Culinary and Service Employees Union, AFL-CIO Local 555 v. Hawaii Employee Ben. Admin., Inc.

• Decision Date: 27 September 1982
• Docket Number: AFL-CIO,No. 81-4114,81-4114
• Citation: 688 F.2d 1228
• Parties: 111 L.R.R.M. (BNA) 2283, 111 L.R.R.M. (BNA) 2501, 95 Lab.Cas. P 13,755, 3 Employee Benefits Ca 2005 CULINARY AND SERVICE EMPLOYEES UNION,LOCAL 555; Anthony Rutledge and Arthur Rutledge, as Union Trustees for the Hotel Union and Hotel Industry of Hawaii Pension Trust, etc., Plaintiffs-Appellants, v. HAWAII EMPLOYEE BENEFIT ADMINISTRATION, INC., et al., Defendants, and Hotel, Restaurant Employees and Bartenders Union, Local 5; Frances M. McCallum, Richard Tam and Romeo M. Mindo, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1228

688 F.2d 1228

111 L.R.R.M. (BNA) 2283, 111 L.R.R.M. (BNA) 2501,

95 Lab.Cas. P 13,755,

3 Employee Benefits Ca 2005

CULINARY AND SERVICE EMPLOYEES UNION, AFL-CIO LOCAL 555 Anthony Rutledge and Arthur Rutledge, as Union Trustees for the Hotel Union and Hotel Industry of Hawaii Pension Trust etc., Plaintiffs-Appellants, v. HAWAII EMPLOYEE BENEFIT ADMINISTRATION, INC., et al., Defendants and Hotel, Restaurant Employees and Bartenders Union, Local 5 AFL-CIO; Frances M. McCallum, Richard Tam and Romeo M. Mindo, et al., Defendants-Appellees.

No. 81-4114.

United States Court of Appeals Ninth Circuit.

Submitted March 8, 1982.

Decided July 20, 1982.

As Amended Sept. 27, 1982.

John A. Chanin, Honolulu, Hawaii, Lawrence I. Weisman, Towson, Md., for plaintiffs-appellants.

Arthur Y. Park, Park & Kim, Honolulu, Hawaii, for defendants-appellees.

Appeal from the United States District Court for the District of Hawaii.

Before HAYNSWORTH, ^* Senior Circuit Judge, MERRILL, Senior Circuit Judge, and WALLACE, Circuit Judge.

WALLACE, Circuit Judge:

Appellants Arthur and Anthony Rutledge (the Rutledges) are former union trustees of two employee benefit trust funds. They were removed from the board of trustees by Tam and certain other defendants-appellees, elected officials of Local 5 of the Hotel, Restaurant and Bartenders Union (Local 5), who substituted themselves as union trustees in place of the Rutledges following their January 1980 election as officers of Local 5. The Rutledges and the remaining appellant, Local 555 of the Culinary and Service Employees Union, AFL-CIO (Local 555), whose members are also beneficiaries of the trust funds, insist that Local 555 was entitled to participate in the selection of union trustees. They filed an amended complaint in district court against the new union trustees, the employer trustees, Local 5 and others including the trusts and their administrators (the trustees). The complaint sought declaratory and injunctive relief, along with monetary damages, for an alleged violation of Article V(B) of the trust agreements, the union and local by-laws, section 302(c)(5)(B) of the Taft-Hartley Act, 29 U.S.C. § 186(c)(5)(B), and the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1104(a)(1) (D). The complaint also alleged that the new union trustees were not qualified under the prudent investor standard of ERISA, 29 U.S.C. § 1104(a)(1)(B), and the restrictions of the Landrum-Griffin Act, 29 U.S.C. §§ 501(a), 504(a). The district court struck these last counts without prejudice to refiling them in a separate complaint. The Rutledges and Local 555 subsequently moved for a permanent injunction directing their reinstatement. Following a bench trial, the district court denied the motion and, on February 25, 1981, entered judgment for the trustees. On June 3, 1981, pursuant to a motion filed April 28, 1981, the district court awarded attorneys' fees and costs to the trustees. We affirm.

The major substantive issue in this appeal is the proper construction of Article V(B) of the trust agreements. The district court was not called upon merely to interpret unambiguous contract language, which would be a freely reviewable question of law. See In re Beverly Hills Bancorp, 649 F.2d 1329, 1334 (9th Cir. 1981). If, as here, the district court relies upon extrinsic evidence to interpret an ambiguous contract, that interpretation is a factual determination reversible only if the district court's construction is clearly erroneous or if the court applied an incorrect legal standard. Washington Metropolitan Area Transit Auth. v. Mergentime Corp., 626 F.2d 959, 961 (D.C.Cir.1980); see Chandler Supply Co. v. GAF Corp., 650 F.2d 983, 988-89 (9th Cir. 1980). ¹ The district court was not clearly erroneous in determining that the removal of the Rutledges did not violate the trust agreements.

