Int'l Bhd. of Teamsters v. Nasa Servs., Inc.

• Decision Date: 01 May 2020
• Docket Number: No. 19-55166,19-55166
• Citation: 957 F.3d 1038
• Parties: INTERNATIONAL BROTHERHOOD OF TEAMSTERS, Local 396, Petitioner-Appellee, v. NASA SERVICES, INC., Respondent-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

957 F.3d 1038

INTERNATIONAL BROTHERHOOD OF TEAMSTERS, Local 396, Petitioner-Appellee,

v.NASA SERVICES, INC., Respondent-Appellant.

No. 19-55166

United States Court of Appeals, Ninth Circuit.

Submitted March 31, 2020^* Pasadena, California

Filed May 1, 2020

L. Brent Garrett and April L. Szabo, Atkinson Andelson Loya Ruud & Romo, Cerritos, California, for Respondent-Appellant.

Paul L. More and F. Benjamin Kowalczyk, McCracken Stemerman & Holsberry LLP, San Francisco, California, for Petitioner-Appellee.

Before: Consuelo M. Callahan, Kenneth K. Lee, and Lawrence J. VanDyke, Circuit Judges.

VANDYKE, Circuit Judge:

The City of Los Angeles created an exclusive franchise system for the collection and handling of municipal solid waste. L.A. Mun. Code § 66.33 (Apr. 8, 2014). To prevent the City’s waste collection services from being disturbed by picketing, work stoppages, or other interruptions, the Franchise Ordinance requires each franchisee to be party to a labor peace agreement with a union that represents or seeks to represent its employees. NASA Services, Inc., a waste management company, wished to be selected as a franchisee for one or more of the City’s eleven franchise zones.

NASA and Teamsters Local 396 signed a Labor Peace Agreement on October 27, 2014. The LPA contained a broad arbitration clause covering any disputes over its interpretation or application. But all the LPA’s terms were "expressly conditioned" upon the City entering into an exclusive franchise agreement with NASA by December 31, 2016. NASA submitted the LPA to the City with its franchisee proposal. On January 31, 2017, the President of the Board of Public Works signed NASA’s franchise agreement.

The parties’ underlying dispute amounts to this: NASA believes that, because its franchise agreement with the City was not signed until after December 31, 2016, the LPA’s condition precedent failed and therefore no contract with Local 396 was formed; Local 396 believes the condition precedent did not fail, but even if it did, a contract was still formed. This case regards the proper mechanism to resolve the dispute. NASA contends the condition precedent related to the LPA’s formation , and that, due to the condition’s non-occurrence, no contract ever materialized between the parties. Local 396, on the other hand, argues the dispute should be submitted to an arbitrator, because even if the condition precedent failed, the condition precedent related to the parties’ performance under the LPA, meaning a contract was duly formed and the arbitration clause is thus severable and binding under federal arbitration law.

Ruling on Local 396’s motion to compel arbitration, the district court found certain phrases in the LPA’s conditional provisions "inherently incompatible" and "impossible to reconcile" such that the agreement was ambiguous as to whether it contained a condition precedent to formation or to performance. Faced with this perceived irreconcilable ambiguity, the district court concluded the LPA contained a condition precedent to performance, because, the court reasoned, conditions precedent to formation are comparatively disfavored in the law. To aid in construing this ambiguous contract language, the district court considered extrinsic evidence that, it concluded, reaffirmed its interpretation of the LPA.¹ As a result, the district court concluded the arbitration clause was severable and directed the arbitrator to resolve the parties’ dispute over whether the City and NASA entered a franchise agreement by December 31, 2016. The district court also concluded the arbitrator should decide whether NASA waived its right to enforce the LPA’s conditions, rejected NASA’s statute of limitations defense, and awarded Local 396 attorney fees and costs.

Jurisdiction & Standards of Review

NASA timely appealed, and we have jurisdiction under 28 U.S.C. § 1291 and 29 U.S.C. § 185(a). We review de novo the district court’s order compelling arbitration, Quackenbush v. Allstate Ins. Co. , 121 F.3d 1372, 1380 (9th Cir. 1997), the interpretation of a contract’s language, U.S. v. 1.377 Acres of Land , 352 F.3d 1259, 1264 (9th Cir. 2003), and the principles of law applied to facts adduced from extrinsic evidence, DP Aviation v. Smiths Indus. Aerospace & Def. Sys. Ltd. , 268 F.3d 829, 836 (9th Cir. 2001). When a district court makes factual findings derived from extrinsic evidence used to interpret a contract, we review for clear error. DP Aviation , 268 F.3d at 836. Whether a contract is ambiguous is a matter of law we also review de novo. Cachil Dehe Band of Wintun Indians v. Cal. , 618 F.3d 1066, 1075 (9th Cir. 2010) ; Benach v. Cty. of L.A. , 149 Cal. App. 4th 836, 847, 57 Cal.Rptr.3d 363 (2007).

