Ninth Circuit: Court Decides Threshold Arbitration Issue Absent Clear And Unmistakable Evidence

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On September 18, 2020, a three-judge panel of the Ninth Circuit U. S. Court of Appeals held in SEIU Local 121RN v. Los Robles Regional Medical Center, DBA Los Robles Hospital and Medical Center (Los Robles) that the power to decide whether a grievance is arbitrable in labor cases resides with the federal court and not the arbitrator absent “clear and unmistakable” evidence to the contrary. The Los Robles decision overturns the Ninth Circuit decision, United Bhd. Of Carpenters & Joiners of Am., Local No. 1780 v. Desert Palace, Inc. (Desert Palace), which held that in labor cases, an arbitrator must decide the issue arbitrability if the agreement includes a broad arbitration clause even though the parties failed to specify their intent. The Los Robles decision is consistent with the unanimous U.S Supreme Court decision, Granite Rock Co. v. Int’l Bhd. of Teamsters (Granite Rock) which applied the same arbitrability framework to labor and commercial arbitration disputes, and rejected the assertion that the Federal Arbitration Act (FAA) “pro-arbitration policy” required that labor disputes be arbitrated “where evidence of the parties’ agreement to arbitrate the dispute [was] lacking.”

The dispute in Los Robles

Los Robles Regional Medical Center (Hospital) entered into a collective bargaining agreement (CBA) with SEIU Local 121RN (Union) who represents registered nurses at the Hospital. The CBA contained an arbitration provision covering a broad range of grievances and grievance procedures but exempting certain staffing and health and safety issues from the grievance procedures. The Union subsequently filed grievances asserting that the Hospital inappropriately assigned nurses without adequate training to care for certain patients and violated nurse-to-patient ratios established by state law. The Union filed a complaint in the district court to compel arbitration when the parties were unable to 1) resolve the grievances, 2) agree that the grievances were subject to an arbitration agreement (arbitrability issue), and 3) agree that an arbitrator had the authority to decide the issue of arbitrability (delegation issue).

The District Court relied on the Desert Palace decision and concluded that the broad arbitration clause in the CBA authorized the arbitrator ,rather than the court, to decide the delegation issue and granted the Union’s motion to compel arbitration.

The Hospital appealed.

Who has the authority to decide whether parties have agreed to arbitrate in the context of a labor dispute?

The Nineth Circuit reversed the District Court decision and held that the parties were entitled to a judicial resolution of the delegation issue because the CBA was silent on the issue of who had authority to determine whether the parties agreed to arbitrate the grievance. In doing so, the Court overruled Desert Palace and remanded the case to the District Court.

The Los Robles decision turns on the interplay between two Supreme Court cases: the 1995 Supreme Court decision, First Options of Chicago, Inc., v. Kaplan (First Options), which arose in the context of a commercial arbitration dispute and Granite Rock which arose out of a labor dispute involving a CBA. In First Options, the Supreme Court addressed the narrow delegation issue of who has the authority to decide whether the parties agreed to arbitrate. The Supreme Court explained that arbitration is a way of resolving disputes, but “only those disputes that the parties have agreed to submit to arbitration.” As such, the Supreme Court stated “[c]ourts should not assume that the parties agreed to permit the arbitrator and not the court to decide the issue of arbitrability unless there is clear and unmistakable evidence” that the parties did so. The court further emphasized that silence or ambiguity relating to the delegation issue does not result in a presumption in favor of arbitration because the delegation issue is arcane and may not have been part of the negotiation between the parties.

In the 1996 Desert Palace decision, however, the Nineth Circuit decided that for policy reasons, labor and commercial arbitration cases are distinguishable because the parties to a CBA are aware that the agreement grants the arbitrator “tremendous power.” As such, the court declined to extend First Options to the facts of Desert Palace and concluded that a broad arbitration clause in a CBA gives the arbitrator the power to decide the issue of arbitrability even if evidence of the parties’ agreement to confer such authority is lacking.

In the 2010 decision, Granite Rock, the Supreme Court clarified that the framework for analyzing whether a dispute is arbitrable in a labor or commercial context is exactly the same. Granite Rock involved a dispute between an employer and a labor union over a provision in a CBA that contained an arbitration clause. The Court in Granite Rock rejected the argument that “labor disputes be arbitrated based on policy grounds” by stating that “[I]t is well settled in both commercial and labor cases that whether the parties have agreed to submit a particular dispute to arbitration is typically an issue for judicial determination.” The Supreme Court reiterated that pro-arbitration policy considerations are not a substitute for party consent.

Taken together, the Granite Rock and First Option cases establish that the same framework is used in labor and commercial arbitration cases to determine what “the parties agreed to have the arbitrator decide” and that the related issue of who decides whether parties have agreed to arbitrate is a question for the courts unless clear and unmistakable language in the arbitration clause exists to establish that the parties granted the power to the arbitrator.

The key takeaway is that assuming formation of the arbitration agreement is not disputed, unless an arbitration agreement clearly and unmistakably delegates to an arbitrator the ultimate threshold question of all threshold questions – the issue of who decides who has the authority to decide whether an issue is arbitrable – the authority to decide that delegation question resides with the court.

Tracey Oakes O’Brien, Knowledge Manager, is a co-author of this content.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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