Kanowsky Furniture

National Labor Relations Board - Board Decisions

Jun 24, 1994

314 N.L.R.B. 107 (N.L.R.B. 1994)

107
314 NLRB No. 32
KANOWSKY FURNITURE
1 In adopting the judge’s finding that Herbert N. Zimmerman, Inc.,
d/b/a Kanowsky Furniture, is not the alter ego of Kanowsky Fur-
niture, Inc., we find it unnecessary to rely on the judge’s discussion
at sec. 4, pars. 15–20 of his decision of the relationship between
alter ego theory and bankruptcy law, and his interpretation of NLRB
v. Goodman, 873 F.2d 598 (2d Cir. 1989). Rather, we agree with
the judge that under the criteria set out in Fugazy Continental Corp.,
265 NLRB 1301 (1982), the General Counsel did not establish an
alter ego relationship in this case.
1 In his brief, the General Counsel has moved to withdraw an alle-
gation that HNZ had failed to provide the Union with a copy of the
sales agreement between it and KFI, as he concedes no such docu-
ment existed, or could it have existed in this context. He has also
asked to withdraw a contention that Virginia Kanowsky was a 2(11)
supervisor of HNZ. Both motions are granted.
Kanowsky Furniture, Inc. and its alter ego, Herbert
N. Zimmerman, Inc., d/b/a Kanowsky Fur-
niture and United Furniture Workers of Amer-
ica, Local 262, International Union of Elec-
tronic, Electrical, Salaried, Machine and Fur-
niture Workers, AFL–CIO. Cases 20–CA–
24086 and 20–CA–24101
June 24, 1994
DECISION AND ORDER
BY MEMBERS STEPHENS, DEVANEY, AND COHEN
On August 5, 1993, Administrative Law Judge
James M. Kennedy issued the attached decision. The
Charging Party filed exceptions and a supporting brief.
The National Labor Relations Board has delegated
its authority in this proceeding to a three-member
panel.
The Board has considered the decision and the
record in light of the exceptions and brief and has de-
cided to affirm the judge’s rulings, findings, and con-
clusions1 and to adopt the recommended Order.
ORDER
The recommened Order of the Administrative Law
Judge is adopted and the complaint is dismissed.
Donald R. Rendall, Esq., for the General Counsel.
Herbert Zimmerman, President, Herbert N. Zimmerman, Inc.,
of Sacramento, California, for the Respondent HNZ.
Pamela Allen (Eggleston, Siegel & LeWitter), of Oakland,
California, for the Charging Party.
DECISION
STATEMENT OF THE CASE
JAMES M. KENNEDY, Administrative Law Judge. This case
was tried before me in Sacramento, California, on February
9, 1993, on a consolidated complaint issued by the Acting
Regional Director for Region 20 of the National Labor Rela-
tions Board on February 28, 1992. The complaint is based
on two separate charges filed by United Furniture Workers
of America, Local 262, International Union of Electronic,
Electrical, Salaried, Machine and Furniture Workers, AFL–
CIO (the Union) on June 27, 1991 (amended July 31), and
on July 9, 1991, respectively. It alleges that Herbert N. Zim-
merman, Inc., d/b/a Kanowsky Furniture (HNZ) has com-
mitted certain violations of Section 8(a)(5) and (1) of the Na-
tional Labor Relations Act (the Act or the NLRA).
Issues
The consolidated complaint asserts that HNZ is the alter
ego of Kanowsky Furniture, Inc. (KFI). KFI was, until Octo-
ber 3, 1990, a manufacturer and wholesaler of upholstered
furniture and, among other things, operated a factory in Sac-
ramento, California. At that time it converted an earlier-filed
Chapter 11 bankruptcy petition to a Chapter 7 bankruptcy
dissolution. Later, at a public auction conducted pursuant to
an order of the bankruptcy court, HNZ purchased a small
percentage of KFI’s assets, including its trade name, and
commenced operating a furniture factory at the same loca-
tion. As KFI’s Sacramento production workers had been rep-
resented by the Union, the complaint seeks to declare HNZ
the alter ego of KFI and bound to the 1989–1992 collective-
bargaining agreement between the Union and KFI. The Gen-
eral Counsel seeks a remedy which would require HNZ to
recognize and bargain with the Union, implement and apply
the terms of the 1989–1992 collective-bargaining agreement,
reinstate and make whole all the employees of KFI which it
has not hired and make payments to the union sponsored
health and welfare and pension plans retroactive to February
1, 1991, the date HNZ commenced business.1
Respondent HNZ asserts it does not meet the test for an
alter ego as defined by the Board. It further asserts that the
Chapter 7 bankruptcy petition dissolved KFI and therefore,
as a matter of law, HNZ cannot be KFI’s alter ego.
