Morrissey v. Segal, s. 809
| Decision Date | 14 November 1975 |
| Docket Number | D,Nos. 809,1067,s. 809 |
| Parties | 90 L.R.R.M. (BNA) 3169, 77 Lab.Cas. P 11,155, 1 Employee Benefits Ca 1649 James M. MORRISSEY et al., Plaintiffs-Appellees-Appellants, v. Martin SEGAL and Leon Karchmer, Defendants-Appellants-Appellees, Joseph Curran et al., Defendants-Appellees. ockets 74--2382, 74--2387. |
| Court | U.S. Court of Appeals — Second Circuit |
Arthur E. McInerney, New York City (Duer & Taylor and John S. Chapman, Jr., New York City, on the brief), for plaintiffs-appellees-appellants.
Melvyn L. Cantor, New York City (Simpson, Thacher & Bartlett and Ronald L. Ginns, New York City, on the brief), for defendant-appellant-appellee Martin E. Segal.
Herman E. Cooper, New York City (Stephen Gillers, New York City, on the brief), for defendant-appellant-appellee Leon Karchmer.
Stanley B. Gruber, New York City, for defendant-appellee Abraham E. Freedman.
Joseph P. Altier, New York City (Bromsen, Gammerman, Altier & Wayne, New York City, on the brief), for defendants-appellees Joseph Curran and Shannon Wall.
Before LUMBARD, HAYS and MULLIGAN, Circuit Judges.
These appeals and cross-appeals question an order of the Southern District which apportioned responsibility for attorneys' fees incurred by the defendants during the course of this extended litigation arising out of the wrongful payment of pension funds to certain ineligible employees of the National Maritime Union ('NMU'). A summary of the events which have so far transpired is necessary to an understanding of the positions pressed on these appeals.
In 1952, the NMU established a trust fund to provide for the pension of its officers. The underlying action, commenced in February, 1969, alleged that efforts by the Union in 1961 and 1964 to expand the scope of the original Trust Agreement to include non-officers violated a contrary provision in the NMU constitution, enacted in 1960. The suit, brought on behalf of the Union membership pursuant to the provisions of Section 501 of the Labor Management Reporting and Disclosure Act (LMRDA), 29 U.S.C. § 501, 1 sought to recover both those sums forwarded by the Union to the fund earmarked for non-officers and those monies actually distributed from the fund as pension payments to non-officers. The defendants named were Joseph Curran and Shannon Wall, respectively the President and Secretary-Treasurer of the Union; Abraham Freedman, Leon Karchmer and Martin Segal, all trustees of the NMU Officers Pension Fund; and William Perry, former assistant to the President of the Union. Judge Bonsal granted plaintiffs' motion for summary judgment invalidating the challenged payments, ordered the defendants to make an accounting, enjoined the trustees from paying further pension benefits to non-officers, and directed the trustees to return to the Union all monies which had been improperly delivered on behalf of non-officers. Morrissey v. Curran, 302 F.Supp. 32 (S.D.N.Y.1969). We affirmed and remanded the case to ensure that the accounting and return of funds to the NMU treasury proceeded in accordance with our mandate. Morrissey v. Curran, 423 F.2d 393 (2d Cir.), cert. denied, 400 U.S. 826, 91 S.Ct. 52, 27 L.Ed.2d 56 (1970).
Upon remand, the parties stipulated that the NMU had paid an aggregate sum of $1,628,931 to the pension fund for the accounts of non-elected personnel employed by the Union. 2 Judge Bonsal accepted the contention advanced by defendant Freedman's attorneys that Patrolmen, Field Patrolmen and Agents, although not elected, were officers within the meaning of the Union Constitution and their pensions thus properly payable. As a result, the pension fund was ordered to and did refund to the Union only the reduced balance of $520,283.38. This constituted a savings to the fund of $1,108,637.62 plus interest.
In addition, the district court found that the defendant trustees had authorized unlawful pension payments from the fund to five employees, totalling $371,271. The largest of these was to defendant Perry, against whom judgment was entered for repayment to the trust of the $222,200 which he had received upon termination of his employment in 1969. 3 The firm of Botein, Hays & Sklar was retained by the plaintiffs to pursue what proved to be unsuccessful collection efforts.
