GOVERNMENT'S MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION FOR RECONSIDERATION

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

UNITED STATES OF AMERICA, Plaintiff,

90 Civ. 5722 (CSH) DISTRICT COUNCIL OF NEW YORK CITY :

AND VICINITY OF THE UNITED

BROTHERHOOD OF CARPENTERS AND

JOINERS OF AMERICA, et al.,

Defendants.

GOVERNMENT'S MEMORANDUM OF LAW IN SUPPORT OF ITS
MOTION FOR RECONSIDERATION

MICHAEL J. GARCIA

United States Attorney for the Southern District of New York Attorney for Plaintiff

EDWARD SCARVALONE
SEAN H. LANE

BENJAMIN H. TORRANCE Assistant United States Attorneys 86 Chambers Street

New York, New York 10007 Telephone: (212) 637-2734

Fax: (212) 637-2686

– Of Counsel –

Table of Contents

Preliminary Statement 1

The Court Overlooked Evidence That Corruption by Contractors Is Closely

Tied to Organized Crime 2

The Court Misread the Consent Decree's Exclusion of Collective Bargaining

Agreements 9

The Court Failed to Consider Alternative Remedies 10

Conclusion 13

Plaintiff United States of America (the "government"), by its attorney, Michael J. Garcia, United States Attorney for the Southern District of New York, respectfully submits this memorandum of law in support of the government's motion for reconsideration of the Court's Memorandum Opinion and Order dated January 12, 2006 (the "Order").

Preliminary Statement

In August 2005, the government moved this Court for an order adjudging defendant District Council of Carpenters and its president, Peter Thomassen, in contempt of the Consent Decree entered by this Court on March 4, 1994. Specifically, the government contended that paragraph 12 of the Decree required the District Council to provide the government with prior written notice before amending the job referral rules that were incorporated into the Decree; accordingly, when the union admittedly changed those rules without notice by entering into a series of collective bargaining agreements in 2001, the union violated the Decree. The Court agreed that it would be "entirely unreasonable to suppose that the parties intended 12's prior notice requirements to . . . leave the District Council free to change the Job Referral Rules in any manner it might choose, without prior notice to the government . . . ." Order, slip op. at 20-21. However, the Court went on to conclude that the union's ability to negotiate and enter into collective bargaining agreements was excluded from the scope of the Consent Decree.

The government respectfully submits that the Court's holding was in error. The Order overlooked evidence that the corruption at issue—employers' paying workers "off the books"—is not merely a matter of "deplorable conduct by certain contractors," slip op. at 27 n.5. Instead, it is an open invitation to the very strain of corruption that the Consent Decree was designed to prevent: racketeering by organized crime and others. The job referral rules negotiated by the parties were designed—and have served, until the unilateral change by the union—to close the

door to a major avenue of incursion by organized crime and racketeers. The Order permits the District Council to open that door as wide as it wishes, depriving the government of the benefit of its bargain and New York City carpenters of the integrity of their union. Moreover, this result is based on a misreading of parts of the Consent Decree and failure to consider certain forms of relief requested by the government.

For those reasons, as further explicated below, the Court should reconsider the Order.

A. The Court Overlooked Evidence That Corruption by Contractors Is Closely Tied to Organized Crime

The Order discounts any connection between the Consent Decree's job referral rules and organized crime. Particularly, footnote five of the Order draws a sharp distinction between corruption by contractors and corruption involving organized crime. In fact, such a distinction is illusory—contractor corruption is a well-known pathway to labor racketeering and organized-crime infiltration of unions and industries.

