N.L.R.B. v. Fullerton Transfer & Storage Ltd., Inc.

• Decision Date: 07 August 1990
• Docket Number: No. 89-5754,89-5754
• Citation: 910 F.2d 331
• Parties: 135 L.R.R.M. (BNA) 2304, 116 Lab.Cas. P 10,262 NATIONAL LABOR RELATIONS BOARD, Petitioner, v. FULLERTON TRANSFER & STORAGE LIMITED, INC.; Richard E. Mills; Carole F. Mills; Sllim Real Estate Corporation, Respondents.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 331

910 F.2d 331

135 L.R.R.M. (BNA) 2304, 116 Lab.Cas. P 10,262

NATIONAL LABOR RELATIONS BOARD, Petitioner, v. FULLERTON TRANSFER & STORAGE LIMITED, INC.; Richard E Mills; Carole F. Mills; Sllim Real Estate Corporation, Respondents.

No. 89-5754.

United States Court of Appeals Sixth Circuit.

Argued May 1, 1990.

Decided Aug. 7, 1990.

Aileen A. Armstrong, Deputy Associate Gen. Counsel, Barbara Atkin, Robert N. Herman (argued), N.L.R.B., Office of Gen. Counsel, Washington, D.C., Frederick Calatrello, Director, N.L.R.B., Region 8, Cleveland, Ohio, for petitioner.

Richard P. McLaughlin (argued), James F. Mathews, McLaughlin, McNally & Carlin, Youngstown, Ohio, for respondents.

Before KENNEDY and WELLFORD, Circuit Judges, and ENGEL, Senior Circuit Judge.

KENNEDY, Circuit Judge.

In this case, the National Labor Relations Board (the Board) seeks to enforce a backpay order originally entered and enforced against Fullerton Transfer & Storage Limited, Inc. (Fullerton Transfer), against its owners, Richard and Carole Mills, and a related corporation also owned and operated by the Mills. The Board concluded that the Mills and the related company, Sllim Real Estate Corporation (Sllim), are the alter egos of Fullerton Transfer. For the reasons stated below, we find that the Board erred in concluding that the Mills and Sllim are the alter egos of Fullerton Transfer and decline to enforce the Board's order against them.

Background

In a June 1976 decision and order, the Board found that Fullerton Transfer had committed a number of unfair labor practices by unilaterally changing pay rates, unilaterally discontinuing health and pension contributions, refusing to process a grievance under an established grievance procedure, and discharging 11 employees who were striking to protest these unfair labor practices. In subsequent proceedings, Fullerton Transfer was found liable for backpay, vacation pay, medical expenses, and pension fund contributions, totaling $21,968.81, plus interest that continues to accrue. Because Fullerton Transfer has gone out of business and liquidated its assets to pay other creditors, none of this award has ever been satisfied.

Fullerton Transfer began as an unincorporated family owned and operated storage and moving company founded by Carole Mills' parents. Carole Mills inherited the moving business after her mother's death in 1955. From this time until the company ceased operations in 1978, it was run by Carole's husband, Richard Mills. In 1960, the business, which had operated as one entity, was divided between two separate legal entities, Fullerton Transfer Inc. and Fullerton Equipment Inc. Carole Mills continued to own the operation's real estate. Carole Mills later incorporated the real estate portion of the business as well, forming Sllim. It is undisputed that this division into separate corporations occurred in order to insulate the Mills and the assets of each corporation from any future unforeseen liabilities not covered by company insurance. The now incorporated Fullerton Transfer became the operating company that actually hired drivers and entered into moving and storage contracts. Carole Mills received approximately 97% of its stock and Richard Mills the balance. Fullerton Transfer's assets, other than cash and accounts receivable, were limited to licenses, office furniture, and incidental equipment used in its moving operations. Until the strike in 1975 that ultimately brought about the demise of the company, Fullerton Transfer's primary place of business was a terminal and warehouse in Youngstown, Ohio. Sometime after the strike, Fullerton Transfer scaled back its operations. Richard Mills ran this more limited operation from his home until it ceased business in 1978.

Fullerton Equipment was also established in 1960. The title to the enterprise's fleet of trucks was transferred to Fullerton Equipment at that time. These trucks were in turn leased back to Fullerton Transfer. To the extent Fullerton Equipment had any business of its own, the business was conducted by Richard Mills from the premises leased by Fullerton Transfer.

