United States District Court, Eastern District of New York
July 12, 1999
STANLEY WHITE, ULYSSES BROWN, AND DONALD W. SWANSON, INDIVIDUALLY AND ON BEHALF OF ALL OTHER PERSONS SIMILARLY SITUATED, PLAINTIFFS,
WHITE ROSE FOOD, A DIVISION OF DIGIORGIO CORPORATION, DEFENDANT.
The opinion of the court was delivered by: Spatt, District Judge.
MEMORANDUM OF DECISION AND ORDER
In this hybrid action brought pursuant to section 301 of the
Labor Management Relations Act (the "LMRA"), 29 U.S.C. § 185,
arising from the disbursement of settlement funds following a
plant closing, the Court previously dismissed the Third Amended
Complaint against the defendants White Rose Food, a Division of
Di-Giorgio Corporation ("White Rose"), and the Furniture, Flour,
Grocery, Teamsters, Chauffeurs & Warehousemen Union, Local No.
138 (the "Local 138") by a Memorandum Decision and Order dated
July 8, 1996, and as corrected on August 13, 1996. See
930 F. Supp. 814 (E.D.N.Y. 1996).
On appeal, the Second Circuit affirmed the dismissal as against
the Local 138 but reversed as to White Rose, the plaintiffs'
previous employer. See 128 F.3d 110 (2d Cir. 1997). Thus, the
only remaining causes of action in the third amended complaint
are those against defendant White Rose, namely the section 301
claim and the tax claims, both contained within the first cause
action. On remand, White Rose again moves for summary judgment.
By a Memorandum Decision and Order dated September 11, 1998, the
Court deemed White Rose's motion withdrawn, without prejudice, as
the parties failed to adequately address the key issues raised in
the Second Circuit's decision. Both parties subsequently filed
revised legal memoranda. Presently before the Court is the motion
by White Rose, once again seeking summary judgment, dismissing
the Third Amended Complaint.
While full familiarity with the factual background and the
lengthy procedural history of this case is assumed, the Court
will briefly summarize the relevant facts and the procedural
This action was commenced in August 1993 by the plaintiffs,
former employees of White Rose and members of Local 138, after a
settlement agreement between White Rose and Local 138 that
followed a labor strike and closing of White Rose's Farmingdale,
New York warehouse. Under the settlement agreement, eligible
individuals could elect either (1) payment from a strike
settlement fund; (2) pension contributions; (3) placement of
preferential hiring lists at other White Rose facilities, for a
period of time; or (4) immediate placement in a job at another
The settlement agreement, executed in September 1993, provided
that White Rose would place $1,500,000 in a special escrow
account to be distributed to eligible former employees of the
Farmingdale facility. The Settlement Agreement contained a
binding arbitration clause and expressly stated that it must be
ratified by the eligible rank and file members of Local 138 who
were former employees of White Rose. White Rose executed the
Settlement Agreement on July 23, 1992 and the Union membership
ratified it on September 21, 1992. Approximately 344 employees
accepted the settlements monies while the other members selected
the other options.
In January 1993, the entity that was to act as escrow agent and
distributor of the settlement funds determined that it was unable
to function in that capacity. As a result, on January 23, 1993,
Local 138 and White Rose entered into an "Amendment to Settlement
Agreement," (the "Amendment"), that provided for payment directly
from White Rose to the eligible employees, upon presentation of a
list of those employees and their completed W-4 forms. The
Amendment also provided for White Rose to issue payroll checks to
those former employees who elected to receive settlement money.
Pursuant to the Amendment, deductions were made from the checks
issued for all applicable payroll taxes. The Amendment further
provided that from the settlement sum of $1,500,000, White Rose
shall issue "payroll checks, less all required tax deductions."
The Amendment provided that:
White Rose shall issue appropriate payroll checks,
less all required tax deductions, for those former
White Rose employees who elect to receive settlement
money. The Company's contribution share for all
federal, state and local payroll taxes, and F.I.C.A.,
shall be included in the $1,000,000.00 and
$500,000.00 funds established in the Settlement
Agreement. Accordingly, the settlement funds
established by the Settlement Agreement which may go
directly to former White Rose employees shall be
reduced by the amount of such contributions.
