Nedd v. United Mine Workers of America

• Decision Date: 01 April 1980
• Docket Number: Civ. No. 8796.
• Citation: 488 F. Supp. 1208
• Parties: Charles NEDD et al. v. UNITED MINE WORKERS OF AMERICA et al.
• Court: U.S. District Court — Middle District of Pennsylvania

488 F. Supp. 1208

Charles NEDD et al. v. UNITED MINE WORKERS OF AMERICA et al.

Civ. No. 8796.

United States District Court, M. D. Pennsylvania.

April 1, 1980.

James Palermo, Hazleton, Pa., John R. McConnell, Philadelphia, Pa., for plaintiffs.

Carol A. Mager, Atty. at Large, Philadelphia, Pa., James W. Scanlon, Scranton, Pa., Joseph A. Yablonski, Harrison Combs, Washington, D. C., for defendants.

MEMORANDUM AND ORDER

NEALON, Chief Judge.

This is a derivative action brought by pensioned coal miners on behalf of the Anthracite Health and Welfare Fund ("The Fund"). Plaintiffs have charged the United Mine Workers of America ("The Union") with responsibility for the failure of the Fund's trustees to collect tonnage royalties from anthracite coal mine operators accruing from June 7, 1946 to January 23, 1969. The case is presently before this court on remand from the Court of Appeals. The matters briefed, argued, and ready for disposition at this time are: (1) whether plaintiffs are entitled to prejudgment interest on the amount of principal liability, if any, that is ultimately found to be due, and (2) whether the statute of limitations and/or the equitable doctrine of laches preclude recovery of collection delinquencies that accrued more than six years prior to the commencement of this lawsuit. Before considering these issues, however, I believe it is necessary to address the Union's claim that principal liability may only be predicated on individual adjudications concerning the adequacy of collection efforts undertaken with respect to each delinquent operator.

I. THE UNION'S LIABILITY

The causes of action asserted herein arose during the precipitous decline of the anthracite industry. From 1946 to 1968 the tonnage of coal produced, the amount of revenue earned, and the number of persons employed in the anthracite fields dropped dramatically. Fund income was keyed to production and, as output fell, the Fund, which operated on a "pay-as-you-go" basis, was unable to maintain contemplated benefit levels.

Plaintiffs have contended that the trustees' failure to strictly enforce royalty obligations exacerbated the Fund's problem of declining revenues and have sought to impose responsibility on the Union because during the relevant period the Union enjoyed a dominant position on the Fund's Board of Trustees in violation of section 302(c)(5) of the Labor Management Relations Act of 1947, 29 U.S.C. § 186, which requires equal labor-management representation on employee trust funds created through the collective bargaining process. Four distinct theories of liability have been asserted: (1) tortious interference with the collective bargaining agreement, a federal common-law action recognized under section 301 of the Labor Management Relations Act, 29 U.S.C. § 185(c) (hereinafter section 301); (2) breach of the federal common-law duty of fair representation; (3) breach of fiduciary duties implied from section 302 of the Labor Management Relations Act, 29 U.S.C. § 186 (hereinafter section 302); and (4) violations of the Pennsylvania common-law of trusts. Authority to entertain this suit is predicated on 28 U.S.C. § 1331, 28 U.S.C. § 1337, and the doctrine of pendent jurisdiction.

The Court of Appeals for the Third Circuit, vacating this court's judgment entered in defendants' favor on April 13, 1976,¹ has found that plaintiffs' federal causes of action are sufficient to support pendent jurisdiction, that plaintiffs have established a breach of trust, that the Union is liable for this breach, and that the burden is now on the Union to show that losses would have occurred despite the breach. Nedd v. UMW, 556 F.2d 190 (3rd Cir. 1977), cert. denied, 434 U.S. 1013, 98 S.Ct. 727, 54 L.Ed.2d 757 (1978). The Court of Appeals remanded the case "for further proceedings in which the liability of the Union shall be redetermined by the application of the fiduciary standards of conduct and burden of proof set forth in this opinion." Id. at 214.

