84 v. Robert Francis et al. (2011)

MEMORANDUM OF DECISION

This action arises as a result of a forced merger of two local unions of the International Alliance of Theatrical Stage Employees, Motion Picture Technicians, Artists and Allied Crafts of the United States, its territories and Canada, AFL–CIO, CLC (“IATSE”).

Plaintiffs are Local 84, Stage Hands Referral Service, LLC (SRS), affiliated with Local 84;  Buckland business manager and Cerullo president of Local 84.   Members of the local are stage hands, setting up lighting, sound and scenery for concerts, Broadway shows and the like.   Local 84 has jurisdiction in northern Connecticut and over the Indian casinos.

Defendants are Robert Francis, former business manager, Michael Hughes, former president, and Sheila Harrington–Hughes, former secretary treasurer of Local 538, and Stage Production Services, LLC, connected with Local 538.   This local, whose members are also stage hands, had jurisdiction in New London county, parts of Rhode Island and over some Indian casino events.

The amended complaint sounds in conversion, unjust enrichment and breach of fiduciary duty.¹

In 2005 a jurisdictional dispute arose between Locals 538 and 84.   On June 9, 2006, the general executive board of IATSE, pursuant to its International Constitution and Bylaws, approved the merger of Local 538 into Local 84.   Anthony DePaulo, International Vice President and Co–Director of Stagecraft was given the official assignment “to effectuate the merger of the two locals.”   On June 19, 2006, Local 538 objected in writing to the merger.   On June 20, 2006, Mr. DePaulo wrote that the merger had been approved and he was assigned to effectuate it.   Mr. DePaulo testified at trial that the merger did not take place on June 9, 2006 because a number of administrative issues needed to be taken care of before the final merger could occur.   On August 8, 2006, Mr. DePaulo wrote to Michael Hughes, President, and Robert Francis, business agent of Local 538:

Pursuant to Article Nineteen, Section 29 of the International Constitution, the following must take place to finalize the merger of Locals 538 and 84.

All active members of L. 538 will be transferred into the Local 84;

All retire members will be transferred into Local 84;

All books and records are to be forwarded to the International;

All assets are to be transferred to Local 84;  and

A terminal LM report must be filed.

On July 24, 2006, defendants Francis, Hughes and Harrington–Hughes filed cards to withdraw from IATSE, effective September 30, 2006.   However, during the summer of 2006, they continued to preside over meetings of Local 538 and to act on behalf of Local 538.

During August 2006, the executive board of Local 538 voted to make the following disbursements from its treasury:  (1) pay the Veterans of Foreign Wars Post the sum of $2,000 for allowing the Local to use its hall for meetings free over ten years;  (2) make a donation of $750 to a Dallas local for its 100th anniversary commemorative booklet;  (3) make a contribution of $1,000 to a scholarship fund in the name of Ralph Wolverton, a deceased member of a sister local who had died at an early age, and (4) in lieu of an annual picnic, to pay $200 to 43 members of Local 538, amounting to $8,600, as “vacation” pay.

On August 30, 2006, the officer of Local 538 met with DePaulo, transferred to him all the books and records of the Local, and gave him a check in the amount of $8,667.04 representing the balance of monies in the Local's bank account.

Plaintiffs challenge the four payments to VFW, the Dallas Local, the scholarship fund and to Local 538 members by the individual defendant, acting as officers of Local 538, and claim they constitute conversion, unjust enrichment and breach of a fiduciary duty.

At the outset it is important to recognize that locals of IATSE are autonomous.   Article Two, Section 4 of the IATSE Constitution and Bylaws, entitled “Local Unions,” states “Each affiliated local union, subject to the laws of this Alliance, shall exercise full and complete control over its membership and affairs.”   Article Nineteen, Section 2 of the Constitution and Bylaws, entitled “Home Rule,” states:

Home Rule is granted to all affiliated local unions of this Alliance, and this shall be construed to confer upon each local union the authority to exercise full and complete control over its own affairs;  provided, however, that no local union shall take any action or adopt any laws which conflict with any portion of this Constitution and Bylaws.

