Nathan A. Saunders, II
Plaintiff’s reply to defendants’ opposition to preliminary injunction and motion to dismiss
April 4, 2003

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Plaintiff’s reply to defendants’ opposition to plaintiff’s motion for a preliminary injunction and to appoint a monitor pursuant to federal rule of civil procedure 53	Plaintiff’s memorandum of law in opposition to the motion to dismiss the claims against the American Federation of Teachers
Memorandum of law in opposition to the motion to dismiss the claims against members of the executive board

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

Nathan A. Saunders II, (derivatively on behalf of the Washington Teachers Union), Plaintiff, v. Esther Hankerson, et al., Defendants, CASE NUMBER: 1:02CV02536 (EGS)

PLAINTIFF'S REPLY TO DEFENDANTS' OPPOSITION TO PLAINTIFF'S MOTION FOR A PRELIMINARY INJUNCTION AND TO APPOINT A MONITOR PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 53

TABLE OF AUTHORITIES
INTRODUCTION
ARGUMENT

I. PLAINTIFF HAS SATISFIED THE STANDARD FOR INJUNCTIVE RELIEF

A. Plaintiff Has Demonstrated a Substantial Likelihood of Success
B. Plaintiff, on Behalf of the WTU, Would Suffer Irreparable Harm if Relief Is Not Granted
C. No Other Party Will Suffer Substantial Harm.
D. The Injunction Will Further the Public Interest

II. THE COURT HAS THE AUTHORITY TO APPOINT A MONITOR

FOOTNOTES

TABLE OF AUTHORITIES

CASES

Bunz v. Moving Picture Machine Operators' Protective Union Local 224, 567 F.2d 1117 (D.C.Cir.1977)

CityFed Financial Corp. v. Office of Thrift Supervision, 58 F.3d 738 (D.C. Cir. 1995)

Gurton v. Arons, 339 F.2d 371 (2d Cir. 1964)

International Brotherhood of Teamsters v. Local Union 705, 827 F. Supp. 513 (N.D. III. 1993)

International Brotherhood of Teamsters v. Local Union No. 810, 19 F.3d 786 (2d Cir. 1994)

Local 144 Hotel Hospital Nursing Home & Allied Services Union v. Stern, 165 F.3d 14, 1998 WL 807765 (2d Cir. 1998)

Local 1302 United Brotherhood of Carpenters & Joiners v. United Brotherhood of Carpenters & Joiners, 477 F.2d 612 (2d Cir. 1973)

Local No 48 United Brotherhood of Carpenters & Joiners v. United Brotherhood of Carpenters & Joiners, 920 F.2d 1047 (1st Cir. 1990)

Local Union 1202 Amalgamated Transit Union v. Amalgamated Transit Union, No. 80-3305, 1981 WL 2317 (D.D.C. 1981)

Loretangeli v. Critelli, 853 F.2d 186 (3d Cir. 1988)

Mason Tenders Dist. Council v. Laborers' International Union, 884 F. Supp. 823 (S.D.N.Y. 1995)

National Association of Letter Carriers v. Sombrotto, 449 F.2d 915 (2d Cir. 1971)

Pile Drivers Divers Carpenters, Bride Wharf & Dock Builders Local Union 34 v. Northern California Carpenters Regional Council, 992 F. Supp. 1138 (N.D. Cal. 1997)

Sociedad Anonima Vina Santa Rita v United States Department of Treasury, 193 F. Supp. 2d 6 (D.D.C. 2001)

Tincher v. Piasecki, 520 F.2d 851 (7th Cir. 1975)

Transportation Workers Union Local 234 v. Transport Workers Union, 131 F. Supp. 2d 659 (E.D. Pa. 2001)

United States v. Microsoft Corp., 147 F.3d 935 (D.C. Cir. 1998)

Wirtz v. Local 153. Glass Bottle Blowers Association, 389 U.S. 463 (1968)

STATUTES

29 U.S.C. § 185
29 U.S.C. § 401
29 U.S.C. § 462
29 U.S.C.§ 501

The Opposition of Defendant American Federation of Teachers ("AFT") to plaintiff's Motion for a Preliminary Injunction and To Appoint a Monitor is largely a response to a request the Plaintiff, Nathan Saunders, has not made. Saunders has not sought to dissolve the AFT's administratorship of the Washington Teachers Union ("WTU"). Saunders has not sought to attack its administratorship collaterally. Saunders has not challenged its legal validity.

Saunders has instead sought much narrower relief, based on facts that make this case unique: there is a conflict between the interests of the AFT-the administrator-and those of the WTU. The WTU has a colorable claim against the AFT with respect to the very events that made the administratorship necessary. The AFT's own best interests therefore differ from the best interests of the WTU in some important respects. Moreover, there is a widespread public perception that the AFT has a conflict of interest: one newspaper has stated that the AFT needs to focus more on its own liability than on the liability of others, see House Editorial, AFT at Fault, The Washington Times, Feb. 9, 2003, Ex. 10 to the accompanying Supplemental Declaration of Patricia M. Byrne ("Supplemental Decl."); another writer, responding to the AFT's position that it had no reason to suspect wrongdoing at the WTU, commented, ``that's why you have regular audits: to uncover reasons for suspicion, or to catch what may simply be innocent errors in spending." David Morton; Membership Has Its Privileges, Washington City Paper, Jan. 2A.-30, 2003, Ex. 11 to Supplemental Decl.

The conflict is not so broad that it should necessarily preclude an administratorship altogether, so far as we know at this point. But neither can it be swept under the rug, as the AFT urges this Court to do.

The plaintiff, Nathan Saunders, asks the Court to prevent the AFT from unilaterally taking certain types of actions that are more likely to implicate the conflict of interest, while leaving the AFT free to exercise its powers as administrator in all other respects. He further asks the Court to appoint a monitor to review proposed actions coming within the conflict-of-interest categories, creating a mechanism to permit objective evaluation and prompt action. This relief is well-warranted by the facts and governing legal principles, and is within the powers of this Court.

ARGUMENT

The AFT raises two arguments against the relief we seek: that Saunders has not satisfied the standard for injunctive relief, and that, even if such relief is appropriate, the Court lacks the authority to appoint a monitor. These arguments are without merit.

I. PLAINTIFF HAS SATISFIED THE STANDARD FOR INJUNCTIVE RELIEF.

The parties agree on the legal standard to be applied. The moving party must demonstrate "1) a substantial likelihood of success on the merits, 2) that it would suffer irreparable injury if the injunction is not granted, 3) that an injunction would-not substantially injure other interested parties, 'and 4) that the public interest would be furthered by the injunction:' CityFed Fin. Core. v. Office of Thrift Supervision, 58 F.3d 738, 746 (D. C. Cir. 1995). However, the moving party need not necessarily make a strong showing with respect to each of these factors in order to prevail: "the district court must balance the strengths of the requesting party's arguments in each of the four required areas. If the arguments for one factor are particularly strong, an injunction may issue even if the arguments in other areas are rather weak." Id. at 747.

A. Plaintiff Has Demonstrated a Substantial Likelihood of Success.

Because it is undisputed that the AFT failed, for over six years, to enforce a requirement imposed by the AFT on the WTU, Saunders likelihood of success on the merits is high. Indeed, the AFT in its opposition does not address most of the central facts that establish its liability. Namely, the AFT does not challenge: 1) that over the course of seven years, officers of one of its locals misappropriated approximately 5 million dollars; 2) that the fraud was flagrant, frequently involving checks made out to friends or family members of the officers or checks in which the name of the original payee was crossed out and replaced with another name; 3) that during the period of the misappropriations the AFT's constitution required that it receive audit reports from each of its local unions at least once every two years; and 4) that the AFT never received an audit report from the WTU during the relevant period. (WTU Local 6 Forensic Investigation at 6, 21, 27-28, 31-33, Ex. 1 to Declaration of Patricia Byrne accompanying the Motion for a Preliminary Injunction and To Appoint a Monitor ("Byrne Decl. "); AFT Const. Art IV, § 6, Ex. 3 to Byrne Decl.) Moreover, the AFT does not dispute that, just as the forensic examination ultimately ordered by the AFT discovered the nature of the irregularities at the WTU, a competent internal or external audit conducted at any point during the misappropriations would also have likely detected these irregularities.¹

The AFT's response is that it was not obligated to enforce its constitutional requirements. We have primarily responded to this argument in the opposition to the AFT's motion to dismiss, filed simultaneously with this memorandum and we incorporate those arguments herein. In brief, the AFT's argument that it did not owe any duty to the WTU is untenable because the AFT assumed both contractual and fiduciary duties by adding a requirement that local unions conduct biennial audits to the AFT constitution.

The AFT's constitution is a contract between labor organizations under §301 of the Labor-Management Relations Act (LMRA), 29 U.S.C. §185. The audit provisions² of AFT's Constitution must be read in the context of the AFT's Constitution as a whole and the actions the AFT took under it to advise its locals in performing audits. The AFT has significant powers in the Constitution to enforce its audit provisions. It has acted explicitly to give advice to local unions and to follow up to insist that they complete their audits. (See Plaintiff's Memorandum of Law in Opposition to the Motion to Dismiss Claims Against the American Federation of Teachers at 3-9). When read in context, the audit provisions of the Constitution give rise to an implied contractual obligation on the part of AFT to enforce its Constitution and ensure that the WTU conducted its audits on a timely basis. (See ids. The AFT does not dispute that no audits were conducted. Therefore if this Court finds that Saunders has sufficiently alleged a claim for breach of contract, Saunders has a high likelihood of success on the merits of his claim.

The AFT's failure to enforce its audit requirement also creates viable actions for breach of fiduciary duty under both federal common law arising out of the breach of the AFT Constitution and under the specific. provisions of the Labor-Management Reporting and Disclosure Act of 1959 (LMRDA); 29 U.S.C. § 501. Saunders has asserted his § 501 claims against both Edward J. McElroy, as an officer of the AFT, and against the AFT as an agent of the WTU for their failures to adequately monitor the WTU and ensure it was complying with the AFT's audit requirements. The AFT has a high likelihood of success on these claims as well because the AFT cannot dispute that it took no actions to enforce its Constitution.

The AFT also argues that its administratorship is lawfully imposed and presumptively valid. This argument is irrelevant, for our motion does not dispute the lawfulness or validity of an administratorship. Rather, we have shown that the AFT has a conflict of interest requiring protections as part of the administratorship. An administratorship, such as the one imposed by the AFT on the WTU, may be established by a parent union over an affiliated local, union if done "for the purpose of correcting corruption or financial malpractice" and "in accordance with the constitution and bylaws" of the parent union. 29 U.S.C. §462. Neither the statute governing adininistratorships nor the cases interpreting it speak to the broader, question of whether a court may exercise oversight of a union that has been placed in an administratorship.

Nothing in the precedent cited by the AFT supports its position that this Court is in any way limited in issuing the preliminary injunction we seek.. The cases the AFT cites address only whether the imposition of an administratorship is permitted under the statute; they do not address the possible oversight role of a court over a local union when an administratorship is in place but suffers from a conflict of interest.³ As we do not seek to dissolve the administratorship imposed by the AFT on the WTU, the numerous cases that the AFT cited for the proposition that a court should not dissolve an administratorship or that a court should enforce an administratorship validly imposed are irrelevant to the issue now before the Court.

The general policy of union self-governance, which we do not dispute, is similarly beside the point here. Courts have certainly recognized a general, "well-established, soundly based policy of avoiding unnecessary judicial intrusion into the affairs of labor unions." Local No. 48. United Bhd. of Carpenters & Joiners v. United Bhd. of Carpenters & Joiners, 920 F.2d 1047, 1051 (1st Cir. 1990). But "that general policy is subject to important exception in specific areas in which Congress has found that the interests of individual members need special protection against the danger of overreaching by entrenched union leadership." Tincher v. Piasecki, 520 F.2d 851, 854 (7th Cir. 1975). Indeed, one of the principal purposes of the LMRDA was to specify grounds under which judicial intervention in union affairs would be proper to protect "the rights and interests of employees and the public generally as they relate to the activities of labor organizations."⁴

Our claims of breach of fiduciary duty against the AFT and McElroy, for example, were brought pursuant to §501 of the LMRDA, which is precisely one of the grounds under which judicial intervention and oversight of union affairs is appropriate. See Loretangeli v. Critelli 853 F.2d 186, 196 (3d Cir. 1988) (finding that plaintiffs who brought a §501 claim against a parent union had established a likelihood of success on the merits and remanding for further consideration of plaintiffs' preliminary injunction motion, noting that "[t]he dangers of judicial intervention can be overemphasized."). The general policy of judicial noninterference in union affairs has no application in these circumstances. See Bunz v. Moving Picture Mach. Operators' Protective Union Local 224, 567 F.2d 1117, 1124 (D.C. Cir. 1977) (overturning a union's interpretation of a voting provision in the union's bylaws and finding that the "policy of noninterference . . . has been considerably eroded"); Local Union 1202, Amalgamated Transit Union v. Amalgamated Transit Union, No. 80-3305, 1981 WL 2317, at *5 (D.D.C. Feb. 6, 1981) (interpreting a union constitution).⁵

Saunders has shown a substantial likelihood of success on the merits: the AFT had contractual and fiduciary duties to the WTU and its membership requiring it to act when the WTU repeatedly failed to file the required audits and financial statements, and the undisputed facts show that it did not act. This element of the test for injunctive relief therefore weighs strongly in favor of the relief sought.

B. Plaintiff, on Behalf of the WTU, Would Suffer Irreparable Harm if Relief Is Not Granted.

The interests of the WTU, on whose behalf plaintiff is proceeding; would suffer the type of irreparable harm that is necessary to support a preliminary injunction. See Sociedad Anonima Vina Santa Rita v. United States Dept of Treasury, 193 F. Supp. 2d 6, 14 (D.D.C. 2001) (explaining that the alleged injury must be actual - not just theoretical - and imminent in order to be irreparable). The AFT, acting as trustee of the WTU, is in a position to take actions that may irrevocably bind the WTU, including, for example, changing its governance structure (which may affect the conduct of elections), asserting and possibly resolving claims against third parties, and making personnel decisions that will affect the conduct of WTU business. Indeed, the AFT must take these actions, for they are essential to restoring the WTU to health and effectiveness. Finally, failing to restore the union members and the public's perception that the WTU is a healthy and effective union being managed solely in the interests of its members, will result in an irreparable injury to the WTU's reputation. There is nothing speculative about any of these harms.

