Opinion
Civil Action No: SA-03-CA-290-XR.
February 1, 2005
ORDER
On this date, the Court considered Defendants' Joint Motion for Summary Judgment (docket no. 71).
BACKGROUND
Sheet Metal Workers International Association Local Union Number 67 (hereinafter "Union") and MCA-SMACNA are signatories to a collective bargaining agreement ("CBA") in force from April 1, 2001 to March 31, 2005.
It is undisputed that Todd-Ford Sheet Metal, Inc. (hereinafter "Sheet Metal") is a member of MCA-SMACNA, and is bound by the CBA at issue. The Union, however, alleges that Todd-Ford Management Company (hereinafter "Management"), Todd-Ford Inc. (hereinafter "Inc."), and Sheet Metal are alter egos and/or a single employer. Accordingly, the Union alleges that not only is Sheet Metal bound by the CBA, but Management and Inc. are also bound by the CBA.
Plaintiff's Amended Complaint makes no specific references to any Sheet Metal violations of the CBA.
The Union alleges that Defendants have violated Article II of the CBA and the Labor Management Relations Act (LMRA) in that all three companies have subcontracted sheet metal bargaining unit work without securing the subcontractor's agreement to comply with the CBA's sections regarding union security, pay rates and working conditions.
The Union also alleges that Defendants have violated Article VIII of the CBA and the Employee Retirement Income Security Act (ERISA) in that Defendants have failed to make required contributions to various pension, health, and training funds.
The Union seeks a declaration that (1) Management and Inc. are bound by the CBA; and (2) Management and Inc. have from April 1, 2001 to the present violated the CBA. The Union further seeks injunctive relief and damages for lost Union dues, wage differentials, and the amounts that Management and Inc. have allegedly failed to contribute to the various funds.
Defendants seek summary judgment arguing that all of Plaintiff's claims are barred by limitations. Alternatively, Defendants argue that the three companies are not a "single employer" and/or alter egos of each other.
In Plaintiff's Response to the Joint Motion for Summary Judgment, Plaintiff asserts that it has decided not to pursue its allegation that the three companies are a "single employer".
ANALYSIS
I. Limitations
Defendants argue that there is no unequivocal case deciding what limitations period controls, but that the limitations period under the LMRA is either six months or four years. Defendants argue that regardless of which limitations statute controls, Plaintiff's claims are barred.
Utilizing the limitations period under section 10(b) of the National Labor Relations Act.
Utilizing the limitations period under Tex. Civ. Prac. Rem. Code section 16.004.
Defendants argue that it is undisputed that the Todd-Ford companies were reorganized in 1985, that the Union was aware at that time of the reorganization, that the Union has asserted since 1985 that the Todd-Ford companies were a "single employer" and/or alter egos of each other, and that in 1994, the Union again repeated its assertions in a National Labor Relations Board proceeding.
Defendants' argument is misplaced. Plaintiff complains that Sheet Metal entered into the CBA at issue effective April 1, 2001. In its suit filed April 14, 2003, Plaintiff argues that Management and Inc. are alter egos also bound by the CBA and they began to violate the CBA on April 1, 2001. Various courts have experienced conflict over limitations periods in traditional labor relations cases. See 10(B) OR NOT 10(B): A CRITICAL OVERVIEW OF COURT-SELECTED LIMITATIONS PERIODS IN LABOR LAW, 6 Lab. Law. 331, 393 (1990). However, it appears to be settled in the Fifth Circuit that courts look to state statutes of limitations governing breach of contract actions to determine the appropriate limitations period when a union sues an employer for breach of a collective bargaining agreement. Smith v. Kerrville Bus Co., 748 F.2d 1049, 1053 (5th Cir. 1984). Accordingly, Defendants' motion for summary judgment based on limitations is DENIED.
II. Alter Ego Theory
Todd-Ford, Inc. was incorporated in 1962. In 1985, Inc.'s board of directors (consisting of John Ford, his wife Jean and his son Jon) reorganized the company. Management was incorporated as a holding company, wholly owning two subsidiaries: Inc. and Sheet Metal.
On July 3, 1985, Inc. gave notice to Plaintiff of the reorganization and requested that Inc. be released from any then existing CBA's. The Union agreed to the request on May 18, 1990.
Since 1985, neither Management nor Inc. has signed a CBA with Plaintiff. Sheet Metal continues to enter into CBA's with Plaintiff and signed the 2001-2005 CBA at issue in this suit.
