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WEIR v. CHICAGO PLASTERING INSTITUTE

October 16, 1959

ARTHUR R. WEIR, INDIVIDUALLY AND UPON BEHALF OF ALL INDIVIDUAL MEMBERS OF CHICAGO PLASTERING INSTITUTE, INC., A CORPORATION, ET AL., PLAINTIFFS,
v.
CHICAGO PLASTERING INSTITUTE, INC., A CORPORATION, DEFENDANT. AND EMPLOYING PLASTERERS' ASSOCIATION OF CHICAGO, PLAINTIFF, V. JOURNEYMEN PLASTERERS' PROTECTIVE AND BENEVOLENT SOCIETY OF CHICAGO, LOCAL NO. 5, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Campbell, Chief Judge.

This consolidated cause is now before me upon defendants' motions for judgment at close of plaintiffs' case pursuant to Title 28 U.S.C. Rule 41(b). Cause No. 59 C 726 began originally in the Circuit Court of Cook County, Illinois, as a complaint in chancery by plaintiffs, Arthur Weir and Quikbrik Co., to dissolve defendant, Chicago Plastering Institute, Inc. (hereinafter referred to as the Institute), under the provisions of Chapter 32, Illinois Revised Statutes, Section 163a53(a)(2), on the grounds that the acceptance of contributions by the Institute was illegal under Section 302 of the Labor Management Relations Act of 1947, Title 29 U.S.C.A. § 186. The cause was subsequently removed to this Court because of the alleged violation of Section 302. In Cause No. 59 C 779, plaintiff, Employing Plasterers' Association of Chicago (hereinafter referred to as the Association), is suing defendants, Journeymen Plasterers' Protective & Benevolent Society of Chicago, Local No. 5 (hereinafter referred to as Local No. 5), and the Institute, et al., directly under the provisions of Section 302(e) of the Labor Management Relations Act of 1947, Title 29 U.S.C.A. § 186(e) for injunction, accounting, appointment of receiver and other relief.

Plaintiff Association is a non-profit corporation composed of certain plastering contractors in the Chicago area. For approximately thirty years it has negotiated on behalf of some management, collective bargaining agreements with defendant, Local No. 5, which represents the employees of its members. Defendant Institute was incorporated December 18, 1944, on application of Byron Dalton, Herman J. Mutter, and Stephen Luczak. Dalton and Mutter were at that time members of Local No. 5, while Luczak was a plasterer contractor and member of plaintiff Association. From its incorporation until December 7, 1945, the purposes for which the Institute was organized were as follows:

    "The advancement of plaster construction over
  inferior substitutes, by (1) education of the
  public, and (2) by sponsoring legislation
  calculated to preserve the health and safety of
  the public by the use of plaster construction,
  and (3) discourage attempts to pass legislation
  derogatory to plaster construction, and (4) to do
  those things which are necessary and proper to
  promote and enhance the plastering industry."

On December 7, 1945, these purposes were amended as follows:

    "5. Benevolent and charitable, and in
  furtherance of same, but in limitation thereof,
  and obtaining, through others, of hospital, death
  and other benefits for members of the corporation
  employed by contractors engaged in the business
  of plastering construction.
    "The above shall not include the payment of any
  direct sick or death benefits by the corporation,
  nor shall it be deemed to authorize the
  corporation to perform any of the functions of an
  insurance company."

Pursuant to the above by-laws, the Institute is alleged to administer three funds: (1) a General Fund; (2) a Benevolent Fund; and (3) a Pension Trust. Members of plaintiff Association and other employers have made payments to these funds in amounts calculated by the amount of work performed for each employer by employee members of Local No. 5 since October 25, 1945, in accordance with labor agreements between Local No. 5 and plaintiff Association and other plastering contractors. The Institute by-laws provide for two classes of membership. "Institute Members" are composed of Local No. 5 and Employers employing members of Local No. 5 who make contributions to the Institute in accordance with the by-laws. "Beneficial Members" who are to receive the benefits as provided in the by-laws, are those members of Local No. 5 in "good standing" and "employed by an Institute member." The Board of Directors manages the Institute business and is composed of eight directors, four representing employer groups in Chicago and Cook County, and four representing Local No. 5. If the Board of Directors should become deadlocked in voting, the president of the Institute, an "ex officio" member of the Board of Directors, may cast the deciding vote. It is further provided that "the number of Institute membership votes awarded to the Local Union, through its representatives, shall be equal to those of the employers present and voting." Members of plaintiff Association have always been on the Board of Directors of the Institute as part of the employer group. Byron Dalton, who has been elected and re-elected president of the Institute since its inception, was also president of Local No. 5 from 1951 to 1955.

