United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued May 8, 2001 Decided June 29, 2001
No. 00-1170
Honeywell International, Inc.,
Petitioner
v.
National Labor Relations Board,
Respondent
International Union, United Automobile, Aerospace &
Agricultural Implement Workers of America,
UAW, Local 376,
Intervenor
Consolidated with
No. 00-1274
On Petitions for Review and Cross-Application
for Enforcement of an Order of the
National Labor Relations Board
---------
Philip Allen Lacovara argued the cause for petitioner
Honeywell International, Inc. With him on the briefs was
Charles P. O'Connor.
Thomas W. Meiklejohn argued the cause and filed the brief
for petitioner United Automobile Workers of America. Gregg
D. Adler entered an appearance.
David A. Fleischer, Senior Attorney, National Labor Rela-
tions Board, argued the cause for respondent. With him on
the brief were John H. Ferguson, Associate General Counsel,
and Aileen A. Armstrong, Deputy Associate General Counsel.
David S. Habenstreit, Attorney, entered an appearance.
Philip Allen Lacovara and Charles P. O'Connor were on
the brief for intervenor Honeywell International, Inc.
Thomas W. Meiklejohn was on the brief for intervenor
United Automobile Workers of America.
Before: Edwards, Chief Judge, Sentelle and Randolph,
Circuit Judges.
Opinion for the Court filed by Circuit Judge Randolph.
Randolph, Circuit Judge: From 1984 until October 1994,
Textron Corporation operated the United States Army's
Stratford Army Engine plant. Under contract with the
Army, Textron produced gas turbine engines for helicopters,
airplanes and tanks.
The United Auto Workers Union, Local Nos. 376 and 1010,
represented many of the workers at the Stratford Army
Engine plant. The unions had a collective bargaining agree-
ment with Textron that was set to expire on May 30, 1994.
On May 12, 1994, while negotiations for a new collective
bargaining agreement were underway, Textron announced
that it was to be acquired by AlliedSignal. (AlliedSignal has
since been acquired by Honeywell International, the named
petitioner in this case.)
Concerned about the impact of the change in ownership,
the unions demanded that Textron collectively bargain about
the effects of the proposed acquisition. The ensuing negotia-
tions resulted in three agreements. On June 19, 1994, the
unions and Textron signed a new collective bargaining agree-
ment which incorporated two other agreements concerning
"conditions and benefits which shall be applicable in the event
that the Company should sell its assets to a third-party
purchaser." These agreements were known as the Effects
Bargaining Agreement and the Competitiveness Agreement.
Understanding the Competitiveness Agreement requires an
understanding of the business at the Stratford plant. The
plant produced engines for both civilian and military custom-
ers in the Army's facility under a dual lease. For many
years, the plant had focused on producing tank engines for
the military, but the Army was planning no further purchases
of AGT-1500 engines, the plant's main product.
Despite this, AlliedSignal found Textron's Stratford busi-
ness attractive because of likely additional government fund-
ing. A "blue ribbon" defense panel had recommended that
the government maintain the Stratford plant's capacity to
produce tank engines, should they be needed in the future as
well as to continue to make improvements to current engines.
The panel also recommended that the Stratford plant contin-
ue operations under a dual lease that would allow the plant's
operator to produce both military and civilian engines. In all,
AlliedSignal anticipated some $30 to $40 million a year in
government support for its operations at the Stratford site.
Recognizing this need for continued government support,
the Competitiveness Agreement included the following lan-
guage:
... AlliedSignal intends to make application to appropri-
ate officials of the United States Government for finan-
cial arrangements in an amount considered by AlliedSig-
nal to be adequate to support the future of the Stratford
Plant by AlliedSignal on a stand-by basis for the produc-
tion of the AGT1500 engine, if active procurement of the
engine should cease. AlliedSignal and the Union shall
exert their best efforts to work together and to coordi-
nate actively in the efforts to obtain such adequate
financial arrangements from either the federal govern-
ment or some alternative governmental funding source.
....
