Transcript

IN THE SUPREME COURT OF THE UNITED STATES

ALLIS-CHALMERS CORPORATION, Petitioner v. RODERICK S. LUECK

No. 83-1748

January 16, 1985

The above-entitled matter came on for oral argument before the Supreme Court of the United States at 1:57 p.m.

APPEARANCES:

THEOPHIL C. KAMMHOLZ, ESQ., Chicago, Illinois; on behalf of the Petitioner.

GERALD S. BOISITS, ESQ., Milwaukee, Wisconsin; on behalf of the Respondent.

PROCEEDINGS

CHIEF JUSTICE BURGER: Mr. Kammholz, you may proceed whenever you're ready.

ORAL ARGUMENT OF THEOPHIL C. KAMMHOLZ, ESQ., ON BEHALF OF THE PETITIONER

MR. KAMMHOLZ: Mr. Chief Justice and members of the Court:

At issue in this case is the extent to which a state, by application of state law, may regulate the legal obligations of parties to a collective bargaining agreement and adjudicate the legal consequences of the breach of such agreement.

A majority of the Wisconsin supreme court held that Section 301 of the Labor Management Relations Act of 1947 did not preempt a state court suit brought by a union employee against his employer, alleging tortious bad faith in the administrative handling of a disability claim, even though the employee's right to benefits derived entirely from a collective bargaining agreement, and the employee did not resort to the contractual grievance procedure which included arbitration at the terminal level.

The facts are simple and undisputed. Allis-Chalmers and the UAW union for many years have been parties to collective bargaining agreements. The current agreement at issue here incorporates a group health and disability plan funded by Allis-Chalmers and administered by Aetna Insurance Company. Disability benefits are provided for non-occupational illness and injury to all UAW represented employees, including Lueck.

The agreement between the UAW and Allis-Chalmers also contains a provision for resolution of disputes, as I have noted earlier. It's a typical union contract dispute resolution procedure, grievance procedure, culminating in arbitration at the final level.

Lueck suffered a nonwork-related disability. Payments were initiated under the plan. Lueck ultimately received all that was due him under the plan, but there was some delay in payment with respect to some of the obligation under the plan.

Lueck did not go to his union. He did not go to the grievance procedure. What he did do was to go to the circuit court for Milwaukee County, Wisconsin and file a lawsuit against Allis-Chalmers alleging contemptuous, deliberate, repeated conduct on the part of the company in failing to pay -- make payments promptly. He further alleged that as as result of the defendant's bad faith, he incurred emotional distress, pain and suffering, physical impairment, all to his damages to the extent of $10,000 compensatory and $300,000 punitive.

With respect to the circuit court suit, Allis-Chalmers and Aetna raised two defenses. First, that the suit was preempted by Section 301 of the labor Management Relations Act; and secondly, that Lueck had not resorted to the contractual grievance procedure.

QUESTION: Mr. Kammholz --

MR. KAMMHOLZ: Yes, Justice --

QUESTION: -- on a side point, may I inquire whether the disability plan involved here is governed by ERISA?

MR. KAMMHOLZ: The record does not show this. It may well be. The reason I say the record does not show it, the case went up on summary judgment. And I was about to come to that motion for summary judgment on the failure to exhaust the grievance procedure and on account of preemption under 301.

The circuit court granted motion for summary judgment on behalf of both defendants Allis-Chalmers and Aetna. An appeal was taken to the Wisconsin court of appeals. It affirmed the lower court decision. And further appealed to the Wisconsin supreme court with respect to certiorari, to wit we're here today.

A majority of that court in January of last year, relying on what it said were long-established principles of state insurance law, held that any violation of the labor agreement was irrelevant to the issue of bad faith handling of the disability claim. Further, the court said there was no 301 presumption "even though the insurance contract is part of a labor agreement otherwise governed by federal law." By implication, the court further held that there was no need to resort to the grievance procedure because it did not comment on the grievance procedure.

The single dissent in the Wisconsin supreme court concluded that any duty allegedly violated by Allis-Chalmers was specifically created by the labor contract and would not exist absent the labor contract. Consequently, the dissent concluded, it must fail within -- on account of the ambit of Section 301 which governs labor agreements.

The dissent further noted that there should have been an exhaustion of remedies under the grievance procedure which did not occur. Finally, the dissent concluded that the mere existence of a state tort of bad faith is insufficient to override uniformity in application of federal labor law, and to do as the majority holds fragments federal labor law.

