Full opinion text
JOSEPH H. YOUNG, District Judge. This civil action by plaintiffs Donald E. Brink and John Eline on behalf of all members of their union and the various employee benefit trust funds it sponsored, against Leo DaLesio and Alfred Bell and two companies owned wholly by Bell, Fund Administration, Inc. and Alfred Bell, Inc., was heard by the Court in May, 1980. The plaintiffs are members of Local 311 of the Teamsters, which is in turn part of Joint Council 62. The parties have stipulated that both plaintiffs “were participants and beneficiaries of the Teamsters Local 311 Health and Welfare Fund when this suit was filed and became participants and beneficiaries of the Affiliated [Health and Welfare] Fund upon merger of the Funds.” This merger took place after the instant suit was filed. Both plaintiffs are participants in, and beneficiaries of, the Local 311 Pension Fund. Neither plaintiff, however, has been either a participant or a beneficiary of the Allied Pension Fund. Defendant DaLesio was the Secretary-Treasurer and principal executive officer of Local 311 from 1964 through 1977. From 1975 to 1977, he also served as President and principal executive officer of Joint Council 62. In 1963, DaLesio became a trustee of the Affiliated and Allied Funds, and assumed this position with respect to the Local 311 Pension and Welfare Funds upon their creation in 1967. He remained a trustee for the Funds until late 1977. Defendant Bell and his companies performed consulting, administrative, and insurance brokerage service for the Funds from 1963 to 1978. Each of the defendants is charged with various breaches of fiduciary duties. The claims fall into three categories. The first set of claims is asserted solely against Da-Lesio and pertain to his receipt of allegedly excessive compensation and perquisites, and to his alleged breach of fiduciary duties in negotiating a lease of office space for the Local. The second category of allegations concerns transactions in which DaLesio received gratuities from individuals providing services to the Union and to the Funds, allegedly in violation of fiduciary obligations. The third part of the case pertains to the allegedly unreasonable commissions and fees paid to defendant Bell or his companies for his services. To determine the validity of these claims, it is necessary to evaluate defendants’ conduct in light of the prevailing legal standards. The Labor-Management Reporting and Disclosure Act of 1959 (LMRDA), also known as the Landrum-Griffin Act, 29 U.S.C. § 501 et seq. governs DaLesio’s conduct in his capacity as a union officer. Title IV of the Employee Retirement Income Security Act (ERISA) 29 U.S.C. § 1101 et seq., which took effect January 1, 1975, applies to the conduct of the defendants in their capacities as fiduciaries of the Funds. Other sources of duties are § 302 of the Taft-Hartley Act, 29 U.S.C. § 186, and the common law. DaLesio’s Receipt of Allegedly Excessive Compensation and Perquisites. Before turning to the specific expenditures of Union funds challenged by the plaintiffs, it is useful to review the applicable legal standards. 29 U.S.C. § 501 provides, in relevant part, that: [t]the officers . . 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 . . . resolutions . to refrain from dealing with such organization as an adverse party . . . and to account to the organization for any profit received by him in whatever capacity in connection with transactions conducted by him or under his direction on behalf of the organization. A general exculpatory provision in the constitution and bylaws of such a labor organization or a general exculpatory resolution of a governing body purporting to relieve any such person of liability for breach of the duties declared by this section shall be void as against public policy. The primary target of this legislation was the widespread embezzlement and misuse of union funds by officers. Gabauer v. Woodcock, 594 F.2d 662 (en banc) (8th Cir.1979); McNamara v. Johnston, 522 F.2d 1157 (7th Cir.1975), cert. denied, 425 U.S. 911, 96 S.Ct. 1506, 47 L.Ed.2d 761 (1976), and it has touched off a lively debate concerning the extent to which courts should defer to union officers’ judgments concerning the propriety of various types of expenditures. Compare, e. g., Sabolsky v. Budzanoski, 457 F.2d 1245 (3d Cir.), cert. denied, 409 U.S. 853, 93 S.Ct. 65, 34 L.Ed.2d 96 (1972) (strictly scrutinizing union’s failure to disband locals with less than ten members) and Farrington v. Benjamin, 468 F.Supp. 343 (E.D.Mich.1979) (closely examining payment of fees to accountants, attorneys and union members as election assistants where such payments represented reasonable compensation but were not properly authorized) with McNamara, supra, 522 F.2d at 1164; Gabauer, supra, 594 F.2d at 668-70 (holding authorized, but illegal political contributions not to be actionable under § 501); and Kahn v. Hotel Employees’ International Union, 469 F.Supp. 14 (N.D.Cal.1977), aff’d, 597 F.2d 1317 (9th Cir.1979) (disclosure of conflicts of interest only required in cases where membership has a right to vote on challenged decision). In so ruling, the court in Gabauer, supra, 594 F.2d at 670 rejected the argument that “any expenditure unrelated to legitimate bargaining activities violates § 501.” See generally, Comment, Determining Breach of Fiduciary Duty Under the Labor-Management Reporting and Disclosure Act: Gabauer v. Woodcock, 93 Harv.L.Rev. 608, 611 (1980); Leslie, Federal Courts and Union Fiduciaries, 76 Colum.L.Rev. 1314, 1326—28 (1976); Note, The Fiduciary Duty Under Section 501 of the LMRDA, 75 Colum.L. Rev. 1189, 1190-93 (1975); and Clark, The Fiduciary Duties of Union Officials Under Section 501 of the LMRDA, 52 Minn.L.Rev. 437 (1967). However, courts and commentators unanimously have maintained that stricter judicial scrutiny is appropriate when the expenditure confers a personal benefit on the union official, see, e. g., Morrissey v. Curran, 482 F.Supp. 31, 38 (S.D.N.Y.1979); and Puma v. Brandenburg, 324 F.Supp. 536, 544 (S.D.N.Y.1971); or where it confers no benefit on the union, cf. United States v. Ladmer, 429 F.Supp. 1231, 1240 (E.D.N.Y.1977). Leslie, supra, at 1323. As noted by the court in Morrissey, supra, 482 F.Supp. at 39, “[t]he compensation of union officers falls into the hybrid class of expenditures that involve self-dealing . but which also produce a union benefit, since no labor organization can function effectively without competent leadership.” Therefore, judicial deference to the level of compensation set by the union is appropriate “except where the authorization was procured through fraud, mistake or duress or where the compensation so far exceeds the norm that fraud, mistake or duress can be inferred with some degree of assurance . . . Id. at 39—40. A number of factors are relevant to the Court’s inquiry concerning the validity of an authorization. First, the authorization must be obtained through the procedures specified in the Union constitution and bylaws. McNamara, supra, 522 F.2d at 1162; Puma, supra, 324 F.Supp. at 543. Second, the proposal must be presented in an understandable manner so that there is some assurance that consent was “knowingly and intelligently given.” Brink v. DaLesio, 453 F.Supp. 272 (D.Md.1978); see also Morrissey, supra, 482 F.Supp. at 54. Voting procedures must be