U.S. v. D.C. Court Conf 12 19 2012 Judge Berman

7/30/2019 U.S. v. D.C. Court Conf 12 19 2012 Judge Berman

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1 UNITED STATES DISTRICT COURT

1 SOUTHERN DISTRICT OF NEW YORK

2 ------------------------------x

2 UNITED STATES OF AMERICA,

3

3 Petitioner,

4

4 v. 90 CV 5722 (RMB)

5

5 DISTRICT COUNCIL, et al.,

6

6 Defendants.

7 ------------------------------x

7 New York, N.Y.

8 December 19, 2012

8 9:06 a.m.

9 Before:

9

10 HON. RICHARD M. BERMAN10

11 District Judge

11

12 APPEARANCES

12

13 USAO SDNY BEN TORRANCE

13 Attorney for United States of America

14

14 FITZMAURICE & WALSH, LLP

15 Attorneys for Review Officer Walsh

15 BY: DENNIS WALSH

16

16 MINTZ LEVIN

17 Attorneys for Review Officer Walsh

17 BY: BRIDGET ROHDE

18

18 SPIVAK LIPTON LLP

19 Attorneys for District Council

19 BY: JAMES M. MURPHY

20

20 TESSER, RYAN & ROCHMAN, LLP

21 Attorneys for District Council

21 BY: IRWIN ROCHMAN

22

22 KAUFF, McGUIRE & MARGOLIS

23 Attorneys for Carpenter Fringe Benefit Funds

23 BY: RAYMOND McGUIRE24

24 ALSO PRESENT

25 Walter Mack

25 James Zazzali

SOUTHERN DISTRICT REPORTERS, P.C.

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1 (In open court)

2 THE COURT: So I have a proposed agenda from Bridget

3 Rohde. I'm happy to follow that agenda. We have a lot of

4 items to consider. I also had mentioned in an endorsement that

5 I talked about this trial committee issue. If anybody wants

6 to, we can add that at the end.

7 So why don't we just start with the first item on the

8 agenda is status of collective bargaining.

9 MR. WALSH: Your Honor, good morning. Dennis Walsh,

10 the review officer in this matter.

11 The status of the collective bargaining includes, I

12 think, an historic milestone for the district council. The

13 benchmark agreement between the district council and the

14 wall-ceiling association is, I believe, very close to

15 implementation. And that, of course, is with the court's

16 consent.

17 The agreement was struck in the latter part of the

18 summer or early fall. But its implementation has been delayed

19 by the inability of the council and the association to agree20 upon the compliance piece and who actually is going to pay for

21 the technology that is going to be needed to allow stewards to

22 electronically enter the time for the job sites.

23 And I think the better part of a month was lost with

24 both sides really ignoring I think the opportunity to sit down

25 and meaningfully address that issue.


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1 I asked Mr. DeLollis, John DeLollis from the

2 wall-ceiling association, and Michael Bilello, who is the

3 executive secretary/treasurer of the district council, if they

4 would meet with me to try to work out that impasse. And I

5 think that was a very successful meeting that was held within

6 the last two weeks at the union. It was agreed by Mr. DeLollis

7 and Mr. Bilello that they would approach the labor management

8 fund which is composed in equal parts of employer trustees and

9 union trustees. The purpose of the LM fund is to foster union

10 opportunities for the industry, for the carpenters union and

11 for their signatory employers.

12 This week, I believe it was Monday, the labor

13 management fund trustees met and they agreed that on an initial

14 basis $400,000 would be spent by the LM fund to purchase

15 approximately a thousand units, whether they be iPads or

16 notebook computers, which will be distributed to stewards after

17 they receive training in how to enter the data.

18 We received a very detailed presentation -- and when I

19 say "we" I mean the union and the government, Mr. Torrance was20 at the union on the day the presentation was given -- from the

21 vendor that's being used to develop the software. The company

22 is called Standard Data. I was -- and I have been very

23 favorably impressed with the program that they wrote. It's as

24 easy as going onto any popular website to make a purchase,

25 whether it be Amazon.com. The steward logs on with his unique


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1 password and pin number. The job site that he is working on or

2 she is working on is identified by number. The first screen

3 that pops up after all that information is entered is

4 prepopulated with the names of the carpenters on the job. Any

5 additional carpenters who work during the day are entered by

6 the steward along with their UBC numbers and, most importantly,

7 the amount of time that they work in a given day.

8 That information is uploaded and automatically sent to

9 a contact person at the employer. And they have a limited

10 amount of time in which to either accept or dispute the time

11 entered by the steward.

12 If it's accepted, it goes into the system and it

13 constitutes an agreement as to the time that is logged for that

14 job. If there's a dispute, it needs to be resolved

15 expeditiously. I think the timeframe they're contemplating is

16 48 to 72 hours. Significant disputes will have to go to

17 arbitration.

18 And the wall-ceiling association and the union have

19 also agreed to clarify and put on paper the terms of what20 grievance and arbitration proceedings may be brought by the

21 union in the event of a material breach of the compliance

22 component. Any cheating on the job. And Mr. Bilello has

23 indicated that he was very much in favor of that, that it would

24 level the playing field because obviously all those employers

25 want not to compete against people who cheat, who pay cash or


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1 try to obscure hours from proper reporting.

2 The bottomline is that the arbitrator will be

3 empowered to remove the full mobility component from the

4 employer's tool kit. They will then be forced to take

5 50 percent of their employees from the out-of-work list at the

6 union. There will be no requests. It will be a straight

7 50/50. Company men versus union men.

8 The downside for the employer is that not knowing what

9 he gets from the out-of-work list -- and there are very many

10 talented carpenters on that list, but it is unpredictable as to

11 what one might get. He still has to pay full wages. So that

12 when the contract is actually implemented that first $2.13 will

13 go into the pockets in the first paychecks. And by the end of

14 year five with the raises contemplated in the agreement, the

15 hourly package paid to district council carpenter will exceed

16 $99 per hour.

17 Now, the plan, as I think it is currently envisioned,

18 is to report on the results of a pilot program which has been

19 ongoing.20 I understand, having spoken to the EST, Mr. Bilello,

21 and to the inspector general, Scott Danielson, that they are

22 very favorably impressed with the results of the pilot program;

23 that the stewards are understanding how to use the system, they

24 are entering the time, the time is going into the computers

25 that it's supposed to go into, the e-mails that are supposed to


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1 be generated are being generated. There have been some

2 employers, apparently, who have considered this very much an

3 exhibition game and have not fulfilled their end. But they

4 will have to understand that when this goes live that they will

5 be at risk of violating the agreement and perhaps even the

6 court order if they don't comply with the measures that are in

7 this system.

8 So, I believe that what can be done is perhaps a

9 stipulation can be prepared with fulsome facts, perhaps offered

10 by declaration, from the union. And I'm happy to weigh in as

11 necessary in that application.

12 I think that the rollout will have to be in phases. I

13 think we have to be absolutely certain that once this is

14 live -- we will have redundancy. There will be paper records

15 generated so if there's a system failure we will not be at a

16 loss.

17 THE COURT: Is that what happens now? Paper records?

18 MR. WALSH: It's all paper records, right. And they

19 have used for decades the paper steward reports which are20 delivered down to the union typically on Thursday mornings when

21 the stewards meet with the business representatives.

22 So, the contractors want the benefit of mobility. The

23 rank and file want the raise. I've even seen some delegates in

24 the delegate party meetings who had previously opposed mobility

25 who questioned EST Bilello as to when they were getting the


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1 money.

2 So I think the perception on the part of the members

3 is that enough time has been wasted, that they really want the

4 money. Perhaps it doesn't hurt that we're at holiday season.

