John N. Hearn v. Michael McKay , 603 F.3d 897 ( 2010 )

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
APR 15, 2010
No. 08-16697 JOHN LEY
________________________ CLERK
D. C. Docket No. 07-60209-CV-JEM
JOHN N. HEARN,
a.k.a. Jack,
JOHN ROUSSELLE,
TIMOTHY HARKINS,
Plaintiffs-Appellants,
CHRISTOPHER O. BARTLETT,
HENRY P. MALLON,
Plaintiffs,
versus
MICHAEL MCKAY,
ROBERT MCKAY, individually and as officers of the
American Maritime Officers Union and the American
Maritime Officers Union,
Cross-Defendants,
EDWARD KELLY,
PAUL CATES, individually and as oficers of the
American Maritime Officers Union and the American
Maritime Officers Union, et al.,
Defendants,
THOMAS BETHEL,
DONALD NILSSON,
DANIEL SMITH,
DONALD CREE,
Defendants-Cross-Claimants-Appellees,
JOSEPH GREMELSBACKER, individually and as oficers
of the American Maritime Officers Union and the American
Maritime Officers Union,
Defendants-Appellees.
________________________
Appeal from the United States District Court
for the Southern District of Florida
_________________________
(April 15, 2010)
Before EDMONDSON and PRYOR, Circuit Judges, and CAMP,* District Judge.
PER CURIAM:
This appeal is by several members of the American Maritime Officers Union
(“AMO”) in their unsuccessful civil action against current and former officers of
the AMO. Appellant-Plaintiffs contend that the district court erred in this way: (1)
granting summary judgment in favor of Defendants on the issue of whether a union
officer violates the fiduciary duties established by the Labor-Management
*
Honorable Jack T. Camp, United States District Judge for the Northern District of
Georgia, sitting by designation.
2
Reporting and Disclosure Act (“LMRDA”), 29 U.S.C. § 501(a), if that officer aids,
abets, or fails to remedy the misuse of assets belonging to a jointly administered
benefit plan governed by the Employee Retirement Income Security Act of 1974
(“ERISA”), 29 U.S.C. § 1001 et seq; and (2) making an erroneous factual finding
and abusing its discretion in two evidentiary rulings during the bench trial.1
Seeing no reversible error, we affirm.
I. BACKGROUND
The AMO is a maritime labor organization headquartered in Florida; its
members are licensed officers in the United States Merchant Marine Fleet.
Appellant-Plaintiffs are members of the AMO. Appellee-Defendants are current or
former officers of the AMO. Robert McKay and Michael McKay were defendants
in the civil action, but both failed to answer the complaint and defaulted; neither is
involved in this appeal.2 Michael McKay was the AMO’s National President from
1994 until early in 2007, when he was forced to resign following his felony
1
Plaintiffs also claim that the district court erred by denying their untimely motion to
amend their complaint to add a new breach of fiduciary duty allegation. We cannot conclude
that the district court abused its discretion in declining to allow Plaintiffs to amend the complaint
after the pretrial order’s deadline for amendments had passed.
2
We use “Defendants” to refer to the non-defaulting defendants in the district court that
are now involved in this appeal.
3
convictions for violations of LMRDA and the Racketeer Influenced and Corrupt
Organizations Act (“RICO”). Robert McKay, Michael’s brother, was the AMO’s
Secretary Treasurer from 1994 until he was defeated in the 2006 election; Robert
has also been convicted of LMRDA and RICO violations.
Pursuant to collective bargaining agreements, the AMO and its associated
employers jointly established various employee benefit plans to which the
employers contribute. The two plans pertinent to this appeal are the Vacation
Fund, which provides vacation benefits to plan participants, and the Safety and
Education Fund, which provides training and apprenticeship benefits to plan
participants. Both of these plans are established as trusts and are governed by
ERISA. The plans are administered by a Board of Trustees composed of union
appointees and employer appointees.
