Tarantino v. Ford et al

Filing 117

ORDER ADOPTING 105 Report and Recommendation of Magistrate Judge, DENYING 69 Defendant Fidelity and Deposit Company of Maryland's Motion to Dismiss, and DENYING AS MOOT 107 Plaintiff's Motion for Clarification. Signed by Judge Joan A. Lenard on 8/7/2009. (mhz)

U N IT E D STATES DISTRICT COURT S O U T H E R N DISTRICT OF FLORIDA C A S E NO. 07-20397-CIV-LENARD/GARBER D A N N Y TARANTINO, P l a in tif f , vs. W I L H E L M I N A FORD, EDMUND C A M P B E L L , and FIDELITY AND D E P O S I T COMPANY OF M ARYLAND, D e f e n d a n ts . ________________________________/ O R D E R ADOPTING REPORT AND RECOMMENDATION OF MAGISTRATE J U D G E (D.E. 105) AND DENYING DEFENDANT FIDELITY AND DEPOSIT C O M P A N Y OF MARYLAND'S MOTION TO DISMISS (D.E. 69) T H I S CAUSE is before the Court on the Report and Recommendation of Magistrate J u d g e Barry L. Garber ("Report," D.E. 105), issued on May 18, 2009, recommending denial o f Defendant Fidelity and Deposit Company of Maryland's ("Fidelity's") Motion to Dismiss th e Second Amended Complaint ("Motion," D.E. 69)1 , filed on September 24, 2008. On J u n e 2, 2009, Fidelity filed objections to the Report ("Objections," D.E. 108). Plaintiff D a n n y Tarantino ("Tarantino") filed a response to Fidelity's Objections on June 12, 2009 ("R esp o n se , " D.E. 109), to which Fidelity filed a reply on June 19, 2009 ("Reply," D.E. 110). Based on a de novo review of the Motion, the Report, the Objections, the Response, the

Plaintiff filed a response to Fidelity's Motion to Dismiss on October 6, 2008 (D.E. 72), to which Fidelity filed a reply on October 15, 2008 (D.E. 73).

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R e p l y, and the record, the Court finds as follows. I. B a c k gro u n d

T h is case involves a pro se lawsuit by a union member against two union officers for a lle g e d violations of the Labor Management Reporting and Disclosure Act of 1959 (" L M R D A " ), 29 U.S.C. § 501, et seq. Plaintiff Tarantino is a member of the Miami Area L o c a l ("MAL") of the American Postal Workers Union ("APWU") and brings this suit p u rs u a n t to section 501(b) of the LMRDA. Tarantino's Second Amended Complaint (" C o m p la in t," D.E. 62) alleges that Wilhelmina Ford ("Ford"), the union President, and E d m u n d Campbell ("Campbell"), the union Treasurer, breached various fiduciary duties in v io la tio n of section 501 of the LMRDA. Specifically, the Complaint alleges that Ford and C a m p b e ll each unlawfully received eight hours of unearned overtime pay each week they w e re in office since approximately April 2004, Ford violated section 501 by intentionally h id in g from union members that they were collecting unearned overtime, Ford improperly re c e iv e d a monthly car allotment of $350 since approximately April 2004, and Fidelity is lia b l e for such damages pursuant to two surety bonds it issued to the union in connection w ith the bonding requirement of section 502(a). (See Complaint at 6-8; D.E. 69-2, Bond No. 5 8 9 0 8 7 5 -4 ; D.E. 69-3, Bond No. 5890875-5.) F id e lity seeks to dismiss the Complaint for failure to state a claim upon which relief c a n be granted and argues that (1) Tarantino lacks standing to sue on the surety bonds issued to the union as he is neither an insured on the bonds nor statutorily entitled to bring a cause o f action against the bond insurer and (2) Tarantino is unable to bring suit because he failed 2

to comply with the conditions precedent to suing on the bonds.

(Motion at 3-4.)

