Morrissey v. Curran

Decision Date28 April 1981
Docket Number107,Nos. 21,39,134 and 1449,D,108,s. 21
Citation650 F.2d 1267
Parties107 L.R.R.M. (BNA) 2233, 91 Lab.Cas. P 12,738, 2 Employee Benefits Ca 1365 James M. MORRISSEY and Ralph Ibrahim, individually and on behalf of the members of the National Maritime Union of America, Plaintiffs-Appellees and Cross- Appellants, v. Joseph CURRAN, as President of the National Maritime Union of America and individually, et al., Defendants-Appellants and Cross-Appellees, and NMU Staff Pension Plan, Intervenor-Cross-Appellant. ockets 80-7204, 80-7230, 80-7292, 80-7322, 80-7390 and 80-7734.
CourtU.S. Court of Appeals — Second Circuit

Arthur E. McInerney, New York City (John S. Chapman, Jr., and Duer & Taylor, New York City, on the brief), for plaintiffs-appellees and cross-appellants.

William Perry, pro se.

Seymour M. Waldman, New York City (Waldman & Waldman, New York City, on the brief), for defendants-appellants and cross-appellees Wall, Barisic, Miller, Martin, and Bocker.

Ned R. Phillips, New York City (Phillips & Cappiello, New York City, on the brief), for intervenor-cross-appellant NMU Staff Pension Plan.

Thomas E. Engel, New York City (Daniel C. Walden and Hale, Russell, Gray, Seaman & Birkett, New York City, on the brief), for defendant-appellant and cross-appellee Joseph Curran.

Before TIMBERS, VAN GRAAFEILAND and NEWMAN, Circuit Judges.

NEWMAN, Circuit Judge:

This appeal concerns the scope of the fiduciary duty imposed on union officers by § 501 of the Labor-Management Reporting and Disclosure Act (LMRDA), 29 U.S.C. § 501 (1976). James M. Morrissey and Ralph Ibrahim, members of the National Maritime Union, brought this action under § 501, alleging that the defendants officers and an employee of the Union, including former Union President Joseph Curran had breached their fiduciary duties by authorizing and receiving various forms of improper payments and excessive compensation. After protracted proceedings, 1 the United States District Court for the Southern District of New York (William C. Conner, Judge) found the defendants liable on some of the allegations of the complaint. Both sides have appealed. We affirm in part, reverse in part, and remand.

I

The Union's constitution requires that all forms of officer compensation must be approved by the vote of the Union membership. The constitution also permits the National Office, which consists of the Union's five officers and the national representatives, to authorize any expenditures it deems necessary for the proper administration of the Union's affairs. Six of the seven defendants are or were officers of the Union and constituted the National Office at the times relevant to this lawsuit. Joseph Curran was instrumental in founding the Union in 1937 and was its first President, serving from 1938 until his retirement in 1973. Shannon Wall succeeded Curran as President and is the only defendant who has not yet retired from his position; the others retired, before reaching age 65, during the course of this litigation. Mel Barisic was Secretary-Treasurer of the Union, and the remaining officers-defendants, Rick S. Miller, James J. Martin, and Peter Bocker, were Vice-Presidents and National Representatives. William Perry, the only non-officer defendant, was employed by the Union as Curran's assistant from 1958 until discharged in 1969.

Morrissey and Ibrahim (hereafter "Morrissey") challenged the reasonableness of the Union's officer pension and severance pay plans, as well as Curran's compensation arrangement, all payments that had been authorized by membership vote in accordance with the constitutional requirement. Morrissey also objected to two financial arrangements adopted by the National Office: flat weekly expense allowances and payments known as "pay in lieu of vacation." In addition, he alleged that the defendants used Union funds for numerous personal expenses. The facts and the District Court's rulings are more appropriately set forth in connection with each of the myriad of claims that we are obliged to consider.

II

Before turning to the specific claims, we must give some consideration to the scope of § 501 and the judicial role it contemplates. The recurring issues on this appeal are whether judicial inquiry into union activities under § 501 must cease when the officers' actions have been duly authorized by the union membership, constitution, or bylaws; and whether the fiduciary standard imposed upon union officers by § 501 more closely approximates the common law norms for trustees or those for corporate directors. As Justice Frankfurter observed, "(T)o say that a man is a fiduciary only begins analysis; it gives direction to further inquiry" which includes asking "What obligations does he owe as a fiduciary?" Securities and Exchange Commission v. Chenery Corp., 318 U.S. 80, 85-86, 63 S.Ct. 454, 458, 87 L.Ed. 626 (1943).

