McMahan v. INTERN. ASS'N OF IRON WORKERS

• Citation: 858 F. Supp. 529
• Decision Date: 27 June 1994
• Docket Number: Civ. No. 2:91-3839-18.
• Court: U.S. District Court — District of South Carolina
• Parties: Herman E. McMAHAN, Plaintiff, v. INTERNATIONAL ASSOCIATION OF BRIDGE, STRUCTURAL & ORNAMENTAL IRON WORKERS, Iron Workers Union Local 601, and South Carolina National Bank, Defendants.

858 F. Supp. 529

Herman E. McMAHAN, Plaintiff, v. INTERNATIONAL ASSOCIATION OF BRIDGE, STRUCTURAL & ORNAMENTAL IRON WORKERS, Iron Workers Union Local 601, and South Carolina National Bank, Defendants.

Civ. No. 2:91-3839-18.

United States District Court, D. South Carolina, Charleston Division.

June 27, 1994.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Mark Stokes, North Charleston, SC, for plaintiff.

Terry Rickson, Charleston, SC, Sandra Benson, Victor Van Bourg, San Francisco, CA, Stanley McGuffin, Charleston, SC, for defendants.

ORDER

NORTON, District Judge.

I. INTRODUCTION

This matter is before the court on three motions for summary judgment. Plaintiff Herman McMahan filed actions in 1989 and 1991 based on the same set of facts; the actions were consolidated after removal of one from state court. Out of the consolidated cases are six causes of action by McMahan. On four of these, he seeks summary judgment: (1) violation of § 504(d) of the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA); (2) conversion; (3) breach of fiduciary duty; and (4) breach of contract. Defendants International Association of Bridge, Structural & Ornamental Iron Workers (the International) and Iron Workers Union Local 601 (Local 601) also move for summary judgment against McMahan on four (a different four) of his six causes of action: (1) the § 504(d) violation; (2) conversion; (3) interference with economic relations; and (4) civil conspiracy. Defendant South Carolina National Bank (SCN) moves for summary judgment against McMahan on yet a different foursome: (1) the § 504(d) violation; (2) conversion; (3) breach of fiduciary duty; and (4) civil conspiracy.¹

At the hearing on this matter, the court discovered a potential conflict of interest in presiding over this matter.² Upon disclosure of the potential conflict, all parties requested that the court continue to hear the matter, at least on the issue of the § 504(d) violation. Therefore, this court has considered the three motions for summary judgment only to the extent they address § 504. The cross-motions on McMahan's other five causes of action have not been considered.

II. FACTUAL BACKGROUND

During 1981, the Federal Bureau of Investigation commenced an investigation of McMahan and other individuals related to job selling in violation of federal labor laws. During 1984, McMahan, along with Charles Price, Robert McClearn, William Rowe, and Mary O. Thompkins, were indicted by a federal grand jury for embezzlement, mail fraud, and conspiracy to commit mail fraud in violation of 29 U.S.C. § 501(c) and 18 U.S.C. § 371 & § 1341.

The indictment stemmed from the activities of McMahan's business relationship with Iron Workers Union Local 601 (Local 601). McMahan was the elected Business Manager for Local 601 in Charleston, South Carolina. As such, he was responsible for collecting a fee from new members. The indictment alleged that McMahan and others charged a fee that greatly exceeded the union's actual assessment and then pocketed the difference.

A jury trial was conducted before the Honorable C. Weston Houck, and, on November 12, 1984, McMahan was found guilty on 23 counts. On January 21, 1985 (prior to being sentenced), McMahan, acting in his capacity as Business Manager for Local 601, purported to appoint George P. Simmons, Jr. to act as Business Manager at no salary. At the time, Simmons was President of Local 601. However, between January 21, 1985 and October 15, 1986, McMahan, who remained free on personal recognizance bond, continued to perform some of the duties of Business Manager. The nature and extent of his activities is subject to dispute.

On January 29, 1985, McMahan was sentenced to one year imprisonment. By letter of January 30, 1985, the Department of Justice informed Local 601 and its parent union, the International, that, under 29 U.S.C. § 504(a), McMahan was immediately barred from his job as a union officer. At that time, McMahan requested that Local 601 place his salary into escrow pending appeal.

Local 601 failed to comply with the escrow requirement for McMahan. Therefore, on March 7, 1985, McMahan, on advice of counsel, opened an account with SCN entitled "Herman E. McMahan, Escrow Account." The purported purpose of the account was to comply with 29 U.S.C. § 504(d), which required Local 601 to escrow funds it would have otherwise paid McMahan while he appealed his criminal conviction. McMahan had his paychecks deposited into the account until he went to jail (October 15, 1986).

