Introduction
Arbitration is supposed to be a speedy alternative to litigation, and that is supposed to be true as respects commercial or employment arbitration governed by the Federal Arbitration Act (the “FAA”) and labor arbitration arising under the Railway Labor Act, 45 U.S.C. §§ 151, et. seq., or Section 301 of the Taft-Hartley Act (a/k/a the Labor Management Relations Act (“LMRA”)), 29 U.S.C. § 185. Arbitration awards are generally presumed to be valid, which puts the burden on challengers to establish their invalidity, at least provided the challenging party entered into a valid and enforceable arbitration agreement with the defending party.
Adjudicating a non-frivolous award challenge usually takes time, and if the challenge turns out to be valid, an order vacating the award does not usually resolve the underlying dispute, which, absent a settlement, must be resolved through further ADR or judicial proceedings. Delay is inevitable and delay undermines arbitration’s ability to compete with litigation.
The FAA and most or all state arbitration statutes try to minimize delay by not only by restricting t he scope of judicial review of awards, but also by imposing short limitation periods for vacating awards—for example, three months under the FAA and 90 days under many state arbitration statutes. See 9 U.S.C. § 12; see, e.g., N.Y. Civ. Prac. L.& R. § 7511(a); Fla. Stat. § 682.13(2); Wash. Rev. Code § 7.04A.230(2). Some state statutes impose shorter periods. See, e.g., Conn. Gen. Stat. § 52-420(b) (30 days); Mass. Gen. Laws ch. 251, § 12(b) (30 days); but see Cal. Code Civ. P. § 1288 (100 days).
By contrast, a motion or petition to confirm an award is usually subject to a longer statute of limitations. Cases governed by Chapter 1 of the FAA (e.g., domestic arbitrations between domestic parties), for example, are subject to a one-year limitation period. See 9 U.S.C. § 9.
Under the FAA, and presumably under many or most state arbitration statutes, if a party does not bring a timely petition to vacate, and the other moves to confirm after the time period for vacating an award has elapsed, then the challenging party cannot raise grounds for vacatur as defenses to confirmation, even if it does not seek an order vacating the award. See, e.g., Florasynth, Inc. v. Pickholz, 750 F.2d 171, 175-76 (2d Cir. 1984) (FAA); Kutch v. State Farm Mutual Auto. Ins. Co., 960 P.2d 93, 97-98 (Colo. 1998) (Colorado law); but see Lyden v. Bell, 232 A.D.2d 562, 563 (2d Dep’t 1996) (Where a confirmation proceeding “is commenced after the 90-day period, but within the one-year period. . . .[,] a party may, by cross motion to vacate, oppose the petition for confirmation on any of the grounds in CPLR 7511 even though his time to commence a separate proceeding to vacate or modify under CPLR 7511(a) has expired.”) (citations omitted) (New York law); 1000 Second Avenue Corp. v. Pauline Rose Trust, 171 A.D.2d 429, 430 (1st Dep’t 1991) (“an aggrieved party may wait to challenge an award until the opposing party has moved for its confirmation”) (New York law).
In United Food & Commercial Workers Int’l Union v. King Soopers, Inc., No. 12-1409, slip op. (10th Cir. Feb. 28, 2014), the United States Court of Appeals for the Tenth Circuit reminds us that the same rules apply to LMRA Section 301 labor-arbitration-award enforcement actions. Section 301 does not specify limitation periods for vacating arbitration awards, and as a general rule, courts “borrow” the most analogous state statute of limitations. See, e.g., Local 802, Assoc. Mus. of N.Y. v. Parker Meridien Hotel, 145 F.3d at 88-89 (2d Cir. 1998). In King Soopers the Tenth Circuit borrowed Colorado’s 90-day statute of limitations for vacating an award.[1]
King Soopers might be looked at as a refresher course in how important it is to act quickly and decisively when one finds oneself at the wrong end of an arbitration award that might not meet the modest criteria for summary confirmation or enforcement. While roughly nine years elapsed between the date the employee filed the grievance and the date the arbitrator issued the award, the Court, reversing the district court’s decision to the contrary, held (quite correctly) that King Sooper’s just-over-90-day delay in asserting grounds to vacate the award foreclosed it from opposing the union’s suit to enforce the award.
