On Appeal from the United States District Court for the Western District of Pennsylvania
Before: Adams,*fn* Weis and Higginbotham, Circuit Judges.
A. LEON HIGGINBOTHAM, JR., Circuit Judge.
This litigation originated in two separate class actions, Gavalik, et al. v. Continental Can Co., C.A. No. 81-1519, filed September 18, 1981, and Jakub, et al. v. Continental Can Co., C.A. No. 82-1995, filed September 27, 1982, alleging that the institution and implementation of a "liability avoidance" scheme by Continental Can ("Continental") operated to prevent employees from attaining eligibility for employee benefits in violation of § 510 of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1140 (1982).*fn1 The cases were consolidated on January 17, 1984, and a single class action was certified. The trial of the consolidated action was bifurcated on the issues of liability and damages. The liability phase of the litigation commenced on July 22, 1985, and concluded on August 8, 1985. On September 24, 1985, the district court entered judgment for the defendant, and the plaintiffs appealed to this Court. Continental has cross-appealed asserting that plaintiffs' claims before the district court were barred by the applicable statute of limitations and/or plaintiffs' failure to exhaust their administrative remedies. We reject the contentions of the cross-appeal, and because we find that the district court misallocated the burdens of proof, we will reverse and remand for proceedings consistent with this opinion.*fn2
Continental Can is a corporation principally engaged in the business of manufacturing cans. Appellants and the class they represent*fn3 are former employees of Continental's Pittsburgh plant, which is the focus of this litigation. During the relevant period, appellants were all members of Local 4337 of the United Steelworkers of America, AFL-CIO ("USW"), which was their recognized collective bargaining agent.
In 1977, Continental and the USW negotiated a collective bargaining agreement under which Continental was to provide a comprehensive employee benefit plan. As part of this benefit package, Continental agreed to provide two pension plans for employees who experience a break in continuous service of at least two years.*fn4 Under the "70/75 pension," an employee could qualify for pension benefits before reaching age sixty-two, if s/he either (a) had at least fifteen years of continuous service,*fn5 was fifty years of age or older and had combined age and service equal to or more than seventy years; or (b) had at least fifteen years of continuous service and combined age and service equal to or more than seventy-five.*fn6 The "Rule of 65" pension*fn7 was paid to employees with at least twenty years of continuous service on the last day worked, whose combined age and years of service was equal to sixty-five or more but less than seventy-five. Although the 70/75 pension plan had been in effect since 1971, the Rule of 65 was first formally proposed by the USW during the 1977 negotiations.*fn8 Continental's obligation to pay 70/75 and Rule of 65 benefits under the agreement arose when employees, after attaining the requisite eligibility, experienced at least a two-year break in service as the result of a plant shutdown, involuntary layoff or absence due to physical disability. For the purposes of entitlement to these benefits, years of service included the first two years following a layoff. This method of calculation was known as the "creep." Under the creep, recall of a laid off employee for even one day commenced a new two-year continuous service period. See FF 20, 38. Under the 70/75 pension plan, an employee could creep into the necessary age and service requirement. Under the Rule of 65 plan, an employee could creep only into the age requirement. See FF 21-22.
In addition to the break-in-service pension benefits, USW and Continental in 1977 negotiated a change in the seniority system. Prior to the negotiations, the Pittsburgh plant had operated under a departmental seniority system.*fn9 In April of 1977, Continental officials had initiated meetings with USW officials to discuss the possibility of implementing plant-wide seniority*fn10 at the Pittsburgh plant. That summer, local union representatives at the Pittsburgh plant met with Continental officials to negotiate the plant-wide seniority system. USW favored the change over to plant-wide seniority for two reasons: the departmental seniority system had elicited charges of discrimination by the Equal Employment Opportunity Commission (EEOC), and the plant-wide seniority system would provide maximum job security for its most senior employees. See FF 73. Continental favored plant-wide seniority because it would enable the company (1) to retain its most senior and skilled employees; (2) to retain employees with vested 70/75 and Rule of 65 pension benefits; and (3) to lay off junior employees whose benefits had not yet vested. See FF 74. Ultimately, on October 28, 1977, Continental and the local union formally agreed to institute a plant-wide seniority system at the Pittsburgh plant effective November 1, 1977. See FF 112-13, 118, 122.
