Kerr v. Shanks, 26926.
| Decision Date | 03 November 1972 |
| Docket Number | No. 26926.,26926. |
| Citation | 466 F.2d 1271 |
| Parties | Ed KERR, for and on behalf of himself and all other members of Screen Extras Guild, Inc., a labor organization, Plaintiff-Appellant, v. H. O'Neil SHANKS et al., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Ninth Circuit |
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Richard A. Perkins, (argued), Los Angeles, Cal., for plaintiff-appellant.
Robert W. Gilbert (argued), Alexander H. Schullman, of Gilbert & Nissen, Beverly Hills, Cal., Leo Geffner, of Geffner & Satzman, Los Angeles, Cal., for defendants-appellees.
Before DUNIWAY and HUFSTEDLER, Circuit Judges, and MURPHY,* District Judge.
Rehearing and Rehearing In Banc Denied November 3, 1972.
Kerr, a member of the Screen Extras Guild, Inc., a labor union, brought this action on behalf of all members of that union against certain officers of the union, alleging that defendants had breached their fiduciary obligations under 29 U.S.C. § 501. Kerr appeals from the district court's partial denial of the equitable relief sought and its refusal to award him litigation expenses, including attorney's fees. We reverse.
The complaint charged that defendants breached their fiduciary duties by refusing to hold a special referendum of the membership as required by the Guild Constitution and By-Laws. That constitution provides that the Board of Directors must take a referendum vote of the membership within 20 days after the filing of a written referendum petition signed by 10% of the membership in good standing. Any action of the Board is subject to the referendum procedure and may be nullified or amended by vote of 51% of the membership voting. A valid petition was filed on June 3, 1968, demanding a referendum on the Board's action in rehiring the National Executive Secretary, Shanks, for a minimum one-year period beginning May 2, 1968. The Board, including defendants, refused to hold the referendum despite the advice of union counsel that the Constitution made such a vote mandatory in this situation. On August 5, 1968, Kerr again asked defendants to conduct the referendum, to cease paying Shanks' salary and expenses, and to recover the money already paid him in the interim. Those requests were refused. This action was filed August 14, 1968, to compel the holding of the referendum, to redress defendants' wrongful refusal to conduct it within the mandatory 20-day period, and for an injunction against continued salary payments to Shanks and restitution of Shanks' salary paid after expiration of the 20 days on June 23, 1968.
On July 21, 1969, after the one-year employment contract in dispute had expired, the district court granted a portion of the plaintiff's motion for summary judgment, ordering the membership referendum to be held, but reserving the other issues for trial. Before the referendum was held, Kerr attempted to inspect and copy the Guild's membership list, but the union would not let him do so. The district court refused to stay the mailing of the ballots, but impounded the returned ballots to give Kerr an opportunity to go into state court for enforcement of his right to inspect and copy the list. Kerr's mandamus action in state court was successful but by the time the state court order was enforced, after a contempt hearing on defendant's failure to comply with the writ of mandamus, the district court had dissolved the stay, the referendum ballots had been counted, and a victory for the management had been announced.
The trial was on April 21 and 22, 1970, and resulted in judgment for defendants. Plaintiff appeals, asserting that the judgment of the district court was erroneous in four respects:
(1) final judgment for defendants was inappropriate because the evidence clearly established that defendants had breached the fiduciary duties imposed by § 501;
(2) the proper remedy for the violations was restitution of the union funds paid to Shanks pursuant to the invalid action of the Board;
(3) the trial court should have ordered restitution to the Guild of its funds used for the defense of these defendant-officers;
(4) the trial court erred in not awarding attorney's fees and other litigation expenses to plaintiff. We hold that Kerr is right, as to all four grounds.
Implicit in the decision of the court below is the conclusion that no violation of § 501 was established. We do not agree.
