Adams v. Suozzi

Decision Date30 December 2005
Docket NumberNo. 04-6017-CV.,04-6017-CV.
Citation433 F.3d 220
PartiesMichael F. ADAMS, individually and in his capacity as President of the Sheriff Officers Association, Inc., John Doe and Jane Doe, being persons in the Bargaining Unit represented by the Sheriff Officers Association, Inc. and whose names are too numerous to mention, Plaintiffs-Appellees, v. Thomas SUOZZI, in his capacity as County Executive of the County of Nassau, Howard Weitzman, in his capacity as Comptroller of the County of Nassau and County of Nassau, Defendants-Appellants.
CourtU.S. Court of Appeals — Second Circuit

Malcolm A. Goldstein, Koeler & Isaacs, New York, NY, for plaintiffs-appellees.

Edward A. Brill, Proskauer Rose LLP, New York, NY, (Lorna B. Goodman, Nassau County Attorney, David B. Goldin, Damon S. Levenstien, Office of the Nassau County Attorney, Mineola, NY; Steven P. Gonzalez, Thomas A. McKinney, Proskauer Rose LLP, New York, NY, on the brief), for defendants-appellants.

Before: MESKILL and CABRANES, Circuit Judges, and MUKASEY, District Judge.*

MUKASEY, Chief Judge.

Thomas Suozzi, Howard Weitzman, and the County of Nassau (collectively "the County") appeal the District Court's denial of their motion to stay litigation pending arbitration in a dispute over the County's implementation of a "lag payroll" as to members of the Nassau County Sheriff Officers Association ("ShOA"). See Adams v. Suozzi, 340 F.Supp.2d 279 (E.D.N.Y.2004). The County argues that the District Court erred in holding that a 1999 Memorandum of Agreement ("Lag Payroll Agreement" or "LPA") did not contain an enforceable arbitration agreement between the County and ShOA because the LPA itself was "inoperative" due to the fact that conditions precedent to the formation of a contract had not been met.1 In particular, the County argues that the issue of whether the LPA was inoperative itself fell within the scope of the LPA's arbitration clauses, that the arbitration clauses in the LPA were severable from the rest of the agreement, that the District Court misconstrued the terms of the conditions precedent to formation of a contract, and that the District Court should have held a trial to determine whether the conditions had been fulfilled. Because we agree with the District Court that at least one of the conditions precedent — execution of a Memorandum of Agreement regarding a collective bargaining agreement between the County and ShOA ("the CBA condition") — was not met, we affirm its denial of the motion to stay.

I. Background
A. The Lag Payroll Agreement

On December 22, 1999, the County and five employee unions, including ShOA, signed the LPA, which allowed the County "during calendar year 2000, [to] institute and maintain a `lag payroll' ...." (Joint Appendix (J.A.) 139) Paragraph 2 of the LPA defined "lag payroll" as payroll changes "to be made on or after April 1, 2000" that would allow the County to defer ten days of pay for each union employee "during the fifty-two calendar weeks of calendar year 2000." (Id. at 139) The County would accomplish this deferral by issuing paychecks for ten days' work every eleven days. (Id.) Employees would receive their deferred salaries only upon separation from County service. (Id.) Paragraph 5 stated that the County would not lay off any personnel in the year 2000 and that if the County made any layoffs before the end of 2002, it would terminate the lag payroll program and pay all employees their deferred salaries. (Id. at 140)

The LPA contained several references to arbitration. Paragraph 2 required that any dispute about the methodology of implementation be submitted to Arbitrator Scheinman, who had acted as a mediator in the formation of the agreement. (Id. at 139, 143) Paragraph 4 gave Scheinman jurisdiction to determine a remedy if lagged salary could not be made "pensionable." (Id. at 140) Paragraph 7, the broadest arbitration clause in the LPA, stated that a "breach of the terms of this Memorandum [would] be a grievance under each respective union collective bargaining agreement"; it then provided for expedited arbitration by Scheinman. (Id.)

In Paragraph 9, the LPA stated that the "Memorandum [was] subject in all respects to the internal ratification procedures of each of the unions," and that the union representatives agreed to recommend it to their Executive Boards. (Id.) Paragraph 9 provided further:

This Memorandum shall be inoperative as to any union which fails to ratify within 45 days, except that in the case of the ShOA, such ratification is contingent upon execution of a further Memorandum of Agreement for the terms and conditions of an initial County/ShOA Collective Bargaining Agreement. (Id.)

