every two or three years. Tr. 1423 (Weissman). These audits follow well-established procedures, and require the auditors to examine general ledgers, vouchers, and other documentation. Tr. 1424. Among the items Commission accountants are trained to examine are travel and entertainment records for the companies. Tr. 1425. This Court credits these audits.
After examining these audit reports, we conclude that they indicate that various employers of ILA labor made payments on behalf of Carson for meals and entertainment.
The Taft-Hartley Act makes it unlawful for any labor representative or union officer or employee to "request, demand, receive, or accept . . . any money or thing of value" from an employer. 29 U.S.C. § 186(b). The statutory prohibition is malum prohibitum, and outlaws all payments, including classic monetary bribes or more subtle forms of employer payments. United States v. Ryan, 350 U.S. 299, 305 (1956). The statute has specifically been held to proscribe the receipt by union officers of meals. See, e.g., Butchers' Union, Local No. 498 v. SDC Investment, Inc., 631 F. Supp. 1001, 1003 (E.D.Cal. 1986) (reimbursements for hotel, meals, and automobile expenses). We therefore conclude that Carson's acceptance of meals and entertainment from employers of ILA labor violated Taft-Hartley.
Donald Carson argues that the records are uncorroborated. Carson's PFF&CL P 41. As an initial matter we note that Carson failed to challenge the accuracy of the Waterfront Commission audit reports when they were first introduced against him at trial. Moreover, as we have noted above, audit reports are generally supported by back-up documentation, and Waterfront Commission procedures require further verification. Carson also argues that the audits are "inherently unreliable because their authors had a motive to falsify expense account claims in order to enrich themselves." Id. I Carson contends that the waterfront employees who submitted the expense account claims did so in order to get a business expense deduction. This Court disagrees. Someone seeking to disguise a purely personal expense as a business expenditure can readily do so without using a union official as the pretext, and thereby risking involvement in still another violation of law.
Carson also argues that since he was authorized to charge meals involving Local business on an account issued to the Local, the fact that he allowed Waterfront employers to pay actually saved the Local money, and provided no tangible benefit to him. Carson's PFF&CL P 42. Again, even if we accept Carson's statement at face value, the statute still prohibits Carson's acceptance of meals.
Nor are we persuaded that the meals are of de minimis value. As the record amply demonstrated, Carson repeatedly received meals, often valued in the hundreds of dollars.
B. Unlawful Solicitation of Contributions
We consider next the government's allegation that Carson unlawfully solicited contributions to non-jointly administered union accounts in violation of the Taft-Hartley Act. Again the government's proof consists of Waterfront Commission Audit reports which indicate that various waterfront employers purchased tickets to various "functions" sponsored by the union. See GX 2279 & 2280 (Waterfront Commission Audit Reports).
We begin by noting that the Taft-Hartley Act prohibits any solicitations by a union officer, whether the money is to be paid directly to the officer, or to another. The Taft-Hartley Act specifically exempts certain payments to union institutions or funds, but only if those payments are received by trust funds established pursuant to a written trust agreement and "jointly administered" by employee and employer representatives. See 29 U.S.C. § 186(c)(5).
Even assuming, without deciding, that these contributions violated § 186(a) of Taft-Hartley, we hold that there has been insufficient evidence that the defendant Donald Carson requested, demanded, or otherwise solicited the contributions. See § 186(b)(1). Without such proof, the government fails to prove that Carson violated the Taft-Hartley Act by unlawfully soliciting contributions to non-jointly administered union accounts.
C. Carson's Alleged Embezzlement of Union Funds & Carson's Entitlement to Pension Benefits
In this section we address three issues: (1) whether defendant Carson illegally received payments from Local 1588, including a salary and reimbursement of expenses, in violation of 29 U.S.C. § 501(c); (2) whether Carson is entitled to receive pension benefits from Local 1588; and (3) whether Carson's receipt of pension benefits, should the Court find that he was not entitled to them, constitutes an embezzlement within the proscription of § 501(c).
After reviewing the evidence in the record, this Court reaches the following conclusions: (1) Carson embezzled his salary and various reimbursements of expenses from Local 1588 in violation of § 501(c); (2) Carson should be estopped from claiming further entitlement to pension benefits; and (3) Carson's receipt of "pension benefits" from Local 1588 does not constitute an embezzlement. This portion of the Court's Opinion considers the issues raised in Carson v. Local 1588, 90 Civ. 5618 (LBS).
