Delek Refining, Limited v. Local 202, Untd Steel ( 2018 )

Case: 17-40593 Document: 00514496319 Page: 1 Date Filed: 06/01/2018
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
No. 17-40593 Fifth Circuit
FILED
June 1, 2018
DELEK REFINING, LIMITED, Lyle W. Cayce
Clerk
Plaintiff - Appellant
v.
LOCAL 202, UNITED STEEL, PAPER AND FORESTRY, RUBBER,
MANUFACTURING, ENERGY, ALLIED INDUSTRIAL AND SERVICE
WORKERS INTERNATIONAL UNION, AFLCIO,
Defendant - Appellee
Appeal from the United States District Court
for the Eastern District of Texas
Before HIGGINBOTHAM, SOUTHWICK, and COSTA, Circuit Judges.
GREGG COSTA, Circuit Judge:
Instead of using its employees, Delek Refining hired contract workers to
replace a chemical reactor at one of its refineries. An arbitrator found that
doing so violated the company’s collective bargaining agreement (CBA), which
requires that employees get first crack at new work unless certain exceptions
apply. In light of this provision and the deference courts give to arbitrators’
decisions, we agree with the district court that Delek’s challenge to the award
should be dismissed. We also agree that the union is entitled to attorneys’ fees
for having to defend the award in court.
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I.
In 2012, Delek and the union representing the company’s refinery
employees entered into the CBA. This appeal arises out of Delek’s decision
that same year to replace the primary chemical reactor within the refinery’s
Alkylation-Cryogenic Unit. The project required a complete shutdown of the
unit and took roughly four weeks to complete. Delek hired 50 full-time contract
workers to finish the preparation and over 200 such workers during much of
time the unit was shut down and the reactor replaced. It did assign some
employees to the project. Eight maintenance employees served as “contract
coordinators,” with others performing more limited tasks. Delek contends it
did not use more employees because it needed them to do day-to-day
maintenance tasks at the refinery and because the replacement of the reactor
required specialized work that the employees were not certified to perform.
The union filed a grievance, arguing that Delek violated the CBA by using
contract workers instead of maintenance employees and that in so doing it
deprived the employees of overtime pay.
Article 1.4 of the CBA contains a broad management rights provision
under which the union “recognizes that the right of Management is to manage
the plant, to hire, fire and discipline for just cause.” But those rights are
“subject to and restricted by the specific provisions” of the CBA. Among those
provisions is Article 8.1, which addresses the use of contract workers and
reads: “Unless necessitated by extreme economic, safety or environmental
reasons, the Company shall offer any maintenance, operations, environmental
or material handling work to Bargaining Unit employees prior to utilizing
contractors to perform such work, providing such use of Bargaining Unit
employees does not result in excessive overtime.”
The parties also agreed to have grievances like this one decided by an
arbitrator whom the CBA grants “jurisdiction and authority to interpret and
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apply the provisions in the determination of such grievance but he shall not
have jurisdiction or authority to add to or alter in any way the provisions of
this Contract.” The arbitrator’s decision is “final and binding.”
The arbitrator held a one-day hearing before sustaining the union’s
grievance in a written opinion. Delek contended that “other applicable
provisions” of the CBA “cloak[ed] Section 8.1’s requirements with an essential
and implicit element of reasonableness,” and its principal justification for
hiring the contract workers was that using more maintenance employees
would have been unreasonable from a safety and environmental perspective
given the scope of this project. Delek also argued in posthearing briefing that
using additional employees would have resulted in excessive overtime.
After reciting the facts and relevant CBA provisions, the arbitrator
concluded that the “language in Article 8.1 . . . is clear along with a long
standing past practice on assigning work to the Bargaining Unit maintenance
employees prior to hiring subcontractors.” He thus awarded overtime pay to
the maintenance employees who were not assigned to the project.
