In the Matter of Local Union 1175
Howard Beach, NY

 

Laborers’ International Union of North America
Independent Hearing Officer

 

Docket No. 03-10T
Decided: May 6, 2003
DISCOVERY ORDER

 

This Order and Memorandum addresses the written request of Riccardo Iaccarino, Esquire (Iaccarino), counsel for the former Business Manager of Laborers’ International Union of North America (LIUNA) Local Union 1175 (Local 1175), Fred Clemenza (Clemenza), for 14 witness subpoenas for individuals’ appearances at the Local 1175 Emergency Trusteeship hearing that commenced on May 5, 2003. See Letter from Riccardo Iaccarino, Esq. to Peter F. Vaira, Esq. of 4/29/03 (IHO Dkt. tab 8). Mr. Iaccarino also requested that the Independent Hearing Officer (IHO) permit discovery of certain deposition testimony taken by the General Executive Board (GEB) Attorney, as well as a copy of Mr. Clemenza’s own deposition. Id. In addition, the outstanding issue regarding adequate notification of the membership will also be addressed.

TRUSTEESHIP STANDARDS

 

Title 29 U.S.C. § 464 governs union trusteeship proceedings and does not require formal quasi-trial procedures. See Transport Workers Union, Local 234 v. Transport Workers Union of Am., 131 F. Supp. 2d 659 (E.D. Pa 2001). However, 29 U.S.C. § 464 does mandate that a fair hearing is essential to a valid trusteeship. See 29 U.S.C. § 464. A fair hearing implies procedural requirements of notice of charges and date and nature of hearing, presentation of evidence and witnesses in support of imposing trusteeship, an opportunity for cross-examination, and presentation of rebuttal witnesses. See International Bhd. of Boilermakers, etc. v. Local Lodge D474 of Cement, Lime, etc., 673 F. Supp. 199 (W.D. Tex 1987); see also Smith v. Distillery, Rectifying, Wine & Allied Workers Int’l Union, 63 Lab. Cas. (CCH) P11061 (E.D. Ky. 1970); In the Matter of Local 210, IHO Order and Memorandum, 95-35T (January 19, 1996).

 

Under 29 U.S.C. § 464(c), LIUNA must conform with the procedural requirements of its constitution and bylaws. See 29 U.S.C. § 464(c). LIUNA’s constitution and bylaws do not require that a trusteeship notice or complaint rise to the level of particularity required in judicial proceedings or LIUNA disciplinary hearings. See In the Matter of the Chicago District Council (Chicago District Council), IHO Order and Memorandum, 97-30T (July 1,

1997); Local 210 95-25T (trusteeship complaint need not rise to detail of complaint or indictment in criminal case or LIUNA disciplinary proceeding). According to LIUNA procedural requirements, parties have a reasonable opportunity to respond to the trusteeship charges if the International clearly sets out the factual basis of the constitutional violations, as well as the time and place of the hearing. Id. LIUNA’s International Union Constitution (International Constitution) mandates that “the subordinate body shall be advised of the reasons for the proposed or actual appointment of a trustee or supervisor, and that adequate notice of a hearing thereon at least 10 days prior to the date of the hearing shall be given to the subordinate body involved.” International Constitution, Article IX, Section 7.

 

MEMBERSHIP NOTIFICATION

 

The GEB Attorney placed Local 1175 under Emergency Trusteeship on April 8, 2003. See Letter from Robert D. Luskin to the Officers and Members of Local 1175 of 4/8/03 (Notice) (IHO Dkt. tab 1). On that day, the Emergency Trustee served the Business Manager of Local 1175 with copies of the Notice and the Complaint in Trusteeship (Trusteeship Complaint) before taking possession of the Local 1175 office. Thus, LIUNA officially notified the officers of Local 1175 regarding the grounds for the Emergency Trusteeship on April 8, 2003. In addition, the GEB Attorney mailed the April 8, 2003, Notice and the Trusteeship Complaint to Local 1175 members on April 8, 2003, and the Emergency Trustee posted the Notice and Trusteeship Complaint on the Local’s union hall bulletin board. On April 14, 2003, the GEB Attorney sent a Notice of Trusteeship Proceedings to the Officers and Members of Local 1175, which was also posted on the union hall bulletin board. See Notice of Trusteeship Proceedings to the Officers and Members of Local 1175 from Robert D. Luskin of 4/14/03 (IHO Dkt. tab 4).

 

The Emergency Trusteeship hearing was originally scheduled for April 29, 2003, in New York City. On April 28 2003, Attorney Iacarrino, representing Clemenza in his personal capacity, asked the IHO for a continuance because the GEB Attorney allegedly failed to properly notify the members of the hearing date and location. As a matter of accommodation, the IHO rescheduled the hearing to May 5, 2003. See IHO April 28, 2003, Order (IHO Dkt. tab 6). In that Order, the IHO directed the GEB Attorney to serve notice upon all Local 1175 members, informing them of the hearing date and location, and, further, to offer proof of the service. On April 28, 2003, the GEB Attorney sent the IHO the required proof of service; the notice had been sent to all Local 1175 members that day. See Letter from Robert D. Luskin to All Members of Local 1175 of 4/28/03 (IHO Dkt. tab 7).

DISCOVERY REQUESTS

 

In this matter, the Trusteeship Complaint is very detailed and adequately conveys the grounds for imposing the Emergency Trusteeship. It is important to reiterate that this Emergency Trusteeship hearing is not a disciplinary proceeding; the GEB Attorney has not filed related disciplinary charges against any officer of Local 1175, much less Mr. Iacarrino’s client. Correspondingly, the matter before the IHO involves only the Trusteeship Complaint.

 

In labor arbitration, there is no right to discovery comparable to the discovery right afforded defendants in criminal, civil, or even administrative hearings. See Hardy v. International Bhd. of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers, and Helpers, 682 F. Supp. 1323, 1328-29 (E.D. Pa. 1988); Local Union 210, 95-25T. Title 29 U.S.C. § 464 does not contain general discovery provisions for the responding entity in a trusteeship proceeding. See, e.g., Local 210, 95-35 T; cf. United States v. IBT (Senese & Talerico), 941 F.2d 1292, 1296-98 (2d Cir. 1991), aff’g 745 F. Supp. 908 S.D.N.Y. 1990) (procedural due process concepts applicable to criminal cases do not apply to union disciplinary proceedings); In the Matter of Local 652, IHO Order and Memorandum, 02-06T (May 23, 2002) (motions for full disclosure applicable only to disciplinary charges, not trusteeship proceedings); Trusteeship of Local Union 73, 1996 A.O. 5, 10 (95-013 TB).

 

Written Request for Subpoenas

 

Mr. Iaccarino has requested that the IHO subpoena 14 witnesses for appearance at the hearing. See Letter from Riccardo Iaccarino to Peter F. Vaira of 4/29/03, p.2 (IHO Dkt. tab 6). Mr. Iaccarino did not present the witnesses’ relationship to LIUNA or their relevance to the instant hearing. Notwithstanding that omission, 29 U.S.C. § 464 does not prescribe the issuance of subpoenas for Local 1175, as the responding entity in this Emergency Trusteeship, much less for an individual not named as a party. See, e.g., Local 210, 95-35 T. Moreover, the IHO has no power to subpoena persons who are not members of LIUNA. See, e.g., In the Matter of Anthony Franco, IHO Order and Memorandum, 02-01D (May 7, 2002).

 

Upon a showing of extraordinary circumstances, the IHO may issue subpoenas for LIUNA members. However, Mr. Iaccarino has failed to identify any LIUNA members in the subpoena request and has not shown extraordinary circumstances necessitating the subpoenas. Accordingly, the request for witness subpoenas is denied.

Request for Depositions

 

The IHO notes that Mr. Iaccarino requested a copy of Mr. Clemenza’s deposition testimony from a previous deposition. Letter from Riccardo Iaccarino, Esq. to Peter F. Vaira, Esq. of 4/29/03 (IHO Dkt. tab 6). In his letter, Mr. Iaccarino acknowledges that he attended the deposition himself with Mr. Clemenza, but mistakenly avers that Mr. Clemenza has to “sign off” on the deposition for it to be effective. Id. After Mr. Iaccarino made the request for Clemenza’s deposition transcript, the GEB Attorney provided a copy, which the IHO will accept into evidence. Mr. Clemenza, at his discretion, may complete an errata sheet correcting typographical errors in his deposition transcript. The errata sheet will be made part of the record. The IHO cautions Mr. Clemenza that only errata changes will be accepted into the record; substantive changes regarding the testimony are not permitted. If Mr. Clemenza desires to clarify his deposition testimony beyond the customary errata changes, he may do so by testifying in person at the hearing.

 

Mr. Iaccarino has also requested copies of the depositions or notes taken from “all other individuals who were deposed or interviewed in the course of this investigation.” See Letter from Riccardo Iaccarino, Esq. to Peter F. Vaira, Esq. of 4/29/03 (IHO Dkt. tab 8). Again, LIUNA constitutions and bylaws do not provide this type of discovery in trusteeship proceedings. Further, the IHO has consistently held that interview notes are not discoverable even in disciplinary proceedings. See, e.g., In the Matter of Turay, IHO Order and Memorandum, 00-40D (September 18, 2001). The blanket request for deposition testimony of all deposed individuals may be similarly discarded because the limited right to discovery in trusteeship proceedings certainly does not encompass the right to discover evidence not introduced at the hearing. The GEB Attorney has clearly represented that the International will only present Mr. Clemenza’s deposition testimony at the Emergency Trusteeship hearing. Therefore, any other deposition testimony taken by the GEB Attorney in the course of the investigation is irrelevant to this proceeding.

 

DECISION

 

LIUNA trusteeship hearing procedure is markedly dissimilar to LIUNA disciplinary procedure. The GEB Attorney fulfilled the constitutional requirement to notify Local 1175 regarding the time and place of the hearing by sending the April 14, 2003, Notice of Trusteeship Proceedings. Mr. Iaccarino’s requests for discovery of deposition transcripts and the issuance of subpoenas

for witnesses are denied. No subpoenas will be issued on behalf of the Local 1175 or its officers, except upon a showing of extraordinary circumstances. Mr. Iacarrino has failed to establish the threshold extraordinary circumstances in this matter.

 

PETER F. VAIRA

 

INDEPENDENT HEARING OFFICER

 

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In the Matter of Local Union 1175
Howard Beach, NY

 

Laborers’ International Union of North America
Independent Hearing Officer

 

Docket No. 03-10T Decided: June 9, 2003

INTERIM ORDER

 

This Interim Order addresses the April 8, 2003 Emergency Trusteeship imposed over Laborers’ International Union of North America (LIUNA) Local Union 1175 (Local 1175) in Howard Beach, New York, by the LIUNA General Executive Board (GEB) Attorney acting on behalf of the LIUNA General President. See Notice of Imposition of Emergency Trusteeship (Notice) from the Robert Luskin to Officers and Members of Local 1175 of 4/8/03 (IHO Dkt. tab 1); see also LIUNA Ethics and Disciplinary Procedure (EDP), Section 5 (the General President may delegate his power to impose a trusteeship over any local to the GEB Attorney). Article IX, Section 7 of the LIUNA International Union Constitution (International Constitution), requires that the International Union hold a hearing to determine whether a trusteeship, should be imposed. See International Constitution, Article IX, Section 7. However,

 

where, in the judgment of the General President, an emergency situation exists within the subordinate body, a temporary trustee . . . may be appointed prior to such hearing, but such hearing shall commence within 30 days and a decision made within 60 days after the appointment of such temporary trustee . . . .

 

International Constitution, Article IX, Section 7.

 

Pursuant to 29 U.S.C. § 464(c) and Article IX, Section 7 of the International Constitution, the IHO held extensive Emergency Trusteeship hearings on May 5, 7, 13, 14, 21, 22, 28, and 29, 2003, in New York, New York, to determine whether the Emergency Trusteeship should continue. During those hearings, the GEB Attorney presented five witnesses and submitted 91 exhibits for admission into the record. Riccardo Iaccarino, Esquire, who personally represented former President/Business Manager Frederick Clemenza Jr., presented seven witnesses and submitted twelve exhibits for admission into the record.

 

Mindful of the Constitutional time constraints imposed on rendering a decision in this matter, and considering the length of the hearing and massive record established, the IHO issues this Interim Order. This Interim Order

provides proper conformance with LIUNA procedure. A detailed Order and Memorandum, containing extensive findings of fact, discussion, and conclusions in support of the decision rendered herein, will be issued on Wednesday, June 11, 2003.

 

Upon consideration of the evidence and witnesses presented by the GEB Attorney and the rebuttal thereto, the IHO finds that the GEB Attorney has proven, by a preponderance of the evidence, that the Emergency Trusteeship is necessary to correct financial malpractice and internal corruption. The IHO further finds that the Emergency Trusteeship is the necessary result of the malfeasance and negligence of the Local 1175 Executive Board members. In addition to the forgoing independent basis for the Emergency Trusteeship, the IHO finds that the LIUNA Trustees of the Pension Fund, Welfare Fund, and Annuity Fund (Benefit Funds) were malfeasant and negligent in performing their duties to the Benefit Funds.¹ Accordingly, the LIUNA General President is authorized to continue the Emergency Trusteeship of Local 1175 to carry out the legitimate objects of LIUNA and its affiliates. See International Constitution, Article IX, Section 7.

 

PETER F. VAIRA

 

INDEPENDENT HEARING OFFICER

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In the Matter of Local Union 1175
Howard Beach, NY

 

Laborers’ International Union of North America
Independent Hearing Officer

 

Docket No. 03-10T

 

Decided: June 11, 2003

 

FINAL ORDER AND MEMORANDUM PROCEDURAL HISTORY

 

This Order and Memorandum supplements the Interim Order of June 9, 2003, which addressed the Emergency Trusteeship over Laborers’ International Union of North America (LIUNA) Local Union 1175 (Local 1175), Howard Beach, New York, imposed by the LIUNA General Executive Board (GEB) Attorney on April 8, 2003.

