Opinion ID: 767147
Heading Depth: 2
Heading Rank: 2

Heading: Embezzlement of Funds of a Labor Organization

Text: 26 29 U.S.C. §501(c) criminalizes any embezzlement, theft, or conversion of money, funds, securities, property or other assets from a labor organization. 4 The District Court found that the Jeep Charity Fund was a fund of Local 12, and accordingly found Hartsel guilty of aiding and abetting the embezzlement of funds of a labor organization. On appeal, Hartsel maintains that the District Court erred in concluding that the Jeep Charity Fund was the fund of a labor organization. He argues that the government's characterization of the Jeep Charity Fund as a tax-exempt organization under 26 U.S.C. §501(c)(3) renders it a separate entity, and that, as a separate entity, the Jeep Charity Fund fails to satisfy the definition of a labor organization. Additionally, he asserts that the government's belated attempt to characterize the fund as an associate fund of the local union still fails to satisfy the requirement of 29 U.S.C. §501(c). 27 We agree with the District Court that the Jeep Charity Fund is the fund of a labor organization. Courts should interpret Section 501 broadly to ensure that elected union officials fulfill their responsibilities as fiduciaries to their members, guard union funds from predators, and keep intact all such funds except those expended in the legitimate operation of the union's business. The funds should be treated as trust funds belonging to the union's members. United States v. Goad, 490 F.2d 1158, 1162 (8th Cir.), cert. denied, 417 U.S. 945 (1974); see also United States v. Ellis, 493 F. Supp. 1092, 1097 (M.D. Tenn. 1979), aff'd, 617 F.2d 604 (6th Cir. 1980)(unpublished opinion). 28 The Second Circuit has held that assets of a not-for-profit building corporation controlled by a union comprise the assets of a labor organization under §501(c). United States v. LaBarbara, 129 F.3d 81 (2nd Cir. 1997). In LaBarbara, the defendant served as the principal officer of the local union. The union owned a corporation whose principal asset was the union headquarters. Without the approval of the union's trustees or the corporation, the defendant pledged the union's headquarters as collateral to obtain a loan for the construction of a training facility. The defendant then awarded many of the contracts for the construction project to friends and relatives at higher than normal prices. The defendant was charged and convicted of embezzling union property under 29 U.S.C. §501(c). On appeal, the defendant argued that the building was not property of a labor organization because the corporation owned it, not the union. LaBarbara, 129 F.3d at 85. The court found this argument frivolous, stating the defendant clearly diverted assets -- the value of the building and therefore the value of the Building Corporation -- to himself in violation of Section 501(c). Id. Thus, the union's ownership of the corporation stretches its interest to all the assets of that corporation and a theft or improper use of any asset constitutes a violation of 29 U.S.C. §501(c). See also United States v. Briscoe, 65 F.3d 576, 586 (7th Cir. 1995) (holding union official's retention of loan application fees from non-members for personal use was sufficient to sustain a conviction under 29 U.S.C. §501(c)). 29 In the present case, the money in the misappropriated fund was derived from the paychecks of all the union employees. They intended this fund to be a trust fund managed by the union and used for charitable purposes. Union officials exclusively controlled the selection of charities anddistribution of money from this account. The evidence revealed that union officials authorized and signed all checks from this account. The union maintained the records of the account's activity at its headquarters. 30 The fact the charity fund enjoys tax-exempt status under 26 U.S.C. §501(c)(3) does not render it a separate entity as Hartsel alleges. Corporations, as well as a community chest, fund, or foundation, can obtain tax-exempt status under this code provision if they engage in charitable or other specified activity. Therefore, we find the assets of the Jeep Charity Fund were the funds of a labor organization, and affirm the decision of the District Court on this Count.