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UNITED STATES v. INTERNATIONAL BHD. OF TEAMSTERS

March 5, 1993

UNITED STATES OF AMERICA, Plaintiff,
v.
INTERNATIONAL BROTHERHOOD OF TEAMSTERS, CHAUFFEURS, WAREHOUSEMEN AND HELPERS OF AMERICA, AFL-CIO, et al., Defendants. IN RE: APPLICATION XCIX OF THE INDEPENDENT ADMINISTRATOR


Edelstein


The opinion of the court was delivered by: DAVID N. EDELSTEIN

EDELSTEIN, District Judge:

 This opinion emanates from the voluntary settlement of an action commenced by plaintiff United States of America (the "Government") against defendants International Brotherhood of Teamsters (the "IBT" or the "Union") and the IBT's General Executive Board (the "GEB") embodied in the voluntary consent order entered March 14, 1989 (the "Consent Decree"). The Consent Decree provides for three Court-appointed officials: the Independent Administrator to oversee the Consent Decree's remedial provisions, the Investigations Officer to bring charges against corrupt IBT members, and the Election Officer to oversee the electoral process that culminated in the 1991 election for International Officers. The goal of the Consent Decree is to rid the IBT of the hideous influence of organized crime through the election and disciplinary provisions.

 Application XCIX presents for this Court's review the decision of the Independent Administrator finding that the Investigations Officer had proven charges filed against John T. Burke, Jr., President of IBT Local 868 and 917; Harold Wolchok, Secretary-Treasurer of IBT Local 868 and 917; Mario Abrego, Vice President of IBT Local 917 and Trustee of IBT Local 868; Robert Ottman, Trustee of IBT Local 917 and business agent of IBT Local 868; Langston McKay, Recording Secretary of IBT Local 917 and business agent for Local 868; Walter Cahill, Trustee of IBT Local 868 and 917; Saul Brechner, Vice President of IBT Local 868; and, Walter Simmons, Trustee of Local 917 and business agent for Local 868. *fn1"

 BACKGROUND

 Respondents are members or former members of the Executive Boards of IBT Locals 868 and 917. Local 917 is based in New York City and represents gasoline station and parking garage attendants, automobile mechanics, cleaning service personnel and staff employees of a charitable organization, the United Jewish Appeal. Local 868 is headquartered in Local 917's New York offices, and was organized by Local 917 officers to represent automobile dealership employees and liquor truck drivers.

 The Investigations Officer alleged that Respondents breached their fiduciary duties to the members of IBT Locals 868 and 917 in violation of Article II, Section 2(a) and Article XIX, Section 6(b) of the IBT Constitution *fn2" by executing a scheme, under the guise of an associate membership program, to enrich themselves (the "Associate Membership Program Charge"). Article II, Section 2(a) is the IBT membership oath, which provides in relevant part that every IBT member shall "conduct himself or herself in a manner so as not to bring reproach upon the Union." Article XIX, Section 6(b) is a non-exhaustive list of disciplinary charges that may be filed against IBT members. One such charge is violating the IBT membership oath. See Article XIX, § 6(b)(2).

 In addition to these charges, the Investigations Officer filed two additional charges against Messrs. Burke and Wolchok. First, Mr. Burke and Mr. Wolchok were charged with breaching their fiduciary duties to the Union and violating 29 U.S.C. § 503(a) *fn3" in connection with an illegal loan to Mr. Burke from Local 917 (the "Loan Charge"). Second, Mr. Burke and Mr. Wolchok were charged with breaching their fiduciary duties to the Union and violating Article XIX, Section 6(b)(3) of the IBT Constitution, by embezzling more than $ 6,000 of Local 917's funds via a retroactive increase of Mr. Burke's salary (the "Embezzlement Charge"). Finally, Mr. Wolchok was charged with bringing reproach upon the IBT in violation of Article II, Section 2(a) and Article XIX, Section 6(b) *fn4" of the IBT Constitution by submitting false and dishonest information in connection with an IBT audit of Local 917's books (the "Audit Charge").