The AFT operates under conflicts of interest in a variety of respects. First, it will undoubtedly be necessary to revise the WTU governance structure that failed it so badly in recent years. This will raise questions concerning the role of the AFT, how the WTU should interact with it, and whether and to what extent the WTU should be able to rely on AFT oversight and involvement. Moreover, the extent and nature of governance changes must reflect an assessment of where the failures were that permitted the losses-and the AFT's interests lie in focusing the blame internally, and not on the AFT as well.

The AFT has represented that should it decide to make changes to the WTU's constitution, it will select committee members to recommend constitutional amendments, on which the membership will have the ability to vote. (Defs.' Opp'n at 19.) This is entirely appropriate. However, who should serve on the committee? What resources (other than the AFT) will be available to it? A monitor can ensure that the process is not tainted in any way, and permit the process to proceed without an appearance of taint.

Second, permitting the AFT to prosecute and settle cases on the WTU's behalf without meaningful oversight will cause irreparable harm. There can be no dispute that the AFT has a conflict of interest it is itself potentially liable to the WTU with respect to the very events that underlie the claims it proposes to prosecute on the WTU's behalf.

The AFT's argument that its interests are aligned with those of the WTU reflects an overly simplistic view of litigation. It is, of course, true that the AFT and the WTU share an interest in obtaining the largest possible monetary recovery from parties the WTU may sue. (Defs.' Opp'n at 17.) But the terms of settlements, if properly negotiated, are more complex than this. For example, the WTU may be able to secure a larger recovery from one defendant if, as part of the settlement, it assigns its claims against other defendants. Such an assignment of the WTU's claim against the AFT may be in the WTU's best interest, but most certainly would not be in the AFT's best interest.

A failure to consider terms such as these would work irreparable harm. Once. a case has been settled, it is not feasible to go back and recreate what other terms of settlement might have been possible. Moreover, the confidence of the WTU's membership in the process will have been damaged.

Third, the AFT's decision to retain some employees linked to the misappropriation at the WTU will cause irreparable injury to the WTU. By retaining employees, the AFT gives the employees a tacit stamp of approval. Those employees the AFT retains and upon whom the AFT relies, will have an inside track for running for WTU office when the AFT lifts its administratorship. One of the individuals that the administratorship had selected to remain on the WTU's payroll is Esther Hankerson, an officer directly tied to the fraud at the WTU.⁶ If the AFT puts Esther Hankerson - a person who allegedly knew that misappropriation was occurring at the WTU and did nothing to stop it-in position to lead the WTU after the administratorship is lifted, the AFT will significantly undermine the WTU's chances of re-establishing itself as a union free from taint after the administratorship.

While this decision does not appear to be the result of one of the AFT's actual or apparent conflicts, it has raised public concerns: the media has reported on the questions surrounding Hankerson's continuing employment by the WTU. See, e.g., Justin Blum, Teachers Union Official on Leave, Washington Post, March 20, 2003, at B02, Ex. 12 to Supplemental Decl.; Justin Blum & Valerie Strauss, Unreported Forgery Clouds Union Aide's Future, Washington Post, Feb. 12, 2003 at B2, Ex. 13 to Supplemental Decl. The AFT argues that it was necessary to retain Hankerson in order to further the investigation and to provide a day-to-day link with WW members. (Defs.' Opp'n at 18.) Though we do not doubt the sincerity of the AFT's belief, a conflicted source is not a credible source. If it were necessary to retain. Hankerson - something the AFT has now implicitly conceded is not the case-it would have been in the interest of everyone, especially the AFT, to have an independent source confirm that it was necessary.

The issue of Hankerson's continuing employment highlights the fact that actions -- whether wise or unwise -- publicly perceived to lack legitimacy because of the AFT's conflict of interest will irreparably injure the WTU's reputation. Courts have recognized that damage to a union's reputation constitutes irreparable injury. See Transp. Workers Union, Local 234 v. Transp. Workers Union, 131 F. Supp. 2d 659, 667 (E.D. Pa. 2001) ("Courts have found that harm to a union's reputation constitutes irreparable injury warranting a preliminary injunction"); Int'1 Bhd. of Teamsters v. Local Union 705, 827 F. Supp. 513, 516 (N.D. Ill. 1993) (noting that "reputation of the union and its image (were]. at stake" in finding that international union would suffer irreparable injury if a preliminary injunction were not granted to enforce an administratorship); see also Int'1 Bhd. of Teamsters v. Local Union No. 810, 19 F.3d 786, 794 (2d Cir. 1994) (finding that union would suffer irreparable injury if a temporary administratorship were not imposed because "allegations of financial malpractice and undemocratic procedures severely test the allegiance of union members to their chosen leaders"). The effectiveness of the WTU depends on its ability to command the loyalty and confidence of its members, the respect of those with whom it must negotiate, and the trust of the public.

The WTU and its members have suffered grievously because of the criminal acts of the WTU's former leaders. Those leaders' actions have cast a shadow over not only those who misappropriated funds and abused the members' trust, but also the union itself.⁷ The AFT's lack of oversight of the WTU during the period in which the misappropriation occurred has also been widely noticed.⁸ Continuing legitimate questions by the media and the public about the AFT's responsibility for the misappropriations at the WTU through lack of oversight will frustrate the AFT's ability to fulfill the mission of restoring the WTU's reputation. For the WTU to proceed under a cloud created by the AFT's conflict of interest is completely inconsistent with the necessary restoration of trust. A decision-making process that will further member and public perceptions that this union may be acting in the self-interest of those controlling it will truly do damage that is irreparable.

In addition to the conflicts already identified, the AFT suffers from at least one other conflict: the $500,000 in back dues that accrued before the administratorship was imposed. These back dues represent more than a third of all WTU liabilities reported by the AFT⁹ on the Trusteeship Report that it filed with the Department of Labor in February 2003.¹⁰ The WTU should not be liable for these back dues because the AFT failed for years in its oversight responsibilities that would have exposed financial improprieties by WTU officers and prevented the current financial quagmire in which the WTU finds itself. Though the AFT is tainted by its failure of oversight, it appears that the AFT intends to collect the nearly $500,000 from the WTU, despite the fact that back dues are not "the normal per capita tax" that may be collected during the period of administratorship. (Defs.' Opp'n at 17, n.l1.) The fact that the AFT, an entity linked to the wrongdoing at the WTU, would be the final -- indeed, only -- judge of whether back dues should be paid to AFT, and whether those dues should be paid, for example, before overdue pension payments and taxes, would undermine public confidence that fair procedures are now in place at the WTU and would, consequently, further damage the WTU's reputation. While the $500,000 in back dues, in and of itself, does not constitute irreparable injury, the AFT's insistence that it be the sole authority monitoring and running the WTU, when conflicts such as the $500,000 liability exist, does cause irreparable injury to the WTU.

Both the actual and the apparent conflicts cause irreparable injury to the WTU. These conflicts undermine the public's confidence that all necessary changes will be made at the WTU and, consequently, further damage the WTU's reputation.

C. No Other Party Will Suffer Substantial Harm.

The AFT has not shown that it would be injured by the preliminary injunction. Its interest in proceeding without judicial interference (Defs.' Opp'n at 22.) is not a cognizable one because, as explained above, the. courts have made clear that any such interest is limited in circumstances such as these. Nor has it established financial harm -- indeed, it asserts this harm in only the most conclusory terms. Its claim that the relief plaintiff seeks will cause delays and higher costs makes little sense. A monitor will be present only to comment on major decisions. Presumably, for any major decision that the administratorship intends to take, it will have a well thought out justification for the decision. The only new requirement imposed on the AFT is that it articulate this justification to the monitor. The only way in which any type of material delay will result is if the Court, after reviewing the monitor's report, believes that the AFT might not be acting in the best interest of the WTU. The AFT has no cognizable interest in quickly taking an action that raises these concerns.

D. The Injunction Will Further the Public Interest.

The overriding public interest at stake is the restoration of member and public confidence in the stewardship of the WTU. The relief we seek will further that interest: There is no countervailing public interest.

The AFT asserts that it "must be permitted to take the action necessary to correct the financial malpractice, to recoup the monies stolen by former WTU officers, and to return the operations of the WTU to an even keel." (Defs.' Opp'n at 20-21.) We agree with this. However, the relief we seek is entirely consistent with the accomplishment of these objectives, and would greatly increase the likelihood of member and public acceptance of all appropriate actions taken in furtherance of them. The AFT's argument that correcting the financial mismanagement "will not be served" by the relief we seek is simply an assertion it is not a rational argument.

A preliminary injunction and appointment of a monitor by this Court will provide the members of the WTU and the public with confidence that the administratorship is restoring the WTU. Because the administratorship will continue to run the day-to-day operations of the WTU and will have decision-making authority-subject to Court approval in a limited number of instances -- the remedy we seek is minimally intrusive.

A monitor will also benefit the other parties to this litigation. A monitor will mitigate the taint of the AFT's conflict between being a defendant in this matter and being responsible for the administratorship. By removing this taint, the Court will reassure any party that enters into a settlement with the administratorship that the settlement is final and will not be collaterally challenged because of the administratorship's conflict of interest. Accordingly, the AFT has done nothing to undermine Saunders' initial showing that the public's interest would be served by a preliminary injunction and the Court's appointment of a monitor.

II. THE COURT HAS THE AUTHORITY TO APPOINT A MONITOR

The D.C. Circuit has explained that courts have the authority to appoint a special master (who in this case would function as a monitor) under Fed. R. Civ. P. 53(b) to enforce a court order. See United States v. Microsoft Corp., 147 F.3d 935, 955 (D.C. Cir. 1998) (citing favorably Apex Foundation Sales, Inc. v. Kleinfeld, 818 F.2d 1089, 1097 (3d Cir.1987)). Contrary to defendants' argument, nothing in, Microsoft suggests that this authority exists only when the Court approves a consent decree. Here, a monitor would save both the parties and the Court time by helping to enforce an order that requires ongoing Court supervision. Alternatives, such as having the plaintiff monitor whether the AFT might be violating the Court's preliminary injunction order will likely be less effective and more cumbersome on the parties. As such, the Court should exercise its power under Fed. R. Civ. P. 53(b) and appoint a monitor to enforce its preliminary injunction.

Respectfully Submitted,
Charles Davidow No. 331702
Patricia Byrne No. 469127
WILMER, CUTLER & PICKERING
2445 M. St., N.W.
Washington, D.C. 20037
Phone: 202-663-6000

FOOTNOTES

1. In its opposition; the AFT argues that because of the WTU's size, the audit could not have been done internally. (Statement of P. & A. in Supp. Of Defs.' Opp'n to Pl.'s Mot. For a Prelim. Inj. and to Appoint a Monitor ("Defs.' Opp'n") at 13.) As either a competent internal or external audit would have detected the nusappropriations, this point is irrelevant.

2. See AFT Const., Art. IV, § 6; Art. IX, § 8 (Ex. 3 to Byrne Decl.).

3. Each case cited by the AFT involves either an attempt by a local affiliate to dissolve an existing administratorship or an attempt by a parent union to establish an administratorship. For examples of the first, see Local 144 Hotel Hops., Nursing Home & Allied Servs. Union v. Stern, 165 F.3d 14, 1998 WL 807765 (2d Cir. 1998) (unpublished) (local union attempting to dissolve an administratorship); Local 1302 United Bhd. of Carpenters & Joiners v. United Bhd. of Carpenters & Joiners, 477 F.2d 612 (2d Cir. 1973) (same); Pile Drivers. Divers. Carpenters. Bride Wharf and Dock Builders Local Union 34 v. N. Cal. Carpenters Reg'1 Council, 992 F. Supp. 1138, (N.D. Cal. 1997) (same), Mason Tenders Dist. Council v. Laborers' Int'1 Union, 884 F. Supp. 823 (S.D.N.Y. 1995) (same). For examples of the second, see Int'1 Bhd. of Teamsters v. Local Union No. 810,19 F.3d 786 (2d Cir. 1994) (parent union attempting to enforce administratorship); Nat'l Ass'n of Letter Carriers. v. Sombrotto, 449 F.2d 915 (2d Cir. 1971) (same); Transp. Workers Union. Local 234 v. Transp: Workers Union, 131 F. Supp. 2d 659 (E.D. Pa. 2001) (same). None of these cases relates to court oversight of a union that has been placed in administratorship.

4. 29 U.S.C. § 401(b). The LMRDA was remedial legislation considered necessary to further the objective "that labor organizations, employers, and their officials adhere to the highest standards of responsibility and ethical conduct in administering the affairs of their organizations." 29 U.S.C. § 401(a); Wirtz v. Local 153. Glass Bottle Blowers Ass'n, 389 U.S. 463, 469-70 (1968). The Act was passed in response to congressional findings that "there have been a number of instances of breach of trust, corruption, disregard of the rights of individual employees, and other failures to observe high standards of responsibility and ethical conduct which require further and supplementary legislation that will afford necessary protection of the rights and interests of employees and the public generally as they relate to the activities of labor organizations, employers, labor relations consultants, and their officers and representatives." 29 U.S.C. § 401(b); Wirtz, 389 U.S. at 470.

5. The D.C. Circuit takes a more permissive approach to judicial oversight of union affairs than some of its sister circuits, on whose precedents defendants rely for the proposition that this court should refuse an oversight role. Compare Bung, 567 F.2d at 1124 (finding that the Supreme Court decisions in Trbovich v. UMW, 404 U.S. 528 (1972), and Dunlop v. Bachowski, 421 U.S. 560 (1975), "plainly evince greater solicitude for aggrieved union members, and invite greater harassment of offending unions [and] in so doing . . . undercut Calhoon's policy of non- interference, and pro tanto the vitality of the Gurton approach"), with Gurton vi Arons, 339 F.2d 371, 375 (2d Cir. 1964) ("Courts have no special expertise in the operation of unions which would justify a broad power to interfere.") and Local No. 48, 920 F.2d at 1051 ("Courts have neither a monopoly on fairness nor a sufficient expertise in the administration of labor organizations to warrant pervasive judicial intervention in union affairs."). Moreover; defendants fail to acknowledge that even the Gurton approach recognizes that the LMRDA provides cause for a court to intervene in union affairs. See Gurton, 339 F.2d at 375 ("The internal operations of unions are to be left to the officials chosen by the members to manage those operations except in the very limited instances expressly provided by the Act.") (emphasis added).

