Protest Decisions

IN RE: HOFFA 2006, Protestor.
Protest Decision 2006 ESD 180
Issued: April 18, 2006
OES Case No. P-05-037-112805-HQ

(See also Election Appeals Master decision 06 EAM 39)

Hoffa 2006 filed a pre-election protest pursuant to Article XIII, Section 2(b) of the Rules for the 2005-2006 IBT International Union Delegate and Officer Election ("Rules"). The protest alleged that Teamsters for a Democratic Union ("TDU") did not report certain legal and accounting expenditures, did not properly allocate certain campaign expenses, and improperly compensated non-lawyers from its legal and accounting fund.

We denied the protest in Hoffa 2006, 2006 ESD 84 (February 23, 2006). On appeal, the Election Appeals Master vacated our decision and remanded the protest "for further review, enlargement and/or investigation, as necessary in light of this order." Hoffa 2006, 06 EAM 11 at 3. In particular, the Election Appeals Master noted that the protestor -

- is specifically seeking more detailed information on the redacted schedules of expenditures (Article XI Section 2(e) of the Rules) that do not compromise the identities protected in U.S. v. IBT, 968 F2d 1506 (2d Cir. 1992). This claim is nowhere addressed in the Election Supervisor's decision.

Id. at 3 (emphasis in original).

We issue this decision, after the remand ordered by the Election Appeals Master. While the second protest allegation is the main focus of our additional analysis, we have re-canvassed all of the protest allegations in this remand decision and set out our complete analysis for each one.

On remand, we reviewed the record of this protest investigation, the redacted Campaign Contribution and Expenditure Reports ("CCER") at issue and portions of CCERs filed by candidates and slates (not independent committees). We compared the disclosure in the "purpose of expenditure" column on TDU's CCER with disclosures made in that column by campaigns. We reviewed decisions of the Election Office from the 1991, 1996, and 2001 elections, and decisions of the Election Appeals Master from 2001, relating to independent committee CCER filings and the disclosure standard to which those filings have been held in the past. We reviewed the record concerning the promulgation of the current Rules, the source of the relevant provisions, and the expectation of the government and the IBT in proposing the provision in question for the current election. We considered, in light of all that material, whether the TDU redacted CCER in question complied with the standard of disclosure established under the Rules and Election Office precedent. Our findings and conclusions are set forth below. Because this ruling supersedes 2006 ESD 84, we recapitulate all of the allegations and make fresh findings and conclusions for each one.

Findings of Fact and Analysis

The protest. Hoffa 2006 filed its protest against TDU and the Teamster Rank & File Education & Legal Defense Foundation ("TRF"). The protest specified four discrete allegations against TDU but made no specific claim that TRF has violated any of the Rules. The protest's allegations against TDU are reprinted here in their entirety:

1. On its second CCER, covering the period of June 1, 2005 through September 30, 2005, TDU reports "in kind" legal and accounting contributions of $75,000, but only $2,934.84 in legal and accounting expenditures. It is unclear how such large "in kind" legal and accounting services could conceivably have been made during this time frame, in light of the minimal legal and accounting services that were performed in connection with the 2005-06 election during the same period.
2. Both the campaign and legal and accounting CCERs contain confusing enumerations of purported "allocation expenses" which fail to enumerate the expenses that are being "allocated." In this way, TDU is not disclosing the purpose and nature of campaign and legal and accounting expenditures it is reporting.
3. It appears that TDU is using legal and accounting contributions to compensate Ken Paff and other non lawyers. There is no evidence that Mr. Paff is performing legal and accounting services, whether under the direct supervision of legal and accounting professionals or otherwise.
4. TDU has failed to identify non-members who have made "in kind" legal and accounting contributions.

We respectfully request that you investigate the foregoing and other discrepancies in TDU's filings.

Letter from D. Hoffa to R. Mark (November 23, 2005).

Background: Rules and Advisories Governing Campaign Finance Disclosure. The Rules require that reports of campaign contributions and expenditures be filed periodically by every candidate and slate of candidates for International office, regardless of whether the candidate or slate has received any contributions or made any expenditures. Such filings are also required of each independent committee, but only if the committee has solicited contributions or made expenditures exceeding $1,000. Article XI, Section 2(a).

The Campaign Contribution and Expenditure Report ("CCER") details the contributions received and expenditures made for campaign purposes. The Supplemental Form No. 1 reports the contributions and expenditures for legal and accounting services. Id. These reports must be filed with the Election Supervisor at the intervals specified in Article XI, Section 2(d).

With respect to contributions, CCER reports filed by candidates, slates of candidates, and independent committees must identify contributors by full name, local union name and number, amount of contribution, aggregate total contributed by the contributor, and additional information regarding the date and type of contribution. Supplemental Reports, documenting legal and accounting contributions, must detail similar information.