1. The Government's Allegation that Carson Embezzled Union Funds: His Salary & Reimbursed Expenses
Findings of Fact
a. Carson's Salary
Union officers have a statutory duty to expend a union's money and property "in accordance with [the union's] constitution and bylaws." 29 U.S.C. § 501(a). ILA International's constitution provides that the salaries of Local officers are to be "fixed by the membership." GX 2221 at 30.
In 1982, Donald Carson was elected General Organizer of the ILA International. In spite of his new responsibilities with the International, Carson retained his position as Secretary-Treasurer of Local 1588. After Carson assumed his position at the International, he devoted less time to Local 1588 affairs; indeed, approximately 80 percent of his time was spent in New York City at the International's office. Perhaps in recognition of this, Carson's salary was reduced by a few thousand dollars. Nevertheless, for the years between 1983-1987, Carson's reduced salary still exceeded $ 50,000 annually. GX 4176-80 (Local 1588 LM-2 Reports).
After becoming an officer of the International, Carson made William Fullam a full-time officer. Carson gradually raised Fullam's salary to match his own. See id. As a consequence, and even taking into account Carson's slightly reduced salary, a greater portion of Local 1588's assets were devoted to officers' salaries after Carson became an International officer. For example, the total salaries paid to officers by Local 1588 was raised from $ 99,421 in 1981, to $ 122,537 in 1982, and to $ 131,628 in 1983. See GX 4174-76 (Local 1588 LM-2 Reports 1981-83).
An examination of the minutes of the General Meetings of Local 1588 from June 5, 1982, to December 5, 1983, demonstrates that the decisions to increase the total salaries paid, and to retain a full-time salary for Carson after he became a part-time employee, were made without the membership's approval.
b. Reimbursed Expenses
The International's constitution provides that "all payments and expenditures of each Local Union shall be made by check upon authorization by resolution of the Local Executive Board." Between 1978 and 1988 -- the years in which Carson was an officer of Local 1588 -- Carson received over $ 75,000 as "reimbursed expenses" from the Local's treasury. GX 4171-81 (Local 1588 LM-2 Reports 1978-88). However, these expenses were not, as required by the International's constitution, paid "by check upon authorization by resolution of the Local Executive Board." Instead, Carson was entrusted with the sole power to approve bills submitted to the Local. Tr. at 5652 (Stack).
As a result of the salaries and expenses, Local 1588 had a negative cash flow at the time that Carson retired from service. Tr, 5845-46 (G'Sell).
Conclusions of Law
Section 501(c) of Title 29 provides in part:
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, securities, property, or other asset of a labor organization of which he is an officer or by which he is employed directly or indirectly, shall be fined . . . or imprisoned . . . or both.
Section 501(c) makes it unlawful for a union officer to take union property "knowing that the [union] would not have wanted that to be done." United States v. Silverman, 430 F.2d 106, 127 (2d Cir 1970), cert. denied, 402 U.S. 953 (1971). The Fourth Circuit recently noted:
In the context of 501(c), the owner of the property is the union itself. . . . An appropriation or expenditure of union funds is therefore unauthorized if it is done without the permission of the union, even if it is approved by a superior union official. The permission of the union is lacking if the appropriation or expenditure is outside the scope of the fiduciary trust placed in the defendant by the union as a whole and outside the scope of the powers of any superior union official on whose permission the defendant has sought to reply.
United States v. Stockton, 788 F.2d 210, 217 (4th Cir. 1986), cert. denied, 479 U.S. 840 (1986) (emphasis in original).
Fraudulent intent is the cornerstone of a § 501(c) violation. United States v. Floyd, 882 F.2d 235, 240 (7th Cir. 1989). To determine whether Carson acted with the requisite fraudulent intent, we must consider the totality of the circumstances. However, the Second Circuit has recently noted that "Authorization from and benefit to the union are the controlling lodestars to determine whether a defendant acted with the fraudulent intent to deprive the union of its money." United States v. Butler, 954 F.2d 114, 118 (2d Cir. 1992) (emphasis added). The Butler court went on to note that a union official charged with embezzling union funds lacks the requisite criminal intent when the evidence establishes that he had a "good-faith belief both that the funds were expended for the union's benefit and that the expenditures were authorized (or would be ratified) by the union." Butler, 954 F.2d at 118; see also United States v. Ottley, 509 F.2d 667, 671 (2d Cir. 1975); Silverman, 430 F.2d at 127.
