Opinion
00 Civ. 5950 (JSM).
March 2, 2001.
Donato Caruso Lambos Junge 29 Broadway — 9th Floor New York, N.Y. 10006 For Petitioners.
Julian W. Friedman Stillman Friedman, P.C. 425 Park Avenue New York, N.Y. 10022 For Respondents.
Bertram Perkel Baker Botts, L.L.P. 599 Lexington Avenue New York, N.Y. 10022 For Additional Respondent.
AMENDED OPINION AND ORDER
James A. Capo, John W. Millard, Joseph Curto, Brian Dugan, and Anthony Petrizzo (collectively "Petitioners" or the "Management Trustees"), the Management Trustees of the NYSA-ILA Pension Trust Fund ("PTF"), seek summary judgment vacating an arbitration award (the "Award") granting Additional Respondent Anthony M. Scotto ("Mr. Scotto") pension service credit for twenty-seven years of service even though no contributions were paid by Mr. Scotto's employers for nine of those years. John Bowers, Albert Cernadas, Stephen Knott, and Frank Scollo (collectively "Respondents" or the "Union Trustees"), the Union Trustees of the PTF, cross-move for summary judgment affirming the Award. For the reasons set forth below, Petitioners' motion is granted and the Award is vacated.
BACKGROUND
The New York Shipping Association ("NYSA") is the multi- employer collective bargaining representative for employers of longshore workers in the Port of New York and New Jersey ("NY-NJ Port"). The International Longshoremen's Association, AFL-CIO ("ILA"), a labor organization within the meaning of the Labor Management Relations Act ("LMRA"), is the exclusive collective bargaining representative of all longshoremen and other waterfront workers employed by the members of NYSA and other employers in the NY-NJ port. PTF administers an employee pension benefit plan that provides retirement benefits to longshore workers covered by NYSA-ILA collective bargaining agreements as well as union officers and employees, including employees of NYSA-ILA medical centers.
Mr. Scotto worked in the longshoremen's industry from 1953 through 1980, holding various positions with union locals, an industry trust fund, an industry medical center, and as a longshoreman. In early 1999, Mr. Scotto applied for pension benefits from PTF. In his application, Mr. Scotto claimed that he was entitled to a pension benefit based on uninterrupted service in the industry from 1953 through 1980. On April 1, 1999, PTF's Executive Director informed Mr. Scotto that he was entitled to a pension benefit, effective June 1, 1999, based on 18 years of credited service for the period from 1963 through 1980. This determination was apparently based on the fact that no contributions had been made to the pension fund on Mr. Scotto's behalf before 1963. Mr. Scotto appealed this decision to PTF's Board of Trustees and the Trustees deadlocked on the issue. The Union Trustees believed that Mr. Scotto deserved a pension based on twenty-five years of credited service. The Management Trustees, however, believed that Mr. Scotto should be granted only eighteen years of credited service because no contributions were ever paid to PTF on behalf of Mr. Scotto for the years prior to 1963. In accordance with the provisions of LMRA Section 302(c)(5), codified at 29 U.S.C. § 186(c)(5), the Trustees' deadlock was referred to an impartial arbitrator for resolution.
On July 17, 2000, Arbitrator Eric J. Schmertz (the "Arbitrator") issued the Award, resolving the deadlock in favor of the Union Trustees and directing the PTF Trustees to grant Mr. Scotto pension service credit for his years of service prior to 1963, even though no contributions were ever paid to the PTF during those years by his employers. The Management Trustees believe that the Award would force them to violate the LMRA's prohibition against money payments by employers to unions and union officials. The Union Trustees believe the Award falls within the exceptions to this prohibition.
DISCUSSION
Petitioners argue that the Award violates the LMRA. Section 302(a) of the LMRA provides in relevant part:
It shall be unlawful for any employer or association of employers or any person who acts as a labor relations expert, adviser, or consultant to an employer or who acts in the interest of an employer to pay, lend, or deliver, or agree to pay, lend, or deliver, any money or other thing of value-
1. to any representative of any of his employees who are employed in an industry affecting commerce; or
2. to any labor organization, or any officer or employee thereof, which represents, seeks to represent, or would admit to membership, any of the employees of such employer who are employed in an industry affecting commerce.29 U.S.C. § 186(a). However, there are nine exceptions to this prohibition, including the so-called "trust fund exception," or Section 302(c)(5), of the LMRA. The trust fund exception allows payments to pension trust funds provided that: "the detailed basis on which such payments are to be made is specified in a written agreement with the employer, and employees and employers are equally represented in the administration of such fund." 29 U.S.C. § 186(c)(5).
