R.J. Corman v. Int'l Union 150 ( 2003 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 02-1743
R. J. CORMAN DERAILMENT SERVICES, LLC,
Plaintiff-Appellant,
v.
INTERNATIONAL UNION OF OPERATING ENGINEERS,
LOCAL UNION 150, AFL-CIO,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 02 C 471—Ruben Castillo, Judge.
____________
ARGUED OCTOBER 18, 2002—DECIDED JULY 10, 2003
____________
Before POSNER, DIANE P. WOOD and EVANS, Circuit
Judges.
DIANE P. WOOD, Circuit Judge. In spite of the fact
that courts sometimes talk about arbitral tribunals as
nothing more than alternative fora in which to resolve
disputes, parties often fight hard either to enforce or to
defeat an alleged agreement to arbitrate. That is what
is happening in this case: plaintiff R. J. Corman Derail-
ment Services takes the position that a former agreement
to arbitrate between Local 150 of the International Union
of Operating Engineers and itself is no longer effective; the
Union says that it is, and that a wage dispute must there-
2 No. 02-1743
fore be arbitrated. Proceedings in the district court came
to an abrupt halt when the court, sua sponte, granted
what it termed judgment on the pleadings under FED. R.
CIV. P. 12(c) to the Union, thereby holding that the arbitra-
tion clause in the parties’ expired collective bargaining
agreement (CBA) covered the dispute. Apart from the
fact that FED. R. CIV. P. 12(c) was not the proper vehicle
to use, because the Union had not yet filed its answer to
the complaint and the pleadings were thus not yet closed,
we find that the court acted prematurely in its action.
Judgment under FED. R. CIV. P. 12(b)(6) for the Union
would also have been improper, given the allegations in
Corman’s pleadings, and summary judgment was equally
unavailable without proper notice of conversion under
FED. R. CIV. P. 12(b). We therefore reverse and remand
for further proceedings.
I
Corman provides emergency railroad services across the
country. Starting in January 1992, Local 150 represented
Corman’s Derailment Division employees at its Gary,
Indiana, facility. The parties’ CBA required Corman to
pay bargaining unit members a regular wage rate of
$12.35 per hour, a straight-time wreck rate of $16.25 per
hour, and an overtime wreck rate of $22.65 per hour.
Article IX of the CBA outlines a four-step procedure for
the resolution of grievances. Step one requires an aggrieved
employee orally to notify her union steward and her
supervisor of a grievance within ten working days of the
grievance’s occurrence. If after five additional working
days the grievance is not resolved, step two requires the
employee to submit a signed copy of her grievance in
writing to the Union’s Business Representative and to
Corman or its representative. Corman then has five work-
No. 02-1743 3
ing days to respond in writing to the grievance. If this
additional step fails to resolve the employee’s grievance,
step three provides for submission of the complaint to a
grievance committee. If within ten additional working
days the committee does not resolve the grievance, the
aggrieved employee may proceed to step four and submit
a written demand for arbitration. This written demand
for arbitration must be made within forty-five days of
the initial occurrence.
One month before the CBA’s December 19, 1999, expira-
tion date, Corman and the Union began to negotiate a
new Agreement. These efforts ended when, in early June
2000, Corman took the position that Local 150 had lost
the support of a majority of the employees in the Divi-
sion and thus could no longer represent them. At the end
of June, Corman closed its Gary facility, laying off all of
those employees. One difficult question on which this case
turns is whether the CBA continued to cover the parties’
relationship during the six months between the formal
expiration of the agreement and the closing of the
facility, or if instead Corman was unilaterally abiding by
the terms of the CBA after it expired in order to comply
with its duty to bargain in good faith. Article XIII of the
CBA sheds some light on this question, through its state-
ment that “[t]his agreement shall be effective as of 12:01
A.M. on December 19, 1996 and continue in effect until
midnight, December 19, 1999 and from year to year there-
after unless either party to this Agreement wishes to
change or terminate the Agreement.” If the CBA remained
in effect, then it is at least possible that the parties were
obliged to arbitrate their dispute.
The dispute that the Union would like to put before
the arbitrators came to light in an unusual way. In July
2000, the Trustees of the Midwest Operating Engineers
Pension and Benefits Funds (the Funds) filed an ERISA
lawsuit in the Northern District of Illinois under 29 U.S.C.
