# Petition for Writ of Certiorari — Steam Press Holdings, Inc. v. Hawaii Teamsters & Allied Workers Union, Local 996

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 2003
- **Citation:** 537 U.S. 1232

## Text

Court, U.S.
FILED

02 81 ZNO 25 2002

No. OFRCEOF THE GLERK

Hn the
Supreme Court of the Anited States

STEAM Press HOoLpINGs, INC., DBA YOUNG LAUNDRY

AND Dry CLEANING, AND MICHAEL DRACE,
Petitioners,
Vv.

Hawall TEAMSTERS AND ALLIED WorKERS, LocaL 996,

MEL KAHELE, AS AN INDIVIDUAL, DoE DEFENDANTS 1-150,
Respondents.

On PETITION For Writ OF CERTIORARI
To Tue UNITED StTaTEs Court OF APPEALS
For Tue Nintu Circuit

PETITION FOR WRIT OF CERTIORARI

JARED H. Jossem, Esq.
Counsel of Record

LynnE T. Toyoruku, Esq.

Dwyer SCHRAFF MEYER JOsSEM
& BUSHNELL

1800 PioNEER Praza—

900 Fort STREET MALL

Hono.u.u, HI 96813

(808) 524-8000

(808) 537-4667 (fax)

Counsel for Petitioners

BECKER GALLAGHER LEGAL PUBLISHING, INC.,
CINCINNATI, OHIO 800-890-5001

INTRODUCTORY STATEMENT

During negotiations for a collective bargaining
agreement, where Petitioners Young Laundry and Dry
Cleaning and its President, Michael Drace (“Drace”)
(hereinafter collectively referred to “Employer” or “YLDC”)
were asking for economic concessions from Respondents
Hawaii Teamsters and Allied Workers Local 996
(“hereinafter “Union”) and its President, Mel Kahele
(hereinafter “Union’s President” or “Kahele”), Employer
presented Union with economic data establishing Employer’s
dire financial condition. Union’s President challenged
Employer’s veracity and told YLDC’s employees that YLDC
was making millions of dollars and was hiding that money in
a secret corporation. After a federal mediator persuaded
Union to have its CPA examine Employer’s books, the CPA
for Union confirmed to Union’s President that Employer had
no money and that its poverty plea was genuine. Union’s
President responded by terminating the services of the CPA,
and with intentional disregard of the known truth, returned to
YLDC’s employees and again falsely told them that Employer
was making millions of dollars and was hiding that money.
It is undisputed that these knowingly false statements by
Union’s President were intentional and designed to foment a
strike and aamage Employer’s reputation. As a direct result
of the anger, hatred and distrust generated in Employer’s
employees by Union President’s false statements, a seven-
month strike ensued, causing substantial damage to Employer.

QUESTIONS PRESENTED
;. Whether the Ninth Circuit’s opinion holding that
quintessentially factual defamatory statements must be

treated as protected opinions simply because they are
made in the context of a labor dispute conflicts with

i

ne emanates
——

{

this Court’s precedents in Linn v. United Plant Guard
Workers, ‘vocal 114, 383 U.S. 53 (1966) and

Milkovich v. Lorain Journal Co., 497 U.S. 1 (1990)?

Whether the Ninth Circuit’s decision to extend the
protection of Federal Labor Policy to statements made
with constitutional malice also conflicts with decisions
upheld in other circuits and with this Court’s clear
statements of Federal Labor Policy and prior decisions

-acknowledging the important social values which
underlie the law of defamation?

Whether the Ninth Circuit committed reversible error
by substituting judicial speculation that is not
supported by the evidence of record for the trial
court’s record-based factual findings made after
listening to eight days of testimony and having an
opportunity to weigh the credibility and demeanor of
witnesses testifying at trial?

RULE 29.6 STATEMENT

Petitioner Steam Press Holdings, Inc. has no parent
corporation and no publicly held company owns 10% or more
of the corporation’s stock.

ili

TABLE OF CONTENTS

INTRODUCTORY STATEMENT ..............

eb rr araran

URS CPO GER RMUEINE ces ck ewe eee conse iii

TAREE COTTE 5 5 6 6 eee eee Wieeees

TABLE OF AUTHORITIES ..... Peer here
COIOONEOW .... 2. 6k me ss
IN aia yk, ee eae

RELEVANT CONSTITUTIONAL AND
sy Vilpit 9g t.). oS ana

STATEMENT OF THE CASE .........eceeees
A. We 0k 43 Seah awe eee a
B. The Trial Court Decision ...........
C. The Ninth Circuit Appeal...........
REASONS FOR GRANTING THE WRIT .........

I. The Ninth Circuit’s Opinion Conflicts With
This Court’s Holdings In Linn v. United Plant

Guard Workers, Local 114, 383 U.S. 53

(1966) and Milkovich v. Lorain Journal Co.,
497 U.S. UCIFID) 0. ce cee ere enn

iV

a

rs,

A. The Ninth Circuit’s Opinion Conflicts
With This Court’s Holding In Linn
And Creates An Absolute Privilege For
Knowingly False Statements In The
Fé Pee ere ee ee eee 13

B. - The Decision Below Conflicts With
Milkovich v. Lorain Journal Co., 497
U.S. 1 (1990) By Holding That The
Non-Textual Context Of A Malicious
Statement Overrides Textual Content ... 17

C. The Ninth Circuit “Opinion - Not
Fact” Analysis Clashes With
Applications Of Milkovich In Other
+ BEET Eee ee ee eee 18

IT. The Ninth Circuit’s Decision To Extend The
Protection Of Federal Labor Policy To
Statements Made With Constitutional Malice
Also Conflicts With Decisions Upheld In .
Other Circuits And With This Court’s Clear
Statements Of Federal Labor. Policy And Its
Prior Decisions Acknowledging The Important
Social Values Which Underlie The Law Of
I 56.5.4 se A Fe 20

A. The Ninth Circuit’s Decision Conflicts
With A Recent Decision That This
Court Let Stand Interpreting Federal
Labor Policy In The Sixth Circuit ..... 20

B. The Ninth Circuit’s Extension Of The
Protection Of Federal Labor Policy To
Statements Made With Constitutional
Malice Conflicts With This Court’s
Clear Statements Of Federal Labor
Policy And Its Prior Decisions
Acknowledging The Important Social
Values Which Underlie The Law Of

a a ones a nD 22
c. The Duty Of Fair Representation ce wee 23
D. Union Members’ Right To Meaningful

Participation In Union Affairs....... . 24
E. Rational Bargaining .............. 24

F, Society Has Little Interest In Extending
The Outer Limits Of First Amendment
Protection To False Commercial
Speech In The Context Of A Labor
WO ns Sie eee 26

Ill. The Court Of Appeals’ Gross Disregard Of
The Trial Court’s Findings Of Fact And
Substitution Of Judicial Speculation Warrants
The Exercise Of This Court’s Supervisory
seamen MET Ae On 27

IV. This Is A Case That Implicates Broad Social
Judgments Concerning The Whole Nature Of
The Duty Of Honesty In A Civilized Society .. . 29

CRERRINON 6s cwnb sts Suede el eee 30

vi

APPENDIX

Appendix A

Ninth Circuit Opinion - 08/26/02 .........- la
Appendix B

District Court Judgment - 01/02/02 ........ 28a
Appendix C

District Court Supplemental Order Regarding
Damages - 12/31/01 .........-e eee sees 30a
Appendix D

District Court Amended Findings of Fact and
Conclusions of Law and Order - 10/29/01... . 41a

Vii

TABLE OF AUTHORITIES

Air Line Pilots Ass’n Int’l v. O’ Neill,

gee rere 22
i w& by.) ie | eer 23
BE & K Const. Co. v. N.L.R.B.,
ae a SE 5. 6 oes Ok we ee ewan 15
Belknap, Inc. v. Hale, 463 U.S. 491 (1983) ........ 26
Biospherics, Inc. v. Inc.,
151 F.3d 180 (4th Cir. 1998) ......... ——
Bose Corp. v. ion of Uni tes, Inc.,
Op Ura EE 0 06k be be 0 ORAL 26, 27
Chaplinsky v. New Hampshire, 315 U.S. 568 (1942) . . 26
hauffers, T er: Iper Vv
Terry,
ee es 5 6: i eb Os 00 Re eee ees 22
fy) ications W Vv ,
ee Be CGS Fé Gaecawenweeeces 23
vip eh Br 2. le re 7
Films of Distinction Vv i :
12 F.Supp.2d 1068 (C.D. Cal. 1998) ........ 12
Garrison v. Louisiana, 379 U.S. 64 (1964) ......... 14

Viii

G ee ee

622 F.Supp. 1349 (D.C.N.Y. 1985) ........ 16
v isition Inc.,
781 F.2d 264 (2nd Cir. 1986)............. 22
Haynes v. Alfred A. Knopf, Inc.,
8 F.3d 1222 (7thrCir. 1993) .............. 19
Hull vy. Central Transp, Inc.,
628 F.Supp. 784 (N.D. Ind. 1986) ......... 16

Hyles v. Mensing, 849 F.2d 1213 (9th Cir. 1988) .... 15

nf n Vv nesi ter "
tee & if. fo A. rere 12
860 F.2d 890 (9th Cir. 1988) ....:........ 12
Linn v. United Plant W 1114,

383 U.S. 53 (1966)
.. 8,9, 10, 11, 13, 14, 15, 16, 21, 26, 28, 29, 30

2 WwW vati v. In
Eng’rs Local No. 150,
765 N.E.2d 21 (Ill App. Ct. 2002) ...... 19, 20

Milkovich v. Lorain 3 1Co.,
A et ee 9, 10, 12, 17, 18

Minnis v. UAW, 531 F.2d 850 (8th Cir. 1975) ...... 23

Ee ween uses bee 27

N.L.R.B. v. Gissel Packing Co.,
ee PE 6 os os NRK ae 25

N.L.R.B. v. Truitt Mfg. Co., 351 U.S. 149 (1956) ... 24

Ollman v. Evans, 750 F.2d 970 (D.C. Cir. 1984) .... 16
Plessy v. Ferguson, 163 U.S. 537 (1896) .......... 29

Retana v. Apartment, Motel, Hotel & Elevator

Operators Union, Local No. 14,
453 F.2d 1018 (9th Cir. 1972) ............ 23

Steam Press Holdings, Inc. v. Hawaii Teamsters &
Allied Workers Union, Local 996,

No. 99-00187HG, 2001 WL 1715894
oe Fe eee 1

team Press Holdings, Inc. v. Hawaii Teamsters &
Allied Workers Union, Local 996,

302 F.3d 998 (9th Cir. 2002)
ee ree ee eee 1, 8, 10, 11, 12, 14, 29

Strickland v. Washington, 466 U.S. 668 (1984) ...... 22

Underwager v. Channel 9 Australia,
2 we fo ke ae. rn 12

United States v. Munsingwear, Inc.,
ee eee PD 68 Sas We vk ea ee 26

Virginia Bd. of Pharmacy v. Virginia Citizens
Consumer Council, Inc.,

oS ee er ae re 25

Walling v. James V. Reuter, Inc.,
Bae Sh OTE CRE x 0 56 0 oe ORE Oe EO 26

STATUTES

National Labor Relations Act (“NLRA”)

y BR Soe ee ee er oe ea 2, 21
y Rie Rome By gt. | ee vey 2, 24
y ER Rade oy 7), re ee a 3, 24
, LR Some ey Fe | re ee ee ee 3, 24
yp Bte Some Fo Fe. | i er eee eae 23
y BRS ome Bye 600). | i 1
TREATISES
Restatement (Second) of Trusts § 174 (1959) ........ 22

Gary D. Spivey, Annotation, Libel & Slander:
Privileged Nature of Communications Made In
Course of Grievance or Arbitration Procedure

Provided for by Collective Bargaining Agreement,
. Fem £8 Ci. rere rere 16

xi

PETITION FOR A WRIT OF CERTIORARI

Petitioners Steam Press Holdings, Inc. dba Young
Laundry and Dry Cleaning and Michael Drace
(“Drace”)(hereinafter sometimes collectively referred to as
“YLDC” or “Employer”), respectfully petition for a writ of
certiorari to review the judgment of the Ninth Circuit Court
of Appeals (“Ninth Circuit”) in this case.

OPINIONS BELOW

‘. Following a bench trial, Findings of Fact and
Conclusions of Law, as corrected, were filed on October 29,
2001, unofficially reported at Steam Press Holdings, Inc. v.
Hawaii Teamsters & Allied Workers Union, Local 996, No.
99-00187HG, 2001 WL 1715894 (D. Haw. Sept. 28, 2001),
Appendix at p. 41a. ' The Supplemental Order Regarding
Damages, was filed on December 13, 2001 (unpublished) and
is at Appendix p. 30a. The final Judgment of the District
Court for the District of Hawaii (“District Court”) entered
January 2, 2002 is at Appendix p. 28a.

2. The opinion of the Court of Appeals for the
Ninth Circuit (“Ninth Circuit” herein) is published at Steam
Press Holdings, Inc. v. Hawaii Teamsters & Allied Workers
Union, Local 996, 302 F.3d 998 (9th Cir. 2002), and is at
Appendix p. la.

JURISDICTION

On August 26, 2002, the Ninth Circuit reversed the
judgment of the District Court. Jurisdiction to hear this writ
of certiorari is conferred on this Court by 28 U.S.C. § 1254(1)

-" Reference to the appendix herein containing the lower court opinions
is to "App." followed by "X" page numbers; Reference to Petitioner’s
Excerpts of Record before the court below is to “PER” followed by “X”
page numbers.

~ (1993). The Ninth Circuit granted a motion to stay mandate

on September 16, 2002.

-RELEVANT CONSTITUTIONAL AND

STATUTORY PROVISIONS

The First Amendment to the United States Constitution
provides, in part: “Congress shall make no law . . . abridging
the freedom of speech, or of the press . . . .” U.S. Const.
Amend. I.

