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Island Architectural Woodwork, Inc. v. National Labor Relations Board

United States Court of Appeals, District of Columbia Circuit

June 15, 2018

Island Architectural Woodwork, Inc., Petitioner
National Labor Relations Board, Respondent

          Argued November 7, 2017

          On Petitions for Review and Cross-Application for Enforcement of an Order of the National Labor Relations Board

          Jeffery A. Meyer argued the cause and filed the briefs for petitioner Island Architectural Woodwork, Inc.

          Harris Liolis argued the cause and filed the briefs for petitioner Verde Demountable Partitions, Inc.

          Rebecca J. Johnston, Attorney, National Labor Relations Board, argued the cause for respondent. With her on the brief were Richard F. Griffin, General Counsel, John H. Ferguson, Associate General Counsel, Linda Dreeben, Deputy Associate General Counsel, and Jill A. Griffin, Supervisory Attorney.

          Before: Kavanaugh, Srinivasan and Pillard, Circuit Judges



         Petitioner Island Architectural Woodwork, Inc. (Island), a unionized manufacturer of custom modules for office interiors, created Petitioner Verde Demountable Partitions, Inc. (Verde), as a non-union shop to specialize in one of Island's products, a particular type of moveable office divider that Island and Verde called the "Island Verde Green Demountable System" (the Island-Verde Partition). Verde set up shop in Island's back building under the leadership of the daughter of Island's President and CEO. Island conferred substantial, uncompensated economic benefit on Verde through a set of informal agreements. Those agreements were not memorialized in writing for over a year, until after the Union brought unfair labor practice charges; the companies wrote them up only in response to the Board General Counsel's investigatory subpoena. From Verde's start, its employees largely did the same work, on the same equipment, in the same building as Island's unionized workers had done. Island's management, meanwhile, insisted to Island employees that "no union members were allowed to enter the [back] building again." Island Architectural Woodwork, Inc. & Verde Demountable Partitions, Inc., 364 NLRB No. 73, at *3 (Aug. 12, 2016) (alteration in original). Island also conditioned its renewal of its collective bargaining agreement on the Union's signing a waiver of any claim to represent Verde's employees. The Union proceeded to file unfair labor practice charges before Respondent National Labor Relations Board (NLRB or Board).

         The Board held that Petitioners violated Sections 8(a)(1) and (5) of the National Labor Relations Act (NLRA or Act), 29 U.S.C. § 158(a)(1), (5), when they refused to recognize the Union that represented Island's collective bargaining unit as the representative of Verde's workers, and when they failed to apply the terms of Island's collective bargaining agreement to Verde. Based on evidence showing multiple indicia of a lack of arms-length dealings between Island and Verde, the Board determined that Verde was not a separate and independent employer, but merely Island's alter ego. The Board also held that Island's insistence that the Union renounce any present or future claim to represent workers at Verde violated the Act. Petitioners assert that Verde was a separate business outside of Island's bargaining unit, and they challenge the Board's contrary determination as factually unsupported and based on misapprehensions of the record. Because substantial evidence supports the Board's findings and conclusions, we deny the petitions and grant the Board's cross-application for enforcement.



         In reviewing this substantial-evidence challenge to the Board's action, we consider the entire record of the administrative proceedings. In describing the relevant facts we generally draw from the Board's decision, Island, 364 NLRB No. 73. We refer to specific record evidence as relevant to Petitioners' challenges.

         Founded in 1993, Island produces wood cabinetry and other prefabricated architectural modules for office interiors, particularly for financial institutions. Island's employees, who have been unionized since 1995, are represented by the Northeast Regional Council of Carpenters (the Union). The company gets almost all of its business through a large architecture firm (the Firm). The Firm designs products for customers and then hires Island to manufacture them on a custom basis. The Island-Verde Partition that Island arranged for Verde to build is a moveable, floor-to-ceiling wall that enables businesses to reconfigure their office space.

         The Firm designed the Island-Verde Partition and licensed it to Island in 2007. The Firm wanted Island to mass produce the partition, but Island did not believe it could do so cost-effectively. Island's CEO, Edward Rufrano, later testified that he believed Island was lagging behind competitors because they "were outsourcing to either non-Union shops or out of the country." Joint App'x (J.A.) 248. Seeking to remain in the good graces of the Firm-its main source of business-Island tried without success to find a company to buy the license to manufacture the Island-Verde Partition. Rufrano then started talking with a former employee of the Firm about creating a separate entity-Verde-to produce the Island-Verde Partition.

         Verde commenced operations as a non-unionized entity in October 2013. At the time, Island owned three buildings adjoining a parking lot: the "main, " "back, " and "side" buildings. Island, 364 NLRB No. 73, at *1. Verde set up shop in the back building and began manufacturing the partitions using Island's equipment. From the outset, Verde was managed by people who had previously worked for Island. For example, Rufrano involved his two daughters, both of whom had worked at Island for years; Tracy D'Agata, who had been a lead salesperson for the Island-Verde Partition, became Verde's President, with her sister serving as Secretary and Treasurer. An engineer who had designed the partitions for Island also joined Verde, as did a foreman from Island. Rufrano agreed to lend his expertise to the new company. The daughters together owned 64 percent of Verde. The Firm, one of its former employees, and one of Rufrano's acquaintances owned the remaining 36 percent. In addition to the building, Island provided manufacturing equipment and expertise to Verde. Island assisted Verde with management, operations, sales training, back office functions, drafting and engineering, and trucking.

