Adanac Coal Co., Inc And C & W Coal Co., Inc

National Labor Relations Board - Board Decisions

Mar 15, 1989

293 N.L.R.B. 290 (N.L.R.B. 1989)

290 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD
Adanac Coal Company , Inc and C & W Coal Com-
pany , Inc and International Union, United
Mine Workers of America Case 9-CA-24043
March 15, 1989
DECISION AND ORDER
BY CHAIRMAN STEPHENS AND MEMBERS
JOHANSEN AND CRACRAFT
On September 30, 1987, Administrative Law
Judge John H West issued the attached decision
The General Counsel and the Charging Party filed
exceptions and supporting briefs Respondent C &
W Coal Company filed an answering brief
The National Labor Relations Board has delegat-
ed 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 briefs and has
decided to affirm the judge's rulings,' findings, 2
and conclusions and to adopt the recommended
Order
In excepting to the judge's failure to find that
Adanac and C & W Coal are alter egos, the Charg-
ing Party argues , inter alia, that the Board finds
common ownership when ownership of two com-
panies are held by members of the same family In
fact, when the ownership of two companies is held
by members of the same family in varying propor
tions, the Board does not automatically find either
that there is or that there is not common ownership
for the purposes of an alter ego analysis When, as
in Haley & Haley,3 the overlap of ownership by the
same family members is substantial (all shares of
original company except one owned by family
members and all shares of alter ego held by the
original company) and the owners of one company
exercise considerable financial control over the
alter ego, the Board finds common ownership On
the other hand, in a case such as First Class Mainte-
nance,4 involving one company owned by parents
and another owned by their son, who conducts his
operations independently, the Board does not find
common ownership As the Board explained (ibid )
[A] finding of substantially identical ownership
is not compelled merely because a close famil-
ial relationship is present between the owner
of two companies Victory Valley Heating & Air
Conditioning, 267 NLRB 1292, 1296-1297
(1983), Shellmaker, 265 NLRB 749, 754-755
(1982), Friederich Truck Service, 259 NLRB
1294, 1300 (1982) Rather, each case must be
examined in the light of all the surrounding
circumstances In particular, the Board focuses
on whether the owners of one company re
tained financial control over the operations of
the other
Here, Billy Ray Hall, the sole owner of C & W,
owned only 10 percent of Adanac while Henry
Hall owned 60 percent of Adanac The judge
found that Billy Ray "alone runs C & W" while
Henry Hall "alone was responsible for selling and
shipping coal, negotiating loans , and establishing
the terms and conditions of employment at
Adanac "5 Under these circumstances, we agree
with the judge that the General Counsel did not es
tablish by a preponderance of the evidence that C
& W and Adanac had substantially identical owner-
ship
Moreover, even if substantially identical owner-
ship were found in this case, the judge's findings
regarding other factors relevant to an alter ego de
termination mitigate against a finding of alter ego
status Particularly significant is the judge's finding,
which we adopt, that legitimate economic and busi
ness considerations, including the bank foreclosure
on Adanac's equipment, forced Adanac to cease
operations 6
1 The Charging Party excepted to the judge s admission into evidence
of two financial statements of Adanac It argues that the financial state
ments are unsubstantiated hearsay as both statements contain disclaimers
indicating that audits and reviews had not been conducted rather the
figures presented were based on management representations We do
not find reversible error in the judge s decision to admit these financial
statements Letters attached to these financial statements from the Re
spondent s accounting firm however indicate that these financial state
ments are compilations limited to presenting information that is the
representation of management Furthermore the letter attached to the
financial statements for the 12 months ending June 30 1986 states man
agement has elected to omit substantially all of the disclosures required
by generally accepted accounting principles In light of the foregoing
we attach little weight to these financial statements in adopting the
judge s conclusions
2 The judge inadvertently stated that a loan from Matewan National
Bank to Adanac on August 5 1985 was for $1 million The record indi
