Evergreen Lumber Co., Inc.

National Labor Relations Board - Board Decisions

Feb 21, 1986

278 N.L.R.B. 656 (N.L.R.B. 1986)

656 DECISIONS OF NATIONAL LABOR RELATIONS BOARD
Evergreen Lumber Company, Inc. and Southwestern
Council of Industrial Workers, AFL-CIO. Case
28-CA-6598-(E)
21 February 1986
SUPPLEMENTAL DECISION AND
ORDER
BY CHAIRMAN DOTSON AND MEMBERS
DENNIS AND JOHANSEN
On 19 ' May 1983 Administrative Law Judge Jer-
rold H. Shapiro issued the attached supplemental
decision. The General Counsel filed exceptions and
a supporting brief, and Evergreen Lumber Compa-
ny, Inc. (the Applicant) 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,' and
conclusions and to adopt the recommended Order.
i The Equal Access to Justice Act was amended on 5 August 1985.
The amendments , which apply to all cases pending as of the enactment
date, revised the eligibility requirements for corporations by raising the
net worth limitation from $5 million to $7 million
We adopt the judge's finding that the treatment of "minority interest in
subsidiaries" as a liability in computing the net worth of the Applicant
and its affiliates is not improper in this case We are aware that a substan-
tial portion of the "minority interest in subsidiaries" here consists of pre-
ferred stock and we do not, by our finding, intend to convey the impres-
sion that preferred stock will , in the future, always be properly consid-
ered as a liability Nonetheless , here the Applicant detailed the financial
arrangements which gave rise to the issuance of the preferred stock;
showed how the stock was used as a financing device to purchase the
operating assets of the predecessor employer; described the particular
characteristics of the preferred stock used , including the dividend and re-
demption obligations; and, most significantly , submitted the affidavit of a
certified public accountant and partner in the firm of Touche Ross & Co.,
who examined the financial statements of the Applicant and its affiliates
and who stated that "[t]he Minority Interest in Subsidiaries is properly
reflected as a separate line item excluded from stockholders' equity" on
the Woods, Inc consolidated financial statement , that to include minority
interest in subsidiaries with the consolidated equity "would incorrectly
present the net worth of Woods," and that in his opinion and that of
Touche Ross & Co. "generally accepted accounting principles require a
separate line item under liabilities , not included as part of stockholders'
equity " In contrast , the General Counsel simply asserts that the pre-
ferred stock in issue is an equity interest and cites to an accounting text-
book which states,. "Minority interest is sometimes reported between the
liabilities and stockholders' equity section of the consolidated balance
sheet However, including it as part of the stockholders ' equity section is
preferred ." The General Counsel does not directly refute the evidence of
the certified public accountant as applied specifically to this case By
treating the "minority interest in subsidiaries " as a liability , the Appli-
cant's net worth does not exceed $7 million at the time the adversary
proceeding was initiated.
In concluding that there are no "special circumstances " making an
award unjust, the judge found the General Counsel's theory regarding
majority of the work force, while novel, was not reasonable and was not
a credible extension or interpretation of existing law We find it unneces-
sary to adopt the judge's assessment of this theory because the record
shows that the General Counsel did not raise this theory at the hearing
and did not litigate this case on the basis of any articulated novel legal
theory In addition , we do not rely on the judge 's statements in fn I1
regarding the General Counsel's failure to file exceptions to the judge's
dismissal of the complaint and the omission of an explanation for such
failure
ORDER
The National Labor Relations Board adopts the
recommended Order of the administrative law
judge and orders that the Applicant, Evergreen
Lumber Company, Inc., Chama, New Mexico, be
awarded the sum of $13,489.41, pursuant to its ap-
plication for an award under the Equal Access to
Justice Act, plus the additional fees and expenses
incurred in the preparation and prosecution of the
application which have not already been included
in the application.2
Since the issuance of the judge's supplemental decision, we have found
that fees and expenses for time spent pursuing recovery of attorney's fees
under the EAJA are themselves recoverable. Debolt Transfer, 271 NLRB
299 (1984).
2 If the parties are unable to agree within a reasonable period of time
concerning the amount of the fees and expenses to which the Applicant is
entitled in connection with the preparation and prosecution of the appli-
cation, the Applicant should submit a revised application for fees and ex-
penses consistent with this Supplemental Decision and Order
SUPPLEMENTAL DECISION
Equal Access to Justice Act
STATEMENT OF THE CASE
JERROLD H. SHAPIRO, Administrative Law Judge.
This supplemental proceeding is before the National
Labor Relations Board for consideration of the "Appli-
cation for Attorneys Fees and Costs," submitted by Re-
spondent Evergreen Lumber Company, Inc. (the Appli-
cant), pursuant to the provisions of the Equal Access to
Justice Act.
On January 6, 1983, the Applicant filed with the
Board in Washington, D.C., its application under the
EAJA and by order dated January 10, 1983, the Board
referred this matter to me.
On January 21, 1983, the General Counsel filed a
motion to dismiss the application.
On February 7, 1983, the Applicant filed an opposition
to the General Counsel's motion to dismiss and also filed
a motion asking to supplement its application to include
attorneys' fees and expenses incurred in connection with
the prosecution of the application.
On February 9, 1983, I issued an order denying the
General Counsel's motion to dismiss, without prejudice,
and I directed the Applicant to file additional informa-
tion pertaining to its eligibility to file the instant applica-
tion.
On February 24, 1983, the Applicant, in response to
my order of February 7, filed additional financial infor-
mation.
On March 3, 1983, the General Counsel filed an
answer to the application.
On April 7, 1983, the Applicant filed a reply to the
General Counsel's answer.