In the expenditure category, CCER reports must itemize expenditures made to individuals, vendors, or other entities that, in the aggregate, exceed $100.00. The instructions in this section of the report provide as follows, in relevant part:

You must identify the individual, vendor or entity that you paid in the aggregate in excess of U.S. $100.00, as well as the date, the amount and the purpose of the payment. The "Purpose of the Expenditure" box should contain a clear and concise description of why the payment was made, e.g., "travel expenses," "reception costs," "office supplies," "salary," "polling," "phone banks," "donation to slate," "loan to slate," etc.

Supplemental Report No. 1 provides the following instructions for legal and accounting expenditures:

You must identify the individual or entity whom you paid for legal services this period, as well as the date, the amount and the purpose of the payment. The "Purpose of Expenditure" box should contain a clear and concise description of why the payment was made.

Article XI, Section 2(e) grants to "[e]ach nominated or accredited candidate for International Office … the right to inspect and obtain copies … of any campaign financing and expenditure reports … filed by other candidates or slates." This right of inspection and copying does not apply to independent committee CCERs. The provision of Article XI, Section 2(e) that addresses independent committees reads as follows:

No candidate may inspect or copy any campaign financing and expenditure report filed by an independent committee, without the express prior written consent of the independent committee by its authorized representative; provided, however, that it is recommended that the Election Supervisor shall provide at a candidate's request limited disclosure of the following portions of an independent committee's Campaign Contribution and Expenditure Reports:

	Redacted schedules which reflect the total amount of contributions and total number of contributors, but which do not reflect the identity of individual contributors or their local unions.
	Redacted schedules of expenditures which do not reflect the identity of members of the independent committee or their local unions.

Article XI, Section 2(e), third paragraph, in relevant part.

To this end, independent committees are instructed to "file the schedules which accompany the summary reports in two forms - filled out in full and redacted. In redacting the schedules, independent committees should delete references to the identity of contributors or their local unions and the amount of each contribution. Each independent committee should also redact from the expenditure schedules any reference to the identity of members of the independent committee or their local unions." Article XI, Section (c), fifth paragraph.

Our Advisory on Campaign Contributions, Expenditures, and Disclosure elaborates on this point further as follows:

Independent committees must also submit to the Office of the Election Supervisor redacted CCER and Supplemental Form No. 1 schedules with the identity of contributors and their local unions deleted. CCER and Supplemental Form No. 1 cannot be redacted through the CCERS. The redacted schedules should also delete the identity of members and their local unions to the extent this information is included in any other place in the schedules. With respect to contribution information, the redacted schedules should provide only the total amount of contributions and the total number of contributors. For further information regarding these redacted schedules, please see the Election Supervisor's opinion letter of September 15, 2000. See also Taylor, 2000 EAD 75 (December 29, 2000), pages 11-12 (no requirement that Teamster Rank and File Education and Legal Defense Foundation's contributors be identified on its CCER forms).

History of the Independent Committee Disclosure Rule. The origin of the different treatment accorded independent committees with respect to disclosure of contributors' and members' identities is traced to U.S. v. I.B.T., 968 F.2d 1506 (2d Cir. 1992), where the Court of Appeals prevented enforcement of an advisory published by Election Officer Holland that required disclosure of campaign contribution and expenditure reports filed by independent committees. TDU and TRF responded to the advisory by agreeing to file the same reports required of candidates and "to undertake everything reasonably necessary … to avert any frustration of the Consent Decree, or of the proper administration of justice," provided that the identities of contributors and members were not disclosed. When Election Officer Holland rejected this limitation, TDU and TRF sought to enjoin disclosure of their reports, contending in part that such disclosure was not authorized by the Consent Decree or the All Writs Act. The Court of Appeals agreed, holding that the Election Officer may not impose upon nonparties to the Consent Decree such as TDU and TRF an obligation to file reports that will then be disclosed to third parties, where the Election Officer otherwise may verify that TDU and TRF are acting in compliance with the Consent Decree and the election rules. U.S. v. I.B.T., 968 F.2d at 1511-12.

The 1996 Rules required independent committees to file reports but barred disclosure of those reports to candidates or slates absent the consent of the filing committee. The 1996 Rules did not have any provision that granted the Election Officer discretion to disclose the reports of independent committees in redacted form, nor were the committees required to file unredacted and redacted versions of the reports.

The 2001 Rules "recommended" that the Election Administrator provide limited disclosure of independent committee CCERs and specifically required that the identity and local union affiliation of independent committee contributors not be revealed.

