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UNITED STATES v. LADMER

March 9, 1977

UNITED STATES of America
v.
Benjamin LADMER et al., Defendants


Dooling, District Judge.


The opinion of the court was delivered by: DOOLING

MEMORANDUM incorporating FINDINGS OF FACT and ORDER FOR JUDGMENT

DOOLING, District Judge.

 The present civil action against members of certain labor unions or labor organizations, brought pursuant to 18 U.S.C. § 1964, . . . arose out of expenditures incurred in connection with conventions of the International Production, Service & Sales Employees Union ("IPSSEU") held at the Fontainebleau Hotel in Miami in 1968 and at Hilton Hawaiian Village in 1970.

 Defendants Ladmer, Goldstein, Selvaggi and Rao were officers of International Production, Service and Sales Employees Union ("IPSSEU") and of certain of its Locals. Defendant Ladmer was president of Local 222, defendant Goldstein was president of Local 517 and defendant Selvaggi was secretary-treasurer of Local 106. Defendant Rao was secretary-treasurer of IPSSEU. Defendants, Ladmer, Goldstein and Selvaggi, as officers of their respective Locals, were also vice-presidents of IPSSEU and were members of the executive boards of their respective Locals. Defendants Ladmer, Goldstein and Rao were trustees of the IPSSEU Welfare Fund and defendant Rao was administrator and trustee both of the Welfare Fund and of the IPSSEU Pension Fund. The defendant Ronald Straci did not hold office either in IPSSEU or in any of the Local unions or in either fund. At the times in question he was a lawyer . . ..

 The complaint in the action charged the present defendants . . . in one count framed under 18 U.S.C. § 1964. The complaint charged that from November 6, 1967 until February 17, 1971, the defendants, being employed by and associated with IPSSEU, a trade union and labor organization affecting Interstate Commerce, "unlawfully, wilfully and knowingly," conducted and participated, directly and indirectly, in the conduct of the affairs of IPSSEU and six of its Locals "through a pattern of racketeering activity, to wit, a series of acts involving embezzlement from union funds" and welfare and pension funds, in that they (a) unlawfully and wilfully embezzled, stole, abstracted and converted to their own individual and collective uses, and to the uses of others, funds of IPSSEU and the Locals and in that they aided and abetted others in committing such acts; and (b) embezzled, stole and unlawfully and wilfully converted to their own uses and uses of others funds of the IPSSEU Welfare and Pension Funds (29 U.S.C. § 501(c) and 18 U.S.C. § 664.) The complaint further alleged that the acts allegedly so committed by the defendants constituted violations of 18 U.S.C. §§ 1961(1)(A) and 1962(c). Plaintiff prayed judgment (a) enjoining the defendants from directly or indirectly engaging in trade union or labor organization activities, (b) divesting each defendant from all interests of any kind in IPSSEU and its Locals, (c) divesting each defendant from all interests of any kind in any other trade union or labor organization, (d) directing each defendant to submit such information as the Court from time to time found necessary and proper to carry out the purposes of 18 U.S.C. § 1964, and (e) for further relief.

 Both 29 U.S.C. § 501(c), relating to embezzlement from union funds, and 18 U.S.C. § 664, relating to embezzlement from employee pension and welfare funds, are included in the definition section of Chapter 96 of Title 18 ("Racketeer Influenced and Corrupt Organizations"). The term "racketeering activity" is defined by Section 1961(1)(B), (C) as meaning any act "which is indictable under any" of a number of sections of Title 18 and other Titles, including Title 18 "section 664 (relating to embezzlement from pension and welfare funds)," and Title 29 "section 501(c) (relating to embezzlement from union funds)."

 The complaint charges violation of Section 1962(c) which so far as presently relevant reads

 
"It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate . . . commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity . . .."

 Section 1961(5) provides:

 
"'pattern of racketeering activity' requires at least two acts of racketeering activity, one of which occurred after the effective date of this chapter and the last of which occurred within ten years . .. after the commission of a prior act of racketeering activity;"

 The embezzlement section of Title 18 referred to in the indictment and in Section 1961 is Section 664 which provides:

 
"Any person who embezzles, steals, or unlawfully and wilfully abstracts or converts to his own use or to the use of another, any of the moneys, funds . .. or other assets of any employee welfare benefit plan or employee pension benefit plan, or any fund connected therewith shall be fined . . . or imprisoned . . . or both."