 

On April 8, 2003, LIUNA properly informed the members and officers of Local 1175 of the imposition of the Emergency Trusteeship, including the reasons and constitutional grounds that supported the Emergency Trusteeship. See Notice of Imposition of Emergency Trusteeship (Notice) from the GEB Attorney (Robert Luskin) to Officers and Members of Local 1175 of 4/8/03 (IHO Dkt. tab 1). In the Notice, the GEB Attorney informed the members and officers of Local 1175 that the Independent Hearing Officer (IHO) would hold a hearing on the issue of whether the Emergency Trusteeship should continue. Id. In addition, the GEB Attorney filed a Complaint for Trusteeship of April 8, 2003 (Trustee Complaint). (IHO Dkt. tab 2). The Trusteeship Complaint alleged that the imposition of a trusteeship was necessary due to a number of serious and substantial irregularities in the operation of Local 1175 including: corruption, financial malpractice, breaches of basic fiduciary practices, undemocratic practices, and obstructive behavior in connection with the Inspector General’s investigation. Id.

 

On April 8, 2003, the GEB Attorney appointed Frank Ombres, Secretary­-Treasurer of Local 731, as Temporary Trustee. See Letter from Robert D. Luskin to Frank Ombres of 4/8/03 (IHO Dkt. tab 3). On or about April 21, 2003, a lawsuit was filed in United States District Court for the Southern District of New York on behalf of Local 1175, Frederick Clemenza Jr. (Clemenza), Anthony Ferrari, and Richard Tomaszewski, challenging the imposition of the Trusteeship over Local 1175 and seeking a temporary restraining order. See GEB Ex. 21 (Verified Complaint of April 21, 2003, Material Yard Workers Local 1175, et al. v. LIUNA, et al. (Federal Complaint) (S.D.N.Y.)). The Federal Complaint alleges that the imposition of the Trusteeship was merely a

“pretext to forcing a merger of Local 1175 with Laborers’ Local 731.” Federal Complaint at ¶ 12. No evidence was presented before the IHO regarding the issue of whether there was an improper purpose for imposing the Emergency Trusteeship.

 

The GEB Attorney originally scheduled the Emergency Trusteeship hearing for April 29, 2003, at the Hotel Pennsylvania, 401 ^7th Avenue, New York City. See April 14, 2003 Notice of Trusteeship Proceedings from Robert D. Luskin to the Officers and Members of LIUNA Local 1175 (Notice of 4/14/03) (IHO Dkt. tab 4). On April 28, 2003, Attorney Riccardo Iaccarino (Iaccarino) entered his appearance on behalf of Clemenza in his personal capacity. See Letter from Riccardo Iaccarino to Peter F. Vaira of 4/28/03 (IHO Dkt. tab 5). In that letter, Iaccarino averred that the membership had not been properly notified of the date and time of the hearing. Id. Thereafter, the hearing was rescheduled for May 5, 2003, to allow the GEB Attorney to serve formal notice of the hearing on all members of Local 1175. See IHO April 28, 2003 Order (IHO Dkt. tab 6). In the April 28, 2003 Order, the IHO directed that the GEB Attorney ensure the membership was given adequate notice of the May 5, 2003 hearing date. Id. Notice was mailed to all members on April 28, 2003. See April 28, 2003 Notice of Trusteeship Proceedings from Robert D. Luskin to the Officers and Members of LIUNA Local 1175 (Notice of 4/28/03) (IHO Dkt. tab 7).

 

Pre-Hearing Motions

 

On April 29, 2003, Iaccarino filed a letter-motion protesting that the hearings should be held in the evening or on weekends to permit membership attendance. See Letter from Riccardo Iaccarino to Peter F. Vaira of 4/28/03 (IHO Dkt. tab 5). Iaccarino also filed a request for discovery of deposition transcripts of all Local 1175 members who were deposed by the GEB Attorney prior to the imposition of the Emergency Trusteeship, and for the issuance of subpoenas for 14 witnesses. See Letter from Riccardo Iaccarino to Peter F. Vaira of 4/29/03 (IHO Dkt. tab 8). The IHO declined to hold the hearings in the evenings or weekends. See IHO May 6, 2003 Order and Memorandum (IHO Dkt. tab 11).

 

The IHO also declined to provide the requested transcripts of testimony of deposed members or to issue any subpoenas. Id. In doing so, the IHO noted that there is no right to discovery in a trusteeship hearing comparable to the discovery right afforded defendants in criminal, civil, or even administrative hearings. Id.; see also, Hardy v. International Bhd. of Boilermakers, Iron Ship Builders, Blacksmiths, Forgers, and Helpers, 682 F. Supp. 1323, 1328-29 (E.D. Pa. 1988); In the Matter of Local Union 210, IHO Order and Memorandum, 95­35T (January 23, 1996). Title 29 U.S.C. § 464 does not contain general

discovery provisions for the responding entity in a trusteeship proceeding. See, e.g., Local 210, 95-35T; cf. United States v. IBT (Senese & Talerico), 941 F.2d 1292, 1296-98 (2d Cir. 1991), aff’g Senese & Talerico, 745 F. Supp. 908 (S.D.N.Y. 1990) (procedural due process concepts applicable to criminal cases do not apply to union disciplinary proceedings); In the Matter of Local 652, IHO Order and Memorandum, 02-06T (May 23, 2002) (motions for full disclosure applicable only to disciplinary charges, not trusteeship proceedings); Trusteeship of Local Union 73, 1996 A.O. 5, 10 (95-013 TB).

 

However, the IHO provided for the issuance of subpoenas for LIUNA members upon a showing of extraordinary circumstances. See IHO May 6, 2003 Order and Memorandum (IHO Dkt. tab 11). Notwithstanding the denial of subpoenas for certain witnesses, several of the requested persons testified voluntarily on behalf of the Local Union including: Greg Auteri, Anthony Ferrari, Michael Scaraggi, Esquire, and Ronald Straci, Esquire. The IHO ordered Temporary Trustee Frank Ombres to testify on May 29, 2003, pursuant to Iaccarino’s request.

 

The Emergency Trusteeship Proceedings

 

Pursuant to 29 U.S.C. § 464(c) and Article IX, Section 7 of the International Union Constitution (International Constitution), the IHO held an Emergency Trusteeship hearing in New York City on May 5, 7, 13, 14, 21, 28, and 29, 2003. See Transcripts In the Matter of Local 1175 Howard Beach, New York (Tr.). GEB Attorneys Robert Thomas and Patrick Slevin appeared on behalf of the International Union. As previously noted, Iaccarino appeared on behalf of Clemenza in opposition to the trusteeship.

 

Several members of Local 1175 attended the entire hearing, including Clemenza, Anthony Ferrari, Charles Clemenza, and Gerard Murphy. In addition to those members, the following members of Local 1175 also attended the last day of the hearing: Salvatore Alaimo, Nicholas Modugno, Andrew Datre, Anthony Caccuri, John Rodriguez, Richard Tomaszewski Jr., Louis Modugno, Mike Broderick, Stephen Tomaszewski, John Guida, Bill Lyons, and Anthony Tomaszewski. The IHO permitted all of the members of Local 1175 who attended the hearing the opportunity to speak on the record.

 

During the hearing, the GEB Attorneys called five witnesses and presented 91 exhibits for admission into the record. Iaccarino called seven witnesses and submitted twelve exhibits for admission into the record. The IHO admitted all proffered evidence into the record. The eight-day hearing resulted in a written transcript of 2278 pages of testimony. On June 4, 2003, the IHO held a

telephone hearing with the GEB Attorney and Iaccarino, during which the IHO heard arguments from both attorneys on the various issues raised by the IHO.

 

LEGAL STANDARDS Trusteeship Requirements

 

The Labor Management Reporting and Disclosure Act (LMRDA) gives a governing body, in this case LIUNA, discretion in placing its member organizations under trusteeship to correct certain problems. See 29 U.S.C. §§ 461-466. Title 29 U.S.C. § 462 states that trusteeships shall be established and administered only in accordance with the constitution and bylaws of the organization which has assumed trusteeships over the subordinate body. See 29 U.S.C. § 462. Under Article IX, Section 7 of the International Constitution, the General President may appoint a supervisor when:

 

action is necessary for the purpose of correcting corruption or financial malpractice, assuring the performance of collective bargaining agreements or other duties of a bargaining representative, restoring democratic procedures or otherwise carrying out the legitimate objects of such subordinate body of the International Union, or to protect the organization as an institution. . . .

 

International Constitution, Article IX, Section 7.

 

The grounds listed in Article IX, Section 7 exactly mirror the grounds that are provided by federal labor law in the LMRDA. The General President may delegate his power “to impose and review the imposition of trusteeships over any district council, local, or other entity within the Union” to the GEB Attorney. Ethics and Disciplinary Procedure (EDP), Section 3.¹ Pursuant to

1 The EDP, which was adopted as part of the LIUNA reform process in 1995, created the GEB Attorney, Inspector General, and IHO positions. See EDP. The IHO has presided over approximately 65 trusteeship hearings since 1995, including many extensive hearings in Chicago, IL, and Pittsburgh, PA. See, e.g., In the Matter of Construction & Laborers’ District Council of Chicago and Vicinity, IHO Order and Memorandum, 97-30T (February 7, 1998) (proceedings lasting 19 days); In the Matter of Local 1058, IHO Order and Memorandum, 00­08T (March 9, 2001) (six days of hearings). IHO decisions regarding trusteeships, disciplinary matters, election protests, and trial board proceedings are published annually in bound volumes and are available to members through the LIUNA website and to any reviewing court upon request to LIUNA.

Section 5 of the EDP, the LIUNA IHO “shall preside over and provide rulings in” the imposition of all trusteeship. EDP, Section 5.

 

A governing body seeking to impose a trusteeship upon its subsidiary must give the targeted entity a full and fair hearing. See 29 U.S.C. § 464(c). “The right to a fair hearing under § 464(c) requires that a subordinate body be given more than just the opportunity to be heard before an official body.” Laborers’ Int’l Union of N. Am. Local Union # 43, v. Laborers’ Int’l Union of N. Am. (Local 43 v. LIUNA), No. C03-26 LRR at 9 (N.D. IO May 14, 2003) citing Becker v. Industrial Union of Marine & Shipbuilding Workers, 900 F.2d 761, 768 (4th Cir. 1990) (internal citations omitted). A fair hearing under § 464(c) requires that the subordinate body receive written notice of the hearing, which sets “out in writing the factual basis for the alleged violations of law of the union’s constitution that justify the imposition” of a trusteeship. Becker, 900 F.2d at 768. The notice need not rise to the level of detail required in judicial proceedings. Cf. Luggage Workers Union, Local 167 v. International Leather Goods, Plastics & Novelty Workers Union, 316 F. Supp. 500, 508 (D. Del. 1970) (notice insufficient for failure to inform local union of acts supporting imposition of trusteeship). The notice should also provide the “date, time and location of the hearing and indicate that the local will have an opportunity to respond to the charges.” Local Union #43 at 10, citing Becker, 900 F.2d at 768 (internal citations omitted).

 

“At the hearing itself, the union seeking to impose the trusteeship must present evidence and witnesses in support of the reasons for imposing the trusteeship.” Local Union #43 at 9-10, citing Becker, 900 F.2d at 768. Further, the “local must be accorded the opportunity to cross examine [the parent union’s] witnesses and present rebuttal evidence.” Id. This procedure, as outlined under federal law, was followed by the IHO at the instant hearing; the IHO’s use of this procedure has been upheld by numerous federal courts. See, e.g., Local 43 v. LIUNA at 9; Dennis Gleason, et al. v. Laborers’ Int’l Union of N. Am., No. 00-CV-2341 (C.D. Ill. May 14, 2002); Laborers’ Int’l Union of N. Am., et al. v. Caruso, et al., 1998 U.S. Dist. LEXIS 9708 (N.D. Ill. June 18, 1998), aff’d by 197 F.3d 1195, 1999 U.S. App. LEXIS 33429 (7th Cir. Ill. 1999).

92                                                     In the Matter of Local 1175

 

Fiduciary Responsibility of Labor Organization Officers Ethical Practices Code

 

Several sections of the LIUNA Ethical Practices Code (EPC) address the fiduciary responsibility of LIUNA officers. By virtue of their membership in LIUNA, officers are obligated as follows:

 

Union funds are held in trust for the benefit of the membership. The membership is entitled to assurance that union funds are not dissipated and are spent for proper purposes. The membership is also entitled to be reasonably informed as to how union funds are invested or used.

 

EPC, Financial Practices, p.18

 

Any person who represents LIUNA and its members, whether elected or appointed, has a sacred trust to serve the best interests of the members and their families. Therefore, every officer and representative must avoid any outside transaction which creates an actual or potential conflict of interest. The special fiduciary nature of Union office requires the highest loyalty to the duties of the office.

 

EPC, Business and Financial Activities of Union Officials, p.20.

 

Complete records of the financial operations of all health, welfare and retirement funds and programs shall be maintained in accordance with the best accounting practice. Each Union trustee shall require that each such fund be audited regularly.

 

EPC, Health, Welfare and Retirement Funds, p. 20.
Ethics and Disciplinary Procedure

 

LIUNA EDP confers certain powers upon the GEB Attorney to facilitate proper conformance with LIUNA Constitutions and ethical regulations. In this effort:

 

The GEB Attorney shall have the authority and duty to investigate and prosecute charges (or otherwise impose discipline, as provided for by The Constitution) against any

officer, agent, representative, employee, or member of the Union for engaging in barred conduct. The GEB Attorney also shall have the authority to investigate and prosecute charges (or otherwise impose discipline, as provided for by The Constitution) against any officer, agent, representative, employee, or member of the Union for committing a felony violation under federal or state law; for violating any federal or state law relating to the conduct of the affairs of a labor organization or employee benefit of pension plan; or, for violating The Constitution, the Ethical Practices Code, or any other disciplinary rule, regulation, practice, or procedure adopted by the General Executive Board.

