Contempo Design v. Chicago&Northeast IL ( 2000 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 98-3206
CONTEMPO DESIGN, INC.,
Plaintiff-Appellee,
v.
CHICAGO AND NORTHEAST ILLINOIS DISTRICT
COUNCIL OF CARPENTERS,
Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 96 C 4513--James F. Holderman, Judge.
Argued March 30, 1999--Decided August 31, 1999
Before RIPPLE, DIANE P. WOOD, and EVANS, Circuit
Judges.
EVANS, Circuit Judge. Contempo Design, Inc. sued
a union, the Chicago and Northeast Illinois
District Council of Carpenters, under sec. 301 of
the Labor Management Relations Act for a
declaratory judgment that the parties’ contract
had not been terminated and for breach of that
contract’s no-strike provision. Upon Contempo’s
motion for summary judgment, the district court
declared that the contract was not terminated.
The court then held a 2-day bench trial on the
issue of damages. At the close of trial, Contempo
was awarded over $450,000 in damages. The Union
appeals.
Contempo Design, Inc. is in the business of
constructing, setting up, taking down, and
storing exhibits and displays for conventions and
trade shows. In the course of this business
Contempo employs numerous carpenters. The Chicago
and Northeast Illinois District Council of
Carpenters represents Contempo’s carpenters. In
the 1970’s Contempo and the Union entered into a
standardized contract commonly known as a hard
card or "me too" agreement. Through the hard card
the parties agreed to adopt and be bound by the
then-current collective bargaining agreement
(CBA) between the Union and the Woodworkers
Association of Chicago, a trade association
representing carpentry employers. The parties
also agreed to be bound by any subsequent CBAs
negotiated by the Union and the Woodworkers
Association unless either party notified the
other in writing of an intention to terminate at
least 3 months before the expiration of the
current CBA. Contempo has never been a member of
the Woodworkers Association. The hard card
allowed Contempo to piggyback on the collective
bargaining of the Association, whose interests
were aligned with its own, and saved the company
the considerable cost of doing its own bargaining
with the Union.
In 1993 the Woodworkers Association and the
Union entered into a CBA covering June 1, 1993,
to May 31, 1995. Contempo and the Union were
bound by this CBA pursuant to the hard card.
Neither party notified the other of a desire to
amend or terminate the hard card at least 3
months prior to the May 31, 1995, expiration of
the Woodworkers Association CBA.
On February 27, 1995, the Woodworkers
Association attorney, Karl W. Grabemann, wrote to
the Union president to inform him that the 15
members of the Woodworkers Association had
decided to withdraw collective bargaining
authorization from the Association and negotiate
separate contracts with the Union. After a series
of negotiations Grabemann and the Union ended up
drafting a new CBA anyway, and all 15 members of
the Association signed the CBA on May 31, 1995.
The new CBA covered June 1, 1995, to May 31,
2000. It was the Union’s practice to send
Contempo a copy of each new Woodworkers
Association CBA after negotiations were complete.
The Union never sent Contempo a copy of the 1995
CBA.
Instead, the Union notified Contempo and several
other exhibit/display employers in early June
1995 that it wanted to negotiate new collective
bargaining agreements with them. Until that time
the Union and Contempo had never engaged in
collective bargaining. The Union gave Contempo a
proposed new contract and threatened a "work
action" if Contempo did not sign it by June 9.
Contempo and the other exhibit/display employers
retained Grabemann to represent them, in part
because of his expertise in negotiating with the
Union on behalf of the Woodworkers Association.
Grabemann informed the Union in mid-June that he
would attempt to negotiate a single new agreement
for the exhibit/display employers. The parties
began negotiating on June 12. The negotiations
did not go well. On June 17 Grabemann realized
for the first time that the exhibit/display
employers’ hard card agreements with the Union
had never been terminated. He promptly broke off
negotiations with the Union.
