra [ 312 U.S. 52] at 67-68 [ 61 S.Ct. 399, 404, 85 L.Ed. 581]. Making this determination `is essentially a two-step process of first ascertaining the construction of the two statutes and then determining the constitutional question whether they are in conflict.' Perez v. Campbell, supra [402 U.S.], at 644 [ 91 S.Ct. at 1708]. And in deciding whether any conflict is present, a court's concern is necessarily with `the nature of the activities which the States have sought to regulate, rather than on the method of regulation adopted.' San Diego Building Trades Council v. Garmon, supra [ 359 U.S. 236], at 243 [ 79 S.Ct. 773, 778, 3 L.Ed.2d 775].
Congress therefore saw a need to set minimum, uniform national standards for employee benefit plans and to provide for uniform remedies in the enforcement of the plans. In doing so, Congress preempted all state laws which relate to employee benefit plans, not only state laws which directly attempt to regulate an area expressly covered by ERISA. Wadsworth v. Whaland, 562 F.2d 70, 77 (1st Cir. 1977) (Lay, J.), cert. denied, 435 U.S. 980, 98 S.Ct. 1630, 56 L.Ed.2d 72 (1978). Congress "meant to establish pension plan regulation as exclusively a federal concern," limited only by the terms of ERISA itself. Alessi v. Raybestos-Manhattan, Inc., ___ U.S. at ___, 101 S.Ct. at 1906 (footnote omitted).
Although preemption is not lightly inferred, the broad scope of the substantive provisions of ERISA, combined with the explicit statement of federal preemption in section 1144, leads us to conclude that Congress intended to "occupy the field" of employee benefit plans. Conflicts between federal and state regulatory provisions may have one of two sources, "either that the nature of the regulated subject matter permits no other conclusion, or that the Congress has unmistakably so ordained [occupation of the field]." Florida Lime Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142, 83 S.Ct. 1210, 1217, 10 L.Ed.2d 248 (1963). The first type of conflict involves a direct interference by the state law in its actual operation with the substantive policies underlying the federal legislation. The second type involves the congressional veto of state laws in areas within Congress's commerce clause powers. See generally L. Tribe, American Constitutional Law § 6-25 (1978). We conclude that Congress legislated an ouster of all state laws relating to employee benefit plans, given the "unambiguous congressional mandate to that effect" contained in section 1144. Florida Lime Avocado Growers, Inc., 373 U.S. at 147, 83 S.Ct. at 1219. See generally Hutchinson and Ifshin, Federal Preemption of State Law Under the Employee Retirement Income Security Act of 1974, 46 U.Chi.L.Rev. 23, 38-43 (1978).
The former executives argue an alternative basis for affirmance of the district court's award of punitive damages against Kalmanovitz in this case. The former executives contend that ERISA authorizes an award of punitive damages. The district court, on October 1, 1979, in ruling upon Falstaff's and Kalmanovitz's motions for partial summary judgment, held that punitive damages are not recoverable under ERISA. Calhoun v. Falstaff Brewing Corp., 478 F. Supp. 357, 359 (E.D.Mo. 1979). In the only other reported decisions on this question, two district courts have reached different conclusions. Bittner v. Sadoff Rudoy Industries, 490 F. Supp. 534, 536 (E.D.Wis. 1980) (not excluding punitive damages); Hurn v. Retirement Fund Trust, 424 F. Supp. 80, 82 (C.D.Cal. 1976) (opposite). We do not think punitive damages are provided for in ERISA. Ordinarily punitive damages are not presumed; they are not the norm; and nowhere in ERISA are they mentioned. If Congress had desired to provide for punitive damages, it could have easily so stated, as it has in other acts. However, we need not decide this issue, because we find that punitive damages are inappropriate in this case under either 29 U.S.C. § 1132(a) or § 1140. Cf. International Brotherhood of Electrical Workers v. Foust, 442 U.S. 42, 48-52, 99 S.Ct. 2121, 2125-26, 60 L.Ed.2d 698 (per se ban on punitive damages in union breach of fair representation suit). ERISA's section 1140 creates a federal statutory action for interference with employee benefit contracts. Congress recognized that the courts, in interpreting ERISA, would need to develop a body of federal common law to deal with the issues raised under the statute. See Landro v. Glendenning Motorways, Inc., 625 F.2d 1344, 1351 (8th Cir. 1980). We believe that, as a matter of federal common law, an award of punitive damages is inappropriate to a claim of interference with employee benefit plans.
Falstaff next contends that the district court erred in finding that the former executives were not discharged for cause. See 491 F. Supp. at 1192-93. Falstaff charges that the former executives engaged in unethical, if not illegal, conduct, refused to properly follow directions, and were generally responsible for the company's poor financial picture at the time of the takeover. The district court found these contentions to be without merit. Id. Our review of the record leads us to conclude that the district court's factual findings on this issue were not "clearly erroneous." See Fed.R.Civ.P. 52(a); United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948).
In their cross-appeal, Healy and Dependahl contend the district court erred in finding that their terminations from employment were not the result of a fraudulent misrepresentation by Kalmanovitz. Dependahl and Healy allege that Kalmanovitz represented that they would be retained after the takeover. The district court "found no such misrepresentations were made." 491 F. Supp. at 1199. The record supports this factual finding. "[T]here is no evidence that Kalmanovitz ever stated that plaintiffs would be retained after the takeover." Id. at 1191. We agree with this conclusion.
