Midwest Precision v. NLRB , 408 F.3d 450 ( 2005 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
No. 04-1862
___________
Midwest Precision Heating and *
Cooling, Inc.; Midwest Heating *
and Air Conditioning, Inc., *
*
Petitioners, *
*
v. *
*
National Labor Relations Board, *
*
Respondent. *
___________
On Petition for Review of an
No. 04-2056 Order of the National Labor
___________ Relations Board.
National Labor Relations Board, *
*
Petitioner, *
*
v. *
*
Midwest Precision Heating and *
Cooling, Inc.; Midwest Hearing *
and Air Conditioning, Inc., *
*
Respondents. *
___________
Submitted: January 10, 2005
Filed: May 19, 2005
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Before SMITH, HEANEY, and COLLOTON, Circuit Judges.
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SMITH, Circuit Judge.
In this appeal from the National Labor Relations Board ("NLRB"), Midwest
Heating and Air Conditioning, Inc. ("Midwest Air Conditioning") seeks reversal of
two NLRB rulings: (1) that Midwest Air Conditioning was the alter ego of Midwest
Precision Heating and Cooling ("Precision") and (2) that Midwest Air Conditioning
violated the National Labor Relations Act, specifically, 29 U.S.C. §§ 158(a)(1), (3),
and (5). Finding no error, we affirm.
I. Background
A. Factual Background
This case turns on the origins and management relationships of three
companies: Precision, Midwest Air Conditioning, and Midwest Heating and Cooling.
For many years, William Lambert was the sole owner and principal manager of both
Precision and Midwest Heating and Cooling. However, William Lambert's sons,
John, Jack, and Jeff Lambert, were heavily involved in their father's businesses.
Precision installed heating and air-conditioning equipment primarily for
builders of new residential construction in Kansas City, Missouri. For two decades,
Precision and Sheet Metal Workers International Association, AFL-CIO ("the
Union") had been parties to a series of collective-bargaining agreements that covered
Precision's manufacturing, fabricating, installation, repairing, and servicing
employees. The most recent collective-bargaining agreement between Precision and
the Union was effective from July 1, 1999 to June 30, 2002. Midwest Heating and
Cooling was a nonunion company that serviced, maintained, and replaced heating and
air-conditioning units. Midwest Heating and Cooling operated out of the second floor
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of the building that housed Precision and was managed by Jack Lambert. Midwest Air
Conditioning was established in 1999 and is owned by John and Jack Lambert.
In the mid-1990s, John Lambert and his brother Jeff Lambert began assuming
managerial duties at Precision. Jeff Lambert managed the shop and served as a
corporate officer. John Lambert, along with William Jones, also served as corporate
officers, bid jobs for Precision, and assigned employees work. In late 1997 or early
1998, William Lambert retired, although he would come into the office a few
mornings a week. John Lambert began using his father's desk, and by 1999, certain
Precision documents identified John Lambert as Precision's president. In March 1999,
William Lambert was involved in a serious automobile accident and was unable to
actively participate in the management of Precision. With William Lambert
incapacitated, John Lambert and William Jones assumed total responsibility for
Precision.
In July 1999, John Lambert, while still managing Precision, incorporated
Midwest Air Conditioning. However, the new company did not hire any employees
or perform any services for any clients in 1999. During that time, John Lambert
continued running and remained president of Precision. According to John Lambert,
he started his own business because he feared his father would never let him gain
complete control of Precision. By January 2000, John Lambert convinced Jack
Lambert, to become joint owner of Midwest Air Conditioning.
Later that month, William Lambert agreed to sell his two businesses, Precision
and Midwest Heating and Cooling, to Midwest Air Conditioning.1 The sales occurred
in separate transactions. First, on January 12, 2000, the day after John Lambert
resigned his employment with Precision, William Lambert sold Midwest Heating and
Cooling to Midwest Air Conditioning for $20,000.00. After purchasing the assets,
1
At that time, William Lambert was diagnosed with cancer.