4 No. 02-1743
§§ 1132, 1145, to compel an audit of Corman’s fund con-
tributions and to collect any under-payments revealed by
that audit. (The appeal from this lawsuit is presently be-
fore this court in the case of Dugan v. R. J. Corman Derail-
ment Services, LLC, No. 03-1011 (7th Cir. argued June 2,
2003). The parties failed to notify the court that this re-
lated case was pending when it came to their attention,
which would have been far better practice. Had it not
been for our independent discovery of the relation
between the two cases, the parties’ failure to call this
later case to our attention would have made it difficult
for this court to ensure consistency in its decisions.) One
year later, in July 2001, the Funds’ auditors issued their
report. Following the issuance of this report, Local 150
contacted Corman in an attempt to “schedule a meeting in
accordance with Article 9, Section A, Step 2” to resolve
what it claimed was a wage dispute under the CBA. The
Union insists that the underlying discrepancy about
which it complained ($11,013.92 in claimed underpaid
wages) was discovered as a result of the Funds’ ERISA
audit. Local 150’s wage discrepancy claim covered wages
that were paid before the CBA expired in December, 1999,
in addition to post-expiration wages that were paid up
until the Gary facility closed six months later. Although
the Union’s complaint was brought to Corman’s atten-
tion shortly after the Pension Funds’ audit was com-
pleted, this was long after the expiration of the forty-five
day period set forth in Article IX of the CBA for bringing
the wage discrepancy claim. In fact, as Corman points
out in its brief to this court, the Union’s wage discrepancy
claim did not comply with any of the steps that the parties
agreed had to precede arbitration of a dispute.
Following a flurry of correspondence between the Union
and Corman and their lawyers, Local 150 threatened to
invoke Article IX’s arbitration procedures to resolve the
wage dispute. Rather than waiting to see if the Union
No. 02-1743 5
would make good on its threat to arbitrate, Corman filed
a two-count complaint in the District Court. Count I of
the complaint sought a declaratory judgment that the
parties’ dispute was not subject to the CBA’s arbitration
provision. Count II sought a permanent injunction pre-
venting Local 150 from submitting or threatening to
submit its wage discrepancy claim to arbitration. Nearly
one month after Corman filed its complaint, and before
Local 150 filed its answer, Corman filed a motion for a
preliminary injunction that tracked Count II of its com-
plaint. In a footnote in its Reply Memorandum in Support
of Plaintiff’s Motion for Preliminary Injunction, Corman
asked the district court, in the alternative, to treat its
motion as a motion for summary judgment on both counts
of the complaint. Rather than granting Corman the relief
that it sought, the district court denied the motion for
a preliminary injunction. The court also denied Corman’s
alternative request for summary judgment. Instead of
granting Corman the injunctive relief that it sought, the
district court sua sponte entered declaratory judgment
on the pleadings, citing FED. R. CIV. P. 12(c), finding that
the Union’s wage dispute was subject to arbitration. Cor-
man now appeals that ruling.
II
As a general matter, our court reviews a decision to
grant judgment on the pleadings using the same stan-
dard that applies to dismissals under FED. R. CIV. P.
12(b)(6) for failure to state a claim on which relief can be
granted. See Gustafson v. Jones, 117 F.3d 1015, 1017 (7th
Cir. 1997). In such cases, judgment may not be granted
against the non-moving party “unless it appears beyond
a doubt that the [non-moving party] cannot prove any
facts that would support his claim for relief.” Id. (internal
quotation marks omitted). We take the facts alleged in the
6 No. 02-1743
complaint in the light most favorable to the non-moving
party, and we review the district court’s decision de novo.
Id. Both FED. R. CIV. P. 12(b)(6) and FED. R. CIV. P. 12(c)
also provide that if, on a motion under the rule, matters
outside the pleadings are presented to and not excluded by
the court, then the motion must be converted to one for
summary judgment under FED. R. CIV. P. 56, and “all
parties shall be given reasonable opportunity to present
all material made pertinent to such a motion by Rule 56.”
FED. R. CIV. P. 12(b), (c). See also Church v. General Motors
Corp., 74 F.3d 795, 798 (7th Cir. 1996).
This case is somewhat unusual, both because no answer
was ever filed, and because it was Corman, not the Union,
which asked for its preliminary injunction motion to be
treated in the alternative as a motion for summary judg-
ment. By granting summary judgment for the Union, the
court in effect created an implied cross-motion for summary
judgment “filed” on behalf of the Union. The existence
of cross-motions for summary judgment does not, however,
imply that there are no genuine issues of material fact. See
generally 10A CHARLES A. WRIGHT, ET AL., FEDERAL PRAC-
TICE & PROCEDURE § 2720 at 327-28 (3d ed. 1998). Parties
have different burdens of proof with respect to particular
facts; different legal theories will have an effect on which
facts are material; and the process of taking the facts in
the light most favorable to the non-movant, first for one
side and then for the other, may highlight the point that
neither side has enough to prevail without a trial. Here,
the district court did rely on materials outside of the
pleadings, because it took into account Corman’s motion
for a preliminary injunction, Local 150’s response to that
motion, and the materials that the Union submitted
along with its response. Because it relied on FED. R. CIV.
