                                                                      F I L E D
                                                                United States Court of Appeals
                                                                        Tenth Circuit
                                      PUBLISH
                                                                    September 19, 2006
                   UNITED STATES CO URT O F APPEALS                Elisabeth A. Shumaker
                                                                       Clerk of Court
                                TENTH CIRCUIT



 RO RY A. W ESSEL, DO NA LD
 SCOTT, FRAN K PARRA , W ALTER
 K. NEWTON, PAULETTE M ORA
 G O N ZA LES, M A RK M O RA , JANINE
 LAVIG NE, RAYM OND LARGO, SR.,
 M A RK A. G A RC IA , R UD Y
 A RCHU LETA , JR ., JER RY A NAYA,
 SA M A G U ILA R, R UEB EN LUCERO,
 and all others similarly situated,

              Plaintiffs-Appellees,
       v.                                         Nos. 04-2212 and 04-2261
 CITY OF ALBUQUERQUE, JIM
 BACA, M ayor, City of Albuquerque,
 PEGGY HARDW ICK, Director
 Employee Relations, City of
 Albuquerque, LOCAL 624
 A M ER ICAN FED ER ATIO N O F
 STA TE, C OU N TY A N D MU N ICIPAL
 EM PLO Y EES, A FL-C IO ,

              Defendants-Appellants.



         A PPE AL FR OM T HE UNITED STATES DISTRICT COURT
                  FOR T HE D ISTRICT OF NEW M EXICO
                      (D.C. NO . CIV-00-65-LH/KBM )


Jerem iah A. C ollins, B redhoff & Kaiser, P.L.L.C., W ashington, D.C. (Stanley K .
Kotovsky, Jr., Tinnin Law Firm, Albuquerque, New M exico, for Defendants-
Appellants City of A lbuquerque, Jim Baca, and Peggy Hardwick, and Robert
Alexander, Bredhoff & Kaiser, P.L.L.C., W ashington, D.C., and Jerry Todd
W ertheim, Jones Snead W ertheim W entworth & Jaramillo, PA , Santa Fe, New
M exico, for Defendant-Appellant Local 624, American Federation of State,
County and M unicipal Employees, with him on the briefs) for Defendant-
Appellants.

Raymond J. LaJeunesse, Jr., National Right to W ork Legal Defense Foundation,
Inc., Springfield, Virginia (Robert L. Piddock, Albuquerque, New M exico, with
him on the brief) for Plaintiffs-Appellees.


Before HA RTZ, M cKA Y, and TYM KOVICH, Circuit Judges.


T YM K O VIC H, Circuit Judge.


      This appeal is our second review of the constitutionality of fees assessed by

the City of Albuquerque and its municipal union, Local 624, against employees

who were not members of the union. The Supreme Court has held that employees

who are not members of a union may be assessed a fair share of the costs of union

expenses arising from the negotiation of collective bargaining agreements and

other union activities that benefit all of the employees of a public sector

employer. Lehnert v. Ferril Faculty Ass’n., 500 U .S. 507 (1991). In the first

appeal of this case, we held that the City’s “fair share fee” assessed for union

activities violated the Constitution. Finding the fee overcharged non-member

employees because it billed them for activities of the union that did not benefit

them, we remanded the case for a hearing to determine the amount of the

overcharge and to refund any excess fees to non-union employees. Wessel v. City

of Albuquerque, 299 F.3d 1186 (10th Cir. 2002) (Wessel I)


                                         -2-
      On remand, the district court concluded that the City and union had failed

to prove what portion of fair share fees were allocated for activities benefitting

Local 624. As a remedy for the constitutional violation, the court ordered Local

624 to refund all fees it collected from the non-member employees. In addition to

this refund, the district court also ruled that the City was required to refund

amounts it received from Local 624 under an indemnification provision we held

void as against public policy in Wessel I.

      In this appeal, the City and Local 624 challenge both conclusions. W e

agree with the district court that Local 624 failed to meet its burden of proof in

showing what portion of the fair share fee benefitted the non-member employees.

