Petition — McNamara v. Johnston

de, ee

; Pasa i D ag

1 |

DEC 29 1975.

IN THE “Pf MICHAEL RODAK, JR., CLERK

Supreme Court of the United States

OCTOBER TERM, 1975

No. 75-9204

BERNARD W. McNAMARA, et al,

Petitioners,

ROBERT JOHNSTON, et ai,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

JOHN L. KILCULLEN

Webster, Kilcullen & Chamberlain

1747 Pennsylvania Ave., N.W.

Washington, D.C. 20006

(202) 785-9500

Attorney for Petitioners

Of Counsel:

WILLIAM J. O’BRIEN

135 S. LaSalle Street

Chicago, Illinois 60603

(313) 263-3212

Washington, 0.C. @ CLB PUBLISHERS’ « LAW PRINTING CO. @ (202) 393-0625

Nn eee

(i)

TABLE OF CONTENTS

Page

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DD acini ek nw 'elale Geta et 4b Ok Caw a 2

8, ns oes Sa Dee ae ene oboe 2

a a. cas be ob O44 6 eee eee 2

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REASONS FOR GRANTING THE WRIT .............. 7

1. THE QUESTION OF WHETHER JURIS-

DICTION UNDER SECTION 501(b) OF

THE LMRDA TO ENJOIN VIOLATIONS

OF FIDUCIARY DUTIES BY UNION OF.

FICERS HAS BEEN SUPERCEDED BY

THE FEDERAL ELECTION CAMPAIGN

ACT AMENDMENTS OF 1974 IS AN

IMPORTANT QUESTION OF LAW WHICH

SHOULD BE SETTLED BY THISCOURT......... 7

ll. THE DECISION OF THE COURT BELOW

IS IN CONFLICT WITH APPLICABLE

DECISIONS OF THIS COURT, AND WITH

DECISIONS OF OTHER’ CIRCUITS,

PARTICULARLY THE DECISION OF THE

DISTRICT OF COLUMBIA CIRCUIT IN

eee 10

ET Te TT SOT Te ee eT ee eee 13

Appendix A — Section 501(a) and (b) of the Labor

Management Reporting and Disclosure Act of

1959, Title 29 United States Code, Section

oc. Sons Gabbe i woke oe ewes Sexe la

Title 18 United States Code, Section 610 ........... lb

Appendix B — Opinion of the United States Court

of Appeals for the Seventh Circuit ................ le

(ii)

Page

TABLE OF AUTHORITIES

Cases:

Anderson v. Vestal, 79 LRRM 2755 (M.D. Tenn.

PA SS Sar RR es Ss Pe get re ea 6

Cort v. Ash, 422 U.S. 66 95 S.Ct. 2080, 45 L.Ed.2d

PE 6 ewkn cower eh eee es eae ee kes 8

Pipefitters v. United States, 407 U.S. 385, 33

Bh @ Re Ff oe 2) res see ee 13

Union Electric Co. of Missouri v. Boehm, 92

F.Supp. 177 (D.C. Mo., 1950), appeal dismissed

ae FO GS GE eee c cb uneeeoeeeeess 12

United States v. Boyle, 482 F.2d 755 (D.C. Cir.

1973) cert. denied 414 U.S. 1076, 38 L.Ed.2d

De uh és ot pS he WENA CNS OOOO Oe eRe Oe ORD 6,11

Statutes:

Federal Corrupt Practices Act, Section 610; 18

ee MN GI Sh vc cect evevias 2, 3,4, 6, 8, 10, 13

Federal Election Campaign Act Amendments, Pub.

ay ED 6-4o 00 04 as W600 DOO e888 6O 6.88 2,3,4,7,8

Labor Management Reporting and Disclosure Act of

1959, section 501(a) and (b); 29 USC, section

SPT eer re ree 2, 3,4, 7,8, 10, 11

IN THE

Supreme Court of the Anited States

OCTOBER TERM, 1975

No.

BERNARD W. McNAMARA, et al,

Petitioners,

ROBERT JOHNSTON, et al.,

Responuents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Petitioners pray that a Writ of Certiorari issue to

review the opinion and judgement of the United States

Court of Appeals for the Seventh Circuit entered in this

proceeding on September 16, 1975.

OPINION BELOW

The opinion of the United States Court of Appeals

for the Seventh Circuit, which is reported at 522 F.2d

1157, is printed in Appendix B.

2

JURISDICTION

The opinion and judgement of the United States Court

of Appeals for the Seventh Circuit was entered on Sep-

tember 16, 1975. By Order of this Court dated December

1, 1975 petitioners’ time for filing a petition for a writ of

certiorari was extended to December 29, 1975.

Jurisdiction of this Court is invoked under 28 USC

section 1254(1).

QUESTIONS PRESENTED

Does the Federal Election Campaign Act Amend-

ments of 1974, Pub. L. No. 93-443, deprive the federal

courts of jurisdiction under section 501(b) of the Labor

Management Reporting and Disclosure Act, 29 USC

section 501(b), to provide relief to rank and file union

members to prevent unlawful diversion of union funds

into election campaigns of candidates for federal office?

Are union officers relieved of their fiduciary duty to

provide an accounting to the union members for union

funds expended for illegal election campaign contribu-

tions by reason of general clauses in the union’s

constitution or convention proceedings which purport

to authorize the illegal election campaig.. contributions?

STATUTES INVOLVED

This case involves interpretation of section 501(b) of

the Labor Management Reporting and Disclosure Act of

3

1959, 29 U.S.C. section 501(b), (hereinafter LMRDA),

and the Federal Corrupt Practices Act, 18 U.S.C.

section 610, as amended by the Federal Election

Campaign Act Amendments, Pub. L. 93-443. Pertinent

portions of these statutes are reprinted in Appendix A.

STATEMENT OF THE CASE

Plaintiffs, rank and file members of Local 558 of the

United Auto Workers Union (UAW), ar employed as

production unit workers in a General Motors Corpora-

tion plant at Willow Springs, Illinois. Defendants are

officers of the UAW or its subordinate bodies.

Plaintiffs, under a compulsory union shop agreement,

must pay monthly membership dues to UAW. The

UAW constitution, as augmented by administrative

instructions issued by the president of UAW Inter-

national, requires that all local unions in_ Illinois,

including Local 558, set aside a minimum of three

percent of each member’s monthly membership dues as

a per capita payment to the UAW Illinois State

Community Action Program (CAP). The complaint

alleged that the CAP funds have been and are being

used for the purpose of making campaign contributions

to candidates for federal office, and for support of

various radical groups and causes.

On May 6, 1969, a majority of the members of Local

558 adopted by referendum vote a resolution objecting

to the use of their dues money to support political

candidates and radical organizations. Formal notice of

the resolution was given to the defendant UAW officers,

but they continued, despite the objections of the

4

members, to expend union money for campaign

contributions to candidates for federal elections, and

for support of various ideological causes.

After requesting the executive officers of Local 558

to bring legal proceedings, and receiving no satisfaction,

plaintiffs brought this action in March 1971 asserting

federal jurisdiction under section SOIl(b) of the

LMRDA. Their complaint alleged that the defendant

officers breached their fiduciary duty imposed by

section 50l(a) of the Act, 29 U.S.C. section 501(a),

and requested that the defendant officers be required to

account for CAP funds received and expended by them.

The prayer for relief also asked that defendants be

enjoined from continuing to divert union dues money

into political campaigns, and that damages be recovered

on behalf of the union for such monies unlawfully

spent.

