Full opinion text
AMENDED OPINION SAROKIN, District Judge. This is an action brought pursuant to Section 510 of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1140 (1982). Section 510 provides, in pertinent part: It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan, ... or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan.... Plaintiffs claim that defendants, through the implementation of a nation-wide scheme to avoid pension liabilities, prevented them from obtaining benefits under the pension plan in violation of § 510. Introduction The defendants in this case found themselves in a declining market because of substantial changes in the can making industry. They further recognized that they faced substantial layoffs and huge potential unfunded pension liabilities as a result. They concluded that continued employment would permit large numbers of employees to qualify for those benefits unless action was taken to prevent them from doing so. Accordingly, defendants developed a sophisticated computer program which enabled them to identify those employees who had not yet qualified and who therefore, should be and were targeted for dismissal. The same computer system kept track of the employees so laid off in order to prevent the resurrection of their rights through inadvertent recall. The plan was shrouded in secrecy and executed company-wide at the specific direction of the highest levels of corporate management. It was intended to save hundreds of millions of dollars in unfunded pension liabilities. The evidence of the plan, its secrecy, and its execution comes from the files of the defendants themselves. The documents are more than a smoking gun; they are a fusillade. The evidence in support of plaintiffs’ claims has been known to and possessed by the defendants since the inception of this case. Nonetheless, defendants have denied the existence of the plan and its implementation. For a corporation of this magnitude to engage in a complex, secret and deliberate scheme to deny its workers bargained-for pension benefits raises questions of corporate morality, ethics and decency which far transcend the factual and legal issues posed by this matter. The issues to be decided in this portion of the case arise from Continental’s claim “that the illicit objective of the Liability Avoidance Program was not a determinative factor or that, if it arguably was, other factors clearly predominated and would have resulted in the same layoffs in any event”. (Defendant's Trial Brief, p. 4). The Gavalik case, which this court has utilized to establish the guidelines for this matter, provides as follows: Continental must then be afforded the opportunity to present evidence that as to any particular individual class member’s request for relief, that individual is not so entitled because in the absence of Continental’s illegal plan that individual would have been without work at the same time in any event. We do not foreclose an opportunity for Continental to submit its proofs collectively as to all of the plaintiffs. That is, if the proof as to each individual is the same, there is no requirement that Continental repeat the same evidence for each claimant. Continental must establish either collectively or individually that class members would have suffered the same loss of work even in the absence of the illegal plan. Continental’s burden on this issue will be one of persuasion. Gavalik v. Continental Can. Co., 812 F.2d 834, 866 (3d Cir.1987). In view of the foregoing, this court concluded that it would be appropriate in the interests of efficiency and economy to determine the issues outlined above at a test trial involving one of the plants, since such determinations would dispose of other issues or render them moot. In addressing the factual matters presented, the court at the outset wishes to outline its view of the respective burdens upon the parties. Plaintiffs, of course, have the ultimate burden of proving that Continental acted with the specific intent to interfere with the attainment of Magic Number pension benefits in connection with layoff decisions. Plaintiffs must establish by a preponderance of the evidence that the avoidance of such pension benefits was a determinative factor in the layoffs by Continental. Defendants concede that they have the burden of both production and persuasion as to the alleged “same loss defense”. If Continental were to prove that plaintiffs would have sustained the same loss in any event, plaintiffs would be unable to succeed, and thus the focus on this issue initially. The court proceeds on the basis that the respective burdens are subject to a preponderance of the evidence standard. The court’s factual findings are as follows: Industry Background Before the 1960’s, almost all cans were three-piece tin-plated steel. A typical three-piece line for the making of such cans cost between $750,000 to $1,000,000. Additional equipment for end-making and lithography substantially increased that cost. Two-piece lines were much more expensive but required no separate lithography equipment, and because they needed only one end, certain expenses involved in three-piece equipment could be avoided. It was essential, because of the large capital investment, to maintain high levels of line utilization. It is undisputed that two-piece lines, while more expensive initially, were less labor intensive in actual operation. In the 1960’s, development of two-piece aluminum cans occurred, and the process permitted standard sized can bodies and bottoms to be formed at high speeds. It also eliminated the lithography, coating and coil departments required for three-piece can making. Plants which had been designed for three-piece production did not easily convert to two-piece aluminum can equipment, although such conversion was feasible depending upon specific conditions. There were three primary markets for can makers: food, general packaging and beverage. In the 1950’s food cans were the largest segment of the domestic can business, but the beverage demand grew significantly because of beer and soft drinks. In the 1960’s, the beverage market was the largest of the three and continued to be so through the relevant time period of this litigation. One of the reasons that the food can business declined was because food can-ners began to self-manufacture their own cans. The Campbell’s Soup Company, which was one of the nation’s largest users of food cans, became one of the market’s largest self-manufacturing companies. Other major consumers also began to meet their needs by self-manufacturing, and, indeed, they began to sell cans on the open market and competed with companies such as Continental and American Can Company. In addition, overall sales of canned food declined because consumers viewed it to be not as fresh as other types of food. Cheaper forms of packaging also replaced steel in the food market. Many of the small manufacturers which utilized cans went out of business. Therefore, there was a substantial reduction in the food can business for Continental as well as others in the industry. General packaging was always the smallest part of the can industry, and this segment of the market was serviced by numerous manufacturers, including many smaller companies. Here again, substitute forms of packaging such as plastic reduced this market. Except for aerosol cans which briefly flourished and then diminished because of