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February 8, 1949


The opinion of the court was delivered by: GANEY

This case arises upon plaintiff's motion for judgment on the pleadings and for summary judgment pursuant to Rules 12(c) and 56 of the Federal Rules of Civil Procedure, 28 U.S.C.A., in an action for a declaratory judgment pursuant to Title 28 U.S.C.A. § 2201.

The judgment sought is one declaring that the defendant is obligated, by virtue of the terms of a supplemental agreement between the parties, to make certain money payments which it has failed and refused to make, since July 1, 1948, to plaintiff's Social Security Department. Jurisdiction of this court is based on Sec. 301(a, c) of the Labor-Management Relations Act. *fn1"

 Plaintiff is an international labor union. Its many thousand members throughout the United States and Canada are grouped, for administrative purposes, into local unions. It is the certified bargaining representative for a group of defendants' employees, a number of whom are members of plaintiff. Defendant is a corporation engaged in the business of manufacturing upholstered furniture in interstate commerce.

 The complaint, the answer to which admitted all the allegations therein, reveals the following facts: On or about May 17, 1944, a convention of representatives of plaintiff's members, by resolution, amended plaintiff's constitution, pursuant to which they were acting. This resolution, among other things, provided for the adoption 'as a national policy the establishment of a Social Security Program covering benefit payments in the event of accidental death, lesser accident, illness or dismemberment, and further providing for the payment of medical, surgical and hospital benefits'. The resolution stipulated that the program was to be effectuated by means of collective bargaining agreements providing for the payment of the cost of furnishing such benefits by the employer-parties to such agreements and that plaintiff's General Executive Board was to act as a Board of Trustees to receive and administer the fund resulting from the contributions made by the employer-parties under such collective bargaining agreements. On December 31, 1945, there were in effect nine hundred twenty one collective bargaining agreements as modified by a standard form supplemental agreement, the pertinent parts of which are set forth in the footnote *fn2" , between plaintiff and nine hundred twenty one employers engaged in interstate commerce.

 Under the terms of these agreements, as supplemented, the employer-parties have made monthly contributions in the stipulated amount to plaintiff's Social Security Department. Plaintiff's General Executive Board, acting as a Board of Trustees, have, from time to time, adopted by-laws and regulations governing the disposition of the fund. Benefits for the employee-members are insured by means of a blanket coverage policy or policies obtained from an insurance company, the premiums for which are paid from the fund. Until recently, a portion of the fund had been set aside for death benefits. But that fund has been displaced by the purchase of a group life insurance policy, which may be renewed annually. The Board of Trustees administer the fund exclusively; the extent and the conditions precedent for the receipt of benefits are determined by the provisions set forth in the policies and the by-laws and regulations promulgated by the Board of Trustees. Neither the employee-members of plaintiff, except through plaintiff, nor the employer-parties have any representation in the fund's administration.

 On January 14, 1946, plaintiff, acting through one of its local unions, *fn3" entered into a collective bargaining contract, which is presently in effect, with defendant, governing the terms and conditions of employment of the latter's employees. Prior to that date, it had no contractual relations with plaintiff. On May 23, 1946, the principal contract was supplemented by the usual standard form supplemental agreement *fn4" , by the terms of which it agreed to make monthly contributions to plaintiff's Social Security Department of three per cent of the gross wages earned by all the employees of defendant who were members of plaintiff. Since July 1, 1948, despite the terms of the supplemental agreement, defendant has refused to contribute to plaintiff's Social Security Department. *fn5"

 In general defendant contends that Section 302 *fn6" of the Act, 29 U.S.C.A. § 186, makes it unlawful, after July 1, 1948, for it to contribute to plaintiff's fund because it is not a trust fund within the meaning of that section. More specifically it points out that employees and employers are not represented in the administration of the fund as required by Sec. 302(c)(5)(B). It asserts that Sec. 302(g), which excuses compliance with Sec. 302(c)(5)(B), does not apply in the instant case for the contract by which it agreed to make contributions to the fund was entered into subsequent to January 1, 1946. And even assuming that the latter assertion is without legal basis, it still maintains that Sec. 302(g) is inapplicable for the fund is not 'otherwise lawful' because (a) plaintiff's by-laws and regulations do not provide for benefits for all of its (defendant's) employees, and (b) the fund has not been established 'for the sole and exclusive benefit of the employees' whether or not the word 'employees' means all of its employees or just the employees who are members of plaintiff. In addition, in its opinion, the 'employees' cannot seek the aid of the courts to prevent the Board of Trustees, which it claims has unbridled power over the fund, from using it for purposes other than those set forth in the Act.

 In support of its motion the plaintiff maintains that the fund in question meets all the requirements of 302(c)(5) up to the proviso clause and (A) of the proviso clause, and that the composition of the members of the trustees need not comply with Sec. 302(c)(5)(B) because of Sec. 302(g). But it also argues that if Sec. 302(g) is not applicable in the instant case, the provision of Sec. 302(c)(5)(B) requiring equal representation in the administration of the fund by the employees and employer is unconstitutional *fn7" for two reasons: First, such a provision, if complied with, would deprive it and its members of liberty and property without due process of law in violation of the Fifth Amendment. And second, such a requirement is beyond the power of Congress to impose.

