United Steelworkers of America v. American Smelting and Refining Co.

OPINION OF THE COURT

SEITZ, Chief Judge.

Federated Metals Corporation appeals from an order of the district court ordering enforcement of the arbitration award on the motion of the United Steelworkers of America (the Union) for summary judgment.

I.

The labor dispute and eventual plant shutdown involved in this case are detailed in Federated Metals Corp. v. United Steelworkers, 648 F.2d 856 (3d Cir. 1981), which we also decided today. To summarize briefly, when Federated Metals, a subsidiary of American Smelting & Refining Company (ASARCO), acquired ASARCO’s plant at Perth Amboy, New Jersey, it assumed the collective bargaining agreement entered into between ASARCO and the Union.1 This collective bargaining agreement was to expire on June 30, 1977. When the Union and Federated Metals failed to reach agreement on a new collective bargaining agreement by this date, the Union commenced an economic strike. After several months of unsuccessful negotiations, Federated Metals decided to close the plant. Federated Metals publicly announced this decision on January 11, 1978.

On January 19, 1978, the Union submitted to Federated Metals a claim for security and severance pay that it alleged was due the employees under the expired collective bargaining agreement.2

Federated Metals denied the Union’s claim. According to Federated Metals, it was not obligated to honor these claims because the collective bargaining agreement on which they were based had expired. Alternatively, Federated Metals contended that the employees were not entitled to security and severance pay because they had not been laid off for lack of work.

The Union demanded arbitration. It based this demand upon the broad arbitration clause in the collective bargaining agreement, which provides:

A grievance is defined to be any controversy between the parties or between the Company and employees covered by this Agreement, (1) as to any matter relating *866to working conditions or wage rates not specifically covered by this Agreement; and (2) any matter involving the interpretation, application or violation of any provision of this Agreement.

Federated Metals refused to submit to arbitration because it believed that its duty to arbitrate did not survive the termination of the collective bargaining agreement. In support of this position, Federated Metals emphasized that when the parties had agreed to a permanent panel of five named arbitrators, they had stipulated in certain preliminary documents that “[t]hese arbitrators and this procedure shall continue for the term of the agreement, expiring June 30, 1977.”3

The Union then sought to compel arbitration in a New Jersey state court. Federated Metals removed the proceeding to the United States District Court for the District of New Jersey. On July 18, 1978, the district court ordered that the question of arbitrability of the dispute over security and severance pay, as well as the merits of the dispute if it was found to be arbitrable, be submitted to an arbitrator.

Both parties agreed on an arbitrator. The arbitrator found that the security and severance pay dispute was arbitrable. Further, he found that Federated Metals owed security and severance pay to the employees under the expired agreement.

The Union filed suit in federal district court to enforce the arbitration award. Federated Metals counterclaimed to vacate the award. On the Union’s motion for summary judgment, the district court ordered that the arbitration award be enforced.

II.

We first address the Union’s argument that Federated Metals’ failure to appeal the July 18, 1978 order of the district court compelling arbitration of both the question of arbitrability and the underlying dispute precludes it from challenging the arbitrator’s finding that the dispute was arbitrable. The district court order was a final order within the meaning of 28 U.S.C. § 1291 (1976), see, e. g., Goodall-Sanford, Inc. v. United Textile Workers, Local 1802, 353 U.S. 550, 551-52, 77 S.Ct. 920, 921, 1 L.Ed.2d 1031 (1957), which Federated Metals chose not to appeal.

We believe that the failure to appeal the July 18 order only precludes Federated Metals from challenging the district court’s decision that the question of arbitrability was for the arbitrator. It does not foreclose Federated Metals’ challenges to the arbitrator’s rulings that the dispute was arbitrable and that Federated Metals was obligated to give the employees the security and severance pay. We recognize that a challenge to the July 18 order might have presented some issues similar to those raised by Federated Metals in this case. However, we believe that in this situation an order that the question of arbitrability is for the arbitrator is distinct from a decision that the underlying dispute is arbitrable. Thus, the failure to appeal the former does not foreclose a challenge to the latter.