The relevant provisions of the National Labor
Relations Act (“NLRA”) are as follows:

29 U.S.C. § 151 (1998) states in relevant part:

Findings and declaration of policy

Experience has further demonstrated that
certain practices by some labor organizations,
their officers, and members have the intent or
the necessary effect of burdening or
obstructing commerce by preventing the free
flow of goods in such commerce through
strikes and other forms of industrial unrest or
through concerted activities which impair the
interest of the public in the free flow of such
commerce. The elimination of such practices
is a necessary condition to the assurance of the
rights herein guaranteed.

29 U.S.C. § 171 (1998) states in relevant part:
§ 171. Declaration of purpose and policy
It is the policy of the United States that -

(a) sound and stable industrial peace |
and the advancement of the general welfare,

health, and safety of the Nation and of the best
interests of employers and employees can most

satisfactorily be secured by the settlement of issues between
employers and employees through the processes of conference
and collective bargaining between employers and the
representatives of their employees;

29 U.S.C. § 173 (1998) states in relevant part:

§ 173. Functions of Service

(a) Settlement of disputes through conciliation
and mediation

- It shall be the duty of the Service, in
order to prevent or minimize interruptions of
the free flow of commerce growing out of
labor disputes, to assist parties to labor
disputes in industries affecting commerce to
settle such disputes through conciliation and
mediation.

29 U.S.C. § 174 (1998) states:

§ 174. Co-equal obligations of employees,
their representatives, and management to
minimize labor disputes

(a) In order to prevent or minimize
interruptions of the free flow of commerce
growing out of labor disputes, employers and
employees and their representatives, in any
industry affecting commerce, shall--

(1) exert every reasonable effort
to make and maintain agreements
concerning rates of pay, hours, and
working conditions, including
provision for adequate notice of any

proposed change in the terms of such
agreements;

(2)whenever a dispute arises
over the terms or application of a
coliective- bargaining agreement and a
conference is requested by a party or
prospective party thereto, arrange
promptly for such a conference to be
held and endeavor in such conference
to settle such dispute expeditiously;
and

(3) in case such dispute is not
settled by conference, participate fully
and promptly in such meetings as may
be undertaken by the Service under this
chapter for the purpose of aiding in a
settlement of the dispute.

STATEMENT OF THE CASE
A. The Facts |

In 1998, YLDC, Honolulu’s only unionized dry
cleaner’, lost a major government contract to a non-union
competitor. Faced with labor costs higher than any of its
competitors and the loss of 16% of its annual sales to a non-
union competitor, it sought to negotiate a new labor
agreement that would lower its labor costs.

“ In place between YLDC and Union was the Master Laundry Agreement
(“MLA”), originally executed by the parties in 1984 and which, by its
own terms, automatically renewed, unless one of the parties served written
notice of a desire to modify the MLA sixty days prior to the date of
expiration of the agreement. (App. 45a-46a, 44 8, 9). The MLA
contained a no-strike provision. (App. 85a-86a, { 158)

4

During the course of negotiations with Union, which
took place during July-October, 1998, YLDC repeatedly
presented Hawaii Teamsters and Allied Workers Local 996
(“Union”) and Union’s President Mel Kahele (“Kahele” ) with
graphic and verifiable evidence of the company’s financial
distress, including tax returns, audited financial statements
and accurate charts so the workers could understand the truth
(App. S5la, 429, App. 52a, 4 34, App. 53a, 4 37, App. 54a,
q 45, App. 61a, ¢ 71). For the undisputed purpose of
precipitating a strike before the expiration of the MLA’, on
September 11, 1998 and again on September 29, 1998,
moments before taking a strike vote, and knowing his
statements were false, Kahele told YLDC’s employees that
YLDC and Drace were “making money” and “hiding
money,” in the range of “$7 to $10 million.” (App. 72a,
{ 124, App. 74a-75a, { 129, App. 82a, { 148, App. 83a, {
151).

Not surprisingly, the employees were outraged and
many employees reacted angrily to Kahele’s false statements
on Friday, September 11 that YLDC was making money,
stating “Oh, that sucking Mike,”* and that Drace was a “son
of a bitch”. (App. 71a-72a, { 122) (Tr. 1:59).

On the following Monday, September 13, Drace
abruptly faced alienation from his formerly loyal and friendly
workforce. On September 15, 1998, he wrote to Kahele in
protest, suggesting the statements were defamatory. (PER
0332). On September 17, 1998, in a meeting at Union’s
offices, Drace asked Kahele to repeat to him what he had told
YLDC employees. There, an emotional Kahele confirmed
that he had told the employees of YLDC that Drace was
hiding profits from YLDC in a secret corporation named

> By its terms, the MLA did not expire until October 31, 1998, due to the
Union’s failure to give timely notice of its non-renewal.
¥ “Sucking” and to “suck” are derogatory slang words.

2

Steam Press Holdings. (App. 72a-73a, ¥{ 125-26, App. 74a-
75a, F{ 128-29). Concurrently, employees who were not at
the September 11 meetings learned of the non-existent
“hidden profits” through the company grapevine. (App. 78a,
q 139).

By September 25, 1998, Union was already seeking
approval for strike benefits from the Teamsters Joint Counsel,
its international organization. (App. 61a, ¢ 74). In an effort
to avert a strike, YLDC requested the assistance of the
Federal Mediator. (App. 61a, { 73). The Federal Mediator
took the following two steps to attempt to defuse the situation.
First, he persuaded Union, who had repeatedly refused to
review YLDC’s financial reports, to have Union’s CPA
examine the books of YLDC to verify that YLDC’s claims of
financial hardship were genuine. (App. 61a, (75). Second,
the Federal Mediator got the parties to agree that the majority
of the non-economic provisions of the MLA, which had been
modified four years earlier, were still in effect. (App. 48a-
49a, { 21).

On September 28, 1998, Kahele and the Union’s CPA,
Terry A. Takaki (“CPA”),° met with Drace and YLDC’s
bookkeeper, Unice Chang, at Drace’s office. Takaki
examined YLDC’s corporate financial tax returns and audits
and informed Kahele that YLDC had no money. In response,
Kahele stated “[t]hat’s not what I want to hear[.]” (App. 62a,
q{ 77-78, App. 63a, { 84). CPA then indicated he felt that
his arm was being twisted, and with that, CPA and Kahele left
the meeting taking several YLDC financial records. (App.
62a, { 80, App. 62a-63a, 4{ 82-85).

> The Union’s “Certified Public Accountant.”

6

While it is rare to have documentary proof of malice
in a defamation case,° such proof is found here. Without
‘informing YLDC, the Federal Mediator, or the employees
that he was not going to complete the financial review, Kahele
summarily terminated the services of CPA the following day,
on September 29, 1998, several hours before Kahele was to
appear at the YLDC’s laundry plant to induce a strike vote.
(App. 64a, 44 87, 88). CPA immediately confirmed his
termination in a letter to the Union’s lawyer, reciting in
substance that the reason Kahele called off the project was
because the YLDC employees were already so angry they
would not consider the economic truth. (App. 64a, { 87).

Kahele returned to the YLDC plant on September 29,
knowing the employees were already infuriated, knowing that
his statements were demonstrably false, and knowing CPA
was Off the project. Nevertheless, Kahele repeated the lies
that YLDC had sales of $7 to $10 million (App. 74a-75a, {
129), that YLDC and Drace were making and hiding money,
(App. 82a, 149), and further falsely stated that the “Union
was going to check on that.” The enraged employees, who
were never informed about either CPA’s findings or the
cancellation of his assignment, voted overwhelmingly to
strike. (App. 64a, {{ 88-89). Union’s misrepresentations of
fact to YLDC employees that YLDC had financially
recovered and that Drace was hiding the profits from them in
a separate company resulted in anger and distrust by YLDC’s
employees. (App. 75a-76a, { 132).

As a direct result of the anger and distrust generated
by the defamatory statements made by Kahele to YLDC
employees about YLDC and Drace on September 11 and at

° Eastwood v. Nat'l Enquirer, Inc., 123 F.3d 1249, 1253 (9th Cir. 1997)
(stating, “[a]s we have yet to see a defendant who admits to entertaining
serious subjective doubt about the authenticity of an article it published, we
must be guided by circumstantial evidence”).

7

the September 29 strike vote meeting, YLDC’s employees
voted to strike. (App. 84a, { 153, App. 89a, 4 171-72). The
strike and AFL-CIO coordinated boycott of YLDC, lasted
from October 8, 1998 through May 5, 1999. (App. 66a, {{
97-98).

B. The Trial Court Decision

Following an eight day bench trial, Judge Helen
Gillmor of the Federal District Court for the District of
Hawaii concluded, in 71 carefully crafted pages of findings,
that Union’s statements were factual, and that they were
knowingly false and made with actual malice. (App. 41a-
124a). The District Court awarded YLDC $1,429,454.03 and
Michael Drace $100,000.00 on the defamation claims, relying

n Linn v. United Pla ard Workers, Local 114, 383 U.S.
53 (1966). (App. 115a, {4 18-20). The District Court denied
YLDC’s breach of contract claims, holding that the MLA had
been “repudiated” by YLDC in a non-judicial exchange of
correspondence between the parties. (App. 86a, { 160).

C The Ninth Circuit Appeal

On appeal, the Ninth Circuit Court reversed the
defamation judgment, vacated the lower court’s damage
award and affirmed the denial of YLDC’s contract and other
claims. See Steam Press Holdings, Inc. v. Hawaii

eamster
& Allied Workers Union, Local 996, 302 F.3d 998, 1012 (9th
Cir. 2002).

REASONS FOR GRANTING THE WRIT

The Petition for Writ of Certiorari should be granted
for at least four reasons. First, the Ninth Circuit’s opinion
directly conflicts with, and seeks to nullify, this Court’s
opinion in Linn, 383 U.S. 53, which specifically recognizes
the right to pursue state law defamation claims based on
statements made in the labor dispute context. Second, the

Ninth Circuit Court’s opinion below cannot be reconciled
with this Court’s holding in Milkovich v. Lorain Journal Co.,
497 U.S. 1 (1990), that clearly set a non-contextual standard
for deciding whether a statement is defamatory. Third, the
Ninth Circuit’s interpretation of Federal Labor Policy with
respect to defamation conflicts with an Illinois decision in the
Sixth Circuit that this Court recently let stand allowing
recovery for defamation on statements made on a picket sign
that were much less egregious than the knowingly false
statements made by Kahele. Finally, the Ninth Circuit’s
absolute privilege afforded to knowingly false statements
made in the labor relations context repudiates this Court’s
prior decisions acknowledging the important societal values
which underlie the law of defamation and of society’s
pervasive and strong interest in preventing and redressing the
malicious lynching of one’s reputation.

This case squarely raises what is likely to be a
recurring and important issue in the law of defamation:
Whether quintessentially factual defamatory statements can be
treated as non-actionable opinions simply because they arise
in a labor dispute or other controversial commercial context?
The Ninth Circuit characterizes Kahele’s statements as “a call
to arms, not assertions of fact” only because of their labor
dispute context. In holding that Kahele’s statements are
“fully protected by federal labor law,” the Ninth Circuit
eliminates any opportunity for defamed parties in a labor
dispute to assert common law claims for damage to their
reputation. The result of this holding is for the “context” to
trump the “content” of the speech. Alternatively stated, the
result creates an absolute privilege for knowingly false
statements made in the labor relations context. This result is
directly contrary to this Court’s precedential holdings in Linn,
383 U.S. 53 and Milkovich, 497 U.S. 1.

I. _ The Ninth Circuit’s Opinion Conflicts With This
Court’s Holdings In Linn y. United Plant Guard

Workers, Local 114, 383 U.S. 53 (1966) and

Milkovich y. Lorain Journal Co., 497 U.S. 1

(1990).

The Ninth Circuit’s decision to shield labor dispute
Participants from defamation liability simply because the
statements were made in the context of a labor dispute and
thus effectively providing an absolute privilege to a union’s
knowingly false statements leaves YLDC without the state law
defamation remedy specifically crafted by this Court in Linn
v. United Plant Guard Workers 14, 383 U.S. 53.” To
relieve Union of liability, the Ninth Circuit engaged in a
three-step process:

First, its de novo review gave protection to Kahele’s
statements on the basis that they were made in the context of
collective bargaining. Thus, even though the Ninth Circuit
recognized that Kahele’s knowingly false statements of YLDC
“making money” and “hiding money” employ plain
unadorned language conveying objective fact, it concluded
that the collective bargaining setting “suggests that the
Statements were a rhetorical device employed to further the

Union’s bargaining strategy[.]” Steam Press Holdings, Inc.,

302 F.3d at 1006.

Second, without record Support, the Ninth Circuit
Substituted the lower court’s meticulous findings,* with pure

"Petitioner had no remedy under the National Labor Relations Act for
these wrongs. See Linn v. Uni lant Worke 4, 383
U.S. 53, 63-64 (1966) (stating that the NLRB cannot award damages,
impose a penalty or give any other relief to a defamed party).

* A District Judge lived with the bench trial for 8 days, compiled a record
of 1570 transcript pages and over 200 exhibits, and found that statements
regarding the financial practices, making and hiding money of an employer
to be false and factual. The Ninth Circuit's gross disregard of the Trial

10

speculation of what “could have been said” or “what could
have been meant” or understood by YLDC employees. The
Ninth Circuit clearly substitutes speculation for fact when it
states that Kahele’s defamatory statements “may have been
intended to communicate to those present that, regardless of
YLDC’s financial condition, the Union had to compel Drace
to address their concerns . . . could have been a way of
demanding that Union members . . . call Drace’s bluff].]”
Id. at 1007 (emphases added). None of this speculation is
based on a “totality of the circumstances” reflected in the
record. The clear and undisputed evidence at trial provided
a credited eyewitness account of the instant outrage of the
employees that flowed directly from the September 11
statements that Drace was in fact making money, and was in
fact hiding money in the millions of dollars while falsely
claiming an inability to pay, (App. 70a-72a, ¢{ 120, 122),
and further Drace’s credited account of Kahele’s own
admission of his September 11 statement (App. 72a-73a,
125).

