UNITY CONSTRUCTION SERVICES, INC. v. NEW JERSEY BUILDING LABORERS' LOCAL UNIONS AND DISTRICT COUNCILS et al

Filing 11

OPINION filed. Signed by Judge Anne E. Thompson on 12/12/2011. (eaj) (Main Document 11 replaced on 12/12/2011) (eaj, ).

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
UNITY CONSTRUCTION SERVICES, INC.,
Petitioner,
Civ. No. 11-6209
v.
OPINION
NEW JERSEY BUILDING LABORERS‘
LOCAL UNIONS AND DISTRICT
COUNCILS, et al.,
Respondents.
THOMPSON, U.S.D.J.
This matter has come before the Court on Petitioner Unity Construction Services, Inc.‘s
(―Unity‖ or ―the company‖) Motion to Vacate Arbitration Award [Docket # 4] and Respondents‘
New Jersey Building Laborers‘ Local Unions and District Councils and Laborers‘ Local Unions
(―Laborers‖) Affiliated with the Laborers‘ International Union of North America (―LIUNA‖)
(collectively, ―Respondents‖) Cross-Motion to Confirm Arbitration Award [10]. The Court has
decided these motions after considering all of the parties‘ submissions and without oral
arguments pursuant to Fed R. Civ. P. 78(b). For the reasons that follow Petitioner‘s motion will
be granted and Respondent‘s cross-motion will be denied.
I.

BACKGROUND
This dispute arises out of an arbitration proceeding that addressed whether Unity had

violated a collective bargaining agreement (―CBA‖) between itself and the Respondents by
failing to utilize union employees on certain job sights. The arbitrator found that Unity had
violated the CBA. The parties now dispute whether this final arbitration award should be
confirmed or vacated by this Court.
1

Unity argues that the arbitrator exceeded the scope of his authority by first ruling that the
dispute was in fact subject to arbitration. It claims that the CBA was not valid because the
company C.F.O., Patricia D‘Alessio, had no authority to bind Unity and thus no contract actually
existed between the parties. Alternatively, Unity argues that the agreement signed by D‘Alessio
is ―internally inconsistent‖ in that there are two separate arbitration procedures identified, and
therefore a court must decide what procedure to apply. Respondents argue that Unity‘s claim
goes to the validity of the contract as a whole and not the specific arbitration provision, nor its
actual existence. Respondents further argue that even if the arbitrator exceeded his authority, the
Court should undertake its own factual analysis of whether Unity was bound to arbitrate this
dispute and enforce the award so as not to waste judicial resources.
II.

LEGAL STANDARD
Generally speaking, arbitration awards are permitted very deferential treatment by the

courts. ―Judicial review of a labor-arbitration decision pursuant to [a labor] agreement is very
limited.‖ Major League Baseball Players Assoc. v. Garvey, 532 U.S. 504, 509 (2001).
Disagreement by a court as to the actual outcome of the arbitration is not sufficient to vacate the
award, even if the court ―is convinced [the arbitrator] committed a serious error.‖ United
Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 39 (1987). It is only when ―there is a
disregard of the contract ‗totally unsupported by principles of contract construction‘‖ that an
arbitration award should not stand on its merits. Roberts & Schaefter Co. v. United Mine
Workers Local 1846, 812 F.2d 883, 885 (3d Cir. 1987) (quoting Ludwig Honold Mfg. Co. v.
Fletcher, 405 F.2d 1123, 1128 (3d Cir. 1969)).
Beyond being unenforceable due to a manifest disregard for the law, an arbitration award
may be vacated by a district court ―where the arbitrators exceeded their powers.‖ 9 U.S.C. §
10(a)(4). For example, an arbitrator cannot determine its own jurisdiction, ―for the question
2

