Stardyne, Inc. v. NLRB , 41 F.3d 141 ( 1994 )

Opinions of the United
1994 Decisions States Court of Appeals
for the Third Circuit
12-6-1994
Stardyne, Inc. v. NLRB
Precedential or Non-Precedential:
Docket 94-3054
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 94-3054
____________
STARDYNE, INC.,
Petitioner
v.
NATIONAL LABOR RELATIONS BOARD,
Respondent
United Steelworkers of America, AFL-CIO-CLC,
Intervenor-Respondent
____________
No. 94-3056
____________
JOHNSTOWN CORPORATION,
Petitioner
v.
NATIONAL LABOR RELATIONS BOARD,
Respondent
The United Steelworkers of America, AFL-CIO-CLC,
Intervenor-Respondent
____________
No. 94-3096
____________
NATIONAL LABOR RELATIONS BOARD,
Petitioner
v.
JOHNSTOWN CORPORATION, and its
alter ego, STARDYNE, INC.,
Respondent
United Steelworkers of America, AFL-CIO-CLC,
Intervenor-Respondent
ON PETITION FOR REVIEW AND CROSS-APPLICATION
FOR ENFORCEMENT OF AN ORDER OF
THE NATIONAL LABOR RELATIONS BOARD
(No. 6-CA-22363)
____________________
Argued: September 12, 1994
Before: STAPLETON, ALITO, and LEWIS, Circuit Judges
(Opinion Filed: December 6, 1994)
____________________
MARK E. SCOTT, ESQ. (Argued)
P. O. Box 95
Bridgeville, PA 15017
Attorney for Stardyne, Inc.
CLARE M. GALLAGHER, ESQ. (Argued)
DOEPKEN KEEVICAN WEISS & MEDVED
PROFESSIONAL CORPORATION
37th Floor, USX Tower
600 Grant Street
Pittsburgh, PA 15219
Attorneys for Johnstown Corporation
FREDERICK C. HAVARD (Argued)
Supervising Attorney
MARILYN O'ROURKE, Attorney
National Labor Relations Board
Washington, D.C. 20570
FREDERICK L. FEINSTEIN
General Counsel
LINDA SHER
Acting Associate General Counsel
AILEEN A. ARMSTRONG
Deputy Associate General Counsel
Attorneys for the National Labor
Relations Board
DAVID I. GOLDMAN (Argued)
Assistant General Counsel
United Steelworkers of America
Five Gateway Center
Pittsburgh, PA 15222
Attorney for Intervenor
____________________
OPINION OF THE COURT
____________________
ALITO, Circuit Judge:
Johnstown Corporation ("Johnstown") and Stardyne, Inc.
("Stardyne") have petitioned for review of an order of the
National Labor Relations Board ("the Board"), holding that they
violated Section 8(a)(1) and (5) of the National Labor Relations
Act ("the Act"), 29 U.S.C. § 158(a)(1) and (5), and the Board has
cross-petitioned for enforcement of its order. The Board's order
was predicated on the conclusion that Johnstown and Stardyne were
"alter egos." In reaching this conclusion, the Board did not
disturb a finding by the administrative law judge ("ALJ") that
Stardyne was not created to evade Johnstown's responsibilities
under the Act. In addition, the Board found it unnecessary to
decide whether Johnstown and Stardyne constituted a "single
employer."
In their petition for review, Johnstown and Stardyne
contend, first, that the Board's conclusion that they are alter
egos is inconsistent with the ALJ's undisturbed finding that
Stardyne was not created for the purpose of evading Johnstown's
obligations under the Act. We disagree with this argument.
Johnstown and Stardyne next argue that the Board's holding on the
alter ego question is not supported by substantial evidence.
Again, we disagree. Finally, Johnstown and Stardyne contend that
the Board's alter ego holding is inconsistent with Board
precedent to the effect that the alter ego doctrine is a "subset"
of the single employer doctrine. We find this argument
meritorious. We therefore grant the petition for review in part,
and we deny the Board's cross-petition for enforcement in part.
We remand to the Board for clarification of its precedents
concerning the relationship between the alter ego and single
employer doctrines.
I.
In 1988, Johnstown, a manufacturer of steel products,
established an innovative laser welding operation at its main
facility in Johnstown, Pennsylvania. Scientists affiliated with
Pennsylvania State University headed the project, and Johnstown
also assigned ten of its production and maintenance employees to
work on the laser operation. These employees were members of a
bargaining unit represented by the United Steelworkers of America
(the "union"), and they continued to be covered by Johnstown's
collective bargaining agreement with the union when they were
transferred to the laser operation.
By 1989, the laser operation was experiencing significant
financial problems. Although Johnstown believed that the
operation could become profitable, the company was not prepared
to spend any more money on it. Moreover, the scientists who were
working on the project were demanding a share of the operation.
In order to address these problems, Johnstown decided to sell the
laser operation for approximately $2,550,000 to Stardyne, a newly
created corporation that was jointly owned by Johnstown and
officers of the new company.1 To finance the purchase, Stardyne
borrowed three million dollars. After the arrangements for the
spin-off had been made, management representatives met with the
Johnstown production and maintenance employees who were
interested in continuing to work on the laser operation. All but
one of these employees accepted a job with Stardyne, but under
terms different from those contained in Johnstown's collective
bargaining agreement.
