Petition for Writ of Certiorari — Freedman v. Morrissey

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1973

No. 73-478

ABRAHAM E, FREEDMAN,

Petitioner,

v.

James M. Morrissey, Josepn Papiiua, and Ratpu IpRAHIM,

Individually and on Behalf of the Members of the

NationaL Maritime Union or AMERICA,

Respondents and Cross-Petitioners,

and

JosepH Curran, SHANNON WaLL, WittiaM Perry,

Martin E. Secat and Leon Karcumer,

Respondents.

CROSS-PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Artuur E. McInerney,

Counsel for Respondents and

Cross Petitioners,

74 Trinity Place,

New York, New York.

(212) WH 4-7482

Joun S. CHapMAN, JR.,

Freperick M. ScHLATER,

Of Counsel

TAC TE RET NERS Cea

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PP RAEI ADE.

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TABLE OF CONTENTS

Opinions Below

Jurisdiction

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Statement of the Case and Outline of Previous Pro-

ceedings

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Reasons for Granting the Writ

Conclusion

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TABLE or Cases

Dickinson v. Petroleum Conversion Corp., 338 U.S.

MN EY ohhh Gh Gna bae a 6hicaasd heecac ccs 9

Grodsky v. Sipe, 30 F. Supp. 656 .................. 16

Maggio v. Zirtz, 333 U.S. 56 (1948) ............005. 9

Morrissey v. Curran, 302 F. Supp. 32, aff’d 423 F.2d

Weer hos a eat cad adend vekn as kek ce cis, 2, 6, 7,8

Morrissey v. Curran, 351 F. Supp. 775 .............. 12, 13

Village of Brookfield v. Pentis, 101 F.2d 516 ........ 16

Washington v. U.S., 357 U.S. 348 (1957) ............ 21

Wirtz v. NMU, 284 F. Supp. 47, aff’d 399 F.2d 544.. 9.10

Statutes Cirep

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LMRDA, See. 201, 29 U.S.C. 6481 .........00..5. 4, 14, 21

LMRDA, See. 401, 29 U.S.C. §481(a) .....0000. 3.4, 9, 11

LMRDA, See. 501, 29 U.S.C. § 501(a) & (b)

CPLR 213(2)

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TG Pe ON,

TABLE OF CONTENTS

MISCELLANEOUS

PAGE

Rule 19 Revised Rules of Supreme Court of the United

Btntes cceces padenss¥aabeuessaseecduatonens 6, 21

90 Corpus Juris Secundum § 263 ................. 16

Scott on Trusts, The Administration of the Trust,

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WAT ia AAT WR ETON GT re. Ran) iinet LE

In THE

Supreme Court of the United States

OCTOBER TERM, 1973

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ApraHaM E, Freepmay,

Petitioner,

Vv.

James M. Morrissey, JosepH Papmia, and Raeu IpRAHIM,

Individually and on Behalf of the Members of the

NationaL Maritime Union or AMERICA,

Respondents and Cross-Petitioners,

and

JosepH Curran, SHANNonN WaLL, Wiiiiam Perry,

Martin E. Secan and Leon Karcumer,

|

Respondents.

CROSS-PETITION FOR A WRIT OF CERTIORARI TO THE i

UNITED STATES COURT OF APPEALS 4

FOR THE SECOND CIRCUIT f

‘ ; , >

Cross-Petitioners, James M. Morrissey, Joseph Padilla i

and Ralph Ibrahim, on behalf of the members of the :

National Maritime Union of America (NMU) (plaintiffs) i

respectfully pray that a writ of certiorari issue to review iS

certain portions of a judgment of the United States Court E

of Appeals for the Second Circuit entered in the above :

entitled case on June 18, 1973. ;

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4

§

Opinions Below

Prior proceedings are reported at Morrissey v. Curran,

302 F. Supp. 32 (SDNY, 1969); affirmed, 423 F.2d 393;

cert. denied, 399 U.S. 928 (1970), 400 U.S. 862 (1970); on

remand, 336 F. Supp. 1107 (SDNY, 1972); 351 F. Supp.

775. The decisions of the District Court dated July 3,

1969 (2), June 29, 1972 (reversed, 423 F. 2d 393, supra)

and November 15, 1972 are not officially reported. The

opinion of the Court of Appeals dated June 18, 1973 is not

yet officially reported. All opinions not printed in peti-

tioner’s appendix are printed in cross petitioners’ sup-

plemental appendix.

