Opinion
Decided April 24th, 1936.
1. The proofs on final hearing fully established complainants' contention that the defendant International had wholly without warrant, and without legal justification or excuse, taken over the property and affairs of the Local. The excuse put forward by the International that its action was necessary if the Local was to be preserved from destruction by reason of internal dissension, falls; the only dissension was as to who was the legally elected business agent of the Local. Under the constitution, the Local had the right to choose the business agent, and this the members of the Local did by a considerable majority vote. The defeated candidate, as well as those who voted for him, had the right of appeal under the constitution of the organization, and also had the right to resort to the courts of law for a determination, if he or they thought themselves aggrieved, and the International should have supported the action of the majority of the Local and advised the taking of such legal course by the defeated candidate and the dissatisfied minority, instead of taking up the cause of that candidate and attempting to force him upon the unwilling majority and to deprive the Local of its right to control its property and affairs.
2. The rule that members of a union are not entitled to come into the court of chancery without first exhausting their remedies within the organization, does not apply where the pursuit of such remedies would be futile, illusory or vain. Walsche v. Sherlock, 110 N.J. Eq. 223, followed. Defendant International held, restrained permanently from enforcing its order suspending the meetings and self-government of the Local, from interfering with complainant's control of its property and affairs in anywise, from holding its chosen candidate out as business agent of the Local, and from attempting to enforce the order purporting to vest in the executive committee of the Local the powers belonging to the Local itself.
3. Complainants are entitled to a money decree against the financial secretary and treasurer of the Local, for the shortage established by the report on the accounting. They are not entitled to such a decree against the International, the proofs failing to establish the fact he was in possession of the Local's funds as agent of the International at any time.
4. Defendant International held, restrained from attempting to enforce any liability of the Local to it for dues paid into the Local or its financial secretary and treasurer prior to the appointment of the receiver in this cause. The International is not guiltless of equitable liability in relation to the loss caused to the Local through the defalcation of the financial secretary and treasurer; by its arbitrary and unwarranted action in suspending the meetings of the Local and attempting to take over its affairs — an action never in anywise revoked, and whose results the International took no step to undo — International created such a state of doubt, fear and uncertainty in the minds of the members of the Local that many failed to pay their dues. Although the exact amount of the loss to the Local through non-payment of dues is unproven, it clearly exceeded in total the amount of funds in the hands of the financial secretary and which were due to the International from the Local, at the time of his defalcation. Additional reasons for this restraint are that International resisted, and successfully so, the original application of complainants for the appointment of a receiver, whose early appointment would have saved a considerable portion, if not all, of the defalcation; International knew of the defalcation some time before the Local did, and did not notify the Local or take any action in the matter, and, finally, International is protected by a surety bond and the Local is not.
5. By reason of its acts necessitating this suit and its conduct thereafter and up to the present time in relation to this litigation, the cost of the litigation, including the costs of the receivership and accounting, held, decreed to be paid by the International. Against these costs, International is entitled to a credit of the amount now in the hands of the receiver, received by him from members and due to it under organization regulations for "due stamps" for the individual members, provided it issues such "due stamps" to the Local for distribution to the respective members.
6. Matters contained in a second supplement to the bill of complaint, setting out certain direct dealings by International with members of the Local and its plan to revoke the present charter and to issue a new one to members opposed to the complainants, held, not within the scope of the original bill and therefore not determined herein. Complainants given leave to apply later for a more detailed restraint if occasion proves it necessary to accomplish the results, or prevent the evasion, of the present determination.
On cross-appeals from a decree of the court of chancery advised by Vice-Chancellor Buchanan, who filed the following opinion:
"The bill in this case was filed in 1931 by Local No. 373 of the International Association of Bridge, Structural and Ornamental Ironworkers (hereinafter called `the local'), and some fifteen of the individual members of said local, against the said International Association (hereinafter called `the International'), and William Pope (a vice-president of said International), and a number of other individual members of the Local.
