LME, Inc., Lakeville Motor Express as alter egos (18-CA-192154)

Case 18-CA-192154, et al.

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Lakeville ever tried to obtain any other financing, or any delivery business other than

from LME.

On November 18, 2016, LME cancelled its cartage agreement with Lakeville.

LME’s cancellation letter was signed by

and

The next

day, the gates at Lakeville were padlocked, and employees were locked out.

denies placing the padlock on the gates, and has said that

does not know who did

so. Lakeville employees were not paid for the two weeks that they worked prior to

November 19, 2016, and Lakeville filed for Chapter 7 bankruptcy. On November 25,

2016,

signed a consulting agreement with LME, assertedly dealing with

customer issues arising from Lakeville’s shutdown.

Immediately after Lakeville’s closure, in November 2016, LME sent out letters to

customers informing them that FLE would be replacing Lakeville as its “less-than-

truckload” freight delivery agent in the Twin Cities metro area. Numerous managers

and supervisors from Lakeville began working at FLE, although no unit employees

did so. Since that time, FLE has continued to operate as LME’s “less-than-truckload”

freight delivery agent in the Twin Cities area, doing the work that was formerly done

by Lakeville, primarily using trucks and other equipment leased from Wren

Equipment, just as Lakeville had done.

Also in November 2016, the Employer withdrew recognition of the Union at the

Courtland terminal. The Union did not contest this withdrawal of recognition.

The Region’s investigation has revealed that the reasons given by LME for why

the business was moved from Lakeville to FLE appear to be pretextual. LME claims

that it terminated its contract with Lakeville because of service levels, but the

evidence does not support LME’s claims or indicate that Lakeville’s service levels

were substandard

ion did not contest this withdrawal of recognition.

The Region’s investigation has revealed that the reasons given by LME for why

the business was moved from Lakeville to FLE appear to be pretextual. LME claims

that it terminated its contract with Lakeville because of service levels, but the

evidence does not support LME’s claims or indicate that Lakeville’s service levels

were substandard. Indeed, with respect to the rate of on-time deliveries, Lakeville

was the seventh best performer of all 25 of LME’s terminals, and ranked

comparatively higher than did FLE in late 2016 and early 2017, after it took over the

same work. Both Lakeville and FLE had similar rates of missed pickups, although

FLE’s rate was slightly lower. Finally, while LME has claimed that Lakeville was a

failing company due to the use of third-party delivery agents, the amounts paid to

third-party delivery agents were minor compared to Lakeville’s revenues.

Finally, the Region’s investigation has adduced evidence demonstrating that at

least two of Lakeville’s bank accounts—its operating account and its cash collateral

account—were not closed when Lakeville closed, nor were they kept in place as

Lakeville accounts during the bankruptcy proceedings. Instead, these accounts were

transferred from Lakeville to LME. Moreover, the Region’s investigation revealed

that, in the period immediately before and after it closed, Lakeville wrote checks to

LME for at least approximately

. Most of this money was designated as

(b) (6), (b) (7)(C)

(b) (6), (b) (7)(C)

(b) (6), (b) (7)(C)

(b) (6), (b) (7)(C)

(b) (6),

(b) (6), (b) (7)(

tcy proceedings. Instead, these accounts were

transferred from Lakeville to LME. Moreover, the Region’s investigation revealed

that, in the period immediately before and after it closed, Lakeville wrote checks to

LME for at least approximately

. Most of this money was designated as

(b) (6), (b) (7)(C)

(b) (6), (b) (7)(C)

(b) (6), (b) (7)(C)

(b) (6), (b) (7)(C)

(b) (6),

(b) (6), (b) (7)(

(b) (4)

Case 18-CA-192154, et al.

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repayment of the purported loans but, as noted above, no such loans had ever been

made.

In January 2017, the Minnesota Department of Labor and Industry filed a

Complaint against Lakeville, LME, and FLE under the Uniform Fraudulent Transfer

Act, Minn. Stat. Section 513.41-51, for back wages and liquidated damages. The

Complaint alleged, inter alia, that: (1) LME was operating in concert with Lakeville,

was indistinguishable from it as a corporate entity, and failed to observe corporate

formalities; and (2) Lakeville attempted to dissipate its assets fraudulently to avoid

paying employee wages. In response, LME agreed to pay Lakeville’s former

employees all back wages that were incurred as of Lakeville’s closing and filing for

bankruptcy, as well as the value of their unused vacation and sick leave.

ACTION

We conclude that complaint should issue, absent settlement, alleging that the

two Employer entities central to this unlawful scheme—LME and Lakeville—are

alter egos, and that they violated Section 8(a)(3) and (5) of the Act by

discriminatorily subcontracting out all of Lakeville’s bargaining unit work and

closing Lakeville

s well as the value of their unused vacation and sick leave.

