VERIFIED APPLICATION FOR LEAVE TO FILE VERIFIED COMPLAINT UNDER 29 U.S.C. §501 (b)

 

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF MISSOURI

EASTERN DIVISION

 

    Jonathan M. Gould, on behalf of St.     

         Louis-Kansas City Carpenters’              

        Regional Council (Mid-America            

           Carpenters Regional Council)                

                                                                 

         Plaintiff,         

V.

                                Douglas J. McCarron,                             

                                                                    

                 Defendant,                  

                                 

                         JURY TRIAL DEMANDED                                    

 

VERIFIED APPLICATION FOR LEAVE TO FILE VERIFIED COMPLAINT UNDER 29 U.S.C. §501 (b)

 

          COMES NOW, Plaintiff Jonathan M. Gould (“Mr. Gould”), on behalf of the St. Louis-Kansas City Carpenters’ Regional Council (Mid-America Carpenters Regional Council) (“CRC”), and for his Verified Application for Leave to File Verified Complaint under 29 U.S.C. § 501 (b) against Defendant Douglas J. McCarron (“Mr. McCarron”), states:

 

INTRODUCTION

Mr. Gould files this Verified Application, and seeks leave to file his Verified Complaint, under 29 U.S.C. § 501 (b). This stature provides for the equivalent of a shareholder derivative action by a union member. Mr. Gould is a member of the CRC and seeks to bring this action in a representative capacity on behalf of and for the benefit of the CRC and its members. Under 29 U.S.C. § 501 (b), leave of court is required before a Complaint can be filed. Mr. Gould has met the prerequisites to do so and has shown good cause.

 

          As the General President of the United Brotherhood of Carpenters’ and Joiners of America (“UBC”), Mr. McCarron owed the CRC and UBC fiduciary duties under 29 U.S.C. § 501 (a). Mr. McCarron violated his fiduciary duties by (1) allowing misappropriation of CRC and UBC funds, (2) ignoring repeated overtures by Mr. Gould to notify Mr. McCarron and the UBC that former Executive Secretary-Treasurers’ Terry Nelson and Al Bond were leading efforts to misappropriate CRC and UBC funds, (3) failing to take action for similar, systematic acts of misconduct perpetrated by multiple CRC officers and Agents. Mr. McCarron’s breaches foster a culture wrought with fraudulent misappropriation and as demonstrated herein, have cost the CRC and UBC millions of dollars in lost funds.

 

          Mr. Gould became aware of violations and reported his concerns to UBC representatives as far back as 2014. Mr. McCarron disregarded this attempt by Mr. Gould to end corruption within the CRC and UBC. Mr. Gould was ultimately terminated from his employment as a CRC Representative in 2014. Extensive discovery related to a civil lawsuit for wrongful termination confirmed the fraudulent misappropriation of funds and breaches of fiduciary duty. In 2018, Mr. Gould once again notified Mr. McCarron and the UBC of violations of law and/or public policy, including Representatives operating CRC funded vehicles without valid driver’s licenses. Finally, on October 3, 2021, Mr. Gould demanded Mr. McCarron secure a forensic accounting and recover damages on behalf of the CRC and UBC. After a month without response, Mr. Gould is certain that Mr. McCarron is once again ignoring his duties as defined under the UBC constitution and 29 U.S.C. § 501 (b). Further demand by Mr. Gould is futile, the UBC, and presumably Mr. McCarron, are themselves under federal investigation in New Jersey. UBC financials have been subpoenaed, as have the records of the CRC and UBC accounting firm, Calibre CPA. Thus, for the detailed reasons discussed below, and as set forth in the Verified Complaint, good cause exists to file this lawsuit and for Mr. Gould to recover damages for the benefit of the CRC and UBC.

(c). As of December 1, 2021, Mr. McCarron has not contacted the Employee Benefits Security Administration to report excessive and/or illegal investment fees paid to firms by former EST Al Bond.

 

LEGAL STANDARD

Section 501 (a) prescribes fiduciary duties union officers, Agents, Shop Stewards, and other Representatives owe their unions. As does the UBC Constitution. Section 501 (b) empowers union members to sue to recover damages incurred as a result of 501 (a) violations where two conditions are satisfied: (1) the union or its governing board or officers refuses or fails to sue to recover damages or secure a forensic accounting within a reasonable time following a union member’s request; and (2) the union member obtains leave of court upon verified application and for good cause shown.  Section 501 (b); see also Local 314 National Post Office Mail Handlers v National Post Office Mail Handlers, 572 F. Supp. 133, 138 (E.D. Mo. 1983).

         

          “The standard for determining whether the {good cause} requirement is met is whether the plaintiff shows a reasonable likelihood of success and, with regard to any material facts he alleges, he has reasonable ground for belief in their existence.” Id. At 139 (internal quotation omitted).