On July 28, 1995, Contempo and the other
affected exhibit/display employers filed an
unfair labor practices charge with the National
Labor Relations Board against the Union for
refusing to recognize that the employers were
covered by the 1995 Woodworkers Association CBA
through their hard card agreements with the
Union. On November 30, 1995, the NLRB Regional
Director held that whether the parties were
covered by the 1995 CBA was irrelevant to
Contempo’s unfair labor practices charge. Without
reaching the CBA issue, she determined that the
Union had not engaged in unfair practices. The
NLRB Office of the General Counsel affirmed the
Regional Director’s decision on June 14, 1995,
but again did not reach the CBA issue.
Meanwhile, on March 4, 1996, the Union struck
Contempo for 2 days. Contempo had no prior notice
of the strike. The parties began negotiating
immediately and reached a collective bargaining
agreement on March 6 that included wage and
benefit increases (the "Contempo CBA"). Contempo
reserved its right to seek redress in the courts
for what it considered an illegal strike.
In June 1996 Contempo and four other
exhibit/display employers filed this action in
the Northern District of Illinois pursuant to
sec. 301(a) of the Labor Management Relations
Act. 29 U.S.C. sec. 185(a). They asked for a
declaratory judgment that the 1995 Woodworkers
Association CBA applied to them. Contempo sued
for breach of contract damages, claiming that the
Union’s strike violated the no-strike provision
in the 1995 Woodworkers Association CBA. The
district court granted summary judgment on the
first claim, declaring that the 1995 CBA applied
to the employers and the Union. The court also
held that the Union breached the 1995 Woodworkers
Association CBA when it struck Contempo. At this
point all the employers except Contempo settled
with the Union.
Contempo and the Union went to battle before
the judge to resolve three issues relevant to
this appeal:
1. What was the duration of the Contempo Strike,
and what damages, if any, were caused by the
Strike?
2. Was the Contempo CBA void and unenforceable ab
initio because it was signed under duress?
3. If the Contempo CBA was void and unenforceable
ab initio because it was signed under duress,
what damages, if any, were suffered by Contempo
since June 1, 1995?
The district court held that the strike lasted 2
days and awarded $11,574.48 to Contempo to
compensate the company for the cost of the
strike--basically wages paid for the 2 strike
days plus overtime paid to make up for the work
missed during those 2 days. The court found that
Contempo had not signed the Contempo CBA under
duress. But the court also found that but for the
Union’s unlawful strike Contempo would never have
signed the Contempo CBA, making it void ab
initio. The court then went on to award Contempo
the difference between the wages and benefits it
paid its employees under the Contempo CBA and the
wages and benefits it would have paid under the
1995 Woodworkers Association CBA. This added a
total of $433,139.39 to Contempo’s take. Finally,
the court awarded $6,300.11 in prejudgment
interest at 8.5% for a grand total of $451,
013.98 in damages.
On appeal, the Union argues first that the
district court erred by granting summary judgment
to Contempo because the parties were not covered
by the 1995 Woodworkers Association CBA when the
Union struck. In the alternative the Union argues
that even if the 1995 Woodworkers Association was
in effect, the unlawful strike does not make the
newly negotiated Contempo CBA void ab initio
without a finding that the Contempo CBA was
signed under duress. Therefore the difference in
wages and benefits between the 1995 Woodworkers
Association CBA and the Contempo CBA is not a
proper measure of damages.
We review the district court’s grant of summary
judgment de novo. See Schaefer v. Goch, 153 F.3d
793 (7th Cir. 1998). Summary judgment is
appropriate when there is no genuine issue of
material fact and the moving party is entitled to
judgment as a matter of law. See Fed. R. Civ. P.
56(c); Celotex Corp. v. Catrett, 477 U.S. 317,
322 (1986). The district court’s calculation of
compensatory damages is reviewable for abuse of
discretion. See FTC v. Febre, 128 F.3d 530, 534
(7th Cir. 1997).
Despite the scent of labor law that lingers in
the background, this case is at core a contract
dispute. Our first issue is whether the parties
were still bound by the 1995 CBA when the Union
went on strike. The issue is critical because the
CBA contains a strict no-strike clause, and a
violation of that clause entitles Contempo to
damages.
