MZM Constr. Co. v. N.J. Bldg. Laborers Statewide Benefit Funds

CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)
Citation974 F.3d 386
Docket NumberNos. 18-3791 & 19-3102,s. 18-3791 & 19-3102
Decision Date14 September 2020

Bradley M. Parsons [ARGUED], Seth Ptasiewicz, Kroll Heineman Carton, 99 Wood Avenue South, Metro Corporate Campus I, Suite 307, Iselin, NJ 08830, Counsel for Appellant

Eric Magnelli [ARGUED], Anthony M. Rainone, Brach Eichler, 101 Eisenhower Parkway, Roseland, NJ 07068, Counsel for Appellee

Before: AMBRO, HARDIMAN, and RESTREPO, Circuit Judges.


RESTREPO, Circuit Judge.

We are confronted with a "mind-bending" question that has been dubbed "the queen of all threshold issues" in arbitration law. David Horton, Arbitration About Arbitration , 70 Stan. L. Rev. 363, 370, 422 (2018). Who decides—a court or an arbitrator—whether an agreement exists, when the putative agreement includes an arbitration provision empowering an arbitrator to decide whether an agreement exists?

This seemingly circular and esoteric inquiry implicates important concerns, from the more specific question of whether the parties’ bargained-for forum is being enforced to broader questions about the allocation of powers between judges and arbitrators. In this case, the U.S. District Court for the District of New Jersey concluded that the court had the primary power to decide whether fraud in the execution vitiated the formation or existence of the contract containing the arbitration provision. The court thus enjoined arbitration pending resolution of factual issues that bear upon that claim.

We agree. Under the Federal Arbitration Act (FAA), 9 U.S.C. § 4, questions about the "making of the agreement to arbitrate" are for the courts to decide unless the parties have clearly and unmistakably referred those issues to arbitration in a written contract whose formation is not in issue. Here, the formation of the contract containing the relevant arbitration provision is at issue. Therefore, we will affirm.

A. Events Leading up to the Arbitration Dispute

In 2001, MZM Construction Company, a New Jersey corporation, hired workers from a local labor union for a construction project at the Newark Liberty International Airport. The following year, MZM's president and sole shareholder, Marjorie Perry, signed a one-page, short-form agreement (SFA) with the union. Work on the Newark Airport project concluded in 2004.

The SFA states that, "in order to expand the work opportunities of both parties," MZM and the union "agree to be bound by the conditions as set forth in the 1999 Building, Site and General Construction Agreement, which expires April 30, 2002," and its successor, "the 2002 Building, Site and General Construction Agreement, which successor becomes effective May 1, 2002." JA64. Both agreements are "incorporated" into the SFA "in full." Id . The parties refer to the agreements referenced in the SFA as collective bargaining agreements or CBAs. The SFA does not include any other substantive terms, nor does it indicate whether the CBAs were attached to it.

Under the 2002 CBA, employers are required to make contributions to the New Jersey Building Laborers’ Statewide Benefit Funds in accordance with "the applicable trust agreement." JA89 (2002 CBA, art. 14.10). The 2002 CBA was to remain in effect through April 2007, when it would automatically self-renew on a "year-to-year" basis unless terminated by the contracting parties.1 JA98 (2002 CBA art. 23.10).

From 2001 through 2018, MZM remitted more than $500,000 in contributions to the Funds for work related to the Newark Airport project, as well as several other unrelated jobs. When making those contributions, MZM executed and submitted remittance reports, several of which expressly reference "Collective Bargaining Agreements" and certain trust agreements. JA320-45, 355. Perry signed those reports in her capacity as MZM's president.

The 2002 CBA and related trust agreement give the Funds the authority to audit the books of contracting employers to validate that all required contributions have been made. In 2018, the Funds invoked this authority to ensure that contributions made by MZM from October 2014 through September 2017 "were made in accordance with collective bargaining agreements." JA361. MZM consented to and participated in the audit. Following the audit, the Funds determined that MZM owed about $230,000 in contributions for the relevant time period.

When MZM questioned the basis for the alleged liability, the Funds produced the SFA that Perry signed in 2002, along with an unsigned copy of the 2002 CBA.2 The Funds further informed MZM that, absent payment, a collection dispute would be submitted to arbitration. The trust agreement gives the Funds the option of going to court or "designat[ing] a permanent arbitrator to hear and determine collection disputes." JA290 (Trust Agreement, art. V § 4).

In addition, the 2002 CBA contains an arbitration clause pursuant to which the contracting parties agree to arbitrate, among other things, "questions or grievances involving the interpretation and application of this Agreement," i.e. , the 2002 CBA. JA96-97 (2002 CBA, art. 21.20(b)); JA68 (2002 CBA Preamble (defining the "Agreement" as "this Collective Bargaining Agreement")). The arbitration clause includes a provision stating: "The Arbitrator shall have the authority to decide whether an Agreement exists, where that is in dispute." JA97 (2002 CBA, art. 21.20(c)).

The Funds unilaterally scheduled arbitration to begin in November 2018.

B. MZM's Action in the District Court

That same month, MZM filed a complaint against the Funds in the District Court, seeking to enjoin arbitration. It also sought a declaratory judgment that MZM is not a signatory to any CBA, that MZM has no obligation to arbitrate under any CBA, and that MZM is not liable to the Funds under any CBA. The gravamen of the complaint is that fraud in the execution voided the SFA and the incorporation of the CBAs, and therefore, no agreement exists between MZM and the Funds.

In a supporting declaration submitted with the complaint, Perry admits that she signed the SFA in 2002 but claims she never intended to execute a "statewide [CBA]" requiring MZM to hire union workers and pay fringe benefits on all of its construction projects within the state. JA59 (Perry Decl. ¶ 10); see also JA44 (Compl. ¶ 15). According to Perry, while MZM was working on the Newark Airport project, a local union representative, Joe Taylor, approached and asked her to "sign a single-project agreement ... because the union had nothing on record for MZM for the Newark Airport job." JA58 (Perry Decl. ¶ 9). Taylor "confirmed" that the document he needed her to sign "was only for the Newark Airport job." Id . "[A]t no time did ... Taylor advise" Perry that he wanted her to sign a statewide CBA. Id . He said that if she did not sign the SFA, the union would pull its workers from the job. Perry "signed the one-page document to avoid any labor interruptions on the job." Id .

Perry avers that she relied on Taylor's characterization of the SFA when signing it. Taylor "normally dealt with [Perry] over the years," and she contends that he knew from their "many dealings" that MZM is an "open shop," id ., meaning that MZM does not ordinarily hire workers based on union affiliation and only hires union workers "from time to time," for instance, when directed to do so by a site owner or general contractor for a specific project. JA57 (Perry Decl. ¶¶ 5-6). Taylor was also aware that MZM "had no interest in becoming a party to any statewide [CBA]." JA58 (Perry Decl. ¶ 9). Perry claims she never received or even saw a copy of the 2002 CBA or any CBA until after the audit in 2018.

According to the complaint, MZM and the union's conduct during the sixteen years following the execution of the 2002 SFA did not accord with a statewide CBA but rather reflected their regular course of dealing. When MZM needed union labor because an owner or general contractor required it, the union would provide laborers and MZM would pay wages and fringe benefits to the Funds.

The Funds moved to dismiss the complaint and opposed the injunction application. They asked the District Court to refer MZM's fraud-in-the-execution claim to the arbitrator, along with the underlying collection dispute, in accordance with the 2002 CBA's arbitration provision. The Funds further asserted that MZM had not stated a claim of fraud in the execution but rather fraud in the inducement. They argued that this distinction is material to whether the court or the arbitrator decides if an enforceable contract exists. The Funds submitted evidence about the parties’ alleged course of dealings that, according to the Funds, demonstrated a mutual intent to be bound by the CBAs.

In December 2018, the District Court held a hearing in which it framed the issue as follows: "The task before us ... is to figure out whether this [dispute] stays here or goes to the arbitrator." JA422. After hearing argument, the court expressed doubt that a valid arbitration agreement existed between the parties based on MZM's claim of fraud in the execution and granted a preliminary injunction to preserve the status quo while it resolved that claim. The District Court later entered an order enjoining arbitration during the pendency of this action. It also "denied" the motion to dismiss "because the arbitrability issue cannot be decided without further factual development." JA7. The court authorized "expedited discovery." JA7. The Funds timely appealed from that order.

While that appeal was pending, the Funds moved the District Court for reconsideration under Rules 54(b) and 60(b) and for an indicative ruling under Rule 62.1, which authorizes a district court to rule on motions that are barred pending appeal. The Funds asked the court to indicate that, if the case were remanded, it would...

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