The opinion of the court was delivered by: CONNER
This is an action under Section 501 of the Labor-Management Reporting and Disclosure Act ("LMRDA"), 29 U.S.C. § 501, brought by two members of the National Maritime Union ("NMU" or "the Union") against past and present officers of the Union and trustees of its Officers' Pension Plan ("OPP") charging various breaches of fiduciary duties, principally in the payment to or for certain officers of unauthorized or excessive salaries, pensions, severance pay and other benefits.
As a prerequisite to this action, 29 U.S.C. § 501(b), plaintiffs on August 2, 1971 wrote to the defendant officers of the NMU, requesting the filing of an action for an accounting of the NMU general fund and pension plan and to recover damages for the losses sustained as a result of breaches of fiduciary duty by the officers "in that they did suffer and permit expenditures of moneys from the NMU general fund which expenditures were not for the benefit of the organization and its members" and by the trustees "in that they did permit expenditures of moneys from the (maritime Union Pension) Plan, which expenditures were contrary to the terms of the Plan and not for the benefit of the participants of said Plan." The letter set forth a number of specific examples of the alleged breaches, adding that they were "merely illustrations and your actions should not be limited to recovery solely of these items" but of all losses "discovered or discoverable in the necessary accounting proceedings."
When, as expected, no action resulted, plaintiffs applied to this Court, pursuant to Section 501(b), for leave to bring suit. On January 9, 1973, Judge Robert L. Carter granted leave to commence a proceeding, Inter alia,
"1. For an accounting of the general funds of the NMU;
"3. For an accounting of the NMU Officers' Pension Fund;
"4. For damages, injunctive and other appropriate relief against the defendants with relation to the breaches of their fiduciary duties under Title 29 U.S.C. (s) 501 * * *."
The original Complaint charged thirteen specific violations of trust and, by a memorandum and order dated February 25, 1975, 76 CCH Labor Cases P 10,695, the Court granted leave to file an Amended Complaint alleging six more.
The action went to trial on February 23, 1976. After two trial days, plaintiffs rested and defendants moved orally to dismiss the Complaint for failure to make out a Prima facie case. In the ensuing discussion, plaintiffs' attorney indicated that he had been hampered in preparing for trial by the Union's delay in producing documents and that he had wished to take additional testimony but had been unable to obtain service of subpoenas on the witnesses. The Court, remarking that valuable rights of Union members should not be lost through inadequate trial preparation, adjourned the trial to afford plaintiffs' counsel a further opportunity to put their case in order. To accommodate defendants' counsel and witnesses, defendants were allowed to proceed with the beginning part of their case the following day.
The second and final installment of plaintiffs' main case was presented from April 19 through April 21, 1976. At its conclusion, defendants renewed their motion to dismiss. Because plaintiffs' case had been presented in a somewhat disorderly fashion, the Court asked plaintiffs to submit a written statement, supported by citations to the record, setting forth what they believed their proofs had shown, and defendants were asked to file written answering statements.
In their memorandum, plaintiffs asserted that the proofs established that defendants had breached their fiduciary responsibilities in eight respects. In an unreported Memorandum and Order entered May 19, 1977, the Court dismissed the Complaint as to three of the eight, leaving in the case the following five claims:
1. that defendant Joseph Curran, retired president of the NMU, was paid a salary that was unauthorized and excessive;
2. that the defendant officers had received unauthorized cash payments in lieu of vacations;
3. that NMU funds had been used to pay personal expenses of the defendant officers;
4. that the OPP (and its successor plan) were overfunded and that they provide excessive pensions; and
5. that NMU general funds had been transferred to the "Fighting Fund" and used to make political contributions.
The remainder of defendants' case was put on in two sessions, the first covering November 31 to December 3, 1977, and the second January 18 and 19, 1978.
