Esmark, Inc. v. N.L.R.B.

Decision Date06 October 1989
Docket NumberAFL-CI,I,Nos. 88-2340,88-2524,s. 88-2340
Citation132 L.R.R.M. 2710,887 F.2d 739
Parties132 L.R.R.M. (BNA) 2710, 58 USLW 2288, 113 Lab.Cas. P 11,546 ESMARK, INC., Petitioner, v. NATIONAL LABOR RELATIONS BOARD, Respondent, United Food & Commercial Workers International Union,ntervenor.
CourtU.S. Court of Appeals — Seventh Circuit

Philip V. Carter and Douglas A. Darch, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, Ill., for Esmark, Inc.

Aileen A. Armstrong, N.L.R.B., Appellate Court, Enforcement Litigation, Washington, D.C., Judith A. Dowd, N.L.R.B., Paul J. Spielberg, John C. Truesdale, Washington, D.C., and Donald J. Crawford, N.L.R.B., Region 13, Chicago, Ill., Irving M. King, Cotton, Watt, Jones & King, Chicago, Ill., George R. Murphy, Washington, D.C., Philip V. Carter, John S. Schauer, Douglas A. Darch, Seyfarth, Shaw, Fairweather & Geraldson, Chicago, Ill., Carol Clifford, Washington, D.C., George V. Gallagher, Palos Park, Ill., Charles E. Sykes, Bruckner & Sykes, Houston, Tex., George P. Blake, Lawrence J. Casazza, Vedder, Price, Kaufman & Kammholz, Chicago, Ill., for United Food & Commercial Workers Intern. Union, AFL-CIO, et al.

Before CUDAHY, EASTERBROOK and FLAUM, Circuit Judges.

CUDAHY, Circuit Judge.

Esmark, Inc. petitions for review of an order of the National Labor Relations Board (the "NLRB" or "Board") finding Esmark guilty of violations of sections 8(a)(3) and 8(a)(5) of the National Labor Relations Act (the "NLRA"), 29 U.S.C. section 158(a)(3), (a)(5). The Board's order is reported at 289 N.L.R.B. No. 51 (June 29, 1988). We grant Esmark's petition for review and remand the case to the Board for further proceedings.

I.

Esmark is a holding company. Prior to 1981, one of its wholly-owned subsidiaries was Swift & Company, one of America's great meatpacking firms. 1 By 1980, Esmark officials had become dissatisfied with Swift's fresh meats division. The fresh meats division required large amounts of cash for its daily operations, was perceived poorly in the financial community and, Esmark believed, was not competitive because of the high labor costs attributable to the company's master agreement with the United Food & Commercial Workers International Union (the "Union").

On April 25, 1980, Esmark's president Donald Kelly asked John Copeland, head of Swift's fresh meats division, to develop a plan for disposition of the division. After the Union rejected an employee stock ownership plan, Esmark began to explore the possibility of selling the fresh meats division as a separate corporation to outside interests. On June 26, 1980, Esmark's board of directors approved a restructuring plan under which several of Swift's fresh meats plants were to be closed, while the remainder would be included in a new corporation and sold.

On June 30, 1980, notices of closing were sent out covering the Moultrie, Georgia and Guymon, Oklahoma plants, which are at the center of this litigation. Originally, Moultrie and Guymon were not to be included in the newly formed corporation, but were to be closed permanently. Copeland subsequently concluded that the Moultrie and Guymon plants were competitive, except for their labor costs, and therefore should be included in the planned stand-alone fresh meats corporation. However, he remained concerned about the wage rates at the two plants. Throughout the latter half of 1980 and early 1981, Copeland and other Swift officials met with the Union's representative, Lewie Anderson, and attempted to persuade Anderson to agree to changes to the master agreement at Moultrie and Guymon. Since the collective agreement was not scheduled to expire until September 1, 1982, Anderson rejected all proposed modifications. Copeland informed Anderson that, if the Union would not agree to concessions, Moultrie and Guymon would be closed before the sale to the independent concern; after the sale, the new entity would reopen the plants, and would be free to set terms of employment at variance with those contained in the master agreement. (Copeland expected that only the Moultrie and Guymon plants would be reopened outside the terms of the existing labor contract--apparently the master agreement wage rates were considered more competitive in other parts of the country.)

