filed: April 3, 1992; As Corrected April 13, 1992. As Amended May 14, 1992.
SHEET METAL WORKERS' LOCAL 28 OF NEW JERSEY WELFARE FUND, 440 BARELL AVENUE, CARLSTADT, NJ 07072; ARTHUR MOORE, 440 BARELL AVENUE, CARLSTADT, NJ 07072; WILLIAM VIOTLE, 440 BARELL AVENUE, CARLSTADT, NJ 07072; JOSEPH DEMARK, 440 BARELL AVENUE, CARLSTADT, NJ 07072; FRANK CREGAN, 440 BARELL AVENUE, CARLSTADT, NJ 07072; ANDY MIHAL, 440 BARELL AVENUE, CARLSTADT, NJ 07072; RICHARD DOMANICO, 440 BARELL AVENUE; CARLSTADT, NJ 07072; SHEET METAL WORKERS' LOCAL 20 OF NEW JERSEY WELFARE FUND, 884 LIVINGSTON AVENUE, NORTH BRUNSWICK, NJ 08902; RALPH A. QUACKENBUSH, 191 C. MULDEN LANE, JAMESBURG, NJ 08831; GILBERT NELSON, 604 S. BRANCH RIVER ROAD, SOMERVILLE, NJ 08876; EDWARD S. BURKE, 409 UNION LANE, BRIELLE, NJ 08730; MICHAEL RYAN, 23 W. ZOLLER ROAD, EAST BRUNSWICK, NJ 08816; BRIAN DEEGAN, 28 CENTRAL AVENUE, NEW BRUNSWICK, NJ 08901; RICHARD BONNER, 2 BRANDY PLACE, SPOTSWOOD, NJ 08884; MICHAEL LOSITO, 5 SWAINE PLACE, WEST ORANGE, NJ 07052; ARTHUR FORD, 7 CLAUSEN ROAD, EDISON, NJ 08817; HENRY PFEIFER, 30 EILEEN WAY, EDISON, NJ 08837; JUNE R. PFEIFER, 30 EILEEN WAY, EDISON, NJ 08837; THOMAS WELCH, 563 OAK HOLLOW LANE, LANOKA HARBOR, NJ 08734; JOHN SIROCHMAN, SR., 301 RICHFORD TERRACE, LINDEN, NJ 07036; MILTON KUBU, 1940 ELIZABETH AVENUE, RAHWAY, NJ 07065; JOHN RUPSHIS, 42 GLENVILLE ROAD, EDISON, NJ 08807; GEORGE PACE, SR., 30 GIBBONS STREET, LINDEN, NJ 07036; SHEET METAL WORKERS' INTERNATION ASSOCIATION LOCAL 28, 1790 BROADWAY 20TH FLOOR, NEW YORK, NY 10019; SHEET METAL WORKERS' INTERNATIONAL ASSOCIATION LOCAL 27, 1339 TILTON ROAD, 2ND FLOOR, NORTHFIELD, NJ 08225; WILLIAM G. SULLIVAN, 618 TWIN RIVER ROAD, FORKED RIVER, NJ; RONALD BOYLE, 2536 MATSO STREET, TOMS RIVER, NJ 08753; CAROL ANN BOYLE, 2536 MATSO STREET, TOMS RIVER, NJ 08753
EDWARD GALLAGHER, TRUSTEE, 106 SOUTH AVENUE, WEST CRANFORD, NJ 07016; CORNELIUS P. SHARKEY, JR., TRUSTEE, 106 SOUTH AVENUE, WEST CRANFORD, NJ 07016; BERNARD YAMAKAITIS, TRUSTEE, 106 SOUTH AVENUE, WEST CRANFORD, NJ 07016; HARRY HARRIS, TRUSTEE, 106 SOUTH AVENUE, WEST CRANFORD, NJ 07016; CAMPBELL JOHNSTONE, TRUSTEE, 106 SOUTH AVENUE, WEST CRANFORD, NJ 07016; EUGENE MORRISON, TRUSTEE, 106 SOUTH AVENUE, WEST CRANFORD, NJ 07016; SHEET METAL WORKERS' LOCAL UNION 22 OF NEW JERSEY WELFARE FUND, 106 SOUTH AVENUE, WEST CRANFORD, NJ 07016; SHEET METAL WORKERS' NATIONAL PENSION FUND, EDWARD P. CARLOUGH PLAZA, 601 NORTH FAIRFAX STREET, ALEXANDRIA, VA 22314; SHEET METAL WORKERS' INTERNATIONAL ASSOCIATION, LOCAL 28, 1790 BROADWAY, 20TH FLOOR; NEW YORK, NY 10019; SHEET METAL WORKERS INTERNATIONAL ASSOCIATION, LOCAL 27, 1337 TILTON ROAD, NORTHFIELD, NJ 08225; EDWARD J. CARLOUGH, TRUSTEE, EDWARD F. CARLOUGH PLAZA, 601 NORTH FAIRFAX STREET, ALEXANDRIA, VA 22314; ROBERT T. STRINGER, TRUSTEE, EDWARD F. CARLOUGH PLAZA, 601 NORTH FAIRFAX STREET, ALEXANDRIA, VA 22314; C. T. ROFF, TRUSTEE, EDWARD F. CARLOUGH PLAZA, 601 NORTH FAIRFAX STREET, ALEXANDRIA, VA 