As the Amendment did not contain language regarding membership
ratification that was found in the original Settlement Agreement,
it was not presented to the rank and file for ratification. On
February 11, 1993, White Rose delivered to the Union its first
installment of the settlement funds. In September 1993, White
Rose delivered the second installment. Each of the 344 former
employees who completed the withholding form received a total
gross remuneration of $3,799.10. White Rose withheld Federal
Unemployment Taxes ("FUTA"), State Unemployment Taxes ("SUI"),
and Federal Insurance Taxes ("FICA") in the total amounts of
$10,455, $82,677.67, and $99,977.11, respectively. The plaintiffs
contend that the Settlement Agreement and the collective
bargaining agreement required that membership ratification be
obtained prior to the ratification of the Amended Settlement
Agreement and prior to the disbursement of the settlement funds
that withheld FUTA, FICA and SUI taxes.
The plaintiffs' original complaint named only the employer
White Rose as a defendant and alleged that White Rose (1)
wrongfully entered into an amendment to the settlement agreement
that was not ratified by the rank and file; and (2)
wrongfully deducted the employer's share of payroll taxes from
the $1,500,000 settlement funds.
On September 23, 1994, the Court granted White Rose's motion
for summary judgment on the basis that the plaintiffs were
required to pursue their claims against White Rose through Local
138 in arbitration. At that time, the Court noted that the
plaintiffs could only proceed against White Rose for a breach of
the agreement under section 301 of the LMRA if they also joined
Local 138 in a "hybrid suit" for breach of its duty of fair
representation by refusing to pursue the plaintiffs' claims. The
plaintiffs initially declined to bring such a claim against its
union, the Local 138. The plaintiffs also refused to attempt
resolution of their dispute through the contractual
grievance/arbitration procedure by asking Local 138 to pursue
their complaint, stating that such a request would be "futile."
The plaintiffs moved for reconsideration of the grant of
summary judgment. On February 27, 1995, the Court amended its
September 23, 1994 decision to state that, under the relevant
case law, it is not necessary for an employee to sue its union
for breach of the duty of fair representation as a prerequisite
of suing the employer directly. However, the Court held that
summary judgment was still appropriate because even in the
absence of a claim against the union, an employee-plaintiff must
establish breach of the union's duty of fair representation as an
essential element of the case to be proved when suing his
employer directly. Because the plaintiffs declined to allege a
breach of duty of fair representation by Local 138, the Court
adhered to its prior granting of summary judgment to White Rose.
In September 1994, the plaintiffs formally requested the union
to file a grievance against White Rose. The union undertook an
investigation of the claim then responded, in a letter dated
March 9, 1995, that it did not believe that a breach of contract
had occurred, and that it would not pursue the matter to
The plaintiffs then brought a second reconsideration motion,
and on May 12, 1995, the Court again revisited its prior
decisions. At that time, the plaintiffs submitted a letter dated
March 6, 1995 from Daniel Clifton, Esq., Counsel for Local 138
stating that "Local 138 does not believe that a breach of
contract has occurred, and it has declined to take this case to
arbitration." In an Order dated May 12, 1995, the Court vacated
its decisions of September 23, 1994 and February 27, 1995 and
granted leave to the plaintiffs to serve and file a third amended
complaint based on Local 138's express denial of the plaintiffs'
request to arbitrate the matter of the disputed employer payroll
The plaintiffs' third amended complaint alleged causes of
action against both White Rose and Local 138. As to Local 138,
the third amended complaint alleged that the union breached its
duty of fair representation: (1) by entering into the Amendment
without ratification by the union membership; and (2) by refusing
to pursue their claim to arbitration. As to White Rose, the third
amended complaint alleged that White Rose breached its duty of
fair representation: (1) by entering into the Amendment; and (2)
by deducting certain withholding taxes from the settlement sum.
In addition, the third amended complaint alleged that White Rose
violated federal and state tax statutes including the FUTA, FICA
and SUI, when it used settlement funds to pay its tax liability.