adequate to guarantee “the right of a meaningful vote.” Sertic v. Carpenters District Council, 423 F.2d 515 (6th Cir.1970). In that case, the Sixth Circuit disapproved a ballot format in which previously defeated proposals were attached as riders to generally popular proposals to ensure their passage in a referendum. Finally, the timing of the authorization' is critical. As indicated above, § 501 prohibits general exculpatory provisions. No problem is presented under this section if the union official obtains advance authorization for an expenditure. Farrington, supra, 468 F.Supp. 343. If the purported authorization is obtained subsequent to the actual expenditure, the Court must determine whether it is a legitimate ratification or an ineffective exculpatory provision. A number of commentators have addressed themselves to this problem. Leslie, supra, at 1328, posits that “[rjesort to the common law of fiduciary relationships suggests two lines of analysis; that general exculpations are distinguishable from specific exculpations, and that exculpations are distinguishable from ratifications.” He further suggests that a clause in the union constitution or bylaws purporting to insulate officers from liability in a class of cases would be a general exculpatory provision, and therefore void. A resolution passed relieving an officer of liability for a particular breach but not approving of the action would be a specific exculpation. Where a resolution both relieves the officer of liability and approves his conduct, the Court should consider it to be a ratification. One rationale for permitting specific exculpations and ratifications is that they occur “after the fiduciary breach has come to light.” Also, they may be necessary when the officer’s “grant of authority was ambiguous.” Finally, it might be argued that “the union should be permitted to decide that . . . the potential harm to the union from the adverse publicity of the suit outweighs the gain of a recovery against the officer.” Id. at 1329. As conceded by Leslie, however, “[t]he contrary consideration is domination.” Id. This consideration has led one commentator to suggest that “unions should not be allowed to excuse specific breaches by a union official of the duties imposed by section 501(a) after they have occurred, since powerful, even despotic union leaders might be able to manipulate their unions into ex post facto authorization of such conduct.” Clark, supra, at 452. An intermediate approach is suggested in Note, supra, 75 Colum.L.Rev. at 1200. The author suggests that “[sjince a union may have a significant interest in acknowledging the status quo, even one arrived at by a breach of trust, if there has been full disclosure of all the facts and if the ratification itself has not been tainted by fiduciary abuses, there should be no absolute denial of the power of the union to act in this manner. A court’s analysis . . . should focus on the good faith of the original breach, the propriety and specificity of the ratification procedures and the consequences of disallowing a purported ratification.” Courts that have considered the validity of purported exculpations or ratifications generally have found them to be ineffective. See, e. g., Morrissey v. Curran, 423 F.2d 393 (2nd Cir.), cert. denied sub nom. Segal v. Morrissey, 400 U.S. 826, 91 S.Ct. 52, 27 L.Ed.2d 56 (1970); and Johnson v. Nelson, 325 F.2d 646 (8th Cir.1963). In so holding, however, these courts did not specify in what circumstances it would be appropriate to give effect to such an ex post facto authorization. In neither case, however, could the unauthorized conduct be characterized as a good faith mistake untainted by personal pecuniary or political motivation. In cases where these characteristics are present, judicial validation of specific exculpations or ratifications appears to be appropriate. As mentioned above, a finding that an expenditure was authorized does not necessarily immunize an officer from liability. The next step is to determine whether the expenditure “violates the provisions of the . . . Act.” Sabolsky, supra, 457 F.2d 1245; see also Gabauer, supra, 594 F.2d at 670. Since the focus of the Act is on the misappropriation of union funds for personal gain, the defendant charged with such misappropriation must show that the transaction was “fair and reasonable.” Brink, supra, 453 F.Supp. at 278. This requirement is consistent with the general rule that the burden is on those in a fiduciary position to justify actions not comporting with fiduciary standards. Blankenship v. Boyle, 329 F.Supp. 1089 (D.D.C.1971). The Severance Fund With these considerations in mind, the Court will now turn its attention to the merits of the various individual claims under the LMRDA. One of the most significant allegations concerns the severance fund established by Local 311 for the benefit of defendant DaLesio. The plaintiffs claim that the expenditure was not properly authorized under the union constitution and bylaws, that invalid procedures were used, and that in any case the severance fund represents unreasonable compensation and is therefore violative of the Act. To assess these contentions, it is necessary to review the events leading up to the creation of the severance fund. Ralph Watson, a principal witness for the plaintiffs, testified that DaLesio first mentioned the concept of a severance fund to him in 1961 or 1962. In 1961, the Ironworkers local which DaLesio served as Secretary-Treasurer switched affiliations and joined the Teamsters organization as Local 480. When Local 480 merged with Local 311 in 1962, DaLesio was a business agent but was not initially on the Executive Board. Watson testified that the purpose of the severance fund was financial insurance for DaLesio in case he lost his position with the Union. DaLesio denied having this conversation with Watson. He also tried to impeach Watson’s testimony by showing that Watson had initially been his protege and had become alienated from him when he lost this favored status. Although the Court finds that this change in the nature of the relationship between DaLesio and Watson did take place, it also finds Watson’s testimony credible. First, this conclusion is supported by the fact that DaLesio’s local was undergoing reorganization, thus rendering DaLesio’s position less secure. Second, Watson testified that he is no longer a member of Local 311, has no personal interest in the outcome of this case, bears no grudges, and was not coached regarding his testimony. Most important, however, is the fact that within several years of becoming Secretary-Treasurer, DaLesio in fact took steps to have the severance fund established. The first step in this process was the amendment of the Local’s bylaws to permit remuneration in this form. Article XIV, § 1 of the 1960 bylaws states that “[t]he compensation of any full time officers and employees shall be as authorized by the Executive Board.” Section 2 of this article limits compensation of any member holding more than one office so that he can receive only compensation for the highest paying position he holds. The 1964 bylaws, on the other hand, concentrate greater authority in the hands of the Secretary-Treasurer and expand the range of benefits for which he and other union personnel are eligible. More specifically, Section 9(a) makes the Secretary — Treasurer