Based on the record in this supplemental proceeding,
described supra, and the record in the underlying unfair
')7R Ni RR Nn_ 99
EVERGREEN LUMBER CO, 657
labor practice proceeding, and having considered the ar-
guments advanced by the parties, I make the following
FINDINGS OP FACT
The Underlying Unfair Labor Practice Proceeding
On April 9, 1982 , the General Counsel , pursuant to an
unfair labor practice charge filed on August 13, 1981,
issued a complaint in this case against the Applicant al-
leging that the Applicant, as a successor employer to
Western Pine Industries , violated Section 8(a)(5) and (1)
of the Act when on July 30, 1981 , it refused to recognize
and bargain with the Union, the Southwestern Council
of Industrial Workers, AFL-CIO, as the exclusive col-
lective-bargaining representative of an appropriate unit
of employees employed at the Applicant 's Chama, New
Mexico facility. On August 17, 1982 , a hearing was held
before me concerning the allegations in the complaint.
On November 5, 1982 , I issued my decision recommend-
ing that the complaint be dismissed . The proceeding was
transferred to the Board and the parties were notified
that exceptions to me .had to be received by November
29, 1982. As no exceptions were filed , the Board, by
Order dated December 7, 1982, adopted my recommend-
ed Order and dismissed - the complaint.
The Issues
The EAJA, as applied to this case , provides for an
award of attorneys ' fees and expenses to the Applicant,
the prevailing party in the underlying unfair labor prac-
tice proceeding , provided that the Applicant meets the
EAJA's eligibility requirements and provided that the
General Counsel fails to show that the General Counsel's
position in the underlying unfair labor practice proceed-
ing was substantially justified or that special circum-
stances make an award of attorneys' fees unjust. Other
than their agreement that the Applicant is a "prevailing
party," as that term is defined by the EAJA, the parties
dispute virtually everything else of significance. The
General Counsel contends that the Applicant does not
meet the EAJA's eligibility requirements and, in any
event, that the General Counsel"s position in the unfair
labor practice proceeding was substantially justified or,
in the alternative , that speical circumstances make an
award unjust . The General , Counsel also contends that
even if the application is found to be meritorious,, that
the fees and expenses which were incurred in connection
with the investigation of the unfair labor practice charge
prior to the issuance of the complaint and those that
were incurred prior to October 1, 1981 , the effective
date of the EAJA, are not recoverable as a matter of
law. Likewise , according to the General Counsel, the
Applicant's claim for fees and expenses which were in-
curred in connection with this supplemental proceeding
must be denied as a matter of law . Lastly, the General
Counsel takes the position that the Applicant's request
for attorneys ' fees is excessive insofar as it seeks fees in
excess of $75 per hour and, in any event, that I am with-
out authority to award fees in excess of $75 an hour. I
shall address each of these issues in turn.
The Applicant's Eligibility
The Applicant, a New Mexico corporation which
owns and operates sawmills and planing mills in Arizona
and New Mexico , is an affiliate of Woods, Inc. which
owns a 100-percent interest in the common stock of the
Applicant and a 97-percent interest in the common stock
of Ponderosa Products, Inc.
The fiscal year for Woods, Inc. and its affiliates, in-
cluding the Applicant , ends November 30. The audited
financial balance sheet for the Applicant for the fiscal
year ending November 30, 1981 , reveals a net worth of
$1,021,000 . The audited financial consolidated balance
sheets for Woods, Inc. and Subsidiaries for the fiscal
year ending November 30, 1981, shows a negative net
worth of ($3,992,000). Because the audited balance sheets
for the fiscal year ending November 30, 1982 , were un-
available when the Application was submitted, the Ap-
plicant furnished an interim balance sheet (unaudited) of
the Applicant as of April 30;' 1982, which showed a net
worth as of that date of $1,854,274 and an interim con-
solidated balance sheet (unaudited), of Woods, Inc. and
Subsidiaries as of May 31 , 1982, showing a negative net
worth of ($3,947,000) as of such date.
In dispute with respect to the aforesaid consolidated
balance sheets of Woods, Inc. and Subsidiaries is the
manner in which plant, machinery , equipment, and pre-
ferred stock has been treated. The plant, machinery, and
equipment of Woods, Inc. and Subsidiaries , were valued
at cost and then depreciated using two different methods
of depreciation. The preferred stock issued by the Appli-
cant has been treated as a liability and described as "Mi-
nority Interest in Subsidiaries."'
Section 102.143 (c)(5) and 102 . 143(d) of the Board's
Rules which deal with the eligibility of a corporation to
receive an award under the EAJA, states, in relevant
part, that to be eligible a corporation must have "a net
worth of not more than $5 million and not more than
500 employees" and that "for the ' purpose of eligibility,
the net worth and number of employees 'of an applicant
shall be determined as of the date of the complaint in an
1 The issuance of the preferred stock was a financing device used by
the Applicant to purchase the operating assets of the predecessor employ-
er, Western Pine Indistries, and in the conversion of a note payable to the
Valley National Bank In June 1981 when it purchased certain assets of
Western Pine Industries, the Applicant issued $800,000 worth of pre-
ferred stock, $ 100 par value, to the owners of Western Pine Industries as
a means of financing the purchase of the asset 's The comptroller for
Woods, Inc, Ralph Roberts, in an affidavit submitted by the Applicant,
states, "[tlhis stock is not an equity interest The stock is evidence of a
debt and was a financing device for the purchase " Dividends on this
stock accumulate at the rate of 9 percent per annum, payable monthly,
with unpaid dividends bearing interest at 1 percent above the prime rate
Beginning March 1, 1985, the Applicant will be , required to redeem 67
shares of such preferred stock each month at par value The Applicant
has also issued Class A, $100-par-value preferred stock which Comptrol-
ler Roberts states, "is a liability rather than an equity interest " This stock
was issued when the Applicant coverted $3 million of long-term notes
payable held by the Valley National Bank and $680,000 of accrued inter-
est into 36,800 shares of Class A preferred stodk. This conversion oc-
curred because the Applicant was unable to satisfy the interest due on its
debt obligation in cash Such preferred stock accumulated cash dividends
at the rate of 9 percent per share through November 30, 1982, and is ac-
cumulating cash dividends at the rate of 9.81 percent per share from that
time This Class A preferred stock must be redeemed no later than De-
cember 1, 1996
658 DECISIONS OF NATIONAL LABOR RELATIONS BOARD
unfair labor practice proceeding." Section 102.143(g) of
the Board's Rules further defines eligibility by providing
that, "the net worth and number of employees of the ap-
plicant and all of its affiliates shall be aggregated to de-
termine eligibility" and, in pertinent part, further pro-
vides that "[a]ny ... corporation . . . that directly or
indirectly controls or owns a majority of the voting
shares or other interest of the applicant . . . will be con-
sidered an affiliate for purposes of this part."
