Johnson v. England, 20087.

• Citation: 356 F.2d 44
• Decision Date: 12 January 1966
• Docket Number: No. 20087.,20087.
• Parties: Walter JOHNSON, individually and as Secretary-Treasurer of Department Store Employees Union, Local 1100, etc., et al., Appellants, v. John M. ENGLAND, C. E. Strobel and Walter J. Hempy, as Trustees in Bankruptcy of the Estate of Raphael Weill & Co., Inc., a bankrupt, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

356 F.2d 44 (1966)

Walter JOHNSON, individually and as Secretary-Treasurer of Department Store Employees Union, Local 1100, etc., et al., Appellants, v. John M. ENGLAND, C. E. Strobel and Walter J. Hempy, as Trustees in Bankruptcy of the Estate of Raphael Weill & Co., Inc., a bankrupt, Appellees.

No. 20087.

United States Court of Appeals Ninth Circuit.

January 12, 1966.

Roland C. Davis, of Carroll, Davis, Burdick & McDonough, San Francisco, Cal., for appellants.

Edward R. Steefel, of Dinkelspiel & Dinkelspiel, Pillsbury, Madison & Sutro, James M. Conners, San Francisco, Cal., for appellees.

Before CHAMBERS, POPE and KOELSCH, Circuit Judges.

POPE, Circuit Judge.

This proceeding was commenced in the Superior Court of the State of California by the appellants as plaintiffs against the defendant Raphael Weill & Company, Inc., which operated the White House department store in the City of San Francisco. It was subsequently removed to the above named district court upon the application of the appellees. That court vacated and dissolved orders of the State court directing arbitration of certain disputes alleged to exist between plaintiffs and Raphael Weill & Company (herein called White House) requiring the operators of White House to deposit the sum of $158,000 in court, pending the arbitration award, and temporarily enjoining defendants from transferring such sum. This is an appeal from the order so vacating and dissolving such State court orders.

The action in the State court was commenced by the filing of a "Petition for Order Directing that Arbitration Proceed and Complaint for Injunctive Relief Pending Arbitration Award." It alleged that the appellants, as petitioners, represented a local union of department store employees which had a collective bargaining agreement with White House which, among other things, provided for arbitration. Appellants alleged that controversies had arisen between the union and the employer arising out of the terms of the said collective bargaining agreement; that the employer had informed the petitioners that it would probably go out of business and sell its assets; that the union had demanded that the controversies referred to be submitted to arbitration and that the employer had refused. Plaintiffs alleged that the amount of money involved in the arbitration of the controversies was $158,000; that the termination of the business would operate to dissipate all assets of White House and render ineffective and futile any arbitration award to the union; that therefore the employer should be ordered to deposit said sum of money with the court and should be enjoined from disposing of or transferring any of such sums pending the arbitration award. The prayer was for an order directing that such arbitration proceed in the manner provided for in the collective bargaining agreement and for an order requiring deposit of the sum mentioned and for an injunction against transferring or dissipating that sum.

It appears from copies of letters attached to and made a part of the petition and from affidavits filed in support of the petition that the controversy concerning which the appellant had demanded arbitration concerned the failure of White House to provide a fund for the payment of pensions as required by the collective bargaining agreement. The record here shows without contradiction or controversy that in 1960 White House entered into a trust agreement with the Bank of America purporting to establish a fund for the payment of pension benefits to employees represented by the labor organization under their collective bargaining agreement. However, only $1115.89 had been contributed to the fund by White House since the fund was established through such trust agreement. Unless White House makes additional substantial contributions to that fund, many of the employees entitled to pensions will not receive them.

Upon the filing of the petition on January 27, 1965, the Superior Court issued a temporary restraining order restraining White House from disposing of or dissipating said assets below the level of $158,000. An order to show cause was issued requiring the defendant to show cause on February 9, 1965, why an injunction should not be issued as prayed for and an order requiring the depositing of said sum should not be made.

