# Petition for Writ of Certiorari — Shaler Area Education Ass'n v. Emory > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386015_1922%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 2003 - **Citation:** 540 U.S. 982 ## Text 03 ~ No. 03-__ oe > ae TIT 1 row IN THE Supreme Court of the Anited States SHALER AREA EDUCATION ASSOCIATION, Petitioner, V. F. NAYLOR EMORY, DENNIS A. ERB, ROBERT K. GILBERT, JAMES W. LOSSELL, BARBARA J. MCALLEY, and WESLEY S. SEMPLE, Respondents. On Petition for Writ of Certiorari to the United States Court of Appeals for the Third Circuit PETITION FOR WRIT OF CERTIORARI MARK P. WIDOFF ROBERT H. CHANIN 400 North Third Street JOHN M. WEST * P.O. Box 1724 LAURENCE GOLD Harrisburg, PA 17105 BREDHOFF & KAISER, P.L.L.C. (717) 255-7046 805 Fifteenth Street, N.W. Suite 1000 Washington, DC 20005 * Counsel of Record (202) 842-2600 Counsel for Petitioner August |, 2003 WILSON-EPES PRINTING CO., INC. — (202) 789-0096 -— WASHINGTON, D.C. 20001 ® While the Ninth Circuit’s opinion does not provide specific infor- mation about Dinuba Teachers Association (“DTA”), the record in that case reveals that during the relevant school year DTA had 231 members and revenue of about $29,000, that it employed no professional staff, that it collected just over $600 in agency fees from its seven nonmembers, and that the cost of an audit would have been $2,800. Supplemental Excerpts of Record 109, 134-36, 173, Case No. 01-15590 (9th Cir.). ——————————— 12 thus present an irreconcilable conflict with respect to the application of Hudson’s disclosure requirement to small local unions. B. Two state appellate courts, both applying federal law, have also addressed the question whether small local unions can meet Hudson’s requirements by providing feepayers with complete, albeit unaudited, disclosure of the expenditures that constitute the basis for the union’s fair-share fee. Like the Ninth and Third Circuits, these state courts are equally divided on the question. In line with the Third Circuit, the Massachusetts Supreme Judicial Court has answered the question in the negative, holding flatly that a small local union “must accompany any demand for agency fees with an independently audited verification of its major expenses.” Wareham Educ. Ass'n v. Labor Relations Comm’n, 713 N.E.2d 363, 368 (Mass. 1999). Like the Third Circuit, the Massachusetts court concluded that Hudson’s reference to verification by an independent auditor controlled and that any other form of disclosure was insufficient. /d. at 367-68. The Massachusetts court reached that conclusion in a case involving three local unions that represented bargaining units ranging from 116 to 205 employees, with annual expenditures of between $9,400 and $29,000. The one to seven non- members in those bargaining units were charged agency fees of no more than $45. /d. at 365. The unions provided their feepayers with breakdowns of their major categories of chargeable and onchargeable expenditures, sworn to under penalty of perjury, and they offered the feepayers in addition the opportunity either to obtain an itemized listing of all of their local’s expenditures or to examine personally the union’s expenditure records. See id. at 364-65; Wareham Educ. Ass’n, 24 Mass. Labor Cases 23 (Mass. Labor Rel. Comm’n 1997). The Massachusetts court rejected that form of disclosure as inconsistent with Hudson, requiring the 13 unions instead, as a condition for continuing to collect agency fees, to obtain audited statements of their expenditures—at a projected cost for each local of between $2,200 and $4,100. 713 N.E.2d at 366. The Indiana Court of Appeals reached the opposite conclusion, holding—in a case involving-a small local union with an annual budget of under $3,500—that audited finan- cial statements were not required under the circumstances. Whitley County Teachers Ass'n v. Bauer, 718 N.E.2d 1181, 1191-92 (Ind. Ct. App. 1999). The court explained that Hudson’s reference to “verification by an independent auditor” was “justified in that case ‘by that particular union’s size and the amount of money involved.”” /d. at 1192. C. The Third Circuit’s holding that that a small local union can never satisfy its Hudson disclosure obligation in any way other than through audited financial statements also conflicts with multiple decisions of other courts that have upheld, under Hudson, forms of local-union financial disclosure that did not include an independent audit of the local’s expenditures. Two well-reasoned decisions have accepted the use of a “local presumption,” under which the local unions do not provide feepayers with any actual expenditure information— audited or not—and instead rely on an empirically supported presumption that the chargeable portion of their expenditures is greater than the chargeable portion of the parent union’s expenditures (as shown on the parent union’s audited financial statements). The Wisconsin Supreme Court has approved the use of an empirically based local presumption in the public sector, holding that Hudson does not require an audit of every local union’s expenditures. Browne v. Wisconsin Employment Relations Comm’n, 485 N.W.2d 376, 393-94 (Wis. 1992). 