Granite Rock Co. vs. International Brotherhood of Teamsters, Arbitration Issues Arising from a Disputed Collective Bargaining Agreement

Granite Rock Co. v. International Brotherhood of Teamsters

On June 24, 2010, in the final labor and employment law decision of its 2009-10 term, the Supreme Court decided the Granite Rock Co. v. International Brotherhood of Teamsters case and resolved two important issues in federal labor law.  Granite Rock centered around a dispute over the formation of a collective bargaining agreement (“CBA”) between concrete and building materials company Granite Rock and a Teamsters local union.  The Court rejected the union’s effort to compel arbitration of the parties’ dispute over the CBA’s formation date, concluding that disputes over the existence of a contract must be resolved by the courts.  Additionally, the Court affirmed the dismissal of Granite Rock’s claim against the international union for tortious interference with the CBA.

Factual Background

In April 2004, Granite Rock and International Brotherhood of Teamsters, Local 287 (“Local 287”) began negotiating a new CBA, prior to the expiration of their existing CBA.  Bargaining reached an impasse, and concrete ready-mix drivers represented by Local 287 struck on June 9.  Negotiations resumed shortly thereafter, and on July 2 the parties concluded a tentative, four-year CBA, which included no-strike and arbitration clauses, and settled the strike, with Local 287’s members agreeing to return to work immediately.  Local 287’s members voted to ratify the CBA on that date, although the validity of the ratification was later disputed.

The International Brotherhood of Teamsters (“IBT”) had advised Local 287 throughout the negotiations and supported the strike.  When Granite Rock refused Local 287’s requests in early July for a “back-to-work agreement”—by which Local 287 and IBT would be held harmless for Granite Rock’s strike-related economic damages—IBT urged Local 287 to continue the strike notwithstanding the existence of the July 2 tentative CBA.  IBT and Local 287, along with other Locals, then initiated a company-wide strike that affected multiple Granite Rock facilities and hundreds of employees.

Granite Rock sued Local 287 as a signatory to the CBA and IBT as Local 287’s agent or alter ego on July 9 in the Northern District of California, seeking to enjoin the strike and recover damages under the no-strike clause of the July 2 CBA, pursuant to § 301 of the Labor Management Relations Act.  IBT and Local 287 argued that the no-strike clause was a nullity because Local 287 had never ratified the CBA.

On August 22, while Granite Rock’s complaint was still pending in the district court, Local 287 again voted to ratify the CBA, and it ended the strike on September 13.  Granite Rock amended its complaint to add a federal common-law claim against IBT for tortious interference with the CBA.  Granite Rock contended that the CBA was formed on July 2, pursuant to the first ratification vote, while Local 287 argued that it was not formed until the second ratification vote on August 22.  The second strike violated the no-strike clause only if the CBA had been formed on the earlier date.

Local 287 moved to compel arbitration on the ratification issue, pursuant to the CBA’s arbitration clause.  The district court concluded that the ratification dispute was for the court to decide and submitted the issue to a jury, which found that Local 287 had ratified the CBA on July 2.  The district court then ordered the parties to arbitrate Granite Rock’s substantive claims.  However, the court granted IBT’s motion to dismiss Granite Rock’s tortious interference claim, concluding that § 301 does not confer federal jurisdiction over tort claims.

The Ninth Circuit affirmed the district court’s dismissal of the claim against IBT.  It reversed the district court’s arbitrability determination, however, relying heavily on the “national policy favoring arbitration.”  The Supreme Court granted certiorari to resolve both issues.

The Court’s Decision and Reasoning

Justice Thomas, writing for himself and six other Justices, first addressed the arbitrability issue and concluded that the district court properly decided the question of the CBA’s ratification date.  The Court first rejected Local 287’s argument that the “federal policy favoring arbitration of labor disputes” requires that an arbitrator determine the ratification issue.  Notwithstanding this policy, the Court observed, a given dispute is arbitrable only if the parties have agreed to arbitrate that dispute.  Therefore, the courts must resolve any issues that cast doubt upon the formation or applicability of the disputed arbitration clause.  The Court distinguished a key—and relatively recent—precedent, Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (2006), in which the Court had compelled arbitration of a question of contract validity.  In Buckeye, the party resisting arbitration conceded that it had executed a contract that contained an arbitration clause, but it argued that a usurious interest provision rendered the entire contract invalid.  The Court in Buckeye required arbitration of the contract validity issue, reasoning that the arbitration clause was valid and severable from any invalid provisions.  In contrast to Buckeye, Justice Thomas reasoned, Granite Rock and Local 287 disputed the existence of the entire CBA during the relevant time period.  Because this dispute goes to the existence of the parties’ agreement to arbitrate, the presumption in favor of arbitration did not preclude judicial resolution.