position a full-time one. Section 9(b) grants the Secretary-Treasurer authority to supervise all union officers and employees and to fix the salaries for union employees, and to hire and fire business agents. Section 9(f) grants him sole authority to disburse funds. Section 15(d) contains the new provisions specifically authorizing the Executive Board to provide for retirement benefits and other fringe benefits to union officers. This section also authorizes the Secretary-Treasurer to set benefits for appointive personnel. Finally, § 15(c) provides for the purchase of automobiles for officers. The 1964 bylaws grant the Secretary-Treasurer greater authority and benefits than are provided for in the model bylaws provided by the International Union. For example, § 13(2) of the model bylaws gives authority to set salaries to the Executive Board rather than to the Secretary-Treasurer. These model bylaws also do not classify the Secretary-Treasurer position as full-time. In addition, the model bylaws give the President and the Secretary-Treasurer joint authority with respect to disbursement of funds. At trial, DaLesio attempted to minimize his involvement in the amendment of the bylaws. He pointed out that he was Vice-President in 1964 when the changes were instituted. In addition, he stated that the changes were effected because the International issued a new set of bylaws in 1963. This account, however, is not credible. Cosimo Abato, an attorney with the firm that represents Local 311, testified that he had been urging the Local to amend the bylaws for some time and that it was only as a result of DaLesio’s initiative that such revision was accomplished. Abato drafted a set of bylaws using the model ones submitted by the International as a starting point. He then submitted them to DaLesio with instructions as to the approval process. Abato also testified that he made no significant substantive changes in the model bylaws. Therefore, the inference that must be drawn is that DaLesio was responsible for making these substantive changes. The Court also finds that the fact that DaLesio was not appointed to the Secretary-Treasurer position until two months after the bylaws were revised does not compel a contrary conclusion. At trial, DaLesio stated that his predecessor’s departure was not an anticipated event. At his deposition, however, he testified that Paul Brandt, his predecessor, was in his sixties, had a bad back, and walked with a cane. In addition, the testimony established that in the months after the merger, DaLesio, who was a business agent but not a member of the Executive Board, took the initiative in taking measures to remedy Local 311’s fiscal woes. He was rewarded for his efforts when his predecessor in the position of Vice-President was asked to resign so that DaLesio could take his place. In light of these facts, it is apparent not only that DaLesio anticipated Brandt’s resignation, but also that he anticipated being selected to succeed him. The existence of these political machinations would not in and of itself justify a finding that the severance fund was improper. Subsequent events, however, do compel this conclusion at least with respect to the periodic increases to the fund. First, there is a substantial question concerning whether the new bylaws were properly approved by the membership. The minutes reflect that the procedures specified in Article XXXI of the 1960 bylaws for amendment of the bylaws were followed. The proposed bylaws were initially presented to the membership, then referred to the Executive Board, and finally approved by a two thirds vote of the membership at the next monthly meeting. What disturbs the Court, however is the explanation for the bylaw changes apparently offered by DaLesio. When he first proposed the amendments, DaLesio explained that the 1960 bylaws were in conflict with the International Constitution and were therefore null and void and that the International had sent the Locals model bylaws. At the next monthly meeting, the minutes reflect that DaLesio said the bylaws “were taken from the model” set provided by the International. The proposed bylaws were read aloud at both meetings, according to the minutes. However, there is no indication that the substantial departures from the model bylaws were disclosed or explained. Given DaLesio’s incipient personal interest in these provisions, this failure was critical. It certainly violates the spirit, if not the letter of § 501’s admonitions against self-dealing as well as its policy in favor of disclosure. The Court therefore has some doubts about the validity of the membership’s approval of the bylaw provisions which later provided authority for the establishment of the severance fund. If this were an isolated incidence of apparent failure to disclose, it might be argued that the minutes were incomplete, or that the omission of an explanation was the result of innocent mistake. An examination of the form in which information was presented to the membership while DaLesio was Secretary-Treasurer, particularly with respect to the severance fund, indicates that such self-serving omissions were the rule rather than the exception. DaLesio also tried to minimize his role in the establishment of the severance fund by portraying Chick Twitchin as the moving force. Twitchin, now deceased, served as President of Local 311. Several witnesses who were on the Executive Board in 1966 when the severance fund was created testified that it was Twitchin who presented the proposal. Cosimo Abato, however, testified that both Twitchin and DaLesio came to his office in early 1966 to seek assistance in setting up such a fund. One of Abato’s partners at the time, Thomas Bracken, researched the proper procedures for obtaining authorization. The advice given was to submit a resolution to the membership authorizing the Executive Board to set up the severance fund. The final plan would then be submitted to the membership for approval. Both Abato and a number of witnesses who were on the Executive Board at the time testified that the rationale for the fund was to guarantee DaLesio’s income in case of retirement or election defeat. This testimony corroborates Watson’s account of the earlier conversation he had with DaLesio in which these considerations were also discussed. It is significant that Watson was not a member of the Executive Board at this time and therefore was not privy to these discussions. In light of this fact it is also significant that when Watson was considering resigning from his position as business agent in 1969, DaLesio presented the severance fund as an example of a possible benefit of union employment. At that time, DaLesio told Watson how he had gone about having the fund established. He told Watson that he had Twitchin sponsor the proposal. Watson also testified that in the latter years of his tenure as President, Twitchin had been retained on the payroll despite his lack of contribution to the union. At his deposition, DaLesio conceded that Twitchin was not very active in union affairs in his later years. Thus, it is reasonable to infer that Twitchin was indebted to DaLesio and therefore was willing to sponsor the severance fund. The minutes do reflect that the procedures outlined by Abato were followed in obtaining initial membership approval for the fund and that the proposed amount