Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-06-01098/USCOURTS-caDC-06-01098-0/pdf.json

Parties Involved:
A. J. Mechanical, Inc.
Respondent
Carpenters and Millwrights, Local Union 2471
Intervenor
National Labor Relations Board
Petitioner

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 19, 2006 Decided March 16, 2007

No. 05-1416

CARPENTERS AND MILLWRIGHTS, LOCAL UNION 2471,

AFFILIATED WITH UNITED BROTHERHOOD OF CARPENTERS

AND JOINERS OF AMERICA,

PETITIONER

v.

NATIONAL LABOR RELATIONS BOARD,

RESPONDENT

A. J. MECHANICAL, INC., ET AL.,

INTERVENORS

Consolidated with

06-1098

On Petitions for Review of an Order of the

National Labor Relations Board

Osnat K. Rind argued the cause and filed the briefs for

petitioner.

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Ruth E. Burdick, Attorney, National Labor Relations Board,

argued the cause for respondent. With her on the brief were

Ronald E. Meisburg, General Counsel, John H. Ferguson,

Associate General Counsel, Aileen A. Armstrong, Deputy

Associate General Counsel, and Julie B. Broido, Senior

Attorney.

William H. Andrews was on the brief for intervenors A.J.

Mechanical, Inc., et al.

Before: RANDOLPH, GARLAND, and GRIFFITH, Circuit

Judges.

Opinion for the Court filed by Circuit Judge GARLAND.

GARLAND, Circuit Judge: The National Labor Relations

Board found that a company and its two owners committed a

series of flagrant violations of the National Labor Relations Act.

Although the Board ordered the company to provide backpay to

the victims of its unfair labor practices, by that time the coowners had distributed all of the company’s funds to themselves.

In a subsequent compliance proceeding, an administrative law

judge pierced the corporate veil and imposed personal liability

on one of the owners. The Board, however, reversed. Because

the Board failed to cite evidence sufficient to support the

findings upon which it based its refusal to pierce the veil, and

further failed to explain why it disregarded significant contrary

evidence, we set aside that aspect of the Board’s order.

I

A.J. Mechanical, Inc. was a Florida company that

specialized in refurbishing gas turbines. William A. Greene and

James Sanders founded the company and were its sole

stockholders and directors. Throughout their stewardship of

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1

The facts set forth in Part I of this opinion are taken from the

Board’s initial and supplemental decisions, and from the

administrative law judge’s supplemental decision. See Supplemental

Decision and Order, A.J. Mechanical, Inc., 345 NLRB No. 22, at 1-5

(Aug. 26, 2005) (Board); Decision and Order, A.J. Mechanical, Inc.,

330 NLRB No. 178 (Apr. 14, 2000) (Board); Supplemental Decision,

A.J. Mechanical, Inc., 345 NLRB No. 22, at 6-12 (Jan. 23, 2002)

(ALJ). None of these facts were disputed in the Board’s supplemental

decision and order, which is on review here.

A.J. Mechanical, Greene and Sanders commingled their personal

funds and assets with those of the company, disregarded

corporate formalities and procedures, failed to maintain separate

corporate records, and kept the company in an undercapitalized

state.1

In late 1998, petitioner Carpenters and Millwrights, Local

Union 2471 launched a campaign to organize the employees of

A.J. Mechanical. The company actively opposed the union’s

organizing efforts through a variety of tactics, many of which

were clear violations of the National Labor Relations Act

(NLRA), 29 U.S.C. § 151 et seq. As the National Labor

Relations Board (NLRB) subsequently found, those violations

included: barring employees from speaking about the union;

interrogating employees about their membership in and support

for the union; promising benefits for ceasing pro-union activity

and threatening reprisals for continuing such activity;

threatening employees with plant closure, loss of jobs, loss of

benefits, and discharge because of their activities on behalf of

the union; and laying off or firing employees, and refusing to

consider job applicants, because of their support for the union.

The company’s unlawful conduct began in October 1998 and

continued through May 1999. Much of it took place between

December 1998 and early February 1999, and much of it

involved Greene and Sanders personally.

