August 5, 2013
Victory in Retiree Health Benefits Lawsuit Against Ohio Rubber Company
Feinstein Doyle attorneys, representing the retirees of the Pulaski Rubber Company (“Pulaski”) in Pulaski, Tennessee and the United Steelworkers, recently won a retiree health benefits trial.
The plaintiffs prevailed against Pulaski’s parent company, the Akron-based R.C.A. Rubber Company of America (“RCA”). The class action lawsuit sought to restore their retiree health benefits.
After Pulaski closed its only plant in 2005, RCA continued to pay Pulaski’s retiree health benefits for the next five years. RCA also paid for services required to keep the Plan going. Those services included costs associated with recordkeeping, insurance fees, and commissions to agents and brokers. In 2010, RCA terminated the retiree health benefits plan for the Pulaski retirees. this left the retirees without company-paid health care benefits.
Thereafter, the United Steelworkers and a group of retirees filed a retiree health benefits lawsuit against Pulaski and RCA. The class action lawsuit claimed violations under the Sections 502(a)(1)(B) and (a)(3) of the Employee Retirement Income Security Act (“ERISA”) of 1974 and Section 301 of the Labor Management Relations Act (“LMRA”), 29 U.S.C. § 1985(a). The retiree health benefits lawsuit alleged the company’s failure to provide benefits allegedly owed under the Collective Bargaining Agreements and insurance agreements.
Subsequently, the federal court ruled that Plaintiffs were entitled to receive retiree health benefits from Pulaski. The trial in February 2013 focused on whether RCA is also liable for those retiree health benefits.
After post-trial briefs were filed, the federal court found that RCA is liable and RCA’s corporate veil should be pierced. The court explained that: “RCA and Pulaski were, at least on paper, separate legal entities, but in reality RCA completely controlled and dominated Pulaski and that control and domination ultimately worked an injustice on the Pulaski retirees.” Numerous factors led to this conclusion, including:
with only one exception, the principal corporate officers for both RCA and Pulaski were identical during the last thirty years of Pulaski’s existence.
the corporate records maintained by Pulaski were largely
pro forma, consisting (with the exception of documents reflecting bank matters and pension plan amendments) almost entirely of short unanimous written consents. Even when Pulaski faced dire financial straits, the minutes and corporate records reflected no independent or meaningful evaluation or analysis of Pulaski’s situation, its dependence on RCA, or the possibility that the plant might need to be shut down. Pulaski’s corporate records also, apparently, do not reflect any meetings, resolutions, or minutes about the decision to terminate the retirees’ health benefits.
through the common officers, RCA had input into, and a firm grasp over, all of Pulaski’s business dealings and finances
RCA personnel in Akron exercised significant, and sometimes total control and/or oversight, over various aspects of Pulaski’s operations, without which Pulaski could not function. Most obvious in this regard were the banking, payroll, accounting and billing operations undertaken by RCA. While Pulaski was billed $6,000 monthly for these services, that figure remained constant for more than twenty years, and RCA has not shown that the amount billed came close to covering the cost of services rendered.
RCA was also responsible for supplying Pulaski with raw materials, including calendarized and uncalendarized rubber, without which Pulaski could not operate as evidenced by Pulaski’s serious financial downturn following the strike in Akron. When Pulaski exited the tire business and for a long time before it was closed, it relied on RCA in Akron for marketing and sales, and RCA’s customers were Pulaski’s customers.
Pulaski’s utter reliance on, and control by RCA is further borne out by what happened as Pulaski’s profits disappeared. RCA acted as Pulaski’s bank during the last years of Pulaski’s existence, funneling huge sums of money into Pulaski, and supplying it with raw materials, regardless of whether Pulaski could pay for those materials. The transactions were apparently loans, yet there were no formal arrangements made for repayment. Pulaski was not charged interest, and there is no indication that the practice was approved by any formal decision-making process or by Board resolution by either RCA or Pulaski.
When Pulaski went out of business – a decision made by RCA apparently in complete disregard of the savings which might have occurred if the operations had been consolidated in Tennessee – the equipment that was not shipped to RCA at depreciated value was sold at auction with the proceeds placed in RCA’s account. Likewise when the manufacturing facility was sold, the proceeds were deposited into RCA’s bank account and credited against the large debt which had accumulated, just as the monthly payment on the note went into RCA’s account.
The Court then concluded: “Under the circumstances of this case, the Court finds that substantial injustice would be visited on the Pulaski retirees were the Court to continue to recognize RCA as a distinct corporate entity. Obviously, if the Court does not pierce RCA’s corporate veil, the retirees will not receive health benefits because Pulaski is defunct and any assets that it may have had have effectively been co-opted by RCA.”
Click here to review the Court’s July 22, 2013
Memorandum in this retiree health benefits lawsuit.
Further proceedings are scheduled for September 16, 2013 in Nashville.
William Payne and Joel Hurt represent the Plaintiffs.