After learning that management had negotiated directly with
and hired production and maintenance employees from Johnstown,
the union wrote a letter to Stardyne requesting that Stardyne
recognize the union as the collective bargaining representative
for these employees. Stardyne, however, refused this request,
and the union filed unfair labor practice charges with the Board.
In response to these charges, the General Counsel filed a
complaint alleging that Johnstown and Stardyne were a "single
employer" and/or "alter egos," or at a minimum, that Stardyne was
1
. Shares of Stardyne were distributed at this time as follows:
40% to Johnstown; 20% to Jack Sheehan (Chairman of the Board and
majority stockholder in Johnstown); 20% to Ed Sheehan (Jack
Sheehan's brother and CEO of Stardyne); and 20% to Stardyne's
other officers.
a "successor" to Johnstown. The complaint charged that Johnstown
and Stardyne had violated Section 8(a)(1) and (5) of the Act, 29
U.S.C. § 158(a)(1) and (5), by bargaining individually with
employees represented by the union, by imposing new working
conditions on these employees, and by repudiating its collective
bargaining agreement with the union.
After notice and a hearing, an ALJ held that Johnstown and
Stardyne were guilty of the unfair labor practices charged in the
complaint. The ALJ turned first to the question whether
Johnstown and Stardyne constituted a single employer or alter
egos. When two entities are found to be a single employer, one
entity's collective bargaining agreement covers the other entity
as well, provided that the two entities' employees constitute a
single appropriate bargaining unit. See South Prairie Constr.
Co. v. Local No. 627, Int'l Union of Operating Engineers, 425
U.S. 800, 805 (1976). However, if two entities are found to be
alter egos, a collective bargaining agreement covering one entity
is automatically deemed to cover the other. Howard Johnson Co.
v. Detroit Local Joint Executive Bd. Hotel & Restaurant
Employees, 417 U.S. 249, 259 n.5 (1974); NLRB v. Omnitest
Inspection Services, Inc., 937 F.2d 112, 122 (3d Cir. 1991).
The ALJ listed the determinative criteria for a single
employer finding as "interrelations of operations, common
management, centralized control of labor relations and common
ownership." 313 N.L.R.B. 170, 178 (1993). The ALJ found that
there was common ownership but no interrelation of operations,
and he found that the evidence was unclear regarding the
participation of Johnstown's management in day-to-day operations
and labor relations decisionmaking at Stardyne. Id. at 180. On
balance, the ALJ refused to hold that Johnstown and Stardyne were
a single employer.
By contrast, the ALJ found that Johnstown and Stardyne were
alter egos. The ALJ observed that "[t]he Board's criteria for
finding that two entities are alter egos are somewhat broader
than its standards for finding a single employe relationship."
Id. In addition to the factors considered in deciding whether
two entities constitute a single employer, the ALJ noted, other
relevant factors in making an alter ego determination include
"substantially identical business purposes, operations,
equipment, customers and supervision." Id. "A further
consideration," the ALJ noted, "is whether the new company was
created `to evade responsibilities under the Act.'" Id.
(quoting Fugazy Continental Corp., 265 N.L.R.B. 1301 (1982)). In
this case, the ALJ found that Johnstown and Stardyne had
substantially identical ownership, business purposes, operations,
equipment, customers, supervision, and employees. Id. The ALJ
refused to find that Stardyne was created to evade Johnstown's
obligations under the Act,2 but the ALJ nevertheless concluded,
2
. The ALJ stated:
When Stardyne went into operation at the end of that
year, twelve of [Johnstown's] 390 employes were
employed by Stardyne. It seems illogical to me that
Johnstown would have staged such an elaborate charade,
involving the borrowing of $3,000,000; considerable
investment in time and money by the Ed Sheehans,
father and son, who became officers in Stardyne and by
Jack Sheehan, who became a director; what must have
based on the totality of the factors, that Johnstown and Stardyne
were alter egos. Id. at 181. Relying on these same factors, the
ALJ also concluded that Stardyne was Johnstown's successor and
was therefore obligated to recognize and bargain with the union
that represented Johnstown's employees.3 Id.
Turning to the substance of the charges in the complaint,
the ALJ held that the two companies had violated Section 8(a)(1)
and (5) of the Act, 29 U.S.C. § 158(a)(1) and (5), when
management representatives bypassed the union, dealt directly
with the Johnstown employees assigned to the laser project, and
induced them to enter into separate employment agreements. The
ALJ further held that the companies had violated Section 8(a)(1)
and (5) by unilaterally altering these employees' working
conditions. The ALJ therefore recommended that the companies be
ordered to recognize and bargain with the union, to abide by the
(..continued)
been substantial sums of money paid to accountants,
bankers and lawyers to set up the new corporation,
arrange for loans and bank accounts, incorporate
Stardyne and draft numerous documents such as
agreements of purchase and sale, and, complex long-
term lease, where in the end, the object was to carve
out a unit of twelve or so people from the bargaining
unit. Whatever long-term goals Johnstown may have
envisioned for Stardyne, or may have now, it does not
seem to me to have been a businesslike decision to
incur all of these expenses for such a meager result.
313 N.L.R.B. at 180-81.
3
. A successor, although not bound by its predecessor's
collective bargaining agreement, is required to recognize and
bargain with the union that represented its predecessor's
employees. NLRB v. Burns Int'l Security Servs. Inc., 406 U.S.
