Opposition — McNamara v. Johnston

Supreme Court 7

FILED

JAN 28 1976

IN THE

Supreme Court of the United States

OcTOBER TERM, 1975

No. 75-920

BERNARD W. McNamara, et al.,

Petitioners,

v.

Ropert JOHNSTON, et al.,

Respondents.

BRIEF IN OPPOSITION FOR RESPONDENTS

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Seventh Circuit

STEPHEN I. ScHLOsSBERG Joun A. FILLIon

1125 Fifteenth St., N.W. M. Jay WHITMAN

Washington, D. C. 20005 8000 East Jefferson Ave.

Detroit, Michigan 48214

Katz & FriepMAN

7 South Dearborn St.

Chicago, Illinois 60603

Counsel for All Respondents

Press or Brron S. ApaMs Parintinc, Inc., WasHincton, D. C.

SS,

TABLE OF CONTENTS

Page

Counterstatement of the Question Presented ........ 1

Counterstatement of the Case ................... ae. SB

BS occ cccncececcsesesisderecccsescetevsseds 6

SI 6.606 c6ediesdndnendesdbackscsceeascesees 10

INDEX OF AUTHORITIES

CasEs:

Cort v. Ash, 422 U.S. 66 (1975) ................00.. 7

Hood v. Barbers, 454 F.. 2d 1347 (7th Cir 1972) ...... 7

Johnson v. Nelson, 325 F. 2d 646 (8th Cir. 1963) .... 6,7

Machinists v. Street, 367 U.S. 740 (1961) ........ 2, 4, 5, 8

Marker v. Shultz, 485 F. 2d 1003 (D.C. Cir. 1973) .... 6

McNamara v. Johnston, 522 F. 2d 1157 (7th Cir. 1975)

5, 6, 8, 9

Phillips v. Osborne, 403 F. 2d 826 (9th Cir. 1968) ..... 7

Pignotti v. Sheet Metal Workers, 477 F. 2d 825 (8th

Cir. 1973), cert. den. 414 U.S. 1067 (1973) ...... 6,7

Pipefitters v. United States, 407 U.S. 385 (1972) .... 2,8

Railway Clerks v. Allen, 373 U.S. 113 (1963) . .2, 3, 4, 5-6, 8

Reid v. UAW Local 1093, 80 LRRM 2886, (ND Okla.

1972), aff’d 479 F. 2d 517 (10th Cir. 1973), cert.

den. 414 U.S. 1076 (1973) .......... cece eee eee 3, 6

US. v. Boyle, 482 F. 2d 755 (D.C. Cir. 1973), cert. den.

Ge SSD kewkscccevesdeess covuacées 7,9

U.S. v. CIO, 335 U.S. 106 (1948) ................005. s

STATUTES:

Corrupt Practices Act, 18 U.S.C. §610 .............. 4,7

Labor-Management Reporting and Disclosure Act of

1959 (LMRDA), 29 U.S.C. § 411 et seg. ........ 1,5

Title Il, 29 U.S.C § 431 et seq.

§ 201(c), 29 U.S.C. § 431(c) .................. 4

il Authorities Continued

Page

Title V, 29 U.S.C. § 501 et seq.

0 GE, SP Dae BES hoecicccccccdssesy 2, 4, 7, 8, 9

§ 501(a) 29 U.S.C. §501(a) ..... 1, 3, 4, 5, 6, 7, 8, 9

§$ 501(b) 29 U.S.C. §501(b) .......... 1, 3, 4, 6, 7, 9

§501(c) 29 U.S.C. §501(c) ..............06. 4,9

OTHER:

Restatement (Second) of Agency .................. 9

A. Cox, Internal Affairs of Labor Unions Under the

Labor Reform Act of 1959, 58 Mich. L. Rev. 819

(ERED cs ovesccdcduscandvayseeipenneniee «

R. Smith, The Labor-Management Reporting and Dis-

closure Act of 1959, 46 Va. L. Rev. 165 (1960) .... 8

IN THE

Supreme Court of the United States

OcTOBER TERM, 1975

No. 75-920

BERNARD W. McNAMARA, ef al.,

Petitioners,

Vv.

