Carpenters 46 Northern California Counties Conference Board v. Zcon Builders, Individually and D/B/A Sharon Hill Corporation Sharon Hill Corporation , 96 F.3d 410 ( 1996 )

Opinion by Judge WINMILL; Dissent by Judge PREGERSON.

WINMILL, District Judge:

Introduction

Appellant Sharon Hill Corp. appeals from a decision of the U.S. District Court, Northern District of California, granting summary judgment on a petition to confirm an arbitration award. The arbitration was undertaken pursuant to a collective bargaining agreement between Zcon Builders and Appellee Carpenters 46 Northern California Counties Conference Board (“Carpenters”). Sharon Hill argues that it was never given notice of the arbitration proceedings and is not the alter ego of Zcon Builders, and thus the arbitration award cannot be binding upon it. We reverse and remand.

Facts and Prior Proceedings

Zcon Builders is a licensed contractor, and a member of the Associated General Contractors of California, Inc. By virtue of its membership, Zcon became a signatory to the Carpenters Master Agreement (hereinafter the “Collective Bargaining Agreement” or “Agreement”). Zcon was incorporated in California in 1982, with Dennis Keating and Charles Zakskorn as its only shareholders and directors. Zcon’s only business has been general construction in California. Sharon Hill was incorporated in Nevada in 1989, and was primarily engaged in property development in Nevada. Zakskorn and Keating collectively owned 50% of the outstanding stock, with the balance owned by unrelated third parties. Sharon Hill was not a signatory to the Collective Bargaining Agreement, nor was it a member of a signatory employer association.

On April 6, 1993, the Carpenters filed a grievance which sought full compliance with the Agreement, payment of wages and fringe benefits, and an audit of both Zcon and Sharon Hill. Notice of the grievance and the hearing was sent to “Zcon Builders dba Sharon Corp. dba Windwood, Inc.” at the address where both Zcon and Sharon Hill were headquartered. The notice was sent to Keating, who was the registered agent for service of process for both Zcon and Sharon Hill. Keating attended the hearing, but argued that he was appearing only on behalf of Zcon.¹ An arbitration award was entered against Zcon and Sharon Hill. Thereafter, the Carpenters filed a petition to confirm the award in the district court, as well as a motion for summary judgment, which the court granted. Sharon Hill appeals the district court’s grant of summary judgment.²

Discussion

1. Notice of the grievance proceeding

Sharon Hill first argues that it .did not receive adequate notice of the arbitration. We disagree. The arbitrator did not directly address the issue of the notice provided to Sharon Hill. The issue was, however, clearly raised before the arbitrator, and the arbitrator’s decision implicitly encompasses a finding that Sharon Hill had received at least constructive notice of the grievance and hearing. In McKesson Corp. v. Local 150 IBT, 969 F.2d 831 (9th Cir.1992), this Court considered whether a procedural issue, implicitly submitted to the arbitrator, but not expressly decided by the arbitrator, could stand. The court stated:

Because an arbitrator has no obligation to explain the basis of his decision, he need not make an express finding on every procedural matter that bears on his award. Faced with an award that contains no discussion of a procedural issue that has, either explicitly or implicitly, been submitted to the arbitrator, we will presume that the arbitrator’s decision to issue the award carries with it whatever procedural ruling was necessary to permit its issuance.

Id. at 834. Although the arbitrator did not specifically address the issue, McKesson allows us to presume that he made the necessary decision in order to issue the award.

We next consider the district court’s treatment of the notice issue during the confirmation proceedings. At the hearing before the district court, Sharon Hill argued the issue of notice almost exclusively. In announcing its decision, however, the district court did not specifically address that issue. Instead, the court concluded that it was required by our decision in Gateway Structures v. Carpenters 46 N. Cal. Counties Conf. Bd., 779 F.2d 485, 489 (9th Cir.1985), to give broad deference to the arbitrator’s findings on all issues. E.R. at 281.

