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Memo: No. 2 Union Official Intervened in Probe Involving Sister

April 2, 2021, 5:44 PM

It took a hurricane for top-level union officials to begin raising questions about Machinists Local 2198 in Houston.

Members were being denied relief assistance from the International Association of Machinists and Aerospace Workers for damages wrought by Hurricane Harvey. The two union representatives dispatched to investigate in November 2017 believed negligent recordkeeping was to blame. But as the duo dug into documents, other issues began popping up like missing files, inflated salaries, and thousands of dollars in unapproved meal expenses.

“There was stuff that just glared at us,” said Sandy Gardner, one of the representatives sent to determine what was happening at the local.

The storm started by that investigation is swirling today still, and threatening to sweep up a senior leader, in an unusual case where union politics is turning on a four-year fraud investigation, family ties, and claims of a mishandled response.

The issue revolves around the way Dora Cervantes, General Secretary-Treasurer of the Machinists, conducted herself during the probe of Local Lodge 2198. Three local officers—one of whom was Cervantes’s sister—allegedly siphoned off more than $100,000 in members’ dues through unauthorized or inflated expenses and salaries.

Cervantes allegedly threatened a union employee assisting in the investigation and contacted union leaders to lobby against instituting oversight at her sister’s local, according to a memo to the union’s executive council and obtained by Bloomberg Law.

The union’s top governing body voted against that oversight following Cervantes’ alleged behavior.

Cervantes is up for re-election later this month, and the Houston drama has become a centerpiece of efforts to unseat her from her No. 2 post at the union, one of the nation’s largest with nearly 550,000 members. Cervantes’ challenger, Ian Scott-Anderman, said the incumbent’s response to the Houston theft is one of the main reasons she’s running for the job.

“I’m taking a stand and making it known very publicly that I do not condone the behavior,” Scott-Anderman said of her candidacy. “We have a huge responsibility as officers of this union to safeguard the financial records and make sure union members’ money is spent appropriately and that hasn’t taken place.”

The theft is currently under investigation by the Department of Labor, according to at least four union officials. The Department of Labor declined to comment.

Cervantes’ supporters say the allegations are without merit and are part of an election-inspired smear campaign.

The union did not make Cervantes available for comment. In a podcast addressing the allegations, Cervantes said she’s not under investigation and had nothing to do with the shortage of funds at Local 2198.

“I recused myself early on and due process was given to them as it is to all district and local lodges,” Cervantes said in the podcast.

Bloomberg Law individually reached out to the three local officers accused of theft but did not hear back.

‘Great Concerns’

The three officers in charge of Local 2198 represented approximately 3,000 members working at airlines including Southwest and United in the Houston area during the time of the alleged theft. Cervantes’ sister, Norma Ramirez, was president.

According to union investigators, they opened their investigation after negligent recordkeeping caused several dues-paying members to have their initial applications for Hurricane Harvey relief denied. Those members eventually received their relief checks and were among hundreds of others Machinists members throughout the southern U.S. who applied to the IAM’s disaster relief program during the 2017 hurricane season. The program offers up to $500 in financial assistance following disasters.

In January 2018, the two investigators submitted an initial report raising “great concerns.” They recommended Local 2198 be immediately placed under trusteeship and a full investigation and audit take place, according to a copy of the report reviewed by Bloomberg Law.

Trusteeship would mean a complete takeover of the union by the international arm.

“It seemed to take a lot more time than what normally would be taken to get the auditor out there,” Gardner, a now-retired Grand Lodge Representative, said. “Usually, if you hand in something like that, they’ll start doing the books almost immediately.”

Lobbying Allegations

Cervantes allegedly lobbied against placing Local 2198 under the supervision of the international arm of the union when the issue reached the executive council two-and-a-half-months later. The council voted against taking action.

General Vice President Sito Pantoja detailed the alleged lobbying in the memo, dated March 27, 2018. Pantoja requested the local be placed under supervision the day prior to the memo. Supervision—a less drastic step than trusteeship—would have enabled the union’s officers to remain in their positions but all actions and expenses would have to be approved.

