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Chicago Area Vending Employers Association v. Custom Coffee Service

UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT


April 5, 1984

CHICAGO AREA VENDING EMPLOYERS ASSOCIATION, PLAINTIFF-APPELLANT AND CROSS-APPELLEE,
v.
CUSTOM COFFEE SERVICE, DEFENDANT-APPELLEE AND CROSS-APPELLANT, AND LOCAL UNION NO. 761, A/W INTERNATIONAL BROTHERHOOD OF TEAMSTERS, CHAUFFEURS, WAREHOUSEMEN AND HELPERS OF AMERICA, DEFENDANT-APPELLEE.

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. William T. Hart, Judge.

Author: Kelleher

Before CUMMINGS, Chief Judge, CUDAHY, Circuit Judge, and KELLEHER, Senior District Judge.*fn*

KELLEHER, Senior District Judge. This is an appeal from an order of the District Court for the Northern District of Illinois, dismissing the complaint of Chicago Area Vending Employers Association ("Association") against defendants Custom Coffee Service ("CCS") and Local Union 761, International Brotherhood of Teamsters, Chauffeurs, Warehousemen, and Helpers of America ("Union"). There is also a cross-appeal by CCS from the ruling of the District Court that it had jurisdiction over CCS by reason of Section 301 of the Labor Relations Management Act of 1947, as amended, 29 U.S.C. § 185 ("Section 301").

The Association is a multi-employer bargaining unit that was created in 1978 and is maintained to represent nine employers engaged in the vending machine business in their negotiations with the Union. CCS is one of the employers which the Association represents in the Union negotiations. Pursuant to the collective bargaining agreement in force between the parties, the employees of CCS were to receive a salary increase on October 1, 1982. In July, 1982, CCS began bargaining directly with the Union and the Union and CCS agreed that the October 1 salary increase would be postponed. After this agreement was reached, CCS informed the Association of the side agreement between the Union and CCS by letter. As a result of this separate agreement, CCS has not been paying its employees the same wage rates that the other employer members of the Association have been.

On January 31, 1983, the Association filed suit in federal district court against the Union and CCS. The complaint asserted jurisdiction pursuant to Section 301 and sought relief pursuant to the Declaratory Judgment Act, 28 U.S.C. §§ 2201-02, in addition to damages. The Association alleged that CCS and the Union had breached the collective bargaining agreement negotiated between the Union, Association and CCS by entering into the separate agreement to withhold pay raises otherwise due to CCS employees. The complaint included pendent claims against CCS for breach of the association agreement whereby the Association was created and against the Union for tortious interference with contractual relations.

On February 22, 1983, CCS filed a motion to dismiss the complaint on the grounds that the District Court lacked jurisdiction to hear the matter under Section 301 and further that the Association had failed to exhaust the grievance and arbitration remedies outlined in the collective bargaining agreement. Thereafter, on March 1, 1983, the Union filed a motion to dismiss the complaint on several jurisdictional grounds including the failure of the Association to submit the dispute to arbitration as required by the collective bargaining agreement.

On May 9, 1983, the District Court entered a Memorandum of Decision and Order dismissing the complaint in its entirety with prejudice. The Court ruled that it had jurisdiction over CCS under Section 301(a) and that the Association had failed to exhaust its grievance and arbitration remedies under the collective bargaining agreement, and therefore had failed to state a claim upon which relief could be granted. The pendent claims were then dismissed due to the absence of a cognizable federal claim.

The Association filed a motion under Fed. R. Civ. Proc. 60(b) seeking relief from the order of the court dismissing the complaint. This motion was denied. The Association and CCS now appeal the order of the District Court.

A. THE APPEAL BY THE ASSOCIATION

Section 301 of the Labor Management Relations Act of 1947, as amended, 29 U.S.C. § 185, provides that suits for the violation of contracts may be brought in any District Court having jurisdiction over the parties.The authority of a federal district court to exercise its broad power under Section 301 is limited however to the extent that contractual dispute resolution mechanisms are chosen by the parties. These chosen mechanisms are to be given full consideration and should not be limited or usurped by the courts. See Hines v. Anchor Motor Freight Inc., 424 U.S. 554, 562, 96 S. Ct. 1048, 47 L. Ed. 2d 231 (1976); United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 583, 588-89, 80 S. Ct. 1358, 1362, 41 L. Ed. 2d 1424 (1960). If a party sidesteps the grievance mechanism chosen by the parties by suing in federal court without having first attempted to invoke the chosen mechanism, the claim must be dismissed. Republic Steel Corp. v. Maddox, 379 U.S. 650, 651-53, 85 S. Ct. 614, 616-17, 13 L. Ed. 2d 500 (1965).