P. 12(c) as the basis for its action, however, it never for-
mally converted the proceeding into a summary judgment
motion “filed” on behalf of the Union. This truncated
No. 02-1743 7
procedure created a number of problems, which we now
address.
We consider first whether, taking the allegations of
Corman’s complaint in the appropriate light, the Union
was entitled to judgment as a matter of law under what
should have been FED. R. CIV. P. 12(b)(6). The answer is
an unequivocal no. Corman alleged in ¶ 6 of the com-
plaint that the CBA expired on December 19, 1999; later,
in ¶ 15, it refers to the September 12, 2001, letter as having
been “presented more than 20 months after the 1997
Bargaining Agreement expired . . . .” The complaint also
alleges that the first Corman knew of the wage dispute
was when it read the letter from the Local 150 representa-
tive dated September 12, 2001. ¶ 14. The complaint it-
self says nothing about the way in which Local 150 learned
about any alleged wage dispute; nowhere does it refer to
the Funds or their audit. It merely takes the position that
the wage dispute was not presented to it in a proper or
timely fashion, and thus that it is not subject to arbitra-
tion. Taking these facts in the light most favorable to
Corman, we would have to conclude that the agreement
expired according to its own terms, that any wage dis-
pute was not properly presented, and thus that arbitra-
tion was not available.
The district court, however, found that the parties had
agreed to extend their CBA. In reaching this conclusion, it
relied on Article XIII of the CBA, which says that the CBA
remains in effect until “December 19, 1999 and from year
to year thereafter unless either party to this Agreement
wishes to change or terminate the Agreement.” The CBA
does not appear to have been appended to the complaint,
although if it had been, it would have been proper for the
court to take its provisions into account. Accepting for the
moment that there was some justification for reviewing
it anyway, we find Article XIII less than conclusive. By its
own language, it says that the CBA will remain in effect
8 No. 02-1743
unless either party wishes to change or terminate it. We
know from the complaint, ¶ 7, that the parties were negoti-
ating over a new CBA, which (in the light most favorable
to Corman) indicates that one or both of them wanted to
change the agreement. A trier of fact could find, therefore,
that Article XIII did not of its own force continue the
agreement. Furthermore, the bare complaint and CBA
do not reveal whether Corman was continuing to abide
by at least the wage terms of the expired CBA because (a)
it believed that there was a new agreement between the
parties, (b) it believed that the old agreement had been
extended, or (c) because as a unilateral matter it was
simply abiding by the old terms in good faith while at-
tempting to negotiate a new agreement. Last, we know
nothing about whether Corman was also abiding by
other terms of the expired CBA, such as the obligation to
make pension contributions at issue in the related Dugan
litigation.
These are significant disputed facts. The fact that
Corman had asked that its own motion for a preliminary
injunction be considered in the alternative as a motion for
summary judgment does not mean that it was on notice
of the fact that a motion the Union never filed might also
be treated as a motion for summary judgment. This lack
of notice means that Corman never had the opportunity
to present facts and argument to the district court in
support of its position. The issue of when the CBA ex-
pired is, after all, a central one: if the CBA remained in
effect after December 19, 1999, then Local 150 might have
had a longer period of time in which to assert its wage
discrepancy claim (though the forty-five day period still
might cause trouble for it).
The district court also found as an undisputed fact that
Local 150’s auditors sought Corman’s business and pay-
roll records for the purpose of conducting a wage audit
before the Union brought its grievance. Certainly from the
No. 02-1743 9
point of view of the pleadings alone, and in our view more
generally, the record is devoid of evidence that would
permit a conclusion that the audit was undertaken by
Local 150 or on its behalf. It is at least equally plausible
that the Funds had their own interests in mind when
they instituted the audit for purposes of ensuring that
Corman was not skimping on its contributions; indeed, the
existence of the Dugan litigation conclusively shows that
the Funds have their own ax to grind here. The record does
not establish that the audit’s focus was on wage under-
payments, rather than pension and other fringe benefits.