S p e c if ic a lly, Fidelity argues that because Tarantino is not a named insured on the bond he c a n n o t bring suit. (Id at 3.) Fidelity also contends Tarantino cannot imply a statutory cause o f action against the insurer of the surety bond where Congress explicitly created a cause of a c tio n against union officers in section 501(b) but did not provide any such avenue of relief a g a in st the insurer. (Objections at 6.) Fidelity is concerned that allowing union members to b rin g suit on the statutorily-required surety bond will expose sureties like Fidelity to a m u ltitu d e of frivolous lawsuits. (Id. at 6-7.) Finally, Fidelity argues that Tarantino failed to c o m p ly with conditions precedent of the bond, namely that a proof of loss be filed with the in s u r e r ninety days prior to filing suit. (Id. at 8.) Fidelity warns that union members must b e required to comply with the conditions of the bond or else unions could simply evade their c o n tra c tu a l obligations by instructing union members to bring suit. (Id. at 10.) In response, Tarantino argues that a cause of action is implied from the interplay of § § 501-502 of the LMRDA and points to several district court decisions having reached such a conclusion. (D.E. 72 at 3-4, 6-7.) It is Tarantino's position that complete and appropriate re lie f can only be obtained by joining the bond surety as a defendant and that logic dictates s e c tio n 502 be read in light of section 501. (Id. at 6-7.) Tarantino also argues that a lack of a c tu a l knowledge of the bond conditions, along with his subsequent due diligence, excuse an y non-compliance with the bond conditions. (Id. at 8.) The Report recommends denial of Fidelity's Motion after noting courts have provided

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" s u r p ris in g ly little interpretation" of the law in this area. (Report at 2.) The Report first c o n c lu d e s that Tarantino has standing to sue Fidelity based on the interplay between §§ 5015 0 2 of the LMRDA. (Id. at 2-3.) The Report adopts the reasoning of prior decisions in f in d in g that "`[i]n the typical 501 situation the union through its officers will not act against its errant officers because either the officers empowered to act are the ones charged or are a t least close associates. If it is preposterous to expect them to sue themselves, it follows that it is equally unlikely to expect them to sue on a surety bond on which they defaulted.'" (Id. a t 3 (quoting Purcell v. Keane, 277 F. Supp. 252, 258 (E.D. Pa. 1967).) The Report then c o n c lu d e s that equitable considerations preclude dismissing Tarantino's claims against F id e lity due to non-compliance with the notice provisions of the bond. (Report at 5.) The R e p o rt finds that Tarantino's diligence in pursuing his claims against Fidelity and his lack o f knowledge of the bonds' provisions exempted his non-compliance. (Id. at 4-5.) While re c o g n iz in g the potential for collusion between unions and its members in avoiding bond c o n d itio n s , the Magistrate Judge concluded there was no such collusion in this case. (Id. at 5 .) F id e lity objects to the Report as it believes the Magistrate Judge erred in implying a c a u se of action where Tarantino failed to allege he is an insured under the bonds and §§ 5015 0 2 of the LMRDA do not contain language giving Tarantino the right to sue on the bonds. (O b je c tio n s at 1.) First, Fidelity argues that the Magistrate Judge erred by ignoring the lack o f statutory authority for a union member to bring suit against the bond insurer. (Id. at 4-5.)

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F id e lity argues that by granting union members the right to sue leadership under section 501 b u t not providing any similar provision in connection with section 502, Congress intended to exclude actions against the insurer. (Id. at 6.) Accordingly, the issue of whether or not to make a claim on the surety bonds was explicitly reserved for the union and not Tarantino. (R e p ly at 2.) Second, Fidelity claims the Magistrate Judge erred by relying upon two district co u rt cases from other jurisdictions that were decided in an era when union abuses were w id e sp re a d . (Objections at 5.) Rather, Fidelity asserts that Eleventh Circuit precedent p re c lu d e s non-insureds from suing on surety bonds. (Id. at 7.) Finally, Fidelity claims the M a g is tra te Judge erred by excusing Tarantino's non-compliance with the notice provision a n d in effect expanded Fidelity's liability beyond the terms of the contract. (Id. at 8-10.) B e c au s e the Court finds the Report's analysis and conclusions sound, the Court holds that T a ra n tin o does state a claim against Fidelity upon which relief may be granted. II. S t a n d a r d of Review

