USCA1 Opinion
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
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No. 93-2026
NATIONAL LABOR RELATIONS BOARD,
Petitioner,
v.
HOSPITAL SAN RAFAEL, INC.,
AND CENTRO MEDICO DEL TURABO, INC., AND ITS SUBSIDIARIES,
TURABO MEDICAL CENTER LIMITED PARTNERSHIP AND
HOSPITAL INTERAMERICANO DE MEDICINA AVANZADA,
Respondents.
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ON APPLICATION FOR ENFORCEMENT OF AN ORDER OF
THE NATIONAL LABOR RELATIONS BOARD
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Before
Breyer,* Chief Judge,
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Boudin and Stahl, Circuit Judges.
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David A. Grant with whom Betty Southard Murphy, Jean H. Baker,
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Baker & Hostetler, Heber E. Lugo-Rigau and Ledesma, Palou &
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Miranda were on brief for respondents.
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Fred L. Cornnell with whom Frederick C. Havard, Supervisory
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Attorney, Daniel Silverman, General Counsel, Linda Sher, Acting
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Associate General Counsel, and Aileen A. Armstrong, Deputy
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Associate General Counsel, National Labor Relations Board, were
on brief for petitioner.
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December 12, 1994
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*Chief Judge Stephen Breyer heard oral argument in this matter,
but did not participate in the drafting or the issuance of the
panel's opinion. The remaining two panelists therefore issue
this opinion pursuant to 28 U.S.C. 46(d).
BOUDIN, Circuit Judge. This is a difficult labor-law
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case made even more difficult because the pertinent doctrines
have confusing labels, overlap with one another and
occasionally mutate. We begin with the facts and procedural
history, and then address the legal issues and the claims of
error.
I.
For many years, Hospital San Rafael, Inc., ("San
Rafael") operated a neighborhood hospital in Caguas, Puerto
Rico. In 1978, two doctors--Jaime Soler and Jose Badillo--
bought somewhat over 80 percent of San Rafael's stock; Soler
owned about 70 percent of the joint holdings and Badillo
about 30 percent. The doctors then hired Joaquin Rodriguez
as the hospital's president. These three individuals
comprised the hospital's board.
San Rafael was in poor financial shape, and in mid 1978
the Puerto Rico health authorities said that the hospital
would have to remedy problems in its physical plant or lose
its eligibility to treat Medicare patients. Medicare
patients accounted for almost half of the hospital's
occupancy. Soler, Badillo and Rodriguez began to discuss the
construction of a new hospital. It was conceived that a new
corporation would be established, partly because San Rafael
itself could not obtain loan funds, and in addition the new
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hospital was expected to be more than a local hospital and to
draw patients from the Caribbean basin.
Centro Medico was created in August 1978 to operate the
proposed new hospital under the name Hospital Interamericano
de Medicina Avanzada ("Hospital Interamericano"). In 1981,
Soler had 40 percent of the shares, Badillo 20 percent and
Rodriguez 20 percent. Ultimately, Soler's ownership was
reduced to 38 percent, Badillo and Rodriguez each owned about
19 percent, and 19 percent was acquired by Carlos Pineiro, a
longtime associate of Rodriguez. From the start Rodriguez
was Centro Medico's president, and Soler and Badillo were
among the board members.
At various times, Rodriguez spoke about the new hospital
as if it were an expansion of San Rafael, and San Rafael made
interest-free cash advances for the construction of the new
hospital and took other steps to support its development.
San Rafael was granted a waiver as to its Medicare
deficiencies because of the plans to open a new hospital.
Later, San Rafael agreed to surrender its own license to
operate a hospital, in order to facilitate the licensing of
the new hospital.
San Rafael ceased operation on November 14, 1988. On
November 18, 1988, the new Centro Medico hospital, operating
as Hospital Interamericano, opened to the public. Rodriguez,
Soler and Badillo continued to hold their prior positions.
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Pineiro, who since 1987 had been responsible for labor
relations at San Rafael, became the new hospital's executive
vice president. A majority of the supervisors of San Rafael
and most of the other employees transferred to the new
hospital.