The original Contempo-Union agreement provides:
2. The parties adopt, and the EMPLOYER agrees
to be bound by the terms and conditions of [the
current] Collective Bargaining Agreement . . .
between the UNION and [the Woodworkers
Association] as bargaining agent for their
members . . . .
. . . .
4. [T]he parties specifically adopt any
agreement entered into between the UNION and [the
Woodworkers Association], bargaining agent for
their members, subsequent to the expiration date
of the agreement adopted by reference as
aforesaid, unless notice of termination or
amendment is given in the manner provided herein.
5. Either party desiring to amend or terminate
this agreement must notify the other with an
acknowledgment in writing, at least three
calendar months prior to the expiration of the
then agreement adopted by reference.
The Union first argues that a change in the
composition of the Woodworkers Association made
incorporating the 1995 Woodworkers CBA into the
Contempo hard card agreement impracticable. The
Restatement of Contracts provides:
Where, after a contract is made, a party’s
performance is made impracticable without his
fault by the occurrence of an event the non-
occurrence of which was a basic assumption on
which the contract was made, his duty to render
that performance is discharged, unless the
language or the circumstances indicate the
contrary.
Restatement (Second) of Contracts sec. 261
(1977). The Union argues that both parties
assumed when they bound themselves to future CBAs
negotiated by the Union and the Woodworkers
Association that the Woodworkers Association
would continue to operate as a representative for
a multi-employer bargaining unit. When the 15
Association members withdrew from collective
bargaining in early 1995 the potential arose that
there would be multiple conflicting contracts
between the Union and the Association members.
Thus, there would be no single CBA for the Union
and Contempo to incorporate into their hard card
agreement. Such a state of affairs would have
been a compelling argument for impracticability.
But the fact of the matter is that such a state
of affairs did not come to pass. The Woodworkers
Association counsel, Grabemann, negotiated a new
CBA with the Union and all 15 members signed off
on it. This single CBA was therefore clearly
incorporated by the language of the original
Contempo-Union agreement, and there is nothing
impracticable about Contempo and the Union
continuing their "me too" approach which binds
them to the terms that the Union and the
Association negotiated.
The Union also argues that the conduct of the
parties manifested an intention to waive the
untimely termination notice of their agreement
and negotiate for a successor agreement. The
agreement requires either party wishing to
terminate to notify the other in writing at least
3 months prior to the expiration of the then-
current Woodworkers Association CBA. The Union
admits that it did not send any termination
notice before the 1993 Woodworkers Association
CBA ran out on May 31, 1995, but argues that
Contempo waived timely notice when it began
negotiating with the Union for a new agreement.
Courts must strictly enforce the terms of
collective bargaining agreements when those terms
are unambiguous. See Young v. North Drury Lane
Prods., Inc., 80 F.3d 203, 205 (7th Cir. 1996).
The termination provision is unambiguous. The
Union, however, cites cases that stand for the
proposition that conduct by a party may act to
waive strict compliance with an automatic
rollover provision in a CBA. See NLRB v. Hayden
Elec., 693 F.2d 1358 (11th Cir. 1982); NLRB v.
Callier, 630 F.2d 595 (8th Cir. 1985); Allied
Indus. Worker, Local Union 770 (Hutco Equip.
Co.), 285 N.L.R.B. 651 (1987); Hassett Maintenance
Corp. (Service Employees Int’l Union, Local 200),
260 N.L.R.B. 1211 (1982).
According to the Union, four specific actions
by Contempo added up to a waiver: (1) a June 14,
1995, letter from Contempo’s attorney to the
Union requesting negotiations for a new deal; (2)
a June 28, 1995, letter to the Union where the
attorney reiterated Contempo’s desire to
negotiate a new agreement; (3) a July 12, 1995,
negotiation session at which Contempo and other
display/exhibit employers expressed their belief
that they and the Union should negotiate a
separate agreement to specifically meet the needs
of display/exhibit employers; and (4) meetings
between Contempo and the Union on July 12 and 17
where they continued to negotiate the proposed
agreement. The Union argues that when it first
proposed a new agreement to Contempo on June 9,
1995, it was clear to Contempo that the Union
wanted to terminate the old agreement. Thus
Contempo, through it’s willingness to negotiate
in June and July, waived the Union’s failure to
file a timely written termination notice before
the 1993 Woodworkers Association CBA ran out.
