LO Koven & Brother, Inc. v. LOCAL U. NO. 5767, UNITED STEEL. OF AMERICA, AFL-CIO

• Decision Date: 05 May 1967
• Docket Number: No. 15917.,15917.
• Citation: 381 F.2d 196
• Parties: L. O. KOVEN & BROTHER, INC., a New Jersey Corporation v. LOCAL UNION NO. 5767, UNITED STEELWORKERS OF AMERICA, AFL-CIO, an Unincorporated Association, Appellant.
• Court: U.S. Court of Appeals — Third Circuit

381 F.2d 196 (1967)

L. O. KOVEN & BROTHER, INC., a New Jersey Corporation v. LOCAL UNION NO. 5767, UNITED STEELWORKERS OF AMERICA, AFL-CIO, an Unincorporated Association, Appellant.

No. 15917.

United States Court of Appeals Third Circuit.

Argued October 7, 1966.

Decided May 5, 1967.

As Corrected May 12, 1967.

COPYRIGHT MATERIAL OMITTED

Abraham L. Friedman, Newark, N. J. (Rothbard, Harris & Oxfeld and Samuel L. Rothbard, Newark, N. J., on the brief), for appellant.

Laurence Reich, Newark, N. J. (Carpenter, Bennett & Morrissey and Thomas E. Walsh, Jr., Newark, N. J., on the brief), for appellee.

Before FORMAN, FREEDMAN, and SEITZ, Circuit Judges.

OPINION OF THE COURT

FORMAN, Circuit Judge.

This case involves the question of an employer's duty to arbitrate a grievance where the underlying claim is alleged to have been discharged by an order of confirmation entered in a proceeding under Chapter XI of the Bankruptcy Act¹ and a general release executed by a union. It is here on appeal from an order of the United States District Court for the District of New Jersey, declaring that the union's claim was discharged by operation of law and permanently enjoining the union from submitting the claim to arbitration.

I — Background

The plaintiff-appellee, L. O. Koven & Brother, Inc. (hereinafter Koven) is the successor by merger to Koven Fabricators, Inc., which entered into a collective bargaining agreement (hereinafter Agreement) on or about June 17, 1960 with the defendant-appellant, Local Union No. 5767, United Steelworkers of America, AFL-CIO (hereinafter Union). The Agreement was to expire by its own terms at midnight, June 17, 1963, but it was extended to midnight June 17, 1965 by a subsequent agreement reached on June 17, 1963. It is unquestioned that Koven was bound by this contract of its predecessor.

On September 4, 1963, Koven filed an original petition for arrangement under Chapter XI of the Bankruptcy Act² in the United States District Court for the District of New Jersey. On the same day Bertram J. Latzer was appointed Receiver of Koven and authorized to conduct its business. Kovin subsequently proposed a plan of arrangement in which it offered to pay, inter alia, "all priority claims and administration expenses in cash upon * * * confirmation * * or upon such terms or conditions and with such security and on such deferred payments as will be agreed upon with this class of creditors. * * *" On January 10, 1964 the Referee entered an order confirming the plan of arrangement as amended and revesting Koven with its assets.

On or about January 8, 1964, the Union filed eight proofs of "priority claims" against Koven in the arrangement proceedings, numbered 453 to 460 by the Referee in Bankruptcy, for various wage-associated amounts due under the Agreement,³ but not including any claim for vacation pay earned since June 1, 1963.

The Union and Koven, on April 30, 1964, entered into and filed with the Referee in Bankruptcy a "Stipulation of Settlement," whereby it was agreed that "Claims No. 453 through 460, inclusive * * * shall be settled and compromised by the payment to said Union of the sum of $7,000.00" to be made by Koven's receiver from the funds then in his hands. This "Stipulation" also provided that upon receipt of said sum, the Union would "execute and deliver a general release" to Koven and its receiver.

On May 18, 1964, the Union in consideration of the sum of $7,000 executed a general release to Koven and its receiver, expressly stating that it was made "in accordance with a Stipulation dated April 30, 1964 and Order of the same date based on said Stipulation, filed in a matter entitled `In the Matter of L. O. Koven & Brother, Inc. * * * Debtor,' pending in the United States District Court for the District of New Jersey." The release purported to discharge Koven and its receiver:

"their successors and assigns, of and from all manner of action and actions, * * * suits, debts, dues, sums of money, accounts, * * * contracts, controversies, agreements, promises, * * * claims and demands whatsoever in law or in equity, which * * * it ever had, now has or which it and assigns hereafter can, shall, or may have, for, upon or by reason of any matter, * * * from the beginning of the world to the day of the date of these Presents, * * *"

specifically excluding, however, an unfair labor practice claim then pending before the National Labor Relations Board, which is not a part of the present suit. The unitalicized portion of the foregoing quotation was in the standardized language of a printed form of release.