The parties were given full opportunity to participate, to
introduce relevant evidence, to examine and cross-examine
witnesses, to argue orally, and to file briefs. Counsel for the
General Counsel and for the Union have filed briefs which
have been carefully considered. HNZ was represented by its
president, Herbert Zimmerman, a lay person. He did not file
a brief. Based on the entire record of the case, as well as
my observation of the witnesses and their demeanor, I make
the following
FINDINGS OF FACT
I. JURISDICTION
It has been stipulated that both HNZ and KFI are or were
California corporations which manufacture(d) upholstered
furniture at a factory located at 60 East Main Avenue in Sac-
ramento where whoever operated the plant annually sold and
shipped goods valued in excess of $50,000 to customers out-
side the State. Similarly, the plant also directly purchased
goods and supplies valued in excess of $50,000 annually
from sources outside California. HNZ admits and I find that
it is an employer engaged in commerce within the meaning
of Section 2(2), (6), and (7) of the Act.
II. LABOR ORGANIZATION
HNZ admits that the Union is a labor organization within
the meaning of Section 2(5) of the Act.
108 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD
2 While the record does not show exactly how long Zimmerman
worked for KFI, Kanowsky testified that Zimmerman began as an
assistant to the superintendent and eventually worked up to vice
president in charge of production.
3 According to union official, Ulises Vergara.
4 The court recorder does not appear to have taken any care with
respect to the spelling of the names of persons who did not appear
as witnesses. The spellings which appear in this decision are based
on my notes, even if they differ from those chosen by the tran-
scriber. I trust my notes over the recording Company’s efforts. If
these are incorrect, I apologize. Any reader of the transcript will note
that it is somewhat misindexed and contains numerous errors of var-
ious types. I make no effort to correct them, only to make do with
what has been provided.
5 The testimony given by Maxon and Assistant Steward Vicki
Smith was taken only as an offer of proof, for they were presented
to provide evidence of KFI’s (and apparently Zimmerman’s) animus
against the Union. I ruled that evidence to be not relevant in an alter
ego context, at least where there was no contention or evidence that
KFI’s bankruptcy petition was to deceive the Union. Indeed, the
proffered evidence of animus is relatively insubstantial. As the wage
matter is only a background item, and because it is not in dispute,
I have taken that limited portion of Maxon’s testimony to fill in the
financial picture.
6 Perez died shortly thereafter. Until his death he had been the
union official primarily responsible to oversee the Union’s relation-
ship with KFI. On his passing, Vergara took over that responsibility,
later succeeding Perez as the Union’s secretary-treasurer.
7 The General Counsel’s brief is in error when it asserts on p. 3
that Roberts was appointed trustee in July. That is the date when the
Chapter 11 petition was filed. Roberts had no involvement until the
conversion to Chapter 7.
III. ALLEGED UNFAIR LABOR PRACTICES
The facts are not in significant dispute. KFI has had a col-
lective-bargaining relationship with the Union since about
1971. It was a corporation whose stock was solely owned by
Carl C. Kanowsky. He was the corporate president. The
record does not reflect who the other corporate officers or
board members were except that at some point Herbert Zim-
merman became the vice president in charge of production.2
In addition, according to Kanowsky, there were several oth-
ers who had approximately equal authority with Zimmerman.
These were General Manager Bruce Minor, a controller
whose last name appears to be Scott,3 and Sales Manager
Charlie Nobeel.4 Kanowsky denied that Zimmerman was the
second highest ranked person at KFI after himself, saying
Minor was, though all were considered relatively equal in au-
thority. It does appear that Zimmerman was the person
through whom all labor relations matters were funnelled,
whether collective-bargaining negotiations or second-step
grievance processing. KFI also employed about 25 salesmen,
including Ron Hall and 2 foremen, Richard Reilly and Ray
Black. Reilly is Kanowsky’s former son-in-law. Finally, the
record does not reflect the size of the bargaining unit of fac-
tory employees at KFI, neither the normal complement nor
the number of employees as the bankruptcy began in the
summer of 1990.
The Union was aware of KFI’s precarious financial posi-
tion to some extent. In May, according to Union Steward
Rene Maxon, she, Union Business Agent Dave Erwin, and
Zimmerman held a meeting at the plant. At that time Zim-
merman informed Erwin that the Company was in financial
difficulty and sought to negotiate a 10-percent wage reduc-
tion during a remaining period of the collective-bargaining
agreement. Zimmerman explained, inter alia, that KFI was
trying to stay in business. The Union’s brief concedes that
a 10-percent wage reduction was agreed on, although
Maxon’s testimony does not actually support that conces-
sion.5
A short time later, according to another business agent,
Ulises Vergara, the Union’s now-deceased secretary-treas-
urer, Fred Perez, and he met with Kanowsky and the com-
pany controller at a restaurant in Vacaville.6 Although
Vergara was not acquainted with all the circumstances, he
says Kanowsky and Perez discussed KFI’s arrearage to the
health and welfare plan. During the meeting, according to
Vergara, KFI presented the Union with a check for some sort
of back payment to the plan. The arrearages nonetheless con-
tinued. At one point in the record Vergara intimates, but does
not exactly say, that he had several conversations with Zim-
merman after Perez died regarding money which KFI contin-
ued to owe the fringe benefit plans.
