Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-96-07033/USCOURTS-caDC-96-07033-0/pdf.json

Nature of Suit Code: 740
Nature of Suit: Railway Labor Act
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 16, 1997 Decided March 14, 1997

No. 96-7033

ROBERT A. MILLER, ET AL.,

APPELLANTS

v.

AIR LINE PILOTS ASSOCIATION,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(91cv3161)

Raymond J. LaJeunesse, Jr., argued the cause for appellants, with whom Philip F. Hudock was on

the briefs.

Jerry D. Anker, argued the cause for appellee, with whom Clay Warner was on the brief.

Before: SILBERMAN, WILLIAMS, and ROGERS, Circuit Judges.

Opinion for the Court filed by Circuit Judge SILBERMAN.

SILBERMAN, Circuit Judge: Nonunion pilots appeal the judgment of the district court, which

largely relied on an arbitrator's award, as to the legality of the union's agency shop fees. We reverse.

I.

Appellee Air Line Pilots Association (hereinafter ALPA or the union), is the exclusive

collective bargaining representative of all pilots employed by Delta. In 1991, ALPA and Delta

entered into an "agency shop" agreement under the Railway Labor Act (RLA), effective at the start

of 1992, which requires all pilots who choose not to be members of ALPA to pay a "service charge"

to ALPA "as a contribution for the administration of the [collective bargaining agreement] and the

representation of [all] employees."

ALPA collected fees from appellants, 153 Delta pilots who have not joined the union

(hereinafter the pilots), by following the procedures contained in its operating manual, Policies and

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Procedures Applicable to Agency Fees. The manual, in accordance with federal law, allows

nonmembersto object to fees used for purposes not germane to collective bargaining. ALPA charged

nonmembers fees approximately 8% less than union dues from January 1 through June 30, 1992.

That figure, which was an estimate, was based on 1990 outlays. But for the latter half of 1992, the

union discounted the pilots' fees by about 17% because of newly available figuresfrom 1991. ALPA

sent each nonmember pilot a copy of its Policies and Procedures with both the 1990 and 1991

statements. When the actual figures for 1992 became available, the union determined that 19% of

its expensesfor the year were nongermane and gave objecting pilots an adjusted credit or rebate with

interest.

Appellants, still dissatisfied with the union's calculations and procedures, protested. The

union, treating that protestdespite appellants' objectionas a request for arbitration under the

union's Policies and Procedures, initiated arbitration proceedings. The Policies and Procedures

specifythat the AmericanArbitrationAssociation (AAA) Rulesfor ImpartialDetermination of Union

Fees govern such arbitrations, so, at the union's request, the AAA appointed an arbitrator in

accordance with its rules from "a special panel of arbitrators experienced in employment relations."

A number of the pilots had previously filed suit (before the agency shop agreement went into effect)

against the union in federal district court and, wanting federal court resolution of all of its disputes

regarding union fees, it asked the arbitrator not to proceed and sought a district court injunction to

stop the arbitration. The district court denied the injunction, and the arbitrator refused to delay. The

pilots' attorney consequently entered only a conditional appearance in the arbitration.

The arbitrator sustained most of the challenged union determinations as to which of its

expenses were germane. Ninety-one of the 158 pilots who participated in the arbitration (either

willingly or unwillingly) were partiesin the district court suit; the other 67 of those who participated

did not challenge the arbitrator's award. Sixty-two more who did not participate in the arbitration

proceedings intervened in district court. We therefore have before us only the pilots who appeared

before the arbitrator under protest or those who refused to do so at all.

The pilots who had been represented in arbitration had sought discovery, but the arbitrator

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refused to utilize his authority under the AAA rulesto permit such. In district court, ALPA objected

to the magistrate's discoveryorder requiring the union to produce alldocumentsidentifying the nature

of and expenses related to 20 sample projects; it offered instead what the pilots regarded as

impractical: all of its 1992 expense records. The district court cut short the discovery dispute by

granting summary judgment against the pilots on almost all of their claims, with the exception of the

effect of arbitration on the proceeding. The district court received additional briefing on the latter

and subsequently ruled arbitration was required. Relying on the arbitrator's factual findings, the

district court affirmed ALPA's method of recordkeeping and its treatment of overhead expenses.

