[00:00:00] Speaker 02:
Good morning.

[00:00:01] Speaker 02:
Welcome to the Ninth Circuit.

[00:00:04] Speaker 02:
Judge Thomas and I would like to extend a special welcome to Judge Bennett from the United States District Court for the District of Maryland, who's sitting with us.

[00:00:12] Speaker 02:
We're very grateful for your willingness to come and help us with our work.

[00:00:14] Speaker 01:
Thank you very much, Judge Miller and Judge Thomas.

[00:00:16] Speaker 01:
It's an honor to be here, as always.

[00:00:19] Speaker 02:
We'll hear argument first this morning in Operating Engineers Local 3 against Marathon Petroleum Company.

[00:00:27] Speaker 02:
Mr. Carter.

[00:00:44] Speaker 03:
Good morning, Your Honor.

[00:00:45] Speaker 03:
As you noted, I'm Arthur Carter.

[00:00:47] Speaker 03:
I'm here on behalf of Marathon Petroleum Company.

[00:00:50] Speaker 03:
I think I would like to reserve at least two minutes for rebuttal.

[00:00:56] Speaker 02:
OK, we'll just keep an eye on the clock.

[00:00:58] Speaker 03:
We'll try to remind you.

[00:00:59] Speaker 03:
Very good.

[00:00:59] Speaker 03:
Thank you so much.

[00:01:01] Speaker 03:
So the question before the district court was whether to compel arbitration over a dispute involving covered versus uncovered work.

[00:01:12] Speaker 03:
And the district court made a decision to compel arbitration, and in doing so, erred in three critical respects.

[00:01:21] Speaker 03:
One, it failed to cite or really follow the dictates of the Supreme Court's decision in granite construction as to the framework necessary to decide questions of arbitrability.

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Part and parcel of that failure to consider granite construction

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is that it applied a presumption of arbitrability to determine the dispute in question was subject to arbitration, and it failed to consider this issue of whether the excluded work took the dispute out of the scope of the arbitration clause, and instead characterized that question as involving a determination of the merits.

[00:02:02] Speaker 03:
Sub-solentio, it deferred to the arbitrator the question of, is the dispute subject to arbitration or not, and didn't consider the facts as to whether the grievance really raised a question of work excluded from the scope of the agreement.

[00:02:17] Speaker 02:
Just to start with something very basic.

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You don't dispute that you're a party to the agreement.

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That's correct.

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Nor that the agreement contains an arbitration clause.

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That's not disputed.

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And the clause in 8.1 says that it covers any question arising out of, during the term of the agreement involving its interpretation and application.

[00:02:38] Speaker 02:
So why, why isn't this question, you know, that they say this is covered work, you say it's not.

[00:02:44] Speaker 02:
That sounds like a question involving the interpretation and application of the agreement.

[00:02:50] Speaker 02:
So why doesn't that fall within the language of 8.1?

[00:02:53] Speaker 03:
Your Honor, it doesn't fall within the language of 8.1 because there are significant carve-outs and exclusions in the PLA.

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So you look and you start with the definition of what the PLA covers.

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I believe it's at 1.4.

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And it describes covered work.

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And then you have all in section two of the PLA a description of both covered work and excluded work.

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And there are several categories of excluded work.

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And probably what's most pertinent to the dispute here is quality assurance and quality control work.

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And so it follows that if work is excluded from the coverage of the PLA, the PLA has no force and effect or governance of that kind of work, and the arbitration clause and the grievance just has no force and effect.

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And that's the basic argument is that because that work is excluded, the PLA is not operative, and therefore,

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It was incumbent upon the district court to determine whether or not this grievance involved excluded or non-covered work.

[00:03:57] Speaker 01:
It doesn't expressly include grievances about soils and material inspection, does it?

[00:04:03] Speaker 03:
The soils and materials inspection is included, Your Honor, as covered work.

[00:04:09] Speaker 01:
Yes.

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Is it your view that there's something special about the particular covered work claim that you're making here?

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Or is your position really that any dispute about whether work is or is not covered would not be subject to arbitration?

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Because if it's not covered on your theory, it's just outside the scope of the agreement altogether.

[00:04:33] Speaker 03:
Your Honor, that's a good encapsulation of Marathon's position.

