# Petition — McNamara v. Johnston

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1976
- **Citation:** 425 U.S. 911

## Text

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; 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
EE s' 6.d so 'e Sou 65.456 6 O86 CWAO Ow OS WO l
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
ee ee baeeeeeeees< 3
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FICERS HAS BEEN SUPERCEDED BY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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385003_1505%3A1. Public record. Not legal advice.