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Union Defense Holds in Fee Clawback Suits as More Tests Loom

Nov. 20, 2019, 10:51 AM

Public sector unions’ defense against refunding nonmember fees recently withstood its first appellate court challenge, but a series of pending cases could decide whether it will keep union coffers protected against an onslaught of lawsuits.

Nonunion government workers have sued public sector unions across the country claiming the U.S. Supreme Court’s 2018 ruling in Janus v. AFSCME—which said nonmembers can’t be required to pay for collective bargaining and other nonpolitical expenses—demands that previously paid fees should be returned.

Unions, however, argue they relied in good faith on longstanding Supreme Court precedent and state law implementing that precedent when they mandated that nonmembers pay fees. Just because the high court later ruled mandatory fees are unconstitutional doesn’t mean unions must refund nonmembers for pre-Janus fees, they say.

Trial courts have unanimously accepted unions’ good-faith defense against fee refund claims in the cases they’ve considered thus far. Now six federal appeals courts are poised to hear the issue. A single circuit court ruling that rejects it would create a split that may pave the way for the issue to reach the Supreme Court.

Earlier this month, the U.S. Court of Appeals for the Seventh Circuit became the first to endorse the unions’ good-faith defense, ruling that former Illinois government worker Mark Janus wasn’t entitled to a damages award equal to the fees he paid to an American Federation of State, County and Municipal Employees affiliate. That litigation was a continuation of the case that went to the Supreme Court.

The Ninth Circuit heard oral argument in a similar case Nov. 6. The First, Second, and Sixth circuits have arguments scheduled in December. Cases also are pending in the Third and Fourth circuits.

Unions have a strong argument that the defense applies, which is reflected by their success in the courts, labor law observers said. District courts have ruled in about 25 cases that the good-faith defense protects unions.

Nevertheless, observers said there’s no guarantee that every court will rule in unions’ favor.

“I’m loath to call anything a slam dunk given the political valence” of union financing, said Joseph Slater, a law professor at the University of Toledo who teaches public sector labor law. Slater said he’d be surprised if any court rejected the good faith defense, but the Supreme Court would be the most likely to do so.

The stakes could hardly be higher for public sector unions. Paying back previously collected fees would “literally bankrupt” them, Slater said.

Onslaught of Lawsuits

The Supreme Court gave wing to the fee refund lawsuits with its Janus decision, which said taking fees from public sector workers who don’t consent to supporting their union violates the First Amendment. Janus overturned Abood v. Detroit Board of Education, a 1977 decision that had allowed public sector unions to require those fees.

Public sector unions have been hit with more than 45 lawsuits alleging they’re liable for nonmember fees paid prior to Janus, according to Scott Kronland, an attorney with Altshuler Berzon who’s defending unions in several cases.

Affiliates of the four major public sector unions have been the primary target: AFSCME, American Federation of Teachers, National Education Association, and the Service Employees International Union.

The lawsuits, AFSCME General Counsel Judith Rivlin said in a statement, are “attempts by corporate interests to manipulate the judiciary against working people and trample on their rights and freedom to join together in a union.”

The plaintiffs are current and former nonunion government workers. A vast majority of them are represented by either the National Right to Work Legal Defense Foundation, a conservative advocacy group that’s fought unions in court for decades, or Jonathan Mitchell, an attorney nominated by the Trump administration to head an obscure administrative law agency who hasn’t been confirmed.

Although the workers who’ve sued haven’t prevailed in court, some have had their union fees returned as part of settlements. The National Right to Work Legal Defense Foundation has settled 10 cases, recovering tens of thousands of dollars in fees, said Patrick Semmens, a spokesman for the foundation.

Filing lawsuits on behalf of the workers also has the side benefit of bringing attention to “forced unionism,” but ultimately the foundation sues for fees because it thinks it will win those cases, Semmens said. The foundation announced Nov. 19 that it’s petitioning the full Seventh Circuit to review the three-judge panel’s decision that accepted the union’s good-faith defense.

Mitchell didn’t respond to requests for comment.

The Rule of Law

The Seventh Circuit became the sixth federal appellate court to rule that a private party acting with government backing—such as public sector unions collecting fees under a state-created mechanism—can raise a good-faith defense against allegations of constitutional violations.

That consensus view on the defense is based on the 1982 Supreme Court ruling in Lugar v. Edmondson Oil and its 1992 decision in Wyatt v. Cole, the Seventh Circuit panel said in its Nov. 5 opinion.

The AFSCME affiliate acted in good faith when it followed the now-defunct rules allowing it to collect mandatory fees from nonmembers like Janus, said the three-judge panel.

The panel—composed of one Democratic appointee and two Republican appointees—rejected Janus’ argument that the union should’ve anticipated the rules would change.

“The Rule of Law requires that parties abide by, and be able to rely on, what the law is, rather than what the readers of tea-leaves predict that it might be in the future,” Judge Diane Wood wrote for the panel.

Unions should have an easier path to victory in circuits that already have said the good-faith defense is available, but “it’s not as though it should be hard for them to prevail where the defense hasn’t been recognized yet,” said Aaron Tang, a law professor at University of California-Davis who’s written about the Janus decision.

Of the circuit courts with pending fee refund cases, only the First and the Fourth Circuits haven’t ruled on the existence of the good-faith defense.

Damages v. Restitution

The Seventh Circuit issued a second decision in a Janus-related fee case Nov. 5, denying a bid to get around a union’s good-faith defense. Public school teacher Stacey Mooney had argued that even if the defense protects the Illinois Education Association from damages, it doesn’t safeguard the union from her equitable demand for restitution.

Mooney’s attorney, Jonathan Mitchell, also made that claim during the Ninth Circuit’s Nov. 6 oral argument in a case seeking nonmember fees paid to an AFSCME affiliate in Washington. Courts have ordered the return of taxes, criminal fines, restitution, and property seized in good faith under legal authority that was later deemed unconstitutional, Mitchell said.

But the nonmember workers actually are asking for damages paid from the union’s general fund, not the return of property, said the union’s attorney, Casey Pitts of Altshuler Berzon. The union spent the fees collected, the workers received representation in return, “and that egg can’t be unscrambled retrospectively,” Pitts said.

In the Seventh Circuit’s ruling, the panel said Mooney was seeking a legal remedy with her demand for fee repayment, not an equitable one. The Supreme Court’s 2016 ruling in Montanile v. Bd. of Trs. of Nat’l Elevator Indus. Health Benefit Plan said claims aren’t equitable if plaintiffs are going after money from a general fund because they can’t trace their specific property.

“Her claim is against the general assets of the union, held in its treasury, and can only be characterized as legal,” Wood wrote for the panel. “In substance, then, Mooney’s claim is one for damages.”

To contact the reporter on this story: Robert Iafolla in Washington at riafolla@bloomberglaw.com

To contact the editors responsible for this story: Jay-Anne B. Casuga at jcasuga@bloomberglaw.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com