Opinion ID: 1263597
Heading Depth: 3
Heading Rank: 2

Heading: Implied Federal Cause of Action

Text: District and circuit courts alike are divided on whether § 501 creates an implied federal cause of action for labor organizations. [6] Although the Supreme Court has recognized the difficulty of interpreting § 501, it has thus far declined to resolve the issue. See Guidry, 493 U.S. at 374 n. 16, 110 S.Ct. 680 (Courts have reached inconsistent positions on the question whether a union may bring suit under § 501. We need not resolve that question here. (citations omitted)). Only two circuit courts, the Ninth and Eleventh Circuits, have addressed the question, and they have reached opposite conclusions. In Traweek, the Ninth Circuit, focusing exclusively on § 501(b), declined to recognize an implied federal cause of action for suits by labor unions. 867 F.2d at 506-07. The court based its conclusion on four grounds. First, the court focused on the plain language of subsection (b), stating that [t]he clear language of the statute does not contemplate a suit brought by a union. Id. at 506. Second, the court claimed adherence to the federal policy of noninterference in the internal affairs of unions and labor matters. Id. Third, the court believed its decision to be consistent with the general principle ... that the scope of federal jurisdictional statutes should be construed narrowly. Id. at 507. And fourth, the Ninth Circuit found evidence of Congress's intent to grant the remedy solely to the union members in § 501(b)'s requirement that union members request leave of the court before suing. Id. at 506. The Eleventh Circuit viewed the statute differently. In Statham, the court read subsections (a) and (b) of § 501 together and concluded that the statute as a whole created an implied federal cause of action for labor organizations. 97 F.3d at 1421. Relying on the Act's plain language and its legislative history, the court found that Congress intended labor organizations to have access to the federal courts for suits to enforce the fiduciary duties imposed by § 501(a). See id. at 1421 (We conclude that section 501(a) was intended to create a federal cause of action that can be asserted by the union on its own behalf. (emphasis added)). In looking to the duty-creating language of § 501(a), the Eleventh Circuit said that [i]t would make no sense to impose federal duties and simultaneously deny the unions the right to enforce those duties. Id. at 1420. The court hypothesized that [i]f Congress had only enacted section 501(a) without section 501(b), no one would suggest that Congress meant to deny the union the right to enforce 501(a). Id. The court saw no reason that subsection (b)'s mere existence should detract from what it viewed as the obvious import of subsection (a). See id. at 1421 (We should not infer from the mention of individual suits that Congress did not intend to give unions a cause of action.). Instead, the Eleventh Circuit read subsection (b) as a complement to subsection (a). Subsection (b), the court noted, had two purposes. The first was to enable individual union members to sue on the union's behalf. Id. The second was to make sure that individuals do not preempt a union's right to prosecute its own claims. Id. Despite these dual purposes, the court noted that § 501(b) itself, which requires that unions have the first opportunity to sue for violations of the duties set forth in subsection (a), makes the first purpose subservient to the second. Id.; see also id. at 1419 ([S]ection 501(b) shows Congress preferred that the union, rather than individual members, sue on its own behalf.). The Eleventh Circuit summarized the interplay between subsections (a) and (b) as follows: It is far more in keeping with the statute as a whole to conclude that, having given the unions certain rights, Congress thought it implicit that the unions could enforce those rights in court. Allowing the individuals to assert the unions' claims was more extraordinary and therefore had to be spelled out. Id. at 1421. The Eleventh Circuit also looked to the LMRDA's legislative history for evidence of Congress's intent. The court noted that the Act was a broad and wide-ranging attempt to reign in corruption within union leadership. Id. at 1420-21 (citing Hood, 454 F.2d at 1354). When Congress passed the LMRDA, few states had imposed fiduciary duties upon union officials, and members of Congress perceived the remedies available for breaches of those duties to be inadequate. Id. at 1420 (citing S.Rep. No. 86-187 (1959), reprinted in 1959 U.S.C.C.A.N. 2318, 2376). The court concluded from this historical background that Congress intended to supplement the remedies available to unions by creating new federal protections. Id. Because § 501 was intended to compensate for inadequate state remedies, the court held that it would frustrate congressional