N.E. Cleaning Svs. v. American Arbitration

• Court: Court of Appeals for the First Circuit
• Decided: December 21, 1999
• Docket: 99-1146
• Status: Published

Opinion

USCA1 Opinion

                 United States Court of Appeals

                     For the First Circuit


No. 99-1146



               NEW ENGLAND CLEANING SERVICES, INC.,



                      Plaintiff, Appellant,



                                v.



                AMERICAN ARBITRATION ASSOCIATION,



                       Defendant, Appellee.


APPEAL FROM THE UNITED STATES DISTRICT COURT



                FOR THE DISTRICT OF MASSACHUSETTS



       [Hon. Morris E. Lasker, Senior U.S. District Judge]


Before



                     Boudin, Circuit Judge,

                                

          Coffin and Campbell, Senior Circuit Judges.


Richard D. Wayne with whom John P. Martin and Hinckley, Allen

& Snyder were on brief for appellant, New England Cleaning

Services, Inc.

     Kay H. Hodge with whom Ronald M. Jacobs and Stonehan, Chandler

& Miller were on brief for appellee, American Arbitration

Association.


December 20, 1999


CAMPBELL, Senior Circuit Judge. Plaintiff-appellant New

England Cleaning Services, Inc. ("NECS") appeals from the district

court's dismissal of its complaint for an injunction and damages

against defendant-appellee American Arbitration Association ("the

AAA").  NECS brought its complaint against the AAA as part of its

action for declaratory relief against Local 254, Service Employees

International Union, AFL-CIO ("SEIU" or "the union"), seeking to

forestall the latter from proceeding to arbitrate a labor dispute

with NECS.  NECS contends that the AAA, by processing the SEIU's

demand for arbitration despite NECS's protestations that there was

then in force no valid agreement to arbitrate (a position

subsequently upheld by the district court), violated various

provisions of Massachusetts law.  The district court allowed the

AAA's motion to dismiss NECS's complaint on the ground that the

AAA's actions were protected by arbitral immunity.  We affirm.

                            BACKGROUND

  We take the following facts from NECS's complaint and

attached documents.  See LaChappelle v. Berkshire Life Ins. Co.,

142 F.3d 507, 509 (1st Cir. 1998).

  NECS is a maintenance and service provider.  On March 14,

1994, it entered into a collective bargaining agreement ("the

Agreement") with the SEIU.  The Agreement contained a section

titled "Grievances," which described a four-step procedure

governing "[a]ll disputes arising out of this Agreement or its

application to any situation that may arise during the term of this

Agreement."  The final step of the grievance procedure provided for

binding arbitration under the rules of the AAA, a not-for-profit

organization that provides voluntary dispute resolution services.

  By its terms, the Agreement was effective until August

31, 1996, and would continue in effect thereafter until terminated

by either party.  A party could terminate the Agreement if it did

so in writing more than 60 days before the stated expiration date. 

On or about September 6, 1994, NECS sent the SEIU a letter stating

that it was terminating the Agreement.

  Beginning in early June, 1998, the SEIU filed several

grievances with NECS.  NECS denied the grievances as untimely,

arguing that it had effectively terminated the Agreement in 1994. 

On August 3, 1998, the SEIU filed a demand for arbitration with the

AAA, claiming that NECS had "improperly" terminated the Agreement. 

On August 7, having received notice of this demand from the AAA,

NECS wrote a letter to the AAA stating that no collective

bargaining agreement between NECS and the SEIU existed, and that

therefore the AAA lacked jurisdiction or authority over NECS.  NECS

attached to this letter copies of the Agreement and its termination

letter of September 6, 1994.

  The AAA continued to process the SEIU's demand, however,

and sent NECS an invoice for services rendered in connection

therewith.  Despite NECS's written warning that it planned to file

a complaint in the federal district court, the AAA continued to

proceed toward arbitration, and scheduled a hearing on the SEIU's

demand.

  On September 17, 1998, NECS filed a complaint in the

district court against the SEIU and the AAA.  Against the SEIU, it

sought a declaration pursuant to section 301 of the Taft-Hartley

Act, 29 U.S.C.  185, that there was no collective bargaining

agreement in force between NECS and the SEIU and that NECS was not

obligated to submit to arbitration.  Against the AAA, NECS sought

an injunction preventing further processing of the demand for

arbitration as well as damages under  M.G.L. c. 93A and c. 12,  11

for compelling NECS to arbitrate. 