Pursuant to Federal Rule of Civil Procedure 12(b), a defendant may move for d ism iss a l of a claim based on one or more of seven specific defenses, including failure to s ta te a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). In reviewing a motion to dismiss, the Court accepts the facts alleged in the complaint as true, and c o n stru e s all reasonable inferences therefrom in the light most favorable to the plaintiff. O 'H a llo ra n v. First Union Nat'l Bank of Fla., 350 F.3d 1197, 1199 (11th Cir. 2003); Bank v . Pitt, 928 F.2d 1108, 1109 (11th Cir. 1991). To survive a motion under Rule 12(b)(6), a

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c laim need not contain detailed factual allegations, but must provide sufficient grounds to s h o w more than a merely speculative entitlement to relief. Bell Atl. Corp. v. Twombly, 550 U .S . 544, 555 (2007); United Techs. Corp. v. Mazer, 556 F.3d 1260, 1269-70 (11th Cir. 2 0 0 9 ). III. D is c u s s io n A. S t a n d in g

T h e LMRDA employs several mechanisms for protecting labor unions from the e f f e c ts of dishonest or fraudulent acts committed by union officers or employees. Section 5 0 1 (b ) of the LMRDA confers a cause of action upon union members to sue on behalf of the u n ion any officers who have violated their duties under section 501(a). Section 501(b) p ro v id e s in part that: W h e n any officer, agent, shop steward, or representative of any labor o rg a n iz a tio n is alleged to have violated the duties declared in subsection (a) of th i s section and the labor organization or its governing board or officers refuse o r fail to sue or recover damages or secure an accounting or other appropriate re lie f within a reasonable time after being requested to do so by any member o f the labor organization, such member may sue such officer, agent, shop s te w a rd , or representative in any district court of the United States or in any S t a t e court of competent jurisdiction to recover damages or secure an a c co u n tin g or other appropriate relief for the benefit of the labor organization. F u r th e r, section 502 of the LMRDA requires unions to bond any officers or employees who h a n d le funds or other property. Section 502(a) provides in part: E v e ry officer, agent, shop steward, or other representative or employee of any la b o r organization (other than a labor organization whose property and annual f in a n c ia l receipts do not exceed $5,000 in value), or of a trust in which a labor o rg a n iz a tio n is interested, who handles funds or other property thereof shall be 6

b o n d e d to provide protection against loss by reason of acts or fraud or d i sh o n e s ty on his part directly or through connivance with others. T h u s , the LMRDA provides both a cause of action and a financial safeguard to protect labor u n io n s from the actions of dishonest employees. F id e lity makes a compelling argument that union members lack standing to sue on a s u re ty bond issued pursuant to section 502. The statute does not explicitly grant union m e m b e rs any cause of action against the bond surety. In fact, the statute does not explicitly p ro v id e anyone with a cause of action against the bond surety. Additionally, Tarantino is not a named insured on either of the bonds. One of the bonds names as insured "American P o s ta l Workers Union, AFL-CIO; Its Local Unions and State Organizations as their re sp e c tiv e interests may appear." (See D.E. 69-2, Bond No. 5890875-4.) The other bond n a m e s as insured "American Postal Workers Union, AFL-CIO; Its Local and State Affiliates & Retiree Chapters as their respective interests may appear." (See D.E. 69-3, Bond No. 5 8 9 0 8 7 5 -5 .) N o n e th e le ss , other courts faced with this exact situation have logically inferred such c a u se of action to exist. In Robinson v. Weir, 277 F. Supp. 581 (D. Neb. 1966), the United S ta te s District Court for Nebraska considered whether a union member suing a union officer u n d e r the LMRDA could also join the bond surety as a defendant and sue for the benefit of th e union. After noting that no other cases had dealt with this precise issue, the court went o n to examine sections 501-502 of the LMRDA. The district court first noted that section 5 0 2 "does not provide as to which party or parties will be entitled to sue on the bond" and 7

