Opinions of the United
2001 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


12-21-2001

PA Power Co v. Local Union 272
Precedential or Non-Precedential:

Docket 01-2116




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Filed December 21, 2001

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 01-2116

PENNSYLVANIA POWER COMPANY,
       Appellant

v.

LOCAL UNION NO. 272 OF THE INTERNATIONAL
BROTHERHOOD OF ELECTRICAL WORKERS, AFL-CIO.

Appeal from the United States District Court
For the Western District of Pennsylvania
D.C. No.: 00-cv-01735
District Judge: Honorable Gary L. Lancaster

Argued: October 17, 2001

Before: ALITO, BARRY, and ROSENN, Circuit Judges.

(Filed: December 21, 2001)

       James A. Prozzi, Esq. (Argued)
       A. Patricia Diulus-Myers, Esq.
       Jackson Lewis Schnitzler &
        Krupman
       One PPG Place, 28th Floor
       Pittsburgh, PA 15222
        Counsel For Appellant

       Joshua M. Bloom, Esq. (Argued)
       Gatz, Cohen, Segal, Koerner &
        Colarusso, P.A.
       400 Law & Finance Building
       Pittsburgh, PA 15219
        Counsel For Appellee
OPINION OF THE COURT

ROSENN, Circuit Judge.

In recent years, federal policy has encouraged the
arbitration of unsettled labor disputes as the terminal point
in the grievance procedures of collective bargaining
agreements. Under such policy, the judicial function is not
to review the merits of an arbitration award but is limited
to a determination of whether the award "draws its essence
from the collective bargaining agreement." United
Steelworkers of Am. v. Enterprise Wheel and Car Corp., 

, 597 (1960). The narrow issue presented to us by
this appeal requires us to make such a determination.

Local Union #272 of the International Brotherhood of
Electrical Workers, AFL-CIO (the Union) initiated a
grievance under its collective bargaining agreement (the
Agreement) with Pennsylvania Power Company (the
Company) covering production and maintenance employees
at its Bruce Mansfield Plant (the Plant) with respect to
certain early retirement benefits. The Company offered
these benefits in a separate cooperative agreement
conditional upon the production and maintenance
employees' cooperation with management's efforts to
improve efficiency. The grievance proceeded to arbitration
and the arbitrator found that the Union and its member
employees had failed to cooperate with the Company's
efficiency efforts. However, the arbitrator concluded that the
failure of the Company to provide early retirement benefits
to the Union members but to provide them to its
supervisory personnel constituted a violation of its
collective bargaining agreement with the Union. The award
required the Company to provide voluntary retirement
program (VRP) benefits to the Union member employees at
the Plant.

The Company timely filed a complaint in the United
States District Court for the Western District of
Pennsylvania seeking to vacate the award. The District
Court declined to vacate the award. We reverse.

                               2
I.

The Company is a public utility engaged in the generation
of electric power at its Plant in Shippingport, Pennsylvania.
The Union represents the production and maintenance
employees of the Plant,1 excluding office clerical employees,
guards, other professional employees and "supervisors as
defined in the National Labor Relations Act as amended."
The Agreement became effective on February 16, 1996, for
a period of three years.

Article 1, section 3 of the Agreement provides that"[t]he
Company and the Union agree that they will not
discriminate, coerce, nor intimidate any employee because
of membership or non-membership in the Union."

The Company and the Union also separately agreed that
they would "actively support and participate in a joint effort
to improve the competitive position of the power plant
represented by the Union." To encourage productive and
financial efficiency in the face of impending deregulation in
the electric generation industry, and the consequent"period
of transformation," the Cooperative Agreement provided
that the Company would utilize a voluntary retirement
benefits program if it needed to reduce its workforce at the
Plant. In return, the Union promised to cooperate with the
Company in attaining production efficiency. The
Cooperative Agreement expressly provided that both
prerequisites -- determining the necessity to reduce
workforce and determining whether the Union had
cooperated in attaining production efficiency -- were within
the sole discretion of the Company. The Company
incorporated similar cooperative agreements in the
collective bargaining agreement with other unions at its
other plants.

In 1998, the Company notified the Union that there
would be no workforce reductions at the Plant. In addition,
even if the workforce were to be reduced, it notified the
Union that the Plant bargaining unit employees would not
_________________________________________________________________

1. The Company operates other electric generating plants in
Pennsylvania and Ohio. They are not covered by the collective bargaining
agreement involved in this dispute.

