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State v. Alaska Public Employees Ass'n, AFT, AFL-CIO

Supreme Court of Alaska

December 19, 2008

STATE of Alaska, Appellant,

Page 1162

William E. Milks, Assistant Attorney General, Talis J. Colberg, Attorney General, Juneau, for Appellant.

Sarah E. Josephson, Jermain, Dunnagan & Owens, Anchorage, for Appellee Alaska Public Employees Association, AFT, AFL-CIO.

Steven T. Baseden, Juneau, pro se.



MATTHEWS, Justice.

Facts and Proceedings[1]

Steve Baseden was terminated from state employment. The Alaska Public Employees Association (APEA) filed a grievance under the collective bargaining agreement (CBA) between APEA and the State challenging Baseden's termination. The grievance was submitted to binding arbitration. By the time of the hearing, the State had conceded that Baseden's termination was without just cause and had offered him reinstatement. The arbitrator awarded back pay from the termination date, April 14, 2000, to the effective date of the reinstatement offer, October 15, 2001. Baseden's other employment earnings during this period were to be deducted from the award. Interest was required to be paid on the net award. The arbitrator assessed costs and fees against the State.

The State filed a complaint in superior court challenging, among other things, the arbitrator's award of interest. After briefs were submitted the superior court confirmed the arbitrator's award, including the award of interest. The State appeals only the superior court's confirmation of the interest award.

Standard of Review

We review the superior court's decision confirming the arbitrator's award de novo.[2] An arbitrator's decision is accorded great deference.[3] " Both the common law and Alaska statutes ‘ evince a strong public policy in favor of arbitration.’ " [4] To effectuate this public policy " we have followed a policy of minimal court interference with arbitration." [5] This deference extends to both the arbitrator's factual findings and the arbitrator's interpretation and application of the law.[6]

" Where one party alleges that the arbitrator has exceeded his or her authority, we will affirm the arbitrator's conclusion as to the scope of his or her powers if ‘ the arbitrator's conclusion is reasonably possible.’ " [7] The standard of review of grievance arbitration arising out of labor management contracts mandated by the Public Employment Relations Act [8] (PERA) that are not subject to either of the Uniform Arbitration Acts [9] is " gross error." [10] " Gross error" encompasses

Page 1163

only mistakes that are both obvious and significant.[11]

The Arbitrator's Award of Prejudgment Interest Was Not Gross Error.

This appeal involves an intersection of competing legal doctrines. In the context of other damages claims, we have held that prejudgment interest can only be awarded against the state when the state expressly consents by statute. But we have also consistently articulated a deferential standard of review for an arbitrator's decision, recognizing that the arbitrator can determine the scope of issues presented and the availability of relief.

The State urges a strict application of the express legislative waiver rule for sovereign immunity that we have articulated in Hawken Northwest, Inc. v. State, Department of Administration, [12] Quality Asphalt Paving, Inc. v. State, Department of Transportation & Public Facilities, [13] Samissa Anchorage, Inc. v. Department of Health & Social Services, [14] and Danco Exploration, Inc. v. State, Department of Natural Resources. [15] The rule, as expressed in Hawken Northwest, is that " prejudgment interest may not be assessed against the state unless specifically authorized by legislation." [16]

The arbitrator did not address sovereign immunity when he awarded interest. Interest was first requested in the arbitration proceeding by APEA in its post-hearing brief. The State seems never to have mentioned interest, and neither party mentioned sovereign immunity in the arbitration proceedings. Arguably, the State waived its right to contest the award of interest on sovereign immunity grounds on appeal. But because there is authority that the sovereign immunity defense is not necessarily waived by failure to raise it in initial proceedings,[17] we decide this case on the merits. This makes resolution of the question of the waivability of sovereign immunity unnecessary. In deciding the merits, we assume that the arbitrator decided that sovereign immunity did not bar the award of interest and ask whether such a decision was gross error.

In support of the arbitrator's award of interest, a number of observations may be made.

