Seventh Circuit Court of Appeals Commentary : In Their Opinion : Lawyer & Attorney Michael E. Rigney : Kelley Drye & Warren Law Firm

AFFYMAX v. ORTHO-MCNEIL-JANSSEN PHARMACEUTICALS (October 3, 2011)

Affymax and Ortho-McNeil-Janssen Pharmaceuticals created a joint venture in 1992 to develop peptide compounds. Their agreement assigned ownership based on development efforts. If a compound was jointly developed, it was jointly owned. If a compound was solely developed by either company, that company owned it. The parties also agreed to arbitrate all ownership disputes. Affymax brought suit in 2004 with respect to the ownership of the so-called '940 family and '078 family. After arbitration, a panel concluded that Ortho owned the ‘078 family and that the parties jointly owned the ‘940 family. Judge Kennelly (N.D. Ill.) confirmed most of the arbitration ruling but vacated the award with respect to its conclusion that Ortho owned the foreign patents in the ‘078 family. Ortho appeals (Affymax also appealed, but to the Federal Circuit).

In their opinion, Seventh Circuit Chief Judge Easterbrook and Judges Wood and Tinder reversed. The Court first addressed appellate jurisdiction. Patent controversies that arise over a contractual dispute, as this one does, arise under the contract, not the patent. Therefore, the Federal Circuit's jurisdiction over patent disputes has not been triggered. The Court concluded that it was the proper forum, with jurisdiction over the district court's order vacating a part of the panel's award. On the merits, the Court noted that the Federal Arbitration Act gives four reasons a district court may rely on in vacating an arbitration award. The reason given by the district court here – the panel’s disregard of law -- is not one of those four reasons. The court's order was therefore error, if in fact that was the only basis for its conclusion. Before finding error, the Court considered whether the panel exceeded its powers, which is one of the four reasons permitting the vacation of an award, and is somewhat related to the district court's rationale. The Court concluded that the panel resolved the dispute pursuant to the 1992 contract’s directions and did not exceed its powers in doing so.

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ROUGHNECK CONCRETE DRILLING & SAWING CO. v. PLUMBERS’ PENSION FUND (April 7, 2011)

Roughneck Concrete Drilling & Sawing Co. is a Chicago-based construction company. Its concrete drilling services are used in the building construction industry. Sometimes its services are used in connection with a building's plumbing, sometimes in connection with a building’s electrical system, and sometimes in connection with other aspects of a building’s construction. Roughneck employs union plumbers or electricians or laborers, depending on the purpose of its work. It has collective bargaining agreements with unions representing each. The pension fund representing the plumbers union conducted an audit and concluded that Roughneck had done plumbers work without employing plumbers. They concluded that Roughneck owed $2.2 million in contributions. They filed grievances with the Joint Arbitration Board pursuant to the collective bargaining agreement. Roughneck responded by filing its own grievance. Several days before the scheduled JAB hearing, Roughneck wrote to the administrator of the National Plan, an agreement between employers and the national unions. Roughneck claimed that the Fund's grievances were "impediments to job progress" and that the dispute should therefore be resolved by the Joint Conference Board. The JCB resolves jurisdictional disputes between different crafts. The Fund disagreed but the National Plan administrator scheduled a hearing for the day before the JAB hearing. At the JCB hearing, an arbitrator ruled that the dispute was in fact beyond the authority of the JAB and ordered the JAB hearing canceled. No one told the JAB about the order, so it went forward with the hearing. Roughneck did not attend. The JAB found for the Fund and ordered Roughneck to pay over $3.3 million. Roughneck filed two actions -- one to vacate the JAB order and one to enforce the JCB order. Judge Lefkow (N.D. Ill.) found for the Fund, concluding that Roughneck had waived its objection to the JAB's jurisdiction, both by submitting a grievance and by not appearing at the hearing. It was therefore bound by the JAB order and could not avail itself of the JCB order. Roughneck appeals.

In their opinion, Judges Bauer, Posner, and Williams reversed and remanded. The Court first concluded that the Fund's failure to bring suit to set aside the JCB order did not prevent it from raising a defense in Roughneck's suit to set aside the JAB order. It could have sued to set aside that order but it would be redundant to require it to file its own suit when it raised a timely challenge in Roughneck’s suit. On the merits, the Court concluded that Roughneck did not waive any rights. Roughneck could have handled things better -- it could have invoked the jurisdiction of the National Plan earlier, it could have informed the JAB of the JCB decision, it could have shown up at the JAB hearing. Nevertheless, it did withdraw its consent to the JAB arbitration before any order was issued. It was entitled to do so. Finally, the Court noted that judicial review of arbitration awards is so limited that multiple, inconsistent awards can be enforced. Here, however, it is impossible for the parties to comply with both orders. The Court reversed with instructions to vacate the JAB order and enforce the JCB order.

