THE COURT vs. THE ARBITRATOR
WHO DECIDES WHO DECIDES AND HOW WILL
THEY DECIDE?
Prepared by
Loretta T. Attardo
Attorney, Arbitrator, Mediator
Boston, MA
And
Sharone B. Jona, Esq.
Boston, MA
******************
ABA 4th Annual Section of Labor and Employment Law
Conference
November 3-6, 2010
Chicago, Illinois
A. Introduction
Since September 2009, the Supreme Court of the United States has had the
opportunity to hear and decide a number of cases relating to labor and employment law.
Two key cases, decided just three days apart, are Granite Rock Co. v. International
Brotherhood of Teamsters, No. 08-1214, 561 U.S. ___, (U.S. June 24, 2010) (“Granite
Rock”) and Rent-A Center, West, Inc. v. Antonio Jackson, No. 09-497, 561 U.S. ___,
(U.S. June 21, 2010) (“Rent-A-Center”). Both cases present difficult questions regarding
the authority and scope of the arbitrator to decide matters relating to the validity and
applicability of a collective bargaining agreement. Additionally, both cases raise
interesting and somewhat puzzling questions about the Roberts’ Court approach to labor
and employment arbitration. In fact, one could say that these cases present a rather
confused and confusing positioning of this Court in relation to the authority of the
arbitrator. It will become even more important to try and unravel the trend that these two
cases may be establishing in attempting to predict the potential fate of some of the
recently decided Appeals Court cases.
B. The Supreme Court Cases: Granite Rock and Rent-A-Center
1. Granite Rock
The facts of Granite Rock revolve around the company’s claim against the union
for damages relating to the alleged breach of the collective bargaining agreement
(“CBA”). In June 2004, the local union, supported by its international (IBT), initiated a
strike against Granite Rock due to the expiration of the controlling CBA and failure to
reach an agreement on a new CBA. On June 2, 2004, the parties agreed to a new CBA,
containing “no-strike” and arbitration clauses, however the Union failed to secure a backto-work agreement holding Union members harmless for any strike related damages. IBT
instructed the Union to continue striking until Granite Rock agreed to such a holdharmless agreement. Granite Rock refused to enter into a hold-harmless agreement and
informed the Union that the continued strike activity constituted a violation of the nostrike provision in the newly adopted CBA. IBT and the union responded by announcing
a company-wide strike involving numerous facilities and workers. Granite Rock sought
strike related damages in federal court under §301(a) of the Labor Management Relations
Act claiming the union breached the CBA. It also sought an injunction against the
ongoing strike because the hold-harmless dispute was an arbitrable grievance under the
new CBA.
The Union conceded §301(a) jurisdiction but claimed the new CBA was never
validly ratified and therefore the no-strike clause did not provide a basis for Granite Rock
to challenge the strike. Granite Rock maintained the CBA was ratified July 2, 2004, while
the Union maintained it was not ratified until August 22, 2004. The District Court denied
the Union’s motion to send the dispute to arbitration and sent the date of ratification
question to a jury who unanimously found that the CBA was ratified on July 2, 2004. The
court then ordered arbitration on Granite Rock’s breach of contract claims. The Ninth
Circuit reversed the arbitration order, holding that the parties’ ratification date dispute
was a matter for an arbitrator to resolve under the CBA’s arbitration clause.
The Supreme Court reversed the Ninth Circuit in relevant part,1 and remanded the
case consistent with its opinion that the question of the ratification date of the CBA was
for the court, not the arbitrator, to decide.2 The majority begins its Opinion by restating
the “well settled” precedent that whether parties have agreed to submit a dispute to
arbitration is an issue for judicial determination. Furthermore, when the dispute concerns
contract formation, it is similarly for the courts to decide. Because the formation dispute
here is not “typical,” in that it is about when, not whether, the CBA was ratified, these
maxims of law cannot so easily be applied.
The majority in Granite Rock recites the well settled rule that arbitration is a
matter of consent and therefore those disputes, and only those disputes, which the parties
have agreed to arbitrate should be arbitrated.3 The Court then goes a step further by
holding that courts should only order arbitration of a dispute when neither the formation
of the parties’ arbitration agreement nor its enforceability or applicability to the dispute is
in issue.4 Where a party contests either or both, the court must resolve the dispute.5 In
Granite Rock the CBA provision requiring arbitration of all disputes “arising under” the
CBA does not include a dispute about when the CBA came into existence.6
1
The case also contained the question of recognizing a new federal cause of action under §301(a) of the
LMRA for IBT’s alleged tortious interference with the CBA. On this question the Supreme Court affirmed
the Ninth Circuit’s decision declining to recognize a new federal cause of action. This question is not
addressed in this paper.
2
Justice Thomas wrote the opinion for the majority that included seven of the justices with the exception of
Justices Sotomayor and Stevens, who filed a dissent as to Sections I and II.
3
Slip Op. at 9.
Id.
5
Id.
6
Slip Op. at 18.
4
It bears noting that in her dissent, Justice Sotomayor took a different approach and
reached a different conclusion. She reasoned that since the CBA was eventually executed
in December 2004, and made retroactively effective to May 2004, it was in effect when
the disputed strike took place, regardless of the ratification date. And since the
disagreement here is whether the July work stoppage was prohibited under the CBA, it is
therefore clearly a dispute “arising under” the CBA and a matter for arbitration. The date
that the agreement was ratified does not determine whether the parties’ dispute is within
the scope of the CBA’s arbitration provision. Because the agreement was retroactively
effective at either potential date of ratification, the dispute clearly arises under the CBA
and should have been heard by the arbitrator.
2. Rent-A-Center
As a condition of his employment, Respondent Antonio Jackson signed a binding
arbitration agreement with Rent-A-Center when he began working for them in February
2003. The Agreement provided for arbitration of all “past, present or future” disputes
arising out of Jackson’s employment, including “claims for discrimination” and “claims
for violation of any federal … law.” The Agreement also provided that “the Arbitrator,
and not any federal, state, or local court or agency, shall have exclusive authority to
resolve any dispute relating to the interpretation, applicability, enforceability or formation
of this Agreement including, but not limited to any claim that all or any part of this
Agreement is void or voidable.”
In February 2007, Jackson filed an employment-discrimination suit against RentA-Center in Federal District Court. Rent-A-Center moved, under the Federal Arbitration
Act, to dismiss or stay the proceedings and to compel arbitration based on the arbitration
agreement Jackson had signed. Jackson opposed the motion on the ground that the
arbitration agreement was unenforceable in that it was unconscionable under Nevada law.
The District Court granted Rent-A-Center’s motion. The Ninth Circuit reversed in
relevant part.
The Supreme Court granted certiorari to determine if a District Court may decide
whether an arbitration agreement is unconscionable if the agreement explicitly delegates
that decision to the arbitrator. Justice Scalia wrote for the majority (Roberts, Kennedy,
Thomas, and Alito) and determined that it was, in fact, the arbitrator who decides
whether the agreement to arbitrate was unconscionable. The Court reasoned that if an
agreement to arbitrate includes an agreement that the arbitrator will determine
enforceability of the agreement, if a party challenges specifically the enforceability of
that section of the agreement, then the District Court considers the challenge. However, if
the agreement as a whole is challenged as unenforceable, then the arbitrator decides.
Since, according to the majority, Jackson challenged the agreement as a whole as
unenforceable, the case must be heard by the arbitrator.