Section 501(a) declares that union officers "occupy positions of trust in relation to (the union) and its members" with respect to the funds they manage, but cautions that the fiduciary obligations of these officers should be interpreted with due regard to the "special problems and functions of a labor organization." 29 U.S.C. § 501(a) (1976). Aware of the different degrees of fiduciary responsibility that existed at common law, Congress expected contextual considerations to shape the standard applicable to union officials. See Supplementary Views 2 to H.R.Rep.No.741, 86th Cong., 1st Sess., reprinted in (1959) U.S.Code Cong. & Ad.News 2318, 2475, 2480. This sensitivity to the special labor context in § 501 is reflected in one of the principles Congress expressly followed in drafting the overall legislative scheme: minimum interference in the internal affairs of unions. S.Rep.No.187, 86th Cong., 1st Sess., reprinted in (1959) U.S.Code Cong. & Ad.News 2318, 2323. Focusing on this principle, the defendants argue that the District Court could not consider the reasonableness of any of the payments because they were authorized by either the vote of the Union membership or the National Office acting pursuant to the "necessary expenditures" clause of the constitution and bylaws.

Although Congress contemplated minimal judicial intrusion and did not intend the statute to limit the purposes for which a labor organization's funds could be expended when decisions had been made by members in accordance with their constitution and bylaws, see, e. g., 105 Cong.Rec. 17,900 (1959) (Sen. Kennedy), we do not think that Congress thereby intended to establish authorization as a complete defense to § 501 claims. 3 For that would permit a union constitution to vest limitless spending power in union officers and, even where membership vote is required, leave dissenting members powerless to halt abusive practices. Such a result could not have been intended by a Congress anxious to curb the wide-scale corruption among union officials found by the McClellan Committee, 4 which had identified the need for legislation, see S.Rep.No.187, supra (1959) U.S.Code Cong. & Ad.News at 2318.

Congressman Barden, the Chairman of the House Committee on Education and Labor, stated that a union's constitution and bylaws were not solely determinative of the scope of fiduciary duty under the Act. 105 Cong.Rec. 18,153 (1959). This view is further reflected in § 501(a)'s prohibition of exculpatory provisions in union constitutions, bylaws, or membership resolutions. Even legislators willing to give substantial deference to union authorization were concerned primarily about judicial intrusion into union politics and social policies, which might lend support to anti-labor forces, cf. 105 Cong.Rec. 17,900 (1959) (Sen. Kennedy); see McNamara v. Johnston, 522 F.2d 1157 (7th Cir. 1975), cert. denied, 425 U.S. 911, 96 S.Ct. 1506, 47 L.Ed.2d 761 (1976); they did not contemplate giving free rein, through the device of authorization, in the use of union funds for the personal benefit of union officers.

Analysis of the special labor context reenforces this view of the congressional purpose. The centralization of power and authority in modern labor unions, as their membership has grown, has resulted in an organizational structure in which the rank and file may not be able to influence union policy effectively. A group of officers runs the union's daily affairs, with broad powers to construe the constitution and bylaws and ample opportunity to permit questionable spending practices. See Note, The Fiduciary Duty of Union Officers Under the LMRDA: A Guide to the Interpretation of Section 501, 37 N.Y.U.L.Rev. 486, 495-98 (1962). Similar problems of inadequately restrained management have been noted in the corporate structure, where the divergence between management and shareholder interests creates opportunities for financial abuse by corporate managers, and direct monitoring of management by shareholders is difficult and expensive. 5 See Jensen & Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, 3 J.Fin.Econ. 305 (1976). But unlike shareholders, who can sell their ownership interest if dissatisfied with management's conduct, union members dissatisfied with an unresponsively-managed union cannot sell their membership rights nor, in most cases, is it realistic to expect them to resign from membership or change to another union. Moreover, while external checks on corporate managerial abuses are sometimes imposed by market forces the hiring and firing of corporate managers and the buying and selling of corporate control, see Jensen & Meckling, supra, there is little evidence of similar restraints upon union leadership.

We have recognized, as have many other courts, that the Act does not give courts a license to interfere broadly in internal union affairs. Gurton v. Arons, 339 F.2d 371, 375 (2d Cir. 1964); see Gabauer v. Woodcock, 594 F.2d 662 (8th Cir.), cert. denied, 444 U.S. 841, 100 S.Ct. 80, 62 L.Ed.2d 52 (1...

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