Article XVI of the labor Agreement provided in part for the establishment of vacation periods or the equivalent in pay for employees who "have worked one thousand (1000) hours or more during the period from June 1 to June 1 of the preceding year, * * *."⁴

Article XII of the Agreement set forth a grievance procedure applicable to "any difference * * * as to the meaning, compliance with, or application of the provisions of this agreement," the last phase of which required the grievance to be "determined by an arbitrator to be selected by the parties" under the rules of and from a list provided by the American Arbitration Association. A clause added by the June 17, 1963 extension agreement stated that "the decision of the arbitrator shall be final and binding upon the parties."

On or before June 15, 1964, the Union filed with Koven a "Grievance Report" claiming that Koven was in violation of the collective bargaining agreement by its failure to pay vacation benefits to those employees so entitled. Koven and the Union met pursuant to the latter's request on June 29, 1964 to discuss the grievance. At that time, Koven declined to honor the claim on the ground that it was barred by the order of confirmation and general release. On the following day, the Union wrote to the American Arbitration Association requesting an arbitration panel to consider, among other things,⁵ the vacation pay grievance.

None of the ten employees represented by the Union had worked 1,000 hours between the preceding June 1, 1963 and the date that the Chapter XI petition was filed, September 4, 1963, but by January 10, 1964, when the order confirming the plan was entered, nine employees had accumulated substantially more than 1,000 hours. After the date of confirmation, another employee completed 1,000 hours, and all but one of the nine employees worked additional hours. The last day worked by any of the foregoing employees was February 28, 1964, or about six weeks after the date of confirmation.⁶

On November 17, 1964, Koven commenced this action by verified complaint in the District Court seeking a declaratory judgment that the claims underlying the grievance had been discharged by operation of law and for a permanent injunction barring the Union from presenting its claim to any person or group for arbitration. Jurisdiction was alleged under Section 301 of the Labor Management Relations Act, 29 U.S.C. § 185 and Section 2 of the Bankruptcy Act, 11 U.S.C. § 11. The Union filed an answer and counterclaim seeking a declaration that it was entitled to have its claim arbitrated. The parties filed an Agreed Statement of Facts relating to the foregoing circumstances of the case.

In granting the prayer of Koven, the District Court held that it had jurisdiction of the parties and subject matter under § 301 of the Labor Management Relations Act;⁷ that where the claim sought to be arbitrated has been discharged by law, arbitration must be denied; that it was for the court to decide whether the release and order of confirmation so discharged the claim; that the "necessary effect" of the release was to discharge the claim; and that the vacation pay claim was barred by the order of confirmation.⁸

II — Proper Forum Where Labor and Bankruptcy Issues Coincide

The problem presented by the instant appeal is not merely the effect of the order of confirmation and the release on the Union's claim for vacation benefits, but also the question of the proper forum — the arbitrator or the court — to decide that effect. The National Labor Relations Act's preference for arbitration,⁹ as interpreted by the Supreme Court, confines the function of a court to "ascertaining whether the party seeking arbitration is making a claim which on its face is governed by the contract."¹⁰ "The question is not whether in the mind of the court there is any equity in the claim."¹¹ This function is further conditioned by a strong presumption in favor of arbitrability, which requires arbitration "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute. Doubts should be resolved in favor of coverage."¹²

On the other hand, the boundaries of our power are also measurable by delineating those of the arbitrator, who is "confined to the interpretation and application of the collective bargaining agreement," though he may "look to guidance from many sources".¹³ If an award were based "solely on the arbitrator's view of the requirements of enacted legislation," not only would the arbitrator be beyond the area of his expertise, but also beyond "the scope of his submission."¹⁴

The arbitration clause of the Agreement covers "any difference * * * as to the meaning, compliance with, or application of the provisions" thereof. While the coverage is broad, the raw material of the arbitral process must be the labor contract. Thus, to the extent that the Union's recovery or non-recovery turns on an interpretation of the discharge provisions of the Bankruptcy Act, the question is for a judicial forum.¹⁵ The same conclusion is compelled from another viewpoint: The uniform application and development of federal bankruptcy policy depends on entrusting its operation to a forum which defines issues of fact and law sufficiently to permit review of its decision on the merits.¹⁶ A labor arbitrator,...