5 THE COURT: So do I understand you to say that -- so

6 the agreement is not implemented yet until this issue is

7 resolved? Is that --

8 MR. WALSH: Well that issue as well as the fact that

9 currently the wall-ceiling agreement with the union is subject

10 to Judge Haight's order of May 2009 which fixes the hiring

11 ratio at a maximum of 67 percent of the members being selected

12 by the employer. This obviously is a change. This goes to one

13 hundred percent of the employees being selected by the employer

14 with the exception of the shop steward will be selected by the

15 district council.

16 So, the association accepted this well over a year ago

17 when they were still under supervision by the UBC and

18 Mr. Convoy was representing them.

19 So, the thought is that there's absolutely got to be a20 court order to address that issue but also to make certain, as

21 the court observed some months ago, that this program actually

22 reduces the risk of corruption and it does not really leave it

23 at any status quo level, although I don't think there is

24 corruption right now between the inspector general's office and

25 my office operation, the tips line, and the hotline.


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1 Most of the calls I get are in the nature of 311

2 calls, fellows who have problem with their benefits or some

3 administrative difficulty with the list and the amount of calls

4 has drastically dropped off to between twelve, fifteen with the

5 maximum of twenty in the last six months.

6 THE COURT: So what's the timeline? This gets solved

7 first and then a proposed amendment to Judge Haight's order?

8 MR. WALSH: Your Honor, I think the -- it is entirely

9 realistic that a stipulation could be presented to the court

10 for consideration by the middle of January. That may be overly

11 optimistic, but I intend to push the parties to realize this.

12 The technology works. They are, as we speak, looking

13 for the best deal on the iPads with the necessary carrier

14 service so they can access the internet from remote locations.

15 So I think at some point in January there ought to be

16 a stipulation, certainly drafted for comment by the parties.

17 But I am optimistic that it can actually be presented to the

18 court for consideration in the month of January.

19 THE COURT: Okay.20 MR. WALSH: Now with respect to the other major

21 associations, there have been quite a long period, over a

22 couple of months where not much was happening. But that has

23 changed in the last couple of weeks.

24 There have been meetings scheduled with all of the

25 major associations such as the GCA, the BCA, and the cement


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1 league, which had previously been stalled, particularly with

2 respect to the BCA and the cement league.

3 EST Bilello announced at the last delegate meeting

4 that he was optimistic that the other associations would

5 recognize that the wall-ceiling contract is the benchmark

6 contract so that all of the other associations, rather than

7 getting the give-backs of fifteen to twenty percent that they

8 had requested would, in fact, have to meet the rate increases

9 that the wall-ceiling association has given to the district

10 council in exchange for full mobility with the caveat that

11 there be a compliance program with the electronic entry of the

12 time.

13 THE COURT: Okay.

14 MR. WALSH: If counsel has more to add, Mr. Murphy

15 from the district council, or any clarification if I misspoke,

16 I would recommend that he be heard, your Honor.

17 MR. MURPHY: I have nothing to add at this time.

18 THE COURT: So the next topic is the special election

19 for president.20 MR. WALSH: It weighs heavy on my mind that I'll be up

21 at 3:30 tomorrow morning to be down at the district council to

22 supervise in person voting there. We have four other locations

23 at remote locals in Brooklyn and Queens and Staten Island where

24 voting will occur. And those locations will also be supervised

25 by my office, accompanied by representatives from the district


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1 council inspector general's office. There are four candidates.

2 Ballots have been prepared. The special debate was held. It

3 was videotaped. It was posted on the district council website.

4 I see that it has been copied and sent to other websites and

5 blogs for review.

6 So we're hoping for the best with respect to the

7 turnout. The weather does not appear to be a problem. So, we

8 think that the results will be tallied by 10:00 or 11:00

9 tomorrow night, that the new president will be known and he

10 will be sworn in before the next delegate meeting. That aspect

11 of the agenda will be covered.

12 THE COURT: Great.

13 Cross-training of business representatives and

14 certification of shop stewards. I'm not sure I know that

15 issue.

16 MR. WALSH: Judge, back in the spring I was imploring

17 the district council to start training the various business

18 agents in the jurisdictions of the so-called specialty trades.

19 And there was actually a meeting held with responsible persons,20 including the former president and the head of the labor

21 technical college, to brainstorm the curriculum, to put

22 together videos and photographs of job sites involving

23 specialty trades such as dock builders and timbermen and floor

24 coverers. But then with the resignation of former president

25 Lebo that program fell apart. And I, in communications since,


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1 I've tried to get that jump started, to no avail. So I decided

2 it needed to be mentioned in the last report; that I think it's

3 imperative that the district council work towards making all of

4 their business agents expert in the various jurisdictions of

5 the -- all of the trades covered by the district council. That

6 I believe it is a mistake to simply have so-called specialty

7 business agents who then become very familiar figures to the

8 employers within that trade. And I think it's best to rotate

9 people through these various trades. And after a couple of

10 years of training and actual on-site experience they will all

11 be equally knowledgeable about the various trades. And those

12 familiar comfortable relationships which have been developed in

13 the past will not be so frequently seen.

14 So I don't yet have a response from the counsel on

15 that. I understand that there was a meeting yesterday

16 afternoon to address the issues that I raised in the fifth

17 report. And perhaps if Mr. Murphy has anything further on

18 that, or in the weeks ahead, we can certainly inform the court

19 as to the progress of that. But I think it's an important20 issue.

21 MR. MURPHY: We met yesterday morning at 7:30 to

22 discuss this and I understand there was also a meeting

23 yesterday afternoon on the cross-training of the business

24 representatives and their rotation. The district council in

25 early December started a new round of training classes to train


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1 shop stewards, to have them certified. And those classes will

2 wind up in early February.

3 The classes this time around are being given to

4 already certified and experienced shop stewards so there can be

5 feedback on the instructors and on the curriculum. And then

6 the idea is to begin the new round of training shop stewards by

7 mid-February.

8 THE COURT: Where is the training happening?

9 MR. MURPHY: It happens at the Labor Technical

10 College, on premises, at 395 Hudson Street.

11 THE COURT: Okay.

12 MR. WALSH: Your Honor, that steward piece is very

13 important in my mind because it was one of the conditions upon

14 which my decision to allow the district council to have on-site

15 appointments from crews and dock builders rather than use or

16 insist upon certified stewards being sent from the list and

17 basically being forced on the contractor.

18 The contractors resisted that old plan, the old

19 practice because they thought it was featherbedding; that they20 had crews; that it was an extra man that they were going to be

21 losing money on. And the district council informed me that

22 there was a lack of certified stewards. So one of the

23 conditions that I imposed on allowing them to use this method

24 in addition to the background checks and the Section 504

25 affidavits, was that these people work towards becoming


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1 certified stewards.

2 And when the steward certification program lacked

3 sufficient courses to allow these people to move forward and

4 become certified, that became a real problem. And so they've

5 got really to get this going. They need to get all the courses

6 together so that people can become certified stewards and

7 continue on with this program.

8 And the other thing that concerned me from actually

9 reviewing the reports and the memos from the business agents

10 who were selecting these people is that there was a palpable

11 gap in many jobs between the report date when the contractor

12 actually picks up the phone and announces that he's got a job

13 starting or has started a job and the day that the business

14 agent first appears on the job to select someone from the crew

15 and makes him or her the steward.

16 And I understand that the general contractors

17 association was quite upset by my remarks in that regard. I

18 spoke with the head of the association yesterday when she and

19 her team were in for a collective bargaining session. And I20 assured her that my intention was merely to prevent any fraud;

21 that it is the practice of some contractors to try to get in a

22 couple of days while there is no steward who has actually been

23 selected by the district council. And that leaves open the

24 question of whether the time is being accurately reported or,

25 worse, whether people are being asked to work overtime for


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1 straight time or being paid cash. So, I left it with the union

2 and the GCA that they needed to come up with language regarding

3 the ramifications of late reporting of the jobs.

4 But I think as of now with the commitments from both

5 the association and the union that the program can stay in

6 place. But obviously the steward thing needs to go forward as

7 well as this language regarding call-in times of the jobs.

