Steinbach v. Hubbard
| Decision Date | 03 April 1995 |
| Docket Number | No. 92-36961,92-36961 |
| Citation | 51 F.3d 843 |
| Parties | , 129 Lab.Cas. P 33,216, 2 Wage & Hour Cas.2d (BNA) 1089 Justin STEINBACH; Gary Yurina; Robert Wattez; Elizabeth Blasdell; Scott Farlow; David Williams; Leslie Bannerman; Cheryl Bowman; Randy Vanderheiden; Janet Evans; Debbie Talley; Daylon Sweeney, Plaintiffs-Appellants, v. Steven HUBBARD, and the marital community of Steven and Sheila Hubbard d/b/a Hubbard Ambulance Services; Sheila Hubbard, d/b/a Hubbard Ambulance Services; Hubbard Ambulance Services, a Washington corporation, Defendants, and Care Ambulance Service, a Washington corporation, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Steven B. Frank, Martin Garfinkel, Frank & Rosen, Seattle, WA, for plaintiffs-appellants.
Thomas W. Sondag, Lane, Powell, Spears, Lubersky, Seattle, WA, for defendant-appellee.
Appeal from the United States District Court for the Western District of Washington.
We are faced with a question of first impression: does successorship liability exist under the Fair Labor Standards Act ("FLSA"), 29 U.S.C. Sec. 201 et seq.? We conclude that it does, but not on the facts of this case.
Appellants are a group of twelve former employees of Hubbard Ambulance Services, Inc., run by defendants Steven and Sheila Hubbard. Hubbard provided non-emergency ambulance services. It also allegedly violated the FLSA by failing to pay its employees in accordance with the FLSA's minimum wage and overtime provisions. Whether it in fact did so is not at issue in this appeal.
In 1987, Hubbard and the individual Hubbard defendants filed bankruptcy petitions. Hubbard continued to provide ambulance services. The employees first filed suit in June 1991. Later that summer, Care Ambulance entered into negotiations with Hubbard over the possible sale of Hubbard's assets to Care. During a September meeting, two Care vice presidents were informed of the pending FLSA suit, as well as Hubbard's opinion that it was meritless.
Negotiations continued. Because the parties believed any sale would require the approval of the bankruptcy court, they could not reach an outright sale agreement. Instead, Hubbard and Care agreed to a one-year lease of assets at $600 per month, an employment contract for Steven Hubbard, and an agreement to buy conditioned on receipt of bankruptcy court approval.
On October 31, 1991, Hubbard ceased operations, and the next day, Care began operations. Care rehired Hubbard's nine employees. Only one of the plaintiffs was still with Hubbard, and thus hired by Care. Care provided ambulance services from the same office, operating at first under the name "Hubbard/Care." The operations manager remained the same. Care continued to use a vehicle leased from Hubbard for a time, and, according to plaintiffs, virtually the same medical equipment. Care also made a down payment on the purchase agreement.
However, the bankruptcy court never approved the sale, and Care discontinued its efforts to purchase Hubbard's assets. On January 27, 1992, Care signed a purchase agreement with another ambulance company. During February, Care moved its offices, terminated its lease, and returned all leased equipment to Hubbard.
In March 1992, plaintiffs amended their complaint to add Care as a defendant, on the theory that Care was Hubbard's successor and could therefore be held liable for Hubbard's alleged FLSA violations. The district court granted Care's motion for summary judgement, concluding that Care was not a successor for FLSA purposes. This ruling was properly certified for interlocutory appeal pursuant to Fed.R.Civ.P. 54(b). We review de novo the district court's grant of summary judgment. Jesinger v. Nevada Federal Credit Union, 24 F.3d 1127, 1130 (9th Cir.1994). We affirm.
The FLSA, like virtually all employment law statutes, does not discuss whether the liabilities it creates may be passed on to innocent successor employers. However, beginning with cases under the National Labor Relations Act ("NLRA"), federal courts have developed a federal common law successorship doctrine that now extends to almost every employment law statute. See Golden State Bottling Co. v. NLRB, 414 U.S. 168, 94 S.Ct. 414, 38 L.Ed.2d 388 (1973) (NLRA); Upholsterers' Int'l Union Pension Fund v. Artistic Furniture of Pontiac, 920 F.2d 1323 (7th Cir.1990) [hereinafter Upholsterers' ] (Multiemployer Pension Plan Amendments Act ("MPPAA")); Secretary of Labor v. Mullins, 888 F.2d 1448 (D.C.Cir.1989) (Mine Safety and Health Act); Criswell v. Delta Air Lines, Inc., 868 F.2d 1093 (9th Cir.1989) (Age Discrimination in Employment Act); Trustees for Alaska Laborers-Construction Industry Health & Sec. Fund v. Ferrell, 812 F.2d 512 (9th Cir.1987) [hereinafter Trustees ] (ERISA); Musikiwamba v. ESSI, Inc., 760 F.2d 740 (7th Cir.1985) (42 U.S.C. Sec. 1981); Bates v. Pacific Maritime Ass'n, 744 F.2d 705 (9th Cir.1984) (Title VII).
