Thе National Labor Relations Board (“Board”) held that Bolivar-Tees, Inc. (“Bolivar”) committed unfair labor practices in violation of the National Labor Relations Act (“NLRA”) and ordered the corporation to provide backpay to five former employees. However, when the United States Court of Appeals for the District of Columbia Circuit enforced the order, Bolivar was dissolved and had disposed of all of its assets. In a subsequent compliance proceeding, an administrative law judge (“ALJ”) recommended that Screen Creations, Ltd. (“Screen Creations”), Screen Creations de Mexico, Screen Creations de Celaya and Allan Heller be held jointly and severally liable with Bolivar because the corporations constituted a single employer and because the corporate veil should be pierced to allow collection from Heller personally. The Board filed a petition for the enforcement of its Supplemental Decision and Order (“Order”), which adopted the recommendations of the ALJ. We grant the petition and enforce the Order.
I. BACKGROUND
Screen Creations, incorporated in Missouri by Heller’s father, made custom, screen-printed tee-shirts. Upon receiving a tee-shirt order from a customer, Screen Creations would purchase the fabric and contract with another entity to cut and sew the fabric into a tee-shirt. The contracted entity would then provide the finished garment to Screen Creations, which would screen print the tee-shirt and ship the final product to the customer. Heller became sixty percent owner of Screen Creations while his father maintained a forty percent interest in the corporation. Heller also exercised overall managerial control of the corporation’s operations and was its only officer and director from 1999 to 2003, except for 2002, when the company’s annual report also listed Heller’s father as one of the directors. Heller drew an average annual salary from Screen Creations of approximately $192,000 from 1990 to 1997, and approximately $120,000 from 2000 to 2003. 1
In an effort to consolidate the production process, Heller incorporated Bolivar in March 1990 to cut and sew fabric into tee-shirts exclusively for Screen Creations. Heller was Bolivar’s sole owner, officer
Bolivar consistently suffered financial difficulties. The amount Bolivar charged Screen Creations for the tee-shirts it manufactured did not cover its basic operating costs. As a result, Bolivar made no payments to Heller on the promissory note, and Heller similarly made no payments to Screen Creations. With interest accruing on the promissory note, Bolivar’s books indicated that it owed Heller $357,438 by 2000. Screen Creations, which was generally profitable, also regularly advanced operating funds to Bolivar. By 2001, Bolivar’s books also reflected that it owed $202,741 to Screen Creations.
Even beyond the advances, Screen Creations and Bolivar were closely connected financially. In 1997, Screen Creations revised its profit-sharing plan to include Bolivar’s employees. From 1999 to 2001, the two corporations were insured under an insurance policy issued to Screen Creations. The policy covered Bolivar’s equipment in the amount of $550,000. Finally, Screen Creations, and not Bolivar, provided Hellеr with a salary and insurance benefits.
In 1998, charges were brought against Bolivar for unfair labor practices. After a hearing, an ALJ found that Bolivar unlawfully suspended and discharged five employees in violation of section 8(a)(1) and (3) of the NLRA, 29U.S.C. § 158(a)(1), (3). The Board issued an order requiring Bolivar to reinstate the former employees and to make those employees “whole for any loss of earnings and other benefits suffered as a result of the discrimination.”
Bolivar Tee’s Mfg. Co.,
According to Heller, the North American Free Trade Agreement (“NAFTA”) made textile manufacturing unprofitable in the United States but economically advantageous in Mexico. In 1999, Heller began moving Bolivar’s equipment to Mexico. In February 2000, Heller incorporated Screen Creations de Mexico, a Mexican corporation, and was a fifty percent owner, the president and a member of its board of directors. By October 20, 2000, Heller had moved all of Bolivar’s equipment to Screen Creations de Mеxico. Screen Creations de Mexico never paid Bolivar for the equipment or for its use of the equipment.
Heller claims that he transferred the legal title of Bolivar’s equipment to Screen Creations and that Screen Creations paid for the equipment by reducing the debt Bolivar owed it on January 1, 2001. Heller did not have Bolivar’s equipment appraised at the time of the transfer and did not provide any documentation regarding the change in legal title. Although Bolivar purchased the equipment for $671,218 and it was insured for $550,000, Bolivar’s 2001
Bоlivar’s equipment was its only asset. With no assets left, Bolivar ceased operations in July 2001. In October 2004, the State of Missouri officially dissolved Bolivar for failure to file a 2004 annual registration report. In November 2004, Screen Creations de Mexico also ceased operations. Heller then sent the Bolivar equipment to a Mexican corporation named Confecciones Guanajuanto (“Confec-ciones”). Heller had no ownership interest in Confecciones, and Confecciones paid no compensation for the use of the equipment. However, Heller hoped to receive future compensation from Confecciones through commissions on product sales.
