Titan Tire Corp. v. United Steel

• Citation: 734 F.3d 708
• Decision Date: 01 November 2013
• Docket Number: No. 12–1152.,12–1152.
• Parties: TITAN TIRE CORPORATION OF FREEPORT, INC., Plaintiff–Counter Defendant–Appellant, v. UNITED STEEL, PAPER AND FORESTRY, RUBBER, MANUFACTURING, ENERGY, ALLIED INDUSTRIAL AND SERVICE WORKERS INTERNATIONAL UNION, et al., Defendants–Counter Plaintiffs–Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

734 F.3d 708

TITAN TIRE CORPORATION OF FREEPORT, INC., Plaintiff–Counter Defendant–Appellant,

v.UNITED STEEL, PAPER AND FORESTRY, RUBBER, MANUFACTURING, ENERGY, ALLIED INDUSTRIAL AND SERVICE WORKERS INTERNATIONAL UNION, et al., Defendants–Counter Plaintiffs–Appellees.

No. 12–1152.

United States Court of Appeals,Seventh Circuit.

Argued Dec. 5, 2012.

Decided Nov. 1, 2013.

Joshua G. Vincent, Attorney, Hinshaw & Culbertson, Chicago, IL, for Plaintiff–Counter Defendant–Appellant.

David R. Jury, Attorney, United Steelworkers of America Legal Department, Pittsburgh, PA, for Defendants–Counter Plaintiffs–Appellees.

Before MANION and SYKES, Circuit Judges, and DARROW, District Judge. ^*

MANION, Circuit Judge.

Titan Tire Corporation of Freeport, Inc. (“Titan”), purchased a tire manufacturing facility in Freeport, Illinois, in late December 2005. In January 2006, Titan entered into a series of labor agreements with Local 745, the union which represented the Titan workers. After taking over the Freeport facility, Titan paid the full union salaries of Local 745's President and Benefit Representative even though they were on leave of absence from Titan and primarily working away from the Titan facility. But in October 2008, Titan informed the union that for two reasons it concluded such payments violated Section 302(a) of the Labor Management Relations Act (“LMRA”), which prohibits an employer from paying money to union representatives.¹ First, Titan concluded the paymentswere illegal because Local 745 also represented a bargaining unit at the Freeport School District but the President's full-time salary was being paid solely by Titan. And second, it believed the payments illegal because the union representatives were not working full-time from the Titan facility and were not subject to Titan's control.

The union filed a grievance against Titan, arguing that Titan violated the various labor agreements when it stopped paying the President's and Benefit Representative's full-time salaries. It argued that such payments were exempt from the general prohibition of Section 302(a) by Section 302(c), because the President and Benefit Representative were current or former employees of Titan and the payments were “by reason of” their service as employees of Titan. ² An arbitrator found that Titan made these payments “by reason of their former employment” at Titan, and thus that the payments were lawful under Section 302(c). The arbitrator ordered Titan to resume paying the President's and Benefit Representative's full-time salaries. Titan filed suit in federal district court to vacate the arbitrator's award and the union counterclaimed for enforcement of the award. The district court granted the union's motion, denied Titan's motion, and enforced the arbitrator's decision. Titan appeals.

This appeal presents an issue of first impression in this circuit, namely whether a company may legally pay the fulltime salaries of the President and Benefit Representative of the union representing the company's employees. The Third Circuit, in a divided en Banc decision, in Caterpillar, Inc. v. Int'l Union, United Auto., Aerospace & Agric. Implement Workers of Am., 107 F.3d 1052 (3d Cir.1997), held that paying the full-time salaries of the union's grievance chairmen did not violate Section 302 of the LMRA because such payments were “by reason of” the union representatives' former employment at Caterpillar. Conversely, the dissents in Caterpillar concluded that the plain language of Section 302 barred the company from paying the full-time salaries of the union grievance chairmen, reasoning that such payments were not “because of” the grievance chairmen's prior service to Caterpillar, but rather because of their current work for the union. Id. at 1059 (Mansmann, J., dissenting); id. at 1069 (Alito, J., dissenting).³

The Ninth Circuit in Int'l Ass'n of Machinists & Aerospace Workers, Local Lodge 964 v. BF Goodrich Aerospace Aerostructures Grp., 387 F.3d 1046 (9th Cir.2004), also disagreed with the majority's reasoning in Caterpillar, but nonetheless concluded that a company could legally pay a union's full-time “Chief Shop Steward” where the steward was subject to the employer's control and thereby still an employee of the company. The Second Circuit in BASF Wyandotte Corp. v. Local 227, International Chem. Workers Union, 791 F.2d 1046, 1049 (2d Cir.1986), in upholding a no-docking provision, also indicated that an employer could not legally pay the full-time salary of a union employee, stating: “we do not suggest that [Section 302(c)(1) ] would allow an employer simply to put a union official on its payroll while assigning him no work.”

This circuit's closest precedent comes from Toth v. USX Corp., 883 F.2d 1297 (7th Cir.1989). In Toth, we held that former employees could accrue pension credit while working for a union, but we also recognized that at some point “the terms of compensation for former employment” could become “so incommensurate with that former employment as not to qualify as payments ‘in compensation for or by reason of’ that employment.” Id. at 1305.

Such is the case before us today. Paying the full-time union salaries of Local 745's President and Benefit Representative is “so incommensurate with [their] former employment [at Titan] as not to qualify as payments ‘in compensation for or by reason of’ that employment.” Id. Rather, these payments are “by reason of” the union's President's and Benefit Representative's service to Local 745 members, and those members include both employees working for Titan and employees working for the Freeport School District. We reach this conclusion based on the plain meaning of Section 302, although our holding also furthers the statutory purpose of preventing conflicts of interest. Because such payments are illegal, the arbitrator's decision violates explicit public policy and thus “we are obliged to refrain from enforcing it.” W.R. Grace & Co. v. Local Union 759, Int'l Union of United Rubber, 461 U.S. 757, 766, 103 S.Ct. 2177, 76 L.Ed.2d 298 (1983). Accordingly, we reverse the district court's decision and vacate the arbitrator's award.⁴

I.BACKGROUND

Titan Tire Corporation of Freeport, Inc. (“Titan”), purchased a tire manufacturing facility in Freeport, Illinois, in late December 2005. Employees at the Freeport facility were represented by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (“USW”), and Local 745 (collectively “the union”). In January 2006, Titan entered into three related labor agreements with the union: (1) a Collective Bargaining Agreement (“CBA”); (2) a Benefits Agreement; and (3) an Understandings Outside the Agreement. (Collectively “labor agreements”). The relevant portions of those agreements are discussed shortly. See infra pp. 12–13.

Following Titan's purchase of the Freeport facility, Titan continued its predecessor's practice of paying Local 745's President and Benefit Representative their full-time salaries, plus benefits. The President's and Benefit Representative's salaries were set by Local 745's bylaws which were approved by members of Local 745. The bylaws provided that Local 745's “[p]resident's salary is 60 hours at the highest base rate in the plant,” and “[t]he benefit representative salary is 48 hours at the highest pay rate of the plant.”

When Titan purchased the tire facility, Steve Vanderheyden was serving as Local 745's President. Kevin Kirk took over as President in 2009. In 2006 and throughout the underlying litigation, Anthony Balsamo served as Local 745's Benefit Representative.

From 2006 through October 2008, Titan paid Vanderheyden and Balsamo their full union salaries. Then on October 31, 2008, Titan wrote to union president Vanderheyden and informed him that Titan would no longer pay the full-time salaries for Vanderheyden, Balsamo, and another union officer, whose pay is not at issue on appeal. In this letter, Titan explained that it believed that continuing to pay the salaries of the union representatives would violate Section 302 of the LMRA because Local 745 also represented school district employees ⁵ and because the President and Benefit Representative did not work out of the Titan facility and were not subject to Titan's control. Id.

While Titan ceased paying Vanderheyden and Balsamo their full-time salaries, it instead paid directly to Local 745 amounts it believed due under the various labor agreements for time the President and Benefit Representative worked on union business. Local 745 then began paying the President's and Benefit Representative's salaries; it also became responsible for the related federal tax withholding, unemployment taxes, and worker's compensation on their incomes. Titan, though, continued to offer Vanderheyden (and later Kirk) and Balsamo fringe benefits. Specifically, they remained eligible for employee benefits, including health, dental, and life insurance, and short-term disability coverage, although to participate in those insurance plans they had to write Titan a check for their share of the premiums and the payments did not come from pre-tax earnings. Titan also continued to make pension contributions and the President and Benefit Representative maintained their seniority at Titan.⁶

Local 745 filed a grievance challenging Titan's discontinuation of payments to Vanderheyden and Balsamo. The grievance went to arbitration. At arbitration, Local 745 argued that under the governing labor agreements and the parties' course of conduct, Titan was responsible for directly paying the President's and Benefit Representative's full salaries. In making this argument, Local 745 relied on several provisions from the governing labor agreements.

First, Local 745 relied on Article VII, Section 19 of the CBA, which provided:

An employee who is designated Union representative shall be compensated at his current hourly rate for time lost...