                                                                                            March 3 2015


                                          DA 14-0333
                                                                                          Case Number: DA 14-0333

              IN THE SUPREME COURT OF THE STATE OF MONTANA
                                          2015 MT 69



MONTANA PUBLIC EMPLOYEES’ ASSOCIATION,
(MPEA), a not for profit corporation,

               Plaintiff, Counterclaim Defendant, and Appellant,

         v.

CITY OF BOZEMAN, MONTANA,

               Defendant, Counterclaimant, and Appellee.


APPEAL FROM:           District Court of the Eighteenth Judicial District,
                       In and For the County of Gallatin, Cause No. DV 13-232A
                       Honorable Holly Brown, Presiding Judge


COUNSEL OF RECORD:

                For Appellant:

                       Carter N. Picotte, Attorney at Law, Helena, Montana

                For Appellee:

                       Jason S. Ritchie; Michael P. Manning; Michelle M. Sullivan, Holland &
                       Hart LLP, Billings, Montana



                                                   Submitted on Briefs: December 31, 2014
                                                              Decided: March 3, 2015


Filed:

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

¶1     The Montana Public Employees’ Association (MPEA) filed this action in the

Eighteenth Judicial District Court, Gallatin County, seeking a declaratory judgment

requiring the City of Bozeman to submit to arbitration. Concluding that the dispute

between MPEA and the City is not arbitrable, the District Court entered summary

judgment in the City’s favor. We restate the issue on appeal as whether the District Court

correctly awarded summary judgment to the City and denied summary judgment to

MPEA based on the procedural arbitrability of the dispute. We conclude that the District

Court improperly resolved a question of procedural arbitrability. Because we further

conclude that the dispute is substantively arbitrable, we vacate and remand for entry of

summary judgment in MPEA’s favor.

                 PROCEDURAL AND FACTUAL BACKGROUND

¶2     In 2009, Robert Chase was a building inspector for the City and a union member

of MPEA. In March of that year, the City dismissed Chase. Chase claims that the

dismissal was improper. The collective bargaining agreement between MPEA and the

City (the Agreement) provides a procedure for addressing employee grievances.

Following the first three steps of this procedure, Chase and MPEA successively

submitted Chase’s grievance to a supervisor, a management representative, and the City

Manager—all of whom denied the grievance.

¶3     The grievance procedure’s fourth step calls for notifying the City Manager of the

decision to arbitrate the grievance and, within ten days of that notice, “call[ing] upon the

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Montana Board of Personnel Appeals for a list of seven potential arbitrators” from which

the parties may choose their arbitrator. The Agreement further states, “A grievance not

filed or advanced by the grievant within the time limits provided shall be deemed

permanently withdrawn as having been settled on the basis of the decision most recently

received.” MPEA gave timely notice to the City Manager of its decision to arbitrate

Chase’s grievance, but then failed to timely request a list of potential arbitrators from the

Montana Board of Personnel Appeals.

¶4     In June 2010, over a year after the dispute first arose, MPEA contacted the City to

proceed with arbitration. The City declined to cooperate due to MPEA’s failure to call

upon the Montana Board of Personnel Appeals in a timely manner. In April 2013—over

four years after the dispute first arose—MPEA filed this lawsuit, seeking a declaratory

judgment that the City must participate in arbitration. The next month, the City asserted

a counterclaim for declaratory relief, requesting that the District Court declare that “there

remains no grievance to arbitrate . . . because it was not pursued pursuant to the terms of

the [Agreement].” In 2014, both the City and MPEA requested summary judgment.

Concluding that Chase’s grievance did not survive MPEA’s failure to follow the

Agreement’s time limits, and that MPEA waived any right to arbitrate through its

four-year delay, the District Court granted summary judgment and issued declaratory

relief to the City. MPEA appeals.




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                              STANDARD OF REVIEW

¶5     We apply de novo review to an entry of summary judgment, using the same M. R.

