Summary
vacating an arbitration award because the arbitrator "added an extra-textual limitation" on the employer
Summary of this case from Hennepin Healthcare Sys. v. AFSCME Minn. Council 5, UnionOpinion
2:19-CV-228-Z-BR
10-14-2020
PHILLIPS 66 COMPANY, Plaintiff, v. INTERNATIONAL UNION OF OPERATING ENGINEERS LOCAL 351, Defendant.
Jonathan Gary Rector, Arthur T. Carter, Littler Mendelson PC, Dallas, TX, Alex Lee Yarbrough, Thomas C. Riney, Riney & Mayfield LLP, Amarillo, TX, for Plaintiff. Jim Saxon Hart, Williams Bailey Law Firm, Margret Lecocke, Williams Kherkher Hart Boundas LLP, Houston, TX, Brian P. Heinrich, Templeton Smithee Hayes Heinrich & Russell LLP, Amarillo, TX, for Defendant.
Jonathan Gary Rector, Arthur T. Carter, Littler Mendelson PC, Dallas, TX, Alex Lee Yarbrough, Thomas C. Riney, Riney & Mayfield LLP, Amarillo, TX, for Plaintiff.
Jim Saxon Hart, Williams Bailey Law Firm, Margret Lecocke, Williams Kherkher Hart Boundas LLP, Houston, TX, Brian P. Heinrich, Templeton Smithee Hayes Heinrich & Russell LLP, Amarillo, TX, for Defendant.
ORDER RULING ON PARTIES’ MOTIONS FOR SUMMARY JUDGMENT
MATTHEW J. KACSMARYK, UNITED STATES DISTRICT JUDGE Before the Court are Cross-Motions for Summary Judgment filed by Plaintiff and Defendant (ECF Nos. 16-25). Having considered the Motions, Replies, and Responses, the Court finds Plaintiff's Motion should be and is hereby GRANTED. The Court VACATES the underlying arbitration award. Conversely, Defendant's Motion is DENIED.
BACKGROUND
1. Phillips 66 implements a new vacation policy
This case arose from an arbitration dispute between Plaintiff Phillips 66 Company and Defendant International Union of Operating Engineers Local 351. Plaintiff processes petroleum at a refinery in Borger, Texas. ECF No. 17 at 2. Defendant is a labor organization and is the collective bargaining representative for operating, maintenance, and clerical employees at the Borger refinery. Id. Both Plaintiff and Defendant are signatories of a collective bargaining agreement that runs from May 1, 2016 through April 30, 2021. Id. Under the CBA, either party may file a grievance over a complaint involving the application or terms of the CBA. Id. at 3. Here, Defendant filed a grievance challenging Plaintiff's implementation of a new vacation policy. Id. at 4.
Effective January 1, 2018, Plaintiff issued a revised vacation policy applicable to all 14,000 employees at the refinery. Id. The new policy awarded vacation on an accrual-based system. Id. Under this system, vacation days would be earned and awarded in 10% increments on the last day of each month through October. Id.
Under the old system, employees would be awarded the entire year's worth of vacation on January 1. Id. The parties dispute the characterization of this dispensation of vacation. Plaintiff states the old policy was a "grant-based system" which was "front loaded with the entire year's vacation earned and awarded on January 1." Id. Defendant argues vacation was earned in the previous year and became vested in the employee. ECF No. 19–1 at 2–3.
2. The Union files a grievance over Phillips 66's vacation policy change
Neither party disputes that the CBA covers the grievance at issue. Under the CBA, the Union filed a grievance alleging Plaintiff failed to compensate its employees for vacation earned in the prior year of employment. Id. Specifically, the grievance alleged:
Nature of Grievance: Article VIII Security Plans and Benefits Number 2. Employees who earned vacation in previous year(s) not compensated.
Request for Adjustment: Compensate all employees for any vacation time earned in the previous year(s) prior to changes in vacation policy. ECF No. 18 at App. 002.
Phillips 66 denied the grievance. Id. Following the CBA's procedure for grievance and arbitration, the parties selected Arbitrator Raymond L. Britton. ECF No. 17 at 4. The CBA grants the arbitrator authority to resolve any grievances:
The arbitrator's decision shall be final and binding on the parties. The arbitrator
may interpret the existing provisions of this Agreement and apply them to the specific facts of the dispute presented to him, but he shall, however, have no authority to add to, or subtract from, or modify the terms of this Agreement. ECF No. 18 at App. 036.
