Court Opinion

ID: 2978438
Source: CourtListenerOpinion
Date Created: 2015-09-22 18:25:37.164478+00
Date Added: 2024-06-11T12:41:19.534836
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                           Pursuant to Sixth Circuit Rule 206
                                  File Name: 09a0335p.06

               UNITED STATES COURT OF APPEALS
                               FOR THE SIXTH CIRCUIT
                                 _________________

                                                     X
                                                      -
 TRUSTEES OF THE DETROIT CARPENTERS

         Plaintiffs-Appellants/Cross-Appellees, --
 FRINGE BENEFIT FUNDS,

                                                      -
                                                          Nos. 08-1457/1994

                                                      ,
                                                       >
                                                      -
             v.

 INDUSTRIAL CONTRACTING, LLC, a Michigan -
                                                      -
                                                      -
 limited liability company, and LASALLE
                                                      -
       Defendants-Appellees/Cross-Appellants. -
 GROUP, INC., a Michigan corporation,

                                                      -
                                                     N
                       Appeal from the United States District Court
                      for the Eastern District of Michigan at Detroit.
                  No. 05-71141—John Corbett O’Meara, District Judge.
                                 Argued: March 11, 2009
                        Decided and Filed: September 17, 2009
  Before: BATCHELDER, Chief Judge; DAUGHTREY and MOORE, Circuit Judges.

                                   _________________

                                       COUNSEL
ARGUED: Walter B. Fisher Jr., FILDEW HINKS, PLLC, Detroit, Michigan, for
Appellants. Steven A. Wright, STEVEN A. WRIGHT, P.C., Shelby Township, Michigan,
for Appellees. ON BRIEF: Walter B. Fisher Jr., Charles S. Kennedy, III, FILDEW
HINKS, PLLC, Detroit, Michigan, for Appellants. Steven A. Wright, Sandra L. Wright,
Patrick J. Carleton, STEVEN A. WRIGHT, P.C., Shelby Township, Michigan, Gene J.
Esshaki, ABBOTT NICHOLSON, P.C., Detroit, Michigan, for Appellees.
                                   _________________

                                        OPINION
                                   _________________

        MARTHA CRAIG DAUGHTREY, Circuit Judge. The plaintiffs in this labor
dispute are trustees of an association of various benefit funds established under the Labor-
Management Relations Act of 1947 (LMRA), 29 U.S.C. §§ 141-67, 171-97, and the

                                             1
Nos. 08-1457/1994           Trustees of Detroit Carpenters Fringe Benefit              Page 2
                            Funds v. Industrial Contracting, et al.

Employee Retirement Income Security Act of 1974 (ERISA), as amended, 29 U.S.C.
§§ 1001 - 1461, and maintained for the benefit of members of the Michigan Regional
Council of Carpenters, AFL-CIO (the union). They filed this action against defendants
Industrial Contracting, LLC, and LaSalle Group, Inc., claiming that “[f]or all relevant
purposes, [the two companies] are one and the same, constituting a single employer, with
each being the alter ego of the other” and seeking to audit the books of both defendants to
verify the accuracy of the contributions that they were contractually obligated to make to the
plaintiffs under the provisions of the collective bargaining agreement (CBA) between the
union and Industrial Contracting.

        The district court granted summary judgment in favor of the defendants, based on
its determination that, as a matter of law, the “alter ego” doctrine was inapplicable in this
case because the plaintiffs had “failed to present any evidence to show that Industrial was
formed or operated with the intended purpose of evading any of LaSalle’s preexisting
contractual obligations.” We conclude that this decision cannot be reconciled with our
opinion in NLRB v. Allcoast Transfer, Inc., 780 F.2d 576 (6th Cir. 1986), in which we held
that “a finding of employer intent is not essential or prerequisite to imposition of alter ego
status. . . . [but] is merely one of the relevant factors which the [courts] can consider.” Id.
at 581. We therefore reverse the district court’s judgment and remand the case for further
proceedings.