III.

Federated Metals argues that the arbitrator’s decision that the dispute was arbitrable should be vacated because the Union did not assert the claim to security and severance pay within a reasonable time after the agreement had expired and because the arbitrator ignored the intent of the parties. When reviewing an arbitrator’s ruling that a particular dispute is arbitrable, a court’s role is even more circumscribed than it is when a court decides in the first instance whether a dispute is arbitrable, see, e. g., United Steelworkers v. *867Warrior & Gulf Navigation Corp., 363 U.S. 574, 582-83, 80 S.Ct. 1347, 1352-53, 4 L.Ed.2d 1409 (1960) (describing the court’s role in determining questions of arbitrability). This is so because “the parties [have] excluded from court determination not merely the decision of the merits of the grievance but also the question of its arbitrability, vesting power to make both decisions in the arbitrator.” Id. at 583 n.7, 80 S.Ct. at 1353 n.7.4

By committing the decision on arbitrability to the arbitrator, the parties have expressed their desire that the arbitrator use his or her knowledge of the “common law of the shop” and his or her personal judgment to consider criteria not expressly in the contract when deciding not only the merits of the dispute but also the question of arbitrability. Cf. United Steelworkers v. Warrior & Gulf Navigation Corp., 363 U.S. at 581-82, 80 S.Ct. at 1352 (delineating why parties prefer to commit disputes to an arbitrator). When the parties have committed questions of arbitrability to the arbitrator, the arbitrator’s determination that a dispute is arbitrable under the arbitration clause of the contract may involve consideration of much the same factors as his or her interpretation of the contract provision that governs the merits of the dispute. Therefore, we review the arbitrator’s decisions as to both arbitrability and the merits of the dispute by the same standard. We will not vacate the arbitration award unless it cannot in any rational way be derived from the collective bargaining agreement. See, e. g., Ludwig Honold Manufacturing Co. v. Fletcher, 405 F.2d 1123, 1128 (3d Cir. 1969).

We do not find persuasive Federated Metals’ argument that this claim was untimely. Although the arbitrator did not specifically address this issue in his opinion, the district court found that there was no unreasonable delay. This claim arose when Federated Metals announced its decision to close the plant, and the Union filed its claim only eight days later. Under the circumstances of this case, we do not believe there was unreasonable delay. See e. g., Federated Metals Corp. v. United Steelworkers, 648 F.2d 856 (3d Cir. 1981); United Steelworkers v. Fort Pitt Steel Casting, 635 F.2d 1071 (3d Cir. 1980), petition for cert. filed, 49 U.S.L.W. 3727 (U.S. March 16, 1981) (No. 80-1564) (Fort Pitt II).

Federated Metals advances two arguments to support its contention that the arbitrator’s decision ignored the intent of the parties. First, it argues that the arbitrator exceeded his authority when he relied on Nolde Brothers, Inc. v. Local No. 358, Bakery & Confectionery Workers, 430 U.S. 243, 97 S.Ct. 1067, 51 L.Ed.2d 300 (1977), to reach his decision.

If Federated Metals is arguing that the arbitrator erred in considering Nolde at all, we do not accept this argument. As long as an arbitration award “draws its essence from the collective bargaining agreement,” the arbitrator may look to sources other than the collective bargaining agreement for guidance in making that award. See, e. g., United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 596-97, 80 S.Ct. 1358,1360-61, 4 L.Ed.2d 1424 (1960). When deciding the arbitrability of a particular dispute, we believe that it is permissible for an arbitrator to look to the decisions of the United States Supreme Court discussing how courts should decide questions of arbitrability, particularly because the question of arbitrability is generally one that a court decides. Thus, the fact that the arbitrator relied on Nolde does not invalidate his decision.