cates that the amount was $100000 The judge also inadvertently stated
that the bank foreclosed on Adanac s equipment on August 19 1987 The
correct date is August 19 1986 The correct citation for P J Hamill
Transfer Co is 277 NLRB 462 (1985)
3 289 NLRB 649 651 (1988)
4 289 NLRB 484 (1988)
s These facts are similar to those in First Class Maintenance supra at
485 in that the Board there found that the son was running his own
business In Haley & Haley on the other hand Larry Haley was found
to be the moving force in both companies
3 Chairman Stephens would also find that an apparent absence of an
unlawful motive in Adanac s closing also distinguishes this case from
Haley & Haley in which the Board found that Haley & Haley activated
its subsidiary Oceanway to evade its responsibility under the Act to
honor its collective bargaining agreement with the Union Although
there is some evidence concerning animus allegedly expressed by Henry
Hall during the Union s organizing campaign at Adanac and by Adanac
Supervisor Mahon several months before that campaign apparently
began-matters essentially denied by the Respondent and on which the
judge did not rule-it is clear that supervening financial difficulties in
cluding the threat of bank foreclosure caused Henry Hall to close and
sell Adanac Thereafter the bank transferred the assets of Adanac to Flex
Enterprises for a note and Flex renegotiated the real property lease for
merly held by Adanac Only then did Flex contract with Billy Hall the
sole owner of C & W the alleged alter ego of Adanac to mine coal at a
Continued
293 NLRB No 26
ADANAC COAL CO 291
ORDER
The recommended Order of the administrative
law judge is adopted and the complaint is dis-
missed
former Adanac mine site Therefore unlike the circumstances in Haley &
Haley unlawful motive was not shown to play a role in the closing of the
original corporation
Carol Shore Esq, for the General Counsel
R Terrance Rodgers Esq (King Betts & Allen), of
Charleston, West Vingina, for Respondent Adanac
Coal Company, Inc
Roger A Wolfe Esq and Albert Sebok Esq (Jackson
Kelly Holt & 0 Farrell), of Charleston, West Virginia,
for Respondent C & W Coal Company, Inc
Charles F Donnelly Esq (Crandall & Pyles), of Charles
ton, West Virginia, for the Charging Party
DECISION
STATEMENT OF THE CASE
JOHN H WEST , Administrative Law Judge On a
charge filed February 27, 1987 , by International Union,
United Mine Workers of America (Union), a complaint
was issued April 14, 1987 , alleging that on or about Sep
tember 15 , 1986,1 Respondent C & W Coal Company,
Inc (C&W) was established by the owners of Respond
ent Adanac Coal Company, Inc (Adanac ) as a subordi
nate instrument to and a disguised continuance of Re
spondent Adanac , that Adanac and C & W are and have
been at all times material alter egos and constitute a
single employer within the meaning of the Act, that from
on or about May 29 to on or about June 20 specified em
ployees of Respondents , employed by Adanac , engaged
in a strike seeking recognition of the Union as their col
lective bargaining agent , that on June 20 the aforemen
tioned employees made an unconditional offer to return
to their former positions of employment with Respond
ents , and that on or about September 25 and continuing
thereafter , Respondents hired new employees rather than
reinstate the employees described above and since that
date have refused and failed to reinstate these employees
to their former positions of employment in violation of
Section 8(a)(1) and (3) of the National Labor Relations
Act (Act) Adanac and C&W in separate answers, deny
the alleged violations
A hearing was held in Williamson , West Virginia, on
June 4 , 1987 On the entire record in this case , including
my observation of the demeanor of the witnesses, and
consideration of the briefs filed by the General Counsel
and C&W, I make the following
FINDINGS OF FACT
I JURISDICTION
At the trial Respondents stipulated to the jurisdictional
allegations in the above described complaint as well as
i All dates are in 1986 unless otherwise stated
the status of the Union as a labor organization within the
meaning of Section 2(5) of the Act
II THE ALLEGED UNFAIR LABOR PRACTICES
A The Facts
Adanac was incorporated in West Virginia in 1964 by
Henry Hall and three partners, with each owning 25 per
cent In 1969 Henry Hall bought out the three other
partners, kept 60 percent of Adanac, and distributed the
remaining interest equally to his four children, Bill Ray
Hall, Frankie Hall, David Hall, and Claudine Hall