The UAW International moved to intervene, to

provide counsel for the defendant officers, and. to

dismiss the complaint. The district court granted the

motion to intervene and dismissed the complaint for

failure to state a claim. (360 F.Supp. 519 N.D. III.

1973). The dismissal was appealed to the Seventh

Circuit Court of Appeals,. which affirmed the lower

court’s decision.

The Court of Appeals held that the Federal Election

Campaign Act Amendments of 1974 vest the Federal

Election Commission with primary jurisdiction with

respect to the civil enforcement of 18 U.S.C. section ©

610 after January 1, 1975, and hence “requires

dismissal of plaintiff's complaint for lack of federal

jurisdiction in the district courts insofar as it requests

that defendants be enjoined from contributing CAP

funds to political campaigns for federal office under

5

circumstances that allegedly violate the Federal Corrupt

Practices Act, 18 U.S.C. section 610”. 522 F.2d at

1161.

The Court of Appeals further held that the defendant

union officers may not be charged with a breach of

their fiduciary duty if their expenditure of union funds

for federal election campaign contributions was

sanctioned by the union constitution or convention

actions. In this connection the court cited the

provisions in Articles 2 and 23 of the UAW constitution

reciting that among the objectives of the UAW are:

*..to vote and work for the election of

candidates and the passage of improved legislation

in the interests of all labor.” (Art. 2, § 4)

“To engage in legislative, political, educational,

civic, welfare and other activities which further,

directly or indirectly, the joint interest of the

membership of this organization in the improve-

ment of general economic and social conditions in

the United States of America, Canada, and

generally in nations of the world.” (Art. 2, § 5).

and that:

“The UAW Community Action Program (CAP)

shall engage in community, civic, welfare, educa-

tional, environmental, cultural, citizenship-

legislative, consumer protection, community

services and other activities to improve the

economic and social conditions of UAW members

and their families...” (Art. 23, § 1).

The court disregarded plaintiffs’ contention that the

cited provisions of the UAW constitution do not

expressly authorize use of union funds for political

campaign contributions to federal candidates, and if

they were intended to do so in violation of 18 U.S.C.

6

section 610 are void as against public policy. The court

held that “despite the alleged illegality of certain CAP

expenditures, so long as the expenditures were

authorized in some fashion, plaintiffs can have no cause

of action on behalf of the union for breach of fiduciary

duty”. 522 F.2d at 1166.

The Court of Appeals attempted to distinguish the

present case from United States v. Boyle, 482 F.2d 755

(i+ C. Cir. 1973), cert. denied 414 U.S. 1076, 38

L.Ed.2d 438, in which the Court of Appeals for the

District of Columbia Circuit held that neither an

authorization by the union’s governing body nor a

general grant of power under the union’s constitution

excused a union officer from responsibility for making

illegal political campaign contributions. The Court of

Appeals also refused to follow Anderson v. Vestal, 79

LRRM 2755 (M.D. Tenn. 1971), in which a union

officer was held to have violated his fiduciary duty

under the LMRDA by making illegal expenditures from

union funds for a federal election campaign. In making

these distinctions the Court of Appeals stated:

“Boyle was a criminal prosecution brought under

18 U.S.C. §610 and 29 U.S.C. §$501(c), and

evidence that the union authorized the defendant’s

violation of the law was irrelevant. In the instant

case where the plaintiffs purport to represent the

union membership in a civil action for breach of

fiduciary duty such a showing is a complete

defense. While Anderson was a civil case brought

on behalf of the union under § 501 and the union

officers were charged with spending union funds in

violation of §610, there was no showing there,

unlike the present case, that the expenditures were

authorized by some union resolution or policy.”

$22 F.2d at 1165, fn. 10.

re wenn ee 3

—

7

On these grounds the Court of Appeals affirmed the

district court’s order dismissing plaintiff's action,

thereby denying them the accounting and other relief

to which they are expressly entitled under 501(b) of

the LMRDA.

REASONS FOR GRANTING WRIT

I.

THE QUESTION OF WHETHER JURISDIC-

TION UNDER SECTION 501(b) OF THE

LMRDA TO ENJOIN VIOLATIONS OF

FIDUCIARY DUTIES BY UNION

OFFICERS HAS BEEN SUPERCEDED BY

THE FEDERAL ELECTION CAMPAIGN

ACT AMENDMENTS OF 1974 IS AN

IMPORTANT QUESTION OF LAW WHICH

SHOULD BE SETTLED BY THIS COURT.

Section 501(b) of the LMRDA expressly establishes

jurisdiction in the federal district courts to entertain

suits by union members to secure an accounting by

union officers respecting their use of union funds,

authorizes issuance of injunctions to restrain continued

violations of the union officers’ fiduciary duties, and

provides for recovery of damages for the benefit of the

union and its members. Plaintiffs’ Complaint in the

present action asserted jurisdiction under section

501(b).

Although there is nothing in the Federal Election

Campaign Act Amendments of 1974 which indicates

any congressional intent to revoke or curtail the

statutory grant of jurisdiction for suits by union

8

members under section 501(b) of the LMRDA, the

Court of Appeals, in affirming the dismissai of the

complaint for lack of jurisdiction, stated:

“We have concluded that the Campaign Act

Amendments require the dismissal of plaintiffs’

complaint for lack of federal jurisdiction in so far

as it requests that defendants be enjoined from

contributing CAP funds to political campaigns for

federal office under circumstances that allegedly

violate the Federal Corrupt Practices Act, 18

U.S.C. section 610.” 522 F.2d. at 1161.

In reaching this conclusion the Court of Appeals

cited the decision of this Court in Cort v. Ash 422 U.S.

66 95 §.Ct. 2080, 45 L.Ed.2d 26 (1975), and stated:

“We are aware that the instant case differs from

Cort in that we are dealing with a labor

organization, not a corporation, and that we are

asked to construe a statute, not to imply a cause

of action, but we nevertheless reach the same

result. Both the language and the legislative history

of the Campaign Act Amendments indicate that

Congress intended the statutory remedy before the

Commission to govern all allegations of this type

in future federal elections.” 527 F.2d. at 1162.

A reading of this Court’s decision in Cort v. Ash does

not support the conclusion reached by the Court of

Appeals. In that case Ash, a corporate stockholder,

brought a_ stockholders derivative suit asserting an

implied private cause of action for injunctive relief and

damages to remedy alleged violations by corporate -

management of 18 U.S.C. section 610 in connection

with the 1972 presidential election. The Circuit Court

of Appeals for the Third Circuit had held that the

stockholder had an implied cause of action to secure

9

the requested relief, but this Court concluded that there

was no private remedy the stockholder could exercise

under that statute because the legislative history of the

Corrupt Practices Act “...demonstrates that the

protection of ordinary stockholders was at best a

secondury concern”. 45 L.Ed.2d. at 38. This Court

went on, however, to note that the situation of a

corporate shareholder is substantially different from

that of a union member, and commented that:

**... We note that Congress did show concern, in

permanently expanding §610 to unions, with

protecting union members from use of their funds

for political purposes. See United States v. CIO,

supra, 335 U.S., at 135, 142 (Rutledge, J.,

concurring). This difference in emphasis may

reflect a recognition that, while a stockholder

acquires his stock voluntarily and is free to dispose

of it, union membership and the payment of union

dues is often involuntary because of union security

and check-off provisions. Cf.Machinists v. Street,

‘ 367 U.S. 740 (1960). It is therefore arguable that

the federal interest in the relationship between

members and their unions is much greater than the

parallel interest in the _ relationship between

stockholders and _ state-created corporations. In

fact, the permanent expansion of § 610 to include

labor unions was part of comprehensive labor

legislation, the Taft-Hartly Act of 1947, while the

1907 Act dealt with corporations only with regard

to their impact on federal elections. We intimate

no view whether our conclusion that § 610 did not

give rise directly to a cause of action for damages

in favor of stockholders in state-created corpo-

rations necessarily would imply that union

members, despite the much stronger federal

interest in unions, are also relegated to state

remedies.” 45 L.Ed.2d. at 38, fn. 13.

