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04-1279•Sterling Fluid Systems (usa), Inc. v. Chauffeurs, Teamsters & Helpers Local Union 7, Affiliated With the International…
04-1279United States Court Of Appeals For The 6th Circuit12.07.2005
* The Hon. James L. Graham, United States District Judge for the Southern District of Ohio, sitting by
designation.
1
NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 05a0591n.06
Filed: July 12, 2005
No. 04-1279
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
STERLING FLUID SYSTEMS (USA), INC.
Appellant,
v.
CHAUFFEURS, TEAMSTERS & HELPERS
LOCAL UNION #7, AFFILIATED WITH
THE INTERNATIONAL BROTHERHOOD
OF TEAMSTERS
Appellee.
/
ON APPEAL FROM THE UNITED
STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MICHIGAN
Before: DAUGHTREY and CLAY, Circuit Judges, and GRAHAM,* District Judge
GRAHAM, District Judge.
Defendant Chauffeurs, Teamsters & Helpers Local Union #7 (the “Union”) brings this appeal
of the district court’s February 3, 2004 order vacating an arbitrator’s award in the Union’s favor.
The dispute concerns the actions of Plaintiff Sterling Fluid Systems (USA) Inc. (“Sterling”) in
closing one of its foundries. After deciding to close the foundry, Sterling removed certain molds
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and dies used in the manufacturing process and shipped them to a Sterling facility in Canada and
a non-Sterling facility in California. The Union filed a grievance challenging the removal of the
molds and dies as subcontracting in violation of the parties’ collective bargaining agreement. The
grievance went to arbitration, where the arbitrator found that Sterling had violated the subcontracting
clause of the CBA. Sterling then filed an action in the district court and moved to vacate the
arbitration award. The district court granted the motion to vacate, finding that Sterling had express
contractual authority to close the foundry and that the arbitrator’s decision contradicted the plain
language of the CBA’s management rights clause.
Because the Court finds that the arbitration award failed to draw its essence from the CBA,
we AFFIRM the district court’s decision to vacate the arbitration award.
I. BACKGROUND
According to the arbitrator’s findings of facts, which this Court must accept as true, see
United Paperworkers Int’l Union, AFL-CIO v. Misco, Inc., 484 U.S. 29, 38, 108 S.Ct. 364, 98
L.Ed.2d 286 (1987), Sterling manufactures various types of pump products. It operates three
facilities: La Boer in Alabama, Peerless in Indiana, and SIHI in Ontario, Canada. Sterling once
owned and operated a small foundry called Process Metals Company, located in White Pigeon,
Michigan. The Union represented 13 employees at the White Pigeon foundry. Sterling and the
Union had a collective bargaining agreement in place which ran from August 27, 2000 through June
15, 2003.
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When demand for its products lagged in 2000 and 2001, Sterling looked for ways to improve
economies in its operations. The White Pigeon foundry was analyzed and determined to be too
small to stand alone. Sterling’s Executive Vice President recommended closing the foundry.
In January 2002, Sterling informed the Union and plant employees of its intent to close the
foundry. On January 18, 2002, the plant manager told all plant employees of the closing. In a
certified letter received by the Union on January 23, 2002, Sterling notified the Union of its decision
to begin a gradual downsizing of the foundry in March 2002 and to close the facility on April 30,
2002.
On February 7, 2002, crews arrived at the foundry and removed the molds and dies necessary
to carry out the manufacturing process at the foundry. The molds and dies were loaded onto trucks
for shipment to Sterling's facility in Ontario, Canada and to a non-Sterling facility in California.
According to the arbitrator, the nature of Sterling’s relationship with the facility in California is
“unclear.” (J.A. at 148)
Upon discovering that the molds and dies were being removed from the foundry, the Union
filed a grievance under the CBA. The grievance, dated February 7, 2002, stated in full: “The
Company is in violation of Article II--Subcontracting by subcontracting our work out." (J.A. at 48).