The critical question as to the plaintiffs' counts is when did the merger of 538 into 84 occur?   This is a question of fact for this court to resolve.   Dibella v. Widlitz, 207 Conn. 194, 198, 541 A.2d 91 (1988) (determination of effective closing date, where disputed by the parties, is question of fact).   See also Citicorp Mortgage, Inc. v. Weinstein, 52 Conn.App. 348, 358–59, 727 A.2d 720 (1999).

Plaintiff's claim the merger occurred on June 9, 2006, when the general executive board of IATSE approved the merger of Local 538 into 84.   Their operative amended complaint at paragraph 12, however, alleges “The merger took effect on or about September 1, 2006.”   Defendants claim that the merger took place on August 30, 2006, when the defendant officers turned over to Mr. DiPaulo, the International Vice President, all of Local 538's books and records and a check for $8,667.04, constituting a balance in the Local's bank account.

All of the facts support the defendants' claim.   Although the International announced the merger on June 9, 2006, it assigned Mr. DePaulo to “effectuate” the merger.   In his letter to Local 538 of August 2006, Mr. DePaulo specifically stated that “to finalize the merger of Locals 538 and 84,” books and records of Local 538 had to be forwarded to the International and all assets were to be transferred to Local 84.   Those events occurred on August 30, 2006, when the officers of Local 538 met with Mr. DePaulo, gave him the books and records of the Local and a check for the balance of the Local's account.   As a consequence, this court concludes that the merger actually took place on August 30, 2006.

In Count One of their complaint, plaintiff's allege that the individual defendants converted the tangible and intangible assets of Local 538.   Our Supreme Court has stated that the tort of conversion occurs when one, without authorization, assumes and exercises ownership of property belonging to another to the exclusion of the owner's rights.  Deming v. Nationwide Mutual Insurance Co., 279 Conn. 749, 770 (2006).

Thus, to succeed in their claim of conversion plaintiffs must prove that:  (1) the plaintiffs owned or had the right to legal possession of the property and assets of Local 538;  (2) the individual defendants had no authorization to assume or exercise ownership over the property and assets of Local 538 at the time they allegedly converted them.

The assets of Local 538 consisted of monies taken out of the union members' paychecks as assessments or dues and given to the Local.   DePaulo ² testified that those assets belonged to the Local and it had a right to do whatever it wanted with them.   Mr. DePaulo testified that it was Local 538's money.  “It came from their collection of dues and assessments.  [Y]ou can give your own dues to whomever you want.”

As the court has found, the merger did not occur until August 30, 2006.   Local 84 had no ownership interest in Local 538 assets before that date.   Thus, plaintiff failed to prove an essential element of its claim of conversion.

Moreover, plaintiff failed to prove that any of the four payments were improper.   As to the propriety of the payment to the VFW, Mr. DePaulo testified:

And if you want my opinion, I'll give you my opinion.   That was a bargain, $2,000.00 that they paid after using the hall for ten years.

As to the propriety of the $750.00 paid to the Dallas local, Mr. DePaulo said:

It's the same thing that I said about everything else.   They were their own autonomous local at the time, and they can do what they want with their own money as long as the democratic process is followed.

As to the propriety of the $1,000.00 contributed to the scholarship fund, the members of Local 538 knew and admired Ralph Wolverton and wanting to do something special in his name.   Giving to the fund was within the discretion of the Local.

As to the vacation payments of $200.00 paid to the members of Local 538, when Mr. DePaulo was asked whether there was anything improper or inappropriate about these payments he testified:  “I don't think so at the time and I still don't think so today.”

The members of Local 538 were fully informed of each of the four payments and there was no evidence that they disapproved or objected to any of them.   Thus the court concludes that the plaintiff has failed to prove its count of conversion.

