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PURCELL v. KEANE

November 20, 1967

Purcell et al., Plaintiffs
v.
Keane et al., Defendants


Lord, Jr., D.J.


The opinion of the court was delivered by: LORD, JR.

LORD, Jr., D.J..

Plaintiffs, individual members of Warehouse Employees Local 169, International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America, have brought this action on behalf of their union under the provisions of section 501 of the Labor Management Reporting Act of 1959 (hereinafter called the "Act").

 
(a) The officers, agents, shop stewards, and other representatives of a labor organization occupy positions of trust in relation to such organization and its members as a group. It is, therefore, the duty of each such person, taking into account the special problems and functions of a labor organization, to hold its money and property solely for the benefit of the organization and its members and to manage, invest, and expend the same in accordance with its constitution and bylaws and any resolutions of the governing bodies adopted thereunder, to refrain from dealing with such organization as an adverse party or in behalf of an adverse party in any matter connected with his duties and from holding or acquiring any pecuniary or personal interest which conflicts with the interests of such organization, and to account to the organization for any profit received by him in whatever capacity in connection with transactions conducted by him or under his direction on behalf of the organization. A general exculpatory provision in the constitution and bylaws of such a labor organization or a general exculpatory resolution of a governing body purporting to relieve any such person of liability for breach of the duties declared by this section shall be void as against public policy.
 
(b) When any officer, agent, shop steward, or representative of any labor organization is alleged to have violated the duties declared in subsection (a) of this section and the labor organization or its governing board or officers refuse or fail to sue or recover damages or secure an accounting or other appropriate relief within a reasonable time after being requested to do so by any member of the labor organization, such member may sue such officer, agent, shop steward, or representative in any district court of the United States or in any State court of competent jurisdiction to recover damages or secure an accounting or other appropriate relief for the benefit of the labor organization. No such proceeding shall be brought except upon leave of the court obtained upon verified application and for good cause shown, which application may be made ex parte. The trial judge may allot a reasonable part of the recovery in any action under this subsection to pay the fees of counsel prosecuting the suit at the instance of the member of the labor organization and to compensate such member for any expenses necessarily paid or incurred by him in connection with the litigation.

 I. Motion to Dismiss by individual Defendants.

 The individual defendants are and were officers of the union, and the complaint seeks to require these persons to reimburse the union for union funds which they allegedly misappropriated.

 Section 501(b) requires leave of the court to institute the action. Leave to sue is conditioned upon (a) the member plaintiff requesting the union to "sue or recover damages or secure an accounting or other appropriate relief"; (b) the union or its governing board or officers refusing or failing to sue, and (c) a showing of good cause. 29 U.S.C.A. ยง 501(b).

 It is defendants' contention that leave to sue was improperly granted because there was no refusal or failure to sue within a reasonable time as provided for in the statute. In a case relied upon by defendants for support of their second argument, which will be discussed below, Penuelas v. Moreno, 198 F. Supp. 441 (S.D. Calif. 1961), the court decided that the first two requirements of section 501(b) (a and b as stated above) clearly refer to a failure or refusal to bring a court action within a reasonable time after a request has been made. Defendants argue that they have fulfilled their duty under the statute by appointing a subcommittee to inquire into the merits of plaintiffs' demand. The subcommittee was to report to the governing board who would then determine whether or not to take any court action. They conclude that in plaintiffs' securing leave to sue 40 days after the request to the union was made, they were not given a reasonable time in which to conduct the subcommittee inquiry and make a final determination as to further action.

 As stated, section 501(b) permits a union member to come into federal court when the union fails or refuses to take court action. The union must be afforded a reasonable time in which to act; but it must eventually within that reasonable time period take court action. In the present case, it was highly speculative whether the union would ever take court action. Indeed the Board was to determine whether or not to take the officers into court. Furthermore, even if such a procedure was permissible, the subcommittee appointed here was composed of the very same individuals charged with misappropriation of the union funds. Such a committee could never be held to discharge the union of its duty to act within a reasonable time under the statute.

 Also significant is the fact that to date, a period of over a year, the subcommittee has made no report to the Board. Circuit Judge Francis L. Van Dusen, in an excellent opinion, considered a similar case earlier this month. In that case, a Motion to Dismiss was heard by Judge Van Dusen about one year after the union was asked to take action on plaintiffs' grievances. The reasonable time period in which a union must act was held to have expired due to the fact that no showing of any remedial action or of a suit by the union was made by the defendants as of the time of the hearing. Giordani v. Hoffman, 295 F. Supp. 463 (E.D. Pa. 1967. Similarly, in the case at bar, a year has gone by since plaintiffs' demands have been made. The record is devoid of any union action on the grievances.

 The crucial question presented by this motion to dismiss is: must a union member exhaust his internal union remedies before filing a suit under section 501(b)?

 The federal courts have differed in answering this question. Indeed, the Ninth Circuit Court of Appeals found that "no other intraorganizational remedies" other than the request specified in the statute, to wit, that the plaintiff must request that the union sue, recover damages, or secure an accounting, need be pursued. Horner v. Ferron, 362 F.2d 224, 231 (9th Cir. 1966). Yet, only five years earlier a California district court had held that failure to exhaust intra-union remedies would preclude plaintiff from suing under 501(b). Penuelas v. Moreno, 198 F. Supp. 441 (S.D. Calif. 1961). After dealing with the first two prerequisites for the bringing of an action under 501(b) that are discussed in this Court's determination of the first issue above, i.e. first, the member suing must request the union to take some form of the statutorily prescribed action, and second the union or its governing board or officers must refuse to take this action, the court in Penuelas went on to discuss at length the necessity for a showing of good cause. *fn1" In ruling that "good cause" was equivalent to exhausting internal union remedies, the California district court concluded that the "basic right to sue" provision of the Act (Section 101(a)(4)) forbidding any union to limit the rights of its members to sue the organization or its officers embodies an express "exhaustion of union remedies" clause. It further concluded that the principle should pervade the entire Act whenever the question of suit arises.

 Of course, the negative implication of 101(a)(4)'s mandate is that where Congress intended prior exhaustion to be a prerequisite under other sections of the act, it said so specifically. Accordingly, it can be argued that Congress' silence in ...


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