Hood v. JOURNEYMEN BARBERS, HAIRDRESSERS, ETC., 71-1534.

• Decision Date: 10 January 1972
• Docket Number: No. 71-1534.,71-1534.
• Citation: 454 F.2d 1347
• Parties: Victor HOOD, on behalf of himself and all other members of the Journeymen Barbers, Hairdressers, Cosmetologists and Proprietors International Union of America, Plaintiff-Appellee, v. JOURNEYMEN BARBERS, HAIRDRESSERS, COSMETOLOGISTS AND PROPRIETORS INTERNATIONAL UNION OF AMERICA, etc., et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

454 F.2d 1347 (1972)

Victor HOOD, on behalf of himself and all other members of the Journeymen Barbers, Hairdressers, Cosmetologists and Proprietors International Union of America, Plaintiff-Appellee, v. JOURNEYMEN BARBERS, HAIRDRESSERS, COSMETOLOGISTS AND PROPRIETORS INTERNATIONAL UNION OF AMERICA, etc., et al., Defendants-Appellants.

No. 71-1534.

United States Court of Appeals, Seventh Circuit.

January 10, 1972.

John E. Armstrong, Madison, Wis., Philip D. Pecar, Indianapolis, Ind., Sherman Carmell, Sheldon M. Charone, Chicago, Ill., for defendants-appellants; Carmell & Charone, Chicago, Ill., of counsel.

Carl J. Meyer, Kenneth C. Kern, Indianapolis, Ind., Kenneth C. Kern & Associates, Rhoads, Linder, Meyer & Buehl, Indianapolis, Ind., for plaintiff-appellee.

Before MAJOR^*, Senior Circuit Judge, and KILEY and CUMMINGS, Circuit Judges.

CUMMINGS, Circuit Judge.

This appeal is from two orders appointing a permanent receiver over the Barbers, Beauticians, and Allied Industries Pension Fund and providing for notice thereof. This $25,000,000 trust fund was established in 1966 by the International Union.¹

On August 7, 1970, plaintiff filed a class suit in the Circuit Court of Marion County, Indiana, on behalf of himself and all other members of the Union seeking the appointment of a receiver over the pension fund. Defendants included the Union, the members of its General Executive Board, and the members of its Pension Plan Committee. Plaintiff alleged that he was a contributor to the pension fund and that his interest therein was being jeopardized by defendants' mismanagement. He charged the several defendants with numerous acts in breach of their fiduciary duty, including: permitting the pension fund to become actuarially insolvent, misusing pension funds by investing them in highly speculative investments, failing to exercise due care and proper business judgment in handling the fund, loaning fund money to bad risk debtors without possibility of collection, permitting spurious investments (in many of which an investment consultant was personally interested), allowing $7 million in loans to become delinquent to the extent of $2½ million in principal and $500,000 in interest, failing to maintain the fund on a sound actuarial basis as provided in the pension agreement, and failing to file the reports required by 29 U.S.C. § 431(b) in 1969 and in 1970. In his prayer for relief, plaintiff asked that both the Union and the pension fund be placed into receivership.

On August 11, 1970, defendants filed a removal petition in the district court. The petition asserted that "the district court has original jurisdiction pursuant to 29 USC 185(a), 301-309, 440, 501(b) * * *." On the following day, the Circuit Court of Marion County appointed Merchants National Bank and Trust Company of Indianapolis as receiver of the pension fund. However, in view of the removal, on August 14, the district court entered an order enjoining the state court, the receiver and others from taking any action under the order appointing a receiver. The district court also restrained the removal of the assets of the pension fund from Indiana and as a protective measure placed certain restrictions on their use.

On March 11, 1971, after previously hearing testimony on March 4, the district court entered an order finding that the pension fund was "actuarially unsound and functionally insolvent * * *." The court also found that a proper class action existed, and provided for notice to the class. The court froze the assets of the fund until further hearing, when the Union and pension fund were to show cause why the court should not place both of them in receivership.²

Subsequently, further evidence was submitted on behalf of plaintiff to show that the fund was mismanaged and actuarially unsound. Thus it appeared that its mortgage loans had deteriorated to a point where $4 million was set aside to provide for deficiencies and that the fund had a 12% loss for the year ending February 28, 1969, and a 9% loss for 1970. Furthermore, the bonds required by statute³ for the pension fund officers were cancelled effective April 6, 1971, and a subsequent extension of the bonds was to expire on April 22, 1971. Accordingly, on April 16, 1971, the court entered an agreed order retaining jurisdiction over the parties and subject matter and providing for the appointment of a monitor of the affairs of the pension fund.⁴