8 THE COURT: Great.

9 MR. WALSH: Now with respect to the district council

10 website, I think this is really an issue of great importance.

11 It goes not to the website only but to the district council

12 newspaper and any news alerts, Twitter feeds that they release.

13 But it's the whole issue of transparency. It's the whole

14 question that I mention in the report about basically answering

15 the question: What happened today at district council which

16 the members should know about? What information can be shared

17 with them that will keep them best informed rather than have to

18 do to some blog that may have disinformation, not just

19 misinformation.20 So the district council website I think should be the

21 go-to place for news and for opinion. So I've been pushing the

22 issue and established, at least in my mind, a model of the New

23 York Times editorial section which should be echoed or mirrored

24 on the district council website. Informed, a dissident

25 opinion, in my view, must be posted on the district council


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1 website; that the website is not owned by the leadership of the

2 district council, that it's owned by all the members equally;

3 and that it should be commonplace for signed opinion pieces --

4 people need to take responsibility for what they say -- that

5 they be posted on the district council website.

6 The executive committee has responsibility for making

7 this happen. They have, within the last month, started to

8 receive letters to the editor. Of now there have been two

9 letters posted. But I believe that more needs to be done in

10 order to publicize the availability of the space on the

11 district council website.

12 But I think, also, the district council needs to make

13 more progress in publishing news and keeping members informed

14 of matters relating to contract execution and collective

15 bargaining.

16 THE COURT: For example.

17 MR. WALSH: You know, just getting to know people who

18 work at the council. The lack of information breeds distrust.

19 It breeds suspicion. That's just the way the culture is.20 And I think the district council needs to set a new

21 standard for informing the membership so people don't feel that

22 mistrust.

23 THE COURT: So who posts information to the website

24 now?

25 MR. WALSH: They have a director of communications who


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1 receives his instructions from the executive committee and the

2 EST, Mr. Bilello. There is a home page which is accessible by

3 the general public. There is a general news section.

4 But much of the content of the web side is available

5 only to members. They have to log in to gain it. Which is

6 fine. Because there are some things that the union may want to

7 keep within the community.

8 But, you know my view, which I articulated over the

9 course of the last year, is that the district council needs

10 also to face the general public, the business community, and

11 really modernize the website so that people know who they're

12 dealing with, what skills the carpenters union offers.

13 And this is part of the overall campaign to organize

14 union labor here in New York, which the union is taking very

15 seriously and spending serious money on under the Bilello

16 administration.

17 But I think information is a very important part of

18 that. And I hope that the district council continues to make

19 progress in that regard.20 THE COURT: Is it updated daily?

21 MR. WALSH: It is -- as far as the home page, not

22 obviously updated everyday. There may be sections inside for

23 members which contain different information.

24 And there is statistical information about job

25 referrals and other things available to members within.


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1 But I'm really talking more about informing members

2 about policy things.

3 THE COURT: Right. I get that.

4 Does that happen?

5 MR. WALSH: I don't think it's happening with

6 sufficient content or frequency.

7 THE COURT: So who knows about that?

8 MR. MURPHY: I concur in the review officer's

9 comments.

10 THE COURT: So is there like a program or directive or

11 does this person who is the director of communications, he or

12 she, what's their understanding of, you know, how to update and

13 refresh and modernize, for example, the website?

14 MR. MURPHY: I think there needs to be more work done

15 in that area and we're working towards that.

16 I think the communications department has to be more

17 actively and intimately involved in what goes on day-to-day,

18 what goes on at the twice-a-month delegate meetings and what

19 goes on with the executive committee and so that there can be20 more proactive information put out on the website, whether it's

21 the public website so that it can be picked up by anybody who

22 wants to see it, that's appropriate, as well as information

23 that's on the members only website that really should be

24 limited as communications among the membership.

25 THE COURT: So you say -- is there a communications


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1 department?

2 MR. MURPHY: There is. There's a director. I believe

3 the director has an assistant. And I'm not speak out of turn

4 but I've had my own issues with editing the magazine, the

5 carpenters magazine and what other -- things going on the

6 website.

7 THE COURT: So there's a written magazine in addition?

8 MR. MURPHY: That's correct.

9 THE COURT: That gets published how often?

10 MR. MURPHY: I believe it's supposed to be

11 published -- the idea would be to have it -- right now it's

12 published quarterly. But the idea is maybe to make it more

13 frequently published.

14 But if you have the active website and active

15 communication program, given what we know has happened with

16 print news media.

17 THE COURT: You wouldn't need it.

18 MR. MURPHY: You wouldn't need it or you would keep it

19 at a quarterly basis so that it goes into everybody's home,20 that they have something they can hold on to and don't have to

21 log onto a website.

22 THE COURT: Do you think it would be appropriate --

23 I'd be interested to have at the next meeting the director of

24 communications, maybe could update us as to what he or she

25 does.


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1 MR. MURPHY: Absolutely make a presentation also.

2 THE COURT: Yes.

3 MR. MURPHY: Log in for the court and project what's

4 going on.

5 THE COURT: Exactly. Okay. Could we do that?

6 MR. MURPHY: Yes.

7 MR. WALSH: Judge, before we turn to the benefit

8 funds, I do want to bring up a point about the delegate body.

9 There are some in the administration who think I was perhaps a

10 little harsh in my comments about the conduct of certain

11 delegate meetings, but I don't think I was. I think that the

12 union needs to aspire to a very high standard in the conduct of

13 its governmental affairs.

14 There have been meetings -- and I hope that they do

15 not ever happen again -- but there was one particularly poorly

16 run meeting in July which has received some attention. I think

17 it is a poster child for what not to do when you are the

18 president of the district council and trying to run a proper

19 meeting under the parliamentary rules of the UBC. It reminded20 me, because I observed it, in some cases of an exhortation to a

21 mob. And I was greatly disappointed that people were shouted

22 down, that they did not have the opportunity to pursue

23 perfectly legitimate questions that they wanted addressed by

24 the dias.

25 And I criticized the leadership for that. There was a


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1 report requested by one of the delegates from that night,

2 Mr. John Musumeci, who I think was fairly characterized as the

3 victim. Perhaps they would call him just the recipient of some

4 insensitive remarks from the chair and insensitive conduct. He

5 requested a report from the inspector general and the

6 compliance officer. And I've talked to him about this. He was

7 very bitterly disappointed with their review and their finding

8 that in their estimation the only technical violation committed

9 by the president was that he did not leave the dias before he

10 started to opine on the question before the body.

11 So I said that I thought intelligent people could

12 disagree but that in my view the conduct could fairly be viewed

13 as harassment, for what that was worth.

14 I think the moral of the story is that people

15 understand that they erred.

16 Mr. Lebo is no longer with the executive leadership,

17 having resigned.

18 The last delegate meeting held last week was the best

19 meeting I have seen since the inception of the new government20 at the district council. There was not a raised voice.

21 Questions were intelligently posed and fulsomely answered. And

22 there is no shortage of important matter for the delegate body

23 to consider at these meetings.

24 I still think, though, that there is room for

25 improvement. That the pre-reads, the various bills and other


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1 documents that need to be considered before they can be voted

2 on, need religiously to be disseminated no later than 48 hours

3 before these meetings. There's an e-mail address for every one

4 of these delegates. And I was told by one of the delegates

5 that I met with yesterday or the day before that he got an

6 e-mail fifteen minutes before the delegate meeting with

7 documents that needed to be reviewed by a careful delegate if

8 he or she was going to make an informed decision about some of

9 this stuff.

10 I've been talking for the better part of

11 two-and-a-half years about preparation, PowerPoints, e-mail

12 dissemination, informed and collegial debate. There's still

13 room for improvement. I think that they realize that, that

14 they are getting there, but they cannot get lazy about any of

15 this. They've got to set the example for the future as to how

16 the district council can conduct its affairs, particularly in a

17 time when you have freely elected executives who have no mob

18 taint. So now is the time to get this right.

