United Food and Commercial Wor v. Illinois American Water Compan

In the

United States Court of Appeals
For the Seventh Circuit

No. 08-3144

U NITED F OOD AND C OMMERCIAL W ORKERS, L OCAL 1546,

Plaintiff-Appellee,
v.

ILLINOIS-A MERICAN W ATER C OMPANY,

Defendant-Appellant.

Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 08 C 1411—Suzanne B. Conlon, Judge.

A RGUED F EBRUARY 17, 2009—D ECIDED JUNE 26, 2009

Before P OSNER, K ANNE, and W OOD , Circuit Judges.
K ANNE, Circuit Judge. Illinois-American Water Company
(“IAWC”) terminated Glenn Williams after he failed to
abide by the terms of a Last Chance Agreement (“LCA”).
At the time of Williams’s dismissal, United Food and
Commercial Workers, Local 1546, the labor organization
that represents many of IAWC’s employees, was chal-
lenging the validity of the LCA. The Union grieved Wil-
2 No. 08-3144

liam’s termination as well, and both grievances proceeded
to arbitration, where an arbitrator found in the Union’s
favor.1 The arbitrator reinstated Williams after con-
cluding that the LCA did not contemplate his termina-
tion while the Union’s grievance was pending. The
district court confirmed the arbitrator’s award, and
IAWC appeals. We now affirm.

I. B ACKGROUND
Glenn Williams worked in various capacities for IAWC
and its predecessors from 1974 until his termination on
March 2, 2007. For the last twenty years of his employ-
ment, Williams served as an operator, which involved
the operation and maintenance of plant equipment
used for treating wastewater.
Operators must be licensed by the Illinois Environmental
Protection Agency (“IEPA”), which issues four levels of
license: Class A, B, C, or D. Individuals with a Class D
license are considered operators-in-training. Operator
licenses must be renewed every three years. According to
IAWC, an operator’s wage depends on the level of his or
her license, with Class A operators receiving the highest

1
The arbitration also involved disciplinary measures that
IAWC instituted against two other employees, Dan Leppert
and Ken Nelson. Neither of those disputes is at issue in this
appeal.
No. 08-3144 3

pay and Class D operators-in-training the lowest.2 Prior
to his termination, Williams’s last active license was
Class A, which he had earned in 1994.
In October 2006, the IEPA informed Williams that his
Class A license had expired in 1997, nine years earlier,
because he had failed to renew it. Williams passed this
information along to his superiors at IAWC, and the
company immediately reduced his compensation level to
that of a Class D operator-in-training.
IAWC claimed that operating without a license fell
under Offense 12 of its Employees’ Guide for Con-
duct, which addressed the neglect of assigned duties.
Williams had been suspended under this provision of
the Guide the preceding August, which meant that operat-
ing without a license was his second violation of Offense 12
in three months. The Guide specified that a second
such offense was punishable by termination.
In lieu of terminating Williams, IAWC offered him an
opportunity to remain with the company pursuant to the

2
In a portion of the arbitrator’s decision relating primarily to
Leppert and Nelson, see supra note 1, the arbitrator concluded
that “the evidence establishes that [an operator’s] wage rate is
based upon the job that is performed by the employee, not
upon the license that he holds.” Notwithstanding this finding,
the Last Chance Agreement agreed to by Williams and the
Union stipulated that Williams had been overpaid and that he
would make restitution for the overpayment. This stipula-
tion superseded any general finding to the contrary by the
arbitrator.
4 No. 08-3144

