Court Opinion

ID: 9847168
Source: CourtListenerOpinion
Date Created: 2023-09-24 03:55:10.768664+00
Date Added: 2024-06-11T09:17:02.435281
License: Public Domain

DEBRA A. LIVINGSTON,
Circuit Judge, dissenting:
The majority opinion confuses the circumstances in which a “successor employer” has a duty to recognize and bargain with a labor union, with the much more limited circumstances in which that em*79ployer is bound to arbitrate with a union under a collective bargaining agreement to which it has not agreed. This confusion may be understandable, given “the difficulty of the successorship question,” see Howard Johnson Co. v. Detroit Local Joint Executive Bd., 417 U.S. 249, 256, 94 S.Ct. 2236, 41 L.Ed.2d 46 (1974), and its history of bedeviling courts. See Ameristeel Corp. v. Int’l Bhd. of Teamsters, 267 F.3d 264, 267 (3d Cir.2001) (referencing the “treacherous waters” of the Supreme Court’s labor law successorship doctrine); Edward B. Rock & Michael L. Wachter, Labor Law Successorship: A Corporate Law Approach, 92 Mich. L.Rev. 203, 203 (1993) (“Courts have struggled repeatedly to define the legal obligations of the buyer of a business that has unionized workers.”). The fact remains, however, that the majority misinterprets what until today had become a settled, if not well-charted, area of law. This error leads the majority to an erroneous result in this case, and to an analysis that either will confound the “successor employer” labor law of this Circuit indefinitely or that must be limited to “the unique facts of this case,” op. at 68 — in which event today’s decision is little more than an aberrational and unjustified departure from precedent.
It is well-settled that a “successor employer” — i.e., an employer whose business has a “substantial continuity” with that of its predecessor — has a duty to recognize and bargain with an existing union. Fall River Dyeing & Finishing Corp. v. NLRB, 482 U.S. 27, 40, 43, 107 S.Ct. 2225, 96 L.Ed.2d 22 (1987). This duty arises as a consequence of federal labor law, not from any contract, and whether the “substantial continuity” test is met does turn on at least the main factors that the majority opinion discusses. Meridian has conceded on appeal that the “substantial continuity” test is met in today’s case and that Meridian therefore is a successor employer. Consequently, Meridian concedes that it is obligated to recognize and bargain with the union, and I therefore do not find it necessary to discuss the application of the “substantial continuity” test to these facts.
“Successor employers,” in some situations — but not all, as the majority at points admits — also are bound by the terms of a collective bargaining agreement (“CBA”) entered into by the predecessor employer, and therefore might be required to arbitrate with the union (if that agreement contains an arbitration provision). It is not necessary exhaustively to catalog the situations in which a “successor employer” might be bound by the pre-existing collective bargaining agreement, but previous cases generally have required a company to abide by a collective bargaining agreement where there has been a merger, where the company expressly or impliedly assumed the CBA, or where the “successor employer” is in fact simply an alter ego of the predecessor employer. See Howard Johnson Co., 417 U.S. at 259 n. 5, 94 S.Ct. 2236 (discussing alter ego); John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 548-49, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964) (merger); Southward v. South Cent. Ready Mix Supply Corp., 7 F.3d 487, 493 (6th Cir.1993) (assumption of liability).
All three theories are widely accepted outside the labor law context as grounds for imposing successor liability on an entity that has not itself entered into a contract but is closely related to another entity that has. See 1 Fletcher Cyc. Corp. § 41.10 (updated 2008) (“The alter ego doctrine has been adopted by courts in cases where the corporate entity has been used as a subterfuge and to observe it would work an injustice.”); 15 id. § 7121 (“[I]n all jurisdictions today, the surviving corporation in a statutory merg*80er has the statutory obligation to assume the duties and liabilities of a constituent corporation.”); id. § 7142 (“An implied assumption of liabilities is one of the exceptions to the general rule of nonliability for a corporation that merely purchases the assets of another corporation.”); cf. Howard Johnson, 417 U.S. 249, 94 S.Ct. 2236, 41 L.Ed.2d 46 (declining to impose liability under a CBA on a corporation that merely purchased the assets of the predecessor employer, albeit on the theory that the “substantial continuity” requirement was not met).
