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February 18, 1958


The opinion of the court was delivered by: CLARY

This matter involves a proceeding under an agreement and declaration of trust for employee benefits between the Employing Bricklayers' Association of Philadelphia as the bargaining representative of those firms and individuals employing bricklayers in the City and County of Philadelphia, and the Bricklayers, Masons and Plasterers International Union of America, Bricklayers' Union Local No. 1 of Pennsylvania, dated August 1, 1949, and amended as of May 1, 1951 and August 5, 1952, and further amended as of October 1, 1955.

The agreement here involved was part of a collective bargaining agreement between the two parties in respect to wages, hours and working conditions referable to bricklaying work performed within the municipal limits of the City of Philadelphia and such other territory adjacent thereto, as might be determined and approved from time to time by the International Union to be within and under the jurisdiction of Union Local No. 1. The agreement in usual form was drawn to bring the operation of the trust within the exceptions provided by the Labor-Management Relations Act of June 23, 1947, c. 120, Title 3, § 302(c), 61 Stat. 157, 29 U.S.C.A. § 186(c). It provided that the Association and Union Local No. 1 should each designate two trustees to take charge of the trust estate for the purpose of paying benefits to union members and their dependents from the welfare fund set up by the terms of the instrument. Other provisions in the agreement provided for procedures to be followed by the trustees and the welfare officer (the executive director appointed by the trustees), the detailing of which is not necessary for a decision in the case. The paragraph of the agreement with which we are most concerned in the present proceeding is the Fifth: (a) 6, which reads as follows:

 'To invest, reinvest and keep invested so much of the Trust Estate as the trustees in their discretion deem necessary or desirable: Provided, however (1) that the trustees shall be limited to such investments as are permitted by law to trustees under the laws of the State of Pennsylvania: (2) that the income received from such investments, and any dividends, interest or income received on or from the money or property received by the trustee pursuant to paragraph Sixth hereof shall be added to the Trust Estate from which payment of premiums shall be made.'

 It will be noted that under subsection (1) above quoted, the investment of the corpus of the trust shall be limited to those permitted by law to trustees under the laws of the State of Pennsylvania. The Fiduciaries Investment Act of 1949 of the Commonwealth of Pennsylvania, The Act of May 26, 1949, P.L.1828, Sec. 10, P.S. Title 20, Sec. 821.10 Real Estate, provides as follows:

 'Real estate located in Pennsylvania, other than ground rents, shall be an authorized investment if the court, upon petition, aided if necessary by the report of a master, and being of the opinion that the investment will be for the advantage of the estate and that no change will be made in the course of succession by the investment, shall direct such investment.'

 Pursuant to the mandate of the Fiduciaries Investment Act, the trustees, through their counsel, under conditions which will be hereinafter more fully related, filed their petition in the Court of Common Pleas No. 1 of Philadelphia County as of September 3, 1957, No. 2626, asking the court for an order authorizing an investment in real estate located in the City and County of Philadelphia. Counsel for several members of the union, the beneficiaries of the trust fund, appeared in opposition thereto, challenging both the propriety of the expenditure in question as well as the jurisdiction of a State court to hear and determine the matter. The jurisdictional question posed to the court was whether the provisions of Section 302 of the Act of June 23, 1947, supra, vested exclusive jurisdiction over the subject matter here involved in the Federal district courts. It was the contention of the trustees, since the matter involved a judicial determination under the laws of Pennsylvania, even assuming proper jurisdiction in a Federal court, that, nevertheless, the State court had concurrent jurisdiction. This contention was strongly resisted by counsel for the objecting members of the union, who strenuously urged upon the court the exclusive jurisdiction of the Federal court. After a hearing limited primarily to the question of jurisdiction, President Judge Peter F. Hagan of the Court of Common Pleas No. 1 of Philadelphia County filed his opinion on December 27, 1957, holding that Section 302 vested in Federal tribunals exclusive jurisdiction over the subject matter presented by the petition and accordingly dismissed the petition for lack of jurisdiction. The merits of the petition were neither considered nor discussed. Thereafter, on January 3, 1958, the present proceeding was instituted in this court under the provisions of Section 302(c) of the Labor-Management Relations Act of 1947 and Section 10 of the Fiduciaries Investment Act of 1949 of the Commonwealth of Pennsylvania. Upon petition of the trustees, notice of the petition and of a hearing to be held thereon on January 28, 1958 was mailed to each union member so that any interested party or person would have the opportunity to appear and be heard by the court if desired. The hearing was held as scheduled, testimony taken, and the hearing concluded. The testimony developed the following facts:

 As provided in the welfare agreement the trustees in their joint capacity known as 'Bricklayers' Local No. 1 of Pa. Welfare Fund' established the principal office of the fund at 4847 North Broad Street in the City and County of Philadelphia. The agreement further provided that the trustees should have the power to designate wherever else they wished the principal office to be located. The quarters comprise an area about 360 square feet for which a rental of $ 660 per year is paid. The business affairs of the fund are conducted under the supervision of the welfare officer, assisted by two regular full-time employees, with additional help by part-time employees as from time to time found necessary. The current beneficiaries, including members and dependents, total some 4,461 persons of which 1,437 are members and 3,024 are dependent beneficiaries. Benefits are paid by the Travelers Insurance Company under a policy purchased by the trustees. The welfare officer and his assistants are charged with the responsibility of processing claims under the terms of the welfare agreement and the aforesaid policy; the presentation of the claim to the company and the follow-up procedures to make sure the claims are paid to the beneficiaries. Benefits are paid under the welfare fund provision of approximately $ 160,000 per year. Because of the limited space and the accumulation of records and equipment, the trustees reached the conclusion that the present quarters were inadequate. Some time in the Fall of 1957, after consulting with Richard B. Herman, their real estate agent, and their certified public accountant S. William Lapan, consideration was given to the amount of space necessary for reasonable operation of the fund. It was determined that 1,600 square feet of space would be needed immediately to conduct suitable operations. Investigation of locations wherein these operations might be conducted in rented quarters established the fact that it would be necessary to pay $ 4 annual rental per square foot for appropriate quarters. Consideration was then given to the purchase of a property as opposed to renting someone else's property. It was found that a granite, 3-story house, recently remodeled for offices to house a contracting and engineering firm, located on the southwest corner of Hunting Park Avenue and Old York Road, in the City of Philadelphia, (a few blocks from their present location) was available for purchase. The property with a frontage of approximately 50 feet, approximately 120 feet on each side, and approximately 70 feet in the rear, contains 7,129 square feet. The building, containing over 10,000 square feet, has a newly installed oil-fired hot water heating system and a complete new electrical system. The purchase price was set at $ 45,000. Appraisals by Richard J. Seltzer, realtor, and J. Solis Cohen, Jr., a member of the American Institute of Real Estate Appraisers, both of whom are known to the court to be expert and qualified appraisers, fixed the value respectively at $ 52,000 and $ 50,000. The welfare officer, acting under the direction of the trustees, then made up a schedule (P-3) of the estimated expenses of the new building. Because of the excellent location it was felt that at least during the first few years, when the use of the whole building was not required for the operation of the fund, two of the floors could be rented to produce an income of between $ 3,600 and $ 4,800. For estimating purposes a figure of $ 4,200 was used. Allowing for a loss of interest on the investment of $ 50,000 at 3%, or $ 1,500, the annual net saving in the operation of the building was estimated to be $ 1,626.54. A further estimate was made that assuming a rental charge of $ 5,700 per year would have to be paid for adequate space the cost of the building and repairs would be amortized in less than ten years. The net worth of the fund as of October 31, 1957 was $ 393,000. With average monthly premium charges and expenses of the fund set at approximately $ 15,000 per month, even after the purchase of the building and assuming absolutely no receipt of any revenue of any nature (the current yearly revenue receipt level is approximately $ 240,000), the fund could operate for a period of approximately two years. Acting on the above information and the calculation of projected savings in purchasing rather than renting property, the trustees entered into an agreement to purchase the said building for $ 45,000. This agreement entered into as trustees of course would, under the Fiduciaries Investment Act of 1949 of the Commonwealth of Pennsylvania, require court approval, which is sought in this proceeding.

