Opinion
CIV. S-99-1692 GEB DAD
April 23, 2002
ORDER
This matter was determined to be suitable for decision without oral argument. L.R. 78-230(h). This Order is not selected for publication. As a courtesy to the parties, the Judge directed his staff to provide a copy of this order to the parties via facsimile transmission no later than 11:00 a.m. on April 23, 2002, so they could be apprized of its contents prior to official service.
Plaintiffs seek summary judgment, asserting that Defendants violated the Constitution of the United States by failing to provide adequate notice to non-union members, by including in the fair share fee calculation pro rata expenditures for lobbying and political activities beyond contract ratification and implementation, and by the manner in which Defendants applied California Government Code § 3515.8 to them. Pls.' Mot. for Partial Summ. J. at 1. Defendant Professional Engineers in California Government ("PECG") opposes the motion; Defendant Kathleen Connell, Controller of the State of California, took no position on Plaintiffs' motion. For the reasons stated below, the motion will be granted.
I. Background
PECG and the State of California entered into a Memorandum of Understanding, which contains a union security clause requiring bargaining unit members to either join PECG or pay "fair share fees," as defined by California Government Code section 3513(k). A union security clause "arrangement permits a union, obliged to act on behalf of all employees in the bargaining unit, to charge nonunion workers their fair share of the representation costs. The purposes for which a union may spend the [fair share fee] paid by nonmembers . . . are circumscribed by the First Amendment [of the United States Constitution] (when public employees are involved) . . . ." Airline Pilots Ass'n v. Miller, 523 U.S. 866, 868 (1998).
Plaintiffs are State of California non-union member employees in a bargaining unit represented by PECG who, from April 1, 1999, to and including October 31, 1999, had "fair share fees" taken from their pay. In March 1999, PECG sent a notice ("notice") to the class explaining the basis for the fair share fee and the procedures for objecting to the fee. This notice used expenditure figures from 1998 to determine the fee for 1999 and explained that the fee
was established by doing an expense spreadsheet analysis of a twelve-month period (November 1997 through October 1998) from the audited 1997-1998 financial income/expense statement as prepared by the independent accounting firm of Kumph Leippe ["KL"]. This financial information was then used to establish the percentage of dues chargeable to fair share fee payers for the 1999 fee payer year.
Declaration of Robert A. Esernio, Ex. 1. PECG set the fee for the class at $32.50 per month, $2.00 per month less than full membership dues. Id. The notice categorized PECG's expenditures by activity and delineated the activities deemed chargeable and nonchargeable. Id. Accompanying the notice was an "Independent Accountant's Report" prepared by KL. Id., Ex. 2. This report avers that the accountants "examined" PECG's assertion that it "complied with Government Code Section 3513(j) in regards to fair share fee deductions during the year ended October 31, 1998." Id. The notice was subsequently amended and reissued in October 1999. Id., Ex. 3.
Plaintiffs filed this class action lawsuit in 1999. The Order dated March 7, 2000, denied in part and granted in part Plaintiffs' motion for summary judgment. Summary judgment was granted on Plaintiffs' claim that PECG's Political Action Committee fund objection procedure was unconstitutional. March 7, 2002, Order at 12. Summary judgment was denied on Plaintiffs' claim that § 3515.8 is unconstitutional on its face and as applied against Plaintiffs because the challenge had "not been shown to present a concrete issue for judicial review." Id. at 14. At the time of that ruling, Plaintiffs were in arbitration, seeking return of the disputed fee. Therefore, Plaintiffs had not shown their challenge to the manner in which § 3515.8 had been applied to them was ripe for judicial decision since it was unclear whether Plaintiffs would be able to "demonstrate that they would suffer the harm alleged — retention of their fees by PECG after objection for allegedly nonchargeable costs under [Lehnert v. Ferris Faculty Ass'n, 500 U.S. 507 (1991)]." Id. at 13. Plaintiffs seek summary judgment on the remaining claims in their complaint.
II. Analysis
A. Required Notice
Plaintiffs assert that PECG's notice was not properly audited and therefore was unconstitutional under Chicago Teachers Union v. Hudson, 475 U.S. 292 (1986), and its progeny. PECG counters that the notice met the audit requirements articulated in Hudson. The First Amendment demands that public-sector unions with a union security clause, such as PECG, provide non-union members with "an adequate explanation of the basis for the [fair share] fee . . . ." Hudson, 475 U.S. at 310. Certain procedural safeguards are necessary to "prevent compulsory subsidization of ideological activity by employees who object thereto without restricting the Union's ability to require every employee to contribute to the cost of collective-bargaining activities." Id. at 302 ( quoting Abood v. Detroit Bd. of Educ., 431 U.S. 209, 237 (1977)). The Supreme Court explained in Hudson that "[t]he Union need not provide nonmembers with an exhaustive list of all its expenditures, but adequate disclosure surely would include the major categories of expenses, as well as verification by an independent auditor ." Id at 307 n. 18 (emphasis added).