Screen Creations’ operations also moved to Mexico. In November 2001, Heller incorporated Screen Creations de Celaya to conduct the custom screen printing. Heller was a sixty-five percent owner, the president and a member of its board of directors. Heller transferred eighty to ninety percent of Screen Creations’ equipment to Screen Creations de Celaya, although the title to the equipment remained with Screen Creations. Screen Creations de Celaya did not pay any compensation for the use of the equipment. Heller claims that Screen Creations de Celaya forwarded a portion of its profits to Screen Creations, although no agreement existed for such payments and no evidence was presented that Screen Creations de Celaya actually made such payments.
By April 2003, Screen Creations ceased all production work and became a service business that engaged in sales and technical assistance to Screen Creations de Mexico and Screen Creations de Celaya, although it has not been compensated for these services. In October 2004, the State of Missouri administratively dissolved Screen Creatiоns for failure to file a 2004 annual registration report. Nonetheless, Screen Creations continues to operate, and Heller is the corporation’s only remaining employee. Heller claims that he has loaned more than $300,000 to Screen Creations between 2001 and 2004.
Before Heller transferred Bolivar’s assets, Bolivar did not attempt to satisfy the unfair labor practice award against it. In an attempt to collect on the backpay due, the Board issued a compliance specification against Bolivar, Screen Creations, Screen Creations de Mexico, Screen Creations de Celaya and Heller.
See Bolivar-Tees, Inc.,
349 N.L.R.B. Nо. 70, at *5. The compliance specification alleged that the corporations and Heller should be held jointly and severally liable for the backpay award against Bolivar because the corporations constituted a single employer
2
and
Pursuant to 29 U.S.C. § 160(e), the Board filed a petition in this court for the enforcement of its Order. Heller challenged the Board’s decision to pierce the corporate veil, but the corporate respondents did not contest the Board’s decision that the four corporations constitute a single employer. “The Board is entitled to summary enforcement of the uncontested portions of its order.”
Flying Food Group, Inc. v. NLRB,
II. DISCUSSION
“We will enforce the Board’s order if the Board has correctly applied the law and its factual findings are supported by substantial evidence on the record as a whole,”
Wal-Mart Stores, Inc. v. NLRB,
“The corporate structure is an artificial construct of the law, a substantial purpose of which is to create an incentive for investment by limiting [a shareholder’s] exposure to personal liability” for the corporation’s debts and obligations.
NLRB v. Greater Kan. City Roofing,
Whether a shareholder can be personally liable for a corporation’s financial obligations resulting from its unfair labor practice under the NLRA “is a question of federal law [because] it arises in the context of a federal labor dispute.”
NLRB v. Fullerton Transfer & Storage Ltd.,
910
When assessing the first prong to determine whether the shareholders and the corporation have failed to maintain their separate identities, “we consider ... the degree to which the corporate legal formalities have been maintained, and ... the degree to which individual and corporate assets and affairs have been commingled.”
Greater Kan. City Roofing,
(1) whether the corporation is operated as a separate entity; (2) the commingling of funds and other assets; (3) the failure to maintain adequate corporate records; (4) the nature of the corporation’s ownership and control; (5) the availability and use of corporate assets, the absence of same, or under capitalization; (6) the use of the corporate form as a mere shell, instrumentality or conduit of an individual or another corporation; (7) disregard of corporate legal formalities and the failure to maintain an arm’s-length relationship among related entities; (8) diversion of the corporate funds or assets to noncorporate purposes; and ... (9) transfer or disposal of corporate assets without fair consideration.
White Oak Coal Co.,
When assessing the second prong to determine whether adherence to the corporate fiction would sanction a fraud, promote injustice or lead to an evasion of legal obligations, we consider causation and culpability.
See Greater Kan. City Roofing, 2
F.3d at 1052-55. A corporation’s inability to pay its debt alone is not sufficient to support a finding of injustice.