19 THE COURT: Is there a training that would help?20 MR. WALSH: I frankly think that training would help.

21 And there is lots of training going on at various functions at

22 the district council. I've conducted training myself for the

23 inspector general's office over the course of three nights.

24 We've instructed investigators in the merits of Strunk & White.

25 These are things that you would never consider. And there's,


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1 you know, ethics training. There's sexual harassment training.

2 There's all manner of training that has never before been given

3 at the union.

4 And they've made tremendous progress. And to some

5 it's a dirty word but it has become more corporate in a good

6 sense environment rather than just people who are somebody's

7 pet or favored people who don't particularly have any skills.

8 I mean you have to have merit to get hired at the

9 union. There's an HR department. There's an interview process

10 you have to go through the UBC vetting program to get rated.

11 So training, though, would help I think in union

12 governance.

13 THE COURT: Counsel do you want to comment on that?

14 MR. MURPHY: I did not attend the delegate meeting in

15 July. One of my associates attended. So I can't comment

16 personally on what transpired. I understand that it was not

17 very pleasant. Essentially vice-president has assumed the

18 chairing of those meetings, Michael Cavanaugh, I believe, and I

19 concur with the review officer that the last meeting, and I20 believe the meetings before that have been run very smoothly,

21 very professionally with respect.

22 I have discussed with the chair now, vice-president

23 Cavanaugh, and with the EST Mr. Bilello what I would I guess

24 call ground rules which are that if you -- you don't raise your

25 voice, the chair doesn't leave the podium unless he surrenders


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1 the chair to someone else if he needs to go and make a point

2 from the audience. And that the result has been I think, as I

3 said, very professionally run meetings.

4 THE COURT: I meant to ask at the beginning. Who are

5 the candidates for president?

6 MR. WALSH: It's fellow named Jeremy Milin, a fellow

7 named Martin McGuire, there's Steven McInnis, and there's

8 Daniel Franco are the four candidates.

9 THE COURT: I'm not sure I recognize any of the names

10 as people who have been here at our meetings.

11 MR. WALSH: Well Mr. Franco ran for the executive

12 secretary/treasurer position in the election in the latter part

13 of 2011.

14 Mr. McInnis is the political director at the district

15 council.

16 Mr. McGuire is a rank and file carpenter who works as

17 a foreman for a construction company.

18 Mr. Milin is an employee of the district council.

19 He's a business representative. And he was formerly assigned20 to the inspector general's office at the district council.

21 THE COURT: I see.

22 So the next topic relates to the benefit funds. And

23 the first is search for an executive director and compliance

24 chief.

25 MR. WALSH: I'll speak only generally. And then I


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1 guess I will yield to Mr. McGuire who is counsel for the funds.

2 The executive director position became vacant last

3 summer after investigation revealed that the former executive

4 director had abused his credit card privileges, that he had

5 spent excessive amounts of money on food and alcohol with the

6 benefit fund credit card. And there are other aspects of his

7 tenure that are being still investigated. And I have referred

8 evidence of some of those acts to law enforcement for further

9 investigation.

10 The position is currently being held by a very able

11 person named Laura Kalick. She is an attorney. She is a

12 benefits specialist and an expert in that field. In my

13 opinion, she is very much a viable candidate for the long-term

14 position, the formal position.

15 But an executive search firm has been hired by the

16 funds to conduct a nationwide search. I attended a meeting of

17 one of the board of trustees committees where representatives

18 from the company came and asked questions about what the board

19 was looking for.20 They are looking at people inside the funds other than

21 Ms. Kalick. They are looking nationwide for people, from

22 various walks of life. But there is an emphasis on someone who

23 has ten to fifteen years of experience in the administration of

24 a Taft-Hartley fund. I think that the level of experience

25 might be subject to some limited tradeoff if a person of a


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1 particular character and qualifications were found that would

2 be interested in taking the job.

3 They've had board discussions about the salary range

4 for the job. It's a significant job. And the salary could run

5 anywhere from $250,000 to $350,000 with benefits. So it's a

6 significant opportunity for someone with the credentials and

7 the character to take on a very tough environment.

8 This is all with an eye towards making sure that they

9 pick the right person in a postmonitoring environment. There

10 is no guarantee that people with connections to organized crime

11 will not be elected in the future. People with clean resumes

12 often slip through the cracks. And the Mafia looks for people

13 like that. And there is potential for influence being brought

14 to bear on the next executive director. That person needs to

15 be strong. That person needs to work with the compliance

16 officer that's going to be hired at the funds, needs to work

17 with the board, and needs to work with law enforcement to make

18 sure that any kind of influence is rejected and reported for

19 further investigation.20 So it's a significant undertaking. And I think very

21 important to the future of the funds that they get it right.

22 THE COURT: What about the compliance chief? I take

23 it that's a separate position.

24 MR. WALSH: This is kind of an ongoing story. We made

25 a recommendation some time ago, well over a year ago, that a


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1 compliance program that comports with the strictures of Chapter

2 8 of the sentencing guidelines, which is the recognized

3 blueprint for the compliance program, be crafted and

4 implemented at the benefit funds. The program was crafted and

5 implemented. It's an excellent program. It's detailed. It

6 will work very well.

7 The problem is that they do not have a compliance

8 officer yet. There had been an interim situation where the

9 head of the human resources department was serving as the

10 compliance officer. He was terminated at the same time

11 Mr. Epstein was, the former executive director. And

12 Ms. Kalick, as the assistant compliance officer, obviously in a

13 position of leadership now, is not suitable to serve as the

14 compliance officer.

15 But the board did make a decision that they needed to

16 go outside. They needed to post an advertisement seeking a

17 qualified professional to serve as a chief compliance officer.

18 My understanding is that they are interviewing people

19 but that the board will ultimately have to make a choice20 between a short list of very talented and experienced

21 professionals who have the credentials that they're looking

22 for. And maybe Mr. McGuire can comment further on that.

23 THE COURT: Is that also typically a lawyer position?

24 MR. WALSH: You know it -- I think it's preferred that

25 it be a lawyer, but there are many compliance professionals in


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1 various industries who are, of course, not lawyers. I've

2 worked in prior matters, trained desks where the compliance

3 people were all not lawyers. And they were outstanding.

4 So I think that the field is open as long as the

5 person has the right experience.

6 THE COURT: Counsel.

7 MR. McGUIRE: Raymond McGuire, Kauf McGuire &

8 Margolis, counsel for the carpenters fringe benefit funds.

9 Just to add to Mr. Walsh's remarks, we've identified

10 some outstanding candidates, several of whom are lawyers in

11 private practice who have extensive experience in compliance

12 with other labor organizations as well as financial

13 institutions. We're also looking at a professional security

14 firm that also does this as part of the array of services it

15 offers to labor organizations and financial institutions.

16 So we're going to come up with somebody very good.

17 The delicate issue is to do this in a way that's cost

18 effective, so that we're not imposing unnecessary and

19 unsustainable costs on the funds as we go forward.20 THE COURT: What does a job like that pay, you think?

21 MR. McGUIRE: We're not going to hiring somebody -- we

22 will certainly not hire somebody full time. We'll bring in

23 somebody on a retainer basis and try to develop what we call in

24 the construction industry unit prices. If you come in and

25 train X number of fund employees on compliance matters, we'll


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1 get a set price for that. We'll also try to get a set price

2 for the conduct of investigations of allegations of

3 inappropriate conduct and how much they'll pay accountants and

4 law enforcement personnel, formal law enforcement personnel to

5 actually do the on-site investigations. So we're conscious of

6 doing the right job but also of containing costs.

7 We'll probably make a decision on that sometime this

8 week.

9 THE COURT: Not to belabor, but what does this person

10 exactly do? What do they charge, the compliance officer,

11 what's their charge?

