K & I Construction v. Chicago & Northeast

In the

United States Court of Appeals

For the Seventh Circuit

No. 00-3973

Chicago District Council of

Carpenters Pension Fund, et al.,

Plaintiffs,

v.

K&I Construction, Inc.,

Defendant/Third-Party

Plaintiff-Appellant,

v.

Chicago and Northeast Illinois

District Council of Carpenters, et al.,

Third-Party Defendants-Appellees.

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 00 C 6769--John A. Nordberg, Judge.

Argued February 21, 2001--Decided February 23, 2001/*

Before Posner, Kanne, and Diane P. Wood,

Circuit Judges.

Diane P. Wood, Circuit Judge. This case

arises out of a dispute between the

Chicago District Council of Carpenters

Pension, Welfare, and Apprentice and

Trainees Program Trust Funds (the Funds)

and K&I Construction, Inc. (K&I) over the

fringe benefits K&I was required to pay

to the Funds on behalf of its employees,

who are members of the Chicago Northeast

Illinois District Council of Carpenters

and its local unions (the Union). The

Funds sued K&I to recover contributions

that were due; when the Union responded

with a strike in support of the Funds,

K&I filed a third-party complaint against

the Union in which it asked for an anti-

strike injunction under the Supreme

Court’s decision in Boys Markets, Inc. v.

Retail Clerks Union, Local 770, 398 U.S.

235 (1970). The district court refused to

grant the injunction, and K&I appealed.

After hearing oral argument, we issued an

order affirming the district court’s

decision. The present opinion explains

how and why we reached that conclusion.

I

K&I is a subcontractor for homebuilders

in the Chicago area; it and the Union are

parties to a collective bargaining

agreement that requires K&I to pay

certain contributions to the Funds. On

October 17, 2000, the Funds submitted to

K&I an audit report claiming that between

January of 1997 and December of 1999, K&I

failed to forward almost $800,000 in

required fringe benefit contributions.

K&I disputed that it owed the

contributions, and so the Funds filed

suit. On October 31, 2000, the Union went

on strike in support of the Funds’ fringe

benefit claim.

Fearing that the strike would cost it

important contracts, K&I filed its third-

party complaint against the Union and

sought to enjoin the labor action.

Relying on Boys Markets, K&I argued that

it was entitled to an injunction because,

under the terms of the collective

bargaining agreement, the dispute over

fringe benefit contributions was a

mandatory subject of arbitration between

K&I and the Union. The district court

disagreed and denied K&I’s motion, and we

affirmed by order.

II

A preliminary injunction is an

extraordinary remedy that should not be

granted unless the movant, by a clear

showing, carries the burden of

persuasion. Mazurek v. Armstrong, 520

U.S. 968, 972 (1997) (per curiam). In a

typical case, the plaintiff initially

must establish a better than negligible

chance of succeeding on the merits and

the inadequacy of legal remedies. If the

plaintiff carries this burden, then the

district court balances the harm the

injunction would impose on the defendant

against the injury the plaintiff would

suffer without the injunction. Boucher v.

School Bd. of the School Dist. of

Greenfield, 134 F.3d 821, 824 (7th Cir.

1998). In labor cases, however, the rules

are somewhat different, because of

additional statutory restrictions against

the issuance of injunctions.

Two statutes influence the availability

of the kind of injunction K&I wants: the

Norris-LaGuardia Act (NLA), 29 U.S.C.

sec. 101 et seq., which imposes strict

limits on the ability of courts to enjoin

labor disputes; and the Labor Management

Relations Act (LMRA), which establishes a

strong policy in favor of arbitrating

labor-management disputes, 29 U.S.C. sec.

173(d). In Boys Markets, the Supreme

Court addressed the tension that can

arise between these two enactments. The

Court recognized that one of the most

important benefits employers gain when

they agree to mandatory arbitration is

the avoidance of strikes and other

disruptive labor actions. In order to

ensure that employers have an incentive

to agree to arbitration (which, to

theextent it occurs, fosters the social

interest in industrial peace, recognized

by the Supreme Court in N.L.R.B. v.