terms of a Last Chance Agreement. The LCA placed several
conditions on Williams’s continued employment. First,
IAWC suspended Williams for thirty days without pay.
Second, IAWC demanded that Williams obtain at least a
Class B operator license within six months of executing
the LCA. And third, because Williams had been paid as
a Class A operator when he was not licensed as such,
he was required to repay IAWC excess compensation
that he received from January 1, 2006, until IAWC began
paying him at the Class D operator-in-training rate. The
LCA stipulated that Williams would arrange a repay-
ment schedule with IAWC within two weeks of signing
the agreement.
The LCA contained several other provisions, two of
which are relevant to our discussion. The first provision
contained the following language:
Failure to comply with any of these conditions will
result in immediate termination. . . . The Union and
the Employee expressly waive any right to file
a grievance or other claim regarding Employee’s
discharge under this Agreement, except to
contest the fact of what occurred. If the conduct
occurred, an Arbitrator will not have any authority
to modify the discharge to a lesser penalty.
The second relevant provision stated that “[a]ny disputes
regarding the meaning of this Agreement will be resolved
solely through the parties’ collective bargaining agree-
ment grievance-arbitration procedure.”
On November 7, 2006, Williams and IAWC signed the
LCA. Also signing as a party to the agreement was the
No. 08-3144 5

Union, which represents all operators and various other
service people employed by IAWC. The Union filed a
grievance contesting the LCA’s validity on November 10,
three days after signing.
The present dispute arose when Williams failed to make
arrangements for the repayment of his excess wages as
required by the LCA. On March 2, 2007, several months
after Williams completed his unpaid suspension, IAWC
representatives gave Williams the opportunity to sign a
proposed repayment plan, which Union representatives
advised Williams not to sign. According to Williams, the
proposed plan would have left with him with only $125
a week on which to live. Faced with such a dire
economic decision, Williams followed the Union’s
advice and refused to sign the plan. IAWC terminated
him that same day. The Union then filed a second griev-
ance, this time protesting Williams’s dismissal.
Both of the Union’s grievances—the first contesting the
Last Chance Agreement, the second contesting Williams’s
termination—were consolidated and brought before an
arbitrator, who held a hearing on November 20, 2007. In
a written opinion issued February 21, 2008, the
arbitrator sustained in part and denied in part the
Union’s grievances. Dealing first with the threshold
question of the LCA’s validity, the arbitrator found the
agreement to be enforceable and binding upon IAWC,
Williams, and the Union. Because the valid LCA contem-
plated Williams’s suspension, obligation to repay excess
compensation, and reduction in wage rate pending
renewal of his license, the arbitrator denied the Union’s
challenges in those respects.
6 No. 08-3144

Turning to Williams’s dismissal, the arbitrator dis-
cussed Williams’s failure to enter into a repayment plan
for excess wages within the time frame established in
the LCA. The arbitrator then identified the agreement’s
pivotal provision, which stated that “[f]ailure to comply
with any of these conditions will result in immediate
termination.” The arbitrator framed the issue as “whether
this provision of the Last Chance Agreement justified
discharge for failure to enter a repayment plan while a
challenge to the validity of the agreement was unresolved.”
The arbitrator answered this question in the negative,
concluding that the LCA did not provide for Williams’s
termination while a good faith challenge to the validity
of the entire agreement was pending. The arbitrator
ordered IAWC to reinstate Williams to his operator
position and make him whole for lost wages.
In reaching his decision, the arbitrator discussed several
issues. First, he stated that the Union’s challenges to
the LCA’s validity, although unsuccessful, were under-
taken in good faith and were far from frivolous. Next,
he noted that IAWC unilaterally drafted the LCA, requir-
ing that any ambiguities be construed against the com-
pany. Third, he characterized the challenge to the LCA
as “an act of concerted activity” under the National
Labor Relations Act and endeavored to interpret the
LCA in a manner consistent with the Act. And fourth, he
found it “grossly unreasonable” to interpret the LCA in
a manner that allowed for Williams’s discharge while
he was challenging its overall validity.
Following the arbitrator’s decision, both IAWC and
the Union sought review in the United States District
No. 08-3144 7

Court for the Northern District of Illinois pursuant to
9 U.S.C. § 10. IAWC sought to vacate the arbitrator’s
decision, while the Union requested that it be confirmed.
Acting on cross-motions for summary judgment, the
district court, in an order on July 24, 2008, found in the
Union’s favor and confirmed the arbitration award rein-
stating Williams. This appeal ensued.

