The opinion of the court was delivered by: JAMES F. MCCLURE, JR.
This action arises under section 501 of the Labor Management Reporting and Disclosure Act of 1959 (LMRDA)
and state common law. Plaintiffs challenge the receipt by Charles Greenawalt, former President of Teamsters, Chauffeurs, Warehousemen and Helpers, Local 764 (Local 764 or the union) of "severance pay" which they allege to be improper and in violation of union bylaws. Plaintiffs also challenge the conduct of former union counsel, Ira Weinstock, Esq.,
whom they allege advised the union that the challenged conduct was proper. Plaintiffs seek the return of $ 11,989.00 for cash and property allegedly improperly given to Greenawalt as "severance pay" based upon the improper and erroneous legal advice of Weinstock.
Plaintiffs allege that defendants violated Local 764 bylaws in several respects. According to plaintiffs' allegations, unlike any union officer or agent who preceded him at Local 764, defendant Greenawalt received what was denominated "severance pay" in the form of an automobile. The automobile which plaintiff received was the one assigned to him for his use during his tenure as president of Local 764. After plaintiffs questioned the propriety of the transfer, defendants Greenawalt and Weinstock arranged to effect the transfer by estimating the market value of the automobile, having the union give Greenawalt a check for that amount, plus transfer taxes, and federal, state and local tax on the amount he received. Greenawalt then endorsed the check over to the union as payment for the automobile. There was no mention of the cash transaction in the Executive Board minutes, nor was it ever approved by the Executive Board or the membership at large.
Plaintiffs allege that this transfer was a violation of section 15(c) of Local 764's Bylaws, which provide that "in such instances where the Local union provides an automobile [to a union representative or officer], title to the automobile shall remain at all times in the name of the Local Union."
They also allege the violation of section 15(d) of the local bylaws, which state that the Local Executive Board may provide benefits for the officers, but that "any such benefit adopted by the Executive Board shall be specifically set forth in the Minutes of the Executive Board meetings." Plaintiffs also challenge the valuation placed on the automobile transferred to Greenawalt as unrealistically low.
Repeated requests by the union for the return of the automobile and the cash fell on deaf ears. In a letter dated December 27, 1991 prepared by union counsel, Local 764 informed Greenawalt that the transaction was a violation of the local bylaws, had been found to be so in other cases, and characterized the entire transaction as an attempt to defraud union officers and the membership.
Plaintiffs' complaint was accompanied by a verified application for leave to proceed under section 501 of LMRDA. In an order dated May 23, 1994,
this court denied plaintiff's application on the merits as to the union members and denied the request as moot as to the union. The court found that no prior approval was required from this court to permit the union to proceed with the claims asserted.
Also before the court are: a Rule 11 motion for sanctions filed by defendants (record document no. 11); and a motion by plaintiff for leave to file a sur-reply to defendants' reply brief filed in support of their Rule 12(b) motion (record document no. 13). For the reasons which follow, both motions will be denied.
In deciding defendants' motion, we are "required to accept as true all allegations in the complaint and all reasonable inferences that can be drawn from them after construing them in the light most favorable to the non-movant." Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994). "In determining whether a claim should be dismissed under Rule 12(b)(6)," we look "only to the facts alleged in the complaint and its attachments without reference to other parts of the record." Id. Dismissal is not appropriate unless "it clearly appears that no relief can be granted under any set of facts that could be proved consistently with the plaintiff's allegations." Id.
Defendants seek the dismissal of this action on the ground that the union lacks standing to file an action against one of its officers for the alleged breach of fiduciary duty. Plaintiff is asserting a violation of section 501(a). Section 501(a) imposes upon the officers of all labor organizations a duty to hold the organization's 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." 29 U.S.C. § 501(a). If a union official "profits personally through the use or receipt of union funds, ... the official bears the burden of proving that the transaction was validly authorized in accordance with the union's constitution and bylaws after adequate disclosure, and that it does not exceed a fair range of reasonableness." Brink v. DaLesio, 667 F.2d 420, 424 (4th Cir. 1981), citing Morrissey v. Curran, 650 F.2d 1267, 1274-75 (2d Cir. 1981).
Remedies and rights for the violation of section 501(a) are set forth in section 501(b). Only union members are expressly authorized to sue in federal court for an alleged section 501 violation. 29 U.S.C. § 501(b).
Left open, however, under section 501, is the basis for federal jurisdiction over an action filed by the union in federal court. There can be no doubt but that the union has the right to bring an action to enforce section 501(a). Section 501(b) itself admits that possibility. Further, when individual union members sue under section 501, they are suing derivatively "'for the benefit of the labor organization.'" Nellis v. Air Line Pilots Association, 815 F. Supp. 1522 (E.D.Va. 1993), citing 29 U.S.C. § 501(b). See also: Building Material and Dump Truck Drivers, Local 420 v. Traweek, (Traweek), 867 F.2d 500, 506 (9th Cir. 1989) (Plaintiff in section 501 suit "acts in a representative capacity for the benefit of the union and on behalf of the union.")
Rejecting the first two as jurisdictional bases for various reasons, we concluded that section 105(b) of LMRDA, in conjunction with section 1337, does, in fact, permit the ...