 

EDP, Section 3, pp. 25-26. Federal Labor Law

 

Federal law gives considerable consideration to safeguarding labor organizations. In particular, in discussing the fiduciary duty of labor union officers, the law is expansive:

 

The officers, agents, shop stewards, and other representatives of a labor organization occupy positions of trust in relation to such organization and its members as a group. It is, therefore, the duty of each such person, taking into account the special problems and functions of a labor organization, to hold its money and property solely for the benefit of the organization and its members and to manage, invest, and expend the same in accordance with its constitution and bylaws and any resolutions of the governing bodies adopted thereunder, to refrain from dealing with such organization as an adverse party or in behalf of an adverse party in any matter connected with his duties and from holding or acquiring any pecuniary or personal interest which conflicts with the interests of such organization, and to account to the organization for any profit received by him in whatever capacity in connection with transactions conducted by him or under his direction on behalf of the organization. A general exculpatory provision in the constitution and bylaws of such labor organization or a general

exculpatory resolution of a governing body purporting to relieve any such person of liability for breach of the duties declared by this section shall be void as against public policy.

 

29 U.S.C. § 501(a).

 

Under the Employee Retirement Income Security Act of 1974 (ERISA), the fiduciary duties of benefit plan trustees is similarly defined:

 

(a) Prudent man standard of care.

(1)Subject to sections 403(c) and (d), 4042, and 4044 [29 USCS §§ 1103(c), (d), 1342, 1344], a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and –

(A) for the exclusive purpose of:

(i) providing benefits to participants and

their beneficiaries; and

administering the plan;

(B) with the care, skill, prudence, and diligence

under the circumstances then prevailing that

a prudent man acting in a like capacity and

familiar with such matters would use in the

conduct of an enterprise of a like character

and with like aims;

Title 29 U.S.C. §1106 clearly delineates transactions that are prohibited under federal law:

 

(a) Transactions between plan and party in interest. Except

as provided in section 408 [29 USCS §1108]:

(1) A fiduciary with respect to a plan shall not cause the plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect –

(A) sale or exchange, or leasing, of any property

between the plan and a party in interest;

(B) lending of money or other extension of

credit between the plan and a party in

interest;

(C) furnishing of goods, services, or facilities between the plan and a party in interest;

(D) transfer to, or use by or for the benefit of, a party in interest, of any assets of the plan; or

(E) acquisition, on behalf of the plan, of any employer security or employer real property in violation of section 407(a) [29 USCS §1107(a)].

 

Transaction between plan and fiduciary. A fiduciary

with respect to a plan shall not –

(1) deal with the assets of the plan in his own interest or for his own account,

(2) in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries, or

(3) receive any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan.

29 U.S.C. § 1106.

 

EVIDENTIARY CONSIDERATIONS Burden of Proof

 

The GEB Attorney must establish the grounds for a trusteeship by a preponderance of the evidence. See In the Matter of Local 225, IHO Order and Memorandum, 97-54T (March 17, 1998), citing, In the Matter of Construction & Laborers’ District Council of Chicago and Vicinity, IHO Order and Memorandum, 97-30T (February 7, 1998). However, “[a] union need establish only one proper purpose to impose a trusteeship.” Chicago District Council, 97­30T; see also, Mason Tenders District Council v. LIUNA, 884 F. Supp. 823, 836 (S.D.N.Y. 1995); Local Union #43, C03-026. In this case, the GEB Attorney has averred that a number of serious and substantial irregularities in the operation of Local 1175, in the form of corruption, financial malpractice, breaches of basic fiduciary practices, undemocratic practices, and obstructive behavior in connection with the Inspector General’s investigation, warrant the imposition of a Trusteeship. See Trusteeship Complaint (IHO Dkt. 2).

Hearsay Evidence

 

LIUNA trusteeship proceedings are similar to administrative proceedings in which the “rules governing the admission of evidence . . . are considerably more relaxed.” United States v. I.B.T (Wilson, Dickens & Weber), 978 F.2d 68, 72 (2d Cir. 1992); Rocker v. Celebrezze, 358 F.2d 119, 122 (2d Cir. 1966) (footnote omitted). Accordingly, reliable hearsay evidence is admissible in labor arbitration. See, e.g., Associated Cleaning Consultants and International Bhd. of Printing and Allied Trades Local 327, 94 LA 1246 (1990); In the Matter of Joseph P. Crincoli (Crincoli), IHO Order and Memorandum, 97-04D (Oct. 27, 1997); Chicago District Council, 97-30T; Elkouri and Elkouri, How Arbitration Works (4th ed. 1994). The hearing officer in union disciplinary proceedings arising under the Teamsters Consent Decree regularly admits hearsay evidence. See United States v. I.B.T (Cimino), 964 F.2d 1308, 1312 (2d Cir. 1992) aff’g, 777 F. Supp. 1130 (S.D.N.Y. 1991); Senese & Talerico, 941 F.2d at 1297. As is the practice and custom of labor arbitrators, the IHO bases hearsay evidence decisions on a thorough review of what is probative and reliable. See Chicago District Council, 97-30T; see also Senese & Talerico, 941 F.2d at 1298, citing Richardson v. Perales, 402 U.S. 389, 402 (1971).

 

WITNESSES

 

Witnesses Testifying on Behalf of the GEB Attorney Bruce Mouw

 

The GEB Attorney called Bruce Mouw, an Inspector with the LIUNA Inspector General’s Office, as a fact witness. Tr. 61:8-10 (MOUW). Mouw is a retired Special Agent of the Federal Bureau of Investigation (FBI). Tr. 61:19-22 (MOUW). He became a Special Agent in 1971, and worked in St. Louis, New York, and at FBI headquarters before becoming a supervisor in New York City from 1979 until 1998. Id. For the majority of his time in New York City, Mouw supervised Squad C16 in the Queens office, which was known as “The Gambino Squad,” although he also spent a year supervising “The Colombo Squad.” Tr. 61:22-25 (MOUW).

 

Mouw served as the lead Inspector in the Local 1175 investigation. In addition, Mouw was part of the team that implemented the Trusteeship over Local 1175. In that capacity, Mouw assisted the Trustee and Deputy Trustee, as well as obtained documents and records for the Inspector General.

John Connolly

 

The GEB Attorney called John Connolly (Connolly), a LIUNA Auditor for the past ten years, as a witness. Tr. 182:5-10 (CONNOLLY). Prior to taking this position, Connolly had served on the New York City Police Department for 22 years, retiring as a lieutenant. Tr. 182:11-16 (CONNOLLY). As a LIUNA Auditor, Connolly audits affiliated local unions to ascertain whether they are complying with LIUNA Constitutions and other regulations. Tr. 183:2-5 (CONNOLLY). Those tasks include, inter alia, reviewing LM-2 reports, reviewing Constitutional guidelines, reviewing backup documentation for certain expenditures, and ensuring that meetings are being held properly. Tr. 183:6-20 (CONNOLLY). Connolly referred to LIUNA’s Secretary-Treasurer’s Manual, a book issued by the International as guidance for Local Secretary­-Treasurers, in conducting his audit of Local 1175. Tr. 187:18 – 188:11 (CONNOLLY); see also GEB Ex. 30 (Excerpts from the LIUNA Secretary­-Treasurer’s Manual).

 

Raymond Maria

 

The GEB Attorney called Raymond Maria (Maria) as an expert witness; the IHO accepted Maria as an expert in the field of financial accounting as it applies to labor racketeering. Tr. 816 (MARIA), 821 – 822 (IHO). Maria has been self-­employed as a Certified Public Accountant (CPA) and consultant since 2000. Tr. 816:4-9 (MARIA). Prior to that, Maria worked for the FBI for 15 years with assignments including Supervisory Special Agent, interrupted by a short period of public accounting work with the firm of Ernst & Young from 1968 until 1972. Tr. 816 - 817 (MARIA). From 1984 until 1990, Maria was the Deputy Inspector General and Acting Inspector General at the United States Department of Labor (DOL). Id. After retiring from Federal service in September 1990, Maria formed a fraud detection/fraud prevention business incorporated in the Commonwealth of Virginia. Tr. 816:21-25 (MARIA).

 

Maria’s experience with the FBI and DOL, including prosecutions and convictions of many individuals, provided him with expertise in the areas of labor racketeering, fiduciary responsibility, and fiduciary obligations under, inter alia, 29 U.S.C. §§ 501, 504. Tr. 819:2-15 (MARIA). In particular, with respect to labor racketeering, Maria has dealt with theft or embezzlement from union general funds, conversion of employee benefit plan assets, kickbacks between service providers and employee benefit plans, submission of false ERISA reports, and prohibited persons holding of union office. Tr. 821:2-11 (MARIA). In his capacity as a private consultant since 1990, Maria has engaged in investigating conflicts of interest, ethical breaches, and potential violations of ERISA and the Federal Crimes Code for state and federal governmental

agencies, corporate clients, employee benefit plans, and labor organizations Tr. 819:19 – 820:8 (MARIA).

 

In or about fall 2002, Maria became involved in an investigation of Local 1175. Tr. 822:12-18 (MARIA). At that time, the LIUNA Inspector General requested that Maria examine Local 1175 American Express transactions for evidence of any commingling of expenditures among Clemenza, Local 1175, and associated employee benefit plans. Tr. 822:21 – 823:9 (MARIA). In total, Maria examined approximately 18 months of Local 1175 American Express records in Clemenza’s name, ranging from 2001 and 2002. Tr. 824:12-20 (MARIA). Maria attempted to determine the charges on the Local 1175 credit card and reconcile the expenditures among three separate entities: Clemenza personally, Local 1175, and one or more of the associated employee benefit funds. Tr. 824:23 – 825:4 (MARIA). Maria also reviewed the materials to determine whether there was sufficient documentation to support the charges. Tr. 825:5-14 (MARIA).

 

Michael J. Vollbrecht

 

The GEB Attorney called Michael J. Vollbrecht (Vollbrecht) as a witness in this matter. Tr. 698 (VOLLBRECHT). Vollbrecht is an attorney licensed in New York State, who has primarily practiced since 1991 in ERISA delinquency litigation for trust funds and general labor law on behalf of numerous labor unions. Tr. 699:4-10 (VOLLBRECHT). In that capacity, Vollbrecht has served in an assisting role with respect to union trusteeships for approximately five or six years. Tr. 699:11-17 (VOLLBRECHT). Vollbrecht performs most of his work when a trustee or supervisor is initially appointed by assisting with locating and securing all of the assets of a local, and assisting with hiring in construction locals. Tr. 699:20-25 (VOLLBRECHT).

 

With regard to the Emergency Trusteeship of Local 1175, Vollbrecht became involved on April 8, 2003, when LIUNA Regional Vice President Massino (Massino) retained his law firm to assist the Trustee and Massino. Tr. 700:10-22 (VOLLBRECHT). Vollbrecht’s initial instructions were to secure the physical assets of Local 1175, locate Local 1175 bank accounts, and ensure that Trustee Frank Ombres (Ombres) became the signatory on the bank accounts. Tr. 701:6-15 (VOLLBRECHT). Thereafter, Ombres became the Union Designated Trustee to the Welfare Fund, the Annuity Fund, and the Pension Fund (collectively, Benefit Funds). Tr. 701:22 – 702:2 (VOLLBRECHT). Vollbrecht then ensured that Ombres was the signatory on all of the Benefit Fund accounts that could be located, including Citibank accounts and Washington Mutual accounts. Tr. 702:3-13 (VOLLBRECHT).

Thomas R. Limberg

 

The GEB Attorney called LIUNA Inspector Thomas Limberg (Limberg) as a witness in this matter. Tr. 1182:12-18 (LIMBERG). Limberg has been employed by the Office of the Inspector General since September 2002; prior to that, he served as an officer in the New York City Police Department for 21 years. Tr. 1182:19-25 (LIMBERG). For 16 of those years, Limberg was assigned to a joint organized crime task force consisting of FBI agents and New York City detectives investigating the LCN. Tr. 1183:7-10 (LIMBERG). Since February 2000, Limberg has assisted Mouw in the Local 1175 investigation by reviewing documents and testimony, as well as interviewing witnesses. Tr. 1184:10-20 (LIMBERG).

 

Local 1175 Officers and Members Testifying on Behalf of the Union Fred Clemenza Jr.

 

Fred Clemenza Jr. (Clemenza) joined the Union in or about 1977. Tr. 1653 (CLEMENZA). Clemenza began as a laborer, but became a business agent and organizer in 1980. Tr. 1653 – 1654 (CLEMENZA). Clemenza became Vice President in 1994, and then President/Business Manager in or about 1995. Id. Clemenza was the Administrator of all of the Benefit Funds and a Trustee of the Welfare Fund.

 

Anthony Ferrari

 

Iaccarino called Anthony Ferrari (Ferrari), a member of Local 1175 for the past 25 years, as a witness. Tr. 1439:21-25 (FERRARI). Ferrari formerly held the office of Vice President of Local 1175, was a member of the Executive Board, and a Trustee on all of the Benefit Funds prior to the implementation of the Emergency Trusteeship. Tr. 1440:15 - 1441:5 (FERRARI). Ferrari testified that, absent illness, he has attended every Local 1175 Executive Board and general membership meeting since holding his positions as Vice President, Executive Board Member, and Trustee of the Benefit Funds. Tr. 1441 (FERRARI). Ferrari has also worked for Grace Industries for approximately the last ten to twelve years at various concrete and asphalt yards. Tr. 1440:2-9 (FERRARI). Ferrari estimates that eight other laborers work with him in his plant. Tr. 1446:4-6 (FERRARI).