22314; CAVET SNYDER, TRUSTEE, EDWARD F. CARLOUGH PLAZA, 601 NORTH FAIRFAX STREET, ALEXANDRIA, VA 22314; SALVATORE J. CARDELLA, 355 BOULEVARD, KENILWORTH, NJ 07033; ROCCO CASSIO, 583 ORCHARD STREET, RAHWAY, NJ 07065; THOMAS COFIELD, 16 WHITMAN DRIVE, RED BANK, NEW JERSEY 07701; FRANCIS DAUGHENTI, 127 STERLING AVENUE, SO. PLAINFIELD, NJ 07080; ROBERT DAVIS, 234 D STREET, MIDDLESEX, NJ 08846; ERNEST E. FINIZIO, P.O. BOX 303, STEWARTSVILLE, NJ 08886; ARTHUR P. FORD, 7 CLAUSEN ROAD, EDISON, NJ 08817; LAWRENCE A. FREDERICKS, 577 JEFFERSON AVENUE, RAHWAY, NJ 07065; RONALD J. GEHRING, P.O. BOX 143, PARISIPPANY, NJ 07065; RONALD N. GEDMAN, 940 MCCANDLESS PLACE, LINDEN, NJ 07036; HERBERT GUNSAULES, 404 SPRUCE AVENUE, GARWOOD, NJ 08027; MATTHEW M. HIRSH, 11 THIRD AVENUE, GARWOOD, NJ 08027; JOHN HYLAND, 3 MARLBORO AVENUE, SPOTSWOOD, NEW JERSEY 08884; MILTON J. KUBU, 1940 ELIZABETH AVENUE, RAHWAY, NJ 07065; GEORGE J. MARTIN, 10 ELMER STREET, RARITON, NJ 08869; ROBERT J. MILLER, 900 WESTFIELD AVENUE, ELIZABETH, NJ 07208; JUNE NOLAN, 23 RUTGERS AVENUE, COLONIAL, NJ 07067; FREDERICK ROTZ, 119A R.D. #1, LONG HILL ROAD, NESHANIC, NJ 08853; GEORGE E. SCHWERDT, 411 CINDY STREET, OLD BRIDGE, NJ 08857; JOHN P. SIROCHMAN, 301 RICHFORD TERRACE, LINDEN, NJ 07036; ROBERT J. SMITH, 76 PRICE DRIVE, WATERLANG, NJ 07060; HENRY ZALESKI, 16 W. SUMMER AVENUE, ROSELLE PARK, NJ 07204; PAUL VELLA, 1203 CHESTNUT STREET, ROSELLE, NJ 07203 V. EDWARD GALLAGHER, TRUSTEE, 106 SOUTH AVENUE, WEST CRANFORD, NJ 07016; CORNELIUS P. SHARKEY, JR., TRUSTEE, 51 LINDEN AVENUE, METUCHEN, NJ 08840; BERNARD YAMAKAITIS, TRUSTEE, 106 SOUTH AVENUE, WEST CRANFORD, NJ 07016; HARRY HARRIS , TRUSTEE, 106 SOUTH AVENUE, WEST CRANFORD, NJ 07016; CAMPBELL JOHNSTONE, TRUSTEE, 106 SOUTH AVENUE, WEST CRANFORD, NJ 07016; EUGENE MORRISON, TRUSTEE, 106 SOUTH AVENUE, WEST CRANFORD, NJ 07016; SHEET METAL WORKERS LOCAL UNION 22 OF NEW JERSEY PENSION FUND, 106 SOUTH AVENUE, WEST CRANFORD, NJ 07016
On Appeal From the United States District Court for the District of New Jersey. (D.C. Civil Nos. 87-03020 and 87-03925)
Before: Becker and Alito, Circuit Judges, and Huyett, District Judge*fn*
This case arises from a dispute between two labor unions over the right to control a welfare fund and a pension fund. One union, an independent local, seceded from the other, an international union, and asserted control over the local's pension and welfare funds, which had previously been controlled by the international. After the secession, a subgroup within the independent returned to membership in locals affiliated with the international. The members of this subgroup believed that the trustees of the pension and welfare funds had breached their fiduciary duties by allowing the independent to assert control over the funds. Further, the members of this subgroup believed that they retained rights to monies in the independent pension and welfare funds that had been contributed on their behalf.
