DC Circuit Vacates Arbitration Award on Public Policy Grounds

by Mark Kantor and Karl Bayer

In National Railroad Passenger Corporation v. Fraternal Order of Police, Lodge 189, No. 16-7004 (DC Cir., April 28, 2017), the United States Court of Appeals for the District of Columbia Circuit affirmed a trial court’s order vacating an arbitration award based on public policy grounds.  The 2-1 decision involves a collective bargaining agreement and particular jurisprudence under the U.S. Railway Labor Act that permits vacatur of arbitration awards if a contract provision “is contrary to ‘law or public policy.’”

In the dispute, a union, the Fraternal Order of Police, Lodge 189, brought arbitration on behalf of a National Railroad Passenger Corporation (“Amtrak”) police employee who was fired for her purported misconduct. An arbitrator held Amtrak’s dismissal of the employee must be overturned because the company’s investigation of the employee’s conduct failed to comply with the investigative procedures set out in Rule 50 of the collective bargaining agreement.  The arbitrator also ruled that Amtrak must reinstate the police employee with backpay and lost seniority.

The issue in the case, as set forth by the Court of Appeals, was whether “procedural limitations on the conduct of internal investigations contained in a collective bargaining agreement between Amtrak and the FOP” bind the Amtrak Office of Inspector General.  According to the majority opinion that was filed by Senior Circuit Judge Randolph:

On her behalf, the FOP claimed that she had been fired without just cause. Without reaching that claim, the arbitrator determined that Bryant should be reinstated because the Inspector General’s investigator, when interviewing her, had not fully complied with the contract’s Rule 50 procedures. Although this provision of the collective bargaining agreement does not mention the Amtrak Office of the Inspector General, and although the Amtrak Inspector General did not participate in the Amtrak-FOP contract negotiations and did not sign the agreement, the arbitrator concluded that Rule 50 bound the Inspector General.  Rule 50, the arbitrator wrote, applies to “all bargaining unit member interrogations” and “does not exempt” the Inspector General.

As the majority Circuit opinion noted, “Although the Railway Labor Act gives district courts jurisdiction to review an arbitrator’s award, … the grounds on which a court may set aside an award are limited. One of the few such grounds is that the particular contractual provision at issue is contrary to ‘law or public policy.’”

The Court of Appeals ultimately held that the problem was not with the arbitrator’s decision. Rather, the problem was that Rule 50, as applied by the arbitrator, became an illegal contract provision under the Railway Labor Act.

We have accepted – as the district court did – the arbitrator’s interpretation that Rule 50 applies to the Amtrak Inspector General. The problem is that Rule 50, as thus applied, amounted to an illegal contractual provision.

Because the dispute involves a collective bargaining agreement and the Railway Labor Act, the issue again arises whether the opinion is precedential for Federal Arbitration Act cases.  Judge Pillard, who dissented from the majority opinion, fears that result:

The difficulty here is that in this case – unlike in DHS – we review an arbitrator’s award under the Railway Labor Act, where the scope of judicial review is “amongst the narrowest known to the law.” Nw. Airlines, Inc. v. Air Line Pilots Ass’n, Int’l, 808 F.2d 76, 80 (D.C. Cir. 1987). Taking those cautionary words to heart, I do not believe we have a legal basis to vacate the arbitrator’s award.

Looking to labor arbitration precedents, the dissenting judge reminded her majority colleagues that “We lack jurisdiction even when we are convinced that the arbitrator “committed serious error.” Eastern Associated Coal Corp. v. United Mine Workers, Dist. 17, 531 U.S. 57, 62 (2000); see Am. Postal Workers Union v. U.S. Postal Serv., 789 F.2d 1, 5, 8 (D.C. Cir. 1986).

For Judge Pillard, the judicially-created “public policy” exception for enforcement of labor arbitration awards is exceedingly narrow.  She used the U.S. Supreme Court’s refusal to vacate labor awards on public policy grounds to illustrate her point:

The majority finds grounds to vacate the award at issue under a judicially fashioned “public-policy” exception to the bar against judicial review of arbitral awards. See United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 42 (1987); W.R. Grace and Co., 461 U.S. at 766. But in the decades since the Supreme Court described the exception, neither that Court nor this one has yet to encounter a case in which it found reason to invoke it, until now. This case does not come close to meriting such an extraordinary step.

As the Supreme Court has envisioned it, the public policy exception would only be triggered by a public policy whose “explicit, well defined, and dominant” character could be “ascertained by reference to the laws and legal precedents.”  Eastern Associated Coal Corp., 531 U.S. at 62-63. It applies only where the arbitral award violates that policy. United Bhd. of Carpenters v. Operative Plasterers’ Int’l Assoc., 721 F.3d 678, 697 (D.C. Cir. 2013); Am. Postal Workers Union, 789 F.2d at 8.  In the face of unquestioned and vital public policy interests, the Court has declined to apply the public policy exception to vacate arbitrators’ awards that seemed, at first blush, to conflict with those interests. The Supreme Court rejected public-policy based challenges to arbitral awards reinstating a truck driver who tested positive for drugs, Eastern Associated Coal Corp., 531 U.S. at 62-67, and an operator of dangerous machinery found sitting alone in a car in the company parking lot with a marijuana cigarette burning in the ashtray, Misco, Inc., 484 U.S. at 33, 42-45. Even the nation’s congressionally-codified commitments to civil-rights conciliation and compliance with nondiscrimination decrees did not, in the view of a unanimous Supreme Court, call for public-policy-based vacatur of an arbitral award enforcing male employees’ contractual seniority against the equal employment rights of women under a court-approved civil rights settlement. W.R. Grace and Co., 461 U.S. at 764-70. In each case, the Supreme Court held itself powerless to second guess the ways the arbitrators accommodated the asserted public policies, such as by reinstating an employee only under specified conditions, Eastern Associated Coal Corp., 531 U.S. at 60-61, finding that the facts did not support the claim of marijuana possession on company property, Misco, Inc., 484 U.S. at 40, 44-45, or simply by observing that the employer had “committed itself voluntarily to two conflicting contractual obligations” and so should absorb the cost of the breach rather than lay off senior employees whose contractual rights it settled away, W.R. Grace and Co., 461 U.S. at 767-68.

But Judge Pillard offered her most vigorous remarks in warning against the systemic consequences of expanding a public policy exception, including the possible impact on the FAA.

The court’s decision to vacate the arbitral award in this case contradicts decades of precedent delineating a narrow public policy exception and threatens as a practical matter to destabilize many, if not most, arbitral awards. Indeed, its impact may well reach beyond labor arbitration to commercial arbitration under the Federal Arbitration Act, as “[t]here is no doubt that the scope of review of arbitration in cases involving mandatory arbitration of statutory claims is at least as great as the judicial review available in the context of collective bargaining.” Cole v. Burns Int’l Sec. Servs., 105 F.3d 1465, 1486 (D.C. Cir. 1997) (emphasis omitted). Today’s decision invites litigation in every case in which a disappointed party to an arbitration can base its objection on some claim of error that places the award at odds with “law or public policy.” Once arbitration becomes the start rather than the end of the dispute resolution process, it no longer serves the role Congress envisioned.

According to press reports, Amtrak has stated it will seek en banc review of the decision from the entire Circuit and, if necessary, review by the U.S. Supreme Court.

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