None of the actions that the Union says
constitute a termination or waiver, however, took
place before the 1995 Woodworkers Association CBA
was signed. In fact, neither the Union nor
Contempo made any attempt to terminate before
June 1, 1995. Therefore, the "me too" agreement
automatically operated to bind Contempo and the
Union to the 1995 CBA at the moment that
agreement became effective on June 1, 1995.
Contempo argues and the district court agreed
that this pretty much ends the inquiry. And the
cases the Union cites support this position. In
each of the cases, waiver was found only where
one party attempted to terminate and the other
waived the noncompliance with termination
formalities before the automatic adoption of the
successor agreement. In our case, however,
because the 1995 CBA had already become
effective, there was a valid agreement in place
when the parties commenced their efforts to
negotiate a new deal in June 1995. When the
negotiations went nowhere, the original deal
remained in place. The no-strike provision
remained in place as well, and the Union strike
at Contempo in spring 1996 was a breach of
contract.
The four actions in June and July of 1995 cited
by the Union certainly indicate a willingness on
Contempo’s part to mutually negotiate a new
agreement or modify the existing one. The Union
complains that Contempo tested the waters of
negotiations first but then pulled the plug when
the negotiations were going badly and decided to
stick with the original agreement. This is
probably exactly what Contempo did, but we’re not
sure what’s wrong with it. The fact of the matter
is that as of June 1, 1995, the parties were
bound by the terms of the 1995 Woodworkers
Association CBA. If they wanted to mutually
negotiate amendments to that deal or scrap it
altogether, they were free to do so. But after
initial negotiations Contempo simply decided that
amending or scrapping the 1995 CBA that was
already in force was not in its best interests.
The Union also argues estoppel. According to
the Union, it detrimentally relied on statements
Contempo made at the July 12, 1995, negotiation
session which implied that the 1995 CBA did not
apply to display/exhibit employers. Thus,
believing that the display/exhibit "me too"
employers like Contempo would not be covered by
the 1995 CBA, the Union negotiated a deal with
the Woodworkers Association that did not take
into account the Union’s specific concerns about
display/exhibit employers. There’s one slight
problem with this argument: the 1995 CBA was
negotiated in May 1995 and signed on May 31
before the July 12 meeting with Contempo. Absent
psychic powers, the Union could not have known
(or relied upon) July 12 Contempo statements when
it was negotiating with the Woodworkers
Association in May.
The Union explains at length how the 1995 CBA
shows that the Union assumed during its
negotiations with the Woodworkers Association
that the exhibit/display employers’ hard card
agreements would be invalidated. We have no
trouble believing that the Union made this
assumption. It just happened to be wrong, and
that is no fault of Contempo’s. If the Union
wanted to terminate the hard card agreements and
negotiate new terms with Contempo and the other
exhibit/display workers it was free to do so. But
neither party made any effort to terminate, and
by the plain terms of their agreement Contempo
and the Union became bound by the 1995
Woodworkers Association CBA when it went into
effect on June 1, 1995.
Contempo and the Union were still bound by the
1995 CBA when the Union struck Contempo in March
1996, and the strike was a clear breach of the
unambiguous no-strike clause. The only remaining
issue is the appropriate remedy for this unlawful
strike.