 Pursuant to paragraph F.12(C) of the Consent Decree, the Independent Administrator must decide disciplinary hearings using a "just cause" standard. The Investigations Officer has the burden of establishing just cause by a preponderance of the evidence. December 27, 1990 Opinion & Order, 754 F. Supp. 333, 337 (S.D.N.Y. 1990). After conducting a hearing at which Respondents were represented by counsel, and receiving pre- and post-hearing briefs, the Independent Administrator issued a thirty-page decision. The Independent Administrator found that the Investigations Officer had sustained his burden of proving the charges filed against Respondents.

 As a penalty for this conduct, the Independent Administrator suspended Respondents from the IBT, and barred them from receiving compensation from any IBT-affiliated source, for a period of two years. In addition, the Independent Administrator disqualified Respondents from holding any IBT-affiliated Union positions, such as Executive Board or Trustee positions, for two additional years following the expiration of their suspension from the IBT. Furthermore, the Independent Administrator exercised his authority to impose sanctions upon Respondents' employee benefits. See December 28, 1990 Memorandum & Order, 753 F. Supp. 1181 (S.D.N.Y. 1990), aff'd, 941 F.2d 1292 (2d Cir.), cert. denied, 112 S. Ct. 76 (1991). The Independent Administrator prohibited the IBT or any affiliate from contributing funds to sustain benefits on behalf of Respondents during their period or suspension. Finally, the Independent Administrator ordered that the IBT and IBT-affiliated entities refrain from contributing to legal fees incurred by Respondents in connection with the instant disciplinary action. See United States v. Local 1804-1, 732 F. Supp. 434, 437 (S.D.N.Y. 1990). The Independent Administrator stayed his decision pending this Court's review.

 Respondents appeal the decision of the Independent Administrator. This Court finds that the Independent Administrator's determination that the Investigations Officer had proven the charges against Respondents is fully supported by the evidence, and that Respondents' arguments to the contrary are devoid of merit. Furthermore, the Court finds that the penalty imposed by the Independent Administrator on Mr. Burke and Mr. Wolchok is fully supported by the evidence. However, for the reasons discussed below, see infra [slip op.] at 21-24, the penalty imposed on Messrs. Abrego, Ottman, McKay, Cahill, Brechner and Simmons is vacated and remanded to the Independent Administrator for reconsideration. Accordingly, the opinion of the Independent Administrator is affirmed in part and vacated in part.

