Brown v. INTERN. UNION, UNITED AUTO. AEROSPACE, ETC.

• Decision Date: 08 April 1981
• Docket Number: No. G185-73 CA6.,G185-73 CA6.
• Citation: 512 F. Supp. 1337
• Parties: Leo BROWN and John Lane, Individually and on behalf of all former hourly employees of Lakey Foundry Corporation who have accrued vested rights in the Lakey Foundry Corporation Pension Plan, Plaintiffs, v. INTERNATIONAL UNION, UNITED AUTOMOBILE AEROSPACE AND AGRICULTURAL IMPLEMENT WORKERS OF AMERICA (UAW), Defendant.
• Court: U.S. District Court — Western District of Michigan

512 F. Supp. 1337

Leo BROWN and John Lane, Individually and on behalf of all former hourly employees of Lakey Foundry Corporation who have accrued vested rights in the Lakey Foundry Corporation Pension Plan, Plaintiffs, v. INTERNATIONAL UNION, UNITED AUTOMOBILE AEROSPACE AND AGRICULTURAL IMPLEMENT WORKERS OF AMERICA (UAW), Defendant.

No. G185-73 CA6.

United States District Court, W. D. Michigan, S. D.

April 8, 1981.

Arthur Rude, Muskegon, Mich., for plaintiffs.

A. Robert Kleiner, Grand Rapids, Mich., M. Jay Whitman, General Counsel for UAW, International Union, Detroit, Mich., for defendant.

OPINION

DOUGLAS W. HILLMAN, District Judge.

Plaintiffs, former hourly employees of Lakey Foundry Corporation (hereinafter "Lakey"), bring this class action suit against defendant, International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (hereinafter "UAW"), for an alleged breach of defendant's duty of fair representation.

Throughout the 1960's, and until February 7, 1972, when Lakey petitioned for bankruptcy under Chapter XI of the former Bankruptcy Act, plaintiffs were members of UAW Local 403 with vested rights to benefits from the Lakey Foundry Corporation Pension Plan. That pension plan was managed, in part, by a Board of Administration of which defendant's agent, Victor Scott, was a member. Plaintiffs contend that when Lakey terminated operations in 1972, over $1,500,000 was owed to the fund by the company. Plaintiffs further contend that defendant, whose agent was a member of the Board of Administration, breached duties allegedly owed to its members by negligently failing to discover and remedy Lakey's default. Specifically, plaintiffs' fourth amendment complaint alleges defendant breached its statutory duty of fair representation owed to plaintiffs as union members, as well as state law obligations of fiduciary responsibility and contractual duties owed to plaintiffs as third-party beneficiaries of the pension plan, in that defendant:

(a) failed to require Lakey to comply with the requirements of the Pension Agreement for reporting on the status of assets and contributions to the pension fund;

(b) failed to ascertain that after the 1964 fiscal year an increasing deficit was accruing in the plan;

(c) failed to take action to insure that Lakey was maintaining its contribution obligations despite knowledge of Lakey's serious financial problems;

(d) failed to establish a procedure for routine review of either pension reports required to be filed by Lakey, or actuarial valuations received by the company;

(e) failed to detect the existence of a funding deficit even when copies of actuarial reports were received from Lakey;

(f) failed to pursue legal remedies against Lakey's officers and directors despite knowledge that defendant may have been defrauded by them; and

(g) failed to pursue legal remedies against the actuaries hired by Lakey despite knowledge that the actuaries may have submitted false or misleading reports.

Plaintiffs seek damages in the amount of the deficit in the fund.

Following this court's denial of defendant's motion to dismiss in September of 1980, the case was tried to the court in eight days during October, 1980. The parties presented 13 witnesses and 147 exhibits were received. The following opinion comprises the court's findings of fact and conclusions of law on these issues, pursuant to Rule 52 of the Federal Rules of Civil Procedure.

FACTS

Lakey Foundry Corporation for many years operated a grey-iron foundry in Muskegon, Michigan. In 1972, it ceased operations due to bankruptcy. The company was a major Muskegon employer, employing approximately 1,000 active hourly employees. Since 1941, these hourly employees were represented by the UAW and its Local 403.

The International.

