Morrissey v. Curran

423 F.2d 393, 73 L.R.R.M. (BNA) 2640

• Court: Court of Appeals for the Second Circuit
• Decided: February 20, 1970
• Docket: Nos. 309-312, Dockets 33884, 33918, 33919, 33937
• Status: Published

Opinions

ANDERSON, Circuit Judge:

This case arises under § 501 of the Labor-Management Reporting and Disclosure Act of 1959, 29 U.S.C. § 501 (1964), and concerns the propriety of certain payments made into the Officers’ Pension Fund of the National Maritime Union (NMU). The plaintiffs, James M. Morrissey, Joseph Padilla, and Ralph Ibrahim, have been members in good standing of the NMU since approximately 1950. The defendant Joseph Curran is the national president and the defendant Shannon Wall is the national secretary-treasurer of the NMU, both elective positions. The defendant William Perry is the recently retired assistant to the president of the Union, a non-elective position. The defendants Abraham E. Freedman, Martin E. Segal, and Leon Karchmer are the trustees of the NMU Officers’ Pension Plan.

The structure of the NMU and the powers and duties of its officers and various internal governing bodies are set out in the Union’s constitution. It makes provision for three governing units which have nation-wide jurisdiction. The ultimate authority is vested in the National Convention, which meets triennially and is composed of the elected delegates from various ships and ports. When the National Convention is not in session, the Union is governed by the National Council, which holds regular annual meetings and consists of the elected national officials and certain other delegated representatives. When the National Council is not in session, governing authority rests in the National Office, made up of the national president, secretary-treasurer, three vice presidents, and three national representatives. This body is primarily responsible for the day to day, internal administration of NMU affairs.

In 1951 the NMU constitution was amended to permit the National Council, subject to membership approval, to provide pension benefits for all NMU officers and employees.¹ On December 29, 1952, pursuant to this authority, the National Council entered into an Agreement and Declaration of Trust with three trustees which gave them the authority to establish a pension plan. On February 16, 1953, the trustees adopted a plan whereby pension rights accrued to the various elected officials of the Union, including the president, secretary, treasurer, vice-president, national port committee member, branch agent, field patrolman, and patrolman. No non-elected employee of the Union was included under its coverage. The majority of the administrative employees of the NMU were represented by this or other unions in their employment relationship with the NMU and had been granted pension rights, as permitted by the 1961 NMU constitution, as a part of their respective collective bargaining agreements.²

On October 28, 1961, the National Office (as opposed to the National Council) authorized an amendment to the Agreement and Declaration of Trust, the effect of which was to extend its coverage to certain executive and supervisory employees of the Union who held appointive rather than elective positions, such as the assistant to the president, organizer, executive secretary, publicity director, editor of the Pilot (the union house organ), and supervisors over maintenance, bookkeeping, records and supplies.³

Prior to the adoption of the amended Declaration of Trust, however, the NMU constitution had been subjected to an extensive revision whereby, along with other changes, the authority vested in the National Council to fix the salaries of certain employees was shifted to the National Office and the requirement for membership approval thereof was deleted.⁴ This revision became effective on December 2, 1960.

The plaintiffs contend that the 1961 amendments to the Declaration of Trust, by the National Office, permitting benefits to be paid to non-elected employees under the Officers’ Pension Plan were not authorized by and were in contravention of the NMU constitution, as amended in 1960. After Union officials refused to take any action, as requested, to obtain the return of funds paid into the Trust fund for the benefit of non-elected employees under the revised Plan, the plaintiffs filed a complaint in the district court seeking an accounting, a money judgment for any damages suffered by the Union or the Trust fund, and an injunction against further payments to non-elected employees.

On February 4, 1969, the district court (Bryan, Judge) granted leave, pursuant to 29 U.S.C. § 501(b), to commence this action. Defendants Curran, Wall and Perry moved to dismiss the complaint under Rule 12(b) (5), F.R.Civ.P., or in the alternative for summary judgment under Rule 56. The plaintiffs filed a cross-motion for summary judgment against all defendants. Oral argument was heard on both motions on March 26 (Bonsai, Judge), and on May 23 the defendants’ motions were denied and plaintiffs’ cross-motion was granted. 302 F.Supp. 32 (S.D.N.Y.1969). The court held that the defendants should account for and repay pension funds accrued and paid to non-elected Union employees, that the defendant trustees should be enjoined from paying out of the Officers’ Pension Plan fund further benefits to non-officers and the plaintiffs should recover costs and attorneys’ fees.

Immediately following the district court decision, the National Council of the Union convened and proposed amendments to the constitution which gave the National Office of the NMU the authority, which the trial court had found it did not have under the 1960 amended constitution, to designate certain non-elected employees to be eligible for benefits under the Officers’ Pension Plan as well as the authority “to validate retroactively'all pensions heretofore paid under the plan.” The approval of these amendments was voted on June 24, 1969. The plaintiffs promptly moved to have the June 24th amendments declared invalid as exculpatory, and therefore void, under § 501(a) ⁵ and to enjoin any implementation of them. The relief sought was denied without prejudice on July 3, 1969. The defendants moved that the entire action be dismissed as moot on the ground that the new amendments removed any question of the power of the defendants to act as they did.

Meanwhile, on June 2, 1969, defendants Curran, Wall and Perry filed a motion for reargument of the May 23 decision. On June 6 the plaintiffs filed a motion to enjoin the defendants from being represented by counsel retained by the Union, to require defendants to pay their own counsel from funds not belonging to the Union, and to enjoin the implementation of the proposed amendments to the NMU constitution on the ground that they were exculpatory and therefore void under 29 U.S.C. § 501(a). On June 11 a motion for reargument was filed on behalf of defendants Segal and Karchmer. In separate orders entered on July 3, 1969, these motions were denied, except for the motion relating to representation of defendants by Union counsel, which was not ruled upon.

The defendants have appealed from the district court decision granting summary judgment to the plaintiffs, denying their own similar motion and their motions for reargument. The plaintiffs have filed an interlocutory appeal from the trial court’s denial of their motion to declare invalid and enjoin the use of the June 24 amendments to the NMU constitution. The major dispute on these appeals concerns the proper interpretation of the provisions for establishing employee pension funds under the 1951 NMU constitution, as amended in 1960.

Defendants argue that the 1960 amendments were designed to shift the responsibility for the establishment of employee salaries from the National Council to the National Office and did not limit in any way the power of the National Office to establish employee pension funds. They assert that the term “salaries,” as used in Article 8, § 11, must be construed to include pensions, from which they claim it follows that the National Office was acting within its authority when it amended the Officers’ Pension Plan in 1961. In support of this position they rely upon such cases as Brumley v. Baxter, 225 N.C. 691, 36 S.E.2d 281, 162 A.L.R. 930 (1945), and Giannettino v. McGoldrick, 295 N.Y. 208, 66 N.E.2d 57 (1946), which hold that pensions are compensation for past services as opposed to gratuities, and in that sense, are included within the term “salary.” But as the district court pointed out in its opinion, the framers of the NMU constitution, when drafting the 1960 revision, clearly had in mind a distinction between salaries and pensions, as evidenced by the use of the term “compensation” in Article 14 to include both types of remuneration. The NMU constitution, as amended in 1960, was clear and explicit with regard to the persons covered by the pension provisions, and in the light of the history, context and wording of those provisions, the district court’s rejection of the defendants’ claim is correct. There was no genuine issue of material fact concerning the charge of a breach of duty on the part of the defendants, and summary judgment in favor of the plaintiffs should be affirmed.

In support of their claim that the 1969 amendments ⁶ to the NMU constitution, made immediately following the district court decision, are exculpatory and that their application should be enjoined, the plaintiffs rely on Highway Truck Drivers and Helpers Local 107 v. Cohen, 182 F.Supp. 608 (E.D.Pa.), aff’d. 284 F.2d 162 (3 Cir. 1960), cert. denied, 365 U.S. 833, 81 S.Ct. 747, 5 L.Ed.2d 744 (1961), and Highway Truck Drivers and Helpers Local 107 v. Cohen, 215 F.Supp. 938 (E.D.Pa.1963), aff’d, 334 F.2d 378 (3 Cir.), cert. denied, 379 U.S. 921, 85 S.Ct. 277, 13 L.Ed.2d 335 (1964). In the first of these two cases the district court found that it was improper for the local union to pay the attorney fees of union officers who were under criminal indictment. These fees were to be paid pursuant to a resolution of the local which permitted such payment, and that resolution was declared invalid because it authorized “action beyond the powers of the union as derived from its constitution and was inconsistent with the aims and purposes of the Labor-Management Reporting and Disclosure Act.” 284 F.2d at 164. The international union then amended its constitution to permit such authorizations. Thereafter in the second Cohen case the union officers claimed that the payments were valid as the amendment purported to be retroactive. In rejecting this claim the Third Circuit said:

“That abortive attempt to validate the illegal 1959 resolution, could not of course in 1961 legitimatize the 1959 payments which have been held to have been wrongful. And the action of the International was just as inconsistent with Section 501 of the Labor Management Act as was the Local’s ill conceived resolution.” 334 F.2d at 381.

The defendants in the present case, however, assert that the cases cited actually support the defense. It is their contention that the trial court held in the 1960 Cohen case that a resolution authorizing an expenditure of union funds was not an exculpatory provision in violation of § 501(a) and, in the 1963 Cohen case, that a constitutional amendment authorizing expenditures already incurred was not exculpatory unless the expenditures themselves were in violation of § 501 of the Act. Turning to the present case they argue that the court below did not find that the payments into the Officers’ Pension Plan for the benefit of employees were per se violative of § 501(a), and therefore any subsequent constitutional provision purporting to validate the past payments cannot be exculpatory within the meaning of § 501 (a). In making this assertion, the defendants conveniently overlook the fact that the trial court did find that they had breached their duties because the expenditures in question were not authorized by the NMU constitution and that they were in violation of § 501 of the Act. In the Cohen cases the trial court was affirmed because the local union authorized actions beyond its powers as derived from the constitution and because its effort to pay attorneys’ fees for officers who had been derelict in their duties was “inconsistent with the aims and purposes of the Labor Management Reporting and Disclosure Act.” We agree with the position taken by the Third Circuit. Otherwise the provisions of § 501 would be completely emasculated if, every time a court, at the behest of complaining members of a union, found that the officers had breached their duties, the officers could find sanctuary by putting through a constitutional amendment or by-law retroactively to legitimatize their former derelictions of duty.

The defendants also argue that the district court “has not imposed any personal liability upon the defendants from which they needed to be “exculpated,’ ” but we do not agree with this argument. The district court ordered the defendants to account for all moneys paid into the Officers’ Pension Plan and return to the NMU all moneys received by the trustees for the benefit of non-officers with interest. It follows that if they are unable to recoup that money, they may be held personally liable.

The trial court’s decision, however, on the plaintiffs’ motion for an injunction, that the purpose of the 1969 amendments to the NMU constitution was to include non-officer employees in the NMU officers’ pension plan and that the amendments were, therefore, not exculpatory provisions prohibited by § 501, is at odds with its holding that there was an obvious breach of duty on the part of the defendants in causing union funds to be paid out to persons who were not entitled to them. His conclusions might have been correct if the provisions were prospective only in their application but the amendment to Article 14, § 7 provides in part: “the National Office shall have the authority to validate retroactively all pensions heretofore paid under the plan.” This is clearly exculpatory in intent and language. The NMU exercised its authority under the 1969 amendments to attempt to validate retroactively all the pensions previously paid. The determination that the 1969 amendments were not exculpatory is reversed and will be reconsidered on remand.

The defendants raise a number of additional minor issues, several of which will be commented upon. They have throughout pressed the defense of laches. But the matter of improper payments of union funds to persons not entitled to them is a continuing offense and cannot bar an injunction to prevent continued payments or an accounting for all of the unlawful expenditures.

The defendants Segal and Karchmer claim that the ultimate order issued by Judge Bonsai exceeded the court’s jurisdiction because it is their contention that the court’s jurisdiction is fixed by the order issued by Judge Bryan on plaintiffs’ application for leave to bring suit on February 4, 1969. This is an incorrect interpretation of § 501 (b). The purpose of requiring permission to bring an action is a safeguard to protect the union officers from vexatious suits and once given is not to be treated as a stricture on jurisdiction. Horner v. Ferron, 362 F.2d 224, 228 (9 Cir.), cert. den. 385 U.S. 958, 87 S.Ct. 397, 17 L.Ed.2d 305 (1966). An issue was also raised that Judge Bonsai had no power to grant summary judgment on plaintiffs’ motion because of inadequacy of notice to some of the defendants. The trial court, however, had power on its own motion to enter summary judgment against the party who was the original mover. 6 Moore, Federal Practice, fí 56.12 at 2241 (2d ed. 1966). While some of the defendants had only a brief opportunity to prepare for the argument on the plaintiffs’ motion, there is nothing whatever to indicate that any party was at all prejudiced. Stein v. Oshinsky, 348 F.2d 999, 1000-1001 (2 Cir.), cert. den. 382 U.S. 957, 86 S.Ct. 435, 15 L.Ed.2d 361 (1965).

Defendants also argue that the trustees of the Officers’ Pension Plan do not come within the definition of those having a fiduciary responsibility as set forth in 29 U.S.C. § 402 (q). This court has specifically rejected this claim in Tucker v. Shaw, 378 F.2d 304, 308 (2 Cir. 1967). The trial court was correct in finding that all of the defendants were in a position of trust and responsibility in relation to the monies charged to have been unlawfully expended and all had a duty to see that it was restored to the Union treasury.

The remaining points raised by the defendants do not merit discussion.

