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Local Division 519 v. La Crosse Municipal Transit Utility and City of La Crosse

decided: October 19, 1978.


Appeal from the United States District Court for the Western District of Wisconsin. No. 77 C 292 - James E. Doyle, Judge.

Before Swygert and Cummings, Circuit Judges, and Markey, Chief Judge.*fn1

Author: Swygert

Defendants-appellants appeal from an order granting a preliminary injunction enforcing a binding arbitration clause in a collective bargaining agreement made pursuant to the provisions of 49 U.S.C. §§ 1601 Et seq. The questions on appeal are: (1) whether the district court had jurisdiction over this action; (2) whether, if federal jurisdiction exists, the district court should have abstained from exercising it; and (3) whether the district court improvidently issued the preliminary injunction.

From the turn of the century until 1974 intracity transit facilities in the City of LaCrosse, Wisconsin were furnished by the LaCrosse Transit Company, a private enterprise. During the spring of 1974 the City created the Municipal Transit Utility and applied for a capital grant from the Urban Mass Transportation Administration under the Urban Mass Transportation Act of 1964, 49 U.S.C. §§ 1601 Et seq. The application was principally for the purpose of obtaining funds to purchase the Transit Company. Following the grant of the funds, the purchase was effected and the municipally owned bus system began operations January 1, 1975.

The Transit Company's employees have always been represented by Local Division 519, Amalgamated Transit Union, AFL-CIO, for purposes of collective bargaining, and during the period 1936-1975 they were entitled to the protection of the National Labor Relations Act, 29 U.S.C. §§ 151 Et seq. As a result of the acquisition of the Transit Company by the Municipal Transit Utility, the employees became public employees and were no longer covered by the National Labor Relations Act. Local 519, however, continued to be their collective bargaining agent. Before the takeover, the Transit Company and the Union were parties to a collective bargaining agreement governing the wages, terms, and working conditions of the employees. The agreement covered the period from March 1973 to June 1975 and established binding arbitration for all differences relating to the terms of employment.*fn2

The application for a federal grant was accompanied by an agreement between LaCrosse and the Union executed on April 4, 1974 and was made pursuant to the requirements of § 13(c) of the Urban Mass Transportation Act, 49 U.S.C. § 1609(c).*fn3 Under that section, a grant applicant is obliged to make "fair and equitable arrangements . . . to protect the interests of employees affected by such assistance" as a condition of the receipt of federal funds. Accordingly, the agreement recognized the Union as the collective bargaining representative of the employees of the Transit Utility. It also guaranteed that the Transit Utility would bargain collectively with Local 519 and would arbitrate labor disputes, including the making or maintaining of collective bargaining agreements.*fn4 (The 13(c) agreement did not, however, provide a procedure for enforcing these rights.) The agreement was approved by the Secretary of Labor on May 1, 1974 and was incorporated into the capital grant contract between LaCrosse and the United States, which was concluded in November 1974.*fn5

There remained, however, the original collective bargaining agreement between the Union and the Transit Company which was to run until June 1975. Once the Transit Company was acquired by LaCrosse and became the Municipal Transit Utility, that original agreement would have no effect. In order to cover the period between the acquisition date of January 1, 1975 and the June 1975 expiration date of the original agreement, Local 519 and LaCrosse entered into a "conversion agreement." This agreement set forth the wages, terms, and conditions of employment for the transit employees during the interim period. Notably absent from the conversion agreement was any provision for "interest" arbitration, the arbitration of disputes over the making of subsequent collective bargaining agreements. Once they became public employees, the employees were excluded from coverage by the National Labor Relations Act and instead fell under the provisions of chapter 111 of the Wisconsin Statutes which forbade them to strike.

In June 1975 the conversion agreement expired. When negotiations for a new agreement reached an impasse, Local 519 demanded interest arbitration, invoking the provisions of the 13(c) agreement. LaCrosse disputed the Union's claim, contending that the arbitration of a new collective bargaining agreement should be undertaken pursuant to the conversion agreement. The arbitrators, rejecting LaCrosse's contention, ruled that arbitration of the terms of the new collective bargaining agreement was required by section 11 of the 13(c) agreement. The arbitrators then decided the substantive terms of the dispute between the parties.

The contract established by arbitration in 1975 expired June 16, 1977. Negotiations between the parties over the terms of a new contract began in early 1977, but deadlocked June 18, 1977. On July 8 the Union formally requested the Transit Utility to enter into binding arbitration of a new collective bargaining contract under the terms of the 13(c) agreement. The request was rejected by the Transit Utility. At that point the Union filed this action in the district court, alleging that LaCrosse had violated the 13(c) agreement and the grant contract between LaCrosse and the United States. The complaint requested specific performance.

Shortly after the suit was filed the district court entered a preliminary injunction requiring LaCrosse to proceed to arbitration under section 11 of the 13(c) agreement. Thereafter the defendants filed their motion to dismiss for lack of jurisdiction or to abstain. The motion was denied. At the same time the court stayed the preliminary injunction to permit the defendants to petition this court for a stay. On February 14, 1978 this court denied a stay of the preliminary injunction. By timely notice, the defendants have prosecuted this appeal.