It is plaintiff Association's contention that the evidence shows that the Institute is a "representative" of employees within the meaning of Section 302, and that employer contributions to the Institute are in violation of Section 302 because the above funds are not administered by the Institute in accordance with Section 302.

As to plaintiffs, Quikbrik Co., and its president, Arthur Weir, in cause No. 59 C 726, it is their contention that, having hired a member of Local No. 5 in 1952, and having made a payment of $8.25 to the Institute, one of them became an "Institute Member," or both of them became "Institute Members." They further maintain that as an "Institute Member" or "Members," they are, or one of them is, entitled to maintain this class action on behalf of "Institute Members" for dissolution of defendant Institute under the appropriate Illinois statute. Plaintiffs Weir and Quikbrik Co., adopt the arguments of plaintiff Association and maintain as well, that the Institute administration of employer contributions is illegal under Section 302.

Section 302(a) of the Labor Management Relations Act of 1947 provides:

    "It shall be unlawful for any employer to pay
  or deliver, or to agree to pay or deliver, any
  money or other thing of value to any
  representative of any of his employees who are
  employed in an industry affecting commerce."

Conversely, by virtue of Section 302(b) it is unlawful for any representative of any employees to receive or accept, or to agree to receive or to accept, from the employer of such employees any money or other thing of value. Under Section 302(c) of the Act, this broad prohibition is made inapplicable in five situations, one being, "with respect to money or other thing of value paid to a trust fund established by such representative, for the sole and exclusive benefit of the employees of such employer * * *" provided that the trust fund meets certain standards specified in that subsection.

As stated by the United States Supreme Court in Arroyo v. United States, 359 U.S. 419, at page 425, 79 S.Ct. 864, at page 868, 3 L.Ed.2d 915:

    "Section 302 had its origin in an amendment to
  the Case bill, H.R. 4908, 79th Cong., 2d Sess.,
  proposed by Senator Byrd, 92 Cong.Rec. 4809,
  which prohibited payment by an employer, or
  receipt by a representative, of any money or
  other thing of value unless the payment was for
  wages or for union dues withheld by the employer
  under a checkoff agreement. After several
  modifications, including one substantially
  similar to subsection (c)(5) which was proposed
  by Senators Taft and Ball, the amendment was
  agreed to by the Senate, 92 Cong.Rec. 5521-5522,
  and the Case bill passed. 92 Cong.Rec. 5739. The
  House accepted the Senate amendments, 92
  Cong.Rec. 5946, but the President vetoed the
  bill, 92 Cong.Rec. 6674-6678, and it failed of
  passage over his veto. 92 Cong.Rec. 6678.

In my opinion, the legislative history of both the above amendments is pertinent in determining the intention of Congress in the enactment of Section 302.

As clearly shown by the Congressional debates, Congress had a threefold purpose in enacting Section 302: (1) Fundamentally, as indicated by plaintiffs in their briefs and arguments, Congress was concerned with the protection of welfare funds for the benefit of employees. 92 Congressional Record, pp. 5345, 5346; 93 Congressional Record, pp. 4678, 4679, 4746, 4753. (2) Congress was also concerned with the corruption of collective bargaining through bribery of employee representatives by employers and extortion by employee representatives. 92 Congressional Record, pp. 4893, 5428; 93 Congressional Record, p. 4678; Arroyo v. United States, supra, 359 U.S. at pages 425, 426, 79 S.Ct. 864, (3) Congress was further concerned with so-called Union "war chests" and the possible abuse by Union officers of the power they might achieve if welfare funds were left to their sole control. 92 Congressional Record, pp. 4893, 4894; 93 Congressional Record, p. 4678, Arroyo v. United States, supra, 359 U.S. at page 426, 79 S.Ct. 864. Necessarily, any interpretation of Section 302 must correlate to these expressed Congressional aims.