The defendants refused to abide by the referendum procedure established in the Guild Constitution and By-Laws. This wrongful denial of the right of the members to institute a referendum on any action of the Board, and the Board's action in continuing to pay union funds to Shanks pursuant to the challenged action were both breaches of defendants' fiduciary duties to the union and its members, in violation of Title V of the Labor-Management Reporting and Disclosure Act, 29 U.S.C. § 501 et seq.1
In deciding this issue we need not align ourselves with either side on the question whether § 501 is limited in its scope to fiduciary duties of union officers in their handling of union money or property. Compare Gurton v. Arons, 2 Cir., 1964, 339 F.2d 371, 375, with Johnson v. Nelson, 8 Cir., 1963, 325 F.2d 646, 649-651.2 Plaintiff here alleged and proved that part of defendants' violation of their fiduciary obligations was the wrongful disbursement of union funds to Shanks pursuant to an action of the Board which had been challenged by the proper constitutional procedure, which procedure was willfully ignored by defendants. Thus defendants' fiduciary duties regarding use of union money and property was in issue, and the court below had jurisdiction under even the more restrictive view of § 501.
The trial court's decision suggests two justifications for finding in favor of defendants. First, the referendum vote, which was finally held pursuant to court order 14 months later than required by the Guild Constitution, supported the Board's action in rehiring Shanks. However, that referendum did not ratify the action of defendants in refusing to obey the Constitution's mandatory referendum procedure and in continuing to pay Shanks' salary under the challenged Board resolution. The referendum dealt only with the Board's action in rehiring Shanks; it did not purport to seek membership approval of the Board's 14-month refusal to conduct the referendum or its continued payment of Shanks' salary in that period.3
Second, the trial court points to that section of the Guild Constitution which states that pending the outcome of the referendum vote, the challenged action of the Board "shall have full force and effect, unless otherwise ordered by the Board of Directors." We do not interpret this provision as giving the Board open-ended authority to perpetuate indefinitely its actions which have been properly challenged through referendum petitions by refusing to conduct the referendum. Rather, we think the provision permits the challenged Board action to remain in effect during a reasonable time, after the mandatory referendum has been held within the required 20-day period, to allow time for the tabulation of ballots and certification of the result. We leave to the district court on remand to decide what constitutes a reasonable period of time for the vote tabulation.
Plaintiff argues that the defendants should be required to return the union funds wrongfully paid to Shanks after expiration of the 20-day period following the legitimate referendum request (plus a reasonable allowance for tabulating the votes). Having found that defendants breached their fiduciary obligations, we agree that the proper remedy is restitution of the money paid to Shanks. The period involved would begin at the expiration of the reasonable time for tabulating the votes and end on the date when the result of the later referendum was ascertained.
We reject defendants' suggestion that restitution is inappropriate here because Shanks rendered valuable services to the union in return for his salary and he is therefore entitled to keep the money as compensation. Shanks was aware of the provisions of the Guild Constitution and of the Board's wrongful denial of a referendum vote; he continued to perform services and receive salary and expense payments from the Board at his own risk. It may be that Shanks will have an action in quantum meruit against the union for the reasonable value of his services, but that does not affect the restitution relief sought here. The union is entitled to have returned to it the money which was taken from it by defendants in violation of their fiduciary responsibilities; that it may be liable to Shanks for an undetermined amount for services rendered and received need be considered by a court only when and if Shanks seeks appropriate relief in quantum meruit.
Plaintiff contends that the Guild is entitled to restitution of union funds expended in defense of the officers charged with § 501 violations. The law was correctly stated by the District of Columbia Circuit in Milone v. English, D.C.Cir., 1962, 113 U.S.App.D.C. 207, 306 F.2d 814, 817:4
This is such a case.
Defendants were charged with willfully disobeying the Guild Constitution by denying union members their guaranteed right to vote in a properly petitioned-for-referendum. The defendants admittedly utilized union counsel and union funds for their defense. The purpose of Title V of the...
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