Court Opinion

ID: 2141
Source: CourtListenerOpinion
Date Created: 2010-04-21 00:03:10+00
Date Added: 2024-06-11T15:03:13.520017
License: Public Domain

[PUBLISH]

              IN THE UNITED STATES COURT OF APPEALS
                                                              FILED
                      FOR THE ELEVENTH CIRCUIT   U.S. COURT OF APPEALS
                        ________________________   ELEVENTH CIRCUIT
                                                          APR 15, 2010
                              No. 08-16697                 JOHN LEY
                        ________________________             CLERK

                     D. C. Docket No. 07-60209-CV-JEM

JOHN N. HEARN,
a.k.a. Jack,
JOHN ROUSSELLE,
TIMOTHY HARKINS,

                                                        Plaintiffs-Appellants,

CHRISTOPHER O. BARTLETT,
HENRY P. MALLON,
                                                                   Plaintiffs,

                                   versus

MICHAEL MCKAY,
ROBERT MCKAY, individually and as officers of the
American Maritime Officers Union and the American
Maritime Officers Union,
                                                          Cross-Defendants,

EDWARD KELLY,
PAUL CATES, individually and as officers of the
American Maritime Officers Union and the American
Maritime Officers Union, et al.,

                                                                 Defendants,
THOMAS BETHEL,
DONALD NILSSON,
DANIEL SMITH,
DONALD CREE,

                                                   Defendants-Cross-Claimants-Appellees,

JOSEPH GREMELSBACKER, individually and as officers
of the American Maritime Officers Union and the American
Maritime Officers Union,

                                                                     Defendants-Appellees.

                              ________________________

                      Appeal from the United States District Court
                          for the Southern District of Florida
                            _________________________

                                      (April 15, 2010)

Before EDMONDSON and PRYOR, Circuit Judges, and CAMP,* District Judge.

PER CURIAM:

       This appeal is by several members of the American Maritime Officers Union

(“AMO”) in their unsuccessful civil action against current and former officers of

the AMO. Appellant-Plaintiffs contend that the district court erred in this way: (1)

granting summary judgment in favor of Defendants on the issue of whether a union

officer violates the fiduciary duties established by the Labor-Management

       *
        Honorable Jack T. Camp, United States District Judge for the Northern District of
Georgia, sitting by designation.

                                               2
Reporting and Disclosure Act (“LMRDA”), 29 U.S.C. § 501(a), if that officer aids,

abets, or fails to remedy the misuse of assets belonging to a jointly administered

benefit plan governed by the Employee Retirement Income Security Act of 1974

(“ERISA”), 29 U.S.C. § 1001 et seq; and (2) making an erroneous factual finding

and abusing its discretion in two evidentiary rulings during the bench trial.1

           Seeing no reversible error, we affirm.

                                      I. BACKGROUND

       The AMO is a maritime labor organization headquartered in Florida; its

members are licensed officers in the United States Merchant Marine Fleet.

Appellant-Plaintiffs are members of the AMO. Appellee-Defendants are current or

former officers of the AMO. Robert McKay and Michael McKay were defendants

in the civil action, but both failed to answer the complaint and defaulted; neither is

involved in this appeal.2 Michael McKay was the AMO’s National President from

1994 until early in 2007, when he was forced to resign following his felony

       1
         Plaintiffs also claim that the district court erred by denying their untimely motion to
amend their complaint to add a new breach of fiduciary duty allegation. We cannot conclude
that the district court abused its discretion in declining to allow Plaintiffs to amend the complaint
after the pretrial order’s deadline for amendments had passed.
       2
        We use “Defendants” to refer to the non-defaulting defendants in the district court that
are now involved in this appeal.

                                                  3
convictions for violations of LMRDA and the Racketeer Influenced and Corrupt

Organizations Act (“RICO”). Robert McKay, Michael’s brother, was the AMO’s

Secretary Treasurer from 1994 until he was defeated in the 2006 election; Robert

has also been convicted of LMRDA and RICO violations.

      Pursuant to collective bargaining agreements, the AMO and its associated

employers jointly established various employee benefit plans to which the

employers contribute. The two plans pertinent to this appeal are the Vacation

Fund, which provides vacation benefits to plan participants, and the Safety and

Education Fund, which provides training and apprenticeship benefits to plan

participants. Both of these plans are established as trusts and are governed by

ERISA. The plans are administered by a Board of Trustees composed of union

appointees and employer appointees.

