Unpublished Disposition, 862 F.2d 875 (9th Cir. 1988)

CARGO DEVELOPMENT GROUP; Continental Airlines, Inc.,Plaintiffs-Appellees,v.Dennis ABERNATHY, Defendant-Appellant.

No. 87-6248.

United States Court of Appeals, Ninth Circuit.

Submitted^*  Oct. 6, 1988.Decided Nov. 14, 1988.

Before NELSON and BEEZER, Circuit Judges, and ALFREDO C. MARQUEZ,^**  District Judge.

MEMORANDUM^*** 

Dennis Abernathy appeals an order granting a petition to confirm an arbitration award. We review de novo. Mediterranean Enters., Inc. v. Ssangyang Corp., 708 F.2d 1458, 1462-63 (9th Cir. 1983). We reverse and remand with instructions to dismiss.

The Federal Arbitration Act specifically excludes "contracts of employment of seamen, railroad employees, or any other class of worker engaged in foreign or interstate commerce." 9 U.S.C. § 1 (1982); see Southland Corp. v. Keating, 465 U.S. 1, 11 n. 5 (1984). This language has been narrowed to exclude employment contracts of workers in the transportation industry. Miller Brewing Co. v. Brewery Workers Local Union No. 9, 739 F.2d 1159, 1162 (7th Cir. 1984), cert. denied, 469 U.S. 1160 (1985). Abernathy's contract is an employment contract in the transportation industry. When arbitration disputes are not governed by the Federal Arbitration Act, state law governs. Bernhardt v. Polygraphic Co. of America, 350 U.S. 198, 203 (1956).

Cargo Development Group (CDG) asks for declaratory relief to enforce an "arbitration award" rendered by the president of CDG. In order for such relief to be provided, the parties must have contractually agreed to arbitrate the dispute. International Union of Petroleum and Indus. Workers v. Western Indus. Maintenance, Inc., 707 F.2d 425, 429 (9th Cir. 1983). Furthermore, the parties must have contractually agreed that the arbitrator's decision will be binding on the parties and that no further actions may be taken by either of them. MacDonald v. San Diego State Univ., 111 Cal. App. 3d 67, 77, 168 Cal. Rptr. 392, 398 (1980).

Determining what the parties agreed to is a matter of interpreting the contract that exists between them. Teamsters Local 315 v. Union Oil Co., No. 87-2449, slip op. at 10789 (9th Cir. Sept. 2, 1988). California has clear rules regarding the interpretation of putative arbitration clauses in adhesion contracts. The contract between Abernathy and CDG is an adhesion contract. The contract was not negotiated but instead consists of a standardized form that Abernathy merely signed. In particular, the Grievance Procedure was part of a preprinted handbook incorporated into the contract by reference. CDG argues that the contract is not one of adhesion because if Abernathy did not like it he could have refused employment with CDG. That, however, is the definition of an adhesion contract. "The term [adhesion contract] signifies a standardized contract, which, imposed and drafted by the party of superior bargaining strength, relegates to the subscribing party only the opportunity to adhere to the contract or reject it." Graham v. Scissor-Tail, Inc., 28 Cal. 3d 807, 817, 171 Cal. Rptr. 604, 610 (1981); accord Perdue v. Crocker Nat'l Bank, 38 Cal. 3d 913, 924-25, 216 Cal. Rptr. 345, 353, 702 P.2d 503 (1985), appeal dismissed, 475 U.S. 1001 (1986).

The remaining arguments--that Abernathy submitted to the procedure and that Abernathy was socially familiar with some midlevel managers at CDG--have nothing to do with the nature of the contract. See Parr v. Superior Court, 139 Cal. App. 3d 440, 444, 188 Cal. Rptr. 801, 803 (1983) ("The question is whether [the weaker party] is free to negotiate and alter the printed terms of the proffered agreement.")

Ambiguous clauses in adhesion contracts are interpreted against the drafter of the contract. Scissor-Tail, 28 Cal. 3d at 819 n. 16, 171 Cal. Rptr. at 611 n. 16. "A contract is ambiguous when, on its face, it is capable of two different reasonable interpretations." United Teachers of Oakland, Local 771 v. Oakland Unified School Dist., 75 Cal. App. 3d 322, 330, 142 Cal. Rptr. 105, 110 (1977); see Castenada v. Dura-Vent Corp., 648 F.2d 612, 619 (9th Cir. 1981). CDG claims that the Grievance Procedure constitutes an arbitration agreement incorporated into the employment contract between Abernathy and CDG. Therefore, we must determine whether Abernathy's reading is reasonable. CDG's arguments concerning nomenclature, formality and bias fall wide of the mark. The question is: without any of the familiar hallmarks of arbitration is it reasonable to interpret the Grievance Procedure as an internal grievance mechanism rather than arbitration?