10

It should be noted that plaintiffs here are not

asserting any implied private cause of action to enforce

18 U.S.C. section 610. Their action seeks relief under

29 U.S.C. section SOIl(b) for an accounting and

recovery of damages on behalf of the .nion, rather than

for themselves as individuals. They are asking, in effect,

that the defendant union officers be required to

disclose any illegal campaign contributions, and repay

to the union treasury any funds they unlawfully

diverted into election campaigns. Nothing in the

Campaign Act Amendments, or the legislative history,

can be construed as having been intended to wipe out this

beneficial protection of union funds which Congress

created under the LMRDA.

Accordingly, the Court of Appeals erred in denying

plaintiffs, and their union, the legal remedies expressly

authorized in section 501(b) of the LMRDA.

THE DECISION OF THE COURT BELOW IS

IN CONFLICT WITH APPLICABLE DE-

CISIONS OF THIS COURT, AND WITH

DECISIONS OF OTHER’ CIRCUITS,

PARTICULARLY THE DECISION OF THE

DISTRICT OF COLUMBIA CIRCUIT IN

THE BOYLE CASE.

In imposing a fiduciary obligation upon union.

officers to hold the union’s money solely for the

benefit of the union and its members, Congress wrote

into section SOl(a) of the LMRDA a specific caveat

that:

11

““A general exculpatory provision in the constitu-

tion and bylaws of such a labor organization or a

general exculpatory resolution of a governing body

purporting to relieve any such person of liability

for breach of the duties declared by this section

shall be void as against public policy.”

Notwithstanding this plain language of the statute the

Court of Appeals selectively culled from the legislative

history of the LMRDA certain isolated remarks made in

floor debates, principally by opponents of the fiduciary

section, as evidence that “Congress did not intend

section 501 to hamper union financial contributions to

... political organizations”. 522 F.2d at 1165, and that

*... So long as the expenditures were authorized in

some fashion, plaintiffs can have no cause of action for

breach of fiduciary duty”. 522 F.2d. at 1166.

The same argument was made and rejected in United

States v. W.A. Boyle, 482 F.2d. 755 (D.C. Cir. 1973),

cert. denied 414 US 1076. There the president of the

United Mine Workers of America was charged under

section 50l(c) of the LMRDA with having unlawfully

converted union funds for purposes of contributions to

candidates for federal office, and pleaded in defense

that the transfer of the funds in question was

authorized by the union’s governing body, and was

within the general powers granted to him under the

union’s constitution.

The Court of Appeals in a carefully reasoned opinion

rejected this argument, and said:

“In the instant case the use to which the money

was converted could not have been lawful. As we

have seen, the contribution of $5000 constituted a

violation of section 610. Neither authorization by

any union officer or body, nor any resulting

12

benefit to the union, would have rendered lawful

transfer of general union funds to a federal

political campaign. In Pipefitters v. United States,

407 U.S. 385 (1972) the Supreme Court specifi-

cally reserved the question whether even a

unanimous vote of ail union members could

validate a union political contribution under § 610.

A similar defense was presented in Union Electric Co.

of Missouri v. Boehm, 92 F. Supp. 177 (DC Mo.,

1950), appeal dismissed 196 F.2d. 715 (8th Cir. 1951),

a suit brought for the benefit of stockholders of a

public utility company to secure an accounting by

corporate officers with respect to funds expended by

them for political contributions and other payments to

influence legislation. The defendant officers contended

that the payments in question were ordered by their

superiors, the directors of a parent corporation, and

thus no blame, legal or moral, attached to them. They

also. contended that the political and _ legislative

expenditures were for the benefit of the corporation

because over the course of the years involved they

“saved” several million dollars to the company as the

result of legislation successfully blocked. The court

rejected this defense stating:

“Defendants plead ratification and estoppel be-

cause the parts played by them in securing and

dispensing company funds were directed by the

managing officers of North American Company,

parent company of plaintiffs. There is little or no

competent evidence now in the record to sustain

this defense, but assume [sic] it establishes

defendants were executing orders of officers of the

parent company ... A corporation has no power

to ratify acts which are illegal and immoral in the

eves of the law ~ 92 F.Supp. 177, 181 (Emphasis

added.)

13

In the present case the conclusion of the Court of

Appeals that the political contributions made _ by

defendants from union funds were authorized by the

UAW Constitution is an unwarranted and unsupported

assumption, which even if true could not constitute a

valid authorization to make contributions to candidates

for federal office in violation of federal law.

In Pipefitters v. United States, 407 U.S. 385, 33

L.Ed.2d. 11, 92 S.Ct. 2247 (1972) this Court held that

although under 18 USC section 610 unions may

establish and administer political funds derived from

voluntary contributions of the union members, such

funds must be separate and segregated, and may not be

derived from membership dues and assessments. In the

present case the CAP funds were derived direcuy from

union membership dues required as a condition of

employment under a compulsory union shop agreement.

CONCLUSION

If allowed to stand, the decision of the Court of

Appeals will encourage and accelerate the already

massive influence which labor unions exercise in federal

elections. In practical effect it insulates union officers

from any accountability to the dues paying members

for illegal diversion of union money into political

campaigns. It holds, contrary to Boyle, that if an

authorization for political contributions can be inferred

from the language of the union constitution or bylaws

the union officers can rely on such authorization in

making illegal contributions to federal candidates, and,

in so doing, are relieved of their fiduciary obligatidns

14

under the LMRDA. The inevitable result will be the

creation of an enormous loophole in the Corrupt

Practices Act, and a further weakening of the

protection which Congress intended for rank and file

union members under the LMRDA.

For these reasons a writ of certiorari should issue to

review the opinion and judgment of the Court of

Appeals for the Seventh Circuit.