II.

Appellants' most fundamental quarrel with the district court's opinion is directed at its

conclusion that dissenter pilots were obliged to "exhaust" the arbitration procedures the union

invoked before coming to court. (It will be recalled that some of appellants declined to go to

arbitration and the others complied only under protest.) If they are correct on that issue, then the

parties' dispute as to the scope of review of the arbitrator's decision is beside the point. Appellants'

argument is simply this: We cannot be required to put to an arbitrator our claim against the union

under federal law because we have never agreed to do so. That general proposition has been widely

recognized by federal courts in a variety of circumstances. See, e.g., AT&T Technologies, Inc. v.

Communication Workers of America, 475 U.S. 643, 648-49 (1986)(citing the Steelworkers Trilogy);

Gateway Coal Co. v. United Mine Workers of America, 414 U.S. 368, 374 (1974); Blake Const.

Co., Inc. v. Laborers' Int'l Union of North America, AFL-CIO, 511 F.2d 324, 327 (D.C. Cir. 1975).

We have recentlyheld that dissident agencyshop telephone companyemployees,similarlychallenging

an agency fee, were not obliged to accept a union's arbitration procedure in accordance with the

union's constitution since they were not members of the union and never agreed to submit their

dispute to arbitration. Abrams v. Communications Workers of America, 59 F.3d 1373, 1382 (D.C.

Cir. 1995).

The union and the district court, however, rely on another of our recent decisions,

Communication Workers of America v. American Telephone & Telegraph Co., 40 F.3d 426 (D.C.

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Cir. 1994), in which we held that employees wishing to challenge decisions of pension plan

administrators under federal law (ERISA) were obliged to exhaust administrative remedies before

going to court. And the union would have us distinguish Abrams because the agency shop agreement

there was governed by § 8(a)(3) of the National Labor Relations Act (NLRA), whereas in this case

the parties are covered by § 2, Eleventh of the RLA. Under the RLAbut not the NLRA, according

to the unionagency shop agreements threaten to trench on the First Amendment rights of those

nonunion workers who are required, in part by operation of federal law, to make payments to the

union. Since the dividing line between germane and nongermane activities has constitutional

significance under the RLA, the union is obliged per the Supreme Court's decision in Chicago

Teachers Union Local No. 1 v. Hudson, 475 U.S. 292 (1986), to offer a neutral arbitrator to dissident

employees for prompt review of the union's allocation of its expenses between those categories.

Therefore the union contends the dissidents should be reciprocally required to "exhaust" arbitration

procedures; otherwise, the union would be forced frequently to litigate in both fora

simultaneouslyif some dissidents chose arbitration and others the federal court to pursue similar

claimscausing it great expense and confusion.

We can readily distinguish Communications Workers; that parallels a true exhaustion case

whereas this does not. The doctrine of exhaustion of administrative remedies typically is applied to

ensure that senior officials in a government agency have authoritatively ruled, in accordance with

available procedures, on an issue that a party attempts to bring to court based on a preliminary

decision of a subordinate official. See, e.g., Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41

(1938). In Communications Workers, we merely applied that reasoning to ERISA-governed pension

plans. There, plan administrators had denied benefits to a claimant. But the plan provided for review

of the administrators' decision by an Employee Benefit Committee, and we were unwilling to indulge

the plaintiff's contention that an appeal to the committee necessarily would have been futile. Since

under ERISA discretionary decisions of plan administrators determining eligibility for benefits or

interpreting the terms ofthe plan are reviewed quite deferentially (abuse of discretion), see Firestone

Tire and Rubber Co. v. Burch, 489 U.S. 101, 115 (1989), we thought it particularly important that

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the decision we evaluated represent the considered and reasoned view of the highest plan authority.

Thus, we extended the exhaustion doctrine to this nongovernmental structure. Communications

Workers, 40 F.3d at 433.

