Members Call Union a Hotbed of Corruption

by William Dotinga, CourtHouse News, October 30, 2013

SAN FRANCISCO (CN) - The International Union of Operating Engineers cavorts with international crime syndicates, spends union dues illegally and intimidates dissenters with threats of violence, disgruntled union members claim in a federal class action.

Lead plaintiff David Slack et al. accuse IUOE, Local 3 - headquartered in Alameda - and 68 other defendants of violating labor management laws, the California Labor Code, ERISA and racketeering laws, in the 111-page complaint.

The IUOE represents heavy equipment operators and other construction workers and is the 10th largest union in the AFL-CIO. Local 3 is its largest branch, representing workers in California, Nevada, Utah, Hawaii and the Pacific Rim islands.

The class begins by accusing IUOE bosses of forcing all members to contribute 1 percent of their salaries to the "President's Club," a euphemism for the union's political action committee fund.

Although federal election laws prohibit unions from forcing PAC contributions from members, the plaintiffs claim IUOE threatens members with termination and deducts the contribution directly from their paychecks.

The plaintiffs claim they've paid millions into the Hawaiian Stabilization Fund, ostensibly to enforce contractors' compliance with prevailing wage obligations and to keep them from operating "double-breasted" - working with unions while opening up their own nonunion opportunities on the side.

In reality, the fund is a quasi-PAC used to push political agendas in Hawaii, according to the class.

"The Hawaiian Stabilization Fund is not - and has not been, for years - actually operating as a compliance fund, despite its official position conveyed to members that it is," the members state in the complaint. "The defendants, along with [defendant] IUOE vice president Russell Burns, concealed the true current purpose and operation of the fund from members of Local 3, District 17. Specifically, they concealed that it is used as a quasi-political action fund, which is operated by Local 3 to advance political agendas on the island, and as a slush fund abused by employees of the fund to enjoy extravagant trips, expensive lunches, limousines, and the like. The fund appears to be used as a means to divert member wages to other union officers outside Hawaii, since the monies are deposited into the OE Credit Union and, on at least one occasion, millions of dollars vanished as the result of a purported 'loan' to Local 3 Utah operations, though no formal record of that loan is available or, to plaintiffs' knowledge, disclosed in Department of Labor filings."

The plaintiffs claim that few, if any, fund employees have been hired to enforce contractors' compliance. Instead, they say, union bosses use the fund - which raises $4 million annually from members - to hire lobbyists and as a secret slush fund.

"Defendant Burns and the trustees of fund have always been more concerned with protecting this secret slush fund than in detecting and stopping misuse of fund assets," the class claims. "For example, between 2006 and 2012 embezzlement and credit card fraud were rampant at the fund. Specifically, defendant Perry Artates embezzled roughly $90,000 through improper credit card-based charges in one year. But, instead of firing Artates and suing to recover the stolen funds, defendant Alvin Kobayashi simply assisted Burns in concealing the full magnitude of the misconduct, in violation of their fiduciary duties. Meanwhile, other trustees are aware that Kobayashi is improperly serving as a trustee, but they have all breached their duties to the Hawaiian Stabilization Fund and Local 3 members by failing to force the removal of Kobayashi."

In addition to the alleged hanky-panky with the Hawaiian compliance fund, the plaintiffs claim, nepotism and a bad investment vehicle led to the evaporation of $50 million in IUOE pension funds. Defendant - and Western States Conference President - William Waggoner pressured local branches to invest their pension funds in Amalgamated Bank's product line, which were sold by Waggoner's wife Patricia, one of the bank's vice presidents, according to the lawsuit.

"In or about 2008, Patricia Waggoner first appeared at a Local 3 Pension trustee meeting to 'pitch' investments by the pension trust into the Longview Ultra Construction Loan Investment Fund and Longview International Value Equity Fund," according to the complaint. "Unable to give adequate answers to the trustees' investment questions, she essentially passed out flyers to the attendees, after which defendant Carl Goff, then vice president of Local 3, fielded questions with another Amalgamated Bank representative, Mr. Handworker, Ms. Waggoner's supervisor at Amalgamated. The fact that Ms. Waggoner was incapable of answering investment-related questions should alone have caused the trustees to have great concern about her investment proposals."

Neither Amalgamated Bank nor its employees are parties to the lawsuit.

After the meeting, Local 3 agreed to invest $100 million from its pension fund in the Longview Ultra Construction Loan Investment Fund; by the end of 2010, the fund had lost $50 million of the $90 million Local 3 had invested, the complaint states.

"The Longview Construction Loan Fund touted investments in construction loans as the mechanism for returns on investor assets," the plaintiffs claim. "However, many of the investments were poorly evaluated, as many of the major construction projects were never completed, forcing Amalgamated Bank to foreclose on a number of major real estate projects in an attempt to reduce losses suffered by the fund. The Longview Construction Loan Fund was an unsuitable investment choice for Local 3's pension funds, due to its risky and unsound investment practices. Pension investments must be protected from the risk of significant loss, and the trustees of the Local 3 OE Pension Fund failed to do that. The officers of Local 3 breached their fiduciary duties by encouraging to the point of requiring investment by the Local 3 OE Pension Fund in the Longview Construction Loan Fund. William Waggoner breached his fiduciary duty to the members of Local 3 when he utilized his position as first vice president of IUOE and western states conference president to pressure Local 3 to invest in the Longview Construction Loan Fund in large part to benefit his wife, Patty Waggoner, at Amalgamated Bank."

