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Tenth Circuit to decide back pay issue in plant-closing case.

A federal judge has approved a $36 million post-verdict settlement for former employees of the McDonnell Douglas Corp. that covers pensions and health benefits they lost when the Tulsa, Oklahoma, plant closed in 1994. The settlement allows them to continue fighting for back pay without risking the award. (Millsap v. McDonnell Douglas Corp., No. 94-CV-6333-H (N.D. Okla. May 28, 2003).)

The arrangement--which attorneys said was unprecedented--is one of several novel aspects of the lawsuit. It is only the third time that employees have proved that a company violated the Employee Retirement Income Security Act (ERISA) by closing a plant to rid itself of employees with high benefit costs or who were close to cashing in on their pensions. The last such case was in 1992.

The case now goes to the Tenth Circuit, which agreed in July to settle another fairly uncharted area of the law: Does back pay constitute "equitable relief" under ERISA?

"It's clearly a huge case," said Mary Ellen Signorille, senior staff attorney at AARP. "Why should an employer be able to fire someone under these circumstances and just pay benefits [without] back pay?" The organization filed an amicus brief in the case; most employees affected by the plant's closing were senior citizens.

It is hard for employees to win cases using the anti-discrimination provision of ERISA ([section] 510) because they have to prove explicit intent on the part of the company. James Millsap, the lead plain tiff in a class of over 1,000 employees, alleged that the corporation knew it could save $24.7 million in benefits and $11 million in pension funds if the 300 oldest employees were laid off before reaching 55. At the time, the average age of employees at the Tulsa plant was 51.

The plant made tail parts for F-15 fighters. Boeing, which purchased McDonnell Douglas in 1997, later said the plant was closed with others because of decreased military spending after the end of the Cold War.

But in his 2001 ruling finding liability in the case, U.S. District Judge Sven Erik Holmes punished the company for what he called "a culture of dishonesty" that permitted the withholding and destruction of evidence. Holmes particularly chided the company for telling employees the plant would stay open for three more years if it got approval to sell F-15s to Saudi Arabia. When the contract was secured, the company transferred the work to St. Louis, and the bulk of the Tulsa workforce lost their jobs.

"This kind of victory is very rare, especially in a plant closing," said B. Janell Grenier of East Goshen, Pennsylvania, a defense attorney who maintains an Internet site devoted to ERISA news and practices ( "The difficulty is proving intent. The defendants are usually able to prove [that the closing was based on a] business judgment. But in Millsap, the judge found a lot of mishandling of evidence. He decided the company had not been forthright."

When the case comes before the Tenth Circuit, the court is certain to hear arguments inspired by the Supreme Court's ruling in Great West Life & Annuity Ins. Co v. Knudson, (534 U.S. 204 (2002).)

Lawyers for the company have seized upon dicta in Justice Antonin Scalia's opinion in that 5-4 decision to establish conclusively that back pay is not available in ERISA cases.

"The company's position is that back pay is not equitable relief under ERISA," said Thomas Wack of St. Louis, the lead defense attorney for McDonnell Douglas. "Most civil rights statutes describe back pay as legal relief. The sole exception is Title VII, as distinguished in Great West."

Plaintiff lawyers counter that back pay has been considered "equitable relief" under labor and employment law such as Title VII of the federal Civil Rights Act. Moreover, they claim that because Great West is a bad-faith insurance case, and Scalia made his comments in a footnote, the case has no precedential value on the subject of back pay.

Prior to Great West, the Sixth Circuit held that back pay was equitable relief and could be awarded under ERISA [section] 510. If the Tenth Circuit rules for the defense, the outcome might provide the kind of split the Supreme Court looks for when selecting cases for review.

Asked whether the company will appeal to the High Court if it loses at the circuit level, Wack said: "From a company standpoint, that certainly is the case."

For the employees who have been waiting since 1994, the back pay issue is not merely a matter of law. "The back pay is certainly the larger part of the case," said Joan Burger, a Chicago attorney who represents the plaintiffs. "It's been 10 years now. Interest has been accruing. More than 50 people have died already, and the average age of the rest is about 60. They're not getting any younger."
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Author:Brownstein, Andrew
Date:Sep 1, 2003
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