Delek interpreted the award to reach only the three weeks of preparatory
work that occurred before the unit shutdown and reactor replacement. The
union unsurprisingly disagreed with that limited view, as it excluded the
period when the bulk of the contract workers were hired. In light of that
disagreement, the union sought clarification from the arbitrator. The
arbitrator responded that his decision applied to both the preparation and
replacement phases of the project. In doing so, he stated that “Section 8.1 of
the CBA is rather specific” and quoted its command that “The company shall
offer any maintenance, operations, environmental or material work to
Bargaining Unit employees prior to utilizing contractors to perform such
work.” This quotation did not include the caveats that appear at both the
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beginning (“extreme economic, safety or environmental reasons”) and end
(“excessive overtime”) of that provision.
Delek quickly latched onto the abbreviated quotation even though the
request for clarification did not directly relate to either of those exceptions.
The company sought further clarification, asserting that the arbitrator’s email
showed that he had misread Article 8.1 as giving bargaining unit employees
an “unqualified” right to perform additional work. The arbitrator reviewed the
four-page request for reconsideration and rejected it because Delek’s view
would “have the effect of making the contracting clause 8.1 meaningless” as
any “[f]uture overtime work could be declared excessive and denied.”
Still unsatisfied, Delek took the fight to federal court. The union
counterclaimed, seeking compliance with the award and attorneys’ fees. Both
parties moved for summary judgment. The district court, agreeing with a
magistrate judge’s recommendation, denied Delek’s motion, granted the
union’s, and awarded attorneys’ fees.
II.
We first examine Delek’s contention that the district court erred in
upholding the arbitral award. A perceived benefit of arbitration is that it may
provide a more efficient means of resolving disputes. See Oxford Health Plans
LLC v. Sutter, 569 U.S. 564, 568–69 (2013). Tacking judicial review onto
arbitration undermines much of the savings in cost and time the arbitration
achieves. See id.; United Steelworkers of Am. v. Enter. Wheel & Car Corp., 363
U.S. 593, 599 (1960). So, as fans of the New England Patriots and Dallas
Cowboys have recently learned, a court’s review of arbitral awards interpreting
labor agreements is “exceedingly deferential.” Brabham v. A.G. Edwards &
Sons Inc., 376 F.3d 377, 380 (5th Cir. 2004) (noting that courts overturn such
awards only on “very narrow grounds”); see NFL Mgmt. Council v. NFL Players
Ass’n, 820 F.3d 527, 536 (2d Cir. 2016) (applying that deference to the
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detriment of Tom Brady); see also NFL Players Ass’n v. NFL, 874 F.3d 222,
227–28 (5th Cir. 2017) (finding the lawsuit premature because the arbitrator
had yet to make a final decision that was unfavorable to Ezekiel Elliott). As
long as an arbitrator’s decision draws its essence from the CBA, we will sustain
it. Executone Info. Sys., Inc. v. Davis, 26 F.3d 1314, 1320, 1324 (5th Cir. 1994);
see also United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 36 (1987)
(noting that an arbitrator cannot fashion his “own brand of industrial justice”
(quoting Enterprise Wheel, 363 U.S. at 597)). This deference means that even
if we believe the arbitrator seriously erred in his fact finding or contract
interpretation, Misco, 484 U.S. at 38, we will uphold a decision that is
rationally inferable from the purpose of the CBA. Executone, 26 F.3d at 1325.
Though this court interprets that essence standard “expansively,” an
arbitrator’s power is not unlimited. Dow Chem. Co. v. Local No. 564, Int’l
Union of Operating Eng’rs, 83 F. App’x 648, 651–52 (5th Cir. 2003). Our
deference does not extend to those instances when the arbitrator exceeds the
jurisdictional limits drawn in a CBA, Albermarle Corp. v. United Steel Workers
ex rel. AOWU Local 103, 703 F.3d 821, 824 (5th Cir. 2013), or acts contrary to
its express provisions, Smith v. Transp. Workers Union of Am., Local 556, 374
F.3d 372, 375 (5th Cir. 2004). An arbitrator cannot, for example, ignore the
plain language of a contract. Misco, 484 U.S. at 38; see, e.g., Delta Queen
Steamboat Co. v. Dist. 2 Marine Eng’rs Beneficial Ass’n, 889 F.2d 599, 602–04
(5th Cir. 1989) (overturning the arbitrator’s decision to reinstate a riverboat
captain who the arbitrator found “grossly careless” because the CBA mandated
discharge for carelessness). In this situation an arbitrator is no longer
applying or interpreting the agreement but rewriting it.
