CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND v. CENTRAL TRANSPORT, INC.
Legal provision: Employee Retirement Income Security
ORAL ARGUMENT OF RUSSELL N. LUPLOW, ESQ., ON BEHALF OF THE PETITIONERS
Chief Justice Warren E. Burger: Mr. Luplow, I think you may proceed whenever you're ready now.
Russell N. Luplow: Mr. Chief Justice, and may it please the Court:
This case is a first impression which we believe is of great national importance as it relates to the national pension policy.
The Petitioners, the Central States pension and health and welfare funds conduct random audits to verify whether contributing employers, such as Central Transport, are reporting accurately on behalf of all persons covered by applicable collective bargaining agreements.
The issue in this case before this Court is whether in conducting these audits the trustees may request access to records beyond those of employees for whom the employer admits liability.
It is the trustees' claim that they have a right to a more comprehensive audit in this context under their trust agreement and under the prudent manual of ERISA.
The Sixth Circuit, in reversing the District Court, limited the trustees' audit rights to records of those employees that the employer admitted were covered and only to those unless the trustees could show cause why a particular employee was omitted, in which case that person, the particular employee's records could then be audited.
The petitioners are health and welfare and pension funds located in Chicago.
They're regulated by the Taft-Hartley Act and ERISA.
They have over half a million participants and beneficiaries with over 12,000 employers, and there are thousands of collective bargaining agreements that apply to the fund.
The respondent, Central Transport, is 16 companies engaged in trucking and related industries, all parties to a collective bargaining agreement commonly referred to as the National Master Freight Agreement with the International Brotherhood of Teamsters.
Under the collective bargaining agreement, the Transport obligation is to remit contributions under the collective bargaining agreement on each employee who's performing work under the collective bargaining agreement.
The fund's obligation, the petitioners' obligations on the pension plan, which is related to... which is governed by the ERISA in its trust agreement, is to give credits or benefits to persons on the basis of covered employment for pensions as a matter of law if they perform work covered by the collective bargaining agreement.
And this is the case regardless of whether or not the employer defaults on his contributions.
The funds, of necessity because of their scope, operate on a self-reporting system which we refer to as an honor system.
The way it works simply is that the employer sends to the fund each month a list of the employees that the employer says are covered by the collective bargaining agreement, and he sends along a check for that amount.
The trustees, who are familiar with misreporting problems in a multi-employer setting, have enacted a trust agreement that this Court looked at in February of this year in Prosser and Schneider.
And in that trust agreement, the trustees provided for an audit provision that provided in Article 3, Section 5, that the trustees shall be empowered to conduct on site audits of pertinent records of a contributing employer to verify for the accuracy of the reports.
In implementing that program, the trustees conduct random audits.
In this particular case, in 1980 the funds sought to conduct a random audit of Central Transport.
The auditors, upon arriving, or shortly thereafter, at Central Transport, were told by the officials of Central Transport that 60 percent of the employees of Central Transport, which was engaged primarily in the trucking industry, were not covered by the collective bargaining agreement.
The company then refused to produce any documentation to the fund's representatives to produce or to support its contention that these 60 percent of the employees were not covered.
As to the records that they allowed us to audit, those of employees that they admitted they owed liability on, the fund determined that there were over $268,000 in audit findings.
Now, to be sure, those audit findings are subject to the employer's--
Unidentified Justice: What do you mean, $268,000?
Russell N. Luplow: --$268,000 in audit findings, which means that a preliminary investigation by our auditors reflected that there were $268,000 in contributions that should have been sent in that were not.
Unidentified Justice: Well, that's all I wanted to know, what you were referring to.
Russell N. Luplow: Okay.
Unidentified Justice: Thanks.
Russell N. Luplow: The--
Unidentified Justice: Mr. Luplow, I take it that employees, covered employees are required to join the union.
Russell N. Luplow: --No, they are not, Your Honor.
They are not.
They are definitely not.
Unidentified Justice: They're not.
Russell N. Luplow: Our plan is the National Master Freight Agreement, and the plan itself does not require union membership for participation.
Unidentified Justice: What limits do you think ERISA may impose on the scope or frequency of audits if your view prevails?
Russell N. Luplow: Your Honor, I believe that the response to that has to be found in 404 or ERISA, the prudent manual, and I believe that it would be what is prudent, prudent and reasonable in the circumstances.
To audit an employer three or four times a year when in particular the prior audits indicated active reporting would be unreasonable and clearly unwarranted.
Unidentified Justice: Well, is that... is it a subject that could be covered completely by the contracts?
Russell N. Luplow: No, Your Honor.
We believe that the fiduciary duties of ERISA are the trustees' alone.
The union does not have a fiduciary duty.
Unidentified Justice: No matter what the contracts may provide?
Russell N. Luplow: That is correct.
Unidentified Justice: I see.
Russell N. Luplow: We are the fiduciaries exclusively under ERISA.
Unidentified Justice: And that would be whether the obligations under 4 are more or less than the contract provides?
Russell N. Luplow: Yes, Your Honor, they are ours.
Unidentified Justice: Well, doesn't ERISA say that the trustees shall proceed in accordance with the documents and instruments governing the plan insofar as it is not inconsistent with ERISA?
Russell N. Luplow: Yes, that is correct, Your Honor.
Unidentified Justice: And you think that... you think that it would be inconsistent with ERISA for the trustees to obey a collective bargaining contract that says expressly that the employer may only... need only give a list of covered employees?
Russell N. Luplow: That's correct.
Unidentified Justice: Do we have to decide that in this case?
Russell N. Luplow: No, Your Honor.
We believe that the trust agreement, in particular, Article 3, Section 5, and the trust agreement, Article 4, which is the rulemaking powers of the trustees, as well as the interpretive powers of the trust agreement, as incorporated by the collective bargaining agreement in Articles 55 and 56, which the Transport and the union negotiated, which incorporated the trust agreement... they agreed to incorporate it and to ratify all actions taken or to be taken by the trustees' within the scope of their authority.
And Article 3, Section 5 of the trust agreement is our audit authority.
Unidentified Justice: Well, if we agree with you, we never reach ERISA.
I mean we just say that as a matter of contract the employer should have given you this information.
Russell N. Luplow: This Court could presume so.
Unidentified Justice: And then we needn't interpret ERISA at all.
Russell N. Luplow: That's correct.
We think that there--
Unidentified Justice: But if we disagree with you on the contract and agree with the court below on the contract, then we must get to this question.
Russell N. Luplow: --That is correct, Your Honor.
Unidentified Justice: May I ask one last question while you're on this subject?
It's pretty difficult to amend contracts like this, is it, or is it?