In their second count sounding in unjust enrichment, the plaintiffs allege that the individual defendants and Stage Production Services, LLC enriched themselves by taking money or other property they were obligated to turn over to Local 84.   To prove a claim of unjust enrichment the plaintiffs must show that the defendants unjustly did not pay the plaintiffs for any benefit the defendants received.   Bolmer v. Kocet, Conn.App. 595, 612–13 (1986).   Unjust enrichment applies when in a given situation, it is contrary to equity and good conscience for one to retain a benefit which has come to him at the expense of another.  Hartford Whalers Hockey Club v. Uniroyal Goodrich Tire Co., 231 Conn. 276, 282 (1994).

There are two major flaws with plaintiffs' unjust enrichment claim.   The first is that there is no evidence to support that plaintiffs were entitled to any benefit defendants received.   The four payments the individual defendants made were prior to August 30, 2006, when the individual defendants were officers of Local 538 and authorized to conduct its business.   Before the merger was finalized on August 30, 2006, the plaintiffs had absolutely no claim to any assets or monies of the defendant.   Before that date the two Locals were completely separate entities, operating totally independent of each other.

Secondly, there is no evidence that the individual defendants received any benefit that was different than that received by every other member of Local 538.   Mr. DePaulo testified that after reviewing the books and records of Local 538, he found no evidence to suggest that Hughes, Francis, or Harrington–Hughes diverted any assets from Local 538 funds to benefit themselves personally.   Based on these facts, the court concludes plaintiffs failed to prove its claim of unjust enrichment against the individual defendants.

Plaintiffs' claim of unjust enrichment against defendant, Stage Production Services, LLC (SPS) is based on the ground that the monies realized by SPS over the years and as of August 30, 2006, amounted to $15,000.00, was an asset of Local 538 and therefore, accrued to Local 84 as a result of the merger.   The facts regarding SPS are as follows.

SPS was formed by officers of Local 538.   As of 2002, the members and owners of the LLC were Hughes and Francis.   Neither obtained their positions as members and owners as a result of a vote of the members of the Local, and neither invested any of his own money in the LLC. SPS operated as follows:  Much of its work of the Local was at the University of Rhode Island under a subcontract with a private company called Global Spectrum.   Local 538 sent its members to work at Global Spectrum.   Global Spectrum paid SPS which in turn paid Local 538 members the union wages and paid an assessment to the Local.   The other use of SPS was as a facade to supply union employees to the Native American casinos.   Since those casinos did not recognize labor unions, SPS provided Local 538 members to work at the casinos, paid the union members their union wages, paid Local 538 the members' assessments and retained the difference, if any.

Hughes and Francis dissolved SPS at the end of 2006 or possibly early 2007 because they had disassociated from IATSE.   When they were wrapping up SPS they found there was money in its account in the amount of $15,000.00.   Hughes and Francis rolled over this money into a new LLC known as Crew 538, LLC.

All of the time they provided services for SPS, Francis and Hughes were never paid and never received any compensation whatsoever.   At the time of the dissolution of SPS, Hughes and Francis were owners of SPS and considered the net profits realized over the years as their own.   No member of Local 538 claimed any right to the $15,000.00.   The union members were paid for their services at the union rate.   Local 538 was paid its assessments from those services of the union members.   The SPS was a separate entity and the owners of the LLC were entitled to the monies in its account.

Plaintiffs have failed to show why they have any legal right or entitlement to the profits of SPS at the time that SPS was dissolved.   The forced merger of 538 and 84 simply did not reach the assets of SPS. As a consequence, plaintiffs' claim of unjust enrichment against SPS fails.

Finally, in the fourth count of its amended complaint, plaintiff alleges that the individual defendants breached their fiduciary duty.   This claim is divided into two parts.   In its brief, plaintiffs assert that defendants owed a fiduciary duty to the plaintiffs pursuant to the Federal Labor–Management Reporting and Disclosure Act (LMRDA), 29 U.S.C. 501, and argue that once the defendants became aware of the June 9, 2006 merger order, they had a duty to protect the assets of Local 538 for the benefit of Local 84.   That act at § 501a establishes that union officers and agents owe a fiduciary duty to their union and its members.³

However, there are several flaws with plaintiffs' claim of a breach of fiduciary duty under LMRDA.   The first, is that plaintiffs failed to allege their cause of action based upon LMRDA in their complaint.   The Connecticut Practice Book at Section 10–3(a) specifically provides:  “When any claim made in a complaint ․ is grounded on a statute, the statute shall be specifically identified by its number.”   The plaintiffs failed to comply with that Practice Book requirement.

