Court Opinion

ID: 9472277
Source: CourtListenerOpinion
Date Created: 2023-08-05 03:55:06.282933+00
Date Added: 2024-06-11T17:42:50.532086
License: Public Domain

BECKER, Circuit Judge,
dissenting:
By analyzing each of the traditional legal doctrines under which a corporation can be held responsible for the commitments of a related corporation, and concluding that this case does not fit into any of the pigeonholes, Chief Judge Seitz’s opinion neatly compartmentalizes FTWP’s claim that the collective bargaining agreement signed by FTWP and Bell of Pennsylvania should apply to ABI. I believe, however, that in focusing so carefully on the trees, the majority missed the forest. The touchstone of the district court’s conclusion,that ABI is bound by the collective bargaining agreement was that in this sui generis case, involving as it does a transfer of assets from one wholly owned AT & T subsidiary to another wholly owned AT & T subsidiary as part of a court-approved consent decree accomplishing the largest divestiture in American history, it would be inequitable to permit AT & T. to avoid its contractual obligations to FTWP by relying on the formalities of corporate structure. I agree.
Bell of Pennsylvania (“Bell”) was a wholly owned subsidiary of AT & T. Prior to the great divestiture of 1984, Bell was responsible, inter alia, for operating phone stores and providing customer-premise services and equipment in Pennsylvania. FTWP is the union that represents Bell’s employees. In early 1982, because of the Justice Department’s ongoing antitrust suit against AT & T and because of an investigation by the FCC into anti-competitive practices by AT & T, it appeared likely that substantial changes in the corporate structure of AT & T were in the offing. Therefore, on June 2; 1982, FTWP and Bell entered into a “Memorandum of Agreement” (“MOA”) for the purpose of contractually protecting the jobs of Bell employees in the event that changes in the structure of AT & T were wrought by “legislation (statute), regulatory order, court order or other*890wise.” MOA at 1. Paragraph 12 of this MOA provides in part:
In addition, Bell of Pa. agrees that it will secure as a condition of any sale or other voluntary transfer of ownership of all or part of its business and physical assets, the assent of any successor organization that the collective bargaining agreement between it and FTWP shall continue in effect and bind the successor organization.
At trial, counsel for the appellant conceded in answer to an inquiry by the court that: “I agree that [paragraph 12] is an obligation on the part of Bell of Pennsylvania to attempt to bind the successor organization to the collective bargaining agreement.” Appendix at A69.
On July 1, 1982, in preparation for the court-ordered divestiture, ABI was created as a wholly owned subsidiary of AT & T. As part of the divestiture, Bell transferred a substantial portion of its assets (including many of its phone stores and its customer-premise service and equipment business) to ABI for no compensation. In explaining why it was appropriate to transfer these assets without requiring compensation, Judge Greene, who presided over the divestiture, stated:
Under long-established general legal principles, the transfer of assets between a parent- and its subsidiary is not an arm’s length transaction for which compensation is. required. Corporate law holds that such a transfer constitutes an intra-enterprise exchange for which compensation is not necessary. The reason for this rule is simple: both before and after the transfer, the same shareholders maintain the same ownership interests in the same assets. The sole difference is that before the spin-off the shareholders’ interests are represented by shares of stock in one company, while after the spin-off their interests are represented by shares in more than one company.
This general rule has routinely been applied to divestitures such as the one involved in these cases____
It is worth noting in this connection that the state regulators ... have traditionally treated AT & T and the Operating Companies as a single enterprise rather than as separate corporations dealing with each other at arm’s length.
United States v. American Telephone & Telegraph Co., 552 F.Supp. 131, 201-02 (D.D.C.1982) (footnotes omitted), aff'd sub nom. Maryland v. United States, 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472 (1983).1
This case arises because Bell breached its obligation under paragraph 12 of the MOA in that it did not obtain the assent of ABI to the collective bargaining agreement between Bell and FTWP as a condition to transferring assets to ABI. Subsequent to the court-ordered asset transfer, ABI hired subcontractors to do work involving the transferred assets (e.g., stocking shelves at the phone center stores) that had previously been done by FTWP members. FTWP believes that this subcontracting violates the collective bargaining agreement, and it therefore filed a grievance against ABI requesting arbitration pursuant to the terms of that agreement. ABI filed this suit in federal court seeking a declaratory judgment that it is not bound by the collective bargaining agreement because it had never signed that agreement. The district court heard testimony by the parties and reviewed almost three hundred pages of documentary evidence, and concluded that ABI was bound by the collective bargain*891ing agreement because “equity regards as done that which ought to be done.”
The district court delivered this pronouncement from the bench, upon conclusion of the testimony and argument. Whether or not the district court would have refined its analysis if it had had more time, the statement does reflect the basic idea that gave rise to the legal doctrines that Chief Judge Seitz, carefully distinguishes in his opinion: corporate formalities will not be observed where they would enable a business entity to avoid its obligations to another party by means that are grossly unfair to the other party. The crucial point is that, for this sui generis case, the district court “got it right.” If one looks at the forest, rather than focusing on each tree individually, it is plain that ABI should be bound by paragraph 12 of the MOA. Succinctly stated, under the circumstances of this case, AT & T and its operating companies should be treated as a single enterprise for purposes of all actions taken in furtherance of the court-ordered divestiture.
I therefore respectfully dissent.

. Judge Greene reaffirmed the single entity theory in his decision approving the reorganization plan:
The ■ contingent liability provisions of the plan assume (1) that prior to divestiture the Bell System operated as a single unit, and (2) that the residual risks of the System’s predivestiture operations should be shared by all entities which receive a part of the System’s assets____
Until the time the reorganization takes effect, the Bell System is legally a single enterprise, with a single claim to the System’s assets and a single responsibility for the System’s liabilities.
United States v. Western Electric Co., Inc., 569 F.Supp. 1057, 1069-70 (D.D.C.1983).