14 More recently, the D.C. Circuit upheld reliance on an empirically supported local presumption in the private sector, Thomas v. NLRB, 213 F.3d 651 (D.C. Cir. 2000), holding that “petitioners|’] conten[tion] that the use of a local presumption can never be squared with Hudson” “rests on a reading of Hudson that this circuit has rejected.” Id. at 659-60." The Seventh Circuit’s decision in /nternational Ass’n of Machinists v. NLRB, 133 F.3d 1012, 1016-18 (7th Cir. 1998)—-which approved a system of financial disclosure under which the local unions’ statements of expenditures were “audited” by lay employees of the parent union—also conflicts with the Third Circuit’s holding that nothing other than an audit by an independent accountant can ever satisfy a union’s disclosure requirement under Hudson. While Thomas and Machinists were National Labor Rela- tions Act cases, the courts focused their analysis on whether the challenged disclosure was in conformity with the Hudson requirements which—in both the D.C. Circuit and the Sev- enth Circuit—govern NLRA cases by analogy. See Thomas, 213 F.3d at 658 (“Although Hudson involved constitutional concerns, this court has applied the basic protections of Hudson to the Beck-defined DFR cases involving private sector employees.”); Machinists, 133 F.3d at 1017 (while Hudson was a constitutional rather than a statutory case, “[i]t is not obvious why this should make a difference’’). Browne, Thomas, and Machinists thus all stand for the proposition that Hudson does not invariably require small * By contrast, reliance on an unsupported local presumption has gener- ally been held insufficient to meet Hudson’s disclosure requirements. See Hohe v. Casey, 956 F.2d 399, 410 (3d Cir. 1992); Prescott v. County of El Dorado, 177 F.3d 1102, 1108 (9th Cir. 1999), vacated, 528 U.S. 1111, reinstated in pertinent part, 204 F.3d 984 (9th Cir. 2000); see also Lowary v. Lexington Local Bd. of Educ., 903 F.2d 422, 430-31 (6th Cir. 1990) (striking down a local presumption that went beyond an evidentiary assumption and purported to bind the independent arbitrator). 15 local unions to provide financial statements verified by an independent auditor as the only possible way of making adequate disclosure. They are, in short, irreconcilable with the Third Circuit’s holding in this case, and that of the Massachusetts court in Wareham, that a local union, regard- less of its size and circumstances, can only satisfy Hudson’s disclosure requirement through audited financial statements. If. What is particularly striking about the decision below— and the Wareham decision in Massachusetts—is the absence of any reasoned justification for an audit requirement that threatens to render collection of any fair-share fee pro- hibitively expensive for small locals like SAEA. In point of fact, what divides the lower courts is not any debate about what kind of financial disclosure requirement for small loca!s serves the overall agency fee procedural system set cuit in Hudson, but only disagreement about the extent to which the courts are bound by this Court’s reference, in //udson’s footnote 18, to “verification by an independent auditor.” The Ninth Circuit in Harik accepted the proposition that there could be more “cost-efficient” ways than an audit for small local unions to provide feepayers with proper infor- mation that would permit them to make an informed decision about whether to challenge the fair-share fee. 326 F.3d at 1049. Acknowledging that view, the Third Circuit implied its agreement: “Were we writing on a clean slate, we might well require something less rigorous for small local unions than independent auditor verification.” App. Ila. But the Third Circuit believed its hands to be tied by Hudson: But the slate is not clean. We are bound by the Supreme Court’s decision in Hudson, and its directive of “veri- fication by an independent auditor” means just that. Hudson implied no intent to make the audit requirement 16 depend on the size of the reporting union. Absent a counter directive by the Supreme Court, we likewise make no exception. Id. It is very much to the point that the Third Circuit did not offer any reason why providing audited financial statements was the only way in which a small local union like SAEA—a local with few members and limited expenditures—could give feepayers “sufficient information to gauge the propriety of the union’s fee.” Hudson, 475 U.S. at 306. The same is true of the Wareham decision that reached the same result. See 713 N.E.2d at 367-68. In both cases, the court’s only justification for its holding was Hudson’s reference, 475 U.S. at 307 n.18, to “verification by an independent auditor.” Nor is any other rationale readily apparent. As we have noted, the Chicago Teachers Union—the union party in Hud- son—had some 27,000 members, annual revenues exceeding $4.1 million, a substantial staff, a wide range of expenditures, and, of necessity, complex financial books and records. It is safe to assume that such an organization would routinely obtain an annual audit of its expenditures, and it is equally clear that a rank-and-file nonmember, even if given full access to the union’s books, would be overwhelmed by the task of verifying that the union’s statement of its “major categories of expenses” accurately captured its expenditures in each category. It was, therefore, unsurprising for the Hudson Court to opine that—in the context of a union of this size——“‘adequate disclosure surely would include the major categories of expenses, as well as verification by an independent auditor.” 