3. The Arbitrator sustains the Union's grievance
On June 20, 2019, the Arbitrator conducted a hearing on the merits of the Union's grievance. ECF No. 17 at 4. During this hearing, the Arbitrator heard arguments from both sides, and the Union produced three witnesses as well. ECF No. 18 at App. 009. On October 18, 2019, the Arbitrator issued his Award sustaining the Union's grievance and, as a remedy, ordered Phillips 66 to make any affected employees "whole for their lost, vested vacation." Id. at App. 011.
In his opinion, the Arbitrator framed the issue as follows: "Did the 2018 change to the Phillips 66 Vacation Policy eliminate employees’ entitlement to vacation earned in previous years in violation of the collective bargaining agreement, and if so, what is the appropriate remedy?" Id. at App. 001. In his opinion, the Arbitrator cited provisions of the CBA that the parties had considered relevant to this dispute. The most pertinent provisions are quoted below in full:
Preamble "Zipper Clause"
No practices, payments of wages or benefits prior to or subsequent to this Agreement date shall act to change or enlarge the express wording of this Agreement.
Article IV(4)(H)(12) Compensation
Company vacation policy dictates vacation allotment.
Article VIII(2) Security Plans and Benefits
The conditions, rules, and regulations of such plans as may be established by the Company shall determine all questions arising thereunder.
Id. at App. 003–004.
After reviewing the parties’ arguments and testimony, the Arbitrator sustained the Union's grievance and concluded "it is clear that the material change in the vacation policy may have negatively affected some of the bargaining unit employees employed as of December 21, 2017." Id. at App. 011.
Phillips 66 brought this action under Section 301 of the Labor Management Relations Act codified at 29 U.S.C. § 185. ECF No. 17 at 2. Phillips 66 seeks to vacate the Arbitrator's Award under 9 U.S.C. § 10(a)(4). Jurisdiction thus lies in this Court under 28 U.S.C. § 1337(a) because this case arises "under an[ ] Act of Congress regulating commerce." Both parties have subsequently moved for summary judgment. The Union requests the Court to enforce the Award and Phillips 66 requests the Court to vacate the Award.
4. The Parties’ Positions
Phillips 66 argues the Award should be vacated because the Award does not draw from the essence of the CBA and the Arbitrator exceeded his arbitral authority. ECF No. 17 at 1. Phillips 66 brings two main arguments: (1) the Arbitrator failed to give effect to the express language in Articles IV and VIII of the CBA which Phillips 66 alleges give the company the unilateral ability to modify the vacation policy; and (2) the Arbitrator ignored the express text of the "zipper clause" by using prior policies and a legal treatise as the basis of his decision. The Union argues, on the other hand, the Arbitrator acted within the scope of his authority to interpret and apply the terms of the CBA. The Union alleges the CBA was ambiguous because the parties had differing views on how vacation was allotted. ECF No. 19–1 at 9–10. Therefore, the Arbitrator correctly relied on the parties’ "course of performance," his own knowledge of the industry, and a legal treatise when he sustained the grievance.
The Court acknowledges Plaintiff's Objection to the Union's Motion for Summary Judgment. ECF No. 20. Although the Court agrees that the Union's "summary-judgment facts" are pure argument, it is unnecessary to address the objection because Plaintiff has succeeded on the merits of its own summary judgment motion which renders the objection moot.
In its Response to Plaintiff's Motion for Summary Judgment, the Union advances the argument that Article IV was ambiguous and thus the Arbitrator was justified in looking to extra-textual sources in his opinion. ECF No. 22 at 6–7. The Union did not make that argument in its grievance, or at the arbitration hearing, or in its post-hearing briefing. "As in litigation, a party to an arbitration must preserve any argument it wants to raise on later review." Light-Age, Inc. v. Ashcroft-Smith , 922 F.3d 320, 322 (5th Cir. 2019). Because the Union's argument fails on the merits, however, the Court will not address whether the Union waived the issue.
