Teamsters Local 682 v. KCI Construction Co. ( 2004 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 03-3154
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Teamsters Local Union 682, *
*
Appellant, *
* Appeal from the United States
v. * District Court for the
* Eastern District of Missouri.
KCI Construction Company, Inc., *
*
Appellee. *
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Submitted: April 15, 2004
Filed: September 15, 2004
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Before WOLLMAN, McMILLIAN, and RILEY, Circuit Judges.
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RILEY, Circuit Judge.
Teamsters Local Union 682 (Local 682) appeals from the district court’s
decision to confirm arbitration awards in favor of KCI Construction Company, Inc.
(KCI). Contending the arbitration awards enforced an unlawful hot cargo agreement,
see 29 U.S.C. § 158(e) (prohibiting agreements requiring employers to cease doing
business with other employers), Local 682 argues the district court’s entry of
summary judgment in KCI’s favor must be reversed. Because we conclude
confirmation of the arbitration awards may enforce an unlawful hot cargo agreement,
we remand to the district court for further proceedings consistent with this opinion.
I. BACKGROUND
BJC Health Systems, Inc. hired KCI as a general contractor to build Phase I of
a Campus Integration Project (Project), which entailed building the north campus
parking garage. KCI, the St. Louis Building and Construction Trades Council, and
all AFL-CIO Building Trades Affiliates signed a Project Agreement. Local 682
signed the Project Agreement as well. The Project Agreement included the following
clause in section 3.03:
The Collective Bargaining Agreement (“CBA”) in effect between the
Unions executing this Agreement and the Employer or its
Subcontractors executing this Agreement are applicable to the work,
except as such CBA may be modified by the provisions of this
Agreement. . . . The Employer and its Subcontractors acknowledge
that in performing work, including local fabrication of custom
millwork and casework, and local on-site deliveries of construction
material and equipment, they will utilize employees who are
represented by Unions affiliated with the AFL-CIO Building
Trades.
(emphasis added). The Project Agreement also contained section 4.04 to prevent
work stoppage:
The Unions and employees will not strike, nor engage in any
picketing, sitdowns, slowdowns, sympathy strikes, or other refusals
to work; nor will Employer or its Subcontractors lock out the employees
during the performance of the Project. This No Strike Pledge includes
jurisdictional disputes and contract expirations. The Unions will not
recognize any picket lines for or as a result of a Jurisdictional Dispute,
Sympathy Strike, Contract Expiration or informational picket.
(emphasis added). The Project Agreement also contained numerous other clauses
(sections 1.01, 1.02, 4.06, 4.12) to make clear the parties intended to avoid work
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stoppages. Finally, the Project Agreement included an arbitration clause (section
4.06).
KCI contracted with Material Service Company (MSC) to provide concrete for
the Project, because MSC was able to supply the special concrete needed for the
sophisticated Project. MSC employed Local 682 members to deliver the concrete to
the Project site, and no Local 682 members actually worked on the site other than to
deliver construction material to the site. As far as this court can determine, MSC
never signed the Project Agreement. However, MSC did enter into a collective
bargaining agreement with Local 682.
When the collective bargaining agreement between MSC and Local 682
expired during the term of the Project, Local 682 struck MSC for approximately eight
weeks in the summer of 2000. During the strike, Local 682’s members refused to
deliver concrete for MSC to the Project site. Because KCI was unable to get Local
682 members to deliver the concrete for MSC, MSC’s management employees
delivered the concrete. In response, Local 682 demanded KCI cease and desist from
using non-union members to deliver concrete to the Project site, concluding “[KCI]
violated Section 3.03 and all other sections [of the Project Agreement] that may refer
to union employees by accepting the delivery of concrete in trucks driven by persons
other than employees who are represented by Unions affiliated with the AFL-CIO
Building Trades.”
