Local 127, United Shoe Workers of America v. Brooks Shoe Manufacturing Co.

298 F.2d 277, 49 L.R.R.M. (BNA) 2346

• Court: Court of Appeals for the Third Circuit
• Decided: January 2, 1962
• Docket: No. 13421
• Status: Published

Opinions

PER CURIAM.

All members of this court are of the opinion that defendants breached the collective bargaining agreement.

The court is evenly divided on the district court’s award of compensatory damages: Chief Judge Biggs and Judges McLaughlin, Staley, and Ganey are of the opinion that it is correct; Judges Goodrich, Kalodner, Hastie, and Smith are' of the opinion that compensatory damages were properly awarded for the period before but not after the expiration date of the collective bargaining agreement.

A majority of the court, Chief Judge Biggs and Judges Goodrich, Kalodner, Hastie, and Smith, are of the opinion that the district court erred in awarding punitive damages, while Judges McLaughlin, Staley, and Ganey think that the award should be affirmed.

Therefore, that portion of the district court’s judgment awarding punitive damages will be reversed and that portion awarding compensatory damages will be affirmed.

STALEY, Circuit Judge.

This is a case of first impression in which a federal court was called on to fashion a remedy in a suit brought under § 301(a) of the Labor Management Relations Act, 1947, 29 U.S.C.A. § 185(a) (“Act”), by Local 127, United Shoe Workers of America, AFL-CIO (“union”), against the Brooks Shoe Manufacturing Company (“company”), Brooks Shoe Manufacturing Company, Inc., and Michael Goldenberg, defendants, for the alleged breach of a contracting out provision and a guarantee against a runaway shop in a collective bargaining agreement.

Members of the Goldenberg family founded the company and at all times relevant controlled Carmen Shoe Manufacturing Company (“Carmen”). The company operated a shoe manufacturing plant in Philadelphia, Pennsylvania, as did Carmen in Hanover, Pennsylvania. The union had organized the company’s Philadelphia plant in 1937, and thereafter entered into a series of collective bargaining agreements with it. This litigation arose out of the fact that, although the company had agreed to a renewal of the agreement to December 1, 1957, it ceased all operations at the Philadelphia plant on April 30, 1957, causing certain of its employees, who were members of the union, to be discharged.

In separate proceedings, the district court on May 2,1960, found that the company breached the agreement, as alleged by the union, 183 F.Supp. 568 (E.D.Pa. 1960), and on September 22,1960, awarded $28,011 compensatory and $50,000 punitive damages. 187 F.Supp. 509. The company contends that the evidence completely fails to establish any breach of the agreement.

Carmen manufactured a “lower grade” shoe, while the company, due to the availability and use of better grade leather and more highly skilled labor, manufactured the “better grade” shoes contemplated by paragraph 14 of the agreement, which provided:

“ * * * [N] o contract work shall be given out and no contract work shall be performed in the shop or factory on shoes known as better grade work. It is understood that by ‘contract work’ is meant shoes made partially within the plant and completed on the outside, or shoes made partially on the outside and completed within the plant. It is agreed that the firm will continue to make the better grade shoes in their present plant [the Philadelphia plant].” (Emphasis supplied.)

The method of making shoes at both plants was similar. Cutters would place patterns on leather and cut out various parts of a shoe that fitters stitched together, while as a final step, shoemakers completed the shoe. Beginning sometime after April, 1954, and particularly in 1955 and 1956, cuttings and fittings from Hanover were brought to Philadelphia for assembly, while the amount of cutting and fitting taking place in Philadelphia was gradually reduced until March, 1956, when these operations were completely terminated there, causing cutters and fitters to be discharged. The district court, and we believe correctly so, construed paragraph 14 as extending to the entire manufacturing process, and found, with adequate support in the record, that a breach occurred.

Paragraph 14 clearly requires that all work incidental to producing a “better grade” shoe, regardless of why it is so, be confined to the Philadelphia plant. The last sentence expressly provides that the company will make all “better grade” shoes in Philadelphia. Certainly such important operations as cutting and fitting come within the ambit of paragraph 14. The record establishes beyond doubt that the shoe finally assembled was a “better grade” shoe. Defendant Michael Goldenberg testified that these shoes were of a “better grade” that resulted, as he said, from the “better grade work” in Philadelphia.

The company argues that the union, by negotiating two renewals of the contract after the conduct constituting a breach first occurred, waived the breach of paragraph 14.¹ But the evidence in the record at most shows that the union, at the time of renegotiation, knew that cutters and fitters were being furloughed in Philadelphia and not that work was being brought there from Hanover. It cannot be said that this limited information was enough to give the union contemporaneous information, a prerequisite that must be met before a waiver is effective.

