Opinion ID: 509547
Heading Depth: 2
Heading Rank: 1

Heading: The Good Cause Requirement

Text: 8 In enacting the LMRDA, Congress found that the free flow of commerce depended on adherence by labor organizations and employers to the highest standards of responsibility and ethical conduct in administering the affairs of their organizations.... 29 U.S.C. Sec. 401(a). Congress noted that its investigations of labor organizations had revealed breaches of these standards, and it therefore further found that the enactment of this chapter is necessary to eliminate or prevent improper practices on the part of labor organizations ... and their officers and representatives.... 29 U.S.C. Sec. 401(b) and (c). 9 The LMRDA makes union officers fiduciaries who have a duty to expend union funds solely for the benefit of the organization and its members and to manage, invest, and expend the same in accordance with its constitution and bylaws and any resolutions of the governing bodies adopted thereunder.... 29 U.S.C. Sec. 501(a). Members of a labor organization may sue labor officials for violations of their fiduciary duties in federal district court. 29 U.S.C. Sec. 501(b). The Act places certain restrictions on the right to sue, however, one of which is that a union member may not file suit except upon leave of the court obtained upon verified application and for good cause shown, which application may be made ex parte. Id. (emphasis added). 10 Section 501 thus reflects two different policy concerns. In subdivision (a), Congress intended to protect rank and file union members by imposing a duty on union officials to act as fiduciaries with respect to union funds and property. 29 U.S.C. Sec. 501(a). Yet, concerned with the potential for harassing and vexatious suits brought without merit or good faith against union officials, and also with the specter of unwarranted judicial intrusion into the processes of union democracy, Congress designed section 502(b)'s good cause requirement as a prerequisite to suit. Courts have struggled to give a content to the good cause requirement that will effectuate both policies. 11 The district court, relying on a test for good cause developed by the Court of Appeals in Dinko v. Wall, 531 F.2d 68 (2d Cir.1976), examined the plaintiffs' probability of success on the merits of their claims and denied leave to file suit. The plaintiffs contend that the district court erred in adopting this analysis. 5 Review of this question of law is plenary. D.P. Enterprises v. Bucks County Community College, 725 F.2d 943, 944 (3d Cir.1984). 12 The Ninth Circuit Court of Appeals undertook the first extensive analysis of the good cause requirement in Horner v. Ferron, 362 F.2d 224, 229 (9th Cir.), cert. denied, 385 U.S. 958, 87 S.Ct. 397, 17 L.Ed.2d 305 (1966). The Horner plaintiffs were union members who sought to bring a section 501 suit against union officers who had established and funded a severance plan for their own benefit without valid authorization. Id. at 228. After reviewing affidavits, memoranda, and oral testimony, the district court denied the plaintiffs' application to bring suit, finding a lack of good cause. Id. at 227. The court of appeals reversed. 13 Initially, the appellate court noted that the existence of good cause might be discernible from the allegations of the verified complaint filed ex parte. Id. at 228. If either the court or the defendant requested a hearing, the court could, if it so chose, look somewhat beyond the complaint in determining whether the plaintiff ha[d] made the 'good cause' showing required.... Id. at 229. The absence of good cause might be demonstrated through undisputed affidavits showing that the plaintiffs had failed to comply with some condition precedent to suit or that the action was barred by the statute of limitations, or by the application of the principles of res judicata or collateral estoppel. Id. 14 The scope of the district court's inquiry was, however, to be limited: 15 [W]e think it inappropriate to consider, at such a hearing, defenses which require the resolution of complex questions of law going to the substance of the case. Defenses of this kind should be appraised only on motion for summary judgment or after a trial. Defenses which necessitate the determination of a genuine issue of material fact, being beyond the scope of summary judgment procedures are a fortiori, beyond the scope of proceeding to determine whether a section 501(b) complaint may be filed. 16 Id. (footnote omitted). The court of appeals held that the plaintiffs' complaint had been dismissed erroneously because the district court had either resolved complex issues of law or determined genuine issues of material fact. Id. at 229-232. 17 This court adopted the Horner court's cogent analysis of the good cause requirement, as did many others. 6 The Dinko court, however, reexamined and modified the good cause requirement first described in Horner. 18 In Dinko, the court followed Horner in finding that 19 [t]he factual showing to institute a suit should be no more demanding than that required to defend it against a motion for summary judgment; indeed, it should be somewhat less, since at the earlier stage a plaintiff has not yet had a chance for discovery and a defendant will still have the later protection of a summary judgment motion. 