N.L.R.B. v. Martin Arsham Sewing Co.
| Decision Date | 15 August 1989 |
| Docket Number | No. 88-5432,88-5432 |
| Citation | 873 F.2d 884 |
| Parties | 131 L.R.R.M. (BNA) 2138, 57 USLW 2647, 111 Lab.Cas. P 11,130, 19 Bankr.Ct.Dec. 381, Bankr. L. Rep. P 72856A NATIONAL LABOR RELATIONS BOARD, Petitioner, v. MARTIN ARSHAM SEWING COMPANY, and Martin Arsham, Respondents. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Aileen A. Armstrong, Deputy Associate Gen. Counsel, Howard Perlstein, Karen L. Arndt (argued), N.L.R.B., Office of the Gen. Counsel, Washington, D.C., and Frederick
Calatrello, Director, N.L.R.B., Cleveland, Ohio, for N.L.R.B., petitioner.
Robert T. Rosenfeld (argued), H. Lee Einsel, Jr., Walter, Haverfield, Buescher & Chockley, Cleveland, Ohio, for Martin Arsham Sewing Co., Martin Arsham, an Individual, and Marsco, Inc., respondents.
Before KENNEDY and JONES, Circuit Judges, and SILER, Chief District Judge. *
The National Labor Relations Board ("NLRB" or "Board") petitions for enforcement of an order imposing personal liability upon Martin Arsham ("Arsham"), president and sole stockholder of the Martin Arsham Sewing Company, aka MARSCO, Inc. ("MARSCO"), for a portion of the back pay obligation of MARSCO. The obligation was imposed in an earlier unfair labor practice proceeding before the Board. Among other contentions, Arsham argues that the Board is now precluded from proceeding against him by attacking as fraudulent a transfer from MARSCO to him because the Board did not attempt to avoid this transfer in MARSCO's prior bankruptcy proceedings. The Board argues that it was not limited to bringing its back pay claim against the bankruptcy estate because the present action was brought against a nonbankrupt individual (Arsham) to intercept assets which never became a part of the bankruptcy estate. Because we find Arsham's argument persuasive, we decline to enforce the Board's order and therefore deny the petition.
In July of 1976 Arsham incorporated MARSCO under Ohio law for the purpose of contracting labor for industrial sewing operations. Arsham owned 100 percent of MARSCO stock and he and his wife were the company's directors. In the spring of 1978 the International Ladies' Garment Workers' Union initiated a campaign to organize MARSCO production employees. As a result of the company's actions during this campaign the Union filed unfair labor practice charges on May 1, 1978. On June 14, 1978 the Board issued a complaint alleging labor law violations including Arsham's constructive discharge of 16 employees in violation of the National Labor Relations Act ("Act" or "NLRA"). An ALJ held a hearing on the complaint in October and November of 1978.
On February 5, 1979, prior to the issuance of the ALJ's opinion, Arsham, acting in his capacity as president of MARSCO, executed a promissory note from the company to Arsham, in his individual capacity, acknowledging past unsecured loans by Arsham to the company totaling $37,700.00. The terms of the note called for payment of interest at 8 percent annually with the balance of the note due immediately upon nonpayment of interest. The parties also executed a security agreement pledging all corporate assets as collateral for the debt.
Subsequently, on March 21, 1979, the ALJ issued his decision finding, inter alia, that 12 employees had been unlawfully terminated. On April 30, 1979, Arsham filed his security interest. On September 7, 1979 the Board issued its decision finding that MARSCO violated the Act and extending the ALJ's findings of discrimination to include four additional employees. MARSCO subsequently agreed not to contest the Board's order. Accordingly, on March 30, 1982 the Board issued a supplemental decision and order determining that $41,677.31 was due to the discriminatees. No back pay has been paid to date.
On December 9, 1981 Arsham, acting on his own behalf, filed a state court suit to enforce the confessed judgment provisions of the MARSCO promissory note. On December 17, 1981 the uncontested judgment became final. In satisfaction of this judgment Mr. and Mrs. Arsham, as directors of MARSCO, transferred all property of the company to Arsham individually on December 12, 1981. On December 24, 1981 MARSCO ceased doing business.
