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United States District Court, Northern District of Illinois

January 17, 2003


The opinion of the court was delivered by: Zagel, United States District Judge


This is a contract dispute stemming from the sale of a newsprint manufacturing mill. Plaintiff, Smurfit Newsprint Corporation ("Smurfit"), sold its paper mill located in Newberg, Oregon to defendant Southeast Paper Manufacturing Company ("SP") in 1999. Many of Smurfit's employees at the Newberg mill were members of the Association of Western Pulp and Paper's Worker's Union, Local No. 60 ("the Union"). Smurfit and the Union were parties to a Collective Bargaining Agreement ("CBA") which, among other things, provided pension benefits to be calculated by the number of years of service multiplied by a set dollar amount per month. According to the final asset purchase agreement ("APA"), SP would not assume the CBA but promised to provide employment to employees covered under the CBA on terms and conditions "comparable" to that agreement. In calculating pension benefits, SP decided to use the same formula as that in the CBA, but it would not count an employee's years at Smurfit in that equation. Consequently, the Union filed a grievance against Smurfit for the resulting loss in pension benefits. A hearing was held before an arbitrator, who found that the Union had suffered a tangible economic loss and ordered Smurfit to pay severance to all of the mill workers. Smurfit believes that SP should be held responsible for the severance award; hence, the present suit. I dismissed Count I based on SP's argument under the "no-prejudice" rule of New York insurance law, which is the governing law of this case. Therefore, what remains is Count II, Smurfit's contention that SP is liable for the severance award because it breached the APA's requirement to provide the mill workers employment on terms that are "comparable" to the CBA. Smurfit argues that SP's failure to recognize prior years of service in determining pension benefits was a substantial factor in the arbitrator's decision and thus, SP is responsible for the loss. SP argues that it was not SP's alleged failure that resulted in the arbitrator's decision, but rather, Smurfit's own failure to honor its obligations to the Union. In other words, the loss suffered by the Union workers was Smurfit's responsibility, not SP's, and Smurfit alone should bear the cost.

The parties seem to be in agreement that the APA clearly states that SP will not assume the CBA. In dispute is what constitutes "comparable" terms of employment with respect to the pension benefits. Smurfit concedes that "the word `comparable' does not mean `identical.'" However, it is Smurfit's contention that "comparable" is clear in meaning such that SP is unquestionably obligated to count an employee's years of service while the mill was owned by Smurfit. Smurfit states that "once [SP] became owner of the mill and employer of the Union workers, it had the responsibility to make sure that those workers did not lose benefits because of its approach to calculating benefits under any new contract." SP's response to these arguments is that the APA delineates how pension benefits would be calculated, meaning the equation to be used in making that calculation, and there is no mention of providing credit for past services in the APA. Further, SP argues that the APA makes it clear that SP's obligations to the Union workers are completely prospective and assigns all liability for prior obligations to Smurfit.

The APA does not directly address this question-there is no mention of counting prior years of employment with Smurfit in determining pension benefits, and there is no mention of "economic harm." However, in Section 6.05(i),for example, the APA does specify that SP is not obligated to provide credit for prior services in determining eligibility for retirement medical benefits. The fact that such provisions exist within the APA lends weight to SP's argument that if it had been the parties' intention for SP to provide credit for prior services in determining pension benefits, the APA would clearly reflect it. Additionally, in Section 6.08, the APA clearly states that SP "shall have no obligations under [Smurfit's] pension plans," and in Section 6.01(a)(i), SP "is not assuming the collective bargaining agreement dated April 1, 1995." Even if SP had assumed the CBA, the CBA clearly indicates that benefits such as pension benefits are calculated from the date of hire. When the mill was sold to SP, the Smurfit employees had to apply for employment and be hired by SP in order to continue working for the mill. This break in employment, which is further indicated by SP's refusal to simply adopt the CBA (despite Smurfit's attempts to make SP do so as evidenced in early drafts of the APA that were refused by SP), reveals that the sale of the mill involved more than the mere displacement of one company by another. Indeed, the arbitrator who found against Smurfit also noted that there was no "seamless transition" into SP's tenure. After reviewing the arbitrator's statements, it appears that the award was not based on SP's alleged failure to count prior years of service, but rather because Smurfit closed its mill and terminated its employees, which triggered severance benefits. The re-opening of the mill by SP marks a new beginning, not a transition, which is made clear by the APA and SP's insistence that it deal with the Union employees as new hires. Thus, I find that the employees' years of service with Smurfit are prior obligations for which Smurfit is liable under the terms of the APA.

I realize that the arbitrator's decision is presently under appeal, the outcome of which may be grounds for reconsideration of this order. Smurfit is granted leave to move for such reconsideration if such time should arise.

SP's motion for summary judgment is granted, and Smurfit's motion for summary judgment is denied.


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