Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-03-03154/USCOURTS-ca8-03-03154-0/pdf.json

Parties Involved:
KCI Construction Company
Appellee
Teamsters Local Union
Appellant

Document Text:

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 03-3154

___________

Teamsters Local Union 682, *

*

Appellant, *

* Appeal from the United States

v. * District Court for the

* Eastern District of Missouri.

KCI Construction Company, Inc., *

*

Appellee. *

___________

Submitted: April 15, 2004

Filed: September 15, 2004

___________

Before WOLLMAN, McMILLIAN, and RILEY, Circuit Judges.

___________

RILEY, Circuit Judge.

Teamsters Local Union 682 (Local 682) appeals from the district court’s

decision to confirm arbitration awards in favor of KCI Construction Company, Inc.

(KCI). Contending the arbitration awards enforced an unlawful hot cargo agreement,

see 29 U.S.C. § 158(e) (prohibiting agreements requiring employers to cease doing

business with other employers), Local 682 argues the district court’s entry of

summary judgment in KCI’s favor must be reversed. Because we conclude

confirmation of the arbitration awards may enforce an unlawful hot cargo agreement,

we remand to the district court for further proceedings consistent with this opinion.

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I. BACKGROUND

BJC Health Systems, Inc. hired KCI as a general contractor to build Phase I of

a Campus Integration Project (Project), which entailed building the north campus

parking garage. KCI, the St. Louis Building and Construction Trades Council, and

all AFL-CIO Building Trades Affiliates signed a Project Agreement. Local 682

signed the Project Agreement as well. The Project Agreement included the following

clause in section 3.03:

The Collective Bargaining Agreement (“CBA”) in effect between the

Unions executing this Agreement and the Employer or its

Subcontractors executing this Agreement are applicable to the work,

except as such CBA may be modified by the provisions of this

Agreement. . . . The Employer and its Subcontractors acknowledge

that in performing work, including local fabrication of custom

millwork and casework, and local on-site deliveries of construction

material and equipment, they will utilize employees who are

represented by Unions affiliated with the AFL-CIO Building

Trades.

(emphasis added). The Project Agreement also contained section 4.04 to prevent

work stoppage:

The Unions and employees will not strike, nor engage in any

picketing, sitdowns, slowdowns, sympathy strikes, or other refusals

to work; nor will Employer or its Subcontractors lock out the employees

during the performance of the Project. This No Strike Pledge includes

jurisdictional disputes and contract expirations. The Unions will not

recognize any picket lines for or as a result of a Jurisdictional Dispute,

Sympathy Strike, Contract Expiration or informational picket.

(emphasis added). The Project Agreement also contained numerous other clauses

(sections 1.01, 1.02, 4.06, 4.12) to make clear the parties intended to avoid work

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stoppages. Finally, the Project Agreement included an arbitration clause (section

4.06).

KCI contracted with Material Service Company (MSC) to provide concrete for

the Project, because MSC was able to supply the special concrete needed for the

sophisticated Project. MSC employed Local 682 members to deliver the concrete to

the Project site, and no Local 682 members actually worked on the site other than to

deliver construction material to the site. As far as this court can determine, MSC

never signed the Project Agreement. However, MSC did enter into a collective

bargaining agreement with Local 682.

When the collective bargaining agreement between MSC and Local 682

expired during the term of the Project, Local 682 struck MSC for approximately eight

weeks in the summer of 2000. During the strike, Local 682’s members refused to

deliver concrete for MSC to the Project site. Because KCI was unable to get Local

682 members to deliver the concrete for MSC, MSC’s management employees

delivered the concrete. In response, Local 682 demanded KCI cease and desist from

using non-union members to deliver concrete to the Project site, concluding “[KCI]

violated Section 3.03 and all other sections [of the Project Agreement] that may refer

to union employees by accepting the delivery of concrete in trucks driven by persons

other than employees who are represented by Unions affiliated with the AFL-CIO

Building Trades.”

