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UNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK------------------------------------------------------------------ x
UNITED STATES OF AMERICA,
Plaintiff,
v.
DISTRICT COUNCIL OF NEW YORK CITYAND VICINITY OF THE UNITEDBROTHERHOOD OF CARPENTERS ANDJOINERS OF AMERICA, et al,
Defendants.
:
:
:
:
:
09 Civ 5722 (RMB)
------------------------------------------------------------------ x
THE SECOND INTERIM REPORT OF THE REVIEW OFFICER
Dennis M. WalshReview Officer
Fitzmaurice & Walsh, LLP15 Chester AvenueWhite Plains, New York [email protected]
Dated: June 3, 2011White Plains, New York
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Table of Contents
Introduction and Summary ................................................................................................. 1
Part One Benefit Funds.................................................................................................. 18A. New Sole Counsel to the Benefit Funds Board of Trustees...................... 18
B. Retirement of Executive Director Stuart GraBois .................................... 18
C. New Executive Director of Benefit Funds................................................ 19
D. Organizational Review of Benefit Funds.................................................. 20
E. Human Resources ..................................................................................... 23
F. Compliance Program ................................................................................ 23
G. IT Infrastructure........................................................................................ 24
H. Collections Counsel .................................................................................. 25
I. Payment Plans........................................................................................... 26
J. Legal Department...................................................................................... 28
K. Welfare Fund ............................................................................................ 29
Part Two District Council .............................................................................................. 31
A. Investigations ............................................................................................ 31
1. Organized Crime Initiative ........................................................... 31
2. Local 1456 Investigation............................................................... 32
a. Leadership..................................................................................... 32
b. Sipends.......................................................................................... 34
c. Conferences................................................................................... 36
d. Whole Life Insurance Policies...................................................... 38
e. Trustees ......................................................................................... 38
f. Diver Safety .................................................................................. 39
3. Trial Committee............................................................................ 40
4. RO Vetoes and Trials.................................................................... 40a. Petitions for Review and Appeals of Vetos .................................. 42
5. Review of Organizing Department............................................... 43
6. Review of Political Department.................................................... 46
B Inspector General...................................................................................... 49
1. Electronic Scanning Pilot Program............................................... 49
C. Grievance Procedures ............................................................................... 50
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D. IT Program ................................................................................................ 51
E. Records Retention..................................................................................... 52
F. Operation of the Review Officer Hotline.................................................. 53
G. Active District Council Membership and the Out of Work List............... 53
Conclusion ........................................................................................................................ 56
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We are not here to curse the darkness, but to light the candle that can guide us
through the darkness to a safe and sane future. As Winston Churchill said on taking
office ... if we open a quarrel between the present and the past, we shall be in danger of
losing the future. Today our concern must be with that future. For the world is changing.
The old era is ending. The old ways will not do.
- John F. Kennedy, July 15, 1960
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Introduction and Summary
I submit this second semi-annual report pursuant to paragraph 5.m of the
Stipulation and Order entered on June 3, 2010, in United States v. District Council, et al.,
90 Civ. 5722 (SDNY (RMB) (the Stipulation and Order). Exhibit 1. It endeavors to
inform the Court and the parties of the scope and substance of my activities for the past
six months and convey my impressions of certain aspects of the undertaking.
My responsibilities encompass review, investigative and oversight functions
relating to the New York City District Council of Carpenters (the District Council) and
its Taft-Hartley fringe benefit funds (the Benefit Funds or the Funds).
I gratefully acknowledge the important assistance and ongoing undertakings of
the United States Attorney for the Southern District of New York, the New York City
Police Department, the office of the District Attorney of New York County, the Federal
Bureau of Investigation, and the United States Department of Labor Office of Labor
Racketeering.
I also thank the rank and file members of the District Council who have provided
me with insight and information and shown their deep commitment to the noble goals of
organized labor.
The District Council
Though proceedings pending in the District Court will likely lead to an election of
District Council officers in December of this year (preceded by local union delegate
elections in the fall), the District Council is still under supervision by the United
Brotherhood of Carpenters and Joiners of America (the UBC).
Much has changed at the District Council (including its affiliated local unions) in
the last half year. The significant turnover in employees, whether by veto, resignation or
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retirement has continued and as a result the District Council has been strengthened. The
implementation of new policies and procedures, the creation of new functions, the hiring
of new employees, the provision of training and the improvement and broadened use of
technology have made the District Council a more business-like institution. Employees
of the District Council have been given the opportunity to flourish and have their
contributions recognized in a fair and corruption-free environment. Though still not
completely satisfied, I am less concerned now than I was last December about the
character and fitness of the workforce at the District Council.
A policy of fiscal prudence is generally taking hold at the District Council and the
local unions, but work remains in this regard; though I prefer to appeal to the better
nature of decision makers when it comes to expenditures, I have and will continue to
exercise my veto authority in this regard as well.
One must recognize though, that the improved condition of the District Council
has been gained only through the extraordinary but ephemeral opportunities presented by
present circumstances. The District Council will soon hold an election. Before that day,
the best methods of governance and administration of the District Council must be
appropriately determined and codified to institutionalize such practices and safeguard the
gains made by the District Council over the past year. The last, best hope for the happy
future of this Union will be lost forever if democracy hands the keys of this house over to
charlatans, buffoons or minions of a caporegime in the Genovese family, without having
built it upon a foundation of the surest granite.
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Selected Matters of Interest
Bylaws Proposed by the United Brotherhood
I received the first draft of proposed District Council bylaws from the UBC on
April 5th
. I made a number of comments, which I placed in the document and sent it back
to the UBC in anticipation of meeting with UBC counsel. This first draft with my
comments was made available to interested members for in-person inspection. Some two
dozen members and in some cases their counsel reviewed the document. It is attached
hereto as Exhibit 2.
After meeting with counsel for the UBC and engaging in a mutually beneficial
dialogue, I was sent and reviewed a second draft. Another lengthy meeting was held that
was followed by a third draft, which is now under formal review pursuant to Paragraph
5.b of the Stipulation and Order and which has been promulgated for comment through
June 9th. The third draft is attached hereto as Exhibit 3.
In my view, the draft bylaws should pass the following test: do they provide for
and codify the best lawful methods to insure the transparent, ethical, efficient and
democratic governance and administration of the District Council regardless of who
holds the reins of power? Even if that test is too strict or subjective for some, considering
the objectives of the Stipulation and Order (i.e., the eradication of corruption and
racketeering as they affect union carpenters and union employers; see final Whereas
clause), there are plainly provisions of the draft bylaws that are insufficient to achieve
these objectives. See Stipulation and Order, Paragraph 5.b.iii.e. Further, pursuant to
Paragraph 5.b.iii.c, all aspects of the bylaws must comport with federal law. There are
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sections of the draft bylaws that present questions in this regard and must still be
discussed to assure that there are no such issues.
At the close of the comment period, I will again meet with representatives of the
UBC to discuss these propositions, share my views and review the comments I have
received from members. If necessary, I will veto any section of the proposed bylaws that
does not pass muster pursuant to Paragraph 5.b and then make a formal recommendation
pursuant to Paragraph 5.h.viii in substitution for the vetoed matter.
The District Council and Local Union Restructuring Plan
I received notice on May 27
th
of the UBCs restructuring plan as set forth in a
letter of the same date sent by counsel for the UBC to the Court. Letter of Kenneth
Conboy dated May 26, 2011 and Exhibit D thereto, attached hereto as Exhibit 4. I then
had a message posted on the District Council website inviting members to send me
comments on the restructuring plan (which is available on the District Council website
and private blogs). The comment period runs through June 10th.
The restructuring plan is thus under review pursuant to Paragraph 5.b. After the
close of the comment period, I will meet with counsel to discuss the comments, my views
and any associated issues.