Respectfully submitted,

JOHN L. KILCULLEN

Webster, Kilcullen & Chamberlain

1747 Pennsylvania Ave., N.W.

Washington, D.C. 20006

(202) 785-9500

Attorneys for Petitioners

Of Counsel:

WILLIAM J. O’BRIEN

135 S. LaSalle Street

Chicago, Illinois 60603

(313) 263-3212

\essarily paid or incurred

APPENDIX A

LABOR MANAGEMENT REPORTING

AND DISCLOSURE ACT OF 1959

TITLE V—SAFEGUARDS FOR LABOR ORGANIZATIONS

FIDUCIARY RESPONSIBILITY OF OFFICERS OF LABOR ORGANIZATIONS

Sec. 501. (a) Fhe officers, agents, shop stewards, and other repre-

sentatives of a labor organization occupy positions of trust in

relation to such organization and its members asa group. It is, there-

fore, the duty of each such person, taking into account the special

problems and functions of a labor organization, to hold its money and

property solely for the benefit of the organization and its members

and to manage, invest, and expend the same in accordance with its

constitution and bylaws and any resolutions of the ss bodies

adopted thereunder, to refrain from dealing with such organization as

an adverse party or in behalf of an adverse party in any matter con-

nected with his duties and from hulding or acquiring any pecuniary

or personal interest which conflicts with the interests of such organt-

zation, and to account to the organization for any profit received b

him in whatever capacity in connection with transactions conduct

by him or uncer his direction on behalf of the organization. A gen-

eral exculpatory provision in the constitution and bylaws of such a

labor organization or a general exculpatory resolution of a governin

body purporting to relieve any such person of liability for breach o

ae ¥ a declared by this section shall be void as against public

icy,

(b) When any officer, agent, shop steward, or representative of any

labor organization is alleged to have violated the duties declared in sub-

section (a) and the labor orgenization or its governing board or offi-

cers refuse or fai] to suc or recover dainages or secure an accounting

or other apprepriate relief within a reasonable time after being

requested to do so by any mernber of the labor oryrnization, such mem-

be? may sue such officer, age::t, shop steward, o> repreventetive in any

district court of the United States or ia any State court of competent

jurisdiction to recover damuges or secvre an accounting er «ther

apprepriate relief for the Lenctit of tie labor orgeniz\tion. No such

procecding shall be brought except upon leave cf the court obtained

| upon verilied application and for good cause shown which application

may be made ex parte. The trial judje may allot a reasonable part of

the recovery in any action ur.der this subsection to pay the fees of

counsel prosecuting the suit at the instance of the nl of the labor

organization and to — ym such member for any expenses nec-

y him in connection with the litigation.

BEST COPY AVAILABLE

»

TITLE 18

UNITED STATES CODE ANNOTATED

& 610. Contributions or expenditures by national banks, corporations

or labor organizations

It is unlawtul for any national bank, or any corporation organized by

authority of any law of Congress, to make a contribution or expendi-

ture in connection with any election to any political office, or in connec-

tion with any primary election or political convention or caucus held to

select candidates tor any politieal office, or for any corporation whatever,

or any labor organization to make a contribution or expenditure in con-

nection with any election at which Vresidential and Vice Presidential

electors or a Senator or Representative in, or a Delegate or Resident

Commissioner ty Congress ure to be voted for, or in connection with any

primary election.or political convention or caucus held to select candi-

dates for any o: the forecoing offices, or for any candidate, political

committee, or other person to accept or receive any contribution prohibit-

ed by this section

Every corporation or labor organization which makes any contribu.

tion or expenditure in violation of this section shall be fined not more

than $5,000, and every otfieer or director of any corporation. or officer

of any labor organization, who consents to any contribution or expendi-

ture by the corporation or labor organization, as the case may be, and

any person who accepts or receives any contribution, in violation of this

section, shall be fined not more than $1,000 or imprisoned not more than

one year, or both, and it the violation was willtul, shall be fined not

more than Flee" or imprisoned not more than two years, or both.

For the purposes of this section “labor organization" means any or-

kanization o any kind. or any ageney or employee representation cow

mittee or plan, in whieh employees participate and which exist for the

purpose, in whole or in part, of dealing with employers concerning griev-

ances, labor cisputes, wages, rates of pay, hours of employment, or con

ditions of work.

As used in this section, the phrase “contribution or expenditure” shal!

include any direct or indirect payment, distribution, loan, advanee, de-

posit, or gift of money. or any services, or anything of value (except a

loan of money by a national or State bank made in accordance with the

applicable banking laws and regulations and in the ordinary course of

business) to any eandidate, campaign committee, or political party or

organization, in connection with any election to any of the offices referred

to in this section; but shall not inceiude communications by a corporation

to its stockholders and their families or by a labor organization to its

inembers and their families on anv subject; nonpartisan registration and

get-out-the-vote campaigns by a corporation aimed at its stockholders and

their families, or by a labor organization aimed at its members and their

families; the establishment, administration, and solicitation of contribu- se

Hons to & separate segregated fund to be utilized for polities! purposes by

a corporation or labor organization: Provided, That it shall be unlawful

for such a fund to make a contribution or expenditure by utilizing money

or anything of value secured by physieal foree, job diserimination, financial

reprisals, or the threat of foree, job diserimination. or finanetal re prisal;

or by dues, fees, or other monies required as a condition of membership

in a labor organization or as a condition of employment er by monies

obtained in ans commercial transaction

~—_ Ge

Ic

APPENDIX B

3n the

Gnited States Court of Appeals

For the Seventh Circuit

No. 73-1829

Bernarp W. McNamara, Er AL.,

Plaintiffs- Appellants,

Vv.

Ronert Jonnstox, er An,

Defendants-Appellees.

Appeal from the United States District Court for the

Northern District of Illinois, Eastern Division

No. 71-C-654

WnruuiaMm J. Baver, Judge.

ARGUED SeptremsBer 20, 1974—Decipen SerrempBer 16, 1975

Before Farrcuiip, Chief Judge, Castise, Senior Cirenit

Judge, and Sprecuer, Circuit Judge.

Famcnip, Chief Judge. The primary question before

us is whether rank and file union members can bring an

action, pursuant to the Lahor Management Reporting and

Disclosure Act (popularly referred to as tne Landrum-

Griffin Act) §501, 20 U.S.C. S501) (1975), against union

officers for breach of fiduciary duty when the officers,

in aceordance with general resolutions and the union’s

constitution, anthorize and contribute union funds to

political candidates and social causes,

I.

Plaintiffs, rank and file members of Local 558 of the

International United Antomobile, Aerospace and Agricul-

2c

tural Implement Workers of America (UAW), are em-

loved as production unit workers in the Fisher Body

Plant of General Motors Corporation at Willow Springs:

Illinois. Defendants are (or were) officials of the UA

or its subordinate bodies: Robert Johnston, Regional Di-

rector of UAW Region 4, and Chairman UAW Illinois

State Community Action (CAP) Council; James Wright,

Chairman of UAW Chicago Area CAP Council; Gerald

Peterson, former Secretary-Treasurer of the Illinois CAP

Council; Emil Mazey, International UAW Secretary-

Na + tf and Leonard Woodcock, International UAW

President.

Plaintiffs, under a union shop agreement, pay monthly

membership dues to UAW. The UAW constitution, as

augmented by administrative instructions issued by the

president of UAW International, requires that all local

unions in Illinois, including Local 558, set aside a mini-

mum of three percent of each member’s monthly mem-

bership dues as a per capita payment to the UAW

Iinois State Community Action Program (CAP). These

CAP assessments are then spent to further activities and

8" considered heneficial to union members and their

amilies."

On May 6, 1969, a majority of the members of Local

558 adopted a resolution objecting to the use of their

dues money to support political and certain ideological

eauses and groups:

‘In 1968, the UAW 2lst Constitutional Convention authorized the

International's Executive Board to establish the Community Action

Program. An Administrative Letter from UAW International esident,

Walter P. Reuther, to all local unions, dated May 19, 1969, explains

that:

The object and p of the UAW Community Action Program

(CAP) will be to develop, promote and implement policies and

rograms which will improve and enrich the quality of American

ife. In furtherance, thereof, the UAW Community Action Program

will engage in community, civic, welfare, educational, environmental,

cultural, citizenship-legislative, consumer community ser-

vices and other activities designed to improve economic and

social conditions of UAW members and their families and to

— the general welfare and democratic way of life for all

people.

In addition, the UAW Community Action Program may cooperate

and work with community groups in the common effort to make

a better life for all people where the Bm may and objectives

of such groups have the same basic jectives as the UAW.