W e conclude, however, that the district court applied the wrong standard in

ordering the City to refund amounts it received under the indemnification

provision.

      Having jurisdiction under 28 U.S.C. § 1291, we AFFIRM in part, and

remand for further proceedings.

                                   I. Background

      Union Representation. The American Federation of State, County, and

M unicipal Employees (AFSC M E), is a labor union that represents municipal

employees nationwide. AFSC M E provides numerous services to its local

affiliates, including contract negotiation, and representation in grievance and




                                          -3-
arbitration proceedings. AFSCM E also provides some funds to its affiliates to

pay local expenses incurred in providing these services.

      Local 624 is the largest AFSC M E local affiliate in New M exico,

representing municipal employees of the City of Albuquerque. The City, in turn,

recognizes Local 624 as the exclusive representative of municipal employees for

collective bargaining purposes. See Albuquerque, N.M ., Code ch. 3, art. 2. City

employees may join AFSCM E by paying a fee, which is divided among the local,

council, and national entities.

      Employees who do not wish to join the union are not required to do so. See

Albuquerque, N.M . Code § 3-2-4(A) (“City employees . . . have the right to

refuse to join and participate in the activities of employee organizations.”).

Under federal law , however, if at least 50% of employees in the bargaining unit

are union members, non-union members may be charged a fair share fee, which is

their “proportionate share of the union’s costs of negotiating and administering

the collective bargaining agreement and adjusting the grievances and disputes of

bargaining unit employees.” Id.

      The First Appeal. In 2000, thirteen City employees w ho chose not to join

Local 624 filed suit under 42 U.S.C. § 1983 against the City, various City

officials, Local 624 and AFSC M E. The non-member employees claimed the

defendants violated their First Amendment rights by requiring them to pay

disproportionately high fair share fees. Both parties moved for sum mary

                                          -4-
judgment. The district court ruled that Local 624’s fair share notice was

unlawful, but ruled in favor of the defendants on all other claims, including the

constitutionality of the fair share fees.

      In 2002, we reversed the district court’s conclusion that the fair share fees

were constitutional. Applying Supreme Court precedent, we concluded that at

least some of the purposes for which the fees were collected could not be charged

back to non-union members. Wessel I, 299 F.3d at 1196. In particular, we found

the portion of the fees collected that went to AFSC M E’s national union “to serve

as exclusive representative in other bargaining units . . . would not inure to the

benefit of the members of the local organization and their collection violates the

principles expressed [by the Supreme Court in Lehnert].” Id. Consequently, the

portion of the fair share fee collected for these purposes w as not chargeable to

non-union employees. W e also concluded a provision in the collective bargaining

agreement allowing the City to be indemnified by the Union for services, which

were later determined to be unconstitutional, was void as against public policy.

Id. at 1199. W e remanded to the district court to determine how much of the fair

share fee, if any, could appropriately be charged to the plaintiffs. Id. at 1196.

      Remand. On remand, the union defendants urged the district court to find

that the entire fee was properly chargeable to non-members. The district court

disagreed for two reasons. It first concluded that Wessel I had already determined

at least some portion of the fair share fee had been charged for activities that did

                                            -5-
not benefit Local 624. Second, the district court held that the defendants had

“failed to satisfy their burden of proof with regard to any of the fair share fees

collected from the [non-members]” because they did not show “what portion went

to other locals and, conversely, . . . what portion went to expenses related to

bargaining on behalf of Local 624.” Op. at 16. Since the union defendants had

failed to establish what portion of the fair share fees were chargeable to non-

union members, the district court refunded the entire fee to the plaintiffs.

      The district court also ordered the City to refund Local 624 payments made

pursuant to the indemnification clause we found to be void in Wessel I.

                                     II. Analysis

      The union defendants and the City raise two issues on this appeal. First,

they claim the district court wrongly concluded that the entire fair share fee was

not properly chargeable to Local 624. Second, they argue that the district court

should not have ordered the City to refund the payments for litigation expenses

paid by Local 624 under the indemnification provision. W e address each

argument in turn.

