Colleagues,
The following letter was delivered to the Board of Local 47 on behalf of Lawyer Robert Hirschman and concerned members of Local 47 concerning the conduct of the Local in regards to the potential
sale of the property.
It’s a good read and will give you, FINALLY, many of the views of those opposing the sale.
Please send all your comments to the blog.
THE COMMITTEE
From: Robert Hirshman and Associates
January 5, 2016 Via Personal Delivery
Musicians Club Board of Directors
and Officers
AFM Local 47 Board of Directors
and Officers
817 North Vine St.
Los Angeles, CA 90038
John Acosta, President
Rick Baptist, Vice-President
Gary Lasley, Secretary-Treasurer
Judy Chilnick
Dylan Sky Hart
Bonnie Janofsky
Pam Gates
John Lofton
Andy Malloy
Phil O’Connor
Bill Reichenbach
Vivian Wolf
Re:
Violations of 29 USC 501 et seq. (LMRDA)
Dear members of the Boards of Directors and Officers:
I am a member of Local 47 and the Musicians Club.
In my capacity as a lawyer, I represent several members
of Local 47/Musicians Club who, along with the interests
of all other members, are aggrieved by the manner in
which the Board is handling the proposed sale of the
Musicians Club’s principal asset, the real property
and improvements located at 817 North Vine St. (“the Building”).
Based on a review of minutes of the Board of Directors of
the Musicians Club and of Local 47; information, both orally
and in writing, presented to the members at the special
meeting of members on October 5, 2015; written materials
circulated in the Overture and on the website; the referendum-
ballot mailed by authority of the Board and Officers to the
members in October, 2015; and on conversations with
various Board members and Officers, I have concluded
that the Board of Directors, and each of them, are in breach
of their respective fiduciary duties to the members, in
violation of 29 USC §501, the Labor-Management Reporting
and Disclosure Act (LMRDA)
Labor-Management Reporting and Disclosure Act, Section 501
Section 501 (a) of the LMRDA, entitled “Fiduciary Responsibility
of Officers of Labor Organizations,” provides, in relevant part, that,
“The officers … and other representatives of a labor organization
occupy positions of trust in relation to such organization and its
members as a group. It is, therefore, the duty of each such person,
taking into account the special problems and functions of a labor
organization, to hold its money and property solely for the benefit
of the organization and its members and to manage, invest, and
expend the same in accordance with its constitution and bylaws
and any resolutions of the governing bodies adopted thereunder,
to refrain from dealing with such organization as an adverse
party or in behalf of an adverse party in any matter connected
with his duties.…”
“The purpose of Section 501 is to deal with misuse of union
funds and union property in every manifestation by union
officials.” (See Wood vs. Journeymen Barbers, Hairdressers,
Cosmetologists and Proprietors International Union, 454
Fed 2nd 1347, 1354 (7th Cir. 1972.) Furthermore, Section 501
is broad in its reach and has been applied not only to the
monetary interests of the union and its members, but to any
area of the union officials’ authority. (See Stelling Et Al.
vs. International Brotherhood of Electrical Workers,
Local 1547, 587 Fed 2nd 1379, 1386-87, 9th Cir. 1978,
cert. Denied, 442 U. S. 944 (1979).)
For example, in International Longshoremen’s vs. Virginia
International Terminals (928 Fed. Supp. 655 (E. D. Va.)
the U.S. District Court opined that a union official may
be held liable under Section 501 for mismanagement,
secrecy, failure to disclose, failure to process grievances,
and failure to conduct union affairs as a “position of trust.”
(See also International Longshoremen’s vs. Virginia
International Terminals (928 Fed. Supp. 655 (E. D. Va.)
Grievances of Members Relating to Way the Boards/Officers
Have Handled the Proposed Sale of the Local 47 Building
My clients’ grievances (as well as the grievances of countless
others) with respect to the proposed sale include (1) breach of
the duty of impartiality, (2) misuse of union funds, (3) making
false and misleading representations to the members, (4) failing
to disclose material facts to the members, and (4) failing to
take steps to protect property, and acting imprudently with
respect to the proposed sale.