6. After we filed our motion for a preliminary injunction and shortly before the AFT filed its opposition, the AFT placed Hankerson on administrative leave with pay. There are no assurances from the AFT that Hankerson will not be reinstalled at some point.

8. See, e.g., House Editorial, AFT at Fault, Washington Times, Feb. 9, 2003, Ex. 10 to Supplemental Decl. ("It is the AFT's failure to enforce its own rules and to meet its own fiduciary responsibilities that permitted the fraud to become so massive.").

9. These liabilities also include overdue taxes, unemployment insurance, and pension payments.

10. Form LM-15, Trusteeship Report, filed by the AFT with the U.S. Department of Labor on Feb. 20, 2003 (attached as Exhibit 15 to Supplemental Decl.).

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

Nathan A. Saunders II, (derivatively on behalf of the Washington Teachers Union), Plaintiff, v. Esther Hankerson, et al., Defendants, CASE NUMBER: 1:02CV02536 (EGS)

PLAINTIFF’S MEMORANDUM OF LAW IN OPPOSITION TO THE MOTION TO DISMISS THE CLAIMS AGAINST THE AMERICAN FEDERATION OF TEACHERS

TABLE OF AUTHORITIES
INTRODUCTION
ARGUMENT

I. THE AFT HAS BREACHED ITS CONSTITUTIONAL REQUIREMENTS AND PLAINTIFF HAS ALLEGED A VALID CLAIM UNDER LMRA § 301

A. The AFT's Constitution Required The AFT To Ensure That Its Locals Were Conducting Regular Financial Reviews
B. Plaintiff Exhausted His Administrative Remedies To The Extent That They Existed And Further Exhaustion Would Be Futile
C. Section 301 Of The Lmra Does Not Require A Breach Of Labor Peace

II. THE AFT AND MCELROY OWED FIDUCIARY DUTIES TO' THE WTU AND ITS MEMBERS UNDER THE LMRDA § 501

A. McElroy Had A Fiduciary Duty To Both The WTU And The AFT
B. The AFT Is An Agent Of The WTU And As A Result Can Be Sued Under Section 501
C. Saunders' Repeated, But Unsuccessful, Attempts To Secure Relief From The WTU And The AFT Satisfy Section 501(b)'s Procedural Prerequisites
D. Further Requests By Saunders That The WTU And The AFT Take Legal Action Were And Continue To Be Futile
E. Saunders Has Established Good Cause For Bringing Suit Against Defendants

III. SAUNDERS IS ENTITLED TO REVIEW THE WTU'S FINANCIAL RECORDS
IV. SAUNDERS HAS ADEQUATELY ALLEGED COMMON LAW CLAIMS FOR NEGLIGENCE AND BREACH OF FIDUCIARY DUTY

A. Pre-Emption Does Not Bar Saunders From Asserting Federal Common Law Claims For Breach Of Fiduciary Duty And Negligence
B. Saunders Fiduciary Duty And Negligence Claims Stem From The Agency Relationship Between The AFT And The WTU

V. SAUNDERS HAS STANDING TO BRING A DERIVATIVE ACTION ON BEHALF OF THE WTU

CONCLUSION
FOOTNOTES

TABLE OF AUTHORITIES

FEDERAL CASES

1199 D.C., National Union of Hospital and Health Care Employees v. National Union of Hospital and Health Care Employees, 394 F. Supp. 189 (D.D.C. 1975)

1199 D.C., National Union of Hospital and Health Care Employees v. National Union of Hospital and Health Care Employees, 533 F.2d 1205 (D.C. Cir.1976)

Aguirre v. Auto. Teamsters, 633 F.2d 168 (9th Cir. 1980)

Aho v. Bintz, 290 F. Supp. 577, (D. Minn 1968)

Allis-Chalmers Corp. v. Lueck, 471 U.S. 202 (1985)

Brenner v. Local 514. United Brotherhood of Carpenters & Joiners, 927 F.2d 1283 (3d Cir. 1991)

Cefalo v. Moffett, 333 F. Supp. 1283 (D.D.C. 1971)

Coble v. Howard Univ., 960 F. Supp. 1 (D.D.C. 1997)

Conley v. Gibson, 355 U.S. 41 (1957)

Council 49, American Federation of State, County & Mun. Employees Union v. Reach, 843 F.2d 1343 (11th Cir. 1988)

Cowger v. Rohrbach, 868 F.2d 1064 (9th Cir. 1989)

Dinko v. Wall, 531 F.2d 68 (2d Cir. 1976)

Federal Prescription Serv. Inc. v. Amalgamated Meat Cutters, 527 F.2d 269 (8th Cir. 1975)

Flaherty v. Warehouseman, Garage & Serv. Station Employees' Local Union No. 334, 574 F.2d 484 (9th Cir. 1978)

Fruit and Vegetable Packer & Warehousemen Local 760 v. Morley, 378 F.2d 738 {9th Cir. 1967)

Gilvin v. Fire, 259 F.3d 749 (D.C. Cir. 2001)

George v. Local Union No. 639, 98 F.3d 1419 (D.C. Cir. 1996)

Herbert v. National Academy of Sciences, 974 F. 2d 192 (D.C. Cir. 1992)

Hischon v. King & Spalding, 467 U.S. 69 (1984)

Hood v. Journeymen Barbers, Hairdressers, Etc., 454 F.2d 1347 (7th Cir. 1972)

Howard v. Weathers, 139 F. 3d 553 (7th Cir. 1998)

International Union, United Mine Workers v. District 50, United Mine Workers, 435 F.2d 421 (D.C. Cir. 1970)

Intercity Maint. Company, 62 F. Supp. 2d at 497-98

Johnson v. Bechtel Assocs. Profl Corp., 545 F. Supp. 783 (D.D.C. 1982), aff'd 717 F.2d 574 (D.C. Cir. 1983), rev'd on other grounds

Johnson v. McGowan, 573 F. Supp. 1051 (E.D.N.Y.1983)

Keck v. Employees Indep. Association, 387 F. Supp. 241 (E.D. Pa. 1974)

Keene Corp. v. Insurance Co. of North America, 667 F.2d 1034 (D.C. Cir. 1981)

Keystone Steel & Wire v. NLRB, 41 F.3d 746 (D.C. Cir. 1994)

Kinslow v. American Postal Workers Union, Chicago Local, 222 F.3d 269 (7th Cir. 2000)

Local Union #575 of the United Association of Journeymen & Apprentices of the Plumbing & Pipefitting Industry v. United Association of Journeymen & Apprentices of the Plumbing & Pipe Fitting Industry, 995 F. Supp.1151 (D. Colo. 1998)

Mallick v. International Brotherhood of Electrical Workers, 814 F.2d 674 (D.C. Cir. 1987)

McNamara v. Johnston, 522 F.2d 1157 (7th Cir. 1975)

Messina v Local 1199 SEIU, National Health & Human Serv Employees Union, AFL-CIO, 205 F. Supp.2d 111 (S.D.N.Y. 2002)

Pawlak v. Greenawalt, 464 F. Supp. 1265 (M.D. Pa. 1979)

Pierce v. Bahr, No. 96-0680,1996 U.S. Dist. LEXIS 6488 (D.D.C. May 9, 1996)

Pignotti v. Local No. 3 Sheet Metal Workers' International Association, 477 F.2d 825 (8th Cir. 1973)

Quinn v. DiGiulian, 739 F.2d 637 (D.C. Cir. 1985)

Rwanda v. Rwanda Working Group, 227 F. Supp. 2d 45 (D.D.C. 2002)

Sabolsky v. Budzanoski, 457 F.2d 1245 (3rd Cir. 1972)

Scandinavian Satellite Sys. A.S. v. Prime T.V. Ltd., 291 F. 3d 839 (D.C. Cir. 2002)

Stelling v. International Brotherhood of Electrical Workers Local 1547, 587 F.2d 1379 (9th Cir. 1978)

Swierkewicz v. Sorema N.A., 534 U.S. 506 (2002)

United Association of Journeymen & Apprentices of the Plumbing & Pipefitting Industry of the United States & Canada v. Local 334, 452 U.S. 615 (1981)

United Association of Journeymen & Apprentices of the Plumbing & Pipefitting Industry of the United States & Canada v. Local 334, 628 F.2d 812 (3rd Cir. 1980)

United Brotherhood of Carpenters and Joiners, AFL-CIO, Local Union No. 117 v. Albany Schenectady, Troy and Vicinity District Counsel of the United Bhd of Carpenters and Joiners, AFL-CIO, 553 F. Supp. 55 (N.D.N.Y. 1982)

United Food & Commercial Workers International Union, Local 911 v. United Food & Commercial Workers International Union, 301 F.3d 468 (6th Cir. 2002)

United Mine Workers v. Coronado Coal Co., 259 U.S. 344 (1922)

Wade v. Teamsters Local 247, 527 F. Supp. 1169 (E.D. Mich. 1981)

Winter v. Local 639 International Brotherhood of Teamsters, 569 F.2d 146 (D.C. Cir. 1977)

Woodell v. International Brotherhood of Electrical Workers, 502 U.S. 93 (1991)

Woods v. Local #12 Sheet Metal Workers International Association, 438 F. Supp. 578 (W.D. Pa. 1977)

STATE CASES

1199 D.C.. Babb v. United Food and Commercial Workers District Union Local 271, 448 N.W.2d 168 (Neb. 1989)

1901 Wyoming Avenue Cooperative Association v. Lee, 345 A.2d 456 (D.C. 1975)

Davey v. King, 595 A.2d 999 (D.C. 1991)

Levant v. Whitley, 755 A.2d 1036 (D.C. 2000)

Sutton v. Banner Life Ins. Co., 686 A.2d 1045 (D.C. 1996)

Yelen v. Banks, 146 A.2d 569 (D.C. 1958)

UNPUBLISHED CASES

Bocchiere v. Biller, Civ. Act. No. 87-1804, 1988 WL 163032 (D.D.C. April 29,1988)

Bocchiere v. Bill 1990 WL 67713 (D.C. Cir. May 16, 1990)

Compofelice v. United Food and Commercial Workers, Local 400, Civ. A. No. 80-0046, 1980 WL 2167 (D.D.C. Oct. 10, 1980)

Duran v. AT&T Corp., No. C-2-99-418, 2000 WL 33592869 (S.D. Ohio Aug. 31, 2000)

Freeman v. Fallin, Civ A. 02-0386, 2003 WL 1469456 (D.D.C. May 24, 2003)

Local Union 1202 Amalgamated Transit Union, AFL CIO v. Amalgamated Transit Union, AFL-CIO, No. 80-3305, 1981 WL 2317 (D.D.C. Feb. 6, 1981)

O'Connor v. Freeman, Civ. Act. No. 85-0566, 1985 WL 121 (D.D.C. May 31,1985)

Stewart v. Baltimore Teachers Union, Civ. A. No. JFM-02-3801, 2003 WL 291901 (D. Md. Feb. 3, 2003)

Trine Council v. Biller, Civ. Act. No. 82-1232, 1982 WL 2038, at 2 (D.D.C. May 26, 1982)

Quinn v. DiGiulian, Civ. Act. No. 81-1921, 1983 WL 2005 (D.D.C. May 29, 1983)

Yager v. Carey, 1993 WL 328128 ( D.D.C. June 29, 1993)

STATUTES

28 U.S.C. § 1331
29 U.S.C. § 185(a)
29 U.S.C. § 411
29 U.S.C. § 411(a)(3)(A)
29 U.S.C. § 431(b)
29 U.S.C. § 431(c)
29 U.S.C. § 501(a)
29 U.S.C. § 501(b)
Fed. R. Civ. P. 8(a)(2)
Fed. R. Civ. P. 12(b)(1)
Fed. R. Civ. P. 12(b)(6)
Fed. R. Civ. P. 23.1
Fed. R. Civ. P. 23.2

MISCELLANEOUS

Alan Hyde, Democracy in Collective Bargaining, 93 Yale L.J. 793 (1984)

Restatement 2d Contracts §202(1)

INTRODUCTION

Saunders filed this action against the American Federation of Teachers ("AFT"), and its Secretary-Treasurer, Edward J. McElroy, among other defendants, seeking accountability for the AFT's role in the mismanagement of the Washington Teachers Union ("WTU"). The AFT's response has been to seek dismissal of all of Saunders' claims and to deny that it had any responsibility to WTU's members to see that regularly scheduled audits were carried out by the WTU. The AFT also asserts several procedural defenses, claiming that Saunders lacks standing to sue because he has not done enough to request that the AFT and the WTU take action to remedy the union's mismanagement.

The AFT's arguments are hollow. Saunders has exhausted his administrative remedies to the extent that they exist, and the AFT has failed to describe any further available administrative remedies. Moreover, further exhaustion of remedies would be entirely futile in light of the AFT's express disavowal of any audit oversight responsibility and its assumption of an administratorship over the WTU. In addition, Saunders has stated valid claims for breach of contract under the Labor Relations Management Act § 301, 29 U.S.C. § 185(a), for breach of fiduciary duty by both McElroy and the AFT under the Labor Relations Management Disclosure Act § 501, 29 U.S.C. § 501, and for access to union records under 29 U.S.C. § 431(c). AFT's Motion to Dismiss should therefore be denied and Saunders should be permitted to pursue his case against the AFT and McElroy.

ARGUMENT

The AFT seeks to dismiss Saunders' claims under Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction and under Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief may be granted.

In responding to a motion to dismiss under 12(b)(1), the plaintiff bears the burden of establishing that subject matter jurisdiction exists. Freeman v. Fallin. -- F. Supp.2d --, Civ. A. No. 02-0386 RMU, 2003 WL 1469456 (D.D.C. March 24, 2003). The Court must accept as true all factual allegations contained in the complaint. Id. citing Scandinavian Satellite Sys. A.S. v. Prime T.V. Ltd., 291 F. 3d 839, 884 (D.C. Cir. 2002). Moreover, the Court is not limited to the allegations contained in the complaint and may consider materials outside the pleadings. Herbert v. Nat'l Academy of Sciences, 974 F. 2d 192, 197 (D.C. Cir. 1992) (court may consider undisputed facts or the complaint supplemented by undisputed facts plus the court's resolution of disputed facts). Saunders has subject matter jurisdiction under 28 U.S.C. § 1331 because he asserts claims under the federal labor laws, 29 U.S.C. §§ 185(a), 431(c), and 501(b), and under the Racketeer Influenced and Corrupt Organizations Act. (See First Am. Compl., Counts I-V, XV.)