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Midwest Air Conditioning hired Midwest Heating and Cooling's nonunion employees
and, without any hiatus, continued Midwest Heating and Cooling's business from the
same location.
Second, on January 31, 2000, John Lambert and William Lambert signed an
asset purchase agreement, whereby Midwest Air Conditioning agreed to purchase the
assets of Precision. The agreement was drafted by Precision's attorney and the
purchase price was for $412,107.00. This price was set by Precision's accountant, as
Midwest Air Conditioning did not have separate legal or accounting representation.
The asset purchase agreement called for Midwest Air Conditioning to execute a
promissory note payable to Precision for $412,107.00 plus interest, payable at the rate
of $5,000.00 per month over 10 years. The agreement further provided that in the
event of William Lambert's death, all obligations of the promissory note would be
deemed to be satisfied in full.2 The asset purchase agreement also provided that
Midwest Air Conditioning was not a signatory to any collective bargaining agreement
and did not intend to become signatory to any collective bargaining agreement.
Midwest Air Conditioning also renounced any obligation or intent to hire Precision's
union members/employees.
Precision remained in business after the asset purchase and entered into a lease-
back agreement with Midwest Air Conditioning, whereby Midwest Air Conditioning
agreed to lease back to Precision certain equipment and supplies that Precision
previously had sold to Midwest Air Conditioning. Precision obtained any additional
supplies it needed from Midwest Air Conditioning because Precision lacked a line of
credit. In addition, Jeff Lambert continued to run Precision's shop and William Jones
continued to serve as a manager. John Lambert continued to occupy the same first
floor Midwest Precision office he occupied prior to forming Midwest Air
2
In January 2001, William Lambert lost his battle with cancer and Midwest Air
Conditioning stopped making payments to Precision pursuant to the terms of the
promissory note and the asset purchase agreement.
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Conditioning and purchasing the assets of Midwest Heating and Cooling and
Precision. John Lambert continued to assign Precision employees work, continued to
grant Precision employees time off, and continued serving as a contact person for
Precision's builder clients. In April 2000, Midwest Air Conditioning identified John
Lambert as Precision's president, despite the fact that he resigned from Precision
earlier that year.
In early spring of 2000, nonunion employees of Midwest Air Conditioning
began performing work for Precision that was covered under Precision's collective-
bargaining agreement with the Union. An employee of Precision, Thomas Troy
Hutton ("Hutton"), complained to John Lambert about using nonunion employees to
perform Precision's work. John Lambert responded by offering Hutton a nonunion
position with Midwest Air Conditioning with a $2.00 per hour wage increase, a newer
company van, a helper, and paid vacations and holidays. Hutton accepted and began
working for Midwest Air Conditioning that very day, doing the same work that he
had done for Precision.
In the summer of 2000, Precision employee Walter Eastwood ("Eastwood"),
informed John Lambert that he would be quitting in two weeks. John Lambert and
William Jones then told Eastwood that they would give him more money to stay and
work for Midwest Air Conditioning, and offered him $21.00 per hour. Eastwood did
not accept the offer at that time. A few days later, John Lambert told Eastwood that
if Eastwood would work for his new nonunion company, he would pay Eastwood
$23.00 per hour and provide him with full benefits. Eastwood initially accepted this
offer; he later declined to join Midwest Air Conditioning.
Under the terms of its collective-bargaining agreement with the Union,
Precision was obligated to raise its employees' wages by $2.00 per hour in July 2000.
On the morning of July 28, 2000, Precision faxed a letter to the Union announcing
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that Precision was closing that very day and discharging all the unit employees.
Precision's letter stated as follows:
As of this date, Precision Heating and Cooling, Inc. has determined that
it is necessary to cease doing business. We have been compelled to
terminate all of our employees, which of course, includes members of
your union. We will, in accordance with our obligations under the
collective bargaining agreement, submit the necessary fringe benefit
information and a check depositing the same. It is unfortunate that
Midwest Air Conditioning found it was simply unable to compete with
other residential companies because of the union wage structure.
