Wynn v. Heller
| Decision Date | 03 March 1975 |
| Docket Number | No. 75 Civ. 291.,75 Civ. 291. |
| Parties | William H. WYNN, as Trustee of Retail Clerks Union Local 1146, Plaintiff, v. Bernard HELLER, Individually and as Trustee of Welfare Trust Fund No. 1146 and Pension Trust Fund No. 1146, Defendant. |
| Court | U.S. District Court — Southern District of New York |
Vladeck, Elias, Vladeck & Lewis, P. C., New York City, for plaintiff by Stephen C. Vladeck, Deborah A. Watarz, New York City, of counsel.
Bondy & Schloss, New York City, for defendant by I. Russell Stein, New York City, of counsel.
The plaintiff seeks preliminary relief removing defendant Heller as trustee and administrator of two local union welfare trust funds and enjoining him from receiving any salary or remunerations from the two funds during the pendency of this action. Plaintiff's application to remove defendant Heller as trustee will be denied at this time, but the defendant will be enjoined from taking any salary or other remuneration from either fund.
This proceeding was brought to remove Heller as the trustee and administrator of the pension and welfare trust funds of Retail Clerks Union Local 1146. Local 1146 is the collective bargaining agent for employees in the paint, hardware, plumbing and heating industries in the New York metropolitan area. The local is an unincorporated labor association chartered by the Retail Clerks International Association, AFL-CIO. Plaintiff Wynn is vice president of the International and, pursuant to the International Constitution, has been appointed the trustee of the local union.1 He is authorized to take complete charge of the affairs of the local. While the pension and welfare trust funds are for the benefit of the members of Local 1146, the funds are considered separate and distinct entities from the local union, and are independently administered.
The two trust funds here involved were created under collective bargaining agreements entered into by Local 1146 and certain employer organizations. The funds are authorized by Section 302(c)(5) of the Labor Management Relations Act, 29 U.S.C. § 186(c)(5).2 This provision excepts from the general prohibition of payments of money by an employer to a representative of his employees3 payments made to a trust fund "for the sole and exclusive benefit of the employees" of the employer. The statute requires that the trust fund to which such payments are allowed be structured so that the employers and employees are equally represented in the fund's management.4
The trust agreement in this action complies with the equal representation requirement of Section 302. For each fund, Local 1146 and the signatory employers are each entitled to appoint one trustee. The two trustees together—one as the employee representative and the other as the employer representative— hold positions of fiduciary responsibility with full authority over the management of the funds. Defendant Heller was appointed by the union as its trustee to the Welfare Trust Fund in 1957, and as its trustee for the Pension Trust Fund in 1972. At the time Heller was appointed to his positions with the trust funds, the principal officer of the local union was Martin Kornreich. It was the criminal indictment of Kornreich in late 1974 that led to Wynn's appointment as trustee of the local union.5 One of the allegations made by the plaintiff on this application for preliminary relief is that Heller's loyalties lie with Kornreich and the other union officers who were suspended by the International, and who are opposing parties to the plaintiff in another lawsuit before this court.
In order to prevail on a motion for a preliminary injunction, the plaintiff must demonstrate both a probability of success on the merits and a likelihood that irreparable harm will result if such relief is denied. See, e. g. Lyons v. Weinberger (S.D.N.Y.1974) 376 F.Supp. 248; 7 Moore, Federal Practice ¶ 65.04 (1972 edition). We feel that plaintiff has met this burden with respect to its demand for an order restraining Heller from receiving salary out of the funds. We do not think, however, that a sufficient showing has been made to warrant Heller's removal as trustee at this time.
Plaintiff sets forth two theories to justify his request for Heller's removal. First, he maintains that even in the absence of any finding of mismanagement of trust funds on Heller's part, the facts now before the court are sufficient to warrant a finding of suspicion and hostility between the new union leader and the union-designated trustee such as would warrant Heller's immediate removal. In support of this contention plaintiff relies on the recent case of Lamb v. Carey (C.A.D.C.1974) 498 F.2d 789, cert. denied 419 U.S. 869, 95 S.Ct. 128, 42 L.Ed.2d 108.