From a study of this additional evidence, it appeared that the Court's dismissal of the plaintiffs' claim that "excessive" severance pay had been given to the retired officer defendants was too sweeping in its terms. That dismissal was expressly based upon the Court's determination that the NMU's scheme of giving severance pay in an amount equal to one month's pay for each year of employment had been authorized by the membership and that plaintiffs had failed to establish "that the membership authorization was obtained in any improper manner or that the authority conferred was somehow exceeded." Upon a review of the full record and briefs, it appeared that, at least in the case of Joseph Curran, and perhaps others as well, the authority conferred had apparently been exceeded by giving severance pay in amounts above the authorized rate.
Because the Court's unqualified dismissal of this claim at the close of plaintiffs' case might have caused defendants to fail to introduce in their case available evidence tending to show that the severance payments were within the authorized limit, the Court, to avoid prejudice to defendants, notified counsel at a conference on December 15, 1978, that it was modifying its previous Order to the extent of reinstating plaintiffs' claim of excessive severance payments, but would afford defendants the opportunity to introduce additional evidence in opposition to that claim. Defendants have not elected to avail themselves of that opportunity and therefore stand on the present record.
This Opinion incorporates the Court's findings of fact and conclusions of law pursuant to Rule 52(a), F.R.Civ.P.
The NMU is a labor organization as defined in 29 U.S.C. § 402.
Plaintiffs James M. Morrissey and Ralph Ibrahim are and have been since before 1950 members of the NMU. Morrissey has been a repeated unsuccessful candidate for the offices of President and Secretary-Treasurer, and a perennial and highly vocal dissident. In addition to speaking out at port meetings and conventions of the NMU, Morrissey has published a paper named "The Call," charging the incumbent administration with various improprieties, including many of the violations of trust alleged in this action, which is but one of a series of actions he has brought against Curran and other Union officers. See, E. g., Morrissey v. Curran, 483 F.2d 480 (2d Cir. 1973), Cert. denied, 414 U.S. 1128, 94 S. Ct. 865, 38 L. Ed. 2d 752 (1974); Morrissey v. Curran, 356 F. Supp. 312 (S.D.N.Y.1973); Morrissey v. Curran, 76 Civ. 738 (RJW), U.S.D.C., S.D.N.Y.
Defendant Joseph Curran was one of the founders of the NMU and its President from 1938 until his retirement on March 1, 1973. Defendant Shannon J. Wall has been President of the NMU from March 1, 1973 to date; he was Secretary-Treasurer from 1966 to 1973 and Vice President from 1961 to 1966. Defendant Mel Barisic was Secretary-Treasurer of the NMU from March 1, 1973 until his retirement on February 28, 1978, having been an employee of the Union for a total of 27 years.
Defendants Rick S. Miller, James J. Martin, Peter Bocker, Leo Strassman and Robert Nesbitt are and were at all relevant times Vice Presidents or National Representatives of the NMU. Defendants Strassman and Nesbitt were apparently not personally served and have not voluntarily appeared; accordingly, they will not be bound by the judgment herein.
Defendant William Perry was Assistant to the President of the NMU from 1958 until he was discharged on January 16, 1969.
Defendants Abraham E. Freedman, Martin E. Segal and Leon Karchmer were trustees of the OPP until it was supplanted by the Staff Pension Plan ("SPP") effective January 1, 1974. Defendant Amalgamated Bank, which was added by amendment, is trustee of the SPP.
The Court has jurisdiction of the action under 29 U.S.C. § 501. Morrissey v. Curran, supra, 483 F.2d 480.
The NMU was founded in 1937 following a walkout of the crew of the passenger ship PENNSYLVANIA in protest against what were perceived as grossly inadequate wages ($ 62.50 a month on the East Coast and $ 67.59 on the West Coast) and intolerable working conditions. Joseph Curran, a boat deckman and ship's delegate on the sister ship CALIFORNIA, whose crew soon joined the strike, was a prime mover in the founding of the Union, became its first President in 1938 and held the office for 35 years until his retirement in 1973.
