Int'l Brohd Elec 15 v. Exelon Corporation

In the
United States Court of Appeals
For the Seventh Circuit
____________

No. 05-4175

LOCAL 15, INTERNATIONAL BROTHERHOOD OF ELECTRICAL
WORKERS, AFL-CIO,
Plaintiff-Appellant,

v.

EXELON CORPORATION, and its wholly owned subsidiaries,
Defendant-Appellee.

____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 05 C 2746—Samuel Der-Yeghiayan, Judge.
____________
ARGUED APRIL 9, 2007—DECIDED JULY 31, 2007
____________

Before EASTERBROOK, Chief Judge, and KANNE and
WILLIAMS, Circuit Judges.
KANNE, Circuit Judge. The Local 15, International
Brotherhood of Electrical Workers, AFL-CIO (Union)
objected to Exelon Corporation and its wholly owned
subsidiaries’ (Company) implementation of an Automated
Roster Call Out System (ARCOS) used to summon employ-
ees who are not already working to respond to an electrical
outage. Under the terms of the parties’ Collective Bargain-
2 No. 05-4175

ing Agreement (CBA), the matter was submitted to
arbitration after the grievance procedure failed to resolve
the dispute. The arbitrator concluded that the Company
did not violate the terms of the parties’ CBA by imple-
menting ARCOS. The Union filed suit in federal district
court challenging the arbitration award. The district court
granted the Company’s motion to dismiss for failure to
state a claim. We affirm.

I. BACKGROUND
When a storm or other event disrupts the service
provided by a public utility, the utility must summon, or
“call out”, employees who are not at work to quickly
restore service to its customers. The Company, in its
several forms and locations, and the Union have tried
various approaches to the call out problem. Following
major power outages to the City of Chicago in the Summer
of 1999, the Company attempted to boost call out response
rates, but its efforts were unsuccessful. In 2002, the
Company developed ARCOS and began discussions with
the Union regarding its implementation.
ARCOS sends an automated phone message to employ-
ees indicating that there is an electrical outage and need
for response. As required by the parties’ CBA, the order of
the calls gives priority to those employees with the least
amount of overtime for that pay period. Employees are
required to give the Company three numbers at which they
may be reached, and the Company does not provide
employees with pagers or cell phones.
Unlike previous call out procedures, ARCOS includes a
disciplinary feature. Each employee’s call out response
rate is tracked, and when it falls below a certain percent-
age in any three-month quarter, the employee is subject to
progressive discipline. Discipline related to call out
No. 05-4175 3

response rates is on a separate track from other discipline
administered by the Company. However, response rates
are not considered for those employees who receive fewer
than five calls in a quarter. Thus, an employee who
receives fewer than five calls is not eligible for discipline,
even if he fails to accept any of them.
The Company initially indicated that the required call
out response rate for each employee would be thirty
percent. But, following a major storm over the 2003 Fourth
of July weekend, the company raised the required response
rate to fifty percent. The minimum response rates were
not, however, required from the start of the new system.
Rather, required response rates were ratcheted up over
time.
In response to what it thought was the unauthorized
implementation of ARCOS, the Union submitted an unfair
labor practice (ULP) charge to Region 13 of the National
Labor Relations Board (NLRB) alleging violations of 29
U.S.C. §§ 158 (a)(1), (3), and (5). The NLRB deferred the
charge to the parties’ arbitration procedure. The arbitrator
issued an award after briefing and a five-day hearing. The
Union next submitted the arbitration award to NLRB
Region 13 and requested that the NLRB not defer to the
award, issue an ULP on the grounds that the award was
repugnant to the National Labor Relations Act (NLRA),
and resume prosecution of the matter. Region 13 denied
the request and the NLRB’s General Counsel affirmed
Region 13’s dismissal.
The Union filed a timely action in federal district court
challenging the arbitrator’s award. The Company filed a
motion to dismiss under FED. R. CIV. P. 12(b)(6), and the
district court granted the motion finding that: (1) the
arbitrator interpreted the contract; (2) the arbitrator did
not exceed the scope of his power; and (3) the arbitration
award did not violate public policy.
4 No. 05-4175