At the outset, the government respectfully disagrees with the Court's characterization of the nature of this RICO action and its Consent Decree. The Order states that "the corruption principally targeted by the Consent Decree is that inherent in organized crime's control of the District Council, its constituent locals, and union members." Order, slip op. at 27 n.5. While it is certainly true that infiltration of the union by organized crime—specifically, Cosa Nostra—was a major impetus for this lawsuit, both RICO and this action more broadly target labor racketeering: "the use of union office or power for personal profit."' Thus, the Consent Decree

1. PHILIP TAFT, CORRUPTION AND RACKETEERING IN THE LABOR MOVEMENT 1 (2d ed.

1979), quoted in Michael J. Goldberg, Cleaning Labor's House: Institutional Reform Litigation in the Labor Movement, 1989 DUKE L.J. 903, 909 (1990); accord President's Comm'n on Organized Crime, THE EDGE: ORGANIZED CRIME, BUSINESS, AND LABOR UNIONS, Report to the

President and the Attorney General (1986), at 9 ("Labor racketeering is the infiltration, (continued...)

by its terms is not limited to organized crime: it enjoins the union "from committing any act of racketeering activity, as defined in 18 U.S.C. § 1961." Decree ¶ 2.a. (emphasis added). Likewise, the powers granted to the Investigations and Review Officer ("IRO") are broadly defined, and not limited to matters with a connection to organized crime. Id. TV 4.a., 4.b., 4.d., 4.e., 4.f. By reasoning from an overly narrow conception of the purpose of the Decree, the Court also read the purpose and scope of the job referral rules too narrowly.

In any event, evidence in the record before the Court, as well as in reported decisions and the public record subject to judicial notice, amply demonstrates the link between contractors' corruption and organized crime. The government previously submitted to the Court the September 2000 indictment in People v. Crea, charging thirty-eight defendants with widespread labor racketeering in the New York City construction industry. Ex. 32 to Scarvalone Declaration dated Feb. 24, 2005 ("Scarvalone Decl."). In essence, that indictment "charges mob figures with bribing union officials to allow contractors to pay workers less than the union wage and forgo expensive benefits.' The District Council was one of the unions named in the indictment. The defendants—twenty-nine of whom pleaded guilty—were charged with participating in a criminal enterprise, whose purpose was to enable the Lucchese organized-crime family to profit illicitly from the construction industry. Id. at 3. The enterprise included numerous contractors, who

1 (...continued)

domination, and use of a union for personal benefit by illegal, violent, and fraudulent means. Although labor racketeering can be conducted by anyone, the most substantial corruption of unions is conducted by organized crime families and syndicates.").

2 William K. Rashbaum, Four Years of Police Work Yielded a Racketeering Indictment of 38, N.Y. TIMEs, Sept. 11, 2000, at Bl; accord William K. Rashbaum, Mob's Shadow Still Falls Across Building Projects, N.Y. TIMES, Sept. 4, 2000, at B 1 ("Common schemes generally involve bribing union officials so that a company can hire cheaper nonunion workers and forgo expensive payments into pension, benefit and health and welfare funds.").

realized lower construction costs by paying workers less than union scale "off the books." Id. at 8-10. The contractors were able to do this because corrupt shop stewards falsified their reports and allowed collective bargaining agreements (including wage and benefit scales) to be violated in return for bribes. Id. at 3-4,10-11. Those bribes were paid by Lucchese soldiers and

associates. E.g., id. at 14-15,21-22,50-53,58-60,75-76. In return, the Lucchese family charged a "mob tax" to the contractors who profited from this arrangement, and also received "no show" jobs for its members. Id. at 4,8.3

Similarly, the indictment by a Southern District of New York grand jury in United States v. Moscatiello, No. 04 Cr. 343, charged various organized-crime figures, including a District Council shop steward, with inter alia conspiring with contractors to permit off-the-books labor on union job sites. Indictment, Scarvalone Decl. Ex. 34, at 158-60. Robert Alvarez, a District Council employee, was named in the indictment as an associate of the Genovese organized crime family, and pleaded guilty to conspiracy to allow, inter alia, off-the-books payments in order to defraud the union's benefit fund. Id. at 14-15,154-58 (Count 43); Docket Sheet, 04 Cr. 343

3 As noted above, most of the thirty-eight defendants pleaded guilty, admitting that these charges could be proved beyond a reasonable doubt. Two of the defendants who did not plead guilty were Michael Forde and Martin Devereaux, respectively executive secretary treasurer and business agent of the District Council. Forde and Devereaux were tried for their part in this criminal scheme, in particular for accepting bribes from organized-crime associates in return for allowing off-the-books non-union workers at a job site. The jury returned a guilty verdict; the presiding judge ruled that the evidence was sufficient to support that verdict, although he set it aside based on juror misconduct. People v. Forde, No. 5544-00,2005 WL 1490306 (N.Y. Sup. Ct. Apr. 26, 2005). Whether or not Forde and Devereaux are eventually convicted on appeal or at retrial, the guilty pleas and the evidence at their trial is sufficient to establish, for the purposes of this proceeding, that off-the-books wage payments are a common opening to organized-crime corruption.