A. The August 13, 1996 Decision
On August 13, 1996, the Court granted summary judgment in favor
of both defendants and dismissed the plaintiffs' third amended
complaint. See 930 F. Supp. 814 (E.D.N.Y. 1996). Analyzing the
plaintiffs' claim that Local 138 breached the duty of fair
representation when it executed the Amendment without membership
ratification, the Court held that the six month statute of
limitations necessitated dismissal
of the hybrid section 301/unfair representation claim.
Specifically, the Court held that:
[i]n the Court's view, the plaintiffs' cause of
action against Local 138 based on breach of duty of
fair representation for entering into the Amendment
to the Settlement Agreement without notification to
or approval by the members is time barred because it
was not raised within six months of the time that the
plaintiffs' knew or reasonably should have known of
the claim. Summary judgment is granted in favor of
Local 138 dismissing the plaintiffs' claim based on
the union's execution of the Amendment to the
Settlement Agreement, as barred, as a matter of law.
930 F. Supp. at 820.
As to the plaintiffs' second duty of fair representation claim
against Local 138, namely, that the Local 138 failed to pursue
the plaintiffs' challenge to the distribution of the settlement
proceeds, the Court initially noted that "[the] claim, which is
included in the plaintiffs' March 19, 1995 third amended
complaint, is clearly not time barred." Id. (citation omitted).
The Court, however, went on to add that:
the facts alleged by the plaintiffs cannot support a
DFR [duty of fair representation] claim against Local
138 for its March 1995 refusal to take action
regarding the alleged wrongful disbursement of the
settlement funds. The facially valid Amendment and
the disbursements made pursuant to its terms are only
called into question by reference to the union's
conduct in agreeing to the tax allocation without
member ratification. Because this conduct is outside
of the limitations period, such reference is barred
by [clearly established legal precedent].
Id. at 822. As such, the Court granted summary judgment in
favor of Local 138, dismissing the complaint against it.
B. The Second Circuit Decision of October 22, 1997
On appeal, the Second Circuit affirmed the Court's dismissal of
the plaintiffs' claims against Local 138. Specifically, the
Second Circuit held that the plaintiffs' claim that Local 138
breached its duty of fair representation by entering into the
Amendment without ratification by the union membership was
"time-barred by the six-month limit of DelCostello," 128 F.3d
at 114 (referring to DelCostello v. International Bhd. of
Teamsters, 462 U.S. 151, 163-64, 103 S.Ct. 2281, 2289-91, 76
L.Ed.2d 476 ). Similarly, the Second Circuit held that this
Court's dismissal of the plaintiffs' claim that the union
breached its duty of fair representation by refusing to take its
claim to arbitration, was "barred by the six-month limitations
period of DelCostello." Id. at 115.
With regard to the section 301 claim against White Rose, this
Court held that:
based on the facts in this case, the plaintiffs
cannot prove that Local 138 breached its duty of fair
representation with regard to the plaintiffs'
challenge to the distribution of the settlement
funds. Here, the plaintiffs' case against White Rose
cannot succeed, as a matter of law, in the absence of
an essential element of their claim, namely, that the
union breached its duty of fair representation.
Accordingly, the motion by White Rose for summary
judgment in its favor is granted and the claim that
White Rose breached the agreements it entered into
with the plaintiffs' authorized bargaining agent is
930 F. Supp. at 823.
The Second Circuit, however, disagreed with this Court's
rationale, and held that:
[t]he fact that the plaintiffs are time-barred from
bringing a claim against the union does not mean that
the plaintiffs cannot prove that Local 138 breached
its duty of fair representation in an action against
White Rose. . . . [P]laintiffs suing under a §
301/DFR theory need not
sue their union at all: it could hardly be that
running of the limitations period as to the union
extinguishes the right of action against the
employer. The fact that DelCostello's limitation
period has expired as against Local 138 has no
bearing on the validity of the plaintiffs' suit
against White Rose.
128 F.3d at 115-16.
The Second Circuit added, however, that "we express no view as
to whether the union's failure to submit the amendment for
ratification or to challenge the disbursements when made (absent
a demand from the membership at the time) amounts to a breach of
the duty of fair representation." Id. at 116.
