Opinion ID: 784247
Heading Depth: 2
Heading Rank: 2

Heading: Interested Employers Financing Counterclaims Under The LMRDA

Text: 21 Local 38 contends that section 101(a)(4) of Title I of the LMRDA, 29 U.S.C. § 411(a)(4), bars an interested employer from financing a counterclaim brought by a union member against his union. We disagree. 22 Section 101(a)(4) provides, in pertinent part: 23 No labor organization shall limit the right of any member thereof to institute an action in any court, or in a proceeding before any administrative agency, irrespective of whether or not the labor organization or its officers are named as defendants or respondents in such action or proceeding ...: Provided, That any such member may be required to exhaust reasonable hearing procedures ... within such organization, before instituting legal or administrative proceedings against such organization or any officer thereof: And provided further, That no interested employer or employer association shall directly or indirectly finance, encourage, or participate in, except as a party, any such action, proceeding, appearance, or petition. 24 29 U.S.C. § 411(a)(4). 25 As the district court acknowledged, although the LMRDA was enacted in 1959, relatively few cases have addressed the scope of section 101(a)(4)'s second proviso. The majority of the cases that have analyzed the second proviso dealt with situations in which a union member affirmatively commenced a lawsuit against his union. See, e.g. Harris v. Plasterers and Cement Masons Local No. 406, 619 F.2d 1164, 1169-70 (7th Cir.1980); Adamszewski v. Local Lodge 1487, International Association of Machinists and Aerospace Workers, AFL-CIO, 496 F.2d 777, 780-84 (7th Cir.1974); Colapietro v. International Association of Machinists and Aerospace Workers, District 64, 611 F.Supp. 90, 94-96 (D.R.I.1985); Farowitz v. Associated Musicians of Greater New York, Local 802, A.F. of M., 241 F.Supp. 895, 908-09 (S.D.N.Y.1965). Only one decision has reviewed the second proviso's application to a counterclaim. 26 In International Brotherhood of Electrical Workers, Local 336 v. Illinois Bell Telephone Co., 496 F.2d 1 (7th Cir.1974), the Seventh Circuit squarely addressed the precise issue before us. There, a union initiated a lawsuit to collect fines levied against union members. Id. at 2. In response, the defendants sought to recover installment payments they had already made towards the fine by filing a counterclaim. Id. The union asserted that an interested employer had financed the counterclaim and argued that section 101(a)(4) barred the defendants' counterclaim under those circumstances. 27 The Seventh Circuit disagreed. On examining section 101(a)(4), the court explained that the language Congress chose prohibits the financing of `any such action,' which refers back to the right of a member `to institute an action in any court.' Id. at 3. The Seventh Circuit held that it could only presume that Congress meant what it said, that an interested employer may not finance the institution of a suit by employees, but is free to finance a defense or a counterclaim. Id. 28 The Seventh Circuit's rationale is persuasive in light of the plain language of section 101(a)(4). When we construe a statute, we first look to the language of the statute itself so as to ascertain the provision's plain meaning, if it has one. Auburn Housing Authority v. Martinez, 277 F.3d 138, 143 (2d Cir.2002); United States v. Dauray, 215 F.3d 257, 260 (2d Cir.2000). As the Seventh Circuit noted in Illinois Bell Telephone Co., section 101(a)(4)'s second proviso precludes interested employers from financing any such action, a phrase that refers back to and limits a member's right to  institute an action in any court. 29 U.S.C. § 411(a)(4) (emphasis added). 29 The word action, without more, is arguably broad enough to encompass any type of judicial proceeding, including counterclaims. See United States v. P.F. Collier & Son Corp., 208 F.2d 936, 938 (7th Cir.1954) (If the question were one of first impression, we would have no difficulty in reaching the conclusion that the words `any action, suit or proceeding' are sufficiently broad in their ordinary and commonly accepted meaning to encompass every form and kind of litigation.); see also Black's Law Dictionary 28-29 (7th ed.1999) (defining an action as, inter alia, [a] civil or criminal judicial proceeding). Cf. U.C.C. § 1-201(1) (`Action' in the sense of a judicial proceeding, includes recoupment, counterclaim, set-off, suit in equity, and any other proceeding in which rights are determined.). 30 We need not decide, however, whether the word action, standing alone, embraces Pelella's counterclaim for the purposes of section 101(a)(4)'s second proviso. [T]he meaning of statutory language, plain or not, depends on context. King v. St. Vincent's Hospital, 502 U.S. 215, 221, 112 S.Ct. 570, 116 L.Ed.2d 578 (1991). In the statutory context of section 101(a)(4), the word action is qualified by the phrase to institute. 31 A party institutes an action when he commences a judicial proceeding. See Black's Law Dictionary, supra, at 801 (defining the verb institute as [t]o begin or start; commence); see also McNeil v. United States, 508 U.S. 106, 112, 113 S.Ct. 1980, 124 L.Ed.2d 21 (1993) ([T]he normal interpretation of the word `institute' is synonymous with the words `begin' or `commence.'). A party commences a judicial proceeding when he takes the first step that invokes the judicial process. See Black's Law Dictionary 183 (6th ed.1991) (defining commence as [t]o initiate by performing the first act or step; [t]o begin, institute or start); see also United States v. $8,221,877.16 in United States Currency, 330 F.3d 141, 159 (3d Cir.2003) (quoting McNeil, 508 U.S. at 112, 113 S.Ct. 1980) (In the context of civil actions, the word `commence' does not encompass broad concepts, but rather requires `invocation of the judicial process.'). 32 An action is therefore instituted when a plaintiff files a complaint as that constitutes the first step invoking the judicial process. See Fed.R.Civ.P. 3 (A civil action is commenced by filing a complaint with the court.); Fed.R.Civ.P. 3 advisory committee's note ([T]he first step in an action is the filing of the complaint.). In sharp contrast, a defendant asserts a counterclaim in response to a plaintiff's institution of an action. A counterclaim, by definition, is a claim for relief asserted against an opposing party after an original claim has been made. Black's Law Dictionary 353 (7th ed.1999) (emphasis added); see also 3 James Wm. Moore, et al., Moore's Federal Practice § 13.90[2][a], at 13-79 (3d ed. 1997) (Only defending parties may assert counterclaims.). Counterclaims are therefore generally asserted in the answer to a previously filed complaint. Moore, supra, § 13.92, at 13-88. 33 In other words, a defendant does not institute an action when he asserts a counterclaim. Rather, a plaintiff must commence the action by filing a complaint that names a defendant. This affords the defendant the ability to file a responsive pleading, namely the answer, see Fed.R.Civ.P. 12(a), in which he can include a claim for relief against the opposing party. See Fed.R.Civ.P. 13(a), 13(b). Since section 101(a)(4)'s second proviso limits a union member's right to institute an action, the plain language of the statutory text, when read literally, does not circumscribe a member's right to pursue a counterclaim because the assertion of a counterclaim does not institute an action. See Illinois Bell Telephone Co., 496 F.2d at 4.
34 Local 38 contends that, notwithstanding the plain language of section 101(a)(4), we should construe the second proviso broadly and prohibit interested employers from financing the counterclaims of union members so as to effectuate congressional intent. That argument is not without force. We have previously read similar language broadly to encompass counterclaims where doing so furthered the purpose of the statute in question. See Koolik v. Markowitz, 40 F.3d 567, 568-69 (2d Cir.1994). [W]ords are inexact tools at best, and for that reason there is wisely no rule of law forbidding resort to explanatory legislative history no matter how clear the words may appear on superficial examination. Harrison v. Northern Trust Co., 317 U.S. 476, 479, 63 S.Ct. 361, 87 L.Ed. 407 (1943) (internal citations and quotation marks omitted). The words chosen by Congress are not in all instances a reliable indicator of Congress' intent, [and] we may look to the legislative history of the enactment to determine whether literal application of the statute would pervert its manifest purpose. United States v. Perdue Farms, 680 F.2d 277, 280 (2d Cir.1982) (internal citations and quotation marks omitted). 35 In Koolik v. Markowitz, 40 F.3d at 568, we addressed the scope of 11 U.S.C. § 362(a)(1) and held that the provision operated to stay the commencement or continuation... of a judicial, administrative, or other action or proceeding against the debtor where a petition in bankruptcy had been filed. 11 U.S.C. § 362(a)(1). The plaintiff in Koolik had appealed from a judgment that awarded the defendant $110,000 on his counterclaim. After the plaintiff subsequently filed a petition in bankruptcy during the course of the pending appeal, he argued that further appellate proceedings should be held in abeyance in accordance with section 362(a)(1). We agreed. On examining that provision, we noted that section 362(a)(1) had been designed to provide the debtor with a breathing spell from his creditors. Koolik, 40 F.3d at 568 (internal citations and quotation marks omitted). We therefore construed the provision broadly to further that statutory design and read the term `action or proceeding,' for purposes of [section] 362(a)(1), to include any pleading that asserts a claim on which relief is sought. Id. Hence, we concluded that an answer that asserts a counterclaim against a plaintiff who becomes a bankruptcy debtor is an `action or proceeding against the debtor,' within the meaning of [section] 362(a)(1), notwithstanding the fact that the plaintiff initiated the lawsuit. Id. Section 362(a)(1) thus operated to stay the continuation of the appellate proceedings in Koolik. 