PULLMAN STANDARD CAR MFG. CO. v. LOCAL UNION NO. 2928 OF UNITED STEELWORKERS OF AMERICA et al., 152 F.2d 493

KF.RNER, Circuit Judge. This action was brought to recover damages occasioned by the publication of an alleged libel concerning plaintiff in a labor union newspaper. Jurisdiction was based on diversity of citizenship. The union and its officers were made defendants. On motions to dismiss, the court held that the union was not suable in its association name under the law of Illinois, that the language complained of was not libelous per se, and dismissed the case. Plaintiff appeals. Plaintiff is a corporation engaged in the manufacture of railroad car's and parts.

One of its wartime activities has been the operation of a shipyard, in Chicago, where it is engaged in the manufacture of Naval facilities for the United States Navy. Defendant, the Local Union, is a labor organization within the meaning of the National Labor Relations Act. It has been certified by the National Labor Relations Board as the bargaining agent for the bulk of the employees at the shipyard. The individual defendants, other than Ken D. Norton and Nancy Norton, are officers or representatives of the local union or of the United Steel Workers of America. Ken D.

Norton and Nancy Norton physically printed the newspaper in which appeared the alleged libelous matter. In December, 1943, and January, 1944, plaintiff caused to be printed a certain advertisement in various newspapers and magazines distributed throughout the United States-in which it represented that out of every sales dollar received by it in carrying on its business in 1943, 98.19^ was paid out in carrying on the operations of the business.

This advertisement represented that out of every such dollar, only 1.810 represented profit and was subject to possible decrease through renegotiation of its contracts, and subject further to the ultimate liquidation of inventories without loss upon the general termination of war contracts and the expense of reverting to general commercial work.

The complaint charged that on or about February 25, 1944, defendants published in “The Keel,” the local union’s newspaper, and caused to be distributed to 3,500 employees at the shipyard and to members of the public, the following: “Pullman, recently you put out a page add in all the city newspapers purporting to show that the company made only a few million dollars profit last year, whereas, everybody knows that your profits actually were over the fifty million dollar mark; that one add in the ‘world’s greatest newspaper’ cost $10,000.00.

Over 935,000 papers were printed that day. “Now Pullman, you claim that there is a shortage of paper, and yet in one newspaper alone, you have wasted more paper at greater cost, than could possibly be used to supply towels to all the toilets and washrooms in the Pullman Empire. “You are falsifying to the public and also falsifying to the workers, all in the name of Patriotism. “Why not buy up all the copies of that last add, Pullman, since you are short of paper, and deliver them to the toilets. We can use them there. That is all we think they are worth.

We repeat this whole situation has a foul odor, and ‘the Keel’ promises never to lay down its pens until this condition is remedied.” Plaintiff contends the statements in the publication were wholly false and by reason thereof it has been injured in its reputation, business, credit, and in its relations with its employees, for which it seeks damages. There is no question but that the law of Illinois governs the disposition of this case. Rule 17(

b) of the Rules of Civil Procedure for District Courts of the United States, 28 U.S.C.A. following

section 723c, expressly provides that: “capacity to sue or be sued shall be determined by the law of the state in which the district court is held; except that a partnership or other unincorporated association, which has no such capacity by the law of such state, may sue or be sued in its common name for the purpose of enforcing for or against it a substantive right existing under the Constitution or laws of the United States.” Since no federal right is involved here, we must look to the law of Illinois. The United States Supreme Court in Busby v.

Electric Utilities Employees Union, 323 U.S. 72, 65 S.Ct. 142, 183, and in Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, has clearly stated this to be the rule of law. We look to the Illinois cases for guidance. The Supreme Court of Illinois has not dealt with the question of the suability of an unincorporated labor union, but there are numerous Illinois appellate court decisions directly dealing with this question. If the law of Illinois is well settled on the point, we must follow the rule of law, whether the state Supreme Court has passed on the question or not. In West v.

American Telephone & Telegraph Co., 311 U.S. 223, 236, 237, 61 S.Ct. 179, 183, 85 L.Ed. 139, 132 A.L.R. 956, the United States Supreme Court said: “A state is not without law save as its highest court has declared it. There are many rules of decision commonly accepted and acted upon by the bar and inferior courts which are nevertheless laws of the state although the highest court of the state has never passed upon them.

