Charles O'Hara and Jerry Howard v. District No. 1-Pcd, Meba, Afl-Cio
Docket: 93-7121
Court: Court of Appeals for the D.C. Circuit; June 23, 1995; Federal Appellate Court
Appellants, four labor unions, filed an interlocutory appeal challenging a district court's preliminary injunction that prevented them from disposing of approximately $12.5 million awarded through arbitration. The injunction was obtained by appellees, two union members, under section 301 of the Labor Management Relations Act, asserting their entitlement to the funds. The appellate court upheld the district court's jurisdiction under section 301 but vacated the injunction, determining that the appellees had not demonstrated a sufficient likelihood of success on the merits of their claim.
The arbitration award stemmed from breaches of multiple collective bargaining agreements between the Pacific Coast District, Marine Engineers Beneficial Association (PCD/MEBA), and the Delta Steamship Company, later acquired by Crowley Maritime Corporation. In 1981, PCD/MEBA entered into a three-year agreement with Delta, requiring Delta to exclusively employ PCD/MEBA engineers. Following Crowley's acquisition of Delta, a ten-year agreement was established to maintain this exclusivity. However, after Delta sold its assets and subleased three vessels, U.S. Lines, which had its own agreement with PCD/MEBA, faced financial issues and reduced its crew size. Following U.S. Lines' bankruptcy, Delta, now a shell corporation, subleased the vessels to another subsidiary that employed a different union's engineers. PCD/MEBA then initiated arbitration against Crowley and Delta, alleging breaches of the exclusivity agreements regarding crew employment. The arbitration decision in favor of PCD/MEBA was confirmed by the New York Supreme Court and its Appellate Division.
Arbitrator Usery awarded PCD/MEBA approximately $6 million in damages due to ATL's failure to crew the Sea Wolf vessels with PCD/MEBA members. This amount was calculated based on lost wages and benefits for the entire bargaining unit. Additionally, he granted prospective relief exceeding $6,500 per day for the remainder of a ten-year period, allowing Crowley to terminate this liability by employing PCD/MEBA members on the vessels without reinstating specific employees. Usery rejected Crowley's argument that PCD/MEBA needed to identify specific individuals for mitigation purposes, stating the harm affected the entire bargaining unit and awarded the damages to the Union for the benefit of its members.
After the award was finalized, PCD/MEBA merged with the National Maritime Union to form MEBA/NMU, which received the Crowley award. Crowley did not terminate its liability, resulting in payments totaling approximately $12.5 million through 1993. MEBA/NMU allocated $6 million to pension and benefits funds, proposed to distribute up to $1.4 million to "disadvantaged" members, including 51 former PCD/MEBA members who had worked on the Sea Wolf vessels, while asserting no obligation to do so under collective bargaining agreements or the arbitration award. MEBA/NMU intended to use the remaining funds at its discretion for the benefit of all members.
Seven former permanent engineers challenged the distribution plan, claiming MEBA/NMU was misusing the funds for operational expenses rather than distributing them to affected members. Concurrently, MEBA/NMU faced financial difficulties and internal conflicts stemming from its merger, including issues related to the allocation of the Crowley award’s undistributed remainder.
MEBA/NMU's Licensed Division, consisting of about 5,000 former PCD/MEBA members, contended that undistributed funds should solely benefit its members rather than the entire MEBA/NMU membership of 28,000. The Licensed Division subsequently filed a lawsuit in the U.S. District Court for Maryland, seeking to dissolve the 1988 merger and contesting the handling of the Crowley award by MEBA/NMU. The court ordered the funds to be held in escrow during the litigation. In June 1993, MEBA/NMU agreed to dissolve the merger as part of a settlement, allowing the unions to use the escrowed Crowley funds to address outstanding liabilities, excluding payments to injured engineers and certain MEBA funds. Four successor unions emerged from the merger dissolution and were to share remaining liabilities equitably.
Shortly after the merger termination, seven employees who had previously contested the union's fund distribution initiated a new lawsuit in the U.S. District Court for the District of Columbia, claiming their rights to the Crowley award and alleging violations of collective bargaining agreements and the union's duty of fair representation. They sought class certification for 51 former PCD/MEBA engineers and requested a preliminary injunction against the transfer of the $12.5 million Crowley award. The district court granted this injunction.
Although the four successor unions were not named defendants, they answered the complaint and appealed the injunction, arguing it lacked sufficient legal grounding. The plaintiffs moved to dismiss the appeal, claiming the successor unions did not have standing. The appellate court deferred its decision and remanded the case to the district court for clarification. In July 1994, the district court provided a brief rationale for the injunction and permitted the successor unions to be substituted as defendants for MEBA/NMU.
