In re General Teamsters, Local 890
| Decision Date | 29 September 1998 |
| Docket Number | Bankruptcy No. 590-03823-ASW. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Northern District of California |
| Parties | In re GENERAL TEAMSTERS, WAREHOUSEMEN AND HELPERS UNION LOCAL 890, Debtor. |
COPYRIGHT MATERIAL OMITTED
John T. Hansen, Nossaman, Guthner, Knox & Elliott, San Francisco, CA, for Debtor.
David G. Finkle, David G. Finkle & Associates, Los Angeles, CA, for Creditor.
Before the Court is the Third Amended Plan of Reorganization ("Plan"), proposed for confirmation by the Debtor above-named ("Debtor") in this Chapter 11 case. Debtor is a local labor union, affiliated with the International Brotherhood of Teamsters ("IBT") and the Teamsters Joint Council No. 7 ("JC7").
An objection to confirmation has been filed by a group consisting of: Security Farms; El Dorado Farms; H.Y. Minami and Sons; Manriquez & Acuna, Inc.; Higashi Farms, Inc.; Pisoni Farms; Joe Freitas & Sons; Freitas Farms; San Ysidro Farms; and J.J.C., Inc. (collectively, "Creditor").1
Debtor is represented by John T. Hansen, Esq. and Elaine M. O'Neil, Esq. of Nossaman, Guthner, Knox & Elliott. Creditor is represented by David G. Finkle, Esq. of Finkle & Stoll. The matter has been submitted for decision after trial and post-trial briefing.
At trial, Debtor called the following witnesses:
Franklin L. Gallegos ("Gallegos"), President of Debtor since 1985.
Michael A. Johnston ("Johnston"), a business representative of Debtor since 1988 and an administrative assistant to Gallegos.
Ken S. Mee ("Mee"), an International Vice President of IBT since February 1, 1992.
Chuck Mack ("Mack"), President of JC7 for twelve years and Secretary/Treasurer of Teamsters Local 70 for twenty-three years.
Edward P. Clark ("Clark"), a Certified Public Accountant with the firm of Hilderbrand and Clark.
Frank O. May ("May"), a real estate appraiser.
Donald H. Wollett ("Wollett"), an attorney and professor familiar with the history and background of labor matters in America.
Creditor called no witnesses at trial.
This Memorandum Decision constitutes the Court's findings of fact and conclusions of law, pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
Debtor filed a Chapter 11 petition on August 13, 1990.2
Creditor asserts an unsecured claim based on a judgment for $526,692 by the United States District Court for the Northern District of California. Such judgment finds Debtor liable for damage suffered by Creditor as a result of violence by Debtors' members during a 1989 strike that occurred prior to commencement of this Chapter 11 case.3
Debtor's Plan proposes that Debtor will distribute to creditors holding allowed claims against the bankruptcy estate, in accordance with the priorities established by the Bankruptcy Code, an amount equal to the equity in the estate's real property and tangible personal property. Debtor proposes to borrow and contribute to the Plan a sum of money equal to the equity, at fair market value, in its real property at time of confirmation plus the fair market value of its unencumbered office equipment and vehicles; any gain realized by Debtor through sale or refinance of assets during the five years post-confirmation is also to be distributed to unsecured creditors. In its post-trial brief, Debtor estimates that the Plan would permit a dividend of some 31% to be paid on unsecured claims such as that held by Creditor. The Plan has been accepted by all classes except Class 2.3B, which includes Creditor's claim and that class voted to reject the Plan.
Debtor's income consists of monthly dues and initiation fees received from Debtor's members. Debtor remits a percentage of dues each month to IBT and JC7 in the form of "per capita tax" payments. Debtor contends that, after making such payments to IBT and JC7, Debtor's remaining income is sufficient only to cover monthly operating expenses on a "break even" basis.
Creditor urges that Debtor's Plan should provide for an increase in membership dues and/or temporary reduction or cessation of per capita tax payments for a period of time (or elimination of such obligations altogether, by termination of Debtor's affiliation with IBT and JC7), so as to leave Debtor with sufficient income after payment of monthly operating expenses to produce a larger dividend to unsecured creditors. Creditor argues that the failure of the Plan to include such provisions renders it unconfirmable — while Creditor's pleadings do not clearly set forth the statutory grounds upon which Creditor relies, the Court construes the objection as follows:
1/ The Plan has not been proposed in good faith, which is a prerequisite to confirmation pursuant to 11 U.S.C. § 1129(a)(3).