Russell N. Luplow: Amend the trust agreement?
Unidentified Justice: Yes.
Russell N. Luplow: Your Honor, the... the settlors of the trust, if you will, which was established in 1950, '55--
Unidentified Justice: Yes.
Russell N. Luplow: --gave the amendment powers exclusively to the trustees.
They passed the gauntlet to the trustees, and so the trustees have the right to amend the trust agreement when they think it's prudent to do so under the circumstances.
So it is not difficult to amend the trust agreement, but in this particular case, because of the breadth and scope of the Sixth Circuit's ruling, an amendment of the trust agreement would not get the job done here, because the Sixth Circuit said, as I'll get to in a minute, if the Court please, that... that ERISA doesn't allow you to do this the way they interpreted our contract; you can't do it.
But furthermore, the... the holding that it would be arbitrary and capricious to even attempt to do an audit of this scope.
Unidentified Justice: But do you think they meant arbitrary and capricious under the capacity... under the contract as it existed, or that it would have been arbitrary and capricious even if there had been an amendment to the contract that would expressly allow it?
Russell N. Luplow: --Yes, I believe the latter, Your Honor, because they indicated that... they talked about the cost of auditing all of the records of non... allegedly non-covered employees.
The decision itself would be imprudent and a waste of fund assets to even embark on such an audit.
Unidentified Justice: And the... the intimation being that even if the authority were there, it would be an imprudent use of trust funds?
Russell N. Luplow: Yes, Your Honor, very definitely.
Unidentified Justice: I take it that you would use accountants to do the audit spot check?
Russell N. Luplow: We would use and have used, Your Honor, what we call our field audit program, and it is in-house fund employees who are now trained as certified public accountants who specialize in doing audits.
Unidentified Justice: Why wouldn't you be satisfied with a certificate of an independent auditor employed by the employer?
Russell N. Luplow: Well, employed by the--
Unidentified Justice: Everybody... every other agency in the government is satisfied with a certificate of... the SEC is.
Why are... why do you need to do it yourself rather than let the employer hire an independent auditor, like some of these people who have filed amicus briefs, to do their audit and give you a certificate?
Russell N. Luplow: --Well, Your Honor, we are the... have ultimate fiduciary responsibility under ERISA.
It's a non-delegable duty.
Unidentified Justice: You say it's a prudent man who distrusts the audit of a nationally recognized firm?
Russell N. Luplow: Well, Your Honor, I'm not saying that the big eight accounting firms are not honorable organizations, but remember, we have over 12,000 contributing employers covering a half a million participants.
Unidentified Justice: Well, they might have 12,000 accountants.
Russell N. Luplow: Well, Your Honor, they're not all Arthur Youngs or Arthur Andersons, and we have companies, a small company in Keokuk, Iowa, for example, and he may have... he might be a small, what we fondly refer to as a mom and pop operation, and they may have 10 or 15 employees and--
Unidentified Justice: Maybe the answer to that question, Mr. Luplow, is to point to the very reasons that brought ERISA into being.
It was a lack of confidence in how the unions were handling these matters, was it not, to a large extent?
Russell N. Luplow: --Yes, Your Honor, but we are under ERISA, 302(c)(5) and Amex Coal totally separate from the union, and we have a fiduciary duty where the union does not.
And we believe that we have the right under our trust agreement, because it says the agents and representatives as designated by the trustee shall have the right to perform an on site audit.
And there's another practical question, Justice White, that I'd like to address from your question, and that's one of cost.
Unidentified Justice: Yes.
Russell N. Luplow: When we... to hire a big eight accounting firm is fine for people that can afford it.
On the other hand, my--
Unidentified Justice: Well, the employer could always have a choice.
If he thought it was too expensive; he'd let you come in.
Russell N. Luplow: --Well, we... we think, Your Honor, that as suggested by the amicus brief, I believe of Deloitte Haskins & Sells, they said have Arthur Young give us a special report and objective of what they want done, and then we will do it and give the report to Arthur... Arthur Young.
Someone's going to have to pay for that, and under the trust agreement now, when we do audits of employers, the fund absorbs the cost, unless there is found to be great delinquencies and points... excuse me... points where there really are significant audit findings.
In any event, after the $268--
Unidentified Justice: May I ask one question, Mr. Luplow?
On the question of the trustees' power to amend the trust documents, you said they had unrestricted power of amendment.
I don't find that.
Maybe it's not in the papers.
Russell N. Luplow: --It isn't, Your Honor.
It was in Prosser and Schneider, and it's Article 10, which is the amendment powers.
And it may not be in this particular case.
It was in Prosser and Schneider.
Unidentified Justice: But they can... can they... they can't amend the contribution obligation, can they?
Russell N. Luplow: Oh, no.
No, Your Honor.
It's... it's the contribution obligation is determined by the parties.
Unidentified Justice: Under the collective bargaining agreement.
Russell N. Luplow: That's correct.
Unidentified Justice: But the... but the... and the or the coverage of what kind of employee they have to contribute on, that's also defined in the basic agreement.
Russell N. Luplow: Yes, it is, Your Honor.
And the scope of our inquiry when we do an audit, and I--
Unidentified Justice: But you're saying they have the power to amend the instrument... say it was ambiguous now... to say, lest there be any doubt about it, we have the right to audit all contributing employers, including all payroll records of people not eligible to participate.
They could adopt such an amendment?
Russell N. Luplow: --Yes, they have the power to do that, Your Honor, but--
Unidentified Justice: I don't understand why they don't, then.
Russell N. Luplow: --Well, as I tried to explain--
Unidentified Justice: I understand you're say they're afraid because of what the Sixth Circuit said.
Russell N. Luplow: --The Sixth Circuit... we are absolutely dead in the water because... we believe, because of the Sixth Circuit ruling, because they not only say must you have particularized costs, that it would be imprudent, it would be arbitrary and capricious to even attempt an audit of this magnitude.
And that's the key point that I wanted to stress for the Court, but I see my time is flashing here, is this: the scope of our audit is a very limited inquiry.
As to the allegedly non-covered employees, the employees that the employer does not admit liability to, all we want to do is establish that that employee is not doing collective bargaining agreement work.
That's all we want.
We don't need test scores.
We don't need medical records, things that are characterized as sensitive.
What we do need is, for example, we need to know as a basic tie-in document, we need to see the 941, and we need... the IRS Form 941, and the complete payroll register of an employer.
Why do we need that?
Because they both have to match, because if they don't match, that means that there's possibly a ghost payroll out there, and there could be employees that are not being reported upon and being reported under the collective bargaining agreements.
Unidentified Justice: Mr. Luplow, I take it you're not encouraging us to say that the trustees must conduct these audits.