King Soopers
Apart from the mystery surrounding the long (but irrelevant) delay between the filing of the grievance and its adjudication—something the Tenth Circuit said was not apparent from the record—King Soopers was a straightforward case. The employee grieved a claim that King Soopers, a grocery chain, had exposed it to a hostile work environment by “fail[ing] to protect him from a disagreeable customer.” Finding King Soopers had breached a statutory duty to protect the employee from a hostile work environment, the arbitrator (the “Arbitrator”) directed King Soopers to “take all steps necessary” to protect employees from such an environment, including adopting a “zero tolerance policy for violence, with appropriate notices to employees and the general public,” and barring from the store the customer at fault “until the parties are satisfied with his behavior.” King Soopers did not comply with the award, but did not attempt to vacate it either.
Several days after Colorado’s 90-day statute of limitations for vacating an award had elapsed, the union brought an action in federal district court under Section 301 to enforce the award. King Sooper responded by raising four affirmative defenses:
- The parties did not agree to arbitrate hostile-work-environment disputes in cases where the hostile environment resulted from a customer’s inappropriate conduct rather than that of the employer;
- The award deprived King Sooper of its bargained-for and exclusive right under the Collective Bargaining Agreement (the “CBA”) to formulate and implement workplace policies;
- The Arbitrator “imposed his own brand of industrial justice” because the CBA did not purport to regulate hostile work conditions caused by a third party’s inappropriate conduct; and
- The Arbitrator was not authorized to impose a remedy after determining that the employer violated the CBA, let alone one that substituted his own judgment for that of the employer in an area that was within the exclusive prerogative of the employer.
The District Court Decision
The district court acknowledged that in Electrical Workers Local v. Babcock & Wilcox, 826 F.2d 962, 964 (10th Cir. 1987), the Tenth Circuit had ruled that, if a party does not timely assert statutory grounds for vacating an award, it cannot raise those grounds as affirmative defenses in an action to enforce the award. The district court also held the four affirmative defenses King Sooper raised were time barred because they could have been asserted in a timely petition or motion to vacate the award on the ground the Arbitrator exceeded his powers. See United Food & Commercial Workers Int’l Union v. King Soopers, Inc., No. 11-cv-02449-BNB-KMT, slip op. at 5-9 (D. Colo. Sept. 18, 2012) (the “District Court Decision”).
But the district court nevertheless concluded that the award could not be confirmed because it did not “draw its essence” from the CBA. District Court Decision, slip op. at 9-12. The district court relied principally on the U.S. Supreme Court’s recitation of the “essence of the agreement” standard in Enterprise Wheel and Misco. See Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 597 (1960) (An “award is legitimate only so long as it draws its essence from the collective bargaining agreement. When the arbitrator’s words manifest an infidelity to this obligation, courts have no choice but to refuse enforcement of the award.”); United Paperworkers v. Misco, Inc., 484 U.S. 29, 38 (1987) (“[A]s long as the arbitrator is even arguably construing or applying the contract and acting within the scope of his authority, that a court is convinced he committed serious error does not suffice to overturn his decision.”); District Court Decision, slip op. at 9-12.
The district court thus viewed passing the “essence of the agreement” test to be a precondition to the enforcement of a labor arbitration award. It thought the award failed the test for two reasons.
