Carpenters 46 Northern California Counties Conference Board v. Zcon Builders, Individually and D/B/A Sharon Hill Corporation Sharon Hill Corporation

PREGERSON, Circuit Judge,

dissenting:

The majority recognizes that the Management Labor Relations Act, 29 U.S.C. § 185 , evinces a strong federal policy favoring “private settlement of labor disputes without intervention of government,” and that, if courts readily intervene, “the speedy resolution of grievances by private mechanisms would be greatly undermined.” United Paperworkers Intern. Union, AFL-CIO v. Misco, Inc., 484 U.S. 29, 37, 38 , 108 S.Ct. 364, 370, 371 , 98 L.Ed.2d 286 (1987). Yet, the majority refuses to confirm the arbitrator’s award in this case and, in the process, creates a conflict with our decision in George Day Constr. Co., Inc. v. United Broth. of Carpenters and Joiners of America, Local 354, 722 F.2d 1471 (1984). I therefore dissent.

The majority believes that the labor arbitrator in this case exceeded his authority in issuing an arbitration award against Sharon Hill Corporation (“Sharon Hill”), an employer that never signed a collective bargaining agreement. The arbitrator found that Sharon Hill was the alter ego of Zcon Builders (“Zcon”), the employer that did sign the collective bargaining agreement. Apparently, both companies operate out of the same address and have the same responsible managing officer and agent for service of process.

The issue in this case is whether the arbitrator had the authority to decide whether Sharon Hill was the alter ego of Zcon, or whether this issue should have been decided in the first instance by the courts. I believe the district court properly deferred to the arbitrator’s award in this case because Sharon Hill consented to having the arbitrator *417 decide the alter ego question at the arbitration hearing.

I

I agree with the majority that, generally, courts decide whether a dispute is arbitra-ble — what courts refer to as the question of arbitrability. AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 649 , 106 S.Ct. 1415, 1418-19 , 89 L.Ed.2d 648 (1986). But both the Supreme Court and this court have recognized important exceptions to the general rule that courts decide arbitrability.

An arbitrator will decide arbitrability where the parties “‘clearly and unmistakably5 ” divest the courts of their jurisdiction. New England Mechanical, Inc. v. Laborers Local Union 294, 909 F.2d 1339, 1345 (9th Cir.1990) (quoting AT & T, 475 U.S. at 649 , 106 S.Ct. at 1418-19 ). We have construed broad arbitration clauses in collective bargaining agreements as granting arbitrators authority to decide arbitrability in the first instance. Id. at 1345. See, e.g., Brotherhood of Teamsters and Auto Truck Drivers Local No. 70 v. Interstate Distributor Co., 832 F.2d 507, 510-511 (9th Cir.1987) (construing arbitration clause that covered “any grievance or controversy'' as granting arbitrator authority to resolve arbitrability issue). 1

We also have recognized that an employer that never signed a collective bargaining agreement will be bound by an arbitrator’s award in the following situations: (1) where the nonsignatory adopts the collective bargaining agreement’s arbitration clause, see, e.g., Sheet Metal Workers Intern. Ass’n, Local No. 359, AFL-CIO v. Arizona Mechanical & Stainless, Inc., 863 F.2d 647, 651 (9th Cir.1988); (2) where the nonsignatory is the alter ego or successor of the employer that signed the collective bargaining agreement, see, e.g., New England Mechanical, 909 F.2d at 1343 ; or (3) where the nonsignatory consents at an arbitration hearing to having the arbitrator resolve a dispute without expressly objecting to the arbitrator’s jurisdiction and without reserving the arbitrability question for the courts, see, e.g., George Day, 722 F.2d at 1475 .

The courts must determine whether any of the exceptions to the general rule — that courts decide arbitrability — applies to a particular ease. Arizona Mechanical, 863 F.2d at 653 . But in deciding whether any of the exceptions apply, a court must “avoid becoming entangled in the merits of a labor dispute under the guise of deciding arbitrability.” AT & T, 475 U.S. at 647 , 106 S.Ct. at 1417 . And if a court determines that any of the exceptions apply, the court is required to defer to the arbitrator’s award. See, e.g., George Day, 722 F.2d at 1477 (“th[e] deferential standard of review applies when parties have submitted legal questions to the arbitrator ‘even if the question is one that is ordinarily for the courts to decide’ ”).