RoBERT JOHNSTON, et al.,

Respondents.

BRIEF IN OPPOSITION FOR RESPONDENTS

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Seventh Circuit

COUNTERSTATEMENT OF THE QUESTION PRESENTED

The petitioners urged the Court below to expand

federal jurisdiction by transmuting § 501(a) & (b) of

the LMRDA*®* into a vehicle by which an individual

union member can impose derivative damages on and

secure injunctive relief against officers for certain ex-

1 Labor-Management Reporting and Disclosure Act of 1959

(LMRDA), 29 USC § 411 et seq., § 501, commonly known as the

‘*Landrum-Griffin’’ Act.

2

penditures, even though those expenditures were au-

thorized by the governing bodies of the organization.

Did the Seventh Circuit, in light of the legislative

history of § 501 correctly refuse such an unprecedented

expansion of federal jurisdiction, instead relegating

the petitioners to remedies expressly provided by

Congress elsewhere in the federal labor statutes, and by

this Court in Street and Allen??

COUNTERSTATEMENT OF THE CASE

Petitioners, plaintiffs below, seek certiorari from the

unanimous decision of the Seventh Circuit, per Fair-

child, C.J., affirming Judge William Bauer’s dismissal

of the Complaint for failure to state a claim.

The UAW’s Constitution sets up UAW Community

Action Progams (CAP).* In UAW Region 4, the

Illinois State CAP Council has been established, along

with a Greater Chicago Area CAP Council to admin-

ister these programs.* Subordinate bodies of the UAW,

* Machinists v. Street, 367 U.S. 740 (1961); Railway Clerks v.

Allen, 373 U.S. 113 (1963).

3 UAW Administrative Letter of May 19, 1969, attached as Ex-

hibit A to the Complaint. The UAW has two parallel CAP struc-

tures—regular CAP, and V-CAP. UAW Voluntary CAP (UAW

V CAP) is financed entirely by voluntary contributions not dues

money and those contributions are expended for example on the

making of federal political contributions. See Pipefitters v. United

States, 407 U.S. 385. Regular CAP, here at issue, makes expen-

ditures for other purposes and is financed by dues money, as ex-

plained below.

4 The individual defendants herein are (or were) officers of the

UAW and these CAP Councils. Robert Johnston is the Regional

Director of the UAW Region 4, which includes Illinois. James

Wright was Chairman of the UAW Chicago Area Community Ac-

tion Program (CAP) Council. Gerald Peterson was the Secretary-

3

including Local 558, the petitioners’ Local, were re-

quired to Wfiliate with the appropriate CAP Council. °

The regular UAW CAP structure is financed by 3%

of monthly dues.* Expenditures are made by vote of

the elected delegates to each CAP Council, or, between

meetings, by the elected executive bodies of the Council.

Any UAW Member who dissents from this use of his

dues, has a right under Article 16 §7 of the UAW

Constitution to obtain a pro-rata rebate which includes

the 3% of dues allotted to CAP, as well as other ex-

penditures for political and ideological purposes.’

Disagreeing with the UAW Constitution, the peti-

tioners filed suit under § 501(a) & (b) of the LMRDA,

29 U.S.C. §501(a) & (b), seeking injunctive relief

forbidding the organization’s officers from spending

funds for ‘‘ partisan political activities’’ or ‘‘ideological

causes’’ with which these particular plaintiffs disagree,

and derivative damages from these officers for expendi-

tures of this sort.*

Treasurer of the Illinois CAP Council. Emil Mazey is the Secre-

tary Treasurer of the International Union, UAW. Leonard Wood-

cock is the President of the UAW. The UAW intervened as party

defendant.

