Toensing v. Brown

• Decision Date: 25 March 1974
• Docket Number: No. C-73-0753-CBR.,C-73-0753-CBR.
• Citation: 374 F. Supp. 191
• Court: U.S. District Court — Northern District of California
• Parties: Gustave D. TOENSING et al., Plaintiffs, v. E. A. BROWN et al., Defendants.

374 F. Supp. 191

Gustave D. TOENSING et al., Plaintiffs, v. E. A. BROWN et al., Defendants.

No. C-73-0753-CBR.

United States District Court, N. D. California.

March 25, 1974.

COPYRIGHT MATERIAL OMITTED

Fred M. Duman, Castro Valley, Cal., Ralph M. Segura, Farrow, Cahill, Kaswell, Segura & Rader, Oakland, Cal., for plaintiffs.

Johnson & Stanton, Law Offices of Charles P. Scully, San Francisco, Cal., for defendants.

MEMORANDUM OF OPINION AND JUDGMENT

RENFREW, District Judge.

The named plaintiffs, retired carpenters eligible for retirement benefits from the Carpenters Pension Trust Fund for Northern California, have brought this suit as a class action under Rule 23, Federal Rules of Civil Procedure, challenging the administration of that Trust Fund by defendants, current and former trustees of the Trust Fund. Plaintiffs invoke this Court's jurisdiction under 29 U.S.C. § 186(e) and 28 U. S.C. § 1337, and also under the doctrine of pendent jurisdiction.

Plaintiffs have stated two causes of action. First, they complain that the trustees decided, on or about July 1, 1971 actually July 23, 1971, to increase the pensions of those carpenters retiring on or after July 1, 1971, more than the pensions of carpenters who retired before that date.¹ Plaintiffs attack this action as grossly discriminatory, arbitrary and capricious, and an abuse of the trustees' authority which has raised the serious possibility of a depletion of the Pension Trust Fund. Plaintiffs assert that defendants' action violates 29 U.S.C. § 186(c)(5) which requires monies paid to such a trust fund to be "for the sole and exclusive benefit" of the employees of the contributing employer. Second, plaintiffs charge that defendants' action constitutes a violation of their fiduciary responsibility as established by California state law. Plaintiffs ask this Court to order defendants to rescind their decision on the differential pension increases and to make across-the-board increases so that pensions for persons retiring before July 1, 1971, will equal pensions for those retiring on or after that date. They also ask for an order awarding plaintiffs the amount of money they would have received if the initial decision had been for equal pension increases and also awarding damages, costs, and attorneys' fees.

Defendants moved for summary judgment on July 20, 1973. That motion was heard on August 29, 1973, and was taken under submission. Subsequently, the Court determined that a hearing should be held on the question of whether the action should be allowed to proceed as a class action. At that hearing, on December 19, 1973, the Court ordered that the action was maintainable as a class action. A class notice was sent to those persons falling within the class represented by the named plaintiffs,² and an opportunity was given those persons to choose to be excluded from the class.³ Plaintiffs have now also moved for summary judgment. Another hearing was held on February 22, 1974, on both motions for summary judgment.

I. Sole and Exclusive Benefit of the Employees

The essential legal question posed by these motions is the proper interpretation of 29 U.S.C. § 186(c)(5).⁴ That provision excepts from the general prohibition of payments of money by an employer to a representative of his employees⁵ those payments made to a trust fund "for the sole and exclusive benefit of the employees" of the employer. The trust fund to which such payments are allowed must be constituted so that the employer and employees are equally represented.⁶ The legal basis of plaintiffs' action is that this provision must be interpreted to mean that the motivation or considerations of the trustees in carrying out their responsibilities must be only the benefit of the employee beneficiaries, and that any other purpose or intention is an illegitimate consideration. Plaintiffs argue that the trustees must be completely independent in administering the trust funds and that they should not consider the recommendations of the collective-bargaining parties binding or obligatory.

The general principles stated by plaintiffs are not an accurate and complete interpretation of § 186(c)(5). They ignore the complexity and the varied purposes which the statutory scheme pursues. The purpose was not simply to establish a trust fund with independent trustees:

"Those members of Congress who supported § 186 were concerned with corruption of collective bargaining through bribery of employee representatives by employers, with extortion by employee representatives, and with the possible abuse by union officers of the power which they might achieve if welfare funds were left to their sole control. Congressional attention was focussed particularly upon the latter problem because of the demands which had then recently been made by a large international union for the establishment of a welfare fund to be financed by employers' contributions and administered exclusively by union officials. See United States v. Ryan, 350 U.S. 299 76 S.Ct. 400, 100 L.Ed. 335.