                               3
be provided voluntary retirement benefits because the
Company had determined that the Union had not met the
qualifying conditions. In the meantime, the Company did
offer such voluntary retirement benefits to bargaining unit
employees at its other plants because the Company had
determined that the unions representing those employees
had cooperated with the Company and met the qualifying
conditions. The Company also offered voluntary retirement
benefits to supervisory personnel at both the Bruce
Mansfield Plant and its sister plants.

As a result of the disparate treatment between the Plant
bargaining unit employees and their supervisors with
respect to the VRP benefits allegedly "paid out of their own
pension plan," the Union filed a grievance under the
collective bargaining agreement on April 20, 1998. The
Union submits that it "did not claim that its members were
entitled to the VRP benefits under the cooperative
agreement, nor did it ever claim that the supervisors were
party to the cooperative agreement or within the same
bargaining unit." The Union processed the grievance to
arbitration.

The monies funding the Company pension benefits
program are provided solely by the employer and
maintained in a common fund.2 The same pension plan
covers all employees, both bargaining unit employees and
supervisory personnel.

The arbitrator found that since the Union had not
cooperated with the Company in attaining production
efficiency that the Cooperative Agreement was not violated.
Next, the Union claimed that the Company violated the
anti-discrimination provision of the collective bargaining
agreement. First, the Union alleged that providing such
benefits to bargaining unit employees at other plants
_________________________________________________________________

2. The Union in its brief argues that "the pot of money used to pay the
supervisory personnel was funded by the supervisory personnel and the
bargaining unit employees." (Br. at 2) This is erroneous; at oral
argument counsel for the Union acknowledged that only the Company
funds the retirement pension plan. The amount of monies paid into the
pension fund by the employer on behalf of the Union member employees,
however, was the subject of collective bargaining.

                               4
without providing them to the Bruce Mansfield Plant
bargaining unit employees violated the anti-discrimination
provision. The arbitrator disagreed. The arbitrator reasoned
that bargaining unit employees at other plants were not
similarly situated to the Bruce Mansfield Plant bargaining
unit employees because the former had cooperated with the
Company in attaining production efficiency and the latter
had not.

Second, the Union claimed that the Company violated the
anti-discrimination provision because it offered retirement
benefits to supervisory personnel at the Plant but denied
them to the bargaining unit employees. This argument
found favor with the arbitrator. He reasoned that because
pension payments for supervisors and the production and
maintenance employees were drawn from the same fund
and supervisors were subject to the same qualifying
conditions, the disparate treatment amounted to a violation
of the anti-discrimination provision of the collective
bargaining agreement. Therefore, the arbitrator directed
that the voluntary retirement benefits be afforded to
qualified bargaining unit employees at the Plant.

Challenging the award on legal and policy grounds, the
Company timely filed suit in the United States District
Court pursuant to section 301(a) of the Labor Management
Relations Act, 29 U.S.C. S 185(a) to vacate the arbitration
award. The complaint alleged the following grounds: (1) the
arbitrator's decision did not derive its essence from the
Agreement; (2) the award directly conflicts with Article VIII
S 2.d of the Agreement which bars the arbitrator from
changing or adding to any provisions of the Agreement; (3)
the arbitration award violates public policy; and (4) the
arbitrator's decision is not supported by the record. Both
parties cross-moved for summary judgment. The District
Court denied the Company's motion but granted the
Union's motion. The District Court held that the arbitration
award neither violated public policy nor ignored the clear
language of the Agreement, and was supported by the
record.

II.

The District Court exercised subject matter jurisdiction
pursuant to section 301(a) of the Labor Management

                               5
Relations Act, 29 U.S.C. S 185(a). This Court has appellate
jurisdiction pursuant to 28 U.S.C. S 1291. Our review is
plenary, and we apply the same standard as the District
Court in reviewing the arbitration award. Exxon Shipping
Co. v. Exxon Seamen's Union, 

, 1291 (3d Cir.
1996).

For almost a half century, the United States Supreme
Court has consistently held that courts exercise a narrow
and deferential role in reviewing arbitration awards arising
out of labor disputes. See, e.g., United Paperworkers Int'l
Union, AFL-CIO v. Misco, Inc., 

, 36 (1987); W.R.
Grace & Co. v. Local Union 759, Int'l Union of the United
Rubber, Cork, Linoleum and Plastic Workers of Am. , 

, 764 (1983). Most recently, in Major League
Baseball Players Association v. Garvey, 

, ___
(2001), and Eastern Associated Coal Corporation v. United
Mine Workers of America, District 17, 

, 62
(2000), the United States Supreme Court reaffirmed that
principle. The rationale for the court's limited role is to
ensure that the federal policy of encouraging arbitration of
labor disputes is not subverted by excessive court
intervention on the merits of an award. United Steelworkers
of 

.