A. The "Liability Avoidance" Program
In the mid-1970s, Continental began experiencing a steady decline in business. This decline was principally a result of new manufacturing processes that required fewer plants, the increasing use by the can industry of composite materials and aluminum instead of steel to produce cans, and a growing trend among Continental's customers to begin to manufacture their own cans. See FF 31-32. Continental, as part of an effort to control and reduce its anticipated costs in light of its declining business,*fn11 in 1976 devised a "liability avoidance" program.*fn12 In order to implement effectively this program, Continental developed an intricate system called the Bell System. The concept component of the Bell System, Bell I, had two complementary objectives: to identify Continental's unfunded pension liabilities so as to avoid triggering future vesting by placing employees who had not yet become eligible for break-in-service on layoff, and to retain those employees whose benefits had already vested. See FF 53, 59, 68.
Under Bell I, Continental developed a "cap and shrink" program. It defined a "cap" as a workforce reduction designed to reduce unfunded liabilities; a "shrink" was a workforce reduction resulting from market or manufacturing conditions. See FF 54. The decision whether to cap a particular plant was made on the basis of a variety of economic factors at the plant, including its potential employee benefits costs. The determination of an actual cap level was based on Continental's assessment of the needed level of production to meet projected sales.*fn13 The cap-line limited employment to a specific name on the seniority roster*fn14 and was effective for five years. Employees below the cap-line, whether then at work or on temporary layoff, were designated as "permanently laid off," and could not be recalled for five years*fn15 except under extreme circumstances, and then only with prior approval from the highest level of Continental's management. See 54-57. These employees were not informed by Continental that they would not be recalled.
To further effectuate the goals of the Bell System, Bell II instructed plant managers to adjust their business volume to the desired level of employment. In accordance with this plan, plant managers were authorized to shift business to plants that either had low unfunded pension liability or plants that needed the work in order to retain employees with vested 70/75 benefits. See FF 61, 63; Jt. App. at 1367. In addition, Bell II produced and employed scattergraphs -- computerized charts that listed the age and service of Continental employees at a given time -- to identify the unfunded 70/75 and Rule of 65 liabilities and to ascertain when payments under those plans would be triggered. By looking at a scattergraph, a plant manager could determine the number of USW employees whose rights for 70/75 and Rule of 65 benefits had already vested and those whose rights had not yet vested.*fn16 See FF 64.
Finally, in April of 1977, a "liability avoidance tracking system" -- the "Red Flag" System -- was instituted in order to prevent inadvertent recalls of employees designated as permanently laid off. Red Flag was tied to Continental's payroll system and was designed to generate automatically a red flag report to alert top Continental officials whenever a permanently laid off employee received a pay check either for actual hours worked or vacation. See FF 69-70.
B. The Pittsburgh Plant and the Closing of the Pail Line
Like Continental's overall situation, the Pittsburgh plant experienced a significant decline in business in the mid-1970s. As a result, a number of the plant's production lines were closed, and, in 1975, the Pittsburgh plant became a service center, producing parts for other plants, instead of a factory that made and assembled the entire can. Pittsburgh's pail line, which manufactured large gallon steel containers, however, remained in operation. In 1975, the pail line was designated as a separate plant in order to determine its profitability. Deespite the separate designation, the Pittsburgh plant and the pail line continued to share a seniority roster. See FF 91-93.
