Island Architectural Woodwork v. NLRB , 892 F.3d 362 ( 2018 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 7, 2017 Decided June 15, 2018
No. 16-1303
ISLAND ARCHITECTURAL WOODWORK, INC.,
PETITIONER
v.
NATIONAL LABOR RELATIONS BOARD,
RESPONDENT
Consolidated with 16-1347, 16-1446
On Petitions for Review and Cross-Application
for Enforcement of an Order of
the National Labor Relations Board
Jeffery A. Meyer argued the cause and filed the briefs for
petitioner Island Architectural Woodwork, Inc.
Harris Liolis argued the cause and filed the briefs for
petitioner Verde Demountable Partitions, Inc.
Rebecca J. Johnston, Attorney, National Labor Relations
Board, argued the cause for respondent. With her on the brief
were Richard F. Griffin, General Counsel, John H. Ferguson,
2
Associate General Counsel, Linda Dreeben, Deputy Associate
General Counsel, and Jill A. Griffin, Supervisory Attorney.
Before: KAVANAUGH, SRINIVASAN and PILLARD, Circuit
Judges
Opinion for the Court filed by Circuit Judge PILLARD.
Dissenting opinion filed by Circuit Judge KAVANAUGH.
PILLARD, Circuit Judge: Petitioner Island Architectural
Woodwork, Inc. (Island), a unionized manufacturer of custom
modules for office interiors, created Petitioner Verde
Demountable Partitions, Inc. (Verde), as a non-union shop to
specialize in one of Island’s products, a particular type of
moveable office divider that Island and Verde called the
“Island Verde Green Demountable System” (the Island-Verde
Partition). Verde set up shop in Island’s back building under
the leadership of the daughter of Island’s President and CEO.
Island conferred substantial, uncompensated economic benefit
on Verde through a set of informal agreements. Those
agreements were not memorialized in writing for over a year,
until after the Union brought unfair labor practice charges; the
companies wrote them up only in response to the Board
General Counsel’s investigatory subpoena. From Verde’s
start, its employees largely did the same work, on the same
equipment, in the same building as Island’s unionized workers
had done. Island’s management, meanwhile, insisted to Island
employees that “no union members were allowed to enter the
[back] building again.” Island Architectural Woodwork, Inc.
& Verde Demountable Partitions, Inc., 364 NLRB No. 73, at
*3 (Aug. 12, 2016) (alteration in original). Island also
conditioned its renewal of its collective bargaining agreement
on the Union’s signing a waiver of any claim to represent
Verde’s employees. The Union proceeded to file unfair labor
3
practice charges before Respondent National Labor Relations
Board (NLRB or Board).
The Board held that Petitioners violated Sections 8(a)(1)
and (5) of the National Labor Relations Act (NLRA or Act), 29
U.S.C. § 158(a)(1), (5), when they refused to recognize the
Union that represented Island’s collective bargaining unit as
the representative of Verde’s workers, and when they failed to
apply the terms of Island’s collective bargaining agreement to
Verde. Based on evidence showing multiple indicia of a lack
of arms-length dealings between Island and Verde, the Board
determined that Verde was not a separate and independent
employer, but merely Island’s alter ego. The Board also held
that Island’s insistence that the Union renounce any present or
future claim to represent workers at Verde violated the Act.
Petitioners assert that Verde was a separate business outside of
Island’s bargaining unit, and they challenge the Board’s
contrary determination as factually unsupported and based on
misapprehensions of the record. Because substantial evidence
supports the Board’s findings and conclusions, we deny the
petitions and grant the Board’s cross-application for
enforcement.
I.
A.
In reviewing this substantial-evidence challenge to the
Board’s action, we consider the entire record of the
administrative proceedings. In describing the relevant facts we
generally draw from the Board’s decision, Island, 364 NLRB
No. 73. We refer to specific record evidence as relevant to
Petitioners’ challenges.
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Founded in 1993, Island produces wood cabinetry and
other prefabricated architectural modules for office interiors,
particularly for financial institutions. Island’s employees, who
have been unionized since 1995, are represented by the
Northeast Regional Council of Carpenters (the Union). The
company gets almost all of its business through a large
architecture firm (the Firm). The Firm designs products for
customers and then hires Island to manufacture them on a
custom basis. The Island-Verde Partition that Island arranged
for Verde to build is a moveable, floor-to-ceiling wall that
enables businesses to reconfigure their office space.
The Firm designed the Island-Verde Partition and licensed
it to Island in 2007. The Firm wanted Island to mass produce
the partition, but Island did not believe it could do so cost-
effectively. Island’s CEO, Edward Rufrano, later testified that
he believed Island was lagging behind competitors because
they “were outsourcing to either non-Union shops or out of the
country.” Joint App’x (J.A.) 248. Seeking to remain in the
good graces of the Firm—its main source of business—Island
tried without success to find a company to buy the license to
manufacture the Island-Verde Partition. Rufrano then started
talking with a former employee of the Firm about creating a
separate entity—Verde—to produce the Island-Verde
Partition.