The district court relied heavily on this factual conclusion
in finding that Local 150’s initiation of grievance and
arbitration proceedings was timely as a matter of law. But
if Local 150 is simply piggy-backing on the Funds’ inde-
pendent and unrelated audit (which may have generated
information about wages as a step along the way to ascer-
taining whether contribution levels were correct), the
court’s conclusion that the grievance was timely is unsup-
ported. Once again, had Corman known that it was fac-
ing a de facto summary judgment motion from the Union,
it would have had the opportunity to contest this fact. It
now insists that if it had known that the district court
was considering this type of resolution of the case, it
would have introduced evidence tending to show that
Local 150 was not entitled to rely on the Funds’ independ-
ent audit as a basis for the delay in seeking to arbitrate
its wage dispute.
All of this is by way of prelude to our consideration of the
district court’s finding that the Union was entitled as a
matter of law to have the wage dispute submitted to
arbitration. We have already indicated that this conclu-
sion cannot be drawn from the face of the pleadings, or
the pleadings supplemented by the CBA. The district
court should not have converted Corman’s alternative
motion for summary judgment into a motion brought by
10 No. 02-1743
the Union without notice to the parties. Furthermore, this
error was not harmless. Corman points out that the
court relied on factual conclusions—that the parties
agreed to extend the CBA and that Local 150 undertook
a wage audit—that were unsupported by the scant rec-
ord that the parties developed, that neither side advanced,
and that Corman lacked an opportunity to refute. We
agree that these points were subject to dispute, and more
fundamentally that Corman never had the opportunity
to which it is entitled to present opposing evidence to the
court. We are also troubled by the district court’s legal
conclusions, which were based on those questionable fact
findings. Specifically, the district court found the parties’
dispute subject to arbitration in this case because it be-
lieved that the twenty-one month delay between the
termination of the CBA and the time Local 150 first noti-
fied Corman of the wage dispute was reasonable in light
of the fact that the Union did not know the basis for its
wage claim until its audit was completed. Since we do
not know whether Local 150 actually undertook a wage
audit, this conclusion was premature. For that reason, we
do not offer an opinion on the ultimate question of
arbitrability.
On remand, there will be a number of new problems. Most
importantly, the district court must consider whether
Corman has any entitlement to either declaratory or
injunctive relief in light of the prohibitions of the Norris-
LaGuardia Act, 29 U.S.C. §§ 101-15, and this court’s
holding in AT&T Broadband LLC v. International Brother-
hood of Electrical Workers, 317 F.3d 758 (7th Cir. 2003),
which held that a district court may not enjoin the ar-
bitration of a labor dispute. Id. at 763. Although AT&T may
seem dispositive here, in the interest of fairness to the
parties (who did not have an opportunity to brief the
issue), we leave that question to the district court in the
first instance.
No. 02-1743 11
If there is any life remaining in this case, the parties
will also need on remand to confront another aspect of the
timeliness of Local 150’s grievance. The district court’s
analysis did not take into account the common sense
argument that Corman presses on appeal—that the
wage dispute was discoverable as soon as wages were
paid and therefore regardless of the audit, Local 150’s
grievance was not timely filed. Local 150 makes a weak
waiver argument in response, but a party cannot waive
something that it does not know is at issue. In our view,
Corman’s failure to argue this point below corroborates
its claim of surprise. Once again, the fact that Corman
itself sought summary judgment for different reasons
does not mean that it was fairly apprised of the ultimate
basis for the district court’s reasoning. This is the pre-
cise reason why our court has repeatedly explained that
it is appropriate to grant summary judgment sua sponte
only when it is clear that neither side will be disad-
vantaged or unfairly surprised by the move. See, e.g., Jones
v. Union Pacific R.R. Co., 302 F.3d 735, 740 (7th Cir.
2002) (holding sua sponte summary judgment proper “as
long as the losing party is given notice and an opportunity
to come forward with its evidence”); Goldstein v. Fidelity &
Guar. Ins. Underwriters, Inc., 86 F.3d 749, 751 (7th Cir.
1996) (affirming sua sponte summary judgment because
losing party had adequate notice and no genuine issue of
material fact established). We recently expressed our
disfavor of this procedure, noting that sua sponte awards
of summary judgment “tend to defeat the very purpose
they are designed to serve—judicial efficiency.” Southern
Illinois Riverboat Casino Cruises, Inc. v. Triangle Insulation
& Sheet Metal Co., 302 F.3d 667, 668 (7th Cir. 2002).
Finally, it is important to clarify an additional point.
