Balt. Cnty. Fraternal Order of Police Lodge No. 4 v. Balt. Cnty.

• Decision Date: 18 January 2013
• Docket Number: Sept. Term, 2012.,No. 3,3
• Citation: 57 A.3d 425,429 Md. 533
• Parties: BALTIMORE COUNTY FRATERNAL ORDER OF POLICE LODGE NO. 4 v. BALTIMORE COUNTY, Maryland.
• Court: Maryland Court of Appeals

429 Md. 533

57 A.3d 425

BALTIMORE COUNTY FRATERNAL ORDER OF POLICE LODGE NO. 4

v.BALTIMORE COUNTY, Maryland.

No. 3, Sept. Term, 2012.

Court of Appeals of Maryland.

Nov. 19, 2012.

Reconsideration Denied Jan. 18, 2013.

Jeffrey L. Gibbs (Matthew Clash–Drexler and Raphael N. Rajendra of Bredhoff & Kaiser, P.L.L.C., Washington, DC), on brief, for petitioner.

James J. Nolan, Jr., Asst. Co. Atty. (Michael E. Field, Co. Atty. of the Baltimore County Office of Law, Towson, MD), on brief, for respondent.

Argued before BELL, C.J., HARRELL, BATTAGLIA, GREENE, ADKINS, BARBERA and McDONALD, JJ.

ADKINS, J.

The central issue in this appeal is whether a duty to arbitrate may survive expiration of the agreement that contains the arbitration clause. The seemingly ¹ peripheral issue is who decides this question initially: the arbitrator or the court. An additional consideration lurking beneath the surface of these two questions, but necessary to their resolution, is when a dispute may be said to arise “under” an expired agreement so as to be arbitrable despite the agreement's expiration.

We now place these concepts into the context of this case. A collective-bargaining agreement between Baltimore County and Baltimore County Fraternal Order of Police, Lodge 4 (“FOP”) contained an arbitration clause and a retiree health-insurance provision. FOP believed the provision locked in place the health-insurance subsidy, as it existed at the time of an officer's retirement. After the agreement expired and the County decreased the health-insurance subsidy, FOP initiated arbitration. The County protested, arguing that it had no duty to arbitrate because the collective-bargaining agreement had expired. The County also maintained that the health-insurance subsidy was not locked in place but was subject to change from year to year. FOP was successful in arbitration and on appeal before the circuit court, but the Court of Special Appeals vacated the arbitration award. FOP presents the following issues for our review:

1. Under Maryland's common law, should an arbitration clause in a collective bargaining agreement be enforced after that agreement's expiration when an otherwise arbitrable grievance is presented concerning vested rights that arise out of the collective bargaining agreement?

2. Does the common law of Maryland require the court or the arbitrator to determine the arbitrability of a postexpiration grievance arising out of a collective bargaining agreement containing an arbitration clause? ²

We shall hold that an arbitration clause may survive the expiration of a collective bargaining agreement when it concerns rights that vested during the life of the agreement. We shall also hold that, when deciding the issue of arbitrability requires interpretation of the underlying agreement and consideration of the merits of the dispute, the issue of arbitrability should be initially determined by the arbitrator. The Circuit Court for Baltimore County properly granted summary judgment in FOP's favor. We thus reverse the Court of Special Appeals' judgment.

FACTS AND LEGAL PROCEEDINGS

Baltimore County government employs approximately 8,000 employees. FOP has represented the County's 1,700 police officers for approximately 20 years. The County and FOP have been parties to a succession of one-year ³ collective bargaining agreements, called memoranda of understanding(“MOU”). These MOUs set forth the negotiated terms of conditions of employment for active and retired police officers. All MOUs contained an article on the grievance procedure, which provided—among other things—that all “grievances,” including “[a]ny dispute concerning the application or interpretation of the terms of this [MOU]” that are not settled internally “shall be subject to binding arbitration.”

1992 Through 1995: No Mention of Health Insurance in MOUs

In 1991, Baltimore County instituted a Retirement Incentive Program. As part of the Program, the County agreed to pay 90 percent of retirees' health insurance premium, while the retirees would pay the remaining 10 percent. Maintenance of this 90/10 split, however, was guaranteed only to officers who retired on or before January 31, 1992. The Incentive Program also made clear that employees retiring on or after February 1, 1992 would receive the same subsidy as active employees and that the subsidy could go up or down subject to future labor negotiations.

From February 1, 1992 to July 1, 1995, the MOUs made no reference to retiree health insurance. Officers who retired during that time received the same health-insurance premium split that active officers were receiving at that time.

1995 Through June 30, 2007: Retiree Health Insurance Provision

This changed with the 1995 negotiations for a new collective bargaining agreement, when FOP was able to negotiate the following health-insurance provision to be included in the MOU:

Section 7.13: Retiree Health Insurance–The County shall provide the same health insurance benefits ... to retirees under the age of sixty-five (65) as it does for active employees, at the time ... the employees retire[ ]. The health insurance subsidy at the time of retirement will remain in effect until the retiree or the retiree's surviving beneficiary reaches age sixty-five (65). ⁴

This language remained in subsequent MOUs until 2004,⁵ when the reference to “age sixty-five” was changed to eligibility for “Medicare”: “The health insurance subsidy in place at the time of retirement shall remain in effect until the retiree becomes eligible for Medicare.” Between February 1, 1992 and June 30, 2007, the health-insurance subsidy for active employees—and therefore retirees—remained at 85 percent.

2007 Decrease in Health–Insurance Subsidy and FOP's Grievance

In 2007, as part of its effort “to control escalating health care costs for County employees,” the County negotiated a phased-in decrease in the health-insurance premium subsidy from 85 to 80 percent, which was to take effect gradually over the next five years.⁶ On July 1, 2007, the County decreased the health-insurance premiumsplit from 85/15 to 84/16 for retirees, as well active members.

On September 14, the FOP filed a class grievance ⁷ on behalf of the officers who retired from February 1, 1992 to August 31, 2007, alleging that the 85/15 health-insurance subsidy split was a “lifetime promise” to those retirees, and that, as a result, those retirees were not subject to the decreased premium split.⁸ On November 6, 2007, Labor Commissioner George Gay conducted a Grievance Appeal Hearing, and on November 17, he denied FOP's grievance. Gay believed that MOUs are “one-year agreements which are re-opened and renegotiated annually,” and which, unlike pension benefits, do not create “vested rights.”

FOP filed for arbitration. The arbitrator granted FOP's grievance, concluding that it was arbitrable even though the MOU had expired because the 85/15 health-insurance premium split was a “vested right” that “was not, and could not be, changed by the [subsequent] negotiations.” Thus, the arbitrator ordered that the County (1) rescind the modification as applied to police officers who retired from 1995 to June 30, 2007, (2) continue the 85/15 split until those retirees became eligible for Medicare, and (3) reimburse them for wrongful deductions.

The County filed a Complaint to Vacate the Arbitration Award in the Circuit Court for Baltimore County. It argued, inter alia, that (1) the arbitrator lacked jurisdiction and exceeded his authority because the MOU containing the arbitration clause had expired, (2) “there was no agreement to arbitrate” because the MOU had expired, and (3) the award “involve[d] mistakes so gross as to constitute manifest injustice.” The Circuit Court disagreed, however, and granted summary judgment in FOP's favor, refusing to vacate the Arbitration Award.

The County appealed. The Court of Special Appeals reversed the Circuit Court's grant of summary judgment in FOP's favor,⁹ and FOP filed a petition for certiorari, which we granted. Balt. Cnty. Fraternal Order of Police, Lodge No. 4 v. Balt. Cnty., 425 Md. 395, 41 A.3d 570 (2012).

DISCUSSION

The first issue before us is whether an arbitration clause contained in an expired MOU survived the expiration of that MOU, making the dispute over the health-insurance premium split arbitrable. FOP argues that—even though the MOU expired—the County's decrease in health-insurance subsidy was an arbitrable grievance because “absent specific contractual evidence to the contrary, [a broad] arbitration clause survives expiration of the agreement and requires that disputes arising out of it, but after expiration of, the underlying agreement are arbitrable.” The County argues the opposite: the arbitration clause was narrow, “FOP's grievance was based upon an MOU that no longer existed,” and therefore the arbitrator had “no power, authority, or jurisdiction” to resolve the dispute. The parties also ask us to decide who determines this very issue: the arbitrator or the court.

I.Arbitrability of a Grievance Arising After Expiration of a Collective–Bargaining Agreement

In deciding whether an arbitration clause may survive expiration of the agreement that gave it existence, the arbitrator in this case relied extensively on two United States Supreme Court cases: Nolde Bros. v. Bakery & Confectionery Workers Union, 430 U.S. 243, 97 S.Ct. 1067, 51 L.Ed.2d 300 (1977) and Litton Fin. Printing Div. v. NLRB, 501 U.S. 190, 111 S.Ct. 2215, 115 L.Ed.2d 177 (1991). FOP and the County have also spent a considerable amount of time in their briefs discussing these cases. We accept the parties' invitation and examine Nolde and Litton.

A. The Vesting Principles of Nolde and Litton

Both Nolde and Litton addressed arbitrability of a grievance arising after expiration of a collective-bargaining agreement. In Nolde, the agreement had a broad arbitration clause and provided for severance pay upon employment termination. 430 U.S. at 245, 97...