"The relationship of the local to the International is in general that of the usual type in labor unions, — a large number of local unions of men in that trade, throughout the country (each local having property and funds of its own and a constitution and government of its own), being co-ordinated under the government of a national or `parent' organization which also has a constitution to which the locals and the individual members are subject, and which issues charters to the locals.
"The details of the allegation of the bill are more fully set forth in the conclusions heretofore filed herein on the determination of the order to show cause, — and need not here be repeated. Briefly it set forth that William J. Buckley (one of the complainants), had been regularly elected by the Local as its business agent in the place of the previous agent, Thomas J. Kelly (one of the defendants): that shortly thereafter the International, with the help of Pope, against the will of the membership of the Local and without any right or warrant, had assumed to suspend all further meetings and self-government of the Local, insisted that Kelly and not Buckley was and would be the business agent of the Local, and took over to itself, and away from the Local, the entire management and control of the Local's property and affairs; that the officers and the majority of the executive committee of the Local, — who are also defendants individually, — had yielded to and acquiesced in this action of the International and were acting in accordance with the orders of Pope and the International instead of the Local.
"The bill prayed restraint against the defendants' incurring any obligations on behalf of the Local, and against their disposing of any of the Local's property or funds; against Kelly's acting as, or holding himself out to be, the business agent of the Local; and against the International and Pope interfering with or suspending the meetings of the Local, or interfering with the power of the membership of the Local to manager and control its property, or recognizing Kelly as business agent of the Local.
"Order to show cause why the appropriate restraint pendente lite should not be issued and a receiver appointed to take over the property and funds of the Local and receive dues payable by the members, was advised by Vice-Chancellor Fielder, with interim restraint. After argument on the hearing on this order to show cause, the conclusions hereinbefore mentioned were filed herein, — adjudicating that the acts of the International and Pope in suspending the meetings of the Local and interfering with the Local's management and control of its property and affairs were illegal and without right or warrant, and would be restrained pendente lite; that the appointment of a receiver did not appear to be then necessary or advisable; and that the question of Kelly's election or incumbency of the office of business agent of the Local was one for the courts of law instead of this court.
"No draft of order in accordance with these conclusions was ever presented to the court for entry; and the cause continued under the restraint in the original order to show cause and without any subsequent step being taken therein, until the year 1933, when some of the defendants moved to dismiss the bill for want of prosecution. This motion was denied, and complainant directed to speed the cause, — (although again no order was presented for entry), — and the case was set down for, and duly came on to, final hearing.
"At the final hearing, leave was asked and granted, (on motion on notice) for complainants to file a supplement to the bill, which sets forth that since the filing of the bill, the Local and other complainants and other members of the Local, conceiving the attempted suspension of its meetings by the International to be void, have continued to hold their regular meetings and conduct their regular business, except the administration of the funds of the Local which is alleged to have remained in the possession and control of the defendants; that certain named persons had been regularly chosen as officers of the Local; that defendant Kelly had been expelled from membership by the International, and was therefore disqualified from membership in, or agency for, the Local; that the defendant John Reichardt has been in possession and control of the funds, property, books and records of the Local since the filing of the bill, but has refused to give to complainants or any members of the Local any information as to what moneys he has received, or disbursed, or has on hand, and charging that Reichardt has improperly diverted funds of the Local; and praying for the appointment of a receiver for the funds, property, books and records of the Local, with power to examine and ascertain what funds were or should have been received by Reichardt and how they have been disbursed, and that the defendants be required to account for and pay over to the Local and its regularly constituted officers all funds and property in the possession and control of defendants or chargeable to them.
"The solicitor for the defendants Reichardt, Fennell, John Kelly and Crancich stated that those defendants did not contest complainants' suit or the supplement to the bill, and consented to the entry of decree pro confesso against them.
