Opinion
B160952.
11-25-2003
SOUTHERN CALIFORNIA PAINTERS AND ALLIED TRADES DISTRICT COUNCIL 36, AFL-CIO, Plaintiff and Respondent, v. RALPH NISSIM, Defendant and Appellant.
Gibbs, Giden, Locher & Turner, Gary E. Scalabrini for Defendant and Appellant. Rothner, Segall & Greenstone, Anthony R. Segall for Plaintiff and Respondent.
Appellant Ralph Nissim was awarded a general contract to perform school renovations funded by Proposition-BB. The Los Angeles Unified School District required appellant to agree to comply with a Project Stabilization Agreement, which set out various duties regarding employees, the use of unions, and the payment of benefits and union dues. A union (respondent Southern California Painters and Allied Trades District Council 36, AFL-CIO) filed a grievance against appellant, which was ultimately arbitrated. The arbitrator concluded that appellant had violated the Project Stabilization Agreement and assessed damages of approximately $ 30,000. When respondent union petitioned for an order confirming the arbitration award, appellant filed an opposition raising various alleged procedural defects. He later included a challenge to the subject matter jurisdiction of the arbitrator, arguing that the Project Stabilization Agreement had expired by its own terms. The trial court denied appellants cross-petition and confirmed the arbitration award. The trial court also awarded attorney fees to the union.
We conclude that appellants challenge to the subject matter jurisdiction is properly before us, but that it fails because appellant agreed to be bound by the agreement after the alleged termination date, and because appellant participated in the arbitration. We also conclude that, even though raised at the proverbial "last minute," appellants challenge to subject matter jurisdiction was a good-faith challenge to the arbitration award, and that the award of attorney fees was therefore improper. We will therefore affirm the trial courts confirmation of the arbitration award but reverse the award of attorney fees.
FACTUAL AND PROCEDURAL BACKGROUND
In February 2000, appellant Nissim, doing business as Ionic Construction Company, a sole proprietorship, was awarded a public works contract with the Los Angeles Unified School District (School District) for work at the Granada Hills High School. The contract between appellant and the School District provided that Nissim would be bound by a Project Stabilization Agreement, a sort of project labor agreement (PSA). The PSA was "by and between the Board of Education of the Los Angeles Unified School District . . . on the one hand and the Los Angeles and Orange Counties Building and Construction Trades Council . . . and the Craft Unions affiliated with the Building & Construction Trades Department of the AFL-CIO on the other . . . ." The PSA delineated various duties for contractors and subcontractors working on Proposition BB-funded school construction and renovation projects, including, inter alia, mandated compliance with union approved hiring and compensation methods, contributions to health and other benefit accounts, and the payment of union dues. In return, the unions agreed to not encourage or approve any work stoppages.
Two provisions of the PSA are particularly relevant to this appeal. First, the PSA provided a procedure for the resolution of grievances, which included arbitration. Second, the PSA provided that the PSA was being entered into "on a trial basis," and that the PSA would "expire at the end of one year unless the [School] District and/or Council demonstrate that expected economic savings to the [School] District have materialized at a level sufficient to justify continuing the Agreement." Such expiration would "render all provisions of [the PSA] completely null and void for all purposes." As the PSA became effective on August 31, 1999, the one-year clause would expire on the same date in 2000.
It does not appear from the record that there was any dispute arising from the Granada Hills High School Project. Subsequent to that project, appellant, on March 8, 2001, was awarded a project at the Avalon Gardens Elementary School as a general contractor. Appellant admits that he agreed to be bound by the PSA for this project.
On July 3, 2001, respondent Southern California Painters and Allied Trade District Council 36 filed a grievance against appellant, notifying appellant that it would schedule an arbitration as provided for in the PSA. The grievance was primarily concerned with appellants alleged failure to register his employees with the appropriate unions, and alleged failure to pay union dues and make benefit contributions for his employees. After various continuance requests, the arbitration hearing was scheduled for November 19, 2001.