A. Chargeability of the Fair Share Fee

      The union defendants’ primary argument is that the entire fair share fee was

constitutionally permissible. In support of their argument, they presented

testimony at the remand hearing that all of the services of AFSC M E, as an

exclusive bargaining representative at the national level, are also available to

                                          -6-
Local 624 on an as-needed basis. Accordingly, they claim the entire fair share fee

is properly chargeable to non-member employees. The union defendants also

argue that our decision in Wessel I did not preclude the district court from

reconsidering whether expenses related to exclusive bargaining were in fact a

chargeable benefit to Local 624.

      The district court rejected these arguments. The court concluded that

Wessel I precluded relitigation of whether exclusive bargaining representation

inured to the benefit of Local 624. The district court also found the union

defendants had failed to meet their burden of showing what portion of the fair

share fee was unconstitutional. Specifically, the district court found the union

defendants (1) did not show that fair share fees were “spent only on activities that

the union considered to be chargeable to non-members” [Op. at 11]; (2) collected

funds for services that were not chargeable under Supreme Court precedent and

our decision in Wessel I; and (3) charged for services provided at the national

level too nebulous to benefit Local 624. The court further found the union

defendants’ argument that they could not apportion expenses for exclusive

representation “lack[ed] credibility” as they had detailed information apportioning

other chargeable services. Id.

      1. Scope of W essel I.




                                         -7-
      The union defendants’ first argument is that Wessel I did not foreclose the

possibility that the entire fair share fee was chargeable to the non-member

employees. W e disagree.

      Our previous decision considered “w hether the fees collected in this case

violated the . . . constitutional standard on extra-unit expenses” as articulated in

Lehnert v. Ferril Faculty Assoc., 500 U.S. 507 (1991). Wessel I, 299 F.3d at

1196. In Lehnert, the Supreme Court notes “[t]here must be some indication that

the payment is for services that may ultimately inure to the benefit of the

members of the local union by virtue of their membership in the parent

organization.” 500 U.S. at 524. Applying and quoting Lehnert, we held “extra-

unit expenses [are] not chargeable if they [are] ‘unrelated to an objecting

employee’s unit.’” Wessel I, 299 F.3d at 1196. After reviewing the record, we

found “some evidence in the record that a portion of the fees collected went to the

national Union to ‘[serve] as exclusive representative in other bargaining units.’”

Id. Rejecting the union defendants’ argument that the entire fee was

constitutional, we held:

      Such fees would not inure to the benefit of the mem bers of the local
      organization and their collection violates the principles expressed in
      Lehnert. W e disagree with the district court’s conclusion that the
      U nion did not exceed the constitutional limitations on the types of
      expenses properly included in a fair share fee.

Id. Consequently, we remanded the case to the district court “to hold a hearing to

determine which fees are attributable to bargaining-related expenses in [Local

                                          -8-
624] as distinguished from those which do not inure to the benefit of the local

bargaining unit.” Id.

      W e agree with the district court that Wessel I explicitly resolved the

question of the chargeability of the entire fair share fee for sums collected for use

by AFSC M E as exclusive bargaining representative for other local unions. The

panel’s opinion in Wessel I was unambiguous. W e stated that collection of fees

for this purpose “violates the principles expressed in Lehnert,” 299 F.3d at 1196,

and remanded for necessary fact-finding on the amount of the overcharge.

Accordingly, the district court did not err in its understanding of the scope of

Wessel I.

      2. Law of the Case

      The union defendants argued below that the law of the case doctrine should

not preclude them from showing their fees for exclusive bargaining services w ere

properly chargeable to Local 624. On appeal, they argue the testimony at the

remand hearing demonstrates that the panel in Wessel I was wrong in its holding

that a portion of the fee was not properly chargeable. Again, we disagree.

      Generally, “once a court decides an issue, the same issue may not be

relitigated in subsequent proceedings in the same case.” Grigsby v. Barnhart, 294

F.3d 1215, 1218 (10th Cir. 2002). “Unlike res judicata, the [law of the case

doctrine] is not an ‘inexorable command,’ but is to be applied with good sense.”