Third, the Ninth Circuit applied the “totality of the
circumstances test” to its redacted version of Kahele’s
statements. While acknowledging the words as “plain
unadorned language” rather than loose figurative expressions,
the Ninth Circuit concluded that the statements were “opinion
not fact.” Steam Press Holdings, Inc., 302 F.3d at 1007-09.
By doing so the Ninth Circuit granted the Union an absolute
privilege in making knowingly false statements thereby
negating the state law defamation remedy that this Court
specifically held in Linn is available to parties defamed in the
context of a labor dispute. See Linn, 383 U.S. at 63-64.

Court’s findings plainly requires supervisory correction. (App. 59a-60a,
{1 63-69; App. 71a-72a, { 122, App. 74a, { 128, App. 75a, { 130, App.
76a, { 133, App. 78a, ¢ 139).

11

The Ninth Circuit decision stands for the proposition
that in a labor dispute, the labor context always trumps the
quintessential defamatory content of such statements because
any audience in such a setting would, without proof,
anticipate “epithets, fiery rhetoric, or hyperbole” rather than
the plain truth. Steam Press Holdings, Inc. , 302 F.3d at 1007
(quotation marks omitted). In effect, the Ninth Circuit held
that employees voting on whether to strike have no
expectation of honesty from the President of the Union.

To support its proposition that Kahele’s audience of
union members might have anticipated him to use rhetorical
hyperbole instead of plain fact when addressing them, the
Ninth Circuit cited to four non-labor cases: Leidholdt v.
L.F.P. Inc., 860 F.2d 890 (9th Cir. 1988) (where the
audience were readers of a Hustler Magazine article attacking
a pornography opponent); Info. Control Corp. v. Genesis One
Computer Corp., 611 F.2d 781 (9th Cir. 1980) (a non-labor
defamation case (predating Milkovich by 10 years) about a
statement in a trade publication made by legal counsel during
the course of litigation between the parties); Underwager v.
Channel 9 Australia, 69 F.3d 361 (9th Cir. 1995) (a non-labor
case involving a documentary by 60 Minutes Australia that
disputed the plaintiff's theories and credentials as an
professional expert witness); Films of Distinction, Inc. v.
Allegro Film Prods., Inc., 12 F.Supp.2d 1068 (C.D. Cal.
1998) (a non-labor case trade libel case involving a fictional
Film that conveys the general message that watching the
Crime Channel is bad for children and may cause them to
become violent offender). None of these cases involved the
willful use of a known lie during the course of labor relations.
The Ninth Circuit left undisturbed the detailed finding of the
District Court that Union’s actions had intentionally caused
the strike (App. 66a-68a, {4 97-108, App. 83a-84a, ¢{ 152-
53) and that Union acted with actual malice, i.e. in willful and |

12

reckless disregard of the truth. (App. 80a-81a, q 145). In
short, it heid that statements about a corporation’s actual
reported financial condition, while completely verifiable in
virtually every other business context, are nevertheless mere
“opinions” when spoken to employees by a union president
striving to precipitate a strike.”

A. The Ninth Circuit’s Opinion Conflicts With
This Court’s Holding In Linn And Creates
An Absolute Privilege For Knowingly False
Statements In The Labor Context

Linn, decided in 1966, preserves state law defamation
claims arising in a labor dispute. To accommodate labor law
but not pure First Amendment concerns, this Court limited
the availability of state remedies for libel in a labor context to
those instances in which the complainant can show that the
defamatory statements were circulated with malice and caused
the complainant damage. See Linn, 383 U.S. at 55.

In Linn, this Court reversed a dismissal of a libel
claim and held that the following statements in a union leaflet,
circulated among employees during a union organizing drive,
were actionable and apparently sufficient to meet the factual
content test:

(7) Now we find out that Pinkerton’s has had
a large volume of work in Saginaw they have
had it for years.

United Plant Guard Workers now has evidence
A. That Pinkerton has 10 jobs in Saginaw, Michigan.
B. Employing 52 men.

7 Obviously, if a union president were trying to promote labor peace, he
would not accuse the employer of hiding millions in profits when the
employer was accurately making a plea of poverty at the bargaining table.

13

C. Some of these jobs are 10 yrs. old!
(8) Make you feel kind [sic] sick & foolish.

(9) The men in Saginaw were deprived of their
right to vote in three N. L. R. B. elections.
Their names were not summitted (sic). These
guards were voted into the Union in 1959!
These Pinkerton guards were robbed of pay
increases. The Pinkerton manegers (sic) were
lying to us -- all the time the contract was in
effect. No doubt the Saginaw men will file
criminal charges. Somebody may go to Jail!

Id. at 56 (quotation marks omitted).

In doing so, this Court invoked the oft cited quotation
from Garrison vy. Louisiana, 379 U.S. 64, 75 (1964),
reminding us that “the use of the known lie as a tool is at
once at odds with the premises of democratic government and
with the orderly manner in which economic, social, or
political change is to be effected.” Linn, 383 U.S. at 67.
Thus, this Court remarked as follows:

[M]alicious libel enjoys no constitutional
protection in any context. After all, the labor
movement has grown up and must assume
ordinary responsibilities. _ The malicious
utterance of defamatory statements in any form
cannot be condoned, and unions should adopt ~
procedures calculated to prevent such abuses.

Id. at 63.

In this case, the Ninth Circuit held that Kahele’s
statements “employ plain unadorned language” and not “the
type of language that courts of this circuit have previously
found to be loose and figurative.” Steam Press Holdings,
Inc., 302 F.3d at 1007. In other words, the Ninth Circuit

14

concluded the absence of loose, figurative, or rhetorical
language in Kahele’s statements. Id. Nonetheless, the Ninth
Circuit leaps to the conclusion that Kahele’s false statements
were actually “a call to arms, not assertions of objective fact”
because the “union meetings at which Kahele made his
Statements were ‘circumstances in which ani audience may
anticipate efforts by the parties to persuade others to their
positions by use of epithets, fiery rhetoric, or hyperbole.’” Id.
at 1007, 1009.

While leaving undisturbed the trial court’s findings
that the statements caused damage and were made with actual
malice, Kehele’s statements were granted the full protection
of federal .abor law due to the simple fact that they were
made in the context of a labor dispute. As such, “context”
alone completely repealed the protections of defamation law
in the labor dispute, thus, dooming any Linn claim to failure
precisely because it arises in a labor dispute.'° This exercise
in judicial hyperbole concludes a results-driven gutting of
Linn that suggests that the Ninth Circuit’s intent was to
expand the absolute privilege it already accords defamatory
statements made in a grievance context. See Hyles v.
Mensing, 849 F.2d 1213, 1217 (9th Cir. 1988) (stating “[iJn
the interest of protecting the CBA and its grievance
procedures, we conclude that, as a matter of federal law,
statements that are made in grievance proceedings established
by a CBA... are privileged and may not support a state tort

” The practical elimination of viable defamation claims through the use
of the “totality of the circumstances test” implicates certain policy
considerations in this Court’s recent decision in BE & K Const. Co. v.
N.L.R.B., 122 S.Ct. 2390 (2002) (protecting access to the judicial system
to redress civil injuries in labor contexts). Access to the courts will be of
no avail, either to defamed employers or to unions, if otherwise factually
supported judgments such as this can be swep. aside by appellate judges
simply because publication occurs in a labor dispute context.

15

[defamation] ciaim.”). This is despite the fact that
jurisdictions are split over whether an absolute or qualified
privilege exists as to defamation in a grievance context, and
no circuit has explicitly stated that this absolute privilege
should be broadened to include any and all labor contexts.
Compare Hull v. Central Transp., Inc., 628 F.Supp. 784, 789
(N.D. Ind. 1986) (creaiing an absolute privilege in part
because defamation actions would “introduce an element of
uncertainty into the grievance process as well as chillf{] the -
advocacy of the positions of the parties.”) with George v.
Hilaire Farm Nursing Home, 622 F.Supp. 1349, 1355
(D.C.N.Y. 1985) (recognizing a qualified privilege for
defamation). See, e.g., Gary D. Spivey, Annotation, Libel

& Slander: Privileged Nature of Communications Made in
Course of Grievance or Arbitration Procedure Provided for

by Collective Bargaining Agreement, 60 A.L.R.3d 1041
(1974). In order to prevent the repudiation of this Court’s
decision in Linn, the Ninth Circuit’s decision must reversed. !!

"" Kahele’s statements are as factual as the famous example provided by
Judge Bork:

The assertion that “Jones stole $100 from the church —

poor box last Friday night,” cannot be tortured into an

opinion, just as the assertion that “I think Jones is the

kind of man who would steal from the church poor box”

is obviously only a statement of the speaker’s opinion of

Jones’ character.

Ollman v. Evans, 750 F.2d 970, 1008-09 (D.C. Cir. 1984) (en banc)
(Bork, J., concurring), cert. denied, 471 U.S. 1127 (1985).

16

B. The Decision Below Conflicts With
Milkovich v. Lorain Journal Co., 497 U.S.
1 (1990) By Holding That The Non-Textual
Context Of A Malicious Statement
Overrides Textual Content.

In Milkovich, this Court sustained the actionability of
a Claim based on a sports page publication about a school
wrestling coach’s testimony at a public hearing. Rejecting the
“opinion versus fact” analysis, this Court in Milkovich held
that there is no constitutional distinction between fact and
opinion and therefore, no “wholesale defamation exemption”
for any statement that can be labeled “opinion.” Milkovich,
497 U.S. at 18. This leads to the next issue in Milkovich,
whether a statement is sufficiently factual to be susceptible of
being true or false, regardless of its context. See id. at 21.
Under this inquiry, if statements of opinion may “reasonably
be interpreted as stating actual facts about an individual|[,]”
then the truthfulness of the factual assertions may be tested in
a defamation action. Id. at 20 (brackets and quotation marks
omitted). Milkovich not only ended “an artificial dichotomy
between ‘opinion’ and fact[,]” Id. at 19, but set a non-
contextual standard for deciding what is a “fact,” namely
whether the statement is sufficiently capable of being proven
true or false rather than being loose figurative rhetorical
hyperbole.

\

The Ninth Circuit held that because Kahele’s plain
unadorned factual statements, which were knowingly false,
were made in a labor context, they became a “rhetorical
device employed to further the Union’s bargaining strategy,
not statements of objective fact.” Steam Press Holdings, Inc.,
at 1006-07. In other words, Kahele’s otherwise quintessential
false statements were held to be protected “opinion” solely
due to the labor relations context of the statements. The
Ninth Circuit’s conclusion is based upon its speculation as to

17

what Kahele intended to communicate to the union members
and further, that the union members may have anticipated that
their Union President may use fiery rhetoric or hyperbole
when speaking to them. See id. at 1007.

The Ninth Circuit’s decision is plainly in conflict with
this Court’s decision in Milkovich and should be reversed.

of The Ninth Circuit “Opinion - Not Fact”
Analysis Clashes With Applications Of
Milkovich In Other Circuits.

The Ninth Circuit apparently reads Milkovich to hold
that a defendant publisher will prevail if there is speculative
possibility that the audience may have considered the
statement to be one of opinion, regardless of its factual
content, and regardless of their actual perceptions.

As a rule of the law, this holding contrasts with
several other circuits. The Fourth Circuit in Biospherics, Inc.
v. Forbes, Inc., 151 F.3d 180 (4th Cir. 1998) interpreted
Milkovich to place

primary emphasis . . . on verifiability of the
Statement... . Milkovich directs that an
opinion may constitute actionable defamation,
but only if the opinion can be reasonably

interpreted to declare or imply untrue facts.

Id. at 184 (quoting Milkovich, 497 U.S. at 20) (emphasis
added, quotation mark omitted). In other words, the Fourth
Circuit’s rule is whether the words can be reasonably
interpreted to declare or imply untrue facts. It is not whether
an appellate judge can speculate what the speaker thought
when he said the words.

' Likewise, the Seventh Circuit finds actionable a
statement based upon objectively verifiable facts as
distinguishable from when a speaker plainly expresses “a —

18

subjective view, an interpretation, a theory, a conjecture, or
surmise[.]” Haynes v. Alfred A. Knopf, Inc., 8 F.3d 1222,
1227 (7th Cir. 1993). Since objectively verifiable facts are
actionable, the Fourth and Seventh Circuit, in this case would
likely conclude that a union president waiving a Dun &
Bradstreet Report and claiming that the employer is making
millions of dollars and hiding that money is actionable. The
statements were, as this record amply establishes, objectively
verifiable.

We submit the test for distinguishing between
constitutionally protected and unprotected statements is
whether the statement is factually verifiable and not whether
it was made during a labor dispute.

Il. The Ninth Circuit’s Decision To Extend The
Protection Of Federal Labor Policy To Statements
Made With Constitutional Malice Also Conflicts
With Decisions Upheld In Other Circuits And With
This Court’s Clear Statements Of Federal Labor
Policy And Prior Decisions Acknowledging The
Important Social Values Which Underlie The Law
Of Defamation

A. The Ninth Circuit’s Decision Conflicts With
A Recent Decision That This Court Let
Stand Interpreting Federal Labor Policy In
The Sixth Circuit

This Court just recently denied a Union’s Petition for
Certiorari review filed on August 28, 2002 from a decision
made by the Appellate Court of Illinois in Lowe Excavating
Co. v. Int’] Union of Operating Eng’rs Local No. 150, 765
N.E.2d 21 (Ill.App.Ct. 2002). In Lowe, a construction
company (“employer”) brought an action against a union for
injunctive relief and damages for, among other things,

19

defamatory statements made by a union while picketing a
project the employer was working on.

The defamatory statements were published on the signs
union members held at the picket site which read as follows:

“NOTICE TO THE PUBLIC LOWE
EXCAVATING DOES NOT PAY THE
PREVAILING WAGES AND ECONOMIC
BENEFITS FOR OPERATING ENGINEERS
WHICH ARE STANDARD IN THIS AREA
OUR DISPUTE CONCERNS ONLY
SUBSTANDARD WAGES AND BENEFITS

PAID BY THIS COMPANY LOCAL 150
Ae national Union Of Operating Engineers,

Id. at 25.

