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Gould Inc. v. Wisconsin Department of Industry


December 13, 1984


Appeal from the United States District Court for the Western District of Wisconsin. No. 83 C 104 -- Barbara B. Crabb, Chief Judge.

Author: Cummings

Before CUMMINGS, Chief Judge, WOOD, Circuit Judge, and FAIRCHILD, Senior Circuit Judge.

CUMMINGS, Chief Judge. Gould, Inc. ("Gould") filed suit in the Western District of Wisconsin challenging the constitutionality of Wis. Stat. §§ 16.75(8), 101.245 (1981), which blacklist labor law violators. Both parties filed motions for summary judgment. The district court granted Gould's summary judgment motion, holding that the National Labor Relations Act, 29 U.S.C. § 151 et seq. (the "NLRA"), preempted the state statutes. In a later hearing, the district court awarded Gould attorneys' fees under 42 U.S.C. § 1988. The individual defendants appeal both decisions of the district court.*fn1 We affirm the lower court's grant of summary judgment but reverse as to attorneys' fees.


No genuine issues of material fact are in controversy. The parties dispute only the district court's legal conclusions set out in the opinion below, Gould, Inc. v. Wisconsin Department of Industry, Labor and Human Relations, 576 F. Supp. 1290 (W.D. Wis. 1983). Section 101.245 of the Wisconsin Statutes provides:

(1) The [Department of Industry, Labor and Human Relations] shall maintain a list of persons or firms that have been found by the national labor relations board, and by 3 different final decisions of a federal court within a 5-year period * * *, if the final decisions involved a cumulative finding of at least 3 separate violations, to have violated the national labor relations act, * * * and of persons or firms that have been found to be in contempt of court for failure to correct a violation of the national labor relations act on 3 or more occasions by a court within a 5-year period * * * if the 3 contempt findings involved a cumulative total of at least 3 different violations.

(4) A name shall remain on the list for 3 years.*fn2 Wis. Stat. § 101.245 (1981).

This list is known as the labor law violators' list. The real bite in the legislation appears in Section 16.75(8), which provides:

The department [of administration] shall not purchase any product known to be manufactured or sold by any person or firm included on the list of labor law violators compiled by the department of industry, labor and human relations under s. 101.245.

Wis. Stat. § 16.75(8) (1981).

Gould is a Delaware corporation with its principal place of business in Illinois. In August 1982, two of its divisions had contracts to provide goods and services to Wisconsin in amounts in excess of $10,000 and expected to continue to bid on and be awarded contracts to provide goods and services exceeding $10,000. Wisconsin's Department of Industry, Labor and Human Relations placed Gould on the labor law violators' list in August 1982, thus under Section 101.245(4) barring Wisconsin from doing business with Gould for three years, until July 1, 1985. Defendant John Driscoll, on behalf of the Wisconsin Department of Administration, advised Gould that its existing contracts would be cancelled as soon as that could be done without penalty. The predicate for these actions was the enforcement of three separate National Labor Relations Board ("NLRB") decisions against various Gould divisions during the preceding five years. Gould no longer owned any of these divisions at the time of being placed on the labor law violators' list, and none of the cited divisions were located in Wisconsin. Gould claims that the two Wisconsin statutes violate the Supremacy Clause, Art. VI, of the Constitution, as well as the due process and equal protection clauses of the Fourteenth Amendment. The district court did not address the Fourteenth Amendment claims due to its disposition of the case on grounds of preemption. The court did, however, hold that Gould's Fourteenth Amendment claims were "sufficiently substantial to support federal jurisdiction and would justify an award of attorneys' fees, even though plaintiff prevailed on another claim [preemption]," citing Maher v. Gagne, 448 U.S. 122, 65 L. Ed. 2d 653, 100 S. Ct. 2570 . (Order of May 25, 1984.) We have jurisdiction pursuant to 28 U.S.C. § 1291.