Preliminarily, I note that the geographic jurisdiction of the work of Locals 1456
(to be dissolved and joined in a new heavy construction local with the members of Local
Union 1536, also to be dissolved) and 2287 will be curtailed and wonder what affect this
will have on precious fringe benefit payments to the Benefit Funds. Further, members of
Local Union 740 (a small specialty local composed of some 300 millwrights) will be
joined with a local based in Syracuse. One assumes that the work of millwrights within
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the geographic scope of the District Council will still be subject to the Consent Decree
and the Stipulation and Order and that fringe benefit payments for work in the New York
City area will go to the New York City Funds.
My assessment of local unions affiliated with the District Council was set forth in
my first interim report.1/ See First Interim Report at 35-38 (fiefdoms which breed
corruption). Since then, I have witnessed first-hand (particularly at Locals 157 and
1456) the further erosion of the role of local unions in adequately serving their members
and the ability of their fiduciaries to grasp and effectively meet their strict obligations.
Perhaps because of corruption and malfeasance, the concentration of authority in the
District Council and the paucity of relevant information presented at local union
meetings, interest by local union members in attending local union meetings has reached
an all-time low. For example, at the meeting of Local 157 held in May at which
nominations for office were to be received and where over 10,400 members had received
postcards notifying them of the meeting, I witnessed only 150 or so members attend this
sad and ineptly conducted event, most of which was unintelligible due to a woefully
inadequate sound system.
I have no objection to the combining or dissolution of local unions when the
interests of members are better served and their rights fully protected by doing so. I
endorse the realization of efficient, cost effective operations achieved through such
combinations. However, whether through local unions or full service councils,
members must be served and their rights enforced and respected. The lawful
expectations and needs of all members must be met. As I mentioned in my first report,
1/ I firmly addressed the topic of constituent local unions in my First Interim Report and
supplement that report with additional information and observations herein.
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members must have a meaningful ability to participate through democratic means in the
affairs of the union and on all questions that affect their trade, bargaining unit and job
opportunities. They must be able to speak to and associate with each other, and be fully
informed on all matters relating to the governance and administration of the union. They
must be free to disagree with each other and with their leadership and have the
opportunity to address officials accountable to them without fear of reprisal or
retribution. State of the art technology, professional grade sound and visual systems in
modern, comfortable and well-lighted venues must be used for meetings where members
must be informed of all information of which they have a right to know -- from the
precise details of proposed expenditures to the state of their pension fund and medical
benefits. The traditional system used in New York City has failed the membership and I
believe that the dwindling numbers of members participating in union meetings reflects
their agreement with this proposition.
I also note that the chartering of Local Union 395 as an interior systems local
would require an adjustment of the so-called 50/50 rule in order to achieve what I
perceive to be its intended purpose. Such a change must only be implemented upon firm
evidence that the District Council -- and employers -- are willing to join together to
implement broad reforms to eliminate all manner of fraud and corruption from the
industry. In order for such a change to be considered, contractors who would seek relief
from the 50/50 rule should, for example, have to sign on to a Joint Compliance
Program (JCP) with the District Council. Material provisions could include
agreement to (1) use electronic scanners to record work hours (and could include a
requirement that such costs be shared); (2) use site security cameras linked to the internet
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public address system to the event and provide two microphones on opposite sides of the
room for members to use. I also held forums on March 30th
and May 23rd
. Each event
has run for at least three hours. The first two forums were packed to capacity
(approximately 350 members) and the third was also well attended.
I also took applications from members to join a Review Officer Advisory
Committee. ROMAC was thus formed and had its first meeting in April. The
meetings will allow me to pose specific questions and propositions to a reasonably sized
group to gain their views on a variety of issues. The first ROMAC meeting had almost
perfect attendance and we engaged in a collegial dialogue for over three hours.
I have no objection to the recording of any of the foregoing events should a
member choose to do so. I have been extremely gratified at the response I have received
from members, who have expressed great enthusiasm for the events.
In addition to the forums and the ROMAC, my office has an open door policy.
Any member can go to the District Council during business hours and expect to be able to
see an RO staff investigator. I have also had many meetings with individual rank and file
members and groups of members to discuss whatever concerns or observations they may
have about the Union. My staff receives calls directly at the District Council throughout
the day. I receive calls throughout the day on my office line. Indeed, the frequency of
calls to these lines greatly exceeds the number of calls we receive on the so-called
hotline. We strive to address and hopefully resolve all matters within 24 hours.
Improvements in District Council Operations
Since my last report, the District Council human resource function has become
embedded in daily operations. Some 20 new representatives were hired by the District
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Council in the first part of the year. They were all selected after participation in a lengthy
and objective assessment and interview program (which must expressly be part of District
Council operations henceforth). A personnel policy has also been implemented. Exhibit
5.
We reviewed the performance of the District Council grievance department over
the last five years and found that it was deeply flawed, and lacked all manner of
procedures and accountability. The employee who headed the department has resigned.
We worked with the District Council to implement mandatory procedures, a grievance
committee with redundant accountability, strict controls and a tracking system. Certain
cases that were improperly handled in years past have been revisited. Performance has
been drastically improved. See infra at 50.
We are conducting an ongoing review of the District Council Organizing
Department in an attempt to determine the relationship between its significant funding
and its efficacy. The department conducts demonstrations, picketing (look for the large
inflated rat) and engages in the area standards campaign. It is funded by an assessment
of $.50 per hour taken from the pay of all working members and has a reserve of over
$20 million at its disposal. See infra at 42-45.
We reviewed the functioning of the District Council Political Department during
the Forde regime and found insufficient oversight of PAC costs, particularly in the area
of food, drink and travel and entertainment, where excesses were identified. Those
expenditures have been drastically curtailed and the department is now adhering to
District Council policy with regard to, and is notifying the Review Officer of, all
expenditures. See infra at 45-48.
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The Organized Crime Initiative
My staff and I have required dozens of persons employed by or affiliated with the
District Council (and the Benefit Funds) to tell us what they know, if anything, about the
presence within and influence of organized crime figures upon the District Council and
Benefit Funds. See Paragraph 7 of the Stipulation and Order. Unless a deposition is
required, such persons are then required to provide me with a sworn declaration (as
authorized by Paragraph 5.d of the Stipulation and Order) to confirm and memorialize
their knowledge or lack thereof. All persons are free to consult with a lawyer before
signing such a document.
I have included the trustees of the Benefit Funds in this undertaking, as well as a
number of candidates for office at local unions. All of the trustees of the Benefit Funds
have cooperated in this regard and provided signed declarations.
A number of persons have decided to resign or retire from their positions rather
than provide a declaration or be deposed in this regard. Forms of the various declarations
utilized are attached hereto as Exhibit 6. The organized crime initiative has also utilized
surveillance, data analysis and information from members who have consistently
provided me with reliable information.
The initiative also revealed that certain persons in the employ of the Benefit
Funds had personal or familial relationships with members and associates of the
Genovese family. Two of these persons resigned after being interviewed in this regard.
Vetoes
I exercised my veto authority as necessary and appropriate during this reporting
period. Notably, on April 12th, I vetoed the employment of Lawrence DErrico as a
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employment as a business representative of the District Council pursuant to the terms of
an agreement with this office executed on May 10, 2011.
The investigation of Local Union 1456 is discussed in detail at 32-39. The Harkin
resignation letters and the settlement agreements with Koballa and Olsen are attached
hereto as Exhibits 12, 13 and 14, respectively.
The District Council Trial Committee
The Trial Committee provides a serious forum for union justice that has been well
run, diligent and highly effective. It has rendered well-considered and decidedly fair
judgments in dozens of matters. Chairman Mack and Vice-Chairman Zazzali have
considered and approved settlements in dozens more cases, many brought by IG Scott
Danielson (who has brought charges against all of the union members who were
defendants in the Forde RICO case). It provides substantive and procedural process that
greatly exceeds the requirements of the LMRDA and the District Council may be
justifiably proud of its existence and achievements. See infra at 39 and Exhibit 15.
