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LORENTANGELI v. CRITELLI

November 19, 1987

DINO LORENTANGELI, FRANK FORST, THOMAS STIGLIC, and LOCAL 194, NEW JERSEY TURNPIKE EMPLOYEES' UNION, INTERNATIONAL FEDERATION OF PROFESSIONAL AND TECHNICAL ENGINEERS, AFL-CIO, Plaintiffs,
v.
DOMINICK CRITELLI, MICHAEL T. WASKE, RUDOLPH E. THOMAS, VINCENT C. CACCIOTTI, RALPH J. McELFRESH, DES CUPID, GREGORY JUNEMANN, JOHN H. DUNNE and RODNEY A. BOWER, Defendants



The opinion of the court was delivered by: LECHNER

 Lechner, District Judge.

 This is an action brought by Local 194 and three of its members suing nine officers, in their individual capacity, who constitute the Executive Council of the International Federation of Professional and Technical Engineers, AFL-CIO (the "Federation"). The action is brought under the Labor-Management Reporting and Disclosure Act, 29 U.S.C. §§ 401-531 ("LMRDA"), specifically 29 U.S.C. § 501(b), which allows a member of a labor organization to sue an officer who is allegedly violating his/her fiduciary duties, after the labor organization or its governing board refuses to bring the action, and after obtaining leave to sue from the district court. Plaintiffs claim defendants have been providing financial assistance to five locals in violation of the Federation's constitution and personally benefitting from these payments, all in violation of their fiduciary duties under 29 U.S.C. § 501(a). Defendants assert plaintiffs' claims are legally and factually unsupportable.

 Plaintiffs moved for a preliminary injunction to enjoin defendants from making payments to locals 17, 21, 66, 121 and 195. In their reply brief plaintiffs withdrew their request with respect to locals 21, 66 and 121. *fn1" Defendants, in addition to opposing the motion for a preliminary injunction, have filed two cross-motions: a motion to dismiss for lack of service of process, and a motion to vacate the order granting plaintiffs leave to sue under section 501(b).

 Facts

 Plaintiffs in this case are Local 194, the New Jersey Turnpike Employees' Union, *fn2" and three of its members: Dino Loretangeli, Frank Forst, and Thomas Stiglic. Local 194 has been affiliated with the Federation since 1968 and is in good standing. *fn3"

 Defendants are sued in their individual capacities and are the nine members constituting the Executive Council of the Federation. Rodney Bower is the Acting President of the Federation, John H. Dunne is the Secretary-Treasurer, Vincent Cacciotti is the Executive Vice President, and Michael Waske is a Vice President of the Federation and the Business Manager of Local 17. Dominick Critelli, Rudolph Thomas, Ralph McElfresh, Desmond Cupid, and Gregory Junemann are Vice Presidents of the Federation. (Bower Aff., 8/27/87, para. 5.)

 The Federation is governed by a written constitution. (Plaintiffs' Ex. A; Defendants' Ex. 1.) The constitution prescribes the manner in which the affairs of the Federation shall be conducted and the persons who may conduct those affairs According to Article V of the constitution, the Convention of the Federation, which meets on even-numbered years, is "the supreme legislative, judicial and reviewing authority." *fn4" The Federation's policies and practices are to be determined by Convention action, except that between conventions, policies and practices are determined by the Executive Council. *fn5"

 The constitution vests certain power in the Executive Council. Article X, section one of the constitution provides: "The Executive Council shall be empowered to authorize such expenditures of the funds of the Federation as in its judgment are necessary to carry out and fulfill the purposes and objectives of the Federation." In particular, Article X, section ten authorizes the Executive Council "to grant strike, lockout or victimization benefits to members and local unions from the funds of the Federation upon terms and conditions established by the Executive Council." The Secretary-Treasurer is given independent appropriation authority with respect to organizing activity. *fn6"

 Article XVIII, section 2, which was added to the constitution in 1933, limits the otherwise plenary appropriation power of the Executive Council. It provides that: "The President and the Executive Council are denied any and all authority to grant special financial assistance in the form of rebates, refunds, etc., to any local union which special concession is not at the same time uniformly accorded all of the other local unions." A recent dispute over the proper interpretation and application of this provision led to the filing of this action.