Seven-Up Bottling Co. of Miami, 344 U.S.

344 (1953)), the Court determined that it

was necessary to recognize a narrow

exception to the NLA’s anti-injunction

provisions. If the employer has

contractually obligated itself to

arbitrate a given dispute, by the same

token that employer must be able to

enjoin the union from striking over that

dispute. Boys Markets accordingly held

that a court may "issue [an] injunctive

order [if] it first holds that the

contract does have [the] effect" of

binding both parties to arbitrate the

dispute at issue and that "an injunction

would be warranted under ordinary

principles of equity." 398 U.S. at 254

(emphasis in original) (quoting Sinclair

Refining Co. v. Atkinson, 370 U.S. 195,

228 (1962) (Brennan, J., dissenting)). It

is in that sense that an employer seeking

to enjoin a labor action is subject to an

extra burden: it must both satisfy the

normal requirements for an injunction and

also demonstrate that the contract

language binds the union to arbitrate the

dispute that precipitated the strike.

After Boys Markets, the Court

underscored that the relevant issue is

not simply whether the labor action

violates the collective bargaining

agreement, but more specifically whether

the dispute that gave rise to the labor

action was also one that the parties

specifically agreed would be the subject

of mandatory arbitration. As the Court

said in Jacksonville Bulk Terminals, Inc.

v. International Longshoremen’s Ass’n,

457 U.S. 702 (1982), "in agreeing to

broad arbitration and no-strike clauses,

the parties do not bargain for injunctive

relief to restore the status quo pending

an arbitrator’s decision on the legality

of the strike under the collective

bargaining agreement, without regard to

what triggered the strike. Instead, they

bargain only for specific enforcement of

the union’s promise to arbitrate the

underlying grievance before resorting to

a strike." Id. at 723. A sympathy strike,

for example, may be a violation of the

collective bargaining agreement’s no-

strike clause, but it may not be enjoined

pending arbitration of the propriety of

the strike unless the union specifically

obligated itself to arbitrate the issue

that caused the walkout. See Buffalo

Forge Co. v. United Steelworkers, 428

U.S. 397 (1976); Local Lodge 1266,

International Ass’n of Machinists v.

Panoramic Corp., 668 F.2d 276, 280-81

(7th Cir. 1981).

Turning to the merits of K&I’s claim,

our first task is to identify the dispute

that gave rise to the Union’s strike. It

is whether K&I’s alleged failure to

contribute $800,000 to the Funds violated

any duty it had to the Funds or the union

members. To succeed in its quest for an

injunction, K&I must demonstrate that the

CBA requires the Union to arbitrate this

dispute between K&I and the Funds; it is

not enough to show that the CBA prohibits

the Union from striking while K&I and the

Funds are sorting out their differences.

(There is no dispute that if the Union

were obligated to arbitrate trust fund

disputes, the CBA no-strike clause would

prohibit the Union from striking here.)

The question whether K&I has met this

burden turns on the proper interpretation

of the collective bargaining agreement,

which itself is an issue for which our

review is plenary. International Ass’n of

Machinists & Aerospace Workers,

Progressive Lodge No. 1000 v. General

Elec. Co., 865 F.2d 902, 905 (7th Cir.

1989). Only if we concluded that the CBA

requires the Union to arbitrate this

trust fund dispute would we need to

consider whether this case should be

remanded for the district court to

consider the equities of the requested

injunction, or whether we could review

the district court’s decision denying the

injunction under the usual deferential

abuse of discretion standard, if the

record is already clear enough.

Several provisions of the CBA are

relevant here. Article XVIII, titled

"Settlement of Disputes," states:

18.1 Except as provided in Sections 12.13,

13.11, 14.11, 27.1, 28.2, 33.1, 34.1,

35.1, and 36.1 of the Agreement, any

dispute as to the proper interpretation

of this Agreement shall be handled in the

first instance by a Representative of the

UNION and the EMPLOYER, and if they fail

to reach a settlement . . . it shall be

referred to a Board of Arbitration

composed of one (1) person appointed by

each party, the two (2) so appointed to

select a third member.