Costs Associated with the Review Officer and Trial Committee
From June 3, 2010 through April 2011, the average monthly fee paid to
Fitzmaurice & Walsh, LLP for my and Mark Fitzmaurices services as RO and Staff
Counsel, respectively, was approximately $34,000. Billable man hours have ranged from
165 in August to 257 in November. I do not mark up the additional costs I incur for
investigative and legal services. These additional costs have averaged $40,000 per month.
They are passed to and reimbursed by the District Council and I make no money from
these necessary services. I have not billed the Union for any travel time,
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transportation or parking costs, administrative overhead, meals or any phone costs,
including the bill for the Hotline that I operate.
Thus, the average monthly cost to the District Council for the foregoing services
has been approximately $74,000, which is less than the median amount contemplated by
Paragraph 8.b.i of the Stipulation and Order (which specifies an expected range of
$65,000 to $85,000 per month).
The average cost of the judicial and administrative services provided by the
Chairman and Vice-Chairman of the Trial Committee has been approximately $40,000
per month.
The Benefit Funds
Improved Relationships and New Counsel
The relationship between the union and employer trustees of the Benefit Funds
has significantly improved in the past six months. The trustees agreed in mid-December
to the selection of Raymond McGuire of Kauff, McGuire and Margolis LLP to serve as
counsel to the Benefit Funds. He and his colleague Elizabeth OLeary have quickly and
fully grasped the many issues that must be confronted by the Benefit Funds and have
assisted the trustees and this office in attempting to improve the operations and
procedures of the Benefit Funds.
Changes in the Composition of the Board
The composition of the Board of Trustees has changed since December. Messrs.
Harkin and DErrico are no longer trustees on the Union side. They have not yet been
replaced; Douglas McCarron, Frank Spencer and John Ballantyne are the sole Union
trustees. John DeLollis, the new Director of the Wall-Ceiling Association, has replaced
Michael Weber in the seat formerly held by Joseph Olivieri. Bryan Winter has succeeded
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John Brunetti as the trustee representing the Cement League. George Greco, the trustee
from the Manufacturing Woodworking Association, resigned on May 27th
. The MWA
has designated Catherine Condon of Celtic Cabinet Corp. in Brooklyn as his successor.
The Board is rounded out by employer trustees Kevin OCallaghan, Paul OBrien and
David Meberg.
The Executive Director Position
Stuart GraBois has submitted his notice of retirement to the Board. He is
currently serving as Executive Director pursuant to the terms of a short-term professional
services agreement. After engaging the Segal Company to conduct a diligent nation-wide
search for a suitable replacement, the Board has selected Joseph Epstein of Naperville,
Illinois, to serve as its new Executive Director. Mr. Epstein is a native New Yorker who
is currently serving as the Director of Employee Benefits of Painters District Council 30
in Illinois. He formerly served as the Benefits Director for the State of Maryland.
It is expected that Mr. Epstein, as enabled by the Board and assisted by
appropriate professionals, will immediately begin assessing the operations of the Funds
and endeavor to improve its operating efficiency and technological capabilities. He is
familiar with the findings I related in my first report and will also have the benefit of a
recent management study conducted by the Segal Company.
New Collections Counsel
The Segal Company also assisted the Board in the process of selecting new
collections counsel (to replace ODwyer & Bernstein). A request for proposal led to the
receipt of submissions from a number of qualified firms, three of which made in-person
presentations to the Board. Virginia & Ambinder was selected by the Board on May 25th.
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The firm brings extensive experience to its new role, including as collections counsel for
Local 1 of the Plumbers Union in New York. There is currently almost $3 million owed
by contractors in uncollected judgments payable to the Benefit Funds.
New Procedures for Consideration of Payment Plans
We examined the process employed by the Benefit Funds to consider and grant or
deny payment plans to delinquent contractors (and track the progress of collection) and
identified a number of areas that we felt could be improved. Working with Mr.
McGuires office, the trustees and Mr. GraBois office, a number of improvements have
been implemented, including the use of database research regarding the assets of
contractors, prior judgments and liens, and interviews of contractors. See infra at 26-28.
An Operating Deficit Creates Significant Problems for the Welfare Fund
On May 16th
, the Administrative Committee of the Board of Trustees was given a
presentation by the Segal Company that illustrated the urgent need to cut costs associated
with the Welfare Fund (medical benefits) due to the heavy cost of the plan and the drop
in man hours. Based on current projections, if no more than 15 million hours worth of
contributions is received by the Welfare Fund in the average fiscal year, it will exhaust its
reserves in 2013. See infra at 29 and Exhibit 16. As a result, the trustees have been
presented with a range of options to cut costs of up to $5.60 per man hour, and range
from an increase in co-pay amounts, deductibles, loss of dental coverage and increased
auditing to find and prevent fraud. See infra at 29-30.
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An Observation
I have had expressed to me by some members great antipathy towards the UBC,
which they believe is secretive and dictatorial. Alternatively, I witnessed first-hand the
raucous and discourteous reception given to Frank Spencer by members of Local 157 at
the January meeting of the local (the first to include the former members of Local Union
608, which was dissolved by the General President McCarron on corruption grounds in
December) when he attempted to address members and present information to them
regarding the formation of Local 395 and the condition of the Benefit Funds. Those who
are blind with anger will not recognize the heavy responsibility of fiduciaries to shepherd
the interests of so many dependents. Those who do not report the view from the
mountain top have climbed for naught.
To the extent that there are sides, both (or all) could do better to understand the
positions of others. From the beginning of my tenure, I have urged complacent members
to surmount apathy and participate in the affairs of the Union. I grow increasingly
pessimistic that such improvement in affairs is indeed possible. Whether one supports or
decries the policies and programs of the UBC, failing to seek information and participate
in union affairs and meetings is an abdication of responsibility. Even then, everyone who
participates in the debate about the future of the labor movement and the District Council
must be armed with facts and listen to what others have to say. Those who decline to so
participate and act responsibly will have ceded their right to lament any particular
outcome.
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Liberty lies in the hearts of men and women. When it dies there, no
constitution, no law, no court can save it. No constitution, no law, no court can
even do much to help it. The spirit of liberty is the spirit which is not too sure
that it is right. The spirit of liberty is the spirit which seeks to understand the
minds of other men and women. The spirit of liberty is the spirit which weighs
their interest alongside its own without bias. The spirit of liberty remembers thatnot even a sparrow falls to earth unheeded.
-Billings Learned Hand, May 21, 1944
*****
Certain of the above-mentioned and other matters are detailed in the pages that
follow.
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Part One Benefit Funds
A. New Sole Counsel to the Benefit Funds Board of Trustees
Prior to and during the first six months of the ROs tenure, dual counsel
ODwyer and Bernstein for the union trustees and Schulte Roth & Zabel for the employer
trustees - represented the Benefit Funds Board of Trustees. The union trustees and the
employer trustees had an acrimonious relationship. A dispute regarding counsel,
chronicled in detail in the First Interim Report, interfered with the important business of
the trustees and the reform efforts I was pressing. See First Interim Report at 55-58.
Effective December 15, 2010, Schulte, Roth & Zabel resigned as co-counsel.
(ODwyer and Bernstein had resigned at the September 16, 2010 Board of Trustees
meeting but retained certain collections matters). Kauff, McGuire & Margolis was
retained as sole counsel for a one-year period ending December 15, 2011, with Ray
McGuire, Esq., assisted by Elizabeth OLeary, Esq., being the primary contact. In
conjunction with the change of counsel, three pending deadlock disputes were cancelled
and dismissed with prejudice.