Against this background labor disputes developed that
led to the present litigation. In January 1984, the Union
Nacional de Trabajadores de la Salud, Local 1199 ("the
union") became the certified collective bargaining
representative of two units of San Rafael employees: a
professional unit (e.g., registered nurses) and a technical
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unit that included other employees. San Rafael and the union
entered into an agreement effective from September 1, 1984,
to August 31, 1987, also agreeing that this contract would
continue until a new contract replaced it.
San Rafael employee Milton Suarez had been a leader in
the organization of the union and had been discharged for his
organizing activities, although later reinstated. Suarez
helped negotiate the September 1984 contract and became the
union's chief steward. In 1985, Suarez began to question San
Rafael about the effect that the planned new hospital would
have on job security. On August 30, 1985, Rodriguez issued a
memorandum to San Rafael employees stating "on behalf of
Hospital San Rafael and of Centro Medico del Turabo" that the
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employees would be "transferred" with the same salary and
benefits to the new hospital.
In May 1987, the union sought to begin negotiations for
a new contract and proposed an agreement naming both San
Rafael and Centro Medico as parties. San Rafael indicated
that Centro Medico would not recognize or bargain with the
union because it was certified only to represent San Rafael
employees. The National Labor Relations Board (the "Board"
or "NLRB") issued a complaint charging that San Rafael and
Centro Medico were a single employer and alter egos, and had
unlawfully refused to bargain with the union over the
inclusion of Centro Medico.
The union reached separate settlement agreements with
San Rafael and Centro Medico in May 1988. San Rafael agreed
to negotiate in good faith with the union, and Centro Medico
promised to hire on a nondiscriminatory basis and to retain
95 percent of San Rafael's employees to work at the new
hospital; Centro Medico stipulated that it was not thereby
agreeing to recognize the union. The union, in exchange for
the settlements, withdrew its unfair labor practice charges,
and the NLRB then withdrew the complaint.
Negotiations between the union and the two hospitals did
not prove fruitful. In October 1988, the union filed a
petition with the NLRB seeking to have the settlement
agreements set aside, and the pre-agreement unfair labor
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practice charges reopened, because San Rafael had not
complied with the settlement agreement. In August 1989, the
district court granted a preliminary injunction requiring
Centro Medico to bargain in good faith, and this court
affirmed. See Asseo v. Centro Medico del Turabo, Inc., 900
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F.2d 445 (1st Cir. 1991).
From the outset in 1988, the new Centro Medico hospital
claimed that it was free to alter working conditions at will
and that it need not recognize the union. Although most San
Rafael employees were hired by the new hospital, Suarez was
not. Neither were four other employees who had been closely
connected with union activities and acted at one time or
another as union stewards. In these five cases the new
hospital did not formally refuse to hire the employees;
several were told that their applications were under review,
but Centro Medico then took no official action on the
applications.
In December 1989, the union filed new unfair labor
practice charges. These included charges that both hospitals
had failed to bargain in good faith and had engaged in unfair
labor practices by refusing to hire the five union-related
employees. A Board complaint was filed in February 1989. On
May 4, 1989, an administrative law judge entered an order
conditionally setting aside the settlement agreements,
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reinstating the old charges and consolidating them with new
ones. Hearings were held between May 1989 and May 1990.
On June 19, 1991, the ALJ found that San Rafael and
Centro Medico were alter egos and comprised a single
employer; alternatively, Centro Medico was found to be a
successor employer to San Rafael. The ALJ found that the San
Rafael settlement agreement had been entered into in bad
faith and should be permanently set aside. The ALJ also
found that the hospitals had violated their duty to bargain,
29 U.S.C. 158(a)(5), and Centro Medico's failure to hire
four of the five employees was also found to be wrongful.
Id. 158(a)(3).
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On review, the Board, acting through three members,
found that the two hospitals were a single employer and alter
egos but did not reach the successor-employer issue. The
Board agreed with the ALJ that the hospitals had improperly
failed to bargain with the union and that Centro Medico had
unilaterally changed employee working conditions. Failure to
rehire all five employees was found to be improper. By a
divided vote, the Board held that the San Rafael settlement
agreement was properly set aside.
The Board entered a remedial order containing specific
provisions designed to compel Centro Medico to bargain and to
provide redress for the five employees. The Board order also
broadly forbade future infringement of worker rights
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protected under "section 7." 29 U.S.C. 157. The Board
then filed in this court the present application to enforce
its order. 29 U.S.C. 160(e). The hospitals opposed the
application.
II.