Breach of Duty of Impartiality
Section 501 (a) provides, in relevant part, that “The officers…
occupy positions of trust in relation to such organization and
its members as a group.”
The phrase “as a group” means that the organization and its
governing body must act impartially and avoid favoring
the interests of certain members over those of other members.
That is especially true here where the Musicians Club
Constitution and Bylaws requires a vote of the members
to sell or transfer the Clubs real property, viz., 817 Vine St.
In this situation, the only role of the Board and officers is to
put the question/referendum to a vote of the members.
California law is in accord: “The fiduciary duty of a trustee
includes the duty to deal impartially with the beneficiaries.”
Hearst v. Ganzi (2006) 145 Cal.App.4th 1195, 1200 [52
Cal.Rptr.3d 473, 475].
However, the Board and officers of the Musicians Club
and Local 47 have breached their fiduciary obligations
to the members in the following respects:
The Board and officers, in all of its written and oral
communications with the members, have taken the
one-sided, biased position that the property must be
sold to ensure the viability of Local 47 in the future.
In doing so, the Board spent $15,000 with Bridge
Street, Inc., a public relations/lobbying firm, who
devised and designed four color written materials
circulated to the members, and included in the
Overture, unabashedly and vigorously promoting
a “yes” vote on the referendum. Moreover, the
Board and officers mounted a telephone “blitz”
campaign, at significant cost to local 47, urging
members to vote “yes” on the referendum, as if
a sale of the building were the only choice for
the survival of the union.
And in that “blitz” significant misinformation
was disseminated to the members, including
that the Local was in debt to the tune of $700,000,
when in fact Local 47 has reserves of $900,000.
Based on the materials reviewed, there appears to be no
effort made by the Board or officers to be impartial to
the “members as a group” with respect to the referendum.
Crucially, no effort was apparently made to include not
only an argument in favor of the sale, but an argument
against the sale. Thus, the Board and officers breached
their fiduciary obligations to the “members as a group.”
Moreover, there is a compelling argument to vote “no”
on the referendum, which the Board completely ignored.
In the slideshow presented by the Board and officers at
the October 5, 2015 special meeting of members (and
also available on the Local 47/Musicians Club Website)
it is claimed that in 1950 the Local used the entire
building, whereas today, “the local occupies less than
50% of the building.” Yet the Board and officers admit
that the reduction has positive benefits in that there has
been a reduction from 52 full-time employees to 22
full time employees, generating a significant savings
in staffing costs. Furthermore, a vacancy of half the
building has resulted in the receipt of significant rental
income to the Local. For example, rental income in 2014
was $170,000, and it is expected that rental income in
2015 will be about the same.
Moreover, the Board admits, insofar as revenues and
expenses, that “we are living within our means,” which
I interpret as there are sufficient revenues to cover
operating expenses.
With respect to what appears to be the Board’s main concern
“Building Repairs,” the Board estimates that the “approximate
cost of renovations [are] over $300,000,” including $80,000
for exterior repairs, $50,000 to upgrade the electrical grid,
$200,000 to replace the roof, and re-model and reconfigure
the interior to lower costs of utilities.
However, when compared to paying $1 million for broker
fees, escrow and closing costs if the building is sold,
$300,000 to renovate the existing building appears to
be a bargain. (See Exhibit 1 attached.)
There are several ways the amount can be financed. First,
the Musicians Club is indebted to the Local in the amount
of approximately $500,000. Perhaps that loan can be called,
depending on its terms. If not, because the Club owns the
building outright and free and clear of any liens or mortgages,
the Club is in a position to obtain a first mortgage at a
very favorable interest rate (in the current economic climate)
and use the money to repair, renovate and rehab the building.
Thus, a loan of $300,000 at an interest rate of 4.5% payable
over 15 years would require monthly payments, including
principal and interest, of about $2100 or an annual amount
of $25,000. An increase in membership dues of a mere $3.50
per year, per member (designated as a building or mortgage fund),
would cover the cost of the mortgage payments. The question
should have been put to the members as to whether they would
agree to an increase of $3.50 per year to keep the building. Instead,
the Board presented the sale as a panacea to solve all of its financial
problems, now and into the future. That appears to be an unrealistic
adventure in Fantasyland, as far as I’m concerned.
