Cummings v. Connell

• Decision Date: 09 January 2003
• Docket Number: No. 01-17445.,No. 01-16735.,No. 01-16819.,No. 01-17450.,01-16735.,01-16819.,01-17445.,01-17450.
• Citation: 316 F.3d 886
• Parties: Christine A. CUMMINGS; Janet Taylor Darvas; Richard K. Dehart; Christopher Garbani; Patricia A. McCumsey; Daniel Nowalis; and Claudia Stewart, Plaintiffs-Appellees/Cross-Appellants, v. Kathleen CONNELL, Controller, State of California; Marty Morgenstern, Director, California Department of Personnel Administration, Defendants/Cross-Appellees, and California State Employees Association, Local 1000, Service Employees International Union, AFL-CIO-CLC, Defendant-Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

316 F.3d 886

Christine A. CUMMINGS; Janet Taylor Darvas; Richard K. Dehart; Christopher Garbani; Patricia A. McCumsey; Daniel Nowalis; and Claudia Stewart, Plaintiffs-Appellees/Cross-Appellants, v. Kathleen CONNELL, Controller, State of California; Marty Morgenstern, Director, California Department of Personnel Administration, Defendants/Cross-Appellees, and California State Employees Association, Local 1000, Service Employees International Union, AFL-CIO-CLC, Defendant-Appellant/Cross-Appellee.

No. 01-16735.

No. 01-16819.

No. 01-17445.

No. 01-17450.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 4, 2002.

Filed January 9, 2003.

COPYRIGHT MATERIAL OMITTED

W. James Young, National Right to Work Legal Defense Foundation, Inc., Springfield, VA, for the plaintiffs-appellees/cross-appellants.

Leslie R. Lopez, Deputy Attorney General, Office of the State Attorney General, Sacramento, CA, for defendant/cross-appellee Kathleen Connell.

Warren C. Stracener, Assistant Chief Counsel, Department of Personnel Administration, State of California, Sacramento, CA, for defendant/cross-appellee Marty Morgenstern.

Eileen B. Goldsmith (argued) and Jeffrey B. Demain, Altshuler, Berzon, Nussbaum, Rubin & Demain, San Francisco, CA, for the defendant-appellant/cross-appellee.

Appeal from the United States District Court for the Eastern District of California; William B. Shubb, District Judge, Presiding. D.C. No. CV-99-02176-WBS.

Before HAWKINS, GRABER, and TALLMAN, Circuit Judges.

OPINION

MICHAEL DALY HAWKINS, Circuit Judge.

It is settled law that a union may charge nonunion employees certain fees to pay for their "fair share" of the union's cost of negotiating and administering a collective bargaining agreement. Abood v. Detroit Bd. of Educ., 431 U.S. 209, 97 S.Ct. 1782, 52 L.Ed.2d 261 (1977). In Chicago Teachers Union v. Hudson, 475 U.S. 292, 310, 106 S.Ct. 1066, 89 L.Ed.2d 232 (1986), the Supreme Court established certain safeguards in connection with the collection of such fees, including "an adequate explanation of the basis for the fee." This appeal involves the adequacy of the June 1999 "Hudson notice" prepared by the California State Employees Association (the "Union").

The Union is the exclusive representative for nine bargaining units of California state employees. After several years without collective bargaining agreements ("CBAs") in place, in March 1999, the Union entered into CBAs allowing the state employer to deduct "fair share" fees from plaintiffs' paychecks and forward the funds to the Union. In April 1999, the Union sent a notice to nonmembers informing them of the "fair share" deductions. The state, through its controller (defendant Kathleen Connell), commenced making the deductions the same month. It is undisputed that the April notice was not intended to be a Hudson notice.

In June 1999, the Union sent a second notice that purported to comply with Hudson. The notice set the "fair share" fee (95% of union dues) and provided an opportunity for the nonunion employees (also called "fee payers") to object to paying for activities not germane to collective bargaining, automatically reducing the fee to 82% of union dues. This notice additionally explained how a fee payer could challenge the fee calculation by requesting arbitration. These procedures are not challenged here; rather, the dispute is over whether the notice included sufficient information for fee payers to decide to object and challenge the fee calculation.

The June 1999 notice included a report on the Union's 1998 expenditures and divided them into three categories: (1) those chargeable to fee payers, (2) those not chargeable to fee payers, and (3) those partially chargeable to fee payers. The report further broke down the expenditures into approximately 50 sub-categories. The notice, however, did not contain a copy of the complete auditor's report, but instead informed fee payers that:

The Report itemizes and describes the major categories of expenditures by the [Union]. The amounts attributed to these categories of expenditures are taken from an independent audit and supporting documentation of [the Union's] 1998 financial records contained in the Financial Statements prepared by Gibson and Company, Inc., a certified public accounting firm.