      The Department of Justice opened a criminal investigation to determine

whether certain AMO officers used their positions to violate federal law. The

AMO’s National Executive Board retained outside counsel to advise and assist the

AMO in cooperating with the investigation; the benefit plans hired separate outside

counsel. The AMO also initiated an internal investigation coordinated by its

outside counsel and two former FBI agents. One of the issues investigated was

whether the AMO officers had knowledge of a scheme whereby Michael McKay

                                          4
granted bonuses to other union officers as reimbursements for political campaign

contributions. The benefit plans conducted their own internal investigation to

determine if there had been a misuse of plan assets.

      The AMO’s outside counsel advised the union’s National Executive Board

that he had found no evidence of financial irregularities at the union and did not

believe a more comprehensive review of the AMO was necessary. But, the outside

counsel did recommend that the AMO establish guidelines for officer conduct and

controls for the management of union funds; AMO adopted the guidelines.

      The benefit plans’ internal investigation revealed that lodging facilities

owned by the Safety and Education Plan had been occasionally used by the union

or people affiliated with the union without proper payment. The union entered into

a settlement agreement with the Safety and Education Plan and paid it $183,000 to

cover the unbilled lodging expenses.

      A federal grand jury later indicted Michael and Robert McKay for

participating in a RICO conspiracy involving theft and embezzlement from the

union and from the benefit plans, mail fraud under 18 U.S.C. § 1341, and

committing LMRDA record keeping violations under 29 U.S.C. §§ 436 and

439(a). Michael McKay was also charged with theft or embezzlement from an

employee benefit plan in violation of 18 U.S.C. § 664 and falsification of records

                                          5
and certified information pertaining to an employee benefit plan in violation of 18

U.S.C. § 1027. Robert McKay was also charged with embezzlement from a labor

organization under 29 U.S.C. § 501(c) and false entry in records required by

LMRDA in violation of 29 U.S.C. § 436 and 439(c). None of the Defendants

involved in this appeal were indicted.

       After the indictment, the AMO’s National Executive Board suspended the

McKays’ check-writing privileges and required Robert to resign his position as a

trustee of the benefit plans. The AMO’s National Executive Committee3 held a

special meeting to review the allegations in the indictment and, on the advice of

outside counsel, decided not to remove the McKays from office until the

allegations had been proved.4 At trial, Thomas Kelly, a former AMO Vice

President, testified for the government pursuant to a plea agreement whereby he

plead guilty to embezzlement from a labor organization. The McKays were found

guilty on all charges of the indictment, except that Michael McKay was found not

       3
       The National Executive Committee consists of a subset of the membership of the
National Executive Board.
       4
         Michael McKay was reelected as President during the criminal trial; Robert McKay was
defeated in the same election. To the extent that Plaintiffs also claim that the district court erred
in finding that Defendants did not breach their duties after becoming aware of the government’s
investigation, we reject the claim on the reasoning of the district court: basically, lack of credible
evidence of wrongdoing by Defendants.

                                                  6
guilty on the charge of theft or embezzlement from an employee benefit plan.5

After the McKays’ convictions, Defendants removed Michael McKay from his

union office.

      Plaintiffs later filed this civil complaint. Count II asserted a violation of

section 501(a) of the LMRDA and is pertinent to this appeal. Count II alleges that

based on Michael McKay’s criminal conviction, he breached his fiduciary duties to

the AMO by committing acts of bribery and embezzlement from the union and

benefit plans, by filing false reports with the Department of Labor, and by

unlawfully tampering with the 1996 and 1999 elections. Count II similarly alleges

that based on Robert McKay’s criminal conviction, he breached his fiduciary

duties to the AMO in the same way and that he also misused the benefit plans’

assets for personal benefit. For Defendants before us on appeal, Count II alleges

that they breached their fiduciary duties by “knowingly aiding, abetting and failing

to remedy the continuing unlawful actions of . . . Michael McKay and Robert

McKay.”