Discussion

I

"Arbitration is strictly a matter of consent, and thus is a way to resolve ... only those disputes ... the parties have agreed to submit to arbitration." Granite Rock Co. v. Int’l Bhd. of Teamsters , 561 U.S. 287, 299, 130 S.Ct. 2847, 177 L.Ed.2d 567 (2010) (citations and quotation marks omitted). Because of this "axiomatic" principle, "a party cannot be required to submit [to arbitration] any dispute which he has not agreed so to submit." Sanford v. MemberWorks, Inc. , 483 F.3d 956, 962 (9th Cir. 2007). Thus, courts may compel arbitration only after determining that an agreement to arbitrate has been formed. Granite Rock , 561 U.S. at 299, 130 S.Ct. 2847. Importantly, the federal policy favoring arbitration of labor disputes plays a role only after a court has been satisfied that an arbitration agreement was "validly formed." Id. at 303, 130 S.Ct. 2847 ; see also id . at 301, 130 S.Ct. 2847 (explaining that courts apply an arbitrability presumption "only where a validly formed and enforceable arbitration agreement is ambiguous about whether it covers the dispute at hand") (emphasis added). In sum, the federal policy favoring arbitration is no substitute for party agreement, or lack thereof.

Accordingly, we "must determine whether a contract ever existed; unless that issue is decided in favor of the party seeking arbitration, there is no basis for submitting any question to an arbitrator." Camping Const. Co. v. Dist. Council of Iron Workers , 915 F.2d 1333, 1340 (9th Cir. 1990). To determine whether the parties formed an agreement to arbitrate, courts "apply ordinary state-law principles that govern the formation of contracts." First Options of Chi., Inc. v. Kaplan , 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995).² Under California law, Local 396, the moving party, must prove by a preponderance of the evidence that an agreement to arbitrate exists. Knutson v. Sirius XM Radio Inc. , 771 F.3d 559, 565 (9th Cir. 2014).

Fundamental precepts of contract interpretation under California law (and not unique to California) guide our disposition of this case. The courts’ superseding objective when interpreting a contract is to "give effect to the mutual intention of the parties as it existed at the time of contracting." Cal. Civ. Code § 1636. "When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible ...." Id . § 1639; MacKinnon v. Truck Ins. Exch. , 31 Cal. 4th 635, 647, 3 Cal.Rptr.3d 228, 73 P.3d 1205 (2003). Next, and most importantly, "[t]he whole of a contract is to be taken together, so as to give effect to every part, if reasonably practicable, each clause helping to interpret the other." Cal. Civ. Code § 1641. California case law consistently reaffirms the primacy of this principle:

It is a primary rule of interpretation that contracts must be construed as a whole[,] that is, from their four corners, and the intention of the parties is to be collected from the entire instrument and not detached portions thereof, it being necessary to consider all of the parts to determine the meaning of any particular part as well as of the whole. Individual clauses and particular words must be considered in connection with the rest of the agreement, and all of the writing and every word of it will, if possible, be given effect.

Ajax Magnolia One Corp. v. S. Cal. Edison Co. , 167 Cal. App. 2d 743, 748, 334 P.2d 1053 (1959) ; Moore v. Wood , 26 Cal. 2d 621, 630, 160 P.2d 772 (1945) (same).

Local 396 correctly notes that ambiguous contract provisions should be construed against the drafter. See Penthouse Int’l, Ltd. v. Barnes , 792 F.2d 943, 948 (9th Cir. 1986) ; Jacobs v. Freeman , 104 Cal. App. 3d 177, 189, 163 Cal.Rptr. 680 (1980). But that rule of construction applies only where contract language is ambiguous and unresolved by the more fundamental principles of interpretation. Cal. Civ. Code § 1654. Foremost among those preceding principles, for our purposes, is the mandate that contracts be construed as a whole. Id . § 1641.

"[P]arties may make the creation of a contract subject to a condition precedent." Taylor Bus Serv., Inc. v. San Diego Bd. of Educ. , 195 Cal. App. 3d 1331, 1345, 241 Cal.Rptr. 379 (1987). "[A] condition precedent is either ... an uncertain event that must happen before the contractual right accrues or the contractual duty arises." Platt Pac., Inc. v. Andelson , 6 Cal. 4th 307, 313, 24 Cal.Rptr.2d 597, 862 P.2d 158 (1993). "The existence of a condition precedent normally depends upon the intent of the parties as determined from the words they have employed in the contract." Realmuto v. Gagnard , 110 Cal. App. 4th 193, 199, 1 Cal.Rptr.3d 569 (2003).

There are two species of conditions precedent: conditions precedent to formation and conditions precedent to performance . Jacobs , 104 Cal. App. 3d at 189–90, 163 Cal.Rptr. 680. Essentially, "[w]here a condition precedent to formation is not satisfied, the proposed bargain between the parties does not become a binding contract." Kum Tat Ltd. v. Linden Ox Pasture, LLC , No. 14-cv-02857, 2014 WL 6882421, at *7 (N.D. Cal. Dec. 5, 2014) (citing Taylor Bus Serv. , 195 Cal. App.3d at 1345, 241 Cal.Rptr. 379 ). Indeed, "[e]ven where the contract is...