The union and employer trustees are now working together harmoniously and
productively to grapple with the many issues large and small facing the Benefit Funds
and Mr. McGuire and Ms. OLeary are providing practical, hands-on and effective
guidance with respect to those issues.
B. Retirement of Executive Director Stuart GraBois
The long-time Executive Director of the Benefit Funds, Mr. GraBois, announced
his retirement on April 29, 2011 and is now serving the Funds pursuant to a short-term
consulting agreement in order to facilitate transition to a new Executive Director. This,
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together with the retirement and resignation of other Benefit Funds staff, presents an
opportunity for the Funds staff to have a streamlined organizational structure and focus
on providing services to union members with increased efficiency.
C. New Executive Director of Benefit Funds
In light of Mr. GraBois anticipated retirement, the Benefit Funds Board of
Trustees retained Segal Company to issue an RFP for a new Executive Director. A
robust process ensued. On March 28, 2011, an advertisement for the position was placed
by Segal with the International Foundation of Employee Benefit Plans, BenefitsLink,
Monster and the New York Times. Segal received 43 resumes, from which it selected
several candidates for telephone interviews. In early May 2011, Segal representative
Courtney DeVine conducted an initial round of telephone interviews of these candidates,
recommending the four most highly qualified candidates for a second round of telephone
interviews. In mid-May, 2011, Mr. McGuire conducted the second round of interviews,
with Ms. OLeary of his firm, Ms. DeVine of Segal and a representative from my office
participating. On May 18, 2011, one of the four remaining participants withdrew from
consideration for the Executive Director position, leaving three candidates for the
Executive Director position. Counsel to the Board of Trustees provided the trustees with
summaries of the interviews of the finalists. Segal conducted reference checks and
summarized those for the Board of Trustees.
On May 24, 2011, the Benefit Funds Board of Trustees conducted in-person
interviews of the three finalists. At the May 25, 2011 meeting, the trustees interviewed
two individuals from that list of three. The trustees determined to offer the Executive
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Director position to Joseph Epstein.2/ He clearly is knowledgeable about administering
funds, has significant, relevant experience and is committed to an organizational
restructuring of the Benefit Funds. There is every reason to believe that he will be
installed as Executive Director around July 15, 2011. Mr. GraBois is expected to assist in
the transition until at least July 29, 2011.
I note that for a period of time, the third party administrator option was being
pursued simultaneously with the new Executive Director search. However, with the
hiring of a new Executive Director, that option is not currently being pursued.
D. Organizational Review of Benefit Funds
In light of the then-anticipated retirement of numerous senior funds staff members
by July 2011, in November 2010, the Benefit Funds Board of Trustees also retained Segal
to conduct an organizational review of the Benefit Funds office. The objective was for
Segal to review the Funds to identify potential staffing gaps, analyze the impact that staff
turnover would have on overall benefits administration and propose short term changes to
address that impact as well as a longer term plan to achieve maximum organizational
production and efficiencies. While the number of retirements then expected has not come
to pass, this was still a useful review.
In February 2011, Segal reported to the Board of Trustees on the more immediate
issues presented. Segals core findings included that the Funds appear to have an
inefficient organizational structure, too many separate departments with narrow
functions, too many managers, too many staff members in some departments and that the
Funds lack a strong management function/team supporting the Executive Director.
2/ This offer is contingent upon completion of a background check. Mr. McGuire will negotiate thespecific terms of the employment agreement.
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Segal recommended a revised organizational structure, which is set forth in
Exhibit 17. Especially when compared with the former organizational structure, see
Exhibit 18, the likely effectiveness of a more streamlined structure is immediately
apparent. If this recommendation were adopted, the Executive Director would have as
direct reports a Director of Operations, to whom the Managers of Office Services,
Members Services and the various funds (some consolidated under one manager) would
report; a Human Resources Manager; a Legal Manager; an Information Technology
Director; and a Finance Director, to whom a Corporate Accounting Manager and an
Employer Services Manager would report. This essentially represents the centralization
of management according to key functions, rather than a random assortment of managers
supervising overlapping functions.
At the time of its report, Segal noted that the Benefit Funds had approximately
100 employees, with 19 eligible to retire and many of those 19 being managers or
supervisors (secondary supervision supporting the managers). Segal noted that for most
departments, staff had been adequately cross-trained so they could temporarily if not
permanently assume management responsibilities. Segal viewed the pension department
as being at the greatest risk with three managers eligible to retire, and indicated that the
funds might retain these senior staff on a consultancy basis pending the training of
existing staff or hiring of experienced new staff.
Since the filing of the First Interim Report, a number of individuals have resigned
from the Benefit Funds. Among senior management, the Manager of the Contractor
Services and Benefits Shortages Departments resigned and his duties and responsibilities
are being handled by another Manager. The Members Services Manager also resigned
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and her duties and responsibilities are likewise being covered by another Manager. The
Special Projects Manager resigned. All told, approximately ten Benefit Funds employees
have recently left the Funds, either through termination or resignation. The trustees have
agreed that Assistant Director and Welfare Fund Manager John Pirrone, who indicated
that he would retire effective July 1, 2011, should be given a consulting agreement
whereby he will work three days a week and be paid on a pro rata basis.
A priority for the new Executive Director will be reviewing Segals
Organizational Review Report as well as its just issued Operational Review Report. The
new Executive Director must also perform his own review of the Funds and remaining
staff to ascertain how he thinks the funds should be best structured, the capability of
current staff to fulfill necessary functions, and the need to train and/or hire staff in order
to ensure the sound and efficient operation of the Funds; he also must implement the new
streamlined organizational structure with appropriate staff.
As part of this restructuring, it will be incumbent upon the new Executive
Director to assemble a strong management team to report to him on their departmental
functions and to run each of their functions effectively and efficiently. Each of the
Executive Directors direct reports is critical to the running of the Funds and should be
selected with that in mind. Senior management should be groomed such that a seamless
succession would occur if the Executive Director were to leave. Other staff should be
mentored to rise within the organization and take over the responsibilities of their
managers and supervisors when called upon.
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E. Human Resources
I specifically note that it is critical that, early in his tenure and through a
competitive process, the Executive Director hire an experienced Human Resources
Director who will immediately develop and/or refine a state of the art (1) personnel
policy, addressing among other important topics discrimination and sexual harassment;
(2) protocol for hiring, firing and reviewing personnel, with strong restrictions on
nepotism and cronyism; and (3) training presentations and materials to ensure that staff is
well versed in the policies and protocols. See First Interim Report at 52 for a complete
list of the minimum requirements of a Human Resource function. Some strides have
been made, but the HR Director should bring his or her expertise to bear to ensure the
development of excellent policies, protocols and training fine-tuned to the particular
needs of the Benefit Funds in the challenging environment in which it operates. Hiring an
HR Director and focusing that Directors attention to the above should be a top priority of
the new Executive Director. I have been pressing for the Benefit Funds to hire an HR
Director since the beginning of my tenure because I view this basic, uncontroversial and
important function as a critical hedge against corruption. The new Executive Director
should accomplish the above before I issue my next interim report.
F. Compliance Program
I also view the hiring of a Chief Compliance Officer (CCO) and the
development of a compliance and ethics program as an early priority of the new
Executive Director and another critical hedge against corruption. See First Interim
Report at 52. Indeed, I had pressed for this.3/
Mr. GraBois had agreed to fill this position
3/ Shortly after my appointment as RO, on June 24, 2010, I inquired whether the Benefit Funds hadan effective compliance and ethics program as contemplated by Chapter 8 of the United States Sentencing
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and develop the program. See id. at 53 n.8. With Mr. GraBois departure, it is necessary
to focus on hiring a qualified and dedicated replacement for Mr. GraBois as CCO and to
do so with alacrity. The CCO will be responsible for developing a compliance and ethics
program consistent with Chapter 8 of the United States Sentencing Guideline. The hiring
of a CCO and development of a compliance and ethics program should also occur before
I issue my next interim report.