Since the Labor Management Relations Act of 1947 was codified in 29 U.S.C. § 185, the courts have fashioned a policy of extremely limited review of an arbitrator’s decision. This is a direct consequence of the fundamental principles surrounding the concept of arbitration. The Act reflects a “decided preference for private settlement of labor disputes without the intervention of government....” United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 37, 108 S.Ct. 364, 370, 98 L.Ed.2d 286 (1987). The Misco ease also noted that were the courts to readily intervene, “the speedy resolution of grievances by private mechanisms would be greatly undermined.” Id. at 38, 108 S.Ct. at 371. In furtherance of these principles, the courts have adopted a policy of deference to the arbitrator’s factual and legal findings. This Circuit has held that “[j]udicial scrutiny of an arbitrator’s decision is extremely limited. The arbitrator’s factual determinations and legal conclusions generally receive deferential review as long as they derive their essence from the [collective bargaining agreement.].” Sheet Metal Workers Int’l Assoc. v. Arizona Mechanical & Stainless, Inc. 863 F.2d 647, 653 (9th Cir.1988).

In addition to the benefit of limited review, labor arbitrations do not need to provide the same procedural protections as do judicial proceedings. However, an arbitrator must grant the parties a fundamentally fair hearing. Sunshine Mining Co. v. United Steelworkers, Local 5089, 823 F.2d 1289, 1295 (9th Cir.1987). A hearing is fundamentally fair if the minimal requirements of fairness — adequate notice, a hearing on the evidence, and an impartial decision by the arbitrator — are met. Id. (citing Ficek v. Southern Pacific Co., 338 F.2d 655, 657 (9th Cir.1964), cert. denied, 380 U.S. 988, 85 S.Ct. 1362, 14 L.Ed.2d 280 (1965)). Although deference must be given to an arbitrator’s decisions concerning procedural issues, it is generally recognized that the courts may consider a claim that a party to an arbitration has been denied a fundamentally fair hearing. Bowles Financial Croup v. Stifel, Nicolaus & Co., 22 F.3d 1010, 1012-13 (10th Cir.1994). See also Forsythe Int’l, S.A. v. Gibbs Oil Co., 915 F.2d 1017, 1020 (5th Cir.1990) (“In reviewing the district court’s vacatur, we posit the ... question ... whether the arbitration proceedings were fundamentally unfair.”); Hoteles Condado Beach v. Union De Tronquistas Local 901, 763 F.2d 34, 40 (1st Cir.1985) (“Vacatur is appropriate only when the exclusion of relevant evidence ‘so affects the rights of a party that it may be said that he was deprived of a fair hearing.’” (citation omitted)); National Post Office Mailhandlers v. United States Postal Service, 751 F.2d 834, 841 (6th Cir.1985) (“[T]he standard for judicial review of arbitration procedures is merely whether a party to arbitration has been denied a fundamentally fair hearing.”); Hall v. Eastern Air Lines, Inc., 511 F.2d 663, 663-64 (5th Cir.1975) (“[R]eview is not absolutely foreclosed where petitioner alleges a denial of fundamental due process.”).

Thus, we consider whether the notice given to Sharon Hill was so inadequate as to deny it a fundamentally fair hearing. We hold that it was not. The Notice of Grievance and hearing notice were addressed to “Zcon Builders dba Sharon Hill Corp. dba Windwood, Inc,” and were sent to Dennis Keating at the physical address where both corporations maintained their offices. Keating was the registered agent for service of process for both Zcon and Sharon Hill, and was an officer and shareholder in both corporations. The manner in which notice was given appears to comport with a “Consent to Service of Process” form which was filed as part of the incorporation process for Sharon Hill, and which requested that service of process be sent to Sharon Hill through Keating “c/o Zcon Builders.” Finally, the Notice of Grievance unambiguously indicated that Sharon Hill was a focus of the arbitration, since it provided that the amount of back pay and fringe benefits would “be determined by an [ajudit [sic] of Zcon Builder, Sharon Hill and Windwood.” We conclude that the notice given Sharon Hill was more than sufficient to satisfy any requirement of fairness or due process.

Because we find that Sharon Hill received adequate notice, we cannot say that the procedural fairness of the hearing, or the integrity of the decision, has been seriously called into question. Therefore, we hold that the district court properly gave deference to the arbitrator’s implicit decision on the notice issue.

