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April 28, 1971

Willie Ray Blankenship et al., Plaintiffs
W.A. (Tony) Boyle et al., Defendants

Gesell, D. J.

The opinion of the court was delivered by: GESELL


This is a derivative class action brought on behalf of coal miners who have a present or future right to benefits as provided by the United Mine Workers of America Welfare and Retirement Fund of 1950. Plaintiffs have qualified under Rule 23.2 of the Federal Rules of Civil Procedure. Jurisdiction is founded on diversity and on the general jurisdiction of this Court, 11 D.C. Code § 521, in effect at the time suit was filed.

 Defendants are the Fund and its present and certain past trustees; the United Mine Workers of America; and the National Bank of Washington and a former president of that Bank. *fn1"

 Plaintiffs seek substantial equitable relief and compensatory and punitive damages for various alleged breaches of trust and conspiracy. Defendants oppose these claims on the merits and in addition interpose defenses of laches and the statute of limitations. The issues were specified at pretrial conferences, and after extensive discovery the case was tried to the Court without a jury. Following trial, the case was fully argued and detailed briefs were exchanged. This Opinion constitutes the Court's findings of fact and conclusions of law on the issues of liability and equitable relief.



 A. Organization and Purpose of the Welfare Fund

 The Fund was created by the terms of the National Bituminous Coal Wage Agreement of 1950, executed at Washington, D.C., March 5, 1950, between the Union and numerous coal operators. It is an irrevocable trust established pursuant to Section 302(c) of the Labor-Management Relations Act of 1947, 29 U.S.C. § 186(c), and has been continuously in operation with only slight modifications since its creation.

 The Fund is administered by three trustees: one designated by the Union, one designated by the coal operators, and the third a "neutral party designated by the other two." The Union representative is named Chairman of the Board of Trustees by the terms of the trust. Each trustee, once selected, serves for the term of the Agreement subject only to resignation, death, or an inability or unwillingness to serve. The original trustees named in the Agreement were Charles A. Owen for the Operators, now deceased; John L. Lewis for the Union, now deceased; and Miss Josephine Roche. The present trustees are W.A. (Tony) Boyle, representing the Union; C.W. Davis, representing the Operators; and Roche, who still serves. *fn2"

 Each coal operator signatory to the Agreement (there are approximately fifty-five operator signatories) is required to pay a royalty (originally thirty cents, and now forty cents per ton of coal mined) into the Fund. These royalty payments represent in excess of ninety-seven percent of the total receipts of the Fund, the remainder being income from investments. In the year ending June 30, 1968, royalty receipts totalled $163.1 million and investment income totalled $4.7 million. Total benefit expenditures amounted to $152 million.

 In general, the purpose of the Fund is to pay various benefits, "from principal or income or both," to employees of coal operators, their families and dependents. These benefits cover medical and hospital care, pensions, compensation for work-related injuries or illness, death or disability, wage losses, etc. The trustees have considerable discretion to determine the types and levels of benefits that will be recognized. While prior or present membership in the Union is not a prerequisite to receiving welfare payments, more than ninety-five percent of the beneficiaries were or are Union members.

 The Fund has maintained a large staff based mainly in Washington, D.C., which carries out the day-to-day work under policies set by the trustees. Roche, the neutral trustee, is also Administrator of the Fund serving at an additional salary in this full-time position. Thomas Ryan, the Fund's Comptroller, is the senior staff member next in line.

 The trustees hold irregular meetings, usually at the Fund's offices. Formal minutes are prepared and circulated for approval. In the past, a more detailed and revealing record of discussions among the trustees has been prepared and maintained in the files of the Fund by the Fund's counsel, who attended all meetings. The Fund is regularly audited, and a printed annual report summarizing the audit and other developments was published and widely disseminated to beneficiaries, Union representatives, and coal operators, as well as to interested persons in public life.

 From the outset the trustees contemplated that the Fund would operate on a "pay-as-you-go" basis -- that is, that the various benefits would be paid out largely from royalty receipts rather than solely from income earned on accumulated capital. Always extremely liquid, the Fund invested some of its growing funds in United States Government securities and purchased certificates of deposit. It also purchased a few public utility common stocks, and in very recent years invested some amounts in tax-free municipal securities. The chart attached as Appendix A reflects in a general way the growth of the Fund's assets and its investment history until June 30, 1969.

  From its creation in 1950, the Fund has done all of its banking business with the National Bank of Washington. In fact, for more than twenty years it has been the Bank's largest customer. When this lawsuit was brought, the Fund had about $28 million in checking accounts and $50 million in time deposits in the Bank. The Bank was at all times owned and controlled by the Union which presently holds 74 percent of the voting stock. Several Union officials serve on the Board of Directors of the Bank, and the Union and many of its locals also carry substantial accounts there. Boyle, President of the Union, is also Chairman of the Board of Trustees of the Fund and until recently was a Director of the Bank. *fn3" Representatives of the Fund have also served as Directors of the Bank, including the Fund's house counsel and its Comptroller. The Fund occupies office space rented from the Union for a nominal amount, located in close proximity to the Union's offices.

 B. The Responsibilities of the Trustees

 The precise duties and obligations of the trustees are not specified in any of the operative documents creating the Fund and are only suggested by the designation of the Fund as an "irrevocable trust." There appears to have been an initial recognition by the trustees of the implications of this term. Lewis, who was by far the dominant factor in the development and administration of the Fund, stated at Board meetings that neither the Union's nor the Operators' representative was responsible to any special interest except that of the beneficiaries. He declared that each trustee should act solely in the best interests of the Fund, that the day-to-day affairs of the Fund were to be kept confidential by the trustees, that minutes were not to be circulated outside the Fund, and that the Fund should be soundly and conservatively managed with the long-term best interests of the beneficiaries as the exclusive objective. While he ignored these strictures on a number of occasions, as will appear, his view is still accepted by counsel for the Fund in this action, who took the position at oral argument that the duties of the trustees are equivalent to the duties of a trustee under a testamentary trust. Counsel stated, "You can't be just a little bit loyal. Once you are a trustee, you are a trustee, and you cannot consider what is good for the Union, what is good for the operators, what is good for the Bank, anybody but the trust." (Tr. 2590).