environmental considerations, most general line business declined for Continental. The market for beer and soft drinks, however, sold in cans, substantially increased after World War II. Metal cans replaced glass as the package of choice in the beverage market. Can companies, including Continental, built a number of factories in response to that demand. Continental continued to concentrate on its proprietary three-piece steel cans during the early period and built many factories, particularly near customer locations in order to meet this demand. Continental opened 27 such plants between 1969 and 1971, and by 1974, 60 percent of Continental’s beverage cans were produced at such plants. The growth of the beverage can business was attributed to increased consumption, consumer preference for convenient packaging, and the increasing reluctance on the part of retailers to utilize returnable bottles. Tin-plated beer cans had a problem with iron pick-up which affected the look and taste of beer. In 1965, tin free steel was developed to avoid this problem. In addition, the ring-pull beverage can top appeared in 1963, and accounted for 40 percent of all beer cans sold in that year. Indeed, the convenience increased the demand. The ring-pull tops, however, were aluminum and thus forecast the entry of aluminum into this business. The number of breweries substantially decreased, however, and of the original 700 which existed in the country, by 1977 only 47 remained. The most substantial reason for Continental’s loss of business in the beverage area was its failure to convert to two-piece aluminum. Continental used a proprietary technology called Conoweld. The two-piece aluminum beverage can totally revolutionized the industry. It was developed by Coors, and was adopted by many beer producers and soda manufacturers thereafter. By 1965, five of the major breweries began packaging at least a portion of their beer in aluminum cans. The aluminum cans were successful because they did not pick up the metallic taste, had a lower weight, a quicker chilling time, and were more attractive because they did not have a seam. The cans cost less than steel and were less subject to leakage. As a result, by 1979, 91 percent of the beverage business was in two-piece aluminum cans. Aluminum also had the advantage of recycling. Unlike the steel cans which rusted and decomposed, aluminum cans had the ability to survive the elements for years. The same trend developed in the soft drink can market, and ultimately two-piece aluminum had the major share of that market as well. As a result of the foregoing, companies such as Continental and American Can, which were the major producers of steel cans, had obsolete factories and required capital for two-piece line investments. Employment growth in the industry declined and many workers were underutilized. Particularly due to the self-manufacturing by major past consumers, and the predominance of the aluminum technology, companies such as Continental and American were faced with aging equipment, outdated facilities and excessive labor. Changes to two-piece beverage production required a reduction in the labor force because the two-piece lines were less labor intensive than their three-piece counterparts. Therefore, the court concludes, and specifically finds, that economic conditions warranted restructuring and layoffs by Continental during the relevant time period. In the late 1960’s Continental had become the leading producer of metal cans in the United States, and was responsible for the manufacture of approximately one-half of all the beer cans consumed in this country. As a result of the foregoing conditions in the marketplace, Continental’s predominance in the industry was substantially reduced. American Can, which had always been Continental’s primary competitor, faced identical problems. As Continental turned to Conoweld as its technology, American invested in a Miraseam technology. Neither was able to stave off the competition of aluminum cans. Even in the metal can industry, competitors emerged which also affected the market share for Continental and American. Likewise, major competitors entered into the aluminum can business, such as Jeffco, which was assisted by Coors in its development. The greatest loss of business came from the self-manufacturing of the major consumers, and, in particular, such companies as Anheuser-Busch and Schlitz. To some extent Continental places blame upon the United Steel Workers Union for its predicament, asserting that the labor contracts were such that it further exacerbated Continental’s competitive disadvantage, a contention which this court need not resolve. The effects of such contracts are, of course, relevant, but how or by whom they were initiated is not. Continental’s Response to the Declining Market Reading the writing on the wall, Continental determined to hire the Boston Consulting Group (BCG) to conduct a study to determine what strategic approach Continental should take in respect to its metal can business. BCG initially did a study for Continental’s beverage division in 1971, and in December of 1972 recommended that a study be conducted of the entire domestic metals division. Such a study was conducted and a presentation made in 1973. In essence, BCG recommended that Continental diversify its investments away from metal can making and towards businesses more likely to grow. It recommended an increase in its cash flow and that strategy was implemented. BCG also recommended that there continue to be investment in the soft drink and aerosol business, but'generally recommended that Continental attempt to generate as much cash as possible to use for more productive investments. Pursuant to that overall strategy, attempts were made to increase productivity while at the same time reduce costs. Some of those efforts were directed at the elimination of the hiring of seasonal workers, spreading vacations and production schedules, and utilizing overtime in lieu of recalling workers. Although not necessarily relevant to this action, the court notes and finds that other recommendations of BCG were followed in that Continental acquired a number of new businesses unrelated to metal cans. The court accepts without question the opinion of Dean Blaydon of the Amos Tuck Business School that industry conditions required that strategic changes be made; that diversification and cash generation were appropriate goals; that realignment and reduction of the work force were necessary; and that better utilization of the work force and assets was necessary and proper. In pursuing the foregoing, calculation of all costs including pension liabilities was consistent with good and accepted business practice. The issue, of course, is what use was made of that information not whether it was appropriate to gather it. Thus, the court finds that Continental was entirely justified in seeking ways to reduce its costs and improve its productivity and generate cash. The question remains, however, for the court to determine whether or not in pursuing those goals Continental illegally sought to avoid liability for pensions, and whether such purpose was a determinative factor (a motivating consideration) in its decisions and the actions taken pursuant thereto in violation of § 510 of ERISA. One of the ways in which Continental responded to the foregoing conditions was to create its Management Services Program (MSP). This program allowed Continental to use an extended lease agreement with a customer to obtain financing. In essence, it permitted Continental to recapture the capital cost and interest for the equipment necessary to establish a new two-piece production line. Continental utilized MSP beginning in the 1970’s primarily for two-piece aluminum can contracts. By leasing the equipment Continental was able to recoup its capital investment and interest and assure purchase of its services over a fixed term. In further response to the economic climate in which it found itself, Continental also engaged in strategic planning intended to make projections over a five-year period. The details of said strategic plans will be discussed more fully hereafter. Continental generated numerous reports to track its costs and profits, and initiated a number of cost reduction measures. Included in these were programs to reduce the weight of the metal used in can bodies and ends, the construction of service centers and the use of larger sheet sizes. Lithography costs were also reduced. Job combinations were implemented, and certain jobs were eliminated as a result. In addition, throughout the relevant period Continental was concerned with pension liability arising out of an agreement with the United Steel Workers. Two major provisions, known as “Magic Number” pensions, provided the basis for this concern. An employee who qualified for a 70/75 pension could elect to retire before age 62 and receive a lump sum retirement allowance covering the first three months of retirement, and after those three months a 70/75 pension. A 70/75 pension was equal to the normal pension. In addition, the employee received a monthly supplement of $300 until eligible for social security, normally until age 62. In order to qualify for a 70/75 pension an employee had to meet the following requirements: a. The employee’s regular continuous service was broken by his or her absence for at least two years as a result of a permanent plant shutdown, involuntary layoff or physical disability; and b. The employee completed at least 15 years of regular continuous service and was 50 years of age or older with combined years of age and regular continuous service equal to 70 or more; or c. The employee completed at least 15 years of regular continuous service with combined years of age and regular continuous service equal to 75 or more. An employee not entitled to retire on a 70/75 pension whose last day worked was on or after March 1, 1977 who qualified for a Rule of 65 pension could retire before age 50 and receive a lump sum retirement allowance covering the first three months of retirement, and after those three months a Rule of 65 pension. A Rule of 65 pension benefit was equal to the normal pension. In addition, the employee received a monthly supplement of $300 until eligible for social security, normally until age 62. The supplement payable was reduced by $1 for each $2 of income earned by the employee in excess of $4,500 in any year after retirement and before attainment of eligibility for social security. In order to qualify for a Rule of 65 pension, an employee had to meet the following requirements: a. The employee’s regular continuous service was broken by absence for at least two years as a result of a plant shutdown, involuntary layoff or physical disability, or Continental decided prior to that time that it was unlikely that the employee would return to work; b. The employee completed 20 years of regular continuous service as of the last day worked; c. The employee had not attained age 50 and his/her combined years of age and regular continuous service equaled 65 or more but less than 75; and d. The Company had not provided the employee with suitable long-term employment. Robert Petris had been a long term USW employee and was very active in the negotiations on behalf of the Union. He testified in deposition testimony that the purpose of the Magic Number pensions was either to prevent the can companies from shutting down or to provide benefits in the event of such shutdowns. It was recognized that the benefits would make plant closures expensive and, therefore, deter them. Ralph Biggs testified to the same effect as to the purpose of the Magic Number pensions. In 1971, Continental did not attain its budgeted sales and income and, as a result, reevaluated its position. An extensive realignment program was considered and a reserve was established in 1972, called the Extraordinary Charge Authorization (ECA), in the sum of $231,000,000. The expectation at the time was that the realignment would result in business growth rather than decline. Primarily, the ECA was utilized to write off liabilities which included labor costs incurred through work force reductions, charges for removing excess and obsolete equipment, and for transportation expenses for machinery moved from one factory to another in order to consolidate production. The need for this program arose from most of the conditions outlined above. ECA was succeeded by the Plant Utilization Program (PUP), and once again a reserve was established in the approximate sum of $100,000,000, but the source of this reserve was the income of the can company. PUP reserves were created so as not to charge local managers with certain costs over which they had no control. Whereas ECA was intended to position Continental for a growing market, PUP anticipated a declining market. PUP contemplated closures or reductions in plants. Continental claims that PUP’s purpose was to size the company to available business so that Continental could fully utilize its facilities and reduce its capital investment. In the mid-1970’s, Stephen Rexford, Continental’s Manager of Employee Relations and Strategy Planning, devised a computer system known as the Bell System. Bell I was followed by Bell II. The Bell systems employed scattergraphs, which were computer printouts depicting a plant’s work force at a particular point in time. The scattergraphs assigned codes to each employee. Continental admits that it often referred to the goals of the Bell Systems as “the Liability Avoidance Program”, which had two aspects: (a) sheltering or keeping employed 70/75 qualified employees so that their employment was assured throughout their normal careers; and (b) preventing further employees from qualifying for 70/75 pensions. (Defendant’s Proposed Findings of Fact # 368, page 118.) In essence, Continental contends that its main objective was in maintaining antiquated, marginally profitable plants to keep senior workers employed, concluding that it cost less money to operate an inefficient plant with a dwindling customer base than it did to absorb the expense of shutting it. Liability Avoidance Program As set forth above, the original 70/75 Magic Number pension came into existence in 1971, and the Rule of 65 pension came into existence in the 1977 contract with the Steel Workers Union. Soon after these pensions became part of the collective bargaining agreement, Continental became concerned with them, particularly due to the fact that they were in large part unfunded. The more apparent it became that the business was in a declining mode, the more likely it became that Continental would have to concern itself with this potential liability. Continental realized that as additional employees gained the requisite age and service requirements, its liability would