Marcum 2 Henry Hall was the president of Adanac,
David was vice president, and Bill Ray was its
secretary/treasurer The father drew a monthly salary of
$3200 Billy Ray s annual salary was $36,000
Adanac operated two coal mines and a tipple, all on
leased property near Delbarton, West Virginia One of
the mines was contracted out to Northland Resources in
1984 Five pieces of the equipment utilized by Adanac
were leased from Henry Hall & Sons, a partnership con
sisting of the father and his three aforementioned sons,
with each holding an equal interest The monthly lease
rate was the amount owed on the equipment to the man
ufacturer
By all accounts, Henry Hall was in charge of running
Adanac He alone was responsible for selling and ship
ping coal, negotiating loans, and establishing the terms
and conditions of employment at Adanac Although he
would go into the mines if there was a problem, the day
to day responsibility for running the mines was handled
by Billy Ray, who was the mine superintendent 3 His
brother Frank supervised the tipple 4 Adanac s comple
ment of employees ranged from 20 to a high of 40
Adanac sold coal on the spot market through bro
kers,s it did not sell coal on a contract basis In its last
year of operation Adanac got between $22 50 and $26 a
ton Adanac did not transport the coal Rather it placed
the coal in railroad cars at the aforementioned tipple
Adanac's accountants were Hall McNeil & Williamson
and its bookkeeper was Betty Walker
In 1984 when the coal industry suffered economically
Adanac began to experience financial problems It had a
layoff In September 1984 Adanac borrowed $970 000
from the Matewan National Bank (Bank) In fiscal year
1985 Adanac lost $330 496 Another loan was taken out
at the Bank for $1 million August 5, 1985
There was a union organizing campaign at Adanac in
April or May 1986 Dotson testified that on May 27,
1986, Henry Hall asked him about the union bit and I
2 Although the corporation ceased doing business it was never dis
solved and it never filed for bankruptcy
8 He and his father testified that while he along with other supervi
sors could discharge an employee his father had to approve someone
before the person was hired and that several times his father did not give
his approval Former Adanac employee James Dotson testified that he
was once hired on the spot by David Lee Hall Subsequently he conced
ed that he had worked for Adanac in the past and therefore had a track
record with the Company
4 It was also referred to as the processing plant
S The brokers named were John McCall Forsten Coal Sales Elliott
Coal Sales and Continental Coal Sales
292 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD
said I didn t know and then he [Henry Hall] said he
would have to shut down before long, and [h]e said
that he would have to shut it down before he went
union Also according to Dotson s testimony Henry
Hall said I know I couldn t afford it 6 Henry Hall tes
tified that he did not remember telling Dotson that he
Adanac, would close rather than go union
Adanac laid off 28 employees on May 28 1986 The
following day its employees went out on a recognitional
strike On June 4, 1986, the Union filed a representation
petition Although Adanac attempted to continue oper
ations it could not fill its coal orders Its cash flow
stopped
On June 20, 1986, the striking employees uncondition
ally offered to return to work Two Dotson and Mort
Crum, were brought back for 1 week
Adanac s financial difficulities became such that it was
no longer able to repay the bank other than the interest
of the two above described loans The bank required
Adanac to provide first monthly and then weekly finan
cial reports 7 The bank then advised Henry Hall that if
he did not find a buyer it would foreclose With Adan
ac s debt of $1 9 million, Henry Hall was unable to find a
buyer Adanac ceased operating July 18, 1986, and the
bank foreclosed on August 19 1987 It purchased Adan
ac s assets at the onsite foreclosure sale for $400,000 At
the time of liquidation Adanac owed the bank $776 000
Henry Hall agreed with the bank that if it would pay
for a night watchman, he would stay in the office during
the day because there was some equipment belonging to
Henry Hall & Sons at the site 8
The bank then agreed with Jim Bunn of Flex Enter
prises, Inc (Flex)9 on September 4 1986, to transfer to
him the assets of Adanac for a note in the amount of
$826,000 which included an additional $50 000 work
[sic] of working capitol into Flex to try to get them