th a t "[i]t is true that under the bond in issue the plaintiff is not the named insured and may n o t, therefore, sue the surety for his own benefit." Id. at 582. Nonetheless, the court re c o g n ize d that Congress intended the LMRDA to be broadly construed to effectuate its p u rpo se. Id. (citing Johnson v. Nelson, 325 F.2d 646 (8th Cir. 1963)). As a result, the court c o n c lu d e d that: It is the conclusion of the Court that Congress intended that under § 501(b) a m e m b e r should be entitled to sue for complete and appropriate relief, which w o u ld include not only suing the officer or representative but also the surety w h ic h has bonded that officer or representative. Any other determination w o u ld not effectuate the purpose of the Act and would require a multiplicity o f suits in order to insure that the members would receive complete and a p p ro p ria te relief and that they would be properly protected. It is the decision o f the Court that under Title 29 U.S.C.A. § 501(b) a member who is suing an o f f ic e r , agent, shop steward, or other representative may also join as a d e f en d a n t and sue for the benefit of the organization the surety which has b o n d e d that officer, agent, shop steward, or representative pursuant to § 502 o f Title 29 U.S.C.A. Id. In Purcell, the District Court for the Eastern District of Pennsylvania considered the s a m e issue presented in Robinson and in this case. 277 F. Supp. 252. The defendant bond is s u e r in Purcell argued a lack of statutory authority to join it as a defendant in a section 501 a c tio n , as Fidelity argues in this case. The district court agreed with the conclusion reached in Robinson and further stated: T h e purpose of section 501(b) is to permit individual union members to p ro c e ed on behalf of their union when the union officers who normally have th is responsibility will not act. Section 502 must be read in light of section 5 0 1 . In the typical 501 situation the union through its officers will not act a g a in s t its errant officers because either the officers empowered to act are the

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o n e s charged or are at least close associates. If it is preposterous to expect th e m to sue themselves, it follows that it is equally unlikely to expect them to s u e on a surety bond on which they defaulted. Id . at 257-58; see also Giordani v. Hoffmann, 295 F. Supp. 463, 476-77 (E.D. Pa. 1969) (a p p lyin g the rationale of Robinson and Purcell to permit suit against a bonding company in ac tio n pursuant to 29 U.S.C. § 302). T h e Court agrees with the Magistrate Judge's conclusion that "[w]hile these decisions a re not binding, the logic is sound, and the Court has been unable to find, and Fidelity has f a iled to point to, any case that has rejected this reasoning." (Report at 3.) First, while s e c tio n 502 does not explicitly provide for a cause of action against the bond surety, the in te rp la y between section 501 and 502 demonstrates Congressional intent to protect unions b y providing not only a cause of action against dishonest officers but also a method of re m e d yin g any financial loss. To hold that no cause of action exists against the bond surety w o u ld contradict the intent of the statute that unions be financially protected from the co n d u ct and control of errant officers. The Court finds persuasive the reasoning of the court in Purcell that "[i]f it is preposterous to expect [union officers] to sue themselves, it follows th a t it is equally unlikely to expect them to sue on a surety bond on which they defaulted." 2 7 7 F. Supp. at 258. In contrast, Fidelity's attempt to distinguish this case from those cited by the M a g is tra te Judge is unpersuasive. First, Fidelity distinguishes the cases cited by the M ag istrate Judge as "district court cases from other jurisdictions issued in the 1960's, an era

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w h en union abuses were widespread." (Objections at 5.) While the cases cited above are in d e e d old and from non-binding jurisdictions, they are exactly on point as to the issues p re se n te d and display sound reasoning. Fidelity has not cited any cases similarly addressing th e se very issues and the Court's own research has not provided any other such guidance. F i d e l ity cites to Eleventh Circuit case law analyzing surety bonds but cannot point to any c a s e s addressing such claims under the LMRDA. Instea d , Fidelity cites to Everhart v. Drake Management, Inc., 627 F.2d 686 (5th Cir. 1 9 8 0 ) and American Empire Insurance Company of South Dakota v. Fidelity and Deposit C o m p a n y of Maryland, 408 F.2d 72 (5th Cir. 1969), for the proposition that only a named in su re d can recover under a surety bond in the Eleventh Circuit.2 However, neither case inv o lved a bond issued pursuant to section 502 of the LMRDA or any other statute. Further, b o th cases involved questions of whether third-party beneficiaries could themselves benefit f ro m suing the surety. In this case, Tarantino is suing Fidelity on behalf of the union and for th e benefit of the union. Rather than create unforeseen liability on the part of the surety, a ll o w in g a union member to join the surety as a defendant in an LMRDA action simply a v o id s multiple lawsuits and ensures appropriate relief. Therefore, the Court concludes that a union member suing an union officer or employee under section 501 of the LMRDA may a ls o join as a defendant the surety of the bond issued pursuant to section 502.

