Court Opinion

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Opinions of the United
2004 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit

11-15-2004

Local 57 v. Sage Hospitality Res
Precedential or Non-Precedential: Precedential

Docket No. 03-4168

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                                           PRECEDENTIAL

          UNITED STATES COURT OF APPEALS
               FOR THE THIRD CIRCUIT

                         No. 03-4168

  HOTEL EMPLOYEES & RESTAURANT EMPLOYEES
              UNION, LOCAL 57

                             v.

         SAGE HOSPITALITY RESOURCES, LLC,

                                   Appellant

       On Appeal from the United States District Court
          for the Western District of Pennsylvania
                 (Dist. Ct. No. 02-cv-01624)
        District Judge: Honorable Gary L. Lancaster

                    Argued: May 12, 2004

   Before: NYGAARD, MCKEE, and CHERTOFF, Circuit
                     Judges.

                 (Filed: November 15, 2004)

JOHN M. O’DONNELL, ESQ. (Argued)
Littler & Mendelson
625 Liberty Avenue
Dominion Tower, 26th Floor
Pittsburgh, PA 15222

Attorney for Appellant
TERRY K. LECKMAN, ESQ.
Lipsitz, Nassau & Schwartz
1100 Fifth Avenue
Pittsburgh, PA 15219

ARLUS J. STEPHENS, ESQ. (Argued)
Davis, Cowell & Bowe
1701 K Street, N.W.
Suite 210
Washington, DC 20006

Attorneys for Appellee

                   OPINION OF THE COURT

CHERTOFF, Circuit Judge.

       In this case, we examine whether federal labor law preempts
the City of Pittsburgh’s decision to condition a grant of tax
increment financing upon the recipient’s acceptance of a labor
neutrality agreement. We must address how labor law preemption
analysis applies when local government seeks to affect labor
relations on a publicly financed development project. For the
reasons stated below, we hold that the City is not preempted from
requiring parties receiving tax increment financing to sign a labor
neutrality agreement.

                                  I

      In early 1998, Sage Hospitality Resources, LLC (“Sage”)
began development of a hotel construction project in Pittsburgh,
Pennsylvania (the “City”). As part of its financing strategy, Sage
approached the Urban Redevelopment Authority of Pittsburgh
(“URA”)1 for tax increment financing (“TIF”) to support the

       1
         Incorporated in 1946, the URA is one of Pittsburgh’s
redevelopment authorities that serves as a “developer of last resort.”

                                  2
construction of the hotel.
       Authorized under Pennsylvania’s Tax Increment Financing
Act, 53 Pa. Cons. Stat. § 6930.1 et seq., TIFs were created to
“provide an alternative method for use by authorities in pursuing
redevelopment efforts under the Urban Redevelopment Law[, 35
id. § 1701 et seq.].” 53 id. § 6930.2(a)(3). In a traditional TIF
scheme, a locality issues tax increment bonds to finance the
redevelopment of a chosen district. These bonds are secured by
tax revenues generated from the expected increase in property
values—i.e., the tax increment—in the district. See generally
Frank S. London, Note, The Use of Tax Increment Financing to
Attract Private Investment and Generate Redevelopment in
Virginia, 20 Va. Tax Rev. 777, 780-81 (2001). That is, TIF
pledges future increases in tax revenues generated by a project to
finance certain eligible costs for the project.2
       The URA approved the creation of the Fulton Building TIF
District and issued the TIF bonds. Sage was apportioned $3.56
million in TIF support for the hotel development project. The plan
provided that some sixty percent of revenues from the tax
increment would go toward the repayment of the TIF notes. The
remaining forty percent of the revenue from the tax increment
would be provided to the three taxing bodies, the City, the School
District, and Allegheny County.
       On February 2, 1999, following the approval of the TIF
funds, the City passed Resolution 45, which required Sage, inter

Urban Redevelopment Auth. of Pittsburgh, About the URA, at
http://www.ura.org/aboutTheURA.html (last visited Oct. 8, 2004).
Urban Redevelopment Authorities were promulgated under the Urban
Redevelopment Law, 35 Pa. Cons. Stat. § 1701 et seq., to promote
development in blighted areas. Id. § 1702. The URA is comprised of
the City of Pittsburgh, the School District of Pittsburgh, and Allegheny
County.
       2
        The increment is computed by determining a predevelopment
property value baseline. Increases in value due to the project’s
completion and operation constitute the tax increment. The mechanics
of TIF payments are outlined in Pennsylvania State Building &
Construction Trades Council v. Prevailing Wage Appeals Board, 808
A.2d 881, 886 & nn.5-6, 9 (Pa. 2002).