The presence of an arbitration clause however does not mean that every dispute is subject to arbitration. The dispute must be contemplated by the arbitration clause and not excluded by it. United Steelworkers v. American Manufacturing Co., 363 U.S. 582-83, 80 S. Ct. at 1353.There must be judicial deference to the chosen contractual machinery "unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation which covers the asserted dispute." United Steelworkers v. Warrior & Gulf Navigation Co., Inc., 363 U.S. 574, 582, 80 S. Ct. 1347, 1353, 41 L. Ed. 2d 1409 (1960).Any "doubts should be resolved in favor of coverage." Id.

The arbitration clause in the collective bargaining agreement between the Association, CCS and the Union provides:

Article XII -- Arbitration

Should any difference arise out of the agreement between the Employer and the Union concerning other than the discharge or discipline . . . such difference shall be submitted to an impartial arbitrator . . . [T]he decision shall be final and binding upon all parties.

The parties do not dispute the applicable legal standards. The Association's only argument in this appeal is that the arbitration clause does not apply to this dispute. The Association alleges that the arbitration clause in the agreement contemplates disputes with the Union on one side and the Association or Employers on the other. According to the Association, "here in contrast the dispute is between a group of Employers allied on one side and on the other side, a single Company and the Union. This alignment of parties was wholly unanticipated when the language of Article XII was negotiated." The Association argues that the arbitration provision was not intended to apply to tripartite, as well as bipartite, disputes.

In addition, the Association argues that this dispute arises only partly out of the collective bargaining agreement. It also arises out of the alleged breach of the association agreement whereby the Association was created.Therefore, the Association argues, the arbitration clause is inapplicable to this dispute because by its own terms, it applies only to disputes which arise "out of the agreement."

Finally, the Association argues that the procedures outlined in the agreement contemplate bipartite arbitration and not tripartite arbitration and consequently, tripartite arbitration would lead to absurd results.

The defendants CCS and the Union respond that on its face, the arbitration clause applies to all disputes, bipartite or tripartite. The District Court noted that the collective bargaining agreement is between the "Employer" and the "Union." The collective bargaining agreement provides:

This agreement is made and entered into between the . . . Association acting for and on behalf of the companies . . . listed [including defendant CCS] . . . hereinafter referred to collectively and individually as the "Employer" or "Employers."

(emphasis added). It is difficult to give any credence to the Association's argument that the clause did not contemplate tripartite disputes given that the Employer is defined to include more than one party; it is defined to include at least two parties -- the Company and the Association. As the Association notes in its moving papers, the clause contemplates the Association or Employers on one side and the Union on the other. Given that the Employer is defined to include the Companies and the Association collectively, it cannot be said with positive assurance that the clause does not contemplate disputes involving three as opposed to two parties. The lower court found this reasoning persuasive. It said:

The collective bargaining agreement specifically defines the "Employer" as the Association and the signatory companies individually and collectively. The arbitration clause in the agreement states that "should any difference arise out of this agreement between the Employer and the Union concerning other than discharge of discipline which cannot be adjusted . . . such difference shall be submitted to an impartial arbitrator . . . whose decision shall be final and binding upon all parties." CCS [as well as the Association] is the "Employer" according to the agreement's definitional section. There is no separate, more limited, definition of the "Employer" for the arbitration provision, and it includes all parties.

It would be illogical for the Court to simultaneously find, by examining the identical sections and recitations of the agreement, that CCS was a party to the agreement at large but not a party to its very broad arbitration clause. Except for excluding grievances related to discharge or discipline, the arbitration clause exempts no issue which arises from the agreement or not a party from its reach. . . .

(emphasis in original). Thus, since the Association is without doubt a party to the agreement as an Employer, and it has sued the Union, it falls squarely with the arbitration clause.What the Association is really claiming is not that the clause does not contemplate tripartite disputes but that the clause does not contemplate this kind of tripartite dispute. The Association points out that the contemplated dispute was one in which the Companies and Association were on one side and the Union was on the other. In this case, the Association and Companies are on one side and the Union was on the other. In this case, the Association and Companies are on one side and the Union and a company on the other. The addition of one of the employers on the Union side of the dispute, however, does not vitiate the conclusion that this kind of dispute was contemplated by the arbitration provision.