This case, however, is far removed from the exhaustion paradigm. The arbitrator is not a

senior official in the union hierarchy, and even if he were, there is no statutory ground to defer to

either the union or the arbitrator on any of the issues presented in the case. The only reason an

arbitrator's decision is normally afforded deference in a federal court is because the parties have

agreed to put their dispute to him or her. Cf. id. at 434. The union does claim that the arbitrator's

decision is entitled to deference but, in truth, the union's reasoning is circular. The arbitrator's

decision, it is argued, should not be reviewed de novo, because if it were reviewed de novo, it would

make little sense to force the pilots to go to arbitration in the first placeexposing the real question

as whether the pilots were required to proceed to arbitration at all.

We therefore return to the union's argument that the pilots, in this situation, were obliged to

go to arbitration because the Supreme Court has compelled the union to offer arbitration to protect

agency shop employees' constitutional rights, and it would be inconsistent with that scheme to force

the union to defend itself before both an arbitrator and a federal court. The necessary corollary to

that argument is the union's asserted distinction of Abrams as limited to the NLRA.

To understand the union'srather intricate position, it is necessary to analyze the basisfor and

the implications of the Supreme Court's determination in Hudson that a union representing public

employees must offer nonmembers in an agency shop certain procedural protections to ensure that

their First Amendment rights are not infringed. Previously, in Abood v. Detroit Board of Educ., 431

U.S. 209 (1977), the Court had held that, although public employers could establish agency shops

in which all employees, whether union members or not, are required to pay their share of the union's

collective bargaining costs, nonmember employees, in turn, were entitled to "prevent the Union's

spending a part of their required service fees to contribute to political candidates and to express

political views unrelated to its duties as exclusive bargaining representative." Id. at 234. See also

Brotherhood of Railway and Steamship Clerks v. Allen, 373 U.S. 113, 118-19 (1963); International

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Ass'n of Machinists v. Street, 367 U.S. 740, 769-70 (1961). In Hudson, the Court developed a set

of requirements which would "protect[ ] the basic distinction drawn in Abood" and keep the agency

shop from infringing on the First Amendment. Hudson, 475 U.S. at 302-03 & n.12. Specifically,

Hudson obligesthose unions to provide an adequate explanation for the basis of their fees(including

the major categories of expenses and verification by an independent auditor), "a reasonably prompt

opportunity to challenge the amount of the fee before an impartial decisionmaker," and an escrow

account in which fees are placed pending resolution of any fee disputes. Id. at 307, n.18 & 310.

Justice White, concurring for himself and ChiefJustice Burger,suggested the very position the union

urges on us. He said, "if the union provides for arbitration and complies with the other requirements

specified in our opinion, it should be entitled to insist that the arbitration procedure be exhausted

before resorting to the courts." Hudson, 475 U.S. at 311 (White, J., concurring).

Although Hudson's constitutional analysis was predicated on the premise that the union

represented government workers and therefore its agency shop agreement with public employers'

constituted "state action," the parties agree that the Hudson requirements similarly obtain vis-a-vis

unions who negotiate agency shop agreements with private employers covered by the RLA. That is

so because the Supreme Court in 1956 observed that the provision of the Railway Labor Act

authorizing such agreements had to be read for constitutional reasons as limiting a union's ability to

collect "dues ... as a cover for forcing ideological conformity or other action in contravention of the

First Amendment." Railway Employees' Dep't v. Hanson, 351 U.S. 225, 232, 238 (1956). The

Constitution was thought implicated because agency shop agreements under the RLA carried the

imprimatur of federal law. Id.; see also Lancaster v. Air Line Pilots Ass'n Int'l, 76 F.3d 1509, 1519

(10th Cir.1996); Crawford v. Air Line Pilots Ass'n Int'l, 992 F.2d 1295 (4th Cir.), cert. denied, 510

U.S. 869 (1993).

