Resolution Performance v. Paper Allied Indus.

• Decision Date: 06 March 2007
• Docket Number: No. 05-30813.,05-30813.
• Parties: RESOLUTION PERFORMANCE PRODUCTS, LLC, Plaintiff-Counter Defendant-Appellee, v. PAPER ALLIED INDUSTRIAL CHEMICAL AND ENERGY WORKERS INTERNATIONAL UNION, LOCAL 4-1201, formerly known as Norco Chemical Workers Union, Defendant-Counter Claimant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

480 F.3d 760

RESOLUTION PERFORMANCE PRODUCTS, LLC, Plaintiff-Counter Defendant-Appellee, v. PAPER ALLIED INDUSTRIAL CHEMICAL AND ENERGY WORKERS INTERNATIONAL UNION, LOCAL 4-1201, formerly known as Norco Chemical Workers Union, Defendant-Counter Claimant-Appellant.

No. 05-30813.

United States Court of Appeals, Fifth Circuit.

March 6, 2007.

Ernest R. Malone, Jr., Stephen Lee Scott (argued), The Kullman Firm, New Orleans, LA, for Plaintiff-Counter Defendant-Appellee.

Louis L. Robein, Jr. (argued), Karen Maria Torre, Robein, Urann & Lurye, Metairie, LA, for Defendant-Counter Claimant-Appellant.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before HIGGINBOTHAM, DENNIS and CLEMENT, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judges.

As part of RPP's purchase of a subsidiary of Shell Oil Company, RPP signed a collective bargaining agreement with the Union, which had had a longstanding relationship with Shell. After the purchase, RPP used only subcontractors, not Union members, for maintenance work, contrary to Shell's past practice. The Union complained that RPP should hire Union members for maintenance work, as Shell had in the past. The arbitrator agreed. The federal district court vacated the award. We reverse and remand.

I

From at least 1950 to 2000, Shell Oil Company owned a subsidiary named Shell Epoxy Resins. During that time, Shell and the Norco Chemical Workers Union, later the Paper Allied Industrial Chemical and Energy Workers International Union,¹ had a collective bargaining agreement covering both production workers and maintenance workers. Over that fifty-year span, the understanding captured in the CBA was enriched by bargaining and several arbitrations.

In 2000, Shell sold the resin subsidiary to Resolution Performance Products, now Hexion Chemical Company. In the sale agreements, RPP agreed to recognize the Union and adopt the CBA with all past letters of agreement. RPP did so, adopting a CBA identical in all relevant respects to the Shell-Union CBA. The CBA stated, in pertinent part and italicized for importance:

Preamble

. . . . The Company hereby recognizes the Union as the exclusive bargaining representative of the following collective bargaining unit ... [including both production and maintenance workers.]

This Agreement constitutes the entire agreement between the parties, and it is agreed that no prior understanding or agreement shall hereafter be operative unless it was reduced to writing and is not in conflict or inconsistent with the terms hereof.

Article III — Classification of Employees

1. Craftsmen [maintenance workers]

...

(D) Nothing herein shall require the Company to adjust or maintain any given number of craftsmen in any craft.²

Article XIV — Contractors Rates of Pay

Section 1 — Contractor Performing Work within the Plant

Whenever a contractor or subcontractor performs work within the Plant which could be performed by employees covered by this Agreement, the Company will include a provision in the applicable contract requiring the contractor and subcontractor to pay not less than the rates of pay provided in this Agreement for the same character of work; provided, however, that the foregoing shall not apply if there is an agreement as to rates between the contractor or subcontractor and his employees reached through collective bargaining....³

Section 2 — Demotions or Layoffs

RPP's obligations under Section 1 will apply only for the period of time when,

(A) an employee is demoted or displaced from any department or craft listed in Exhibit "A" of the Agreement through no fault of his/her own, whereupon Section 1 will apply on a one-for-one basis to any contractor performing work at the Norco Plant, or

(B) an employee is laid off due to a reduction in force. However, RPP's obligations under Section 1 will continue to apply to any contracted work normally performed by Operators.

After the sale, some production workers transferred to RPP, but no maintenance workers transferred.⁴ During the first year of RPP's control of the business, all maintenance workers were subcontractors, either employees of various firms, including KBR, or Shell employees subcontracted to RPP under the Interim Labor Services Agreement.⁵ At the end of that year, RPP stopped using Shell's workers, who were parties to a Shell-Union CBA; and instead of hiring Union workers, it used as maintenance workers, as it still does, only subcontractors from firms other than Shell, primarily KBR.

The Union asserted in a grievance in 2001 that RPP improperly used subcontractors instead of union workers for maintenance. RPP responded that it would not recognize the grievance because, among other things, it was not timely, the CBA did not require it to employ any maintenance workers, RPP had never employed any maintenance workers and thus could not have subcontracted out the work to the Union's detriment, and Shell maintenance employees had rejected employment with RPP, forcing the company to subcontract out the work. Arbitration followed, and in July 2004 the arbitrator concluded that the grievance was timely and that RPP violated the CBA by subcontracting out all the maintenance work.

The arbitrator began by acknowledging the unique circumstances: while RPP had never employed any Union workers for maintenance, Shell had for fifty years. She then concluded that RPP, by assuming the obligations of the CBA and all past letters of agreement, "logically ... accepted" the "rich bargaining history" and "past arbitral interpretations of its obligations under the CBA." Hence, she concluded, "the issue should be resolved in the same manner as any other contracting out grievance" — analyzing the text of the CBA and prior arbitral interpretations of that text.

First, she noted that the CBA addressed subcontracting only in Article XIV, which prescribed subcontractor pay. She then stated, "It is generally accepted that a CBA ... which is silent about subcontracting ... does not give Management the unfettered right to subcontract." She did not mention the applicability of Article III, which grants RPP the right to determine the number of maintenance workers, or discuss the "recognition clause" in the preamble, which the Union argues on appeal is a limitation on the right to subcontract, stating only that the CBA is silent as to RPP's right to subcontract.

Turning then to past arbitral interpretations to inform that silence, the arbitrator analyzed four prior matters, quoting passages showing a desire to protect the integrity of the bargaining unit:

[Even when subcontracting,] the Company is still obligated to act reasonably and in good faith in such matters, so as not to subvert the labor agreement or to seriously damage the bargaining unit....

...

Arbitrators are hesitant to permit wholesale subcontracting even where the labor contract is silent regarding such restrictions, if the subcontracting act would significantly undermine the integrity of the bargaining unit or its members rights.

...

[T]he fact that the grievance may create a scheduling difficulty or cost a bit more, does not change the fact that this is bargaining unit work and, as such, cannot be assigned to [] contract workers.

...

[Where Shell filled one position with an outside subcontractor,] Shell's decision ... had absolutely no impact on the scope or integrity of the bargaining unit.

The arbitrator distinguished the instant case from the fourth arbitration, which arose when the last Union member serving as an insulator retired and Shell hired for the waning position one subcontractor, instead of a Union member. She noted that the current case is about the entire maintenance unit, not just one position, and that there is plenty of maintenance work for the unit here, unlike the prior arbitration where there was not even one daily full-time job for an insulator. She observed that the arbitrator in the prior arbitration sensibly read the CBA not to force Shell to maintain obsolete positions.

The arbitrator here found the lesson from past arbitrations clear: though the company has some latitude to subcontract, it cannot do so if subcontracting would significantly undermine the integrity of the bargaining unit. Because RPP did not employ any bargaining unit maintenance employees but instead subcontracted out all the maintenance work, the arbitrator concluded that RPP had undermined the integrity of the bargaining unit.

Finally, as the remedy, the arbitrator ordered that

the Company shall employ maintenance craft employees in numbers comparable to that of the Epoxy Resins Department when it was owned by Shell. Bargaining unit maintenance employees shall be responsible for routine maintenance of the plant. The Company may allocate work in the manner comparable to Shell's practices relating to employment and contracting out, before the sale.

RPP filed suit in federal district court, seeking vacatur of the award, and both parties moved for summary judgment. The district court granted RPP's motion. Although the court deferred to the arbitrator's conclusion that the grievance was timely, it concluded that the arbitrator erred by considering past practice where the CBA stated it was the entire agreement between the parties and erred under Beaird Industries, Inc. v. Local 2297, International Union,⁶ which directs vacatur where the arbitrator acts contrary to an express provision of the CBA, because Article III of the CBA unambiguously did not require RPP to maintain a fixed number of maintenance workers. The Union appealed.

II

We review the district court's grant of summary judgment de novo.⁷ Judicial review of arbitration decisions arising from the terms of a CBA is "narrowly limited," and courts should afford "great deference" to arbitration awards.⁸ "As long as the arbitrator's decision `draws its essence from the collective bargaining agreement' and the arbitrator is not fashioning `his own brand...