(pleading guilty to that count). Paul Ghirarduzzi, a District Council shop steward, was also named as a Genovese associate; he died pending trial. Indictment at 14-15; Docket Sheet.4

Evidence of this type of organized-crime corruption also appeared in the trial record. Although neither party cited that trial record in its brief, the Court referred to it sua sponte. However, that trial record should be considered as a whole, and the Court overlooked certain testimony relevant to the racketeering behind the job referral rules. In particular, Melvin Eckhaus, a business agent for a District Council local, testified that he accepted bribes from Louis Moscatiello, Sr. (the lead defendant in the indictment described above), whom he correctly believed to be an organized-crime figure, in exchange for permitting employers to select which carpenters worked on the job site. Trial Transcript dated Sept. 20-21, 1993, at 569, 573, 612, 616-17. Eckhaus allowed employers to select which shop steward was appointed (thus ensuring

4 In a recent opinion, Judge Gleeson described the same indictment as it pertained to the plasterers' union:

Among the other charges related to Local 530, the indictment alleges that it helped enrich the leaders, members and associates of the Genovese Family [of Cosa Nostra] by, among other things, allowing Local 530 contractors to violate the collective bargaining agreements, such as by employing workers off-the-books, employing non-union workers, paying workers less than union-scale wages and defrauding Local 530 benefit funds. Since they were permitted to conduct their business in this way, these "favored contractors"—drywall finishing companies with ties to the Genovese Family and collective bargaining agreements with Local 530—could perform the work quite inexpensively. They could bid lower than honest contractors, get the jobs, and then reap higher profits, which they shared (in amounts usually calculated on a percentage of the value of the contract) with their Genovese Family sponsors. Sometimes, when work could not be obtained through the submission of low bids, extortion was used instead.

Drywall Tapers and Pointers, Local 1974 v. Local 530 of the Operative Plasterers' and Cement

Masons' Int '1 Ass 'n, No. 93-cv-0154, 2005 WL 638006, at *7 (E.D.N.Y. Mar. 17, 2005) (citations omitted). Judge Gleeson concluded that some of these methods had been proved in trials before him. Id. (See indictment)

that union rules and requirements would not be enforced), and would even appoint organized-crime associates to the steward positions. Id. at 614-15,729-30.

This type of conduct—employers colluding with racketeers and corrupt union officers to lower their costs—is no newcomer to the organized-crime repertoire. The 1986 report of the President's Commission on Organized Crime, chaired by Judge Kaufman of the Second Circuit, found that some businesses, whether legitimate or mob-controlled, cooperated with organized crime in order to secure certain benefits for themselves, including reduced labor costs:

The sweetheart contract is a deal based on labor-management collusion, whereby the employer is permitted to violate or sidestep collective bargaining provisions. . . . [T]he economic basis of all sweetheart deals is the price of labor. In return for a payoff to a corrupt union official, the employer can use fewer workers, pay them less, and assign and discharge them at will. . . .

Sweetheart arrangements tend to flourish in the construction . . . industr[y], where differences between union wages and nonunion labor rates provide an incentive.