In large measure due to the efforts of the NMU and its rival labor organization, Seafarers' International Union, the pay of American merchant seamen has risen spectacularly through the years, even while their working conditions were substantially improved. Thus, under the NMU's 1977 contracts, an able-bodied seaman on a mechanized ship was paid $ 984.65 per month plus overtime at a rate of $ 7.22 per hour.
Curran was regarded by many NMU members, not without some justification, as the chief author of this dramatic improvement in the lot of seamen. Curran understandably became their hero, and their adulation of him approached idolatry.
However, these economic blessings turned out not to be unmixed. The effect of the enormous increase in labor costs for U.S.-flag ships, coupled with the freedom of foreign-flag ships from costly compliance with stringent U.S. safety regulations, placed the U.S.-flag ships at an almost insuperable competitive disadvantage, and inexorably produced a drastic decline in the U.S. merchant fleet, to the point where only approximately 6% Of the U.S.-foreign shipments are currently carried in U.S.-flag vessels. The membership of the NMU dropped from approximately 50,000 in 1959 to less than 15,000 today. Even the latter number is deceptively high; there are actually only about 6,500 jobs currently available on ships under contract to the NMU. To spread the work, no member is permitted to start a voyage in a year in which he has completed 210 days (7 months) of work. At any given time, over half of the NMU members are idle.
Despite an increase of the annual dues in 1976 from $ 160 to $ 240, the NMU has run at an annual deficit averaging over half a million dollars every fiscal year since 1972, with the exception of the fiscal year ending June 30, 1974, when the NMU realized some $ 6,000,000 from the sale of a building in New York City.
The organization of the Union was described in our Memorandum and Order of May 19, 1977, and was succinctly summarized in Morrissey v. Curran, 423 F.2d 393, 395 (2d Cir.), Cert. denied, 399 U.S. 928, 90 S. Ct. 2245, 26 L. Ed. 2d 796 (1970):
"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."
With respect to officers' compensation, Article 14, § 1(a) of the 1960 and 1965 NMU Constitutions provided:
"The National Council shall fix the salaries for all officers of the Union, subject to approval as provided by this Constitution."
In 1972 this section was amended to read:
"The National Council shall establish the rates of compensation, including pension, welfare and other fringe benefits for all officers of the Union, subject to approval of a majority of the total members voting at regular membership meetings."
APPLICABLE LEGAL PRINCIPLES
"a response to the disclosure of official pilfering, union violence and the use of union office for personal profit during hearings held by the Select Committee on Improper Activities in the Labor or Management Field chaired by Senator McClellan. S.Rep. No. 187, 86th Cong. 1st Sess., 2 U.S.Code Congressional and Administrative News 2318 (1959). To expose conflicts of interest and stamp out embezzlement and self-dealing by union officials, the Act required unions to comply with certain reporting and disclosure requirements, established new crimes, and codified the fiduciary obligations of union representatives. See Cox, Internal Affairs of Labor Unions Under the Labor Reform Act of 1959, 58 Mich.L.Rev. 819 (1960)."
Section 501 "was a direct and far-reaching response to the mischief exposed and dramatized by the McClellan Committee. That mischief was the misuse of union funds and property by union officials in its every manifestation. Thus the reach of Section 501 extends to every area in which subversion of the interests of the union membership may be accomplished by union officials or representatives bent on acting in culpable derogation of those interests." Hood v. Journeymen Barbers, Hairdressers, etc., 454 F.2d 1347, 1354 (7th Cir. 1972).
"The content of the fiduciary obligation in Section 501(a) is outlined only in broad principles. Professor Cox has authoritatively stated that "The principles stated in section 501(a) were drawn from the Restatement of Agency in an effort to incorporate the whole body of common law precedent defining the fiduciary obligations of agents and trustees with such adaptions (sic) as might be required to take into account "the special problems and functions of a labor organization * * * ." " * * * At a minimum, there must be safe, honest, loyal, and conscientious management of the fund." Id. at 1355 (footnotes omitted).