What is hotly disputed, however, is whether the obligation to provide prompt review by an

impartial decisionmaker, rooted as it is in the protection of constitutional rights, extends to unions

who gain agency shop agreements under § 8(a)(3) of the NLRA. If it is not, then Abrams' refusal to

force the telephone workersto go to arbitration is distinguishable, the union claims, because the union

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there was not obliged constitutionally to offer arbitration. We are therefore backed into one of the

more troublesome issues in labor law today and on which the circuits seem splitwhat is the legal

basis and nature of a union's obligationsto agency shop employees under the NLRA. Compare Price

v. International Union, United Automobile, Aerospace and Agricultural Implement Workers of

America, 927 F.2d 88, 92 (2d Cir.) (finding no state action in an NLRA case to implicate Hudson's

requirements), cert. denied, 502 U.S. 905 (1991), with United Food and Commercial Workers Local

951 v. Mulder, 31 F.3d 365 (6th Cir. 1994) (assuming that Hudson's requirements apply in a case

under the NLRA), cert. denied, 115 S. Ct. 1095 (1995).

As the union points out, however, this is not an entirely new question for us; we determined

back in 1983 in Kolinske v. Lubbers, 712 F.2d 471 (D.C. Cir.) (holding the denial of strike benefits

to nonstriking, nonmembers not unconstitutional) that under the NLRA an agency shop agreement

does not amount to state action. We distinguished the Supreme Court's decisions discerning state

action under the Railway Labor Act because that statute not only authorizes agency shopsand

therefore puts a federal imprimatur on a collective bargaining agreement forcing an unwilling

employee to pay a union an agency feeit also preempts state law. Id. at 476-77. The NLRA, by

contrast, in § 14(b) provides an option by which state law may ban a union shop and override the

federal scheme. On reflection, it is not apparent why it is any less "state action," meaning

governmental action, if both the federal and state governments combine (when the state chooses not

to ban union shops) to provide a legalregime whereby an employee who refusesto join a union isstill

obliged to pay an agency fee. Nevertheless, it is not open to us to depart from our prior holding.

Still, the Constitution's applicability to union shop clauses under the NLRA is not

determinative asto the union's obligation to provideHudson proceduresto nonmembers. Subsequent

to Kolinske, the Supreme Court decided the crucially important Communication Workers v. Beck,

487 U.S. 735 (1988), and although it declined to determine whether the Constitution had the same

application to agency shop agreements under the NLRA as it does under the RLA, id. at 761, it did

hold that the statutoryauthorization to operate union shops under § 8(a)(3) was coextensive with that

under § 2, Eleventh of the RLA. Id. at 752. Both statutes, similarly worded, permit unions to reach

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agreements with employers that compel employees to pay agency shop fees only to the extent that

those fees are "necessary to finance collective bargaining activities." Id. at 759-62. Any greater

exaction would violate the union's legal duty of fair representation. Id. at 742-43, 762-63. We see

no reason why thisstatutory duty of fair representation owed to nonmember agency shop employees

carries any fewer procedural obligationsthan does a constitutional duty. We therefore do not believe

it is possible to distinguish Abrams on the ground that the union's proposed arbitration of the dispute

there was wholly voluntary. We recognized as much in Abrams, albeit in passing: "Although in

Hudson the challenge to the union agency fee was made on constitutional grounds, its holding on

objection procedures applies equally to the statutory duty of fair representation inasmuch as the

holding is rooted in "[b]asic considerations of fairness, as well as concern for the First Amendment

rights at stake.' " Abrams, 59 F.3d at 1379 n.7 (quoting Hudson, 475 U.S. at 306).

We do not think, then, that the union's attempted distinction of Abrams is persuasive, but to

be fair, that case is not wholly dispositive because we were not faced with the argument that the union

mounts here, which is based on Justice White's concurrence in Hudson. It is an argument that has

found a mixed response: The circuits are split as to whether a union, obliged by federal law to offer

Hudson-style arbitration to nonmembers challenging the amount of agencyfeesthat theyare charged,

is entitled to insist on "exhaustion" before the dissident employees come to federal court. Compare

Lancaster v. Airline Pilots Ass'n Int'l, 76 F.3d 1509, 1521-23 (10th Cir. 1996) (reading Hudson,

including Justice White's concurrence, to require excusable exhaustion of arbitration to avoid the

wasteful expenditure of time and money) and Hudson v. Chicago Teachers Union, Local No. 1, 922

