National Labor Relations Board v. Edward Cooper Painting, Inc., and Cooper & Cooper Painting, an Alter EgoNational Labor Relations Board v. Edward Cooper Painting, Inc., and Cooper & Cooper Painting, an Alter Ego
Lead Opinion
This сase involves an NLRB petition to enforce a decision and order finding unfair labor practices against respondent Edward Cooper Painting, Inc. (the Corporation), and its alleged alter ego, Cooper & Cooper Painting (the Partnership). The NLRB unfair labor practice proceeding was filed because the Corporation unilaterally terminated the collective bargaining agreement it had with the International Brotherhood of Painters and Allied Trades of the United States and Canada, Local 768 (the Union). After the NLRB proceeding was initiated, the Corporation filed for bankruptcy. The three primary issuеs presented are: (1) whether this court has jurisdiction to determine whether the automatic stay of judicial proceedings created by
For reasons discussed more fully below, we conclude: (1) we have jurisdiction to determine whether the automatic stay applied to the NLRB proceeding; (2) the proceeding was excepted from the stay by оperation of
The findings of fact of the NLRB are conclusive if supported by substantial evidence.
Henry Edward Cooper was the only shareholder and sole manager of the Corporation, which did business in Lexington, Kentucky. In 1981, he employed as many as six people, including his son, David Cooper, who was working foreman of the Corporation’s painting operations. Prior to 1981, the Corporation negotiated and signed two collective bargaining agreements with the Union.
On July 24, 1981, the Corporation unilaterally terminated both collective bargaining agreements effective August 1, 1981. This action violated the agreements and was an unfair labor practice in violation of the National Labor Relations Act. Henry Cooper informed Walter Young, Jr., that he could continue to work if he was willing to work under non-union conditions. Young declined the offer, and the Union filed an unfair labor practice complaint with the NLRB. On September 17, 1981, the NLRB filed unfair labor practice charges against the Corporation, seeking backpay on behalf of Walter Young, Jr., and other unnamed employeеs, as well as equitable relief.
After termination of its relationship with the Union, the Corporation continued in the painting business. The business was operated essentially the same as before the union agreement was terminated, except that non-union employees replaced union employees. The offices, secretary, and telephone number of the business remained the same. The same type of painting work was performed. David Cooper continued as foreman, and Henry Edward Cooper remained owner and operator.
In November of 1981, Henry Edward and David Cooper began operating their business as a partnership under the name Cooper & Cooper Painting. After this organizational change, David Cooper received a salary instead of an hourly wage, participated in partnership decisions, and shared in the Partnership’s profits on a forty percent basis. The Partnership continued the painting business previously carried on by the Corporation.
On December 4, 1981, the Corporation filed a petition in bankruptcy under Chapter 11 of the Bankruptcy Code. Although the Board had filed proof of claims with the bankruptcy court in the aggregate amount of $120,296, representing backpay due Walter Young, Jr., and other unnamed employees, the Corporation had been liquidated and the estate closed by order of the bankruptcy court by the time the Board rendered its decision and order on February 12, 1985.
On May 17, 1982, Henry Edward Cooper, an individual, filed for bankruptcy under Chapter 7 of the Bankruptcy Code and was discharged in bankruptcy on December 30, 1982, prior to the Board’s decision and order. While the NLRB had notice of Henry Edward Cooper’s personal bankruptcy, the Partnership did not raise his bankruptcy as a defense to enforcement of the NLRB’s order.
The Cooper & Cooper partnership ended operations on November 4, 1982. Apрarently, its business has been taken over by a new corporation.
The Board’s order
I.
The first issue for consideration is whether this court, or the bankruptcy court, has jurisdiction to determine whether the automatic stay provision of
“(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title ... operates as a stay, applicable to all entities, of—
“(1) the commencement or continuation, including the issuance or employment of process, of а judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debt- or that arose before the commencement of the case under this title;
“(2) the enforcement, against the debt- or or against property of the estate, of a judgment obtained before the commencement of the case under this title;
* * * * * *
“(b) The filing of a petition under section 301, 302, or 303 of this title ... does not operate as a stay—
******
“(4) under subsection (a)(1) of this section, of the сommencement or continuation of an action or proceeding by a governmental unit to enforce such governmental unit’s police or regulatory power;
“(5) under subsection (a)(2) of this section, of the enforcement of a judgment, other than a money judgment, obtained in an action or proceeding by a governmental unit to enforce such governmental unit’s police or regulatory power. ...”