Appellant appeared at the arbitration hearing without an attorney. Appellant contends that he requested a continuance so that he could obtain representation, but counsel for respondent contends that appellant did not so request. Our review of the arbitration transcript does not reveal any such request for a continuance, but as some discussion was apparently held off-the-record, we are unable to make a determination. In any event, appellant participated in the arbitration by responding to the admission of exhibits, by cross-examining respondents witnesses, and by making his own arguments. Appellant specifically questioned a witness about whether the PSA governed the Avalon Gardens Elementary School project.
Both parties submitted post-hearing briefs. Appellant argued that, for two reasons, he should not be liable for the various unpaid union contribution. First, appellant argued that because employees could not be required to join a union, he could not lawfully withhold union dues from non-union employees. Second, appellant argued that the health and other benefit "subscription agreement" respondent had admitted as evidence at the arbitration hearing was only signed for the Granada Hills High School project and not for the Avalon Gardens Elementary School project.
On January 10, 2002, the arbitrator served the parties with his opinion and award, which concluded that appellant had violated the PSA and should pay approximately $30,000 to various employees and trust funds for union dues.
Respondent filed a petition to confirm the arbitration award and subsequently a motion for an order confirming the award. With his response to respondents petition, appellant also filed a cross-petition to vacate the arbitrators award on the basis of prejudice by the arbitrators denial of appellants alleged request for a continuance to obtain counsel and call witnesses.
After further briefing and hearing, the trial court granted respondents petition to confirm the arbitration award and denied appellants cross-petition. The court also awarded attorney fees to respondent. On August 13, 2002, appellant filed a notice of appeal.
CONTENTIONS ON APPEAL
Appellant first contends that the trial court erred by confirming the arbitration award in that the arbitrator either exceeded the scope of his authority or lacked subject matter jurisdiction over the grievance. Appellant further contends that the trial court abused its discretion in awarding respondent attorneys fees.
DISCUSSION
I. The Application of Federal Law to This Appeal
The instant case is before us as an appeal from an order dismissing a petition to vacate an arbitration award, which is normally a state law claim. (Code Civ. Proc., § 1294, subd. (b).) But because the PSA is a contract involving a labor organization, we must discuss the application of federal substantive law. (Foreman Roofing Inc. v. United Union of Roofers etc. Workers
(1983) 144 Cal.App.3d 99, 105.)
Section 301 of the Labor Management Relations Act, codified at section 185 of title 29 of the United States Code (LMRA), governs "[s]uits for violation of contracts between an employer and a labor organization representing employees in an industry affecting commerce . . ." and provides that such suits may be brought in federal district court despite any potential defects in diversity jurisdiction. Both parties agree that the PSA is such a contract, and therefore subject to the LMRA.
Even though we must apply federal law, we need not dismiss the appeal as preempted. (Cramer v. Consolidated Freightways, Inc. (9th Cir. 2001) 255 F.3d 683, 690-691.) The United States Supreme Court has held that "when resolution of a state-law claim is substantially dependent upon analysis of the terms of an agreement made between parties in a labor contract, that claim must either be treated as [an LMRA] claim . . . or dismissed as pre-empted by federal labor-contract law." (Allis-Chalmers Corp. v. Lueck (1985) 471 U.S. 202, 220.) The Ninth Circuit Court of Appeals has subsequently held, "[i]f the plaintiffs claim cannot be resolved without interpreting the applicable [labor contract] . . . it is preempted. [Citation.] Alternatively, if the claim may be litigated without reference to the rights and duties established in a [labor contract] . . . it is not preempted. [Citation.]" (Cramer v. Consolidated Freightways, Inc., supra, 255 F.3d at p. 691.)
In the present case, the arbitration award itself was premised on the arbitrators analysis of the various rights and duties under the PSA. But the question before us on appeal is whether the trial court erred in granting respondents motion for an order confirming the arbitration award. As discussed below, even though the threshold question regarding subject matter jurisdiction requires a modicum of contract interpretation, we can nevertheless address this question "without reference to the rights and duties" (Cramer v. Consolidated Freightways, Inc., supra, 255 F.3d at p. 691), detailed in the PSA, and therefore need not dismiss this appeal as preempted. (See Frightliner Corp. v. Myrick (1995) 514 U.S. 280, 287 [explaining that a federal statute preempts state law when Congress intends the statute to occupy a field exclusively, or when there is an actual conflict between state and federal law such that it would be "`impossible for a private party to comply with both state and federal requirements"].)
