White v. White Rose Food, CV 93-4837(ADS).

• Decision Date: 28 October 1999
• Docket Number: No. CV 93-4837(ADS).,CV 93-4837(ADS).
• Citation: 72 F.Supp.2d 126
• Parties: Stanley WHITE, Ulysses Brown, and Donald W. Swanson, Individually and on behalf of all other persons similarly situated, Plaintiffs, v. WHITE ROSE FOOD, a Division of Digiorgio Corporation, Defendant.
• Court: U.S. District Court — Eastern District of New York

Page 126

72 F.Supp.2d 126

Stanley WHITE, Ulysses Brown, and Donald W. Swanson, Individually and on behalf of all other persons similarly situated, Plaintiffs, v. WHITE ROSE FOOD, a Division of Digiorgio Corporation, Defendant.

No. CV 93-4837(ADS).

United States District Court, E.D. New York.

October 28, 1999.

Law Offices of Leonard M. Flamm, New York City (Leonard N. Flamm, Norman Mednick, of Counsel), for Plaintiffs.

Grotta, Glassman & Hoffman, P.A., Roseland, NJ (Jedd Mendelson, Jed L. Marcus, Patricia L. Hardaway, of Counsel), for Defendant.

MEMORANDUM AND ORDER

SPATT, District Judge.

This is an action brought pursuant to Section 301 of the Labor Management Relations Act (the "LMRA"), 29 U.S.C. § 185, arising from the disbursement of settlement funds following a plant closing. This case has been the subject of a number of prior decisions, resulting in a Second Circuit opinion on October 22, 1997, which set the "rules of the road" for the final determination of this lawsuit. See White v. White Rose Foods, 128 F.3d 110 (2d Cir.1997).

On appeal, the Second Circuit affirmed this Court's prior dismissal as against the Furniture, Flour, Grocery, Teamsters, Chauffeurs & Warehousemen Union, Local No. 138 ("Local 138"). However, the Second Circuit reversed this Court's dismissal of the third amended complaint against the plaintiffs' previous employer, the defendant White Rose Food, a division of DiGiorgio's Corporation (the "defendant" or "White Rose"). Id. Subsequently, this Court dismissed the plaintiffs' tax counts in a decision dated July 12, 1999. White v. White Rose Food, 62 F.Supp.2d 878 (E.D.N.Y.1999). As a result of the prior decisions, the only remaining cause of action in the third amended complaint is the Section 301 claim against White Rose, contained in the first cause of action.

I. BACKGROUND

This action was commenced in August 1993 by the plaintiffs, former employees of White Rose and members of Local 138. The dispute centers on an agreement ("the Settlement Agreement") between White Rose and Local 138 that followed the closing of White Rose's Farmingdale, New York warehouse and a subsequent labor strike. Under the terms of the Settlement Agreement, eligible individuals could elect either (1) to receive payment from a strike settlement fund; (2) to receive pension contributions; (3) placement in preferential hiring lists at other White Rose facilities, for a period of time; or (4) immediate placement in a job at another facility.

The Settlement Agreement provided that White Rose would place the sum of $1,500,000 in two separate payments in a special escrow account to be distributed to eligible former employees of the Farmingdale facility. The Settlement Agreement contained a binding arbitration clause and expressly stated that it must be ratified by the eligible rank and file members of Local 138 who were former employees of White Rose. White Rose executed the Settlement Agreement on July 23, 1992 and the Union membership ratified it on September 21, 1992. Approximately 344 employees accepted the settlements monies while the other members of Local 138 selected one of the other options, described above.

In January 1993, the entity that was to act as escrow agent and distributor of the settlement funds determined that it was unable to function in that capacity. Subsequently, on January 23, 1993, Local 138 and White Rose entered into an "Amendment to Settlement Agreement," (the "Amendment"), that provided for payment directly from White Rose to the eligible employees, upon presentation of a list of those employees and their completed W-4 forms. The Amendment also provided for White Rose to issue payroll checks to those former employees who elected to receive the settlement funds. The Amendment further provided that from the settlement sum of $1,500,000, White Rose shall issue "payroll checks, less all required tax deductions." Pursuant to the Amendment, White Rose made deductions for all applicable employer payroll taxes from the checks that were issued. In this regard, the Amendment provided that:

White Rose shall issue appropriate payroll checks, less all required tax deductions, for those former White Rose employees who elect to receive settlement money. The Company's contribution share for all federal, state and local payroll taxes, and F.I.C.A., shall be included in the $1,000,000.00 and $500,000.00 funds established in the Settlement Agreement. Accordingly, the settlement funds established by the Settlement Agreement which may go directly to former White Rose employees shall be reduced by the amount of such contributions.