[00:04:37] Speaker 03:
If the work is excluded from coverage under the Project Labor Agreement,

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It's not subject to grievance or arbitration.

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The Project Labor Agreement has no force and effect over that work.

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Therefore, to determine whether a dispute over non-covered work is subject to arbitration is necessary.

[00:04:58] Speaker 02:
That seems very hard to reconcile with 8.1, which says any question involving interpretation and application of the agreement.

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What is the scope of the agreement?

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What work is covered seems like a pretty basic kind of question involving the interpretation and application of the agreement.

[00:05:18] Speaker 03:
Okay, so the scope of the agreement is clear.

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It excludes non-covered work.

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So then what your question suggests is that perhaps there's a factual question as to whether the work that the grievance is over

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falls within the scope of covered or uncovered work.

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But you can't get to a question of arbitration until there's a determination up front is does this grievance involve excluded or non-covered work.

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And that's consistent with... But they say that it does, right?

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I mean, that's what the dispute is.

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Well, you can always create a dispute by having conflicting arguments and conflicting contentions.

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That's salient in every contract dispute.

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One party says we have a breach and the other party says we don't.

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So how do you resolve the matter?

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Well, usually you send it to arbitration when there's an arbitration clause that says... If 8.1 said any question involving interpretation application, accept questions about non-covered work, then you would have a stronger argument, I think.

[00:06:29] Speaker 02:
But the arbitration clause seems like it covers any dispute that the parties might have about the agreement, doesn't it?

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Well, I think that the teaching of granite construction is that a court must look at more than just the arbitration clause.

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It must assay the entire agreement to make a determination of whether the parties intended for particular disputes to be subject to arbitration.

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And the further teaching of granite construction, and it goes directly contrary to what the district court did here,

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is that even when there's no express exclusion in the arbitration clause, it's not appropriate to apply the presumption of arbitrability.

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court still has to make an inquiry as to whether this is a dispute that the parties intended to arbitrate.

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And here you have these significant carve-outs of types of work that the project labor agreement does not apply to.

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And if the project labor agreement doesn't apply to that kind of work, it's simply not arbitrable.

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The judicial inquiry is whether this grievance is raising an issue that's covered work or not covered work.

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And so the difference between what the council may call as a conventional arbitration dispute in here is you have this big definition of things that are not subject to the Project Labor Agreement.

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And the judicial responsibility in that circumstance

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is to actually make factual determinations.

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Is this a dispute that's being raised that falls outside the scope of the agreement?

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And if it is, then the next question is, is this the kind of dispute that the parties intended to be excluded from arbitration?

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And it's clear they did because the Project Labor Agreement does not apply to excluded work.

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I can go on and I'm happy to do that.

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And so the thing that's, I think, notable here is that the framework for deciding questions of arbitrability is not what is thought of as the conventional steelworkers trilogy framework.

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The framework has been set forth in some detail

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and granite construction over the steps that the courts are to apply and follow.

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And so if you take the situation we have here and the question that your honor posed about, isn't it a question of is this excluded work or not, if the court doesn't decide that question of excluded work, what you are sub-Solentio doing is deferring to the arbitrator to decide the question of arbitrability.

[00:09:22] Speaker 03:
And the law is very clear that unless the parties have expressly agreed to do that,

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and have delegated that authority to the arbitrator, it's for the courts to decide arbitrability, not the arbitrator.

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So I'm going to say a couple of other things, because I think the argument here is pretty straightforward.

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I'm not going to really comment on the attorney's fees point of the appeal unless the court wants me to, because we think the issue's been thoroughly briefed.

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And there's a duel between the parties over what's the appropriate standard and what the district court did in this instance.

[00:10:03] Speaker 03:
With that, Your Honor.

[00:10:04] Speaker 01:
In effect, the district court applied both standards, did it not?

[00:10:07] Speaker 01:
I'm sorry, Your Honor.

[00:10:07] Speaker 01:
I didn't hear exactly what you said.

[00:10:09] Speaker 01:
I say in effect, in terms of whether it's the frivolous standards or the without justification standard on attorney's fees, it seemed the district court applied both.

[00:10:16] Speaker 01:
Did it not?

[00:10:17] Speaker 01:
It seemed.