"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 perpetrate control of union officers, for political purposes, or even for personal gain. citations omitted To remove these dangers, specific standards were established to assure that welfare funds would be established only for purposes which Congress considered proper and expended only for the purposes for which they were established." Arroyo v. United States, 359 U.S. 419, 425-426, 79 S.Ct. 864, 868, 3 L.Ed.2d 915 (1959). See also United States v. Ryan, 350 U.S. 299, 305, 76 S.Ct. 400, 100 L.Ed. 335 (1956).

As indicated in Arroyo, supra, Congress did not rely solely upon the appointment of neutral, non-employer, non-employee trustees and the application of traditional law governing trusts and fiduciary relationships. Instead it directed that employers and employees be equally represented among the trustees, that "the detailed basis on which * * * payments are to be made be specified in a written agreement with the employer", that there be a way for resolving deadlocks among the trustees, that there be an annual audit of the trust fund, and that the results of the audit be available "for inspection by interested persons * * *." 29 U.S.C. § 186(c)(5)(B). These structural provisions were the statutory devices provided for the protection of the beneficiaries.

But plaintiffs argue that the trustees must still be completely independent from the collective-bargaining parties. Indeed the implication of plaintiffs' position seems to be that if the trustees' actions are clearly consistent with and further the interests of the union and employers, those actions are suspect even if they are actuarially sound and otherwise consistent with the interests of the beneficiaries of the trust fund. If only such complete independence of the trustees had been sought, however, Congress would not have enacted § 186(c)(5) in its present form. That section requires that employees and employers be equally represented in the administration of the trust fund. It does not prohibit a person from serving both as collective-bargaining representative and as trustee of the trust fund. Congress intentionally placed the trust fund provisions within the collective bargaining context, believing that the trust fund was best managed when the contending views of employer and union were resolved in the best interests of the beneficiaries:

"It is a commonplace of modern industrial relations for employers to provide security for employees and their families to enable them to meet problems arising from unemployment, illness, old age or death. While employers in many other industries assume this burden directly, this welfare fund was jointly created by the coal industry and the union for that purpose. Not only has Benedict the employer entered into a long-term relationship with the union in this regard, but in compliance with § 186(c)(5)(B) it has assumed equal responsibility with the union for the management of the fund. In a very real sense Benedict's interest in the soundness of the fund and its management is in no way less than that of the promisee union." Lewis v. Benedict Coal Co., 361 U.S. 459, 468-469, 80 S.Ct. 489, 495, 4 L.Ed.2d 442 (1960) (emphasis added).

Language used in a recent decision by the Supreme Court differentiating the meaning of the term "employees" when used in § 186(c)(5) from its meaning when used in 29 U.S.C. § 158(a)(5) also suggests that trustees were not intended by § 186(c)(5) to reside in a noumenal world apart from the difficult realities of the collective-bargaining process:

"There is no anomaly in the conclusion that retired workers are `employees' within § 186(c)(5) entitled to the benefits negotiated while they were active employees, but are not `employees' whose ongoing benefits are embraced by the bargaining obligation of § 158(a)(5). Contrary to the Board's assertion, the union's role in the administration of the fund is of a far different order from its duties as collective-bargaining agent. To accept the Board's reasoning that the union's § 186(c)(5) responsibilities dictate the scope of the § 158(a)(5) collective-bargaining obligation would be to allow the tail to wag the dog." Chemical Workers v. Pittsburgh Glass, 404 U.S. 157, 170-171, 92 S.Ct. 383, 393, 30 L.Ed.2d 341 (1971).

The metaphor used by the Supreme Court suggests that collective bargaining does, at least to some extent, affect the scope of the administrative decisions of the trustees. See also 404 U.S. 157, at 171, n. 11, 92 S.Ct. 383, 30 L.Ed.2d 341. And clearly the collective-bargaining parties do determine the amount of resources that flow into the fund through the employer's contributions.

That the trust fund and collective-bargaining process are not completely separate and independent...