Peabody Holding Company v. United Mine — Case Analysis

PUBLISHED

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

No. 14-2032

PEABODY HOLDING COMPANY, LLC, Delaware Limited Liability Company; BLACK BEAUTY COAL COMPANY, LLC, now known as Peabody Midwest Mining, LLC, Indiana Limited Liability Company,

Plaintiffs − Appellants,

v.

UNITED MINE WORKERS OF AMERICA, INTERNATIONAL UNION, Unincorporated Association,

Defendant - Appellee.

Appeal from the United States District Court for the Eastern District of Virginia, at Alexandria. Leonie M. Brinkema, District Judge. (1:13-cv-00458-LMB-IDD)

Argued: January 27, 2016 Decided: March 8, 2016

Before WILKINSON, SHEDD, and AGEE, Circuit Judges.

Vacated and remanded by published opinion. Judge Wilkinson wrote the opinion, in which Judge Shedd and Judge Agee joined.

ARGUED: John R. Woodrum, OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C., Washington, D.C., for Appellants. Arthur Traynor, III, UNITED MINE WORKERS OF AMERICA, Triangle, Virginia, for Appellee. ON BRIEF: W. Gregory Mott, Zachary S. Stinson, OGLETREE, DEAKINS, NASH, SMOAK & STEWART, P.C., Washington, D.C., for Appellants. Diana Migliaccio Bardes, John Robert Mooney, MOONEY, GREEN, SAINDON, MURPHY & WELCH, P.C., Washington, D.C., for Appellee.

2 WILKINSON, Circuit Judge:

In this case we must decide when and under what

circumstances courts should review a labor arbitrator’s

decision. For the reasons given below, we hold that judicial

involvement in the labor dispute in this case was premature.

Under the complete arbitration rule, the arbitrator should have

been given the opportunity to resolve both the liability and

remedial phases of the dispute between the Companies and the

Union before it moved to federal court. We therefore vacate the

district court’s order confirming the merits of the arbitrator’s

liability decision and direct that court to return the dispute

to the arbitrator to allow him to rule on the remedial issues

and otherwise complete the arbitration task.

I.

The dispute in this case arises out of a 2007 Memorandum of

Understanding Regarding Job Opportunities (the “Jobs MOU”)

signed by the United Mine Workers of America (the “Union”) and

Peabody Coal Company (“Peabody Coal”) as part of a wider

collective bargaining agreement. Peabody Coal signed the Jobs

MOU on behalf of itself and as a limited agent of its corporate

parent, Peabody Holding Company (“Peabody Holding”), and several

of Peabody Holding’s other subsidiaries, including Black Beauty

Coal Company (“Black Beauty”). The principal purpose of the Jobs

MOU was to require non-unionized companies within the Peabody

3 corporate family to give preferential hiring treatment to coal

miners who were either working for or laid off by Peabody Coal.

An arbitration clause in the Jobs MOU provided that a “Jobs

Monitor” was to resolve any disputes involving the Jobs MOU, and

that his decisions would be “final and binding on all parties”

to the dispute. J.A. 79. The Jobs MOU was to expire on December

31, 2011.

Later in 2007, Peabody Energy Corporation (“Peabody

Energy”), the corporate parent of Peabody Holding and thus the

ultimate parent of Peabody Coal and Black Beauty, initiated a

spinoff of some of its mining operations to form a new entity

called Patriot Coal Corporation (“Patriot”). In conjunction with

the spinoff, Peabody Coal became part of Patriot. All but one of

the Peabody Holding subsidiaries on whose behalf Peabody Coal

had signed the Jobs MOU also became part of Patriot. The one

exception was Black Beauty, which, along with Peabody Holding

itself, was retained by Peabody Energy. Thus, following the

spinoff, Peabody Coal no longer shared any corporate

relationship with Peabody Holding or Black Beauty.

In 2008, Black Beauty hired private mine operator United

Minerals Company (“United Minerals”) to conduct surface mining

on Black Beauty’s property. Black Beauty and United Minerals

were non-unionized. United Minerals had no corporate

relationship with Peabody Coal and was thus not subject to the

4 Jobs MOU. Shortly after Black Beauty began its work with United

Minerals, the Union sent a letter to Peabody Energy and Peabody

Holding stating that Peabody Holding and Black Beauty were still

bound by the Jobs MOU’s preferential hiring requirements.

