Dinko v. Wall

• Decision Date: 13 February 1976
• Docket Number: D,No. 469,469
• Parties: 91 L.R.R.M. (BNA) 2589, 78 Lab.Cas. P 11,271 Andy DINKO, Individually and on behalf of the members of the National Maritime Union of America, Plaintiff-Appellant, v. Shannon J. WALL, as President of the National Maritime Union of America and Individually, et al., Defendants-Appellees. ocket 75--7502.
• Court: U.S. Court of Appeals — Second Circuit

Page 68

531 F.2d 68

91 L.R.R.M. (BNA) 2589, 78 Lab.Cas. P 11,271

Andy DINKO, Individually and on behalf of the members of the National Maritime Union of America, Plaintiff-Appellant, v. Shannon J. WALL, as President of the National Maritime Union of America and Individually, et al., Defendants-Appellees.

No. 469, Docket 75--7502.

United States Court of Appeals Second Circuit.

Argued Jan. 12, 1976.

Decided Feb. 13, 1976.

Melvin E. Rosenthal, New York City, for plaintiff-appellant.

Stanley B. Gruber and Abraham E. Freedman, New York City, for Wall, Curran, Barisic, Bocker, Martin, Miller, Rich and Freedman for defendants-appellees.

Before ANDERSON, FEINBERG and MULLIGAN, Circuit Judges.

FEINBERG, Circuit Judge:

Andy Dinko, a member of the National Maritime Union of America, appeals from a judgment of the United States District Court for the Southern District of New York, Henry F. Werker, J., dismissing plaintiff's action, brought individually and on behalf of members of the Union against various past and present officers of the Union and Trustees of a current union pension plan and its predecessor. The complaint alleged that defendants had committed various breaches of fiduciary obligations imposed by the Labor-Management Reporting and Disclosure Act of 1959 (the Act), 29 U.S.C. § 501(a). ¹ The district court held that plaintiff had not complied with the requirements of that Act, 29 U.S.C. § 501(b), that he first request the Union to sue on its own behalf and that he show good cause for the legal action. We reverse the first ruling and remand for further findings on the second.

I Facts

The relevant facts may be stated briefly. On December 17, 1974, plaintiff wrote two of the defendants, demanding that a vote on a recent proposed revision of a union pension plan be declared void. Plaintiff set forth the basis for his demand and claimed that the vote was illegal under both federal law and the union constitution. Plaintiff also demanded an accounting of union expenditures and benefits under the plan, an independent audit, and other measures to protect union members against alleged 'continuous misappropriation' of union funds. Plaintiff's letter is reproduced in the margin. ² In January 1975, in accordance with the unusual provisions of section 501(b) of the Act, ³ plaintiff sought the district court's permission to sue defendants on behalf of the Union. The application was ex parte as permitted by section 501(b). Judge Marvin E. Frankel, by order dated January 27, 1975, granted leave to proceed. After defendants served their answers, they took plaintiff's deposition and served written interrogatories. In May, plaintiff moved to disqualify the Union's counsel as attorney for these defendants and to enjoin the expenditure of union funds for their defense. See Tucker v. Shaw, 378 F.2d 304 (2d Cir. 1967). Relying on portions of plaintiff's deposition and other documents, defendants cross-moved to dismiss the complaint. By this time, the case had been assigned to Judge Werker. In August 1975, the judge granted defendants' motion in an unpublished memorandum opinion. The basis of the district court's decision was that plaintiff had not met two requirements of section 501(b): Plaintiff had failed to request that the Union 'take court action' before bringing his suit, and he had not made 'an adequate showing of 'good cause'.' On appeal, plaintiff claims that the district court erred in both respects.

II Demand to Sue

Section 501(b), see note 3 supra, authorizes any union member to bring suit in a federal district court or state court against the labor organization or its governing board or officers refuse or fail to sue or ⁴ recover damages or secure an accounting or other appropriate relief within a reasonable time after being requested to do so . . .

union officials for alleged violations of section 501(a) only if

by the union member. Plaintiff argues that his letter of December 17, 1974, and the Union's inaction thereafter, met this requirement. Judge Werker held that the letter was an insufficient request because:

Nowhere in the letter of December 17 does the plaintiff request that the officers of the NMU initiate court action to achieve the demands made by him (plaintiff).

