                                                                                        November 25 2014


                                          DA 14-0083
                                                                                        Case Number: DA 14-0083

              IN THE SUPREME COURT OF THE STATE OF MONTANA
                                          2014 MT 314



CITY OF LIVINGSTON, MONTANA,
AND ITS POLICE DEPARTMENT,

               Petitioner and Appellee,

         v.

MONTANA PUBLIC EMPLOYEES ASSOCIATION
ON BEHALF OF MATTHEW TUBAUGH,

               Respondent and Appellant.


APPEAL FROM:           District Court of the Sixth Judicial District,
                       In and For the County of Park, Cause No. DV 13-80
                       Honorable Brenda Gilbert, Presiding Judge


COUNSEL OF RECORD:

                For Appellant:

                       Carter Picotte, Attorney at Law, Helena, Montana

                For Appellee:

                       Bruce E. Becker, Livingston City Attorney, Livingston, Montana



                                                   Submitted on Briefs: July 23, 2014
                                                              Decided: November 25, 2014


Filed:

                       __________________________________________
                                         Clerk
Justice Beth Baker delivered the Opinion of the Court.

¶1     The Montana Public Employees Association, on behalf of Matthew Tubaugh,

appeals the decision of the Sixth Judicial District Court to vacate an arbitrator’s award in

his favor. We address the following issues on appeal:

      1. Whether the Arbitrator exceeded her powers by requiring progressive discipline
pursuant to the Collective Bargaining Agreement.

       2. Whether the Arbitrator violated public policy by requiring the City of
Livingston to reinstate Tubaugh to his previous position or one of comparable pay.

     3. Whether the District Court erred when it vacated the Award on the grounds that
the Award prevented the City of Livingston from requiring Fitness for Duty
Examinations.

       4. Whether the Arbitrator exceeded her powers by ordering the City of Livingston
to expunge the Fitness for Duty Examination from Officer Tubaugh’s personnel file.

¶2     We reverse the District Court and remand with instructions to confirm the

arbitration award.

                 PROCEDURAL AND FACTUAL BACKGROUND1

¶3     The City of Livingston hired Matthew Tubaugh as a police officer in 2004.

Tubaugh initially met or exceeded expectations as an officer. Prior to 2011, Tubaugh had

received only a few minor reprimands. A series of incidents that occurred in 2011 and

2012, however, led to his being discharged from the police force. The first incident

occurred when Tubaugh testified in a criminal case on December 12 and 15, 2011.

During a City Court trial, he told the judge that he disagreed with a ruling of the court


1
  The facts are taken from the findings of fact in the Arbitration Award. No record of the
arbitration proceedings is before the Court on appeal.
                                             2
and later became aggressive and argumentative toward the defendant.              Next, on

January 6, 2012, Tubaugh disagreed with his supervising officer and attempted to

confront the County Attorney. When he was told that the County Attorney was not

available, he made a profane outburst. Later, on April 15, 2012, Tubaugh and another

officer made an arrest. At the detention center, he lost his composure, called the arrestee

a “small child” and a “baby,” and slammed down his clipboard. He then injected himself

into the booking process and charged the arrestee with obstruction of justice after the

arrestee was reluctant to provide an address.

¶4     On June 8, 2012, Tubaugh criticized a co-worker, Jessica Kynett, for using the

internet at work and for missing work for physical therapy. Tubaugh was not Kynett’s

supervisor. The interaction became confrontational and Tubaugh ignored an order from

Sergeant Dale Johnson to “knock it off.” On June 23, 2012, Tubaugh and another officer

made another arrest, this time for disorderly conduct. At the detention center, Tubaugh’s

conduct escalated the situation and ultimately provoked a physical altercation. Detention

staff helped Tubaugh subdue the arrestee. In addition to the initial charges, Tubaugh

charged the arrestee with assault for the altercation.

¶5     On June 28, 2012, Police Chief Darren Raney issued a letter of reprimand to

Tubaugh, primarily for the confrontation with Kynett, but the letter also referenced other

incidents of inappropriate conduct. A letter of complaint was filed concerning Tubaugh’s

behavior during one of the arrests.




                                          3
¶6     On July 25, 2012, Tubaugh was placed on paid administrative leave. Subsequent

investigations, conducted by Raney, found that Tubaugh had engaged in unprofessional

conduct and that his use of force against one of the prisoners was not objectively

reasonable. Raney also became concerned that Tubaugh had displayed an increasing

tendency to respond to disrespectful or insufficiently deferential behavior with charges

such as disorderly conduct, resisting arrest, obstruction, or assaulting an officer.

¶7     Raney determined that a fitness for duty examination was appropriate. Raney

ordered Tubaugh to complete an examination with George Watson, a psychologist with a

focus on law enforcement fitness for duty. Watson concluded that Tubaugh suffered

from a personality disorder, and that he exhibited symptoms of paranoia, narcissism, and

histrionic personality disorder. Watson concluded that he was unable to recommend that

Tubaugh continue as an officer. After reviewing Watson’s report and providing Tubaugh

the opportunity to respond, Raney recommended Tubaugh’s discharge.                     The

recommendation was accepted and Tubaugh was discharged on October 29, 2012.