C. Select Circuit Court Decisions From the Past Year that Could be Affected
1. Appellate Court cases dealing with judicial authority
This past year there have been a number of cases dealing with the question of
“who decides who decides.”7 There are two cases that deal directly with the question of
who determines whether an agreement to arbitrate is unconscionable, the arbitrator or the
7
International Association of Machinists & Aerospace Workers, AFL-CIO v. AK Steel Corp., ___ F.3d
___, 2010 WL 3168235, *1 (6th Cir. 2010).
court. In Laster v. AT&T Mobility LLC, 584 F.3d 849 (9th Cir. 2009) individuals
brought a class action claim against AT&T for offering a “free” phone to anyone who
signed up for service but then charging the new subscriber sales tax on the retail value of
each “free” phone.8 AT&T demanded that the claims be submitted to individual
arbitration relying on the arbitration clause in the agreement which requires arbitration
but explicitly bars class actions.9 In response, the plaintiffs argue that California law
renders both the arbitration clause, and the class action waiver, unconscionable and
therefore unenforceable.10
The Ninth Circuit affirmed the District Court’s order denying AT&T’s motion to
compel arbitration holding that the arbitration agreement at issue was unconscionable and
therefore unenforceable under California law.11 In discussing its reasoning, the court
comments on the Supreme Court’s decision in Preston v. Ferrer12 which held that when
parties agree to arbitrate all disputes arising under their contract, questions regarding the
validity of the entire contract are for the arbitrator to decide.13 The court here points out
that Preston distinguishes between disputes about the validity of the entire contract and
disputes aimed solely at the arbitration clause.14 Here, the dispute is over the arbitration
clause specifically, not the entire contract, and therefore Preston is inapplicable.15 On
8
Laster, 584 F.3d at 852.
Id.
10
Id.
11
Id. The Ninth Circuit also found no merit in AT&T’s claim that the FAA preempted California
unconscionability law.
12
552 U.S. 346 (2008).
13
Laster, 584 F.3d at 858 (citing Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006)).
14
Id. at 859.
15
Id.
9
May 24, 2010, the Supreme Court granted certiorari on AT&T’s appeal from the Ninth
Circuit’s decision and oral arguments will be heard sometime this fall.16
In Nino v. Jewelry Exchange, Inc, 609 F.3d 191 (3rd Cir. 2010) a former
employee brought action against Jewelry Exchange alleging discrimination based on
gender and national origin.17 After litigating the matter in District Court for fifteen
months, Jewelry Exchanged moved to dismiss the claim and compel arbitration under the
employment agreement executed by the plaintiff when he began working for the
company.18 The District Court granted the motion to dismiss, noting that while the
arbitration clause was unconscionable, it was also severable from the remainder of the
contract because it did not constitute an “essential” part of the agreement.19
The Third Circuit reversed the District Court and remanded the case finding that
the arbitration agreement was unconscionable and unenforceable.20 Here, the court also
acknowledges the holding in Preston.21 It determines that since the challenge at issue is
specifically regarding the arbitration agreement, not the agreement as a whole, precedent
dictates that the question of arbitrability is for the court, not the arbitrator, to decide.22
Applying Virgin Islands law, the court found the arbitration agreement to be
unconscionable, non-severable, and unenforceable.23
In a third case, International Association of Machinists & Aerospace Workers,
AFL-CIO v. AK Steel Corp., ___ F.3d ___, 2010 WL 3168235 (6th Cir. 2010) the court
16
Certiorari granted AT&T Mobility LLC v. Concepcion, 130 S.Ct. 3322 (May 24, 2010).
Id. at 198-99.
18
Id. at 199.
19
Id.
20
Id. at 196. The court also found that the employer waived its right to compel arbitration by first litigating
the case for 15 months before moving to compel arbitration.
21
Id. at 200, n. 3.
22
Id. at 200.
23
Id. at 208.
17
held that the decision of whether or not claims were substantively arbitrable under a
collective bargaining agreement was an issue for the court, not the arbitrator, to decide.
Citing the Supreme Court’s holding in First Options of Chi., Inc. v. Kaplan,24 the Sixth
Circuit reasoned that the Transition Agreement at issue did not provide, in “clear and
unmistakable” language, that an arbitrator should decide matters of substantive
arbitrability.25 Instead, the court found evidence that the parties did not intend to have
matters of substantive arbitrability decided by the arbitrator.26
2. Appellate Court cases dealing with the scope of the arbitrator’s authority
In the past year there continued to be a number of cases challenging arbitrator
awards on the grounds that the arbitrator exceeded his or her authority in making the
award. Most of these cases apply the FAA’s Section 10 guidelines regarding the limited
grounds on which a District Court may vacate an arbitration award, specifically
subsection (4) which reads, “where the arbitrators exceeded their powers, or so
imperfectly executed them that a mutual, final, and definite award upon the subject
matter submitted was not made.” This has rightly been referred to as a tough standard.
In Catasus v. Bellsouth Telecommunications, Inc., 2010 WL 2881497 (11th Cir. 2010),
the District Court granted summary judgment to the employer, finding that the arbitration
award upholding the termination of the employee should not be vacated, and the Ninth
Circuit affirmed the decision.27 The employee claimed that the arbitrator interpreted and
applied the employer’s short term disability policy, which was not part of the CBA and
24
514 U.S. 938 (1995).
AK Steel, 2010 WL 3168235 at *4 (citing First Option, 514 U.S. at 943).
26
Id. at *4.
27
Id. at *3.
25
outside of the arbitrator’s jurisdiction.28 The Ninth Circuit found that argument
unconvincing because it determined that the arbitrator did not decide whether the
employee was entitled to receive short term disability benefits, rather the arbitrator only
discussed the policy in reference to its administration.29 Therefore, the court concluded
that the award was not “irrational” nor did it “fail[] to draw its essence from the collective
bargaining agreement.”30
On the other hand, in CP Kelco US, Inc. v. International Union of Operating
Engineers, AFL-CIO, 2010 WL 2232258 (10th Cir. 2010) the court found that the
arbitrator had exceeded his authority under the CBA by considering and enforcing the
employer’s prior call-in policy without first finding any portion of the CBA ambiguous.31
The Tenth Circuit stated that arbitrators are permitted to resolve ambiguities using pastpractices or the “law of the shop,” however they may not use such extrinsic evidence to
alter any unambiguous provision in the CBA.32 Here, the court found that the arbitrator
had acknowledged that the CBA contained no specific mention of the call-in policy but
he failed to recognize that the company had reserved the right to unilaterally determine
such policies in the Management Rights Clause.33 Therefore, the court affirmed the
District Court’s vacation of the arbitrator’s award and its grant of summary judgment in
favor of the company.34
28
Id. at *1.
Id. at *2.
30
Id. (citing Osram Sylvania, Inc. v. Teamsters Local Union 528, 87 F.3d 1261, 1263 (11th Cir. 1996).
31
CP Kelco, 2010 WL 2232258 at *6.
32
Id.
33
Id.
34
Id. at *7.
29
D. Analysis of Supreme Court Trend and its Possible Impact on the Appeals
Court Cases
The decisions in Granite Rock and Rent-A-Center raise a number of questions
regarding both the state of the law and the direction of the Roberts’ Court. Firstly, the
Court’s holding in Rent-A-Center makes it nearly impossible for a court to determine the
validity of an agreement to arbitrate. Paradoxically, the question of whether a claim can
proceed to arbitration must be decided in arbitration. So, as in Rent-A-Center, when a
party disputes the fairness of being forced into arbitration under an arguably
unconscionable agreement, depending on the language of the arbitration agreement, he or
she may have to resolve that challenge in arbitration.
The potential vulnerability that Rent-A-Center presents to AT&T and Jewelry
Exchange concerns the severability of the potentially offensive arbitration provisions.
Contrary to the Third Circuit’s finding in Jewelry Exchange, the Supreme Court in RentA-Center found the agreement to arbitrate was severable from the remainder of the
contract.35 Even though the contract in Rent-A-Center was exclusively an agreement to
arbitrate, the Court found that to be a distinction without a difference and reaffirmed its
holdings in Prima Paint, Buckeye, and Preston.36 While the preceding cases dealt with
contracts that contained provisions other than the arbitration clause, here the Court found
that even when the entire contract was an arbitration agreement, to have properly
challenged it the employee needed to challenge the specific “written provision” which
delegated the authority to hear claims about the validity of the agreement to the
35
36
Rent-A-Center, Slip Op. at 7.
