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Waldron v. Dugan

December 13, 2007

TERRY WALDRON, RAY SUNDINE, JR., MARTIN J. MACK, WILLIAM VETTER, RONALD CHIADO, AND CARLOS VILLALPANDO, PLAINTIFFS,
v.
WILLIAM E. DUGAN, DEFENDANT.



The opinion of the court was delivered by: Judge Rebecca R. Pallmeyer

MEMORANDUM OPINION AND ORDER

In this action, the Plaintiffs, five members of Local Number 150 of the International Union of Operation Engineers ("the Union"), allege that Defendant William E. Dugan, the Union's president, CEO and business manager, has forced more than 125 Union employees to pay him kickbacks of $100 per month in order to retain their jobs. They also claim that he has converted, for his own use, property of the Union and assets of its Apprenticeship and Skill Improvement Fund ("the Fund").

Plaintiffs bring six claims against Dugan. Count I alleges that Dugan breached his fiduciary duties as a labor organization officer under the Labor Management Reporting and Disclosure Act ("LMRDA"), 29 U.S.C. § 501(b) (2000), by requiring union employees to pay him $100 each month. (Compl. ¶¶ 12-14.) Count II alleges that Dugan's appropriation of union assets, including the labor of union employees, was also a breach of his fiduciary duty under section 501 of the LMRDA. (Compl. ¶¶ 19-20.) In Count III, Plaintiffs charge Dugan with violating his fiduciary duties under ERISA sections 404 and 406, 29 U.S.C. §§ 1104, 1106, by appropriating Fund assets, including the labor of Fund employees. (Compl. ¶¶ 28-29.) In Count IV, they allege that Dugan's extraction of payments and appropriation of Union assets constituted a breach of the Union's bylaws, actionable as a breach of contract under the Labor-Management Relations Act ("LMRA") section 301, 29 U.S.C. § 185. (Compl. ¶¶ 30, 32, 35.) Finally, Counts V and VI allege state law claims for violations of Dugan's fiduciary duties and breach of contract. (Compl. ¶¶ 36-38, 39-41.)

Dugan has moved to dismiss all of these claims under FED. R. CIV. P. 12(b)(6) for failure to state a claim, and under FED. R. CIV. P. 12(b)(7) for failure to join Joseph Ward, another Union official allegedly involved in wrongdoing, as a necessary additional defendant. (Mot. to Dismiss [34] ¶¶ 1-5.) The court overruled Dugan's "necessary party" objection (Minute Entry [56], July 31, 2007), but reserved ruling on Dugan's arguments that all claims other than the ERISA claim are untimely; that the ERISA claim is procedurally barred; that Plaintiffs' state law contract claim is preempted by ERISA; and that both of Plaintiffs' state law claims should be dismissed if the court dismisses the federal claims. For the reasons set forth below, the court dismisses the state law claim for breach of contract (Count VI). In all other respects, the motion to dismiss is denied.

BACKGROUND

The allegations of the Plaintiffs' First Amended Complaint are presumed true for the purposes of this motion to dismiss, and are recounted in the light most favorable to the Plaintiffs. The Parties, the Union and the Fund Dugan has been a Union member for over fifty years. (Compl. ¶ 4.) He was first hired to work for the Union as a business agent in 1962. (Id.) He then rose within the Union's ranks, becoming the chief executive officer, the president and the business manager of the Union in approximately 1986-a position he held as of the time the First Amended Complaint was filed. (Id.)

Plaintiffs are five members of the Union, which is one of the largest locals in the United States, with roughly 22,000 members. (Compl. ¶¶ 2, 5.) The Union has craft jurisdiction over employees who operate motorized equipment in the construction, building and landscaping industries. (Id. ¶ 5) The Union employs more than 125 salaried employees (id. ¶ 8), including four of the six plaintiffs in this action. (Id. ¶ 10.) It also owns many acres of Illinois farm land where it grows and harvests crops.*fn1 (Id. ¶ 16.)

Dugan is also the Chairman of the Board of Trustees of the Fund. (Compl. ¶ 24.) The Fund is an apprenticeship and skill improvement program operated for the benefit of Union members and financed by mandatory contributions from employers who enter into collective bargaining agreements with those members. (Id. ¶ 22.) Each of the Plaintiffs' employers contributes to the Fund, and each is eligible to receive its benefits. (Id.) The Fund employs salaried personnel as instructors for its training programs, and also owns various assets, including vehicles and diesel fuel, presumably for the purpose of training its participants. (Id. ¶ 27.)

The "Christmas Fund"

For about fifteen of the last twenty years, including during 2006, Dugan required the 125 salaried Union employees to pay him $100 each month.*fn2 (Compl. ¶ 8.) He stored the money in his private safe (id.), and he took the money for his own personal use and benefit (id. ¶ 13). He referred to the money he acquired in this way as the "Christmas Fund." (Id. ¶ 11.) He told his employees that they could afford these assessments because he took the monthly payments into account when setting the amount of their salaries, a power conferred on him by the Union's bylaws. (Id. ¶ 10.) Employees who were late in these payments were allegedly admonished and browbeaten, at Dugan's direction, by other Union personnel, including by Union Vice President Jim Sweeney and Recording Corresponding Secretary Steve Cisco. (Id. ¶¶8-9.) Sweeney, Cisco, and others caused union employees to understand that failure to contribute to Dugan's "Christmas Fund" could result in termination. (Id. ¶ 9.)

In September of 2006, at a Union meeting, someone asked Dugan how he used the money in the "Christmas Fund." He replied that "we're going someplace we hadn't ought to be." (Compl. ¶ 11.) Plaintiffs allege that Union members who subsequently asked for the minutes of that meeting were "stonewalled." (Id.)

Other Appropriations of Union and Fund Resources

Dugan appropriated crops from the Union, using Union personnel and Fund equipment. From the first quarter of 2001 through the first quarter of 2006, Dugan caused a Union employee, Mike Foulk, to make twenty-one round trips transporting loads of the Union's crops to Dugan's farm. (Compl. ¶¶ 16, 19.) Dugan did not reimburse the Union for the fair market value of the crops, nor for the time spent by Foulk working for Dugan personally, rather than for the Union. (Id. ¶ 19.) Dugan also used Union resources to pay for tolls and miscellaneous expenses during Mr. Foulk's journeys. (Id.) On these trips, Foulk drove a truck that belonged to the Fund, and fueled it with diesel fuel owned by the Fund. (Id. ¶ 28.)

Dugan also allegedly converted property belonging to the Fund for his own use, with the help of Union personnel, using Fund equipment. At an unspecified time, Foulk, at Dugan's behest, transported a new 963 CAT Loader (valued at more than $250,000), two new 500-gallon fuel tanks, and a cyclone fence to Dugan's own farm in Maryland, using a tractor semitrailer that belonged to the Fund. (Compl. ΒΆ 29.) The complaint also states that Dugan then "converted and misappropriated" these items to his own use, and although it does not specify ...


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