The alter ego theory was developed by the NLRB to prevent employers from evading labor obligations by restructuring. If two entities are alter egos, the new entity is bound by the same legal and contractual obligations as its predecessor. Brown v. Sandimo Materials, 250 F.3d 120 (2d Cir. 2001); Stardyne, Inc. v. NLRB, 41 F.3d 141 (3d Cir. 1994). The alter ego theory also is used to prevent entities from using "double-breasted" operations, the term used to describe commonly owned unionized and nonunion firms to avoid collective bargaining obligations. If the two firms in a double-breasted operation are alter egos, a federal district court can extend the labor agreement of one to the other. Carpenters Local Union No. 1846 of United Broth. of Carpenters and Joiners of Am. v. Pratt-Farnsworth, Inc., 690 F.2d 489, 508 n. 8 (5th Cir. 1982), cert. denied, 464 U.S. 932 (1983).
"Whether . . . companies are alter egos is a question of fact answered through two inquiries. First, the Board must determine `whether the two enterprises have substantially identical management, business purpose, operation, equipment, customers, supervision, and ownership.' Second, it must gauge whether there was an unlawful motive behind the creation of the new business entity, determining whether there was a `disguised continuance' or `attempt to avoid the obligations of [an existing] collective bargaining agreement through a sham transaction or technical change in operations.'" J. Vallery Elec., Inc. v. N.L.R.B., 337 F.3d 446, 451 (5th Cir. 2003) (citations omitted).
A. The Seven Factors
Plaintiff argues that, analyzing the seven factors listed above, a fact issue exists as to whether or not the Todd-Ford entities are alter egos. The Court agrees. Although not definitive in the analysis, all three companies are owned and managed by close family members. Jon Ford controls all voting shares in all three companies and controls the election of all directors. Further, Management provides certain accounting, bidding and administrative services to both Inc. and Sheet Metal. All three companies hold their stockholder meeting at the same place and at the same time. A consolidated tax return is filed for all three companies. All phone calls to each of the three companies are answered by one receptionist. The subsidiaries do not bear costs of overhead. Inc. is dependent on Sheet Metal's customer base.
See In Matter of Staying Arbitration and Vacating Notice of Intention to Arbitrate Between Armen Digital Graphics, Ltd., Amalgamated Lithographers of America, Local One, 1997 WL 458738 (S.D.N.Y. Aug 12, 1997) ("Local One relies heavily on the familial (and financially interdependent) relationship between Frances and her parents to create a presumption of alter ego status. We decline to raise that presumption in this case. The decisions Local One cites are inapposite. Each involved a situation in which all evidence pointed toward an alter ego finding except the fact that the companies were not owned by the same people. In the absence of identical ownership, the NLRB used the fact that the owners were members of the same immediate family and the companies closely held as a proxy for identical ownership. [citation omitted]. By contrast, the operations, business purposes, management, supervision, equipment, and customer bases of Graphics and Digital are too distinct to suggest alter ego status and therefore inadequate to justify imputing common ownership to close family members.").
On the other hand, the companies do have slightly different officers and directors and they do keep separate corporate books and make separate governmental filings for payroll taxes. However, all in all, fact issues exist that mandate denial of summary judgment on this issue.
B. Unlawful Motive
Even if there exists fact issues regarding the seven factors, Defendants argue (citing J. Vallery Elec., Inc. v. N.L.R.B.) that Plaintiff must also demonstrate that there was an illegal motive for the 1985 corporate restructuring. Defendants argue that Plaintiff has failed to demonstrate any such unlawful motive. In J. Vallery Elec., Inc. v. N.L.R.B., the Fifth Circuit stated that a court " must gauge whether there was an unlawful motive behind the creation of the new business entity, determining whether there was a `disguised continuance' or `attempt to avoid the obligations of [an existing] collective bargaining agreement through a sham transaction or technical change in operations.'" J. Vallery Elec., Inc. v. N.L.R.B., 337 F.3d at 451 (emphasis added).
Plaintiff responds that unlawful or illegal motive is not an independent requirement, but merely another factor that may be taken in account in the alter ego analysis. See Stardyne, Inc. v. N.L.R.B., 41 F.3d 141, 146-147 (3d Cir. 1994) ("A major issue in this case is whether the [National Labor Relations] 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. [citations omitted]. The Board, however, does not require a finding 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.").