The majority in today’s decision, however, nowhere suggests that Meridian was an “alter ego” of its predecessor or that Meridian expressly or impliedly assumed the agreement at issue here, or that there was a merger. Nor does the majority argue that some other widely accepted grounds for imposing successor liability on a contract applies to this case. On the facts before us, such an argument is not available. Instead, the majority seems to hold simply that, whenever there is a “substantial continuity of identity of the workforce” between a predecessor and successor employer, the successor employer is bound at least by the arbitration clause of the CBA. In other words, all successor employers who hue the bulk of a predecessor’s employees have a duty not only to bargain with and recognize a union but also to arbitrate with it the extent to which it is bound by the previous CBA. This is apparently the case even if the successor employer, as here, is simply a contractor who elects no longer to subcontract work that another has performed, and where there has been no merger, consolidation, stock acquisition, purchase of assets, or any voluntary assumption, explicit or implicit, of any terms of the CBA, including its arbitration provision.
This is hard to square with what has gone before. The Supreme Court has held that “although successor employers may be bound to recognize and bargain with the union, they are not bound by the substantive provisions of a collective-bargaining contract negotiated by their predecessors but not agreed to or assumed by them.” NLRB v. Burns Int’l Sec. Servs., Inc., 406 U.S. 272, 284, 92 S.Ct. 1571, 32 L.Ed.2d 61 (1972). Granted, the Court has recognized that “in a variety of circumstances involving a merger, stock acquisition, reorganization, or assets purchase,” a successor employer may properly be found as a matter of fact to have assumed the obligations of an existing CBA. Id. at 291, 92 S.Ct. 1571. Such obligations, however, do not “ensue as a matter of law from the mere fact that an employer is doing the same work in the same place with the same employees as his predecessor.... ” Id.; see also Fall River, 482 U.S. at 40, 107 S.Ct. 2225 (“[A]lthough the successor has an obligation to bargain with the union ... it is not bound by the substantive provisions of the predecessor’s collective-bargaining agreement.” (citing Burns, 406 U.S. at 284, 92 S.Ct. 1571)). If they did, such obligations would amount to imposing “something ... from without, not reasonably to be found in the particular bargaining agreement and the acts of the parties involved,” which the Court has made clear is impermissible. John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 551, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964).
The majority might have argued that an arbitration clause is not a “substantive provision” of the collective-bargaining agreement — a position that would at least have attempted to reconcile the holding here with relevant Supreme Court authority. But even if the arbitration clause were not a “substantive provision” of the collective-bargaining agreement, ordering arbitration when the Supreme Court has clear*81ly held that the substantive provisions are not binding on a successor employer would be futile and therefore unwarranted. See Ameristeel Corp. v. Int’l Bhd. of Teamsters, 267 F.3d 264, 276-77 (3d Cir.2001). To avoid the evident futility of its order of arbitration, the majority suggests that “it is possible that a successor employer will be bound at least by some of the substantive terms of a pre-existing CBA.” Op. at 76. The majority can find no authority, however, to support this conclusion, at least insofar as it suggests that the substantive terms of a CBA might be binding on a successor in circumstances analogous to those presented here.
