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.
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,
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
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.
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