The primary question is whether the district court had subject matter jurisdiction under 28 U.S.C. § 1331 to consider this suit. All other questions are subordinate, including what remedy, if any, the Union might assert to enforce its alleged right to interest arbitration. The Supreme Court's decision in Bell v. Hood, 327 U.S. 678, 682, 66 S. Ct. 773, 776, 90 L. Ed. 939 (1946), requires this approach: "Whether the complaint states a cause of action on which relief could be granted is a question of law and just as issues of fact it must be decided after and not before the court has assumed jurisdiction over the controversy."

The test for determining federal subject matter jurisdiction was correctly enunciated by Judge Doyle in his memorandum opinion, reported at 445 F. Supp. 798, 804 (W.D.Wis.1978):

A case "arises under" the Constitution or the laws of the United States when its decision depends upon the interpretation of the Constitution or federal law, Cohens v. Virginia, 6 Wheat. 264 (19 U.S. 264), 376, 5 L. Ed. 257 (1821); that is, when the action may be defeated by one construction of the law and sustained by the opposite construction. Osborn v. Bank of the United States, 9 Wheat. 738, 821-822, 22 U.S. 738, (821-22), 6 L. Ed. 204 (1824); Gully v. First National Bank, 299 U.S. 109, 112, 57 S. Ct. 96, 81 L. Ed. 70 (1936); Goldman v. First Savings and Loan Ass'n of Wilmette, 518 F.2d 1247, 1251 n. 7 (7th Cir. 1975). For the purpose of federal jurisdiction, an "action" is defined in terms of the right asserted, not the remedy sought. Cohens v. Virginia, supra at 379. The right asserted, on which federal jurisdiction depends, must be an essential element of the plaintiff's cause of action. Gully v. First National Bank, supra; Phillips Petroleum Co. v. Texaco, Inc., 415 U.S. 125, 127, 94 S. Ct. 1002, 39 L. Ed. 2d 209 (1974).

Mr. Justice Cardozo explicated the test in Gully v. First National Bank, supra: "To bring a case within the statute, a right or immunity created by the Constitution or laws of the United States must be an element, and an essential one, of the plaintiff's cause of action. . . . The right or immunity must be such that it will be supported if the Constitution or laws of the United States are given one construction or effect, and defeated if they receive another." 299 U.S. at 112, 57 S. Ct. at 97 (citations omitted). Accordingly, we must inquire whether the source of an essential element of the Union's cause of action for breach of contract originates in a law of the United States.

The district court found two such elements in the Urban Mass Transportation Act: (1) a 13(c) agreement was required by § 13(c) of the Act as a condition to LaCrosse's receipt of the grant of public funds and (2) in light of the alleged circumstances, § 13(c) required that the agreement include an interest arbitration provision which was to remain in effect during the life of the capital grant contract. When the totality of the allegations of the complaint are considered, the Union's cause of action contains the necessary elements for federal question jurisdiction irrespective of whether those allegations are bisected according to the analysis undertaken by the district court.

Congress, exercising its spending power, enacted the Urban Mass Transportation Act, which authorized the granting to public bodies, such as a municipality, of federal funds for the acquisition, construction and improvement of mass transportation facilities. As a condition to a grant, the Act requires a contract between the United States and the public body, containing various obligations on the part of the recipient. Specifically, § 13(c) provides that, "It shall be a condition of any assistance . . . that fair and equitable arrangements are made (between the recipient and its employees), as determined by the Secretary of Labor, to protect the interests of employees affected by such assistance." The section then provides that these protective arrangements shall include provisions of the preservation of employee rights under existing collective bargaining agreements, the continuation of such agreements, and the protection of employees against a worsening of their position. Finally, § 13(c) provides that the contract for the grant shall specify the terms and conditions of the protective arrangements.

Because § 13(c) mandates a "fair and equitable arrangement" that meets the approval of the Secretary of Labor, the exact and concrete terms of an arrangement define the more general requirements of the statutory provision. The approval of the Secretary stamps the 13(c) agreement as something more than a mere private contract formulated under the aegis of a federal statute. Instead, the contract is infused with statutory prerequisites. Clearly, then, the terms written into a 13(c) agreement are grounded in federal law. The validity of this view becomes even more clear when we consider that the 13(c) agreement is a part of an overall contract which is itself mandated by the Act. As we have just indicated, the Urban Mass Transportation Act mandates the making of a 13(c) agreement containing exact, fair, and equitable arrangements that have the approval of the Secretary of Labor. But the mandate does not cease when the agreement is reached and approved; perforce it requires the parties to abide by the agreement. Therefore, if enforcement is sought, federal law questions do not "lurk" in the background, as LaCrosse contends; they become the very basis for adjudication. Ineluctably, questions concerning the validity of a contract imposed by the Act and any rights flowing from the contract require application of federal law. The situation here is fundamentally different from that where an order of a federal ...

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