When the Corporation filed for bankruptcy,
Respondent contends that the bankruptcy court has exclusive jurisdiction to determine the coverage, modification, or termination of the automatic stay. Thereforе, respondent argues, we should “remand” this case to the bankruptcy court for a determination of whether the NLRB proceeding was excepted from the stay. We disagree, because the applicability of the automatic stay to an unfair labor practice proceeding is an issue of law within the competence of this court. See In re Baldwin-United Corp. Litigation,
Respondent cites our decision in NLT Computer Services Corp. v. Capital Computer Systems, Inc.,
Respondent’s reliance on this passage is misplaced because the statement was grounded on the assumption that the stay otherwise applied to the non-bankruptcy judicial proceeding, and that the bankrupt
“In an opinion filed on January 31, 1983, the distriсt court held that it was not prohibited from proceeding upon the merits of the government’s claim despite the automatic stay provisions of11 U.S.C. § 362 , because it possessed the power to withdraw the order of reference of the involuntary proceedings to the bankruptcy court and then lift the automatic stay provisions which would otherwise apply.”
Id. at 1256 (emphasis added). None of the litigants in NLT Computer asserted that the non-bankruptcy judicial proceeding was excepted from the automatic stay. The statement on which respondent relies was made in a non-bankruptcy judicial proceeding that was not even arguably excepted from the automatic stay.
Here, the NLRB contends that its proceeding against the Corporation is excepted from the
The decision of the Second Circuit in Baldwin-United Corp. is the only case which has explicitly held that the district and circuit courts have jurisdiction to determine the applicability of the automatic stay. However, in the context of an NLRB petition for enforcement of an unfair labor practice decision and order, two other circuit courts have assumed they had jurisdiction to answer the question and proceeded directly to the merits. See Ahrens Aircraft, Inc. v. NLRB,
We agree with the statement by the court in Baldwin that:
“The court in which the litigation claimed to be stayed is pending has jurisdiction to determine not only its own jurisdiction but also the more precise question whether the proceeding pending before it is subject to the automatic stay.”
Baldwin-United Corp.,
II.
Respondent next argues that the NLRB’s order is void because thе NLRB failed to petition the bankruptcy court for relief from the automatic stay before it proceeded with the unfair labor practice hearing. It also argues that the NLRB was required to petition the bankruptcy court for relief from the stay even though it believed that its proceeding was excepted from the stay. This contention has no support in the case law, and we conclude that a governmental unit which determines that its police power or regulatory proceeding is excepted from the automatic stay under
In addition, the legislative history of the Bankruptcy Act of 1978 evinces a congressional intent that “an action by a governmental unit seeking to enforce its regulatory power is not automatically stayed by reason of the provisions of subsection (b)(4) but might nonetheless be enjoined by the [bankruptcy] court in appropriate circum
We hold that the NLRB, acting on the belief that its unfair labor practice proceeding was excepted from the operation of the automatic stay, permissibly proceeded with the hearing without obtaining relief from the stay in the bankruptcy court. However, the NLRB proceeded at its own risk. If it was later determined that the proceeding was not exceрted from the automatic stay, the entire NLRB proceeding would be void ab initio as an act taken in violation of the stay.
Arguably, a more orderly procedurе would require the NLRB to petition the bankruptcy court for permission to pro
Our conclusion does not leave the trustee or debtоr-in-possession unable to halt the unfair labor practice proceeding. The legislative history of the Bankruptcy Act of 1978 states:
“The Court has ample other powers to stay actions not covered by the automatic stay. Section 105, of the proposed title 11, derived from Bankruptcy Act § 2a(15), grants the power to issue orders necessary or appropriate to carry out the provisions of title 11.”
5.Rep. No. 989, 95th Cong., 1st Sess. (1978), reprinted in 1978 U.S.Code Cong. & Ad.News at 5837. The bankruptcy courts have concluded that
Ill.
Respondent also argues that the NLRB proceeding was “an attempt to еnforce a money judgment” and was therefore subject to the automatic stay by operation of
Not every action or proceeding by a governmental unit is excepted from the automatic stay. The legislative history to the Bankruptcy Act of 1978 provides that, under
“where a governmental unit is suing a debtоr to prevent or stop violation of fraud, environmental protection, consumer protection, safety, or similar police or regulatory laws, or attempting to fix damages for violation of such a law, the action or proceeding is not stayed under the automatic stay.”
