Dоuglas HARIK; Kyle Staples; Roxanna Escalante; Nance Contreras; Patricia Guthrie; Raymond Richardson; Karen Chavez; Kim Sheffield, Plaintiffs-Appellants,
v.
CALIFORNIA TEACHERS ASSOCIATION; Franklin McKinley Education Association; South San Francisco Teachers Association; Los Angeles County Education Association; Saddleback Valley Education Association; Dinuba Teachers Association; William in his Official Capacity, Superintendent, Board of Education, Yuba City Unified School District; Larry in his Capacity as Superintendent, Franklin McKinley Elementary School District; Richard Rigg, in his Capacity as Superintendent, South San Francisco Unified School District; Dоnald in his Capacity as Superintendent, Los Angeles County Office of Education; Peter in his Capacity as Superintendent, Saddleback Valley Unified School District; Libia in her Official Capacity as Superintendent, Board of Education, Chula Vista Elementary School District, Dr.; Stan in his Official Capacity as Superintendent, Board of Education, Dinuba Unified School District; George in his Official Capacity as Superintendent, Chino Valley Unified School District, Dr.; Chula Vista Education Association; Association of Chino, Defendants-Appellees.
Douglas Harik; Kyle Staples; Roxanna Escalante; Nance Contreras; Patriсia Guthrie; Raymond Richardson; Karen Chavez; Kim Sheffield, Plaintiffs-Appellees,
v.
California Teachers Association; Franklin McKinley Education Association; South San Francisco Teachers Association; Los Angeles County Education Association; Saddleback Valley Education Association; Dinuba Teachers Association; Chula Vista Education Association; Association of Chino; Yuba City Unified Education Association, Defendants-Appellants, and
William in his Official Capacity, Superintendent, Board of Education, Yuba City Unified School District; Larry in his Capacity as Superintendent, Franklin McKinley Elementary School District; Richard Rigg, in his Capacity as Superintendent, South San Francisco Unified School District; Donald in his Capacity as Superintendent, Los Angeles County Office of Education; Peter in his Capacity as Superintendent, Saddleback Valley Unified School District; Libia in her Official Capacity as Superintendent, Board of Education, Chula Vista Elementary School District,
Dr.; Stan in his Official Capacity as Superintendent, Board of Education, Dinuba Unified School District; George in his Official Capacity as Superintendent, Chino Valley Unified School District, Dr., Defendants.
Douglas Harik; Kyle Staples; Roxanna Escalante; Nance Contreras; Patricia Guthrie; Raymond Richardson; Karen Chavez; Kim Sheffield, Plaintiffs-Appellees,
v.
California Teachers Association; Franklin McKinley Education Association; South San Francisco Teachers Association; Los Angeles County Education Association; Saddleback Valley Education Association; Dinuba Teachers Association; Chula Vista Education Association; Association of Chino, Defendants, and
William in his Official Capacity, Superintendent, Board of Education, Yuba City Unified School District; Larry in his Capacity as Superintendent, Franklin McKinley Elementary School District; Richard Rigg, in his Capacity as Suрerintendent, South San Francisco Unified School District; Donald in his Capacity as Superintendent, Los Angeles County Office of Education; Peter in his Capacity as Superintendent, Saddleback Valley Unified School District; Libia in her Official Capacity as Superintendent, Board of Education, Chula Vista Elementary School District, Dr.; Stan in his Official Capacity as Superintendent, Board of Education, Dinuba Unified School District; George in his Official Capacity as Superintendent, Chino Valley Unified School District, Dr., Defendants-Appellants.
No. 01-15590.
No. 01-15688.
No. 01-15705.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted April 9, 2002.
Filed April 15, 2003.
COPYRIGHT MATERIAL OMITTED Mark J. Beutler, National Right To Work Legal Defense Foundation, Inc., Springfield, VA, for the plaintiffs-appellants.
John M. West, Bredhoff & Kaiser, P.L.L.C., Washington, DC, and Jeffrey B. Demain, Altshuler, Berzon, Nussbaum, Rubin & Demain, San Francisco, CA, for the appellees-cross-appellants.
Appeal from the United States District Court for the Northern District of California; Charles A. Legge, District Judge, Presiding. D.C. No. CV-00-00776-CAL.
Before SCHROEDER, Chief Judge, B. FLETCHER and KOZINSKI, Circuit Judges.
ORDER WITHDRAWING OPINION, FILING OPINION AND DENYING REHEARING AND OPINION
ORDER
The panel opinion filed August 1, 2002, is withdrawn and the attached Opinion is ORDERED filed.