After AlliedSignal makes such an application to the
Government, if no provision to fund such financial ar-
rangements in the amount sought by AlliedSignal shall
be made in the federal budget as thereafter enacted by
the Congress of the United States, then at any time after
such next enactment of a federal budget, AlliedSignal
may terminate this Competitiveness Agreement....
Pursuant to the Competitiveness Agreement, AlliedSignal
and the unions worked during the summer of 1994 to obtain
funding for the military's plan to maintain the Stratford
plant's capacity. In September 1994, shortly before Allied-
Signal completed its purchase of the plant, Congress approp-
riated more than $47 million to the Army to maintain the
plant for fiscal year 1995.
In February 1995 the Secretary of Defense recommended
closing the Stratford plant as part of ongoing efforts to
reduce the size of the military. The recommendation was
taken up by the Defense Base Closure and Realignment
Commission. See Defense Base Closure and Realignment
Act of 1990, Pub. L. No. 101-510, 104 Stat. 1808 (amended
1992, 1993, 1994, 1995, 1996). While awaiting the Commis-
sion's decision, the Defense Department refused to release
the funds appropriated for the Stratford plant, thinking it
wasteful to spend money to maintain a plant likely to be
closed. The withheld funds and the ongoing review by the
Commission touched off more lobbying efforts.
In April 1995, a coalition consisting of the unions, AlliedSig-
nal and federal, state and local political representatives con-
vinced the Department of Defense to release the funds ear-
marked for 1995. Efforts to influence the Commission were
less successful. On June 23, 1995, the Commission decided in
favor of closing the Stratford facility. Under the provisions
of the Base Closure and Realignment Act, the Commission's
recommendation was then sent to the President for review.
The President accepted the Commission's recommendations
and forwarded them to Congress, which had 45 days to
disapprove of the recommendations. When it did not do so,
the Stratford plant was officially slated to be closed. On July
15, 1995, the company sent the Stratford employees a letter
explaining the Commissions's decision and saying that it did
not think "an economic case c[ould] be made to remain in
Stratford without the ownership and support of the Army."
The unions took this as a signal that AlliedSignal intended to
close the Stratford plant. On September 29, 1995, AlliedSig-
nal informed the unions that it was terminating the Competi-
tiveness Agreement. The unions contended that AlliedSignal
could not terminate the Competitiveness Agreement because
the company had received funds for fiscal year 1995.
Local 1010 filed two charges against the company stem-
ming from these events. The first charge accused the compa-
ny of "fail[ing] to bargain in good faith with the ... UAW by
unilaterally withdrawing the competitiveness agreement, re-
fus[ing] to provide relevent [sic] information and refusing to
bargain the decision and effects of the plant closure."
In prosecuting the case before the Board, the General
Counsel claimed that AlliedSignal had violated s 8(a)(5) of the
National Labor Relations Act by terminating the contract.
See 29 U.S.C. s 158(a)(5). Section 8(a)(5) requires that the
company "bargain collectively with the representatives of his
employees." 29 U.S.C. s 158(a)(5). The Act further indi-
cates that collective bargaining includes the requirement that
"no party to such a contract shall terminate or modify such
contract, unless the party" follows certain procedures not
relevant here. 29 U.S.C. s 158(d). It is an unfair labor
practice for a company to terminate or modify contract
provisions regarding mandatory subjects of bargaining when
the contract's term has not ended. See Allied Chem. &
Alkali Workers v. Pittsburgh Plate Glass Co., 404 U.S. 157,
159 (1971); UAW v. NLRB, 765 F.2d 175, 1799-80 (D.C. Cir.
1985). In essence the General Counsel charged that Allied-
Signal had violated s 8(a)(5) by terminating all of the contract
provisions before the contract's term had expired.