18.2 Except as provided in Sections

12.13, 13.11, 14.11, 27.1, 28.2, 33.1,

34.1, 35.1, and 36.1 of this Agreement,

the Board of Arbitration shall have

jurisdiction over all questions involving

the interpretation and application of any

Section of this Agreement.

18.3 . . . There shall be no work stoppage

during arbitration.

Each of the relevant exempted sections

to which Sections 18.1 and 18.2 refer

(e.g., 12.13, 13.11, etc.) is contained

within CBA articles that pertain to K&I’s

duty to make contributions to the Funds.

So, for example, Article XII relates to

the Health and Welfare Fund and Article

XIII relates to the Pension Fund. Each of

the referenced sections is at the end of

its article and contains essentially the

same language. Section 12.13 is typical:

The collection of amounts due under this

Article shall not be subject to the

Settlement of Disputes procedure

established in Article XVIII.

Each of the cited articles also contains

language to the effect that "the EMPLOYER

agrees to be bound by the Agreement and

Declaration of Trust establishing the

[Trust Fund]" and that contributions

"shall be made on the dates and in the

manner prescribed by the Trust

Agreement." See, e.g., Article XII,

Sections 12.2 & 12.3. (Neither party

considered it necessary to include the

trust agreements in the record; they

factor into our analysis only insofar as

we can deduce the relevant terms from

other evidence properly before us; as we

note later, K&I bears the risk of any re

maining uncertainty about the terms.)

Before we interpret this contractual

language, there are two questions of law

that we need to address. The first is

what legal standard a court considering a

Boys Markets injunction should apply when

the parties dispute whether the mandatory

arbitration provision covers the dispute

that gave rise to the strike. The

district court followed the Sixth

Circuit’s rule, which is that no Boys

Markets injunction may issue if the union

makes a "colorable claim" that the

contract language excludes the underlying

dispute from arbitration. See Allied

Systems Ltd. v. Teamsters Nat’l Auto.

Transporters Indus. Negotiating Comm.,

Local Union 327, 179 F.3d 982, 988-89

(6th Cir. 1999). K&I argues that the

district court should have interpreted

the CBA according to established

principles of labor contract law and made

a determination whether the underlying

dispute was subject to arbitration.

We agree in principle with K&I. To see

why, we begin with three legal

propositions that are not in dispute.

First, as a rule, whether a labor-

management dispute is a mandatory subject

of arbitration is a question for the

courts. First Options of Chicago, Inc. v.

Kaplan, 514 U.S. 938, 944 (1995); AT&T

Technologies, Inc. v.

CommunicationsWorkers, 475 U.S. 643, 649

(1986) ("Unless the parties clearly and

unmistakably provide otherwise, the

question of whether the parties agreed to

arbitrate is to be decided by the court,

not the arbitrator."); Local Union 1393

Int’l Bhd. of Elec. Workers v. Utilities

Dist. of W. Ind. Rural Elec. Membership

Coop., 167 F.3d 1181, 1183-84 (7th Cir.

1999). Second, courts determine whether

to compel parties to arbitrate by

interpreting the relevant language of

their collective bargaining agreement in

light of well-worn principles of labor

contract interpretation, including the

rule that where the agreement contains a

mandatory arbitration provision, there is

generally a presumption in favor of find

ing arbitrability. Local Union 1393, 167

F.3d at 1183. Finally, from Boys Markets

and Buffalo Forge, we know that once a

court holds that an issue that gave rise

to a strike is a subject of mandatory

arbitration, the employer is entitled to

enjoin the strike -- provided that the

equities favor an injunction.