The district court found that the Union’s
wrongful strike made the Contempo CBA that the
parties negotiated during the strike void ab
initio. Under the general principles of contract
law, there are a few flaws in the formation of a
contract that make it void from the start. These
include lack of consideration, mutual mistake,
duress, misrepresentation, and the mental
incompetence of a party. Of these doctrines only
duress is potentially applicable to the formation
of the Contempo CBA. Accordingly, the parties and
the district court agreed that a major issue at
trial would be whether the Contempo CBA was void
ab initio because Contempo signed it under
duress. And at the conclusion of the trial, the
district judge decided that Contempo did not act
under duress. Despite this finding, he also
decided that the Contempo CBA was void because
but for the Union’s unlawful strike Contempo
would not have signed the new agreement. He then
awarded Contempo the difference between the wages
and benefits it paid under the Contempo CBA and
the wages and benefits it would have paid under
the 1995 Woodworker’s Association CBA--a sum, as
we have said, exceeding $430,000. Voiding the
Contempo CBA became a remedy for the Union’s
breach of the 1995 Woodworkers Association CBA.
We can find no precedent for this approach. As
we have mentioned, there are only a few limited
doctrines of contract law that make a contract
void at its inception./1 The breach of a
previous contract between the parties is not one
of them. Many things cause people to enter into
contracts. Alphonse may yell at Biff in a
defamatory way in order to get him to sign a
contract. Biff would have an action against
Alphonse for defamation. But the contract would
be fully enforceable unless the yelling amounted
to duress or one of the other contract-voiding
doctrines applied. Similarly in our case, the
Union breached the 1995 Woodworkers Association
CBA in order to get Contempo to sign the Contempo
CBA. Contempo is entitled to damages for the
breach. But the Contempo CBA is fully enforceable
unless there was duress, mistake,
misrepresentation, etc. The enforceability of the
Contempo CBA must stand or fall on the issue of
duress.
No one has suggested that anyone in the Union
held a gun to the heads of Contempo’s negotiators
or twisted their arms, so we are talking here
about economic duress. In Illinois,
Economic duress is present where one is induced
by a wrongful act of another to make a contract
under circumstances which deprive him of the
exercise of free will, and a contract executed
under duress is voidable . . . . To establish
duress, one must demonstrate that the threat has
left the individual "bereft of the quality of
mind essential to the making of a contract."
Resolution Trust Corp. v. Ruggiero, 977 F.2d 309,
313 (7th Cir. 1992) (quoting Alexander v.
Standard Oil Co., 423 N.E.2d 578, 532 (Ill. App.
Ct. 1981)). There is no question in this case
that the Union had Contempo over a barrel. The
exhibit/display industry is extremely time-
sensitive, and the Union struck just as Contempo
was negotiating a multiyear, multimillion-dollar
contract for a new phase in its business--
building mini banks inside Chicago area grocery
stores for Bank of America. Considering all the
evidence presented at trial, however, the
district judge found as a matter of fact that
Contempo officials were not "bereft of the
quality of mind essential to the making of a
contract" when they entered into the Contempo
CBA. We see no reason to quarrel with this
finding. "Duress is not shown by the fact that
one was subjected to . . . a difficult bargaining
position or the pressure of financial
circumstances." Id. Contempo’s officials were
between a rock and a hard place, and they made a
rational, calculated economic decision not to
fight the Union. Instead, they entered into a new
collective bargaining agreement that would ensure
their ability to pursue the Bank of America
contract.
Contempo argues that the fact that it had the
ability to make a rational business decision does
not mean that it was not under economic duress
when it signed the Contempo CBA. The company
cites the textbook example of economic duress:
A contracts to excavate a cellar for B at a
stated price. A begins the excavation and then
threatens not to finish it unless B makes a
separate contract to excavate the cellar of
another building. B, having no reasonable
alternative, is induced by A’s threat to make the
contract. A’s threat is a breach of his duty of
good faith and fair dealing, and the proposed
contract is voidable by B.
