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November 28, 1990

POLK BROS., INC., Plaintiff,

The opinion of the court was delivered by: NORGLE


 Before the court are the cross-motions for summary judgment of plaintiff Polk Bros., Inc. ("Polk Bros.") and defendant Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) ("Union"). *fn1" For the reasons set forth below, Polk Bros.' motion is granted in part and denied in part, and the Union's motion is granted in part and denied in part.

 Polk Bros. filed this action pursuant to Section 301 of the Labor Management Relations Act of 1947, 29 U.S.C. ยง 185, to set aside and vacate a portion of an arbitrator's award rendered pursuant to arbitration between Polk Bros. and the Union under three collective bargaining agreements. The three agreements covered 102 drivers and helpers ("Drivers Agreement"), 54 warehouse workers ("Warehouse Agreement"), and 7 furniture refinishers ("Refinishers Agreement") (collectively, "Agreements"). Between June 2 and August 20, 1987, Polk Bros. permanently laid off all 163 employees covered by these three Agreements due to circumstances caused by a devastating fire at Polk Bros.' warehouse and distribution facility. The following background sets the context in which these layoffs were made. *fn2"

 Polk Bros. is in the business of merchandising and retailing home furnishings including appliances, carpeting, furniture, housewares and electronics. It has grown from a single retail outlet in the 1930's to ten retail stores serving the greater Chicago metropolitan area. Since the 1950's, Polk Bros. had consolidated all phases of its corporate, warehousing and home delivery operations at a single location known as the Melrose Park distribution center. This center contained 400,000 square feet of building space on 22 acres and had housed, among other things: a retail store; a 275,000 square foot warehouse and distribution center which contained virtually all of the company's inventory for furniture, carpeting, and appliances; 40 delivery trucks, 6 tractor trailer units, 22 loading docks for the main warehouse, 2 loading docks for the carpet area, and a railroad siding; a garage equipped with a gas pump and underground tank to service the trucks; and general offices housing many of the company's corporate departments, such as accounting, payroll, and personnel.

 The distribution center was conveniently located for easy access to the city and suburbs and permitted the company to deliver merchandise to any location within 75 miles of Chicago. Its efficient, around the clock operations enabled Polk Bros. to develop its reputation for speedy home delivery. In many instances, Polk Bros. was able to promise customers delivery within 24 hours of purchase.

 On June 1, 1987, the Melrose Park distribution center was completely destroyed by fire. Virtually all operations consolidated at the distribution center were demolished. Without a warehouse to receive and store inventory, the plaintiff's ability to fill sales orders was critically impaired and Polk Bros. faced failure. The company's management was under considerable pressure to resolve the problems of receiving and delivering merchandise and to keep the company in business.

 Immediately following the fire, Polk Bros. implemented three interim methods of delivering merchandise: direct store sales, drop shipments by vendor, and drop shipments by third party carrier. None of these measures proved successful. The direct store sales method consisted of selling display merchandise from the sales floor of the company's ten retail outlets. Company drivers with company trucks were assigned to individual retail stores and deliveries were made from the stores to broad geographic areas. This method proved inefficient and time consuming. Further, the company was unable to replace merchandise sold off the showroom floor on a daily basis. The drop shipment method consisted of delivering merchandise to the customer directly from the local manufacturer or supplier. These deliveries were either made by the vendor or by third party delivery outfits. *fn3" The drop shipment method was also expensive and inefficient. Further, most of the company's suppliers of major appliances had no local facilities for warehousing and home delivery. The ineffectiveness of the interim measures was reflected in the high rate of sales order cancellations, which, shortly after the fire, approached 60%.

 The company also implemented separate interim delivery methods for carpet sales. After the fire, it ceased using carpeting cut from its own inventory, and instead used outside suppliers. Polk Bros.' carpet installers had to travel to three separate warehouses to pick up carpet, padding and accessories, and then proceed to the customers' location for installation. This procedure was highly inefficient and costly. By June 19, 1987, Polk Bros.' carpeting sales dropped by 75%.

 As it implemented these various interim measures, Polk Bros. considered three long term solutions to its warehouse and delivery problems. First, it considered rebuilding, but soon rejected that idea based on architects' estimates that it would take more than a year just to rebuild the site, after drafting plans, removing debris, and obtaining all the necessary approvals and permits. Second, it considered purchasing or leasing an alternate facility. It examined 18 to 20 facilities, but found none that met all of its requirements. The two sites that met most of its requirements had other serious problems which the management considered unacceptable. Finally, Polk Bros. considered contracting with third party carriers to provide warehousing and home delivery.

 On June 19, 1987 Polk Bros. entered into a letter of understanding with Merchants Home Delivery Service, Inc. ("Merchants") to provide warehousing and home delivery for its carpet division. Merchants is a nonunion employer offering warehousing and home delivery services nationally. It typically operates with a combination of its own employees, to perform the warehousing function, and independent drivers set up as owner-operators to provide home delivery.

 In early July, Polk Bros. began negotiating with Merchants for the balance of the company's warehouse and distribution operations. Plaintiff claims that its desperate situation and lack of suitable alternatives placed it at a serious bargaining disadvantage with Merchants. On July 30, 1987, Merchants and Polk Bros. executed a Distribution Services Agreement which gave Merchants the exclusive right to run Polk Bros.' warehousing and distribution operations for a period of five years. Plaintiff claims that due to Merchants' superior bargaining position, it was forced to acquiesce to conditions -- such as the five year contract term -- which it otherwise would have rejected. The Distribution Services Agreement transferred to Merchants many of the operations which had previously been performed in-house by Polk Bros.' union workers.

 On August 12, 1987, Polk Bros. entered into an agreement with another company, Crosstown Home Deliveries, Inc., to provide home delivery of General Electric appliances in those situations where Merchants encountered problems with warehousing the appliances in bulk. By August 20, 1987 Polk Bros., which had begun laying off drivers, helpers, warehouse workers and furniture refinishers shortly after the fire, terminated its remaining workers and ceased all home delivery operations.

 Soon after the layoffs, the Union filed grievances with Polk Bros., claiming that the decision to contract with Merchants for warehousing and delivery services violated the terms of the Drivers, Warehouse, and Refinishers Collective Bargaining Agreements. Pursuant to the Agreements, the contract disputes went into arbitration.

 The parties submitted post-hearing briefs to the arbitrator in January of 1988. On April 15, 1988, Arbitrator Nathan issued his award. In this award, the arbitrator held that:

1) Polk Bros.' contracts with Merchants and Crosstown Deliveries violated the "transfer of operations" (Article I) and "subcontracting" (Article 13) clauses of the Drivers Agreement and the "successor" clause (Article XIX, sec. 2) of the Refinishers Agreement.
2) Polk Bros. violated its implied obligation of good faith and fair dealing under the Warehouse Agreement by subcontracting its carpet warehousing operations to Merchants. In all other respects, ...

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