5 UAW Administrative Letter of May 19, 1969, attached as Ex-

hibit A to the Complaint. This requirement is now a part of the

UAW Constitution, see Art. 37 §§ 1 & 2. All Loeals are bound

by the UAW Constitution, Art. 38 §6. The Local 558 ‘‘nullifica-

tion’’ resolution which the Petition emphasizes, pp. 3-4, was void

ab initio.

® LAW Constitution, Art. 16 § 6.

7 All that is required is a letter to the UAW’s Secretary-Treas-

urer. Reid vy. UAW Local 1093, 80 LRRM 2886, (ND Okla. 1972)

aff'd 479 F. 2d 517 (10th Cir. 1973), cert. den. 414 U.S. 1076

(1973). See: Railway Clerks v. Allen, 373 U.S. 113, 123-124

(1963).

8 Complaint, 2d & 3d prayers for relief and Count II {¥ 9-14.

4

The Complaint based jurisdiction solely upon the

provisions of §501(b) for alleged violations of the

fiduciary requirements found in §501l(a) of the

LMRDA. The Complaint, however, does not allege

fiduciary violations by self-dealing, personal profit,

fraud, misappropriation, or disobedience. Instead, it

broadly attacks social expenditures as breaches of trust

even where expressly authorized and commanded by

the organization’s constitution, and by directives of its

governing bodies. Nor did the petitioners seek: an

accounting under § 201(c) of the LMRDA, 29 U.S.C.

§ 431(c), the provision of the Act expressly tailored

to that purpose;° a pro-rata rebate under the UAW

Constitution, or its judicial equivalent, Machinist v.

Street, 367 U.S. 740, 771-775 (1961), Railway Clerks v.

Allen, 373 U.S. 113, 123-124 (1963) ; or criminal prose-

eution under §501(c) of the LMRDA, 29 U.S.C.

§ 501(c), or the Corrupt Practices Act, 18 U.S.C. § 610,

although they make unsupported conclusory assertions

of criminal violation of the latter.

The Seventh Circuit affirmed Judge Bauer’s dis-

missal of the Complaint, and rejected petitioners’ asser-

tion that, under § 501, an organization’s officers are

derivatively liable for civil breach of fiduciary duty

simply because money is spent with authorization, but

over the objection of some member of the organization.

® This is particularly curious in light of the tenor of the Petition,

p. 7, where the petitioners suggest that their principal goal is an-

accounting. But the right to information is not at issue here. The

Seventh Circuit held that the petitioners failed to state a claim

under § 501. Accounting is a matter of remedy under § 501(b).

Of course, that remedy is available only if a claim is stated first.

Plaintiffs’ stress on an accounting, therefore, begs the question.

If information were their object, they would have pleaded § 201(c)

and tried to meet that section’s ‘‘just cause’’ requirement. They

did not.

b)

The Court below concluded, in conformity with the

common law, that, absent adverse dealing, personal

gain, disobedience, or the like, an officer’s civil fidu-

ciary duties must. be tested by the authorization of his

principal—here, the union ‘‘as a group,’’ §501(a),

rather than some particular objecting member. 522

F. 2d at 1163. The Seventh Cireuit grounded this

conclusion, not only on the language of §501, but

also on careful examination of the legislative history

of the LMRDA. 522 F. 2d at 1163, 1165." Against

this background, the Seventh Circuit examined specific

provisions in the UAW Constitution and resolutions

of the UAW Convention at length. 522 F. 2d at 1164.

Finding adequate authorization in these, the Court

below affirmed the District Court, refusing to permit a

broad extention of federal jurisdiction. ”

10 As the Court below points out, there is a well-established dis-

tinction between conferring authority on an agent and attempting

to excuse breaches of trust. 522 F. 2d at 1164 (quoting express

legislative history).