LEGAL STANDARD
1. Summary Judgment Standard
Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a) ; Celotex v. Catrett , 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A fact is "material" if its existence or nonexistence "might affect the outcome of the suit under governing law." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute about a material fact is "genuine" when the evidence is "such that a reasonable jury could return a verdict for the nonmoving party." Id. at 248, 106 S.Ct. 2505. The moving party must identify the basis for granting summary judgment and identify the evidence that demonstrates the absence of a genuine issue of material fact. Celotex , 477 U.S. at 323, 106 S.Ct. 2548. All evidence must be viewed in the light most favorable to the non-moving party. Id. at 255, 106 S.Ct. 2505. It is undisputed that the CBA covers the grievance at issue here. The record consists of the Arbitrator's opinion, the CBA, and the parties’ cross motions for summary judgment.
2. Judicial Review of Labor Disputes
A court's review of arbitral awards interpreting labor agreements is exceedingly deferential. Delek Refining, Ltd. v. Local 202, United Steel, Paper and Forestry, Rubber, Mfg., Energy, Allied Indus. and Svc. Workers Int'l Union , 891 F.3d 566, 570 (5th Cir. 2018) (internal marks omitted). If an arbitrator's decision draws its essence from the CBA, it should be sustained. Id. (citing Executone Info. Sys., Inc. v. Davis , 26 F.3d 1314, 1320, 1324 (5th Cir. 1994) ). Even if the court believes the arbitrator seriously erred in his fact finding or contract interpretation, it should uphold a decision that is rationally inferable from the purpose of the CBA. Id. (citing Executone , 26 F.3d at 1325 ).
Though expansive, an arbitrator's power is not unlimited. Id. (citing Dow Chem. Co. v. Local No. 564, Int'l Union of Operating Eng'rs , 83 Fed. Appx. 648, 651–52 (5th Cir. 2003)). District courts may vacate an arbitral award "where the arbitrators exceeded their powers." 9 U.S.C. § 10(a)(4). The court's deference thus does not extend to those instances when the arbitrator exceeds the jurisdictional limits drawn in a CBA. Albemarle Corp. v. United Steel Workers ex rel. AOWU Local 103 , 703 F.3d 821, 824 (5th Cir. 2013). Nor does it extend to acts contrary to a CBA's express provisions. Smith v. Transp. Workers Union of Am., Local 556 , 374 F.3d 372, 375 (5th Cir. 2004). Accordingly, an arbitrator cannot ignore the plain language of a contract. United Paperworkers Int'l Union v. Misco, Inc. , 484 U.S. 29, 38, 108 S.Ct. 364, 98 L.Ed.2d 286 (1987). In this situation, an arbitrator is impermissibly dispensing his "own brand of industrial justice" by rewriting the CBA instead of applying or interpreting it. Id. at 36, 108 S.Ct. 364.
ANALYSIS
1. Courts look at the arbitrator's award as evidence of whether the arbitrator exceeded his or her authority
To determine whether the arbitrator exceeded his or her authority, the district court "should consult the arbitrator's award itself." BNSF Ry. Co. v. Alstom Transp., Inc. , 777 F.3d 785, 788 (5th Cir. 2015). The award can serve as evidence that the arbitrator was arguably interpreting the contract. "Several pieces of relevant evidence can be gleaned from the award's text, including but not limited to: (1) whether the arbitrator identifies her task as interpreting the contract; (2) whether she cites and analyzes the text of the contract; and (3) whether her conclusions are framed in terms of the contract's meaning." Id.
2. Courts vacate awards when an arbitrator ignores the plain language of the CBA
Courts have vacated awards when an arbitrator exceeds his or her authority by ignoring the plain language of the CBA. Beaird Indus., Inc. v. Local 2297, Int'l Union , 404 F.3d 942, 943–47 (5th Cir. 2005) ; Rock-Tenn Co. v. Paper, Allied-Indus., Chem. & Energy Workers Int'l Union , 108 Fed. Appx. 905, 906 (5th Cir. 2004). In Beaird , an arbitrator sustained the union's grievance challenging the company's use of subcontractors, despite explicit language in the CBA permitting subcontracting without any limitation. 404 F.3d at 943. The district court concluded that the arbitrator exceeded his authority by ignoring an express "unequivocal" right to subcontract and vacated the arbitration award because the language of the CBA regarding subcontracting was "clear and precise,". Id. at 944. Despite the highly deferential standard of review, the district court stressed it "cannot overlook the flagrant violation by the arbitrator of his authority by expanding the precise language of the CBA." Id. The Fifth Circuit affirmed. Id. at 947.