                   FACTUAL AND PROCEDURAL BACKGROUND

        As we noted in Allcoast Transfer, “th[e] factors relevant to a finding of alter ego
status include ‘whether the two enterprises have substantially identical management,
business purpose, operation, equipment, customers, supervision and ownership.’” Id. at 579
(quoting Nelson Electric v. NLRB, 638 F.2d 965, 968 (6th Cir. 1981)). Our inquiry, then,
begins with a review of the evidence, largely undisputed, that was supplied at the summary
judgment stage of the litigation. That evidence established that the funds are beneficiaries
of a CBA signed between the Michigan Regional Council of Carpenters and Detroit-area
employers in the construction industry. The CBA requires employers to make contributions
to the funds on behalf of covered employees, including fringe benefits that are calculated
based on either the hours worked by covered employees or a percentage of the employees’
Nos. 08-1457/1994            Trustees of Detroit Carpenters Fringe Benefit                Page 3
                             Funds v. Industrial Contracting, et al.

base wages. The contract also covers subcontracting (“[n]o employer shall subcontract or
assign any of the work described herein which is to be performed at a job site to any
contractor, subcontractor or other person or party who fails to agree in writing to comply
with the conditions of employment contained in the Agreement”) and alter-ego operations.
The contract clause covering the latter provides that if “work of the type covered by this
Agreement” is performed by any entity, regardless of under what name it is performed,

          wherein the Employer (including its officers, directors, owners, partners, or
         stockholders) exercises either directly or indirectly (such as through family
         members) any significant degree of ownership, management, or control, the
         terms and conditions of this Agreement shall be applicable to all such work
         and to such successor or alter ego entity.
         The controversy arose because of the overlapping establishment and convergence
of the defendant companies. LaSalle was incorporated in 1990. Steven Palermo became a
minority owner of LaSalle in 1995 and a majority owner approximately five years later.
Although LaSalle was a signatory to the CBA with the union at the time Palermo purchased
his ownership interest, the company declined to renew the contract when it expired on
June 1, 2003. In the meantime, Steven Palermo and his brother Randy had formed another
company in 2001 that was the predecessor to Industrial Contracting, LLC. Three years later,
Steven Palermo sold his half-interest in Industrial Contracting to his former brother-in-law,
Chester Jablonski, who purchased an additional 1.8 percent interest from Randy Palermo.
Industrial Contracting was not a signatory to any CBA until it entered an agreement with the
union on June 1, 2003, at the same time that LaSalle terminated its relationship with the
union.

         In addition to his majority interest in Industrial Contracting, Jablonski was LaSalle’s
chief financial officer and had previously served as its vice president, secretary, and
treasurer. He managed the day-to-day operations for both Industrial Contracting and
LaSalle, and he acted as the contact with the union for both companies. Jablonski testified
that he had the authority to sign Steven Palermo’s signature on LaSalle documents for
“pretty much whatever I need his signature on.”

         According to the LaSalle website as accessed in 2006, the company was a general
contractor and construction management company that had a total of 110 field employees,
Nos. 08-1457/1994           Trustees of Detroit Carpenters Fringe Benefit             Page 4
                            Funds v. Industrial Contracting, et al.

including in-house carpenters and other tradespeople. However, in a deposition taken in
September 2003, a LaSalle official said that the company did not hire tradespeople directly
at that time and had only ten laborers on its payroll, down from the “40 or 50" workers
employed by LaSalle on June 1 of that year, at the termination of its collective bargaining
agreement with the union. Industrial Contracting was a subcontractor that provided labor
and supervision for construction projects, also referred to by Jablonski as an “employee
leasing company.” At the time the lawsuit was filed, Industrial Contracting had never
supplied laborers to any company other than LaSalle.