increase, and that one of the ways to avoid this occurrence would be to prevent those employees from meeting the necessary requirements. The documents which come from Continental’s own files are replete with evidence not only of the creation and existence of Liability Avoidance Program but of its implementation throughout the company. The court in rendering its opinion in this matter will make no effort to review the testimony of each and every witness or set forth each and every document which clearly supports the existence and operation of this program designed to deprive Continental employees of attaining the requirements necessary to entitle them to Magic Number pensions. Where the testimony of defendants’ witnesses has purported to contradict the clear documentary evidence, the court specifically finds that the documents created at the time accurately reflect what transpired and clearly are more credible than the testimony of the witnesses many years after the events. No contemporaneous document has been produced by defendants which directly challenges either the existence, propriety, or implementation of the Liability Avoidance Program. Liability avoidance was calculated by reference to the Bell System referred to above, which provided Continental with information as to who should be laid off and who should be kept on layoff in order to avoid the vesting of such liabilities. From the outset, this plan was devised and operated in secrecy. Indeed, the name Bell is a reverse acronym standing for “Lowest Level of Employee Benefits” or “Let’s Limit Employee Benefits”. The fundamental principles of liability avoidance are set forth in the Bell User Manual (PX 754 at 185271) as follows: Liability Avoidance There are two fundamental principles contained in the concept referred to as avoidance. First, we must be very careful that our plans make every attempt to avoid, insofar as practicable, triggering liabilities already vested in 70-75 qualified employees. Secondly, we must, wherever appropriate, shrink and cap our work forces in order to prevent currently inexpensive D.V.B.’s (Deferred Vested Benefit) from migrating into the very expensive 70-75 category. (PX 754 at 185271) Pursuant to the plan, the goal of avoiding these unfunded liabilities was a determinative factor, and usually the prime factor, in deciding what plants to close or continue open, what work to accept or reject, where that work was to be performed, what jobs should or should not be combined, and who should and who should not be retained or laid off. The proof in support of the plan and its implementation is so overwhelming that if plaintiffs were required to meet a beyond a reasonable doubt standard, they could have done so. Indeed, the court questions the good faith of Continental throughout this litigation in denying even the existence of the plan, in view of the clear documentary evidence to the contrary, all of which comes from its own files. The plan existed, it was implemented nationwide, and it directly affected thousands of Continental’s employees. The plan began approximately in 1971. At the suggestion of Mr. Walter Klint, the company began making estimates to determine what the shutdown liability would be and whether action should be initiated to avoid having additional employees become eligible for Magic Number benefits. As stated above, the Liability Avoidance Program had two prime goals: 1) continuing employment of those who had qualified and 2) permanently laying off those who had not yet qualified. The second goal was a constant and vital factor in the major decisions by management as is demonstrated by the following document produced by Continental: CONFIDENTIAL In order to develop a 1977 liability avoidance for each plant it is necessary to standardize our approach to the recording of liability avoidance. The total liability avoidance number should appear on Exhibit G in column number 10 under “People Cost Avoidance”. Sfc J-! % Sj! Í-S Sfc B. Liability avoidance is also confirmed when employees with a D.V.B. (Deferred Vested Benefit) or less are permanently denied the 70/75 benefit. Identifying this type of avoidance will be done in the following manner. 1. Process the employees declared on permanent layoff (line l.A of Exhibit II) through the Bell system with an effective date of 12/31/87. In our example, the 480 people cost 9.6 in 1987. 2. Subtract the cost of capping (3.2MM) from the above. This net number is avoidance future liability by capping on the date displayed in the Strategic Plan. 9.6 Cap Cost 1987 3.2 Liability triggered 1978 by capping. 6.4 (PX 326 at 017141). It can be fairly argued that no company in a declining market should be required to make decisions regarding shutdowns and layoffs without calculating or considering the economic costs. However, it is also axiomatic that avoiding pension liability costs will always result in a savings in the event layoffs occur of those who have not yet qualified. The mere fact that profits are increased or losses reduced cannot justify every instance of intentional liability avoidance. If economic benefits were sufficient justification, then there could never be a violation of the pertinent statutory provision. 29 U.S.C. § 1140; cf. Gavalik, 812 F.2d at 857, n. 39 (“(510’s essential purpose is to prevent employers from intentionally interfering with impending pension eligibility whether motivated by malice toward the particular employee(s) or by a general concern for the economic stability of the company”). The court wishes to emphasize, at the outset, that it finds nothing either illegal or improper in a company estimating its potential pension liabilities in the event of a plant shutdown. No competent management would consider such action without doing so. However, the issue presented in this matter is whether avoidance of pension liability was the motivating force in the company’s decisions or merely a result of the decisions so made. For the reasons hereinafter set forth, the court finds that avoidance of pension liability was the prime catalyst for such decisions and so pervaded the thinking and goals of the company that it affected all of the decisions regarding the retention or layoff of employees. As early as May of 1973, Mr. Klint recognized not only the need to lay off those who would otherwise vest for the Magic Number pensions, but indicated the need to “weigh very carefully calling people back who are already on layoff”. (PX 14132) Eventually, the company determined that it could best accomplish its purposes primarily by “capping and shrinking” plants rather than by closing them. The definitions of “cap and shrink” are clearly set forth in company documents: Cap, shrink, or close action should be briefly explained — or reason for no action should be rationalized under “comments”. A cap is defined as a workforce reduction in order to reduce unfunded people liabilities. A shrink is defined as a workforce reduction due primarily to market or manufacturing considerations. (PX 351A at 048505) The documents are not casual interoffice memos but rather are highly formal and were widely circulated. They are incorporated into the strategic plans for the company. (PX 6072A at 0155352) Some of Continental’s witnesses suggested that “capping” meant only protecting senior workers. Certainly persons engaged in the can making industry understood what the word “cap” meant. It meant putting a lid