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March 16, 1983

COMMUNICATIONS WORKERS OF AMERICA, GLENN E. WATTS, CWA DISTRICT ONE, CWA LOCAL 1031, 1032, 1033, 1034, 1037, 1038, 1039, 1040 and STATE OF NEW JERSEY, THOMAS H. KEAN, Governor, Defendant

The opinion of the court was delivered by: DEBEVOISE

 Plaintiffs, employees of the State of New Jersey who are not members of the union which is the majority representative of their employment unit, instituted this action attacking the validity of N.J.S.A. 34:13A-5.5 and 5.6. These statutory provisions permit a public employer and a majority representative to include in a collective bargaining agreement provisions requiring non-members to pay a representation fee to the union. Plaintiffs also assert that they have been deprived of First Amendment rights to oppose implementation of the statute and to seek to persuade other State employees to join them in their opposition.

 Defendants are Communications Workers of America, AFL-CIO ("CWA") (the majority representative), CWA District 1, CWA Locals 1031, 1032, 1033, 1034, 1037, 1038, 1039 and 1040, the State of New Jersey and Thomas H. Kean, Governor of the State of New Jersey.

 In their complaint, plaintiffs seek to be designated representatives of a class pursuant to Fed.R.Civ.P. 23(b)(2) and (b)(3). The class is asserted to consist "of all public employees represented by CWA's locals, but who exercised their right not to be a member of defendant union and, therefore, have paid, and are paying, a representation fee pursuant to [N.J.S.A. 34:13A-5.5 and 5.6]." Plaintiffs seek injunctive and declaratory relief, nominal and punitive damages, and attorneys fees and expenses of suit.

 On December 6 and 7, 1982, a hearing was held on plaintiffs' application for preliminary injunctive relief. Decision was reserved. Thereafter, plaintiffs' motion for class certification was denied for the reason that the positions and interests of non-members of the union are likely to be diverse and for the reason that the principal objective of a class action can be realized by treating this as a test case. This opinion constitutes my findings of fact and conclusions of law upon the preliminary injunction application.


 A. The Statute: The statutory provisions which are applicable in this case are described in the opinion in Robinson v. State of N.J., 547 F. Supp. 1297, 1299-1301 (D.N.J. 1982).

 B. The Majority Representative: CWA is a national labor organization which has established Districts as geographic subdivisions. The Districts are staffed and financed as divisions of the national union and are not independent organizations.

 The national union charters local unions which are separate organizations, electing their own officers and setting their own budgets. Under the CWA constitution, collective bargaining within the established bargaining units must be conducted under the direction of the CWA Executive Board, and all contracts and agreements entered into must be in the name of the national union.

 In March 1981, CWA was certified as the majority representative for a State-wide unit of Administrative and Clerical State Employees. In August 1981, CWA was certified as the majority representative for three additional State-wide bargaining units consisting of Professional Employees, Primary Level Supervisors and Higher Level Supervisors, Eight State Locals were chartered by CWA for the purpose of representing employees in the four bargaining units -- Locals 1031, 1032, 1033, 1034, 1037, 1038, 1039 and 1040. The Locals are not the certified bargaining representatives. Rather, as mentioned above, the CWA national union is the collective bargaining representative and signs all collective bargaining agreements.

 Plaintiff Anderson is employed within Local 1032's jurisdiction (Department of Transportation and New Jersey Public Broadcasting Authority). Plaintiff Lang is employed within Local 1034's jurisdiction (Departments of Environmental Protection, Health, and Labor and Industry employed in Mercer County). Plaintiffs Olsen, Smartt and Harrington are employed within Local 1039's jurisdiction (Departments of Human Services, Corrections and Parole and Community Affairs employed in designated counties). Plaintiff Yull is not an employee in a CWA bargaining unit and, unlike the other plaintiffs, has not paid representation fees.

 CWA and the State of New Jersey entered into negotiations and in October 1981 the negotiations resulted in four two-year collective bargaining agreements (one for each bargaining unit), retroactive to July 1, 1981.

 Article II, Section B(2) of each contract provides for the deduction of a representation fee in lieu of dues from the regular paychecks of non-union members in the respective units. Deductions commenced on or about July 12, 1982. The amount of the deduction is determined as follows:

b. Amount of Fee
Prior to the beginning of each contract year, the Union will notify the State in writing of the amount of regular membership dues, initiation fees and assessments charged by the Union to its own members for that contract year, and the amount of the representation fee for that contract year. Any changes in the representation fee structure during the contract year shall be in accordance with B.1.d. above.
The representation fee in lieu of dues shall be in an amount equivalent to the regular membership dues, initiation fees and assessments charged by the majority representative to its own members less the cost of benefits financed through the dues, fees and assessments and available to or benefiting only its members, but in no event shall such fee exceed 85% of the regular membership dues, fees and assessments.

 CWA member dues were set at an amount equal to two hours pay. Dues and representation fees are forwarded directly to national CWA. National CWA retains 40% of the funds; it places 50 cents for each employee into a CWA Defense Fund; and it remits the balance of almost 60% to the locals. It will be noted that (subject to the 85% limitation) the representation fee is to be an amount equal to regular member dues, initiation fees and assessments less the cost of member only benefits but not less the amounts spent for activities of a partisan or political or ideological nature. This, of course, is consistent with the New Jersey statutory provision permitting representation fees.

 Article II, Section B(2) of each contract also provides for the creation of a Demand and Return System:

d. Demand and Return System
The representation fee in lieu of dues only shall be available to the Union if the procedures hereafter are maintained by the Union.
The burden of proof under this system is on the Union.
The Union shall return any part of the representation fee paid by the employee which represents the employee's additional pro rata share of expenditures by the Union that is either in aid of activities or causes of a partisan political or ideological nature only incidentally related to the terms and conditions of employment, or applied toward the cost of other benefits available only to members of the majority representative.
The employee shall be entitled to a review of the amount of the representation fee by requesting the Union to substantiate the amount charged for the representation fee. This review shall be accorded in conformance with the internal steps and procedures established by the Union.
The Union shall submit a copy of the Union review system to the Office of Employee Relations. The deduction of the representation fee shall be available only if the Union establishes and maintains this review system.
If the employee is dissatisfied with the Union's decision, he may appeal to a three-member board established by the Governor.

 C. Details of the Demand and Return System: In contrast to the Demand and Return System described in Robinson v. State of N.J., supra, CWA has established a highly sophisticated method for determining what expenditures are reimbursable, what expenditures are not reimbursable and how to apportion expenditures which are for both reimbursable and non-reimbursable items.

 The CWA Executive Committee determines the amount of the union's rebatable activities for the year on the basis of the calculation described below and on the basis of data which the CWA locals representing New Jersey State employees forward to the Executive Committee. The Executive Committee is required to make its determination by the January 1 following the close of the fiscal year.

 Along with any rebate payment, an objector receives an explanation of the calculation and a copy of the policy statement explaining the appeals procedure. A fee payer who is dissatisfied with the amount of the rebate may appeal to an impartial hearing officer operating under the rules of procedure of the CWA Review Board, or he may appeal directly to the Appeal Board created by the New Jersey statute or he may appeal first to the CWA hearing officer and then to the New Jersey Appeal Board.

 Effective February 13, 1981 CWA created a Public Review Board to decide complaints by members and non-members of CWA about rebates of sums paid to the union under union or agency shop contract provisions. The initial members of the Board were the Chairman of the Georgetown University Law Center, the President of Hunter College, and the minister of Peoples' United Church of Christ in Washington, D.C. CWA adopted detailed rules governing the filing of appeals with the Board and the procedures to be followed at hearings by the Board.

 As mentioned above, CWA has developed a sophisticated procedure for determining reimbursable expenditures and non-reimbursable expenditures and for apportioning expenditures which are devoted to both reimbursable and to non-reimbursable items. The necessity for developing this procedure arose in the course of an action in the United States District Court in Maryland in which Maryland employees of American Telephone and Telegraph Company and of Chesapeake and Potomac Telephone Company who had paid agency fees sought reimbursement for expenditures not made for collective bargaining, contract administration and grievance adjustment. Beck v. Communications Workers of America, 468 F. Supp. 93 (1979). On May 3, 1979, the court referred the matter to Special Master Wilson K. Barnes. The Special Master filed his Report on August 18, 1980, ruling that CWA was entitled to retain 19% of its expenditures and was required to reimburse to the plaintiffs in that case 81% of its expenditures.

 After the Special Master issued his Original Report, CWA and various local unions moved to recommit the matter to the Special Master to make additional findings on the basis of new evidence assembled by CWA. The motion was granted and the Special Master took additional testimony and received new exhibits. In his Supplemental Report the Special Master stated, "the Defendants [CWA and various locals] have also accepted the holding that the record-keeping and bookkeeping methods of the Defendants before the filing of the Original Report were not adequate to enable them in a number of instances to meet the required burden of proof by clear and convincing evidence, and generally accept the method of calculations used by the Special Master in reaching the results in the Original Report. It is recognized that the 19 percent of permissible expenditures (and 81 percent of nonpermissible expenditures) continue in effect until the Defendants are able to meet their burden of proof by clear and convincing evidence that other percentages are appropriate."

 CWA sought by its additional evidence to show that it had developed a methodology which enabled it to establish a different (and higher) percentage of expenditures which it was entitled to charge to non-members in the form of agency fees. The new evidence consisted of testimony of and exhibits prepared by experts. The data which CWA has presented in this action are a somewhat modified version of the data presented to the Special Master.

 CWA retained Edward C. Bryant, Chairman of the Board of Westat, Inc., a scientific survey research organization. He developed a system of time recording which would be capable of producing estimates of "retainable, nonretainable and administrative time for the employees of CWA." He also collected data by sampling procedures, developed forms and engaged in pretesting the data collections. The work which he performed and submitted to the Special Master is described in the Supplemental Report of the Special Master. This work and certain additional work which he and his firm performed after the Special Master issued his Supplemental Report are described in his affidavit filed in the present action.

 Counsel for CWA had provided Bryant with a list of 25 descriptive categories of activities in which CWA engaged. *fn1" The Westat Report allocated the 25 descriptive categories set forth in footnote No. 1 to five major categories: 1. Retainable (Nos. 1-9); 2. Other Retainable (Nos. 15 and 23); 3. Administrative (Nos. 10-13). The allocation of time in this category was to be made on the basis of the allocation of the nonadministrative time of each district or department; 4. Allocable (Nos. 6, 16, 20, 22 and 25). CWA contended that if the portion of the allocable activity was directly related to the working lives of CWA represented employees, it would be retainable and if the portion of the allocable activity was related to the everyday lives of CWA represented employees as citizens generally, it would be nonretainable; 5. Nonretainable (Nos. 14, 17, 18, 19 and 24).

 Given these descriptive categories and major categories Westat devised the system described in the Bryant affidavit for determining and analyzing time spent by CWA employees on their various tasks so as to provide a basis for estimating reimbursable (nonretainable) and nonreimbursable (retainable) time.

 Harvey J. Nuland, a certified public accountant with the firm of Buchbinder, Stein, Tunick & Platkin, also appeared as a witness before the Special Master. Nuland and his firm had been retained by CWA to recommend a system of apportionment that would distribute or categorize CWA's expenditures as reflected in its accounting system as reimbursable or nonreimbursable. The systems divided by Nuland are described in the Special Master's Supplemental Report and in Exhibits J and K to the affidavit of Emanuel Saxe filed in the present action. Nuland recommended, among other things, that the salaries of the 17 elected Executive Board members of CWA be considered as retainable and not subject to apportionment.

 Plaintiffs in the Maryland District Court action also produced expert witnesses who challenged certain of the methods and conclusions of CWA's experts. It is unnecessary for present purposes to go into the details of their opinions. Suffice it to say, they appeared to be as experienced and competent as CWA's very experienced and competent experts.

 The Special Master reviewed the evidence and arrived at a number of conclusions. Those having the most pertinence for present purposes are:

. . . the Court expected that the record-keeping position of the CWA Defendants at the time of the hearing before the Special Master would be in place and in actual operation so that they could be applied to the specific figures disclosed by the audited financial reports and records. This, however, has not been the case. The CWA Defendants produced evidence to set forth a system of record-keeping and allocation of costs which they hope and expect to apply in the future. This is clear from Nuland 1 and Nuland 11, the Westat Report and the Saxe Format Report, as well as from the testimonies of Mr. Nuland, Dr. Bryant and Dr. Saxe, considered supra, and particularly at pages 8 through 28 of this Supplemental Report.
b. There appears to be no dispute that the percentage of retainable (19 percent) and nonretainable expenditures (81 percent) held to be applicable in the Original Report continues in effect until modified upon a proper motion by CWA for such modification and the establishment by CWA at the time of hearing on such a motion that amounts in excess of 19 percent of CWA expenditures were properly chargeable in the future to the Plaintiffs as Agency Fee Payors.
. . .
The new system designed by CWA experts is generally sufficient subject to the correction of certain defects, supplying certain omissions and being properly monitored and administered.
The Special Master has concluded, and so finds, that the new system as set forth in Nuland 1, Nuland 11, the Westat Report, the Saxe Format Study and in the testimonies of Mr. Nuland, Dr. Bryant and Dr. Saxe is generally sufficient, prima facie, to enable CWA to meet its burden of proof as set forth in the Original Report, provided, however, that certain defects and omissions, later mentioned, are corrected or supplied and provided further that the system is properly monitored and administered as later considered.
The Special Master is not unmindful of the various objections forcefully made by counsel for the Plaintiffs. He is however of the opinion that these objections either do not substantially affect the general sufficiency of the proposed new system or will be met and overcome by the proper monitoring and administration of the proposed new system.

 After the Special Master issued his Supplemental Report on September 14, 1981, Dr. Saxe revised his format designed to enable an accountant to calculate retainable and non-retainable expenses. The first application of the Saxe Format in terms of a rebate calculation was made for the year ending March 31, 1982. That calculation resulted in a special report issued and certified by the accounting firm of Main Hurdman (Exhibit D to the Shepperson affidavit filed in this action). The special report concluded: "In our opinion the schedules referred to previously, present fairly the retainable (84.98%) and non-retainable (15.02%) expenses for the year ended March 31, 1982, computed on the basis of the Westat study and in accordance with the format developed by Dr. Saxe."

 Plaintiffs in the present case have filed the affidavit of Irving B. Ross, a certified public accountant who had participated as an expert on behalf of the plaintiffs in Beck v. CWA. Ross challenges the validity of the allocation computed by ...

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