The difficulty in labor law preemption analysis is that "the aims and social policy" Congress was implementing "were drawn with broad strokes while the details had to be filled in, to no small extent, by the judicial process." San Diego Building Trades Council v. Garmon, 359 U.S. 236, 240, 3 L. Ed. 2d 775, 79 S. Ct. 773. Nonetheless, synthesis of the numerous decisions is possible. Garmon directs us to determine whether the activity the state would regulate is protected or prohibited by Sections 7 or 8 of the NLRA, or arguably so protected or prohibited. Id. at 244-245. When Section 7 or 8 clearly covers the conduct in question, then the NLRA preempts any state action, because to "leave the States free to regulate conduct so plainly within the central air of federal regulation involves too great a danger of conflict between power asserted by Congress and requirements imposed by state law." Id. at 244.

Exceptions to this general rule do exist. Courts must make "a balanced inquiry into such factors as the nature of the federal and state interests in regulation and the potential for interference with federal regulation." Farmer v. United Brotherhood of Carpenters & Joiners of America, Local 25, 430 U.S. 290, 300, 51 L. Ed. 2d 338, 97 S. Ct. 1056 . State interests that are "a merely peripheral concern" of federal labor law override the federal interest. Garmon, 359 U.S. at 243. Alternatively, state regulation may escape preemption by being directed at state "interests so deeply rooted in local feeling and responsibility that, in the absence of compelling congressional direction, we could not infer that Congress had deprived the States of the power to act." Id. at 244. Examples of this type of permissible state regulation include permitting suits in state court for intentional inflection of emotional distress, Farmer, supra; for malicious libel, Linn v. United Plant Guard Workers, 383 U.S. 53, 15 L. Ed. 2d 582, 86 S. Ct. 657 ; and for mass picketing and threats of violence, Automobile Workers v. Russell, 356 U.S. 634, 2 L. Ed. 2d 1030, 78 S. Ct. 932 .*fn3

The defendants would circumvent this analysis by arguing that, because the Wisconsin legislation seeks to promote compliance with the NLRA and does not penalize conduct that the NLRA would protect, federal interests are not harmed. The defendants also contend that Wisconsin has a deeply rooted interest in compliance with the labor laws, so that its decision not to purchase goods and services from labor law violators should prevail over any possible impingement on the federal regulatory structure. We recognize that Wisconsin's decision to refuse all financial support and reward to those who repeatedly violate national laws reflects a laudable purpose we must balance Wisconsin's interest against the federal interests at stake and the statute's potential for interference with the federal regulatory scheme. Doing so demonstrates that the Wisconsin statutes are preempted.

The problem with the defendants' argument is that it ignores that the NLRA is designed to be a remedial, not a punitive statute. Once an employer or union rectifies its unlawful conduct and makes those harmed whole, for example by reinstating a wrongfully-discharged employee with back pay, federal sanctions cease. Basing a boycott on federal labor law violations, regardless of where the violations occurred and whether they have been rectified, clearly interferes with the federal scheme.*fn4

The problem can be stated in another way. The Wisconsin legislation seeks to prohibit activity also prohibited by the NLRA. Garmon, supra, teaches that state regulation of both activity protected and prohibited by the NLRA is preempted. Defendants would limit Garmon and its progeny to those situations in which a state is attempting to prohibit activity protected by the NLRA. Nonetheless, the cases will not withstand such factual distinctions. The Court clearly stated in Garmon that its rule applied without distinction to a state's attempt to regulate either protected or prohibited activity. The majority emphasized that they necessarily were "concerned with the potential conflict of two law-enforcing authorities, with the disharmonies inherent in two systems, one federal the other state, of inconsistent standards of substantive law and differing remedial schemes." Garmon, 359 U.S. at 242. Indeed the NLRA was enacted to remedy the varying attitudes of the states toward labor law. Garner v. Teamsters Union, 346 U.S. 485, 490, 98 L. Ed. 228, 74 S. Ct. 161 .*fn5 The defendants cannot argue that the Wisconsin statutes are saved from any such conflict between remedial schemes by their addressing the problem of recidivism instead of specific instances of labor law violations.*fn6 While recidivism is conduct that the NLRA has chosen not to prohibit directly, Congress' failure to do so does not necessarily imply that the remedy is thereby left to the states.*fn7

