Sw. Reg'l Council of Carpenters v. Drywall Dynamics, Inc.

• Decision Date: 19 May 2016
• Docket Number: No. 14–55250.,14–55250.
• Parties: SOUTHWEST REGIONAL COUNCIL OF CARPENTERS, Plaintiff–Appellant, v. DRYWALL DYNAMICS, INC., Defendant–Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

823 F.3d 524

SOUTHWEST REGIONAL COUNCIL OF CARPENTERS, Plaintiff–Appellant

v.DRYWALL DYNAMICS, INC., Defendant–Appellee.

No. 14–55250.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Feb. 12, 2016.

Filed May 19, 2016.

Melissa R. Shimizu (argued) and Daniel M. Shanley, DeCarlo & Shanley, Los Angeles, CA, for Plaintiff–Appellant.

Rick J. Sutherland (argued), Jackson Lewis, Salt Lake City, UT, for Respondent–Appellee.

Appeal from the United States District Court for the Central District of California, John A. Kronstadt, District Judge, Presiding. D.C. No. 2:13–cv–05350–JAK–SP.

Before: MARSHA S. BERZON and JOHN B. OWENS, Circuit Judges, and ALGENON L. MARBLEY,^* District Judge.

OPINION

BERZON

, Circuit Judge:

This case requires us once more to clarify the limited role played by courts in reviewing labor arbitration awards. Respondent Drywall Dynamics, Inc. (“Drywall”) entered into a labor agreement with petitioner Southwest Regional Council of Carpenters (“SWRCC” or “the Union”) according to which Drywall assigned to a contractors' association authority to bargain on its behalf. Some years later, having grown dissatisfied with this arrangement, Drywall attempted to terminate the agreement at what it thought was the appropriate time, only to discover that the Union and the association had executed a Memorandum of Understanding extending the term of the agreement.

An arbitrator held that Drywall was bound by the Memorandum. But the district court vacated the arbitration award, holding that the arbitrator's interpretation of the parties' agreement was not “plausible” and was, moreover, contrary to public policy. We conclude that the district court's decision exceeded its narrow authority to determine whether the arbitrator's award was based on the parties' contract and whether it violated an “explicit, well-defined, and dominant public policy,” E. Associated Coal Corp. v. United Mine Workers of Am., Dist. 17, 531 U.S. 57, 63, 121 S.Ct. 462, 148 L.Ed.2d 354 (2000)

, and accordingly reverse.

FACTUAL AND PROCEDURAL BACKGROUND

Drywall is a Utah-based construction company; SWRCC represents workers in the construction industry. On July 15, 2005, Drywall and SWRCC entered into a Memorandum Agreement according to which Drywall agreed to be bound by a Master Labor Agreement (“MLA”) between the Union and the Drywall/Lathing Conference of the Western Wall & Ceiling Contractors Association (“WWCCA” or “the Association”), as well as “any extensions, renewals or subsequent Master Agreements.” Drywall waived “any right that ... it may have to terminate, abrogate, repudiate or cancel this Agreement during its term or during the term of any future modifications, changes, amendments, supplements, extensions, or renewals of or to said Master Agreement.” The Memorandum Agreement further provided that Drywall “authorize[d] the Association to represent” it unless Drywall gave notice of its desire to withdraw from the agreement “at least sixty (60) days, but no earlier than ninety (90) days prior to the termination date” of the then-effective MLA. The MLA in place when the parties executed the Memorandum Agreement was due to expire on June 30, 2006, but provided that it would “continue to remain in full force and effect from year to year thereafter without change or modification” unless either party proposed such changes within 60 to 90 days of the termination date.

On April 30, 2008, Drywall notified the Union “of its intent to no longer be bound” by the MLA as of June 30, 2008. In fact, the Union and the Association had already negotiated a successor five-year MLA, which would expire on June 30, 2010. In response to Drywall's notice, the Union informed the company that its purported termination was untimely, although the Union erroneously asserted that the Agreement's new end date was September 30, 2009. Drywall opted not to dispute this point and continued complying with the MLA.

On April 15, 2009, Drywall again gave the Union notice of its intent to terminate the Agreement, this time as of June 30, 2009. On May 6, the Union informed Drywall that its proffered termination was untimely, asserting that the Agreement remained in effect until June 30, 2010, as provided by the successor MLA.

In fact, before sending this communication, the Union had, on April 16, 2009, executed a Memorandum of Understanding (“MOU”) with the Association. The MOU provided for an extension of the MLA until June 30, 2011, in exchange for the Union's agreement to defer a portion of a negotiated pay raise. The MOU further provided that “only WWCCA Drywall/Lathing Conference Members who affirmatively agree to this Agreement will be bound to it” and so permitted to pay the lower rate. Those members who did not affirmatively agree to the MOU were to “pay the full ... increase previously agreed upon.”