II

In this case, the district court confirmed the arbitration award without determining whether any of the three exceptions for non-signatories applied. The union, however, argues that deference to the arbitrator’s award is still proper under George Day because Sharon Hill voluntarily submitted the alter ego question to the arbitrator without objecting to the arbitrator’s authority and without reserving the arbitrability question for the courts. The majority rejects the union’s argument and concludes that Sharon Hill never agreed to having the arbitrator decide arbi-trability. The majority’s conclusion, however, is not supported by George Day nor the record in this case.

In George Day, an employer challenged an arbitration award on the grounds that it had never signed a collective bargaining agreement. We held that merely objecting to arbitrability does not preserve the arbitrability question for the courts and that consent *418 to arbitrate an issue may be implied from the conduct of a nonsignatory employer at an arbitration hearing. 722 F.2d at 1475 . As we explained:

Had the employer objected to the arbitrator’s authority, refused to argue the arbi-trability issue before him, and proceeded to the merits of the grievance, then, clearly the arbitrability question would have been preserved for independent judicial scrutiny. The same result could be achieved by making an objection as to jurisdiction and an express reservation of the question on the record. However, where, as here, the objection is raised, the arbitrability issue is argued along with the merits, and the ease is submitted to the arbitrator for decision, it becomes readily apparent that the parties have consented to allow the arbitrator to decide the entire controversy, including the question of arbitrability.

Id. (emphasis added).

The majority attempts to distinguish George Day when it states that “the court [in George Day ] examined the record for any indication that the employer reserved the question of arbitrability for judicial determination and found none.” But we did not say this in George Day. In fact, we specifically found in George Day that the employer had objected to arbitrating the dispute at the beginning of the arbitration hearing. 722 F.2d at 1474, 1475 . The reason we held that the employer’s objection in George Day was insufficient to preserve the arbitrability question for the courts was that the employer, like Keating in this ease, submitted the arbi-trability question to the arbitrator without expressly reserving the arbitrability question for the courts. Thus, there is no question that the disposition in this case is controlled by George Day.

Examining the transcript of the arbitration hearing in this case, it is clear that Sharon Hill did not do what was required under George Day to preserve the arbitrability question for the courts. Keating, who was the responsible managing officer and the agent for service of process for both Sharon Hill and Zcon, appeared at the arbitration hearing and answered questions about the relationship between Sharon Hill and Zcon. Keating did not object to the arbitrator’s authority or jurisdiction in deciding the alter ego question. Keating also did not explicitly reserve the arbitrability question for the courts. Keating simply said that Sharon Hill was not “really” present “to represent itself and to bring whatever evidence they need to bring forward” because Sharon Hill had not been properly notified of the arbitration hearing.

The majority, however, concludes that what Keating said at the arbitration hearing was sufficient to preserve the arbitrability question for the courts under George Day. According to the majority, Keating’s objection to notice indicated that he did not intend to submit the alter ego question to the arbitrator.

But the fact that Keating challenged the notice Sharon Hill received does not mean that Keating intended to preserve the arbi-trability question for the courts. Challenging notice is not the same as challenging the authority of the arbitrator to decide arbitra-bility. The question of notice raises due process considerations, i.e. whether Sharon Hill received a fair hearing. The question of arbitrability goes to the jurisdiction of the arbitrator in resolving the labor dispute. Only by “objeet[ing] to arbitration on jurisdictional grounds ... [does] the question of ... arbitrability come[ ] before the court in the first instance.” George Day, 722 F.2d at 1476 (emphasis added). See also Arizona Mechanical, 863 F.2d at 649 (noting that the employer participated in the grievance and arbitration procedures at all times stating that it was not bound by the collective bargaining agreement because he was not a signatory).

There is no way that the transcript of the arbitration hearing in this case can be read to suggest that Keating objected to arbitration on jurisdictional grounds. At no point during the hearing did Keating say that Sharon Hill was not a party to the collective bargaining agreement or that Sharon Hill was not required to arbitrate the alter ego dispute. Because Keating did not object to the authority or jurisdiction of the arbitrator in deciding the alter ego question, George Day compels the conclusion that Keating, as *419 Sharon Hill’s responsible managing officer and agent for service of process, consented to having the arbitrator decide arbitrability.