United States v. M onsisvais, 946 F.2d 114, 117 (10th Cir. 1991) (quoting M ajor v.

                                          -9-
Benton, 647 F.2d 110, 112 (10th Cir. 1981)). Accordingly, the doctrine is subject

to three exceptions: “(1) when the evidence in a subsequent trial is substantially

different; (2) w hen controlling authority has subsequently made a contrary

decision of the law applicable to such issues; or (3) when the decision was clearly

erroneous and would work a manifest injustice.” Grigsby, 294 F.3d at 1219, n.4.

W e read “these exceptions narrowly, requiring district courts to apply the law of

the case unless one of the exceptions specifically and unquestionably applies.”

M onsisvais, 946 F.2d at 117 (internal quotations omitted).

      Here, only the first exception might be applicable. Under this exception,

“[c]ourts have generally permitted a modification of the law of the case when

substantially different, new evidence has been introduced.” M ajor v. Benton, 647

F.2d 110, 112 (10th Cir. 1981). The exception does not apply, however, where

“the additional evidence provided . . . at the supplemental hearing was evidence

[the proponent] had in its possession, but failed to produce, at the time of the

original hearing.” M onsisvais, 946 F.2d at 117.

      In Wessel I, the foundation for our holding was the conclusion that charges

for AFSC M E’s service as exclusive bargaining representative for local unions

other than Local 624 “would not inure to the benefit of the members of the local

organization.” 299 F.3d at 1196 (citing Aplt. App. at 51, 53, 154, 156). On

remand, the union defendants sought to counter this conclusion. They offered

testimony that the accounting description had no substantive significance and,

                                         -10-
therefore, funds dedicated to these functions did benefit local unions. Essentially,

AFSC M E argues here that its services as national exclusive bargaining

representative for other local unions are available to Local 624— and therefore

chargeable to non-members.

       This issue was addressed in Wessel I. In those proceedings, the non-

member employees identified AFSC M E’s bargaining representative services as an

example of a non-chargeable expense. They argued:

       The original and revised notices do not limit expenses chargeable to
       nonmembers to the costs of negotiating and administering the collective
       bargaining agreement with the City and adjusting the grievances and
       disputes of bargaining unit employees. Both expressly state that
       chargeable expenses include “[s]erving as exclusive representative in
       other bargaining units.”

Wessel I, Aplt. App. at 209. In response, the union defendants contended:

       Local 624 admits that the original and revised notice calculated the
       chargeability percentage based on expenditures germane to collective
       bargaining included, where appropriate, expenditures related to “[s]erving
       as exclusive representative in other bargaining units.” Local 624 disputes
       any implication that such expenditures are not authorized . . . .

Id. at 253.

       W e are not persuaded on the basis of this prior record that the union

defendants on remand have presented substantially different evidence such that a

departure from the law of the case is warranted. Grigsby, 294 F.3d at 1219 n.4;

M ajor, 647 F.2d at 112. Accordingly, the district court did not err on remand in

relying on our decision in Wessel I.



                                         -11-
      Having said this, we note the district court did accept testimony regarding

the union defendants’ treatment of exclusive bargaining expenses. The court

concluded the evidence did not show such expenses w ere properly chargeable to

non-union members under Lehnert. Even if the law of the case doctrine did not

apply, we are bound by the district court’s factual findings in this regard. W e

thus turn to the evidence produced on remand.

      3. Burden of Proof

      In a thorough written order, the district court concluded the union

defendants had not satisfied their burden of showing that the fair share fees were

collected to finance costs associated w ith “otherwise chargeable activities”

consistent with our decision in Wessel I. W e agree for two reasons. First, the

record demonstrates the union defendants failed to produce any evidence showing

what portion of the fair share fee funded AFSC M E’s work as exclusive bargaining

representative. Second, the union defendants’ witnesses failed to convince the

district court that those funds used for exclusive representation were also

available to Local 624 and therefore chargeable. Our review of the district

court’s factual determinations is for clear error. Nieto v. Kapoor, 268 F.3d 1208,

1221 (10th Cir. 2001).

