N.L.R.B. v. Greater Kansas City Roofing

• Decision Date: 17 August 1993
• Docket Number: No. 92-9507,92-9507
• Citation: 2 F.3d 1047
• Parties: 144 L.R.R.M. (BNA) 2001, 62 USLW 2123, 126 Lab.Cas. P 10,845 NATIONAL LABOR RELATIONS BOARD, Petitioner, v. GREATER KANSAS CITY ROOFING; the New Greater Kansas City Roofing, Inc.; Maude Clementine Clarke, Respondents.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1047

2 F.3d 1047

144 L.R.R.M. (BNA) 2001, 62 USLW 2123,

126 Lab.Cas. P 10,845

NATIONAL LABOR RELATIONS BOARD, Petitioner, v. GREATER KANSAS CITY ROOFING; the New Greater Kansas City

Roofing, Inc.; Maude Clementine Clarke, Respondents.

No. 92-9507.

United States Court of Appeals, Tenth Circuit.

Aug. 17, 1993.

David A. Fleischer, Sr. Atty. (Jerry M. Hunter, Gen. Counsel and Aileen A. Armstrong, Deputy Associate Gen. Counsel, with him on the brief), N.L.R.B., Washington, DC, for petitioner.

Daniel B. Denk (Katherine E. Rich, with him on the brief) of McAnany, Van Cleave & Phillips, P.A., Kansas City, KS, for respondent.

Before EBEL, Circuit Judge, McWILLIAMS, Senior Circuit Judge, and OWEN, Senior District Judge. ^*

EBEL, Circuit Judge.

This case comes before us on application for enforcement of an order of the National Labor Relations Board ("NLRB"). The parties dispute the NLRB's decision to utilize the doctrine of piercing the corporate veil in order to hold the respondent, Maude Clementine Clarke ("Tina Clarke"), personally liable for a judgment rendered against the corporation she controlled. We hold that the NLRB erroneously pierced the corporate veil in this case in the absence of evidence and a finding that Tina Clarke used the corporate structure to promote fraud or that her disregard of the independent corporate existence of The New Greater Kansas City Roofing led to injustice or an evasion of legal obligations. Accordingly, we deny the NLRB's application for enforcement against Tina Clarke. ¹

Facts

Until November 20, 1985, Greater Kansas City Roofing (GKC), a sole proprietorship owned by Judy Clarke and managed by her husband, Charlie Clarke, was engaged in the roofing business in Kansas City, Kansas. Compliance with the labor laws, however, proved to be problematic for the Clarkes. On December 2, 1983, the NLRB found, on summary judgment, ² that GKC had committed unfair labor practices and ordered it to make payments to certain fringe benefit and fee accounts. ³ Greater Kansas City Roofing, 268 NLRB No. 41 at 7-10 (unpublished decision issued December 2, 1983). On April 23, 1984, the Tenth Circuit issued a judgment enforcing that order. NLRB v. Greater Kansas City Roofing, No. 84-1415 (10th Cir.1984) (unpublished decision). On November 5, 1985, the NLRB obtained a contempt adjudication against GKC. NLRB v. Greater Kansas City Roofing, No. 84-1415 (10th Cir.1985) (unpublished decision). Apparently, no part of the original order has been satisfied.

In late 1984, GKC began to experience monetary problems. Tina Clarke, Charlie's sister and respondent herein, began loaning money to GKC and making direct payments to the company's suppliers and employees. By August of 1985, Tina Clarke's records indicate she had advanced as much as $48,000 to GKC, and she began to insist on certain operational changes in the business. In September of 1985, although the balance owed her by GKC had been reduced to $38,000, Tina Clarke concluded that GKC would be unable to make any further payments, and she refused to advance any more funds to the business.

Soon thereafter, Tina Clarke contacted an attorney in an attempt to secure repayment of her loans to GKC. The attorney prepared a note and security agreement reflecting the balance of her loans. However, ultimately Tina Clarke concluded that GKC was "not going to make it." Accordingly, acting upon a suggestion from her attorney, Tina Clarke decided to set up a new corporation and run the business herself. Articles of Incorporation were executed on October 10, 1985 in the name of The New Greater Kansas City Roofing ("New GKC"). Tina Clarke was the sole shareholder, officer, and director of New GKC. Tina Clarke was unaware at the time New GKC was formed that GKC had committed unfair labor practices or that a judgment was outstanding against the business.

In November 1985, Judy Clarke and Tina Clarke executed an "Acknowledgment of Transfer to Secured Party in Lieu of Foreclosure," transferring the assets of GKC to Tina Clarke. Later, Tina Clarke transferred the assets to New GKC. All of New GKC's vehicles, equipment, and supplies, with the exception of one truck that was purchased later, had previously belonged to GKC. New GKC used the business address, telephone numbers, storage facilities, company logo, and bid format previously utilized by GKC. New GKC honored bids previously made by GKC and retained many of its customers. In addition, New GKC's staff was comprised almost exclusively of the former employees of GKC, including Charlie Clarke, who was employed by New GKC to manage the business as he had done for GKC.

Tina Clarke failed to adhere to the corporate formalities in her dealings with New GKC. She used a trade name associated with New GKC, as well as New GKC's address and phone number, to establish a credit card collection account and to open a checking account for her escort service, Affaire d'Amour. Tina Clarke caused New GKC to pay the escort service's telephone bill on at least one occasion. She loaned personal funds to the corporation in order to pay the corporate payroll without formal loan agreements and received corporate funds in return to pay down that loan. She also accepted a limited amount of corporate funds for purposes unrelated to the corporation. Furthermore, there is no indication that New GKC had bylaws, accounts, stock, corporate records, or held meetings.

On October 21, 1988, in an attempt to collect on the unfair labor practice judgment, the NLRB General Counsel issued a backpay specification alleging, among other things, that New GKC was liable as an alter-ego of GKC, and that the corporate veil of New GKC should be pierced so that Tina Clarke could be held personally liable for satisfaction of the Board's order of December 2, 1983. Briefs were filed and hearings were held before an administrative law judge ("ALJ"). The ALJ, on October 23, 1989, issued a supplemental decision finding that New GKC was liable for GKC's backpay obligations, but finding that Tina Clarke was not personally liable. The ALJ declined to pierce the corporate veil of New GKC in order to assess personal liability against Tina Clarke for two reasons. First, he concluded that, in light of NLRB precedent, Tina Clarke did not so intermingle her affairs with that of New GKC to justify ignoring the corporate boundaries. Second, he found that Tina Clarke did not use the corporate status of New GKC "to perpetrate fraud, evade existing obligations, or circumvent a statute."

The NLRB General Counsel filed exceptions and a supporting brief and Tina Clarke filed an answer brief before the NLRB. On November 25, 1991, the NLRB, through a three-member panel, issued a supplemental decision and order accepting the ALJ's conclusions regarding the liability of GKC and New GKC, but rejecting the ruling regarding Tina Clarke, instead holding her personally liable for the judgment. The NLRB found that "the Board is not limited to piercing the corporate veil only in cases where the corporate status is used to perpetrate fraud." Supplemental Decision & Order, at 3. Rather, the Board chose to pierce the corporate veil and to assess personal liability upon Tina Clarke solely because of the intermingling of her affairs with those of New GKC and her failure to observe corporate formalities. The Board accepted the ALJ's conclusion that Tina Clarke was not acting fraudulently or with any intent to violate the labor laws or to avoid payment of the preexisting backpay order. ⁴ In so ruling, the Board relied on its decision in Concrete Mfg. Co., 262 NLRB 727, 729 (1982), and its broad authority to fashion appropriate remedies under 29 U.S.C. Sec. 160(c).

The NLRB brings the present action seeking enforcement of the supplemental order issued on November 25, 1991, against GKC, New GKC, and Tina Clarke. The only question before us is whether Tina Clarke should be held personally liable for the judgment. We decide that she should not, and accordingly deny enforcement as to her.

Standard of Review

In reviewing an NLRB order, we grant enforcement if we find that the Board correctly interpreted and applied the law, and if its factual findings are supported by substantial evidence in the record as a whole. Presbyterian/St. Luke's Medical Center v. NLRB, 723 F.2d 1468, 1471 (10th Cir.1983). Section 10(e) of the National Labor Relations Act ("NLRA") establishes that the factual findings of the Board are conclusive "if supported by substantial evidence on the record." 29 U.S.C. Sec. 160(e). As to questions of law, we generally afford the Board's determinations "great weight," Crane Sheet Metal, Inc. v. NLRB, 675 F.2d 256, 257 (10th Cir.1982), and uphold their determinations if within "reasonable bounds." Presbyterian/St. Luke's, 723 F.2d at 1472.

Whether a company or individual is responsible for the financial obligations of another company or individual is a question of federal law when it arises in the context of a federal labor dispute. NLRB v. Fullerton Transfer & Storage Ltd., 910 F.2d 331, 335 (6th Cir.1990).

Discussion

The corporate structure is an artificial construct of the law, a substantial purpose of which is to create an incentive for investment by limiting exposure to personal liability. "The insulation of a stockholder from the debts and obligations of his corporation is the norm, not the exception." NLRB v. Deena Artware, Inc., 361 U.S. 398, 402-03, 80 S.Ct. 441, 443-44, 4 L.Ed.2d 400 (1960) (citations omitted). In extreme circumstances, however, the corporate form will be disregarded and the personal assets of a controlling shareholder or shareholders may be attached in order to satisfy the debts and liabilities of the corporation. However, the corporate veil should be pierced only reluctantly and cautiously. Cascade Energy and Metals Corp. v. Banks, 896 F.2d 1557, 1576 (10th Cir.), cert. denied, 498 U.S. 849, 111 S.Ct. 138, 112 L.Ed.2d 105 (1990). Piercing the corporate...