Though the Funds trustees agreed to create the position and develop the function,
I note that the CCO position was not included on Segals organizational chart. At the
May 25, 2011 meeting of the Benefit Funds Board of Directors, Segal mentioned the
possible creation of a CCO position. As the position already existed, it appears Segal
was not aware of the fact. As is the case with the position of Human Resources Director,
I do not view the CCO position as an optional one. Moreover, the CCO should have a
direct reporting line to the Executive Director and/or to the Benefit Funds Board of
Trustees as he or she deems appropriate under a given set of circumstances.
G. IT Infrastructure
Since the issuance of the First Interim Report, the District Council has taken steps
to develop its own information technology (IT) infrastructure, rather than continue to
utilize the infrastructure of the Benefit Funds. See infra at 50-51. Unfortunately, the
Benefit Funds have made little progress with modernizing their own IT infrastructure.
Segals Operational Review Report advises that the Funds are in the process of upgrading
its current system and implementing a web-based system created by a vendor. The
earliest they expect the system to be completed is August 2012. The slow pace of this
Guidelines. On July 8, 2010, I issued a formal recommendation that the trustees conceive and implementsuch a program. As noted, I think developing such a program must be one of the highest priorities ofwhoever is retained as CCO.
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endeavor is unacceptable and hard to understand. The District Council has made
significant progress in the same period of time and had no system whatsoever upon which
to build. The trustees have asked Segal to assess and report on the vendors efforts. Of
course, this project must be completed promptly and should be directly and actively
supervised by the Director of Operations or a Special Projects Manager and an IT
Director (with frequent progress reports).
H. Collections Counsel
With the resignation of ODwyer and Bernstein, the Benefit Funds Board of
Trustees sought new counsel to represent the funds in seeking payment from employers
who are delinquent in making their contributions for benefits. Ultimately, Segal issued
an RFP with objective criteria for selection of collections counsel. (In Fall 2010, Segal
presented a list of certain firms to which others were randomly and subjectively added,
but I regarded that effort as a non-starter. That process was set aside in favor of an RFP).
In addition to being distributed to certain firms generally considered to be qualified by
objective standards, beginning February 8, 2011, for three days, the RFP was posted in
the print and on line editions of the New York Law Journal. Expressions of interest were
due February 14, 2011. Thereafter, ten law firms submitted proposals for consideration,
which Segal analyzed and summarized by the end of March 2011. In April 2011, counsel
to the Benefit Funds selected three highly qualified finalists for the Board of Trustees to
consider.
At the May 25, 2011 Board of Trustee meeting, the three finalists made
presentations to the trustees. The Board of Trustees selected Virginia & Ambinder as
their new collections counsel. That transition is expected to begin immediately.
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I. Payment Plans
There is little more important to the long-term health of the Benefit Funds than
the collection from employers of the total amount of benefit payments due and owing
from them on behalf of union members. Of course, employers do not always pay the
benefits they owe on a timely basis and too often they do not pay at all. Payment plans
are formal written agreements between the Funds and employers which set a schedule of
payments in fixed amounts, with interest and include stipulated confessions of judgment
and personal guarantees in event of default. First Interim Report at 60. Among issues
of concern to this office were the Benefits Funds failure to conduct a public records
search regarding employers before entering payment plans with them and the typical
practice of not requiring the posting of collateral by employers. Id. at 60-61.
On January 18, 2011, members of my staff conducted a follow up interview with
Benefit Funds staff member Kathleen Flannelly, who has handled payment plans on a
daily basis;4 / my staff previously interviewed Ms. Flannelly on August 23, 2010. I,
together with members of my staff, also attended meetings of the Delinquency
Committee of the Benefit Funds together with counsel to the Benefits Funds, the trustees
on the Delinquency Committee and Benefit Funds staff, including Ms. Flannelly, on
February 22 and March 29, 2011.
The meeting of February 22nd addressed, among other things, the delay or failure
to collect on confessions of judgment. It was determined that the payment plan spread
sheet distributed to trustees on the Delinquency Committee will include a new column
regarding the status of collecting on confessions of judgment so they can better track
4/ Another staff member is presently and temporarily handling payment plans.
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be sent to employers who request payment plans, which was developed with reference to
the U.S. Probation Departments financial disclosure form and seeks to obtain current
information and documentation regarding an employers financial status as well as future
prospects in order to assess need for a payment plan, the ability to pay and the nature of
any plan to be awarded. Counsel also revised the Payment Plan Approval Template to
require Funds staff to provide additional information the trustees would like to have in
making their decisions, including the nature of any audit findings and whether
underpayment was the result of clerical error or failure to report employees. Finally,
counsel created a Monthly Payment Plan Status Chart, to provide the trustees with a one-
page summary providing overall volume, dollar amounts, defaults and collection efforts
and thus address the trustees desire to be better able to track progress on payment plans.
It was agreed that the trustees will also need a summary method of tracking the progress
of each matter referred to collections counsel. These various documents can be finalized
with input from new collections counsel, who should address this matter expeditiously.
I also note that the Delinquency Committee meetings and communications among
counsel, trustees and staff between meetings have become increasingly more robust and
fruitful. The involvement of new collections counsel will further enhance this process
and its ultimate objective: collection of the total amount of benefit contributions due and
owing to the funds.
J. Legal Department
The Executive Director must consider the suitability of individuals who are not
lawyers managing and supervising the Legal Department and whether having an attorney
in residence at the Funds would be a prudent and efficient step that also would benefit
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other aspects of the administration of the Funds. While having a non-lawyer handle
payment plans may work at smaller funds, it might be advantageous for these Benefit
Funds to have in house counsel supervise the payment plan process, liaise with
Collections Counsel regarding the wisdom of arbitration or litigation and follow up to
ensure that collection efforts continue once confessions of judgment are obtained.
In house counsel might also have wider duties and responsibilities, such as
conducting RFPs for and negotiating with vendors, working with the Human Resources
Director on employment issues, advising the CCO in carrying out his or her duties and
otherwise performing the functions in house counsel typically performs. It would in all
likelihood improve the Benefit Funds organizational effectiveness and create
efficiencies.
K. Welfare Fund
On May 11, 2011, I and my counsel, the Benefit Funds Board of Trustees (with
the exception of one trustee), the trustees counsel and the Executive Director attended a
meeting discussing the condition of the Welfare Fund. Segal advised of a potential
problem with the Funds long-term viability and alternative plan designs. Through
March 2011, the number of man hours worked in the fiscal year ending June 30 totaled
11.5 million, which will likely annualize to approximately 15 million hours. At that
level, the Welfare Fund will have yearly deficits and ultimately be depleted in 2013.
(The calculation did not take into account investment income and losses). The trustees
decided to schedule a working meeting to begin consideration of specific cost-saving
steps that will have to be made immediately.
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On May 16, 2011, the Board of Trustees, their counsel and I had that working
meeting. Among the coverage changes discussed were the requirement of a deductible,
instituting or increasing co-payments for doctors visits, eliminating dental coverage and
adopting a generic prescription drug program.
Later on May 16th, at a previously scheduled status conference, counsel for the
Benefit Fund trustees reported to the Court regarding the status of the Welfare Fund. The
Court inquired whether participants in the fund directly receive monthly or quarterly
reports.
On May 18th, counsel for the Benefit Fund trustees submitted a letter to the Court
advising that consistent with the practice of other benefit funds, the participants do not
receive such monthly or quarterly reports; they receive a Summary Annual Report.