II. Subject Matter Jurisdiction Under The Project Stabilization Agreement
Inasmuch as our determination about whether the arbitrator had subject matter jurisdiction under the PSA is potentially dispositive, we must first address this issue. We initially note that appellants challenge to the arbitrators subject matter jurisdiction is a proper issue on appeal. "Lack of subject matter jurisdiction can be raised at any time, even for the first time on appeal," and cannot be waived. (National Union Fire Ins. Co. v. Stites Prof. Law Corp. (1991) 235 Cal.App.3d 1718, 1724; A-Z Intern. v. Phillips (9th Cir. 1999) 179 F.3d 1187, 1190; see Cripps v. Life Ins. Co. of North America (9th Cir. 1992) 980 F.2d 1261, 1264.)
The threshold question in this appeal is whether the PSA had been extended by the actions of the School District or appellant. If the PSA had not been extended, or in other words had terminated, the arbitrators subject matter jurisdiction did not apply to the grievance. (OConnor Co. v. Carpenters Unions No. 1408 (9th Cir. 1983) 702 F.2d 824, 825.) On the other hand, if the PSA had been extended, the grievance was properly before the arbitrator. Because this threshold question is primarily one of contract interpretation, but which potentially implicates an LMRA claim, we will analyze this question under both California and federal law.
A. Analysis Under California Law
Under California law, unless ordered by a court, "[a] party can be compelled to submit a dispute to arbitration only where he has contracted in writing so to do." (Berman v. Renart Sportswear Corp. (1963) 222 Cal.App.2d 385, 388.) It is the contract which establishes the arbitrators subject matter jurisdiction. (National Union Fire Ins. Co. v. Stites Prof. Law Corp, supra, 235 Cal.App.3d at p. 1724.)
Our analysis of the PSA under California law is governed by Code of Civil Procedure, section 1281, which provides that "[a] written agreement to submit to arbitration . . . is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract." Furthermore, a "[w]ritten agreement shall be deemed to include a written agreement which has been extended or renewed by an oral or implied agreement." (Code Civ. Proc., § 1280, subd. (f).) Because the PSA is a written agreement, we must determine whether the PSA had been extended or renewed, and was thus valid as a contract for the Avalon Gardens Elementary School project.
The PSAs extension provision is expressed ambiguously: "This Agreement shall expire [on August 31, 2000] unless the District and/or Council demonstrate that expected economic savings to the District have materialized at a level sufficient to justify continuing the Agreement." (Italics added.) Appellant argues that in the absence of an express finding by the School District that the PSA would be extended, that the PSA had expired by its own terms approximately nine months before appellant was awarded the Avalon Gardens Elementary School Project.
Inasmuch as the "sunset" provision is both expressed in the negative and ambiguously as to what sort of demonstration is required, we conclude that the PSA would expire in August 2000, unless the School District makes an express finding or demonstration that the PSA was in fact extended, undertakes some act that makes an implied demonstration of the PSAs extension, or the parties agree to extension. (Code Civ. Proc., § 1280, subd. (f).)
As it is, in his opposition to respondents motion to confirm the arbitration award, appellant "admits that pursuant to the terms of his contract" with the School District for the Avalon Gardens Elementary School Project, "he agreed to be bound" by the PSA. Because, according to appellants own admission, the School Districts contract for the Avalon Gardens Elementary School project required that appellant agree to the PSA, we conclude that the School District has sufficiently demonstrated its intention that the PSA be both extended and applied to the Avalon Gardens Elementary School contract.
We find that appellants agreement to the contractual requirement for the Avalon Gardens Elementary School project to accept the PSA was, at least, an "implied agreement" to extend the PSA to cover the Avalon Gardens Elementary School project. We therefore conclude that the contract was extended either by the School Districts insistence that appellant agree to be bound by it, thereby demonstrating the PSAs extension, or by appellants agreement to be bound. (Code Civ. Proc., § 1280, subd. (f).)