CDG quotes from Painters Dist. Council No. 33 v. Moen, 128 Cal. App. 3d 1032, 1036-37, 181 Cal. Rptr. 17, 18-19 (1982), but omits an instructive passage: the court stated that " [m]ore important is the nature and intended effect of the proceeding" and continued with a lengthy description of the procedure at issue, which included face-to-face meetings and a neutral, third-party arbitrator. Id. (emphasis added).

The CDG Grievance Procedure had none of these indicia of arbitration, and can reasonably be read as providing an internal grievance mechanism. Because there was not an agreement to arbitrate, no arbitration has occurred and declaratory relief cannot be granted. See Chan v. Drexel Burnham Lambert, Inc., 178 Cal. App. 3d 632, 645, 223 Cal. Rptr. 838, 846 (1986). Furthermore, when a court determines that a party did not enter an arbitration agreement, California law dictates that a petition for enforcement be dismissed. Cal.Civ.Proc.Code Sec. 1287.2.

CDG makes a special argument that the "final and binding" language of the Grievance Procedure is unambiguous. Ambiguity must be determined in the context of the contract as a whole. Producers Dairy Delivery Co. v. Sentry Ins. Co., 41 Cal. 3d 903, 916, 226 Cal. Rptr. 558, 566, 718 P.2d 920 (1986). Abernathy reads the phrase to mean that the decision by the president of CDG is the last decision of the company and the company will stand by it.

Whether in a legal sense arbitration has to be fair is irrelevant to evaluating Abernathy's reading. There is a general perception that such decisionmaking should be fair. See Scissor-Tail, 28 Cal. 3d at 823-25, 171 Cal. Rptr. at 614-15 (discussing "natural justice," impartiality, and "minimum levels of integrity" concepts that accompany theory of arbitration). It is reasonable to interpret "final and binding" language following a procedure that consisted of two letters to the company that had fired someone as merely crystallizing the relationship between the two parties rather than as precluding action in a neutral forum. The mere fact that a binding arbitration agreement usually includes the words "final and binding" does not transform every agreement containing those words into binding arbitration.

CDG argues that Abernathy consented to arbitrate his claim. The argument is twofold: Abernathy voluntarily undertook the procedure and Abernathy characterized it as arbitration.

Voluntary submission to binding arbitration does subject a party to the results of the arbitration. Fortune, Alsweet and Eldridge, Inc. v. Daniel, 724 F.2d 1355, 1357 (9th Cir. 1983); Ficek v. Southern Pacific Co., 338 F.2d 655, 656-7 (9th Cir. 1964), cert. denied, 380 U.S. 988 (1965). In the above cases, however, the bound parties understood they were submitting their disputes to arbitration. Thus, CDG's second argument is pivotal.

The sum of CDG's evidence that Abernathy understood the Grievance Procedure to be binding arbitration is that Abernathy stated in a deposition that CDG's upper management had promised to arbitrate, that Abernathy characterized his last letter to CDG as a final appeal, and that Abernathy's state claims referred to CDG's promises to be fair. The latter two are easily dismissed. The first may evidence some expectation on Abernathy's part that arbitration would occur, but CDG does not link this to the Grievance Procedure outlined in the employee handbook. CDG's evidence tends to show that Abernathy expected to be treated fairly rather than that he believed the Grievance Procedure to constitute binding arbitration.

Finally, appellee and appellant each raise the issue of whether Abernathy was governed by CDG's or Continental's contract. This argument is spurious. Abernathy testified that he considered himself an employee of CDG and that he had read CDG's Employee Handbook. Any confusion over why Abernathy was fired and how he was to combat his firing is more relevant to whether there actually was an agreement to arbitrate. See Chan, 178 Cal. App. 3d at 645, 223 Cal. Rptr. at 846 ("For an arbitration provision to be incorporated into a contract by reference, the reference must be clear and unequivocal.").

CONCLUSION

Abernathy's employment contract is excluded from the Federal Arbitration Act. As an adhesion contract, under California law ambiguous clauses in it should be interpreted against the stronger party. The Grievance Procedure is reasonably read as an internal grievance mechanism. Without an agreement to arbitrate, a petition to confirm cannot be granted. This case is remanded with directions to dismiss pursuant to section 1287.2 of the California Code of Civil Procedure.

REVERSED and REMANDED.