In those circumstances a federal court is not free to reject the state rule merely because it has not received the sanction of the highest state court, even though it thinks the rule is unsound in principle or that another is preferable.” The leading Illinois appellate court case is that of Cahill v. Plumbers Etc. Local 93, 238 Ill.App. 123. This case involved a tort action brought against the union for alleged intimidations and threats against a third party to breach his contract with the plaintiff unless the plaintiff adopted the closed shop.

The court, referring to 5 Corpus Juris 1369, said approvingly: “‘An unincorporated association cannot, in the absence of statute, be sued in its society or company name, but all the members must be made parties, since such bodies have, in the absence of statute, no legal entity distinct from that of their members. As just intimated, the members may be sued collectively, provided there is a joint liability.’ ” 7 C.J.S., Associations, § 36. “The case of O’Connell v. Lamb, 63 Ill.

App. 652, involved an action upon a bond, and the court, affirming judgment sustaining a demurrer to the declaration on the ground that the obligee was an unincorporated society, said: “The declaration shows that the obligee named in the bond is an unincorporated society, composed of many persons, of whom a few bring this action at law, on the bond, in their own names for the use of all the members. By the rule at common law this is forbidden. It can he maintained only in the names of all, however numerous.

There is no authority, so far as we are advised, for supposing that it has been abrogated or modified in this State * * In Montgomery Ward & Co. v. Franklin Union Local No. 4, 323 Ill.App. 590, 56 N.E.2d 476, 477, the court reached a similar result. In this case the plaintiff sued an unincorporated labor union in an action of tort for damages caused by the delay in printing the plaintiff’s catalogue. The court said in part: “* * * We have reached the conclusion that in the absence of a statute, the unions are not suable in their association names. Cahill v. Plumbers, etc., Local, 238 Ill.App. 123; Kingsley v.

Amalgamated Meat Cutters, etc., 323 Ill.App. 353, 55 N.E.2d 554, 555; Moffat Tunnel v. United States, 289 U.S. 113, 53 S.Ct. 543, 77 L.Ed. 1069; 4 Am.Jur. § 46, p. 485.” The case of Kingsley v. Amalgamated Meat Cutters, supra, was an action in tort for damages due to injuries allegedly caused by the loss of enployment occasioned by defendant’s acts. In referring to cases cited by the plaintiff, the appellate court said: “* * * These decisions do not support a right to sue voluntary unincorporated associations at law for damages in Illinois.

Plaintiff’s suit is in tort for damages and is an action at law, not based upon any statute.” We think these cases clearly show that the common law of Illinois, which has not been changed by statute, does not permit an action at law against an unincorporated labor association. Plaintiff contends the passage of the National Labor Relations Act, and the certification of this union under that Act, has changed the common law of Illinois in regard to the suability of unincorporated labor unions. We do not agree. Certainly Congress had no such intention in mind when it considered and passed the Act.

The declaration of policy in the National Labor Relations Act found in

Section 151 of the Act shows clearly the purpose of the Act. The District Court dismissed the complaint as to the individual defendants on the ground that the words published by the defendants were not libelous per se. Counsel have argued at great length in their briefs, and we have examined the authorities, as to when a corporation may maintain an action for libel, and as to what constitutes libel per se. It is well settled that a corporation may recover in an action for libel. The proposition is stated in

Section 561 of the Restatement of Torts: “

(1) One who falsely, and without a privilege to do so, publishes of a corporation for profit matter which tends to prejudice it in the conduct of its trade or business or to deter third persons from dealing with it, is liable to the corporation under the conditions stated in § 558.” This view has been accepted by the courts. Maytag Co. v. Meadows Mfg. Co., 7 Cir., 45 F.2d 299; Willfred Coal Co. v. Sapp, 193 Ill.App. 400; Finnish Temperance Society v. Publishing Co., 238 Mass. 345, 130 N.E. 845; New York Society for the Suppression of Vice v. MacFadden Publications, Inc., 260 N.Y. 167, 183 N.E. 284, 86 A.L.R.440.