A motion to dismiss under 12(b)(6) does not require a determination of whether the plaintiff will succeed on the merits, but rather whether the plaintiff has properly stated a claim. Swierkewicz v. Sorema N.A. 534 U.S. 506, 511-14 (2002). Under the Federal Rules of Civil Procedure, the plaintiff need only provide a short and plain statement of the claim and the grounds on which it rests. Fed. R. Civ. P. 8(a)(2); Conley v. Gibson, 355 U.S. 41, 47 (1957). A court may dismiss a complaint for failure to state a claim, "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hischon v. King & Spalding, 467 U.S. 69, 73 (1984) (emphasis added). "In deciding such a motion, the court must accept all of the complaint's well-pled factual allegations as true and draw all reasonable inferences in the non-movant's favor." Freeman, 2003 WL 1469456 at *3. As discussed below, Saunders has stated viable claims against the AFT and McElroy under 29 U.S.C. §§ 185(a), 431(c), and 501(b), and under common law. Defendants' Motion to Dismiss should therefore be denied.

I. THE AFT HAS BREACHED ITS CONSTITUTIONAL REQUIREMENTS AND PLAINTIFF HAS ALLEGED A VALID CLAIM UNDER LMRA § 301.

At the heart of the AFT's motion to dismiss is an attempt to distance itself from the obligations it voluntarily created and assumed under its Constitution. The AFT concedes that its Constitution is a contract between the AFT and its locals. (See Defs.' Mem. at 21.) See also Woodell v. Int'l Bhd. of Elec. Workers, 502 U.S. 93 (1991). Instead, the AFT attacks the Plaintiffs LMRA claim on its merits, asking this Court to find as a matter of law that the AFT Constitution did not impose any duties on the AFT with regard to the WTU's audits. Applying the motion to dismiss standard, Saunders has alleged sufficient facts to state a claim that the AFT had a duty to ensure that the audits were performed. The AFT's Motion to Dismiss Saunders' LMRA claim should therefore be denied.

A. The AFT's Constitution Required the AFT to Ensure That Its Locals Were Conducting Regular Financial Reviews.

The terms of the AFT's Constitution require its local unions, such as the WTU, to submit an annual financial statement for the local, including a statement of assets and liabilities and statement of income and expenses, to the AFT Secretary-Treasurer within five months after the local's fiscal year end. See AFT Const., Art. IX, § 8 (Ex. 3 to Byrne Decl.).) The AFT also requires its locals to submit biennial audits both to the AFT and to the local's membership. Article IV, § 6 of the AFT Constitution states that:

. . . Effective September 1, 1993, and at least every two years thereafter, each affiliated local and state federal shall convene a committee of at least three members to conduct an internal financial review according to a format to be determine by the AFT executive council, or the local or state federation shall contract for an outside audit that meets the standards of generally accepted accounting principles. Either of these reviews must be made available to its membership and provided to the national office by January 1, 1994 and at least every two years thereafter.

(See AFT Const., Art. IV, §6 (Ex. 3 to Byrne Decl.) (emphasis added).)

The AFT cannot, and does not, deny that it never received any audits from the WTU after 1996, Under the AFT'S Constitution, the WTU should have conducted at least three audits between 1996 and 2002. Instead, the AFT claims that it had no obligations with regard to these audits because Article IV, § 6 "creates no duty beyond acting as a depository for the local affiliates audits" and "AFT is not required to take any actions with the audits." This interpretation does not accord with the reasonable expectations of the parties under the Constitution therefore is not entitled to any deference. See United Food & Commercial Workers Int'l Union. Local 911 v. United Food & Commercial Workers Int'l Union, 341 F.3d 468, 478 (6th Cir. 2002) (no deference is accorded to a union's interpretation of its contract when that interpretation is "not fair or reasonable").

Although the AFT's Constitution does not expressly state what action the AFT will take if the officers of a local union flout the requirement that they submit the audit and financial statements, well-established principles of contract law require a broader inquiry, turning on the parties' reasonable expectations, the circumstances of the case, and the parties' conduct. See Keene Core. v. Insurance Co. of North America, 667 F.2d 1034 (D.C. Cir. 1981) ("objectively reasonable expectations of the . . . intended beneficiaries regarding the terms of insurance contracts will be honored"); Sutton v. Banner Life Ins. Co., 686 A.2d 1045,1049 (D.C. 1996) (contract law "attempts the realization of reasonable expectations that have been induced by the making of a promise") (citing Darner v. Motor Sales v. Universal Underwriter Ins. Co. 682 P.2d 388 (Ariz. 1984));1901 Wyo. Ave. Coop. Ass'n v. Lee, 345 A.2d 456, 461-62 (D.C. 1975) (ambiguous agreement must be interpreted from the point of view of a reasonable person in light of all of the circumstances surrounding the transaction and the course of conduct of the parties); Restatement 2d Contracts §202(1) ("Words and other conduct are interpreted in the light of all the circumstances, and if the principal purpose of the parties is ascertainable it is given great weight.").

The expectations of the parties under the AFT's Constitution are manifested in the wording of the Constitution read as a whole, and the AFT's actions under it. While the AFT's Constitution does not explicitly require the AFT to enforce its audit provisions, the AFT's actions in requiring submission of both the audit and annual financial statements; in providing expert advice to its locals on the conduct of the audits and the management of locals' financial affairs; and in collecting substantial dues for no purpose other than to finance these and other activities for the benefit of the locals and their members created a reasonable expectation on the part of the WTU as an institution and its members, that the AFT would ensure that the audits required under its constitution were conducted. Howard v. Weathers, 139 F. 3d 553, 555-56 (7th Cir. 1998) ("The flexible interpretation of a document includes where appropriate, the interpolation of implied terms . . . This principle is frequently invoked in labor contexts."). Indeed, why else require the submission of the audit to the AFT?

First, the AFT's assertion that it simply agreed to receive copies of audits that the locals had already freely undertaken on their own behalf is simply wrong. Rather, Article TV, § 6 is an obligation imposed by the AFT on its local unions. The WTU's Constitution does not require that any audits be conducted. The biennial audit requirement is imposed by the AFT both for the benefit of the local membership and to enable the AFT to ensure that its locals' funds were not being misspent. Thus, by intruding on its locals' financial autonomy by creating the audit provisions and by requiring as part of that process, the submission of copies of the audits to the AFT, the AFT voluntarily assumed a duty to ensure that the requirements it imposed were being met.

Second, Article VI § 6 of the AFT's Constitution must be read in context. See Local Union 1202 Amalgamated Transit Union, AFL CIO v. Amalgamated Transit Union, AFL-CIO, No. 803305, 1981 WL 2317, at *7 (D.D.C. Feb. 6, 1981) ("agreement [I must be construed as a whole"). When the Constitution is read as a whole it is clear that the AFT has significant powers to enforce its accounting requirements, including the power to investigate a local union when the local's conduct fails to comply with the provisions of the AFT Constitution, or when the local's conduct is "not in harmony with the principles of the AFT and tends to bring the AFT into disrepute." See AFT Const., Art. IV, §§14(b) & (c) (Ex. 3 to Byrne Decl.). The AFT's remedies include "ordering and enforcement of compliance;" "communication to the members of the . . . local that informs them about the violation and how it affects their status as AFT members;" and "suspension or revocation of charter as provided for in Article IV section 8." See AFT Const., Art. IV, § 14(c).) The AFT's attempt to portray itself as a passive recipient of financial information is belied by these other provisions of the Constitution. Looking at the Constitution as a whole, it is apparent that the AFT retained broad powers to oversee its local unions' financial affairs and to force local unions to comply with AFT's requirements.

The AFT's publications and subsequent actions with regard to the audit provision provide further evidence that AFT assumed a contractual duty to ensure that audits were conducted.1 See Keystone Steel & Wire v. NLRB, 41 F.3d 746, 749 (D.C. Cir. 1994) (past practice can supply evidence of an implied term in a labor contract). The AFT provides guidance for locals in conducting their own audits. (See Keeping the Records Straight (Ex. 4 to Byrne Decl.); AFT Guidelines for Audit Committees ("AFT Guidelines") (Ex. 5 to Byrne Decl.) discussed in detail in Plaintiff's Motion for A Preliminary Injunction And to Appoint A Monitor (filed March 3, 2003) at 68.) The guidance documents use mandatory language and indicate that procedures required by the AFT's Constitution are to be followed to the letter and treated with the same weight as those of the internal Revenue Service. (See Keeping the Records Straight (Ex. 4 to Byrne Declaration) ("It is the purpose of this book to provide guidelines for keeping the records straight but not to dictate an exact procedure, except where a requirement from the AFT constitution or the IRS is indicated.") (emphasis added).) Moreover, the AFT holds itself out as an authority for locals that have or find problems when they conduct their own audits. See AFT Guidelines at 12 (providing a hotline to the AFT financial services department.").) The AFT has also taken action to follow up with locals regarding outstanding audits. (See Letter from Edward J. McElroy, Secretary-Treasurer AFT, to Local Presidents and Treasurers, dated September 30, 2002 (Ex. 9 to Byme Decl.).) These documents and activities provide further evidence that the AFT regarded the audit obligation as binding and that it has assumed responsibility for ensuring that the audits were conducted.

The cases cited by AFT to bolster its interpretation of the Constitution are not on point. In Brenner v. Local 514, United Bhd. of Carpenters & Joiners, 927 F.2d 1283 (3d Cir. 1991), unlike the present case, the international's Constitution did not place any affirmative obligation on its locals to conduct their operations in a specific way. Thus, the plaintiff's claim was based solely on the international's discretionary powers to intervene when the local acted contrary to the best interests of its members. In this case, by contrast, AFT's actions demonstrate the assumption of an affirmative duty. Federal Prescription Serv. Inc. v. Amalgamated Meat Cutters, 527 F.2d 269, 276-77 (8th Cir. 1975) is not remotely relevant to this case, it was not decided under the LMRA §301 and did not deal with the interpretation of an international's constitution or the obligations assumed under it.

AFT relies in particular on Intercity Maint. Company, 62 F. Supp. 2d at 497-98, and claims that this case demonstrates that there is no "agency relationship" created where a local union received a grant of funds for an organizing campaign from the national union and was required to report on the use of the funds. That case is inapposite. First, and most importantly, as with the Fed. Prescription Services case, Intercity was not brought or decided as a breach of contract claim under the LMRA § 301, but rather under LMRA § 303, which deals with the right to sue for unfair labor practices. Consequently, the case does not deal with the interpretation of a union constitution as a contract, or the imposition of liability on a national union under its constitution, and is therefore irrelevant. Second, in Intercity, the national union's subsidy and reporting requirement did not give rise to an agency relationship because it was temporally unrelated to the acts complained of by the plaintiff in relation to the local's attempts to unionize Intercity. Id. at 498 ("Left unmentioned by the plaintiff, however, is that the subsidy program ended six months before Local 254 began its efforts to unionize Intercity."), Therefore, no control was exerted by the national union during the relevant time period. In contrast, the AFT's reporting requirement was in place throughout the entire time period of the misappropriation of funds from the WTU and is directly related to the misappropriation.

By contrast, in numerous cases involving alleged violations of terms of a national's constitution, courts have denied motions to dismiss or motions for summary judgment, recognizing the need for discovery regarding the proper interpretation of the constitution. See, e.g, Messina v. Local 1199 SEIU, Nat'l Health & Human Serv Employees Union. AFL-CIO, 205 F. Supp.2d 111 (S.D.N.Y. 2002) (denying defendants summary judgment motion because the interpretation of the constitution involved questions of fact and discovery had not been conducted); United Food & Commercial Workers International Union Local 911, 301 F.3d at 478 (denying a motion to dismiss because the violation of an express term of an international's constitution presented a viable claim under LMRA § 301).

Because Saunders has alleged sufficient facts to state a claim that the AFT had a contractual duty to ensure that the WTU performed the biennial audits required by the AFT's Constitution, the AFT's Motion to Dismiss Saunders' LMRA claim should be denied. Saunders is entitled to discovery and an opportunity to prove his claim.

B. Plaintiff Exhausted His Administrative Remedies to the Extent That They Existed and Further Exhaustion Would Be Futile.

In addition to claiming that it had no duty to enforce the plain terms of its own Constitution, the AFT also asserts that "Saunders never afforded the WTU an opportunity to act on his behalf and went directly to the court." (Defs.' Mem. at 28.) This is simply incorrect. As discussed in greater detail below with reference to the LMRDA § 501 claim, in November and December 2002, Saunders made every effort to bring his concerns directly to the WTU. He helped draft a letter that stated his concerns to the WTU, WTU President, Executive Board; organized a press conference and a demonstration in front of the WTU's offices; posted messages on a website; voted for and spoke in favor of a successful motion at a WTU membership meeting. Only after the WTU leadership failed to respond adequately to any of his petitions, and failed to comply with WTU membership's motion, did Saunders file suit. The AFT has not explained why Saunders' many efforts were inadequate, or identified any other union procedures that Saunders was obliged to use before bringing suit.²

Moreover, it is well settled that "[a] party need not comply with the exhaustion requirement if such compliance would be futile." Yager v. Carey, 1993 WL 328128 *5 (D.D.C. Jun. 29, 1993) citing Winter v. Local 639. Int'l Bbd. of Teamsters, 569 F.2d 146,149 (D.C. Cir. 1977). In this case, the WTU leadership was deeply implicated in the misuse of union funds and did not respond in good faith to calls for an accounting; there is little reason to believe it would have asked the AFT to investigate the WTU's finances or the AFT's role in the prolonged misuse of WTU funds. And even if the WTU had asked the AFT to act, the AFT has made clear that it would not have responded. It has consistently argued that it has no duty to oversee the misuse of union dues, and, in effect, denied responsibility for the WTU's malfeasance. See also Compofelice v. United Food and Commercial Workers, Local 400, Civ. A. No. 80-0046, 1980 WL 2167 at *3 (D.D.C. Oct. 10, 1980) (union members need not exhaust procedures that "offer[] no adequate remedy for [their] particular grievance").