However, counsel appreciated the point and had inquired preliminarily of Segal regarding
providing information to participants regarding the status of the Welfare Fund, including
cost of benefits, the required contribution rate to remain solv[a]nt, and reserve levels and
indicated the topic would be raised with the trustees at their May 25, 2011 board meeting.
Exhibit 19. This issue continues to be a priority for all concerned.
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Part Two District Council
A. Investigations
1. Organized Crime Initiative
On March 4, 2011, I began my organized crime initiative. This initiative was
undertaken to determine what knowledge, if any, District Council employees, local union
officers and Benefit Funds trustees and employees have regarding organized crime
influence and control over the union. Separate declarations have been developed, which
recognize ones position within the union. See Exhibit 6.
Investigators from my staff have interviewed, and continue to interview,
personnel. If an interviewee has no knowledge other than that learned through the media
or court records, he or she signs a declaration to that effect and no other action is taken. 5/
If an interviewee has knowledge from sources other than the media and court records, a
rider that details this knowledge is attached to the declaration.6/
To date, we have interviewed 64 people. A small number of persons have refused
to be interviewed and resigned their positions as District Council representatives and
local union officers. Eight others who were interviewed refused to sign a declaration.
Each has either retired or resigned his position at the District Council, Labor
Management Fund or local union.
We will continue with this initiative as necessary. My office is currently
interviewing many of the candidates in the local union elections to be held in June.
5/ It is important to note that each person is told that the declaration is a serious legal document andthat he or she has the right to discuss the declaration with an attorney. Each person is also given a week,and more if requested, to consult with an attorney before signing the declaration.
6/ All declarations and riders are kept by the RO and are not publicly available.
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2. Local 1456 Investigation
My office has investigated aspects of the finances and administration of Local
Union 1456 (often referred to as the Dockbuilders). The investigation has led to the
resignation or removal of individuals from high-level positions. As described below, my
office continues to investigate practices of Local 1456.
a. Leadership
Charles Harkin was the President and Business Manager of Local 1456. He was
also a District Council business representative. Harkin was interviewed on January 13,
2011, about dinners at Marinella restaurant in New York City.
Harkin said that the Executive Board and guests he invited would eat at Marinella
restaurant once a month between the board and general membership meetings of the local
union. There was no log kept of Marinella dinner attendees. The cost of these dinners
ranged from $1,500 to $3,000. There was no limit to the amount of food and drink an
attendee could order. The bill for the dinners was paid for by the local union. Harkin
admitted that the amount, location, and list of dinner attendees, was never divulged to or
approved by the general membership from at least 2006 through 2009.7/
Based on Harkins interview, a deposition was scheduled for April 15, 2011. The
afternoon before the deposition, we received a facsimile indicating that Harkin would be
unable to attend. On April 20, 2011, I issued a Notice of Possible Action. See Exhibit
20. Effective April 27, 2011, Harkin resigned as President of Local Union 1456;
effective April 29, he resigned as a trustee of the Benefit Funds; and effective April 30,
7/ The expenses for two Marinella dinners in particular were the subject of a veto and was fullybriefed in the District Court. The veto was upheld. See Exhibit 7.
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he resigned as a business representative and withdrew his membership in the union.
See Exhibit 12.
The investigation revealed a trail of unapproved (that is, not presented to the
membership for consideration) credit card expenditures by Harkin and other board
members. Based on a review of American Express credit card bills and meeting minutes,
it appears approval by and notice to the membership was neither sought nor given for any
of these credit card expenses between 2006 and 2009. Unauthorized expenditures
between 2006 and 2009 paid for, among other things, Marinella dinners, stipends, airfare
and accommodations for certain officers and others; fine dining at New York restaurants;
services purchased at a spa; and a 2009 Cadillac DTS (which cost $1,300 per month).
The practice of awarding Christmas bonuses to select board members was also
uncovered. Between 2006 and 2009, Charles Harkin, John Harkin, Michael Koballa and
Gary Shelton were given checks in the discretion of Charles Harkin. The amount given
to John Harkin, Koballa and Shelton each year was $5,080.46. Charles Harkin received
$5,615.20. Local union meeting minutes contained only vague references to usual and
customary Christmas bonuses without specifying the amounts or the recipients.
There is no approval in meeting minutes for an expense of $1,258.24 for
Christmas Meeting-Drinks-12/11/07, as noted in the digest of the operating account.
Former business agent John Harkin also used an American Express card. Meeting
minutes from 2006 through 2009 contained no record of approval by or notice to the
members of John Harkins credit card expenditures for fine dining, beverages, limousine
services, and golf green fees totaling over $20,000. John Harkin retired last year.
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The Advisory Board consists of members and retired members of Local 1456.
Based on interviews of current and newly appointed Advisory Board members,
appointments to the Advisory Board were made by Charles Harkin. Shortly before his
resignation, Harkin appointed six new members to the Advisory Board. With the
exception of the husband of the Local 1456 Office Manager, all new appointees were
related to former Local 1456 board members. The RO staff interviewed four of the five
new appointees. Those interviewed stated they did not know they were being considered
for the Advisory Board until announcement of their appointments. All accepted their
appointments but were unclear of the duties of the position. Advisory Board members
received a $100 stipend and an invitation to the Marinella monthly dinner.
A $200-a-day stipend was typically given to certain board members for travel.
According to Olaf Olsen, such stipends were granted in the sole discretion of Charles
Harkin. In February 2008, Charles Harkin, John Harkin, Michael Koballa and Gary
Shelton traveled to Florida for 18 continuous days. The Harkins each were given $3,800
and Koballa and Shelton each was given $3,600. The Finance Committee, the Audit
Committee and the trustees never reported this fact to the membership.
According to Michael Koballa, the H column in schedule 11 of the LM-2 forms
reflected the aggregate amount of stipends received by the officers of Local 1456 during
the year. According to the LM-2 forms, the officers of Local 1456 received total stipends
of $216,654.00 in 2007; $217,877.00 in 2008; and $221,633.00 in 2009.
c. Conferences
During the period between 2006 and 2009, few of the conferences attended by
certain board members and others were approved in the general memberships meeting
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minutes. Certain associated expenses in the form of stipends, airfare, hotel
accommodations, and lavish dinners paid for by union credit cards were never reported to
the members.
The choice of labor conferences attended by board members is also questionable.
For instance, members of the board attended the Public Employee Conference (PEC) in
San Juan, Puerto Rico, each year between 2006 and 2009. It is difficult to see the benefit
to members of Local 1456 from the boards attendance at this conference. Fewer than 30
of the over 1,400 members of the Dockbuilders are civil service employees. William
Lacey, Civil Service Employee Representative for the District Council, could not identify
any reason why Local 1456 officers would attend the PEC. Nonetheless, in 2007 and
2008, board members arrived in Puerto Rico two days before the start of the conference.
They enjoyed two vacation days paid for by the members, plus their salary, stipends and
credit card expenses.
Each year between 2006 and 2009, one of the winter conferences attended by
Local 1456 board members was the Wall-Ceiling Association Conference, held to discuss
matters pertinent to the dry wall industry. Local 1456 does not perform work in this
industry. Nonetheless, credit card expenses, airfare, hotel accommodations, and stipends
were incurred by fiduciaries at the expense of the membership of the local union.
In 2008, there was a gap of four days between two winter conferences. Instead of
returning home, some board members with their wives chose to remain in Florida and, in
essence, enjoy a four-day vacation paid for by the membership. Salary, stipends, first
class accommodations, rental cars and lavish dinners were subsidized by the membership.
