Local Union No. 400 of the International Union of Operating Engineers v. Bosh

No. 84-466
IN THE SUPREME COURT OF THE STATE OF MONTANA
1986

LOCAL UNION NO. 4 0 0 OF THE
INTERNATIONAL UNION OF OPERATING
ENGINEERS,
Plaintiffs and Respondents.

VINCENT J. BOSH, ROBERT VOYTOSKI,
JOHN C. FALL, ROB F. DAVIS, and
JAMES KRUSE and FIDELITY & DEPOSIT
COMPANY OF MARYLAND,
Defendants and Appellants.

APPEAL FROM: District Court of the First Judicial District,
In and for the County of Lewis & Clark,
The Honorable Gord-on Bennett, Judge presiding.

COUNSEL OF RECORD:

For Appel lant:
Cannon & Sheehy; Edmund F. Sheehy, Jr. argued,
Helena, Montana

For Respondent:
Gough, Shanahan, Johnson & Johnson; Ronald F. Waterman
argued, Helena, Montana
Goetz, Madden & Dunn; James Goetz, Bozeman, Montana

Submitted: December 5, 1 9 8 5
Decided: February 27, 1986

Filed:
Mr. Justice L. C. Gulbrandson delivered the Opinion of the
Court.

The defendants appeal from a jury verdict and jud.gment
in favor of plaintiffs and respondents, Local Union No. 400
of the International Union of Operating Engineers
(hereinafter Local 400), in Lewis and Clark County District
Court. Defendants question Local 400's standing to file the
action; whether Local 400 failed to establish it was entitled
to an accounting, thus barring recovery; whether Local 400
should have been required to answer certain interrogatories;
whether jury instructions on defendants' fiduciary duty to
the Union, constructive fraud and the burden of proof, among
others, were improper; and whether substantial evidence
supported the verdict. We affirm.
Vincent J. Bosh held the position of business manager
for Local 400 from 1976 until August. 1981. Robert Voytoski
and Bob F. Davis sat on Local 400's executive board and both
were assistant business managers as well.
In April 1981, Bosh announced. he would not run for
reelection in the upc~mingAugust 1981 elections for health
reasons. He then wer~t on sick leave but continued to make
all of the major decisions pertaining to Local 400 and drew
his regular salary. Voytoski and Davis handled Local 400's
day to day affairs. Neither Voytoski nor Davis were
candidates for business manager. After William Burli-ngame
won the August election, a number of candidates filed
protests. As a result, he was not installed into office as
scheduled. Local 400's executive board installed Voytoski as
business manager pro tem. Davis continued as an assistant
business manager. Jack Ball, not a party on appeal, also
acted as an assistant business manager pro tem following the
August election. Burlingame's supporters filed protests to
the International President of the Union who ordered that the
pro tem administration vacate office and install the newly
elected officers. This occurred on September 30, 1981.
After the new officers assumed their duties, Burlingame
hired an accountant to conduct a special audit for January
through September 30, 1981. The audit report criticized
Bosh's administration. The results demonstrated an increase
in expenditures, a large decline in value of assets and a
large increase in liabilities, despite a steady income from
dues.
In June 1982, Local 400 filed suit against Bosh,
Voytoski, Davis and the other defendants. The complaint
requested an accounting, reimbursement of misappropriated
funds, production of Union files and indemnification to the
Union from the bonding company joined in the suit. Some
allegations in the action relied on 29 U.S.C. S401, et. seq.
of the Labor Management Reporting and Disclosure Act (LMRDA).
Defendants removed the litigation to federal court and then
moved to dismiss the complaint arguing Local 400 had no
standing to raise the issues. The federal district court
dismissed the claims and remanded the action back to state
district court. The defendants then made another motion to
dismiss and Local 400 requested reinstatement of the claims
under federal law. The state district court denied both
requests.
In May 1984, six weeks before trial, the District Court
allowed Local 400 to amend its compl-aint to assert theories
of constructive fraud and wrongful conversion of property.
On the day of trial, the claim against the bonding company
was severed from the claims against Bosh and the other
defendants. At the close of all the evidence, the defendants
moved for a directed verdict. As a result, the District
Court dismissed all claims against defendant James Kruse and
some of the claims a-gainst the four remaining defendants.
The jury found in favor of defendant John C. Ball; assessed
damages against Bosh, Voytoski and Davis for $3,000; and
assessed damages against Bosh individually for $46,404.
Bosh, Voytoski and Davis appeal from the jury verdict
and subsequent judgment entered thereon by the District
Court. They present five issues on appeal:
(1) Did the District Court correctly deny defendants'
motion for summary judgment claiminq Local 400 lacked
standing or the capacity to file the action?
(2) Did the District Court correctly deny defendants1
motion for a directed verdict claiming Local 400 failed to
establish it was entitled to an accounting?
(3) Did the District Court correctly deny defendants1
motion to dismiss claiming Local 400 should have been
required to answer interrogatories submitted by defendants?
(4) Did the District Court properly instruct the jury?
(5) Was the jury verdict supported by sufficient
evidence?
In the first issue, appellants contend that Local 400
failed to exhaust the internal remedies prior to taking
action in district court. They urge this Court to adopt the
position that a union lacks standing to sue whenever it fails
to exhaust administrative remedies available under the
union's constitution. Montana has not yet addressed the
question of whether an action for breach of fiduciary duty
will stand prior to an exhaustion of internal remedies.
Other state courts have required the pursuit of internal
remedies when the dispute concerns internal matters such as
union policy, doctrine or discipline of members. See, e.g.