At about the same time, July 1990, KFI filed its original
bankruptcy petition under Chapter 11 of the Bankruptcy Act
seeking protection from its creditors and allowing it to reor-
ganize its finances. There is no testimonial evidence in the
record regarding the manner in which KFI continued to oper-
ate until the bankruptcy was converted to Chapter 7. There
is, however, a letter dated September 28, 1990, from KFI’s
attorney, Jane Dickson McKeag, to the Union’s attorney,
Timothy M. Schooley, in which she refers to the fact that
KFI during the Chapter 11 period was being operated as a
debtor-in-possession. On September 18, 10 days before
McKeag’s letter, KFI had shut down its business without any
advance notice, thereby triggering the Union’s concern.
That shutdown had caused Vergara, during a telephone
conversation with Zimmerman, to arrange a meeting with
Kanowsky and Zimmerman on September 24. During the
telephone conversation Zimmerman explained that the shop
had closed because the Company was ‘‘broke’’ and had no
money for the payroll. He said it had to ‘‘claim’’ bankruptcy
because there ‘‘wasn’t any money, period.’’ When the meet-
ing commenced on September 24, Vergara asked Kanowsky
what the Union could do to help keep the Company going.
Kanowsky, perhaps facetiously, asked if the Union had $1
million to help out with the payroll and other things. Vergara
replied the Union couldn’t do that, but asked if Kanowsky
had any other ideas. Kanowsky replied he did not. There is
no further evidence regarding what else, if anything, oc-
curred at that meeting.
Subsequently, on October 3, the Chapter 11 reorganization
proceeding was converted to a Chapter 7 dissolution. At that
time the bankruptcy court appointed John Roberts to be the
bankruptcy trustee.7 Roberts, a lawyer, is a specialist in
bankruptcy law and proceedings. The bankruptcy court often
uses his services as a bankruptcy trustee. (He also serves in
other capacities before that court.) Immediately on his ap-
pointment as trustee, Roberts took possession of the premises
and began searching for assets with which to pay, under the
Bankruptcy Act’s priorities, KFI’s creditors, presumably in-
cluding the health and welfare and pension plans. Among
other things, Roberts hired KFI’s billing clerk to operate the
company computer to search out accounts receivable. The
principal creditor was a factor, the Citizens & Southern
109KANOWSKY FURNITURE
8 There is no evidence in the record which shows when HNZ was
incorporated. Since Zimmerman had to find other work after the
conversion to Chapter 7, I infer that its incorporation did not occur
until well after the Chapter 7 proceedings began.
Commercial Bank, which had a secured interest in the ac-
counts receivable.
Since the date Roberts took possession of the factory and
all its office equipment, records, inventory, and supplies,
Kanowsky has not had any control of the facility, except as
a landlord. It appears that Kanowsky, as an individual, did
own the real property which comprised the factory. His only
dealing with the trustee was to claim rent for the building
while the trustee was in possession of it. Sometime later, on
a date not shown in the record, Kanowsky sold the building
to its current owner.
In January 1991, pursuant to the authorization of the bank-
ruptcy court, trustee Roberts conducted a 3-day public auc-
tion to sell all of the saleable assets of KFI in order to turn
them into money with which the creditors could be paid. He
hired Huisman Auctions, Inc., to perform that task. Although
the auction dates are not clear in the record (G.C. Exh. 6)
an auction purchase tally, bears a date of January 30, 1991,
and requires the purchaser to remove his acquisitions no later
than February 2. I presume from those dates that the auction
was held in late January. According to Roberts, the auction
netted sales of over $1 million.
Shortly after the bankruptcy action was converted to Chap-
ter 7, Zimmerman, who was out of work, took a job with
a firm called Stanton Industries in Oregon. He says he, like
other employees, filed a claim for back wages with the bank-
ruptcy court. He asserts he had nothing more to do with KFI.
As far as he knew, he says, it was out of business. Trustee
Roberts, in a somewhat different sense, concurs. He observes
that once the Chapter 7 dissolution commences, there is
nothing left to do but find assets, distribute them, and close
the case. It is virtually an irreversible process.
At some point, Zimmerman and Kanowsky got back to-
gether again. They decided to form a new corporation which
turned out to be HNZ. The testimony shows that they regard
it as an incorporated partnership. They are the only two
stockholders and officers. Zimmerman owns 51 percent of
the stock and Kanowsky 49 percent, although he seems to
have provided Zimmerman with an unsecured loan for
$17,000. It is not clear whether that money was used to pur-
chase stock, to fund the corporation, or to assist Zimmerman
in some other way.
On the formation of HNZ,8 Zimmerman became the chief
executive officer and Kanowsky the chief financial officer.
They both agree that Zimmerman is the more powerful of the
two, holding a majority interest in the corporation. It is not
clear, one way or another, whether Zimmerman put any
money into the corporation over and above the $17,000
which Kanowsky had lent him. Together they apparently put
$32,000 into the business. Even so, the day-to-day manage-
ment of HNZ is clearly in Zimmerman’s hands.