Russell N. Luplow: No, Your Honor.
Unidentified Justice: I notice you're being very careful to avoid that kind of--
Russell N. Luplow: No, Your Honor, we're saying... yes.
It depends what's reasonable under the circumstances, because of our size and--
Unidentified Justice: --Is that why you're not relying on Section 1059(a)(1) in making your argument?
Russell N. Luplow: --Yes, Your Honor.
We're saying that because of our particular plan, and the scope of our operation, and the multiple 12,000 employers and all of the people that we have strung out over 40 states that it is reasonable for us to do it, and besides that we have a right under the trust agreement to do it.
Unidentified Justice: But I guess 1059 could be read to require employers to keep these records.
Russell N. Luplow: Yes, Your Honor, and that would be something that... I'm not ducking the question.
I know that the Solicitor General is going to ask that.
But, yes, I agree with that.
And I see my time is up here, and I'd like to save five minutes for rebuttal, if that's all right.
Chief Justice Warren E. Burger: Mr. Schwartz.
ORAL ARGUMENT OF JOSHUA I. SCHWARTZ, ESQ., AS AMICUS CURIAE
Joshua I. Schwartz: Thank you, Mr. Chief Justice, and may it please the Court:
It is the view of the United States that contrary to the decision of the court of appeals, both the employment... Employee Retirement Income Security Act of 1974 and the particular trust agreements that underlie this case authorize petitioners' trustees to confirm by prudent auditing activities that employers participating in the pension and health and welfare funds are making full contributions on behalf of all the employees for whom they're due.
I would like to emphasize that the Government does agree that this case could be decided exclusively on the basis of the trust agreement.
Unidentified Justice: Incidentally, do I... do I gather that employees are covered even if not members of the union, if they are doing a certain kind of work which is covered by the collective bargaining agreement?
Joshua I. Schwartz: --That's my understanding, Justice Brennan.
Unidentified Justice: Even though not members of the union.
Joshua I. Schwartz: Yes.
Unidentified Justice: And I gather... and you want to be... I gather the purpose of the audit is to be sure that a lot of employees not members of the union are on covered work, is that it?
Joshua I. Schwartz: Among other things.
It's one of the reasons why the alternative proposed by the respondents of looking to the union is not adequate.
We think that as a matter of law the Court's decisions establish that that wouldn't be the exclusive route anyway, but there is a good, practical reason why that's correct.
Unidentified Justice: May I ask this question?
Do the employers have separate and different retirement plans for the 60 percent of their employees who are not in the union?
Joshua I. Schwartz: Respondent so states in his brief, and that's the extent of my knowledge.
Unidentified Justice: They do have.
Joshua I. Schwartz: That they do have other plans.
Unidentified Justice: Yes.
Well, is it... is it your contention that employees--
Joshua I. Schwartz: We don't have any reason to doubt--
Unidentified Justice: --who are covered by other plans also have to be within the audit?
Joshua I. Schwartz: --It is our contention that in order to ascertain that all the employees who belong within a particular plan are in fact having contributions made for them, that a selective random sample would not exclude someone merely because the employer says oh, they're in that plan, so they can't be in yours.
It does not stand to reason that merely because the employer says that is so, and in fact may be so, that it's correct.
But a major--
Unidentified Justice: If... if... if the employer simply proved that a particular group of employees were covered by a different plan, say a plan that had been approved by ERISA.
Joshua I. Schwartz: --If... if... if the employer established that particular employees were in fact doing the other kind of work that brought--
Unidentified Justice: Well,... well, my question--
Joshua I. Schwartz: --Then... then the audit would be done.
Unidentified Justice: --Well, suppose the... there was a disagreement as to whether the work was other kind of work or not.
If the employee were covered under another plan, is it the Government's position that... that the trustees could... could audit to determine whether or not it agreed with the type of work being done?
Joshua I. Schwartz: The Government's position, I think we rely on... on the Schneider case from last term, that... that the trustees are not bound by the separate proceedings by which two unions and an employer might resolve their disputes as to coverage.
The employer has... the trustees have a right to determine... and the focus is very factual... what kind of work is being done.
That is not to say that there is no role for deference to the other kinds of proceedings that resolve the question of which work belongs in which plan.
But the employee... the trustee still has a right--
Unidentified Justice: Mr. Schwartz--
Joshua I. Schwartz: --to find out the facts of what kind of work an individual is doing.
Unidentified Justice: --Mr. Schwartz, whatever may be the procedure by which it's done, suppose there... it's found that given work is covered under this agreement, but it's being done by non-members of the union, and the employer has provided a pension fund for those.
Now, may there be an audit, and if it's discovered that the work they're doing in fact, even though there's a pension fund for them, the work they're doing is covered by the collective bargaining agreement, then they must be included?
Joshua I. Schwartz: The... I believe this point is actually addressed in... in the... in the reply brief of the petitioners and is not in our own brief.
But it's my own understanding that... that if in fact you are covered, then... then contributions are due to be made.
And it's also my understanding, although largely based on... on... on petitioners' argument in that reply brief, but there are procedures available to see that the employee never comes up short, and also that the employer need not make two sets of payments.
Unidentified Justice: Is your answer to Justice Brennan that the Government hasn't taken a position on the question he asked you?
Joshua I. Schwartz: No, it... it's... I... I don't think so.
The audit authority would extend to those people.
Unidentified Justice: So the audit authority would include people covered by another plan when obviously they wouldn't have been included under it if... if it had not been thought they were doing work outside of the union.
Joshua I. Schwartz: --But the question is whether that--
Unidentified Justice: Yes, but--
Joshua I. Schwartz: --Whoever thought that, thought so correctly.
Unidentified Justice: --Yes.
So you audit all 100 percent of the employees.
Joshua I. Schwartz: Well, you don't audit 100 percent.
You audit selectively.
But you need not exclude someone chosen at random simply because the employer tells you--
Unidentified Justice: Who decides how many you audit?
Joshua I. Schwartz: --Well, I think that's a question of... of prudent professional auditing judgment, just as we're not arguing that you must do an audit in every case.
Accountants and auditors have professional standards as to what is a sufficient sampling... a very small number, we're clear... to provide assurance.
And if you try a few and you get wrong... get discrepancies, then you look at more.
If you try a few and you don't get discrepancies, you don't look at more.
Unidentified Justice: Are auditors competent to determine whether or not the work being done comes within a particular plan or not or under a particular union agreement or not?
Joshua I. Schwartz: I... Your Honor... Justice Powell, we think that generally there's not a problem here, because contrary to what respondents suggest, this is a basic problem of jurisdictional dispute.
Our understanding is that the problem is essentially omissions, people who drop out of sight, particularly in certain industries where employment is seasonal, variable, or temporary or there's a lot of shifting between employers, and the Secretary of Labor has reason to believe that a lot of people just drop out of the system, and that there are omissions, and that therefore it is unrealistic to think of this as a back-door form of jurisdictional warfare among unions.
Unidentified Justice: Do you think... you really think the auditors are better equipped to do that than the union itself?
Joshua I. Schwartz: Yes, because the... it's precisely in those situations where... where the union may well not know who was there.
And in addition--
Unidentified Justice: But the auditors would know better about the type of work--
Joshua I. Schwartz: --If... I'm trying to communicate the idea that these are relatively simple factual determinations.
If you pick out a file and... and the employment application shows 20 years of truck driving and three merit awards for safe driving, and the employer claims that this is in the book... this person is in the bookkeepers union, I think an auditor would be qualified to say that this is a suspect determination, and to inquire further on the basis of that.
And I don't think that the kind of... and it is those kind of factual things that the auditors are looking for and that they are reasonably qualified to... to engage in.
And then, of course, the... the fund trustees sit down with the... with the employers and work out the initially determined discrepancies, and the employer, of course, has the opportunity to... to say well, there really is an explanation for this.
Unidentified Justice: --Mr.... Mr. Schwartz, you, a while ago before you were questioned, you ended up saying that... did you say that you do not agree that the case could be decided on the collective bargaining agreement?
Joshua I. Schwartz: No.
Quite the reverse, Justice White.
We do believe that it could be decided--
Unidentified Justice: Only on... only if we... only if we agree with you on what the collective bargaining agreement means.
Joshua I. Schwartz: --On what the trust agreements mean.
Unidentified Justice: I mean trust, yes, yes.
Joshua I. Schwartz: Yeah.
I should also point out there's a--
Unidentified Justice: But if we... if we disagree with that... if we agree with the Court below that the trust agreement does not provide for this audit, then you must get to the statute.
Joshua I. Schwartz: --That's right.
Because the statute does rather clearly in the language that you read say except where inconsistent, and the legislative history of that language--
Unidentified Justice: Well, do you... do you... do you... is part of your submission that the contract... that the trust agreement does provide for the audit, or... or have you taken a position on that?
Joshua I. Schwartz: --We take the position in the last section of our brief that it does quite clearly provide for it.
In fact, that was the basis of our suggestion when the Court initially asked for the Government's views on the case, that the case should be simply sent back in light of language in the Schneider case, which we thought read the same trust agreement the same way that we did.
Unidentified Justice: If we didn't agree... if we didn't agree with you on the contract, do you agree with your colleague on your side that the employer could not satisfy his ERISA obligations by having an independent auditor give a certificate with respect to all of his employees?
Joshua I. Schwartz: As I read the statute... and I looked to Section 1020... Section 1023(a)(3)(A), the statute requires that an... that the plan trustees, when filing their annual report with the Secretary, have their own independent auditor look at... assess and test the books of the... of the plan and make such tests as are required by generally accepted accounting standards.
Unidentified Justice: Well, here's a national firm that comes into a big employer and gives a certificate, and it goes through the same procedures as the trustees would.
And it would not be... you think the statute requires the trustees to reject that certificate--
Joshua I. Schwartz: Justice White--
Unidentified Justice: --And do one... and do one of its own?
Joshua I. Schwartz: --It's--
Unidentified Justice: It doesn't sound very sensible, but maybe that's why it says--
Joshua I. Schwartz: --It's not clear to me that it would always... if I may answer, it's not clear to me that it would always be prudent to do that.
The statute seems to place the burden on the trustees.
There are a few reasons why I think that solution is not an adequate answer to the case.
The first is I do not read respondents as accepting that solution, although the Court, of course, would differ.
Unidentified Justice: --Well, that isn't what I asked.
Joshua I. Schwartz: The second... the second is there is the problem of cost, and the court of appeals and respondents were very concerned about the cost of... of these procedures.
And it's reasonably clear to me that the cost would be greater were the trust fund to have to bear the cost of retaining respondents' independent auditor to do this audit.
It's also not at all clear to me as I read Deloitte... Deloitte's Haskins & Sells brief that this offer of comity essentially among auditors is one that is available to anyone other than the independent auditor, which is Arthur Young, and not Mr. Luplow's client.
Chief Justice Warren E. Burger: Your time has expired now, Mr. Schwartz.
Joshua I. Schwartz: Thank you, Mr. Chief Justice.
Chief Justice Warren E. Burger: Mr. Moran.
ORAL ARGUMENT OF PATRICK A. MORAN, ESQ., ON BEHALF OF THE RESPONDENTS
Patrick A. Moran: Mr. Chief Justice, and may it please the Court:
The question before the Court today is by what authority do these trustees, these Taft-Hartley funds, find the power do investigate records of employees that the union and the employer have together determined are not doing collective bargaining unit work.
Unidentified Justice: How else would the public have any way of knowing whether a union or the employer hadn't by tacit agreement decided to do these people in and not comply with the provisions of the trust or of the statute?
Patrick A. Moran: I'd like to answer that question in two parts, if I may, Mr. Chief Justice.
First, the union we're discussing here is the International Brotherhood of Teamsters, which has been extremely aggressive in its membership drives, and once they establish that a person is doing bargaining unit work and is a member, they have been extremely aggressive, Your Honor, in making sure that the employers remit all funds that are necessary in the form of compensation and payment of fringe benefits.
Unidentified Justice: Some of... some of these unions have been notable for some other factors in connection with trust funds, too, have they not?
Patrick A. Moran: I... I don't follow the question, Your Honor.
Unidentified Justice: Well, corruption in the trust funds.
Patrick A. Moran: The corruption in the trust funds of these funds, Your Honor, has been the subject of some litigation launched by the Department of Labor in the Northern District of Illinois federal court, and as a result of allegations of gross mismanagement, these very funds have given, by their consent judgment, their investment and management funds, or powers rather, to an independent investment manager.
I'm not aware of any allegations that deal with our client or with the Teamsters Union or locals with which we deal of any misuse of funds by that union.
Unidentified Justice: I'm not addressing the particular unions.
I'm talking about the thrust and the purpose of this whole program in the minds of Congress.
What were they trying to do?
Patrick A. Moran: Congress was trying to pass in ERISA, Your Honor, to make sure that if an employer gives fringe benefit funds to his employees, that all employees would be eligible to participate in that fund.
But Congress did not say to the employers that if you employ or have more than one fund, each of your employees must be a participant in each of your funds.
Not at all.
