Local Union 369, International Brotherhood of Electrical Workers v. ADT Security Services, Inc. , 393 F. App'x 290 ( 2010 )

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 10a0561n.06
No. 09-5956
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
LOCAL UNION 369, INTERNATIONAL ) Aug 27, 2010
BROTHERHOOD OF ELECTRICAL ) LEONARD GREEN, Clerk
WORKERS, AFL-CIO, )
)
Plaintiff–Appellant, ) ON APPEAL FROM THE UNITED
) STATES DISTRICT COURT FOR THE
v. ) EASTERN DISTRICT OF KENTUCKY
)
ADT SECURITY SERVICES, INC., )
)
Defendant–Appellee. )
)
Before: KEITH, COLE, and GIBBONS, Circuit Judges.
JULIA SMITH GIBBONS, Circuit Judge. Plaintiff–appellant, the union representing
Todd Reynolds, a security system installer, brought suit in district court seeking enforcement of an
arbitration award requiring defendant–appellee ADT Security Services (“ADT”) to reinstate
Reynolds to his position in its employment. ADT fired Reynolds for failing to disclose a non-
compete agreement he had signed with Sonitrol, his previous employer. An arbitrator held, however,
both that Reynolds did not intentionally hide the agreement and that the agreement was not
enforceable. ADT reinstated Reynolds but, four months later, asked him not to return to work when
a Kentucky state court held in tort litigation against Sonitrol that the non-compete agreement was
enforceable. The district court granted summary judgment on the ground that the union had failed
to exhaust the contractually obligated grievance process before bringing suit in federal court. We
affirm.
Local Union 369, Int’l Bhd. of Elec. Workers v. ADT Security Servs., Inc.
No. 09-5956
I.
Beginning in 2003, Todd Reynolds installed, managed, and repaired alarm systems as an
employee of Sonitrol. As part of his contract with Sonitrol, Reynolds signed a non-compete
agreement. The non-compete agreement provided that, for a period of three years after the end of
Reynolds’s employment with Sonitrol, Reynolds could not “[e]ngage in, directly or indirectly,
[Sonitrol’s] business or any other business in competition with the active business activities of
[Sonitrol].” The agreement also provided for $10,000 in liquidated damages in the event of
Reynolds’s breach. Reynolds left Sonitrol for a higher-paying position with ADT in August 2006.
As an employee of ADT, Reynolds became a member of the local electrical workers’ union and was
therefore subject to the union’s collective bargaining agreement with ADT. The collective
bargaining agreement provided for a four-step administrative procedure that “shall be followed for
the purpose of adjusting grievances.” Should either the union member or ADT be unsatisfied by the
first three steps in the process, the fourth step directed that “the grievance shall be subject at the
instance of either party to arbitration[.]” Any arbitral award was binding on both parties.
On September 10, 2007, counsel for Sonitrol wrote to Reynolds to inform him that he was
in violation of the non-compete agreement and to demand that he terminate his employment with
ADT immediately. Reynolds informed ADT of the letter, and, on September 26, ADT informed the
union that it had “no choice but to process Mr. [Reynolds’s] termination for failing to disclose and/or
falsifying his application for employment regarding his non-compete with his prior employer and
its’ [sic] restriction on his employability with ADT.” ADT agreed to waive the first three steps of
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No. 09-5956
the grievance procedure and submit Reynolds’s grievance directly to an arbitrator, limiting the issue
to whether Reynolds “was discharged for cause.”
After a hearing on October 23, 2007, the arbitrator issued an opinion in favor of Reynolds.
The arbitrator found credible Reynolds’s assertion that he did not remember signing the non-compete
agreement. Because falsification of an employment application is grounds for termination only if
it was intentional, the arbitrator concluded that the grounds for termination proffered by ADT did
not constitute cause to dismiss Reynolds. However, the arbitrator also reasoned that “it would be
inappropriate to reinstate [Reynolds] if in fact he is contractually barred from working for ADT.
Hence, it is necessary to examine the enforceability of the ‘non compete agreement.’” The arbitrator
found the agreement unenforceable because Sonitrol did not train Reynolds in new and unique skills
nor employ him in sales or research and development and thus, under Kentucky law, Sonitrol had
no property interest to be protected by a non-compete agreement. The arbitrator ordered ADT to
reinstate Reynolds to his position.
Meanwhile, on October 9, 2007, Reynolds filed an action in state court against Sonitrol,
alleging intentional interference with his contractual relationship with ADT and seeking damages.