C. Section 301 of the LMRA Does Not Require a Breach of the Labor Peace.

The AFT asserts that § 301 (a) of the LMRA does not afford jurisdiction over suits alleging breach of a union constitution "when the breach involves an intra-union dispute unrelated to a collective bargaining agreement ("CBA") or to union affairs having no connection with industrial or economic peace between labor and management." (Defs.' Mem. at 29.) However, the Supreme Court considered and expressly rejected this view more than twenty years ago, and the cases on which the AFT relies are not good law. See United Ass'n of Journeymen & Apprentices of the Plumbing & Pipefitting Indus. of the United States & Canada v. Local 334, 452 U.S. 615 (1981) ("Plumbers & Pipefitters"). Saunders was not required to plead a threat to industrial peace, and this Court has jurisdiction over his suit alleging a breach of the union constitution.

In Plumbers & Pipefitters, a local union brought suit under § 301, alleging that its parent international had breached the union constitution by ordering several locals to consolidate. The Third Circuit dismissed the suit for lack of jurisdiction because the local did not allege a threat to industrial peace.³ The Supreme Court reversed. The Court observed that § 301 (a) in terms confers jurisdiction over "[s]uits for violation of contracts," and that "a union constitution is a `contract' within the plain meaning of §301(a)." 452 U.S. at 616, 622. Moreover, the Court continued, union constitutions were

probably the most commonplace form of contract between labor organizations when the Taft-Hartley Act was enacted. Congress was obviously familiar with their existence and importance, and we cannot believe that Congress would have used the unqualified term "contract" without intending to encompass that category of contracts represented by union constitutions. Nothing in the language and legislative history of § 301(a) suggests any special qualification or limitation on its reach, and we decline to interpose one ourselves.

Id. at 624-25. In particular, the Court was not persuaded by the argument, advanced in the AFT's brief, that federal policy against interfering in purely internal union affairs required it to hold that the reach of § 301 is limited to cases involving allegations of industrial unrest. "Congress," the Court noted, "was also concerned that unions be made legally accountable for agreements into which they entered among themselves, an objective that itself would further stability among labor organizations." Id. at 624; see also Woodell v. Int'l Bhd. of Electrical Workers, Local 71, 502 U.S. 93, 99-100, 102-03 (1991) (in holding that § 301 (a) confers jurisdiction over suits filed by union members alleging the violation of a union constitution, the Court stated that it was "not relevant" whether this would lead to an increase in the number of intra-union disputes heard by federal courts.).

By holding that § 301 (a) confers jurisdiction over suits alleging a violation of inter-union contracts, without "any special limitation or qualification," the Plumbers & Pipefitters Court overturned the holding in 1199 D.C., Nat'l Union of Hosp. and Health Care Employees v. Nat'l Union of Hosp. and Health Care Employees, 394 F. Supp. 189 (D.D.C. 1975) upheld in relevant part by 533 F.2d 1205, and every other case that the AFT relies upon to assert such a limitation. See e.g., Alan Hyde, Democracy in Collective Bargaining, 93 Yale L.J. 793 (1984) ("Recently the Supreme Court rejected the 1199 D.C. holding in [Plumbers & Pipefitters] . . ."). Plaintiff is aware of no subsequent opinion issued by this Court or any other federal court since Plumbers & Pipefitters that holds that jurisdiction over a suit like Saunders' depends on allegations of a threat to industrial peace.⁴

In Gilvin v. Fire, a union Secretary Treasurer brought suit under § 301, alleging inter alia that he had been dismissed from office in violation of his union's constitution. 259 F.3d 749, 754-55 (D.C. Cir. 2001). This Court exercised jurisdiction under § 301 without requiring the plaintiff to assert a threat to industrial peace. Id. at 755, n.8. In Stewart v. Baltimore Teachers Union, members of the Baltimore Teachers' Union brought suit in state court, asserting that their local had held an officers' election that violated the union constitution. Civ. A. No. JFM-02-3801, 2003 WL 291901 (D. Md. Feb. 3, 2003). After the local union removed the case, the federal court refused to remand and instead asserted jurisdiction under § 301 without mentioning any special requirement. Id. at 2, n.2.⁵

II. THE AFT AND MCELROY OWED FIDUCIARY DUTIES TO THE WTU AND ITS MEMBERS UNDER THE LMRDA § 501.

1n addition to breaching the AFT's Constitution under § 301 of the LMRA, the AFT and its Secretary-Treasurer, Edward J. McElroy's failures to comply with their fiduciary obligations to ensure that audits were conducted at the WTU breached § 501 of the LMRDA. McElroy as an officer of the AFT, breached his fiduciary obligations to the AFT's members, which includes the members of the WTU, when he failed to enforce the AFT's audit requirements against the WTU. The AFT, acting as the WTU's agent, breached its fiduciary duties to the WTU membership because it failed to enforce its audit requirements against the WTU.

A. McElroy Had a Fiduciary Duty to Both the WTU and the AFT.

An officer of labor organizations holds a "position[] of trust in relation to [that] organization and its members as a group." 29 U.S.C. § 501(a). That proposition is not in dispute in this case. Rather defendant McElroy disputes whether he owed a fiduciary responsibility to the WTU and its members concerning the WTU finances. McElroy did.

The standard for a fiduciary relationship arises from § 501 and it results from holding a position of trust without regard to which union, international or local, pays the officer's salary. See Aho v. Binz, 290 F. Supp. 577, 580 (D. Minn. 1968). Although § 501 mentions specific duties, to hold money and property for the benefit of the organization for example, the fiduciary duties of an officer are not limited to those duties laid out in the statute. See Stelling v. Int'I Bhd. of Elec. Workers Local 1547, 587 F.2d 1379, 1385-87 (9th Cir. 1978); Pignotti v. Local No. 3 Sheet Metal Workers' Int'l Assn. 477 F.2d 825 (8th Cir. 1973). Rather, an officer occupies such a position of trust concerning all the activities of that officer, and the scope of that officer's fiduciary obligations is established by the unions' rules and policies. See Keck v. Employees Indep. Ass'n, 387 F. Supp. 241, 250 (E.D. Pa. 1974); see also Council 49, Am. Fed, of State. County & Mun. Employees Union v. Reach, 843 F.2d 1343, 1347 (11th Cir. 1988); Johnson v. McGowan, 573 F. Supp. 1051, 1053 (E.D.N.Y. 1983). Moreover, "[b]ecause section 501 was adopted primarily to address the problem of corruption among union officials, it has been 'given its strongest reading in [cases] involving a union officer's diversion of union funds or property into his own hands.'" Council 49, 843 F.2d at 1347 (quoting Ray v. Young, 753 F.2d 386, 389 (5th Cir. 1985)). This strong reading should not be limited to the corrupt officials themselves but rather should carry over to the to the officials who have duties directed at preventing or detecting corruption and the diversion of union funds.

Under the AFT Constitution, McElroy had two duties to the AFT, the WTU, and WTU members that are applicable in this case. First, as Secretary-Treasurer of the AFT, McElroy was required to collect the files of the AFT. (See AFT Const., Art. V, § 3(a).) As a result, he was responsible for collecting the documents required of the local unions including the biennial audits and the yearly financial statements. (See AFT Const., Art. IV, § 6; Art. IX, § 8.) Second, the Constitution required McElroy to collect all monies owed, including dues. See AFT Const., Art. V, § 3(a).) McElroy also assumed additional duties by offering the local unions "expert advice" through the publications he has issued to help the union with their financial affairs including "Keeping the Records Straight" and "AFT Guidelines for Audit Committees" and by providing a staffed hotline to answer question for local union about financial issues.

McElroy breached the fiduciary duties established for him by the AFT constitution and AFT policies. He was on notice that the WTU was in arrears in its dues and that WTU had not submitted its last three biennial audits. (See First Am. Compl. ¶¶70-79.) Nevertheless McElroy failed to follow up with the WTU to ensure that the audits were conducted, and he did not alert the AFT Executive Board that it needed to take action with regard to the WTU. The failure of McElroy to follow up on the audit requirements meant that the corruption at the WTU was allowed to continue, and as a result the WTU has suffered serious financial difficulties and is unable to competently represent its members. Because McElroy breached his fiduciary duties outline by the Constitution he violated § 501.

The AFT contends that McElroy can only be liable under § 501 if he exercised "autocratic control" over the local union and that he did not do so. However, "autocratic control" is not in fact a requirement for the imposition of fiduciary duties but rather one of the many circumstances in which fiduciary duties can be imposed.⁶ See Int'l Union. United, Mine Workers v. Dist. 50.4 United Mine Workers, 435 F.2d 421 (D.C. Cir. 1970);⁷ see also Aho, 290 F. Supp. at 580 (discussing international union officers role as "quasi-officers" of the local but not requiring autocratic control of the local by the national). McElroy's failure to ensure that the audit was submitted in a tamely manner is a breach of his fiduciary duties. As a result, the case against McElroy should not be dismissed.

B. The AFT Is an Agent of the WTU and as a Result Can Be Sued under Section 501.

Under § 501 (a) of the LMRDA, agents of a union assume a fiduciary duty to the union and its members when dealing with union funds and property. If an agent violates that duty, § 501(b) allows a member to sue that agent if the union fails to act on the request to take action against the agent within a reasonable time.

Early in the labor movement the Supreme Court held that unions were held to the same standards of common law agency as corporations. See United Mine Workers v. Coronado Coal Co., 259 U.S. 344, 395 (1922). Although Congress has imposed a statutory agency standard in some labor statutes, like the Norris-La Guardia Act, to undercut the Supreme Court's decision, that is not the case with the LMRDA. In Aguirre v. Auto. Teamsters, 633 F.2d 168 (9th Cir. 1980), the court held that when considering agency questions under the LMRDA a court should apply "ordinary rules of agency" because "use of a standard of agency more restrictive than common law to impose such liability would be directly counter to the ameliorative purposes of the LMRDA."

Under the common law agency standard of the District of Columbia, "an agency relationship is established `when one person authorizes another to act on his behalf subject to his control, and the other consents to do so.'" Davey v. King, 595 A.2d 999, 1002 (D.C. 1991) (citing Henderson v. Charles E. Smith Mgmt., 567 A.2d 59, 62 (D.C. 1989)). The AFT stresses the importance of the control element. While that element is important, "the degree of control exercised need not be great." Johnson v. Bechtel Assocs. Prof'l Corp., 545 F. Supp. 783, 785 (D.D.C. 1982), aff'd 717 F.2d 574 (D,C. Cir. 1983), rev'd on other grounds, 467 U.S. 925 (1984). Moreover, an international union may enter into an agency relationship by showing that the local union acted pursuant to an agreement with the international union, not just by the international instigating supporting, ratifying or encouraging the behavior of the local. See Coble v. Howard Univ., 960 F. Supp. 1, 5 (D.D.C. 1997). Once the agent consents to the relationship by agreement or otherwise, he assumes both a fiduciary duty and a duty of loyalty to the principal. See Rwanda v. Rwanda Working Group, 227 F. Supp. 2d 45, 63 (D.D.C. 2002). These duties bind the agent "to use reasonable care and skill in the performance of his agency, to use reasonable efforts to accomplish the purpose of his agency, and to disclose to his principal all relevant information coming to his knowledge." Yelen v. Banks, 146 A.2d 569, 571 (D.C. 1958).

The AFT is an agent of the WTU by virtue of the WTU's choice to affiliate with the AFT, thereby allowing the AFT to act on its behalf. When the WTU affiliated, it and its members made an agreement with AFT-the AFT Constitution. The WTU, its members and other local unions and their members exercise control over the AFT through their ability to present resolutions, and vote for resolutions and officers at the annual AFT convention. (See AFT Const., Art. VIII, § 8.) Control is also exercised through the WTU's ability to withdraw from membership in the AFT. The AFT manifested its consent to an agency relationship and indicated the scope of duties it was willing to assume through the constitutional requirements and publications giving advice to its local unions. These duties included ensuring that the WTU submitted its required biennial audit at least every two years, and its financial statements every year as require by the AFT Constitution and providing "expert advice" and guidelines to the local union on the control of their finances. (See AFT Const., Art. IV, § 6; Art. IX, § 8.) Moreover, the duty to receive biennial audit and financial statements is only contained within the AFT Constitution, not the WTU Constitution. As a consequence, the WTU and its members have authorized the AFT and its officials to directly interfere in its financial affairs by serving as a watchdog. The AFT also had a duty to collect the dues WTU members paid for their AFT membership from the WTU. (See AFT Const., Art. IX.) The WTU and its members properly relied on the AFT to comply with the fiduciary duties it assumed as a part of the agency relationship. Because the duties assumed by the AFT in its role as an agent address the express purpose of § 501, to stop the looting of union coffers for the benefit of individual union officers, the AFT is liable to the WTU under § 501.

As explained above, the AFT failed to collect three biennial audits between 1996 and 2002, and by June, 2002 had permitted the WW to become delinquent in dues. By failing to ensure that the WTU comply with these two constitutional requirements, the AFT failed to perform the fiduciary duties it assumed to members of the WTU as outlined by its own constitution.

Although courts have barred suits when brought against a union directly, no court has made a determination about whether a union can be sued as an agent of another union. Ordinarily a union cannot be sued by its member under the LMRDA because the derivative nature of the action means that effectively the member is the union for the purposes of suit. Nevertheless allowing a union member to sue a parent union as an agent for a local union falls within the purpose of the LMRDA-to protect the union members in their relations with the local union and prevent local union corruption. If the AFT had been performing the watchdog duties outlined in its own constitution, duties that were relied on by the members of the WTU, it is likely that the corruption of the WTU official would not have gone unnoticed for years.

C. Saunders' Repeated, but Unsuccessful, Attempts to Secure Relief from the WTU and the AFT Satisfy Section 501(b)'s Procedural Prerequisites.