On February 3, 1965, White House filed a voluntary petition in bankruptcy in the same district court to which appellants' case had been removed; it subsequently was adjudicated a bankrupt and a receiver was appointed. On February 8, 1965, that court entered an order enjoining the prosecution of suits against the bankrupt. However, on the following day counsel for appellants presented to the State court their application for an order requiring arbitration and for a preliminary injunction, although the order of the district court enjoining the prosecution of suits against the bankrupt was made a part of the record of that court. Counsel for the receiver for the bankrupt appeared and objected to the jurisdiction of the Superior Court but on February 11, 1965 it entered an order directing arbitration and granting a preliminary injunction and requiring the deposit in court of the $158,000 pending the arbitration award or further order of the court.

On petition of the defendant White House the cause was removed as above stated to the court below. The appellants filed a motion to remand which was denied. White House, and its trustees in bankruptcy, who had intervened, moved to dissolve the orders of the Superior Court. After hearing that motion was granted on March 23, 1965, and all the state court orders referred to were dissolved and set aside. This appeal followed.¹

Two principal questions are presented. The first one relates to the merits of the appellants' claim that as a labor organization representing employees in an industry affecting commerce, it is entitled to an order from a state or federal court enforcing a collective bargaining contract providing for arbitration of disputes arising thereunder notwithstanding the bankruptcy and cessation of business of the employer. The second question is whether the suit instituted in the state court, as above described, was properly removed to the federal district court. As the last stated question is basic to the jurisdiction of the court below and to our right to review the order of that court, we shall first address ourselves to that question.

It is plain that the motion to remand in this case was denied upon the ground that the district court had original jurisdiction under § 301(a) of the Labor Management Relations Act (29 U.S.C. § 185(a)) of a suit claiming violation of a labor contract between an employer and a labor organization representing employees in an industry affecting commerce, and seeking enforcement of an agreement for arbitration of disputes thereunder. See Textile Workers Union of America v. Lincoln Mills, 353 U.S. 448, 77 S.Ct. 912, 1 L.Ed.2d 972. If that be so then the action was removable under the provisions of Title 28 U.S.C. § 1441(b) providing for the removal of "any civil action of which the district courts have original jurisdiction founded on a claim or right arising under the Constitution, treaties or laws of the United States * * *."

Both parties concede that White House was an "industry affecting commerce" as that term is used in § 301.²

Appellants assert that the case as filed in the state court was not a case "arising under" § 301(a) of the Labor Management Relations Act or any other law of the United States so as to permit removal under the section referred to. Says the appellant: "The petition and complaint in the state court was cast solely on a state created right to bring suit for violation of a collective bargaining agreement and sought only a remedy under state law." Appellants further assert that the denial of remand deprived them of a right "to cast their action on state-created rights rather than on rights available under federal law, to-wit, § 301 (a)."

We cannot accept this argument in view of the decisions of the Supreme Court in Local 174, Teamsters, etc. Teamsters Local v. Lucas Flour Company, 369 U.S. 95, 102-103, 82 S.Ct. 571, 7 L.Ed.2d 593, and Republic Steel v. Maddox, 379 U.S. 650, 657, 85 S.Ct. 614, 13 L.Ed.2d 580. When the first of these cases was decided it had been held in Dowd Box Co. v. Courtney, 368 U.S. 502, 82 S.Ct. 519, 7 L.Ed.2d 483, that a suit to enforce § 301(a) of the Labor Management Relations Act, could be brought in a state court as well as in a federal district court. The Lucas Flour case, supra, was one brought in a court of the State of Washington to recover damages for violation of a collective bargaining agreement which provided for arbitration of differences which might arise between the employer and the employee. In affirming the judgment of the lower court the Supreme Court of the State held that § 301 could not "reasonably be intepreted as pre-empting state jurisdiction, or as affecting it by limiting the substantive law to be applied." The court expressly based its decision solely upon state law. Upon review of that decision, the United States Supreme Court posed the question: "Was the Washington court free, as it thought, to decide this controversy within the limited horizon of its local law?" The Supreme Court said: "In Dowd Box we proceeded upon the hypothesis that state courts would apply federal law in exercising jurisdiction over litigation within the purview of § 301(a), although in that case there was no claim of any variance in relevant legal principles as between the federal law and that of Massachusetts. In the present case, by contrast, the Washington court held that there was nothing in § 301 `limiting the substantive law to be applied,' and the court accordingly proceeded to dispose of this litigation exclusively in terms of local contract law. The union insists that the case was one to be decided by reference to...