American Bell Inc. v. Federation of Telephone Workers of Pennsylvania, 83-1772

Citation736 F.2d 879
Decision Date20 July 1984
Docket NumberNo. 83-1772,83-1772
Parties116 L.R.R.M. (BNA) 2673, 101 Lab.Cas. P 11,063 AMERICAN BELL INC., Appellant, v. FEDERATION OF TELEPHONE WORKERS OF PENNSYLVANIA, Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Francis M. Milone (argued), Jesse Milan, Jr., Morgan, Lewis & Bockius, Philadelphia, Pa., for appellant.

Richard H. Markowitz (argued), Robert C. Cohen, Markowitz & Richman, Philadelphia, Pa., for appellees.

Before SEITZ, Chief Judge, and GIBBONS and BECKER, Circuit Judges.

OPINION OF THE COURT

SEITZ, Chief Judge.

Plaintiff American Bell Inc. appeals from an order of the district court denying its motion for a preliminary injunction and its request for declaratory relief and dismissing its complaint against the defendant Federation of Telephone Workers of Pennsylvania. We have jurisdiction under 28 U.S.C. Sec. 1291.

I.

The factual background for this action is the reorganization of American Telephone & Telegraph Co. In 1976 the Federal Communications Commission commenced an investigation into the structure of the communications industry. One purpose of this investigation was to determine whether companies such as AT & T were using their regulated carrier operations to cross-subsidize some of their unregulated operations. In 1982 the FCC ordered AT & T 1 to reorganize its subsidiaries and separate the regulated business of "basic transmission" from the unregulated business of selling "customer premises equipment" and "enhanced services". 2

In ordering the reorganization of AT & T's subsidiaries, the FCC instructed AT & T to place "maximum separation" between its regulated and unregulated operations. The FCC stated that "the separate subsidiary must maintain its own books of account have separate officers, utilize separate operating, marketing, installation and maintenance personnel, and utilize separate computer facilities in the provision of enhanced services." 3 Regarding personnel practices, the FCC stated more specifically that the regulated subsidiaries "should not be involved in interfacing with the public as to customer ordering, acquisition, marketing or billing functions associated with the separate subsidiary's provision of new [customer premises equipment]." 4 Neither could the regulated and the separate subsidiaries use the same employees for installation and maintenance of residential customer premises equipment. As for business equipment, the subsidiaries could use each other's installation and maintenance personnel, but only for a transitional period of eighteen months and only on a "compensatory basis". 5 This meant that each subsidiary must recover "the full cost of the transferred goods or services at the same terms, prices, and conditions that would be available to a nonaffiliated purchaser if third-party transactions were required." 6

Pursuant to the FCC's order, AT & T incorporated American Bell Inc. ("ABI") on June 12, 1982. 7 ABI was and is a wholly-owned subsidiary of AT & T. AT & T's local carrier subsidiaries, also wholly owned by AT & T, then transferred various assets to ABI. On January 1, 1983, the same day that ABI began operations, Bell Telephone Co. of Pennsylvania ("Bell"), one of the local carrier subsidiaries, transferred twenty of its sixty "PhoneCenters" to the new company. Under the terms of a court order in a separate proceeding, Bell was allowed to continue operating the other forty PhoneCenters. 8 By late 1983, ABI had over 30,000 employees working in forty-eight states and operated PhoneCenters in Pennsylvania and other states.

A second proceeding that must be mentioned is the Department of Justice antitrust action against AT & T, commenced in 1974. This action culminated in a consent decree entered by the District of Columbia District Court in August 1982. 9 The consent decree and the ensuing Plan of Reorganization, approved in August 1983, 10 provided that AT & T would spin-off its local carrier subsidiaries (reorganized as subsidiaries of regional holding companies) and then be free to compete for sales of, among other things, customer premises equipment and enhanced services. AT & T's reorganization became effective January 1, 1984. As a result, Bell became a subsidiary of Bell Atlantic, Inc., a corporation unrelated to AT & T.