KCI filed a grievance against Local 682 for breaching the Project Agreement’s

no-strike clause, i.e., section 4.04, by not delivering the concrete for MSC to the

Project site. The grievance proceeded to a two-phase arbitration, with the first phase

addressing liability and the second phase addressing damages. During the liability

phase, KCI contended Local 682 breached the no-strike clause by refusing to deliver

concrete to the Project site. Local 682 contended the Project Agreement did not apply

to MSC because MSC was a non-signatory supplier and the Project Agreement only

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applied to KCI and its subcontractors. KCI presented evidence at the hearing; Local

682 did not.

In its opening statement to the arbitrator, KCI discussed the interaction

between sections 3.03 and 4.04 of the Project Agreement. KCI recognized it

“ultimately agreed to the union’s request that Teamster Local 682 would make all

deliveries of construction materials and equipment to the job site.” KCI also made

the following point: “In addition to [sections] 3.03 and 4.04, the language of the

entire agreement is controlling with regard to one simple fact, and that fact is . . . the

union got all the work, and the only thing [KCI] got out of this whole particular thing

is that the project would have no interruptions.” Rick Grebel (Grebel), KCI’s

president, testified at the hearing that the Project Agreement’s sole purpose

“obviously is to have no work stoppages. In exchange for no work stoppages,

basically the job is done a hundred percent union.” When asked what “two essential

provisions” of the Project Agreement KCI contended Local 682 violated, Grebel

explicitly referenced sections 3.03 and 4.04.

The arbitrator sustained KCI’s grievance against Local 682 for violating its

no-strike pledge. Before enforcing the no-strike clause, the arbitrator concluded MSC

was a subcontractor as that term is used in the Project Agreement, such that the

Project Agreement covers MSC and its on-site deliveries of construction material.

The arbitrator then used section 3.03 to conclude Local 682 violated its no-strike

pledge contained in section 4.04:

So far as appears, [Local 682] has steadfastly asserted the exclusive

right to deliver all incoming materials on the site, and it steadfastly made

deliveries in advance of the strike. For its part, [KCI] recognized

[Local 682]’s exclusive delivery right as stemming directly from the

same negotiations which produced [Local 682]’s “No Strike Pledge.”

Having thus achieved the right to exclusive deliveries, and having

accepted the benefits of such right in practice, [Local 682] cannot now

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be heard to deny its obligation to make deliveries under the same

Agreement.

(emphasis added). Based on these conclusions, the arbitrator, on January 5, 2001,

issued an award on liability holding Local 682’s refusal to deliver concrete to the

Project site violated the Project Agreement’s no-strike clause.

During the damages phase of the arbitration proceedings, the arbitrator

awarded $112,721.15 to KCI based on Local 682’s breach of the Project Agreement.

In its damages award, the arbitrator confirmed his liability finding by reiterating his

conclusion “that a supplier of materials [i.e., MSC] can reasonably be viewed as a

subcontractor under relevant case authorities, under the language of the Agreement

(Article 3.03) and by virtue of the parties’ performance of the Agreement in

day-to-day practice.” During the arbitration proceedings, Local 682 never argued or

intimated that section 3.03 was an unlawful hot cargo agreement.

Local 682 then filed suit in federal court on July 9, 2002, seeking to vacate the

arbitrator’s liability and damages awards in KCI’s favor. Local 682 contended the

arbitration awards failed to draw their essence from the Project Agreement. KCI

counterclaimed, seeking to confirm and enforce the arbitration awards. Over six

months after filing its federal suit, and more than two years after the arbitrator’s

liability award, Local 682 amended its complaint on January 16, 2003, to add a hot

cargo defense, contending for the first time that section 3.03 of the Project Agreement

is a hot cargo agreement that violates public policy. Local 682 later filed a motion

for summary judgment, and KCI filed a cross-motion for summary judgment.