Congress allowed certain discriminations, certain characteristics of employment that would allow one employee to be a member of one pension fund and another employee of the same employer to be a member of a different pension fund.
The complement of employers... of employees, rather, that Central Transport has is made up of three broad categories.
The first are those who are members of the Teamsters Union who operate within the jurisdiction of the Central States fund and are participants in that fund.
The second are members of the Teamsters Union that operate in a different geographic area of the country and are participants in a different Taft-Hartley fund.
Also within that second group are members of other unions like the International Association of Machinists, which have a separate Taft-Hartley plan.
And finally, there are those employees who are not members of any union who can qualify, if they meet the definition of ERISA participant, to be a participant in the employer-sponsored pension fund that is maintained by Central Transport.
Justice O'Connor asked a question earlier, followed up by Mr. Justice Brennan: Must a person be a member of the union to be a participant in these funds?
And I think the answer was given that no, these funds represent a broad spectrum of participants, and not all participants have to be members of the union.
But that's not the facts in this case.
Central Transport is a closed shop.
To do a bargaining unit work in Central Transport, you must be a member of the Teamsters Union within 30 days.
That's covered quite clearly in the collective bargaining agreement.
That's the deal.
Unidentified Justice: But it is true under ERISA generally that you could have people who were not union members, but nevertheless employees participating in plan.
Patrick A. Moran: In a plan.
That is absolutely correct.
Unidentified Justice: Right.
And for that reason, as we interpret ERISA, it's logical that we couldn't rely on the union's efforts to see to it that contributions are made to everyone, because the union wouldn't have a lot of interest in someone who wasn't a union member, presumably.
And yet, the... the fund and the safety of the fund's investments to cover potential eventual retirements would depend on collecting for everyone who's in fact a participant.
Patrick A. Moran: The question or the comment, if I may, Your Honor, points to a difficulty in this Court attempting to make a broad sweep of authority to Taft-Hartley trustees in general.
In the case at bar, to be a participant in the Central States fund, the employee of Central Transport must be a member of the union.
Unidentified Justice: But is that with respect to every single... is that true of every single employer who's covered by this collective bargaining agreement?
Patrick A. Moran: I am told by the funds that that is not true because they operate in right-to-work states.
Unidentified Justice: Well, then, you... you're just representing one company, aren't you?
Patrick A. Moran: That's... I am representing a group of 16 companies that all operate in the same geographic area.
Unidentified Justice: And that... and that group all are closed shops.
Patrick A. Moran: Absolutely.
Unidentified Justice: But that is not true of... of a lot of the other participants or companies that contribute to the fund?
Patrick A. Moran: I am told that that is not true by the petitioners, Your Honor.
Unidentified Justice: But nevertheless, you... your case, the only thing that's before us are 16 closed shop companies.
Patrick A. Moran: That is correct.
Unidentified Justice: But in interpreting ERISA, if we get that far in the case, we would have to be careful about our rationale in view of the fact that it might include employees who aren't union members, isn't that so?
Patrick A. Moran: That's absolutely correct, Justice O'Connor.
And that's the very reason that this Court should not embark upon attempting to find implied in ERISA that which is not there.
If Congress wished to give a power to the trustees, Congress knows how to express its purpose.
Section 1104 of Code... of Title 29, which sets forth the duties and obligations of these trustees, has no mention of the power to audit nonparticipants.
Unidentified Justice: Why do you suppose Section 1059 requires the employer to maintain records for all employees, not only plan participants?
Patrick A. Moran: Because, Justice O'Connor, 1059 is dealing with the ERISA definition of employee, which is found at 1002(6).
Unidentified Justice: Well, it deals with a requirement that the employer maintain records, and that indicates to me maybe a broader concern than you are expressing.
Patrick A. Moran: If I may, Your Honor, within the definition of employee as stated by ERISA are several components.
The employees of Central Transport who can qualify for participation in this plan are only one portion of that total component of employee definition.
And we agree full well that the definition of employee in ERISA is much broader than the definition of employee in the collective bargaining agreement, and therein lies our controversy.
Unidentified Justice: May I ask, Mr. Moran, I'm getting a little confused.
These are all closed shops, all 16 of the companies you represent today?
Patrick A. Moran: That's correct, Your Honor.
Unidentified Justice: Well, surely the trustees may audit the records of all of those employees, may it not?
Patrick A. Moran: The trustees may audit the records of all employees who are members of the union and are--
Unidentified Justice: Who are covered by the closed shop.
Patrick A. Moran: --Yes, sir.
Who are doing bargaining unit work.
Unidentified Justice: Yes.
Well, then, what other employees are there?
Patrick A. Moran: If I may--
Unidentified Justice: Yes.
Patrick A. Moran: --Central Transport has a number of different employee groups.
Some of them are Teamsters, and some of those Teamsters operate in a geographic area represented by these funds.
Some of them are Teamsters and do not operate in a geographic area represented by these funds.
Just taking those two components, these trustees clearly have the right to review the records of Teamsters who are operating within their geographic area, and they have done so, and they did so for 60 days.
But they don't have the right to review the records of employees who are not a member of the Teamsters Union and are not within this geographic area.
Unidentified Justice: Well, but what puzzled me was if it were a closed shop, I thought it covered everybody, but it doesn't.
Patrick A. Moran: No, it does not.
In fact, therein lies the rub in this case.
If the trustees are correct that they have a power that is found not only in the collective bargaining agreement but in ERISA, implied in ERISA, to see the records of all employees, then the trustees of every pension plan to which Central Transport makes contributions have a concomitant right.
And this is not an imagined danger.
Unidentified Justice: You'd never be able to get to your own books, would you?
Patrick A. Moran: Absolutely not, Justice White.
They'd be gone all the time.
And this is not an imagined problem.
We have received a demand from the New York State Teamsters Fund, an entirely different fund than the fund that's here today, demanding the exact same records in Quad States Leasing, one of the defendant companies.
And when we told them they weren't entitled to those records, they weren't even limited geographically, they said by letter to us then the result is we will kick you and all of your participants out of our fund.
They're using... they're using their very participants in... in pawns for self-aggrandizement and increase in their own size.
That's not intended by ERISA.
Unidentified Justice: Mr. Moran, suppose we disagree with the Sixth Circuit holding.
Aren't other forms of protective orders available to an employer to provide some protection such as the kind of protective order that was issued by the district court in that Central States case attached to the petition appendix?
Aren't there other forms of protection besides the kind of holding that the Sixth Circuit imposed here?
Patrick A. Moran: Certainly our federal courts could, on a case by case basis, issue protective orders as the Justice suggests; but I don't want it to go unmentioned that the attempt of the funds to indicate that they are just asking for a reasonable amount of records that are directed to particular employees should go unnoted.