                                   3
alia, to “enter into a post-construction certified labor agreement
with a bonified [sic] labor organization recognized by the National
Labor Relations Board.”           (App. 60 (emphasis omitted).)
Approximately five months later, on July 27, 1999, the City passed
Ordinance 22 to supplement Chapter 161 under Title One, Article
VII of the Pittsburgh Code.3 The Ordinance added section 161.30,
“Requiring Contractors and Employers of employees hired to staff
hospitality operations to be signatory to collective bargaining
agreements where the City of Pittsburgh has a financial or
proprietary interest.” (App. 47 (emphasis omitted).)
        This section provides, in pertinent part:
                 Each and every Contractor and Employer
         of employees hired to staff hospitality operations
         shall be or become signatory to valid collective
         bargaining agreements or other contracts under
         29 U.S.C. Section 185 with any labor
         organization seeking to represent Hospitality
         Workers employed in the Contractor’s and/or
         Employer’s Hospitality Operations in a Capital
         Project as a condition precedent to its contract
         with the City of Pittsburgh. Each collective
         bargaining agreement or contract must contain a
         provision prohibiting the labor organization and
         its members, and in the case of a collective
         bargaining agreement, all employees covered by
         the agreement, from engaging from any
         picketing, work stoppages, boycotts or any other
         economic interference with the Hospitality
         Operations of Contractor or any persons under
         contract to it for the duration of the time required
         for the repayment of public indebtedness incurred
         to finance the acquisition or development of such
         Capital Project, or for the duration of
         Contractor’s contract or contracts with the City
         for the operation of such Capital Project,
         whichever period of time is more extensive (the

       3
        Title One, Administrative, Article VII, Procedures, Chapter 161,
Contracts.

                                   4
          “No-Strike Pledge”). Each agreement must
          provide that during this time period, all disputes
          relating to employment conditions or the
          negotiation thereof shall be submitted to final and
          binding arbitration. Each and every Contractor
          and Employer of employees hired to staff
          Hospitality Operations shall require that any work
          under its contract or contracts with the City to be
          done by the Contractor’s or Employer’s
          contractors, subcontractors, tenants or subtenants
          shall be done under collective bargaining
          agreements or other contracts under 29 U.S.C.
          Section 185 containing the same provisions as
          specified above.
(App. 48.)
        By February 2001, construction of the hotel had been
completed, but Sage had not yet entered into a labor agreement
with any labor union. On February 13, 2001, the City passed a
resolution dissolving the Fulton Building TIF District and
withdrawing the issuance of the $3.56 million TIF funds because
Sage had not entered into a labor agreement under Resolution 45
and Ordinance 22.
        One week after the passage of the resolution, Sage signed
a Labor and Neutrality Agreement (the “Neutrality Agreement” or
the “Agreement”) with the Hotel Employees and Restaurant
Employees Union Local 57, AFL-CIO (“HERE”). The Neutrality
Agreement contained, inter alia, a no-picketing promise and a
provision that union representation would be determined using a
card-check procedure. The Agreement provided that disputes
arising under it would be settled by arbitration. Following the
Agreement, the Mayor vetoed the City Council’s February 13
repeal of the Fulton Building TIF District, and Sage received
funding.
        Following the opening of the hotel on March 16, 2001,
HERE asked that Sage hold a “card count” to obtain recognition
of its union pursuant to the terms of the Neutrality Agreement. On
June 19, 2001, the City concluded “that a majority of employees
[at the hotel] . . . has not designated the Hotel Employees,
Restaurant Employees Union, Local 57 as their [sic] exclusive

                                5
collective bargaining representative.” (App. 67.) Citing the
Neutrality Agreement, HERE sought to arbitrate the outcome of
the card count and requested a second card count in June of 2002,
but Sage refused to comply with the request, claiming that the
Neutrality Agreement was void.
        On September 20, 2002, HERE filed a complaint in the
District Court seeking to compel Sage to arbitrate issues arising
pursuant to the Neutrality Agreement. Sage defended by arguing
that the Neutrality Agreement was illegal and void ab initio.
        In May 2003, both parties filed motions for summary
judgment. In a memorandum issued on September 30, 2003, the
District Court rendered a decision in favor of HERE and directed
the parties to submit their dispute to arbitration pursuant to the
Neutrality Agreement. The District Court held that (1) both parties
were within their rights to reach a private agreement to provide an
alternative method of deciding union representation and that such
chosen method, i.e., card check procedures, was not illegal under
federal law; (2) the Agreement’s provisions for card check
procedures did not constitute payment of “things of value”
prohibited by section 302 of the Labor Management Relations Act
(“LMRA”), 29 U.S.C. § 186; and (3) economic duress could not
be used as a reason to invalidate the Agreement. The District
Court ordered the parties to submit their dispute to arbitration
pursuant to the Agreement.
        We are presented with a final order of a District Court to
review. Accordingly, we have appellate jurisdiction. 28 U.S.C. §
1291. Our review of a District Court’s grant of summary judgment
is plenary. See Fed. Home Loan Mortgage Corp. v. Scottsdale Ins.
Co., 316 F.3d 431, 443 (3d Cir. 2003). We assess the record using
the same summary judgment standard that guides district courts.
See Farrell v. Planters Lifesavers Co., 206 F.3d 271, 278 (3d Cir.
2000). To prevail on a motion for summary judgment, the moving
party must demonstrate “that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as
a matter of law.” Fed. R. Civ. P. 56©).

