Opinion ID: 477830
Heading Depth: 2
Heading Rank: 1

Heading: Bad Faith Finding.

Text: 32 Section 301 of the Labor-Management Relations Act does not authorize an award of attorneys' fees to the prevailing party. See 29 U.S.C. Sec. 185. The district court's order, however, indicates that the award of attorneys' fees was based upon the bad faith exception to the American rule. See District Court Order (dated August 13, 1985) (citing Lackawanna Leather Co. v. United Food & Commercial Workers International Union, 706 F.2d 228, 232 (8th Cir.1983) (en banc)). Although the court did not specify the basis for its bad faith finding, see District Court Orders (dated August 13, 1985, and October 2, 1985), its conclusion is sufficient for us to make the necessary review. 33 In this court's view, bad faith would be evidenced in the present case by a showing that the appellants intentionally advanced a frivolous contention for an ulterior purpose, such as harassment or delay. See Ford v. Temple Hospital, 790 F.2d 342, 347 (3d Cir.1986) (similar questions in Title VII case). Actors contend that this is precisely what the appellants did when the appellants argued that the mandatory arbitration provision of the Agreement was unenforceable pursuant to Rule 34 of the Agreement. If Actors is correct, then a finding of bad faith would not be clearly erroneous. See Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 421-22, 98 S.Ct. 694, 700, 54 L.Ed.2d 648 (1978). If, however, the appellants' contentions had merit, then a finding of bad faith could not be justified. See id. We, therefore, must turn briefly to substantive federal labor law and to the law of arbitration in Nebraska. 34 Substantive principles of federal labor law must be applied to issues raised in suits covered by section 301. Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 105 S.Ct. 1904, 1910-11, 85 L.Ed.2d 206 (1985); see Teamsters v. Lucas Flour Co., 369 U.S. 95, 103, 82 S.Ct. 571, 576, 7 L.Ed.2d 593 (1962). Additionally, federal labor law has been determined to pre-empt state law when the state law conflicts with federal law or would frustrate the federal scheme   . Malone v. White Motor Corp., 435 U.S. 497, 504, 98 S.Ct. 1185, 1189, 55 L.Ed.2d 443 (1978); see Lucas Flour, 396 U.S. at 104, 82 S.Ct. at 577. 35 Although federal labor law governs section 301 suits, it is also well-settled that a party cannot be compelled to arbitrate a matter unless it has contracted to do so. AT & T Technologies, Inc. v. Communications Workers of America, --- U.S. ----, 106 S.Ct. 1415, 1418, 89 L.Ed.2d 648 (1986); Nolde Brothers, Inc. v. Bakery Workers, 430 U.S. 243, 250-51, 97 S.Ct. 1067, 1071, 51 L.Ed.2d 300 (1977); Gateway Coal Co. v. Mine Workers, 414 U.S. 368, 374, 94 S.Ct. 629, 635, 38 L.Ed.2d 583 (1974); United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1352, 4 L.Ed.2d 1409 (1960). Whether the contract, by its terms, could be construed as requiring arbitration is a matter of law and thus must first be decided by the court, not the arbitrators. AT & T Technologies, --- U.S. at ----, 106 S.Ct. at 1418; United Steelworkers, 363 U.S. at 582, 80 S.Ct. at 1352. In determining whether an agreement provides for arbitration of the dispute, courts must keep in mind the strong presumption of arbitrability where such a provision exists. See Nolde Brothers, 430 U.S. at 254-55, 97 S.Ct. at 1073-74. When, however, there is positive assurance that the arbitration clause does not cover the dispute, the court does not have to order arbitration. United Steelworkers, 363 U.S. at 582-83, 80 S.Ct. at 1352-53. The court may so act because where there is positive assurance, even if the same issue ultimately came to the arbitrators, they would be obligated to decide against arbitration. See Woodcrest Nursing Home v. Local 144, Hotel Union, 788 F.2d 894, 898 (2d Cir.1986). 36 Moreover, in determining whether a duty to arbitrate exists, the court must examine both the arbitration clause itself and the other terms of the contract bearing on arbitration. Woodcrest, 788 F.2d at 898. Although the arbitration clause itself may appear to order arbitration, other provisions of the contract may clearly and unambiguously negate or limit the applicability of the arbitration clause. See Nolde Brothers, 430 U.S. at 255, 97 S.Ct. at 1074. 37 In light of the above general rules of law, we now turn to the facts in this case in order to determine whether the appellants' arguments were frivolous, and thus made or advanced in bad faith. 