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In the midst of their battle against the union, Greene and

Sanders wrote themselves a series of checks on the company’s

bank account. In the first distribution, made on February 16,

1999, each received $225,000. Over the next ten months, both

Greene and Sanders received nine additional distributions. The

total paid to each man exceeded $1.8 million.

On May 24, 1999, the union filed the first of a series of

charges with the NLRB, alleging that A.J. Mechanical had

committed unfair labor practices in violation of the NLRA. In

July 1999, the union prevailed in a representation election and

was certified as the representative of a unit of A.J. Mechanical

employees. Later that month, the NLRB’s General Counsel

issued the first of two complaints against the company.

On or about September 11, 1999, A.J. Mechanical ceased

all operations. Immediately thereafter, it auctioned off all of its

property and equipment. Greene and Sanders executed a

resolution to liquidate the company on December 2, 1999, and

filed articles of dissolution with Florida’s Secretary of State on

June 16, 2000.

Meanwhile, A.J. Mechanical failed to answer the General

Counsel’s unfair labor practice complaints. After several

months of silence, the General Counsel moved for summary

judgment, and the NLRB issued a notice to show cause why that

motion should not be granted. The company again failed to

respond. On April 14, 2000, the Board found that A.J.

Mechanical had engaged in the above-described unfair labor

practices, and that Greene and Sanders were personally involved

in many of them. The Board ordered the company to provide

backpay to its employees to make them whole for the losses they

sustained as a result of the company’s unlawful conduct. The

United States Court of Appeals for the Eleventh Circuit enforced

the Board’s order in full. See Decision and Order, A.J.

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Mechanical, Inc., 330 NLRB No. 178 (Apr. 14, 2000), enforced,

No. 00-14628I (11th Cir. Oct. 23, 2000) (unpublished

judgment). 

Thereafter, disputes arose over the amount of backpay due

under the Board’s order and whether Greene, Sanders, and their

wives (who shared equally in the distributions) were personally

liable for the company’s obligations. In February 2002, Sanders

and his wife agreed to pay $112,500 to settle any backpay

claims against them. The Greenes did not settle. In October, the

Board’s Regional Director initiated a compliance proceeding to

determine two issues: (1) “the amount of backpay due

employees who suffered financial consequences as a result of

the unfair labor practices of the now-defunct” company; and (2)

whether Greene and his wife “should be held personally liable

for such backpay.” Supplemental Decision and Order, A.J.

Mechanical, Inc., 345 NLRB No. 22, at 1 (Aug. 26, 2005).

Although the company failed to answer the compliance

specification, the Greenes appeared personally and testified at

the compliance hearing.

Following the hearing, the administrative law judge (ALJ)

issued a supplemental decision, in which he determined that the

total amount of backpay owed was $462,755 and that Greene

and his wife were personally liable for repayment.

Supplemental Decision, A.J. Mechanical, Inc., 345 NLRB No.

22, at 6-12 (Jan. 23, 2002). In deciding to “pierce the corporate

veil,” the ALJ applied the test adopted by the Board in White

Oak Coal Co.:

[T]he corporate veil may be pierced when: (1) the

shareholder and corporation have failed to maintain

separate identities, and (2) adherence to the corporate

structure would sanction a fraud, promote injustice, or

lead to an evasion of legal obligations.

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318 NLRB 732, 732 (1995). After reviewing Greene’s “misuse

of the corporate assets and form” and the large cash distributions

that he received in 1999, the ALJ found that both prongs of the

White Oak test were satisfied. 345 NLRB No. 22, at 10-11. The

ALJ concluded: “the Greenes along with James Sanders,

engaged in blurring the separate corporate entity of A.J.

Mechanical, Inc.[,] and their misuse of the corporate assets and

form[] is unfair, unjust, and has resulted in an evasion of A.J.

Mechanical’s remedial and backpay obligations for unfair labor

practices that . . . Greene and others[] committed.” Id. at 11. In

reaching this decision, the ALJ determined that Greene “was not

credible,” and stated that he did “not credit any of [Greene’s]

testimony, except that which other, credited, evidence

corroborates or that which constitutes an admission against

interest.” Id. at 9.