Concluding the arbitration awards did not violate public policy and drew their

essence from the Project Agreement, the district court granted KCI’s motion for

summary judgment, and entered an order confirming the arbitration awards. The

district court concluded Local 682’s hot cargo defense failed for three reasons. First,

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the district court determined Local 682’s “sandbagging tactics” of failing to raise the

issue to KCI or before the arbitrator were improper: “[Local 682] invoked Section

3.03 for its benefit and should not be heard to complain about its enforceability for

the first time here in an effort to avoid payment of damages.” The district court

specifically held “Local 682 cannot withhold factual and legal arguments during

arbitration and then raise them for the first time during enforcement proceedings in

federal court.” Second, the district court concluded the arbitration awards do not

enforce section 3.03, because the awards do “not require KCI to utilize union

employees for local on-site deliveries of construction material and equipment to the

exclusion of non-union drivers.” Instead, the court determined the arbitrator simply

found “Local 682 liable for damages caused by [Local 682]’s failure to deliver

concrete as required under the Project Agreement.” Finally, the district court

reasoned “Local 682 has failed to show that Section 3.03 of the Project Agreement

even violates Section 8(e)” of the National Labor Relations Act (NLRA). However,

the district court stated that whether section 3.03 violates section 8(e) was not an

issue it was “bound to decide.”

Local 682 appeals the district court’s summary judgment in KCI’s favor. Local

682 contends section 3.03 is an unlawful hot cargo agreement, and the district court

erroneously enforced arbitration awards “based on or linked” to that agreement.

Local 682 also argues the district court erroneously refused to adjudicate Local 682’s

hot cargo defense. KCI maintains the district court correctly confirmed the arbitration

awards, which enforced section 4.04 only. KCI argues section 3.03 was not even

implicated by the district court’s judgment or the arbitration awards. KCI also

contends the district court correctly rejected Local 682’s invitation to engage in fact

finding and contract interpretation, and instead relied appropriately on the arbitration

record to confirm the arbitration awards.

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II. DISCUSSION

In reviewing the district court’s decision confirming the arbitration awards, “we

accept the court’s factual findings unless clearly erroneous, but decide questions of

law de novo.” Schoch v. InfoUSA, Inc., 341 F.3d 785, 788 (8th Cir. 2003). The

underlying arbitration awards are generally given “an extraordinary level of

deference.” Id. (citation omitted). Notwithstanding our obligation to show great

deference to most arbitration awards, we must not enforce illegal contracts. See

Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 77 (1982). We have an absolute “duty to

determine whether a contract violates federal law before enforcing it.” Id. at 83.

When a party such as Local 682 raises an illegality defense, “a court must reach the

merits of [that] defense in order to determine whether the contract clause at issue has

any legal effect in the first place.” Id. at 84.

In this case, we ask whether the arbitration awards enforce an unlawful hot

cargo agreement. To answer this question, we must determine whether the arbitration

awards even enforce section 3.03, as opposed simply to enforcing section 4.04.

Because Local 682 does not–and cannot–contend that the no-strike pledge contained

in section 4.04 violates public policy by its own terms, Local 682 must show (1) the

arbitration awards enforce section 3.03, and (2) section 3.03 is an unlawful hot cargo

agreement.

Section 8(e) of the NLRA precludes an employer and union from entering into

a hot cargo agreement, which requires the employer to cease doing business with

another employer. 29 U.S.C. § 158(e). Specifically, section 8(e)’s hot cargo

provision contains the following language: “It shall be an unfair labor practice for any

labor organization and any employer to enter into any contract or agreement, express

or implied, whereby such employer ceases or refrains or agrees to cease or refrain

from handling, using, selling, transporting or otherwise dealing in any of the products

of any other employer, or to cease doing business with any other person, and any

contract or agreement entered into heretofore or hereafter containing such an

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agreement shall be to such extent unenforceable and void.” Id. The Supreme Court

has mandated that “a court may not enforce a contract provision which violates

§ 8(e).” Kaiser Steel, 455 U.S. at 86.