      The district court entered a default judgment against the McKays and

granted partial summary judgment in favor of the remaining Defendants. The

district court concluded that no justifiable claim was demonstrated against

      5
          We affirmed in an unpublished opinion.

                                               7
Defendants under the LMRDA for aiding, abetting, or failing to remedy the

McKays’ misuse of the benefit plans’ assets and concluded that Plaintiffs did not

submit sufficient evidence to support their claim that Defendants’ involvement in

the decision to reimburse the Safety and Education Plan was improper. The court

concluded issues of material fact existed about whether two Defendants breached

their fiduciary duties by participating in the rigging of elections, but granted

summary judgment on that issue in favor of all other Defendants. The court also

concluded that there was sufficient evidence to defeat summary judgment for all

but one Defendant on the issue of whether they breached their fiduciary duties by

approving bonuses to reimburse political campaign contributions. A bench trial

was held on the issues that had not been determined by the pretrial motions. The

district court then issued detailed findings of fact and conclusions of law and

granted judgment in favor of Defendants.

                                           8
                                   II. DISCUSSION

         A.    District Court’s Grant of Summary Judgment on Section 501(a) Claim
               Relating to the Misuse of ERISA Plan Assets

         Plaintiffs challenge the district court’s grant of summary judgment in favor

of Defendants on the issue of Defendants’ liability under 29 U.S.C. § 501(a) for

aiding, abetting, and failing to remedy the McKays’ misuse of the assets of the

Safety and Education Plan and the Vacation Plan, both plans being governed by

ERISA. These plans are jointly administered by a board of trustees composed of

members appointed by the union and members appointed by the employers. The

district court granted summary judgment in favor of Defendants because the

allegedly misused assets belonged to the plans and not the union: the breach of

duty claim arose under ERISA and not LMRDA.

         We review a grant of summary judgment de novo, using the same standard

as the district court; we can affirm if no genuine issues of material fact are present.

Levine v. World Fin. Network Nat’l Bank, 554 F.3d 1314, 1317 (11th Cir. 2009).

The question presented also involves questions of statutory interpretation, which

we review de novo. United States v. Mazarky, 499 F.3d 1246, 1248 (11th Cir.

2007).

                                            9
       Officers of a labor union “occupy positions of trust in relation” to the

organization and owe fiduciary duties to the “organization and its members as a

group.”6 29 U.S.C. § 501(a). We agree with the district court that Defendants

have not breached their fiduciary duties under section 501 in connection with the

McKays’ misuse of the benefit plan assets. As union officers, Defendants have

duties to the “organization and its members as a group.” 29 U.S.C. § 501(a). Here,

neither the union nor its members as a group own the allegedly misused funds.

Under the Agreements and Declarations of Trust establishing both plans, the union

has no “right, title or interest in or to the Fund, or any part thereof.” Once funds

enter the plan, they become part of an “irrevocable trust” and the “assets of the

Plan.” The plans are distinct legal entities separate from the union, 29 U.S.C. §

1132(d), controlled exclusively by the trustees for the benefit of the plan

participants and beneficiaries, 29 U.S.C. § 1104(a)(1). When a plan’s assets are

       6
         Section 501(a) states in pertinent part:
The officers, agents, shop stewards, and other representatives of a labor organization occupy
positions of trust in relation to such organization and its members as a group. It is, therefore, the
duty of each such person, taking into account the special problems and functions of a labor
organization, to hold its money and property 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, to refrain from dealing
with such organization as an adverse party or in behalf of an adverse party in any matter
connected with his duties and from holding or acquiring any pecuniary or personal interest
which conflicts with the interests of such organization, and to account to the organization for any
profit received by him in whatever capacity in connection with transactions conducted by him or
under his direction on behalf of the organization.

                                                 10
misused, the breach of duty is one between the trustees and the plan’s beneficiaries

(a separate constituency from the union and its members as a group).7

       That some of the Defendants may have been appointed trustees of the benefit

plans does not change the result. ERISA explicitly allows for union officers to act

as trustees of benefit plans. 29 U.S.C. § 1108(c)(3). That serving two masters can

be problematic is, of course, well recognized in the law. See Deak v. Masters,

Mates and Pilots Pension Plan, 821 F.2d 572, 580 (11th Cir. 1987) (“[T]he

statutorily imposed fiduciary duty to act solely in the interest of the participants

and beneficiaries under ERISA requires trustees who are also officers or agents of

a corporation or a union to act with caution in areas of potential conflicts of

interest.”). But when a union official is acting in his role as an ERISA benefit plan

trustee, he does so exclusively for the benefit (or to the detriment) of the plan

participants and beneficiaries, not the union or its members as a group. 29 U.S.C.