The Ninth Circuit is unequivocal in requiring the Union to audit the expenditures in the notice. See Foster v. Mahdesian, 268 F.3d 689 (9th Cir. 2001); Prescott v. County of El Dorado, 177 F.3d 1102 (9th Cir. 1999); Knight v. Kenai Peninsula Borough Sch. Dist., 131 F.3d 807 (9th Cir. 1997). "[T]he financial statements accompanying the notice must be audited (not merely reviewed) in order to assure that the union has actually spent the amounts of money it claimed to have spent on the chargeable activities." Prescott, 177 F.3d at 1112 ( quoting Knight, 131 F.3d at 813). Non-union members are entitled to the assurances provided by an audit "that the reviewed books of an organization really do reflect the concrete world transactions to which they refer." Id. at 1107-08.
PECG's accountant, Ms. Katherine Leippe, gave deposition testimony that she had not performed any work regarding PECG's asserted expenditures in the notice. Deposition of Katherine Leippe ("Leippe Dep.") at 40. Ms. Leippe testified, "Nowhere does it say these are audited numbers. It just says PECG is saying these are their expenditures. I'm not saying those are the expenditures. PECG is saying that." Id. at 39. This point was reiterated when Ms. Leippe responded affirmatively at her deposition when asked if the following was a correct summary: "The independent accountant's report . . . offers no opinion whatsoever about the underlying financial statements . . . [and] is intended to provide no assurance whatsoever to the reader that PECG's expenditures for the 12-month period ending October 31, 1998, are fairly stated in page 1 of the PECG notice to fee payers." Id. at 55-56.
Notwithstanding Ms. Leippe's testimony that she did not audit the expenditures detailed in the notice, PECG argues it fulfilled its audit requirements (1) because its 1997-1998 financial income/expense statements were audited and (2) it used those audited numbers to establish the expenditures detailed in the notice. But the Ninth Circuit rejected a similar argument in Knight, 131 F.3d at 813. The union inKnight asserted that the notice "was generated through the use of two audited reports . . . and that there was no need for an auditor to confirm that [the union] had performed the mathematical adjustment correctly." Id. The Ninth Circuit stated that the purpose of the notice "is to provide the [non-union member] employee with sufficient information to gauge the propriety of the" fair share fee, and this is accomplished when the expenditures detailed in the notice are audited.Id. "The purpose of an audit is to have an independent accountant determine whether the union has actually spent the amounts of money it claimed to have spent on the chargeable activities." Id. Ms. Leippe testified that an audit of the expenditures detailed in the notice did not occur and that the audited figures on which PECG relied are not relevant to the expenditures detailed in the notice. Leippe Dep. at 32. Thus, as in Knight, although the unaudited information in the notice was generated through the use of audited information, since the information in the notice itself is unaudited it is insufficient for the non-union members "to gauge the propriety of the unions s fee." Knight, 131 F.3d at 812. This is because the notice information has not been audited by an independent accountant for the purpose of determining "whether the union actually spent the amounts of money it claimed to have spent on the chargeable activities." Id. at 813.
The Supreme Court specifically requires unions to have an independent auditor verify the expenditures detailed in a Hudson notice. See Hudson, 475 U.S. at 307 n. 18. Since Ms. Leippe disavows having done that, PECG has failed to show it satisfied the notice requirements of the First Amendment. Therefore, Plaintiffs are granted summary judgment on this claim.
B. Agency Fee Calculation
Plaintiffs also seek summary judgment on their claim that PECG wrongfully included nonchargeable expenditures in the notice. PECG counters that Plaintiffs may not litigate the Hudson notice issues and the agency fee calculation in the same case. Opp'n at 5-6. In support of this argument, PECG relies on the following language in Knight: "at the notice stage, we do not decide whether expenses are properly chargeable." This language does not apply to the stage of the proceedings at issue here which properly includes litigation over whether expenses are chargeable under Lehnert.
PECG has the burden of showing the chargeability of particular expenses.
If a nonmember fee payer has carried the burden of pointing to questionable allocations, the burden of persuading the court that an expenditure was on the correct side of the line is with the union. It has the burden of persuasion because it is seeking to mulct an unwilling person for fees and must show its entitlement to them."Prescott, 177 F.3d at 1110.
Plaintiffs "point[ed] to questionable expenditures," challenging (1) Category 24 — Legislative Activity Related to Collective Bargaining; (2) Category 29 — Initiatives; and (3) Category 41 — Legislative Political Action, thus meeting their minimal burden of production on this point. PECG therefore has to establish these expenditures are for lawfully chargeable activities. See Prescott, 177 F.3d at 1110.