The construction project being picketed by the union
was a federal project that required all contractors, including
Lowe, to pay prevailing wages and benefits. Even after the
union became aware that Lowe was working on a federal
project, it continued to picket using signs containing the above
mentioned statements. Lowe was eventually removed from
the project by the general contractor.

The trial court found in favor of the union on all
counts and Lowe appealed the trial court’s decision.

Unlike the Ninth Circuit, the Illinois Court in
reversing the trial court in Lowe’ defamation claim, did not
allow the context of a federal labor dispute to trump the
defamation analysis. Rather, the Lowe Court determined that
the statements were clearly factual despite the fact that they
were made in contentious labor circumstances. Furthermore,
the Lowe Court also concluded that there was actual malice
by the union in wording of the statements.

20

Here, the Ninth Circuit decision has created a context
based preemption for defamation claims in the labor context
that is contrary to this Court’s prior decisions in Linn and its
progeny and other courts in the Sixth Circuit. It is YLDC’s
contention that the Illinois Appellate Court applied the correct
analysis and that the Ninth Circuit has got it wrong. This
conflict can be resolved, and should be resolved, through
certiorari review of this case as it is intolerable to allow the
entire western United States to depart from the rest of the
country in this important area of federal labor policy.

B. The Ninth Circuit’s Extension Of The Protection
Of Federal Labor Policy To Statements Made With
Constitutional Malice Conflicts With This Court’s
Clear Statements Of Federal Labor Policy And Its
Prior Decisions Acknowledging The Important
Social Values Which Underlie The Law Of
Defamation 2

The Ninth Circuit Court’s holding that dishonesty
“enjoys the full protection of federal labor law,” clashes with
the scheme of federal labor law designed to encourage the
peaceful resolution of labor disputes through honest, good
faith representation and rational bargaining. As such, the
holding directly affects over 16 million American workers and
thousands of employer units in all critical industries. See
U.S. Bureau of Labor Statistics, Union Members in 2001
(visited Nov. a 2002)
; Federal
Mediation and Conciliation Service, 1998 Annual Report
(visited Nov. a8 2002 )
. Because
industries and customers are so impacted by strikes, Congress
has long sought to protect the flow of interstate commerce
from work stoppages through a variety of peace-promoting
regulation under the Commerce power. See 29 U.S.C. § 151

21

(1998). The fundamental requirement of honesty in several
aspects of such regulated behavior was, we had thought this
Court made clear, so pervasive as to be beyond question.
The Ninth Circuit, however, by expressly rewarding a union
for knowingly concealing the truth from its members, has
elevated repeated “willful dishonesty” to the status of a First
Amendment right. —

The following federal labor policies, all of which were
ignored by the Ninth Circuit, will be frustrated if malicious
defamatory speech is accorded a First Amendment protection:

Cc. The Duty Of Fair Representation.

As this Court has made clear, the duty of union
leadership to its members is akin to the duty owed by other
fiduciaries to their beneficiaries. Some members of this
Court have analogized the duty a union owes to the employees
it represents to the duty a trustee owes to trust beneficiaries.
See Chauffers, Teamsters & Helpers, Local No. 391 v.
Terry, 494 U.S. 558, 567-68 (1990); Id. at 584-88 (Kennedy,
J., dissenting). Others have likened the relationship between
union and employee to that between attorney and client. See
id. at 582 (Stevens, J., concurring in part and concurring in
judgment). The fair representation duty also parallels the
responsibilities of corporate officers and directors toward
shareholders. “Just as these fiduciaries owe their
beneficiaries a duty of care as well as a duty of loyalty, a
union owes employees a duty to represent them adequately as
well as honestly and in good faith.” Air Line
Int’l v. O’ Neill, 499 U.S. 65, 75 (1991); see also Restatement
(Second) of Trusts § 174 (1959) (trustee's duty of care);
Strickland v. Washington, 466 U.S. 668, 686 (1984) (lawyer
must render “adequate legal assistance”); Hanson Trust PLC

v. ML_ SCM Acquisition Inc., 781 F.2d 264, 274 (2nd Cir.
1986) (directors owe duty of care as well as loyalty). When

22

Kahele inflamed the anger of YLDC’s employees to put their
jobs on the line, he concealed from them not only the fact that
their employer genuinely could not afford their wage
demands, but also that Union’s CPA had already confirmed
YLDC had “no money,” and for that candor CPA had been
terminated. The Ninth Circuit’s holding stands the principle
of fiduciary duty on its head and condones what federal law
prohibits. It provides rather a model for cowardly, dishonest
union “leadership.”

D. Union Members’ Right To Meaningful
Participation In Union Affairs.

The Labor Management Reporting and Disclosure Act
(“LMRDA”), 29 U.S.C.§§ 401 (1998) et seq., gives union
members a right to participate “meaningfully” in the affairs
of their union. To ensure that this right is real, the duty to
refrain from willfully dishonest actions toward employees
applies to “challenges leveled not only at a union’s contract
administration and enforcement efforts but at its negotiation
activities as well.” Communications Workers v. Beck, 487
U.S. 735, 743 (1988) (internal citation omitted).
Additionally, a union’s material nondisclosure plays a
significant role in holding that the duty of fair representation
has been breached. See Minnis v. UAW, 531 F.2d 850, 854
(8th Cir. 1975) (union’s failure to inform grievant that it
postponed his grievance is breach of duty of fair
representation); Alicea v. Suffield Poultry, Inc., 902 F.2d
125, 130 (1st Cir. 1990) (holding a union responsible for
serious misrepresentations that lack rational justification or
are improperly motivated is consistent with the union’s
obligation to deal honestly and fairly with its members);

R v. A t, Motel, Hotel & Elevator rators
Union, Local No. 14, 453 F.2d 1018, 1024 (9th Cir. 1972)

(to accord meaningful participation, union must communicate
in language of employees.).

23

The Ninth Circuit’s condonation of Kahele’s speeches
rests on the cynical and legally baseless view that employees
neither expect nor deserve the truth when voting to strike.
This is contrary to federal labor policy.

E. Rational Bargaining.

Federal law promotes the peaceful mediation and
conciliation of labor disputes by an authorized Federal
Mediator. See 29 U.S.C. §§ 171, 173, 174 (1998).

Under the National Labor Relations Act, an honest
exchange of economic data is required to facilitate good faith
bargaining and promote labor peace. As this Court observed
in N.L.R.B. v. Truitt Mfg. Co., 351 U.S. 149, 152 (1956),
Section 204 (a)(1) of the Act admonishes both employers and
employees to “exert every reasonable effort to make and
maintain agreements concerning rates of pay, hours, and
working conditions .. . .” Part of the effort to reach that
agreement is to treat an employer’s claim of financial inability
to pay increased wages as a fact. “The ability of an employer
to increase wages without injury to his business is a
commonly considered factor in wage negotiations. Claims for
increased wages have sometimes been abandoned because of
an employer’s unsatisfactory business condition; employees
have even voted to accept wage decreases because of such
conditions.” Id. (footnote omitted).

By reducing the honest exchange of financial
information to a “call to arms” rather than assertions of
objective fact, the federal scheme of rational bargaining is
not merely frustrated - it converts the honest path to peace
prescribed by Congress to a road to economic warfare.

This court is urged to take this opportunity to assure
that the First Amendment is not so perverted as to provide
absolute protection to what the District Court found to be
knowing dishonesty by Union to its own members. Such a

24

result is a significant and entirely inexplicable affront to the
principles of honesty heretofore required in such a context by
this Court and Congress.

F. Society Has Little Interest In Extending The
Outer Limits Of First Amendment
Protection To False Commercial Speech In
The Context Of A Labor Dispute

In Virginia State Bd. of Pharmacy v. Virginia Citizens
Consumer Council, Inc., 425 U.S. 748 (1976), this Court,
while extending First Amendment protections to commercial
speech, held that deceptive or misleading commercial speech
may be regulated in order to insure that “the stream of
commercial information flow[s] cleanly as well as freely.”
Id. at 772. This is because “[{u]ntruthful speech commercial
or otherwise, has never been protected for its own sake. Id.
at 771. By analogy, federal labor policy does promote the
dissemination of accurate, as opposed to misleading,
information to employees as they make economic decisions of
whether to place their jobs and the viability of an employer on
the front lines of an economic war. In fact, a number of
restrictions upon speech in a labor context. For example, in
N.R.L.B. v. Gissel Packing Co., this Court held that an
employer's threats of retaliation for the labor actions of his
employees are “without the protection of the First
Amendment.” 395 U.S. 575, 618 (1969).

Here, the Ninth Circuit wrongly approves of a union
president who goes from meeting to meeting fomenting a
strike, not peddling ideology. However, it is beyond cavil
that society has as much of an interest in curtailing such
willful dishonesty as it does in prohibiting fighting words “of
such slight social value as a step to truth that any benefit that
may be derived from them is clearly outweighed by the social

25

interest in order and morality.” Chaplinsky v. New
Hampshire, 315 U.S. 568, 572 (1942).

Congress and this Court have thus repeatedly affirmed
that federal labor policy may and does restrict what a Union
may say to employees. However, this Court has also held
that Congress has left to the states the use of tortious words in
communications relating to strike. See Belknap, Inc. v. Hale,
463 U.S. 491, 509-12 (1983). Given the policy of Linn,
there is no rational basis to allow unions to induce strikes with
tortious speech while depriving employees of the collateral
opportunity to use lies to break a strike.

Congress, this Court, and state tort laws have limited
the range of permissible communications of information in
labor disputes even though these regulations may
constitutionally impinge on the outer limits of free speech.
Here, the Ninth Circuit stands at the extreme other end of the
spectrum and declares “It’s a Union causing a strike - so they
can damage a reputation knowingly, maliciously, and freely.”

Ill. The Court Of Appeals’ Gross Disregard Of The
Trial Court’s Findings Of Fact And Substitution Of
Judicial Speculation Warrants The Exercise Of
This Court’s Supervisory Authority.

This Court’s “supervisory power over the judgments
of the lower federal courts is a broad one.” United States v.
Munsingwear, Inc., 340 U.S. 36, 40 (1950); Walling v.
James V. Reuter, Inc., 321 U.S. 671, 676 (1944) (vacating
and remanding a case regarding a violation of the Fair Labor
Standards Act based in part on the supervisory authority of
the Court).

In Bose Corp. v. Consumers Union of United States,
Inc., 466 U.S. 485 (1984), this court stated:

26

[t]he conclusiveness of a “finding of fact”
depends on the nature of the materials on
which the finding is based. The finding even
of a so-called “subsidiary fact” may be a more
or less difficult process varying according to
the simplicity or subtlety of the type of “fact”
in controversy. Finding so-called ultimate
“facts” more clearly implies the application of
standards of law. And so the “finding of fact”
even if made by two courts may go beyond the
determination that should not be set aside here.
Though labeled “finding of fact,” it may
involve the very basis on which judgment of
fallible evidence is to be made. Thus, the
conclusion that may appropriately be drawn
from the whole mass of evidence is not always
the ascertainment of the kind of “fact” that
precludes consideration by this Court.
Particularly is this so where a decision here for
review cannot escape broadly social judgments
-- judgments lying close to opinion regarding
the whole nature of our Government and the
duties and immunities of citizenship.

Id. at 501 n.16 (citation omitted).

This rule is critical in defamation matters. In Bose

Corp., 466 U.S. 485, this Court determined that “in cases
raising First Amendment issues . . . an appellate court has an
obligation to ‘make an independent examination of the whole
record’ in order to make sure that ‘the judgment does not
constitute a forbidden intrusion on the field of free
expression.’” Id. at 499 (quoting New York Times Co. v.
Sullivan, 376 U.S. 254, 284-86 (1964) (emphasis added)).
Here, the Ninth Circuit skipped the “examination of the

27

whole record” to make sure the judgment would not
compensate the victim of malicious falsehoods.

For the reasons stated above, the Ninth Circuit’s
substitution of judicial speculation of what a witness “could
have” thought or stated converts objective fact findings
supported in a record into subjective opinions and is clear
error that requires correction by this Court.

IV. This Is A Case That Implicates Broad Social
Judgments Concerning The Whole Nature Of The
Duty Of Honesty In A Civilized Society.

We deal here not merely with a small business and a
strike. At the center of this case is the role of honesty in our
lives as Americans. It arises concurrently with the Enron and
related scandals, with the AFL-CIO’s call to investors to not
tolerate companies that overcompensate executives, cheat
their employees, lie to their shareholders, or cook their
books, to hold CEO’s accountable and to insist upon higher
standards of corporate behavior. John J. Sweeney, Remarks
by John J. Sweeney, President of the AFL-CIO On the Wall
Street Rally (visited Nov. 21, 2002)
.

In direct contrast to the Enrons and WorldComs doing
business in the United States, YLDC is an employer who told
the truth to its employees and Union and who violated no
labor laws in its struggle to survive as the only unionized
highest labor cost employer in its market. When YLDC
prevailed at trial, providing clear documentary and testimonial
proof that the statements of Kahele were false and made with
actual malice, and further proving the damages caused by the
malicious defamation, YLDC believed the Linn case really
meant that the willful use of the known lie has no
constitutional protection in any context. Linn, 383 U.S. at
62-63.

28

YLDC now has a decision from the Ninth Circuit
telling it that the decision in Linn does not mean what it says.
The Ninth Circuit’s decision allows Union to escape liability
for knowingly lying to its members because the lies were
made during the course of a labor dispute where its members
could have thought the lies about facts were only about
opinions. See Steam Press Holdings, Inc., 302 F.3d at 1005-
07, 1009.

This court is the ultimate supervisor of the federal
judiciary. It must once again tell America in plain terms that
can be universally understood, whether willful dishonesty that
is injurious to reputation is or is not constitutionally protected
in any context. If certiorari is denied in this case, this Court
may implicitly confirm that “bearing false witness” so long as
it occurs in the context of a labor dispute is now, an accepted,
indeed constitutionally protected, value in our society,
enshrined in our First Amendment. .

