Title Stardyne, Inc. v. NLRB
Date 1994
By Alito
Subject Misc
Contents
Page 1
LEXSEE 41 F.3D 141
STARDYNE, INC., Petitioner v. NATIONAL LABOR RELATIONS BOARD, Respondent United Steelworkers of America, AFL-CIO--CLC, Intervenor-Respondent JOHNSTOWN CORPORATION, Petitioner v. NATIONAL LABOR RELATIONS BOARD, Respondent The United Steelworkers of America, AFL-CIO--CLC, Intervenor-Respondent NATIONAL LABOR RELATIONS BOARD, Petitioner v. JOHNSTOWN CORPORATION, and its alter ego, STARDYNE, INC., Respondent United Steelworkers of America, AFL-CIO--CLC, Intervenor-Respondent
No. 94-3054, No. 94-3056, No. 94-3096
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
41 F.3d 141; 1994 U.S. App. LEXIS 34150; 147 L.R.R.M. 3028; 129 Lab. Cas. (CCH) P11,241
September 12, 1994, Argued
December 6, 1994, Filed
PRIOR HISTORY: **1 ON PETITION FOR REVIEW AND CROSS-APPLICATION FOR ENFORCEMENT OF AN ORDER OF THE NATIONAL LABOR RELATIONS BOARD (No. 6-CA--22363).
LexisNexis(R) Headnotes
COUNSEL: 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.
JUDGES: Before: STAPLETON, ALITO, and LEWIS, Circuit Judges.
OPINIONBY: ALITO
OPINION: *143 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"), hold- ing that **2 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 predi- cated 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 re- sponsibilities under the Act. In addition, the Board found it unnecessary to decide whether Johnstown and Stardyne constituted a "single employer."
*144 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 undis- turbed finding that Stardyne was not created for the pur- pose 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 ques- tion 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 **3 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 clarifica- tion of its precedents concerning the relationship between the alter ego and single employer doctrines.
I.
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In 1988, Johnstown, a manufacturer of steel prod- ucts, 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 opera- tion. 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 signif- icant financial problems. Although Johnstown believed that the operation could become profitable, the com- pany was not prepared to spend any more money on it. Moreover, the scientists **4 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. n1 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 pro- duction 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 un- der terms different from those contained in Johnstown's collective bargaining agreement.
n1 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.
After learning that management had negotiated **5 directly with and hired production and maintenance em- ployees from Johnstown, the union wrote a letter to Stardyne requesting that Stardyne recognize the union as the collective bargaining representative for these em- ployees. 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 a "successor" to Johnstown. The com- plaint 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 repre- sented by the union, by imposing new working conditions on these employees, and by repudiating its collective bar-
gaining 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 ques- tion whether Johnstown and Stardyne constituted a single employer or alter egos. When two entities are found to be a single employer, **6 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, 48 *145 L. Ed. 2d 382, 96 S. Ct. 1842 (1976). However, if two entities are found to be alter egos, a col- lective bargaining agreement covering one entity is auto- matically deemed to cover the other. Howard Johnson Co. v. Detroit Local Joint Executive Bd. Hotel & Restaurant Employees, 417 U.S. 249, 259 n.5, 41 L. Ed. 2d 46, 94 S. Ct. 2236 (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, com- mon 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 **7 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 "the Board's criteria for finding that two entities are alter egos are somewhat broader than its standards for finding a sin- gle 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, cus- tomers 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 em- ployees. Id. The ALJ refused to find that Stardyne was created to evade Johnstown's obligations under the Act, n2 but **8 the ALJ nevertheless concluded, 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
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successor and was therefore obligated to recognize and bargain with the union that represented Johnstown's em- ployees. n3 Id.
n2 The ALJ stated:
When Stardyne went into operation at the end of that year, twelve of
Johnstown's 390 employes were em- ployed by Stardyne. It seems illogi- cal to me that Johnstown would have staged such an elaborate charade, in- volving 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 been sub- stantial sums of money paid to accoun- tants, 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 busi- nesslike decision to incur all of these expenses for such a meager result.