On appeal, the Board’s supplemental decision and order

affirmed the backpay judgment against the company, but

reversed the ALJ’s decision to hold the Greenes personally

liable. Supplemental Decision and Order, A.J. Mechanical, Inc.,

345 NLRB No. 22, at 1-5 (Aug. 26, 2005); see Revised

Supplemental Order, A.J. Mechanical, Inc. (NLRB Mar. 17,

2006) (unpublished). The Board did not question the ALJ’s

credibility determinations. 345 NLRB No. 22, at 1 n.1. And it

accepted “arguendo the judge’s conclusion . . . that the separate

legal identity of Respondent A.J. Mechanical, Inc. had not been

maintained under the first prong of the White Oak Coal

standard.” Id. at 3. Nonetheless, the Board concluded that the

second prong of the White Oak test was not satisfied,

disagreeing with the ALJ that “adhering to the corporate form

would permit a fraud, promote injustice, or lead to an evasion of

legal obligations.” Id. (internal quotation marks omitted).

Specifically, the Board held that “the timing of the

corporate distributions does not support the judge’s conclusion

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that adherence to the corporate form would lead to the evasion

of legal obligations.” Id. The Board noted that “[t]he unfair

labor practice charges were filed in May 1999 and the complaint

was issued in July 1999,” and found that “it was not until these

dates that . . . Greene was aware that the [company’s] actions

were being challenged and that monetary liability could result.”

Id. It also found that “the process of closing down (and the

attendant distribution of assets to shareholders) began before

those dates.” Id. Hence, in the Board’s view, the distributions

did not constitute an evasion of the company’s legal obligations.

This matter is before us on the Board’s application for

enforcement of its August 26, 2005 supplemental decision and

order against A.J. Mechanical, and the union’s petition for

review of the veil-piercing component of that decision and

order. We will not waste ink on the Board’s application for

enforcement against the company. A.J. Mechanical did not

contest the issue, and it is our longstanding rule that “[t]he

Board is entitled to summary enforcement of the uncontested

portions of its order[s].” Flying Food Group, Inc. v. NLRB, 471

F.3d 178, 181 (D.C. Cir. 2006). We therefore turn to the only

contested issue: the Board’s refusal to pierce the corporate veil.

II

“We must uphold the judgment of the Board unless, upon

reviewing the record as a whole, we conclude that the Board’s

findings are not supported by substantial evidence, or that the

Board acted arbitrarily or otherwise erred in applying

established law to the facts of the case.” Mohave Elec. Coop.,

Inc. v. NLRB, 206 F.3d 1183, 1188 (D.C. Cir. 2000) (internal

quotation marks and citation omitted); see 29 U.S.C. § 160(e),

(f). As the Supreme Court held in Universal Camera Corp. v

NLRB, “[t]he substantiality of evidence must take into account

whatever in the record fairly detracts from its weight.” 340 U.S.

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474, 488 (1951). Thus, where the record evidence is in conflict,

the substantial evidence test requires the Board “to take account

of contradictory evidence,” Lakeland Bus Lines, Inc. v. NLRB,

347 F.3d 955, 962 (D.C. Cir. 2003), and to explain why it

rejected evidence that is contrary to its finding, see Int’l Union,

UAW v. Pendergrass, 878 F.2d 389, 392 (D.C. Cir. 1989)

(noting that, to withstand substantial evidence review, an agency

must “present its reasons for rejecting significant contrary

evidence” (internal quotation omitted)). Similarly, to avoid a

determination that it has acted arbitrarily, “the Board, like every

other administrative agency, must provide a logical explanation

for what it has done.” Lee Lumber & Bldg. Material Corp. v.

NLRB, 117 F.3d 1454, 1460 (D.C. Cir. 1997) (citing Motor

Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S.

29, 43 (1983)).

Our review of the Board’s refusal to pierce A.J.

