Court Opinion

ID: 9462286
Source: CourtListenerOpinion
Date Created: 2023-08-04 22:37:12.851079+00
Date Added: 2024-06-11T17:37:31.223574
License: Public Domain

HAYS, Circuit Judge
(concurring in part and dissenting in part):
I would hold that no portion of attorney fees for legal services performed for the trustees, Segal, Karchmer, and Freedman, should be paid from union funds.
Throughout this litigation the personal interests of the individual trustees were in conflict with their responsibilities as fiduciaries of the trust fund to recover any union funds improperly expended. Their object was to protect themselves against a surcharge for any unlawful payments; to accomplish this end they hired their own lawyers and, in view of the outcome of this litigation, should be responsible for the full amount of the attendant counsel fees. See Highway Truck Drivers and Helpers Local 107 v. Cohen, 215 F.Supp. 938, 941 (E.D.Pa. 1963), aff’d, 334 F.2d 378 (3d Cir.), cert. denied, 379 U.S. 921, 85 S.Ct. 277, 13 L.Ed.2d 335 (1964) (Highway Truckers II). See also, Kerr v. Shanks, 466 F.2d 1271, 1277 (9th Cir. 1972); Holdeman v. Sheldon, 311 F.2d 2, 3 (2d Cir. 1962) (per curiam); Koonce v. Gaier, 320 F.Supp. 1321, 1323-24 (S.D.N.Y.1971). All legal services paid for with union funds were rendered on behalf of the individual defendants. In this case, no lawyer could ethically represent both the trustees and the trust in view of the divergence of their respective interests. Milone v. English, 113 U.S.App.D.C. 207, 306 F.2d 814, 817 (1962); Highway Truckers II, supra, 215 F.Supp. at 940. Cf. Yablonski v. United Mine Workers of America, 147 U.S.App.D.C. 193, 454 F.2d 1036, 1041-42 (1971), cert. denied, 406 U.S. 906, 92 S.Ct. 1609, 31 L.Ed.2d 816 (1972). As the dis*130trict court stated in a similar situation in Highway Truckers II:
“None of the payments were received for benefits conferred on the union. Such payments would have constituted a breach of legal ethics if retained in matters where the union and defendants had conflicting interests.” 215 F.Supp. at 940.
Imposing counsel fees upon the fund also ignores the fact that the work of each defendant’s counsel was duplicative of the work of the other counsel employed and that any benefits which may have accrued to the fund from the services of these attorneys were purely incidental to the protection of defendants’ individual interests. The attorneys were engaged to defend Segal, Karchmer, and Freedman against a group of related claims, none of which was frivolous, and each defendant was found to have breached his duty to the union. Under these circumstances, allocation of expenses is inappropriate and undermines the salutary purposes of the LMRDA.1 Similarly, the supplementary proceedings undertaken to collect the judgment against Perry, which if successful would have satisfied the judgment against Freedman, clearly operated for Freedman’s personal benefit and he, not the trust fund, should bear the expense. Cf. Highway Truckers II, supra, 215 F.Supp. at 941.
Weidlich v. Comley, 267 F.2d 133 (2d Cir. 1959), relied on by the majority, is inapposite to the situation presented by the instant case. In Weidlich the defendant-trustee had been charged by plaintiff with mismanagement of the trust assets. At trial, however, the district judge decided “ ‘all of the issues between the plaintiff and the defendant in favor of said defendant.’ ” 267 F.2d at 134 (emphasis supplied). In light of that finding this Court upheld the district judge’s allowance of legal expenses to the defendant out of the trust assets in defending his conduct as trustee.
“When the trustee’s administration of the assets is unjustifiably assailed it is a part of his duty to defend himself, for in so doing he is realizing the settlor’s purpose.” 267 F.2d at 134.
In contrast to Weidlich, in the case at bar the defendant-trustees were all held to have breached their fiduciary obligations to the union fund. None of the challenged payments authorized by them were found to have been proper or in any way beneficial to the fund. Compare Mills v. Electric Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970) which held that plaintiff-shareholders who had established a violation of the securities laws by their corporation and its officers should be indemnified for their legal expenses by the corporation which had received the benefit of their derivative action. Mills, supra at 389-90, 90 S.Ct. 616. In the present case the only beneficiaries of the attorneys’ services were the individual defendants. Under these circumstances they, not the union, should bear the full cost of their own defense. See 3 Scott, The Law of Trusts § 188.4, at 1535 (3d ed. 1967) (“Where the trustee employs an attorney for his individual benefit and not for that of the estate, he must pay *131the attorney out of his own pocket and is not entitled to reimbursement from the trust estate” (footnote omitted)); In re Caffrey’s Will, 254 App.Div. 684, 3 N.Y. S.2d 443 (2d Dept. 1938) (Mem.). Cf. Matter of Estricher, 202 Misc. 431, 111 N.Y.S.2d 295 (Sur.Ct.N.Y. County 1952), aff’d without opinion, 281 App.Div. 828, 118 N.Y.S.2d 922 (1st Dept. 1953).

. Even if allocation were somehow justifiable, plaintiffs are correct- in their contention that the method of allocation advanced by defendants is without basis in fact. In reaching the 61-39% figure utilized below, defendants first made an allocation between “work specifically performed with respect to the issue of personal liability” and other services. This division was impermissible since 100% of the services were performed in order to protect the individual defendants from personal liability. Defendants next attempted to calculate that portion of the “personal liability” fees which were attributable to the Perry payment by applying a percentage obtained by dividing the dollar amount of the Perry claim, $222,200, by the total amount of money improperly paid to non-officers, $371,271. This suballocation is also unjustifiable. It relies entirely upon the tenuous presumption that there is a necessary correlation between the monetary size of a claim and the legal work required to support or refute it, while ignoring such critical factors as the complexity of the relevant legal issues and the amount of difficulty encountered and time spent in their resolution.