The Union has argued that the Court of Appeals decision was not an adjudication of its liability for collection delinquencies and that plaintiffs must now establish a breach of trust for each royalty account that went uncollected. I am satisfied, however, that the Court of Appeals has found the Union liable under each of the theories asserted by plaintiffs. Close examination of its opinion reveals that the Court of Appeals concluded that the Union, by virtue of the § 302(c)(5) equal representation violation, had placed itself in the position of the trustees with respect to collection of delinquent royalties, and that the Union qua trustee was therefore bound by fiduciary standards of conduct. The Court of Appeals further found that (a) the Union's liability under any of the theories advanced by plaintiffs required no distinct factual findings; (b) the Union, "in a position of inherent conflict between its fiduciary obligation to the Fund beneficiaries and its duties toward the working miners whose jobs might be imperiled by vigorous royalty enforcement," id. at 210, breached its duty of loyalty by pursuing a royalty collection policy that prima facie benefited working miners to the detriment of pensioned miners; (c) the Union's enforcement efforts, while in control of the Fund, were not performed with the degree of common skill, common prudence, and common caution required of a fiduciary; and (d) the burden was now on the Union to show that losses would have occurred in the absence of a violation of fiduciary obligations. Thus, it is clear that the matter is presently before this court, not to decide whether the Union is to be held liable for breach of trust on a company-by-company basis, but to determine the extent of the Union's liability for pursuing a policy that would not have been followed by a reasonable man exercising common skill, prudence and caution, and which prima facie benefited working miners to the detriment of pensioned miners.

Directly and materially affecting the extent of the Union's exposure to damages are the questions of prejudgment interest and statute of limitations. Because the continuing breach of trust that occurred throughout the 1950's was not reasonably discoverable until 1961, and due to the longevity of this action, plaintiffs' claim for prejudgment interest now exceeds the asserted principal liability of $9,887,286.03. In addition, since much of the royalty collection delinquencies occurred more than six years before the commencement of this action in 1965, the statute of limitations defense has the potential to disgorge a large portion of the principal liability. Since these issues impact substantially on the size of any damages award, they have been isolated from other questions concerning principal liability and prepared for separate treatment.²

II. PREJUDGMENT INTEREST

The Union argues that federal law controls the prejudgment interest issue and that the rule fashioned by the federal courts commits the matter to the trial court's discretion. The Union further urges that this discretion be exercised to deny prejudgment interest. Plaintiffs, on the other hand, contend that (a) state law governs the pendent claim, (b) federal law controls the federal claims, and (c) both the state and federal rules grant prejudgment interest under the circumstances of this case as a matter of right. Alternatively, plaintiffs argue that under the federal rule of discretion entitlement to prejudgment interest is presumed, and that the Union has failed to demonstrate exceptional circumstances sufficient to defeat the presumption.

A. The Applicable Law

Initially, it must be ascertained whether the Union's liability for prejudgment interest is to be determined under federal law, Pennsylvania law, or both. A careful reading of the Court of Appeals decision in this case reveals that plaintiffs have established a breach of trust under state and federal law. The following passages from the court's opinion are instructive:

The Union by virtue of the § 302(c)(5) equal representation violation, placed itself in the position of the Trustees for all practical purposes with respect to the enforcement of the royalty obligations of the mine operators. Whether one looks to the Pennsylvania law of trusts or to an appropriate federal standard created under any of the three federal legal theories asserted by the plaintiffs the Union must, in the circumstances of this case, be held to the same standard of conduct in discharging its assumed obligations toward the Fund as that of the Fund's nominal Trustees.

556 F.2d at 209 (emphasis added).

The pensioners established that the Union Trustees, in illegal domination of the Fund, were in a position of conflicting loyalties, and that in that position they pursued a policy which prima facie benefitted sic one group to the detriment of another. At that point the burden of explanation or justification should properly have shifted to the fiduciaries.36

36 Although this is a federal common law rule of union pension fund trustees' fiduciary duty, we think it is consistent with state law as well.

556 F.2d at 210 (emphasis added) (footnote omitted).

"In general, one who seeks to surcharge a trustee bears the burden of proving that the trustee breached an applicable fiduciary duty. However, when a beneficiary has succeeded in proving that the trustee has committed a breach of duty and that a related loss has occurred, we believe that the burden of persuasion ought to shift to the trustee to prove, as a matter of defense, that the loss would have occurred in the absence of a breach of duty. We believe that, as between innocent beneficiaries and a defaulting fiduciary, the latter should bear the risk of uncertainty as to the consequences of its breach of duty."

This is an appropriate federal rule of fiduciary obligation as well.

556 F.2d at 211 (emphasis added) (footnote and citations omitted).

It is thus clear that the Court of Appeals found...