I have gone into some detail here on what happened in the court below because I think that puts into sharp focus precisely the issues before you here this afternoon.

We respectfully submit that this is a 301 case, pure and simple -- a labor agreement, grievance procedure, arbitration at the terminal level, no attempt to grieve. Since the enactment of LMBA in 1947 and beginning with the first significant decision in that area in 1957, the Lincoln Mills case, and continuing through the Steelworkers trilogy in 1950, Boys Market in 1957, I believe, the law has consistently held that it's federal law that must be fashioned by the courts, federal law and not state law. And yet, the result of the supreme court decision of Wisconsin here would fragment that federal law and permit encroachment on the exclusivity that is created under LMBA and under the decided cases.

With respect to the preemption aspect, we suggest also that the law is crystal clear. In Lucas Flower in 1962 the Court first articulated the concept of preemption of state law. This has been applied consistently and without exception over the years. The erosion that would result from acceptance of the Wisconsin doctrine would be -- would have very serious implications on the federal labor scene. In that respect I think it is appropriate for me to note the cogent amicus brief filed by the AFL-CIO and a similar brief by the United States Chamber of Commerce. These briefs state in some detail their view as to what would result if state action could be accorded the kind of finality that would apply under the Wisconsin decision.

The issue is simple: does Wisconsin as a state have the right to impose insurance principles in the context of a collective bargaining agreement governed by federal law with arbitration in the grievance procedure also included in that contract, and which --

QUESTION: Well, Mr. Kammholz, I gather the Court, in Linn at least, recognized that there might be state law action, notwithstanding a breach of -- that was a libel action, wasn't it?

MR. KAMMHOLZ: Linn was a libel action. Your Honor, Linn was not a contract 301 case. Linn was a Section 7 and 8 NLRA breach.

QUESTION: Well, when you say preemption, I gather what you mean is that it's a breach of contract. The action must be under 301 whether that action is brought in the state court or the federal court.

MR. KAMMHOLZ: Yes, sir.

QUESTION: And it's not really preemption. It's state law -- rather, federal law, and only federal law applies if it's an action for breach of the collective bargaining.

MR. KAMMHOLZ: Yes. And it applies whether the action is brought in state court or whether it's brought in federal court. The Wisconsin Supreme Court --

QUESTION: Well, it then was not a breach of collective bargaining?

MR. KAMMHOLZ: It was not.

QUESTION: Didn't we have another? I thought we had some other that -- well, I've forgotten.

MR. KAMMHOLZ: There are other cases involving egregious conduct, none in the context of a collective bargaining agreement; all in the context of does the National Labor Relations Act preempt; what is the reach of the NLRA.

QUESTION: Well, would it have been all right, in your view, if the supreme court of Wisconsin had adjudicated this case but applied the principles of federal labor law that you say are derived from the Lincoln Mills cases?

MR. KAMMHOLZ: Yes. The Wisconsin supreme court should have said, very simply, this case is preempted, period.

QUESTION: Well, but I -- my question was was it all right for the supreme court of Wisconsin to have adjudicated this case so long as it applied principles of federal law derived from the Lincoln Mills trilogy?

MR. KAMMHOLZ: Yes. In the Dowd case in this Court the law was articulated along these lines, that yes, the state court may adjudicate, but a state court must apply federal law.

QUESTION: Well, I gather, Mr. Kammholz, what you would have hoped the Wisconsin court would say is we'll treat this as a 301 suit brought in state court; we'll stay it while we send you to, under Boys Market, to exhaust your administrative remedies and end up in arbitration. That's what you wanted, wasn't it?

MR. KAMMHOLZ: Yes. The Wisconsin court did confuse the preemption doctrine under 301 with the preemption doctrine under NLRA, Sections 7 and 8.

We assert that the 70 -- that the 301 doctrine is the only doctrine applicable here; that Section 7 and 8 doesn't come into play because we're dealing with a collective bargaining agreement, a grievance procedure and arbitration.

QUESTION: Is it clear, Mr. Kammholz, that if this particular respondent had a claim for -- under this plan that he would have had to submit it to arbitration under the collective bargaining agreement?

MR. KAMMHOLZ: Absolutely, no question about that.

Unless the Court has further questions, at this time I should like to reserve for --

QUESTION: I have one question.

MR. KAMMHOLZ: Yes.