Successorship liability was originally adopted under the NLRA to avoid labor unrest and provide some protection for employees against the effects of a sudden change in the employment relationship. Golden State Bottling Co., 414 U.S. at 182-85, 94 S.Ct. at 424-26; John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 549, 84 S.Ct. 909, 914, 11 L.Ed.2d 898 (1964). In deciding to extend successorship liability to other contexts, courts have recognized that extending liability to successors will sometimes be necessary in order to vindicate important statutory policies favoring employee protection. Upholsterers', 920 F.2d at 1326-27; Musikiwamba, 760 F.2d at 746; EEOC v. MacMillan Bloedel Containers, Inc., 503 F.2d 1086, 1091 (6th Cir.1974). Where employee protections are concerned, "judicial importation of the concept of successor liability is essential to avoid undercutting Congressional purpose by parsimony in provision of effective remedies." Wheeler v. Snyder Buick, Inc., 794 F.2d 1228, 1237 (7th Cir.1986).
The FLSA was passed to protect workers' standards of living through the regulation of working conditions. 29 U.S.C. Sec. 202. That fundamental purpose is as fully deserving of protection as the labor peace, anti-discrimination, and worker security policies underlying the NLRA, Title VII, 42 U.S.C. Sec. 1981, ERISA, and MPPAA. The analysis set forth in the cases extending potential liability under these statutes justifies application of the doctrine here as well. Consequently, we conclude that successorship liability exists under the FLSA.
We borrow as well the same basic standards used in these other employment contexts. Under the NLRA, successor liability can attach when 1) the subsequent employer was a bona fide successor and 2) the subsequent employer had notice of the potential liability. See Golden State Bottling Co., 414 U.S. at 171-72 n. 2, 173, 94 S.Ct. at 419 n. 2, 419-20. Whether an employer qualifies as a bona fide successor will hinge principally on the degree of business continuity between the successor and predecessor. See Upholsterers', 920 F.2d at 1329; Criswell, 868 F.2d at 1094; NLRB v. Jarm Enters., Inc., 785 F.2d 195, 200-201 (7th Cir.1986); Bates, 744 F.2d at 709. The Ninth Circuit has fleshed out this test when dealing with other employee individual rights statutes by adding a third consideration: the extent to which the predecessor is able to provide adequate relief directly. Criswell, 868 F.2d at 1094; Bates, 744 F.2d at 709-10.
Certain broader principles apply. As this and other courts have recognized, successorship's roots lie in equity. E.g., Baker v. Delta Air Lines, Inc., 6 F.3d 632, 637 (9th Cir.1993); Criswell, 868 F.2d at 1094; Musikiwamba, 760 F.2d at 750. Consequently, "fairness is a prime consideration in [successorship's] application." Criswell, 868 F.2d at 1094; accord Bates, 744 F.2d at 710. Decisions on successorship must balance, inter alia, the national policies underlying the statute at issue and the interests of the affected parties. See Howard Johnson Co. v. Detroit Local Joint Executive Bd., 417 U.S. 249, 262-63 n. 9, 94 S.Ct. 2236, 2244 n. 9, 41 L.Ed.2d 46 (1974); Bates, 744 F.2d at 709. Finally, "in light of the difficulty of the successorship question, the myriad factual circumstances and legal contexts in which it can arise, and the absence of congressional guidance as to its resolution, emphasis on the facts of each case as it arises is especially appropriate." Howard Johnson, 417 U.S. at 256, 94 S.Ct. at 2240; accord Bates, 744 F.2d at 709.
We turn to an application of this test. Taking into account fairness and the policies and interests at stake, we conclude that we cannot impose Hubbard's FLSA liability, if any, on Care.
We inquire first whether Care is in fact a bona fide successor of Hubbard. Considering only the internal workings of the business, many elements remained identical. Care hired the same employees, operated out of the same office, provided the same general services, kept the same operational supervisor, and used the same or similar equipment. Cf. NLRB v. Jeffries Lithograph Co., 752 F.2d 459, 464-65 (9th Cir.1985) ().
The inquiry is not ended here. This case presents an additional circumstance neither present nor addressed in any of the successorship cases on which the employees rely: in this case, no permanent transfer occurred. Care leased equipment from Hubbard and used its employees on a temporary basis only. No agreement for a permanent transfer was ever reached, and indeed, when negotiations fell through, Care ended the lease and returned Hubbard's assets to Hubbard. On the facts of this case, we find such a failure to ever permanently transfer the business dispositive.
Two sets of equitable considerations inform our decision. First,...
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