Northern Indiana Public Service Company v. United Steelworkers of America, AFL-CIO-CLC

In the
United States Court of Appeals
For the Seventh Circuit
No. 00-3208
Northern Indiana Public Service Company,
Plaintiff-Appellant,
v.
United Steelworkers of America,
AFL-CIO-CLC, and United Steelworkers
of America, Local Union 12775,
Defendants-Appellees.
Appeal from the United States District Court for
the Northern District of Indiana, Hammond Division.
No. 99 C 598--Andrew P. Rodovich, Magistrate Judge.
Argued February 26, 2001--Decided March 12, 2001
Before Bauer, Posner, and Kanne, Circuit
Judges.
Bauer, Circuit Judge. The parties, an
employer and a union, entered into a
collective bargaining agreement ("CBA")
directing any dispute arising from the
CBA to find resolution in arbitration.
Such dispute resolution was undertaken
when the parties disagreed over the
particulars of a contract negotiated
under the CBA known as the "Productivity
Reward Plan" ("PRP"). The PRP was a
carrot designed to increase productivity
and reduce costs by doling out yearly
bonuses to employees in addition to their
salary based on the employer’s stock
earnings per share and pre-tax operating
income. At the heart of the PRP was a
chart. This chart comprised two multi-
matrix grids illustrating how bonuses
were to be calculated. The first grid
lists multiple earnings per share totals
with corresponding percentages indicating
the bonus to be paid if that total was
realized. The second grid lists various
pre-tax operating income totals with
corresponding percentages indicating the
bonus to be paid if that total was
realized. The 1997 chart, at issue here,
appears in the record as follows:

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INCENTIVE POOL CALCULATION
Earnings Per Share [in dollars and cents]
Target
2.88 2.93 2.98 3.03 3.08 3.13 3.18
0.0 1.0 2.0 3.0 4.0 5.0 6.0
Pre-Tax Operating Income--Millions
Target
346 352 358 364 370 376 382
0.0 1.0 2.0 3.0 4.0 5.0 6.0
In 1997, the company’s pre-tax operating
income literally went off the chart. A
good year for the employer meant a good
year for bonuses. From this prosperity, a
question rose like phoenix from the
ashes--if the pre-tax operating income
went off the chart would the bonuses go
off the chart as well? The earnings per
share in 1997 was $3.08 (clearly on the
chart), while the pre-tax operating
income totaled over $391 million. The
highest pre-tax operating income total on
the chart was $382 million. Since a
significant chunk of change was at stake,
a disagreement not shockingly arose
between the parties as to whether the PRP
provided for higher bonuses when either
the stock earnings per share or pre-tax
operating income amount went higher than
that memorialized on the chart. The
employer said the PRP capped bonuses at
the amount listed at the farthest right-
hand corner of each matrix; the union
said the PRP provided for no cap and the
parties had agreed that bonuses would be
adjusted upward in the event either the
stock earnings per share or pre-tax
operating income amount went beyond the
chart.
The dispute was submitted to
arbitration. Finding that the PRP was not
capped, the arbitrator entered an award
in favor of the union. The employer
sought vacation of the award under sec.
301 of the Labor Management Relations
Act, 29 U.S.C. sec. 185, and the union
counterclaimed to enforce it. On cross-
motions for summary judgment, the
Magistrate Judge granted the union’s
motion to enforce the award. The employer
now appeals to us for relief.
We review the district court’s grant of

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summary judgment de novo, "applying the
same standards to evaluate the
arbitrator’s decision as the district
court." American Postal Workers Union v.
Runyon, 185 F.3d 832, 835 (7th Cir.
1999). "Judicial review of arbitration
awards under [CBAs] is extremely
limited." Id. We are empowered to vacate
an award only if the arbitrator exceeded
his or her authority. See id. Such
arbitral authority is born in contract,
thereby limiting our review to examining
whether the arbitrator exceed this
contractual authority. See id. This
examination entails determining whether
the award "draws its essence from the
contract." Id. "’[I]t is only when the
arbitrator must have based his award on
some body of thought, or feeling, or
policy, or law that is outside the
contract that the award can be said not
to draw its essence from the [CBA].’" Id.
(quoting Jasper Cabinet Co. v. United
Steelworkers of Am., 77 F.3d 1025, 1028
(7th Cir. 1996)); see Amax Coal Co. v.
United Mine Workers of Am., 92 F.3d 571,
575 (7th Cir. 1996) (explaining that the
arbitrator "does not sit to dispense his
own brand of industrial justice," rather
he or she must undertake the task of
contract interpretation); Chicago
Typographical Union v. Chicago Sun-Times,
935 F.2d 1501, 1505 (7th Cir. 1991) ("The
arbitrator is not free to think or to
say, ’The contract says X, but my view of
sound policy leads me to decree Y.’"). In
other words, the arbitrator cannot dress
his policy desires up in contract
interpretation clothing. See Ethyl Corp.
v. United Steelworkers of Am., 768 F.2d
180, 187 (7th Cir. 1985) ("This is not to
say that simply by making the right
noises--noises of contract
interpretation--an arbitrator can shield
from judicial correction an outlandish
disposition of a grievance."). Thus, we
will vacate only if there is "’no
possible interpretive route’" to the
award. Amax Coal, 92 F.3d at 576 (quoting
Arch of Illinois, 85 F.3d at 1293;
Chicago Typographical, 935 F.2d at 1506).
"We resolve any reasonable doubt about
whether an award draws its essence from
the [CBA] in favor of enforcing the
award." Runyon, 185 F.3d at 835. All in
all, as long as the arbitrator engaged in
bone fide contractual interpretation, we
are without power to vacate even if we
believe the award was factually or
legally incorrect. See ANR Advance