Likewise, in Rock-Tenn , an arbitrator ruled in favor of the union. Although Rock-Tenn had the right to subcontract under the CBA, the arbitrator concluded the company's rights "were not unfettered." Rock-Tenn , 108 Fed. Appx. at 906. Just as in Beaird , the district court vacated the award because the arbitrator's decision conflicted with the express language of the CBA. Id. at 907. The district court found the CBA at issue expressly provided Rock-Tenn an unlimited right to subcontract, and the arbitrator exceeded his authority by imposing a limitation on that right. Id. The Fifth Circuit affirmed. Id. Stating an "arbitral action contrary to express contractual provisions will not be respected," and given the "language of the CBA is clear and express," the Fifth Circuit held the arbitrator was "without authority to ignore its terms to pursue his own brand of industrial justice." Id. (internal marks omitted). Phillips 66 stresses this line of cases in its Motion. ECF No. 17 at 7–12.
3. Courts uphold awards when an arbitrator interprets ambiguous provisions of a CBA
On the other hand, absent explicit and unambiguous contractual provisions, courts generally defer to the arbitrator's interpretation and uphold arbitration awards. Resolution Performance Prods., LLC v. Paper Allied Indus. Chem. & Energy Workers Int'l Union, Local 4-1201 , 480 F.3d 760, 767–68 (5th Cir. 2007) ; Folger Coffee Co. v. Int'l union, United Auto., Aerospace & Agr. Implement Workers of Am.-UAW, Local Union No. 1805 , 905 F.2d 108, 111 (5th Cir. 1990). In Resolution Performance , an arbitrator sustained the union's grievance challenging the company's use of subcontractors for maintenance work. 480 F.3d at 761. After determining that the CBA was silent as to the company's right to subcontract, the arbitrator relied on past arbitral interpretations and concluded the company violated the CBA by subcontracting out all maintenance work instead of using union employees. Id. at 764. The Fifth Circuit reversed the district court which had vacated the award. Id. at 761.
While acknowledging that the arbitrator considered past practice, the Fifth Circuit stressed the arbitrator considered it "only after concluding that the CBA was ambiguous as to subcontracting." Id. at 766. Once the arbitrator reached this conclusion, the Fifth Circuit stated "the arbitrator's task was to construe an ambiguous CBA, and mere disagreement with the performance of that task is not alone a basis for vacating the award." Id. at 767. The Fifth Circuit concluded because "the CBA was ambiguous about [the company]’s right to subcontract, we must defer to the arbitrator's interpretation, which draws its essence from the CBA, that the CBA does not permit wholesale subcontracting." Id.
Similarly, in Folger , an arbitration panel sustained the union's grievance challenging the company's use of subcontractors, despite language in the CBA permitting the company to subcontract, because the panel reasoned that the subcontracting right was not specific and absolute. 905 F.2d at 109. The district court agreed and granted summary judgment in the union's favor, which the Fifth Circuit affirmed. Id. According to the arbitration panel's interpretation, the CBA did not grant the company an unrestricted right to "contract out" work that had been historically performed by union employees. Id. at 111. The panel concluded that the company violated the CBA by using contractors instead of union employees. Id. The Fifth Circuit agreed. Id. at 112. The Fifth Circuit concluded it was proper for the panel to consider other information such as past practice to interpret the CBA when there is an absence of a specific provision entitling the company to contract out work regardless of its effect on the union employees, and where the subcontracting clause itself is "neither specific nor unambiguous." Id. at 111. Ultimately, the Fifth Circuit concluded that the panel did not ignore the subcontracting provision and that the award drew its essence from the CBA. Id. at 112. The Union stresses this line of cases in its motions.
Though it has been questioned, Folger remains binding law. "Folger represents the outer limits of the deference that our court should give to arbitral awards. Although we need not do so in this particular instance because the Beaird CBA is distinguishable, it may be appropriate under other circumstances to reexamine Folger ." Beaird , 404 F.3d at 946, n.3.