In fact, the majority’s conclusion that Sharon Hill received proper notice and a fair hearing takes the steam out of Sharon Hill’s argument on appeal. Because Sharon Hill knew that the primary issue to be decided by the arbitrator was whether Sharon Hill was the alter ego of Zcon, Sharon Hill could have simply not showed up at the arbitration hearing if Sharon Hill really wanted to challenge the arbitrator’s jurisdiction. At that point, the union would have had two options: go forward with the arbitration hearing only against Zcon or seek an order from the courts compelling arbitration. See George Day, 722 F.2d at 1476 . Because Sharon Hill, through Keating, appeared at the arbitration hearing and voluntarily submitted the alter ego question to the arbitrator, Sharon Hill cannot now challenge the authority of the arbitrator because it disagrees with his decision. Id. at 1475 .

Ill

Because Sharon Hill, through Keating, voluntarily submitted the alter ego question to the arbitrator, Sharon Hill is now bound by the arbitrator’s decision, which is subject to extremely limited review by the courts. As we stated in George Day, we “are not at liberty to substitute our own view in place of the arbitrator’s regardless what our view might be of the correctness of the arbitral decision.” Id. (citing W.R. Grace & Co. v. Local Union 759, Intern. Union of United Rubber, Cork, Linoleum, and Plastic Workers of America, 461 U.S. 757, 765 , 103 S.Ct. 2177, 2183 , 76 L.Ed.2d 298 (1983)). Rather, we must confirm an arbitrator’s award, “if on its face, the award represents a plausible interpretation of the collective bargaining agreement.” Stead Motors of Walnut Creek v. Automotive Machinists Lodge No. 1173, Intern. Ass’n of Machinists and Aerospace Workers, 886 F.2d 1200, 1209 (9th Cir.1989) (en banc) (quoting Arizona Mechanical, 863 F.2d at 653 ), cert. denied, 495 U.S. 946 , 110 S.Ct. 2205 , 109 L.Ed.2d 531 (1990).

There is no question that the arbitrator’s award in this case represents a plausible interpretation of the collective bargaining agreement. The union alleged, and the arbitrator found, that Sharon Hill was the alter ego of Zcon, the employer that signed the collective bargaining agreement. Apparently, Zcon was trying to evade its responsibilities under the collective bargaining agreement by hiding behind Sharon Hill. Both companies operated out of the same address and had the same responsible managing officer and agent for service of process. Sharon Hill was hiring nonunion workers and paying nonunion wages for work that was supposed to be performed by union workers and paid for by Zcon at union wages. To stop what is commonly known as a “double-breasting” operation, the arbitrator ordered both Zcon and Sharon Hill to turn over their books to the union. Such a remedy is supported by the collective bargaining agreement, which provides that the agreement is “binding upon all persons, firms, or corporations under any name or style of doing business in the construction industry, that, at the time of the execution of this Agreement are, or during the term hereof, become members of the Employer, in the area covered by this agreement.”

IV

I have one final comment about the majority’s opinion. By refusing to confirm the arbitration award in this case the majority sends a troubling message to employers. The majority tells employers that they can avoid their responsibilities under a collective bargaining agreement by engaging in “double-breasting” operations. The majority also tells employers engaged in “double-breasting” operations that if they voluntarily submit a dispute to arbitration without reserving the arbitrability question for the courts they can still challenge the arbitrator’s award simply by arguing that they never intended to submit the arbitrability question to the arbitrator. Such a result weakens the power of arbitrators in resolving labor disputes and undermines “federal labor policy [which] strongly favors the resolution of labor disputes through arbitration.” United Food & Commercial Workers Intern. Union, Local 588 v. Foster Poultry Farms, 74 F.3d 169, *420 173 (9th Cir.1995), as amended on denial of rehearing (1996). Courts cannot go down this path, for as we recognized in our en banc Stead Motors decision: “Arbitration is a central feature of the collective bargaining process, designed to function alongside the labor contract in maintaining equity and balance of power in the workplace.” 886 F.2d at 1205 .

For all the reasons set forth above, I dissent.

. We have a broad arbitration clause in this case. Section 51 provides in relevant part that "[a]ny dispute concerning any application or interpretation of this Agreement shall be subject to the” grievance and arbitration procedures set forth in the agreement. In addition, subsection (e) of paragraph (5) specifically provides that “[a]ny grievance involving an individual employer not a member of any of the signatory associations shall be submitted directly to the Arbitrator unless the individual employer agrees to submit the matter to the Board of Adjustment.”