 The Union designated trustees John J. Hennelly and John M. Doyle, and the employer designated trustees John G. Bowman, Jr. and R. Walton Struse, Jr. petitioned the court for approval of the purchase. At the hearing held on Tuesday, January 28, 1958, the testimony developed that on Monday, January 27, 1958, the day preceding the hearing, John J. Hennelly and John M. Doyle had been replaced as union designated trustees of the fund by Paul A. Paulson and Daniel J. Walsh, and each of the new trustees testified that he was opposed to the investment of the funds in real estate. However, both of the new trustees admitted lack of sufficient information to make an intelligent decision. There also appeared William E. Boyd, president of Local No. 1, Francis A. Craig, recording secretary of Local No. 1, and William Tsoubis, a long-time member of Local No. 1 and a long-time advocate of welfare funds for union members. The objections raised by these two officers and one member were directed against the operation of the fund and to the fact that the benefits provided in the agreement were not adequate and that any money in the fund should be used for an increase in benefits rather than for the purchase of any real estate. A former president of Local No. 1 and a member for approximately thirty-five years, Eugene B. McGough stated his opposition on two grounds: (1) that in case of a recession the funds might be needed for benefits, and (2) that even if the fund should continue to grow, it might well result in a condition unfavorable to the union welfare itself in that the control of a large sum of money might create dissatisfaction within the union membership. He explained that his objection was directed toward a prospective or possible division of authority within the union itself and that outside influences, or as he expressed it -- a dictatorship, might very well have an adverse effect on the principles of trade unionism.

 So far as the Court has been able to determine this is a case of first impression. However, the Legislative History of the Taft-Hartley Act is illuminating. In the original House version of the Labor-Management Relations Act of 1947 it was made an unfair labor practice for an employer to make payments of any kind to any labor organization, or to any fund or trust established by such organization in which the labor organization exercised any control directly or indirectly. In explaining the reason for such a provision, House Report No. 245, H.R. 3020, page 29, Leg.Hist. 320, accompanying the bill stated:

 'Certainly, it is not in the national interest for union leaders to control these great unregulated, untaxed funds derived from exactions upon employers.'

 This provision was sharply criticized by the minority report of the House Committee on Education and Labor. The minority report stated that:

 'We would have no objection to requiring that trust funds to which an employer makes contributions be jointly controlled by the employer and the union. Under this bill an employer would be forbidden to contribute to any fund over which the union has any control, even though it is jointly administered with the employer. This result is completely unreasonable. Its full implications can only be appreciated when we realize that health-benefit funds are part of collective bargaining agreements involving more than 15 international unions covering some 600,000 workers. * * *

 'This bill would invalidate almost two-thirds of the existing health-benefit agreements. The resulting industrial unrest is a fact that cannot be ignored. * * * Provisions which deny employees and organizations the opportunity to make voluntary provisions against illness and insecurity can only increase reliance upon the state. In the interests of sound governmental policy such dependence upon the state should be checked by encouraging the formulation and adoption, through voluntary agreement, of plans that will aid citizens during the period of misfortune or economic distress.' House Minority Report, No. 245, H.R. 3020, page 79, 1 Leg.Hist. 370.

 The Senate rejected the views expressed in the House Majority Report and concurred in the House Minority Report. Due to the conflict between the views as expressed in the Hartley Bill from the House and the Taft Bill from the Senate, the two bills were referred to Conference. The Conference Report adopted the provisions of the Senate amendment, accepting the suggestions of ...

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