Opinion ID: 3013270
Heading Depth: 2
Heading Rank: 3

Heading: Litigation Expenditures

Text: Plaintiffs’ fair-share fees include charges for collectivebargaining-related litigation conducted by PSEA or its affiliates but unrelated specifically to the SAEA unit. Such expenses are known as extra-unit litigation expenses. Plaintiffs contend that the extra-unit litigation expenses at issue are nonchargeable. See Ellis v. Bhd. of Ry., Airline & S.S. Clerks, Freight Handlers, Exps., & Station Employees, 466 U.S. 435, 453 (1984) (holding certain litigation expenses not incurred on behalf of non-members’ bargaining unit unchargeable to those non-members). The Unions argue that, because the litigation expenses at issue are “pooled” across PSEA affiliates, these expenses are chargeable to non-union members. See Lehnert v. Ferris Faculty Ass’n, 500 U.S. 507, 524 (1991) (holding that a union may charge non-members for their pro rata share of 9. In this vein, we follow other circuits that have held that the independent audit requirement does not require the auditor to verify the local union’s classification of expenses as chargeable or nonchargeable. See, e.g., Dashiell v. Montgomery County, Md., 925 F.2d 750, 755-56 (4th Cir. 1991); Gwirtz, 887 F.2d at 682 n.3; Ping v. Nat’l Educ. Ass’n, 870 F.2d 1369, 1374 (7th Cir. 1989); Andrews, 829 F.2d at 340. We agree with these circuits that chargeability is a legal question. Dashiell, 925 F.2d at 755-56; Gwirtz, 887 F.2d at 682 n.3; Ping, 870 F.2d at 1374; Andrews, 829 F.2d at 340. To require an accountant to verify that a union has correctly classified expenditures is “tantamount to requiring the auditor to give a second legal opinion,” Dashiell, 925 F.2d at 756, which is clearly beyond the scope of an auditor’s duties. 14 certain expenses incurred pursuant to a cost-sharing agreement with affiliate unions). This case thus requires us to address an expense-chargeability issue that lies in the intersection of the Ellis and Lehnert holdings: whether a union may charge non-members for their pro rata share of expenses that relate to litigation and that were incurred on behalf of an affiliate union pursuant to a cost-sharing agreement. As noted, Ellis holds that a union may not charge nonunion members for certain extra-unit litigation expenses.10 Ellis, 466 U.S. at 453 (while expenses of collectivebargaining-related litigation arising from the non-members’ bargaining unit are “clearly chargeable” to that employee, “[t]he expenses of litigation not having such a connection with the [non-members’] bargaining unit are not to be charged to objecting employees”).11 But Ellis did not involve expenses incurred by an affiliate bargaining unit pursuant to an expense-pooling arrangement with that affiliate. Here, PSEA and its affiliates have agreed to pool their litigation expenses for the unions’ mutual benefit. This case therefore presents a significantly different question than Ellis. Even if 10. Examples of the challenged litigation in Ellis included “the union’s challenge to the legality of the airline industry’s Mutual Aid Pact, under which a struck carrier receives substantial financial assistance from non-struck carriers; the protection of employees’ rights during bankruptcy proceedings involving an employer; the doctrine of fair representation; and the defense of suits alleging violation of the nondiscrimination requirements of Title VII.” Ellis v. Bhd. of Ry., Airline & S.S. Clerks, Freight Handlers, Exps., & Station Employees, 685 F.2d 1065, 1073 (9th Cir. 1982), aff ’d in part and rev’d in part, 466 U.S. 435 (1984). 11. While Ellis interpreted the Railway Labor Act (“RLA”) rather than the First Amendment, subsequent cases have suggested that RLA cases such as Ellis “necessarily provide some guidance regarding what the First Amendment will countenance in the realm of union support of political activities through mandatory assessments.” Lehnert, 500 U.S. at 516; see also Romero v. Colegio De Abogados De P.R., 204 F.3d 291, 298 (1st Cir. 2000) (“Although the decision [in Ellis] turned on a statutory interpretation of the Railway Labor Act, the Court was clear that its interpretation was required to avoid constitutional difficulty. Later cases have interpreted Ellis as setting forth constitutional rules . . . .”) (internal citations omitted). 15 a local union party to such an arrangement does not litigate in any given year, it still derives a tangible benefit from participating in an expense-pooling agreement: the availability of on-call resources greater than those it could muster individually. Cf. Finerty v. NLRB, 113 F.3d 1288, 1292 (D.C. Cir. 1997) (“It is indisputable that, by pooling its resources on a union-wide basis, a union, which is the bargaining representative of all its members, provides some benefit to members of the various local unions.”) (emphasis in original). Moreover, it is unclear whether the Ellis Court would have reached the same result if the extra-unit litigation at issue were more related to the collective bargaining activities of the Ellis plaintiffs’ bargaining unit. In other words, it is unclear whether the Court intended to state a per se rule against the chargeability of extra-unit litigation expenses. In Lehnert, the Supreme Court held that a union may charge non-union members for their pro rata share of expenses incurred on behalf of affiliate bargaining units when there is “some indication that the payment is