National Book Consolidators, Inc., in 81-1588 v. National Labor Relations Board, National Labor Relations Board, in 81-2295 v. Adp Transport Corp.

672 F.2d 323, 109 L.R.R.M. (BNA) 3035, 1982 U.S. App. LEXIS 21541

• Court: Court of Appeals for the Third Circuit
• Decided: February 23, 1982
• Docket: 81-1588, 81-2295
• Status: Published

Opinions

OPINION OF THE COURT

PER CURIAM.

Judgment based upon default is a procedural mechanism that can have serious adverse effects on the nonresponding party. The harshness of this device is vividly demonstrated in this case where the National Labor Relations Board entered judgment against respondents for failing to file an answer to a complaint issued against them. The Board thereupon ordered, among other things, that the company reopen its facility, rehire terminated employees, and awarded backpay to the employees. This was done despite the fact that the union that filed the original charge had requested that it be withdrawn.

At the instance of Local 804, International Brotherhood of Teamsters, Chauffeurs, Warehousemen & Helpers of America, General Counsel of the National Labor Relations Board issued a complaint on August 3, 1979, charging respondents APD Transport Corporation and its alleged alter ego, National Book Consolidators, Inc., with unfair labor practices. The complaint maintained that APD wrongfully ceased operations in New York, moved to New Jersey, and carried on its activities there under the name of National Book Consolidators, Inc.

Mr. Irwin Horowitz, counsel for the respondents, wrote to the regional director of the NLRB on August 16, 1979, asking for an extension of time to file an answer. He explained that his request was “predicated upon the fact that the matter has been settled and appropriate papers are now being drawn” to reduce the terms to writing. In response, the regional director issued an order which read: “Counsel for Respondent, by letter, requested an extension of time to file an Answer because of the probability of a settlement between the parties, and the matter having been duly considered, IT IS HEREBY ORDERED that the time for filing an Ansv/er ... be ... extended to September 16, 1979.”

Respondents counsel later requested an additional ten day extension by telephone. He wrote a letter on September 17 to confirm the telephone conversation with the regional director as to the agreement to enlarge the time. In it, Mr. Horowitz also stated, “We hope to have the settlement papers executed by all parties prior to that date.” The regional director then issued an order in the same form as that signed in August, extending the time for filing to September 27, 1979.

On October 26, 1979, Ms. Marguerite R. Greenfield, counsel for General Counsel, wrote to respondent’s lawyer and stated that unless an answer was filed by October 31, she would seek summary judgment. On October 30, 1979, Mr. Horowitz, in a letter to General Counsel’s office, replied:

“James V. Morgan, the attorney for the Petitioner [Local 804] in the above-captioned matter has advised that the Complaint would be withdrawn. The Settlement Agreement has been signed as per our telephone discussions.

“I would appreciate it if you would mark your records accordingly.”

Counsel for General Counsel did not respond to this letter until January 3, 1980, when she telephoned Mr. Horowitz and as she conceded, “[A]t which time I advised him of the Charging Party’s continued failure to request withdrawal and of my intention to file immediately for summary judgment.”

On January 8, 1980, counsel for Local 804 sent a letter to the regional director, asking that the charges against respondent be withdrawn. The letter also set out the general terms of the settlement which had been reached. On that same day, however, General Counsel mailed a motion for summary judgment to the Board in Washington. The union’s letter had not yet been received when the motion was submitted.

Even after receipt of the withdrawal notice, however, General Counsel’s office did not rescind its action in asking for summary judgment. To the contrary, on February 12, 1980, Ms. Greenfield sent a letter to the Board opposing the union’s withdrawal request. In it, she asserted for the first time in any record document “[t]hat a settlement agreement between the parties had been executed is no defense to Respondent’s failure to file an Answer, particularly where the General Counsel is not a party to the settlement and where Respondent, for three (3) months after its execution, despite repeated extensions of time, filed no Answer and made no attempt to otherwise resolve the matter.”