whether a dispute is to be arbitrated belongs to the courts unless the parties agree otherwise.‖
Sandvik AB v. Advent Int’l Corp., 220 F.3d 99, 111 (3d Cir. 2000) (citing First Options of
Chicago, Inc. v. Kaplan, 514 U.S. 938, 944 (1995); AT&T Techs., Inc. v. Commc’ns Workers,
475 U.S. 643, 651 (1986)). The term ―question of arbitrability,‖ however, has a ―limited scope.‖
Certain Underwriters at Lloyd’s London v. Westchester Fire Ins. Co., 489 F.3d 580, 585 (3d Cir.
2007). ―Rather than being raised whenever a party contends that it is not required to arbitrate, a
question of arbitrability is raised only where disputes concern ‗whether the parties are bound by
a given arbitration clause‘ or ‗whether an arbitration clause in a concededly binding contract
applies to a particular type of controversy.‘‖ N.J. Bldg. Laborers Statewide Benefits Fund v. Am.
Coring & Supply, 341 F. App‘x 816, 820 (3d Cir. 2009) (quoting Westchester Fire Ins. Co., 489
F.3d at 585).
In contrast to a challenge to the specific arbitration provision in the contract or its
application to a particular dispute, ―questions concerning the validity of the entire contract are to
be resolved by the arbitrator in the first instance, not by a federal or state court.‖ Preston v.
Ferrer, 552 U.S. 346, 349 (2008). But, determining the validity of an otherwise existing contract
is different from determining whether a contract was ever actually executed. See Buckeye Check
Cashing, Inc. v. Cardegna, 546 U.S. 440, 444 n.1 (2006) (―The issue of the contract‘s validity is
different from the issue whether any agreement between the alleged obligor and obligee was ever
concluded.‖).
In Buckeye Check Cashing, Inc., the Supreme Court of the United States ―specifically
declined to address the question of whether a court or an arbitrator should decide a challenge
based on signatory power.‖ Fox Int’l Relations v. Fiserv Secs., Inc., 418 F. Supp. 2d 718, 723
(2006) (citing Buckeye Check Cashing, Inc., 546 U.S. at 444 n.1). Nor has the Supreme Court
directly addressed this question since. This has led lower federal courts to assume that there are
3

now three types of challenges a party can make to an arbitration provision: (1) a challenge to the
specific arbitration provision or its application, which a court must decide; (2) a challenge to the
validity of an otherwise existing contract, which may be decided by an arbitrator; and (3) a
challenge to the party‘s signatory power (i.e., the signor‘s ability to bind the party in interest),
which must be decided by a court. See, e.g., Fox Int’l Relations, 418 F. Supp. 2d at 723–24.
Although the Supreme Court has never addressed this issue head-on, it has seemingly
agreed with this general analysis. For example, in Granite Rock Co. v. Int’l Bhd. of Teamsters, -- U.S. ---, 130 S. Ct. 2847, (2010), in discussing a challenge to an arbitration provision, the Court
stated in passing the following: ―It is similarly well settled that where the dispute at issue
concerns contract formation, the dispute is generally for courts to decide.‖ Id. at 2855–56. In
the citation accompanying this statement, the Court cited the Buckeye Check Cashing, Inc.
footnote as ―distinguishing [the] treatment of the generally nonarbitral question whether an
arbitration agreement was ‗ever concluded‘ from the question whether a contract containing an
arbitration clause was illegal when formed, which question we held to be arbitrable in certain
circumstances.‖ Id. (citing Buckeye Check Cashing, Inc., 546 U.S. at 444 n.1). Thus, ―when the
very existence of . . . an [arbitration] agreement is disputed, a district court is correct to refuse to
compel arbitration until it resolves the threshold question of whether the arbitration agreement
exists.‖ Sandvick AB, 220 F.3d at 112.
III.

DISCUSSION
The initial question before the Court is whether the arbitrator overstepped his authority

by ruling that Unity was subject to the CBA. Respondents argue that Unity‘s claims are, in
actuality, claims about fraud in the inducement—a questions of contract ―validity‖ that is
properly decided by the arbitrator. See, e.g., Preston, 552 U.S. at 349. Unity counters that this
dispute is solely about contract formation, a question that is to be decided by the courts. See,
4