¶8     Tubaugh protested his discharge pursuant to his rights under the collective

bargaining agreement (CBA) in effect at the time between the City of Livingston and the

Montana Public Employees Association (MPEA).              Pursuant to the CBA’s binding

arbitration provision, an arbitration hearing was held. On May 20, 2013, Arbitrator Anne

MacIntyre determined that while there was just cause to discipline Tubaugh, the proper

disciplinary action was a three-month suspension without pay. She ordered that the City

of Livingston reinstate Tubaugh to his previous position or to one of comparable pay, and

                                           4
pay Tubaugh back pay and benefits until his reinstatement. She also ordered that the City

of Livingston expunge the fitness for duty examination from Tubaugh’s personnel file.

¶9        The City of Livingston timely petitioned to vacate the Arbitrator’s award.

Following briefing and oral argument on the petition, the District Court issued an order

on January 15, 2014, vacating the Arbitrator’s award. The MPEA now appeals that

ruling.

                                 STANDARDS OF REVIEW

¶10       The parties cite our precedent that “[t]he standard of review for a court’s refusal to

modify or vacate an arbitration award is whether the court abused its discretion.” Terra

W. Townhomes, L.L.C. v. Stu Henkel Realty, 2000 MT 43, ¶ 22, 298 Mont. 344, 996 P.2d

866; Paulson v. Flathead Conservation Dist., 2004 MT 136, ¶ 18, 321 Mont. 364,

91 P.3d 569. But our prior cases also have emphasized that “the scope of judicial review

of an arbitration award is strictly limited to the statutory provisions governing

arbitration.” Duchscher v. Vaile, 269 Mont. 1, 4, 887 P.2d 181, 183 (1994); see Paulson,

¶ 24; Terra W., ¶ 22. After a matter has been submitted to binding arbitration, district

courts “are not permitted to review the merits of the controversy, but may only confirm,

vacate, modify, or correct an arbitration award pursuant to §§ 27-5-311, -312, and -313,

MCA.” Teamsters Union Local No. 2, Int’l Bhd. of Teamsters v. C.N.H. Acquisitions,

Inc., 2009 MT 92, ¶ 14, 350 Mont. 18, 204 P.3d 733.

¶11       The U.S. Supreme Court has held that “courts of appeals should apply ordinary,

not special, standards” when reviewing district court decisions on arbitration awards; a

                                             5
decision on an arbitration award should be reviewed like “any other district court

decision . . . accepting findings of fact that are not ‘clearly erroneous’ but deciding

questions of law de novo.” First Options, Inc. v. Kaplan, 514 U.S. 938, 947-48, 115

S. Ct. 1920, 1926 (1995). This is consistent with our ordinary standards of review

governing a District Court’s interpretation of a statute, and its application of controlling

legal principles to findings of fact. City of Missoula v. Iosefo, 2014 MT 209, ¶ 8, 376

Mont. 161, 330 P.3d 1180; BNSF Ry. Co. v. Cringle, 2012 MT 143, ¶ 16, 365 Mont. 304,

281 P.3d 203. In such cases, we review legal conclusions de novo. Cringle, ¶ 16.

Further, our review is plenary to the extent that a discretionary ruling is based on a

conclusion of law. Jacobsen v. Allstate Ins. Co., 2009 MT 248, ¶ 17, 351 Mont. 464,

215 P.3d 649. Because the District Court’s decision in this case turns on whether it

correctly applied the statutory provisions governing review of arbitration awards, we

apply de novo review to the District Court’s ruling.

                                      DISCUSSION

¶12    The District Court held that the Arbitrator exceeded her powers by requiring

progressive discipline and that the Arbitrator’s decision to reinstate Tubaugh violated

public policy. The court alternatively held that the arbitration award may be vacated

“under Section 27-5-312(1)(b), MCA, for a manifest disregard of the law.” There have

been no allegations that would trigger that subsection of the statute, which requires

“evident partiality by an arbitrator appointed as a neutral or corruption in any of the

arbitrators or misconduct prejudicing the rights of any party[.]” Section 27-5-312(1)(b),

                                         6
MCA; see Geissler v. Sanem, 285 Mont. 411, 417-18, 949 P.2d 234, 239 (1997).

Accordingly, we proceed to examine the claims under § 27-5-312(1)(c), MCA, whether

the Arbitrator exceeded her powers, and to determine whether the decision violates public

policy.

¶13 1. Whether the Arbitrator exceeded her powers by requiring progressive discipline
pursuant to the Collective Bargaining Agreement.

¶14       “Generally, Montana gives arbitrators broad authority and powers to determine all

issues.” Paulson, ¶ 22. “It is well-settled that a court’s power to vacate an arbitration

award must be extremely limited because an overly expansive judicial review of

arbitration awards would undermine the litigation efficiencies which arbitration seeks to

achieve.” Fine v. Bear, Stearns & Co., 765 F. Supp. 824, 827 (S.D.N.Y. 1991).

¶15       Upon the application of a party, the District Court “shall vacate [an arbitrator’s]

award if . . . the arbitrator[] exceeded [her] powers.” Section 27-5-312(1)(c), MCA. We

have held that an arbitrator exceeds her powers if she decides matters that were not

submitted to her. Terra W., ¶ 27; see also Batten v. Howell, 389 S.E.2d 170, 172 (S.C.

