• December 26, 2012

During the first week of my civil procedure course as a 1L, my professor asked my class what characteristics we wanted in our ideal judicial system. Notably, my class wanted a system that was fair, flexible but efficient, and one that ultimately came to the right conclusion in a dispute. It turned out, we later realized, that we came up with a list that mirrored many of rules and underlying goals in the rules of civil procedure. What we didn’t know as 1Ls was that when disputes are taken out of the civil litigation realm and into private arbitrations, as many disputes are, the need for speed and finality seem to trump other considerations.

Despite these flipped priorities, it is important to know is that arbitration findings can be challenged and overturned by courts. That being said, the burden on the challenging party is very high and the chances of having the arbitration finding overturned are slim. Nevertheless, there is a chance.

Recently, in a case dealing with the size of storage lockers for postal workers, a dispute that he described as “mundane” in the scheme of important cases that the U.S. District Court for the District of Minnesota is called on to opine, Judge Richard Kyle (D. Minn.) gave a great refresher on how to challenge an arbitration finding. Would-be arbitration finding challengers take note; this is the rare case where the findings were overturned.

The United States Postal Service (“USPS”) and the American Postal Workers Union (“Union”), which represents postal employees, are parties to a collective bargaining agreement (“CBA”). Among other things, the agreement governs all issues that “directly relate to working conditions” – this includes the size of employee storage lockers.

The underlying dispute concerns the a distribution facility the USPS built in Eagan. According to a 2007 postal service manual containing specified design criteria the facility installed half-width employee lockers. The Union believed they were entitled to full-width lockers so it filed a grievance under the CBA. This started a three-step grievance process that culminates in binding arbitration.

To make a long and messy story short, the Union’s grievance was denied in Step 1, denied again on appeal in Step 2, and again in Step 3. The USPS supported its decisions by citing a postal service handbook that authorized half-width lockers in facilities similar to the Eagan distribution center. One small problem: while the USPS based its decision on language that allowed them to deny the Union’s grievance, the handbook provision that was cited did not apply. The attorney for the USPS noticed that they cited the wrong handbook and tried to correct it at the arbitration. The arbitrator sustained the objection and made his decision based on an inapplicable document. The USPS sought review in federal court.

What to do?

Judge Kyle noted that even though the arbitrator relied on an inapplicable document to support his finding that the Union was entitled to full-sized lockers, it does not necessarily mean that the arbitration award must be overturned. This is because the arbitrator’s award in a labor arbitration is entitled to significant deference from a reviewing federal court.

As the Union correctly notes, a district court’s review of such an award is extremely limited; it must receive “an extraordinary level of deference.” Schoch v. InfoUSA, Inc., 341 F.3d 785, 788 (8th Cir. 2003), abrogated on other grounds by Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 586 (2008); accord, e.g., Keebler Co. v. Milk Drivers & Dairy Emps. Union, Local No. 471, 80 F.3d 284, 287 (8th Cir. 1996).

Court challenges to arbitration awards must overcome this deference because the court does not want to impose its own judgment where parties to a negotiated agreement have decided to make a private arbitrator the decision-maker.

“It is the arbitrator’s construction [of the parties’ agreement] which was bargained for, and so far as the arbitrator’s decision concerns construction of the contract, the courts have no business overruling him because their interpretation of the contract is different from his.” United Steelworkers of Am. v. Enterprise Wheel & Car Corp., 363 U.S. 593, 599 (1960).

The strong public policy favoring the resolution of labor disputes in arbitration “would be undermined if courts had the final say.” Enterprise Wheel, 363 U.S. at 596.

If an arbitration award draws its essence” from the parties’ agreement, then the court should uphold the arbitrator’s decision even when a court is convinced that the arbitrator’s decision was improvident or even if he committed serious error. An award “draws its essence” from an agreement where the arbitrator it is “derived from the agreement, viewed in light of its language, its context, and any other indicia of the parties’ intention.” Williams v. Nat’l Football League, 582 F.3d 863, 883 (8th Cir. 2009). This means that an arbitrator’s award is conclusive if the arbitrator interprets the parties’ agreement – that’s it.

Because the arbitrator based his award on an inapplicable document, the court found that the arbitration award did not draw its essence from the parties’ agreement and remanded the case. For parties dissatisfied with an arbitration award hold out hope, you may have a chance (albeit slim) to have another bite at the apple.

Jake Smith understands that more cases are being resolved through arbitration and can effectively represent parties in arbitration or in civil litigation in state or federal courts.

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