KCI filed a grievance against Local 682 for breaching the Project Agreement’s
no-strike clause, i.e., section 4.04, by not delivering the concrete for MSC to the
Project site. The grievance proceeded to a two-phase arbitration, with the first phase
addressing liability and the second phase addressing damages. During the liability
phase, KCI contended Local 682 breached the no-strike clause by refusing to deliver
concrete to the Project site. Local 682 contended the Project Agreement did not apply
to MSC because MSC was a non-signatory supplier and the Project Agreement only
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applied to KCI and its subcontractors. KCI presented evidence at the hearing; Local
682 did not.
In its opening statement to the arbitrator, KCI discussed the interaction
between sections 3.03 and 4.04 of the Project Agreement. KCI recognized it
“ultimately agreed to the union’s request that Teamster Local 682 would make all
deliveries of construction materials and equipment to the job site.” KCI also made
the following point: “In addition to [sections] 3.03 and 4.04, the language of the
entire agreement is controlling with regard to one simple fact, and that fact is . . . the
union got all the work, and the only thing [KCI] got out of this whole particular thing
is that the project would have no interruptions.” Rick Grebel (Grebel), KCI’s
president, testified at the hearing that the Project Agreement’s sole purpose
“obviously is to have no work stoppages. In exchange for no work stoppages,
basically the job is done a hundred percent union.” When asked what “two essential
provisions” of the Project Agreement KCI contended Local 682 violated, Grebel
explicitly referenced sections 3.03 and 4.04.
The arbitrator sustained KCI’s grievance against Local 682 for violating its
no-strike pledge. Before enforcing the no-strike clause, the arbitrator concluded MSC
was a subcontractor as that term is used in the Project Agreement, such that the
Project Agreement covers MSC and its on-site deliveries of construction material.
The arbitrator then used section 3.03 to conclude Local 682 violated its no-strike
pledge contained in section 4.04:
So far as appears, [Local 682] has steadfastly asserted the exclusive
right to deliver all incoming materials on the site, and it steadfastly made
deliveries in advance of the strike. For its part, [KCI] recognized
[Local 682]’s exclusive delivery right as stemming directly from the
same negotiations which produced [Local 682]’s “No Strike Pledge.”
Having thus achieved the right to exclusive deliveries, and having
accepted the benefits of such right in practice, [Local 682] cannot now
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be heard to deny its obligation to make deliveries under the same
Agreement.
(emphasis added). Based on these conclusions, the arbitrator, on January 5, 2001,
issued an award on liability holding Local 682’s refusal to deliver concrete to the
Project site violated the Project Agreement’s no-strike clause.
During the damages phase of the arbitration proceedings, the arbitrator
awarded $112,721.15 to KCI based on Local 682’s breach of the Project Agreement.
In its damages award, the arbitrator confirmed his liability finding by reiterating his
conclusion “that a supplier of materials [i.e., MSC] can reasonably be viewed as a
subcontractor under relevant case authorities, under the language of the Agreement
(Article 3.03) and by virtue of the parties’ performance of the Agreement in
day-to-day practice.” During the arbitration proceedings, Local 682 never argued or
intimated that section 3.03 was an unlawful hot cargo agreement.
Local 682 then filed suit in federal court on July 9, 2002, seeking to vacate the
arbitrator’s liability and damages awards in KCI’s favor. Local 682 contended the
arbitration awards failed to draw their essence from the Project Agreement. KCI
counterclaimed, seeking to confirm and enforce the arbitration awards. Over six
months after filing its federal suit, and more than two years after the arbitrator’s
liability award, Local 682 amended its complaint on January 16, 2003, to add a hot
cargo defense, contending for the first time that section 3.03 of the Project Agreement
is a hot cargo agreement that violates public policy. Local 682 later filed a motion
for summary judgment, and KCI filed a cross-motion for summary judgment.