The runaway shop guarantee is contained in paragraph 21 of the agreement and reads:

“It is agreed by the Employer that the shop or factory shall not be removed from the County of Philadelphia during the life of this agreement.”

Defendants contend that paragraph 21 should be construed to mean that only the manufacturing of “better grade” shoes could not be removed from the Philadelphia plant, and therefore that it was not guilty of a breach since all the shoes manufactured at Hanover were of a lower grade. We cannot agree. Such an interpretation would go against the plain and clear language and would make the job security that the union had hoped to obtain for its members a fiction. The paragraph provides that “the shop or factory” shall not be removed, contemplating thereby the general productive capacity, rather than the capacity to produce a particular grade of shoe. It was the over-all operation at the Philadelphia plant, and the jobs involved, that were of primary interest to the union and its members. Continuity of employment, as such, was the matter of first importance, with the opportunity to work on better grade shoes a matter of individual and secondary importance. The union could continue in existence and maintain its membership regardless of the quality of shoes that its members produced.

The record fully supports the district court’s finding that the company violated paragraph 21. It shows the existence of a systematic plan, called a “scheme” by the district court, to remove the productive capacity of the Philadelphia plant to Hanover. We begin with a written partnership agreement, secretly entered into in 1954, between John and Michael Goldenberg following unsuccessful efforts to unionize Carmen, which provided:

“As soon as possible after May 1, 1954, Brooks shall restrict its manufacturing activities, but shall continue the ownership of the capital stock of Carmen.”

Between 1954 and 1956, the work force in Philadelphia was reduced from 43 to 15 employees, while Carmen’s work force increased from 135 to 181.- Annual gross sales also reflected the transfer of work. From a high of $863,000 in 1954, the beginning of the runaway period, the company’s gross sales decreased to $238,000 in 1956. Correspondingly, Carmen’s sales increased from $767,000 to $1,112,-000 in 1956. Finally, in 1957, the name Carmen Shoe Manufacturing Company was changed to Brooks Shoe Manufacturing Company, Inc. Motivation for removal unquestionably existed, for the wages in Hanover were fifteen to twenty per cent lower than the union wage scale that prevailed in Philadelphia.

We now consider the remedy fashioned by the district court. As to the award of compensatory damages, the company contends that the district court committed error in making union dues an element of damages and in awarding such damages not only until the date the agreement was to expire, i. e., December 1, 1957, but also for the foreseeable duration of the company’s relationship with union which it found to be twenty years. The union contends, in reply, that the district court’s findings of fact fully support the award, and that the defendants have failed to distinguish between the duration and existence of contract rights and the rule for the measurement of contract damages. The punitive damages award has taken the brunt of the attack. The defendants assert that such damages are generally reserved to tort actions and are improper in a contract action under § 301(a), and that even if permissible, an award here, under the circumstances, constituted an abuse of discretion. The union, relying on Brown v. Coates, 102 U.S.App.D.C. 300, 253 F.2d 36, 67 A.L.R.2d 943 (1958), asserts that not only can punitive damages be awarded under § 301(a), but that such an award is proper where the breach is tortious, willful or flagrant, and the award would further what they allege is our national labor policy. In its original complaint the union requested, inter alia, that the defendants be enjoined from operating outside Philadelphia and that they be required to return to Philadelphia all the assets, machinery, and manufacturing facilities of the company. The district court refused to order the company to return to Philadelphia because of the economic hardship that this would entail and found that it would be impractical to have the defendants offer the Philadelphia employees employment at Hanover.

The bounds within which a federal court can travel in fashioning a remedy in an action under § 301(a) are far apart but well marked since the Supreme Court’s decision in Textile Workers Union of America v. Lincoln Mills, 353 U.S. 448, 456-457, 77 S.Ct. 912, 918, 1 L.Ed.2d 972 (1957), where it was said:

“The question then is, what is the substantive law to be applied in suits under § 301 (a) ? We conclude that the substantive law to apply in suits under § 301(a) is federal law, which the courts must fashion from the policy of our national labor laws. * * * The Labor Management Relations Act expressly furnishes some substantive law. It points out what the parties may or may not do in certain situations. Other problems will lie in the penumbra of express statutory mandates. Some will lack express statutory sanction but will be solved by looking at the policy of the legislation and fashioning a remedy that will effectuate that policy. The range of judicial inventiveness will be determined by the nature of the problem. * * * Federal interpretation of the federal law will govern, not state law. * * * But state law, if compatible with the purpose of § SOI, may be resorted to in order to find the rule that will best effectuate the federal policy. * * * Any state law applied, however, will be absorbed as federal law and will not be an independent source of private rights.” (Citations omitted; emphasis supplied.)