According to Olaf Olsen, the wives expenses were paid for by Local 1456. None of the
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2008 winter conferences were mentioned in any of the Executive Board or general
membership meeting minutes. Olsen also stated that none of these expenditures were
disclosed to the membership after they were incurred either.
d. Whole Life Insurance Policies
In November 2009, Terry Mooney, an accountant assisting the District Council
while under supervision, reviewed certain LM-2 reports filed by Local 1456. He
discovered that certain board members had purchased whole life insurance policies with
local union funds. The policies were purchased from Metropolitan Life Insurance
Company (Met Life) for Charles Harkin, John Harkin, Michael Koballa and Gary
Shelton, who were also the beneficiaries of the policies. When Mooney discovered the
policies, he told the board members to cash out the policies and return the money to the
general fund.
While the investigation is still ongoing, based on conversations with employees
from Met Life, it appears that each policy that was cashed in was assessed an early cash
out penalty of nearly 80 percent of the value of the policy. For instance, Charles Harkins
policy had a cash surrender value of $9,251.83 as of November 30, 2009. The policy was
cashed out on November 30, 2009. However, due to an early cash surrender penalty,
only $1,596.86 was returned to Harkin.8 / The result was a net loss to the membership in
the amount of $7,654.97. It appears that there is a comparable loss on each of the other
policies, for a total loss of over $30,000.
e. Trustees
8/ Harkin returned the $1,596.86 to the general fund of the local.
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Section 40 (c) of the Constitution of the United Brotherhood of Carpenters states,
The Trustees shall audit all books and accounts of the Financial Secretary and the
Treasurer, audit all receipts and accounts of any other person authorized to collect funds,
examine the bank books(s) monthly, and shall report to the Local Union monthly in
writing. Based on our review of Local 1456s general meeting minutes, the testimony
of Olaf Olsen and interviews of the trustees, it does not appear that from 2006 to 2009,
such written reports were presented to the membership.
In 2009, the trustee stipends were $356.88 for each meeting. Despite receiving
substantial stipends, the trustees failed to perform their required duties and in fact
participated in generating unapproved expenditures by attending conferences and meals
and collecting travel stipends.
f. Diver Safety
My office received calls from Local 1456 divers alleging that certain companies
that are signatory contractors with Local 1456 are not following rules and regulations
related to diver safety. The callers alleged that certain signatory contractors are not
employing a full dive crew with a proper tender to monitor the safety of a diver when he
is underwater.
Three accidents have occurred on union sites in the last two years, one of which
resulted in the death of a union diver. Based upon the callers allegations, my office and
the IGs office made visits to four locations at which divers were employed. We have
also performed interviews of union members and made inquiries with government
agencies that have jurisdiction over diver safety. This matter remains under
investigation.
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3. Trial Committee
Since its inception, the Trial Committee has adjudicated 298 cases. The vast
majority of these cases have been resolved through guilty pleas, trials and plea
agreements. A summary of the Trial Committees activities is attached as Exhibit 15.
4. RO Vetoes and Trials
My office continues to vigorously investigate wrongdoing and malfeasance by
District Council representatives, shop stewards, employees and members. Several
matters addressed in the last six months have resulted in charges, trials or vetoes.
Lawrence DErrico
Lawrence DErrico was the Director of Operations of the District Council and had
been a business representative since the mid 1990s. On April 21, 2011, I vetoed his
employment with the District Council and his position as President and Delegate of Local
Union 157 for giving materially false answers to questions posed to him in a deposition.
The Notice of Veto is attached as Exhibit 7.
Frank Marino
Frank Marino was the President and Business Manager of Local 2870 and was
employed as a District Council business representative. He had served as a trustee of the
District Council. On March 23, 2011, I vetoed Marinos employment with the District
Council for being the beneficiary of unauthorized expenditures as well as dereliction of
his duties as a fiduciary for the membership. The Notice of Veto is attached as Exhibit 8.
Michael Dolphin
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Michael Dolphin was arrested on January 20, 2011 for participating in a
racketeering conspiracy. In the indictment, Dolphin was described as an associate of the
Gambino Crime family. After sending a Notice of Possible Action and receiving a
submission from Dolphins attorney, I vetoed Dolphins shop steward certification on
February 25, 2011. The Notice of Veto is attached as Exhibit 21.
Sam Bailey
My office charged former District Council business representative Sam Bailey
with seven counts of improper conduct. After a trial before the Trial Committee, Bailey
was found guilty. The judgment is attached as Exhibit 22.
John Thomassen
My office charged former District Council and Benefit Funds employee John
Thomassen with six counts of improper conduct. Thomassen, who had resigned from the
Union, asserted that the Trial Committee lacked jurisdiction.9/ After a trial before the
Trial Committee, which Thomassen did not attend, he was found guilty. The judgment is
attached as Exhibit 23. Thomassen has appealed the judgment against him to the UBC.
Michael Koballa
As referenced supra, I vetoed Koballas employment with the District Council.
He withdrew a Petition for Review filed with the Court upon entering into a settlement
agreement with my office. The Notice of Veto and Settlement are attached as Exhibit 9.
Michael Murphy
Michael Murphy was employed as a District Council business representative. On
February 7, 2011, I vetoed Murphys employment with the District Council for violating
9/ The District Council and this Office have asserted to the Chairman of the Trial Committee thatcharges may be pursued against ex-members for conduct that occurred while they were members and citedprecedential authority.
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the Job Referral Rules, improperly receiving property and benefits from an employer and
wrongfully disclosing confidential information regarding investigations being conducted
by the then existing District Council Anti-Corruption Committee. The Notice of Veto is
attached as Exhibit 10.
a. Petitions for Review and Appeals of Vetoes
As indicated in the First Interim Report, Paul Willoughby, John Holt and John
Daly filed Petitions for Review with the District Court regarding veto decisions that I had
made; the matters were fully briefed and oral argument was heard. First Interim Report
at 14. By Decision and Order dated December 21, 2010, reported as United States v.
District Counsel, 2010 WL 5297747 (S.D.N.Y. 2010), the District Court upheld my
vetoes. See Exhibit 24.
Thereafter, Messrs Willoughby and Daly filed Notices of Appeal. Ultimately,
they together with the government and I stipulated to withdrawal of the appeals, which
was so ordered on May 20, 2011. See Exhibit 25.
During my second six months, two additional Petitions for Review were filed. On
February 3, 2011, Local 1456 member Michael Koballa filed a Petition for Review of my
veto of his employment as a business representative of the District Council. I reached a
settlement with Mr. Koballa on February 24, 2011, which included his withdrawal of the
Petition for Review.
On March 28, 2011, Local 1456 filed a Petition for Review of my veto of
expenditures for certain meals at Marinellas restaurant. On April 20, 2011, I filed a
memorandum in opposition. By Order dated May 16, 2011, the District Court upheld my
veto. See Exhibit 11.
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5. Review of Organizing Department
The current staff of the Organizing Department consists of its Director, Ed
McWilliams, and eight Council representatives. Ray Brugeuras was the Deputy Director
until his resignation in March 2011. His position has not been filled. The number of
Council representatives ranged from a high of 12 in 2010 to the current eight. Of these
eight representatives, six are recent hires. The department has one full time secretary.
The Organizing Department is funded by a $.50 per hour assessment on the wages
of the District Council members. My office has analyzed the financial statements of the
Organizing Department for the fiscal years ending June 30, 2007 through June 30, 2010.
The assessments for the fiscal years 2007, 2008, 2009 and 2010 were $8,963,474;
$11,638,542; $10,561,785; and $8,865,411 respectively.
The expenses of the Organizing Department consist substantially of the wages
and benefits of McWilliams, the Council Representatives, and the groups secretary.
Over the period reviewed, the wages and benefits ranged from $2.4 to $3 million. The
Organizing Department also operates an entity known as Area Standards Incorporated
(ASI). The expenses of this entity consist of wages paid to its staff. The Organizing
Department has other expenses such as office supplies, leases of office equipment, jobsite
research, vehicles, and shirts that are distributed to members when they assist in
Organizing Department activities. Revenue and expense statements for the period
reviewed are attached as Exhibit 26.