The possibility of other states' adopting Wisconsin's general scheme supports our holding of preemption. The spectre of different states' imposing boycotts for various lengths of time, based on various numbers and types of NLRA violations, is sufficiently real to decline to uphold the Wisconsin legislation. Doing otherwise would reintroduce the "diversities and conflicts likely to result from a variety of local procedures and attitudes toward labor controversies," Garner, 346 U.S. at 490, that the NLRA sought to prohibit.

The defendants argue that Wisconsin is acting as a market-participant, not as a market-regulator, so that the foregoing analysis is inapposite. The argument is unpersuasive. The major cases on which they rely -- Hughes v. Alexandria Scrap Corp., 426 U.S. 794, 49 L. Ed. 2d 220, 96 S. Ct. 2488 ; Reeves, Inc. v. Stake, 447 U.S. 429, 65 L. Ed. 2d 244, 100 S. Ct. 2271 ; White v. Massachusetts Council of Construction Employers, 460 U.S. 204, 75 L. Ed. 2d 1, 103 S. Ct. 1042, -- are not controlling. Each of these cases is a dormant Commerce Clause case, dealing with the range of state regulation activity permissible in areas where Congress has failed to act. They do not address the issue before us, the range of state regulation allowable when Congress has legislated decisively in the area.

The cases defendants cite that do consider NLRA preemption of state action are distinguishable too. Image Carrier Corp. v. Beame, 567 F.2d 1197 (2d Cir. 1977), certiorari denied, 440 U.S. 979, 60 L. Ed. 2d 239, 99 S. Ct. 1785, involved a New York City Resolution "requiring bidders for flat-form work to operate a union plant." Id. at 1199. Insofar as it based its identification of those companies from whom it would entertain bids on labor policies, the Resolution parallels the statutes at issue in this case. But the analogue breaks down in that New York City was not imposing any penalty for failure to comply with the NLRA, nor was it requiring that an employee join a union despite Section 7's protection of a person's refusal to join. Id. at 1202. As such, New York was assessing no penalty for noncompliance with the NLRA. The issue for the Second Circuit then became whether the NLRA preempted the municipal Resolution because it was adverse to the NLRA rather than because it promoted the NLRA's objectives more vigorously than Congress would sanction. Because the court found no evidence to indicate that the Resolution had "even an indirect coercive effect on nonunion employees" and so in no way "alter[ed] the collective bargaining relationship within nonunion shops, there [was] no need to determine whether Congress intended that federal labor law preempt those local practices which do alter collective bargaining relationships." Id.*fn8 In other words, the Resolution did not regulate employees' conduct. Defendants suggest that the Wisconsin statutes have no coercive effect because they seek to influence conduct, not to regulate it. Nevertheless the breadth of the Wisconsin laws -- a company's being prohibited from doing any business at all with the state for a period of three years -- necessarily means that their imposition against a company imposes a much harsher sanction than Congress intended. The Wisconsin laws then are more than a policy statement; they actually regulate employers' conduct.*fn9

