Arroyo v. United States/Dissent Clark

by Tom C. Clark

United States Supreme Court

359 U.S. 419

Arroyo  v.  United States

 Argued: March 2, 1959. --- Decided: May 4, 1959

Mr. Justice CLARK, with whom Mr. Justice FRANKFURTER, Mr. Justice DOUGLAS and Mr. Justice WHITTAKER join, dissenting.

The Court sets petitioner free. In so doing, it assumes that he violated local criminal law, but holds that he did not offend § 302(b) of the Labor Management Relations Act of 1947. It is admitted that the petitioner, as a representative of employees who are employed in an industry affecting commerce, accepted two checks for $7,500 each from employers. Instead of subsequently depositing these checks in the existing welfare fund bank account, withdrawals from which required the joint signatures of the petitioner and a representative of the eplo yers, he deposited the checks in another bank. Six days thereafter he presented to the latter bank a spurious resolution authorizing withdrawals from this account upon petitioner's signature alone. Admittedly petitioner used the money in this account for his own personal purposes. Several months thereafter the balance in the account was transferred to another account in another bank and the funds therefrom were likewise used for nonwelfare purposes. The theory of the Court seems to be that since the employers issued the two checks in good faith, with the intent that the money go to the welfare fund of the union, the receipt of the checks was therefore for the sole purpose of completing this lawful payment. Hence, the Court reasons, '(W)hat the petitioner received were checks 'paid to a trust fund.' The transaction, therefore, was within the precise language of § 302(c), and thus was not a violation of § 302(b).' The Court further states that this conclusion would follow 'whether his (petitioner's) intent to misappropriate existed at the time of receipt or was formed later.'

It is true that the employers had written on the vouchers attached to the checks, 'Covering: Welfare fund for the year 1953, in accordance with contract signed on Feb. 21, 1953.' The Court says that by these tags you shall know the nature of this fund. I think the Court has reached the wrong result by a failure to distinguish between the lawful fund set up under the collective bargaining agreement, and the spurious fund set up by petitioner.

It is well that we review the uncontradicted evidence. The bargaining agreement provided that each employer should establish a $15,000 welfare fund which 'shall be used to furnish and provide the workers of the Employer covered by this Agreement and the members of their direct family' with certain welfare benefits. It further provided that the fund should be administered by a committee appointed by mutual agreement. This committee was composed of the petitioner and the representative of the employers. The evidence showed that the fund was to be identical in amount and purpose to a welfare fund which had been created in 1952 in a previous collective bargaining agreement. An existing bank account at the Banco de Ponce contained the balance left over from the 1952 welfare fund. In previous years the employer contributions to the welfare fund had been deposited directly by the employers into this welfare account. It was a joint account authorizing withdrawal of funds only on the joint signature of the employer representative as well as the petitioner.

It appears, however, that after the signing of the 1953 agreement the petitioner requested the employers to issue the checks and give them to him on the ruse that he would like to exhibit them to the union meeting which was to be held that evening. The employers issued and delivered the checks to the petitioner for deposit in the existing trust fund. The checks were made payable, however, to the union, rather than to the welfare fund; and, as I have stated, the petitioner opened up a new bank account in the National City Bank instead of depositing the checks in the old trust fund account. This new account was in the name of the union, and, while it was labeled as a welfare fund, withdrawals therefrom could be made on the signature of the petitioner alone. After so establishing the account under his exclusive control, petitioner then withdrew large sums of money for his personal use.

The indictment charged petitioner with receiving the $15,000 for his own use and specifically charged 'nor was such sum of money received as a payment to a trust fund.' As the Court says, the evidence properly supports 'an inference that the petitioner's purpose from the outset was to appropriate the two checks for his own use.' The fact of the matter is that the evidence shows that the petitioner's action in so receiving the checks was contrary to the agreement between the parties and in no wise complied wih p rovisions of § 302(c)(5). In the light of the circumstances, as the jury found, there was no payment to a trust fund as specifically required by the provisions of the Act.

I am sure that the Court agrees that the petitioner's conduct came within the 'broad prohibition' of § 302(b). The only question, therefore, is whether he may properly be exculpated by the provisions of subsection (c)(5), which is quoted in full in the margin. ^[1] Two conclusions, implicitly drawn by the jury, emerge as indisputable when the evidence is compared with this subsection. In the first place, the statutory exception applies only when the money or other thing of value is 'paid to a trust fund,' and it is clear that insofar as a lawful fund was in existence the checks were not 'paid' to it. They were made out payable to the union. Neither the checks nor the money from them ever came near the bona fide trust fund account at the Banco de Ponce. From the moment they were received by petitioner, he had complete control over them. ^[2]

Secondly, even a casual reading of the subsection shows, as I am sure the Court itself would agree, that the spurious fund established by the petitioner in the National City Bank failed to comply with the statute in almost every respect. Since the checks were deposited in a union account and subject to the control of petitioner, the payments were not held in trust, as required by the subsection. Moreover, the fund which he created bydep ositing the checks was not subject to the administration of both the employees and the employers, but was subject to the sole control of the petitioner. As the judge instructed the jury, 'a plan does not exist, lawfully exist, until it meets all those requirements' of the subsection. Since the sole purpose of the exception as set out in the Act was to permit the creation of a bona fide trust fund, it is obvious that the purposes of the Act were not complied with here because petitioner established no trust fund whatsoever. On the contrary, the checks were made payable to, and deposited in the name of, the union of which the petitioner was the President. His was the only authorized signature permitting withdrawals from the fund. In fact, the receipt of the checks by the petitioner as trust fund moneys was merely a sham. It does not matter what the intent of the employers was in delivering the checks since, as the Court itself says, the statute does not require mutuality of guilt. ^[3] The petitioner, by receiving the checks from the employers and through artifice and deceit, has deprived the employees of their benefits and stands guilty under § 302(b) of the Act.