At the request of the defendants, on April 29, 1970, the court appointed former Senator Capehart as temporary receiver of the assets of the pension fund. The order contained a clause requiring the defendants to show cause why the temporary receivership should not be made permanent, and the matter came on for a hearing on June 22, 1971. At the hearing, plaintiff's counsel announced that he was prepared to show that the pension fund surety bond had been cancelled effective June 28, 1971. Defense counsel stated that an exorbitant premium of $176,000 was required. He then called Thomas McFadden, a representative of the New Hampshire Insurance Company, who testified that his purported signature on that company's surety bond was in fact someone else's. Thereafter, defense counsel admitted that defendants had received a notice of cancellation of the bond effective June 28, 1971. Consequently, on June 29, 1971, the court entered an order (for June 22, 1971) appointing Senator Capehart as permanent receiver of the pension fund, and on July 7, 1971, an order was entered directing supplemental notice to the class by publication in the Union's "Journeymen Barber." This appeal followed.

Jurisdiction of the District Court

Although defendants themselves removed this case to the district court, they now contend that it lacks jurisdiction to appoint a receiver over the pension fund. Plaintiff advances several purported jurisdictional foundations⁵, but since we conclude that Section 501(b) of the Labor-Management Reporting and Disclosure Act of 1959 (29 U.S.C. § 501(b)) is an adequate jurisdictional ground for the district court's order, we need not assess the sufficiency of the others.

Section 501(a)⁶ imposes fiduciary responsibility upon "the officers, agents, shop stewards, and other representatives of a labor organization * * * in relation to such organization and its members as a group." Subsection (b)⁷ confers jurisdiction upon any United States district court or state court of competent jurisdiction to entertain a suit by a union member alleging breach of fiduciary duties imposed by subsection (a) and to award "damages, * * * an accounting or other appropriate relief for the benefit of the labor organization."

Defendants' argument against finding subject matter jurisdiction under Section 501(b) consists in the conclusory, unarticulated assertion that Section 501(b) could only be a touchstone for jurisdiction over the defendant International Union and not over the pension fund. Presumably defendants meant to say that the defendant members of the Pension Plan Committee are not as such within the purview of Section 501(a).

The pension fund is not a collectively bargained one; its Committee has no management appointees nor joint appointees.⁸ Since the fund is an exclusively union undertaking, its entire Committee would certainly seem to be "officers, agents * * * or other representatives of a labor organization" within the sweep of Section 501(a).⁹ Unless some Congressional intent can be gleaned to exclude union-appointed members of a pension fund committee from the broad language of Section 501(a), they should be held to the statutory duty in the exercise of their office.

The argument against including union pension or welfare funds within the operation of Section 501(a) relies on the explicit mention of "a trust in which a labor organization is interested" as within the coverage of the bonding requirement in 29 U.S.C. § 502(a)¹⁰ and the supposedly conspicuous absence of that phrase in Section 501(a). The definitional Section (29 U.S.C. § 402) clearly shows that a pension or welfare fund is "a trust in which a labor organization is interested." 29 U.S.C. § 402(l).¹¹ Legislative history discloses that while the McClellan amendment to the Senate version of Section 501(a) extended fiduciary responsibility to "a trust in which a labor organization is interested,"¹² the final enactment did not employ this terminology. This absence is said to be pregnant with the meaning that Congress designedly left pension and welfare funds outside of the protection of the new fiduciary responsibility.¹³

When language is clearly broad enough on its face to encompass a specific coverage, confidence cannot readily be reposed in an opposing argument mustered from legislative silence. As in most instances, the silence here, manifested in Congress' failure to use the same terminology as appears in Section 502(a) (note 10, supra), is ambiguous. We find no statement by a member of Congress that the actual variance between Sections 501(a) and 502(a) was intended to exclude pension or welfare trusts from the operation of the fiduciary principle. Quite the contrary appears. The fiduciary Section finally enacted is precisely that found in the Landrum-Griffin bill approved by the House, and that bill in turn employs fiduciary language identical to that of the Elliot bill, for which the Landrum-Griffin bill was accepted by the House as a substitute.¹⁴ That the House version ultimately enacted was not seen as changing or restricting the coverage of the Senate bill is indicated by the statement of Congressman Elliot and other members of the House Committee on Education and Labor that the Elliot bill extended "the fiduciary principle to all the activities of union officials and other union agents or representatives."¹⁵ Moreover, in comparing the fiduciary Sections of the House version and the McClellan amended Kennedy-Ervin bill, Senator Morse noted that the House version broadened...