Opinion ID: 198870
Heading Depth: 2
Heading Rank: 2

Heading: The Railway Labor Act and Veil Piercing

Text: 21 [T]he major purpose of Congress in passing the Railway Labor Act was to provide a machinery to prevent strikes. Texas & N.O.R. Co. v. Brotherhood of Ry. & S.S. Clerks, 281 U.S. 548, 565 (1930) (internal quotation marks omitted). The risk of strikes was considered to be particularly acute in the area of 'major disputes,' those disputes involving the formation of collective agreements and efforts to change them. Shore Line 396 U.S. at 148. For these disputes, the railroad and union representatives who drafted the Act favored non-binding mediation. See id. at 148-49. To prevent strikes from breaking out while mediation was underway, the Act required that both parties maintain the pre-dispute status quo. See id. at 149. As the Court noted in Shore Line, the Act's status quo provision was central to its design: 22 Its immediate effect is to prevent the union from striking and management from doing anything that would justify a strike. In the long run, delaying the time when the parties can resort to self-help provides time for tempers to cool, helps create an atmosphere in which rational bargaining can occur, and permits the forces of public opinion to be mobilized in favor of a settlement without a strike or lockout. Moreover, since disputes usually arise when one party wants to change the status quo without undue delay, the power which the Act gives the other party to preserve the status quo for a prolonged period will frequently make it worth while for the moving party to compromise with the interests of the other side and thus reach agreement without interruption to commerce. 23 Id. at 150. The Act fashioned a fundamental compromise: during the RLA mediation procedures, the union must refrain from striking and the carrier must refrain from implementing the contested policy. 24 The Shore Line Court emphasized that the status quo provisions of the RLA must be applied flexibly to fulfill the statute's goal. In Shore Line, the carrier had argued that the RLA required it to preserve the status quo only in those working conditions explicitly covered by the parties' collective bargaining agreement. See id. at 147-48. Since the collective bargaining agreement was silent on the challenged practice, the carrier argued that it should be allowed to continue this practice while RLA mediation to modify the agreement was ongoing. See id. The Court rejected this interpretation, calling it fundamentally at odds with the Act's primary objective -- the prevention of strikes.... If the railroad is free at this stage to take advantage of the agreement's silence and resort to self-help, the union cannot be expected to hold back its own economic weapons, including the strike. Id. at 154-55. The Court therefore held that the status quo provision must be broadly conceived to preserve the actual, objective working conditions out of which the dispute arose, irrespective of whether these conditions are covered in an existing collective agreement. Id. at 143. 25 The Court's effort to give practical meaning to the status quo requirement would be circumvented if carriers could use third parties to alter the collective bargaining agreement while the dispute was ongoing. Thus courts have held that a carrier may not hire an independent company to carry out the changes that the unions protest. See e.g., St. Louis S.W. Ry. v. Brotherhood of R.R. Signalmen, 665 F.2d 987, 995 (10th Cir. 1981) (There is nothing which leaves room for a suggestion that the [RLA] can be avoided by employing a contractor to perform the work.). In the same vein, the RLA is defeated if a carrier uses a related corporation to alter the status quo. The RLA itself acknowledges the possibility that carriers may attempt to use affiliates to achieve their goals by giving courts jurisdiction over railroads and those non-railroads that are directly or indirectly owned or controlled by or under common control with any carrier by railroad.... 45 U.S.C. § 151. While this provision alone does not justify the issuance of an injunction against a non-railroad corporation, it emphasizes that courts must look beyond corporate formalities if the nominally independent corporation is serving as the alter ego of the carrier. 26 In several cases, courts have engaged in veil piercing when the carrier used an affiliate to escape its collective bargaining agreement and violate the status quo requirements of the RLA. In Burlington Northern R.R. Co. v. United Transp. Union, 862 F.2d 1266 (7th Cir. 1988), the railroad, after failing to convince a local union to accept smaller crews for a particular train service, transferred the work to a subsidiary, Winona Bridge. Finding that the subsidiary was serving as the alter ego of the carrier, the court held that a carrier cannot evade its duties under a collective bargaining agreement or the RLA by directing business to an entity within the same corporate family and not obligated by the existing collective bargaining agreement. Id. at 1275. Similarly, in Butte, Anaconda & Pacific Ry. v. Brotherhood of Locomotive Firemen and Enginemen, the carrier argued that its major dispute mediation procedures could be terminated after a wholly owned subsidiary began performing the disputed work. 268 F. 2d 54, 59 (9th Cir. 1959). The court acknowledged that there would no longer be a major dispute if the work was performed by an independent shipper, not acting in concert with its carrier. Id. After assessing the links between carrier and subsidiary, however, the court held that the acts of the latter must be regarded as the act of the carrier. Otherwise, a carrier by interrelation with its shippers would always have it within its power to circumvent the mediation provision of the Railway Labor Act. Id. at 59-60. 