272, 281 (1972); Systems Management Inc. v. NLRB, 901 F.2d 297,
301 (3d Cir. 1990).
terms of the collective bargaining agreement, and to reimburse
any employees who had been injured as a result of any failure to
abide by this agreement. Id. at 183.
Both Johnstown and Stardyne filed exceptions to the ALJ's
decision with the Board, but the Board adopted the ALJ's
recommended order. The Board concluded that it was unnecessary
to review the ALJ's determination that Johnstown and Stardyne
were a single employer, because the ALJ was correct in finding
that "Stardyne is a successor to Johnstown [] as well as an alter
ego." Id. at 171. The Board so held even though it agreed with
the ALJ that "there [was] not sufficient evidence to establish
that Stardyne was created so that Johnstown could `evade
responsibilities under the Act.'" Id. (citation omitted).
Johnstown and Stardyne independently petitioned this court
for review, and the Board filed a cross-application for
enforcement of its order. In their petitions for review, the
companies each argue that they cannot be alter egos as a matter
of law because the Board expressly found that Stardyne was not
created to evade responsibilities under the National Labor
Relations Act. They also argue that the Board's finding that
they were alter egos is not supported by substantial evidence.
Last, Johnstown and Stardyne argue that under established Board
precedent, the ALJ's undisturbed finding that they were not a
single employer precluded a finding that they were alter egos.
They do not contest the Board's conclusion that Stardyne was
Johnstown's successor.
II.
A. Application of the National Labor Relations Act to
cases involving a reorganization of an employer has proven to be
vexing. In order to deal with such cases, the Board developed
its alter ego doctrine, which was first recognized by the Supreme
Court in Southport Petroleum Co. v. NLRB, 315 U.S. 100, 106
(1942).
In Southport, after the Board had issued a remedial order
against a company, the company was dissolved and reorganized, and
the Board then sought enforcement against the new corporation.
The new shareholders sought dismissal of the order because the
predecessor company had been dissolved, but the Supreme Court
rejected their claims, noting that "[w]hether there was a bona
fide discontinuance and a true change of ownership--which would
terminate the duty of reinstatement created by the Board's order-
-or merely a disguised continuance of the old employer . . . is a
question of fact to be resolved by the Board . . . ." Id. As
the Court later explained in Howard Johnson, 417 U.S. at 259 n.5:
[Alter ego] cases involve a mere technical change in
the structure or identity of the employing entity,
frequently to avoid the effect of the labor laws,
without any substantial change in its ownership or
management. In these circumstances the courts have
had little difficulty holding that the successor is in
reality the same employer and is subject to all the
legal and contractual obligations of its predecessor.
Following Southport and Howard Johnson, the Board, in
Crawford Door Sales Co., 226 N.L.R.B. 1144 (1976), enunciated
seven objective factors that it has consistently applied in
evaluating whether two companies are alter egos. These factors
are whether "the two enterprises have `substantially identical'
management, business purpose, operation, equipment, customers,
and supervision, as well as ownership." Id. The Board does not
require the presence of each factor to conclude that alter ego
status should be applied. See, e.g., Fugazy Continental Corp.,
265 N.L.R.B. at 1301-02.
B. A major issue in this case is whether the Board, when
it seeks to apply the alter ego doctrine, must find that the
change in ownership was motivated by an intent to avoid
obligations under the National Labor Relations Act. This issue
has yielded no consensus among the courts of appeals that have
considered it.4 The Board, however, does not require a finding
4
. Generally, the circuits have taken three different
approaches. See generally Gary MacDonald, Labor Law's Alter Ego
Doctrine: The Role of Employer Motive in Corporate
Transformations, 86 Mich. L. Rev. 1024, 1039-52 (1988) (surveying
the positions taken by the courts of appeals). Both the First
Circuit and Eighth Circuits have held that illicit intent is the
critical inquiry in an alter ego determination. Penntech Papers,
Inc. v. NLRB, 706 F.2d 18, 24 (1st Cir.), cert. denied, 464 U.S.
892 (1983); Iowa Express Distribution, Inc. v. NLRB, 739 F.2d
1305, 1311 (8th Cir.), cert. denied, 496 U.S. 1088 (1984). The
Second, Fifth, Sixth, Seventh, Ninth, and District of Columbia
Circuits have held that intent is not essential to the imposition
of alter ego liability but is a factor that the Board may take
into consideration. Goodman Piping Prods. v. NLRB, 741 F.2d 10,
11 (2d Cir. 1984); Carpenters Local Union No. 1846 v. Pratt-
Farnsworth, Inc. 690 F.2d 489, 508 (5th Cir. 1982), cert. denied,
464 U.S. 932 (1983); NLRB v. Allcoast Transfer, Inc., 780 F.2d
576, 581 (6th Cir. 1986); NLRB v. Bell Co., 561 F.2d 1264, 1268
n.4 (7th Cir. 1977); Tanaka Constr., Inc. v. NLRB, 675 F.2d 1029,
1033 (9th Cir. 1982); NLRB v. Tricor Prods., 636 F.2d 266, 270
(10th Cir. 1980); Fugazy Continental Corp. v. NLRB, 725 F.2d
1416, 1419 (D.C. Cir. 1984). Finally, the Fourth Circuit has
adopted a "reasonably foreseeable benefit" standard that focuses
on "whether the transfer resulted in an expected or reasonably
foreseeable benefit to the old employer related to the
elimination of its labor obligations." Alkire v. NLRB, 716 F.2d
1014, 1019-20 (4th Cir. 1983).
of "intent to evade responsibilities under the Act," but treats
such intent as an additional factor to be considered (in addition
to the Crawford Doors factors) when determining alter ego status.