QUESTION: But again, it's not directly related to the facts of this case obviously. But assuming for purposes of the question that your position is correct and that this is a 301 case, if it's also governed by ERISA are there any conflicts between the remedies available to someone in the circumstances of the plaintiff below by virtue of the fact that it might also be an ERISA plan?

MR. KAMMHOLZ: The record is barren, of course, with respect to ERISA.

QUESTION: Both being federal laws --

MR. KAMMHOLZ: Both federal laws.

QUESTION: -- but with different remedial approaches. And yet, one can't help but be struck how the facts of this case and the one that was just argued are identical.

MR. KAMMHOLZ: That's why we're here in tandem, I assume.

Yes. I -- with respect to your question, I believe that there may well be another discrete route for preemption. We now have two and possibly -- and three, I suppose -- 301, NLRA, and ERISA. So a parallel, yes. I do not think that this could conflict with --

QUESTION: At any rate, it's federal, not state.

MR. KAMMHOLZ: In any event it's federal, yes.

CHIEF JUSTICE BURGER: Very well.

MR. KAMMHOLZ: Thank you.

CHIEF JUSTICE BURGER: Mr. Boisits.

ORAL ARGUMENT OF GERALD S. BOISITS, ESQ., ON BEHALF OF THE RESPONDENT

MR. BOISITS: Mr. Chief Justice, members of the Court:

Before proceeding into my response to Mr. Kammholz's argument, I'd like to clarify a few of the facts that I believe are part of the record.

First of all, while Mr. Kammholz does admit to the fact that these disability benefits on behalf of Mr. Lueck were eventually received, the record should show that Mr. Lueck received these benefits only after Allis-Chalmers and Aetna Insurance Company were served with his cause of action.

QUESTION: Did the claim -- did his claim arise out of the union contract?

MR. BOISITS: Excuse me, Your Honor.

QUESTION: Did his claim arise under the union contract?

MR. BOISITS: Your Honor, yes and no, all right. First of all, as far as the union contract is concerned, we've got a contract that on one hand provides for the normal things that a labor contract provides for -- labor, conditions of employment, wages, that type of thing. Then we have a peripheral thing where the insurance or the employer has, in addition, provided some health benefits and --

QUESTION: Did that derive from an agreement between the company and the union?

MR. BOISITS: It did come from the agreement. It's specifically mentioned in the union contract. It was something that was negotiated. I can't argue with that.

The problem I have in looking at the case is primarily the situation where they've accepted the obligations to insure Mr. Lueck under a disability policy, and they've therefore basically put on the hat of an insurance company and are now attempting by virtue of Section 301 to avoid some of the obligations that the state recognizes as mandatory as far as someone that's acting as an insurance company.

And in that situation, Mr. Lueck is really caught between a rock and a hard place basically, because he can go through the union procedures, and what's basically provided under those union procedures is that he's going to collect whatever disability benefits he's entitled to if they were denied, and perhaps maybe some interest that he lost -- that's not clear by the contract -- and that's it. The insuring employer can therefore basically be entitled to a free play with his insurance benefits.

QUESTION: Well, that's what happens under collective bargaining agreements all the time where you have to go through the grievance procedure, and you have to be -- you have to settle for whatever you get out of the grievance or the arbitrator.

MR. BOISITS: True. But a state --

QUESTION: And even -- even if the employer keeps the wages that you are -- withholds, wrongfully withholds wages that you would like to use to feed your family.

MR. BOISITS: Yes, but basically as far as an -- when the employer acts as an insurer, there are other obligations that the state feels that are very important. And in this case we are proceeding against -- against the employer --

QUESTION: Would you say that this agreement, then, this agreement that was provided for arbitration of disputes about this very plan, is contrary to public policy? Is that what you're saying?

MR. BOISITS: I'm saying that it --

QUESTION: It's just unenforceable, that provision of the contract.

MR. BOISITS: That I'm saying -- no, I'm not, Your Honor. Basically --

QUESTION: Well, if it's enforceable, why can't you insist that he go to arbitration?

MR. BOISITS: He can go to arbitration to get his contract benefits, the benefits that are arising out of the breach of the contract, the employment contract. They provide for him to get a means of redress. He can get his --

QUESTION: Yes, but most arbitration provisions say that the arbitrator -- the arbitrator's decision will be final and binding, and that's all you get.