On the other hand, Federated Metals may be arguing that the arbitrator completely ignored the intent of the parties because he incorrectly interpreted Nolde as establishing a conclusive presumption of post-contract arbitrability. We do not believe that this is a fair reading of the arbitrator’s opinion. Moreover, even if we assume that such a reading of his opinion is plausible, *868this is not a sufficient ground for vacating his award if there are other plausible readings. When confronted with a similar contention, the Enterprise Wheel Court stated: “A mere ambiguity in the [arbitrator’s] opinion accompanying an award, which permits the inference that the arbitrator may have exceeded his authority, is not a reason for refusing to enforce the award. Arbitrators have no obligation to the court to give their reasons for an award.” 363 U.S. at 598, 80 S.Ct. at 1361. In this case, it is at least plausible to read the arbitrator’s opinion as merely looking to Nolde as an appropriate guide to assist him in ascertaining the parties’ intent and not as establishing a per se rule that the arbitration clause survives contract termination. Thus, we will not vacate the award on this ground.

Second, Federated Metals argues that because the parties agreed that their method of selecting an arbitrator would terminate when the collective bargaining agreement expired, they necessarily intended that the duty to arbitrate would also terminate at that time. Although the parties did not include a time limitation in the collective bargaining agreement itself, see note 3, supra, in preliminary memoranda and in certain statements made to the employees, they indicated that this procedure would only continue until the collective bargaining agreement expired. Federated Metals argues that if the method of arbitration terminates when the collective bargaining agreement expires, the agreement to arbitrate necessarily terminates also, because arbitration is nothing more than a method of settling disputes.

Although this is certainly one plausible interpretation of the parties’ intent, it does not necessarily demonstrate that the arbitrator’s determination that the duty to arbitrate survived contract termination was irrational. In answering this contention of Federated Metals, the arbitrator’s opinion appears to be somewhat ambiguous. On the one hand, the arbitrator explicitly rejects the notion that the “bare use of named arbitrators” operated to exclude postexpiration disputes from arbitration, thus indicating that he believed there was no durational limit on even the method of selecting an arbitrator. This interpretation is rationally derived from the collective bargaining agreement because the arbitrator could have found that the failure to include the durational limitation in the arbitration clause of the collective bargaining agreement indicated that the parties did not intend this limitation to be part of their final, integrated agreement.

On the other hand, the arbitrator also draws a clear distinction between the obligation to arbitrate a dispute and the identity of or the method of selecting an arbitrator. The Union argues that when the parties agreed to this method of selecting arbitrators, they took pains to ensure that they could either replace the named arbitrators or change the method of selection when it was time to negotiate a new agreement. The Union maintains that the parties took these steps because they did not want to be eternally bound to the same five men. This is a plausible reading of the parties’ intent. Because the arbitration clause provided no basis for excluding postexpiration disputes before the parties changed the method of selecting arbitrators, the arbitrator rationally could have concluded that the parties did not intend to achieve a different result when they adopted the use of a permanent panel.

We believe that either of the possible interpretations of the arbitrator’s opinion is rationally derived from the arbitration clause of the collective bargaining agreement. Therefore, we will not vacate the award on the ground that the dispute was nonarbitrable.

IV.

Federated Metals also advances several reasons why the arbitrator exceeded his authority when he found that Federated Metals owed the employees security and severance pay.. Federated Metals argues that the arbitrator added to the agreement by awarding the security and severance pay because the agreement only provides for such pay when employees are laid off for *869lack of work.5 It argues that a plant shutdown is not a layoff. Further, it contends that the plant closed either because of the strike or because the parties could not agree to a collective bargaining agreement, not because there was a lack of work.

Although these are forceful arguments as a matter of contract interpretation, courts are not free to refuse to vacate arbitration awards merely because they might have interpreted the contract differently were it up to them in the first instance. We will not vacate the arbitration award unless Federated Metals demonstrates that it is not in any rational way derived from the collective bargaining agreement.