Midwest Air Conditioning was further impacted due to the union being
unable to provide qualified personnel for the shop. The combinations
[sic] of these two items have caused Midwest Air Conditioning to cease
doing business. Unfortunately, there will be no one employed, even in
management, after July 31, 2000; therefore, if you have any questions,
please direct them to our legal counsel, Thomas Moore. (Emphasis
added.)
That same morning, William Jones and Jeff Lambert called Precision's union
employees into John Lambert's office and told them that they were discharged. Many
of the former employees were then offered jobs at Midwest Air Conditioning. Some
of the Precision employees agreed to work nonunion for Midwest Air Conditioning.
Other union employees refused to work nonunion either that day or shortly thereafter.
Those who accepted the offer were hired that very day to perform the same jobs they
performed for Precision.
That same day, John Lambert also hired his brother Jeff Lambert to manage the
shop for Midwest Air Conditioning, just as he had done for Precision. William Jones
was hired to perform the same duties for Midwest Air Conditioning that he had
formerly performed for Precision. Operating from the same facility that had formerly
housed Precision, Midwest Air Conditioning then finished the work that Precision
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had yet to complete when it closed. On August 1, 2000, Midwest Air Conditioning
sent the following letter to Precision's customers:
Dear Valued Customer,
We are writing this letter to inform you of some changes that are taking
place in our business. As of this date, Precision will no longer be in
business. After a long and difficult decision process, it has become
necessary to close the doors on that business. The difficulties of
remaining competitive with the ever increasing union pay scale and the
inability of the union to provide us with help has made this necessary.
Through retirement and attrition the union journeymen's numbers have
dropped to seven men. While we will miss the skills and contributions
they have made, we feel we have built up the staff of Midwest Heating
and Air Conditioning to offset this loss. We will continue to provide you
with all your HVAC needs.
...
Respectfully submitted,
John Lambert
Midwest Heating and Air Conditioning, Inc.
(Emphasis added.)
Thereafter, Midwest Air Conditioning took out an advertisement claiming that it had
been serving the Kansas City metropolitan area for 39 years. Later, Midwest Air
Conditioning held a sale celebrating its 40th year in business.
In an August 14, 2000 letter addressed to Precision's attorney, Thomas Moore,
the Union's counsel acknowledged that the Union had received Midwest Air
Conditioning's July 28, 2000 fax announcing the discharge of all the union employees
and the closure of Precision. The Union requested bargaining and various
information, but Midwest Air Conditioning never responded.
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Midwest Air Conditioning retained all, or substantially all, of Precision's
residential builder customers. Midwest Air Conditioning also used the same
equipment that Precision used, although Midwest Air Conditioning had purchased
some additional equipment. Midwest Air Conditioning continued to use fifty-nine of
the sixty-one Precision suppliers. Midwest Air Conditioning kept Precision's phone
number and used the same accountant, lawyer, and payroll provider that Precision
used. In addition to performing new residential HVAC work in the same manner as
Precision, Midwest Air Conditioning also performed the service, maintenance, and
replacement HVAC work that nonunion Midwest Heating and Cooling performed.3
Midwest Air Conditioning had not abided by Precision's collective bargaining
agreement, but had credited the Precision employees it hired with their Precision
seniority.
B. Procedural Background
Based upon an unfair labor practice claim filed against Midwest Air
Conditioning by the Union, the NLRB issued a complaint alleging that Precision and
Midwest Air Conditioning were alter egos and that Midwest Air Conditioning
committed a variety of unfair labor practices in violation of the National Labor
Relations Act. The administrative law judge ("ALJ") found that Precision and
Midwest Air Conditioning were alter egos. On appeal, the NLRB affirmed the ALJ
and also found, as had the ALJ, that Midwest Air Conditioning committed five
violations of the National Labor Relations Act, specifically 29 U.S.C. §§ 158(a)(1),
(3) and (5), in that they: first, wrongfully discharged Precision's union-represented
employees; second, offered the wrongfully discharged employees jobs (still
3
As of fall 2000, seventy-five percent of Midwest Air Conditioning's business
comprised the new residential HVAC work that Precision formerly performed. About
twenty-five percent of Midwest Air Conditioning's business was the service,
maintenance, and replacement work that nonunion Midwest Heating and Cooling had
performed. As of June 2001, sixty to seventy percent of Midwest Air Conditioning's
business was new residential HVAC work, and thirty to forty percent was service,
maintenance, and replacement work.