The parties agree that in determing the eligibility of
the Applicant to receive an award under the EAJA it is
the net worth and the number of employees of Woods,
Inc. and Affiliates, one of whom is the Applicant, which
must be considered. It is undisputed that Woods, Inc.
and Affiliates employ less than 500 employees. In dispute
is whether, during the time material, the net worth of
Woods, Inc. and Subsidiaries was not more than $5 mil-
lion.
The General Counsel contends that the financial state-
ments submitted by the Applicant, described supra, do
not present an accurate picture of the net worth of
Woods, Inc. and Subsidiaries.2 More specifically, the
General Counsel contends that the consolidated balance
sheets of Woods, Inc. and Subsidiaries undervalue assets
because the value of plant, machinery, and equipment
has been depreciated. The General Counsel also con-
tends that the consolidated balance sheets of Woods, Inc.
and Subsidiaries overstate the liabilities listed because the
above-described "Minority Interest in Subsidiaries" has
been treated as a liability. The record reveals that the
General Counsel must prevail on both these issues in
order to rebut the Applicant's showing that the net
worth of the Applicant or the Applicant and its affiliate
companies was not more than $5 million during the time
material . The General Counsel has failed to do this.
The General Counsel argues that the accounting entry
"Minority Interest in Subsidiaries" shown in the consoli-
dated balance sheets of Woods, Inc. and Subsidiaries as a
liability should not be considered as a liability because
this item reflects ownership. The General Counsel offers
no support for this position. On the other hand, the Ap-
plicant submitted an affidavit from Robert A. Domin-
guez , a partner with Touche Ross & Co., Certified
Public Accountants, who states that he examined the
above-described balance sheets of the Applicant and of
Woods, Inc. and Subsidiaries for the year ending No-
vember 30, 1981, that his examination was performed in
accordance with generally accepted auditing standards
and that the financial statements "have been prepared
2 I reject the General Counsel's further contention that the application
is deficient because the financial statements submitted with the Applica-
tion do not show the net worth of the Applicant as of the date the com-
plaint was issued. I recognize that Sec 102 147(f) of the Board's Rules
provides, in pertinent part, that "each applicant . must provide with
its application a detailed exhibit showing showing the net worth of the
applicant and any affiliates . when the adversary adjudicative pro-
ceeding was initiated " When, as here, the Applicant furnished the only
audited financial records which were available at the time it was required
to file its Application, and thereafter supplemented these records with un-
audited financial records for the period immediately proceeding the issu-
ance of the complaint, I am persuaded that the financial information sub-
mitted by the Applicant qualifies for an award under the standards set
forth in the Board's Rules and Regulations
using generally accepted accounting principles." Regard-
ing the line item denoted "Minority Interest in Subsidiar-
ies" in the amount of $5,966,000 included in the audited
financial statements of Woods, Inc. and Subsidiaries, Do-
minguez states, "[i]n my opinion and in the opinion of
Touche Ross & Co., generally accepted accounting prin-
ciples require the treatment of minority interest in sub-
sidiaries as a separate line item under liabilities, not in-
cluded as a part of stockholders equity." In more detail
Dominguez goes on to explain:
The Minority Interest in Subsidiaries is properly
reflected as a separate line item excluded from
stockholder's equity. Since Woods owns a majority,
but less than 100% of its subsidiaries' stock, the
consolidated financial statements must reflect as a
separate line item the minority's proportionate share
of the subsidiaries' net assets, based upon the sub-
sidiaries' net cost. To include such Minority Interest
in Subsidiaries with the consolidated equity would
not be in accordance with generally accepted ac-
counting principles and would incorrectly present
the net worth of Woods.
The EAJA and the Board's Rules and Regulations fail
to define the term "net worth" and the Act's legislative
history provides virtually no clues to Congressional
intent . Congressional committee reports define "net
worth" as total assets less total liabilities. H. R. Rep. 96-
1418 at 15, and S. Rep. 96-253, page 17. But there are
numerous ways of measuring assets and liabilities, de-
pending on the purpose for which the calculation is
made. Nevertheless, the only guidance provided by the
legislative history concerning the appropriate accounting
method to use to measure net worth is on the subject of
the valuation of assets. The committee reports state that
"in determining the value of assets, the cost of acquisi-
tion rather than fair market value should be used." H. R.
Rep. 96-1418, page 15, and S. Rep. 96-253, page 17.