By granting certiorari, this court can eventually
confirm that the nature of our Government and the duties and
immunities of citizenship involving honesty are not so
situational. This Court can say that honesty is a paramount
value and that the Framers of the Constitution never intended
that the First Amendment would repeal the Ninth
Commandment: “Thou shalt not bear false witness against thy
neighbor!” (Exodus 20:13); (Shemos 20:16).

CONCLUSION

One century ago, the first Justice Harlan admonished
this Court that the Constitution “neither knows nor tolerates
classes among citizens.” Plessy v. Ferguson, 163 U.S. 537,
559 (1896) (Harlan, J., dissenting). Unheeded then, those
words now are understood to state a commitment to the law’s
neutrality where the rights of persons are at stake.

In Linn, we were reminded there is no protection in
our society for the willful use of the “known lie,” by any
group or class be it labor or management, and it is important
to reverse the erosion of this standard by the Ninth Circuit.

For the foregoing reasons, the petition for a writ of
certiorari should be granted.

Respectfully submitted,

Jared H. Jossem, Esq.,
Counsel of Record
Lynn T. Toyofuku, Esq.
Dwyer Schraff Meyer
Jossem & Bushnell
1800 Pioneer Plaza
900 Fort Street Mall
Honolulu, Hawaii 96813
Telephone: 808-524-8000
Telecopier:808-537-4667

Counsel for Petitioners

Steam Press Holdings, Inc.Dba
Young Laundry and Dry
Cleaning, And Michael Drace

30

APPENDIX A

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

No. 01-17222, No. 02-15097

[Filed August 26, 2002]

STEAM PRESS HOLDINGS, INC.,
dba Young Laundry and Dry Cleaning;
MICHAEL DRACE,

- Plaintiffs-Appellees,
V.

HAWAII TEAMSTERS AND ALLIED

WORKERS UNION, LOCAL 996;

MEL KAHELE, as an individual,
Defendants-Appellants.

STEAM PRESS HOLDINGS, INC.,
dba Young Laundry and Dry Cleaning;
MICHAEL DRACE,
Plaintiffs-Appellants,
v.
HAWAii TEAMSTERS AND ALLIED
WORKERS UNION, LOCAL 996,
Defendant-Appellee
and MEL KAHELE, as an individual;
HAWAII TEAMSTERS HEALTH &
WELFARE TRUST FUND; DOE
DEFENDANTS 1-150,

Nee Nee Nee eee eee Se “es”

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Ninth Circuit Opinion - 08/26/02

Defendants. )
)

Appeal from the United States District Court
for the District of Hawaii :
Helen Gillmor, District Judge, Presiding
D.C. No. v. CV-99-00187-HG(KSC).
D.C. No. CV-99-00187-HG.

JUDGES:
Before: Alfred T. Goodwin, Michael Daly Hawkins and

Raymond C. Fisher, Circuit Judges. Opinion by Judge
Goodwin.

OPINION
GOODWIN, Circuit Judge:

Michael Drace and Steam Press Holdings, Inc., dba
Young Laundry and Dry Cleaning, sued Mel Kahele and
Hawaii Teamsters and Allied Workers, Local 996, in federal
district court alleging that (1) defendants made defamatory
statements of and concerning plaintiffs during the course of a
labor dispute; (2) defendants breached a no-strike clause in a
collective bargaining agreement ("CBA"); and (3) defendants
engaged in racketeering. The district court found in favor of
plaintiffs on the defamation claim, awarding damages for
economic and reputational harm caused by the defamatory
statements, and found in favor of defendants on the remaining
claims. Both parties appeal.

We have jurisdiction pursuant to 28 U.S.C. § 1291.
For the reasons that follow, we (1) reverse the district court's

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holding on the defamation issue; (2) affirm the district court's
disposition of the RICO and breach of collective bargaining
agreement issues; and (3) affirm the district court's denial of
plaintiffs’ request for attorneys’ fees.

BACKGROUND

This appeal arises out of a labor dispute involving the
employees of Young Laundry and Dry Cleaning, Inc.
("YLDC"), a retail laundry and dry cleaning business
operating in Hawaii. In September 1994, Michael Drace
purchased YLDC from its prior owner, David Applebaum.
Drace has been the president and owner of YLDC since the
time of the purchase.'

Hawaii Teamsters and Allied Workers, Local 996, (the
"Union") is a labor organization, as defined in 29 U.S.C. §
152(5). Mel Kahele was president of the Union at all times
relevant to these proceedings. As of July 1998, the Union had
approximately 5400 members and was a party to collective
bargaining agreements with approximately 68 employers, one
of whom was YLDC.

At the time of Drace's purchase of YLDC, the Union
and YLDC were parties to a collective bargaining agreement
(known as the Master Laundry Agreement ("MLA")) which
governed the YLDC employees' wages, benefits, and working
conditions. As a condition of Drace's purchase of YLDC, the
Union was asked to make certain concessions on employee
wages and benefits. The Union agreed to these concessions,

' Drace and YLDC are collectively referred to as the "Employers."

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and the concessions became part of the Memorandum of
Agreement ("MOA"), which modified the terms of the MLA.
YLDC's employees understood the concessions as a loan that
would be repaid to them by Drace upon the expiration of the
MOA. By its express terms, the MOA remained in effect until
September 30, 1998.

Shortly before the expiration of the MOA, the Union
and the Employers entered into negotiations on a new
contract. In a letter dated July 13, 1998, the Union proposed
restoration of the benefits that had been reduced or eliminated
when Drace purchased YLDC in 1994. In response, Drace
claimed that YLDC was in financial trouble and proposed
further reductions in employee benefits and wages. Drace also

invited the Union to arrange for an accountant to review
YLDC's books.

On July 28, 1998, the Union informed Drace that it
was conducting its own research into YLDC's finances and
that it would organize a negotiating committee. The Union
asked the International Brotherhood of Teamsters to provide
it with financial information regarding YLDC.

On September 2, Union representatives met with
Drace and others to discuss YLDC's proposals. Drace,
employing various charts and graphs, explained to the Union
representatives that YLDC was in financial distress. One
Union member reacted by telling Drace that charts can be
"made to show anything that [one] wants them to show."
After Drace's presentation, the Union again proposed the
restoration of the benefits that had been conceded in 1994,
along with wage increases for each of the following three
years. The meeting ended without an agreement.

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On or around September 8, the Teamsters responded
to the Union's request for financial information about YLDC
by sending the Union a Dun & Bradstreet Report ("D&B-
Report") on YLDC. The district court found that the D&B
Report and supporting documents "contain[ed] numerous
indications of YLDC's poor financial health."

The parties held their second bargaining session on
September 10. Drace presented his third proposal (which was
substantially similar to his earlier proposals). During this
meeting, Union representatives inquired about a company
called "Steam Press, Inc." Although Drace had formed Steam
Press in 1995 as a holding company for YLDC, Union
members had only recently discovered the company's
existence. Kahele asked Drace what Steam Press was, and
Drace replied that it was a company set up to invest the
profits of YLDC. The Union's questions concerning Steam
Press prompted Mr. Jossem, YLDC's attorney, to ask if the
Union was calling Drace a liar. Union member Jesse Apodaca
Torres responded “we can," to which Kahele added "we
will." The Union ultimately rejected Drace's proposal.

On the following day, near a dumpster outside the
YLDC plant, the Union held a meeting to discuss the status of
contract negotiations with YLDC employees. The number of
employees present changed over the course of the meeting,
ranging from a low of forty to a high of eighty.

Hannah Kilakalua, a YLDC employee, attended this
meeting and later testified that Kahele stated at the meeting
"Mike is making money" and "Mike Drace is making money
from the Steam Press." Kilakalua further testified that

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"everybody was mad" after Kahele made the statement "Mike
is making money."

Drace, although not present at the meeting, testified
that after the meeting he spoke with Bernard Roque, a
member of the Union negotiating team. Roque told Drace that
he was at the meeting and that he resigned from the
negotiating team after hearing that YLDC was hiding seven
to ten million dollars. The district court found "that Kahele
stated at the September 11 meeting that Mike Drace was
making money and that he was hiding the money in Steam
Press."

On September 17, a third negotiation session took
place, resulting in the parties agreeing that they were at an
impasse. On September 25, the Union agreed to have its
accountant examine YLDC's books. Kahele accompanied
Union accountant Terry Takaki to YLDC's offices where
they reviewed the consolidated books and records of YLDC
and Steam Press. After examining these materials, Takaki
informed Kahele that YLDC did not have any money. Shortly
thereafter, Kahele and Takaki put the review of YLDC's
financial records on hold.

The Union held a strike authorization vote on
September 29. YLDC employees voted 80-8 in favor of a
strike. Relying on the testimony of Kilakalua, the district
court found that "At the strike vote, Kahele, as well as others,
made statements that Drace was making money from Steam
Press and that the Union was going to check on that." On
October 8, the Union went on strike. The strike lasted until
May 1999, when YLDC's employees decertified the Union.

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Shortly before the strike ended, Drace and YLDC
sued the Union and Kahele in federal district court, alleging,
inter alia, that (1) the strike violated a no-strike clause in the
collective bargaining agreement; (2) the Union was guilty of
defamation; and (3) Kahele and others had engaged in
racketeering in violation of 18 U.S.C. § 1961.

The district court disposed of the Employers’
racketeering claim at the summary judgment stage, granting
the Union's motion for summary judgment. The court found
that the Employers had failed to demonstrate either "closed-
ended" or "open-ended" continuity, and therefore held that
the Union had not engaged in a "pattern" of racketeering
activity, as required by 18 U.S.C. § 1961.

The court disposed of the Employers' remaining
claims following a bench trial. Pursuant to section 301 of the
Labor Management Relations Act, the Employers alleged that
the Union breached the no-strike clause of the MLA.
Specifically, the Employers alleged that the October 8 strike
was a breach of Section 29 of the MLA, which prohibited
strikes while the agreement was in force.”

The district court found that the MLA, by its express
terms, still governed the parties at the time of the strike. The
court also found, however, that the Employers were

2 Section 29 of the MLA provides: "The parties hereto agree that
during the term of this agreement there shall be no lockout by the
Employer, nor any strike, sitdown, refusal to work, stoppage of
work, slowdown, retardation of production, or picketing of the
Employer on the part of the Union or its representatives or on the
part of any employee covered by the terms of this agreement."

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"estopped from arguing that the MLA continued to be in force
because they had repudiated it prior to the beginning of the
strike on October 8, 1998." Accordingly, the court entered
judgment in favor of the Union.

Lastly, with respect to the state law defamation claim,
the court found in favor of the Employers. The court found
that Kahele's statements that "Drace was making money" and
"hiding it in Steam Press" were false, and that Kahele made
them with reckless disregard for their truth.

The district court awarded both Drace and YLDC
damages for injuries that it found were caused by Kahele's
defamatory statements. The court awarded Drace $ 50,000 to
compensate him for injury to his reputation, and $ 50,000 to
compensate him for emotional distress. Additionally, finding
that Kahele's defamatory statements caused the employee
strike, the court awarded YLDC approximately one million
dollars in damages "flowing from the strike." The damages
award to YLDC was based on a number of factors, including
YLDC's loss of productivity as a result of the strike; lost
profit on retail and commercial sales as a result of the strike;
and direct expenses resulting from the strike (e.g., hiring
security guards to protect against damage to YLDC's
facilities). The court also awarded YLDC damages for harm
to its reputation "[{a]s a result of the defamatory statements
and the resulting strike of YLDC employees." This appeal
followed.

Ninth Circuit Opinion - 08/26/02
DISCUSSION
I. The Union's Appeal

The Union challenges the district court's defamation
judgment and award of damages to the Employers. In
particular, the Union contends that Kahele's statements that
Drace "is making money" and "hiding money in Steam Press"
are not defamatory. The Union also contends that Kahele's
statements are not "of and concerning" plaintiff YLDC, and
that the statements were not made with "actual malice."

[1] Defamation claims predicated on statements or
publications made in the context of a labor dispute are
governed by Linn v. United Plant Guard Workers, Local 114,
383 U.S. 53 (1996). In Linn, an employer brought a state law
libel action against a labor union alleging that the union had
libeled the employer during the course of a labor organization
campaign. The Court, finding that the National Labor
Relations Act ["NLRA"] did not entirely preempt state law
libel actions predicated on libels made during the course of
labor disputes, held that such actions are permissible so long
as “[a] complainant can show that the defamatory statements
were circulated with malice and caused him damage." /d. at
64-65; see also Old Dominion Branch No. 496, Nat'l Ass'n of
Letter Carriers v. Austin, 418 U.S. 264, 273 (1974) ("[In
Linn] we held that libel actions under state law were pre-
empted by the federal labor laws to the extent that the State
sought to make actionable defamatory statements in labor
disputes which were published without knowledge of their
falsity or with reckless disregard for the truth.").

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[2] Thus, under Linn and its progeny, a complainant
pursuing a state-law defamation action predicated on a
statement made during the course of a labor dispute must
prove (1) that the allegedly defamatory statement asserts a fact
or "impl{ies] an assertion of objective fact," Milkovich v.
Lorain Journal Co., 497 U.S. 1, 18 (1990); see also Linn,
383 U.S. at 58 n.2; Underwager v. Channel 9 Australia, 69
F.3d 361, 366 (9th Cir. 1995); Unelko Corp. v. Rooney, 912
F.2d 1049, 1053 (9th Cir. 1990); (2) that the factual assertion
is false, Milkovich, 497 U.S. at 16; Letter Carriers, 418 U.S.
at 283-84; Unelko, 912 F.2d at 1055-56; and (3) that the
speaker published the challenged statement with "actual
malice." Letter Carriers, 418 U.S. at 281; Linn, 383 U.S. at
64-65; New York Times Co. v. Sullivan, 376 U.S. 254, 279-
80 (1964). The First Amendment further requires that the
challenged statement be "of and concerning" the complainant.
Sullivan, 376 U.S. at 288, 292.

Here, the district court explicitly found that Kahele's
statements were false.’ The district court implicitly found (1)
that Kahele's statements implied assertions of objective fact,
and (2) that Kahele's statements were of and concerning
plaintiffs Drace and YLDC. The court also found that Kahele
made the statements with reckless disregard for their truth,
and therefore that the actual malice standard was satisfied.

