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MARTINEZ v. BARASCH

July 7, 2004.

JOSE MARTINEZ and HAYWANTIE SINGH, on Their Own Behalf and On Behalf of All Other Similarly Situated Persons, and GEORGE MIRANDA, as a Trustee of the UNION MUTUAL FUND PENSION PLAN, the ALLIED WELFARE FUND and the VACATION FRINGE BENEFIT FUND, Plaintiffs,
v.
GEORGE BARASCH; STEPHEN BARASCH; LINDA BARASCH GLAZER; RICHARD GLAZER; JOHN MORRO, Individually and as President of ALLIED TRADES COUNCIL; JACK SIEBEL, REGINALD ROSADO and JAMES CROWLEY, as Officers of ATC; GERALD HERSKOWITZ, LOUIS KAPLAN, BRUCE NAGRES, STEPHEN CAMADECO, RUDOLPH PASCUCCI, ANTHONY GUIGLIANO, as Trustees of ALLIED WELFARE FUND; GERALD HERSKOWITZ, HARVEY ROSEN, BRUCE ROGERS, HERMAN WOLFSON, STEPHEN CAMEDECO, and JAMES CROWLEY, as an Officer of ATC and Trustee of the VACATION FRINGE BENEFIT FUND; IRVING HANS, IRVING KROOP, DONALD MERINO, HAROLD BANNER, BERTRAM GELFAND, as Trustees of UNION MUTUAL FUND PENSION PLAN; MORRIS AARONS, IRVING HANS, GERALD HERSKOWITZ, HERBERT POBINER, CHARLES SACHS, BERTRAM GELFAND, as Trustees of UNION MUTUAL FUND PENSION PLAN; CHURCHILL ADMINISTRATORS, INC.; and FINANCIAL ADMINISTRATORS, INC., Defendants.



The opinion of the court was delivered by: MICHAEL MUKASEY, Chief Judge, District

OPINION & ORDER

Plaintiffs Jose Martinez and Haywantie Singh ("Individual Plaintiffs") are former members of the Allied Trades Council ("ATC"). Individual Plaintiffs assert a claim for breach of fiduciary duties on behalf of ATC against defendants John Morro, Jack Siebel, Reginald Rosado and James Crowley (collectively "ATC Defendants") as officers of ATC. Individual Plaintiffs' claim arises under Section 501 of the Labor-Management Reporting and Disclosure Act ("LMDRA"), 29 U.S.C. § 501. This court has issued three prior opinions in this action, see Bona v. Barasch, No. 01 CIV. 2289, 2003 WL 1395932 (S.D.N.Y. March 20, 2003), Bona v. Barasch, No. 01 CIV. 2289, 2003 WL 21222531 (S.D.N.Y. May 27, 2003), and Martinez v. Barasch, No. 01 CIV. 2289, 2004 WL 1367445 (S.D.N.Y. June 16, 2004), in which the facts of this case are set forth more fully than they are below and with which familiarity is assumed. ATC Defendants have moved for reconsideration of the court's March 2003 ruling granting Individual Plaintiffs' Section 501(b) application, and to dismiss Individual Plaintiffs' Section 501 claim for lack of subject matter jurisdiction. For the reasons set forth below, ATC Defendants' motion for reconsideration is granted, Individual Plaintiffs' Section 501(b) application is denied, and ATC Defendants' motion to dismiss is granted. I.

  Individual Plaintiffs are residents of New York, and were "members," as that term is defined in Section 3(o) of the LMRDA, 29 U.S.C. § 402(o), of a labor organization, ATC. (4th Amended Complaint ("FAC") ¶¶ 4, 15, 16) Defendant John Morro is President of ATC, a "labor organization" as that term is defined in Sections 2(5) and 3(i) of the LMRDA, 29 U.S.C. § 152(5), 402(i). (Id. at ¶ 6) Defendants Jack Siebel, Reginald Rosado, and James Crowley are officers and members of the Executive Council of ATC. (Id.) Individual Plaintiffs sue for and on behalf of ATC as former "members" of ATC within the meaning of Section 501(b) of the LMRDA, 29 U.S.C. § 501(b). (Id. at ¶ 2; Prayer for Relief, ¶ 1) Jurisdiction is present pursuant to 28 U.S.C. § 1331 and 29 U.S.C. § 501(b) and 1132(a). (Id.) Venue lies in this court under 28 U.S.C. § 1391 because a substantial part of the events giving rise to this action occurred in this district. (Id. at ¶ 3)

  II.