II. A NALYSIS
On appeal, IAWC seeks relief under the Federal Arbitra-
tion Act, 9 U.S.C. § 10(a)(4), which states that a court
may vacate an arbitrator’s award “where the arbitrator[]
exceeded [his] powers, or so imperfectly executed
them that a mutual, final, and definite award upon the
subject matter submitted was not made.” IAWC claims
that the arbitrator exceeded his power in two ways:
(1) by ignoring unambiguous language in the LCA and
looking beyond the four corners of the document; and
(2) by infusing his own notions of reasonableness into
his interpretation of the contract.
We review de novo a district court’s decision on cross-
motions for summary judgment, IBEW, Local 176 v. Bal-
moral Racing Club, Inc., 293 F.3d 402, 404 (7th Cir. 2002),
meaning that we review the arbitrator’s decision as if
we were the court of first decision, see Am. Postal Workers
Union, Milwaukee Local v. Runyon, 185 F.3d 832, 835 (7th
Cir. 1999). When parties seek judicial review of an arbitra-
tor’s award, the role of the courts, both district and appel-
late, is extremely limited. Major League Baseball Players
Ass’n v. Garvey, 532 U.S. 504, 509 (2001); Monee Nursery &
8 No. 08-3144

Landscaping Co. v. Int’l Union of Operating Eng’rs, Local 150,
348 F.3d 671, 675 (7th Cir. 2003); see also Bhd. of Locomotive
Eng’rs v. Atchison, Topeka & Santa Fe Ry. Co., 768 F.2d 914,
921 (7th Cir. 1985) (calling judicial “review” a misnomer
due to the extreme deference we give an arbitrator’s
decision).3
A reviewing court will enforce the arbitrator’s award so
long as it “draws its essence from the contract,” even if
the court believes that the arbitrator misconstrued its
provisions. United Paperworkers Int’l Union v. Misco, Inc.,
484 U.S. 29, 36, 38 (1987); see also Ethyl Corp., 768 F.2d at
184 (quoting United Steelworkers v. Enterprise Wheel & Car
Corp., 363 U.S. 593, 597 (1960)). An arbitrator’s decision
draws its essence from the contract if it is based on the
arbitrator’s interpretation of the agreement, correct or
incorrect though that interpretation may be. Ethyl Corp.,
768 F.2d at 184, 187; see also Garvey, 532 U.S. at 509 (“[I]f an
arbitrator is even arguably construing or applying the
contract and acting within the scope of his authority, the
fact that a court is convinced he committed serious error
does not suffice to overturn his decision.” (quotations
omitted)). Thus, once we conclude that the arbitrator did
in fact interpret the contract, our review is concluded.

3
Our past decisions make clear that we apply the same limited
review to arbitral decisions rendered pursuant to the Labor-
Management Relations (“Taft-Hartley”) Act, 29 U.S.C. § 185;
the Railway Labor Act, 45 U.S.C. § 153; and the Federal Arbitra-
tion Act, 9 U.S.C. § 10. See Atchison, Topeka & Santa Fe Ry. Co.,
768 F.2d at 921; Ethyl Corp. v. United Steelworkers of Am., 768
F.2d 180, 184 (7th Cir. 1985).
No. 08-3144 9

Ethyl Corp., 768 F.2d at 187; see also Bhd. of Locomotive
Eng’rs & Trainmen Gen. Comm. of Adjustment v. Union Pac.
R.R. Co., 522 F.3d 746, 757 (7th Cir. 2008) (“[T]he question
before a federal court is not whether the . . . arbitrators
erred in interpreting the contract; it is not whether
they clearly erred in interpreting the contract; it is not
whether they grossly erred in interpreting the contract;
it is whether they interpreted the contract.” (quotations
omitted)).
Indeed, “[i]t is only when the arbitrator must have
based his award on some body of thought, or feeling, or
policy, or law that is outside the contract . . . that the
award can be said not to draw its essence from the [par-
ties’ agreement].” Ethyl Corp., 768 F.2d at 184-85 (quota-
tions omitted). In such cases, the Supreme Court has said
that the arbitrator is “dispens[ing] his own brand of
industrial justice.” Enterprise Wheel & Car Corp., 363 U.S.
at 597.
Given our limited role in reviewing arbitral decisions,
we conclude that the arbitrator’s award must be con-
firmed. The arbitrator did not disregard the con-
tractual language and dispense his own brand of
industrial justice, nor did he exceed his authority in
rendering his decision. Instead, the arbitrator confronted
a situation that was not expressly contemplated by the
parties, interpreted the agreement, and reached a conclu-
sion. In short, he provided exactly what the parties bar-
gained for. That is enough. The arbitrator’s decision
must stand.
10 No. 08-3144

The arbitrator was faced with a peculiar posture:
IAWC’s power to act under the terms of a contract, the
validity of which the Union was challenging.4 The LCA, by
its express provisions, did not contemplate such a sce-
nario. Instead, it addressed each issue independently.
IAWC’s power to act was clearly provided by the LCA:
“Failure to comply with any of [the LCA] conditions will
result in immediate termination.” Likewise, the Union’s
ability to challenge the LCA’s validity was identified
separately: “Any disputes regarding the meaning of this
Agreement will be resolved solely through the parties’
collective bargaining agreement grievance-arbitration
procedure.” IAWC and the Union concurrently took
action under these separate provisions, creating a con-
tractual tension that the arbitrator was asked to resolve.
IAWC claims that the “failure-to-comply” provision is
unambiguous and decisive—if Williams violated the
terms of the LCA, IAWC could fire him. It also cites the
remainder of that clause, which states that “[t]he Union
and the Employee expressly waive any right to file a
grievance or other claim regarding Employee’s discharge

4
This context is a distinguishing factor between this case and
others cited by IAWC that have involved LCAs. See, e.g., Tootsie
Roll Indus. v. Local Union No. 1, Bakery, Confectionery & Tobacco
Workers’ Int’l Union, 832 F.2d 81, 82-83 (7th Cir. 1987); see also,
e.g., Cont’l Airlines, Inc. v. Int’l Bhd. of Teamsters, 391 F.3d 613,
617-19 (5th Cir. 2004); Boise Cascade Corp. v. Paper Allied-Industr.,
Chem. & Energy Workers, Local 7-0159, 309 F.3d 1075, 1080 (8th
Cir. 2002). None of these cases involved a pending challenge
to the validity of the underlying agreement.
No. 08-3144 11

under the Agreement, except to contest the fact of what
occurred.” Any decision to the contrary, argues IAWC,
exceeded the arbitrator’s powers. In IAWC’s eyes, because
the LCA does not contain an exception for good-faith
challenges to the agreement, Williams’s termination was
within its unambiguous terms and therefore beyond the
scope of the arbitrator’s review.
But IAWC misses the point. What matters is not
whether this court believes the LCA language to be ambig-
uous, but whether the arbitrator found it ambiguous. As
we have said: “[M]isinterpretation of contractual
language, no matter how ‘clear,’ is within the arbitrator’s
powers; only a decision to ignore or supersede language
conceded to be binding allows a court to vacate the
award.” Int’l Union of Operating Eng’rs, Local 139 v. J.H.
Findorff & Son, Inc., 393 F.3d 742, 745 (7th Cir. 2004).
Misinterpreting and ignoring a contract’s language are
two different things. Id. (“There is a big difference—a
clear difference, a plain difference—between misunder-
standing and ignoring contractual language.”). Had the
arbitrator found the LCA to be unambiguous and then
proceeded to act contrary to its directions, i.e., ignored
the contract, then IAWC’s claims might have merit. See,
e.g., Tootsie Roll Indus., 832 F.2d at 84 (declining to look to
the “law of the shop” when the dispositive contractual
provision was unambiguous); see also, e.g., Anheuser-Busch,
Inc. v. Local Union No. 744, Affiliated with the Int’l Bhd. of
Teamsters, 280 F.3d 1133, 1139 (7th Cir. 2002) (stating that
it was unnecessary for an arbitrator to look beyond the
contract when its terms were unambiguous). But that
is not what happened.
12 No. 08-3144