On December 30, 1981 MARSCO filed for voluntary bankruptcy. The Board was listed as an unsecured creditor on MARSCO's petition. Other unsecured creditors included Ms. Rita Kremser, S.P. Communications, and Arsham in his personal capacity. On February 24, 1982 the Board filed a Proof of Claim with the Bankruptcy Court and on June 6, 1982 inquired whether the trustee in bankruptcy had examined the issue of whether another corporation formed by Arsham, the Drape Factory, Inc., was a successor employer to MARSCO. Despite receiving notice of all subsequent proceedings in the Bankruptcy Court, a representative of the Board did not attend any creditors' meetings nor did the Board contest the trustee's report and final accounting.
On April 1, 1982 Arsham sold to the Drape Factory, Inc., all machinery, equipment and other assets which had formerly belonged to MARSCO for $20,000.00 evidenced by a five year promissory note with interest at 8 percent per annum. The trustee was discharged and the bankruptcy estate closed by order of the Bankruptcy Court dated January 18, 1983.
On November 30, 1984 the Board's General Counsel filed a motion before the Board to hold Arsham personally liable for the back pay award limited to the $20,000.00 he obtained from the sale of MARSCO's former assets to the Drape Factory. The Board, after denying the motion initially, remanded the issue for a hearing in light of the General Counsel's proof that MARSCO possessed no assets when it filed for bankruptcy. After a hearing, an ALJ found Arsham personally liable in the amount of $20,000.00 to satisfy the back pay liability of MARSCO. The ALJ noted that the General Counsel conceded that Arsham was not an alter ego of MARSCO and that there was "no intent to saddle him personally with full liability for the backpay due." Accordingly, the ALJ limited the claim for personal liability "to the value of corporate assets retained by Arsham and allegedly converted to his personal use to avoid satisfaction of the Board's remedy." A three-member panel of the Board (Chairman Dotson, dissenting) adopted the ALJ's recommended order. The Board petitions for enforcement.
This case presents an apparent conflict between the policies underlying Chapter 7 of the Bankruptcy Code with those of the National Labor Relations Act and the function of the Board. The Board, pointing to its important function as the protector of the labor negotiation process, asserts that it should be allowed to hold Arsham personally responsible for the back pay liability to the extent he received assets from MARSCO. To hold otherwise, claims the Board, would allow Arsham to abuse the Board's remedial processes thereby frustrating the Board's enforcement of the labor laws and its attempt to effectuate the primary purpose of the NLRA. Mr. Arsham asserts that the imposition of personal liability upon him would effectively allow the Board to avoid the bankruptcy proceedings and circumvent the bankruptcy goal of channeling all claims against the debtor's estate into one proceeding thus ensuring equitable distribution among creditors. Arsham calls upon this Court to stop the Board's "end run" around the Bankruptcy Court's efforts to secure equality of distribution among creditors. We agree with Arsham that the Board erred in using its own procedures to recover the value of the assets which it claimed belonged to MARSCO and which, if they did, belonged in the bankruptcy estate for the benefit of all creditors. 1
The equitable distribution principles of the Bankruptcy Code apply to the NLRB notwithstanding the Board's broad powers to effectuate the public purposes of the NLRA. In Nathanson v. NLRB, 344 U.S. 25, 73 S.Ct. 80, 97 L.Ed. 23 (1952), the Board argued that the national interest in eliminating unfair labor practices justified the Board's receipt of priority in payment from the debtor's bankruptcy estate. The Supreme Court refused to treat the Board's claims for back pay any differently than other wage claims. The Court stated:
The contest now is no longer between employees and management but between various classes of creditors. The policy of the National Labor Relations Act is fully served by recognizing the claim for back pay as one to be paid from the estate.... The theme of the Bankruptcy Act is "equality of distribution" ... and if one claimant is to be preferred over others, the purpose should be clear from the statute. We can find in the Bankruptcy Act no warrant for giving these back pay awards any different treatment than other wage claims enjoy.
Id. at 28-29, 73 S.Ct. at 82-83 (citation omitted). Thus, the Board is entitled to no priority over the claims of other unsecured creditors in the distribution of the debtor's property. See NLRB v. Deena Artware, Inc., 251 F.2d 183, 185 (6th Cir.1958) ( ); cf. In re Bildisco, 682 F.2d 72, 78 (3d Cir.1982), aff'd, NLRB v. Bildisco & Bildisco, 465 U.S. 513, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984) ().
The corporate Chapter 7 bankruptcy case is designed to provide an orderly proceeding in which the debtor corporation's assets may be marshalled and their pro rata distribution to creditors obtained. To this end the Bankruptcy Court is vested with exclusive jurisdiction over all the debtor's property. See 28 U.S.C. Sec. 1471(e) (1982). The filing of a bankruptcy petition operates as a stay of any action to...
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