Here, as described above, in support of its position that
the line item denoted "Minority Interest in Subsidiaries"
has been properly included as a liability in its financial
statements , the Applicant has submitted an audited finan-
cial statement accompanied by an affidavit from an inde-
pendent certified public accountant stating that, in the
opinion of the, CPA, generally accepted accounting prin-
ciples require the treatment of this item as a separate line
item under liabilities and not as a part of stockholders
equity. The General Counsel has offered nothing to
refute this evidence. Under the circumstances, I find that
in treating the aforesaid "Minority Interest in Subsidiar-
ies" as a liability in computing its net worth that the Ap-
plicant was using generally accepted accounting princi-
ples. Because Congress has indicated no preference for
any particular, accounting method, other than the use, of
acquisition costs in valuing assets, I find that the Appli-
cant's treatment of the aforesaid "Minority Interest in
Subsidiaries" as a liability in computing its net worth was
EVERGREEN LUMBER CO.
not improper for purposes of computing its net worth to
determine its eligibility for an award under the EAJA.s
Based on the foregoing, I find that the net worth of
the Applicant and its affiliate companies during the time
material was not more than $5 million. I further find that
because the Applicant and its affiliate companies em-
ployed less than 500 employees during the material time,
that the Applicant as a "prevailing party" is eligible to
receive an award of fees and expenses pursuant to the
EAJA.
The Substantial Justification Standard
Section 203(a)(1) of the EAJA (5 U.S.C. § 504(a)(1))
provides, in pertinent part, for an award of attorneys'
fees to a party prevailing in an "adversary adjudication"
before a Federal agency-that is, an adjudicatory pro-
ceeding in which the Federal Government takes a posi-
tion adverse to that of the prevailing party-unless it is
shown that the position of the Government was "sub-
stantially justified."4 The legislative history discloses that
his standard is intended to be between an automatic
award of fees to a successful party and an award- of fees
only when the- Government's position is arbitrary or friv-
olous. (See H. R. Rep. No. 1418, 96th Cong. 2d Sess. 14
(1980), reprinted in 1980 U.S. Code Cong. & Ad. News
4993.) In applying this standard, I am guided by the leg-
islative history of the Act which states:
The test of whether or not a Government action is
substantially justified is essentially one -of reason-
ableness. Where the Government can show that its
case had a reasonable basis both in law and in fact,
no award will be made. In this regard, the strong
deterrents to contesting Government action require
that the burden of proof rest with the Government.
[Id. at 10, reprinted in 1980 U.S. Code & Ad. News
4993).]
In addition, the legislative history teaches that in cases
"where a party has had to engage, in lengthy administra-
tive proceedings before final vindication of his or her
rights . . . the government should have to make a strong
showing to demonstrate that its action was reasonable."
(Id. at 18, reprinted in 1980 U.S. Code Cong. & Ad.
News 4997). The legislative history, however, admonish-
es that the standard which it prescribes "should not be
read to raise a presumption that the government position
was not substantially justified, simply because it lost the
case. Nor, in fact, does the standard require the govern-
ment to establish that its decision to litigate was based on
a substantial probability of prevailing." (Id. at 11, reprint-
ed in 1980 U.S. Code Cong. & Ad. News 4990.) As was
explained in the House debate on the conference report,
a In view of this, I have not considered the General Counsel's further
contention that the assets of the Applicant and its Subsidiaries have been
overvalued because some of the assets were depreciated. The record re-
veals that the Applicant and its affiliates would still have a net worth of
not more than $5 million even if the General Counsel's position on this
issue is meritorious.
4 The "position" of the Government which must be substantially justi-
fied is its position in prosecuting or defending litigation, not the underly-
mg action on which litigation is based Tyler Business Services v. NLRB,
695 F.24 73 (4th Cir. 1982)
659
it was not intended that the Government be deterred
from "advancing in good faith a close question of law or
fact." (126 Cong. Rec. H. 10226, daily ed Oct. 1, 1980.)
Was the General Counsel's Position Substantially
Justified?
The complaint in the underlying unfair labor practice
proceeding alleged that the Applicant was a successor
employer to Western Pine Industries and, as a successor
employer, violated Section 8(a)(5) and (1) of the National
Labor Relations Act by refusing to recognize and bar-
gain with the Union as the exclusive collective-bargain-
ing representative of an appropriate unit of employees
employed at the Applicant's Chama facility. In support
of this allegation , the General Counsel proved, among
other things, that when the Applicant refused to recog-
nize the Union that the Applicant employed 40 unit em-
ployees, more than a majority of whom worked as unit
employees for the predecessor employer when that em-
ployer operated the Chama facility. I dismissed the com-
plaint because the General Counsel failed to prove that,
when the Applicant refused to recognize and bargain
with the Union, a majority of the unit employees were
unit employees of the precessor employer, Western Pine
Industries, when that employer ceased operating the
Chama facility.5
The law is settled when there is no change in the es-
sential nature of a business enterprise and a majority of
the unit employer, the new employer is a "successor"
who must recognize the incoming union and deal with it
as a bargaining representative of the unit employees.
NLRB v. Burns Security Services, 406 U.S. 272 (1972). It
is equally well settled that even when the essential nature
of the employing enterprise remains unchanged after a
change in ownership, the new employer has an obliga-
tion to bargain with the Union which represented the
predecessor's unit employees only if ' a majority of the
work force of the new employer in the appropriate unit
are former unit employees of the predecessor employer.6
In prosecuting the complaint, the General Counsel did
not dispute that it was incumbent on the General Coun-
sel to prove, as an essential part of his case, that a major-
ity of the unit employees employed by the Applicant had
been employed as unit employees by the predecessor em-
ployer. However, the General Counsel, in prosecuting
the complaint, relied on the theory that, an employer is a
successor employer for collective-bargaining purposes so
long as its complement of unit employees is made up of a
majority of the predecessor employer's former unit em-
ployees, regardless of whether they were members of the
bargaining unit at the time the predecessor employer
5 Alternatively, I dismissed the complaint because the totality of the
circumstances demonstrated that the continuity of the employing enter-
prise had been sufficiently disrupted to preclude a finding that the Appli-
cant was western Pine's successor for purposes of collective bargaining.