  As discussed in the three prior opinions, herein cited above, this action comprises three claims by multiple plaintiffs against multiple defendants, but the instant motion relates only to the third claim, brought by Individual Plaintiffs against ATC Defendants. This third claim is for breach of fiduciary duties for and on behalf of ATC against defendants Morro, Siebel, Rosado and Crowley as officers of ATC. (FAC ¶¶ 63-77) Individual Plaintiffs claim that ATC Defendants had a duty under Section 501(a) of the LMRDA not to take action adverse to ATC, not to have any interest in conflict with the interest of ATC, and to account to the organization for any profit received in connection with transactions conducted on behalf of ATC. (Id. at ¶ 63) Individual Plaintiffs allege that ATC Defendants breached these fiduciary duties.

  Individual Plaintiffs allege that ATC Defendants caused ATC to contribute large sums to the Barasch family. Between 1995 and 1999, ATC gave $1 million to the Allied Educational Foundation ("AEF"), which purportedly is used by the Barasch Family to divert money to themselves. (Id. at ¶¶ 50-52, 64) ATC Defendants also caused ATC to enter into a long-term administrative services contract with Barton, Babcock & Blair, Inc. ("BBB"), another corporation purportedly used by the Barasch Family to divert money to themselves, to which ATC paid $232,247 in fees between 1995 and 1999. (Id. at ¶¶ 46, 48, 49, 66, 67) AEF paid BBB another $506,781 during the same time period. (Id. at ¶ 67) Individual Plaintiffs contend that the payments to AEF and BBB resulted from the Barasch Family's dominance of ATC, and that ATC Defendants knew or should have known that these payments were not for legitimate union purposes. (Id. at ¶¶ 64, 68) Further, Individual Plaintiffs allege that ATC Defendants received benefits from AEF by taking trips paid for or heavily subsidized by AEF. (Id. at ¶¶ 69-70) In sum, Individual Plaintiffs claim that ATC Defendants had interests in AEF and BBB that conflict with the interests of ATC, and that they have not accounted to ATC for any profits received by them in connection with payments made by ATC to BBB or AEF. (Id. at ¶ 71)

  Individual Plaintiffs further allege that on March 2, 2001, they asked ATC Defendants to seek damages for breaches of fiduciary duties. (Id. at ¶ 74) However, ATC Defendants responded on April 6, 2001, in a letter from defendant Morro, that they had found no evidence of wrongdoing and that they would not try to recover the payments made to BBB or AEF. (Id. at ¶ 75) Individual Plaintiffs filed this action on March 19, 2001 — before receiving ATC defendants' response to their request for action on April 6 — and amended their complaint on June 29, 2001 to include a claim under Section 501 of the LMRDA against ATC Defendants for damages in the amount of money transferred by ATC to BBB and AEF. (Id. at ¶¶ 75, 77)

  III.

  ATC Defendants have moved to dismiss Individual Plaintiffs' claim against them under Fed.R.Civ.P. Rule 12(b)(1), arguing that Individual Plaintiffs lack standing, and therefore that the court lacks subject matter jurisdiction. See Moore v. PaineWebber, Inc., 189 F.3d 165, 169 n. 3 (2d Cir. 1999). In deciding a motion to dismiss under Rule 12(b)(1), the court must construe all ambiguities and draw all inferences in the plaintiff's favor, but the court must dismiss the action "when the district court lacks the statutory or constitutional power to adjudicate it." Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000) The court "may refer to evidence outside the pleadings," and the plaintiff has the burden of proving subject matter jurisdiction by a preponderance of the evidence. Id.