Ct. App. 1990) (“The question of whether arbitrators have exceeded their powers relates

to arbitrability of the issue they have attempted to resolve.”). As long as an arbitrator’s

factual determination and legal conclusions derive their essence from the collective

bargaining agreement itself and the award represents a plausible interpretation of the

contract, judicial inquiry ceases and the award must be enforced. Sheet Metal Workers

Int’l Asso., Local No. 359 v. Arizona Mechanical & Stainless, Inc., 863 F.2d 647, 653

(9th Cir. 1988).      “This remains so even if the basis for the arbitrator’s decision is
                                            7
ambiguous and notwithstanding the erroneousness of any factual findings or legal

conclusions.” Sheet Metal Workers, 863 F.2d at 653.

¶16   On the other hand, “[a]n arbitrator’s authority is limited by the bounds of the

[arbitration] agreement, and courts may vacate [arbitration] awards that extend beyond

the contractual scope of arbitration.” Nelson v. Livingston Rebuild Ctr., Inc., 1999 MT

116, ¶ 15, 294 Mont. 408, 981 P.2d 1185 (citation omitted).          “When a collective

bargaining agreement prohibits the addition of contract terms, the arbitrator may not

proceed to do so.” IBEW, Local 175 v. Thomas & Betts Corp., 182 F.3d 469, 472 (6th

Cir. 1999). However, “[i]f the remedy fashioned by the arbitrator has been rationally

derived from the [arbitration] agreement it will be upheld on review.” Nelson, ¶ 19.

¶17   The parties presented the following issue to arbitration:

      Did the City of Livingston Police Department have cause under the terms
      of the collective bargaining agreement with the Montana Public Employees
      Association Livingston Police Unit for the discharge of Matthew Tubaugh,
      and if not, what is the appropriate remedy?

¶18   The Arbitrator determined that the City of Livingston’s approach to dealing with

Tubaugh’s misconduct violated the CBA because the City failed to attempt to reform

Tubaugh’s behavior before requiring a fitness for duty examination and terminating him.

The CBA states, “If discipline is warranted, it will be rendered in one of the following

forms.” The CBA then lists and explains the available “forms” of disciplinary action:

verbal counseling, written reprimands, suspension, demotion, and termination. Although

the express terms of the CBA do not provide for progressive discipline, the Arbitrator

found that the CBA “is intended to be corrective and progressive” based on a widely-used
                                         8
definition of “good cause.” She noted that the July 1, 2012 CBA, adopted prior to

Tubaugh’s discharge, added a good cause standard to the requirement for discipline. The

Arbitrator then used her interpretation of the “good cause” provision in the CBA to

conclude that there was cause to discipline Tubaugh, but that the appropriate remedy was

a three-month suspension, not termination.

¶19    The CBA does not specify that discipline will be rendered in any particular order.

Rather, the CBA allows for any of the various disciplinary actions to be taken where

determined by the City to be appropriate. Further, the Grievance Procedure set forth in

the CBA expressly states that “[t]he Arbitrator shall have no authority to alter, amend or

delete any Policy of the City, or provisions of this Agreement.” The District Court

determined that “[t]here is simply no provision in the CBA that requires moving through

a series of disciplinary steps prior to a termination.” The court observed that “the manner

of discipline [instead] is elected from a range of possibilities . . . . This is not progressive

discipline.” The court then concluded that the Arbitrator exceeded her authority by

imposing a progressive discipline requirement that altered the terms of the CBA that were

negotiated by the parties.

¶20    An arbitrator exceeds her authority if she attempts to resolve an issue that is not

arbitrable because it is outside the scope of the arbitration agreement, but she does not

exceed her powers by making factual or legal errors. Sheet Metal Workers, 863 F.2d at

653. As long as the arbitrator is “even arguably construing or applying the contract and

acting within the scope of [her] authority, that a court is convinced [she] committed

                                           9
serious error does not suffice to overturn [her] decision.” United Paperworkers Int’l

Union v. Misco, Inc., 484 U.S. 29, 38, 108 S. Ct. 364, 371 (1987).

¶21   Here, the Arbitrator’s reasoning involved her interpretation of the CBA’s

provisions for discipline and termination, matters properly within the scope of the issue

presented by the parties for arbitration: whether there was cause for termination. Even if

the Arbitrator’s reasoning involved errors of fact and law, her award is limited to that

issue. The District Court found error in the Arbitrator’s interpretation of the CBA. A

court may not overturn an arbitrator’s decision, however, “simply because the court

believes its own interpretation of the contract would be the better one.” W.R. Grace &

Co. v. Local Union 759, Int'l Union of United Rubber, 461 U.S. 757, 764, 103 S. Ct.

2177, 2182 (1983).

¶22   The District Court incorrectly determined that the Arbitrator exceeded her

authority in her interpretation of the CBA. Although the District Court’s interpretation

was plausible, we cannot conclude that the Arbitrator’s contrary award “does not draw its

essence from the [CBA].” W.R. Grace & Co., 461 U.S. at 766, 103 S. Ct. at 2183.

¶23 2. Whether the Arbitrator violated public policy by requiring the City of
Livingston to reinstate Tubaugh to his previous position or to one of comparable pay.