36 The rationale that led us to construe section 362(a)(1) broadly does not apply in this instance. Construing section 101(a)(4) broadly to preclude a union member from asserting a counterclaim financed by an interested employer where the union instituted an action against the member would not further the purpose of the LMRDA. 37 Congress enacted the LMRDA to correct widespread abuses of power and instances of corruption by union officials. Franza v. International Brotherhood of Teamsters, Local 671, 869 F.2d 41, 44 (2d Cir.1989). The legislative history and the extensive hearings which preceded the enactment of the [LMRDA] abundantly evidence the intention of the Congress to prevent union officials from abusing their disciplinary powers. Salzhandler v. Caputo, 316 F.2d 445, 449 (2d Cir.1963). 38 Section 101 of Title I of the LMRDA represents [o]ne of the most significant remedial provisions of the LMRDA. International Union, United Automobile, Aerospace and Agricultural Implement Workers of America v. National Right to Work Legal Defense and Education Foundation, 590 F.2d 1139, 1149 (D.C.Cir.1978) ( National Right to Work ). Title I, which sets out a Bill of Rights for union members, was written to protect those members from the abusive or coercive practices of the union's leadership. Franza, 869 F.2d at 44. Among the rights included in section 101 of Title I is the right of a union member to bring an action against his union and its leaders in court or before an administrative agency. National Right to Work, 590 F.2d at 1149 (citing 29 U.S.C. § 411(a)(4)). The right-to-sue provision was designed to give union members the tools to insure the effective and fair operation of their union as a representative institution. Id. 39 The rights enumerated in Title I, however, are not without qualifications. The second proviso in section 101(a)(4) limits a member's right to institute an action against his union where the action is financed by an interested employer. See 29 U.S.C. § 411(a)(4). 40 As originally introduced by Senator McClellan in an amendment to the LMRDA, Title I did not include the second proviso. See Adamszewski, 496 F.2d at 782. Rather, the proviso was offered in the Senate as an amendment to the right-to-sue provision of the bill of rights proposed by Senator McClellan. National Right to Work, 590 F.2d at 1149. The so-called Kuchel amendment, which did not refer to interested employers, initially provided: 41 That no employer or employer association shall directly or indirectly finance, encourage, or participate in, except as a party, any such action, proceeding, appearance, or petition. 42 105 Cong. Rec. 6693 (1959), reprinted in 2 NLRB, Legislative History of the Labor-Management Reporting and Disclosure Act of 1959, at 1220-21 (1959). That amendment, introduced by Senator Kuchel, sought to eliminate the extremes raised by the [McClellan] amendment, and to ensure that Title I would not unduly harass and obstruct legitimate unionism. Franza, 869 F.2d at 44 (internal citations and quotation marks omitted). 43 Although Congress desired to preclude potentially harmful employer involvement in union-member suits against unions, it did not want to prevent union members from using money obtained from friends, banks, or other similar sources to finance such suits. National Right to Work, 590 F.2d at 1149-50. This concern led Congress to later add the adjective interested to describe those employers or employer associations whose financing was to be prohibited. Id. at 1150; see also Adamszewski, 496 F.2d at 782-83. 44 The purpose of the second proviso in section 101(a)(4) was to protect unions from harassing litigation and illegal management interference with their internal disputes with dissident workers. International Union, United Automobile, Aerospace and Agricultural Implement Workers of America v. National Right to Work Legal Defense and Education Foundation, 366 F.Supp. 46, 48 (D.D.C.1974); International Union of Operating Engineers Local 400, AFL-CIO (Hilde Construction Co.), 225 N.L.R.B. 596, 606, 1976 WL 7268 (1976), mem. aff'd, 561 F.2d 1021 (D.C.Cir.1977); see also National Right to Work, 590 F.2d at 1149 (Section 101(a)(4)'s second proviso was designed to keep employer influence out of disputes between union members and their unions.). In essence, Congress wanted to deny employers the power to cause harassing suits or otherwise to create divisions in the unions with which they had relationships. National Right to Work, 590 F.2d at 1151. 