      The primary reason the district court found the entire fair share fee should

be refunded was the union defendants’ inability (or unwillingness) to separate out

the costs of serving as exclusive bargaining representative from their total

                                         -12-
expenditures. Under Lehnert, “the union bears the burden of proving the

proportion of chargeable expenses to total expenses.” 500 U.S. at 524.

      On remand, the union defendants’ witnesses conceded they could not

“determine the cost of serving as exclusive bargaining representative in other

bargaining units.” Aplt. App. at 219–20. Based on this testimony, the district

court concluded the union defendants’ attempt to justify their inability to meet

their burden “does not provide a defense for not meeting it.” Op. at 14. Because

of the lack of evidence, “[t]he portion that relates to the union serving as the

exclusive bargaining representative of locals other than Local 624 was not

properly collected from non-members and must also be refunded.” O p. at 15. It

was undisputed that some portion of the fair share fee went to fund AFSCM E’s

work as exclusive bargaining representative. Since the union defendants did not

identify the various components that made up the fees, and because they had the

burden of proof, the court ordered them to refund the entire amount. W e agree

with this conclusion.

      Even if we were tempted to depart from the law of the case and consider

the union defendants’ testimony that exclusive bargaining expenses w ere properly

chargeable, we would still affirm. The district court concluded that the union

defendants’ testimony lacked credibility and specificity such that it could not

credit the explanation of the union defendants’ interpretation of exclusive

bargaining services. “W e give the district court’s determinations regarding the

                                         -13-
credibility of witnesses great deference.” Dill v. City of Edmond, 155 F.3d 1193,

1211 n.9 (10th Cir. 1998).

      W e agree with the district court that the lack of explanation undermined the

union defendants’ claims. First, the district court found that the union defendants

had “not shown with any persuasiveness that the money in the common fund into

which fees ostensibly chargeable to non-members were placed was spent only on

activities that the union considered to be chargeable to non-members.” Op. at 11.

Second, the court found that some of the fees pooled and presumably available to

Local 624 “were collected in order to recoup expenses that were not chargeable to

non-members in the first place. . . . [E]armarking the fees for a chargeable

purpose does not purge their unconstitutional taint when the fees are collected to

finance non-chargeable activities.” Id. at 12. Third, as discussed above, the

district court discounted the explanatory testimony of the union defendants since

it was not persuaded that the Union could not separately account for fees

expended on exclusive bargaining representation. See Op. at 13–14. Finally, the

district court was troubled by the fact that the Union created a category of

chargeable expenses it could neither explain in detail nor quantify.

      Did the union simply make up the amount of the fair share fee?
      Did it guess as to what the amount of the fee should be? The union
      was readily able to identify its chargeable activities when it billed
      non-members for them. It seems particularly convenient that it is
      suddenly unable to identify which of the fees are those the Court of
      Appeals held were improperly collected.



                                     -14-
Op. at 14.

      In sum, the district court concluded it was “the union’s burden to show that

the fair share fees were collected to finance ‘cost[s] associated w ith otherwise

chargeable activities.’ Lehnert, 500 U.S. at 524. This it has not done.” Op. at 15.

W hile we might have drawn different inferences from this evidence, we cannot

conclude the district court clearly erred in finding the union defendants had not

met their burden of proof. 1

B. Indem nification and R estitution

      In a separate ruling, the district court ordered the City to return payments it

received under the indemnification provision found unlawful in Wessel I. Both

the union defendants and the City challenge the propriety of restitution since the

district court never made a finding that the City’s policies violated the First

Amendment. Before we address the merits of this claim, we must first clarify

what is and is not at stake here.



      1
         The district court articulated another reason for concluding the union
defendants evidence did not satisfy Lehnert: the fact that “union employees gain
. . . experience . . . does not justify the union charging non-members for otherwise
non-chargeable extra-unit activities.” Op. at 13. The court reasoned that this
expertise would not “ultimately inure to the benefit of the members of the local
union,” as required by Lehnert. See 500 U.S. at 524.

