International Union of Operati v. Joseph Ward ( 2009 )


Menu:
  •                               In the
    United States Court of Appeals
    For the Seventh Circuit
    No. 08-1631
    INTERNATIONAL U NION OF O PERATING E NGINEERS,
    L OCAL 150, AFL-CIO,
    Plaintiff-Appellant,
    v.
    JOSEPH P. W ARD ,
    Defendant-Appellee.
    Appeal from the United States District Court
    for the Northern District of Illinois, Eastern Division.
    No. 07 C 00142—Ruben Castillo, Judge.
    A RGUED O CTOBER 27, 2008—D ECIDED A PRIL 16, 2009
    Before K ANNE, W ILLIAMS, and SYKES, Circuit Judges.
    K ANNE, Circuit Judge. In early 2007, the appellant,
    International Union of Operating Engineers, Local 150,
    AFL-CIO, filed a two-count complaint against one of its
    former officers, the appellee, Joseph P. Ward, in the
    Northern District of Illinois. Count I of the complaint
    alleged violations of § 501 of the Labor-Management
    and Reporting Disclosure Act of 1959 (LMRDA), 29 U.S.C.
    2                                                   No. 08-1631
    § 501, which establishes fiduciary duties owed by a labor
    organization’s officers to the organization and its mem-
    bers. Following the close of discovery, the district court
    granted Ward’s motion to dismiss the Union’s § 501 claim
    for lack of subject-matter jurisdiction. The district court
    determined that § 501 did not provide the labor organiza-
    tion, as an entity, with a federal cause of action against its
    officers for alleged violations of the duties set forth there-
    in. Local 150 appeals this decision. For the reasons that
    follow, we conclude that § 501 does contain an implied
    cause of action for a labor organization to sue its officers
    for breaches of their fiduciary duties. We reverse the
    decision of the district court and remand for further
    proceedings.
    I. B ACKGROUND
    The plaintiff, Local 150, is a labor organization that
    represents approximately 22,000 employees in Illinois,
    Indiana, and Iowa. Defendant Joseph Ward served as the
    treasurer of Local 150 from the time the organization
    elected him to that position in 1986 until his resignation
    in 2007.
    In its complaint, Local 150 accused Ward of purchasing
    a piece of real estate that Ward knew Local 150 was
    interested in purchasing for itself. The property in ques-
    tion was an empty parcel located adjacent to Local 150’s
    District 2 offices in Joliet, Illinois. In 1994, the seller of the
    property contacted Local 150’s president, Bill Dugan, who
    confirmed the Union’s interest in purchasing the prop-
    erty. Dugan gave Ward the responsibility of monitoring the
    No. 08-1631                                                 3
    situation. Local 150 alleged that soon thereafter Ward told
    the seller that the Union was no longer interested in
    purchasing the parcel and falsely informed Dugan that the
    property had been sold to a third party. In fact, however,
    the property was not sold until several months later, when
    an investment group that included Joe Ward as a
    member purchased it for approximately $75,000. Ward’s
    investment group sold the same property in 2003 for
    $885,000, netting a handsome profit for its constituents.
    In January 2007, Local 150 named Joe Ward as the sole
    defendant in a two-count complaint filed in the United
    States District Court for the Northern District of Illinois.
    Count I of the complaint sought damages for alleged
    violations of § 501 of the LMRDA, which codifies the
    fiduciary duties that a labor organization’s officers owe
    to the organization and its membership. Count II alleged
    similar breaches of fiduciary duties under Illinois state law.
    Ward filed a motion to dismiss the complaint pursuant
    to Federal Rule of Civil Procedure 12(b)(1), which the
    district court granted on February 14, 2008. The district
    court concluded that § 501 does not contain a private
    cause of action for labor unions to bring claims under the
    LMRDA in federal court, rendering the district court
    without subject-matter jurisdiction to hear the dispute.
    The court dismissed the Union’s federal claim with preju-
    dice. In so doing, the district court, in its discretion,
    also refused to exercise supplemental jurisdiction over
    the state law claim, dismissing it without prejudice.
    Local 150 now appeals the district court’s decision that it
    lacked subject-matter jurisdiction to hear the Union’s
    federal claim.
    4                                                   No. 08-1631
    II. A NALYSIS
    We review de novo whether a district court properly
    dismissed a case for lack of subject-matter jurisdiction.
    Peters v. Vill. of Clifton, 
    498 F.3d 727
    , 729-30 (7th Cir. 2007).
    We begin our analysis with a brief examination of the
    contents and history of the LMRDA. We then discuss the
    limited nature of federal courts’ jurisdiction and the
    general prerequisite to that jurisdiction of a federal
    cause of action. With that context, we finally turn our
    attention to the decisive question in this case: whether
    § 501 of the Act creates a private cause of action for
    labor organizations to sue in federal court for alleged
    violations of the duties it establishes. We conclude that
    it does.
    A. The Labor-Management and Reporting Disclosure Act
    of 1959
    In 1959, Congress passed the LMRDA, also known as the
    Landrum-Griffin Act, Pub. L. No. 86-257, 
    73 Stat. 519
    (codified as amended at 
    29 U.S.C. § 401
     et seq.), in
    response to growing concerns over corruption, violence,
    and racketeering within the leadership of labor organiza-
    tions across the country, see Hood v. Journeymen Barbers,
    Hairdressers, Cosmetologists & Proprietors Int’l Union, 
    454 F.2d 1347
    , 1354 (7th Cir. 1972); Phillips v. Osborne, 
    403 F.2d 826
    , 828 (9th Cir. 1968). A year earlier, a congressional
    committee known as the Select Committee on Improper
    Activities in the Labor Management Field released a
    report, popularly referred to as the McClellan Committee
    No. 08-1631                                                      5
    Report, detailing these problems. See S. Rep. No. 85-1417
    (1958); see also Phillips, 
    403 F.2d at 828
    . This report served
    as the catalyst that prompted Congress to promulgate
    the LMRDA. See Hood, 
    454 F.2d at 1354
     (“[Section 501]
    was a direct and far-reaching response to the mischief
    exposed and dramatized by the McClellan Committee.
    That mischief was the misuse of union funds and property
    by union officials in its every manifestation.”). This case
    focuses on the first two subsections of § 501 of the Act.
    Subsection (a) imposes many fiduciary duties on a
    labor organization’s “officers, agents, shop stewards, and
    other representatives.” 1 
    29 U.S.C. § 501
    (a).2 Specifically, the
    1
    Throughout this opinion, we will refer to these various
    organizational representatives under the collective term of
    “officers.”
    2
    The text of 
    29 U.S.C. § 501
    (a) reads as follows:
    The officers, agents, shop stewards, and other represen-
    tatives 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 mem-
    bers and to manage, invest, and expend the same in
    accordance with its constitution and bylaws and any
    resolutions of the governing bodies adopted thereun-
    der, 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
    (continued...)
    6                                                      No. 08-1631
    Act requires those individuals, all of whom “occupy
    positions of trust in relation to such organization and its
    members as a group,” to hold and manage the union’s
    money for the sole benefit of the organization, to refrain
    from self-dealing, and to remain loyal to the organization.
    