[00:10:18] Speaker 03:
I thought so.

[00:10:20] Speaker ?:
Yeah.

[00:10:20] Speaker ?:
Yeah.

[00:10:20] Speaker ?:
Yeah.

[00:10:21] Speaker 03:
And we think obviously that the district court was correct in its ruling, and there is a solid basis for arguing that the matter was not arbitrable.

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And it's based on this idea and this framework that the responsibility is on the court to decide whether the parties intended for the matter to be subject to arbitration.

[00:10:41] Speaker 03:
And that's a judicial responsibility.

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And I'll say one more thing about granite construction besides disdaining the idea that it's inappropriate to per se follow and apply a presumption of arbitrability is in assaying the question the court had before it, it looked at the entire agreement because it had to look at a question of contract formation and consider the entire context.

[00:11:04] Speaker 03:
And that's basically the point here is that the district court in ruling on the question of arbitrability

[00:11:11] Speaker 03:
had to look at this question of, is this work excluded or included or not?

[00:11:16] Speaker 03:
Because if it's excluded, then it just follows as a matter of definition that the project labor agreement's not applicable and the matter cannot be subject to arbitration.

[00:11:29] Speaker 02:
Do you think it would have been possible to write a contract that made the sort of dispute at issue here subject to arbitration?

[00:11:38] Speaker 03:
Make it subject to arbitration?

[00:11:41] Speaker 02:
Parties decided, well, we want the question of what work is in and what work is out to be decided by an arbitrator.

[00:11:49] Speaker 02:
Is that something they could have done?

[00:11:51] Speaker 03:
Certainly, they can.

[00:11:52] Speaker 03:
In hindsight, it's always 20-20 in matters like this.

[00:11:59] Speaker 03:
I can't speak for the intentions of the union, but from a management perspective, they thought the job was done when they identified certain work that was excluded from the scope of the project labor agreement.

[00:12:12] Speaker 03:
So, for example, the PLA says that quality assurance, quality control work is not subject to disagreement.

[00:12:19] Speaker 03:
Management thought that that was done and dusted.

[00:12:21] Speaker 03:
That was the end of the story because it wasn't covered.

[00:12:30] Speaker 03:
Are there any further questions, Your Honors?

[00:12:32] Speaker 03:
It looks like there aren't, so if you want to reserve the rest of your time.

[00:12:35] Speaker 03:
I will do that, yes.

[00:12:36] Speaker 03:
Thank you so much.

[00:12:47] Speaker 02:
Ms.

[00:12:47] Speaker 02:
Goldsmith.

[00:12:48] Speaker 00:
Good morning.

[00:12:48] Speaker 00:
Eileen Goldsmith for the Union.

[00:12:50] Speaker 00:
I want to start with

[00:12:56] Speaker 00:
this Court's decision in Westinghouse Hanford, where this Court very clearly stated that in the context of determining arbitrability, the Court looks to the substantive provisions of the labor agreement only to see whether there are express exclusions from the arbitration clause.

[00:13:16] Speaker 00:
As the Court recognizes, Section 8.1 is a very broad, very standard arbitration clause in a labor agreement.

[00:13:23] Speaker 00:
It applies to any question involving the interpretation or application of the contract.

[00:13:30] Speaker 00:
There is no express exclusion in the arbitration clause or anywhere else in the PLA for disputes about whether or not particular work is covered.

[00:13:39] Speaker 00:
That's a bread and butter grievance under a PLA that labor lawyers see all the time.

[00:13:47] Speaker 00:
And that's arbitrable under a clause so broad as section 8.1.

[00:13:53] Speaker 00:
The argument that the district court would have to have a trial on whether or not the work is covered before determining whether or not an arbitration about whether the work is covered should go forward is completely contrary to the Steelworkers Trilogy, to this court's cases, and to Granite Rock.

[00:14:16] Speaker 00:
Granite Rock does not change that.

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Granite Rock simply

[00:14:23] Speaker 00:
describes how the court applies the presumption of arbitrability in the context of a labor arbitration.

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And in that case, as counsel

[00:14:39] Speaker 00:
as counsel just mentioned, the dispute concerning the issue of contract formation, was there actually a labor contract with an arbitration clause in effect at the time of the dispute?

