Board of Education v. Prince George's County Educators' Ass'n

ELDRIDGE, Judge. This case concerns the standard of review applicable to judicial consideration of a petition to vacate a public-sector labor arbitration award under Maryland Code (1978, 1985 ⁸⁸ Repl.Vol.), § 6-408 of the Education Article. The issue in this case is whether the circuit court erred in refusing to vacate the arbitration award. I. Prince George’s County Educators’ Association is the exclusive bargaining representative for certificated teachers in the Prince George’s County public school system.

In September 1981, the Association and the Prince George’s County Board of Education entered into a collective bargaining agreement effective from August 1, 1981, until August 31, 1983, which established wages, hours, and working conditions for all certificated professional employees of the Board. The agreement set forth a grievance procedure, culminating in arbitration. The agreement was authorized by § 6-408(a) of the Education Article of the Code. In 1982, the Association filed a formal grievance over a dispute with the Board involving the driver education program.

The Association alleged that changes in the driver education program pursuant to a Board resolution violated the collective bargaining agreement then in effect by unilaterally reducing the rank and pay of driver education teachers without cause. The facts giving rise to the grievance can be summarized as follows. Prior to the 1979-1980 school year, § 7-412 of the Education Article required each county board of education to offer driver education instruction. Accordingly, the Prince George’s County Board of Education offered driver education during the regular school day, in the evenings during the school year, and in the summer.

The program was free for students of the Prince George’s County school system; non-students were required to pay a fee. The Board received payment from the State Department of Transportation for each student who completed the course. See Code (1977), § 16-508 of the Transportation Article. ⁸⁹ For regular school day instruction, driver education teachers were paid according to a wage scale that was negotiated between the Board and the Association as part of the collective bargaining agreement. This wage scale, applicable to all teachers, made no distinctions based on subject matter taught.

The collective bargaining agreement provided that all teachers engaged in after-school teaching were to be paid at an hourly rate of Visoo of their regular annual salary while adult education teachers were to be paid at a flat hourly rate. Since 1974, driver education teachers have been part of the after-school program and paid accordingly. 1 All summer school teachers, including driver education teachers, were also paid at an hourly rate of Visoo of their regular annual salary. The collective bargaining agreements between the parties have never isolated driver education teachers as a specific category of personnel insofar as salary schedules are concerned. The salary schedules distinguish only between regular school day, after-school, adult education and summer instruction.

In 1979 the Maryland General Assembly amended § 7-412(a) of the Education Article to permit, but no longer require, county boards of education to offer driver education instruction. Fiscal considerations prompted the Prince George’s County Board of Education to pass a resolution in April 1982 eliminating driver education from its regular high school curriculum. In order to meet the demand for driver education, however, the Board resolved to establish a “Driver Education School to be operated separate and apart from all other programs of instruction mandated by law____” The Driver Education School was authorized to provide instruction when school was not in session, i.e., after school and during the summer. The ⁹⁰ resolution provided that the Driver Education School was “to be funded strictly from tuition charged to the students enrolling therein and the monies received through the Driver Education Account of the Transportation Trust Fund pursuant to the provisions of Md.Ann.Code, Transportation Article § 16-508(b).” The Board resolved that the Driver Education School was “a separate and distinct educational component of the Board____” The driver education program under this new system became operational in the summer of 1982.

At the same time the Board also established a new pay rate for driver education teachers that was significantly less than the hourly rate of Visoo of the regular annual salary which had previously been paid. The new rates were $8.50 per hour for “laboratory” and behind-the-wheel instruction and $12.50 per hour for classroom instruction. Several driver education teachers filed a grievance, which the Association ultimately took to arbitration. The grievance requested that the Board return the driver education teachers to their previous rate of pay.