Though it would appear that the provision is limited to disputes "between the Employer and the Union," the clause applies to "all disputes." There can be no doubt that a side agreement was contemplated by the parties when the agreement was made since Article XVI expressly prohibits the Employer from entering into any other agreements which are contrary to the collective bargaining agreement.*fn1 The parties then chose to adopt a broad aribtration clause covering all disputes. A violation of Article XVI would lead to the exact dispute between these parties.*fn2 Therefore, the Association's claim that the language of Article XII does not contemplate a dispute between it on one side and an Employer and Union on the other is unpersuasive. Any breach of the Article XVI covenant would lead to this exact result.

Finally, in United Steelworkers of America v. Warrior & Gulf Navigational Co., 363 U.S. 574, 80 S. Ct. 1347, 41 L. Ed. 2d 1409, the Supreme Court held that

In the abssence of any express provision excluding a particular grievance from arbitration, we think only the most forceful evidence of a purpose to exclude the claim from arbitration can prevail, particularly where as here, the exclusion clause is vague and the arbitration clause quite broad. Since any attempt by a court to infer such a purpose necessarily comprehends the merits, the court should view with suspicion an attempt to persuade it to become entangled in the construction of the substantive provisions of a labor agreement, even through the back door of interpreting the arbitration clause, when the alternative is to utilize the services of an arbitrator.

363 U.S. at 584-85, 80 S. Ct. at 1354.In this case, there is no express provision excluding this claim from arbitration. This Court finds that the arguments forwarded by the Association are not the most "forceful evidence of a purpose to exclude" this claim from arbitration.Id.

The Association also argues that the dispute arises partly out of the collective bargaining agreement and partly out of the association agreement. The Association contends that it does not arise solely "out of the agreement" as required by the arbitration clause. It is clear that the dispute arises partly out of the collective bargaining agreement. The complaint alleges that the Union and CCS have "materially breached the provisions of Article XIII and Article XII of the collective bargaining agreement." The complaint however also asserts a cause of action for breach of the association agreement.

As an initial matter, there is no requirement in the arbitration clause that the dispute arise solely out of the collective bargaining agreement. Furthermore, the fact that the collective bargaining agreement and the association agreement have both allegedly been breached in no way affects the ability of an arbitrator to determine whether or not the Union and CCS breached the collective bargaining agreement. Thus, an arbitrator could rule on the collective bargaining issues and then a state court could rule on the association agreement and other pendent claims. As the court below noted, the breach of the association agreement claims are merely, for "common law breach of contract which must be dismissed in the absence of a cognizable federal claim." The Association's claim for breach of the association agreement is distinct from the breach of the collective bargaining agreement claim. It should be noted that the Association takes completely opposite views of how interrelated the two agreements and claims are. First the Association argues that the breach of the association agreement claims are "integrally related to the claims arising out of the collective bargaining agreement." Presumably, the Association is arguing that the arbitrator could not render a complete and adequate decision on the collective bargaining agreement because such a decision would also require an analysis of the association agreement and claims. Under the arbitration clause, an arbitrator is not empowered to consider any issues other than those arising "out of the [collective bargaining] agreement." However, in the very same paragraph, the Association asserts that the "association agreement is entirely independent of the collective bargaining agreement, affording a complete set of rights and liabilities which are not incorporated into the labor agreement." The District Court chose to accept the latter statement in holding that an arbitrator could decide the collective bargaining agreement issues and then the Association could pursue its pendent claims for breach of the association agreement and tortious interference with contractual relations elsewhere. There is no reason for this Court not to do the same.

The Association's final argument on appeal is that the procedures for arbitration outlined in the collective bargaining agreement would lead to absurd results if applied to this tripartite dispute. In support of this contention, the Association cites one example of such absurdity. It argues that Article XII requires that a written request for arbitration be submitted to the Employer with 30 days following the event giving rise to the disupte. The collective bargaining agreement, according to the Association, does not impose a similar time restriction on the Union. The Association continues:

To hold that article XII applies to tripartite disputes such as this case could lead to the anomalous and absurd result that one of the two joint defendants might assert a procedural defense to the arbitration and the other may not be permitted to do so.

However, had the Association read further, it would have found that the same notice requirement runs to the Union as well as the Employer. See Article XII(4). Therefore, there is no basis for the argument that tripartite disputes would lead to absurd results.

The arguments asserted by the Association as to why the court below erred are simply unpersuasive. Thus, the District Court was bound to give deference to the arbitration provision.United Steelworkers v. Warrior & Gulf Navigational Co., Inc., 363 U.S. at 382, 80 S. Ct. at 1353. See also Drake Bakeries, Inc. v. Local 50, American Bakery & Confectionary Workers International, AFL-CIO, 370 U.S. 254, 263-64, 82 S. Ct 1346, 1351, 8 L. Ed. 2d 474 (1962).