20 531 F.2d at 75. The court went beyond Horner, however, in actually defining good cause. After considering the policies Congress sought to further in section 501 and examining the section's legislative history, the court concluded that good cause in section 501(b) is construed to mean that plaintiff must show a reasonable likelihood of success and, with regard to any material facts he alleges, must have a reasonable ground for belief in their existence. 7 Id. Because the district court did not rely on the second prong, only the first portion of the standard is at issue here. 21 Although this court has never before considered Dinko's analysis of good cause, its formulation has met with acceptance elsewhere, primarily with district courts. 8 In this case, the district court apparently assumed that it had to consider whether the plaintiffs' claims had a reasonable likelihood of success at the good cause stage of the proceedings. We disagree. Dinko is an attempt to give the good cause requirement a more precise content, but the standard adopted is not mandated by the statute's language, finds no support in the LMRDA's legislative history, conflicts with the Congressional policy of protecting union members, and permits summary elimination of meritorious as well as vexatious suits. 22 Section 501 requires only that a plaintiff obtain leave of court to file an action upon verified application and for good cause shown, which application may be made ex parte. 29 U.S.C. Sec. 501(b). Good cause is nowhere defined in the statute. Nor does the legislative history supply a definition; as the Dinko court itself noted, the legislative history is unilluminating. 531 F.2d at 74 9 . 23 Turning from the statute's terms and legislative history, we look to Congressional purpose to illuminate the requirement's meaning. See, e.g., 2A Singer, Sutherland Statutory Construction Secs. 45.09, 46.04 (1984 rev.). The reasonable likelihood of success standard promulgated in Dinko fails to strike the proper balance between apparently conflicting Congressional purposes. 24 The Dinko court glosses over Congress' expressed intent to protect union members from fiduciary breaches by union officials. Thus, meritorious actions may be eliminated by preliminarily requiring a reasonable likelihood of success on the application for leave to file, particularly because discovery is not yet available. See Horner, 362 F.2d at 229 n. 6 10 . The standard, on the other hand, overemphasizes the purpose of guarding against vexatious suits. Dinko's focus on the probability, rather than the possibility, of success is a judicial creation at variance with Congressional intent. The statutory permission for plaintiffs to file an ex parte application for leave to sue, 29 U.S.C. Sec. 501(b), suggests a low level of judicial scrutiny at this point. The language of the statute certainly does not require that the district court then make a searching inquiry into the merits of the suit. 11 25 Finally, the substantive requirement of the Dinko standard is unsupported by prior case law. The Dinko court derived the reasonable likelihood of success portion of its standard from a separate line of section 501 cases concerning attorney representation. Id. at 75. Plaintiffs seeking to prevent a union's retained attorney from representing section 501 defendants were required to make a reasonable showing of their likelihood of success, see Holdeman v. Sheldon, 311 F.2d 2, 3 (2d Cir.1962) (per curiam), and Dinko incorporated this standard into the section 501 good cause determination. The plaintiffs' burden in the attorney cases, however, is directly related to the extraordinary relief they seek by injunction. See id. (standard applicable on motions for injunctions of this sort). The requirement exceeds whatever may be necessary to weed out vexatious suits. Further, the Dinko court failed to articulate any basis for treating the plaintiffs' application to file a complaint as if it were a motion for an injunction. 26 We therefore hold that the existence of good cause may be discernible from the allegations of the verified complaint. If either the court or the defendant requests a hearing, the court may look beyond the complaint to determine whether there is an absence of good cause because of some jurisdictional or fundamental defect, such as a failure to comply with some condition precedent to suit, or a bar imposed by the statute of limitations, the principles of res judicata, or collateral estoppel. The court may not, however, consider at this stage defenses which require the resolution of complex questions of law going to the substance of the case or which necessitate the determination of a genuine issue of material fact. See Horner, 362 F.2d at 228-29; see also Erkins, 663 F.2d at 1053; Sabolsky, 457 F.2d at 1252; Purcell v. Keane, 406 F.2d 1195, 1200 (3d Cir.1969). The district court in this case therefore erred as a matter of law in applying the Dinko test and in vacating the plaintiffs' leave to file their complaint.