LCF, Inc. v. National Labor Relations Board

129 F.3d 1276 | D.C. Cir. | 1997

                        United States Court of Appeals


                     FOR THE DISTRICT OF COLUMBIA CIRCUIT


          Argued October 7, 1997         Decided November 25, 1997 


                                 No. 96-1500


                  LCF, Inc. d/b/a La Conexion Familiar, and 

                             Sprint Corporation, 

                        Petitioners/Cross-Respondents


                                      v.


                       National Labor Relations Board, 

                         Respondent/Cross-Petitioner


                     Communications Workers of America, 

                                  Intervenor


                 On Petition for Review and Cross-Application

                      for Enforcement of an Order of the

                        National Labor Relations Board


     Thomas J. Piskorski argued the cause for petition- ers/cross-respondents, with whom Staci S. Beck and Stanley 
E. Craven were on the briefs.



     David A. Fleischer, Senior Attorney, National Labor Rela- tions Board, argued the cause for respondent/cross-petitioner, 
with whom Linda R. Sher, Associate General Counsel, and 
Aileen A. Armstrong, Deputy Associate General Counsel, 
were on the brief.  Margaret G. Neigus, Supervisory Attor- ney, entered an appearance.

     James B. Coppess argued the cause for intervenor Commu- nications Workers of America, with whom Laurence Gold was 
on the brief.

     Before:  Wald, Ginsburg and Henderson, Circuit Judges.

     Opinion for the Court filed by Circuit Judge Wald.

     Wald, Circuit Judge:  This case arises out of Sprint's 
decision to terminate its "La Conexion Familiar" long- distance program and dismiss all program employees.  Sprint 
argues that this decision was based on the program's substan- tial financial losses and a continuing decline in its customer 
base.  The National Labor Relations Board ("NLRB"), how- ever, found that Sprint acted because program employees 
were about to unionize.  It ordered Sprint to reinstate each 
terminated employee as a substantially equivalent position 
becomes available and to pay each employee the difference 
between what the employee would have earned if never 
terminated and what the employee actually earned during the 
period before Sprint offered the employee reinstatement.  
This case is before the court on Sprint's petition to review the 
NLRB's order and on the NLRB's cross-application for en- forcement of its order.

     The NLRB's conclusion that union activity motivated 
Sprint's closure decision lacks substantial evidence in the 
record.  Accordingly, we set the NLRB's order aside.

                                I.  Background


     Sprint created a wholly-owned subsidiary, LCF, Inc. 
("LCF"), solely to acquire the La Conexion Familiar company 
("La Conexion") in 1992.  La Conexion specialized in selling 
long-distance services to the Latino residential market, par-



ticularly to people who primarily spoke Spanish.  Rather than 
competing on the basis of price, its strategy was to develop 
customer loyalty based on common culture and language.

     Shortly after acquiring La Conexion, Sprint discovered that 
the majority of its telemarketers were undocumented aliens 
and sued La Conexion's sellers to rescind the purchase 
agreement.  Under a settlement reached in January 1994, 
however, Sprint retained La Conexion for a reduced purchase 
price.

     During the course of this rescission suit, Sprint did not 
invest significant additional time or money in LCF.  After the 
settlement, Sprint set out in early February 1994 to deter- mine LCF's true financial condition and soon discovered that 
LCF was in serious financial difficulty.  Sprint instituted 
some changes, including a new discount program, but LCF's 
financial condition remained poor.  In particular, LCF was 
losing more customers than it was acquiring.  By March 
1994, Sprint's economic analysis indicated that LCF, which 
Sprint had originally expected would generate a profit of 
nearly $8 million in 1994, was now projected to lose almost $4 
million that year.  Sprint Consumer Services Group ("CSG") 
Vice President Wallace Meyer, the officer ultimately in 
charge of LCF but based in Kansas City, began spending at 
least one day a week at LCF in San Francisco.

     Union organizing activity at LCF also commenced in early 
February 1994.  In response to employee complaints about 
working conditions, the Communications Workers of America 
("CWA") began an organizational campaign that quickly 
gained momentum.  By February 14, the on-site LCF manag- ers had learned that telemarketing employees were attending 
union meetings and engaging in other union activities.  The 
Administrative Law Judge ("ALJ") and the NLRB both 
found, on the basis of undisputed testimony, that some of 
these on-site managers illegally interrogated employees about 
the union and threatened them with plant closure if the 
employees unionized.  The LCF managers also kept Sprint 
officials informed about the union activity at LCF.