Civ. P. 56 standards as a district court. Estate of Hendrick v. Lamarch, 2014 MT 118,

¶ 7, 375 Mont. 74, 324 P.3d 1202. Summary judgment is appropriate if the moving party

shows the absence of a genuine issue of material fact and proves that it is entitled to

judgment as a matter of law. M. R. Civ. P. 56(c)(3); Hendrick, ¶ 7. Where, as here, the

parties do not dispute the material facts, we determine whether either party is entitled to

judgment under the law. See Clark Fork Coal. v. Mont. Dep’t of Env’t Quality, 2008 MT

407, ¶ 19, 347 Mont. 197, 197 P.3d 482.

                                     DISCUSSION

¶6     An arbitration agreement is a matter of contract law. Section 27-5-114, MCA;

Kelker v. Geneva-Roth Ventures, Inc., 2013 MT 62, ¶ 11, 369 Mont. 254, 303 P.3d 777.

The role of a court interpreting a contract is to effectuate the mutual intentions of the

parties as reflected in the document’s clear and explicit language. Sections 28-3-301,

-301, MCA; A.M. Welles, Inc. v. Mont. Materials, Inc., 2015 MT 38, ¶ 8, ___ Mont. ___,

___ P.3d ___. When parties enter an agreement to arbitrate, they manifest the intention

to have an arbitrator and not a judge resolve matters that fall within the terms of the

agreement. See, e.g., United Steelworkers of Am. v. Am. Mfg. Co., 363 U.S. 564, 568, 80

S. Ct. 1343, 1346 (1960) (explaining that a court has “no business” replacing what the

parties bargained for—an arbitrator). The distinction between substantive arbitrability




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and procedural arbitrability effectuates that intention. See John Wiley & Sons, Inc. v.

Livingston, 376 U.S. 543, 557-59, 84 S. Ct. 909, 918-19 (1964).

¶7     Questions of substantive arbitrability concern whether a valid arbitration

agreement exists and whether the subject matter of the dispute falls within the arbitration

agreement’s terms. Howsam v. Dean Witter Reynolds, 537 U.S. 79, 84, 123 S. Ct. 588,

592 (2002). A court has authority to decide an issue of substantive arbitrability. AT&T

Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 649, 106 S. Ct. 1415, 1418

(1986).

¶8     “Once it is determined . . . that the parties are obligated to submit the subject

matter of the dispute to arbitration, procedural questions which grow out of the dispute

and bear on its final disposition should be left to the arbitrator.” John Wiley, 376 U.S. at

557, 84 S. Ct. at 918.        Questions of procedural arbitrability include “whether

prerequisites such as time limits, notice, laches, estoppel, and other conditions precedent

to an obligation to arbitrate have been met . . . .” Howsam, 537 U.S. at 85, 123 S. Ct. at

592 (emphasis removed) (citation omitted).         Unless the parties expressly provide

otherwise in their agreement, only an arbitrator, and not a court, has authority to decide

an issue of procedural arbitrability. Howsam, 537 U.S. at 85, 123 S. Ct. at 592-93.

¶9     We have adopted the distinction between procedural and substantive arbitrability

in Montana. In Int’l Bhd. of Elec. Workers, AFL-CIO, Local 1638 v. Montana Power

Co., 280 Mont. 55, 929 P.2d 839 (1996) (IBEW), an employer claiming that an employee

withdrew or waived his grievance sought a court order preventing arbitration. IBEW, 280

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Mont. at 56, 59, 929 P.2d at 840, 842. We noted that a “substantive challenge to

arbitrability is one where a grievance is not within the scope of the grievance and

arbitration provisions of the collective bargaining agreement between the parties,”

whereas “a procedural challenge is presented when the arbitrability of an indisputably

arbitrable issue is impeded in some way.” IBEW, 280 Mont. at 60, 929 P.2d at 842-43

(citation omitted). Because the withdrawal and waiver issues were “procedural, not

substantive,” we determined that it “should be resolved by the arbitrator, not [by] the

court,” and reversed the District Court’s order preventing further arbitration. IBEW, 280

Mont. at 61, 929 P.2d at 843.