Restatement (Second) of Contracts sec. 176 cmt.
e, ex. 9 (1977); see also Austin Instrument Co.
v. Loral Corp., 272 N.E.2d 533 (1971) (holding
that subcontractor’s refusal to deliver goods
needed by general contractor to fulfill a
government contract unless the general contractor
paid more and awarded the subcontractor a second
subcontract constituted duress); E. Allan
Farnsworth, Contracts, 277 (2d ed. 1990). A’s
decision to sign the new contract is a rational,
calculated business decision, but A has still
acted under economic duress. Contempo argues that
its officials similarly made a rational decision
to sign the Contempo CBA but signed under
economic duress. The company is correct about the
fact that when it comes to duress, rationality is
really not the issue. A decision made under
duress is usually perfectly rational. If
Alexandra threatens to burn down Bertolt’s house
unless he signs a contract to buy a box of Girl
Scout cookies from her, and Bertolt believes she
will carry out the threat, it is perfectly
rational for him to buy the cookies. The reason
we define this situation as duress is that
Alexandra has improperly achieved an unfair
advantage over Bertolt. That is why the
Restatement emphasizes A’s breach of the duty of
good faith and fair dealing when he refuses to
complete his unambiguous duty to complete the
excavation already begun.
Other commentators also emphasize the importance
of good faith and fair dealing in the duress
analysis:
extortion of a "modification" without legitimate
commercial reason is ineffective as a violation
of the duty of good faith. . . . The test of
"good faith" between merchants or as against
merchants includes "observance of reasonable
commercial standards of fair dealing in the
trade" (Section 2-103) and may in some situations
require an objectively demonstrable reason for
seeking a modification.
Uniform Commercial Code 2-209, Comment 2. A
critical issue in the duress analysis, then, is
whether one party acted in bad faith to gain an
unfair disadvantage over another. In the textbook
case, A’s duty to complete the excavation was
clear, and A acted in bad faith in violation of
that duty to gain advantage over B.
There is little evidence in the case before us
today that the Union acted in similar bad faith
when it struck Contempo in March of 1996. The
issue of whether the 1995 Woodworkers Association
CBA, including its no-strike clause, applied to
Contempo and the other hard card employers was
hotly contested at the time of the strike. The
Union decided to take a chance on how a court
would decide the issue and timed its strike to
coincide with a moment of extreme vulnerability
for Contempo. This is what unions do. The
doctrine of economic duress should not operate to
discourage hard bargaining between adversaries.
Even if the Union knew that the 1995 Woodworkers
Association CBA applied to Contempo, it had a
"demonstrable reason for seeking a modification"
or a new agreement. The Union had negotiated the
1995 Woodworkers Association CBA thinking that it
would not apply to exhibit/display employers, and
it believed that a contract specifically tailored
to the exhibit/display industry had become
necessary. In light of the uncertainty of the
applicability of the 1995 Woodworkers Association
CBA and the Union’s belief during its
negotiations with the Woodworkers Association
that separate agreements with exhibit/display
employers would be necessary, it does not seem
that the Union was acting in bad faith when it
struck Contempo.
The dissent treats Contempo’s signing of the
superseding CBA as an effort to mitigate its
damages for the union’s wrongful breach--
something the Restatement of Contracts requires.
However, an equally basic principle of contract
law provides that when two parties to a contract
sign a subsequent inconsistent contract regarding
the same subject matter, the first contract is
superseded and the attendant duties are
discharged. See Restatement of Contracts sec. 408
(1932). Contempo signed a superseding agreement
that discharged the Union’s duties under the old
agreement. The fact that the Union had Contempo
over a barrel does not change that, unless one of
the contract-voiding principles applies. As we
have discussed, none of those principles applies
here.
Because Contempo was not acting under the kind
of duress we have been talking about when it
signed the Contempo CBA, that agreement
superseded and discharged the hard card agreement
between the parties. Contempo is still entitled
to damages for the Union’s breach of the no-
strike clause in the then-operative Woodworkers
Association CBA. We therefore AFFIRM the district
court’s award of $11,738.45 ($11,574.48 for the
2-day strike plus $163.97 in prejudgment
interest). However, we REVERSE the district court’s
holding that the Contempo CBA was void and its
award of the $433,139.39 difference in wages and
benefits between the Contempo CBA and the 1995
Woodworkers Association CBA and the attached
prejudgment interest. And so the judgment is
modified and, as modified, it is AFFIRMED. Each
side shall bear its own costs.
/1 The dissent asserts that we don’t have to find
the Contempo CBA void in order to award the
$430,000 difference in wages and benefits. But
awarding the wage and benefits difference has the
practical impact of voiding the Contempo CBA--
whether we actually say that’s what we’re doing
or not.
RIPPLE, Circuit Judge, dissenting. Contempo
Design, Inc. ("Contempo") brought this action
against the Chicago and Northeast Illinois
District Council of Carpenters ("the Union")
under sec. 301 of the National Labor Management
Relations Act, 29 U.S.C. sec. 185,/1 for a
declaratory judgment and damages. The Union had
struck Contempo in March of 1996 despite a "no-
strike" clause in the collective bargaining
agreement ("the WAC CBA"). Contempo asked the
district court to declare the Union bound by the
WAC CBA and, further, to assess $451,013.98 in
damages against the Union--profits lost during
the strike plus the difference between what
Contempo would have paid its Union employees
under the WAC CBA and what it actually paid them
under a new collective bargaining agreement ("the
Contempo CBA") signed a day after the strike
began. On Contempo’s motion for summary judgment,
the district court concluded that the WAC CBA
operated at the time of the strike and,
consequently, that the Union had violated its no-
strike provision. At a subsequent bench trial,
the district court went on to find that, although
Contempo did not sign the Contempo CBA under
economic duress, the agreement was nevertheless
void ab initio. Contempo ultimately received all
the relief it had requested, and the Union
appealed. The majority now agrees that the WAC
CBA operated at the time of the strike, that the
Union breached its no-strike clause, and that the
Contempo CBA was not signed under duress.
However, it reverses the determination that the
Contempo CBA was void ab initio and holds instead
that the Contempo CBA replaced and discharged the
WAC CBA. On this basis, the court now reduces
Contempo’s damages to $11,574.48-- profits
Contempo lost during the two-day strike. It
deprives Contempo of the costs it incurred in
operating under the Contempo CBA (rather than the
WAC CBA) from the time of the strike forward.
The majority proceeds on the assumption that
the award of damages to Contempo can be justified
only by declaring the superseding Contempo CBA
void and permitting the WAC CBA to function as
the governing agreement. I do not believe that it
is necessary or appropriate to address the
question of the validity of the superseding
Contempo CBA. As the district court recognized,
Contempo’s agreement to that second CBA was a
legitimate attempt on its part to mitigate its
damages. Faced with a strike and a very
significant loss of business, Contempo agreed to
a less favorable agreement than the one to which
it claimed to be a party. It incurred higher wage
costs, for which it now claims recompense, but it
stayed in business and suffered lower damages
than those it would have incurred had it
continued to resist the Union at the price of a
prolonged strike.
It is well settled that an employer may seek
lost profits from a union that strikes in
violation of a no-strike provision in its
collective bargaining agreement. See Drake
Bakeries, Inc. v. Local 50, Am. Bakery &
Confectionery Workers Int’l, 370 U.S. 254, 266
(1962); John Morrell & Co. v. Local Union 304A of
United Food & Commercial Workers, 913 F.2d 544,
558 (8th Cir. 1990). Generally, such damages aim
to place the aggrieved party in the place it
would have been had the breach not occurred. See
Chicago Painters & Decorators Funds v. Karr
Bros., Inc., 755 F.2d 1285, 1290 (7th Cir. 1985).
Damages must be foreseeable, certain, and may not
include any losses that the injured party
reasonably might have been able to avoid or
failed to mitigate. See Restatement (Second) of
Contracts sec.sec. 347, 350 to 353 (1981). The
Restatement illustrates well the doctrine of
mitigation:
A contracts to supervise the production of B’s
crop for $10,000, but breaks his contract and
leaves at the beginning of the season. By
appropriate efforts, B could obtain an equally
good supervisor for $11,000, but he does not do
so and the crop is lost. B’s damages for A’s
breach of contract do not include the loss of his
crop, but he can recover $1,000 from A.