The Administrative Law Judge treated the question wheth-
er the term of the AlliedSignal contract had ended as a
matter of contract interpretation; both parties, the ALJ
thought, had reasonable arguments about the meaning of the
termination clause. See AlliedSignal Aerospace, 330
N.L.R.B. No. 175, slip op. at 12 (NLRB Apr. 12, 2000). The
ALJ drew on a long line of Board cases holding that, when an
issue is one solely of contract interpretation, it will not decide
the matter if the company had a "sound arguable basis" for
its interpretations and the actions it took pursuant to that
interpretation. See NCR Corp., 271 N.L.R.B. 1212, 1213
(1984). The ALJ therefore ruled that AlliedSignal had not
violated the Act.
The Board reversed. To its mind, the "sound arguable
basis" test did not apply because AlliedSignal was "alleged to
have repudiated the CA in its entirety." AlliedSignal, slip
op. at 4. To the Board, "the issue of whether the Respondent
could lawfully cancel the CA is more than a mere contract
dispute. It is situated at the threshold of matters going to
the heart of the collective bargaining relationship...." Id.
[JA 6] Thus, the Board concluded that AlliedSignal had
violated s 8(a)(5) of the Act by refusing to bargain over a
mandatory subject matter. See 29 U.S.C. s 158(a)(5). Mem-
ber Hurtgen dissented on the basis that the "sound arguable
basis test" applied because this was a contract dispute.
The Board's decision was contrary to its own precedents. It
distorted the nature of the Competitiveness Agreement on
the basis of an arbitrary distinction it had no power to make
in the first place. As to its precedents, the Board claims that
it has refrained from applying the "sound arguable basis" test
when "the circumstances involved more than a mere matter
of contract interpretation." Id. The three cases the Board
cites hold no such thing. In Trojan Yacht, the Board de-
clined to apply the "sound arguable basis" test because the
dispute centered on a provision of a "side agreement" not
incorporated into the collective bargaining agreement. 319
N.L.R.B. 741, 744 n.5 (1995). If anything, Trojan Yacht
indicates that the Board forgoes the "sound arguable basis"
test not when a contract provision is central to the collective
bargaining relationship--as it claims the Competitiveness
Agreement is here--but when the contract issue is peripheral
to the relationship. Flatbush Manor is also of no help to the
Board. In that case, the Board upheld an ALJ's determina-
tion that an employer had committed an unfair labor practice
by failing to make contractually-required pension plan pay-
ments. 315 N.L.R.B. 15, 21 (1994). Responding to a "sound
arguable basis" claim, the Board concluded that the payments
had "indisputably accrued" and adopted the ALJ's order. Id.
at 15 n.1. The only way to read this is that the Board
rejected the notion that there was even a sound arguable
basis for the company's defense. This is in marked contrast
to the case at hand, where the ALJ concluded--and the
Board did not dispute--that both parties had reasonable
arguments about the meaning of the contract provisions.
Also puzzling is the Board's citation to Oak Cliff-Golman
Baking Company as support for its decision here. In that
case, one member of the Board indicated that he would affirm
the finding of an unfair labor practice because there was no
sound arguable basis for the employer's contract defense.
See 207 N.L.R.B. 1063 (1973), enforced, 505 F.2d 1302 (5th
Cir. 1974). The other two members said that they would
affirm the ALJ because they did not agree with the policy
underlying the Board's general practice of deferring to con-
tractual arbitration procedures. See id.
The short of the matter is that none of the precedents cited
in the Board's opinion supported its decision regarding the
arguable basis test. The reason is obvious. The Board's
decision is not consistent with the its past practice. For
example, in Cement Masons, Local 627, the Board faced the
question whether a short-term collective bargaining agree-
ment had been properly terminated. See 274 N.L.R.B. 1286,
1286-87 (1985). The Board invoked the "sound arguable
basis" doctrine and found that both parties had reasonable
interpretations of the agreement's terms. Therefore no un-
fair labor practice had occurred. See id. at 1287-88. Cement
Masons is indistinguishable from this case. Without more,
the Board's departure from precedent without a reasoned
analysis renders its decision arbitrary and capricious. See
Wisconsin Valley Improvement Co. v. FERC, 236 F.3d 738,
748 (D.C. Cir. 2001).
