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Gehrhardt v. General Motors Corp.

decided: June 21, 1978.


Appeal from a judgment n.o.v. of the Southern District of New York, Whitman Knapp, Judge, dismissing the complaint of appellant, an employee of General Motors Corporation, seeking recovery from it of separation and retirement benefits, after a jury verdict in appellant's favor. Affirmed.

Before Moore, Smith,*fn* and Mansfield, Circuit Judges.

Author: Mansfield

Appellant, a former long-time employee of General Motors ("GM"), who brought this action against it in the Southern District of New York for recovery of separation and retirement benefits, appeals from a judgment n. o. v. dismissing his complaint after a jury trial. The action was based upon appellant's claim that GM arbitrarily classified him as "specially separated" rather than "laid off" when he ceased working for that corporation and acquired ownership of an independent Cadillac distributorship.*fn1 The classification deprived him of substantial benefits that might otherwise have become due him under his employment contract with GM.

A jury verdict in appellant's favor was set aside by Judge Whitman Knapp in a decision reported at 434 F. Supp. 981. Judgment was entered for GM and a new trial ordered in the event of reversal.*fn2 We affirm the decision granting GM judgment notwithstanding the verdict and therefore need not reach the propriety of the order in the alternative for a new trial.

This case arose out of GM's decision, eventually implemented in 1972, to divest itself of its Cadillac retail operation in New York City. Under this reorganization GM replaced its own retail organization with a number of independent Cadillac dealerships, resulting in the abolition of some 500 GM jobs, including the one then held by appellant Manager of the Cadillac Division's New York City branches. After appellant learned in late 1971 or early 1972 of GM's plans, he and one William Daly, another GM employee, promptly applied to purchase GM's proposed Bronx Cadillac dealership. GM rejected this offer, and subsequently appellant and Daly met with Cadillac's general sales manager in Detroit. According to appellant's testimony which we must for present purposes assume to be true*fn3 the sales manager told Daly and appellant that there would be no jobs for them in GM itself if the corporation should implement its reorganization plan, but promised them that they could purchase a Cadillac dealership in either Westport, Conn., or Brooklyn, N.Y. Appellant and Daly did in fact acquire the Brooklyn dealership on July 5, 1972, and have since been quite successful in that venture. By becoming a dealer, appellant achieved what he had described in a letter to GM in 1965 as his "lifelong ambition."

As part of the effort to close down the New York City retail operation, the GM personnel department classified every New York City area employee for purposes of assigning pensions and separation benefits. These benefits are outlined in an employee handbook entitled "Working With General Motors." It states in part that "In determining the separation classification, Management shall be the sole judge", and it provides:

"Separations to Become Distributors or Dealers or Employes Thereof: An employe who is separated prior to age 60 (whether by resignation or under mutually satisfactory conditions) for the purpose of becoming a distributor of, or a dealer in, some General Motors product, or of entering the employment of such a distributor or dealer, shall be classified as a special separation and shall not be eligible for a separation allowance."

Pursuant to this paragraph the personnel director of the Cadillac Division of GM, James Baldwin, classified appellant and Daly as "special separations." With no relevant exceptions all other employees whose jobs were being abolished, including a number who were to become employees of GM dealers, were classified as "lay-offs" and thus eligible for substantially greater separation allowances than that given to appellant. When he was informed of GM's decision, appellant protested and refused to sign classification papers tendered to him. He then brought this action to challenge GM's determination.

Both sides have agreed that, notwithstanding the contractual provision to the effect that GM's management should be "the sole judge" of separation classifications, under New York law applicable in this diversity case, GM's decision could be set aside by the court only if appellant could sustain the heavy burden of establishing that the challenged benefit decision was the result of bad faith, fraud, or arbitrary action.*fn4 Gitelson v. DuPont, 17 N.Y.2d 46, 268 N.Y.S.2d 11, 215 N.E.2d 336 (1966); Pasternack v. Diamond, 3 A.D.2d 422, 161 N.Y.S.2d 277 (1st Dept. 1957) (per curiam), Aff'd mem., 5 N.Y.2d 770, 179 N.Y.S.2d 864, 154 N.E.2d 141 (1958). See Wyper v. Providence Washington Insurance Co., 533 F.2d 57 (2d Cir. 1976) (same standard under Conn. law). Under this standard it is not enough to persuade a judge or jury that the decision may have been incorrect. If the decision is supported by a reasonable basis "(t)he court may not substitute its judgment for that of the trustees (here GM's management) on the disputed factual issues," Pasternak v. Diamond, supra. The test, therefore, is not what the court would have done under the circumstances but whether, viewing the evidence most favorably to appellant, it can be concluded that no reasonable basis existed for GM's decision.

In this case there was no evidence that appellant's classification as a "special separation" was the product of fraud or bad faith. Accordingly, the question here as below is whether appellant adduced sufficient evidence to enable a reasonable jury to conclude that the classification was arbitrary. See 5A Moore's Federal Practice P 50.02(1), at 50-24 (1977 ed.).

At trial Baldwin, the official responsible in the first instance for appellant's classification, testified that he had resolved the issue of appellant's classification by reference to the provision in GM's handbook quoted above and that, in the words of the handbook, he had concluded that appellant was separated ". . . under mutually satisfactory conditions for the purpose of becoming a dealer . . . ."

Baldwin also testified at some length regarding the circumstances underlying this conclusion. He stated:

"First of all, Mr. Daley and Mr. Gehrhardt had indicated very early their desire to become a General Motors franchise dealer. They made a formal request for a dealership. They followed that up with the necessary documentation, and in our evaluation of that situation it was that they asked us to consider them as a dealer and not as an employee.

"They received from General Motors Corporation the franchise which was a very, very valuable franchise, one of the most ...

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