In this court, the main issue raised by the hospitals is
whether San Rafael and Centro Medico can be treated for
present purposes as if they were one entity. This issue is
critical because the only signed collective bargaining
agreement is between the union and San Rafael. Centro Medico
is required to respect that agreement, and bargain before
making unilateral changes in working conditions, only if
Centro Medico is an extension of San Rafael. We therefore
begin by describing three different but related labor-law
doctrines considered by the agency.
One concept, known colloquially as the alter ego
doctrine, says that in certain situations one employer entity
will be regarded as a continuation of a predecessor, and the
two will be treated interchangeably for purposes of applying
labor laws. The easiest example is a case where the second
entity is created by the owners of the first for the purpose
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of evading labor law responsibilities; but identity of
ownership, management, work force, business and the like are
also relevant. See C.E.K. Indus. Mechanical Contractors,
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Inc. v. NLRB, 921 F.2d 350 (1st Cir. 1990).
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A second rubric--the "single employer" doctrine--has its
primary office in the case of two ongoing businesses which
the NLRB wishes to treat as a single employer on the ground
that they are owned and operated as a single unit. Penntech
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Papers, Inc. v. NLRB, 706 F.2d 18 (1st Cir.), cert. denied,
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464 U.S. 892 (1983). Most of the alter ego criteria remain
relevant but motive is normally considered irrelevant. The
consequences of single employer and alter ego status are not
necessarily the same. See C.E.K., 921 F.2d at 354.
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A final, narrower doctrine applies to so-called
"successor" companies. Where, for example, a unionized
business is acquired by a new owner unaffiliated with the old
one, the new employer may not be bound by a collective
bargaining agreement with the old one. See NLRB v. Burns
___ ____ _____
Sec. Servs., 406 U.S. 272 (1972). But where enough
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continuity exists in the business and work force, the new
owner may, without any new certification, be required to
treat the union as the recognized bargaining agent. E.g.,
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Fall River Dyeing & Finishing Corp. v. NLRB, 482 U.S. 27
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(1987).
This overview of the three doctrines imparts to them a
neatness that is not borne out by the circuit caselaw or even
the Board's decisions. See, e.g., 4 T. Kheel, Labor Law
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17.02 (1994). In part, the difficulty is that several
related and similarly named concepts are being used to
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address different controversies (e.g., jurisdictional
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aggregation, maintenance of parallel union and non-union
businesses, inherited liability for past misconduct,
inherited contractual obligations, carry-over obligation to
bargain, etc.).
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In all events, the Board's order here in dispute can be
sustained on the alter ego theory. The single employer
doctrine, as it has developed historically, seems to have
little application to this case--which does not involve two
ongoing businesses coordinated by a common master. See A.
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Dariano & Sons, Inc. v. District Council of Painters, 869
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F.2d 514, 519 (9th Cir. 1989); International Union of
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Operating Eng'rs v. Centor Contractors, Inc., 831 F.2d 1309,
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1313 n.2 (7th Cir. 1987). As for "successor" status, any
relief available under this theory would be less far reaching
than that based on the alter ego theory.
In determining alter ego status, the NLRB and the courts
have, as noted in C.E.K., considered a range of criteria
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including the similarity between the old and new companies in
relation to management, business purpose, operation,
equipment, customers and supervision, as well as ownership.
In most cases, a further important factor in determining
alter ego status is whether the alleged alter ego entity was
created and maintained in order to avoid labor obligations.
In a rare discussion of the doctrine, the Supreme Court said:
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It is important to emphasize that this is not
a case where the successor corporation is the
"alter ego" of the predecessor, where it is "merely
a disguised continuance of the old employer."
Southport Petroleum Co. v. NLRB, 315 U.S. 100, 106
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(1942). Such cases involve a mere technical change
in the structure or identity of the employing
entity, frequently to avoid the effect of the labor
laws, without any substantial change in its
ownership or management. In these circumstances,
the courts have had little difficulty holding that
the successor is in reality the same employer and
is subject to all the legal and contractual
obligations of the predecessor.
Howard Johnson Co. v. Hotel Employees, 417 U.S. 249, 259 n.5
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(1974).