Concluding the arbitration awards did not violate public policy and drew their
essence from the Project Agreement, the district court granted KCI’s motion for
summary judgment, and entered an order confirming the arbitration awards. The
district court concluded Local 682’s hot cargo defense failed for three reasons. First,
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the district court determined Local 682’s “sandbagging tactics” of failing to raise the
issue to KCI or before the arbitrator were improper: “[Local 682] invoked Section
3.03 for its benefit and should not be heard to complain about its enforceability for
the first time here in an effort to avoid payment of damages.” The district court
specifically held “Local 682 cannot withhold factual and legal arguments during
arbitration and then raise them for the first time during enforcement proceedings in
federal court.” Second, the district court concluded the arbitration awards do not
enforce section 3.03, because the awards do “not require KCI to utilize union
employees for local on-site deliveries of construction material and equipment to the
exclusion of non-union drivers.” Instead, the court determined the arbitrator simply
found “Local 682 liable for damages caused by [Local 682]’s failure to deliver
concrete as required under the Project Agreement.” Finally, the district court
reasoned “Local 682 has failed to show that Section 3.03 of the Project Agreement
even violates Section 8(e)” of the National Labor Relations Act (NLRA). However,
the district court stated that whether section 3.03 violates section 8(e) was not an
issue it was “bound to decide.”
Local 682 appeals the district court’s summary judgment in KCI’s favor. Local
682 contends section 3.03 is an unlawful hot cargo agreement, and the district court
erroneously enforced arbitration awards “based on or linked” to that agreement.
Local 682 also argues the district court erroneously refused to adjudicate Local 682’s
hot cargo defense. KCI maintains the district court correctly confirmed the arbitration
awards, which enforced section 4.04 only. KCI argues section 3.03 was not even
implicated by the district court’s judgment or the arbitration awards. KCI also
contends the district court correctly rejected Local 682’s invitation to engage in fact
finding and contract interpretation, and instead relied appropriately on the arbitration
record to confirm the arbitration awards.
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II. DISCUSSION
In reviewing the district court’s decision confirming the arbitration awards, “we
accept the court’s factual findings unless clearly erroneous, but decide questions of
law de novo.” Schoch v. InfoUSA, Inc., 341 F.3d 785, 788 (8th Cir. 2003). The
underlying arbitration awards are generally given “an extraordinary level of
deference.” Id. (citation omitted). Notwithstanding our obligation to show great
deference to most arbitration awards, we must not enforce illegal contracts. See
Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 77 (1982). We have an absolute “duty to
determine whether a contract violates federal law before enforcing it.” Id. at 83.
When a party such as Local 682 raises an illegality defense, “a court must reach the
merits of [that] defense in order to determine whether the contract clause at issue has
any legal effect in the first place.” Id. at 84.
In this case, we ask whether the arbitration awards enforce an unlawful hot
cargo agreement. To answer this question, we must determine whether the arbitration
awards even enforce section 3.03, as opposed simply to enforcing section 4.04.
Because Local 682 does not–and cannot–contend that the no-strike pledge contained
in section 4.04 violates public policy by its own terms, Local 682 must show (1) the
arbitration awards enforce section 3.03, and (2) section 3.03 is an unlawful hot cargo
agreement.
Section 8(e) of the NLRA precludes an employer and union from entering into
a hot cargo agreement, which requires the employer to cease doing business with
another employer. 29 U.S.C. § 158(e). Specifically, section 8(e)’s hot cargo
provision contains the following language: “It shall be an unfair labor practice for any
labor organization and any employer to enter into any contract or agreement, express
or implied, whereby such employer ceases or refrains or agrees to cease or refrain
from handling, using, selling, transporting or otherwise dealing in any of the products
of any other employer, or to cease doing business with any other person, and any
contract or agreement entered into heretofore or hereafter containing such an
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agreement shall be to such extent unenforceable and void.” Id. The Supreme Court
has mandated that “a court may not enforce a contract provision which violates
§ 8(e).” Kaiser Steel, 455 U.S. at 86.