    Id.
     The statute makes it clear that these duties inure to
    the benefit of the labor organization and the people it
    represents as a body, not to the members as individuals. 
    Id.
    The duty of loyalty is at the forefront of this case. The
    Act states that a covered individual shall “refrain from
    dealing with [the] 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 pecuni-
    ary or personal interest which conflicts with the inter-
    ests of such organization.” 
    Id.
     If a union officer engages in
    such conduct, the Act requires him to account to the
    organization for any resulting profits he received. 
    Id.
    If an officer commits violations of the fiduciary duties
    set forth in subsection (a), subsection (b) creates a federal
    2
    (...continued)
    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 transac-
    tions conducted by him or under his direction on
    behalf of the organization. A general exculpatory
    provision in the constitution and bylaws of such a labor
    organization or a general exculpatory resolution of a
    governing body purporting to relieve any such person
    of liability for breach of the duties declared by this
    section shall be void as against public policy.
    No. 08-1631                                                         7
    cause of action for individual union members to sue and
    “recover damages . . . for the benefit of the labor organization.”
    
    Id.
     § 501(b) (emphasis added).3 Because these member suits
    serve to benefit the union, they are derivative, much
    like shareholder derivative suits brought on behalf of
    corporations. See Hoffman v. Kramer, 
    362 F.3d 308
    , 317 n.4
    (5th Cir. 2004); Chathas v. Local 134 IBEW, 
    233 F.3d 508
    ,
    514 (7th Cir. 2000); O’Hara v. Teamsters Union Local No.
    856, 
    151 F.3d 1152
    , 1161 (9th Cir. 1998). As with share-
    holder derivative suits, the Act permits a union member
    to file such a suit only if he first takes prescribed steps.
    See Int’l Union of Elec., Elec., Salaried, Mach. & Furniture
    Workers v. Statham, 
    97 F.3d 1416
    , 1419 (11th Cir. 1996)
    (comparing the prerequisites for claims brought under
    3
    The relevant text of 
    29 U.S.C. § 501
    (b) reads as follows:
    When any officer, agent, shop steward, or representa-
    tive of any labor organization is alleged to have vio-
    lated the duties declared in subsection (a) of this section
    and the labor organization or its governing board or
    officers refuse or fail to sue or recover damages or
    secure an accounting or other appropriate relief within
    a reasonable time after being requested to do so by any
    member of the labor organization, such member may
    sue such officer, agent, shop steward, or representative
    in any district court of the United States or in any State
    court of competent jurisdiction to recover damages or
    secure an accounting or other appropriate relief for the
    benefit of the labor organization. No such proceeding
    shall be brought except upon leave of the court ob-
    tained upon verified application and for good cause
    shown, which application may be made ex parte. . . .
    8                                                No. 08-1631
    § 501(b) to those required for shareholder derivative
    suits). First, the union member must request, and the
    union must refuse, that the union take appropriate action
    to censure its own officer. Hoffman, 
    362 F.3d at 313-14
    ;
    see also 
    29 U.S.C. § 501
    (b). Second, if the union refuses
    to take action, the union member must then show good
    cause for the suit and receive the court’s permission to
    bring the action. Hoffman, 
    362 F.3d at 314
    ; see also 
    29 U.S.C. § 501
    (b). This allows the court to assess the mem-
    ber’s claim and ensure that the member seeks the type
    of remedy that would ultimately benefit the union. See
    Hoffman, 
    362 F.3d at 319
    .
    The statute, therefore, openly declares that union mem-
    bers may sue in federal court for violations of the
    duties that it establishes. The Act is silent, however, on
    whether it creates a similar federal cause of action for
    unions. As we discuss below, in this context such a
    cause of action is a prerequisite for a union to proceed in
    federal court.
    B. The Cause of Action Component of Federal Question
    Jurisdiction
    Federal courts are courts of limited jurisdiction. Kokkonen
    v. Guardian Life Ins. Co. of Am., 
    511 U.S. 375
    , 377 (1994);
    Newell Operating Co. v. Int’l Union of United Auto., Aerospace
    & Agric. Implement Workers, 
    532 F.3d 583
    , 587 (7th Cir.
    2008). The circumscribed nature of the federal judiciary’s
    jurisdiction is a function of restrictions placed upon it by
    both the United States Constitution and federal statutory
    No. 08-1631                                                   9
    law, both of which must authorize a federal court to
    hear a given type of case. See Kokkonen, 
    511 U.S. at 377
    ;
    Bender v. Williamsport Area Sch. Dist., 
    475 U.S. 534
    , 541
    (1986).
    The Constitution permits federal courts to hear only
    certain claims, including those claims between parties of
    diverse state citizenship and, most importantly for
    present purposes, “federal question” claims, or those
    “arising under” the laws of the United States. U.S. Const.
    art. III, § 2, cl. 1. This constitutional grant of judicial
    authority is broad. See Verlinden B.V. v. Cent. Bank of
    Nigeria, 
    461 U.S. 480
    , 495 (1983); Osborn v. Bank of the
    U.S., 22 U.S. (9 Wheat.) 738, 823 (1824).
    Despite this broad grant of authority, the Constitution
