Domsey Trading Corporation, Domsey Fiber Corporation and Domsey International Sales Corporation, a single employer (29-CA-14548, et al.; 357 NLRB No. 180)
Brooklyn, NY, December 30, 2011.
The Board (Chairman Pearce and Member Becker; Member Hayes dissenting) pierced the Respondent’s corporate veil to hold Arthur Salm, a primary shareholder, personally liable for backpay, plus interest owed approximately 200 discriminatees whom the Respondent failed to offer timely reinstatement after an unfair labor practice strike that ended in 1990. See Domsey Trading Corp., 310 NLRB 777 (1993), enfd. 16 F.3d 517 (2d Cir. 1994). Administrative Law Judge Marcionese issued his supplemental decision in 1999, in which he found that the Respondent owed over $1 million, plus interest, to the discriminatees. In January 2002, while the judge’s supplemental decision was pending review before the Board, the Respondent sold its property and received more than $9 million as its share of the proceeds. Salm then transferred the proceeds from the Respondent’s corporate bank account to his own personal accounts and that of the other principal shareholder. Neither the Respondent nor its primary shareholders set aside money to satisfy the Board’s backpay claim nor did they notify the Board of the asset sale.
In 2007, the Board issued a supplemental decision (351 NLRB 824) in which it affirmed in part and reversed in part Judge Marcionese’s recommendations, and remanded to the Region in part for further calculations of backpay amounts owed, and to the judge to consider whether, in light of the Supreme Court’s decision in Hoffman Plastic Compounds v. NLRB, 535 U.S. 137 (2002), certain discriminatees were lawfully authorized to work in the United Stated during the backpay period and entitled to backpay. The Board issued a second supplemental decision in 2008, in which it ordered the Respondent to pay all undisputed backpay amounts and to pay backpay to certain discriminatees as determined by the judge on remand (353 NLRB 86, affirmed in 355 NLRB No. 89 (2010)). In 2010, the Second Circuit, looking only at the Hoffman Plastics issue, denied enforcement to the Board’s second supplemental decision and remanded the case to the Board for further proceedings (636 F.3d 33). In a separate decision, also issued December 30, 2011, the Board remanded that part of the case for further proceedings consistent with the court’s decision (357 NLRB No. 164).
In 2010, the Acting General Counsel (AGC) filed an amended compliance specification in which he sought to hold the Respondent’s principal shareholders derivatively liable for the backpay owed the discriminatees. In a third supplemental decision issued in 2011, the judge applied the Board’s White Oakanalysis for determining when it is appropriate to assess derivative liability against a corporate owner or officer. (White Oak Coal Co., 318 NLRB 732 (1995), enfd. mem. 81 F.3d 150 (4th Cir. 1996) (applying a two-prong test, Board will pierce a corporate veil when: (1) the shareholders and the corporation have failed to maintain separate identities; and (2) adherence to the corporate form would sanction a fraud, promote injustice, or lead to the evasion of legal obligations.) Applying White Oak’s first prong, the judge found no evidence that the Respondent failed to maintain corporate formalities when it was still engaged in normal business activities (the judge surmised that the Respondent ceased business operations by the end of 2001; it was formally dissolved in 2009), and rejected the AGC’s argument that the transfer of funds after the sale established a “commingling” of funds that evidenced the Respondent and its shareholders failed to maintain separate identities. Having found that White Oak’s first prong was not satisfied, he found it unnecessary to consider White Oak’s second prong.
Reversing the judge, the majority found that Salm’s disbursement of the Respondent’s share of the proceeds from the asset sale to his personal accounts constituted a commingling of funds and that it “evidence[d] a lack of separation between the Respondent and its principals, as Salm clearly regarded the proceeds as being freely available for the taking, notwithstanding that they belonged to the Respondent.” The majority further found it “immaterial that Salm’s transfer of the Respondent’s assets into his and [the other primary shareholder’s] personal accounts was tied to one major corporate transaction as opposed to many smaller transactions occurring over months or years. Either way, a corporate respondent can be left undercapitalized and without the ability to satisfy its legal obligations[,]” as happened here. Having found White Oak’s first prong satisfied, the majority found the second prong satisfied on the ground that adherence to the corporate form would promote injustice and lead to the evasion of legal obligations. While the majority applied a White Oak analysis, it noted that its decision was “consistent with F & W Oldsmobile, 272 NLRB 1150 (1984), a pre-White Oak case where the Board imposed personal liability on corporate officers who dissolved a corporation and distributed its assets to themselves while they were on notice of a pending backpay claim against the corporation.”
In dissent, Member Hayes would have adopted the judge’s finding that the AGC failed to establish thatWhite Oak’s first prong was satisfied because corporate formalities had been maintained when the Respondent was in business. Asserting that the White Oak test “was not intended to apply to a corporation that has ceased operations and gone out of business,” Member Hayes found that the majority erred in finding a commingling of funds from “a one-way, one-time distribution of funds from the Respondent to its owners upon the Respondent’s going out of business[.]” Member Hayes further found that the majority erred by essentially applying a fraudulent transfer analysis instead of a White Oakanalysis, as evidenced by its reliance on F & W Oldsmobile. Since that legal theory is separate and distinct from the piercing the corporate veil theory of White Oak, and the fraudulent transfer theory was neither alleged nor litigated, Member Hayes found that the majority erred in invoking it here. Accordingly, Member Hayes would not pierce the corporate veil to hold Salm personally liable for the backpay owed.
Charges filed by International Ladies’ Garment Workers Union, AFL-CIO. Administrative Law Judge Raymond F. Green issued the third supplemental decision. Chairman Pearce and Members Becker and Hayes participated.