United Food and Commercial Wor v. Illinois American Water Compan ( 2009 )


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  •                              In the
    United States Court of Appeals
    For the Seventh Circuit
    No. 08-3144
    U NITED F OOD AND C OMMERCIAL W ORKERS, L OCAL 1546,
    Plaintiff-Appellee,
    v.
    ILLINOIS-A MERICAN W ATER C OMPANY,
    Defendant-Appellant.
    Appeal from the United States District Court
    for the Northern District of Illinois, Eastern Division.
    No. 08 C 1411—Suzanne B. Conlon, Judge.
    A RGUED F EBRUARY 17, 2009—D ECIDED JUNE 26, 2009
    Before P OSNER, K ANNE, and W OOD , Circuit Judges.
    K ANNE, Circuit Judge. Illinois-American Water Company
    (“IAWC”) terminated Glenn Williams after he failed to
    abide by the terms of a Last Chance Agreement (“LCA”).
    At the time of Williams’s dismissal, United Food and
    Commercial Workers, Local 1546, the labor organization
    that represents many of IAWC’s employees, was chal-
    lenging the validity of the LCA. The Union grieved Wil-
    2                                               No. 08-3144
    liam’s termination as well, and both grievances proceeded
    to arbitration, where an arbitrator found in the Union’s
    favor.1 The arbitrator reinstated Williams after con-
    cluding that the LCA did not contemplate his termina-
    tion while the Union’s grievance was pending. The
    district court confirmed the arbitrator’s award, and
    IAWC appeals. We now affirm.
    I. B ACKGROUND
    Glenn Williams worked in various capacities for IAWC
    and its predecessors from 1974 until his termination on
    March 2, 2007. For the last twenty years of his employ-
    ment, Williams served as an operator, which involved
    the operation and maintenance of plant equipment
    used for treating wastewater.
    Operators must be licensed by the Illinois Environmental
    Protection Agency (“IEPA”), which issues four levels of
    license: Class A, B, C, or D. Individuals with a Class D
    license are considered operators-in-training. Operator
    licenses must be renewed every three years. According to
    IAWC, an operator’s wage depends on the level of his or
    her license, with Class A operators receiving the highest
    1
    The arbitration also involved disciplinary measures that
    IAWC instituted against two other employees, Dan Leppert
    and Ken Nelson. Neither of those disputes is at issue in this
    appeal.
    No. 08-3144                                                     3
    pay and Class D operators-in-training the lowest.2 Prior
    to his termination, Williams’s last active license was
    Class A, which he had earned in 1994.
    In October 2006, the IEPA informed Williams that his
    Class A license had expired in 1997, nine years earlier,
    because he had failed to renew it. Williams passed this
    information along to his superiors at IAWC, and the
    company immediately reduced his compensation level to
    that of a Class D operator-in-training.
    IAWC claimed that operating without a license fell
    under Offense 12 of its Employees’ Guide for Con-
    duct, which addressed the neglect of assigned duties.
    Williams had been suspended under this provision of
    the Guide the preceding August, which meant that operat-
    ing without a license was his second violation of Offense 12
    in three months. The Guide specified that a second
    such offense was punishable by termination.
    In lieu of terminating Williams, IAWC offered him an
    opportunity to remain with the company pursuant to the
    2
    In a portion of the arbitrator’s decision relating primarily to
    Leppert and Nelson, see supra note 1, the arbitrator concluded
    that “the evidence establishes that [an operator’s] wage rate is
    based upon the job that is performed by the employee, not
    upon the license that he holds.” Notwithstanding this finding,
    the Last Chance Agreement agreed to by Williams and the
    Union stipulated that Williams had been overpaid and that he
    would make restitution for the overpayment. This stipula-
    tion superseded any general finding to the contrary by the
    arbitrator.
    4                                               No. 08-3144
    terms of a Last Chance Agreement. The LCA placed several
    conditions on Williams’s continued employment. First,
    IAWC suspended Williams for thirty days without pay.
    Second, IAWC demanded that Williams obtain at least a
    Class B operator license within six months of executing
    the LCA. And third, because Williams had been paid as
    a Class A operator when he was not licensed as such,
    he was required to repay IAWC excess compensation
    that he received from January 1, 2006, until IAWC began
    paying him at the Class D operator-in-training rate. The
    LCA stipulated that Williams would arrange a repay-
    ment schedule with IAWC within two weeks of signing
    the agreement.