313 N.L.R.B. at 180-81.
**9
n3 A successor, although not bound by its pre- decessor's collective bargaining agreement, is re- quired 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,
32 L. Ed. 2d 61, 92 S. Ct. 1571 (1972); Systems Management Inc. v. NLRB, 901 F.2d 297, 301 (3d Cir. 1990).
Turning to the substance of the charges in the com- plaint, 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 as- signed 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 terms of the collective bargaining agreement, and to reimburse any employees **10 who had been injured as a result of any failure to abide by this agreement. 313
N.L.R.B. at 183.
*146 Both Johnstown and Stardyne filed excep- tions to the ALJ's decision with the Board, but the Board adopted the ALJ's recommended order. The Board con- cluded that it was unnecessary to review the ALJ's de- termination 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, **11 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, 86 L. Ed. 718, 62 S. Ct.
452 (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 "whether there was a bona fide discon- tinuance and a true change of ownership--which would
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terminate the duty of reinstatement created by the Board's order--or merely a disguised continuance of the old em- ployer . . . is a question **12 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 em- ploying 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 lit- tle 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. **13
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. n4 The Board, how- ever, *147 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 sta- tus. 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; Advance Electric, Inc., 268 N.L.R.B. 1001, 1002
(1984).
n4 Generally, the circuits have taken three dif- ferent 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 de- termination. Penntech Papers, Inc. v. NLRB, 706
F.2d 18, 24 (1st Cir.), cert. denied, 464 U.S. 892, 78
L. Ed. 2d 228, 104 S. Ct. 237 (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 consid- eration. 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, 78
L. Ed. 2d 305, 104 S. Ct. 335 (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, 233 U.S. App. D.C.
310, 725 F.2d 1416, 1419 (D.C. Cir. 1984). Finally, the Fourth Circuit has adopted a "reasonably fore- seeable 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).
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 in- tent); Gary MacDonald, Labor Law's Alter Ego Doctrine: The Role of Employer Motive in Corporate Transformations, 86 Mich. L. Rev. 1024,
1056 (1988) (same).
**14
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, 81 L. Ed. 2d 694,
104 S. Ct. 2778 (1984). See ABF Freight Systems, Inc. v. NLRB, 127 L. Ed. 2d 152, 114 S. Ct. 835, 839 (1994); Lechmere, Inc. v. NLRB, 502 U.S. 527, 112 S. Ct. 841,
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847-48, 117 L. Ed. 2d 79(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 pre- cise 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 con- struction on the statute." Id. "Rather, if the statute is silent or ambiguous with respect to the specific issue, the ques- tion 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.,
501 U.S. 680, 111 S. Ct. 2524, 2534, 115 L. Ed. 2d 604
(1991).
In the present case, **15 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 un- fair labor practice for an "employer" to engage in certain practices, including those charged in this case, i.e., inter- fering 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 "in- cludes" 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 responsibil- ity of interpreting and enforcing the Act. NLRB v. Curtin Matheson Scientific, Inc., 494 U.S. 775, 786-87, 108 L. Ed. 2d 801, 110 S. Ct. 1542 (1990); **16 NLRB v. Erie Resistor Corp., 373 U.S. 221, 236, 10 L. Ed. 2d 308,
83 S. Ct. 1139 (1963). Thus, the Board's alter ego pol- icy is properly viewed as a gap-filling measure, adopted through case-by--case adjudication, to *148 flesh out the concept of an "employer" under the relevant provi- sions of the Act. n5 See Morton v. Ruiz, 415 U.S. 199,
231, 39 L. Ed. 2d 270, 94 S. Ct. 1055 (1974) ("The power of an administrative agency to administer a congression- ally 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")
n5 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).