Verde commenced operations as a non-unionized entity in
October 2013. At the time, Island owned three buildings
adjoining a parking lot: the “main,” “back,” and “side”
buildings. Island, 364 NLRB No. 73, at *1. Verde set up shop
in the back building and began manufacturing the partitions
using Island’s equipment. From the outset, Verde was
managed by people who had previously worked for Island. For
example, Rufrano involved his two daughters, both of whom
had worked at Island for years; Tracy D’Agata, who had been
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a lead salesperson for the Island-Verde Partition, became
Verde’s President, with her sister serving as Secretary and
Treasurer. An engineer who had designed the partitions for
Island also joined Verde, as did a foreman from Island.
Rufrano agreed to lend his expertise to the new company. The
daughters together owned 64 percent of Verde. The Firm, one
of its former employees, and one of Rufrano’s acquaintances
owned the remaining 36 percent. In addition to the building,
Island provided manufacturing equipment and expertise to
Verde. Island assisted Verde with management, operations,
sales training, back office functions, drafting and engineering,
and trucking.
For the production work, Verde hired two former Island
employees, in addition to several production employees who
had never worked for Island. Island and Verde worked
together to produce the partitions. Despite the Firm’s wish to
transition to mass production, the production process remained
“essentially unchanged from the time Island produced the
partitions.” Island, 364 NLRB No. 73, at *3. Island and Verde
sent materials and partially finished products back and forth
“between the main and back building[s], where each company
works on a certain aspect of the process.” Id. Rufrano held
periodic meetings in his office with Verde workers to discuss
“[p]roject coordination, materials, labor scheduling, and
profitability.” Id. (quoting Rufrano’s testimony) (alteration in
original). More than a year after Verde started manufacturing
the Island-Verde Partition, Island still marketed it on its own
website.
Island and Verde did not at first create documentation of
their substantial dealings with each other, and Island made no
formal valuations of its assets before handing them off to
Verde. Verde did not begin paying Island for the Island-Verde
Partition license, rent on the back building, or the leased
6
equipment until after the NLRB’s General Counsel served an
investigatory subpoena more than a year after Verde
commenced operations, in October 2014. The Asset Purchase
Agreement, Equipment Lease, Transitional Services
Agreement, Mutual Supply Agreement, Promissory Note, and
Officer’s Certificate are all dated October 27, 2014—one day
before Petitioners responded to the subpoena. J.A. 2 & n.5,
405, 418, 421, 424, 432, 438. The Asset Purchase Agreement
and Equipment Lease specified an effective date of October 1,
2013, and additionally included lengthy grace periods and
deferred payments enormously beneficial to the new company.
J.A. 405, 432. The first time that the parties had any lease or
that Verde paid for its use of the back building was June 1,
2014. J.A. 426-31. Eight months of free occupancy saved
Verde about $140,000. Id. Through informal arrangements
and delay, as well as the explicit terms of the agreements when
they were ultimately signed, Island conferred on Verde
hundreds of thousands of dollars in uncompensated deferrals
and savings.
From the outset, Island and the Union disputed the
collective bargaining status of Verde’s employees. The Union
sought to represent the workers at Verde, while Island insisted
that Verde was a separate company, not part of Island’s
collective bargaining unit. The issue became central during
negotiations for a new collective bargaining agreement, as the
old agreement between Island and the Union expired around
the time Verde began operations. During those negotiations,
which spanned from October 2013 to March 2014, Rufrano
made several misleading statements about Verde to the Union.
Rufrano told Union representatives that Verde was a separate
business and that he had sold the back building and equipment
to his daughter. But, as already noted, Verde was using
Island’s back building and equipment for free, and there were
no lease or sale deposits until June. Rufrano also
7
deemphasized his role with Verde and the ties between Verde
and Island. He asserted that he “was not even going to walk
through the courtyard . . . into [Verde’s] building,” and that
“Verde was separate and apart.” J.A. 186–87. But Island and
Verde collaborated extensively, as later detailed in the Mutual
Supply and Transitional Services Agreements. As negotiations
progressed, Rufrano acknowledged to the Union his expanded
role in Verde.
The parties neared a collective bargaining agreement in
January 2014. Negotiations hit a snag, however, when Rufrano
insisted that the Union agree to waive any claim to represent
workers at Verde. He later presented the Union with a
Memorandum of Agreement (MOA) to that effect. J.A. 441.
The MOA contained three provisions. First, the Union would
agree that the Verde workers were not part of its bargaining
unit. Second, the Union would agree that any decision by
Island or its leadership to acquire an ownership interest in
Verde would not create an alter ego relationship between the
two companies. And, third, the Union would waive all existing
and future grievances on behalf of Island employees regarding
work performed by Verde, including claims under the
provisions of the most recent collective bargaining agreement
treating employees of any joint venture as part of the
bargaining unit, and requiring the Union’s consent to
subcontract work.
Rufrano “made it very clear” that he would not agree to a
new collective bargaining agreement until the Union signed the
MOA. J.A. 193 (Testimony of Union President Eustace
Eggie). In insisting that the Union sign it, Rufrano sent an e-
mail to Union leadership bemoaning the “plight . . . of every
union contractor” and stressed his belief that the Union would
benefit from Island’s increased profits if Verde remained non-
8
unionized. J.A. 444. The Union refused to agree to the MOA
in March 2014, and Rufrano ended negotiations.
