Federal Judiciary

Time of contract formation should be resolved by courts, rather than arbitrator

By Akin Gump Supreme Court Practice Group

Timothy Tatarka is a recent graduate of Stanford Law School.

On June 24, 2010, the Court ? by a vote of seven to two ? held that the issue of when an arbitration contract was formed, as well as whether the contract was formed, is properly determined by a court rather than by an arbitrator if the determination affects whether the parties intended to submit the dispute at issue to arbitration.  The Court also unanimously declined to create a new federal common-law cause of action under Section 301 of the Labor Management Relations Act for tortious interference with a collective bargaining agreement.  [You can read my preview of the case and recap of oral argument here and here.]

The case arises out of a labor dispute in which the parties contest whether the collective bargaining agreement was formed at the time of the disputed action.  In an opinion by Justice Thomas, the Court concluded that because the question of when the contract was formed was central to whether the parties intended to have the dispute decided in arbitration, that question was properly decided by a court.  The Court emphasized that a court may only order arbitration when the parties agreed to arbitrate that dispute; thus, it should order arbitration only if is satisfied both that the arbitration agreement was formed and that it is enforceable or applicable to the dispute at issue.

The Court rejected arguments that arbitration was appropriate in this case based on the presumption that disputes will be arbitrated and the ?federal policy in favor of arbitration.?  It explained that the policy was meant only to put labor disputes on the same footing as other contracts; it was not intended to override the principle that a court may only order arbitration of suits that the parties intended to submit to arbitration.  The Court also rejected the union?s argument that issue was not one of contract formation at all because a later collective bargaining agreement explicitly stated that it was retroactive to the time of the disputed actions.  That issue, the Court held, was waived because the union had failed to raise it either before the court of appeals or at the certiorari stage.

Justice Sotomayor filed a dissenting opinion, which was joined by Justice Stevens.  Although she agreed that the union?s failure to raise the retroactivity issue sooner was ?regrettable and inexcusable,? in her view the issue must be addressed as a predicate to the question presented; the Court?s failure to address it, she concluded, results in little more than an advisory opinion.

On the second issue before it, the Court unanimously declined to create a federal common-law cause of action under Section 301 of the LMRA for tortious interference with a collective bargaining agreement against an international union.  The Court approvingly noted that virtually all of the courts of appeals had recognized that the common law of collective bargaining agreements under Section 301 should be a common law of contracts rather than a source of independent tort rights.  Even assuming, however, that Section 301 did create such authority, it would be premature to create such a tort action because the employer in this case did not demonstrate that its state law or regulatory avenues of holding the parent union accountable were insufficient.

Full post as published by SCOTUSBLOG on June 27, 2010 (boomark / email).