KCI makes a compelling argument that the arbitration awards simply enforce

Local 682’s no-strike pledge contained in section 4.04. If that were the case, then we

could easily affirm the district court’s decision. However, we are not convinced the

arbitration awards simply enforce section 4.04. Instead, we believe the arbitration

awards indirectly enforce section 3.03.

To determine whether section 3.03 is implicated by the arbitration awards

enforcing section 4.04, we evaluate the impact of seemingly contradictory decisions

by the Supreme Court in Kelly v. Kosuga, 358 U.S. 516, 516-21 (1959), and Kaiser

Steel, 455 U.S. at 74-86. In Kosuga, 358 U.S. at 516-18, two parties contracted for

the sale of a large amount of onions in order to fix the amount of onions sold in

Illinois by agreeing not to deliver the onions on the futures market. By entering into

this agreement, the parties intended improperly to inflate the price of onions. Id. at

517. When the buyer of the onions failed to make payments to the seller, the seller

sued the buyer for failing to complete payment of the purchase of the onions. Id. at

516. The buyer asserted a defense that the contract for the sale of onions violated the

Sherman Antitrust Act (Sherman Act), 15 U.S.C. § 1. Id. The district court rejected

the defense, granted summary judgment for the seller for the unpaid price of the

onions, and the Seventh Circuit affirmed. Id. at 518. The Supreme Court affirmed,

stating that, “while the nondelivery agreement between the parties could not be

enforced by a court, if its unlawful character under the Sherman Act be assumed, it

can hardly be said to enforce a violation of the Act to give legal effect to a completed

sale of onions at a fair price.” Id. at 521. Thus, the Court held that “where, as here,

a lawful sale of a fair consideration constitutes an intelligible economic transaction

in itself, we do not think it inappropriate or violative of the intent of the parties to

give it effect even though it furnished the occasion for a restrictive agreement of the

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sort here in question.” Id. The Court’s logic could apply in this case, because section

4.04 is admittedly a valid and enforceable agreement. If section 3.03 were not

implicated, we would expend little effort confirming the arbitration awards.

Notwithstanding the rationale behind the Court’s holding in Kosuga, the

Supreme Court seemingly charted a different course for section 8(e) cases. In Kaiser

Steel, 455 U.S. at 74-75, Kaiser Steel Corporation (Kaiser) entered into a collective

bargaining agreement with the United Mine Workers of America (UMW) requiring

Kaiser to contribute to employee health and retirement funds for each ton of coal it

produced. The agreement also contained a purchased-coal clause requiring Kaiser to

contribute to the funds based on the amount of coal Kaiser purchased from other

producers. Id. When Kaiser refused to contribute to the funds based on the coal it

purchased from other firms, the trustees of the funds sued Kaiser seeking to enforce

the purchased-coal clause of the collective bargaining agreement. Id. at 76. Kaiser

admitted it failed to contribute to the funds, but asserted the defense that the

collective bargaining agreement was unenforceable because it violated the Sherman

Act, 15 U.S.C. §§ 1-2, and section 8(e) of the NLRA. Id. When the case reached the

Supreme Court, the Court stated the issue was “whether a coal producer, when it is

sued on its promise to contribute to union welfare funds based on its purchases of

coal from producers not under contract with the union, is entitled to plead and have

adjudicated a defense that the promise is illegal under the antitrust and labor laws.”

Id. at 74.

Kaiser argued a court order forcing it to contribute to the funds based on the

purchased-coal clause would enforce an agreement that violates both the Sherman Act

and the NLRA. The trustees argued that enforcing Kaiser’s agreement to contribute

to the funds would not command unlawful conduct. That is, “[t]he argument is that

employers’ contributions to union welfare funds are not, in themselves and standing

alone, illegal acts and that ordering Kaiser to pay would therefore not demand

conduct that is inherently contrary to public policy.” Id. at 79.