12 MR. McGUIRE: Well, the first order of business is to

13 make sure that the entire workforce, the 70, 80 people working

14 at the fringe benefit funds, are aware of their obligations and

15 sometimes their rights under the internal compliance program

16 we've created.

17 And some of that, of course, is obvious: Don't take

18 Knicks tickets from the outside vendors that you are

19 negotiating prices with.20 Some of it is not so obvious. Particularly in the

21 context of a fringe benefit fund that has fiduciary obligations

22 toward participants and beneficiaries. We really want to put

23 an emphasis on the obligation to engage in best practices.

24 It's almost a fiduciary obligation when you're talking about

25 administering a fringe benefit fund. And that veers into good


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1 management techniques. But we want the -- even the compliance

2 officer to be emphasized in that, in the training program.

3 But then you get into the kind of nuts and bolts of

4 compliance. You have to educate people in sexual harassment

5 issues, in whistle blowing matters, point out the necessary

6 reporting relationships if something inappropriate is

7 identified. And then we would start to focus in on specific

8 departments.

9 For example, the accounting department, the folks who

10 have responsibility for keeping track of the financial

11 transactions within the funds have special obligations. We

12 want to make sure we have appropriate expense reimbursement

13 policies in place, everybody understands them, and that we have

14 tracking processes; that we have fail safe processes in place.

15 We want eventually to have a comprehensive audit

16 function. Not just of the financial transactions but also we

17 want an auditor to be able to come in and identify the mission

18 of a particular department and have measures to determine

19 whether that department is meeting its obligations to the20 beneficiaries. So that the training is, at the beginning, the

21 major obligation of the compliance officer.

22 We also will probably retain one of these 24-hour

23 hotline services to ensure that everybody has opportunities to

24 bring to the compliance officer conduct, which may be in

25 violation of our guidelines. And when appropriate the


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1 compliance officer will conduct investigations either

2 personally if it's a small matter or using outside formal law

3 enforcement people and forensic accountants when that's

4 appropriate.

5 THE COURT: Sounds like a big job.

6 MR. McGUIRE: It's a major undertaking. But I think

7 it's the first year that's going to consume a lot of time and

8 cost and money.

9 THE COURT: You haven't even thought to having this as

10 a full-time position?

11 MR. McGUIRE: We have. We've had extensive

12 discussions with the review officer about this. The trustees

13 have discussed it. And we think that there's not enough there

14 after say the first six to nine months to warrant a full-time

15 position. Although we see that there will be a major effort

16 and major time needed in that first year or so. But after that

17 we hope we have a smooth and efficient machine in place that

18 will make it unnecessary to have a full-time person.

19 THE COURT: So the retainer relationship would be20 what, with a lawyer, you think?

21 MR. McGUIRE: Either with a lawyer or with a security

22 firm that does this as part of its offering of services.

23 THE COURT: Okay. Do you want to talk about manhours

24 and the health of the funds?

25 MR. WALSH: Judge, I do want to make sure that


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1 everyone knows that I wrote a letter on Monday and sent it to

2 the court clarifying a statistic that I cited in the last

3 report on page 23.

4 THE COURT: For the record you should probably

5 identify your letter by date.

6 MR. WALSH: The letter was sent to the court on

7 December 17. And it was entitled clarification regarding

8 manhours.

9 The report, on page 23, took statistics obtained from

10 the benefit funds which reported that there were over 18.2

11 million hours. The problem is that I wrote in the report that

12 those hours were performed by district council members. I did

13 not know at the time that they were not; that there were almost

14 a million hours that were performed by the so-called

15 out-of-towners. That was brought to my attention just last

16 Friday. So we -- as soon as we knew it, we looked into it and

17 corrected it.

18 The out-of-towner hours don't stay -- the

19 contributions don't stay with the funds based on these20 reciprocal agreements. If a carpenter from let's say

21 New Jersey and a different council comes in Manhattan and

22 works, the contractor pays the money to the funds. But then

23 his piece is remitted back to his council back in New Jersey.

24 So there is no direct benefit to the district council and its

25 membership.


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1 THE COURT: What's the value of out-of-towners? You

2 don't have enough resources?

3 MR. WALSH: Well usually they're craft workers. They

4 are people who are very productive, able professionals that the

5 employer wants to have with them on these jobs.

6 And this actually is a source of great consternation

7 to the rank and file here. And it will be mitigated

8 significantly by the terms of the wall-ceiling agreement.

9 Because if someone comes in from out of town, he or she must be

10 matched with a carpenter from the out-of-work list here in

11 New York. And I think that there will be a significant

12 disincentive for employers to bring out-of-town carpenters to

13 New York City; that they would rather network and find out who

14 the quality people are here no New York so that a New York City

15 district council member will get those opportunities.

16 The health of the funds continues to improve. But the

17 real concern which I think we've talked about on multiple

18 occasions here is the health of the welfare fund. The record

19 has reflected that it has operated at a deficit for a number of20 years; that the healthcare costs are uncontrollable. And last

21 year there was a deadlock between the employer trustees and the

22 union trustees, and they were still under supervision by the

23 UBC at the time, as to how to address those costs.

24 The matter went to arbitration. And the arbitrator

25 required I think it was something like $3 per hour in cuts be


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1 made. The direct result of that was the loss of dental

2 coverage and eyeglass coverage. And there was initially an

3 increase in premiums and copays and deductibles.

4 The only cure for all of this is manhours. The

5 investments have been reasonable. They've hovered around

6 benchmark for the welfare fund. They've been below benchmark

7 for the pension fund, which I pointed out in the report and the

8 trustees will address.

9 But the only real cure is manhours. And I still think

10 that the union needs to get up significantly to be able to

11 address all of the healthcare issues which have arisen as a

12 result of the continuing stress on the welfare fund.

13 Mr. McGuire wants to comment on that. He's more

14 expert than I am in that regard.

15 MR. McGUIRE: Yes, your Honor.

16 As you probably remember from some prior hearings,

17 beginning in 2009 the welfare fund began to run a significant

18 deficit. It was $21 million deficit in 2009. And we're

19 talking about fiscal years, July to June. And then $11 million20 in 2010. $21 million in 2011. With a projected deficit of $42

21 million for fiscal year 2012. $60 million deficit projected in

22 2013. And $84 million in 2014.

23 So, obviously that created a degree of concern among

24 all the trustees. The employer trustees pushed the issue. As

25 a result, as Mr. Walsh indicated, there was a deadlock


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1 arbitration held before arbitrator Scheinman last spring. He

2 ordered the funds to put in place various benefit cuts,

3 amounting to over $3 an hour. And we'll again at some point

4 review the performance of the fund to see if further cuts are

5 not necessary.

6 One of the reasons why this particular fund is

7 experiencing these issues has to do, of course, with the

8 healthcare costs that are creating national problems, not just

9 for our fund. But this fund does provide generous benefits for

10 retirees. And under the terms of the pension plan, carpenters

11 can retire at age 55 and enjoy full medical benefits between

12 the ages of 55 and 65 until they qualify for Medicare but

13 continue to enjoy generous benefits after age 65 when the fund

14 becomes secondary to Medicare. Arbitrator Scheinman

15 particularly focused on the disproportionate impact of the

16 retiree cost on the health of the plan when he was fashioning

17 his remedy. And I'm segueing into the litigation that I want

18 to discuss and the Enright case. And arbitrator Scheinman

19 ordered the funds to put in place increases in coinsurance and20 copays and deductibles for the retirees. So for the first time

21 the retirees have to pay a portion, up to 50 percent, of their

22 premiums. And this has caused intense concern, as you might

23 imagine, among this class of retirees. And as, in part, as a

24 result of that decision and the implementation of the orders

25 from the arbitrators, a class of retirees, including some


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1 present members, initiated an action in the Southern District

2 early last -- early this year, which I've referred to as the

3 Enright litigation. And in that class action the plaintiffs

4 are alleging two basic claims. First, that the imposition of

5 coinsurance and copays and increased deductibles on retirees

6 violates a promise that was made to them that their medical

7 benefits would be free for their --

8 THE COURT: Right. I get it.

9 MR. McGUIRE: -- length of their retirement.

10 THE COURT: Who's got the case, what judge?

11 MR. McGUIRE: It's bounced around. It was before

12 Judge Sand initially. It's now before Judge Oetken.

13 The second claim in that case is in a way unrelated.

14 It's that the method that the district council used in

15 conjunction with the vacation fund for collecting union dues

16 was in violation of our labor laws. And the monies collected

17 were inappropriately remitted by the vacation fund to the

18 district council.