On remand, therefore, the essential issue for the Court's
resolution is whether the plaintiffs have adequately raised a
triable issue with regard to their claim that the Local 138
breached its duty of fair representation. A claim for breach of
the duty of fair representation is an allegation that the union
treated its members arbitrarily, discriminatorily, or in bad
faith or acted to seriously undermine the integrity of the
arbitration process. Vaca v. Sipes, 386 U.S. 171, 87 S.Ct. 903,
17 L.Ed.2d 842 (1967); Hines v. Anchor Motor Freight, Inc.,
424 U.S. 554, 96 S.Ct. 1048, 47 L.Ed.2d 231 (1976).
A. Summary Judgment Standard
A court may grant summary judgment only "when the evidence
shows that there are no genuine issues of material fact and the
moving party is entitled to judgment as a matter of law."
Allstate Ins. Co. v. Mazzola, 175 F.3d 255, 258 (2d Cir. 1999)
(citing Urena v. Biro Mfg. Co., 114 F.3d 359, 362 [2d Cir.
1997]); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Samuels v. Mockry,
77 F.3d 34, 35 (2d Cir. 1996); Fed.R.Civ.P. 56(c). The Court
must, however, resolve all ambiguities and draw all reasonable
inferences in the light most favorable to the party opposing the
motion. See Quaratino v. Tiffany & Co., 71 F.3d 58 (2d Cir.
1995); Twin Laboratories, Inc. v. Weider Health & Fitness,
900 F.2d 566, 568 (2d Cir. 1990); Knight v. U.S. Fire Ins. Co.,
804 F.2d 9, 11 (2d Cir. 1986), cert. denied, 480 U.S. 932, 107
S.Ct. 1570, 94 L.Ed.2d 762 (1987).
According to the Second Circuit, "[s]ummary judgment is a tool
to winnow out from the trial calendar those cases whose facts
predestine them to result in a directed verdict." United
National Ins. Co. v. The Tunnel, Inc., 988 F.2d 351, 355 (2d
Cir. 1993). Once a party moves for summary judgment, in order to
avoid the granting of the motion, the non-movant must come
forward with specific facts showing that a genuine issue for
trial exists. West-Fair Elec. Contractors v. Aetna Cas. & Surety
Co., 78 F.3d 61, 63 (2d Cir. 1996); see also Western World Ins.
Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir. 1990)
(quoting Fed.R.Civ.P. 56(e)). A genuine issue of material fact
exists if "a reasonable jury could return a verdict for the
nonmoving party." Liberty Lobby, 477 U.S. at 248, 106 S.Ct.
2505; see Vann v. The City of New York, 72 F.3d 1040 (2d Cir.
However, mere conclusory allegations, speculation, or
conjecture will not avail a party resisting summary judgment.
Kulak v. City of New York, 88 F.3d 63, 70 (2d Cir. 1996). If
there is evidence in the record as to any material fact from
which an inference could be drawn in favor of the non-movant,
summary judgment is unavailable. Holt v. KMI-Continental, Inc.,
95 F.3d 123 (2d Cir. 1996); Rattner v. Netburn, 930 F.2d 204,
209 (2d Cir. 1991). Finally, the Court is charged with the
function of "issue finding", not "issue resolution." Gallo v.
Prudential Residential Services, 22 F.3d 1219, 1224 (2d Cir.
It is within this framework that the Court addresses the
present motion to dismiss.
B. As to the Fair Representation Claim
The duty of fair representation is a judicially created rule
established due to the status of labor unions as the exclusive
bargaining representative for all employees in a given bargaining
unit. See Peterson v. Kennedy, 771 F.2d 1244, 1253 (9th Cir.
1985). In DelCostello, supra, the Supreme Court explained the
basis and scope of this duty:
The duty of fair representation exists because it is
the policy of the National Labor Relations Act to
allow a single labor organization to represent
collectively the interests of all employees within a
unit, thereby depriving individuals in the unit of
the ability to bargain individually or to select a
minority union as their representative. In such a
system, if individual employees are not to be
deprived of all effective means of protecting their
own interests, it must be the duty of the
representative organization to "serve the interests
of all members without hostility or discrimination
toward any, to exercise its discretion with complete
good faith and honesty, and to avoid arbitrary
DelCostello, 462 U.S. at 164 n. 14, 103 S.Ct. at 2291 n. 14
(quoting Vaca v. Sipes, 386 U.S. 171, 177, 87 S.Ct. 903,
909-10, 17 L.Ed.2d 842 ).