Jurisdiction

The judgment of the Court of Appeals for the Second

Cireuit was entered June 18, 1973. A timely petition for

rehearing and for rehearing en banc by plaintiffs was de-

nied on July 17, 1973 (SA 45).* A petition for rehearing

filed by the defendant Perry was granted on August 6,

1973 (SA 46). Jurisdiction of this Court is invoked under

28 U.S.C. § 1254(1).

Questions Presented

1. Does a panel of a Court of Appeals have the power

to overrule another panel of the same court which had

made a binding decision on a prior appeal in the same

case?

* References to the petitioner’s appendix filed in this Court will

be preceded by A.

References to the cross petitioners’ supplemental appendix filed

in this Court will be preceded by SA.

References to the joint appendix filed in the Court of Appeals

will be followed by a.

2. When a pension plan is created by the membership

of a labor organization for the exclusive benefit of the

elected union officers, may the president of the union suc-

cessfully appoint persons as officers to enable them to

participate in such plan?

3. May a person be appointed to office in an interna-

tional or national labor union notwithstanding 29 U.S.C.

§ 481(a)?

4. Should a union officer, who has received notice that

an unlawful payment of $222,200.00 is about to be made

from union funds and does nothing, be exonerated from

liability simply because he did not himself direct such pay-

ment?

5. Does a union officer who is on notice that a substan-

tial unlawful payment is about to be made from union

funds to his good friend have an affirmative duty to pre-

vent such payment when he has power and opportunity to

do so?

6. May a trustee of a union pension fund who has made

an unlawful payment of $115,000 in April of 1966 and who

is placed on notice in May of 1969 that such payment was

unlawful, intentionally stand idly by for three years and

let the statute of limitations expire against his trust with-

out incurring a personal liability for his deliberate failure

to act?

7. Did the Court of Appeals exceed its authority in

making a finding of fact on an issue upon which the Dis-

trict Court did not pass—which finding was not supported

by the record and which was contrary to it?

RO, Cerw Or And other ©

4

Statutory Provisions Involved

The statutory provisions involved are 29 U.S.C. $§ 501(a)

and (b), 431 and 481(a). These provisions are printed in

the supplemental appendix (SA 40, 41 and 90).

Statement of the Case and Outline of

Previous Proceedings

In May of 1968 the plaintiffs*, who are members of the

NMJ, in good standing, became aware that certain persons

were being included in the NMU Officers’ Pension Plan

though they were not elected NMU officers. On May 17,

1968, one of the plaintiffs, James M. Morrissey, made de-

mand on the union, its officers and governing body for an

accounting and restoration of all damages for losses, lia-

bilities, expenses and expenditures suffered by the National

Maritime Union of America by reason of the purported

coverage of persons not elected to NMU office (non-of-

ficers) in the NMU Officers’ Pension Plan (SA 48-49).

When NMU failed to respond, the District Court granted

the plaintiffs leave to bring this action, Summary judg-

ment was entered, on the plaintiffs’ motion, directing the

defendants to account for and refund all money paid to

or for the account of non-officers and enjoining any fur-

ther such payments.

All the defendants appealed and the Court of Appeals

for the Second Circuit affirmed the interlocutory judgment

which had directed the defendants to account.

The defendants then filed two separate petitions for writs

of certiorari, both of which were denied by this Court. [399

U.S. 928 (1970) and 400 U.S. 826 (1970) |

The District Court upon remand after trial of the remain-

ing issues entered judgments in favor of the NMU and

* To reflect the actual alignment of the parties before this Court

and for the sake of clarity, the parties are here referred to as plain-

tiffs and defendants.

against the NMU Officers’ Pension Fund for $674,222.60;

against the defendants Perry and Freedman personally

for $263,307.00 and $272,740.50 in favor of the NMU Offi-

cers’ Pension Fund respectively.

Appeals were then taken to the Court of Appeals by

all the parties except the defendants Karchmer and Segal.

The plaintiffs’ appeal raised several issues, including: (1)

the limitation of the judgment against the NMU Officers’

Fund in favor of NMU to the sum of $674,222.60 although

the parties had stipulated that $1,628,921 had been paid

to the officers’ fund for non-elected persons*; (2) the

district court’s failure to surcharge the trustees for per-

mitting the statute of limitations to run against their trust

in April, 1973 by intentionally failing over a three-year

period of time to make any effort to recoup the unlawful

payment of $115,000 they had made to Irving Brauch in

1966 after they had been placed on notice in May of 1969

that such payment had, in fact, been unlawfully made; (3)

* Stipulation of amounts paid to the NMU Officers’ Pension

Fund for non-elected persons.