> The parties do not dispute the fact that YLDC was experiencing
financial difficulties during and prior to the labor dispute. However,
the parties vigorously dispute whether Kahele knew or had reason
to believe, at the time the challenged statements were made, that
YLDC was experiencing financial difficulties.

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A. Defamatory meaning.

The Union begins its attack on the district court's
judgment by arguing that Kahele's statements do not imply
assertions of objective fact.* According to the Union, the
application of this circuit's "totality of the circumstances" test
to the challenged statements reveals that the statements are
"rhetorical hyperbole or opinion" incapable of being proved
true or false. The Union maintains that, because the
challenged statements do not possess a defamatory meaning,
they are not actionable and therefore the district court erred
in reaching the issue of actual malice.

In response, the Employers ask that we decline to
reach the merits of the Union's argument because it is being
raised for the first time on appeal. Although as a general rule
courts of this circuit will not consider arguments on appeal
that were not properly raised at the lower court level, see,
e.g., InreE.R. Fegert, Inc., 887 F.2d 955, 957 (9th Cir.
1989), the Employers confuse the making of legitimate legal
arguments about existing issues with the impermissible
introduction of new legal theories or defenses. The Union's

4 The Union suggests that there was insufficient evidence to
warrant the district court's finding that Kahele said that "Drace is
hiding money in Steam Press." The Union correctly points out that,
in her testimony, Hannah Kilakalua did not explicitly state that
Kahele spoke the words "Drace is hiding money." Nevertheless, a
reasonable finder of fact could have understood from Kilakalua's
testimony as well as other evidence in the record that Kahele said
that Drace was hiding money. We need not, however, resolve this
issue because, as discussed infra, we conclude that the challenged
statements are not defamatory.

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Ninth Circuit Opinion - 08/26/02

argument arises out of the Employers’ claim of defamation,
and was ruled on (at least implicitly) by the district court.
Thus, we consider the Union's argument in its entirety.

Turning to the merits, we must determine whether a
reasonable factfinder could conclude that Kahele's statements
imply an assertion of objective fact. Partington v. Bugliosi,
56 F.3d 1147, 1153 (9th Cir. 1995); see also Gilbrook v. City
of Westminster, 177 F.3d 839, 861-62 (9th Cir. 1999) ("[A]
court reviewing a defamation claim must ask a threshold
question: Could a reasonable factfinder conclude that the
contested statement implies an assertion of objective fact?");
Beverly Hills Foodland, Inc. v. United Food & Commercial
Workers Union, Local 655, 39 F.3d 191, 195 (8th Cir. 1994)
("The presence of a false statement of fact is a sine qua non
for the maintenance of state defamation action in the labor
field."). A district court's determination of whether an
allegedly defamatory statement implies an assertion of
objective fact is a question of law which we review de novo.
Koch v. Goldway, 817 F.2d 507, 508 (9th Cir. 1987); Info.
Control Corp. v. Genesis One Computer Corp., 611 F.2d
781, 783 (9th Cir. 1980).

[3] In Underwager v. Channel 9 Australia, 69 F.3d
361 (9th Cir. 1995), this circuit set forth the following test to
guide the inquiry into whether an allegedly defamatory
statement implies an assertion of objective fact:

To determine whether a statement implies a
factual assertion, we examine the totality of
the circumstances in which it was made. First,
we look at the statement in its broad context,
which includes the general tenor of the entire

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work, the subject of the statements, the setting,
and the format of the work. Next we turn to
the specific context and content of the
statements, analyzing the extent of figurative
or hyperbolic language used and the
reasonable expectations of the audience in that
particular situation. Finally, we inquire
whether the statement itself is sufficiently
factual to be susceptible of being proved true
or false. |

Id., at 366; see also Rooney, 912 F.2d at 1053; Partington,
56 F.3d at 1153. If Kahele's statements do not imply
assertions of objective fact, then the statements are protected
under federal labor law. Letter Carriers, 418 U.S. at 286-87.

The first factor we consider is the broad context of
Kahele's statements, paying particular attention to setting,
subject matter, format, and tenor. Underwager, 69 F.3d at
366. Here, the setting was a labor dispute which had been
years in the making. The origins of the dispute dated back to
the concessions made by YLDC's employees at the time of
Drace's acquisition of YLDC in 1984. In 1988, when the
Union asked Drace to "repay" these concessions, Drace
claimed that he was unable to do so because of YLDC's poor
financial health. Drace made alternative proposals, which the
Union repeatedly refused to accept. The Union offered
counter-proposals, which Drace similarly refused to accept.
These negotiations went on for months, during which time the
disputants' positions became further entrenched and their
treatment of one another grew increasingly hostile. The
negotiations ended in an impasse, which was followed by a
strike and the eventual decertification of the Union.

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Labor disputes are oftentimes difficult, discordant,
drawn-out affairs in which both labor and management
exaggerate the strength of their bargaining positions in an
attempt to coerce their opponent into concession. As Linn
recognized: "[T]he language that is commonplace [in a labor
dispute] might well be deemed actionable per se in some state
jurisdictions. Indeed, representation campaigns are frequently
characterized by bitter and extreme charges, countercharges,
unfounded rumors, vituperations, personal accusations,
misrepresentations and distortions. Both labor and
management often speak bluntly and recklessly, embellishing
their respective positions with imprecatory language." Linn,
383 U.S. at 58 (citing Cafeteria Employees Union, Local 302
v. Angelos, 320 U.S. 293, 295 (1943); see also NLRB v. Ins.
Agents' Int'l Union, 361 U.S. 477, 488-89 (1960) (observing
that "The parties [to a collective bargaining agreement]. . .
proceed from contrary and to an extent antagonistic
viewpoints and concepts of self-interest. The system has not
reached the ideal of the philosophic notion that perfect
understanding among people would lead to _ perfect
agreement").

In such a heated and volatile setting, even seemingly
"factual" statements take on an appearance more closely
resembling opinion than objective fact. See Underwager, 69
F.3d at 367 (finding that statements made in "heated debate"
were more like opinions than factual assertions); Leidholdt v.
L.F.P., Inc., 860 F.2d 890, 894 (9th Cir. 1988) (observing
that "[e]ven apparent facts must be allowed as opinion when
the surrounding circumstances of a statement are those of a
heated political debate") (internal quotation marks omitted);
Info. Control Corp. v. Genesis One Computer Corp., 611
F.2d 781, 784 (9th Cir. 1980) (observing that "[e]ven

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apparent statements of fact may assume the character of
statements of opinion, and thus be privileged, when made in
. . . [a] heated labor dispute").

[4] Further, the format, subject matter, and tenor of
Kahele's statements suggests that the statements were a
rhetorical device employed to further the Union's bargaining
strategy, not statements of objective fact. The statements were
made at internal union meetings. Both the September 11 and
the September 29 statements followed Drace's refusal to meet
the Union's demands. Accordingly, Kahele's statements may
have been intended to communicate to those present that,
regardless of YLDC's financial condition, the Union had to
compel Drace to address their concerns. Alternatively,
Kahele's statements could have been a way of demanding that
Union members and YLDC employees call Drace's bluff,
e.g., Kahele may have been saying to the Union "now is not
the time to concede." In sum, the broad context of Kahele's
statements weighs in favor of construing the statements as
opinion rather than as objective fact.

[5] The second factor we consider is the specific
context and content of the statements. Underwager, 69 F.3d
at 366. This factor requires us to evaluate "the extent of
figurative or hyperbolic language used and the reasonable
expectations of the audience in [the] particular situation." /d.

[6] The Union insists that Kahele's statements are
"loose, figurative expression(s] that suggest to the listener that
the speaker is communicating an impression or idea but not an
objective fact." We disagree. Kahele's statements, rather than
employing figurative and loose language, employ plain,
unadorned language. Although Kahele's terminology is

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somewhat abstract, e.g., "making money" and "hiding
money," Kahele's statements do not employ the type of
language that courts of this circuit have previously found to
be loose and figurative. See id. at 367 (finding statements that
plaintiff "must have trouble sleeping" and "was obviously
looking at greener pastures" to be colorful, figurative
rhetoric); see also Weiner v. San Diego County, 210 F.3d
1025, 1032 (9th Cir. 2000) (finding district attorney's
Statement to press that "cases, unlike fine wine, get worse
rather than better, with age" to employ figurative language);
Cochran v. NYP Holdings, 58 F. Supp. 2d 1113, 1124(C.D.
Cal. 1998) (finding statement that "[plaintiff] will say or do
just about anything to win, typically at the expense of the
truth" to be "loose and figurative").

[7] Nevertheless, the absence of loose, figurative
language here is of only minimal significance because the
Union meetings at which Kahele made his statements were
"circumstances in which an audience may anticipate efforts by
the parties to persuade others to their positions by use of
epithets, fiery rhetoric, or hyperbole." /nfo. Control Corp.,
611 F.2d at 784 (internal quotation marks omitted); see also
Gilbrook, 177 F.3d at 862 ("During the course of a public
debate or a labor dispute, a reasonable audience would
anticipate epithets, fiery rhetoric, or hyperbole.");
Underwager, 69 F.3d at 367 (observing that audience to
discussion of legal defense tactics "would expect emphatic
language on both sides" and therefore "would be likely to
recognize that the statements did not represent provable
assertions"); Films of Distinction, Inc. v. Allegro Film Prods.,
Inc., 12 F. Supp. 2d 1068, 1081 (C.D. Cal. 1998) (finding
that audience viewing film, which depicted youth watching
Crime Channel and proceeding to commit several murders,

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"would understand that the statements did not represent
provable assertions, particularly in light of the ongoing public
debate over what causes children to commit violent crimes").

The Employers maintain, however, that the reasonable
expectations of the audience in this particular case were that
Kahele's statements were factual assertions. In support of this
contention they rely on the district court's finding (1) that
Kilakalua "believed what the Union told her to be true" and
(2) that "Kilakalua's reaction to the statements made by the
Union reflected the reaction of other bargaining unit
employees."

[8] Although there is support in the record for the
district court's first finding, i.e., that Kilakalua believed what
the Union told her to be true, the record does not support the
court's imputation of Kilakalua's belief to the other
employees. Even assuming, however, that Kilakalua and the
other employees believed Kahele's statements to be true,
believing a statement to be "true" is not synonymous with
believing a statement to be "an assertion of objective fact."
Kilakalua may very well have believed that what Kahele said
was true, but this does not in itself remove Kahele's
statements from the realm of opinion.

Moreover, an examination of the entirety of
Kilakalua's testimony supports the conclusion that the
reasonable expectation of Kahele's audience would not be that
Kahele's statements asserted objective fact. Kilakalua testified
that, on September 29, "Mr. Kahele said Mike Drace is
making money from the Steam Press, and they going check on
that." Based on this testimony, the district court found that
Kahele "state[d] that Drace was making money from Steam

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Press and that the Union was going to check on that." The
phrase "going to, check on that" is a significant qualifier
because it gave Kahele's audience a reason to construe his
statements as opinion rather than fact.°

[9] Additionally, Kilakalua testified that she heard
Drace's side of the story from Drace himself, who told her
that he "wasn't. making money from the Steam Press."
Kilakalua "didn't believe [Drace] because the union already
told [the employees] that he was making money." A
reasonable audience confronted with two competing stories,
in the context of a heated labor dispute, would be inclined to
conclude that each story represented the subjective view, or
the negotiating stance, of the particular speaker; the audience
would be reluctant to view either story as objective fact.
Kilakalua's testimony suggests merely that she chose to
believe the Union's -- rather than the Employers’ -- side of
the story. Thus, as with the broad context of Kahele's
statements, we find that the specific context weighs in favor
of construing the statements as opinion.

[10] Lastly, we must determine whether the statements
at issue are provable as true or false. Underwager, 69 F.3d
at 366. In conducting our inquiry, we are guided by the
maxim that "where the question of truth or falsity is a close

> The Employers point out that, immediately prior to the strike
vote, Kahele and Takaki stopped working on the review of YLDC's
financial records. Although this fact would be relevant to an inquiry
into actual malice, it does not assist us in determining the
reasonable expectations of Kahele's audience because there is no
evidence that Kahele's audience knew that the inquiry into YLDC's
financials had been put on hold.

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Ninth Circuit Opinion - 08/26/02

one, a court should err on the side of nonactionability."
Partington, 56 F.3d at 1159.

The Union contends that the statements "Drace is
making money" and "Drace is hiding money" are abstract
phrases lacking specific referents. The Union emphasizes that,
because each phrase is subject to multiple interpretations, they
are not susceptible of verification. Accordingly, the Union
continues to argue that the statements are more like opinion
than fact.

The Employers maintain that Kahele's statements are
necessarily false because YLDC was experiencing financial
difficulty during and prior to the strike. They emphasize that
"[the fact that] YLDC was not making money was proven true
by Defendants’ own [accountant], and Kahele knew it." The
Employers contend that, because the statements are provable
as true or false, they should be construed as fact rather than
opinion.

[11] The fatal flaw in the Employers' argument is that
it assumes the meaning of the terms upon which it relies. A
phrase like "making money" does not possess a singular,
concrete, and therefore readily verifiable, meaning. One
seeking to prove the truth or falsity of Kahele's statements
would need to clarify the meaning of the statements in order
to become capable of determining whether they have an
empirical foundation. For example, does the term "money"
refer to profit or does it refer to earnings? What is the
temporal scope of the phrase "making money"? Is the speaker
referring to quarterly earnings, annual profit, or some other
figure? Phrased in such abstract language, Kahele's statements
do not rest on a "core of objective evidence," Underwager,

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Ninth Circuit Opinion - 08/26/02

69 F.3d at 367, and are simply not susceptible of being
proved true or false. Thus, this factor, like the previous two,
weighs in favor of construing Kahele's statements as opinion
rather than fact.