In order to prevail on a claim for a breach of fair
representation, the Supreme Court has promulgated the
Vaca-Hines test. "Two elements must be proven for a breach of
duty of fair representation claim: The union's conduct must,
first, have been `arbitrary, discriminatory or in bad faith,'
Vaca v. Sipes, 386 U.S. 171, 190 [87 S.Ct. 903, 916-17, 17
L.Ed.2d 842] (1967), and second, it must have `seriously
undermine[d] the arbitral process.'" Hines v. Anchor Motor
Freight, Inc., 424 U.S. 554, 567 [96 S.Ct. 1048, 1057-58, 47
L.Ed.2d 231] (1976); see also Sim v. New York Mailers' Union No.
6, 166 F.3d 465, 472 (2d Cir. 1999); Cruz v. Local Union No.
3, 34 F.3d 1148, 1152 (2d Cir. 1994); Barr v. United Parcel
Service, Inc., 868 F.2d 36, 43 (2d Cir. 1989).
Negligence or "tactical errors" on the part of the union are
insufficient to establish a breach of the duty of fair
representation. See id. In addition, "`as long as the union
acts in good faith, the courts cannot intercede on behalf of
employees who may be prejudiced by rationally founded decisions
which operate to their particular disadvantage.'" Cook v. Pan
American World Airways, Inc., 771 F.2d 635, 645 (2d Cir. 1985),
cert. denied, 474 U.S. 1109, 106 S.Ct. 895, 88 L.Ed.2d 929
(1986) (quoting Capobianco v. Brink's Inc., 543 F. Supp. 971,
975 n. 3 (E.D.N.Y. 1982)). "It is well established that while `a
union may not arbitrarily ignore a meritorious grievance or
process it in a perfunctory fashion', an employee does not have
an absolute right to have his or her grievance taken to
arbitration." Vaca v. Sipes, 386 U.S. at 191, 87 S.Ct. at 917.
"The Supreme Court has long recognized that unions must retain
wide discretion to act in what they perceive to be their members'
best interests." Peterson v. Kennedy, 771 F.2d 1244, 1253 (9th
Cir. 1985); see also Ford Motor Co. v. Huffman, 345 U.S. 330,
337-38, 73 S.Ct. 681, 685-86, 97 L.Ed. 1048 (1953).
To reiterate, the plaintiffs allege that the Local 138 breached
its duty of fair representation when it executed the Amendment to
the Settlement Agreement, dated January 19, 1993, and when it
refused to take action on the plaintiffs' challenge to the
distribution of the settlement funds in March, 1995.
Specifically, paragraphs 17 and 18 of the third amended
complaint states that:
at no time was the aforesaid Amendment to the
Agreement ever presented or submitted by Local No.
138 to its aforesaid rank and file for their
approval, vote, or ratification, as had been provided
for the Agreement; nor did the aforesaid rank and
file ever, at any time, ever approve, vote upon, or
ratify the said Amendment. . . . [I]f the aforesaid
Amendment to the Agreement had been submitted for
approval by Local No. 138 to its rank and file, it
would not have been approved by the rank and file.
The original Settlement Agreement expressly provided that it
was subject to notification, ratification and approval by the
eligible rank and file members of the Local 138. Also, it is
uncontroverted that Local 138 failed to notify or seek
ratification and approval of its members to the Amended
settlement agreement, that resulted in the deduction of
approximately $200,000 of the $1,500,000.00 settlement agreement
funds. These facts raise material triable issues sufficient to
defeat White Rose's motion for summary judgment. Surely, these
acts, which the Second Circuit has held can be used against White
Rose in the plaintiffs hybrid action, present genuine issues of
material fact as to whether Local 138's conduct constituted the
arbitrary, discriminatory or bad faith conduct described in
Similarly, there are genuine issues of material fact as to the
conduct of Local 138 when it failed to challenge, and in fact
permitted the deduction made for taxes from the settlement funds.