       7
         In support of their argument, Plaintiffs briefly note that the AMO itself suffered a
substantial loss of union funds when Defendants caused the union to enter into a settlement
agreement to reimburse the plans. While that circumstance seems more likely to fall within the
scope of section 501(a), that event is different from the claim presented to us on appeal, which is
whether Defendants violate section 501(a) when a plan trustee misuses plan assets. The district
court concluded that Plaintiffs produced no evidence to create a genuine issue of material fact
about the propriety of the union’s settlement with the Safety & Education Fund; in the light of
our precedents, Plaintiffs have not adequately challenged this determination on appeal. See
Flanigan’s Enters. v. Fulton County, Ga., 242 F.3d 976, 987 n.16 (11th Cir. 2001) (A bare
allegation will waive an issue on appeal if the party ‘‘fail[s] to elaborate or provide any citation
of authority in support of the . . . allegation.’’); Marek v. Singletary, 62 F.3d 1295, 1298 n.2
(11th Cir. 1995) (“Issues not clearly raised in the briefs are considered abandoned.”).

                                                 11
§ 1104(a)(1); see Deak, 821 F.2d at 579-80.

       The Supreme Court has been explicit about the undivided nature of an

ERISA trustee’s role and duties. The trustee “bears an unwavering duty of

complete loyalty to the beneficiary of the trust, to the exclusion of the interests of

all other parties.” N.L.R.B. v. Amax Coal Co., a Div. of Amax, Inc., 101 S. Ct.

2789, 2794 (1981). “ERISA vests the ‘exclusive authority and discretion to

manage and control the assets of the plan’ in the trustees alone, and not the

employer or the union.” Id. at 2796 (quoting 29 U.S.C. § 1103(a)). ERISA’s

fiduciary provisions “were designed to prevent a trustee from being put into a

position where he has dual loyalties, and, therefore, he cannot act exclusively for

the benefit of a plan's participants and beneficiaries.” Id. (citation and internal

quotation marks omitted). When a union officer steps into his role as a trustee and

directs a trust’s funds, his direction is solely in his capacity as trustee, subject to

the strict fiduciary duties contained in 29 U.S.C. § 1104.8 This duty is so

regardless of which body appointed him in his role as trustee. See Amax Coal, 101

       8
         The unique role of an ERISA trustee distinguishes this case from Hood v. Journeymen
Barbers, Hairdressers, Cosmetologists and Proprietors Intern. Union of America, 454 F.2d 1347
(7th Cir. 1972), and Morrissey v. Curran, 423 F.2d 393 (2d Cir. 1970), relied on by Plaintiffs. In
those pre-ERISA cases, courts applied section 501(a)’s duties to trustees of employee benefits
plans. Hood, 454 F.2d at 1355; Morrissey, 423 F.2d at 394-96. But in both cases, the benefit
plans were an exclusively union undertaking that was not collectively bargained or jointly
administered. Hood, 454 F.2d at 1351; Morrissey, 423 F.2d at 394-95. To apply a similar rule
here would be incompatible with the strict statutory duty of loyalty owed by the ERISA trustees
to the plans’ beneficiaries.

                                                12
S. Ct. at 2796 (“The language and legislative history of § 302(c)(5) and ERISA

therefore demonstrate that an employee benefit fund trustee is a fiduciary whose

duty to the trust beneficiaries must overcome any loyalty to the interest of the party

that appointed him.”).

       We therefore affirm the district court’s grant of summary judgment.9

       B.     District Court’s Factual Findings and Evidentiary Rulings from the
              Bench Trial

       Plaintiffs appeal several of the district court’s evidentiary rulings and factual

findings. They argue that the district court erred by: (1) allowing an undisclosed

witness to testify; (2) finding their witness, Thomas Kelly, incredible when that

witness testified in a successful criminal prosecution about the same issues; (3)

excluding transcripts of prior testimony of other witnesses who testified during the

criminal trial but were unavailable for this trial. None of Plaintiffs’ contentions

rise to the level of reversible error.

