United Paperworkers Intern. Union v. T. P. Property Corp., s. 77-1528

• Decision Date: 11 September 1978
• Docket Number: 77-1560,Nos. 77-1528,s. 77-1528
• Parties: 99 L.R.R.M. (BNA) 2459, 84 Lab.Cas. P 10,804 UNITED PAPERWORKERS INTERNATIONAL UNION et al., Plaintiffs, Appellants, v. T. P. PROPERTY CORP. et al., Defendants, Appellees. UNITED PAPERWORKERS INTERNATIONAL UNION et al., Plaintiffs, Appellees, v. KENNEBEC RIVER PULP & PAPER COMPANY et al., Defendants, Appellees. Appeal of PENNTECH PAPERS, INC., and T. P. Property Corp. et al., Defendants.
• Court: U.S. Court of Appeals — First Circuit

Page 33

583 F.2d 33

99 L.R.R.M. (BNA) 2459, 84 Lab.Cas. P 10,804

UNITED PAPERWORKERS INTERNATIONAL UNION et al., Plaintiffs, Appellants, v. T. P. PROPERTY CORP. et al., Defendants, Appellees.

UNITED PAPERWORKERS INTERNATIONAL UNION et al., Plaintiffs, Appellees, v. KENNEBEC RIVER PULP & PAPER COMPANY et al., Defendants, Appellees.

Appeal of PENNTECH PAPERS, INC., and T. P. Property Corp. et

al., Defendants.

Nos. 77-1528, 77-1560.

United States Court of Appeals, First Circuit.

Argued April 6, 1978.

Decided Sept. 11, 1978.

John J. Flaherty, Portland, Me., with whom Christopher D. Nyhan, Preti, Flaherty & Beliveau, Portland, Me., and Benjamin Wyle, New York City, were on brief for United Paperworkers International Union, et al.

John W. Ohlweiler, New York City, with whom Simpson, Thacher & Bartlett, New York City, and Curtis, Thaxter, Corey, Lipez & Stevens, Portland, Me., were on brief for Kennebec River Pulp & Paper Co., et al.

Before COFFIN, Chief Judge, ALDRICH and CAMPBELL, Circuit Judges.

LEVIN H. CAMPBELL, Circuit Judge.

The plaintiff unions, United Paperworkers International Union and Locals 36 and 37, International Brotherhood of Firemen and Oilers, Local 270, and International Brotherhood of Machinists and Aerospace Workers, Local 559, brought suit on April 20, 1977, to compel Penntech Papers, Inc., and T. P. Property Corp. to enter arbitration with the unions concerning certain provisions of a collective bargaining agreement between the unions and Kennebec River Pulp and Paper Co. The district court denied the motion to compel arbitration on October 21, 1977, 439 F.Supp. 610 (D.Me.1977), and the unions appeal.

Kennebec and the unions executed the labor agreement in question on March 1, 1976. Kennebec had laid off most of its employees and discontinued operations the previous December following years of substantial losses, but Southeastern Capital Corporation, the owner of all of Kennebec's outstanding stock, was in the process of negotiating a sale of Kennebec that would bring cash into the company and enable it to resume activity. On March 3, 1976, Penntech purchased all of the Kennebec stock through T. P., a wholly owned subsidiary. T. P.'s only function was to serve as a holding company for Kennebec stock, and the district court found that T. P. was merely an "alter ego" of Penntech. Although T. P. and Penntech did not participate directly in negotiations between the unions and Kennebec, they were aware of them and suggested to Kennebec various changes in the labor agreement, including extension of its duration and modification of the Kennebec pension plan to comply with the Employee Retirement Income Stabilization Act.

After the sale of Kennebec to T. P., operations resumed at its paper mill in Madison, Maine. Unfortunately, losses continued to mount. Kennebec lost $3,000,000 on sales of $10,000,000 during 1976, and dropped another $250,000 in the first two months of 1977. The plant again closed down operations on March 29, 1977, and laid off most of its employees.

During the period Kennebec operated under Penntech ownership, Kennebec maintained its own corporate books, records, and headquarters in Madison. Kennebec had its own bank accounts, out of which it paid its employees and other business expenses, and operated the mill under its own management. All contracts between employees and management were handled by Kennebec's Office of Industrial Relations. Three Penntech employees worked at the plant and were paid by Penntech, who charged Kennebec for their services. In short, Kennebec continued to operate and hold itself out as a separate entity throughout this period, subject, as the district court found, to Penntech's ultimate control. ^*

After Kennebec closed down for good, the unions invoked the arbitration procedures under their 1976 agreement with Kennebec concerning various disputed matters of interest to their members arising from the closing. In doing so, they demanded that T. P. and Penntech who were not mentioned in the 1976 agreement nor signatories to it join with Kennebec as parties to the arbitration proceedings. Although Kennebec has agreed to arbitration, its shaky financial position makes it an unattractive bargaining partner, to say the least. T. P. and Penntech denied any obligation to arbitrate with the unions, thereby precipitating this suit.

The district court examined the federal common law that applies to suits brought under § 301 of the Labor Management Relations Act, 29 U.S.C. § 185, pursuant to the doctrine of Textile Workers Union v. Lincoln Mills, 353 U.S. 448, 77 S.Ct. 912, 1 L.Ed.2d 972 (1957), to determine whether the separate corporate identities of the defendants could be ignored in this case in order to compel arbitration. After surveying the precedents, the court concluded that the separate identities should be honored. It noted that the Supreme Court decisions, although requiring a surviving corporation in a merger to honor the arbitration obligation of the merged corporation in some instances, have not bound parent corporations to the obligations of their subsidiaries. Referring to other federal precedent regarding the proper occasions for disregarding the separate forms of a parent and its subsidiary, the court found that the circumstances of this case made piercing of the corporate veil inappropriate.

This dispute implicates two conflicting policies applicable to a § 301 dispute: the "federal policy of settling labor disputes by arbitration" recognized in John Wiley & Sons v. Livingston, 376 U.S. 543, 549, 84 S.Ct. 909, 914, 11 L.Ed.2d 898 (1964) (quoting United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 596, 80 S.Ct. 1358, 4 L.Ed.2d 1424 (1960)), and a desire not to "inhibit the free transfer of capital," and to permit "new employers . . . to make substantial changes in the operation of the enterprise." Howard Johnson Co. v. Detroit Local Hotel & Restaurant Employees and Bartenders Union, 417 U.S. 249, 255, 94 S.Ct. 2236, 2239, 41 L.Ed.2d 46 (1974). See generally Morris & Gaus, Successorship and the Collective Bargaining Agreement:...