  Following an expedited evidentiary hearing, the district

court held that NECS had properly terminated the Agreement, that

there was no collective bargaining agreement presently in effect

between it and the SEIU, and that the issue of the existence of the

Agreement was not arbitrable.  In a companion memorandum and order,

the court dismissed NECS's complaint against the AAA on the ground

that its decision to process SEIU's demand for arbitration was

protected by arbitral immunity.  NECS appeals from the latter

ruling.  

                            DISCUSSION

  The court of appeals applies a de novo standard of review

to a district court's allowance of a motion to dismiss for failure

to state a claim.  LaChappelle, 142 F.3d at 509.  Here, NECS

maintains that the district court erred in applying the standard

prescribed by Fed. R. Civ. P. 12(b)(6) and in holding that the

AAA's decision to process the demand for arbitration was protected

by arbitral immunity.      Specifically, NECS argues that the trial

court was obligated to take as true the facts pled in the

complaint, which included the allegation that there was no

agreement to arbitrate in effect at the relevant time.  Without

such an agreement, it contends, the AAA had no jurisdiction to

process the demand for arbitration.  And without jurisdiction, the

AAA did not possess arbitral immunity.

  The AAA argues that arbitral immunity protects its

processing of a facially valid demand for arbitration pursuant to

a collective bargaining agreement that names it as the arbitral

agency.  It maintains that the SEIU's demand for arbitration met

this standard, in that it (1) stated that NECS had "improperly

terminated" the Agreement and "failed to meet with the union" in

accordance with the prescribed grievance procedure, and (2)

attached a copy of the Agreement, which explicitly provided for

binding arbitration under the rules of the AAA.  The AAA contends

that it followed its own internal rules and procedures in billing

the parties, notifying NECS of the demand, selecting an arbitrator,

and scheduling a hearing date.  Moreover, it argues that the system

functioned appropriately in this case: upon NECS's complaint, the

district court resolved the issue of the AAA's jurisdiction, and

the AAA heeded the ensuing court order and stayed the arbitration

proceedings.

  Settled case law as well as federal policy encouraging

labor arbitration favors the AAA's position.  First, we reject

NECS's assertion that the district court erroneously failed to

comply with Fed. R. Civ. P. 12(b)(6) when it did not take as true

all of NECS's allegations regarding the Agreement.  NECS cannot

preclude dismissal of its complaint under that rule simply by

alleging that it had terminated the Agreement and had no collective

bargaining agreement with the SEIU in effect at the time of the

grievances.  Such allegations are not assertions of fact, but

rather involve legal issues and conclusions--indeed, the ultimate

disputed issues presented in NECS's action against the SEIU.  The

court is not required to accept legal conclusions as true when

considering a motion to dismiss.  See Abbott v. U.S., 144 F.3d 1,

2 (1st Cir.  1998); 2A Moore's Federal Practice,  12.34[1][b]. 

  Second, the district court correctly concluded that the

AAA's decision to process the demand was protected by arbitral

immunity.  "Because an arbitrator's role is functionally equivalent

to a judge's role, courts of appeals have uniformly extended

judicial and quasi-judicial immunity to arbitrators."  Olson v.

National Ass'n of Securities Dealers, 85 F.3d 381, 382-83 (8th Cir.

1996).  As with judicial and quasi-judicial immunity, arbitral

immunity is essential to protect decision-makers from undue

influence and protect the decision-making process from reprisals by

dissatisfied litigants.  See id.  In proper circumstances,

organizations that sponsor arbitrations, as well as arbitrators

themselves, enjoy this immunity from civil liability.  See Honn v.

National Ass'n of Securities Dealers, Inc., 182 F.3d 1014, 1017

(8th Cir. 1999); Hawkins v. National Ass'n of Securities Dealers

Inc., 149 F.3d 330, 332 (5th Cir. 1998); Corey v. New York Stock

Exchange, 691 F.2d 1205, 1208-11 (6th Cir. 1982).   