Sometime in 1976, the Pittsburgh plant was selected, in part because of its potentially high unfunded liability costs, as a "concept development" plant for implementing Continental's liability avoidance program. See FF 62; Jt. App. 1385. In June of 1976, Continental's Executive Vice President and General Manager of Continental Can Company, USA, Donald Bainton, approved a cap for the Pittsburgh plant of 574 USW employees, to be achieved by the end of 1976, and a second cap of 417 USW employees, to be achieved by the end of 1977. Subsequently, in January of 1977, a Continental official indicated that the "ideal cap level" for the Pittsburgh plant, "disregarding volume assumptions and other factors except long range people liability costs," i.e., unfunded pension liabilities, was 392 USW employees as opposed to the previous recommendation of 417 USW employees. See Jt. App. 1250. A cap was not set for employees represented by the other two unions at the Pittsburgh plant.
In early 1977, the manager of the pail line recommended moving the operation to a new location in order to increase its profitability. By the summer of 1977, Continental officials had decided to close the pail line. See FF 105. This decision was based in part on Continental's desire to prevent employees from attaining eligibility for 70/75 and Rule of 65 benefits. Continental also considered the pail line's unprofitability at the Pittsburgh location in determining that it should be closed. See FF 101-02, 105-07.
In the summer of 1977, Continental informed the USW and the Pittsburgh local union representatives of its decision to close the pail line. During this time Continental was also pursuing an agreement to implement a plant-wide seniority system at the Pittsburgh plant. In exchange for Continental's promise to use its best efforts to retain employees with twenty years or more of service, the local union agreed to plant-wide seniority. Thereafter, a twenty-year cap-line was drawn under the name of Francis Conti. The 417 USW employee cap for 1978 was increased to 472, which included 436 USW employees above Conti or the twenty-year cap-line, and 36 skilled employees below the cap-line. See FF 117-122. The pail line was closed after Continental and the union formally agreed to implement plant-wide seniority, resulting in the elimination of one-hundred and eleven jobs. See FF 132-133.
In the proceedings before the district court, the appellants, all of whom were permanently laid off from the Pittsburgh plant between January 1976 and May 1978,*fn17 challenged both Continental's adoption and implementation of its liability avoidance program at the Pittsburgh plant and its closure of the pail line at the Pittsburgh plant. The Gavalik action alleged, inter alia, that the closure of the pail line was designed to prevent class members from achieving eligibility for 70/75 and Rule of 65 pension benefits in violation of § 510 of ERISA. Discovery in Gavalik brought to light the liability avoidance program, and the subsequent Jakub complaint challenged the adoption and implementation of the overall liability avoidance program as a deliberate effort to manipulate plaintiffs' length of employment in order to deprive them of 70/75 and Rule of 65 pension benefits, all in violation of § 510.
After a bench trial, the district court entered an order granting judgment for Continental. In its accompanying, extensive findings of facts, the court found that Continental's liability avoidance program was adopted and implemented in order to avoid future vesting of break-in-service pension benefits. See FF 53, 68. The court further found that the subsequent decision by Continental to cap the Pittsburgh plant, which resulted in the layoff of individual and class plaintiffs, and its decision to close the pail line, were motivated in part by the desire to prevent employees from attaining eligibility for 70/75 and Rule of 65 benefits and in part by the declining business conditions at the Pittsburgh plant. See FF 106-07, 141-42. The district court concluded, without explanation, that Continental's actions did not violate § 510 of ERISA. See Conclusions of Law ("CL") 4-5.
On appeal, appellants allege that the district court erred in concluding that its own findings of fact did not establish a classwide violation of § 510 of ERISA; that the court erroneously remitted the determination of whether individual class members' layoffs were caused by the liability avoidance program to the liability phase of the bifurcated trial; that, in any event, having found that appellants' layoffs were the consequence of mixed motives, the court erred in its allocation of the "but for" burden of proof; and that the critical findings of the district court were clearly erroneous. Continental has cross-appealed alleging that appellants' action before the district court was barred (1) by a two-year statute of limitations or, alternatively, a six-month limitations period, and (2) for failure to exhaust grievance and arbitration procedures. We shall address the cross-appeal first.