Salaries Contribution Interest

Total 1/8/71 6,388,006 1,689,597 385,972

Adjusted as

7/7/71 113,575 $1,729 2,605

6,274,431 1,657,868 383,367

Agreed 111,337 28,947 2,787

6,163,094 "1,628,921 380,580

Interest Adjusted

6/1/70 to 7/7/71 _ — 57,011

Total Interest ; 437,591

Contributions 1,628,921

2,066,512

to 8/23/71 14,661

2,081,173

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NGA S Gb VRAIN ERLE REELED AI i

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6

the district court’s refusal to condemn the immediate pay-

ment of $460,365 by Curran and Wall for the very same im-

proper and unauthorized purposes which prompted the

Court to mandate the return of the $674,222.60 to NMU in

the first instance; and (4) the refusal of the district court

to impose liability on Curran and Wall under 29 U.S.C.

§ 501 for their failure to prevent the unlawful, lump-sum

payment of $222,200.00 to Perry, a non-officer, out of the

officers’ pension fund after receipt of plaintiffs’ notice that

such unlawful payment was about to be made.

Reasons for Granting the Writ

(1)

The panel of judges on the second appeal undertook to

overrule the decision made by the panel of judges on the

prior appeal and held that the Officers’ Plan was not lim-

ited exclusively to elected officers but included some who

had been simply designated by Mr. Curran.

This was not only unjustified on the record but was also

in direct conflict with the decision made by a different

panel on the prior appeal. This conflicting decision “so

far departed from the accepted and usual course of ju-

dicial proceedings, or so far sanctioned such a departure

by a lower court, as to call for an exercise of this Court’s

power of supervision.” (Rule 19, Revised Rules of the

Supreme Court of the United States.)

On the prior appeal, the Court of Appeals affirmed the

interlocutory judgment which had directed the defendants

to account for all moneys paid out to or for the account of

non-officers. Morrissey v. Curran, 423 F.2d 393 (Lumbard,

Chief Judge, Danaher and Anderson, Circuit Judges; opin-

ion by Anderson, C.J., Danaher, C.J., dissenting). That

decision limited the governing document to the Plan as

approved by the members on February 16, 1953. In de-

scribing that instrument Judge Anderson said (423 F.2d

393, 395, SA 3):

7

“On February 16, 1953, the trustees adopted a plan

whereby pension rights accrued to the various elected

officials of the Union, including the president, secre-

tary, treasurer, vice-president, national port committee

member, branch agent, field patrolman, and patrolman.

No non-elected employee of the Union was included

under its coverage.” (Emphasis added.)

The Court of Appeals held that all subsequent attempts

to amend the February 16, 1953 Agreement and Declara-

tion of Trust and Pension Plan were void. Morrissey v.

Curran, 302 F. Supp. 32, aff’d 423 F.2d 393. According to

its express terms the trust was established by NMU “for

the exclusive benefit of its elected officials’? (SA 51) and

the plan defined “term of office” as the period of time an

officer is ‘‘elected to serve’? (SA 63).

There was no authority reposed in anyone to add per-

sons who were not elected to office by the membership—-

regardless of what title may have heen conferred upon

them. Thus the membership retained the right to say who

would benefit by this Plan.

Judge Bonsal recognized this initially when he para-

phrased the complaint to equate “non-officers” with per-

sons “who were not elected officers of NMU”. Morrissey

v. Curran, 302 F. Supp. 32, 33, SA 25:

“* * * The complaint alleges that defendants allowed

the Pension Plan to be amended in 1961, so as to in-

clude as participants designated employees of the

NMU, who were not elected officers of the NMU (non-

officers), in violation of the NMU Constitution then in

effect; and that the amendment was designed to siphon

NMU funds to the non-officers who were not authorized

to receive them.” (Emphasis added. Parenthetical

matter in original.)

Obviously the district court intended to define ‘‘non-

officers’? as employees ‘‘who were not elected officers”’.

3

3

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*

It had already equated ‘‘non-officers’’ to employees who

were not elected officers when it directed ‘‘the Trustees to

return to the NMU all moneys received by them for the

benefit of non-officers’’ (302 F. Supp. 36).