 DISCUSSION

 In reviewing decisions of the Independent Administrator, it is well settled that the findings of the Independent Administrator "are entitled to great deference." United States v. IBT, 905 F.2d 610, 616 (2d Cir. 1990), aff'g March 13, 1990 Opinion & Order, 743 F. Supp. 155 (S.D.N.Y. 1990). This Court will overturn the findings of the Independent Administrator when it determines that they are, on the basis of all the evidence, "arbitrary or capricious." United States v. IBT, 964 F.2d 1308 (2d Cir. 1992); August 27, 1990 Opinion & Order, 745 F. Supp. 908, 911 (S.D.N.Y. 1990), aff'd, 941 F.2d 1292 (2d Cir.), cert. denied, 112 S. Ct. 76 (1991); March 13, 1990 Opinion & Order, 743 F. Supp. 155, 165 (S.D.N.Y. 1990), aff'd, 905 F.2d 610 (2d Cir. 1990); see July 14, 1992 Opinion & Order, slip op., at 10-12 (S.D.N.Y. 1992); July 13, 1992 Opinion & Order, slip op., at 10-12 (S.D.N.Y. 1992); July 9, 1992 Opinion & Order, slip op., at 6-8 (S.D.N.Y. 1992); May 15, 1992 Opinion & Order, slip op., at 13-14 (S.D.N.Y. 1992); April 27, 1992 Memorandum & Order, slip op., at 8-9 (S.D.N.Y. 1992); February 11, 1992 Memorandum & Order, slip op., at 9 (S.D.N.Y. 1992); January 20, 1992 Memorandum & Order, 782 F. Supp. 256, 259 (S.D.N.Y. 1992); January 16, 1992 Memorandum & Order, slip op., at 6-7 (S.D.N.Y. 1992); November 8, 1991 Memorandum & Order, slip op., at 4-5 (S.D.N.Y. 1991); October 29, 1991 Opinion & Order, 776 F. Supp. 144, 152-53 (S.D.N.Y. 1991), aff'd, 954 F.2d 801 (2d Cir. 1992), cert. denied, 120 L. Ed. 2d 870, 112 S. Ct. 2993 (1992); October 25, 1991, Order, slip op., at 4-5 (S.D.N.Y. 1991); October 24, 1991 Memorandum & Order, 777 F. Supp. 1133, 1136 (S.D.N.Y. 1991); October 16, 1991 Memorandum & Order, 777 F. Supp. 1130, 1132 (S.D.N.Y. 1991), aff'd, 964 F.2d 1308 (2d Cir. 1992); October 11, 1991 Memorandum & Order, 777 F. Supp. 1127, 1128 (S.D.N.Y. 1991), aff'd, 956 F.2d 1161 unpublished slip. op. (2d Cir. Jan. 28, 1992); October 9, 1991 Memorandum & Order, 777 F. Supp. 1123, 1125 (S.D.N.Y. 1991); August 14, 1991 Memorandum & Order, slip op., at 4 (S.D.N.Y. 1991); July 31, 1991 Memorandum & Order, slip op., at 3-4 (S.D.N.Y. 1991), aff'd, 956 F.2d 1161 unpublished slip op. (2d Cir. Jan. 31, 1992); July 18, 1991 Memorandum & Order, slip op., at 3-4 (S.D.N.Y. 1991), aff'd, 956 F.2d 1161, unpublished slip op., (2d Cir. 1992); July 16, 1991 Opinion & Order, slip op., at 3-4 (S.D.N.Y. 1991); June 6, 1991 Opinion & Order, 775 F. Supp. 90, 93 (S.D.N.Y. 1991), aff'd in relevant part, 948 F.2d 1278 (2d Cir. 1991); May 13, 1991 Memorandum & Order, 764 F. Supp. 817, 820-21 (S.D.N.Y. 1991); May 9, 1991 Memorandum & Order, 764 F. Supp. 797, 800 (S.D.N.Y. 1991) aff'd, 956 F.2d 1161, unpublished slip. op. (2d Cir. 1992); May 6, 1991 Opinion & Order, 764 F. Supp. 787, 789 (S.D.N.Y.), aff'd, 940 F.2d 648 (2d Cir.), cert. denied, 112 S. Ct. 76 (1991); December 27, 1990 Opinion & Order, 754 F. Supp. 333, 337 (S.D.N.Y. 1990); September 18, 1990 Opinion & Order, 745 F. Supp. 189, 191-92 (S.D.N.Y. 1990); January 17, 1990 Opinion & Order, 728 F. Supp. 1032, 1045-57, aff'd, 907 F.2d 277 (2d Cir. 1990).

 I. The Associate Membership Program Charge

 The Independent Administrator found that each of the Respondents breached their fiduciary duties to the general membership and brought reproach upon the IBT by engaging in transactions adverse to the interests of the Union rank and file. The members of both Local 917 and Local 868 participate in the Local 917 Health & Welfare Fund (the "Fund") pursuant to their collective bargaining agreements. In 1986, Mr. Burke and Mr. Wolchok became aware that several employers of Union members were interested in obtaining low-cost health insurance from the Union for employees who were not members of collective bargaining units. Thereafter, Respondents developed an "associate membership" program (the "Program") that allowed companies that were parties to collective bargaining agreements with Local 917 or Local 868 to obtain coverage for non-Union employees through the Fund. Associate members were not required to join the Union in order to enroll in the Program and indeed many associate members were ineligible for Union membership.

 In administering the associate membership program, Respondents dealt with employers of Local members rather than with persons to be covered by the Fund. Pursuant to the terms of the Program, Respondents negotiated with employers and required, as a condition to participation in the Program, that all eligible non-Union personnel participate. Employers were charged with the task of recruiting associate members. Employers then paid a service fee to the Locals based on the number of associate members that they recruited. The service fees for associate membership ranged from $ 10 to $ 12 per member.

 The Independent Administrator found that Respondents "failed to rebut the central conclusion urged by the Investigations Officer -- that the associate membership program was conceived solely as a means to enrich the individual Respondents." Ind. Admin. Dec. at 17. Finding that Respondents did not use funds generated by the associate membership ...


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