We think that the remedy fashioned by the district court here is rooted in and supported by fundamental principles of law, and is in furtherance of and in harmony with our national labor policy.

The defendants are precluded from asserting that union dues are not a proper element of damages. In a pretrial memorandum on scope of relief, defendants said: “In accordance with these principles, the union is limited to recovery of the dues lost by virtue of the alleged breach of the contract. In total, these must be limited to the period during which the contract still had to run, to wit, until December 31, 1957.” This, we think, constituted an acceptance by defendants of union dues as an element of damages. Consistent therewith, the defendants did not thereafter raise that question at any stage of the proceedings. The testimony of the union’s financial secretary on the amount of union dues collected from employees at the Philadelphia plant, which formed the basis for the compensatory award, went unchallenged. In any event, our decision in Burlesque Artists Ass’n v. I. Hirst Enterprises, Inc., 267 F.2d 414 (C.A. 3, 1959), supports reliance on union dues as an element of damages. There plaintiffs, a group of employees constituting the Burlesque Artists Association, sued for breach of a contract wherein defendant, a theatre owner, had agreed that every person appearing in certain theatres would be required to join the association. This court upheld a jury award of damages based on the testimony of an expert witness who estimated the amount of union dues that the association would have received had all of defendant’s employees joined the association as the contract required.

A defendant in a breach of contract action is liable for all damage resulting from the breach that could have been fairly and reasonably contemplated by the parties to the contract at the time of its execution. Hadley v. Baxendale, 9 Exc. 339 (1854). That rule has been followed in the federal courts, Bercut v. Park, Benziger & Co., 150 F.2d 731 (C.A.9, 1945); Wilson & Co. v. United Packinghouse Workers, 181 F.Supp. 809 (N.D.Iowa, 1960); Oliver-Electrical Mfg. Co. v. I. O. Teigen Construction Co., 177 F.Supp. 572 (D.Minn.1959); W. L. Mead, Inc. v. International Brotherhood of Teamsters, etc., Local Union No. 25, 129 F.Supp. 313 (D.Mass.1955), affirmed 230 F.2d 576 (C.A.1, 1956); Ring v. The Dimitrios Chandris, 43 F.Supp. 829 (E.D.Pa.1942), affirmed 133 F.2d 124 (C.A.3, 1943); those of Pennsylvania, F. P. Weaver Coal Co. v. Maryland Casualty Co., 295 Pa. 486, 145 A. 595 (1929); Siegel v. Struble Bros., Inc., 150 Pa.Super. 343, 28 A.2d 352 (1942); Stevenson v. Smith, 82 Pa.Super. 539 (1924), and is generally accepted in other jurisdictions. Restatement, Contracts § 330 (1932); 6 Williston, Contracts, §§ 1344, 1347 (rev. ed. 1937).

This ease comes squarely within that rule. It was clearly foreseeable at the time the collective bargaining agreement was entered into that if the company terminated its operations at the Philadelphia plant, the union would lose its dues-paying members. Because of the mobile nature of the shoe industry, where the ratio of labor to capital is high, the union was vulnerable to destruction by a relocation. Paragraph 21 was inserted in the instant, and in fact all of the agreements executed between the company and union, in order to protect it against just such a contingency.

The district court’s finding that the company-union relationship would have continued for an additional twenty years is not clearly erroneous and is fully supported by the record. The company had been a Goldenberg-family-controlled operation for approximately forty years, and the union, since 1937, represented its employees in Philadelphia and negotiated agreements in their behalf. Michael Goldenberg, the present owner of Brooks Shoe Manufacturing Company, Inc., has shown a persistent interest in its continuation, and certainly there is no present prospect of liquidation. The manufacturing operation at Hanover increased substantially during relevant times, and shows every sign of remaining vigorous. There is no basis in the record for concluding that repeated contracts would not have been successfully negotiated between the company and the union, and it has never been suggested that the union did not represent a majority of the employees, nor has an election ever been sought for selection of a new bargaining representative.

Whether defendants are entitled to a reduction in damages to present worth or credit for certain savings allegedly accruing to the union because it need not any longer provide services to its members, or for the alleged failure of the district court to allow defendants certain other credits, are questions we need not reach since they were neither raised nor disposed of below. These contentions involve a resolution of factual issues which we cannot and should not reach here. Compare McNello v. John B. Kelly, Inc., 283 F.2d 96 (C.A.3, 1960), where the error in the district court was termed “fundamental” by us. In International Telephone and Telegraph Corp. v. Local 400, 286 F.2d 329, n. 9 (C.A.3, 1960), there were no factual issues to resolve, and the court was determining its jurisdiction.