Judge Anderson, in affirming the district court, had un-

derstood what the district court intended when he said

that under the Officers’ Plan* “pension rights accrued to

the various elected officials of the Union” and “No non-

elected employee of the Union was included under its

coverage” (SA 3).

The decision on the prior appeal thus removed the vice

of allowing Curran to appoint those who would participate

in the Plan. The Plan was a lucrative one. The member-

ship had adopted it for the “exclusive benefit of its elected

officials” (SA51). This was the wish of the membership.

Now, on the second appeal, the same Court by a different

panel has held that the Plan was not limited to “elected”

officers. The strange thing is that Judge Hays, on the sec-

ond appeal, expressly recognized that the 1961 and 1964

amendments to the plan had been declared void on the

prior appeal (A38). That being so, there was no longer

any document in existence which even purported to au-

thorize the inclusion of non-elected persons in the plan

adopted for elected officials.

Although Judge Hays said that the prior panel had not

precluded him from including persons who had not been

elected to office (A39) in the officers’ plan, that issue nad

in fact previously been decided,

*It is to be emphasized that plaintiffs never have sought and

do not seek to disturb the pension coverage of administrative em-

ployees in bona fide pension plans reached under collective bar-

gaining agreements. (See Morrissey v. Curran, 423 F.2d 393, 395,

footnote la (SA 4). Incidentally, the designated ‘‘patrolmen’’,

‘*field patrolmen’’ and ‘‘agents’’ involved here, like William Perry,

are eligible to receive pension benefits under the NMU Deep Sea

Pension Fund and unless this petition is granted will receive two

pensions (infra, p. 12).

The plaintiffs filed a petition for-rehearing which con-

tained the suggestion, that such rehearing be heard en

banc. That petition was denied (SA 45). None of the

judges who participated in the decision on the first appeal

had a right to vote on whether or not and en banc hearing

should have been held. Both Circuit Judge Anderson and

former Chief Judge Lumbard have retired and are no

longer active Circuit Judges. Judge Danaher is not only

retired but also is not a judge of the Seeond Circuit.*

Situations such as this may, unless corrected, create a

serious hindrance to the effective administration of the

law. In other words, litigants should not be encouraged

to pursue a second round of appeals in hopes that a second

panel might be inclined to disregard the decision of an

earlier panel.

The existence of this intracircuit conflict is a valid and

compelling reason for granting the writ requested. Dickin-

son v. Petroleum Conversion Corp., 338 U.S. 507 (1950) ;

Maggio v. Zirtz, 333 U.S. 56 (1948).

(2 and 3)

The decision sought to be reviewed validates the appoint-

ment rather than the election of certain NMU officers; to

wit, ‘‘patrolmen’’, ‘‘field patrolman” and ‘‘agents’’, and

is directly at odds with Title 29 U.S.C. §481(a) (SA11)

and with Wirtz v. NMU, 284 F. Supp. 47, aff’d 399 F.2d

44 (Second Circuit, 1968, opinion by Timbers, J., Moore,

C.J. concurs, Hays, C.J. dissents).

In Wirtz the district court held that Title 29 U.S.C.

§ 481(a) required that patrolmen, agents and field patrol-

*Had an en banc hearing been held, Judges Anderson and

Lumbard, thought retired, would have been eligible to have partici-

pated in such hearing.

10.

men be elected to their offices and specifically said (284 F.

Supp. 47, 67):

‘‘This court construes 29 U.S.C. § 481(a) to mean

that all officers of a union must be elected and that

they must be elected at least every five years.’’ (Em-

phasis in original.)

Judge Hays disagreed with the majority in Wirtz and,

in spite of the clear and explicit language of the statute,

he expressed, in the following language, his strong dis-

pleasure at the congressional direction that all union offi-

cers be elected by the rank-and-file and not appointed.

Wirtz v. NMU, 399 F.2d 544, at page 553:

‘*T fear that, in trying to keep the courts from taking

over lock, stock and barrel the internal operation of

labor unions, I am fighting a fairly hopeless rearguard

action. But, I am not yet compelled by any Supreme

Court decision on the issue to accept the position that

a union cannot provide for the appointment rather

than the election of what are here called patrol-

men * * #9)

Obviously Judge Hays allowed his personal philosophy

to affect his thinking when he undertook to overrule the

prior panel of the same Court and to flaunt the express

direction of an act of Congress. He was quite aware of the

problem presented. He said (A39):

‘*Plaintiffs contend that the judgment of the district

court is inadequate because it does not include moneys

paid on account of the NMU officers who were ap-

pointed rather than elected.’’