KCI makes a compelling argument that the arbitration awards simply enforce
Local 682’s no-strike pledge contained in section 4.04. If that were the case, then we
could easily affirm the district court’s decision. However, we are not convinced the
arbitration awards simply enforce section 4.04. Instead, we believe the arbitration
awards indirectly enforce section 3.03.
To determine whether section 3.03 is implicated by the arbitration awards
enforcing section 4.04, we evaluate the impact of seemingly contradictory decisions
by the Supreme Court in Kelly v. Kosuga, 358 U.S. 516, 516-21 (1959), and Kaiser
Steel, 455 U.S. at 74-86. In Kosuga, 358 U.S. at 516-18, two parties contracted for
the sale of a large amount of onions in order to fix the amount of onions sold in
Illinois by agreeing not to deliver the onions on the futures market. By entering into
this agreement, the parties intended improperly to inflate the price of onions. Id. at
517. When the buyer of the onions failed to make payments to the seller, the seller
sued the buyer for failing to complete payment of the purchase of the onions. Id. at
516. The buyer asserted a defense that the contract for the sale of onions violated the
Sherman Antitrust Act (Sherman Act), 15 U.S.C. § 1. Id. The district court rejected
the defense, granted summary judgment for the seller for the unpaid price of the
onions, and the Seventh Circuit affirmed. Id. at 518. The Supreme Court affirmed,
stating that, “while the nondelivery agreement between the parties could not be
enforced by a court, if its unlawful character under the Sherman Act be assumed, it
can hardly be said to enforce a violation of the Act to give legal effect to a completed
sale of onions at a fair price.” Id. at 521. Thus, the Court held that “where, as here,
a lawful sale of a fair consideration constitutes an intelligible economic transaction
in itself, we do not think it inappropriate or violative of the intent of the parties to
give it effect even though it furnished the occasion for a restrictive agreement of the
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sort here in question.” Id. The Court’s logic could apply in this case, because section
4.04 is admittedly a valid and enforceable agreement. If section 3.03 were not
implicated, we would expend little effort confirming the arbitration awards.
Notwithstanding the rationale behind the Court’s holding in Kosuga, the
Supreme Court seemingly charted a different course for section 8(e) cases. In Kaiser
Steel, 455 U.S. at 74-75, Kaiser Steel Corporation (Kaiser) entered into a collective
bargaining agreement with the United Mine Workers of America (UMW) requiring
Kaiser to contribute to employee health and retirement funds for each ton of coal it
produced. The agreement also contained a purchased-coal clause requiring Kaiser to
contribute to the funds based on the amount of coal Kaiser purchased from other
producers. Id. When Kaiser refused to contribute to the funds based on the coal it
purchased from other firms, the trustees of the funds sued Kaiser seeking to enforce
the purchased-coal clause of the collective bargaining agreement. Id. at 76. Kaiser
admitted it failed to contribute to the funds, but asserted the defense that the
collective bargaining agreement was unenforceable because it violated the Sherman
Act, 15 U.S.C. §§ 1-2, and section 8(e) of the NLRA. Id. When the case reached the
Supreme Court, the Court stated the issue was “whether a coal producer, when it is
sued on its promise to contribute to union welfare funds based on its purchases of
coal from producers not under contract with the union, is entitled to plead and have
adjudicated a defense that the promise is illegal under the antitrust and labor laws.”
Id. at 74.
Kaiser argued a court order forcing it to contribute to the funds based on the
purchased-coal clause would enforce an agreement that violates both the Sherman Act
and the NLRA. The trustees argued that enforcing Kaiser’s agreement to contribute
to the funds would not command unlawful conduct. That is, “[t]he argument is that
employers’ contributions to union welfare funds are not, in themselves and standing
alone, illegal acts and that ordering Kaiser to pay would therefore not demand
conduct that is inherently contrary to public policy.” Id. at 79.
