Snider v. All State Administrators, Inc.

• Decision Date: 15 August 1973
• Docket Number: No. 72-3326.,72-3326.
• Citation: 481 F.2d 387
• Parties: Francis SNIDER et al., Plaintiffs-Appellants, v. ALL STATE ADMINISTRATORS, INC., et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

481 F.2d 387 (1973)

Francis SNIDER et al., Plaintiffs-Appellants, v. ALL STATE ADMINISTRATORS, INC., et al., Defendants-Appellees.

No. 72-3326.

United States Court of Appeals, Fifth Circuit.

July 3, 1973.

Rehearing and Rehearing Denied August 15, 1973.

Richard H. Frank, Ronald G. Meyer, Tampa, Fla., for plaintiffs-appellants.

John M. Robertson, Ronald P. Teevan, Orlando, Fla., for defendants-appellees.

Before, GEWIN, THORNBERRY and SIMPSON, Circuit Judges.

Rehearing and Rehearing En Banc Denied August 15, 1973.

SIMPSON, Circuit Judge:

The appellants, members of the Bricklayers, Masons and Plasterers International Union of America, Local No. 15, Florida, initiated this action to "conserve, recover and protect funds" entrusted to a health and welfare fund established under a collective bargaining agreement with certain contractor-employers. The district court enjoined further expenditure of trust funds except for specified purposes. However, the court denied all further relief for lack of jurisdiction. This appeal timely followed. We affirm.

I. THE FACTS

While contract negotiations were under way between Local 15 and a number of bricklaying, masonry, and plastering contractors in the central Florida area, defendants George C. Stuart, president of the plaster contractors association, Don Goad, business manager of Local 15, and David W. Foley, a licensed insurance broker, organized several corporations for the purpose of administering union health and welfare trust funds.¹ The district court found that these corporations were organized in anticipation that negotiations then under way would result in the establishment of trust funds for which the defendants Goad and Stuart, through their respective positions with the union and employers, could control the selection of an administrator.

As a result of the negotiations, Local 15 and the employers' associations entered into two collective bargaining agreements, one covering plasterers and the other bricklayers and cement masons, which provided that the employers would pay certain amounts per hour worked by union employees into a health and welfare fund to be established in accordance with Section 302 of the Labor Management Relations Act of 1947, 29 U.S.C. Sec. 186.²

Prior to the effective date of the collective bargaining agreement, Local 15 elected Goad, and another union member, defendant C. L. Dickson, as the two trustees to represent the union. Stuart, apparently without the concurrence of other employers, selected defendants C. L. McCullough and W. S. Pyne, both former employees of Stuart's plastering company, as trustee nominees of the employers. Pursuant to the authority conferred upon them under the trust agreement, the four trustees selected All State Administrators, Inc. of Orlando as the administrator of the trust fund.

After All State of Orlando took over administration of the Fund, all monies contributed by employers were deposited in the name of the Administrator and expenses of both the Trust and the Administrator were paid out of the common fund. Among other expenditures, the Administrator paid out of trust funds the costs and fees, including attorneys' fees incident to the incorporation of itself, of the remaining five All State corporations and of Orange Services, Inc. The Administrator also used trust funds to pay premiums on life insurance for its officers, Stuart and Foley, as well as travel and entertainment expenses unconnected with the purpose of the Trust. Trust funds were likewise used to pay entertainment expenses incident to Goad's unsuccessful campaign for reelection as Business Manager of Local 15. In addition to these expenditures, which the district court, characterized as an improper diversion of trust funds, All State of Orlando executed a lease with its president, George C. Stuart, for office space in the building occupied by the Stuart plastering company and paid the rent under this lease out of the trust fund.

Simultaneous with the selection of All State of Orlando as the Administrator of the Trust, the trustees signed an agreement with Aetna Life & Casualty Company to underwrite the health and welfare fund. This policy was placed through Aetna Agent John M. Tate, a stockholder in Orange Services, Inc. Tate agreed to rebate 70% of his commission from Aetna to defendant Foley, stockholder, secretary, and a moving party in the organization of the All State corporate family.