Section 501(b) of the LMRDA provides that a union member must request the union or its governing board or officers "to sue or recover damages or secure an accounting or other appropriate relief" prior to filing suit. 29 U.S.C. § 501(b). If the union, governing board, and officers refuse or fail to act on the union member's request for relief, the union member may then sue for the benefit of the union. See id. Saunders' efforts to obtain internal relief from the WTU and the AFT demonstrate that these condition precedents have been met. See Sabolsky v. Budzanoski, 457 F.2d 1245, 1252 (3rd Cir. 1972) (holding that letter to union president seeking internal relief, but not suit, was sufficient request); Flaherty v. Warehouseman, Garage & Serv. Station Employees' Local Union No. 334, 574 F.2d 484, 487 (9th Cir. 1978) (condition precedent of § 501 (a) suit is request "to secure appropriate relief'); Cefalo v. Moffett, 333 F. Supp. 1283, 1285 (D.D.C. 1971) (finding that plaintiff "complained of wrongs which they now assert in this litigation," union took no action to redress those wrongs, and thus that plaintiff had satisfied § 501(b)'s prerequisites); Trine Council v. Biller, Civ. Act. No. 82-1232, 1982 WL 2038, at *2 (D.D.C. May 26, 1982) (holding that plaintiff's letter protesting the purchase of a new building "suffices for the request" required by § 501(b)); Woods v. Local #12 Sheet Metal Workers Int'l Assn, 438 F. Supp. 578, 580 (W.D. Pa. 1977) (holding that "charge letter" and the absence of a suit by union officers met conditions precedent for § 501 suit).

In contending that Saunders failed to make a sufficient demand, AFT mistakenly suggests that only a demand for suit or an accounting would suffice. (See Defs.' Mem. at 15 ("The member must request that the union or its governing officers bring legal action or secure an accounting.", "a demand to sue is mandatory'; 16 ("Saunders' failure to request that the AFT secure an accounting or file a claim is fatal to his cause of action.").) Indeed, the cases cited by AFT do not support this proposition. In both O'Connor v. Freyman, Civ. Act. No. 85-0566, 1985 WL 121 (D.D.C. May 31, 1985), and Bocchiere v. Biller, Civ. Act. No. 87-1804, 1988 WL 163032 (D.D.C. April 29, 1988), vacated by 1990 WL 67713 (D.C. Cir May 16, 1990), the court dismissed as plaintiffs individuals who failed to make any request to the union. Neither case holds that a request for suit or an accounting is mandatory and that a request to "secure . . . other appropriate relief' as contemplated by § 501(b) is insufficient.

Saunders has repeatedly requested relief in the form of restitution of the improper July 2002 deduction from his paycheck, as well as internal union "housekeeping." Saunders requested a refund-both orally and in writing-in the summer of 2002. (First Am. Compl. 1 35-36.) In November 2002, after months of inaction on the part of the AFT and the WTU to correct the overdraft problem, Saunders assisted in drafting a letter to the WTU, the interim WTU president, the WTU Executive Board, and to the WTU Board of Trustees questioning the financial health of the union and the financial oversight practices of union officials. In particular, the letter demanded to know when the union members would receive their refunds, how the overdraft error was committed, and why the overdraft was not immediately corrected. (Id. ¶¶40-42.)

Saunders then organized and participated in a picket and demonstration in front of the AFT's offices and WTU's offices on November 21, 2002 for the purpose of securing appropriate relief from the AFT and WTU. (First Am. Compl. ¶¶43-46.) At this demonstration, Saunders protested against the improper deduction from his July 2002 paycheck, while simultaneously objecting to and seeking more information about other acts of union officer and agent malfeasance. Saunders demanded an immediate election of a new WTU Executive Committee. (Id. ¶¶43-44.) Additionally, Saunders specifically called on the AFT to account -- to the membership -- for how it had allowed WTU's improprieties to continue in light of its "ultimate oversight responsibility." (Id. ¶45.)

Saunders' protest was followed by more attempts to secure restitution and internal union "housekeeping." Saunders attended a WTU general membership meeting and voted in favor of a motion requesting a refund of the unauthorized dues deduction and demanding a response as to when the refund would be forthcoming. Although the motion passed, the WTU Executive Board did not respond by the stated December 13, 2002 deadline. (Id. ¶¶47-52.) Additionally, on January 27, 2003, Saunders wrote to the AFT demanding a full union membership meeting to address the membership's concerns. As of February 4, 2003, the date of the First Amended Complaint, AFT had failed to set a full membership meeting.

As demonstrated above, the AFT and the WTU ignored Saunders' repeated requests that they remedy the misconduct of which he complained. When Saunders filed his initial complaint against the agents of the WTU and the agents of the AFT; the WTU had taken no action to refund the improperly deducted amounts from the union members' paychecks or to address Saunders' other requests for internal housekeeping. (See First Am. Compl. ¶¶51-54.) Similarly the AFT had taken no action other than to initiate an investigation into WTU's financial malpractices. (See id.; Defs.' Mem. at 18.) Even now, the AFT has failed to take action against those AFT officers and employees responsible for ensuring that WTU conducted an internal financial review, forwarded the audited financial statements to AFT, and complied with its financial obligations to its membership and the AFT. (Id. ¶¶58-59.)

Saunders' repeated efforts to get the AFT and the WTU to take action satisfy § 501(b)'s "request" requirement. Moreover, the AFT's and the WTU's failure to take the requested actions satisfy the "refusal" or "failure to act" prong of § 501(b). Thus, whether Saunders' claim against McElroy is viewed as a claim against McElroy as an agent of the WTU or as an officer of the AFT, Saunders' claim against him may proceed. For the same reasons, Saunders has satisfied the condition precedents of bringing suit against the AFT as an agent of the WTU, as well as against the other officers and agents of the WTU.⁸

D. Further Requests by Saunders That the WTU and the AFT Take Legal Action Were and Continue to Be Futile.

Assuming arguendo that Saunders was required to make a formal request of suit or an accounting prior to bringing this action, Saunders' failure to do so should be excused. Courts have excused a union member's failure to request suit or an accounting when the facts demonstrate that a demand for suit would be futile. See, e.g., McNamara v. Johnston, 522 F.2d 1157 (7th Cir. 1975) (excusing plaintiff's failure to make demand on officers of international union as futile); Sabolsky, 457 F.2d at 1253 (concluding that request to sue would have been "an exercise in futility" in light of union officer's defense of their actions as consistent with the union constitution); Quinn v. DiGiulian, Civ. Act. No. 81-1921, 1983 WL 2005 at *4 (D.D.C. May 29, 1983) (holding that formal request to sue would be futile since union ignored previous requests that union remedy the alleged misconduct), AFT d in part, vacated in part ,739 F.2d 637 (D.C. Cir. 1985) (affirming remedy granted under LMRDA claim on other grounds).

The surrounding circumstances demonstrate that further requests for relief, including formal requests for suit, would have been futile. WTU's officers and their associates raided the WTU treasury, while WTU's Executive Board and Board of Trustees, as well as the AFT and McElroy, ignored their financial oversight duties. A request for suit to either the WTU or AFT would have amounted to a request that these unions sue themselves -- an improbable event. See Hood v. Journeymen Barbers, Hairdressers, Etc. 454 F.2d 1347,1354 n.23 (7th Cir. 1972) (recognizing the similarities between a § 501 action and a shareholder derivative suit and holding that, as in the case of a derivative suit, a demand is not always necessary); Pawlak v. Greenawalt, 464 F. Supp. 1265, 1269 (M.D. Pa. 1979) ("[T]here is merit to the Plaintiffs' contention that to request a Union to sue its president and itself is often, if not always, a futile act."). Moreover, the AFT has repeatedly denied any responsibility to enforce its audit requirement. (See First Am. Compl. ¶¶55-56.) Thus, it is clear that a formal request that the AFT sue McElroy for failing in this regard would have been useless. See McNamara, 522 F.2d at 11.63 (finding request futile when union "consistently and vigorously argued" that defendants were acting properly); Sabolsky, 457 F.2d at 1253; Wade v. Teamsters Local 247, 527 F. Supp. 1169,1178 (E.D. Mich. 1981) (emphasizing that Executive Board's endorsement the actions of the defendant meant relief would not be forthcoming.⁹

While the requirements of § 501 (b) are designed to protect union officers and agents from harassing suits brought. without merit or good faith, the fiduciary responsibilities created in § 501(a) are designed to protect union members. These two policies must be balanced when deciding what is necessary to satisfy the request requirement. See e.g., Dinko v. Wall, 531 F.2d 68, 73 (2d Cir. 1976). Saunders, who initially acted pro se, made sincere efforts to obtain relief prior to filing suit and has brought this suit in good faith. Allowing Saunders' claims to proceed would not result in the "undesirable end" § 501 (b) was designed to avoid. Sabolsky, 457 F.2d at 1253; see also Quinn, 1983 WL 2005, at *4 (finding that Quinn's noncompliance with the letter of § 501 (b) was not offensive to the LMRDA).

E. Saunders Has Established Good Cause for Bringing Suit against Defendants.

Section 501 (b) requires that suits to enforce § 501(a)'s fiduciary duties may only be brought "upon leave of the court obtained upon verified application and for good cause shown." 29 U.S.C. § 501(b). The "good cause" standard "is a threshold requirement that a plaintiff can satisfy through an ex parte application," and does not incorporate a heightened pleading standard that requires a plaintiff "to show a high likelihood of success on the merits." George v. Local Union No. 639, 98 F.3d 1419, 1422 (D.C. Cir. 1996); see also Cowger v. Rohrbach, 868 F.2d 1064, 1068 (9th Cir. 1989) (finding that "good cause" existed where plaintiff "has set forth facts which tend to show that union funds were misspent for [the union officer's] benefit"). The verified First Amended Complaint and attached Declaration, which Saunders sought leave to file, and the Court's order granting Saunders' motion on February 5, 2003, demonstrate that Saunders has satisfied this procedural requirement.

For the foregoing reasons, AFT's motion to dismiss Count II against the AFT and McElroy for failing to state a claim and to satisfy the procedural requirements of § 501 (b) should be denied.

III. SAUNDERS IS ENTITLED TO REVIEW THE WTU'S FINANCIAL RECORDS.

Section 431 of the LMRDA requires every labor organization to file an annual financial report with the Secretary of Labor and to make the information contained in the report available to all of its members. See 29 U.S.C. §§ 431(b)-(c). For just cause, a union member is entitled to bring a suit in federal court for permission to examine any books, records, and accounts necessary to verify that report. 29 U.S.C. § 431(c).

As discussed in detail above, Saunders requested WTU's financial information from both the WTU and the AFT on several occasions. In November 2002, he and other union members sent a letter to the WTU, Interim WTU President Esther Hankerson, Members of the WTU Executive Board, and Members of the WTU Board of Trustees requesting that the recipients "provide the WTU Membership written and detailed information regarding the overall financial health of the WTU and the financial oversight practices of our elected Union officers. " (First Am. Compl. ¶¶40-42.) On November 21, 2002, Saunders organized a demonstration in front of the WTU's offices and the AFT's offices, the state purpose of which was to require the AFT to "respond to the entire membership as to how the parent body, which has ultimate oversight responsibility, could allow such alleged improprieties to exist and yet still expect dues paying members to continue to trust their leadership." (Id. ¶45.) Neither the WTU nor the AFT ever provided the information that Saunders requested. (Id. ¶¶51-52.)

The AFT apparently concedes that Saunders has alleged more than enough facts to establish just cause for his request to examine the WTU's financial records. According to both the AFT's forensic audit and its complaint, WTU and its former officers filed materially false financial statements with the Department of Labor, the IRS, and other agencies. (First Am. Compl. ¶¶192.) Moreover, it is undisputed that former WTU officers have embezzled more than $5 million in union funds and are under investigation by the Federal Bureau of Investigation. Obviously, Saunders had good reason for seeking access to the WTU's financial records. See Mallick v. Int'l Bhd. of Elec. Workers, 814 F.2d 674 (D.C. Cir. 1987) ("abrupt and unexplained shift" in the balance of union funds sufficient to establish just cause); Kinslow v. Am. Postal Workers Union, Chicago Local, 222 F.3d 269, 274 (7th Cir. 2000) {just cause exists where union officers are under indictment for embezzlement).

Rather, the AFT claims that Saunders was required to "exhaust internal union procedures" before filing suit. (Defs.' Mem. at 30-31.) This argument is simply wrong. As the D.C. Circuit has said, § 431 (c) "does not explicitly require any `pre-litigation demand.'" Mallick v. Int'l Bhd. of Elec. Workers, 814 F.2d 674, 679 (D.C. Cir.1987); see also Fruit and Vegetable Packer & Warehousemen Local 760 v. Morley, 378 F.2d 738, 742 (9th Cir. 1967) (§ 431 (c) does not "require any demand, prior to suit, written or otherwise"). The provision of the LMRDA that the AFT cites as imposing an exhaustion requirement -- § 411.-- does not apply to claims made under § 431. Section 411 appears in a different subchapter of the LMRDA than § 431, and Defendants' claim that it applies to § 431 claims is contradicted by Mallick and supported by only a single, unreported case that itself cites no precedent. See Pierce v. Bahr, No. 96-0680, 1996 U.S. Dist. LEXIS 6488 (D.D.C. May 9,1996).¹⁰

In any event, Pierce is easily distinguishable. In that case, the union responded to the plaintiff's request for information, reminding him that he had the right to place his request on the agenda for the next board meeting, which plaintiff failed to do. Id. at *8-10. Here, by contrast, neither the WTU nor the AFT responded to Saunders' requests for information. See Kinslow, 222 F.3d at 274 (7th Cir. 2000) (union waived any right to notice by failing to respond to plaintiff's requests); Morley, 378 F.2d at 742 (same). Moreover, neither the WTU nor the AFT has established procedures for dealing with such requests. Thus, AFT's insistence that Saunders exhaust "reasonable union hearing procedures" makes no sense. (Defs.' Mem. at 31.)

IV. SAUNDERS HAS ADEQUATELY ALLEGED COMMON LAW CLAIMS FOR NEGLIGENCE AND BREACH OF FIDUCIARY DUTY.

A. Pre-emption Does Not Bar Saunders From Asserting Federal Common Law Claims For Breach Of Fiduciary Duty And Negligence

The AFT has not alleged that Counts VI and VII of the Complaint fail to state claims for breach of fiduciary duty or negligence. Instead, the AFT contends that these claims are preempted by the LMRA § 301. The AFT is correct that if Saunders claims are state common law claims they are derived from the AFT Constitution and therefore pre-empted under the LMRA § 301. See Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 220 (1985) ("when resolution of a state law claim is substantially dependent upon analysis of the terms of an agreement made between the parties in a labor contract, that claim must either be treated as a § 301 claim, or dismissed as preempted by federal law."). Nevertheless, Saunders ought to be allowed to pursue his claims for negligence and breach of fduciary duty under the federal common law developed for the interpretation of labor contracts. See id. at 211 ("questions relating to what the parties to a labor agreement agreed, and what legal consequences were intended to flow from breaches of that agreement must be resolved by reference to a uniform federal law whether such questions arise in the context of a suit for breach of contract or in a suit alleging liability in tort."); Duran v. AT&T Corp., 2000 WL 33592869, 168 L.R.R.M. (BNA) 2456 (S.D. Ohio, Aug. 31, 2000) .