The panel as constituted above has otherwise voted to deny the petition for rehearing and the petition for rehearing en banc.
The full court has been advised of the petition for rehearing en banc and no judge of the court has requested a vote on the petition for rehearing en banc. Fed. R.App. P. 35(b).
The petition for rehearing and petition for rehearing en banc are DENIED.
OPINION
SCHROEDER, Chief Judge.
The most significant issue we must decide in these consolidated appeals is what financial information unions must provide to non-members, in an agency shop, in order to support the amount of the agency fee. See Chicago Teachers Union, Local No. 1 v. Hudson,
We hold that, while a formal audit is not required, the union must provide a statement of its chargeable and nonchargeable expenses, together with an independent verification that the expenses were actually incurred. We reverse the district court to the extent that its ruling is inconsistent with our holding. We also reverse the district court's ruling that the school superintendents are liable for any deficiencies in the union's Hudson notice, because under the law of this circuit the employer is not responsible for ensuring the accuracy of the Hudson notice before deducting agency fees from non-members' pay. See Foster v. Mahdesian,
I. Facts and Procedural History
Plaintiffs are non-union-member teachers in eight California school districts that have entered into agency fee agreements with the local teachers' unions. Under the agency fee agreements, the school districts deduct "agency fees" from the pay of any non-union-member employee within the bargaining unit represented by the local union and remit those fees to the local union. Those fees compensate the union for its efforts on behalf of all employees in the bargaining unit for activities such as collective bargaining, contract administration, and grievance adjustment. Those fees are known as "chargeable expenditures." See Ellis v. Broth. Ry. Clerks,
Plaintiffs brought an action in federal court against the superintendents of their school districts, their respective local unions, and the California Teachers Association (CTA) alleging that the process by which the agency fees were deducted from their paychecks violated the standards enunciated by the Supreme Court in Chicago Teachers Union, Local No. 1 v. Hudson,
The district court certified plaintiff classes for each of the school districts in which the named plaintiffs were employed, but refused to certify a statewide plaintiff class to challenge the adequacy of the Hudson notice and refused to certify any defendant classes. The district court entered summary judgment in the plaintiffs' favor on the audit issue, and it entered summary judgment in the defendants' favor on the arbitration notice and procedure challenges.
Plaintiffs appeal the grant of summary judgment to the defendants on the arbitration issues, as well as the district court's refusal to certify the statewide plaintiff class or any defendant classes. The school superintendent defendants cross-appeal, challenging the district court's certification оf the plaintiff classes and the court's holding that the school superintendents are liable for notice violations committed by the local unions. The union defendants also cross-appeal, challenging the district court's certification of the plaintiff classes and the court's ruling that even the smallest local union, DTA, must provide audited financial statements.
We reverse the district court's grant of summary judgment to plaintiffs as to DTA, insofar as the district court required DTA to provide more than an independent verification that its claimed expenses were actually incurred. We reverse the district court's ruling that the school superintendents were liable for any deficiencies in the union's Hudson notice, because the school superintendents were not responsible for ensuring that the union had complied with Hudson before deducting agency fees from plaintiffs' pay. See Foster,
II. Whether All Locals Must Provide Audited Statements
At the beginning of each school year, each feepayer teacher represented by a CTA-affiliated local receives a notice on CTA letterhead explaining the purpose of agency fees and the manner in which the unions calculate those fees. Attached to the CTA notice are audited financial statements for the national union and CTA, and somе type of financial disclosure for the particular local union representing the recipient teacher's bargaining unit. Under a policy adopted by CTA in 1986, shortly after the Hudson decision, if the local union's total estimated annual revenue from member dues and agency fees is $100,000 or more, then the local union's financial disclosure must be in the form of a financial statement audited by an outside CPA. If the local union's estimated annual revenue is less than $100,000 but at least $50,000, then the financial disclosure can be simply reviewed by an outside CPA or audited by CTA's staff auditors. If the local union's estimated annual revenue is less than $50,000, the policy requires only that the local union provide feepayers access to the local union's check register and cancelled checks and provide copies of two forms, one required by IRS and the other by the California Public Employment Relations Board, signed by union officials under penalty of perjury, summarizing the local union's chargeable and non-chargeable expenditures.