As a result of Union members' discontent with the management of their trust fund, Goad and Dickson were removed as union trustees and replaced by Francis Snider and Guy Ashcraft. Following an audit of the trust fund, Snider and Ashcraft initiated this action on behalf of themselves and other members of Local 15. The complaint prayed for immediate injunctive relief against the improper disbursement of trust funds. Additionally, the plaintiffs sought (a) to nullify the administration agreement between the trust fund and All State of Orlando, (b) to have the court appoint a disinterested professional administrator during the pendency of the litigation, (c) to require complete disclosure of the books and records of All State of Orlando and the fund, (d) to have the court remove the defendants from any position of trust which they occupy in connection with the fund, (e) to require the employers' association to appoint two new trustees, and (f) to order an accounting of all money due and owing to the fund from each defendant.

The district court enjoined further improper disbursements,³ but with the exception of ordering disclosure of records, refused additional relief on the ground that federal labor statutes did not provide jurisdiction to grant the remedies sought. The order of dismissal recommended that, if the parties were unable to resolve their differences by compromise, they should seek relief in State courts.

II. STATUTORY JURISDICTION

The complaint filed below sought to invoke the jurisdiction of the district court pursuant to Sec. 302(e) of the Labor Management Relations Act of 1947 29 U.S.C. Sec. 186(e).⁴ This subsection provides that the district court shall have jurisdiction to restrain violations of Sec. 302 29 U.S.C. Sec. 186, which restricts payments or loans by employers to employee representatives, to labor organizations, and to employees in excess of their normal compensation. In thus limiting its judicial function to the grant of injunctive relief against future diversion of trust funds, the district court followed the decisions of four other courts of appeal which have similarly interpreted the jurisdictional grant of Sec. 302(e). Bowers v. Ulpiano Casal, Inc., 393 F.2d 421 (1st Cir. 1968); Moyer v. Kirkpatrick, 387 F.2d 955 (3rd Cir. 1968), aff'g 265 F.Supp. 348 (E.D.Pa. 1967); Blassie v. Kroger Co., 345 F.2d 58 (8th Cir. 1965); and Employing Plasterers Ass'n v. Journeymen Plasterers, 279 F.2d 92 (7th Cir. 1960).

The scope of federal court jurisdiction under Sec. 302(e) is a question of first impression in this circuit. Cf. Pidgeon v. Brunswick Port Auth., 324 F.Supp. 140 (S.D.Ga. 1971). We are persuaded, however, by the weight of reason and authority and by the plain language of the statute that district court jurisdiction under Sec. 302(e) is limited to restraining future violations of the statute and does not include granting relief by way of accounting, receivership, or removal of defalcating trustees or administrators.

Trust funds for the benefit of union members are established under the laws of the respective states. Federal law affects union trust funds only to the extent that Congress has elected to exempt employer contributions to such funds made under the terms of a labor-management contract from the general prohibition on employer payments to employee organizations. While Congress thought it necessary in order to prevent potential abuse of this exemption to stipulate the conditions under which payments can be legally made, State authority remains the legal foundation upon which such funds are constructed. In Arroyo v. United States, a case involving a criminal prosecution of a larcenous trustee of a union welfare fund, the Supreme Court described the purposes and the jurisdictional scope of Sec. 302 as follows:

"Congress believed that if welfare funds were established which did not define with specificity the benefits payable thereunder, a substantial danger existed that such funds might be employed to perpetuate control of union officers, for political purposes, or even for personal gain. . . . To remove these dangers, specific standards were established to assure that welfare funds would be established only for purposes which Congress considered proper and extended only for the purposes for which they were established. . . . Continuing compliance with these standards in the administration of welfare funds was see 359 U.S. made explicitly enforceable in federal district courts by civil proceedings under § 302(e). The legislative history is devoid of any suggestion that defalcating trustees were to be held accountable under federal law, except by way of the injunctive remedy provided in that subsection." 359 U.S. 419, 426-427, 79 S.Ct. 864, 868-869, 3 L.Ed.2d 915 (1959).

In actions brought under section 302(e), a district court is in nowise limited in how deeply it may inquire into the structure and the administration of a union welfare trust fund into which employers have made contributions since a detailed study may be necessary to determine whether or not violations of federal law have occurred which would necessitate injunctive relief. However, the federal court's ultimate exercise of adjudicatory power under this section is limited to the prevention of future violations since the Congress, as architect of its jurisdictional gambit, has not chosen to empower it to require an accounting or similar noninjunctive relief. Blassie v. Kroger Company, supra, 345 F.2d at 67; Employing Plasterers Ass'n v....