of weekly contributions, $200, was disclosed. All of the Executive Board members who testified, including Watson, indicated that their opinion was that DaLesio did an excellent job rebuilding Local 311 and that he deserved this compensation. However, the Court has grave doubts concerning whether subsequent increases in the level of contributions to the severance fund were authorized under circumstances showing informed consent. The record shows that the level of contributions was increased $100 per week in April, 1970 and January, 1972. There were $50 per week increases in March, 1973 and again in January, 1974. On each occasion, the minutes of the Executive Board meeting show that the motion voted upon only reflected the amount of the increase and did not indicate the total level of contributions. A number of other factors support the Court’s conclusion that the officers were unaware of the magnitude of the severance fund. First, at trial, the trustees who testified generally did not know the total level of contributions, nor the frequency with which they were made. Second, an examination of the Local’s monthly financial statements prepared under DaLesio’s supervision by Mary Finch, the secretary and bookkeeper, and read at Executive Board and membership meetings indicates that the severance fund contributions were not listed separately but were lumped together with pension contributions. Given that the severance fund contributions represented about 90% of the combined total, the Court finds this format misleading. Similarly, the financial disclosure forms filed with the Department of Labor did not list the severance fund contributions separately until 1974 when the Department conducted an audit and required that this be done. DaLesio was the officer who took responsibility for complying with the Department of Labor’s instructions. He made no change, however, in the format of the monthly financial statements as a result of this audit. The Court’s conclusion that although the initial level of contributions to the severance fund was properly authorized, the increases were not, is bolstered by an examination of the reasonableness of the amounts contributed. First, taking the severance fund into account, DaLesio was the highest paid union officer in the Baltimore area. Second, although Local 311’s financial condition did improve steadily during the early years of DaLesio’s tenure, this trend was reversed by 1974. The inference that the high level of contributions to the severance fund contributed to this decline is borne out by a comparison of the amount in the severance fund to the Local’s net assets. By 1977, there was approximately $250,000 in the severance fund. In contrast, the Local’s net assets amounted to slightly more than $100,000. In the Court’s opinion, DaLesio’s “compensation so far exceeds the norm that fraud,-mistake or duress can be inferred with some degree of assurance . . . .” Morrissey, supra, 482 F.Supp. at 40. In sum, despite its reservations concerning the manner in which the bylaws were amended to provide for additional forms of compensation and for greater centralization of responsibility in the hands of the Secretary-Treasurer, the Court will permit DaLesio to retain that portion of the severance fund that would have accrued had the weekly level of contributions remained at $200. In so ruling, however, a few comments are necessary concerning the complicity of DaLesio’s fellow Executive Board members as well as of the Local’s counsel. While it is true that DaLesio made an effort to present information in such an unusable form as to preclude a finding of disclosure, the fact remains that his fellow officers never objected to this format. Also, counsel apparently never advised DaLesio or his fellow officers that the amount of compensation had to be reasonable under the LMRDA, nor that forthright disclosure was mandated. As will be discussed frequently in this opinion, the improprieties of the defendants in this action were exacerbated by the obliviousness and indifference to fiduciary duties shown by the Local’s officers, the Fund trustees, and the professionals retained by them. It does takes two to tango. DaLesio’s Simultaneous Use of an Automobile Furnished By Local 311 and Receipt of an Automobile Allowance from Joint Council 62. As mentioned above, a provision authorizing the purchase of an automobile for union officers was added when the bylaws were amended. Pursuant to this provision, Local 311 purchased what the plaintiffs have referred to as “luxuriously appointed” Cadillacs for DaLesio’s use. In addition, the Union paid all of the expenses incurred in connection with these automobiles. While DaLesio enjoyed the use of the automobile provided by the Local, he received a monthly automobile allowance of $100 from Joint Council 62 from the time he assumed the position of President in early 1975 until the allowance was redesignated in January, 1977. The plaintiffs claim that the Cadillacs were both improperly authorized and unreasonable expenditures, and that DaLesio’s receipt of the automobile allowance was also violative of the LMRDA. In alleging that the purchase of the Cadillacs was unreasonable, plaintiffs do not appear to contend that the purchase of any car would have been unreasonable. There was abundant testimony that DaLesio’s position involved frequent and irregular travel for the discharge of his organizing and negotiating duties. Moreover, these factors are recognized explicitly in the bylaw provision authorizing the purchase. Also, the bylaws authorize private use of the automobiles “as partial compensation for such additional responsibilities.” Thus, the plaintiffs are requesting this Court to override the Union’s choice of a particular automobile model. While the selection of a more moderately priced automobile might have been preferable, the Court finds that this is the type of decision upon which reasonable men could disagree and which absent any showing of improper authorization, merit judicial deference. The Court must turn its attention then to the authorization issue. The evidence established that Cadillacs were purchased in 1970, 1972, and 1975. In 1970, a Buick owned by the Union was traded in for the Cadillac. On subsequent occasions, the Cadillacs were traded in for newer models. The record reflects that in 1970 and 1972, the purchases of the automobiles were approved by the Executive Board and that the Executive Board minutes were read regularly at the next membership meeting. The plaintiffs challenge this method of obtaining membership approval. First, they point out that members were never notified when a major issue or expenditure was to be considered at a meeting. Also, they emphasize the low level of membership turnout at the monthly meetings. Finally, they established that the meeting time was inconvenient for a segment of the membership. While the Court agrees that the approval method utilized by Local 311 did not represent the epitome of representative democracy, the fact remains that these were the established procedures, and that they neither precluded membership participation nor were immune from the amendment process. Again, judicial deference to the Union’s choice of procedures is appropriate absent any showing that the procedures were utilized to stifle dissent. In this case, there was some evidence that a