 

Richard Tomaszewski and Michael LoCicerio

 

Richard Tomaszewski and Michael LoCicerio (LoCicerio) were another two Executive Board members present at the Emergency Trusteeship hearing.

Iaccarino proffered their testimony would corroborate Ferrari’s testimony regarding Local 1175 matters, but not Benefit Fund matters since they were not Trustees. Tr. 1523 (IACCARINO). Specifically, as Richard Tomaszewski and LoCicerio were members of Local 1175’s Executive Board, they attended Executive Board dinners. Tr. 1523 – 1524 (IACCARINO). Richard Tomaszewski and LoCicerio would testify that the Secretary-Treasurer read the financial statements and reviewed the American Express statements. Id. However, the American Express charges were not broken down line by line. Id.

 

Iaccarino also proffered that neither Richard Tomaszewski nor LoCicerio are intimidated by Clemenza; neither are aware of any members of Local 1175 who are intimidated by Clemenza; and neither have any problems with Clemenza’s lease of the Denali. Id. Further, both Richard Tomaszewski and LoCicerio were present at the Executive Board meetings when the life insurance and disability insurance were approved. Id. When questioned by the IHO, both men confirmed this information on the record. Tr. 1525.

 

Anthony Caccuri

 

Anthony Caccuri (Caccuri) testified that he has been a member of Local 1175 for 24 years and that he usually attends the general membership meetings. Tr. 2206 (CACCURI). Caccuri testified that he recalled a general membership meeting when the life insurance policy for Local 1175’s Business Manager/President was discussed. Tr. 2208 – 2209 (CACCURI). Although not certain, he recalled that he thought that the policy was a whole life insurance policy. Tr. 2209 (CACCURI).

 

In addition, Caccuri testified that he was not intimidated by Clemenza and he does not know any member of Local 1175 who was intimidated by Clemenza. Tr. 2210 – 2211 (CACCURI). Caccuri testified that he was happy with the way Clemenza operated Local 1175 and was happy with the status quo. Id. Caccuri further testified that he was concerned about the Trusteeship. Id. Upon sua sponte questioning by the IHO, the other eleven Local 1175 members present at the Emergency Trusteeship hearing indicated that they agreed with Caccuri’s statements. Tr. 2215 (IHO, et al.)

 

Other Witnesses Testifying on Behalf of the Union Ronald A. Straci

 

Ronald A. Straci (Straci) has practiced as an attorney for over 40 years. He previously served as Air Force Judge Advocate until 1963. Thereafter, Straci joined the New York law firm of DuBlair & Haydon, which is now the law firm

of Haydon, Straci & Cooper. Tr. 1269 (STRACI). Straci has served as General Counsel to Local 1175 and the Benefit Funds for approximately eight to ten years. Tr. 1268:8-10 (STRACI). Straci attended Trustee meetings for the Benefit Funds and offered general advice on the operations of the Benefit Funds. Tr. 1288 (STRACI).

 

Gregory Auteri

 

Gregory Auteri (Auteri), a CPA for approximately 21 years, is an accounting partner with the New York firm of Buchbinder & Tunick & Co. (Buchbinder). Tr. 2006:4-9 (AUTERI). Buchbinder represents hundreds of labor unions and specializes in labor and employee benefit funds. Tr. 2006:13­18 (AUTERI). Auteri personally performs professional services for approximately 60 union accounts, of which Local 1175 is his sole Laborers’ account. Tr. 2006:21-25 (AUTERI). Local 1175 hired Buchbinder in 1995, upon the retirement of its former accountant, a sole practitioner. Tr. 2027:8-23 (AUTERI). Buchbinder prepares the Form 5500s and the LM-2s for the Benefit Funds and the Local. Tr. 2030:24 – 2031:3 (AUTERI).

 

Michael Scaraggi

 

Michael Scaraggi (Scaraggi), a New Jersey attorney, testified on behalf of Local 1175. Tr. 1529:25 - 1530:5 (SCARAGGI). Since 1970, Scaraggi has practiced in the labor field actively representing Taft-Hartley Funds, pension funds, welfare funds, annuity funds, and labor organizations. Tr. 1530:6-16 (SCARAGGI). Scaraggi stated that he has represented 50 to 60 benefit funds and approximately twelve unions, including LIUNA. Tr. 1531:3-8 (SCARAGGI). Scaraggi was retained by the Local 1175 Executive Board on February 10, 2003, and appeared at an Executive Board Special Meeting regarding depositions. Tr. 1531, 1572 (SCARAGGI).

 

Frank Ombres

 

Ombres was called to testify on behalf of Local 1175, after the IHO issued a subpoena for him at the request of Iaccarino. Ombres has served as the Secretary-Treasurer of LIUNA Local Union 731 (Local 731) and a Trustee of the Local 731 Pension, Welfare, Annuity, and Supplemental Funds for the past eight years. Tr. 2147 (OMBRES). Prior to that, Ombres worked in the field for eight years. Id. On April 8, 2003, the General President appointed Ombres the Temporary Trustee over Local 1175. See Letter from Robert D. Luskin to Frank Ombres of 4/8/03 (IHO Dkt. tab 3).

FINDINGS OF FACT

 

1. Local 1175 is located in the Howard Beach section of Queens, New York, and consists of approximately 300 members. See GEB Ex. 22 (Local 1175 Audit Report of 7/3/02 from John Connolly (2002 Audit Report)).

 

2. Local 1175 represents material yard laborers.

3. Prior to the imposition of the Emergency Trusteeship on April 8, 2003, the Local 1175 Executive Board consisted of Business Manager/President Clemenza; Vice President Ferrari; Secretary-Treasurer Allen Del Vecchio; Recording Secretary Monica Giampolo; Executive Board Member Richard Tomaszewski, Jr.; Executive Board Member Charles Clemenza; and Executive Board Member LoCicerio.

4. Clemenza was the Administrator of the Benefit Funds and Trustee of the Welfare Fund during the relevant period. Tr. 1818:2, 1910:25 – 1911:12 (CLEMENZA).

 

5. The firm of Buchbinder serves as the outside auditor for Local 1175 and its Benefit Funds. Tr. 2006:4-25 (AUTERI). Buchbinder and CPA Auteri are responsible for the annual review of Local 1175 and the audit of its Benefit Funds. Tr. 2006:4–5 (AUTERI).

 

Financial Malpractice of Local 1175

 

Scope of Auteri Accounting Services

6. In or about 1995, Local 1175 and its Benefit Funds hired Buchbinder to perform annual accounting services. Tr. 2027:8 (AUTERI). On behalf of Buchbinder, Auteri performs a compilation and review of Local 1175, which is not a full audit. During his compilation and review, Auteri takes the data supplied by the Local and puts it in a financial form, in this case the LM-2. Tr. 2031:3 (AUTERI). Auteri’s examination is solely to determine whether there are any unexplained changes to charged categories of expenses; he does not examine the propriety of any charges. Tr. 2035:7-16 (AUTERI). Auteri made no further examination of the expenses listed on Local 1175’s credit card, except to see that the charges were not out of line with previous years. Tr. 2037:18-22 (AUTERI). Auteri performed these services at year-end, not on a monthly basis. Tr. 2031:6-9 (AUTERI).

 

7. Auteri reviews Local 1175’s general ledger and cash disbursements journal, which categorize Local 1175’s expenses, including travel and meals. Tr. 2032-2033 (AUTERI). There is no line-by-line examination of the

individual charges. Tr. 2033:6-8 (AUTERI). For example, Auteri examined the payment to American Express, not the individual charges. Tr. 2034:24-25 (AUTERI). Therefore, Auteri only reviewed the categories of expenses to ensure that the expenses were “roughly comparable” to the expenses for prior years. Tr. 2037:14-18 (AUTERI). If the total expenses were “in line” with the previous year, he did not question them.

 

8. Auteri testified that he uses a materiality level of approximately $7,500 when he performs his audit of the Benefit Funds, which is derived from a formula based upon the assets of the particular fund. Tr. 2084:7-11 (AUTERI). Therefore, Auteri typically does not examine any expenditures under $7,500 to determine if the expenditures were bonafide Fund expenditures. Tr. 2084:17-20 (AUTERI).

 

Lack of Internal Controls Within Local 1175

Use of Local 1175 American Express Card for Personal and Benefit Fund Purchases

 

9. Clemenza used the Local 1175 American Express card for Local 1175 charges, Benefit Fund charges, and his personal purchases. See generally, GEB Exs. 53-70 (Various Local 1175 American Express Account Statements). This practice started when Clemenza became Business Manager in 1995, and continued until late 2002, when an International Auditor recommended discontinuing this practice. Tr. 206:12 – 207:4 (CONNOLLY).

 

10. In summer 2002, International Auditor Connolly conducted an audit of Local 1175. See GEB Ex. 22 (2002 Audit Report). He recommended that Local 1175 discontinue using Local 1175’s American Express card for personal and Benefit Fund charges and Clemenza’s American Express card for Local 1175 and Benefit Fund charges. Id. Thereafter, Clemenza stopped using his personal American Express card for Union and Benefit Fund purchases. Tr. 1661:20-23 (CLEMENZA). He also stopped using Local 1175’s American Express card for personal purchases. Id.

 

11. Local 1175’s American Express card was a membership rewards card with a $300 annual fee. Tr. 922:7-12 (MARIA).

12. Each month, Clemenza, or an office employee of Local 1175 at Clemenza’s direction, would write a “u” (for union) or “fc” (for Fred Clemenza) next to certain items on Local 1175’s American Express statements indicating which items should be paid by Local 1175 or Clemenza personally. See generally GEB Exs. 53-70 (Various Local 1175 American Express account

statements). All items not marked were purportedly purchases or charges payable by the Benefit Funds.

 

13. Almost every month, Local 1175’s American Express bill was paid by several different sources. See GEB Exs. 53–70 (Various Local 1175 American Express Account Statements). At least three separate checks, one from Local 1175, one from Fred Clemenza, and one from the Benefit Funds, were used to pay Local 1175’s American Express bill. See, e.g., GEB Ex. 55 (Local 1175 American Express Statement of 3/24/01). During a few months, Local 1175’s American Express bill was not paid at all. See, e.g., GEB Exs. 54 (Local 1175 American Express Statement of 1/21/01), 56 (Local 1175 American Express Statement of 4/23/01), and 68 (Local 1175 American Express Statement dated 4/23/02).

 

14. Some of the checks Clemenza wrote to pay his personal portion of the American Express bill were returned due to insufficient funds. See GEB Ex. 67 (Local 1175 American Express Statement of 3/2402). As a result, a fee in the amount of $20.00 was charged to Local 1175’s account. Id.

 

15. Clemenza also charged Union expenses and Fund expenses on his personal credit card. See GEB Exs. 74 (Fred Clemenza Personal American Express Statement of 8/1/01) and 75 (Fred Clemenza Personal American Express Statement of 9/1/01). Local 1175 and the Benefit Funds paid portions of Clemenza’s personal American Express bill. Id.

16. The same method of classifying charges was utilized by Clemenza for Clemenza’s personal American Express statements. Handwritten notes, similar to those placed on Local 1175’s American Express statements, appear on Clemenza’s personal American Express statements. Those notes include “u” for Local 1175, “w” for the Welfare Funds, and “FC personal” for Clemenza’s personal charges. Id.

17. There was very little means for Local 1175 office employees or anyone within Local 1175 to verify Clemenza’s designation of the nature of the American Express charges since there were often limited or no receipts/back-up for the charges. Tr. 2056:24 (AUTERI).

 

18. Clemenza gave no reason for charging Local 1175 and Benefit Fund matters on his personal American Express card.

19. As noted, this practice continued from 1995, when Clemenza became Business Manager, until September 2002, when the Inspector General’s auditor recommended that it discontinue. Tr. 206:12 - 207:4 (CONNOLLY).

20. Clemenza failed to provide sufficient documentation for certain expenses, which prevented an auditor and the members of Local 1175 from determining the accuracy and propriety of those expenses. Tr. 192:7-16 (CONNOLLY).

 

21. The above practice had no legitimate business purpose or advantage. This procedure complicated the monthly reconciliation of the American Express statement; unnecessarily increased the risk of error; and placed a burden on the office staff of Local 1175 and the Benefit Funds. Tr. 2055:16-17, 2056:24 (AUTERI).

 

22. This process effectively resulted in the commingling of the business affairs of the three entities.

23. Clemenza’s use of the personal credit card and Local 1175 credit card in the aforementioned manner permitted him to use Benefit Fund money for Union expenses, giving him an extra source of funds without any oversight. For example, in 2001, the LM-2 reports indicate that Clemenza spent $40,753 on Local 1175 expenses and at least $16,530 on Benefit Fund expenses. See GEB Ex. 4 (Local 1175 LM-2 Forms). The IHO uses the phrase “at least” because Clemenza’s entire Benefit Fund expenses were not available. The $16,530 figure is only the amount that appears on the Local 1175 credit card. In 2002, the LM-2 reports indicate Clemenza spent $41,134 on Local 1175 expenses and at least $8,000 on Benefit Fund expenses from January until September. Id.

24. Clemenza’s use of Local 1175’s American Express for personal purchases resulted in a “loan” by Local 1175 to Clemenza for each purchase, which was essentially a float of money to Clemenza from Local 1175.