First, the district court held that the award contravened the CBA’s “zipper clause,” which stipulated that arbitration awards “shall not change, alter or modify any of the terms and conditions set forth in this Agreement.” According to the district court, one of those terms and conditions was the arbitration agreement itself, which stated that “[s]hould any dispute or complaint arise over the interpretation or application of this Agreement, there shall be an earnest effort on the part of the parties to settle such promptly through the following steps[,]” the last of which was arbitration. Finding that “the arbitrator is limited to arbitrating disputes that arise over the interpretation or application of the CBA,” the district court concluded that nothing in the CBA even “remotely relate[d] to the imposition of a duty on King Soopers to provide a work environment free from customer hostility.” District Court Decision, slip op. at 11. According to the district court, the “arbitrator referenced only federal and state laws, internet articles, prior arbitration decisions and other materials unrelated to the CBA” to support his decision. Id.
Second, the district court held that the Arbitrator’s imposition of the “zero tolerance” remedy was contrary to Article 5, Section 14 of the CBA, which stated: “[t]he Employer retains the right to manage the store or stores, to direct the working forces, and to make necessary reasonable rules and regulations for the conduct of business, providing that said rules and regulations are not in conflict with the terms of this Agreement in any way. . . .”
We think the district court’s first ground for concluding the award failed to draw its essence from the agreement was highly questionable given the Arbitrator’s professed reliance on federal and state statutes regulating the work environment, and the absence of any indication that the Arbitrator’s decision was not at least a barely colorable interpretation of those statutes. While the subject matter addressed by the statutes may not have been addressed in the CBA, the arbitrator might well have concluded that those statutes are, as a matter of law, part of the parties’ agreement. That is, after all, a basic contract law principle, and, in any event, if the “law of the shop” is deemed to be part of a CBA, then surely it would be reasonable for an arbitrator to conclude that applicable state and federal employment laws are likewise part of a CBA.
Perhaps there was more to the district court’s conclusion about the remedy imposed, but even that aspect of the district court’s conclusion was doubtful. The CBA provision concerning workplace policies contemplated King Soopers making “necessary reasonable rules and regulations” concerning the workplace. The Arbitrator might have concluded that the employer had failed to make “necessary” workplace rules that would have spared the employee from whatever indignity he or she suffered at the hands of the errant customer. If so, and assuming no express provision in the CBA clearly prohibiting the remedy imposed, the remedy likely drew its essence from the CBA.
The Tenth Circuit Decision
The Tenth Circuit did not address the merits of either ground for vacatur, nor was there was any reason for it to do so. It held that the district court erred in effectively concluding that passing the “essence of the agreement” test was a precondition to award enforcement. While the Court did not suggest that the snippet from Enterprise Wheel quoted above was not susceptible to the being interpreted as imposing a precondition to award enforcement, the Court correctly noted that “there was no issue in Enterprise [Wheel] about the timeliness of the challenge to the enforcement of the arbitrator’s award, and the Supreme Court saw no need to address the matter.” The Court also said that “[t]here is nothing peculiar about ruling that a potentially meritorious argument is barred by delay in raising it[,]” and, “[a]s the Supreme Court has pointed out, ‘It goes without saying that statutes of limitations often make it impossible to enforce what were otherwise perfectly valid claims. But that is their very purpose . . . .’” Slip op. at 8 (quoting United States v. Kubrick, 444 U.S. 111, 125 (1979)).
The statute of limitations, concluded the Court, is an important consideration as respects arbitration-award enforcement in general, given that arbitration is designed to resolve disputes quickly, and thus disfavors delayed challenges to awards. And, explained the Court, it is all the more important in labor arbitration “where labor peace is threatened by the prolongation of disputes.” Slip op. at 8.
King Soopers also attempted to convince the Court that there were policy reasons for allowing parties to assert vacatur grounds as affirmative defenses to an enforcement action brought after expiration of the vacatur statute of limitations. King Soopers argued that “requiring it always to move to vacate an improper award would be a waste of resources because the Union may not bother to try to enforce the award.” The Court rejected that argument not only because it was contrary to Babcock & Wilcox, but because “King Soopers provide[d] no evidence that unions regularly, or even occasionally, do not pursue their arbitration victories.” “If,” said the Court, “a union does not often bring actions to enforce awards that is likely because employers generally comply.” Allowing them not to comply by asserting time-barred vacatur-based affirmative defenses would not save any resources and would encourage delays in the award enforcement process. See Slip op. at 13.