19 The way the district council, until recently,20 collected its union dues was to have the employer remit the

21 amounts identified as dues to the vacation fund along with

22 vacation fund contributions that employees drew out several

23 times a year to pay for their holidays and sick days and

24 vacation days. And it was an unusual way for the union to

25 collect its dues. But it worked reasonably well over the


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1 years.

2 The employees would sign what's known as the blue

3 card, which authorized the vacation fund to isolate and

4 transmit to the district council the amounts that the employers

5 had identified as --

6 THE COURT: I understand. So where does the

7 litigation sit? Has there been class certification?

8 MR. McGUIRE: No. There has not been, your Honor.

9 The parties met with Judge Oetken on December 5 and

10 have agreed that they both will file for summary judgment

11 without additional discovery. And the motions will be fully

12 briefed by the middle of March. And we can expect a decision

13 sometime thereafter.

14 With respect to the first issue, the entitlement of

15 retirees to a vested free medical benefit, the Second Circuit

16 has spoken on this several times pretty clearly that medical

17 insurance benefits are not vested unless there's a very clear

18 written promise by the fund. And we do not have that in this

19 case.20 THE COURT: The other funds?

21 Well, no. Going back to this a minute.

22 So, what does it mean that one sustains these deficits

23 over a hundred million, maybe approaching $200 million? Where

24 does the money come from?

25 MR. McGUIRE: We have reserves, your Honor, built up


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1 over the years. We've been eating into them and they're down

2 to about ten months. But as a result of the cuts ordered by

3 arbitrator Scheinman, we will not experience the deficits that

4 had been projected. That was based on the premiums then being

5 paid and the benefits that were in place at the time.

6 THE COURT: So, for example, how will they impact the

7 projected deficit for 2013?

8 MR. McGUIRE: Well we know that that projected deficit

9 of $42 million, we will not come close.

10 THE COURT: 2013 would be 60, no?

11 MR. McGUIRE: Thirteen. Twelve was 42. Thirteen

12 would be 60. Yes.

13 We are not going to come close to that.

14 First of all, we've had pretty good investment

15 returns, as the review officer mentioned. And in addition, the

16 cuts already in place will reduce that significantly. We're

17 not sure of the exact number. But we're going in the right

18 direction.

19 Also, as the review officer mentioned, hours are20 trending up, which is always helpful to the fund.

21 THE COURT: So the 40 for 2012 would be more like

22 what?

23 MR. McGUIRE: We hope it's closer to 12 to 15, your

24 Honor.

25 THE COURT: I see. I guess it.


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1 MR. MURPHY: Your Honor if I may, Mr. Murphy.

2 THE COURT: Yes.

3 MR. MURPHY: We met with the fund's counsel last

4 Friday on the Enright case. And the second point that

5 Mr. McGuire talked about, the induced deduction, is something

6 that has a direct impact, potentially a direct impact upon the

7 finances of the district council.

8 If you take the plaintiff plaintiffs' logic to its

9 end, they would seek the funds to ask the district council to

10 return dues collected through the dues checkoff in the vacation

11 fund over approximately a six-year period, which would be in

12 excess of a hundred million dollars.

13 We contemplate making a motion to intervene in that

14 case as a defendant, as of right in the alternative, by

15 permission by this Friday. And then we'll join in on the

16 summary judgment motions on that issue.

17 THE COURT: Sounds like a good idea.

18 MR. MURPHY: We think there's clear guidance from the

19 Department of Labor sanction approving of those kind of dues20 checkoff programs from a, what is essentially an individual

21 account defined contribution vacation fund even though the

22 vacation fund was merged into the welfare fund back in 2006.

23 THE COURT: And have you appraised Judge Oetken of

24 that?

25 MR. MURPHY: We'll be doing that when we file our


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1 motion this Friday, a couple days.

2 THE COURT: Okay.

3 MR. MURPHY: Thank you.

4 THE COURT: Have we completed the -- Ms. Rohde's list

5 of topics?

6 MR. WALSH: Judge, we have.

7 I would suggest though that if Mr. Murphy wants to

8 inform the court on the status of the MWA arbitration, it is a

9 matter of very great importance to the district council because

10 there is the chance that the arbitrator, as early as

11 December 31, could award tens of millions of dollars to that

12 association.

13 THE COURT: So, can we take a two-minute break and

14 then we'll hear about the arbitration and then we can talk a

15 little bit about the trial committee if there's anybody here

16 who wants to do that.

17 Thanks.

18 (Recess)

19 THE COURT: So, Mr. Murphy, were you going to talk20 about this arbitration?

21 MR. MURPHY: Yes, your Honor.

22 In review officer's fifth interim report he discusses

23 it as pages twelve and fifteen. And in exhibit nine are the

24 copies of the memoranda that the two sides have submitted to

25 arbitrator Townley. We did that back on September 28. The


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1 district council in this matter is being represented by my firm

2 and also by cocounsel Irwin Rochman, Tesser, Ryan & Rochman.

3 MR. ROCHMAN: Good morning, your Honor.

4 MR. MURPHY: And Steven Cohen and Paul Shechtman of

5 Zuckerman firm.

6 THE COURT: Right. Zuckerman Spaeder.

7 MR. MURPHY: Yes. And we expect by the schedule from

8 the American Arbitration Association and the arbitrator to have

9 her opinion on or before -- her opinion on the remedial issues

10 on or before December 31 of this year. We -- depending on the

11 nature of that remedial decision, we may be back here either

12 filing a related case or a motion to your Honor to vacate the

13 arbitrator's award or to actually enforce the arbitrator's

14 award.

15 Her original interim award on liability was issued on

16 May 3 of this year. And the MWA and its employer members have

17 taken that award and read it as entitling them to over $59

18 million in back wages and benefits going back to August 1 of

19 2009. We had a hearing and meeting with the arbitrator on20 July 19 of this year -- the RO was present as well as

21 Mr. Rochman and Mr. Cohen -- in which she repeated for everyone

22 that it is a bifurcated case; that her first opinion was the

23 issue of liability but her second opinion would be on the

24 calculation of damages. She also wanted thorough briefing by

25 the parties on what any remedial award might mean for the


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1 consent decree and the stipulation and order and the financial

2 viability of the district council.

3 So that's where we're at right now. We're waiting for

4 that opinion.

5 THE COURT: So the liability figure is an estimate

6 based on her decision? It's not her ruling?

7 MR. MURPHY: The MWA reads her initial reward as

8 offering them retroactive relief going back to August 1 of 2009

9 and so they just crunched the numbers.

10 We, as you can read in Exhibit 9, argue that the

11 relief should only be prospective because there's a scienter

12 requirement in allowing a competitor -- we didn't know they're

13 a competitor, really completely different industries. MWA

14 makes fine architectural millwork, the desk here, the paneling

15 here. While the Gilbert Displays is a company that works

16 exclusively in the trade show industry like at the Javits

17 Center and other kinds of convention and trade show venues.

18 So that was -- everyone was actually -- we were

19 shocked that they were found to be competitors. So since that20 time, we'll say, all right so they're found to be competitors;

21 so as a going-forward remedy, not some windfall retroactive

22 remedy.