A. Statute of Limitations.
Continental advances several arguments that, it maintains, require application of a shorter period of limitations than applied by the district court. First, Continental argues that subsequent judicial developments require that a two-year statute of limitations be applied to appellants' claims. Alternatively, Continental urges the application of a six-month limitation period pursuant to the Supreme Court's decision in DelCostello v. International Bhd. of Teamsters, 462 U.S. 151, 76 L. Ed. 2d 476, 103 S. Ct. 2281 (1983).
Section 510 of ERISA, 29 U.S.C. § 1140 (1982), and the applicable enforcement provision, 29 U.S.C. § 1132 (1982), do not provide a specific statute of limitations for actions alleging violations of § 510. Under such circumstances, the appropriate period is determined by reference to the state statute of limitations governing cases most analogous to the cause of action asserted by the plaintiffs. See Wilson v. Garcia, 471 U.S. 261, 266-67 & n.12, 85 L. Ed. 2d 254, 105 S. Ct. 1938 (1985). The district court determined that appellants' allegation of a § 510 violation was most analogous to a claim of employment discrimination or breach of fiduciary duty, and that on either theory the six-year residuary period of limitations set forth in 42 Pa. Cons. Stat Ann. § 5527(6) (Purdon 1982) was applicable. Continental does not challenge on appeal the district court's determination that appellants' § 510 action is analogous to an employment discrimination action.*fn18 Instead, Continental, accepting the district court's determination is correct, argues that the applicable limitation period is nonetheless two years. We reject Continental's contention.
Continental seeks to discredit the district court's determination that a six-year statute of limitations applies to the instant action because it specifically relied on this Court's decision in Knoll v. Springfield Township School District, 699 F.2d 137 (3d Cir. 1983), cert. granted, 468 U.S. 1204, 82 L. Ed. 2d 870, 104 S. Ct. 3571 (1984) (" Knoll I "), which was subsequently vacated by the Supreme Court in light of its decision in Wilson v. Garcia, 471 U.S. 261, 85 L. Ed. 2d 254, 105 S. Ct. 1938 (1985), see Springfield Township School Disrict v. Knoll, 471 U.S. 288, 85 L. Ed. 2d 275, 105 S. Ct. 2065 (1985) (per curiam), and modified by this Court. See Knoll v. Springfield Township School District, 763 F.2d 584 (3d Cir. 1985) (" Knoll II "). This Court's modification in Knoll II, however, did not effect a change in Pennsylvania law, under which state law claims analogous to employment discrimination and wrongful discharge claims are governed by a six-year limitation period. See e.g. Skehan v. Bloomsburg State College, 94 Pa. Commw. 252, 503 A.2d 1000 (Pa. Commw. 1986) (applying six-year statute of limitations to plaintiff's employment discrimination claim); see also Ulloa v. City of Philadelphia, 95 F.R.D. 109, 114 (E.D. Pa. 1982) (collecting cases).
In Wilson v. Garcia, the Supreme Court considered the question "whether all § 1983 claims should be characterized in the same way for limitations purposes." 471 U.S. at 271. Upon analysis of the legislative history and statutory goals of § 1983, the Court concluded that a uniform time limit for all § 1983 actions -- regardless of the nature of the precise claim -- must be applied in each state. Id. at 275. The Court further concluded that § 1983 actions are best characterized as personal injury actions for limitations purposes. Id. at 276.