See, e.g., Hiysota Fuel Co., 280 N.L.R.B. 763, 763 n.2 (1986);
Fugazy Continental Corp., 265 N.L.R.B. at 1301; Advanced
Electric, Inc., 268 N.L.R.B. 1001, 1002 (1984).
In deciding whether the Board's position should be
sustained, we apply the standards set out by the Supreme Court in
Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc.,
467 U.S. 837 (1984). See ABF Freight Systems, Inc. v. NLRB, 114
S. Ct. 835, 839 (1994); Lechmere, Inc. v. NLRB, 112 S. Ct. 841,
847-48(1992); Resorts Int'l Hotel Casino v. NLRB, 996 F.2d 1553,
1555 (3d Cir. 1993). We first ask "whether Congress has directly
spoken to the precise question at issue." Chevron, 467 U.S. at
842. "If the intent of Congress is clear, that is the end of the
matter." Id. If it is not, we may not "simply impose [our] own
construction on the statute." Id. "Rather, if the statute is
silent or ambiguous with respect to the specific issue, the
(..continued)
The commentators who have discussed this issue are also
divided. Compare Frederick Slicker, A Reconsideration of the
Doctrine of Employer Successorship--A Step Toward a Rational
Approach, 57 Minn. L. Rev. 1051, 1064 (1973) (arguing for an
intent based standard); Comment, Bargaining Obligations After
Corporate Transformations, 54 N.Y.U. L. Rev. 624, 638 (1979)
(same) with Stephen Befort, Labor Law and the Double Breasted
Employer: A Critique of the Single Employer and Alter Ego
Doctrines and a Proposed Reformulation, 67 Wisc. L. Rev. 67, 101
(1987) (arguing against requiring intent); Gary MacDonald, Labor
Law's Alter Ego Doctrine: The Role of Employer Motive in
Corporate Transformations, 86 Mich. L. Rev. 1024, 1056 (1988)
(same).
question for the court is whether the agency's answer is based on
a permissible construction of the statute." Chevron, 467 U.S. at
843; see Pauley v. Bethenergy Mines, Inc., 111 S. Ct. 2524, 2534
(1991).
In the present case, it is clear that Congress has not
"directly spoken to the precise question at issue." Chevron, 467
U.S. at 842. Section 8(a) of the National Labor Relations Act,
29 U.S.C. § 158(a), makes it an unfair labor practice for an
"employer" to engage in certain practices, including those
charged in this case, i.e., interfering with employees in the
exercise of their rights under Section 7 of the Act, 29 U.S.C. §
157, and refusing to bargain with their employees'
representatives. 29 U.S.C. § 158(a)(1) and (5). Section 2(2) of
the Act, 29 U.S.C. § 152(2), defines the term "employer" broadly,
stating that it "includes any person acting as an agent of the
employer, directly or indirectly . . . ," and the use of the
term "includes" clearly indicates that this definition was not
meant to be comprehensive. Therefore, the language of the Act
does not dictate the definition of an alter ego.
The Board, however, is charged with the responsibility of
interpreting and enforcing the Act. NLRB v. Curtin Matheson
Scientific, Inc., 494 U.S. 775, 786-87 (1990); NLRB v. Erie
Resistor Corp., 373 U.S. 221, 236 (1963). Thus, the Board's
alter ego policy is properly viewed as a gap-filling measure,
adopted through case-by-case adjudication, to flesh out the
concept of an "employer" under the relevant provisions of the
Act.5 See Morton v. Ruiz, 415 U.S. 199, 231 (1974) ("The power
of an administrative agency to administer a congressionally
created and funded program necessarily requires the formulation
of policy and the making of rules to fill any gap left,
implicitly or explicitly, by Congress")
Although the Act does not compel the Board's alter ego
test, we defer to that test because it is consistent with the
purposes and policies of the Act. See Omnitest, 937 F.2d at 118.
We recognize the "Board's special function of applying the
general provisions of the Act to the complexities of industrial
life." Erie Resistor, 373 U.S. at 236; see 29 U.S.C.A. § 156.
In the present context, determining the role of intent in alter
ego analysis involves a policy choice requiring a balancing of,
on the one hand, an employer's "freedom to contract . . .
includ[ing] 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," Scott, 612
F.2d at 789 (Sloviter, J., dissenting), and, on the other, the
desire to protect employees from "sudden change[s] in the
employment relationship," John Wiley & Sons, Inc. v. Livingston,
376 U.S. 543 (1964), and to "prevent employers from evading
5
. See In re Goodman, 873 F.2d 598, 602-03 (2d Cir. 1989)
(holding that the question of whether an employer is an alter ego
of a prior employer for purposes of liability under the Act is a
"question of substantive federal labor law" to be determined by
the Board).
obligations under the Act by merely changing or altering their
corporate form." Allcoast, 780 F.2d at 582.6
We view the Board's resolution of this conflict as
consistent with the Act. First, it can be argued that the
Board's policy, which relies primarily on an examination of
objective criteria, provides for easier and more consistent
application of the Act than one in which intent is an essential
element. It may be difficult to determine intent when there are
facially legitimate business reasons that support a change in
corporate form. See Allcoast, 780 F.2d at 582. Accordingly, the
Board's objective test arguably serves to prevent "industrial
strife and unrest," 29 U.S.C. § 151, by restricting the ability
of employers to use a pretext in order to avoid their labor
obligations. Second, the Board's policy can be defended on the
ground that it provides a degree of protection for the legitimate
expectations of workers who enter into a collective bargaining
agreement with the understanding that it will continue to apply
so long as they are working for what they regard as the "same"
employer. It can also be argued that the Board's policy
furnishes this protection while at the same time generally
6
. As the Supreme Court in United States v. Shimmer, 367 U.S.