Restatements (Second) of Contracts sec. 350
Illus. 6.
Here, Contempo simply heeded the Restatement’s
basic teaching, and the district court
determined that $433,139.39 of Contempo’s damages
could be viewed as profits lost in mitigating the
harmful effects of the illegal Union strike. As
the district court noted, Contempo had financial
difficulties in March 1996, when the strike
against it began. Compounding the financial
pressures associated with its indebtedness, the
Union’s illegal strike threatened to destroy
Contempo’s opportunity for a multi-year,
multimillion, dollar contract building mini-banks
inside grocery stores for Bank of America. Faced
with the possibility of losing $433,139.39 or the
possibility of losing considerably more in lost
business, Contempo chose to minimize its damages
and to sign a new contract with the Union. In
terms of the Restatement’s example, lest its
"crop" wither, Contempo chose to spend the extra
$433,139.39 that the Union demanded to mind the
"farm."
Contempo’s situation and the Restatement’s
example differ in that the example involves
mitigation through a new contract with a third
party, whereas Contempo’s case involves
mitigation through a new contract with the old
breaching party (the Union). However, in the
context of a labor contract, this distinction is
hardly relevant. Contempo, the non-breaching
party, had little choice but to make arrangements
with the Union that represented its workers.
In Frito-Lay, Inc. v. Local Union No. 137,
Int’l Bhd. of Teamsters, 623 F.2d 1354 (9th Cir.
1980), a snack-food manufacturer paid bonuses to
some of its employees and retained others on the
payroll to assure a capacity to operate if the
strike should end. The Union disputed its
responsibility for these payments. Then-Judge
Kennedy, writing for the court, held that the
expenditures were "recoverable as justifiable
expenses to minimize the damage caused by the
strike. Payment of the bonuses was designed to
retain experienced management personnel who would
be likely to leave if their salaries were
decreased because of the strike." Id. at 1364.
Retaining the secretarial and clerical staff was
reasonable because Frito-Lay was entitled to
maintain "a standby posture for resuming full
operations as soon as the strike halted, thus to
minimize business losses." Id. Contempo found
itself in a situation in which the practicalities
it faced were similar to those of Frito-Lay. Both
companies had to pay increased wage costs to
weather illegal union activity that jeopardized
its business. Frito-Lay paid extra sums to non-
striking employees to keep them from leaving;
Contempo Design paid extra sums to striking
employees to get them to come back.
It is well-established that damages in a breach
of contract action under sec. 301 of the Labor
Management Relations Act "should place the
aggrieved party in the place [it] would have been
in had the breach not occurred." Karr Bros., 755
F.2d at 1290. Here, the district court found that
the increased wage costs were attributable to the
illegal strike and were a foreseeable consequence
of the Union’s illegal activity. The majority
does not challenge the principle of law; nor does
it challenge the district court’s factual
determination that the damages at issue are
attributable to the Union’s illegal activity. In
the majority’s view, although the law required
Contempo Design to help itself by mitigating the
damages attributable to the Union’s breach, it
would have been better off to have done nothing
but sit out the strike, incur huge losses, and
then have sued for their recovery. Contempo
attempted to mitigate damages; the majority now
penalizes it for recognizing its obligation to do
so.
The result the majority reaches today is not
consistent with national labor policy as
expressed in the National Labor Relations Act; it
deprives Contempo Design of its right to be
compensated for the harm it suffered from the
Union’s illegal breach. Accordingly, I
respectfully dissent.
/1 29 U.S.C. sec. 185 creates a federal cause of
action for breach of a labor agreement. It
provides in part:
Suits for violation of contracts between an
employer and a labor organization representing
employees in an industry affecting commerce as
defined in this chapter, or between any such
labor organizations, may be brought in any
district court of the United States having
jurisdiction of the parties, without respect to
the amount in controversy or without regard to
the citizenship of the parties.
29 U.S.C. sec. 185(a) (1998).