Plaintiffs also sought to surcharge the trustees Freedman, Karchmer and Segal individually for the entire $371,271 wrongfully disbursed from the fund. Although Judge Bonsal found that Segal and Karchmer had acted negligently in hastily approving the large sum payment to Perry, he nevertheless concluded that they were protected from surcharge by an exculpatory provision in the Trust Agreement. 4 Freedman, on the other hand, was held personally liable for his reckless behavior in authorizing the payment and he has reimbursed the fund for the loss it suffered. However, the court below did not find that the impropriety of the Perry transaction tainted the other challenged activities of the trustee-defendants. Rather, it ruled that they had acted without fault in the other four instances in which payments were improperly made to non-officers. 5 Morrissey v. Curran, 351 F.Supp. 775 (S.D.N.Y.1972), aff'd, 483 F.2d 480 (2d Cir. 1973), cert. denied, 414 U.S. 1128, 94 S.Ct. 865, 38 L.Ed.2d 752 (1974). Thus, it was the district court's finding which insulated them from further liability, not the exculpatory clause incorporated into the Trust Agreement.
The only issue now before us is the extent to which the defendants may charge the fund for counsel fees incurred in defense of this action. In an opinion dated May 1, 1974, Judge Bonsal held that the trustees were personally responsible for that portion of their attorney's fees attributable to their culpable handling of the Perry transaction. In so ruling, he refused to construe the exculpatory provision in the Trust Agreement, which had insulated Segal and Karchmer from personal liability for their negligent conduct, as also requiring indemnification for their attendant legal expenses. Since Segal and Karchmer had already received complete reimbursement, Judge Bonsal ordered them to return to the fund the 39% Of their counsel fees which was estimated to be allocable to the defense of the Perry payment. No refund was required of Freedman who had submitted an affidavit affirming that he had himself paid all expenses relating to the Perry surcharge. In crediting Freedman's statement the district court, by implication, accepted an apportionment between counsel fees incurred by Freedman in defending against the Perry surcharge, for which only Freedman was chargeable, and counsel fees incurred in defending against other claims for which, according to the opinion rendered by the law firm of Wilkie, Farr & Gallagher, the fund was justifiably charged.
Defendants Segal and Karchmer appeal on the ground that they should not be required to bear any portion of their attorneys' fees. Plaintiffs cross-appeal, arguing that any indemnification was improper for what they allege is the personal defense of the defendant-trustees. Specifically, plaintiffs seek restoration to the fund of: (1) $97,071.05 paid to attorneys representing Segal and Karchmer in this action; 6 (2) $85,829.11 paid to attorneys representing Freedman; (3) $29,611.49 paid by the fund to the Botein firm for the futile attempt to collect the judgment against Perry; and (4) $7,059.84 paid to Wilkie, Farr for its opinion apportioning Freedman's attorneys' fees. We affirm, with one slight modification, the order of the district court. 7
As is well known, the LMRDA was enacted in the wake of revelations by the McClellan Committee of corruption at the highest levels of union officialdom. 8 Section 501, which imposes fiduciary duty upon union officers and grants union members access to both federal and state courts to enforce that duty, lies at the heart of the Act's philosophy.
Freedman, Segal and Karchmer, as trustees of the NMU Officers Pension Fund, were charged with the highest level of responsibility and care in their management of the trust property. Having failed to conform to that standard with regard to the Perry payment, the defendants are liable for their attorneys' fees attributable thereto.
3 Scott, The Law of Trusts, § 245, at 2155 (3d ed. 1967).
Any contrary result would undermine both the protection to union members and deterrence of union officials intended by Section 501. 9
Segal and Karchmer maintain that their situation is distinguishable from that of Freedman in that, having acted only negligently, their behavior was protected from surcharge by the exculpatory clause of the Trust Agreement. We find this distinction irrelevant to the question of attorneys' fees now before us.
The general exculpatory provision, set forth in note 4, supra, does not in its terms refer to attorneys' fees, but only to actions based upon the opinion of legal counsel. In the absence of explicit language, 10 we refuse to hold that it contemplated the payment of counsel fees by the trust and for the benefit of trustees who are found to have breached their fiduciary duties to the trust. This is especially so as a subsequent clause is specifically directed to the issue of attorneys' fees. Section III. C.9 provides:
'The trustees shall be empowered to obtain and determine compensation for legal counsel, accounting, technical, actuarial releasing Perry's pension payments. Freedman, such administrative services as they charge only a half hour earlier, immediately
The clear import of this latter provision, however, is to protect trustees for counsel fees incurred on...
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