11 The Court below

**deem[ed] it significant that the UAW has a rebate procedure

whereby union members who object to CAP 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 be in no

position to claim a breach of trust.’’ [522 F.2d at 1166.]

In Street and Allen this Court struck a delicate balance between

the right of the majority to political and community activities, as

against the right of dissenting individuals not to finance those ac-

tivities. In both cases, the Court refused to enjoin the operation

of union security provisions and instead held that individuals

could recover a pro-rata rebute of dues spent over their objection.

And the Allen Court urged unions to provide their own rebate

6

ARGUMENT

The Seventh Circuit rejected the petitioners’ argu-

ments through the following straight-forward, re-

strained analysis:

Congress, as evidenced by both the language of § 501

(a) and (b) and its legislative history, intended that

section to incorporate the common law approach to

fiduciary responsibility. The Complaint is devoid of

allegations of adverse dealing, personal gain, disobedi-

ence of the principal and other such conduct. In the

UAW’s ease, there is specific authorization from the

principal for the conduct of which petitioners complain.

So, under the established rules of agency, the agent

officers cannot be held derivatively liable for the use

of the organization’s property, even in an unlawful

manner, since the principal authorized the agent’s con-

duct.”

Petitioners concede here, as they did in the Court

below,” that this is purely a § 501(b) case:

‘It should be noted that plaintiffs here are not

asserting any implied private cause of action to

procedures. See: 373 U.S. at 123-124; Marker v. Shultz, 485 F. 2d

1003, 1005 (D.C, Cir. 1973). The UAW was the first to provide a

rebate system, now judicially approved. Reid v. UAW Local 1093,

479 F.2d 517 (10th Cir. 1973), cert. den. 414 U.S. 1076 (1973).

Here the petitioners did not use that rebate procedure. 522 F. 2d

e* 1166.

The Seventh Circuit therefore correctly refused to distort § 501

(a) & (b) into an unrestricted license to expand derivative actions

which undo Street and Allen.

*? Indeed Johnson vy. Nelson, 325 F.2d 646 (8th Cir. 1963), and

Pignotti v. Sheet Metal Workers, 477 F.2d 825 (8th Cir. 1973),

cert. den. 414 U.S. 1067 (1973) suggest that if the officials had re-

fused to make authorized expenditures for social or political pur-

poses, the disobedience would subject them to suit under § 501(b).

8 522 F. 2d at 1165 n. 8.

7

enforce 18 U.S.C. section 610. Their action seeks

relief under 29 U.S.C. section 501(b) .. .”’ [ Peti-

tion p. 10]

This concession, without more, makes irrelevant Cort

v. Ash, 422 U.S. 66 (1975), the first question presented

by the Petition, and the entire discussion at pp. 8-10

of the Petition. Cort unanimously rejects the attempt

of stockholders, seeking both injunctive relief and der-

ivative damages, to imply a private cause of action

against corporate officers into 18 USC § 610. As the

instant petitioners disavow any implied private action

to enforce § 610, Cort is not germane. Their case must

stand or fall strictly on § 501(a) & (b). The Seventh

Circuit amply demonstrated that it falls.

Petitioners’ arguments for granting the writ there-

fore comes down to two assertions: (i) that the fed-

eral courts have misunderstood the legislative history

of § 501, and (ii) that this Court should find a conflict

between the instant civil case and the criminal case of

U.S. v. Boyle, 482 F.2d 755 (D.C. Cir. 1973), cert.

den. 414 U.S. 1076 (1973). Petitioners offer nothing

else. We shall treat with these claims in order:

There is no reason for this Court to address the lan-

guage and legislative history of § 501. The Circuits

are in agreement. The Seventh Circuit’s reasoning

here rests on a few unexceptionable principles:

14 B.g., Hood v. Barbers, 454 F.2d 1347 (7th Cir. 1972) ; John-

son v. Nelson, 325 F.2d 646 (8th Cir. 1963); Pignotti v. Sheet

Metal Workers, 477 F. 2d 825 (8th Cir. 1973), cert. den. 414 U.S.