MR. BOISITS: As far as disability benefits are concerned, but the state interest, the interest that the Wisconsin -- that the State of Wisconsin, as well as the Wisconsin majority, indicated was look at, we cannot allow an employer to hide under a Section 301 case, or what's claimed to be a Section 301 case. They can horse Mr. Lueck around forever. They can delay his payments. He can go through -- he can go through the arbitration process. They can pay his disability. Then later on they can deny him payments again. They can send him to four or five different doctors, all of whom affirm his disability, and still deny it and then go through the arbitration, and so forth and so on without any -- without any -- with impunity.

QUESTION: If we join you and make this exception as to insurance policies, can you tell me anything that the state can't also do and wreck the whole contract?

MR. BOISITS: And wreck the entire employment contract by allowing --

QUESTION: Yeah, yeah.

MR. BOISITS: Your Honor, I can't --

QUESTION: Well, can you name something that they couldn't do? Couldn't the state say it's against our policy to pay a minimum wage?

MR. BOISITS: Yes, but now we're getting into --

QUESTION: Would that apply?

MR. BOISITS: Yes. The state could not say that.

QUESTION: Why not?

MR. BOISITS: Basically because now that's dealing -- that's stepping right into a situation of the conditions of employment and wages, something that Section 301 --

QUESTION: Something that's bound by the contract.

MR. BOISITS: Something that's related to the contract, yes.

QUESTION: Just like the policy.

MR. BOISITS: Well, the policy -- what I'm saying, though, is that --

QUESTION: Is -- does the contract in any way say that this benefit under the policy is different from the rest of the contract?

MR. BOISITS: I'm sorry. I don't understand the question.

QUESTION: You say this is a separate part of the contract.

MR. BOISITS: Yes, it is.

QUESTION: Does it say that it is separated from the contract so that it does not apply to arbitration?

MR. BOISITS: No, it doesn't.

QUESTION: Well, then how can you say so?

QUESTION: It's just the contrary.

MR. BOISITS: It says the contrary. But again, where does -- we're talking about a state interest here in making sure --

QUESTION: Well, how can the state do it?

MR. BOISITS: Why can the state do it?

QUESTION: How?

MR. BOISITS: The state can step in and allow Mr. Lueck compensatory damages and punitive damages just like was discussed in the previous case. They cannot rule as to the eligibility as far as disability benefits are concerned. That's something that the parties to the labor agreement anticipated, and that's something that they've agreed to go through arbitration process on. But they have not -- there is nothing in that contract to indicate what -- if there are any procedures in respect to how the employer, who is an insurer -- I think the key thing here as far as the Court should consider is that the -- that the employer now has stepped out of the shoes of an employer and has taken on the guise of an insurance company; and as a result, they become amenable to some of the equitable principles.

QUESTION: Well, I gather, though, Mr. Boisits, what you're saying is even though the collective bargaining agreement says for issues of this kind you must go through the grievance procedure, you must accept arbitration, it doesn't really mean anything, because if the state wants to intervene and say well, we've got a different policy in particular respects, and if that policy is violated, then that's in addition to whatever remedy you have under the collective bargaining.

That is what you're saying?

MR. BOISITS: No, I'm not. Because I'm saying, what I'm saying is that the Wisconsin supreme court decision is accommodating to the Section 301 arguments. Congress as -- as --

QUESTION: I know, but it's -- it's adding something. I thought you just suggested to Justice White that there isn't any question in terms at least that the arbitration and grievance procedure applied to this claim; isn't that right?

MR. BOISITS: It applies to a claim for disability benefits. It does not apply to a claim for bad faith, the bad faith tort that Wisconsin has promulgated. It only applies to the collection of his disability benefits. If they deny him his benefits, he can go through an arbitration process, if they wrongfully, recklessly, contemptuously deny his benefits.

QUESTION: Well, isn't that one of the -- so the employee says to the -- says to the employer or to the insurance company or whoever he's talking to, you haven't paid me my benefits, and furthermore, you have not done it -- you've done it in bad faith. And the employer says well, let's arbitrate; this is a dispute about the payment of these benefits. And you say you divide that up into two things. One is you go arbitrate for your benefits, and you sue in the state court for bad faith.

MR. BOISITS: That's what I'm saying.

QUESTION: Well, that's --

QUESTION: Well, if the union became convinced that Allis-Chalmers was horsing some of its members around, as you put it, on these disability payments, couldn't the union decide that we don't want to submit that kind of thing to arbitration and simply withdraw that from the arbitration contract, and that then you'd really be in a lot better position, I would think.