intent to relegate the union to state remedies. Id. It is incumbent on this court, it appears, to break the tie between the Ninth and Eleventh Circuits on this issue. We begin with the Supreme Court's current views on implied private federal causes of action. The Court's guidance on when a court should recognize an implied cause of action has evolved over time. Originally, the Court would find an implicit cause of action if doing so would effectuate a statute's purpose and there was nothing in its legislative history to counter the implication. See J.I. Case Co. v. Borak, 377 U.S. 426, 431-35, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964). The Court later adopted a series of questions to help courts decide whether to imply a federal cause of action. See Cort v. Ash, 422 U.S. 66, 78, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975). The four factors the Court considered were (1) whether the statute created a federal right in favor of the plaintiff; (2) whether there existed explicit or implicit evidence of congressional intent either to create or deny a cause of action; (3) whether implying a cause of action was consistent with the underlying purpose of the legislative scheme; and (4) whether the cause of action was one traditionally relegated to the states. Id. Most recently, however, the Court has distanced itself from the approaches discussed in both Borak and Cort. See Alexander, 532 U.S. at 287, 121 S.Ct. 1511; TAMA, 444 U.S. at 15-16, 100 S.Ct. 242; see also Thompson v. Thompson, 484 U.S. 174, 189, 108 S.Ct. 513, 98 L.Ed.2d 512 (1988) (Scalia, J., concurring in the judgment) (calling Cort effectively overruled). Instead, as we have noted, the Court has now focused solely on the question of congressional intent. See Alexander, 532 U.S. at 286-87, 121 S.Ct. 1511; Karahalios v. Nat'l Fed'n of Fed. Employees, Local 1263, 489 U.S. 527, 532-33, 109 S.Ct. 1282, 103 L.Ed.2d 539 (1989) (looking at congressional intent as the sole factor in its implied-cause-of-action analysis); TAMA, 444 U.S. at 15-16, 100 S.Ct. 242; Touche Ross & Co., 442 U.S. at 568, 99 S.Ct. 2479; see also Thompson, 484 U.S. at 189, 108 S.Ct. 513 ( Scalia, J., concurring in the judgment) (referring to congressional intent as the determinative factor in evaluating the existence of a private cause of action). In Alexander, 532 U.S. 275, 121 S.Ct. 1511, 149 L.Ed.2d 517, the Court, while interpreting a section of Title VI of the Civil Rights Act, attempted to bring some clarity to the implied cause of action analysis. Justice Scalia, writing for the Court, said: The judicial task is to interpret the statute Congress has passed to determine whether it displays an intent to create not just a private right but also a private remedy. Id. at 286, 121 S.Ct. 1511. The inquiry into congressional intent, therefore, is two-fold: Congress must have intended to create both a private right and a private remedy. Id. Such is the inquiry that we now must undertake in the context of § 501. We begin with the text of the statute. Touche Ross & Co., 442 U.S. at 568, 99 S.Ct. 2479. As required by Alexander, we look specifically for rights-creating language and an enforcement regime suggesting the existence of a private remedy for labor organizations. 532 U.S. at 288-89, 121 S.Ct. 1511. Subsection (a) provides that union officers, agents, and other representatives occupy positions of trust in relation to such organization and its members as a group. 29 U.S.C. § 501(a) (emphasis added). This language establishes union officers as fiduciaries vis-à-vis the union and its members. Had the statute stopped there, one might argue that the text suggests an intent to leave the scope of the fiduciary relationship to state common law and remit unions to standard state-law fiduciary remedies. But § 501(a) goes further. It articulates a series of specific fiduciary duties. Union officers must hold the union's money and property solely for the benefit of the organization and its members. Id. They must refrain from dealing with such organization as an adverse party or in behalf of an adverse party. Id. They must not hold[] or acquir[e] any pecuniary or personal interest which conflicts with the interests of such organization. Id. And they must account to the organization for any profit received by him ... in connection with transactions conducted by him or under his direction on behalf of the organization. Id. Finally, the last sentence of § 501(a) provides that [a] general exculpatory provision in the constitution and bylaws of such a labor organization or a general exculpatory resolution of a governing body purporting to relieve any such person of liability for breach of the duties declared by this section shall be void as against public policy. Id. This language does not simply stipulate that general state-law fiduciary principles apply. Instead, it prescribes in