Here, the arbitrator found the LCA to be ambiguous. The
LCA did not, by its terms, contemplate the current situa-
tion. In fact, the two aforementioned provisions—one
giving IAWC the right to terminate Williams, the
other giving Williams and the Union the right to chal-
lenge the agreement pursuant to the CBA—appeared to
point in different directions. Despite IAWC’s protestations
to the contrary, the arbitrator did not ignore the LCA’s
language. Indeed, the LCA’s “failure-to-comply” language
is the only provision that the arbitrator quoted directly.
Instead, the arbitrator interpreted that language in the
context of the other language in the agreement and the
situation with which he was confronted. As we said in
Ethyl Corp.:
[C]ontracts have implied as well as express terms,
and the authority of an arbitrator to interpret a[n
agreement] includes the power to discover such
terms. Indeed, as long as a plausible solution is
available within the general framework of the
agreement, the arbitrator has the authority to
decide what the parties would have agreed on
had they foreseen the particular item in dispute.
768 F.2d at 186 (citation and quotations omitted).
The arbitrator did precisely this. He looked to the
agreement, found it inconclusive, and then proceeded to
interpret the contract to resolve the dispute. He concluded
that the LCA contained an implied term that did not
permit Williams’s termination while a challenge to the
LCA’s validity was pending. The arbitrator offered the
following statement summarizing his findings:
No. 08-3144 13

Thus, considering generally accepted principles of
contract interpretation; that contract language be
interpreted against the drafter, that it be inter-
preted in harmony with external law, and that it
be interpreted to avoid grossly unreasonable
results; I find that the Last Chance Agreement
does not permit the discharge of Mr. Williams for
failure to comply with a provision of the Agree-
ment while the validity of that provision is
subject to a proper, good faith, non-frivolous
challenge. Therefore, Mr. Williams’s discharge
violated the Last Chance Agreement.
This is not, as IAWC contends, “industrial justice.” See
Enterprise Wheel & Car Corp., 363 U.S. at 597. Nor did
the arbitrator “dress his policy desires up in contract
interpretation clothing.” N. Ind. Pub. Serv. Co. v. United
Steelworkers of Am., 243 F.3d 345, 347 (7th Cir. 2001); see
also Ethyl Corp., 768 F.2d at 187 (noting than an arbitrator
cannot merely make “noises of contract interpretation”
to shield his decision from judicial review). This is
contract interpretation in its purest sense, and it is the
task that the parties asked the arbitrator to perform. As
such, we pass no judgment on the quality of that inter-
pretation but instead defer to the arbitrator. Any conclu-
sions to the contrary would run counter to the very idea
of arbitration and undermine the dispute resolution
system within which the parties have agreed to operate.
See Misco, 484 U.S. at 37-38 (discussing the policies behind
insulating arbitral decisions from judicial review); J.H.
Findorff & Son, Inc., 393 F.3d at 745 (“If a gaffe authorized
a court to set aside the award, there would be little differ-
14 No. 08-3144

ence between arbitration and litigation other than the
extra cost and delay of presenting the case to the
arbitrator before taking it to court. That would turn
arbitration on its head . . . .”).

III. C ONCLUSION
The arbitrator interpreted what he perceived to be
ambiguity within the LCA to address a situation that he
concluded the contract did not contemplate by its express
terms. For that reason, we A FFIRM the district court’s
decision granting summary judgment in favor of the
Union and thereby confirm the arbitrator’s award.

6-26-09