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 **17 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
783, 789 (Sloviter, J., dissenting), and, on the other, the desire to protect employees from "sudden changes in the employment relationship," John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 11 L. Ed. 2d 898, 84 S. Ct. 909
(1964), and to "prevent employers from evading obliga- tions under the Act by merely changing or altering their corporate form." Allcoast, 780 F.2d at 582. n6
n6 As the Supreme Court in United States v. Shimer, 367 U.S. 374, 383, 6 L. Ed. 2d 908, 81
S. Ct. 1554 (1961), made clear, it is the agency's prerogative to choose between two competing, jus- tifiable policy considerations:
If this choice represents a reasonable accommoda- tion of conflicting policies that were committed to the agency's care by the statute, we should not dis- turb it unless it appears from the statute . . . that the accommodation is not one that Congress would have sanctioned.
**18
We view the Board's resolution of this conflict as con- sistent with the Act. First, it can be argued that the Board's policy, which relies primarily on an examination of ob- jective criteria, provides for easier and more consistent application of the Act than one in which intent is an es- sential 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 ar- guably 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 expec- tations 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
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Board's policy furnishes this protection while at the same time generally permitting changes in ownership **19 of employers without saddling the successor with collective bargaining agreements to which they did not agree. See Burns, 406 U.S. at 281-82. n7, 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. n8 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.
n7 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,
13 L. Ed. 2d 827, 85 S. Ct. 994 (1965).
n8 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.
C. Johnstown and Stardyne argue that the Board's in- terpretation of the **20 Act is not controlling because our court has already held that intent is a necessary ele- ment in an alter ego determination. A careful review of
*149 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 con- text 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 therefore obligated under the Act to assume its collective bargaining obliga- tions, id. at 788-89. In support of its holding, the majority noted that operation of the composing room remained un- changed 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 **21 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, 79 L. Ed. 2d 165,
104 S. Ct. 699 (1984). There, we affirmed a Board deci- sion holding that two construction companies were alter egos. Id. at 554. We noted the presence of objective fac- tors 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: "It is significant, if not crucial, that the successor company was created after the filing of unfair labor practice charges against the predecessor companies . . . ." Id. **22 (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 pur- pose to avoid the old employer's labor obliga- tions 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.
937 F.2d at 118. While this statement appears to sup- port the argument advanced by Johnstown and Stardyne in this case, we do not interpret Omnitest as having con- clusively 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 determi- nation, the Board added:
We must also consider **23 whether the purpose behind the creation of the alleged al- ter 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 omit- ted). Moreover, other language in the Omnitest opinion suggests that no single factor is essential to a determi- nation 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
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N.L.R.B. 1141, 1231, enforced in relevant part, 843 F.2d 285, 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. **24 Later, the court reiterated: As we have explained, no one factor, "taken alone, is the sine qua non of alter ego
*150 status." Fugazy Continental Corp.,
265 N.L.R.B. at 1301-02.
937 F.2d 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 interpre- tation. 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 concern- ing these multiple factors were supported by substantial evidence. Nothing in our opinion, with the possible ex- ception 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 **25 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 com- pany, 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.
**26
We interpreted part of the awards to be based on the theory that the NMAs impliedly required Eichleay to re- frain 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 ques- tion 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 dis- cussion our opinion made several statements that appear to support the view that the Board cannot find an alter ego relationship unless the employer **27 intended to
evade its obligations under the Act. We stated:
The ultimate focus of alter ego analysis, how- ever, is "the existence of a disguised contin- uance 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 com- pany's collective bargaining agreement, is also supported in this case.
944 F.2d at 1060.
Although these statements seem to support the argu- ments advanced by Johnstown and Stardyne here, we do not regard them as controlling, since they were clearly dicta rendered in a substantially different context. *151
41 F.3d 141, *151; 1994 U.S. App. LEXIS 34150, **27;
147 L.R.R.M. 3028; 129 Lab. Cas. (CCH) P11,241
Page 8
While it is a tradition of our court that one panel may not overrule a decision **28 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 reason- able, 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 substan- tial evidence. 29 U.S.C. § 160(e); Universal Camera Corp. v. NLRB, 340 U.S. 474, 488, 95 L. Ed. 456, 71 S. Ct. 456
(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 **29 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 dis- guised continuance, the Board looks to whether the new and old employers share "'substantially identical' manage- ment, 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 man- aged Stardyne after the spin-off, the record does support
**30 the Board's finding of a continuity in the man- agement and supervision of the laser operation. Several Stardyne managers, including Stardyne's president, man- aged 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 pur- pose is also supported in the record. Although Stardyne
argues that laser production took a more commercial fo- cus 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 sub- stantial 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 af- ter 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. n9 See Omnitest, 937 F.2d at 117 **31 (al- ter ego finding when new business stayed in the same location). The record also indicates an overlap in cus- tomer 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 princi- pal 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 con- trol after sale of business); see also Haley & Haley, Inc.,
289 N.L.R.B. 649, 652 (1988), enforced 880 F.2d 1147
(9th *152 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 sup- porting the Board's alter ego finding.