Promulgation of the 2006 Rules. In preparing for the 2006 IBT International officer election, the parties to the Consent Decree stated explicitly that they wanted to carry forward the precedent, practice, and experience accumulated in previous elections. Except where the current Rules dictated a specific change, the government and the IBT stipulated that "the 2006 Election Supervisor is intended by the parties to function similarly to the 1991 and 1996 Election Officers and 2001 Election Administrator." U.S. v. IBT, 88 Civ. 4486, Stipulation and Order, at 3 (S.D.N.Y. March 18, 2005). Consistent with the declared intention to rely on past practice, when the present Rules were published for comment, the IBT indicated its agreement that the campaign finance disclosure provisions pertaining to independent committees from 2001 were sufficient to protect the institutional interest of the union to insure that non-member contributions not be permitted to influence the election of International officers. Patrick Szymanski, General Counsel of the IBT, submitted comments on the proposed Rules for the 2005-2006 election cycle explaining the IBT's position that the financial disclosure provisions and practices from the 2001 election should be continued in 2006:

Financial disclosure

After the Rules were approved for the 2000-2001 election, Mr. Wertheimer promulgated procedures under which independent committees were required to report their campaign contributions and expenditures, but which provided limited disclosure of the reports, with the identities of contributors and independent committee members redacted. In the Union's view, these additional reporting and disclosure procedures were helpful in ensuring that TDU, the only significant independent committee that has ever participated in Teamsters elections, was not diverting resources derived from non-member sources into its campaign activities and in dispelling prevailing suspicions that it was doing so. Article XI, Section 2(c) and (e) codify and continue these reporting and disclosure requirements.

Letter from P. Szymanski to R. Mark, at 6 (June 2, 2005).

Different from the IBT's position, the Hoffa campaign submitted comments seeking two changes in the way independent committees reported their contributions and expenditures. First, the campaign argued that independent committees should be required to disclose the identities of its contributors and members. Second, it argued that an independent committee should not be permitted to rely on "resources obtained from non-members or employers to engage in campaign activities" to fund its campaign activities, even though those resources are reimbursed by the independent committee pursuant to the Huddleston formula.¹ Letter from D. Hoffa to R. Mark, at 2 (May 26, 2005).

The current provisions of the Rules with respect to campaign contributions and expenditures adopted the corresponding 2001 provisions as the IBT sought and without the changes advocated by the Hoffa campaign.

Of particular significance to the main issue on remand, no party recommended or sought any change in the campaign finance disclosure requirements pertaining to the description of the purpose of expenditures. The reiteration of the disclosure provisions and practices from 2001 reflects the endorsement of that disclosure regime by the parties to the Consent Decree. We now turn to the four protest claims and analyze them in light of the facts and the relevant Election Office precedent as endorsed by the parties.

Matters Applicable to All Four Allegations, Including the "Huddleston System." The Rules define an "independent committee" as any "person or entity not controlled by a candidate or slate who/which has accepted any campaign contribution, or who/which has made any expenditure where the purpose, object or foreseeable effect of the contribution is to influence the election of International Officer candidate(s)." Definition 22.

No one disputes that TDU is an independent committee within the meaning of the Rules.² See also, e.g., Halberg, P19 (December 14, 1995); Taylor, 2000 EAD 40 (October 24, 2000); Hoffa 2006, 2005 ESD 3 (August 4, 2005).

An independent committee may contribute to an IBT election campaign even though it receives financial assistance from non-IBT members. "However, the Rules require that monetary support for campaign activities consist exclusively of funds received from IBT members. Funds received from any other sources cannot be contributed to any candidate [through an independent committee], and must be properly allocated and segregated." In re: Gully, 91 Elec.App. 158 (June 12, 1991), aff'g, Sargent, P-249-LU283-MGN (May 21, 1991).

TDU performs some of its activities using individuals who are employed and paid by TRF. TRF accepts contributions from persons who are not members of the IBT. Current investigation of TDU's finances has found that TDU does not accept contributions for election-related activities from non-members, a finding that is consistent with what has been found in past investigations. Where a TRF employee (such as Ken Paff) performs election-related services for TDU, TDU reimburses TRF for the staff costs and overhead expenses (rent, electricity, heat, postage, etc.) associated with that activity.

The method of documenting the amount of election-related activity performed for TDU by TRF employees or otherwise provided by TRF to TDU and calculating the amount of reimbursement TDU must pay with funds raised in accordance with the Rules was established in the 1991 election and has been known since as the Huddleston system. Halberg, supra, described the steps and elements of the Huddleston system:

Under the current allocation system, each staff member must maintain and submit daily time sheets which are then tabulated to determine the total time spent in various categories. Weekly summaries are prepared and compiled. Each month these reports are closed out and allocation figures are determined. TDU-related time is percentaged against total time to establish a "TDU percentage" for each staff person. Salaries, benefits, and overhead are paid by the respective organizations on the basis of this percentage.

Under Article XI, Section 2 of the Rules, each independent committee must file CCERs documenting the campaign contributions and expenditures it has received and made. However, Article XI, Section 2(e) of the Rules prohibits any candidate from inspecting or copying the CCER filed by an independent committee, unless the committee grants written consent for such inspection. This subrule recommends that the Election Supervisor disclose "[r]edacted schedules which reflect the total amount of contributions and total amount of contributors, but which do not reflect the identity of individual contributors or their local unions" and "[r]edacted schedules of expenditures which do not reflect the identity of members of the independent committee or their local unions."

