United States District Court, Eastern District of New York
April 17, 1990
DAVID RAFF, PLAINTIFF,
PAUL C. MAGGIO, D/B/A PATCHOGUE NURSING CENTER, DEFENDANT.
The opinion of the court was delivered by: Wexler, District Judge.
MEMORANDUM AND ORDER
David Raff ("plaintiff") brings this suit to recover fees,
expenses, prejudgment interest and attorneys' fees with respect
to his service as arbitrator in connection with a labor dispute.
Named as defendant is Paul C. Maggio, ("defendant"), who, as the
employer involved with the arbitrated labor dispute, is liable
for half the cost of the arbitrator's fees according to a
collective bargaining agreement. Currently before the Court is
defendant's motion to dismiss, pursuant to Rules 12(b)(1) and
12(h)(3) of the Federal Rules of Civil Procedure, for lack of
federal subject matter jurisdiction. After a brief recitation of
the facts, the Court will address defendant's motion.
Defendant is the sole proprietor of a skilled nursing home
facility in Patchogue, New York. He owns and operates the
facility and is responsible for all management decisions. As
operator of the home, defendant entered into a collective
bargaining agreement with Local 1199 of the Drug Hospital and
Health Care Employees Union ("Local 1199"), which agreement was
in effect in 1987 and 1988. One clause of the agreement stated
that unresolved grievances between the parties were to be
arbitrated pursuant to the Voluntary Labor Arbitration Rules of
the American Arbitration Association ("AAA Rules"). The agreement
further stated that the arbitrator's award would be conclusive
and binding, and that each party would equally bear the fees and
expenses of the arbitrator.
Plaintiff herein was designated to sit as arbitrator for an
unresolved grievance involving defendant's discharge of an
employee. He presided over four hearings before issuing an
opinion and award ordering the reinstatement of the employee.
Each party was billed for half of plaintiff's $5,500 fees and
costs. Local 1199 timely paid its portion, but defendant withheld
his share of the bill.
While plaintiff's demand for payment went unanswered, defendant
appealed to this Court to vacate the arbitrator's award on the
basis that it violated public policy. This Court confirmed the
award. Maggio v. Local 1199, 702 F. Supp. 989 (E.D.N.Y. 1988).
At this point, defendant informed plaintiff that he was
considering further appeal of the matter and would continue to
withhold payment. Following an appeal, the Second Circuit
affirmed this Court's decision without opinion. Maggio v. Local
1199, 880 F.2d 1319 (2nd Cir. 1989). However, Maggio still
refused to pay his share as he appealed the case to the Supreme
Court. Defendant finally attempted to settle his bill by offering
full payment plus interest only when certiorari was denied by the
Supreme Court on October 30, 1989. Maggio v. Local 1199, ___
U.S. ___, 110 S.Ct. 329, 107 L.Ed.2d 319 (1989).
Plaintiff, however, rejected this offer and demanded additional
expenses he had incurred in filing the complaint in the instant
case. Defendant is unwilling to pay the additional expenses.
It has long been settled that § 301 of the Labor Management
Relations Act ("§ 301")
has substantive content and "that Congress has directed the
courts to formulate and apply federal law to suits for violation
of collective bargaining contracts." Smith v. Evening News
Ass'n, 371 U.S. 195, 199, 83 S.Ct. 267, 270, 9 L.Ed.2d 246
(1962); Textile Workers v. Lincoln Mills, 353 U.S. 448, 77
S.Ct. 912, 1 L.Ed.2d 972 (1957). Section 301(a) provides:
Suits for violation of contracts between an employer
and a labor organization representing employees in an
industry affecting commerce as defined in this
chapter, or between any such labor organizations, may
be brought in any district court of the United States
having jurisdiction of the parties, without respect
to the amount in controversy or without regard to the
citizenship of the parties.
29 U.S.C. § 185(a) (1978). Plaintiff relies on this section to
enforce a provision of the collective bargaining agreement
between Local 1199, a labor organization, and Patchogue Nursing
Home, an employer.
Although it is clear that the collective bargaining agreement
is the type meant to be covered by § 301, and therefore within
federal subject matter jurisdiction, it is unclear whether a
non-signatory to the agreement may also invoke federal
jurisdiction under § 301. The Supreme Court has not taken a
restrictive view of who may sue under § 301 for violations of
such agreements, but neither has it intimated that any action
relating to a contract within the coverage of § 301 arises under
that section. Franchise Tax Bd. v. Laborers Vacation Trust,
463 U.S. 1, 25 n. 28, 103 S.Ct. 2841, 2854 n. 28, 77 L.Ed.2d 420
Section 301 has been broadly interpreted to permit individuals
in several categories, other than those in direct privity to the
contact, to invoke federal subject matter jurisdiction when the
individual has a beneficial interest in the contract. See, e.g.,
Hines v. Anchor Motor Freight, Inc., 424 U.S. 554, 96 S.Ct.
1048, 47 L.Ed.2d 231 (1976); Santos v. District Council of New
York City, 547 F.2d 197 (2nd Cir. 1977).
In the case at bar, defendant admitted in his answer that
plaintiff had third-party beneficiary status yet denied that this
Court had subject matter jurisdiction. Defendant thereafter
informed the Court that the admission was an error. The Court
will not base its analysis of subject matter jurisdiction solely
on an error by defendant, and therefore must consider other
factors as well.
This Court agrees with plaintiff that the payment clause in the
collective bargaining agreement, by making each party liable for
half of the fees and costs, was intended to benefit not only the
parties to the agreement but also the eventual arbitrator in the
collection of his fee. Inasmuch as there never existed any
independent contract between the plaintiff-arbitrator and the
parties to the collective bargaining agreement, it appears from
the circumstances that the parties to the agreement intended the
arbitrator's rights to stem directly from the collective
bargaining agreement itself.
Furthermore, it was foreseeable that the eventual arbitrator
would rely on this provision of the contract when agreeing to
arbitrate a grievance, because it would provide some assurance
that the parties were contractually bound to pay his fees and
costs. Absent such a provision, an arbitrator might be hesitant
to accept a nomination.
Even if this Court were to deem defendant's answer amended so
as not to admit that plaintiff is a third-party beneficiary to
the agreement, federal subject matter jurisdiction is nonetheless
proper. The adoption of § 301 by Congress reflected an interest
in promoting "`a higher degree of responsibility upon the parties
to such agreements. . . .'" Hines, 424 U.S. at 561, 96 S.Ct. at
1055 (quoting S.Rep. No. 105, 80th Cong., 1st Sess., 17 (1947)).
Although § 301 may not have contemplated a situation such as that
in the case at bar, it certainly may be viewed as imputing
overall responsibility upon the parties, including payment to the
arbitrator for his services.
Furthermore, this case is proper for federal court because of
its undeniable connection to the overall labor agreement, which
is undoubtedly a federal matter. "[I]t
must be remembered that grievance and arbitration procedures are
part and parcel of the ongoing process of collective bargaining."
United Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29,
38, 108 S.Ct. 364, 371, 98 L.Ed.2d 286 (1987). Even matters such
as non-payment of an arbitrator's fee, when so intertwined with a
collective bargaining agreement, should remain in federal court
for efficiency and expediency.
Although the Court expresses no opinion as to the merits of
plaintiff's cause of action for attorneys' fees, for the reasons
set forth above the Court deems that it does have subject matter
jurisdiction over this controversy. Accordingly, in light of the
totality of the circumstances, defendant's motion to dismiss is
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