“GST Cervantes, however, has repeatedly interfered in our investigation,” Pantoja wrote. He also alleges that she “contacted Executive Council members to lobby against supervision for Local 2198, which is a major break from standard procedure.”

Pantoja declined to comment when reached by Bloomberg Law.

The failure by the council to act immediately was a departure from established union precedent, several current and former union officials said.

Pantoja, who head’s the union’s transportation division and oversaw the initial investigation, also asked for a union auditor to further investigate.

A 225-page report detailing at least $30,000 in improper payments to the three local officers was also included.

Despite the supervision vote, an auditor was assigned to further investigate the local within days of the council’s vote.

A union spokesperson told Bloomberg law Cervantes “did not lobby anyone to vote against direction, supervision and control.” The spokesperson asked not to be named due to information coming from a variety of sources within the union.

The spokesperson said the union followed proper procedures to investigate the shortage of funds, reported the theft to the U.S. Department of Labor and ensured the removal of the responsible officers—including Cervantes’ sister.

Cervantes recused herself from the matter the same day as the memo was written, March 27, 2018, according to the spokesperson. The union declined to say whether Cervantes also recused herself from the vote on supervision, saying votes are “internal matters.”

Another council member, Brian Bryant, who worked for Cervantes, urged council members to vote against supervision, raising suspicions that he was lobbying at her behest in a matter in which she had recused herself.

The union says Bryant had concerns that the constitutional process wasn’t being followed and that he believed the supervision request was part of a feud between Cervantes and Pantoja.

Scrutinizing the Process

A union spokesperson said that “the correct constitutional process” would have been for the transportation arm to request an investigation immediately rather than spend time writing a report, noting that an auditor was in Houston within 48 hours of the department’s request for supervision in March 2018.

“If the report and request for an IAM Auditor investigation been made earlier, then action would have been taken sooner,” the spokesperson said.

Having an auditor involved is crucial because they have constitutional authority within the union to immediately suspend any officer who is responsible for a shortage of funds, the union spokesperson added.

The international only has authority to suspend officers when a union is in trusteeship—not under supervision, according to the spokesperson.

But documents obtained by Bloomberg Law show the Transportation Department requested an auditor from Cervantes’ office at the outset of its investigation—well before a report was written—but was told one wasn’t available.

The transportation head later told Cervantes in a Jan. 2, 2018, letter shared by the union that assignment of an auditor would be “premature” while the department’s investigation was still ongoing.

A union spokesperson said all misappropriation of funds stopped on March 30, 2018, when the auditor was assigned.

On May 10, 2018, the auditor suspended the Local 2198 secretary-treasurer to “protect the Lodge funds.” Ramirez resigned on May 21, 2018. The recording secretary was suspended on May 23 by the same auditor.

The auditor eventually reported $102,341.82 in misappropriated funds at the local.

The largest source of missing funds was the overpayment of salaries, amounting to roughly $40,340 from January 2015 to March 2018. The auditor held the local’s secretary-treasurer solely responsible for all inflated salaries, including nearly $5,600 that benefited Ramirez and more than $3,400 that benefited the recording secretary.

Rutgers University professor Susan J. Schurman—an expert on union governance—said the union deserves credit for the eventual outcome.

“Although it didn’t work as perfectly as it should have unfortunately, the union’s internal systems did eventually work, which I find reassuring,” Schurman said.

Cervantes has the backing of International President Martinez, who has all but ordered union staffers to vote for her in the ongoing election. Martinez did not comment for this story.

Cervantes is the union’s first female General Secretary-Treasurer and has served in that role since 2015. She joined the union in 1989 as a member of Local 2198 while working as an employee at Southwest Airlines.

The election will take place in late April with in-person voting occurring April 24 and absentee ballots needing to be postmarked by April 22. Results are expected shortly after April 29, the deadline for the union to receive absentee ballots.

To contact the reporter on this story: Andrew Wallender in Washington at awallender@bloombergindustry.com

To contact the editor responsible for this story: John Dunbar at jdunbar@bloomberglaw.com

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