475 U.S. at 307 n.18. But that does not mean that nothing short of audited financial statements can be adequate disclosure in the context of a small organization with no employees, a $22,000 annual budget, and a financial ledger recording its expenditures. As the Ninth Circuit held in Harik, a small local union can 17 provide feepayers with sufficient information to gauge the propriety of its fee either through audited financial statements or by giving its feepayers “the full financial material necessary to verify . . . the local union’s chargeable and non- chargeable expenditures.” 326 F.3d at 1049. Thus, as the Harik court put it, a small local’s disclosure obligation could be met by “providing financial reports along with full and fair access to bills, check stubs, canceled checks, account balances, and related materials.” /d. This form of financial disclosure is eminently well suited to small local unions like SAEA, whose expenditures are sufficiently few in number that an interested feepayer can, in essence, be given the union’s checkbook and allowed to see for herself what the union’s money went for. SAEA’s statement of its major categories of expenditures is compiled from materials that essentially speak for themselves, which local-union feepayers can understand. The relative simplicity and transparency of these financial records can afford feepayers a reasonable measure of assurance that the union’s funds went for the purposes described in the union’s statement of its major categories of expenditures. Indeed, it is hardly too much to suggest that the typical feepayer, who may be unfamiliar with audited financial statements, may well derive a better understanding of the local union’s expenditures from this kind of financial disclosure than from a formal auditor’s report. Cf. Gilpin v. AFSCME, 875 F.2d 1310, 1316 (7th Cir. 1989) (suggesting that an agency fee notice “as long and complicated as an SEC prospectus” does not necessarily serve the interests of feepayers). The recognition that alternative forms of verification can be appropriate in the case of small organizations is hardly a novei one. It is, in fact, commonplace for governmental audit requirements to be waived or relaxed for smaller entities, where the cost of an audit is often disproportionate to what is 18 at stake.” It may be the case, as the Third Circuit observed, 999 that “an audit ‘make[s] assurance double sure,” App. 13a (quoting Shakespeare), but to apply that principle blindly without regard to the balance between the additional cost of such a requirement and the additional value, if any, to be gained from that requirement makes little sense. Cf Mathews v. Eldridge, 424 U.S. 319, 335 (1976) (looking, in the due process context, to “the probable value, if any, of additional or substitute procedural safeguards”). As the Financial Accounting Standards Board has ex- plained in its Statements of Financial Accounting Concepts, “[{t]here are usually alternative ways of handling an issue,” and it is fully appropriate to consider whether “one of them [is] less costly and only slightly less effective.” Financial Accounting Standards Board, Statements of Financial Accounting Concepts 83 (2002) (Statement of Financial Accounting Concepts No. 2, 4143). Thus, “[iJn order to justify requiring a particular disclosure, the perceived benefits to be derived from that disclosure must exceed the perceived costs associated with it.” /d. at 32. * For example, federal regulations requiring audits of nonprofit recip- ients of federal funds exempt from that requirement entities that expend less than $300,000 a year in federal awards. Audits of States, Local Governments, and Non-Profit Organizations, 62 Fed. Reg. 35278, 35291 (June 30, 1997). Similar examples culled from Pennsylvania law include the following: 10 Pa. Stat. Ann. § 162.5(f) (exempting from audit require- ment charitable organizations receiving contributions of less than $50,000, and allowing “review” instead of audit for those with contribu- tions of less than $125,000); 15 Pa. Cons. Stat. § 7536(b) (allowing audits of agricultural cooperatives with sales of less than $100,000 to be performed by non-CPA members of the association); 20 Pa. Cons. Stat. § 3531 (allowing distribution of decedents’ estates of less than $25,000 without formal proceedings including audit); 66 Pa. Cons. Stat. § 516(a) (requiring audits of utilities, but only if plant value exceeds $10 million); 68 Pa. Cons. Stat. § 3320(9) (allowing declarant’s warranty rather than audit of condominium associations of less than 12 units). 