374, 383 (1961), made clear, it is the agency's prerogative to
choose between two competing, justifiable policy considerations:
If this choice represents a reasonable accommodation of
conflicting policies that were committed to the
agency's care by the statute, we should not disturb it
unless it appears from the statute . . . that the
accommodation is not one that Congress would have
sanctioned.
permitting changes in ownership of employers without saddling the
successor with collective bargaining agreements to which they did
not agree. See Burns, 406 U.S. at 281-82.7, In this way, the
Board's rule can be said to promote the Act's goal of encouraging
the use of collective bargaining arrangements as a way to balance
economic bargaining power.8 See 29 U.S.C. § 151. In short,
while we are by no means sure that we would select the Board's
test if we were choosing on our own, we find that test to be a
permissible construction of the Act.
C. Johnstown and Stardyne argue that the Board's
interpretation of the Act is not controlling because our court
has already held that intent is a necessary element in an alter
ego determination. A careful review of the law of this circuit,
however, indicates that we have not definitively resolved this
issue.
Our court first addressed the role of intent in this
context in NLRB v. Scott Printing Corp., 612 F.2d 783 (3rd Cir.
1979). In that case, Scott Printing sold one portion of its
business, the composing room, to two employees, id. at 785, and a
divided panel of our court sustained the Board's conclusion that
the new company was an alter ego of the original company and was
7
. Nor does the Act prevent an employer from going out of
business. See Textile Workers Union v. Darlington Manufacturing
Co., 380 U.S. 263, 272 (1965).
8
. The reasonableness of the Board's policy is further supported
by the fact that it has been adopted by the majority of the
circuits that have addressed the issue. See supra note 4.
therefore obligated under the Act to assume its collective
bargaining obligations, id. at 788-89. In support of its
holding, the majority noted that operation of the composing room
remained unchanged after the sale, that no rent was paid, and
that there was substantial intermingling in the use of supplies
and support staff. Id. at 787-88. As for the requirement of
intent, the majority stated: "Assuming without deciding in this
case the General Counsel must prove that Scott Printing intended
to evade its duty to bargain, we find that there is substantial
evidence to support the ALJ's conclusion." Id. at 787 (emphasis
added). Thus, although Judge Sloviter argued vigorously in
dissent that antiunion animus or an intent to evade labor
obligations is required to support a finding that two entities
are alter egos, id. at 790, the majority did not reach this
question.
Our court again found it unnecessary to resolve this
question in NLRB v. Al Bryant, Inc., 711 F.2d 543 (3rd Cir.
1983), cert. denied, 464 U.S. 1039 (1984). There, we affirmed a
Board decision holding that two construction companies were alter
egos. Id. at 554. We noted the presence of objective factors
indicative of alter ego status, such as shared space, assumption
of debts, and the employment of the same workers. Id. As for
intent, we noted: "[I]t is significant, if not crucial, that
[the successor company] was created after the filing of unfair
labor practice charges against the [predecessor companies] . . .
." Id. (emphasis added).
 We again discussed the alter ego question in NLRB &
Omnitest Inspection Services, Inc., 937 F.2d 112 (3rd Cir. 1991),
where we upheld the Board's determination of alter ego status
based on the substantial identity of the two businesses. On the
question of intent, we first stated:
For an alter ego relationship to exist, a purpose to
avoid the old employer's labor obligations under a
collective bargaining agreement or under the Act must
underlie the formation of the new employer. Fugazy
Continental Corp., 265 N.L.R.B. at 1302.
Id. at 118. While this statement appears to support the argument
advanced by Johnstown and Stardyne in this case, we do not
interpret Omnitest as having conclusively resolved the question
at issue. It is noteworthy that the previously quoted statement
from the Omnitest opinion was supported solely by a citation to
Fugazy Continental Corp., 265 N.L.R.B. at 1302. In Fugazy
Continental Corp., after reviewing the objective factors that
must be considered in making an alter ego determination, the
Board added:
We must also consider whether the purpose behind the
creation of the alleged alter ego was legitimate or
whether, instead, its purpose was to evade
responsibilities under the Act.
265 N.L.R.B. at 1302 (emphasis added) (footnote omitted).
Moreover, other language in the Omnitest opinion suggests that no
single factor is essential to a determination that two entities
are alter egos. After listing the factors that are relevant, the
court wrote:
None of these factors, however, "taken alone, is the
sine qua non of alter ego status." Fugazy Continental
Corp., 265 N.L.R.B. at 1301-02; Woodline Motor
Freight, 278 N.L.R.B. at 1231, enforced in relevant
part, 843 F.2d at 288-89. Instead, the sum total of
the factors, viewed together, help determine whether
the two employers are "`the same business in the same
market.'" Fugazy Continental Corp., 265 N.L.R.B. at
1301-02 (quoting International Harvester Co. & Muller
International Trucks, Inc., 247 N.L.R.B. 791, 798
(1980)).