B.
The Union filed unfair labor practice charges on March 6
and April 14, 2014. The NLRB issued an amended,
consolidated complaint alleging that Island and Verde violated
of Section 8(a)(1) and (5) of the Act. The complaint charged
that Verde is Island’s alter ego, and that Island and Verde
therefore violated the Act by failing to apply the terms of
Island’s collective bargaining agreement to Verde. The
complaint further charged that Island violated the Act by
insisting, as a condition of reaching a new collective bargaining
agreement, that the Union waive its entitlement to represent
workers at Verde.
An administrative law judge held a hearing at which Union
President Eustace Eggie, Union Representative Jeffrey
Murray, Island machinery operator Paul Horstmann, and Island
CEO Edward Rufrano testified. The ALJ found that: (1) Verde
operates in the same sphere of business as Island; (2) Verde is
located in a facility and uses machinery that was previously
part of Island’s operations; (3) Island performs significant
services for Verde; (4) at least two of Verde’s owners are the
daughters of the principal owner and CEO of Island; and (5)
the business being done by Verde—producing wooden
partitions—is work that was at one point done by Island. Island
Architectural Woodwork, Inc. & Verde Demountable
Partitions, Inc., 2015 WL 2156772 (NLRB May 8, 2015). The
ALJ concluded, however, that Verde was not Island’s alter ego.
The ALJ highlighted the lack of common ownership, as well as
some evidence showing that Island did not exercise control
over Verde’s operations. Id. at *6. The ALJ further concluded
that, because Verde is not Island’s alter ego, Island did not
9
violate the Act by insisting that the Union agree to the MOA
excluding the Union from Verde as a condition of reaching a
new collective bargaining agreement governing Island’s
collective bargaining unit. Id. at *9.
The Board reversed. Sustaining the ALJ’s findings that
Island and Verde have substantially identical business purposes
and operations, the Board also found that the extensive
financial control Island exerted over Verde, together with
evidence of anti-union animus, supported an alter ego finding.
The Board also held that Island violated the Act by insisting
that the Union waive its right to represent workers at the Verde
facility. The Board then ordered Island and Verde to cease and
desist from refusing to recognize the Union as the exclusive
collective bargaining representative of employees at both
Island and Verde, and from conditioning a new collective
bargaining agreement on the Union’s acceptance of the MOA.
Island, 364 NLRB No. 73, at *5–10. These petitions for review
followed.
II.
A.
Our review of the Board’s decision is “limited.” Enter.
Leasing Co. v. Nat’l Labor Relations Bd., 831 F.3d 534, 542
(D.C. Cir. 2016) (quoting Stephens Media, LLC v. Nat’l Labor
Relations Bd., 677 F.3d 1241, 1250 (D.C. Cir. 2012)). The
parties do not disagree on the governing law; they dispute
whether substantial evidence supports the Board’s
determination that Verde is Island’s alter ego. Whether the
businesses are separate entities “is a question of fact to be
properly resolved by the Board.” Southport Petroleum Co. v.
Nat’l Labor Relations Bd., 315 U.S. 100, 106 (1942). The Act
provides that the Board’s factual findings are “conclusive”
10
where they are supported by substantial evidence. 29 U.S.C.
§ 160(e). The substantial evidence standard requires “a very
high degree of deference.” Bally’s Park Place, Inc. v. Nat’l
Labor Relations Bd., 646 F.3d 929, 935 (D.C. Cir. 2011)
(quoting United Steelworkers of Am. v. Nat’l Labor Relations
Bd., 983 F.2d 240, 244 (D.C. Cir. 1993)). Indeed, “[i]t is not
necessary that we agree that the Board reached the best
outcome in order to sustain its decisions.” Id. (quoting United
Steelworkers of Am., 983 F.2d at 244). Rather, “[t]he Board is
to be reversed only when the record is ‘so compelling that no
reasonable factfinder could fail to find to the contrary.’”
United Steelworkers of Am., 983 F.2d at 244 (quoting INS v.
Elias-Zacarias, 502 U.S. 478, 484 (1992)).
Even “[w]here the Board has disagreed with the ALJ, as
occurred here, the standard of review with respect to the
substantiality of the evidence does not change.” Kiewit Power
Constructors Co. v. Nat’l Labor Relations Bd., 652 F.3d 22,
25 (D.C. Cir. 2011) (quoting Local 702, Int’l Bhd. of Elec.
Workers v. Nat’l Labor Relations Bd., 215 F.3d 11, 15 (D.C.
Cir. 2000)) (alteration in original); see also Universal Camera
Corp. v. Nat’l Labor Relations Bd., 340 U.S. 474, 496 (1951).
As our dissenting colleague acknowledges, Dissent at 1, the
substantive law governing the alter ego inquiry is not disputed.
Where the record supports the Board’s view of the evidence—
even if it might also support the ALJ’s contrary view—we must
defer to the Board. After all, “since the Board is the agency
entrusted by Congress with the responsibility for making
findings under the statute, it is not precluded from reaching a
result contrary to that of the [ALJ] when there is substantial
evidence in support of [the] result, and is free to substitute its
judgment for the [ALJ’s].” Kiewit, 652 F.3d at 26 (quoting
Local 702, Int’l Bhd. of Elec. Workers, 215 F.3d at 15)
(alterations in original).