  Individual Plaintiffs have brought their individual claims against ATC Defendants under Section 501(b) of the LMRDA. (FAC ¶ 2) According to ATC Defendants, however, that section permits only current members of ATC to bring an action on behalf of ATC against ATC's officers, and Individual Plaintiffs are no longer members of ATC. Individual Plaintiffs argue that in order to have standing in this action, they need only have been members when the transactions of which they complain took place and when they filed the complaint. ATC Defendants, on the other hand, argue that Individual Plaintiffs must remain members of ATC throughout the pendency of this action in order to maintain standing.

  Section 501(b) of the LMRDA states, in relevant part:
When any officer, agent, shop steward, or representative of any labor organization is alleged to have violated the duties declared in subsection (a) of this section and the labor organization or its governing board or officers refuse or fail to sue or recover damages or secure an accounting or other appropriate relief within a reasonable time after being requested to do so by any member of the labor organization, such member may sue such officer, agent, shop steward, or representative in any district court of the United States or in any State court of competent jurisdiction to recover damages or secure an accounting or other appropriate relief for the benefit of the labor organization. No proceeding shall be brought except upon leave of the court obtained upon verified application and for good cause shown, which application may be made ex parte.
29 U.S.C. § 501(b). Section 501(b) explicitly confers standing to sue on behalf of a labor organization only upon "members" of that organization. Therefore, only members of the organization have standing to seek leave from the court to bring such a suit.

  The status of Individual Plaintiffs' membership in ATC seems to be the subject of some confusion. Individual Plaintiffs alleged in their original complaint, filed in March 2001, that both Martinez and Singh remained members of ATC at that time. (Compl. ¶¶ 17-18) Individual Plaintiffs filed their First Amended Complaint in June 2001 and alleged that Martinez and Singh remained members of ATC at that time. (1st Am. Compl. ¶¶ 19-20) Individual Plaintiffs filed their Second Amended Complaint in September 2001 and alleged that Martinez and Singh remained members of ATC at that time. (2nd Am. Compl. ¶¶ 19-20) Individual Plaintiffs amended their complaint a third time in April 2003 — one month after the court granted their application to bring this action on behalf of ATC — and alleged that Martinez and Singh continued to be members of ATC at that time. (3rd Am. Compl. ¶¶ 15-16) However, one month later, Individual Plaintiffs amended their complaint a fourth time and alleged only that Martinez was still a member of ATC at that time, but that Singh had ceased to be a member of ATC in March 2001, which contradicted the allegations in all three amended complaints concerning Singh's membership status in ATC. (FAC ¶¶ 15-16) The Fourth Amended Complaint precedes by two years the court's March 2003 ruling granting Individual Plaintiffs' Section 501(b) application.

  In their papers opposing the instant motion, Individual Plaintiffs have revised their account yet again. Now Singh is alleged to have been a member of ATC through July 2001 and Martinez a member of ATC through August 2001. (Plaintiffs' Memorandum of Law in Opposition to Motion of ATC Defendants to Dismiss Claims Arising under 29 U.S.C. § 501 ("Pl. Mem.") 4) Individual Plaintiffs base these latest allegations on the declaration of Linda Glazer, an office manager for a company that provides administrative services to ATC, including keeping track of membership status and the receipt of monthly dues. (Glazer Dec. ¶ 1) According to Glazer, Singh has not paid membership dues to ATC since July 2001 and Martinez has not paid membership dues to ATC since August 2001. (Id. at ¶¶ 3-4)

  However, Individual Plaintiffs' own sworn deposition testimony tells yet another story. Singh admitted at her deposition that her membership in ATC terminated in May 2001 (Singh Depo. Tr. 53:15-16, 55:5-10), and Martinez admitted at his deposition that his membership in ATC terminated after an election held in September 2001 to elect either ATC or UNITE ...


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