Peabody Holding disagreed. It took the view that the spinoff of

Peabody Coal from the rest of the Peabody corporate family ended

any obligation that Peabody Holding or Black Beauty (the

“Companies”) had under the Jobs MOU. Because the Union and the

Companies could not resolve this dispute among themselves, the

Union submitted the dispute to the Jobs Monitor.

The Companies initially argued that the dispute was not

even arbitrable under the Jobs MOU’s arbitration clause. It

ultimately took a decision from this Court to confirm that the

dispute was in fact arbitrable. Peabody Holding Co. v. United

Mine Workers, 665 F.3d 96, 103 (4th Cir. 2012). The Union and

the Companies thus returned to arbitration to argue the merits

of the dispute before the Jobs Monitor.

When the Union and the Companies returned to the Jobs

Monitor they decided to bifurcate the dispute. As recounted by

the Jobs Monitor in his written decision, the parties asked him

to “treat[] in this proceeding solely the question of whether

[Peabody Holding] and Black Beauty continued to be bound by the

[Jobs] MOU after the . . . spinoff.” J.A. 57. The Jobs Monitor

noted further that “[i]f that question is resolved in the

5 Union’s favor, and the parties cannot agree on an appropriate

remedy for the [Peabody Holding]/Black Beauty refusal to abide

by the [Jobs] MOU, resolution of the remedy issue will be

submitted to the Jobs Monitor.” J.A. 57.

After receiving arguments from both the Union and the

Companies, the Jobs Monitor ruled that the Jobs MOU remained in

force even though Peabody Coal no longer had any corporate

relationship with Peabody Holding or Black Beauty. The Jobs

Monitor then made a few related rulings, including that

continued enforcement of the Jobs MOU would not run afoul of the

National Labor Relations Act (“NLRA”). The Jobs Monitor,

however, deferred his decision on one notable issue. During the

proceedings, the Companies had argued that Black Beauty’s work

with United Minerals was actually exempt from the Jobs MOU by

virtue of the fact that Black Beauty had signed its contract

with United Minerals before it became bound by the Jobs MOU. The

Union responded by noting that even if Black Beauty’s work with

United Minerals was exempt, Black Beauty or Peabody Holding may

have contracted for other jobs that should have been covered by

the Jobs MOU. The Jobs Monitor determined that he would defer

answering this question “until the remedy stage of these

proceedings.” J.A. 70. At the conclusion of his decision, the

Jobs Monitor stated that he would “retain jurisdiction over this

6 matter for the limited purpose of resolving any remedial issues

on which the parties cannot agree.” J.A. 70.

Unhappy that the Jobs Monitor had found them subject to

liability under the Jobs MOU, the Companies sought to vacate the

Jobs Monitor’s decision by filing a declaratory judgment action

in the Eastern District of Virginia. The Union filed a

counterclaim to enforce the decision. The Union also moved to

dismiss the Companies’ complaint, arguing that judicial review

of the Jobs Monitor’s decision was not proper until arbitration

before the Jobs Monitor was complete. Both parties then filed

cross motions for summary judgment on the merits of the Jobs

Monitor’s liability decision.

The district court denied the Union’s motion to dismiss. It

first noted that there was “some disagreement” in the case law

as to the nature of the judicial review provision on which the

Companies had premised their suit -- Section 301 of the Labor

Management Relations Act (“LMRA”), 29 U.S.C. § 185(a). Peabody

Holding Co. v. United Mine Workers, 41 F. Supp. 3d 494, 499 n.4

(E.D. Va. 2014). While some courts describe their jurisdiction

under Section 301 as limited to “review of final arbitration

awards,” other courts believe Congress conferred “sweeping

jurisdiction” under Section 301 and “merely contemplated

judicial application of a prudential rule” that would in

practice limit review to final awards. Id.

7  The district court ultimately decided that it did not need

to determine if any limitation on judicial review under Section

301 to final awards was jurisdictional strictly speaking or

merely prudential. It simply determined that the Jobs Monitor’s

“award is final as to liability and therefore reviewable.” Id.

The district court reached this conclusion largely because the

parties had agreed to bifurcate the liability and remedial

facets of their dispute, and the Jobs Monitor’s decision had

conclusively resolved the liability facet. Id. at 500-01.

Proceeding to the merits, the district court granted the

Union’s motion for summary judgment by enforcing the Jobs

Monitor’s decision as to the Companies’ liability under the Jobs

MOU. Id. at 507. The Companies timely appealed this order. The

Union did not cross appeal the district court’s denial of its

motion to dismiss, and instead sought only to defend the

district court’s summary judgment order confirming that the

Companies were liable under the Jobs MOU. After the parties

briefed this question, we asked for additional briefing on

whether we should even review the Jobs Monitor’s liability

decision in light of the fact that arbitration before the Jobs

Monitor was not complete. It is on this threshold question that

we now focus.

