Amalgamated Transit v. Loveless – Judicial Imposition of Procedural and Remedial Due Process in Private Relationships

By Alan Sternstein

In a host of private, essentially, contractual arrangements that nevertheless affect important or broad public interests, parties provide for procedures and remedies for the resolution of disputes between them. Examples include hospital credentialing of doctors or grants of hospital privileges, labor relations in industries ranging from the entertainment arts, to sports, to the skilled trades, and trade and professional competency certifications by trade and professional associations. In most cases, the source of the public interest is ultimately one of economics. Association credentialing and certification, for example, apart from often being critical to one’s ability to engage in a business or profession and, thereby, earn a living, also can substantially affect competition—where, for example, credentialing or certification programs are operated as barriers to entry.   Another important interest is the country’s unquenchable thirst for live sports. As a consequence, player rights and labor disputes, franchise ownership and franchise location issues, particularly where these issues affect the availability or quality of sporting events, garner considerable public attention.

Importantly, from a legal perspective, the strong public interests involved in these matters have generated heightened judicial involvement, when disputes involving them come before the courts. The consequence has been a longstanding but inchoate body of case law that, in the business and commercial relationships relevant here, engrafts onto the express contract provisions governing those relationships implied procedural and remedial requirements aimed as much at protecting the public, as well as private, interests at stake.

For example, even in the absence of a contractual, regulatory or statutory requirement, notice and an opportunity to be heard are typically required in hospital proceedings to de-credential a physician or in trade association actions to rescind a performance or some other certification. See, e.g., McCreery Angus Farms v. American Angus Ass’n, 379 F. Supp. 1008 (S.D. Ill.), aff’d, 506 F.2d 1404 (7th Cir. 1974) (membership suspension by private association of beef producers); Sadler v. Dimensions Health Care Corp., 378 Md. 509, 836 A.2d 655 (2003) (hospital staff privileges); cf. Silver v. N.Y. Stock Exchange, 373 U.S. 341 (1973) (self-regulating private securities exchange, acting under grant of federal regulatory authority); Nat’l Found. for Cancer Research, Inc. v. Council of Better Bus. Bureaus, Inc., 705 F.2d 98 (4th Cir. 1983) (negative evaluation of plaintiff as charitable institution not actionable for procedural unfairness, where evaluator neither licensed, certified, or conferred membership upon the charities it evaluated).

Although the procedural fairness of a private association’s actions can be subjected to judicial review where the power exercised by that entity can significantly affect the economic or professional concerns of other parties, there is a cause of action for breach of an implied duty of fairness only where a private association can, by excluding an entity from membership or by refusing to recognize or certify an entity, deny a virtual pre-requisite to the practice of a profession or the operation of a business. See id. at 100. Accord Pinsker v. Pac. Coast Soc’y of Orthodontists, 526 P.2d 253 (Cal. 1974); Higgins v. Am. Soc. of Clinical Pathologists, 238 A.2d 665 (N.J. 1968).

The Court of Appeals undertook to add to this body of law during the current term when, on February 21, 2014, it granted a petition for writ of certiorari to the petitioner in Amalgamated Transit Union Local 1300 v. Lovelace, Case No. 25, September Term, 2014, reported below as McClure v. Lovelace, No. 1020, September Term, 2012 (Md. Ct. Spec. App. Nov. 4, 2013). The Court granted its petition on the following question: “Is an internal union remedy ‘inadequate’ under Md. common law if it does not allow for the monetary damages that the plaintiff seeks in court?” What should be apparent from the discussion thus far, however, is that the grant of certiorari to review this question skips past two logically necessary first questions. The first is whether the courts, in certain circumstances, should be concerned about whether the parties to a commercial dispute have, in the terms establishing the legal relationship between them, adequately provided for procedural rights and remedies to govern the resolution of disputes arising in the relationship. By granting certiorari, the Court necessarily answers this first question in the affirmative. The second question, given the affirmative answer to the first, is why and when should the courts be so concerned. The answer to this second question is, at least in part, to be found in the observations at the outset of this writing.

