John N. Hearn v. Michael McKay ( 2010 )


Menu:
  •                                                                   [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 officers 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 officers
    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