    gives Congress the power to further refine the actual
    scope of federal jurisdiction. 4 See U.S. Const. art. I, § 8,
    cl. 9 (granting Congress the power “[t]o constitute
    tribunals inferior to the Supreme Court”); Ins. Corp. of Ir. v.
    Compagnie des Bauxites de Guinee, 
    456 U.S. 694
    , 701 (1982)
    (“Jurisdiction of the lower federal courts is further
    limited to those subjects encompassed within a statutory
    grant of jurisdiction.”). In so doing, however, Congress
    may not exceed its constitutional authority. See Verlinden
    4
    Only the jurisdiction of the Supreme Court of the United
    States is self-executing. California v. Arizona, 
    440 U.S. 59
    , 65
    (1979) (“The original jurisdiction of the Supreme Court is
    conferred not by the Congress but by the Constitution itself.
    This jurisdiction is self-executing, and needs no legislative
    implementation.”).
    10                                                  No. 08-1631
    B.V., 
    461 U.S. at 491
     (“Congress may not expand the
    jurisdiction of the federal courts beyond the bounds
    established by the Constitution.”); Marquette Cement Mfg.
    Co. v. FTC, 
    147 F.2d 589
    , 593 (7th Cir. 1945) (“There are no
    limitations upon this congressional power [to grant
    jurisdiction to the federal courts] other than the Constitu-
    tion.”). In this way, the Constitution imposes a ceiling,
    albeit a high one, on the potential jurisdiction of the
    federal courts.
    As we will discuss, Congress, by means of statutory
    grant, uses its constitutional authority to more
    narrowly restrict the federal courts’ subject-matter juris-
    diction. Ins. Corp. of Ir., 
    456 U.S. at 701
    ; Teamsters Nat’l Auto.
    Transporters Indus. Negotiating Comm. v. Troha, 
    328 F.3d 325
    ,
    327 (7th Cir. 2003) (“Federal courts . . . may only exercise
    jurisdiction where it is specifically authorized by federal
    statute.”); Marquette Cement Mfg. Co., 
    147 F.2d at 593
     (“The
    jurisdiction and authority of [the federal courts] is
    confined solely to that which Congress bestows.”). This
    allows Congress to exercise significant control over the
    types of cases federal courts may hear and is one of the
    many checks and balances built into the three-branch
    system of American government. See Steel Co. v. Citizens
    for a Better Env’t, 
    523 U.S. 83
    , 101 (1998).
    For many years, Congress withheld from federal courts
    the ability to hear claims based solely on federal law. It
    was not until 1875, in fact, that Congress furnished
    federal courts with general federal question jurisdiction.
    Act of Mar. 3, 1875, ch. 137, 
    18 Stat. 470
    . Today, federal
    question jurisdiction is codified at 
    28 U.S.C. § 1331
    , which
    No. 08-1631                                                 11
    states that “[t]he district courts shall have original juris-
    diction of all civil actions arising under the Constitution,
    laws, or treaties of the United States.”
    Although the language of § 1331 is similar to that of
    Article III, courts have interpreted § 1331 much more
    narrowly than its constitutional counterpart. See Verlinden
    B.V., 
    461 U.S. at 494-95
     (“[T]his Court never has held
    that statutory ‘arising under’ jurisdiction is identical to
    Art. III ‘arising under’ jurisdiction. . . . Art. III ‘arising
    under’ jurisdiction is broader than federal-question
    jurisdiction under § 1331 . . . .”). What “arises under”
    § 1331 has been the subject of much debate among the
    courts. See Franchise Tax Bd. v. Constr. Laborers Vacation
    Trust, 
    463 U.S. 1
    , 8-9 (1983) (discussing the difficulties of
    interpreting “arising under”). When, however, as here, a
    case presents a pure federal question, i.e., a claim that
    alleges only direct violations of federal law, the answer, at
    least in theory, is fairly straightforward. See Grable &
    Sons Metal Prods., Inc. v. Darue Eng’g & Mfg., 
    545 U.S. 308
    ,
    312 (2005) (“This [‘arising under’] provision [of 
    28 U.S.C. § 1331
    ] for federal-question jurisdiction is invoked
    by and large by plaintiffs pleading a cause of action
    created by federal law.”). For purposes of exercising
    federal jurisdiction under § 1331, such a claim “arises
    under” federal law if the law in question creates a federal
    cause of action. See Am. Well Works Co. v. Layne & Bowler
    Co., 
    241 U.S. 257
    , 260 (1916); Bennett v. Sw. Airlines Co., 
    484 F.3d 907
    , 909 (7th Cir. 2007).
    Thus, when the basis of the action is a federal statute, a
    federal cause of action must exist as well for a federal
    12                                                      No. 08-1631
    court to hear a given claim; the general grant of federal
    question jurisdiction contained in § 1331, without a federal
    cause of action, is not enough.5 Nat’l R.R. Passenger Corp. v.
    Nat’l Ass’n of R.R. Passengers, 
    414 U.S. 453
    , 456 (1974). As
    the Supreme Court has said: “[T]he threshold question
    clearly is whether the [Act] . . . creates a cause of action
    whereby a private party . . . can enforce duties and obliga-
    tions imposed by the Act; for it is only if such a right of
    action exists that we need consider . . . whether the
    District Court had jurisdiction to entertain it.” 
    Id. at 456
    .
    This appeal calls for us to answer that “threshold ques-
    tion” in the context of § 501.
    5
    In certain situations not before us today, a state law cause of
    action may also raise a federal question sufficient to permit
    federal court jurisdiction. See Grable & Sons Metal Prods., Inc.,
    