An arbitrator from the American Arbitration Association denied the grievance in an opinion and award dated April 30, 1983. The arbitrator found that the Board’s practice since 1974 of paying driver education teachers at the hourly rate of Visoo of their regular salary “was a fixed practice consistently followed and became a part of the parties’ Agreement, notwithstanding the failure to specifically incorporate that condition of employment in the written collective bargaining agreement.” The arbitrator further found, however, that “the Driver Education School was a separate entity from the Board of Education because it had its own budget and its own structure and the intent of the [Board] ... was to establish a separate entity.” Additionally, the arbitrator found that the Driver Education School “performed the same functions, in the same manner, at essentially the same locations, with the same overall supervisor, and with a majority of the same employees” as the old program. The arbitrator applied the “successorship doctrine,” a principle ⁹¹ of labor law, to hold that the Driver Education School was not bound by the terms of the collective bargaining agreement between the Association and the Board. See NLRB v. Burns International Security Services, Inc., 406 U.S. 272 , 92 S.Ct. 1571 , 32 L.Ed.2d 61 (1972).

Therefore, according to the arbitrator, the Driver Education School could rightfully establish different compensation for the teachers which it hired. The Association filed a petition in the Circuit Court for Prince George’s County, “pursuant to Section 3-201 et seq., Cts. & Jud.Proc. Article of the Annotated Code of Maryland (1980), commonly known as the Maryland Uniform Arbitration Act, and pursuant to Maryland Rule E 2.” The Association sought to vacate the arbitration award, asserting that “the Opinion and Award of the Arbitrator is completely irrational and, as such, exceeds the Arbitrator’s power and was procured by undue means.” Both sides filed motions for summary judgment. In the accompanying memoranda, each side took the position that the standards set forth in the Maryland Uniform Arbitration Act, Code (1974, 1984 Repl.Vol.), § 3-224 of the Courts and Judicial Proceedings Article, controlled and furnished the substantive grounds for vacating the arbitration award.

Section 3-224 provides in relevant part as follows: “(b) Grounds.—The court shall vacate an award if: (1) An award was procured by corruption, fraud, or other undue means; (2) There was evident partiality by an arbitrator appointed as a neutral, corruption in any arbitrator, or misconduct prejudicing the rights of any party; (3) The arbitrators exceeded their powers; (4) The arbitrators refused to postpone the hearing upon sufficient cause being shown for the postponement, refused to hear evidence material to the controversy, or otherwise so conducted the hearing, contrary to the provisions of § 3-213, as to prejudice substantially the rights of a party; or ⁹² (5) There was no arbitration agreement as described in § 3-206, the issue was not adversely determined in proceedings under § 3-208, and the party did not participate in the arbitration hearing without raising the objection. (c) When award not to be vacated.—The court shall not vacate the award or refuse to confirm the award on the ground that a court of law or equity could not or would not grant the same relief.” The Association maintained that the arbitrator’s finding that the Driver Education School was a separate entity from the Board was a “gross mistake,” that the Board was the “sole employer,” and that the decision was “completely irrational.” The Association asserted that subsections (b)(1) and (b)(3) of § 3-224, relating to awards procured by undue means and awards in excess of the arbitrator’s powers, authorized the circuit court to vacate the award. After a hearing, the circuit court rendered an oral opinion holding that the award was not procured by “undue means” and that the arbitrator did not exceed his powers in concluding that the Driver Education School “was an independent organization, and that the then Driver Education instructors were under the employ of the successor employer.” Thereafter, judgment was entered granting the Board’s motion for summary judgment. Upon the Association’s appeal, the Court of Special Appeals reversed, deciding that the award should have been vacated.

P.G. Co. Educators’ Ass’n v. Bd. of Educ., 61 Md.App. 249 , 486 A.2d 228 (1985). Like the parties and the circuit court, the Court of Special Appeals took the position that § 3-224(b) of the Maryland Uniform Arbitration Act controlled and delineated the grounds for vacating this award. 61 Md.App. at 253, 486 A.2d 228 . The appellate court referred to its earlier opinion in O-S Corp. v. Samuel A. Kroll, Inc., 29 Md.App. 406 , 348 A.2d 870 (1975), cert. denied, 277 Md. 740 (1976), as establishing the principle that an arbitration award which is “completely irrational” is in excess of the arbitrator’s powers within the meaning of § 3-224(b)(3) and is procured by “undue means” within the ⁹³ meaning of § 3-224(b)(l). See 61 Md.App. at 253-254, 486 A.2d 228 .