In any event, this case may fit the Board's newly-devised
"heart of the collective bargaining relationship" distinction
only by distorting its facts. The Competitiveness Agreement
was but one of three separate agreements between the unions
and the company. They had also entered into a master
collective bargaining agreement and an Effects Bargaining
Agreement. It is undisputed that neither of these agree-
ments was terminated when the company decided to termi-
nate the Competitiveness Agreement. So, it cannot be true
that the company's decision to terminate the Competitiveness
Agreement constituted a repudiation of the entire bargaining
relationship.
Factual distortions aside, the Board's approach to this case
flies in the face of this court's clear precedent construing the
Board's power to interpret contracts. The Board is empow-
ered to interpret collective bargaining agreements when do-
ing so is necessary to determine whether an unfair labor
practice has occurred. See NLRB v. C & C Plywood Corp.,
385 U.S. 421, 429 (1967). But the federal courts, not the
Board, are legislatively empowered to be the primary inter-
preters of contracts. See Litton Fin. Printing Div. v. NLRB,
501 U.S. 190, 202-03 (1991); see also 29 U.S.C. s 185 (grant-
ing federal district courts jurisdiction over breach of contract
claims arising out of collective bargaining contracts). The
boundaries of the Board's interpretive jurisdiction are
marked in C & C Plywood: the Board may interpret a
contract "only so far as ... necessary to determine" what
statutory rights the party has given up by agreeing to a
particular contract. See C & C Plywood, 385 U.S. at 428.
This principle is at the root of the "contract coverage"
doctrine. When an "employer acts pursuant to a claim of
right under the parties' agreement, the resolution of the
refusal to bargain charge rests on an interpretation of the
contract at issue." NLRB v. United States Postal Serv., 8
F.3d 832, 837 (D.C. Cir. 1993). And as we have often
reminded the Board, when a contract's terms cover a manda-
tory subject of bargaining, the contract represents the result
of the union's exercise of its bargaining rights. See BP
Amoco Corp. v. NLRB, 217 F.3d 869, 872-73 (D.C. Cir. 2000);
United States Postal Serv., 8 F.3d at 836; Connors v. Link
Coal Co., 970 F.2d 902, 905 (D.C. Cir. 1992). An employer
cannot be deemed to have "refuse[d] to bargain collectively,"
29 U.S.C. s 158(a)(5), over a particular subject when it has
bargained over that subject matter and memorialized the
results in a contract. Once the Board determines that a
contract covers a mandatory subject of bargaining, its inter-
pretive task is at an end. If the parties wish to enforce their
contract, they may do so pursuant to an arbitration clause or
by bringing suit under 29 U.S.C. s 185.
The Board in this case made no attempt to determine
whether the contract covers the issue of the conditions prece-
dent to termination. This is of no moment, as we review the
Board's construction of contracts de novo. See Litton Fin.
Printing, 501 U.S. at 202-03. It is inconceivable that the
clause does not cover the conditions under which the agree-
ment can be terminated. The Competitiveness Agreement
plainly indicates that if certain conditions are met, the compa-
ny may terminate the contract.
The Board's own language demonstrates that this is the
case. It notes that the "parties do not dispute that section 6
expressly required the Respondent to take certain steps
before it was permissible to cancel the agreement short of its
term." AlliedSignal, slip op. at 4. The Board then offered a
protracted analysis of the question whether the conditions
precedent had actually been met. See id. at 4-5. Among the
arguments it considered was AlliedSignal's claim that seeking
further funding was futile in light of the fact that the plant
was slated for closure. See id. at 5. Futility, of course, is an
age-old contract defense. See 2 E. Allen Farnsworth, Farns-
worth on Contracts ss 9.5-9.9a (1990). Likewise, the ques-
tion whether AlliedSignal made sufficient efforts to fulfill its
end of the bargain is one of contract interpretation. See id.
s 9.1a. By injecting itself into a purely contractual dispute,
the Board assumed a role Congress denied it through 29
U.S.C. s 185.
The petition for review is granted and the Board's decision
is set aside.
So ordered.