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B.
The Board’s alter ego doctrine holds an employer
responsible for the contractual or statutory obligations of a
nominally separate employer where the circumstances show
the latter is not actually distinct, but operates as the “alter ego”
of the first in a “disguised continuance of the predecessor’s
operations.” Fugazy Cont’l Corp. v. NLRB, 725 F.2d 1416,
1419 (D.C. Cir. 1984). The Board considers a range of facts as
relevant to the alter ego question, including “substantial
identity of management, business purpose, operation,
equipment, customers, supervision, and ownership” between
the two entities. Id.; see J. Westrum Electric, 365 NLRB No.
151, at *5 (Dec. 13, 2017). The Board gives “substantial
weight” to evidence of a company’s motive to evade its
obligations under the NLRA, Fugazy, 725 F.2d at 1419, but no
single factor is dispositive, and not every factor need be present
in a particular case to establish alter ego status. See id. at 1419-
20.
The alter ego test is contextual and requires the Board to
consider the circumstances of each case. An alter ego
relationship may operate, for example, where one entity
completely shuts down and is replaced by another, see A.D.
Conner, Inc., 357 N.L.R.B. 1770 (2011), or where one entity
continues to operate but spins off a portion of its unionized
operations to a non-union entity, see El Vocero de Puerto Rico,
Inc., 357 N.L.R.B. 1585 (2011). Our case law is to the same
effect. See Flynn v. R.C. Tile, 353 F.3d 953 (D.C. Cir. 2004)
(affirming alter ego finding in the ERISA context where
owners shut down unionized company and quickly opened
new, nonunionized counterpart); Fugazy, 725 F.2d at 1418
(affirming alter ego finding where only portion of company’s
operations were shut and transferred to a new, “sham”
company established to perform the same work).
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In Fugazy, for example, immediately after workers at the
repair shop of a limousine company voted to unionize, the
company shut down and sold the repair business to two of its
supervisory employees, who promptly re-opened it with new,
nonunionized workers. Id. The repair shop was nominally
distinct from the limousine company, under separate
ownership, but almost all of its business consisted of work for
the limousine company, id. at 1420, which assumed
responsibility for the repair shop’s utility bills, secretaries,
security, and bill collectors, id. Moreover, no written
agreement documenting the sale was prepared until after unfair
labor practice proceedings commenced before the Board. Id.
at 1419. The Board found that the new shop amounted to a
“continuation of the same business, in the same location, with
the same supervisors, for the benefit of the same party.” Id. at
1419-20 (internal quotation marks omitted).
On those facts, the Board held that the auto repair shop was
the limousine company’s alter ego, established in an attempt to
evade collective bargaining obligations. Id. at 1418 (citing
Fugazy Continental Corp., 265 NLRB No. 165, at *4-5
(1982)). Our colleague emphasizes the lack of common
ownership of Island and Verde, Dissent at 3, but we sustained
the Board’s finding in Fugazy even though the limousine
business and the repair shop were separately owned. Id. In so
doing, we noted “the presence . . . of many additional factors,”
such as anti-union animus and the lack of formal
documentation, and specified that “common ownership is not
an absolute prerequisite to a finding of alter ego status.” Id. at
1420 (emphasis in original) (citing J.M. Tanaka Constr., Inc.
v. NLRB, 675 F.2d 1029, 1035 (9th Cir. 1982) (“Common
ownership, however, is but one, and not always an important
factor to be considered in determining the existence of an alter
ego relationship.”)).
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C.
Turning to our review of the Board’s decision, we
conclude that the Board’s findings on three critical factors—
identity of business purpose, operations, and equipment;
substantial control; and anti-union motive—are supported by
substantial evidence and comport with the alter ego doctrine
under our case law.
1.
The Board first found that Island and Verde had
substantially identical business purposes and operations. As to
purpose, we have observed in the context of alter ego liability
for collectively-bargained pension benefits that nominally
distinct entities share a “business purpose” if they are in “the
same line of business.” Flynn, 353 F.3d at 959. The two
entities need not be engaged in the same business
contemporaneously for liability to run; they may be alter egos
where there is a continuity of business purpose from one to the
other, and operations remain “essentially the same” after the
putative spin-off. Id. This is particularly so where the two
companies remain closely intertwined after transfer or sale of
operations to an entity asserted to be distinct. Fugazy, 725
F.2d at 1419-20.
In this case, the Board found that Island created Verde to
manufacture the Island-Verde Partition that Island had been
exclusively producing for the Firm. Island Architectural
Woodwork, 364 NLRB No. 73, at *6. Substantial record
evidence supports that finding. Indeed, the Board’s narrative
of events largely mirrors the testimony of Island’s CEO,
Edward Rufrano. Rufrano testified that the partitions had been
unprofitable and he said he created Verde in an effort to
produce them in a more cost-effective manner. J.A. 240-46.
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Rufrano involved his daughters in establishing the new entity.