    545 U.S. at 312
     (“[I]n certain cases federal-question jurisdiction
    will lie over state-law claims that implicate significant federal
    issues.”); City of Chi. v. Int’l Coll. of Surgeons, 
    522 U.S. 156
    ,
    164 (1997) (citing Franchise Tax Bd., 
    463 U.S. at 13
    ); see, e.g., Smith
    v. Kan. City Title & Trust Co., 
    255 U.S. 180
    , 199-202 (1921)
    (recognizing federal jurisdiction to hear a state law cause of
    action where “the right to relief depends upon the construc-
    tion or application of the Constitution or laws of the United
    States”); Merrell Dow Pharm., Inc. v. Thompson, 
    478 U.S. 804
    , 817
    (1986) (recognizing, albeit narrowing, the continued validity
    of the Smith doctrine before finding no such cause of action
    in that case). But see Moore v. Chesapeake & O. Ry. Co., 
    291 U.S. 205
    , 214-15 (1934) (declining to recognize federal jurisdiction
    in a situation similar to that in Smith).
    No. 08-1631                                                 13
    C. Federal Causes of Action Created by § 501 of the LMRDA
    The question before us is whether § 501 creates a
    private federal cause of action for a labor organization as
    an entity. Although on appeal the parties couch their
    arguments only in terms of § 501(b), we are not limited
    by the parties’ arguments regarding questions of juris-
    diction. See Bender, 
    475 U.S. at 541
    ; United States v. County
    of Cook, Ill., 
    167 F.3d 381
    , 387 (7th Cir. 1999) (“[N]either
    the parties nor their lawyers may stipulate to jurisdiction
    or waive arguments that the court lacks jurisdiction.”);
    Hawxhurst v. Pettibone Corp., 
    40 F.3d 175
    , 179 (7th Cir. 1994).
    Indeed, we are bound to evaluate our own jurisdiction, as
    well as the jurisdiction of the court below, sua sponte if
    necessary. See Bender, 
    475 U.S. at 541
    ; Mansfield, C. & L.M.
    Ry. Co. v. Swan, 
    111 U.S. 379
    , 382 (1884); Craig v. Ontario
    Corp., 
    543 F.3d 872
    , 875 (7th Cir. 2008). If we determine that
    § 501 creates a federal cause of action for unions to sue, the
    district court will have erred in dismissing the Union’s
    claim; just as the law requires a court to refrain
    from hearing a case over which it lacks jurisdiction, it also
    obligates a court to hear any case for which a proper
    jurisdictional basis does exist. See New Orleans Pub. Serv.,
    Inc. v. Council of New Orleans, 
    491 U.S. 350
    , 358 (1989)
    (“[F]ederal courts lack the authority to abstain from
    the exercise of jurisdiction that has been conferred. . . .
    ‘We have no more right to decline the exercise of jurisdic-
    tion which is given, than to usurp that which is not giv-
    en. The one or the other would be treason to the Constitu-
    tion.’ ” (quoting Cohens v. Virginia, 19 U.S. (6 Wheat.) 264,
    404 (1821))).
    14                                               No. 08-1631
    Federal causes of action may be created either
    expressly or by implication. See Transamerica Mortgage
    Advisors, Inc. v. Lewis (TAMA), 
    444 U.S. 11
    , 15 (1979).
    Whether express or implied, however, we remain
    mindful that it is Congress, not this or any other court, that
    creates private causes of action to enforce federal law.
    Alexander v. Sandoval, 
    532 U.S. 275
    , 286-87 (2001) (“Without
    [statutory intent], a cause of action does not exist and
    courts may not create one, no matter how desirable
    that might be as a policy matter, or how compatible
    with the statute.”). Thus, as we discuss in detail below,
    we must determine whether Congress intended the
    statute in question to create, either expressly or by im-
    plication, such a cause of action. See 
    id. at 286
     (calling
    statutory intent “determinative”); Touche Ross & Co. v.
    Redington, 
    442 U.S. 560
    , 568 (1979) (“[O]ur task is limited
    solely to determining whether Congress intended to
    create the private right of action asserted . . . .”). The
    question, then, becomes one of statutory construction.
    Touche Ross & Co., 
    442 U.S. at 568
    ; Cannon v. Univ. of Chi.,
    
    441 U.S. 677
    , 688 (1979). As with any such question, we
    turn as our starting point to the language of § 501 itself,
    see Touche Ross & Co., 
    442 U.S. at 568
    , and ask whether
    it evinces Congress’s intent to create, expressly or im-
    pliedly, a private cause of action for labor organizations
    to enforce its provisions.
    1. Express Federal Cause of Action
    Congressional intent is unmistakably evident in the
    case of an express cause of action. An express federal
    No. 08-1631                                                     15
    cause of action states, in so many words, that the law
    permits a claimant to bring a claim in federal court. Section
    501(b) of the LMRDA, which expressly authorizes mem-
    bers of a labor union to bring a claim for violations of
    § 501(a) “in any district court of the United States,” opens
    to these members the doors of the federal court system.
    Congress’s intent is unequivocal, establishing § 501(b) as
    a clear example of an express federal cause of action.
    A plain reading of both subsections (a) and (b) of § 501
    makes it equally clear that neither provision contains
    an express federal cause of action for a labor organiza-
    tion. See Guidry v. Sheet Metal Workers Nat’l Pension Fund,
    