B. Analysis Under Federal Law
As discussed above, federal substantive law controls the interpretation of labor-contract disputes. While our determination that the PSA had been extended does not implicate the "rights and duties" set out in the PSA (Cramer v. Consolidated Freightways, Inc., supra, 255 F.3d at p. 691), because of the close interaction of federal law with labor contracts, we will nevertheless address the relevant federal law.
In AT&T Technologies v. Communications Workers (1986) 475 U.S. 644, 648-649, the United States Supreme Court held 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. [Citation.] This axiom recognizes the fact that arbitrators derive their authority to resolve disputes only because the parties have agreed in advance to submit such grievances to arbitration. [Citation.]"
The Ninth Circuit Court of Appeals has further concluded that "[i]t is axiomatic that an agreement to arbitrate found in a terminated labor contract and arising after the contract terminated cannot be applied to a grievance which the parties have not agreed would be subject to arbitration after expiration of the contract." (OConnor Co. v. Carpenters Union No. 1408, supra, 702 F.2d at p. 825.) Thus, like our analysis under California law, under OConnor we must determine whether the PSA had actually terminated, or whether it had been extended. If the PSA had not been extended, OConnor would bar its operation in the present case. (Ibid.)
Our conclusion that the School Districts insistence that appellant agree to the PSA for the Avalon Gardens Elementary School contract impliedly demonstrated the extension of the PSA is unchanged. Still, federal law is concerned with whether a party contests arbitrability, and we will therefore address this issue briefly.
In George Day Const. v. United Broth. of Carpenters (9th Cir. 1984) 722 F.2d 1471, 1475, the Ninth Circuit held that in a dispute over whether the arbitrator had the power to arbitrate a dispute, "consent to grant the arbitrator [authority to determine a question of arbitrability] may be implied from the conduct of the parties in the arbitration setting." The Ninth Circuit then went on to hold that an employer that had initially challenged an arbitrators authority to hear a grievance, but had nevertheless participated in the arbitration as to both the question of arbitrability and the merits of the grievance "impliedly consented to the arbitrators deciding both the question of arbitrability and the merits of the controversy." (Ibid .) The court held that "[h]ad the employer objected to the arbitrators 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." (Ibid.)
In the instant case, appellants post-hearing brief argued that the health insurance and other benefit "subscription agreement" appellant had signed for the Granada Hills High School project should not be incorporated into the arbitrators assessment of the Avalon Gardens Elementary School project. This argument presumes that the arbitrator would analyze this provision of the PSA. Thus, rather than contesting arbitrability, appellant presumes it.
We conclude that appellants participation in the arbitration, after approximately four-and-a-half months between the noticing of the grievance and the actual arbitration hearing, implies his consent to the arbitration proceedings. Furthermore, appellants failure to challenge the arbitrability of the claims, or to clearly preserve the arbitrability question for independent judicial review, prevents him from raising this on appeal after the arbitrator has issued his award. (George Day Const. v. United Broth. of Carpenters, supra, 722 F.2d at p. 1475.)
III. The Arbitration Award
While the arbitration award itself analyzed "the rights and duties established" by the PSA (Cramer v. Consolidated Freightways, Inc., supra, 255 F.3d at p. 691), because "it is the award, rather than the specific reasoning employed [therein] that a court must review" (Lucas v. Philco-Ford Corporation (D.C.Pa. 1975) 399 F.Supp. 1184, 1188; Foreman Roofing Inc. v. United Union of Roofers etc. Workers, supra, 144 Cal.App.3d at p. 106), we will address the award under the federal standard for appellate review of arbitration awards.
A. Standard of Review
Under federal substantive law, "[j]udicial scrutiny of an arbitrators decision in a labor dispute is extremely limited. The arbitrators factual determinations and legal conclusions generally receive deferential review as long as they derive their essence from" the terms of the labor contract. (Local No. 359 v. Arizona Mechanical & Stainless (9th Cir. 1988) 863 F.2d 647, 653.) So while the confirmation of an arbitration award is reviewed de novo, "labor arbitration awards [are afforded] `nearly unparalleled . . . deference." (Grammer v. Artists Agency (9th Cir. 2002) 287 F.3d 886, 890.)