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The Court rejected this argument, noting that Kaiser “did not make a naked

promise to pay money to the union funds.” Id. Instead, according to the Court, “[t]he

purchased-coal provision obligated [Kaiser] to pay only if it purchased coal from

other employers and then only if contributions to the [] funds had not been made with

respect to that coal.” Id. The Court reasoned that enforcing the agreement would

enforce an unlawful hot cargo agreement “because of the financial burden which the

agreement attached to purchases of coal from non-UMW producers, even though they

may have contributed to other employee welfare funds. It is plain enough that to

order Kaiser to pay would command conduct that assertedly renders the promise an

illegal undertaking under the federal [antitrust and labor] statutes.” Id.

The Court then distinguished Kosuga by noting that case involved “two

promises, one to pay for purchased onions and the other to withhold onions from the

market. The former was legal and could be enforced, the latter illegal and

unenforceable.” Id. at 82. As for the Kaiser Steel facts, the Court stated that, “[i]f the

purchased-coal agreement is illegal, it is precisely because the promised contributions

are linked to purchased coal and are a penalty for dealing with producers not under

contract with the UMW.” Id. The Court decided that making contributions to union

welfare funds is oftentimes legal, “but an agreement linking contributions to

purchased coal, if illegal, is subject to the defense of illegality.” Id.

The Court then addressed whether a court had jurisdiction to adjudicate the

legality of the purchased-coal agreement under section 8(e), or whether the National

Labor Relations Board (Board) had exclusive jurisdiction to make an unfair labor

practice determination. Id. at 83. Acknowledging the special expertise of the Board

generally precludes federal jurisdiction over unfair labor practice cases, the Court

noted federal courts are required to determine whether contracts violate federal law.

Id. Declaring that a federal court must reach the merits of an illegality defense before

enforcing a disputed contract clause, the Court held that “where a § 8(e) defense is

raised by a party which § 8(e) was designed to protect, and where the defense is not

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directed to a collateral matter but to the portion of the contract for which enforcement

is sought, a court must entertain the defense. While only the Board may provide

affirmative remedies for unfair labor practices, a court may not enforce a contract

provision which violates § 8(e).” Id. at 86.

Based on our reading of Kaiser Steel, we conclude we cannot confirm the

arbitration awards enforcing section 4.04, if section 3.03 is an unlawful hot cargo

agreement. KCI’s president candidly admitted section 4.04’s no-strike pledge was

gained by agreeing to section 3.03’s mandate that the Project be completely union.

The reason Local 682 could not strike MSC, who was a non-signatory to the Project

Agreement, was because of section 3.03’s requirement that KCI use only Local 682

members for the delivery of concrete to the Project site. Thus, MSC was required to

use Local 682 members to do business with KCI on the Project. Although not

addressing a hot cargo defense, the arbitrator even concluded that section 4.04 was

enforced because that clause “stemm[ed] directly from the same negotiations which

produced” section 3.03. Given Kaiser Steel’s lessons, we cannot blindly confirm the

arbitration awards by pretending they do not enforce section 3.03. Instead, we must

determine whether section 3.03 is an unlawful hot cargo agreement. Unfortunately,

we are unable to make such a determination on this record.

Section 8(e) of the NLRA makes hot cargo agreements unlawful, but

exceptions exist such that clauses which may appear to be hot cargo agreements are

lawful. The two exceptions that may apply in this case to section 3.03 are (1) the

subcontractor industry proviso, and (2) the work preservation theory. Section 8(e)’s

construction industry proviso states that the prohibition against hot cargo agreements

does not “apply to an agreement between a labor organization and an employer in the

construction industry relating to the contracting or subcontracting of work to be done

at the site of the construction, alteration, painting, or repair of a building, structure,

or other work.” 29 U.S.C. § 158(e); see, e.g., Woelke & Romero Framing, Inc. v.