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The Court rejected this argument, noting that Kaiser “did not make a naked
promise to pay money to the union funds.” Id. Instead, according to the Court, “[t]he
purchased-coal provision obligated [Kaiser] to pay only if it purchased coal from
other employers and then only if contributions to the [] funds had not been made with
respect to that coal.” Id. The Court reasoned that enforcing the agreement would
enforce an unlawful hot cargo agreement “because of the financial burden which the
agreement attached to purchases of coal from non-UMW producers, even though they
may have contributed to other employee welfare funds. It is plain enough that to
order Kaiser to pay would command conduct that assertedly renders the promise an
illegal undertaking under the federal [antitrust and labor] statutes.” Id.
The Court then distinguished Kosuga by noting that case involved “two
promises, one to pay for purchased onions and the other to withhold onions from the
market. The former was legal and could be enforced, the latter illegal and
unenforceable.” Id. at 82. As for the Kaiser Steel facts, the Court stated that, “[i]f the
purchased-coal agreement is illegal, it is precisely because the promised contributions
are linked to purchased coal and are a penalty for dealing with producers not under
contract with the UMW.” Id. The Court decided that making contributions to union
welfare funds is oftentimes legal, “but an agreement linking contributions to
purchased coal, if illegal, is subject to the defense of illegality.” Id.
The Court then addressed whether a court had jurisdiction to adjudicate the
legality of the purchased-coal agreement under section 8(e), or whether the National
Labor Relations Board (Board) had exclusive jurisdiction to make an unfair labor
practice determination. Id. at 83. Acknowledging the special expertise of the Board
generally precludes federal jurisdiction over unfair labor practice cases, the Court
noted federal courts are required to determine whether contracts violate federal law.
Id. Declaring that a federal court must reach the merits of an illegality defense before
enforcing a disputed contract clause, the Court held that “where a § 8(e) defense is
raised by a party which § 8(e) was designed to protect, and where the defense is not
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directed to a collateral matter but to the portion of the contract for which enforcement
is sought, a court must entertain the defense. While only the Board may provide
affirmative remedies for unfair labor practices, a court may not enforce a contract
provision which violates § 8(e).” Id. at 86.
Based on our reading of Kaiser Steel, we conclude we cannot confirm the
arbitration awards enforcing section 4.04, if section 3.03 is an unlawful hot cargo
agreement. KCI’s president candidly admitted section 4.04’s no-strike pledge was
gained by agreeing to section 3.03’s mandate that the Project be completely union.
The reason Local 682 could not strike MSC, who was a non-signatory to the Project
Agreement, was because of section 3.03’s requirement that KCI use only Local 682
members for the delivery of concrete to the Project site. Thus, MSC was required to
use Local 682 members to do business with KCI on the Project. Although not
addressing a hot cargo defense, the arbitrator even concluded that section 4.04 was
enforced because that clause “stemm[ed] directly from the same negotiations which
produced” section 3.03. Given Kaiser Steel’s lessons, we cannot blindly confirm the
arbitration awards by pretending they do not enforce section 3.03. Instead, we must
determine whether section 3.03 is an unlawful hot cargo agreement. Unfortunately,
we are unable to make such a determination on this record.
Section 8(e) of the NLRA makes hot cargo agreements unlawful, but
exceptions exist such that clauses which may appear to be hot cargo agreements are
lawful. The two exceptions that may apply in this case to section 3.03 are (1) the
subcontractor industry proviso, and (2) the work preservation theory. Section 8(e)’s
construction industry proviso states that the prohibition against hot cargo agreements
does not “apply to an agreement between a labor organization and an employer in the
construction industry relating to the contracting or subcontracting of work to be done
at the site of the construction, alteration, painting, or repair of a building, structure,
or other work.” 29 U.S.C. § 158(e); see, e.g., Woelke & Romero Framing, Inc. v.