Williams v. Vickers (Nev. 1958), 321 P.2d 586 (union members'
action to enjoin union officers from acting contrary to
international union's constitution denied for failure to
exhaust internal remedies). In De Monbrun v. Sheet Metal
Workers Internat'l Ass'n. (Cal. 19561, 295 P.2d 8811 the
California court held that the plaintiffs' actions for
misappropriation and mismana.gement of funds against a union
officer could be pursued in state court despite their failure
to exhaust internal remedies because the actions concerned
protection of property rights.
". .
. [I]f property rights are involved
in the absence of an express agreement to
exhaust the remedies provided within the
association, the member may resort to the
courts without using the within-the-Union
remedies. And where property rights are
involved the member need not first pursue
the remedies within the association, if
they would be futile, illusory, or vain."
Nissen v. International Brotherhood, Etc. (Ia. 1941) , 295
N.W. 858, 866, cited in De Monbrun, 295 P.2d at 894.
The case at bar concerns protection of union property
and does not deal with internal matters. Local 400 pursued
their action in District Court to recover money and property
lost through defendants' brea.ch of fiduciary duty owed to the
Union and its members. This is not a controversy over
discipline, doctrine or policy. The remedy available through
intra-union procedures provides for discipline to and
possible expulsion of a member who violates his obligation
with respect to Union monies, but does not provide for any
recovery of the misappropriated ful~ds. Since Local 400's
cause of action requested recovery of Union money and
property, a remedy not available through union procedures,
exhaustion of Union remedies would not afford the desired
result and would be futile. We hold that the District Court
correctly determined Local 400 need not exhaust internal
remedies and therefore could pursue this action in District
Court. Defendants' motion for summary judgment was properly
denied.
Defendants urge, in the second issue, that because
Local 400 failed to prove it had made a demand for and had
been refused an accounting, the District Court should have
granted them a directed verdict. Generally the demand for an
accounting need not be in any particular form, so long as it
is sufficiently explicit to leave no room for doubt in a
defendant's mind that the plaintiff intended to demand an
accounting. Johnston v. Silver (1921), 59 Mont. 195, 196 P.
515. Local 400 relied on a letter sent to each of the Union
officers asking for "answers and/or comments" to a list of
questioned costs and remarks, as a sufficient demand for an
accounting and defendantsVack of response as a refusal.
When defendants made their motion for a directed verdict at
the close of Local 400's case, the District Court ruled that
the question was one of fact for the jury and denied the
motion. The jury could have found, on this evidence, that
there had been both a demand and refusal. Since there was
substantial evidence on both sides of this dispute, the
District Court correctl-y refused to grant a directed verdict.
Gunnels v. Hoyt (Mont. 1981), 633 P.2d 1187, 38 St.Rep. 1492.
 We note that the jury d-id not award an accounting but
instead independently calculated the money due from
defendants. Defendants assert, in this appeal, that any
verdict in favor of Local 400 depends on their entitlement to
an accounting. We disagree. The action for an accounting
was separate from the causes of action for constructive
fraud, breach of fiduciary duty and conversion of property.
As such, even if a directed verdict had been appropriate on
this issue, the District Court's refusal to so order is
harmless error, given the jury verdict.
In their third issue defendants argue that this action
should have been dismissed prior to trial when Local 400
failed to answer certain interrogatories. Local 400 had
objected to the interrogatories seeking discovery of the
legal theories of its complaint. While the District Court's
order does not specify why it denied defendants' motion to
dismiss, it appears from the record that the legal theories
were readily avails-ble in earlier documents and briefs. Ry
the time the hearing on this motion was held in January 1984,
the parties had briefed and argued the grounds for removal to
federal court, a motion to dismiss in federal court, the
grounds for the return to state court, and another motion to
dismiss in state court which resulted in dismissal of claimed
violations of 29 U.S.C. 5401, et seq., of the LMRDA. Local
400 fully set forth their reasons why mismanagement and
misappropriation of funds gave rise to a cause of action
under Montana law when replying to these motions. The
District Court did not abuse its discretion when it sustained
Local 400's objections to these interrogatories and refused
to dismiss the claims.
 Defendants claim error in a number of jury instructions
in the fourth issue. They claim that the instructions on
(1) the duty owed by defendants to Local 400, (2) the
burden of proof and (3) constructive fraud confused the
jury; that the District Court erred in refusing their
proposed instruction No. 10; and that the instructions were
slanted in favor of Local 400.
The argument on the nature of the fiduciary duty owed
by the defendants, as union officers, to Local 400 goes to
the heart of the Union's case. Defendants argue that the
care required to satisfy any fiduciary duty of an officer to
a union should be minimal; i.e., if the officer complies with
the union's constitution and by-laws, the fiduciary duty is
satisfied. To so rule could leave predatory actions of
officers insulated from suit. We agree with the Pennsylvania
Supreme Court that:
[I]t would be anomalous if, in handling
the funds of a lahor organization, its
officers and similar agents were not held
to standards of good faith similar to
those imposed upon the officers and
directors of a corporation.
Local No. 163, International Union o f United Brewery, Flour,
Cereal, Soft Drink and Distillery Workers of America v.