The Amendment did not contain the language regarding membership ratification that was found in the original Settlement Agreement, and it was not presented to the rank and file for ratification. On February 11, 1993, White Rose delivered to the Union its first installment of the settlement funds. On September 23, 1993, White Rose delivered the second installment. Each of the 344 former employees who completed the withholding form received a total gross remuneration of $3,799.10. White Rose withheld Federal Unemployment Taxes ("FUTA"), State Unemployment Taxes ("SUI"), and Federal Insurance Taxes ("FICA") in the total mounts of $10,455, $82,677.67 and $99,977.11, respectively, amounting to the total sum of $193,109.91, which was deducted by White Rose from the $1,500,000 settlement sum.

At the crux of this case, the plaintiffs contend that the Settlement Agreement, the collective bargaining agreement and the Union Bylaws required that membership ratification be obtained with regard to the Amendment prior to the disbursement of the settlement funds that withheld the FUTA, FICA and SUI taxes. The plaintiffs contend that Local 138 and White Rose (1) wrongfully entered into an amendment to the settlement agreement that was not ratified by the rank and file; and (2) the Amendment permitted White Rose to wrongfully deduct the employer's share of payroll taxes in the sum of $193,109.91 from the $1,500,000 settlement funds. On the other hand, the defendant's primary contention is that Local 138 did not violate its duty of fair representation in that it was not required to submit the amendment to the members for ratification.

II. THE SECOND CIRCUIT DECISION OF OCTOBER 22, 1997

On appeal, the Second Circuit affirmed the Court's dismissal of the plaintiffs' claims against Local 138. The Court held that the plaintiffs' claim that Local 138 breached its duty of fair representation by entering into the Amendment without ratification by the union membership was "time-barred by the six-month limit of DelCostello," 128 F.3d at 114 (referring to DelCostello v. International Bhd. of Teamsters, 462 U.S. 151, 163-64, 103 S.Ct. 2281, 2289-91, 76 L.Ed.2d 476 [1983]). Similarly, the Second Circuit held that this Court's dismissal of the plaintiffs' claim that the union breached its duty of fair representation by refusing to take its claim to arbitration, was also "barred by the six-month limitations period of DelCostello." Id. at 115.

With regard to the Section 301 claim against White Rose, the Second Circuit held that:

[t]he fact that the plaintiffs are time-barred from bringing a claim against the union does not mean that the plaintiffs cannot prove that Local 138 breached its duty of fair representation in an action against White Rose.... [P]laintiffs suing under a § 301/DFR theory need not sue their union at all: it could hardly be that running of the limitations period as to the union extinguishes the right of action against the employer. The fact that DelCostello's limitation period has expired as against Local 138 has no bearing on the validity of the plaintiffs' suit against White Rose.

128 F.3d at 115-16.

The Second Circuit added, however, that "we express no view as to whether the union's failure to submit the amendment for ratification or to challenge the disbursements when made (absent a demand from the membership at the time) amounts to a breach of the duty of fair representation." Id. at 116.

In its decision of July 12, 1999, this Court denied the defendant's motion for summary judgment dismissing the plaintiffs' Section 301 cause of action. The Court held that there were material triable issues as to whether Local 138's conduct in entering into the Amendment permitting the employer to withhold the payroll taxes in the sum of $193,109.91 from the agreed upon settlement sum without ratification by the Local 138 membership, constituted the arbitrary, discriminatory or bad faith conduct required to establish a "fair representation" cause of action. 62 F.Supp.2d at 884-85.

In addition, the Court held that there were material triable issues with regard to the conduct of Local 138 when it failed to challenge the deduction made for employer payroll taxes, and, in fact, may have permitted it. Id. at 885-86 In addition, the Court raised another factual issue, namely, whether the Local 138 officer(s) who signed the Amendment, could reasonably believe that they had the authority to bind the members without their ratification. Id. at 884-85.

III. THE TRIAL—FINDINGS OF FACT

This opinion and order includes the Court's findings of fact and conclusions of law as required by Fed.R.Civ.P. 52(a) See Rosen v. Siegel, 106 F.3d 28, 32 (2d Cir. 1997); Colonial Exchange Ltd. Partnership v. Continental Casualty Co., 923 F.2d 257 (2d Cir.1991). During this portion of the opinion, the Court will make findings of fact which will be supplemented by additional findings later in the opinion.

A. The Plaintiffs' Case

Stanley White, is a named plaintiff, and was a White Rose employee from 1965 to 1991. He was a member of Local 138 from 1966 until he retired in 1993. White was involved in the strike called by Local 138 in 1991. The strike lasted for 18 months and was settled in 1992. The Settlement Agreement (Plfs.Ex.1) was signed by White Rose on July 23, 1992 and by Local 138 on September 15,...