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PRATE INSTALLATIONS, INC. v. CHICAGO REGIONAL COUNCIL OF CARPENTERS (June 4, 2010)

Prate Installations, Inc. filed a grievance against its Union, the Chicago Regional Counsel of Carpenters, in 2003. Prate alleged that the Union's requirement that Prate pay hourly wages while allowing competitors to pay on a piece work basis violated the Collective Bargaining Agreement (CBA). The parties selected an arbitrator in accordance with the terms of the 2001 CBA. Arbitrator Martin issued an award in September of 2008. He awarded close to $10 million in damages, injunctive relief and attorney's fees. Meanwhile, the parties entered into a new CBA in 2005 that modified the arbitration procedure. It established a rotating panel of arbitrators -- Martin was not on the panel. Prate brought suit to confirm the award. Judge St. Eve (N.D. IL) confirmed the damages award, as amended to eliminate damages after the revised CBA, and the attorneys’ fees. She also vacated the equitable relief because it applied after the expiration of the earlier CBA. Both parties appeal.

In their opinion, Chief Judge Easterbrook and Judges Cudahy and Manion affirmed. The Court noted that their review of the arbitration award is quite limited. Here, the arbitrator relied on the contract in concluding that the Union was in violation. The district court correctly upheld that conclusion. The Court also found that the district court correctly determined that Arbitrator Martin had no authority under the 2005 CBA. His damages award covering the period after the new CBA was therefore improper. The analysis of the equitable award is slightly different. Martin could have ordered equitable relief if he issued his award prior to the expiration of the earlier agreement. Since he did not, however, the Court concluded that it had to treat the equitable remedy like the damages remedy and vacated it.

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 UNITED FOOD AND COMMERCIAL WORKERS v. ILLINOIS-AMERICAN WATER COMPANY (June 26, 2009)

Glenn Williams was a wastewater treatment operator for Illinois-American Water Company ("IAWC"). IAWC discovered that Williams was operating without a required Illinois EPA license. Because it was Williams' second offense, it was punishable by termination. Instead of firing Williams, however, IAWC offered him a Last Chance Agreement ("LCA"). Under the LCA, Williams was suspended without pay for 30 days, he was required to obtain his license within six months, and he was required to repay the extra compensation he received as a result of IAWC's belief that he was licensed properly. The LCA also provided that failure to comply would result in Williams' immediate termination and any disputes regarding the agreement would be resolved through the collective bargaining agreement’s arbitration procedure. The United Food and Commercial Workers Union, which represented Williams, filed a grievance contesting the LCA's validity. When Williams failed to make repayment arrangements, IAWC terminated his employment. The union filed a second grievance. The grievances were consolidated and brought before an arbitrator. The arbitrator ruled against the union on the validity of the LCA but ordered Williams reinstated. He concluded that the termination was improper because of the pending, good faith challenge to the LCA itself. On review, the district court confirmed the arbitration award. The union appeals.

In their opinion, Judges Posner, Kanne and Wood affirmed. The Court identified its limited role in reviewing arbitrator's awards. As long as an arbitrator bases his decision on an interpretation of the agreement, the court will enforce the award. Here, the arbitrator confronted a situation that he thought was not covered by the agreement. One provision gave IAWC the absolute right to terminate Williams' employment. Another provision gave the union the right to challenge the validity of the LCA. The arbitrator concluded that the agreement contained an implied term – that Williams' employment could not be terminated during the pendency of a good faith grievance over the validity of the agreement itself. Since his award was based on an interpretation of the agreement, the Court affirmed.

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CLEAR CHANNEL OUTDOOR, INC. v. INTERNATIONAL UNIONS OF PAINTERS AND ALLIED TRADES (March 12, 2009)

Clear Channel Outdoor ("CCO ") owns and maintains hundreds of billboards in and around Milwaukee. Patrick Rogney was a CCO crew chief. In April of 2003, Rogney was working with a crew on a billboard in Milwaukee. They were on a platform about 18 feet off the ground. At some point, he disconnected his safety harness from the cable. A company official, conducting a field inspection, observed Rogney at work without the connected harness. After observing for about eight minutes, he notified the operations manager by phone. CCO suspended Rogney that afternoon, and later discharged him. The union filed a grievance, alleging that the termination was without good cause. Pursuant to the collective bargaining agreement, the parties submitted the matter to an arbitrator. After an evidentiary hearing, the arbitrator determined that Rogney's discharge was without just cause and that an appropriate penalty was a six-month suspension without pay. The arbitrator interpreted "just cause" to require CCO to not only consider whether an offense allowing termination was committed but also to consider whether termination was warranted under the circumstances. CCO brought an action to vacate the arbitrator's award. The district court confirmed the arbitrator's decision. CCO appeals.

In their opinion, Judges Rovner, Wood and Williams affirmed. The Court emphasized its limited role in reviewing a labor arbitrator's decision -- only to determine whether the arbitrator exceeded the powers delegated to him. Here, the Court looked to whether the arbitrator's decision had a plausible foundation in the terms of the collective bargaining agreement. The Court noted that it did not necessarily agree with the arbitrator's construction of the contract. In fact, the collective bargaining agreement gave CCO discretion to fire an employee for a violation of the very safety rule that Rogney violated. Nevertheless, the Court concluded that the arbitrator "without question" interpreted the agreement. Since his decision drew its essence from the agreement, the Court let it stand and affirmed the district court.

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