--------
4. The Award does not draw its essence from the CBA
Phillips 66 contends the arbitration award does not draw its essence from the CBA because the Arbitrator "acted contrary to the express provisions of the CBA." ECF No. 17–1 at 12. For the following reasons, the Court agrees. Article IV states "Company vacation policy dictates vacation allotment" and Article VIII states "[t]he conditions, rules, and regulations of such plans as may be established by the Company shall determine all questions arising thereunder." The Union contends Article IV is ambiguous but does not once quote these two provisions of the CBA nor explain why these provisions are ambiguous. The Union merely contends Article IV's ambiguity is "readily demonstrated by the parties’ differing opinions on how vacation pay has been calculated and compensated in the past." ECF No. 22 at 11. But the Union fails to explain why past practices make the Article ambiguous when there is a "zipper clause" in the CBA that expressly prohibits examining past practices "to change or enlarge the express wording of this Agreement." And, as previously mentioned, the Union did not once mention Article IV during the arbitration proceedings (arguably waiving the issue), so it is no surprise that the Arbitrator's Award makes no reference or finding of ambiguity regarding Article IV.
The Court finds the language in these provisions of the CBA is clear, plain, and unequivocal with respect to the Company's right to modify the vacation policy. Indeed, the Arbitrator agreed "that the Company has the right to modify its vacation policies going forward" and "the Union does not contest the Company has the right to modify the vacation policy." ECF No. 18 at App. 009, 011. That concession should have been the end of the inquiry.
Nonetheless, despite the clear and unequivocal language of the CBA, the Arbitrator determined "the material change in the vacation policy may have negatively affected some of the bargaining unit employees" and sustained the Union's grievance on that ground. Id. at App. 011. But the question of whether collective bargaining employees were adversely impacted by the change in vacation policy is irrelevant to the issue that was before the Arbitrator. The true question was whether the revised 2018 vacation policy violated the provisions of the CBA. Nowhere in the CBA is there any language that restricts the Company's right to modify its vacation policy if the changes adversely impact some employees.
The BNSF factors reinforce the Court's conclusion that the Arbitrator was not arguably interpreting the contract. The Arbitrator's opinion begins by laying out the question whether the vacation policy change was "in violation of the collective bargaining agreement." ECF No. 18 at App. 001. So far, so good. But after this opening question, the Arbitrator fails to analyze the text of the contract. Indeed, after quoting all the relevant provisions of the CBA, id. at App. 003–008, the Arbitrator reflexively concludes that Phillips 66 must have violated the CBA if Union members have been "adversely impacted." Id. at App. 011. But the Arbitrator does not explain or show why the adverse impact on the Union employees was itself a violation of the CBA. And, contrary to the Union's assertions, the Arbitrator did not find Article IV ambiguous. Indeed, the Arbitrator never once analyzed the language "Company policy dictates vacation allotment" in Article IV or "the conditions, rules, and regulations of such plans as may be established by the Company shall determine all questions arising thereunder" language of Article VIII. Id. at App. 009. In ruling for the Union, the Arbitrator's opinion completely failed to analyze the text of the contract and failed to frame its decision in terms of the contract's meaning. BNSF , 777 F.3d at 788. As a result, the Award conflicts with the express provisions of the CBA and is not "rationally inferable from the contract." Delek Refining , 891 F.3d at 570. As such, the Award does not draw its essence from the CBA. This case is most similar to Beaird and Rock-Tenn. Both cases address "adverse impacts" on union employees. In Beaird , the company realized cost-savings from subcontracting its landscaping work rather than assigning that work to union employees. 404 F.3d at 943. Like this case, the arbitrator in Beaird added an extra-textual limitation to the company's unambiguous right to subcontract its work. Id. at 944. But the Fifth Circuit expressly rejected the arbitrator's newly crafted limitation:
The conclusion that the subcontracting rights were not limited by the CBA should have ended the Arbitrator's inquiry—the remainder of his decision, which balanced the interests of the Union with Beaird's economic savings, can only be characterized as the Arbitrator's "own brand of industrial justice." We do not affirm the district court's decision to vacate the Arbitrator's award because we disagree with the outcome, but because the Arbitrator has failed utterly to draw his conclusions from the essence of the CBA. Id. at 947.