                                 II

       In this appeal, Sage claims that (1) the Agreement HERE

                                 6
seeks to enforce is void ab initio, or voidable at its option, as
having been secured in violation of federal law, specifically the
National Labor Relations Act (“NLRA”), 29 U.S.C. § 151 et seq.;
(2) the terms of the Agreement require Sage to provide “things of
value” to HERE in violation of section 302 of the LMRA; and (3)
the Agreement is void ab initio because Pennsylvania’s Home
Rule Charter statute, 53 Pa. Cons. Stat. § 2962(f), prohibited the
City from imposing the requirements set out in its ordinances and
resolutions.

                                  A

        Sage’s first argument is that the Neutrality Agreement
signed with HERE is unenforceable, as a matter of law, because it
intrudes into a field governed by federal labor law. Specifically,
Sage argues that Ordinance 22 is preempted by section 7 of the
NLRA.
        The District Court declined to address the federal
preemption question, holding that “[b]ecause the legality of the
City’s actions is not dispositive in this case and because the City
is not, itself, a party to this action, we need not decide this issue.”
Hotel Employees & Rest. Employees Union, Local 57 v. Sage
Hospitality Res., L.L.C., 299 F. Supp. 2d 461, 465 (W.D. Pa.
2004). Instead, the District Court examined the validity of the
Neutrality Agreement on its face and rejected Sage’s argument that
the Agreement should be rendered void because Sage entered into
the Agreement under “economic duress.” Id. at 466.
        Although the City is not actually party to the Neutrality
Agreement, the issue of federal preemption cannot be so easily
bypassed. If, for example, private parties entered into a neutrality
agreement because a city mandated it as a matter of law or
regulation, there is no doubt that the question of federal
preemption would be presented. See Golden State Transit Corp.
v. City of Los Angeles, 475 U.S. 608 (1986) (preemption bars city
from coercing party to enter into labor agreement). The fact that
the government mandates—but is not party to—the labor
agreement would not insulate the government’s actions from
preemption scrutiny.
        By the same token, preemption issues are implicated where,

                                  7
as here, the impetus for a labor-management agreement is that the
City demands it as a condition of public financing. While such an
arrangement may turn out to escape or survive preemption analysis
on the merits, we may not simply assume the question away by
limiting our focus to the four corners of the Neutrality Agreement.
See, e.g., Hotel Employees & Rest. Employees Union, Local 2 v.
Marriott Corp., No. C-89-2707, 1993 WL 341286 (N.D. Cal. Aug.
23, 1993). Thus, we begin our examination of whether the
Neutrality Agreement is valid by looking to the City’s ordinance.
If the City’s efforts to promote the Agreement are preempted by
federal labor law, then the executed agreement between the parties
may be deemed void.
        “It is by now a commonplace that in passing the NLRA
Congress largely displaced state regulation of industrial relations.”
Wis. Dep’t of Industry, Labor & Human Relations v. Gould Inc.,
475 U.S. 282, 286 (1986). Section 7 of the NLRA protects, inter
alia, the right of employees to “self-organization, to form, join, or
assist labor organizations, [and] to bargain collectively through
representatives of their own choosing.” 29 U.S.C. § 157. Section
8 of the NLRA enumerates “unfair labor practices,” including:
interference with an employee’s exercise of rights guaranteed
under section 7; domination or interference with the formation or
administration of a labor organization; discrimination in hiring or
employment to encourage or discourage membership in a labor
organization; the refusal to bargain collectively; forcing or
requiring an employer to join a labor organization; forcing an
employer to bargain with a particular labor organization as the
collective bargaining agent of its employees if another labor
organization has been certified as the representative of such
employees; and forcing or requiring a person to stop using, selling,
or dealing in the products of any employer, producer, or
manufacturer. See 29 U.S.C. § 158.
        Though the NLRA contains no express preemption
provision, we will find a state or local rule to be preempted by
implication if “it conflicts with federal law or would frustrate the
federal scheme, or . . . [if we] discern from the totality of the
circumstances that Congress sought to occupy the field to the
exclusion of the States.” Allis-Chalmers Corp. v. Lueck, 471 U.S.
202, 209 (1985) (quotation marks omitted).