Furthermore, improvements to the building will likely increase
the amount of rent paid by tenants.
In addition to the Board’s abject failure to include in materials
accompanying the ballot an argument against a sale, the ballot
itself is confusing and potentially misleading. It provides:
“Shall the officers of the Musicians Club of Los Angeles
(the Club) be authorized to sell the Clubs real property –
located at 817 Vine St., Hollywood, CA 90038 – for not
less than $22 million to the successful highest bidder?”
While a “yes” vote likely means the officers may sell the
Property to the highest bidder provided the bid is no less
than $22 million, the meaning of a “no” vote is unclear.
Does it mean the officers are prohibited from selling the
Building for less than $22 million if there is no more
than one bidder? Or does it mean that the officers may
sell the building to the only bidder even if the price is
less than $22 million?
In that regard, the Board should have included what
we’ve all come to expect from a referendum vote –
an explanation of what a “yes” vote means, and what
a “no” vote means. The failure to do so was a breach
of the Board’s fiduciary obligations to the members
to fully and fairly inform the members.
And with respect to the ballots, I have heard that several
members received an envelope with no ballot in it. Given
the demonstrated self-interest of the Board for a “yes”
vote that leaves open the question of possible ballot
stuffing to ensure the vote is in favor of a sale. And
that suspicion is raised solely by the biased manner
in which the Board handled the whole referendum
process.
Additionally, the manner in which the ballots of those
members who voted and returned their ballots, leaves
open the question of Board impartiality, given their
demonstrated fervor to obtain a “yes” vote.
According to the procedure established by the Board
with respect to the referendum, completed ballots are
retained in the office of the secretary/Treas., Gary
Lasley, a vocal proponent of a “yes” vote.
Yet Local 47 Bylaws provide for significant safeguards with
respect to the impartial safekeeping of completed ballots
until they are counted. In fact, completed ballots are retained
by the Post Office until they are ready to be counted. And then
on the day appointed to count the ballots, counting is done
under the supervision of an impartial, independent third-party
organization to ensure the count is accurate. No explanation
was given for the departure from this long-standing practice.
And, again, the devious and inappropriate manner in which the
Board has handled the referendum reasonably leads to suspicions
of misdealings and a lack of trust among the members.
Yet the Board has rebuffed all complaints that the procedures
it adopted lack transparency and the safeguards of impartiality.
(2) Other Concerns of the members
(a) At the Special Meeting of members on October 5, 2015 the
Board represented it had at least two offers to purchase the
Local 47 Building for $24 million. The same representation
was made by the Board in writing. (See attached marked Exhibit “1”)
Yet on the referendum/ballot, the Board seeks authority to sell
the Building for not less than $22 million, representing a potential
loss to the Musicians Club/Local 47 of $2 million – an amount
which, according to members of the Board, would solve the
alleged financial “problems” of Local 47. But there was no
explanation in the ballot or materials accompanying the
ballot on this significant discrepancy. And if the vote is
“yes” the property can be sold for $22 mil.
(b) Neither in its minutes nor elsewhere has the
Board made a binding commitment to members
to replace the Building, once it is sold.
Nor has the Board permitted the members to vote on
any aspect of replacement premises, if any, or its
location and amenities.
What assurances do the members have there will be
a replacement building if 817 Vine St. is sold?
In that regard there is no provision in the Musician’s
Club constitution/bylaws permitting the Club to
purchase a new building.
(c) While the minutes of the Musicians Club Board
Meeting of April August 11, 2015 recite that “the
Board Of Directors for the Musicians Club of Los
Angeles has determined, after a duly diligent inquiry,
that it is in the best interest of the Musicians Club
to solicit potential offers to purchase the Clubs
property located at 817 Vine St., Hollywood…”
However, the Board has not shared with the members
the contents and details resulting from the “diligent
inquiry.” Thus, many members question the Board’s
decision to present the issue to the members for a vote.