On February 15,1980, respondent filed an answer, accompanied by a letter stating:

“This Answer would have been filed within time, and prior to this date, had it not been for the fact that the issues set forth in the Complaint and Notice of Hearing had been resolved in October, 1979, by the signing of a formal settlement agreement ... On a number of occasions we have reported to your office that a settlement had been agreed upon and signed and on a number of occasions the attorney for the Union, James V. Morgan, has requested that the Complaint be withdrawn.”

Horowitz’s firm then asked that a meeting of counsel be held under the auspices of the regional director to resolve the matter, a suggestion that was apparently declined.

On that same date, counsel for the union wrote to the Board, reaffirming that the company’s counsel had satisfactorily negotiated a settlement with the union. The union’s position was that:

“Respondent, in good faith, believed that settlement with Local 804 and withdrawal of the charges would make further proceedings, including an answer to the complaint, unnecessary . . . Under the circumstances, it would be unfair and inequitable to deny respondent an opportunity to answer the complaint and to defend the case on the merits. For the foregoing reasons, Local 804 urges the Board not to grant the motion for summary judgment herein upon default.”

Two weeks later, the Horowitz firm withdrew its appearance. Present counsel was substituted and undertook informal, although ultimately unsuccessful, efforts to have the motion for summary judgment withdrawn. Additional motions and responses were filed by the parties over a period of months through September 17, 1980. Included among the documents filed was an affidavit by Mr. Horowitz, in which he asserted that counsel for the General Counsel had led him to believe that if APD and Local 804 settled their differences, National Book Consolidators would be unaffected by the proceedings and would not be required to file an answer. He also stated that he had advised counsel for General Counsel “at all times . . . that National Book Consolidators, Inc. had no substantive knowledge of the basic dispute between APD and Local # 804 and indicated that National Book Consolidators, Inc. denied all of the allegations against it in the Complaint.”

Other material in the record indicates that whether National Book Consolidators is actually the alter ego of APD Transport is a strongly contested factual issue. In addition, it is alleged that APD was not guilty of any wrongdoing. The record does demonstrate therefore the assertion of a meritorious defense on the substantive issues. Moreover, it is argued that dire consequences will befall National Book Consolidators from the remedy the Board imposed after the default, since APD is defunct.¹

Nevertheless, the Board granted summary judgment based on respondent’s failure to file a timely answer, stating, “Although respondent’s motion and opposition to the Motion for Summary Judgment were filed in a timely fashion, Respondent gave no explanation for its failure to file a timely answer to the complaint.” Respondent’s motion for reconsideration was later denied.

As we held in Livingston Powdered Metal Company v. NLRB, 669 F.2d 133 (3d Cir. 1982), the Board must utilize a “good cause” standard in determining whether to accept filing of an answer. We are in agreement with the statement of the court in NLRB v. Zeno Table Co., 610 F.2d 567, 569 (9th Cir. 1979), that “[t]he purpose of the ‘good cause’ standard ... is to ensure that the Board makes decisions on the merits despite technical and inadvertent noncompliance with procedural rules.” (footnote omitted).

The Board has imposed a far-reaching remedy upon National Book Consolidators here, based solely on the conclusion that it is the alter ego of APD Transport and, therefore, responsible for that company’s alleged unfair labor practices. Although National Book Consolidators has advanced strong defenses to those contentions, they will go unheard under the Board’s default order.

This case is unique in that Local 804, an adversary, has nevertheless come to respondent’s defense and urges that if the settlement is not acceptable, the matter be decided on the merits. That advocacy in itself weighs heavily in favor of accepting the answer for filing.

We are puzzled by the Board’s comment that respondent gave no explanation for the failure to file an answer. The documentary evidence in the form of correspondence and orders of the regional administrator demonstrates that the reason the extensions in time were granted was that settlement negotiations were being conducted. It was not until February 12, 1980 that General Counsel first asserted that execution of a settlement agreement was not a defense to failure to file an answer. If this had been the position of the Board, it should have so stated in the autumn of 1979 and refused its consent to the delay in filing an answer.