Two provisions of the CBA are relevant to our analysis.
First, CBA, Art. II: Union-Company Relationship: 1.
(management rights provision), states: “The management
of the Company and the direction of the working forces
covered herein, including the right to hire, suspend,
discharge for proper cause, promote, demote, transfer, and
lay off because of lack of work or for other proper reasons,
are vested in the Company, except as otherwise specifically
provided in this agreement.”
Second, Art. V: Working Conditions: 6, states: “If the
Company, in writing, requires an employee to have a
higher type of telephone service than the employee now
has, the Company will reimburse the employee for the
additional cost of the higher type of service.”

II. ANALYSIS
The Union argues that it has stated a claim upon which
relief may be granted based upon three separate allega-
tions: (1) that the arbitrator evidenced manifest disregard
for the law; (2) that the arbitrator exceeded the scope of
his authority; and (3) that the arbitration award is against
public policy.
We review de novo a district court’s dismissal for failure
to state a claim under FED. R. CIV. P. 12(b)(6).
Tricontinental Indus., Ltd. v. PricewaterhouseCoopers,
LLP, 475 F.3d 824, 833 (7th Cir. 2007); Moranski v. Gen.
Motors Corp., 433 F.3d 537, 539 (7th Cir. 2005). We accept
“as true all well-pleaded allegations in the complaint and
draw[] all reasonable inferences in the plaintiff ’s favor.”
Id. at 539 (citing Cler v. Illinois Educ. Ass’n, 423 F.3d 726,
729 (7th Cir. 2005)). Any written instrument, such as an
arbitration award, that is attached to a complaint is
considered part of that complaint. FED. R. CIV. P. 10(C);
Papapetropoulous v. Milwaukee Transp. Servs., Inc., 795
No. 05-4175 5

F.2d 591, 594 (7th Cir. 1986) (“[I]n considering whether
the complaint states a cause of action we must also
consider the arbitrator’s decision attached to the com-
plaint . . . .”).
Notice pleading requires only that a complaint contain “a
short and plain statement of the claim showing that the
pleader is entitled to relief . . .”. FED. R. CIV. P. 8(a)(2);
Cole v. U.S. Capital, Inc., 389 F.3d 719, 724 (7th Cir. 2004)
(“A complaint should not be dismissed unless it appears
beyond doubt that the plaintiff can prove no set of facts in
support of his claim which would entitle him to relief.”)
(citations and quotations omitted). But see Bell Atlantic
Corp. v. Twombly, 127 S. Ct. 1955, 1969 (2007) (“[The] ‘no
set of facts’ language has been questioned, criticized, and
explained away long enough. . . . The phrase is best
forgotten as an incomplete, negative gloss on an accepted
pleading standard: once a claim has been stated ade-
quately, it may be supported by showing any set of facts
consistent with the allegations in the complaint.”)
The liberal notice pleading standard, however, stands in
contrast to the great deference accorded to arbitration
awards. “[I]f an arbitrator is even arguably construing or
applying the contract and acting within the scope of this
authority, the fact that a court is convinced he committed
serious error does not suffice to overturn his decision. It is
only when the arbitrator strays from interpretation and
application of the agreement and effectively dispenses his
own brand of industrial justice that his decision may be
unenforceable.” Major League Baseball Players Ass’n v.
Garvey, 532 U.S. 504, 509 (2001) (citations and quotations
omitted); see also Wise v. Wachovia Sec., LLC, 450 F.3d
265, 269 (7th Cir. 2006) (“[T]he issue for the court is not
whether the contract interpretation is incorrect or even
wacky but whether the arbitrator has failed to interpret
the contract at all . . . .”); Ganton Techs., Inc. v. Int’l
6 No. 05-4175

Union, United Auto., Aerospace and Agric. Implement
Workers of Am., U.A.W., Local 627, 358 F.3d 459, 462 (7th
Cir. 2004) (“[O]nly if there is no possible interpretive route
to the award, so that a noncontractual basis can be
inferred, may the award be set aside.”) (internal quotations
and alterations omitted).