Consequently, the plaintiffs -- a number of individuals who left the independent to return to locals affiliated with the international, the pension and welfare funds of the international and their trustees, and the locals affiliated with the international and their trustees -- brought suit in the District Court for the District of New Jersey against the pension and welfare funds of the independent local and those funds' trustees. The plaintiffs sought to have control over the independent's pension and welfare funds returned to the international. Further, the plaintiffs sought to have the defendant funds disgorge to the plaintiff funds those assets in the defendant funds attributable to employees who left the independent to rejoin locals affiliated with the international.
The district court entered judgment in favor of the defendants, and plaintiffs appealed. This appeal requires us to decide whether the trustees of the independent local's benefit funds breached any fiduciary duties under the Employee Retirement Income Security Act (ERISA), 29 USC §§ 1000 - 1461 (1988), by refusing to disgorge monies from the funds and by designating the independent local as the union settlor for the fund. Further, we must determine whether a "structural defect" arises in employee benefit funds under Section 302(c)(5) of the Labor Management Relations Act (LMRA), 29 USC § 186(c)(5) (1988), when a fund retains monies contributed on behalf of employees who have left to join another union.
For the reasons that follow, we will affirm the district court's judgment with respect to the fiduciary duty issues but will reverse and remand for further proceedings to determine whether structural defects exist in the funds.
I. FACTS AND PROCEDURAL HISTORY
On October 16, 1981, plaintiff Edward J. Carlough, General President of the Sheet Metal Workers' International Association ("the International" or "SMWIA"), issued an order consolidating several of the International's locals in New Jersey into three larger locals. Carlough's order specifically directed that Local 22 of the SMWIA be disbanded and that its members be absorbed into SMWIA Locals 28, 27, and 19. Approximately 500 active journeymen and apprentices belonged to Local 22 at the time that the International ordered the merger. Under the Carlough plan, members of SMWIA Local 22 working in Union County and Morris County would become members of SMWIA Local 28, an existing local. After the merger, SMWIA Local 28 was to have within its territory both New York City and Northern New Jersey. Members of SMWIA Local 22 working in Somerset County were to become part of a new local, SMWIA Local 27, as would members of three other dismantled SMWIA locals.*fn1
Under the terms of the merger order, Local 22 members were to receive credit in their new locals for time served in their old locals, which would be used in calculating their benefits and pensions. The International ordered Local 22's property and assets distributed proportionately to SMWIA Locals 27 and 28. The merger, in essence, contemplated that Local 22 would be dissolved and that its members would be treated as if they had always been members of their new locals.
At the time of the prescribed merger, Local 22 was party to a collective bargaining agreement with the Sheet Metal Contractors Association of Union, Morris, Somerset, and Sussex Counties ("the Contractors Association"), a group of thirteen employers in Northern New Jersey. It was also party to collective bargaining agreements with twenty-three contractors in Northern New Jersey who were not affiliated with the Contractors Association. The International proposed to treat Locals 27 and 28 as the "successors" to Local 22 under these collective bargaining agreements; that is, Locals 27 and 28 would assume all of the rights and responsibilities that Local 22 had previously held under the collective bargaining agreements with these employers.