J.A. 247. Island then sold the Island Verde Green
Demountable System product license to this eponymous new
entity, which began producing the Island-Verde Partitions on
Island’s property using the same equipment that Island had
used to manufacture them, but without unionized workers. J.A.
242-43, 255.
Petitioners claim to dispute whether Verde was created to
manufacture the Island-Verde Partition, but fail to identify
evidence that contravenes the substantial record evidence
supporting the Board’s finding. The Board found that Island
and Verde’s operations were substantially identical: “[L]ittle
of the wood partition work [had] changed with the advent of
Verde.” Island, 364 NLRB No. 73, at *6. According to the
testimony of Union Representative Jeffrey Murray, Verde
employees performed the same work on the same equipment
that Island employees had previously performed. J.A. 87-88.
Petitioners identify no evidence to contradict this testimony.
The Board also found that the two companies collaborated
extensively on their operations. Island, 364 NLRB No. 73, at
*6. Island and Verde agreed to work together on a number of
activities including management, product design, and office
functions. J.A. 424 (Mutual Supply Agreement). Rufrano
testified that he frequently held meetings in his office with
Verde personnel to discuss “project coordination, materials,
labor, scheduling, and profitability.” J.A. 325; see J.A. 149-50
(Testimony of Island Machinery Operator Paul Horstmann).
Island even marketed the Island-Verde Partition on its own
website. J.A. 445 (Screenshot of Island Website). The MOA,
moreover, speaks to joint ownership by purporting to contract
around any effect of Island’s principals’ ownership or
management interest in Verde. See J.A. 441.
15
Petitioners seek to characterize their close ties as those of
a typical vendor-vendee relationship. But the Board
permissibly found otherwise. The facts, as discussed above,
show that Verde picked up where Island left off—
manufacturing the Island-Verde Partition for the same
customer with the same equipment in the same place in the
same way with many of the same employees and managers.
That evidence supports the Board’s finding that Verde was a
disguised continuance of the Island-Verde Partition business
and therefore Island’s alter ego.
Petitioners emphasize that Verde only produced a small
number of the wooden Island-Verde Partitions. Verde soon
turned its focus to metal and glass partitions—items that Island
itself had never produced—as the wooden versions were not as
profitable as anticipated. These facts, however, are consistent
with the Board’s alter ego finding, which rested in part on the
similarity of operations at Verde’s inception. Island, 364
NLRB No. 73, at *6; see J.A. 261-63 (Rufrano’s testimony
about the product evolution).
2.
The Board next found that Island maintained substantial
control over Verde. Island, 364 NLRB No. 73, at *7. Evidence
of continuing control, too, tends to show that a spin-off is not
genuine, but is instead an effort by the controlling business to
continue to operate while evading legal responsibilities.
Common ownership between the two entities is generally a
significant factor supporting a finding of substantial control, as
our dissenting colleague stresses, Dissent at 3, but we have
explained that common ownership “is not an absolute
prerequisite to a finding of alter ego status.” Fugazy, 725 F.2d
at 1420 (citing J.M. Tanaka, 675 F.2d at 1035) (emphasis in
original). Instead, substantial control can be evinced by other
16
indicia of a lack of an arms-length sale. In both Fugazy and
R.C. Tile, for example, we upheld alter ego findings where the
companies under scrutiny failed to formally document
substantial transactions with their alleged alter egos—a risky
business step not ordinarily taken by genuinely separate and
independent entities that tends to suggest continuing control.
See R.C. Tile, 353 F.3d at 960; Fugazy, 725 F.2d at 1420.
The record here contains ample evidence that Island
retained substantial control over Verde. Island’s CEO Rufrano
testified that he thought the Island-Verde Partition had
“tremendous” potential. J.A. 262. He characterized the Island-
Verde Partition as a crucial piece of Island’s relationship with
the Firm, and cast that relationship as “[e]ssential” to Island’s
continued existence. J.A. 241. Nonetheless, Island sold the
product without paperwork documenting the sale and
apparently without receiving anything in return. Like the
limousine business in Fugazy, Island created formal
documentation of its putative sale of part of its business only
after the companies faced unfair labor practice charges. See
J.A. 405 (Asset Purchase Agreement). It strains credulity that
Island would engage in a transaction it cast as so consequential
to its future survival with virtually none of the usual formal
business documentation—unless it in fact retained significant
control over Verde.
What is more, as detailed above, Verde operated in
Island’s back lot, used Island’s equipment, and received
significant operational assistance from Island without Island
documenting or demanding payments for those valuable
contributions. The key documents, once written up—including
the Asset Purchase Agreement, the Equipment Lease, Rental
Lease, Transitional Services Agreement, Mutual Supply
Agreement, and Officer’s Certificate—were all dated after the
Union filed unfair-labor-practice charges. J.A. 421, 424, 432,
17
438. All contained generous grace periods and deferred
payments. Id.
Petitioners contend that they delayed drafting and
executing the agreements until they were sure that they could
profit from the Island-Verde Partition. Even if there were
evidence to support it, that argument makes little sense: The
riskier Verde’s undertaking, the more formal contract terms
Island reasonably should have demanded for the resources it
sunk into the project. Although sometimes the “extremely
suspicious . . . informality” of such transactions has an innocent
explanation, Fugazy, 725 F.2d at 1420, the Board’s finding to
the contrary here is supported by substantial evidence in the
record.