The arbitrator first looked to other arbitration decisions interpreting the term “layoff” to determine whether “layoff” embraces permanent severance when the plant closes. He found that the question was not settled, so he looked for more direct evidence of the parties’ intent. He considered the conduct of ASARCO, who had negotiated the collective bargaining agreement, when it closed the major portion of its Perth Amboy facility.6 The arbitrator reasoned:

To my mind what is significant is that under the same contract and same contract provision, Federated’s parent, ASARCO some months earlier closed a large portion of its operation at this location, and made security and severance payments under Article XV of the contract to its employees whose jobs ended and who were not retained in employment for certain continuing operations by Federated. Because I do not find any significant difference between the plant closing of ASARCO and the later cessation of operations by Federated, I judge the application of Article XV of the contract by ASARCO to have a precedential effect on the closing of its subsidiary, Federated. I conclude that both closed down essentially for economic reasons; that the employees of both lost their jobs under similar conditions and that how ASARCO, under Article XV, treated those employees whose jobs ended is, both contractually and equitably the way Federated, who undisputedly assumed ASARCO’s collective bargaining agreement with the Union covering the instant affected [employees,] should have treated its employees when it closed.

We do not believe that this reasoning exhibits a manifest disregard for the collective bargaining agreement. To the contrary, it appears that the arbitrator properly considered both existing arbitration decisions and the conduct of the parties to the agreement in a similar situation to ascertain the meaning of the contract language. It was rational to conclude that the parties intended that “layoff” would encompass the plant shutdown, as well as temporary layoffs, and that severance pay should be provided in both situations.

Further, we believe that the arbitrator’s ruling that the term “lack of work” covered the plant closing in this case was also rationally related to the collective bargaining agreement. In so ruling, the arbitrator compared the reasons for this closing with the reasons for ASARCO’s closing of its facility. He reasoned that ASARCO shut down its operations for essentially economic reasons, which would not fit within Federated Metals’ narrow interpretation of “lack of work” as meaning only low demand or lack of orders. It is a rational reading of the clause to determine that the parties intended to distinguish economic layoffs or terminations from those for disciplinary reasons, and to award severance pay for the former whether they be occasioned by low demand or high production costs.

*870Having concluded that the parties intended that “lack of work” would encompass all economic layoffs, the arbitrator then compared Federated Metals’ closing with that of ASARCO. In so doing, he refused to accept Federated Metals argument that this situation was different from the ASARCO shutdown because the Union caused the shutdown by going on strike. Federated Metals asserts that the arbitrator’s failure to consider the strike as the cause of the shutdown was in manifest disregard of the collective bargaining agreement. The arbitrator refused to consider the strike because he believed that both the Union’s strike and Federated Metals’ decision to shut down were lawful economic actions and that neither party should suffer prejudice or obtain benefit from these actions. Thus, he did “not deem them determinative or even probative.”

We conclude that this decision was not in manifest disregard of the collective bargaining agreement. If the severance-pay provision is intended to encompass terminations for economic reasons, as opposed to disciplinary reasons, this plant closing is covered. Presumably, Federated Metals closed the plant because it could not afford the Union’s demands. High labor costs are economic reasons, and the fact that the employees engaged in a lawful strike in support of their bargaining position should not deprive them of a benefit to which they would otherwise be entitled.

Finally, Federated Metals argues that even if the employees were entitled to severance pay, they were not entitled to security pay. Thus, the arbitrator added to the agreement by awarding both. Federated Metals bases this argument on the fact that the security pay was nonaccruable, and therefore, unlike the accrued severance pay, the employees did not “earn” the security pay until they were terminated. Federated Metals reasons from this that the employees could not recover such pay, presumably as a matter of law.