During August, September and October of 1980, various transactions were completed in preparation for the divestiture of the fresh meats division. Although these transactions may seem somewhat byzantine, it should be recalled that all of these transactions were carefully orchestrated to achieve maximum tax advantages, as well as for other business reasons, using highly competent legal and financial counsel. First, Swift set up its own wholly-owned subsidiary known as Transitory Food Processors. On October 15, the name of Transitory was changed to Swift & Company, effective October 24. On October 21, (the original) Swift transferred all of its assets, except for the fresh meats division, to Transitory, effective October 27. On October 24, the name of the original Swift & Co. was changed to Swift Independent Packing Company (Sipco). 2 To sum up: as of October 27, 1980, Sipco (old Swift) directly owned only the fresh meats operations which had been separated by Copeland; Sipco also owned a subsidiary, (new) Swift & Company, which in turn owned all of old Swift's other assets (principally those connected with processed meats operations). Then, on October 27, Sipco declared a dividend of all of the (new) Swift stock to Esmark. Thus, after October 27, Sipco owned only the fresh meats operations; the other aspects of the old Swift were owned by Esmark, through its wholly-owned subsidiary (old name, new corporation) Swift & Company.

Sipco was to be sold in principal part to outside interests through a public stock offering. But first the structure of the corporation to be sold was further altered. On January 26, 1981, Swift Independent Corporation ("Sic") was incorporated. On February 23, 1981, Esmark and Sic entered into an agreement whereby Esmark sold Sipco's stock to Sic in exchange for a promissory note for $100 million. On April 21 all of Sic's stock was transferred to Esmark, together with a $35 million note payable to Esmark, in exchange for Esmark's surrender of the existing $100 million Sic note. Thus, Esmark now held all of Sic's stock, Sic held all of Sipco's stock, and Sipco owned the fresh meats operations it had always owned, including the Moultrie and Guymon plants. Sic's stock, rather than Sipco's, would be sold to the public.

But the corporate maneuverings were not yet completed. Since only Moultrie and Guymon were to be reopened outside of the master agreement, Sipco officials decided to create a new wholly-owned subsidiary of Sic, New Sipco, Inc., which would hold only the Moultrie and Guymon facilities. (It is unclear precisely what this final transaction was meant to accomplish.) 3 The Moultrie and Guymon plants were transferred to New Sipco in late April, 1981.

While still under Sipco's control, however, Moultrie and Guymon were closed on April 17, 1981. As the ALJ noted,

Benefits were paid to separated employees at Moultrie and Guymon at special offices away from the plants.... The purpose was apparently to emphasize the fact that Sipco and the old Fresh Meat Division of Swift & Company were entirely different companies than New Sipco, Inc. [and] ... that New Sipco, Inc., ... for whom most of the employees would work if and when [re]hired ..., should be recognized as a new employer.

ALJ op. at 29.

In early 1981, Esmark and Sipco officials prepared a prospectus for the sale of Sic stock. This prospectus (which Anderson first saw in draft form in February), boldly proclaims Esmark's intentions with regard to its subsidiaries' labor contracts:

Sipco's Guymon, Oklahoma and Moultrie, Georgia plants are in the opinion of management, efficient facilities capable of successful and competitive operations. However, labor costs at these plants under the Master Agreement ... were significantly higher than those prevailing at many plants in their respective areas. A new subsidiary of the Company intends to open Guymon and Moultrie shortly after completion of this offering with the objective of achieving competitive labor costs at these facilities.... [T]he possible reduction of such costs at the Guymon and Moultrie plants will add further strength to Sipco's ability to compete effectively and profitably in the fresh meats industry.

