United States District Court, N.D. California
February 12, 2003
SSA TERMINALS, Petitioner
MACHINISTS AUTOMOTIVE TRADES DISTRICT LODGE NO. 190 AUTOMOTIVE MACHINISTS LODGE NO. 1414 OF THE INTERNATIONAL ASSOCIATION OF MACHINISTS AND AEROSPACE OF WORKERS, Respondent.
The opinion of the court was delivered by: CONTI, District Judge
ORDER DENYING PETITIONER'S MOTION
TO VACATE ARBITRATION AWARD
On October 31, 2002, Petitioner SSA Terminals (SSAT) filed, pursuant to
9 U.S.C. § 10(a)(4), a motion to vacate the arbitration Decision and
Award of August 2, 2002 (Award), that directs Petitioner to reinstate
James Huey to his former position as a refrigeration mechanic and to pay
him full back pay and benefits. For the reasons set forth below, this
Court denies Petitioner' s motion, and directs Petitioner immediately to
comply with the Award.
James Huey has worked for Petitioner and its predecessor at the same
location for approximately 23 years, most recently as a refrigeration
mechanic. His employment is governed by a Collective Bargaining Agreement
(CBA). On September 1, 2000, Huey reported an on-the-job accident that
injured his lower back. Huey received treatment for his injury from two
board-certified physicians: Dr. Julie Nefkens, an internist, and Dr.
Jeffrey Meter, an orthopedic surgeon. Based on her opinion and that of
Dr. Meter, Dr. Nefkens completed several work restriction slips that Huey
submitted to Petitioner. These slips indicated that Huey should not
bend, lift, or climb at all. Following his doctors' orders, Huey did not
return to work.
Petitioner was suspicious of Huey's claimed disability, and
communicated this suspicion to its workers' compensation insurance
carrier, who then investigated Huey's claim. The insurance carrier
arranged to videotape Huey surreptitiously during the time that he was,
according to his doctors, unable to return to work. Petitioner contends
that the videotapes show Huey engaging in numerous physical activities
that involve bending, lifting, and climbing. According to Petitioner,
these activities include using a hedge trimmer, a leaf blower strapped to
his back, and a lawn mower, as well as jumping up and down to compact the
debris in a trash container, and lifting a garbage container over his
[244 F. Supp.2d 1033]
In December, 2000, the insurance carrier deposed Huey. At no time
before or during the deposition did Petitioner or the insurance carrier
provide Huey an opportunity to view the videotape, nor did they notify
Huey that the videotape existed. Petitioner contends that Huey perjured
himself at the deposition by falsely stating that he complied with all
the physical restrictions imposed by his doctors.
On January 8, 2001, Petitioner terminated Huey's employment. The letter
of termination explains that Petitioner terminated Huey essentially
because Huey allegedly "intentionally misrepresented [his] physical
limitations and subjective complaints to [his] doctors and to the
employer/compensation carrier for the purpose of obtaining Workers'
Compensation benefits." (Pet'r's Ex. J)
Huey filed a grievance challenging his termination, and the dispute
went to arbitration. Gerald R. McKay (Arbitrator) conducted the
arbitration, and held hearings on May 13, May 21, and May 22, 2002. On
August 2, 2002, the Arbitrator issued the Award which concluded that
Petitioner did not have just cause to terminate Huey and directed
Petitioner to reinstate Huey with full back cay and benefits.
Now pending before this Court is Petitioner's mat tan to vacate the
Arbitrator's Award on the ground that the Award exceeds the Arbitrator's
power under 9 U.S.C. § 10(a)(4). Huey, on the other hand, asks this
Court to deny Petitioner's motion, to confirm the Arbitrator's award, and
to order Petitioner to pay Huey's attorneys' fees in this proceeding.
III. LEGAL STANDARD
In general, courts reviewing the decision of a labor arbitrator are
required to accord an arbitrator's decision a "nearly unparalleled degree
of deference," Stead Motors of Walnut Creek, v. Automotive Machinists
Lodge Number 1173. International Association of Machinists and Aerospace
Workers, 886 F.2d 1200, 1205 (9th Cir. 1989) (citations omitted). "When
reviewing the award of arbitrator chosen by the parties to a collective
bargaining agreement, we are bound - under all except the most limited
circumstances to defer to the decision of another even if we
believe that the decision finds the facts and states the law
erroneously." Id., 886 F.2d at 1204.
The reason for this unusually high degree of deference is that the
arbitrator's decision is deemed to be part of the parties' agreement.
Unlike the commercial contract, which is designed to
be a comprehensive distillation of the parties'
bargain, the collective bargaining agreement is a
skeletal, interstitial document. The labor arbitrator
is the person the parties designate to fill in the
gaps; for the vast array of circumstances they have
not considered or reduced to writing, the arbitrator
will state the parties' bargain. He is "the parties'
is officially designated `reader' of the contract . . .
their joint alter ego for the purpose of striking
whatever supplementary bargain is necessary" to handle
matters omitted from the agreement . . .
Since the labor arbitrator is designed to function in
essence as the parties' surrogate, he cannot
"misinterpret" a collective bargaining agreement. As
Professor St. Antoine observes, "[i]n the absence of
fraud or an overreaching of authority on the part of
the arbitrator, he is speaking for the parties, and
his award is their contract." Thus, what courts do
when they review an arbitrator's award is more akin to
the review of a contract than of the decision of an
inferior tribunal: the award, just as a contract, is
the expression of the parties' will and must be
enforced as expressed unless illegal or otherwise
[244 F. Supp.2d 1034]
Stead Motors, 886 F.2d at 120-06 (citations omitted) Furthermore, and
consistent with the arbitrator's role as filler of the gaps in a CBA, it
is well established that an arbitrator can look beyond the four corners
of the CBA when interpreting the CBA.
As to the bases for an arbitrator's award,
commentators and courts have long recognized that the
arbitrator is entitled, and is even expected, to range
afield of the actual text of the collective bargaining
agreement he interprets: "The labor arbitrator's
source of law is not confined to the expressed
provisions of the contract, as the industrial common
law - the practices of the industry and the shop - is
equally part of the collective bargaining agreement
although not expressed in it.
Stead Motors, 886 F.2d at 1206-07, citing United Steelworkers of Am. v.
Warrior & Gulf Navigation Company, 363 U.S. 574
, 581-82 (1960). In
fact, courts are not competent to second-guess an arbitrator's judgment
because courts are unfamiliar with "the practices of the industry and the
shop." Stead Motors, 886 F.2d at 1207.
There are, of course, exceptions to the general rule that courts must
defer to the judgment of an arbitrator. However, these exceptions are
While we accord an arbitrator's decision a "nearly
unparalleled degree of deference," Stead Motors, 886
F.2d at 1205, we have identified narrow exceptions to
the general rule. Vacatur of an arbitration award
under section 301 of the LMRA [Labor Management
Relations Act] is warranted: (1) when the award does
not draw its essence from the collective bargaining
agreement and the arbitrator is dispensing his own
brand of industrial justice; (2) where the arbitrator
exceeds the boundaries of the issues submitted to
him; (3) when the award is contrary to public policy;
or (4) when the award is procured by fraud.
Southern California Gas Company v. Utility Workers Union of America,
265 F.3d 787
, 792-93 (9th Cir. 2001). Two of these exceptions are
relevant in this case: the essence of the contract exception, and the
public policy exception. The Ninth Circuit has clearly stated that both
exceptions are extremely narrow:
We believe that courts must apply the "his own brand"
or "draw its essence" exceptions to judicial deference
in the same way in which we have held that they must
apply the "public policy" exception. In both
circumstances, "judicial scrutiny of an arbitrator's
decision is extremely limited."
Stead Motors, 886 F.2d at 1208, note 8, citing Sheet Metal Workers
v. Arizona Mechanical & Stainless, Inc., 863 F.2d at 653 (9th Cir.
A. Essence of the Contract Exception
The Supreme Court has sharply limited the application of the essence of
the contract exception:
As the Court has said, the arbitrator's award settling
a dispute with respect to the interpretation or
application of a labor agreement must draw its essence
from the contract and cannot simply reflect the
arbitrator's own notions of industrial justice. But as
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
United Paperworkers International Union v. Misco, Inc., 484 U.S. 29
(1987). The Ninth Circuit has set forth a slightly different formulation
of the same rule:
The arbitrator's factual determinations and legal
conclusions generally receive
[244 F. Supp.2d 1035]
deferential review as
long as they derive their essence from the [collective
bargaining agreement]. If, on its face, the award
represents a plausible interpretation of the
contract, judicial inquiry ceases and the award must
be enforced. This remains so even if the basis for the
arbitrator's decision is ambiguous and notwithstanding
the erroneousness of any factual findings or legal
Stead Motors, 886 F.2d at 1209, citing Sheet Metal Workers, 863 F.2d at
B. Public Policy Exception
To vacate an arbitration award on public policy grounds, a court must
find: (1) that an "explicit, well-defined and dominant" public policy
exists, and (2) "that the policy is one that specifically militates
against the relief ordered by the arbitrator." Stead Motors, 886 F.2d at
1212-1213. Such a public policy must be "ascertained by reference to the
laws and legal precedence and not from general considerations of supposed
public interests." Misco, 484 U.S. at 43 (internal citations omitted)
If a court relies on public policy to vacate an
arbitral award reinstating an employee, it must be a
policy that bars reinstatement. Courts cannot
determine merely that there is a "public policy"
against a particular sort of behavior in society
generally and, irrespective of the findings of the
arbitrator, conclude that reinstatement of an
individual who engaged in that sort of conduct in the
past would violate that policy.
Stead Motors, 886 F.2d at 1212.
Petitioner makes five arguments in support of its motion to vacate the
Award. As is discussed below, none of these arguments is convincing.
A. Petitioner's First Argument
First, Petitioner argues that this Court should vacate the Award
because the Award sanctions violations of sections 1871.4(a)(1) and
1871.4(a)(2) of The California Insurance Code. Section 1871.4(a)(1) makes
it unlawful to "make or cause to be made any knowingly false or
fraudulent material statement or material representation for the purpose
of obtaining or denying any compensation . . ." Section 1871.4(a)(2)
makes it unlawful to "present or cause to be presented any knowingly
false or fraudulent written or oral material statement in support of, or
in opposition to, any claim for compensation for the purpose of obtaining
or denying any compensation . . ."
Citing the video that captures Huey repeatedly engaging in rigorous
activities that require him to bend, lift, climb, kneel and squat,
Petitioner contends that Huey violated the above-cited provisions when he
submitted to Petitioner work restriction slips (these slips were
completed by Huey's treating physicians) indicating that he was unable to
bend, lift and climb.
This argument fails for two reasons. First, it flatly contradicts the
Arbitrator's factual findings. The Arbitrator found both that Huey did
not lie to his doctors (Pet'r's Ex. A, at 28), and that neither of Huey's
treating physicians "acted improperly or in any other way that would be
considered fraudulent." Id., at 33. These factual findings, to which this
Court is bound to defer,*fn1 preclude the conclusion that Huey's
submission of work restriction slips violated either of the two
provisions of the California Insurance Code cited above.
[244 F. Supp.2d 1036]
Second, Petitioner has cited no authority for the proposition that a
court may vacate an arbitration award because that award might "sanction"
violations of law. Certainly, a court cannot uphold an arbitration award
that requires the performance of an illegal act. American Postal Workers
Union v. United States Postal Service, 682 F.2d 1280, 1286 (9th Cir.
1982). But Petitioner has failed to show that compliance with the
arbitration award in this case would require anyone to violate any law.
In other words, Petitioner has failed to show that the arbitration award
constitutes an illegal contract. In addition, the fact that the
arbitration award might "sanction" violations of law does not provide
sufficient basis for this court to vacate the award under the public
policy exception to the general rule that courts must uphold arbitral
awards. This is because Petitioner has presented no evidence of any
explicit, well-defined and dominant public policy that bars reinstatement
of an employee who commits insurance fraud.
B. Petitioner's Second Argument
Petitioner cites California Civil Code section 56.10(a), and argues
that the provision prohibits Petitioner from obtaining Huey's medical
information from his doctors without first obtaining authorization [from
Huey]. Thus, as Petitioner argues, "to enforce the award would require
Petitioner to violate the law in order to bring its employee relations
policy and procedures into compliance with the arbitrator's findings and
conclusions, which require Petitioner to obtain medical information
directly from its employees' doctors." Memo, at 9.
This argument fails for several reasons. First, the award requires
Petitioner to reinstate Huey. It does not require Petitioner to obtain
anyone's medical records. It simply does not require Petitioner to
violate section 56.10(a) of the California Civil Code.
Second, to the extent that Petitioner's argument is that upholding the
arbitration award in this case would set a precedent which would require
an employer to violate medical privacy laws in the future, it is
unconvincing. Petitioner itself concedes that an employer in California
may legally obtain medical records of an employee if the employer first
receives authorization from the employee. Therefore, an employer can
easily avoid violating medical privacy laws by instituting, as a
condition for employment, a requirement that employees who file workers'
compensation claims authorize the employer to obtain the relevant medical
records. In fact, it would be quite surprising if Petitioner's employees
are not already bound by such a rule.
Third, Petitioner's argument suggests that it did not obtain Huey's
medical records from the doctors who treated him for his lower back
injury because doing so would have been illegal. However, the termination
letter that Petitioner sent to Huey cites Huey's medical records as
evidence of the Petitioner's grounds for terminating Huey. If Petitioner
did not in fact obtain these records, then one should be much more
skeptical of the allegations contained in its termination letter. If
Petitioner did obtain these records, the logic of Petitioner's argument
suggests that Petitioner has already violated California's medical
privacy laws. Of course, if Petitioner were to deny that it has violated
these laws, that denial would completely refute Petitioner's argument
that the arbitration award did or would require Petitioner or a similarly
situated employer to violate these medical privacy laws.
Fourth, Petitioner has cited no public policy that would bar
reinstatement of Huey.
[244 F. Supp.2d 1037]
C. Petitioner's Third Argument
Petitioner argues that it would have been illegal for the workers'
compensation insurance carrier to have contacted Huey's doctors to
confirm his medical condition and then to provide that medical
information to Petitioner. California Labor Code section 3762(c),
according to Petitioner, "prohibits [Petitioner's] insurance carrier from
providing medical information to [Petitioner] about an employee's workers
compensation claim unless the information is necessary to modify work
duties." (Pet'r's Mem. in Support of its Mot. to Vacate Arbitration
Award, at 9) Petitioner then argues that the Award orders an illegal act
because the Award's effect is "to require Petitioner to attempt to
unlawfully obtain private medical information before it can terminate
someone for just cause for dishonesty." (Pet'r's Mem. in Support of its
Mot. to Vacate Arbitration Award, at 9).
This argument fails for reasons very similar to those that refute
Petitioner's second argument above. First, it is, for two reasons,
disingenuous for Petitioner to argue that it would have been illegal for
the workers' compensation insurance carrier to have obtained medical
information about Huey from Huey's doctors and then provided that
information to Petitioner. The first reason is that, as discussed above,
Petitioner cited Huey's medical records in its termination letter,
thereby strongly implying, if not simply conceding, that Petitioner had
access to Huey's medical records on or before January 8, 2001. The second
reason is that, as Petitioner itself concedes, a transfer of Huey's
medical information from the insurer to Petitioner would most likely have
been legal, since "the information [would have been] necessary to modify
Second, Petitioner incorrectly argues that the Award orders an illegal
act. Petitioner has failed to show that reinstating Huey or paying him
back-pay violates any law. Furthermore, as discussed above, the Award
does not require Petitioner to obtain any information unlawfully.
D. Petitioner's Fourth Argument
Citing California Insurance Code § 1871(d), Petitioner argues that
the "award violates specific California public policy designed to prevent
workers' compensation fraud by forcing Petitioner to reinstate an
employee who misrepresented his ability to perform physical activities to
procure workers' compensation." (Pet'r's Mem. in Support of its Mot. to
Vacate Arbitration Award, at 10). Thus, Petitioner continues,
this Court, like the court in American Postal Workers
Union v. U.S. Postal Service, 682 F.2d 1280 (9th Cir.
1982), "cannot empower the arbitrator to nullify the
mandates of" the California Legislature by concluding
that Mr. Huey did not misrepresent his ability to
work, when the undisputed facts demonstrate that he
deceived Petitioner to ensure continuation of his paid
leave under workers' compensation.