On April 13, 2010, Drywall attempted again to terminate its agreement with the Union and the WWCCA, effective June 30, 2010. The Union once more responded that the termination was untimely, explaining—as was the case—that the agreement had been extended until June 30, 2011.

On July 6, 2010, the Union filed a grievance against Drywall with the Southern California Drywall Joint Adjustment Board (“Adjustment Board” or “Board”), alleging six specific contractual violations.¹ The grievance came before an Adjustment Board arbitration panel for hearing in August and September 2011. During the first day of the hearing, on August 9, the Union asked the Board to resolve, in addition to the six violations named in the initial grievance, the question whether Drywall's purported termination of its agreement with the Union was effective. Drywall objected, arguing that whether it had effectively terminated its contract in 2010 was not relevant to any of the grievances filed by SWRCC. Relying on a provision of the MLA requiring grievances to be brought “within thirty (30) days after the complaining party has actual knowledge of the facts giving rise to the dispute,” Drywall moved to dismiss the termination issue “based on ... timeliness” and argued that the Union's contention was “procedurally barred.” In response, the Adjustment Board issued an “Interim Award” in which it indicated that it would decide the validity of Drywall's termination “because the issue is related to the overall grievance,” but held that issue in abeyance “pending ... further review of the evidence.”

Later, the Board issued “Interim Award II,” in which it unanimously ruled that Drywall's purported termination of the MLA in 2010 was untimely because the 2009 MOU had extended the Agreement until 2011. In support of that conclusion, the Board noted that the Union and the Association had each given consideration for the modification of the Agreement, and that Drywall was “bound by the negotiations and the agreements of those parties.” The parties resolved the remaining grievance issues outside of arbitration. Accordingly, on July 22, 2013, the Board issued its “Final Award,” which restated its previous findings and confirmed that there were no remaining issues.

The Union filed a petition in the district court seeking to confirm the arbitration award. After Drywall filed a petition to vacate the award, the district court issued an order denying the Union's petition and granting Drywall's.

In so ruling, the district court acknowledged that arbitration awards are “entitled to substantial deference from the district court,” but nonetheless held the award unenforceable, on two bases. First, the court ruled that the arbitration panel's interpretation of the contracts was not “plausible.” The 2009 MOU provided that it would apply only to those members of the Association who affirmatively agreed to it, but “[n]o evidence was presented to the Panel that Drywall” did so, “nor did the Panel make a finding of fact that Drywall consented to the extension of the 2006–2010 MLA.” Absent such a finding, the court concluded, “it was not plausible for the Panel to find that the extension of the MLA was binding on Drywall.” Second, relying on the Supreme Court's decision in Charles D. Bonanno Linen Service, Inc. v. NLRB, 454 U.S. 404, 102 S.Ct. 720, 70 L.Ed.2d 656 (1982)

, the court held that the arbitration award violated “a clear public policy in favor of voluntary relationships among employers and multi-employer bargaining units” because “[a]s interpreted by the Panel, the agreements gave WWCCA absolute authority to negotiate on Drywall's behalf and perpetually bind it to extensions of the MLA without further consent by Drywall.”

This appeal followed.

DISCUSSION

Beginning with the Supreme Court's Steelworkers Trilogy, the unique and critical role played by arbitration in the context of a collective bargaining agreement has been a bedrock of national labor policy. See United Steelworkers of Am. v. Am. Mfg. Co., 363 U.S. 564, 80 S.Ct. 1343, 4 L.Ed.2d 1403 (1960)

; United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960) ; United Steelworkers of Am. v. Enterprise Wheel & Car Corp., 363 U.S. 593, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960). As Warrior & Gulf explained, “the grievance machinery under a collective bargaining agreement is at the very heart of the system of industrial self-government.” 363 U.S. at 581, 80 S.Ct. 1347. Indeed, arbitration in the labor context is more than a mechanism for resolving disputes. Instead, the “processing of disputes through the grievance machinery is actually a vehicle by which meaning and content are given to the collective bargaining agreement.” Id.

Because of the centrality of the arbitration process to stable collective bargaining relationships, courts reviewing labor arbitration awards afford a “nearly unparalleled degree of deference” to the arbitrator's decision. Stead Motors of Walnut Creek v. Auto. Machinists Lodge No. 1173, Int'l Ass'n of Machinists & Aerospace Workers, 886 F.2d 1200, 1204–05 (9th Cir.1989)

(en banc). This deference applies both to...