some detail the scope of the fiduciary relationship between union officers and the union. The statutory text imposes a series of explicit, affirmative fiduciary obligations and requires an accounting to the organization for profits received by union officers in the course of the union's operations. The itemized list includes some traditional duties of a fiduciary, but the fact that they are specifically enumerated suggests the imposition of new federal duties plainly inuring to the benefit of the union and its members. That much is clear from the statutory text (union officers occupy positions of trust in relation to such organization and its members as a group, hold money and property solely for the benefit of the organization and its members, and must account to the organization for any profit). Id. (emphases added). But it also flows from the nature of a fiduciary duty. A statute that imposes fiduciary duties necessarily implies corresponding rights in the beneficiaries. The statute's focus is thus not solely on the persons being regulated but also on those whose interests are protected-here, the union and, by extension, its members. Cf. Alexander, 532 U.S. at 289, 121 S.Ct. 1511 (Statutes that focus on the person regulated rather than the individuals protected create no implication of an intent to confer rights on a particular class of persons. (quotations omitted)). Thus, an implication arises that § 501(a) confers federal rights on labor organizations: the right to the faithful performance by union officers of the general and specific fiduciary obligations enumerated in the text; the right to an accounting; and the right to nullify any exculpatory clause asserted by union officers as a defense to an action for liability for breach of the fiduciary duties imposed by § 501(a). In other words, the statutory language as a whole manifests an intent to create new rights for labor unions. See Alexander, 532 U.S. at 289, 121 S.Ct. 1511. The statutory language implies the creation of a federal remedy for the union as well. The statutory duty to account to the organization for any profit received fairly implies that the union has a specific remedythat it may sue an unfaithful officer in federal court for an accounting for ill-gotten gains. The last sentence in § 501(a) also suggests the existence of a federal enforcement regime that includes a remedy for the union. It voids any exculpatory provision in the union's organizational documents or resolutions that purport[s] to relieve any [union officer] of liability for breach of the duties declared in the statute. 29 U.S.C. § 501(a). The only possible role such an exculpatory clause could serve is as a defense to a claim against a union officer for breach of the duties imposed by § 501(a), and any such claim belongs at least to the union. [7] By nullifying any exculpatory provisions, the statute removes a possible defense to liability. It follows that the union must have a statutory remedy for liability for breach against which this sort of defense might potentially be asserted. The derivative action created in subsection (b) for individual union members reinforces rather than undermines the implication arising from the text of subsection (a). [8] Section 501(b), by its terms, does nothing more than grant union members the right to sue on a union's behalf. It was necessary for Congress to make this derivative cause of action explicit because there is nothing in subsection (a) to suggest that union members themselves could sue for fiduciary violations committed against the union. See Statham, 97 F.3d at 1421 (Allowing the individuals to assert the unions' claims was more extraordinary and therefore had to be spelled out.). In creating this express cause of action for union members, however, § 501(b) neither opens nor closes the federal courthouse to the unions themselves. Instead, it provides further evidence that labor organizations have an implied cause of action under subsection (a). Subsection (b) conditions union members' right to sue on the union's refusal or failure to bring suit itself. See 29 U.S.C. § 501(b). Only after union members have requested that the union seek relief for violations of § 501(a), and the union has failed or refused to take such action, may the union member sue. Id. The union member's suit may recover damages or secure an accounting or other appropriate relief for the benefit of the labor organization. Id. (emphasis added). By structuring the union member's right and remedy in this way, Congress has created a derivative system much like shareholder derivative actions seen in corporate law. See Hoffman, 362 F.3d at 317 n. 4; Chathas, 233 F.3d at 514; see also Fed.R.Civ.P. 23.1. We pause here to note that in reordering the analysis in private-cause-of-action cases, Alexander subordinated context to text, but it did not eliminate consideration of legal