These three propositions leave little

room for the Sixth Circuit’s "colorable

claim" rule. That rule would require

courts to apply a different standard of

labor contract interpretation when

deciding arbitrability for purposes of a

Boys Markets injunction from the standard

applied when deciding whether to issue an

order to arbitrate. A court could only

"hold" that a dispute must be arbitrated

for purposes of Boys Markets if no

colorable claim to the contrary could be

made, while whether the parties were

actually ordered to arbitrate would be

determined in light of established

principles of labor contract

interpretation. We can find no evidence

that the Supreme Court has created such

inconsistent standards. On the contrary,

in Gateway Coal Co. v. United Mine

Workers, 414 U.S. 368 (1974), the Court

applied standard principles of labor

contract interpretation, including the

presumption in favor of arbitrability, in

concluding that the Third Circuit erred

in reversing the grant of a Boys Markets

injunction. 414 U.S. at 380 n. 10. That

the Court took this approach is not

surprising when one considers the

practical consequences of having

inconsistent standards. Because the

"colorable claim" test is considerably

less favorable to arbitration, courts,

for reasons other than the equitable ones

recognized in Boys Markets, would

sometimes be required to deny employers

the benefit of their bargain to arbitrate

by requiring arbitration but permitting

unions to continue striking.

Allied Systems relies for its rule upon

an earlier Sixth Circuit opinion, Waller

Bros. Stone Co. v. United Steelworkers,

620 F.2d 132 (6th Cir. 1980), in which

the court explained that no Boys Markets

injunction could issue where the

arbitrability of the dispute was a

"threshold question[ ] pos[ing] difficult

problems of contract interpretation," be

cause in Buffalo Forge the Supreme Court

warned against using Boys Markets

injunctions to "usurp" the role of

thearbitrator. Waller Bros. Stone Co.,

620 F.2d at 136. The problem with this

argument, and the reason that the

usurpation discussion in Buffalo Forge is

not on point, is that the district court,

and not the arbitrator, is normally the

entity charged with deciding the question

whether the dispute that gave rise to the

strike is subject to arbitration. (That

is the case with this CBA; we express no

opinion on the more unusual situation in

which the parties have given the

arbitrator the authority to determine

arbitrability as well, though we note

that the Supreme Court has imposed a

significantly different standard of

certainty on courts before they are to

come to such a conclusion. See First

Options, 514 U.S. at 945.) There is thus

no threat of usurpation when the court is

deciding only whether a certain issue is

arbitrable; even if the issue of

arbitrability raises a difficult question

of labor contract interpretation, that is

not enough to deny a Boys Markets

injunction.

Others among our sister circuits are

less reluctant to evaluate the merits of

the contract interpretation dispute when

a Boys Markets injunction is at issue.

They require the court to conduct a

"preliminary interpretation" of the

collective bargaining agreement in light

of the surrounding circumstances.

National Rejectors Industries v. United

Steelworkers, 562 F.2d 1069 (8th Cir.

1977); Elevator Mfrs’ Ass’n v. Local 1,

Int’l Union of Elevator Constructors, 689

F.2d 382 (2d Cir. 1982). We think it is

appropriate to go even a step further and

require that, to the extent possible on

the record before it, the district court

should resolve the arbitrability issue if

that can be done purely as a matter of

law. If there are contractual ambiguities

that would require further proceedings,

then the court should conduct the kind of

preliminary interpretation used by the

Second and Eighth Circuits. Under Boys

Markets, the burden is on the employer to

show that the issue is arbitrable.

The second issue raised by the parties

concerns the relevance of the presumption

in favor of arbitrability to the dispute

in this case. The Union cites Schneider

Moving & Storage Co. v. Robbins, 466 U.S.

364 (1984) for the proposition that there

is no presumption that trust fund

disputes are subject to mandatory

arbitration. K&I contends that

Schneider’s holding was narrower,

negating the presumption only with

respect to the question whether trust

funds intended to be bound to arbitrate

their disputes with employers under the

terms of a collective bargaining

agreement. We need not take sides on the

proper interpretation of Schneider in the

present situation, because even if it

were available, the arbitrability

presumption would not help K&I here.

