Appeal from a judgment of the District Court of the Southern District of New York (Louis L. Stanton, Judge) holding that an arbitration decision was to be given collateral estoppel effect and on that basis granting summary judgment in favor of defendants on the RICO, fraud and breach of fiduciary duty count of plaintiffs' complaint. 688 F. Supp. 903 (S.D.N.Y. 1988).
Winter and Miner, Circuit Judges, and Munson, District Judge.*fn*
This case presents us with two issues. The first is whether a decision arising from a statutorily imposed arbitration proceeding can be the basis for collateral estoppel in a subsequent federal court proceeding. If that is permissible, then we must decide whether the use of collateral estoppel violates plaintiffs' seventh amendment right to a jury trial.
At stake in the litigation before us are severance benefits. Plaintiffs are former non-union employees of the defendant Eastern Weighing and Inspection Bureau ("EWIB"). The other defendants in this action are the Traffic Executive Association Eastern Railroads ("TEA-ER") and the Eastern Railroad Association ("ERA"). The relationship among the three defendants is unclear. On the one hand, plaintiffs state that the TEA-ER operated as part of and for the ERA and that the EWIB fell under the TEA-ER. Defendants, on the other hand, state that the TEA-ER and ERA are parent and sister organizations of the EWIB. However, they do not specify which is the parent and which is the sister.
Plaintiffs lost their jobs when one of the defendants--according to plaintiffs it was the TEA-ER, while defendants identify the ERA--eliminated the EWIB. As a result, plaintiffs started this class action claiming entitlement to benefits under § 219(g) of the Staggers Rail Act of 1980 ("Staggers Act").*fn1 49 U.S.C. § 10706 note; Pub. L. No. 96-448, 94 Stat. 1895, 1928. The § 219(g) benefits (also referred to as "New York Dock conditions")*fn2 would be vastly more remunerative than the severance payments offered the plaintiffs.*fn3 The complaint contained four counts. Count I was the Staggers Act claim; Counts II through IV alleged fraud, breach of fiduciary duty, and violation of the Racketeering Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq.
Following commencement of this action, defendants moved to compel arbitration on the Staggers Act claim. The employees agreed to submit that count to binding arbitration on a classwide basis. Both parties set up informal procedural rules to govern the arbitration proceeding. They agreed to presentation of oral or written testimony, to extensive briefing and did, in fact, engage in informal discovery. At the hearing the plaintiffs cross-examined the defendants' witnesses who testified orally, and could have, if they had chosen, called in and cross-examined those witnesses who submitted their testimony on paper. The agreement acknowledged that plaintiffs would not waive their right to have the district court decide Counts II through IV.
The arbitration board ruled two to one that the plaintiffs were not entitled to Staggers Act benefits. To qualify for the Staggers Act entitlement the plaintiffs would have had to be "employees of [a] rate bureau." 49 U.S.C. § 10706 note. Central to the decision, and this appeal, was the arbitration board's express finding that the plaintiffs were not rate bureau employees.
The court below affirmed the arbitrator's decision. 688 F. Supp. 903 (S.D.N.Y. 1988).*fn4 It denied the plaintiffs' motion for a trial de novo on Count I. Then the court utilized the doctrine of collateral estoppel to grant summary judgment in favor of the defendants on Counts II through IV. The district court held--and neither party disputes--that the only way plaintiffs could prevail on Counts II through IV would be to prove that they were rate bureau employees as defined by the Staggers Act. The court below reasoned that since it endorsed the arbitration decision which determined plaintiffs were not rate bureau employees, it was estopped from deciding whether the plaintiffs' status, for the purposes of Counts II-IV, was that of rate bureau employees.
On appeal, plaintiffs do not challenge the district court's refusal to grant a trial de novo on Count I. They do challenge the decision to grant summary judgment in favor of the defendants on Counts II through IV.
We must first consider whether collateral estoppel is applicable to the finding made in the arbitration decision. Although they have different positions on when collateral estoppel is applicable, both sides recognize that the findings of arbitration boards can serve ...