The Board also found probative that both companies were
owned by members of the same family. Island, 364 NLRB No.
73, at *7. Board precedent has found an alter ego relationship
in such circumstances even in the absence of common
ownership. See, e.g., El Vocero, 357 N.L.R.B. at 1585 n.3. There
is no dispute that Rufrano’s daughters have a controlling stake
in Verde. Petitioners point out that familial relationships do
not alone establish the alter ego relationship, but, as recounted
above, the Board had substantial additional grounds for its alter
ego determination.
Rufrano’s statements and actions, moreover, suggest that
he exerted de facto control over Verde’s operations. During
negotiations with the Union, Rufrano was intent on ensuring
that Verde remained non-unionized. He sought even to prevent
future representation of Verde’s workers, come what may
between Island and Verde. Rufrano also told the Union that if
it waived all claim to represent Verde’s employees, Verde
would sign “exclusive agreements” to steer incidental work on
the partitions to Island. Island, 364 NLRB No. 73, at *7-8; see
18
also J.A. 187-88 (Testimony of Union President Eustace
Eggie); J.A. 444 (Email from Edward Rufrano to Union). The
Board had ample support for its conclusion that Rufrano would
have been unable to make such a guarantee if he did not exert
significant control over Verde’s operations.
Island’s continued connection to Verde, like the
“umbilical relationship” of the limousine and the repair
businesses in Fugazy, 725 F.2d at 1420, and the only
“nominally distinct” tile companies in R.C. Tile, 353 F.3d at
958, was characterized by informalities and extensively
intertwined operations and management, all under Island’s de
facto control, that supported an alter ego finding.
3.
A third factor supporting the Board’s alter ego holding was
its finding that Island created Verde for the purpose of evading
its bargaining obligations under the Act. Island, 364 NLRB
No. 73, at *8. The Board considered Rufrano’s own statements
and actions. During his testimony before the ALJ, Rufrano said
at several points that it was because Island was unionized that
it could not profit off of the Island-Verde Partition. See J.A.
248 (“We just couldn’t compete in the marketplace. Our
competitors were outsourcing to either non-Union shops or out
of the country and we just couldn’t compete.”); J.A. 339
(“[T]he way we were as a custom shop we could not compete
any longer. And most . . . of my competition is non-Union.
We’re one of the last Union shops. Even the large Union shops
outsource to non-Union vendors.”). Moreover, Rufrano
bemoaned the “plight . . . of every union contractor” and
attempted to persuade the Union that its workers would benefit
from increased profits for Island if Verde, a business ally, were
non-unionized. J.A. 444 (E-mail from Edward Rufrano to
Union).
19
Rufrano also repeatedly misled the Union about Island’s
relationship to Verde, and his evasiveness and conflicting
accounts to the Union support the Board’s finding of his anti-
union purpose in creating Verde. Evidence shows, first, that
Rufrano said he had sold the back building and the equipment
therein to his daughter. J.A. 47-49 (Testimony of Union
Representative Jeffrey Murray). But no such sale had
occurred; Verde was using the building and the equipment for
free. Rufrano then told the Union that “there was no
relationship” between the two companies, J.A. 49 (Testimony
of Jeffrey Murray), despite the extensive collaboration between
them as later manifested in, among other things, the Mutual
Supply Agreement, J.A. 424-27 (Mutual Supply Agreement).
Testimony also revealed that Rufrano told the Union that he
would have neither a role nor any financial interest in Verde.
J.A. 186-87, 211-12 (Testimony of Eustace Eggie). But, during
negotiations with the Union over a successor collective
bargaining agreement, he said that “his position with Verde had
changed.” JA 211 (Testimony of Eustace Eggie). Rufrano then
pressured the Union to agree that Island’s acquisition of any
ownership interest in Verde “shall not create a joint
employment or alter ego relationship.” JA 441 (Memorandum
of Agreement). These misleading and shifting explanations
support the Board’s finding that Verde’s creation was
motivated by a desire to circumvent the requirements of the
Act. Island, 364 NLRB No. 73, at *8-9.
Petitioners’ arguments are at odds with Rufrano’s own
testimony and, in view of the substantial record evidence, do
not detract from the Board’s findings. Petitioners assert, for
example, that Island’s efforts to sell the Island-Verde Partition
line to another company before setting up Verde belie any
finding of anti-union motivation, as they reveal that Rufrano
was actually motivated by his desire to preserve Island’s
20
relationship with the Firm. But those dual motives are hardly
mutually exclusive. Indeed, Petitioners’ argument fails to rebut
the substantial evidence in the record that Rufrano sought to
preserve that relationship through unlawful means: by
establishing a non-unionized alter ego to produce the Island-
Verde Partition line in contravention of Island’s obligations to
its workers. J.A. 236, 240-41, 248 (Testimony of Edward
Rufrano); J.A. 444 (E-mail from Edward Rufrano to Union).