(Pet'r's Mem. in Support of its Mot. to Vacate Arbitration Award,
[244 F. Supp.2d 1038]
This argument fails for two reasons. First, Petitioner misrepresents
the facts of this case. There was indeed a dispute about whether Huey
deceived Petitioner to receive workers' compensation benefits, and the
Arbitrator has settled the dispute in favor of Huey. The Arbitrator
clearly found that Huey did not lie to his doctors, and that Huey did
nothing wrong in submitting to Petitioner the work restriction slips
completed by his doctors. Furthermore, while the Arbitrator did not
explicitly find that Huey did not lie during the deposition, the
Arbitrator concluded that "the deposition in the manner in which it was
conducted was entirely improper as part of an investigation under the
concept of just cause for an employee termination." (Pet'r's Ex. A, at
31). These and other findings led the Arbitrator ultimately to conclude
that Petitioner had not met its burden of establishing, by clear and
convincing evidence, that it had just cause to terminate Huey. This Court
is, of course, obligated to defer to the Arbitrator's decision, unless
Petitioner can show that one of the narrow exceptions to this deference
This brings us to the second reason why Petitioner's argument fails.
This Court cannot vacate the Award because Petitioner has failed to cite
any public policy that bars reinstatement of Huey.
As we have explained, the critical inquiry is not
whether the underlying act for which the employee was
disciplined violates public policy, but whether there
is a public policy barring reinstatement of an
individual who has committed a wrongful act. Grace,
461 U.S. at 766; Misco, 108 U.S. at 373. Besides being
inconsistent with the Supreme Court's determination
that it is enforcement of the award which must be
deemed violative of public policy, we think the
Eleventh Circuit's approach would produce, at best,
curious results. If the performance of an illegal act
while on the job is all that must be proved to
demonstrate the violation of a public policy for
purposes of Grace and Misco, then an arbitrator would
be prohibited from reinstating any teamsters who
receive a speeding ticket while driving the company
truck, or even an inventory clerk who commits single
act of petty theft. Grace and Misco do not countenance
Stead Motors, 886 F.2d at 1215.
E. Petitioner's Fifth Argument
Petitioner argues that the Award ignores the parties' contractual
agreement by punishing Petitioner for unrelated conduct by a third
party. Petitioner's reasoning is as follows: (1) the scope of the
arbitration was limited to the issue of just cause under the contract,
and that, accordingly, "the scope of the arbitrator's role was to
determine whether Mr. Huey was dishonest to Petitioner," (Pet'r's Mem. in
Support of its Mot. to Vacate Arbitration Award, at 11); and (2) "The
uncontroverted evidence of Mr. Huey's evasiveness and deception and the
award itself estabish that the arbitrator deviated from his duty, ignored
the contract and decided this matter on emotion, passion, prejudice and
whim to further his cause against the insurance and workers' compensation
communities." (Pet'r's Mem. in Support of its Mot. to Vacate Arbitration
Award, at 11).
This argument is an attempt to invoke the essence of the contract
exception to the deference owed to arbitral decisions. It fails.
Petitioner is correct to note that the scope of the Arbitrator's role was
to determine whether Petitioner proved that it had just cause to
terminate Huey. This is precisely what the Arbitrator did. He interpreted
the "just cause" provision of the CBA: (1) to require Petitioner to
establish just cause by clear and convincing evidence, (2) to implicate
notions of due process which, among other things, require
[244 F. Supp.2d 1039]
an employer to
conduct a full and fair investigation before terminating an employee, and
(3) to impose on Petitioner the "responsibility to explain to doctors who
are examining [its] employees, in situations where the [Petitioner]
provides light duty, the nature of the work available." (Pet'r's Ex. A, at
30). This Court has no doubt that the Arbitrator's interpretation of the
"just cause" provision is, on its face, plausible.