 

25. Local 1175 was liable for all of Clemenza’s personal purchases charged to its American Express.

Accountant’s Recommendations Regarding Use of Local 1175 American Express Card for Benefit Fund and Personal Purchases

 

26. Auteri testified that he was aware for several years that Clemenza used Local 1175’s American Express card for personal and Benefit Fund purchases. Tr. 2042:20 (AUTERI). Auteri told Clemenza and the office staff every year during the audit that Clemenza should not charge personal and Benefit Fund purchases on Local 1175’s American Express card. Tr. 2048:10­18 (AUTERI). However, Clemenza continued to use Local 1175’s American Express card for personal and Benefit Fund purchases. Tr. 2048:18 (AUTERI); see also GEB Exs. 53-71 (Various Local 1175 American Express Account Statements).

27. The IHO does not find credible Clemenza’s statement that Auteri never told him not to use Local 1175’s American Express card for personal or Benefit Fund purchases. Tr. 1986:7 (CLEMENZA).

 

28. Auteri testified that there was no way for Local 1175’s bookkeeper to verify Clemenza’s charges. Tr. 2054:16, 2056:24 (AUTERI).

29. Straci, counsel to Local 1175 and its Benefit Funds, testified that he was unaware of Clemenza’s practice of using multiple American Express cards and multiple checks to pay the balances. Tr. 1321:4–12 (STRACI).

 

Improper Withdrawals from Local 1175 Operating Account

30. After the imposition of the Trusteeship, Trustee Ombres requested that Connolly obtain paperwork from Citibank relating to Local 1175’s operating account. The examination of the operating account revealed that there were two questionable withdrawals from Local 1175’s operating account in May 1998, executed by electronic transfer in the amounts of $1,973.41 and $1,615.16. See GEB Ex. 34 (Citibank Transfer Documents, 5/22/98, $1,615.16; and 5/27/98, $1,973.41).

31. On or about May 22, 1998, Union funds totaling $1,615.16 were transferred from Local 1175’s general operating account. Id. There is no evidence in this record regarding where the funds were transferred.

 

32. Auteri testified he had questioned Clemenza about this transfer at least four times between February 1999 and February 2002, when he was preparing the LM-2 Forms. Tr. 2106:16 – 2107:14 (AUTERI). Clemenza offered no explanation. Tr. 2108:16 – 2109:11 (AUTERI).

 

33. After Clemenza agreed to be interviewed by the Inspector General on March 1, 2002, he wrote a $1,615.16 check payable to Local 1175, dated February 26, 2002. See GEB Ex. 51 (Citibank Records of 1998 and 2002 Clemenza Reimbursements for 1998 Transfer from Union Operating Account (1998 and 2002 Citibank Records of Clemenza Reimbursement)). On or about March 5, 2002, this check was deposited into Local 1175’s general operating account. Id. The deposit slip contained the notation “bank error – Citybank [sic]”. Id.

 

34. Auteri testified that Clemenza informed him that he paid the $1,615.16 because he was unable to procure any answers from Citibank regarding the electronic transfers. Tr. 2109:4–11 (AUTERI). The IHO does not find Clemenza’s explanation regarding this transaction credible.

35. On or about May 27, 1998, Union funds in the amount of $1,973.41 were transferred from Local 1175’s general operating account into Clemenza’s personal checking account. Tr. 2103:7–10 (AUTERI), 1765:11 (CLEMENZA); see also GEB Exs. 34 (Citibank Transfer Documents, 5/22/98, $1,615.16; and 5/27/98, $1,973.41) and 51 (1998 and 2002 Citibank Records of Clemenza Reimbursement).

 

36. Clemenza testified that the transfer of $1,973.41 from Local 1175’s general operating account into his own personal account resulted from a bank error made by Charles Guelli of Citibank. Tr. 1765:11-15 (CLEMENZA).

 

37. Clemenza testified that he contacted Citibank and began an investigation into this transfer. Tr. 1764:14-16 (CLEMENZA); see also Clemenza Ex. 4 (Series of Letters re: Citibank Transactions). It should be noted, however, that Local 1175 did not contact Citibank until November 1998, approximately six months after the transfer. Id.

38. In or about November 1998, Clemenza repaid the money to Local 1175. Tr. 1769:16 (CLEMENZA); see also GEB Ex. 51 (1998 and 2002 Citibank Records of Clemenza Reimbursement).

 

39. Other than the Clemenza’s testimony, there is no evidence that this transfer resulted from a bank error.

 

40. The IHO does not find credible Clemenza’s testimony that the transfer of $1,973.41 was a bank error. The IHO finds that the transfer was done purposefully. The IHO finds that an electronic transfer of money can only result from a specific direction from a person with signatory authority over the account.

 

Local 1175 Expenses That Lack Adequate Documentation or Are Excessive

41. Clemenza charged certain expenses to Local 1175’s American Express card purportedly for Union purposes, which lacked either sufficient documentation or were excessive. Tr. 854-868 (MARIA); see also GEB Exs. 53-70 (Various Local 1175 American Express Account Statements).

 

42. For example, the following charges appear on Local 1175’s American Express card:

 

·     December 29, 2000, an $80.00 charge from Carosello’s Restaurant with no documentation. Tr. 964:17–19 (MARIA);

·     January 25, 2001, a $100 charge from a car wash, Express Car Care, with no receipt. Tr. 964:20–22 (MARIA); see also GEB Ex. 54 (Local 1175 American Express Statement of 1/21/01);

·     February 8, 2001, a $222.50 charge from Delta Airlines with no receipt. Tr. 964:23 – 965:2 (MARIA);

·     June 27, 2001, a $231.27 charge from the Backyard Restaurant in Stone Harbor, NJ, with no purpose or list of attendees on the receipt.² Tr. 965:11–14 (MARIA);

·     October 19, 2001, a $151.93 charge from the Home Depot with no receipt. Tr. 967:24 – 968:2 (MARIA);

·     December 17, 2001, a $524.00 charge from Capricios Restaurant in Rhode Island with no receipt. Tr. 968:18–20 (MARIA);

·     December 17, 2001, a $303.65 charge for the Westin in Rhode Island with no receipt. Tr. 968:21–22 (MARIA);

·     December 19, 2001, a $372.68 charge for the Westin with no receipt. Tr. 968:22–23 (MARIA);

·     January 6, 2002, a $354.94 charge from Carosello’s Restaurant without a business purpose noted on the receipt. Tr. 968:24 – 969:2 (MARIA);

·     January 13, 2002, a charge of $547.42 from the Westin with no receipt. Tr. 969:7–8 (MARIA);

2 On the last day of the hearing, Clemenza presented a letter purportedly from Thomas Russo, Business Manager of Local 29, concerning the meal at the Backyard Restaurant. See Clemenza Ex. 13 (Letter from Thomas Russo To Whom It May Concern of 5/29/03). In that letter, Russo stated that while he and Clemenza were on separate family vacations in Stone Harbor, New Jersey, they had lunch one day to discuss Union organizing. Clemenza testified that they had lunch to discuss the baggage handlers at LaGuardia Airport. Tr. 1740 (CLEMENZA). The invoice reveals that the “lunch” took place at approximately 9:00 p.m. The IHO does not find this explanation credible.

·     January 13, 2002, a $311.36 charge with no receipt. Tr. 969:8–10 (MARIA);

 

·     May 30, 2002, a $90.98 charge from Geno’s Restaurant with no receipt. Tr. 969:11–12 (MARIA);

 

·     June 11, 2002, a $420.82 charge incurred on June 3, 2002 from Foxwoods Resort, a gambling casino in Connecticut, with no receipt. Tr. 969:17–20 (MARIA);

 

·     September 21, 2002, a $392.57 charge from the Waldorf Astoria for lodging and taxes without a business purpose provided on receipt. Tr. 969:22–25 (MARIA);

 

·     Several invoices for $115 car washes and a $115 invoice for snacks at the car wash. See GEB Ex. 84 (Express Care and Linden Penn Car Wash Receipts).

 

GMC Denali

43. On or about May 17, 2001, Local 1175 leased a GMC Denali for Clemenza with a non-refundable $7,000 down payment. Tr. 475: 2-7 (MOUW); see also GEB Ex. 22 (2002 Audit Report).

 

44. Clemenza testified that he leased the Denali because the lease on his old vehicle was expiring and he needed a new car. Tr. 1722:7-10 (CLEMENZA).

 

45. Clemenza testified that he did not special order all of the options in the Denali, which included television monitors in the back of the front seats. Tr. 1723:7 (CLEMENZA). Rather, Clemenza testified that the Denali had been ordered by another customer, who had decided not to buy it. Tr. 1945:17-18 (CLEMENZA). Clemenza chose to lease the Denali because it was gray and he wanted a gray car. Tr. 1722:21-23 (CLEMENZA).

46. Clemenza also testified that he obtained lease bids from other car dealerships and the Denali he leased was the least expensive. Tr. 1722:12-19 (CLEMENZA).

47. Clemenza testified that Auteri suggested making the $7,000 down payment to increase the cash flow of Local 1175. Tr. 1946:9 (CLEMENZA). If

the Local made a smaller down payment, the lease payments would have been more expensive. Tr. 1946:24-25 (CLEMENZA).

 

48. Auteri testified that Clemenza was concerned about the cash flow of Local 1175. Tr. 2023:16-24 (CLEMENZA).

49. The IHO obtained a copy of the original lease for the Denali in question. The lease terms included a non-refundable down payment of $8,055.23, and monthly lease payments of $730.23 for 36 months. See Lease Agreement Between Villa Marin GMC, Inc. and Local 1175 of 5/22/01.

 

50. The IHO finds that testimony about cash flow begs the question of whether the Denali, with over an $8,000 non-refundable deposit, was excessively expensive for a local union. While the costs of off-road vehicles may be high, the cost of the Denali, a luxury sport utility vehicle, with the significant down payment is excessive. This item standing alone may not normally be a cause for Trusteeship; however, it is additional evidence of the financial malpractice and malfeasance of the Executive Board for not questioning it and for Clemenza agreeing to it.

 

Executive Board Malfeasance and Negligence

51. The LIUNA Uniform Local Union Constitution (Constitution) provides that “[i]t shall be the duty of the Executive Board to see to it that the affairs and business of the Local Union are being properly conducted in accordance with the Constitution.” Constitution, Section H(9).

 

52. The Secretary-Treasurer is normally charged with keeping a detailed account of all officers’ and business representatives’ expense accounts, travel, and entertainment. See GEB Ex. 30 (Excerpts from LIUNA Secretary-Treasurer Manual). There is no evidence that Del Vecchio, the Secretary-Treasurer of Local 1175, reviewed the American Express statements.

 

53. There is no evidence that anyone, including the Secretary-Treasurer, sought any back-up documentation for Clemenza’s expenses other than provided by Clemenza. There is no evidence of anyone on the Executive Board questioning any of Clemenza’s expenses.

 

54. Vice President and Executive Board Member Ferrari testified that he was unaware of the two wire transfers from Local 1175’s operating account described supra, including the $1,973.41 transfer into Clemenza’s account, until the Trusteeship hearing. Tr. 1511:7 (FERRARI).

55. Ferrari testified that the financial information statements reviewed at Executive Board meetings and general membership meetings did not contain the

line-by-line American Express charges, only the total American Express charges. Tr. 1468:17 (FERRARI).

 

56. There is no evidence that the Executive Board knew that the Benefit Funds paid a portion of Clemenza’s American Express bill.

57. When informed that the Benefit Funds paid a portion of Clemenza’s personal American Express bill, Ferrari testified that he did not consider it a problem. Tr. 1514:19 (FERRARI). Ferrari also testified that he had no problem with the lease of the Denali by Clemenza. Tr. 1450:2 (FERRARI).

 

57. The IHO finds that the Executive Board members abandoned their duties required under the Constitution. The Executive Board exercised no control over Clemenza’s spending.

 

Annuity Fund Account

58. After the imposition of the Trusteeship over Local 1175, Ombres discovered a dormant Annuity Fund account of approximately $30,000. Tr. 702:20-25 (VOLLBRECHT), 419:4-8 (MOUW). There were two authorized signatories on the account, one was a convicted felon and the other had been deceased for many years. Tr. 419:4-8 (MOUW).

59. One of the authorized signatories, Linda Cavalla (Cavalla), pled guilty to embezzling $472,000 from Local 1175 in or about 1996. Tr. 419:20 – 420:6 (MOUW).

 

60. Straci, counsel for Local 1175 and the Benefit Funds, was unaware that the authorized signatories for the escrow account were ineligible until after the imposition of the Trusteeship. Tr. 1272:7 (STRACI).

 

61. The IHO finds that the lack of attention to a $30,000 dormant account is another indication of the lack of financial management by Clemenza and the Executive Board.

Corruption Within Local 1175

 

62. In March 2001, prior to an uncontested election, the Executive Board increased Clemenza’s salary from $1,700 per week to $2,500 per week, an increase from approximately $90,000 per annum to approximately $130,000 per annum, effective immediately. See GEB Ex. 26 (March 1, 2003 Nomination Meeting Minutes).

63. Sometime in or around early 2001, Monica Giampolo, the office manager responsible for allocating the salaries of the employees of Local 1175

and the Benefit Funds, informed Auteri that Secretary-Treasurer Del Vecchio’s duties had changed. Tr. 2002:4-22 (AUTERI).

 

64. According to Auteri, Del Vecchio’s duties were allocated 70% on behalf of Local 1175 and 30% on behalf of the Benefit Funds. Immediately after the Local 1175 meeting, Giampolo told Auteri that Del Vecchio’s duties had changed to 30% on behalf of Local 1175 and 70% on behalf of the Benefit Funds. Tr. 2022:20-22 (AUTERI). Auteri stated that, as a result, the Benefit Funds absorbed Del Vecchio’s salary. Tr. 2023:2-10 (AUTERI).

 

65. Effective January 1, 2001, Secretary-Treasurer Del Vecchio’s $50,000 salary as a field representative was reduced to zero. See GEB Ex. 24 (December 13, 2000 General Membership Meeting Minutes). The minutes reflect that the Secretary-Treasurer position would be a non-salaried position as described below. See GEB Exs. 23, 24 (December 13, 2000 General Membership Meeting Minutes). Within a short time, the Trustees of the Benefit Funds voted to pay Del Vecchio $50,000, the exact amount formerly paid by Local 1175.