The question of what constitutes a sufficient request under section 501(b) has not been litigated frequently in this circuit. In Coleman v. Brotherhood of Railway, etc., 340 F.2d 206 (1965), we affirmed the dismissal of a claim against union officials under the Act because plaintiff there had made no demand to the union at all. The case is therefore not on point except for the emphasis in the opinion that:

(T)his (request) provision of the statute is mandatory and . . . its requirements cannot be met by anything short of an actual request. An allegation of the futility of such a request will not suffice. Together with the further requirement of a showing of good cause and of securing court permission to proceed, the provision requiring a request is clearly designed to protect union officials from unjust harassment. If it is to serve the purpose for which it was included, it must the given full effect.

340 F.2d at 208.

A few years later, the issue was raised more directly. In Cassidy v. Horan, 405 F.2d 230 (1968), we held, with one judge dissenting, that a letter demanding that union officers return certain sums of money and advising that otherwise 'further steps which the Act permits will be taken' did not satisfy the statutory requirement of demand to sue. Then Chief Judge Lumbard characterized the majority opinion as 'unduly technical' on this issue, asserting that '(t)he only question' was whether there had been 'the kind of request' required by section 501(b) and that a demand to bring suit 'was implicit' in the letter. ⁵ 405 F.2d at 233.

There are no other cases in this court explicitly dealing with the problem. In Head v. Brotherhood of Railway, etc., 512 F.2d 398 (1975), Coleman and Cassidy were referred to approvingly in a footnote, id. at 398--99 n. 1, but there was no demand to sue construed in that case because it was decided on other grounds. ⁶ District court cases in this circuit are also sparse and have reached conflicting results. ⁷ In other circuits, the demand requirement has been regarded more casually. See, e.g., Sabolsky v. Budzanoski, 457 F.2d 1245, 1252--53 (3d Cir.), cert. denied, 409 U.S. 853, 93 S.Ct. 65, 34 L.Ed.2d 96 (1972); Hood v. Journeyman Barbers, 454 F.2d 1347, 1354 n. 23 (7th Cir. 1972). Indeed, we have found no decision of another circuit court holding a suit barred by the requirement.

We believe that Judge Werker erred in concluding that either Coleman or We agree with the majority in Coleman, supra, 340 F.2d at 208, that the requirements of section 501(b) were designed 'to protect union officials from unjust harassment.' As will be seen in Part III of this opinion, we take that statutory purpose very seriously. However, the fiduciary responsibility created by the Act is designed to protect union members, who may be of limited education and are rarely represented by counsel when sending letters to their union. The interpretation of section 501(b) as a whole must reflect a balancing of important policies. Keeping these considerations in mind, we hold that plaintiff's demand for an 'accounting' satisfied the request requirement of section 501(b).

Cassidy controlled his ruling on this issue. Those decisions require compliance with the prerequisites mandated by the statute. The plaintiff here met those conditions. The letter, appropriately addressed to the Union, demanded 'a complete accounting' and 'a true and accurate accounting'; the statute can be satisfied by a request 'to sue (to) recover damages or secure an accounting or other appropriate relief.' (Emphasis added.) While this language has been construed to mean a demand for an accounting in a legal proceeding, ⁸ the words of plaintiff's letter, which echo those of the statute, should also be so construed.

III Good Cause

We turn now to the other basis of Judge Werker's decision. Section 501(b) also provides that 'No such proceeding (to sue union officials) shall be brought except upon leave of the court obtained upon verified application and for good cause shown . . ..' The judge held that plaintiff had not made an adequate showing of good cause. When he so ruled, Judge Werker had before him a number of documents, including plaintiff's verified application for leave to sue, a lengthy affidavit of defendants' attorney, and plaintiff's deposition. Plaintiff's verified application contained a variety of charges of wrongdoing, which can be roughly summarized as alleging an improper revision of the union's officers' pension plan, the withholding of certain financial and membership data from plaintiff and other union members, and the misappropriation of union funds. Defendants' affidavit answered each of plaintiff's many charges in detail and offered evidence that plaintiff's charges were, for the most part, based on unbelievable hearsay or his own credibility, which is, according to defendants, nonexistent.

Judge Werker did not discuss plaintiff's charges or defendants' response. Stating that he had the benefit of defendants' 'detailed exhibits . . . particularly the deposition of the plaintiff,' the judge merely held that plaintiff had not established 'good cause,' which he defined only as resting 'in the sound discretion of the court.' Plaintiff claims that the judge's ruling was both substantively wrong because good cause was established and also procedurally defective because the complaint should not have been dismissed 'without a hearing or trial of the allegations.' ⁹

The latter contention is easily disposed of. Section 501(b) does not prescribe any procedure for a determination of good cause. The statute explicitly authorizes an ex parte determination, although it does not require it. See Horner v. Ferron, 362 F.2d 224, 228--29 ...