Granting time extensions because of assertions of probable settlement unquestionably could be taken as an acknowledgement that an answer would be unnecessary if the case were in fact amicably resolved. The position taken by General Counsel in February 1980 was inconsistent with the conduct of the regional director in the early stages of the proceeding, and should have been recognized as such by the Board.

We are even more perplexed by Ms. Greenfield’s assertions that respondent “filed no Answer and made no attempt to otherwise resolve the matter.” (emphasis added). A negotiated settlement, under terms the union conceded were the best obtainable under the circumstances, clearly is evidence of a successful attempt to resolve the matter. Counsel for respondent continually kept the General Counsel’s office informed of the progress of the settlement negotiations, and there is no basis for the contention that respondent made no attempt to resolve the matter.

After counsel for General Counsel wrote on October 26, 1979, that an answer must be filed, respondent replied by stating that the union would be withdrawing its complaint. General Counsel did not take exception to this letter, a silence which would reasonably indicate acquiescence in the belief that an answer would not be necessary in this event. Similarly, Ms. Greenfield stated that when she called Mr. Horowitz on January 3, 1980, she complained that the union had not yet filed its request for withdrawal. Thus, it was not the respondent’s lack of diligence that triggered the filing of the summary judgment motion in January, but rather the union’s failure to file its withdrawal, a matter which it remedied within a few days.²

In sum, Respondent was lulled into the belief that a settlement would be acceptable in lieu of an answer. It is true that Respondent Book Consolidators could have avoided the problem if it had filed an answer without waiting for a settlement by APD. But, under all the circumstances here, particularly where the reason for lack of compliance with the rules was not respondent’s inaction but that of its adversary, as well as the regional director’s conduct, “good cause” was shown to justify the late filing. A default should not have been entered and instead the matter should have been resolved on the merits. Injustice through a default is a fault that must be avoided by courts and agencies alike.

Under the Board’s procedure, the failure to file a timely answer produces a summary judgment. In the district court by contrast, generally after entry of a default, notice is given of a hearing to determine the scope of relief. At that time even though liability has been established, the defaulting party is given an opportunity to be heard on either the amount of damages or the scope of injunctive relief.

Thus, the entry of default by the Board is an even more drastic step than that which occurs in a trial court. Consequently, when seeking to invoke the equitable powers of this court to issue an enforcement order in cases of this nature, the Board may expect a searching inquiry from us. If the district court processes can tolerate the requirement that a defaulting party be given an opportunity to be heard on the scope of relief, we have difficulty in understanding why the Board’s could not as well.

The inflexible attitude of the Board here has unfortunately caused this dispute to linger on too long. Given the parties’ demonstrated willingness to engage in good faith negotiations, it seems likely that the matter could have been settled in February 1980, had the Board accepted respondent’s suggestion to conduct a settlement conference.

Because we conclude that it was error to refuse to accept the answer, we do not meet respondent’s contention that the Board should have approved the settlement negotiated by the parties on October 4, 1979.

The petition for review will be granted and the cross petition for enforcement will be denied. The case will be remanded to the Board for further proceedings consistent with this opinion.

1 . The president of APD wrote to the clerk of this court stating that the company is defunct, without assets, and lacks means to retain counsel or comply with the Board’s order.

2 . The reason for the union’s delay is not demonstrated in the record. We do note, however, that the fund for settlement was created by assignment of accounts due APD and other money placed in escrow. Because APD was going out of business, it may be that the financial arrangements were difficult to conclude promptly. In its letter of February 15, 1980, counsel for the union wrote, “Local 804 believes that the agreement it negotiated with APD is the best obtainable under all the circumstances of this case. Counsel for the General Counsel’s wholly unrealistic position seeking remedies which we believe will prove unenforceable can only serve to frustrate and unnecessarily delay resolution of this matter.”