Resolving the Dispute: the Ninth Circuit Brings Side Agreements Into Scope in the Conflicts Over Arbitration in Inlandboatmens Union v. Dutra Group

• Publication year: 2022

36 Creighton L. Rev. 717. RESOLVING THE DISPUTE: THE NINTH CIRCUIT BRINGS SIDE AGREEMENTS INTO SCOPE IN THE CONFLICTS OVER ARBITRATION IN INLANDBOATMENS UNION V. DUTRA GROUP

Creighton Law Review

Vol. 36

INTRODUCTION

Pursuant to § 301 of the Labor Management Relations Act ("LMRA")(fn1), parties to a labor contract such as a collective bargaining agreement ("CBA") may bring a breach of contract action in federal district court.(fn2) Section 301 of the LMRA grants original jurisdiction to federal courts in cases involving CBAs.(fn3) Regardless of the amount in controversy or diversity of citizenship, § 301 allows parties to enforce labor contracts in federal district courts having proper jurisdiction.(fn4) However, when a CBA contains an arbitration clause, federal courts will give deference to the arbitration clause.(fn5) Section 301 acts as an alternative for parties facing bargaining issues when the CBA fails to contain an arbitration clause or when parties have exhausted their non-judicial remedies.(fn6)

Presently, federal courts use two different approaches to determine whether a side agreement dispute is arbitrable pursuant to the arbitration clause in a CBA.(fn7) The first approach (the "Similarity Approach") compares the subject matter of the CBA to the subject matter of the side agreement.(fn8) The second approach (the "Scope Approach") compares the scope of the CBA's arbitration clause to the subject matter of the side agreement but allows parties to except side agreement disputes in the CBA.(fn9)

Current federal labor law policy, as noted by the United States Supreme Court, encourages parties to arbitrate grievance disputes in the interest of maintaining industrial peace.(fn10) Labor law policy man-dates that federal courts shape federal substantive law according to federal policy.(fn11) Congressional policy prefers settlement of labor management disputes through arbitration.(fn12) However, while parties cannot be forced to submit disputes to arbitration when they have not agreed to arbitration, a preference of arbitration exists when the parties' CBA provides a broad arbitration clause that covers all disputes, unless the parties specifically excluded the dispute from arbitration in the CBA.(fn13)

In Inlandboatmens Union v. Dutra Group,(fn14) the United States Court of Appeals for the Ninth Circuit relied on federal labor law policy in requiring parties to arbitrate a side agreement dispute pursuant to the arbitration clause contained in the CBA.(fn15) In doing so, the Ninth Circuit followed the approach used to resolve disputes over settlement agreements by the United States Courts of Appeals for the Third and Seventh Circuits, rather than the approach used by the United States Courts of Appeals for the Second and Fourth Circuits.(fn16) In Dutra, the Ninth Circuit held that a side agreement dispute was arbitrable under a CBA if the scope of the arbitration clause covered the subject matter of the side agreement.(fn17) Thus, the court determined that the scope of an arbitration clause governed whether a side agreement was arbitrable under a CBA.(fn18)

This Note will first review the facts and holding of Dutra.(fn19) Next, this Note will examine the federal statutory language regulating labormanagement agreements as well as cases involving such language.(fn20) In addition, this Note will discuss cases establishing federal labor law policy as noted by the United States Supreme Court.(fn21) This Note will also discuss prior cases involving the circuit split on the issue of whether a side agreement is arbitrable under the arbitration clause of a CBA.(fn22) Finally, this Note will examine the court's decision in Dutra and will agree with the court's holding, which required the parties to arbitrate a side agreement dispute under the broad scope of the arbitration clause contained in the CBA.(fn23) This Note will commend the court for 1) correctly determining that a court lacks jurisdiction over a side agreement dispute when the parties' CBA contains an arbitration clause covering the dispute; 2) following labor law policy as noted by the United States Supreme Court; and 3) deciding to follow and apply the correct approach in the Dutra case.(fn24) This Note will conclude that the Scope Approach, rather than the Similarity Approach, should apply to situations where parties form a side agreement separate from a CBA because the Scope Approach maintains industrial relationships by allowing parties to decide to include or exclude side agreement disputes through the scope of an arbitration clause in the CBA.(fn25)