Mechanical’s corporate veil focuses on two findings that

undergird the Board’s conclusion that declining to pierce the

veil would not “sanction a fraud, promote injustice, or lead to an

evasion of legal obligations.” 345 NLRB No. 22, at 2 (internal

quotation omitted). Those two findings are: (1) that “it was not

until” the union filed unfair labor practice charges on May 24,

1999, that “Greene was aware that . . . monetary liability could

result” from the company’s conduct; and (2) that “the process of

closing down (and the attendant distribution of assets to

shareholders) began before” that date. Id. at 3. The Board’s

conclusion that Greene did not “strip[] the Company of its assets

in order to defeat a Board Order,” id. at 4, and hence that

recognizing the corporate form would not permit an evasion of

the corporation’s legal obligations, depends upon the validity of

those findings.

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A

We begin with the Board’s finding that Greene was

unaware that A.J. Mechanical’s conduct could result in

monetary liability until the union filed its first unfair labor

practice charges in May 1999. Neither the Board’s opinion nor

its appellate brief cited any evidence supporting that finding.

The alternative view, urged by the union, is that Greene knew

that the company could be held liable as soon as he and his

agents engaged in patently illegal conduct -- well before the first

distributions of the company’s cash.

Surely it is reasonable to infer that a thief who robs a bank

in broad daylight knows well before the date of his indictment

that he may one day face criminal liability. The corporate

conduct at issue here was the labor-law equivalent of a daylight

robbery. It was neither subtle nor close to the line of legality.

The Board found that the company had, among other things:

prohibited employees from speaking about or soliciting for the

union; interrogated employees about their and other employees’

membership in and support for the union; promised employees

benefits if they ceased their activities on behalf of the union; and

threatened employees with unspecified reprisals, plant closure,

loss of jobs, loss of benefits, and discharge because of their

activities on behalf of the union. 330 NLRB No. 178, at 1-2.

The Board also specifically found that the company fired two

employees, laid off and refused to recall or rehire a dozen

employees, and refused to consider hiring twenty-three

employees, all “because the named employees formed and

assisted the Union and engaged in concerted activities, and to

discourage employees from engaging in these activities.” Id. at

3. Much of the unlawful conduct took place between December

1998 and early February 1999, see id. at 1-3, before the first

distribution of the company’s cash on February 16, 1999.

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Moreover, the NLRB found that Greene had personally

engaged in many of the company’s unlawful acts, again well

before he began writing company checks to himself. On two

occasions in December 1998 and one in early January 1999,

Greene “threatened [company] employees with plant closure and

loss of jobs because of their activities on behalf of the Union.”

Id. at 2. On two occasions in December and two in January, he

told “employees that [the company] was not hiring any more

employees who supported the Union.” Id. On two days in

December and one in January, he “threatened [company]

employees that he would shut down the job and reopen using

employees who did not support the Union.” Id. At the end of

December and in mid-January, Greene “threatened that [the

company] would move its business if the employees did not

cease their activities on behalf of the Union.” Id. On January

16, he “discarded numerous application[s] because [the]

applicants indicated support for the Union.” Id. And on five

occasions between December 18 and February 1, Greene told

“employees that it would be futile for them to select the Union

as their bargaining representative.” Id. at 1.

It is hard to believe that anyone in Greene’s position could

have been unaware that the conduct just described could result

in monetary liability for A.J. Mechanical. In any event, the

Board did not explain why it reached the contrary conclusion.

At oral argument, Board counsel insisted that there are no cases

in which unfair labor practices alone were found to put a

company or its owner on notice of potential liability. Nor,

however, are there any cases holding that such practices are

insufficient to do so. The Fullerton case cited by counsel at oral

argument is plainly inapposite. See NLRB v. Fullerton Transfer

& Storage Ltd., Inc., 910 F.2d 331 (6th Cir. 1990). Although the

unfair labor practices at issue there did take place before the

company began winding up its operations, the court declined to

pierce the corporate veil because all of the company’s assets

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2

The specification further alleged that Greene and Sanders were

“additionally on notice of the potential liability” as of the dates when

the union first filed unfair labor practice charges and when the Board

issued its first complaint. J.A. 235b. At oral argument, Board counsel

stated that, the “General Counsel . . . typically “leave[s] in [its]

compliance allegations . . . three variations of points of notice --

[unfair labor practice] conduct, the charge, the complaint -- . . .

because there [are] Board decisions that have found [notice] at various

different points.” Oral Arg. Recording 34:17-34:39.

were used to pay its bona fide creditors; none were distributed

to its owners. See id. at 334-35, 341-42.

