Opinion ID: 187157
Heading Depth: 1
Heading Rank: 3

Heading: In-Town Expense Allowance

Text: Noble's first challenge is to the dismissal of his claim that appellees violated LMRDA § 501(a) by authorizing an expense allowance for NALC's Resident Officers. The Executive Council passed resolutions authorizing these payments in 1975, 1977, and 1980, pursuant to its authority under NALC Const. art. 9, § 11(e)(3), to cover the expenses NALC officers residing in Washington, D.C. incurred in the performance of their official duties. The 1980 resolution noted that these officials were expected to incur transportation, entertainment, and other expenses for the benefit of the [union] in the Washington, D.C. Metropolitan Area, and it allowed them to draw up to $500.00 each month as an allowance for official in-town expenses. Resident Officers and Staff In-Town Expense Allowance Resolution (Dec. 8, 1980). Sombrotto, as president, was reimbursed for all official expenditures made by him, both in town and out of town. To claim their allowance for a month's expenses, the officers did not need to submit itemized receipts. Instead, the resolution deemed any request for reimbursement as itself a representation that the sum requested was expended on behalf of [NALC] in the course of performance of official duties. The resolution did, however, require officers to personally keep their receipts for a reasonable period of up to five years. NALC reported all reimbursements not documented by receipts as part of the officers' taxable income. Noble, slip op. at 5. Noble argues that the officers' participation in the expense allowance program violated their duty under 29 U.S.C. § 501(a) to manage union funds in accordance with [the union's] constitution and bylaws. Executive Council members receive salaries that are specified in the NALC constitution and thus beyond the council's power to control, NALC Const. art. 9, §§ 1-10, and Article 6 provides that [i]n addition to their salaries, all elected officers [i.e., Executive Council members] shall be entitled to reimbursement of all itemized expenses legitimately incurred in conduct of the affairs of the Union. Id. art. 6, § 1. Additionally, Article 11 makes it the duty of a three-member Fiscal Committee to examine all bills submitted for payment and, if found to be correct, to approve them and authorize payment to be made, noting that [a]ll bills shall be itemized. Id. art. 11, § 2(b). On this basis, Noble argues that the Executive Council had no authority to relax the constitution's itemization and documentation requirements. The district court disagreed, finding as reasonable the Executive Council's interpretation of Article 9, § 11(e) and (e)(3) as authorizing the expenditures, and buttressing this conclusion by observing that Noble had presented no evidence that the in-town expense allowance was utilized by Resident Officers for purely personal reasons, unrelated to union business. Noble, slip op. at 17. While we agree with the district court's finding that the NALC constitution was ambiguous on this point, id. at 16, we must reverse the court's dismissal of Noble's claim on this issue because a key factual finding underlying its conclusion that the interpretation was reasonable was clearly erroneous. Though NALC Const. art. 6, § 1 expressly entitles all elected union officers to obtain reimbursement of itemized expenses, that minimum entitlement does not unambiguously prohibit the council from providing additional payment for expenses or allowances. Neither Article 6, § 1 nor Article 11, § 2(b) unambiguously requires a contrary interpretation. Thus, it was not improper for the district court to use Monzillo 's more deferential standard of review in evaluating the reasonableness of the NALC Executive Council's interpretation of their authority to authorize the expenses. Nonetheless, in finding the Executive Council's repeated authorization of the in-town expense allowance reasonable, the district court relied on a clearly erroneous factual finding: that Noble produced [n]o evidence that officers had used the allowance for purely personal reasons, unrelated to union business. Noble, slip op. at 17. To the contrary, Noble presented ample circumstantial evidence that officers were using the allowance for personal use. The officers had a direct financial incentive to keep receipts for all union-related expenses because any difference between their documented expenses and the $500 per month allowance amount was reported as taxable income. Thus, each officer could easily have avoided a substantial additional tax liability by keeping and submitting receipts for legitimate union-related expenses he or she incurred each month. Additionally, the 1980 Executive Council resolution authorizing the challenged allowance specifically charged each officer with retaining receipts for all expenses incurred and to keep them for a reasonable period of up to five years. The fact that the vast majority of allowances paid to Executive Council members during the pertinent period were not supported by receipts is thus considerable circumstantial evidence suggesting that much of this money went to officers' personal use. The district court may have been under the misapprehension that proof of personal use may only be made by direct evidence. Under circumstances closely analogous to those before us, the Second Circuit did imply a requirement of direct proof for such an allegation in Morrissey v. Curran, 650 F.2d 1267, 1283-84 (2d Cir.1981). There, the Second Circuit rejected for insufficient evidence a district court's finding that all of the weekly allowances paid to the officers were used for their personal expenses supported by the fact that the officers lacked receipts showing the expenses were made for union business. Id. Though Morrissey is unclear on whether those union officers were under an obligation to retain receipts as the NALC officers were here, if the Second Circuit has indeed adopted a requirement that allegations of personal use are susceptible of proof only by direct evidence, then we must part ways with our sister circuit on this point. A union member complaining of personal use of union funds by its officers will hardly ever be able to put on direct proof of such use unless an officer confesses to such. Here, Noble presented about as much evidence as one could hope a § 501 plaintiff could gather  that the union had disbursed far more funds for purportedly union-related expenses than officers responsible for the payments could account for. On remand, the district court must reach the issue of how the union's money was actually used, weighing Noble's circumstantial evidence of misuse against any evidence the officers present to the contrary. We note as well that the district court's memorandum opinion made no mention of Noble's evidence of bad faith regarding the in-town expense allowance. The evidence Noble presented showing that NALC presidents twice misleadingly denied the allowance's existence when challenged on the issue at National Conventions is troubling. While the district court need not specifically reference all contrary evidence in its factual findings, see Schilling v. Schwitzer-Cummins Co., 142 F.2d 82 (D.C.Cir.1944), some mention of this evidence would have been welcome here. On remand, we would refer the district court to our decision in United States v. DeFries, 129 F.3d 1293 (D.C.Cir.1997), which suggests that courts should closely scrutinize self-serving courses of conduct when union officers conceal vital information from union members. See id. at 1307 (holding that when union executive committee concealed information on challenged severance payments from its members, it was not reasonable to say that the severance payments were `authorized' despite union bylaws expressly empowering the executive committee to set its own compensation). Finally, two of the appellees purport to be outside the scope of § 501 for the purposes of this claim. William M. Dunn, Jr., and Robert W. Vincenzi received their expense allowances and FICA reimbursements not from NALC itself, but from other corporate entities affiliated with NALC (the Mutual Benefit Association and the Health Benefit Plan, respectively). The officers argue that Dunn and Vincenzi cannot be held liable under § 501(a), which concerns only the use of union funds, and that as to them we should affirm the judgment on this alternative ground regardless of our resolution as to the other defendants. The district court found that the Mutual Benefit Association and the NALC Health Benefit Plan were separate and distinct from NALC. Slip. op. at 13-14. Noble does not appeal this finding, which makes it conclusive on remand. See, e.g., Kimberlin v. Quinlan, 199 F.3d 496, 500 (D.C.Cir.1999). But because the district court neither explained the scope of its factual finding nor drew from it any legal conclusions, and because the degree of separation necessary to avoid § 501's application is itself uncertain, compare Yager v. Carey, 910 F.Supp. 704, 728 (D.D.C. 1995), with Morrissey, 650 F.2d at 1284, and Hood v. Journeymen Barbers Int'l Union, 454 F.2d 1347, 1351-54 (7th Cir. 1972), no final determination of this special defense is appropriate at this time. The district court should resolve this issue on remand.