¶10    Here, the District Court concluded that MPEA’s failure to follow the time limits

for requesting a list of arbitrators from the Montana Board of Personnel Appeals meant

that Chase’s grievance was no longer arbitrable. On appeal, the City similarly argues that

it has no duty to arbitrate due to MPEA’s failure to follow time limits and conditions

precedent to arbitration.   But an arbitration agreement’s time limits and conditions

precedent to arbitration are procedures that bear on arbitrability. Whether a dispute

remains arbitrable despite the failure to follow these procedures is a classic question of

procedural arbitrability that is for an arbitrator and not for a court to decide. Howsam,

537 U.S. at 85, 123 S. Ct. at 592-93.

¶11    The City therefore attempts to recast its argument as one of substantive

arbitrability. The City argues that there is no dispute to arbitrate in this case because the




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Agreement states that a “grievance not filed or advanced by the grievant within the time

limits provided shall be deemed permanently withdrawn as having been settled.”

¶12    In John Wiley, the Supreme Court addressed an arbitration agreement with similar

language. The contract in John Wiley stated that the “failure by either party to file the

grievance with this time limitation shall be construed and be deemed to be abandonment

of the grievance.” John Wiley, 376 U.S. at 556 n. 11, 84 S. Ct. at 917 n. 11. The

Supreme Court held that questions concerning the contractual prerequisites that

conditioned the parties’ duties to arbitrate were questions of procedural arbitrability to be

decided by an arbitrator. John Wiley, 376 U.S. at 557-59, 84 S. Ct. at 918-19.

¶13    There is no material difference between the agreement construed in John Wiley

and the grievance provision at issue in this case. Replacing “abandon[ed]” (as used in

John Wiley) with “withdrawn” (as used in this case) does not change what would

otherwise be a question of procedural arbitrability into a question of substantive

arbitrability. As the Supreme Court observed, “[I]t best accords with the usual purposes

of an arbitration clause . . . to regard procedural disagreements not as separate disputes

but as aspects of the dispute which called the grievance procedures into play.” John

Wiley, 376 U.S. at 559, 84 S. Ct. at 919. Absent clear language showing that parties to an

arbitration agreement intend questions of procedural arbitrability to be determined by a

judge, the role of a court is to leave these questions to an arbitrator.

¶14    The City also argues that the District Court did not have jurisdiction to order the

parties to arbitrate this dispute because there was no longer a live dispute to arbitrate.

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But § 27-5-115(1), MCA, provides that a party to an arbitration agreement can move to

compel arbitration and that a district court shall order arbitration if the dispute is

arbitrable and the opposing party has refused to arbitrate.            We have interpreted

§ 27-5-115(1) to require that a district court determine whether the dispute is

substantively arbitrable, but we leave procedural arbitrability questions to the arbitrator.

See Greater Missoula Area Fed’n of Early Childhood Educators & Related Pers. v. Child

Start, Inc., 2009 MT 362, ¶¶ 26-30, 353 Mont. 201, 219 P.3d 881.                “[C]ourts are

empowered to resolve disputes that solely involve whether a particular claim should be

resolved in court or arbitration.”     Greater Missoula, ¶ 26 (quoting Klay v. United

Healthgroup, Inc., 376 F.3d 1092, 1109 (11th Cir. 2004)). The District Court was “in a

position to grant effective relief” by either granting or denying MPEA’s request that the

City be required to submit to arbitration. Greater Missoula, ¶ 29. MPEA’s claim is

accordingly justiciable.

¶15    The District Court also determined that MPEA waived the right to arbitrate

through its failure to pursue that right diligently. A party asserting that another party has

waived the right to arbitrate bears the burden of demonstrating (1) the other party’s

knowledge of the right to arbitrate, (2) acts by the other party that are inconsistent with

the right to arbitrate, and (3) resulting prejudice. Downey v. Christensen, 251 Mont. 386,

389, 825 P.2d 557, 559 (1992). On appeal, the City contends that it met this burden and

that waiver of the right to arbitrate is a question of substantive arbitrability for a judge to

determine.