Id.
at 1053;
see Hroch,
With respect to the first prong, substantial evidence supports the Board’s finding that Heller and the corporations failed to maintain their separate identities. First, Heller controlled and owned all four corporations, and he directed the decision-making of each corporation. Second, Heller did not operate Bolivar and Screen Creations as separate entities. Screen Creations’ insurance plan covered Bolivar’s assets and its profit-sharing plan included Bolivar’s employees. More importantly, Heller kept Screen Creations profitable in part by rendering Bolivar unprofitable. Screen Creations was Bolivar’s sole customer, but Bolivar neither charged enough to cover its basic operating costs nor attempted to expand its customer base. Heller also received his salary from Screen Creations and not Bolivar. As a result, Heller’s salary was tied to Screen Creations’ profitability and not Bolivar’s profitability.
Third, Heller and the corporations readily commingled funds, failed to maintain adequate corporate records, disregarded corporate legal formalities, and failed to maintain an arm’s-length relationship. The funds used to purchase Bolivar’s initial equipment came from Screen Creations through Heller. Although Screen Creations, Bolivar and Heller exchanged promissory notes, neither Bolivar nor Heller ever made any payments on the notes, and neither Heller nor Screen Creations ever attempted to enforce them in any way. Heller effectively prevented Bolivar from making payments on the promissory note because he did not allow Bolivar to charge Screen Creations enough to cover its operating costs. Moreover, Screen Creations advanced operating funds to Bolivar without any real accounting оr any formal agreement for return payments. In fact, outside the yearly tax returns, the corporations failed to document and account for the transactions between them adequately. As a result, the two corporations’ tax returns reflected different amounts for Bolivar’s debt to Screen Creations. 5 According to Screen Creations’ 2001 tax return, Bolivar owed Screen Creations $306,071 at the beginning of the tax year and $103,330 at the end of the tax year. According to Bolivar’s 2001 tax return, Bolivar owed Screen Creations $202,741 at the beginning of the tax year and $80,168 at the end of the tax year. Thus, Heller readily commingled funds between the two corporations and failed to follow normal legal formalities.
With respect to the second prong, substantial evidence supports the Board’s finding that adherеnce to the corporate fiction would sanction a fraud or lead to an evasion of a legal obligation. In addition to providing substantial evidence of the first prong, Heller’s transfer of Bolivar’s assets provides substantial evidence to support a finding under the second prong
In addition to removing all of Bolivar’s assets, Heller prevented Bolivar from becoming profitable. Bolivar did not charge enough to cover its operating costs. As a result, Screen Creations was able to have greater profitability, and Heller could draw his salary from Screen Creations. Thus, it was at least reasonable for the Board to conclude that Heller’s transfer of Bolivar’s assets and the allocation of all profits to Screen Creations purposely caused Bolivar to lack the resources to satisfy the award. Therefore, substantial evidence exists to support a finding that adherence to the corporate fiction would sanction a fraud and lead to the evasion of a legal obligation.
Heller argues that substantial evidence does not support a finding that he had the requisite culpability to justify piercing the corporate veil.
8
Heller first claims that his case is similar to
Greater Kansas City Roofing.
In
Greater Kansas City Roofing,
the Tenth Circuit held that Tina Clarke did not have sufficient culpability to justify piercing the corporate veil.
Second, Heller argues that his infusion of pеrsonal assets into Bolivar and Screen Creations belies any attempt on his part to avoid paying the discriminatees by fraudulently removing Bolivar’s assets. Other than the initial $170,000 provided to Bolivar to purchase equipment, the funding of which actually came from Screen Creations, Heller never provided any funds to Bolivar. Although Heller made loans to Screen Creations, Screen Creations was not liable to the five discriminatees unless the single employer doctrine applied, which Heller would not have foreseen at the time. Additionally, Heller only loaned Screen Creations money after he guaranteed that Screen Creations would not be profitable. Heller had moved all of Screen Creations’ equipment to Screen Creations de Celaya and did not charge Screen Creations de Celaya for the equipment’s use. Heller also ceased Screen Creations’ production work and made it into a service business; however, Screen Creations never charged Screen Creations de Celaya for the services it rendered. Also, although Heller loaned Screen Creations approximately $300,000, he received an average annual salary of $120,000 during these years. Hence, Heller’s loaning money to Screen Creations does not sufficiently undermine our conclusion that substantial evidence supports a finding that Heller attempted to avoid paying the discriminatees by fraudulently removing Bolivar’s assets.
Finally, Heller argues that he moved Bolivar’s assets to Mexico because of NAFTA and not because he intended to defraud anyone. Although economic conditions can provide a legitimate reason for transferring assets, substantial evidence supports a finding that the structure, manner and timing of the equipment transfer here suggested otherwise. Bolivar could have simply moved its assets to Screen Creations de Mexico and maintained title over the equipment, similar to the arrangement between Screen Creations and Screen Creations de Celaya. Rather, Bolivar transferred all of its assets to Screen Creations without proper documentation and full compensation. Therefore, substantial evidence exists to conclude that the transfer of assets was intended to avoid Bolivar’s legal obligations to the five discriminatees.
We do not doubt that Heller presented some evidence that weighs against the Board’s decision to pierce the corporate veil. Indeed, we may have reached a different conclusion on de novo review. However, Heller’s arguments do not detraсt from the substantial evidence in the record as a whole that supports a finding that Heller intended to avoid Bolivar’s legal obligations to the five discriminatees by fraudulently removing the corporation’s assets.
We conclude that the Board did not err in piercing the corporate veil because substantial evidence exists to support the Board’s findings (i) that Heller and the corporations’ assets were indistinct and (ii) that adherence to the corporate fiction would sanction a fraud, promote injustice or lead to an evasion of legal obligations. Accordingly, we enforce the Board’s Order holding Bolivar, Screen Creations, Screen Creations de Mexico, Screen Creations de Celaya and Heller jointly and severally liable.
Notes
. From 1990 to 1997, Screen Creations paid Heller a salary of $226,250, $156,800, $245,850, $219,000, $134,000, $107,000, $224,750 and $224,750, respectively. From 2000 to 2003, he received $187,000, $99,750, $90,240 and $103,600, respectively. Heller's salary for 1998 and 1999 was not part of the record.
. "The single employer doctrine is a Board creation that treats two or more related enterprises as a single employer for purposes of holding the enterprises jointly ... liabfle] for any unfair labor practices.”
Iowa Express Distrib., Inc. v. NLRB,
. The Supreme Court has noted that there is “significant disagreement among courts and commentators” regarding whether fеderal courts should "apply a federal common law” or "borrow state law” when piercing the corporate veil to attach shareholder liability for a corporation’s violation of a federal law.
Bestfoods,
. Although the term "alter ego” is commonly employed in the context with piercing of the corporate veil, a distinct "alter ego doctrine” has developed under the NLRA, which "involves a more lenient standard for disregarding the corporate form than that employed in corporate law.”
Greater Kan. City Laborers Pension Fund v. Super. Gen. Contractors, Inc.,
. Heller testified that the amount “due from affiliated companies” on Screen Creations’ tax returns reflected the amount Bolivar owed Screen Creations. Heller also testified that the “due to affiliate” on Bolivar’s tax returns reflected the amount Bolivar owed Screen Creations.
. Acсording to Screen Creations’ 2001 tax return, Bolivar's debt at the beginning of the tax year was $306,071. Had Screen Creations reduced this debt by the full sale price of $225,000, then Bolivar's debt would have been $81,071. Had Screen Creations then advanced an additional $102,427 as Heller asserted, Bolivar's debt would have increased to $183,498. However, Screen Creations' 2001 tax return shows that Bolivar’s debt was $103,330 at the end of the tax year, reflecting a possible advance of no more than $22,259. Screen Creations’ tax returns do not indicate an advance to Bolivar of $102,427.
. The Board found that Heller grossly under-capitalized Bolivar. Because no evidence was provided оf the level of capitalization at the time of incorporation, we do not look at the adequacy of capitalization in this case. The adequacy of capitalization must be measured at the time of incorporation because it reveals whether the corporation was created to avoid liability.
See
1 William Meade Fletcher et. al., Fletcher Cyclopedia of the Law of Private Corporations § 41.33, at 652 (perm, ed., rev. vol.1999); Harry G. Henn & John R. Alexander, Laws of Corporations and Other Business Enterprises § 146, at 349 & n. 21 (3d ed.1983);
see also J-R Grain Co. v. FAC, Inc.,
. There has been some debate as to the level of culpability required to pierce the corporate veil.
Compare Seymour v. Hull & Moreland Eng’g,