Haley v. Platnick

• Decision Date: 13 June 1974
• Docket Number: No. 74 Civ. 284-LFM.,74 Civ. 284-LFM.
• Parties: Joseph W. HALEY and Henry Whitney, as Trustees of the International Association of Bridge, Structural and Ornamental Iron Workers Local 417, Training and Education Fund, Plaintiffs, v. Robert PLATNICK, Trustee of the International Association of Bridge, Structural and Ornamental Iron Workers Local 417, Training and Education Fund, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

378 F. Supp. 499

Joseph W. HALEY and Henry Whitney, as Trustees of the International Association of Bridge, Structural and Ornamental Iron Workers Local 417, Training and Education Fund, Plaintiffs, v. Robert PLATNICK, Trustee of the International Association of Bridge, Structural and Ornamental Iron Workers Local 417, Training and Education Fund, et al., Defendants.

No. 74 Civ. 284-LFM.

United States District Court, S. D. New York.

June 13, 1974.

COPYRIGHT MATERIAL OMITTED

John R. Harold, New York City, for plaintiffs.

Granik, Garson, Silverman & Nowicki, New City, N.Y., for defendant Willis C. Rose; David W. Silverman, New City, N.Y., of counsel.

Guazzo, Silagi & Craner, P. C., New York City, for defendant Robert Palatnik; Mitchel B. Craner, New York City, of counsel.

John Donoghue, New York City, for defendant Joseph Albenda.

OPINION

MacMAHON, District Judge.

Plaintiffs, trustees of the Training and Education Fund (Fund) of the International Association of Bridge, Structural and Ornamental Iron Workers, Local 417 (Union), seek a declaratory judgment, under 28 U.S.C. § 2201, declaring void a contract of employment between the Fund and defendant Rose,¹ as Fund administrator. Plaintiffs also seek injunctive relief restraining defendants "from effectuating such contract of employment or making any payment thereunder." Jurisdiction is based upon the general federal question provisions of 28 U.S.C. § 1331(a) and § 302(e) of the Labor Management Relations Act of 1947,² as amended, 29 U.S. C. § 186(e).

This case came before us on our motion calendar and was immediately accelerated for trial on the merits. Evidence was presented by the parties on two trial days, beginning March 8 and ending March 11, 1974.

The Fund is an apprentice training and education trust fund, created pursuant to § 302(c)(6) of the Act, 29 U.S.C. § 186(c)(6). Since 1967, under collective bargaining agreements negotiated by the Union with various employer associations and individual employers, contributions have been made to the Fund by the employers, based upon the number of hours they employ members of the Union.

On May 29, 1973, defendant Rose, who at that time was a Fund trustee and president of the Union, entered into an agreement with the Fund under which Rose was retained as the Fund's full-time administrator for five years.

Plaintiffs claim that Rose's contract of employment with the Fund violates § 302(a) and (b) of the Act because (1) Rose caused himself to be hired as Fund administrator, in violation of his fiduciary duty as trustee to the Fund's beneficiaries, (2) the contract was not approved in accordance with the provisions of the trust instrument establishing the trust, and (3) the payments made to Rose under the contract represent illegal payments of money by an employer to a representative of its employees.

The Act makes it unlawful for an employer or an association of employers to make payments to a union or other representative of its employees and for the representative to receive such payments under § 302(a) and (b), 29 U.S.C. § 186(a) and (b).³ Subsection (c)(6) of § 302 exempts from this prohibition payments made "to a trust fund established by such representative for the purpose of . . . defraying costs of apprenticeship or other training programs,"⁴ if the Fund complies with certain statutory requirements. These requirements are as follows: (1) the basis upon which the employer will make payments to the Fund must be set forth in detail in a written agreement with the employer, (2) the employer and employees must be equally represented among the persons administering the Fund and the agreement must contain provisions to remedy any deadlocks among the trustees, (3) the written agreement must provide for an annual audit of the trust fund, and (4) the statement of the annual audit must be made available for inspection by interested persons at the principal office of the trust fund and at such other places as designated by the agreement.