"The solicitor for the defendants Hansen, Hackett, Heenan and Johnson admitted the allegation of the supplement as to Kelly, and that Reichardt had been in possession and control of the funds of the Local at the time the bill was filed, but put complainants to their proofs on the other allegations.
"The solicitor for the defendants International and Pope admitted the allegations as to Kelly, and as to Reichardt's possession and control of the funds; denied that they had had any possession or control of complainants' funds or property, and denied that Reichardt was the agent of the International; and put complainants to their proofs on the other allegations.
"All these answers were spread on the stenographer's official record of the hearing, and formal answers to the supplement were filed subsequently by the defendants International and Pope, but not by the other defendants.
"At this final hearing, it was made to appear to the court that the defendant Reichardt, who had been acting as treasurer and secretary of the Local, at and before the attempted suspension by the International, and had continued to have and receive funds and property of the Local subsequent to the filing of the bill, had disobeyed an order of this court for examination of his records in advance of trial, and had disobeyed and ignored subpoena ad testificandum to appear as a witness and produce his records at the hearing, and had admitted defalcation or shortage in his accounts to the extent of some $15,000. Accordingly, in addition to the institution of proceedings in criminal contempt against Reichardt, an order was thereupon entered upon oral consent of the solicitors of all parties, appointing Mr. John J. Lenehan, one of the solicitors of this court, as receiver to take possession of all funds, property, books and records of the Local; and examine or cause an examination to be made to ascertain and determine what funds and property of the Local were possessed by Reichardt at the time of the filing of the bill, and what had been received by him, or should have been received by him, subsequently, and what disposition had been made thereof by the said Reichardt; and to ascertain and determine the status of the accounts of the several members of the Local with the Local and with the International and between the Local and the International; and to collect and receive and receipt for the dues payable by the several members of the Local.
"In October, 1933, the receiver filed report as to the funds and property which had come to his possession, and as to the result of the examination of the status of the accounts as aforesaid, which report was duly confirmed without objection after notice of hearing to all parties. This report showed that the receiver had taken over and had on hand funds of the Local as follows:
General Fund ............................ $651.39 Accident Fund ........................... 763.00 Widows and Orphans Fund ................. 487.50 ___________ $1,901.89 that there was $18,263.96 due from Reichardt to the Local, for which he had failed to account except to the extent of the $1,901.89 aforesaid, and that the further sum of $4,661.45 was due from Reichardt either to the International or to the Local (and if the latter, then also due from the Local to the International) for dues stamps; making a total shortage by Reichardt of $21,023.52."After the final hearing above mentioned, briefs were submitted by counsel, and the cause subsequently came again before the court for argument as to the form and terms of decree which should be entered, having regard to the matters disclosed by the receiver's report above mentioned, and by his subsequent "final report and accounting" which also came before the court for approval and confirmation at, or about, the same time.
"This second report discloses that Reichardt had been convicted in the criminal courts of embezzlement in respect of the shortages above mentioned; that the receiver found that there was no possibility of accomplishing any recovery from Reichardt himself, and that Reichardt was under no bond to the Local, but was under bond to the International in the sum of $6,000 for loss to the International by Reichardt's dishonesty, although the bonding company disclaimed liability for any greater sum than $2,500; the enforcement of this liability on the bond could only be made by the International and not by him (the receiver); that Reichardt had in April, 1933, confessed to the International his guilt of embezzlement, but had continued to collect dues thereafter, — (presumably up until the time of the appointment of the receiver).
"This report further sets forth that the receiver has been collecting dues of $4.00 each from the members of the Local, of which $3.00 each is due to the International, but that he has had to hold these dues of the International because of his inability to get from the International the usual dues stamps in return therefor (which dues stamps are the evidence of the member's good standing in the union); that the constitution of the International provides that no one but the financial secretary of the Local is entitled to receive the dues stamps.