As is often the case with the best-laid plans, the Carlough plan encountered difficulties. Some members of Local 22, including many of its officers, opposed the plan to dissolve their local. These members opposed the merger, at least in part, because they believed that the plan would deprive them of political power within their own union. While the merger plan preserved the benefits packages that members would receive, it would have concentrated power in the other members of Locals 27 and 28 and would have decreased the ability of the members of the former Local 22's to govern their own union. The Local 22 dissidents attempted to block the merger by appealing Carlough's order to the International's Executive Council. Their appeal was rejected.
The officers of Local 22 also went outside the union to undermine the planned merger, filing a complaint in New Jersey state court seeking to enjoin it. The International removed the case to federal district court and promptly counterclaimed against the Local 22 leadership, seeking to enjoin the leadership from interfering with the merger order. In December 1981, the district court dismissed the action against the International and granted the injunction against the officers of Local 22. See Sheet Metal Workers Int'l Ass'n Local Union No. 22 v. Sheet Metal Workers International Association, Civ Nos 81-3414, 81-3415 (DNJ December 9, 1981). The court further ordered Local 22's officers to turn over all funds, books, records, and other property to the International.
About two weeks before the entry of the court's order directing the union to stop interfering with the merger and to turn over records, Local 22 held a meeting to discuss the future of its membership. At that meeting, a vote was taken among the approximately 300 members present to decide whether the membership wanted to disaffiliate from the International. The membership voted in favor of disaffiliation and created a new, independent local, the Sheet Metal Workers Local 22 of New Jersey ("the Independent" or "Independent Local 22"). The new local elected officers and drafted a charter and constitution.
After the federal district court in New Jersey entered the order barring Local 22's officers from interfering with the merger, the International moved to consolidate its position. It sought to merge the other locals and to have the Contractors Association recognize Locals 27 and 28 as the successors to Local 22.*fn2 This would have eliminated Independent Local 22 as a bargaining agent for employees of companies in the Contractors Association.
Independent Local 22 countered by filing a petition for representation with the National Labor Relations Board (NLRB) on January 6, 1982. The Local's petition claimed that Independent Local 22 was the collective bargaining agent for those employed within the Contractors Association, and it sought to have itself named as such. SMWIA Locals 19, 27, and 28 intervened and argued that they were the appropriate successors to Local 22 SMWIA. On April 28, 1982, the NLRB's Regional Director held that because "the entity formerly known as Local 22 has been disbanded and its separate identity has been destroyed," SMWIA Locals 19, 27, and 28 were not successors to Local 22 SMWIA. The Regional Director also ordered that an election be held to determine the appropriate bargaining agent for employees employed by members of the Contractors Association. The Director certified the appropriate unit for the election as consisting only of those employees who were employed by the Contractors Association and not all the employers who had formerly signed agreements with Local 22.*fn3
While the petition was pending before the Regional Director, Independent Local 22 and Locals 19, 27, and 28 SMWIA entered into a stipulation that provided for a private election in lieu of an NLRB election if the Regional Director were to recognize Independent Local 22 as a bona fide labor organization and if the Regional Director were to hold that the existing collective bargaining contracts were not a bar to an election. The parties agreed that the election was to be conducted by the American Arbitration Association ("AAA"). The written stipulation provided that "the winner of the election [would] be recognized by its employers hereto as the collective bargaining agent as if the election had been conducted by the NLRB itself." The Agreement was signed by representatives from Independent Local 22, the International, and the Contractors Association. The agreed upon unit for the private election consisted of those employees who worked for members of the Contractors Association.*fn4 After the Regional Director ordered the election, and the Board declined to review the Regional Director's decision on August 10, 1982, the agreement for a private election became operative.