The Court of Special Appeals in the instant case went onto hold “that the ‘complete irrationality’ standard [of Kroll ] is flexible enough to allow reversal of an arbitrator’s decision where, as here, the arbitrator draws erroneous factual conclusions which form the sole basis for his award.” Id. at 255, 486 A.2d 228 . 2 The Court of Special Appeals went on to explain why the award was “completely irrational” (id. at 256-257, 486 A.2d 228 ): “In the present case, the Driver Education School was not a separate entity from the Board of Education. Rather, as termed by the Board of Education in its own resolution creating the Driver Education School, the School was merely a ‘separate educational component of the Board of Education’ (emphasis supplied). The arbitrator found that the Driver Education School was an entity so divorced from the Board of Education that the collective bargaining agreement between PGCEA and the Board of Education was not applicable. This finding, which was the sole basis for the arbitrator’s award, is clearly erroneous and makes that award completely irrational. ⁹⁴ The record ... reflects ... that it was the Board of Education that hired and paid the Coordinator of the Driver Education School and the teachers who taught in the driver education program.

In fact, under Maryland law, only the county boards of education have the authority to appoint teachers and set their salaries. Md.Educ. Code Ann. § 4-103(a) (1978). It was the Board of Education that had final control over the program and rules and regulations for the Driver Education School.

It was the Board of Education’s materials and facilities, such as textbooks, manuals, classrooms, and laboratories, that were utilized for the Driver Education School. It was the Board of Education’s insurance that covered the employees of the Driver Education School. Finally, it was the Board of Education that was reimbursed by the State Department of Education for the students who successfully completed the program. The arbitrator recognized that the Driver Education School ‘performed the same function, in the same manner, at essentially the same locations, with the same overall supervision and with a majority of the same employees’ as had existed when driver education was conducted under the previous program, but nevertheless concluded that the Driver Education School was a separate entity from the Board of Education.

This conclusion is clearly erroneous. Because an erroneous factual conclusion forms the sole basis for the arbitrator’s award, that award cannot be upheld. If an employer could avoid a collective bargaining agreement merely by modifying the method of administering its business in as slight a manner as the Board of Education has with the Driver Education School, collective bargaining agreements would be rendered meaningless.” We then granted the Board’s petition for a writ of certiorari which presented the broad general question of whether the Court of Special Appeals erred in holding that the award should be vacated. In this Court, both sides have again taken the position that § 3-224(b) of the Uniform ⁹⁵ Arbitration Act controls this case.

Furthermore, both sides agree that the “complete irrationality” standard adopted by the Court of Special Appeals is appropriate, and that an award which is “completely irrational” is in excess of the arbitrator’s authority within the meaning of § 3-224(b)(3) and is procured by “undue means” within the meaning of § 3-224(b)(l). The only dispute between the Board and the Association is whether or not the award in the instant case was “completely irrational” in light of the essentially undisputed facts, Maryland education law, and principles of labor law.

II

In our view, a threshold issue in this case is whether the statutory grounds for vacating an arbitration award, set forth in § 3-224(b) of the Maryland Uniform Arbitration Act, are applicable or whether this award is to be reviewed in accordance with non-statutory Maryland common law standards. We shall assume arguendo that the Maryland Uniform Arbitration Act was generally intended to be applicable to statutorily authorized arbitration awards under contracts entered into by state government agencies. 3 Nevertheless, ⁹⁶ the Uniform Arbitration Act itself, in § 3-206(b) of the Courts and Judicial Proceedings Article, specifically provides that the Act “does not apply to an arbitration agreement between employers and employees or between their respective representatives unless it is expressly provided in the agreement that this subtitle shall apply.” See Wilson v. McGrow, Pridgeon & Co, P.A., 298 Md. 66 , 467 A.2d 1025 (1983), discussing the history and scope of this exception for arbitration provisions in collective bargaining agreements. The agreement in the present case did not expressly provide that the Maryland Uniform Arbitration Act should apply. The agreement made no reference, in any manner, to that statute.