 Plaintiffs point to the language of this provision and argue that while assistance may be given to particular locals for emergency aid or for organizing activities, this provision explicitly prohibits rebates which are not uniformly accorded. Plaintiffs contend the financial assistance received by Locals 17 and 195 following 1984 were rebates, given in violation of this provision. (See Transcript of Proceedings, 9/14/87, pp. 11-13.) Defendants point to the practices of the Federation over the years and contend the provision was only intended to ensure all assistance was granted in an even handed manner for legitimate union activities. Defendants assert the assistance given to Locals 17 and 195 in recent years is in accord with the Federation's long-standing practices, which reflect the proper interpretation of this constitutional provision.

 Over the years the Federation has provided assistance to locals in various forms. The officers of the Executive Council assert all local unions are dealt with fairly and equally. Decisions on what form of assistance, if any, will be provided by the Federation are based on factors such as the specific needs of the requesting local union, the availability of the Federation's officers and staff, the geographic distance and expense involved, and the legitimate union objectives which can be accomplished. (Bower Aff., 8/27/87, para. 11.)

 The Council officers and staff members provide direct services such as guidance during contract negotiations, strikes, and other facets of the collective bargaining process. The Federation also assists the local unions in organizing drives. It conducts legal and legislative research for the local unions, and publishes several newsletters and bulletins. (Bower Aff., 8/27/87, para. 11.)

 Defendants contend the assistance agreements at issue in this case are consistent with the constitution because they have been based on the unique needs and the legitimate union goals and activities of the local unions involved. For example, "locals 17 and 195, which now constitute the two largest locals in the Federation with approximately 4500 members each, attribute their size and strength largely to the organizing and servicing efforts made possible by the [Federation's] financial assistance programs." *fn7" (Bower Aff., 8/27/87, para. 14.) Moreover, defendants assert the challenged assistance agreements are not a departure from the Federation's practice over many years.

 Plaintiffs, on the other hand, contend that while the assistance given to locals 17 and 195 prior to 1984 was for organizing expenses and for emergency assistance, both of which are explicitly authorized in the constitution, (Plaintiffs' Reply, pp. 7-8) the assistance extended to these locals since 1984 is of a different nature and violates Article XVIII's prohibition against "special financial assistance" which is not uniformly accorded to all local unions.

 It appears from the record the assistance afforded to locals 17 and 195 at least from 1985 to the present has not in fact been limited to emergency and organizing assistance. *fn8" However, defendants contend the broad appropriation power of the Executive Council is not limited by the constitution to emergency and organizing assistance, but rather extends to all expenditures which "are necessary to carry out and fulfill the purposes and objectives of the Federation." (Defendants' Ex. 1, Article X, section 1.) Moreover, the record does not conclusively establish whether the financial assistance extended to locals prior to 1984 was limited to organizing and emergency aid. *fn9"

 The Federation has been having financial problems and recently had to cut back its staff and other expenses in order to improve its situation. On May 9, 1987, the Executive Council reviewed an unaudited budget for the fiscal year ending March 31, 1987, which showed a net loss of almost $ 78,000. The budgets for 1987-88 and 1988-89 projected losses of $ 68,500 and $ 69,000 respectively. Mr. Bower, as President, ruled out of order motions to approve these budgets and then resigned. (Plaintiffs' Ex. E.)

 The Executive Council meeting was continued on May 29, 1987. Mr. Bower was again appointed President. The Executive Council then adopted an "economic reorganization " plan in order to offset the projected losses. The actions approved included the layoff of three staff members and an adjustment of the financial assistance programs of locals 17 and 195. (Plaintiffs' Ex. F.) With the reorganization, the Federation's projected budget for 1987-88 shows a net loss of $ 2,000, and the budget for 1988-89 shows a net surplus of $ 72,000. (Defendants' Ex. 6.)

 Plaintiffs assert the Federation's financial problems have been to a great extent caused by the financial assistance given to locals 17 and 195. Furthermore, plaintiffs assert the resulting lay-offs of three of the Federation's professional staff members will seriously hamper the Federation's ability to function effectively. *fn12" Finally, plaintiffs contend that if the assistance does not cease immediately, the Federation will face a serious threat of insolvency. (Loretangeli Aff., 8/20/87, para. 24.)

 Defendants claim the financial assistance given to locals 17 and 195 has strengthened rather than weakened the Federation, pointing out these two local have grown to become one third of the Federation's membership. (Dunne Aff., 8/27/87, para. 11.) Furthermore, defendants contend the economic reorganization plan will remedy the ...


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