NLRB, 456 U.S. 645 (1982); Connell Constr. Co. v. Plumbers & Steamfitters Local

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No. 100, 421 U.S. 616 (1975); Gen. Truck Drivers Local No. 957 v. NLRB, 934 F.2d

732, 737-39 (6th Cir. 1991) (holding delivery work did not fit within construction

industry proviso); NLRB v. Int’l Bhd. of Teamsters Local No. 294, 342 F.2d 18, 21-

22 (2d Cir. 1965) (same). If a developed record reveals section 3.03 fits within the

construction industry proviso, then the arbitration awards can be enforced. If a

developed record reveals section 3.03 does not fit within the construction industry

proviso, then one more exception must be addressed.

In addition to section 8(e)’s construction industry proviso excepting certain

agreements from the hot cargo prohibition, agreements which merely serve to

preserve work for bargaining unit members are excepted from section 8(e)’s

prohibition of hot cargo agreements. See, e.g., NLRB v. Int’l Longshoremen’s Ass’n,

473 U.S. 61 (1985); Nat’l Woodwork Mfrs. Ass’n v. NLRB, 386 U.S. 612, 644-45

(1967) (asking “whether, under all the surrounding circumstances, the Union’s

objective was preservation of work for [bargaining unit] employees,” and noting the

work preservation test “will not always be a simple test to apply”); Am. Boiler Mfrs.

Ass’n v. NLRB, 404 F.2d 547 (8th Cir. 1968). Thus, if a developed record reveals

section 3.03 is a work preservation clause, then it is not an unlawful hot cargo

agreement. However, if section 3.03 is not a valid work preservation clause and does

not fit within the subcontractor industry proviso, then it is an unlawful hot cargo

agreement. If that is the case, then the arbitration awards cannot be enforced.

As indicated above, we cannot determine from the record whether section 3.03

fits within the construction industry proviso or is a valid work preservation clause.

Instead, additional fact-finding is required to resolve this dispute. We understand

KCI’s frustration that the record does not contain the appropriate evidence to make

this determination because Local 682 never asserted the hot cargo defense before the

arbitrator. Local 682 could have raised the hot cargo defense before the arbitrator,

filed an unfair labor practice charge with the Board earlier, or filed a pre-arbitration

suit to enjoin arbitrating the grievance. Although Local 682 failed to raise the hot

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cargo defense until well after the underlying grievance had been arbitrated, a court

cannot enforce an unlawful hot cargo agreement. However, Local 682 has filed an

unfair labor practice charge with the Board based on KCI’s suit to enforce the

arbitration awards. 

Given the procedural posture of this case, we conclude the district court has

two options on how to proceed. The district court can stay these proceedings to await

the Board’s decision on the unfair labor practice charge. See, e.g., Nelson v. Int’l

Bhd. of Elec. Workers, Local No. 46, 899 F.2d 1557, 1564 (9th Cir. 1990) (holding

the district “court has the discretion to review the arbitrator’s award or to stay

enforcement of the award pending the [Board]’s decision on the unfair labor practice

claims”); David A. Anderson, Hot Cargo Enforcement after Kaiser Steel: A New

Look at Section 8(e), 1983 Utah L. Rev. 493, 521 (1983) (“Potential conflict between

concurrent Board and judicial proceedings could be avoided, and the goal of judicial

economy promoted, if courts stayed judicial proceedings until the Board reaches a

decision on the unfair labor practice charges.”). Alternatively, the district court can

follow Kaiser Steel’s mandate to address the legality of section 3.03 itself by

conducting appropriate fact-finding to determine whether either of the two exceptions

apply to section 8(e)’s prohibition of hot cargo agreements.

III. CONCLUSION

Because we conclude the arbitration awards enforce section 3.03, and because

we cannot determine on the record before us whether section 3.03 is an unlawful hot

cargo agreement, we reverse the district court’s entry of summary judgment in KCI’s

favor, vacate the order confirming the arbitration awards, and remand to the district

court for further proceedings consistent with this opinion.

______________________________

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