F.2d 1306, 1314 (7th Cir.) (federal courts should not review fee calculations at the notice stage

because it would involve the courts in the micromanagement of fee calculation), cert. denied, 501

U.S. 1230 (1991), with Bromley v. Michigan Educ. Ass'n, 82 F.3d 686, 694 (6th Cir. 1996)

(criticizing the district court's opinion in the present case and holding that there is no exhaustion

requirement), cert. denied, 65 U.S.L.W. 3457 (U.S.Jan. 6, 1997) (No. 96-429), and Hohe v. Casey,

956 F.2d 399, 409 (3d Cir. 1992) (discussing the issue in dicta and reading Hudson as only requiring

arbitration as an alternative, not a precursor, to litigation). We observed this division once before in

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1 Although the majority did not explicitly reject Justice White's concern, it did specify that

"[t]he arbitrator's decision would not receive preclusive effect in any subsequent § 1983 action." 

Hudson, 475 U.S. at 308 n.21. 

Beckett v. Airline Pilots Ass'n, 995 F.2d 280, 285 (D.C. Cir. 1993), but we did not have to choose

sides in that case. Here we do. Although we recognize that Justice White raised a legitimate

practical concern directed at the quasi-legislative scheme that the majority adopted in Hudson, we

simply see no legal basisfor forcing into arbitration a party who never agreed to put his dispute over

federal law to such a process. Nor is there anything in the Hudson majority opinion that even

suggests that the Court thought it was putting protesting agency shop employees in that position.1

We therefore align ourselves with the Sixth and Third Circuits in holding that an employee who

wishes to bring an action in federal court is not obliged to proceed first to arbitration, at the union's

option.

That does not mean we are insensitive to the union's problem of defending its actions

simultaneously in two separate fora. There is a rather strange relationship between the union and the

dissenting pilots; it is certainly not the kind that gives rise to a continuing smooth recourse to an

agreed-upon method of resolving disputes. But surely given the disincentives both sides face, it is

not inconceivable that all the dissenting pilots could be persuaded to agree to arbitration, perhaps if

the pilots felt they had more say in the selection of the arbitrator and the rules governing the

proceeding. It may well be, for instance, that the arbitrators chosen by the AAA from a group

"experienced in labor matters" would not be perceived as typically sympathetic to such plaintiffs (or

their counsel). The union may well entertain visceral objections to engaging in a kind of collective

bargaining over dispute resolution procedures with the nonmembers, but practical concerns might

well, as the union itself emphasizes, predominate.

Assuming, however, that the union faces continuous litigation in federal court, it does not

follow that it will necessarily be obliged simultaneously to offer arbitration. Hudson, it should be

remembered, did not require arbitration perse. Rather, it required a "reasonably prompt decision by

an impartial decisionmaker." 475 U.S. at 307. If unions are brought into federal court each year on

agency fee challenges as ALPA fears, presumably the same district judge will hear those cases. To

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the extent the court gainsfamiliaritywith the union's procedures and practices, federal court decisions

themselves may satisfy Hudson'srequirement if the proceedings move relatively quickly. The unions

can also assist the courts in speeding up the process by making pre-trial concessions regarding

discovery and other time-sensitive matters. The Court in Hudson seemed to recognize this very

possibility when it noted that "[c]learly, ... if a State chooses to provide extraordinarily swift judicial

review for these challenges, that review would satisfy the requirement of a reasonably prompt

decision by an impartial decisionmaker." Id. at 308 n.20.

Effective use of the class action procedures may also minimize ALPA's concerns.

Nonmembers may well elect to bring their claims as a class. See, e.g., Abrams, 59 F.3d at 1378;

Hudson, 922 F.2d at 1308. A class consisting of all agency shop nonmembers can be certified to

challenge the adequacy of a union's notice, see Abrams, 59 F.3d at 1378, and courts may also certify

a class of nonmembers who have specifically objected to the exaction of fees without running afoul

of the Supreme Court's decision in Street. Id.

