N.E. Cleaning Svs. v. American Arbitration, 199 F.3d 542, 1st Cir. (1999)

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199 F.3d 542 (1st Cir.

1999)

NEW ENGLAND CLEANING SERVICES, INC., Plaintiff,


Appellant,
v.
AMERICAN ARBITRATION ASSOCIATION, Defendant,
Appellee.
No. 99-1146.

United States Court of Appeals, for the First Circuit.


Heard Sept. 17, 1999.
Decided December 20, 1999.

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE


DISTRICT OF MASSACHUSETTS. Hon. Morris E. Lasker, Senior U.S.
District Judge.
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.
Before Boudin, Circuit Judge, Coffin and Campbell, Senior Circuit
Judges.
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.1 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
2

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.
8

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
9

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.

10

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.


11

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].2

12

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).

13

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.

14

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.
15

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.3

16

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.
17

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.

18

Affirmed.

Notes:
1

NECS sued both the SEIU and the AAA under the federal question jurisdiction,
premised on NECS's underlying Taft-Hartley Act claim against the SEIU.
NECS prevailed in the district court on its contention, inter alia, that the
collective bargaining agreement formerly existing between the parties had been
effectively terminated prior to the union's demand for arbitration, vitiating the
arbitration clause. The SEIU's appeal from the district court's determination
that NECS had terminated the agreement was argued to us on the same day as
the instant appeal, and is the subject of a separate opinion issued today. See
New England Cleaning Services, Inc. v. Local 254, Service Employees
International Union, AFL-CIO, 199 F.3d 537 (1st Cir. 1999).

Allegations concerning the termination of the Agreement that were truly factual
rather than conclusory must, of course, be taken as true for purposes of the
motion to dismiss. For example, while the court must accept NECS's allegation
that it sent a letter stating that the Agreement was thereby terminated, it was not
bound under these facts by its statements as to the legal effectiveness of the
termination.

In its brief, the AAA points out: "It would be no more appropriate for AAA, as
a neutral administrative body, to make a determination of arbitrability than it
would be for a court clerk's office to dismiss an action on jurisdictional grounds
at the request of one of the parties, or without order of court."

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