¶24   “As with any contract, . . . a court may not enforce a collective-bargaining

agreement that is contrary to public policy.” W.R. Grace, 461 U.S. at 766, 103 S. Ct. at

2183. A court’s refusal to enforce an arbitrator’s interpretation of a contract on this

ground is limited to situations where the contract as interpreted would violate “some

explicit public policy” that is “well-defined and dominant.” Misco, 484 U.S. at 43, 108
                                        10
S. Ct. at 373. Such a public policy is to be ascertained “by reference to the laws and legal

precedents and not from general considerations of supposed public interests.” Misco, 484

U.S. at 43, 108 S. Ct. at 373. We consider whether the arbitrator’s award creates an

“explicit conflict” with other laws and legal precedents.              It is the arbitrator’s

interpretation of the contract that must be determined to violate a public policy. See

Stead Motors of Walnut Creek v. Automotive Machinists Lodge No. 1173, etc., 886 F.2d

1200, 1209-12 (9th Cir. 1989).

¶25    Without referring to any specific laws or legal precedents, the District Court

determined that the Arbitrator’s decision violated the “well-defined public policy” of “the

safety of fellow-officers and the safety of the general public.” The court reasoned that

the reports of Tubaugh’s conduct were “very troubling,” and that the “record reflects

[the] factual determination that Tubaugh was not fit for duty.” The City supports the

court’s ruling by noting that police officers hold positions of public trust, citing to several

statutes, not controlling here, involving the general duties of police officers and

mistreatment of prisoners.

¶26    The U.S. Supreme Court has been careful to avoid creating a “broad judicial

power to set aside arbitration awards as against public policy.” Misco, 484 U.S. at 43,

108 S. Ct. at 373.        “[A] formulation of public policy based only on ‘general

considerations of supposed public interests’ is not the sort that permits a court to set aside

an arbitration award that was entered in accordance with a valid collective-bargaining

agreement.” Misco, 484 U.S. at 44, 108 S. Ct. at 374. “If a court relies on public policy

                                          11
to vacate an arbitral award reinstating an employee, it must be a policy that bars

reinstatement.” Stead Motors, 886 F.2d at 1212 (emphasis in original). “Courts cannot

determine merely that there is a ‘public policy’ against a particular sort of behavior in

society generally and, irrespective of the findings of the arbitrator, conclude that

reinstatement of an individual who engaged in that sort of conduct in the past would

violate that policy.” Stead Motors, 886 F.2d at 1212; see also Westvaco Corp. v. United

Paperworkers Int’l Union ex rel. Local Union 676, 171 F.3d 971, 976-78 (4th Cir. 1999)

(rejecting the argument that an arbitrator’s reinstatement of an employee violated public

policy by hindering a corporation’s ability to remedy sexual harassment in the

workplace).

¶27       The Arbitrator decided, based on her finding that “the degree of discipline

accorded was not reasonably related to the seriousness of Tubaugh’s offense and his past

record,” that the City did not have cause under the terms of the CBA for Tubaugh’s

discharge, and that the appropriate remedy was a three-month suspension. The District

Court, noting the importance of officer and public safety, found support in the record for

the City’s conclusion that Tubaugh’s unfitness “was based upon his episodes of

inappropriate anger and aggressive behavior that the [fitness for duty evaluation]

concluded was not going to change.” Because a police department has an undisputed

duty to protect the public, the court concluded that the Arbitrator’s award violated public

policy.




                                        12
¶28    “Courts are strictly barred from engaging in fact-finding when they review labor

arbitration awards.” Stead Motors, 886 F.2d at 1217. The District Court’s decision to

vacate the award for violating public policy impermissibly substituted the Arbitrator’s

factual determinations with its own and relied on only a generalized “‘public policy’

against a particular sort of behavior.” Stead Motors, 886 F.2d at 1212. The District

Court erred in holding that the Arbitrator violated public policy by requiring the City of

Livingston to reinstate Tubaugh to his previous position or to one of comparable pay.

¶29 3. Whether the District Court erred when it vacated the Award on the grounds that
the Award prevented the City of Livingston from requiring fitness for duty examinations.

¶30    The Arbitrator expressed concern with the fitness for duty examination in this

case, stating, “This use of the fitness for duty examination as a substitute for the

corrective and progressive discipline contemplated by the collective bargaining

agreement is troubling.” She noted that the examination was not mandated by the CBA,

city policy, or state law. She further determined that, “[a]part from the procedural issues

relating to this fitness for duty examination, the resulting report prepared by Watson is

itself troubling.” She observed that Watson’s sole interview with Tubaugh took place in

a public venue, that Watson relied on statements from people who were not identified in

the report, and that Tubaugh never had the opportunity to rebut or challenge the bases for

Watson’s conclusions. The Arbitrator did not hold that the City could not require its

officers to complete a fitness for duty examination; instead, she held that the fitness for

duty examination here was not credible or reliable because of the manner in which it was

conducted.
                                        13
¶31    The District Court disagreed with the Arbitrator’s assessment of the fitness for

duty evaluation. After concluding that the CBA permitted the City of Livingston to order

the examination, the court noted that Dr. Watson’s qualifications were not questioned

during the Arbitration hearing, and that Raney gave Tubaugh an opportunity to provide

additional information after the examination. The court held that “the Arbitrator’s Award

effectively deleted the broad management rights reserved to Chief Raney under the very

terms of the CBA, by determining that he did not have the right to require the [fitness for

duty examination] of Tubaugh.”