But actions under Section 501 often do not involve outright embezzlement. Frequently, as in the case of some of the expenditures challenged here, the accused officers can point to an express or implied authorization thereof by either the Constitution or by-laws or by a vote of the members.
At least in cases where self-dealing is not involved, and where the disbursement produces some apparent union benefit, authorization is a defense to an action under Section 501. Indeed, during the hearings on LMRDA, Senator John F. Kennedy stated:
"Union officers will not be guilty of breach of trust under this section when their expenditures are within the authority conferred upon them either by the constitution and bylaws, or by a resolution of the executive board, convention or other appropriate governing body including a general meeting of the members not in conflict with the constitution and bylaws." 105 Cong.Rec. 17900 (1959).
See also Office of the Solicitor, U.S. Dept. of Labor, Legislative History of the Labor-Management Reporting and Disclosure Act of 1959, 1021 (1964).
In McNamara v. Johnston, supra, 522 F.2d at 1165-66, the Court of Appeals for the Seventh Circuit, drawing on common-law principles of agency, ruled:
"(Fundamental) fairness requires, that as between agent and principal, an agent cannot be held liable for the use of the principal's property in an unlawful manner when it is reasonable to infer that the principal authorized the agent's conduct. * * * (So) long as the expenditures were authorized in some fashion, plaintiffs can have no cause of action on behalf of the union for breach of fiduciary duty." (Footnotes omitted.)
And in United Mine Workers of America v. Boyle, 91 L.R.R.M. 2549, 2551 (D.D.C.1975), the court ruled:
"(It) is clear that the plaintiff has the dual burden of establishing (1) that the expenditure was not properly authorized, and (2) either that union assets were converted to an individual's own use, or that the union had been deprived of the benefit of the funds involved." (Footnote omitted.)
However, in United States v. Silverman, 430 F.2d 106, 114 (2d Cir. 1970), Cert. denied, 402 U.S. 953, 91 S. Ct. 1619, 29 L. Ed. 2d 123 (1971), the Court of Appeals for the Second Circuit stated:
"It is clear that when there is no possible union benefit from the use of the union funds made by the official, it makes no difference whether the use was authorized. Thus, in United States v. Dibrizzi, 393 F.2d 642 (2d Cir. 1968), the jury could have found that the expenditures "were personal non-business expenses and in no way incurred in furtherance of the union's business.' Our court stated that:
"Even if appellant may have established that his expenses were, as he claims, authorized and adopted by the union, such does not absolve him of his crimes * * * .' 393 F.2d at 645."
Although both Silverman and Dibrizzi involved prosecutions under 29 U.S.C. § 501(c), the criminal counterpart of Section 501(b), there is no apparent reason why the plaintiff's burden in a civil case seeking only a reimbursement of monies improperly expended should be greater than the government's burden in a criminal proceeding in which the union officials are exposed to the possibility of imprisonment for terms of up to five years on each count.
In Puma v. Brandenburg, 324 F. Supp. 536, 544 (S.D.N.Y.1971), notwithstanding the fact that the Officers' Pension Plan under challenge had been ratified by the union membership, Judge Pollack stated:
"However, merely because an Executive Board has the power to set officers' salaries (including pensions), does not mean that it has unlimited power to do so. Section 501 of the LMRDA imposes on labor representatives a fiduciary duty to the labor union and its members in respect of the management of union funds and other property. This fundamental obligation applies as well to the conduct of union representatives prior to the effective date of the LMRDA. Consequently, the terms of the instant Officers' Pension Plan must be inspected in the light of this fiduciary duty to determine whether the Plan was essentially fair or whether it was so over-generous or otherwise improper as to amount to a violation of trust."
And in United States v. Ladmer, 429 F. Supp. 1231, 1243 (E.D.N.Y.1977), Judge Dooling stated:
"(T)he essential difficulty with the argument for authorization is that formal resolutions cannot authorize the expenditure of the funds of labor organizations where the expenditures are not for union benefit but are for the personal benefit of the recipients."