The subcontracting clause of the CBA provides:
It is expressly understood that the Company may sub-contract work which occurs
because of emergencies, lack of required manufacturing equipment or techniques,
unusual and urgent customer delivery requirements, lack of maintenance job skills,
or for additional capacity. In doing so, the Employer agrees that it will not use any
sub-contracting device primarily for the purpose of evading this Agreement.
CBA, Art. II (J.A. at 16).
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Sterling opposed the Union’s grievance. Sterling relied on the management rights clause of
the CBA in arguing to the arbitrator that Sterling had a right to close the foundry. The management
rights clause provides:
Subject to the provisions of this Agreement, the parties recognize that the
management of the plant and the direction of the working forces remain vested in the
Company. The management of the plant includes all the customary and usual rights,
powers, functions, and the authority of management; such as, but not limited to, the
right to plan, direct, and control plant operation; to hire, promote, transfer or demote;
to suspend or discharge for cause; to maintain discipline and efficiency of
employees; to issue and enforce reasonable rules and regulations; to introduce new
and improved methods and facilities, or to change existing methods or facilities; to
determine the products to be made or services to be performed, and those purchased
from or made by other sources, or to be performed by outside contractors; and to
perform all other actions which management believes necessary to maintain the
Company in a sound competitive condition for the benefit of its employees and for
the stockholders who have invested in the Company. Any controversy with respect
to the above shall be subject to the grievance procedure.
CBA, Art. II (J.A. at 16).
The arbitrator held a hearing on the Union's grievance on August 15, 2002 and issued a
decision in the Union’s favor on November 27, 2002. The arbitrator stated from the outset of his
decision that this was a "subcontracting case," not a "plant closure case." (J.A. at 147). Because the
arbitrator viewed the removal of the molds and dies as subcontracting, he concluded that Sterling
had a duty to consult with the Union about its plan to subcontract the foundry work. The arbitrator
further found that Sterling’s alleged subcontracting of the work did not fit within the six exceptions
listed in the subcontracting clause. Thus, the arbitrator determined that Sterling violated the CBA's
subcontracting clause when, without notice to the Union, it “made arrangements to contract out the
bargaining unit work to its subsidiary in Ontario, Canada, and to another company in California.”
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(J.A. at 148). As a remedy, the arbitrator ordered Sterling to reopen the foundry, rehire the Union
employees, and give them back-pay.
The arbitrator further found that the Union had filed its grievance in a timely manner. The
CBA required grievances to be filed within five working days of the event giving rise to it. See
CBA, Art.V, §4 (J.A. at 21). According to Sterling, the grievance should have been filed within five
days of January 23, 2002, when the Union received a letter notifying it of the foundry’s closing. The
arbitrator rejected Sterling’s argument. Because the Union’s grievance complained of
subcontracting and was filed on the same day that the Union became aware of the removal of the
molds and dies, the arbitrator found the grievance to be timely. (J.A. at 149-50).
On February 27, 2003, Sterling filed a complaint in district court under the Labor
Management Relations Act and moved to vacate the arbitration award. The district court granted
the motion to vacate, holding that the arbitration award failed to “draw its essence” from the CBA.
(J.A. at 172). The court found that the arbitrator gave “short shrift” to the importance of Sterling’s
decision to close the foundry and “mistakenly” analyzed the dispute under the CBA’s subcontracting
clause. “[A] company’s decision to shut down a plant comprises a classic management decision,
expressly protected in this case by the CBA’s Management Rights Clause.” (J.A. at 168). In the
district court’s view, when Sterling moved the molds and dies to Canada and California, “it was
simply taking reasonable and necessary steps to close the facility – not subcontracting.” (J.A. at
172). The court concluded that the arbitrator’s decision conflicted with the express terms of the
management rights clause and, thus, failed to draw its essence from the CBA.