     In April, Dave Sapenoff, Sprint's group manager for corpo- rate labor relations, visited the LCF facility.  Mr. Sapenoff 
met with the LCF supervisors, collected the names of em- ployees who supported the union, and instructed the supervi- sors to try to convince these employees to change their 
minds.  However, he also told both the LCF employees and 
their supervisors that LCF would not close if the employees 
unionized.  Upon his return to Sprint headquarters, Mr. 
Sapenoff reported the union activity to Dave Schmieg, the 
Sprint CSG President, and to Carl Doerr, the vice president 
for labor relations and fair employment practices.  After 
receiving this information, Mr. Doerr told Mr. Schmieg that 
there was a significant possibility that CWA would file a 
representation petition.  Mr. Schmieg responded by reiterat- ing a remark that he had previously made to Mr. Doerr.  He 
told Mr. Doerr that it was his intent to close LCF because he 
did not believe that Sprint " 'had any business being in that 
business.' "  Mr. Doerr then stated that, given the likelihood 
of CWA filing a petition, Mr. Schmieg should " 'create a paper 
trail' " if he intended to close LCF.  LCF, Inc., d/b/a La 
Conexion Familiar and Sprint Corporation and Communi- cations Workers of America, District Nine and Local 9410, 
AFL-CIO, 322 N.L.R.B. No. 137 at 4, 1996 WL 742383 (Dec. 
27, 1996) (hereinafter "NLRB Decision").

     Meanwhile, Mr. Meyer's concerns about LCF's finances 
continued throughout April.  These concerns led him to con- vene a meeting of LCF's board of directors on May 6, just 
three months after LCF had been placed under his jurisdic- tion.  At this meeting, Mr. Meyer presented his projection 
that LCF would lose almost $4 million in 1994, instead of 
earning the nearly $8 million profit that Sprint had anticipat- ed in early 1994.  He further outlined two managerial options 
in light of LCF's financial difficulties.  The first, which Mr. 
Meyer supported, was to cease LCF operations immediately.  
The other option was to continue operations through Decem- ber 1994.  After some discussion, the LCF board took neither 
option;  it voted against closing LCF immediately and decided 
to reconvene in sixty days in order to review LCF's financial 



performance and discuss six options for LCF's future.  The 
meeting minutes summarize this decision as follows:

     "The Board was universal in its concern regarding the 
     company's revenue shortfall from the 1994 budget and 
     accompanying operating loss.  As a result, the Board will 
     again review the company's financial performance 
     against the revenue forecast in July at the next meeting.  
     Also at the next meeting, six strategic options governing 
     disposition and longevity of the LCF, Inc. business will 
     be presented.  These options are:  (a) immediate discon-
     tinuance of current business, (b) sell LCF business and 
     assets, (c) continue business as planned but review prog-
     ress against revised financial objections every 60 days, 
     (d) employ an agent as business manager ...., (e) 
     relocate business to establish greater alignment/proximi-
     ty to Sprint resources, and (f) continue business through 
     at least December 1994 utilizing 1994 performance and 
     1995/96 financial projections as evaluation criteria." NLRB Decision at 4.

     The LCF board also decided at the May 6 meeting to hire 
Maury Rosas as president of LCF.  Mr. Rosas signed a one- year employment contract on May 13.  He was not told that 
LCF might close in light of its financial situation and, upon 
assuming his position on June 1, Mr. Rosas operated LCF on 
the assumption that the enterprise would remain in business.  
LCF continued hiring and training employees and proceeded 
with plans for extensive office renovations.  Mr. Meyer testi- fied that he planned to use Mr. Rosas elsewhere within Sprint 
if LCF closed.

     On June 3, CWA filed a petition to represent the LCF 
employees.  To show their support for this filing, over 100 of 
the approximately 177 bargaining-unit employees wore, or 
displayed, union T-shirts on June 3.  LCF's management was 
aware of the T-shirt demonstration, and supervisors were 
instructed to report the number of employees wearing the 
shirts.  Mr. Rosas and other LCF officials conferred with 
Sprint headquarters about the matter.  On June 22, LCF and 



CWA entered into a stipulated election agreement and sched- uled a representation election for July 22.

     After learning that CWA had filed this petition, Labor 
Relations Vice President Doerr received materials relating to 
the May 6 board meeting.1  Mr. Doerr became concerned 
that these materials did not sufficiently reflect an intent to 
retain the closing of LCF as an option.  He therefore decided 
to create a paper trail showing that Sprint's intent to close 
LCF existed prior to the filing of the petition.  Mr. Doerr 
accomplished this by soliciting a backdated letter from an 
outplacement service.  This letter was falsely dated April 7 
and discussed a prior request by Mr. Doerr for outplacement 
services for the LCF employees.  Mr. Doerr admittedly 
sought this backdated letter to counter any contention that 
Sprint decided to close LCF in response to the union activity.

     As the LCF board had agreed on May 6, the next meeting 
of the LCF board was scheduled for July 6 in Kansas City. 
Before this meeting took place, Mr. Meyer, anticipating that 
the board would vote to close LCF, instructed a subordinate 
to begin assembling a transition team to implement the 
closure of LCF.  In the past, Sprint had assembled such 
transition teams only after the decision to close a facility had 
been formally made.  Mr. Meyer also informed Mr. Rosas, 
just one day before the July 6 meeting, that the board was 
considering closing LCF.

     The July 6 meeting began with Sprint CSG President 
Schmieg stating that the decisions about to be made would be 
" 'based solely on the economic justification that is set forth in 
the financial documents.' "  NLRB Decision at 5.  At no time 
during the meeting was there any discussion of the union 
activity or the upcoming representation election. __________
     1 There is some dispute about whether Mr. Doerr reviewed the 
minutes for the May 6 meeting, or the financial reports that Mr. 
Meyer presented at this meeting.  Although the NLRB decision 
states that Mr. Doerr read the minutes, the ALJ found that Mr. 
Doerr had read Mr. Meyer's financial presentation.



     The financial reports presented at the July 6 meeting 
demonstrated that LCF remained unprofitable and recom- mended that Sprint discontinue LCF's operations immediate- ly.  Indeed, LCF was now projected to lose approximately 
$4.5 million in 1994.  While LCF did experience some slight 
financial improvements during its last three months, Sprint's 
financial experts argued that the resources necessary to 
achieve a LCF turnaround could be better ut	ilized elsewhere 
in the corporation:  Sprint's comparative investment study 
concluded that a dollar invested in Sprint's in-house Latino- oriented program would earn ninety cents in a year, while a 
dollar invested in LCF would lose thirty cents in the same 
period.  The LCF board voted 5-0 (with Mr. Rosas abstain- ing) to close LCF, effective July 14.  Shortly after this 
meeting, Sprint's transition team met to begin implementing 
the closure.  They were instructed to keep their activities 
confidential and required to sign confidentiality agreements.

     On July 14, eight days before the scheduled representation 
election, Mr. Rosas announced to LCF's employees that LCF 
was closing immediately due to financial difficulties.  In a 
departure from its prior practice when closing other facilities 
covered under the Worker Adjustment and Retraining Act, 29 
U.S.C. ss 2101-2109 (1994), Sprint terminated the LCF em- ployees immediately and gave them sixty days of wages and 
benefits, rather than providing the employees with sixty days 
of advance notice and requiring them to work during that 
period.  Sprint rerouted all of LCF's incoming customer 
service calls to a Sprint customer service center in Dallas.

     The ALJ credited both Sprint's evidence on LCF's financial 
decline and Sprint's testimony that it closed LCF solely for 
financial reasons.  He rejected the opposing contention that 
the board decided at the May 6 meeting to keep LCF in 
operation indefinitely and also concluded that Sprint's activi- ties after this meeting, including the hiring of Mr. Rosas, did 
not indicate an intent to continue operating LCF into the 
indefinite future.  The ALJ further held that the board's July 
6 decision to close LCF was a lawful exercise of its business 
judgment, despite recent indications that LCF's financial 
fortunes were improving slightly.  In light of the evidence 