The UAW is one of the oldest and largest labor organizations in the United States, and is headquartered in Detroit, Michigan. It is divided into 18 geographical regions, with each region additionally subdivided. Region 1-D is the geographical region roughly encompassing the western half of the State of Michigan, with headquarters located in Grand Rapids, Michigan. It is the region in which Local 403 was located. Each region of the UAW has a Regional Director, who is a member of the UAW's International Executive Board, and who is elected by delegates from that region. The regional director's staff consists of "international representatives", or "service representatives", who are appointed by the UAW International President on the recommendation of the region's regional director. International representatives are assigned by the regional director to service one or more union locals, providing advice concerning handling of grievances, collective bargaining, organizing, etc. Each service representative is a UAW member who has arisen "from the ranks".

The International Union maintains three technical and professional departments (Research, Legal, and Social Security) designed to provide service representatives consultation concerning specialized problems. The Social Security Department has seven or eight staff members, two of whom are full-time actuaries. The department advises on matters concerning employee benefits, such as employee insurance and pensions, as well as occupational health and safety issues. Apparently, this is the largest union-maintained employee benefits consultation group in the country, and is the only one which retains a full-time actuary.

The UAW Social Security Department, in the period between 1962 and 1971, had service responsibility for approximately 1,500 pension plans. Each year, officers or representatives of several hundred of these plans contacted the department for advice, although a sizeable portion never did so. The Social Security Department never became involved in pension plan issues unless called upon by a regional director or local union member. Although it provided advice to locals concerning the drafting of new plans, it never assisted in the actual collective bargaining. The department was never a party to a newly-formed pension agreement.

Membership rules, procedures, regulations, rights and duties in the UAW are all governed by the UAW Constitution. Articles 32 and 33 of that Constitution, as adopted by the membership in April, 1970, provide a sophisticated intra-union procedure for complaining about actions or decisions of the International or one of its locals.¹ Before seeking relief from a civil court or governmental agency, an aggrieved member must first exhaust his or her internal union remedies, pursuant to Article 33, Section 13, which reads:

"Section 13. It shall be the duty of any member or subordinate body who feels aggrieved by any action, decision, or penalty imposed upon him or it, to exhaust his or its remedy and all appeals therefrom under the laws of this International Union prior to appealing to a civil court or governmental agency for redress."

It is undisputed that no member of the plaintiff class ever sought internal union relief concerning the union's alleged failure to supervise or monitor the Lakey pension fund.

The UAW Constitution further requires that newly-bargained agreements between employers and the union be signed by the regional director, and the Local's international representative, as well as by local officers and representatives of the employer. This is true even though the international representative and regional director have no role in the bargaining.

Local 403.

UAW locals are run by officers elected by a majority vote of the members. The local officers include a president, vice-president, secretary/treasurer, recording secretary, and sergeant-at-arms. Each local has a bargaining committee, usually with the local president as the chairman (although this was not the case with Local 403). There are also plant committees (stewards) and assorted standing committees, whose members either are appointed by the local president, or are elected by the local membership. At Local 403, the pension committee was a standing committee with two members appointed by the local president. The international representative served as the third member of Local 403's pension committee, whose presence was at the request of the local president. Not every UAW local requests its international representative to sit on any of its committees.

The Pension Plan.

The Lakey Foundry Pension Plan was created in 1950 as part of that year's collective bargaining agreement, and thereafter, pursuant to the Pension Agreement signed by defendant, the local and the company, periodically was amended to provide greater benefits. The plan called for "defined benefits", whereby the employer is responsible for maintaining the plan fund at a level sufficient to guarantee each vested employee, upon retirement, a specific amount of pension per year until death. Many other types of pension plans, in contrast, provide employees, upon retirement, with only a lump sum or maximum amount of pension which, when expended, leaves the retiree without protection. Defined benefit plans place the risk of increased or unanticipated costs on the employer, thereby limiting risks of employees.

The Pension Plan and Pension Agreement provided for three bodies (viz., the Trustee, the Coordinating Committee and the Board of Administration) which administered and managed the plan and its trust fund. Under the terms of the plan, Lakey was to designate as Trustee a "bank, trust company or insurance company ... to hold and invest the Trust Fund."² The Trustee was paid out of assets of the fund, and had full authority "to determine the forms of and to make the forms of investment for the Trust Fund," including investment in the company itself.

Lakey also had the right to select the members of a Coordinating Committee, the administrative body which retained "all powers as may be necessary to carry out the purposes of the Plan."³ The Coordinating Committee...