One of the rare situations when we have vacated an award because it
rewrote the CBA involved the issue in this case: a decision to hire contractors.
An arbitrator sustained the union’s grievance challenging a company’s decision
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to hire contract workers in spite of a CBA provision granting management an
unrestricted right to do just that. Beaird Indus., Inc. v. Local 2297, Int’l Union,
404 F.3d 942, 945 (5th Cir. 2005). The arbitrator overrode that bargained-for-
right because he was “not convinced that the cost savings realized from the
subcontracting outweigh[ed] the adverse impact on the CBA.” Id. A panel of
this court vacated that award because no provision in the CBA modified the
company’s unambiguous right to hire contract workers. Id. at 946–47; see also
Rock-Tenn Co. v. Paper Workers Int’l Union, 108 F. App’x 905, 907 (5th Cir.
2004) (vacating an arbitral award because it ignored an unrestricted
contracting provision and “wrote into the CBA a new [limiting] provision”).
In contrast to Beaird’s rejection of an arbitration award that directly
conflicted with the CBA, we have repeatedly upheld prounion awards when the
CBA was ambiguous or silent about a company’s contracting rights. One of
these cases involved a CBA clause preserving the company’s preunionization
ability to “determin[e] . . . the nature and extent of work, if any, to be contracted
or transferred out and the persons, means and methods to be so utilized.”
Folger Coffee Co. v. Int’l Union, Local Union No. 1805, 905 F.2d 108, 109 n.3
(5th Cir. 1990). Despite management’s negotiating a clause that preserved its
general right hire contractors, the arbitration panel determined that without
specific language defining the scope of that right the contracting decision must
be made in good faith, represent a reasonable business determination, and not
seriously weaken the union. Id. at 111. This court deferred to the arbitration
panel’s conclusion that Folger did not have “a carte blanche right” to contract,
in part because the general purpose of the CBA was to strengthen ties between
the company, its employees, and the union. Id. Given this determination that
the clause granting the contracting rights was “neither specific nor
unambiguous,” the arbitrators properly considered other factors, and as a
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result the award favoring the union drew its essence from the CBA. 1 Id. at
111–12. An easier case for deference involved a CBA that contemplated
subcontractors would do some work, for example it discussed their rates of pay,
but did not specifically grant the company a right to subcontract. See
Resolution Performance Prods., LLC v. Paper Allied Indus. Chem. & Energy
Workers Int’l Union, Local 4-1201, 480 F.3d 760, 762 (5th Cir. 2007). In light
of this silence about the circumstances in which contractors could be used, we
deferred to the arbitrator’s ruling that the CBA “does not permit wholesale
subcontracting.” Id. at 767.
The Delek CBA has something none of these other cases had: a provision
prohibiting the use of contract workers until employees have been given an
opportunity to perform the work. In a sense it thus presents the opposite
situation of Beaird. To be sure, Article 8.1 contains two exceptions we have
already noted. Delek can overcome the bar on hiring contract workers if there
were “extreme economic, safety or environmental reasons” for doing so or if
giving the work to employees would result in “excessive overtime.” But
“extreme” and “excessive” both connote situations outside the ordinary,
indicating the default position is that bargaining unit employees should get
first dibs on assignments. Or at least an arbitrator could reasonably read
Article 8.1 that way. “Extreme” and “excessive” are also judgment-laden
terms. Because considerable discretion will be involved in determining
whether one of these exceptional situations exists, it is difficult to see how an
arbitrator’s assessment of what is “extreme” or “excessive” can amount to the
direct conflict with the CBA that is necessary for judicial override. Delek’s
1Though it has been questioned, see Beaird, 404 F.3d at 946, Folger remains binding
law, Folger Coffee Co. v. Int’l Union, 368 F. App’x 605, 606 (5th Cir. 2010). In any event, our
decision has not depended on Folger because the CBA in this case has a default provision
that employees be used before contractors.