The majority tries to justify its result by heavy reliance on John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964), but in so doing misreads Wiley and ignores several subsequent Supreme Court cases that have interpreted Wiley not to permit what the majority does today. Cf. Howard Johnson, 417 U.S. at 253, 94 S.Ct. 2236 (reversing lower courts that “relied heavily on ... Wiley ”). In Wiley, the Supreme Court held that, following a merger, the merged company would be bound to arbitrate pursuant to a collective bargaining agreement entered into by one of the predecessor companies. 376 U.S. at 548, 84 S.Ct. 909. This result can be understood as a straightforward application of the widely accepted rule that a merged corporation is liable on all contracts of both predecessor corporations. Although the Supreme Court did not rely principally on common law successor liability rules in Wiley, it did refer to those principles as a partial explanation for its result. See id. at 550 n. 3, 84 S.Ct. 909. Moreover, although the Court did not touch on the question whether terms of the CBA other than the arbitration clause might also be binding on the merged corporation, given the state law background rule, it would appear quite clear that the arbitrator could indeed find that the entire CBA was so binding. Arbitration was not futile in Wiley as it is here.
In every subsequent case construing Wiley, the Supreme Court has given a clear indication that lower courts should not read too much into Wiley’s failure specifically to ground its decision in common law successor liability rules. The Court has emphasized that the background common law successor liability rule ivas important to the result in that case. In Bums, for instance, Burns International Security Services, Inc. (“Burns”) successfully competed for a contract to provide plant protection services to Lockheed Aircraft Service Company (“Lockheed”) and replaced the Wackenhut Corporation (“Wackenhut”) as Lockheed’s security company. Burns thereafter hired a substantial number of former Wackenhut employees to do the work under its new contract. The NLRB invoked precisely the policy concerns that the majority invokes today— “the peaceful settlement of industrial conflicts” and protection of employees against sudden changes — to argue that Burns was bound to Wackenhut’s collective bargaining agreement with the union. 406 U.S. at 285, 92 S.Ct. 1571. But the Supreme Court rejected this argument in no uncertain terms:
[T]he claim is that Burns must be held bound by the contract executed by Wackenhut, whether Burns has agreed to it or not and even though Burns made it perfectly clear that it had no intention of assuming that contract. Wiley suggests no such open-ended obligation. Its narrower holding dealt with a merger occurring against a background of state law that embodied the general rule that in merger situations the surviving corporation is liable for the obligations of the disappearing corporation.
*82Id. at 286, 92 S.Ct. 1571. Similarly, in Howard Johnson, the Court warned against “an unwarranted extension of Wiley beyond any factual context it may have contemplated,” emphasizing again the importance in that case of the state law background rule about merger liability. 417 U.S. at 257, 94 S.Ct. 2236.
The majority attempts to distinguish this precedent by arguing that the present case is different in that the members of Local 348 “were essentially working for Meridian” all along because Cristi was merely Meridian’s subcontractor. Op. at 74. This argument is in serious tension with Bums, however, which involved a materially indistinguishable contracting arrangement. Lockheed terminated its existing contractor and selected a new one, which hired a majority of the previous contractor’s employees. 406 U.S. at 275, 92 S.Ct. 1571. Nevertheless, the new contractor was not bound by any provision of the previous CBA. The majority’s analysis suggests that if Lockheed had simply fired its first security company and then elected to do the work itself, hiring many of that company’s employees, then it would have been bound by the CBA’s arbitration clause. But Bums holds that if it hired a new contractor to do the exact same thing, neither that contractor nor Lockheed would be bound. Bums nowhere suggests that its holding turns on such formalities. Its reasoning — that successor employers should not be bound by CBAs “negotiated by their predecessors but not agreed to or assumed by them,” 406 U.S. at 284, 92 S.Ct. 1571 — applies just as readily to the former case as it does to the latter.
