Hoffman v. Kramer

• Decision Date: 05 March 2004
• Docket Number: No. 02-20070.,02-20070.
• Citation: 362 F.3d 308
• Parties: Louis A. HOFFMAN, Plaintiff-Appellant, v. John E. KRAMER; Marilyn H. Zeiler; Patrick F. Filburn, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

362 F.3d 308

Louis A. HOFFMAN, Plaintiff-Appellant, v. John E. KRAMER; Marilyn H. Zeiler; Patrick F. Filburn, Defendants-Appellees.

No. 02-20070.

United States Court of Appeals, Fifth Circuit.

March 5, 2004.

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Kevin Newton Buras, Houston, TX, Howard Taylor Dulmage (argued), Sheehy, Serpe & Ware, Houston, TX, for Plaintiff-Appellant.

Patrick M. Flynn (argued), Houston, TX, for Defendants-Appellees.

Appeal from the United States District Court for the Southern District of Texas.

Before JOLLY, HIGGINBOTHAM and MAGILL,^* Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

Before union members may sue officers of their union for breach of their fiduciary duties under Title V of the Labor Management Reporting and Disclosure Act ("LMRDA"), 29 U.S.C. § 501(a), they must convince the trial court that there is "good cause" for the suit. 29 U.S.C. § 501(b). This court has not had occasion previously to address this "good cause" requirement. We do today.

The district court denied Louis Hoffman's application for leave to sue three former officials of his union, the Southwest Airline Pilots Association ("SWAPA"). The district court held that good cause did not exist to permit Hoffman to proceed with his claims against the three defendants. After careful evaluation of the statute and the claims, we agree, and affirm the judgment of the district court.

I

SWAPA is the collective bargaining agent for the Southwest pilots, including Hoffman. From 1997 to 2000, defendants John Kramer, Marilyn Zeiler, and Patrick Filburn served as officers of that union. Kramer was the President of the union and Zeiler was Secretary/Treasurer. Filburn was a board member and later elected Vice-President in November 1999. That election was challenged by Filburn's opponent and the union agreed to a new election after the Department of Labor found "probable cause to believe that violations of Title IV of the LMRDA occurred which may have affected the outcome of the election...." In March 2001, after a new, supervised election, Filburn was voted out of office. Ultimately all the defendants were replaced and new officers were elected. The record reflects that contentious and fractious relations had existed over a variety of topics between some members of SWAPA and the defendants during their tenure. Hoffman, who was part of a cadre of reformers, perceived mismanagement and improper administration of the union's interests and funds during the defendants' tenure and, despite the election of new officers, he petitioned the union for an accounting and other remedial action against the former union officials. After discussion by its current board, SWAPA refused.

Hoffman then brought this suit under 28 U.S.C. § 501, first seeking authority to sue the former union officials. Section 501(a) imposes fiduciary duties on union officials not to engage in self-dealing, spend union funds for personal benefit, or act adversely to union interests. These officials must also account to union membership for any gains they receive in connection with their union office.¹ Individual union members may sue union officers on behalf of the union only if the union refuses to take action in response to allegations of official corruption. Additionally, a person seeking to sue the officials must first obtain leave of the court to sue by showing "good cause" for the suit.² The purpose of this threshold requirement is to discourage misuse of litigation and to minimize judicial interference in the management of labor organizations. See Ray v. Young, 753 F.2d 386, 389 (5th Cir.1985).

Hoffman alleged several irregularities in the administration of SWAPA during the period from 1997 to 2000 which, according to his verified application for leave to file suit, amount to breach of fiduciary duties under § 501(a). Hoffman alleged that the defendants breached their fiduciary duty by destroying records, taking money while not working, wasting union funds, spending union funds on personal expenses, and self-dealing in negotiations. He further contended that the actions were undertaken in violation of SWAPA's Constitution and Bylaws.

The district court held a hearing on Hoffman's request for leave to file suit and, after concluding that Hoffman had failed to show good cause under § 501(b), denied Hoffman's application. The court found that "[t]he proposed claims do not arise from the duties demanded by the statute." The district court, however, did not articulate further what standard for good cause it considered in assessing Hoffman's claims. Our review of the denial of Hoffman's application requires us to determine the appropriate standard to be applied under 29 U.S.C. § 501(b) de novo. Walgreen Co. v. Hood, 275 F.3d 475, 477 (5th Cir.2001); Dial One of the Mid-South, Inc. v. BellSouth Telecommunications, Inc., 269 F.3d 523, 525 (5th Cir.2001) (statutory interpretation reviewed de novo). The standard for "good cause" and the ultimate conclusion whether there is good cause for permitting leave to file suit — mixed questions of law and fact — are subject to plenary de novo review. See Tyler v. Union Oil Co. of California, 304 F.3d 379, 402 (5th Cir.2002).