The Court proceeded to address the Ninth Circuit’s rationale for its holding that the ratification dispute was arbitrable.  Because the CBA requires arbitration of all disputes “arising under” it, necessary to the Ninth Circuit’s decision was a conclusion that the ratification dispute arose under the CBA.  According to the Court, the Ninth Circuit “tied the arbitrability of the ratification-date issue . . . to the arbitrability of the strike claims themselves.”  But this link is faulty, the Court reasoned, if the CBA had not yet been formed when IBT and Local 287 purportedly violated the no-strike clause.  Carrying the “arising under” analysis one step further, the Court noted that the dispute actually at hand—whether the CBA was validly ratified on July 2—does not arise under the CBA because it “concerns the CBA’s very existence.”  Thus, the ratification clause would fall outside the scope of the arbitration clause even if the clause were enforceable.

In its resolution of the arbitrability issue, the Court declined to address an additional argument raised by Local 287.  In December 2004, the parties executed an agreement by which the CBA was deemed to relate back to May 1, 2004.  Accordingly, Local 287 argued, the arbitration provision (but not the no-strike clause) became effective on that date and remained effective during the events giving rise to Granite Rock’s claims.  The Court deemed this argument waived because Local 287 had not advanced it before the Ninth Circuit.  In her partial dissent, Justice Sotomayor argued that the Court should excuse Local 287’s waiver and that this argument should carry the day.

A unanimous Court proceeded to hold that no federal common-law claim exists under § 301 for tortious interference with a CBA.  The Court rejected Granite Rock’s argument that such a claim should be recognized because existing vehicles for challenging conduct such as IBT’s are unavailable—in the case of state tort claims, which § 301 may preempt—or insufficient—in the case of federal contract claims based on alter ego or agency theories.  Observing that most Courts of Appeals that had addressed the existence of federal tort claims under § 301 had declined to recognized such claims, the Court reasoned that § 301 empowers federal courts to employ a “common law of contracts” but is not a “source of independent rights, let alone tort rights.”  Despite its rejection of Granite Rock’s tort theory, the Court suggested that it did not approve of IBT’s conduct, observed that the National Labor Relations Board (“NLRB”) had concluded in separate proceedings that IBT had violated federal labor law, and speculated about the potential viability of other claims available to Granite Rock.

Practical Implications

The Court’s decision on the arbitrability issue helps clarify the extent of the presumption in favor of arbitration of labor disputes and the scope of broadly worded agreements to arbitrate all matters “arising under” a contract.  Likewise, it reaffirms the role of the federal courts as the final authority on the validity and scope of arbitration clauses in labor and other contracts.  Employers and unions who negotiate and conclude tentative agreements now will have certainty that a court, not an arbitrator (who might have an interest in preserving his or her jurisdiction), ultimately will resolve any dispute over the very existence of the agreement.  Furthermore, the Court’s ruling should ameliorate employers’ concerns about the potentially lopsided effects of the contrary result.  The Ninth Circuit had upheld the arbitration clause in a disputed CBA while referring to arbitration the validity of the same CBA’s no-strike clause.  This decision prompted concerns that a union could violate a no-strike clause in a tentative CBA at will while simultaneously enforcing the same CBA’s corresponding arbitration clause.  The Supreme Court’s decision that courts must pass on the existence of a disputed CBA helps resolve these concerns and should remove a deterrent to the formation of tentative agreements.  Because of the unique and convoluted facts giving rise to the Court’s holding on arbitrability, however, the practical import of this decision remains uncertain.

The Court’s unanimous rejection of Granite Rock’s federal common-law tort claim against IBT certainly limits available avenues for redress against non-signatories to CBAs.  However, the Court was careful to emphasize the narrowness of its holding and to note the potential viability of other claims against IBT.  Specifically, the Court suggested that Granite Rock might successfully bring a state tort claim, or a federal contract claim based on an agency or alter ego theory, particularly in light of the NLRB’s finding that IBT acted unlawfully during the strike.  Granite Rock has publicly indicated that it will explore the availability of these claims on remand; thus, time will tell whether the Court’s dicta proves influential.

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