937 F.2d at 118. Later, the court reiterated:
As we have explained, no one factor, "taken alone, is
the sine qua non of alter ego status." Fugazy
Continental Corp., 265 N.L.R.B. at 1301-02.
Id. at 121. These statements, coupled with the court's repeated
reliance on Fugazy Continental Corp., suggest that the court did
not intend to go beyond the proposition endorsed by the Board in
Fugazy Continental Corp., viz., that an intent to evade
responsibilities under the Act is a factor that must be
considered.
Furthermore, we believe that the Omnitest court's holding -
- that the Board's alter ego finding was supported by substantial
evidence -- is consistent with this interpretation. The Board's
finding was based on numerous factors (including an intent to
evade obligations under the Act), and our court found that the
Board's findings concerning these multiple factors were supported
by substantial evidence. Nothing in our opinion, with the
possible exception of the first statement quoted above, suggests
that the finding of an intent to evade responsibilities under the
Act was critical to our holding. For all of these reasons, we do
not interpret Omnitest as binding circuit precedent for the
proposition that an alter ego relationship cannot exist without
an intent to escape obligations under the Act.
We most recently referred to the alter ego doctrine in
Eichleay Corp. v. International Assoc. of Bridge, Structural and
Ornamental Iron Workers, 944 F.2d 1047 (3d Cir. 1991), cert.
dismissed, 112 S. Ct. 1285 (1992). Eichleay Corporation, a union
shop construction company, was a signatory to nationwide
collective bargaining agreements known as NMAs. After a non-
union shop subsidiary, Eichleay Constructors, Inc. ("ECI"),
entered into a joint venture to renovate a steel mill, several
unions filed grievances against Eichleay, claiming that it was
performing work on the renovation project in violation of the
NMAs. The arbitration panel issued awards in favor of the
unions, finding that Eichleay was "present at the project" and
was obligated to apply the NMAs to work performed on the project.
See 944 F.2d at 1054-55, 1058 n.11; Eichleay App. at 461-62. The
district court vacated the awards, but we directed that they be
confirmed in part.
We interpreted part of the awards to be based on the theory
that the NMAs impliedly required Eichleay to refrain from setting
up another "corporation to which it transferred work to avoid the
[NMAs]." 944 F.2d at 1058 (citation omitted). Applying the
"extremely deferential" standard employed in reviewing
arbitration awards, id. at 1059, we held that there was
sufficient evidence to support the portion of the awards based on
this theory, id. at 1059-60. Thus, in Eichleay we sustained an
arbitration award based on the breach of an implied contractual
obligation. In reviewing this award, it was not necessary to
interpret or apply the National Labor Relations Act or the alter
ego doctrine that the Board has developed pursuant to the Act.
Nevertheless, apparently because the contract question at
issue implicated the nature of the relationship between Eichleay
and ECI, our opinion discussed the Board's alter ego doctrine,
and in the course of that discussion our opinion made several
statements that appear to support the view that the Board cannot
find an alter ego relationship unless the employer intended to
evade its obligations under the Act. We stated:
The ultimate focus of alter ego analysis, however, is
"the existence of a disguised continuance or an
attempt to avoid the obligations of a collective
bargaining agreement through a sham transaction or a
technical change in operations."
944 F.2d at 1059 (quoting Al Bryant, 711 F.2d at 553) (quoting
Carpenters Local, 690 F.2d 489 at 508). Moreover, after noting
that the Board, in an order not under review by our court, had
held that Eichleay and the ECI were a single employer, we said:
The additional finding required for alter ego status,
that the second company be formed to avoid the
responsibilities of the first company's collective
bargaining agreement, is also supported in this case.
944 F.2d at 1060.
Although these statements seem to support the arguments
advanced by Johnstown and Stardyne here, we do not regard them as
controlling, since they were clearly dicta rendered in a
substantially different context. While it is a tradition of our
court that one panel may not overrule a decision of a prior
panel, that does not mean that important questions, such as the
one before us, should be decided based on dicta such as the
statements quoted above.
We therefore find that the Board's construction of the Act
is not in conflict with any prior decision of our court, and
since the Board's interpretation of the Act is reasonable, it
should be accorded deference.
III.
We now consider whether the record supports the Board's
application of its policy to the facts of the case. The
determination whether two companies are alter egos is a question
of fact for the Board, Southport, 315 U.S. at 106, and we must,
of course, accept the Board's factual determinations and
reasonable inferences derived from factual determinations if they
are supported by substantial evidence. 29 U.S.C. § 160(e);
Universal Camera Corp. v. NLRB, 340 U.S. 474, 488 (1951); Scott,
612 F.2d at 787; NLRB v. Eagle Material Handling, Inc., 558 F.2d
160, 164 n.6 (3d Cir. 1977). Consequently, we are not free to
substitute our view of the record even if we would have reached
different conclusions on de novo review. Universal Camera, 340
U.S. at 488.