n9 The record also indicates that Stardyne used Johnstown's address and retained its previous tele- phone number.
**32 IV.
The companies' final argument is that Board prece- dent prevents a finding of alter ego status because of the ALJ's undisturbed finding that the companies were not a single employer. n10 In making this argument, the com- panies rely on the Board's decision in Gartner-Harf Co.,
307 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 em- ployer concept . . . ." The companies argue that because they do not constitute a single employer, they cannot be alter egos.
n10 The Board did not reach the ALJ's single
41 F.3d 141, *152; 1994 U.S. App. LEXIS 34150, **32;
147 L.R.R.M. 3028; 129 Lab. Cas. (CCH) P11,241
Page 9
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.
Putting aside Gartner-Harf, we see no reason why the alter ego doctrine must be considered a subset of the sin- gle 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). **33 See also Al Bryant, 711 F.2d at 551. See generally Iowa Express, 739 F.2d at 1310 (ex- plaining difference between the two doctrines). n11 The single employer doctrine generally applies to situations where two entities concurrently perform the same func- tion and one 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 rela- tions, and common ownership. See Radio & Television Broadcast Technicians Local 1264 v. Broadcast Serv. of Mobile, Inc., 380 U.S. 255, 256, 13 L. Ed. 2d 789, 85
S. Ct. 876 (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 **34 the predecessor (or at least the unionized portion of the predecessor). See Howard Johnson, 417 U.S. at 259 n.5.
n11 Another difference between the two doc- trines 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.
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 al- ter 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 ex- pressly find that they were. 307 N.L.R.B. at 542. **35 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 ad- mitted 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 distin- guish Gartner-Harf. Stating that it *153 refused to "en- gage 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 **36 there was no dis- guised continuance. Id. Thus, the Board majority, with- out 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,"
307 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 **37 (Member Raudabaugh, concurring). We are further disturbed by the Board's sub- sequent 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 reason- ing 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 arbi- trary and capricious and a violation of the Administrative Procedures Act. 5 U.S.C. § 706(2)(A). n12 It is well es- tablished 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, 37 L. Ed. 2d 350, 93
41 F.3d 141, *153; 1994 U.S. App. LEXIS 34150, **37;
147 L.R.R.M. 3028; 129 Lab. Cas. (CCH) P11,241
Page 10
S. Ct. 2367 (1973); King Broadcasting Co. v. FCC, 860
F.2d 465, 470 (D.C. Cir. 1988). The "requirement that the Board provide analysis and findings serves as a prophy- laxis against an arbitrary exercise of the Board's power."
**38 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, 43 L. Ed. 2d 171,
95 S. Ct. 959 (1975) (Board may change policies through evolving case law). As the Supreme Court has explained:
n12 Section 706 states:
The reviewing court shall . . .
(2) hold unlawful and set aside agency action, findings, and conclu- sions found to be . . .
(A) arbitrary, capricious, an abuse of discretion, or otherwise not in ac- cordance with law.
pears 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, peculiar- ities 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. *154 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.
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 **39 rule will be applied, because it ap-
The Board's finding that Stardyne is Johnstown's suc- cessor is unchallenged on appeal, and therefore we grant the Board's application to enforce the portion of its or- der **40 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 re- mand on the Gartner-Harf issue, however, we grant the companies' petition for review and deny the Board's pe- tition for enforcement of the remainder of the order, and we remand this case to the Board for further proceedings.
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