We believe that the evidence presented by the government demonstrates that Carson had the requisite fraudulent intent to embezzle his full time salary. As noted above, the evidence demonstrates that authorization from the membership was not obtained for the retention by Carson of a full time salary after he became only a part-time employee. Nor was authorization obtained for the periodic increases in salary to Fullam. See Butler, 954 F.2d at 119 (defendant's payment of union funds to his son without authorization constitutes embezzlement under § 501(c)). These facts, coupled with two other circumstances, convince this Court that the government has proved by a preponderance of the evidence that Carson had the requisite intent to embezzle:
First, the evidence supports the conclusion that Carson did precious little in return for the generous salary he drew. While Carson was spending most of his time in New York, ostensibly performing services for the International, the union received no real benefit. See id., 954 F.2d at 119 (proper for jury to infer that defendant had requisite intent where, inter alia, he provided no services to union in return for salary); see also United States v. Goad, 490 F.2d 1158, 1161 (8th Cir. 1974) (conviction affirmed where government proved that union officers received raises, and that the executive board minutes did not reflect approval of such raises where union's constitution required salary increases to be approved by executive board), cert. denied, 417 U.S. 945 (1974).
Second, an extremely large portion of the union's revenues was committed to salaries of union officers. An examination of Local 1588's LM-2 Reports indicates that during part of the relevant period, Local 1588 did not have sufficient funds to pay the salaries to Carson and Fullam.
See, e.g., GX 4174, 4178. As Secretary Treasurer of the Local, Carson clearly was aware of this, and therefore, could not have acted with a good-faith belief that the high salaries were maintained for the legitimate benefit of the union.
We therefore conclude that the government proved by a preponderance of the evidence that Carson embezzled his full-time salary in violation of § 501(c).
With regard to the issue of Carson's "expenses," the Court reaches the same conclusion, i.e., that Carson's receipt of reimbursements for these expenses constituted multiple violations of § 501(c). In contravention of the International's constitution, the tens of thousands of dollars paid to Carson as expenses were never considered by the Executive Board. GX 6548-69 (Executive Board Minutes 6/3/82-11/10/87). In addition to the evidence already discussed above, which demonstrates Carson's intent to embezzle, we only add that after Carson's departure, the executive board eliminated many of the "expenses" for future union officers for which Carson sought and obtained reimbursement (e.g., cars and credit cards). The Court believes that this is an indication of the fact that Carson's "expenses" were of a nature that provided little if any benefit to Local 1588.
2. Carson's ERISA Claim
In 1972, shortly before Donald Carson was employed by Local 1588, the Local adopted a Constitution and By-Laws, including Article IX.E, which provided in relevant part:
All elected officers and Business Agents who have served twelve (12) uninterrupted years of service to the Local Union shall receive a pension until their demise from the Local Union of forty (40%) per cent of their last year's base pay. . . . After [death], half of his pension goes to his widow until she remarries or dies.
In 1979, the Local amended its Constitution and By-Laws, but Article IX.E was incorporated into the 1979 version without change.
Carson first served as the business agent and then as the elected Secretary-Treasurer of Local 1588. The parties do not dispute that Carson served in these positions for at least twelve uninterrupted years. Carson resigned his position at Local 1588 in 1988, after he was convicted in the criminal RICO action.
After leaving the Local, Carson applied for a pension under Article IX.E of the By-Laws. Initially, Local 1588 granted the application and Carson began receiving monthly pension payments in the amount of $ 1,387.67. However, some time later the Local concluded that the payments to Carson were not proper and ceased making the payments. By the time payments were stopped, Carson had received approximately $ 9,280.00 in pension benefits.
Carson then filed a lawsuit against Local 1588 in the District of New Jersey seeking to compel Local 1588, its officers, executive board, and trustees to resume paying the monthly pension, and to guarantee that upon his death payments would be made at half the rate to his wife, Peggy Carson. The New Jersey action was transferred to the Southern District of New York and ultimately consolidated with this civil RICO case. See 90 Civ. 5618 (LBS).