The parties then entered a second stipulation to govern the election. This stipulation provided that the Honest Ballot Association ("HBA") would conduct the election instead of the AAA. Independent Local 22 also agreed to withdraw its petition for Board certification with prejudice and to be bound by the result of the private election. The terms of the stipulations and the events of the campaign that preceded the private election are important because they evidence what the parties intended in agreeing to a private election. According to the stipulations, unit members would choose between representation by either Local 22 or a combined choice of Local 28 SMWIA, Local 27 SMWIA, and Local 19 SMWIA. In so choosing, unit members would be deciding who would be recognized by the employers as the "collective bargaining agent." Neither of the stipulations mentioned pension or welfare funds. Nonetheless, evidence was presented to the district court that control of the pension funds the parties to the agreement considered to be an issue in the election. Ronald Tobia, the attorney for the Contractors Association at the time that the stipulations were drafted, testified that his understanding of the negotiations was that the election was a vote on who would control the pension funds, in his words "an all-inclusive winner take all."
Defendant Campbell Johnstone, president of the Contractors Association and a trustee of the Local 22 Pension and Welfare Funds, testified that he also understood the agreement concerning the election to be a "winner take all" proposition. Defendant Edward Gallagher, another of the funds' trustees, testified to the same effect. Moreover, a letter that counsel for Independent Local 22 had sent to counsel for Locals 27, 28, and 19 stated:
Moreover, we have agreed in connection with the proceedings before the NLRB that in the event Locals 28, 27, and 19 prevail in the election that the present union trustees would resign and would be replaced in a manner yet to be decided upon. On the other hand, if Local 22 Independent is the winner, then we would expect [the president of Local 22, SMWIA, a supporter of the International] to likewise resign and those fringe benefit funds would be subject to control of the Independent Union. Any other conditions, the winner of the election will control the funds.
The ballot, however, stated a simple question: "Do you wish to be represented for purposes of collective bargaining by Local 22 [or] Local 28 SMWIA/ Local 27 SMWIA/ Local 19 SMWIA?"
In the campaign leading up to the election, both sides engaged in tactics that suggested to unit members that the issue of pensions was at stake in the upcoming balloting. On August 25, 1982, approximately two weeks prior to the September 10 election, Local 22's Independent Organizing Committee sent letters to members of the bargaining unit which stated:
Under our agreement with Locals 28, 27, and 19, as well as the Contractors' Association, the winner of the election will be deemed the lawful successor to Local 22, SMWIA. This means that should the Independent Union (Sheet Metal Workers' Local 22) win, it will name the Trustees who will control the assets of the Pension, Welfare, Annuity and other funds.
Independent Local 22 reiterated this promise in at least one other piece of campaign literature.
Locals 27 and 28 also suggested that the issue of control over pension funds was at stake in the election, although their behavior gave inconsistent signals to members of the bargaining unit about what would result from a Local 22 victory. In one letter, dated September 6, 1982, the Local 28 business manager stated the following: "If Local #22 won they would control your pension and welfare funds. You would have a long legal battle to regain your money." In contrast, the leadership of Local 27 was suggesting that pension funds were not an issue in the election. One of Local 27's campaign letters stated, "We suggest that although the Independent may represent you for bargaining a contract, serious doubt exists as to whether they can take the pension monies, which in the past have been contributed for you into a secure pension fund, away from the currently existing fund."
The election was held on September 10, 1982. Of the 468 valid votes cast, Independent Local 22 received 315 votes and the combined choice of Locals 28, 27, and 19 SMWIA received 153 votes. The Contractors Association then recognized Independent Local 22 as the collective bargaining agent for its employees. Several unaffiliated contractors also recognized Independent Local 22 as the collective bargaining agent for their employees. After the election, the trustees of the Local 22 benefit funds moved to transfer control of the benefit funds from the International to the Independent. Prior to the election, there had been two jointly administered labor-management benefit funds for employees working in Local 22 SMWIA: the Local 22 Welfare Fund, a plan providing group life, accident and health coverage to employees; and the Local 22 Pension Fund, a trust entered into between Local 22 and the Contractors Association for payment of pensions to covered employees after retirement.
The Pension Fund, created by a declaration of trust, had three labor and three management trustees, all of whom are named as defendants in this suit. Pursuant to the collective bargaining agreement, employers in the Contractors Association made payments to the two funds based on the number of hours worked by employees. The trust creating the Pension Fund declared that three of the trustees "shall be designated as Employer Trustees and three . . . shall be designated as Union Trustees." The trust defined the union settlor as "Sheet Metal Workers' International Association Local #22." The Welfare Fund contained a similar provision concerning appointment of trustees and designating the union settlor as Local 22 SMWIA. After the HBA election, the trustees of both funds executed new declarations of trust. Designation of the funds' union settlor was changed from SMWIA Local 22 to "Sheet Metal Workers' Local Union No. 22 of New Jersey Independent". All references in the funds' declarations of trust to "the union" were clarified to mean Independent Local 22.