started Flex renegotiated the real property lease
Adanac formerly held
Flex then entered into a verbal agreement with Billy
Ray Hall to mine coal for Flex at the former Adanac
mine 1 site The agreement called for a set fee (originally
$17 a ton which was later reduced to $16 a ton) to de
8 Dotson also testified that in January 1985 Adanac Supervisor William
Mahon told him that Henry [Hall] would shut down before he d turn
union and there was no ifs ands and buts about it Mahon who at the
time he testified was a supervisor at C&W denied making this statement
7 Adanac s financial report for the fiscal year ending June 30 1986
shows a loss of $365 737
8 Dotson testified that he went to the site to ask for a job in August or
September and Bill Ray told him he would have to speak to Henry Hall
When he did Henry Hall said Adanac no longer exists and that he did
not have anything to do with it Billy Ray testified that the conversation
occurred early in August 1986 before C &W started mining and even
before the Bank foreclosed on Adanac Herny Hall testified that he did
not remember talking to Dotson in August or September 1986 about
Dotson becoming employed
8 Until this time Flex was only a shell corporation incorporated in Vir
gmia and authorized to do business in West Virginia Jim Bunn who has
known the involved Halls since 1981 was also a partner in Northland
Resources which as noted above operated one of Adanac s mines under
contract with it Neither Henry nor Billy Ray Hall have any interest in
or hold any position with Flex And Flex did not enter into any agree
ment with Henry or Billy Ray Hall before purchasing Adanac s assets
liver the coal to the tipple10 and to destinations designat
ed by Flex 11 Also Flex verbally agreed with Billy Ray
on C&W (1) to pay 60 cents a ton to haul Flex s refuse
away and (2) to sell certain of the equipment Flex ac
quired from the bank for $2 million which is being paid
for by deducting $1 a ton from the amount Flex agreed
to pay Billy Ray or C&W under their above described
agreement 12 The parties do not have a written agree
ment regarding the length of time Billy Ray will mine
coal for Flex
Billy Ray incorporated C&W in West Virginia Sep
tember 15 1986 13 He is the only shareholder for C&W
He hired Joe York Nanassis, Hensley and William
Mahon Hensley and Mahon formerly worked as supervi
sors for Adanac York, a former employee of Adanac,
crossed the picket line during the above described strike
At the time of the hearing C&W had approximately 20
employees and, not counting Bill Ray three supervisors
namely , Timmy Moore, Hensley, and Mahon Moore
was a supervisor at Adanac a year before it closed Five
former Adanac strikers were hired by C&W 14 And five
former Adanac strikers asked C&W for a job but they
were not hired15 because as testified to by Billy Ray, at
the time C&W was just not hiring 16 C&W s wages
range from $8 75 to $9 25 an hour Adanac s ranged from
$9 to 11 an hour
C&W mined about 3500 tons of coal every 2 weeks
which would be about 91,000 tons a year 17
Henry Hall testified that in March 1987 he moved his
files out of the mine office utilized by C&W, that in Feb
ruary 1987 he moved the tax returns and stuff from
the office to his home, that Betty Walker prepared the
W 2s for Adanac employees in January 1987 and some
were mailed and some were taken to Billys and left
there 18 that he neither worked for C&W nor provided
any advice to or services for C&W,19 that when Billy
10 Flex paid Frank Hall an hourly rate to operate the tipple it acquired
from the bank in the above described deal
11 Destinations for raw coal include GEX Massey tipples Wolf Creek
Kermit and Raw Sales Bunn testified that perhaps 2000 tons a month go
to designated customers but he does not know about the remainder until
Flex is notified it has a sale
13 Bunn testified that certain of the equipment Flex purchased from the
bank which was formerly owned by Adanac was sold to specified par
ties not involved And Billy Ray testified that Adanac used a lot of
equipment that C&W was not using C&W also leases equipment from
Henry Hall & Sons paying on a monthly basis merely what is owed on
the involved equipment
13 To incorporate it utilized the same law firm that represented
Adanac in this proceeding C&W utilizes the same accounting firm as
Adanac namely Hall McNeil & Williamson and Billy Ray s wife is the
bookkeeper Whereas Adanac employed its own engineer C&W uses an
engineer provided by Flex
14 Carry Jude Troy Muncy William Adams Millard Hall and Robert
Chafin