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challenge to the arbitral award applying a CBA that has a qualified ban on
contracting thus starts on much weaker ground than the challenges we have
previously considered involving CBAs with express or implicit provisions
allowing contracting.
Perhaps recognizing this, Delek does not just contend that the arbitrator
exercised bad judgment in refusing to find the exceptions applied; it also
asserts that he ignored them altogether. This argument does not focus on the
initial award. That decision, which was more than two single-spaced pages,
relies on Article 8.1, which it quotes in full, exceptions and all. The arbitrator
did not say that Delek failed to prove the exceptions, but not giving detailed
reasons for an arbitral award does not amount to the clear contradiction of a
CBA term that is needed for a successful court challenge. Enterprise Wheel,
363 U.S. at 598. Delek thus hangs its hat on the arbitrator’s later response to
the inquiry about whether his ruling applied only to the preparation phase.
That one-paragraph email response again quoted Section 8.1 but recited only
the general prohibition on contracting without repeating the exceptions that
come before and after it. The shortened quotation prompted Delek to send a
lengthy request for reconsideration asserting the exceptions, which the
arbitrator denied.
Nothing in the clarification process leads us to vacate the award. It is
understandable why the arbitrator, while citing the employee hiring
preference in his email, did not mention the caveats. The question he was
responding to had nothing to do with the exceptions or even involved Delek
asking for reconsideration of the merits ruling on any basis; the parties only
wanted to know how much overtime was owed. After the omission of the
exceptions prompted Delek to seek reconsideration on the ground that the
arbitrator had ignored them, the arbitrator disagreed and explained that
Delek’s view of the “excess overtime” language threatened to override the
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Article 8.1 presumption that bargaining units would get first priority on work.
Delek views this as the arbitrator reading the overtime language out of the
contract. But the arbitrator’s position that Delek’s expansive view of the
overtime provision would render the general ban on contracting meaningless
is a reasonable one. If almost any overtime is “excessive,” then the right the
union bargained for in Article 8.1 is essentially worthless. In stating that only
excessive overtime should allow Delek to hire contractors, the CBA recognized
that Delek had to give employees the first option to take additional work if only
some unspecified amount of ordinary overtime would result. The arbitrator
was empowered to draw the line between routine and excessive overtime.
But even if the email clarifications create doubt about whether the
arbitrator recognized the exceptions, ambiguity is not enough to vacate an
award. Enterprise Wheel, 363 U.S. at 598; see also Brown & Pipkins, LLC v.
SEIU, Local 32BJ, 846 F.3d 716, 724 (4th Cir. 2017) (rejecting the view that
an arbitral award must be free of ambiguity to be upheld). A technical parsing
of the informal emails the arbitrator provided in response to requests for
clarification is not consistent with the substantial deference we owe arbitration
decisions. “Arbitrators have no obligation to the court to give their reasons for
an award.” Enterprise Wheel, 363 U.S. at 598. Part of what a party gives up
in agreeing to private dispute resolution is the greater process courts provide,
although even in a judicial proceeding there is no guarantee that a party will
receive detailed reasons for a decision. See, e.g., 5TH CIR. R. 47.6 (allowing this
court to affirm a ruling without an opinion in certain circumstances). Although
explanations of arbitration awards are not required, they are of course better
for the parties and reviewing courts. Enterprise Wheel, 363 U.S. at 598. So
the Supreme Court has cautioned that overturning awards based on
ambiguities that can be identified in the explanations arbitrators choose to give
would discourage them from providing those reasons in the first place. Id.9
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That concern would be amplified if we were to use a lack of precision in a
clarifying email to undo an arbitrator’s decision when the result does not
directly contravene the CBA.
The exceptions to the contracting ban require judgment calls. The
parties agreed to be bound by the judgment of the arbitrator. Because the
arbitrator’s exercise of his discretion does not conflict with the CBA, we will
not vacate the award.
III.
For the same reason that judicial review of arbitration awards is limited,
a party may be awarded attorneys’ fees if it has to fight back a court challenge
to the award it obtained in the parties’ chosen forum. Int’l Ass’n of Machinists
& Aerospace Workers, Dist. 776 v. Tex. Steel Co., 639 F.2d 279, 284 (5th Cir.