(emphasis supplied).

The main event occurred on April 22, 1981. On the 21st, as noted, Esmark had exchanged its $100 million note for a $35 million version, together with all of Sic's stock. On the 22nd, Esmark sold 65% of Sic's outstanding stock to the public, retaining only a 35% minority interest. On April 30, a Sipco official wrote two letters to Anderson. The first, on Sipco stationery, informed Anderson of the stock sale, and that Moultrie and Guymon were now owned by New Sipco. The second letter, on New Sipco stationery (the distinctness of the two corporate entities apparently being viewed as critically important to the success of the "close and then reopen" strategy), informed Anderson that New Sipco, as a successor employer, would unilaterally set wage rates for Moultrie and Guymon when they reopened. The letter also stated that New Sipco would be pleased to receive applications from Sipco's former employees.

Interviews were conducted beginning about May 3. In order to preserve its image as a "new" employer New Sipco required each applicant to complete an application form, take a physical, etc. Despite this application process "almost all of the newly hired employees ... had [previously] worked for Sipco." ALJ op. at 31. 4 The master agreement was not applied at either Moultrie or Guymon.

The ALJ concluded that the conduct described above had violated neither section 8(a)(3) (which generally prohibits discrimination in employment based on an...

To continue reading

Request your trial
120 cases
  • Kelley v. N.L.R.B.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (1st Circuit)
    • 8 de dezembro de 1995
    ...begins to run when the "aggrieved individual has actual notice that an unfair labor practice has been committed." Esmark, Inc. v. NLRB, 887 F.2d 739, 745 (7th Cir.1989). An adverse employment decision provides such notice. Id. at Congress entrusted the Board with broad discretion for interp......
  • A.O.A. v. Rennert
    • United States
    • United States District Courts. 8th Circuit. United States District Court (Eastern District of Missouri)
    • 16 de outubro de 2018
    ...the transaction, ignoring the subsidiary's paraphernalia of incorporation, directors and officers.") ); see also Esmark, Inc. v. N.L.R.B., 887 F.2d 739, 757 (7th Cir. 1989) (parent can be held liable where the parent "directs the actions of its subsidiary, using its ownership interest to co......
  • Pearson v. Component Technology Corp.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
    • 24 de outubro de 2000
    ...the subsidiary to take the complained-of action, in disregard of the subsidiary's distinct legal personality. See Esmark, Inc. v. NLRB, 887 F.2d 739, 756-57 (7th Cir. 1989). Thus, in the labor context, "direct" liability may attach if the parent has overridden the subsidiary's ordinary deci......
  • Leber v. Universal Music and Video Distribution
    • United States
    • United States District Courts. 7th Circuit. Southern District of Illinois
    • 24 de setembro de 2002
    ...to those in the alter ego inquiry: interrelation of operations, management, labor relations and ownership. Id.; Esmark, Inc. v. NLRB, 887 F.2d 739, 753 (7th Cir.1989) (citing Radio Broadcast Technicians Local 1264 v. Broadcast Serv. of Mobile, Inc., 380 U.S. 255, 256, 85 S.Ct. 876, 13 L.Ed.......
  • Request a trial to view additional results
1 books & journal articles
  • CHAPTER § 6.03 Direct Parent Liability
    • United States
    • Full Court Press Regulation of Pharmaceutical Manufacturers Title CHAPTER 6 Veil Piercing, Direct Parent Liability, and Successor Liability
    • Invalid date
    ...before returning to parent, creating inference that parent became aware of those risks).[116] See Esmark, Inc. v. Nat'l Labor Rel. Board, 887 F.2d 739, 758-60 (7th Cir. 1989); see also A.O.A. v. Rennert, 350 F. Supp.3d 818, 845 (E.D. Mo. 2018) ("The notion of direct participation liability ......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT