Opinion
No. 04-0988
Filed September 14, 2005
Appeal from the Iowa District Court for Linn County, Marsha M. Beckelman, Judge.
United Transportation Union appeals a ruling on the plaintiffs' class certification motion. AFFIRMED.
John A. Edmond and Carmen R. Parcelli of Guerrieri, Edmond Clayman, P.C., Washington, D.C., and Mark L. Zaiger of Shuttleworth Ingersoll, P.L.C., Cedar Rapids, for appellant.
Stephen J. Holtman, Roger W. Stone and Patsy A. Thimmig of Simmons, Perrine, Albright Ellwood, P.L.C., Cedar Rapids, for appellees.
Heard by Sackett, C.J., and Huitink and Vaitheswaran, JJ.
A union appeals a ruling on a motion for class certification. We conclude the district court did not abuse its discretion in granting the motion.
I. Background Facts and Proceedings
The plaintiffs were employees of Chicago and Northwestern Railway Company (CNW) who had contractual claims against the company. CNW merged with Union Pacific Railroad Company which, in turn, settled the CNW employee claims for $9.5 million. A settlement fund was created in that amount.
United Transportation Union (UTU) is an unincorporated labor organization. One of its intermediate bodies serves as collective bargaining representative for former CNW employees. UTU representatives formulated rules for allocating and distributing the settlement fund. Under the rules, adopted and published in Circular Letter No. 30, a three-member review panel was to "determine the validity of each claim" and assign a monetary figure to these claims. To arrive at the figure, the panel was to first calculate a "payment percentage," which involved "dividing the total amount in the claim fund by the total value of all valid claims." Then, the panel was to multiply the value by the payment percentage.
After completing its review, the panel determined that the total sum in the settlement fund had risen to approximately $11.3 million, with interest. The panel also determined that the total value of all valid claims against the settlement fund was approximately $6.5 million. This left a surplus in the fund of approximately $4.8 million.
Union representatives voted on several options for allocating these surplus funds. A majority chose not to distribute the money solely to union members with valid claims but also to active union members without valid claims. This method was ratified by the union membership and the funds were distributed.
A portion was also set aside to cover the union's administrative expenses and to cover potential underpayments.
Following the distribution, several former CNW employees sued UTU, alleging the organization breached an obligation to hold the settlement fund in constructive trust for their benefit and breached a contract by modifying the distribution terms. They moved for class certification, claiming:
Their complaint alleges in pertinent part that UTU breached fiduciary and contractual duties "by substituting new rules and subsequently distributing the Settlement Fund in a manner different from the original rules set forth in Circular Letter No. 30."
[T]he application of the published rules of Circular Letter No. 30 would have provided payment as follows:
d. The payment percentage will be determined by dividing the total amount in the claim fund [$11,356,642.00] by the total value of all valid claims [approximately $6,500,000].
e. Distribute the money on each valid claim by multiplying the value times the payment percentage [175%] determined in item d above.
(Emphasis in original). They asserted 2,028 people "should have received the $4.8 million that was wrongfully paid to the Defendant UTU and others."
The district court granted the motion and UTU appealed. On appeal, UTU challenges the class certification ruling on the following grounds: (1) 528 class members are entitled to less money if the plaintiffs prevail, (2) class members are divided over the issue being litigated as reflected, in part, by votes rejecting the named plaintiffs' position, (3) class members failed to exhaust intra-union appeal remedies, (4) the named plaintiffs intend to use this lawsuit to further their political interests, and (5) class certification contravenes federal labor policy. Our review is for an abuse of discretion. Vos v. Farm Bureau Life Ins. Co., 667 N.W.2d 36, 44 (Iowa 2003).
II. Interests of 528 Proposed Class Members
UTU claims that 528 proposed class members received more money under the revised method of allocating the surplus funds than they would have received if the allocation and distribution rules set forth in Circular Letter No. 30 had been applied to those funds. In their view, this fact renders the named plaintiffs unable to "fairly and adequately . . . protect the interests of the class." Iowa R. Civ. P. 1.262(2)(c). This is a prerequisite to class certification, as is a subsidiary finding that "[t]he representative parties do not have a conflict of interest in the maintenance of the class action." Iowa R. Civ. P. 1.263(2)(b).
The plaintiffs counter that UTU proffered only one affidavit to establish the economic conflict of 528 members. They also argue that, in any event, an economic conflict would arise only if they prevailed and the 528 were required to disgorge the extra money they received.