As a general rule, punitive damages are not recoverable in an action for breach of contract.² One of the exceptions to this rule is well recognized in many jurisdictions. This exception is particularly pertinent here. It is in those cases where a defendant’s conduct constitutes a breach of contract and disregard ■of a duty imposed by law independently of contract.³

The achievement of industrial stability has for many years been of major concern to the Congress of the United States. It has expressly declared that our national labor policy favors unionization ■and the execution and observance of collective bargaining agreements between ■employers and employees as a means of realizing that end. 29 U.S.C.A. § 151. •Congress demonstrated the importance of faithful performance of those agreements when it enacted § 301(a). The Act’s legislative history also shows the persistent concern of officials in both the executive and legislative branches of government for the availability of effective remedies to an aggrieved party when a breach occurs. S. Report No. 105, 80 th •Cong., 1st Sess., 1947; 92 Cong.Rec. pp. 4265, 4410, 80th Cong., 1st Sess., 1947. That history goes on to indicate, S. Report No. 105, supra, p. 30, that § 301(a) is to be read in conjunction with § 8 of the Act, 29 U.S.C. § 158, where it is provided that,

“(a) It shall be an unfair labor practice for an employer—

*■»**•»*

“(3) by discrimination in regard to hire or tenure of employment or any term or condition of employment to encourage or discourage membership in any labor organization * *

As we indicated earlier, the company’s breach of the runaway shop provision of the contract had its genesis in the secret, written agreement, executed between John and Michael Goldenberg in 1954. This called for termination of operations at the Philadelphia plant at the earliest possible date. In the ensuing years, the company systematically and deviously carried out its plan of removal. At the same time, it renewed on several occasions, between 1954 and 1957, its agreement with the union. Such conduct on the part of defendants is not only a willful breach of its collective bargaining contract, but also constitutes a flagrant violation of duties imposed by the Labor Management Relations Act, 1947, 29 U.S. C.A. § 141 et seq. It is difficult to conceive of conduct calculated to destroy more effectively the national labor policy. Such violation of defendants’ duties supplies a sufficient legal basis for the imposition of punitive damages, and the award of such damages here was without doubt proper.

The defendants rely heavily on United Mine Workers of America v. Lambert, 214 F.2d 487 (C.A.4, 1954), and United Mine Workers of America v. Patton, 211 F.2d 742, 47 A.L.R.2d 850 (C.A.4, 1954), which are inapposite. These actions were brought under § 303(b), 29 U.S.C.A. § 187(b) of the Act which expressly limits a plaintiff’s recovery to “the damages by him sustained and the cost of the suit,” thereby precluding an award of punitive damages which, by their nature, are not compensatory. Section 301(a), of course, contains no such limitation.

1 . In this regard, the company refers us to Local Lodge No. 1898 of Dist. No. 38 of International Ass’n of Machinists, A.F. of L. v. Brake & Electric Sales Corp., 279 F.2d 590 (C.A.1, 1960), and Simadiris v. Hotel Waldorf Astoria Corp., 144 N.Y.S.2d 136 (S.Ct.1955), which are no help for in those decisions the trial courts expressly found that the plaintiffs, with full knowledge, condoned the acts which they relied on to establish a breach.

2 . 5 Corbin, Contracts, § 1077 (1951); 1 Sedgwick, Damages § 370 (1912); McCormick, Damages § 81 (1935); 5 Willis-ton, Contracts § 1340 (rev. ed. 1937); Restatement, Contracts § 342 (1932).

3 . E. g., Scalise v. National Utility Service, Inc., 120 F.2d 938 (C.A.5, 1941) (violation of statute in obtaining corporate charter); Sommerville v. Chesapeake & Potomac Telephone Co., 49 App.D.C. 3, 258 F. 147 (1919) (discontinuance of telephone service not willful and deliberate, punitive damages denied under circumstances) ; Burrus v. Nevada-California-Oregon Ry., 38 Nev. 156, 145 P. 926, L.R.A. 1917D, 750 (1915) (delay in operating train); Webb v. Atlantic Coast Line R. Co., 76 S.C. 193, 56 S.E. 954, 9 L.R.A., N.S., 1218 (1907) (failure to deliver baggage); Pittsburgh, C. & St. L. Ry. Co. v. Lyon, 123 Pa. 140, 16 A. 607, 2 L.R.A. 489 (1889) (refusal to deliver baggage); Southwestern Gas & Electric Co. v. Stanley, 123 Tex. 157, 70 S.W.2d 413 (1934) (termination of electrical services); Hall v. St. Louis-San Francisco Ry. Co., 224 Mo.App. 431, 28 S.W.2d 687 (1930) (failure to provide letter of discharge). See 5 Corbin, Contracts § 1077 (1951).