As discussed above, in order to determine whether there has
been a true change in ownership or merely a disguised
continuance, the Board looks to whether the new and old employers
share "'substantially identical' management, business purpose,
operation, equipment, customers, and supervision, as well as
ownership." Crawford Doors, 226 N.L.R.B. at 1144. In addition,
as noted, an intent to evade the Act is an important, but not an
essential, factor. See, e.g., Hiysota Fuel, 280 N.L.R.B. at 763
n.2. The main focus of the inquiry is to determine whether the
two employers are the same business in the same market.
International Harvester Co. & Muller Int'l Trucks, Inc., 247
N.L.R.B. 791, 798 (1980).
We find that there is substantial evidence on the record to
uphold the Board's conclusion that most of the Crawford Doors
factors are present in this case. Although the record does not
indicate that Johnstown actually managed Stardyne after the spin-
off, the record does support the Board's finding of a continuity
in the management and supervision of the laser operation.
Several Stardyne managers, including Stardyne's president,
managed the laser operations at Johnstown. See Al Bryant, 711
F.2d at 554 (alter ego finding where old managers continued to
perform same function in new company).
The Board's finding of a continuity of business purpose is
also supported in the record. Although Stardyne argues that
laser production took a more commercial focus under its
leadership, the record supports the Board's view that this was a
basic purpose of the facility under Johnstown. Likewise, the
Board's conclusion that a substantial identity of operation
existed is also supported in the record. The record clearly
indicates that the day-to-day operation of the laser remained
nearly unchanged after the transition. As to identity of
equipment, the record indicates that Stardyne used mostly the
same equipment, except for one new laser, as was used at the
Johnstown facility and that Stardyne's operation is located in
the exact same place where Johnstown operated the laser
facility.9 See Omnitest, 937 F.2d at 117 (alter ego finding when
new business stayed in the same location). The record also
indicates an overlap in customer base between the two operations.
Finally, the Board correctly concluded that Johnstown and
Stardyne had substantially identical ownership since Johnstown
owned 40% of Stardyne and Jack Sheehan, Johnstown's principal
stockholder, also owned 20% of Stardyne. App. 171-72, 480-81; see
Scott Printing, 612 F.2d at 786 (alter ego finding where previous
owners retained substantial control after sale of business); see
also Haley & Haley, Inc., 289 N.L.R.B. 649, 652 (1988), enforced
880 F.2d 1147 (9th Cir. 1989) (substantial identity of ownership
found in parent-subsidiary relationship). Thus, although there
was no finding that Johnstown exercised centralized control over
the management of Stardyne, the remainder of the Crawford Doors
factors are supported by the record. The lack of an intent to
evade obligations under the Act, weighs against a finding of
alter ego status. Nevertheless, the record as a whole contains
substantial evidence supporting the Board's alter ego finding.
9
. The record also indicates that Stardyne used Johnstown's
address and retained its previous telephone number.
IV.
The companies' final argument is that Board precedent
prevents a finding of alter ego status because of the ALJ's
undisturbed finding that the companies were not a single
employer.10 In making this argument, the companies rely on the
Board's decision in Gartner-Harf Co., 308 N.L.R.B. 531, 533 n.8
(1992), which stated that "in Board law, alter ego is in effect a
subset of the single employer concept . . . ." The companies
argue that because they do not constitute a single employer, they
cannot be alter egos.
Putting aside Gartner-Harf, we see no reason why the alter
ego doctrine must be considered a subset of the single employer
doctrine. Although these two doctrines are related, the Board
has traditionally taken the position that they are distinct,
see, e.g., Dahl Fish Co., 279 N.L.R.B. 1084, 1086 (1986). See
also Al Bryant, 711 F.2d at 551. See generally Iowa Express, 739
F.2d at 1310 (explaining difference between the two doctrines).11
The single employer doctrine generally applies to situations
where two entities concurrently perform the same function and one
10
. The Board did not reach the ALJ's single employer
determination because it found that the ALJ's alter ego finding
was sufficient to support the ALJ's order. 313 N.L.R.B. at 170.
11
. Another difference between the two doctrines is that a
finding that two employers are a single employer does not end the
analysis. The two groups of employees must still be determined
to be an appropriate single unit in order for the collective
bargaining agreement of one to apply to the other. See, e.g.,
South Prairie Constr., 425 U.S. at 805.
entity recognizes the union and the other does not. Gilroy Sheet
Metal, 280 N.L.R.B. 1075 n.1 (1986); Iowa Express, 739 F.2d at
1310; Carpenters Local, 690 F.2d at 508. In making a single
employer determination, the Board uses four criteria:
interrelation of operations, common management, centralized
control of labor relations, and common ownership. See Radio &
Television Broadcast Technicians Local 1264 v. Broadcast Serv. of
Mobile, Inc., 380 U.S. 255, 256 (1965) (per curiam); Al Bryant,
711 F.2d at 554; see generally McDonald, supra at 1033 n.66. The
alter ego doctrine, by contrast, examines seven objective
criteria plus intent and usually comes into play when a new legal
entity has replaced the predecessor (or at least the unionized
portion of the predecessor). See Howard Johnson, 417 U.S. at 259
n.5.