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II. DISCUSSION
The Union appeals the district court’s order vacating the arbitration award. In the context
of a district court’s decision to confirm or vacate an arbitration award, we review the district court’s
legal conclusions de novo and its factual findings for clear error. First Options of Chicago Inc. v.
Kaplan, 514 U.S. 938, 947-48, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995).
Section 301 of the Labor Management Relations Act of 1947, 29 U.S.C. §185(c), gives
federal courts jurisdiction to enforce collective bargaining agreements such as the one between
Sterling and the Union. Nonetheless, the Act expresses a “decided preference for private settlement
of labor disputes” when an agreement provides for grievance and arbitration procedures. United
Paperworkers Int’l Union, AFL-CIO v. Misco, Inc., 484 U.S. 29, 36, 108 S.Ct. 364, 98 L.Ed.2d 286
(1987) (citing 29 U.S.C. §173(d)). Courts, therefore, play a “limited role” when reviewing the
decision of an arbitrator. Id. Substantial deference must be given to an arbitrator’s settlement of
a labor dispute. DBM Tech., Inc. v. Local 227, United Food & Commercial Worker Int'l Union, 257
F.3d 651, 656 (6th Cir. 2001). “Arbitration as a means of dispute resolution is highly favored and
courts have long refrained from involving themselves in the merits of an arbitration award.”
International Broth. of Elec. Workers, Local 429 v. Toshiba America, Inc., 879 F.2d 208, 209 (6th
Cir. 1989). The arbitrator’s decision warrants deference because “it is the arbitrator's construction
of the collective bargaining agreement, not the court's construction, to which the parties have
agreed.” Sterling China Co. v. Glass, Molders, Pottery, Plastics & Allied Workers Local No. 24,
357 F.3d 546, 551 (6th Cir. 2004). “Indeed, an arbitrator's factual errors and even misinterpretations
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of a collective bargaining agreement are not subject to reconsideration by the court.” Id.
An arbitration award may be vacated when it fails to "draw[] its essence from the collective
bargaining agreement" and reflects the arbitrator’s "own brand of industrial justice." United
Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597, 80 S.Ct. 1358 4 L.Ed.2d 1424
(1960). An arbitrator “may not ignore the plain language of the contract . . . . But as long as the
arbitrator is even arguably construing or applying the contract and acting within the scope of his
authority, that a court is convinced he committed serious error does not suffice to overturn his
decision.” Misco, 484 U.S. at 38, 108 S.Ct. 364. An arbitration award fails to draw its essence from
the agreement when it:
(1) conflicts with express terms of the agreement; (2) imposes additional
requirements not expressly provided for in the agreement; (3) is not rationally
supported by or derived from the agreement; or (4) is based on general
considerations of fairness and equity instead of the exact terms of the agreement.
Sterling China, 357 F.3d at 556; International Broth. of Teamsters, Local 519 v. United Parcel
Service, Inc., 335 F.3d 497, 506-07 (6th Cir. 2003).
The Union argues that the district court did not afford the proper amount of deference to the
arbitrator’s decision. The Union contends that the district court wrongly categorized this as a plant
closing case. The Union does not challenge Sterling’s ability to close the foundry, but argues that
the district court should have accepted the arbitrator’s finding that removal of the molds and dies
constituted subcontracting. In the Union’s view, the district court erred when it set aside the
arbitrator’s interpretation of the CBA and analyzed the dispute under the management rights clause.
Sterling argues that the district court was correct to vacate the arbitration award. According
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to Sterling, the arbitrator ignored the clear language of the management rights clause, which gave
Sterling authority to close the foundry. Sterling contends that the arbitrator rushed to judgment by
accepting the Union’s mischaracterization of the dispute as a subcontracting case, without fully
considering the context in which the decision to remove the molds and dies was made.