                                 8
       The Supreme Court has carved out two distinct implied-
preemption doctrines around the NLRA. The first, “Garmon
preemption,” forbids state and local regulation of activities that are
“protected by § 7 of the [NLRA], or constitute an unfair labor
practice under § 8.” San Diego Bldg. Trades Council v. Garmon,
359 U.S. 236, 245 (1959) (“When an activity is arguably subject
to § 7 or § 8 of the Act, the States as well as the federal courts
must defer to the exclusive competence of the National Labor
Relations Board . . . .”); see also Gould, 475 U.S. at 286. The state
law may be a law of general application or a law directed
specifically toward labor relations. Garmon, 359 U.S. at 246.
Garmon preemption prohibits regulation even of “activit[ies] that
the NLRA protects, prohibits, or arguably protects or prohibits.”
Gould, 475 U.S. at 286.
         This rule of pre-emption is designed to prevent
         conflict between, on the one hand, state and local
         regulation and, on the other, Congress’ integrated
         scheme of regulation embodied in §§ 7 and 8 of
         the NLRA, which includes the choice of the
         NLRB, rather than state or federal courts, as the
         appropriate body to implement the Act.
Bldg. & Constr. Trades Council v. Associated Builders &
Contractors of Mass./R.I., Inc., 507 U.S. 218, 221-22 (1993)
(“Boston Harbor”) (quotation marks and citation omitted).4

       4
          Garmon also carved out two exceptions under which a state’s
actions may not necessarily be preempted by federal law. The Court
provided that it would not bar the power of states
          to regulate where the activity regulated was a merely
          peripheral concern of the Labor Management
          Relations Act. Or where the regulated conduct
          touched interests so deeply rooted in local feeling and
          responsibility that, in the absence of compelling
          congressional direction, we could not infer that
          Congress has deprived the States of the power to act.
359 U.S. at 243-44 (citation omitted); see also Belknap, Inc. v. Hale, 463
U.S. 491, 498-99 (1983). The “local interest” exception has ordinarily
been applied “where the conduct alleged concerned activity traditionally
recognized to be the subject of local regulation, most often involving
threats to public order such as violence, threats of violence, intimidation

                                    9
        The second preemption principle, set out in Lodge 76,
International Association of Machinists & Aerospace Workers v.
Wisconsin Employment Relations Commission, precludes state
and municipal regulation concerning those aspects of
labor-management relations that Congress intended “to be
controlled by the free play of economic forces.” 427 U.S. 132, 140
(1976) (quotation marks omitted). This form of preemption
recognizes Congress’s desire to balance the power between
employers and workers. Id. at 146-47. Under this rule, states are
prohibited from imposing additional restrictions on economic
weapons of self-help, such as strikes or lockouts, unless such
restrictions were presumably contemplated by Congress. See id.
at 147.
        The Garmon and Machinists preemption doctrines grew in
the context of state laws that regulated the relationship between
employers and labor. But what happens when the state acts not as
a regulator, but as a market participant that deals as an employer or
developer with its own labor force?
        In Boston Harbor, the Supreme Court faced a
Massachusetts Water Resources Authority (“MWRA”)
requirement that all contractors working on the Boston Harbor
cleanup project must sign a prehire collective bargaining
agreement that recognized a specific union and compelled all
employees to become union members. Boston Harbor, 507 U.S.
at 218, 220-22. Although the requirement impinged upon labor-
employer collective bargaining that is normally governed by the
NLRA, the Court ruled that MWRA’s actions were not preempted
by the federal labor statute. The Court reasoned that the MWRA
was acting in its capacity as a proprietor, i.e., “market participant,”
and not as a regulator. Id. at 232. In that sense, the agency was on
the same footing as any private employer dealing with its own
subcontractors and their labor force.
                 There is no reason to expect these defining
         features of the construction industry to depend
         upon the public or private nature of the entity

and destruction of property” and also to cover acts of trespass. Pa.
Nurses Ass’n v. Pa. State Educ. Ass’n, 90 F.3d 797, 803 (3d Cir. 1996).

                                 10
         purchasing contracting services. To the extent
         that a private purchaser may choose a contractor
         based upon that contractor’s willingness to enter
         into a prehire agreement, a public entity as
         purchaser should be permitted to do the same. . .
         . In the absence of any express or implied
         indication by Congress that a State may not
         manage its own property when it pursues its
         purely proprietary interests, and where analogous
         private conduct would be permitted, this Court
         will not infer such a restriction.
Id. at 231-32. The Court sustained the MWRA’s mandatory labor
agreement because it was not an effort to regulate the conduct of
others, but an “attempt[] to ensure an efficient project that would
be completed as quickly and effectively as possible at the lowest
cost.” Id. at 232.
        In short, after Boston Harbor, preemption analysis only
comes into play when the state’s activity in question constitutes
“regulation.” Id. at 227. But a state will not be subject to
preemption analysis when it acts as a “market participant.” See id.
(“When a State owns and manages property, . . . it must interact
with private participants in the marketplace. In so doing, the State
is not subject to pre-emption by the NLRA, because pre-emption
doctrines apply only to state regulation.”).
        Boston Harbor raises the issue that is pivotal in this case:
What is the distinction between government acting as a regulator
and government acting as a proprietor or market participant?
        We begin by rejecting the notion that the line between
regulation and proprietary action can be drawn simply by
determining whether the state seeks to affect labor relationships
through mandatory or prohibitive regulation on the one hand, or
through the coercive effect of government’s spending power on
the other. The mere fact that government affects labor relations by
imposing conditions under its power to procure or to spend does
not automatically mean that the state is acting in a proprietary
capacity that is immune from preemption review.
        That is the teaching of Wisconsin Department of Industry,
Labor & Human Relations v. Gould, Inc., 475 U.S. at 287.
Applying preemption analysis in that case, the Supreme Court