 This view, which corresponds with plaintiffs' position, is not accepted by all parties. While acknowledging that a trustee must be "punctilious," counsel for some of the parties urge that trustees as representatives of labor or management may properly operate the Fund so as to give their special interests collateral advantages (e.g., managing trust funds so as to increase tonnage of Union-mined coal), and that this is not inconsistent with fiduciary responsibility since such actions ultimately assist beneficiaries by raising royalty income. But there is nothing in the Labor-Management Relations Act or other federal statutes or in their legislative history which can be said to alleviate the otherwise strict common-law fiduciary responsibilities of trustees appointed for employee welfare or pension funds developed by collective bargaining. Indeed, the statute under which the 1950 Fund is organized was designed expressly to isolate such welfare funds from labor-management politics. In Lewis v. Seanor Coal Co., 382 F.2d 437, 442 (3d Cir. 1967), the court indicated that Congress was motivated by the example of the UMWA's pre-1950 Fund:


This provision was written into the statute because of the special concern of Congress over the welfare fund of the United Mine Workers of America, which already was in existence and which Senator Taft described as administered without restriction by the union so that "practically the fund became a war chest . . . for the union."

 See also United States v. Ryan, 350 U.S. 299, 304-05, 100 L. Ed. 335, 76 S. Ct. 400 (1956).

 It is true that trustees are allowed considerable discretion in administering a trust as large and complex as the Fund. In determining the nature and levels of benefits that will be paid by a welfare fund and the rules governing eligibility for benefits, the trustees must make decisions of major importance to the coal industry as well as to the beneficiaries, and their actions are valid unless arbitrary or capricious. E.g., Roark v. Lewis, 130 U.S. App. D.C. 360, 401 F.2d 425, 426 (1968); Kosty v. Lewis, 115 U.S. App. D.C. 343, 319 F.2d 744, 747 (1963). On these matters, trustee representatives of the Union and the Operators may have honest differences in judgment as to what is best for the beneficiaries. Congress anticipated such differences in enacting § 302(c) of the Labor-Management Relations Act, and sought to temper them by the anticipated neutrality of the third trustee. The congressional scheme was thus designed not to alter, but to reinforce "the most fundamental duty owed by the trustee": the duty of undivided loyalty to the beneficiaries. 2 Scott on Trusts § 170 (3d ed. 1967). This is the duty to which defendant trustees in this case must be held.

 C. Conduct of the Trustees

 Before dealing in detail with the specific breaches of trust alleged, a general comment concerning the conduct of the trustees is appropriate to place the instances of alleged misfeasance into proper context. It has already been noted that the trustees did not hold regular meetings but only met subject to the call of the Chairman. There was, accordingly, no set pattern for deciding policy questions, and often matters of considerable import were resolved between meetings by Roche and Lewis without even consulting the Operator trustee.

 The Fund's affairs were dominated by Lewis until his death in 1969. Roche never once disagreed with him. Over a period of years, primarily at Lewis' urging, the Fund became entangled with Union policies and practices in ways that undermined the independence of the trustees. This resulted in working arrangements between the Fund and the Union that served the Union to the disadvantage of the beneficiaries. Conflicts of interest were openly tolerated and their implications generally ignored. *fn4" Not only was all the money of the Fund placed in the Union's Bank without any consideration of alternative banking services and facilities that might be available, but Lewis felt no scruple in recommending that the Fund invest in securities in which the Union and Lewis, as trustee for the Union's investments, had an interest. Personnel of the Fund went on the Bank's board without hindrance, thus affiliating themselves with a Union business venture. In short, the Fund proceeded without any clear understanding of the trustees' exclusive duty to the beneficiaries, and its affairs were so loosely controlled that abuses, mistakes and inattention to detail occurred.


 Accumulation of Excessive Cash

 A. The Breach of Trust

 The major breach of trust of which plaintiffs complain is the Fund's accumulation of excessive amounts of cash. A basic duty of trustees is to invest trust funds so that they will be productive of income. E.g., Barney v. Saunders, 57 U.S. (16 How.) 535, 542, 14 L. Ed. 1047 (1853); Spruill v. Ballard, 36 F. Supp. 729, 730 (D.D.C. 1941); In re Hubbell's Will, 302 N.Y. 246, 97 N.E. 2d 888, 892 (1951); 2 Scott on Trusts § 181 (3d ed. 1967). It is contended that the trustees failed to invest cash that was available to generate income for the beneficiaries, and in total disregard of their duty allowed large sums to remain in checking accounts at the Bank without interest. It is further claimed that this breach of trust was carried out pursuant to a conspiracy among certain trustees, the Union, and the Bank through its President, and that all these parties are jointly liable for the Fund's loss of income resulting from the failure to invest. That enormous cash balances were accumulated and held at the Bank over the twenty-year period is not disputed. The following figures are representative. Amount of Cash Percentage of in Demand Cash To the Fiscal Deposits at Fund's Total Year End of Year Resources 1951 $ 29,000,000 29% 1956 30,000,000 23% 1961 14,000,000 14% 1966 50,000,000 34% 1967 75,000,000 44% 1968 70,000,000 39% 1969 32,000,000 18%


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