group of dissatisfied members attempted to mount an opposition slate in the early 1970’s, but that this effort was deterred by veiled threats of force. While such tactics are certainly reprehensible, they are not a necessary byproduct of the existing procedures and therefore do not justify invalidating those procedures. The plaintiffs also challenge the timing of the authorization of the automobile purchased in 1970. DaLesio purchased the automobile before obtaining Executive Board or membership approval. Executive Board approval however was obtained at the evening meeting on the same day as the purchase and the check was not issued until the next day. Membership approval was not obtained until almost a week later. The Court frowns upon such highhandedness; however, it concludes that the subsequent Executive Board and membership action constitutes a ratification, and not an exculpation under the analysis outlined earlier. The ex post facto authorization endorsed rather than excused DaLesio’s conduct, and was specific rather than general. DaLesio’s use of a union automobile, however, renders inappropriate his receipt of an automobile allowance from Joint Council 62. At trial, it was established that the automobile allowance was set up for the benefit of an individual from Salisbury, Maryland who had served previously as President and who had substantial traveling expenses. The allowance was not discontinued when DaLesio’s immediate predecessor took office, even though he resided in the Baltimore area and therefore did not have to commute long distances. This individual served a brief tenure as President and was replaced by DaLesio in 1975. DaLesio testified that although he signed vouchers clearly designating the $100 as an automobile allowance, he did not notice this designation until early 1977. Rather, he stated that he was under the impression that all of the $300 he received on a monthly basis from Local 311 was salary. The Court, however, finds that this explanation is not credible. First, the re-designation of the automobile allowance was done at DaLesio’s initiative shortly after the grand jury subpoenaed Local 311’s records. Second, the explanation is not consistent with the obvious attention to detail shown by DaLesio when such attention was in his self-interest. Third, the automobile allowance was not listed as income on DaLesio’s tax returns. Fourth, other Joint Council 62 officers testified that they were not aware of the fact that DaLesio had the use of an automobile provided by Local 311 and that all of the related expenses were paid by the Local. Although Fred Killen, an officer of Joint Council 62, testified that he considered the allowance to be a form of compensation, that fact does not alter the Court’s conclusion that DaLesio concealed information that reasonably could be deemed material to his receipt of the automobile allowance. Even were this Court to find, however, that DaLesio was receiving an automobile allowance in these circumstances with the fully informed consent of his fellow officers, it would be compelled to disallow it. As explained earlier, the underlying policy of the LMRDA is to prevent embezzlement of union funds. Central to this purpose is the requirement that expenditures which profit officers personally be disclosed fully. Misdesignation of salary as an automobile allowance is inconsistent with this requirement. Union members desiring to scrutinize the performance of their officers must have access to complete and correct information. Therefore, the Court will grant the plaintiffs the relief requested and will order DaLesio to return to Joint Council 62 the sum of $2,150 received as an automobile allowance. Expense Accounts and Travel Allowances. Initially, plaintiffs challenge DaLesio’s failure to remit to the Union and to the Funds unexpended portions of his travel allowances. At trial, however, testimony established that the universal practice until ERISA took effect was to retain such funds and report them as income. This practice was engaged in pursuant to counsel’s advice. Since approximately 1977, the practice has been to remit the unexpended portions of such allowances. The latter practice is clearly preferable. Given DaLesio’s reasonable reliance on the advice of counsel, however, this Court must find that his previous failure to remit the unexpended portions of such travel allowances did not constitute a breach of his fiduciary duty. Considerable testimony was introduced to attempt to prove plaintiffs’ allegations that DaLesio failed to secure adequate records to substantiate his claims for reimbursement of expenses incurred while on union business. The record is clear that the procedures followed, or not followed, can give rise to abuses. Occasional discrepancies do not, in and of themselves, justify the conclusion that DaLesio was embezzeling union funds as stated under the expense account allegations. Miscellaneous Perquisites. Initially plaintiffs challenge the provision of the tennis club membership to DaLesio. At trial, however, the evidence established that the Executive Board had passed a resolution authorizing the purchase of a country club membership for DaLesio because he needed rest and relaxation. In light of this evidence of authorization, the plaintiffs have abandoned this claim. They still seek, however, the restitution of the cost of Baltimore Colts season football tickets. The parties stipulated that the union bought a block of season tickets for the years 1971 through 1977. The total cost of these tickets was $3354.70. At trial, DaLesio introduced no evidence that the purchase of these tickets was authorized or disclosed to the membership. In addition, his assertion that the expense was union-related was contradicted by the evidence. Although there were occasions on which DaLesio invited other officers to join him, the evidence established that the disposition of these tickets was solely within DaLesio’s discretion. For these reasons, the Court will grant the plaintiffs the relief they request. The Acquisition of Equipment from Local 311 Employers. Under 29 U.S.C. § 186, it is illegal for a union officer to receive money or anything of value from an employer except as specifically provided. Section 186(c)(3) creates an exception “with respect to the purchase of an article or commodity at the prevailing market price in the regular course of business.” At trial, it was established that DaLesio bought some equipment from two Local 311 employers, Joseph J. Hock, Inc. and C. J. Langenfelder & Son, Inc. which was then contributed to a corporation in which Ralph DaLesio, the defendant’s son, had a 50% interest. Plaintiffs contend that these transactions did not come within the statutorily defined exemptions. In particular, they point to the fact that DaLesio only paid book value, and that the equipment was assigned a value much higher than the sale price on the books of the corporation. Unfortunately, it was difficult to reconstruct the transaction with Hock. Jay Johnson, however, an officer with Langenfelder, testified that the terms of the transaction were not influenced by DaLesio’s position. Therefore, there is insufficient evidence from which this Court could infer that the sale of the equipment did not take place at arms length and on terms acceptable to the seller. The Harford Road Offices. Another transaction