The First and Eighth Circuits have clearly stated that "the focus of the alter ego doctrine, unlike that of the single employer doctrine, is on the existence of a disguised continuance of a former business entity or an attempt to avoid the obligations of a collective bargaining agreement, such as through a sham transfer of assets. . . . Unlawful motive or intent are critical inquiries in an alter ego analysis, inquiries which are wholly absent in a single employer analysis." Iowa Exp. Distribution, Inc. v. N.L.R.B., 739 F.2d 1305, 1311 (8th Cir.), cert. denied, 469 U.S. 1088 (1984). See also Penntech Papers, Inc. v. N.L.R.B., 706 F.2d 18, 24 (1st Cir.), cert. denied, 464 U.S. 892 (1983).
As stated above, the Fifth Circuit in J. Vallery Elec., Inc. v. N.L.R.B., stated that a court " must gauge whether there was an unlawful motive behind the creation of the new business entity. . . ." J. Vallery Elec., Inc. v. N.L.R.B., 337 F.3d at 451 (emphasis added). The Fifth Circuit's use of the phrase "must" suggests that Plaintiff's argument that unlawful motive is merely another factor that may be taken in account in the alter ego analysis is misplaced.
C. Evidence of Unlawful Motive
As stated above, on July 3, 1985, Inc. gave notice to Plaintiff of the corporate reorganization and requested that Inc. be released from any then existing CBA's. The Union agreed to the request on May 18, 1990. Since 1985, neither Management nor Inc. has signed a CBA with Plaintiff. Sheet Metal continues to enter into CBA's with Plaintiff and signed the 2001-2005 CBA at issue in this suit. Plaintiff presents no summary judgment evidence to dispute these facts. Plaintiff presents no evidence to create any issue of fact regarding whether there was an unlawful motive behind the 1985 corporate restructure.
Indeed, Plaintiff states in its Sur-reply the following: "Defendants claim that Plaintiffs have failed to show that Todd-Ford Sheet Metal was created in 1985 to evade the obligations of the CBA in place between the parties or that Todd-Ford Sheet Metal was a disguised continuance of Todd-Ford Inc. Plaintiff does not need to and does not seek to prove these things."
Plaintiff argues that Inc. "engaged in a sham transaction by holding itself out as a separate entity in order to evade its obligations under the CBA when it subcontracted out to B.G. Metals during the term of the current [2001-2005] CBA." Inc. is not a signatory to the 2001-2005 CBA. Plaintiff's argument does not constitute any evidence as to an unlawful motive behind the 1985 corporate restructure. Further, it is difficult to comprehend that Inc. "engaged in a sham transaction by holding itself out as a separate entity," when the Union agreed to the reorganization.
Plaintiff does not contest that it released Inc. from then existing CBA's obligations in 1990. Plaintiff agreed to the elimination of Inc.'s labor obligations at that point.
Article II of the CBA states: "No Employer shall subcontract or assign any of the work described herein . . . to any contractor . . . or party who fails to agree in writing to comply with the conditions of employment contained herein including, without limitations, those relating to Union security, rates of pay and working conditions, hiring and other matters. . . ." Employer in this case means Sheet Metal. Plaintiff, however, in this case makes no allegation that Sheet Metal has violated the CBA.
Had Plaintiff prosecuted this case arguing that Sheet Metal violated the CBA by wrongfully subcontracting or assigning its obligations to Inc. The Court's analysis may have reached a differing result.
Conclusion
Inasmuch as unlawful motive or intent is a critical inquiry in an alter ego analysis and Plaintiff has failed to present any issue of material fact establishing unlawful motive in the 1985 corporate restructuring, the Court GRANTS Defendants' Joint Motion for Summary Judgment (docket no. 71). Management and Inc. are not bound by the CBA. Since Management and Inc. are not signatories to the CBA, they have not violated the CBA. The Union's request for injunctive relief and damages against Management and Inc. is DENIED. Further, inasmuch as Management and Inc. are not signatories to the CBA they have not violated Article VIII of the CBA nor the Employee Retirement Income Security Act by failing to make contributions to various pension, health, and training funds.Given the manner in which Plaintiff pled this case and Defendants sought summary judgment, the Court is uncertain as to whether any claims survive against Sheet Metal. The parties are ORDERED to notify the Court within ten days whether any claims are left unresolved by this Order.