Source: https://law.justia.com/cases/federal/appellate-courts/F2/653/1208/313173/
Timestamp: 2019-09-17 08:22:51
Document Index: 183861469

Matched Legal Cases: ['§ 1132', '§ 1002', '§ 1003', '§ 1144', '§ 6', '§ 1132', '§ 1140', '§ 129', '§ 1132', '§ 1140', '§ 202', '§ 1132']

Charles W. Dependahl, Jr. and William J. Healy, Appellees,cross-appellants, v. Falstaff Brewing Corporation, a Delaware Corporation, Andpaul Kalmanovitz, Appellants, Cross-appellees.john C. Calhoun, Appellee, Cross-appellant, v. Falstaff Brewing Corporation, a Delaware Corporation, Andpaul Kalmanovitz, Appellants, Cross-appellees, 653 F.2d 1208 (8th Cir. 1981) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Eighth Circuit › 1981 › Charles W. Dependahl, Jr. and William J. Healy, Appellees,cross-appellants, v. Falstaff Brewing Corp...
Charles W. Dependahl, Jr. and William J. Healy, Appellees,cross-appellants, v. Falstaff Brewing Corporation, a Delaware Corporation, Andpaul Kalmanovitz, Appellants, Cross-appellees.john C. Calhoun, Appellee, Cross-appellant, v. Falstaff Brewing Corporation, a Delaware Corporation, Andpaul Kalmanovitz, Appellants, Cross-appellees, 653 F.2d 1208 (8th Cir. 1981)
US Court of Appeals for the Eighth Circuit - 653 F.2d 1208 (8th Cir. 1981)
Submitted March 11, 1981. Decided June 30, 1981. Rehearing and Rehearing En Banc Denied July 27, 1981
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).
In its memorandum opinion of June 9, 1980, concerning the merits of the case, the district court found both the severance policy and the CBS plan to be within the coverage of ERISA. 491 F. Supp. at 1194, 1196. The court then concluded that Falstaff violated its fiduciary duty to Calhoun by changing the terms of the plan in contemplation of mass terminations. With respect to the CBS plan, the court enjoined Falstaff from borrowing against the cash values of the life insurance policies. Id. at 1196-97. The court awarded prejudgment interest on the severance payments at the rate of nine percent per annum.
We now turn to the issue of the propriety of the scope of the district court's discovery sanctions. A Rule 37(b) sanction striking affirmative defenses and counterclaims should only be imposed in strictly limited circumstances. The Supreme Court held in Societe Internationale v. Rogers, 357 U.S. 197, 212, 78 S. Ct. 1087, 1096, 2 L. Ed. 2d 1255 (1958), that Rule 37
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.
Falstaff argues that the CBS plan is an excess benefit plan under 29 U.S.C. § 1002(36)4 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., --- U.S. ----, ----, 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 pre-empted 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.
The common-law tort of interference with contractual relations extends back to the Ordinance of Labourers, enacted in England in 1349. The statute provided a remedy to an employer, whose laborer had run off to another employer, against the new employer. The ordinance in effect provided the legal mechanism "by which a system of compulsory labor was introduced." W. Prosser, Law of Torts § 129, at 929 (4th ed. 1971). With this ominous beginning, the tort developed in the nineteenth century, to be used as a tool by employers to prevent the formation of unions. See Note, Tortious Interference with Contractual Relations in the Nineteenth Century: The Transformation of Property, Contract, and Tort, 93 Harv. L. Rev. 1510, 1532-33 (1980). The entire history of the tort has been to protect vested interests against the onslaught of free and open competition.
Whether punitive damages should be allowed for tortious interference with contractual relations is therefore dependent upon the extent to which contractual breaches should be deterred. See Foust, supra, 442 U.S. at 50-51, 99 S. Ct. at 2127. The common law of contract refuses to allow an award of punitive damages. This refusal has been explained in terms of economic efficiency. So long as the party subject to the breach is compensated to the extent of his loss, there is no reason to penalize the breaching party for refusing to perform his contractual obligations. The breach frees the latter's resources to be used in a more efficient manner elsewhere. See Barton, The Economic Basis of Damages for Breach of Contract, 1 J.Leg.Stud. 277, 282-91 (1972); Dobbs, Tortious Interference With Contractual Relationships, 34 Ark.L.Rev. 335, 360-61 (1981).
In the present case, the district court specifically found that "Kalmanovitz was acting at all times relevant to this litigation in what he perceived to be in the interest of Falstaff and not on his own behalf." 491 F. Supp. at 1193. To the extent that Kalmanovitz intentionally interfered with the former executives' benefit plans in violation of 29 U.S.C. § 1132 and § 1140, the former executives are entitled to their actual damages. So long as Kalmanovitz acted in what he believed were the interests of Falstaff, there is no reason to impose punitive damages against him unless under the same circumstances Falstaff should be held liable for punitive damages.
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.
The question of whether interest is to be allowed, and also the rate of computation, is a question of federal law where the cause of action arises from a federal statute. See Brooklyn Savings Bank v. O'Neil, 324 U.S. 697, 715, 65 S. Ct. 895, 906, 89 L. Ed. 1296 (1945); Perkins v. Standard Oil Co. of California, 487 F.2d 672, 675 (9th Cir. 1973).
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).
We believe that these same considerations should be followed in an award of prejudgment interest with regard to an ERISA violation. The former executives have been denied their contractual severance benefits for a period of approximately four years before final judgment was rendered. Falstaff has continued to have the use of this money. Furthermore, the exact amount of the liability on the plans was never in issue. The only question was whether the employee benefit plan was binding in light of the "just cause" exception. Under these circumstances, an award of prejudgment interest is necessary in order that the plan participants obtain "appropriate equitable relief." 29 U.S.C. § 1132(a) (3) (B).
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).
Federal Rule of Civil Procedure 37(b) (2) provides: