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Supreme Court: Granite Rock's Arbitrability Decision is for the Court, Not the Arbitrator (June 24).

This time, it goes to the court, not the arbitrators.

The U.S. Supreme Court today decided Granite Rock Co. v. Int'l Brotherhood of Teamsters et al., No. 08–1214, a labor case centering around when a contract was formed.

A disputed ratification vote caused confusion over whether there was a valid and operating labor agreement between a company and its union.  

Specifically, the matter arose out of negotiations for a collective bargaining agreement containing a no-strike provision between Graniterock Co.,  a century-old California mining and construction company, and Teamsters Local 287, a construction workers’ union that represents workers at the company’s San Jose, Calif., facility.

With the contract’s formation date in dispute, the Court, in an opinion by Associate Justice Clarence Thomas, held that the Ninth U.S. Circuit Court of Appeals should not have sent the case to arbitration, because the formation of the labor contract was in doubt--and as a result, there was no operative arbitration clause.  The opinion can be found here

The local union and the company reached a tentative agreement on July 2, 2004, after two months of failed contract negotiations and a workers’ strike following the expiration of the old collective bargaining agreement in April 2004. The union halted work again on July 6, 2004, in an attempt to add a "hold-harmless" clause to the agreement, to gain protection from strike-related damages incurred during the negotiations. But Graniterock claimed that the union had already voted on July 2 to ratify the agreement, which contained a no-strike provision.

The company filed suit against the union for damages resulting from the July strike. The local claimed that it did not ratify the contract until Aug. 22, 2004, so it was not bound by the no-strike provision in July.

To make matters more complicated, the parties agreed that the contract was executed in December 2004. This now-executed contract contains an arbitration clause.  The local wanted the arbitrator to decide when the contract was ratified, and if the no-strike provision applied to the July work stoppage.

In reversing, the Court said that the issue of the effective date of the collective bargaining agreement’s ratification should be determined by a court, not an arbitrator.

Thomas was joined in his majority opinion by six justices.  Associate Justice Sonia Sotomayor, joined by Associate Justice John Paul Stevens, dissented, but concurred with the majority in the part of the opinion in which the Court rejected Granite Rock’s request to be able to bring a claim, on remand, for a federal tort against the parent union for interfering with the contract between the employer and the local unit.

The case uses Monday’s decision in Rent-A-Center West, Inc.v. Jackson, No. 09-497, for support, even though that case sent the issue of arbitrability to the arbitrator.  In Granite Rock, the case goes to the court because it is a question of contract formation, not validity.  For more from CPR on Rent-A-Center, go here and here.   

"For purposes of determining arbitrability,” wrote Thomas in today’s opinion, “when a contract is formed can be as critical as whether it was formed.”  (The emphasis is the justice's.)

The result is that the Court stressed  a simple principle, that “a court may order arbitration of a particular dispute only where the court is satisfied that the parties agreed to arbitrate that dispute.”  (Emphasis again is in the opinion.)

The opinion requires a federal district court to determine the date of contract formation in order to determine if the parties agreed to arbitrate the dispute.

Sotomayor's dissent argues that there is no formation dispute at all.  This is because the contract contains a retroactivity provision that made it effective on May 1, 2004, the day after the old bargaining agreement expired.

Because of this provision, the question of when the contract was formed has no bearing on whether the dispute falls within the scope of the arbitration agreement, according to the dissent.

The majority opinion states that the local union "waived" this argument by failing to raise it in the lower courts, and so Thomas does not consider it.

But Sotomayor counters that even though the local "regrettabl[y] and inexcusabl[y]" failed to raise the retroactivity argument sooner, the Court nevertheless should consider the "plain terms of the parties' agreement" in order to reach an "intelligent resolution" of the question.

She accuses the majority of "usurp[ing]" the arbitrator’s authority by adjudicating the dispute's merits "under the guise of" interpreting the scope of the arbitration agreement.

Now, on remand to the federal district court, the initial court decision--which had been reversed in the Ninth Circuit--that the local ratified the contract on July 2, will be reinstated.  Thus, Graniterock will be able to argue, once before an arbitrator, that the no-strike provision was in force during the July work stoppage, and will be better positioned to make its case for damages from the union's actions.

--David Perechocky, CPR Intern