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Ninth Circuit:
Arbitrator’s Award Marked by ‘Bizarre’ Aspects Can’t Stand
Majority Says That Decision Without Reasoning Must Be Vacated; Could Be Based on Coin Flip or Ouija Board
By a MetNews Staff Writer
The Ninth U.S. Circuit Court of Appeals on Friday, in a 2-1 decision, reversed an order confirming an arbitration award in light of unorthodox conduct on the part of the arbitrator, who found that Costco unjustifiably fired a forklift driver for peddling cocaine at the workplace.
The majority—comprised of Circuit Judge Johnnie B. Rawlinson and District Court Judge Edward R. Korman of the Eastern District of New York, sitting by designation—said it cannot be discerned from the arbitrator’s skimpy explanation what the reasoning was, remarking that it could have been the product of flipping a coin or other arbitrary means.
“Following the presentation of evidence, matters took a bizarre turn,” the majority observed.
In the aftermath of the hearing, arbitrator David B. Hart of Carlsbad engaged in extensive ex parte communications with the International Brotherhood of Teamsters, Local No. 542, which represented the discharged employee, James Diaz, and conveyed a $6,000 settlement offer to him—which Costco Wholesale Corp. had not authorized, and of which it had no knowledge.
The arbitration proceeding was conducted pursuant to a provision in a collective bargaining agreement “CBA.” The union argued that the firing of Diaz was barred by the doctrine of “industrial double jeopardy” because he had already incurred a three-day suspension based on the drug sales, while Costco maintained the suspension was for the purpose of giving it time to investigate.
District Court Judge Anthony J. Battaglia of the Southern District of California confirmed the award on March 28, 2019.
‘Vague, ‘Bizarre’ Email
Hart’s decision came in the form of a “vague and bizarre email only sent to the Union,” according to Friday’s majority opinion. The email says:
“The above named Grievant prevails in his grievance. The Union’s arguments as to double jeopardy were correct. Union remedy is adopted.
“So that I can look at myself in the mirror, my resignation is effective today.”
There was no elaboration. All that was filed in the District Court was a decision form saying:
“Double Jeopardy was proved by preponderance of evidence presented. Employee to be made whole.”
Rawlinson and Korman declared:
“Because the arbitrator failed to provide a reasoned decision, Costco was left with uncertainty as to the parameters of the remedy ordered by the arbitrator.”
The lack of fairness of the proceeding requires that the decision be vacated, they said.
Smith’s Dissent
Dissenting from Friday’s decision was Senior Circuit Judge N. Randy Smith. He said the Federal Arbitration Act does not bar ex parte communications by the arbitrator and commented that “[n]either the majority nor Costco address the necessary prejudice” that must infect an arbitrator’s award for it to be scrapped.
He said an award must be upheld no matter how “bizarre or irregular the arbitrator’s conduct may have been” if there was notice, hearing and an impartial decision, which, he determined, were not lacking.
“Therefore, notwithstanding the majority’s ‘gut feeling’ of unfairness, our precedent demands (in no unclear terms) the conclusion that the arbitration was fundamentally fair.”
Draws ‘Essence’
At issue was whether the decision, based solely on double jeopardy, “drew its essence” from the CBA.
Costco argued in its memorandum of points and authorities in the District Court:
“The arbitrator exceeded his authority under the CBA by imposing the concept of ‘double jeopardy,’ as against the plain language of the CBA, which contains no such concept. Consequently, the arbitration award does not ‘draw its essence’ from the CBA.”
Battaglia found:
“Here, it is clear from the CBA that there is a difference between investigatory suspensions and disciplinary suspensions….Costco labeled Diaz’s suspension as a disciplinary suspension. Therefore, it is likely that Arbitrator Hart found that this is a disciplinary suspension rather than an investigatory suspension.”
He said Hart “was permitted to rely upon the concept of double jeopardy,” and “even if the Court could conceivably reach a different result, Arbitrator Hart’s decision and award are given great deference.” Battaglia declared:
“Accordingly, the Court finds that Arbitrator Hart’s application of double jeopardy does draw from the essence of the CBA and he did not exceed his authority in applying the concept of double jeopardy.”
Smith, in his dissent, noted that the CBA requires “proper cause” for the termination of employment and said Hart “arguably” applied that provision “in finding that Diaz’s termination violated industrial double jeopardy.” Underscoring the need to accord deference to an arbitrator’s decision, he wrote:
“The arbitrator did not ‘ignore the plain language of the contract,’…or ‘follow his own whims and biases….Therefore, we must conclude that the arbitration award draws its essence from the CBA.”
The majority’s opinion contains this rejoinder:
“Our colleague in dissent…insists that the arbitrator’s decision drew its essence from the collective bargaining agreement. But there was no essence of the decision because there was no decision rendered, and no reasoning proffered. For all we know, the arbitrator flipped a coin, consulted a ouija board, or threw darts at a dartboard to determine the outcome. He certainly gave no explanation to the parties of his decision despite a request from Costco that he do so.”
Addressing Smith’s insistence that deference must be accorded the arbitrator’s decision, the majority said:
“However, the fallacy in that argument is that he arbitrator neither found the facts nor stated the law, so there is nothing to which we can defer….”
It added that Smith “represents that the record does not reflect that the arbitrator was biased,” responding:
“But ex parte communications and an unauthorized settlement offer reflect consummate bias and lack of commitment to a transparent proceeding….No party agreeing to arbitration bargained for a proceeding such as this, and nothing in our precedent compels us to ignore these facts.”
The case is Costco Wholesale Corporation v. International Brotherhood of Teamsters, Local No. 542, 19-55451.
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