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Titan Tire Corp. of Freeport, Inc. v. United Steel, Paper and Forestry, Rubber, Mfg., Energy, Allied Indus. and Service Workers Intern. Union

United States Court of Appeals, Seventh Circuit

November 1, 2013

TITAN TIRE CORPORATION OF FREEPORT, INC., Plaintiff-Counter Defendant-Appellant,
v.
UNITED STEEL, PAPER AND FORESTRY, RUBBER, MANUFACTURING, ENERGY, ALLIED INDUSTRIAL AND SERVICE WORKERS INTERNATIONAL UNION, et al., Defendants-Counter Plaintiffs-Appellees.

Argued Dec. 5, 2012.

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[Copyrighted Material Omitted]

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Joshua G. Vincent, Attorney, Hinshaw & Culbertson, Chicago, IL, for Plaintiff-Counter Defendant-Appellant.

David R. Jury, Attorney, United Steelworkers of America Legal Department, Pittsburgh, PA, for Defendants-Counter Plaintiffs-Appellees.

Before MANION and SYKES, Circuit Judges, and DARROW, District Judge. [*]

MANION, Circuit Judge.

Titan Tire Corporation of Freeport, Inc. (" Titan" ), purchased a tire manufacturing facility in Freeport, Illinois, in late December 2005. In January 2006, Titan entered into a series of labor agreements with Local 745, the union which represented the Titan workers. After taking over the Freeport facility, Titan paid the full union salaries of Local 745's President and Benefit Representative even though they were on leave of absence from Titan and primarily working away from the Titan facility. But in October 2008, Titan informed the union that for two reasons it concluded such payments violated Section 302(a) of the Labor Management Relations Act (" LMRA" ), which prohibits an employer from paying money to union representatives.[1] First, Titan concluded the payments

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were illegal because Local 745 also represented a bargaining unit at the Freeport School District but the President's full-time salary was being paid solely by Titan. And second, it believed the payments illegal because the union representatives were not working full-time from the Titan facility and were not subject to Titan's control.

The union filed a grievance against Titan, arguing that Titan violated the various labor agreements when it stopped paying the President's and Benefit Representative's full-time salaries. It argued that such payments were exempt from the general prohibition of Section 302(a) by Section 302(c), because the President and Benefit Representative were current or former employees of Titan and the payments were " by reason of" their service as employees of Titan. [2] An arbitrator found that Titan made these payments " by reason of their former employment" at Titan, and thus that the payments were lawful under Section 302(c). The arbitrator ordered Titan to resume paying the President's and Benefit Representative's full-time salaries. Titan filed suit in federal district court to vacate the arbitrator's award and the union counterclaimed for enforcement of the award. The district court granted the union's motion, denied Titan's motion, and enforced the arbitrator's decision. Titan appeals.

This appeal presents an issue of first impression in this circuit, namely whether a company may legally pay the fulltime salaries of the President and Benefit Representative of the union representing the company's employees. The Third Circuit, in a divided en Banc decision, in Caterpillar, Inc. v. Int'l Union, United Auto., Aerospace & Agric. Implement Workers of Am., 107 F.3d 1052 (3d Cir.1997), held that paying the full-time salaries of the union's grievance chairmen did not violate Section 302 of the LMRA because such payments were " by reason of" the union representatives' former employment at Caterpillar. Conversely, the dissents in Caterpillar concluded that the plain language of Section 302 barred the company from paying the full-time salaries of the union grievance chairmen, reasoning that such payments were not " because of" the grievance chairmen's prior service to Caterpillar, but rather because of their current work for the union. Id. at 1059 (Mansmann, J., dissenting); id. at 1069 (Alito, J., dissenting).[3]

The Ninth Circuit in Int'l Ass'n of Machinists & Aerospace Workers, Local Lodge 964 v. BF Goodrich Aerospace Aerostructures Grp., 387 F.3d 1046 (9th Cir.2004), also disagreed with the majority's reasoning in Caterpillar, but nonetheless concluded that a company could legally pay a union's full-time " Chief Shop Steward" where the steward was subject to the

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employer's control and thereby still an employee of the company. The Second Circuit in BASF Wyandotte Corp. v. Local 227, International Chem. Workers Union, 791 F.2d 1046, 1049 (2d Cir.1986), in upholding a no-docking provision, also indicated that an employer could not legally pay the full-time salary of a union employee, stating: " we do not suggest that [Section 302(c)(1) ] would allow an employer simply to put a union official on its payroll while assigning him no work."

This circuit's closest precedent comes from Toth v. USX Corp., 883 F.2d 1297 (7th Cir.1989). In Toth, we held that former employees could accrue pension credit while working for a union, but we also recognized that at some point " the terms of compensation for former employment" could become " so incommensurate with that former employment as not to qualify as payments ‘ in compensation for or by reason of’ that employment." Id. at 1305.