MR. BOISITS: You're talking a renegotiation of the contract then.

QUESTION: I realize --

MR. BOISITS: There's no -- there's no provisions in there for that now. Where is the -- where is the employer amenable to the situation that Mr. Lueck faced, if they're treating him in bad faith as alleged? Where is he amenable to it? He can do that with every employer until the union steps forward and says let's negotiate. Hey, you're -- you know, you're horsing the people around.

QUESTION: But he's bound by the union's contract on his behalf to arbitrate this particular kind of dispute, as I understand it.

MR. BOISITS: Just the disability, not -- Wisconsin looked at this as a separate tort action, just like it looked -- this Court has looked at as emotional distress, intentional causing emotional distress, malicious libel -- those type of cases. This Court has looked at those things and has designed a policy to show that yes, you can go into court -- if the action is of a particularly contemptuous nature, you can go into court and sue on that. There won't be any infringement on it. It was said in Farmer. It was said in other cases, which admittedly do deal with the Garman exceptions or the Garman preemption doctrine and the related cases. However, I think that it's important to note that the first criteria under the Garman ruling is basically, one, number one, that the court has got to see whether or not there's any conflict with Section 301, with the Labor Management Relations Act. That's the first criteria that's stated in the Garman case.

QUESTION: Is this obligation on the benefits a debt? Is it a debt relationship?

MR. BOISITS: As far as the disability benefits are concerned? I would consider that a debt, a debt under the contract.

QUESTION: Well, then, is every person who doesn't pay his bills on time committing a tort?

MR. BOISITS: No, he isn't.

QUESTION: Well, you've just said that their failure to pay was a tort.

MR. BOISITS: There's got to be a particularly abusive manner in failing to do it, other ulterior motives.

QUESTION: Well, let's say that you write Brooks Brothers and say that go fly a kite, we're not going to pay you the bill, and don't waste your postage sending me any more bills. Is that a tort?

(Laughter.)

MR. BOISITS: It's a breach of contract. There's no -- there's no malice. There's no particularly abusive manner where Brooks Brothers has been harmed by it. They're not going to be harmed by it. You know, the cost of your suit is not going to be there.

Pardon?

QUESTION: They haven't got their money.

MR. BOISITS: They haven't gotten their money, but they have not been harmed by the action that you've done except they haven't gotten their money.

QUESTION: How's Brooks Brothers any different from your client?

MR. BOISITS: Yes, they are.

QUESTION: How?

MR. BOISITS: We're talking -- we're talking an employer, a giant industry. We're talking an employer-insurer who is -- who is out to horse somebody around, to keep them horsing around, and he's continually being denied the benefits. Where can Mr. Lueck turn? The state is the only place he can go. The union, as indicated here, both the union and the United States Chamber of Commerce are amicus here. There's nowhere to turn except to the state, the state that's promulgated state --

QUESTION: How can you say the union was disinterested in this case? Did he apply to the union?

MR. BOISITS: Mr. Lueck received his benefits before there was any right --

QUESTION: Well, what did the union refuse to do?

MR. BOISITS: Well, the union didn't refuse to do anything in this case.

QUESTION: So you can't complain against the union.

MR. BOISITS: But what I'm saying is is that --

QUESTION: You can't, can you?

MR. BOISITS: No, I can't.

QUESTION: Well, why try to do it now?

MR. BOISITS: Justice, I'm not trying. I'm just saying, though, that the way the forces are on this course that there's danger on -- as far as contracts are concerned, that individuals cannot have any redress if someone on a labor contract horses them around, unless that contract is renegotiated and re-evaluated by the parties. And what if it isn't? Both parties have interest not to have a bad faith claim brought against them. They don't want to have to deal with that.

QUESTION: What if the union -- do you think the union's reason is that it might be a defendant in such a claim?

MR. BOISITS: I think that's why they're there. I don't think they're looking at this as an infringement. This is a -- this is a type of case where -- that they can become amenable to this type of action. It's a separate, distinct tort that the court has looked at, and they've treated it basically --

QUESTION: Well, may I ask you on that point, this contract, as I remember it, there's some supplementary correspondence about insurance-related matters, that they had some kind of a special arbitration procedure. If they had said in those documents insurance-related matters shall include arbitration of claims that the company was slow in paying, for bad faith or otherwise, and that the arbitrator would have the authority to grant appropriate relief if that happens, would you then feel you had to go through that procedure?