Our forensic accountants conducted an audit at TDU in connection with CCER #2, and found that TDU has performed the allocation required by the Rules under the Huddleston system and has maintained the records necessary to support the calculations and allocation. TDU's redacted CCER for the June through September 2005 reporting period was disclosed to Hoffa 2006. The protest that followed alleged several deficiencies in the CCER. These allegations are addressed in the same order the protest presented them.

1. TDU reported "in kind" legal and accounting contributions of $75,000 and $2,934.84 in legal and accounting expenditures. The protest questioned "how such large 'in kind' legal and accounting services could conceivably have been made during this time frame, in light of the minimal legal and accounting services that were performed in connection with the 2005-06 election during this same time period."

Article XI, Section 1(b)(5) of the Rules governs contributions made "to pay fees for legal or accounting services" of candidates. The provision prohibits contributions in excess of $10,000 from any single nonmember, disinterested employer, foundation or labor organization. However, "[n]othing herein shall prevent or limit legal or accounting professionals (whether or not Union vendors) from making, or a candidate from accepting or using, an in-kind contribution of legal or accounting services, so long as such services are performed in assuring compliance with applicable election laws, rules or other requirements or in securing, defending or clarifying the legal rights of candidates."

Investigation showed that TDU received in-kind legal services during the reporting period. The legal services provider presented satisfactory attestation that the work performed was appropriately valued at $75,000, based on hours expended at a specified hourly rate. Our investigation included review of non-privileged records reflecting work performed for TDU. The investigation showed that the legal services were provided in protest cases and in comment and litigation on the proposed Rules. While the protestor stated that "[i]t is unclear how such large 'in kind' legal and accounting services could conceivably have been made during this time frame," no evidence was provided to suggest that the work for which we saw documentation was not performed, or that this reported in-kind contribution improperly contributed something of value to TDU.

To the extent the protestor suggests that the in-kind contribution of legal services should instead be categorized as an expenditure, that suggestion is incorrect. Contributions to legal and accounting funds, whether monetary or in-kind, properly are recorded on the contributions portion of Supplemental Form No. 1. The expenditure of $2,934.84, more fully discussed in section 3, below, constitutes the monetary expenditure made from TDU's legal and accounting fund for purposes of complying with and enforcing the Rules. It is properly reported on the expenditure portion of Supplemental Form No. 1 and has no relationship to the in-kind or pro bono contribution of legal services reported in the contributions portion of the report.

Accordingly, we DENY this aspect of the protest.

2. The protest complains that "the campaign and legal and accounting CCERs contain confusing enumerations of purported 'allocation expenses' which fail to enumerate the expenses that are being 'allocated.' In this way, TDU is not disclosing the purpose and nature of campaign and legal and accounting expenditures it is reporting."

The "allocated expenses" specified in TDU's CCER constitute the monthly reimbursement TDU makes to Teamsters Rank and File Legal Defense and Education Foundation (TRF) for the staff time and occupancy expenses which are attributed to campaign activity. Audit of TDU's Huddleston accounting for this reporting period demonstrated that the allocations it made for campaign and legal and accounting expenditures are appropriate.

The remand directed us to consider whether TDU must provide "more detailed information on the redacted schedules of expenditures . . . ." Hoffa 2006, 06 EAM 11 at 3 (emphasis in original). Our previous decision did not explicitly examine TDU's use of the term "allocation expenses" to describe the "purpose" of its reported expenditures to TRF and provide an analysis of whether the CCER using that term disclosed sufficient information to the protester.³ We now set forth in detail our reasons for approving the use of that term, and denying the protest.

First, the Halberg explanation of the Huddleston system uses the term "allocation system" to describe the complete system and "allocation figures" to describe the product of the data collection and calculations made that are the amount of TDU reimbursement to TRF. The term "allocation expenses" on TDU's CCER to explain the purpose of TDU's reported expenditures to reimburse TRF is derived directly from the Halberg language and describes the expenditure precisely.

Second, the term "allocation expenses" was the subject of a protest and appeal in the 2001 election in which the Election Administrator and Election Appeals Master considered whether use of that term satisfied TDU's obligation under the Rules to disclose the purpose of its reimbursement payments to TRF. Taylor, 2000 EAD 75 (December 29, 2000), aff'd, 01 EAM 16 (February 8, 2001). The protestor in Taylor challenged a payment made by TDU to TRF, "contend[ing] that 'TDU's description of this expense as 'rent, allocation of expenses' is not a sufficient 'clear and concise description' as is required by the reporting form and the Election Rules. Much greater detail should be required so that an examination of the report will indicate whether TDU is in fact in compliance with the allocation accounting discussed in Taylor.'" Id. at 4 (footnote omitted)

Election Administrator Wertheimer denied the protestor's demand for greater detail and expressly approved use of the term "allocation expenses" as sufficient disclosure of the purpose of TDU's reimbursement expenditure to TRF pursuant to the Huddleston system. Because the reasoning of this precedent is crucial to understanding our present ruling, we reprint the Election Administrator's analysis here at length:

This item of reporting[, "allocation of expenses,"] was created by TDU for purposes of its adoption of the accounting system previously approved and known as the Huddleston system. Thus, since the decision in Gully, 91 EAM 158 (June 12, 1991), aff'g, Sargent, P249 (May 21, 1991), TDU has thus been required to segregate IBT member funds used for campaign activities from other revenues, and to allocate its costs between permitted campaign activities and other non-campaign activities. Under this system, pursuant to Election Officer/Administrator direction, TDU periodically determines the percentage of overhead and time spent by shared staff on campaign activity and reimburses TRF (with which it shares space and staff) for this amount from permitted campaign contribution sources. The proper maintenance of this system assures that no improper funds are spent to campaign in the IBT election, this resource sharing arrangement does not violate the Rules. Hoffa, PR39 (March 10, 1998), aff'd, 98 EAM 341 (April 9, 1998).

Halberg, 95 EAM 20 (October 3, 1995), teaches that the keystone of this system is assurance that "TDU receives funding for … all [its] campaign activities derives from union members." Id., p. 3. It falls to the Election Administrator to assure that this is so, and the primary purpose of the CCER reports is to enable the Election Administrator to verify compliance with Article XI of the Rules with respect to campaign contributions by those parties that are required to file such reports.

In Halberg, the Election Appeals Master addressed the tasks to be undertaken by the Election Officer in order to assure compliance with the election rules in this regard:

[In Sargent, P249], Mr. Holland determined that the relationship between TDU and TRF did not violate the Rules because both organizations had adopted the "Huddleston System" of accounting, whereby expenses were allocated between campaign and non-campaign categories, and all campaign activities, and the expenses associated with those activities, were paid for by TDU. Id. at 21.

Mr. Holland's decision in Sargent, issued on May 21, 199[1], is thoroughly investigated and comprehensive. However, that decision, which addressed the relationship between TDU and TRF more than four years ago, cannot, standing alone, support the factual findings made by the Election Officer in the instant case concerning the present relationship between TDU and TRF. The Election Officer must make at least a preliminary inquiry into the current relationship between TDU and TRF in order to determine whether both organizations still utilize the "Huddleston System" for allocating campaign expense.

Id. at 4-5.

In Halberg on remand, P19 (December 14, 1995), the Election Officer described her review of the sharing of resources between TDU and TRF. Her investigation examined whether the sharing of resources between these entities followed the Huddleston system, in order to accomplish the proper allocation of campaign and non-campaign activities and resources. Thus, on remand the Election Officer required TDU to show in detail the manner in which this allocation was accomplished, in order to show that its system comported with the requirements set forth in the Sargent decision.

The Halberg remand investigation revealed that in the immediate aftermath of the 1991 election, TDU and TRF institutionalized the allocation system that had been in effect during the 1991 election campaign. Allocation through December of 1994 was based upon the percentages between campaign and noncampaign categories from the 1991 election. In January 1995, TDU implemented a refinement of the allocation system to utilize for the upcoming election period.

Under the election period allocation system, each staff member maintained and submitted daily time sheets that were tabulated to determine total time spent in various categories. Weekly summaries were prepared and compiled. Each month these reports were closed out and allocation figures were determined. TDU-related time was percentaged against total time to establish a "TDU percentage" for each staff person. Salaries, benefits, and overhead were paid by the respective organizations based on this percentage.

During the course of the Halberg remand investigation, the Election Officer reviewed samples of current activity reports of the TDU/TRF staff. A narrative instruction sheet that clearly defined the activities to which staff must allocate their time accompanied the reporting forms. The classification of activity was found to properly distinguish between campaign and non-campaign activity. The Election Officer's investigation also revealed that the staff time charged to TDU was more inclusive than that used and approved in 1991. All membership meetings and organizing activities were paid for by TDU, even though many of these would not involve electoral activity.

The Election Officer in Halberg reviewed examples of staff activity reports indicating that each member of the TDU/TRF staff was keeping such reports. The organization's bookkeeper reviewed these reports on a monthly basis to ensure accuracy and correct any entries that he believed were in error. He then calculated the allocation fraction and the portion of staff time associated with campaign activities.

In the Halberg remand investigation, the Election Officer concluded after review that the Huddleston system continued to be properly applied. This review included an examination of TDU's classification of activities, its reports of staff activities, its auditing system, and the advances made to TRF to address any interest accrual. This finding did not relieve TDU or TRF from any future Election Officer determination that the approved practices were not followed and that TRF funds, or funds from other impermissible sources, were used to support TDU's campaign-related activity. Based upon the further investigation undertaken by the Election Officer pursuant to the remand in Halberg, no such impermissible funding was found to exist at the time the remand decision was issued.

The Election Administrator has continued to monitor TDU's compliance with the Huddleston system, and finds continued compliance for the time covered by CCER No. 2. In doing so, the Election Administrator has found that the category complained of by Taylor adequately describes TDU's allocation under Huddleston. In so stating, however, it must be remembered that the Election Administrator has full audit access to TDU's underlying allocation data, and this data was provided by TDU in a fully cooperative manner. By examining this data, the Election Administrator is satisfied that TDU continues to follow the Huddleston system appropriately.