Moreover, the legislative history shows that that was the specific intent of the Congress. I need only quote one statement of the managers of the bill in the Senate:

'(U)nless we make sure that such (trust) funds, when they are established, are really trust funds * * * for the benefit to employees specified in the agreement, there is very grave danger that the funds will be used for the personal gain of union leaders * * *.' 93 Cong.Rec. 4678.

Furthermore, the Court itself recognizes this to be the purpose of the Congress in enacting the subsection. As the Court says:

'Congress believed that if welfare funds were established which did not define with specificity the benefits payable thereunder, a substantial danger existed that such funds might be employed to perpetuate control of union officers, for political purposes, or even for personal gain * * *. To remove these dangers, specific standards were established to assure that welfare funds would be established only for purposes which Congress considered proper and expended only for purposes for which they were established.' Unfortunately, the Court has converted the 'substantial danger' into an immunity bath. Section 302(b) is in all practical effect repealed. All that labor racketeers, or, for that matter, employers as well, need do is to negotiate an agreement containing a qualifying 'welfare fund' and then make sure that the vouchers on the employer checks contain some kind of notation that the money is paid for that fund. Although the Court says, 'Both would be guilty if the payment were ostensibly made for one of the lawful purposes specified in § 302(c) if both knew that such a purpose was merely a sham,' it is clear that the injection of this subtle and elusive mental element of duplicity is enough to make successful prosecution next to impossible.

Nor is the fact that the petitioner might be prosecuted under state law any answer to the problem. In a long line of cases coming to this Court involving industrial controversies where the State exercised authority, it has been held that the area involved had been pre-empted by the National Labor Relations Act and the Labor Management Relations Act. See Weber v. Anheuser-Busch, Inc., 1955, 348 U.S. 468, 75 S.Ct. 480, 99 L.Ed. 546. It is a strange contradiction here for the Court to force employees to go to the state courts for redress of this most important sanction of the Labor Management Relations Act. Petitioner argues, and the Court sustains him, that he can only be prosecuted for embezzlement, a felony under the laws of Puerto Rico; ^[4] that he cannot be convicted of this misdemeanor under the Taft-Hartley law. ^[5] The opinion today may make this common, but it does not make it sense. I oul d affirm.

Notes

1. '(c) The provisions of this section shall not be applicable * * * (5) with respect to money or other thing of value paid to a trust fund established by such representative, for the sole and exclusive benefit of the employees of such employer, and their families and dependents (or of such employees, families, and dependents jointly with the employees of other employers making similar payments, and their families and dependents): Provided, That (A) such payments are held in trust for the purpose of paying, either from principal or income or both, for the benefit of employees, their families and dependents, for medical or hospital care, pensions on retirement of death of employees, compensation for injuries or illness resulting from occupational activity or insurance to provide any of the foregoing, or unemployment benefits or life insurance, disability and sickness insurance, or accident insurance; (B) the detailed basis on which such payments are to be made is specified in a written agreement with the employer, and employees and employers are equally represented in the administration of such fund, together with such neutral persons as the representatives of the employers and the representatives of the employees may agree upon and in the event the employer and employee groups deadlock on the administration of such fund and there are no neutral persons empowered to break such deadlock, such agreement provides that the two groups shall agree on an impartial umpire to decide such dispute, or in the event of their failure to agree within a reasonable length of time, an impartial umpire to decide such dispute shall, on petition of either group, be appointed by the district court of the United States for the district where the trust fund has its principal office, and shall also contain provisions for an annual audit of the trust fund, a statement of the results of which shall be available for inspection by interested persons at the principal office of the trust fund and at such other places as may be designated in such written agreement; and (C) such payments as are intended to be used for the purpose of providing pensions or annuities for employees are made to a separate trust which provides that the funds held therein cannot be used for any purpose other than paying such pensions or annuities.'
2. If the voucher had said 'in payment of 1952 federal income taxes,' and petitioner had put the checks in a bank account labeled 'United States Treasury,' query: would the companies' income taxes have been 'paid'?
3. We in nowise intimate or suggest that these employers violated the Act.
4. Laws of Puerto Rico Ann., Tit. 33, §§ 1721, 1731, 1683.
5. Petitioner's argument in this regard also shows that this is not an instance where, even in the absence of bad faith, a man is sent to jail for an inadvertent failure to comply with rigid bookkeeping requirements. Cf. Sayre, The Present Signification of Mens Rea in the Criminal Law, Harvard Legal Essays (1934), 399, 409.