Incidentally, Judge Hays misconceived the plaintiffs’

contention. The plaintiffs contended that the judgment

was inadequate because it did not include money which had

been paid for the account of all ‘‘non-elected’’ persons,

whether characterized as officers or otherwise. The Plan

11

was created solely for persons elected to office. Persons

appointed by Curran could not be paticipants regardless of

the title Curran had conferred upon them. The Labor

Management Reporting and Disclosure Act (LMRDA) be-

came law in 1959. All the payments here involved were

made after that date. Under Title 29 U.S.C. § 481(a)

(SA40) only elected persons could qualify as officers.

With the concurrence of the other members of his panel,

Judge Hays reached the conclusion that Curran, as Presi-

dent of NMU, could properly appoint persons to be ‘‘of-

ficers’? (A40) in disregard of the express provisions of

Title 29 U.S.C. § 481 (a).

(4 and 5)

This proceeding involves questions of exceptional im-

portance—relative to honest unionism and the applica-

tion of the LMRDA to achieve that end. In the past all

the Federal Courts have been especially vigilant in the

protection of seamen from the several oppressions of their

ealling. But Judge Hays’ most recent decision in the in-

stant case, unless reviewed, will leave not only the seamen

but also all rank and file members of organized labor

organizations vulnerable to the danger of corrupt labor

practices by rendering the fiduciary provisions of the

LMRDA meaningless. This issue is of overwhelming im-

portance to the publie at large as well as to the parties

involved in this litigation.

This is not the usual case where the good faith of a union

official is at issue for past payments found to have been

wrongful. Here, the plaintiffs gave written notice to

Curran and to Wall that payments to non-elected officers,

including William Perry, from the officers’ Fund would be

unlawful and unauthorized. The plaintiffs demanded that

such payments be stopped and appropriate actions taken

(SA 48-59).

Curran and Wall knew that the unlawful payment to

Perry was in the works. They had the power to prevent

Oe oda ao

12

it. If Curran had lifted his little finger in protest, his

good friend and best man, Perry, at the ripe age of 42

years, would not have walked away with $222,200 of pen-

sion funds which did not belong to him in addition to the

lump sum of $176,602.61 (850a) ($104,595.16 after with-

holding) from NMU general funds and in addition to a

Deep Sea pension of $250.00 a month for life.*

But Curran’s action in signing the check to the Officers’

Fund in the sum of $41,250.01 in December, 1968 illus-

trates his determination to see to it that Perry would

receive his payment out of the officers’ fund regardless of

the legality of such payment.

The District Court in Morrissey v. Curran, 351 F. Supp.

775, 784 (Bonsal D.J.) found (A32-33) :

“Curran knew that the plaintiffs had requested NMU

to institute this action to recover monies paid to the

Officers Pension Fund for the account of non-officers

on the ground that such payments violated the NMU

constitution, and that it was charged that Perry was a

non-officer. Curran was in a position of trust to

expend NMU funds only in accordance with the NMU

constitution. Curran also knew or should have known

that the Agreement and Declaration of Trust did not

authorize the prepayment of contributions to the

Officers Pension Plan. Nevertheless, on December 18,

1968, when he fired Perry for the first time, he in-

structed Breit to prepare a check from NMU funds in

the amount of $41,250.01 to be paid to the Officers

Pension Plan for Perry’s account, and on the follow-

ing day he signed the check, which was then forwarded

to the Officers Pension Plan. * * *

* Judge Bonsal in his unreported decision of June 29, 1972

said (9A):

“*So despite being fired at 9:30, it wasn’t a bad day for Mr.

Perry.”’

13

“* © * The evidence indicates that Curran dominated

the people who had anything to do with the payment

from the Officers Pension Plan to Perry. Karchmer

testified, ‘Well, to go in to Joe [Curran] is a very fear-

ful process.’ * * * Undoubtedly, Curran used the power

of his office to get Perry everything that was coming

to him on January 16th. However, there is no evi-

dence that on January 16th Curran directed the pay-

ment to Perry of $222,200 or directed Freedman to

furnish the legal opinion to the trustees.’’? (Emphasis

added. Bracketed matter in original.)

Indeed Curran, himself, never claimed that he consulted

counsel or relied on any legal advice. No excuse was

offered for his failure to prevent the unlawful payment to

Perry.