NLRB, 456 U.S. 645 (1982); Connell Constr. Co. v. Plumbers & Steamfitters Local
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No. 100, 421 U.S. 616 (1975); Gen. Truck Drivers Local No. 957 v. NLRB, 934 F.2d
732, 737-39 (6th Cir. 1991) (holding delivery work did not fit within construction
industry proviso); NLRB v. Int’l Bhd. of Teamsters Local No. 294, 342 F.2d 18, 21-
22 (2d Cir. 1965) (same). If a developed record reveals section 3.03 fits within the
construction industry proviso, then the arbitration awards can be enforced. If a
developed record reveals section 3.03 does not fit within the construction industry
proviso, then one more exception must be addressed.
In addition to section 8(e)’s construction industry proviso excepting certain
agreements from the hot cargo prohibition, agreements which merely serve to
preserve work for bargaining unit members are excepted from section 8(e)’s
prohibition of hot cargo agreements. See, e.g., NLRB v. Int’l Longshoremen’s Ass’n,
473 U.S. 61 (1985); Nat’l Woodwork Mfrs. Ass’n v. NLRB, 386 U.S. 612, 644-45
(1967) (asking “whether, under all the surrounding circumstances, the Union’s
objective was preservation of work for [bargaining unit] employees,” and noting the
work preservation test “will not always be a simple test to apply”); Am. Boiler Mfrs.
Ass’n v. NLRB, 404 F.2d 547 (8th Cir. 1968). Thus, if a developed record reveals
section 3.03 is a work preservation clause, then it is not an unlawful hot cargo
agreement. However, if section 3.03 is not a valid work preservation clause and does
not fit within the subcontractor industry proviso, then it is an unlawful hot cargo
agreement. If that is the case, then the arbitration awards cannot be enforced.
As indicated above, we cannot determine from the record whether section 3.03
fits within the construction industry proviso or is a valid work preservation clause.
Instead, additional fact-finding is required to resolve this dispute. We understand
KCI’s frustration that the record does not contain the appropriate evidence to make
this determination because Local 682 never asserted the hot cargo defense before the
arbitrator. Local 682 could have raised the hot cargo defense before the arbitrator,
filed an unfair labor practice charge with the Board earlier, or filed a pre-arbitration
suit to enjoin arbitrating the grievance. Although Local 682 failed to raise the hot
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cargo defense until well after the underlying grievance had been arbitrated, a court
cannot enforce an unlawful hot cargo agreement. However, Local 682 has filed an
unfair labor practice charge with the Board based on KCI’s suit to enforce the
arbitration awards.
Given the procedural posture of this case, we conclude the district court has
two options on how to proceed. The district court can stay these proceedings to await
the Board’s decision on the unfair labor practice charge. See, e.g., Nelson v. Int’l
Bhd. of Elec. Workers, Local No. 46, 899 F.2d 1557, 1564 (9th Cir. 1990) (holding
the district “court has the discretion to review the arbitrator’s award or to stay
enforcement of the award pending the [Board]’s decision on the unfair labor practice
claims”); David A. Anderson, Hot Cargo Enforcement after Kaiser Steel: A New
Look at Section 8(e), 1983 Utah L. Rev. 493, 521 (1983) (“Potential conflict between
concurrent Board and judicial proceedings could be avoided, and the goal of judicial
economy promoted, if courts stayed judicial proceedings until the Board reaches a
decision on the unfair labor practice charges.”). Alternatively, the district court can
follow Kaiser Steel’s mandate to address the legality of section 3.03 itself by
conducting appropriate fact-finding to determine whether either of the two exceptions
apply to section 8(e)’s prohibition of hot cargo agreements.
III. CONCLUSION
Because we conclude the arbitration awards enforce section 3.03, and because
we cannot determine on the record before us whether section 3.03 is an unlawful hot
cargo agreement, we reverse the district court’s entry of summary judgment in KCI’s
favor, vacate the order confirming the arbitration awards, and remand to the district
court for further proceedings consistent with this opinion.
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