Notwithstanding the Garcia Court's repeated references to the particular purposes of § 1983, Continental argues that, in effect, the holding in Garcia established that all claims analogous to a charge of employment discrimination must be governed by the state's statute of limitations period for personal injury. We disagree. Indeed, the facts of Garcia itself simply belie Continental's contention. In the underlying action in Garcia, respondent sought damages for an alleged unlawful arrest and brutality of the arresting officer. In reaching its conclusion that § 1983 actions should be governed by state personal injury limitations periods, the court made no determination that the individual claims themselves were always most closely analogous to personal injury claims. Indeed, the court recognized that "the § 1983 remedy encompasses a broad range of potential tort analogies, from injuries to property to infringements of individual liberty," but concluded that
the unifying theme of the Civil Rights of 1871 is reflected in the language of the Fourteenth Amendment that unequivocally recognizes the equal status of every " person " subject to the jurisdiction of any of the several States. The Constitution's command is that all "persons" shall be accorded the full privileges of citizenship; no " person " shall be deprived of life, liberty, or property without due process of law or be denied the equal protection of the laws. A violation of that command is an injury to the individual rights of the person.
Garcia, 471 U.S. at 277 (emphasis in original).*fn19
On remand and in accordance with Garcia, we followed the Supreme Court's "bright-line approach to the problem of determining what statute of limitations should be applied in § 1983 actions," Knoll II, 763 F.2d at 585, and held that in Pennsylvania the two-year statute of limitations for personal injury actions must govern all § 1983 actions despite the topical nature of the claim. Id. Neither Garcia nor this Court's decision in Knoll II render the district court's determination that appellants' § 510 action most closely resembles an employment discrimination claim erroneous. Nor do they affect this Court's consistent rulings that employment discrimination or wrongful discharge claims brought under federal law are governed by Pennsylvania's six-year residuary clause. See Fitzgerald v. Larson, 741 F.2d 32, 35 (3d Cir. 1984), vacated, 471 U.S. 1051, 105 S. Ct. 2108, 85 L. Ed. 2d 474 (1985); Perri v. Aytch, 724 F.2d 362, 368 (3d Cir. 1983); Knoll I, 699 F.2d at 145.*fn20 Cf. Al-Khazraji v. Saint Francis College, 784 F.2d 505, 513 (3d Cir.), cert. granted in part, 479 U.S. 812, 107 S. Ct. 62, 93 L. Ed. 2d 21 (1986) (" Davis v. United States Steel Supply, 581 F.2d 335 (3d Cir. 1978), made it absolutely clear that the six-year limitations period for contract actions applied to Section 1981 actions brought to redress employment discrimination.") In sum, Garcia and Knoll II apply only to discrimination claims under § 1983.*fn21
Continental argues that even if Garcia is not applicable to appellants' claim, this Court's decision in Mazzanti v. Merck Co., 770 F.2d 34 (3d Cir. 1985) (per curiam) mandates application of a two-year statute of limitations. We find Continental's reasoning flawed and unpersuasive. Mazzanti involved a common law diversity action for tortious interference with an employment contract. As is typical in tortious interference cases, the plaintiff in Mazzanti had filed a complaint against Merck & Company, a third party, alleging tortious interference with her employment contract with PHP Graphic Arts Corporation, which resulted in her termination by Graphic.*fn22 Id. In considering whether to apply Pennsylvania's two-year statute of limitations or its residual six-year statute to Mazzanti's claim, this Court, relying principally on a Pennsylvania Court of Common Pleas decision, Home for Crippled Children v. Erie Insurance Exchange, 130 P.L.J. 480 (Allegheny Cty., 1982), aff'd mem., 329 Pa. Super. 610, 478 A.2d 84 (1984), predicted that the Supreme Court of Pennsylvania would apply the two-year statute. See Mazzanti, 770 F.2d at 36. Home for Crippled Children, in turn, based its judgment primarily on its determination that the plain language of 42 Pa. Cons. Stat. Ann. § 5524(3) (Purdon 1982) which prescribes a two-year limitation period for "taking, detaining or injuring personal property," encompassed tortious interference, since contract rights -- even if intangible -- are personal property under Pennsylvania law.
