The Second Circuit Court of Appeals recently clarified its process for determining whether a court can apply a presumption of arbitrability. The court noted that its traditional process for making that determination does not comport with the U.S. Supreme Court’s 2010 decision in Granite Rock Co. v. International Brotherhood of Teamsters and thus outlined a new process.
Niagara Mohawk Power Corp., doing business as National Grid, entered into a collective bargaining agreement with a local electrical workers union. The agreement required arbitration for any dispute regarding the meaning, application, or operation of the agreement.
The union’s business representative initiated the grievance and arbitration process on behalf of the union. He claimed that National Grid violated the agreement by requiring retired members to pay higher health insurance premiums than active employees. National Grid declined to process the grievance, claiming that it was not arbitrable under the agreement.
The union filed a complaint in district court and moved to compel arbitration. The district court granted the union’s motion and National Grid appealed.
The Second Circuit affirmed but held that the district court reached the correct conclusion through the wrong analysis because the district court applied the Second Circuit’s pre-Granite Rock precedent even though that precedent was inconsistent with Granite Rock.
The Second Circuit explained that the U.S. Supreme Court’s decision in Granite Rock establishes that courts may invoke a presumption of arbitrability only where the parties’ dispute concerns a valid and enforceable agreement to arbitrate that is ambiguous as to its scope.
In contrast, the Second Circuit’s pre-Granite Rock case law, which the district court applied, directed courts to first classify the particular arbitration clause as either broad or narrow and then apply a presumption of arbitrability to broad clauses. The Second Circuit explained that that process was inconsistent with Granite Rock to the extent it directs courts to prioritize deciding whether a presumption of arbitrability applies before determining whether, under ordinary principles of contract interpretation, a particular dispute is covered by the language to which the parties agreed. The district court’s utilization of that process was improper because, rather than finding that the agreement’s arbitration clause was ambiguous in scope before applying the presumption of arbitrability, as dictated by Granite Rock, the district court started by characterizing the arbitration clause itself and held that the presumption of arbitrability applied, without determining whether the agreement covered the parties’ dispute.
Nevertheless, the Second Circuit concluded that the district court’s decision that the dispute was subject to arbitration was correct under the proper standard. The Second Circuit held that the agreement unambiguously covered the grievance. Two conditions had to be met for the grievance to be covered by the arbitration clause: (1) the union had to claim that a dispute had arisen; and (2) the dispute had to concern a provision of the agreement. Both of those provisions were met, as the union raised the grievance, which concerned a clause in the agreement.
Local Union 97, International Brotherhood of Electrical Workers, AFL-CIO v. Niagara Mohawk Power Corp., No. 21-2443 (May 3, 2023).