We agree with the district court that the arbitrator’s decision conflicts with express terms of
the CBA’s management rights clause. That clause granted Sterling “all the customary and usual
rights, powers, functions, and the authority of management.” This included the right “to plan, direct,
and control plant operation; . . . to change existing methods or facilities; . . . to determine the
products to be made or services to be performed, and those purchased from or made by other
sources, or to be performed by outside contractors; and to perform all other actions which
management believes necessary to maintain the Company in a sound competitive condition.” (J.A.
at 16).
As the district court pointed out, the power to close a manufacturing facility is a customary
power of management. See, e.g., Air Line Pilots Ass'n, Int’l v. Guilford Transp. Industries, Inc., 399
F.3d 89, 101 (1st Cir. 2005) (noting that “closing is management's prerogative”); Arrow Automotive
Indus., Inc. v. NLRB, 853 F.2d 223 (4th Cir. 1988) (holding with respect to a partial closing that
“decisions of the magnitude involved here remain management prerogatives”); American Federation
of Government Employees, AFL-CIO v. Federal Labor Relations Authority, 785 F.2d 333, 337
(D.C. Cir. 1986) (“[T]he decision to close a plant is a matter uniquely within the management's
prerogative.”). The United States Supreme Court held in First National Maintenance Corp. v.
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NLRB, 452 U.S. 666, 101 S.Ct. 2573, 69 L.Ed.2d 318 (1981), that an employer has no duty to
bargain over the decision to terminate operations at one of its sites. “This decision, involving a
change in the scope and direction of the enterprise, is akin to the decision whether to be in business
at all . . . .” 452 U.S. at 677, 101 S.Ct. 2573. The Supreme Court stressed that a business needs
"some degree of certainty beforehand as to when it may proceed to reach decisions without fear of
later evaluations labeling its conduct an unfair labor practice." Id. at 679, 101 S.Ct. 2573; see also
Fibreboard Paper Products Corp. v. NLRB, 379 U.S. 203, 223, 85 S.Ct. 398, 13 L.Ed.2d 233 (1964)
(Stewart, J., concurring) (stating that there is no duty to bargain collectively over managerial
decisions that “lie at the core of entrepreneurial control,” including decisions concerning “the basic
scope of the enterprise”).
Moreover – barring language in the CBA otherwise – a company that decides to close a
facility also has the authority to allocate the remaining capital as it sees fit. In International Union
United Auto. Workers v. Lester Engineering Co., 718 F.2d 818 (6th Cir. 1983), Lester Engineering
announced that it was closing its manufacturing facility and selling off the equipment which
remained in the facility. The union filed a grievance alleging that the plant closing was
subcontracting in violation of the collective bargaining agreement. Despite the union’s
characterization of the case, this court found that the “underlying dispute” was Lester’s decision to
close the manufacturing facility. 718 F.2d at 824. Because the CBA’s management prerogative
clause delegated the “decision to close” to Lester, the court held that Lester had a right to
unilaterally close the facility and sell the equipment. Id. In so holding, the court noted that a
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management prerogative clause should be carefully examined “to minimize the potential for
encroachment upon areas of exclusive management responsibility.” Id.
Similarly, in Arrow Automotive Indus., Inc. v. NLRB, 853 F.2d 223 (4th Cir. 1988), a
company that re-manufactured automobile and truck parts decided to close one of its plants, relocate
the work to one of its three other plants, and sell the remaining property and equipment. After a
review of First National Maintenance and other case law, the Fourth Circuit found that
“economically motivated partial closing decisions are not mandatory subjects of bargaining.” 853
F.2d at 227. “[A]n employer has no duty to bargain over a decision to close part of its business."
853 F.2d at 227. Further, the court held that the company had authority to relocate the work and sell
its capital: “The magnitude of the decision to shut down an entire facility and to reallocate large
amounts of capital underscores the need for certainty in the conduct of business affairs . . . . Where
a manufacturing facility is to be shut down, management may need to act swiftly in winding down
the operation and reallocating or selling property and equipment.” Id., at 231-32.
