Costco v. Ibt Local No. 542

FILED
NOT FOR PUBLICATION
MAR 12 2021
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

COSTCO WHOLESALE No. 19-55451
CORPORATION,
D.C. No.
Petitioner-Appellant, 3:18-cv-01953-AJB-BLM

v.
MEMORANDUM*
INTERNATIONAL BROTHERHOOD
OF TEAMSTERS, LOCAL NO. 542,

Respondent-Appellee.

Appeal from the United States District Court
for the Southern District of California
Anthony J. Battaglia, District Judge, Presiding

Argued and Submitted June 1, 2020
Pasadena, California

Before: RAWLINSON and N.R. SMITH, Circuit Judges, and KORMAN,**
District Judge.
Dissent by Judge N.R. SMITH

*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Edward R. Korman, United States District Judge for
the Eastern District of New York, sitting by designation.
 Costco Wholesale Corp. (Costco) appeals the district court’s judgment

confirming an arbitration award in favor of the International Brotherhood of

Teamsters, Local No. 542 (the Union), and denying Costco’s petition to vacate the

award. A member of the Union, James Diaz, challenged his termination for selling

drugs on Costco premises. The parties participated in arbitration proceedings as

provided in the collective bargaining agreement. Following the presentation of

evidence, matters took a bizarre turn.

We are fully aware of the high standard that must be met to vacate an

arbitration award. See Stead Motors of Walnut Creek v. Auto Machinists Lodge,

886 F.2d 1200, 1208 n.8 (9th Cir. 1989) (en banc) (describing the extremely

limited review on appeal of an arbitrator’s decision). And we do not disagree with

the general principles espoused by our esteemed colleague in dissent.

Nevertheless, an arbitration award may be vacated if the proceedings violate the

rule of fundamental fairness. See Move, Inc. v. Citigroup Glob. Markets, Inc., 840

F.3d 1152, 1158 (9th Cir. 2016).

The arbitrator engaged in “extensive post-hearing ex parte communications

with Diaz and the Union,” including an unauthorized $6,000 settlement offer to

Diaz of which Costco was unaware. The arbitrator rendered his decision via a

vague and bizarre email only sent to the Union and reading: “The above named

2
grievant prevails in his grievance. The Union’s arguments as to double jeopardy

were correct. Union remedy is adopted. So that I can look at myself in the mirror,

my resignation is effective today.” The arbitrator resigned after rendering his

email judgment, thereby preventing Costco from obtaining clarification of his

decision. Costco requested that the arbitrator email a copy of the completed Board

of Adjustment Decision form, but never received the form. A copy of the form

was filed in the district court and stated with no elaboration: “Double Jeopardy

was proved by preponderance of evidence presented. Employee to be made

whole.” Because the arbitrator failed to provide a reasoned decision, Costco was

left with uncertainty as to the parameters of the remedy ordered by the arbitrator.

“Based on the facts of the case before us, we simply cannot conclude that [Costco]

received a fundamentally fair hearing,” and Costco “is entitled to vacatur.” Move,

Inc., 840 F.3d at 1159.

Our colleague in dissent takes issue with our reliance on the language in

Move, Inc. However, the cases relied on by our dissenting colleague also consider

the fairness of the proceedings. See Emp’rs Ins. of Wausau v. Nat’l Union Fire

Ins. Co. of Pittsburgh, 933 F.2d 1481, 1491 (9th Cir. 1991) (noting that the

arbitrator’s judgment must be “incorrupt”) (citation omitted); see also U.S. Life

Ins. Co., v. Superior Nat’l Ins. Co., 591 F.3d 1167, 1177 (9th Cir. 2010). Notably,

3
those cases did not involve an arbitrator who failed to render a reasoned decision

and otherwise abandoned his responsibilities.

Our colleague in dissent also insists that the arbitrator’s decision drew its

essence from the collective bargaining agreement. But there was no essence of the

decision because there was no decision rendered, and no reasoning proffered. For

all we know, the arbitrator flipped a coin, consulted a ouija board, or threw darts at

a dartboard to determine the outcome. He certainly gave no explanation to the

parties of his decision despite a request from Costco that he do so.

The dissent posits that we must defer to the arbitrator’s decision “regardless

of whether we believe that the decision finds the facts and states the law

erroneously.” Dissenting Opinion, p. 8 (quoting Stead Motors, 886 F.2d at 1204

(internal quotation marks omitted). However, the fallacy in that argument is that

the arbitrator neither found the facts nor stated the law, so there is nothing to which

we can defer as contemplated by the plain language of Stead Motors. Indeed, in

Stead Motors, we specifically noted that the arbitrator “issued a written opinion

and award.” Id. at 1203.