Petitioners also argue, without evidentiary support, that
Verde was established so that Rufrano’s daughters could get a
foothold in the industry. But Rufrano testified to the contrary:
The idea to create a separate entity for the Island-Verde
Partition came from a former employee of the Firm so that the
employee could “get involved and manufacture the product.”
J.A. 247. Rufrano referred to his daughter as the one with
established footing, as a result of her “almost 20 years” of
experience with Island. J.A. 247.
Finally, Petitioners contend that an anti-union motive
could not have played a role in establishing Verde because
Island lacks a financial stake in Verde and thus lacked any
interest in whether Verde unionized. But the record shows that
Rufrano explicitly contemplated a future financial benefit to
Island from a non-unionized Verde; as he stressed during union
negotiations, the two companies worked together on producing
and marketing the partitions. J.A. 240-41, 325 (Testimony of
Edward Rufrano); J.A. 444 (E-mail from Edward Rufrano to
Union). The Memorandum of Agreement, moreover,
specifically referenced Island principals’ management or
ownership interests in Verde. J.A. 441 (MOA).
21
D.
Finally, we turn to Petitioners’ contention that the Board
lacked substantial evidence for its holding that Island violated
the Act by insisting, as a condition of reaching a new collective
bargaining agreement, that the Union renounce any claim to
represent Verde’s employees. Petitioners concede, as they
must, that during negotiations over a new collective bargaining
agreement, Island urged the Union to accept Island’s proposed
Memorandum of Agreement. See J.A. 441 (MOA). Petitioners
argue only that Island did not make the MOA a sticking point
during the collective bargaining agreement negotiations, but
the Board found that they lack support in the record for that
characterization.
The Union charged that Island violated the Act by insisting
on agreement regarding “permissive” subjects of collective
bargaining as a condition of reaching any agreement on
“mandatory” subjects. See Island, 364 NLRB No. 73, at *9-
10; J.A. 352, ¶¶ 16-19 (Board Complaint). Section 8(d) of the
NLRA requires representatives of employers and employees
“to meet at reasonable times and confer in good faith with
respect to wages, hours, and other terms and conditions of
employment.” 29 U.S.C. § 158(d). Those issues, because they
“settle an aspect of the relationship between the employer and
employees,” are “mandatory” subjects of bargaining. Int’l
Longshore & Warehouse Union v. NLRB, No. 15-1336, slip.
op. 14 (D.C. Cir. May 29, 2018) (quoting First Nat’l Maint.
Corp. v. NLRB, 452 U.S. 666, 675 (1981)). Parties have no
obligation to bargain, however, over “permissive” subjects of
bargaining. See Aggregate Indus. v. Nat’l Labor Relations Bd.,
824 F.3d 1095, 1099 & n.4 (D.C. Cir. 2016). Transferring
work between bargaining units is a mandatory subject of
bargaining, while a proposal to change the scope of a
bargaining unit is a permissive bargaining subject. Id. at 1099-
 22
1100. If bargaining reaches impasse or the union refuses to
bargain, an employer may unilaterally make the change on a
mandatory subject, but “has no choice but to maintain the status
quo” on a permissive subject; indeed, “[a] unilateral change to
a permissive subject of bargaining is illegal.” Id. at 1099.
A party violates its obligation to bargain in good faith if it
conditions agreement regarding mandatory subjects on
acceptance of a particular position on a permissive subject.
Nat’l Labor Relations Bd. v. Wooster Div. of Borg-Warner, 356
U.S. 342, 349 (1958). Doing so amounts to an unlawful refusal
to bargain about subjects within the scope of mandatory
bargaining. Id. A party may, however, advance a proposal on
a permissive subject so long as it does not insist on a particular
resolution as a price for overall agreement. Id.; see U.S. Dep’t
of Interior v. Fed. Labor Relations Auth., 23 F.3d 518, 521
(D.C. Cir. 1994).
The parties do not dispute that negotiations for the
successor collective bargaining agreement involved mandatory
subjects of bargaining, and that the MOA contained permissive
subjects. The MOA would have required the Union to
renounce any claim to represent Verde’s employees and to
agree that any decision by Island, its CEO, or Vice President to
acquire an ownership interest in Verde would not establish an
alter ego relationship. J.A. 441. The draft MOA declared that
Verde’s employees were not currently within the bargaining
unit, and that, going forward, “any ownership interest in or
management of Verde by any principal of [Island] . . . shall not
create a joint employment or alter ego relationship or otherwise
constitute an accretion under the expired collective bargaining
agreement.” J.A. 441. The MOA also would have waived any
grievances by Island’s employees regarding work performed
by Verde, notwithstanding CBA clauses restricting
subcontracting and joint ventures. J.A. 441.
23
The Board’s finding that Petitioners insisted that the Union
acquiesce on permissive subjects as a condition of reaching a
successor collective bargaining agreement is supported by
substantial evidence. The Board credited the testimony of
Union officials that Island conditioned any new agreement on
acceptance of the MOA. Island, 364 NLRB No. 73, at *9-10;
see, e.g., J.A. 193 (Testimony of Eustace Eggie) (“Ed
[Rufrano] made it very clear that before . . . he would sign a
new [collective bargaining] agreement, that . . . I would have
to have [the MOA] signed by the union.”); J.A. 51-52
(Testimony of Jeffrey Murray) (“Mr. Rufrano said to me that
. . . I have to have in the agreement that you guys waive any
claim to the back building . . . a complete waive[r] to any claim
to the work, to any claim to its business, so on and so forth . . . .