We affirm denial of the defendants’ motion for summary judgment and the entry of summary judgment in favor of the plaintiffs. As the June 24, 1969, amendments to the NMU constitution are clearly exculpatory as prohibited by § 501(a), we reverse the denial of plaintiffs’ motion to have these amendments declared void, and remand to the district court for appropriate action declaring the amendments to be without effect and enjoining defendants from acting in reliance upon them. As the district court apparently did not pass on so much of plaintiffs’ motion as requested that defendants be enjoined from retaining counsel paid or to be paid with Union funds, this question should also be determined on remand. The controlling cases on this point are Tucker v. Shaw, supra, and Holdeman v. Sheldon, 311 F.2d 2 (2 Cir. 1962), in which we held that all that is necessary for enjoining of the defendants in a § 501 action is that the plaintiff make “a reasonable showing that he is likely to succeed.” We also note that the district court maintains continuing jurisdiction to insure that the accounting and return of funds to the Union treasury proceed as ordered, and, of course, it retains the power to issue the necessary orders to assure full compliance.

Affirmed in part, reversed in part, and remanded for further proceedings in compliance with this opinion.

1 . The pertinent provisions of the 1953 NMU constitution read as follows:

“Article 15 Salaries of Officers

Section 1 — Salaries and Expenses: The National Council, considering the financial state of the Union, is empowered, subject to approval of the membership, to set from time to time the actual salaries and daily expenses of all Union officers and employees.

The National Council shall pay all salaries, approved by the membership, of all Union officers and employees.

* * :lt * *

Sec. 8 — Pension and Welfare: The National Council, subject to approval of the membership is empowered to make adequate and appropriate provisions for pensions, welfare, and similar benefits for officers and employees of the Union.”

Between the 1951 amendment to the constitution and 1960 pension plans were adopted for the employees pursuant to collective bargaining agreements.

2 . The last sentence of Article 8(a) of the 1960 constitution which concerns technical, clerical and administrative personnel attached to or under the National Office, provides:

“Wherever possible, such employees shall be members of the NMU or of appropriate AFL-CIO affiliates.”

With nothing shown to the contrary, it may be assumed that all of the few non-elected employees, arbitrarily brought under the Officers’ Pension Plan by the National Office, already had pension coverage under collective bargaining agreements applicable to them. It must be emphasized that the present case has nothing whatever to do with such pension coverage, nor do the plaintiffs in any way challenge or seek to disturb those pension rights of the administrative employees. Rather, in the present action, they are questioning only the awards to the special few non-elected employees who have been granted the lucrative “pension rights” under the Officers’ Pension Plan. For example, one of these special employees, the defendant Perry, who incidentally already had coverage under the NMU. Deep Sea Pension Plan, resigned as assistant to the president, January 16, 1969, and, as a specially created beneficiary received over $100,000 under the Officers’ Pension Plan alone.

3 . Three years later, in 1964, the Officers’ Pension Plan was again extended to include additional administrative personnel not covered by collective bargaining agreements.

4 . The amendments applicable to this case read, in pertinent part, as follows:

“Article 8 National Office

* * sjs :¡« *

Sec. 11 — Employees of the Union: (a) The National Office shall be responsible for and shall fix the salaries of all technical, clerical, and administrative personnel as may be required for the effective administration of the Union’s affairs. Wherever possible, such employees shall be members of the NMU or of appropriate AFL-CIO affiliates.

(b) Collective bargaining agreements affecting employees of the NMU shall be negotiated by the National Office or such officer or officers as it may designate; provided that no such agreements shall be made without specific approval by the National Office.”

“Article 14 Compensation of Officers

Section 1 — Salaries: (a) The National Council shall fix the salaries for all officers of the Union, subject to approval as provided by this Constitution.

>fc ><5 >|<

Sec. 7 — Pensions: All officers shall be eligible for benefits under the NMU Officers’ Pension Plan, subject to such rules and regulations as the Trustees of that Plan may establish.

Sec. 8 — Welfare: All officers shall be eligible for benefits under the Officers’ Welfare Plan. The National Council, subject to membership approval, is empowered to improve the benefits under said Plan.”

5 . The pertinent language of the statute provides:

“ * * * A general exculpatory provision in the constitution and bylaws of such a labor organization or a general exculpatory resolution of a governing body purporting to relieve any such person of liability for breach of the duties declared by this section shall be void as against public policy.”

6 . The following is the full text of those amendments:

“Amend Article 8, Section 11 to add the following paragraph:

The National Office shall have the authority to provide pensions for all past and present employees of the Union and to protect the pension rights of all past and present employees of the Union.

Amend Article 14, Section 7, as follows:

See. 7 — Pensions: All officers and such employees as the National Office may designate, shall be eligible for benefits under the NMU Officers’ Pension Plan, subject to such rules and regulations as the Trustees of that Plan may establish. The National Office shall have the authority to validate retroactively all pensions heretofore paid under the Plan.”