23 THE COURT: Got it.

24 MR. MURPHY: Mr. Rochman would just like to say a few

25 words.


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1 MR. ROCHMAN: Good morning, your Honor.

2 Your Honor, it is not an overstatement to report --

3 THE COURT: If you could pull that microphone a little

4 closer.

5 MR. ROCHMAN: Is that better?

6 THE COURT: I think so.

7 MR. ROCHMAN: Your Honor, it is not an overstatement

8 to report to the court that the possible results of the

9 grievance arbitration that Mr. Murphy has described and pending

10 matter in this court before Judge Stanton threaten the

11 continued existence of the district council and will render

12 meaningless all the things that you've been discussing here

13 this morning and will continue to discuss.

14 The 59 million dollar figure that Mr. Murphy has

15 mentioned is not some hypothetical parade of horrors. It is a

16 real possibility, given the position taken by the Manufacturing

17 Woodworkers Association. And as Mr. Murphy said, the

18 arbitrator has promised a decision on December 31. The

19 possibilities, as we see it, range from a $59 million award,20 applying damages retroactively. And in that case we would seek

21 to come before your Honor and move to vacate that award.

22 If the arbitrator agrees with us and finds that

23 damages are prospective and come to zero, we would again come

24 before your Honor and seek to confirm that award.

25 If the award is somewhere in between, after


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1 consultation with the government and Mr. Walsh, assuming it was

2 an amount that we thought that would allow the district council

3 to continue in existence, then we probably would come before

4 your Honor again seeking to confirm the award.

5 The problem here, sir, is that there are the

6 possibility, very real possibility that exists is one of

7 inconsistent judgments.

8 In the matter pending before Judge Stanton, that is a

9 matter in which the benefit funds seek what I guess they claim

10 are delinquent benefit fund payments from the Manufacturing

11 Woodworkers Association.

12 The MWA has said although it will await the

13 arbitrator's decision, that it will amend its answer and add

14 the district council as a third party defendant seeking there

15 to enforce the arbitrator's award.

16 So what you have, sir, is the possibility that we

17 could -- for example, the possibility of inconsistent judgments

18 actually are multiple. One obvious one is the arbitrator, for

19 instance, awards $59 million. We come before you seeking to20 vacate. Your Honor vacates that award. But Judge Stanton

21 confirms that award. We have -- we have an obvious conflict

22 and --

23 THE COURT: Why wouldn't they all go to the same

24 judge?

25 MR. ROCHMAN: Well thank you for asking that question.


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1 It's our view that, given your Honor's familiarity with the

2 district council, that your Honor has the responsibility of and

3 the implementation -- overseeing the implementation of the

4 consent decree. And as I said, your familiarity with the union

5 and all these various issues, that in the interests of judicial

6 economy and just where the case would best be decided --

7 THE COURT: No. I get that. So how is the case

8 before Judge Stanton to begin with?

9 MR. ROCHMAN: Sir, I'm sorry?

10 THE COURT: Why is the case before Judge Stanton to

11 begin with?

12 MR. ROCHMAN: Again, it's not our doing.

13 THE COURT: No, of course you didn't file it but --

14 MR. ROCHMAN: We -- we've been told that the MWA will

15 seek to amend its answer.

16 THE COURT: To add a new defendant.

17 MR. ROCHMAN: To add the district council as a third

18 party defendant.

19 THE COURT: I see.20 MR. ROCHMAN: So that's how it would get before Judge

21 Stanton.

22 THE COURT: I see. Okay.

23 MR. ROCHMAN: Thank you very much.

24 THE COURT: You bet. Counsel have you -- I was just

25 looking to you on here. Did you sign in on the appearance


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1 sheet, Mr. Rochman?

2 MR. ROCHMAN: I did, sir.

3 THE COURT: You did?

4 MR. ROCHMAN: I'm sorry. Did your Honor have any

5 further question? I'm sorry.

6 THE COURT: There you are. Yes. On the last page.

7 No, I don't, for the moment. Thanks.

8 MR. ROCHMAN: Thank you.

9 THE COURT: I think that exhausts the agenda with the

10 exception of the district council trial committee issue which I

11 had indicated that if anybody wanted to be heard today would be

12 the day to do that.

13 Are there people here who wish to be heard.

14 MR. MACK: Yes, your Honor. Walter Mack and Jim

15 Zazzali.

16 THE COURT: All right. Do you want to speak

17 separately or together or --

18 MR. MACK: The way I would just spend just a few

19 moments and then Jim would follow me for a brief moment as20 well, your Honor.

21 THE COURT: Okay. Sure. Let's go.

22 MR. MACK: Thank you for agreeing to hear us.

23 Good morning, your Honor.

24 THE COURT: Good morning, Mr. Mack.

25 MR. MACK: I am the former chairman of the trial


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1 committee of the district council. I'm here today to speak to

2 what is Exhibit 8 of the review officer's fifth report.

3 I take issue, and I do want to present a point of view

4 here that was not presented to the court in my letter of

5 December 4. But in essence, as I read the rules and

6 regulations, legislation, and consent order, the only authority

7 under which Jim and I can be removed is under one provision

8 under the rules of the court -- rules of the trial committee.

9 Otherwise, every other citation that the review officer cites

10 involves either the U.S. Attorney or the Court.

11 THE COURT: Well didn't you -- you said in the letter,

12 I'm a little confused -- of December 4 that you wrote, "I write

13 not to seek reinstatement into my position as chairman of the

14 trial committee."

15 MR. MACK: Yes, your Honor.

16 THE COURT: Is there a change in your --

17 MR. MACK: No, I'm not, your Honor. I'm just starting

18 to indicate the one provision which brings me here and is the

19 reason Jim and I are here.20 THE COURT: Yes.

21 MR. MACK: Because if there is a provision which --

22 THE COURT: Could you just tell me what relief, if

23 any, you're seeking.

24 MR. MACK: All I'm seeking, your Honor, is that my

25 letter of December 4 be appended to the -- either the report or


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1 the exhibit. And now given the review officer's letter of

2 yesterday, which has added some additional, what I would

3 consider charges, that whatever record today is made be either

4 available or that Jim and I write -- Jim may very well be

5 asking for something additional in his letter. But I am

6 sticking to my position which is: One, I am not seeking

7 reinstatement; and two, I am not asking the court to resolve

8 these issues because I realize, as I could tell this morning,

9 that the court has many, many issues. And I don't wish to go

10 on that trip.

11 I do want to respond to what was the termination and

12 its so-called basis and method and simply put in the record our

13 side, which Jim and I never had an opportunity to do in the

14 process.

15 THE COURT: I got it. You know that your letter was

16 posted on the court docket.

17 MR. MACK: I do, your Honor.

18 THE COURT: So it is public.

19 MR. MACK: It is indeed. And I just wanted to take a20 few very brief moments to indicate why I am speaking as I

21 started because in essence the only provision that permits the

22 review officer and the district council, without the

23 involvement of the U.S. Attorney's Office, at least, or the

24 court, is a provision which in essence says, and it's Rule

25 13(d) that says if substantial evidence of incompetence of the


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1 chairman or other good cause are presented to the review

2 officer during the review officer's tenure, he may remove me.

3 And basically what I am, I think, and what also

4 motivates Jim's position here today is that I don't believe

5 there has been evidence of incompetence or other good cause.

6 And we have never had an opportunity to respond to his

7 decision.

8 What I would say, and I guess I am speaking to his

9 letter of last night, which in essence I guess if I were to

10 distill it in a couple of sentences, number one, that basically

11 I'm off on a lark doing my own thing, not basically being

12 sensitive to what is the needs and the effectiveness, is the

13 word, of the trial committee.

14 And I would say, I think probably better than anyone

15 in this courtroom today, I know how ineffective the trial

16 committee was under the regime of Mr. Ford. Because I

17 investigated it and criticized it. And therefore, whatever --

18 if I am, in fact, being accused of trying to foster an

19 independent trial committee in which carpenter justice could,20 in fact, have a shot. I plead guilty to that.

