From: Michael Bologna, BNA-Chicago
CHICAGO -- Two lawsuits alleging racketeering,
fraud and legal malpractice against former officers of International
Brotherhood of Teamsters Local 705 and trustees of its pension
and health funds have been settled, with the huge Chicago local
collecting S13.5 million, the union announced March 12 (Cook v.
McCarron DC NIL 92 C 7042. 2/2796 and Local 705 v. Ligurotis DC
NIL 95 C 0828, 2/27/96).
Teamsters General President Ron Carey said
the union reached a settlement which slams the door on Local 705's
legacy of fraudulent practices and reimburses the local's health
and welfare, and pension funds for losses incurred during the
late 1980s and early 1990s when corrupt officers, trustees, lawyers
and doctors ran the organizations. Carey said the settlement represents
one of the first times a union has successfully used the federal
Racketeer Influence and Corrupt Organization Act (RICO) to recover
funds defrauded from its membership. He said the agreement should
send a signal that the International union will not tolerate corrupt
"Local 705 and its health and pension
funds used to be a cookie jar of perks and privileges for corrupt
officers and their cronies," Carey said during a briefing
at Local 705 headquarters, "But no more. Today's Local 705
has one purpose only -- to serve the members. We will continue
to push forward and to root out wrongdoing wherever it may appear.
Corruption has no place in today' s Teamsters union . "
Jeffrey Gilbert, who represented Local 705
as a plaintiff in one of the cases, said the settlement ends class
action litigation filed on Feb. 9, 1995 on behalf of Local 70S's
15,000 members and thousands of retirees and family members covered
by the union's two funds. That suit contained four causes of action
under RICO, seven claims of breach of fiduciary duty under the
Employee Retirement Income Security Act (ERISA), two claims of
common law fraud and one claim of legal malpractice.
Gilbert, a partner with the Chicago firm
of Johnson, Jones, Snelling & Gilbert, said the prime target
of the suit was Daniel "Danny" Ligurotis, who was secretary-treasurer
of LOCAL 705 between 1986 and March of 1993 and was eventually
banned from Teamster membership for corrupt practices. The suit
alleges that Ligurotis was at the heart of four schemes aimed
at bilking the pension and health funds.
Among other things, the suit alleged Ligurotis
helped a convicted felon and organized crime figure access $2
million from the two union funds to open a lavish restaurant at
Local 705's "Teamster City" headquarters. The restaurant
later closed and failed to make any money for the local. In addition,
the suit claimed Ligurotis conspired with members of the Luchese
organized crime family in an extortion scheme.
The suit also alleged that the local's health
and welfare fund was compromised by Ligurotis and Dr. William
Dalessandro, who was the medical director of the Local 705 medical
clinic. Dalessendro was allegedly paid a huge salary for very
little work and then steered Local 705 fund beneficiaries to health
care providers in which he had a substantial proprietary interest.
Finally, the suit pointed to a conflict of
interest scheme involving Ligurotls and Sherman Carmell, the general
counsel of the pension and health funds. Carmell, "actually
facilitated and implemented Ligurotis' looting schemes to the
detriment of the funds," the suit stated.
The settlement also puts an end to litigation
filed four years ago by Local 705 member Archie Cook. That suit,
filed against the local on behalf of the union' s membership,
alleged breaches of fiduciary duty under ERISA and sought repayment
of funds lost from the health and welfare fund only. The two cases
were consolidated for settlement purposes.
Gilbert said the settlement was preliminarily
approved by U,S. District Court Judge Blanche Manning on Feb.
27. Final approval of the settlement is dependent on a fairness
hearing scheduled for June 3. Under the settlement, $13.1 million
is being held in escrow in the name of the health and welfare
fund and S387,000 is being held in escrow on behalf of the pension
fund until the settlement receives final approval.
Gilbert noted that under the settlement,
the defendants admit no wrong doing. Gilbert and Carey would not
disclose how much of the final total would be paid by individual
defendants and their respective insurers.
Joel Hellman, who represented Cook in the
litigation, said his client is pleased with the dollar amount
of the settlement. But Hellman said he was particularly pleased
with certain reforms to the health and welfare fund under the
agreement. Among other things, the settlement requires that the
fund's accounting procedures be automated, so Local 70S's membership
can more easily conduct audits. Specific fund reserve requirements
were established and rules relating to administrative costs were
also established to remove the possibility or payroll padding.
Hellman noted that specific requirements
were also added which guarantee that beneficiaries are compensated
in line with their employers' contribution. In the past, Hellman
said, dozens of different rates were charged to employers while
employees were receiving roughly equal coverage. Such management
inequities were a major factor leading to losses to the fund.
While the situation is finally being settled,
some important disputes between the two winning parties still
remain. Hellman said Carey and the reform group brought in to
manage the local as temporary trustees in 1993 and later as elected
officials actually obstructed settlement of the suit. He noted
that he was in negotiations to settle the matter before Local
705's suit was filed, In addition, he said the new leaders of
the local, who were later added as defendants to Cook's suit,
fought against reforms to the health and welfare fund.
Responding to the suggestion that Local 705
actually obstructed settlement of the matter, Carey responded, "his (Cook's) suit went absolutely nowhere
until we got involved."
Local 705 and attorneys for the fund' are
also objecting to weighty attorney fees being requested by Hellman
and several other plaintiff attorneys.
Barbara Lillian, co-counsel for the health
and welfare fond, said Cook's attorneys are requesting $4.9 million
in fees and Cook seeks an award of $25,000. She said the fund
will object to the fees before Judge Mannlng.
Hellman said his team took the case on a
contingency basis and is entitled to fair reimbursement. He said
he looks forward to a fair hearing on the question before Judge
Scanned and converted as a service
Union Members by Jim McGough
Laborers for Justice & Democracy