II

As we have noted, this circuit has not had occasion to address the scope of the good cause review of a § 501(b) application. Other circuits have addressed the standard and the cases construing the good cause requirement fall along a continuum that reflects in varying degrees some consideration of the merits of the case. This body of case law begins with Horner v. Ferron, 362 F.2d 224, 228 (9th Cir.1966). Horner observed:

The requirement of section 501(b) that a plaintiff in such an action show "good cause" before being entitled to file the complaint is intended as a safeguard to the affected union against harassing and vexatious litigation brought without merit or good faith. The allegations of the verified complaint may be sufficient to enable the court to determine whether there is "good cause." Thus section 501(b) provides that such an application may be made ex parte. But the court may, on its own motion, call for a hearing, or may grant the defendant's motion for a hearing. At such a hearing, the court may, if it chooses, look somewhat beyond the complaint in determining whether the plaintiff has made the "good cause" showing required by section 501(b).

Horner, 362 F.2d at 228-29 (footnotes and citations omitted).

The Horner court noted that a defendant union or union official could defeat a good cause showing through "undisputed affidavit[s]" showing that the plaintiff failed to comply with some condition precedent to suit or was not a member of the union sued, or that the action was barred by the statute of limitations, res judicata or collateral estoppel. Id. Although such facts would not appear in the verified application, they would warrant a denial of the application. The Horner court further observed that

we think it inappropriate to consider, at such a hearing, defenses which require the resolution of complex questions of law going to the substance of the case. Defenses of this kind should be appraised only on motion for summary judgment or after a trial. Defenses which necessitate the determination of a genuine issue of material fact, being beyond the scope of summary judgment procedure, are a fortiori, beyond the scope of a proceeding to determine whether a section 501(b) complaint may be filed.

Id. at 229 (footnote omitted). The Third, Eleventh, and D.C. Circuits follow the Horner approach. Loretangeli v. Critelli, 853 F.2d 186 (3rd Cir.1988); Erkins v. Bryan, 663 F.2d 1048 (11th Cir.1981); George v. Local Union 639, 98 F.3d 1419 (D.C.Cir.1996).

The Second Circuit has adopted an approach that requires a more demanding showing. In Dinko v. Wall, 531 F.2d 68 (2nd Cir.1976), the court held that the good cause requirement meant that the "plaintiff must show a reasonable likelihood of success and, with regard to any material facts he alleges, must have a reasonable ground for belief in their existence." Dinko, 531 F.2d at 74. No other circuit has adopted the "reasonable likelihood of success" requirement. Indeed, the Third Circuit explicitly rejected the Dinko court's analysis, concluding that the reasonable likelihood of success requirement "is not mandated by the statute's language, finds no support in the LMRDA's legislative history, conflicts with the Congressional policy of protecting union members, and permits summary elimination of meritorious as well as vexatious suits." Loretangeli, 853 F.2d at 191. The Third Circuit further noted that although "Congress clearly intended that the plaintiff make some showing of the validity of the complaint that exceeded the filing requirements of the Federal Rules of Civil Procedure," the statute did not require the district court to consider the merits of the case. Loretangeli, 853 F.2d at 192. For the reasons indicated below, and without gainsaying either the Dinko or Horner approaches, we articulate a somewhat more specific analysis for determining good cause under § 501.

III

Obviously, the first step a court should undertake in reviewing a claim is to ascertain that the allegations meet the minimal requirements of the statute. Thus, as a threshold matter, the court must insist upon a showing that (1) the misconduct alleged directly relates to duties enumerated in § 501(a);³ (2) given the derivative nature of the plaintiff's suit on behalf of the union, the plaintiff seeks remedies that would realistically benefit the union and/or its membership, and (3) the alleged breaches in question were presented to the union, which then failed or refused to act on them.

We think, however, that meeting these minimal requirements alone is not enough to satisfy the requirements for good cause. The mere refusal or failure of a union to seek redress for appropriately presented breaches of LMRDA duties...