Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser
Posted on: Wednesday, December 15, 2004

Unity House seized by IRS

By Jim Dooley
Advertiser Staff Writer

Unity House Inc., the hybrid labor organization created more than 50 years ago by union patriarch Arthur Rutledge, was seized yesterday by federal agents investigating criminal charges against Rutledge's son and grandson.

A locksmith changed locks on the doors and windows at Unity House's headquarters at 1701 Ala Wai Boulevard yesterday after the IRS seized the nonprofit labor organization.

Deborah Booker • The Honolulu Advertiser

Internal Revenue Service agents took control of the Unity House headquarters on Ala Wai Boulevard at 7 a.m., following a restraining order issued by Senior U.S. District Judge Samuel King that freezes some $42 million in assets held by the nonprofit organization.

Attorneys for Unity House President Anthony "Tony" Rutledge Sr. and various Unity House officials said yesterday the move was an improper effort to deny Rutledge and his son Aaron their ability to defend themselves against criminal tax charges pending in federal court. Aaron Rutledge is Unity House executive vice president.

The two were indicted in August 2003 on charges they skimmed hundreds of thousands of dollars from a corporation they headed and filed false tax returns on behalf of a beach equipment rental company. They pleaded not guilty.

Attorney Eric Seitz, who represents 10 current and former Unity House officers and employees, said Assistant U.S. Attorney Ted Groves sought the restraining order because Groves is angry that Unity House is paying some of Tony Rutledge's legal defense costs in the criminal case.

"That's why this whole thing came about," Seitz said.

"Groves' reaction to this is total overreaction."

Tony Rutledge

Aaron Rutledge
Ted Rawitz, Tony Rutledge's lawyer, said by telephone from the Mainland that "one way to interpret the government's action today is that it is meant to impede Mr. Rutledge's ability to participate in these proceedings."

Groves declined to comment other than to say, "I will let Judge King's order speak for itself."

That order cited evidence "of an on-going scheme to defraud the members and beneficiaries" of Unity House as justification for the government's takeover of the organization.

For decades, government agencies and labor union officials have periodically examined the cash-rich Unity House and tried to assert control over its finances. It resembles a labor union, holding money and administering programs for the benefit of organized laborers, but it is not a union.

Unity House has been in receivership once before. In 1990, a state court judge brought in an outside expert to run the nonprofit while results of a disputed leadership election were sorted out.

Officers stood guard outside Unity House headquarters yesterday. A judge put the labor organization into receivership, citing "an on-going scheme to defraud the members and beneficiaries."

Deborah Booker • The Honolulu Advertiser

The most recent investigation, centering on Tony and Aaron Rutledge, became public in August of last year, when the two men were indicted on tax fraud charges. Additional charges have been filed against them twice since then, and Judge King's order yesterday said yet another superseding indictment has now been returned against the pair. That court record is still sealed.

King's order did say the charges include mail and wire fraud and tax fraud conspiracy and that the government intends to seize assets from the defendants if they are convicted.

Those assets include "properties and monies" controlled by Unity House, according to yesterday's restraining order.

The order names a private company, EG&G Technical Services Inc., as a receiver to temporarily operate Unity House and protect its assets.

Attorney Rawitz said the Rutledges should have been allowed to argue against the restraining order before it was issued and they will now fight it in court.

"We will challenge it and ask that it be overturned. We expect the government will regret that they took this action," he said.

"We don't think the government is in any position to administer the programs of Unity House. There's a Christmas dinner set for tomorrow night for underprivileged kids at the (Ho-nolulu) Zoo. We have no idea what's going to happen with that," Rawitz said.

Groves said the government was aware of the scheduled program and that it would proceed as planned.

Rawitz then said: "That's not the government's role. They should be involved in prosecuting Mr. Rutledge if they have a case, not throwing parties. Mr. Groves should concentrate on the case."

An investigator collects documents at Unity House, a nonprofit founded by union patriarch Art Rutledge.

Deborah Booker • The Honolulu Advertiser

Groves said that while in federal receivership, "Unity House will be a productive and beneficial organization for its members."

The criminal trial of Tony and Aaron Rutledge is now set to begin Jan. 11.

Founded in 1951, Unity House was funded for decades by dues and other assessments levied against members of the Hawai'i Teamsters Union and the Hotel Employees and Restaurant Employees Union here.

Art Rutledge, the father of Tony and grandfather of Aaron, ran both unions' Hawai'i locals and controlled the assets and activities of Unity House with an iron hand, defending it over the years from legal challenges from union rivals as well as more than one investigation by federal authorities.

Art Rutledge said on some occasions that he created Unity House to be independent of its affiliated unions so that their parent labor organizations on the Mainland could not raid its ever-growing assets, which Rutledge invested in Waikiki real estate.

Investigators for the U.S. Government Accounting Office who looked into Unity House as part of a U.S. Senate investigation in the early 1980s noted that the independent setup of Unity House also protected it from oversight and reporting requirements imposed on unions by the U.S. Department of Labor.

Unity House sold its Waikiki holdings, including the former Waikiki Marina Hotel on Ala Moana Boulevard and an office building on Ena Road, in the late 1980s for a significant profit. It now administers benefits and programs for some 20,000 union members and retirees.

Officials of the Teamsters and Hotel-Restaurant Employees unions have jockeyed with the Rutledge family for years over control of Unity House assets.

Yesterday Jason Ward, spokesman for H.E.R.E Local 5, said "members and staff of the union have been contacted by the FBI" about Unity House and its finances.

Mel Kahele of Teamsters Union Local 996, who was elected to the board of directors of Unity House earlier this year, said he only attended one board meeting of the organization, then was "subpoenaed to testify before the grand jury about what happened at the meeting."

Reach Jim Dooley at 535-2447 or jdooley@honoluluadvertiser.com.