In light of the federal policy encouraging arbitration
awards, there is a strong presumption in their favor.
Newark Morning Ledger Co. v. Newark Typographical Union
Local 103, 

, 165 (3d Cir. 1986). However, the
Supreme Court has at the same time made it clear that
courts will intervene when the arbitrator's award does not
"draw[ ] its essence from the collective bargaining
agreement" and the arbitrator is dispensing his or her own
"brand of industrial justice." United Steelworkers of Am.,
363 at 597.

Thus, an arbitration award ordinarily will not be vacated
unless its essence is not drawn from the collective
bargaining agreement. W.R. Grace & 

.
To put it differently, if the arbitrator's interpretation is in
any rational way derived from the collective bargaining
agreement, the arbitration award will not be disturbed.
Ludwig Honold Mfg. Co. v. Fletcher, 

, 1128
(3d Cir. 1969). An arbitration award will not be vacated just

                                6
because the court believes its interpretation of the
agreement is better than that of the arbitrator. W.R. Grace
& 

. It will be vacated, however, if there
is a "manifest disregard" of the agreement. Ludwig Honold
Mfg. 

.

In United Paperworkers International Union, the Supreme
Court made clear that an "arbitrator may not ignore the
plain language of the 

.
Accordingly, this Court has held that "where there is a
manifest disregard of the agreement, totally unsupported by
principles of contract construction and the law of the shop"
a reviewing court can vacate the award. Exxon Shipping 

; see also Ludwig Honold Mfg. Co. , 405 F.2d
at 1128 (noting limited review but stating that arbitrator's
interpretation must still be derived from agreement). In
other words, an award may be set aside when an arbitrator
manifested a disregard of his authorization, and instead
"dispense[d] his own brand of industrial justice." Newark
Morning Ledger 

(quoting United
Steelworkers of 

).

As noted before, the arbitrator ruled that notwithstanding
the Union's failure to comply with the qualifying conditions
of the Cooperative Agreement for voluntary retirement
benefits, to the extent the Company afforded Plant
supervisory personnel voluntary retirement benefits it must
afford the same benefits to the Plant bargaining unit
employees. He reached this result on the basis of the
collective bargaining agreement's prohibition of
discrimination.

The arbitrator reasoned:

       Company witness Lubich made it clear that both
       groups were in the same [pension] plan, designed for
       all Ohio Edison and Pennsylvania Power bargaining-
       unit employees and Management personnel. Thus, the
       Company's making these VRP benefits available to
       Supervisory personnel at Bruce Mansfield even though
       they failed to meet the qualifying conditions, while
       denying those benefits to Bruce Mansfield bargaining-
       unit employees for failure to meet the same conditions
       constituted improper discrimination, in violation of
       Article I, Section 3 of the Agreement.

                               7
The Company here does not seek a judicial review of the
merits of the arbitrator's award. The Company does not
complain that the arbitrator erred in his interpretation of
the Agreement. On the contrary, it claims that the
arbitrator acted outside the scope of his contractually
delegated authority. The Agreement specifically provides
that the arbitrator may not alter or amend it. The Company
contends that when the arbitrator ruled that the Company
violated the anti-discrimination provision of the Agreement
the arbitrator altered and amended the Agreement, acted
outside the scope of his authority, and failed to draw his
decision from the essence of the Agreement.

In making this award, we agree with the Company that
the arbitrator exceeded his powers under the Agreement.
Moreover, he altered the Agreement in direct violation of its
provision that he had no power to do so. He wrote into the
contract that the Plant production and maintenance
employees shall have the same benefits as the supervisory
employees. The Agreement specifically excludes supervisory
employees from its terms. Furthermore, the National Labor
Relations Act (NLRA) excludes supervisors from the
bargaining unit or from inclusion in a collective bargaining
agreement. Supervisors are not employees for collective
bargaining purposes under the NLRA.3

Nothing in the labor contract between the parties
provides that production and maintenance employees shall
have the same benefits as supervisory employees,
_________________________________________________________________

3. Congress amended the National Labor Relations Act in 1947 to
specifically exclude supervisors from the definition of "employee." The
exclusion, 29 U.S.C. S 152(3), provides in pertinent part: "The term
`employee' shall include any employee . . . but shall not include an
individual employed . . . as a supervisor."