Unless these findings of fact by the district court were

overlooked, it is difficult to understand how Judge Hayes

ever reached the conclusion that “the record shows that

Curran and Wall acted in good faith, relying on the advice

of the union’s general counsel’’ (A43) or that the finding

that Curran ‘‘dominated the trustees’? was merely an

‘‘argument’’ (A44):

“Plaintiffs now argue that Curran dominated the

trustees and it was through this power that the pay-

ment to Perry was made.” (Emphasis added.)

Curran and Wall breached their fiduciary duty to the

membership in failing to prevent the payment to Perry of

$222,200. This comes into sharper focus in the light of

Judge Bonsal’s findings that Curran ‘‘dominated’”’ the

trustees and that Curran was a fiduciary of the NMU

funds including the funds in the NMU Officers’ Pension

Plan (A832):

‘For the purposes of Section 501(a), the funds paid

by NMU to the Officers Pension Plan and by it to

Perry were funds of NMU.”’

2 OO eee

14

Curran and Wall were experienced and sophisticated

labor union leaders. They were with Perry and behind

him all the way—from beginning to end—regardless of the

consequences. They required no legal opinion to induce

them. They wanted Perry to have that $222,200. They not

only failed to prevent the unlawful payment but also did all

in their power to sustain it.

In fact, after the May 23, 1969 decision of the district

court, which granted plaintiffs’ motion for summary judg-

ment and adjudicated the Perry payment unlawful, Curran

and Wall went so far as to frantically call the National

Council together to amend the NMU Constitution retro-

actively. Had they succeeded in that bold move, Perry

would have been home free—richer by $222,200.* But that

amendment was declared void on the prior appeal.

They supported Perry in every conceivable way after

he had been paid off. They furnished him with legal

counsel and joined with him in all the briefs and papers

filed on his behalf from the time this action was instituted

in the district court right on through the time this Court

denied the defendants’ first petition for a writ of certiorari.

Surely all that should have been persuasive and over-

whelming evidence of the interest Curran and Wall con-

sidered foremost. It was not NMU’s interest. In fact,

these actions constitute additional breaches under the Act.

Section 501 cautions union officers that they should:

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 organization * * *”’

(Emphasis added.)

*This payment had not been reported to either the member-

ship, or to the Secretary of Labor [29 USC § 431(b) (3) |. Had

plaintiffs not succeeded on the first appeal, the membership never

would have even known how much Perry really got.

15

(6)

The District Court found as a fact that ‘‘the trustees had

made unlawful pension payments to employees in the

amount of $371,271.’’ That finding was acknowledged by

Judge Hays (A39). Among those payments was a pay-

ment of over $115,000 to Irving Brauch. The district court

held that (except for the payment to Perry) these unlawful

payments had been made by the trustees prior to the plain-

tiffs’ notice and for that reason the trustees were not to be

surcharged for those payments.

But it seems plain that a trustee having made an un-

lawful payment has a duty to make every reasonable effort

to replenish his trust after receipt of notice that the initial

payment had been unlawfully made.

The notice that unlawful payments had been made to

Brauch and to others came in a most dramatic form—the

decision of the district court on May 23, 1969. After

receipt of such notice, the trustees sat back for a period

of three more years. They deliberately and willfully failed

to take any action to collect the $115,000 which had been

unlawfully paid to Brauch. They thereby allowed the

statute of limitations to run against them on April 6, 1972

(CPLR 213[2]). It is for this deliberate failure to act

that the trustees should have been surcharged if not for

the initial unlawful payment made by them to Brauch.

Neither of the courts below spoke on this issue. It does

not appear that either of them addressed itself to the issue

presented by the plaintiffs—the liability of the trustees

based upon their deliberate failure to attempt to collect

the initial unlawful payment to Brauch—thereby permitting

the statute of limitations to run against them.

The trustees may not be exculpated from the conse-

quences of such a wilful omission. Allowing their claim

against Brauch to become uncollectible through their in-

action was intentional. Indeed, trustee Freedman, an

FON TS ROCK LO IE OA BRONTE

16

attorney himself, and familiar with the statute of limita-

tions and the law on the subject, testified that he had no

interest in pursuing Brauch (527-528a) :

**Q. Did you engage any other attorney to start a

suit on behalf of the trustees to collect that money?