"that Sprint had valid and compelling economic reasons for 
closing LCF," the ALJ dismissed Mr. Doerr's misconduct in 
engineering a fabricated letter as "no more than an interest- ing but relatively insignificant event without much probative 
value."  Moreover, he found "that only the confirmation letter 
was fabricated, and that Doerr did in fact have a conversation 
with an official of the outplacement firm relative to the 
possible closure of LCF well prior to any union activity."  
LCF, Inc. d/b/a La Conexion Familiar and Sprint Corpora- tion (Aug. 30, 1995), reprinted in NLRB Decision at 28 
(hereinafter "ALJ Decision").  Finally, the ALJ rejected the 
argument that the Sprint executives were being untruthful 
when they stated that the LCF board did not discuss union 
activity at either the May 6 or the July 6 meeting, finding 
"that placed in its appropriate context the Union situation at 
LCF was a matter of such incidental significance, when 
compared to the more pressing financial matters then con- fronting the board, that it is not implausible that the board 
members would be preoccupied with more immediate con- cerns."  Id.

     The NLRB reversed.  In doing so, it stated that it "ac- cept[ed] the [administrative law] judge's credibility resolu- tions," but not his "inferences drawn from the facts set forth 
in the credited testimony and documentary evidence."  
NLRB Decision at 7.  The NLRB reasoned this way:

     [T]he action of the [LCF] board on May 6--most notably 
     the failure to adopt the recommendation for immediate 
     closure while at the same time authorizing the hiring of 
     Rosas--indicates that the board was inclined toward the 
     option of keeping the business going for at least long 
     enough to allow the turnaround initiatives to take hold.  
     While an abrupt and dramatic change in the financial 
     picture might likely have caused the board to vote, on 
     July 6, for the immediate closure option rather than for 
     any of the five strategic options identified at the May 6 
     meeting, no such change from the May forecasts ap-
     peared in the report presented in July....

          [T]here was no compelling financial development that 
     explains the July 6 vote for immediate closure.  The lack 



     of such evidence, together with the compelling evidence 
     of antiunion motivation established in the General Coun-
     sel's prima facie case, leads logically to the inference that 
     another, unspoken concern ultimately persuaded the 
     board of directors to vote for LCF's immediate closure, 
     i.e., the upcoming representation election with the likeli-
     hood of a union victory. Id. at 8.  The NLRB concluded that Mr. Schmieg's comment 
at the July 6 meeting that the board's decisions would be 
" 'based solely on the economic justification set forth in the 
financial documents' " indicated "an unexpressed agenda re- lating to the upcoming union election."  Id.  It also found 
revealing the fact that Sprint terminated the LCF employees 
just eight days before their representation election.  Finally, 
it rejected the ALJ's finding that Mr. Doerr's fabricated 
letter recorded events that actually took place, finding insuffi- cient evidence for that proposition.

                                II.  Analysis


     Terminating employees because of their union activity vio- lates section 8(a)(3) and (1) of the National Labor Relations 
Act.  See 29 U.S.C. s 158(a)(3), (1) (1994);  Allegheny Lud- lum Corp. v. NLRB, 104 F.3d 1354, 1367 (D.C. Cir. 1997);  
Power Inc. v. NLRB, 40 F.3d 409, 417 (D.C. Cir. 1994);  
Teamsters Local Union No. 171 v. NLRB, 863 F.2d 946, 955 
(D.C. Cir. 1988).  Moreover, accelerating the timing of a 
management action that results in the termination of employ- ees is also unlawful if done in response to union activity, even 
if the employer would have taken the same action at a later 
time.  See Matson Terminals, Inc. v. NLRB, 114 F.3d 300, 
303 (D.C. Cir. 1997).

     Under the framework that the Supreme Court approved in 
NLRB v. Transportation Management Corp., 462 U.S. 393, 
399-403 (1983), overruled in part on other grounds by Dep't 
of Labor v. Greenwich Collieries, 512 U.S. 267, 276-78 (1994), 
the NLRB's General Counsel must first establish that pro- tected union activity "was a substantial or motivating factor" 
in the employer's closure decision.  If the General Counsel 



meets that burden, then the employer may present the "affir- mative defense" that it would have closed its facility at the 
same time, even in the absence of protected union activity and 
the employer's antiunion motivation.  Id. at 401 ("[T]he 
[NLRB]'s construction of the statute permits an employer to 
avoid being adjudicated a violator by showing what his actions 
would have been regardless of his forbidden motivation.  It 
extends to the employer what the Board considers to be an 
affirmative defense but does not change or add to the ele- ments of the unfair labor practice that the General Counsel 
has the burden of proving under s 10(c).");  see also Alleghe- ny Ludlum, 104 F.3d at 1367.