"The receiver's account shows that in addition to the balances in the several accounts above mentioned, taken over from Reichardt, he has collected dues of $1,224.00, down to March 1st, 1934, and disbursed $89.20.
"The report and account were duly approved and confirmed after order to show cause duly served on all parties; and an order entered by consent of all parties discharging the receiver from further duties except control of the books and assets of the Local; pending determination of the persons entitled to receive the same, and awarding an allowance of $1,200.00 to the receiver.
"Immediately after this argument as to the final decree to be entered, complainant asked leave to bring to the attention of the court, before final determination, some circumstances of recent occurrence of which he had just learned, and he filed petition for leave to file a supplemental bill and for restraint.
"This petition sets forth that subsequent to the final hearing, a group of members of the Local, including four, Johnson, Heenan, Hansen and Wade, of the present defendants, at the instigation of the International, commenced about October 1st, 1933, to pay their dues direct to the International instead of to the receiver, and that the International has been issuing to them, and intends to continue so to do, the official dues stamps evidencing membership in good standing in the Local; that the International has refused to issue dues stamps to the receiver or to any of the officers of the Local; that it has recently called a meeting of members and former members of the Local, other than and not being the complainants and those associated with complainants, and has assumed to organize and elect at such meeting officers for the Local selected by the International and not being those regularly chosen by the Local; that the International and Pope have refused to recognize complainants and complainants' adherents as members of the Local and have issued dues stamps and membership cards in the Local without the vote of the Local and without the Local's receiving proper payment therefor, and plan and purpose to revoke the charter of the Local and to issue a new charter to the members of this group opposed to complainants.
"It prays leave to file a supplemental bill in this behalf, and for restraint against the International and Pope against receiving dues from, or issuing dues stamps, except to the receiver; and against appointing or recognizing any officer or agent of the Local other than the receiver; and that the members of the Local be enjoined from paying dues to anyone but the receiver; and against any revocation of the Local's charter or the issuance of any new charter in New Jersey.
"On this petition, an order to show cause was made, served, and came on for hearing, and the solicitors for the several parties thereupon signed a stipulation consenting to the filing of the proposed supplemental bill, and providing that (in lieu of answers thereto and taking proofs in open court on the issues thereby raised) the matters set up in this supplemental bill be determined by the court, as though on final hearing, on the affidavits and counter-affidavits submitted by the several parties.
"Still later, a further issue has been injected by the application of H. Braverman Co., accountants, who performed an examination and audit of Reichardt's books and accounts, for an order requiring the receiver to pay the charge of $1,250.00 therefor. This also came on for hearing, on an order to show cause served on all parties.
"So far as concerns the issues raised by the original bill and answers, there is little if any difficulty. The proofs on final hearing fully established the contention of complainants that the International and Pope had in fact taken over the property and affairs of the Local, and that such action was wholly unwarranted and without legal justification or excuse. The constitution of the organization gave the International no right nor even color of right for the actions which it took, — (see the earlier opinion on the original order to show cause, heretofore mentioned).
"The excuse put forward by the International was that its action was necessary in order to preserve the Local from destruction by internal dissensions. The only internal dissension existing so far as disclosed or even intimated by the affidavits or the proofs, was a dissension as to who was the legally elected business agent of the Local. Under the constitution, that was an agent which the members of the Local had the right to choose; it was purely a matter for the Local, and could have been decided by the Local, and in fact it had been decided by the Local, by a considerable majority vote, that Kelly was not its business agent, but that Buckley was. Kelly, and as well also those members who sided with him, had the right of appeal under the constitution of the organization; and also had the right to resort to the courts of law for a determination, if he thought he had been wrongfully deprived of any legal right to the office and its emoluments. If the International had deemed any interference necessary, it would seem that it should have supported the majority of the Local and advised the taking of such legal course as above suggested, by Kelly and the dissatisfied minority.