¶32    “Judicial review of arbitration is profoundly more limited than judicial review of a

verdict of a jury or trial court.” 21 Samuel Williston, Richard A. Lord, Williston on

Contracts § 57:129, 629-30 (4th ed. 2001). Arbitrators have the power to review issues

of both fact and law. Paulson, ¶ 23. The District Court may not re-weigh the evidence in

the case or reinterpret the reliability of evidence presented for the Arbitrator’s

consideration. See Stockade Enters. v. Ahl, 273 Mont. 520, 524, 905 P.2d 156, 158

(1995). The Arbitrator’s award did not alter existing management rights, including any

right to require fitness for duty examinations of officers.       Instead, the Arbitrator

determined that the fitness for duty examination was the improper approach in this

circumstance and that the examination itself was not credible.

¶33    Judicial review of the Arbitrator’s award is limited to the determination whether

there is any statutory ground for vacatur and whether the arbitrator acted within the scope

of her authority.   Williston, at § 57:129, 630. The Arbitrator’s authority to weigh

                                        14
evidence clearly allowed her to determine the credibility of the fitness for duty

examination. The District Court should not have reached the issue whether the City of

Livingston may require police officers to submit to fitness for duty examinations, and we

make no ruling on that point here. The District Court erred by determining that the

Arbitrator’s Award should be vacated because of its findings related to the fitness for

duty examination.

¶34 4. Whether the Arbitrator exceeded her powers by ordering the City of Livingston
to expunge the fitness for duty examination from Officer Tubaugh’s personnel file.

¶35     The District Court held that the Arbitrator exceeded her authority in ordering the

City of Livingston to expunge Tubaugh’s fitness for duty examination from his personnel

file.   The District Court determined that the examination should remain in the file

because it was admitted as evidence in the arbitration proceedings, and it “was already

addressed in newspaper reporting of the hearing.” The City of Livingston supports the

District Court’s decision with references to the Right to Know provision of the Montana

Constitution (Art. II, section 9) and to “public record laws,” without specific citations.

¶36     Here, however, the issue is not whether the public has a right to know, but whether

the Arbitrator had the authority to remove the examination from Tubaugh’s personnel file

after she determined that the examination was not credible. Because of the voluntary,

informal nature of arbitration, “[t]he reviewing court must observe the principle that

arbitrators are free to fashion forms of relief which could not be ordered by a court in law

or equity.” JBC of Wyoming Corp. v. Cheyenne, 843 P.2d 1190, 1194 (Wyo. 1992);

§ 27-5-312(2), MCA.      Absent a clause specifically limiting the authority to grant a
                                          15
particular type of relief, it is implied by submitting to arbitration that the arbitrator has the

power to order an appropriate remedy. Williston, at § 57:111, 575-76. “[W]ith regard to

a proper remedy, the arbitrator should be given latitude and flexibility.” Danville Educ.

Ass’n. v. Danville Area School Dist., 467 A.2d 644, 646 (Pa. Commw. Ct. 1983) (citing

United Steel Workers v. Enter. Wheel and Car Corp., 363 U.S. 593 (1960)).

¶37    The Arbitrator did not order that the examination be destroyed.              She merely

ordered it removed from Tubaugh’s personnel file to prevent it from being used for

disciplinary purposes in the future.         Similar to her determination regarding the

examination’s credibility, this decision was within the scope of the issues the parties

agreed to submit to arbitration—Tubaugh’s grievance over the City’s decision to

discipline him and whether termination was the appropriate remedy. Removal from the

personnel file of an examination report that the Arbitrator determined should not have

been the basis for discharge was a form of relief within the Arbitrator’s broad powers

under the CBA. The District Court erred when it held that the Arbitrator exceeded her

authority by directing removal of the examination from Tubaugh’s personnel file.

                                       CONCLUSION

¶38    We reverse the decision of the District Court and remand with instructions for the

court to enter judgment confirming the arbitration award.



                                                    /S/ BETH BAKER




                                           16
We concur:

/S/ MIKE McGRATH
/S/ MICHAEL E WHEAT
/S/ PATRICIA COTTER
/S/ JAMES JEREMIAH SHEA
/S/ LAURIE McKINNON
/S/ JIM RICE

Justice Laurie McKinnon, concurring.

¶39    I concur with the Court’s decision to reverse the order of the District Court and

remand with instructions to confirm the arbitration award in this case. I believe our

analysis would benefit, however, from more thorough consideration of the principles

underlying judicial review of arbitration awards. I therefore write separately to address

two issues: the standard of review and the limited public policy exception to enforcement

of arbitration awards.

¶40    First, our prior decisions have not clearly distinguished between the standards of

review to be employed by a district court reviewing an arbitrator’s award and those to be

employed by an appellate court reviewing a district court’s decision to vacate or confirm

an award. Further, our review of a district court’s decision to vacate or confirm an award

has been inconsistent, and we have applied an incorrect abuse of discretion standard.