For instance, they have asked for all freight bills, delivery receipts and bills of lading.
Now, these are three documents that are produced by a trucking company for every piece of freight they haul.
Central Transport has 60,000 a week of each of those three, or 180,000 per week.
They asked for equipment control requests; that's 35,000 a week.
Activity reports, that's 35,000 a week.
Now, just on those four things, 267,000 pieces of paper a week times 52 weeks are 13,900,000 pieces of paper per year over a six-year period... now, times six for their statute of limitations... and that we have to prepare, maintain and produce for every trustee of every Taft-Hartley plan to which we contribute.
Unidentified Justice: Mr. Moran, let me see if I get this.
If you had, say, Machinists, a contract doing... covering Machinists work, and you had a pension, Machinists pension plan, your concern is that the Machinists will want to examine every job of every Teamsters employee to see whether in fact he's doing Teamsters work.
Patrick A. Moran: That's absolutely correct.
Unidentified Justice: And... and that's what you say the Teamsters are trying to do.
They want to examine every Machinist's jobs to see whether in fact he's doing Teamsters work.
Patrick A. Moran: They even ask for every secretarial job.
They even ask for the president's records of the company.
The New York State Teamsters--
Unidentified Justice: --want to see your lawyer's record in this.
Patrick A. Moran: --Fortunately, I'm not in-house counsel.
Unidentified Justice: Now, the requests aren't coming from the union.
I understood they were coming from the trustees at the pension plans, not the unions.
Patrick A. Moran: That's correct.
They're coming from trustees of the pension plans.
And to give an example to the Court, in response to Mr. Justice Brennan's notation, New York State Teamsters represent 100 of our total complement of 9,000 employees, and they've asked for the records of all 9,000 employees.
Unidentified Justice: For six years?
I mean they've asked for every piece of paper generated in the companies for six years, is that what you're telling me?
Patrick A. Moran: --The New York State Teamsters have asked for every employee record, every personnel record that we have for their particular audit period, and they noted that if they find deficiencies, they'll ask for the entire six years.
Now, that's just 9,000 employees we have today.
We have an attrition rate of 15 percent, so double the number.
Now we have 18,000 records--
Unidentified Justice: Mr. Moran, let me interrupt, if I may.
Again, you said the New York Teamsters.
You meant the trustees of that fund, do you not?
Patrick A. Moran: --If I said that, I misspoke.
Unidentified Justice: And the reason I... I focus on that, am I correct in... in noting that the Teamsters Union has not participated in this litigation at any stage, as an amicus brief or anything?
Patrick A. Moran: That is correct.
Unidentified Justice: They say it's your problem, and do whatever you want.
They've not shown their interest one way or another.
Patrick A. Moran: I am totally unaware of what their position is, totally unaware.
Unidentified Justice: Well, how do you propose to... to... I take it you say that the employer's word should be taken as final?
Patrick A. Moran: Absolutely not, Justice... Justice White.
Unidentified Justice: Well, what... what should he furnish to the trustees?
Patrick A. Moran: First, to place my comments in context, it is not a unilateral determination by the employer.
The union first determines who's doing bargaining unit work and prepares a list which is sent to the employer.
Unidentified Justice: And in your... and in your case you say that... you say that the only people who are covered by this particular plan are members of the Teamsters Union?
Patrick A. Moran: That is correct.
Unidentified Justice: And the... so the... and the union, therefore, has a list of its own members.
Patrick A. Moran: A union has a list of its own members.
They send us the list.
We, the employer, add to that list any employees who have been hired within the last 30-day period--
Unidentified Justice: Thirty days.
Patrick A. Moran: --and delete from that list any employees who have terminated.
Unidentified Justice: Your 15 percent attrition.
Patrick A. Moran: That's the 15 percent attrition.
That list is placed upon a form for the trustees, and those names, along with the check, goes into them like clockwork every 30 days.
If someone is left out, the union will know it within 30 days.
It is not a unilateral determination.
But I haven't answered the question of the Court yet.
What we wish to prevent is a fishing expedition by funds across the country in all of our records, because that will result in such a cost to employers that the purposes, the lofty objectives of ERISA that Congress set forth, will be totally lost by cost.
Unidentified Justice: Well, it probably... we probably should only decide the case we've got before us and not talk about a lot of other cases that may have different facts.
It may be that in some... some other areas there won't... there won't be closed shops.
Patrick A. Moran: That's correct.
The case before us, Your Honor, has... has many protections for an employees not--
Unidentified Justice: You have 16... you've got 16 companies, all closed shops.
Patrick A. Moran: --That is correct.
The case in... in front of the Court today has very little chance that someone will be left out intentionally.
The union will monitor their employment and make sure that... that this person is part of the union and receives all of his union benefits.
And besides, we're not talking just about pensions here.
We're talking about health and welfare.
And you don't go very far in today's society without finding out if you have medical coverage.
The knowledge of the shop is such that the man in machine number one or truck number one knows very well if he doesn't get the same benefits as the man at machine number two or truck number two.
Unidentified Justice: Mr. Moran, what... that prompts this question.
Supposing somebody or his wife or somebody thinks he ought to be covered, and the union says no, and the company says no, and they go to the trustee and say they're just not contributing on my behalf, and I belong in this... this unit.
And the trustee says well, we'll investigate.
What kind of an investigation, under your view, could the trustees make on such a set of facts?
Well, excuse me.
I was just... in the course of answering his question, do you support the court of appeals decision with respect to an individual employee in which there's reasonable grounds to believe or something, and then you have to furnish his records?
Patrick A. Moran: Absolutely, Your Honor.
I'll address Justice White first, if I may.
Unidentified Justice: Well, that answers Justice Stevens.
It may, anyway.
Patrick A. Moran: Fine.
Justice Stevens, the answer to your question would be within the definition of reasonable cause, or whatever this Court might wish to call this sort of a balancing, if an employee would come to the trustee and say I think I'm doing bargaining unit work, and the union won't find out for me, and I don't think I have the money to go to federal court, will you help me out, the trustee then should have reasonable cause to come forward and see these records, and the employer no longer has the concern of giving--
Unidentified Justice: But then as soon... as soon as you admit that, what about this case again where they allege that in doing a proper audit they found a half a dozen cases that suggested to them there was some underreporting?
Patrick A. Moran: --I have no problem with these trustees seeing the records of employees for which... for whom they have reasonable cause to suspect are doing bargaining unit work and have been left out of this fund.
Our concern is that we may face liability to employees if we give out their confidential records, their personnel records with their wages and work history, without their authority to do so.