The district judge properly found the language of Article V(B) to be ambiguous. It provides in part:

Union Trustees shall be appointed by and serve at the pleasure of the Union. If there is more than one Union, they shall participate in appointments and removals in such manner as may from time to time be specified by majority vote of the Union Trustees. Appointments and removals shall be made by written instrument delivered to the joint board. If a vacancy is not filled within sixty (60) days after notice to the appointing parties, the remaining Union Trustees shall fill the vacancy within thirty (30) days after that sixty-day period expires ....

(Emphasis added.) Emphasizing the second sentence, the Rutledges and Local 555 argue that this provision means that trustees may be removed only by majority vote of the incumbent union trustees. The trustees, stressing the first sentence and the clause "as may from time to time be specified," argue that the removal power is vested in the union, unless the incumbent trustees by majority vote specify a different procedure. Thus, Article V(B) is ambiguous and is open to the district court's realistic interpretation.

The past practice of the parties since 1976, when Local 555 became a signatory to the trust agreements, is particularly useful in construing Article V(B) because it predates the instant controversy. Denver Metropolitan Ass'n of Plumbing, Heating, Cooling Contractors v. Journeyman Plumbers & Gas Fitters Local No. 3, 586 F.2d 1367, 1371 (10th Cir. 1978). Here that course of dealing, along with the great weight of the testimony introduced at trial, is wholly consistent with the district court's construction. That evidence demonstrated that Local 5 had consistently appointed and removed the union trustees on behalf of both unions, and that there had never been any resolution by a majority of the incumbent union trustees specifying a different procedure. The only evidence to the contrary was the testimony of the Rutledges themselves, which the court was not required to credit. Based upon this evidence and the contract language in question, the district judge found that Article V(B) permits the union trustees to specify, from time to time, the manner in which the unions shall participate in the appointment and removal of trustees, but does not grant them the power to appoint and remove. Such a construction of Article V(B) appears reasonable to us. The first sentence reserves the appointment power to the unions; while the second sentence grants the incumbent union trustees the power to prescribe the mode of appointment and removal, it gives them no binding authority to remove unless they have exercised the power to prescribe the mode of removal. The district court's construction of Article V(B) is not clearly erroneous.

Nothing in the record, moreover, indicates that the district court applied an incorrect legal standard. Philadelphia Nat'l Bank v. Employing Bricklayers' Ass'n, 169 F.Supp. 591 (E.D.Pa.1959), on which the Rutledges and Local 555 rely, is not persuasive. That case, which is not binding on us, suggests only that the power to appoint or remove trustees remains with the union membership absent a delegation to union officers. Id. at 596. No credible argument has been made here that when the Rutledges removed Tam in 1978, or when Tam allegedly retaliated by removing the Rutledges in 1980, the parties were not exercising powers lawfully delegated to them by the union membership. In addition, the court in Philadelphia Nat'l Bank recognized that nothing in the federal labor laws prohibits officers of a union from also acting as trustees. Id. at 597 (identifying problems of self-dealing but concluding that Congress did not view the problems as sufficiently grave to justify a federal prohibition). Similarly, we have not been directed to any controlling authority which prohibits one of several signatory local unions from independently selecting union trustees for employee benefit trust funds. See Local 169, Int'l Brotherhood of Teamsters v. Teamsters Health & Welfare Fund, 327 F.Supp. 260, 263-64 (E.D.Pa.1971).

The Rutledges and Local 555 maintain that 29 U.S.C. § 186(c)(5)(B), which exempts from the Taft-Hartley Act employer contributions to an employee trust fund under a written agreement if "employees and employers are equally represented in the administration of such fund" (emphasis added), requires equality of representation between employee unions. It is evident, however, that this section only requires equality between the trustees representing the unions and those representing the employer and not parity between the representatives of each union. See, e.g., Denver Metropolitan Ass'n, supra, 586 F.2d at 1374-75; Mobile Mechanical Contractors Ass'n v. Carlough, 456 F.Supp. 310, 325-26 (S.D.Ala.1978), rev'd in part on other grounds, 664 F.2d 481 (5th Cir. 1981); Goetz, Employee Benefit Trusts Under Section 302 of Labor Management Relations Act, 59 Nw.U.L.Rev. 719, 747-48 (1965). Not only have the Rutledges and Local 555 failed to cite any authority for their position, but it appears that their interpretation of section 186(c)(5)(B) conflicts with the language of that section as well as the congressional purpose...