1981) (“This sanction is necessary lest federal labor policy be frustrated by
judicial condonation of dilatory tactics that lead to wasteful and unnecessary
litigation.”). Once a district court has awarded fees, we review only for abuse
of discretion. Bruce Hardwood Floors v. UBC, S. Council of Indus. Workers,
Local Union No. 2713, 103 F.3d 449, 453 (5th Cir. 1997).
The cases say that fees should be awarded when the challenge to the
labor arbitration is “without justification.” Id. This label has led to some
confusion, with Delek arguing it suggests that fees should be awarded only if
the party brought a frivolous challenge, meaning one that was “brought in bad
faith to harass rather than to win.” See Lummus Glob. Amazonas, S.A. v.
Aguaytia Energy Del Perud, S.R. Ltda., 256 F. Supp. 2d 594, 646 (S.D. Tex.
2002) 2 (noting that a prevailing party may be entitled to attorneys’ fees when
2Delek also misreads this district court case. The case cites frivolity as a reason to
award fees in addition to the fact that the challenge was “without justification.” Lummus
thus appears to recognize that a determination that a challenge was “without justification”
does not require finding it was frivolous. 256 F. Supp. 2d at 646.
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its opponent’s challenge to an arbitral award is without justification or legally
frivolous). This misreads the law. “Without justification” refers not to the
strength of the challenge but to the type. On one side of the divide are
challenges to an arbitrator’s jurisdiction or authority, which do not result in a
fee award even if they come up short. On the other are those that go to the
“intrinsic merits” of a dispute, which justify fees even if not frivolous. Compare
Executone, 26 F.3d at 1321 (refusing to award attorneys’ fees because
challenger argued award was “upon a matter not submitted” to the arbitrator),
with Texas Steel, 639 F.2d at 284 (finding that fees should have been awarded
in light of the company’s challenge to an arbitrator’s interpretation of a
contract and discretion in fashioning a remedy). Court challenges to an
arbitrator’s jurisdiction are considered “justified” even if they do not succeed
because it is a common judicial function to determine the scope of an
arbitrator’s jurisdiction. Kubala v. Supreme Prod. Servs., Inc., 830 F.3d 199,
201 (5th Cir. 2016) (noting that courts ordinarily rule on the arbitrability of
specific claims). But see Archer & White Sales, Inc. v. Henry Schein, Inc., 878
F.3d 488, 492 (5th Cir. 2017) (finding that although courts presumptively
determine the question of arbitrability, a court must first determine whether
an agreement contains a delegation clause giving the arbitrator that power).
But when parties have agreed to arbitrate a dispute, a subsequent court
challenge to the merits is not justified even when that question is close because
going to court is at odds with the parties’ agreement to be bound by the
arbitrator’s decision.
This distinction forces parties that lose arbitration challenges to
commonly do what Delek tries here: “attempt to transform [a merits] claim into
an excess-of-powers claim.” Hous. Ref., L.P. v. United Steel, Paper & Forestry,
Rubber, Mfg., 765 F.3d 396, 412 (5th Cir. 2014). The company says that it was
challenging the arbitrator’s authority or jurisdiction in contending he
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disregarded the two caveats and thus ignored the plain language of the
contract. But a party cannot avoid paying attorneys’ fees by making only a
conclusory assertion that it is challenging the arbitrator’s “power to make the
award.” Texas Steel, 639 F.2d at 283. Delek’s brief shows that is what it is
doing here: in one breath the company argues that the arbitrator transcended
his authority, while in another it asserts that he “exercised his contractual
authority . . . inconsistent with applicable principles of contractual
construction,” which “necessarily touch[es] upon the ‘intrinsic merits’ of the
case.” Delek’s challenge goes to the merits as the central issue it raises is
whether the arbitrator correctly interpreted and applied the exceptions in
Article 8.1. The district court therefore did not abuse its discretion in finding
that challenge without justification and subject to a fee award.
***
The judgment of the district court is AFFIRMED.
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