Sonitrol counterclaimed against Reynolds for breach of contract and against ADT for tortious
interference with contract. On January 24, 2008, the Kentucky state court found that the non-
compete agreement was enforceable and dismissed Reynolds’s suit. On February 25, 2008, the court
found that Reynolds had breached the non-compete agreement and issued a temporary injunction
preventing Reynolds from working for ADT pending Sonitrol’s posting of a $5,000 bond. Following
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Local Union 369, Int’l Bhd. of Elec. Workers v. ADT Security Servs., Inc.
No. 09-5956
these decisions, ADT entered into an agreement with Sonitrol under which Sonitrol would drop all
claims against ADT in exchange for termination of Reynolds’s employment with ADT.
ADT then informed Reynolds that he was not to return to work and took away his work
vehicle. ADT never issued a new written notice stating the grounds for termination. Later, the
Kentucky Court of Appeals found the temporary injunction to be nugatory because Sonitrol never
posted the required bond. On remand, the state trial court awarded Sonitrol $10,000 in liquidated
damages against Reynolds for breach of contract.
The union then filed suit on Reynolds’s behalf in federal district court under § 301 of the
Labor Management Relations Act (“LMRA”), 29 U.S.C. §§ 141, et seq. The complaint alleged that
“ADT’s refusal to reinstate Reynolds is contrary to the collective bargaining agreement and the
arbitration award . . . , and in the absence of an enforceable injunction there is no lawful ground to
fail to comply with that award.” The union demanded injunctive relief requiring ADT to reemploy
Reynolds and damages of back pay and benefits. ADT moved to dismiss the case on the ground that
the union had failed to exhaust its administrative remedies because it had failed to file a grievance
regarding his second termination. In the alternative, ADT argued that the relief that the union
requested violates clear public policy in that it would require ADT to reinstate Reynolds despite the
state court ruling that the non-compete agreement was valid and binding. In addition to opposing
the motion, the union filed a statement pursuant to Federal Rule of Civil Procedure 56(f), arguing
that there were various factual issues that required discovery before the court could decide the case.
Because it relied on matters and affidavits outside of the pleadings in rendering its decision,
the district court treated ADT’s motion to dismiss as a motion for summary judgment. The district
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Local Union 369, Int’l Bhd. of Elec. Workers v. ADT Security Servs., Inc.
No. 09-5956
court found that, after Reynolds was reinstated to his position with ADT pursuant to the arbitration
award, he was subject to any lawful disciplinary action or discharge, just like any employee. The
court found, therefore, that when ADT requested that Reynolds not return to work in February 2008,
the union had to pursue its contractual grievance remedies before filing a lawsuit. According to the
district court, the arbitrator’s award could not be the basis for reinstatement because the award did
not address the second adverse action. As the union had failed to utilize the grievance process, the
court granted summary judgment for ADT on the ground of lack of jurisdiction. The court also held
that the union’s Rule 56(f) statement failed because the factual issues that the union claimed required
discovery were irrelevant to the issue of exhaustion. The union timely filed a notice of appeal.
II.
Initially, we note that the district court’s characterization of this decision is unusual. The
failure to exhaust contractual arbitration procedures generally results not in summary judgment but
in dismissal under Federal Rule of Civil Procedure 12(b)(6). See Youseff v. Ford Motor Co., 225
F.3d 660, 2000 WL 799314, at *3 n.3 (6th Cir. June 6, 2000) (unpublished table decision). And, if
a complaint is indeed dismissed, generally the dismissal is without prejudice. Despite the unusual
procedural posture, because the union does not appeal the district court’s decision to convert the
motion to dismiss into a motion for summary judgment, we review de novo, as we would any grant
of summary judgment. See White v. Baxter Healthcare Corp., 533 F.3d 381, 389 (6th Cir. 2008);
Williams v. Mehra, 186 F.3d 685, 689 (6th Cir. 1999) (en banc). Summary judgment is proper “if
the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no
genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.”
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Local Union 369, Int’l Bhd. of Elec. Workers v. ADT Security Servs., Inc.
No. 09-5956
Fed. R. Civ. P. 56(c)(2). The court must review all the evidence, facts, and inferences in the light
most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.
574, 587 (1986). Entry of summary judgment is appropriate “against a party who fails to make a
showing sufficient to establish the existence of an element essential to that party’s case, and on
which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322
(1986).
III.
A.