    The LCA contained several other provisions, two of
    which are relevant to our discussion. The first provision
    contained the following language:
    Failure to comply with any of these conditions will
    result in immediate termination. . . . The Union and
    the Employee expressly waive any right to file
    a grievance or other claim regarding Employee’s
    discharge under this Agreement, except to
    contest the fact of what occurred. If the conduct
    occurred, an Arbitrator will not have any authority
    to modify the discharge to a lesser penalty.
    The second relevant provision stated that “[a]ny disputes
    regarding the meaning of this Agreement will be resolved
    solely through the parties’ collective bargaining agree-
    ment grievance-arbitration procedure.”
    On November 7, 2006, Williams and IAWC signed the
    LCA. Also signing as a party to the agreement was the
    No. 08-3144                                            5
    Union, which represents all operators and various other
    service people employed by IAWC. The Union filed a
    grievance contesting the LCA’s validity on November 10,
    three days after signing.
    The present dispute arose when Williams failed to make
    arrangements for the repayment of his excess wages as
    required by the LCA. On March 2, 2007, several months
    after Williams completed his unpaid suspension, IAWC
    representatives gave Williams the opportunity to sign a
    proposed repayment plan, which Union representatives
    advised Williams not to sign. According to Williams, the
    proposed plan would have left with him with only $125
    a week on which to live. Faced with such a dire
    economic decision, Williams followed the Union’s
    advice and refused to sign the plan. IAWC terminated
    him that same day. The Union then filed a second griev-
    ance, this time protesting Williams’s dismissal.
    Both of the Union’s grievances—the first contesting the
    Last Chance Agreement, the second contesting Williams’s
    termination—were consolidated and brought before an
    arbitrator, who held a hearing on November 20, 2007. In
    a written opinion issued February 21, 2008, the
    arbitrator sustained in part and denied in part the
    Union’s grievances. Dealing first with the threshold
    question of the LCA’s validity, the arbitrator found the
    agreement to be enforceable and binding upon IAWC,
    Williams, and the Union. Because the valid LCA contem-
    plated Williams’s suspension, obligation to repay excess
    compensation, and reduction in wage rate pending
    renewal of his license, the arbitrator denied the Union’s
    challenges in those respects.
    6                                               No. 08-3144
    Turning to Williams’s dismissal, the arbitrator dis-
    cussed Williams’s failure to enter into a repayment plan
    for excess wages within the time frame established in
    the LCA. The arbitrator then identified the agreement’s
    pivotal provision, which stated that “[f]ailure to comply
    with any of these conditions will result in immediate
    termination.” The arbitrator framed the issue as “whether
    this provision of the Last Chance Agreement justified
    discharge for failure to enter a repayment plan while a
    challenge to the validity of the agreement was unresolved.”
    The arbitrator answered this question in the negative,
    concluding that the LCA did not provide for Williams’s
    termination while a good faith challenge to the validity
    of the entire agreement was pending. The arbitrator
    ordered IAWC to reinstate Williams to his operator
    position and make him whole for lost wages.
    In reaching his decision, the arbitrator discussed several
    issues. First, he stated that the Union’s challenges to
    the LCA’s validity, although unsuccessful, were under-
    taken in good faith and were far from frivolous. Next,
    he noted that IAWC unilaterally drafted the LCA, requir-
    ing that any ambiguities be construed against the com-
    pany. Third, he characterized the challenge to the LCA
    as “an act of concerted activity” under the National
    Labor Relations Act and endeavored to interpret the
    LCA in a manner consistent with the Act. And fourth, he
    found it “grossly unreasonable” to interpret the LCA in
    a manner that allowed for Williams’s discharge while
    he was challenging its overall validity.
    Following the arbitrator’s decision, both IAWC and
    the Union sought review in the United States District
    No. 08-3144                                                7
    Court for the Northern District of Illinois pursuant to
    
    9 U.S.C. § 10
    . IAWC sought to vacate the arbitrator’s
    decision, while the Union requested that it be confirmed.