The Department of Justice opened a criminal investigation to determine
whether certain AMO officers used their positions to violate federal law. The
AMO’s National Executive Board retained outside counsel to advise and assist the
AMO in cooperating with the investigation; the benefit plans hired separate outside
counsel. The AMO also initiated an internal investigation coordinated by its
outside counsel and two former FBI agents. One of the issues investigated was
whether the AMO officers had knowledge of a scheme whereby Michael McKay
4
granted bonuses to other union officers as reimbursements for political campaign
contributions. The benefit plans conducted their own internal investigation to
determine if there had been a misuse of plan assets.
The AMO’s outside counsel advised the union’s National Executive Board
that he had found no evidence of financial irregularities at the union and did not
believe a more comprehensive review of the AMO was necessary. But, the outside
counsel did recommend that the AMO establish guidelines for officer conduct and
controls for the management of union funds; AMO adopted the guidelines.
The benefit plans’ internal investigation revealed that lodging facilities
owned by the Safety and Education Plan had been occasionally used by the union
or people affiliated with the union without proper payment. The union entered into
a settlement agreement with the Safety and Education Plan and paid it $183,000 to
cover the unbilled lodging expenses.
A federal grand jury later indicted Michael and Robert McKay for
participating in a RICO conspiracy involving theft and embezzlement from the
union and from the benefit plans, mail fraud under 18 U.S.C. § 1341, and
committing LMRDA record keeping violations under 29 U.S.C. §§ 436 and
439(a). Michael McKay was also charged with theft or embezzlement from an
employee benefit plan in violation of 18 U.S.C. § 664 and falsification of records
5
and certified information pertaining to an employee benefit plan in violation of 18
U.S.C. § 1027. Robert McKay was also charged with embezzlement from a labor
organization under 29 U.S.C. § 501(c) and false entry in records required by
LMRDA in violation of 29 U.S.C. § 436 and 439(c). None of the Defendants
involved in this appeal were indicted.
After the indictment, the AMO’s National Executive Board suspended the
McKays’ check-writing privileges and required Robert to resign his position as a
trustee of the benefit plans. The AMO’s National Executive Committee3 held a
special meeting to review the allegations in the indictment and, on the advice of
outside counsel, decided not to remove the McKays from office until the
allegations had been proved.4 At trial, Thomas Kelly, a former AMO Vice
President, testified for the government pursuant to a plea agreement whereby he
plead guilty to embezzlement from a labor organization. The McKays were found
guilty on all charges of the indictment, except that Michael McKay was found not
3
The National Executive Committee consists of a subset of the membership of the
National Executive Board.
4
Michael McKay was reelected as President during the criminal trial; Robert McKay was
defeated in the same election. To the extent that Plaintiffs also claim that the district court erred
in finding that Defendants did not breach their duties after becoming aware of the government’s
investigation, we reject the claim on the reasoning of the district court: basically, lack of credible
evidence of wrongdoing by Defendants.
6
guilty on the charge of theft or embezzlement from an employee benefit plan.5
After the McKays’ convictions, Defendants removed Michael McKay from his
union office.
Plaintiffs later filed this civil complaint. Count II asserted a violation of
section 501(a) of the LMRDA and is pertinent to this appeal. Count II alleges that
based on Michael McKay’s criminal conviction, he breached his fiduciary duties to
the AMO by committing acts of bribery and embezzlement from the union and
benefit plans, by filing false reports with the Department of Labor, and by
unlawfully tampering with the 1996 and 1999 elections. Count II similarly alleges
that based on Robert McKay’s criminal conviction, he breached his fiduciary
duties to the AMO in the same way and that he also misused the benefit plans’
assets for personal benefit. For Defendants before us on appeal, Count II alleges
that they breached their fiduciary duties by “knowingly aiding, abetting and failing
to remedy the continuing unlawful actions of . . . Michael McKay and Robert
McKay.”
The district court entered a default judgment against the McKays and
granted partial summary judgment in favor of the remaining Defendants. The
district court concluded that no justifiable claim was demonstrated against
5
We affirmed in an unpublished opinion.