It is not the purpose of the CCER reports required by the Rules to provide a line-item disclosure of TDU's (or any other entity's) day-to-day operations. Instead, the CCER reports form a baseline from which the staff of the Election Administrator, including its forensic accountant, may (and has) subject the entity to full audit scrutiny. This audit scrutiny was fully discussed in Taylor, supra, and our conclusions there as to TDU continue to hold.

Taylor, 2000 EAD 75 at 3-6 (emphasis added).

Taylor appealed the Election Administrator's decision that "allocation of expenses" adequately described the purpose of TDU's reimbursement to TRF under the Huddleston system. The Election Appeals Master affirmed, writing the following:

… Ms. Taylor contends that the box labeled "Purpose of Expenditure" in TDU's CCER #2, Schedule B, "Itemized Expenditures", describing payment made to the Teamster Rank and File Education and Legal Defense Foundation ("TRF") for "rent, allocation of expenses" is not sufficiently "clear and concise" as is required under the Instructions to this Schedule.

The EA found that the description of the payment to TRF was adequate. Following a recent audit, the EA concluded that TDU was in compliance with the previously approved allocation accounting system, known as the Huddleston system. The EA states that the "category complained of by Taylor adequately describes TDU's allocation under Huddleston." Decision, at 6 and that no further disclosure as to this allocation is required.

It is the position of the protestor and the IBT that full and detailed disclosure of TDU's expenditures to TRF should be required. They argue that the purpose of the CCER reporting requirements is to allow for "complete and open disclosure" and cite to the first Election Officer Michael Holland's declaration that "… anything other than full disclosure of contributions and expenses undermines the election process." Hicks January 15th Letter, at 2. Mr. Hicks urges that such a substantial amount of expenditure should not be allowed to be hidden from view and potential criticism. He also notes that the CCER submitted by TRF for the same period of time makes no mention of the monies paid to TRF by TDU.

Mr. Raymond argues that since it is not sufficient for a candidate or slate to submit a gross figure for campaign expenses, such a "… lumping [of] campaign related expenditures under the catch all phrase 'allocation of expenses' should not be sufficient for independent committees such as TDU" Raymond January 15th Letter at 3. Mr. Raymond insists that without such full disclosure, "[TDU] could employ or do business with convicted felons, anti-union companies or other unsavory individuals or entities…," Id, in violation of the Rules.

Ms. Harvey asserts that the reporting of expenditures in question was no different than in previous elections, as approved by previous Election Officers and the Election Appeals Master. Accordingly, she insists that under binding precedent no circumvention of the Rules has been established.

The essence of the case is the following assertion in Mr. Hicks' letter to me dated January 18, 2001:

In effect, TDU and TRF are avoiding the requirements of disclosure. In combination their CCER's do not reveal the identities of vendors of the purposes of expenditures for those amounts that TDU reimburses to TRF. TDU should be required to provide the detail of those expenditures in its reporting form and its failure to do so undermines the election process.

I note at the outset that the Rules specifically enjoin the EA "to consider and apply, where applicable, precedents and decisions issued during the 1990-91 and 1995-96 International Elections and the 1997-98 Rerun Election." Rules, Article I. Furthermore, Article XI, Section 2(e) of the Rules appears to limit disclosure of disbursement information of Independent Committees. However, the Rule (negotiated jointly by the IBT and the Government in 2000), appears to have given the EA discretion, "at a candidate's request," to directly provide more detailed information about an Independent Committee's expenditures, presumably learned from the EA's Huddleston system review.

In light of the foregoing, the decision of the EA in connection with paragraph 4 therein, specifically, the protest of Kris Taylor, a non-candidate, is affirmed.

I express no view of the application of Article XI, Section 2(e) to any future request of any candidate directly made to the Election Officer regarding such information.

Taylor, 2001 EAM 16 at 4-6.

"Allocation of expenses" is a phrase that the precedents established under the Consent Decree have defined as the election-related staff and overhead costs performed by TRF employees on behalf of TDU and reimbursed to TRF by TDU pursuant to the Huddleston system. The allocated expense is funded by TDU through the process of ascertaining the costs of staff time and overhead expended each month on campaign activity, expressed as a percentage of total staff costs and overhead paid by TRF, and reimbursing to TRF that percentage of staff costs and overhead. The allocation percentage is calculated and changes as often as each month, as the volume of campaign work performed by TRF employees on TDU's behalf rises and falls. As Taylor shows, "allocation expenses" has a recognized meaning in the context of the IBT election and its use has been expressly approved to describe the expenditures at issue here. When the government and the IBT carried forward the campaign finance disclosure regime from 2001 and prior elections, and instructed the Election Supervisor to function similarly to prior Election Officers and the Election Administrator, that expressed the parties' intent to continue using established forms, practices, and conventions such as the term "allocation expenses." Under the Rules, Halberg, Taylor, and the March 18, 2005 Order of Appointment, TDU could reasonably expect that it could fulfill its reporting obligations using the methods and terminology it had employed in previous elections.

