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Lurid Union Class Action Fares Better in Third Try

SAN FRANCISCO (CN) - A federal judge chipped away more of a lurid class action by disgruntled union members who accuse leaders of squandering pension funds on bad investments and "double-breasted" operations.

David Slack is the lead plaintiff in the 2013 lawsuit that accused the International Union of Operating Engineers, Local 3 - headquartered in Alameda - and 68 other defendants of violating labor management laws, the California Labor Code, ERISA and federal anti-racketeering law.

The IUOE represents heavy-equipment operators and other construction workers and is the 10th largest union in the AFL-CIO. Local 3 is its largest branch, representing workers in California, Nevada, Utah, Hawaii and the Pacific Rim islands.

In addition to claiming that the union illegally forced members to contribute 1 percent of their salaries to a political action committee fund, the plaintiffs said they've paid millions to the Hawaiian Stabilization Fund - an alleged multimillion-dollar slush fund for union bosses disguised as a mechanism to keep contractors from operating "double-breasted" and working both union and nonunion jobs.

The disgruntled union members also accused union leadership of squandering $50 million in IUOE pension funds on a bad investment vehicle born out of nepotism, and of cavorting with the Japanese Yakuza and the Chinese Triads crime syndicates.

In response to five separate motions to dismiss the class action, U.S. District Judge Edward Chen ruled this past August that most of the union members' causes of action fell victim to either a lack of jurisdiction on the court's end or a lack of standing for the members.

Last week, Chen chipped away at a second amended complaint by the disgruntled union members - finding that the plaintiffs had not shown that nonunion firms were being used in a sham attempt at avoiding collective bargaining obligations, a requirement for their double-breasted theory.

The union members did better with the related theory regarding circumvention of the collective bargaining agreement, where one employer allegedly should have been making contributions for work done by nonunion employees since the work they did fell under the collective bargaining agreement parameters.

Chen also advanced the union members' claim that leadership had written off millions in contributions owed to the pension trusts. Defendants argued it was pointless to pursue the money because the company that owed it was insolvent.

But the plaintiffs' second amended complaint pointed to instances where write-offs took place for companies that weren't bankrupt or in financial trouble.

"The court notes that plaintiffs have made allegations of a gross disparity in write-offs," Chen wrote. "Taking the allegations of gross disparity and no insolvency, a plausible inference can be made that the write-offs were not reasonable."

As for the health of one of the pension funds at issue in the case, the judge noted - as did the defendants - that the fund isn't necessarily at risk of default. However, the union members made a sufficient case that not enough money is going into the pension fund due to the aforementioned circumvention of the collective bargaining agreements to move forward, he said.

"Such a pocketbook injury directly suffered by plaintiffs is sufficient to confer standing. This stands in contrast to the situation where a traditional defined benefit plan is involved; in that instance, the contributing employer, not the employee, bears the risk of misfeasance resulting in financial loss to the fund," Chen wrote.

Lastly, the judge advanced the members' claims that union bosses illegally interfered with their efforts to oppose union policies in violation of the Labor Management Reporting and Disclosure Act. Three of the bosses have allegedly made threats and intimidated union members after they filed their lawsuit, according to the second amended complaint.

"At the very least, plaintiffs have alleged a threat to the democratic integrity of the union," Chen wrote. "The Supreme Court has stated that Congress 'recognized that democracy would be assured only if union members are free to discuss union policies and criticize the leadership without fear of reprisal.' Here, Mr. Reding, Mr. Goff, and Mr. Burns threatened to act against plaintiffs because of their lawsuit, and a reasonable jury could conclude that a threat would be reasonably likely to deter plaintiffs, or even other union members, from engaging in protected activity directed at union policies and practices.

"That the threats of Reding, Goff, and Burns were not made to plaintiffs directly is not dispositive because, at the very least, plaintiffs learned of the threats as they were made in public or quasi-public settings," Chen continued. "Similarly, it should not be dispositive that the threats made - at least by Reding and Goff - were somewhat general in nature (i.e., just that they would exact revenge, without the form being specified)." [Parentheses in opinion.]

The defendants did not challenge union members' claims over a botched investment in the Longview Construction Loan Fund, a vehicle sold and managed by the wife of a union leader that has allegedly lost $50 million.

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