In the course of examining appellant's claim, the Mazzanti Court made reference to our prior decisions in Knoll I and Fitzgerald, which applied Pennsylvania's six-year limitations period to plaintiffs' claims of employment discrimination. Noting the effect of Wilson v. Garcia, supra, on those decisions, the Mazzanti Court summarily noted "that Garcia, Knoll [ I ] and Fitzgerald all confronted the state limitations problem in the context of federal actions with unique federal policy concerns," and concluded that "those cases [are not] controlling in a diversity context." 770 F.2d at 36. Contrary to Continental's contention, we see nothing in Mazzanti to suggest that all federal actions for discrimination are now subject to a two-year statute of limitations under Pennsylvania law. Mazzanti considered our prior decisions inapposite and therefore inapplicable to its facts not because of the substantive analysis employed to resolve the Pennsylvania limitations issue, but rather because of the unique federal context in which the analyses were made.*fn23 Thus, Mazzanti simply does not mandate a two-year limitations period for appellants' claims.
Appellants note that "most of the cases discussed and relied upon by both parties on the merits are employment discrimination cases under Title VII." Second Brief for Appellants Cross-Appellees at 41. In the course of various rulings, the district court repeatedly likened appellants' claims to an action alleging employment discrimination.*fn24 The gravamen of appellants' complaint, to paraphrase the district court, is that they were singled out for adverse treatment on the basis of their unvested pension eligibility. We do not deem the district court's determination to be in error. Accordingly, we find that the six-year limitation period was properly applied in this case.
In DelCostello v. International Bhd. of Teamsters, 462 U.S. 151, 76 L. Ed. 2d 476, 103 S. Ct. 2281 (1983), the Supreme Court considered what statute of limitations should apply to suits alleging that the employer breached a provision of a collective bargaining agreement and that the union breached its duty of fair representation by mishandling the ensuing grievance or arbitration proceedings. The Court concluded that the six-month limitations period of § 10(b) of the National Labor Relations Act, 29 U.S.C. § 160(b) (1982), should govern the suit.*fn25 In choosing § 10(b), the Court noted:
In some circumstances . . . state statutes of limitations can be unsatisfactory vehicles for the enforcement of federal law. In those instances, it may be inappropriate to conclude that Congress would choose to adopt state rules at odds with the purpose or operation of federal substantive law.
462 U.S. at 161. Rather, resort to federal law may be appropriate "when a rule from elsewhere in federal law clearly provides a closer analogy than available state statutes, and when the federal policies at stake and the practicalities of litigation make that rule a significantly more appropriate vehicle for interstitial lawmaking. . . ." Id. at 172.
Three factors were essential to the DelCostello Court's determination that the six-month limitations period of § 10(b) of the NLRA should apply to a hybrid § 301/fair representation claim.*fn26 First, the Court noted that the hybrid § 301/fair representation claim "had no close analogy in ordinary state law," 462 U.S. at 165, but rather bore a "family resemblance" to charges of unfair labor practice under the NLRB. Id. at 170. Second, the Court considered the "rapid final resolution of labor disputes," id. at 168, essential to the maintenance of industrial peace. Finally, the Court recognized "'the need for uniformity"' where "'those consensual processes that federal labor law is chiefly designed to promote -- the formation of the . . . agreement and the private settlement of disputes under it [-are implicated]." DelCostello, 462 U.S. at 171 (quoting United Parcel Serv. v. Mitchell, 451 U.S. 56, 70, 67 L. Ed. 2d 732, 101 S. Ct. 1559 (1981) (Stewart, J., concurring in judgment)).
We do not think the policy considerations that animated the Court's adoption of the six-month limitations period in DelCostello are present here. Unlike DelCostello, we have held supra that the district court's determination that appellants' claims most closely resemble an employment discrimination claim was not in error. In another context, yet on facts similar to those in the instant appeal, Judge Sarokin noted the similarity between § 510 ERISA actions and employment discrimination claims under Title VII:
Just as Title VII does not guarantee employment, section 510 of ERISA does not guarantee pension benefits; similarly, as Title VII prohibits discrimination on the basis of race with respect to such employment, so does section 510 prohibit discrimination with respect ...