The district court held that, under Hudson, each local union, regardless of size, must provide its members with audited financial statements indicating their chargeable and non-chargeable expenditures. The district court relied on our decisions in Prescott v. County of El Dorado,
In Prescott, however, we noted that accountants can provide three levels of scrutiny of financial documents. Id. at 1106. In thе lowest level, "compilation", the accountant simply prepares a financial statement, relying on the union's records, without expressing any opinion as to the accuracy or completeness of the statement. Id. (citing Larry P. Bailey, Miller GAAS Guide 14.19-14.20 (1999)). The intermediate level, a "review", comes with the accountant's limited expression of assurance, examining records and, in reliance on the representations of the union's financial officers, stating that the accountant "is not aware of any material modifications that should be made to the financial statement" in order for it to comply with gеnerally accepted accounting principles. Id. at 1107 (citing Bailey at 14.25-14.28). An "audit", the highest level of scrutiny, requires the accountant to examine the union's financial recording and control procedures, examine a sample of evidence supporting the amounts listed in the financial statement, confirm inventories, and verify accounts receivable. Id. (citing Bailey at 14.25-14.26, 11.05-11.06). Audits themselves can vary in procedure and extent, and therefore involve varying degrees of certainty. Id. (citing Bailey at 9.05-9.07).
In Prescott, we did not hold that "a separate verified audit" is always required. Id. at 1108. We held some independent verificаtion must be provided: "[W]hat is required is a real independent verification of the financial data in question to make sure that expenditures are being made the way the union says they are." Id. at 1107; see also Gwirtz v. Ohio Educ. Ass'n,
This is not to say that the practice of the local unions in this case with revenues of less than $50,000 meets the requirements of Prescott and Hudson. The smallest local unions provide their feepayers with financial statements prepared only by union officials, and attested to only by those individuals, albeit under penаlty of perjury. No outside individual reviews the accuracy of those financial statements. In addition, the checkbook and canceled checks to which the union provides access are only part of the information required to verify the financial statements; the unions do not provide feepayers access to other financial records, such as bills or inventories. The small local union's practice does not meet the requirement of Hudson and Prescott to provide its feepayers with either the full financial material necessary to verify, or an independently sanctioned verifiсation of, the local union's chargeable and non-chargeable expenditures.
The union defendants contend that the smallest local unions should be excused from the independent verification requirement because the cost associated with such verification is disproportionately large when compared to their union's fee revenue. We have already held, however, that union costs do not trump non-members' First Amendment rights. As we stated in Prescott, "[e]xcessive cost cannot form the basis for allowing the union or the government to avoid Hudson's requirement that the procedures used by the union to allocate bargaining and administrative costs be carefully tailored to minimize the intrusion on the nonmembers' rights." Prescott,
III. Superintendents' Liability
The district court entered a judgment against the school superintendent defendants on the audit issue, holding them liable along with the unions for the uniоns' failure to provide audited financial statements to non-members. On cross-appeal, the school superintendent defendants challenge the district court's ruling, relying on this court's recent decision in Foster v. Mahdesian,
IV. Challenge to the Arbitration Procedures and Notice
Hudson requires that the union provide feepayers an explanation of the basis of its fee and an expeditious means for feepayers to challenge the calculation in front of an imрartial decision-maker. Hudson,
The law allows chargeable agency fee estimates to be based on the most recent fiscal year for which audited figures are available. The California Teachers Association and the National Education Association made calculations regarding their estimated chargeable аnd nonchargeable expenditures for the 1999-00 school year based on audited financial statements from the 1997-98 school year, the most recent fiscal year for which such statements are available. These summaries are attached and include a full explanation regarding how the calculations were made. Under these calculations, the actual chargeable agency fee for CTA for the 1997-98 year is 68.1% and the actual chargeable agency fee for NEA for the 1997-98 year is 61.68%. These figures will be the chargeable percentages for 1999-00. In order to reduce the possibility of having to send additional rebate checks if the arbitrator adjusts the chargeable figure, CTA and NEA will pay fee objectors an additional rebate "cushion" of 5% of the fee.
If you do not receive, concurrent with this letter, contrary notification from your local CTA chapter, your chapter will be adopting CTA's chargeable agency fee figure, with the 5% cushion, as its own for 1999-00. This is based on the presumption that the local's percentage of expenditures for representational purposes is at least as great, if not much greater, than this CTA percentage. Many chaрters, in fact, spend all their local fees for chargeable purposes. CTA's use of the presumption has been upheld in twelve annual agency fee arbitration hearings based on evidence presented regarding the expenditures of a judgmental and/or random sample of CTA locals. Regardless of whether the presumption is adopted, however, each local chapter will provide its fee payers with a separate accounting of the chapter's chargeable and nonchargeable expenditures.