for services that may ultimately inure to the benefit of the members of the local union by virtue of their membership in the parent organization.” Lehnert, 500 U.S. at 524.12 A majority of the Court in Lehnert reached this conclusion by applying a three-part test to assess whether a particular union affiliate’s expense is chargeable to non-members of the union. “[C]hargeable activities must (1) be ‘germane’ to collective-bargaining activity; (2) be justified by the government’s vital policy interest in labor peace and avoiding ‘free riders’; and (3) not significantly add to the burdening of free speech that is inherent in the allowance of an agency or union shop.” Id. at 519.13 However, when 12. The dissent also endorsed this result, even though it would have reached that conclusion through a different analytical path. See Lehnert, 500 U.S. at 561-62 (Scalia, J., concurring in the judgment in part and dissenting in part). 13. While this test was in a plurality opinion of Chief Justice Rehnquist and Justices Blackmun, White and Stevens, see Lehnert, 500 U.S. at 519, a fifth justice, Justice Marshall, joined the portion of the plurality opinion containing the test, see id. at 534 (Marshall, J., concurring in part and dissenting in part). 16 the Lehnert Court attempted to apply this test to a question similar to the one before us — whether expenses for reporting on extra-unit litigation, where litigation expenses are incurred pursuant to a cost-pooling agreement with an affiliate union, are chargeable to non-members of the local bargaining unit — no five justices agreed. Justice Blackmun, joined by Chief Justice Rehnquist and Justices White and Stevens, noted that dissenting employees may not be charged for the costs of union literature reporting on extra-unit litigation because they cannot be charged for such litigation itself under Ellis. Id. at 528. He acknowledged that litigation conducted by one bargaining unit could establish precedents useful to another bargaining unit. But he concluded that this potential benefit was too attenuated and that “extraunit litigation [is] more akin to lobbying [which is not chargeable] in both kind and effect.” Id.14 Were Justice Blackmun able to garner five justices’ votes for the proposition that extra-unit litigation is not chargeable to non-union members, Lehnert would control here. However, as we discuss, he wrote only for a plurality of four. Justice Scalia, joined by Justices O’Connor and Souter, “agree[d] with the Court’s disposition of many of the challenged expenditures,” but disagreed with the majority’s three-part test for evaluating the chargeability of expenditures. Lehnert, 500 U.S. at 550 (Scalia, J., concurring in the judgment in part and dissenting in part). Rather, Justice Scalia would permit expenses to be charged to non-members when those expenses are incurred as part of “the union’s statutory duties as exclusive bargaining agent.” Id. However, he did not apply his preferred test to 14. Justice Marshall, who otherwise concurred in Justice Blackmun’s opinion, emphasized that Lehnert concerned the chargeability of a union’s reporting on extra-unit litigation. Chargeability of reporting is different from chargeability of the litigation itself. This disagreement about the scope of the issues before the Court led Justice Marshall to dissent on this issue. He would have held reporting on extraunit litigation expenses chargeable, “particularly since the publication costs at issue are de minimis” and involved only “a few pennies.” Lehnert, 500 U.S. at 534, 546. (Marshall, J., concurring in part and dissenting in part). 17 the question whether dissenting employees could be charged for the expenses of union reporting on extra-unit litigation (or for the expenses of extra-unit litigation itself). Justice Kennedy, who endorsed Justice Scalia’s rather than Justice Blackmun’s chargeability test, wrote separately to argue that extra-unit litigation expenditures should be allowed if “undertaken in the course of the union’s duties as exclusive bargaining representative.” Lehnert, 500 U.S. at 563 (Kennedy, J., concurring in the judgment in part and dissenting in part). He criticized Justice Blackmun’s reliance on Ellis to resolve the question whether costs of reporting on extra-unit litigation are chargeable, pointing out that Ellis did not address a litigation-cost-sharing arrangement. Id. at 564. Despite the fact that no five justices explicitly agreed on the chargeability of expenses arising from extra-unit litigation, plaintiffs insist that Lehnert controls our disposition of the litigation-expenditures issue. They contend that because Justice Scalia was clear when he disagreed with the Court’s rulings on other expenditures, he must have agreed with Justice Blackmun’s position that extra-unit litigation expenditures are not chargeable. We disagree with the plaintiffs’ interpretation of Justice Scalia’s opinion, for his silence is inconclusive.15 We are therefore 15. We note that application of Justice Scalia’s chargeability standard does not necessarily result in the prohibition against pooled extra-unit litigation expenses that Justice Blackmun espoused. A union’s incurring extra-unit litigation expenses might, under some circumstances, be “essential to [the union’s] discharge of its duties as bargaining agent.” Lehnert, 500 U.S. at 560 (quoting Ellis, 466 U.S. at 448-49) (Scalia, J., concurring in the judgment in part and