Zimmerman and Kanowsky attended portions of the public
auction in January 1991, knowing they were going to pur-
chase some of the equipment necessary to operate a factory
which would manufacture upholstered furniture, the same
product which KFI had manufactured. At that time Zimmer-
man and Kanowsky, through Richard Reilly, who apparently
did the actual bidding, purchased almost $53,000 worth of
equipment and supplies for Kanowsky. Kanowsky bought the
company automobile for himself. He put the remainder into
HNZ. Since the car was valued at $4000, the amount which
went to HNZ was $49,000. The purchase, according to the
tally, included the rights to the KFI trade name ‘‘Kanowsky
Furniture’’ (for $1300) and KFI’s furniture patents and pat-
terns (for $10,500). The remainder was for equipment and
furniture parts. In addition to Kanowsky’s purchases, accord-
ing to a stipulation, HNZ bought at the auction the factory
lift truck for $10,000.
It is unclear whether those purchases were made with the
$32,000 initial funding or whether the two principals were
making additional contributions to HNZ. Obviously, the
value of the purchases exceeded the amount of the initial
funding by almost $27,000. Whatever the internal arrange-
ments for those purchases were, it is apparent that the two
principals purchased only about 6 percent of the assets which
were sold at the auction ($1 million divided by $59,000 =
5.9 percent).
The testimony does not show the size of the employee
complement at either KFI or HNZ, although HNZ is consid-
erably smaller. It does show that KFI was sufficiently large
to employ a sales staff of as many as 25 salesmen and had
annual sales of about $20 million. HNZ has five salesmen,
only one of whom, Hill, worked for KFI.
It is true that HNZ currently manufactures upholstered fur-
niture at the same location which KFI had used. It also em-
ploys the same manufacturing techniques and some of KFI’s
designs. However, the frames, recliners, parts, and fabrics, as
well as the production methods which it follows, are standard
in the industry. Some 75–100 other upholstered furniture
manufacturers use the same techniques and parts.
HNZ does not currently sell to the same customers which
KFI had, although it does sell at wholesale to retail stores
as KFI did. Two of KFI’s main customers, Furniture 2000
and RB Furniture are out of business. Both were chains of
significant size. HNZ did not keep the national account with
J. C. Penney which KFI had held; HNZ now has only the
J. C. Penney store in Anchorage, Alaska. It does sell to one
store in the McMahan’s chain, but not the others as had KFI.
As noted, Zimmerman had been in charge of the KFI man-
ufacturing process in his capacity as vice president for manu-
facturing. As HNZ’s CEO he continues to oversee the manu-
facturing process since it is on a much smaller scale. He also
performs the administrative work which falls to that office,
something which he did not do at KFI. That was accom-
plished by Kanowsky. Zimmerman was the person at KFI
through whom all collective-bargaining and labor relations
matters passed; however, Kanowsky appears to have had the
final say. There is no evidence regarding who handles labor
relations at HNZ, other than inferring that Zimmerman as
CEO does it. It is a small company and it seems likely that
he would, but the record is silent on the point. Perhaps the
matter has not come up because HNZ has not yet recognized
any labor union. It is true that Zimmerman represents HNZ
in this litigation, but I do not think too much should be made
of that fact. Defending a matter before the Board pro se is
not a strong basis for concluding much beyond the obvious,
that as CEO he is fending off a lawsuit.
Finally, Reilly is the only line supervisor who has worked
in that capacity for both companies. He is and was in charge
110 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD
9 NLRB v. Burns Security Services, 406 U.S. 272 (1972), holding
that a successor employer is obligated to recognize and bargain with
the union representing the predecessor’s employees, but does not
have to assume the predecessor’s collective-bargaining contract with
that union.
10 Perma Vinyl Corp., 164 NLRB 968 (1967), enfd. sub nom.
United States Pipe & Foundry Co. v. NLRB, 398 F.2d 544 (5th Cir.
1968); Golden State Bottling Co. v. NLRB, 414 U.S. 168 (1973),
holding a successor employer liable to remedy the predecessor’s un-
fair labor practices in certain circumstances.
11 The General Counsel has cited a case holding that a Chapter 7
trustee is liable under the Act. A similar case is relied on and cited
therein. Both are summary judgment cases where inadequate answers
were filed to the complaint. The issue of the trustees’ status was not
litigated as in San Bernardino. I regard both those cases, Institute
of Technical Careers, 279 NLRB 811 (1986), and Ohio Container
Service, 277 NLRB 305 (1984), to have been superseded or sub
silentio overruled by San Bernardino. Even if not, they were decided
on procedural grounds whch do not apply here. They are certainly
not binding precedent on the issue of whether a Chapter 7 trustee
is an employer under the NLRA.
12 Also see an earlier case, Crawford Door Sales, 226 NLRB 1144
(1976).
of fabric cutting, sewing, and cushions. Although there is
some testimony that former supervisor, Ray Black has been
seen on the premises by former KFI employees, the testi-
mony was credibly denied. There is no evidence that Black
is involved in any way with HNZ. There is also some evi-
dence that Virginia Kanowsky, Carl’s wife, worked at HNZ
for about 3-1/2 months as an office worker. She had no sig-
nificant prior role at KFI, only accompanying Carl on his
business trips to trade shows when KFI was in operation and
serving as a company hostess at those events.