Unidentified Justice: Well, what if they should find that, say, there were a dozen employees that were casual, some would work for short periods of time and so forth, and they identify a problem in a particular area of the company, that you hire certain people on short runs or something like that.
Would they be able to look at the records pertaining to that narrower group of employees?
Patrick A. Moran: If the trustees attempt to redefine the collective bargaining unit, I believe they have invaded the province of the union.
If instead they say we have these particular people, and by our description of what they do, we think they are part of the union, then if there's reasonable cause to say that, there's no reason they shouldn't see those records.
The Schneider case or Prosser case last term said trustees... in fact, these very trustees... you have the right to come to federal court, and now they're here.
But when they're here, they... they come with the same rights and obligations of any litigant, and those obligations are very few, but they're well defined.
Unidentified Justice: Well, Mr. Moran, the whole nature of an audit by an accountant, though, is not something that's done on the basis of reasonable cause normally.
It's something that an accountant will go in and look at to determine after looking at it whether there's a problem.
And I... I just wonder whether this Sixth Circuit requirement can legitimately be found on the basis of either the statute or the trust agreement here.
Patrick A. Moran: --It is not--
Unidentified Justice: And whether we don't have to look to something else.
Patrick A. Moran: --With all respect, Your Honor, it is not for these respondents, the employer, to justify why the trustees should not have power.
It is for the trustees to say wherein their power lies.
Unidentified Justice: Well, let's talk about that a minute.
The trust agreement provides that the trustees may interpret its terms and that the parties are bound by that interpretation if it's made in good faith.
And if the trustees of a trust say under the terms of the trust we think it gives us the right to make the audit, why aren't you bound?
Patrick A. Moran: The trustees have the right to determine within the confines of the trust agreement on matters of simple administration, trust administration.
But to say that the trustees have a carte blanche to bootstrap coverage to anyone they want is not what's intended.
We certainly... the employers certainly did not give to the trustees the right to determine who are participants any more than we gave them the right--
Unidentified Justice: Certainly not, but what they're asking, of course, is not that at all, but the right to look at the records to make sure that those people who are obviously covered have the contributions made to fund the coverage.
Patrick A. Moran: --Yes, Your Honor, but other trustees say they have the same duty.
And in the New York State Teamsters example, if these trustees, Central States, assert that they represent as a participant, they have as a participant targeted employee Jane Doe, and New York State says wait, Jane Doe is a member of our fund, the New York State Teamsters trustees have the came concomitant duty to try and keep Jane Doe in their fund as these trustees have to try and wrest her away.
And we end up with litigation of trustee against trustee besides.
There are collective bargaining agreements by which the employer, Central Transport, makes its contribution, and we can see that the union's not here today.
And just because a trustee proves that a targeted employee should be in the Central States fund doesn't mean that the New York State Teamsters Union... not the fund but the union... is going to agree that that person is no longer part of their bargaining unit, and the symmetry of the collective bargaining agreement with the Taft-Hartley plan is completely destroyed.
We can have an employee who receives wages under a collective bargaining agreement and fringe benefit contributions under a second collective bargaining agreement, and to the employee this could be disastrous.
For instance, let us assume an employer with two sets of employees, one under union A and one under union B, and union A provides for total benefits per week of $110, as does union B.
But union A divides them differently: $80 goes to wages, $30 to fringe benefit contributions.
The union A employees get $100 of wages and $10 of fringe benefit contributions.
Now the trustees start their fight, and the poor pawn of the employee can end up receiving $80 in wages under union A and $10 in contributions of fringe benefits under plan B for $90.
And he says what happened to me?
I'm still driving a truck.
That's all he ever did.
That's not intended by ERISA, and the problem is putting in context the definition of employee and ERISA, which is what raised the initial question in the Court's mind.
We admit that ERISA's definition of employee is much broader than... excuse me... than the definition in the collective bargaining agreement, and it's meant to be.
If the Court finds that these trustees and all Taft-Hartley trustees have a power that's found in the law, some place in the law, although ERISA does not expressly give it to them, then they've had it at least since 1975... not since they've concocted their theory, because ERISA's fiduciary standards became active in 1975, and before that... these are Taft-Hartley funds.
Taft-Hartley's been around since 1947.
And isn't it strange that in 1947's hearings in Congress, in 1974's hearings for the ERISA, in the hearings for the Welfare Pension Plan Disclosure Act that preceded ERISA, and in the Multi-Employer Pension Plan Amendments Act in 1980, Congress never said these trustees have the power they say Congress intended?
I would think that a more reasonable resolution of that puzzlement is that Congress simply did not intend to give them this power.
Justice White asked the question why couldn't an employer use his own auditor, own independent certified public accountant to issue a report.
Mr. Luplow responded that it would be too costly.
But the employer funds the cost of the audit that the funds want to do, so the answer that it's too costly is... simply doesn't hold water.
Unidentified Justice: Well, you don't... you don't think it's even necessary to furnish such a certificate?
Patrick A. Moran: From... from--
Unidentified Justice: You think the... you think the union in... in these 16 companies, the union list with the additions and subtractions that the employer makes is all the employer has to do.
Patrick A. Moran: --That's absolutely correct.
I started to answer an earlier question from this side of the bench... I believe Mr. Justice Stevens... concerning how do you find these... these participants.
I think that was the theme at least of the question, if not the words.
A participant can go to the trustee and say I'd like you to make an investigation, and the trustee then doesn't have to come to federal court.
If he has reasonable cause, we'll give him the records.
If we disagree--
Unidentified Justice: What makes you think... what makes... where do you find the authority of the trustee to insist on looking at records of an individual that you would agree there's reasonable cause to believe that there should be an investigation?
Does ERISA put that duty on you in that case?
Patrick A. Moran: --Absolutely not.
Unidentified Justice: Does the collective bargaining agreement put that duty on you?
Patrick A. Moran: Absolutely not.
Unidentified Justice: Well, so... so you... so you really don't defend the decision of the court of appeals.
I don't know where the court of appeals found that authority either.
It didn't say, did it?
Patrick A. Moran: No.
The court of appeals had to find that authority in an implication in ERISA, in an implication in the collective bargaining--
Unidentified Justice: And you disagree with that.
Patrick A. Moran: --I disagree that the federal court should be extending a federal common law in an area such--
Unidentified Justice: All right.
So you disagree wit that, so you do not defend that part of the court of appeals opinion, even though you'll comply with it.
As a matter of law you don't really defend that.
Patrick A. Moran: --That is a correct statement.
Unidentified Justice: That is a... is a correct statement.
Patrick A. Moran: That is a correct statement.