Finally, our colleague in dissent represents that the record does not reflect

that the arbitrator was biased. But ex parte communications and an unauthorized

settlement offer reflect consummate bias and lack of commitment to a transparent

4
proceeding. See Airgas West, Inc. v. Hawaii Teamsters and Allied Workers, Local

996, No. 12-00454 LEK-KSC, 2013 WL 1856076 at *7 (D. Haw. April 30, 2013)

(“The parties agree that an arbitrator’s ex parte communication may be grounds to

vacate an award . . .”). No party agreeing to arbitration bargained for a proceeding

such as this, and nothing in our precedent compels us to ignore these facts. See

American Exp. Co. v. Italian Colors Restaurant, 570 U.S. 228, 233 (2018) (noting

courts’ obligation to “rigorously enforce . . . the rules under which that arbitration

will be conducted,” as agreed by the parties).

The decision of the district court confirming the arbitration award is

REVERSED and REMANDED for vacatur of the arbitration award.

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 FILED
Costco Wholesale Corp. v. International Brotherhood of Teamsters, Local No. 542,
No. 19-55451 MAR 12 2021
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
N.R. SMITH, Circuit Judge, dissenting:

Arbitration “is a matter of consent, not coercion.” Volt Info. Scis., Inc. v. Bd.

of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989). “By agreeing to

arbitrate . . . , [a party] trades the procedures and opportunity for review of the

courtroom for the simplicity, informality, and expedition of arbitration.” Mitsubishi

Motors Corp. v. Soler Chrysler–Plymouth, Inc., 473 U.S. 614, 628 (1985). As a

sophisticated company, Costco Wholesale Corporation (“Costco”) was aware of

these advantages of arbitration when it chose to resolve its labor disputes in the

arbitral forum. Costco also knew that it would have to “live with that choice,” see

Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 573 (2013), even if “it [were]

disappointed by or disagreed with the result in a particular case,” Stead Motors of

Walnut Creek v. Auto. Machinists Lodge No. 1173, Int’l Ass’n of Machinists &

Aerospace Workers, 886 F.2d 1200, 1217 (9th Cir. 1989) (en banc). For the role of

the arbitrator in a labor dispute is to “state the parties’ bargain,” id. at 1205, such

that “it is the arbitrator’s view of the facts and of the meaning of the contract that

[the parties] have agreed to accept,” United Paperworkers Int’l Union, AFL–CIO v.

Misco, Inc., 484 U.S. 29, 37–38 (1987).

1
 Thus, having “chose[n] arbitration, . . . [Costco] agreed with [James Diaz]

that an arbitrator should determine what their contract meant” as it related to their

dispute. See Oxford Health Plans, 569 U.S. at 573. “The arbitrator did what the

parties requested: He provided an interpretation of the contract resolving that

dispute[] . . . .” Id. “His interpretation went against [Costco], [and] maybe

mistakenly so.” Id. But, because “[i]t [was] the arbitrator’s construction which [the

parties] bargained for,” United Steelworkers of Am. v. Enter. Wheel & Car Corp.,

363 U.S. 593, 599 (1960), “[t]he arbitrator’s construction holds, however good,

bad, or ugly,” Oxford Health Plans, 569 U.S. at 573.

Now, Costco seeks relief from the bargain it struck with Diaz, simply

because that bargain “ha[s] turned sour on [it].” Stead Motors, 886 F.2d at 1206.

And despite the fact that Costco “agreed to purchase [the arbitrator’s decision],

eyes open, for better or for worse,” the majority inexplicably grants Costco a

refund by vacating the arbitration award—leaving Diaz without the benefit of his

bargain. See id. (quoting Edgar A. Jones, Jr., “His Own Brand of Industrial

Justice”: The Stalking Horse of Judicial Review of Labor Arbitration, 30 UCLA L.

Rev. 881, 893 (1983)).

The majority reaches this result solely based on one of Costco’s arguments

that the arbitrator’s conduct denied Costco a fundamentally fair hearing. However,

2
for the following reasons, I must respectfully dissent. None of Costco’s arguments

have merit. I will first address the basis of the majority’s decision.

1. The arbitrator’s conduct did not deny Costco a fundamentally fair hearing as

defined by our precedent. A labor arbitration “hearing is fundamentally fair if it

meets ‘the minimal requirements of fairness’—adequate notice, a hearing on the

evidence, and an impartial decision by the arbitrator.” Sunshine Mining Co. v.

United Steelworkers of Am., AFL–CIO, CLC, 823 F.2d 1289, 1295 (9th Cir. 1987)

(quoting Ficek v. S. Pac. Co., 338 F.2d 655, 657 (9th Cir. 1964)); accord Emp’rs

Ins. of Wausau v. Nat’l Union Fire Ins. Co. of Pittsburgh, 933 F.2d 1481, 1491

(9th Cir. 1991) (“[P]erhaps [the movant] did not enjoy a perfect hearing; but it did

receive a fair hearing. It had notice, it had the opportunity to be heard and to

present relevant and material evidence, and the decisionmakers were not infected

with bias. [The movant] was entitled to no more.”); U.S. Life Ins. Co. v. Superior

Nat’l Ins. Co., 591 F.3d 1167, 1177 (9th Cir. 2010) (finding that the movant had

received a fair hearing—and thus failed to establish prejudice under 9 U.S.C.

§ 10(a)(3)—because “[i]t had notice, it had the opportunity to be heard . . . , and

the decisionmakers were not infected with bias” (quoting Emp’rs Ins. of Wausau,

933 F.2d at 1491)).

Remarkably, however, the majority refuses to consider whether the

3
arbitration satisfied these “minimal requirements of fairness” that are so clearly

outlined in our precedent. See Sunshine Mining Co., 823 F.2d at 1295 (quoting

Ficek, 338 F.2d at 657); accord Emp’rs Ins. of Wausau, 933 F.2d at 1491; U.S. Life

Ins. Co., 591 F.3d at 1177.

Here, there is no evidence in the record (and the majority certainly points to

none) indicating that Costco was given inadequate notice or denied the opportunity

to be heard. Instead, the majority decides that Costco did not receive a

fundamentally fair hearing, because the arbitrator engaged in “bizarre”

conduct—e.g., partaking in ex parte communications with Diaz and the

International Brotherhood of Teamsters, Local No. 542 (“Union”), rendering a

“vague” decision issued in an unusual manner, extending an unauthorized

settlement offer, and resigning prematurely. However, the FAA “does not

expressly prohibit ex parte contact[,] [e]x parte conduct by an arbitration panel

requires vacatur of an award only if the ex parte contact constitutes misbehavior

that prejudices the rights of a party.” U.S. Life Ins. Co., 591 F.3d at 1176.1 Neither

the majority nor Costco address the necessary prejudice. However bizarre or

1
Because the Union does not challenge the FAA’s applicability in this case,
there is no reason to decide “whether the FAA applies to arbitration of collective
bargaining agreements.” See Matthews v. Nat’l Football League Mgmt. Council,
688 F.3d 1107, 1115 n.7 (9th Cir. 2012).

4
irregular the arbitrator’s conduct may have been, it is undisputed that the

arbitration proceedings met “‘the minimal requirements of fairness’—adequate

notice, a hearing on the evidence, and an impartial decision by the arbitrator.”

Sunshine Mining Co., 823 F.2d at 1295 (quoting Ficek, 338 F.2d at 657).

Therefore, notwithstanding the majority’s “gut feeling” of unfairness, our

precedent demands (in no unclear terms) the conclusion that the arbitration was

fundamentally fair. See id.; accord Emp’rs Ins. of Wausau, 933 F.2d at 1491; U.S.

Life Ins. Co., 591 F.3d at 1177.

It is important to note that the majority also fails to cite any statutory

grounds for vacating the arbitration award, resting its entire decision on the single

“fair hearing” sentence from Move, Inc. v. Citigroup Global Markets, Inc., 840

F.3d 1152 (9th Cir. 2016). Because Move, Inc. vacated an arbitration award under

9 U.S.C. § 10(a)(3)—which permits vacatur “where the arbitrator[] [was] guilty of

. . . misbehavior by which the rights of any party have been prejudiced”—that

provision of the Federal Arbitration Act (“FAA”) must be the basis of the

majority’s decision. See Move, Inc., 840 F.3d at 1158. Yet, there is no resemblance

between the arbitrator’s conduct in this case and “the unique set of facts” at issue

in Move, Inc., which involved the arbitrator defrauding the parties to the

arbitration. See 840 F.3d at 1158–59. Therefore, there is simply no support in this

5
record for the grounds upon which the majority vacates the arbitration award.

2. Costco cites other grounds for vacatur of the arbitration award under the

FAA. These arguments also fail. First, Costco has not shown that the arbitrator

“refus[ed] to hear evidence pertinent and material to the controversy” before the

Board of Adjustment, see 9 U.S.C. § 10(a)(3) (emphasis added), or that any refusal

to hear evidence prejudiced Costco, see U.S. Life Ins. Co., 591 F.3d at 1174.

