Slack v. Int'l Union of Operating Eng'rs

Decision Date19 August 2014
Docket NumberNo. C-13-5001 EMC,C-13-5001 EMC
CourtU.S. District Court — Northern District of California
PartiesDAVID SLACK, et al., Plaintiffs, v. INTERNATIONAL UNION OF OPERATING ENGINEERS, et al., Defendants.
ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS WITH LEAVE TO AMEND

(Docket Nos. 99, 106-107, 109, 114)

Plaintiffs David Slack, John Jarboe, Ken Bettis, Kenny Mendoza, and Clyde Eli are either current or retired members of International Union of Operating Engineers, Local 3 ("Local 3"), the largest local trade union operating under the International Union of Operating Engineers ("IUOE"). First Amended Complaint ("FAC") ¶¶ 1, 7-11. In their 125 page, 526 paragraph amended complaint, Plaintiffs assert numerous federal and state causes of action against 51 defendants alleging various acts of misconduct in the administration of the IUOE, Local 3, and the associated employee benefit funds. The defendants in this action include the IUOE itself, the OE Federal Credit Union, the OE Hawaiian Industry Stabilization Fund ("HISF"), the third party administrator of several Local 3 affiliated ERISA employee benefit funds, and dozens of individuals who serve as officers of the IUOE, Local 3, and/or directors of the Local 3 affiliated ERISA funds.1

The Defendants have - in five separate motions to dismiss - moved to dismiss all of the causes of action. For the following reasons, the Court GRANTS the motions to dismiss in part, but will afford Plaintiffs an opportunity to amend.

I. FACTUAL AND PROCEDURAL BACKGROUND

Plaintiffs allege a number of discrete acts of wrongdoing by various Defendants. Specifically, Plaintiffs allege: (1) The HISF was operated as a quasi-PAC and not as a "compliance fund"; (2) the IUOE forced officers and employees to contribute to a PAC; (3) employees of Local 3 (and its benefit plans) have been forced to contribute to Russ Burns' re-election fund; (4) the trustee defendants violated their fiduciary duties in a variety of actions taken with regards to Local 3's ERISA-governed employee benefit plans; (5) that the trustee defendants violated their fiduciary duties by engaging in self-dealing and/or mismanagement of union funds; and (6) defendants permitted a culture of violence and intimidation to pervade Local 3 operations. Rather than attempt to describe in detail the allegations contained in Plaintiffs' sprawling FAC, the Court summarizes these broad categories below.

A. Allegations Relating to the HISF Operations

Plaintiffs allege that the HISF was created for the "purpose of enforcing contractor compliance with prevailing wage obligations" and to deter contractors from operating "double-breasted." FAC ¶ 94. HISF receives $0.44 per hour worked by members of Local 3 in District 17 (i.e., the Local 3 district encompassing Hawaii and Pacific Rim locations). Id. ¶ 96. HISF also receives a "small amount of extra money per hour" from employers. Id. Despite its stated purpose, Plaintiffs allege that HISF is operated as a "quasi-political action fund, operated by Local 3 to advance political agendas on the island, and as a slush fund abused by HISF employees to enjoy extravagant trips, expensive lunches, limousines, and the like." Id. ¶ 99. Further, it is alleged to be a means to divert member's wages to other union officers outside Hawaii. Id. HISF funds -amounting to more than roughly $1,000,000 annually - are "used to hire lobbyists and used as a slush fund by Hawaii officers and administrators." Id. ¶ 100.

Plaintiffs allege that the "HISF Trustee Defendants" knew or should have known that they were failing to fulfill their fiduciary duties by failing to honor HISF's stated purpose of ensuring contractor compliance. Id.

Plaintiffs' claims against Defendant OE Federal Credit Union ("OEFCU") appear to revolve solely around its alleged role in the HISF scheme. Plaintiffs allege that HISF is the only Local-3 affiliated fund that does not deposit its contributions in First Hawaiian Bank. Id. ¶ 103. Instead, these contributions go to OEFCU. Id. It is from OEFCU that HISF funds are allegedly misappropriated. For example, Plaintiffs allege that Defendant Russ Burns - a Vice President of IUOE, Local 3's Business Manager, and Chairman of the Board of OEFCU - permitted $4,000,000 from HISF to be "loaned" to Local 3 operations in Utah but that this money has disappeared and has not been accounted for in any financial reporting. Id. Plaintiffs assert that the OE Federal Credit Union Directors - many of whom are also HISF trustees - "knew about the true nature of the HISF" and did nothing to remedy resulting losses from such misappropriations. Id. Further, it is alleged that the OE Federal Credit Union Directors "ratified the HISF deception and illegal conduct each and every time they accepted deposits of HISF funds without questioning the ongoing misconduct." Id..