Such is the case before us today. Paying the full-time union salaries of Local 745's President and Benefit Representative is " so incommensurate with [their] former employment [at Titan] as not to qualify as payments ‘ in compensation for or by reason of’ that employment." Id. Rather, these payments are " by reason of" the union's President's and Benefit Representative's service to Local 745 members, and those members include both employees working for Titan and employees working for the Freeport School District. We reach this conclusion based on the plain meaning of Section 302, although our holding also furthers the statutory purpose of preventing conflicts of interest. Because such payments are illegal, the arbitrator's decision violates explicit public policy and thus " we are obliged to refrain from enforcing it." W.R. Grace & Co. v. Local Union 759, Int'l Union of United Rubber, 461 U.S. 757, 766, 103 S.Ct. 2177, 76 L.Ed.2d 298 (1983). Accordingly, we reverse the district court's decision and vacate the arbitrator's award.[4]

I.

BACKGROUND

Titan Tire Corporation of Freeport, Inc. (" Titan" ), purchased a tire manufacturing facility in Freeport, Illinois, in late December 2005. Employees at the Freeport facility were represented by the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (" USW" ), and Local 745 (collectively " the union" ). In January 2006, Titan entered into three related labor agreements with the union: (1) a Collective Bargaining Agreement (" CBA" ); (2) a Benefits Agreement; and (3) an Understandings Outside the Agreement. (Collectively " labor agreements" ). The relevant portions of those agreements are discussed shortly. See infra pp. 12-13.

Following Titan's purchase of the Freeport facility, Titan continued its predecessor's practice of paying Local 745's President and Benefit Representative their full-time salaries, plus benefits. The President's and Benefit Representative's salaries were set by Local 745's bylaws which

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were approved by members of Local 745. The bylaws provided that Local 745's " [p]resident's salary is 60 hours at the highest base rate in the plant," and " [t]he benefit representative salary is 48 hours at the highest pay rate of the plant."

When Titan purchased the tire facility, Steve Vanderheyden was serving as Local 745's President. Kevin Kirk took over as President in 2009. In 2006 and throughout the underlying litigation, Anthony Balsamo served as Local 745's Benefit Representative.

From 2006 through October 2008, Titan paid Vanderheyden and Balsamo their full union salaries. Then on October 31, 2008, Titan wrote to union president Vanderheyden and informed him that Titan would no longer pay the full-time salaries for Vanderheyden, Balsamo, and another union officer, whose pay is not at issue on appeal. In this letter, Titan explained that it believed that continuing to pay the salaries of the union representatives would violate Section 302 of the LMRA because Local 745 also represented school district employees [5] and because the President and Benefit Representative did not work out of the Titan facility and were not subject to Titan's control. Id.

While Titan ceased paying Vanderheyden and Balsamo their full-time salaries, it instead paid directly to Local 745 amounts it believed due under the various labor agreements for time the President and Benefit Representative worked on union business. Local 745 then began paying the President's and Benefit Representative's salaries; it also became responsible for the related federal tax withholding, unemployment taxes, and worker's compensation on their incomes. Titan, though, continued to offer Vanderheyden (and later Kirk) and Balsamo fringe benefits. Specifically, they remained eligible for employee benefits, including health, dental, and life insurance, and short-term disability coverage, although to participate in those insurance plans they had to write Titan a check for their share of the premiums and the payments did not come from pre-tax earnings. Titan also continued to make pension contributions and the President and Benefit Representative maintained their seniority at Titan.[6]

Local 745 filed a grievance challenging Titan's discontinuation of payments to Vanderheyden and Balsamo. The grievance went to arbitration. At arbitration, Local 745 argued that under the governing labor agreements and the parties' course of conduct, Titan was responsible for directly paying the President's and Benefit Representative's full salaries. In making this argument, Local 745 relied on several provisions from the governing labor agreements.

First, Local 745 relied on Article VII, Section 19 of the CBA, which provided:

An employee who is designated Union representative shall be compensated at his current hourly rate for time lost from his regular shift as a result of attending scheduled grievance meetings with the Company. The maximum number of hours to be paid by the Company as provided in this paragraph shall be

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determined for each week on the basis of fifteen (15) hours per week for one hundred (100) employees.

Second, Local 745 relied on the Benefits Agreement, which detailed the Benefit Representative's duties [7] and stated that " the Employee designated as Benefit Representative will be paid his current hourly rate for forty-eight (48) hours per week plus 2% of previous year's earnings as vacation pay. The employee will be considered to be on a leave of absence for the period of time he or she serves as Benefit Representative."