Also, whether Local 138 could reasonably believe that it had the
authority to bind its membership, without its specific
ratification, is another material issue of fact for the Court's
resolution at trial. See Kozera v. Westchester-Fairfield Chapter
of Nat. Elec. Contractors Ass'n., 909 F.2d 48, 54 (2d Cir.
1990). In Kozera, the Second Circuit held that an amendment to
a labor agreement was valid, notwithstanding the fact that the
amendment was not ratified by the union membership. However, in
Kozera, the parties had a basis to "reasonably believe that
officers of the local union had authority pursuant to the
arbitration award to bind the union membership." Id. As stated
above, whether Local 138 could reasonably believe that it had the
authority to bind its members to the Amended Settlement
Agreement, without their ratification, is a material triable
issue of fact.
Accordingly, the Court finds that material issues of fact exist
as to whether the Local 138 breached its duty of fair
representation, thus permitting the plaintiffs to go forward with
their Section 301 claim against White Rose. The Court, however,
reserves the right to revisit this issue at trial in the context
of a motion for judgment as a matter of law. The Court notes that
White Rose's other arguments in support of its motion for summary
judgment, seeking dismissal of the plaintiffs' Section 301 claim,
are without merit.
C. As to the Claim that White Rose Violated Several Tax
As previously stated, the plaintiffs' allege that White Rose
violated various tax statutes including FUTA, FICA and SUI when
it withheld payroll taxes from the settlement funds. In this
regard, the third amended complaint states that:
The aforesaid deductions, as taken by White Rose,
were in violation of applicable Internal Revenue Code
and FICA statutes, were not authorized by the
Agreement, and were never ratified or approved by the
recipients of the payments. As a consequence of the
foregoing, Defendant White Rose has violated
applicable federal statutory law relative to FUTA,
SUI and FICA deductions and has, as well, violated
The Court previously dismissed these various tax claims on the
basis that they were "essentially a dispute over the terms of the
Settlement Agreement. As such, it is part of the plaintiffs'
Section 301 claim and is properly dismissed under the analysis
set forth above." 930 F. Supp. at 824. In addition, the Court was
of the view that "even considered as a cause of action based on
some separate right, . . . no triable issue of fact [exists]
based on the evidence before it." Id.
The Second Circuit disagreed, and held that the Court "erred
when it dismissed plaintiffs' § 301 claim against White Rose;
therefore, a dismissal of the plaintiffs' tax claims on this
basis was inappropriate. . . . [A] required step in the court's
alternative reasoning was a holding on the issue of whether the
monies put into the escrow account were `wages,' yet this issue
was neither contested nor patently obvious." 128 F.3d at 117. As
such, the Second Circuit remanded the plaintiffs' tax claims
against White Rose and posed the following two issues: "We note
that at this point the issue of the plaintiffs' standing remains
open, as does the issue of whether the monies in the escrow
account were `wages.' While these are matters of law, we will not
opine them, as they were not treated by the district court and
were not fully briefed in this court." Id.
While the original settlement agreement does not specifically
address the issue of whether the settlement funds are "wages,"
the Court is of the view that such funds are, in fact "wages," as
contemplated by the parties and the relevant case law, however
sparse, and legislative history. In enacting the 1950 Amendment
to the Social Security Act, the Senate Finance Committee stated,
in pertinent part, that "a dismissal payment [any payment made by
an employer on account of involuntary separation of the employee
from the service of the employer] will constitute wages . . .
irrespective of whether the employer is, or is not, legally
required to make such payment." NYSA-ILA Container Royalty Fund
v. Commissioner of Internal Revenue, 684 F. Supp. 783, 785
(S.D.N.Y. 1987) (quoting S.Rep. No. 1669, 81st Cong., 2d Sess.,
reprinted in 1980 U.S.Code Cong. & Admin. News 3287, 3374)
In addition to the case law and legislative history, the
uncontroverted fact that White Rose required the members of the
union to complete W-4 forms and thereafter used those forms to
calculate employee withholdings, is another indication that the
settlement funds were wages.