Slip Op. at 8.
arbitrator.37 What this holding suggests is that the Court is interested in continuing to
narrow the access to judicial review of the validity of arbitration agreements. This
narrowing may continue when the Court hears, sometime this fall, the company’s appeal
from the Ninth Circuit’s decision in AT&T.
Rent-A-Center also appears to herald an interesting shift in what was historically
to be expected of conservative justices. Once upon a time, the more conservative
members of the Court would bend over backwards to undermine the validity of
arbitration but here, in an opinion written by Justice Scalia, the Court’s conservatives
seem to be advancing the cause of arbitration. There is, of course, at least one other way
to look at this. Also in line with a historically conservative agenda is the protection of
both corporate interests and the freedom to contract. Rent-A-Center can also be
explained as a reinforcement of this Court’s commitment to furthering the interests of
corporations, in particular enforcing contract provisions that are challenged as
unconscionably favoring the corporation over the individual employee. To be fair, the
Court did not determine if the contract in Rent-A-Center was valid, rather it determined
that the decision of validity belonged to the arbitrator, expressly the position that the
corporation advanced in this case.
Another possible explanation is that historically arbitrators have not awarded
damages nearly as generously as juries, although this appears to be changing somewhat.
In that respect, this Court’s decision in Rent-A-Center could also reflect its interest in
37
Slip Op. at 8-9.
reducing the potential damages liability of corporations by forcing as many cases into
arbitration as feasible.
When Rent-A-Center is compared with Granite Rock, a case that was decided just
three days later, the Court’s agenda is less clear. Granite Rock, authored by Justice
Thomas for the conservative justices as well as Justices Ginsburg and Breyer, seems to be
at odds with Rent-A-Center. In Granite Rock, the Court held that the dispute over the
ratification date of the CBA was a matter for the District Court, not the arbitrator, to
decide. So why, three days after vesting in the arbitrator the authority to determine the
validity of the arbitration agreement itself, would the Court reserve for itself the right to
determine the ratification date of a CBA? One simple explanation is that while the
contract in Rent-A-Center was clearly formed, albeit potentially unenforceable, the
contract in Granite Rock was not.38 In that respect, the historical preference of
conservatives to protect the freedom to contract would remain intact as would the
aversion to force parties into arbitration that did not contract to submit themselves to that
authority. It is interesting to note that another Supreme Court decision this past year,
Stolt-Nielsen S.A. v. Animal Feeds International Corp.,39 followed a similar line of
reasoning. It held that absent an express provision allowing class action arbitration, a
party cannot be forced to go to class action arbitration.40 Requiring an express agreement
allowing class action arbitration may be another example of the Supreme Court fiercely
protecting the freedom to contract and the “gateway” to arbitration.
38
But see Justice Sotomayor’s dissenting opinion pointing out that the CBA was later ratified and made
retroactively effective to a date well before the start of this dispute. In that respect, the dispute clearly
“arose out of” provisions of the CBA, namely the “no-strike” provision.
39
No. 08-1198, 559 U.S. ___, (U.S. April 27, 2010).
40
Slip Op. at 11.
Another possible explanation is that the Court was concerned about the
differences between collective labor and individual employment agreements. In Rent-ACenter, an individual was contesting an employment agreement while in Granite Rock, a
collective bargaining agreement was at issue. Could the Court be more willing to force
individuals into arbitration but reserve for the courts the authority to determine when
labor unions have agreed to arbitrate?
E. Conclusion
While the Supreme Court’s agenda may not be crystal clear, what is clear is that
the issue of validity and enforceability of arbitration agreements will continue to be a
source of contention in the years to come. The potential narrowing of the court’s ability
to determine the validity of an agreement to arbitrate may increase the number of cases
heard by arbitrators in the coming years and certainly will increase the complexity of the
decisions surrounding the unconscionability of arbitration agreements. In determining
“who decides who decides” it may be increasingly important to employers, employees,
and unions to carefully negotiate and consider where, and by whom, disputes regarding
the validity of an agreement are to be heard and to draft agreements accordingly.