The payments ordered by the Arbitrator do not fit within the trust fund exception because he awarded Scotto credit for periods of employment during which his employer did not make contributions to the fund. The Second Circuit has held that "[o]nly employees and former employees of employers who are lawfully contributing to a union pension trust fund may qualify as beneficiaries of a Section 302 trust." Moglia v. Geoghegan, 403 F.2d 110, 116 (2d Cir. 1968). Thus in In re Typo-Publishers Outside Tape Fund, 478 F.2d 374 (2d Cir. 1973), the Second Circuit found that trust fund payments to union members who were employed by non-contributing employers violated the LMRA based on the express language of the statute. See id. at 375.
Respondents argue that nonetheless the Award payments are not prohibited because Section 302(c)(2) of the LMRA provides a separate exception for payments "in satisfaction of a judgment of any court or a decision or award of an arbitrator or impartial chairman or in compromise, adjustment, settlement, or release of any claim, complaint, grievance, or dispute in the absence of fraud or duress." 29 U.S.C. § 186(c)(2). In Respondents' view, the Award is therefore exempt from the Section 302(a) prohibition against money payments regardless of whether it fits within the exception for pension trust funds.
The difficulty with Respondents' argument, however, is that it is inconsistent with the following statement of the Second Circuit inInternational Longshoremen's Association v. Seatrain Lines, Inc., 326 F.2d 916 (2d. Cir. 1964):
whenever some other provision of Section 302(c) provides a more particularized exception, the transaction must satisfy the requirements of that other exception to be exempt. Thus, contributions to union welfare funds which have been made pursuant to . . . an arbitration award, and might therefore be thought to fall within the exceptions of Section 302(c)(2), are to be scrutinized under the standards set out in Section 302(c)(5).
Id. at 920.
While this language would seem to preclude the enforcement of any arbitration award that would result in a payment not specifically authorized by the Act, subsequent cases suggest that this statement should not be followed blindly. Seatrain did not involve an arbitration award but rather a settlement agreement between an employer and a union. In that context, the Second Circuit was concerned that an employer and a union could get around the specific prohibitions of the LMRA by characterizing a potentially improper payment as a "compromise, adjustment, settlement, or release of any claim, complaint, grievance or dispute" under Section 302(c)(2). Thus the underlying policy concern articulated in Seatrain was that Section 302(c)(2) should not be used to nullify the proscriptive effect of the statute. See id.
Cases subsequent to Seatrain have attempted to reconcile the apparent conflict between the Act's prohibition of certain payments and the provision that exempts payments made pursuant to a court decree or an arbitration award. The issue was most recently addressed in this district in the thorough opinion of Judge Jones in New York Telephone Co. v. Communications Workers of America Local 1100, NO. 99 Civ. 909, 2000 WL 1174944 (S.D.N.Y. Aug. 18, 2000), in which she observed:
Whether to affirm the Arbitrator's award is a difficult question of law. The plain text of the LMRA suggests that Congress intended to create nine alternative exceptions to the prohibition of payments from employers to unions. Taken at face value, the September 13, 1990 Agreement appears to satisfy the "settlement or release of claim" exception in § 302(c)(2). However, this Court is bound by the ruling of the Second Circuit in Seatrain, which, in order to prevent even the appearance of impropriety, mandates that any payment made by an employer to a union in lieu of a dues check-off must satisfy the requirements of § 302(c)(4).
Id. at *3 (citations omitted).
In New York Telephone, Judge Jones refused to enforce an arbitrator's award that was based on a stipulated record because the arbitrator had not been asked to resolve the underlying question of whether the employer's hiring of temporary employees violated the collective bargaining agreement at issue. Rather, the arbitrator had only been asked to resolve the question of the legality of the employer's agreement to pay the union an amount equal to the dues it would have received had temporary employees not been used.
As Judge Jones recognized, other cases suggest that where the arbitrator has fully adjudicated a dispute between the employer and union and has made a monetary award to compensate the union for the damages it suffered as a result of a breach of the collective bargaining agreement, the fact that the payment would otherwise be prohibited by the statute does not preclude enforcement of the arbitration award. See Washington Post v. Washington — Baltimore Newspaper Guild, Local 35, 787 F.2d 604 (D.C. Cir. 1986); United Steelworkers of Am. v. U.S. Gypsum Co., 492 F.2d 713 (5th Cir. 1974).
The above cases can be reconciled by examining the role of the arbitrator and the nature of the award. In Washington Post and United Steelworkers, the arbitrator found a violation of the collective bargaining agreement which caused actual damage to the union and ordered the employer to pay in damages a lump sum equal to the dues the union would have collected had the employer not violated the collective bargaining agreement. As the Court observed in Washington Post:
The rule we adopt in this case, although novel in the sense that we have not previously addressed the question, is straightforward and grounded in practical reality. The Post, as the arbitrator found, violated the terms of the collective bargaining agreement. The Guild suffered as a consequence of that breach. The arbitrator properly determined that the Post should compensate the Guild for that breach. We hold that this award was lawful under § 302 of the LMRA.787 F.2d at 609.
In both Seatrain and New York Telephone there had been no finding that the employer had breached the collective bargaining agreement; there was simply a determination that the employer was obligated to make a payment which the court found to be in violation of the LMRA. Indeed, inNew York Telephone Judge Jones recognized that "if the Arbitrator had decided whether the Plaintiff's decision to hire temps violated the CBA and then made his award, Seatrain would not control." 2000 WL 1174944, at *4.
Here as in Seatrain and New York Telephone the payments at issue were not to compensate a party for a past injury arising from the breach of a contract. Rather, the arbitrator has ordered the fund to make, on an ongoing basis, payments that are prohibited under clear authority in this Circuit. As the Court recognized in Washington Post: "it is unquestionably the province of the courts to say what the law is. We need not defer to an award which contemplates a violation of law." 787 F.2d at 606.
Even if Seatrain were not controlling on the issues presented here, it is doubtful that the award of the arbitrator could be sustained because it was rendered in manifest disregard of the law. As explained inGreenberg v. Bear, Sterns Co., 220 F.3d 22 (2d. Cir. 2000):
In order to vacate an award on these grounds, a reviewing court must find "both that (1) the arbitrators knew of a governing legal principle yet refused to apply it or ignored it altogether, and (2) the law ignored by the arbitrators was well defined, explicit, and clearly applicable to the case."
Id. at 28 (quoting DiRussa v. Dean Witter Reynolds, Inc., 121 F.3d 818, 821 (2d Cir. 1997)).
Here the Arbitrator considered his role to be one of a "tie- breaking trustee," as required by the PTF plan. (Friedman Aff. Ex. 1 at 13.) Therefore, the Arbitrator followed "the traditional substantive and procedural rules that govern arbitration proceedings [only] to the extent those rules [were] consistent with [his] status as the seventh trustee." (Friedman Aff. Ex. 1 at 13.) Furthermore, he specifically chose not to review the Trustee dispute de novo because then he "would not be acting as the seventh, tie-breaking trustee." (Friedman Aff. Ex. 1 at 13.) Finally, the Arbitrator did not fully review the possibility of a violation of Section 302, believing that the issue was neither properly before him nor within his jurisdiction. (Freidman Aff. Ex. 1 at 17.) He based the Award on a theory that the "contribution requirement is the employer's only and the enforcement of that obligation is a matter between the Trustees and the noncontributing employer . . . the employee's pension rights . . . cannot be affected." (Friedman Aff. Ex. 1 at 17.) This conclusion is against the weight of authority in the Second Circuit which clearly conditions the legality of an employee's pension benefits under Section 302 on employer contributions. See Moglia, 403 F.2d at 116; Typo-Publishers, 478 F.2d at 375.
Thus the Arbitrator appears to have acted in "manifest disregard of the law" because (1) he choose to ignore the provisions of Section 302, and (2) the law in this Circuit that he ignored was well defined, explicit, and clearly applicable to the case.
Given the strong public policy considerations underlying the LMRA and the clear law in the Second Circuit that payments to an employee whose employer has not contributed to the plan are illegal, this arbitration award can not be enforced.
CONCLUSION
For the foregoing reasons, Petitioners' motion for summary judgment vacating the Arbitration Award is granted. Respondents cross-motion for summary judgment is denied.
SO ORDERED.