       W e disagree— such expertise could inure to Local 624’s benefit at some
later date, even if it does not do so “in any particular membership year.” See id.
“The essence of the affiliation relationship is the notion that the parent will bring
to bear its often considerable economic, political, and informational resources
when the local is in need of them.” Id. at 523.

                                         -15-
      In Wessel I, we held the indemnification agreement between the City and

Local 624 was void as contrary to public policy because it would allow the City

to seek indemnification “for its own unconstitutional practices and policies.” 299

F.3d at 1199 n.4. In particular, the agreement required Local 624 to indemnify

the City “against any and all claims, demands, suits or other forms of liability,

including payments of reasonable attorney fees and costs . . . for any claim or

challenge to the imposition of an agency fee.” Id. at 1197. Pursuant to this

provision, Local 624 had reimbursed the City for some of its legal expenses in

this case. Relying on our holding in Wessel I, the district court ordered the City

to return to Local 624 the indemnification it had received. [O p. at 22.] The court

also enjoined the City from seeking future indemnification from Local 624 under

this provision. [Id.]

      Neither the City nor Local 624 challenge the prospective injunction— they

argue only that the court erred by ordering restitution of payments made to the

C ity for the cost of litigation in these matters. Thus, this is not a case where w e

are asked to prospectively “permit enforcement of those [voided] provisions,” as

plaintiffs argue. Aple. Br. at 38. Rather, the only issue before us is whether

restitution is required where one party has performed on a contract that was later

voided as contrary to public policy. The non-union employees argue that

restitution is also necessary here to prevent the City from benefitting from the

voided contractual provision.

                                          -16-
      The parties agree the general rule is that restitution is not proper where one

party has performed on a contract later voided for public policy reasons. See,

e.g., Hogue v. Superior Utils., 210 P.2d 938, 940 (N.M . 1949); Restatement

(Second) of Contracts § 197. Under this rule, the court “will simply leave both

parties as it finds them, even though this may result in one of them retaining a

benefit that he has received as a result of the transaction.” Id. § 197, cmt. a.

      This rule is subject to various exceptions. Hogue, 210 P.2d at 940 (stating

that “where the public interest is involved . . . affirmative relief will not be

denied, although one of the guilty parties may benefit”); Restatement (Second) of

Contracts § 197 (authorizing restitution in all cases where “denial of restitution

would cause disproportionate forfeiture”); id. § 198(b) (authorizing restitution

where the party seeking restitution “was not equally in the wrong with the

promisor”); id. § 199(b) (authorizing restitution where the claimant “did not

engage in serious misconduct” and “allowance of the claim would put an end to a

continuing situation that is contrary to public policy”).

      A more recent formulation of the exceptions identified in the Restatement

(Second) of Contracts is found in the Restatement (Third) of Restitution,

currently under consideration by the American Law Institute. 2 It points to

restitution as appropriate in circumstances w here one party is unjustly enriched at

      2
        In relation to the Restatement (Second) of Contracts, cited above, this
section “reformulates the applicable rules without proposing to alter specific
outcomes.” Restatement (Third) of Restitution § 32 cmt. a (T.D. No. 3, 2004).

                                          -17-
the expense of the other, even “under an agreement that is illegal or otherwise

unenforceable for reasons of public policy.” § 32 (T.D. No. 3, 2004). 3 Another

circumstance where restitution might be appropriate is where it will deter future

misconduct. The draft Restatement suggests courts look to a variety of factors to

assess the need for restitution, including (1) the nature of the illegality; (2) the

extent of the party’s culpability; (3) w hether illegal conduct was central or merely

tangential to the performance of the contract; and (4) the strength of the deterrent

effect of the decision. Id.

      The question here then is whether restitution is necessary to (1) prevent

unjust enrichment of the City, or (2) deter future misconduct by the City or other

municipalities. The first factor does not appear to apply: the union defendants

are not seeking reimbursement, rather the non-member employees are seeking

disgorgement of the indemnification proceeds.

