The opinion of the court was delivered by: Spatt, District Judge.
This is an 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. This case has been the subject of a number of prior
decisions, resulting in a Second Circuit opinion on October 22,
1997, which set the "rules of the road" for the final
determination of this lawsuit. See White v. White Rose Foods,
128 F.3d 110 (2d Cir. 1997).
On appeal, the Second Circuit affirmed this Court's prior
dismissal as against the Furniture, Flour, Grocery, Teamsters,
Chauffeurs & Warehousemen Union, Local No. 138 ("Local 138").
However, the Second Circuit reversed this Court's dismissal of
the third amended complaint against the plaintiffs' previous
employer, the defendant White Rose Food, a division of
DiGiorgio's Corporation (the "defendant" or "White Rose"). Id.
Subsequently, this Court dismissed the plaintiffs' tax counts
in a decision dated July 12, 1999. White v. White Rose Food,
62 F. Supp.2d 878 (E.D.N.Y. 1999). As a result of the prior
decisions, the only remaining cause of action in the third
amended complaint is the Section 301 claim against White Rose,
contained in the first cause of action.
This action was commenced in August 1993 by the plaintiffs,
former employees of White Rose and members of Local 138. The
dispute centers on an agreement ("the Settlement Agreement")
between White Rose and Local 138 that followed the closing of
White Rose's Farmingdale, New York warehouse and a subsequent
labor strike. Under the terms of the Settlement Agreement,
eligible individuals could elect either (1) to receive payment
from a strike settlement fund; (2) to receive pension
contributions; (3) placement in 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 provided that White Rose would place
the sum of $1,500,000 in two separate payments 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 of Local
138 selected one of the other options, described above.
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. Subsequently, 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 the settlement
funds. The Amendment further provided that from the settlement
sum of $1,500,000, White Rose shall issue "payroll checks, less
all required tax deductions." Pursuant to the Amendment, White
Rose made deductions for all applicable employer payroll taxes
from the checks that were issued. In this regard, the Amendment
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.
The Amendment did not contain the language regarding membership
ratification that was found in the original Settlement Agreement,
and 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. On September 23, 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 mounts of
$10,455, $82,677.67 and $99,977.11, respectively, amounting to
the total sum of $193,109.91, which was deducted by
White Rose from the $1,500,000 settlement sum.
At the crux of this case, the plaintiffs contend that the
Settlement Agreement, the collective bargaining agreement and the
Union Bylaws required that membership ratification be obtained
with regard to the Amendment prior to the disbursement of the
settlement funds that withheld the FUTA, FICA and SUI taxes. The
plaintiffs contend that Local 138 and White Rose (1) wrongfully
entered into an amendment to the settlement agreement that was
not ratified by the rank and file; and (2) the Amendment
permitted White Rose to wrongfully deduct the employer's share of
payroll taxes in the sum of $193,109.91 from the $1,500,000
settlement funds. On the other hand, the defendant's primary
contention is that Local 138 did not violate its duty of fair
representation in that it was not required to submit the
amendment to the members for ratification.
II. 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. The Court 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
also "barred by the six-month limitations period of
DelCostello." Id. at 115.
With regard to the Section 301 claim against White Rose, the
Second Circuit 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.
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.
In its decision of July 12, 1999, this Court denied the
defendant's motion for summary judgment dismissing the
plaintiffs' Section 301 cause of action. The Court held that
there were material triable issues as to whether Local 138's
conduct in entering into the Amendment permitting the employer to
withhold the payroll taxes in the sum of $193,109.91 from the
agreed upon settlement sum without ratification by the Local 138
membership, constituted the arbitrary, discriminatory or bad
faith conduct required to establish a "fair representation" cause
of action. 62 F. Supp.2d at 884-85.
In addition, the Court held that there were material triable
issues with regard to the conduct of Local 138 when it failed to
challenge the deduction made for employer payroll taxes, and, in
fact, may have permitted it. Id. at 885-86 In addition, the
Court raised another factual issue, namely, whether the Local 138
officer(s) who signed the Amendment, could reasonably believe
that they had the authority to bind
the members without their ratification. Id. at 884-85.
III. THE TRIAL — FINDINGS OF FACT
This opinion and order includes the Court's findings of fact
and conclusions of law as required by Fed.R.Civ.P. 52(a) See
Rosen v. Siegel, 106 F.3d 28, 32 (2d Cir. 1997); Colonial
Exchange Ltd. Partnership v. Continental Casualty Co.,
923 F.2d 257 (2d Cir. 1991). During this portion of the opinion, the Court
will make findings of fact which will be supplemented by
additional findings later in the opinion.
Stanley White, is a named plaintiff, and was a White Rose
employee from 1965 to 1991. He was a member of Local 138 from
1966 until he retired in 1993. White was involved in the strike
called by Local 138 in 1991. The strike lasted for 18 months and
was settled in 1992. The Settlement Agreement (Plfs.Ex. 1) was
signed by White Rose on July 23, 1992 and by Local 138 on
September 15, 1992.
In July, 1992, the members of Local 138 were asked to ratify
the Settlement Agreement at a union meeting called by John
Georgopoulos, the Union President. There were more than 200
members at the meeting. At that time, every member was given a
copy of the Settlement Agreement and White read it for the first
time. At that meeting, the Union members voted to ratify the
White first learned about the existence of the Amendment
(Plfs.Ex. 2) from his lawyer:
Let me show you what I described as Plaintiffs'
Exhibit 2 for Identification.
MR. MENDELSON: On the amendment?
Q You see the date January 23, 1993?
Q From January 23, 1993, to on or about April or May
of 1993, did you know of the existence of this
Q Now, after January 23, 1993, which is the last date
on this agreement, did anybody at Local 138 or
White Rose tell you personally that White Rose and
Local 138 had entered into the agreement you are
holding the amendment you are holding?
Q Now, how did you learn for the first time that such
an amendment to the settlement existed?
A I learned from my lawyer.
THE WITNESS: Yes. This second amendment I never
heard of. I never heard about this. This one I don't
know. I am talking about this one here (indicating).
When he says amendment, I don't know nothing abut
this, your Honor.
With regard to the payroll tax deductions, the Amendment, a
short two-page document, provides as follows:
. . Upon receipt of the Union's notification and
the properly completed I.R.S. W-4 Form, 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 ...