e.g., Sandvick AB, 220 F.3d at 112. It appears to the Court that both of these questions were
argued to, and addressed by, the arbitrator.1 In its Award and Preliminary Order, the arbitrator
first addressed whether D‘Alessio had authority to sign the CBA and ruled that ―the defense of
‗lack of authority‘ finds no support in this Arbitrator‘s determination that an effective [CBA]
exists.‖ (McEwan Cert., Ex. A, 9). Because deciding the issue of D‘Alessio‘s authority to bind
Unity was necessary for the arbitrator‘s determination that an effective CBA exists—and thus the
arbitrator‘s determination on the merits—the Court finds that arbitrator exceeded his power in
violation of 9 U.S.C. § 10(a)(4).
As explained above, there are three attacks that can be made on an arbitration provision:
(1) an attack of the specific provision or its application; (2) an attack on whether an otherwise
existing contract is valid or invalid; and (3) questioning whether a contract exists in the first
place. See, e.g., Fox Int’l Relations, 418 F. Supp. 2d at 723–24. A necessary finding that
preceded the arbitrator‘s determination on the merits in this case fell into this third category. It is
axiomatic, however, that an arbitrator—as the Petitioner puts it—cannot rule himself into
existence. Rather, whether a contract exists ab initio is for judicial determination. See Sandvick
AB, 220 F.3d at 112. This is so for good reason: ―[A]rbitrators derive their authority to resolve
disputes only because the parties have agreed in advance to submit such grievances to
arbitration.‖ AT&T Techs., 475 U.S. at 648–49 (citing Gateway Coal Co. v. Mine Workers, 414
U.S. 368, 374 (1974)). ―Representation issues [i.e., who may represent a party in labor
negotiations] may not be decided by contract, and thus may not be decided by an arbitrator.‖
N.L.R.B. v. Paper Mfr.’s Co., 786 F.2d 163, 167 (1986). Therefore, ―where a party asserts that it
is not a signatory to a collective bargaining agreement,‖ the Court should afford ―no deference . .
1

Unity argued to the arbitrator that it did not receive the long-form version of the CBA and it therefore did not
realize that it was binding itself to the larger document. This is the basis of Respondents‘ fraud-in-the-inducement
theory of Petitioner‘s claim, which was addressed and decided by the arbitrator. (See McEwan Cert., Ex. A, 10).

5

. to an arbitrator‘s award.‖ N.J. Reg’l Council of Carpenters v. Heartland Dev. Co., Inc., No. 090178, 2010 U.S. Dist. LEXIS 41139, *9 (D.N.J. Apr. 27, 2010) (citations omitted).
Having concluded that the arbitrator exceeded his authority, the next question that the
Court must decide is whether the arbitration award may be confirmed regardless of the
arbitrator‘s misstep. Respondent argues that the Court should enforce the arbitration award
notwithstanding the arbitrator‘s error based upon the Court‘s own determination that Unity was
bound by the CBA and its arbitration clause. They argue that ―[s]uch a course of action would
prevent needless re-hearing of arbitration and filings of petitions and briefs.‖ (Resp‘ts Br. 17).
However, Respondents have not pointed to any case in which a Court took such action. Rather,
they seem to argue that the underlying policy of the Federal Arbitration Act favors such an
approach. But cf. Century Indem. Co. v. Certain Underwriters at Lloyd’s, London, 584 F.3d 513,
527 (3d Cir. 2009) (holding that the question of whether a dispute falls within a valid agreement
is subject to a presumption in favor of arbitration but that the question whether an agreement to
arbitrate was consummated between the parties is not subject to a similar presumption).
In order to find that Unity was subject to the CBA, this Court would have to undertake a
fact hearing (if not a full jury trial) on the issue. See, e.g., Par-Knit Mills, Inc. v. Stockbridge
Fabrics Co., Ltd., 636 F.2d 51, 54 (3d Cir. 1980) (―If there is doubt as to whether such an
[arbitration] agreement exists, the matter, upon a proper and timely demand, should be submitted
to a jury.‖); N.J. Reg’l Council of Carpenters v. Heartland Dev. Co., Inc., No. 09-0718, 2010
U.S. Dist. LEXIS 41139, *18 (D.N.J. Apr. 27, 2010) (requiring a fact hearing regarding whether
one company could bind another to an arbitration agreement on an alter-ego theory). On the
record before the Court, such a factual finding would be premature. Moreover, this issue was not

6

fully briefed by either party.2 Therefore, because the arbitrator overstepped his authority in
violation of 9 U.S.C. § 10(a)(4), the arbitration award will be vacated.
IV.

CONCLUSION
For the reasons stated above, Petitioner‘s Motion to Vacate Arbitration Award will be

granted and the Respondents‘ Cross-Motion to Confirm Arbitration Award will be denied. An
appropriate order will follow.

/s/ Anne E. Thompson
ANNE E. THOMPSON, U.S.D.J.

Date: December 12, 2011

2

Respondents committed only one page of its brief to this issue and Petitioner did not address this issue at all.

7