For each year reviewed, the Organizing Department has not expended the full
amount of the assessment. Revenue has exceeded expenses each fiscal year by $3
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million to $6 million. The department currently has $21.5 million in bank accounts and
certificates of deposit.
The current activities of the Organizing Department include implementing
procedures established by the UBC called the Area Standards Program. This program,
initiated by the Council in 2009, seeks to protect the wages and benefits of members of
the District Council by conducting public information campaigns directed to all parties
involved in a particular non-union construction project.
The District Council representatives assigned to the Organizing Department visit
non-union jobsites to gather relevant information. Each visit is documented and entered
into a database. Written notification is sent by certified letter to all parties with the
results of the initial investigation and the intent of the Council to take action to protect
and uphold the Area Standard wages and benefits. Public demonstrations by Council
members are conducted against the primary employers at the selected jobsites, while
handbills, banners held by ASI employees, and other informational activities are reserved
for secondary entities such as building owners and end users of a companys products.
In order to better determine the effectiveness of the Organizing Department, my
office requested a statistical analysis from McWilliams that would quantify the number of
man-hours his department created for Council members each month. For March and
April of 2011, McWilliams submitted an analysis that listed the various activities
performed, such as visiting job sites, distributing handbills and engaging in
demonstrations, and the frequency of each activity. McWilliams also prepared a list of
the jobsites in which the carpentry contractor decided to pay the Area Standard wages
and benefits.
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McWilliams attempted to report successful results but did not include the number
of man-hours the Organizing Department created for District Council members. After
repeated requests, McWilliams finally advised that he was unable to provide this
information. McWilliams stated that a significant part of the Organizing Departments
activities is not quantifiable in man-hours created for union members. In his view (a
view shared by others who worked at the District Council), the presence of the
Organizing Department in New York City serves as a deterrent to many owners and
contractors from using non-union labor.
McWilliams and several of the business representatives were interviewed by RO
staff to provide their thoughts on the status and possible direction of the Organizing
Department. They advised that the Organizing Department faces several obstacles in
achieving its goals and mission. The primary obstacle is the significant disparity in union
and non-union rates of pay and amounts of benefits. McWilliams explained that the
typical rate of pay for non-union workers is $15 per hour, with no overtime and no
benefits. McWilliams also explained that there are very few non-union contractors who
are willing to become union signatories. Very rarely are he and his staff able to turn a
contractor based on a financial meeting. McWilliams and his staff continue to emphasize
to the owners or contractors the greater productivity and professionalism of the District
Council members compared to the non-union workers. McWilliams and his staff advised
that they have spent countless hours over the years in reporting abuses by contractors,
particularly prevailing wage violations, to the appropriate law enforcement agencies and
that there has been only a minimal response by these agencies. The Market Recovery
Program, which offers lower rates to contractors in certain areas and is still in effect, has
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had only marginal success because the union signatory contractors have not gone after
this market.
McWilliams advised that he could increase his success rate and hours generated if
he concentrated his activities solely toward large office building jobsites in Manhattan
instead of covering all five boroughs of New York City.
I have endeavored to encourage cooperation and coordination between the
Organizing Department and the Political and Labor/Management Departments. The
Organizing Department has pledged to identify jobsites to these other departments and
enlist their input and efforts in trying to increase man-hours.
6. Review of Political Department
Former District Council Executive Secretary Treasurer Mike Forde created the
Political Department in 2000 after he was elected. The current staff of the Political
Department consists solely of Director Stephen McInnis. Marina Vranich was the
Deputy Political Director from 2004 until her resignation in March 2011.
The mission of the Political Department is to influence legislation at New York
State and New York City levels. This involves periodic meetings at the New York State
Legislature and Governors Office in Albany, New York, as well as the Mayors Office
in New York City. The Political Department conducts field operations such as get out to
vote drives. The Political Department also assists campaigns, particularly if there is a
pertinent economic development issue, and makes campaign contributions.
The Political Department is funded by a $.05 assessment on the wages of the
District Council members. My office has analyzed the financial statements of the
Political Department for the fiscal years ending June 30, 2007 through June 30, 2010.
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The assessments for the fiscal years 2007, 2008, 2009 and 2010 were $1,057,187;
$1,155,132; $1,055,129; and $882,045 respectively.
The expenses of the Political Department consisted primarily of the wages and
benefits of the Director and Deputy Director, political donations and lobbying expenses.
Total salaries averaged approximately $300,000 per year and political donations ranged
from $237,000 to $369,000 per year, depending on the political cycle. Lobbying
expenses ranged from $96,000 to $174,000 per year. Other expenses include rent,
meetings with government officials, and officials from the political departments of other
unions. It should be noted that the expenditures decreased significantly in the fiscal year
ending June 30, 2010. The revenue and expenditures of the Political Department for the
reviewed period are attached as Exhibit 27.
A Political Action Committee (PAC) was also created after Fordes election in
2000. The PAC is staffed by the Executive Delegates from the local unions affiliated
with the District Council. The purpose of the PAC is to consider and review the
expenditures of the Political Department. My office reviewed the minutes of the PAC
from its inception to the present. All donations to candidates were listed and approved
and we found no donations that were seemingly unrelated to the mission of the District
Council. However, the expenses relating to meetings with government officials,
lobbyists, and officials from the political departments of other unions were not listed in
the minutes and thus were not specifically approved.
RO staff reviewed the expenditures of the Political Department from January 1,
2007 to December 31, 2009. A substantial number of expenditures were for restaurants
and hotels. According to notations on the credit card receipts, the expenditures fell into
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the following categories: those related to UBC events or programs, those related to
District Council events or programs, and those related to lunch and dinner meetings with
members of government officials staffs, lobbyists, and officials from other unions. The
Political Department provided documentation from the UBC to support the expenditures
related to the UBC events. The UBC Supervisor, Frank Spencer, reviewed the District
Council-related expenditures and found some of them, such as conferences in Florida, to
be unnecessary and not helpful to the creation of jobs for District Council members.
RO staff also found some of the restaurant and hotel expenditures to be excessive
and their justification questionable. The likelihood that certain expenditures would assist
in developing jobs for members was insufficient. Some of the charges were incurred at
expensive New York restaurants. A particularly egregious expenditure was a dinner at
the Building Trades conference in Washington, D.C. on April 5, 2008. The amount was
$10,000 for 42 people, included several District Council members who have since
resigned or been incarcerated. See Exhibit 28. A staffer had negotiated and secured a
reasonably priced food and beverage menu but, according to information we obtained, it
was overruled by then-District Council President Peter Thomassen.
McInnis advised that, at the time of these expenditures, there were no specific
guidelines in place. There is now an approval process with respect to expenses and
expenses have significantly decreased. To the extent the District Council personnel
policy is insufficient in this regard, expense guidelines indicating specific acceptable
dollar amounts for hotels and restaurants should be put into effect.
RO staff also has attempted to learn more about the results of the Political
Department in relation to creating jobs for District Council members. No specific
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administering the Records Retention Policy, is now addressing practical adjustments that
might be appropriate in view of the functionality of the email system.
The vendor has also created a backup and recovery system, separate and apart
from the email system. This is primarily intended for disaster recovery, but is an
additional means for recovering documents if necessary.
The District Council still shares the Benefit Funds network. Its email system is
routed through the Benefit Funds internet connection. The second phase of the District
Councils plan is a network split. The split is expected to be effectuated by October 2011
at the latest.
The District Council has determined not to create an in-house IT Department but
rather to outsource to the vendor. The vendor, not the Benefit Funds, now handles the
District Councils day-to-day technological problems.
E. Records Retention
The District Council is also employing a two-phase plan with respect to records
retention (an area addressed by the Stipulation and Order). Preliminarily, the District
Counci