6 Tallakson Ford, 171 NLRB 503, 504 (1968); Ramada Inn, 186 NLRB
568, 584 (1970);- General Processing Corp., 263 NLRB 86 at 87 (1982); and
Stewart Chevrolet, 262 NLRB 362 at 364 (1982). Accord. Westwood Import
Co. Y. NLRB, 681 F.2d 664, 667 (9th Cir 1982) ("A successor employer
is one who conducts essentially the same business as the former employ-
er, and a majority of whose work force are former employees") (Empha-
sis added.)
660 DECISIONS OF NATIONAL LABOR RELATIONS BOARD
ceased doing business. In support of this theory, the tion of reemployment will not. See Marlin Rockwell
General Counsel has cited no Board authority or court
precedent,-but instead points out in his posthearing brief
that "in determining the majority issue in cases of this
type, the Board has not focused on the precise period
that a former employee of a predecessor actually worked
for the predecessor."7
As indicated supra, I rejected the General Counsel's
theory and concluded that "in establishing the Union's
majority status the General Counsel must show that a
majority of the unit employees employed by the [Appli-
cant] when it refused to recognize and bargain with the
Union had been unit employees of [the predecessor em-
ployer] when that company ceased operations." In so
concluding I reasoned as follows:
I am not suggesting that it is necessary for a majori-
ty of a successor's unit employees to have been on
the payroll of the predecessor employer or actually
working when the predecessor ceased operations.
Rather, I am of the opinion that while it is realistic
to presume that a holdover employee continues to
desire union representation when he or she is em-
ployed by a "successor" employer if the holdover
employee was a unit employee when the predeces-
sor ceased operation, that it is completely unrealistic
to make the same presumption when there is insuffi-
cient evidence to establish that the holdover em-
ployee was a unit employee at the time the prede-
cessor ceased operations.1 a This conclusion is con-
sistent with the longstanding test used by the Na-
tional Labor Relations Board in determining wheth-
er an employee is a unit employee with respect to
voting eligibility in representation elections. The
test, as stated by the Board in The Horn & Hardart
Company, 147 NLRB 654, 659-660 (1964), is wheth-
er the employee has a "present interest in the terms
and conditions of employment" of the bargaining
unit. Accord: John Kinkle & Son, 157 NLRB 744,
760 (1966); Nordam, Inc., 173 NLRB 1153 (1968).
Pursuant to this test the Board holds that terminat-
ed employees who do not have a reasonable expec-
tation of reemployment in the bargaining unit
within a reasonable time in the future are not in-
cluded in the bargaining unit for purposes of repre-
sentation. As I have indicated previously this long-
standing practice of excluding such employees from
a collective-bargaining unit for representation pur-
pose simply acknowledges that, whether absent vol-
untarily or involuntarily, a worker who is only tem-
porarily absent with a reasonable expectation of re-
employment will probably maintain an interest in
terms and conditions of employment of the bargain-
ing unit even though he or she is not currently em-
ployed, whereas someone without such an expecta-
T The memorandum submitted in support of the General Counsel's
answer to the application in this supplemental proceeding in a like
manner, states , "[t]here is no definitive statement in Board decisions that
in order to be included in a majority showing of successor employees, the
predecessor's employees have to have been employed when the predeces-
sor ceased operations."
Corp. v. NLRB, 116 F .2d 586, 588 (2nd Cir . 1941).
i 3 I note that when a majority of the work force of a "succes-
sor employer" in an appropriate unit are former employees of the
predecessor , the successor has a duty to bargain because it is "as-
sumed that the holdover majority continues to desire representa-
tion by the Union." Pacific Hide Depot, Inc., v. NL. R.B, 553 F 2d
609, 611 (9th Cir 1977).
As is apparent from my opinion , I was unable to find a
Board decision which expressly addressed this matter
for, as pointed out by the General Counsel , in discussing
the question of a union's majority status in successorship
cases, the Board has not discussed the precise period that
the predecessor 's former employees who work for the
successor employer worked for the predecessor.8 I am
persuaded that the reason for the lack of Board cases in
which this issue has been raised or discussed is not hap-
penstance, but is due to the fact that the General Coun-
sel's theory that so long as a majority of a successor em-
ployer's unit employees were employed as unit employ-
ees at some time by the predecessor employer that it is
sufficient to establish the union 's majority status, is so un-
tenable that it has never been raised previously . The un-
reasonableness of this theory is apparent on its face. For
example, the former employees of a predecessor employ-
er employed by a successor employer would, under this
theory, be counted to compute the union 's majority
status even though they voluntarily terminated their em-
ployment or their employment was involuntarily termi-
nated by means of discharge several months or several
years prior to the predecessor employer 's cessation of
business . Clearly such a result is completely at odds with
the rationale .underlying the presumption that employees
in successorship situations desire union representation; by
virtue of their involuntary termination from employment
these employees no longer had an interest in the terms
and conditions of employment of the bargaining unit at
the time the predecessor employer ceased its operation.9
It is for these reasons that I am persuaded that the Gen-
eral Counsel has failed to demonstrate that the General
Counsel's case has a reasonable basis in law.
I am also persuaded that even when the appropriate
legal theory is applied to the evidence presented by the
General Counsel , the General Counsel has failed to dem-
onstrate that the case has a reasonable factual basis.
