Court Opinion

ID: 9466376
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:13:58.52683+00
Date Added: 2024-06-11T17:39:41.810568
License: Public Domain

SLOVITER, Circuit Judge,
dissenting.
The Board’s order in this case can be enforced against Scott only if there is substantial evidence to support its finding that “J & J was created by Scott for the sole purpose of .continuing its composing room business, J&J functioning as Scott’s alter ego, to avoid its statutory obligation to bargain with the Union.” It can be enforced against J&J only if J&J is functioning as Scott’s alter ego. The record is totally devoid of any evidence to support a finding that J&J was created by Scott “to avoid its statutory obligation.” There is no precedent which would support application of the alter ego doctrine to this situation, and no policy reason has been advanced by the majority in support of the extension of that doctrine to a situation where no evidence of any antiunion animus appears on the record.
The alter ego doctrine has been infrequently invoked and even less frequently analyzed. It represents a departure from the generally accepted principle that an employer’s freedom to contract includes the right to transfer its assets, reorganize its business or close a portion thereof without imposing on its vendee the obligation to adopt its labor contract. NLRB v. Burns International Security Services, Inc., 406 U.S. 272, 282-84, 92 S.Ct. 1571, 32 L.Ed.2d 61 (1972); Textile Workers Union v. Darlington Manufacturing Co., 380 U.S. 263, 268-69, 85 S.Ct. 994, 13 L.Ed.2d 827 (1965). In the main, national labor policy is based on voluntary action by both employers and employees. This freedom of choice is tempered to some extent by the need to effectuate the national policy to promote peaceful settlement of industrial conflicts. Although the national labor laws do not address the issue of employer successorship, labor policy has impelled the Board and the courts to fashion principles by which companies succeeding to the business of a predecessor employer must, in some circumstances, recognize and bargain with the incumbent union, NLRB v. Burns International Security Services, Inc., supra, or arbitrate the extent to which the successor was obligated under the collective bargaining agreement. John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 84 S.Ct. 909, 11 L.Ed.2d 898 (1964).
However, even when there has been identity of the business, an unchanged bargaining unit, and a majority of employees hired by the new employer who were represented by a recently certified bargaining agent, the Court has refused to require that the successor employer be bound by the old collective bargaining contract. As the Court noted:
A potential employer may be willing to take over a moribund business only if he *790can make changes in corporate structure, composition of the labor force, work location, task assignment, and nature of supervision. Saddling such an employer with the terms and conditions of employment contained in the old collective-bargaining contract may make these changes impossible and may discourage and inhibit the transfer of capital.
NLRB v. Burns International Security Services, Inc., 406 U.S. at 287-88, 92 S.Ct. at 1582.
Therein lies the distinction between the successor cases and the alter ego cases. In those cases in which the succeeding corporation has been denominated an alter ego, it is not free to reject the previously existing collective bargaining contract or relationship. Since the “new” employer is considered the same employer in fact as the predecessor, it, unlike the mere successor, is responsible for the predecessor’s labor obligations. Because this imposes an obligation at variance with that ordinarily imposed on a subsequent employer, its application has been limited to “situations in which a technical change in employer identity is merely incident to the former employer’s attempt to disguise its continuance because of that employer’s union animus or an unlawful motive to avoid the commands of national labor laws.” Slicker, A Reconsideration of the Doctrine of Employer Successorship — A Step Toward a Rational Approach, 57 Minn. L.Rev. 1051, 1064 (1973). The alter ego cases have been characterized as instances of “intentional employer evasiveness-.” T. Kheel, Labor Law § 17.02[3] (1972). See United Telegraph Workers v. NLRB, 187 U.S.App.D.C. 231, 571 F.2d 665, 669-70 (D.C.Cir. 1978) (Bazelon, C. J., dissenting).
The cases in which the doctrine has been applied support this limitation. In Southport Petroleum Co. v. NLRB, 315 U.S. 100, 62 S.Ct. 452, 86 L.Ed. 718 (1942), apparently the first Supreme Court recognition of the alter ego doctrine in labor cases, the predecessor corporation had been found guilty of unfair labor practices and discriminatorily discharging three employees. After ignoring directions to follow the NLRB orders, it entered into a stipulation of obedience to the Board order. Three days after it executed that stipulation, it distributed its assets to its four stockholders as a liquidating dividend, and sought to be relieved of its obligations under the stipulation. The case reached the Supreme Court on the circuit court’s refusal to grant the employer leave to adduce this additional evidence before the Board, and was affirmed on the ground that the circuit court acted within its discretion in refusing to order opening of the proceedings because the proffered evidence was not material. The Court stated:
Implicit in the reinstatement provision of the Board’s order was a condition of the continued operation by the offending employer of the refinery to the employment of which the illegally discharged employees were to be restored. Such operation might have continued under thé old business form or under a disguise intended to evade this provision, (emphasis added).
315 U.S. at 106, 62 S.Ct. at 456.
Antiunion animus or intent to evade labor obligations was also evident in the other cases cited by the majority. Thus, in Manley Transfer Co. v. NLRB, 390 F.2d 777 (8th Cir. 1968), before forming a new corporation the employer had engaged in unfair labor practices, threatened the employees with discharge if they did not abandon their union activities, and offered them a wage increase. In NLRB v. Ozark Hardwood Co., 282 F.2d 1 (8th Cir. 1960), there had been prior findings that the employer had interfered with and coerced the employees and had discriminatorily discharged some employees for union activity. See NLRB v. Ozark Hardwood Co., 194 F.2d 963 (8th Cir. 1952). In NLRB v. Herman Brothers Pet Supply, Inc., 325 F.2d 68 (6th Cir. 1963), there was no dispute as to the occurrence of unfair labor practices, such as the employer’s statement to several employees that “he would never sign a union contract, and . he woüld close his business before admitting the union.” Id. at 70. In NLRB v. United States Air Conditioning Corp., 302 F.2d 280 (1st Cir. 1962), the corporate restructuring changed no management personnel but resulted in the firing of the *791production employees of a subsidiary, all of whom were union members. There was also testimony which clearly indicated the antiunion bias of the controlling individual. Id. at 282. The same showing of antiunion bias may be found in other cases relied on by the Board in its brief. In Reynolds Pallet & Box Co. v. NLRB, 324 F.2d 833 (6th Cir. 1963), the employer engaged in coercive conduct during a campaign to organize the employees and discriminatorily discharged employees because of their union activity. In NLRB v. Hopwood Retin-ning Co., 104 F.2d 302 (2d Cir. 1939), the employer had locked out and discharged employees because of their union activity. See NLRB v. Hopwood Retinning Co., 98 F.2d 97 (2d Cir. 1938). In Parklane Hosiery Co., 203 NLRB 597 (1973), there was a history of resistance to unionization and some evidence of intimidation by management of employees it thought were interested in unionization.
The facts of this case more closely approximate those in NLRB v. Bell Company, 561 F.2d 1264 (7th Cir. 1977) where the court refused to find that the role of the former owners in setting up the new company demonstrated that the succeeding company was the alter ego of the former. The NLRB itself has refused to apply the alter ego doctrine where the record fails to show discontinuation of the former company was fraudulent or illusory or was designed as a subterfuge to evade its bargaining obligations to the union. Universal Electric Co., 227 NLRB 1790 (1977).
Viewing the evidence in this case in light of the precedent, the difference in fact situation is striking. There is no suggestion that Scott’s efforts and attempt to sell the composing room were not made in good faith. The impetus for the formation of the new company, J&J, came not from Scott but from the employees themselves. A representative of the Union, not of Scott, notified the employees that the composing room would be shut down. A representative of the Union, not Scott, painted a dismal picture for alternative employment. It was the employee, Varsalona, not a representative of Scott who first raised the possibility of purchase of the composing room with another employee. It was the employee who proposed the idea to Scott, not the converse. There was no pending unfair labor practice charge against Scott, nor was Scott operating under any NLRB order. As a result of the transaction, Varsalona and Peters undertook the binding obligation to pay the purchase price of $30,000 for equipment and $9,000 additional for the rental of the property. It is true that once the employees initiated the discussion of their purchase of the composing room, Scott made every effort to assist them in the formation and operation of the business. The majority bridges the gap by making an inference of unlawful intent from the negotiations and the favorable contract. While Scott’s motivation may have been self-serving rather than eleemosynary, no other case has previously translated a sweetheart relationship into a sham relationship.
There are strong policy reasons to distinguish between this situation and the formation of a company for antiunion reasons or to avoid an outstanding order. In the latter situation, it is necessary to overlook the corporate technicalities in order to prevent subversion of the NLRA process and frustration of national labor policy. On the other hand, in the absence of evidence of such an unlawful motive, the courts have effectuated the countervailing policy that employers can use their business judgment in closing or selling plants or portions thereof. Textile Workers Union v. Darlington Manufacturing Co., supra. The extension of the alter ego doctrine in this case and the enforcement of the Board’s order which required rescission of the contract of sale means that Varsalona and Peters will have lost the opportunity to become entrepreneurs. There is nothing in labor policy which justifies the court under these facts to foreclose them from this economic mobility.