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performing bargaining-unit work) with Midwest Air Conditioning on the condition
that there would be no union and no collective-bargaining agreement; third,
repudiated the applicable collective-bargaining agreement; forth, refused to bargain
with the Union; and fifth, bypassed the Union as the exclusive representative of the
unit employees and dealt directly with employees over terms and conditions of
employment.
The NLRB's order required Midwest Air Conditioning to cease and desist the
unfair labor practices and further refrain from interfering with, restraining or coercing
employees from exercising their rights under the National Labor Relations Act.
Affirmatively, the NLRB's order required Midwest Air Conditioning to offer the
unlawfully discharged Precision employees immediate and full reinstatement to their
former jobs or, if those jobs no longer existed, to substantially equivalent positions,
without prejudice to their seniority or other rights and privileges previously enjoyed,
and to make them whole for any loss of earnings or other benefits suffered as a result
of the unlawful discrimination against them. The NLRB's order also required
Midwest Air Conditioning to make whole employees who performed bargaining-unit
work for Midwest Air Conditioning on and after March 1, 2000, for any losses
suffered as a result of Midwest Air Conditioning's unlawful failure to abide by the
terms of the 1999 collective-bargaining agreement between Precision and the Union.
The NLRB's order further required Midwest Air Conditioning to recognize and
bargain with the Union as the exclusive representative of the unit employees, and to
continue in force and effect the collective-bargaining agreement. Finally, the NLRB's
order required Midwest Air Conditioning to post an appropriate notice.
Midwest Air Conditioning seeks reversal of the NLRB's ruling that they are the
alter ego of Precision and thus violated the National Labor Relations Act.
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II. Discussion
A. Standard of Review
We review the NLRB’s findings of fact to determine if they are supported by
substantial evidence on the record as a whole. Wilson Trophy Co. v. NLRB, 989 F.2d
1502, 1507 (8th Cir. 1993); see also Universal Camera Corp. v. NLRB, 340 U.S. 474,
488 (1951). Substantial evidence is defined as "such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion." Universal
Camera Corp., 340 U.S. at 477 (citation omitted). Although NLRB decisions are
given deference, enforcement is not presumed. Id. at 490. We examine the entire
record and evaluate the NLRB’s decision taking "into account whatever in the record
fairly detracts from its weight." Id. at 488. The ALJ's credibility determinations are
to be considered with the NLRB’s factual findings under the substantial evidence test.
Town & Country Elec., Inc. v. NLRB, 106 F.3d 816, 819 (8th Cir. 1997). We weigh
the NLRB’s findings against the countervailing evidence independent of and
consistent with its credibility determinations. NLRB v. Fruin-Colnon Constr. Co., 330
F.2d 885, 889–90 (8th Cir. 1964). While we are prohibited from substituting our
judgment for that of the NLRB, we are not bound by the NLRB's conclusions when
the NLRB's conclusions go beyond what good sense permits. Local Union No. 948,
IBEW v. NLRB, 697 F.2d 113, 117–18 (6th Cir. 1982).
The NLRB's findings of fact are conclusive if they are supported by substantial
evidence on the record as a whole. Wilson Trophy Co., 989 F.2d at 1507. We may not
"displace the Board's choice between two fairly conflicting views," even if we "would
justifiably have made a different choice had the matter been before . . . [us] de novo."
Universal Camera Corp., 340 U.S. at 488. The NLRB's application of the law to
particular facts is reviewed under the substantial evidence standard. NLRB v. United
Ins. Co. of Am., 390 U.S. 254, 260 (1968).