    493 U.S. 365
    , 374 n.16 (1990). Both circuit courts to have
    considered the issue have reached this same conclusion.
    See Statham, 
    97 F.3d at 1419
    ; Bldg. Material & Dump Truck
    Drivers, Local 420 v. Traweek, 
    867 F.2d 500
    , 506-07 (9th Cir.
    1989). The absence of an express cause of action does not
    end our inquiry, however. We next ask whether the
    statute creates an implied federal cause of action.
    2. Implied Federal Cause of Action
    District and circuit courts alike are divided on whether
    § 501 creates an implied federal cause of action for labor
    organizations.6 Although the Supreme Court has recog
    6
    For examples of decisions implying such a cause of action, see
    Statham, 
    97 F.3d at 1421
    ; Int’l Longshoremen’s Ass’n, Steamship
    Clerks Local 1624 v. Va. Int’l Terminals, Inc., 
    914 F. Supp. 1335
    ,
    (continued...)
    16                                                  No. 08-1631
    nized the difficulty of interpreting § 501, it has thus
    far declined to resolve the issue. See Guidry, 
    493 U.S. at
    374 n.16 (“Courts have reached inconsistent positions on
    the question whether a union may bring suit under § 501.
    We need not resolve that question here.” (citations omit-
    ted)).
    Only two circuit courts, the Ninth and Eleventh Circuits,
    have addressed the question, and they have reached
    opposite conclusions. In Traweek, the Ninth Circuit, focus-
    ing exclusively on § 501(b), declined to recognize an
    implied federal cause of action for suits by labor unions.
    867 F.2d at 506-07. The court based its conclusion on
    four grounds. First, the court focused on the plain
    language of subsection (b), stating that “[t]he clear lan-
    guage of the statute does not contemplate a suit brought
    by a union.” Id. at 506. Second, the court claimed adherence
    to “the federal policy of noninterference in the internal
    affairs of unions and labor matters.” Id. Third, the court
    believed its decision to be consistent with “the general
    6
    (...continued)
    1339 (E.D. Va. 1996); Operative Plasterers & Cement Masons Int’l
    Ass’n v. Benjamin, 
    776 F. Supp. 1360
    , 1365 (N.D. Ind. 1991); and
    Glenn v. Mason, No. 79 Civ. 3918, 
    1980 WL 140904
    , at *1-2
    (S.D.N.Y. Aug. 18, 1980). Decisions reaching the opposite
    conclusion include, for example, Traweek, 867 F.2d at 507; Local
    443, Int’l Bhd. of Teamsters v. Pisano, 
    753 F. Supp. 434
    , 436
    (D. Conn. 1991); Int’l Bhd. of Boilermakers v. Freeman, 
    683 F. Supp. 1190
    , 1192 n.3, 1193 (N.D. Ill. 1988); and Local 624, Int’l
    Union of Operating Eng’rs v. Byrd, 
    659 F. Supp. 274
    , 276 (S.D.
    Miss. 1986).
    No. 08-1631                                              17
    principle . . . that the scope of federal jurisdictional
    statutes should be construed narrowly.” Id. at 507. And
    fourth, the Ninth Circuit found evidence of Congress’s
    intent to grant the remedy solely to the union members
    in § 501(b)’s requirement that union members request
    leave of the court before suing. Id. at 506.
    The Eleventh Circuit viewed the statute differently. In
    Statham, the court read subsections (a) and (b) of § 501
    together and concluded that the statute as a whole
    created an implied federal cause of action for labor organi-
    zations. 
    97 F.3d at 1421
    . Relying on the Act’s plain lan-
    guage and its legislative history, the court found that
    Congress intended labor organizations to have access to
    the federal courts for suits to enforce the fiduciary
    duties imposed by § 501(a). See id. at 1421 (“We conclude
    that section 501(a) was intended to create a federal cause
    of action that can be asserted by the union on its own
    behalf.” (emphasis added)).
    In looking to the duty-creating language of § 501(a), the
    Eleventh Circuit said that “[i]t would make no sense to
    impose federal duties and simultaneously deny the
    unions the right to enforce those duties.” Id. at 1420. The
    court hypothesized that “[i]f Congress had only enacted
    section 501(a) without section 501(b), no one would
    suggest that Congress meant to deny the union the right
    to enforce 501(a).” Id. The court saw no reason that sub-
    section (b)’s mere existence should detract from what it
    viewed as the obvious import of subsection (a). See id. at
    1421 (“We should not infer from the mention of
    individual suits that Congress did not intend to give
    unions a cause of action.”).
    18                                                 No. 08-1631
    Instead, the Eleventh Circuit read subsection (b) as a
    complement to subsection (a). Subsection (b), the court
    noted, had two purposes. The first was to enable individ-
    ual union members to sue on the union’s behalf. Id.
    The second was “to make sure that individuals do not
    preempt a union’s right to prosecute its own claims.”
    Id. Despite these dual purposes, the court noted that
    § 501(b) itself, which requires that unions have the
    first opportunity to sue for violations of the duties set
    forth in subsection (a), “makes the first purpose subservi-
    ent to the second.” Id.; see also id. at 1419 (“[S]ection 501(b)
    shows Congress preferred that the union, rather than
    individual members, sue on its own behalf.”). The
    Eleventh Circuit summarized the interplay between
    subsections (a) and (b) as follows: “It is far more in
    keeping with the statute as a whole to conclude that,
    having given the unions certain rights, Congress thought
    it implicit that the unions could enforce those rights in
    court. Allowing the individuals to assert the unions’ claims
    was more extraordinary and therefore had to be spelled
    out.” Id. at 1421.
    The Eleventh Circuit also looked to the LMRDA’s
    legislative history for evidence of Congress’s intent. The
    court noted that the Act was a broad and wide-ranging
    attempt to reign in corruption within union leadership. Id.
    at 1420-21 (citing Hood, 
    454 F.2d at 1354
    ). When Congress
    passed the LMRDA, few states had imposed fiduciary
    duties upon union officials, and members of Congress
    perceived the remedies available for breaches of those
    duties to be inadequate. 
    Id.
     at 1420 (citing S. Rep. No. 86-
    187 (1959), reprinted in 1959 U.S.C.C.A.N. 2318, 2376). The
    No. 08-1631                                                19
    court concluded from this historical background that
    “Congress intended to supplement the remedies avail-
    able to unions by creating new federal protections.” 
    Id.
    Because § 501 was intended to compensate for inadequate
    state remedies, the court held that it would “frustrate
    congressional intent to relegate the union to state reme-
    dies.” Id.
    It is incumbent on this court, it appears, to break the tie
    between the Ninth and Eleventh Circuits on this issue.
    We begin with the Supreme Court’s current views on
    implied private federal causes of action. The Court’s
    guidance on when a court should recognize an implied
    cause of action has evolved over time. Originally, the
    Court would find an implicit cause of action if doing so
    would effectuate a statute’s purpose and there was
    nothing in its legislative history to counter the implica-
    tion. See J.I. Case Co. v. Borak, 
    377 U.S. 426
    , 431-35 (1964).
    The Court later adopted a series of questions to help
    courts decide whether to imply a federal cause of action.
    See Cort v. Ash, 
    422 U.S. 66
    , 78 (1975). The four factors
    the Court considered were (1) whether the statute
    created a federal right in favor of the plaintiff; (2) whether
    there existed explicit or implicit evidence of con-
    gressional intent either to create or deny a cause of action;
    (3) whether implying a cause of action was consistent
    with the underlying purpose of the legislative scheme;
    and (4) whether the cause of action was one traditionally
    relegated to the states. 
    Id.
    Most recently, however, the Court has distanced itself
    from the approaches discussed in both Borak and Cort. See
    20                                                No. 08-1631
    Alexander, 
    532 U.S. at 287
    ; TAMA, 
    444 U.S. at 15-16
    ; see
    also Thompson v. Thompson, 
    484 U.S. 174
    , 189 (1988)
    (Scalia, J., concurring in the judgment) (calling Cort “effec-
    tively overruled”). Instead, as we have noted, the Court
    has now focused solely on the question of congressional
    intent. See Alexander, 
    532 U.S. at 286-87
    ; Karahalios v. Nat’l
    Fed’n of Fed. Employees, Local 1263, 
    489 U.S. 527
    , 532-33
    (1989) (looking at congressional intent as the sole factor
    in its implied-cause-of-action analysis); TAMA, 
    444 U.S. at 15-16
    ; Touche Ross & Co., 
    442 U.S. at 568
    ; see also Thompson,
    