on, affixing a top — just what the ordinary person would understand. If it meant only to shelter persons above a designated line, certainly a more descriptive word could have been found than “cap.” Attempts now to assert that it meant something else are not credible. The concern with Magic Number pensions was so great that the company considered shutting down certain plants and constructing others or even surrendering business in order to avoid the liabilities, as is apparent from a letter dated February 22, 1974, which considers the following: (a) Retaining the business formerly serviced by the [representative] plant that was either shut down or having a 50% reduction in the work force by constructing another plant and manning this plant with a like number of employees equal to the number laid off at the old plant, and (b) merely giving up the business manufactured by the people who were either laid off or victims of a plant shutdown. (PX 11845) Also germinating at this time was consideration for eliminating the United Steel Workers entirely from the Continental plants in order to totally avoid and end these pension benefits, as well as to rid itself of what it deemed to be high labor costs as a result of the collective bargaining agreements made with the union. In March of 1974, there was a meeting of top management, at which time it was recognized that, whereas under the 1971 contract a 70/75 pension at age 53 was worth $58,000, under the new 1974 agreement it became worth $75,000. The effort to deal with this problem continued as did the fact-finding necessary to make determinations. Scattergraphs were created depicting the effect of the 70/75 pension benefits. The desire to avoid these benefits is confirmed in a letter dated November 21, 1974, from Mr. George Swick of Buck Actuaries, engaged by defendants, wherein he writes the following: As I recall, this concept was first discussed with me sometime after the calculation of the extraordinary “people cost” prepared with respect to the proposed reorganization of the Metal Group, the initial concept being the possibility of avoiding ’70-75’ or ’75-80’ early retirement benefits. (PX 25609) In the report of the Boston Consulting Group referred to hereinabove, the company emphasized the importance of finding creative alternatives for the Metal Operations Group to reduce its unfunded pension liability (PX 23210). Until 1975 and the inauguration of the PUP program, efforts at liability avoidance were somewhat haphazard. However, PUP established a comprehensive plan to reduce pension liabilities: P.U.P. is a least cost operating plan aimed at reducing our people cost exposure (principally the ’70/’75 issue) and our asset base. This objective will be accomplished by withdrawing from the least profitable business segments. This requires shutting down or shrinking plants, which ever alternative shows the best economics. (PX 325 at 017133) The official policy became “cap and shrink”, which was understood and confirmed to be a work force reduction in order to reduce unfunded people liabilities. (PX 351B) Eventually, the program memorialized the earlier suggestion that heed be paid to not recalling laid off workers for fear that their benefits would be resurrected, and thus the “red flag” control procedure was established. (PX 17190) From that moment on the Continental documents are rife with confirmation that the effort was to be made to minimize Magic Number pension liabilities, and that to do so was the single most important problem facing Continental. Continental’s 1980 Labor Strategy states: The most important concern facing us is the liabilities associated with the 70/75 and Rule of 65 pension programs and the guaranteed SUB (Supplementary Unemployment Benefits) program which restrict our flexibility in realigning our facilities to fit changing market conditions. (PX 3701A at 012533) The company’s Strategic Review completed in early 1980 emphasized the size of the potential unfunded liabilities, stating that the “foremost strategic problem is the size of the USA labor liability”. (PX 6054) The concern at this stage was so great that means were considered to insulate the other Continental entities from this liability and establish CCC-USA as a separate legal entity. The emphasis on this prime goal was carried out in all subsequent strategic documents. The 1981 Strategic Plan emphasized the absolute nature of the “cap and shrink” restrictions for managing the liability problem. (PX 50004) The 1982 Strategic Plan listed as the prime strategic objective to minimize unfunded pension liabilities. (PX 20642) A 1983 paper entitled “CCC-USA Human Resources White Paper” identified the role of management as a “pension liability controller”. (PX 5008) Typical and significant of the documents coming from the files of Continental is the following: II. “Cap and Shrink” — This is a strategy that involves “capping” the work force in a plant at a level that does not allow any more employees to become eligible for Rule of 65 or 70.75 pensions. In the ideal situation, we would lay off all employees with 19 or less years of service. The second part of this type action is to allow natural attrition to reduce the remaining work force to a level where if desirable we could “afford” to close the plant. (PX 3701A) The court finds that Continental’s plan and goal was to lay off those steel workers whose benefits were not yet vested and, indeed, attempt to rid itself of all steel workers eventually. Although halfheartedly continuing to contend that the Liability Avoidance Program did not exist, defendants in this hearing sought primarily to offer evidence that even if the program did exist, it was not implemented, and that decisions were made free and independent of the goal of avoiding Magic Number benefits. Here again, the evidence to the contrary is overwhelming, and comes solely from the files of Continental. Defendants have presented evidence that some of the internal projections may have been fallacious and failed to take certain factors into consideration; but none of that affects clear evidence that accurate or inaccurate, the avoidance of liabilities and the projections made for that purpose were the guiding force for the actions taken. Whether or not the projections were valid is irrelevant, if they were believed at the time and relied upon in the decision-making process. To conclude that the program was not being carried out at the local level would be to ignore the contemporaneous documents of the time. For instance, in 1976, Mr. Rexford, who was Continental’s Director of Labor Relations and Strategic Planning, called a meeting “to verify that these programs are processing employee benefits calculations.” (PX 4070) The Liability Avoidance Program was defined as follows: Cap & Shrink — Implementing a pre-de-termined, upper level of employment known as a cap in order to: -Prevent future growth of unfunded liabilities. -Shelter or protect the existing liabilities of the residual workforce. -Achieve maximum cost avoidance which is defined as implementing the “ideal” cap that produces maximum avoidance of unfunded liability growth. The cost/liability of putting the cap into place is substracted [sic] from the avoidance of liability growth. -Lastly, we have equipped the Bell System with a red flag system that insures that no caps can be “broken” once put into place. We assign a special code to employees