    Acting on cross-motions for summary judgment, the
    district court, in an order on July 24, 2008, found in the
    Union’s favor and confirmed the arbitration award rein-
    stating Williams. This appeal ensued.
    II. A NALYSIS
    On appeal, IAWC seeks relief under the Federal Arbitra-
    tion Act, 
    9 U.S.C. § 10
    (a)(4), which states that a court
    may vacate an arbitrator’s award “where the arbitrator[]
    exceeded [his] powers, or so imperfectly executed
    them that a mutual, final, and definite award upon the
    subject matter submitted was not made.” IAWC claims
    that the arbitrator exceeded his power in two ways:
    (1) by ignoring unambiguous language in the LCA and
    looking beyond the four corners of the document; and
    (2) by infusing his own notions of reasonableness into
    his interpretation of the contract.
    We review de novo a district court’s decision on cross-
    motions for summary judgment, IBEW, Local 176 v. Bal-
    moral Racing Club, Inc., 
    293 F.3d 402
    , 404 (7th Cir. 2002),
    meaning that we review the arbitrator’s decision as if
    we were the court of first decision, see Am. Postal Workers
    Union, Milwaukee Local v. Runyon, 
    185 F.3d 832
    , 835 (7th
    Cir. 1999). When parties seek judicial review of an arbitra-
    tor’s award, the role of the courts, both district and appel-
    late, is extremely limited. Major League Baseball Players
    Ass’n v. Garvey, 
    532 U.S. 504
    , 509 (2001); Monee Nursery &
    8                                                   No. 08-3144
    Landscaping Co. v. Int’l Union of Operating Eng’rs, Local 150,
    
    348 F.3d 671
    , 675 (7th Cir. 2003); see also Bhd. of Locomotive
    Eng’rs v. Atchison, Topeka & Santa Fe Ry. Co., 
    768 F.2d 914
    ,
    921 (7th Cir. 1985) (calling judicial “review” a misnomer
    due to the extreme deference we give an arbitrator’s
    decision).3
    A reviewing court will enforce the arbitrator’s award so
    long as it “draws its essence from the contract,” even if
    the court believes that the arbitrator misconstrued its
    provisions. United Paperworkers Int’l Union v. Misco, Inc.,
    
    484 U.S. 29
    , 36, 38 (1987); see also Ethyl Corp., 
    768 F.2d at 184
     (quoting United Steelworkers v. Enterprise Wheel & Car
    Corp., 
    363 U.S. 593
    , 597 (1960)). An arbitrator’s decision
    draws its essence from the contract if it is based on the
    arbitrator’s interpretation of the agreement, correct or
    incorrect though that interpretation may be. Ethyl Corp.,
    
    768 F.2d at 184, 187
    ; see also Garvey, 
    532 U.S. at 509
     (“[I]f an
    arbitrator is even arguably construing or applying the
    contract and acting within the scope of his authority, the
    fact that a court is convinced he committed serious error
    does not suffice to overturn his decision.” (quotations
    omitted)). Thus, once we conclude that the arbitrator did
    in fact interpret the contract, our review is concluded.
    3
    Our past decisions make clear that we apply the same limited
    review to arbitral decisions rendered pursuant to the Labor-
    Management Relations (“Taft-Hartley”) Act, 
    29 U.S.C. § 185
    ;
    the Railway Labor Act, 
    45 U.S.C. § 153
    ; and the Federal Arbitra-
    tion Act, 
    9 U.S.C. § 10
    . See Atchison, Topeka & Santa Fe Ry. Co.,
    
    768 F.2d at 921
    ; Ethyl Corp. v. United Steelworkers of Am., 
    768 F.2d 180
    , 184 (7th Cir. 1985).
    No. 08-3144                                               9
    Ethyl Corp., 
    768 F.2d at 187
    ; see also Bhd. of Locomotive
    Eng’rs & Trainmen Gen. Comm. of Adjustment v. Union Pac.
    R.R. Co., 
    522 F.3d 746
    , 757 (7th Cir. 2008) (“[T]he question
    before a federal court is not whether the . . . arbitrators
    erred in interpreting the contract; it is not whether
    they clearly erred in interpreting the contract; it is not
    whether they grossly erred in interpreting the contract;
    it is whether they interpreted the contract.” (quotations
    omitted)).