In Duran the court examined a situation very similar to the current one. The plaintiff had alleged claims for breach of fiduciary duty, promissory estoppel, and breach of an alleged strike agreement arising out of a collective bargaining agreement. The defendant moved for judgment on the pleadings on the grounds that the claims were pre-empted under § 301, The plaintiffs argued that they should be able to pursue their claims as federal common law claims. While the defendants objected that the complaint did not plead the claims as federal claims the Court held that "at no place in the second amended complaint do the plaintiffs refer to the claims as being state law claims under Ohio law." Id. at *6. It further observed that the "legal theories pleaded. . . are theories which could be advanced under state or federal law. The language in those counts gives defendants notice of the general nature of the claims being asserted." Id. at *6-7. This case almost directly parallels the Duran case.¹¹ Saunders has not alleged that his common law claims are state rather than federal common law claims. He has alleged that the fiduciary duties and duty of care arose out of the AFT's Constitution. (See First Am. Compl. ¶¶258-270.) Saunders should be permitted to proceed with these claims and the AFT's motion to dismiss should be denied. Alternatively, plaintiff respectfully requests this Court to grant leave to amend the complaint to assert federal common law claims for breach of fiduciary duty and negligence.

B. Saunders Fiduciary Duty and Negligence Claims Stem From The Agency Relationship Between the AFT And The WTU.

The AFT contends that it cannot be vicariously liable for the actions of the malefactors at the WTU because the WTU was not the AFT's agent and the AFT never ratified the actions of the malefactors. The AFT mis-states the Plaintiff's argument. Plaintiff does not seek to hold the AFT vicariously liable for the acts at the WTU but rather directly liable for the AFT's own failings as an agent and fiduciary of the WTU.

V. SAUNDERS HAS STANDING TO BRING A DERIVATIVE ACTION ON BEHALF OF THE WTU.

Finally, Saunders has standing to assert his claims derivatively on behalf of the WTU, an unincorporated association, in accordance with Rules 23.1 and 23.2 of the Federal Rules of Civil Procedure. (See First. Am. Compl. ¶10.).

First, Saunders "fairly and adequately" represents the interests of the WTU membership as required by both rules. Fed. R. Civ. P. 23.1, 23.2. Saunders has vigorously and ably asserted the rights of WTU's members. He initiated this case, filing his original complaint almost a month before the AFT took any legal action. He retained pro bono counsel to represent him. He held an open meeting with other union members to hear their concerns. Moreover, he has been an able and articulate spokesman for the rank and file union members.

Defendants' only criticism of Saunders' ability to represent the interests of other WTU members is a vague allegation that he represents a "previous regime." But they offer no explanation of what this means and no evidence to support it, as is their burden. See Levant v. Whitley, 755 A.2d 1036, 1049 (D.C. 2000). Rather, they cite only the hearsay statements of two lawyers who represent union members seeking to intervene as plaintiffs in this case. This Court denied those requests to intervene, implicitly determining that Saunders was an adequate representative. Defendants have offered no basis for this Court to reconsider that decision.

Second, Saunders has satisfied Rule 23.1's demand requirement. Defendants appear to be confused about which union's rights Saunders is seeking to enforce, complaining that Saunders "failed to make a demand that AFT remedy internal problems within the AFT prior to filing suit." (Defs.' Mem. at 34 (emphasis added).) Saunders, however, is suing derivatively on behalf of the WTU, not the AFT. (See First. Am. Compl. ¶10.) Therefore, the relevant demands were those made to the directors of the WTU, not the AFT. See Fed. R. Civ. P. 23.1. Defendants do not dispute that Saunders made numerous requests to the directors and officers of the WTU to remedy the financial problems that came to light after the unauthorized dues deduction in June 2002. Accordingly, Saunders has made an adequate demand under Rule 23.1.

CONCLUSION

For the foregoing reasons, the AFT and McElroy's Motion to Dismiss The Claims Against the American Federation of Teachers should be denied.

Respectfully Submitted,
Charles Davidow No. 331702
Patricia Byrne No. 469127
WILMER CUTLER & PICKERING
2445 M St. N.W.
Washington D.C. 20037
Phone 202-663-6000

April 4, 2003

FOOTNOTES

1. Courts may rely on extrinsic evidence to interpret labor agreements. See United Bhd, of Carpenters and Joiners, AFL-CIO Local Union No. 117 v. Albany, Schenectady, Troy and Vicinity District Counsel of the United Bhd of Carpenters and Joiners, AFL-CIO, 553 F. Supp. 55 (N.D.N.Y. 1982).

2. Indeed, the AFT has not identified any procedures that Saunders was obliged to use before bringing the claims at issue in this lawsuit, and the WTU Constitution and Bylaws do not contain any.

3. The Third Circuit had adopted a rule similar to the one the AFT now advances in its briefs, that: "disputes between local and parent unions must involve events which potentially have a significant impact on labor-management relations or industrial peace in order for there to be jurisdiction under § 301(a)." 628 F.2d 812, 818. In reaching this result, the Third Circuit quoted with approval from 1199 D.C., National Union of Hospital and Health Care Employees v. National Union of Hospital and Health Care Employees, 533 F.2d 1205,1208 (D.C. Cir.1976), in which the D.C. Circuit upheld that part of the D.C. district court's opinion on which the AFT now relies. See Defs. Mem. at 29. As discussed above in text, because of the Supreme Court's reversal of Plumbers & Pipefitters the rule the AFT asserts is no longer good law.

4. The AFT has identified one case, decided by a state court in Nebraska, that cites favorably to 1199 D.C.. Babb v. United Food and Commercial Workers Dist. Union Local 271, 448 N.W.2d 168 (Neb. 1989). This case does not cite Plumbers & Pipefitters, or any relevant cases decided after Plumbers & Pipefitters.

5. Finally, even if jurisdiction under § 301(a) did depend on a threat to industrial peace, the requirement would clearly be met in this case. The misuse of the WTU's treasury and the AFT's prolonged lack of oversight constitute a scandal that occupies a central place in this city's social and political life. If the WTU's reconstruction is not widely understood to be fair, open, and undertaken in the best interest of WTU members, the resumption of peaceful labor relations is an uncertain prospect at best.

6. Moreover, even if "autocratic control" were required to impose fiduciary duties on McElroy, the AFT and McElroy had autocratic control over the locals' audit requirement, though not over the day to day financial management of the WTU. The audit requirement is entirely an AFT construct. It does not appear at all in the WTU Constitution. It is unilaterally asserted by the AFT over its locals. Consequently, it is a direct and autocratic interference with the autonomy of the local unions and the AFT is responsible to ensure that the audit is completed appropriately.

7. Indeed, the only case the Defendants cite for the proposition that "autocratic control" is required to establish a fiduciary duty under § 501 was not brought under Section 501 but rather is a contract case that uses § 501 by analogy to understand fiduciary obligations under a promissory note between a local union and international union. See International Union, United Mine Workers v. District 50, United Mine Workers, 435 F.2d 421 (D.C. Cir. 1970)

In another case the AFT cites, the court declined to reach the standard required for § 501 liability because the defendant was acting reasonably, in good faith, and under the authority of the international union's constitution. See Local Union #575 of the United Ass'n of Journeymen & Apprentices of the Plumbing & Pipe Fitting Indus. v. United Ass'n of Journeymen & Apprentices of the Plumbing & Pipe Fitting Indus., 995 F. Supp. 1151, 1163 (D. Colo. 1998).

8. Saunders initially filed suit against the agents of the WTU before the AFT assumed control of the WTU in the form of an administratorship, and thus was not required to make a request on the AFT before doing so. Nonetheless, assuming Saunders was required to make a request to the AFT prior to filing suit against the agents of the WTU under the LMRDA, Saunders' requests to the AFT seeking relief from its lack of oversight fairly encompasses such a request.

Additionally, AFT's contention that its claims against the agents of WTU bar Saunders' claims in Counts VIII-XII and MV-XVM (Defs.' Mem. at 18) is not supported by the case law and is misguided as a policy matter. A plaintiff who has met the procedural prerequisites of § 501(b) does not lose standing if the union later seeks to redress the harm alleged. See O'Connor, at *2, *5 (holding that plaintiff satisfied the procedural prerequisites of § 501(b) after demand to sue union official was refused, and simultaneously granting union's motion to intervene as a plaintiff in the same action). Moreover, it would be problematic if the AFT, which is potentially liable to WTU's membership, could eliminate a union member's right to sue under § 501 (b) by subsequently asserting its own claims. For these reasons, AFT's motion to dismiss Counts VIII-XVIII should be denied.

9. Notably, neither the AFT Constitution or the WTU Constitution provide that charges against its officers or agents may be assessed by the entire membership, as opposed to by the executive boards.

10. Defendants have also asserted § 411's exhaustion requirement as a defense to Saunders' claim for restriction of his right to sue. (See Defs.' Mem. at 32-34.) But Saunders has asserted no such claim. Saunders' only claim under § 411 is Count III of his First Amended Complaint, in which he asserted a claim against Bullock and Baxter for increasing the dues of WTU's members without authorization in violation of 29 U.S.C. § 411(a)(3)(A). This claim has nothing to do with restrictions on Saunders' "right to sue" and is not asserted against either the AFT or McElroy. Therefore, Defendants' extensive discussion of Saunders' standing under 29 U.S.C. § 411 is not relevant to the claims against the AFT and McElroy.

11. In the Duran case the court held that the plaintiff failed to sufficiently allege a basis for the fiduciary duty claim, because the contract did not create such a duty. Nevertheless it held that "It is conceivable that the breach of fiduciary relationship theory might apply under appropriate circumstances in connection with a §301 breach of contract claim." Duran, 2000 WL 33592869 at * 9. In this case the fiduciary duty is directly related to the obligations the AFT assumed under its constitution and by proffering expert advice to local unions about how best to conduct their audits. (See "Keeping the Records Straight," (Ex. 4 to Byrne Decl); AFT Guidelines, (Ex. 5 to Byrne Decl.)); Duran 2000 WL 33592869 at *9 ("The term `fiduciary relationship' has been defined as a relationship `in which special confidence and trust is reposed in the integrity and fidelity of another and there is a resulting position of superiority or influence, acquired by virtue of this special trust." )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

Nathan A. Saunders II, (derivatively on behalf of the Washington Teachers Union), Plaintiff, v. Esther Hankerson, et al., Defendants, CASE NUMBER: 1:02CV02536 (EGS)

MEMORANDUM OF LAW IN OPPOSITION TO THE MOTION TO DISMISS THE CLAIMS AGAINST MEMBERS OF THE EXECUTIVE BOARD

TABLE OF AUTHORITIES
INTRODUCTION
ARGUMENT

I. THE LMRDA APPLIES TO THIS CASE
II. SAUNDERS' REPEATED, BUT UNSUCCESSFUL, ATTEMPTS TO SECURE RELIEF FROM THE WTU SATISFY SECTION 501(B)'S PROCEDURAL PREREQUISITES, AND PROVIDE THIS COURT WITH SUBJECT MATTER JURISDICTION AND SAUNDERS WITH STANDING TO SUE.

FOOTNOTES

TABLE OF AUTHORITIES

FEDERAL CASES

Adams-Lundy v. Association of Professional Flight Attendants, 844 F.2d 245 (5th Cir.1988)

Cefalo v. Moffett, 333 F. Supp. 1283 (D.D.C. 1971)

Commer v. McEntee, 145 F. Supp. 2d 333 (S.D.N.Y. 2001)

Crane v. Carr, 814 F.2d 758 (D.C. Cir. 1987)

Donovan v. Local 6, Washington Teachers Union, 747 F.2d 711 (D.C. Cir. 1984)

El Fadl v. Central Bank of Jordan, 75 F.3d 668 (D.C. Cir. 1996)

Flaherty v. Warehouseman. Garage & Service Station Employees' Local Union No 334, 574 F.2d 484 (9th Cir. 1978)

Hanahan v. Lucassen, 764 F. Supp. 194 (D.D.C. 1991)

Herbert v. National Academy of Sciences, 974 F. 2d 192 (D.C. Cir. 1992)

Ignatiev v. United States, 238 F.3d 464 (D.C. Cir. 2001)

International Brotherhood of Teamsters. Chauffeurs. Warehousemen and Helpers, 242 F.Supp. 246 (D.D.C. 1965)

Sabolsky v.Budzanoski, 457 F.2d 1245 (3rd Cir. 1972)

Wildberger v. Am. Federation of Government Employees, 86 F. 3d 1188 (D.C. Cir. 1996)

Woods v. Local #12 Sheet Metal Workers International Association, 438 F. Supp. 578 (W.D. Pa. 1977)

Yager v. Carey, 910 F. Supp. 704 (D.C. Cir. 1995)

UNPUBLISHED CASES

Freeman v. Fallin, Civ. Act. No. 02-0386, 2003 WL 1469456 (D.D.C. March 24, 2003)

O'Connor v. Freyman, Civ. Act. No. 85-0566,1985 WL 121 (D.D.C. May 31, 1985)

Trine Council v. Biller, Civ. Act. No. 82-1232, 1982 WL 2038, at 2 (D.D.C. May 26, 1982)

STATUTES

29 U.S.C. §402(3)
29 U.S.C. §402(i)
29 U.S.C. §431(b)
29 U.S.C. §501(b)

INTRODUCTION

Plaintiff Nathan Saunders hereby opposes the motion by Defendants Esther Hankerson and former members of the Washington Teachers Union's Executive Board to dismiss the claims against them. In his First Amended Complaint, filed on February 4, 2003, Saunders asserted a claim against various officers and agents of the WTU for breach of their fiduciary duties under the Labor-Management Reporting and Disclosure Act ("LMRDA"). Saunders alleged, among other things, that as a result of Hankerson's and the Executive Board's failure to exercise reasonable care and diligence in overseeing the WTU's finances and the actions of its officers and employees, certain individuals were able to embezzle more than 5 million dollars in union funds.