dissenting in part). Moreover, Justice Scalia’s willingness to consider as a chargeable expense an annual fee assessed by a national union to a local bargaining unit to ensure the availability of on-demand services, id. at 561-62, suggests that he might also be willing to consider as chargeable a local bargaining unit’s pro rata share of pooled litigation expenses. That pro rata assessment is essentially an annual fee to ensure the availability of litigation resources to the local unit — a form of insurance. We therefore disagree with the Tenth Circuit’s conclusion in Pilots Against Illegal Dues v. Air Line Pilots Association, 938 F.2d 1123, 1130 n.4 (10th Cir. 1991), that a majority of the Lehnert Court would not allow extra-unit litigation expenses incurred pursuant to a pooling agreement to be charged to non-union members. 18 left without definitive Supreme Court guidance. See Planned Parenthood of S.E. Pa. v. Casey, 947 F.2d 682, 693 (3d Cir. 1991), aff ’d in part and rev’d in part, 505 U.S. 833 (1992) (stating that a putative majority standard must “necessarily produce results with which a majority of the Court from that case would agree”). The Sixth Circuit, the Court of Appeals from which Lehnert was appealed to the Supreme Court, addressed the issue before us in Reese v. City of Columbus, 71 F.3d 619 (6th Cir. 1995). The Court agreed with Justice Marshall that the Lehnert plurality’s statement on extra-unit litigation expenses was “no more than dicta” because at issue was the cost of reporting on extra-unit litigation. Id. at 623-24. It then proceeded to find that Lehnert not only allowed, but required, it to approve the charges “because a majority [in Lehnert] approved of charges for pooled expenses like those in this case.” Id. at 624. While Reese overstates Lehnert’s holding, as the Lehnert majority never held extra-unit litigation expenses incurred pursuant to a pooling agreement to be chargeable, we nonetheless agree with the Sixth Circuit’s conclusion. Moreover, in International Association of Machinists & Aerospace Workers v. NLRB, 133 F.3d 1012 (7th Cir. 1998), the Seventh Circuit enforced an NLRB decision in which the NLRB rejected as a matter of law the proposition that extraunit litigation expenses should be treated differently from other extra-unit expenses and instead “appl[ied] the same standard for determining the chargeability of litigation expenses as we are required . . . to apply to all other expenses.” Cal. Saw & Knife Works, 320 N.L.R.B. 224, 239 (1995). The Seventh Circuit agreed that litigation expenditures are “analytically identical” to other expenditures related to collective bargaining. International Ass’n of Machinists & Aerospace Workers, 133 F.3d at 1016. We too uphold the chargeability of the extra-unit litigation expenses at issue by applying the Lehnert majority’s three-part chargeability test: “chargeable activities must (1) be ‘germane’ to collective-bargaining activity; (2) be justified by the government’s vital policy interest in labor peace and avoiding ‘free riders’; and (3) not 19 significantly add to the burdening of free speech that is inherent in the allowance of an agency or union shop.” Lehnert, 500 U.S. at 519. First, that the litigation expenses at issue were incurred pursuant to an expense-pooling arrangement makes the pro rata share of those expenses charged to SAEA members and non-members akin to insurance. See id. at 523 (noting that because “[t]he essence of the affiliation relationship is the notion that the parent will bring to bear its often considerable economic, political, and informational resources when the local is in need of them,” the portion of a local’s fair-share fee that “contributes to the pool of resources potentially available to the local is assessed for the bargaining unit’s protection, even if it is not actually expended on that unit in any particular membership year”). The “premium” that SAEA members and non-members pay, in the form of a pro rata share of litigation expenses, ensures that the local bargaining unit will have sufficient resources at its disposal should it need, in the future, to engage in collective bargaining-related litigation (which would be chargeable to non-union members). Because the extra-unit litigation expenditures at issue ensure the availability of resources for collective-bargaining-related litigation, those expenditures are germane to collective-bargaining activity. Applying the second prong of the Lehnert test, we note that the free-rider concerns applicable to other pooledexpense arrangements apply with equal force to extra-unit litigation expenditures. Third, extra-unit litigation expenses present “little additional infringement of First Amendment rights beyond that already accepted,” Ellis, 466 U.S. at 456, where, as here, the pooled litigation resources are expended on collective-bargaining-related activities and “may ultimately inure to the benefit of the members of the local union,” Lehnert, 500 U.S. at 524. That non-litigation, collectivebargaining-related expenses for, inter alia, pooled negotiating advice and informational assistance in Lehnert are chargeable to objecting employees informs our conclusion. Unlike the Justice Blackmun camp in Lehnert, we discern no compelling reason to treat litigation expenses incurred 20 pursuant to a pooling agreement differently from other pooled expenses. Thus we conclude that they are chargeable to SAEA’s non-members.