— at 5.

See UAW Constitution, Art. 23, §1. All UAW Local Unions must

affiliate with CAP. UAW Constitution, Art. 37, §4.

3c

Resolution—the membership of UAW Local 558, party

to a Union Shop, deny use of all or any part of

their dues money in support of any political candidate,

political organization, state or federal legislation, any

organization or group engaged in violence or using

the threat of violence, the illegal seizure or destruc-

tion of property, engaged in social disorder, promoting

racial agitation, and any organization or group that

preaches, promotes or identifies with Marxist or

communist ideology. Furthermere, this membership

(loes not authorize any person, organization or group

to act as spokesman for UAW Local 558 on any

politieal endorsement, legislative endorsement, social

problem or movement of any kind unless or until

the membership has clearly made such an endorse-

ment by voting 68% in support by secret ballot

none the dues check-off lists to verify voters eligi-

vility.

Formal notice of the resolution was given to the UAW

officials.

Despite this resolution, the defendants, it is alleged,

contributed CAP funds to social causes and political can-

didates in state_and federal elections.? After requesting

the executive officers of Loeal 558 to bring legal pro-

ceedings and receiving no satisfaction, plaintiffs brought

?The complaint alleges that defendants, Johnston, Wright and Peter-

son, contributed CAP funds to Adlai Stevenson III, a candidate for

United States Senate in 1970; various candidates for the United States

House of Representatives in the 1970 Congressional elections; and

various candidates for Illinois state office, including the Illinois General

Assembly and Constitutional Convention in 1970. Defendants Mazey

and Woodcock are specifically charged with contributing union funds to:

National Students Association (NSA)

Students for a Democratic Society (SDS)

Students Non-Violent Coordinating Committee (SNCC)

New Mobilization for Peace

Turn Toward Peace

Citizens Committee for a Nuclear Test Ban

National Committee for a Sane Nuclear Policy (SANE)

Americans for Democratic Action (ADA)

United World Feceralists

Peace With Freedom Inc.

Dubois Memorial Committee

United States Committee for the UN

American Association for the UN

Confederate Spanish Societies

United States Committee for Democracy in Greece

4c

this action asserting federal jurisdiction under §501(b)

of the Labor Management Reporting and Disclosure Act,

29 U.S.C. §501(b).2 Their complaint alleges that defen-

dants breached the fiduciary duty imposed by §(501(a) of

that Act, 29 U.S.C. $501(a):

A. By failing to hold such money and property for

the benefit of said labor organization and _ its

members as required by Section 501(a) of the

Labor Management Reporting and Disclosure Act

(29 1.S.C., Section 501(a)).

B. By failing to manage, invest and expend said

money and property in accordance with the con-

stitution, byiaws and resolutions of said labor

organization.

C. By ignoring said resolutions and dealing with the

members of said labor organization as an ad-

3 The oa provisions of §501 provide:

(a) officers, agents, shop stewards, and other representatives

of a labor organization occupy positions of trust in relation to such

organization and its members as a group. It is, therefore, the duty

of each such person, taking into account the special problems and

Se dae tan ent, Sprmmatian, to Dold le money end propery

solely for the benefit the organization and its members and to

manage, invest, and expend the same in accordance with its constitu-

tion and bylaws and any resolutions of the governing bodies adopted

thereunder, to refrain from dealing with such organization as an

adverse party or in behalf of an adverse party in any matter connected

with his duties and from holding or acquiring any pecuniary or

personal interest which conflicts with the interests of such organiza-

tion, and to account to the organization for any profit received by

him in whatever capacity in connection with transactions conducted

by him or under his direction on behalf of the organization. A general

exculpatory provision in the constitution and bylaws of such a labor

organization or a general exculpatory resolution of a governing body

purporting to relieve any such person of liability for breach of the

duties declared by this section shall be void as against public policy.

(b) When any officer, agent, shop steward, or representative of any

ing board or officers refuse or fail to sue or recover damages or

time Le F. - —, to do so by any member of the labor

organization, such member may sue such officer, agent, shop steward,

or . 9 in any district court of the United States or in

any State court of competent jurisdiction to recover damages or

secure an accounting or other appropriate relief for the benefit of.

the labor organization. No such proceeding shall be brought except

upon leave of the court obtained upon verified application and for

good cause shown, which application may be made ex parte. The

a reasonable part of the recovery in any action

to pay the fees of counsel prosecuting the suit

of the labor organization and to compen-

expenses necessarily paid or incu by

Sc

verse party, and by expending said moneys

and property in a manner that conflicts with the

interest of the members of said labor organiza-

tion.

}). By paying and expending said money and prop-

erty to and for candidates for Federal office in

violation of the Federal Corrupt Practices Act,

18 U.S.C., Section 610.

The prayer for relief requests defendants to account for

all monies received and expended in their capacity as

union officials over the last five years; an injunction re-

straining defendants from an union monies to

olitical and social causes; damages for all monies un-

awfully diverted; and attorneys’ fees and all other relief

the court deems proper.

The UAW International moved to intervene, to provide

ecounse| for defendants, and to dismiss the complaint.

The district court granted the motion to intervene, 55

F.R.D. 441 (N.D. Ill. 1972), and dismissed the complaint

for failure to state a claim, 360 F. Supp. 517 (N.D.

Ill. 1973). This appeal followed. We affirm.

IT.

After we heard oral argument, Congress passed and

the President signed into law the Federal Election Cam-

paign Act Amendments of 1974, Pub. L. No. 93-443, 88

Stat. 1263 (Oct. 15, 1974), and the Supreme Court de-

cided Cort v. Ash, 95 S. Ct. 2080 (1975). The parties

have submitted supplemental briefs assessing the im-

pact of this new law on this appeal, and we have con-

cluded that the Campaign Act Amendments require the

dismissal of plaintiff’s complaint for lack of federal

jurisdiction insofar as it requests that defendants be

enjoined from contributing CAP funds to political cam-

paigns for federal office under circumstances that allegedly

violate the Federal Corrupt Practices Act, 18 U.S.C. §610.*

Ny 4 ary

t is unlawful for any national bank, or any corporation organized

by authority of any law of Congress, to make a contribution or

expenditure in connection with any election to any political office,

or in connection with any primary election or political convention

or caucus held to select candidates for any political office, or for

6c

The 1974 Campaign Act Amendments created a Federal

lection Commission, $310(a), 88 Stat. 1280, and estab-

lished an administrative procedure to process complaints

alleging violations of 18 U.S.C. $610 after January 1,

* (Continued)

any corporation whatever, or any labor organization to make a

contribution or expenditure in connection with any election at

which Presidential and Vice Presidential electors or a

or Representative in, or a Delegate or Resident Commissioner

to Congress are to be voted for, or in connection with any

primary election or itical convention or caucus held to select

candidates for any the foregoing offices, or for any candidate,

political committee, or other person to accept or receive any

contribution prohibited by this section.

Every corporation or labor organization which makes any con-

tribution or expenditure in violation of this section shall be

fined not more than $5,000; and every officer or director of any

corporation, or officer of any labor organization, who consents

to any contribution or expenditure by the corporation or labor

organization, as the case may be, and any person who accepts

or receives any contribution, in violation of this section, shall be

fined not more than $1,000 or imprisoned not more than one year,

or both; and if the violation was willful, shall be fined not more

than $10,000 or imprisoned not more than two years, or both.