The compensation of union officers falls in the hybrid class of expenditures that involve self-dealing (at least where the officers serve on the council or other body that fixes officers' salaries subject to membership ratification), but which also produce a Union benefit, since no labor organization can function effectively without competent leadership.
Where the Union members have expressly authorized a specific level of compensation for the officers, a court must be hesitant to substitute its judgment for that of the members, except where the authorization was procured through fraud, mistake or duress or where the compensation so far exceeds the norm that fraud, mistake or duress can be inferred with some degree of assurance that is, where the court can reliably conclude that the membership would not knowingly and freely have authorized such extravagant emoluments for its officers.
This is in keeping with the stricture of the Court of Appeals in Gurton v. Arons, 339 F.2d 371, 375 (2d Cir. 1964):
"The provisions of the L.M.R.D.A. were not intended by Congress to constitute an invitation to the courts to intervene at will in the internal affairs of unions. Courts have no special expertise in the operation of unions which would justify a broad power to interfere. The internal operations of unions are to be left to the officials chosen by the members to manage those operations except in the very limited instances expressly provided by the Act. The conviction of some judges that they are better able to administer a union's affairs than the elected officials is wholly without foundation."
Although that statement was made in the context of an action challenging voting procedures, a matter that the court ruled was beyond the reach of Section 501, since that section only "applies to fiduciary responsibility with respect to money and property of the union," it does bespeak a wholesome reticence about substituting a court's notion of fairness for that of the union members or their authorized representatives.
Before turning to the specific charges of impropriety made by plaintiffs, a brief discussion of two threshold issues to which defendants surprisingly devoted roughly half of the length of their briefs is required.
Actions under Section 501 are equitable in nature rather than legal, Local No. 92, International Association of Bridge, S. & O. I. Workers v. Norris, 383 F.2d 735, 741 (5th Cir. 1967), and are governed by the doctrine of laches, rather than any local statute of limitations. Yablonski v. Mine Workers, 80 L.R.R.M. 2594 (D.D.C.1971).
Defendants argue that this action alleging improprieties going as far back as 1963, eight years before the demand letter, is barred by laches. However, defendants fail to suggest any respect in which they have been prejudiced by the delay in bringing suit.
Most of the improprieties complained of excessive compensation and pensions and payment of personal expenses are continuing offenses. As the Second Circuit stated in Morrissey v. Curran, supra, 423 F.2d at 399:
"(T)he 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."
If plaintiffs were seeking by this action not merely to recover from the recipients of improper payments or other benefits, but to surcharge the officers or trustees responsible therefor, it could be argued with considerable force that those subject to surcharge for improper expenditures that did not directly benefit them would have been seriously injured by the delay, since an earlier adjudication of the propriety of these expenditures would have allowed them to take corrective action and limit their personal liability. This, indeed, was the reason expressed by Judge Danaher for his dissent in Morrissey v. Curran, supra, 423 F.2d at 405.
However, during the trial of this action plaintiffs, with the approval of the Court, expressly waived any claim of surcharge, thereby limiting the relief sought to recovery from the defendants who received excessive payments or perquisites and an injunction against their continuation in the future. The delay in bringing suit obviously did not injure those who continued throughout the period of delay to receive benefits to which they were not entitled. And there is clearly no reason why those who have misapplied union funds and are still doing so should be allowed to continue merely because their misdeeds went so long unchallenged.
Defendants also argue, with a fervor approaching vehemence, that plaintiffs have prosecuted this action in a manner which constitutes harassment. Defendants are particularly critical of what they feel are plaintiffs' repeated and unexpected shifts in the grounds of suit, rendering it impossible for defendants to prepare for their defense, and thereby depriving them of due process.
As already remarked, the trial was indeed somewhat unconventional, and plaintiffs' proofs were adduced in a rather disorganized manner, ...