"Instead, the International and Pope arbitrarily and unlawfully, and without even giving the Local or the majority faction thereof any opportunity to be heard, took up the cudgels for Kelly, attempted to force him upon the unwilling majority, and to deprive the Local of its right to the control of its property and affairs. The admitted fact that Kelly has subsequently been expelled from the International, while it is of no materiality in determining the issue presented in the case, is a practical corroboration of the judgment of the majority faction of the Local in the position taken with regard to Kelly.
"It is contended by defendants that complainants are not entitled to come into this court without first exhausting their remedies within the organization. That rule does not apply where the pursuit of such remedies would be futile, illusory or vain, — Walsche v. Sherlock, 110 N.J. Eq. 223. Such would have been true in the instant case, for substantially the same reasons pointed out in the cited case. The International organization involved in this case is the very same one involved in the Sherlock case, and its arbitrary and illegal practices toward its locals and their members have brought to the attention of the courts of this state in a number of other litigations. The proofs in this case show, and they are not contradicted, that protests by the members to the International were not even replied to.
"Complainants are entitled to decree substantially as prayed for in the original bill, — permanently restraining the International and Pope from enforcing the order of suspension; from interfering with complainant's control of its property and affairs, in anywise under or by virtue of the said order of suspension; from holding out Kelly as the business agent of the Local; from attempting to enforce the order purporting to vest in the executive committee the powers belonging to the Local itself.
"The proofs show complainants entitled to money decree against Reichardt, under the first supplement to the bill, for the shortage established by the report on the accounting. Complainants also seek decree against the International for the same amount, on the ground that Reichardt was the agent of the International. To this however, it does not seem that the complainants are entitled under the proofs. It appears that Reichardt was duly elected financial secretary and treasurer, by the Local, prior to the act of the International taking over the Local's affairs. That act, it is true, purported to put the Local's property and affairs in those named by the International's agent Pope, — of whom Reichardt was one. Thereafter, however, the order of this court restrained the International from disbursing or removing any of the Local's funds or property; and although there is ground for grave suspicion that Reichardt was in fact under the control of the International, the proofs are insufficient to establish that Reichardt's possession of the funds was the possession (through him as its agent), of the International. It is deemed therefore that decree against the International for the amount of the defalcation cannot be made on this ground.
"It by no means follows however that the International is guiltless of equitable liability in relation to this loss. It is clear that the initial responsibility for the confusion and uncertainty in the affairs of the Local rests upon the International, resulting from its arbitrary and unwarranted action in suspending the meetings of the Local and attempting to take over its affairs. That action it never in anywise revoked, not even after the announcement of its illegality by the conclusions of this court on the argument on the original order to show cause. It never in anywise took any step to undo the results of its act; it never announced to anyone that it did not intend to continue to pursue the course on which it had started. In consequence the members of the Local were in a state of doubt, fear and uncertainty, and did not and could not know where they stood nor what their rights and duties were. Some of them with complainants, continued to pay their dues to the Local's officers, others fearing that the Local's officers would not be recognized by the International and fearing to antagonize the International, paid no dues to the Local. Others paid some dues to the Local; others made payments to the International. All had at stake their membership in the union, — their union cards and good standing, on which depended their right or ability to obtain employment. For the loss to the Local of the dues thus caused to be unpaid, the International is responsible. The amount of this loss is not proven, and it is not capable of anything like exact determination; but it is clear that it must exceed in the aggregate the amount of the funds which were in the hands of Reichardt and which were due to the International from the Local, at the time of his defalcation. The International will, therefore be restrained from attempting to enforce any liability of the Local to it for dues paid in to the Local or to Reichardt prior to the appointment of the receiver in this cause.
"There are other reasons also for this result. The International resisted, and successfully so, the original application of complainants for the appointment of a receiver. If they had not done so, and a receiver had been appointed in the beginning, a considerable portion, if not all, of the defalcation would have been saved. Furthermore it appears that the International knew in April, 1933, that Reichardt was guilty of defalcation, — some time before the Local became aware of it, — and did nothing. It did not even communicate its knowledge to the Local. Moreover the International has a surety bond to protect it against its loss by Reichardt's defalcation. This bond does not protect the Local; nor has the Local any other such protection.