President's Comm'n on Organized Crime, THE EDGE: ORGANIZED CRIME, BUSINESS, AND LABOR UNIONS, Report to the President and the Attorney General (1986), at 16; see id. at 10 ("[organized crime] can use unions to exact payoffs from businesses in the form of sweetheart contracts"). The same report identified a contractor bribing District Council officials to make "off the books payments" and avoid union scale wages. Id. at 234.5

5 Of even earlier vintage, the United States Senate's McClellan Committee found that James R. Hoffa used similar methods—"special deals to employers," "collusive arrangements by which contract terms were arbitrarily abrogated or watered down to a degree that left them virtually meaningless," and "nonenforcement of contract terms"—as a means of labor racketeering. United States Senate Select Committee on Improper Activities in the Labor or Management Field, Final Report, S. Rep. No. 86-1139, at 724-25 (1960). See also United States v. Local 560, Intl Bhd. of Teamsters, 581 F. Supp. 279,282 (D.N.J. 1984) (" 'Corruption owes little more to immoral union leaders than it does to predatory employers who, throughout the history of American business, have sought by cheating and violence to circumvent the strictures of competition, unionization and the law.' " (quoting John Hutchinson, The Imperfect Union—A History of Corruption in American Trade Unions 7-8 (1970)).

The confluence of evidence before the Court—union employees, associated with organized crime, convicted of accepting bribes to disregard wage and benefit obligations; employers paying both union and non-union workers off the books—adds up to precisely the pattern of activity Judge Kaufman's report identifies. That evidence establishes that off-the books payments are far more than a simple matter of contractor malfeasance, as the Court seems to have assumed; they are a wide and well-trod path to labor racketeering by organized crime. And for the same reasons, the job referral rules are far more than a matter of fairness to individual carpenters—they are a crucial safeguard against organized crime and labor racketeering. They serve, first, to ensure that corrupt employers cannot hand-pick shop stewards and journeymen who will look away from (or actively facilitate) the off-the-books payments and other collective bargaining agreement violations that open the way to organized crime; and, second, to prevent carpenters from facing the choice between currying favor with their employers, even if those employers are corrupt or violating collective bargaining agreements, or lengthy unemployment. Gov't Br. at 14-17. The job referral rules were thus central to the antiorganized-crime purpose of the Consent Decree, designed to prevent precisely what Melvin Eckhaus testified that he repeatedly did: appoint "friendly" carpenters and stewards to certain jobs, in return for bribes from organized crime. Trial Transcript dated Sept. 22,1993, at 751-53.

For that reason, the job referral rules were not something the government would have permitted the District Council to negotiate away at the first collective bargaining opportunity—as the Court correctly stated, "it is entirely unreasonable to suppose that the parties intended . . . [to] leave the District Council free to change the Job Referral Rules in any manner it might choose, without prior notice to the government . . . ." Order, slip op. at 20-21. Those rules were a linchpin of the Decree, not an added bauble the union could give back to the very contractors'

associations whose corrupt members make organized crime infiltration possible in the first place.° It is, indeed, "entirely unreasonable to suppose" that the government would have agreed to allow that to happen.'

Thus, the government need not demonstrate, as the Court suggested, that the collective bargaining negotiations were "influenced . . . by organized crime" when they effectively discarded the job referral rules. Order, slip op. at 27. The government need not prove organized-crime influence, precisely because in agreeing to the Consent Decree in the first place, the government obtained the right to not be put to that extraordinarily difficult task.8 The government gave up far more drastic remedies it might have obtained at trial in exchange for the preventative measures embodied in the Decree, including the job referral rules—measures the government can enforce without proving its RICO case anew every time a contractor requests a carpenter or the union renegotiates its collective bargaining agreements. But by requiring proof of organized-crime influence, the Order deprives the government of the benefit of that litigation-free enforcement mechanism and requires the government to demonstrate a RICO violation in order to enforce its RICO settlement. Moreover, the Order paradoxically requires the government to prove that those measures to keep out organized crime have not worked in

6 Melvin Eckhaus testified that organized crime controlled not just individual contractors, but the entire Drywall Association. Trial Transcript at 692.

7 For the same reasons, it does not matter what the union's proffered reasons are for negotiating away a centerpiece of the Decree, see Order, slip op. at 26. The union may not unilaterally deprive the government of its bargain for good reason or bad.