21 THE COURT: Got it.

22 MR. MACK: If that is the reason, fine.

23 I think what is most offensive, at least to me, is

24 this concept that I was doing this and Jim was doing this as an

25 effort basically -- as part-time individuals trying to obtain


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1 as many funds as we possibly could. In fact, I think what

2 offended me the most yesterday in the letter was sort of like

3 that this was a part-time job that Jim and I showed up on, on a

4 couple of occasions a month and were well overpaid.

5 So, although I'm not going to take the court's time

6 today, I have all the billing data that we used. I never spent

7 less than 40 hours a month, and in some months close to 80

8 hours a month. We billed our time at the lowest rate in the

9 firm. And basically our effective billing rate for myself was

10 less than two hundred dollars an hour. We wrote off $180,000

11 worth of our time. The paralegals who did an outstanding job.

12 Their effective billing rate was $60 an hour for the time.

13 So, every -- and I would say this and I realize my

14 time is short here -- but every e-mail, every exhibit that was

15 furnished to the court, either last night or in the original

16 decision -- I'm talking about the e-mails emanating from me,

17 were incomplete. And had they been offered in a courtroom here

18 as evidence of something, I -- my guess is that under Rule 106

19 the court would have permitted us to put in a full and complete20 copy of all the e-mail traffic.

21 That having been said, we're not asking -- don't seek

22 the court's time. All I'm saying is: There is a response. We

23 never had a chance to respond. Either at the district council

24 or to the review officer in detail. The decision was written

25 without our input. We think we were unfairly treated. And I


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1 want the record basically so it's clear that if I am being

2 accused of substantial evidence of incompetence or other good

3 cause, that I very sincerely object to that characterization,

4 which is the only provision under which he could have acted,

5 and would ask some time at least that the record reflect that

6 both Jim and I would have liked our opportunity to respond.

7 THE COURT: Sure. Thank you.

8 MR. MACK: Thank you.

9 MR. ZAZZALI: If it please the court, and thank you,

10 your Honor, for the opportunity to be heard.

11 Good morning, Mr. Walsh. Dennis, Mr. Murphy, your

12 Honor. I do not seek reinstatement. I think I seek your

13 understanding. And I also would suggest respectfully, I'll

14 come to this at the end, that perhaps I seek Mr. Walsh's,

15 Dennis' cooperation response as it were.

16 I start with the recommendation, which I set forth in

17 the letter, that these gentlemen have for the most part,

18 clearly as evidenced from the very first day I was here and as

19 evidenced by the presentations this morning, have done a good20 job in a difficult context. They are good people doing a good

21 job. We have exceptions. And they have already been made.

22 And I will continue the theme started by Mr. Mack.

23 It's a difficult subject. I guess putting it more

24 specifically, what disappoints me is that the recognition which

25 I have demonstrated throughout of I think the good work that


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1 these gentlemen are doing would hopefully have been

2 reciprocated. Not that I'm looking for thanks.

3 Let me start at the beginning, which I touched on in

4 the letter. I won't take more than ten minutes of your time,

5 if I may.

6 I indicated in the letter to your Honor, to the

7 parties, that we entered this, Walter and I, to help a

8 significant reform effort, cognizant of your, and are, of the

9 tremendous challenges that have faced this district council for

10 the past 30 years.

11 But there was also another consideration that brought

12 me into it. And, again, I think I speak for Walter Mack as

13 well. Our concern for a thing called due process. And that we

14 recognized from the very beginning, from the get-go, that while

15 we were not there as presiding judges to provide a defense to

16 the charged parties, we were there to even the playing field.

17 We did everything we could within reason to that end.

18 I'm not suggesting that the district council and

19 review officer were antagonistic to an even playing field. In20 fact, all in all, the first year went great. I could not have

21 been happier. Some exceptions. It's a very controversial

22 arena in which we were working. But just presiding over cases,

23 reading transcripts, writing decisions, helping the process was

24 enormously gratifying.

25 The problem became the professional disagreement over


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1 our roles. And their reaction, respectfully, to the verdicts

2 that came down. When those verdicts came down, it understates

3 it to say that the reaction I thought -- I could be wrong, was

4 seismic. Huge disappointment. Perhaps understandable. On the

5 part of everyone involved.

6 Let me shift over to the reasons. Very briefly as to

7 the ineffectiveness. To me at least, there's never been a

8 complaint about ineffectiveness. And I think that's reflected

9 in the record, which is ripe with evidence of trying to turn

10 out a quality product for the sake of this very worthy cause,

11 cooperating with, I repeat, good people.

12 We did a thousand pleas or more. A hundred cases to

13 verdict. Pretty good over the course of two years.

14 Let me turn to the unseemly subject of excessive fees.

15 I don't like addressing it. It's distasteful. But I think it

16 has to be addressed because it's in some respects the heart of

17 Dennis, Mr. Walsh's opinion.

18 Starting at the beginning, in terms of when I first

19 came on board. Number one, I was told it was a substantial20 effort. Number two, we agreed on remuneration. Number three,

21 I reduced my effective hourly rate bearing in mind that it was

22 a union situation. Number four, I understood that everybody

23 had agreed to that. I could be wrong. Number five, no one

24 suggested to me that this was excessive. All recognize, I

25 think, that the committee, that the presiding officers would be


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1 giving up one week -- one night a week for the next couple of

2 years. That was a huge commitment which we honored. Not to

3 mention the daily work that obtained virtually every single

4 day. And I'm not just talking about a phonecall. I'm talking

5 about substantive work. Preparing for the hearings. Reading

6 transcripts. And all too many Saturdays and Sundays writing

7 opinions.

8 When I was asked to do this, so put it right on the

9 table, the suggestion made in one of the -- even before we

10 started was to, for me to do it as 275, 300 an hour. Frankly,

11 I could not justify that, working for a firm as I was. I

12 obviously, respectfully, diminished my hourly rate very

13 substantially cognizant that these are union dues. I think the

14 remuneration agreement also took into consideration our

15 background, and Walter's, in terms of both labor and law

16 enforcement.

17 After one year I honestly felt, I guess naively, that

18 because of the amount of the effort, and because of the stress

19 and the aggravation associated with it, that probably a20 supplemental payment, not an increase, but a supplemental

21 payment for additional hours was appropriate. I decided that

22 was unwise particularly because at about the same time the

23 review officer asked us to make an adjustment downward. It was

24 a reasonable request. I had no problem with it. We agreed.

25 At the time I predicted, however, that instead of the work


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1 going down, while the fees were going down, work would go up

2 and it did. I averaged the last year -- well this year over

3 50 -- over 50 hours a month. I think it's 50 and a fraction.

4 Some months, in the Harkin case, 105 hours in one month.

5 During the summer, no less.

6 It's said that this was not a full-time job.

7 Technically, no. It sure as heck felt like a full-time job in

8 terms of virtually every single day doing what had to be done.

9 And the vast amount -- I can't tell you the hours of unbilled

10 time spent on little things like thinking about the problems,

11 talking about those problems, and most of all worrying about

12 those problems.

13 I mentioned the stress and aggravation. Obviously

14 that's not compensable. And I don't want to overstate that.

15 It goes with the territory. But it's certainly part of the

16 overall picture concerning the alleged excessive fees.

17 The fee issue really consumes, your Honor, far more

18 time than it deserves. I think it's to some extent a sideshow

19 here.20 I think the main concern, as I said before, was the

21 difference concerning our roles. And they wanted us gone. And

22 that's their prerogative. That's their prerogative, their

23 right. They were, and I understand this, taking heat from the

24 membership. The membership was upset in part at least because

25 of these not guilty verdicts. No one's fault. That's the way

SOUTHERN DISTRICT

Documents

U.S. v. D.C. Court Conf 12 19 2012 Judge Berman