For the purpose of this section “labor organization” means any

organization of any kind, or any agency or employee representation

committee or plan, in which employees participate and which exist

for the purpose, in whole or in part, of dealing with employers

concerning grievances, labor disputes, wages, rates of pay, hours

of employment, or conditions of work.

As used in this section, the phrase “contribution or expenditure”

shall include any direct or indirect payment, distribution, loan,

advance, deposit, or gift of money, or any service, or anything

of value (except a loan of money by a national or State bank

made in accordance with the applicable banking laws and regula-

tions and in the ordinary course of business) to any candidate,

campaign committee, or political party or organization, in connection

with any election to any of the offices referred to in this section;

but shall not include communications by a corporation to its stock-

holders and their families or by a labor organization to its members

and their families on any subject; nonpartisan registration and

t-out-the-vote campaigns by a co tion aimed at its stock-

ers and their families, or by a labor organization aimed at its

members and their families; the establi ent, administration,

and solicitation of contributions to a separate segregated fund

to be utilized for political p by a corporation or labor

organization: Provided, That it be unlawful for such a fund

to make a contribution or expenditure by utilizing money or any-

thing of value secured by physical force, job discrimination,

financial reprisals, or the threat of force, job discrimination, or.

financial reprisal; or by dues, fees, or other monies required as a

condition membership in a labor organization or as a condition

of employment, or by monies obtained in any commercial transaction.

Tc

1975. §§314, 410, 88 Stat. 1284, 1304. The Amendments

expressly vest the Commission with “primary jurisdic-

tion with respect to the civil enforcement of” 18 U.S.C.

§610. §310(b), 88 Stat. 1281. The legislative history of the

measure confirms that henceforth the Commission is

charged with the civil enforcement of $610.°

In Cort v. Ash, supra, a shareholder brought a deriva-

tive suit seeking to imply a private cause of action for

injunctive relief and damages to remedy alleged viola-

tions of 18 U.S.C. §610 by corporate management in

connection with the 1972 Presidential election. The action

was filed prior to the 1974 Campaign Act Amendments,

but the Court. invoking well established principles, never-

theless held that the Campaign Act Amendments ‘eun-

stitute an intervening law that relegates to the [Federal

Election] Commission’s recognizance respondent’s com-

plaint as a citizen or stockholder for injunctive relief

against any alleged violation of $610 in future elections.”

95 S. Ct. at 2087. The Court then examined those factors

that are considered when determining whether a private

remedy is implicit in a statute not expressly providing

one and held that there was no federal cause of action

for damages on behalf of a corporation for the alleged

violation of 18 U.S.C. §610.

The first branch of Cort is dispositive of plaintiffs’

claim for injunctive relief. We are aware that the in-

stant case differs from Cort in that we are dealing with

a lahor organization, not a corporation, and that we are

5 When presenting the Conference Report on S. 3044, the Cam

Act Amendments to the House, Representative Hays, Chairman o e

House conferees stated:

In order to assure that civil suits are not misused in a partisan

manner, and that the complex and sensitive rights and duties

stated in the Act are administered expertly and uniformly, the

Act provides that all civil complaints predicated upon or pertaining

in any manner to Titles I and III of the Act or sections 608

through 617 of Title 18 United States Code shall be channeled

to the [Federal election] Commission. . . . The delicately balanced

scheme of procedures and remedies set out in the Act is intended

to be the exclusive means for vindicating rights and declaring

the duties stated therein. (Emphasis ongies) 120 Cong. Rec.,

H10330 (daily ed. Oct. 10, 1974). See Id, H10328 (remarks of

Rep. Brademas); 120 Cong. Rec., S18525 (daily ed. Oct. 8, 1974)

(remarks of Sen. Cannon); S. Conf. Rep. No. 93-1237, 93rd Cong.,

2d 7. ay U.S. Code Congressional and Administrative News

5661- ( ).

8c

asked to construe a statute, 29 U.S.C. §501, not to imply

a cause of action, but we nevertheless reach the same

result. Both the language and the legislative history of

the Campaign Act Amendments indicate that Congress

intended the statutory remedy before the Commission to

govern all allegations of misconduct of this type in future

federal elections. Accordingly, plaintiffs’ complaint must

he dismissed to the extent it requests injunctive relief for

future violations of $610.

IT.

Whether plaintiffs’ complaint insofar as it seeks an

accounting and damages for past CAP expenditures for

partisan political activities and social causes and an

injunction barring the expenditure of funds in the future

for social causes and political activities not in violation

of 18 U.S.C. §610 states a cause of action under 29 U.S.C.

S501 is another matter.

UAW argues at the outset that plaintiffs have failed

to comply with $501(b)’s requirement that an unsuccess-

inl demand must be made upon the union or its officers

to seek relief against the defendants before suit may be

commenced.” Plaintiffs made a demand upon the officers

of Loeal 558 but not upon the officers of the UAW In-

ternational. While we tend to agree with UAW that a

demand should have been made on the International, on

the facts of this ease we do not believe this omission

defeats our jurisdiction. We have recognized the similarity

between a S501 action and a shareholder's derivative suit

and have noted that, as in the case of a derivative suit,

a demand is not always necessary. Hood vy. Journeymen

Barbers, Hairdressers, Etc., 454 F.2d 1347, 1354, n. 23

(7th Cir. 1972). Here, the UAW has consistently and

vigorously argued that defendants were acting at all

times in compliance with the union's constitution and duly

idopted resolutions, and it is apparent that a demand

upon the International for relief would have been futile.

Under these circumstances, plaintiffs’ failure to make

such a request is excused, Cf. Nussbacher v. Continental |

*See note 3, supra.

9c

Illinois National Bank, No. 74-1142 (7th Cir., July 15,

1975).

Stripped of its essentials, plaintiffs’ position on the

merits is that union officers have a fiduciary duty under

§501 to hold and spend union funds for the union mem-

bers’ benefit and that where members object to a par-

ticular expenditure and that expenditure is made, the offi-

cers, at least as to the objecting members, breach that

duty. The UAW, in response, contends that Congress

looked to the union’s constitution, bylaws, and resolutigns

to define a union officer’s fiduciary responsibilities and

that so long as an officer expends funds without per-

sonal gain in compliance with these standards, there is

no breach of any duty imposed by §501. We accept the

union’s construction of the statute as the correct state-

ment of the law and reject plaintiffs’ claim. See Hood v.

Journeymen Barbers, Hairdressers, Etc., supra, at 1355.

Section 501’s language and the legislative history of

the Landrum-(Criffn Act make it clear that Congress

placed primary reliance on union rules and policies to

establish the scope of a union representative’s fiduciary

obligations. The statute itself specifies that union offi-

cers act as fiduciaries not for each member but for the

labor organization “as a group” and then charges that

union officers must expend union money and property

“in accordance with its constitution and bylaws and any

resolutions of the governing bodies adopted thereunder.

Landrun-Griflin was in part a response to the dis-

closure of oficial pilfering, union Gana and the use

of union office for personal profit during hearings held

by the Select Committee on Improper Activities in the

Labor or Management Field chaired by Senator McClellan.

S. Rep. No. IS7, 86th Cong., Ist Sess.. 2 U.S. Code

Congressionnl and Administrative News 2318 (1959).