Finally, there is some unclear evidence relating to an indi-
vidual named Pat Driscoll. He worked for KFI in some sort
of supervisory capacity. He also owned certain lumber mill-
ing equipment. With the opening of HNZ, he became a sup-
plier of certain milled wooden parts. Such parts had pre-
viously been supplied to Sacramento from a KFI plant in
Virginia. Driscoll seems to serve now in multiple roles. He
is both a manufacturer and vendor to HNZ. In addition, he
has hire and fire authority within the HNZ operation and
serves as some sort of production supervisor over HNZ em-
ployees.
IV. ANALYSIS AND CONCLUSIONS
At this point it is appropriate to once again describe the
General Counsel’s theory, both to note what is included and
what is not. First, the General Counsel has clearly stated he
seeks a remedy based on HNZ’s apparent status as an alter
ego. He asserts rather clearly that HNZ is the disguised con-
tinuance of KFI. By the same token, he does not contend that
HNZ is a successor, under either Burns9 or Perma
Vinyl/Golden State,10 nor does he claim that HNZ and KFI
are a single employer. He seeks to declare HNZ the alter ego
of KFI and thereby bound to the same collective-bargaining
contract which KFI had signed with the Union, to require it
to reemploy the same employees, paying them back wages
from February 1, 1991, when HNZ opened for business to
the date they are reinstated, and paying the fringe plans from
that date.
Curiously, although the caption names KFI as the prede-
cessor, the complaint does not contend that KFI ever violated
the Act in any way. It does not assert that it unlawfully went
out of business or that it engaged in any other unfair labor
practices, such as failing to properly pay the fringe benefit
plans. There is no accusation, much less a finding, that KFI
has done anything improper under this Act. Indeed, there is
no contention that KFI sought to use the bankruptcy pro-
ceeding to avoid its obligations under the NLRA. KFI’s only
visible purpose to resort to bankruptcy is that which is nor-
mally seen, that it had become insolvent and unable to pay
its creditors. It made an unsuccessful attempt to reorganize
itself financially under Chapter 11 of the bankruptcy act, but
on that failure decided to liquidate itself under Chapter 7.
When that conversion occurred, Kanowsky was ousted from
the premises by trustee Roberts and he had nothing further
to do with the winddown. Indeed, about 2 weeks earlier the
plant had shut down entirely.
The question may then be posed: Of what entity is HNZ
the alter ego? It is true that the Board has held bankruptcy
trustees under Chapter 11 of the bankruptcy act to be alter
egos; after all they were continuing to operate the business,
albeit under court protection. Here, trustee Roberts had no
such authority. His only duty was to collect whatever assets
he could find and distribute them to the creditors. It has re-
cently been held that a Chapter 7 bankruptcy trustee is not
an employer within the meaning of Section 2(2) of the Act
and therefore not an alter ego of the prebankruptcy entity.
San Bernardino Dental Group, 302 NLRB 135 (1991).11
Therefore, if the entity as it existed prior to the creation of
HNZ was not an employer within the meaning of Section
2(2) of the Act, how can HNZ be its alter ego? I think the
question answers itself. HNZ cannot be the alter ego of a
nonemployer.
Does that mean that the complaint envisions the prede-
cessor to be the entity which preceded the bankrupt estate,
the pre-Chapter 7 version of KFI? Apparently so, since there
is no other 2(2) employer to be seen. Yet, as noted, there is
no contention that this Employer, KFI, has done anything ex-
cept to fail as a viable business. Furthermore, since the Gen-
eral Counsel contends, as part of his alter ego theory, that
HNZ is the disguised reincarnation of KFI, the question
which poses itself is why a disguise would be necessary.
After all, being forced into bankruptcy dissolution due to le-
gitimate business reverses is not a motive to become deceit-
ful when starting anew. In this regard, I note that one of the
factors which the Board considers when determining alter
ego status is whether the putative alter ego was created for
the purpose of evading responsibilities under the Act. How-
ever, before attempting to answer that question, I shall turn
to the test for alter ego status as the Board has recited it.
The Board set forth its current test for alter ego status in
Fugazy Continental Corp., 265 NLRB 1301 (1982).12 In that
case it listed the various factors to which it would look to
determine if one employer is the alter ego of another. The
test requires an examination of the following factors:
1. Ownership; do they have common ownership and
management;
2. Do they have a common business purpose;
3. How does the nature of their operations and super-
vision compare;
4. Do they utilize the same or common premises or
the same equipment;
111KANOWSKY FURNITURE
13 Roberts, as trustee, had hired an accountant and appears to have
had access to KFI’s general ledger. He was also aware that HNZ
had purchased assets at the auction. To his view, HNZ was making
a permissible ‘‘clean start,’’ consistent with the rehabilitative aims
of the Bankruptcy Act.