As stated by the Election Administrator, TDU and TRF's history of past compliance with the Huddleston system does not relieve either organization "from any future Election Officer determination that the approved practices were not followed and that TRF funds, or funds from other impermissible sources, were used to support TDU's campaign-related activity." Taylor, 2000 EAD 75 at 6. Thus, our forensic accountants performed a fresh audit and examination of TDU and TRF records to determine whether those organizations are keeping records and have the data necessary to support the Huddleston system calculation, and to verify that the allocation percentages calculated each month, and the corresponding amounts reimbursed to TRF monthly, reflect the monetary cost of staff and overhead that are expended on election activity. We found, through this audit of TDU's CCER #2, that the organization is in full compliance with the demands of the Huddleston system.

The protestor complains that "allocation expenses" is confusing and ambiguous. We disagree. The same argument was rejected in Taylor, supra. It is correct that the term incorporates expenses for multiple items such as staff salaries and overhead (heat, electricity). In this way, it is analogous to payments a campaign makes to a hired campaign consultant or third party service vendor; although often expressed as an hourly or flat rate, the fee paid to the third party will include some unenumerated portion for payment of the consultant's staff and overhead, yet the Rules provisions do not require the third-party to break out the overhead charge and detail its components. The third party may have other clients who would be barred from contributing to the IBT election, but the Rules do not require further detailed disclosure of sources paying shares of that overhead. Similar descriptions are used by candidates on their reports. For example, the Hoffa 2006 CCER states as the purpose of expenditure for certain third party service providers as "administrative services," or "consulting services." No detail is given on the CCER of specific services provided, professional charges, overhead, or whether the third party performed the services using other employees or independent contractors. The Rules do not require such detail on the CCER. The reported figures are subject to audit by the Election Supervisor, however, and may be called into question if the reporting campaign or the identified payee cannot support what is reported.

For these reasons, and following the express endorsement of Taylor, supra, we deem "allocation expenses" a sufficient description of the staff and overhead costs TDU reimburses to TRF under the Huddleston formula.

Although the Election Appeals Master expressly left open, in Taylor, supra, the application of Article XI, Section 2(e) to a candidate's request for enumeration of the expenses TDU includes in the phrase "allocation expenses," we see no basis in the Rules for requiring disclosure of such information in this case. As it stands under the Rules and our precedents, the sole difference between the reports filed by candidates and slates and those filed by independent committees is that dictated by the Second Circuit in U.S. v. IBT, supra, permitting redaction of the names of contributors and members of independent committees. TDU's CCER and Supplemental Report No. 1 otherwise provides the same level of detail in its report of campaign expenditures as is required of candidates and slates.

Were TDU to be required to specify on its CCER the number of hours that TRF employees expend on TDU campaign activity (whether individually or in the aggregate, whether monthly or over the reporting period), the hourly wages and fringe benefits expenses of those employees, and the proportion of total work time performed by TRF employees that the campaign activity represents, such disclosure requirement would represent a substantial break from what has been previously required under the same Rules provisions and contrary to the statement of the IBT, as a party to the drafting of the Rules, that no change in independent committees' disclosure requirements is warranted over what was required in the 2001 election cycle. The change the protestor advocates here would not only require more disclosure from TDU than was required of it previously, it would require more detail than what candidates and slates historically have been required to disclose. Such a requirement would add a substantial layer of minutiae to the reporting obligation, but for no measurable gain when assessed against the Rules' policy aim of insuring that non-member money plays no role in the IBT electoral process. For these reasons, we will not require such disclosure in this case. We reserve the authority, however, to disclose facts gathered in any audit or investigation (including the type of detail sought by the protester here) when necessary to support a finding that an independent committee has failed to comply with the Rules or the demands of the Huddleston system.

Accordingly, we DENY this aspect of the protest.

3. The protest next alleges that "TDU is using legal and accounting contributions to compensate Ken Paff and other non lawyers. There is no evidence that Mr. Paff is performing legal and accounting services, whether under the direct supervision of legal and accounting professionals or otherwise."

In Taylor, 01 EAM 59 (May 24, 2001), the Election Appeals Master held that "payment of legal and accounting funds should not be restricted to licensed professionals," explaining this holding as follows:

While trying to protect against abuse from the use of non-member contributions, the drafters of these Rules clearly felt that it was equally important to assure compliance with both election rules and the legal rights of candidates by devising an exception to the use of non-member contributions in connection with legal and accounting services. The Rules do not limit this exception to fees, costs or other expenses incurred only by those who have been certified in either the law or in accounting. In fact, the use of the term "licensed professional" was considered in early drafts of the Rules and rejected. The exception is directed at and serves the rights to be protected, and to say that these rights can be protected only by licensed professionals flies in the face of practicalities.