To expose conflicts of interest and stamp out embezzle-

ment and self-dealing by union officials, the Aet required

unions to comply with certain reporting and disclosure

requirements, established new erimes, and codified the

fiduciary obligations of union representatives. See Cox,

Internal Affairs of Labor Unions Under the Labor Re-

form Act of 1959, 58 Mich. L. Rev. 819 (1960).

| REST COPY AVARABLE

10c

Senator McClellan, a principal congressional advocate

of the fiduciary duties of union officials, argued —

the Senate debates that union officials should only spen

union funds for legitimate union purposes, and he equated

these purposes with those “purposes which were prope

under the [union’s] constitution.” 105 Cong. Rec. 6525

(1959) (Office of the Solicitor, U. S. Dep’t. of Labor, Legis-

lative Ilistory of the Labor-Management Reporting and

Disclosure Act of 1959, 1021 (1964), [hereinafter cited as

Legislative History]). Senator Kennedy’s remarks evince

a like intent:

Union officers will not be guilty of breach of trust

under this section [$501] when their expenditures are

within the authority conferred upon them either by

the constitution and bylaws, or by a resolution of the

executive board, convention or other appropriate body

—ineluding a general meeting of the members—not

in conflict with the constitution and bylaws. 105 Cong.

Ree. 17900 (1959) (Legislative History at 1075).

The House sponsors of section 501 entertained a similar

view of a union officer’s fiduciary obligations. H. R. —

741. S6th Cone. Ist Sess., 81-82) (1959), 2 TLS. Code

Congressional and Administrative News 2479-80 (1959).

See Cor, supra, at 829. See also, 105 Cong. Ree. 15690

(1959) (remarks of Rep. O’Hara) (Legislative History at

1065).

In the present ease, the UAW constitution (1970) con-

tuins ample anthorization for the expenditures plaintiffs

nilege to be violations of £501. Article 2 sets forth some

of the objectives of the UAW:

.. . to vote and work for the election of candi-

dates and the passage of improved legislation in the

interests of all lahor.” (Art. 2, §4)

“To engage in legislative, political, educational, civic,

welfare and other activities which further, directly or

indireetly, the joint interests of the membership of

this organization in the improvement of general eco-

nomic and social conditions in the United States of

America, Canada, and generally in nations of the

world.” (Art. 2, §5)

Article 28 establishes the objectives of the UAW’s Com-

munity Action Program:

lle

“The UAW Community Action Program [CAP] shall

engage in community, civic, welfare, educational, en-

vironmental, cultural, citizenship-legislative, consumer

protection, community services and other activities

to improve the economic and social conditions of

ne members and their families. . . .” (Art. 23,

1)

Other provisions authorize the expenditure of union funds

to achieve the purposes set forth in the constitution. (Art.

2, §6(a); Art. 7, $2).

Additional support for the expenditure of CAP funds

for political and social causes is found in the Proceed-

ings of the UAW’s Twenty-Second Constitutional Conven-

tion in 1970. At the convention, rank and file union repre-

sentatives approved numerous resolutions authorizing the

development of programs to promote civil rights, con-

sumer, educational, and environmental causes as well as

organizations advocating economic and social policies

favorable to the union.’

Plaintiffs contend, however, that these general consti-

tutional provisions and convention resolutions can pro-

vide no basis for the expenditures challenged here. They

argue first that each expenditure must be specifically au-

thorized by the union membership. But such a require-

ment would surely impose an impossible burden on the

union. No widespread large institution, whether private

association or publie body, can function if each execu-

tive expenditure requires constituent approval,

Plaintiffs’ alternative argument that the constitutional

provisions and convention resolutions are general exculpa-

tory clanses that are void under 29 U.S.C. §501(a) must

also fail. Section 501 was intended to follow “the well-

established distinction between conferring authority upon

an agent or trustee, which is permissible and protects

*The Convention em the UAW’s Program Recommendations

for CAP Councils which advocated the endorsement of political candi-

dates, the establishment of educational programs, rticipation in

community services, and ration with emtienmantl ond consumer

groups. Proceedings of the UAW’s Twenty-Second Constitutional Con-

vention 68-70 (1970). Other resolutions, for example, urged CAP

support for health care and welfare reform, Id. at 64; candidates

representing labor’s views in state and national elections, Id. at 108;

Union contact with young American workers and students, Id. at 124;

and measures to eliminate sex discrimination, Id. at 278-79.

12c

him against liability, and attempting to excuse breaches

of trust, which is here made void as against public

wlicy.” H. R. Rep. No. 741, 86th Cong., 1st Sess., 81-82,

t" S. Code Congressional and Administrative News, 2480

(1959). Without doubt, the provisions and resolutions

upon which the UAW relies fall within the former cate-

gory of measures that confer authority.

More troublesome is plaintiffs’ contention that the au-

thorizations found in the UAW constitution and conven-

tion proceedings are void as against public — in-

asmuch as they authorize violations of the Corrupt Prac-

tices Act, 18 U.S.C. §610. As noted above, the Supreme

Court in Cort vy. Ash declined to imply a federal civil

remedy for damages in a shareholder’s derivative suit

on behalf of a corporation for violation of $610. In a

footnote, however, the Court left open the question of

whether a stronger federal interest in labor organi-

zations may warrant a different result in a case where

a union member brought a private action for a_ viola-

tion of §610 against the union’s leadership. 95 S. Ct.

at 2089, n. 13. Mindful of this disclaimer, we have care-

fully considered whether plaintiffs’ allegation that de-

fendants expended CAP funds in violation of §610 is

properly asserted in and is sufficient to sustain this

$501 action.

Since we are asked to construe a statute, and not to

imply a eivil remedy for the violation of a criminal

statute, the legislative history of 4501 should be ac-

corded substantial, if not controlling, weight.* That history

quite explicitly indicates that Congress did not intend

$501 to hamper authorized union financial contributions

to community and political organizations.’ Senator McClel-

* Plaintiffs do not claim an implied cause of action. According to

their brief, their “action here is founded on an express statutory

grant of jurisdiction under 29 U.S.C. §501 .. . and was not p

upon the theory of an implied cause of action under 18 U.S.C. §610.”

*Congress in §501 did not intend to regulate or limit the purposes

for which a union may .~¥- its money as long as expenditures were

authorized by the union some manner. Smith,

The Labor ——

ment Reporting and Disclosure Act of 1959, 46 Va. L. Rev. 165,

(1960); Cox, supra, at 828-29. Congress was fully aware that the

interests of labor organizations are not confined to the terms and

conditions of employment but rather extend to a broad range of

social and economic issues as effect their members off, as well as

on, the job. See y 10 . Rec. 17900 (1959) (remarks of

Sen. Kennedy) ( tive History at 1075); 105 Cong. Rec. 14988

(1959) (remarks of Morse) (Legislative History at 1058).

13c

lan, for example, assured Senator Kennedy that the

proposed legislation would not interfere with COPE, the

AFL-CIO’s political organization:

If the Senator has any thought that T am trying

to interfere with COPE, that is not correct. There

may be amendinents to that point, and to deal with

that direct question. However, T am not offering my

amendment on the direct question of political contri-

butions. Everyone knows my views on that subject, I

assume. This is not a drive at that situation. It is a

drive at the skulduggery of some leaders when they

meet in executive sessions and pay off this one

and pay off that one. 105 Cong. Rec. 6526 (1959)

(Legislative History at 1023).

Senator Morse echoed this view when he stated that:

“T have been assured that the fiduciary section will not

prevent political contributions. T trust the courts will

so interpret the language in the bill.” 105 Cong. Ree.

17872 (1959) (Legislative History at 1071).

We have previously recognized that Congress drew

upon the Restatement of Agency when it codified the

common law of fiduciary obligations in $501. Hood v.