8  II.

A.

This case came to federal court by way of Section 301 of

the LMRA. Section 301 gives federal district courts jurisdiction

over “[s]uits for violation of contracts between an employer and

a labor organization representing employees in an industry

affecting commerce . . . without respect to the amount in

controversy or without regard to the citizenship of the

parties.” 29 U.S.C. § 185(a). Long-standing Supreme Court

precedent provides that a party may utilize Section 301 to seek

judicial enforcement of an arbitration award made pursuant to an

arbitration clause in a collective bargaining agreement. Gen.

Drivers Local Union No. 89 v. Riss & Co., 372 U.S. 517, 519

(1963) (per curiam). Before a court may review the award,

however, it must determine that the award is “final and

binding.” Id. In line with this directive, many courts have held

that a federal district court should not review a labor

arbitrator’s decision under Section 301 until the arbitrator has

ruled on both liability and remedies -- a procedural requirement

commonly referred to as the complete arbitration rule. E.g.,

Local 36, Sheet Metal Workers Int'l Ass'n v. Pevely Sheet Metal

Co., 951 F.2d 947, 949-50 (8th Cir. 1992); Union Switch & Signal

Div. Am. Standard Inc. v. United Elec. Workers, Local 610, 900

F.2d 608, 612-14 (3d Cir. 1990); Millmen Local 550, United Bhd.

9 of Carpenters v. Wells Exterior Trim, 828 F.2d 1373, 1375-76

(9th Cir. 1987).

As the district court noted, there appears to be some

uncertainty as to the nature of the complete arbitration rule.

Some decisions have described the complete arbitration rule as a

restriction of a federal court’s jurisdiction under Section 301.

Pub. Serv. Elec. & Gas Co. v. Sys. Council U-2, Int'l Bhd. of

Elec. Workers, 703 F.2d 68, 70 (3d Cir. 1983). But other

decisions have noted Section 301’s broad language, and have

accordingly taken the complete arbitration rule to be only a

prudential limitation on judicial involvement in a labor

arbitration. Union Switch, 900 F.2d at 612-14.

Both in briefing and during argument, the Companies claimed

and the Union agreed that the complete arbitration rule does not

concern federal subject matter jurisdiction in the strict sense.

We agree with the parties. Unlike, for instance, 28 U.S.C.

§ 1291, the statute conferring appellate jurisdiction on the

federal circuit courts of appeals, Section 301 itself does not

contain language limiting review to a “final decision” or some

other similarly definitive event. Its jurisdictional grant is

couched in much broader terms. 29 U.S.C. § 185(a).

Indeed, even courts that have referred to the complete

arbitration rule in jurisdictional terms appear to acknowledge

that it is not a hard and fast jurisdictional limitation,

10 because those courts have noted exceptions to the rule in

“extreme cases.” Millmen Local 550, 828 F.2d at 1377. But of

course there can be no exception from the fact that federal

courts are courts of limited jurisdiction and thus do not have

authority to resolve a dispute unless that authority has

specifically been given to them. Home Buyers Warranty Corp. v.

Hanna, 750 F.3d 427, 432 (4th Cir. 2014). All of this is to say

that the complete arbitration rule necessarily constitutes only

a prudential limitation on a court’s authority to review a labor

arbitrator’s decision.

Although only prudential, the complete arbitration rule

nonetheless draws from the same well of policy rationales as its

strictly jurisdictional relatives. As noted, under 28 U.S.C.

§ 1291, a district court generally must have entered a final

judgment or order before a court of appeals can take the case.

Goode v. Cent. Va. Legal Aid Soc'y, Inc., 807 F.3d 619, 623 (4th

Cir. 2015). This requirement “preserves judicial economy by

ensuring that a district court maintains authority over a case

until it issues a final and appealable order, thus preventing

piecemeal litigation and repeated appeals.” Id. at 625.

The complete arbitration rule promotes similar ends. It

ensures that courts will not become incessantly dragooned into

deciding narrow questions that form only a small part of a wider

dispute otherwise entrusted to arbitration. And it mitigates the

11 possibility of one party using an open courthouse door to delay

the arbitration. See Union Switch, 900 F.2d at 611. Finally, it

makes good sense, when working within a hierarchical system, to

give the decision maker at each level a full and fair say as to

the whole problem before passing the case on to the next stage

of review. Internal appeals in the state and federal courts

generally abide by this principle, and there is no reason that

it should not operate as a presumptive maxim in this context as

well. With this background in mind, we examine why the facts in

this case counsel us to adhere to the complete arbitration rule

and withhold judicial involvement until the arbitration before

the Jobs Monitor is complete.