No court would need to resort to the

arbitrability presumption unless it found

the contractual language genuinely

ambiguous--ambiguous in the same sense

that would entitle the parties to present

external evidence to shed light on the

parties’ true intentions. Moriarty v.

Svec, 164 F.3d 323, 331 (7th Cir. 1998).

And there is nothing about an arbitration

clause or any applicable presumptions

that changes the initial process of

deciding whether the contract is or is

not ambiguous. An employer’s initial

burden under Boys Markets is thus just

the same as the initial burden faced by

any party who wishes to convince a court

that the plain language of a contract

cannot stand on its own: it must show

that the language of the arbitration

clause is susceptible to more than one

reasonable interpretation, including an

interpretation under which it covers the

dispute that gave rise to the labor

action. As we will now explain, K&I has

not met this burden.

K&I contends that the language from

Article XVIII can reasonably be read to

require the Union to arbitrate a dispute

over trust fund contributions. It

interprets the language in Sections 18.1

and 18.2 as covering all fund

contribution disputes except those over

"[t]he collection of amounts due" to the

Funds, which it thinks means only

disputes over the process of collecting

fringe benefit contributions. Under this

approach, disputes over the determination

of the amount due, in contrast, must be

arbitrated under the broad language of

Article XVIII. (Evidently K&I thinks that

ascertaining the amount one must pay is

not part of the collection process.) The

Union, on the other hand, finds these

distinctions unworkably fine; it contends

that Article XVIII’s arbitration clause

was not intended to apply to any trust

fund contribution disputes and that the

exemption language can only reasonably be

interpreted as a statement of this

intention.

We recognize that in some cases a

collective bargaining agreement,

reasonably interpreted, may require a

union to arbitrate trust fund disputes,

see Jaffee v. Shanin Co., 763 F.Supp. 286

(N.D.Ill. 1991), but this is not such a

case. It is easiest to see why if we

start with the fact that the CBA

incorporates by reference the terms of

the Funds’ trust agreements. As a result,

even though only K&I and the Union are

signatories to the CBA, the CBA

contractually establishes K&I’s

relationship to both the Union and the

Funds. Any proposed interpretation of the

CBA must therefore take account of this

fact.

And it is here, already, that K&I’s

proposed interpretation of the CBA

becomes problematic. K&I is litigating

with the Funds over the same $800,000

dispute that it insists must be

arbitrated with the Union under the CBA.

K&I conceded the validity of that suit at

oral argument. It is necessarily arguing,

therefore, that the CBA (including the

Funds’ incorporated trust agreements) can

reasonably be interpreted as requiring

the Union to arbitrate the dispute with

K&I while permitting the Funds

simultaneously to litigate the same

dispute in federal court. The exemption

language of Article XVIII suggests that

the agreement did no such thing, and we

see no other evidence in the CBA that the

parties intended to create a bifurcated

system of dispute resolution and to run

the risk of inconsistent, legally binding

outcomes. At the least, we would not

interpret a contract to require such a

cumbersome and potentially chaotic

outcome absent a clear expression of

intent. Cf. Pipe Fitters’ Welfare Fund,

Local Union 597 v. Mosbeck Indus.

Equipment, Inc., 856 F.2d 837, 840 (7th

Cir. 1988) (requiring clear expression of

intent to have union arbitrate on behalf

of trust funds).

This point would have less force if it

were possible for the Funds to

participate in the arbitration, but

nothing before us suggests that this can

occur. Article XVIII makes no provision

for the Funds to be a party to an

arbitration between K&I and the Union,

and we see no evidence elsewhere of any

such agreement on the part of the Funds.

Excluding the Funds from the arbitration

process makes good sense if disputes in

which the Funds have an interest are

exempted from arbitration; that way, any

disputes could be filed in the

appropriate court and all interested

parties would be able to participate in

the litigation.