A. Manifest Disregard for the Law
The Union argues that the arbitrator evidenced manifest
disregard for the law under both the Fair Labor Standards
Act (FLSA) and the NLRA. The FLSA claim is easily
disposed of. The Union neither raised this argument in its
complaint, nor in response to the Company’s motion to
dismiss. “A party waives any argument that it does not
raise before the district court or, if raised in the district
court, it fails to develop on appeal.” Williams v. REP Corp.,
302 F.3d 660, 666 (7th Cir. 2002) (quoting Hojnacki v.
Klein-Acosta, 285 F.3d 544, 549 (7th Cir. 2002)). The Union
has waived its argument that the arbitrator has evidenced
a manifest disregard for the law by issuing an award that
violates the FLSA.
The Union’s NLRA claim requires more attention. The
NLRA requires employers to bargain with unions over
significant changes in working conditions. 29 U.S.C.
§ 158(a)(1), (5); see ATC Vancom of California, L.P. v.
N.L.R.B., 370 F.3d 692, 696 (7th Cir. 2004). The Union
argues that the arbitrator’s award violates the NLRA by
permitting the implementation of ARCOS without requir-
ing the Company to bargain with the Union. The arbitra-
tor’s decision specifically addressed this issue: “The
Unilateral adoption and Implementation of the new Call
Out Policy was not prohibited by any provision of the
Labor Agreement or any other agreement, side letter or
local understanding and was within [the Company’s]
authority under the Management Rights Clause. . . . There
No. 05-4175 7

is an express management right to promulgate workplace
Rules—provided the Rules are reasonable.” R. 1, Ex. 1 at
32, 34 (emphasis omitted). When a union agrees to a
management rights clause that gives the employer the
exclusive right to regulate employee conduct, no further
bargaining on the issue is required by the NLRA. Chicago
Tribune Co. v. N.L.R.B., 974 F.2d 933, 937 (7th Cir. 1992)
(“The union had a statutory right to bargain over the terms
of employment, 29 U.S.C. § 158(d) . . . , but it gave up that
right, so far as the subjects comprehended by the
management-rights clause were concerned, by agreeing to
the clause.”).
Under the arbitrator’s interpretation of the contract, the
management rights clause gave the Company the authority
to implement ARCOS unilaterally. This interpretation was
within the arbitrator’s province and dispenses of the unfair
labor allegation in this case. The Union has not stated a
claim upon which relief may be granted based upon its
allegation that the arbitrator evidenced manifest disregard
for the law.

B. Scope of Authority
The Union argues that the arbitrator exceeded the scope
of his authority by suggesting that the Company may
require employees to pay for their own pagers or cell
phones. In his award, the arbitrator stated: “Absent
provisions for Company provided pagers or other reason-
able method(s) of facilitating call out communication such
as but not limited to those used by other Utilities, I find
that it was unreasonable to discipline those employees who
had responded to at least one call out in a quarter for
failure to meet the 50% call out expectation.” R. 1, Ex. 1 at
43 (emphasis omitted). In a footnote to this statement, the
arbitrator indicates that “[i]t would not be unreasonable to
provide the instrument with the employee responsible for
monthly costs of use.” Id. at n.47.
8 No. 05-4175

