Health Professionals & Allied Employees (HPAE) has a generous benefits plan – especially, it seems, for the people running it. And a former president of an affiliate wants to change the situation. On May 17, Kathleen Fonti filed a civil suit in Bergen County, N.J. Superior Court (Docket No. L-3718-13) against officials of the New Jersey union and its Retiree Medical Trust. Fonti, who headed Emerson, N.J.-based HPAE Local 5030 until several years ago but who remains a union member, is accusing HPAE founder-president Hanna “Ann” Twomey of self-dealing by way of her personal relationship with a leading union vendor. She’s also alleging Twomey and several associates misled rank and file as to the details of the health care plan. While Fonti’s own past is less than spotless, the details of her suit suggest she is trying to make union leadership more accountable. Millions of dollars in member benefits are at stake.
The Health Professionals & Allied Employees union, now with 11,000 members, like its Local 5030, is based in Emerson, N.J. For most of its existence it has been affiliated with the American Federation of Teachers, AFL-CIO. Its leader, Ann Twomey, a nurse herself, back in the mid-Seventies organized a nurses’ strike against nearby Englewood Hospital, winning recognition and a collective bargaining agreement. The union over the years has been successful in its organizing campaigns. For this reason, Twomey is venerated by many HPAE members. Unfortunately, she might be insulated from them as well. Twomey and a Hackensack, N.J.-based union attorney, Richard D. Loccke, live in a home in nearby Rutherford, N.J. Loccke, a partner with the Hackensack firm of Loccke, Correia, Limsky & Bukosky, is one of HPAE’s highest-paid vendors. Since July 2006, the firm has generated nearly $1.4 million in fees from the union. Because Twomey and Loccke live together, Ms. Fonti’s complaint alleges, Twomey likely has used her relationship to boost her income, and in any event, has acted contrarily to the HPAE Conflict of Interest Policy. The policy reads:
Whenever elected officers from HPAE, individuals employed by HPAE and/or consultants under contract with HPAE are or appear to be engaged in a relationship of a personal, familial, or business nature which gives rise to either potential for, appearance of, or the actual existence of a conflict of interest with HPAE or financial interests of HPAE, the President of HPAE, or his/her designee, will review the circumstances.
By concealing her business relationship with Loccke and preventing a review after the fact, the suit alleges, Twomey violated union policy and acted in concert with certain other entities.
At issue is the retirement medical plan, subject to the Employee Retirement Income Security Act (ERISA), in which eligible union employees enroll. An Englewood Cliffs, N.J.-based benefits consultant, Benserco Inc., in 2006 had developed the Retiree Medical Trust, a Voluntary Employee Beneficiary Association (VEBA) whose features HPAE negotiated into a number of contracts in May of that year. Contributions supposedly began in January 2007. Twomey, along with HPAE Education Director Michael Slott, allegedly failed to provide members with full and accurate information about the VEBA, other than advertising literature, and thus were in violation of ERISA rules. The plan mandates a 20-cents-per-hour payroll deduction yet limits employee benefits to only $150 per month. Had members been apprised of these facts, Fonti argues, they would not have voted to adopt the plan. Meanwhile, plan assets grew to $4.64 million by the end of calendar year 2011.
The suit alleges that President Twomey materially misled members. The initial employer signing onto the plan, Bayonne Hospital, never contributed any money because it declared bankruptcy in or about February 2007. And the new hospital owner did not sign onto the plan following the bankruptcy period. Fonti claims that Twomey “authorized and otherwise materially assisted in causing HPAE to improperly front all money for the trust and otherwise caused HPAE to give Darlene Mulhern a check for $5,000 made out to the IRS, purportedly on behalf of the HPAE members.” The deductions from member salaries “began prior to the approval of the Plan by the IRS.” The suit continues:
Instead of disclosing the facts concerning the failure of the Plan to lawfully obtain funds, HPAE, Twomey, Michael Slott, and John Does 1-25 concealed the fact that there were no employer funds from which to fund the Plan, and otherwise engaged in the aforesaid fraudulent acts in order to prevent the Plan from lapsing, as well as misrepresenting the Plan benefits.
Upon initiation of new employees, HPAE does not expressly disclose the plan benefits available to new hires, and otherwise retains the money paid on their behalf when they leave employment.
The failure to disclose the foregoing facts prior to and after the vote of the members who were “strongly encouraged” to vote for the Plan by Ann Twomey actively and materially misled the plaintiff and other Plan members.
Kathleen Fonti, represented by Hackensack attorney Thomas J. Romans, is seeking the following relief: 1) a declaration that the plan is null and void or, in lieu of that, a new requirement that the plan’s Board of Trustees be composed of an equal number of HPAE and employer representatives; 2) an admission by Benserco that it had breached its fiduciary duties; and 3) compensation for her own attorney’s fees and ERISA-related costs. Fonti’s case, unfortunately, has an Achilles Heel: In 2009 she pleaded guilty to a charge of obtaining about $14,500 in unauthorized advances from her American Express card during her tenure as head of HPAE Local 5030. Union Corruption Update at the time made note of this. The defense is guaranteed to bring it up. Yet this conviction does not undermine the case at hand. HPAE members have a right to know if they unwittingly are subsidizing the lifestyles of top union officials and associates. Kathleen Fonti, despite her flaws, is their best hope.