at issue in this lawsuit is the decision of Local 311 in 1974 to move its offices to a building on Harford Road owned by defendant Bell. Plaintiffs argue that DaLesio breached his duty “not to act on behalf of an adverse party in a transaction” without the Local’s knowledge and consent. Restatement (Second) of Agency § 391. In particular, the plaintiffs allege that DaLesio failed to select quarters reasonably suited to the Local’s needs and that he failed to negotiate reasonable rental terms for the quarters that were chosen. Although the evidence pertaining to this claim is not unambiguous, it does appear that the Harford Road offices were not well suited to the Local’s needs, that a substantial outlay of union funds was required to render them suitable, and that the terms of the rental agreement were not fair and reasonable. In examining the plaintiffs’ contentions, it must be kept in mind that 1974 was also the year in which Bell bought a condominium in Ocean City, Maryland which he permitted DaLesio to live in without charge. The propriety of that transaction will be discussed later. In this context, however, that transaction is significant because “[t]he receipt of anything of a substantial nature from an adverse party to a transaction is evidence that the agent is acting on behalf of such person and is sufficient, without more, to sustain a judgment against the agent.” Restatement (Second) of Agency § 391, comment e. The receipt of such substantial gratuities is particularly troublesome in this situation; all of the union officers who testified stated that they did not know that the condominium used by DaLesio was owned by Bell. Thus, it is not possible to draw an inference of informed consent to DaLesio’s possible representation of interests adverse to those of the union. Rather, the burden was on DaLesio to establish that the challenged transaction was fair and reasonable. At trial, DaLesio and Finch testified that it was necessary to secure alternate quarters on very short notice. This testimony, however, is inconsistent with the minutes of the Executive Board meeting in February, 1974, more than five months before the move took place, which establish that the search for new offices had commenced by then. Despite having such advance notice of the need to find new offices, DaLesio only looked at two or three locations. When the time for moving drew near, and a suitable property had not been located, Bell was contacted. Bell testified that the individuals contacting him were DaLesio, Finch, and Cremen. This testimony, however, is not entirely credible. Finch testified that she was on vacation during the weeks preceding the move and had no active part in locating new office space. Also, only DaLesio who had recently persuaded Bell to purchase the Ocean City condominium, would have had reason to know that Bell might be willing to purchase a building in which Local 311 could rent space. At trial, Bell attempted to establish that he purchased the building at Harford Road as a favor to the union. He stated that DaLesio, who was a trustee on the 311 Funds, was an important client and therefore “in the driver’s seat.” He supported this view of the situation by pointing to the fact that he lost money on the property on a cash flow basis. He conceded, however, that tax considerations were not taken into account in such a computation. He also stated that even though he would have preferred a long term lease, he had to settle for a short term lease because DaLesio preferred such terms. The fact that Bell’s investment in the Harford Road property may have been done as a favor to the union and may not have proved to be profitable to Bell does not demonstrate that the transaction was in fact reasonable. The evidence established that the Local spent $8847 on renovations to make the new offices suitable. These permanent improvements were made despite the fact that the rental arrangement was not pursuant to a long term lease. In addition, some of the expenditures were attributable to the construction of a meeting hall. This hall, however, was not large enough to handle all meetings, and the union was forced to rent a meeting hall on several occasions. There was testimony, however, that in other respects the new offices were an improvement over the union’s former quarters, because they were more spacious and because the presence of the Fund administrator’s offices in the same building was a convenience to members. The question, however, was whether the new offices represented a significant enough improvement to justify an increase in rental costs from $390 per month to $944 per month. DaLesio attempted to justify the transaction by stating that before negotiating the lease with Bell, he investigated the prevailing rental rates and found that $6 per square foot was the going rate. Matthew Sysak, the property manager for Alfred M. Bell and Associates, testified that he surveyed the area and found that rental rates varied between $4.50 and $7.00 per square foot. Bell testified that the same rate was charged to Alfred Bell, Inc. which also became a tenant and to the tenant who remained after Bell bought the building. At first glance, then, it would appear that the rental rate was reasonable. The testimony on behalf of the defendants, however, does not stand up under closer scrutiny. There was evidence that Bell was unable to rent substantial portions of the building, even when rates as low as $4.75 per square foot were offered. Moreover, in 1978 when the Local decided to sever all ties with Bell, new quarters of comparable size were found within a matter of weeks at a yearly rental rate of $4.75 per square foot. The defendants did not introduce any evidence showing that these new quarters were in any way inferior to those at Harford Road. In fact, it appears from the lease that improvements were paid for by the lessor rather than the lessee. In light of this fact, it is necessary to add in the cost of the renovations at the Harford Road location before comparing the rentals. If these costs are spread out over the 43 month tenancy, the monthly rental is increased $205.74 to $1149.74. Thus, the effective charge per square foot was $7.31. Although it could be argued that the costs of the improvements should be amortized over a longer period to reflect the expected duration of the tenancy when DaLesio negotiated the rental terms rather than the actual duration of the tenancy, several factors militate against such a conclusion. First, it was DaLesio and not Bell who was responsible for selecting a month to month tenancy. Second, DaLesio testified that he preferred this arrangement because it afforded greater flexibility. Third, it was the union rather than Bell who terminated the rental arrangement, albeit in response to some rather extraordinary circumstances. In sum, there was apparently no expectation that the tenancy would continue for any particular period, and therefore it is reasonable to utilize the actual duration of the tenancy in calculating the rental costs. Measured under an objective standard of reasonableness, it is apparent that DaLesio breached his fiduciary duty in negotiating for the rental of office space at the Harford Road location. Plaintiffs have requested relief in the form of reimbursement by DaLesio to the union cf $19,338.82, the difference between the costs incurred