Thus, the evidence presented ' by the General Counsel es-
tablishes that during the time material , 19 of the appli-
cant's 24 'bargaining unit workers , who formerly had
worked as unit employees for the predecessor employer,
were members of the unit at the time the predecessor
8 Although the Board's decisions are silent about this, no Board deci-
sion has been cited and I have not found a decision in which, in deter-
mining whether a majority of a successor's employees were formerly em-
ployed by the predecessor employer, the Board has relied on the employ-
ment of an employee who was not a member of the bargaining unit when
the predecessor ceased doing business or was not laid off in connection
with the predecessor's cessation of business
9 When a majority of the work force of a successor employer in an
appropriate unit are former employees of the predecessor, the successor
has a duty to bargain because it is "assumed that the holdover majority
continues to desire representation by the Union." Pacific Hide Depot v.
NLRB, 553 F.2d 609, 611 (9th Cir 1977).
EVERGREEN LUMBER CO.
ceased its operations.' ° The General Counsel failed to
present evidence that the five former employees of the
predecessor employer who were not members of the bar-
gaining unit when the predecessor ceased doing business,
had an interest in the terms and conditions of employ-
ment in the appropriate bargaining unit at that time to
warrant a presumption that they continued to desire
union representation. Nor did the General Counsel's evi-
dence present a close factual question. Thus, the employ-
ment of four of , these employees (Jonny Valdez, Solo-
mon Madrid, Dennis Garcia, and Orlando Martinez) was
terminated long before the predecessor commenced to
shut down its Chama facility, and there is no evidence
that their terminations were connected with the prede-
cessor employer's cessation of operations or that at the
time the predecessor ceased operations that any one of
these employees had a reasonable expectancy of reem-
ployment in the bargaining unit. The fifth employee,
Jimmy Martinez, was a student who the record fails to
reveal worked for the predecessor employer more than
just one summer, the summer of 1978. I therefore find
that when the evidence presented by the General Coun-
sel is measured against the appropriate .legal theory, the
General Counsel's case does not have a reasonable basis
in fact.
Are There "Special Circumstances?"
The EAJA provides that the Government should not
be held liable when "special circumstances make an
award unjust." 28 U.S.C. § 2412(d)(1)(A). The legislative
history of the Act instructs that "[t]his `safety valve'
helps to insure that the government is not deterred from
advancing in good faith the novel but credible extensions
and interpretations of the law that often underlie vigor-
ous enforcement efforts. It also gives- the courts discre-
tion to deny awards where equitable considerations dic-
tate an award should not be made." H. Rep. No. 14,18,
supra, page 11; S. Rep. No. 253, supra, page 7.
The General Counsel argues that in the cases decided
by the Board which involve the question of a union's
majority status among a successor employer's employees,
that because there is no definitive statement that the suc-
cessor employer's employees who formerly worked for
the predecessor must have been members of the bargain-
ing unit when the predecessor ceased operating, that it
was therefore reasonable for the General Counsel to
issue the complaint in this case based on the theory that
all that is required for a majortiy showing in such situa-
tions is, for the former employees of the predecessor to
have been members of the bargaining unit when em-
ployed by the predecessor at some point in time, so long
as it was during the period that the union represented the
bargaining unit employees. I agree that there is no defini-
tive statement ,in the Board's decisions that the predeces-
sor employer's former employees working for the succes-
sor employer must have been members of the bargaining
unit as of the date the predecessor ceased operating, in
io Because there were 40 unit employees employed by the Applicant
during the time material, the General Counsel needed to prove that at
least 21 of them were presumably supporters of the Union by virtue of
their former employment with the predecessor employer.
661
order to use them to determine the Union's majority
status among the successor's employees. But it certainly
does not follow from this that the General Counsel was
privileged by the EAJA's "special circumstances safety
valve" to base the complaint in this case upon the theory
that all that is required in such a situation is for the
former employees of the predecessor to have been mem-
bers of the bargaining unit at some point in time so long
as it was during a period when the Union was the em-
ployees' collective-bargaining representative. Although
the theory is novel, it is not reasonable and is not a cred-
ible extension or interpretation of the existing law. The
General Counsel has not advanced any rationale in sup-
port of such a theory and, as I-have found, supra, it is
apparent that the General Counsel's theory leads to un-
reasonable and absurd results, namely, results which are
completely at odds with the reasoning underlying the
presumption that employees in successorship situations
desire union representation." It is for the foregoing
reason that I am of the opinion that there are no "special
circumstances" or "equitable considerations" 12 in this
case which dictate that an award should not be made.
The Act's Applicability for Fees and Expenses
Incurred During the Investigation of an Unfair
Labor Practice Charge Prior to the Issuance of a
Complaint
Section 102.44 of the Board's Rules, in pertinent part,
states that, "[a]n eligible applicant may receive an award
for fees and expenses incurred in connection with an ad-
versary adjudication . . . ." Section 102.143, in pertinent
part, defines the term, "adversary adjudication" to mean
"unfair labor practice proceedings pending the Board on
i" I also note that the General Counsel failed to file exceptions with
the Board to my decision dismissing the complaint and has not offered an
explanation for this failure The General Counsel's failure to afford the
Board an opportunity to more clearly delineate the law in question seri-
ously detracts from the General Counsel's argument that her theory con-
cerning the Union's majority! status was merely a credible extension or
interpretation of the existing law I recognize that because I grounded my
dismissal of the complaint on alternative grounds that the General Coun-
sel's failure to file exceptions may have been on a belief that he could not
prevail on the alternative ground for dismissal. Nevertheless, it seems to
me that-if the General Counsel believed that her theory concerning the
Union's majority status was a reasonable one or a credible extension or
interpretation of existing law that the General Counsel would have
placed the question before the Board.
iz In his memorandum in support of the answer to the application, the
General Counsel apparently seeks to justify the Agency's conduct in issu-
ing and prosecuting the complaint in this case because of certain conduct
allegedly engaged in by the Applicant during the precomplaint mvestiga-
tion. I doubt whether these allegations are properly before me inasmuch
as the manner in which they were presented does not comply with Sec.