Amalgamated Transit Union, Div. 819 v. Byrne, 568 F.2d 1025 (3d Cir. 1977) (en banc), dealt with New Jersey's statement, during collective bargaining between privately owned transit companies and labor union, that the state would not continue to subsidize the operations of any company that agreed to an uncapped cost of living clause in its labor agreement. The Third Circuit stressed that "it is important to consider that New Jersey's interest is that of insuring that "essential" transportation services are provided to the public, rather than regulating labor relations per se." Id. at 1030. This consideration is what distinguishes that case from the one before us. New Jersey's purpose in acting as it did was to conserve its scarce financial resources and ensure that it was purchasing the least expensive goods available on the market. The state was not, as is Wisconsin, attempting to regulate private companies' labor practices. Nor was it forbidding their operation in the state, though admittedly any company that accepted an unlimited cost of living clause would have to forego receiving state subsidies. Wisconsin, on the other hand, does not suggest that its action is necessary to conserve public resources; the state merely wants to condition any contract award on the bidder's track record of compliance with the NLRA. Wisconsin's doing so significantly interferes with the mechanisms the NLRA has established for encouraging compliance so that they preempt the Wisconsin legislation.

Amalgamated Transit Union differs from this case in a second respect. New Jersey chose to subsidize private companies only because it believed that doing so benefited the public. The state could have decided at any time that doing so was no longer an efficient use of funds and repealed its legislation authorizing that allocation of money. The situation before us is quite different. Absent a few narrow exceptions,*fn10 contract bidders in Wisconsin have a right to expect that the company submitting the lowest bid will win the contract. Wis. Stat. § 16.75 (1981). This expectation differs from the hope of a private company that the state will continue to fund its activities. Wisconsin, unlike New Jersey, simply is not functioning as a private purchaser of services. The question is the rationale underlying Wisconsin's law. When the policy the law promoted is not efficient use of state funds but the intent to effect compliance with the NLRA, the regulation is preempted by the NLRA's establishment of a comprehensive regulatory scheme meant to preclude state action.*fn11

We rest our holding on the penalty that Wisconsin has imposed on recidivist labor law violators. The Wisconsin legislation does not impermissibly burden Gould's federal appeals rights. What is impermissible is its punishment of recidivism, not its defining the companies affected in terms of number of court enforcements of NLRB orders. The possibility of incurring harsher sanctions because of an appeal is not an unheard of event in our system of law. For instance, the Supreme Court held in Chaffin v. Stynchcombe, 412 U.S. 17, 36 L. Ed. 2d 714, 93 S. Ct. 1977, that the possibility of a higher sentence on retrial did not chill the petitioner's appeal rights. In re Sewell, 690 F.2d 403 (4th Cir. 1982), and Nash v. Florida Industrial Commission, 389 U.S. 235, 19 L. Ed. 2d 438, 88 S. Ct. 362, are not to the contrary. Nash involved Florida's denial of unemployment benefits to those who file unfair labor practice charges, and so involved direct state regulation of conduct protected by the NLRA rather than the problem of a state penalizing conduct also penalized by the NLRA. Sewell in fact supports our decision. It involved a union's state law claim against a company president for tortious interference with a contractual relationship. The president had refused to recognize the union in order to challenge its certification by the NLRB. The NLRB found the president's conduct violative of the NLRA. Nonetheless, the state court refused to allow the state law claim, remarking that "state law which is invoked to redress conduct prohibited by § 8 of the Act falls squarely within Garmon's doctrine of preemption." Sewell, 690 F.2d at 408.*fn12 The state law was preempted in that case because it imposed a penalty on the employer that was in addition to the one imposed by the NLRA, not because it infringed on the employer's appeal rights. Sewell supports our result and reasoning.

That the initiative to appeal is not always i the hands of the private company buttresses the distinction made here. The NLRB may enforce some of its orders "notwithstanding compliance" by the company charged. 29 C.F.R. § 101.13(b).*fn13 Consequently the NLRB itself may in some instances initiate an enforcement proceeding -- even if a private company would seek to avoid such a private party's inability to control in every instance whether an enforcement order will be sought means that the Wisconsin statutes do not measurably affect a party's appeal right.*fn14 This is especially so since the number of appeals is not really being restricted at all. As long as a party's position has merit, then it most probably will prevail on appeal.*fn15 The number of violations is irrelevant to the Wisconsin statutory scheme; only the number of enforced orders is considered. But because the Wisconsin legislation does furnish a state remedy at variance with the federal statutory scheme, we hold that the Supremacy Clause preempts the statutes at bar.