"(For the lack of such protection to the Local, and for the lack of proper supervision and auditing, the officers of the Local may well be responsible, but that is not before the court in this matter and cannot be determined herein.)
"For the same reasons, — for its acts necessitating this suit, and its conduct thereafter and up to the present time in relation to this litigation and the matters involved therein, the cost of this litigation, including the costs of the receivership and the accounting, should be decreed to be paid by the International. Against the amount so decreed to be paid by it, it is entitled to have credited the amount now in the hands of the receiver, received by him from the individual members and due to it under the regulations of the organization for `dues stamps' for the individual members. This credit however will be conditional upon the International issuing to the Local the corresponding `dues stamps' for delivery by the Local to the members who have paid for the same. Up to the present time the International has refused to recognize either the Local or the receiver in this behalf. It continues to occupy the same arbitrary attitude that it exhibited originally in this matter, (and which it exhibited in Walsche v. Sherlock, supra, and in Toner v. International, c., Ornamental Iron Workers, 113 N.J.L. 29), regardless of the hardships and injustice worked to individual members, (with some of whom at any rate it has had no quarrel).
"Subject to the foregoing, the receiver will be directed to turn over any balance of general funds in his hands, to the Local, or its de facto officers, or its solicitors; also the special accident and widows trust funds.
"With regard to the matters set forth in the second supplement to the bill, it would seem that they, or some of them at least, do not come within the scope of the matters involved in the original bill. The issuance by the International of another charter to another local, or its right to do so, depends or may depend upon matters entirely outside of its attempt to suspend the meetings of the complainant Local and to take over its affairs; and the actual restraint comprised in the orders actually entered herein has been comparatively limited up to the present time, so that many of the acts complained of in the second supplement have not been contrary to nor violation of the orders or decrees of this court.
"It is deemed therefore that no determination thereof should be made or attempted herein. The restraint which will be decreed against the International as set forth in the earlier part hereof, will include restraint against any attempts to enforce, its suspension order by indirect means and against the imposition of any penalties, directly or indirectly, against the Local or complainants or any other individual members, for or because of the initiation and prosecution of this litigation or the resistance to, or noncompliance with, the suspension order of the International.
"Such restraint must necessarily be framed in general terms. It would be impractical, if not impossible, to itemize and specifically prohibit in detail all of the things which might be done by the International in an attempt to evade the terms or general effect of the determination herein. No such effort need now be made; it is to be hoped it need never be made. There is however a very distinct and definite threat made by Morrin, the general president, in his letter of July 3d 1931, and this has never been disclaimed by the International itself, in all this time. Inasmuch therefore as there does appear reasonable ground for apprehension in this regard, complainants will be given leave to apply on the foot of the decree, for the specification of more detailed restraint, if occasion shall later prove that it is required in order to accomplish the results, or prevent the evasion, of the present determination, — which is to restrain the unwarranted attempt of the International to interfere in and take over the Local's management of its own local affairs, property and rights.
"An allowance of $2,500 by way of counsel fee will be made to complainants to be paid by the International, and to be included in the taxed costs."
Mr. Norbury C. Murray, for the complainants-respondents, cross-appellants.
Mr. Andrew F. Zazzali, for the defendants-appellants, cross-respondents.
Mr. John J. Lenehan, for the receiver.
The decree appealed from will be affirmed, for the reasons stated in the opinion of Vice-Chancellor Buchanan in the court of chancery.
For affirmance — THE CHIEF-JUSTICE, LLOYD, CASE, BODINE, DONGES, HEHER, PERSKIE, HETFIELD, DEAR, WELLS, WOLFSKEIL, RAFFERTY, JJ. 12.
For reversal — None.