      3
          It reads in full:

      (1) Restitution will be allow ed, whether or not necessary to prevent unjust
      enrichment, if restitution is required by the policy of the underlying
      prohibition.
      (2) Restitution will also be allow ed, as necessary to prevent unjust
      enrichment, if the allowance of restitution will not defeat or frustrate
      the policy of the underlying prohibition. There is no unjust
      enrichment if the claimant receives the counterperformance specified
      by the parties’ unenforceable agreement.
      (3) Restitution will be denied, notwithstanding the enrichment of the
      defendant at the claimant’s expense, if a claim under subsection (2)
      is foreclosed by the claimant’s inequitable conduct.

Restatement (Third) of Restitution § 32 (T.D. No. 3, 2004)

                                          -18-
      The deterrence rationale might apply, however. That rationale may

generally be appropriate in at least two circumstances in the context of

unconstitutionally collected fair share fees. First, where the City knowingly

participated or acquiesced in the unconstitutional conduct of the union

defendants. Second, even if the City did not knowingly allow the violation,

where it failed to exercise reasonable prudence to ensure the union defendants’

fair share procedures w ere constitutional.

      Knowing Participation. The first consideration is w hether the City

knowingly participated or acquiesced in the constitutional violation. In Wessel I,

we declared the indemnification provision void on the ground that the City should

not be indemnified “for its own unconstitutional practices and policies.” Wessel

I, 299 F.3d at 1199. W e also held “[t]hat a public employer has certain

obligations within the fair share deduction framew ork established by courts.” Id.

at 1197. These duties include a duty to establish procedures that protect

dissenters’ rights, minimize impingement on non-union employees’ constitutional

rights, and ensure that the union’s notice is adequate. See id. at 1198.

Furthermore, we stated that “[i]f the City consistently made no effort to ensure

that the Union’s fair share procedures complied with [Chicago Teachers Union

Local, No. 1 v. Hudson, 475 U.S. 292 (1986)], such a failure would likely be

cognizable under § 1983 and covered by the indemnification.” Id. at 1199 n.4.




                                         -19-
      Because the breadth of the indemnification clause would cover the types of

violations described above, we found it contrary to public policy in Wessel I. W e

did not conclude, however, that the City had violated the First A mendment in its

implementation of its fair share policies. W e found only that the indemnification

provision would allow payments for knowing violations of the constitutional

notice requirements of Hudson, or conscious disregard of its basic fair share

procedures. Thus, we did not conclude as a factual matter that the City had

knowingly participated or acquiesced in the union defendants’ First Amendment

violation. Nor did the district court make a finding on remand that the City

violated the First Amendment.

      Reasonable Prudence. On this record, however, the district court

concluded there is some support that the second consideration had been met— the

City failed to exercise reasonable prudence in ensuring the union defendants’ fair

share program satisfied constitutional standards. The district court found the non-

member employees had “suffered irreparable injury . . . due to the City’s failure

to fulfill its obligation to protect them.” Op. at 21. It concluded “inasmuch as

the legally inadequate fair share notice and the collection of the fair share fees

violated the Plaintiffs’ First Amendment rights, [] the City could not possibly

have fulfilled its obligation to ‘provide procedures that minimize that

impingement [on non-members’ First Amendment rights] and. . . facilitate a




                                         -20-
nonunion employee’s ability to protect his rights.’” Op. at 20 n.5 (quoting

Hudson, 475 U.S. at 307 n.20).

      In reaching this conclusion on remand, the district court did not apply the

legal framew ork discussed above. Its conclusions were made in the context of a

motion for preliminary injunction that principally sought prospective relief. In

light of our discussion of the applicable framew ork, it is now appropriate for the

district court to make the equitable determination of restitution in the first

instance. W e therefore remand for further proceedings on whether restitution

should be ordered in light of the principles discussed above.

                                   III. Conclusion

      For these reasons, we REM AND for further proceedings on the issue of

restitution and AFFIRM all other aspects of the district court’s decision.




                                          -21-