 Plaintiff does not deny that the employees and employer are not equally represented in the administration of the found. Section 302(g), upon the interpretation of which the parties differ, provides: '(g) Compliance with the restrictions contained in subsection (c)(5)(B) of this section upon contributions to trust funds, otherwise lawful, shall not be applicable to contributions to such trust funds established by collective agreement prior to January 1, 1946 * * * .' Defendant would have us read this subsection as requiring that the contributions shall have been made prior to January 1, 1946 before the subsection is applicable. Grammar, the customary usage of words, common sense and the legislative history of the Act all require the interpretation that it is the trust fund to which contributions are made, not the making of contributions thereto, which must be established prior to the critical date. So long as the trust fund existed, as here, prior to January 1, 1946, contributing to that fund pursuant to an agreement made subsequent to that date will not, on that account, constitute a violation of the Act. In the Application of Baker, Sup.1948, 194 Misc. 51, 85 N.Y.S.2d 193. Also see In the Application of Feller, Sup.1948, -- Misc. -- , 82 N.Y.S.2d 852.

 Although Sec. 302(c)(5) speaks of 'the employees of (the) employer,' it does not mean all the employees of a single employer. It is seldom, if ever, that all the employees of an employer are members of a single union. Moreover, except where the employees of one employer are small in number, rarely is one union the bargaining representative for all the employees of a single employer *fn8" . To say that Sec. 302(c)(5) required the rules and regulations governing a trust fund should provide benefits for all the employees of a given employer would have made impossible the existence of any such trust fund. Prior to the passage of the Act, benefits of a trust fund were restricted to members of the labor organization whose bargaining power was instrumental in the creation of the fund. In the absence of a clear intent on the part of Congress, which was thoroughly aware of the situation as it improper for the union to provide as one of the conditions for an employee to receive benefits from such fund that he be a member of the union at the time benefits become due. See Van Horn v. Lewis et al., D.C.D.C., 1948, 79 F.Supp. 541, 543, 544. Such a provision does not deviate from the requirement that the fund shall be for the benefit of the 'employees of (the) employer'.

 There can be no dispute that the fund, which is actually money earned by the employee-members, must be used for their sole and exclusive benefit. The only question that can arise on this point is whether the fund under consideration may be legally used for another purpose. If it can, the fund, of course, may not be looked upon in view of the Act as one of trust. Plaintiff's by-laws and regulations do not in terms provide that the fund shall not be used for any other purpose than for the employee-members' benefit. But the by-laws and regulation, which may be changed almost at will by the Board of Trustees, are not decisive on this point. By a provision in the supplemental agreement, which is the controlling document here, the plaintiff agreed to extend the benefits of the fund to the employee-members in accordance with the rules and by-laws under which the fund is administered. Consequently, the use of the fund for a purpose other than that designated in, would be violative of, the supplemental agreement, relieving the employer-parties from making further contributions, independent of the provisions of the Act.

 In consideration for plaintiff's handling of all the administrative details at its own expense, the company, which insures plaintiff's members, has agreed to return any surplus fund which might accrue as the result of a favorable loss experience after deducting from the total premiums received all cost and expenses chargeable under the policy or policies and an amount sufficient to build up a contingency fund *fn9" . Defendant points this agreement out as a possible avenue over which the Board of Trustees might divert a portion of the fund to plaintiff's own use. When this surplus fund is returned, if ever, and after the Board of Trustees has reimbursed itself for administrative expenses, it is subject to all the conditions of the supplemental agreement placed upon plaintiff's Social Security Department. The mere possibility for diverting funds for purposes foreign to the collective bargaining agreement will not cause a breach of the agreement; there must be actual diversion. The existence of the latter does not appear from the facts revealed by the pleadings.

 Union welfare or trust funds, as far as case law is concerned, is something new in the law. Despite the rarity of decisions involving them however, the benign light in which the courts will view them has already appeared on the horizon. As seen in United Garment Workers of America v. Jacob Reed's Sons et al., D.C.E.D.Pa., 83 F.Supp. 49, at page 52: 'The Court considers such funds as rather sacred, and it is the purpose of the law that they be available when due under the contract:. Therefore, whenever the trustees use, or attempt to use, directly or indirectly, the fund for a purpose other than for the sole and exclusive benefit of the employee-members, this court, when called upon, will enjoin the trustees from making the improper expenditure. The burdening of the fund with undue administrative expenses or lush salaries for union officials will not be tolerated; excessive restrictions, either in the insurance policies or the by-laws and regulations, or the providing of small benefits to the employee-members in proportion to the amount contributed by the employee-parties or the premiums paid, taking into consideration the risk involved, will cause more than a lifting of the eyebrows. A provision in the by-laws or regulations denying the employee-members the right to resort to the courts to protect their beneficial interest in the fund is of no legal effect. If such a provision appears in the collective bargaining agreement or is permitted by it, which is not the case here, the fund can not properly be called a trust fund.

 From the foregoing we cannot say that the fund in question is not a trust fund, and since it meets the requirements of subsections (c)(5), (c)(5)(A) and (g) of Section 302 of the Act, it need not comply with the provisions of subsection (c)(5)(B). This result makes ...

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