     This court's review of the NLRB's factual conclusions is 
highly deferential.  We reject NLRB factual findings only if 
there is no substantial evidence in the record as a whole to 
support them.  See, e.g., Universal Camera Corp. v. NLRB, 
340 U.S. 474, 488 (1951);  Schaeff Inc. v. NLRB, 113 F.3d 264, 
266 (D.C. Cir. 1997);  Gold Coast Restaurant Corp. v. NLRB, 
995 F.2d 257, 263 (D.C. Cir. 1993);  Laro Maintenance Corp. 
v. NLRB, 56 F.3d 224, 228-29 (D.C. Cir. 1995).  " 'So long as 
the Board's findings are reasonable, they may not be dis- placed on review even if the court might have reached a 
different result had the matter been before it de novo.' "  
Laro Maintenance, 56 F.3d at 229 (quoting Clark & Wilkins 
Indus., Inc. v. NLRB, 887 F.2d 308, 312 (D.C. Cir. 1989)).  
However, this court's analysis "consider[s] not only the evi- dence supporting the Board's decision but also 'whatever in 
the record fairly detracts from its weight.' "  Schaeff, 113 
F.3d at 266 (quoting Universal Camera, 340 U.S. at 488).

     "The court's review of the Board's determination with 
respect to motive is even more deferential.  Motive is a 
question of fact that may be inferred from direct or circum- stantial evidence.  In most cases only circumstantial evidence 
of motive is likely to be available.  Drawing such inferences 
from the evidence to assess an employer's ... motive involves 
the experience of the Board, and consequently, the court 
gives substantial deference to inferences the Board has drawn 
from the facts, including inferences of impermissible motive."  
Laro Maintenance, 56 F.3d at 229 (internal citations omit-



ted);  see also Power, 40 F.3d at 418 ("[T]he NLRB may rely 
on both direct and circumstantial evidence to establish an 
employer's motive, considering such factors as the employer's 
knowledge of the employee's union activities, the employer's 
hostility toward the union, and the timing of the employer's 
action.").

     This case presents the question of whether there is sub- stantial evidence to support the first prong of the Transporta- tion Management Corp. test, i.e., NLRB's finding that anti- union animus "was a substantial or motivating factor" in 
Sprint's decision to close LCF.  462 U.S. at 401.  Locating 
direct evidence of antiunion motivation in a plant closure is 
often impossible, and here the NLRB's General Counsel has 
acknowledgedly amassed some relevant circumstantial evi- dence pointing to such motivation.  In particular, the illegal 
antiunion campaign that LCF officials conducted in the spring 
of 1994 is an important piece of evidence.

     The NLRB found that Sprint had decided at the May 6 
board meeting to keep LCF open indefinitely;  since nothing 
significant happened between then and the July 6 meeting-- except for the scheduling of a representation election and the 
emergence of evidence that union victory was likely--it in- ferred that the changing labor situation at LCF explained 
Sprint's new course.  The NLRB's conclusion that Sprint 
acted out of antiunion animus, however, ultimately lacks 
substantial evidence in the record.  Simply put, the enormous 
body of financial data and testimony recording LCF's ex- tremely serious financial decline dominates the record and 
indicates that, as the ALJ concluded, "Sprint had valid and 
compelling economic reasons for closing LCF."  ALJ Deci- sion at 28.

     Indeed, the ALJ's factual findings, based on fourteen days 
of hearings and voluminous documentary evidence, demon- strate that LCF's prospects were grim.  By March 1994, Vice 
President Meyer's financial projections indicated that LCF 
would make $12 million less in 1994 than Sprint had expected, 
losing $4 million in the year rather than earning its anticipat- ed $8 million annual profit.  This "ominous forecast," id. at 



13, was predicated on the basis of a number of troubling 
economic indicators.  LCF's "churn rate," the percentage of 
its customer base lost each month, was 20.5% in January 
1994, 18.5% in February, and 22.5% in March.  In addition, 
LCF's telemarketers were unable to attract enough new 
customers to even keep the customer base stable.  The rate 
of sales per hour for LCF's telemarketers declined by ap- proximately 50% between January and March.  By May, 
LCF was losing 1.41 customers for every customer that it was 
acquiring;  LCF lost about 16,000 customers in May and June 
alone.  By June 30, LCF's customer base had declined to 
about 85,000 customers, down from 130,000 in January.  By 
July 14, when LCF closed its doors, LCF had just 76,532 
customers.