who have been displaced as a result of a capping action. Should an attempt be made to return them to active status, a red flag report is generated which identifies the employee and the plant where the violation took place. (PX 733 at 106778) As indicated, first the decision was made as to the ideal cap, one which would achieve the maximum amount of liability avoidance. Then, if necessary, the business would be sized to the predetermined cap, and if reductions were necessary, business would either be reduced or reassigned to other plants or internal changes would be made to accommodate the existing volume. Most significantly, the layoffs were monitored through the computer system to make certain that the advantages attained through the layoffs would not be lost through some inadvertent recall. Capping was accomplished by drawing a line on the seniority roster, and those below the line were laid off. Scattergraphs and the Bell Systems were utilized to direct and monitor the program. Bell Systems calculated the estimated unfunded liability and identified those employees who were or would become entitled to Magic Number benefits and when. Scattergraphs and seniority rosters were utilized (once generated by Bell II) to provide the necessary information to determine “when an action should be taken to avoid the greatest increase in liability”. (PX 712) Memorialization appears in a strategic plan developed by Continental’s Coastal Operations Division, which contains the following: [W]e must, if practical, shrink and cap our work forces in order to prevent currently inexpensive D.V.B.’s [Deferred Vested Benefits] from acquiring enough points to attain the very costly 70/75 category. (PX 6570 at 410479) That the business was to be adjusted to the capped work force rather than the reverse is confirmed in a personal and confidential report prepared by Mr. Rexford, dated July 6, 1977, in which he states, “This represents a departure from the past where most of our locations needed only to adjust their manning to fit the available business at any given point in time. We now find it necessary to begin thinking about fitting the business to the available manning”. (PX 368 at 57636). That same document again confirms that the goal was to obtain and assign work to gain the highest return “at the least exposure to the increased unfunded liability”. And, finally, in that same document he states “cap implementation is the effecting of a liability avoidance plan”. Throughout the pretrial proceedings in this matter and during this trial Continental emphasized the fact that many of the purported class members were far from vesting, and that it was too remote or speculative to include them as class members even if the plan existed and had been implemented. First, the court finds that the overall long term strategy was to end the employment of all United Steel Workers, but even short of that goal the projections of unfunded liability costs were predicted through the year 1995 and even into the year 2000. (PX 12504 at 475530) Therefore, it is clear that this was a long-range strategy that even affected those who might have been remote from vesting at the time of layoff. In any event, to get at those close to vesting, it was necessary to lay off those further distant. Although Continental contends that the plan (whose existence it denies) was not implemented, and that decisions were made at the local level irrespective of the plan, the documentary evidence is to the contrary. A July 6, 1977 report authored by Mr. Rexford, but issued by Mr. Bainton who at the time was at the head of Continental USA, advised in a personal and confidential communication that implementation of the plan was mandatory. (PX 368 at 57635) Although the St. Louis plant will be discussed in more detail hereafter, the evidence demonstrates that the St. Louis Plant was a pilot plant for Bell II. (PX 20921 at 991031) The evidence presented not only demonstrates the creation of the Plan, its intended implementation and its ongoing implementation, but recites in retrospect each of the foregoing and its success. A 1981 Strategic Plan contains the following, referring to the program: “These restrictions have been usefully applied over the past 5 years and continue to be appropriate for managing our liability problem”. The restrictions referred to are set forth as follows: Current labor policy is based upon several primary tenets: -“CAP” Steelworker plants at seniority levels selected to most effectively balance current cost of implementation with avoidance of future liability increases. -Once established, the “CAP” is absolute. Recall below the “CAP” is forbidden. -“SHRINK” capped workforces through normal attrition so that liabilities decline. -Hire no new Steelworkers to reduce their monopoly of our workforce. -Major new plant investments limited to non-USW facilities for further effective segmentation. (PX 5004 at 129597) Any doubt that the Bell System was a force in the decisionmaking rather than merely an informational tool is dispelled by a confidential presentation to the executive office, dated May 14, 1980, by Mr. Hof-mann, Executive Vice President of The Continental Group, Inc. and President of Continental Can Company, in which he states: In order to provide the vehicle to help manage our unfunded people cost liabilities, a computer system was developed that analyzes and calculates our work force liabilities, both current and future, under variable conditions. This computer system, titled ‘Bell System,’ has become an important strategic planning device as well as a tactical working model to aid in work force management. Using the ‘Bell System’ we are able to determine the proper specific level to implement a ‘cap,’ in which the work force is reduced to a predetermined employment level, then allowed to shrink over time through attrition. This ‘cap & shrink’ work force management technique: -Limits future growth of unfunded liabilities. -Provides a disciplined manner to align volume and facilities to ‘shelter’ or protect the existing liabilities of the ‘capped’ residual work force. -Achieves maximum cost avoidance, which is defined as implementing the “IDEAL” cap that produces maximum avoidance of unfunded liability growth. We are able to assess the trade-off or benefits of the cost to impose the cap action vs. the savings in future unfunded liabilities. -Provides the vehicle to contain and then manage down, overtime, the current, substantial, people cost unfunded liabilities. (PX 294 at 002969) Codes and scattergraphs were used to accomplish this purpose. Richard M. Sylte was typical of the type of testimony elicited from Continental employees. He insisted that the status codes were for accounting purposes only and not to carry out any nefarious scheme. He also attempted to define “cap” in a way contradicted not only by the documents but by the actual practices of the company. Neither he nor any other witness ever explained why, if manning levels were merely meant to service the existing volume, it was necessary to determine a “cap”. One would assume that every company seeks to employ a labor force no greater than it needs to produce its existing volume. It is obvious that capping was a new and different strategy for a different purpose. Any other interpretation defies reality. The purpose and effectiveness of the plan was summarized in October 1979 as follows: The principle of