14 See Cowans, Bankruptcy Law and Practice (1987), Vol. 1, ch.
1, § 1.2 at 16, ‘‘Bankruptcy Court & Jurisdiction.’’ The author
quotes the legislative history of bankruptcy code § 1471(b) (now
§ 1334(a)) as saying: ‘‘The bankruptcy court is given in personam
jurisdiction as well as in rem jurisdiction to handle everything that
arises in a bankruptcy case.’’
15 11 U.S.C. § 727(a)(1).
5. Do they have customers in common; i.e., is it the
same business in the same market;
6. What is the nature and extent of the negotiations
and formalities surrounding the transaction;
7. Was the putative alter ego created for legitimate
purposes or was it to evade responsibilities under the
Act.
None of these factors by itself is controlling. They are to be
taken as a whole and a determination made based on the to-
tality of the answers.
Most of the factors may may be dealt with rather rapidly.
With respect to ownership, it has been shown that Kanowsky
was the sole owner of KFI. He is only a minority holder in
HNZ. The majority owner of HNZ is Zimmerman who had
no ownership interest in KFI. There is an unclear debt rela-
tionship between Zimmerman and Kanowsky, apparently an
unsecured loan of $17,000 made at the time HNZ was
formed.
Both KFI and HNZ have the same business purpose, the
manufacture of upholstered furniture and selling the product
at wholesale to retail stores.
The nature of their operations and management is mark-
edly different. First, HNZ is much smaller than KFI. Second,
Zimmerman has administrative responsibilities with HNZ
which he did not have with KFI. Kanowsky is now the chief
financial officer of HNZ. Previously he had been the cor-
porate president of KFI; financial responsibilities at KFI rest-
ed with another. Supervision is somewhat different. Zimmer-
man was and is responsible for production at both compa-
nies. However, he has the added administrative duties men-
tioned above. One of the first-line supervisors, Reilly, holds
the same job at HNZ which he held at KFI. Another super-
visor, Driscoll, seems to have become a combination
supervisor/entrepreneur at HNZ; his KFI duties have not
been clearly shown.
Both businesses are or were conducted from the same
premises. And, although at least some of the equipment, pat-
terns and designs are the same, HNZ purchased them at the
bankruptcy auction. Moreover, the market and customers are
somewhat different. Due to the smaller volume of production
at HNZ, it has not sought to sell in the same quantity to
large retail chains. Some of KFI’s major customers no longer
exist. I think it is fair to conclude that although HNZ is in
the same business as KFI, it is not in the same market.
The formalities of the ‘‘transition,’’ if it may even be de-
scribed by that word, are forceful. Some of the initial equip-
ment, including the trade name, the patents and designs were
purchased on the open market at a bankruptcy court ordered
public auction. Even so, the purchase consisted of only about
6 percent of the entire sale offering. HNZ did not acquire
KFI lock, stock, and barrel. It only purchased a small por-
tion. The remainder of the bankrupt estate went to unrelated
purchasers, and the amount HNZ did purchase came not
from KFI, but from the bankruptcy trustee. This is an arm’s
length transaction in its purest sense. It could not be more
formal.
Finally, there is no evidence that KFI, through Kanowsky,
was attempting to evade its responsibilities under the Act by
filing for bankruptcy—either its initial Chapter 11 filing or
its subsequent conversion to Chapter 7 liquidation. Even if
one assumes, as the General Counsel does, that unionization
can become a burden significant enough to motivate an em-
ployer to want to oust it as the employees’ representative, it
does not follow that such an employer would allow its credi-
tors to swallow it whole, the necessary result of a Chapter
7 proceeding. If bankruptcy proceedings were being used as
a means of evading NLRA responsibilities, Chapter 11 would
be the more likely vehicle, as it would allow for reorganiza-
tion and continued existence. Chapter 7 has the unfortunate
result of throwing the baby out with the bath water. It is
most unlikely that a large employer would do that simply to
avoid a union with whom it has dealt for many years. It
would resort to that step only if it had no other choice. Zim-
merman’s remark to Vergara in their September telephone
call suggests exactly that—‘‘We’re broke . . . [there isn’t]
any money, period.’’ That was followed by Kanowsky’s plea
for $1 million during the meeting itself, additional evidence
that Chapter 7 was an imperative.
Second, HNZ made no attempt to disguise itself on its for-
mation. It knew its most valuable asset was the Kanowsky
Furniture trade name and it intended to use it to advantage.
That name carried a reputation within the industry which was
easily recognizable, not only to attract potential customers,
but by the very union with whom the predecessor had had
a long relationship. The name hardly offered refuge from the
Union unless one thinks HNZ was hiding in plain sight. Be-
yond that, HNZ was in exactly the same physical plant as
the predecessor.