The district court denied the plaintiff employees' motion for summary judgment, upheld the unions' preliminary injunction, and dismissed the duty of fair representation claim (Count II) in Wilkinson v. District No. 1-PCD/MEBA. Arbitrator Kiss ruled against the employees' claims regarding class representation and entitlement to the Crowley award but noted that the MEBA/NMU distribution plan lacked recompense comparable to traditional backpay formulas. PCD/MEBA subsequently revised the distribution plan to offer more equitable compensation, leading five of the seven plaintiffs to withdraw from the suit. The remaining two plaintiffs continue their case in district court, and the preliminary injunction remains in effect against MEBA/NMU and four successor unions, which are contesting the injunction. The court is addressing three main issues: 1) subject matter jurisdiction, 2) whether the arbitration proceedings preclude the plaintiffs from proceeding, and 3) the validity of the preliminary injunction. The court rejected the argument that the four appellant unions lacked standing for the appeal due to their prior status as non-parties, recognizing their substitution for MEBA/NMU as real parties in interest. The unions argue that Section 301 of the Labor-Management Relations Act does not apply since the matter pertains to arbitration award interpretation rather than contract violation. However, the court disagrees, affirming that Section 301 grants federal jurisdiction over collective bargaining agreement enforcement, including arbitration agreements.
Section 301 aims to promote industrial peace while allowing employees to pursue uniquely personal rights such as wages and wrongful discharge. The Supreme Court has determined that Congress intended for Section 301 to create a uniform federal labor law regarding collective bargaining agreements. Although Section 301 does not explicitly mention arbitration awards, the arbitration process is essential as it provides meaning to the collective bargaining agreement and the authority for the arbitration award derives from it. The plaintiffs' claim for the disbursement of an arbitration award is based on their contractual rights under the collective bargaining agreement, thereby falling under Section 301's jurisdiction.
The unions argue that Section 301 does not apply because there has been no breach of the duty of fair representation, a legal obligation requiring unions to act fairly and in good faith towards members. They reference "hybrid" cases, which combine claims against both the employer and the union regarding interference with rights under collective bargaining agreements. However, the interpretation of these cases by the unions is deemed incorrect, suggesting that the plaintiffs' claims adequately invoke Section 301’s jurisdiction.
Hybrid cases stem from the Supreme Court's ruling in Smith v. Evening News Association, which established that federal courts have jurisdiction under section 301 over disputes not only between employers and labor organizations but also between individual employees and employers, provided there is an alleged breach of a contract involving a labor organization. To encourage arbitration of labor disputes, the Court later mandated that employees must first exhaust any grievance procedures in their labor contracts before suing their employers under section 301. This includes requiring employees to allow unions the opportunity to represent them, unless the contract states otherwise.
However, the Court acknowledged concerns regarding union representation, recognizing that unions might refuse to act or could act in bad faith. This raises the issue of when an employee can seek judicial review of a breach-of-contract claim if the union fails to provide adequate representation. The resolution lies in hybrid cases, which allow employees to seek relief against both the employer and union for breaches of collective bargaining agreements, contingent upon proving that the union violated its duty of fair representation.
The excerpt clarifies that while employees must demonstrate union misconduct in the grievance context to pursue claims against employers post-grievance, this requirement does not apply if employees are suing the union for independent breaches of the collective bargaining agreement. In such cases, proof of the union's contractual violation suffices, without needing to show a breach of the duty of fair representation. This principle ensures that arbitration awards remain final and protects employers from being held accountable twice for the same actions unless union misconduct is evident. The excerpt references various cases to support these interpretations.
In *Health Care Employees v. National Union*, the court referenced the Ninth Circuit's position that Section 301 allows a union member to sue their union for interference with employee rights under a collective bargaining agreement, provided such interference constitutes a breach of the duty of fair representation. The court previously determined that the plaintiffs' claims regarding the union's failure to act on grievances and medical forms constituted a potential breach of this duty, which eliminates the need to decide if this breach is necessary for all Section 301 suits. In the current case, the plaintiffs allege similar violations that, if substantiated, would indicate a breach of the duty of fair representation.
The unions contended that there was no breach since the employer complied with the terms of the Crowley award, framing the issue as an internal union matter. The district court dismissed the plaintiffs' duty of fair representation claim, but the plaintiffs maintained that this breach supports their Section 301 jurisdictional argument. The court recognized its obligation to address this issue to determine jurisdiction over Count I, despite the dismissal of Count II.
While the court expressed skepticism about the plaintiffs' likelihood of proving wrongful withholding of the Crowley award, it acknowledged that, if proven, such actions would violate the duty of fair representation. The court reiterated that this duty is relevant to employee-employer interactions, particularly concerning the plaintiffs' rights to compensation linked to their employment on the Sea Wolf vessels. The union's alleged failure to appropriately distribute award proceeds significantly impacts the employees' ability to assert their contractual rights. The court emphasized that whether the union undermines the arbitration process by refusing to act or by failing to distribute awarded proceeds, the outcome remains the same: the employees do not receive fair representation.