This exclusion "was accompanied by the congressional declaration in
a new section 14(a)" providing in pertinent part that:

       [N]o employer subject to this Act shall be compelled to deem
       individuals defined herein as supervisors as employees for the
       purpose of any law, either national or local, relating to
collective
       bargaining.

Robert A. Gorman, BASIC TEXT ON LABOR LAW, UNIONIZATION AND COLLECTIVE
BARGAINING 34 (1976).

                               8
particularly voluntary retirement benefits. Nothing in the
anti-discriminatory provision of the contract between the
employer and its union employees remotely provides a basis
for a determination that the Company discriminated
against its Union employees because it did not offer the
same VRP benefits it afforded its supervisors. Congress
understood that the dynamics of industry and commerce
required that loyalty owed by supervisory personnel to their
employer excludes them from collective bargaining for rank
and file employees. The one is ordinarily paid on an hourly
basis to comply with federal wage and hours laws and the
statutory provisions for overtime pay after 40 hours of work
per week. Supervisors are ordinarily paid on a salary basis
and are not subject to the same overtime provisions of the
law. Benefits usually differ between the two groups with
respect to health, life insurance, bonus and other benefits.

Nothing in the Agreement, including the anti-
discrimination provision, requires that supervisors and
bargaining unit employees shall receive the same wages,
vacations, or other benefits on the same basis as
supervisors. The discriminatory provision of the Agreement
refers solely to acts of discrimination between the Company
and the Union and its members. This provision of the
contract is common in many labor contracts. It apparently
finds its genesis in sections 8(a) and (b) of the National
Labor Relations Act, 29 U.S.C. SS 158 (a), (b) relating to
unfair labor practices. Section 8(a)(3) provides in pertinent
part that it shall be an unfair labor practice for an employer
to discriminate "in regard to hire or tenure of employment
or any term or condition of employment to encourage or
discourage membership in any labor organization." 29
U.S.C. S 158(a)(3). Section 8(b) provides in pertinent part
that it is an unfair labor practice for a labor organization or
its agents: "(1) to restrain or coerce (A) employees in the
exercise of the rights guaranteed in Section 157 of this title
. . . (2) to cause or attempt to cause an employer to
discriminate against an employee in violation of subsection
(a)(3) of this section or to discriminate against an employee
with respect to whom membership in such organization has
been denied or terminated." 29 U.S.C. S 158(b). Because
supervisors are not "employees" under the NLRA for
purposes of collective bargaining, an employer's affording

                               9
retirement benefits to supervisors but not providing them to
union member employees cannot possibly constitute
discrimination between employees especially under the
anti-discrimination section of the Agreement.
Carried to its logical conclusion, the arbitrator's
reasoning would require an employer to provide its rank
and file employees with the same benefits it provides its
supervisors unless the employer establishes separate,
independent funding for benefits for supervisors and
another for non-supervisors, even though the funding is
provided entirely by the employer. This is neither the law
nor industry practice. It is highly impractical, costly and
may even be unmanageable with large companies that have
multiple bargaining units in one plant or more, and many
separate collective bargaining agreements, to maintain,
separate funds, investments, records, and reports.

The District Court concluded that the arbitrator's
decision did not bring the supervisors under the terms and
conditions of the Agreement, including the Cooperative
Agreement. Rather, the District Court reasoned that the
arbitrator simply concluded that "no explanation was given
as to why supervisory personnel, unlike bargaining unit
employees, were not subject to qualifying conditions for
VRP benefits and such a lack of explanation amounted to
discrimination in contravention of the [Agreement]."
However, the employer had no obligation whatsoever to
disclose in the grievance and arbitration proceedings its
arrangements, contracts or obligations to its supervisors.
Such explanation was irrelevant and we can see no
evidentiary or legal reason for their production.

The arbitrator had strayed far beyond the scope of the
arbitration. A requirement that an employer disclose its
contractual terms for benefits to its supervisors in a
proceeding to which they are not a party, or else face an
order that they provide similar benefits to their Union
production and maintenance employees, has no basis in
reality, law, or industry practice. Certainly no such
requirement is contained in the Agreement between the
Company and the Union. What the arbitrator has wrought
here not only alters and amends the collective bargaining
agreement but far exceeds the permissible powers of the

                                10
arbitrator. Were it applied generally in the marketplace, it
would wreak consternation and havoc throughout American
industry. The award amounts to nothing more than the
arbitrator's personal brand of justice with which we do not
agree.

III.