 The crime is a felony.

 The embezzlement section in Title 29 referred to is Section 501(c). Section 501 defines the fiduciary responsibilities of officers of labor organizations. Subdivision (a) makes it the duty of officers of labor organizations to hold its money and property "solely for the benefit of the organization and its members and to manage, invest, and expend the same in accordance with its constitution and by-laws and any resolutions of the government bodies adopted thereunder"; self-interested transactions with the union are forbidden, as is the holding of any interest that conflicts with that of the union; officers must account to the union for any profit received by them in whatever capacity in connection with transactions conducted by them or under their direction for the union. Subsection (a) concludes with the statement that

 
"A general exculpatory provision in the constitution and bylaws of such a labor organization or a general exculpatory resolution of a government 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."

 Subsection (b) of Section 501 provides that when any union officer is alleged to have violated his subsection (a) duties, and the union, its governing board, or its officers refuse or fail to sue or recover damages or an accounting or other appropriate relief within a reasonable time after being asked to do so by a union member, the member may sue in any United States district court or in any State court for damages or an accounting or any other appropriate relief. However, the proceedings may not be brought except upon leave of court obtained upon a verified application and for good cause shown. A part of any recovery may be used to pay counsel fees and expenses of the member initiating the suit.

 Subsection (c) of Section 501 then provides

 
"Any person who embezzles, steals, or unlawfully and willfully abstracts or converts to his own use, or the use of another, any of the moneys, funds . . . or other assets of a labor organization of which he is an officer . . . directly or indirectly, shall be fined . . . or imprisoned . . . or both."

 The offense is a felony.

 The challenge of the complaint and of the Government's evidence is directed at the expenditures of union funds made by defendants at IPSSEU conventions held in Miami in March 1968 and in Honolulu in September 1970. In particular the Government attacks the per diem expenses of defendants' overstaying the time actually taken up by convention business in Miami, the expense of dinners given in Miami and in Honolulu to the delegates and their wives each evening after the completion of convention business and without any business occasion other than the recreational value argued to flow from such entertainment, money expended for meals and beverages for delegates for whom per diem provision had been made, expenses for hired cars incurred without business need for the delegates at the conventions, and in the case of the Honolulu convention, the granting of cash advances in the amount of the first-class round trip air fare to Honolulu to the delegates although in fact they travelled in tourist class accommodations. In the case of the Honolulu convention the Government charges further that the convention was wholly unnecessary.

 Defendants protest that they are being singled out and charged with embezzlement for doing what is a wide-spread custom not only of business but of other labor unions, and, among other things, they argue that all the expenditures involved were authorized or ratified or both by the interested labor organizations, and that, even if such use of union funds for entertainment expense and the like could be characterized as embezzlement within the meaning of the statutes involved, it cannot, in any common sense interpretation of the statute, be said that because of these acts connected with the two conventions, the defendants have conducted or participated in the conducting of the affairs of IPSSEU and the four Locals through a pattern of racketeering activity comprised in acts of embezzlement. Plaintiff on the other hand insists that the statute here involved be read, not as characterized for all purposes by the word "racketeer" and the words "corrupt organizations" in the title of Chapter 96 of Title 18, but in terms of the particular provisions of the statute and their allegedly precise application to the activities which it has challenged.

 The constitution of IPSSEU and the constitution and bylaws of the several Locals involved throw some light on the issues involved. Article V of the IPSSEU constitution provides that the International Union is to meet every five years on the second Monday in February at such place as the preceding general convention has designated, and that a special convention may be called either by the general executive board or by a two-thirds vote of all voting members on the petition of three Locals. The paragraph providing for a special convention continues

 
". . . and the expenses shall be defrayed by a special assessment levied by the General Executive Board. The date and place shall be set by the General Executive Board."

 Article 6 of the Constitution provides for representation at conventions. Representation is made to depend on the number of members in the Local. . . . Representation at the convention may not be by proxy. Sessions of the convention may be attended only by duly accredited delegates and by the general officers and international representatives and organizers.

 Article 7, Section 2 provides that whenever the president or the secretary-treasurer is required to perform services away from union headquarters they shall be allowed in addition to their salary first class transportation by the shortest road to and from their destinations and actual out-of-town expenses such as hotels and sundries. The officers of the International hold office for five years or until their successors are ...


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