capping and shrinking the work force in plants has as its goal the shut off of new entries of steelworkers into the high labor liability classifications. This has been quite effective with a large reduction of personnel in USW units occurring over the past four years. (PX 400 at 083378) In order to accomplish the aforesaid purpose and yet minimize the loss of business, it was necessary to consider shifting business and only, if necessary, rejecting it. Management was advised it would be necessary to shift volumes and absorb larger freight costs if necessary, and even sacrifice economic maximization in order to further the objective of liability avoidance. (PX 5227) Transfers were made pursuant to that policy, including and involving St. Louis. The labor strategy employed by Continental clearly contemplated the transfer of business and equipment to other plants, and if that could not be accomplished in certain instances, to give up business if it became necessary. A retrospective prepared by Continental in 1983 states: During this period, plants were either closed, shrunk or realigned as business was lost or abandoned. In total, CCC-USA consciously chose to leave nearly 30% of its business. We had been, in fact, liquidating the business. (PX 5008 at 108107) Numerous speeches and internal memo-randa confirm that, if necessary, the goal of liability avoidance justified the voluntary surrender of business. The strategic review of 1980 again emphasizes that “the foremost strategic problem is the size of the USA Labor Liability”, and suggests that volume and business should be geared to “accomplish its strategic labor force management goals”. (PX 6054 at 085924) The same theme is repeated in numerous other documents and management speeches. As a result of a reduction in the work force, those who remained were expected to work unusual amounts of overtime. By this means recalls were avoided. The court wishes to make clear that it does not find that each and every management decision as to what work to accept, reject or continue, or where that work should be performed, was necessarily motivated by the Liability Avoidance Program. However, the court does find that the goal of avoiding liability so pervaded virtually all of such decisions that it would be impossible for the court to determine which, if any, were free of this overriding purpose. Obviously, not every decision to economize or make the operation more profitable can be attributed to this program. But the court finds without doubt, that the decisions to lay off workers and not recall them were uniformly driven by the goal of avoiding Magic Number pension liability. Other considerations were merely collateral. Despite the repeated assertions of Continental’s witnesses that many of the documents do not accurately reflect company policy and practices, no document has been presented to the court in which any of those statements were challenged or criticized at the time. Quite to the contrary, the documents were frequently approved and further circulated. Clearly, the program contemplated having the business fit the capped work force rather than having manning decisions dependent upon the volume of business. Mr. Rexford recognized at the outset that such a program would be interpreted by employees and “even the management ... as an unfair and deliberate attempt to deprive employees of benefits due them”. (PX 20929 at 991077) He further recognized that traditional considerations for assignment of work might have to be abandoned. We must realize that there are some potentially disturbing implications of workforce management decisions in regard to management employees. Since many of the liability numbers are extremely compelling, it is conceivable that traditional considerations such as efficiency, quality, service and productivity may be disregarded by the need to shelter 70-75 liability for a period of time, thereby causing the transfer of volume from a “deserving” to an “undeserving” plant. The reaction of local managers to this type decision, absent of careful explanation, could trigger a severe morale situation. In making the decisions that are right for the long term business future, every effort must be made to preserve the middle management team upon whom we will be depending to run the future business. The following hypothetical case illustrates the problem: Plant A has recently completed twelve months of difficult work with the local union on job combinations, eliminations, float control, productivity and quality improvements. As a result, plant A becomes a least cost location and is considered for a significant volume increase. At this point, scattergraphs are generated and it is demonstrated that the employees who would return to work as a result of the new volume are all expensive DVBs. Meanwhile, “B” plant undergoes the same analysis and it is discovered that the new volume would shelter 70-75 pension commitments. The volume goes to Plant B. It is not hard to imagine the bewilderment of the manager at Plant A, much less his supervisors. (PX 782 at 028477) Abandoning traditional considerations such as “efficiency, quality, service and productivity” indicates quite clearly the extent to which the avoidance of liability dominated all management decisions. Normal business considerations were abandoned in pursuit of this overriding goal. Monte Sellers testified on depositions, that for the period between 1976 and 1978, he compiled the regional budget for the 857 Great Lakes Region based upon expected sales volume. He admitted that Continental shifted business, but alleged that it did so in order to shelter senior employees. He admitted being instructed to avoid hiring new people, but denied that he was instructed not to recall anyone in order to avoid Magic Number pension qualification. Bell II, identified as the “Least Cost Personnel System,” contemplated the “transfer of volume from a ‘deserving’ to an ‘undeserving’ plant.” (PX 782 at 028477) So intent was Continental upon achieving its objective that it accepted plant wide seniority, something which it had opposed for many years, because it determined that it would be easier to implement the Liability Avoidance Program with plant wide seniority. Edward Playto, who held an international position with the USW until 1980, testified in depositions that the Union favored plantwide seniority because it would serve to protect the senior employees in the event of a layoff. For Continental, plantwide seniority was recognized as providing the “greatest liability control potential.” (PX 368 at 057661) This may have accounted, at least in part, for Continental’s willingness to accept plantwide seniority. Other reasons also existed, but it was one of the considerations and provided “good potential for employment level control which is a major objective of work force management.” (PX 10293) Negotiating plantwide seniority assured “improved control over long term unfunded liabilities” (PX 3703 at 012526) and was so recognized in Continental’s labor strategy. Although defendants contend that the decisions regarding layoff, job combinations, etc., were all made at the local plant level by the managers in charge, the fact is that the liability avoidance system was imposed company wide, and the need to avoid recalls was made abundantly clear to local managers. The desired interrorem effect was set forth in a 1977 speech made by Continental’s