4th Circuit narrowly revives union member’s suit over alleged misappropriation of funds

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The U.S. Court of Appeals for the 4th Circuit narrowly revived a union member’s suit against her union and several of its officers, including the union’s general secretary-treasurer, for allegedly routinely misusing union funds for personal travel.

In a 2-1 ruling with Judge Roger Gregory writing for the majority, the 4th Circuit held Sandra Gardner, a member of the International Association of Machinists and Aerospace Workers union, satisfied the demand requirement under federal law to bring her suit.

Last week’s decision by the appellate court reversed the U.S. District Court for Maryland’s judgment that found Gardner failed to satisfy the demand requirement and therefore could not pursue her case, and remanded Gardner’s case back to that court to determine whether she demonstrated good cause to proceed with her claim.

Under 29 U.S.C. § 501, union members must satisfy two preconditions before bringing suit against their union: obtaining leave of the court upon verified application and showing good cause. According to the statute, a union member may only sue if the labor organization or its governing board or officers refuse or fail to sue or recover damages or secure an accounting or other appropriate relief within a reasonable time after being requested to do so by any member of the labor organization.

The 4th Circuit majority cited Gardner’s letter sent to the union’s president and executive counsel demanding an accounting of the funds allegedly misappropriated by union officers and the bringing of a lawsuit against the officers to recover monies, which the majority found satisfied the demand requirement. When the union’s general counsel wrote back to Gardner that the union intends to conduct an investigation, Gardner again wrote back demanding the union president bring suit against two union officials.

Though an independent accounting firm concluded there was no evidence of wrongdoing, the majority found Gardner met § 501’s demand requirement.

“Gardner’s letters made clear that she wanted both done, not one or the other,” Gregory wrote as to Gardner asking the union’s president and executive counsel to account for the funds and bring a lawsuit. “So, by failing to bring suit, the union did not carry out Gardner’s demand. We hold that Gardner satisfied the demand requirement.”

Steven Schneck, counsel for Gardner, said he and his client are pleased with the appeals court’s ruling.

“We are pleased with the Fourth Circuit’s decision and look forward to continuing to represent Ms. Gardner in the District Court,” Schneck said Wednesday in an email.

Counsel for the International Association of Machinists and Aerospace Workers and the union’s officers did not respond to requests for comment.

In a dissenting opinion, Judge J. Harvie Wilkinson III wrote he would affirm the denial of Gardner’s application for leave to file her complaint, noting “no good cause exists” to bring a derivative lawsuit against the union’s general secretary-treasurer.

“By opting instead to string this claim along, the majority encourages a spate of sore loser lawsuits from union members upset with bygone elections,” Wilkinson wrote. “Such litigation undermines the ability of a union electorate to choose its leaders and effectively creates a second forum for resuscitating lost races, all to the detriment of union democracy.”

Wilkinson wrote Gardner’s nearly three-year delay in bringing her lawsuit “renders it barred by laches,” and noted Gardner and the union’s disagreements “should have been aired in the electoral arena.”