The Eleventh Circuit in Bonner v. City of Prichard, 661 F.2d 1206, 1207 (1981) (en banc), adopted as binding precedent all decisions of the former Fifth Circuit rendered prior to October 1, 1981. 10

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B.

F a ilu r e to Comply with Conditions Precedent

B o t h bonds issued by Fidelity require that: "[u]pon knowledge or discovery of loss u n d e r this bond, the Insured shall: (a) give notice thereof as soon as practicable to the U n d e rw riter and (b) file detailed proof of loss, duly sworn to, with the Underwriter within f o u r months after the discovery of loss" and "[n]o action shall lie against the Underwriter u n le ss , as a condition precedent thereto, there shall have been full compliance with all the ter m s of this bond, nor until ninety days after the required proofs of loss have been filed with th e Underwriter, nor at all unless commenced within one year from the date when the Insured d is c o v e rs the loss." (See D.E. 69-2, Bond No. 5890875-4; D.E. 69-3, Bond No. 5890875-5.) T a ra n t in o does not allege in the Complaint that he submitted written proofs of loss or o th e rw ise complied with the notice requirement as a condition precedent to filing to suit.3 N o n e th e le ss , the Report concludes that Tarantino was diligent in his efforts to uncover the te rm s of the bonds and join Fidelity as a defendant, and as a result, equitable considerations e x c u s e non-compliance with the conditions precedent. (Report at 4-5.) The Court agrees. F id e lity objects that Tarantino did not in fact exercise due diligence in pursuing his c la im s against Fidelity. The Eleventh Circuit's decision in Erkin v. Bryant, 785 F.2d 1538 (1 1 th Cir. 1986) provides some guidance on this issue. The plaintiff union members in Erkin

Tarantino subsequently claims that he has in fact complied with the conditions precedent to filing suit under the surety bond by notifying the MAL of the various violations. (Response at 2.) Because the Court ultimately concludes that his lack of knowledge of the terms of the bonds excuses his non-compliance with the notice provisions and from alleging such facts in his Complaint, the issue of whether Tarantino actually complied with Section 5 of either bond need not be addressed. 11

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f ile d suit under the LMRDA against local union officers who received payments as part of a strike fund. Id. at 1540-41. Despite learning of the surety bond approximately one month in to the lawsuit, the plaintiffs in Erkin waited three years to join the surety as a defendant. Id . at 1549. The surety contested the lawsuit on the grounds that the plaintiffs had failed to c o m p ly with the notice and claim provisions of the bond contract. Id. After briefly d iscu ssing the decisions in Purcell and Giordani (without mention of the issue of standing), th e Eleventh Circuit distinguished the facts of the instant case by illustrating the prejudicial d e la y that had occurred in joining the surety as defendant. Id. ("Although Giordani and P u rce ll allowed claims in spite of failure to comply with the bond provisions, those cases are n o t controlling here....Here, plaintiffs delayed for three years after they received actual k n o w ledg e of the bond's existence; during that time, they never inquired as to the bond's p ro v is io n s ." ). The court concluded that the plaintiffs' claims were "barred for lack of due d ilig e n c e ." Id. However, as the Report notes, the facts "demonstrate [Tarantino] diligently pursued h is claim against Fidelity." (Report at 4.) Tarantino joined Fidelity as a defendant shortly a f te r the Magistrate Judge granted his motion to compel discovery of the identity of the b o n d in g company and copies of the bonds at issue. (Id.; D.E. 49, 57.) Unlike the

circu m stan ce s in Erkin, Fidelity has not been prejudiced by a three-year delay or the failure to contest standing. The record indicates Tarantino did not have knowledge or notice of the b o n d provisions until his discovery requests were granted and that he promptly acted to join

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F id e lity as a defendant.