Plaintiff's second allegation is that Heller has committed breaches of fiduciary duty in the management of both trust funds. The illegal acts alleged concern Heller's acceptance of salary for his position as trustee of the two funds. The plaintiff argues that the taking of compensation violates the International Union's constitution,6 and further violates Section 302 of the Labor Management Relations Act.7
The first argument can be disposed of quickly. Although Lamb v. Carey, supra, does contain broad language which could be used to justify the removal of a trustee from a Section 302 trust upon a showing of intense antagonism between the union trustee and the union leadership, such relief does not appear appropriate on a motion for a preliminary injunction. In Lamb itself, removal was granted only after a full evidentiary hearing. Furthermore, since the Lamb result assumes that the trustee has managed the fund with the degree of care required of a trustee, it follows that there can be little irreparable harm if the relief requested is not granted. Where no fiduciary breaches have occurred, removal, if found warranted, must await a plenary evidentiary hearing. Such relief should not be granted solely upon just the affidavits of plaintiff and defendant.
Plaintiff's allegations of breaches of fiduciary duty, however, do raise substantial issues. The breaches alleged all relate to Heller's acceptance of compensation for his services as trustee to both trust funds. In his affidavit, Heller admits that in 1974 he received a total sum of $18,750 from the Welfare Trust Fund, ($4,500 of which was paid to him for his duties as Trustee and $14,250 as compensation for his duties as administrator), and $7,500 from the Pension Trust Fund ($2,500 as compensation for services as trustee, and $5,000 as compensation for services as administrator). The question that we must decide is whether these payments violated either Section 302 of the LMRA or the language of the applicable trust agreement itself. We find for the purposes of this preliminary motion that plaintiff will probably succeed in proving that Heller was not entitled to receive any compensation for his activities as trustee of either of the funds.
To justify his receipt of compensation from the Welfare Trust Fund, Heller relies exclusively on the following provision of the trust indenture (Article III, Section 5):
It appears to the court that the compensation proviso of the above section is in clear violation of the most fundamental requirement set forth in Section 302 of the LMRA—that any trust organized pursuant to that statute be for "the sole and exclusive benefit of the employees," 29 U.S.C. § 186(c)(5).
It seems beyond cavil that any trust set up so as to allow its two trustees to have an aggregate ten percent interest in "all moneys and income" received by the fund runs afoul of Section 302. As defendant Heller himself recognizes in his affidavit, under Article III, Section 5, each of the two trustees would be entitled to receive as annual compensation $98,274.15, or five percent each of the almost two million dollars which was added to the trust in the form of money and income during the fiscal year ending June 30, 1974. Such compensation would be unconscionable for most trusts, and certainly for a Section 302 trust. The funds which make up this trust res are not paid to the trust as acts of beneficence, but rather to satisfy a contractual obligation owed by employers to a union and the employees so represented. Lamb v. Carey, supra, 498 F.2d at 793.
The fact that Heller received only $18,750 in salary from the Welfare Trust Fund is of no consequence. If the salary proviso is invalid, there is no other authorization for any compensation —other than the reimbursement for expenses —that can be found in the trust instrument.
In analyzing the problem before the court, it is important to emphasize that trust funds created pursuant to Section 302 of the LMRA must be strictly scrutinized. Such funds are unique in the sense that they are established under a specific exception to the LMRA. As the Supreme Court observed in Arroyo v. United States (1959) 359 U.S. 419, 425-26, 79 S.Ct. 864, 868-869, 3 L. Ed.2d 915:
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...Adm'rs, Inc., 481 F.2d 387, 391 (5th Cir.1973), cert. denied, 415 U.S. 957, 94 S.Ct. 1484, 39 L.Ed.2d 571 (1974); Wynn v. Heller, 391 F.Supp. 507, 510 n. 7 (S.D.N.Y.1975); Insley v. Joyce, supra note 36, 330 F.Supp. at 1234; Giordani v. Hoffmann, supra, 295 F.Supp. at 471.53 UMWA Health & R......
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