Although most other assets were transferred to the newly established corporations in 1960, Carole Mills continued personally to own the real estate and buildings used by Fullerton Transfer under a written lease. In 1971, the Mills founded Sllim as a real estate holding corporation. Carole Mills transferred the property used by Fullerton Transfer subject to an outstanding mortgage to Sllim in return for Sllim stock. Virtually all of the real estate owned by Sllim at the time of the strike was leased to Fullerton Transfer. ¹ Some of the stock has been transferred to the Mills' children pursuant to an estate plan. While Richard Mills is now deceased, the family apparently continues to direct Sllim's activities.

Throughout its existence, Fullerton Transfer never paid dividends to its shareholders and rarely had taxable income. The Mills received income from the company through salary and ultimately by reason of lease payments made to the two other corporations they controlled, Fullerton Equipment and Sllim. Nevertheless, the Board did not find that the salaries paid to the Mills or the lease agreements with Sllim or Fullerton Transfer were out of line with the prevailing market prices. ² Thus, there is no reason to conclude that the Mills manipulated their salaries and leases in order to maintain Fullerton Transfer as a judgment-proof corporation.

The Board also found that the Mills had not commingled their personal assets or the assets of Sllim with Fullerton Transfer's assets. There was a degree of financial interaction between the two companies and the Mills, however. Although Fullerton Transfer was able to take out short term loans to meet payroll without any personal guarantees by the Mills, it had difficulty acquiring long term loans. The one long term commercial loan outstanding at the time Fullerton Transfer ceased operations was personally guaranteed by the Mills at the insistence of the lending institution. ³ After the company ceased operations, the Mills were required to begin paying Fullerton Transfer's obligation on this loan under the guarantee. Richard Mills also admitted that he and his wife occasionally personally made small loans to the corporation, some of which were not repaid. ⁴

Richard Mills began to wind down Fullerton Transfer's operations in 1975 after the unfair labor practice strike crippled its operations. The company voluntarily relinquished its agency agreement with North American Van Lines, a major source of business, and vacated the property it had rented from Sllim. Fullerton Equipment also went out of business, selling off the trucks it had formerly rented to Fullerton Transfer. Two of Fullerton Transfer's supervisors eventually formed a new company which began moving and storage activities on the same location. They also received the North American Van Lines agency agreement which Fullerton Transfer had relinquished. ⁵

Fullerton Transfer ceased operations with many of its outstanding debts unpaid. In winding down Fullerton Transfer's affairs, Richard Mills was able to raise an additional $50,000 from the sale of company assets and collection of the company's accounts receivable. Mills used all of this money to satisfy the company's creditors, often negotiating steep reductions in the company's debts as a condition for payment. The company did not use this money to pay off any of the outstanding lease payments owed to Sllim. Richard Mills considered these debts low on the list of priorities. Further, there is no evidence in the record to support a conclusion that the Mills used any of this money to reduce the principal on the outstanding loan which they had guaranteed. It is unclear how Richard Mills decided which of the corporation's obligations to pay off. Although the ALJ determined that it was Mills' intent to protect his family's reputation in the community, the record is somewhat ambiguous. It is clear that the Mills and Sllim did not assume any debts which their prior guarantees did not require them to assume. Further it is undisputed that many creditors in addition to the employees were never paid.

Fullerton Transfer did not file for bankruptcy protection. Moreover, it did not take any other action, such as setting aside money for future debts, which would guarantee that the final backpay order would be satisfied. The original backpay specification was not entered until October 1977, however, and not enforced by this Court until March 26, 1981. Thus, by the time the proceedings were final, the company's assets had been exhausted.

Based on these findings of fact, the Board concluded that Sllim and the Mills were alter egos of Fullerton Transfer. In finding Sllim to be an alter ego, the Board relied primarily on the fact that Sllim and Fullerton Transfer were organized in an attempt to insulate assets from any future unanticipated judgments against Fullerton Transfer not covered by the company's insurance. In finding the Mills liable, the Board relied primarily on the fact that the Mills guaranteed a portion of the corporation's debt, made loans to the corporation without seeking repayment, and personally made the decision that Fullerton Transfer and Fullerton Equipment would cease operations. The Board did not seek any payment from Fullerton Equipment because it too had gone out of business without any assets.

Discussion

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. Although state law cases may provide guidance in fashioning the content of federal law, they are not binding and thus do not control the outcome of this case. See e.g., Contractors, Laborers, Teamsters and Engineers Health and Welfare Plan v. Hroch, 757 F.2d 184, 190 (8th Cir.1985); Seymour...