 

 

ARGUMENT

 

          Mr. Gould satisfied both 29 U.S.C. § 501 (b) prerequisites: (1) he demanded Mr. McCarron sue to recover damagers or secure a forensic accounting on behalf of the CRC and UBC; and (2) good cause exists for bringing this lawsuit.

 

A.   Mr. Gould demanded Mr. McCarron secure an accounting or recover damages, to no avail.

 

1.   Facts Surrounding Demand and its Futility

 

On October 3, 2021, Mr. Gould made a formal demand on Mr. Bond to secure an accounting or recover damages pursuant to 29 U.S.C. § 501 (b). See Verified Complaint, ¶ 24, Exhibit 1. Mr. McCarron failed to respond to Mr. Gould by November 5, 2021. Any further demand would be futile as Mr. McCarron has ignored his responsibilities for at least seven years. See Verified Complaint, ¶ 35, Exhibit 10.

 

2.   Futility of Further Demand on the Union & Mr. McCarron

 

Any further demand would be “an exercise in futility” and is not required. See, e.g., Sablosky v. Budzanoski, 457 F.2d 1245, 1252-53 (3d Cir. 1972); McNamara v. Johnston, 522 F.2d 1157, 1162-63 (7^th Cir. 1975); O’Rourke v. Crosley, 847 F.Supp. 1208, 1219 (D. N.J. 1994) (“futility may serve as an exception to the ‘request’ requirement” under Section 501 (b)).

 

In O’Rourke v. Crosley, the United States District Court for the District of New Jersey found the plaintiff-union member was entitled to prove his Section 501 (b) demand was futile where allegedly complained to the defendant-union Business Manager and was ignored. Crosley, 847 F.Supp. 1208, 1219 (D. N.J. 1994).

     In Saunders v. Hankerson, the United States District Court for the District of Columbia held the plaintiff-union member was entitled to an inference the union officers would be biased with respect to any Section 501 (b) demand they take-action against themselves, where Plaintiff made particularized allegations of wrongdoing by several defendant-union directors and alleged acquiescence on the part of other directors. Hankerson, 312 F.Supp.2d 46, 68 (D. D.C. 2004). The Hankerson court applied the traditional Federal Rule of Civil Procedure for derivative actions found in Rule 23.1, which requires the complaint to be verified and state with particularity “(A) any effort by the plaintiff to obtain the desired action from the directors or comparable authority and, if necessary, from the shareholders or members; and (B) the reasons for not obtaining the action or not making the effort.” Id. At 67-68.

 

In McNamara v. Johnston, the Seventh Circuit Court of Appeals held the plaintiff-union members had no obligation to make a Section 501 (b) demand where the defendant-union officers had “consistently and vigorously argued [they} were acting at all times in compliance with the union’s Constitution and duty adopted resolutions, and it [was] apparent that any demand upon the [union officers] for relief would have been futile.” Johnston, 522 F.2d 1157, 1162-63 (7^th Cir. 1975). The Johnston court recognized the similarities between an action under 29 U.S.C. § 501 and a shareholder’s derivative suit and noted that the demand requirement is excused when futile in these cases. Id. At 1162.

 

Like McNamara, the Eighth Circuit Court of Appeals has recognized similarities between 501 (b) claims and shareholder derivative actions. Local 314 Nat. Post Office Mail Handlers, 572 F.Supp. at 138. Further demand is futile, and Mr. Gould has therefore satisfied Section 501 (b)’s first prong necessary to sue the Defendant on behalf of the CRC and UBC.

 

B.   Mr. Gould’s allegations give rise to “reasonable likelihood of success” & satisfy Section 501 (b)’s good cause requirement.

 

“The standard for determining whether the [good cause] requirement is met is whether plaintiff shows a ‘reasonable likelihood of success and, with regard to any material facts he alleges, [he has] a reasonable ground for belief in their existence.’” Local 314 Nat. Post Office Mail Handlers, 572 F.Supp. at 139. Thus, Mr. Gould must show a reasonable likelihood of success on any of his claims that the Defendant breached his fiduciary duties in 29 U.S.C. § 501 (a). These fiduciary duties include (1) holding money and property solely for the benefit of the union and its members and to manage, invest, and expend the same in accordance with the union’s Constitution and by-laws; (2) refraining from dealing with the union as an adverse party on behalf of an adverse party in any matter concerned with the officer’s union duties and from holding or acquiring any pecuniary interest which conflicts with the interests of the union; and (3) accounting to the organization for any profit received by the officer in whatever capacity in connection with transactions conducted by the officer or under his direction on behalf of the organization. See Section 501 (a).

 

          In Loretangeli v. Critelli, the Third Circuit Court of Appeals reversed the district court’s dismissal of a plaintiff-union members’ Section 501 (b) claims, finding the members met the good cause standard. Critelli, 853 F.2d 186 (3d Cir. 1988). The plaintiffs alleged the defendant-union officers made rebates to certain local unions despite a union Constitution provision prohibiting the activity. Id. at 192. The Critelli court also held that differences in interpretation of what activity the union’s Constitution authorized should not be considered at the good cause stage of the proceedings. Id.