An arbitrator’s authority is limited to the interpretation
and application of the CBA. Amax Coal Co. v. United Mine
Workers of Am., Int’l Union, 92 F.3d 571, 575 (7th Cir.
1996). A legitimate award “draws its essence” from the
CBA. Id. However, “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
decision.” Id. (citations and quotations omitted).
The arbitrator’s observations regarding the need for
communication devices, in general, were favorable to the
Union, because the arbitrator proceeded to rescind all
discipline exacted against employees who failed to meet
the fifty percent response rate. The arbitrator had previ-
ously stated that, under the management rights clause, the
Company had the authority to promulgate workplace rules,
so long as they were reasonable. R. 1, Ex. 1 at 34. His
statement about cell phones and pagers was merely a
conclusion that, under the management rights clause, a
rule providing devices but requiring employees to pay
monthly service fees would be reasonable. The arbitrator’s
statement did not speak to the viability of Art. V: Working
Conditions: 6 of the CBA which specifically pertains to
payment for communication services. The arbitrator’s
statement on this matter was in a footnote, and was not
part of the formal award. The arbitrator limited his
analysis to the interpretation and application of the CBA,
and he did not exceed the scope of his authority.

C. Public Policy
The Union’s final argument is that the arbitrator’s
award is contrary to public policy. “General appeals to
‘public policy’ do not permit a court to upset an arbitral
award.” Baxter Int’l, Inc. v. Abbot Labs., 297 F.3d 544, 547
(7th Cir. 2002) (citing Eastern Associated Coal Corp. v.
No. 05-4175 9

Mine Workers, 531 U.S. 57 (2000); Paperworkers Union v.
Misco, Inc., 484 U.S. 29 (1987)). Furthermore, “when a
court bars enforcement of an arbitration award on the
basis of public policy, that public policy must be clearly
defined.” Local No. P-1236, Amalgamated Meat Cutters &
Butcher Workmen of N. Am., AFL-CIO v. Jones Dairy
Farm, 680 F.2d 1142, 1145 (7th Cir. 1982) (citing Local
453, Int’l Union of Elec. Workers v. Otis Elevator Co., 314
F.2d 25 (2d Cir. 1963)).
The Union argues that the arbitration award is contrary
to public policy, because it: (1) violates the NLRA and
FLSA; and (2) violates the common law of the shop. The
first part of this argument mirrors the Union’s argument
that the arbitrator evidenced manifest disregard for the
law. The arbitrator interpreted the contract and deter-
mined that the management rights clause, which the
parties had already bargained over, specifically permitted
the Company to unilaterally implement ARCOS. This court
cannot supplant its own views for those of an arbitrator
who has acted within the scope of his authority. See Wise,
450 F.3d at 269. The arbitrator’s award is not contrary to
public policy on the basis of the NLRA or the FLSA.
With respect to the common law of the shop argument,
the Union argues that dismissal in the district court was
premature because it was not able to submit a number of
historical side agreements between the parties that were
before the arbitrator. See United Steelworkers of Am. v.
Warrior & Gulf Navigation Co., 363 U.S. 574, 581-82
(1960) (noting that “industrial common law” is part of the
CBA). The arbitrator’s award, however, was before the
district court. FED. R. CIV. P. 10(c). The arbitrator states in
his award: “It is normally held that long standing practices
accepted by the parties may not contravene or freeze all
conditions of employment and prevent the exercise of basic
management rights such as the right to make reasonable
Rules to address a major managerial concern. . . . I do not
10 No. 05-4175

find that [the Company], by some discussions with the
Union prior to Implementing policies, has waived or given
up their management right to institute a Rule without
agreement of the Union.” R. 1, Ex. 1 at 34, 35. The arbitra-
tor specifically found that neither the side agreements nor
past practice at the Company prohibited the unilateral
implementation of ARCOS. His decision is not against
clearly established public policy.
If we sent this case back to the district court so that the
Union could introduce the side agreements into the record,
as a matter of law, the outcome would be the same. The
arbitrator based his decision on his interpretation of the
CBA itself and the side agreements before him as the
Union gave him authority to do when it agreed to submit
labor disputes to arbitration. The Union has had one bite
at the apple, and we cannot give it a second. See Ganton
Techs., Inc., 358 F.3d at 462.

III. CONCLUSION
For the foregoing reasons, the judgment of the district
court is AFFIRMED.

A true Copy:
Teste:

________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit

USCA-02-C-0072—7-31-07