7
Defendants under the LMRDA for aiding, abetting, or failing to remedy the
McKays’ misuse of the benefit plans’ assets and concluded that Plaintiffs did not
submit sufficient evidence to support their claim that Defendants’ involvement in
the decision to reimburse the Safety and Education Plan was improper. The court
concluded issues of material fact existed about whether two Defendants breached
their fiduciary duties by participating in the rigging of elections, but granted
summary judgment on that issue in favor of all other Defendants. The court also
concluded that there was sufficient evidence to defeat summary judgment for all
but one Defendant on the issue of whether they breached their fiduciary duties by
approving bonuses to reimburse political campaign contributions. A bench trial
was held on the issues that had not been determined by the pretrial motions. The
district court then issued detailed findings of fact and conclusions of law and
granted judgment in favor of Defendants.
8
II. DISCUSSION
A. District Court’s Grant of Summary Judgment on Section 501(a) Claim
Relating to the Misuse of ERISA Plan Assets
Plaintiffs challenge the district court’s grant of summary judgment in favor
of Defendants on the issue of Defendants’ liability under 29 U.S.C. § 501(a) for
aiding, abetting, and failing to remedy the McKays’ misuse of the assets of the
Safety and Education Plan and the Vacation Plan, both plans being governed by
ERISA. These plans are jointly administered by a board of trustees composed of
members appointed by the union and members appointed by the employers. The
district court granted summary judgment in favor of Defendants because the
allegedly misused assets belonged to the plans and not the union: the breach of
duty claim arose under ERISA and not LMRDA.
We review a grant of summary judgment de novo, using the same standard
as the district court; we can affirm if no genuine issues of material fact are present.
Levine v. World Fin. Network Nat’l Bank, 554 F.3d 1314, 1317 (11th Cir. 2009).
The question presented also involves questions of statutory interpretation, which
we review de novo. United States v. Mazarky, 499 F.3d 1246, 1248 (11th Cir.
2007).
9
Officers of a labor union “occupy positions of trust in relation” to the
organization and owe fiduciary duties to the “organization and its members as a
group.”6 29 U.S.C. § 501(a). We agree with the district court that Defendants
have not breached their fiduciary duties under section 501 in connection with the
McKays’ misuse of the benefit plan assets. As union officers, Defendants have
duties to the “organization and its members as a group.” 29 U.S.C. § 501(a). Here,
neither the union nor its members as a group own the allegedly misused funds.
Under the Agreements and Declarations of Trust establishing both plans, the union
has no “right, title or interest in or to the Fund, or any part thereof.” Once funds
enter the plan, they become part of an “irrevocable trust” and the “assets of the
Plan.” The plans are distinct legal entities separate from the union, 29 U.S.C. §
1132(d), controlled exclusively by the trustees for the benefit of the plan
participants and beneficiaries, 29 U.S.C. § 1104(a)(1). When a plan’s assets are
6
Section 501(a) states in pertinent part:
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 resolutions 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.
10
misused, the breach of duty is one between the trustees and the plan’s beneficiaries
(a separate constituency from the union and its members as a group).7
That some of the Defendants may have been appointed trustees of the benefit
plans does not change the result. ERISA explicitly allows for union officers to act
as trustees of benefit plans. 29 U.S.C. § 1108(c)(3). That serving two masters can
be problematic is, of course, well recognized in the law. See Deak v. Masters,
Mates and Pilots Pension Plan, 821 F.2d 572, 580 (11th Cir. 1987) (“[T]he
statutorily imposed fiduciary duty to act solely in the interest of the participants
and beneficiaries under ERISA requires trustees who are also officers or agents of
a corporation or a union to act with caution in areas of potential conflicts of
interest.”). But when a union official is acting in his role as an ERISA benefit plan
trustee, he does so exclusively for the benefit (or to the detriment) of the plan
participants and beneficiaries, not the union or its members as a group. 29 U.S.C.