H.R.Rep. No. 595, 95th Cong., 1st Sess. 343 (1977), reprinted in 1978 U.S.Code Cong. & Ad.News 5963, 6299. The courts which have considered this issue have generally concluded that NLRB unfair labor practice proceedings are excepted from the automatic stay by
“[T]his Court necessarily reaches the conclusion that the automatic stay is inaрplicable herein. The N.L.R.B. is a governmental unit exercising its police orregulatory powers. By the prevailing interpretations of the exceptions to the automatic stay, injunctive relief is unavailable against the Board on that ground. Moreover, the Court notes that the complained of proceedings have not yet reached the stage of enforcing a money judgment. Falling short of such prohibited activity, there is no basis to deny the exception to the stay.”
The bankruptcy courts have not yet developed a consistent test for determining whether an action by a particular governmental unit falls within the automatic stay. However, even under the narrowest reading of
Generally, one of two tests has been applied to determine whether a particular governmental action was excepted from the automatic stay: the pecuniary purpose test or the public policy test. See In re Herr,
The NLRB proceeding challenged herein passes muster under either test. First, an NLRB unfair labor practice proceeding is one which imposes sanctions on an employer for violations of the federal labor law. The Board’s decision in this case is an adjudication that the Corрoration violated federal labor law embodied in the National Labor Relations Act. It is not a proceeding for the primary purpose of protecting the government’s claim of entitlement to a pecuniary interest in the debtor’s estate. Second, the NLRB does not proceed on behalf of private persons:
“[N]o private action arises under the Labor Act. Thus the NLRB is not functionally a forum where private parties may present labor disputes. Rather the NLRB determines which complaints it will act upon in its own name in furthering the policies of the federal labor laws.”
In re Adams Delivery Service,
In NLRB v. Evans Plumbing Co., the court stated:
“The crucial issue is whether the NLRB is a governmental unit and whether this action is one to enforce police or regulatory powers. It is clear that the NLRB is a governmental unit. This action was undertaken to enforce the federal law regulating the relationship between employer and employee. We can safely conclude therefore that this is an exercise of police or regulatory powers which places it within the§ 362(b)(4) exemption to the automatic stay.” .
Respondent argues that the NLRB proceeding against it was an attempt to reduce an unfair labor practice charge to a dollar amount for the benefit of private persons, namely the Union and those employees who lost wages. We reject this argument, primarily for the reason that “once proceedings are excepted from the stay by
At most, the NLRB unfair labor practice proceeding against respondent resulted in .the entry of a money judgment.
“Quite separate from the entry of a money judgment, however, is a proceeding to enforce that money judgment. The paradigm for such a proceeding is when, having obtained a judgment for a sum certain, a plaintiff attempts to sеize property of the defendant in order to satisfy that judgment. It is this seizure of a defendant-debtor’s property, to satisfy the judgment obtained by a plaintiff-creditor, which is proscribed by subsection 362(b)(5).”
We find the Penn Terra analysis of
IV.
Respondent argues that Henry Edward Cooper’s discharge in bankruptcy bars enforcement of the Board’s order against the Cooper & Cooper partnership. The Board argues that we should not review this claim because respondent failed to present it to the Board as required by
Nonetheless, we affirm the Board’s conclusion that its order may be enforced against the Cooper & Cooper partnership. The Partnership was a party to the proceeding below, where it was found to be the alter ego of the Cooper corporation, a conclusion that is supported by substantial evidence.
For all the foregoing reasons, the Board’s decision is AFFIRMED.
Notes
. The Corporation was a member of the Blue Grass Chapter of the Painting and Decorating Contractors of America (PDCA), the organization which negotiated the collective bargaining agreements to which the Corporation was a signatory. Henry Edward Cooper participated in the negotiations.
. The Board modified the order issued by the AU to comply with the Supreme Court decision in NLRB v. Bildisco & Bildisco,
The Bildisco Court held that after filing the petition for reorganization in bankruptcy, the debtor-in-possession is not required to bargain with the union, and may unilaterally terminate its labor contract. In later reviewing the termination of the labor contract,, the bankruptcy court would have to "weigh several equitable considerations to vindicate the prior labor contract abrogation.” Gregory, The Congressional Response to NLRB v. Bildisco and the Constitutional Subtleties of the Nondelegation Doctrine, 62 U.Det.L.Rev. 245, 246 (1985).