The NLRB’s Regional Director, at least, thought that a

notice theory based on the owners’ unlawful conduct could be

applied in this case. His compliance specification stated:

Since about January 1999, Respondent[s] Greene and

James Sanders, in their respective capacities as

shareholders, directors, officers and supervisors of

[A.J. Mechanical], were on notice of the potential

liability of [the company] for its unfair labor practices,

as a direct result of their personal involvement,

management and commission of [A.J. Mechanical’s]

unfair labor practices as found in the Board’s Order.

Joint Appendix (J.A.) 235a-b (emphasis added).2

 Perhaps the

Board had some reason for concluding that the conduct at issue

here was insufficient to put Greene on notice of the company’s

potential liability. Or perhaps the Board concluded that, as a

matter of law, even blatantly unlawful conduct is insufficient to

do so. But if it reached either conclusion, the Board did not say

so, let alone provide a logical explanation for such a

counterintuitive result. Without such an explanation, its

decision cannot stand.

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3

Greene did testify at the compliance hearing that the decision to

close the company was made in late 1998. See J.A. 301. But the ALJ

expressly discredited that testimony, see 345 NLRB No. 22, at 9, and

the Board found “no basis for reversing” the ALJ’s credibility

determinations, id. at 1 n.1.

B

We turn next to the Board’s determination that “the process

of closing down (and the attendant distribution of assets to

shareholders) began before” the union filed unfair labor practice

charges on May 24, 1999. 345 NLRB No. 22, at 3.

As the use of the word “attendant” suggests, the principal

justification for the Board’s determination that the decision to

close the company was made before May 1999 is its assumption

that the decision preceded the distributions, which began in midFebruary. See also id. at 4 (“[T]he decision to close, which

triggered the distributions, took place long before any unfair

labor practice charges were filed . . . .” (emphasis added)). But

the Board cited no evidence to support this assumption, other

than the fact of the distributions themselves. This amounts to

little more than assuming the conclusion, since the question at

issue is whether the owners made the distributions incident to a

bona fide decision to close the company, or instead as a strategy

for evading the company’s liability to its employees.

Nor have we been able to find any documentary evidence

that the owners made a decision to close the company before

they began distributing its assets.3

 There are no documents

characterizing the distributions as part of a wind-down. Indeed,

the first document reflecting a decision to close is a bill from

A.J. Mechanical’s law firm that lists a fee for a July 1999

discussion with Greene about “sale terms and dissolution of

corporation.” J.A. 720. All the other relevant documents --

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auction notices, id. at 567, 575, state filings, id. at 563, 714, and

a corporate resolution, id. at 559 -- are dated even later than

July.

The Board also asserted that “[e]arly in 1999, the

[company] ceased pursuing new work and decided to complete

only projects already underway.” 345 NLRB No. 22, at 3. Once

again, the Board cited no evidence to support that proposition,

and we have found none that does. In its brief, Board counsel

offered four citations to support the assertion that the company

ceased pursuing new work “[i]n early 1999.” Resp. Br. 10.

Two of those citations are to testimony by Greene, who was

discredited by the ALJ and the Board. The other two are to

statements by Greene’s co-owner, Sanders. Although Sanders

was not discredited, he did not say that the company stopped

pursuing new work in early 1999. See J.A. 615-16 (stating that

the decision to close the company was made long before

December 1999, but not specifying when); id. at 618-19

(explaining that his health problems played a part in his decision

to close the company, without stating when that was).

More important, the Board’s opinion failed to take account

of significant record evidence that is contrary to its conclusion

that the company decided to close before it began distributing

funds on February 16, 1999. One piece of evidence is the

statement of Sue Crochet, an NLRB field examiner, who

testified at the compliance hearing. Crochet testified that

Greene had told her, on April 21, 1999, that he did not want an

election and intended to “fight to the bitter end.” According to

Crochet, Greene said “that he could move the job, that the job

was portable, that he didn’t need any union people[, and] that he

could shut down the business or sell it.” J.A. 329 (emphasis

added). These statements suggest that, as of April 1999, Greene

had not yet decided that he would close the company.