A. I didn’t.

Q. Are you interested in collecting that money?

The Court: I think if Mr. Freedman has any views

on it, I will let him answer that.

The Witness: I really haven’t your Honor.’’

90 Corpus Juris Secundum, Trusts § 263, provides at

pp. 324-325:

**§ 263. General Powers and Duties

A trustee has the exclusive right and duty to pro-

ceed, within a reasonable time, by suit or other legal

proceeding, if necessary, to collect or reduce to pos-

session all claims due, and all property and assets

belonging to, the trust estate; and a failure to perform

these duties with due diligence renders him personally

liable for the resulting loss.

It is the right and duty of the trustee, and of him

alone, to proceed promptly, or within a reasonable

time, by suit, or other legal proceeding, if necessary,

to collect or to reduce to possession the property and

assets belonging to the trust estate, and to collect all

claims due the estate. A failure to perform these

duties, with due diligence, renders the trustee person-

ally liable for the resulting loss.’’

See also: Scott on Trusts, The Administration of the

Trust, § 177, pp. 1424-1427; Village of Brookfield y. Pentis,

101 F.2d 516, 521, 522 (Cireuit Court of Appeals, 7th Cir-

cuit, 1939) ; and Grodsky v. Sipe, 30 F. Supp. 656 (District

Court, Eastern District of Ill, 1940).

a

17

(7)

The decision below creates or at least permits a subtle

erosion of the power of the federal courts—vis-a-vis the

power of a labor union leader—Joseph Curran.

On or about February 2, 1972 a payment of $674,222.60

was made by the NMU Officers’ Pension Fund to the NMU

to satisfy the judgment plaintiffs had obtained in this

action.

In the same month NMU, through Curran and Wall,

paid Alvin Shapiro as trustee $460,365, This money was

paid to Alvin Shapiro for the very same improper and

unauthorized purposes which had been the basis for the

$674,229.60 judgment in the first instance, The new pay-

ment was made to secure pensions for the persons elimi-

nated from the elected officers’ plan by Court order. In

other words, the circle had been completed—the money

paid out, then restored by order of the Court, and finally

paid out again for the original unlawful purpose.

There were no bones made about it.

Curran testified at the trial that this Shapiro trust was

for the benefit of the persons who had been deprived of

their share of the Officers Pension Fund by the order of

this Court (616a) :

“*‘Q. Mr. Curran, did you report * * * at the National

Convention that you would see to it that these pay-

ments (pension payments which the Court had held

were wrongfully made to non-officers) would be made

whatever the court might rule?

The Witness: I said that, Your Honor,’’ (Paren-

thetical matter added.)

Curran went on to say:

‘‘The Witness: We set up another pension plan

in accordance with the instructions we had from the

18

National Council that took into consideration those

people who were barred from being a part of the

Officers’ Pension Plan.’’ (610a)

Curran testified that the new Plan was in effect (610-

6lla). Wall testified the money had been paid out to

Alvin Shapiro as trustee (776-777a).

The new trust gave Curran a free hand with the fund.

It provided in part (SA77):

‘*# © * The amount and nature of the benefit program

to be provided by the Plan and conditions of payment

shall be determined by the National Office (the handful

of national officers (5) of NMU controlled by Curran)

of the Union and furnished in writing to the Trustee

* * *’? (Parenthetical matter added).

This was precisely in line with Curran’s earlier efforts

to circumvent the order of the district court (by amending

the NMU Constitution retroactively) which efforts were

declared void by the Court of Appeals on the prior appeal.

Mr. Curran’s acts spoke louder than his words, but his

words clearly expressed his intention to circumvent the

court order right from the outset. He said (806-808a) :

‘‘Now to get back to the purpose of this Special

Meeting, I think you have been talked to, most of you,

about what happened here in the Federal Court in

the District, Judge Bonsal handed down a Decision

that there is no authorization to include in the Officer’s

Pension Plan non-elected officers. * * * Now, the case,

of course, is being appealed. It had to be appealed

because it’s a bad piece of law, * * *

The question is, the resolution that is the clearest

one is the one that we will work with to amend the

Constitution to protect these people. * * *

«* * * that’s as far as we can go and then the con-

stitution will be amended and that will take care of the

19

situation. Otherwise, if it is not amended, it would

then become the job of the national officers, par-

ticularly the President, to call in these people and

make a contract with each of them as individuals to

protect their rights and, of course, under contract of

that type it wouldn’t be for pension, you see, but it

would be a service credit contract; one in which they

would protect their service credit for each year worked,

You would give them a percentage as a deferred in-

come, so to speak, which is the new slogan used by

executives. I saw the Wall Street Journal and one of

the other papers and saw that Henry Ford got $200,000

in wages one year and $400,000 in deferred income.