 

66. The field representative duties of the Secretary-Treasurer did not change after the salary was transferred to the Benefit Funds. See GEB Ex. 24 (December 13, 2000 General Membership Meeting Minutes).

67. There are no time sheets or time records indicating the division of time Del Vecchio spent between Local 1175 and Benefit Fund activity. Tr. 1894-5 (CLEMENZA). No other evidence was proffered to show that Del Vecchio’s duties on behalf of the Benefit Funds increased to 70%.

 

68. The IHO views the transfer of Del Vecchio’s salary from Local 1175 to the Benefit Funds as an attempt to ameliorate the impact of the $40,000 salary increase of the Business Manager, from $90,000 to $130,000, on the Local 1175 LM-2 Report.

Obstructive Behavior Connolly Audit

69. While conducting an audit of Local 1175 for the Inspector General in summer 2002, Connolly requested copies of the Local 1175 American Express bills from the office staff. Tr. 192:7-16 (CONNOLLY).

 

70. Connolly received only portions of the American Express bills, which contained only the Local 1175 charges in a “cut and paste” form, not the complete American Express bills. Tr. 193:4-7 (CONNOLLY); see also GEB Ex. 29 (Local 1175 American Express Statements Exhibiting “Cut and Paste”). Clemenza’s personal and Benefit Funds purchases were cut out of the bill. Id.

71. Connolly was concerned about the “cut and paste” statements he received, specifically, what was missing from the entire American Express statements. Tr. 193:25 – 194:2 (CONNOLLY).

 

72. The cutting and pasting of the bills was a deliberate attempt to shield the use of Local 1175’s American Express card for personal and Benefit Fund purchases from Connolly; it required substantial time and effort on the part of the Local 1175 office staff redacting the bill. See GEB Ex. 29 (Local 1175 American Express Statements Exhibiting “Cut and Paste”).

 

73. Subsequently, Connolly requested the complete American Express Statements, which the office staff provided to him. Tr. 204:13-18 (CONNOLLY).

 

Inspector General Depositions of Certain Members of Local 1175

74. The GEB Attorney has alleged that Scaraggi was retained to control and monitor the testimony of Local 1175 members who were served with deposition notices.

75. In late January 2003, the Inspector General sought to depose certain members of Local 1175, including members of the Executive Board. Tr. 281:15-17 (MOUW); see also GEB Ex. 6 (Deposition Notices).

 

76. On or about February 7, 2003, Mouw and Limberg provided deposition notices to Clemenza and instructed him to distribute them to particular members. Tr. 283:24 – 284:5 (MOUW).

77. On or about February 10, 2003, an emergency meeting of the Executive Board was held in response to the deposition notices. See GEB Ex. 7 (February 10, 2003 Emergency Executive Board Meeting).

 

78. During that meeting, the Executive Board voted to retain Scaraggi to represent all of the members who received deposition notices and authorized the payment of a $10,000 retainer as Scaraggi’s fee. Tr. 285:14-17 (MOUW); see also GEB Ex. 7 (February 10, 2003 Emergency Executive Board Meeting).

 

79. Scaraggi notified GEB Attorney Thomas that he represented all of the members served with deposition notices. See GEB Ex. 8 at 1 (Letter from Michael Scaraggi to Robert M. Thomas Jr. of 2/11/03; Letter from Robert M. Thomas Jr. to Michael Scaraggi of 2/20/03 (Attorney Letters)).

80. Thomas notified Scaraggi that he could not represent all of the individuals, as each had conflicting interests. See GEB Ex. 8 at 2 (Attorney Letters).

81. According to Scaraggi’s testimony, he determined that he could not represent the individuals and that he would return the retainer fee to the Union. Tr. 1596:17 – 1597:25 (SCARAGGI); see also GEB Ex. 15 (Copy 2/26/03 Check Returning Scaraggi Retainer).

 

82. Scaraggi did not personally interview any of the proposed deponents. Tr. 1593:21 (SCARAGGI). The IHO finds Scaraggi did not establish an attorney-client relationship with any of the deponents.

83. Scaraggi sent each deponent a letter informing them that he could not represent them or be present in the room during their depositions. The letter also contained legal advice to those persons who were not working in the field as laborers, stating that they could refuse to be deposed and give up their Union books without losing their jobs. He also enclosed a statement of protest to be read by the deponent at the deposition, regarding the denial of their right to counsel. See GEB Ex. 10 (Letter from Michael Scaraggi to Local 1175 of 2/25/03, with attachments).

 

84. Scaraggi testified that he sent the letter to the deponents as an unpaid volunteer and was not acting on behalf of Local 1175. Tr. 1598:10 (SCARAGGI).

85. During the depositions, Fred Clemenza and Charles Clemenza read the protest statement. Fred Clemenza’s reading of the document was an anomaly because he appeared with counsel.

 

86. The depositions were scheduled to begin on February 26, 2003. Tr. 295:23 (MOUW). In spite of the letter from GEB Attorney Thomas, Scaraggi appeared at the deposition, averring that he came to return Local 1175’s retainer, and sought to monitor the testimony. Tr. 1535:17-23 (SCARAGGI), 296:5-8 (MOUW). The GEB Attorney refused to allow him to remain in the building.

87. On March 19, 2003, Scaraggi was retained by the Benefit Fund Trustees to pursue the interests of the Benefit Funds as those interests were affected by the trusteeship. See GEB Ex. 16 (Benefit Funds Trustee Meeting Minutes of 3/19/03). At the hearing, Scaraggi testified that his retention by the Benefit Funds was placed on hold.

88. On April 21, 2003, Scaraggi filed a suit in the Southern District of New York against LIUNA on behalf of Local 1175, Fred Clemenza, and two other Local 1175 members seeking to enjoin the Trusteeship. See GEB Ex. 21 (Federal Complaint).

115                                     In the Matter of Local 1175

 

Violations of Collective Bargaining Agreement

89. Testimony revealed that several major employers are also members of LIUNA. Tr. 67:14-22 (MOUW).

90. Although the record is unclear on this subject, it appears that these employer-members police their own job sites regarding how many LIUNA members are included in their work force and the use of Union stewards.³

 

91. Based on the incomplete record, the IHO makes no finding on this issue, except to note that the situation could threaten the labor-management relationship in the collective bargaining process and the oversight of the collective bargaining agreement. This issue should be examined by the Trustee.

 

Abusive Use of Benefit Funds

92. The GEB Attorney alleges that Clemenza used Benefit Fund assets for his own personal purposes, including the payment of Clemenza’s personal American Express bill, and the purchase of items and services for Clemenza’s personal use. These allegations are discussed, infra.

 

Welfare Fund Payments of Clemenza Personal American Express

93. On several occasions, the Welfare Fund paid Clemenza’s personal American Express bill. See GEB Exs. 31 and 33.

94. For example, in March of 2002, Local 1175’s Welfare Fund paid a portion of Clemenza’s personal American Express statement with a check in the amount of $8,539.73. Tr. 1004:19-25, 1005:2-25, 1006:2-17 (MARIA); see also GEB Ex. 31 (Documents Relevant to $8,339.73 Check Payable to American Express from Local 1175 of 3/11/02).

95. Clemenza testified that this payment was a clerical error attributable to a mistake the bookkeeper made without his knowledge. Tr. 1685:9-13 (CLEMENZA). Clemenza testified that he had written a check to American Express to pay the bills, but the bookkeeper misplaced it on her desk. Tr. 1786: 6-22 (CLEMENZA).

 

96. Clemenza, however, did not inform Auteri that he had written a check to American Express that the bookkeeper misplaced, or that she wrote a check

3 The GEB Attorney initially contended that these employer-members were members or associates of an organized crime family. That element of proof was not pursued.

from the Welfare Fund to American Express in error. Tr. 2090:12-25, 2091:2-5 (AUTERI).

 

97. Clemenza ultimately repaid the $8,539.73 in or about December 2002, after the investigation of Local 1175 was initiated. Tr. 1004:19-25, 1005: 2-12 (MARIA); see also GEB Ex. 31 (Documents Relevant to $8,339.73 Check Payable to American Express from Local 1175 of 3/11/02).

98. The IHO does not credit Clemenza’s explanation that the payment of his personal American Express resulted from a clerical error.

 

99. Similarly, in June 2002, the Welfare Fund paid Clemenza’s personal American Express statement with a check in the amount of $4,711.54. See GEB Ex. 33 ($4,711.54 Check to American Express from Local 1175 of 6/5/02).

 

100. Auteri testified that he came across this item while performing an audit in 2003. Tr. 2060:13-16 (AUTERI). When he could not find any documentation for the transaction, he questioned Giampolo and Clemenza about this payment. Tr. 2062:7-14 (AUTERI).

101. Clemenza told Auteri that he did not know why the Welfare Fund made the payment. Tr. 2065:17-19 (AUTERI). The IHO does not credit Clemenza’s explanation.

 

102. Clemenza repaid $4,711.54 to the Welfare Fund by check dated March 12, 2003. See GEB Ex. 33 ($4,711.54 Check to American Express from Local 1175 of 6/5/02). However, it does not appear that the check was deposited until April 12, 2003, after the imposition of the Emergency Trusteeship.

 

Costco Purchases

103. Clemenza used the Local 1175 American Express card to purchase items from Costco. Clemenza purchased $4,170.90 worth of merchandise from Costco between December 1999 and May 2002. See GEB Ex. 42 (Relevant Records Relating to Costco Purchases). The receipts indicate that “general merchandise” was purchased. See, e.g., GEB Ex. 63 (Local 1175 American Express Statement dated 11/23/01).

 

104. Clemenza indicated to the Local 1175 staff that the “general merchandise” was purchased for the Benefit Funds, which owns the building that houses Local 1175 and the Funds. Tr. 1677:21 (CLEMENZA). He testified in his deposition that the purchases were not for his personal use, but for the building. Dep. Tr. 211:4 (CLEMENZA).

105. The Inspector General attempted to obtain the itemized receipts from Costco to determine the nature of the “general merchandise” purchased with the Local 1175 American Express card. However, Costco would not release the information to the Inspector General unless Clemenza, the Costco cardholder, executed a release.

 

106. At the hearing, the GEB Attorney presented Clemenza with a release to obtain the itemized receipt from Costco. See GEB Ex. 50 (Draft Letter to Costco for Permission to Release Records (unsigned)). Clemenza refused to execute the release, contending the items were purchased for the Benefit Funds that owned the building. Tr. 1678:11-12 (CLEMENZA); see also GEB Ex. 50A (Letter from Riccardo Iaccarino to Robert M. Thomas Jr. of 5/12/03).

 

107. The GEB Attorney did obtain one itemized Costco receipt from the Union office. See GEB Ex. 42 (Relevant Records Relating to Costco Purchases). The receipt indicates that merchandise, including 50 SOS pads, laundry detergent, and rayon chenille, was purchased. Id. These items could have been for personal use.

 

108. The IHO infers from Clemenza’s refusal to execute the release to obtain the itemized receipts from Costco that personal items were purchased with Local 1175’s American Express card.

109. The IHO concludes that Clemenza purchased personal items from Costco with Local 1175’s American Express card and charged those items to the Benefit Funds.

 

Fund Expenses That Were Not for Fund Purposes M. Fortunoff

 

110. On or about January 30, 1998, a table costing $1,236.74 was purchased from M. Fortunoff with the Local 1175 American Express card for the Welfare Fund. See GEB Ex. 37 (American Express Documentation of Two Fortunoff Kitchen Tables, 1/30/98 and 3/31/98). Handwritten notes on the American Express statement, purportedly made by either Clemenza or an office employee at Clemenza’s request, indicate that the table was “office furniture – kitchen table”. See GEB Ex. 37 at 2 (American Express Documentation of Two Fortunoff Kitchen Tables, 1/30/98 and 3/31/98).

 

111. On or about March 31, 1998, an identical table was purchased from M. Fortunoff with Local 1175’s American Express card. Id. This second table was also charged to and paid by the Welfare Fund. Id.

112. Clemenza testified that the first table was damaged and returned to M. Fortunoff. Tr. 1683: 10-15 (CLEMENZA). Fortunoff was shipping a replacement table, but a second table was purchased due to a delay. Tr. 1683:25 – 1684:3 (CLEMENZA). Clemenza also testified that the American Express statement was credited in the amount of $1,236.74 for the return of the first table. Tr. 1851: 20-23 (CLEMENZA).

 

113. Contrary to Clemenza’s testimony, there is no credit on Local 1175’s American Express account in the amount of $1,236.75, or any evidence that M. Fortunoff returned the money for the first table. Tr. 1853:15-16, 1854:11-12 (IACCARINO). There is only one table at the Benefit Funds’ offices. Tr. 1192:6-13 (LIMBERG).

 

114. Clemenza later testified this must have been a mistake by Del Vecchio. Tr. 1855:21 (CLEMENZA).

115. The IHO finds that the Benefit Funds purchased two tables, but only have one.

 

116. On or about January 23, 2000, two purchases were made at M. Fortunoff with Local 1175’s American Express card and charged to the Benefit Funds. See GEB Ex. 38 (American Express Documentation of $897.09 for Fortunoff Purchases of 1/23/00). The first charge was in the amount of $325.36 from the bath shop. Id. Handwritten notes on the receipt provide that the purchase was for “bathroom accessories and fixtures for the office trustee room”. Id. A second purchase in the amount of $897.09 was made in the comforter section. Id. Handwritten notes on the receipt indicate that the merchandise were returned, but there is no credit on the following statements. The itemized receipt provides the following detail of the purchases:

PARIS 410TC W	$249.99
SOLID FLANNEL	$39.99
PARFAIT W/VAL	$69.99
TIEBACKS	$7.99
GRAND PATRICI	$5.99
GRAND PATRICI	$5.99
ROMANCE BOW W 2 X 19.99	$39.99
VERSAILLE SOA	$24.99
DOUBLE (illegible)	$59.99
VERSAILLE (illegible)	$24.99
VERSAILLE t-b	$29.99
ROMANCE BOW W	$16.99
ROMANCE BOW W	$16.99
VERSAILLE BAS	$59.99
VERSAILLE GUE	$27.99
ROMANCE BOW W	$6.66
VERSAILLE BTQ	$34.99
LISBON DOWN C	$99.99

 

117. Clemenza testified that he purchased office supplies, but he paid for those supplies in the comforter section of the store. Tr. 1684:19-25, 1685:2-13 (CLEMENZA).