102.150(c) of the Board's Rules which, in pertinent part, provide that "if
the answer is based on alleged facts not already in the record of the ad-
versary adjudication, supporting affidavits shall be provided or a request
made for further proceedings under Sec. 102 152 " In any event, even ac-
cepting these allegations at face value, there is nothing in them to war-
rant the conclusion that the General Counsel was misled into issuing and
prosecuting the complaint because of the Applicant's conduct of either
furnishing the General Counsel with misinformation or failing to furnish
the General Counsel with information. In short, there is no evidence tha
the Applicant, by its conduct during the investigation, was responsible
for the' General Counsel's issuance and prosecution of a complaint which
did not have a reasonable basis in law or in fact so that it would now be
inequitable for the Applicant to recover fees'and expenses.
662 DECISIONS OF NATIONAL LABOR RELATIONS BOARD
complaint." The General Counsel contends that the Ap-
plicant is not entitled to fees and expenses incurred
before the issuance of the complaint, the investigatory
stage of the unfair labor practice proceeding herein. The
General Counsel states that the investigation of an unfair
labor practice charge is not a part of the "adversary ad-
judication," that the investigation is the process by
which the General Counsel decides whether to com-
mence an adversary proceeding leading to an adjudica-
tion, that the adversary proceeding itself begins only
after the General Counsel issues a complaint, and that,
because the General Counsel must investigate all charges
filed and since Congress desired a complete investigation
prior to the commencement of any Government prosecu-
tion, it would be contrary to the legislative intent to re-
quire the Agency to reimburse an eligible applicant for
money spent as a result of the investigation of a charge,
even though it results in the issuance of a complaint.
I am persuaded that the Applicant's fees and expenses
incurred during the investigatory stage of the instant
unfair labor practice proceeding are not compensable
under the Board's Rules and Regulations. By stating that
an eligible applicant may receive an award for fees and
expenses incurred in connection with an unfair labor
practice proceeding "pending before the Board on com-
plaint," the Board's Rules and Regulations unambiguous-
ly precludes recovery for fees and expenses incurred
during the investigatory stage, as contrasted to the com-
plaint stage, of the unfair labor practice proceeding.13 In
this respect the Board's Rules and Regulations are in har-
mony with the congressional purpose underlying the en-
actment of the EAJA. The stated purpose of Congress'
decision to grant greater liability against the Federal
Government for costs and attorneys' fees under the
EAJA was to insure that eligible persons would not be
deterred from defending against "unreasonable govern-
ment action" (see H. R. 96-1418 at 5-6, 96th Cong., 2d
Sess. (1980); S. Rep. No. 96-253 at 7, 26th Cong., 1st
Sess. 1 (1979). Because the National Labor Relations Act
allows the General Counsel no discretion in the investi-
gation of unfair labor practice charges, the General
Counsel is required by the Act to investigate all such
charges, so, to require the General Counsel to reimburse
an eligible applicant for fees and expenses incurred
during the investigatory stages of an unfair labor practice
proceeding would fail to further the congressional pur-
pose underlying the EAJA. Moreover, I am persuaded
that the term adversary adjudication was not meant to
encompass the investigatory stage of an unfair labor
practice proceeding. Thus, the EAJA provides, in 5
U.S.C., § 504(b)(1)(C), that "`adversary adjudication'
means an adjudication under Section 554 of this title [re-
ferring to the Administrative Procedure Act] in which
18 I reject the Applicant 's contention that the fees and expenses it in-
curred before April 9, 1982, the date of the issuance of the complaint,
were incurred in connection with the adversary adjudication before the
Board . The adversary adjudication before the Board did not commence
until April 9, 1982, when the complaint issued Thus, the Applicant's fees
and expenses which predated the issuance of the complaint could not
have been incurred in connection with the adversary adjudication before
the Board; they were incurred in connection with the nonadversary stage
of the unfair labor practice proceeding, the investigatory stage.
the position of the United States is represented by coun-
sel or otherwise, but excludes an adjudication for the
purpose of establishing or fixing a rate or for the purpose
of granting or renewing a license." Section 554 of the
Administrative Procedures Act applies, with some excep-
tions, to "every case of adjudication required by statute
to be determined on the record after opportunity for an
agency hearing." (Emphasis added.) The investigatory
stage of an unfair labor practice proceeding has never
been held to be encompassed under this definition. Nor
does the investigatory stage of an unfair labor' practice
proceeding have the usual characteristics of adversary
adjudication. See Taylor Forge & Pipe Works, 113 NLRB
693, 705-706 (1955), enfd. 234 F.2d 227 (7th Cir.). (The
action taken by the General Counsel during the investi-
gatory stage of an unfair labor practice proceeding is not
res judicata concerning those issues being investigated in-
asmuch as there is no hearing and there is no "adjudica-
tion on the merits.")
,It is for the foregoing reasons that I am of the opinion
that the EAJA is inapplicable for the recovery of fees
and expenses incurred during the investigation of an
unfair labor practice charge even though the investiga-
tion results in the issuance of the complaint. I therefore
find that the Applicant is not entitled to the fees and ex-
penses claimed in the Application which were incurred
between August 13, 1982, the date of the filing of the
unfair labor practice charge, and April 9, 1982, the date
of the-issuance of the complaint.14
Recovery of Fees and Expenses Incurred in
Prosecuting the EAJA Application
The Applicant, as described supra, has filed a motion
asking for permission to supplement the application by
including fees and expenses incurred in connection with
the preparation and prosecution of the application. The
General Counsel opposes this motion arguing that such
fees and expenses are not recoverable because 'they were
not incurred "in connection with an adversary adjudica-
tion" within the meaning of Sections 102.143(a) and
102.144(b) 'of the Board's Rules and Regulations. I am of
the opinion that the Applicant's motion should be grant-
ed.