At the outset, we note that this argument apparently was not presented to the arbitrator. The Union so states in its brief and we do not read Federated Metals’ response as negating this contention. We have reviewed the transcript of the arbitration proceeding that was included in the record on appeal and we do not believe that Federated Metals can fairly be said to have advanced this argument as a separate contention. One of the primary purposes of arbitration is to settle labor disputes quickly and finally. Thus, we do not believe it appropriate for a party to argue that an arbitration award is irrational because it fails to consider an interpretation of the contract that they failed to unambiguously advance during the arbitration proceeding. See generally Amalgamated Meat Cutters & Butcher Workmen v. Cross Brothers Meat Packers, Inc., 518 F.2d 1113, 1121 (3d Cir. 1975).

In any event, assuming that it is appropriate for us to consider this argument, we do not believe that it would warrant a district court’s refusal to enforce the arbitration award. As we noted earlier, arbitrators have no obligation to state their reasons for an award. See Enterprise Wheel, 363 U.S. at 598, 80 S.Ct. at 1361. Therefore, we will enforce an arbitration award if it is rationally related to the collective bargaining agreement. We cannot say that the failure to separate security pay from severance pay was irrational. First, Article XV of the collective bargaining agreement does not explicitly segregate security pay from severance pay. Second, even though Federated Metals’ interpretation of the security-and-severance-pay provision, which is persuasively developed in the dissent, is not unreasonable, it does not follow that the arbitration award is irrational. We believe that whether the parties intended to allow the accrual of benefits after termination is a matter of contract interpretation, which in this case was to be decided by the arbitrator, and such accrual, in our view, is not foreclosed as a matter of law. See, e. g., Federated Metals Corp. v. United Steelworkers, 648 F.2d 856 (3d Cir. 1981) and cases cited therein.

We conclude that Federated Metals has not demonstrated that the arbitrator’s deci*871sion was not rationally related to the agreement. Therefore, we will not vacate the arbitration award.

V.

We find that Federated Metals is not precluded from challenging the rulings of the arbitrator on both arbitrability and the merits of the dispute. Further, we conclude that the district court was correct in rejecting Federated Metals’ contention that the dispute was nonarbitrable. Finally, we uphold the district court’s conclusion that the arbitration award of security and severance pay draws its essence from the collective bargaining agreement, and thus should not be vacated.

VI.

The order of the district court ordering enforcement of the arbitration award will be affirmed.

. ASARCO was made a party to this action solely because it owns Federated Metals. It was eliminated from the arbitration proceeding by stipulation of the parties.

. The security and severance pay provision provides:

ELIGIBLE
All employees upon completion of Two (2) Years Service. (All “Years Service” shall be based on the Plant’s Seniority Lists).
PAYMENTS
Laid-off Employees (for lack of work only): After 14 calendar days on lay-off, $50.00/week until either:
(a) Employee is recalled.
(b) Exhaustion of his amount accrued by Formula; ...
(c) Fifty-two weeks, whichever first occurs.

(Emphasis in original).

. The collective bargaining agreement itself does not contain a limitation on the terms of the arbitrators. It merely provides:

In the event that any such grievance, dispute or controversy shall not be settled in the manner provided above, either party may ... request that it be submitted to arbitration before a single arbitrator selected from the panel listed below:
[Then followed a list of five names]
These arbitrators shall be selected in rotation. If the Arbitrator selected is then unavailable within sixty (60) days, or declines to serve, the next Arbitrator shall be selected.

. As we noted supra, Federated Metals’ failure to appeal the July 18 order precludes it from challenging that court’s determination that the parties clearly demonstrated their agreement to have an arbitrator decide the question of arbitrability.

. The security and severance pay provision is detailed in note 2, supra.

. Federated Metals also asserts that the arbitrator exceeded his authority by considering the conduct of ASARCO at all in making his decision. However, as we noted earlier, the arbitrator may look to sources other than the collective bargaining agreement for guidance as long as the arbitration award “draws its essence from the collective bargaining agreement.” United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 596-97, 80 S.Ct. 1358, 1360-61, 4 L.Ed.2d 1424 (1960).