Gould argues that the alleged restriction on its appeal rights imposed by the Wisconsin legislation justifies the district court's award of attorney's fees based on Gould's preemption claim alone. This argument lacks merit, because we have already explained that no cognizable restriction occurred. Gould's attempted reliance on Maine v. Thiboutot, 448 U.S. 1, 65 L. Ed. 2d 555, 100 S. Ct. 2502, and Inada v. Sullivan, 523 F.2d 485 (7th Cir. 1975), is misplaced. Inada dealt with a threat by a police officer that, if true, barred the plaintiff from pursuing his lawful claim against the police officer. Consequently that case dealt with the direct impingement of the individual's rights, a situation not applicable to Gould. Thiboutot, while expanding the reach of 42 U.S.C. § 1983, held only that statutory claims raised under Section 1983 were proper claims for which attorneys' fees under 42 U.S.C. § 1988 would be available. The case did not address the issue whether claims based on the Supremacy Clause would be cognizable under Section 1983. The Supreme Court has elsewhere recognized that not all statutes secure rights within the meaning of Section 1983, even though individuals may benefit from their provisions. Middlesex County Sewerage Authority v. National Sea Clammers Association, 453 U.S. 1, 19, 69 L. Ed. 2d 435, 101 S. Ct. 2615 ; Pennhurst State School and Hospital v. Halderman, 451 U.S. 1, 28, 67 L. Ed. 2d 694, 101 S. Ct. 1531 . Section 1983 was enacted to override discriminatory state laws, provide a remedy where state law was inadequate, and furnish a federal remedy where the state remedy, although adequate in theory, was not available in practice. Monroe v. Pape, 365 U.S. 167, 5 L. Ed. 2d 492, 81 S. Ct. 473 . the Eighth Circuit, when faced with the problem whether a Commerce Clause claim was cognizable under Section 1983, found the function of the Commerce Clause, relating not to individual rights but rather to the distribution of power between the state and federal governments, to be the dispositive factor. Consolidated Freightways Corporation of Delaware v. Kassel, 730 F.2d 1139, 1146 (1984). That court recognized that both the Supremacy and Commerce Clauses "limit the power of a state to interfere with areas of national concern." Id. at 1144. After an examination of the purposes of Section 1983 as defined in Monroe, the court stated that "to hold that an alleged violation of the Commerce Clause constitutes an action cognizable under § 1983 would fail to serve any of these purposes and would be an unwarranted extension of the Civil Rights Act." Id. at 1146. That reasoning applies to the issue before us and similarly bars our allowing attorneys' fees based solely on Gould's success on its preemption claim.*fn16

But in addition to its preemption claim, Gould raised two Fourteenth Amendment claims, one based on due process and the other on equal protection, both of which are cognizable under Section 1983. Such claims might provide a basis for attorneys' fees under Section 1988. Should the preemption claim on which Gould has prevailed arise out of a common core of facts or be based on legal theories related to its Fourteenth Amendment claims, awarding attorneys' fees would be proper. Hensley v. Eckerhart, 461 U.S. 424, 76 L. Ed. 2d 40, 103 S. Ct. 1933 . Gould has not, however, met this standard. Gould's due process and equal protection arguments centered on the restriction that the Wisconsin statutes placed on Gould's federal rights. But we did not hold the statutes preempted by the NLRA for this reason. As seen, the NLRA preempts the Wisconsin legislation because it imposes a penalty for repeated violations of the NLRA, not because it burdens Gould's appeal right. Since Gould's appeal right is not impermissibly burdened, it has no basis on which to claim attorneys' fees. Consequently they are denied.

The district court's invalidation of the Wisconsin statutes is affirmed, but that part of the decision awarding Gould attorneys' fees is reversed.

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