In 1991, Carson moved for summary judgment in the ERISA action. This Court denied Carson's motion, Carson v. Local 1588, 769 F. Supp. 141, 146 (S.D.N.Y. 1991), and the case proceeded to trial in January of 1992. During the trial, Local 1588 litigated the issue of Carson's entitlement to his pension benefits. However, Local 1588 reached a settlement with the government in the civil RICO case early in 1992, and therefore has filed no post-trial findings. Both Carson and the government submitted post-trial proposed findings of fact and conclusions of law that addressed the pension issues.
In the summary judgment motion, the preliminary issue for the Court was whether the Local had established a pension plan as defined under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 et seq (1988). As recounted in our summary judgment opinion, there was extensive debate over whether the pension provisions in the By-Laws had been ratified by the union membership. Prior to the summary judgment motion, the Court had granted Local 1588 two weeks to locate (1) minutes of the meetings of Local 1588 and its executive board which covered the adoption of Article IX.E and (2) any additional related correspondence which had been seized by the government in connection with the civil RICO case and which the Local contended would prove that the provisions were not self-executing. In a letter to the Court dated April 22, 1991, the Local stated that it was unable to locate the documents and withdrew its argument that Article IX.E. was not ratified by the union membership. This Court then found that the Local had conceded that a pension plan was established, as defined under ERISA.
The government attempts to revisit this finding in its post-trial brief, arguing both that the Local never ratified the By-Laws so that a grant of a pension to Carson was never authorized, and that Carson did not establish the pension plan within the meaning of ERISA. See Govt's Amended PFF&CL PP 134-157. This Court believes that there is no reason to revisit this issue. Neither the Local nor the government produced the relevant documents during the period granted by the Court. Moreover, no further evidence regarding the whereabouts of these documents was submitted by any party at the trial or at any subsequent time. Therefore, we adhere to our finding that the By-Laws were ratified -- or more precisely, that the government has failed to meet its burden of proving that they were not ratified -- and that a pension plan was established by Local 1588, as defined by ERISA.
In our summary judgment opinion, we found that "top-hat" pension plans,
such as that established by Article IX.E, are exempt from the non-forfeiture and non-alienation rules which typically apply to employee pension plans under ERISA. See Carson, 769 F. Supp. at 144. We also held that the union could obtain forfeiture of Carson's benefits if it could demonstrate that Carson had breached a fiduciary duty to the pension plan. Id. at 145 n.6; see also Crawford v. La Boucherie Bernard, Ltd, 815 F.2d 117, 119 (D.C. Cir. 1987) (courts have "broad authority" under ERISA to fashion remedies redressing breach of fiduciary duty). Thus, we noted two circumstances in which Carson would be estopped from claiming pension benefits:
First, [if] . . . Carson failed to comply with the mandated disclosure and reporting provisions of ERISA as required of those responsible for managing top-hat pensions. Second, [if] . . . Carson caused injury to Local 1588's pension fund based on the conduct for which he was criminally convicted in 1988.
Carson, 769 F. Supp. at 145. We conclude that the evidence demonstrates that Carson breached his fiduciary duty to the pension plan in the second enumerated manner, i.e., based on his conduct in the MOTBY scheme, which is discussed in great detail in Part IV-A, supra.
We begin by noting that Carson was the pension plan "administrator" as that term is defined in the statute. Where the pension plan fails to designate an "administrator" -- as is the case here -- the "plan sponsor" is deemed to be the "administrator." 29 U.S.C. § 1002(16)(A)(ii). The term "plan sponsor" is defined, in most cases, as the "employer." 29 U.S.C. § 1002(16)(B). The "employer" is defined as "any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan." 29 U.S.C. § 1002(5). As Local 1588's Secretary-Treasurer, and, until 1982, its only full-time officer, Carson was the officer responsible for financial matters, including retirement benefit plans. Carson Dep. at 153-154; Lachnicht Dep. at 76-77. Consequently, Carson clearly fits within the definitions of "employer," "plan sponsor," and ultimately "administrator."
As plan administrator, Carson owed a fiduciary duty to the pension fund. ERISA's definition of fiduciary is broad:
Except as otherwise provided in subparagraph (B), a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct, or indirect, with respect to any moneys or other property of such plan or has any authority or responsibility to do so, or (iii) he has discretionary authority or discretionary responsibility in the administration of such a plan.