(d) On Exhibit 1 the Board, whether negligently or
intentionally, represents the amount of the “surplus
revenue” available after a sale of the building, purchase
of a new building and renovations to the new building.
There, the Board represents that the “surplus revenue”
will be $11 million when in fact, based on its own
figures and on the ballot language, the surplus revenue
may be no more than $8 million, an overstatement
of $3 million. Thus, if the building sells for $22 million
(as the Board will be authorized to do based on the
ballot language), and estimated closing costs are $1
million (as the board represents – $999,600), the
surplus revenue will only be $8 million. How can
the members rely on the diligence, accuracy, and
business acumen of a Board which makes such
inexcusable errors?
(e) None of the Board members claim to have significant
experience in the valuation or sale of commercial property,
particularly unique commercial property such as our building.
It takes a high level of expertise to determine the fair market
value of a unique building. And in my significant
experience as a real estate and business attorney, I would
only trust an appraiser holding the designation of Master
of the Appraisal Institute (MAI) to reach an accurate
conclusion of value of 817 Vine St. Yet a prominent
Board member and officer was heard to naively say
that he was relying on the potential buyers to set the
price (that is, “value”) of the building.
Moreover, my long experience as a real estate attorney
informs me that real estate brokers, whether representing
a buyer or seller, have an inherent conflict of interest
between representing the interests of their client and
representing their own interests to earn a commission.
With this conflict of interest in mind, I do not rely on
a broker or agent’s opinion of value of a property, unless
the property is a cookie cutter, tract home, where the
value of one house is likely to be the value of all
homes of the same floor plan. But 817 Vine St. is a
unique one-of-a-kind building and its location (the
land value) is somewhat unique.
Yet the Board has not hired an independent appraiser
(beholden only to the Board) to determine the fair
market value of 817 Vine St. Instead – and given the
inherent conflict of interest – it is imprudently
relying on a broker’s opinion of the value of the
property. In my opinion, that is another breach of
fiduciary duty by the Board to the members.
CONCLUSION
To avoid significant legal costs I suggest a meeting
next week with the Board to discuss the members
grievances and determine if there is an amicable
resolution acceptable to both sides which must
necessarily involve a recall of the current referendum,
the distribution of accurate financial information, and
an argument against a sale, as well as an argument for
a sale. Local 47 has about 7,000 members, the vast
majority of whom are not actively involved in union
activities. These folks, who have voted, have done so
in reliance on false representations, on the lack of accurate
financial information, and on a totally one-sided argument
in favor of a sale. That situation must be remedied before
we can say there has been a meaningful vote by the members.
In that regard, the LMRDA guarantees union members not
only an equal vote, but also a “meaningful” vote. Bunz v.
Motion Picture Mach. Operators’ Union, 567 F.2d 1117,
1121 (D.C. Cir. 1977). Whether members were afforded a
meaningful vote depends on “whether they were given adequate
notice and information regarding the subject matter and
nature of the vote” and whether they “had enough time and
opportunity to mount effective support or opposition to
the leadership’s position.” Bauman v. Presser, 117
L.R.R.M. (BNA) 2393, 1984 WL 3255, at *7 (D.C. Cir. 1984).
If we cannot reach an amicable resolution, I am authorized
to file a lawsuit seeking to enjoin (stop) the Local and Musicians
Club from continuing with the current ballot process, together
with an order by the court that a new ballot process begin along
the lines I have suggested in this letter. If a lawsuit becomes
necessary, the Local and Musicians Club will likely incur
hundreds of thousands of dollars in legal fees and court costs
and is unlikely to prevail. Is that how the membership wants
its monies spent? I doubt it.
I therefore appeal to your good sense and goodwill to make a
substantial effort to resolve the legal issues raised by the
irregular and improper ballot process currently pending.
Very truly yours,
ROBERT HIRSCHMAN & ASSOCIATES
Always entertaining to see what a lawyer who doesn’t specialize in labor law – in this case a real estate lawyer – tries to do with the statutes. It’s a good read, but not grounded in an actual understanding of labor law.
telegrammavasha https://cdc.gov