In sum, we think the parties and their counsel may well be able to devise proceduresthat will

provide dissenting pilots with their legal rights and yet not unduly burden the union.

III.

Although our decision sustaining appellants' right not to go to arbitration necessarily means

this case must be remanded to the district courtthe arbitrator's decision is no longer a part of the

legal picturethere are certain issues presented by the parties that are straight questions of law and

therefore should be decided now; there is no reason to remand. Perhaps the most important of those

questions relates to ALPA's air safety "activities," which the union claims are germane to collective

bargaining. The arbitrator and the district judgeapparently resting her decision on an independent

legal analysisagreed with the union. But the pilots claim that they are being charged in part with

certain union activitiesthat involve lobbying government agencies and, in accordance with Hudson's

reasoning, these activities cannot be considered germane to collective bargaining.

The union, although it objectsto appellants' use of the term "lobbying," does not dispute that

a portion of its expenses involves its contacts with government agencies and Congress concerning

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the union's views as to appropriate federal regulation of airline safetywhich even includes

intervention with the President and members of the Senate concerning appointments to the National

Transportation Safety Board. ALPA contends, however, that its government relations activities are

interconnected with those airline safety issues that animate much of its collective bargaining and

therefore they should be regarded as germane to that bargaining.

There are major difficulties with the union's position. If there is any union expense that, given

the logic of Hudson and its progeny, must be considered furthest removed from"germane" activities,

it is that involving a union's political actions. After all, whether one considers the RLA's limitation

on the union's use of nonmembers' compelled agency feesto be constitutionally required or inspired,

it is nonetheless nonmembers' First Amendment-type interests that are protected. And it is hard to

imagine those interests more clearly placed in jeopardy than when the union uses the dissidents'

money to pursue political objectives. The union would have us see its lobbying on safety-related

issues as somehow nonpolitical because all pilotsshare a common concern with these activities. But

we cannot possibly assume that to be true. All pilots are surely interested in airline safety, but it

would certainly not be unexpected that pilots would have varying views as to the desirability of

government regulationincluding those regulations of airlines that pertain to safety. The benefits

of any regulation include trade-offs, and certain pilots might be reluctant to pay the costs either

directly or indirectly of increased regulations, just as others might oppose relaxed regulations that

could expand work opportunities. Some, of course, might even object to such regulations on

principle.

That the subject of safety is taken up in collective bargaining hardly renders the union's

government relations expenditures germane. Under that reasoning, union lobbying for increased

minimum wage laws or heightened government regulation of pensions would also be germane.

Indeed if the union's argument were played out, virtually all of its political activities could be

connected to collective bargaining; but the federal courts, including the Supreme Court, have been

particularly chary of treating as germane union expenditures that touch the political world. See

Beckett v. Air Line Pilots Ass'n, 59 F.3d 1276, 1281 (D.C. Cir. 1995) (Silberman, J., concurring)

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(observing that the Supreme Court treats litigation as non-germane perhaps because it regards

litigation as a continuation of the political process). See also Lehnert v. Ferris Faculty Ass'n, 500

U.S. 507, 516 (1991) (expenses are not germane to collective bargaining "at least in the private

sector" if they involve political or ideological activities); Ellis v. Brotherhood of Ry., Airline and

Steamship Clerks, Freight Handlers, Express & Station Employees, 466 U.S. 435, 447-48 (1984);

Street, 367 U.S. at 768.

To be sure, in Lehnert the Supreme Court recognized an exception to this principle for public

sector unions because "[t]he dual roles of government as employer and policymaker in such cases

make the analogy between lobbying and collective bargaining in the public sector a close one." 500

U.S. at 519-20. ALPA would have us extend this limited exception to this case because safety

standards can be the result of either collective bargaining or government action and indeed, the latter

may foreclose the former. But, as we have explained, that extension of the Lehnert exception would

swallow the Lehnert rule. On remand, therefore, the district court should draw a line between

safety-related collective bargaining expenditures and those relating to the union's government

relations.

IV.