In response to these actions by Independent Local 22, the various locals affiliated with the International began a campaign to become the bargaining agent for employees of those employers who formerly had agreements with Local 22 SMWIA but who were not parties to, and hence not bound by, the HBA election. The International's campaign was bolstered when the NLRB, in various decisions in 1983 and 1984, refused to recognize Independent Local 22 as the successor bargaining agent to Local 22 SMWIA for any employers outside the Contractors Association. Eleven such unaffiliated contractors who had formerly recognized Local 22 SMWIA refused to recognize Independent Local 22, and the NLRB rejected Independent Local 22's claim that these employers had committed unfair labor practices in refusing to bargain. The NLRB also rejected Independent Local 22's motions to intervene in various cases where Locals 27 and 28 had filed petitions to represent the employees of twelve employers who formerly had had collective bargaining agreements with Local 22 SMWIA.
Throughout 1983 and 1984, nine of the unaffiliated employers (Consolidated Steel, Nielsen Smith, Tri-County Erectors, Ameri-Craft, Par Sheet Metal, National Roofing, P&L Construction, Pioneer, and Gale Noise) recognized either Local 27 or Local 28 voluntarily, and the International hence withdrew its petitions for elections with those employers. At one employer, FHC, the NLRB conducted an election in which Local 28 SMWIA was the winner. Certain other members defected from Independent Local 22 without voluntary recognition from their employer or an NLRB election. As a consequence of these changes in collective bargaining representation, by October 1, 1985, Independent Local 22 had lost 159 members to either Local 27 or Local 28.
These transfers in membership affected the benefits and pension rights that transferring employees received. Under the Independent Local 22 Welfare Plan, employees received coverage for six months after leaving covered employment with Independent Local 22 and going to work elsewhere. At the end of six months, those employees who left Independent Local 22 and joined either Local 27 SMWIA or Local 28 SMWIA began to receive coverage from their new locals' welfare funds, and coverage by Independent Local 22 terminated. Although the plaintiff-beneficiaries of the Independent Local 22 Welfare Fund never lost coverage, they contended at trial that a surplus of funds had built up in the Local 22 Welfare Fund, in part because of contributions made on their behalf, and that they were deprived of their proportional share of those funds when they chose to transfer back to the International.
The Independent Local 22 Pension Fund paid pension benefits upon retirement only to those who had worked within Local 22 (whether in its old or new incarnation) for ten years. The rights to a pension for those employees who had worked in Local 22 for less than ten years were considered never to have vested; consequently, those with less than ten years experience who left Independent Local 22 to join one of the International's locals lost all rights to a pension from the Independent Local 22 Pension Fund. Upon affiliation with Locals 27 and 28, however, former members of Independent Local 22 had their pension credits and rights transferred to the National Pension Fund of the Sheet Metal Workers International. Thus, for example, an employee with five years experience working in Local 22 who transferred to Local 27 lost all entitlement to a pension from the Independent Local 22 Pension Fund. He would, however, receive credit for those five years from the National Pension Fund and his pension would thus be unaffected by the transfer. Because of the structure of these policies, no employees ever lost welfare benefits or pension credits as a result of transferring from Local 22 Independent to one of the International's locals. Nevertheless, the National Pension Fund of the SMWIA must pay benefits for which it received no corresponding employer contributions.
The present lawsuits arose from a dispute about whether the Independent Local 22 Pension and Welfare Funds are responsible for turning over to the International's pension and welfare funds monies sufficient to cover those employees who left the Independent to join the International after the HBA election. The International and its Pension Fund and leadership brought two separate lawsuits, now consolidated. The first suit, filed on October 23, 1986 in the United States District Court for the Southern District of New York, was brought by the National Pension Fund of the SMWIA against the trustees of the Local 22 Pension Fund and the Pension Fund itself. That court transferred the matter to the district court for the District of New Jersey. After the transfer of this suit, Locals 27 and 28, the trustees of their welfare funds, and several former members of Independent Local 22 ...
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