On Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Civil No. 88-9055.
Hutchinson, Cowen and Weis, Circuit Judges.
This appeal arises out of an attempt by the members of a local union to resign from their parent organization and join a competing union. The parent's response to the mass resignation was to impose a trusteeship on the local. When the former officers of the local refused to comply with the trustee's directions the parent and the trustee brought suit in federal court seeking to establish the validity of the trusteeship, an order compelling the former officers not to interfere with the trustee, forfeiture of the local's assets, and payment of per capita tax allegedly owed to the parent.
The district court held that the trusteeship was valid and that the local must transfer all of its property to the parent union pursuant to a forfeiture clause in the union constitution. However, the court found that the members of the local union had validly created a mortuary fund out of the local's treasury before they resigned and, therefore, these financial assets were not subject to the forfeiture clause. In addition, the court held that the local owed outstanding per capita tax to the parent union until the date the trusteeship was imposed, but that the local could credit against this amount the value of the property transferred to the parent pursuant to the forfeiture clause. Each party has appealed that portion of the district court's judgment that is adverse to it. Because we find that the district court was in error in finding that the trusteeship was valid and in determining the amount of per capita tax owed to the parent organization, we will affirm in part and reverse in part the district court's decision.
Tile, Marble, Terrazzo, Helpers, Finishers Local 32 ("TMT Local 32") was first chartered by Tile, Marble, Terrazzo, Finishers, Shopworkers and Granite Cutters International Union, AFL-CIO ("International")*fn1 in 1922. The International was a relatively small labor organization with principal locals in Chicago, Detroit, Philadelphia, New York City, Bayonne, Washington, D.C., San Diego, and Los Angeles. TMT Local 32 was one of those principal locals.
As of January 1988, TMT Local 32 had approximately 246 members separated into two divisions known as Local 32 and Local 32A. Members of Local 32 worked in the Philadelphia area and members of Local 32A worked in Harrisburg. The members of the two divisions did not regularly associate and did not hold meetings or elections together. Each division separately negotiated its own collective bargaining agreements.*fn2
For a number of years the International had engaged in negotiations with other unions concerning a possible merger, though nothing ever came of these talks prior to 1988. However, the negotiations did cause a certain amount of anxiety among the rank and file, and, beginning in 1987, Ned Tamburini ("Tamburini"), the business manager/financial secretary of TMT Local 32, and Wayne Waldron ("Waldron"), the recording secretary, attended various meetings on behalf of the Local where they discussed the continued viability of the International. These meetings focused on available methods by which locals could disaffiliate from the International, if desired, and still retain their assets. In addition to meeting with other locals, Tamburini held talks during 1987 with an organizer of the Bricklayers and Allied Crafts International Union ("BAC") regarding a possible affiliation with that union.
Sometime in 1987, Tamburini learned that the membership of at least five TMT locals in other large cities had, or were about to, resign and join the BAC. Fearing problems because of the weakened state of the International both in securing work for his members and in enforcing effectively the Local's existing collective bargaining agreements, Tamburini and the other officers of TMT Local 32 decided to hold a meeting to discuss resigning from the International as well. In early January 1988, postcards were mailed to all the members of Local 32 Philadelphia informing them of a special meeting to be held on January 18. No notice of the meeting was sent to the International.
Approximately 125 members -- out of approximately 198 Local 32 Philadelphia members -- attended the January 18 meeting. At the meeting, Tamburini told the rank and file that the International was no longer servicing their needs and that he and the other officers of the Local were going to resign and seek affiliation with BAC. Tamburini urged the membership to do the same.
Furthermore, Tamburini recommended to the membership that before they resigned they should take steps to protect the Local's assets. First, he advised them to create a mortuary fund from the existing cash assets in the union treasury. Second, he recommended that the members transfer two parcels of real estate ("the real estate") owned by the Local to him as trustee for their benefit. Both recommendations were accepted by resolution.
After passing the resolutions and holding discussions on the merits of leaving the International, all the members of Local 32 Philadelphia present at the meeting signed a "Notice of Resignation" from the International and TMT Local 32, an authorization for dues checkoff to BAC Local 32 and an authorization for representation by BAC. In the days which followed, approximately 66 more members came to the union hall to sign similar resignation forms. On January 19, 1989, BAC issued a charter to BAC Local 32, after which substantially all 191 members of Local 32 Philadelphia joined BAC Local 32.
Members of Local 32A Harrisburg held their own meeting on January 15, 1988, at which all 30 members present resigned. The members also voted to transfer the balance of approximately $1,600 in the Local's bank account to a welfare fund established for the benefit of the members. In the days which followed, the remaining 18 members of Local 32A also signed resignation forms. On January 19, Local 32A Harrisburg received a charter as BAC Local 31 and the assets from the welfare fund were subsequently transferred to BAC Local 31's general account.
Prior to these meetings, Tamburini had met with contractors with whom TMT Local 32 was in a collective bargaining relationship ("the employers"). Although the collective bargaining agreements were not due to expire until April 30, 1989, Tamburini and the employers executed an amendment providing that the agreements between the parties would "continue to apply to the work covered therein notwithstanding any change in the identity of the collective bargaining representative, and said collective bargaining agreement will bind and inure to the benefit of any labor organization that represents the employees performing such work."
In early March 1988, Tamburini wrote to Gerald Bombassaro ("Bombassaro"), the General President of the International, informing him that as of January 18, 1988 "all of the officers and 100% of the membership" of TMT Local 32 had resigned from the union. On June 8, 1989, Bombassaro filed charges against the officers of TMT Local 32 and scheduled a hearing to determine the need for a trusteeship. A hearing was held on June 24, 1988. No officer or member of TMT Local 32 attended. After hearing testimony only from Bombassaro, the hearing officer recommended that a trusteeship be imposed, and the International's General Executive Council agreed. On July 11, 1989, Frank Fiano ("Fiano") was named as trustee of TMT Local 32.
When no property or documents of the Local were turned over to Fiano, the trustee and the International brought suit in federal court against TMT Local 32, BAC Local 32, and various of the Local's former officers.*fn3 The complaint alleged, inter alia, that the former officers of TMT Local 32 had breached their contractual obligations to the International and the Local both under the International's Constitution and TMT Local 32's Constitution. The International sought relief in the form of a judgment declaring its trusteeship valid, a permanent injunction both compelling the former officers of TMT Local 32 to deliver to the trustee all funds, books, records, papers, real property and other assets of the Local, including any assets already transferred to BAC Local 32, and preventing the officers from interfering with the trustee in the performance of his duties, and the award of any other relief the court deemed just or appropriate.
After holding an evidentiary hearing, the district court found that the trusteeship was validly imposed because of TMT Local 32's failure to pay per capita tax owed to the International, the absence of any present officers of TMT Local 32 to administer or close out the Local's affairs, and the former officers' breach of duty to the labor organization. The latter holding was premised on various actions these former officers took in contemplation of disaffiliation, including their resignation recommendation to the membership.*fn4
The court also held that the forfeiture clause of the International Constitution was valid and contractually binding on TMT Local 32. This clause requires that all the property of a local is to revert automatically to the International in the event that the local is dissolved. Because the district court found that less than seven members (if any) of TMT Local 32 desired to retain their International charter after the mass resignation in January 1988, such action constituted a voluntary dissolution of TMT Local 32. Consequently, the Constitution's forfeiture clause was triggered and TMT Local 32 was required to surrender all of its property to the International. The court concluded that the forfeiture clause encompassed the real estate because the membership's action in transferring title to the property amounted to financial malpractice, i.e., an improper disbursement of union funds among the membership. However, ...