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July 20, 1995

A.M. CASTLE & CO., Plaintiff,

The opinion of the court was delivered by: JAMES B. MORAN

 A.M. Castle & Co. (Castle), a manufacturer of metal products, brings this action against the United Steelworkers of America (USWA), a union representing workers at several of Castle's plants. In 1993, Castle and USWA signed a collective bargaining agreement that included a provision for a 401(k) plan to be made available to USWA members working for Castle. In a five-count complaint Castle seeks a declaration that the 401(k) provision is void. USWA has moved for summary judgment, arguing that the collective bargaining agreement requires Castle and USWA to submit their dispute to arbitration rather than seek judicial resolution. USWA has also asked the court to assess sanctions against Castle and its attorneys under both Rule 11 and § 301 of the Labor Management Relations Act (LMRA), 29 U.S.C. § 185. For the reasons set forth below, USWA's motion for summary judgment is granted and its motions for sanctions are denied.


 In August 1992, Castle and USWA began collective bargaining to negotiate an employment contract for USWA's members. One of USWA's proposals was the adoption of the "United Steelworkers of America Saving Program -- 401(k) Plan" (the 401(k) Plan). After some discussions Castle tentatively agreed to the proposal on September 25, 1992. There were no further discussions concerning the 401(k) Plan until well after the parties signed the entire collective bargaining agreement on May 1, 1993.

 On November 4, 1994, USWA submitted a grievance to Castle for processing under the collective bargaining agreement. USWA complained that Castle had failed to implement the 401(k) Plan as promised in the agreement. Castle responded that the grievance was not cognizable under the agreement because the 401(k) Plan provision is unenforceable. It then filed suit seeking a declaration to that effect.

 Castle presents five arguments in support of its position: (1) there was no meeting of the minds concerning the 401(k) Plan; (2) the Plan violates § 302 of the National Labor Relations Act (NLRA); (3) USWA fraudulently induced Castle to agree to the Plan; (4) USWA negligently misrepresented the nature of the Plan; and (5) USWA breached the agreement concerning the Plan. USWA denies these charges and further argues that under the agreement Castle's case cannot be brought in federal court at all but must be arbitrated. Along with its motion for summary judgment USWA has moved for sanctions, arguing that Castle's suit is unwarranted and "brought for the improper purpose of causing unnecessary delay" (USWA's Mot. for Sanctions at 1).


 The central question facing us is whether the parties' dispute should be heard by a court or by an arbitrator. That question is most clearly raised by count I of Castle's complaint, and our ruling with respect to count I affects our decisions on the other counts. We therefore begin with count I, then address the other counts in turn. We save the motions for sanctions for last.

 I. Count I: No Meeting of the Minds

 USWA argues that because Castle agreed to binding arbitration when it signed the collective bargaining agreement, it "must arbitrate all disputes arising concerning the application and interpretation of that [agreement]," including the 401(k) Plan provisions (USWA Mem. at 7). Castle responds that because the collective bargaining agreement was based on a mutual misunderstanding about the nature of the 401(k) Plan provisions, the parties had no meeting of the minds and there is no contract to arbitrate. Both parties rely on recent Seventh Circuit cases to support their positions -- in particular, Colfax Envelope Corp. v. Local No. 458-3 M, Chicago Graphic Communications International Union, 20 F.3d 750 (7th Cir. 1994), and Johnson Controls, Inc., Systems and Services Division v. United Association of Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry, 39 F.3d 821 (7th Cir. 1994), cert. denied, 131 L. Ed. 2d 849, 115 S. Ct. 1957 (1995). Because we agree with the parties that Colfax and Johnson govern this dispute, we begin our analysis with an examination of both cases.

 A. Colfax

 In a complex and interesting decision comprised of three separate opinions, the Seventh Circuit ruled in favor of the union. Judge Posner's majority opinion first addressed Colfax's claim that there had been no meeting of the minds. He noted that the very term "meeting of the minds" is misleading: "Most contract disputes arise because the parties did not foresee and provide for some contingency that has now materialized -- so there was no meeting of the minds on the matter at issue -- yet such disputes are treated as disputes over contractual meaning, not as grounds for rescinding the contract." Id. A better term for "no meeting of the minds" would be "latent ambiguity," in the sense that neither party is aware that the contract is ambiguous. Id. at 753. When a latent ambiguity exists, "if neither party can be assigned the greater blame for the misunderstanding, there is no nonarbitrary basis for deciding which party's understanding to enforce, so the parties are allowed to abandon the contract without liability." Id.2 Latent ambiguities are not to be confused with patent ambiguities: in the latter situation, the parties should know that the contract is unclear and in agreeing to it anyway merely "gamble on a favorable interpretation by the authorized tribunal should a dispute arise." Id. at 753, 754.

 Having enunciated these general principles, Judge Posner turned to the case before him. He held that "Colfax, if reasonable, could not have doubted from reading the summary [submitted by the union] that interpretations of the kind that the union and the district judge later placed upon it would be entirely plausible." Id. at 754. Therefore, the parties' agreement contained a patent ambiguity (the failure of the summary to specify the staffing requirements for Colfax's particular machines) and the interpretation of its true meaning would be left to the authorized tribunal: the arbitrator. Id.

 But Judge Posner did not stop there. He noted that the outcome would be different had the arbitration clause itself (as opposed to some other aspect of the agreement) been ambiguous. Interpretation of that part of the agreement would be a task for the court. Id. An arbitration clause is not invalidated simply because it is part of a contract that is otherwise voidable, "perhaps because fraudulently induced." Id. Rather, "the party [seeking to avoid arbitration] must show that the arbitration clause itself, which is to say the parties' agreement to arbitrate any disputes over the contract that might arise, is vitiated by fraud, or lack of consideration or assent ...; that in short the parties never agreed to arbitrate their disputes." Id. Thus if the arbitration clause is valid, "the only question is whether [the parties'] dispute ... [is] a dispute over the meaning of their contract"; if so, it must be arbitrated. Id.

 Judge Posner concluded with a related point that is critical to the case before us:

 Id. at 755. Thus the district court's conclusion that the provision at issue bore a particular meaning did not bind the arbitrator; Colfax was free to argue in the arbitration hearing that, "under a proper interpretation of the contract, there really was no meeting of the minds over the [staffing] requirements and therefore that the contract should be rescinded after all. The only essential point at this stage of the litigation is that whether or not there was ... such a meeting of the minds, there was sufficient mutual understanding to create an enforceable contract to submit the issue to arbitration." Id.

 In his concurring opinion, Judge Cudahy agreed with Judge Posner's exposition of the nuances of the term "meeting of the minds." But he felt that the case could be resolved more simply: "It is clear enough that Colfax's acceptance of the summary settlement agreement unambiguously supports the Union's position that there is a collective bargaining agreement containing an arbitration clause and that the meaning of the contract terms should therefore be submitted to arbitration." Id. at 756 (Cudahy, J., ...

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