Howard Johnson supplies an animating purpose for the
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alter ego doctrine, and also helps sort out the relationship
between subjective motive and objective criteria. Motive
matters, we think, because a corporate transfer or
transformation for the purpose of avoiding labor law
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obligations is an unsympathetic case for respecting the
formal alteration, and faced with a subterfuge--e.g., a sham
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transfer of assets--the courts reasonably need give less
weight to the other "identity" criteria. See Penntech
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Papers, 706 F.2d at 24.
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But in our own case the decision of San Rafael's owners
to establish a new hospital occurred for financial and
operational reasons that have nothing to do with labor
relations. The union did not even exist when the original
plans for the new hospital were laid. The Board's claim that
Centro Medico's "purpose" was not improper at the outset but
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became improper simply because Centro Medico declined to
bargain makes little sense in the context of the alter ego
doctrine. After all, if the two companies were not alter
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egos, Centro Medico's desire to resist obligations or
liabilities of San Rafael would be understandable. If an
improper motive in creating the new entity were a sine qua
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non of the alter ego doctrine, then we think the Board would
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be hard-pressed to defend its order in this case.
In Howard Johnson, however, the Supreme Court said that
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wrongful motive is "frequently" present in the alter ego
cases; it did not say "always." Similarly, we have said that
"[n]o one factor is controlling, and all need not be present
to support a finding of `alter ego status.'" C.E.K., 921
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F.2d at 354. After all, if a company merely changed its
corporate form for legitimate tax or corporate reasons, it is
hard to see why the new entity should be able to disregard an
existing collective bargaining agreement or claim immunity
when told to reinstate a worker wrongly fired by the old one.
This view--that a wrongful motive is not required--is shared
by most other circuits. See Note, 86 Mich. L. Rev. 1024,
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1045 (1988) (collecting cases).1
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1Since our discussion in Penntech and C.E.K. has given rise
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to some uncertainty about this court's position on the role
of wrongful motive in alter ego cases, this opinion has been
circulated prior to filing to all active judges of this
court, and no member of the court expressed disagreement with
the panel's treatment of the issue. This informal
circulation is without prejudice to a petition for rehearing
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The problem here, as so often with similar concepts, is
in how far to carry the notion of "disguised continuance,"
Howard Johnson, 417 U.S. at 249 n.5, where there is
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substantial continuity but also some limited change in
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ownership and operations. Continuity of ownership, perhaps
the most important predicate, does exist in this case. Soler
and Badillo owned 87 percent of the stock in San Rafael; and
the same individuals came to own about 60 percent of the
stock in Centro Medico, their proportionate shares inter se
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remaining the same. The two other important stockholders of
Centro Medico, Rodriguez and Pineiro, were closely associated
with San Rafael.
Other criteria of identity point in the same direction.
In upper management, Rodriguez served as president both of
San Rafael and Centro Medico. Soler, Badillo, Rodriguez and
Pineiro were directors, officers or both in each of the two
entities. The ALJ found that about 85 of the 102 lower level
supervisors at the new hospital had also been supervisors at
the old one. The new hospital agreed to hire 95 percent or
more of the old hospital's employees and the ALJ said that
this had occurred.
The two hospitals are in the same business and operate
in the same community. It is true that Centro Medico
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or suggestion of en banc reconsideration on any issue in the
case. See Trailer Marine Transport Corp. v. Rivera Vazquez,
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977 F.2d 1, 9 n.5 (1st Cir. 1992).
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operates a 300-bed tertiary care hospital and presumably
draws from a larger area; San Rafael was a local hospital
with just over 100 beds. Little of the equipment was
transferred from one to the other and doctors' privileges had
to be renewed. But San Rafael effectively planned the new
hospital, helped finance it, and surrendered its license so
the new one could obtain a license. Both in origin and
function, the new hospital is essentially an enlargement of
the old one.
Thus, a substantial--not a complete--identity exists
between the two hospitals along every axis: ownership,
senior management, supervisory management, employee base,
geographic location and basic business function. The alter
ego doctrine has been devised by the Board with approval of
the courts, and the agency is entitled to a reasonable
latitude in applying its own doctrine. See generally Phelps
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Dodge Corp. v. NLRB, 313 U.S. 177 (1941). Whether the alter
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ego doctrine can be stretched much beyond the present facts
may be open to debate, but this case is within reasonable
limits.