MR. BOISITS: Yes. Because then the state interest has been recognized, the interest that the -- the contract is now taking into account.

QUESTION: Well, then, may I ask why couldn't one argue that your first step in this problem, if it's a general problem, is to ask the union to negotiate such a provision, or to bring a proceeding and see whether they might not even interpret the existing documents to give that relief?

I suppose it's conceivable that if you took the claim to arbitration and said that insurance-related matters includes claims of this kind as well, and if you have very sympathetic facts, as presumably you do.

MR. BOISITS: Justice, it is conceivable, but unfortunately, it wasn't done in this case, or fortunately.

QUESTION: Well, Mr. Boisits, I'm looking at the collective bargaining agreement at page 24 of the Joint Appendix, and there's a provision as to the jurisdictional authority of the impartial referee, and it says, "It's defined as, and limited to, a determination of any grievance which is a controversy between the parties, or between the company and employee covered by this agreement concerning compliance with any provisions of this agreement, and is submitted to him consistent with the provisions of this agreement."

Now, I don't know. That seems to me broad enough to cover the kind of grievance that is I haven't been paid my benefits in time.

MR. BOISITS: Your Honor, in addition to that there's the other letter that specifically just says that --

QUESTION: Well, I was looking at the conclusion of the agreement. I wasn't looking --

MR. BOISITS: Are we looking in the -- what's --

QUESTION: Joint Appendix, page 24.

MR. BOISITS: On page 24?

QUESTION: Twenty-four, yes. See that paragraph, the first paragraph at the top of the page, 240? It's a rather broad authority.

MR. BOISITS: Yes, Your Honor, but again, as far as this would -- this page is concerned and this paragraph is concerned, I would argue that this applies to anything dealing with wages and conditions of employment. If we have to -- I think the --

QUESTION: Well, doesn't -- doesn't the -- under that provision would not the arbitrator decide whether a given grievance comes within his authority or not?

MR. BOISITS: As far as -- whether they decide -- whether -- well, I'd say --

QUESTION: Whether it's an arbitrable grievance. Wouldn't that be within his authority to decide?

MR. BOISITS: Well, I'd say as far as Mr. Lueck was concerned, if he looked at the thing and he determined that this is a wage-related or he felt it was a wage-related condition of employment situation, yes, he would go to the arbitrator. However, he could be misled because of the statements that are in the Joint Appendix on page 42 and 43.

When looking at this, it was my feeling and, of course, Mr. Lueck's as a result, that the statements that the -- the -- are in that letter are supplementing the labor agreement. They're treating it as a separate thing. They're treating the insurance benefits as a separate thing, and there they're just referring to the discontinuance of weekly disability payments.

QUESTION: But the supreme court of Wisconsin didn't consider it at all, did they?

MR. BOISITS: Didn't consider what at all?

QUESTION: That provision. Did it?

MR. BOISITS: I was asked about it at an oral argument. They did not put that down as far as their decision was concerned.

QUESTION: It's not in their opinion at all, is it?

MR. BOISITS: No, it isn't. No, it isn't. What they're looking at is they're looking -- I believe that they're promulgating the state interest. They're saying Lueck has nowhere else to go for this; that our state -- we've designed statutes, we've designed case law that treats this bad faith treatment as a separate, distinguishable tort from the contract, and as a result, we are ruling that there is jurisdiction to proceed against the employer when he puts the hat on as an insurer.

QUESTION: Well, now, look at this letter at page 43 that you refer to expressly says that "question within the committee's scope shall be referred to it and shall not be processed in the first three steps of the grievance procedure, but may be presented for arbitration in the established manner once they've been discussed and have not been resolved.

MR. BOISITS: I look --

QUESTION: I don't see any independent. That seems to me to reach your -- that's your arbitration --

MR. BOISITS: But they're making the final decision as to whether or not we're going to refer it back to the labor agreement, Justice. And, in addition -- well, 42, page 42, that letter again shows that it only deals with disability benefits and nothing else. So, again, we would be consistent with what they're saying here, that we'd be going through the labor agreement in respect to discontinuance of weekly disability benefits, and that's it.

If I may make a suggestion to the Court, I think the Court, at least as far as the philosophy is concerned, has addressed this question in respect to the Garman preemption situation.