.The legislative history of the police power exception of the automatic stay provides:
"Subsection (b) lists seven exceptions to the automatic stay. The effect of an exception is not to make the action immune from injunction.
“The court has ample other powers to stay actions not covered by the automatic stay.Section 105 , of proposed title 11, derived from Bankruptcy Act § 2a(15), grants the power to issue orders necessary or appropriate to carry out the provisions of title 11. The district court and the bankruptcy court as its adjunct have all the traditional injunctive powers of a court of equity,28 U.S.C. §§ 151 and 164 as proposed in § 2266, § 201, and28 U.S.C. § 1334 , as proposed in § 2266, § 216. Stays or injunctions issued under these other sections will not be automatic upon the commencement of the case, but will be granted or issued under the usual rules for the issuance of injunctions. By excepting an act or action from the automatic stay, the bill simply requires that the trustee move the court into action, rather than requiring the stayed party to request relief from the stay. There are some actions, enumerated in the exceptions, that generally should not be stayed automatically upon the commencement of the case, for reasons of either policy or practicality. Thus, the court will have to determine on a case-by-case basis whether a particular action which may be harming the estate should be stayed.
******
“Paragraph (4) excepts commencement or continuation of actions and proceedings by governmental units to enforce police or regulatory powers. Thus, where a governmental unit is suing a debtor to prevent or stop violation of fraud, environmental protection, consumer protection, safety, or similar poliсe or regulatory laws, or attempting to fix damages for violation of such a law, the action or proceeding is not stayed under the automatic stay.
“Paragraph (5) makes clear that the exception extends to permit an injunction and enforcement of an injunction, and to permit the entry of a money judgment, but does not extend to permit enforcement of a money judgment. Since the assets of the debtor are in the possession and control of the bankruptcy court, and since they constitute a fund out of which all creditors are entitled to share, enforcement by a governmental unit of a money judgment wоuld give it preferential treatment to the detriment of all other creditors."
S.Rep. No. 989, 95th Cong., 1st Sess. (1978), reprinted in 1978 U.S.Code Cong. & Ad.News 5787, 5837-38 (emphasis added).
. See, e.g., Borg-Warner Acceptance Corp. v. Hall,
. Our decision in In re Mansfield Tire & Rubber Co.,
. See, e.g., NLRB v. Evans Plumbing Co.,
The Theobald court found that the NLRB proceeding at issue related primarily to pecuniary, rather than governmental, interests, and therefore was not excepted from the automatic stay. The holding of the case, which enjoined the NLRB proceeding, was based on the injunctivе power of
. Section 10(e) of the Act provides, in pertinent part:
"No objection that has not been urged before the Board, its member, agent, or agency, shall be considered by the court, unless the failure or neglect to urge such objection shall be excused because of extraordinary circumstances.”
. The alter ego issue is "whether there was ‘a true change of ownership * * * or merely a disguised continuance of the old employer.’” NLRB v. Herman Bros. Pet Supply, Inc.,
"The criteria which guide the Board's exercise of its discretion to determine if one company is the ‘alter ego’ of another company are whether the two enterprises have substantially identical management, business, purpose, operation, equipment, customers, supervision and ownership."
Nelson Electric v. NLRB,
. Under Kentucky law, a judgment against the partnership may be enforced against the property of each partner. Kentucky has adopted the Uniform Partnership Act, which provides, in pertinent part:
“All partners are liable:
"(1) Jointly and severally for everything chargeable to the partnership underKRS 362.210 and 362.215;
“(2) Jointly for all other debts and obligations of the partnership....”
Concurrence Opinion
concurring.
While I agree with the majority’s disposition of this case and its analysis in Parts I, II and III, I do not join in Part IV of the majority’s opinion concluding that we have jurisdiction to consider the effect of Henry Edward Cooper’s discharge in bankruptcy.
Whereas the “Plea in Abatement Due to Bankruptcy” can be construed as drawing into question the issue of the automatic stay, it is clear that the effect of the discharge in bankruptcy was never raised below, probably in view of the fact that the discharges occurred in the course of the proceedings before the Board. The failure of respоndent to raise particular issues before the Board deprives this court of jurisdiction to consider such contentions. Woelke & Romero Framing, Inc. v. NLRB,
. I do not, however, disagree with the majority’s conclusion in Part IV that there is substantial evidence to support the Board's finding that Cooper & Cooper is an alter ego of the Cooper Corporation. See NLRB v. Allcoast Transfer, Inc.,