        LaSalle and Industrial Contracting shared many of the same supervisory personnel
during the relevant period. For example, Matthew Bertrang and Dave Walasek were listed
as employees and supervisors at both companies. Dave Walasek, a labor superintendent and
union member, worked for LaSalle until “they switched over,” when he was notified by Wes
Gerecke, the Field Operations Manager for LaSalle, that he would be working for Industrial
Contracting. He testified that his job did not change in any way after he went to work for
Industrial Contracting and that Wes Gerecke continued to exercise direction over the projects
on which he worked. Matthew Bertrang, a carpenter superintendent and union member,
worked for LaSalle until the middle of 2003. After LaSalle terminated its collective
bargaining agreement, Bertrang testified that he was given the choice of looking for another
job or working for Industrial Contracting. Bertrang, too, said that his job did not change
when he moved to Industrial Contracting and that his “direct boss” was Wes Gerecke.
Gerecke also assigned Bertrang to various projects and procured equipment for him.
Gerecke testified that he supervised Industrial Contracting employees and monitored their
needs for material, equipment, and manpower on a day-to-day basis.

        At the time the dispute arose, Industrial Contracting and LaSalle were housed in the
same building and had rental agreements with the same real estate company, owned by
Steven Palermo. LaSalle paid $9500 a month for the building, and Industrial Contracting
rented an office in the building for $200 a month. Before 2005, Industrial Contracting
employees received reimbursement checks from LaSalle’s account and were covered by
LaSalle’s workers’ compensation insurance policy. In addition, LaSalle paid for Industrial
Contracting’s general liability insurance policy and Industrial Contracting employees
Nos. 08-1457/1994               Trustees of Detroit Carpenters Fringe Benefit                Page 5
                                Funds v. Industrial Contracting, et al.

continued to use LaSalle’s telephone system and LaSalle business cards. Until 2005,
Industrial Contracting billed LaSalle only for its wages and direct costs; in 2005 Industrial
Contracting began charging a three-percent markup. During the same period, Industrial
Contracting did not own its own equipment, but instead used equipment owned by LaSalle,
the use of which LaSalle did not track.

        Several LaSalle documents in the record refer to Industrial Contracting employees
as LaSalle employees. For example, on the “GM Catering Kitchen” job, the daily report lists
the superintendent and foreman as LaSalle employees when they were actually employed by
Industrial Contracting. Likewise, on a bid for the “GM Hines Theater” project, an Industrial
Contracting employee is listed as a LaSalle employee. For the “DCX Walbridge Aldinger”
project, LaSalle was placed on an approved list for bids for which only union signatories
were eligible, and a Walbridge Aldinger project manager testified that he mistakenly thought
that LaSalle was a union signatory. Moreover, LaSalle failed to list Industrial Contracting
as a subcontractor on DCX project documents requiring a list of all subcontractors. LaSalle
also submitted invoices for work done by Industrial Contracting employees on the DCX
project as “self-perform” work, enabling the company to charge five percent more for work
purportedly performed “in house” by LaSalle.

        Despite the virtual mountain of evidence establishing the intermingling of the two
companies, the district court granted the defendants’ motion for summary judgment, holding
that, even though the plaintiffs “ha[d] shown most of the similarities between LaSalle and
                                                      1
Industrial that were required under Fullerton,” the defendants were entitled to prevail as
a matter of law simply because the record was devoid of “any evidence to show that
Industrial was formed or operated with the intended purpose of evading any of LaSalle’s
preexisting contractual obligations.” The plaintiffs now appeal that ruling and also
complain that the district court improperly struck a portion of the brief they filed in
response to the defendants’ motion for summary judgment, in which they raised an
alternative theory of recovery that had not been raised prior to the close of discovery.

        1
N.L.R.B. v. Fullerton Transfer & Storage Ltd., Inc., 910 F.2d 331 (6th Cir. 1990).
Nos. 08-1457/1994          Trustees of Detroit Carpenters Fringe Benefit            Page 6
                           Funds v. Industrial Contracting, et al.

The defendants have filed a cross-appeal, contending that as prevailing parties below,
they should have been awarded costs and attorneys’ fees.

       The latter two rulings represent an exercise of the district court’s discretion, and
nothing in the record suggests to us that the court abused its discretion in reaching the
decisions that it did. Moreover, in view of the result we reach today, both of these issues
have become moot and, therefore, need not be resolved.

                                     DISCUSSION

       A district court’s grant of summary judgment is reviewed de novo, see
International Union v. Cummins, Inc., 434 F.3d 478, 483 (6th Cir. 2006), and is
appropriate when there is “no genuine issue as to any material fact and that the movant
is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(c). In considering a
motion for summary judgment, we must view the inferences to be drawn from the
underlying facts in favor of the non-moving party, in this case the plaintiffs. See
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Questions
of fact, including a district court’s factual determination that two companies are (or are
not) alter egos, are reviewed for clear error. See Yolton v. El Paso Tennessee Pipeline
Co., 435 F.3d 571, 587 (6th Cir. 2006).

       The alter ego doctrine is an equitable doctrine “developed to prevent employers
from evading obligations under the [National Labor Relations] Act merely by changing
or altering their corporate form.” Allcoast Transfer, 780 F.2d at 579. The doctrine
operates to bind an employer to a collective bargaining agreement if it is found to be an
alter ego of a signatory employer. See id. at 582-83. We have addressed alter-ego
operations that occur in two factual contexts. The first is when the new entity begins
operations but is “‘merely a disguised continuance of the old employer.’” NLRB v.
Fullerton Transfer & Storage Ltd., Inc., 910 F.2d 331,336 (6th Cir. 1990) (quoting
Southport Petroleum Co. v. NLRB, 315 U.S. 100, 106 (1942)). The second is what is
referred to as a “double-breasted operation,” where “two or more coexisting employers
Nos. 08-1457/1994          Trustees of Detroit Carpenters Fringe Benefit            Page 7
                           Funds v. Industrial Contracting, et al.

performing the same work are in fact one business, separated only in form.” Fullerton
Transfer, 910 F.2d at 336.

       The Sixth Circuit test for determining whether two companies are alter egos has
been adopted from the case law of the National Labor Relations Board. We look to see
“‘whether the two enterprises have substantially identical management, business,
purpose, operation, equipment, customers, supervision and ownership.’” Id. (quoting
Nelson Elec. v. NLRB, 638 F.2d 965, 968 (6th Cir. 1981)). In applying these factors, no
individual factor is outcome determinative; instead, “all the relevant factors must be
considered together.” Allcoast Transfer, 780 F.2d at 582. Under Sixth Circuit
precedents, moreover, an employer’s intent to evade the obligations of a collective
bargaining contract is merely one of the factors to be considered and is not a prerequisite
to the imposition of alter-ego status. Fullerton Transfer, 910 F.2d at 337. We came to
this conclusion based on our reasoning that “an employer who desired to avoid union
obligations might be tempted to circumvent the doctrine by altering the corporation’s
structure based on some legitimate business reason, retaining essentially the same
business, and utilizing the change to escape the unwanted obligations.” Allcoast
Transfer, 780 F.2d at 582; see also Wilson v. Int’l Bhd. of Teamsters, 83 F.3d 747, 759
(6th Cir. 1996) (“[C]ommon ownership or an intent to evade federal labor law
obligations are not necessary prerequisites to a finding of alter ego status.”).

       In double-breasting cases, we have confronted two common fact patterns: (1) the
“classic” double-breasting operation in which a union contractor creates a second, non-
union company, and (2) the “reverse” double-breasting situation in which a non-union
company opens a sister company that becomes a union signatory. A paradigm example
of classic double-breasting can be found in Allcoast Transfer, in which the respondent,
a unionized moving and storage company, formed an ostensibly separate non-union
corporation in order to serve as a licensee for a nationwide moving company. See 780
F.2d at 578. We upheld the NLRB’s determination that the two companies were alter
egos because they had substantially “identical management and supervision,” the same
business purpose, and the same employees and equipment. See id. at 582.
Nos. 08-1457/1994          Trustees of Detroit Carpenters Fringe Benefit            Page 8
                           Funds v. Industrial Contracting, et al.

       An example of reverse double-breasting was involved in Trustees of the Resilient
Floor Decorators Insurance Fund v. A&M Installations, Inc., 395 F.3d 244 (6th Cir.
2005). In that case, a former employee of a non-union carpet sales company started a
carpet installation company that hired union labor. The companies shared office and
warehouse space and secretarial staff, and the president of the installation company was
the former brother-in-law of the president of the sales company. See id. at 246-47. We
found that the two companies were not alter egos, however, on alternative bases:
(1) because the non-union carpet sales company had no preexisting labor obligations to
evade, (2) because there was no “pervasive intermingling of funds and operations” as
found in other alter ego cases, and (3) because the installation company’s workers were,
in fact, independent contractors and not “employees” under ERISA. See id. at 248-49,
251.

       In this case, the district court relied upon our observation in Resilient Floor that
the union had “disregard[ed] the fact that ‘an intent to evade’ preexisting obligations is
‘clearly the focus of the alter ego doctrine’” and that, in the absence of proof that the
union had been short-changed in some manner by changes in the structure of the two
entities involved in the dispute, there could be “no inequity that would justify a court’s
imposition of liability.” Id. at 248 (quoting Cement Masons’ Pension Trust Fund v.
O’Reilly, 664 F. Supp. 277, 279 (E.D. Mich. 1987)). The district court also relied on an
unpublished district court opinion from the Eastern District of Michigan, Cement
Masons’ Trust-Fund v. McCarthy, 2006 WL 770444 (E.D. Mich. 2006), quoting that
opinion as holding that the Sixth Circuit has “categorically rejected application of the
alter ego doctrine in the . . . situation [in which] . . . a nonunion company establishes a
union company and no preexisting labor obligations are disrupted.” Id. at *4 (quoting
Resilient Floor).

       We conclude that the district court’s analysis does not stand up to de novo
review. The Resilient Floor opinion is of limited authority, given its alternative holdings
and its ultimate conclusion that the workers in question were independent contractors
and not, in fact, covered employees. Moreover, the excerpt from Resilient Floor quoted
Nos. 08-1457/1994           Trustees of Detroit Carpenters Fringe Benefit             Page 9
                            Funds v. Industrial Contracting, et al.

by the district court – that “‘an intent to evade’ preexisting obligations is ‘clearly the
focus of the alter ego doctrine’” – is taken from the statement in Allcoast that “[t]he alter
ego doctrine was developed to prevent employers from evading obligations under the
[LMRA] merely by changing or altering their corporate form.” Allcoast, 780 F.2d at
579. But, confusing the purpose of the alter ego doctrine with the Sixth Circuit’s test for
determining whether it should be applied apparently led the district court in this case to
conclude – incorrectly – that evidence of an intent to evade was a prerequisite to the
doctrine’s imposition.

        It bears repeating at this point that evidence of an intent to evade, when it
presents itself, is a relevant factor to be considered in determining whether the alter ego
doctrine is applicable, along with “the well-established factors of substantial identity of
management, business purpose, operation, equipment, customers, supervision and
ownership” – but it is not essential to the imposition of alter ego status. Id. at 581; see
also Fullerton Transfer, 910 F.2d at 337 (“[T]his Circuit has not required . . . a showing
of employer intent in order to apply the liberalized alter ego standard. . . . [because]
intent can too easily be disguised.”). To the extent that Resilient Floor can be seen to
conflict with the holding in Allcoast Transfer and Fullerton Transfer, we suggest that
it should be confined to its facts.

        That brings us to the application of the recognized factors to the situation in this
case. As noted above, the record is replete with evidence of entanglement between
LaSalle and Industrial Contracting. The defendants do not contest those facts on appeal,
nor could they, given the documentary nature of the plaintiffs’ proof. Instead, they
maintain that they have never acted purposefully to evade union obligations and that it
is the plaintiffs who were guilty of “culpability or bad faith” in suing the defendants
“concerning on-going audits with which [the defendants] were already cooperating.”
Under these circumstances, we conclude that summary judgment should have been
entered in favor of the plaintiffs, and we therefore remand the case to the district court
with instructions to enter such an order.
Nos. 08-1457/1994        Trustees of Detroit Carpenters Fringe Benefit       Page 10
                         Funds v. Industrial Contracting, et al.

                                  CONCLUSION

       For the reasons set out above, the judgment of the district court is REVERSED,
and the case is REMANDED for entry of judgment in favor of the plaintiffs.