B.

This case calls for a straightforward application of the

complete arbitration rule. As noted, the complete arbitration

rule provides that a federal court asked to review an

arbitrator’s decision should refrain from doing so until the

arbitrator has decided all facets of the dispute. Savers Prop. &

Cas. Ins. Co. v. Nat'l Union Fire Ins. Co., 748 F.3d 708, 719

(6th Cir. 2014). Accordingly, when a labor arbitrator first

decides liability questions and reserves jurisdiction to decide

remedial questions at a later time, as appears to be quite

common, see Union Switch, 900 F.2d at 611, a federal court

should generally withhold review of the arbitrator’s liability

12 decision until the arbitrator has had the opportunity to rule on

the remedial questions as well. See McKinney Restoration Co. v.

Ill. Dist. Council No. 1 of Int’l Union of Bricklayers, 392 F.3d

867, 872 (7th Cir. 2004); Pub. Serv. Elec. & Gas Co., 703 F.2d

at 70.

Here the Jobs Monitor issued a decision as to the liability

phase of the parties’ dispute, but retained jurisdiction over

the remedies phase should the Union and the Companies fail to

agree on a remedy on their own. J.A. 69-70. Because the Jobs

Monitor was not finished with the dispute, the complete

arbitration rule counsels that we refrain from stepping in at

this juncture. If this dispute is destined to eventually make

its way to court, it is far better for it to come in one whole

piece than in dribs and drabs.

The Companies argue, however, that application of the

complete arbitration rule to this case is not so

straightforward, and offer reasons why we should review the

merits of the Jobs Monitor’s liability decision. First among

those reasons is that the Companies and the Union chose to

bifurcate their dispute into separate liability and remedial

proceedings. The Companies highlight decisions permitting

judicial review of a labor arbitrator’s liability decision when

the parties decide beforehand to deal separately with the

liability and remedial aspects of their dispute. Smart v. Int'l

13 Bhd. of Elec. Workers, Local 702, 315 F.3d 721, 726 (7th Cir.

2002); Providence Journal Co. v. Providence Newspaper Guild, 271

F.3d 16, 19-20 (1st Cir. 2001).

It is true that the parties agreed to bifurcate their

dispute into two proceedings, one to address liability, and one

to address remedies, if necessary. Given the nature of the

dispute, this seems like a sensible approach. It is unsurprising

that the parties could not find common ground on the question of

whether the Jobs MOU survived the spinoff -- this is a zero sum

liability question on which neither party would want to give in.

No doubt, though, the parties at least contemplated the

possibility of some compromise as to the remedies question once

they received a definitive answer as to liability. One of the

many virtues of arbitration is that parties can segment the

dispute resolution process in a manner that enhances the

prospects for settlement.

That the parties agreed to bifurcate their arbitration

proceedings does not change the fact that they also agreed to

submit the entire dispute -- both the liability and remedies

questions -- to arbitration. The arbitration clause in the Jobs

MOU provides that “[a]ny dispute alleging a breach of th[e]

[Jobs] MOU” may be submitted to the Jobs Monitor for resolution.

J.A. 79. And it is clear from the Jobs Monitor’s written

decision that the “matter” given to him by the parties included

14 both the liability and remedial facets of the dispute. J.A. 57.

For understandable reasons, the parties asked the Jobs Monitor

to deal with each question in a separate “proceeding.” J.A. 57.

That is, the parties gave the Jobs Monitor one large task, and

then asked him to deal with that task in a specific, segmented

manner. There is nothing unjust about a decision to withhold

review until the arbitrator has completed both segments of the

whole task that was given to him.

The Companies also argue that we should proceed to the

merits because it would be more efficient to have judicial

review now rather than later. The Companies essentially contend

that it would be a waste of resources to force the parties to

proceed through the remedial phase of the arbitration if the

Companies’ position on the liability question is eventually

determined by a court to be correct. This argument sweeps too

broadly. It could in principle be applied to all but the

simplest cases, because it could always be claimed that judicial

review of an arbitrator’s liability ruling might potentially

save the parties and the arbitrator remedial time. In fact, the

Companies’ argument could even be used to support one party’s

right to claim immediate recourse to court in disputes where

there is no semblance of bifurcation.

