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Wednesday, August 20, 2014
Yakuza? Triads? Technicalities Shred $50M Racketeering Suit Against Pro-Rail Hawaiian Stabilization Fund
By Selected News Articles @ 4:45 PM :: 8428 Views :: DHHL, Ethics, Labor, Rail

Lurid Union Class Action Dismantled by Judge

by William Dotinga, Courthouse News, August 20, 2014 

SAN FRANCISCO (CN) - Jurisdiction and standing issues tank large swaths of a lurid class action by disgruntled union members, a federal judge ruled Tuesday.

David Slack is the lead plaintiff in the 2013 lawsuit that accuses the International Union of Operating Engineers, Local 3 - headquartered in Alameda - and 68 other defendants of violating labor management laws, the California Labor Code, ERISA and federal anti-racketeering law. Originally clocking in at 111 pages, the amended complaint now stands at 125 pages and 526 paragraphs.

The IUOE represents heavy-equipment operators and other construction workers and is the 10th largest union in the AFL-CIO. Local 3 is its largest branch, representing workers in California, Nevada, Utah, Hawaii and the Pacific Rim islands.

In addition to claiming that the union illegally forced members to contribute 1 percent of their salaries to a political action committee fund, the plaintiffs said they've paid millions to the Hawaiian Stabilization Fund - an alleged multimillion-dollar slush fund for union bosses disguised as a mechanism to keep contractors from operating "double-breasted" and working both union and nonunion jobs.

The disgruntled union members also accused union leadership of squandering $50 million in IUOE pension funds on a bad investment vehicle born out of nepotism, and of cavorting with the Japanese Yakuza and the Chinese Triads crime syndicates.

In response to five separate motions to dismiss the class action, U.S. District Judge Edward Chen ruled Tuesday that most of the union members' causes of action fell victim to either a lack of jurisdiction on the court's end or a lack of standing for the members.

Specifically, Chen found that all of the union members' allegations regarding the Hawaiian Stabilization Fund involve state-law causes of action over which the federal court has no jurisdiction. While federal courts can exercise control over state-law claims when they are related to other federal causes of action, the bulk of the complaint involves ERISA and organized labor claims that have little to do with the Hawaiian money, Chen said.

For the pension-linked actions, Chen found that union members could not meet the high standards to claim they suffered monetary damage because union bosses' alleged misconduct threatened the entire plan. The best they can hope for is equitable relief to bring back a sense of fiduciary duty to the union leadership - or have them removed as trustees of the pension fund, according to the 46-page ruling.

Union members have shown enough misconduct, however, to have standing with regard to a botched investment in the Longview Construction Loan Fund, a vehicle sold and managed by the wife of a union leader.

Chen nevertheless questioned whether they would be able to make their case in the face of future challenges or at trial.

"The court questions whether plaintiffs will be able to establish at the summary judgment stage that a $50 million loss represented a material risk to the health of the pension fund such that all plan participants suffered an 'injury in fact,'" Chen wrote. "Plaintiffs also face a potential problem in demonstrating that it was the defendants' alleged misconduct - and not the global recession - that created any risk of default in the pension fund. Nonetheless, these issues are more properly resolved at the summary judgment stage where they can be addressed on a more thorough record."

Chen also dismissed claims that union leaders broke federal union laws by threatening members with termination to force their support in elections and forcing them to contribute to re-election campaign coffers.

"Plaintiffs have failed to adequately state a cause of action under the Labor Management Reporting and Disclosure Act," Chen wrote. "First, to the extent that they base their claim on the allegations that defendant [IUOE vice president Russell] Burns has forced Local 3 employees to contribute to his re-election funds under threat of termination, such conduct is not proscribed by the LMRDA. In Finnegan v. Leu, the Supreme Court held that the termination of union employees for 'political' reasons did not violate the LMRDA. The court held that it was 'readily apparent, both from the language of [LMRDA] and from the legislative history of Title I, that it was rank-and-file union members - not union officers or employees, as such - whom Congress sought to protect.'"

Chen noted that the Finnegan court held that federal union laws do not restrict the freedom of bosses to choose a staff with compatible views or that the LMRDA was even meant to address the union members themselves.

"The first amended complaint merely alleges that Local 3 staff were 'forced' to contribute 'under threat of termination or loss of their jobs if they failed to contribute,'" Chen wrote. "However, it does not allege the forced contributions are part of a purposeful attempt more generally to suppress dissent. While plaintiffs argue that the forced contributed 'perverts union politics and diminishes union democracy and responsiveness to the will of the union,' there are no factual allegations in the complaint to support this contention or to demonstrate that the firings at issue are part of an organized scheme to stifle dissent in the union. Accordingly, the court need not reach at this time the question of whether any exception to Finnegan applies. Rather, as currently pled, the court concludes that plaintiffs' allegations regarding the alleged forced contribution scheme fails to state a claim under the LMRDA. Again in passing the LMRDA, Congress did not intend to protect an individual's status as a union employee or officer."

Similarly, Chen dismissed RICO claims that any of the defendants used extortion as a means to force contributions. He declined to address whether the plaintiffs had made a case that the union bosses engaged in a pattern of racketeering, however.

The union members have 60 days to fix the deficiencies, Chen said, urging all parties to begin filing "omnibus motions to aid judicial review and prevent duplication of arguments."

---30---

LINK: Court Order full text

Oct 2013: Lawsuit: Gangsters Terrorize Union Members Forced to Fund Illegal Pro-Rail PAC Headed by Hawaiian Homes Commissioner

Nov 2013: New lawsuit alleges former gubernatorial appointee’s involvement in financial shenanigans at union

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