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¶16    In IBEW, an employer argued that an employee’s signature on a contract

withdrawing the employee’s grievance waived the union’s right to arbitrate that

grievance. IBEW, 280 Mont. at 59, 929 P.2d at 842. We determined that “whether the

grievance brought by the Union on [the employee’s] behalf can be waived through a

written release” to which the union was not a party was a question of procedural

arbitrability for an arbitrator to determine in the first instance. IBEW, 280 Mont. at

59-61, 929 P.2d at 842-43.

¶17    By contrast, we have evaluated on the merits claims raising a party’s waiver of

arbitration where the party participated in judicial proceedings in the same dispute. For

example, in Holm-Sutherland Co., Inc. v. Town of Shelby, 1999 MT 150, 295 Mont. 65,

982 P.2d 1053—in which the party seeking arbitration had actively participated in

litigation, demanded a jury trial, and did not seek arbitration until shortly before trial—

we found waiver instead of leaving that decision to an arbitrator. Holm-Sutherland,

¶¶ 26-34. And in Downey, we concluded that a party who participated in litigation did

not waive its right to seek arbitration where, from the outset, the party asserted its right to

arbitration. Downey, 251 Mont. at 391-92, 825 P.2d at 560-61 (“Answering on the

merits, asserting a counterclaim, and participating in discovery, without more, is

insufficient to constitute waiver.”). See also Stewart v. Covill & Basham Constr., LLC,

2003 MT 220, ¶ 13, 317 Mont. 153, 75 P.3d 1276 (filing of construction lien “was not to

advance litigation, but rather to protect [the party’s] statutorily created security interest in

the property,” and participation in mediation did not constitute waiver, where party

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asserted intent to enforce arbitration agreement if mediation failed); Gordon v. Kuzara,

2012 MT 206, ¶¶ 25-27, 366 Mont. 243, 286 P.3d 895 (participation in litigation

concerning arbitration of previous petition for judicial dissolution did not waive party’s

right to seek arbitration on a different matter).

¶18    The City’s waiver argument rests on MPEA’s four-year delay in invoking the

Agreement and pursuing arbitration. While we concluded that Holm-Sutherland acted

inconsistently with its contractual right to arbitrate by “embrac[ing] and engag[ing] in

litigation for a lengthy period of time,” Holm-Sutherland, ¶ 26, MPEA did not act

inconsistently with its right to arbitrate in this case—it just did not act. MPEA never

litigated this dispute except to seek to compel arbitration. The City’s allegations of

undue delay fall within the Supreme Court’s presumption that “allegations of waiver”

through “laches, estoppel, and other conditions precedent to an obligation to arbitrate” are

questions of procedural arbitrability that an arbitrator should decide. Howsam, 537 U.S.

at 84-85, 123 S. Ct. at 592. We conclude that the City’s waiver argument is an issue for

an arbitrator to determine.

¶19    What remains is the question whether this dispute is substantively arbitrable. The

Agreement lays out rules related to discharging employees. The Agreement’s arbitration

clause is intended to address “all disputes involving the interpretation, application or

alleged violation of a specific provision of” the Agreement. There appears to be no

dispute that the dismissal of an employee is a subject matter that the parties agreed to

arbitrate.   Nor does there appear to be a dispute about the validity of the parties’

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agreement to arbitrate. Without evidence to the contrary, the dispute in this case is

substantively arbitrable. We leave all other issues to the arbitrator.

                                      CONCLUSION

¶20    The District Court’s order granting summary judgment to the City is reversed. We

remand for the District Court to enter summary judgment in MPEA’s favor and to issue

an order compelling the City to arbitrate the remainder of this dispute—including any

questions of procedural arbitrability that it wishes to raise.



                                                   /S/ BETH BAKER

We concur:

/S/ MIKE McGRATH
/S/ PATRICIA COTTER
/S/ JAMES JEREMIAH SHEA
/S/ JIM RICE




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