at Harford Road and the rental that would have been paid had quarters been secured on the terms equivalent to those prevailing at the new offices. The defendants introduced no persuasive evidence showing that offices could not have been secured in 1974 at more modest rental rates. Regrettably, the plaintiffs, who bear the burden of proving the elements of their claim introduced no evidence of rental rates prevailing in 1974 and the Court will not presume what their evidence might have been. Accordingly, on this claim, plaintiffs are entitled to damages in the amount of $1. DaLesio’s Receipt of Gratuities from Individuáis Providing Service to Local 311 or the Funds. The next portion of the opinion will discuss DaLesio’s receipt of gratuities from John Mitchell, the accountant for Local 311 whose firm also provided services to the Funds, and from Alfred Bell, whose companies provided services to the Funds. To the extent that the union’s interests are involved, DaLesio’s conduct is governed by the fiduciary duty imposed by the LMRDA which was discussed earlier. To the extent that the Funds are involved, the common law applies to conduct occurring before January 1, 1975, while ERISA provides the legal standard after that date. More specifically, 29 U.S.C. § 1104 obligates a fiduciary to “discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and ... for the exclusive purpose of . providing benefits to participants and their beneficiaries; and . . . defraying reasonable expenses of administering the plan; . with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims . . .” There is no dispute that DaLesio falls within the definition of fiduciary provided in 29 U.S.C. § 1002(21)(A). Section 1106 supplements the general standard by providing that certain transactions are prohibited per se. Relevant to this discussion is § 1106(b)(3) which bars a fiduciary from receiving “any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan.” The proper interpretation of this provision has been the subject of controversy in the instant case. An examination of the legislative history indicates that it was designed to prevent kickbacks. See H.R.Conf.Rep. No. 93-1280, 1974 U.S.Code Cong. & Admin.News, pp. 4639, 5038, 5089. See also Little and Thrailkill, Fiduciaries Under ERISA: A Narrow Path to Tread, 30 Vand.L.Rev. 1,25 (1977). The controversy in this case under both ERISA and the common law centers around the issue whether the plaintiffs need show that there was a quid pro quo for the gratuities or that harm to the union or the Funds resulted. There is neither case law nor regulations governing the proper interpretation of § 1106(b)(3); nevertheless, an examination of decisions construing other provisions of ERISA demonstrates that plaintiffs need not show that the receipt of gratuities actually influenced DaLesio’s discharge of his fiduciary duties. Initially, it should be noted that ERISA is a “comprehensive remedial statute designed to protect the interests of participants in employee benefit plans” and that a broad construction of the statute is therefore appropriate. Marshall v. Kelly, 465 F.Supp. 341, 349 (W.D.Okl.1978). Therefore, “the question of whether ERISA has been violated does not depend on whether any harm results from the transaction. Congress was concerned in ERISA to prevent transactions which offered a high potential for loss of plan assets or for insider abuse . . .” Id. at 354. A similar approach was taken by the court in Gilliam v. Edwards, 492 F.Supp. 1255 (D.N.J.1980) in construing § 1106(b)(1) barring a fiduciary from “dealpng] with the assets of the plan in his own interest or for his own account.” The court noted that a defendant who engages in a prohibited transaction does not escape liability by showing “the absence of bad faith, or . the presence of a fair and reasonable transaction . .” Id. A strict construction of the prohibited transaction provisions is also justified by administrative convenience. In addition, the court noted that it is psychologically unrealistic to expect a trustee to ignore his personal interests when they are potentially at odds with his fiduciary obligations. Id. The defendant has argued that the statutory language dictates the opposite result. The Court is in agreement that the provision, standing alone, is not unambiguous. It would appear to require the plaintiff to show that the defendant received consideration in a transaction in which the plan assets were involved. In other words, it might be argued that the language suggests that a showing of an actual effect on the plan is required. Such an interpretation, however, would render the provisions superfluous in light of § 1106(b)(1) and (2) which clearly prohibit self-dealing with plan assets and representation of parties with adverse interests in transactions involving plan assets. In addition, the defendant’s suggested interpretation is inconsistent with the common law rule that a quid pro quo need not be shown, see, e.g., United States v. Bush, 522 F.2d 641, 648 (7th Cir. 1975); McGinnis v. Rogers, 262 Md. 710, 732, 279 A.2d 459 (1971). Rather, “a trustee . is not permitted to place himself in such position that the interest of the beneficiary and his own personal interest do or may conflict; and the question of whether or not such a position has resulted in a benefit or loss to the beneficiary is not to be inquired into.” Mangels v. Tippett, 167 Md. 290, 300, 173 A. 191 (1934). In light of these considerations, then, the Court has determined that § 1106(b)(3) is violated when a fiduciary receives gratuities from any party dealing with the Fund. The Provision of Free Tax Services. John Mitchell, the accountant for Local 311 for the past ten years, testified that he provided tax services to DaLesio and other officers without charge from 1970 to 1977. This was apparently common practice. Mitchell’s firm, Burch and Mitchell, was also the accounting firm retained by the employee benefit funds. His firm ceased providing these services to union and company officers as a result of criticism of such practices by the Internal Revenue Service. He presently charges DaLesio $150 for preparation of his income tax return. Mitchell stated that this fee was the fair market value of the services provided. He also stated that the services provided to DaLesio over the years were worth approximately $500. DaLesio attempted to justify his receipt of such services by pointing out that it was a common practice. He also attempted to show that the Local did not bear the costs of these services, even indirectly. This attempt failed, however, in the face of Mitchell’s admission that the time spent on officers’ tax returns was counted when charges for services provided to the Local were calculated. Moreover, this Court finds that there are other policy reasons for finding the practice, common though it might have been, to be violative of DaLesio’s fiduciary duties to the Union and the Funds. First, the only rationale for such provision of free services by a firm to its client’s officers is that it is seeking to maintain the goodwill of those individuals responsible for selecting professionals to provide services and for agreeing to the terms of compensation for such services. On the other hand, individuals in positions of trust have the duty to engage in comparative shopping to ensure that the Local or