     This evidence of LCF's severe and continuing financial 
decline overwhelms the circumstances on which the NLRB 
relies.  In fact, it renders NLRB's characterization of the 
May 6 meeting, which is the cornerstone of the NLRB's 
decision, implausible.  The mere fact that the LCF board 
decided on May 6 to reconvene in sixty days after fully 
considering all of its options does not suggest, in light of all 
the other record evidence, that the board was then "inclined 
toward the option of keeping the business going for at least 
long enough to allow the turnaround initiatives to take hold" 
and only changed its collective mind at some point on or 
before July 6.  NLRB Decision at 8.  The decision to hire 
Mr. Rosas ultimately does not alter the tenor of this meeting.  
Sprint may have mistreated Mr. Rosas by hiring him and 
giving him the go-ahead to manage LCF for five weeks 
without telling him that the board was considering closing 
LCF.  But one of Sprint's largest concerns about LCF was 
that its lack of a full-time, on-site manager required Vice 
President Meyer to devote approximately one day a week to a 
small, failing, and geographically distant part of the business 
under his jurisdiction.  Moreover, if, as seems more natural, 
the May 6 board decision is read as a sign that the board was 
already seriously concerned about LCF, then the NLRB's 
focus on the lack of change in LCF's finances during the sixty 
days between the May meeting and the July meeting no 



longer makes sense:  LCF may not have been losing money 
and customers at a faster rate between May and July, but it 
was surely plummeting downward on its unprofitable course.

     Furthermore, Mr. Doerr's fabricated letter does not enable 
the NLRB to meet the substantial evidence requirement for 
its decision, given the weight of the other evidence in the 
record.  There is no indication that Mr. Doerr acted in 
concert with anyone, or that his decision to create a false 
paper trail reflected anything but misguided overcautious- ness.  Cf. TIC--The Industrial Company Southeast, Inc. v. 
NLRB, No. 96-1465, slip opinion at 9 (D.C. Cir. Oct. 7, 1997) 
("[T]he single, isolated comment that forms the entire basis 
for the alleged 8(a)(1) violation did not constitute substantial 
evidence of restraint, coercion, or interference with employ- ees exercising protected rights under section 8(a)(1).").

     Similarly, there is no evidence to support the contention 
that Mr. Schmieg's instructions to the LCF board at the July 
6 meeting that it was to consider only the financial data were 
related to the upcoming union election.

     Finally, the timing of Sprint's actions is not sufficient to 
compensate for the other evidentiary deficiencies in the 
NLRB's decision.  To be sure, the LCF board voted twenty- two days before the scheduled representation election to close 
LCF.  Sprint's further decision to dismiss the LCF employ- ees immediately and pay them for sixty days, rather than 
giving the LCF employees advance notice and requiring them 
to work during that period, conveniently terminated the LCF 
employees just eight days before the representation election 
that CWA was expected to win.  But the July 6 meeting had 
been planned since May 6, well before CWA filed its repre- sentation petition.  Moreover, the General Counsel and CWA 
have put forth no evidence of antiunion animus in the days 
after July 6, except for the bare fact of Sprint's timing.  
Sprint, in turn, has articulated a number of legitimate busi- ness reasons for its decision to terminate the LCF employees 
immediately, including the recognition that there was no point 
in having the LCF telemarketers continue to sell a product 
that would no longer be available.  In a stronger case, the 



timing of Sprint's actions, particularly after July 6, might 
have taken the General Counsel's case over the edge.  But 
here timing is not enough to make an otherwise unpersuasive 
NLRB decision survive judicial scrutiny.

                               III.  Conclusion


     The NLRB's decision ultimately lacks substantial evidence 
in the record given the overwhelming record evidence that 
LCF was in a serious and sustained financial decline through- out the months before its closure.  For the foregoing reasons, 
we set the NLRB's order aside.  In light of this decision, we 
need not reach Sprint's challenge to the remedy that the 
NLRB formulated.

								So ordered.


midpage