Watkins (Pa. 1965), 207 A.2d 776, 781. The better rule
considers the duties, powers and obligations of the
constitution and by-laws and imposes on an officer the
requirement to act reasonably and prudently, a.s any trustee
of funds and property belonqing to another person or entity
would act.
Federa.1 law offers additional authority on the
fiduciary nature of defendants1 positions as union officers.
Congress, when enacting 29 U.S.C. S501 of the LMRDA, accorded
federal protection to rights existing under state law and
intended to hold union officers responsible as fiduciaries
for funds entrusted to them. Some of that section's
legislative history illustrates the applicable fiduciary
principles:
The general principles stated in the hill
are familiar to the courts, both State
and Federal, and therefore incorporate a
large body of existing law applicable to
trustees, and a wide variety of agents
...
H.R. Rep. No. 741, 86th Cong., 1st Sess.
81 (1959).
The bill imposes upon labor union
officials the responsibilities of a
fiduciary. The exact application of
general fiduciary principles always takes
into account the nature of the
enterprise. A corporate director is not
judged in exactly the same fashion as a
family trustee, but both are subject to
the highest duty of fiduciary
responsibility. The bill establishes
exactly the same test for union
officials.
105 Cong. Rec. A6573 (1959), Leg ~ i s t .
1051.
The Fiduciary Duties of Union Officials Under Section 501 of
the LMRDA, 52 Minn.L.Rev. 437, 446 (1967).
In this case, the District Court instructed the jury on
the duty of fiduciary responsibility by comparing it to a
trust relationship; by stating that, as fiduciaries, the
officers were reqired to act prudently; and by allowing the
jury to consider the duties, powers and obligations in the
Union constitution and by-laws. These instructions were
consistent rather than confusing, and accurately set forth
the nature of defendants' responsibilities, as Union
officers, to Local 400.
 The defendants also claim that the instructions on the
burden of proof confused the jury. The court gave a general
instruction that the party who asserts the affirmative of an
issue, has the burden of proving that issue by a
preponderance of the evidence. Following the instructions on
the fiduciary nature of the defendants' position, the
District Court instructed that if a fiduciary profits
personally from the use or receipt of union funds, the burden
shifts to the fiduciary to show he acted reasonably.
Finally, in an instruction which referred to the defendants'
duty to keep proper accounts, the District Court instructed
that the person with the duty has the burden of proving that
he is entitled to the credits he claims. Shifting the burden
to defendants - Local
if 400 proved that they profited
personally from union funds is nothing more than moving the
burden to the party "who would suffer a finding against him,"
if no additional evidence were produced. Section 26-1-401,
MCA. This instruction did not contradict the general
instructions and was not inaccurate. The instruction
referring to keeping proper accounts and the burden of proof
followed a common rule in an action for an accounting, that
the agent or person who has the funds in his control has the
burden of proving a proper disposition of those funds. See,
e.g., 3 Arn.Jur.2d S348, Agency, p. 706 and 90 C.J.S. S 414,