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And that's why the court had to do that fact finding on its own, because that threshold issue of contract formation wasn't something that the parties had clearly and unmistakably delegated to the arbitrator.

[00:15:09] Speaker 00:
But here, all you need for the question whether this covered work grievance is arbitrable is the union argues that it falls within the scope of soils and materials testing and inspection and does work within the craft jurisdiction of the union.

[00:15:31] Speaker 00:
That's within the scope of covered work under section 2.1.

[00:15:34] Speaker 00:
Marathon's position is it falls within one of the exclusions.

[00:15:37] Speaker 00:
The exclusions involve many questions of interpretation and application of the agreement.

[00:15:44] Speaker 00:
2.3.5 involves did the parties have this meeting to go over the union signatory contractors and whether any of those

[00:15:55] Speaker 00:
were qualified specialty contractors?

[00:15:57] Speaker 00:
How did Marathon make its decision whether or not those contractors were qualified?

[00:16:02] Speaker 00:
Section 2.3.9, quality assurance, quality control, what does that mean?

[00:16:07] Speaker 00:
That involves questions of contract interpretation also.

[00:16:11] Speaker 00:
And then once the arbitrator does that interpretation, the arbitrator applies that interpretation to the facts as he or she finds them.

[00:16:24] Speaker 00:
I'd like to just turn for a few minutes to the fees.

[00:16:32] Speaker 00:
So the district court, we agreed that the district court identified the correct standard, the without justification standard, but we think the court misapplied it and this court should reverse and award fees.

[00:16:44] Speaker 02:
Before you get to the application, why is without justification the right standard?

[00:16:49] Speaker 00:
It's in this court's decision in alpha beta.

[00:16:54] Speaker 02:
Well, I mean, those words appear in the decision in Alpha Beta.

[00:16:59] Speaker 02:
But the core justification for fees, there's no express statutory authorization for fees.

[00:17:09] Speaker 02:
That's correct.

[00:17:10] Speaker 02:
So this all comes out of the general exception to the American rule in cases where

[00:17:19] Speaker 02:
The losing party acted in bad faith or vexatiously.

[00:17:22] Speaker 02:
Would you agree with that?

[00:17:24] Speaker 00:
Yes.

[00:17:28] Speaker 02:
Why?

[00:17:29] Speaker 02:
What is your understanding then of what without justification means?

[00:17:38] Speaker 02:
Maybe you could elaborate on what you think that standard means.

[00:17:42] Speaker 00:
First, starting with Western industrial maintenance, Western industrial maintenance kind of pulled out of bad faith that it includes refusing to abide in this particular context of labor agreements, refusing to abide by an agreement to arbitrate in such a way that the plaintiff is forced to vindicate their clear legal rights through litigation and in the context of labor arbitration,

[00:18:10] Speaker 00:
That's problematic because arbitration is the substitute for labor disputes, for labor strife, for the economic disruption that comes with all of that.

[00:18:21] Speaker 00:
And therefore, Congress and the courts in enforcing labor agreements to arbitrate, going back to Lincoln Mills, sees that

[00:18:34] Speaker 00:
those agreements play this very important function in this context that really need to have the weight behind them that a party shouldn't be abandoning that promise where that just causes delay and increased labor strife.

[00:18:56] Speaker 00:
So then, you know,

[00:19:01] Speaker 00:
Taking it from that perspective, it is not necessary for an argument to be objectively frivolous, to be without justification.

[00:19:14] Speaker 00:
Without justification should have more weight to it, should deter parties from raising arguments that they really know they're going to lose.

[00:19:27] Speaker 00:
Even if they're colorable, they really know they're going to lose.

[00:19:30] Speaker 00:
They run headlong into the Steelworkers Trilogy, or they're really arguments about the merits of the grievance, which is the kind of argument we were hearing from counsel earlier, whether or not the work is covered work.

[00:19:44] Speaker 00:
That's something for the arbitrator to decide, and the courts have been saying that going back to the Steelworkers Trilogy in 1960.

[00:19:51] Speaker 00:
So they know that that is a very hard uphill climb.

[00:19:57] Speaker 00:
to persuade a court that a court should decide the merits of a grievance.