If, after reading the enclosed information, you wish to object to your fee being spent for nonrepresentational activities, and to request that you receive a rebate for the nonchargeable amount, you must complete the enclosed form.... In addition, if you wish to challenge the calculation for CTA's, NEA's, or your local chapter's chargeable expenditures in an arbitration hearing, you must check the appropriate boxes on the form.
A form allowing feepayers to express their desire for a rebate and for arbitration was enclosed with the notice, as were the audited financial statеments of CTA and NEA, and the financial disclosure of the particular feepayer's local.
The plaintiffs do not contend that they were denied the right to challenge the fee. The notice explains their right to request arbitration. Instead, they contend that the local unions violated their arbitration rights by presenting evidence supporting the local union presumption and thereby, according to the plaintiffs, relying on evidence insufficient to justify the fee charged. As the district court held, "this is a question of the quality of the evidence presented, to be determined by the arbitrator, and does not raise issues of constitutional law." Accordingly, if the plaintiffs wish to challenge the arbitrator's reliance on the proffered evidence, they should do so by seeking review of the arbitrator's decision. In addition, the Hudson notice is not invalid because it describes the union's intention to present a particular kind of evidence. The notice accurately describes the feepayers' right to challenge the fee and evidence at arbitration. The district court did not err in granting summary judgment to the defendants on the plaintiffs' arbitration procedure and arbitration notice claims.
V. Class Certification
Plaintiffs sought certifiсation of four classes: a class of plaintiffs consisting of all feepayer teachers employed in bargaining units represented by CTA-affiliated locals, a class of plaintiffs consisting of all feepayer teachers who received the Hudson notice from CTA, a class of defendants consisting of all school superintendents in districts whose teachers were represented by CTA-affiliated locals, and a class of defendants consisting of all CTA-affiliated locals. The district court certified only eight plaintiff classes, consisting of the feepayers in each of the eight districts in which one of the named plaintiffs was employed. Plaintiffs, on appeal, challenge the district court's refusal to certify the statewide plaintiff class of feepayers who received the CTA notice and its refusal to certify any defendant classes. Defendants, on cross-appeal, challenge the district court's certification of the eight plaintiff classes.
1. The Certified Plaintiff Classes
Defendants challenge the district court's certification of eight plaintiff classes, contending that the named plaintiffs are not adequate class representatives as required by Rule 23(a)(4), because their litigation goals сonflict with the interests of some class members, and that the certified classes do not meet the numerosity requirements of Rule 23(a)(1). See Fed.R.Civ.P. 23(a)(1), (4).
The classes comprised of agency feepayers in the Dinuba, Franklin McKinley, and Chino teachers' associations contain only seven, nine, and ten members, respectively. The Supreme Court has held fifteen is too small. General Tel. Co. v. EEOC,
The defendants abandoned their numerosity challenge in the district court, and wе do not ordinarily consider on appeal issues not raised below. United States v. Stenberg,
2. The Refusal To Certify a Statewide Plaintiff Class
The district court refused to certify the proposed class of all feepayers who receive the CTA notice. Because we hold that the district court correctly entered summary judgment in favor of CTA on the arbitration notice claim, we need not decide whether the district court should have certified a plaintiff class.
3. Refusal To Certify Defendant Classes
Plaintiffs sоught certification of a defendant class of all CTA-affiliated local unions and a defendant class of all school superintendents whose employees were represented by those unions. The named defendants, the local unions and school superintendents of the districts in which the plaintiffs work, would serve as representatives for classes comprised of local unions and school superintendents in districts other than those in which the plaintiffs teach. Rule 23(b)(2) permits the certification of a class if "the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole." Fed.R.Civ.P. 23(b)(2). The eight plaintiff classes have taken no action with respect to the proposed defendant classes. Indeed, plaintiffs have no relationship whatsoever to the proposed defendant classes, because plaintiffs are employed only by the school districts whose superintendents are named defendants. The district court did not abuse its discretion in holding that the propоsed defendant classes should not be certified under Rule 23(b)(2).
VI. Conclusion
For the foregoing reasons, we vacate the decision of the district court that DTA must provide an audited financial statement to its members as part of the Hudson notice, and we remand for modification of the judgment against the Dinuba Teachers Association. We vacate the certification of the classes of teachers in the Dinuba, Franklin McKinley, and Chino districts. We also vacate the district court's grant of summary judgment against the school superintendents on the audit claim and remand for entry of judgment dismissing the action against them. We affirm the judgment of the district court in all other respects.
AFFIRMED IN PART, VACATED IN PART, AND REMANDED.