          In George v. Local Union No. 639, the D.C. Circuit Court of Appeals reversed the district court’s ruling and held the plaintiff-union member’s claim that officers breached their fiduciary duty by paying “supplemental strike benefits,” satisfied the good cause standard. George, 98 F.3D 1419 (D.C. Cir. 1996). The court held the district court improperly required the union member to demonstrate a “high probability that his allegations are true.” Id. at 1420. The George court found “it would make little sense to require plaintiff to show a high likelihood of success on the merits.” Id.

 

          In Cowger v. Rohrbach, the Ninth Circuit Court of Appeals reversed the district court and found the plaintiff-union member established good cause by alleging the defendant-union official misappropriated union funds for his personal benefit, despite arguing his use of the funds was authorized. Cowger, 868 F.2d 1064, 1068 (9^th Cir. 1989). The Rohrbach court held authorization was not a complete defense to a Section 501 claim for breach of fiduciary duty. Id. As the plaintiff set forth facts showing misappropriation of union funds by the official for his personal benefit, “this [was} sufficient to satisfy the threshold ‘good cause’ requirement of section 501 (b).” Id.

 

          Mr. Gould has attached evidence demonstrating Mr. McCarron breached his fiduciary duties owed to the CRC and UBC. Considering the foregoing and based upon the facts stated herein and in the Verified Complaint, Mr. Gould’s allegations against Mr. McCarron more than satisfy Section 501 (b)’s good cause standard.

 

1.   Underlying Facts Establishing Good Cause against Mr. McCarron

 

As the UBC’s General President, Mr. McCarron owed fiduciary duties to the CRC and UBC to review CRC financials and report his findings to the rank-and-file members of the CRC and UBC. Mr. McCarron owed the CRC fiduciary duty to take action to remediate acts of misappropriation conducted by Executive Board members and Business Representatives, including former Executive Secretary-Treasurer, Al Bond. Mr. McCarron breached his Section 501 (b) fiduciary duties by authorizing the transfer of CRC funds and failing to act against fraudulent misappropriation of CRC and UBC funds. Specifically, Mr. Gould alleges, with particularity, numerous fiduciary breaches, including improper CRC reimbursements to its Executive Board and Business Representatives for:

 

a.    Flying family and friends to Conventions or Conferences;

b.   Expenses for family and friends at Conventions or Conferences;

c.    Unlimited alcohol expenses at Conventions or Conferences;

d.   CRC vehicle policy that illegally inflated UBC pension funds;

e.    CRC providing non-business-based meals to employees;

f.     Concert tickets;

g.    Musical tickets;

h.   Play tickets;

i.      Comedy Act tickets;

j.      Sporting Event tickets;

k.    Tour Tickets;

l.      Souvenirs, gifts, personal effects, cigars;

m.  Illegal loans in excess of $2000 to CRC employees;

n.   Unlimited alcohol expenses with no business purpose;

o.   Reimbursement of medical insurance deductibles for employees;

p.   Lavish birthday and retirement parties for employees;

q.   Insurance deductibles following employee auto accidents;

r.      Massages, clothing, tobacco products, and golf;

s.     Petty Cash transactions that lacked proper documentation;

t.     Mr. Bond coercing/tricking CRC Delegates into an $85,000 per year wage increase;

u.   Income tax evasion

v.    Unreported personal relationships between CRC employees and CRC leadership;

w.  Unreported personal relationships with CRC contractors receiving financial assistance from the CRC;

x.     Reimbursements lacking proper receipts or receipts all together: 1) place of transaction; 2) union purpose of the transaction; 3) when the transaction occurred; 4) individuals present at the transaction; 5) itemized receipts; or the “5 Ws”

y.     Other incidentals being paid for by the CRC for business representatives, employees, board members, and guests.

 

See Verified Complaint, ¶¶ 47-55 and Exhibits 24-89 attached thereto.

 

          These violations have fostered and ignored a culture of misappropriation spearheaded by former EST Bond’s actions and Mr. McCarron’s complicity and failure to act. As a result, Mr. Gould has demonstrated a reasonable likelihood of success and, therefore, satisfies Section 501 (b)’s good cause requirement.

 

CONCLUSION

For the reasons described herein, Mr. Gould has satisfied Section 501 (b)’s demand and good cause requirements and, therefore, respectfully requests this Court grant leave to file Mr. Gould’s Verified Complaint.

 

                                                                                JonathanM.Gould

                                                                                By: _______________

                                                                                JonathanM.Gould

                                                                                7357 Providence Dr.

                                                                                Edwardsville, Il. 62025

                                                                                618-980-0205 cell

                                                                                gouldj77@icloud.com