In other words, in the major cases on which the majority itself focuses, the Supreme Court has given every indication that a successor employer generally will only need to arbitrate under a CBA where some common law theory would support successor liability on the contract. And until today’s decision, the circuit courts appear to have been in accord in interpreting the law in this fashion. See 3750 Orange Place Ltd. P’ship v. NLRB, 333 F.3d 646, 654 (6th Cir.2003) (“[A] new employer is not bound by the substantive terms of a collective bargaining agreement entered into by its predecessor absent an express or implied assumption of the agreement....”); AmeriSteel, 267 F.3d at 277 (“AmeriSteel, which is not bound by the substantive terms of the CBA, cannot be compelled to submit to arbitration .... ”); Road Sprinkler Fitters Local Union No. 669 v. Indep. Sprinkler, 10 F.3d 1563, 1567 (11th Cir.1994) (“[A] successor is only bound to collectively bargain and is not bound to any extent by an existing contract between the union and the predecessor.”); New England Mech., Inc. v. Laborers Local Union 294, 909 F.2d 1339, 1342 (9th Cir.1990) (“The flaw in the district court’s reasoning is that it assumed that all successor employers will always be bound by the terms of a predecessor’s CBA. However, the Supreme Court has continually indicated that a successor employer is only bound to bargain with a union which had a CBA with the predecessor.”); Hosp. & Institutional Workers Local 250 v. Pasatiempo Dev. Corp., 627 F.2d 1011, 1012 (9th Cir.1980) (“[A] successor employer is not bound by the substantive terms of a collective bargaining agreement unless it expressly or impliedly assumes them.... Nor are we persuaded that the statutory duty to bargain in good faith obligates an employer in Pasatiempo’s situation to arbitrate.”); Int’l Union of Elec., Radio and Mach. Workers v. NLRB, 604 F.2d 689, 693 (D.C.Cir.1979) (“[T]he successor employer is bound to recognize and bargain with the representative of his employees .... [but] is not bound by the predecessor’s bargaining agreement....”).
*83The majority reads Howard Johnson’s discussion of a “substantial continuity in identity of the work force,” 417 U.S. at 268, 94 S.Ct. 2236, as license to depart from this consensus. Indeed, the majority leads off its synthesis of the case law by stating that “the issue is whether there exists a ‘substantial continuity of identity of the work force.’ ” Op. at 74 (citing id.). But Howard Johnson could not have made this the issue without expressly overruling Bums, which made clear that substantial continuity of identity of the workforce “is a wholly insufficient basis for implying either in fact or in law that [the successor employer] had agreed or must be held to have agreed to honor [the predecessor employer’s] collective-bargaining contract.” Burns, 406 U.S. at 286, 92 S.Ct. 1571. And Hoioard Johnson did no such thing. See AmeriSteel, 267 F.3d at 272 (“It is important ... to appreciate the limited scope of the Court’s decision in Howard Johnson.”); Southward, 7 F.3d at 494 (“Howard Johnson reaffirmed the Bums holding and further limited Wiley.”). After stating that the “the reasoning of Bums must be taken into account,” the Howard Johnson Court merely held that “Wiley [did] not” apply because, inter alia, there was no substantial continuity of identity of the workforce in that case. 417 U.S. at 256, 94 S.Ct. 2236. Howard Johnson thus treats such continuity as a necessary but not sufficient condition for concluding that a successor employer is bound to arbitrate under a predecessor’s CBA. See AmeriSteel, 267 F.3d at 269 (“[T]he ‘substantial continuity’ concept ... should properly be viewed as a necessary but not a sufficient condition for the imposition of arbitration on an unconsenting successor.”). This does not undercut the clear language of Bums — which the majority fails to cite, let alone account for in its analysis.
The majority purports to rely on this Court’s decision in Stotter Division of Graduate Plastics Co. v. District 65, 991 F.2d 997 (2d Cir.1993), to support its holding. In that case, however, the “successor employer” entered its own collective bargaining agreement with the union that “expressly adopted the provisions of the [predecessor’s] Contract with only immaterial exceptions.” Id. at 1002. Thus, this case provides no support for the notion that an agreement will become binding, solely based on a “substantial continuity” of business operations.