Although the district court ultimately found the parties’
dispute subject to arbitration as a matter of law, its opin-
ion contains language that suggests that whether this
12 No. 02-1743
particular wage dispute is subject to arbitration is a
procedural question for the arbitrator and not the court
to decide. In reaching this conclusion the judge relied on
a decision of this court that holds that procedural ques-
tions concerning the arbitration process itself are to be
decided by the arbitrator. In Beer, Soft Drink, Water, Fruit
Juice, Local Union 744 v. Metropolitan Distributors, Inc.,
763 F.2d 300 (7th Cir. 1985), we held that after a court
ascertains that the subject matter of a particular dispute
is covered by the parties’ arbitration agreement, any
procedural questions—such as whether the arbitration
procedures were properly followed—are reserved for the
arbitrator. Id. at 302-03. The district court read Metro-
politan Distributors to mean that whether the parties in
this case must arbitrate the recently-complained-of
wage discrepancy is for the arbitrator to decide. But the
question in this case does not concern the scope of an
arbitration agreement that everyone agrees governs a
general relationship. It is instead the question whether
there is an agreement to arbitrate this subject matter at
all. The Supreme Court has held that it is the court and
not an arbitrator that must decide the question of ar-
bitrability, unless the parties have explicitly provided
otherwise in their agreement. See First Options of Chicago,
Inc. v. Kaplan, 514 U.S. 938, 943-44 (1995); Litton Fin.
Printing Div. v. Nat’l Labor Relations Bd., 501 U.S. 190,
208 (1991). See also Nissan North Am., Inc. v. Jim M’Lady
Oldsmobile, Inc., 307 F.3d 601, 604 (7th Cir. 2002); Air
Line Pilots Ass’n Int’l v. Midwest Express Airlines, Inc., 279
F.3d 553, 555 (7th Cir. 2002). This is especially true
where, as here, grievance procedures are invoked well
after the parties’ collective bargaining agreement has
expired. In Nissan North America, Inc. v. Jim M’Lady
Oldsmobile, Inc., we explained that “courts handling
[cases involving expired fixed-term contracts] must de-
termine not only whether the parties entered an agreement
to arbitrate some issues, but also whether the particular
No. 02-1743 13
dispute in question falls within the scope of the arbitra-
tion agreement.” 307 F.3d at 604 (emphasis in original). In
other words, the fact that some post-expiration grievances
remain subject to arbitration does not mean that all such
grievances are arbitrable. Jim M’Lady Oldsmobile made
clear that this latter question must be decided by the
courts before a contested issue may be submitted to ar-
bitration. Id. Cf. Local 703, Int’l Bhd. of Teamsters v.
Kennicott Bros. Co., 771 F.2d 300, 303-04 (7th Cir. 1985)
(affirming district court’s refusal to order arbitration of
post-expiration grievance that occurred six months after
parties’ agreement expired).
Whether Local 150’s wage dispute is subject to arbitra-
tion is a question that the district court must decide. We
are not persuaded that the Ninth Circuit’s decision in
Goss Golden West Sheet Metal, Inc. v. Sheet Metal Workers
International Union, Local 104, 933 F.2d 759 (9th Cir.
1991), would support a different result. As the facts in
Goss suggest, that case involved a grievance that arose
during the life of the parties’ agreement that was prob-
ably only discoverable post-expiration because of the
employer’s successful cover-up efforts. 933 F.2d at 763 &
n.2. As we have already noted, our case presents a very
different set of facts. On this record, we have no reason to
believe that Local 150 could not have grieved the under-
payment of its members’ wages as they occurred. In decid-
ing Goss, the Ninth Circuit did not focus on the question
whether a grievance that arises pre-expiration and that
could have been raised during the life of the parties’
agreement, may nonetheless be raised for the first time
after the agreement has expired.
Finally, we briefly turn to the district court’s decision to
deny Corman’s motion for a preliminary injunction. Cor-
man’s briefs on appeal do not directly question the dis-
trict court’s analysis of its preliminary injunction motion.
Because no argument was raised on this issue, we find it
14 No. 02-1743
waived and summarily affirm the denial of a preliminary
injunction. Williams v. REP Corp., 302 F.3d 660, 666 (7th
Cir. 2002).
III
Because we agree with Corman that the district court
did not follow the proper procedures here, and thus did
not give Corman the chance to contest the facts on which
it based its de facto summary judgment in the Union’s
favor, we REVERSE and REMAND for further proceedings
consistent with this opinion.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—7-10-03