Moreover, the Companies’ efficiency argument overlooks the

widely held view that the sort of interlocutory appeal the

15 Companies are requesting can, if not circumscribed, become

“inherently ‘disruptive, time-consuming, and expensive.’” Prado-

Steiman ex rel. Prado v. Bush, 221 F.3d 1266, 1276 (11th Cir.

2000) (quoting Waste Mgmt. Holdings, Inc. v. Mowbray, 208 F.3d

288, 294 (1st Cir. 2000)). One notable reason interlocutory

appeals tend to reduce rather than promote efficiency is that

they often “require[] the appellate courts to consider issues

that may be rendered moot if the appealing party ultimately

prevails in or settles the case.” Id.

Were we to review the merits of the liability decision now,

we may end up considering an issue later rendered moot. As

noted, the Jobs Monitor has yet to decide if Black Beauty’s work

with United Minerals is exempt from the Jobs MOU. And as far as

we are aware, Black Beauty’s work with United Minerals is the

only potential breach of the Jobs MOU that the Union has thus

far identified. If, therefore, the Jobs Monitor finds that Black

Beauty’s work with United Minerals is exempt, and if the Union

does not identify other potential breaches of the Jobs MOU, then

our review of the liability decision will have had no practical

impact on the parties’ dispute. And no matter what the Jobs

Monitor might do during the remedial phase, settlement is always

a possibility. Dollars and cents are fertile subjects for

compromise. Having lost on the liability question, the Companies

16 may decide to negotiate an alternative jobs agreement or reach

some other monetary agreement with the Union.

In addition, the Companies’ efficiency argument is undercut

by the particularized nature of this dispute. It is not as if a

court ruling on the liability question now would settle a common

issue for multiple cases proceeding simultaneously before

different arbitrators. The liability question is instead of

concern only to Peabody Holding and Black Beauty.

And even if a court ruling at this juncture would in some

way advance systemic efficiency, we would hesitate to make such

a ruling in light of the fact that the Jobs Monitor’s decision

on the liability question will not have any real-world effect

until either the parties or the Jobs Monitor decide on a

corresponding remedy. One rationale that has been given for

allowing a court to review an arbitrator’s liability decision in

a bifurcated arbitration is that the liability decision was

“expressly intended to have immediate collateral effects” in

another proceeding. Trade & Transp., Inc. v. Nat. Petroleum

Charterers Inc., 931 F.2d 191, 195 (2d Cir. 1991). But the

Companies have identified no similar adverse consequences here.

That the Jobs Monitor’s decision has no such immediate impact

bolsters our decision to withhold judicial review in this case.

Finally, the Companies’ whole line of argument for

immediate judicial review runs awkwardly into a first principle

17 of arbitration: that “arbitration is a matter of contract.” Am.

Exp. Co. v. Italian Colors Rest., 133 S. Ct. 2304, 2309 (2013).

Because arbitration is contractual in nature, parties to an

arbitration agreement are generally free to fashion the arbitral

process to best suit their needs. See Vulcan Chem. Techs., Inc.

v. Barker, 297 F.3d 332, 340 (4th Cir. 2002). For instance, they

may agree among themselves which questions will go to

arbitration, which law the arbitrator will apply in the

arbitration, and which procedural rules the arbitrator will use

to manage the arbitration. The agreement fashioned by the

parties deserves judicial respect. Here, we have done nothing

more or less than honor the arbitral ground rules the Companies

and the Union have established for themselves.

III.

Arbitration plays a critical role in our nation’s system of

labor relations. By providing a forum in which labor and

management can meet to peaceably resolve their differences,

labor arbitration serves as a “substitute to industrial strife.”

Gateway Coal Co. v. United Mine Workers, 414 U.S. 368, 378

(1974) (quoting United Steelworkers v. Warrior & Gulf Nav. Co.,

363 U.S. 574, 578 (1960)). For this reason, Congress has adopted

a “federal policy favoring arbitration of labor disputes.”

Granite Rock Co. v. Int'l Bhd. of Teamsters, 561 U.S. 287, 299

(2010) (quoting Gateway Coal Co. 414 U.S. at 377). The Companies

18 have given us no reason to disrespect the important place that

labor arbitration occupies in our economy by intervening

prematurely and hearing this dispute before the arbitrator has

completed his job. We therefore vacate the district court’s

ruling and direct that court to remand this case to the Jobs

Monitor for further proceedings.

VACATED AND REMANDED

19