June 24, 2010

Supreme Court Decides Granite Rock Co. v. International Brotherhood of Teamsters

On June 24, the Supreme Court decided Granite Rock Co. v. International Brotherhood of Teamsters, No. 08-1214, holding that a court, rather than an arbitrator, was required to decide when a union had ratified a new collective bargaining agreement ("CBA"), both because that type of formation question falls to courts to decide and because it fell outside the terms of the parties' arbitration agreement. The Supreme Court also declined to recognize a claim for tortious interference under federal labor law.

This case arose out of an unusual factual sequence in which a CBA expired, the union began a strike, the parties reached a new CBA and the union allegedly ratified it, the union began striking again, the employer sued the union to enjoin the second strike, and then the union concededly ratified the new CBA. The dispute was over who should decide whether the first ratification was valid—a court or an arbitrator.

The employer, Granite Rock Company, is a building materials company that operates in California, some of whose employees are members of the International Brotherhood of Teamsters, Local 287. On June 9, 2004, those members began striking when they were unable to reach agreement on the terms of a new CBA, the old one having expired. This first strike continued until July 2, 2004, when the parties reached agreement on a new CBA. The new CBA contained both a no-strike clause and an arbitration agreement requiring all claims "arising under" its terms to be arbitrated. What it did not contain was a provision holding the union members harmless for having participated in the first strike. The members of Local 287 unanimously ratified the new CBA on July 2. But then the International Brotherhood of Teamsters national organization learned of the lack of a hold-harmless provision and instigated a second strike, beginning on July 5. Granite Rock sued on July 9 to enforce the no-strike provision in the new CBA. The parties disputed both whether the new CBA had been validly ratified on July 2 and who should decide that issue. While these disputes were pending in court, the union members ratified the new CBA a second (or first) time on August 22 and went back to work. Granite then amended its complaint to add a claim for tortious interference with contract against the International Brotherhood.

The district court held that a court was the proper decision maker for the ratification question. It submitted that question to a jury, which held that the new CBA had in fact been ratified on July 2. The district court then ordered Granite Rock's claims against the union under the no-strike clause to be resolved in arbitration. The court also dismissed Granite Rock's tortious interference claim under §301 of the Labor Management Relations Act ("LMRA"), holding that it did not exist as a matter of federal common law. The Ninth Circuit affirmed the latter ruling but reversed the former, holding that an arbitrator should have decided whether the new CBA had been ratified on July 2.

On the issue of who should decide the ratification issue, the Supreme Court ruled 7 to 2 that the district court was the proper decision maker, not an arbitrator. Writing for the Court, Justice Thomas started with first principles: "[O]ur precedents hold that courts should order arbitration of a dispute only where the court is satisfied that neither formation of the parties' arbitration agreement nor . . . its enforceability or applicability to the dispute is in issue." If neither formation nor enforceability is disputed, courts will presume that the agreement covers a disputed issue—but this is a presumption only, and it does not override the fundamental principle that arbitration is a creature of contract and covers only issues that the parties agree to arbitrate. Here, although the parties agreed that the CBA (with its arbitration agreement) ultimately was validly formed and was enforceable, they disputed whether it had been formed and was enforceable during the second strike period. "This formation date question require[d] judicial resolution because . . . [it] determine[d] whether the parties consented to arbitrate the" date of formation itself.

On the second issue before it, the Supreme Court unanimously agreed not to recognize a federal tort claim under LMRA §301. Creating a federal common-law tort cause of action, the Court explained, would require it to resolve a host of policy choices that could upset the balance of employer and union relations established by Congress. Virtually all of the courts of appeals had for that reason confined the federal common law under §301 to a law of contracts. The Court saw no reason to reach a different result because "it would be premature to recognize the federal common law tort Granite Rock requests in this case," given that Granite Rock still held several other potential avenues of relief apart from its requested new cause of action.

Justice Thomas delivered the opinion of the Court, in which Chief Justice Roberts and Justices Scalia, Kennedy, Ginsburg, Breyer, and Alito joined. Justice Sotomayor filed an opinion concurring in part and dissenting in part, in which Justice Stevens joined.

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