A short note: the Garman preemption arguments as presented by myself were originally brought up in the circuit court and determined by Justice Lamponi in the circuit court on the two grounds: one, Section 301 preemption; and number two, on the basis of Garman. That argument was brought all the way through the Wisconsin courts, and that's why the Wisconsin court relied heavily on the Garman argument, primarily because it was raised by opposing counsel and Allis-Chalmers.

I'd like to bring out just two points as far as the Garman preemptions considerations are. The Court did appear hard-pressed when they talked about, say, emotional distress in the Farmer decision. In other words, it appeared to me as reading the decision that the Court wanted to make perfectly clear that as far as the emotional distress situation is concerned, that that would have to be something completely separate out of this wage and conditions of employment argument. That the -- the -- we have to -- we have to look at the type of conduct that was promulgated by the tort feasor. In other words, in that case it was my understanding that the emotional distress was a function of the particularly abusive manner in which the claimant was handled by the union officials, and that the matters dealing with the negotiation of the contract or the rates under the contract were completely separate.

And you can see, at least from my reading of it, it seems that this Court has attempted to distinguish that. That's basically all that Mr. Lueck is doing. He's attempting to show that there was a particularly abusive manner in which he was treated that's separate and distinct from the labor contract, and that yes, he can go through the remedies that are afforded by the labor contract, and yes, he can go into state court and go after that separate tort and the remedies that are available there.

The dual functions are served. The Section 301 is remaining intact, and the state interest in making sure that insurance companies don't horse an individual around are also remain intact. They can go hand in hand. They do not necessarily butt heads.

Another argument as far as the Garman philosophy is concerned is that the Section 301 preemption argument is incorporated in the Garman exceptions. Number one, the number one criteria where it talks of whether or not the action is one of peripheral concern to the Labor Management Relations Act, that directly goes to Section 301 considerations, whether or not Section 301 applies.

The Wisconsin court saw the tort as separate and distinct and that it did not infringe on the Section 301 rights. And as a result, he's able to bring that state court action. And again, the whole situation, it accommodates, it accommodates. Mr. Lueck's action accommodates both the state interest and the federal interest under 301. The decision of the Wisconsin supreme court noted that. They paid due deference to the decisions of this Court. They're just saying that he's proceeding on a different -- he's proceeding on a different track. He's trying to get some recovery and redress, something that you're entitled to. He's trying to get the redress for -- for the abusive manner he was treated in.

Now, I know that the ERISA argument as posed by Justice Day is going to probably depend on how the decisions come out on the case that was previous to this one. However, I'd like to note again that there is a federal policy, at least as we stand now, that the federal policy that's put in the McCarran-Ferguson Act clearly shows that there should be no preemption here of the state right to regulate the insurance activities.

The situation that we have here is pretty much like what happened -- the provisions in the labor agreement, as far as the insurance benefits are concerned, the insurance portion of the brief, of the contract, indicates that Allis-Chalmers had a choice of whether or not to self-insure or whether or not to hire somebody, an insurance company, to insure them and that type of thing.

Now, the question I'd pose to the Court is what would happen if Allis-Chalmers in this case allowed another insurance company to insure the disability plan; rather than Allis-Chalmers being self-insured, they hired another company, and they paid premiums to that company for those benefits.

If the argument of opposing counsel remains consistent, apparently that insurance company can claim the exemption for the same reason that they're claiming it now; that they are not amenable to any state regulation; that it's a Section 301 situation; and that if the insurance company doesn't pay, we'll go through the arbitration process and determine whether or not they have an obligation to pay in this case.

They have now -- the insurance company has now been able to avoid any liability by attaching itself to Allis-Chalmers. In big letters in my argument I basically would like to show the Court is a distinguishing case as far as Section 301 is concerned. The employer has changed hats. They are providing for insurance benefits. They've taken a self-insured position, and now they're claiming an immunity because of that self-insured position. And in addition to that, I guess that immunity would go to anybody they'd hire, because the labor agreement provides for that type of benefit, and therefore, anybody they hire or anybody that does anything in respect to that insurance is going to be immune from the type of action that Mr. Lueck has brought.

He has nowhere to go, and to not allow him to go anywhere I think steps on a state decision, a majority decision, that can accommodate the vague statements as far as Section 301 is concerned. It's for actions arising out of contract. Wisconsin says it has -- this does not arise out of the contract. It's a separate and distinct tort. And therefore, it's my opinion -- and I --

QUESTION: But your complaint says nothing except contract.

MR. BOISITS: Excuse me?

QUESTION: Your complaint in this case says nothing except a violation of the contract.

