Supreme Court Holds Dispute Over CBA's Ratification Is Matter For Judicial Resolution And Is Not Arbitrable

Supreme Court Holds Dispute Over CBA’s Ratification Date Is A Matter For Judicial Resolution And Is Not Arbitrable

On June 24, 2010, the U.S. Supreme Court held in Granite Rock Co. v. International Brotherhood of Teamsters, et al., that a court, rather than an arbitrator, must determine when the parties reached an agreement to arbitrate disputes arising under a collective bargaining agreement.

The case involved an employer’s claims against a local union and the union’s international parent for economic damages arising out of a 2004 strike. The matter turned, in part, on whether a collective bargaining agreement between the employer and the union which contained a no-strike provision was validly formed during the course of the strike.

The employer, Granite Rock Co. (“Granite Rock”), is a California concrete and building materials company. Some of Granite Rock’s employees are members of the International Brotherhood of Teamsters (“IBT”), Local 287. Granite Rock and Local 287 were parties to a collective bargaining agreement that expired in April 2004. Following the expiration of that agreement, the parties engaged in negotiations for a new CBA. Those negotiations, however, came to an impasse, and on June 9, 2004, the union initiated a strike in furtherance of their bargaining position.

The strike continued until July 2, 2004, when the parties agreed to terms for a new CBA. The new CBA contained a no-strike clause and an arbitration agreement requiring all claims “arising under” the new CBA’s terms to be arbitrated. The new CBA, however, did not directly address Local 287 or IBT’s liability for economic damages to Granite Rock caused by the strike initiated on June 9, 2004. When IBT learned that the new CBA did not contain a hold harmless agreement, it instituted a second strike on July 5, 2004.

Granite Rock sued on July 9 seeking injunctive relief and strike-related damages under Section 301 of the Labor Management Relations Act (“LMRA”), alleging that the new CBA had been validly ratified on July 2 and that the continuation of the strike therefore violated its terms. Local 287 asserted that the new CBA was not validly ratified on July 2 and that the July strike, therefore, could not have breached the new CBA.

While the case was pending, Local 287 ratified the CBA on August 22, 2004, and later returned to work. Thereafter, Granite Rock amended its complaint to add federal inducement to breach and interference with contract claims against IBT. The district court dismissed those claims on the ground that § 301(a) of the LMRA only supports a federal cause of action for breach of contract. As to Granite Rock’s claims for strike-related damages against Local 287, the district court held that whether the CBA was validly ratified on July 2 was an issue for the court to decide, and submitted the case to a jury. The jury reached a unanimous verdict that Local 287 ratified the new CBA on July 2, and the district court entered the verdict and ordered the parties to proceed with arbitration on Granite Rock’s breach of contract claims for strike-related damages. The Ninth Circuit Court of Appeals affirmed the dismissal of the tortious interference claims against IBT, but reversed the district court’s determination that the date of the CBA’s ratification was a matter for judicial resolution, holding that an arbitrator should have decided whether the new CBA was ratified on July 2.

The Supreme Court addressed both issues on appeal. With regard to whether the ratification date issue should be decided by a court or an arbitrator, the Supreme Court ruled 7 to 2 that the district court was the proper decision maker. The Court premised its holding upon the fundamental principle that “a court may order arbitration of a particular dispute only where the court is satisfied that the parties agreed to arbitrate that dispute.” In other words, a court may order arbitration only where the court “is satisfied that neither the formation of the parties’ arbitration agreement nor . . . its enforceability or applicability to the dispute is in issue.” Thus, because there was an issue as to whether the arbitration agreement was validly formed on July 2, 2004, until that issue was decided, the parties could not be ordered to arbitrate a dispute concerning the subsequent July 2004 strike.

As to the second issue, the Supreme Court unanimously held that §301(a) of the LMRA does not support a federal common-law tort claim for tortious interference with a collective bargaining agreement. Recognizing that virtually all of the circuit courts of appeals have limited the federal common law under §301(a) to contract claims, the Supreme Court reasoned that while §301 authorizes federal courts to develop a federal common law for the enforcement of collective bargaining agreements, “creating a common-law tort cause of action would require a host of policy choices,” which could potentially upset the balance federal statutes have reached concerning employer and union relations in the collective bargaining arena.

Justice Thomas delivered the opinion of the Court, in which Chief Justice Roberts and Justices Scalia, Kennedy, Ginsburg, Breyer, and Alito Joined. Justice Sotomayor authored an opinion concurring in part and dissenting in part, in which Justice Stevens joined.