Because the successorship doctrine is a creature of federal common law, federal courts must decide exactly which theories of successor liability to recognize. See 1 Fletcher Cyc. Corp. § 41 (updated 2008) (“The tests and factors that the courts consider to determine whether to disregard the corporate form differ from state to state.”); see also Wiley, 376 U.S. at 548, 84 S.Ct. 909 (“State law may be utilized so far as it is of aid in the development of correct principles or their application in a particular case, but the law which ultimately results is federal.” (citation omitted)). But the Supreme Court has, in every decision on point, indicated that the arbitration provision of a CBA is a creature of contract and therefore there must be some principled basis for saying that the defendant to be charged with the contract either has agreed to it or is so closely related to another entity that has that it is appropriate, essentially, to pierce the corporate veil and hold the defendant bound to the agreement. The repeated indication that a “successor employer” is not bound on the CBA makes clear that the mere “substantial continuity” test that the majority relies on — which makes an entity a “successor employer” bound to recognize and bargain with the union — is not enough to make the employer subject to the CBA.
*84It is true that some courts have described Wiley as creating a narrow “merger” exception to the general rule that a successor is not liable for the substantive terms of a preexisting CBA — rather than reading Wiley, as I do, as simply an application of the general rule that the entire CBA may be binding on the successor employer when there is an accepted common law basis for imposing contractual successor liability on the successor employer. E.g., Indep. Sprinkler, 10 F.3d at 1567 (11th Cir.1994) (“In some narrow circumstances [, i.e., if the status of successor arises out of a merger,] ... there may be an exception to the rule that the successor inherits only a duty to bargain and does not inherit a preexisting collective bargaining contract.”); New England Mech, 909 F.2d at 1342 (9th Cir.1990) (“In only one case has the Supreme Court indicated that a successor employer may be bound to some of the terms of a predecessor’s CBA.” (citing Wiley)). But these particulars make no difference in substance: the courts of appeals, at least since Fall River, have held that neither the arbitration provision nor any other terms of the CBA will be binding on a successor employer unless the successor has assumed the contract, is an alter ego of the predecessor, is the product of a merger with the predecessor, or another analogous basis exists for imposing contractual liability. From this widely understood set of rules the majority today departs, based on little more than a refusal to follow the relatively clear interpretation that the Supreme Court has given to Wiley.
The majority tries to justify its decision today on the theory that requiring arbitration “is the most effective way to balance those interests recognized by the Supreme Court in Wiley, as well as Bums and Howard Johnson.” Op. at 76. The majority thus seems to believe that whether a duty to arbitrate will be imposed will depend on a freewheeling balancing test in which each panel of this Court is free to decide what result would most effectively “balance [the various] interests” at stake. In contrast, I read the Supreme Court’s discussion of the relevant policy considerations as merely a partial explanation for the rule of law that the Supreme Court was laying down in those earlier cases— not as an invitation to the lower courts to decide whether successor employers are bound to arbitrate on an ad hoc basis, driven by our perceptions of what result in a given case will best balance the interests of employers and employees.
Even if it were appropriate to consider such policy factors in deciding whether to impose a duty to arbitrate in an individual case, the majority’s discussion of them is unilluminating, involving little more than the invocation of generalities about the importance of “avoiding industrial strife and encouraging the peaceful resolution of labor disputes.” Op. at 76. The majority gives no indication of why it believes that these policy ends support its result in this case, as opposed to in any other case in which a union might seek arbitration, and it gives no guidance to district courts in this Circuit as to how to determine when these factors will or will not require arbitration.
Indeed, a proper consideration of the very policy factors that the majority relies on would support a contrary result in this case. Wiley recognized that the duty to arbitrate should not be “something imposed from without, not reasonably to be found in the particular bargaining agreement and the acts of the parties involved.” 376 U.S. at 551, 84 S.Ct. 909. “Saddling [a successor] employer with the terms and conditions of employment contained in the old collective-bargaining contract may *85make ... changes impossible and may discourage and inhibit the transfer of capital.” Burns, 406 U.S. at 288, 92 S.Ct. 1571. These factors strongly cut against imposing an obligation to arbitrate in the circumstances here.