Tarantino also attaches several examples of correspondence

in d ica tin g that after he received copies of the bonds he attempted to have the union comply w ith the notice conditions. (See Response at 19-21.) The Court agrees with the Report that T a ra n tin o exercised due diligence in pursuing his claim against Fidelity and thus the facts of th is case are distinguishable from those in Erkin. F id e lity also objects that allowing non-compliance with the notice provision of the b o n d unfairly expands Fidelity's liability. In support of its argument, Fidelity argues the b o n d s are "fidelity bonds" and should thus be treated as insurance policies. In concluding th e bond at issue in this case is uncharacteristic of a typical insurance policy, the Report finds p e rs u a siv e Irving Trust Company v. Nationwide Leisure Corporation, 95 F.R.D. 51 (S .D .N .Y . 1982), a case which expressly distinguished insurance contracts from surety bonds m a n d a te d by federal statute. Irving Trust involved an action by tour participants against the o p e ra to r of the tour and its surety for alleged failure to deliver promised accommodations and tra v e l arrangements. The travel operator's surety issued a $200,000 surety bond as required b y federal regulations governing tour operators. In comparing the statutorily-required bond a n d a normal insurance contract, the court in Irving Trust determined "[t]he Bond is not like a n insurance contract, because an insurance contract, such as those dealt with in the cases c ite d to the court, is a signed agreement by the party sought to be charged with the condition p re c e d e n t." Id. at 67. The court went on to say, "[t]hus, even assuming, contrary to the e s ta b l is h e d rule, that a bond can set up a condition precedent against third-parties for whose

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b e n e f it the bond was taken out, the condition precedent will be unenforceable unless those th ird -p a rtie s had knowledge of it." Id. Similarly, the Court finds that the surety bond issued p u rs u a n t to the LMRDA in this case does not fall within the scope of a routine insurance p o lic y and thus is distinguishable from those cases cited by Fidelity. The Court further notes that Giordani and Purcell support the proposition that union m e m b e rs need not provide notice to the surety in strict compliance with the bond in order to re c o v e r under such bond on behalf of the union. See Giordani, 295 F. Supp. at 477 ("As to n o tic e to the surety company where it is apparent in a 501 situation, as it is under the c irc u m s t a n c es involved here, that the individual members plaintiff [sic] had no actual k n o w le d g e of the provisions of the surety contract, they will not be charged with the duty of g iv i n g notice to the surety company in accordance with the provisions of the insurance p o licy.") (quoting Purcell, 277 F. Supp. at 258). F in a lly, the Report acknowledges the possibility of collusion between labor unions a n d their members but finds there is no such collusion in this case. The Report states: L a stly, Fidelity makes the point that if union members were not subject to the b o n d 's condition precedent, the union could easily avoid the bond's notice p ro v isio n s by using a member to sue rather than suing directly. Admittedly th is is a real potential. The Court, however, is comforted by the fact that, c le a rly, there is no such collusion in this instance. (R e p o rt at 5.) The Court agrees and finds that the risk of collusion is minimal. While unions c o u ld conceivably attempt to avoid the conditions precedent to filing suit under the surety b o n d , the greater risk lies in union officers acting to the detriment of the union by failing to

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s u e on a surety bond on which they defaulted. Accepting the factual allegations contained in the Complaint as true, Tarantino has alleged sufficient facts to state a claim against F id e lity upon which relief may be granted. Accordingly, it is hereby ORDERED AND A D J U D G E D that: 1. T h e Report and Recommendation of Magistrate Judge Barry L. Garber (D.E. 1 0 5 ) , issued on May 18, 2009, is ADOPTED consistent with this Order. 2. D e f e n d a n t Fidelity's Motion to Dismiss the Second Amended Complaint (D.E. 6 9 ) , filed on September 24, 2008, is DENIED. 3. D e f e n d a n t Fidelity shall have twenty days from the date of this Order to file a n Answer to Plaintiff's Second Amended Complaint. 4. P la in tif f 's Motion for Clarification of the Report and Recommendation (D.E. 1 0 5 ) , filed on June 1, 2009, is DENIED AS MOOT. D O N E AND ORDERED in Chambers at Miami, Florida, this 7th day of August, 2009. ____________________________________ J O A N A. LENARD U N I T E D STATES DISTRICT JUDGE

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