The second flaw of plaintiffs' claim is that they have not complied with the numerous procedural requirements of 29 U.S.C. Section 501(b).  That section provides ⁴ a member may sue a union officer but only “upon leave of the court obtained upon verified application and for good cause shown.”   The Second Circuit Court of Appeals has held that the provisions of the statute are mandatory.  Coleman v. Brotherhood of Ry. S.S. Clerks, Freight Handlers, and Station Emp., 340 F.2d 206, 208 (Second Cir.1965).   Plaintiffs have failed to comply with the statutory requirements of submitting a request to sue to the union defendants, and failed to secure the court's permission to proceed with the cause of action under LMRDA.

The third flaw is that the federal statute clearly accords standing to pursue a claim under LMRDA only to members of the union.   Plaintiffs were not members of Local 538 when the challenged four payments were made and therefore have no standing to bring an action under the federal statutes.

Plaintiffs also assert a breach of fiduciary duty as a matter of common law.   Plaintiff has the burden of proving the existence of a fiduciary duty.   Sherwood v. Danbury Hospital, 278 Conn. 163, 195 (2006).   As to what constitutes a fiduciary duty, Hi–Ho Tower, Inc. v. Com–Capital Tronics, Inc., 255 Conn. 20, 38 (2000), states, “ ‘[A] fiduciary or confidential relationship is characterized by a unique degree of trust and confidence between the parties, one of who has superior knowledge, skill or expertise and is under a duty to represent the interests of the other.’ “

Defendants concede as officers of Local 538 they had a fiduciary duty to the members of Local 538.   Even if the individual defendants failed to get authorization from the members of the union to make the four payments, a claim of breach of fiduciary might lay with members of Local 538.   But the plaintiffs had no standing to assert that breach.   Moreover, since the court has determined that the merger occurred on August 30, 2006, the individual defendants owed no fiduciary duty to the plaintiff union or its members prior to that date.   All the transactions in question occurred prior to that date.   Consequently, plaintiffs' claim of breach of a common law fiduciary duty fails.

Based on the foregoing, judgment may enter for the defendants.

Satter, J.T.R.

FOOTNOTES

FN1. Plaintiffs also alleged counts of statutory theft and violation of CUTPA but those counts were dismissed by the court at the end of the trial for plaintiffs' failure to prove a prima facie case as to them..  FN1. Plaintiffs also alleged counts of statutory theft and violation of CUTPA but those counts were dismissed by the court at the end of the trial for plaintiffs' failure to prove a prima facie case as to them.

FN2. Before trial plaintiffs filed a motion to preclude the testimony of DePaulo.   But during the trial they failed to object to his testimony..  FN2. Before trial plaintiffs filed a motion to preclude the testimony of DePaulo.   But during the trial they failed to object to his testimony.

FN3. “(a) Duties of officers;  exculpatory provisions and resolutions void.   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 resolution 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.”.  FN3. “(a) Duties of officers;  exculpatory provisions and resolutions void.   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 resolution 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.”

FN4. “(b) Violation of duties;  action by member after refusal or failure by labor organization to commence proceedings;  jurisdiction;  leave of court;  counsel fees and expenses.   When any officer, agent, shop steward, or representative of any labor organization is alleged to have violated the duties declared in subsection (a) 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 ․”.  FN4. “(b) Violation of duties;  action by member after refusal or failure by labor organization to commence proceedings;  jurisdiction;  leave of court;  counsel fees and expenses.   When any officer, agent, shop steward, or representative of any labor organization is alleged to have violated the duties declared in subsection (a) 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 ․”

Satter, Robert, J.T.R.