                                11
rejected any facile distinction between regulation by mandate and
regulation by conditioning public spending. The Wisconsin statute
provided that state procurement officers were statutorily forbidden
to purchase “any product known to be manufactured or sold by any
person or firm included on the list of labor law violators.” Id. at
284 (quotation marks omitted). Notably, the prohibition was not
limited to firms that violated labor laws on a particular state-
funded project, or even on a number of state-funded projects.
Rather, it debarred contractors who had violated labor laws on
projects inside or outside the state. The Court rejected the claim
that the statute “escapes pre-emption because it is an exercise of
the State’s spending power rather than its regulatory power.” Id.
at 287. Observing the fact that debarment could be triggered by
misconduct wholly unrelated to any transactions with the state
itself, the Court held that “by flatly prohibiting state purchases
from repeat labor law violators Wisconsin simply is not
functioning as a private purchaser of services; for all practical
purposes, Wisconsin’s debarment scheme is tantamount to
regulation.” Id. at 289 (quotation marks and citation omitted).
Preemption analysis therefore applied, and the Court held that
“[b]ecause Wisconsin’s debarment law functions unambiguously
as a supplemental sanction for violations of the NLRA, it conflicts
with the Board’s comprehensive regulation of industrial relations.”
Id. at 288.
         Accordingly, the line between state regulation that is subject
to preemption and market participation that escapes preemption
must be drawn more finely than by simply distinguishing between
regulation through mandatory laws and regulation achieved
through the spending or procurement power. In describing where
to draw this line, we begin by reviewing several seminal decisions.
         As we have noted, Gould itself involved a provision that
broadly disqualified firms with multiple past labor law violations
from doing business with the state. Because the predicate
violations were historical, and were not limited to transactions with
the state itself, the Supreme Court easily discerned that the statute
was not related to the state’s proprietary interest in ongoing
projects, but was simply punitive. In Boston Harbor, by contrast,
the municipal authority’s bid specification on a particular project
required successful contractors to enter into a prehire labor

                                 12
agreement on the project itself. This requirement was “specifically
tailored to one particular job” and served to protect the municipal
authority’s interest in labor peace on that job. 507 U.S. at 232.
        Gould and Boston Harbor, therefore, reflect polar outcomes
despite the fact that both involved an exercise of spending or
procurement power. The pivotal difference is that in the former
case the state deployed its spending authority to achieve a goal far
broader than merely protecting or fostering its own investment or
proprietary interest, while in the latter instance the public agency
limited its spending conditions to the protection of its investment
or proprietary interest.
        Other appellate courts that have examined the
regulator/market-participant distinction also focus on the fit
between the challenged state requirement and the state’s
proprietary interest in a particular project or transaction. In
Chamber of Commerce of the United States v. Reich, the D.C.
Circuit addressed an Executive Order barring the federal
government from contracting with employers who hire permanent
replacements during a lawful strike. 74 F.3d 1322 (D.C. Cir.
1996). The Executive Order swept broadly, effectively forcing
companies doing business with the federal government to avoid
“permanent replacements even if the strikers are not the employees
who provide the goods or services to the government.” Id. at
1338. Indeed, even subsidiaries that did not do business with the
government would be forced to comply with the order if an
affiliated business organization sought a federal contract. As in
Gould, this was a procurement condition that reached far more
widely than what would be necessary to protect against disruption
of those contracts in which the government had a direct proprietary
interest. Not surprisingly, therefore, the D.C. Circuit held that the
Executive Order was a regulatory effort “to set a broad policy
governing the behavior of thousands of American companies and
affecting millions of American workers.”              Id. at 1337.5

       5
         The government argued that even this broadly sweeping order
promoted the government’s proprietary interests because labor strife on
projects unrelated to the government can have an overall deleterious
impact on the vitality of the contractor. Reich, 74 F.3d at 1335. The
D.C. Circuit rejected this type of attenuated proprietary benefit as

                                 13
Preemption analysis therefore applied.
        In Building & Construction Trades Department v.
Allbaugh, however, the D.C. Circuit declined to find preemption
applicable to a much more specific Executive Order that required
federal agencies and private entities to maintain neutrality
regarding project labor agreements in federally funded
construction contracts. 295 F.3d 28 (D.C. Cir. 2002). Even
though the Executive Order applied to all federally funded
contracts, it applied only to those contracts. The Order did not
speak to the behavior of contractors on other, nongovernment
projects. The D.C. Circuit reasoned that “[b]ecause the Executive
Order does not address the use of [project labor agreements] on
projects unrelated to those in which the Government has a
proprietary interest, the Executive Order establishes no condition
that can be characterized as ‘regulatory.’” Id. at 36. Preemption
analysis, therefore, did not apply.
        More recently, the Ninth Circuit has also addressed the
regulator/market-participant distinction. In Chamber of Commerce
of the United States v. Lockyer, the Ninth Circuit confronted a
California statute forbidding employers who received a certain
amount of state funds from using those funds to advocate for or
against union organizing. 364 F.3d 1154 (9th Cir. 2004). The
statute applied to all employers who accepted state grants in excess
of $10,000, and it imposed separate accounting requirements on
any business that either received state funds or entered into a
contract with the state for more than $10,000. Id. at 1163. It also
contained a provision for civil penalties and made employers
subject to private civil suits. Id. Critically, the statutory restriction
did not confine itself to state financing of projects employing
workers who might be unionized. It affected employers in the use
of state funds they had received for any reason. Analyzing the
statutory language and its broad effect, the Ninth Circuit
concluded:

insufficient to bring the case within Boston Harbor. We agree. In the
real world, one can often plausibly contend that everything is related to
everything else. We read the Gould/Boston Harbor distinction as
requiring a much tighter fit between the procurement condition and the
proprietary interest being advanced.

                                  14
          The statute’s scope indicates a general state
          position, not a narrow attempt to achieve a
          specific goal. Thus, there is no question that [the
          statute is] designed to have a broad social impact,
          by altering the ability of a wide range of
          recipients of state money to advocate about union
          issues.6
Id.; cf. Cardinal Towing & Auto Repair, Inc. v. City of Bedford,
180 F.3d 686, 693 (5th Cir. 1999) (treating municipal decision to
award single contract for towing as proprietary action exempt from
preemption under federal motor carrier statute).
        These cases confirm that whether a government’s condition
of funding constitutes market participation that falls within the
Boston Harbor exception to preemption review depends upon the
following two step test: First, does the challenged funding
condition serve to advance or preserve the state’s proprietary
interest in a project or transaction, as an investor, owner, or
financier? Second, is the scope of the funding condition
“specifically tailored” to the proprietary interest? Boston Harbor,
507 U.S. at 232. If a condition of procurement satisfies these two
steps, then it reflects the government’s action as a market
participant and escapes preemption review. But if the funding
condition does not serve, or sweeps more broadly than, a
government agency’s proprietary economic interest, it must submit
to review under labor law preemption standards. We think this test
faithfully embodies the teachings of Gould and Boston Harbor,
and is consistent with the approaches taken by our sister circuits.

       6
         Lockyer cited the Ninth Circuit’s earlier decision in Alameda
Newspapers, Inc. v. City of Oakland, 95 F.3d 1406, 1415-16 (9th Cir.
1996), which held that the City of Oakland was not acting as a market
participant when it canceled a newspaper subscription and refused to
continue to pay for advertising during a labor dispute between the paper
and its union. The Alameda Newspapers court held that the city was
boycotting the paper, and hence acting as a market participant. This
decision rests on an unusual set of facts, and its consistency with Boston
Harbor and Golden State is debatable. Our reliance on Lockyer is not
meant to imply, therefore, that we would agree with Alameda
Newspapers.

                                   15
See Lockyer, 364 F.3d at 1162 (quoting Cardinal Towing, 180
F.3d at 693); Allbaugh, 295 F.3d at 34-36.7

                                   B

        Is Ordinance 22 specifically tailored to advance or protect
a proprietary financial interest of the City in the Fulton Building
TIF District project? The best argument for Sage’s challenge is as
follows: The City has an economic interest in the success of the
Fulton Building TIF District. But that interest is in the projected
stream of increased tax revenue which the City hopes to receive if
the project is successful. This kind of economic interest is
governmental, not proprietary, because it is not comparable to the
financial interest that an ordinary market participant has in a
project. Rather, the City’s interest is simply the traditional
government interest in enhanced revenue that applies anytime the
City seeks to increase its tax base.
        If the foregoing were a complete description of the City’s
interest in the TIF project, Sage’s objection would have
considerable force. If we treated a public agency’s bare interest in
maximizing tax revenue as a proprietary interest, then preemption
analysis would not apply to any state rule arguably designed to
curtail labor strife that threatens to reduce corporate profits and,
therefore, tax receipts. Expanding the concept of market
participation to embrace so broad a concept of proprietary interest
would render preemption law in this area a nullity.

       7
          The court in Lockyer arguably relied on evidence of the
subjective motivation of the legislature in adopting the challenged
statute, and also talked in terms of whether the state’s behavior was
proprietary “as measured by the similar behavior of private parties.” 364
F.3d at 1163. We do not believe, however, that Boston Harbor and its
progeny require a factual investigation into the particular subjective
motives of the relevant government agency, or a survey of what private
parties do in like circumstances. Cf. Ky. W.V. Gas Co. v. Pa. Pub. Util.
Comm’n, 837 F.2d 600, 616 (3d Cir. 1988) (declining to look at
legislators’ motives in determining whether state provision violates
federal Commerce Clause). We see the test as objective, based on the
language and probable effect of the state ordinance or specification.