FACTS AND HOLDING

In Inlandboatmens Union v. Dutra Group,(fn26) the Dutra Group ("Dutra"), a marine construction company, employed deckhands belonging to the Inlandboatmens' Union of the Pacific ("IBU").(fn27) The IBU, a labor organization, had historically represented Dutra's deckhand employees.(fn28) The deckhands performed services on Dutra's tugboats and barges in the San Francisco Bay area.(fn29) In 1994, IBU and Dutra formed a collective bargaining agreement ("CBA") to govern their relationship.(fn30) The CBA provided that only IBU workers could perform services on Dutra barges.(fn31) Grievance procedure mechanisms in the CBA provided that arbitration would be the final stage of the grievance procedure process.(fn32)

In 1997, a dispute arose between the parties when Dutra formed an agreement with a subcontractor to perform services on Dutra's barges.(fn33) Because the subcontractor failed to employ IBU members, IBU filed a grievance complaint in November 1997, stating that Du-tra's actions breached the CBA.(fn34) After two years of attempting to apply the grievance mechanisms in the CBA, the parties agreed to arbitrate the dispute in accordance with the CBA.(fn35) However, on August 23, 1999, before beginning the arbitration process, the parties resolved the complaint through a settlement agreement, or "side agreement."(fn36) Dutra and IBU formed the settlement agreement to protect IBU members in subcontracting agreements.(fn37) The parties formed the settlement agreement separate from their preexisting CBA.(fn38) Shortly thereafter, IBU claimed that Dutra had violated the settlement agreement when Dutra's subcontractor had failed to employ IBU members on a Dutra subcontracting work project.(fn39)

In the United States District Court for the Northern District of California, IBU sought to enforce the settlement agreement and collect damages.(fn40) IBU filed an action under § 301 of the Labor Management Relations Act ("LMRA")(fn41) to enforce the settlement agreement.(fn42) Section 301(a) of the LMRA provided that parties having a labormanagement relationship could bring an action regarding a contractual dispute in federal district court.(fn43) In response to IBU's action, Dutra filed a motion to dismiss, claiming the district court lacked subject matter jurisdiction because the arbitration clause in the CBA governed the conflict over the settlement agreement.(fn44) The district court granted Dutra's motion, dismissing the action under Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction.(fn45) The district court determined it lacked jurisdiction because IBU had failed to exhaust the grievance procedure mechanisms in the CBA.(fn46) Thereafter, IBU appealed the district court's decision to the United States Court of Appeals for the Ninth Circuit.(fn47)

On appeal, the Ninth Circuit affirmed the district court's decision, which stated that IBU had failed to exhaust the nonjudicial remedies provided in the CBA.(fn48) The Ninth Circuit determined that the settlement agreement dispute between Dutra and IBU was arbitrable under the CBA.(fn49) Further, the Ninth Circuit noted that IBU failed to arbitrate the settlement agreement dispute pursuant to the CBA.(fn50)

IBU argued that the settlement agreement was not arbitrable because the agreement did not contain a provision allowing for arbitration.(fn51) IBU also argued that the settlement agreement was enforceable in federal court and that the parties were not required to return to the same dispute resolution procedures that had resulted in the settlement agreement.(fn52) Dutra, on the other hand, argued that the settlement agreement dispute was arbitrable because the arbitration clause in the CBA covered the dispute.(fn53) Specifically, Dutra argued that when a CBA contained a broad arbitration clause, the party challenging arbitration was required to exhaust grievance procedures prior to initiating a civil suit.(fn54) The Ninth Circuit agreed with Dutra, stating that a side agreement dispute was arbitrable under a CBA where the scope of the arbitration clause in the CBA covered the subject matter found in the side agreement.(fn55)

In determining that the side agreement was arbitrable under a CBA, the Ninth Circuit examined two rules prevalent from federal labor cases.(fn56) The Ninth Circuit explained that the first rule demonstrated a preference for arbitration based on labor law policy in cases of uncertainty regarding arbitration.(fn57) The Ninth Circuit stated that pursuant to this policy, if the arbitration clause in a CBA was broad in scope, then a presumption of arbitration existed.(fn58) The Ninth Circuit also determined that the second rule provided that a CBA should encompass the parties' entire relationship, not only provisions expressed in...