The notice also informed fee payers that a copy of the audit would be provided upon request.

Plaintiffs filed their complaint in November 1999, asserting that the April and June notices were constitutionally inadequate under Hudson because they failed to include a copy of the auditor's report. In December, the district court granted the plaintiffs' motion to certify a class action. In January 2000, the Union mailed a copy of the audit to all fee payers. This notice was still found to be deficient, however, because it did not extend the time for fee payers to object.

Still later in January 2000, the Union again tried to fulfill the plaintiffs' demands and sent a new amended notice that cross-referenced both the June 1999 notice and the auditor's report and extended the period for nonmembers to challenge the fee calculation. Although the district court noted that the Union had made a good faith effort to correct defects in the earlier notices and that the court itself may have caused the Union to use the "piecemeal" approach of correcting the defects, the court ultimately concluded that these notices still did not comply with Hudson because too much time had elapsed for the cross-references to be sufficient.

Finally, in May 2000, the Union sent another "integrated" notice that included all the information from the previous notices, reopened the objection/challenge period, and accommodated an additional request by plaintiffs for an "allocation audit." It is undisputed that this notice complied with Hudson. The Union's calculation was then challenged through arbitration, and the arbitrator set the fee for objecting fee payers at 73% of dues for the period from April 1999 to June 2000. Any fee payer who had objected to any of the notices from April 1999 to May 2000 then received a refund of the nonchargeable amount of the fee, with interest, retroactive to April 1999.

In May 2001, the district court ruled on cross-motions for summary judgment. Finding that all notices except the May 2000 notice were deficient under Hudson, the district court ordered the Union to refund the nonchargeable portion of the fee to all fee payers, including those who did not object to any of the notices. The court granted the Union's motion for summary judgment on the plaintiffs' challenge to two expenditures charged to fee payers. The court also rejected the plaintiffs' request for a permanent injunction and found they lacked standing to challenge an indemnification clause in the CBAs.

Plaintiffs sought more than $200,000 in attorneys' fees and costs. Because the plaintiffs were only partially successful in their litigation, the court reduced the number of hours for which they reasonably could recover. The court ultimately awarded only about $67,000 in fees, but awarded nearly full costs of $32,711.03. This appeal and cross-appeal followed.

I. The June 1999 Hudson Notice

A. The Union's Appeal

The Union appeals the district court's determination that its first Hudson notice was deficient because it failed to include a copy of the auditor's report. The Union contends that the concerns of Hudson were satisfied by its notice, which included a detailed breakdown of expenses by category, informed the nonmembers that the figures had been audited, and offered to provide a copy of the report upon request. We review de novo the district court's grant of summary judgment on the sufficiency of the Hudson notice. See Knight v. Kenai Peninsula Borough Sch. Dist., 131 F.3d 807, 812(9th Cir.1997).

We find that the Union's 1999 notice did not satisfy the dictates of Hudson. Although it informed nonmembers that the figures in the notice were derived from an audited statement, it did not include any "independent verification" of this fact. Hudson did not say merely that the expenditures must be audited, but that "adequate disclosure surely would include ... verification by an independent auditor." 475 U.S. at 307 n. 18, 106 S.Ct. 1066 (emphasis added). Although not expressly addressing the question before us, we recently mirrored this requirement from Hudson and explained that, although a formal audit is not always required, "the union must provide a statement of its chargeable and nonchargeable expenses, together with an independent verification that the expenses were actually incurred." Harik v. Cal. Teachers Ass'n, 298 F.3d 863, 866 (9th Cir.2002).

The Union argues that this circuit previously suggested that Hudson requires the union only to communicate that the figures have been audited, relying on our decision in Knight, 131 F.3d at 812-13. In Knight, the union provided nonmember employees with an unaudited financial report that was generated from two audited reports. Id. at 813. With the help of appellate briefing, the court was able to determine that the unaudited figures were indeed based on two sets of audited figures, but found that the notice was insufficient because nonmembers "were not provided with sufficient direction to be able to determine that [the union's] expenditures were audited." Id.

We do not read Knight to say that all Hudson requires is an indication that reports have been audited, as the Union argues; rather, as the Union admits in its brief, the case is silent as to whether the notice must contain the auditor's report or some other type of verification. Read in context, we believe Knight to hold that even if that were all that Hudson required, the notice in that case was still insufficient because the fee payers could not even have determined that, at a minimum, the expenditures had been audited. See id. We therefore do not find our recent pronouncement in Harik regarding...