The U.S. Labor Department filed a lawsuit this week accusing a San Francisco-based plumbers union of diverting more than $36 million from union members' benefit plans to Konocti Harbor Resort and Spa, which it owns.
The suit contends trustees lost an unknown amount of union funds investing in the Kelseyville hotel and concert facility owned by Local 38, United Association of Plumbers, Pipefitters and Journeymen.
The suit is the latest volley in a series of legal skirmishes stretching over 25 years between federal regulators and the plumbers union, whose leadership ranks have been dominated by a single family over three generations.
The lawsuit names union business manager Lawrence Mazzola Sr. and 12 other trustees of the benefit funds, including his son, Lawrence Mazzola Jr.
"The plumber plan officials mismanaged the investments and placed the benefits of thousands of union workers at risk," Labor Secretary Elaine Chao said in a statement.
Union attorney James Baker said his clients strongly disagree with the department's claim.
"No money is missing. No one got a special favor. No one got a boat or car," he said. "It's pension money going into a pension asset. I think it can be viewed as an investment of the pension."
The union, with 2,000 members in Sonoma, Mendocino, Lake, Marin and San Francisco counties, has owned Konocti Harbor Resort since 1959.
If the resort was ever sold, profits from the sale would go back into the pension funds, Baker said.
The lawsuit, filed in U.S. District Court in San Francisco, does not claim anyone benefitted from the alleged fund mismanagement, he noted.
It does, however, say the trustees should not have continued pumping money into the resort because it is a losing venture.
A $6 million loan from a union fund to the Konocti resort in 2000 prevented a bank foreclosure that would have forced the sale of the facility, the Labor Department said. That loan was not properly secured, the department said.
The lawsuit bears similarities to a 1979 Labor Department case against the union that also involved diverting money to the Konocti Harbor Resort.
In that case, the union trustees were ordered to pay $370,000 for mismanaging the fund. But a U.S. appeals court allowed the money to be paid by the union instead.
As a result of that case, the court in 1981 appointed an investment manager to oversee the fund for 10 years.
In 1988, the Labor Department again investigated the union's pension fund management.
The Konocti resort closed in winter until about 1990, when it began refurbishing and expanding the facility with help from union pension funds, the Labor Department said.
The improvements included a 5,000-seat outdoor amphitheater and a 1,000-seat indoor concert hall named after Mazzola's deceased father, Joe Mazzola, who led the union for almost four decades before his death in 1989.
Union members' plan assets also were used to buoy operations at the money-losing facility, the lawsuit said.
The suit charged the money was shifted from five benefit plans to the so-called Convalescent Fund, which owns the Konocti resort.
The Labor Department said Mazzola and the in-house administrator of the funds, Frank Sullivan, made financial decisions, reportedly without consulting other trustees. Nevertheless, the other trustees are responsible because they should have been exercising better oversight, the department said.
The trustees maintained inadequate financial controls, violated plan documents and imprudently spent millions to build and maintain facilities at Konocti, the department said.
The lawsuit asks for an independent audit of the union's funds at the expense of Mazzola and the fund trustees; a correction of all prohibited transactions; restoration of lost funds; and banning the trustees from being involved in future union fund decisions.
Baker said the trustees plan to "vigorously contest" the government's case in court.
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