The majority’s principal policy factor in favor of requiring arbitration is that otherwise, “Local 348 would likely have no way of obtaining the relief it has sought ... [because the predecessor employer has] no legal responsibility to make further contributions to the [Health and Welfare] Fund.” Op. at 75. Although the Supreme Court did recognize such a factor as important in Wiley, where the predecessor employer no longer existed in any form other than the merged company, see 376 U.S. at 548, 84 S.Ct. 909, Cristi did not cease to exist when Meridian terminated its relationship with the company. Moreover, the collective bargaining agreement before us expressly addresses Cristi’s obligations in the event of a takeover or transfer of its business operation. See Agreement Between Cristi Cleaning Servs. & Local 348-S UFCW AFL-CIO (effective Jan. 1, 2002) (“In the event the entire operation or any part thereof is sold, leased, transferred or taken over by the sale, transfer, lease, assignment, receivership or bankruptcy proceedings, such operation shall continue to be subject to the terms and conditions of this agreement for the life thereof.... Employees working under this agreement shall at all times be entitled, acting through the Union as their representative, to hold the Employer directly responsible for the full performance of all terms and conditions of this agreement.”). Even if this provision is not applicable in the circumstances presented here, similar provisions appearing in other labor cases to have reached this Circuit suggest that it is not uncommon for unions to protect their interests by requiring predecessors to ensure that successors agree to the terms of existing collective bargaining agreements. See, e.g., In re Chateaugay Corp., 891 F.2d 1034, 1035 (2d Cir. 1989) (“[E]ach Employer promises that its operations covered by this Agreement shall not be sold, conveyed, or otherwise transferred or assigned to any successor without first securing the agreement of the successor to assume the Employer’s obligations under this Agreement.” (emphasis omitted) (quoting the National Bituminous Coal Wage Agreement of 1984) (internal quotation marks omitted)). The availability of such contractual protections strongly suggests that labor unions have the ability through bargaining to protect their interests against changes in the employer. Thus, even assuming it were appropriate to rely on such a factor given the case law that binds us, there is no need to do violence to the principle that the labor laws do not impose a duty to arbitrate “from without,” Wiley, 376 U.S. at 551, 84 S.Ct. 909, in order to protect unions.
Lastly, the majority’s policy analysis focuses on what seems best ex post for the particular union before the court, and fails to give due consideration to the ex ante incentives that the majority’s rule will create. Employers who take over an operation, as Meridian did here, have no legal obligation to hire the old unionized employees or even to give them preference in hiring — even if the entity plans to continue doing the exact same work. See Howard, Johnson, 417 U.S. at 261, 94 S.Ct. 2236 (“[N]othing in the federal labor laws requires that an employer ... who purchases the assets of a business be obligated to hire all of the employees of the predecessor .... ” (internal quotation marks omitted)). If the new employer refuses to rehire most of the old unionized employees, the new employer will not be bound by the CBA, and in fact, it won’t have to recognize or bargain with the un*86ion at all. See id. at 263, 94 S.Ct. 2236 (holding that “continuity of identity in the business enterprise necessarily includes, we think, a substantial continuity in the identity of the work force across the change in ownership”). Although a new employer cannot refuse to rehire the old employees solely because they are in a union, I am not the first to note that employers will often be able to find ample business reasons to justify refusing to rehire old employees, rendering the protection afforded by the majority today more ephemeral than real. See Saks & Co. v. NLRB, 634 F.2d 681, 690 (2d Cir.1980) (Meskill, J., dissenting) (“Although it can be argued that discriminatory practices are condemned by and actionable under ... the National Labor Relations Act, it is obvious that the perspicacious, well-counselled employer will hire just few enough of the subcontractor’s employees to elude the grasp of the successorship doctrine.” (citation omitted)); see also Fall River, 482 U.S. at 40-41, 107 S.Ct. 2225 (“[T]o a substantial extent the applicability of Bums [, i.e., the successor employer’s obligation to bargain with the union,] rests in the hands of the successor.”). Certainly, increasing the incentives for would-be successor employers to simply fire the unionized employees and start over is hardly a manifest victory for the cause of organized labor.
In my view, the majority misreads Supreme Court precedent. Therefore, I respectfully dissent.