On March 29, 1985 (after the account was opened), the attorney representing McMahan in the criminal proceedings (Coming B. Gibbs) sent SCN a letter advising SCN that Plaintiff needed to establish an escrow account and that the only authorized signature on the account should be George Simmons. A copy of this letter was forwarded to Local 601.

On or about May 14, 1985, an employee of SCN advised McMahan that he could not keep an escrow account at SCN in his own name and also be the signatory on the account. Based upon this discussion with SCN, McMahan changed the name of the account to "Herman E. McMahan, Special Account" and executed a new signature card to effect the change. McMahan was the only signatory to appear on SCN's records for this account.

After his conviction but before his incarceration, McMahan purchased an automobile with Local 601's funds. The automobile was placed in the name of Herman McMahan, care of Local 601. Also, on a number of occasions, McMahan withdrew funds from the "special account," which he used either to live on or to pay attorneys' fees. McMahan withdrew $3,000 on November 4, 1985; $1,000 on November 6, 1986; $3,000 on April 21, 1986; and $2,500 on June 17, 1986.

Meanwhile, McMahan was appealing his conviction. In October 1986, the Fourth Circuit reversed the embezzlement convictions, but affirmed the mail fraud convictions. United States v. Price, 788 F.2d. 234 (4th Cir.1986). On October 15, 1986, McMahan began serving his sentence.

On October 20, 1986, George Simmons appointed Johnny M. Phillips to the Local 601 office of Financial Secretary, Treasurer, and Business Agent to fill McMahan's unexpired term, which was scheduled to expire on September 30, 1987.

Eventually, Local 601 became aware that McMahan had withdrawn a portion of the $41,706.32 in the SCN account. On December 3, 1986, financially-strapped³ Local 601 withdrew the balance of the "Herman E. McMahan, Special Account" without McMahan's authorization. SCN gave Simmons a cashiers check, which stated it was for Local 601, in the amount of $32,206.32 and payable to "International Association of Bridge, Structural and Ornamental Iron Workers." The check was subsequently endorsed by the payee and deposited into an account of the International to pay back dues owed by Local 601.

On June 26, 1987, the United States Supreme Court vacated the Fourth Circuit's judgment and remanded the case for further consideration in light of McNally v. United States, 483 U.S. 350, 107 S.Ct. 2875, 97 L.Ed.2d 292 (1987), which holds that the mail fraud statute does not apply to deprivations of intangible rights, such as good government or honest leadership. McMahan v. United States, 483 U.S. 1015, 107 S.Ct. 3254, 97 L.Ed.2d 754 (1987). On remand, the Fourth Circuit overturned the mail fraud convictions. United States v. Price, 857 F.2d 234 (4th Cir.1988). The Fourth Circuit recognized that McMahan could have been prosecuted for defrauding union members of money and that the government was free to seek a new indictment, but the government did not renew its efforts to prosecute McMahan. Thus, upon issuance of the second decision by the Fourth Circuit (the 1988 decision), all of McMahan's convictions were overturned.

During the pendency of McMahan's appeal, Local 601 did not attempt to terminate his term of service as Business Manager. On December 19, 1988, McMahan, acting through counsel and pursuant to § 504(d), demanded payment of $109,365.69 from Local 601. This amount represented the salary Local 601 should have escrowed from November 12, 1984, the date of McMahan's conviction, through September 30, 1987, when his term of office expired. On December 28, 1988, Local 601, through counsel, denied McMahan's request based on its belief that § 504(d) was unconstitutional and on the impropriety of McMahan's actions in taking for his own use monies from the earlier established bank account. In addition, Local 601 demanded that McMahan return all monies withdrawn by him between the date of his conviction and the present time. McMahan refused to return such monies.

III. PROCEDURAL BACKGROUND

On May 9, 1989, McMahan filed suit against Local 601 and the International (the Union Defendants), contending that he is entitled, pursuant to § 504(d), to all salary due him by virtue of his position as Business Manager for Local 601.⁴ The Union Defendants moved for summary judgment, arguing that § 504(d) is unconstitutional, that McMahan lacked standing to bring the suit, that the action was barred by the statute of limitations, and that the International was not subject to § 504(d).

On October 23, 1990, a magistrate judge recommended that summary judgment be granted in favor of the Union Defendants on the § 504(d) claim because no private right of action existed to enforce this provision. Further, the magistrate judge recommended that the International be granted summary judgment on the additional ground that the International was not McMahan's employer and thus not subject to the provisions of § 504(d). This court adopted the magistrate judge's recommendation on February 11, 1991, McMahan v. International Ass'n of Bridge, Structural and Ornamental Iron Workers, 800 F.Supp. 1337 (D.S.C.1991), and McMahan appealed. On June 1, 1992, the Fourth Circuit held that McMahan has an implied private right of action against Local 601, but affirmed summary judgment in favor of the International....