In Lehnert, the Supreme Court articulated a three-part test to determine if an activity is properly chargeable: the activity "must (1) be `germane' to collective-bargaining activity; (2) be justified by the government's vital policy interest in labor peace and avoiding `free riders'; and (3) not significantly add to the burdening of free speech that is inherent in the allowance of an agency or union shop." Air Line Pilots Ass'n, 523 U.S. at 874 (quoting Lehnert, 500 U.S. at 519). PECG asserts "[t]his test contemplates that lobbying and political expenditures which are germane to collective bargaining activity could constitute chargeable expenditures." Opp'n at 7. However, PECG fails to show how any of the challenged expenditures are "germane to collective bargaining activity." Since PECG has not carried its burden of evincing the lawfulness of these expenditures, Plaintiffs' summary judgment motion on this claim is granted.
II. Remedies
A. Injunctive Relief
Plaintiffs assert since they "complain of ongoing violations of their First Amendment rights" an injunction should issue. Pls.' Mem. of P. A. at 23. PECG counters that Plaintiffs have not met the requirements for an injunction.
"The requirements for the issuance of a permanent injunction are the likelihood of substantial and immediate irreparable injury and the inadequacy of remedies at law." American-Arab Anti-Discrimination Comm. v. Reno, 70 F.3d 1045, 1066-67 (9th Cir. 1995) (internal citation omitted); see also Weinberger v. Romero-Barcelo, 456 U.S. 305, 313 (1982) (federal judge is not obligated to grant injunctive relief for every violation of law). "Injunctive relief is proper only if monetary damages or other legal remedies will not compensate the plaintiffs for their injuries." Walters v. Reno, 145 F.3d 1032, 1048 (9th Cir. 1998). Plaintiffs have not shown issuance of an injunction is proper in light of the available damage remedy they have to redress their injuries. Therefore, Plaintiffs' request for an injunction is denied.
B. Declaratory Relief
Plaintiffs also seek declaratory relief pursuant to 28 U.S.C. § 2201, asserting such relief "will settle the ongoing dispute between the parties as to the requirements of Hudson" and the lawfulness of charging nonmembers for political activity which does not meet the three-prong Lehnert test. Plaintiffs make conclusory statements that they deserve declaratory relief, but fail to discuss why they are entitled to it in this case. Reply at 15 ("Regardless of whether there exists an ongoing dispute, the plaintiffs are still entitled to declaratory relief for the facts at issue, and declaratory relief is routinely awarded in Hudson notice cases."). "It is well established that declaratory relief is discretionary," Cunningham Bros., Inc. v. Bail, 407 F.2d 1165, 1169 n. 3 (7th Cir. 1969); see also Brillhart v. Excess Ins. Co., 316 U.S. 491, 494 (1942) (federal courts are not compelled to exercise their declaratory relief jurisdiction), and Plaintiffs have not persuasively argued why they need declaratory relief in this case. A declaratory judgment would be superfulous in this action since resolution of Plaintiffs' damage claims under summary judgment jurisprudence will terminate the controversy and establish the rights Plaintiffs have in this action. Nor is there a need to determine whether California Government Code Section 3515.8 was applied in an unconstitutional manner to Plaintiffs because application of that statute has not been shown to be the reason PECG violated Plaintiffs' First Amendment rights. Plaintiffs' rights were violated because PECG misperceived its obligations under federal law and failed to satisfy its burden of proof on summary judgment. Thus, Plaintiffs' request for declaratory relief is denied.
Although Plaintiffs cite 42 U.S.C. § 2201 in their moving papers, it is assumed they intended to cite 28 U.S.C. § 2201.
C. Monetary Damages
Plaintiffs seek nominal damages, to which PECG agrees Plaintiffs are entitled if they prevail on their motion for summary judgment. Therefore, nominal damages are awarded in the amount of $1 per person who suffered a constitutional deprivation because of PECG's unlawful conduct.
Plaintiffs also seek compensatory damages in the amount of the nonchargeable expenditures seized, plus interest. Where a union has failed to issue a constitutionally proper notice to nonmembers, the entire nonchargeable portion of the agency fee collected must be returned to the nonmembers. Prescott, 177 F.3d at 1109-1110.
The total expenditures wrongly classified in Categories 24, 29, and 41 is $1,743,253, which is combined with $189,859 initially identified by PECG as nonchargeable, for a total nonchargeable expense amount of $1,933,112. Given that total expenses for PECG were $3,450,771, the ratio of nonchargeable expenses to total expenses is 56%. PECG charged nonmembers $32.50 per month from April 1999 through October 1999, for a total expense per nonmember of $227.50. Charges for nonmembers during this period should have been $135.24. Therefore, PECG must pay each Plaintiff and member of the class $92.26 in compensatory damages, plus interest. Plaintiffs are entitled to an award of their reasonable attorneys' fees and costs.
In light of this ruling, the Final Pretrial Conference and trial dates are vacated. Judgment is entered in favor of Plaintiffs in accordance with this Order.