                                  16
        But that is not this case. Ordinance 22 is not designed
simply to protect the City’s interest in tax revenues. To be sure, as
described above, under the TIF program, forty percent of any
increased tax revenues flow to the City and other government
entities. In this respect, the City’s interest is nothing more or less
than the traditional government interest in maximizing tax receipts.
But the City is also a constituent in the URA—itself a public
agency. In this capacity, the City is a partner in the proprietary
interests of the URA itself. And the URA as issuer of the TIF
bonds has a proprietary financial interest in the TIF development
project that is the same as that of any (nonprofit) private entity that
finances a development by issuing bonds.8

       8
          Although not dispositive, see supra note 7, we note that the City
itself perceived Ordinance 22 as an effort to protect its financial
interests. Ordinance 22 reads, in pertinent part:
          WHEREAS, The City of Pittsburgh has a financial or
          proprietary interest in certain capital projects which
          may include hospitality operations such as hotels . . .
          . It is anticipated that the revenues generated by these
          operations will be used in part to defray the public
          costs incurred in the construction and maintenance of
          such capital projects as well as to fund lease, rental or
          license payments to the City. It is essential that these
          operations be conducted efficiently and without
          interruption and that no labor disputes affecting such
          operations may impact the revenues of other parts of
          such capital projects, which would in tern adversely
          affect the revenue stream to government. The City
          has found that the efficient and uninterrupted
          operation of hospitality services may be threatened by
          labor disputes, and has found the only way to avoid
          this problem is by requiring Contractors and
          Employers of employees hired to staff hospitality
          operations to be signatory to collective bargaining
          agreements or other contracts under 29 U.S.C. sec.
          185(a) with respect to the employees who will staff
          hospitality operations in capital projects . . . . Such
          contracts are the only method of insuring continuous
          provision of services under City contracts because
          under federal law, Employers may not unilaterally

                                   17
        Sixty percent of the tax revenues from the TIF are returned
to the URA. Those revenues are applied to debt service and, if
feasible, early retirement of the bonds. “Excess” revenues are
applied by the URA to other development activities in the TIF
district. Thus, the URA’s interest in the success of the project that
will yield the tax revenues is precisely that of any developer who
is relying upon cash flow to support debt service, repay bonds, and
finance other development. The Ordinance directly promotes and
protects this interest. As in Boston Harbor, the Ordinance
conditions funding on the employer entering into an agreement to
eliminate picketing, work stoppages, and other economic
disruptions.
        This financial interest is similar, although not identical to,
that of the City of San Francisco in Hotel Employees & Restaurant
Employees Union, Local 2 v. Marriott Corp., No. C-89-2707, 1993
WL 341286 (N.D. Cal. Aug. 23, 1993). There, an agency of the
City owned a piece of property that it wished to lease in part to a
hotel in return for a percentage of gross proceeds. The District
Court found that the requirement of certain labor agreements as an
effective condition of the lease reflected a proprietary, not
regulatory, interest on the part of the city, because the city “was
acting as any private landowner would have in protecting a
multimillion dollar real estate investment.” Id. at *7. We find that
reasoning apt here.
        Ordinance 22 is not unduly broad in promoting and
protecting the City’s proprietary interest. The City’s decision to
insist that contractors and employers of staff hospitality employees
sign no-strike agreements is specifically tailored to protect its
proprietary interest in the value of the tax-revenue-generating
property. Like the MWRA in Boston Harbor, the City has an
interest in ensuring that labor strife does not damage the
development. See Boston Harbor, 507 U.S. at 221 (upholding
prehire agreement recommended by construction project manager
to “maintain worksite harmony, labor-management peace, and
overall stability throughout the duration of the project”); Allbaugh,

        prohibit unions or their employees from engaging in
        work stoppages.
(App. 47 (emphasis added).)

                                 18
295 F.3d at 35. Significantly, the requirement that an employer
sign a labor agreement is limited to hotels and hospitality projects
receiving TIF funds. (App. 47-49.) The City does not require that
participating contractors sign labor agreements extending to non-
TIF projects, which they may also be undertaking. Compare
Chamber of Commerce of the United States v. Reich, 74 F.3d
1322, 1324 (D.C. Cir. 1996) (order is regulatory when it touches
on projects other than those that are government funded). Nor is
this a situation in which the URA, having financed the project, has
already retired its debt and therefore has no continuing interest in
financial receipts from the TIF project.9
         Given its considerable investment through the URA, the
City acted as a reasonable investor in applying conditions to its
multimillion dollar investment. Ordinance 22 is a specifically
tailored response to a financial interest, given the income expected
from the development and URA’s position as the issuer of these
and future securities. The Ordinance is therefore exempt from
preemption review.10

                                     C

      Next, Sage charges that the Neutrality Agreement is void
because it required Sage to provide “things of value” to the union

        9
          In Marriott, the District Court distinguished the circumstance
in which a city sells property to a developer outright on condition that
the latter enters into a labor agreement. In that instance, because the
city’s economic interest would have terminated, the city’s imposition of
a labor agreement condition could not be characterized as protecting or
furthering a proprietary interest. 1993 WL 341286, at *7. So, here, if
the URA’s interest were eliminated, the result might well be different.
        10
          In its brief, Sage also states that it “would not have entered into
the Agreement ‘but for’ the actions of the City and the consequent
economic duress.” (Appellant Br. at 4.) This argument is not briefed on
appeal and so we will not address it. See Lunderstadt v. Colafella, 885
F.2d 66, 78 (3d Cir. 1989); Jackson v. Univ. of Pittsburgh, 826 F.2d 230,
237 (3d Cir. 1987). In any event, as the District Court explained, the
argument is without merit as Sage has not met the standard to prove
economic duress.