The Fund was established as an employer-supported Fund in 1967, after execution of the collective bargaining agreements detailing the basis for employer contributions. There is no question that the Fund was established in accordance with the provisions of the Act. The Union and employers are each represented by two of the four Fund trustees. Currently, the employer contribution to the Fund is four cents (4¢) per hour worked.⁵

Rose was, until July 1, 1973, the elected president of the Union, an office he had held since 1963. He also held the following appointive positions: assistant business agent, chairman of the Joint Apprenticeship Committee and trustee of the Training and Education Fund, Annuity Fund and Welfare and Pension Fund. In May 1973, Rose was removed as assistant business agent by vote of the Union's membership. Subsequently, at the June 30, 1973 membership meeting, Rose was defeated by plaintiff Haley in the election for Union president. Rose was not reappointed as trustee for any of the trust funds.

Plaintiffs claim that Rose, a bitter loser of a Union leadership fight, abused his position as president of the Union and trustee of the Fund to induce the other Fund trustees to consent to his being hired as Fund administrator at an exorbitant salary. The employer trustee defendants are alleged to have conspired with Rose to retain him as Fund administrator in order to benefit the faction in the Union power struggle they considered most favorable to management. This conduct violates the statute, plaintiffs contend, because it breaches the fiduciary duty of Rose and the other trustees to the Fund beneficiaries⁶ and is a scheme to divert trust funds to Rose, in violation of the Act which prohibits payments by an employer to an employee representative. Therefore, they argue, the contract is void as contrary to the language and policy of the statute. In addition, plaintiffs claim the contract is void because it was not approved by the trustees in accordance with the provisions of the trust instrument.

The complaint alleges no claim for relief under state law. Plaintiffs could have pleaded state claims for breach of fiduciary duty and failure to comply with the trust instrument, and we could have, in our discretion, exercised jurisdiction over those claims as pendent to plaintiffs' federal claim under the Act.⁷ In fact, this would have been the better practice from the standpoint of efficiency and policy, because we would then be able to settle all the claims between the parties and determine questions of state law which are closely tied to the federal labor policy of Taft-Hartley.⁸ Unfortunately, plaintiffs have not seen fit to join any of their state claims in this action or to amend their complaint to do so, and, therefore, we must determine whether their claims can properly be brought under § 302 of the Act.

We note, at the outset, that we have subject matter jurisdiction because § 302(e) grants jurisdiction to the federal district courts to enjoin violations of § 302. And since 28 U.S.C. § 2201 confers upon a federal court "in a case of actual controversy within its jurisdiction" the power to "declare the rights and other legal relations of any interested party seeking such a declaration," plaintiffs will be entitled to a declaratory judgment and injunctive relief should they prove that defendants have violated the Act.⁹ We have grave doubts, however, that the prohibitions of the Act extend to breaches of fiduciary duty by Fund trustees or to payments to Fund administrators which are not approved in accordance with the trust instrument. Claims of this nature are normally cognizable under state law and cannot properly be brought under § 302 and are, therefore, outside the scope of plaintiffs' complaint and our jurisdiction over this action.

In enacting § 302 of the Labor Management Relations Act of 1947, congress attempted to prevent corruption of the collective bargaining process by insulating it from bribery by employers or extortion by union representatives. Congress was also concerned with possible abuse of trust funds if left solely under the control of union officials.¹⁰ It was feared, for example, that the welfare fund of the United Mine Workers of America might "become merely a war chest for the particular union. . . ."¹¹ Congress sought to solve these problems by prohibiting all employer payments to trust funds unless they were jointly administered by union and employer trustees.

The original purpose of the Act is echoed in the House Report on the 1969 Amendments to § 302, which permitted employer-supported trust funds to be established for scholarships and child care centers:

"Section 302 of the Labor-Management Relations Act prohibits payments by employers of money or other thing of value to employee representatives. This broad prohibition was enacted to prevent bribery, extortion, shakedowns, and other corrupt practices, and to protect the beneficiaries of lawful employer-supported funds."¹²

Seizing upon the obvious congressional intention to protect the beneficiaries of trust funds, many plaintiffs have argued, sometimes with success,¹³ that congress, in enacting § 302, meant to confer upon the federal judiciary jurisdiction over the day-to-day administration of trust funds. Such plaintiffs have analogized § 302 to § 301(a) of the Act, under which the federal courts have created an extensive federal common law governing collective bargaining agreements.¹⁴

Most courts, however, have read § 302 as prohibiting only payments by an employer to union representatives, or to trust funds which do not comply with the structural requirements of subsection (c)(5)(B). These courts do not read § 302 to prohibit violations of fiduciary duties or standards of prudence in the administration of the trust fund.¹⁵ Such claims are governed by state law and may be brought in the state courts, "just as similar alleged conduct by trustees of other trusts, however...