MR. BOISITS: My complaint does not say that, Your Honor.

QUESTION: It doesn't say contract?

MR. BOISITS: My complaint is saying that one of the elements --

QUESTION: It doesn't say contract?

MR. BOISITS: Well, it mentions contracts, Your Honor, but I am not going --

QUESTION: Well, that's all it said. It says the contract with Aetna Life and Casualty Company under contract number ACS-558781. You can't be more specific than that.

MR. BOISITS: But I'm going for something that does not -- that the contract does not provide for. The contract provides for payment of disability benefits. That's it. I'm going for a tortious action where again if the insurance company continued to sporadically make payments, Mr. Lueck wouldn't be able to do anything under the contract because he wouldn't have a grievance.

QUESTION: I think we have your point on that, counsel.

MR. BOISITS: All right.

QUESTION: Could you tell me where specifically it is that the agreements or the letter of understanding require that claims for benefits, disputed claims for benefits be arbitrated?

MR. BOISITS: For -- for the insurance benefits?

QUESTION: Yes.

MR. BOISITS: That would be on page 43.

QUESTION: Now, is this committee that that letter talks about, is that the -- are they the arbitrators?

MR. BOISITS: No. They are a committee that deals solely with insurance-related matters, as indicated --

QUESTION: Well, I know, but now you -- where does it require that -- we're talking about an insurance-related matter, aren't we?

MR. BOISITS: Yes, we are, definitely.

QUESTION: And tell me where this letter requires something to be presented to arbitration.

MR. BOISITS: On page 43, second paragraph, it says, "The committee will be composed of two members, bargaining committee," et cetera. "It shall be the purpose of this committee to discuss for resolution any insurance issues," and then it says, "Questions within the committee's scope shall be referred to and shall not be processed in the first three steps of the grievance procedure."

QUESTION: Yes.

MR. BOISITS: Then it says, "If such a question is erroneously presented as a grievance, it shall be automatically referred to the committee, but it may be presented for arbitration in the established manner once they have discussed and have not been resolved."

QUESTION: Well, the committee is -- so where do you present it for arbitration?

MR. BOISITS: You present it to the committee. And if you file a grievance --

QUESTION: So the committee are the arbitrators.

MR. BOISITS: No. They're going to look it over and discuss it, and then they're going to say we agree, we've got a decision, or we don't have a decision and now we're going to go to arbitration.

QUESTION: And that would be under the main contract?

MR. BOISITS: That would be under the main contract, at least from my understanding of this, Justice. Perhaps opposing counsel is better versed as far as that.

QUESTION: But that word "may" is in there.

MR. BOISITS: Yes.

QUESTION: Now, does that require presentation to arbitration?

MR. BOISITS: No.

QUESTION: Well, I suppose --

MR. BOISITS: That's one of the reasons we brought the action, Justice.

Thank you.

QUESTION: If the company -- but if the company wanted to present it for arbitration, the claimant would have to go to arbitration.

MR. BOISITS: That's correct. Once he filed with the committee.

QUESTION: But, counsel, that letter can't alter the terms of the contract, can it?

MR. BOISITS: Justice, it is my -- it is my opinion both from the way it has been presented by Allis-Chalmers that those letters definitely alter the contract. They indicate specific amendments to the -- to the contract itself.

CHIEF JUSTICE BURGER: Thank you, counsel.

MR. BOISITS: Thank you, Justice.

CHIEF JUSTICE BURGER: Do you have anything further, Mr. Kammholz?

ORAL ARGUMENT OF THEOPHIL C. KAMMHOLZ, ESQ., ON BEHALF OF THE PETITIONER -- REBUTTAL

MR. KAMMHOLZ: Your Honors, if you have no questions.

QUESTION: I have a question, Mr. Kammholz. Supposing that in this contract Allis-Chalmers, instead of acting as a self-insurer, had simply provided that as one of the benefits it was giving employees it would provide them with a disability policy with Aetna Life Insurance Company, but the contract also said that any disagreement between the employees and Aetna Life Insurance Company over the payment of a disability would be submitted to arbitration the same way a grievance is to the conditions in the plant.

Do you think federal labor policy requires a state court to apply federal law to that situation?

MR. KAMMHOLZ: Yes, Your Honor.

CHIEF JUSTICE BURGER: Thank you, counsel. The case is submitted.

(Whereupon, at 2:42 p.m., the case in the above-entitled matter was submitted.)