I have to have this before I can agree to anything.”). Petitioners
failed to offer evidence that would require a finding contrary to
the determination of the Board. We therefore cannot disturb
the Board’s order here.
***
For the foregoing reasons, we deny Island and Verde’s
petitions for review and grant the Board’s cross-application for
enforcement.
So ordered.
KAVANAUGH, Circuit Judge, dissenting: Under the
National Labor Relations Act, an “employer” must bargain
with the union that represents its employees. 29 U.S.C.
§ 158(a). This case involves two small businesses on Long
Island named Island and Verde. Both companies made
partitions for offices. The first company (Island) had a
collective bargaining agreement with a union that represented
its employees. The second company (Verde) did not have a
collective bargaining agreement. But the Board treated the two
companies – Island and Verde – as one “employer” and ruled
that Verde therefore had to afford Verde’s employees the same
rights that Island’s employees had under Island’s collective
bargaining agreement.
The Board treated Island and Verde as a single employer
on the theory that Island and Verde were alter egos. The
majority opinion upholds that conclusion. I respectfully
dissent.
The relevant legal principles are not in dispute: “Among
the factors that enter into a determination of alter ego status are
substantial identity of management, business purpose,
operation, equipment, customers, supervision and ownership
between the old entity and its successor.” Fugazy Continental
Corp. v. NLRB, 725 F.2d 1416, 1419 (D.C. Cir. 1984). We
have added that common ownership in particular “weighs
heavily in the alter ego determination.” Douglas Foods Corp.
v. NRLB, 251 F.3d 1056, 1063 (D.C. Cir. 2001).
Applying those principles here is not hard, as I see it.
Island and Verde did not have common ownership. They did
not have common management. They did not share employees.
They did not mingle funds. Neither company had a financial
interest in the other. Each company supervised, hired, fired,
and paid the salaries of its own employees.
2
The administrative law judge who heard the testimony in
this case ruled that the companies were not alter egos. The ALJ
reached the following factual conclusions, which are worth
quoting at length:
[T]he owners of Verde are not the same people who
own Island[,] and Verde’s ownership includes
individuals and businesses that have no familial
relationship with Island’s owners. In addition, the
evidence shows that Island’s management does not
exercise control over Verde’s business operations; that
Verde, and not Island, supervises, hires, fires and
controls the labor relations of its own employees; that
there is no interchange of production employees
between the two companies; and that with two
exceptions, Verde’s production employees were not
employed by Island contemporaneously with when
Verde commenced its operations. Finally, the evidence
shows that when Verde was created and commenced
operations, this transaction had virtually no adverse
[e]ffect on Island’s bargaining unit employees who,
despite the expiration of the existing contract,
continued to be paid and receive benefits in accordance
with the agreement between Island and the Union to
continue the collective bargaining agreement. No
bargaining Island unit employees were laid off and
those who chose to remain employed by Island did not
have their pay or existing benefits reduced.
Island Architectural Woodwork, Inc. and Verde Demountable
Partitions, Inc., 364 NLRB No. 73, Slip Op. 13-14 (Decision
of Administrative Law Judge) (May 8, 2015). The ALJ further
explained that the creation of Verde “has not resulted in any
harm to the existing complement of Island’s bargaining unit
employees. In my opinion, this mitigates against any
3
conclusion that Island had the intent to evade its contractual
obligations to its existing complement of employees who were
represented by the Union.” Id. at 12.
In light of the factual record, the ALJ concluded that Island
and Verde were not alter egos. In my view, the ALJ’s
conclusion was the only reasonable conclusion to reach on this
factual record.
The Board nonetheless reversed the ALJ. But the Board’s
analysis is wholly unpersuasive. To be sure, as the Board
noted, Island and Verde made similar products, and Verde
operated in a facility that used to be part of Island’s operations.
The Board also seems to have found something shady in the
fact that Verde was started and primarily owned by two
daughters of Island’s primary owner. But those facts do not
remotely support a finding of alter ego status given that the two
companies, among other indicia of their separateness, did not
have common ownership or common management.
In upholding the Board’s decision, the majority opinion
relies heavily on our decision in Fugazy. But in that case, we
made clear that the one company “retained a substantial
financial interest” in the other company’s “operations.”
Fugazy, 725 F.2d at 1420. Here, by contrast, Island did not
maintain a substantial financial interest in Verde – or vice
versa. Moreover, in Fugazy one company shut down and then
re-emerged as a “new” company. See id. at 1418. That is a far
cry from what happened with Island and Verde, which
maintained separate operations with separate ownership and
separate management. Fugazy does not support the result
reached by the majority opinion in this case.
In light of the relevant law and facts, the Board’s
conclusion that Island and Verde were alter egos is not
4
reasonable. I would therefore vacate the Board’s decision. I
respectfully dissent.