The specific language of the CBA is no

more helpful to K&I. The reasonableness

of a proposed interpretation of

contractual language requires

consideration of the contract as a whole,

including terms incorporated by

reference. Here, the relevant articles of

the CBA incorporate by reference the

Funds’ trust agreements. One can deduce

from the CBA that those agreements have

something to say about the process of

making trust fund contributions, and that

they may provide insights into how the

parties to the CBA intended to resolve

disputes over such contributions. That is

why in similar situations both the

Supreme Court and this court have

carefully considered the content of both

CBAs and trust agreements in determining

the parties’ intent with respect to the

arbitrability of trust fund disputes.

Schneider, 466 U.S. at 374; Pipe Fitters’

Welfare Fund, 856 F.2d at 840. K&I,

however, failed to make these agreements

part of the record. Given that it was

K&I’s burden to prove the reasonableness

of its position in light of the contract

as a whole, this failure alone strikes a

serious blow against its effort to

qualify for a Boys Markets injunction.

Even assuming away this evidentiary

problem, the plain language of the CBA

does not support K&I’s position. There is

no language specifically stating that the

Union must arbitrate a dispute between

the company and the Funds about trust

fund contributions, and there certainly

is no express indication that it must do

so while the Funds are litigating the

same dispute. (Why the Union would need

to be asserting the Funds’ right in an

arbitration proceeding is an interesting

question, the answer to which also cuts

against K&I’s efforts.) Instead, the CBA

arbitration provisions exclude from

arbitration all trust fund disputes

involving "[t]he collection of amounts

due under" the trust fund-related

articles of the CBA.

K&I has tried to inject ambiguity into

those words, but we find its efforts

unsuccessful in the end. The key phrase,

in light of the language of the articles

addressing the trust funds, supports the

conclusion that the parties meant to

exclude all trust fund disputes from

arbitration. The trust-fund-related

articles cover all the details (directly

and by incorporation of the trust

agreements) of calculating and making

fund contributions without providing for

any express distinctions between the

various stages of the contribution

process. No distinction is made between

the determination of the amounts due to

the Funds and the process by which those

amounts are to be collected. The natural

reading of the phrase "collection of

amounts due under this Article" is thus

as a general exemption of all funding

disputes arising under the various

articles.

K&I’s proposed reading makes no

practical sense, either. Under K&I’s

interpretation, the exemptions in Article

XVIII in effect would only clarify that

there is no need to arbitrate the

collection of an arbitral award. If K&I’s

reading of the contract is correct, the

parties drafted the exemption language

only to clarify that if, after an

arbitrator determined the fringe benefit

contribution amount owed to the Funds,

K&I refused to pay, or refused to pay in

the manner the arbitrator decreed, the

parties would not need to arbitrate K&I’s

refusal to honor the award. The notion

that this was the parties’ concern

borders on the absurd, especially in

light of the perfectly sensible

alternative conclusion that results from

the Union’s interpretation of Article

XVIII and the phrase "collection of

amounts due under this Article."

In the final analysis, we have no

trouble concluding that the language of

the CBA unambiguously establishes that

the arbitration provisions in Article

XVIII were not intended to cover disputes

between K&I and the Funds. This means

that we need not concern ourselves with

any presumption favoring arbitration, and

we leave further development of that

topic to another day. The only reasonable

interpretation of this agreement is the

one the district court adopted, under

which the phrase "[t]he collection of

amounts due under this Article shall not

be subject to the Settlement of Disputes

procedure established in Article XVIII"

has the effect of exempting from

arbitration disputes like the one that

gave rise to the Union’s strike.

III

Because the CBA here cannot reasonably

be read to require the Union to arbitrate

the trust fund dispute between K&I and

the Funds, this case does not fall within

the narrow set of circumstances under

which a Boys Markets injunction may be

issued. We thus Affirm the district

court’s denial of a preliminary

injunction against the strike.

FOOTNOTE

/* On February 23, 2001, we issued an order affirm-

ing the district court’s denial of K&I Construc-

tion, Inc.’s motion for a preliminary injunction,

with an indication that an explanation would

follow in due course. This opinion provides that

explanation.