    Indeed, “[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 [par-
    ties’ agreement].” Ethyl Corp., 768 F.2d at 184-85 (quota-
    tions omitted). In such cases, the Supreme Court has said
    that the arbitrator is “dispens[ing] his own brand of
    industrial justice.” Enterprise Wheel & Car Corp., 
    363 U.S. at 597
    .
    Given our limited role in reviewing arbitral decisions,
    we conclude that the arbitrator’s award must be con-
    firmed. The arbitrator did not disregard the con-
    tractual language and dispense his own brand of
    industrial justice, nor did he exceed his authority in
    rendering his decision. Instead, the arbitrator confronted
    a situation that was not expressly contemplated by the
    parties, interpreted the agreement, and reached a conclu-
    sion. In short, he provided exactly what the parties bar-
    gained for. That is enough. The arbitrator’s decision
    must stand.
    10                                                     No. 08-3144
    The arbitrator was faced with a peculiar posture:
    IAWC’s power to act under the terms of a contract, the
    validity of which the Union was challenging.4 The LCA, by
    its express provisions, did not contemplate such a sce-
    nario. Instead, it addressed each issue independently.
    IAWC’s power to act was clearly provided by the LCA:
    “Failure to comply with any of [the LCA] conditions will
    result in immediate termination.” Likewise, the Union’s
    ability to challenge the LCA’s validity was identified
    separately: “Any disputes regarding the meaning of this
    Agreement will be resolved solely through the parties’
    collective bargaining agreement grievance-arbitration
    procedure.” IAWC and the Union concurrently took
    action under these separate provisions, creating a con-
    tractual tension that the arbitrator was asked to resolve.
    IAWC claims that the “failure-to-comply” provision is
    unambiguous and decisive—if Williams violated the
    terms of the LCA, IAWC could fire him. It also cites the
    remainder of that clause, which states that “[t]he Union
    and the Employee expressly waive any right to file a
    grievance or other claim regarding Employee’s discharge
    4
    This context is a distinguishing factor between this case and
    others cited by IAWC that have involved LCAs. See, e.g., Tootsie
    Roll Indus. v. Local Union No. 1, Bakery, Confectionery & Tobacco
    Workers’ Int’l Union, 
    832 F.2d 81
    , 82-83 (7th Cir. 1987); see also,
    e.g., Cont’l Airlines, Inc. v. Int’l Bhd. of Teamsters, 
    391 F.3d 613
    ,
    617-19 (5th Cir. 2004); Boise Cascade Corp. v. Paper Allied-Industr.,
    Chem. & Energy Workers, Local 7-0159, 
    309 F.3d 1075
    , 1080 (8th
    Cir. 2002). None of these cases involved a pending challenge
    to the validity of the underlying agreement.
    No. 08-3144                                                 11
    under the Agreement, except to contest the fact of what
    occurred.” Any decision to the contrary, argues IAWC,
    exceeded the arbitrator’s powers. In IAWC’s eyes, because
    the LCA does not contain an exception for good-faith
    challenges to the agreement, Williams’s termination was
    within its unambiguous terms and therefore beyond the
    scope of the arbitrator’s review.
    But IAWC misses the point. What matters is not
    whether this court believes the LCA language to be ambig-
    uous, but whether the arbitrator found it ambiguous. As
    we have said: “[M]isinterpretation of contractual
    language, no matter how ‘clear,’ is within the arbitrator’s
    powers; only a decision to ignore or supersede language
    conceded to be binding allows a court to vacate the
    award.” Int’l Union of Operating Eng’rs, Local 139 v. J.H.
    Findorff & Son, Inc., 
    393 F.3d 742
    , 745 (7th Cir. 2004).
    Misinterpreting and ignoring a contract’s language are
    two different things. 
    Id.