Fund is receiving the best services for the money. Also, fiduciaries are responsible for overseeing the work of those retained to ensure that the Local or Fund is receiving its money’s worth. Receipt of gratuities, regardless of whether the cost is actually passed on to the Union or Fund, necessarily compromises the fiduciary’s objectivity. Finally, there are no countervailing factors militating in favor of such practices. In sum, the Court finds that the receipt of gratuities in the form of tax preparation services violated DaLesio’s duties under the LMRDA, the common law, and ERISA without regard to whether the costs attributable to those services were passed on to the Union or the Funds and without regard to whether there was any demonstrable effect on DaLesio’s discretion concerning the selection and retention of accountants to perform services for those entities. Even were it necessary for the plaintiffs to show such an impact, the Court would find liability. As mentioned earlier, Mitchell’s testimony indicated that the time spent on DaLesio’s tax returns was taken into account in establishing the fee to be charged. This testimony raises questions concerning the extent to which the Funds should share in the $500 recovery to be ordered by the Court. On one hand, the Union bore the easily ascertainable costs of the breach. On the other hand, DaLesio also breached his duty to the Funds. The Court sees no rationale for restricting DaLesio’s liability to the Funds to the years after the enactment of ERISA. His conduct did not comport with common law fiduciary standards in the prior years. Another consideration is the fact that these plaintiffs do not have standing to challenge conduct pertaining to the Allied Pension Fund and the Affiliated Health and Welfare Fund as will be discussed later in this opinion. In light of these factors, it appears that the most equitable remedy would be to order DaLesio to remit the entire amount to the Union. This remedy would both prevent unjust enrichment and would ensure that the Union was fully compensated for its losses. The Ocean City Condominium. Another receipt of gratuities challenged by the plaintiffs involves a condominium in Ocean City which Bell bought in 1974 at DaLesio’s suggestion and which DaLesio lived in during the summers of 1974 to 1977, and used sporadically during the rest of the year, without paying rent. DaLesio, at trial, gave his version of this transaction. He testified that he had rented the condominium in 1973 and that when he found out it was for sale, he approached Bell'and suggested that Bell buy the condominium for investment purposes. DaLesio stated that he did not buy the condominium himself, not as a result of financial factors, but because he was unsure of whether his family would like it. DaLesio testified that the asking price for the condominium was $78,-000 but that he was able to negotiate a good deal because the seller was under financial pressure. This testimony is subject to question in light of the fact that the unit was appraised at only $79,500 three and a half years later. In any case, Bell paid $60,500 for the condominium. DaLesio supposedly guaranteed Bell’s investment by agreeing to buy it at a specified price when Bell wanted to sell. At trial, the defendants attempted to portray the transaction as an exchange for value. DaLesio testified that he bought furnishings including rugs and patio furniture. He also stated that he had air conditioning and a stone patio installed. He estimated that he spent $12,000 to $15,000 on these items. Ralph DaLesio testified that he purchased lamps and other small items for the condominium. DaLesio, however, was unable to produce any records substantiating his purchases. He stated that he paid cash for these items and that the store where he purchased the items is no longer in business. Bell’s account of the transaction corroborates some of DaLesio’s testimony; in other respects, however, it is inconsistent. Bell also attempted to portray the transaction as an exchange for value. He testified that DaLesio served the useful purpose of deterring vandals during the summer months. Presumably a tenant who paid rent would have provided this service as well. He stated that he bought the condominium with the intention of holding it for six months but that he did not sell it at the expiration of that period because the real estate market was weak. It is at this point that the defendants’ stories diverge. If Bell really intended to sell the property after only six months, it is unlikely that DaLesio would have purchased furnishings and made substantial improvements. Moreover, this account is not consistent with DaLesio’s statement that he told Bell he would buy the condominium at a guaranteed price in the event Bell decided to sell and was unable to get a better offer. Both Bell and Sysak testified that it was not unusual for Bell to purchase properties which would remain vacant. They admitted, however, that these properties were leased on an occasional basis and were used for entertaining friends and clients. In the face of Bell’s stated intention of selling the condominium after six months, DaLesio’s statement that the furnishings and improvements were necessary , to make the condominium look presentable to potential buyers is incredible. The defendants’ contention that the transaction was for fair consideration is undercut further by the fact that Bell paid all of the expenses incurred as a result of the DaLesio’s use of the condominium. More specifically, he paid the taxes, some of the repair bills, condominium fees, insurance, all utilities except long-distance telephone charges, and the monthly cable television fee. In 1975 alone, these costs amounted to $9664. In the same year, Bell spent $4721 on furnishings for the condominium. This fact is also inconsistent with DaLesio’s contention that he paid value for the use of the condominium and with Bell’s contention that he bought the property solely for investment purposes. Several other facts render the defendants’ stories completely untenable. First, if the transaction was an exchange for value, there would have been no need to conceal it. Yet, at trial, it became apparent that the transaction had been concealed from everyone who might be interested. All of the trustees on the Funds testified that they were unaware of the fact that Bell owned the condominium. Ralph DaLesio stated that although he was under the impression that his father did not own the condominium, he was not aware of the fact that Bell owned it. The president of the owners’ association in the group of condominiums in which the unit was located stated that he was under the impression that DaLesio was the owner and that Bell was his accountant. The Court’s conclusion that the transaction was not legitimate is also supported by the fact that Bell sold the condominium to Da-Lesio in July, 1977, shortly after the grand «jury began investigating their relationship. At that time, the defendants, who had never kept meticulous records documenting their expenses attributable to the condominium, obtained an appraisal of $79,500. Because no broker was involved, an amount equivalent to the expected broker’s fee was deducted, and the selling price was $74,000. The defendants’ explanations for the timing of this sale are totally unbelievable. Bell stated that the