¶41    I begin with a discussion of the role of an arbitrator in interpreting a collective

bargaining agreement. A collective bargaining agreement is “more than a contract; it is a

generalized code to govern a myriad of cases which the draftsmen cannot wholly

anticipate.” United Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574,

578, 80 S. Ct. 1347, 1351 (1960). To address these unanticipated circumstances and “fill
                                        17
in the gaps,” the parties agree to choose an arbitrator as their “‘officially designated

“reader” of the contract,’” who will provide “the means through which they agree ‘to

handle the anticipated unanticipated omissions of the [collective bargaining

agreement].’” Stead Motors of Walnut Creek v. Automotive Machinists Lodge No. 1173,

etc., 886 F.2d 1200, 1205 (9th Cir. 1989) (quoting Theodore J. St. Antoine, Judicial

Review of Labor Arbitration Awards: A Second Look at Enterprise Wheel and Its

Progeny, 75 Mich. L. Rev. 1137, 1140 (1977)).          When an arbitrator interprets the

collective bargaining agreement, “‘he is speaking for the parties, and his award is their

contract.’” Stead Motors, 886 F.2d at 1205 (quoting St. Antoine, supra at 1140). The

arbitration award is an expression of the will of the parties, and is therefore afforded a

“nearly unparalleled degree of deference.” Stead Motors, 886 F.2d at 1205. As long as

an arbitrator’s award is based on his or her interpretation of the contract, a court may not

disturb the award even if it believes the arbitrator’s interpretation of the contract to be

factually or legally in error. Terra W. Townhomes, L.L.C. v. Stu Henkel Realty, 2000 MT

43, ¶ 37, 298 Mont. 344, 996 P.2d 866; Nelson v. Livingston Rebuild Ctr., Inc., 1999 MT

116, ¶ 18, 294 Mont. 408, 981 P.2d 1185 (citing United Paperworkers Intl. Union v.

Misco, Inc., 484 U.S. 29, 38, 108 S. Ct. 364, 370-71 (1987)).

¶42    Thus, because it is the arbitrator’s construction of the contract that was bargained

for and it is the arbitrator who will state the parties’ bargain and fill in the gaps, the

district court may not overrule the arbitrator simply because its interpretation of the

contract is different from the arbitrator’s. United Steelworkers of Am. v. Enterprise

                                         18
Wheel & Car Corp., 363 U.S. 593, 599, 80 S. Ct. 1358, 1362 (1960). Deference to the

arbitrator’s construction of the contract is premised on the principle that courts are not

free to relieve a party of his obligations under a contract merely because those obligations

have turned sour for him. Stead Motors, 886 F.2d at 1206. This is the conceptual

underpinning for judicial deference to an arbitrator’s award.

¶43    In accordance with the policy of deference to the decision of an arbitrator, a

district court’s review of an arbitration award is extremely narrow. Opinion, ¶ 14;

Geissler v. Sanem, 285 Mont. 411, 414-15, 949 P.2d 234, 237 (1997). Under our statutes,

a district court “shall vacate” an arbitrator’s award if:

       (a) the award was procured by corruption, fraud, or other undue means;

       (b) there was evident partiality by an arbitrator appointed as a neutral or
       corruption in any of the arbitrators or misconduct prejudicing the rights of
       any party;

       (c) the arbitrators exceeded their powers;

       (d) the arbitrators refused to postpone the hearing upon sufficient cause
       being shown or refused to hear evidence material to the controversy or
       otherwise conducted the hearing . . . in a manner that substantially
       prejudiced the rights of a party;

       (e) there was no arbitration agreement and the issue was not adversely
       determined . . . and the party did not participate in the arbitration hearing
       without raising the objection; or

       (f) a neutral arbitrator failed to make a material disclosure . . . .

Section 27-5-312(1), MCA. If there are no grounds presented for vacating, modifying, or

correcting the award, the district court “shall confirm” the award. Section 27-5-311,

MCA. The use of “shall” in our statutes is commonly understood to be mandatory.

                                           19
Gaustad v. City of Columbus, 265 Mont. 379, 381-82, 877 P.2d 470, 471 (1994). A

district court is afforded no discretion in its decision to confirm or vacate the award of an

arbitrator. See §§ 27-5-311, -312, MCA.

¶44    Sections 27-5-311 and -312, MCA, provide the standard of review upon which a

“district court” may vacate or confirm an award. If a party applies to the district court to

vacate an award for any of the reasons enumerated in § 27-5-312(1)(a)-(f), MCA, and the

district court is satisfied that sufficient facts have been presented substantiating one of

these subsections, then the district court “shall” vacate the award of the arbitrator.

Nevertheless, in determining whether the “arbitrators exceeded their powers,” for

example, the district court is still bound by the rule of deference to the arbitrator’s

decision and may not substitute its legal conclusions and factual findings, even if the

arbitrator’s are clearly erroneous. Because the parties have contracted to have disputes

settled by their chosen arbitrator rather than by a judge, it is the arbitrator’s view of the

facts and interpretation of the collective bargaining agreement that they have agreed to

accept. Misco, 484 U.S. at 37-38, 108 S. Ct. at 370. “Courts thus do not sit to hear

claims of factual and legal error by an arbitrator as an appellate court does in reviewing

decisions of lower courts.” Misco, 484 U.S. at 38, 108 S. Ct. at 370.

¶45    I turn next to the standard of review an appellate court should apply when

reviewing a district court’s decision to vacate or confirm an arbitration award. The

policy of deference to the decision of an arbitrator has led some courts to adopt a similar

policy of deference to a trial court’s decision to confirm an arbitration award. See, e.g.,

                                         20
Robbins v. Day, 954 F.2d 679, 682 (11th Cir. 1992), overruled in part by First Options of

Chicago, Inc. v. Kaplan, 514 U.S. 938, 948, 115 S. Ct. 1920, 1926 (1995). The Eleventh

Circuit, for example, adopted an abuse of discretion standard when reviewing a district

court’s decision to confirm an award, but a de novo standard when reviewing a district

court’s decision to vacate an award, reasoning as follows:

       By reversing a district court’s denial of a motion to vacate an arbitration
       award only upon abuse of discretion, we further the presumption that the
       arbitration proceeding was proper. Similarly, when a district court goes
       against the presumption that it should affirm an arbitration award, we must
       review de novo to protect the integrity of the arbitration process.

       By broadly reviewing the grant of a motion to vacate an arbitration award,
       while narrowly reviewing confirmation of an award, we emphasize the
       unique context of arbitration, which requires deferential review to promote
       the primary advantages of arbitration—speed and finality. De novo review
       of the granting of a motion to vacate enables us to assess whether the
       district court accorded sufficient deference in the first instance, an
       assessment that a more restrictive appellate review would frustrate.

Robbins, 954 F.2d at 682.

¶46    Similar reasoning may have influenced our adoption of the abuse of discretion

standard in Duchscher v. Vaile, 269 Mont. 1, 5, 887 P.2d 181, 184 (1994), where we took

the standard—without discussion—from an Arizona decision that followed a policy of

deference to the trial court. See Canon Sch. Dist. No. 50 v. W.E.S. Constr. Co., 868 P.2d

1014, 1021 (Ariz. Ct. App. 1993) (citing Park Imperial, Inc. v. E.L. Farmer Constr. Co.,

454 P.2d 181, 183-84 (Ariz. Ct. App. 1969) (“This Court on appeal is bound to view the

action of the trial court in a light most favorable to upholding the trial court’s

determination, just as the trial court was required to view the arbitration award in a light


                                         21
most favorable to upholding the said award . . . .” (citations omitted))), vacated, 882 P.2d

1274 (Ariz. 1994). It appears that we have applied this standard only when reviewing a

district court’s refusal to vacate an arbitration award. See, e.g., Teamsters Union Local

No. 2, Intl. Bhd. of Teamsters v. C.N.H. Acquisitions, Inc., 2009 MT 92, ¶ 14, 350 Mont.

18, 204 P.3d 73; Paulson v. Flathead Conservation Dist., 2004 MT 136, ¶ 18, 321 Mont.

364, 91 P.3d 569; Terra W., ¶ 31.

¶47    The notion that different standards of review should be applied depending on the

outcome in the lower court was ultimately rejected by the United States Supreme Court,

which held that “courts of appeals should apply ordinary, not special, standards when

reviewing district court decisions upholding arbitration awards,” and explicitly counseled

against adoption of a standard of review “more likely [to] produce a particular

substantive result.” First Options, 514 U.S. at 948, 115 S. Ct. at 1926. The Supreme

Court concluded that although “courts grant arbitrators considerable leeway when

reviewing most arbitration decisions . . . that fact does not mean that appellate courts

should give extra leeway to district courts that uphold arbitrators.”        First Options,

514 U.S. at 948, 115 S. Ct. at 1926. Thus, review of a district court decision to vacate or

confirm an arbitration award “should proceed like review of any other district court

decision . . . accepting findings of fact that are not ‘clearly erroneous’ but deciding

questions of law de novo.” First Options, 514 U.S. at 947-48, 115 S. Ct. at 1926.

¶48    The Court adopts First Options in part, noting that we should not apply “special”

standards of review, and correctly applies de novo review to the District Court’s

                                         22
conclusions of law in the present case. Opinion, ¶ 11. The Court does not explicitly

reject the abuse of discretion standard we have applied in other cases, however, and thus

we appear to be left in the circumstance specifically condemned by First Options—

applying an abuse of discretion standard in some cases, and de novo review in others.

The Court does not dispel the confusion surrounding our standards of review, and I

believe may increase it. I would clarify our case law to establish that when reviewing a

district court’s decision to confirm or vacate an arbitration award, application of an abuse

of discretion standard is inappropriate. Instead, we review the district court’s conclusions

of law de novo, and any necessary findings of fact for clear error.

¶49    It is important to be clear that the only findings of fact a district court may make

relate to one of the enumerated subsections of § 27-5-312(1), MCA. Moreover, as is

clear from the language of § 27-5-312(1)(a)-(f), MCA, any factual findings made by the

district court necessarily would be collateral to the underlying arbitration proceedings and

would not relate in any way to the merits of the arbitration award. For example, if it were

alleged that the award should be vacated because procured by corruption, fraud, or undue

means, § 27-5-312(1)(a), MCA, the district court would make factual findings regarding

these specific allegations which would be reviewed by this Court for clear error.

¶50    In summary, because this case involves review of both an arbitrator’s decision and

the decision of the district court, two standards of review are applicable.         Sections

27-5-311 and -312, MCA, clearly provide the standard to review the arbitrator’s decision.

Scrutiny of the award by the district court is extremely limited. If the award, on its face,

                                         23
represents a plausible interpretation of the contract, judicial inquiry ceases and the award

must be enforced. George Day Constr. Co. v. United Bhd. of Carpenters and Joiners,

Local 354, 722 F.2d 1471, 1477 (9th Cir. 1984). This remains so even if the basis of the

arbitrator’s decision contains erroneous factual findings and legal conclusions.      George

Day Constr. Co., 722 F.2d at 1477; Am. Postal Workers v. U.S. Postal Serv., 682 F.2d

1280, 1284 (9th Cir. 1982). As long as the arbitrator is “even arguably construing or

applying the contract and acting within the scope of his authority, that a court is

convinced he committed serious error does not suffice to overturn his decision.” Misco,

484 U.S. at 38, 108 S. Ct. at 371. Finally, when reviewing a district court’s decision to

either confirm or vacate an arbitration award, we should review factual findings

regarding one of the enumerated subsections for clear error and legal conclusions for

correctness.