The pilots raise a number of additional claims, some of which can also be decided as a matter

of lawothers of which must be remanded. The 1990 and 1991 statements allegedly constituted

inadequate notice under Hudson because theywere not "audited"even though the 1992 statement,

under which fees were ultimately levied, was. We agree with ALPA that the pilots have failed to

establish that they have standing to raise this claim, because the pilots were not injured by the alleged

inadequacy. They did not suffer as a result of inadequate information on which to base an objection

because they did submit a timely objection. And ALPA rebated the difference plus interest, from an

escrow account, between the amount of actual expensesin 1992 and the estimatesfromthe 1990 and

1991 statements. A formally audited notice would have changed nothing because Price Waterhouse

verified ALPA's accounting in 1990 and 1991, and the pilots have not alleged that a more formal

audit would have produced a different collection of fees initiallythey complain only that the 1992

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fees were ultimately lower than the estimates made from 1990 and 1991.

ALPA also did not provide the pilots with "reasonably prompt" review, under the pilots'

rationale, because their first opportunity to challenge the 1992 statement was in mid-1993, and they

could not challenge the 1990 or 1991 statements earlier than that. We agree with ALPA that since

the pilots did not request arbitration with respect to either the 1990 or 1991 statements, and since

they have protested attending any arbitration before being allowed in court, they cannot now

complain that the arbitration should have been available earlier. This problem will not recur in any

event because the issue arose in this case only because the agency shop agreement did not take effect

until 1992. In the future pilots can, if they wish, request arbitration in any given year of the prior

year's statement, because that same statement will determine both their final agency fee for the

preceding year and their tentative fee for the current year.

The pilots also contend that the district court erred in granting ALPA summary judgment on

their challenge to the audit of the 1992 statement. The district court interpreted the pilots' claim to

be that Price Waterhouse did not audit the "germane/nongermane calculation" nor "examine ...

[ALPA's] expenditures in each project code." The court reasoned that auditors need not make the

legal determination of whether an expense is germane. It further concluded, after reading the

declaration of the pilots' expert, that the pilots conceded that Price Waterhouse's review "provid[ed]

the assurance that sums allocated to project codes are actually expended in support of those codes."

This was enough, in the district judge's view, to permit summary judgment for ALPA.

Insofar as the district court rejected the pilots' request that an auditor make legal

determinations of whether expenses are germane or not germane, we agree. See Dashielle v.

Montgomery County, 925 F.2d 750, 755 (4th Cir. 1991); Gwirtz v. Ohio Educ. Ass'n, 887 F.2d 678,

682 n.3 (6th Cir. 1989), cert. denied, 494 U.S. 1080 (1990); Ping v. National Educ. Ass'n, 870 F.2d

1369, 1374 (7th Cir. 1989); Andrews v. Educ. Ass'n of Cheshire, 829 F.2d 335, 340 (2d Cir. 1987).

Irving Ross, appellants' expert, devoted most of the space in his declaration to criticizing Price

Waterhouse'sinadequate evaluation of whether expenses were properlytreated byALPA as germane

and whether Hudson was satisfied. These are matters of law, not accounting, and we cannot expect

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2 Price Waterhouse conducted the statement audit in accordance with "SAS-62, the Statement

of Auditing Standards 62 Special Reports," which was issued by the Accounting Principles Board,

the senior technical body of the American Institute of Certified Public Accountants. 

accountantsto conduct the analysis of whether an expense was necessarily or reasonably incurred as

part ofthe union's collective bargaining duties. Hudson auditors are not different fromother auditors

whose "usual function is to ensure that the expenditures which the union claims it made for certain

expenses were actually made for those expenses." Andrews, 829 F.2d at 340. There is, therefore,

nothing legally deficient with Price Waterhouse'sreliance on the "definitions, significant factors, and

management assumptions" made by ALPA in dividing its expenses between germane and

nongermane.