45 The concerns that section 101(a)(4)'s second proviso seeks to address have less force where, as here, a union affirmatively subjects an internal union dispute to litigation in a court of law. By taking the member to court, the union itself introduces the outside actor into what once had been an internal grievance and opens the door to some measure of interference. Moreover, to the extent that the second proviso seeks to deny interested employers the power to cause harassing suits or create divisions between the union and its members, that concern is mitigated where the union has already initiated legal action against one or more of its members. If anything, denying members the ability to secure resources from interested employers so that they can protect themselves under these circumstances — where the union invokes judicial assistance to enforce disciplinary charges and the fines that result therefrom — may leave the members vulnerable to the same abuses of union power that the LMRDA seeks to remedy. 46 In evaluating these considerations and their bearing on the plain statutory language before us, we must keep in mind that the text at issue here is a proviso. It is an established rule of statutory construction that a proviso states an exception from the general policy which a law embodies, and should be strictly construed and so interpreted as not to destroy the remedial processes intended to be accomplished by the enactment. Shilkret v. Musicraft Records, 131 F.2d 929, 931 (2d Cir.1942). 5 We hold that a narrow construction of the second proviso is warranted; that narrow interpretation better comports with Title I's purpose of protecting union members from abusive union practices and, at the same time, does not undermine the intent of the second proviso. 47 The dissent contends that construing the second proviso in a narrow fashion undermines the goals of the LMRDA because our construction also bears on the meaning of the phrase to institute an action as those words are used in the main body of section 101(a)(4). According to the dissent, strictly construing the second proviso not only affects the extent to which interested employers can fund a member's counterclaim but also circumscribes the protection afforded by section 101(a)(4) to a union member's right to sue. The dissent seeks to support that conclusion by arguing that, if we read the phrase to institute an action as it is incorporated by reference in the second proviso in a literal manner, we must also read those same words literally when they are used in the main body of section 101(a)(4), which prohibits labor organizations from limit[ing] the right of any member thereof to institute an action. 29 U.S.C. § 411(a)(4). Because the phrase to institute an action, when read literally, means to commence an action through the filing of a complaint, the dissent suggests that our strict interpretation of those words would narrow the scope of the rights guaranteed by the main body of section 101(a)(4) by allowing unions to limit the rights of their members to assert a counterclaim. 48 However, that issue is not implicated in this appeal. In this appeal, we are asked to focus on the narrower question of whether section 101(a)(4)'s second proviso precludes a union member from pursuing a counterclaim that is financed by an interested employer. As Justice Frankfurter noted, an exact formulation of the issue before us is necessary to avoid inadvertent pronouncement in one context when the language may require separate considerations in other settings. Automatic Canteen Co. of America v. F.T.C., 346 U.S. 61, 65, 73 S.Ct. 1017, 97 L.Ed. 1454 (1953) (Frankfurter, J. ). 49 Furthermore, the history of LMRDA litigation undercuts the concerns expressed by the dissent. Although the LMRDA was enacted in 1959, we are aware of no cases in which a union has argued that the text set forth in the main body of section 101(a)(4) allows a union to limit the rights of its members to assert a counterclaim. This is telling with respect to how section 101(a)(4) has been understood in the nearly 30 years since the Seventh Circuit held that the phrase to institute an action, as those words were referred to in the second proviso, did not encompass the assertion of a counterclaim. See Illinois Bell Telephone Co., 496 F.2d at 3-4. In the decades after the Seventh Circuit arrived at that decision, there is no record of a single court holding that unions could limit the rights of their members to assert counterclaims against them in light of the terminology employed by section 101(a)(4). In essence, despite the fears expressed by the dissent, there is no persuasive evidence to suggest that parties and courts believe unions may limit the rights of their members to assert counterclaims. 50 For the foregoing reasons, we join the Seventh Circuit and hold that, given the plain language of section 101(a)(4)'s second proviso, an interested employer may not finance the institution of a suit by employees, but is free to finance a defense or a counterclaim. Illinois Bell Telephone Co., 496 F.2d at 3. 6 Accordingly, we hold that the district court properly denied Local 38's motion for partial summary judgment. 51