Accordingly, the arbitrator's decision conflicts with the
express provisions of the Agreement between the Company
and the Union. The arbitrator has written into the contract
a provision obligating the Company to pay its Union
employees voluntary retirement benefits to which
indisputably it never agreed and as to which the Union
employees concededly were not entitled.4 The arbitrator's
effort to justify the alteration of the collective bargaining
agreement on the basis of an irrelevant discrimination
clause in the Agreement is unreasonable and
impermissible. The arbitrator has exceeded the scope of the
arbitration provision and his decision fails to draw its
essence from that Agreement.5

The judgment of the District Court will be reversed and
the case remanded with direction to the District Court to
vacate the award. Costs taxed against the appellee Union.
_________________________________________________________________

4. In Appalachin Regional Health Care, Inc. v. United Steelworkers of
America, AFL-CIO, Local 14398, 

, 605 (6th Cir.), cert. denied

(2001), the court vacated an arbitrator's award because
it conflicted with the express provisions of the collective bargaining
agreement between the Company and the Union. The court stated: "Even
if we were to credit the arbitrator's construction of the Agreement as
against its conflict with express provisions, we would still have to
vacate
the award as it imports notions not found in the Agreement itself." 

5. A reviewing court can set aside an arbitration award if enforcement of
the award violates public policy. Eastern Assoc. Coal 

; Exxon Shipping 

. An award can also be
overturned if the arbitrator's decision is not supported by the record.
United Indus. Workers v. Virgin Islands, 

, 170 (3d Cir.
1993). In light of our ultimate disposition, we need not reach the
Company's alternative arguments that the arbitration award should be
vacated because it violated public policy or that the arbitrator's
decision
was unsupported by the record.

                               11
ALITO, Circuit Judge, dissenting.

Just last Term, the Supreme Court reminded us how
narrow our proper scope of review is in a case such as this.
In Eastern Associated Coal Corporation v. United Mine
Workers of America, 

(2000), the Court wrote
that when an "employer and union have granted to the
arbitrator the authority to interpret the meaning of their
contract's language," "[t]hey have `bargained for' the
`arbitrator's construction' of their agreement, .. . [a]nd
courts will set aside the arbitrator's interpretation of what
their agreement means only in rare 

(citation omitted). The Court continued:

       Of course, an arbitrator's award "must draw its
       essence from the contract and cannot simply reflect the
       arbitrator's own notions of industrial justice."
       Paperworkers v. Misco, Inc., 

, 38 (1987).
       "But as long as [an honest] arbitrator is even arguably
       construing or applying the contract and acting within
       the scope of his authority," the fact that "a court is
       convinced he committed serious error does not suffice
       to overturn his decision." 

; see
also Major League Baseball Players Association v. Garvey,

, 1728 (2001).

The majority in this case overturns the arbitrator's
decision because the majority strongly disagrees with his
interpretation of the collective bargaining agreement. The
arbitrator held that the collective bargaining agreement
obligates the employer to provide voluntary retirement
benefits to union-member employees on the same terms as
supervisors. In so construing the agreement, the arbitrator
relied on article 1, section 3 of the agreement, the so-called
anti-discrimination provision, which states that the
company may not "discriminate" against "any employee
because of membership or non-membership in the Union."
Tracing this clause to Sections 8(a) and (b) of the National
Labor Relations Act, 29 U.S.C. S 158(a) and (b), the majority
disagrees with the arbitrator's interpretation, reasoning that
"[b]ecause supervisors are not `employees' under the NLRA
for purposes of collective bargaining, an employer's

                               12
affording retirement benefits to supervisors but not
providing them to union member employees cannot
possibly constitute discrimination between employees
under the anti-discrimination section of the Agreement."
Maj. Op. at 9-10. The majority goes on to observe that the
arbitrator's reasoning is supported by "neither the law nor
industry practice" and "is highly impractical, costly and
may even be unmanageable" for some companies. Maj. Op
at 10.

I find the majority's interpretation of the collective
bargaining agreement more persuasive than the
arbitrator's, but I cannot agree that the arbitrator's decision
did not "draw its essence from the contract" or that the
arbitrator was not "even arguably construing the contract."
As noted, the arbitrator's decision drew its essence from
and was based on a construction of the anti-discrimination
section. That the arbitrator probably misconstrued that
provision is beside the point. The parties bargained for the
arbitrator's construction of the agreement, and that is what
they got. By intervening to rescue the Pennsylvania Power
Company from one of the consequences of its bargain, the
majority has exceeded the proper scope of our court's
authority. I must therefore respectfully dissent.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

                               13