Finally, the Second Circuit noted in its decision that "at this
point the issue of the plaintiffs' standing remains open. . . ."
128 F.3d at 117. The Court interprets the Second Circuit's
framing of the "standing issue," to pertain to whether a private
cause of action exists against White Rose with regard to the
deduction of payroll taxes from the settlement funds. The Court
bases its interpretation from the following language that the
Second Circuit used:
In the court below, the plaintiffs argued that White
Rose violated . . . [FUTA, FICA, and SUI] statutes
when it used the settlement funds to pay its tax
liability, and that they have standing to pursue a
private right of action against White Rose for these
violations. White Rose, in its motion for summary
judgment, opposed these claims on the ground that the
plaintiffs did not have standing to bring a private
right of action for a violation of FUTA, FICA or SUI.
The plaintiffs countered this argument by pointing to
a federal district case from another circuit in which
a private cause of action was allowed under FICA.
Id. at 116-17. (citations omitted) (emphasis added). Based on
this language, the Court will consider whether the plaintiffs'
have "standing" to pursue their causes of action which assert
various federal and state tax violations. Stated in other words,
the Court must determine whether a private cause of action exists
under the various federal and state tax statutes including FUTA,
FICA, and SUI. The Court finds that these statutes do not give
rise to a private cause of action for the following reasons.
For there to be a private right of action, the Court must
determine whether (1) the plaintiff is one of the class for whose
special benefit the statute was enacted; (2) there is any
indication of an explicit or implicit legislative intent to
create or deny a private remedy; (3) implying a private remedy is
consistent with the
underlying purpose of the legislative scheme; and (4) the cause
of action is one traditionally relegated to state law, so that it
would be inappropriate to infer a cause of action based solely on
federal law. See generally, Cort v. Ash, 422 U.S. 66, 95 S.Ct.
2080, 45 L.Ed.2d 26 (1975); McClellan v. Cablevision of
Connecticut, Inc., 149 F.3d 161, 164 (2d Cir. 1998); Burns
Jackson Miller Summit & Spitzer v. Lindner, 59 N.Y.2d 314,
464 N.Y.S.2d 712, 451 N.E.2d 459 (1983).
It is clear that the tax statutes at issue are
revenue-producing in nature and do not create a special benefit
to the individual plaintiffs. The Court agrees with the decision
of the Seventh Circuit Court of Appeals in Edgar v. Inland Steel
Co., 744 F.2d 1276, 1278 (7th Cir. 1984), and finds its
rationale applicable to FUTA, FICA and SUI. In Edgar, the
Seventh Circuit stated that "[e]mployees have no cause of action
against employers to recover wages withheld and paid over to the
government in satisfaction of federal income tax liability."
Id. at 1278. See also Deleu v. Scaife, 775 F. Supp. 712,
717-18 (S.D.N.Y. 1991) (holding that both federal and state tax
statutes are revenue production laws and not enacted for
plaintiff's benefit.); Di-Giovanni v. City of Rochester,
680 F. Supp. 80, 83 (W.D.N.Y. 1988) (holding that if federal income
tax statutes "are intended to benefit anyone, it is the Federal
Government to whom the withheld tax is to be remitted. There is
no indication anywhere in the language of the statutes that
Congress intended to confer rights on employees with respect to
the withholding of tax.").
As the Court finds that the tax statutes at issue are not
intended for the benefit of the plaintiffs, the Court holds that
a private cause of action cannot exist under the provisions of
FUTA, FICA, or SUI. Accordingly, the Court grants the defendant's
motion for summary judgment, dismissing the plaintiffs' cause of
action asserting violations of various federal and state tax
Accordingly, having reviewed the submissions of the parties and
the case file, and for the reasons set forth above, it is hereby
ORDERED, that the motion by the defendant White Rose for
summary judgment, dismissing the plaintiffs' Section 301 cause of
action is DENIED; and it is further
ORDERED, that the motion by the defendant White Rose for
summary judgment, dismissing the plaintiffs' tax claims is
GRANTED; and it is further
ORDERED, that this bench trial is placed on the Court's
twenty-four (24) hour ready reserve non-jury calendar.
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