6 27 Noting that neither Burlington nor Butte detail the standard that must be applied in an RLA veil-piercing inquiry, appellants claim that these cases support RLA veil piercing only when the pierced corporation is a wholly owned subsidiary of the carrier. We reject this reading. First, while these cases deal with wholly owned subsidiaries, they do not state that veil piercing is inappropriate for other types of corporate relatives. In fact, Burlington speaks of piercing not just subsidiaries, but of entities in the same corporate family. 862 F.2d at 1275. While alter ego liability may be most common in an ordinary parent-subsidiary context, the equitable doctrine of piercing the corporate veil is not limited to the parent-subsidiary relationship. C M Corp. v. Oberer Dev. Co., 631 F.2d 536, 538 (7th Cir. 1980). Indeed, [t]he separate corporateness of affiliated corporations owned by the same parent may be equally disregarded under the proper circumstances. In re Bowen Transps., Inc., 551 F.2d 171, 179 (7th Cir. 1977). Courts have pierced the veil in cases involving sibling corporations, and in cases involving even more intricately arranged corporate structures. See Minnesota Power v. Armco, Inc., 937 F.2d 1363, 1364 (8th Cir. 1991) (complex partnership scheme); cf. Century Oil Tool, Inc. v. Production Specialties, Inc., 737 F.2d 1316, 1317 (5th Cir. 1984) ([W]e see no relevant difference between a corporation wholly owned by another corporation, two corporations wholly owned by a third corporation or two corporations wholly owned by three persons who together manage all affairs of the two corporations.). The misuse of the corporate form to evade federal regulatory requirements may be easier to prove, as an evidentiary matter, when there is a straightforward parent-subsidiary relationship. However, the RLA status quo provisions could be thwarted if courts were categorically barred from considering other types of corporate relationships that were being used to avoid a collective bargaining agreement. 28 Of course, the corporate ties between the carrier and the related corporation provide only a starting point for the analysis. Common ownership by itself is insufficient to pierce the veil. See United States v. Bestfoods, 118 S. Ct. 1876, 1884 (1998) ([A] parent corporation... is not liable for the acts of its subsidiaries.). The record must include evidence that the carrier used the related corporation for the purpose of evading the collective bargaining agreement and the status quo requirements of the RLA. In making this determination, no single factor is dispositive. The district court may consider the chronology of events: if the carrier only transferred work to the related corporation after unsuccessful union negotiations, that fact may suggest that the carrier shifted the work in an effort to avoid the RLA status quo provisions. See Burlington, 862 F.2d at 1274 (Thus Burlington plainly acknowledged that Winona Bridge was Burlington's second choice, an alternative to unsuccessful union negotiations.). That inference of evasion may be stronger when the work shifted to the related corporation is distinct from the related corporation's primary line of business. Other factors may also be relevant, such as whether the carrier and the related corporation fail to observe separate corporate formalities, or whether the related corporation is undercapitalized. See id. at 1276 n.6 (noting that subsidiary had no equipment or rail-service employees). 29 We emphasize, however, that the record need not portray the related corporation as a sham business, expressly created or operated primarily to defeat the RLA. In Butte, for example, the subsidiary had been created and then operated as a separate, legitimate business until the railroad used it to defeat the RLA obligations. 268 F. 2d at 54. It would make little sense to ignore current relationships and arrangements between corporations, and thereby grant the railroad immunity from veil piercing, in those cases where the related corporation being used to defeat the RLA was originally formed (or simultaneously used) for a legitimate purpose. 30 It must be remembered that veil piercing in the RLA context serves a different function than it does in the ordinary state law veil piercing cases. In a typical tort or contract case, the primary purpose of the veil-piercing analysis is exposure of the assets of one corporation for payment of the debts or obligations of a related corporation. In the RLA major dispute proceedings, veil piercing operates only to block the related corporation from assisting the carrier in altering the collective bargaining agreement before mediation procedures are exhausted. Indeed, there is no final judgment on the merits against the related corporation: if the RLA mediation procedures do not achieve a negotiated solution, the law will not block the related corporation from engaging in the contested activities. See Consolidated Rail Corp. v. Railway Labor Executives' Ass'n., 491 U.S. 299, 303 (1989) (Once this protracted process ends and no agreement has been reached, the parties may resort to the use of economic force.); Brotherhood of Locomotive Engineers v. Baltimore & Ohio R.R., 372 U.S. 284, 291 (1963). 31 In this way, RLA veil piercing is similar to the well-established practice of extending the scope of an injunction to include non-parties acting in concert with parties to defeat the injunction's purpose. See Fed. R. Civ. P. 65(d) (injunctions can block activities of non-parties who act in active concert or participation with enjoined parties). In RLA cases (unlike in most cases where injunctions are sought), the substantive law itself imposes the duty to maintain the status quo. In a major dispute, the Act requires that rates of pay, rules, or working conditions shall not be altered by the carrier until the controversy has finally been acted upon through the Act's mediation procedures. 45 U.S.C. § 156; see also Shore Line 396 U.S. at 150-53 (describing various status quo provisions in the RLA). If in subsequent proceedings the district court determines that the carrier is acting in concert with a related corporation to violate these self-executing status quo provisions, the injunction should be fashioned to reach the related corporation as well. 32 With these principles in mind, we turn to the findings of the district court.