The Fourth Circuit again highlighted the importance of management’s ability to allocate
capital following a decision to close in Dorsey Trailers, Inc. v. NLRB, 233 F.3d 831 (4th Cir. 2000).
The court held that a company which manufactured dump trailers had no duty to bargain over its
decision to close down one plant and relocate its operations and equipment to a newly-purchased
facility. The Fourth Circuit found that the “ability to decide where to commit ‘investment capital’”
was “‘fundamental to the basic direction of a corporate enterprise’” and was therefore firmly
committed to the discretion of management. 233 F.3d at 842 (quoting Fibreboard, 379 U.S. at 223,
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85 S.Ct. 398).
The arbitrator saw the matter at hand as a simple case of subcontracting. After briefly noting
Sterling’s argument that this was a plant closure case, the arbitrator stated, “I disagree,” and never
returned to the subject. (J.A. at 147). The arbitrator ignored Sterling’s contention that the
management rights clause authorized Sterling to close the foundry and relocate the molds and dies.
In taking such a narrow approach, the arbitrator failed to consider the importance of Sterling’s
ability under the CBA to close the foundry and allocate the physical capital that remained in the
foundry.
Certainly, arbitrators have wide latitude in interpreting collective bargaining agreements.
But in analyzing the Union’s grievance, the arbitrator should have at least considered what the CBA
had to say about Sterling’s right to close the foundry. The arbitrator should not have viewed
Sterling’s decision to remove the molds and dies in a vacuum. That decision was part of Sterling’s
efforts to close the foundry. As the district court stated, “[W]hen Sterling moved the [foundry] tools
and dies to Canada and California, it was simply taking reasonable steps to close the facility – not
subcontracting.” (J.A. at 172). The arbitrator characterized the matter as a subcontracting case from
the start, without pausing to acknowledge that Sterling’s removal of the molds and dies followed
from its decision to close foundry.
We find that the arbitrator’s decision failed to draw its essence from the CBA because it
disregarded the plain language of the CBA’s management rights clause. Thus, the arbitration award
cannot be enforced. See Enterprise Wheel, 363 U.S. at 597, 80 S.Ct. 1358 (stating that when “the
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arbitrator's words manifest an infidelity” to his obligation to follow the plain language of the
agreement, "courts have no choice but to refuse enforcement of the award").
III. CONCLUSION
For the reasons stated above, we AFFIRM the district court’s order vacating the arbitration
award.
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CLAY, J., dissenting. The majority claims that the arbitrator’s decision fails to draw its
essence from the parties’ collective bargaining agreement (“CBA”); in my view, however, the
district court impermissibly substituted its judgment for that of the arbitrator, and, apparently
forgetting that review of an arbitration award is “one of the narrowest standards of judicial review
in all of American jurisprudence,” Lattimer-Stevens Co. v. United Steelworkers, 913 F.2d 1166,
1169 (6th Cir. 1990), the majority repeats the district court’s mistake. I therefore respectfully
dissent.
“Because the parties have contracted to have disputes settled by an arbitrator chosen by them
rather than a judge, it is the arbitrator’s view of the facts and of the meaning of the contract that they
have agreed to accept.” United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 37-8 (1987).
It is firmly established that “so far as the arbitrator’s decision concerns construction of the contract,
the courts have no business overruling him because their interpretation of the contract is different
from his.” United Steelworkers v. Enterprise Wheel and Car Corp., 363 U.S. 593, 596 (1960)
(emphasis added); see also Misco, 484 U.S. at 38 (stating that so long as the arbitrator “is even
arguably construing or applying the contract and acting within the scope of his authority, that a court
is convinced he committed serious error does not suffice to overturn his decision”). In the instant
case, the arbitrator’s determination that Sterling’s actions fell under the subcontracting clause was
clearly an interpretation of the CBA, committed to his discretion and bargained for by the parties,
and the majority has “no business overruling” this determination simply because they believe that
the management rights clause of the CBA applies. Enterprise Wheel, 363 U.S. at 596.