[00:20:04] Speaker 02:
But I take it you don't dispute that it requires something more than just the fact that the losing side lost, right?

[00:20:15] Speaker 02:
It's not just that the argument fails to persuade the court.

[00:20:18] Speaker 02:
It has to be more wrong than that.

[00:20:20] Speaker 00:
I would agree it has to be more wrong than that.

[00:20:23] Speaker 02:
But you think it's less wrong than being frivolous.

[00:20:27] Speaker 00:
Exactly, and the reason you have to find that middle ground there is to make this system of labor arbitration work the way it's supposed to, because it's supposed to give parties a speedy resolution of disputes in exchange, in almost all cases, including in this case, for very broad no strike protection, which

[00:20:51] Speaker 00:
In this case, Marathon gets a tremendous benefit from.

[00:20:55] Speaker 00:
They get to run their project smoothly.

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They know there's going to be no labor disputes.

[00:20:59] Speaker 00:
All disputes get channeled into this arbitration procedure.

[00:21:02] Speaker 00:
And when that doesn't work the way it should is when you have these disputes.

[00:21:08] Speaker 00:
And the union, again, has to incur very significant expense.

[00:21:13] Speaker 00:
to vindicate its rights simply to arbitrate.

[00:21:17] Speaker 00:
And I'll say, by the time we have this arbitration, assuming we have it, the work is done.

[00:21:24] Speaker 00:
The work here has been lost.

[00:21:26] Speaker 00:
The people who would have done it didn't get to do it, and they're not gonna get anything for that.

[00:21:33] Speaker 00:
So the parties have really lost the benefit of their bargain.

[00:21:37] Speaker 02:
I think you had started out by saying you were going to address how the district court, in your view, misapplied the without justification standard, and I took you away from that.

[00:21:46] Speaker 00:
Yeah.

[00:21:47] Speaker 00:
So principally, the district court just said, I don't think this argument is frivolous.

[00:21:51] Speaker 00:
Therefore, that's enough.

[00:21:54] Speaker 01:
I think the actual language was that the defendants offered an unpersuasive interpretation, and not a frivolous one was exactly how it was worded, correct?

[00:22:05] Speaker 01:
which essentially is borderline without justification, but didn't actually use those words.

[00:22:12] Speaker 00:
Yes.

[00:22:12] Speaker 00:
And we think that the mistake here is not to have recognized that, given the court clearly recognized that the principal argument here was a merits argument about whether or not the union wins the grievance, the court should have said that's without.

[00:22:30] Speaker 01:
The court said it was unpersuasive, that you didn't prevail, but it was unpersuasive.

[00:22:37] Speaker 00:
Well, Marathon did not prevail on that argument, and it was unpersuasive.

[00:22:44] Speaker 00:
And the district court made very short work of that argument on the merits, and found that Marathon's argument was essentially an argument about the merits of the grievance that should go to the arbitrator, because it involves interpretation and application of the agreement.

[00:23:06] Speaker 00:
I would encourage this court to take a look at Texas Steel on this particular point that when parties are essentially resisting arbitration based on arguments that would be decided by the arbitrator, that is inherently without justification.

[00:23:26] Speaker 02:
What about their argument based on the California law, I think it was SB 54, if I'm remembering correctly.

[00:23:38] Speaker 02:
That argument might end up not being meritorious, but there's not case law directly on that point.

[00:23:46] Speaker 02:
Why isn't that something that they have some justification for asserting?

[00:23:51] Speaker 00:
Well, if you look at how they asserted it, Your Honor, they asserted it below in a four-line footnote that said, oh, and there might be an SB 54 problem here.

[00:24:03] Speaker 00:
They did not actually develop any kind of argument that there could be a conflict between the particular language of the agreement that the union was trying to enforce and SB 54.

[00:24:17] Speaker 00:
They only, so,

[00:24:20] Speaker 00:
At a minimum, the SB 54 argument was waived.

[00:24:23] Speaker 00:
But even if it were not waived, that argument fails even based on the case that they cited to the court in their briefs.

[00:24:36] Speaker 00:
So they didn't identify any provision of the PLA that the union was trying to enforce.

[00:24:42] Speaker 00:
that actually conflicts with SB 54.