" 'Consent decrees are entered into by parties to a case after careful negotiation has produced agreement on their precise terms. The parties waive their right to litigate the issues involved in the case and thus save themselves the time, expense, and inevitable risk of litigation.' " SEC v. Levine, 881 F.2d 1165, 1179 (2d Cir. 1989) (quoting United States v. Armour & Co., 402 U.S. 673, 681-82 (1971)).

keeping out organized crime in order to retain them. Those consequences and contradictions were overlooked in the Court's Order, and thus merit reconsideration.9

B. The Court Misread the Consent Decree's Exclusion of Collective Bargaining Agreements

The Consent Decree, as the Court noted, limits the power of the IRO to review collective bargaining agreements. Consent Decree 4.f. That isolated reference, however, cannot be read to supersede the remainder of the Decree.' To do so would allow the union to unilaterally alter virtually any anti-racketeering provision of the Decree, merely by reaching agreement with a contractor in a collective bargaining agreement—a result that is irrational on its face, but made more so by the acknowledged possibility that contractors themselves may be associated with organized crime." For example, it is entirely illogical to suppose that the District Council could exempt itself from the prohibition on knowingly associating with members of organized-crime families, Decree 2.b., simply by reaching agreement with a corrupt employer.

There is nothing inconsistent between paragraph 4.f. and the union's duty to notify the government if it seeks to change the job referral rules through a collective bargaining agreement. Under paragraph 4.f., the IRO is entitled to notice of contracts, with the exception of collective

9 If the Court declines to reconsider the Order as a whole, the government respectfully requests that the first paragraph of footnote five be deleted or modified to reflect the broader purposes of the Consent Decree and to clarify that violations of the Decree do not require proof of a nexus to organized crime.

10A court is "required, in interpreting a particular provision of a consent decree, to read that provision in light of the decree as a whole." United States v. Local 1804-1, Int'l Longshoremen's Ass'n, 44 F.3d 1091, 1097 (2d Cir. 1994).

" The Consent Decree itself expressly acknowledges that Cosa Nostra members and associates may be one and same as employers. Consent Decree 2 (exception to "knowingly associating" with Cosa Nostra members when those members are employers). This was confirmed by Eckhaus's testimony. See supra n.6.

bargaining agreements. Under paragraph 12, as the Court ruled, the IRO and the government are entitled to notice of any proposed change in the job referral rules. But the fact that a particular union action fell outside the scope of paragraph 4.f. (because it was a collective bargaining agreement) does not mean that it falls outside the scope of paragraph 12.

Nor is there any ambiguity. Nowhere in paragraph 4.f. is there any indication that carving out collective bargaining agreements from the contract-review power was meant to carve out collective bargaining agreements from the rules- and bylaws-review power. Given the importance of the job referral rules to the anti-racketeering purpose of the Decree, there is no reason any rational drafter would have made such an exemption. Read together, then, the IRO and the government are entitled to prior notice of any action amending the job referral rules, regardless of whether effected through a collective bargaining agreement.

C. The Court Failed to Consider Alternative Remedies

In the Order, the Court began by discussing one of the remedies requested by the government: an order voiding the request provisions in the collective bargaining agreements. From there, the Court reasoned that that remedy was "startling" and in tension with federal labor policy. Order, slip op. at 21.12 That analysis, however, overlooked other remedies the

12 The proposition is less startling than the Court presumed for at least two reasons. First, as W.R. Grace & Co., v. Local Union 759, Int '1 Union of the United Rubber, Cork, Linoleum & Plastic Workers of Am., 461 U.S. 757, 766-67 (1983) recognizes, courts do in fact void or override provisions of collective bargaining agreements where following those provisions would be contrary to public policy. Accord United Mine Workers v. Pennington, 381 U.S. 657, 665 (1965) ("because [unions and employers] must bargain does not mean that the agreement reached may disregard other laws"); Stamford Bd. of Educ. v. Stamford Educ. Ass 'n, 697 F.2d 70, 73 (2d Cir. 1982) ("public policy circumscribes agreements between private parties . . . [a]nd collective bargaining agreements are not exempt from such scrutiny by the courts"). Likewise, statutory policies governing management-labor issues are not given effect when they conflict with the goals of a civil RICO consent decree. Local 1814, Int '1 Longshoremen 's Ass 'n v. New York Shipping Ass 'n, 965 F.2d 1224, 1238-39 (2d Cir. 1992) (enjoining arbitration sought under

(continued...)

government requested in its contempt motion, remedies that impinge far less heavily on the union's collective bargaining agreements.