    484 U.S. at 189
     (Scalia, J., concurring in the judgment)
    (referring to congressional intent as “the determinative
    factor” in evaluating the existence of a private cause of
    action).
    In Alexander, 
    532 U.S. 275
    , the Court, while interpreting
    a section of Title VI of the Civil Rights Act, attempted to
    bring some clarity to the implied cause of action analy-
    sis. Justice Scalia, writing for the Court, said: “The judicial
    task is to interpret the statute Congress has passed to
    determine whether it displays an intent to create not just a
    private right but also a private remedy.” 
    Id. at 286
    . The
    inquiry into congressional intent, therefore, is two-fold:
    Congress must have intended to create both a private right
    and a private remedy. 
    Id.
     Such is the inquiry that we now
    must undertake in the context of § 501.
    We begin with the text of the statute. Touche Ross & Co.,
    
    442 U.S. at 568
    . As required by Alexander, we look specifi-
    cally for “rights-creating language” and an enforcement
    regime suggesting the existence of a private remedy
    for labor organizations. 
    532 U.S. at 288-89
    . Subsection
    No. 08-1631                                                  21
    (a) provides that union officers, agents, and other represen-
    tatives “occupy positions of trust in relation to such
    organization and its members as a group.” 
    29 U.S.C. § 501
    (a)
    (emphasis added). This language establishes union
    officers as fiduciaries vis-à-vis the union and its mem-
    bers. Had the statute stopped there, one might argue
    that the text suggests an intent to leave the scope of the
    fiduciary relationship to state common law and remit
    unions to standard state-law fiduciary remedies.
    But § 501(a) goes further. It articulates a series of specific
    fiduciary duties. Union officers must hold the union’s
    money and property “solely for the benefit of the organiza-
    tion and its members.” Id. They must “refrain from
    dealing with such organization as an adverse party or in
    behalf of an adverse party.” Id. They must not “hold[]
    or acquir[e] any pecuniary or personal interest which
    conflicts with the interests of such organization.” Id. And
    they must “account to the organization for any profit
    received by him . . . in connection with transactions
    conducted by him or under his direction on behalf of the
    organization.” Id. Finally, the last sentence of § 501(a)
    provides that “[a] general exculpatory provision in the
    constitution and bylaws of such a labor organization or
    a general exculpatory resolution of a governing body
    purporting to relieve any such person of liability for
    breach of the duties declared by this section shall be
    void as against public policy.” Id.
    This language does not simply stipulate that general
    state-law fiduciary principles apply. Instead, it prescribes
    in some detail the scope of the fiduciary relationship
    22                                              No. 08-1631
    between union officers and the union. The statutory text
    imposes a series of explicit, affirmative fiduciary obliga-
    tions and requires an accounting “to the organization” for
    profits received by union officers in the course of the
    union’s operations. The itemized list includes some
    traditional duties of a fiduciary, but the fact that they are
    specifically enumerated suggests the imposition of new
    federal duties plainly inuring to the benefit of the union
    and its members. That much is clear from the statutory
    text (union officers “occupy positions of trust in relation
    to such organization and its members as a group,” hold
    money and property “solely for the benefit of the organiza-
    tion and its members,” and must “account to the organization
    for any profit”). Id. (emphases added). But it also flows
    from the nature of a fiduciary duty. A statute that imposes
    fiduciary duties necessarily implies corresponding rights
    in the beneficiaries. The statute’s focus is thus not solely
    on the persons being regulated but also on those whose
    interests are protected—here, the union and, by extension,
    its members. Cf. Alexander, 
    532 U.S. at 289
     (“Statutes that
    focus on the person regulated rather than the individuals
    protected create no implication of an intent to confer
    rights on a particular class of persons.” (quotations omit-
    ted)).
    Thus, an implication arises that § 501(a) confers federal
    rights on labor organizations: the right to the faithful
    performance by union officers of the general and specific
    fiduciary obligations enumerated in the text; the right to
    an accounting; and the right to nullify any exculpatory
    clause asserted by union officers as a defense to an
    action for liability for breach of the fiduciary duties
    No. 08-1631                                               23
    imposed by § 501(a). In other words, the statutory lan-
    guage as a whole manifests an intent “to create new rights”
    for labor unions. See Alexander, 
    532 U.S. at 289
    .
    The statutory language implies the creation of a federal
    remedy for the union as well. The statutory duty to
    “account to the organization for any profit received”
    fairly implies that the union has a specific remedy—that it
    may sue an unfaithful officer in federal court for an
    accounting for ill-gotten gains. The last sentence in
    § 501(a) also suggests the existence of a federal enforce-
    ment regime that includes a remedy for the union. It voids
    any exculpatory provision in the union’s organizational
    documents or resolutions that “purport[s] to relieve any
    [union officer] of liability for breach of the duties” de-
    clared in the statute. 
    29 U.S.C. § 501
    (a). The only
    possible role such an exculpatory clause could serve is