The second error alleged by the Association is the failure of the court below to order tripartite arbitration instead of dismissing the action with prejudice. The basis for this assertion is that the Union and CCS allegedly agreed to arbitrate the dispute and then changed their position and decided to contest the arbitrability of this dispute. The Association argues that the importance of this sudden change in position is that the District Court could have retained jurisdiction over the proceedings, via a stay of the proceedings, until after the matter was arbitrated instead of dismissing it, thereby surrendering jurisdiction over the action. The District Court could have stayed the proceedings. Drake Bakeries, Inc. v. Local 50, Am. Bakery & Confectionary Workers International, AFL-CIO, 370 U.S. 254, 266-67, 82 S. Ct. 1346, 1353-54, 8 L. Ed. 2d 474 (1962); Blake Construction Co., Inc. v. Laborer's International Union of North America, AFL-CIO, 511 F.2d 324, 326-28 (D.C. Cir. 1974); Los Angeles Paper Bag Co. v. Printing Specialties and Paper Products Union, Dist. Council No. 2, National Printing and Pressman's Union of North America, AFL-CIO, 345 F.2d 757 (9th Cir. 1965). It is not clear however that the court should have ordered tripartite arbitration. This Court has already concluded that this dispute is arbitrable in a bipartite proceeding, that is, with the Union and CCS on one side and the Association ont he other. In addition, the Association relies on Columbia Broadcasting System, Inc. v. American Record & Broadcasting Association, 414 F.2d 1326, 1329 (2d Cir. 1969), for the proposition that the lower court should have ordered tripartite arbitration in this case. In Columbia, two unions were involved in a work assignment dispute with the plaintiff employer. Each union claimed that its worker members has the right to receive the work assignments from the plaintiff employer. The plaintiff employer filed an action to enjoin a pending arbitration with one of the unions and to compel a tripartite arbitration between the plaintiff and the two unions. Id. at 1327-28. The question before the Court therefore was whether the two separate arbitrations could be joined or consolidated.

The situation in Columbia however is clearly distinguishable from the present case. Unlike Columbia, here there are not two arbitrations to be consolidated or joined; there is only one contemplated arbitration. Therefore, it is difficult to understand exactly what the Association is arguing the District Court should have done. It seems apparent that the arbitration clause agreed upon by the parties will accommodate the present dispute and there is no reason for the District Court to have ordered any other form of arbitration.

The Association argues however that the court dismissed the complaint in the first place solely because of the assertions that the parties would not dispute arbitration or the timeliness of the notice to arbitrate. Since the Association filed its notice of arbitration late and the defendants are now contesting the arbitration notice and its timeliness, the Association has been dismissed from federal court and conceivably could also be without a remedy from the arbitrator if the procedural defect of untimely notice cannot be overcome.

The defendants respond that there is no question that the Article XII arbitration provision covers this dispute. Once it has been determined that a matter should be submitted to arbitration, the court is then bound to give deference to the chosen dispute resolution mechanisms. United Steelworkers v. Warrior & Gulf Navigational Co., Inc., 363 U.S. at 382, 80 S. Ct. at 1353. The Association filed a motion for relief from judgment pursuant to Fed. R. Civ. Proc. 60(b) based on the ground that the court had been misled into dismissing the complaint. The motion was denied on the ground that the court had no choice but to dismiss the complaint and it could not modify its earlier order and direct the defendants to now forego their defense of untimeliness. The ower court noted that it no longer had any Section 301 jurisdiction but acknowledged that defendant CCS had indicated that it had "agreed, in effect, to waive any procedural defenses to a demand for arbitration by the Association subsequent to the Court's ruling." However, the court found that even if it did have the power to amend its earlier order, it could not direct the arbitrator to abide by its finding that CCS had waived its defense of untimeliness.In John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 557, 84 S.Ct 909, 11 L. Ed. 2d 898 (1964), the Supreme Court held that procedural defenses and issues, including the issue of untimeliness or waiver thereof, are matters to be resolved by the arbitrator:

Once it is determined, as we have, that the parties are obligated to submit the subject matter of a dispute to arbitration, "procedural" questions which grow out of a dispute and bear on its final disposition should be left to the arbitrator.

376 U.S. at 557, 84 S. Ct. at 909.Therefore, the procedural issue of untimeliness of the arbitration request and the possible waiver of the timeliness defense must be raised in the arbitration proceeding and not in the District Court. Thus, it was proper for the court to dismiss the action. Even if the lower court would have retained jurisdiction, via a stay in the proceedings, the issue of the possible waiver of the untimeliness defense is a matter which must be resolved by the arbitrator.