“It is axiomatic that an aggrieved employee must exhaust any exclusive grievance and
arbitration procedure created in a collective bargaining agreement prior to bringing a § 301(a) suit
against the employer.” Poole v. Budd Co., 706 F.2d 181, 183 (6th Cir. 1983); see also Republic Steel
Corp. v. Maddox, 379 U.S. 650, 652 (1965) (“[F]ederal labor policy requires that individual
employees wishing to assert contract grievances must attempt use of the contract grievance
procedure agreed upon by employer and union as the mode of redress.”). In this case, however, the
collective bargaining agreement states that “[t]he decision of the arbitrator shall be binding on both
parties for a period to be named in the arbitration decision.” The union argues, therefore, that further
exhaustion was unnecessary because the issue of the enforceability of the non-compete agreement
had already been decided by the arbitrator; the arbitral award was still binding on ADT; and,
therefore, regardless of the intervening state court judgment, “there was no reason for the Union to
re-grieve and re-arbitrate the same questions.” ADT argues, on the other hand, that two salient
events that occurred after the arbitrator’s decision—Sonitrol’s taking legal action to enforce the non-
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Local Union 369, Int’l Bhd. of Elec. Workers v. ADT Security Servs., Inc.
No. 09-5956
compete agreement and the state court’s holding that the agreement was enforceable—created a new
factual predicate for the second adverse employment action, and, therefore, a new grievance
proceeding was necessary.
The task of federal district courts in reviewing an arbitral award is limited to determining
whether it is enforceable. It is not the province of federal courts to resolve the merits of employment
disputes, especially those in which arbitration is provided for by a collective bargaining agreement.
See United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29, 36 (1987). According to the
union, initiation of the grievance process is unnecessary when no written notice of termination has
been furnished to the employee. Thus, the union argues that, because ADT failed to present
Reynolds with a second written notice of termination, no second grievance process was necessary.
The union argues alternatively that Reynolds was not in fact discharged at all but was instead placed
on a temporary furlough.
The union’s arguments face a number of difficulties. First, no provision of the collective
bargaining agreement requires written notice of any form to be given in order for a dispute to be
grievable. Thus, the collective bargaining agreement does not support the union’s position. Second,
the union’s efforts to characterize Reynolds’s termination as ambiguous or uncertain are irrelevant
to the only task before the district court. That task was to determine whether to enforce the arbitral
award by finding that the adverse action was within its scope or determine that the action was
“something else” and dismiss Reynolds’s claim for lack of exhaustion. We agree with ADT that the
critical events between the two employment actions—the issuance of the state court ruling and
Sonitrol’s attempt to enforce its contractual rights—created new facts on which ADT could rely in
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Local Union 369, Int’l Bhd. of Elec. Workers v. ADT Security Servs., Inc.
No. 09-5956
terminating Reynolds a second time. Whether Reynolds was in fact terminated, placed on furlough,
or placed in some other status, ADT executed a second action with respect to Reynolds’s
employment status beyond the scope of the original arbitral award.
The union, therefore, could not have relied upon the arbitral award to prevail on its claim that
Reynolds was wrongfully terminated. Because the action in the district court could only have been
an action to enforce the award, it necessarily fails. The union’s merits arguments regarding the
propriety of the second adverse employment action must have been submitted to the arbitrator
first—not to the federal district court—and the union’s failure to exhaust necessitates dismissal of
the suit. The union argues that public policy dictates that the arbitrator’s award be enforced, but this
is a merits issue to be resolved as part of a second arbitration. Because the union failed to exhaust
its contractual remedies, the district court properly granted summary judgment.
We note, however, that the district court erred in failing to specify that the dismissal was
without prejudice. Dismissal for lack of exhaustion of administrative remedies should generally be
without prejudice, allowing the plaintiff to refile his suit once he completes the proper grievance
process. We recognize, based on the parties’ representations, that the distinction of with or without
prejudice is of no practical import here since the time period within which a grievance could be filed
expired long ago. But we nevertheless believe that the disposition should be stated correctly.
B.
The union also argues that it was improper for the district court to grant summary judgment
before any discovery was conducted. This court reviews for abuse of discretion the district court’s
decision to grant summary judgment before discovery. CenTra, Inc. v. Estrin, 538 F.3d 402, 419
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Local Union 369, Int’l Bhd. of Elec. Workers v. ADT Security Servs., Inc.
No. 09-5956
(6th Cir. 2008). In determining whether there was an abuse of discretion, this court generally
considers a variety of factors, one of which is “whether the desired discovery would have changed
the ruling below.” Id. at 420 (quoting Plott v. Gen. Motors Corp., 71 F.3d 1190, 1196 (6th Cir.
1995)) (internal quotation marks omitted). The union’s Rule 56(f) affidavit stated that discovery was
needed to develop facts regarding ADT’s agreement with Sonitrol, the reasons behind the second
termination, damages suffered by Sonitrol, and the validity of the non-compete agreement. As the
district court held, these issues are irrelevant to the dispositive issue of whether the union has
exhausted the contractual grievance process. The discovery requested in the Rule 56(f) affidavit
would not change the outcome of the ruling below, and, therefore, the district court’s decision to
deny discovery was not an abuse of discretion.
IV.
For the reasons set forth above, we affirm the district court’s grant of summary judgment for
failing to exhaust contractual remedies.
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