B. The Arbitration Award In This Appeal Was Valid
There are "four instances in which the vacatur of an arbitration award under [the LMRA] is warranted: (1) when the award does not draw its essence from the [labor contract at issue]; (2) when the arbitrator exceeds the scope of the issues submitted; (3) when the award runs contrary to public policy; and (4) when the award is procured by fraud. [Citations.]" (Sprewell v. Golden State Warriors (9th Cir. 2001) 266 F.3d 979, 986.)
In the instant case, not only was the arbitration award based on the PSA, but the arbitrator made detailed findings under the PSA as to each affected employee. Therefore, the first ground for vacation is not satisfied. Similarly, the award limited its discussion to appellants breach of the PSA, which was "the issue[] submitted." (Sprewell v. Golden State Warriors, supra, 266 F.3d at p. 986.) The arbitration award does not "run[] contrary to public policy," nor has appellant alleged that the award was procured by fraud. (Ibid.) Because our review of an arbitration award is as limited as it is, especially in light of our duties under LMRA to apply federal law, we must conclude that in the absence of one of the above grounds for vacatur, that the arbitration award in this case was proper.
Having concluded that the arbitrator had subject matter jurisdiction over the grievances, and that the arbitration award did not fall within one of the categories justifying vacation, we find that the trial courts confirmation of the arbitration award must be affirmed.
IV. Attorney Fees Should Not Have Been Awarded
"Ordinarily, the prevailing party in a lawsuit does not collect attorneys fees absent contractual or statutory authorization. [Citation.] However, a court may award fees if it finds that the losing party `"acted in bad faith, vexatiously, wantonly, or for oppressive reasons." [Citation.] We adhere to the lower courts finding of bad faith unless it is clearly erroneous; if the bad faith finding stands, we then review the award of fees for an abuse of discretion." (Sheet Metal Workers v. Madison Indus. (9th Cir. 1996) 84 F.3d 1186, 1192, quoting Alyeska Pipeline Co. v. Wilderness Society (1975) 421 U.S. 240, 258-259.)
California law accords with federal law. "A fee award in LMRA . . . cases is within the discretion of the trial court, but there must be a threshold showing of bad faith. Absent such a showing, any award is necessarily an abuse of discretion." (Carpenters Health & Welfare Trust Fund v. Acme Industries, Inc. (1990) 224 Cal.App.3d 187, 191.)
In the instant case, appellant challenged respondents petition to confirm on several grounds, even though he limits his challenge on appeal to the arbitrators subject matter jurisdiction. Respondent and the trial court both relied on the fact that appellants April 2 response to respondents petition for confirmation only alleged prejudice by the arbitrators refusal to postpone the hearing so that appellant could obtain representation and the testimony of three employees.
We agree with the trial courts conclusion that the record does not establish that appellant requested a continuance. However, as discussed above, a challenge to subject matter jurisdiction can be brought at any stage of the proceedings, even as late as appeal. (See A-Z Intern. v. Phillips, supra, 179 F.3d at p. 1190). We therefore conclude that even though appellant did not raise the issue of jurisdiction until he submitted his April 11 memorandum in support of his cross-petition to vacate the arbitration award, or the proverbial "last minute," appellant was justified in contesting this basis for the arbitration award.
We must conclude that appellant did not act in bad faith. We further conclude that the trial courts refusal to consider the jurisdictional contention, even though we have concluded that this contention is ultimately unpersuasive, was an abuse of discretion. Therefore the trial courts award of attorney fees is reversed.
DISPOSITION
The award of attorney fees is reversed. In all other respects, the judgment is affirmed. Costs on appeal are awarded to respondent.
We concur: NOTT, J. and DOI TODD, J. --------------- Notes: California law "governing these matters is . . . substantially the same as federal substantive law." (Foreman Roofing, Inc. v. United Union of Roofers etc. Workers, supra, 144 Cal.App.3d at p. 105, fn. 2.)