I agree with you that I don't think that a reasonable cause standard is necessary in this case, because I don't think there is a power under the contract, I don't think there's a power under ERISA, and I don't think this Court should give... should extend federal common law because it's simply not needed.
Unidentified Justice: No, but I would think the trustees, if they had probable cause to believe they were not contributing on somebody, they could file a lawsuit against the company and say pay your contribution and get discovery.
Patrick A. Moran: That's correct.
And not only that, Your Honor, they can start a grievance.
Last term this Court heard the Schneider case or Prosser case, if you will, on this very collective bargaining agreement; but that agreement has been amended.
At the time of the Schneider case, argument with counsel and bench concerned what would happen if the trustees have the right to start a grievance, arbitration machinery, and they do.
Attached as an appendix to our brief on the merits is a change in that collective bargaining agreement.
As a matter of fact, that change had been made before the question was addressed to the Court last term.
Be that as it may, the trustees have the right to start a grievance.
They have the right--
Unidentified Justice: Who do they start... who do they have a grievance with?
Patrick A. Moran: --I beg your pardon?
Unidentified Justice: Do they have a grievance with the employer?
Patrick A. Moran: They would have a grievance with the employer, and if the union had nothing to represent an employee as... as was the fear expressed by bench, they would have a grievance against the employer.
Unidentified Justice: So where does the grievance end up?
Does that... do they have to use the collective bargaining agreement machinery?
Patrick A. Moran: It says they should.
Unidentified Justice: To the joint board?
Is there a joint board?
Patrick A. Moran: Yes.
To a joint committee.
Unidentified Justice: Uh-huh.
Patrick A. Moran: They can also come to federal court.
It was decided in Schneider they can do so.
But when they come to federal court, they come with the same rules as every litigant, and that's the Federal Rules of Civil Procedure.
And they do not give the right to a federal litigant for discovery prior to stating a cause of action.
They have to state a cause of action that they have a reason to believe that these records are sitting out there.
Once they do so, they're litigants.
Chief Justice Warren E. Burger: Do you have anything further, Mr. Luplow?
ORAL ARGUMENT OF RUSSELL N. LUPLOW, ESQ., ON BEHALF OF THE PETITIONERS -- REBUTTAL
Russell N. Luplow: Mr. Chief Justice, if it please the Court:
First off, I'd like to correct Mr. Moran.
The contract in Prosser and Schneider that was before this Court was not the same contract in this case.
It was the Greater Moving and Storage collective bargaining agreement of St. Louis, and that's a fact that's in the appendix and is part of the record.
The contract in this case is the National Master Freight.
They're totally different contracts.
Unidentified Justice: Does it... do the... do the trustees have... have authority to--
Russell N. Luplow: They have authority under the National Master Freight Agreement.
They have access to the contract.
They have not as of this date--
Unidentified Justice: --Well, do you have... you may start a grievance.
Russell N. Luplow: --We... we have the right to do that under the contract.
Unidentified Justice: And demand arbitration if your grievance is rejected.
Russell N. Luplow: Yes, Your Honor, if... if... if the trustees accept to do that.
It has not presented itself yet.
The trustees cannot be forced to do that because it's--
Unidentified Justice: Sure.
You can just come into court.
Russell N. Luplow: --Yes, that's correct.
Your Honor, there was a couple of things that I would like to say.
Number one, the bottom line is the Transport is saying you have to take our word for it, absent reasonable cause, because that's what the Sixth Circuit said.
The adequate protections that you have is the union.
Well, as this Court examined in Prosser and Schneider, the union may not be reliable in this context.
Because the buck doesn't stop with them; it stops with us.
And the fact of the matter is that our interests do not always converge.
We have fiduciary responsibilities.
They don't have any responsibility to retirees and their families; we do.
And as I said at the top of my argument, that under ERISA and under the law as interpreted by the Department of Labor, that if an employee performs work in a collective bargaining agreement, the fund is liable to provide him with pension credits regardless of whether or not that employer ever paid us a nickel.
Now, Congress made us the fiduciaries and gave us the responsibility to maintain, preserve and protect the assets of that fund, and we submit to this Court that not only ERISA but our trust agreements does not require us to simply take someone's word for it.
Unidentified Justice: But, Mr. Luplow--
Russell N. Luplow: Now, as a practical matter--
Unidentified Justice: --isn't it a practical matter that the union also has the fiduciary obligation to be sure the employees are included within the beneficiaries?
Russell N. Luplow: --They don't have a fiduciary duty, Your Honor.
They have a duty of fair representation.
Unidentified Justice: Well, it's pretty close to the same thing.
Russell N. Luplow: Well, I... I really don't think it's quite that close, Your Honor.
Unidentified Justice: At least they have a duty.
Russell N. Luplow: They have a duty, but--
Unidentified Justice: They can get sued in court for breaking it.
Russell N. Luplow: --Pardon?
Unidentified Justice: They can get sued in court for breaking it.
Russell N. Luplow: Sure, but they also have the Barrentine-Arkansas-Best rationale if they want to act on the pejoratarian principles.
They are not committing a breach of duty of fair representation.
And there can be practical situations--
Unidentified Justice: You mean if they... if they... if they fail to... knowingly fail to include some people in the list that was submitted that they would not be committing a breach of duty?
Russell N. Luplow: --They... yes, they could be committing a breach of the duty of fair representation.
Unidentified Justice: It seems to me they have every incentive to do it, too, because they get dues out of these people when they join their union.
Russell N. Luplow: Well, Your Honor, as a practical matter, the union's not in an informational position to always know this.
Everyone seems to think that they are, but the fact of the matter is that they're not.
As we pointed out in a footnote in our brief--
Unidentified Justice: Well, if they're doing their job, they know what's going on.
Russell N. Luplow: --If they're doing their job, but they don't always do their job, Your Honor.
And we're talking about a huge fund here with a lot of local--
Unidentified Justice: Can I ask you a question?
What... what brought this case on at this late date?
I shouldn't say late date, but what brought this case on... your experience with omitted employees in closed shop companies or what?
Russell N. Luplow: --Yes, Your Honor.
We have a situation where we go out and do an audit, and this is the second case where an employer has said you cannot see records, only those that we concede are covered.
Unidentified Justice: But I'm asking you, have you had some experience where in closed shop situations the information you get is unreliable?
Russell N. Luplow: Yes, Your Honor, we have.
For example, we had a footnoted case... not the case, but we footnoted... over $300,000 in casual contributions were not reported.
And may I say--
Chief Justice Warren E. Burger: Thank you, gentlemen.
The case is submitted.
Unidentified Justice: The Honorable Court is now adjourned until tomorrow at 10:00.