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Transp. Co. v. Intern. Bhd. of Teamsters,
153 F.3d 774, 778 (7th Cir. 1998).
The district court held that given the
limited judicial review of arbitration
awards, the employer failed to
demonstrate that the arbitrator’s award
must be rejected as a matter of law. The
district court examined the arbitrator’s
reasoning to determine whether it drew
its essence from the contract. The
arbitrator studied the PRP and discovered
that it allowed for interpolation, which
meant that if either the earnings per
share or pre-tax operating income total
fell between the amounts listed in two
boxes, bonuses would be adjusted upward
to a percentage between the two boxes.
The arbitrator found that the PRP
expressly provided a floor for bonuses,
but was silent as to a cap. To clear up
any ambiguity created by the silence, the
arbitrator examined extrinsic evidence,
which included oral and written
negotiations in forming the PRP. The
arbitrator took note that during some
presentations to the union about the PRP,
the employer’s representatives led the
union to believe that bonuses would be
raised if either the stock earnings per
share and pre-tax operating income amount
went above the chart. The arbitrator
found that the union had consistently
proposed contract language stating that
the PRP would have no cap, but the
employer never expressly responded to
these proposals. The arbitrator also
considered evidence that there was
express language of a cap in similar
plans between the employer and senior
management, management, corporate, and
hourly workers, but that such express
language was absent from the PRP. These
factors led the arbitrator to reason that
if the employer had intended to cap the
bonuses it knew how to do so, and since
it did not, no cap existed. The district
court was content that the arbitrator’s
award was well-reasoned and based on the
contract.
The employer, however, contends that the
arbitration award did not draw its
essence from the contract because the
arbitrator imposed his own brand of
industrial justice by ignoring the plain
and unambiguous language of the PRP in
order to add a term (which the CBA
expressly prohibited any and all
arbitrators from doing) that the union

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had failed to secure during negotiations.
The employer’s argument is that the chart
clearly indicates that a cap exists at
the farthest right-hand boxes. This is
corroborated by the fact that there is no
method provided in the PRP to calculate
bonuses beyond the right-hand boxes.
We agree with the district court that
the arbitrator engaged in contract
interpretation. And, although the
arbitrator was not empowered under the
CBA to add terms to the PRP, arbitrators
are empowered to fill gaps left in
contracts. See Jasper Cabinet, 77 F.3d at
1029 ("[W]e have held that ’contracts
have implied as well as express terms,
and the authority of the arbitrator to
interpret a [CBA] includes the power to
discover such terms.’") (quoting Ethyl
Corp., 768 F.2d at 185). In its appellate
brief, the employer has persuasively
argued that the arbitrator’s
interpretation may well have been
unsound. This is not enough. "[A]ll this
just amounts to saying that the
arbitrator may have been wrong, maybe
even clearly wrong; it does not show that
he was doing something other than
interpreting the contract." Ethyl Corp.,
768 F.2d at 185. "[S]o long as the award
is based on the arbitrator’s
interpretation--unsound though it may be-
-of the contract, it draws its essence
from the contract." Id. at 184; see Dreis
& Krump Mfg. Co. v. Int’l Assoc. of
Machinists & Aerospace Workers, 802 F.2d
247, 253 (7th Cir. 1986) ("But an
arbitrator’s award cannot be set aside
just because the arbitrator may have
interpreted the [CBA] incorrectly."). The
employer has not convinced us that the
arbitrator’s reasoning was not a possible
interpretive route.
After the arbitrator rendered its award
in this case, another arbitrator decided
a case involving the same PRP brought by
the clerical workers union against the
same employer. The second arbitrator
found that the arbitrator in this case
had properly engaged in contract
interpretation. However, the second
arbitrator believed that given the
record, two interpretations were
possible--one is that a cap existed and
another is that no cap existed. The
second arbitrator opted for the former,
holding in favor of the employer. The
second arbitrator found a cap based on

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the fact that the employer’s silence
regarding the union’s proposals for no
cap constituted a rejection of those
proposals. He also found the other plans
were substantially different than the PRP
because the cap in those plans were
within the chart, and had nothing to do
with capping bonuses beyond the chart.
The employer asks us to vacate the
arbitrator’s award in this case and
credit the second arbitrator’s award. We
decline this invitation. While the awards
are opposite in interpreting the same
issue involving different bargaining
units, we concur with the second
arbitrator’s statement that both awards
draw their essence from the contract.
See, e.g., Connecticut Light & Power Co.
v. Local 420, Int’l Bhd. of Elec.
Workers, 718 F.2d 14, 20 (2d Cir. 1983).
Further, we see no compelling reason to
accept this invitation because the
dispute here concerns only the 1997 bonus
payout, and will likely have limited
future ramifications for the parties as
the CBA and PRP were up for
renegotiations in 1999.
Therefore, since we agree that the
arbitration award in this case drew its
essence from the PRP, the district
court’s decision to enter summary
judgment enforcing the award is AFFIRMED.

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