Defendants' motion to dismiss is meritless and should be. denied: First, the LMRDA applies to the WTU. Both the WTU and its parent union, the American Federation of Teachers, have conceded that the WTU is bound by the LMRDA, and Defendants offer no factual support for their argument to the contrary. Second; Saunders made a more than adequate demand for action by the WTU and therefore has standing to sue under the LMRDA.

ARGUMENT

I. THE LMRDA APPLIES TO THIS CASE.

The LMRDA covers labor organizations that, among other things, "exist[] for the purpose, in whole or in part, of dealing with employers;" which are defined as private employers. 29 U.S.C. §§ 402(e) & (i) (emphasis added). Thus, although the LMRDA does not apply to unions composed entirely of government employees, the D.C. Circuit has held that "mixed unions," or "unions representing private employees as well as [government] employees," are subject to the LMRDA. Wildberger v. Am. Fed'n of Gov't Employees, 86 F.3d 1188, 119293 (D.C. Cir. 1996).

Defendants offer absolutely no support for their claim that WTU "represents solely public employees." (Defs.' Mem. at 6.) To the contrary, the very paragraph of the First Amended Complaint that Defendants cite in their memorandum undercuts their claim, alleging specifically that WTU's "membership primarily consists of District of Columbia public school teachers and professionals." (First Am. Compl. ¶29 (emphasis added).) In considering a motion to dismiss under Rule 12(b)(1), the Court must accept as true ail factual allegations contained in the complaint. Freeman v. Fallin, -- F. Supp.2d --, Civ. A. No. 02-0386 RMU, 2003 WL 1469456 (D.D.C. March 24, 2003) (citing Scandinavian Satellite Sys. A.S. v. Prime TV, Ltd., 291 F. 3d 839, 884 (D.C. Cir. 2002)).

Moreover, the Court is not limited to the allegations contained in the complaint and may consider materials outside the pleadings. Herbert v. Nat'l Academy of Sciences, 974 F. 2d 19.2, 197 (D.C. Or. 1992) (court may consider undisputed facts or the complaint supplemented by undisputed facts plus the.court's resolution of disputed facts). Here, both the WTU and its parent organization, AFT, have acted as though the WTU is bound by the LMRDA. The AFT has asserted LMRDA claims against former officers of the WTU in its lawsuit and further states in its complaint that the WTU was obligated to file financial statements with the Secretary of Labor pursuant to the LMRDA. (See AFT Compl. ¶¶12, 220, 231-38.) And the WTU in fact filed the LM-2 forms required by the LMRDA, 29 U.S.C. § 431(b). (See First Am. Compl. ¶283.) In addition, WTU has been a named defendant in another case alleging LMRDA claims. See Donovan v. Local 6, Washington Teachers Union, 747 F.2d 711 (D.C. Cir. 1984).

Finally, if this Court has any doubts regarding the applicability of the LMRDA to the WTU, Saunders should be allowed to conduct discovery on this issue. As the D.C. Circuit has held, plaintiffs are entitled to "a fair opportunity" to conduct discovery of facts necessary to establish jurisdiction prior to decision of a Rule 12(b)(1) motion. Crane v. Carr, 814 F.2d 758, 760, 764 (D.C. Cir. 1987) (vacating dismissal of claim and remanding for discovery on issue of jurisdiction); see also EI Fadl v. Central Bank of Jordan, 75 F.3d 668, 675-76 (D.C. Cir. 1996) (same); Ignatiev v. United States, 238 F.3d 464, 467 (D.C. Cir. 2001).

II. SAUNDERS' REPEATED, BUT UNSUCCESSFUL, ATTEMPTS TO, SECURE RELIEF FROM THE WTU SATISFY SECTION 501(B)'S PROCEDURAL PREREQUISITES, AND PROVIDE THIS COURT WITH SUBJECT MATTER JURISDICTION AND SAUNDERS WITH STANDING TO SUE.

Section 501 (b) of the LMRDA provides that a union member must ask the union or its governing board or officers "to sue or recover.damages or secure an accounting or other appropriate relief" prior to filing suit. 29 U.S.C. § 501(b). If the union, governing board, and officers refuse or fail to act on the union member's request for relief, the union member may then sue for the benefit of the union. See id. Saunders' efforts to obtain internal relief from the WTU demonstrate, that these condition precedents have been met.¹

In contending that Saunders failed to make a sufficient demand, Defendants' mistakenly suggest that only a demand for suit or a legal action would suffice. (See Defs.' Mem. at. 6 ("a putative plaintiff must first make an actual demand upon the union under 501 (b) to initiate legal action against the officer.").) However, the cases cited by Defendants do not support this proposition. In O'Connor v. Freeman, Civ. Act. No. 85-0566, 1985 WL 121 (D.D.C, May 31, 1985); Yager v. Carey, 910 F. Supp. 704 (D.C. Cir. 1995); Hanahan v. Lucassen, 764 F. Supp. 194 (D.D.C. 1991); and International B'hood of Teamsters, Chauffeurs Warehousemen and Helpers, 242 F. Supp. 246 (D.D.C. 1965), the court dismissed as plaintiffs individuals who failed to make any request to the union. None of these cases holds that a request for suit or an accounting is mandatory and that a request to "secure . . . other appropriate relief" as contemplated by § 501 (b) is insufficient. Indeed the only case making such an explicit claim is a Commer v. McEntee, 145 F. Supp. 2d 333 (S.D.N.Y. 2001), which as a district court. case from another jurisdiction is not binding on this court. Defendants also rely on Adams-Lundy v. Ass'n of Professional Flight Attendants, 844 F.2d 245, 288 (5th Cir. 1988), to claim that the request must be a request to institute legal proceedings. However, the Adams-Lundy court held that the "request to institute legal proceedings" was satisfied where the Complaint did not explicitly allege that such a request had been made but merely "impI[ied] some form of request was made." The Adams-Lundy court stated that "[a]s other courts have found, these requests sufficiently meet §501(b)'s requirement of a request for legal action." The Adams-Lundy court immediately cited to Sabolsky v. Budzanoski, 457 F.2d 1245, 1252 (3d Cir. 1972), in which the court found "a letter requesting internal relief sufficient." Adams-Lundy, 844 F.2d at 249, n.23. Moreover, the Adams-Lundy court stated that it agreed "with the Second Circuit that in determining whether a request for legal action was made, we must keep in mind that 'the Act is designed to protect union members' and that an interpretation of § 501(b) requires a balancing of policies." Id. at 249-50. Thus, Defendants' authority does not support their claim that the only suitable request for action by a union is an explicit request for a lawsuit. Moreover such a narrow reading of the statute significantly undermines the statute's purpose, which is to provide recourse for union members when there has been misappropriation of union funds and the union has not taken action on its own to correct matters within a reasonable period after its attention has been drawn to the problem.

Saunders has repeatedly requested relief in the form of restitution of the improper July 2002 deduction from his paycheck, as well as internal union "housekeeping." Saunders requested a refund -- both orally and in writing -- in the summer of 2002. (First Am. Compl. ¶¶35-36.) In November 2002, after months of inaction on the part of the WTU to correct the overdraft problem, Saunders assisted in drafting a letter to the WTU, the interim WTU president, the WTU Executive Board, and to the WTU Board of Trustees questioning the financial health of the union and the financial oversight practices of union officials.. In particular, the letter demanded to know when the union members would receive their refunds, how the overdraft error was committed, and why the overdraft was not immediately corrected. (Id. ¶¶40-42.)

Saunders then organized and participated in a picket and demonstration in front of the AFT's offices and WTU's offices on November 21, 2002 for the purpose of securing appropriate relief from the AFT and WTU. (First Am. Compl. ¶¶43-46.) At this demonstration, Saunders protested against the improper deduction from his July 2002 paycheck, while simultaneously objecting to and seeking more information about other acts of union officer and agent malfeasance. Saunders demanded. an immediate election of a new WTU Executive Committee. (Id. ¶¶43-44.) Saunders' protest was followed by more attempts to secure restitution and internal union "housekeeping." Saunders attended a WTU general membership meeting and voted in favor of a motion requesting a refund of the unauthorized dues deduction and demanding a response as to when the refund would be forthcoming. Although the motion passed, the WTU Executive Board did not respond by the stated December 13, 2002 deadline. (Id. ¶¶47-52.)

As demonstrated above, the WTU ignored Saunders' repeated requests that it remedy the misconduct of which he complained. When Saunders' filed his initial complaint against the agents of the WTU, the WTU had taken no action to refund the improperly deducted amounts from the union members' paychecks or to address Saunders' other requests for internal housekeeping. (See First Am. Compl. ¶¶51-54.)

Saunders' repeated efforts to get the WTU to take action satisfy § 501(b)'s "request" requirement. Moreover, the WTU's failure to take the requested actions satisfy the "refusal" or "failure to act" prong of § 501(b). Thus, this court has subject matter jurisdiction over this claim and Saunders has standing to sue. For the foregoing reasons, the Executive Board's Motion to Dismiss should be denied.

Respectfully Submitted,
Charles Davidow No. 331702
Patricia Byrne No. 469127
WILMER CUTLER & PICKERING
2445 M. St. N.W.
Washington D.C. 20037
Phone 202-663-6000

April 4, 2003

FOOTNOTES

1. See Sabolsky v. Budzanoski, 457 F.2d 1245,1252 (3rd Cir. 1972) (holding that letter to union president seeking internal relief, but not suit, was sufficient request); Flaherty v. Warehouseman. Garage & Service Station Employees' Local Union No. 334, 574 F.2d 484, 487 (9th Cir. 1978) (condition precedent of § 501 (a) suit is request "to secure appropriate relief'); Cefalo v. Moffett, 333 F. Supp. 1283,1285 (D.D.C. 1971) (finding that plaintiff "complained of wrongs which they now assert in this litigation," union took no action to redress those wrongs, and thus that plaintiff had satisfied § 501(b)'s prerequisites); Trine Council v. Biller, Civ. Apt. No. 82-1232, 1982 WL 2038, at *2 (D.D.C. May 26, 1982) (holding that plaintiff's letter protesting the purchase of a new building "suffices for the request" required by § 501(b)); Woods v. Local #12 Sheet Metal Workers Int'l Assoc., 438 F. Supp. 578, 580 (W.D. Pa. 1977) (holding that "charge -letter" and the absence of a suit by union officers met conditions precedent for § 501 suit).

Nathan A. Saunders, II Plaintiff’s reply to defendants’ opposition to preliminary injunction and motion to dismiss April 4, 2003

PLAINTIFF'S REPLY TO DEFENDANTS' OPPOSITION TO PLAINTIFF'S MOTION FOR A PRELIMINARY INJUNCTION AND TO APPOINT A MONITOR PURSUANT TO FEDERAL RULE OF CIVIL PROCEDURE 53

TABLE OF CONTENTS

CASES

STATUTES

I. PLAINTIFF HAS SATISFIED THE STANDARD FOR INJUNCTIVE RELIEF.

A. Plaintiff Has Demonstrated a Substantial Likelihood of Success.

B. Plaintiff, on Behalf of the WTU, Would Suffer Irreparable Harm if Relief Is Not Granted.

C. No Other Party Will Suffer Substantial Harm.

D. The Injunction Will Further the Public Interest.

II. THE COURT HAS THE AUTHORITY TO APPOINT A MONITOR

PLAINTIFF’S MEMORANDUM OF LAW IN OPPOSITION TO THE MOTION TO DISMISS THE CLAIMS AGAINST THE AMERICAN FEDERATION OF TEACHERS

TABLE OF CONTENTS

FEDERAL CASES

STATE CASES

UNPUBLISHED CASES

STATUTES

MISCELLANEOUS

I. THE AFT HAS BREACHED ITS CONSTITUTIONAL REQUIREMENTS AND PLAINTIFF HAS ALLEGED A VALID CLAIM UNDER LMRA § 301.

A. The AFT's Constitution Required the AFT to Ensure That Its Locals Were Conducting Regular Financial Reviews.

B. Plaintiff Exhausted His Administrative Remedies to the Extent That They Existed and Further Exhaustion Would Be Futile.

C. Section 301 of the LMRA Does Not Require a Breach of the Labor Peace.

II. THE AFT AND MCELROY OWED FIDUCIARY DUTIES TO THE WTU AND ITS MEMBERS UNDER THE LMRDA § 501.

A. McElroy Had a Fiduciary Duty to Both the WTU and the AFT.

B. The AFT Is an Agent of the WTU and as a Result Can Be Sued under Section 501.

C. Saunders' Repeated, but Unsuccessful, Attempts to Secure Relief from the WTU and the AFT Satisfy Section 501(b)'s Procedural Prerequisites.

D. Further Requests by Saunders That the WTU and the AFT Take Legal Action Were and Continue to Be Futile.

E. Saunders Has Established Good Cause for Bringing Suit against Defendants.

III. SAUNDERS IS ENTITLED TO REVIEW THE WTU'S FINANCIAL RECORDS.

IV. SAUNDERS HAS ADEQUATELY ALLEGED COMMON LAW CLAIMS FOR NEGLIGENCE AND BREACH OF FIDUCIARY DUTY.

A. Pre-emption Does Not Bar Saunders From Asserting Federal Common Law Claims For Breach Of Fiduciary Duty And Negligence

B. Saunders Fiduciary Duty and Negligence Claims Stem From The Agency Relationship Between the AFT And The WTU.

V. SAUNDERS HAS STANDING TO BRING A DERIVATIVE ACTION ON BEHALF OF THE WTU.

MEMORANDUM OF LAW IN OPPOSITION TO THE MOTION TO DISMISS THE CLAIMS AGAINST MEMBERS OF THE EXECUTIVE BOARD

TABLE OF CONTENTS

FEDERAL CASES

UNPUBLISHED CASES

STATUTES

I. THE LMRDA APPLIES TO THIS CASE.

II. SAUNDERS' REPEATED, BUT UNSUCCESSFUL, ATTEMPTS TO, SECURE RELIEF FROM THE WTU SATISFY SECTION 501(B)'S PROCEDURAL PREREQUISITES, AND PROVIDE THIS COURT WITH SUBJECT MATTER JURISDICTION AND SAUNDERS WITH STANDING TO SUE.

Nathan A. Saunders, II
Plaintiff’s reply to defendants’ opposition to preliminary injunction and motion to dismiss
April 4, 2003