Vice President of Human Resources as follows: The liability avoidance tracking system known as red flag is integrated with the weekly payroll and is triggered when an employee classified as permanently laid off is returned to work. A demonstration of the sensitivity of the red flag system took place during the week of May 9. A nurse at one of our plants with three years of service had been coded improperly as a permanent layoff. When she returned to work, the red flag was immediately triggered. A preliminary investigation was completed and forwarded to Mr. Bainton and all other levels of our management within 24 hours. This example is indicative of the sensitivity of our control system and the dedication of our management team to make liability avoidance take place. (PX 750 at 137592). The “red flag” system had the imprimatur and threat of review by Mr. Bainton himself. He was so identified to convey the importance of capping and the prohibition against recall. (PX 744B) (PX 728) Richard Torrito was proffered by Continental Can as its Rule 30(b)(6) designate, to testify regarding status codes and Bell II. He claimed that the red flag system was a way to monitor plants so that there would not be a “casual” recall of a person. That testimony, of course, is contrary to the purpose as set forth in all of the internal documents which relate to the “red flag” system. No stronger proof supports the plaintiffs’ claim than the “red flag” system. Why would an executive vice-president have to be advised and approve or reject a recall decision at the plant level? The only rational explanation lies in the need to avoid Magic Number benefits. No other credible explanation has been offered. The system made certain that the advantages gained by “cap and shrink” were not to be eroded by subsequent recall action or transfers. The concern that transfers also might interfere with the Liability Avoidance Program is reflected in company documents. (PX 5849) Documents also reflect that transfers were prohibited if they interfered with the program. (PX 2149) Although Continental claims it was intent upon protecting senior workers, the desire to prevent qualification was paramount to the need to shelter vested employees. It was recognized that it might be necessary to lay off vested workers in order to keep many more from qualifying. There are two fundamental principles contained in the concept referred to as avaoidance [sic]. First, we must be very careful that our plans make every attempt to avoid, insofar as practicable, triggering liabilities already vested in Rule of 65 and 70-75 qualified employees. Secondly, we must, wherever appropriate, shrink and shelter our work forces in order to prevent currently inexpensive D.V.B.’s from migrating into the very expensive Rule of 65 and 70-75 category. These two concepts of avoidance can be mutually competing objectives. In order to put a tight shelter on a particular plant, it may be necessary to place 70-75’s/Rule of 65’s on permanent layoff in order to prevent a large group of D.V. B.’s from migrating into high liability categories. (PX 763 at 000750) This clearly confirms the prominence of this goal in all relevant decisions and its overriding importance to those decisions. It was also apparent that the Continental policy was concerned with layoffs only for a five-year period. Once the five years had passed and the employees had lost their recall rights, rehires could be made without contemplating the previous liabilities. In a memorandum dated May 6, 1976, the notation appears: “ERISA hangups with 5 yr. service bridge” (PX 1870) demonstrating not only an awareness of the purpose of the action but knowledge of its potential for illegality. One cannot help but wonder if the actions of Continental were as innocent as they contend — why the great emphasis upon secrecy? It is understandable that any company considering plant closing and layoffs might wish to keep that information confidential until a decision had been made, but much more was involved in this matter. Most significant is the fact that those who were permanently laid off were not advised that they would not be recalled. The fact that employees were designated as permanently laid off was intentionally concealed from them, depriving them of rights, benefits and options they otherwise would have had if the information had been properly disclosed. An internal document concerning one of the plants states the following: Eliminate allusions to programming the volume to the attriting workforce. Don’t want to be accused of manipulating work force to avoid benefits even tho we are. (PX 3545 at 112213) Conscious of existing litigation, Continental made changes in documents to conceal the true purpose of corporate actions, including the capping of St. Louis. (PX 1841A at 022194) A memo prepared in November 1984 originally stated that “good manufacturing performance in the plant is restricted by work force limitations designed to limit future people liabilities”. General counsel for Continental struck out the words “to limit future people cost liabilities”, and replaced the sentence with “manufacturing efficiency in the plant is adversely affected by a burdensome union agreement”. (PX 3700 at 130638) In an effort to suggest that the Liability Avoidance Program was really meant to shelter senior workers, it was suggested that hence forth “work force shelter” should be substituted for “cap”. STRICTLY CONFIDENTIAL For your information the term “CAP” as applied to our workforce has been changed to “Workforce Shelter”. This new term means the same as “CAP”. (PX 8763 at 002799) The need to conceal this program from the workers is manifested in numerous documents. Enclosed you will find a Human Resources White Paper on the CCC-USA Bell System. We believe the information will be of value in better understanding the Bell System and its implications when formulating the Strategic Plan. The White Paper addresses a sensitive and complex issue. For this reason the paper is highly confidential in nature with limited distribution. Do not reproduce the paper. Routing should be confined to your immediate staff only and under no circumstances should the paper be sent to any plant locations. (PX 268A at 065561) The permanent layoff code designations were deleted from the Payroll Manual in a further effort to conceal the true purpose of the codes while continuing to utilize them. (PX 422) Although the codes were deleted from publication, they were continued in effect. The obvious purpose was to keep the codes secret and deny the employees knowledge of their designation. (PX 2692) As a result, employees were denied pursuing options which otherwise would have been available to them had they been fully informed. Although defendants now dispute the extent of the savings from this program, there is no question that at the time that it was initiated and implemented, Continental was of the view that the program would result in savings in the hundreds of millions of dollars. As mentioned above, defendants now contend that those figures were unrealistic, because they failed to account for present value or to consider other pertinent factors. But none of that is relevant or material. It is not the accuracy of the predictions that is important, but rather whether they were considered reliable at the time and formed a basis for the actions taken by Continental. Continental’s intent is pr