Finally, the former executives assert that the district court erred in failing to render judgment on their implied claim of tortious interference with their employment contract. The former executives did not plead this cause of action in their complaint, nor did the district court make a finding on the issue. On appeal, the former executives contend that the issue was tried by the "implied consent of the parties" pursuant to Federal Rule of Civil Procedure 15(b).
In Gallon v. Lloyd-Thomas Co., 264 F.2d 821, 825 n. 3 (8th Cir. 1959), we stated the relevant standards for a Rule 15(b) amendment after judgment:
"The purpose of an amendment to conform to proof is to bring the pleadings in line with the actual issues upon which the case was tried; therefore, an amendment after judgment is not permissible which brings in some entirely extrinsic issue or changes the theory on which the case was actually tried, even though there is evidence in the record — introduced as relevant to some other issue — which would support the amendment." (Emphasis supplied.) Vol. 3, Moore's Federal Practice § 15.13 at pp. 846-847.
Given Falstaff's record of contesting every issue in this case, it is difficult to imagine that they impliedly consented to anything the former executives raised at trial. In this case, the record reveals that neither Falstaff nor the former executives tried the action on the theory of tortious interference with the employment contracts. While Falstaff's post-trial brief did address some aspects of this issue as it related to the ERISA claims, this did not change "the theory on which the case was actually tried." Id. See also St. Joe. Minerals Corp. v. OSHRC, 647 F.2d 840, 844 (8th Cir. 1981) (no amendment where a party would be denied fair opportunity to present evidence).
The district court allowed prejudgment interest on the judgments obtained by the former executives resulting from Falstaff's ERISA violation pursuant to 29 U.S.C. § 1132. The trial court allowed an interest rate of nine percent as provided by Mo.Ann. Stat. § 408.020. Falstaff contends that the court erred in doing so, because up until September 28, 1979, Missouri law provided for a six percent statutory rate. We agree that the district court erred on this issue.
Section 17 contains no language providing for either liquidated damages or interest. In the absence of an unequivocal prohibition of interest, and where the statute imposes a money obligation, the power of the court to award interest is dependent on an appraisal of the congressional purpose of imposing the obligation and on the relative equities of the parties. Rodgers v. United States, 332 U.S. 371, 68 S.Ct. 5, 92 L.Ed. 3 (1947). Clearly the award of back wages under the Fair Labor Standards Act is remedial in nature. 29 U.S.C. § 202(b), Goldberg v. Wade Lahar Construction Co., 290 F.2d 408, 415 (8th Cir. 1961). The purpose of the award is to compensate the employees for the loss sustained because of the wrongful withholding of wages. While the good faith of the employer is one of many factors to be considered, "[t]o make such employees whole, the provision for the payment of interest for the time the back pay was wrongfully withheld from them is only equitable." Marshfield Steel Co. v. N.L.R.B., 324 F.2d 333, 338 (8th Cir. 1963); Shultz v. Wheaton Glass Co., supra, 319 F. Supp. [229] at 234 (D.N.J. 1970). Both at law and equity, interest is allowed on money due. Miller v. Robertson, 266 U.S. 243, 256-258, 45 S.Ct. 73, [78-79] 69 L.Ed. 265 (1924).
A subsidiary question is the rate at which the award of interest should be computed. 28 U.S.C. § 1961 (1976) allows postjudgment interest on all civil judgments in federal court at the rate provided under state law. We believe that section 1961 provides useful guidance in the area of prejudgment interest. In the interests of uniformity, we therefore hold that while federal law governs the issue of interest and its rate, state law should be incorporated in the determination of the proper rate to be allowed, once an independent finding is made concerning whether any prejudgment interest should be awarded.
In Missouri, interest is currently allowable on all written contracts, after demand for payment is made, at the rate of nine percent per annum. Mo.Ann.Stat. § 408.020 (Vernon Supp. 1981). See Knights of Columbus v. Wirtz, 592 F.2d 466, 469 (8th Cir. 1979). Prior to September 28, 1979, the statutory rate was six percent per annum. Under a similar statute, post-judgment interest was raised on the same day from six to nine percent. Mo.Ann.Stat. § 408.040 (Vernon Supp. 1981). The Supreme Court of Missouri, in an en banc opinion, has held that this new rate should be applied prospectively only. Senn v. Commerce-Manchester Bank, 603 S.W.2d 551, 553-54 (Mo. 1980). We believe this holding would be followed with respect to section 408.020.
Mo.Ann.Stat. § 408.020 (Vernon Supp. 1981) provides:
Mo.Ann.Stat. § 408.040 (Vernon Supp. 1981) provides:
The final issue Falstaff raises on appeal is whether the district court abused its discretion in its award of attorney fees. The district court filed a written memorandum opinion awarding attorney fees to the former executives in the amount of $149,175, and litigation expenses of $13,000. Dependahl v. Falstaff Brewing Corp., 496 F. Supp. 215 (E.D.Mo. 1980).
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