2/ The Plan does not propose to pay Creditor at least as much as Creditor would receive if Debtor were liquidated under Chapter 7, which is a prerequisite to confirmation pursuant to 11 U.S.C. § 1129(a)(7)(A)(ii).
3/ The Plan is not "fair and equitable" to Creditor within the meaning of 11 U.S.C. § 1129(b)(1), inasmuch as it violates the Absolute Priority Rule of 11 U.S.C. § 1129(b)(2)(B)(ii).
Wollett testified concerning the development, purpose, and function of labor law in America, which is governed by the National Labor Relations Act, 29 U.S.C. Under federal labor law, employees of a company or within an industry have the right to organize, and to create a bargaining unit to influence their working conditions. The members of such a unit may vote to choose a representative to negotiate with the employer on behalf of the employees, which representative is often a local labor union such as Debtor. A local union that is elected to represent a bargaining unit is responsible to its members for negotiation and formation of a collective bargaining agreement ("CBA") between the employees and the employer, and the maintenance of such CBA throughout its term by monitoring and policing it, including the establishment and enforcement of grievance procedures to prevent or halt breaches of the CBA by the employer.
Johnston testified credibly that, in performing its duties to its members, Debtor has historically been able to operate only on a "break even" basis; in 1995, income and expenses both totalled approximately $2.3 million. He prepared projections for the next five years based on Debtor's audited financial statements for the period from 1985 through 1993, showing that the same conditions can be expected in future.4 Johnston said that, by "breaking even", he meant that Debtor might have a small surplus (e.g., $50,000 or less) one year that would be absorbed by shortages of similar amounts in other years; Debtor's usual approach to temporary shortages has been to defer payment of bills. Johnston testified that, since the 1989 strike, Debtor had incurred an average of $80,000 to $90,000 per year in legal expenses, of which approximately $200,000 had been devoted to bankruptcy matters. Johnston's projections assume a 1% to 2% growth rate for membership and modest membership wage increases, based on historical experience; they also contemplate borrowing $50,000 as part of the loan proposed by the Plan, to provide a reserve for timely payment of expenses and avoid temporary shortages—Johnston described the proposed $50,000 loan as a "slim reserve" (approximately one week's expenses), but said that Debtor was "used to working on a slim reserve". Johnston also compared Debtor's staff levels with those of other local unions and found that Debtor maintains lower levels; for example, Teamsters Local 70, of which Mack is Secretary/Treasurer, has one employee for every 200 members, whereas Debtor has one employee for every 450 members. Johnston pointed out that, since most of Debtor's membership consists of farmworkers who are employed seasonally, and since dues are based on wages received, Debtor is in the position of having to provide services to members all year even though they only pay dues during the months in which they are employed.
A local union is statutorily entitled to collect dues and initiation fees from its members in certain minimum amounts, but increases in such amounts must be approved by majority vote of the members themselves in a secret ballot, 29 U.S.C. § 411(a)(3). Wollett testified that it is common for a CBA to include a "union security clause" requiring each employee to become a union member and pay the dues. Mee testified that the IBT constitution fixes the minimum amount of dues to be charged by local unions at twice an employee's hourly rate of pay per month (e.g., an employee earning $10 per hour would pay $20 per month in dues). Johnston testified that Debtor has approximately 7,160 members, of whom over 80% are farmworkers and food processing workers; between 50% and 60% of the members are farmworkers with an average wage of approximately $7 per hour, with an average wage for the other members of between $10.50 and $11 per hour — Gallegos testified that "some" of Debtor's members are employed by United Parcel Service and "some" are subject to a master freight agreement of IBT, but most are employed as farmworkers earning an average of $7 per hour. Johnston explained that the formula by which Debtor calculates its members' dues is the lesser of two and a half times the average hourly wage under a CBA or twice such wage plus five. Wollett characterized the role of a local union with respect to its members' dues as that of a fiduciary, citing 29 U.S.C. § 501.
Local unions may be affiliated with national or international "parent" unions, as Debtor is affiliated with IBT and JC7. A condition of affiliation may be that the local union remit to the parent union a portion of the dues that the local union collects from its members, i.e., a per capita tax....
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