     (“There is a big difference—a
    clear difference, a plain difference—between misunder-
    standing and ignoring contractual language.”). Had the
    arbitrator found the LCA to be unambiguous and then
    proceeded to act contrary to its directions, i.e., ignored
    the contract, then IAWC’s claims might have merit. See,
    e.g., Tootsie Roll Indus., 
    832 F.2d at 84
     (declining to look to
    the “law of the shop” when the dispositive contractual
    provision was unambiguous); see also, e.g., Anheuser-Busch,
    Inc. v. Local Union No. 744, Affiliated with the Int’l Bhd. of
    Teamsters, 
    280 F.3d 1133
    , 1139 (7th Cir. 2002) (stating that
    it was unnecessary for an arbitrator to look beyond the
    contract when its terms were unambiguous). But that
    is not what happened.
    12                                              No. 08-3144
    Here, the arbitrator found the LCA to be ambiguous. The
    LCA did not, by its terms, contemplate the current situa-
    tion. In fact, the two aforementioned provisions—one
    giving IAWC the right to terminate Williams, the
    other giving Williams and the Union the right to chal-
    lenge the agreement pursuant to the CBA—appeared to
    point in different directions. Despite IAWC’s protestations
    to the contrary, the arbitrator did not ignore the LCA’s
    language. Indeed, the LCA’s “failure-to-comply” language
    is the only provision that the arbitrator quoted directly.
    Instead, the arbitrator interpreted that language in the
    context of the other language in the agreement and the
    situation with which he was confronted. As we said in
    Ethyl Corp.:
    [C]ontracts have implied as well as express terms,
    and the authority of an arbitrator to interpret a[n
    agreement] includes the power to discover such
    terms. Indeed, as long as a plausible solution is
    available within the general framework of the
    agreement, the arbitrator has the authority to
    decide what the parties would have agreed on
    had they foreseen the particular item in dispute.
    768 F.2d at 186 (citation and quotations omitted).
    The arbitrator did precisely this. He looked to the
    agreement, found it inconclusive, and then proceeded to
    interpret the contract to resolve the dispute. He concluded
    that the LCA contained an implied term that did not
    permit Williams’s termination while a challenge to the
    LCA’s validity was pending. The arbitrator offered the
    following statement summarizing his findings:
    No. 08-3144                                               13
    Thus, considering generally accepted principles of
    contract interpretation; that contract language be
    interpreted against the drafter, that it be inter-
    preted in harmony with external law, and that it
    be interpreted to avoid grossly unreasonable
    results; I find that the Last Chance Agreement
    does not permit the discharge of Mr. Williams for
    failure to comply with a provision of the Agree-
    ment while the validity of that provision is
    subject to a proper, good faith, non-frivolous
    challenge. Therefore, Mr. Williams’s discharge
    violated the Last Chance Agreement.
    This is not, as IAWC contends, “industrial justice.” See
    Enterprise Wheel & Car Corp., 
    363 U.S. at 597
    . Nor did
    the arbitrator “dress his policy desires up in contract
    interpretation clothing.” N. Ind. Pub. Serv. Co. v. United
    Steelworkers of Am., 
    243 F.3d 345
    , 347 (7th Cir. 2001); see
    also Ethyl Corp., 
    768 F.2d at 187
     (noting than an arbitrator
    cannot merely make “noises of contract interpretation”
    to shield his decision from judicial review). This is
    contract interpretation in its purest sense, and it is the
    task that the parties asked the arbitrator to perform. As
    such, we pass no judgment on the quality of that inter-
    pretation but instead defer to the arbitrator. Any conclu-
    sions to the contrary would run counter to the very idea
    of arbitration and undermine the dispute resolution
    system within which the parties have agreed to operate.
    See Misco, 
    484 U.S. at 37-38
     (discussing the policies behind
    insulating arbitral decisions from judicial review); J.H.
    Findorff & Son, Inc., 
    393 F.3d at 745
     (“If a gaffe authorized
    a court to set aside the award, there would be little differ-
    14                                           No. 08-3144
    ence between arbitration and litigation other than the
    extra cost and delay of presenting the case to the
    arbitrator before taking it to court. That would turn
    arbitration on its head . . . .”).
    III. C ONCLUSION
    The arbitrator interpreted what he perceived to be
    ambiguity within the LCA to address a situation that he
    concluded the contract did not contemplate by its express
    terms. For that reason, we A FFIRM the district court’s
    decision granting summary judgment in favor of the
    Union and thereby confirm the arbitrator’s award.
    6-26-09