The opinion of the court was delivered by: Robert L. Carter, District Judge.
This litigation has occupied the courts for nearly 30 years. A
full exploration of the facts in this matter and its procedural
history would be a laborious undertaking. Fortunately, such an
endeavor is unnecessary for the resolution of the issues
presently before the court, and an understanding of certain
aspects of the case will suffice.
In 1995, the court found the defendant Sheet Metal Workers'
Local Union No. 28 (the "Union" or "Local 28") to be in contempt
of court for numerous violations of the court's Order and
Judgment ("O & J") entered in 1975 and its Amended Affirmative
Action Plan and Order ("AAAPO") entered in 1983. Equal
Employment Opportunity Commission v. Local 638, 889 F. Supp. 642
(S.D.N.Y. 1995) (Carter, J.).*fn1 The court's decision was based
on the Union's failure to achieve a 29.23% nonwhite membership
goal and to otherwise meet the requirements of the O & J and
AAAPO. Id. The court's contempt order mandated a variety of
remedies, including back pay to underemployed nonwhite
journeypersons as a remedy for the Union's practice of only
helping white journeypersons find jobs. Id. at 669-70. The back
pay remedy was supported by both a coercive and a compensatory
rationale (i.e. to prompt the Union to comply with the
affirmative action program and to compensate the victims of the
Union's noncompliance). Id. at 670.
On appeal, the Second Circuit initially vacated and remanded
the court's award of back pay. EEOC v. Local 638, 81 F.3d 1162
(2d Cir. 1996). The Court of Appeals reasoned that insofar as the
award was a compensatory sanction, the court needed to fashion a
more precise mechanism for determining who was entitled to back
pay; insofar as it was coercive, the court needed to consider
further the Union's ability to pay such a sanction. Id. at
1177. In response to the former concern, this court ordered that
the Special Master in this case, David Raff, conduct individual
hearings to determine who would be entitled to back pay relief.
EEOC v. Local 638, 13 F. Supp.2d 453, 465-66 (S.D.N.Y. 1998)
(Carter, J.). This plan of determining who would be entitled to
back pay was affirmed by the Second Circuit. City of New York v.
Local 28, 170 F.3d 279, 284-85 (2d Cir. 1999). To address the
Court of Appeals' second reservation regarding the coercive
rationale, the court held a hearing during June of 2000 to
determine the financial ability of the Union to satisfy the back
As a preliminary matter, the entire question of the burden of
production — a question to which both parties dedicate a great
deal of argument — is in the end academic. It is true that the
hearing was originally ordered in response to the mandate from
the Court of Appeals that the court consider the Union's finances
before applying a coercive sanction. EEOC v. Local 638, 13
F. Supp.2d at 470-71. The
role of the hearing changed, however, following the more recent
Court of Appeals decision. That decision categorically affirmed
the court's award of back pay based on its compensatory
rationale. City of New York v. Local 28, 170 F.3d at 284-85
(discussing district court's award of back pay solely as a
compensatory remedy and stating the "back pay remedy as
structured by the district court is affirmed"). While the ability
to pay (and the burden of production on this issue) is an
entirely relevant question for a coercive sanction, it is
unnecessary for establishing a compensatory sanction. See United
States v. United Mine Workers of America, 330 U.S. 258, 303-04,
67 S.Ct. 677, 91 L.Ed. 884 (1947); EEOC v. Local 638, 889
F. Supp. at 669.
In light of the most recent Court of Appeals decision, the
hearing regarding the Union's financial status was necessary to
resolve the pragmatic concern of how this back pay award was to
be paid, not whether the Union could afford to pay it.
Nonetheless, in determining how the award will be paid, the court
finds that the Union can afford the back pay award (and therefore
a contempt sanction under either rationale is justified).*fn2
The total amount of the back pay award has not yet been
established. The amount will be determined following individual
hearings which will be conducted by the court.*fn3 It is likely
that this amount will be in excess of what the Union is able to
pay at present and could even exceed twelve million dollars.*fn4
See EEOC v. Local 638, 81 F.3d at 1177.
The Union can currently contribute $1 million and remain
economically viable. Local 28 derives almost all of its revenue
from its membership dues and assessments.*fn5 (Tr. 38,
441).*fn6 These funds are then deposited into a general fund
from which the Union pays its expenses. (Tr. 446). Before the
hearing, the court appointed an independent accounting firm, M.D.
Oppenheim & Company, to review the financial records of Local 28
to determine the extent to which it could satisfy a back pay
award. Stanley J. Moskowitz, a Certified Public Accountant with
the M.D. Oppenheim firm, testified that as of December 31, 1999,
the Union's unrestricted cash assets equaled $2,035,076. (Tr.
32). The Union can afford to pay $1 million of this amount and
still remain financially sound. (Tr. 32-33).
Moskowitz supported the argument that the Union could expend
this amount through a rather sophisticated analysis. He explained
that a "current ratio" compares the amount of cash assets to the
amount of expected liabilities. (Tr. 33). Moskowitz further
testified that should the Union only have cash assets in the
amount of $1 million, it would still retain close to a
two to one current ratio.*fn7 Id. In other words, it would
have nearly two dollars in cash assets for every one dollar of
expected liabilities. A current ratio of two to one is
considered, across many different businesses and not-for-profit
organizations, to be financially healthy.*fn8 Id.
Although its own expert witness concedes that it can currently
expend $750,000 (Tr. 260), the Union has offered two main
arguments to rebut the contention that it can presently pay out
$1 million. First it contends that it has an additional liability
of approximately $700,000 for a computer system which is
necessary to comply with the court's earlier orders. It argues
that this liability was not considered by the court's expert when
he made his calculations about how much the Union could afford to
spend. This argument highlights two erroneous assumptions upon
which the Union's expert, James Kokolas, relied. These errors
undermine the validity of his conclusions. The Union will not pay
for the computer system this year. The Union's auditor and
financial secretary admitted that Local 28 only spent $36,000 for
the system in 1999, that it had not yet expended any additional
funds and that such money would likely be spent over time. (Tr.
195, 494). The Union cannot budget the expense for the year 2000
when it anticipates paying for the system in the future.
An additional faulty assumption made by Kokolas is that many of
his calculations regarding Local 28's financial position project
a five percent reduction in revenues for 2001. (Def.Ex. 48(d)).
He justified this estimation by arguing that 1999 — the year
which was the basis for most of the experts' calculations — was a
"banner year" and that the past several years demonstrated a
fluctuation in revenues and expenses. (Tr. 263). Such a
projection is overly speculative and unwarranted, however,
especially in light of the fact that the most recent ...