Journeymen Barbers, Hairdressers, Ete.. supra, 454 F.2d

at 1355. Under that authoritv it is well established that

an agent cannot he insulated from criminal liability by the

fact that his principal authorized his conduct. But it is

equally clear, and fyndamental fairness requires, that as

between agent and principal, an agent cannot he held

liable for the use of the principal’s property in an un-

lawful manner when it is reasonable to infer that the

principal anthorized the agent’s conduct.” Compare Re-

statement (Second) of Ageney §359A with Jd. §19 eom-

ment a, §54 comment g, §411 comment e, and §412(2).

10For this reason, United States v. Boyle, 482 F.2d 755 (D. C. Cir.

1973), cert. denied, 414 US. 1076 and Anderson v. Vestal, 79 LRRM

2755 (MD. Tenn. 1971) do not aid plaintiffs. Boyle was a criminal

prosecution brought under 18 U.S.C. §610 and 29 US.C. §501(c), and

evidence that the union authorized the defendant’s violation of the

law was irrelevant. In the instant case where the plaintiffs purport

to represent the union membership in a civil action for breach of

fiduciary duty such a showing is a complete defense. While Anderson

was a civil case brought on behalf of the union under §501 and the

union officers were rged with spending union funds in violation

of §610, there was no ae there, unlike the a case, that the

expenditures were authorized by some union resolution or policy.

14c

It follows then that despite the alleged illegality of cer-

tain CAP expenditures, so long as the expenditures were

authorized in some fashion, plaintiffs can have no cause

of action on behalf of the union for breach of fiduciary

duty,

We also deem it significant that the UAW has a

rebate procedure whereby union members who object to

(‘AP expenditures can recover a pro rata share of that

part of their dues allocated to the CAP program.’ Thus

it cannot be said that the UAW leadership can arbitrarily

spend CAP funds on political causes they alone favor at

the expense of the views of the individual members. By

the same token, union members such as plaintiffs who

do not avail themselves of this rebate procedure appear

at least tacitly to consent to CAP expenditures and to

he in no position to claim a breach of trust.

Finally, on the particular facts of this case it is un-

necessary to recognize a cause of action for the alleged

violation of §610 to effectuate the purposes of the Cor-

rupt Practices Act. Congress extended the Corrupt Prac-

tices Act to cover labor unions to minimize the influence

" Art. 16, §7 of the Constitution of the International Union, UAW

(1970) provides:

Section 7. (a) Any member shall have the right to object to the

expenditure of a portion of his dues money for activities or causes

primarily political in nature. The te proportion dues

spent for such political purposes shall determined by a committee

of the International Executive Board, which shall be appointed by

the President, subject to the a val of said Board. e@ member

may perfect his objection by ividually notifying the International

Secretary-Treasurer of his objection by red or certified mail;

provided, however, that such objection be timely only during

the first fourteen (14) days of Union membership and during the

fourteen (14) days following each anniversary of Union ———-

An objection may be continued from year-to-year by individual notifi-

cations ren during each annual fourteen (14) day period.

(b) an objecting member is dissatisfied with the approximate

proportional allocation made by the committee of the International

Executive Board, or the disposition of his objection by the International

Secretary-Treasurer, he may appeal directly to the full International

Executive Board and the decision of the International Executive Board

shall be appealable to the Public Review Board or the Convention

— oe at the — | -_ _——— ot

provision was a y adop response to the Supreme

Court’s decisions in Machinists v. Street, 367 US. 740 (1961) and

Railway Clerks v. Allen, 373 U.S. 113 (1963). See Reid v. District Lodge

No. 1093, UAW, 479 F.2d 517, 520 (10th Cir. 1970), cert. denied, 414

U.S. 1076. Compare Pipefitters v. United States, 407 US. 385 (1972)

with United States v. CIO, 335 US. 106, 149 (1948) (Rutledge, J.,

concurring).

1Se

of unions in federal elections and to prevent the use

of union funds for political causes an individual member

or a minority of the union might oppose.” United States

v. CIO, 335 U.S. 106, 115 (1948); Pipefitters v. United

States, 407 U.S. 385, 402-09 (1972). But allowing plain-

tiffs to proceed and possibly recover damages will not

cure the impact of the alleged unlawful union contribu-

tions “upon an election already past.” Cort v. Ash, supra,

95 S. Ct. at 2091. And, as for the protection of minority

interests, the UAW rebate procedure appears to pro-

vide an adequate remedy.

18 U.S.C. §610 prohibits contributions or expenditures

by corporations or labor organizations in an election at

which federal officers are elected or nominated. This

limitation. suggests that Congress was focusing on the

regulation of elections within its power as elections rather

than on regulation of unions. The fact that $610 ap-

pears not to be designed as a regulation of union affairs

makes it less reasonable and natural to interpret 4501

to inelude a right of action for funds spent withi. the

authorization of expenditures of the union, but in vio-

lation of §610.

Under these cireumstances, we see no reason to deviate

from Congress’ apparent intention that $501 not be used

as a means for dissident union members to challenge au-

thorized expenditures.

IV.

Plaintiffs also assert that the district court erred in

allowing UAW's motion to intervene. [lowever meritorious

12Labor organizations were first included wtihin the coverage of the

Corrupt Practices Act by the War Labor Disputes Act of 1943, 57

Stat. 167. The Labor Management Relations Act of 1947, commonly

known as the Taft-Hartley Act, later made this expansion of the scope

of §610 permanent. The parties have »st directed us to and we have

independently been unable to discover any indication in the legislative

history of $610 that Congress intended to authorize a private cause of

action for union members to police the use of union funds for political

purposes. See S. . No. 101, 79th Cong. Ist Sess. (1945). The

relevant portions of the Taft-Hartley legislative history can be found

in Subcomm. on Labor of Senate Comm. on Labor and Public Welfare,

93rd Cong. 2d Sess. Legislative History of the Labor Management

Relations Act, 1947 (Comm. Print 1974). A single district court has

recognized a private civil action for violation of §610, a ntly

without consideration of the implied remedy problem. Barber v. Gibbons,

367 F. Supp. 1102 (E. D. Mo. 1973).

16c

this claim may have been at the time of the district

court’s decision, our resolution of merits of plaintiffs’

complaint renders the point academic. We only note that

in view of the union and union officials charged as de-

fendants in a §501 suit, it is a rare case in which in-

tervention should be allowed. See /nternational Brother-

hood of Teamsters v. Hoffa, 242 F. Supp. 246 (D. D.C.

1965); Highway Truck Drivers Local 107 v. Cohen, 182

F. —_ 608, 620 (F.D. Pa.), aff'd, 284 F.2d 162 (3rd

Cir. 1960), cert. demed, 365 U. S. 833 (1961). For similar

reasons, union officials charged as defendants in suits

of this nature should retain independent counsel and

bear the financial burden of their defense. Then, if they

“~~ they may properly be reimbursed b the union

or the costs of their legal defense. See Holdeman v.

Sheldon, 311 F.2d 2, 3 (2d Cir. 1962), aff’g, 204 F. Supp.

890, 895 (S.D. N-Y.).

Accordingly, the judgment appealed from is affirmed.

A true Copy:

Teste :

he PPP Pee eee eee eee eee eee eee eee)

Clerk of the U'nited States Court of

Appeals for the Seventh Circuit

USCA 4159—The Scheffer Press, Inc. Chicago, [linois—9-16-75—250