While we are thus unsure why the alter ego should be
regarded as a subset of the single employer doctrine, the Board
in Gartner-Harf appears to have so held. Gartner-Harf involved
the question whether a company was the alter ego of the entities
that took over its business. The ALJ found that the company was
the alter ego of these entities and, although he indicated that
the employers in question could be considered a "single
employer," he did not expressly find that they were. 308
N.L.R.B. at 542. The Board reversed the ALJ, explicitly finding
that the companies in question were not a "single employer." Id.
at 533. The Board noted that the General Counsel had admitted in
his brief that "in Board law, alter ego is in effect a subset of
the single employer concept (i.e., not all single employers are
alter egos, but all alter egos by definition met [sic] the
criteria for single employer status)." Id. at 533 n.8. The
Board then disposed of the General Counsel's alter ego claim by
stating that it failed "a fortiori" since the companies did not
constitute a single employer. Id. However, the Board added:
"We also note that the record does not show that the Respondent
is merely a disguised continuance of the old employer." Id.
In this case, the Board majority attempted to distinguish
Gartner-Harf. Stating that it refused to "engage in extended
dicta on theoretical differences between alter ego and single
employer concepts," 313 N.L.R.B. at 170 n.3, a majority of the
Board asserted that Gartner-Harf did not apply because in
Gartner-Harf, unlike this case, the record showed that there was
no disguised continuance. Id. Thus, the Board majority, without
repudiating Gartner-Harf's teaching concerning the relationship
between the single employer and alter ego doctrines, held that
Johnstown and Stardyne, although apparently not a single
employer, were nevertheless alter egos.
We cannot accept the Board majority's reasoning. If it is
true, as Gartner-Harf held, that "all alter egos by definition
[meet] the criteria for single employer status," 308 N.L.R.B. at
533 n.8, and if it is true, as the ALJ in this case found, that
Johnstown and Stardyne are not a single employer, then it must
follow that Johnstown and Stardyne are not alter egos. On the
other hand, if Johnstown and Stardyne are alter egos, as the
Board held, then either Gartner-Harf's holding with respect to
the relationship between the single employer and alter ego
doctrines was wrong or the ALJ's finding that Johnstown and
Stardyne are not a single employer was wrong. For these reasons,
the Board majority's failure to follow or repudiate Gartner-
Harf's teaching is troubling to us, as it was to the Board member
who concurred in this case. See 313 N.L.R.B. at 172-73 (Member
Raudabaugh, concurring). We are further disturbed by the Board's
subsequent decision in Teamsters Local 776, 313 N.L.R.B. 1148
(1994). In that case, the Board affirmed the judgment of an ALJ
who explicitly relied on Gartner-Harf's reasoning in deciding a
question of alter ego status. Teamsters Local, 313 N.L.R.B. at
1164.
We hold that the Board's failure in this case to follow or
repudiate its prior holding in Gartner-Harf was arbitrary and
capricious and a violation of the Administrative Procedures Act.
5 U.S.C. § 706(2)(A).12 It is well established that even when an
agency is creating policies to fill a gap in an ambiguous
statute, the agency has a responsibility to explain its failure
to follow established precedent. Atchison, Topeka & Santa Fe Ry.
v. Wichita Bd. of Trade, 412 U.S. 800, 807-09 (1973); King
Broadcasting Co. v. FCC, 860 F.2d 465, 470 (D.C. Cir. 1988). The
12
. Section 706 states:
The reviewing court shall . . .
(2) hold unlawful and set aside agency action,
findings, and conclusions found to be . . .
(A) arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with
law.
"requirement that the Board provide analysis and findings serves
as a prophylaxis against an arbitrary exercise of the Board's
power." NLRB v. Armcor Industries, 535 F.2d 239, 245 (3d Cir.
1976) (quoting Walgreen Co. v. NLRB, 509 F.2d 1014, 1018 (7th
Cir. 1975)). This not to say that the Board is forever bound by
prior precedent, but only that when it departs from controlling
precedent, it must present a reasoned explanation for the
departure. See NLRB v. J. Weingarten, Inc., 420 U.S. 251, 265-66
(1975) (Board may change policies through evolving case law). As
the Supreme Court has explained:
[An] agency may flatly repudiate those norms,
deciding, for example that changed circumstances mean
that they are no longer required in order to
effectuate congressional policy. Or it may narrow the
zone in which the rule will be applied, because it
appears that a more discriminating invocation of the
rule will best serve some congressional policy. Or it
may find that, although the rule in general serves
useful purposes, peculiarities of the case before it
suggest that the rule not be applied in that case.
Whatever the ground for the departure from prior
norms, however, it must be clearly set forth so that
the reviewing court may understand the basis of the
agency's action and so may judge the consistency of
that action with the agency's mandate.
Atchison, Topeka & Santa Fe Ry., 412 U.S. at 808.
Here, the Board's explanation for its failure to apply
Gartner-Harf fell short of this standard, and we therefore remand
this case to the Board so that it can reconcile the contradictory
case law that it has developed. We express no view on how this
resolution should be made, but hold only that the Board must
provide a reasoned explanation for its refusal to apply Gartner-
Harf to this case.
V.
The Board's finding that Stardyne is Johnstown's successor
is unchallenged on appeal, and therefore we grant the Board's
application to enforce the portion of its order requiring
Stardyne to recognize and bargain with the union that represents
Johnstown's employees. See page 8, footnote 3, supra. Due to
the need for a remand on the Gartner-Harf issue, however, we
grant the companies' petition for review and deny the Board's
petition for enforcement of the remainder of the order, and we
remand this case to the Board for further proceedings.