2. Arbitrability

Sharon Hill also contends that the district court erred in deferring to the arbitrator’s decision that Sharon Hill, as the alter ego of Zcon, was subject to the arbitration provisions of Zcon’s Collective Bargaining Agreement with the Carpenters. Specifically, Sharon Hill argues that such issues of arbitrability are for the courts, so that no deference should have been given to the arbitrator’s decision. We agree with the premise that arbitrability, under most circumstances, must be resolved by the court, and we conclude that the facts of this case do not warrant a departure from that general rule.

Thirty-six years ago, the United States Supreme Court decided a series of cases now known as the Steelworkers Trilogy: Steelworkers v. American Mfg. Co., 363 U.S. 564, 80 S.Ct. 1343, 4 L.Ed.2d 1403 (1960); Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 80 S.Ct. 1347, 4 L.Ed.2d 1409 (1960); and Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960). The Steelworkers Trilogy provided four fundamental principles to the field of labor law, the first two of which are directly applicable to the instant case. First, the Steelworkers Trilogy established that “arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit.” Warrior & Gulf, supra, at 582, 80 S.Ct. at 1353. A corollary of that principle is that the arbitrator only derives his or her authority to resolve the dispute because the parties have so agreed in advance. The second principle is that “[u]nless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator.” Id. at 582-83, 80 S.Ct. at 1352-53. This second principle was reaffirmed in AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986), when the Court stated that “the question of arbitrability — whether a collective bargaining agreement creates a duty for the parties to arbitrate the particular grievance — is undeniably an issue for judicial determination.” Id. at 649, 106 S.Ct. at 1418.

The effect of these principles in this case is clear: Sharon Hill can only be required to submit to arbitration if it is bound by the terms of the Agreement which contain the arbitration procedure. The Carpenters contend that Sharon Hill, although not a signatory to the Agreement, is nevertheless bound by its terms because it is an alter ego of Zcon, which did sign the Agreement. However, that issue of arbitrability is clearly reserved for the Courts, and is not, itself, a proper subject of arbitration. As the Supreme Court stated in John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 547, 84 S.Ct. 909, 913, 11 L.Ed.2d 898 (1964), “[t]he duty to arbitrate being of contractual origin, a compulsory submission to arbitration cannot precede judicial determination that the collective bargaining does in fact create such a duty.” Thus, the district court erred in deferring to the arbitrator’s decision that Sharon Hill was bound by the mandatory arbitration provisions of the Agreement.³

The Carpenters argue, however, that Sharon Hill, by virtue of Keating’s conduct at the arbitration hearing, consented to allow the arbitrator to decide the alter ego issue. In George Day Const. v. United Brotherhood of Carpenters and Joiners, Local 354, 722 F.2d 1471, 1475 (9th Cir.1984), we held that “consent to grant the arbitrator such authority may be implied from the conduct of the parties in the arbitration setting.” The rationale behind our holding was that a claimant “may not voluntarily submit his claim to arbitration, await the outcome, and, if the decision is unfavorable, then challenge the authority of the arbitrator to act.” George Day, 722 F.2d at 1475 (citing Ficek v. Southern Pacific Co., 338 F.2d 655, 657 (9th Cir.1964)). In George Day, the merits of the dispute along with the question of jurisdiction were addressed by the parties during the arbitration hearing, and the entire controversy was thereafter submitted to the arbitrator for decision. The court examined the record for any indication that the employer reserved the question of arbitrability for judicial determination, and found none. The court also concluded that

[h]ad the employer objected to the arbitrator’s authority, refused to argue the arbitrability issue before him, and proceeded to the merits of the grievance, then, clearly the arbitrability question would have been preserved for independent judicial scrutiny. The same result could be achieved by making an objection as to jurisdiction and an express reservation of the question on the record. However, where, as here, the objection is raised, the arbitrability issue is argued along with the merits, and the case is submitted to the arbitrator for decision, it becomes readily apparent that the parties have consented to allow the arbitrator to decide the entire controversy, including the question of arbitrability.