The rule applied by the Tenth Circuit is neither new nor controversial in either FAA- or Section 301-governed arbitration, and as we said, state courts construing their own arbitration statutes frequently apply the same rule, including the Colorado state courts. See Kutch, 960 P.2d at 97-98. And in Section 301 cases where the borrowed state limitations period is not applied by state courts to defenses to motions to confirm brought after expiration of the vacatur statute of limitations, federal courts are not required to borrow anything other than the length of the limitations period, and can be expected not to “borrow” that state-law-based interpretation of the statute. See Parker-Meridien, 145 F.3d at 88-89 (borrowing New York’s 90-day statute of limitation period but not New York’s judicial “gloss on the limitations statute that is inimical to the important federal interests of promoting resolution of labor conflicts quickly and effectively through arbitration.”).
Nevertheless, cases where parties attempt to raise time-barred vacatur grounds as affirmative defenses to post-expiration suits to confirm or enforce awards are still more common than one would expect, despite the presence of controlling authority deeming such affirmative defenses to be time-barred. One can only speculate whether that is because the rule prohibiting the assertion of such time-barred affirmative defenses may be counterintuitive (an affirmative defense is different, for example, from an affirmative claim for relief), because the limitation periods are very short or because of something else or a combination of some or all of the above considerations.
King Sooper raises one more point worthy of brief mention. Quoting from a footnote in Brotherhood of Teamsters Local No. 70 v. Celotex Corp., 708 F.2d 488, 491 & n.4 (9th Cir. 1983), King Sooper argued that the Ninth Circuit had “reject[ed] the argument that ‘a court faced with a petition to confirm [an arbitration award] has no choice but to confirm the award entirely if the party opposing the confirmation had failed to previously move to vacate the award within the applicable statutory period.’” Slip op. at 10. The Tenth Circuit correctly noted that King Sooper “misread” Celotex because the Ninth Circuit did not “reject” the argument; it declined to address it other than to say that the cases the Celotex award-challenging party cited did not support the argument. See Slip op. at 10; Celotex, 708 F.2d at 491 & n.4.
But the Tenth Circuit also explained that “the Ninth Circuit’s reluctance to endorse the view that courts must always confirm an award that was not timely challenged is not necessarily inconsistent with our holding.” Slip op. at 10-11. (emphasis in original). That “reluctance,” said the Court, “could stem from concern about awards challenged on grounds that could not have been raised in a timely motion to vacate, awards whose substance is contrary to public policy (such as an award requiring racial discrimination), or awards imposed on persons not parties to the arbitration agreement.” Slip op. at 10-11 (emphasis in original).
[1] The statute was subsequently amended to provide 91 days to vacate an award, that is, 13 weeks. Colo. Rev. Stat. § 13-22-223(2). The result in King Soopers would have been the same under the 91-day statute of limitations.
Tags: 90-Day Statute of Limitations, collective bargaining agreement, Colorado Arbitration Statute, Colorado Supreme Court, Commercial Arbitration, CPLR Article 75, Defenses to Confirmation, Defenses to Enforcement, Essence of the Agreement, FAA Section 10, FAA Section 12, Federal Arbitration Act, Florasynth v. Pickholz, Grounds for Vacatur, Labor Arbitration, Labor Management Relations Act, LMRA Section 301, Ninety-Day Statute of Limitations, Paperworkers v. Misco, Taft-Hartley Act, Three-Month Statute of Limitations, Uniform Arbitration Act, United Food & Commercial Workers Int’l Union v. King Soopers Inc., United States Court of Appeals for the Tenth Circuit, United Steelworkers v. Enterprise Wheel & Car Co, Zipper Clause