The LPA singled out ShOA in this clause because, at the time, ShOA was involved in litigation over its recent certification as an independent bargaining unit for corrections officers and thus did not have a collective bargaining agreement ("CBA") with the County. (Id. at 136)

B. Implementation of the LPA

The LPA was not submitted to ShOA's Executive Board for ratification. (Id. at 67-68) The County did not implement a lag payroll with respect to ShOA, and it did not lay off any ShOA employees in 2000, 2001, or 2002. (Id. at 137) However, the County did impose a lag payroll on the other unions that signed the LPA. (Id.)

The County approved a Memorandum of Agreement regarding a CBA ("CBA Memorandum") with ShOA on August 10, 2001. (Id. at 94) The CBA Memorandum stated that the CBA would govern for the period January 1, 1998, to December 31, 2004. (Id. at 97) Neither the CBA Memorandum nor the CBA itself mentioned the LPA, but the Memorandum did note that "all ... interim agreements shall remain valid." (Id. at 100)

Suozzi took office as County Executive in January 2002. (Id. at 138) In a letter dated August 27, 2003, the County's Office of Labor Relations informed ShOA President Michael Adams that, pursuant to the LPA, it would begin to lag ShOA employee salaries for the payroll period ending September 18, 2003. (Id. at 111)

C. Appellees' Suit

On September 4, 2003, Adams and other ShOA members sued the County in New York State Supreme Court, Nassau County. They sought declaratory, injunctive and monetary relief, alleging that imposition of the lag payroll violated the U.S. Constitution, the New York Constitution, state statutory law, and the CBA. (Id. at 6, 11-16) The County filed a notice of removal in the United States District Court for the Eastern District of New York on September 5, 2003. (Id. at 1)

The County conceded that it had no right to impose the lag payroll upon ShOA members other than under the LPA. (Id. at 160) It therefore moved the District Court to stay proceedings pursuant to the Federal Arbitration Act ("FAA"), 9 U.S.C. § 3 (2000), on the ground that the LPA required arbitration of the dispute. (J.A. 160-62)

The District Court denied the County's motion. It held that the parties never agreed to arbitrate because the contract embodying the arbitration provisions never became effective. See Adams, 340 F.Supp.2d at 282-84. The District Court determined that Paragraph 9 of the LPA established two conditions precedent to the formation of a contract between the County and ShOA — (i) ratification of the LPA by ShOA and (ii) execution of the CBA Memorandum. Id. at 283. The District Court stated that, even if ShOA were found to have ratified the LPA,2 the second condition prevented formation of a contract because the LPA "states that the County may institute a lag payroll in calendar year 2000, which had lapsed by the time the [CBA Memorandum] was executed in August 2001." Id. This appeal followed.

II. Discussion
A. Subject Matter Jurisdiction
1. Original Jurisdiction

Although neither the District Court nor appellees have questioned the County's removal of this case to federal court based on federal question jurisdiction under 28 U.S.C. § 1331 (J.A. 2), we "may examine subject matter jurisdiction, sua sponte, at any stage of the proceeding." F.D.I.C. v. Four Star Holding Co., 178 F.3d 97, 100 n. 2 (2d Cir.1999). It is necessary to clarify the basis of the District Court's original jurisdiction over this case for two reasons. First, as appellants pointed out in a letter to the District Court, the dispositive issue in this case is "whether the [LPA] gives the County of Nassau the right to impose a lag payroll" — an issue not inherently federal. (J.A. at 160-61) Second, the District Court mentioned subject matter jurisdiction only when it wrote that it could "properly exercise federal question jurisdiction over this dispute" because, "[i]n enacting the [FAA], Congress created national substantive law governing all questions of the validity and enforceability of arbitration agreements." Adams, 340 F.Supp.2d at 282. However, the FAA "is something of an anomaly in the field of federal-court jurisdiction. It creates a body of federal substantive law establishing and regulating the duty to honor an agreement to arbitrate, yet it does not create any independent federal question jurisdiction under 28 U.S.C. § 1331 ... or otherwise." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 25 n. 32, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).

Nevertheless, the District Court had subject matter jurisdiction over this case under 28 U.S.C. § 1331 because one of the federal constitutional claims asserted by ShOA in its original complaint met the lenient standard necessary for federal question jurisdiction set by the "substantiality doctrine." A federal court may refuse to entertain a claim based on federal law otherwise within its jurisdiction only if the federal basis for that claim is "so attenuated and unsubstantial as to be absolutely devoid of merit." Tancredi v. Metro. Life Ins. Co., 378 F.3d 220, 224 (2d Cir.2004) (quoting Hagans v. Lavine, 415 U.S. 528, 536, 94 S.Ct. 1372, 39 L.Ed.2d 577 (1974) (quoting Newburyport Water Co. v....

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