Id. at 1475. The court then found that “the employer, by conduct evinced clearly its intent to allow the arbitrator to decide not only the merits of the dispute but also the question of arbitrability.” Id,

The Carpenters argue that George Day compels a finding that Keating, by his conduct, agreed to submit the alter ego issue to the arbitrator. The record, however, does not support such an argument. Although Keating appeared at the arbitration, he stressed repeatedly that he was appearing on behalf of Zcon only, and that Sharon Hill was not appearing because it had not been given proper notice.

The George Day decision instructs us to look for conduct which “evinced elearly” Keating’s intent to allow the arbitrator to decide the arbitrability issue. We find none. The final question asked of Keating during the hearing is indicative of his intent throughout:

MR. KNIGHT: Uh-hum. And apparently you need a determination on the dba of Zcon.

MR. KEATING: That’s a major issue because it seems to me that since Sharon Hill really is not here to represent itself and to bring whatever evidence they need to bring forward, that’s an issue that should not be determined right now. If you would pre-notice Sharon Hill—

By this statement, Keating advised the arbitrator that Sharon Hill was not at the hearing to present evidence on the arbitrability issue, and that the issue “should not be determined right now.” This is a far cry from the position taken by the employer in George Day, and is clearly insufficient to establish assent to arbitration by conduct.⁴ Indeed, Keating could not have been much clearer in stating that the arbitrator should not decide the arbitrability issue. We therefore conclude that Sharon Hill did not, by its conduct, agree to submit the alter ego issue to the arbitrator, and remand to the district court for a de novo determination whether Sharon Hill was in fact the alter ego of Zcon or otherwise bound by the terms of the Collective Bargaining Agreement.

3. Preservation of Defenses

The Carpenters also argue that Sharon Hill failed to file a motion to vacate, modify or correct the arbitration award, and thus the defenses it asserts are deemed waived, as the statute of limitations has now run. In Arizona Mechanical, supra, this Court stated that “where [a] party did not move to vacate arbitrator’s award, all defenses except for ‘arbitrability’ are time barred.” 863 F.2d at 651 (emphasis supplied). As we noted above, the alter ego issue is considered an issue of arbitrability. Id. at 653. Thus, we conclude that Sharon Hill’s failure to move to vacate the arbitrator’s decision does not bar it from challenging the decision in subsequent enforcement proceedings.

Conclusion

Because the record before us clearly demonstrates that Sharon Hill received adequate notice of the arbitration proceedings, we hold that it was not denied a fundamentally fair hearing. However, the issue of arbitrability actually decided by the arbitrator is normally reserved for the courts, and nothing about this case warrants a departure from that general principle. Accordingly, the lower court’s grant of summary judgment to the Carpenters is REVERSED. We REMAND to the district court for proceedings in accordance with this opinion.

1 . Windwood had previously been dismissed as a party.

2 . Only Sharon Hill is before this Court on appeal. Zcon did not appeal the district court’s grant of summaiy judgment.

3 . The district court, in announcing its decision to defer to the arbitrator’s decision on arbitrability, indicated its reliance on our decision in Gateway Structures, 779 F.2d at 489 (9th Cir.1985). However, in Arizona Mechanical & Stainless, 863 F.2d at 653, n. 6 (9th Cir.1988), we distinguished the Gateway decision, and limited its holding to the unique circumstances where only the signatory party was before us on appeal and the nonsignatory party did not challenge the arbitrator’s findings. Here the opposite is true. Sharon Hill, the nonsignatory party, has challenged the arbitrator’s findings while Zcon, the signatory parly, is not before us on appeal. Because this case does not present the unique circumstances and distinguishing characteristics of Gateway, the district court’s reliance on that case was misplaced.

4 . Our conclusion is not undermined by the fact that Sharon Hill refused to participate in the hearing, not because the arbitrator lacked jurisdiction, but because of a mistaken belief that it had not received proper notice of the arbitration. Our only inquiry is whether Sharon Hill’s actions “evinced clearly” its consent to have the arbitrator resolve the alter ego question. George Day, 722 F.2d at 1475. Its refusal to participate in the arbitration hearing, for whatever reason, cannot be said to manifest such consent.