Trusts, p. 782. This instruction specifically referred to
the keeping of proper accounts. As such, it accurately
stated the law, was not improperly slanted toward Local 400
and did not contradict the general instruction.
Defendants contend that the instructions on
constructive fraud should not have been given because this
case did not involve a contract and constructive fraud is not
applicable to an action ?or an accounting or for breach of a
fiduciary duty. This contention inaccurately characterizes
the requirements for an action for constructive fraud.
Dealings or transactions between parties who have a fiduciary
relationship provide a sufficient contract to support such an
action. Here, the questioned transactions involving Union
money and property changing hands, combined with the duties
and obligations between the officers and Local 400,
established the necessary relationship between the parties.
This relationship, along with the other elements established
at trial, supported the District Court's giving of
instructions on constructive fraud.
Defendants' instruction No. 10, refused by the District
Court, stated that money paid by one to another was due to
the other, taken from S 26-1-602(7), MCA. The District Court
refused it as confusing and incorrect as it applied to this
case. The instructions, as a whole, adequately describe the
applicable law. Under the circumstances, the District Court
did not err by refusing this instruction.
In the last part of the fourth issue, the defendants
contend that a number of instructions were biased in Local
400's favor. Most of these challenged instructions are
discussed above. Of the two remaining instructions to be
discussed, we note first that defendants made no objection to
court ' s instruction No. 14. Even if the giving of this
instruction had been error, an instruction not objected to
cannot be the basis for a reversal on appeal.
The last challenged instruction, No. 34, defined
damages and stated generally the measure of damages. Other
subsequent instructions elaborated on the measure of damages
and were given without objection from defendants. Court's
instruction No. 34, along with the other damage instructions,
adequately reflects the definition of damages and their
measure. The evidence and testimony given by Local 400's
witnesses at trial could have supported a larger verdict.
These instructions do not indicate any bias in favor of Local

400.
We hold that the Dj-strict Court properly instructed the

jury.
The final issue raised by defendants questions the
sufficiency of the evidence to support the jury verdict. A
jury's verdict, if supported by substantial evidence, will
not be overturned on appeal. Gibson v. Western Fire Ins. Co.
(Mont. 1984), 682 P.2d 725, 41 St.Rep. 1048. The evidence
may be weak or conflict with other evidence hut still
adequately support the verdict. Gunnels, 633 P.2d 1187, 38
St.Rep. 1492. Defendants contend that because no one
testified as to the specific amount of money they might owe
the Union, the verdict awarding money damages should be
reversed. The jury heard evidence on mismanagement and
self-dealing with regard to Union funds and property. The
financial losses of the Union during Bosh's administration
were part of the evidence. According to Local 400,
defendants failed to make or maintain adequate records of
financial transactions in many instances. This evidence
supported a jury's finding a loss of funds attributable to
the mismanagement and breach of duty of the defendants. The
evidence may have contained contradictions, but it was
substantial and therefore adequate to support the iury's

verdict.

The jury verdict and judgment entered thereon are

affirmed.

/

W e concur: /

--
hief ~ u s t s c e

Honorable Thomas A . Olson,
D i s t r i c t Judge, s i t t i n g i n
p l a c e o f M r . J u s t i c e John
C . Sheehy