B. Allegations Related to Alleged Forced Contributions to IUOE's President's Club

Plaintiffs allege that in 2008, Defendant Vince Giblin (General President of IUOE at the time) informed the members of the General Executive Board that "all of them and all employees of their local unions would be required to contribute to the President's Club." Id. ¶ 106. The President's Club (also known as EPEC) is IUOE's political action fund ("PAC"). Id. ¶ 105. Mr. Giblin purportedly "left no room for doubt that the contribution mandate had to be communicated to all local unions and that local union employees had to comply or face harsh consequences."Id. ¶ 106.2 The purpose of these required contributions was Mr. Giblin's "desire to elevate the stature of IUOE as a political force through aggressive donations to political candidates." Id. ¶ 115.

Members of the General Executive Board, such as Defendants Burns, Jim McLaughlin, and William Waggoner were then charged with implementing Mr. Giblin's command. Specifically, Plaintiffs allege that they "made their employees aware of the mandate from Defendant Giblin." Id. ¶ 107. On information and belief, Plaintiffs allege that IUOE monitored the contributions to the PAC by new union employees by "improperly accessing confidential documents submitted for new hire participation in its General Pension Plan and comparing the numbers of employees identified in the pension records with the number of employees last reported by the local union." Id. ¶ 108. James Van Dyke, Mr. Giblin's enforcer, would then call local union officers if it appeared that employees were not contributing to the PAC and demand that the contributions begin immediately. Id.

The mandatory contributions to the PAC have been accomplished through compulsory payroll deductions. Id. ¶ 110. When new employees started, they would be presented with an authorization form for the deductions. Id. They were encouraged to complete the authorization and, when that failed, "hardball tactics are applied, and the resisting individual is told that they must contribute if they want to keep their job." Id. "Consent" was therefore coerced as new employees had no choice to contribute. Id. The amount of the contribution was "up to $800 per year, calculated as one percent of $80,000, the salary cap for this contribution." Id. ¶ 105.

Plaintiffs allege that the Local 3 Officer Defendants and the Executive Board Defendants "did absolutely nothing to oppose this illegal course of conduct, thereby ratifying the conduct and aiding and abetting in the illegal scheme." Id. ¶ 118. Rather, they "directly participated in the illegal scheme by collecting the illegally monies withheld from employees' paychecks by employers and then passing them along to the IUOE." Id.

C. Forcing Local 3 Employees to Contribute to Defendant Burns' Re-Election Fund

Plaintiffs allege that Defendant Burns has continued the tradition of previous Local 3 Business Managers and have forced "employees of both Local 3 and the various Local 3 Taft-Hartley Trusts to contribute to re-election campaign funds for Russ Burns's slate of candidates." Id. ¶ 160. Plaintiffs claim that the requirement to contribute is enforced by the threat of termination or loss of their positions if they fail to contribute. Id. ¶ 161. Specifically, former staffers report that they had to contribute every election cycle, with the precise amount required tied to the position they held - $1,000 for business agents, $1,500 for district-level employees, and $5,000 for officers. Id. ¶ 162. Defendant Burns is alleged to have accumulated more than $200,000 to support his slate of candidates. Id.

D. Allegations Regarding Alleged Breaches of Fiduciary Duty Relating to Local 3's Employee Benefit Plans

Plaintiffs allege that those Defendants who serve as directors or trustees of the various ERISA trust funds have breached the fiduciary duties they owed to the funds. The alleged breaches relating to the ERISA-governed trust funds fit into six categories, which are described as follows.

1. First: Longview Amalgamated Bank Pension Investment

In 2008, the Defendants who serve as trustees of the OE Pension Fund ("Pension Fund") committed $100,000,000 of the Pension Fund in the Longview Ultra Construction Loan Investment Fund ("Longview Construction Loan Fund") - an investment vehicle with Amalgamated Bank. Id. ¶¶ 120, 121. Payments were made in increments beginning in or about 2009. Id. ¶ 122. The Longview Construction Loan Fund "touted investments in construction loans as the mechanism for returns on investor assets." Id. ¶ 124. Plaintiffs allege, however, that the investments were "poorly evaluated, as many of the major construction projects were never completed," thus requiring Amalgamated Bank to foreclose on a number of real estate projects to reduce losses it suffered. Id.

In 2011 - following the investment by Local 3's Pension Fund - the FDIC entered into a Consent Order with Amalgamated Bank, regarding charges that Amalgamated Banks "cooked the books" related to its loan conditions. Id. ¶ 125. For example, "[o]n loans that were more than 90 days delinquent, Amalgamated was...

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    ...to make the plan compliant with ERISA in the ways set forth in the Amended Complaint. See Slack v.International Union of Operating Engineers, 2014 WL 4090383 at *16 (N.D. Cal. Apr. 19, 2014) ("'Collective' or 'group' pleading in a complaint is not per se improper and may not, in itself, alw......

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