Strictly applying the express legislative waiver rule in cases involving arbitration under PERA could lead to a result that even the State does not seek. While PERA mandates binding arbitration, it does not in so many words waive sovereign immunity as to either damages or interest on damages.[18]

Page 1164

But it is clear that the legislature has waived at least some sovereign immunity by requiring binding arbitration of grievances.[19] Thus it was the arbitrator's duty, at least initially, to determine the scope of the State's waiver of immunity.

In making this determination the arbitrator could reasonably have relied on our decision in Native Village of Eyak v. GC Contractors. [20]In that case an Indian tribe had entered into a construction contract containing an arbitration clause.[21] The tribe contended that the arbitration clause was not an effective waiver of its sovereign immunity from suit.[22] This court recognized the doctrine that a tribe's waiver of sovereign immunity " cannot be implied but must be unequivocally expressed" [23] and held that the arbitration clause was necessarily an unequivocal expression of waiver of immunity.[24] Although the arbitration clause itself said nothing about sovereign immunity, we observed:

[I]t is clear that any dispute arising from a contract cannot be resolved by arbitration, as specified in the contract, if one of the parties intends to assert the defense of sovereign immunity. To the extent possible, all provisions in a contract should be found meaningful. The arbitration clause in Eyak's contract with GC Contractors would be meaningless if it did not constitute a waiver of whatever immunity Eyak possessed.[[25]]

We therefore concluded that a waiver of sovereign immunity was effected by the arbitration clause: " Accordingly, we hold that Eyak waived whatever immunity from suit it possessed by entering into a contract with GC Contractors containing an agreement that any disputes arising under the contract would be resolved by arbitration." [26]

None of the precedents that the State relies on involved an appeal from an arbitrator's award. Hawken Northwest and Quality Asphalt Paving involved appeals from administrative resolutions of contract claims under the procurement code.[27] Samissa Anchorage involved an administrative challenge to Medicaid reimbursement rates.[28] Danco Exploration involved an administrative decision to deem an oil and gas lease forfeited.[29] The standard of review that we employed in these cases is less deferential than the gross error standard we use here.[30]

Further, the rule requiring a legislative waiver of sovereign immunity that expressly mentions interest has become something of an anachronism. In 2001 the legislature added a section to the state procurement code that permits prejudgment interest awards in claims filed with an agency after the effective date of the act.[31] Although the scope of the

Page 1165

new section is ambiguous,[32] it reflects at least to some degree a legislative concurrence with the proposition that prejudgment interest should be paid by the State on duly established compensatory damage claims.[33]

Finding a waiver of sovereign immunity as in Eyak would not necessarily resolve the issue of the scope of that waiver. Here the waiver could reasonably encompass prejudgment interest. The State has consented explicitly in AS 09.50.280 to prejudgment interest awards for contract claims that may be brought against the State in the superior court. If arbitration is to achieve its promise as a fair, just, and expeditious means of resolving disputes, the normal prejudgment interest award that would be available in court should also be available in arbitration.[34]

Moreover, we recently held that an arbitrator's award in a dispute arising under a collective bargaining agreement governed by PERA will bear interest between the date of the arbitral award and the date of the superior court's confirmation of the award.[35] It would seem strange to conclude that the State's waiver of immunity allows a party to be made whole with respect to prejudgment interest accruing between an award and its confirmation but not for the pre-award period.

This case presented a close question as to which of two principles should be applied to determine when and to what extent sovereign immunity has been waived. One principle requires express legislative waiver of sovereign immunity to award pre-judgment interest against the State. The other principle, potentially derivable from Eyak, is that the State's consent to arbitration amounts to an express waiver of sovereign immunity to the extent needed to make a claimant whole by awarding prejudgment interest. Considering the closeness of this question, the policy favoring effective arbitration, and the fairness of awarding interest, we are unable to conclude that the arbitrator's decision to award prejudgment interest against the State was gross error.


The decision of the superior court confirming the arbitrator's award of prejudgment interest is AFFIRMED.

FABE, Chief Justice, not participating.

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