Opinion ID: 198870
Heading Depth: 2
Heading Rank: 1

Heading: Federal Common Law of Veil Piercing

Text: 14 We must determine whether state law or federal common law governs the veil-piercing inquiry. In federal question cases, such as this one, we look to federal choice of law principles. See Texas Indus., Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 642 (1981); see also Edelmann v. Chase Manhattan Bank, 861 F.2d 1291, 1294 (1st Cir. 1988). If the federal statute in question demands national uniformity, federal common law provides the determinative rules of decision. See United States v. Kimbell Foods, Inc., 440 U.S. 715, 728 (1979). 15 National uniformity is essential in the interpretation of labor law. Federal courts have fashioned a body of federal common law to govern labor disputes, recognizing that harmonious labor relations are essential to interstate commerce. See, e.g., Textile Workers Union v. Lincoln Mills, 353 U.S. 448, 456 (1957). This general principle holds true for the RLA, a statute described as an industry-wide bargain between carriers and their unions aimed at preventing disruptions to interstate commerce. See Shore Line, 396 U.S. at 148-49; Trans World Airlines, Inc. v. Independent Fed'n of Flight Attendants, 489 U.S. 426, 432 (1989) (noting that federal common labor law... may be helpful in deciding cases under the RLA.). National uniformity is particularly important in those RLA cases, like this one, that implicate the consensual processes which labor law was designed to promote. International Ass'n of Machinists & Aerospace Workers v. Aloha Airlines, Inc., 790 F.2d 727, 734 (9th Cir. 1986). 16 A common federal standard is particularly needed in RLA veil-piercing cases. If courts were to rely on state law to determine when veil piercing was appropriate, RLA collective bargaining agreements might include some companies in one state and other companies in a neighboring state. A railway with operations in more than one state could find itself unable to determine whether and when the RLA applied to it at all. Likewise, a federal veil-piercing standard is required to prevent carriers from using non-carriers (which are not themselves subject to the RLA) to circumvent federal labor law requirements. Although state law creates the corporate form, the question of liability [for violation of federal regulations] is a federal question. The policy underlying a federal statute may not be defeated by an assertion of state power. Anderson v. Abott, 321 U.S. 349, 365 (1944)(piercing the veil); H.P. Lambert Co. v. Secretary of the Treasury, 354 F.2d 819, 822 (1st Cir. 1965) (However important it may be in other respects, the fiction of the corporate entity cannot stand athwart sound regulatory procedure.). 17 To say that federal common law applies in this case does not fully resolve the matter. As we recently acknowledged, the federal standard for when it is proper to pierce the corporate veil is notably imprecise and fact-intensive. Crane v. Green & Freedman Baking Co., 134 F.3d 17, 21 (1st Cir. 1998); see also Note, supra, 95 Harv. L. Rev. at 852 (noting that federal common law on veil piercing is amorphous and must be flexibly applied). Federal courts are not bound by the strict standards of the common law alter ego doctrine which would apply in a tort or contract action. Capital Tel. Co. v. FCC, 498 F.2d 734, 738 (D.C. Cir. 1974). Nor is there any litmus test in the federal courts governing when to disregard corporate form. Alman v. Danin, 801 F.2d 1, 3 (1st Cir. 1986). Instead, the rule in federal cases is founded only on the broad principle that a corporate entity may be disregarded in the interests of public convenience, fairness and equity. Town of Brookline v. Gorsuch, 667 F.2d 215, 221 (1st. Cir. 1981). 18 In Gorsuch we recognized that this principle must be applied with sensitivity to the demands of the federal statute at issue: 19 In applying this rule, federal courts will look closely to the purpose of the federal statute to determine whether the statute places importance on the corporate form, an inquiry that usually gives less respect to the corporate form than does the strict common law alter ego doctrine. 20 Id. (internal citations omitted); see also First National City Bank v. Banco Para el Comercio Exterior de Cuba, 462 U.S. 611, 630 (1983) ([T]he Court has consistently refused to give effect to the corporate form where it is interposed to defeat legislative policies.); United Elect., Radio and Mach. Workers of Am. v. 163 Pleasant St. Corp., 960 F.2d 1080, 1091 (1st Cir. 1992) ([I]n federal question cases, courts are wary of allowing the corporate form to stymie legislative policies). Given the need to consider the purposes of the federal statute, we have crafted what we termed a less rigorous veil-piercing standard tailored to ERISA cases in order to fulfill that statute's goals. 163 Pleasant St., 960 F.2d at 1092 (The rationale for encouraging a modicum of corporate disregard in ERISA cases is grounded on congressional intent.); see also Alman v. Danin, 801 F.2d 1, 4 (1st Cir. 1986) (Indeed, deferring too readily to the corporate identity may run contrary to the explicit purposes of [ERISA].) Other Circuits too have considered the specific legislative policies at issue and whether piercing the corporate veil is necessary to further those policies. See Stotter & Co. v. Amstar Corp., 579 F.2d 13, 18-19 (3rd Cir. 1978) (veil piercing necessary to fulfill purposes of Clayton Act); Capital Tel. Co., 498 F.2d at 738 (liberal veil piercing to fulfill purposes of Communications Act of 1934); Kavanaugh v. Ford Motor Co., 353 F.2d 710, 716-17 (7th Cir. 1965) (veil piercing necessary to fulfill purposes of Dealers' Day in Court Act). We must therefore consider the RLA status quo provisions to determine when veil piercing is necessary to prevent frustration of the RLA's purposes.