                                    19
in violation of section 302 of the LMRA. That section provides,
in pertinent part:
          (a) . . . . It shall be unlawful for any employer . .
          . to pay, lend, or deliver, or agree to pay, lend, or
          deliver, any money or other thing of value—
          (1) to any representative of any of his employees
          who are employed in an industry affecting
          commerce . . . .
          ....
          (2) to any labor organization, or any officer or
          employee thereof, which represents . . . any of the
          employees of such employer who are employed in
          an industry affecting commerce;
          (b) . . . . (1) It shall be unlawful for any person to
          request, demand, receive, or accept, or agree to
          receive or accept, any payment, loan, or delivery
          of any money or other thing of value prohibited
          by subsection (a).
29 U.S.C. § 186.
        When Congress enacted section 302, it was “concerned
with corruption of collective bargaining through bribery of
employee representatives by employers, with extortion by
employee representatives, and with the possible abuse by union
officers of the power which they might achieve if welfare funds
were left to their sole control.” Arroyo v. United States, 359 U.S.
419, 425-26 (1959) (footnotes omitted); see also Turner v. Local
Union No. 302, Int’l Bhd. of Teamsters, 604 F.2d 1219, 1227 (9th
Cir. 1979) (“The dominant purpose of § 302 is to prevent
employers from tampering with the loyalty of union officials and
to prevent union officials from extorting tribute from employers.”).
In short, section 302 “was passed to address bribery, extortion and
other corrupt practices conducted in secret.” Caterpillar Inc. v.
Int’l Union, United Auto., Aerospace & Agric. Implement
Workers of Am., 107 F.3d 1052, 1057 (3d Cir. 1997) (en banc).
        Not surprisingly, Sage is unable to provide any legal
support for the remarkable assertion that entering into a valid labor
agreement governing recognition of a labor union amounts to
illegal labor bribery. There are many reasons why this argument
makes no sense, including the language of section 302 itself,

                                20
which proscribes agreements to “pay, lend, or deliver . . . any
money or other thing of value.” The agreement here involves no
payment, loan, or delivery of anything. The fact that a Neutrality
Agreement—like any other labor arbitration agreement—benefits
both parties with efficiency and cost saving does not transform it
into a payment or delivery of some benefit. Furthermore, any
benefit to the union inherent in a more efficient resolution of
recognition disputes does not constitute a “thing of value” within
the meaning of the statute. Cf. Wyman-Gordon Co. v. NLRB, 397
F.2d 394, 396 (1st Cir. 1968) (transmitting list of names and
addresses to union for election purposes is not violation of § 302),
rev’d on other grounds sub nom., NLRB v. Wyman-Gordon Co.,
394 U.S. 759 (1969).
       Apart from the plain language of section 302, the structure
of other provisions of the labor law also militates against Sage’s
position. Issues of labor-unit recognition and bargaining are
comprehensively regulated by the NLRA. Courts have repeatedly
upheld labor-management agreements providing for arbitration
over recognition disputes. See, e.g., Hotel & Rest. Employees
Union Local 217 v. J.P. Morgan Hotel, 996 F.2d 561 (2d Cir.
1993); Hotel Employees, Rest. Employees Union, Local 2 v.
Marriott Corp., 961 F.2d 1464, 1468 (9th Cir. 1992). Sage’s
interpretation of section 302 would wreak havoc on the carefully
balanced structure of the laws governing recognition of and
bargaining with unions. Cf. Caterpillar, 107 F.3d at 1056-57
(declining to read section 302 as invalidating benefits obtained
under lawful collective bargaining).
       Finally, Sage suggests that it is improper to “sacrifice” the
employees’ right to an election by reaching an agreement to
resolve any card count by arbitration. Sage concedes, however, as
it must, that it lacks standing to assert employees’ rights under the
labor laws. Accordingly, we do not reach this contention.11
       For the foregoing reasons, we will affirm the judgment of

        11
          Sage’s remaining claim on appeal is that the City’s passage of
Ordinance 22 and Resolution 45 violated its Home Rule Charter. Sage
neglected to raise this affirmative defense in the District Court, and it is
therefore waived. Sys. Inc. v. Bridge Elecs. Co., 335 F.2d 465, 466 (3d
Cir. 1964).

                                    21
the District Court.

                      22