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1Although I concede that the ordered plant reopening cannot be upheld in the instant case,
I note that plant reopening is not a per se exceptional or inappropriate remedy. See UFI Razor
Blades, Inc. v. Dist. 65, Wholesale, Retail, Office and Processing Union, 610 F.2d 1018, 1023
(2d Cir. 1979) (“An arbitrator, like the NLRB, may order resumption of operations and
reinstatement with back pay as remedies for subcontracting violations.”); United Elec. Radio and
Mach. Workers v. Honeywell, Inc., 522 F.2d 1221, 1226 (7th Cir. 1975) (noting that because
“arbitrators are to be allowed flexibility in formulating remedies,” “courts repeatedly have
upheld awards requiring companies to return operations and equipment which have been moved
to other locations in violation of subcontracting clauses”); Selb Mfg. Co. v. Int’l Ass’n of
Machinists, Dist. No. 9, 305 F.2d 177, 179 (8th Cir. 1962) (upholding arbitration panel’s order
that company return machinery, work and equipment to closed plant, and rehire with full
compensation and seniority workers who had been laid off ); see also Vico Prods. Co., Inc. v.
NLRB, 333 F.3d 198, 212 (D.C. Cir. 2003) (holding that NLRB has authority to order
reestablishment of business operations for subcontracting in violation of Section 8(d) of the
National Labor Relations Act); NLRB v. G & T Terminal Packaging Co., Inc., 246 F.3d 103, 121
(2d Cir. 2001) (same); Coronet Foods, Inc. v. NLRB, 158 F.3d 782, 785 (4th Cir. 1998) (same);
Mid-South Bottling Co. v. NLRB, 876 F.2d 458, 461 (5th Cir. 1989) (same); Woodline Motor
Freight, Inc. v. NLRB, 843 F.2d 285, 291 (8th Cir. 1988) (same); NLRB v. Townhouse T.V. &
Appliances, Inc., 531 F.2d 826, 830-31 (7th Cir. 1976) (same).
14
Like the district court, the majority confuses the arbitrator’s interpretation of the CBA with
the relief ordered. The arbitrator determined that under the CBA, Sterling’s actions amounted to
impermissible subcontracting. Then, as relief for this violation of the contract, the arbitrator ordered
that the plant be reopened. The majority ignores the fact that the arbitrator applied the contract and
acted within his authority in rendering his decision, and instead gets caught up in the plant reopening
remedy. I concede that it is impossible to carry out the ordered remedy and reopen the plant at this
time, as it has been closed for over three years.1 However, simply because the relief ordered by the
arbitrator is impracticable, it does not follow that arbitrator’s award must be vacated in its entirety.
In a similar situation, the Third Circuit held that an arbitrator’s decision drew its essence from the
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CBA, but that changed circumstances had likely rendered the awarded remedy of plant reopening
futile. See Teamsters Union Local No. 115 v. DeSoto, Inc., 725 F.2d 931, 939 (3d Cir. 1984).
Recognizing that it was prohibited from substituting its own interpretation of the CBA for the
arbitrator’s interpretation, the court correctly concluded that the arbitrator’s overall decision must
be upheld, but that “[t]o enforce the arbitrator’s original [plant reopening] remedy now would be not
only fruitless, but also punitive.” Id. at 942. Instead of entirely replacing the arbitrator’s decision
with its own reading of the CBA, the majority should have only vacated the arbitrator’s remedy and
remanded the award to the arbitrator to refashion appropriate relief for Sterling’s violation of the
CBA. See, id. at 938-39.
Because the arbitrator “arguably constru[ed] or appl[ied] the contract and act[ed] within the
scope of his authority,” I respectfully dissent from the majority’s erroneous substitution of its own
interpretation of the parties’ CBA for the arbitrator’s decision. Misco, 484 U.S. at 38.
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