Accordingly, the Rules permit use of legal and accounting contributions to compensate non-lawyers for services provided in complying with and enforcing the Rules. Investigation showed that Paff and four other non-lawyers provide paralegal services under the direct supervision of TDU's attorney, who has presented attestation to this effect. Our forensic accountant reviewed the time records of the individuals involved. Those records, recorded in one-quarter hour increments, detail the time spent on legal and accounting matters directly related enforcement of the Rules to the election. Such attestation and time records satisfy the requirements of the Rules.

The protestor complains that "[t]here is no evidence that Mr. Paff is performing legal and accounting services." This statement is incorrect, for the evidence provided to our forensic accountant demonstrates that legal services, in the form of gathering information from and relaying advice to members regarding alleged violations of the Rules, have been performed. This evidence is not disclosed on Supplemental Form No. 1 for the same reason that no candidate is required to disclose on that form the activities of its legal and accounting professionals and support staff. The disclosure requirement with respect to legal and accounting expenditures does not extend to the substance of the legal and accounting work provided.

Accordingly, we DENY this aspect of the protest.

4. The protest alleges that "TDU has failed to identify non-members who have made 'in-kind' legal and accounting contributions."

For the reasons articulated by the Second Circuit, neither the Rules provision nor our advisory quoted above requires identification of any contributor to TDU, including donors of in-kind legal or accounting contributions. As noted above, the Hoffa campaign has expressly disavowed interest in the identity of contributors to TDU. Accordingly, we deem this aspect of the protest WITHDRAWN.

Any interested party not satisfied with this determination may request a hearing before the Election Appeals Master within two (2) working days of receipt of this decision. The parties are reminded that, absent extraordinary circumstances, no party may rely upon evidence that was not presented to the Office of the Election Supervisor in any such appeal. Requests for a hearing shall be made in writing, shall specify the basis for the appeal and shall be served upon:

Kenneth Conboy
Election Appeals Master
Latham & Watkins
885 Third Avenue, Suite 1000
New York, New York 10022
Fax: (212) 751-4864

Copies of the request for hearing must be served upon the parties, as well as upon the Office of the Election Supervisor for the International Brotherhood of Teamsters, 1725 K Street, Suite 1400, N.W., Washington, D.C. 20006, all within the time prescribed above. A copy of the protest must accompany the request for hearing.

Richard W. Mark
Election Supervisor

cc: Kenneth Conboy
2006 ESD 180

¹ Since the time it commented on the proposed Rules, the Hoffa campaign has withdrawn from each of these positions. At oral argument on the appeal of this matter, counsel for the campaign declared that his client was not seeking the identities of contributors to TDU. In OES Case No. P-06-219-031406-HQ, pending, the campaign stated that "the sacred identity of TDU/TRF's benefactors are, again, not sought." Further, counsel at the appeal hearing declared that he did not seek to set aside the Huddleston system used in this election process.

² In its comments on the proposed Rules, the IBT identified TDU as "the only significant independent committee that has ever participated in Teamsters elections." The Hoffa campaign's comments adopted a similar phrase, calling TDU "the only 'independent committee' that has ever participated in Teamsters elections."

³ We note that a copy of the CCER in question has been provided to the Election Appeals Master, along with a portion of a CCER filed by Hoffa 2006. Letter from B. Harvey to Election Appeals Master Conboy (March 2, 2006).

DISTRIBUTION LIST (BY EMAIL UNLESS OTHERWISE SPECIFIED):

Bradley T. Raymond, General Counsel
International Brotherhood of Teamsters
25 Louisiana Avenue, NW
Washington, DC 20001-2198
braymond@teamster.org 

Sarah Riger, Staff Attorney
International Brotherhood of Teamsters
25 Louisiana Avenue, NW
Washington, DC 20001-2198
sriger@teamster.org 

David J. Hoffa, Esq.
Hoffa 2006
30300 Northwestern Highway, Suite 324
Farmington Hills, MI 48834
David@hoffapllc.com 

Barbara Harvey
645 Griswold Street
Suite 3060
Detroit, MI 48226
blmharvey@sbcglobal.net 

Ken Paff
Teamsters for a Democratic Union
P.O. Box 10128
Detroit, MI 48210
ken@tdu.org 

Daniel E. Clifton
Lewis, Clifton & Nikolaidis, P.C.
275 Seventh Avenue, Suite 2300
New York, NY 10001
dclifton@lcnlaw.com 

Stephen Ostrach
1863 Pioneer Parkway East, #217
Springfield, OR 97477-3907
saostrach@gmail.com

Bruce Dubinsky
Klausner Dubinsky & Associates
4520 East West Hwy, Suite 640
Bethesda, MD 20814
bdubinsky@kd-cpa.com 

Steven R. Newmark
1725 K Street, NW Suite 1400
Washington, DC 20005
snewmark@ibtvote.org 

Jeffrey Ellison
510 Highland Avenue, #325
Milford, MI 48381
EllisonEsq@aol.com