¶51    While courts generally must defer to an arbitrator’s interpretation of a contract, a

limited exception exists where that interpretation is directly contrary to public policy, and

therefore unenforceable. W.R. Grace & Co. v. Local Union 759, Intl. Union of United

Rubber, 461 U.S. 757, 766, 103 S. Ct. 2177, 2183 (1983). An arbitrator’s award is the

contract of the parties, and thus, like any contract, it may not be enforced if it violates an

explicit public policy. W.R. Grace, 461 U.S. at 766, 103 S. Ct. at 2183. The Court

correctly observes that this exception only applies where the arbitrator’s award violates a

specific law or legal precedent. Opinion, ¶ 24. A court may not refuse to enforce an

arbitrator’s award simply because the court believes the award does not generally serve

                                          24
the public interest. Misco, 484 U.S. at 43, 108 S. Ct. at 373. Where an arbitrator has

awarded reinstatement of an employee, a court may not decline to enforce the award on

the grounds that the employee’s underlying conduct violated public policy or was not in

the public interest. Stead Motors, 886 F.2d at 1212. Instead, the court must find that a

specific law or legal precedent explicitly prohibits reinstatement of the employee. Stead

Motors, 886 F.2d at 1212-13.

¶52    In this case, the District Court found that “the ordering of Tubaugh’s reinstatement

violates public policy. The public policy in this case is the fitness for duty of police

officers and the corresponding safety of other officers and the general public.” I do not

wish to diminish these concerns, and indeed I am gravely concerned by Tubaugh’s

conduct. Nevertheless, neither the District Court nor the City point to any specific law or

precedent which bars the continued employment of an officer in Tubaugh’s position.

Section 45-5-204, MCA, states that a person convicted of the offense of mistreating

prisoners must be removed from employment, but Tubaugh has not been convicted of

that offense. No law would have prevented the City from continuing to employ Tubaugh

had it wished to do so; indeed, the arbitrator found that Police Chief Darren Raney “was

quite clear in the hearing that his objective was to retain Tubaugh,” until he received the

results of the fitness for duty examination.

¶53    While the fitness for duty of police officers is of significant public concern, no law

or legal precedent prohibits the continued employment of an officer based solely on a

questionable fitness evaluation. There is instead a well-defined administrative process

                                          25
for revoking the credentials of an officer who is determined to be unfit for duty. A

member of a city police department must meet minimum qualifying standards

promulgated by the Montana Public Safety Officer Standards and Training Council.

Section 7-32-4112, MCA. A person whose certification as a police officer has been

revoked or suspended by that Council may not act as a police officer.                Section

7-32-303(8), MCA. The Council considers complaints against public safety officers, and

may revoke an officer’s certification based on “a physical or mental condition that

substantially limits the person’s ability to perform the essential duties of a public safety

officer, or poses a direct threat to the health and safety of the public or fellow officers,”

among other grounds. Admin. R. M. 23.13.702(2)(b).

¶54    Had a complaint been filed with the Council, and Tubaugh’s certification revoked

based on the finding that he was not fit for duty due to or other aspects of his conduct, his

continued employment would then violate an explicit, well-defined public policy, and the

court could not enforce an award ordering his reinstatement. See Misco, 484 U.S. at 43,

108 S. Ct. at 373. On the record before us, it appears that those steps were not taken, and

that Tubaugh remained certified as a police officer.

¶55    Because Tubaugh was not convicted of mistreating prisoners, and because his

certification as a police officer was not revoked by the Montana Public Safety Officer

Standards and Training Council, his reinstatement as a police officer did not violate the

explicit public policies defined by §§ 45-5-204 and 7-32-303(8), MCA.              Although

Tubaugh’s conduct may offend general considerations of public interests, the arbitrator’s

                                         26
decision to order his reinstatement was not illegal. The public policy exception to

enforcement of arbitration awards is narrow, Stead Motors, 886 F.2d at 1210, and its

requirements were not met in this case. I therefore concur with the Court’s conclusion

that the District Court erred when it found that the award violated public policy.

Opinion, ¶ 28. However, I believe the District Court’s error was in failing to correctly

identify an explicit public policy that was violated by Tubaugh’s reinstatement. The

Court’s statement that the District Court “impermissibly substituted the Arbitrator’s

factual determinations with its own” seems out of place in this analysis. Opinion, ¶ 28.

¶56    I agree that the arbitrator’s award was based on her interpretation of the collective

bargaining agreement and did not violate an explicit and well-defined public policy. I

further agree that the arbitrator had authority to determine the credibility of the fitness for

duty evaluation, and in deference to the broad latitude afforded the arbitrator under the

collective bargaining agreement, I agree that she was authorized to fashion a remedy that

included removal of the fitness for duty examination from Tubaugh’s personnel file.

Although I believe the Court should go further in its discussion of the standard of review

applicable in this case, I concur in the decision to reverse the order of the District Court

and remand with instructions to confirm the arbitrator’s award.

¶57    I concur.



                                                   /S/ LAURIE McKINNON




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