The opinion of the court was delivered by: GIGNOUX
These are stockholders' derivative actions challenging the legality under Section 302 of the Labor Management Relations Act, 1947 (the Taft-Hartley Act) (29 U.S.C.A. § 186) of certain Trust Agreements entered into in 1948, 1954 and 1959 between the corporate defendants (hereinafter called the 'Record Companies') and the defendant Samuel R. Rosenbaum, as Trustee (hereinafter sometimes called the 'Trustee'). The Trust Agreements were executed as part of the consideration for certain Labor Agreements executed in 1948, 1954 and 1959 by each Record Company, individually, with the American Federation of Musicians (hereinafter called the 'AFM').
By stipulation, the four actions were tried together. Although each action involves a different one of the Record Companies, all actions challenge the legality of the same agreements on the same grounds.
Plaintiffs claim that the payments made by the Record Companies to the Trustee pursuant to the Trust Agreements are payments to a 'representative of employees' prohibited by Section 302. Each plaintiff seeks a decree restraining the Trustee from making further payments out of the Trust Funds and restraining the Record Companies from making further payment to the Trustee under the Trust Agreements. In their original complaints, the plaintiffs also sought decrees requiring the Trustee to restore to each Record Company the amounts paid by it to the Trustee since the establishment of the original Trust on December 14, 1948.
However, during the course of the trial, and without objection, the Court entered its Order dismissing the claims against the Trustee for restitution of these sums. There thus remain for consideration only the prayers for injunctive relief.
The Trust Agreements involved in this case are the following: (1) an agreement between certain manufacturers of phonograph records and the Trustee dated December 14, 1948; (2) an agreement between certain manufacturers of electrical transcriptions
and the Trustee dated December 20, 1948; (3) an agreement between certain manufacturers of phonograph records and the Trustee dated January 1, 1954; (4) an agreement between certain manufacturers of electrical transcriptions and the Trustee dated January 1, 1954; (5) an agreement between certain manufacturers of phonograph records and the Trustee dated January 1, 1959; and (6) an agreement between certain manufacturers of electrical transcriptions and the Trustee dated January 1, 1959.
The material terms of all six agreements are in most respects the same. The Trust Funds so created are collectively known as the Music Performance Trust Fund.
The Labor Agreements pursuant to which the Trust Agreements were executed are separate collective bargaining agreements entered into between each Record Company, individually, and AFM, in 1948, 1954 and 1959. The provisions of the 1948, 1954 and 1959 Labor Agreements, insofar as material to these proceedings, are substantially identical. Each provides that the execution of the related Trust Agreements is one of the considerations for the Labor Agreement.
The statute involved in this case is Section 302 of the Taft-Hartley Act. It provides in material part as follows:
Section 302. Restrictions on payments to employee representatives * * *.
(a) It shall be unlawful for any employer to pay or deliver, or to agree to pay or deliver, any money or other thing of value to any representative of any of his employees who are employed in an industry affecting commerce.
(b) It shall be unlawful for any representative of any employees who are employed in an industry affecting commerce to receive or accept, or to agree to receive or accept, from the employer of such employees any money or other thing of value.
(d) Any person who willfully violates any of the provisions of this section shall, upon conviction thereof, be guilty of a misdemeanor * * *.
(e) The district courts of the United States * * * shall have jurisdiction * * * to restrain violations of this section * * *.
The section also provides, in subdivision (c), that payments may be made to a 'representative of employees' under certain statutory exceptions, including payments to employees' welfare funds, which are to be administered by a group of trustees equally representative of employers and employees.
It is conceded, however, that the agreements in question do not come within any of the statutory exceptions. It is also conceded that the employees of the Record Companies are employed in an industry affecting commerce. The only issue before this Court, therefore, is whether the payments to the Trustee under the Trust Agreements constitute payments to a 'representative of employees'
prohibited by the Statute.
The issue thus presented requires an examination of the background of the Trust Agreements; the conferences and negotiations leading to the execution of the Trust Agreements; the circumstances surrounding the selection of the Trustee; the terms of the Trust Agreements; the terms of the Labor Agreements; and the Trustee's administration of the Trusts. The evidence in this respect establishes the following history: --
(a) The Background of the Trust Agreements.
For some years prior to 1942 the AFM felt that the commercial use of recordings was resulting in wide-scale unemployment of musicians. Consequently, in 1942 the members of AFM, under the leadership of James C. Petrillo, its President, ceased to play for recording purposes. The ensuing work stoppage was ended in 1943 and 1944 by collective bargaining agreements which were entered into between AFM and the Record Companies.
Pursuant to these agreements the Record Companies paid to AFM approximately 1% of the suggested retail sales prices for records utilizing the services of AFM members. The fund so collected was termed the Recording and Transcription Fund of AFM and was expended, under the exclusive direction and control of AFM, for payments to musicians for live performances given free to the public. Allocations from the fund were made on a per capita basis to AFM's 700 Locals in the United States and Canada. The total amount collected by the Recording and Transcription Fund was approximately $ 4,500,000, substantially all of which was expended in the three years 1947, 1948 and 1949.
In 1947 the Taft-Hartley Act was enacted. The Record Companies were advised that Taft-Hartley had rendered illegal further payments to AFM under the existing agreements, and terminated such payments as of December 31, 1947. As a result, AFM members ceased making recordings on January 1, 1948.