context entirely, particularly when used to clarify text. See Alexander, 532 U.S. at 288, 121 S.Ct. 1511 (We have never accorded dispositive weight to context shorn of text. In determining whether statutes create private rights of action, as in interpreting statutes generally, legal context matters only to the extent it clarifies text. (citation omitted)). Here, there are important parallels between union member derivative actions under § 501(b) and shareholder derivative suits; to the extent that the text of § 501 requires clarification, we find it in this legal context. At common law and under modern state corporation law statutes, the derivative action remedy allows shareholders to bring a corporation's claim on the corporation's behalf when the corporation fails or refuses to act. See Ross v. Bernhard, 396 U.S. 531, 534, 90 S.Ct. 733, 24 L.Ed.2d 729 (1970). In Ross, the Supreme Court discussed the history of shareholder derivative actions. The Court noted that courts in equity developed the derivative suit to provide shareholders redress against faithless officers and directors [and] also against third parties who had damaged or threatened the corporate properties. Id. The American legal system, said the Court, viewed a shareholder derivative action as a suit to enforce a corporate cause of action against officers, directors, and third parties. Id. (emphasis added); see also Koster v. Lumbermens Mut. Cas. Co., 330 U.S. 518, 522, 67 S.Ct. 828, 91 L.Ed. 1067 (1947) (The cause of action which such a [derivative] plaintiff brings before the court is not his own but the corporation's.). The Court went on to say that one precondition for the [shareholder] suit was a valid claim on which the corporation could have sued. Ross, 396 U.S. at 534, 90 S.Ct. 733 (emphasis added). The same principles are at work in the federal derivative remedy created for union members in § 501(b). The statutory rights conferred by subsection (a) belong to the union; individual union members are derivative beneficiaries, and under subsection (b) they may sue in federal court on the union's behalf to vindicate those rights, but only if the union itself first fails or refuses to do so. It would be anomalous indeed to read this statutory scheme as remitting the union's own suit which is primary under the statutory hierarchy to state court. See TAMA, 444 U.S. at 19 & n. 8, 100 S.Ct. 242 (interpreting 15 U.S.C. § 80b-15 as implying a limited private cause of action for violation of the Investment Advisers Act and noting that Congress could have intended that claims under § 215 would be brought only in state court, but declining to adopt such an anomalous construction without some indication that Congress in fact wished to remit the litigation of a federal right to state court); see also Statham, 97 F.3d at 1420. A district court in this circuit has also recognized this irregularity: To allow union members to sue in federal court while foreclosing suit by unions would create perverse incentives whereby unions would `refuse' to bring suit upon an appropriate demand by one of its members for the sole purpose of manufacturing federal jurisdiction. Benjamin, 776 F.Supp. at 1366. As our discussion makes clear, we agree with the Eleventh Circuit that the text and remedial structure of § 501(a) and (b), read together, imply both federal rights and a federal remedy for labor organizations against union officers who violate their statutory duties. [9] Today's conclusion does not extend our jurisdiction beyond that contemplated by Congress, as some courts have suggested. See, e.g., Traweek, 867 F.2d at 506-07; Freeman, 683 F.Supp. at 1192. We may not, nor have we any desire to, enlarge our own jurisdiction. Instead, today's decision arises by clear implication from the text, structure, and context of § 501. Nor do we believe, as the Ninth Circuit has stated, that this conclusion represents an unwarranted interference in the internal affairs of labor organizations. See Traweek, 867 F.2d at 506; Phillips, 403 F.2d at 830. Congress has weighed the risks and benefits of a federal judicial remedy for the misconduct of union officers; we are bound to give effect to the LMRDA as written, with the interpretive guidance we have drawn from the Supreme Court's recent implied-cause-of-action jurisprudence. In summary, we hold that labor organizations have an implied cause of action under § 501(a) to sue in federal court for violation of the fiduciary duties imposed by the statute. The text and structure of the statute as a whole demonstrate Congress's intent to confer upon unions federal rights and a federal remedy. Because Local 150 has a federal cause of action for violation of § 501, the district court possessed jurisdiction to hear this case pursuant to the general grant of federal-question jurisdiction, 28 U.S.C. § 1331, and therefore erred in dismissing the suit.