Second, although the arbitrator rendered his decision in an unusual manner, Costco

has not satisfied the standard for vacatur under 9 U.S.C. § 10(a)(4), because it fails

to show that the arbitration award is “completely irrational” or “exhibits a manifest

disregard of law.” See Biller v. Toyota Motor Corp., 668 F.3d 655, 665 (9th Cir.

2012) (quoting Kyocera Corp. v. Prudential-Bache Trade Servs., Inc., 341 F.3d

987, 997 (9th Cir. 2003) (en banc)).

3. Costco argues that the arbitration award must be vacated, because it does not

“draw its essence” from the collective bargaining agreement (“CBA”). See S. Cal.

Gas Co. v. Util. Workers Union of Am., Local 132, AFL–CIO, 265 F.3d 787,

792–93 (9th Cir. 2001) (“Vacatur of an arbitration award under section 301 of the

[Labor Management Relations Act (“LMRA”)] is warranted . . . when the award

does not draw its essence from the [CBA] and the arbitrator is dispensing his own

brand of industrial justice.”). However, our review of this claim must be

6
“extremely narrow,” Aramark Facility Servs. v. Serv. Emps. Int’l Union, Local

1877, AFL CIO, 530 F.3d 817, 822–23 (9th Cir. 2008) (quoting Federated Dep’t

Stores v. United Foods & Commercial Workers Union, Local 1442, 901 F.2d 1494,

1496 (9th Cir. 1990)), and we must accord the arbitrator a “nearly unparalleled

degree of deference,” Stead Motors, 886 F.2d at 1205. “[E]ven if we were

convinced that the arbitrator misread the [CBA] or erred in interpreting it, such a

conviction would not be a permissible ground for vacating the award.” ASARCO

LLC v. United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus. &

Serv. Workers Int’l Union, AFL-CIO, CLC, 910 F.3d 485, 490 (9th Cir. 2018)

(quoting Va. Mason Hosp. v. Wash. State Nurses Ass’n, 511 F.3d 908, 913–14 (9th

Cir. 2007)). Thus, we “must limit our review to whether the arbitrator’s solution

can be rationally derived from some plausible theory of the general framework or

intent of the agreement.” Id. at 491 (alteration adopted and footnote omitted)

(quoting United Food & Commercial Workers Int’l Union, Local 588 v. Foster

Poultry Farms, 74 F.3d 169, 173 (9th Cir. 1995)).

Here, the arbitrator “arguably construed [and] applied” the CBA’s proper-

cause provision in finding that Diaz’s termination violated industrial double

jeopardy. See Haw. Teamsters & Allied Workers Union, Local 996 v. United

Parcel Serv., 241 F.3d 1177, 1178 (9th Cir. 2001) (alterations adopted and internal

7
quotation marks omitted) (quoting E. Associated Coal Corp. v. United Mine

Workers of Am., Dist. 17, 531 U.S. 57, 62 (2000)). The arbitrator did not “ignore

the plain language of the contract,” id. at 1181 (alteration adopted) (quoting Stead

Motors, 886 F.2d at 1205 n.6), or “follow his own whims and biases,” id.

(alteration adopted) (quoting Garvey v. Roberts, 203 F.3d 580, 588–89 (9th Cir.

2000)). Therefore, we must conclude that the arbitration award draws its essence

from the CBA. Id. at 1178. “[W]e are bound . . . to defer to the decision of [the

arbitrator],” regardless of whether “we believe that the decision finds the facts and

states the law erroneously.”2 Stead Motors, 886 F.2d at 1204.

4. Costco argues that the arbitration award must be vacated even if it “draws its

essence” from the CBA, because the award violates public policy. See S. Cal. Gas

Co., 265 F.3d at 792–93 (“Vacatur of an arbitration award under section 301 of the

LMRA is warranted . . . when the award is contrary to public policy . . . .”). To

vacate the award on public-policy grounds, Costco must clearly show that an

explicit, well-defined, and dominant public policy specifically militates against

Diaz’s reinstatement. See Aramark, 530 F.3d at 823; see also Stead Motors, 886

F.2d at 1212 (“If a court relies on public policy to vacate an arbitral award

2
The majority argues that the arbitrator’s decision did not have “essence,”
but cites no authority for the proposition that is should.

8
reinstating an employee, it must be a policy that bars reinstatement.”). Because

Costco has failed to identify such a policy that is “ascertain[able] by reference to

. . . laws and legal precedents, not from general considerations of supposed public

interests,” see E. Associated Coal Corp., 531 U.S. at 62 (internal quotation marks

omitted) (quoting W.R. Grace & Co. v. Rubber Workers, 461 U.S. 757, 766

(1983)), we may not vacate the arbitration award on public-policy grounds.

9