7
In support of their argument, Plaintiffs briefly note that the AMO itself suffered a
substantial loss of union funds when Defendants caused the union to enter into a settlement
agreement to reimburse the plans. While that circumstance seems more likely to fall within the
scope of section 501(a), that event is different from the claim presented to us on appeal, which is
whether Defendants violate section 501(a) when a plan trustee misuses plan assets. The district
court concluded that Plaintiffs produced no evidence to create a genuine issue of material fact
about the propriety of the union’s settlement with the Safety & Education Fund; in the light of
our precedents, Plaintiffs have not adequately challenged this determination on appeal. See
Flanigan’s Enters. v. Fulton County, Ga., 242 F.3d 976, 987 n.16 (11th Cir. 2001) (A bare
allegation will waive an issue on appeal if the party ‘‘fail[s] to elaborate or provide any citation
of authority in support of the . . . allegation.’’); Marek v. Singletary, 62 F.3d 1295, 1298 n.2
(11th Cir. 1995) (“Issues not clearly raised in the briefs are considered abandoned.”).
11
§ 1104(a)(1); see Deak, 821 F.2d at 579-80.
The Supreme Court has been explicit about the undivided nature of an
ERISA trustee’s role and duties. The trustee “bears an unwavering duty of
complete loyalty to the beneficiary of the trust, to the exclusion of the interests of
all other parties.” N.L.R.B. v. Amax Coal Co., a Div. of Amax, Inc., 101 S. Ct.
2789, 2794 (1981). “ERISA vests the ‘exclusive authority and discretion to
manage and control the assets of the plan’ in the trustees alone, and not the
employer or the union.” Id. at 2796 (quoting 29 U.S.C. § 1103(a)). ERISA’s
fiduciary provisions “were designed to prevent a trustee from being put into a
position where he has dual loyalties, and, therefore, he cannot act exclusively for
the benefit of a plan's participants and beneficiaries.” Id. (citation and internal
quotation marks omitted). When a union officer steps into his role as a trustee and
directs a trust’s funds, his direction is solely in his capacity as trustee, subject to
the strict fiduciary duties contained in 29 U.S.C. § 1104.8 This duty is so
regardless of which body appointed him in his role as trustee. See Amax Coal, 101
8
The unique role of an ERISA trustee distinguishes this case from Hood v. Journeymen
Barbers, Hairdressers, Cosmetologists and Proprietors Intern. Union of America, 454 F.2d 1347(7th Cir. 1972), and Morrissey v. Curran, 423 F.2d 393 (2d Cir. 1970), relied on by Plaintiffs. In
those pre-ERISA cases, courts applied section 501(a)’s duties to trustees of employee benefits
plans. Hood, 454 F.2d at 1355; Morrissey, 423 F.2d at 394-96. But in both cases, the benefit
plans were an exclusively union undertaking that was not collectively bargained or jointly
administered. Hood, 454 F.2d at 1351; Morrissey, 423 F.2d at 394-95. To apply a similar rule
here would be incompatible with the strict statutory duty of loyalty owed by the ERISA trustees
to the plans’ beneficiaries.
12
S. Ct. at 2796 (“The language and legislative history of § 302(c)(5) and ERISA
therefore demonstrate that an employee benefit fund trustee is a fiduciary whose
duty to the trust beneficiaries must overcome any loyalty to the interest of the party
that appointed him.”).
We therefore affirm the district court’s grant of summary judgment.9
B. District Court’s Factual Findings and Evidentiary Rulings from the
Bench Trial
Plaintiffs appeal several of the district court’s evidentiary rulings and factual
findings. They argue that the district court erred by: (1) allowing an undisclosed
witness to testify; (2) finding their witness, Thomas Kelly, incredible when that
witness testified in a successful criminal prosecution about the same issues; (3)
excluding transcripts of prior testimony of other witnesses who testified during the
criminal trial but were unavailable for this trial. None of Plaintiffs’ contentions
rise to the level of reversible error.
About the first issue, undisclosed witnesses may still be used at trial if the
disclosure failure was substantially justified or if it was harmless. Fed. R. Civ. P.
