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Haley v. Palatnik

decided: January 24, 1975.

JOSEPH W. HALEY AND HENRY WHITNEY, AS TRUSTEES OF THE INTERNATIONAL ASSOCIATION OF BRIDGE, STRUCTURAL AND ORNAMENTAL IRON WORKERS, LOCAL 417 TRAINING AND EDUCATION FUND, PLAINTIFFS-APPELLANTS,
v.
ROBERT PALATNIK AND JOSEPH ALBENDA, TRUSTEES OF THE INTERNATIONAL ASSOCIATION OF BRIDGE, STRUCTURAL AND ORNAMENTAL IRON WORKERS, LOCAL 417 TRAINING AND EDUCATION FUND, AND WILLIS C. ROSE, INDIVIDUALLY, DEFENDANTS-APPELLEES



Suit brought by successor trustees of a union apprentice training and education trust fund, for declaratory judgment to invalidate employment contract made between former trustees and past president of the union. The United States District Court for the Southern District of New York, Lloyd F. MacMahon, Judge, held that the federal court was without jurisdiction under the Labor Management Relations Act. Reversed and remanded for further findings.

Kaufman, Chief Judge, Anderson and Oakes, Circuit Judges.

Author: Oakes

OAKES, Circuit Judge:

The sole question presented by this appeal is whether the federal courts have jurisdiction to provide relief in connection with an alleged conspiracy by the trustees of a Labor Management Relations Act (Act) trust fund, to divert money from that fund to one of the union trustees.*fn1 Suit was brought under § 302(e) of the Act, 29 U.S.C. § 186(e), but no pendent claim under state law was asserted. The district judge, Lloyd F. MacMahon, for the United States District Court for the Southern District of New York, held that relief was available only under state law and could not be obtained in a suit resting solely upon the federal statute. Haley v. Platnick, 378 F. Supp. 499 (S.D.N.Y. 1974). Although we agree with much of his opinion which both details the facts here and expounds the law relating to § 302 trusts, we disagree with his ultimate conclusion and reverse and remand for the reasons below.

The facts, encapsulated, are these. Pursuant to a 1967 collective bargaining agreement between the International Association of Bridge, Structural and Ornamental Iron Workers, Local 417 (the union), and several employers, an Apprentice Training Fund was set up to defray the costs of apprenticeships in the employees' trades. The fund was created in accordance with § 302(c)(6) of the Act, 29 U.S.C. § 186(c)(6), which requires, among other things, that the fund be managed by an equal number of employer and employee representatives as trustees. Willis C. Rose, the appellee, served as one of the two union trustees of the education fund. He was also the president of the union (an unpaid position) and assistant business agent for the union (a paid position). The other union trustee (and also paid union business agent) was William Mims. In 1972 the fund had income of $60,170 (in part from an employer contribution first of 8 cents, then 4 cents per union-manhour worked) and disbursements of $15,492; in 1973 it had income of $34,406 and disbursements of $15,199; and in the first six months of 1974 gross receipts of $12,796.68.*fn2

In March, 1973, Rose discussed with Joseph Albenda, an employer trustee of the fund, the appointment of a fund administrator. Although the need for an administrator had been discussed as early as 1970, Rose testified that his discussion with Albenda was precipitated by Albenda's awareness that Rose (and Mims) had internal political trouble with the union members and were facing the likelihood of a difficult election. Albenda suggested that if either Rose or Mims were named administrator, the salary from the position could be used to defray the expenses incurred during an election campaign. In short, there is every indication that Albenda, an employer representative, was at the very least interested in keeping Rose and Mims in their positions with the union.

In May, 1973, Rose was removed as assistant business agent by the union membership. He was facing another election (for president) in June, 1973, and his ouster from that position appeared imminent. After an executive board meeting immediately following the May meeting Mims suggested to Rose that the latter become fund administrator; Rose allowed that if he should lose the election for president he could use the fund administrator's position as a "back-up job." A contract between the fund and Rose as fund administrator was drawn up by union counsel and, with minor modifications, signed by Mims, Albenda and Robert Palatnik, the other employer trustee. The contract gave Rose $30,607 per year, more than the net income of the fund in 1973 and its anticipated gross receipts in 1974. Judge MacMahon found as follows:

Albenda explained to Mims that he signed the contract because he thought Mims was doing a fine job as business agent and did not want Mims to be defeated in the election for business agent.

The evidence clearly shows a conspiracy by Albenda, Rose, and perhaps others, to divert trust fund monies to Rose, as Fund administrator, an obvious breach of their fiduciary duty to the Fund.

378 F. Supp. at 507-08. But the court below went on to say that

There is no evidence, however, which shows that Rose, Mims, Albenda or Palatnik attempted to use the structure of the Fund to disguise or facilitate direct or indirect employer payments to Rose. All payments of money to Rose, as administrator, were to be made out of Fund monies, and the evidence contains no suggestion that any payments were made by any employer to Rose at any time. . . .

378 F. Supp. at 508. Accordingly, the court held that:

The trustees' conduct constituted no more than a simple breach of their fiduciary duty to the Fund, conduct which does not come within § 302 of the Act and ...


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