Therefore § 3-206(b) renders the Maryland Uniform Arbitration Act inapplicable here. See Amalgamated Transit Union v. MTA, 305 Md. 380 , 389 n. 5, 504 A.2d 1132 (1986). The Association, in its circuit court petition to vacate the arbitration award, also referred to Maryland Rule E2. That rule states as follows: “After a final award has been made in writing in an arbitration to which the Maryland Uniform Arbitration Act is inapplicable, court proceedings may be had to confirm, vacate, modify, correct, or enter judgment on the award.

In any such case, the provisions of the Maryland Uniform Arbitration Act concerning such proceedings shall be applicable.” Literally the above-quoted language could be read as making the entire Maryland Uniform Arbitration Act applicable in a court proceeding after the rendition of an award in an arbitration to which the Act is not applicable, including the substantive grounds for vacating an award set forth in ⁹⁷ § 3-224(b) of the Act. This broad construction of Rule E2, however, would be inappropriate. First, a broad construction of Rule E2 would largely render nugatory an exception to the applicability of the Maryland Uniform Arbitration Act like that set forth in § 3-206(b). This would violate the settled principle that constructions which render statutory language meaningless should be avoided.

Nordheimer v. Montgomery County, 307 Md. 85, 99 , 512 A.2d 379 (1986), and cases there cited. Second, such broad construction might well render Rule E2 unconstitutional. This Court’s authority to “adopt rules and regulations concerning the practice and procedure in and the administration of the ... courts” 4 would not seem to encompass the enactment by rule of the substantive grounds for vacating arbitration awards. Of course, a construction of a provision which does not cast doubt on its constitutionality is preferred.

Davis v. State, 294 Md. 370, 377-378 , 451 A.2d 107 (1982), and cases there cited. Finally, the invocation of Rule E2 by this Court has been confined to applying the procedural requirements of the Maryland Uniform Arbitration Act. See Bd. of Ed. of Charles Co. v. Ed. Ass’n, 286 Md. 358 , 408 A.2d 89 (1979). See also Brophy v. McLean Trucking Co., 552 F.Supp. 680 (D.Md.1982).

In the only case to come before this Court after the enactment of the Uniform Arbitration Act, involving an arbitration award to which the Act was inapplicable, and involving the substantive grounds for reviewing and vacating an award, the Court made no reference to § 3-224(b) of the Act. Instead, the Maryland authorities cited for the substantive grounds of judicial review were pre-Uniform Act cases. See Amalgamated Transit Union v. MTA, supra, 305 Md. at 389 , 504 A.2d 1132 . Rule E2, therefore, is limited to making the procedural provisions of the Maryland Uniform Arbitration Act applica ⁹⁸ ble in judicial proceedings involving arbitration awards to which the Act is otherwise inapplicable.

Consequently, the assumption of the parties and both courts below, that the grounds for vacating an arbitration award set forth in § 3-224(b) governed this case, was erroneous. Rather, the Maryland common law principles for reviewing arbitration awards are controlling. HI. Arbitration has often been called a “favored” method of dispute resolution.

Parr Construction Co. v. Pomer, 217 Md. 539, 543 , 144 A.2d 69 (1958); O’Ferrall v. De Luxe Sign Co., 158 Md. 544, 552 , 149 A. 290 (1930); Dominion Marble Co. v. Morrow, 130 Md. 255, 260 , 100 A. 292 (1917); Lewis v. Burgess, 5 Gill 129, 131 (1847). Consequently, at common law, courts generally deferred to the arbitrator’s findings of fact and applications of law. In Burchell v. Marsh, 17 How. 344, 349 , 15 L.Ed. 96 (1854), the Supreme Court explained: “Arbitrators are judges chosen by the parties to. decide the matters submitted to them, finally and without appeal. As a mode of settling disputes, it should receive every encouragement from courts of equity.

If the award is within the submission, and contains the honest decision of the arbitrators, after a full and fair hearing of the parties, a court of equity will not set it aside for error, either in law or fact. A contrary course would be a substitution of the judgment of the chancellor in place of the judges chosen by the parties, and would make an award the commencement, not the end, of litigation.” Similarly, this Court has generally refused to review arbitration awards on the merits, reasoning that the purpose of arbitration is “to compose disputes in a simple and inexpensive manner” and that extensive judicial review would defeat this purpose. Roberts v. Consumers Can Co., 102 Md. 362, 368-369 , 62 A. 585 (1905). ⁹⁹ Accordingly, it was firmly established as a common law principle in Maryland that mere errors of law or fact would not ordinarily furnish grounds for a court to vacate or to refuse enforcement of an arbitration award. As this Court stated in Roberts v. Consumers Can Co., supra, 102 Md. at 368-369 , 62 A. 585 : “[WJhenever the parties to [an arbitration] have had a full and fair hearing the award of the arbitrators, will be expounded favorably and every reasonable intendment made in its support....