    as a defense to a claim against a union officer for breach
    of the duties imposed by § 501(a), and any such
    claim belongs at least to the union.7 By nullifying any
    exculpatory provisions, the statute removes a possible
    defense to liability. It follows that the union must have a
    statutory remedy for liability for breach against which
    this sort of defense might potentially be asserted.
    The derivative action created in subsection (b) for
    individual union members reinforces rather than under-
    mines the implication arising from the text of subsection
    7
    We defer momentarily the question of the remedies avail-
    able to individual union members, which the statute addresses
    in subsection (b).
    24                                                  No. 08-1631
    (a).8 Section 501(b), by its terms, does nothing more
    than grant union members the right to sue on a union’s
    behalf. It was necessary for Congress to make this deriva-
    tive cause of action explicit because there is nothing in
    subsection (a) to suggest that union members themselves
    could sue for fiduciary violations committed against the
    union. See Statham, 
    97 F.3d at 1421
     (“Allowing the individ-
    uals to assert the unions’ claims was more extraordinary
    and therefore had to be spelled out.”). In creating this
    express cause of action for union members, however,
    § 501(b) neither opens nor closes the federal courthouse
    to the unions themselves. Instead, it provides further
    evidence that labor organizations have an implied cause
    of action under subsection (a).
    Subsection (b) conditions union members’ right to sue
    on the union’s refusal or failure to bring suit itself. See
    
    29 U.S.C. § 501
    (b). Only after union members have re-
    quested that the union seek relief for violations of
    § 501(a), and the union has failed or refused to take
    such action, may the union member sue. Id. The union
    member’s suit may “recover damages or secure an ac-
    counting or other appropriate relief for the benefit of the
    labor organization.” Id. (emphasis added). By structuring
    the union member’s right and remedy in this way, Con-
    gress has created a derivative system much like share-
    8
    The Ninth Circuit in Traweek held that § 501(b)’s express cause
    of action for individual union members foreclosed any
    implied cause of action for the union itself. See 867 F.2d at 506-
    07. We disagree, for the reasons we explain.
    No. 08-1631                                                25
    holder derivative actions seen in corporate law. See
    Hoffman, 
    362 F.3d at
    317 n.4; Chathas, 
    233 F.3d at 514
    ; see
    also Fed. R. Civ. P. 23.1.
    We pause here to note that in reordering the analysis
    in private-cause-of-action cases, Alexander subordinated
    context to text, but it did not eliminate consideration of
    legal context entirely, particularly when used to clarify
    text. See Alexander, 
    532 U.S. at 288
     (“We have never ac-
    corded dispositive weight to context shorn of text. In
    determining whether statutes create private rights of
    action, as in interpreting statutes generally, legal context
    matters only to the extent it clarifies text.” (citation omit-
    ted)). Here, there are important parallels between union
    member derivative actions under § 501(b) and share-
    holder derivative suits; to the extent that the text of § 501
    requires clarification, we find it in this legal context.
    At common law and under modern state corporation
    law statutes, the derivative action remedy allows share-
    holders to bring a corporation’s claim on the corporation’s
    behalf when the corporation fails or refuses to act. See
    Ross v. Bernhard, 
    396 U.S. 531
    , 534 (1970). In Ross, the
    Supreme Court discussed the history of shareholder
    derivative actions. The Court noted that courts in equity
    developed the derivative suit to provide shareholders
    redress “against faithless officers and directors [and] also
    against third parties who had damaged or threatened
    the corporate properties.” 
    Id.
     The American legal system,
    said the Court, viewed a shareholder derivative action
    “as a suit to enforce a corporate cause of action against
    officers, directors, and third parties.” 
    Id.
     (emphasis added);
    26                                                  No. 08-1631
    see also Koster v. Lumbermens Mut. Cas. Co., 
    330 U.S. 518
    , 522
    (1947) (“The cause of action which such a [derivative]
    plaintiff brings before the court is not his own but the
    corporation’s.”). The Court went on to say that “one
    precondition for the [shareholder] suit was a valid claim
    on which the corporation could have sued.” Ross, 396 U.S. at
    534 (emphasis added).
    The same principles are at work in the federal derivative
    remedy created for union members in § 501(b). The statu-
    tory rights conferred by subsection (a) belong to the
    union; individual union members are derivative bene-
    ficiaries, and under subsection (b) they may sue in federal
    court on the union’s behalf to vindicate those rights, but
    only if the union itself first fails or refuses to do so. It
    would be anomalous indeed to read this statutory
    scheme as remitting the union’s own suit—which is
    primary under the statutory hierarchy—to state court. See
    TAMA, 
    444 U.S. at
    19 & n.8 (interpreting 15 U.S.C. § 80b-15
    as implying a limited private cause of action for viola-
    tion of the Investment Advisers Act and noting that
    Congress could have intended that claims under § 215
    would be brought only in state court, but declining “to
    adopt such an anomalous construction without some
    indication that Congress in fact wished to remit the
    litigation of a federal right to state court”); see also Statham,
    