Faced with these dueling contentions, the district court stated:
The Court agrees with Plaintiffs that any economic conflict between class members is only a potential conflict at this point, and not one which should prevent certification of the class. The question is whether the named Plaintiffs will be adequate representatives of the class; the fact that a minority of the proposed class may at some point in the future have economic interests adverse to those of the majority of the class does not render the named representatives inadequate representatives. Moreover, absent class members will be given the option of excluding themselves from the litigation, should they determine the Plaintiffs' position is not in their interests.
UTU takes issue with the court's characterization of the conflict as only "potential." It contends the interests of 528 class members "directly conflict" with the interests of the named plaintiffs. UTU cites to a declaration from the elected general chairman of the intermediate UTU body that served as collective bargaining representative for former CNW employees. The chairman attested that approximately 528 people "had grievance claims equal to $3,344 or less." He noted that these individuals received a settlement payment for the dollar value of their grievance claims, plus $2,508.95 from the $4.8 million surplus. According to this individual, the combined sum "represents more than 175% of the dollar amount of their grievance claims." He continued, "[t]hus, if these persons were only entitled to 175% of the dollar value of their grievance claims but not an equal share of the $4.8 million surplus, as plaintiffs propose, the total payout to which they are entitled would be less."
The plaintiffs did not present evidence to contradict this portion of the chairman's declaration. However, at this preliminary stage, their burden was "light." Comes v. Microsoft Corp., 696 N.W.2d 318, 324 (Iowa 2005). They did not have to prove that the action was legally or factually meritorious. Luttenegger v. Conseco Fin. Servicing Corp., 671 N.W.2d 425, 438 (Iowa 3003). They simply had to present "sufficient information" to allow the court "to form a reasonable judgment on the certification issue." Comes, 696 N.W.2d at 324.
The plaintiffs satisfied this low threshold. See Vos, 667 N.W.2d at 46 ("The appropriate inquiry is not the strength of each class member's personal claim, but rather, whether they, as a class, have common complaints."); Martin v. Amana Refrigeration, Inc., 435 N.W.2d 364, 369 (Iowa 1989) (rejecting defense assertion that district court should have declined to certify class in light of evidence that majority of class members suffered no injuries); Vignaroli v. Blue Cross of Iowa, 360 N.W.2d 741, 746 (Iowa 1985) (rejecting defense assertion of conflict between named plaintiffs and remaining class members where some members may have had no complaint against defendants). Cf. Stone v. Pirelli Armstrong Tire Corp., 497 N.W.2d 843, 847 (Iowa 1993) (affirming denial of class certification motion where fifteen of forty-five female employees testified they did not want class representative to represent them in sexual harassment action); Iowa Annual Conference of the United Methodist Church v. Bringle, 409 N.W.2d 471, 475 (Iowa 1987) (stating plaintiff presented no evidence to establish that no conflict existed). The plaintiffs proffered Circular Letter No. 30, an interrogatory answer confirming that 2,028 persons were issued checks from the settlement fund, and a spreadsheet listing 2,028 individual payments disbursed from the settlement fund.
In further proceedings, it may become apparent that some of these 2,028 payments exceed the amount the former CNW employees might receive under the allocation system contained in Circular Letter No. 30 and recommended by the named plaintiffs. At that juncture, the district court is empowered to decide whether the conflict has evolved from "potential" to "fundamental." See Vignaroli, 360 N.W.2d at 746 (stating conflict must be "fundamental," going to specific issues and controversies); see also Valley Drug Co. v. Geneva Pharmaceuticals, Inc., 350 F.3d 1181, 1189 (11th Cir. 2003) ("A fundamental conflict exists where some party members claim to have been harmed by the same conduct that benefited other members of the class."); Vos, 667 N.W.2d at 46 (stating duty of trial court to ensure compliance with requirements of certification rules continues after certification of class). The district court also is empowered to decertify the class or take other appropriate action. Iowa R. Civ. P. 1.265(1) (allowing court to amend certification order at any time before entry of judgment on merits to establish subclasses, eliminate members, limit adjudication of claims or issues, or enter other appropriate change); Vos, 667 N.W.2d at 54-55 (affirming district court's decertification of class where, after a year of discovery, plaintiffs could point to no evidence to support their class theory).
We conclude the district court did not abuse its discretion in finding only a potential conflict of interest between the named plaintiffs and 528 class members.