118. The IHO does not credit Clemenza’s explanation that the store invoice was in error and the items were purchased for the Benefit Funds. Clemenza’s explanation is belied by the itemized receipt.

 

119. Clemenza repaid the Welfare Fund $897.09, by check dated May 8, 2003, after the Trusteeship hearing had commenced. See GEB Ex. 85 (Letter from Michael Vollbrecht to Fred Clemenza of 5/16/03, with supporting documentation). Clemenza’s letter accompanying the check stated that the $897.09 charge was paid by the bookkeeper in error without Clemenza’s knowledge. Id. Clemenza’s letter contradicted his testimony.

 

Waldorf Astoria

120. In December 2001, Local 1175 made a $3,500.00 charitable contribution to the Italian-American Coalition. In return for the contribution, Local 1175 received ten tickets for a dinner at the Waldorf-Astoria. Tr. 636:23­24 (MOUW).

121. Two charges from the Waldorf-Astoria appear on the December 2001 Local 1175 American Express statement. See GEB Ex. 64. One charge dated December 7, 2001, for $122.84 in food and beverage, was charged to Local 1175. Id. The second charge of $1,639.54 for lodging, dated December 8, 2001, was charged to and paid by the Benefit Funds. Id.

 

122. Clemenza testified that the lodging expense was paid in error by the Benefit Funds; the lodging should have been paid by Local 1175. Tr.1714: 2-16 (CLEMENZA).

 

123. It is unclear who stayed at the Waldorf-Astoria at a cost of $1,639.54. Tr. 1714:19-24 (CLEMENZA). Regardless, the expense was not related to the Benefit Funds.

124. The Benefit Funds’ payment of Clemenza’s personal American Express bills and the Fortunoff purchases discussed, supra at ¶¶ 94-103, 111­120, constitute party-in-interest transactions under ERISA law. Tr. 1022:2-18 (MARIA), 2059: 7-21 (AUTERI).

 

Benefit Fund Vendors Who Provided Personal Services to Clemenza

125. Various vendors provided services for the Pension Fund Holding Corporation (Pension Corp.), which owns the building where Local 1175 and the Benefit Funds’ offices are located, and to Clemenza personally. The GEB Attorney alleged that the Benefit Funds, paid through the Pension Corp., actually paid for the services provided to Clemenza by some of these vendors.

 

A-Liminate Pest Control Service Co., Inc.

126. Inspectors with the Inspector General located invoices from A-­Liminate Pest Control Service Co., Inc. (A-Liminate) for services paid by the Pension Corp. Tr. 1209:15-16 (LIMBERG); see also GEB Ex. 43 (A-Liminate Pest Control documents 1998-2000).

127. From January to April 1998, A-Liminate billed Local 1175 $29.23 per month for services. After May 1998, the monthly fees doubled. Tr. 1212:8 (LIMBERG). In addition, there was an additional $100 charge for May 1998. See GEB Ex. 43 (A-Liminate Pest Control documents 1998-2000).

 

128. The Inspector General located invoices from A-Liminate for August 1998, November 1999, and May 2000, which were paid by the Pension Corp. Id. The invoices also included service reports that referenced the services performed by A-Liminate at Local 1175 and the Benefit Funds’ offices, as well as Clemenza’s home. Tr. 1212:25 – 1213:4 (LIMBERG). The reports for service at Clemenza’s home were signed by “Norma” (Clemenza’s housekeeper)

and “M. Clemenza” (Clemenza’s wife). Tr. 1214:18-20, 1215:22-25 (LIMBERG). The service reports for Clemenza’s home contain the note “N/C,” which the IHO construed as “no charge.”

 

129. Clemenza testified that he had a yearly contact with A-Liminate that he paid in the beginning of the year. Tr. 1688:17 (CLEMENZA). However, Clemenza produced no records of his payment to A-Liminate.

130. The IHO finds that Local 1175 paid for Clemenza’s personal pest control.

 

Vito Petito

131. The GEB Attorney presented four invoices to Local 1175, dated April 1999 ($683), April 2000 ($606), July of 2001 ($600), and May 2002 ($778.40), from Vito Petito (Petito), a landscaping company located in Brooklyn, NY. See GEB Ex. 45 (Vito Petito Landscaping documents, 1998­2002). Petito performed landscaping services at Clemenza’s home. Tr. 691:11 (CLEMENZA). Clemenza testified that he paid for those services himself. Tr. 691:13 (CLEMENZA).

132. The April 9, 1999 Petito invoice in the amount of $683 contains the following handwritten note: “Remove garbage, weeds all round the building, pruning all trees at side, remove pipe and spray no grow.” See GEB Ex. 45 (Vito Petito Landscaping documents, 1998-2002). The April 30, 2000 invoice in the amount of $606 contains, inter alia, the following handwritten note: “pruning, clean up and spray [weed killer], 2 men 6 hrs.” Id. The Petito invoice dated July 15, 2001, in the amount of $600, contains the following handwritten note: “trimming trees, clean up and spray for weeds – balance of 1 spray for weeks in May.” The Petito invoice dated May 30, 2002, in the amount of $779.40, contains the following handwritten note: “clean yard and pruning and removal of rubbish – spray no grow on [unintelligible] and yard.” Id.

 

133. Local 1175 does not have a yard near its building that contains any vegetation; there is only a cement parking lot next to the building. See GEB Exs. 80 and 81 (Photographs of Local 1175 Building and Parking Lot).

134. Neither the trees that abut the lot, nor the cement parking lot, warrant the extensive trimming and weed killing services contained on the invoices.

 

135. The IHO notes that Petito did not submit any invoices for landscaping in spring 2003, when the Trusteeship was in place.

136. The IHO finds that Local 1175 paid for landscaping services at Clemenza’s home.

LoBello Painting

137. The GEB Attorney introduced invoices from LoBello Painting and Wallpapering (LoBello) located by inspectors with the Inspector General. See GEB Ex. 47 (Relevant Records Pertaining to LoBello Painting and Wallpapering). The documents include five pages of invoices for work purportedly performed at Local 1175 and the Benefit Funds’ offices in or about 1997. Tr. 1260:9-10, 17-21 (LIMBERG); see also GEB Ex. 47 (Relevant Records Pertaining to LoBello Painting and Wallpapering).

 

138. The documents appear to be two separate invoices. The first invoice (pages one and two of five) is in the amount of $17,745 for work performed at Local 1175 and the Benefit Funds’ offices. See GEB Ex. 47 (Relevant Records Pertaining to LoBello Painting and Wallpapering). The second invoice (pages three and four of five) is in the amount $13,575. Id. Pages one and three and two and four are identical. Id. The last page (page five of five), which includes notes concerning work to be performed in a kitchen, den, living room, bedroom, and master bedroom, appears to be a separate invoice for work performed at Clemenza’s home in the amount of $4,170. Id. The bottom of page five contains a total price of $17,745. Id.

 

139. The difference between the first invoice and the second invoice is $4,170, the amount of the invoice for the work performed at Clemenza’s home.

140. The GEB Attorney contends that the first invoice was created to indicate that the work performed at the offices of Local 1175 and the Benefit Funds cost $17,745, when, in fact, the work cost only $13,575. This invoice was prepared so the Benefit Funds would pay for $4,170 of work done at Clemenza’s home.

 

141. The GEB Attorney presented an undated letter, purportedly from Victor LoBello of LoBello to the Trustees of Local 1175 Pension Corp., and a $4,170 check payable to the Pension Fund, dated May 12, 2003, which was after the Trusteeship hearing had commenced. See GEB Ex. 88 (Undated Letter from LoBello Painting and Wallpapering and $4,170 Check Payable to Local 1175 Pension Fund). The letter provides that LoBello was overpaid by the Pension Fund in the amount of $4,170. Id. The letter further provides that the overpayment resulted from some confusion because LoBello prepared separate invoices for work performed for the Pension Fund and Clemenza’s home. The letter also states that Clemenza paid LoBello in full for the work done on his house. Id.

142. Clemenza testified that he paid LoBello $4,170 in cash for the work performed on his home. Clemenza, however, had no documentation of such payment, other than LoBello’s letter.

 

143. The IHO finds that the Benefit Funds paid for painting at Clemenza’s home. The repayment by LoBello was only a result of this hearing.

 

Fund Expenses that Lack Adequate Back-up or are Excessive

144. The GEB Attorney presented a series of purchases made with either Clemenza’s personal American Express Card or Local 1175’s American Express card, which were billed to and paid for by Local 1175’s Benefit Funds that lack sufficient documentation or are excessive. Tr. 959:24-25, 960:2-7 (MARIA); see also GEB Exs. 36, 77.

 

·     A meal at DelFriscos in the amount of $644.80 was billed to the Welfare Funds. See GEB Ex. 36 at 2(Documents Relating to $644.88 Clemenza Reimbursement for 11/9/02). The meal appears to have taken place at approximately 11:00 p.m. on a Saturday evening. Id.;

 

·     The IHO does not accept Clemenza’s explanation that the meal was for entertainment of three persons from Prudential Financial Services dealing with the handling of the Benefit Funds’ investments. Tr. 1680:13-25; 1681:2-21 (CLEMENZA);

 

·     A $487.55 meal at the Gotham Bar and Grill on a Saturday evening at approximately 11:00 p.m., was charged to the Welfare Fund. See GEB Ex. 77 (9/7/02 Gotham Bar and Grill Receipt); and

 

·     The documentation indicates that Clemenza and Todd Roberti met to discuss going self-insured and using TPA for the Welfare Fund. Id.

Autographed Football Jerseys

 

145. The IHO finds that the Welfare Funds’ purchase of two football jerseys framed and autographed by Joe Montana and Jerry Rice, which cost $3,000, was excessive. Tr. 1231:12-22 (LIMBERG); see also GEB Ex. 46 (Relevant Records Relating to Joe Montana and Jerry Rice Football Jerseys).

The IHO does not accept that the jerseys were purchased to inspire Union members in teamwork and leadership.

 

146. The IHO need not decide the allegation that the jerseys were purchased for Clemenza’s home and that they were brought into the Benefit Funds’ office to deceive inspectors from the Inspector General’s office. The IHO finds that the purchase of the jerseys was not for Benefit Fund purposes.

Honduras Phone Calls

 

147. Numerous telephone calls were made to Honduras from Local 1175 between April 2001 and March 2003. See GEB Ex. 48 (Relevant Records Pertaining to Telephone Calls to Honduras). The calls, which cost approximately $2,342, were paid for by the Benefit Funds. Id.

 

148. Clemenza testified that Connie Henry (Henry) informed him about the calls to Honduras. Tr. 1697:25 (CLEMENZA). Clemenza then asked Henry to find out who was making the calls, to review the bills each month, and to let him know if there were any calls outside the area. Tr. 1698:4-23 (CLEMENZA).

149. Norma, Clemenza’s housekeeper who also cleans the Benefit Funds’ office, made the phone calls. Tr. 1843:5-6 (CLEMENZA). Norma is from Honduras. Tr. 1843:14 (CLEMENZA).

 

150. The IHO finds that a lack of diligence on the part of the Local 1175 staff allowed the telephone calls to continue over a two-year period.

 

DISCUSSION

 

GEB Attorney/IHO Authority Over Activities of LIUNA Members Serving as Fund Trustees

 

Throughout the hearing, Iaccarino objected to evidence concerning Clemenza’s role in utilizing Local 1175’s Benefit Funds. Iaccarino argued that issues concerning the Benefit Funds do not come under the jurisdiction of the EDP or the GEB Attorney. He contended that the Benefit Funds are governed by a Board of Trustees. Accordingly, Iaccarino further argued that the IHO had no authority to render decisions related to the Benefit Funds. He contended that the IHO had no jurisdiction to examine Clemenza’s role as a trustee for the Benefit Funds or to examine fund records. Contrary to Iaccarino’s argument, the EDP explicitly grants the GEB Attorney the power to investigate employee benefit and pension plans.

The GEB Attorney also shall have the authority to investigate and prosecute charges (or otherwise impose discipline as provided for by the Constitution) against any officer, agent, representative, employee, or member of a union . . . for violating any federal or state law relating to the conduct of the affairs of a labor organization or employee benefit or pension plan. . . .

 

EDP, ¶ 3.

 

Iaccarino cited cases purporting to hold that the Benefit Funds are entirely separate from the Union; while the LMRDA governs Union activity, ERISA governs fund activity. Iaccarino’s objections and arguments are without merit; he made a similar argument In the Matter of the New York State Laborers Political Action Committee, 97-46D and Franco, 02-01D. The IHO and Appellate Officer rejected those arguments. See Franco, 02-01D; see also In the Matter of Fresina, et al., 1998 A.O. 115, 150-51 (98-019 IHO) (GEB Attorney may discipline conduct relating to the Benefit Funds); In the Matter of Caci, 1998 A.O. 55, 71 (97-016-IHO, 98-009-IHO, 98-012-IHO) (holding that respondent “gravely mistaken” if he believed that Union lacks authority over those it entrusts to manage members’ funds).