Third, the union relied on provisions contained in the Understandings Outside the Agreement. Here Local 745 pointed to provisions discussing the Benefit Representative and " union business time." In short, the Understandings Outside the Agreement's provision discussing the Benefit Representative provided that Titan " will provide compensation for a Benefit Representative to be selected by the Local Union after consultation with the Company." The agreement also set out the Benefit Representative's pay, mirroring the terms provided in the Benefits Agreement, quoted above.

The provisions in the Understandings Outside the Agreement also discussed " union business time," and, in sum, set forth an agreement for the accounting of union business time. It explained that hours will be " accumulated and ‘ banked’ by" Titan as provided in Article VII, Section 19 of the CBA. (As noted above, that provision set a maximum number of hours to be accumulated at 15 hours per 100 employees, per week.) It also stated that deductions from the account would be made for time spent on: union representation at a grievance meeting or arbitration; Grievance Negotiation Committee participation at a grievance meeting or arbitration; union investigation of a grievance or safety violation; grievant and union witnesses' attendance at a grievance meeting or arbitration; Union President's (or his replacement's) time; " [t]ime beyond 48 hours in a week paid to the Benefit Representative (or his replacement)" ; and " [a]ny amount requested by Union for payment to Union members."

Titan for its part argued first that nothing in these agreements required it to pay Local 745's President and Benefit Representative their full-time salaries, but instead claimed the labor agreements merely provided for payments to the union for union business time. Titan further argued that if, under the labor agreements and its past practice, it had agreed to directly pay the President and the Benefit Representative, the agreements were illegal and therefore could not be enforced.

At the arbitration hearing, the parties submitted as joint exhibits, among other things, the CBA, the Benefits Agreement, the Understandings Outside the Agreement, and the October 31, 2008, letter referenced above. The Union also presented Local 745's bylaws and Titan presented the Agreement between Local 745 and the Freeport School District, where Local 745 also represented a bargaining unit.

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Vanderheyden testified at length during the arbitration proceedings on various matters. He confirmed that union members voted on and approved the CBA, Understandings Outside the Agreement, and the Benefits Agreement, excerpted above. And while the documents themselves were not " produced until after the ratification," Local 745 held a meeting for its members and provided a " full explanation of the content of all three of those documents."

Additionally, Vanderheyden testified in detail concerning his activities on behalf of Titan employees. He explained that under the bylaws he was a member of all committees and the head of the Grievance and Negotiating Committee. Vanderheyden testified that he devoted 55 to 60 hours a week on representational activities on behalf of Titan employees, although he explained that he was physically in the Titan plant for designated hours only on Tuesdays and Thursdays, about two hours in the morning and two hours in the afternoon. Vanderheyden added that on the other days (Mondays, Wednesdays, and Fridays), the Benefit Representative (Tony Balsamo) worked out of the Titan plant for two hours in the morning and two hours in the afternoon.

Vanderheyden also explained the structure of Local 745. He testified that in addition to representing Titan employees, Local 745 also, since 1999, represented four classifications of employees working for the Freeport School District: teacher assistants; food service workers; instructional material technicians; and security monitors. There was only one collective bargaining agreement for those four units and about 170 Freeport School District employees were represented by Local 745.

Under Local 745's bylaws, the school employees elect their own leadership, with a unit chairperson, a separate grievance and negotiating committee, a recording secretary, and a separate steward structure. However, the arbitrator noted that under " the agreement between the Freeport School District and USW Local 745 the representational duties of the President and Benefit Representative extend to both Titan employees and to employees of the Freeport School District." And both Vanderheyden and Kirk testified at the arbitration hearing that they assisted the school district's unit chair, attended their monthly membership meetings, and were involved with the handling of some school district grievance proceedings. Vanderheyden had also been present for the negotiations with the Freeport School District and, in fact, had signed the collective bargaining agreement.

Although Vanderheyden (and later Kirk), as well as Balsamo, served both employees working for Titan and the Freeport School District, prior to the dispute at issue in this case, they were paid entirely by Titan. The Freeport School District employees represented by Local 745 did not contribute to their salaries and the Freeport School District did not have an agreement with Local 745 to pay the President or Benefit Representative for time serving the District employees.

After the hearing, the arbitrator issued an opinion sustaining the union's grievance and ordered Titan to reinstate direct salary payments to the President and Benefit Representative. The arbitrator reasoned that Titan's practice of directly paying the President's and Benefit Representative's salaries for two and a half years was " enough time to invoke the doctrine of past practice." The arbitrator further concluded that such payments were " by reason of their former employment" with Titan and " in accordance with the collective bargaining agreement" and as such were legal under Section 302(c). The arbitrator added that " [t]he effect of the bargained-for

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payment is significant," totaling nearly $80,000 annually for the President and about $50,000 for the Benefit Representative. And that " [t]his savings of expense could result in either lower Union dues or at least no raise in Union dues," and thus " [t]he payment by the Company of the President's and Benefit ...


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