       About the first issue, undisclosed witnesses may still be used at trial if the

disclosure failure was substantially justified or if it was harmless. Fed. R. Civ. P.

       9
        Because we affirm the district court on this ground, we need not and do not discuss
Defendants’ contention that some of the Defendants were not trustees of the Safety & Education
Fund at some of the times when material decisions were taken.

                                              13
37(c)(1). We review the district court’s decision to allow an undisclosed witness

to testify for abuse of discretion. See Romero v. Drummond Co., Inc., 552 F.3d

1303, 1313-14 (11th Cir. 2008). Here, the district court allowed the witness to

testify for the limited purpose of establishing that Defendants made prior consistent

statements.10 Plaintiffs rejected the district court’s offer of additional time to

prepare. In addition, Defendants disclosed the witness in their pretrial stipulation,

lessening the degree of surprise. We cannot say that the district court abused its

discretion. See Citizens Bank of Batesville, Arkansas v. Ford Motor Co., 16 F.3d

965, 967 (8th Cir. 1994) (declining to second-guess district court’s exercise of

discretion to allow witness testimony when, among other reasons, counsel failed to

request a continuance or recess).

      Second, Plaintiffs claim that the district court erred by finding Defendants’

testimony more credible than Kelly’s when Kelly’s testimony mirrored that in the

related successful criminal prosecution of the McKays. “[I]t is the exclusive

province of the judge in non-jury trials to assess the credibility of witnesses and to

assign weight to their testimony.” Childrey v. Bennett, 997 F.2d 830, 834 (11th

Cir. 1993). We will reverse only if the district court clearly erred. Stano v.

Butterworth, 51 F.3d 942, 944 (11th Cir. 1995). Plaintiffs have not shown that the

      10
           Plaintiffs do not challenge this characterization of the witness’s statements.

                                                  14
district court’s account of the evidence is entirely implausible; there was no clear

error. See id.

       Third, Plaintiffs appeal the district court’s refusal to allow the previous,

sworn testimony of two witnesses from the McKays’ criminal trial when those

witnesses were unavailable at trial: they resided in excess of 100 miles from the

district court. Fed. R. Evid. 804(b)(1) excludes from the definition of hearsay

“[t]estimony given as a witness at another hearing . . . if the party against whom

the testimony is now offered, or, in a civil action or proceeding, a predecessor in

interest, had an opportunity and similar motive to develop the testimony by direct,

cross, or redirect examination.” The district court did not believe that the McKays,

in their criminal trial, were predecessors in interest to Defendants in this civil trial.

We review for abuse of discretion the district court’s decision not to allow the

earlier testimony. See Parrott v. Wilson, 707 F.2d 1262, 1269 (11th Cir. 1983).

       We need not interpret the meaning of Rule 804(b)(1)’s “predecessor in

interest” clause today. Even if the district court erred by refusing to admit the prior

testimony, that error was harmless.11 The excluded testimony was merely

       11
         Erroneous evidentiary determinations that do not affect the substantial rights of a party
must be disregarded. 28 U.S.C. § 2111; Fed. R. Civ. P. 61; Fed. R. Evid. 103(a). Errors affect a
substantial right “if they have a ‘substantial influence’ on the outcome of a case or leave ‘grave
doubt’ as to whether they affected the outcome of a case.” United States v. Frazier, 387 F.3d
1244, 1266 n.20 (11th Cir. 2004) (en banc) (quoting Kotteakos v. United States, 66 S. Ct. 1239,
1248 (1946)).

                                                15
corroborative of Kelly’s testimony. The district court found Kelly incredible in part

because of his felony conviction in the related criminal investigation. The

excluded testimony came from people who also had felony convictions from the

same related criminal investigation. Viewing the record as a whole, we think that

the exclusion of the cumulative evidence did not substantially influence the

outcome of the case. See United States v. Hock, 995 F.2d 195, 197 (11th Cir.

1993) (finding harmless error when evidence was only cumulative and

corroborative).

                                  III. CONCLUSION

      Given the circumstances, the district court correctly determined that

LMDRA gave rise to no breach of fiduciary duty claim for the misuse of the

benefit plans’ assets. The district court’s factual determinations and evidentiary

rulings did not result in reversible error.

      AFFIRMED.

                                              16