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B. Alter Ego
United States Code, Title 29, Section 158(a)(5) makes it an unfair labor
practice for an employer "to refuse to bargain collectively with the representatives of
his employees." Section 158(d) in turn provides that when a collective-bargaining
agreement is in effect, "the duty to bargain collectively shall also mean that no party
to such contract shall terminate or modify such contract." Accordingly, it is well
settled that an employer violates 29 U.S.C. § 158(a)(1) and (5) by refusing to bargain
with the union that represents its employees and by repudiating its collective-
bargaining agreement with that union. See generally Kirkwood Fabricators, Inc. v.
NLRB, 862 F.2d 1303, 1305–07 (8th Cir. 1988); NLRB v. Campbell-Harris Elec.,
Inc., 719 F.2d 292, 295–96 (8th Cir. 1983); NLRB v. Indep. Stave Co., 591 F.2d 443,
446 (8th Cir. 1979).
An employer also violates 29 U.S.C. § 158(a)(1) and (5) by bypassing its
employees' exclusive bargaining representative and dealing directly with employees.
Buffalo Bituminous, Inc. v. NLRB, 564 F.2d 267, 270–71 (8th Cir. 1977). As the
Supreme Court has explained, "it is a violation of the essential principle of collective
bargaining and an infringement of the Act for . . . [an] employer to disregard the
bargaining representative [of its employees] by negotiating with individual
employees." Medo Photo Supply Corp. v. NLRB, 321 U.S. 678, 684 (1944). An
employer cannot avoid its obligations under the Act merely by forming a new
corporate entity when the newly formed entity is in reality only a "disguised
continuance of the old employer." Southport Petroleum Co. v. NLRB, 315 U.S. 100,
106 (1942). One business entity is bound by the collective bargaining agreement
between another business entity and a union if the two business entities are alter egos.
Iowa Express Distrib., Inc. v. NLRB, 739 F.2d 1305, 1311 (8th Cir. 1984).
Accordingly, an employer violates 29 U.S.C. 158(a)(1) and (5) by repudiating the
collective-bargaining agreement between its alter ago and the union, refusing to
bargain with the union that represents its alter ego's employees, and bypassing that
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union and dealing directly with employees. See Campbell-Harris Elec., Inc., 719 F.3d
at 295–96.
In determining whether two business entities are alter egos, the NLRB and the
courts consider a variety of factors, including whether the two entities have
substantially identical management, business purpose, operation, equipment,
customers, supervision, and ownership. Id. at 295. We also consider whether a motive
for the new entity's taking over of the operations of the old entity was to evade
responsibilities under the Act and whether dealings between the two entities were at
arm's length. Woodline Motor Freight, Inc. v. NLRB, 843 F.2d 285, 288–89 (8th Cir.
1988). However, we recognize "the test of alter ego status is a flexible one, such that
lack of . . . [any particular factor] will not bar a finding of alter ego status." Campbell-
Harris Elec., Inc., 719 F.2d at 296. The NLRB's finding that two entities constitute
alter egos is entitled to affirmance "if supported by substantial evidence on the record
as a whole." Id. at 295.
The parties agree that Midwest Air Conditioning refused to bargain with the
Union. The parties also agree that Midwest Air Conditioning repudiated Precision's
collective-bargaining agreement with the Union. Additionally, Midwest Air
Conditioning does not directly challenge the NLRB's finding that it bypassed the
Union and dealt directly with Precision employees regarding the terms and conditions
of employment they would enjoy if they went to work for Midwest Air Conditioning.
Midwest Air Conditioning's main argument on appeal is that it is not the alter
ego of Precision, and therefore not bound by Precision's collective bargaining
agreement with the Union. Midwest Air Conditioning relies on Victor Valley Heating
& Air Conditioning, 267 N.L.R.B. 1292 (1983) and First Class Maint. Serv., 289 N.L.R.B.