This Court finds that the arbitration provision covers disputes such as the present dispute and the District Court did not err in dismissing the complaint instead of staying the proceedings pending the outcome of the arbitration. Accordingly, the order of the District Court dismissing the complaint is AFFIRMED.

B. THE CROSS-APPEAL BY CCS

CCS has also appealed the order of the District Court finding that it had jurisdiction over CCS under Section 301. Section 301 of the Labor Management Relations Act provides:

Suits for violation of contracts between an employer and a labor organizaton . . . may be brought in a district court of the United States having jurisdiction of the parties.

29 U.S.C. § 185(a), as amended. CCS argues that because this suit is between an employer and an association of employers, and not between an employer and a labor organization, Section 301 does not vest the District Court with jurisdiction over CCS in this case. CCS argues that courts have invoked jurisdiction under Section 301 in numerous situations*fn3 but never where there are two employers.*fn4

In Smith v. Evening News Association, 371 U.S. 195, 83 S Ct. 267, 9 L. Ed. 2d 246 (1962), the Supreme Court held that the clause in Section 301 which limits jurisdiction to suits for violation of contracts between an employer and a labor organization vests jurisdiction not merely in cases where the dispute is between the employer and the labor organizaton but in any case in which a contract between an employer and a labor organization is in dispute. 371 U.S. at 200, 83 S. Ct. at 270. In other words, "between" refers to suits involving disputes regarding contracts between employers and labor organizatons. See also Republic Steel Corp. v. Maddox, 379 U.S. 650, 656 n. 13, 85 S. Ct. 614, 618 n. 13, 13 L. Ed. 2d 580 (1965).

In this case the Association, CCS and the Union were all parties to the collective bargaining agreement. The collective bargaining agreement is a contract between an employer, the Association and CCS, and a labor organization, the Union. This suit is partly for violation of the collective bargaining agreement. Therefore, the District Court correctly decided that it had jurisdiction over CCS pursuant to Section 301.

CCS also argues that the rights which the Association seeks to enforce against it are rights arising solely from the association agreement. The Association has agreed that the rights and obligations in the association agreement are entirely separate from the rights and obligations in the collective bargaining agreement. CCS argues that the only rights that flow between it and the Association are those that flow from the association agreement and not the collective bargaining agreement. It argues that the right which the Association is trying to enforce via this suit is the payment of a wage increase to CCS employees and such a right flows between the Union and its members who are CCS employees and CCS under the association agreement. Therefore, according to CCS, CCS's position vis a vis the collective bargining agreement and this suit is that of a third party.

In Loss v. Blankenship, 673 F.2d 942 (7th Cir. 1982), this Court ruled that third person non-parties to collective bargaining agreements may not be sued under Section 301 unless the plaintiff is an intended beneficiary of the agreement provision or is owed a fiduciary duty by the person to be sued.*fn5 783 F.2d at 948. See also Baker v. Fleet Maintenance, 409 F.2d 551, 554 (7th Cir. 1969) ("it is our opinion that this section 301 suit failed to state a claim against Sears for the reason that . . . Sears was not a party to the collective bargaining agreement which was the basis of paintiff's claims").

In Loss, the plaintiffs were workers who alleged wrongdoing by their employer's agent.Neither the employees nor the agent were parties to the collective bargaining agreement and the alleged wrongdoing, fostering of antiunion sentiment by the agent, was not at all related to any provision of the collective bargaining agreement. 673 F.2d at 945. On these facts, the Loss court found that "a complaint for interference with the collective bargaining agreement, against a non-party to that agreement, is not actionable under § 301(a) of the LMRA." Id. at 948.

The court below considered the Loss decison and found that here, though technically not a signatory to the agreement, CCS is arguably a party to it. CCS is specifically included in the definition of Employer in the collective bargaining agreement. In addition, this dispute is directly related to a provision in the collective bargaining agreement; it arises out of a breach of the Article XVI covenant that the companies would not enter into any side agreement with the Union.Contrary to the assertions of CCS, the right the Association is trying to enforce is not only the wage increase given to CCS employees in the collective bargaining agreement but also the right to prevent unilateral agreements like the agreement made between CCS and the Union. Based on this, the District Court found that this dispute was encompassed within the scope of the agreement and that CCS was a party not a third person non-party to the collective bargaining agreement. As such, the court determined that the Loss decision was inapplicable. We find the District Court's reasoning persuasive. Accordingly, the order of the lower court finding that it had Section 301 jurisdiction over CCS is AFFIRMED.


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