Though the courts have often made a distinction between the “personality” of an individual and a corporation, it is generally recognized that a corporation has a business reputation which is protected by the law. Maytag v. Meadows Mfg. Co., supra; Interstate Optical Co. v. Illinois State Society of Optometrists, 244 Ill.App. 158. In determining what constitutes libel per se, the courts have often asked: Will the defamatory matter . injure the credit, property or business of the corporation? Erick Bowman Remedy Co. v. Jensen Etc., Laboratories, 8 Cir., 17 F.2d 255, 52 A.L.R. 1187; Security Benefit Association v.

Daily News Publishing Co., 8 Cir., 299 F. 445; Vitagraph Co. v. Ford, 2 Cir., 241 F. 681. Published defamatory matter attacking one’s reputation for honesty and veracity is libelous per se. Washer v. Bank of America, 21 Cal.2d 822, 136 P.2d 297, 155 A.L.R. 1338; Tawney v. Simonson, Whitcomb & Hurley Co., 109 Minn. 341, 124 N.W. 229, 27 L.R.A., N.S., 1035. The published words complained of here are as follows: “You are falsifying to the public and also falsifying to the workers all in the name of Patriotism.” In the case of Lunn v. Littauer, 187 App.

Div. 808, 175 N.Y.S. 657, the New York court held that words reflecting on one’s patriotism are libelous per se. While it is true that the plaintiff in that case was an individual, we think that such words are no less libelous when directed against a corporation. The charge that plaintiff falsified to the public and to its workers facts concerning its earnings constitutes libel per se. Such charges bring plaintiff into disfavor with the public and with its own employees, and thus tend to injure its business and its business reputation.

We cannot agree that such charges were mere expressions of opinion or privileged as fair comment The dismissal of the complaint as to the individual defendants is reversed, and as to Local Union No. 2928, it is affirmed. It is so ordered. MAJOR, Circuit Judge. I concur in the result reached by Judge KERNER, notwithstanding the persuasive reasoning employed by Judge SPARKS in arriving at an opposite conclusion. If I thought this were an open question, I would join the latter in holding that the instant suit could be maintained against the union.

A study of the Illinois cases, however, is convincing that a union is not suable in the courts of Illinois. True, this principle has not been announced by the State Supreme Court, but in my view we are bound by the Appellate 'Court decisions. Rule 17(

b) clearly provides that the capacity to sue or be sued is determinable by the law of the state. The rule was so interpreted in Busby v. Electric Utilities Union, 323 U.S. 72, 65 S.Ct. 142. The fact that the union is recognized or is given the right to be recognized by the National Labor Relations Act and other federal enactments, and thereby endowed with a legal entity, cannot in my judgment be utilized by a federal court in determining the law of the state as to the suability of parties.

Notwithstanding such federal legislation, the legislature of a state as well as its courts are free to proclaim such rule as they may see fit. The rule thus proclaimed by the courts of Illinois must be accepted by this court regardless of whether we agree or disagree, and also regardless of any status which the union may assume by reason of federal legislation. To think otherwise means that Congress by recognizing the legal entity of a union for the purpose of federal legislation may deprive a state of the right to determine who may be sued in its courts.

I think it doubtful if Congress could do this by direct legislation, but whether so or not, it should not be held to have done so by an indirect route. 29 U.S.C.A. § 151.

"“It is hereby declared to be the policy of the United States to eliminate the canses of certain substantial obstructions to the free flow of commerce and to mitigate and eliminate these obstructions when they have occurred by encouraging the practice and procedure of collective bargaining and by protecting the exercise by workers of full freedom of association, self-organization, and designation of representatives of their own choosing, for the purpose of negotiating the terms ’and conditions of their employment or other mutual aid or protection.” “It. is actionable per se to impute to another in libelous form conduct which tends to lower the other’s reputation for veracity or honesty, irrespective of whether such conduct constitutes a criminal of fense and irrespective of whether it tends to affect the trade, business, or profession of the other, * * * ” Restatement of Torts.

Section 569, Comment (g).