         For the production work, Verde hired two former Island employees, in addition to several production employees who had never worked for Island. Island and Verde worked together to produce the partitions. Despite the Firm's wish to transition to mass production, the production process remained "essentially unchanged from the time Island produced the partitions." Island, 364 NLRB No. 73, at *3. Island and Verde sent materials and partially finished products back and forth "between the main and back building[s], where each company works on a certain aspect of the process." Id. Rufrano held periodic meetings in his office with Verde workers to discuss "[p]roject coordination, materials, labor scheduling, and profitability." Id. (quoting Rufrano's testimony) (alteration in original). More than a year after Verde started manufacturing the Island-Verde Partition, Island still marketed it on its own website.

         Island and Verde did not at first create documentation of their substantial dealings with each other, and Island made no formal valuations of its assets before handing them off to Verde. Verde did not begin paying Island for the Island-Verde Partition license, rent on the back building, or the leased equipment until after the NLRB's General Counsel served an investigatory subpoena more than a year after Verde commenced operations, in October 2014. The Asset Purchase Agreement, Equipment Lease, Transitional Services Agreement, Mutual Supply Agreement, Promissory Note, and Officer's Certificate are all dated October 27, 2014-one day before Petitioners responded to the subpoena. J.A. 2 & n.5, 405, 418, 421, 424, 432, 438. The Asset Purchase Agreement and Equipment Lease specified an effective date of October 1, 2013, and additionally included lengthy grace periods and deferred payments enormously beneficial to the new company. J.A. 405, 432. The first time that the parties had any lease or that Verde paid for its use of the back building was June 1, 2014. J.A. 426-31. Eight months of free occupancy saved Verde about $140, 000. Id. Through informal arrangements and delay, as well as the explicit terms of the agreements when they were ultimately signed, Island conferred on Verde hundreds of thousands of dollars in uncompensated deferrals and savings.

         From the outset, Island and the Union disputed the collective bargaining status of Verde's employees. The Union sought to represent the workers at Verde, while Island insisted that Verde was a separate company, not part of Island's collective bargaining unit. The issue became central during negotiations for a new collective bargaining agreement, as the old agreement between Island and the Union expired around the time Verde began operations. During those negotiations, which spanned from October 2013 to March 2014, Rufrano made several misleading statements about Verde to the Union. Rufrano told Union representatives that Verde was a separate business and that he had sold the back building and equipment to his daughter. But, as already noted, Verde was using Island's back building and equipment for free, and there were no lease or sale deposits until June. Rufrano also deemphasized his role with Verde and the ties between Verde and Island. He asserted that he "was not even going to walk through the courtyard . . . into [Verde's] building, " and that "Verde was separate and apart." J.A. 186-87. But Island and Verde collaborated extensively, as later detailed in the Mutual Supply and Transitional Services Agreements. As negotiations progressed, Rufrano acknowledged to the Union his expanded role in Verde.

         The parties neared a collective bargaining agreement in January 2014. Negotiations hit a snag, however, when Rufrano insisted that the Union agree to waive any claim to represent workers at Verde. He later presented the Union with a Memorandum of Agreement (MOA) to that effect. J.A. 441. The MOA contained three provisions. First, the Union would agree that the Verde workers were not part of its bargaining unit. Second, the Union would agree that any decision by Island or its leadership to acquire an ownership interest in Verde would not create an alter ego relationship between the two companies. And, third, the Union would waive all existing and future grievances on behalf of Island employees regarding work performed by Verde, including claims under the provisions of the most recent collective bargaining agreement treating employees of any joint venture as part of the bargaining unit, and requiring the Union's consent to subcontract work.

         Rufrano "made it very clear" that he would not agree to a new collective bargaining agreement until the Union signed the MOA. J.A. 193 (Testimony of Union President Eustace Eggie). In insisting that the Union sign it, Rufrano sent an email to Union leadership bemoaning the "plight . . . of every union contractor" and stressed his belief that the Union would benefit from Island's increased profits if Verde remained non- unionized. J.A. 444. The Union refused to agree to the MOA in March 2014, and Rufrano ended negotiations.


         The Union filed unfair labor practice charges on March 6 and April 14, 2014. The NLRB issued an amended, consolidated complaint alleging that Island and Verde violated of Section 8(a)(1) and (5) of the Act. The complaint charged that Verde is Island's alter ego, and that Island and Verde therefore violated the Act by failing to apply the terms of Island's collective bargaining agreement to Verde. The complaint further charged that Island violated the Act by insisting, ...

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