Furthermore, the Arbitrator's factual findings and ultimate conclusion
represent a plausible interpretation of the CBA.*fn3 The Arbitrator's
award is a 35-page document that sets forth the facts of the case in
great detail, and extensively cites testimony from the arbitration
hearings. The Arbitrator summarized the case as follows:
In summary, the [Petitioner] relied on Ms. Bustos'
[the claims manager for Petitioner s workers'
compensation carrier] conclusion that [Huey] engaged
in fraud and misrepresentation to his doctors about
his physical condition, and based on that
misrepresentation, should be terminated. Ms. Bustos
reached these conclusions because, in her opinion,
[Huey] was suffering from no medical disability at
all. [Huey's] treating physicians observed the
surreptitious videotapes and concluded that [Huey] had
not lied to them; that he did suffer from a physical
disability; that he was not capable of performing all
of his duties; but that he could have performed light
duty had the physicians been aware of it. The
[Petitioner] failed to establish that it had a policy
on light duty and failed to establish that it has a
policy at the present time on light duty. The
[Petitioner] failed to establish that it had
communicated with [Huey's] physicians to inform them
that it had light duty and explain to them the nature
of the work that employees would be expected to
perform on light duty. The treating physicians
assumed, as [Huey] did, that no light duty was
available and placed the restrictions based on that
assumption even though both physicians were aware that
[Huey] could have done more work than the restrictions
indicated. The [Petitioner] had any number of
opportunities to investigate more carefully [Huey's]
physical condition by speaking to [Huey's] treating
physicians or having [Huey] examined by the
[Petitioner's] doctor. The [Petitioner] chose to do
none of this because it relied entirely on Ms. Bustos'
improper medical conclusions. As a result when the
[Petitioner] terminated [Huey], it did not have just
cause to do so.
(Pet'r's Ex. A, at 33-34). In short, this Court finds that the Award
draws its essence from and represents a plausible interpretation of the
CBA. As a result, this Court is compelled to enforce the Award. Stead
Motors, 886 F.2d at 1209.
F. Attorneys' Fees
"Under the American rule, absent contractual or statutory
authorization, a prevailing litigant ordinarily may not collect attorneys
fees. However, a court may assess attorneys' fees when the losing party
has acted in bad faith, vexatiously, wantonly, or for oppressive
reasons." International Union of Petroleum and Industrial Workers v.
[244 F. Supp.2d 1040]
Maintenance, 707 F.2d 425, 428 (9th Cir. 1983)
(internal citations omitted)
We . . . conclude that an unjustified refusal to abide
by an arbitrator's award may equate an act taken in
bad faith, vexatiously or for oppressive reasons . . .
Moreover, bad faith may be demonstrated by showing
that a defendant's obstinancy in granting a plaintiff
his clear legal rights necessitated resort to legal
action with all the expense and delay entailed in
International Union of Petroleum and Industrial Workers v. Western
Industrial Maintenance, 707 F.2d 425
, 428 (9th Cir. 1983) (The Ninth
Circuit upheld the District Court's order directing the employer to pay
the employee's attorneys fees when the company's refusal to abide by the
arbitration award was without justification. The court clearly rejected
the company's argument that it was justified in ignoring the Award
because it believed erroneously, it turns out that the
arbitration award was invalid).
This Court finds that Petitioner's refusal to abide by the Award, as
well as Petitioner's motion to vacate the Award, are unjustified. Despite
Petitioner's characterization of its challenge to the Arbitrator's
award, this Court finds Petitioner's challenge to be nothing more than a
disagreement with the Arbitrator's findings on the merits of the case.
Because of the deference courts owe to arbitral decisions, a challenge to
an arbitral decision based only on the merits of the case is frivolous
because it is destined to fail. Furthmore, the Arbitrator's 35-page Award
more than adequately addresses all the arguments Petitioner has raised
its motion. A careful reading of the Award should have convinced
Petitioner of the futility of moving this court to vacate the Award. For
these reasons, Huey is entitled to reimbursement from Petitioner for his
expenses related to this proceeding.
For the reasons set forth above, this Court: (1) DENIES Petitioner's
motion to vacate the Award, (2) ORDERS Petitioner immediately to comply
with the Award by reinstating Huey to his former position as a
refrigeration mechanic and by paying him back-pay and benefits as
specified in the Award, and (3) ORDERS Petitioner to pay Huey's attorneys'
fees and costs related to this proceeding. To facilitate compliance with
reimbursement of attorneys' fees, this Court DIRECTS Huey to submit to
Petitioner and to this Court, within fifteen days of the date of this
Order, a statement of the reasonable attorneys' fees and costs incurred
in opposing this motion.