The appellant unions' argument that the district court lacked section 301 jurisdiction is rejected, as is their claim that the action is precluded by the Kiss proceeding, which they characterize as arbitration. The plaintiff employees counter that the Kiss proceeding was not a true arbitration, but an internal union process with an arbitrator chosen and funded by the union, and they did not agree to be bound by its outcome. They participated solely due to the union constitution's requirement for exhausting internal remedies, a requirement enforceable by courts under certain conditions, as established in Clayton v. International Union. The unions argue that the employees' prior position in the Kiss proceeding indicated agreement to be bound, but the court agrees with the district's finding that a letter from the union asserting the finality of its internal grievance process was insufficient to establish a binding agreement. No provisions in the union constitution or other contracts were identified to support the unions' claim of finality. Consequently, the Kiss proceeding, deemed a nonbinding internal grievance process, does not bar the current action.
The district court's preliminary injunction against the unions regarding the $12.5 million Crowley award aims to protect the employees' ability to enforce a judgment if they prevail. The court evaluated four factors: likelihood of success on the merits, potential irreparable harm to plaintiffs, potential harm to other parties, and public interest. The review of these factors typically follows an abuse of discretion standard, with legal questions subject to de novo review. The assessment of the likelihood of success was focused on interpreting Mr. Usery’s arbitration award, primarily a legal question. Following a remand for justification of the injunction, the district court provided minimal commentary on the employees' likelihood of success on the merits.
Plaintiffs provided evidence indicating that previous arbitration awards typically resulted in funds being distributed directly to union members, challenging the defendants' argument that the arbitrator intended for the union to use the funds for administrative purposes. However, this finding alone does not sufficiently demonstrate that the plaintiffs are likely to succeed in their claim, as there is no clear legal obligation for the union to distribute the award to these specific plaintiffs. While customary practice suggests sharing awards, the union did agree to share a portion of the award with the plaintiffs in this case. The district court did not clarify why this sharing would not satisfy the union's obligations.
The plaintiffs assert they are likely to succeed based on the arbitration award's language and other uncontroverted evidence, particularly a statement indicating the award was "for the benefit of unit members." However, this language is interpreted as granting the union authority to manage the funds for the benefit of its members, rather than obligating it to distribute the funds to individual members. The significant size of the award, linked to the arbitrator's refusal to mitigate damages, supports the view that the union would control the award. Additionally, it is argued that the arbitrator's findings focused on the union’s jurisdictional rights and the overall harm to the bargaining unit rather than individual grievances, which further suggests the union's control over the award rather than a direct obligation to distribute it to specific employees.
The record lacks evidence supporting the likelihood of success for the plaintiff employees' claims. Instead, it suggests the opposite. The union's attempt to distribute part of the arbitration award to the 51 affected former Sea Wolf employees lacks a clear justification, and the plaintiffs did not articulate why the Crowley award should mandate this distribution beyond what the union had agreed. Notably, Mr. Usery's involvement in negotiating the merger termination agreement, which allowed for the use of the arbitration award for administrative expenses, implies he did not see this use as contradictory to the award's intent. Arbitrator Kiss affirmed that the union had no obligation to distribute any part of the award beyond traditional backpay, reinforcing the plaintiffs' challenging position.
Additionally, a letter from the president of PCD/MEBA mentioned the Crowley award was "for the benefit of the Delta bargaining unit," but this phrase was ambiguous and could refer broadly to all eligible PCD/MEBA members. The record does not clarify the specific individuals targeted by this term or what Mr. Usery meant by "bargaining unit." Mr. Kiss indicated that these terms referred to the entire union, and the plaintiffs failed to demonstrate a union obligation to distribute the award directly to "unit" members.
The plaintiffs asserted that no arbitrator has allowed such funds to be used for a union's treasury, claiming it could violate section 302 of the Labor Management Relations Act, which prohibits employer contributions to unions. However, PCD/MEBA cited precedents in other industries where similar awards were allocated directly to unions and referenced a statutory exception permitting unions to accept funds from employers to fulfill arbitration awards.
The court finds that issues surrounding historical practices and section 302 are irrelevant if the arbitration award allows the union to retain funds for its treasury. There is skepticism regarding the district court's basis for concluding that plaintiffs could likely prove otherwise. In balancing the likelihood of plaintiffs' success against other factors, the court sees insufficient grounds for the district court's conclusion that the plaintiffs would face significant irreparable harm without the injunction. The individual plaintiffs are expected to recover only a small portion of the $12.5 million Crowley award, and even with class certification, full recovery is uncertain. Given the low likelihood of success on the merits and the significant burden the injunction places on the unions' asset control, the court vacates the preliminary injunction.