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The most significant evidence is Greene’s own testimony in

response to questions at a May 6, 1999 representation hearing.

In that testimony, Greene could not have been more emphatic in

insisting that the company was not going out of business:

Q: Are you going out of business?

A: No, I’m not going out of business.

. . .

Q: And you’re looking for new work. You want to

stay here and continue to do new work. Correct?

A: I’m going to stay in business.

. . .

Q: And you haven’t gone out and told people, We’re

out of business; we’re no longer accepting work; we

don’t want to know about bids that are coming in. You

haven’t done that. Correct?

A: I’d be foolish to do that.

Q: Of course not, because you want more work.

Right?

A: Yes. 

. . .

Q: And you are taking steps consistent with your desire

to have more work. Right? You’re letting people

know you’re in this business to do the work.

A: Yes.

. . .

Q: [A]nd it is your plan to continue to bid on other jobs

in the future. Correct? Isn’t that your objective, to

stay in business?

A: Today it is. Yes.

J.A. 111-20. The record thus contains Greene’s clear admission

that he had not decided to close the business (and was still

pursuing new work) as late as May 6, months after he and

Sanders began distributing cash to themselves. This directly

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4

At oral argument, Board counsel tried another tack, suggesting

that Greene’s statements at the May 1999 hearing were “not against

his interest” because the date of the decision to close “was not at

issue” at that hearing. Oral Arg. Recording 23:02-23:13. But there is

nothing in the decision of either the Board or the ALJ suggesting this

meaning of “admission against interest,” and nothing in the Board’s

decision explaining why it disregarded the May testimony.

contradicts the Board’s finding that the decision to close was

made before the distributions began. Indeed, it suggests that the

decision was not made before the union filed formal unfair labor

practice charges on May 24, just eighteen days after Greene

testified, as there is no indication that the co-owners made any

decision about dissolution during that interval.

The Board’s opinion offered no explanation at all for

rejecting this contrary evidence. In its appellate brief, Board

counsel suggested that the Board may have disregarded

Greene’s statements in light of “the administrative law judge’s

determination . . . to discredit Greene’s testimony, ‘except that

which other, credited evidence corroborates.’” Resp. Br. 30-31.

But this quotation omits the balance of the quoted sentence. The

ALJ’s full statement was: “I shall not credit any of his

testimony, except that which other, credited evidence

corroborates or that which constitutes an admission against

interest.” 345 NLRB No. 22, at 9 (emphasis added). Greene’s

testimony that he had not decided to close the business in May

1999, months after the distributions began, is such an

admission.4

In sum, the Board’s opinion failed to identify evidence

sufficient to support its finding that the company had decided to

shut down before it began distributing cash to its owners, and

likewise failed to explain why it rejected evidence that is

contrary to that finding. Those failures require us to set aside

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the Board’s decision. See, e.g., Lakeland Bus Lines, 347 F.3d at

961-64; Pendergrass, 878 F.2d at 392-96.

III

The NLRB held that William Greene and his company

committed egregious violations of the labor laws, and it adopted

the ALJ’s determination that Greene’s testimony was unworthy

of belief. Nonetheless, the Board accepted Greene’s contentions

that he was unaware his conduct could subject his company to

monetary liability until the union filed formal charges, and that

he distributed all of the company’s assets pursuant to a bona fide

decision to close the business made long before those charges

were filed. Based on those two findings, the Board refused to

pierce the corporate veil and hold the Greenes personally liable

for the backpay order that it had issued against the by-then

defunct company. The Board failed to cite evidence sufficient

to support those findings and failed to explain why it

disregarded evidence that contradicts them. We therefore grant

the union’s petition for review, vacate the Board’s refusal to

pierce the veil, and remand for further proceedings. At the same

time, we grant the Board’s cross-application for enforcement

against A.J. Mechanical.

So ordered.

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