In Amalgamated Transit, David McClure and William Lovelace, Jr. served together as president and treasurer, respectively, of a labor union. During their tenure, McClure allegedly made false statements derogatory of Lovelace’s financial practices, as well as accused him of misappropriating and stealing union funds. After Lovelace lost his office as treasurer in a union election and McClure retained his as president, Lovelace brought suit in the Baltimore City Circuit Court against the union and McClure for defamation. Defendants sought dismissal on grounds of failure to exhaust available internal union remedies, arguing that those remedies could have avoided the injury for which Lovelace sued. In particular, defendants argued that through the use of internal union procedures, Lovelace could have challenged the conduct of the election, citing McClure’s defamatory campaign. Lovelace, it was also argued, could have sought to have had charges brought by the union against McClure for “conduct unbecoming of a member” or “corrupt or unethical practices.” In effect, defendants argued that because McClure’s primary injury was to his interest in holding a union office, internal union remedies should apply, at least initially, to the exclusion of remedies aimed at protecting other interests, lest there be upset an internal scheme of governance with which, because it served the union’s interest, the union had come to rest.

Neither course of action, however, offered Lovelace monetary damages as a remedy. Indeed, though the Court of Special Appeals did not say so in its opinion affirming the Circuit Court’s decision denying dismissal on exhaustion grounds, one might well wonder whether either course of action were truly viable for Lovelace, given that he lost an election, suggesting, certainly, that he lacked support within the union sufficient to achieve any of the alternative forms of redress for which defendants argued. Trial of the matter resulted in a monetary judgment in Lovelace’s favor in the total amount of $425,000. The Court of Special Appeals rejected several assignments of error, including that the trial court should have dismissed the action for Lovelace’s failure to exhaust internal union procedures.

Amalgamated Transit offers the opportunity to delve not just into the immediate and somewhat issue obscuring question on which the Court of Appeals granted certiorari, whether the union’s internal remedies were inadequate under common law, but also into whether and when court’s (i) should always exercise hands off any organization’s internal affairs because, for example, not to do so would interfere with interests that, in the circumstances, weigh more than the personal or public interests that might otherwise warrant interference in a controversy,[1] (ii) should, at least provisionally, exercise hands off, in order to allow organizational processes more adept than the courts the opportunity to reach an accommodation among the competing interests at stake in a controversy,[2] or (iii) should always intervene in an organization’s internal affairs, because of the weight of the personal or public interests at risk.

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[1]The first consideration takes form in other ways or at least has familiar analogues, such as the doctrine of primary jurisdiction in administrative law or the business judgment rule. It also may underlie much judicial reticence with respect to organized sports, the “exemption” of Major League Baseball from the antitrust laws being, perhaps, the best example. See generally Sommer, The National Pastime of the American Judiciary: Reexamining the Strength of Major League Baseball’s Antitrust Exemption Following the Passage of the Curt Flood Act and the Supreme Court’s Ruling in American Needle, Inc. v. NFL, 19 Sports Lawyers J. 325 (2012).

Contrary to such notions of the primacy of organizational interests, in the case at hand, at first blush, it might seem that one’s good name would always trump a union’s various interests and a whole host of other private organizational interests, such that deference to an organization’s interests could not be the rule. Bear in mind, however, that the Amalgamated Transit controversy arose in the context of elections, that although not all elections are governmental, all elections are political and that, as such, all elections, in order to be most effective, must at least permit, if not encourage, free and frank discussion, even at the risk of defamation. Cf. N.Y. Times Co. v. Sullivan, 376 U.S. 254 (1964).

[2] This second consideration is, of course, nothing more than the doctrine of exhaustion, which finds life in a variety of legal contexts, such as administrative remedies or, for that matter and as the defendants there argued, in Amalgamated Transit.

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