Next, San Rafael claims that the Board was not
warranted in setting aside the May 19, 1988, settlement
agreement between the union and San Rafael. In prior cases,
the Board has set aside settlements where the settlement
agreement has been materially breached and the party
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responsible entered into the agreement in bad faith without
an intention to carry out its commitments. E.g., Norris
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Concrete Materials, 282 N.L.R.B. 289 (1986). In this case,
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the ALJ set the settlement agreement aside on the ground that
San Rafael entered into it in bad faith and then breached the
agreement. The Board sustained this determination by a two-
to-one vote, one member dissenting on this issue alone.
We review the findings of the Board only to determine
whether they are supported by substantial evidence. 29
U.S.C. 160(e). The ALJ, whose rationale was adopted in a
condensed form by the Board majority, said that the two
hospitals had to know of their own internal relationship and
therefore, knew or should have known their legal status as
alter egos; that the promise by San Rafael to bargain in good
faith therefore included a commitment to bargain on behalf of
Centro Medico; and that because San Rafael resisted that
obligation it must never have meant to carry out this
attributed commitment.
We think that this reasoning is unpersuasive and that no
other evidence shows that the agreement was entered into in
bad faith. There is proof that San Rafael knew that it had a
duty to bargain for Centro Medico. The ALJ said that San
Rafael "should have known" of its prospective alter ego
status, but we do not see why. The two hospitals are not
identical in every respect, no mathematical formula
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determines alter ego status, and this case is a close one.
Bad faith is more than mere negligence. See Voccio v.
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Reliance Ins. Cos., 703 F.2d 1, 2 (1st Cir. 1983). The
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Board's brief hints that bad faith may not be required, but
bad faith was the only basis given in this case. SEC v.
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Chenery Corp., 318 U.S. 80, 88 (1943).
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However, there is no showing by the hospitals that the
setting aside of the settlement agreement had any effect on
the Board's other determinations or on any of the provisions
of its remedial order. Conduct occurring after the
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settlement agreement was the subject of new unfair labor
practice charges in December 1988. These included both
failure to bargain and discrimination against union members.
These charges are amply supported by the record even if only
conduct after May 1988 is the focus of consideration.
On the failure to bargain charge, Centro Medico
persistently refused to recognize the union and, shortly
after the new hospital opened, it made unilateral changes in
the employees' working conditions without attempting to
bargain. Since we have upheld the alter ego theory advanced
by the Board, we think that it follows that Centro Medico was
obligated to recognize and bargain with the union; that it
was bound by the collective bargaining agreement to the same
extent as San Rafael; and that it was subject to the ordinary
obligations of an employer with a union contract to negotiate
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about changes. Good faith is not generally a defense to such
charges. ILGWU v. NLRB, 366 U.S. 731, 738-40 (1961); NLRB v.
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Cooke & Jones, Inc., 339 F.2d 580, 581 (1st Cir. 1964).
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The Board also had ample evidence for its finding that
the five named union members not rehired were the subject of
anti-union discrimination by Centro Medico. It is sufficient
to say that all five employees were identified with the
union, no persuasive reason appears why any of them was so
refused a position at the new hospital, and the excuses or
evasions practiced by Centro Medico in dealing with each of
the five affirmatively suggests that discrimination was being
practiced. The Board and administrative law judge decisions
adequately set forth the circumstances.
We turn now to remedy. The treatment of the five
employees was egregious enough to justify the Board's broad
remedial direction that the hospitals cease and desist from
infringing "in any other manner" on employees' section 7
rights. The hospitals say that a proper order would merely
prohibit Centro Medico from acting "in any like or related
manner," but the broader version--carrying with it the risk
of contempt sanctions--has been found proper where the
employer's violations are either repeated or egregious.
Wyman-Gordon Co. v. NLRB, 654 F.2d 134, 146-47 (1st Cir.
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1985). None of the other remedial provisions are challenged,
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and each other remedy appears justified by post-settlement
misconduct by the hospitals.
III.
To sum up, we agree with the hospitals that the bad
faith finding as to the May 1988 settlement and the setting
aside of the San Rafael settlement agreement are not
supported. We are also doubtful whether the "single
employer" doctrine could be a basis for sustaining the
Board's order. But the alter ego doctrine reasonably
applies; the unfair labor practice findings are adequately
supported by the post-settlement misconduct; and the remedies
ordered are within the Board's discretion. Accordingly, we
enforce the Board's order as written.
It is so ordered.
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