In anticipation of these transactions, the Federation of Telephone Workers of Pennsylvania ("the Union"), representing Bell's employees, entered into a "Memorandum of Agreement" with that company on June 2, 1982. The Memorandum stated that the collective bargaining agreement between the Union and Bell would continue in effect for all employees transferred from Bell to its subsidiaries or affiliates. The Memorandum further provided that Bell would "seek to obtain the concurrence" of AT & T to continue in effect the collective bargaining agreement for all employees transferred to an affiliate or subsidiary of AT & T. Most importantly, the Memorandum provided that, in the event of a "sale or other voluntary transfer of ownership of all or part of its business and physical assets" to "any successor organization", Bell would secure the assent of that organization to be bound by the bargaining agreement.

Sometime after the adoption of this Memorandum of Agreement, Bell transferred two clerical workers to ABI. Pursuant to the Memorandum, Bell obtained AT & T's concurrence on June 17, 1982, that these employees would be covered by the bargaining agreement. Since the commencement of this litigation Bell has transferred several thousand additional workers to ABI, and ABI acknowledges that these workers are also covered by the bargaining agreement. Bell failed, however, to obtain ABI's assent when it transferred its PhoneCenters to ABI on January 1, 1983. In March 1983, the Union approached ABI directly with a second memorandum which provided that ABI would recognize the Union as the bargaining agent for transferred employees and, "[p]ursuant to such recognition of the Union," would be bound by the bargaining agreement. ABI refused to sign.

Shortly thereafter the Union filed grievances with ABI charging that the company had used subcontracted labor and other non-Union workers when it "sold or leased equipment and/or services" to two customers, the Philadelphia Inquirer and Sunguard, Inc. Prior to the reorganization this work had been performed by Bell's Union workers. In addition, the Union charged that ABI was operating its PhoneCenters with subcontracted non-Union workers. 11 This work too had previously been performed by Bell's Union workers. The Union alleged that these practices violated, inter alia, the subcontracting clause of its bargaining agreement with Bell. The subcontracting clause provides, in general, that the company will not subcontract work if the employees normally doing that work are already working part-time, or if the subcontract will produce part-time work or layoffs. ABI replied that it was not bound by the bargaining agreement, and the Union demanded arbitration.

The Union scheduled arbitration hearings, and in response ABI filed this action under 29 U.S.C. Sec. 185(a) and 28 U.S.C. Secs. 2201, 2202 seeking a declaratory judgment that it was not required to arbitrate, a preliminary injunction against further arbitration proceedings, and an order requiring the Union to withdraw its arbitration request. The Union filed a counterclaim seeking to compel arbitration. ABI requested the arbitrator to stay the arbitration proceedings pending the outcome of this action, but this request was denied. The arbitrator has held hearings on two of the grieved matters but has rendered no decision.

After a consolidated but truncated hearing on ABI's motion for a preliminary injunction and on the merits, the district court denied all relief and dismissed the action. The court explained that Bell and ABI were (until January 1, 1984) both AT & T subsidiaries, and that ABI knew of Bell's obligation to obtain ABI's assent to the bargaining agreement. Applying the equitable maxim "Equity regards as done that which ought to be done," the court concluded that ABI was bound by the bargaining agreement and had a duty to arbitrate. From this order ABI filed a timely appeal. 12

II.

We first dispose of two preliminary issues. The Union argues that the issue in this appeal is moot because (1) the arbitrator has already held hearings on the disputed question of ABI's obligation under the collective bargaining agreement, and (2) ABI is admittedly bound by the bargaining agreement, whatever this court may decide, with respect to several thousand former Bell employees transferred to ABI in January of this year. We agree with ABI that the issue in this appeal is not moot. ABI has presented this court with the question whether it is bound by the bargaining agreement on the basis of Bell's transfer of assets, and whether it must therefore arbitrate disputes about its employment practices. This question is antecedent to any issue that the arbitrator may decide, and in fact will determine whether the arbitrator has jurisdiction. The status of the arbitration proceedings is therefore irrelevant. Neither do we believe that the transfer of several thousand covered employees moots this appeal. ABI's alleged obligations on the basis of the transferred assets are not, in our view, necessarily identical with obligations it may have on the basis of the transfer of employees.

The Union makes a related argument that, because ABI concedes it is bound by the bargaining agreement with respect to transferred workers, the question whether ABI is also bound on the basis of the asset transfer is a question of the scope of ABI's obligation under the agreement, which is a matter for arbitration. We reject this argument. ABI does not challenge before this court the meaning or scope of the arbitration clause or any other clause...

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