Whether a federal court or an arbitrator decides in the first instance if a contract containing an arbitration provision was formed.
Whether §301(a) of the Labor-Management Relations Act, which governs federal jurisdiction for contract violations, not only applies to contracting parties but also to entities not party to the contract that may have interfered with the contract.
Petitioner, Granite Rock, and respondent, Teamsters Local 287, negotiated a new Collective Bargaining Agreement (“CBA”) which included no-strike and arbitration clauses. A dispute arose regarding the validity of the agreement after Local 287 initiated a strike with the support of respondent, International Brotherhood of Teamsters (“IBT”). Granite Rock sued Local 287 and IBT under §301(a) of the Labor-Management Relations Act. The district court found that the agreement including the arbitration clause was valid and, therefore, referred Granite Rock and Local 287 to arbitration. The court, however, dismissed the claim against IBT, holding that §301(a) did not apply. The Ninth Circuit upheld IBT’s dismissal but held that the district court should have also deferred the question of whether a contract was formed to arbitration. The Supreme Court must now decide if a federal court has initial jurisdiction to determine the validity of a contract containing an arbitration clause and whether §301(a) allows plaintiffs to sue others not party to the contract.
Questions as Framed for the Court by the Parties
1. Does a federal court have jurisdiction to determine whether a collective bargaining agreement was formed when it is disputed whether any binding contract exists, but no party makes an independent challenge to the arbitration clause apart from claiming it is inoperative before the contract is established?
2. Does Section 30l(a) of the Labor-Management Relations Act, which generally preempts otherwise available state law causes of action, provide a cause of action against an international union that is not a direct signatory to the collective bargaining agreement, but effectively displaces its signatory local union and causes a strike breaching a collective bargaining agreement for its own benefit?
For years, petitioner, Granite Rock, a California cement company, and respondent, Teamsters Local 287 (“Local 287”) (the local chapter of respondent, International Brotherhood of Teamsters (“IBT”)), had a Collective Bargaining Agreement (“CBA”). When negotiations for a new CBA failed in June 2004 and the old CBA expired, Local 287 employees went on strike. On July 2, 2004, Granite Rock and Local 287 reached a tentative agreement on a new CBA that included no-strike and arbitration provisions. After the new CBA was allegedly ratified, the business representative of Local 287 and the Administrative Assistant to IBT’s General President demanded a “back-to-work” agreement settling any liability caused by the first strike. When Granite Rock refused to sign such an additional agreement, Local 287 called on workers to continue their strike. IBT directly supported this by awarding Local 287 benefits during the strike.
Because Granite Rock felt that the renewed strike violated the no-strike clause of the new CBA, it filed a complaint in federal court asking for an injunction. The court denied the injunction due to a lack of proof regarding ratification of the CBA. After an employee testified that Local 287 ratified the CBA, Granite Rock renewed suit in September 2004. In the renewed suit, Granite Rock sued Local 287 for breach of contract and IBT for tortious interference (arguing that IBT induced a breach of the CBA). Granite Rock based its action against both respondents on §301(a) of the Labor Management Relations Act (“LMRA”), which allows contract disputes between an employer and an employee organization to be brought in federal court.
The United States District Court for the Northern District of California dismissed the claim against IBT. The court concluded that IBT had not signed the CBA and that §301(a) only permitted lawsuits against signatories of a contract. The court, however, found that the CBA, including the no-strike and arbitration clauses, had been ratified and was in force. Because of the CBA’s arbitration clause, the district court referred the parties to arbitration. On appeal, the United States Court of Appeals for the Ninth Circuit upheld the dismissal of IBT but decided that the district court did not have the power to decide whether a contract existed at all. The court held that the entire dispute should be referred to arbitration, including the question of whether the new CBA was in force.
There are two distinct legal issues in this case: 1) whether a federal court has jurisdiction to determine if a binding contract was formed where that contract contains an arbitration clause; and 2) whether §301(a) of the Labor Management Relations Act ("LMRA") creates a claim which a signatory to a collective bargaining agreement can bring against a non-party.
Jurisdiction to Determine Contract Formation
Generally, parties can agree by contract to arbitrate disputes instead of resolving disputes in court. However, arbitrators are only authorized to settle disputes where the parties have agreed to submit to arbitration.
Granite Rock argues that a line of Supreme Court cases has addressed the question of whether a federal court has jurisdiction to determine whether parties formed a contract containing an arbitration clause. In AT&T Technologies, the Court held that, even though both parties to a contract acknowledged that they formed a binding contract, a federal court—not the arbitrator—has jurisdiction to determine whether a particular dispute between the parties should be submitted to arbitration.
Here, the parties dispute whether a binding collective agreement was formed. Granite Rock claims that a collective bargaining agreement (“CBA”) was formed with respondent, Teamsters Local 287 (“Local 287”). Local 287 claims the agreement was never ratified. Because the CBA states that only issues “arising under” the CBA will be arbitrated, Granite Rock interprets this language to mean that the CBA does not provide “clear and unmistakable evidence” that Granite Rock consented to arbitrate issues relating to contract formation. Granite Rock further explains that the phrase “arising under” assumes that the CBA was formed, and a dispute cannot “arise under” the CBA if the existence of the CBA is in contention. Thus, without “clear and unmistakable evidence” of consent to arbitrate, Granite Rock contends that the arbitration court is not authorized to settle the issue of contract formation, and a federal court should, instead, settle the issue.
Conversely, according to Local 287, even though a party cannot generally be forced to arbitrate if it has not consented, “an agreement to arbitrate may be found where a party's conduct is such that legally binds it to comply with the arbitration provision contained in the contract.” Local 287 reasons that a lawsuit for breach of the CBA presupposes that the CBA is “in full force and effect.” Thus the other provisions of the CBA, including the CBA's arbitration clause, bind Granite Rock. In other words, because Granite Rock claimed the CBA was in effect, Granite Rock consented to arbitration.
Furthermore, Local 287 asserts that it may compel Granite Rock to arbitrate even while arguing that the CBA was never ratified. Local 287 claims this is possible because the Court has held that “arbitration clauses are . . . ‘separable’ from the contracts in which they are embedded.” Thus, disputes falling under the scope of the arbitration clause should be arbitrated unless the arbitration clause is independently challenged, which Granite Rock has not done.
Does §301(a) provide a cause of action in tort against those not party to the contract?
Congress enacted §301(a) after labor strikes in the 1940s threatened the national economy. Aimed at promoting industrial peace, §301(a) employed federal courts to ensure the uniform enforcement of no-strike and no-lockout provisions in collective bargaining agreements.
Granite Rock argues that the plain language of § 301(a), Supreme Court precedent, and the legislative history of §301(a) are all consistent in their support of a cause of action against respondent, International Brotherhood of Teamsters (“IBT”). While IBT is a non-party to the CBA, Granite Rock nevertheless alleges that IBT has interfered with its relationship with Local 287. First, Granite Rock considers the plain language of §301(a) which states that federal courts have jurisdiction over “[s]uits for violation of contracts between an employer and a labor organization representing employees in an industry affecting commerce.” According to Granite Rock, the Court construed this language broadly, and, thus, §301(a) jurisdiction is not limited to the signatories of a collective bargaining agreement. This interpretation of §301(a) would support a cause of action against IBT. Second, Granite Rock asserts that the Court previously recognized similar causes of action pursuant to §301(a)’s authorization to “fashion a body of federal law for the enforcement of . . . collective bargaining agreements.” Finally, Granite Rock claims that legislative history supports a cause of action against IBT. During the formation of the legislation, the Senate bill removed from the House bill a clause which would have allowed only causes of actions against signatories of a collective bargaining agreement.
However, IBT argues that §301(a) does not provide Granite Rock with a cause of action. As stated previously, §301(a) provides jurisdiction for “[s]uits for violation of contracts.” IBT claims that “the commonsense understanding” of this language is that it addresses only “suit[s] directed at a defendant to remedy an alleged breach of its contractual obligation.” IBT reasons that, because it never signed the CBA, it has no contractual obligations under the CBA. Thus, IBT contends that Granite Rock cannot bring a cause of action against IBT under §301(a).
Moreover, IBT argues that Granite Rock waived any causes of action against IBT because Granite Rock did not sue IBT on agency or alter-ego principles. IBT explains that parent unions, such as IBT, can be liable for breaches of contracts under the agency principle because parents are, for example, liable for the activities of their subsidiaries. IBT also asserts that parent entities can be liable for the actions of their subsidiaries when the subsidiaries are “alter-egos” of their parent, meaning that the subsidiary and the parent “effectively lack a separate existence.” However, IBT maintains that, because Granite Rock chose not to bring a claim of breach of contract against IBT in the district court and did not address the issue on appeal, Granite Rock cannot introduce the claim now.
The Supreme Court will address two separate issues. First, the Court will determine whether a federal court has jurisdiction to decide if a contract containing an arbitration clause was formed at all. In other words, the Court must determine whether a federal court or an arbitrator should decide in the first instance whether a contract containing an arbitration provision was formed. Second, the Court will also decide if §301(a) of the Labor Management Relations Act (“LMRA”) also permits federal claims against an entity not party to the contact. The LMRA preempts suits based on state law and creates federal contract claims instead.
Federal Court or Arbitration
Petitioner, Granite Rock, contends that courts must have the authority to decide whether a contract containing an arbitration clause was formed. Granite Rock also argues that §301(a) of the LMRA should also apply to parent organizations of unions when they interfere with a contract between their local chapter and the employer. On the other hand, respondents, Teamsters Local 287 (“Local 287”) and the International Brotherhood of Teamsters (“IBT”), claim that an arbitrator should decide whether the contract for the new CBA was formed. They also claim that §301(a) of the LMRA cannot be used against entities not party to the contract; only parties to a contract can violate a contract.
Granite Rock argues that a decision granting arbitrators the power to decide their own jurisdiction by ruling on the formation of a contract would not only negatively affect labor negotiations, but also commercial contracts involving arbitration. Granite Rock contends that such a decision would reduce the willingness of parties to include arbitration clauses in contracts or even tentative agreements. It also claims that it seems unjust to only enforce an arbitration clause but not the rest of the contract. The Center on National Labor Policy and the National Association of Manufacturers echo these concerns, pointing out the risk of increased labor tensions; tentative agreements would benefit unions to the detriment of employers by enabling arbitration but not no-strike provisions.
Local 287 expresses concern that a ruling for federal courts would disrupt underlying public policy goals. Local 287 argues that public policy favors resolution by arbitration. The American Federation of Labor and the Congress of Industrial Organizations (“AFL-CIO”) also worries that a decision in favor of the court deciding jurisdiction would deprive the parties of their choice to arbitrate all issues and would allow Granite Rock to change its mind after agreeing to arbitration.
Non-parties and §301(a)
According to Granite Rock, limiting the LMRA to actual parties to a contract would disrupt industrial peace and leave employers vulnerable; outsiders could interfere and cause strikes while remaining out of reach of federal courts. Moreover, Granite Rock doubts remedies could be had against outside groups interfering with labor contracts. Granite Rock believes that this could lead to industrial chaos. Several amici second this, arguing that it would violate public policy and create a “no-man’s land” in labor relations, because an organization responsible for breach of contract could not be sued.
Respondent, IBT,points out that a decision to permit lawsuits against non-signatories may create a new area of federal tort law, expanding liability to distant defendants. According to IBT this may lead to unpredictable and unwanted results by overthrowing existing case law. In addition, IBT believes that such a decision would open the floodgates to tortious interference claims. Amicus, AFL-CIO, adds that such actions would also improperly extend §301(a) from contract into tort law.
The Supreme Court will resolve two issues. First, the Court will decide whether a federal court has jurisdiction in the first instance to resolve issues of contract formation where the contract includes an arbitration clause. Second, the Court will also decide whether §301(a) of the Labor-Management Relations Act creates a cause of action against an entity which is involved in a labor dispute but is not a contractual party. Petitioner, Granite Rock, contends contract formation issues are not included within the scope of the arbitration clause, and, thus, the federal court has jurisdiction. Granite Rock also contends that a cause of action under §301(a) is supported by the language, case law, and legislative history of §301(a). Respondents, Local 287 and International Brotherhood of Teamsters, contend instead that, by suing for violation of the collective bargaining agreement, Granite Rock has agreed to be bound by the agreement’s provisions, including the arbitration clause. IBT also claims that because Granite Rock chose not to bring a contractual violation claim against IBT from the outset of the case, Granite Rock should not be allowed to do so now. Ultimately, the Supreme Court’s decision will affect not only labor negotiations, but also commercial contract negotiations and the initial forum for passing on contract formation.