In particular, the government, as an alternative to voiding collective bargaining agreement provisions, asked the Court to modify the job referral rules themselves, such that requests by employers would count against the employer's share of the 50/50 distribution of workers. Gov't Br. at 26-27. Such a remedy would not require the Court to change the collective bargaining agreements, but would preserve the operation of the Consent Decree's job referral rules. Similarly, the government requested that the Court consider a waiting period before carpenters can be requested from the list, a remedy that also would not require modifying the collective bargaining agreements. Gov't Br. at 27.

Moreover, the Court did not address the need for other prospective relief to ensure the integrity of the Consent Decree. As the government noted in its brief, "the sanctions imposed after a finding of civil contempt serve two functions: to coerce future compliance and to remedy past noncompliance." Vuitton et Fils S.A. v. Carousel Handbags, 592 F.2d 126, 130 (2d Cir. 1979). More generally, the Court has powers beyond contempt, and therefore may enter

12 (...continued)

collective bargaining agreement and Norris-LaGuardia Act because necessary to further "the compelling governmental interest of eliminating the hold of organized crime on labor unions as contemplated by RICO").

Second, W.R. Grace is factually distinguishable. The collective bargaining agreement at issue in W.R. Grace was entered seven months prior to the conciliation agreement that gave rise to the conflict between the inconsistent contractual provisions. 461 U.S. at 767. The passage cited by the Court, to the effect that parties to a collective bargaining agreement should have "reasonable assurance that their contract will be honored," id. at 771, slip op. at 21, should be read in that context. Here, by contrast, the 2001 negotiations occurred against the backdrop of an existing civil RICO consent decree, and there was plainly no "reasonable assurance" that contract provisions contrary to the Decree or to public policy would be enforceable. Indeed, the collective bargaining agreement itself contemplated that provisions might be stricken or invalidated and provided for severability. See Gov't Br. at 25 (citing District Council collective bargaining agreement).

prospective relief even if the Consent Decree is ambiguous. As stated in an earlier government brief, it is well settled that district courts enjoy inherent authority and considerable discretion to enter reasonable orders designed to ensure compliance with a consent decree. United States v. Local 359, United Seafood Workers, 55 F.3d 64, 69 (2d Cir. 1995); EEOC v. Local 580, International Ass 'n of Ironworkers, 925 F.2d 588, 593 (2d Cir. 1991); Berger v. Heckler, 771 F.2d 1556, 1568-69 (2d Cir. 1985); Picon v. Morris, 933 F.2d 660, 662 (8th Cir. 1991). A consent decree "is an order of the court and thus, by its very nature, vests the court with equitable discretion to enforce the obligations imposed on the parties." Local 359, 55 F.3d at 69.

Consent decrees are subject to continuing supervision and enforcement by the court. A court has an affirmative duty to protect the integrity of its decree. This duty arises where the performance of one party threatens to frustrate the purpose of the decree.

Berger, 771 F.2d at 1568 (internal quotation marks and alterations omitted).

If the Court is unwilling to impose retroactive contempt sanctions, it can still grant prospective relief to protect the job referral rules and the anti-organized-crime and anticorruption purpose of the Decree, by finding that the government's reading is the most reasonable one even if the Consent Decree is ambiguous. As it happens, now is a particularly opportune time to do so, as the union's collective bargaining agreements will be renegotiated shortly. Even if the Court adheres to the view that a contempt sanction is not appropriate, the Court may exercise its inherent power described above to enforce and preserve the Decree by requiring the union to adhere to the notice provisions of paragraph 12 going forward.

Conclusion

For all of the reasons above, the Court should reconsider the Order.

Dated: New York, New York

February 14, 2006

Respectfully submitted,

MICHAEL J. GARCIA

United States Attorney for the Southern District of New York Attorney for Plaintiff

By:

EDWARD SCARVALONE (ES-4880)
SEAN H. LANE (SL-4849)

BENJAMIN H. TORRANCE (BT-1118) Assistant United States Attorneys Telephone: (212) 637-2734

Fax: (212) 637-2686