[12] Freedom of speech is an essential component of
the labor-management relationship. Collective bargaining will
not work, nor will labor disputes be susceptible to resolution,
unless both labor and management are able to exercise their
right to engage in “uninhibited, robust, and wide-open"
debate. Sullivan, 376 U.S. at 270. Indeed, the Supreme
Court has recognized that "federal law gives a union license
to use intemperate, abusive, or insulting language without fear
of restraint or penalty if it believes such rhetoric to be an
effective means to make its point." Letter Carriers, 418 U.S.
at 283. Here, the totality of the circumstances reveals that
Kahele's statements were a call to arms, not assertions of
objective fact. Kahele's statements are not defamatory, and
therefore they are fully protected by federal labor law.° See
id. at 286-87. Accordingly, we reverse the district court's
defamation judgment and vacate the court's damages award.’

6 Because we conclude that Kahele's statements are not

defamatory, we need not address the parties' remaining arguments
relating to the defamation issue. In particular, we do not reach the
issue of “actual malice." See Letter Carriers, 418 U.S. at 284
("Before the test of reckless or knowing falsity can be met, there
must be a false statement of fact.").

” For the sake of clarity, we briefly address a particularly troubling
aspect of the district court's damages award. The court not only
awarded damages to Drace and YLDC for harm to reputation, but
it also awarded damages to YLDC for economic harm caused by

20a

Ninth Circuit Opinion - 08/26/02
B. The Employers' Appeal
1. Breach of the collective bargaining agreement.

The Employers contend that the district court erred in

the strike. The court based this component of the award on two
premises: (1) Kahele's defamatory statement caused the strike; and
(2) the strike caused economic harm to YLDC. We find both
premises problematic. Assuming arguendo, however, that both
premises are true, the court's award of defamation damages to
YLDC based on harm caused by the strike is nevertheless
erroneous. The court's award conflates defamation damages with
strike damages, an unjustified extension of Linn and its progeny.
See Linn, 383 U.S. at 65. Further, the court's damages award
conflicts with federal labor law because, in awarding defamation
damages for harm purportedly caused by peaceful strike activity,
the court impermissibly applied state law to regulate the process by
which a union's strike decision is made. See 29 U.S.C. § 157
("Employees shall have the right to self-organization, to form, join,
or assist labor organizations, to bargain collectively through
representatives of their own choosing, and to engage in other
concerted activities for the purpose of collective bargaining or other

mutual aid or protection . . . .");, Linn, 383 U.S. at 59 n.3
(observing that under section 7 of the NLRA "employees have the
right to self organization . . . and to engage in other concerted

activity for mutual aid and protection"); Jnt'l Union of United
Auto., Aircraft and Agric. Implement Workers v. O'Brien, 339 U.S.
454, 457, 94 L. Ed. 978, 70 S. Ct. 781 (1950) (holding that federal
labor law does not "permit[ ] concurrent state regulation of peaceful
strikes for higher wages. Congress occupied this field and closed it
to state regulation."); see also Amalgamated Ass'n of Street,
Electric Ry. & Motor Coach Employees, Div. 998 v. Wisconsin
Employment Relations Bd., 340 U.S. 383, 389-90, 95 L. Ed. 364,
71 S. Ct. 359 (1951) (reiterating O'Brien rule).

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Ninth Circuit Opinion - 08/26/02

dismissing their breach of contract claim, which alleged that
the Union breached the terms of the MLA. The Employers
contend that because the YLDC strike was over grievances
which were covered by an arbitration clause in the MLA, the
district court erred in reaching the "merits" of the Union's
estoppel defense. According to the Employers, where an
arbitration clause is in force, equitable defenses should be
decided by an arbitrator, not by a court.

In California Trucking Ass'n. v. Bhd. of Teamsters &
Auto Truck Drivers, Local 70, 679 F.2d 1275 (9th Cir. 1982),
we observed that "when [a] contract calls for arbitral
resolution of questions arising under the collective bargaining
agreement," the equitable defense of repudiation is a matter
to be decided in arbitration, not in court. /d. at 1282; see
also Local Union No. 370 of the Int'l Union of Operating
Eng'rs v. Morrison-Knudsen Co., inc., 786 F.2d 1356, 1358
(9th Cir. 1986) ("It is well-settled law that the question of
whether repudiation [of a collective bargaining agreement] has
occurred must normally be submitted to the arbitrator.").

In California Trucking, the CBA contained broad
language which "required arbitration for all grievances or
questions of interpretation arising under the [CBA] and all
grievances or controversies affecting the mutual relations of
the parties." California Trucking, 679 F.2d at 1285. The
broad language of the grievance clause led the court to invoke
the rule that the issue of repudiation "must normally be
submitted to arbitration when the contract calls for arbitral
resolution of questions arising under the collective bargaining
agreement.” Id. at 1282 (emphasis added); see also
Morrison-Knudsen, 786 F.2d at 1357-58 (holding that matters
extrinsic to collective bargaining agreement, such as equitable

22a

Ninth Circuit Opinion - 08/26/02

defenses, must be submitted to arbitration where collective
bargaining agreement required "all unsettled grievances" to be
submitted to arbitration); Auto, Marine & Specialty Painters
Local No. 1176 v. Bay Area Sealers, Inc. , 577 F.2d 609, 610
(9th Cir. 1978) (holding that defense of abandonment to
petition to compel arbitration of grievances must be
adjudicated by arbitrator where collective bargaining
agreement provided for arbitration of "all disputes and
grievances").

Here, however, the MLA does not employ broad
language of the sort found in California Trucking and similar
cases. Rather, the MLA's "Grievance Procedure" provides
for arbitration only where "any employee covered under the
terms of this agreement or . . . the Union believes that the
Employer has violated the express terms of this agreement."
The MLA does not require the employer to bring its claims in
arbitration, nor does it contain any language requiring
grievances arising out of the MLA to be submitted to
arbitration. Thus, there is nothing in the MLA that would
require the district court to submit the repudiation issue to
arbitration, and the court acted within its authority in ruling
on the Union's repudiation defense.

As for the merits of the district court's ruling, in
California Trucking, this Court found repudiation where a
party expressly stated in pleadings that it was not bound by
the CBA. California Trucking, 679 F.2d at 1284-85. Here,
the Employers represented a number of times during
negotiations that they were not bound by the MLA. Although
the Employers’ repudiation was not in the pleadings, the
Employers' conduct is at least as egregious as that of the
repudiating party in California Trucking. If anything, the

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Ninth Circuit Opinion - 08/26/02

conduct of the Employers in this case is more egregious. In
pre-strike negotiations, the Employers represented that they
were no longer bound by the MLA. After the strike, the
Employers sued for breach of the MLA in federal court. At
trial, Drace testified that the earlier repudiation was a mere
bargaining position. Now, after losing in the district court, the
Employers contend that the district court should not have
decided the very issue that they brought before the court, and
urge this Court to reverse and send the repudiation issue to an
arbitrator. Under California Trucking, this sort of conduct
constitutes repudiation of a CBA, and estops the repudiating
party from relying on the CBA. See id. We therefore affirm
the district court's dismissal of the Employer's breach of
contract claim.

y & The RICO claim.

The Employers next contend that the district court
erred in granting summary judgment to the Union on the
Employers’ racketeering claim. Specifically, the Employers
argue that they established open-ended continuity by showing
that "Kahele's regular way of controlling the Union as an
enterprise is doing business with racketeering methods."

"A violation under section 1962(c) requires proof of:
1) conduct 2) of an enterprise 3) through a pattern 4) of
racketeering activity." Howard v. America Online Inc. , 208
F.3d 741, 746 (9th Cir. 2000) (internal citation omitted). In
order to show a pattern, a complainant must demonstrate that
the alleged predicate acts were both related and continuous.
In turn, "to satisfy the continuity requirement, [a complainant]
must prove either a series of related predicates extending over
a substantial period of time, i.e., closed-ended continuity, or

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Ninth Circuit Opinion - 08/26/02

past conduct that by its nature projects into the future with a
threat of repetition, i.e. open-ended continuity." Howard, 208
F.3d at 750 (citations omitted).

Here, the district court correctly determined that the
Employers’ evidence of predicate acts was limited to Union
conduct related to, and occurring during, the strike of the
YLDC employees. Such predicate acts, which occur entirely
within the context of a single labor strike, do not "by nature"
project into the future or constitute "a regular way of doing
business." See id. If anything, the threat of ongoing activity
seems highly unlikely where the strike has ended and the
Union has been decertified. See id. at 750-51 ("Plaintiffs
present no facts indicating that misleading advertising would
continue into the future, particularly given that the problems
stemmed from a one-time change in pricing policy.");
Durning v. Citibank, Int'l, 990 F.2d 1133, 1139 (9th Cir.
1993) (holding that predicate acts arising from a single event,
the dissemination of a misleading document, did not satisfy
open-ended continuity requirement). Accordingly, we affirm
the district court's summary judgment on the racketeering
claim.

Se Attorneys' fees.

Lastly, the Employers contend that the district court
erred in denying their request for attorneys' fees. The
Employers filed a motion in the district court for partial
summary judgment due to sham answer and obstruction of
justice. The district court denied both the motion and the
accompanying request for attorneys' fees. The Employers do
not challenge the denial of their motion for partial summary
judgment. Rather, they challenge solely the district court's

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Ninth Circuit Opinion - 08/26/02

refusal to award them attorneys’ fees in connection with their
unsuccessful motion. As we understand the Employers'
argument, they contend that they are entitled to attorneys’
fees, under 28 U.S.C. § 1927,° because the Union's denials
of allegations in the complaint were false and misleading and
had the effect of multiplying the proceedings.

Significantly, the Employers do not explain why they
are entitled to an award of attorneys' fees in connection with
a motion that was denied by the district court. Moreover, the
district court's reasoning is sound, and its conclusion correct.
The court found that (1) the Employers failed to demonstrate
recklessness or bad faith on the part of the Union (as required
for an award of attorneys fees under section 1927, see Barber
v. Miller, 146 F.3d 707, 711 (9th Cir. 1998)); (2) the
Employers failed to show how the Union's conduct
"unreasonably multiplied the proceedings"; and (3) the
Employers failed to provide adequate factual support for their
contentions. Accordingly, the court refused to award the
Employers attorneys' fees. We adopt this sound analysis and
affirm the denial of the Employers’ request.

CONCLUSIUN

With respect to the Union's appeal challenging the
district court's defamation judgment, we reverse and vacate

® Section 1927 provides, in pertinent part, that "Any attorney or
other person . . . who so multiplies the proceedings in any case
unreasonably and vexatiously may be required by the court to
satisfy personally the excess costs, expenses, and attorneys’ fees
reasonably incurred because of such conduct.”

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Ninth Circuit Opinion - 08/26/02

the court's damages award. Kahele's statements are protected,
and cannot serve as a basis for state tort law liability.

With respect to the Employers’ claims for breach of
contract and racketeering, we affirm. We also affirm the
district court's denial of the Employers’ request for attorneys
fees. Neither party to be awarded costs on appeal.

AFFIRMED in part, REVERSED in part.

27a

APPENDIX B

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII

CIVIL NO. 99-00187 HG

[Filed January 2, 2002]

STEAM PRESS HOLDINGS, INC.

dba YOUNG LAUNDRY AND

DRY CLEANING, and MICHAEL DRACE,
Plaintiffs,

Vv.

HAWAII TEAMSTERS AND ALLIED
WORKERS, LOCAL 996, MEL KAHELE,
Defendants.

Nee Ne eee eee ees Se”

JUDGMENT

This action having come on for pretrial hearings and
trial before the court, Honorable Helen Gillmor, presiding,
without a jury, and the entire record in this matter having
been considered and the issues having been duly heard,
considered and tried, and decisions by the court having been
duly rendered,

IT IS HEREBY ORDERED AND ADJUDGED:

28a

District Court Judgment - 01/02/02

That Plaintiff Michael Drace recover from Defendant
Hawaii Teamsters and Allied Workers, Local 996 the sum of
$100,000 with interest thereon at the rate specified in 28
U.S.C. § 1961(a) from the date of this Judgment;

That Plaintiff Steam Press Holdings, Inc. recover from
Defendant Hawaii Teamsters and Allied Workers, Local 996
the sum of $1,429,454.03, with interest thereon at the rate
specified in 28 U.S.C. § 1961(a) from the date of this
Judgment;

That Plaintiffs recover their costs of action; and

That this is the final judgment in the action into which
all prior orders and decisions of the Court are incorporated
and by which all issues in this action are resolved.

IT IS SO ORDERED.

DATED: Honolulu, Hawaii, January _2 , 2002.

/s/
Clerk

Steam Press Holdings, Inc. dba Young Laundry and Dry

Cleaning, and Michael Drace v. Hawaii Teamsters and Allied
Workers, et al., Civil No. 99-00187 HG-BMK, Judgment

29a

APPENDIX C

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII

NO. 99-00187 HG

[Filed December 13, 2001]

STEAM PRESS HOLDINGS, INC.
dba YOUNG LAUNDRY AND DRY
CLEANING, and MICHAEL DRACE,

Plaintiffs,
V.
HAWAII TEAMSTERS AND ALLIED
WORKERS, LOCAL 996, MEL KAHELE,
as an individual, DOE DEFENDANTS 1-150,

Defendants.

Nm eee ee ee”

SUPPLEMENTAL ORDER REGARDING DAMAGES

On September 28, 2001, the Court awarded
$885,323.55 to Young Laundry & Dry Cleaning ("Plaintiff"),
and $100,000 to Michael Drace, to be paid by Local 996
("Defendant"). The Court also awarded Plaintiff additional

30a

District Court Supplemental Order - 12/13/01

damages to be determined after submission to the Court of
supplemental memoranda and evidence by the parties.

On October 18, 2001, Plaintiffs' Memorandum
Regarding Interest and Unemployment Insurance Issues ("Pls.
Memo.") was filed.

On November 7, 2001, the Response of Defendants to
Plaintiffs' Memorandum Regarding Interest and
Unemployment Issues ("Defs. Resp."), and the Declaration of
Christian Tregillis in Reference to Plaintiff's Calculation of
Interest and Unemployment Insurance Expenses ("Tregillis
Decl."), were filed.

On November 15, 2001, Plaintiff Steam Press
Holdings, Inc. dba Young Laundry and Dry Cleaning and
Michael Drace's Motion for Entry of Judgment and Notice,
which is more aptly characterized as an unauthorized reply
memorandum, was filed.