The EAJA is silent on the question of whether fees
and expenses incurred in the preparation and prosecution
of an EAJA application are themselves recoverable. I am
persuaded, as argued by the Applicant, that if the rights
granted by the EAJA are to have any meaning, such fees
and expense must- be recoverable whenever the Govern-
ment's position in the underlying preceedings lacks sub-
stantial justification. For, in many cases, to hold other-
wise would undermine the' EAJA by discouraging pre-
vailing litigants from contesting unreasonable govern-
mental actions, contrary to the stated purposes of the
Act. The only court to my knowledge which has consid-
ered this question, the Fourth Circuit in Tyler Business
14 In view of this conclusion , I did not consider the General Counsel's
further contention that, even if the Applicant 's fees and expenses incurred
during the investigation are recoverable , those incurred before October 1,
1981, having been incurred prior to the effective date of the EAJA, are
not recoverable.
EVERGREEN LUMBER CO.
Services v. NLRB, 695 F.2d 73 (4th Cir. 1982), reached
this same conclusion, analogizing cases arising under the
EAJA to cases under the Civil Rights Act of 1964 where
such recovery is permitted. 1 5
It is for these reasons that I reject the General Coun-
sel's contention that fees and expenses incurred in con-
nection with the preparation and prosecution of the ap-
plication are not recoverable. I shall therefore recom-
mend that the Applicant's motion for leave to supple-
ment the application to incude fees and expenses in-
curred in the preparation and prosecution of the applica-
tion be granted and shall further recommend that such
fees and expenses be awarded.
The Applicable Hourly Rate for Attorneys' Fees
The EAJA, Section 5 U.S.C. § 504(b)(1)(A), provides
that "attorney or agent fees shall not be awarded in
excess of $75.00 per hour, unless the Agency determines
by regulation that an increase in the cost of living or a
special factor, such as the limited availability of qualified
attorneys or agents for the proceeding involved, justifies
a higher fee." Section 102.145 of the Board's Rules limits
recoverable fees to $75 per hour and Section 102.146
provides that in order to increase the maximum fee that
any person may file a petition with the Board for rule-
making to increase the maximum fee and that the petition
should state why higher fees are warranted by a cost-of-
living increase or a special factor such as the limited
availability of qualified attorneys or agents for the pro-
ceedings involved.
The 'application reveals that the rates charged by the
Applicant's attorney ranged from $90 to $100 per hour.
The Applicant alleges that the $75-per-hour statutory fee
should be increased to the higher rates that it was
charged by its attorney. The Applicant contends that the
fees of its attorney are reasonable considering the fact
that the hourly rate charged by its attorney is lower than
those charged by the other attorneys located in the area
who represent respondent-employers before the National
Labor Relations Board.
I agree with the General Counsel that in view of the
Board's Rules, Section 102.146, supra, I am without au-
thority to even consider the Applicant's request for at-
torneys' fees higher than the maximum provided by the
Act and the Board's Rules. In any event, even if the Ap-
plicant's request is construed (under the Board's Rules)
as a petition for rulemaking, I am of the opinion that the
Applicant should be limited to attorneys' fees at a rate
not higher than $75 per hour because the Applicant has
failed to show any compelling factor or special reason
Ifi See Young v. Kenley, 641 F 2d 192, 195 (4th Cir 1981), Manhart v.
City of Los Angeles, 652 F.2d 904, 909 (9th Cir 1981); Love v. Mayor, City
of Cheyenne, 620 F 2d 235, 247 (10th Cir 1980)
663
for allowing it to recover more than the statutory rate.
(See Columbia Mfg. Corp., 262 NLRB 3 (1982) (the
Board rejected a rulemaking petition to increase attorney
fees beyond the statutory maximum, even though the
fees charged were reasonable considering the prevailing
rate for similar services in the area).
CONCLUSIONS OF LAW
1. The Applicant is a prevailing party within the
meaning of the EAJA and meets the eligibility require-
ments of the EAJA.
2. The position of the General Counsel in issuing and
in prosecuting the complaint in this case was not substan-
tially justified nor were there special circumstances
which would make an award of attorney fees and ex-
penses unjust.
3. The Applicant is entitled to attorney fees and ex-
penses totaling $13,489.41, plus additional fees and ex-
penses incurred in the preparation and prosecution of the
Application.) 6
On these findings of fact and conclusions of law and
on the entire record, I issue the following recommend-
ed17
ORDER
It is ordered that the application of the Applicant, Ev-
ergreen Lumber Comapny, Inc., Chama, New Mexico,
for an award under the Equal Access to Justice Act be
granted.
IT IS FURTHER ORDERED that the Applicant's motion
to supplement the application to include fees and ex-
penses incurred in the preparation and prosecution of the
application be granted.
IT IS FURTHER ORDERED that the Applicant be award-
ed the sum of $13,489.41, plus the additional fees and ex-
penses incurred in the preparation and prosecution of the
application which have not already been included in the
application. is
16 In computing the amount of recovery, I have relied on the fees and
expenses itemized in the application whose reasonableness, other than
those fees in excess of $75 per hour, was not challenged by the General
Counsel Also in computing the amount of recovery, consistent with this
supplemental decision, I have excluded attorney fees and expenses
claimed for the period predating April 9, 1982, the date of the issuance of
the complaint and have recalculated the fees itemized in the application
at $75 per hour insofar as they exceeded that sum.
17 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.
18 If the parties are unable to agree within a reasonable period of time
concerning the amount of the fees and expenses to which the Applicant is
entitled in connection with the prosecution of the application, the Appli-
cant should submit a revised application for fees and expenses that is con-
sistent with this decision