III. Division of Class Members
UTU contends the named plaintiffs' position concerning distribution of the $4.8 million surplus represents a minority position within the union that was twice rejected through a democratic voting process — once in a vote on the allocation method, and once in a vote to ratify the allocation method that was selected. In their view, therefore, the named plaintiffs cannot adequately protect the class members' interests and the district court abused its discretion in concluding otherwise.
We discern no abuse. "[T]he mere existence of political divisions or factionalism within a union does not require class decertification." Sperry Rand Corp. v. Larson, 554 F.2d 868, 874 (8th Cir. 1977). And, "evidence of antagonism based on membership votes should be carefully scrutinized and should be clear and convincing." Id.
While UTU cites authority to the contrary, the primary opinions on which the organization relies did not turn on internal union divisions. Instead, the named plaintiffs, by virtue of their own circumstances, were simply not appropriate class representatives.
For example, in East Texas Motor Freight System, Inc. v. Rodriguez, 431 U.S. 395, 403-04, 97 S. Ct. 1891, 1897, 52 L. Ed. 2d 453, 462 (1977), the United States Supreme Court reversed a class certification ruling in a discrimination case primarily because the named plaintiffs stipulated they had not experienced discrimination and because they were found to lack the qualifications for hire and, accordingly, could have suffered no injury.
Similarly, in Giordano v. Radio Corp. of America, 183 F.2d 558, 560-61 (3d Cir. 1950), a plaintiff challenged his imminent expulsion from a union. He brought the action on behalf of a class of union members who were purportedly about to be deprived of his services and the services of fifteen other members who were also being expelled. Giordano, 183 F.2d at 560-61. However, more than half the union members voted to sustain the named plaintiff's expulsion. Id. at 560 n. 1. In light of this factual record, the court concluded, "The suit must, therefore, be regarded as brought by the plaintiff either solely to redress his own personal grievances against the defendants or possibly to redress the grievances of all the sixteen individuals whose expulsion has been voted." Id. at 561.
While we are not persuaded by this authority, we do not mean to foreclose the possibility that internal union divisions will become an important consideration in resolving the merits of the litigation. Additionally, it may become apparent that a large portion of the class supports the allocation and distribution scheme that was ultimately adopted. If that happens, the district court has the authority to decertify all or a portion of the class. Iowa R. Civ. P. 1.265.
IV. Failure to exhaust intra-union appeal remedies
UTU next contends that only one class member filed an internal appeal of UTU's decision on the allocation method. The organization does not argue the failure of others to appeal poses a procedural barrier to maintenance of a class action. Instead, UTU points to this failure as evidence that the remaining members are satisfied with the organization's conduct. At this early stage of the litigation and on this record, we are unwilling to reach such a sweeping conclusion. Although we are not convinced internal appeals were futile, we are also not convinced this factor warranted denial of the certification motion.
V. Use of lawsuit to further political interests
UTU next contends the named plaintiffs are using the litigation to further their political interests in internal union matters unrelated to the litigation. The district court addressed this argument as follows:
Review of the documents presented by the Defendant on this point does not convince the Court that this potential conflict of interest is anything more than speculation on the part of the Defendant. Likewise, the Defendants have not demonstrated the Plaintiffs' attorneys are involved in this "political agenda" such that they cannot adequately represent the Plaintiffs.
Perceived ulterior motives of the named plaintiffs need not defeat class certification. Vignaroli, 360 N.W.2d at 747. Here, UTU bases its "ulterior motive" argument on electronic correspondence from one of the named plaintiffs to plaintiffs' counsel. The e-mail stated the plaintiff wished to obtain names and addresses of current and past union members to "present our point of view to the membership" on issues unrelated to the litigation. The parties later stipulated that any discovery of this information would be used solely for the purposes of this litigation and would be available only to plaintiffs' counsel. If the named plaintiffs are indeed using the litigation to serve their political interests, this stipulation resolves the issue in the short term. If ulterior motives are found to predominate in the long term, the court is empowered to amend the class certification ruling.
VI. Class certification contravenes federal labor policy
Finally, UTU maintains that class certification contravenes fundamental principles of federal labor policy because class certification runs contrary to "uninhibited, robust and wide-open debate in labor disputes." Assuming this argument was raised before the district court, it was not addressed. Therefore, we will not consider it. Meier v. Senecaut, 641 N.W.2d 532, 537 (Iowa 2002).
VII. Disposition
We affirm the district court's ruling on the plaintiffs' class certification motion.