 

Recently, the IHO held that although the Fund is a separate entity from LIUNA, the money in that Fund is for the benefit of LIUNA members and LIUNA officers administer the Funds as trustees. LIUNA has jurisdiction over its officers and members, including the authority to examine their conduct to determine if they have violated the EPC or the EDP by breaching their fiduciary duty in handling the Fund’s money. See In the Matter of Franco, 02-01D, ¶ 9. The IHO has previously found an Emergency Trusteeship warranted where a District Council failed to maintain an appropriate relationship with fringe benefit funds, mishandled local union books and records, and District Council officials improperly charged expenses to the District Council. See In the Matter of the Trusteeship of Virginia and North Carolina District Council, IHO Order and Memorandum, 97-14T (June 19, 1997).

 

Title 29 U.S.C. § 501(a) imposes a fiduciary duty on all union officers to safeguard the assets of the union they serve. See 29 U.S.C. § 501(a); see also Guzman v. Bevona, 90 F.3d 641, 645 (2d Cir. 1996). Section 501(a) provides that union officers “occupy positions of trust in relation [to the union] and its members as a group,” that they must hold union “money and property solely for the benefit of the organization and its members,” and that they must “manage, invest and expend the same in accordance with [the union’s] constitution and by-laws and any resolutions of the governing bodies adopted thereunder . . . .”

29 U.S.C. § 501(a). Courts have agreed that, under section 501(a), Congress defined in the broadest terms possible the duty that the federal law imposes upon a union official to insure high standards of responsibility on the part of union officers. See United States v. Vitale, 489 F.2d 1367 (C.A. Mich. 1974), citing United States v. Silverman, 430 F.2d 106, 113 (2d Cir. 1970), cert. denied, 402 U.S. 953, 91 S. Ct. 1619 (1971), citing Highway Truck Drivers and Helpers Local 107 v. Cohen, 182 F. Supp. 608, 617 (E.D. Pa. 1960), aff’d per curiam, 284 F.2d 162 (3d Cir. 1960), cert. denied, 365 U.S. 833, 81 S. Ct. 747 (1961).

 

The same fiduciary duty applies to LIUNA officers administering the Benefit Funds. The LIUNA EPC, which is derived from the AFL-CIO Ethical Practices Code, is explicit in stating:

 

1. No official, representative or employee of the International Union, District Council or a Local Union, nor any union trustee of a benefit fund, shall receive fees or salaries of any kind from a fund established for the provision of health, welfare or retirement benefits, except for reasonable reimbursement provided for in a collective bargaining agreement or trust agreement and expressly approved by the General President or the Board of Trustees, respectively.

 

2. No official, employee or other person acting as an agent or representative of the International Union, who exercises responsibilities or influence in the administration of health, welfare and retirement programs or the placement of insurance contracts, shall have any compromising personal ties, direct or indirect, with outside agencies such as insurance carriers, brokers or consultants doing business with the health, welfare and retirement plans.

 

EPC, Health, Welfare and Retirement Funds, p.19. Defenses Presented by Iaccarino

 

Iaccarino argued that the Trusteeship is not necessary because the GEB Attorney only proved some bookkeeping errors that have been corrected. Iaccarino’s argument is without merit. The GEB Attorney proved: a pattern of extensive financial malpractice; a complete lack of internal controls within Local 1175; and, malfeasance and negligence among the Executive Board and others within Local 1175, all of which began long before Connolly’s audit and

continued until the imposition of the Trusteeship. There was no way for Local 1175 to account for its expenses and ensure those expenses attributed to and paid by Local 1175 were legitimate expenses. The financial malpractice and lack of internal controls were exacerbated by the total failure of Executive Board members to exercise any review of Clemenza’s activities.

 

The demonstrated pattern of conduct within Local 1175 is a sufficient and independent basis for imposing a trusteeship over Local 1175. See In the Matter of Local 703, IHO Order and Memorandum, 98-20T (July 7, 1998); In re Trusteeship of Local Union 73, 1996 A.O. 5, 11 (95-013-TB) (affirming trusteeship based, in part, on failure of local to comply with instructions from LIUNA to adequately document expenditures or to adopt appropriate accounting systems to distinguish between personal and business uses of union assets); International Bhd. of Boilermakers v. Local Lodge, 714, 845 F.2d 687, 693 (7th Cir. 1988) (cases “where local officers are lining their own pockets” constitutes “financial malpractice” under trusteeship provisions of LMRDA); IBT v. Local Union 705, 144 L.R.R.M. (BNA) 2676 (N.D. Ill. 1993) (local union compelled to comply with trusteeship based on financial malpractice of executive board including improper distribution of funds).

 

Local 1175’s Failure to Police the Collective Bargaining Agreement

 

The GEB Attorney presented evidence that certain major employers who were signatories to the collective bargaining agreement were also LIUNA members. There were allegations that the employers, in their capacity as Union members, were disrupting the Union’s rights in the execution of the collective bargaining agreement. There was little evidence presented on this issue. The IHO declines to make this a ground for Trusteeship, but alerts the Trustee to pursue the matter.

 

Scaraggi

 

The GEB Attorney alleged that the Executive Board’s engagement of Scaraggi as attorney for Local 1175 members who were served with deposition notices constituted obstruction. The GEB Attorney alleged that Scaraggi was utilized to control the witnesses at their depositions. The record indicates that Scaraggi rendered legal advice to persons he had not interviewed and who were not his clients.

 

Scaraggi contended that he was merely acting as an unpaid volunteer. The GEB Attorney argued that his conduct actually served the interests of the Local 1175 Executive Board, especially in view of Professional Rule of Conduct Rule 4.3, Duties to Unrepresented Third Parties. See Model Rules of Professional

Conduct, Rule 4.3 (the only legal advice that may be given to unrepresented persons is to seek independent legal advice). The IHO also notes that Scaraggi was later hired by the Trustees of the Benefit Funds (two of the four were Local 1775 Executive Board members) to advise them in this matter. Scaraggi also filed a lawsuit in Federal court on behalf of Local 1175, Clemenza, and two other members of Local 1175.

 

The IHO concludes that because of the substantial evidence supporting the Trusteeship, it is not necessary to discern from the quagmire of Scaraggi’s multiple conflicting relationships whether he was acting on behalf of the Local 1175 Executive Board to improperly thwart the deposition process.

 

Party-In-Interest Transactions

 

The IHO finds, as separate bases for Trusteeship, proof of abuses of the Benefit Funds. Congress enacted ERISA in order to protect pensions and other delayed compensation for the benefit of employees. See Wadsworth v. Whaland, 562 F.2d 70, 73-74 (1st Cir. 1977), cert. denied, 435 U.S. 980, 98 S. Ct. 1630, 56 L. Ed. 2d 72 (1978); see also 29 U.S.C. §§ 1001-1461. A person is a fiduciary under ERISA to the extent he exercises discretionary authority or control over the management of a plan, or any authority or control respecting management or disposition of its assets or has any discretionary authority or responsibility in the administration of the plan. See 29 U.S.C. § 1002 (21)(A); see also Plumb v. Fluid Pump Serv., Inc., 124 F.3d 849, 854 (7th Cir. 1997). “[A] person can become a fiduciary with respect to a particular activity even if there is no formal written allocation of the duty.” Id. at 855.

 

ERISA imposes a number of obligations on fiduciaries, including “the proper management, administration, and investment of [plan] assets, the maintenance of proper records, the disclosure of specified information, and the avoidance of conflicts of interest.” Mertens, 113 S. Ct., 2063, 2066 (U.S. 1993), quoting Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 142-43, 87 L. Ed. 2d 96, 105 S. Ct. 3085 (1985); see also 29 U.S.C. §§ 1001-1461. A fiduciary is required to act prudently and solely in the interest of the ERISA plan participants, avoid self-dealing transactions, diversify assets, and abide by the plan's governing documents. A fiduciary shall not cause the plan to engage in a transaction if he knows or should know that such transaction constitutes a direct or indirect sale or exchange of any property between the plan and a party in interest; a lending of money or other extension of credit between the plan and a party in interest; a furnishing of goods, services, or facilities between the plan and a party in interest; or the transfer to, or use by or for the benefit of, a party in interest, of any assets of the plan. See ERISA, 406(a), 29 U.S.C. § 1106(a).

ERISA designates certain individuals as “parties in interest.” 29 U.S.C. § 1002(14). The term “party in interest” is defined broadly and includes fiduciaries, plan employees, employers whose employees are covered by ERISA plans, service providers, employee organizations whose members are covered by a plan, and owners of 50 percent or more of stock in these employer and employee organizations. Id. Parties in interest also include employees, officers, and directors, as well as shareholders, partners, and joint venturers owning ten percent or more of entities that are themselves parties in interest. Id. Section 406 of ERISA prohibits fiduciaries from engaging in certain transactions with these parties in interest. The party-in-interest prohibitions act to insure arm's­length transactions by fiduciaries of funds subject to ERISA. See 29 U.S.C § 1106. A transaction with a party in interest is prohibited under the presumption that it is not arm's-length. The result is a broad per se prohibition of transactions ERISA implicitly defines as not arm's-length. See Cutaiar v. Marshall, 590 F.2d 523, 528-29 (3d Cir. 1979).

 

Clemenza, a fiduciary to the Local 1175 Benefit Funds, engaged in prohibited party-in-interest transactions. Many of the expenditures at issue are exorbitant and poorly documented expenses that are prohibited under ERISA because the amounts, dates, and times of the events provide ample evidence that Clemenza's expenditures were in his own interest, not that of the plan participants and their beneficiaries. There is substantial proof that Clemenza and the other LIUNA Trustees misused the Benefit Funds for personal purposes, and made prohibited party-in-interest transactions, which were not in the interest of the beneficiaries of the Benefit Funds.

 

Federal Lawsuit

 

The Complaint filed in Federal Court on behalf of Clemenza and two other members alleged that the imposition of the Trusteeship was merely a “pretext to forcing a merger of Local 1175 with Laborers’ Local 731.” See GEB Ex. 21, ¶ 12. Although Iaccarino did not raise this issue with the IHO, the IHO concludes that there was no evidence that LIUNA was attempting to force a merger of Local 1175 with Local 731. The GEB Attorney has alleged and proved by a preponderance of the evidence that Trusteeship is warranted for more than one proper purpose: financial malpractice and corruption within Local 1175, as well as the negligence and malfeasance of the Executive Board. “A union need establish only one proper purpose to impose a trusteeship.” Chicago District Council, 97-30T; see also, Mason Tenders District council v. LIUNA, 884 F. Supp. 823, 836 (S.D.N.Y. 1995); Local Union #43 v. LIUNA, C03-026.

130                                                   In the Matter of Local 1175

 

CONCLUSIONS

 

1. Local 1175 received proper noticed of the Trusteeship and received a full and fair hearing.

 

2. There was extensive financial malpractice at Local 1175. This was evidenced by the improper use of credit cards, improper transfer of Union funds to the personal account of President/Business Manager Clemenza, and excessive and inadequately documented charges.

 

3. The members of the Local 1175 Executive Board were grossly negligent and malfeasant by completely abandoning their duty to oversee and approve the expenditures of Clemenza.

 

4. There were substantial internal corrupt practices within Local 1175. These corrupt practices were exhibited by the attempt to ameliorate the impact of the $40,000 raise in Clemenza’s salary by causing the field representative salary of the Secretary-Treasurer to be paid by the Benefit Funds. The corrupt practices were further evidenced by the attempt to hide the improper credit card use from the International Auditor by altering the American Express receipts.

 

5. The activities of the officers of Local 1175 are grounds for the continuation of Trusteeship.

 

6. In addition to the financial malpractice, the negligent and malfeasant actions of the Executive Board, and the corrupt practices within Local 1175, the IHO concludes that there are independent reasons for Trusteeship based upon abuses of the Benefit Funds caused by the Local 1175 Trustees to those Benefit Funds.

 

7. The abuses of the Benefit Funds were evidenced by Clemenza using the Benefit Funds to purchase personal items and using the Benefit Funds for improper purposes, including using the Benefit Funds to pay for services to Clemenza’s home, and for the payment of the Secretary-Treasurer’s field representative salary to hide Clemenza’s raise.

 

8. The use of the Benefit Funds constituted party-in-interest transactions prohibited by ERISA and are possible violations of federal criminal law. The Inspector General is directed to transfer the record of these proceedings to the Employee Benefits Security Administration of the Department of Labor (DOL).

 

9. The IHO concludes that the practice displayed in this record of utilizing the Benefit Funds for Union and personal use was not accidental or uninformed

action. These activities were a deliberate and calculated effort to avoid the jurisdiction of the EDP and the LIUNA reform effort. Unless such efforts are stopped, these actions will mark the beginning of the end of the LIUNA reform effort, and will serve as a green light to those who oppose the honest efforts of the officers and members who have fought to bring about the end of corruption in LIUNA.

 

10. The following allegations are rejected by the IHO as being grounds for the Trusteeship:

 

·   The IHO does not find the purchase of a variable life insurance policy for Clemenza as grounds for Trusteeship;

 

·   The IHO does not find evidence on the record that members of Local 1175 were intimated by Clemenza;

 

·   The IHO does not find that Clemenza intentionally made material false statements to the IG inspectors during his deposition;

 

·   The IHO does not find probative the evidence that Clemenza called Anthony Franco several times each day that Clemenza was deposed;

 

·   The IHO does not find the construction of the garage as grounds for the Trusteeship;

 

·   The IHO does not find probative the evidence concerning the Executive Board dinners held at the Palmer Steak House.

 

DECISION

 

There is substantial need for the Trusteeship of Local 1175 to continue pursuant to Article IX, Section 7 of the International Constitution.

 

PETER F. VAIRA

 

INDEPENDENT HEARING OFFICER