Rock-Tenn is also similar. There, the company decided to subcontract all of its long-haul deliveries which reduced the pay of six union drivers. Rock-Tenn , 108 Fed. Appx. at 906. The CBA in that case reserved to the company the right to subcontract such work. Just as in this case, the arbitrator himself expressly recognized the company's right. "Nonetheless, the arbitrator pointed to the commentary of other arbitrators to justify his decision to depart from the clear language of the CBA." Id. at 907. The Fifth Circuit held "[a]rbitral action contrary to express contractual provisions will not be respected" and ruled "[t]he arbitrator exceeded the authority delegated to him under the CBA by imposing a limitation on Rock-Tenn's subcontracting ability." Id. at 907–08.
The same result obtains here. It makes no difference whether the changes in the 2018 vacation policy had an "adverse impact" on union employees. Phillips 66 has the right to modify its vacation policy, and nowhere in the CBA is there any limitation on that right. Because the Arbitrator added an extra-textual limitation to Phillips 66 right — exceeding his powers under the CBA — the Arbitrator's Award must be set aside.
5. The Arbitrator further exceeded his authority under the CBA by effectively eliminating the zipper clause from the CBA
The Arbitrator further exceeded his powers by failing to apply the zipper clause in the CBA. The CBA grants the Arbitrator power to "interpret the existing provisions of this Agreement and apply them to the specific facts of the dispute presented to him, but he shall, however, have no authority to add to, or subtract from , or modify the terms of this Agreement." ECF No. 18 at App. 036 (emphasis added). The zipper clause included in the CBA states "[n]o practices, payments of wages or benefits prior to or subsequent to this Agreement date shall act to change or enlarge the express wording of this Agreement."
The Arbitrator acknowledged the zipper clause in his award but failed to apply it to the facts of this case. Id. at App. 009. Here, the Arbitrator considered the testimony of three Union employees regarding the past practices of vacation allotment, id. , instead of considering the text of the CBA which clearly states "Company vacation policy dictates vacation allotment." Id. at App. 004. The Arbitrator also considered decades-old vacation policies in effect under different collective bargaining agreements between different entities in determining whether Phillips 66 violated the CBA. Id. at App. 008–009. By doing so, the Arbitrator effectively subtracted the zipper clause from the CBA.
As a final matter, the Union contends the case should be controlled by Folger which allowed an arbitrator to look beyond the four corners of the CBA. ECF No. 22 at 8. But Folger dealt with specific contract language which is not present in this case. As the Fifth Circuit explained in Beaird , the Folger CBA provided that the "company shall continue to have all the rights which it had prior ... except those that are specifically given up or modified by the express written terms of the Agreement. " 404 F.3d at 946 (citing Folger , 905 F.2d at 109 n.3 ) (emphasis in original). "The court [in Folger ] focused on the ‘exception’ language as limiting the subcontracting right, finding that another provision of the Agreement, which stated that subcontracting cannot be used to undermine the Union where the bargaining relationship is already established, limited the subcontracting right." Id. Only after finding the language of the CBA was "neither specific nor unambiguous" was the Arbitrator allowed to look to extra-textual sources for interpretive aid. Folger , 905 F.2d at 111–12. Similarly, in Resolution Performance , the CBA contained no express provision granting the company a right to subcontract. 480 F.3d at 762.
The Union fails to appreciate there is no Folger language in its CBA with Phillips 66. And unlike Resolution Performance , the CBA here expressly gives Phillips 66 the right to modify the vacation policy and allotment. Thus, Folger and Resolution Performance are inapposite and, as explained above, Beaird and Rock-Tenn control this case.
CONCLUSION
For the reasons stated herein, the Court determines there is no genuine issue of material fact of whether the Arbitrator exceeded his authority when he sustained the Union's grievance and ordered Phillips 66 to make whole employees "for their lost, vested vacation." Accordingly, the Court GRANTS Plaintiff's Motion for Summary Judgment (ECF No. 16) and DENIES Defendant's Motion for Summary Judgment (ECF No. 19). The Arbitration Award of Arbitrator Raymond L. Britton, Jr. issued on October 18, 2019, is hereby VACATED.