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July 12, 1999


The opinion of the court was delivered by: Spatt, District Judge.


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 By a Memorandum Decision and Order dated September 11, 1998, the Court deemed White Rose's motion withdrawn, without prejudice, as the parties failed to adequately address the key issues raised in the Second Circuit's decision.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 history.

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 facility.

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 arbitration.

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 taxes.

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 ...

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