Thus, the likelihood that HNZ was created to evade the
Union is very low. I recognize, however, that there still ex-
ists the bare possibility that the Chapter 7 proceeding was
used to circumvent KFI’s obligations under the NLRA. If so,
it was the General Counsel’s duty to present proof that the
Chapter 7 proceeding was fraudulent—not only on the
Union, but on the bankruptcy trustee. Assets would have to
be hidden from the trustee and would thereafter have to be
reentered into the alter ego. Trustee Roberts said he had no
reason to believe that asset secreting or bidding collusion at
the auction had occurred; he had even taken a second look
because of the instant action.13 In addition, the General
Counsel has not even offered independent evidence of mis-
conduct of that nature.
Absent some proof that fraud has occurred, I can find no
warrant to conclude that the Chapter 7 proceeding was any-
thing but regular. I should note here that bankruptcy pro-
ceedings are considered to be both in rem and in personam,
depending on what the sought-for order is.14 It is true that
under that statute (the 1978 amendments) corporations are
not discharged from debt, only liquidated.15 Even so, the
procedure notifies the world, for it is in rem, that the busi-
ness life of the debtor corporation has ended. The Union here
112 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD
16 In Re Goodman; Goodman v. NLRB, 873 F.2d 598 (2d Cir.
1989).
17 Under the Bankruptcy Amendments and Federal Judgeship Act
of 1984 (28 U.S.C. § 151 et seq.) the bankruptcy courts are estab-
lished as ‘‘a unit of the district court.’’ As such they serve as a unit
of an art. III court.
actually knew that on an in personam basis, as its members
are wage claimants, as well as on in rem grounds. The Board
is charged with knowledge on an in rem predicate. By that
observation I do not say that the corporation has been dis-
solved as a legal entity. That is a matter for the incorporating
authority, the state of incorporation.
In this regard, I do not regard the Goodman case16 to be
particularly helpful. First, that case involved successorship
issues which fall into the Perma Vinyl/Golden State suc-
cessor category. The predecessor corporations there had been
found guilty of unfair labor practices which had not been
remedied before they and the owner, Goodman, sought
Chapter 7 relief. Under that category, the court found the
Board was entitled to determine if the successor was one
which should be obligated to provide the remedy. That is
quite unlike this case where the predecessor has not even
been charged with, much less found to have committed, un-
fair labor practices. This case does not involve Perma
Vinyl/Golden State remedy issues. The court does use the
term ‘‘alter ego’’ but in a remedial context. It does not de-
fine the term very well, but because it is speaking of rem-
edying the prior unfair labor practices of the other corpora-
tions, I conclude it was using the term relatively interchange-
ably with ‘‘successor’’ in the Perma Vinyl/Golden State
sense. If one does not define it that way, then the case defies
logic. Compare the case which it cites, NLRB v. Better Bldg.
Supply, 837 F.2d 377, 379 (9th Cir. 1988). Accordingly, I do
not believe Goodman assists in resolving the alter ego issues
presented here.
Second, one of the three Chapter 7 bankruptcy proceedings
on which the respondent relied in Goodman was a personal
discharge. It necessarily did not affect the newly formed cor-
poration. There is no personal discharge involved here.
Finally, the court observed that no conflict between the
two acts would occur so long as the Board did not seek to
make Goodman personally liable for his prebankruptcy peti-
tion conduct. It is only on that point that Goodman offers
any assistance. The alter ego theory as applied here nec-
essarily looks back to the prepetition status of the employer.
The General Counsel points to the old collective-bargaining
contract and seeks to apply it to the alter ego on a prospec-
tive basis. It is at that point that the Goodman court would
have difficulty. It said: ‘‘It is possible that in resolving the
successorship issue the Board, though ostensibly examining
post-petition conduct, might take into account some aspect of
pre-petition conduct. If that occurs and remains uncorrected
on a petition for review, the exercise of the Board’s jurisdic-
tion would to that extent have made an inroad on the juris-
diction of the Bankruptcy Court.’’ 873 F.2d at 603.
The risk the General Counsel takes by insisting upon an
alter ego, as opposed to a Burns or a Perma Vinyl/Golden
State successor, theory is that by definition, the alter ego is
deemed to be the same entity as the predecessor, usually in
disguised form. If that is so, then in determining the alter ego
status of the new company, the Board must necessarily look
to the predecessor to compare it with the new. If, in order
to do that, it must climb over a Chapter 7 bankruptcy pro-
ceeding, it will encounter a significant hurdle. Goodman
holds in a remedial successorship context that can be done.
It is certainly easier to do it now that corporations no longer
receive a discharge of their debts.
But alter ego is different. In the context presented here the
General Counsel assumes that the debtor has done something
deceitful; that it has used the bankruptcy proceeding to evade
obligations under the Act. That assumption is untenable, for
a Chapter 7 action must be presumed to be regular. It is a
court procedure entitled to respect under both article I, Sec-
tion 8 and article III of the Constitution.17 I think it likely
that the Goodman logic would bar that reach, even though
if allowed perhaps all it would find would be a collective-
bargaining contract in disuse, disabled by the lack of em-
ployment. On that latter point, see J. I. Case Co. v. NLRB,
321 U.S. 322, 334 (1944) (collective-bargaining contracts
only regulate employment, they are not contracts of employ-
ment). Also see NLRB v. Better Bldg. Supply, supra, which
takes a different tack, that a corporate obligation created by
violating the NLRA survives Chapter 7, awaiting only the
corporation’s recommencement of business before it can be
collected.