484 (1988) for support, but these cases are distinguishable and thus unavailing.
Unlike the instant case, the new entities established in those cases were maintained
as entirely separate entities that shared neither management nor supervision. See
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Victor Valley Heating & Air Conditioning, 267 N.L.R.B. at 1296–98 & First Class
Maint. Serv., 289 N.L.R.B. at 485–86. The older businesses were continued as separate
ongoing companies and there was no evidence that the new entities were set up to
avoid the unions. See Victor Valley Heating & Air Conditioning, 267 N.L.R.B. at 1298
& First Class Maint. Serv., 289 N.L.R.B. at 486.
The purchase of Precision's assets by Midwest Air Conditioning was not an
arms length transaction. The agreements were drafted by Precision's attorney and the
purchase prices were set by Precision's accountant, as Midwest Air Conditioning did
not have separate legal or accounting representation. After the asset sale, John and
Jack Lambert had sole control over Precision and continued to operate its business.
Notably, the decision to shut down Precision's business was made by John Lambert,
not by William Lambert. See Best Mechanical Contractors, Inc., 273 N.L.R.B. 83, 84
(1984) (alter ego not found where decision to cease operation of old entity solely
made by father, not sons who eventually purchased equipment and rented office
space). Control over Precision and Midwest Air Conditioning after the asset purchase
was not separate and distinct.
Before shutting down Precision, Midwest Air Conditioning commingled
Precision's business and Midwest Air Conditioning's business. Since Precision has
closed, Midwest Air Conditioning has kept all, or substantially all, of Precision's
residential builder customers. Midwest Air Conditioning uses fifty-nine of the sixty-
one Precision suppliers. Midwest Air Conditioning kept Precision's phone number in
service, and still uses the same accountant, lawyer, and payroll provider that Precision
used. In addition to performing new residential HVAC work in the same manner as
Precision, Midwest Air Conditioning also performed the service, maintenance, and
replacement HVAC work that Midwest Heating and Cooling performed. See id. (alter
egos not found where new entity decided to seek smaller jobs that had been
performed by existing business, which had been a large contractor that sought only
major works).
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Seventy-five percent of Midwest Air Conditioning's business comprised the
new residential HVAC work that Precision formerly performed, and about twenty-
five percent of Midwest Air Conditioning's business was the service, maintenance,
and replacement work that nonunion Midwest Heating and Cooling had performed.
Sixty to seventy percent of Midwest Air Conditioning's business was new residential
HVAC work, and thirty to forty percent was service, maintenance, and replacement
work. Midwest Air Conditioning did not abide by Precision's collective bargaining
agreement, but did credit the Precision employees it hired with their Precision
seniority.4 Viewing the record as a whole, we hold substantial evidence supports the
NLRB's finding that Midwest Air Conditioning is the alter ego of Precision.
C. National Labor Relations Act Violations
In its brief, Midwest Air Conditioning also argued that there was not
substantial evidence to support a finding that its offers of employment to union
members Mark McMahon, Kevin Williams, Troy Hutton, Steve Todd, and Steve
Groom were in violation of 29 U.S.C. §§ 158(a)(3) and (5). Midwest Air
Conditioning also argued that substantial evidence did not support a finding that it
violated 29 U.S.C. § 158(a)(5) in bypassing the Union and dealing directly with
employees over terms and conditions of employment. However, at oral argument
counsel for Midwest Air Conditioning conceded that if the ruling regarding alter ego
status is upheld, there is no question that Midwest violated the National Labor
Relations Act by dealing directly with employees. Because we affirm the finding of
alter ego status, we also affirm the NLRB's findings that Midwest Air Conditioning
violated the National Labor Relations Act.
4
Midwest Air Conditioning attempts to make the argument that they were in
competition with Precision and that Midwest Air Conditioning survived while
Precision did not; substantial evidence shows that Midwest Air Conditioning did not
perform any business until immediately before Precision ceased operations.
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The judgment of the NLRB is affirmed.
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