38 Rules 4 and 67E of the Agreement, by themselves, clearly require arbitration of disputes regarding termination. Rule 34, however, renders any other provision in the Agreement not binding if that provision is illegal or unenforceable under state law. Taking these provisions together, the appellants contend that because Nebraska was the correct site for arbitration, and because Nebraska law clearly prohibits pre-dispute mandatory arbitration agreements, Rule 34 rendered the arbitration clause nugatory. In response, Actors counters, and the district court apparently agreed, that such an argument clearly contradicts the notion of federal pre-emption in this area of labor law, is frivolous, and is thus indicative of bad faith. We cannot agree. 39 If the appellants had contended that Nebraska law controlled the Agreement, we would agree that such an argument was clearly contrary to federal law, frivolous and made in bad faith. See Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 105 S.Ct. 1904, 1910-11, 85 L.Ed.2d 206 (1985); Carey v. General Electric Co., 213 F.Supp. 276, 280 (S.D.N.Y.1962) (clause in contract provided that New York law controlled), modified on other grounds, 315 F.2d 499 (2d Cir.1963), cert. denied, 377 U.S. 908, 84 S.Ct. 1162, 12 L.Ed.2d 179 (1964); cf. Southland Corp. v. Keating, 465 U.S. 1, 16, 104 S.Ct. 852, 861, 79 L.Ed.2d 1 (1984) (California law conflicting with Federal Arbitration Act deemed in violation of supremacy clause). The appellants' contention, however, was not that Nebraska law controlled the Agreement. Rather, the appellants appear to contend that the parties, in Rule 34 of the Agreement, agreed to limit the scope of arbitration in accordance with state law, here Nebraska law. For the past ninety years, the Nebraska Supreme Court has consistently held that an arbitration agreement entered into before a dispute arises, denying to the parties their right to seek assistance of the courts is contrary to public policy and is not enforceable. Overland Constructors v. Millard School District, 220 Neb. 220, 369 N.W.2d 69, 73 (1985) (emphasis by court); see City of Lincoln v. Soukup, 215 Neb. 732, 340 N.W.2d 420, 422-23 (Neb.1983) (per curiam). Thus, it appears that the appellants were simply arguing that the scope of their duty to arbitrate was limited by the Agreement. See Nolde Brothers, 430 U.S. at 255, 97 S.Ct. at 1074. We do not see how this argument equates to evidence of frivolity or vexatiousness which rises to the level of bad faith. Additionally, although the appellants' argument is concededly novel, we perceive no extraordinary circumstances or dominating reasons of fairness, see Nepera Chemical, Inc. v. Sea-Land Service, Inc., 794 F.2d 688, 702 (D.C.Cir.1986), which would require fee-shifting in this unusual factual context. 40 Moreover, Actors' other contentions of bad faith must also fail. First, the appellants' refusal to schedule or participate in arbitration proceedings before the proceedings were located at the proper site is not indicative of bad faith. The appellants were correct in their assertions that arbitration was to take place in Omaha, Nebraska. Second, two recent cases affirm the fact that pre-dispute mandatory arbitration clauses are illegal in Nebraska. See Overland Constructors, 369 N.W.2d 69; Soukup, 340 N.W.2d 420. Finally, Actors' claim that it continually warned the appellants of its allegedly incorrect position does not necessarily mean that the appellants' contentions were frivolous. See Obin v. District No. 9, International Ass'n of Machinists, 651 F.2d 574, 586 (8th Cir.1981) (reversal of attorneys' fees where plaintiff brought a suit under Title VII and section 301 despite warnings by the Company and the Union in their answers to Obin's complaints and by separate letters to Obin's counsel that they believed the allegations to be meritless and that they would seek an award of attorneys' fees if he further pressed the case.). 41 Finally, any reliance based on cases such as Industrial Ass'n of Heat and Frost Insulators and Asbestos Workers, Local Union 34 v. General Pipe Covering, Inc., 792 F.2d 96 (8th Cir.1986), is misplaced. Unlike General Pipe Covering this is not a case involving enforcement of an arbitration award. Nor does this case involve a clear breach of a fiduciary duty by the appellants. See Richardson v. Communications Workers, 530 F.2d 126 (8th Cir.), cert. denied, 429 U.S. 824, 97 S.Ct. 77, 50 L.Ed.2d 86 (1976). 42