Those cases do not squarely answer the question of wheth-
er a collective-bargaining contract which has not been
breached, or a collective-bargaining relationship which has
not suffered any unfair labor practices, survive Chapter 7 dis-
solution. However, I need not squarely decide that issue, al-
though I must say that the Board cannot entirely ignore the
intervention of that process. In this regard, former Member
Penello made some cogent remarks in his dissent in Inter-
national Technical Products, 249 NLRB 1301, 1304–1307
(1980), regarding the comity which the Board should give
proceedings under the bankruptcy act. Whatever the final
balance between the two acts may be, totally ignoring regular
bankruptcy proceedings is not it.
It is enough here that the Fugazy Continental alter ego
rules have been invoked and the facts measured against
them. In doing so, I conclude that the General Counsel has
not demonstrated that HNZ is the alter ego of KFI. I specifi-
cally note and rely on the Board’s analyses in Gilroy Sheet
Metal, 280 NLRB 1075 (1986), and First Class Maintenance
Service, 289 NLRB 484 (1988). In Gilroy the original firm
had been owned by a wife, although the husband was in fact
the principal operator. It had been put in the wife’s name for
the purpose of avoiding a union rule against members own-
ing businesses. The business began to fail, illness befell them
both and marital difficulties ensued. After they separated, the
husband opened the putative alter ego an as nonunion con-
tractor. It was his trade and the only way he knew to make
a living. The Board found the new company not to be an
alter ego as there was a different owner and there was no
hostility toward the union as no attempt to evade had been
shown. The new firm had been created as a result of the di-
vorce and the failing health of the previous owners. Further-
more, it took over none of previous company’s work. With
respect to the formality of the change, although the separa-
tion did not divide the company (the wife dissolved the it 3
months after they separated), it did create an entirely new at-
mosphere for the establishment of a new company. That is
113KANOWSKY FURNITURE
18 If no exceptions are filed as provided by Sec. 102.46 of the
Board’s Rules and Regulations, the findings, conclusions, and rec-
ommended Order shall, as provided in Sec. 102.48 of the Rules, be
adopted by the Board and all objections to them shall be deemed
waived for all purposes.
not unlike the new atmosphere brought about by the Chapter
7 bankruptcy here.
First Class Maintenance, supra, even more strongly favors
a finding of no alter ego. In that case, a property manager
told its unionized janitorial service that its next bid would
have to be on a nonunion wage rate basis. The owners of
the janitorial service knew they would not be able to match
the bid of a nonunion competitor. Their 20-year-old son, em-
ployed as a supervisor and who had 6 years’ experience in
the field, decided to bid on the job himself, creating the new
company to do it. His parents donated $2500 in equipment
and he provided $3200 of his own savings. He operated the
business from his parents’ home, hiring some of the parents’
employees but others of his own. Despite the fact that his
firm met many of the Fugazy Continental commonalty tests,
the Board held that the new firm was not the alter ego of
the unionized firm. The Board noted that the second com-
pany was created for legitimate purposes, the ownership was
different (even though there was a family relationship and
the parents supported their son financially but were not
shown to have had economic control) and there was no evi-
dence that the new firm was created to evade responsibilities
under the Act. I also note that the son’s firm, like HNZ,
seemed underfunded. However, underfunding itself is not a
concern except to the extent it may indicate an evasive pur-
pose. In neither case is there any other evidence of such a
purpose.
In First Class Maintenance, supra, the Board also cited
Victor Valley Heating & Air Conditioning, 267 NLRB 1292
(1983), as support for dismissal of the alter ego claim. How-
ever, that case, at 1297, also stands for the proposition that
if there is no perceived benefit to the predecessor from the
creation of the putative alter ego, that fact also mitigates in
favor of rejecting the alter ego contention. I note here that
there is no evidence that KFI, or Kanowsky personally, ob-
tained a benefit by KFI’s being dissolved in Chapter 7.
Therefore, following Victor Valley, I find that the absence of
proof of benefit to the predecessor favors a finding that no
alter ego exists here.
After weighing all the factors, it appears to me that the
General Counsel has failed to demonstrate that HNZ is the
alter ego of KFI. There simply are not sufficient common
circumstances to show that there is any continuity, much less
a disguised continuance of the business.
Based on the foregoing findings of fact and analysis, I
hereby make the following
CONCLUSIONS OF LAW
1. Respondent Herbert N. Zimmerman, Inc., d/b/a
Kanowsky Furniture is an employer within the meaning of
Section 2(2) of the Act.
2. The Union is a labor organization within the meaning
of Section 2(5) of the Act.
3. The General Counsel has failed to prove that Herbert
N. Zimmerman, Inc., d/b/a Kanowsky Furniture is the alter
ego of Kanowsky Furniture, Inc.
On these findings of fact and conclusions of law and on
the entire record, I issue the following recommended18
ORDER
The complaint is dismissed.