In 2013 the United States District Court granted  APWU’s motion to vacate an arbitration award regarding the elimination of a injured on duty postal clerk’s position. APWU argued that the Arbitrator had exceeded his powers under relevant agreement by applying the doctrine of collateral estoppel against union .  USPS appealed the 2013 judgment  of the District Court vacating the arbitration award.  The United States Court of Appeals reversed the judgment of the District Court and remanded case with instructions to confirm the arbitrator’s award.

[The doctrine of collateral estoppel, also known as issue preclusion, provides that a judgment in a prior action may preclude relitigation of issues in a second action, if those issues were actually litigated and necessary to the outcome of the first action] This is the court’s explanation.

Here is the background of the recent case (note: name of postal employee has been omitted because the issue surrounds vacating and re-instating an arbitration award:

A former USPS employee was initially employed as a Mail Processing Clerk (“MCP”). After developing an illness in connection with her job (“MCP”) applied for workers’ compensation benefits. In 2007, the USPS reassigned (“MCP”) to a limited-duty position consistent with her work restrictions. In 2008 the USPS concluded that it no longer had work available consistent with (“MCP’s”) condition and placed her on leave-without-pay(LWOP) /injured-on-duty status. (“MCP”) initiated a grievance pursuant to the Collective Bargaining Agreement (“CBA”), which culminated in arbitration. The APWU argued, on (“MCP”)’s behalf, that the elimination of her position violated the CBA, and was based on retaliatory and discriminatory motives.

But while the grievance process was ongoing, (“MCP”) filed a MSPB appeal, claiming that USPS acted arbitrarily and capriciously in eliminating her position. In  2009, her MSPB appeal was denied based on the conclusion of an Administrative Law Judge (“ALJ”) that USPS had properly eliminated (“MCP”)’s position because she had been declared totally disabled in 2008. (“MCP”)’s appeal from that decision was dismissed as untimely.

In 2012, (“MCP”)’s CBA grievance was submitted to an Arbitrator. The USPS argued that the matter was not arbitrable because the ALJ had already resolved issue by concluding during the MSPB appeal that (“MCP”) was totally disabled. Over the objection of APWU, the Arbitrator agreed to divide proceeding into parts and first address the question of whether collateral estoppel was applicable in circumstances presented here.

On this subject, the Arbitrator noted that “when a matter is simultaneously before MSPB and arbitration Article 16.9 provides that an “employee appealing under the Veterans’ Preference Act” waives his right to invoke the CBA arbitration process if: (1) “an MSPB settlement agreement is reached”; (2) “a hearing on the merits before the MSPB has begun”; or (3) “the MSPB issues a decision on the merits of the appeal.”  The Arbitrator then recognized that Article 16.9 does not apply to (“MCP”), but concluded that this provision, as well as other awards where the doctrine of collateral estoppel was applied, supported the conclusion that the CBA embraces the application of preclusion principles.

In applying collateral estoppel to (“MCP”)’s claim,  the Arbitrator first determined that the ALJ’s decision denying her appeal was the final decision of the MSPB, a matter not disputed on appeal. He then stated that the “undeniable conclusion to be derived from the MSPB decision” was that “(“MCP”) was totally disabled in 2008.” Accordingly, “[USPS] could not have been arbitrary and capricious when it terminated her Modified Duty Assignment” and “the matter is  therefore not arbitrable based on the doctrine of collateral estoppel.”

The APWU sought to vacate decision in District Court on the basis that the Arbitrator’s decision to apply collateral estoppel was in excess of his powers under the CBA.

The District Court’s decision concluded that the Arbitrator improperly “relied on the free-floating principle of collateral estoppel to use the MSPB decision to preclude  (“MCP”) from recovering in her grievance under the CBA ․ without any contractual basis.”  Accordingly, the District Court vacated Arbitrator’s award and remanded the case for arbitration. This appeal followed.

The Court of Appeals disagreed with District Court’s decision: In sum,  the Arbitrator concluded that Section 16.9 demonstrated the shared intent of the parties to the CBA to permit decisions of the MSPB to inform, and in some cases, preclude decisions in a subsequent arbitration. Nothing in the CBA expressly foreclosed this conclusion. The District Court concluded that, “[i]f one were to draw any inference from [Section 16.9], it would be the converse inference that, because the [CBA] explains where principles of preclusion do apply, those principles do not apply elsewhere.”  That is simply a different interpretation of the contract, and while arguably a better interpretation of the CBA, it is simply not a basis for vacatur. Because the Arbitrator was “arguably construing or applying the contract,” his decisions “must stand, regardless of a [district] court’s view of its (de)merits.”

To summarize, the Court of Appeals held that:

(1) Under the broad arbitration agreement in the CBA, the preclusive effect of a prior judicial or administrative decision is a matter to be decided by the arbitrator.

(2) Nothing in the CBA foreclosed application of preclusion principles by the arbitrator.

(3) The arbitrator did not exceed his authority by interpreting the terms of the contract, whether correctly or not, to permit use of collateral estoppel based on a prior administrative decision.

We hold that the arbitrator’s decision to apply collateral estoppel—which was based on his interpretation of particular provisions of the arbitration agreement, and is within an arbitrator’s authority to decide under a broad arbitration agreement—did not exceed his powers under the arbitration agreement as would be required to justify vacating the award.

Accordingly, we REVERSE the  2013 judgment of the District Court and REMAND with instructions to confirm the arbitral award.