  A sponsoring organization's immunity extends to the 

administrative tasks it performs, insofar as these are integrally

related to the arbitration.  See Austern v. Chicago Bd. Options

Exchange, Inc., 898 F.2d 882, 886 (2d Cir. 1990) (defective notice

and improper selection of arbitration panel were sufficiently

associated with adjudicative phase of arbitration to justify

immunity).  See also Olson, 85 F.3d at 383 (immunity protects "all

acts within the scope of the arbitral process," even if arbitrator

fails to follow its own internal rules).  Here, the AAA's

administrative acts of which NECS complains -including selecting an

arbitrator, billing NECS for its services, and scheduling a

hearing -were sufficiently related to the arbitration to be

protected by immunity. 

  NECS points out that the district court determined that

the AAA lacked jurisdiction or authority to adjudicate the dispute,

and contends that therefore the AAA was not protected by arbitral

immunity.  Judicial immunity applies, however, unless there is a

"clear absence" of jurisdiction.  See Stump v. Sparkman, 435 U.S.

349, 356-57 (1978); Cok v. Cosentino, 876 F.2d 1, 2 (1st Cir. 1989). 

We see no reason not to adopt the same parameter for arbitral

immunity.  See Tamari v. Conrad, 552 F.2d 778, 780-81 (7th Cir.

1977) ("arbitral immunity should be extended to cases where the

authority of an arbitrator to resolve a dispute is challenged");

Durden v. Lockheed-Georgia Co., 1985 WL 56794 (N.D. Ga., June 18,

1985); Raitport v. Provident Nat. Bank, 451 F. Supp. 522, 527 (E.D.

Pa. 1978); Dennis R. Nolan & Roger I. Abrams, Arbitral Immunity, 11

Indus. Rel. L. J. 228, 239-40 (1989).  The demand presented by the

SEIU stated that the Agreement had been wrongfully terminated and

attached the Agreement referencing the AAA as arbitrator.  These

papers were not so deficient on their face as to signal a "clear

absence" of jurisdiction.  That NECS ultimately secured a

declaration that the Agreement had been effectively terminated does

not mean that the SEIU's demand was not facially valid so that

jurisdiction was clearly lacking.

  Adopting NECS's position would require arbitral

organizations, not courts or arbitrators, to themselves resolve

what might well turn out to be significant threshold legal issues

long before any hearing.  In this case, the AAA would have had to

decide not merely whether there was a facially valid demand, but

the legal effect of the demand and whether an arbitrator in fact

had jurisdiction to determine whether NECS's termination of the

Agreement was effective.  To make such a judgment, the AAA would

have had to examine the breadth of the arbitration clause in the

Agreement and the effectiveness of NECS's termination.  NECS

implies that the answers to these questions were so obvious as to

enable the AAA to dispose of them routinely, saving NECS the time

and trouble of litigating arbitrability in court.  Yet it took a

nine-page memorandum and order by the district court and a full

opinion of this court to deal with the legal issues involved.  We

think it abundantly clear that the resolution of the arbitrability

issue was not facially obvious.  Forcing the AAA itself to

preliminarily address potentially complex legal issues would not

only impose an unwelcome burden, but would interfere with the

organization's neutrality and likely add further cost and delay to

the arbitral process.  See Ozark Air Lines, Inc. v. National

Mediation Bd., 797 F.2d 557, 564 (8th Cir. 1986).  The course

followed by the AAA forced the arbitrability issue to be decided

either by an arbitrator or, at NECS's instance, the court--the two

tribunals logically equipped to handle the issue.

  Not least, failure to extend immunity to the AAA in these

circumstances could discourage it from sponsoring future

arbitrations.  See Austern, 898 F.2d at 886-87; Tamari, 552 F.2d at

781.  Reluctance by the AAA or similar organizations to arrange

arbitrations would impede the implementation of federal policy

favoring arbitration of labor disputes.  See 9 U.S.C.  2, 3, 4;

Moses H. Cone Memorial Hosp. v. Mercury Const. Corp., 460 U.S. 1,

24 (1983) ("Section 2 [of the Federal Arbitration Act] is a

congressional declaration of a liberal federal policy favoring

arbitration agreements, notwithstanding any state substantive or

procedural policies to the contrary.").  Accordingly, we agree with

the district court that the AAA is protected by arbitral immunity

from liability for its actions in this matter. 

  Because we decide on the basis of immunity, there is no

need to discuss the merits of NECS's claims under M.G.L. c. 93A and

c. 12,  11. 

  Affirmed.