1067 (1973); Phillips v. Osborne, 403 F.2d 826 (9th Cir. 1968).

The express language of §501(a) imposes a fidu-

ciary duty in favor of the union ‘‘as a group.’’ This

disposes of the petitioners’ argument that disregard

for the wishes of any objecting member breaches the

duty.

Congress intended § 501 to impose on union officers

the common law standards of fiduciary duty, therefore,

in the absence of adverse dealing, personal gain, or

disobedience of the principal, the test is authorization

by the principal. Allegations of such misconduct are

absent here, so the Court below quite properly turned

to the matter of authorization, delving into a body of

union provisions and resolutions unique to the UAW,

but of no general significance, and on the basis of these,

determined that the expenditures were authorized.

And, finally, the legislative history of § 501 disavows

any intent to prohibit union involvement in polities.

This is not only patent in Senator MecClellan’s re-

marks “ but a union’s right to do so has been repeatedly

confirmed by this Court."* This answers the claim that

political spending isa per se violation of fiduciary duty.

1° The Court below properly paid particular heed to the remarks

of Senator McClellan, the chief proponent of the fiduciary respon-

sibility provision, who assured Senator Kennedy that § 501 was

not intended to interfere with COPE. 522 F.2d at 1165. Peti-

tioner’s assertion, p. 11, that the Seventh Circuit relied on the

opponents of § 501 is flatly wrong.

E.g., Pipefitters v. United States, 407 U.S. 385 (1972); Rail-

way Clerks y. Allen, 373 U.S. 113 (1963) ; Machinists v. Street, 367

U.S. 740 (1961) ; U.S. v. CIO, 335 U.S. 106 (1948). The commen-

tators agree: A. Cox, International Affairs of Labor Unions Under

the Labor Reform Act of 1959, 58 Mich. L. Rev. 819, 828-9 (1960) ;

and R. Smith, The Labor Management Reporting and Disclosure

Act of 1959, 46 Va. L. Rev. 165, 228 (1960).

The Seventh Circuit’s reading of § 501 and its history,

thus, merely confirms well-settled law. The lower

Courts ultimate conclusions, while based on those inter-

pretations, turn on a body of UAW authorizations of

ne general significance beyond this case.

Last, the Seventh Circuit’s discussion of U.S. v.

Boyle, 482 F.2d 755 (D.C. Cir. 1973), cert. den. 414 U.S.

1076 (1973), is grounded on long established principles.

522 F.2d at 1165 n.10. Boyle was a criminal case under

a distinct provision, § 501(c).’* Boyle held that author-

ization cannot insulate an agent from criminal liability.

But in this civil case, as between agent and principal,

‘‘fundamental fairness requires that an agent not be

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

lawful manner when it is reasonable to infer that the

principal authorized the agent’s conduct.’’ 522 F.2d at

1165. Thus, while authorization is not a defense to

criminal liability, it will defeat civil recovery by the

principal. In so holding, the Seventh Circuit followed

the common law agency rules set out in the Restatement

(Second) of Agency. 522 F.2d at 1165-1166.

17 Although part of § 501, § 501(c) contains its own recitation

of duty; it does not rely on the recitation of duty in § 501(a), as

does § 501(b).

10

CONCLUSION

For the foregoing reasons, the Court should deny the

Petition.

Respectfully submitted,

STEPHEN I. ScHLOssBERG Joun A. FILuion

1125 Fifteenth St., N.W. M. Jay Wairman

Washington, D. C. 20005 8000 East Jefferson Ave.

(202) 296-7484 Detroit, Michigan 48214

(313) 926-5216

Karz & FrrepMan

7 South Dearborn St.

Chicago, Illinois 60603

(312) 263-6330

Counsel for All Respondents

Dated: January 26, 1976.