9
Because we affirm the district court on this ground, we need not and do not discuss
Defendants’ contention that some of the Defendants were not trustees of the Safety & Education
Fund at some of the times when material decisions were taken.
13
37(c)(1). We review the district court’s decision to allow an undisclosed witness
to testify for abuse of discretion. See Romero v. Drummond Co., Inc., 552 F.3d
1303, 1313-14 (11th Cir. 2008). Here, the district court allowed the witness to
testify for the limited purpose of establishing that Defendants made prior consistent
statements.10 Plaintiffs rejected the district court’s offer of additional time to
prepare. In addition, Defendants disclosed the witness in their pretrial stipulation,
lessening the degree of surprise. We cannot say that the district court abused its
discretion. See Citizens Bank of Batesville, Arkansas v. Ford Motor Co., 16 F.3d
965, 967 (8th Cir. 1994) (declining to second-guess district court’s exercise of
discretion to allow witness testimony when, among other reasons, counsel failed to
request a continuance or recess).
Second, Plaintiffs claim that the district court erred by finding Defendants’
testimony more credible than Kelly’s when Kelly’s testimony mirrored that in the
related successful criminal prosecution of the McKays. “[I]t is the exclusive
province of the judge in non-jury trials to assess the credibility of witnesses and to
assign weight to their testimony.” Childrey v. Bennett, 997 F.2d 830, 834 (11th
Cir. 1993). We will reverse only if the district court clearly erred. Stano v.
Butterworth, 51 F.3d 942, 944 (11th Cir. 1995). Plaintiffs have not shown that the
10
Plaintiffs do not challenge this characterization of the witness’s statements.
14
district court’s account of the evidence is entirely implausible; there was no clear
error. See id.Third, Plaintiffs appeal the district court’s refusal to allow the previous,
sworn testimony of two witnesses from the McKays’ criminal trial when those
witnesses were unavailable at trial: they resided in excess of 100 miles from the
district court. Fed. R. Evid. 804(b)(1) excludes from the definition of hearsay
“[t]estimony given as a witness at another hearing . . . if the party against whom
the testimony is now offered, or, in a civil action or proceeding, a predecessor in
interest, had an opportunity and similar motive to develop the testimony by direct,
cross, or redirect examination.” The district court did not believe that the McKays,
in their criminal trial, were predecessors in interest to Defendants in this civil trial.
We review for abuse of discretion the district court’s decision not to allow the
earlier testimony. See Parrott v. Wilson, 707 F.2d 1262, 1269 (11th Cir. 1983).
We need not interpret the meaning of Rule 804(b)(1)’s “predecessor in
interest” clause today. Even if the district court erred by refusing to admit the prior
testimony, that error was harmless.11 The excluded testimony was merely
11
Erroneous evidentiary determinations that do not affect the substantial rights of a party
must be disregarded. 28 U.S.C. § 2111; Fed. R. Civ. P. 61; Fed. R. Evid. 103(a). Errors affect a
substantial right “if they have a ‘substantial influence’ on the outcome of a case or leave ‘grave
doubt’ as to whether they affected the outcome of a case.” United States v. Frazier, 387 F.3d
1244, 1266 n.20 (11th Cir. 2004) (en banc) (quoting Kotteakos v. United States, 66 S. Ct. 1239,
1248 (1946)).
15
corroborative of Kelly’s testimony. The district court found Kelly incredible in part
because of his felony conviction in the related criminal investigation. The
excluded testimony came from people who also had felony convictions from the
same related criminal investigation. Viewing the record as a whole, we think that
the exclusion of the cumulative evidence did not substantially influence the
outcome of the case. See United States v. Hock, 995 F.2d 195, 197 (11th Cir.
1993) (finding harmless error when evidence was only cumulative and
corroborative).
III. CONCLUSION
Given the circumstances, the district court correctly determined that
LMDRA gave rise to no breach of fiduciary duty claim for the misuse of the
benefit plans’ assets. The district court’s factual determinations and evidentiary
rulings did not result in reversible error.
AFFIRMED.
16