August 4, 2010

In Granite Rock Decision, Supreme Court Reinforces Courts' Role in Determining Arbitrability

Justices Also Reject Invitation to Create Common Law Tortious Interference Claim under Section 301
Holland & Knight Alert
Frederick D. Braid

In its final labor and employment decision of the 2009-10 term, Granite Rock Company v. International Brotherhood of Teamsters, No. 08-1214, the Supreme Court reinforced the courts’ role in deciding disputes over whether and when an agreement to arbitrate a dispute comes into existence. But the Court declined to create a new federal common law cause of action for tortious interference with contract under Section 301 of the Labor Management Relations Act (LMRA), to address allegations that an international union caused one of its local unions to breach its collective bargaining agreement.


Granite Rock and Local 287 of the International Brothers of Teamsters (Local 287) were parties to a collective bargaining agreement that expired in April 2004. Renewal negotiations led to a strike that continued until July 2, 2004, when the parties settled and a new agreement was finally reached. In reviewing the settlement, the International wanted Local 287 to address the issue of liability for any strike-related damages Granite Rock might have incurred, and to obtain a release of claims. The Local then sought to execute a separate “back to work” or hold-harmless agreement, and Granite Rock refused to agree. With support, direction and a $1.2 million loan from the International, Local 287 responded by instituting a company-wide strike that involved numerous facilities and hundreds of workers.

Granite Rock sued both Local 287 and the International for breach of the no-strike provision in the agreement, seeking both injunctive relief and damages under Section 301(a) of the LMRA. Among the theories pursued was federal inducement of breach of contract and a tortious interference with contract claim. The unions defended by claiming that the agreement reached on July 2, 2004 was not ratified until a second ratification vote was held on August 22, 2004. Accordingly, the unions argued, the agreement’s no-strike provision was not in effect at the time of the second strike. Further, Local 287 argued, the entire matter, including the formation date of the agreement or whether it was validly entered into, should be decided by an arbitrator pursuant to the agreement’s arbitration clause. The International separately defended by claiming it could not be held liable for breaching an agreement to which it had not been an actual signatory.

The district court agreed with Granite Rock that the matter of when the collective bargaining agreement was entered into, July 2 or August 22 – and thus whether the no-strike clause was in effect at the time of the strike – was one for the courts and not an arbitrator to decide, and submitted the case to the jury. It agreed with the International, however, that no tortious interference claim could exist against a non-signatory under the LMRA. The United States Court of Appeals for the Ninth Circuit affirmed the dismissal of the tortious interference claim against the International on the ground that the dispute between Granite Rock and the International could not be said to “arise under” or be “created by” the agreement between Granite Rock and the Local. However, it disagreed that the agreement’s ratification date dispute was an issue for judicial resolution and ruled that Local 287 had the right to compel arbitration of that dispute under the agreement, in part because the national policy favoring arbitration required that any ambiguity about the scope of the clause be resolved in favor of arbitrability.

Supreme Court Decision

The Supreme Court reversed the Ninth Circuit, holding that the issues of whether and when the agreement to arbitrate was formed, and whether the arbitration clause covered the issues the Local wished to arbitrate, were matters for judicial rather than arbitral resolution. In doing so, the Court emphasized that, first and foremost, arbitration must be strictly a matter of consent, and that courts must order arbitration only if neither the formation of the parties’ arbitration agreement nor its enforceability or applicability to the dispute is at issue.

The Court rejected both the Ninth Circuit’s and Local 287’s reasoning that the arbitrability of the ratification date was linked to the arbitrability of the strike claims themselves, because this reasoning presupposed that the agreement to arbitrate was formed at the time the unions engaged in the strike activity, overlooking the possibility that there might not have been a valid agreement in existence under which the claims could “arise under” in the first place. The Court also rejected the Ninth Circuit’s rationale that by seeking to enforce the renewal agreement’s no-strike clause, Granite Rock had implicitly consented to arbitrate the formation issue where it had always characterized it as beyond its scope of arbitrability.

Turning to the tortious interference claim, the Court unanimously affirmed the Ninth Circuit’s refusal to create a new federal common law cause of action in tort under Section 301 of the LMRA as a means for relief against the International. It clarified that Section 301 authority to create a common law for collective bargaining agreements was limited to “a common law of contracts, not a source of independent rights, let alone tort rights, for section 301 is … a grant of jurisdiction only to enforce contracts.” While declining to create a new cause of action, the Supreme Court suggested that Granite Rock was not left without a remedy, noting the viability of a state law tort or breach-of-contract claim under an agency or alter ego theory. Moreover, it suggested Granite Rock turn to the National Labor Relations Board for additional relief, citing the labor law rule that an international union commits an unfair labor practice where it causes its affiliated local unions to “impose extraneous non-bargaining unit considerations into the collective-bargaining process.”

Practical Implications

Granite Rock is a refreshing reaffirmation of the sanctity of contracts and its application to the law of labor arbitration. Carefully drafted arbitration agreements should leave employers with an opportunity for court litigation, with the right of discovery and appeals, for those issues that it believes are too important for the expedited, inexpensive arbitral forum.

The refusal to create a common law tortious interference claim under Section 301 simply leaves employers’ quivers with no new arrows. However, in states like New York where the ability to sue unions on state tort law claims is severely circumscribed, the addition of a federal tort law claim would have been a welcome addition.

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