In such cases it is conceded that the Court will not look into the merits of the matter and review the findings of law or fact made by the arbitrators nor substitute its opinion or judgment for theirs, but will require the parties to submit to the judgment of the tribunal of their own selection and abide by the award.” See, e.g., Amalgamated Transit Union v. MTA, supra, 305 Md. at 389 , 504 A.2d 1132 (“With certain exceptions ..., a court will not review the findings ... of arbitrators”); Chillum v. Button & Goode, 242 Md. 509, 516 , 219 A.2d 801 (1966) (“a court will not review the findings of law and fact of the arbitrators”); M. & C.C. v. Allied Contractors, 236 Md. 534, 546 , 204 A.2d 546 (1964) (“Mistakes by an arbitrator in drawing incorrect inferences or forming erroneous judgments or conclusions from the facts will not vitiate his award”); Nelley v. Baltimore City, 224 Md. 1, 9 , 166 A.2d 234 (1960) (an arbitration award’s “ ‘terms are conclusive on the parties,’ ” quoting 6 Williston, Contracts § 1927 (Rev. ed. 1938); Parr Construction Co. v. Pomer, supra, 217 Md. 543 -544, 144 A.2d 69 (“every reasonable intendment supports the validity of the award” and generally the “award will not be set aside for any mistake of law or fact”); Cont. Mill. Co. v. Doughnut Corp., 186 Md. 669, 674-675 , 48 A.2d 447 (1946); Dominion Marble Co. v. Morrow, supra, 130 Md. at 260 , 100 A. 292 ; Witz v. Tregallas, 82 Md. 351, 369 , 33 A. 718 (1896); Roloson v. ¹⁰⁰ Carson, 8 Md. 208, 220-221 (1855); Dorsey v. Jeoffray, 3 H. & McH. 121 (General Court 1793). 5 Like many other general principles, however, the rule that arbitration awards will not be vacated for errors of law or fact has several exceptions. Thus an award will be vacated for fraud or for misconduct, bias, prejudice, corruption or lack of good faith on the part of the arbitrator.

Chillum v. Button & Goode, supra, 242 Md. at 516-518 , 219 A.2d 801 ; M. & C.C . v. Allied Contractors, supra, 236 Md. at 545-547 , 204 A.2d 546 ; Nelley v. Baltimore City, supra, 224 Md. at 9, 14 , 166 A.2d 234 ; Parr Construction Co. v. Pomer, supra, 217 Md. at 543 , 144 A.2d 69 ; Dominion Marble Co. v. Morrow, supra, 130 Md. at 259-260 , 100 A. 292 ; Cromwell v. Owings, 6 H. & J. 10, 13 (1823). Moreover, a mistake by an arbitrator may be “so gross as to evidence misconduct or fraud on his part,” Chillum v. Button & Goode, supra, 242 Md. at 517 , 219 A.2d 801 . See M. & C.C. v. Allied Constractors, supra, 236 Md. at 545 , 204 A.2d 546 (“an award is final and conclusive ... in the absence of ... mistake so gross as to imply bad faith or the failure to exercise honest judgment”); Roberts v. Consumers Can Co., supra, 102 Md. at 369 , 62 A. 585 . In addition, an arbitration award which is contrary to a clear public policy will not be enforced.

Amalgamated Transit Union v. MTA, supra. A court will vacate an arbitration award if it is not within the scope of the issues submitted to arbitration. Chillum v. Button & Goode, supra, 242 Md. at 516 , 219 A.2d 801 ; Cont. Mill.

Co. v. Doughnut Corp., supra, 186 Md. at 675-676 , 48 A.2d 447 ; Witz v. Tregallas, supra, 82 Md. at 366-367 , 33 A. 718 ; Cromwell v. Owings, supra, 6 H. & J. ¹⁰¹ at 13-14 . An award is also reviewable to determine whether the arbitrator failed to consider all matters submitted. Witz v. Tregallas, supra, 82 Md. at 366-367 , 33 A. 718 . Furthermore, “a court may modify an arbitration award for a mistake of form such as an evident miscalculation of figures,” Chillum, 242 Md. at 517 , 219 A.2d 801 .

And a court will determine whether the parties had a procedurally fair hearing leading to the award. Chillum, 242 Md. at 516 , 219 A.2d 801 ; Nelley v. Baltimore City, supra, 224 Md. at 8, 14 , 166 A.2d 234 ; Cont. Mill. Co. v. Doughnut Corp., supra, 186 Md. at 674 , 48 A.2d 447 ; Roberts v. Consumers Can Co., supra, 102 Md. at 368-369 , 62 A. 585 ; Roloson v. Carson, supra, 8 Md. at 223 .

The above-mentioned exceptions to the general rule concerning the finality of arbitration awards are relatively clear-cut. There is, however, an additional limited area of review which is not as clearly defined. This Court has said that “ ‘[t]he favor which the courts accord to awards of arbitrators is however predicated upon the assumption ... that the award ... involves no mistake so gross as to work manifest injustice,’ ” Dominion Marble Co. v. Morrow, supra, 130 Md. at 260 , 100 A. 292 , quoting Roberts v. Consumers Can Co., supra, 102 Md. at 369 , 62 A. 585 . The Court has also stated that an arbitration award will be set aside for a “mistake of law or fact ... appearing on its face,” Parr Construction Co. v. Pomer, supra, 217 Md. at 544 , 144 A.2d 69 .

As Chief Judge Chase said for the General Court long ago, “[a] palpable mistake in law or fact, is good cause to set aside an award, if it is apparent on the face of the award.” Goldsmith v. Tilly, 1 H. & J. 361, 364 (1802). Accord: Witz v. Tregallas, supra, 82 Md. at 368 , 33 A. 718 ; Ing & Mills v. State, 8 Md. 287, 294, 297 (1855); Tillard v. Fisher, 3 H. & McH. 118 , 121 (General Court 1793). A somewhat similar idea regarding errors of law in arbitration awards was suggested by the Supreme Court in Wilko v. Swan, 346 U.S. 427, 436-437 , 74 S.Ct. 182 , 187- ¹⁰² 188, 98 L.Ed. 168 (1953), where the Court observed (emphasis added): “In unrestricted submissions, ... the interpretations of the law by the arbitrators in contrast to manifest disregard are not subject, in the federal courts, to judicial review for error in interpretation.” While the Supreme Court has not further explained “manifest disregard,” other courts have indicated “that manifest disregard of the law must be something beyond and different from a mere error in the law or failure on the part of the arbitrators to understand or apply the law,” San Martine Compania De Navegacion, SA v. Saguenay Terminals, Ltd., 293 F.2d 796, 801 (9th Cir.1961). See, e.g., American Postal Workers Union AFL-CIO v. U.S. Postal Service, 682 F.2d 1280, 1284 (9th Cir.1982), cert. denied, 459 U.S. 1200 , 103 S.Ct. 1183 , 75 L.Ed.2d 431 (1983); Sobel v. Hertz, Warner & Co., 469 F.2d 1211, 1214 (2d Cir.1972); Saxis Steamship Co. v. Multifacs International Traders, Inc., 375 F.2d 577, 581-582 (2d Cir.1967); Annotation, Vacation of Arbitration Award, 20 A.L.R.Fed. 295, § 9 (1974), and cases there cited.

Moreover, even in cases arising under arbitration statutes delineating the grounds for vacating arbitration awards, courts have indicated that errors which are sufficiently “gross” or are “apparent on the face” or constitute “manifest disregard” justify vacating the awards despite the absence of statutory language literally covering such grounds. For example, by Ch. XXI of the Acts of 1778, §§ VIII and IX, the Maryland General Assembly provided that, when any action was instituted in any court of this State, the court, with the consent