Having determined general Congressional intention, two more specific factors are immediately obvious from Section 302 itself and from its legislative history. First, Section 302, on its face, is fundamentally a criminal enactment, malum prohibitum. Throughout the debates as found in 92 and 93 Congressional Record, there is constant reference to the criminal penalty, but only rarely to Section 302(e) which refers to the power of district courts, "for cause shown * * * to restrain violation of this section" without regard to the broad anti-injunction provisions of the Clayton Act, 15 U.S.C.A. § 12 et seq., and the Norris-LaGuardia Act, 29 U.S.C.A. § 101 et seq. For example, in 92 Congressional Record at Page 4893, Senator Byrd states that United States district courts, "in addition to the criminal penalty can grant injunctions" while in 93 Congressional Record at Page 4678, Senator Ball says: "Subsection (e) gives the district courts jurisdiction to restrain and to punish violations of the section * * *" It would not be a strained construction of this language to hold that any action under subsection (e) would have to be collateral to a criminal action. I might here add that in at least one decision the Court has felt that Section 302(e) "lifted the bar of the Norris-LaGuardia Act to vest certain injunction powers in the courts when the National Labor Relations Board initiated the court proceedings." (Emphasis supplied.) A.H. Bull Steamship Co. v. Seafarer's International Union, 2 Cir., 250 F.2d 326, 330.

Apart from this, however, it is clear that Congress primarily intended compliance with Section 302 through the medium of a criminal sanction. The second factor embodied in a case of this nature is the inherent role of collective bargaining in labor disputes wherein by arbitration or by friendly agreement and cooperation between management and labor their differences may be resolved. Philosophically and traditionally, labor disputes have always been settled by the parties, and courts have always been reluctant to interfere. In enacting Section 302, Congress was well aware of this tradition and its underlying philosophy. Illustratively, I quote from Senator Thomas, 93 Congressional Record, Page 4680, in referring to subsection (e):

    "Is not this an invitation to resort to the
  courts in labor disputes? Does it not again open
  the courts, which have been denied the right to
  issue injunctions, to labor disputes? * * *. This
  is really a proposal to permit the
  advantage-taker to develop some kind of a case
  which will be embarrassing to labor, and get the
  case into court, whether it be a worthy case or
  not, thus holding up the process of growth and
  development in this field."

Senator Pepper at 93 Congressional Record, Page 4680, states:

    "These disputes are not settled in court; they
  are settled by amicable accord and understanding
  between management and labor."

It is clear from such expressions that Congress did not intend, by Section 302, to open the floodgates into the federal courts for every labor grievance concerning "payments to representatives," but rather intended a strict construction of subsection (e). This construction, which, I might add, is in keeping with the general effort of Congress to further limit the jurisdiction of overcrowded federal courts, raises the following questions:

    (1) Who is entitled to invoke subsection (e)?
  In other words, do the district courts have
  jurisdiction to entertain a suit to "restrain
  violations" of Section 302 brought by just anybody,
  or did Congress intend that jurisdiction under
  subsection (e) is limited by virtue of the status
  of the plaintiff?
    (2) Under what circumstances did Congress
  intend that violations of Section 302 should be
  restrained?
    (3) What is the scope of the relief intended by
  subsection (e)?

Before hearing any evidence in this consolidated cause, I noted for counsel what, in my opinion, I felt to be the major issues before the Court. The first such issue outlined was: "Are the plaintiffs, or either of them, entitled to bring this action?" Basically, I was concerned with the jurisdiction of this Court to entertain this consolidated cause under Section 302. In other words: Does this Court in Cause No. 59 C 726 have jurisdiction to entertain a suit removed from a state court because of alleged violation of Section 302 when that suit is brought by an alleged employer-member of defendant Institute and seeks by way of chancery decree to dissolve defendant Institute under the appropriate Illinois statute? Does this Court in Cause No. 59 C 779 have jurisdiction to entertain a suit for injunction, accounting, appointment of receiver and other relief, when such suit is brought under Section 302(e) against defendant Institute and Local No. 5 by an association of employers who are contributing members of defendant Institute?

The jurisdictional limitation of Section 302(e) in regard to who may "restrain violations" of that section is, in my opinion, plainly indicated in the Congressional debates. Plaintiff Association in its brief and oral argument (Transcript, pp. 675-679), has referred to certain of these debates. It quotes from 93 Congressional Record, page 4678, the remarks of Senator Ball:

    "* * * it shall be in the nature of a trust
  fund, so that the employees receiving benefits from
  it will have a right to go into court to protect
  their interest in such ...

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