So that this is a new way to handle these things,

**So I have assured them all that even if the constitu-

tion were (not) amended, that I felt that we would un-

dertake to make an individual contract with each one

of them in behalf of the union seeing that their rights

were protected.’’

The District Court after hearing this evidence and after

the defendants had rested directed that the original of the

new trust agreement be produced (786a). In response,

Mr. Epstein, Curran’s counsel, wrote a letter dated July

20, 1973 (55-56a) which stated that the trust agreement had

not yet “heen executed by the parties,” but that nonethe-

less on February 29, 1972, $460,365.00 had been deposited

in an interest bearing account. As of June 8, 1972 the ac-

count had “increased to $476,499.35 by reason of interest

earned * * * and deposits therein for the months of March,

April and May.”

The District Court did not speak on this subject. De-

spite that silence Judge Hays undertook to approve this

segregation of funds from the General Fund of the union

and (apparently relying on the self-serving, hearsay state-

* a

wre

we oe

PP Eh ek A eid te ile -e

20

ments contained in the unsworn Epstein letter, supra upon

which plaintiffs had no opportunity to cross-examine)

made his own findings of fact. He said (A44):

“* * * First, the union never paid the money to

Shapiro; the trust agreement was never executed.

Even if the money had been paid, the proposed pen-

sion plan for current employees was for future pay-

ments. Consequently, the establishment of the fund

was permissible and not prohibited by this court’s

prior decision.”

In making these original finding Judge Hays could not

have considered the following facts adduced at trial:

1. Wall, the Secretary-Treasurer of NMU—the man

who knew—testified that the money had been paid out.

That testimony had not been contradicted.

2. Such payment of $460,365.00, as Judge Hays himself

observed, was made on the strength of an unexecuted docu-

ment. How could anyone justify the payment of almost

one half million dollars of union funds without the protec-

tion of a writing?

3. The NMU Constitution, Article 17, Section 1 provides:

“All monies of the Union shall be maintained in a

General Fund.”

4. The ‘‘NMU Statement of income and expenses of the

General Fund for all Ports and National Headquarters for

the month of February, 1972’’ carried $626,260 as the

operating expenses of the National Headquarters for that

month (SA75). Mr. Wall testified that a substantial part

of that sum went into the new trust (776-777a).

®. Curran, the President of NMU, testified that the

plan was in effect. That testimony had not been contra-

dicted.

ees

21

6. The new trust, itself, does not indicate who is to par-

ticipate in it, nor does it limit the extent of the participa-

tion (supra, p. 18). On its face, it is no bona fide pension

plan. It is merely a vehicle designed to give Curran carte

blanche to siphon NMU funds in large sums to the select

persons (including his son) excluded by the court order

—without reporting the payments either to the member-

ship or to the Secretary of Labor in accordance with

LMRDA, See. 201 [29 U.S.C. $431 (b)(3)]. A seaman

would call it: ‘‘A raid on the treasury.’’

7. The NMU Constitution, in effect, at the time of the

payment, did not authorize the creation of such a trust.

In short the facts as found by Judge Hays with respect

to this payment of almost a half million dollars of NMU

funds are shockingly wrong and totally devoid of eviden-

tiary support. In fact, they are contrary to all the evi-

dence adduced at the trial. See Washington v. U. S., 357

U.S. 348 (1957).

Again this procedure ‘‘so far departed from the ac-

cepted and usual course of judicial proceedings * * * as

to call for an execise of this Court’s power of supervision”

(Rule 19, supra, p. 6).

Ye eRe a ee

ROM DIRE T Mt SIMON Ive Gemreeat eas

22

Conclusion

For the foregoing reasons this cross petition for a writ

of certiorari limited to the issues presented should be

granted and it is respectfully suggested that under the

circumstances this Court may well deem a summary rever-

sal on these issues appropriate.

Respectfully submitted,

ArtTHur E. McInerney,

Counsel for Respondents and

Cross Petitioners,

74 Trinity Place,

New York, New York 10006.

(212) WH 4-7482

Joon S. CHAPMAN, JR.,

FReperick M. ScH.ater,

Of Counsel.