[00:24:45] Speaker 00:
They didn't have any argument to that effect.

[00:24:47] Speaker 00:
They only are suggesting that if the union wins this grievance, the arbitrator's award might in some way conflict with SB 54.

[00:24:55] Speaker 00:
That's an issue to leave to the arbitrator.

[00:24:59] Speaker 00:
The arbitrator will hear those arguments about SB 54, and the arbitrator's award could very well

[00:25:08] Speaker 00:
not conflict with SB 54, but even if it does, then Marathon's remedy in that instance is to seek vacator of the award.

[00:25:22] Speaker 00:
And that's, again, that's the alpha beta case.

[00:25:25] Speaker 00:
That's it from this court.

[00:25:29] Speaker 00:
So we don't think the SB 54 argument would in any way serve as justification in this case.

[00:25:37] Speaker 00:
Unless the court has anything else for me, we'll submit.

[00:25:41] Speaker 02:
Thank you.

[00:25:42] Speaker 00:
Thank you.

[00:25:46] Speaker 03:
Mr. Carter, rebuttal.

[00:25:58] Speaker 03:
First, with respect to Granite Rock.

[00:26:01] Speaker 03:
It is manifestly clear from the decision

[00:26:06] Speaker 03:
that the Supreme Court said you do not apply presumptions of arbitrability as a substitute for the court making an arbitrability decision.

[00:26:16] Speaker 03:
And it expressly said, and one place it said it is Note 8 at 561 U.S.

[00:26:22] Speaker 03:
301,

[00:26:23] Speaker 03:
that even when there is no express exclusion in the arbitration clause, the courts nevertheless must proceed to interpret whether the dispute in question and the arbitration clause is applicable to it.

[00:26:40] Speaker 03:
And the reason for that, and it's a common thread in the analysis of that case, and it also relies on AT&T technologies,

[00:26:49] Speaker 03:
is that arbitration is a matter of contract and the judicial job in the first instance is to see whether the parties intended that the dispute be covered by arbitration.

[00:27:00] Speaker 03:
The problem you have here with, I'll call it the conventional argument, is the union said we have an arbitration clause,

[00:27:08] Speaker 03:
And we allege there is a dispute under the arbitration clause, and therefore it follows the matter of subject arbitration.

[00:27:15] Speaker 03:
And that just elides over several important steps to decide whether the parties agree to submit to arbitration or not.

[00:27:23] Speaker 03:
The second point about granite construction is that there was a formation issue, but a fair reading of the case shows

[00:27:32] Speaker 03:
that the court said we have to assay this entire agreement and this course of conduct between the parties to see whether or not they intended that their dispute be subject arbitration.

[00:27:43] Speaker 03:
And so it's, and the third point is that because you have a mechanism operating here where you have an exclusion, if the work is excluded, the PLA is not operative, and so that can't be

[00:28:00] Speaker 03:
the dispute that's in arbitration, that's part of that threshold determination that the court would need to make to decide whether the parties intended to arbitrate the dispute or not.

[00:28:10] Speaker 03:
That's why I said earlier in my initial argument that we have a sub-solentio effort here to decide when the court said, you know, this is just a merits issue, is a deference to the arbitrator to decide what really is an arbitrability question.

[00:28:29] Speaker 03:
because if the arbitrator concludes that this work is not covered, he's concluding what the scope of the arbitration clause is.

[00:28:37] Speaker 03:
And that's a step that needs to take place at the judicial level.

[00:28:42] Speaker 03:
And as far as how difficult or how complicated it is, it just depends on what the particulars are, but it's no reason for that not to take place at the judicial level, given the established concept

[00:28:55] Speaker 03:
that substantive arbitrability, unless the parties have delegated otherwise, is for the courts in the first instance.

[00:29:04] Speaker 03:
Beyond that point, it just bears a bit more emphasis.

[00:29:12] Speaker 03:
I'm just about done.

[00:29:14] Speaker 03:
It's a conflating of arbitrability and merits to say that this is a merits determination.

[00:29:20] Speaker 03:
Thank you, Your Honors.

[00:29:20] Speaker 02:
Thank you, Counsel.

[00:29:21] Speaker 02:
I thank both Counsel for their helpful arguments, and the case is submitted.