The plaintiffs claim the FDIC accused Amalgamated of "cooking the books" in 2011. Billionaires Wilbur Ross and Ron Burkle rescued the bank - the largest union-owned lender in the U.S. - from the brink of ruin with a combined $100 million bailout in 2012.

The plaintiffs claim the pension fund remains in the red and severely underfunded, though Local 3 officers call the fund's health "in the orange," according to the complaint.

Not all of the peeved union members' allegations involve money. They accuse Local 3 bosses of doing business with international organized crime, including Japan's Yakuza and the Triads of China, in the Pacific Rim islands of Guam, Samoa, Marshall Islands and the Philippines.

"Burns is not appropriately concerned about Local 3's dealings with organized crime rings, going so far as to remove one officer, William Kahlani Mahoe, who prepared a report detailing extensive corruption involving contractors on Guam," the plaintiffs say in the complaint. "Mr. Mahoe, the former Local 3 treasurer, was replaced with defendant Dan Reding and business continued as usual on the islands."

The plaintiffs continue: "The Triads refer to the many branches of Chinese transnational organized crime organizations or the Chinese mafia which are based in Hong Kong, the Philippines, Thailand, Macau, Taiwan, and within the islands which comprise the Pacific Rim, and also in countries with significant Chinese populations, such as the United States. The Triads currently engage in a variety of crimes, from extortion, money laundering, trafficking, and gambling and prostitution.

"Yakuza are members of transnational organized crime syndicates operating in Japan or in areas around the world with significant Japanese populations, such as in the Hawaiian Islands and the Pacific Rim islands. The Yakuza, like the Triads, are notorious for their strict codes of conduct and very organized nature. They have a large presence and operate internationally with an estimated 103,000 members. Local 3 allows contractors operated by front organizations for the Yakuza and Triads to operate double-breasted. There is no real compliance operation in Hawaii and the Pacific Rim, causing widespread injury to members, who are not employed due to the prevalence of non-union signatory construction operations."

Local 3 bosses use threats, intimidation and actual physical violence to quell dissent in their own rank and file and other businesses, the union members claim. They say bosses terrorized the manager of a construction company - and the man's wife - in an effort to force the company into a collective bargaining agreement.

Plaintiff Kenneth Mendoza claims he was beaten to a pulp at a union meeting for opposing what he viewed as a bait-and-switch pension multiplier change. He says Burns ordered the beating and enlisted help from local law enforcement - many of whom received campaign support from Burns - to cover up the assault.

Plaintiff Slack says Burns tried to terrorize his wife into keeping Slack silent about the corruption in Local 3, and used a nefarious union facility to do so: "Burns and other labor leaders within Local 3 conspired to terrorize Mrs. Slack at a time that they believed David Slack would be out of town, intending that by doing so they would silence plaintiff Slack. Local 3 operates an exclusive job referral hall that give[s] Local 3 knowledge about where a member will be for work and the associated best times to harass and intimidate a member's family at their home. In fact, through the use of an exclusive job referral hall, Local 3 can actually control the whereabouts of any particular member by virtue of where they dispatch them to work.

"Fortunately for Mrs. Slack, Mr. Slack was actually home, and armed, when armed Local 3 employees arrived at his home in furtherance of the conspiracy to terrorize Mr. Slack's wife. After tense moments, the management thugs departed."

The plaintiffs claim they continue to face reprisals from union leaders for trying to expose corruption. Some of the intimidation comes from the Hells Angels motorcycle gang, which Local 3 has used since 2003 to keep dissident members in line, according to the lawsuit.

This is not the first branch of IUOE to levy charges of racketeering against the union. Last year, disgruntled members of Local 501 claimed bosses embezzled tens of millions of dollars and ran the union "with the same disregard for others' rights as the mob."

In addition to damages and treble damages, the members seek a permanent restraining order against all defendants, disgorgement and equitable relief for their ERISA claims.

They are represented by J. Mark Moore with Moore & Leviant of Woodland Hills.

LINK:  Text of Lawsuit   

---30---

Hawaiian Homes Commissioner Perry Artates resigned in April 2013 as head of the Hawaiian Stabilization Fund after being convicted of Fraud, then he was forced to resign as DHHL Commissioner: Governor asks Hawaiian Homelands Commissioner to resign after federal fraud conviction  (Artates is named as a defendant in the suit.)

Justia: Slack et al v. International Union of Operating Engineers et al

Stabilization Fund Website – “HONOLULU RAIL: The Hawaii Operating Engineers Industry Stabilization Fund Launches Support for Honolulu Rail! To learn more about the Honolulu Rapid Transit project and why Honolulu needs Rail NOW watch the video below and visit the links below for more details.”