15 Glen Roddy Rick Curry Billy Jenkins Dotson and Johny Spring
er Billy Ray testified that when he saw Jenkins he smelled of alcohol
16 Like Adanac C&W did not take written applications for employ
ment or keep a list of those who inquired about a job In May 1987 C&W
changed this practice and eventually Billy Ray went to the local employ
ment office seeking employees
17 Adanac mined about 264 000 tons of coal a year
18 Dotson picked up his W 2 at C&W s mine office
19 Mahon testified that Billy Ray ran C&W and that as far as he knew
Henry Hall did not perform any services nor was he employed by C&W
ADANAC COAL CO
Ray started running C&W he, Henry Hall, would stop
by the mine office almost every day when he was in the
area , that since October 1986 he spent between 4 and 5
months out of the involved area, that while he did keep
his files at C&W for a few months he did not have any
office space there after the bank foreclosed on Adanac,
that he was paid money by C&W to help him pay some
of his personal debts because he did not have an income,
and that he did not use the money he received from
C&W to pay off debts of Adanac
From November 7, 1986, through April 27, 1987,
Henry Hall received checks on a regular basis from
C&W The first five checks are each for the amount of
$1 093 92 and the checkstubs, General Counsels Exhibit
6, are designated payroll ' The next check is for
$1 131 92 and the checkstub is also designated payroll
The next two checks are for $1500 each, and while the
stub for the first check does not indicate what the pay
ment is for, the stub for the second check is designated
Comm' for commission The last check, which is for
$1000, is also designated comm. The checks total
$10,601 52 Regarding these checks, Billy Ray testified
that they were a gift to his father, who did not have any
income at the time, that his father did not perform any
services for the money that at the time the only check
book he had was a payroll checkbook'20 that he began
putting commission on the checkstub because his ac
countant indicated that this was the best way to do it,
and that income taxes were withheld on those checks
designated as payroll
Henry Hall testified that he did not return any of this
money to C&W and that he received a W 2 statement
for 1986 from C&W
Billy Ray testified that before he started mining coal
he had to make certain repairs and Flex paid for 1500
roof bolts, that C&W does not market any of its coal,
that he was not involved in the marketing of Adanac's
coal or in Adanac s finances that he alone is in charge of
making financial decisions at C&W, that C&W took out
two loans from the bank to meet payroll and he was per
sonally responsible for the loans, that he provides his em
ployees at C&W with health insurance from Great
Southern while Adanac s health insurance plan was
Mountain Trails that he purchases his materials from
Raleigh Mine Supply, Buckhanon Mine Supply BWB
and Owens Roof Bolt, whereas Adanac never dealt with
Buckhanon Supply or Raleigh Mine Supply and that
Adanac s former suppliers were all owed money
B Contentions
On brief the General Counsel contends that the evi
dence establishes that Respondents are alter egos and
constitute a single employer within the meaning of the
Act that two of the original three Hall family members
are still engaged in deep mining coal at Respondent
Adanac s former site, using the same equipment and su
pervisory staff that the two enterprises are essentially a
single family operation that has continued to exist albeit
20 Although he had a personal bank account Billy Ray testified that he
did not have enough money in it to pay his father the sums of money
that C&W paid him
293
in a revised format, and thus constitute one entity, and
that the Board has found in similar circumstances that
closely held family corporations engaged in substantially
similar enterprises may constitute alter egos even in the
absence of identical corporate ownership interests among
the family members
C&W on brief, contends that Adanac and C&W are
not alter egos and then, after treating the factors that
must be considered in reaching this determination, C&W
contends that no evidence was presented to show that
Adanac s foreclosure and C&W s organization were part
of a scheme planned by Henry Hall, Billy Ray Hall,
Bunn and the bank to rid Adanac of its obligation to
rehire economic strikers who had unconditionally offered
to return to work Also, C&W points out that the court
in Alkire v NLRB 716 F 2d 1014 (4th Cir 1983) held
that to impose alter ego status on two corporations, the