    97 F.3d at 1420
    . A district court in this circuit has also
    recognized this irregularity: “To allow union members to
    sue in federal court while foreclosing suit by unions
    would create perverse incentives whereby unions would
    ‘refuse’ to bring suit upon an appropriate demand by one
    of its members for the sole purpose of manufacturing
    federal jurisdiction.” Benjamin, 
    776 F. Supp. at 1366
    .
    No. 08-1631                                               27
    As our discussion makes clear, we agree with the Elev-
    enth Circuit that the text and remedial structure of § 501(a)
    and (b), read together, imply both federal rights and a
    federal remedy for labor organizations against union
    officers who violate their statutory duties.9 Today’s con-
    clusion does not extend our jurisdiction beyond that
    contemplated by Congress, as some courts have suggested.
    See, e.g., Traweek, 867 F.2d at 506-07; Freeman, 
    683 F. Supp. at 1192
    . We may not, nor have we any desire to, enlarge
    our own jurisdiction. Instead, today’s decision arises
    by clear implication from the text, structure, and context
    of § 501.
    Nor do we believe, as the Ninth Circuit has stated, that
    this conclusion represents an unwarranted interference
    in the internal affairs of labor organizations. See Traweek,
    867 F.2d at 506; Phillips, 
    403 F.2d at 830
    . Congress has
    weighed the risks and benefits of a federal judicial remedy
    for the misconduct of union officers; we are bound to
    give effect to the LMRDA as written, with the inter-
    pretive guidance we have drawn from the Supreme
    Court’s recent implied-cause-of-action jurisprudence.
    In summary, we hold that labor organizations have an
    implied cause of action under § 501(a) to sue in federal
    court for violation of the fiduciary duties imposed by the
    statute. The text and structure of the statute as a whole
    demonstrate Congress’s intent to confer upon unions
    9
    We part company, however, with the Eleventh Circuit’s use
    in Statham of the LMRDA’s legislative history. See 
    97 F.3d at 1420
    .
    28                                              No. 08-1631
    federal rights and a federal remedy. Because Local 150
    has a federal cause of action for violation of § 501, the
    district court possessed jurisdiction to hear this case
    pursuant to the general grant of federal-question juris-
    diction, 
    28 U.S.C. § 1331
    , and therefore erred in dis-
    missing the suit.
    III. C ONCLUSION
    For the reasons above, we conclude that the district court
    incorrectly dismissed the case for lack of subject-matter
    jurisdiction. We R EVERSE the decision of the district court
    and R EMAND the case for further proceedings.
    4-16-09
    

Document Info

Docket Number: 08-1631

Judges: Kanne

Filed Date: 4/16/2009

Precedential Status: Precedential

Modified Date: 9/24/2015

Authorities (36)

California v. Arizona , 99 S. Ct. 919 ( 1979 )

International Brotherhood of Boilermakers v. Freeman , 683 F. Supp. 1190 ( 1988 )

Mansfield, Coldwater & Lake Michigan Railway Co. v. Swan , 4 S. Ct. 510 ( 1884 )

Verlinden B. v. v. Central Bank of Nigeria , 103 S. Ct. 1962 ( 1983 )

Karahalios v. National Federation of Federal Employees, ... , 109 S. Ct. 1282 ( 1989 )

New Orleans Public Service, Inc. v. Council of City of New ... , 109 S. Ct. 2506 ( 1989 )

Guidry v. Sheet Metal Workers National Pension Fund , 110 S. Ct. 680 ( 1990 )

Moore v. Chesapeake & Ohio Railway Co. , 54 S. Ct. 402 ( 1934 )

helen-ohara-v-teamsters-union-local-856-an-unincorporated-labor , 151 F.3d 1152 ( 1998 )

teamsters-national-automotive-transporters-industry-negotiating-committee , 328 F.3d 325 ( 2003 )

Koster v. (American) Lumbermens Mutual Casualty Co. , 330 U.S. 518 ( 1947 )

Charles Chathas v. Local 134 Ibew, Unified Social Club, and ... , 233 F.3d 508 ( 2000 )

Kokkonen v. Guardian Life Insurance Co. of America , 114 S. Ct. 1673 ( 1994 )

Grable & Sons Metal Products, Inc. v. Darue Engineering & ... , 125 S. Ct. 2363 ( 2005 )

Steel Co. v. Citizens for a Better Environment , 118 S. Ct. 1003 ( 1998 )

American Well Works Company v. Layne and Bowler Company , 36 S. Ct. 585 ( 1916 )

Peters v. Village of Clifton , 498 F.3d 727 ( 2007 )

Franchise Tax Bd. of Cal. v. Construction Laborers Vacation ... , 103 S. Ct. 2841 ( 1983 )

international-union-of-electronic-electrical-salaried-machine , 97 F.3d 1416 ( 1996 )

Local 443, International Brotherhood of Teamsters v. Pisano , 753 F. Supp. 434 ( 1991 )

View All Authorities »