On November 29, 2001, Defendants' Opposition to
Plaintiffs Steam Press Holdings, Inc. d/b/a Young Laundry
and Dry Cleaning, and Michael Drace's Motion for Entry of
Judgment and Notice ("Defs. Opp. to Pls. Mot. for Entry of
Judgment"), as well as the Declaration of Jeffrey L. Cutler in
Support of Defendants' Opposition to Plaintiffs Steam Press
Holdings, Inc. d/b/a Young Laundry and Dry Cleaning, and
Michael Drace's Motion for Entry of Judgment ("Cutler
Decl."), were filed.

On December 4, 2001, Plaintiffs Steam Press
Holdings, Inc. dba Young Laundry and Dry Clea[n]ing and
Michael Drace's Objections to Declaration of Christian

31a

District Court Supplemental Order - 12/13/01

Tregillis was filed. Plaintiffs object to the Declaration of
Christian Tregillis and request the Court not to consider it as
evidence. The Court has reviewed the Declaration of
Christian Tregillis and Plaintiffs' Objections thereto, and
determines that it will consider all of the filings of both parties
including the Declaration, along with Plaintiffs’ objections
and arguments against the Declaration.

ANALYSIS

Pursuant to the Court's Findings of Fact and
Conclusions of Law and Order filed September 28, 2001, as
amended on October 29, 2001 ("Amended Order), Defendant
Local 996 is liable to Plaintiff Young Laundry & Dry
Cleaning for (I) additional unemployment insurance taxes, and
(II) emergency loan interest and additional interest on existing
debt. The Amended Order states in part:

3. Defendant Local 996 is also liable to
PLAINTIFF YOUNG LAUNDRY &
DRY CLEANING in accordance
with the following:

Future Additional Unemployment
Insurance Taxes

The Court awards the present
value of the amount which
YLDC has paid since June 9,
2000, and is liable to pay in the
future, for the unemployment
insurance rate increase due to
the strike. Plaintiff shall

32a

District Court Supplemental Order - 12/13/01

submit a memorandum and
appropriate proof of the amount
awarded twenty days from the
date of the filing of the original
Order on September 28, 2001.
Defendant shall respond within
twenty days of the filing by
Plaintiff.

Emergency Loan Interest and
Additional Interest on Existing Debt

The Court awards the present
value of all interest expense
with respect to the $200,000
emergency loan from the Bank
of Hawaii, and the additional
interest expense on YLDC's
existing debt to Applebaum, Al
Phillips, and Bank of Hawaii,
up until the date of the original
Order on September 28, 2001.
Plaintiff shall submit a
memorandum and appropriate
proof of the amount awarded
twenty days from the date of
the filing of the original Order
on September 28, 2001.
Defendant shall respond within
twenty days of the filing by
Plaintiff.

(Amended Order at 88.)

33a

District Court Supplemental Order - 12/13/01

Defendant is liable to Plaintiff for "the present value
of the amount which YLDC has paid since June 9, 2000, and
is liable to pay in the future, for the unemployment insurance
rate increase due to the strike." (Amended Order at 88.) The
Original drain on Plaintiff's reserve account was
approximately $344,000 in benefits paid to the striking
workers. The Court has already awarded Plaintiff the
$17,161 it paid in 1999 in additional payroll taxes as a direct
result of the strike. (Id. at 87.)

Plaintiff calculates additional unemployment insurance
taxes to fall between $365,000 and $400,000, and requests
$400,000. (Pls. Memo. at 6, 11.) Defendant calculates the
amount to be $236,020.81. (Ex. 2, attached to Defs. Resp.)
In arriving at the different figures, the following factors must
be considered: (A) the lack of specificity as to the rate of
actual payment to be made in the future, and (B) the past
assessment and possible future assessment of penalties for
amounts underpaid by Plaintiff.

A. Lack of Specificity as to Rate of Actual
Payment to be Made in the Future

Plaintiff argues alternative rates of payment, leaving
to the Court to decide which rate is most appropriate.

Defendant argues that the actual rate at which Plaintiff
has been paying the additional unemployment insurance taxes
should be the rate for determining future payments. The
actual rate of payment is not an appropriate rate at which to
determine the present value of future additional

34a

District Court Supplemental Order - 12/13/01

unemployment insurance taxes. At the actual rate of
payment, Plaintiff has underpaid $53,662.70 as of June 30,
2001. (Teruya Letter at 2, Ex. A, attached to Pls. Mot. for
Entry of Judgment.) Defendant's calculations do not include
the penalty and interest amounts assessed against Plaintiff, but
not yet paid. In addition, as the October 17, 2001 letter from
the Labor Division of the Department of the Attorney General
states, the contributions to be assessed by the State against
Plaintiff in the future, for unemployment insurance taxes,
depends "on many factors which have yet to be determined,
e.g. the amount YLDC contributes for each quarter, the
amount of benefits charged during the quarters, and the
contribution rate schedule which has yet to be determined for
the year 2002." (Id.)

The rate of actual repayment to be made in the future
is unclear. What is clear is once Plaintiff has funds from the
judgment, Plaintiff's rate of future repayment should be
greater than the past actual rate of repayment, and there
should be no future penalties.

B. d derpaid ts

In its calculations, Plaintiff includes ‘a ten percent
penalty for late payment. Plaintiff has been assessed
$9,744.36 in penalties and interest due on the unpaid
contributions as of June 30, 2001.' (Id.) The penalties and
interest assessed are only for unpaid contributions. (Cutler
Decl. 4 9, in support of Defs. Opp. to Pls. Mot. for Entry of
Judgment.)

' Only in the subsequent November 15, 2001 filing does Plaintiff
present evidence of penalties assessed. |

35a

District Court Supplemental Order - 12/13/01 °

Plaintiff is correct that it should be compensated for
the penalties and interest assessed against it prior to
September 28, 2001. Defendant is not liable, however, for
penalties and interest assessed after September 28, 2001.
Following entry of judgment, Plaintiff will be awarded the
present value of the tax, calculated as of September 28, 2001,
to satisfy the obligation. There will be no reason for Plaintiff
not to make future payments on a timely basis. To the extent
the contributions are not paid until the judgment is satisfied,
post-judgment interest compensates Plaintiff for those costs.

C. Fair Amount

Based on the evidence before the Court and the
methods of calculation proposed by the parties, as corrected
by the above-mentioned factors, the Court finds that an award
of $290,000 approximates, as closely as possible given the
evidence before the Court and the uncertainty as to the rate of
future payments, the present value of the amount which
Plaintiff has paid since June 9, 2000, and is liable to pay in
the future, for additional unemployment insurance taxes due
to the strike.

Il. Em n rest and Ad In
on Existing Debt

The category entitled "Emergency Loan Interest and
Additional Interest on Existing Debt" relates to four separate
debts: (A) emergency loan from Bank of Hawaii, (B) existing
debt to Applebaum, (C) existing debt to Al Phillips, and (D)
existing debt to Bank of Hawaii. Defendants only dispute
Plaintiff's figures as to the existing debt to Applebaum.

36a

District Court Supplemental Order - 12/13/01

A. Emergency Loan from Bank of Hawaii

Plaintiff was awarded "the present value of all interest
expense with respect to the $200,000 emergency loan from
the Bank of Hawaii." (Amended Order at 88.) Plaintiff
claims, and the Court finds, the amount to be $52,117. (Pls.
Memo. at 11; Ex. 68, attached to Pls. Memo.) Defendant
does not contest this amount. (Defs. Resp. at 3.)

B. Existing Debt to Applebaum

Plaintiff was awarded "the present value of . . . the
additional interest expense on YLDC's existing debt to
Applebaum . . . up until the date of the original Order on
September 28, 2001." (Amended Order at 88.) Plaintiff
claims the amount is $91,821.14. (Ex. 68.) Defendant
claims the amount is $26,344.00.” (Tregillis Decl. at 6.)

The Court's identification of the "existing debt to
Applebaum" in its Amended Order refers to the promissory
notes that make up the existing debt relating to Plaintiff
Michael Drace's purchase of YLDC. Plaintiff's calculation
is based on these three promissory notes. (Drace Decl. of
Nov. 15, 2001 44 2-5, Ex. A, attached to Pls. Mot. for Entry
of Judgment; Tr. 2:173.) Defendant's calculation accounts
for only one of the notes. (Drace Decl. ¢ 3.) The Court
finds that Plaintiff's calculation correctly takes into account
the three promissory notes that make up the existing debt to

? Defendant states the amount to be $26,344.46 in its Response, but
$26,344.00 in the Declaration of Christian Tregillis which is the
basis for Defendant's calculation. (Defs. Resp. at 2; Tregillis Decl.
at 6.)

37a

District Court Supplemental Order - 12/13/01

Applebaum. According to the Declaration of Michael Drace:
"If [Defendant's expert] Tregillis had started with and
considered the entire principal balance as of September 30,
1998 of $1,680,619.70, his approach would have yielded an
answer very close to the projections set forth by Unice
Chang, who knows first hand what she was talking about."
(Id. ¢ 6.) The Court notes that only in the subsequent
November 15, 2001 filing did Plaintiff come forward with
appropriate evidence of the components of the existing debt
to Applebaum for the Court and Defendant to make the
appropriate calculations.

Taking into account the three notes that comprise the
Applebaum debt, the Court finds Plaintiff's figure,
$91,821.14, accurately reflects the present value of the
additional interest expense on Plaintiff's existing debt to
Applebaum up until the date of the original Order on
September 28, 2001.

C. Existing Debt to Al Philli

Plaintiff was awarded "the present value of . . . the
additional interest expense on YLDC's existing debt to. . . Al
Phillips . . . up until the date of the original Order on
September 28, 2001." (Amended Order at 88.) Plaintiff
claims, and the Court finds, the present value of the additional
interest expense on its existing debt to Al Phillips to be
$8,598.69. (Ex. 68.) Defendant does not contest this

amount.’ (Defs. Resp. at 3.)

> In its Response, Defendant states the amount is $8,476.92, which
appears to be derived from Plaintiff's calculation in Exhibit 65.
(Defs. Resp. at 2; Ex. 65, attached to Pls. Memo.)

38a

District Court Supplemental Order - 12/13/01

D. Existing Debt to Bank of Hawaii

Plaintiff was awarded "the present value of . . . the
additional interest expense on YLDC's existing debt to. . .
Bank of Hawaii, up until the date of the original Order on
September 28, 2001." (Amended Order at 88.) Plaintiff
claims, and the Court finds, the amount to be $101,593.65.
(Ex. 68.) Defendant does not contest the amount.‘ (Defs.
Resp. at 3.)

CONCLUSION

IT IS HEREBY ORDERED that Defendant Local 996
is liable to Plaintiff Young Laundry Dry Cleaning for the
following amounts, current as of September 28, 2001, in
addition to the amounts specified in the Amended Order filed
October 29, 2001:

Future additional unemployment insurance taxes:
$290,000.00

Emergency loan interest and additional interest on existing
debt:

Emergency loan $52,117.00
Existing debt to Applebaum $91,821.14
Existing debt to Al Phillips $ 8,598.69

* In its Response, Defendant states the amount is $99,306.69,
which appears to be derived from Plaintiff's calculation in Exhibit
65. (Defs. Resp. at 2; Ex. 65, attached to Pls. Memo.)

39a

District Court Supplemental Order - 12/13/01

Existing debt to Bank of Hawaii $101,593.65

254,130.48
Total Supplemental Award: $544,130.48

POSTJUDGMENT INTEREST at the applicable rate
specified at 28 U.S.C. § 1961(a) is awarded from the date
judgment is entered until satisfied.
IT IS SO ORDERED.
Dated: Honolulu, Hawaii, December _13_, 2001.
/s/

Helen Gillmor
United States District Judge

team i Hawaii Team:
r

Workers, Local 996. et al. Civil No. 99-00187HG,
Supplemental Order Regarding Damages

40a

APPENDIX D

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII

CIVIL NO. 99-00187 HG

[Filed October 29, 2001]

STEAM PRESS HOLDINGS, INC.
dba YOUNG LAUNDRY AND
DRY CLEANING, and
MICHAEL DRACE,

Plaintiffs,
v.

HAWAII TEAMSTERS AND ALLIED
WORKERS, LOCAL 996, MEL KAHELE,
as an individual, DOE DEFENDANTS 1-150,

Defendants.

Nem Ne ee ee ee eee ee ee”

AMENDED FINDINGS OF FACT AND
CONCLUSIONS OF LAW AND ORDER

This action arose in connection with a labor dispute
and subsequent strike that involved the employees of Young
Laundry and Dry Cleaning (YLDC) in late 1998 through May
1999. The matter came on for trial before the Court on

4la

District Court Amended Findings of Fact and
Conclusions of Law and Order - 10/29/01

October 31, November 1, 2, 3, 4, 7, 8, and 10, 2000, on
Plaintiff's remaining claims for Unfair Labor Practices (Count
I), Defamation relating to the financial condition of YLDC
(Count III), Breach of the Collective Bargaining Agreement
(Count VI), and Punitive Damages (Count VII). Jared H.
Jossem and Lynne Toyofuku appeared on behalf of Plaintiffs
Steam Press Holdings, Inc. dba Young Laundry and Dry
Cleaning, and Michael Drace. Jeffrey L. Cutler and Gordon
Kim appeared on behalf of Defendants Hawaii Teamsters and
Allied Workers, Local 996, and Mel Kahele as an individual.

On November 3, 2000, Plaintiffs filed Amendments to
Complaint Filed March 9, 1999. On November 10, 2000,
Defendants' Answer to Amendments to Complaint was filed.
On November 20, 2000, Plaintiff Steam Press Holdings, Inc.
dba Young Laundry and Dry Cleaning, and Michael Drace's
Post-Trial Proposed Findings of Fact and Conclusions of Law
was filed. On November 22, 2000, Defendants' Post-Trial
Brief was filed, along with the Proposed Findings of Fact and
Conclusions of Law of Defendants Hawa

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386015_0792%3A1. Public record. Not legal advice.