National Labor Relations Board (Board) must determine
whether the transfer of operations resulted in some ex
pected or reasonably foreseeable benefit, and that it is lu
dicrous to claim that Adanac gained any benefit by
having the bank foreclose on its assets because since
some of those assets acquired by Flex have been sold to
other entities, C&W is paying a fair market price to pur
chase equipment previously owned by Adanac, and
C&W is obtaining substantially less per ton of coal sell
ing to Flex than Adanac obtained selling to brokers
C Analysis
Although the agreements between Flex and C&W are
verbal which appears to be irregular such irregularities
do not warrant a conclusion that we are dealing with a
scheme such as that faced by the Board in NLRB v
Ozark Hardwood Co 282 F 2d 1 (8th Cir 1960) There it
was concluded that there was a disguised continuance in
that the foreclosure there had been precipitated specift
cally as a means of enabling the owners to transfer its
operations to another entity and that the transfer would
not have occurred except for the existence of unfair
labor charges against the original business and the desire
of the owners to benefit by escaping the consequences of
these charges while retaining control of the business
Here almost 2 years before the union organizing drive,
Adanac found itself in financial difficulty It borrowed a
great deal of money Its financial statements indicate that
its financial condition did not improve Rather Adanac
continued to lose money The die was cast long before
the introduction of the Union Adanac took out a second
loan When it was obvious to all that Adanac was in seri
ous financial straights the bank got involved It has not
been demonstrated that the subsequent foreclosure was
precipitated specifically as a means of enabling the Halls
to transfer their operations to another entity Here the
bank and another company Flex in which the Halls
have no interest, played important roles between the
time Adanac ceased operating and C&W commenced op
erations It has not been demonstrated that the transac
tions between Henry Hall and the bank, and between the
bank and Flex were other than arm s length transactions
And even the fact that Flex and C&W choose to rely on
verbal agreements although apparently irregular does
294 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD
not warrant a conclusion that their dealings are other
than arm s length transactions C&W is not a disguised
continuance of Adanac
As pointed out in T E Elevator Corp, 268 NLRB
1461 (1984), [A]bsent a disguised continuance, the
Board generally has found alter ego status only where
the two enterprises have substantially identical' owner
ship, business purpose, management, supervision, custom
ers, operation, and equipment '
Albeit there are certain similarities between Adanac
and C&W, there are also major differences Billy Ray
Hall, who alone runs C&W and is the sole shareholder in
C&W, held only 10 percent of stock source in Adanac,
and his management role in Adanac was limited, as indi
cated above Henry Hall, who ran Adanac, does not own
a part of C&W and has no real connections with C&W
Adanac mined almost three times the amount of coal that
C&W mines Adanac s employee complement was up to
twice as large as C&W s The operations of these two
corporations differ in that whereas Adanac leased the
real property it mined, had its own tipple, and sold to a
number of brokers, C&W does not hold any leases on
real property, it does not operate a tipple, and it has only
one customer, namely, the entity with which it had con
tracted to sell all the coal it mines, Flex
In light of these differences , and because of the cir
cumstances of Adanac s ceasing operations , in my opin
ion the General Counsel has not established by a prepon
derance of the evidence that the Board 's alter ego crite
ria have been met P J Hamill Transfer Co, 277 NLRB
462 (1985), Eagle Express Co, 273 NLRB 501 (1984), and
Chippewa Motor Freight , 261 NLRB 455 (1982)
CONCLUSIONS OF LAW
1 Respondents are employers engaged in commerce as
alleged
2 The Union is a labor organization as alleged
3 Respondents have not violated the Act as alleged
4 The complaint will, therefore, be dismissed in its en
tirety 2 1
ORDER
I recommend that the complaint be dismissed in its en
tirety
21 If no exceptions are filed as provided by Sec 102 46 of the Board s
Rules and Regulations the findings conclusions and recommended
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 pur
poses