19 Consideration of the relative costs and benefits of alterna- tive forms of financial disclosure in these circumstances is particularly appropriate in view of the limited purpose of the financial disclosure Hudson requires. Disclosure of the union’s major categories of expenditures is not a matter of proving the union’s entitlement to the fee it seeks. That step comes later, when—if any feepayer challenges the fee—the union is required to prove to an independent decisionmaker its entitlement to the amount of the fee it has assessed. See Hudson, 475 U.S. at 307-08. The purpose of the disclosure requirement is simply to enable the feepayer to make an informed decision about whether to accept the union’s calculation of its fair-share fee or exercise her right to challenge the fee before an independent decisionmaker. See Wareham, 713 N.E.2d at 368; Dashiell v. Montgomery County, 925 F.2d 750, 756 (4th Cir. 1991). The feepayer deciding whether to take the step of chal- lenging the fee is contemplating an act that—in contrast to many other endeavors undertaken in reliance on audited financial statements—is virtually cost-free and risk-free: if in doubt, the feepayer need only file her challenge, which costs nothing but a 37-cent stamp. As the Seventh Circuit has noted, “mounting a challenge is for all practical intents and purposes free.” Gilpin, 875 F.2d at 1316.° The suggestion that feepayers of a small local union like SAEA can only be given sufficient information for that purpose through audited financial statements is inconsistent with the limited purpose of the disclosure requirement. ° By filing a challenge, the feepayer becomes a party to the annual Hudson arbitration of fair-share fee challenges. While the arbitrator’s decision is binding on the union, it does not preclude the feepayer from challenging the fair-share fee on a de novo basis in court. Hudson, 475 U.S. at 308 n.21; Bromley v. Michigan Educ. Ass'n, 82 F.3d 686, 691-95 (6th Cir. 1996). Thus, filing a challenge to the fair-share fee neither costs the feepayer anything nor has any adverse effect on her litigation options. 20 It is also inconsistent with the emphasis in this Court’s agency fee cases on striking a balance between the com- peting interests involved. Abood, 431 U.S. at 237, Hudson, 475 U.S. at 302. Reading Hudson’s dicta as invariably requiring audited financial statements even in the case of the smallest local unions is not only unnecessary to protect the interests of feepayers; it would impose heavy transaction costs on small locals with limited resources. The difficulty is readily apparent on the stipulated facts of this case, where the cost to SAEA of obtaining an audit would be more than twice the amount of the total fair-share fees SAEA could collect from its 11 nonmembers. It should not be surprising, therefore, that as a result of the district court’s injunction, affirmed by the Third Circuit, SAEA and almost all of its sister locals in Pennsylvania have been obliged to forgo their statutory and contractual right to collect fair-share fees from the nonmembers they represent—contrary to this Court’s stated goal of protecting the interests of feepayers “without restricting the Union’s ability to require every employee to contribute to the cost of collective-bargaining activities.” Hudson, 475-U.S. at 302. A small local union like SAEA can, in short, meet Hudson’s disclosure requirement in ways that are more “‘cost- efficient than an external review.” Harik, 326 F.3d at 1049. For such a union, requiring an audit by an independent accountant serves only to drive up the union’s transaction costs to the point at which collecting any fair-share fee becomes prohibitively expensive. Courts that have nonethe- less required such an audit—the Third Circuit in this case, and the Massachusetts Supreme Judicial Court in Wareham— have cited no reason for doing so other than their reading of Hudson. It is important, therefore, that the Court revisit this issue and clarify the disclosure requirement it articulated in Hudson. vee eee 21 IV. As noted above, literally thousands of small local unions are seriously impacted by the decision of the Court below either because they are directly bound by the Third Circui ’s decision, or because of the chilling effect that flows from the legal uncertainty engendered by the conflicting decisions of the Third and Ninth Circuits. It is urgent that this Court resolve that legal uncertainty by granting review to clarify Hudson’s disclosure requirement as applied to small local unions like SAEA. This case is a fully appropriate vehicle for that review. The facts are undisputed, indeed stipulated; the legal issue is squarely presented; no jurisdictional problem or extraneous legal issue would prevent the Court from reaching this issue; and counsel on both sides are highly experienced in the law of agency fee and have litigated the issue presented here in multiple cases. The issue has been fully ventilated in the lower courts, and this Court should now decide it. ~ CONCLUSION The Petition for Writ of Certiorari should be granted. Respectfully submitted, MARK P. WIDOFF ROBERT H. CHANIN 400 North Third Street JOHN M. WEST * P.O. Box 1724 LAURENCE GOLD Harrisburg, PA 17105 BREDHOFF & KAISER, P.L.L.C. (717) 255-7046 805 Fifteenth Street, N.W. Suite 1000 ; . Washington, DC 20005 * Counsel of Record (202) 842-2600 Counsel for Petitioner August 1, 2003 6 URIS ae oN --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386015_1922%3A1. Public record. Not legal advice.