But the pilots claim that Ross also questioned whether Price Waterhouse violated generally

accepted accounting principles in the manner by which it conducted the audit, and therefore his

declaration created a factual dispute immune from summary judgment. The professional adequacy

of the Hudson audit is certainly a proper subject for review by a judge or an arbitrator. ALPA would

have us hold that, in the absence of allegations of fraud or willful misconduct, a court or arbitration

panelshould not inquire whether the Hudson audit was properly performed. Although Hudson does

not require that every underlying record and document be discoverable by objecting members'

accounting experts, as Ross suggests, we disagree that the methodology of the auditor may not be

questioned for anything but fraud or intentional deception. Hudson did not stand for the proposition

that a rubber stamp by an accountant stating "this was audited" meets the constitutional minimum it

envisioned.

In that regard, we read Ross' declaration as creating a factual dispute over the adequacy of

Price Waterhouse's audit, including, as the district court phrased it, the propriety of the "assurance

that the sums allocated to project codes were actually expended in support of those codes." Ross

challenged Price Waterhouse's methodology by noting that the audit itself was meant to assist a

particular group of usersthe nonmembersin determining whether or not to object to the agency

shop fee. Under the particular form of audit selected by Price Waterhouse,2the auditor is advised:

When expressing an opinion on one or more specific elements, accounts, or items of

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a financial statement, the auditor should plan and perform the audit and prepare his

or her plan report with a view to the purpose of the engagement.

Ross contended that Price Waterhouse planned and performed the audit in a manner contrary to the

needs of its users and therefore below auditing standards. Ross then focused on several particular

aspects of the audit as deficient under generally accepted auditing standards. He criticized, for

example, the sample size of paychecks evaluated by Price Waterhouse (24 to be exact) as

"unacceptably small" for a $26 million payroll. He also chastised Price Waterhouse for its failure to

contact those 24 employees directly to determine what work they did (which could then be compared

to the allocation of their time to project codes) and for the auditors' similar treatment of non-payroll

disbursement. Out of 31,000 non-payroll disbursements, Price Waterhouse investigated 116a

number he claimed "too few" for an audit of this kind.

This is not to suggest that all of Ross' criticisms raise factual issuesfor as we said, the

allocation of expenses into germane and nongermane categories is not a matter that an accountant

can "audit." An auditor can certainly verify that money claimed to be spent was actually expended

on the particular activity claimed, but he need notnor do we see how he couldevaluate and

characterize the nature of the activity itself for purposes of applying the RLA. For that reason, we

remand for the district court's consideration appellants' claim that the methodology failed to comply

with generally accepted auditing principles.

The pilots'related attack onALPA'srecordkeeping of germane and nongermane expenditures,

including its treatment of "overhead" expenses, is properly leveled not on the audit, but on ALPA's

adequacy of proof. The "union bears the burden of proving the proportion of chargeable expenses

to total expenses." Lehnert, 500 U.S. at 524. The pilots contend that "ALPA's method of tracking

costs and determining which are germane and nongermane is not sufficiently reliable" to meet this

burden. They also challenge ALPA's "germane" categorization of administrative expenses, which

support all of the union's activities, such asrent, administrative salaries, equipment maintenance, and

generalsupplies. The district court relied on the arbitrator's findings of fact and held that ALPA had

provided enough detail about its calculations to meet Hudson'srequirements. In light of our holding

above that the pilots were not required to exhaust arbitration, we reverse and remand for the district

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court to reach independent factual findings.

This, of course, raises the question of what records ALPA must provide to the pilots in

discovery so that they may challenge ALPA's assertions that the expenses were properly charged.

The pilots obviously need some minimal level of access, see Bromley, 82 F.3d at 696, but it is equally

clear that Hudson did not ordain a sweeping inquiry into all of ALPA's receipts. See Hudson, 475

U.S. at 307 n.18. We leave discovery management to the district court, but some sort of sampling

technique might well provide the appropriate balance between the nonmembers' interest in data that

is accessible and informative and the union's concerns that the request be manageable. It is just as

inadequate for the union to force nonmembers to plough through an entire warehouse of receipts

without organizing the information in some fashion as it is for the union to supply nothing at all. It

is the district court's responsibility to decide the appropriate middle ground between the two

extremes.

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