ACTION

We conclude that complaint should issue, absent settlement, alleging that the

two Employer entities central to this unlawful scheme—LME and Lakeville—are

alter egos, and that they violated Section 8(a)(3) and (5) of the Act by

discriminatorily subcontracting out all of Lakeville’s bargaining unit work and

closing Lakeville.

In determining whether two ostensibly separate employers constitute alter egos

for purposes of the Act, the main question to be answered is “whether the two

employers are the same business in the same market.”5 The Board answers that

question affirmatively when the two entities have “substantially identical” ownership,

management, supervision, business purpose, operations, equipment, and customers.6

Whether the alter ego was created to evade responsibilities under the Act is another

factor that supports an alter ego finding.7 Not all of these factors, however, must be

present to establish an employer’s alter ego status and none of them, alone, is

determinative of the issue.8 The Board, however, will find an alter ego relationship in

5 Sobeck Corp., 321 NLRB 259, 266 (1996) (quoting Stardyne, Inc. v. NLRB, 41 F.3d

141, 151 (3d Cir. 1994)).

6 See, e.g., Advance Electric, 268 NLRB 1001, 1002 (1984), enforced, 748 F.2d 1001

(5th Cir. 1984); Fugazy Continental Corp., 265 NLRB 1301, 1301-02 (1982), enforced,

725 F.2d 1416 (D.C. Cir. 1984).

7 Fugazy Continental Corp., 265 NLRB at 1302.

8 See, e.g., El Vocero de Puerto Rico, 357 NLRB 1585, 1585 n.3, 1605 (2011) (“no

single factor is determinative and the Board does not require the presence of each

factor to conclude that alter ego status should be applied”); Fugazy Continental

inental Corp., 265 NLRB 1301, 1301-02 (1982), enforced,

725 F.2d 1416 (D.C. Cir. 1984).

7 Fugazy Continental Corp., 265 NLRB at 1302.

8 See, e.g., El Vocero de Puerto Rico, 357 NLRB 1585, 1585 n.3, 1605 (2011) (“no

single factor is determinative and the Board does not require the presence of each

factor to conclude that alter ego status should be applied”); Fugazy Continental

Case 18-CA-192154, et al.

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the absence of substantially identical common ownership only “where both companies

were either wholly owned by members of the same family or nearly entirely owned by

the same individual, or where the older company maintained substantial control over

the new company.”9 The General Counsel has the burden of establishing an

employer’s alter ego status.10 Here, as found by the Region, all of these factors are

shown, including the common ownership demonstrated by the sham transactions

concocted to fraudulently show that Lakeville was a separate business entity from

LME.11

We further conclude that the Employer violated Section 8(a)(3) and (5) of the

Act by discriminatorily subcontracting out all of Lakeville’s unit work and closing

Lakeville. In this regard, we emphasize the overwhelming evidence of the

Employer’s repeated sham and fraudulent transactions, the Employer’s

demonstrated anti-Union animus, and the manifest pretext in its explanations for

its conduct.

Corp., 265 NLRB at 1302 (stating that no one factor “is the sine qua non of alter ego

status”)

all of Lakeville’s unit work and closing

Lakeville. In this regard, we emphasize the overwhelming evidence of the

Employer’s repeated sham and fraudulent transactions, the Employer’s

demonstrated anti-Union animus, and the manifest pretext in its explanations for

its conduct.

Corp., 265 NLRB at 1302 (stating that no one factor “is the sine qua non of alter ego

status”).

9 See El Vocero De Puerto Rico, 357 NLRB at 1585 n.3; see also McAllister Bros., 278

NLRB 601, 616-17 (1986) (finding that an employer transferred operations to a

disguised continuance to evade its collective-bargaining obligations, in violation of

Section 8(a)(3) and (5) of the Act, despite ostensible lack of common ownership

between the two entities, as the alter ego “existed almost exclusively for the purpose

of serving” the customers of the controlling original employer, the original employer

“controlled the workload” of its alter ego, the original employer “represented to its

customers and the general public” that the alter ego was its own operation, and the

sole “shareholders” of the alter ego “invested none of their own money” in the

ostensibly new operation), enforced, 819 F.2d 439 (4th Cir. 1987); Citywide Service

Corp., 317 NLRB 861, 874 (1995) (alter ego found, despite ostensible lack of common

ownership, where disguised continuance was formed with capital from original

employer and “that transaction was not an arm’s-length business arrangement

which could be expected from two separate parties”); Fugazy Continental Corp., 265

NLRB at 1301-03 (alter ego found, despite ostensible lack of common ownership,

where sale of disguised continuance “was not a bona fide arm’s-length transaction”).

10 See, e.g., US Reinforcing, 350 NLRB 404, 404 (2007).

11 An alter ego relationship may be found even where the disguised continuance is a

previously-existing business entity

two separate parties”); Fugazy Continental Corp., 265

NLRB at 1301-03 (alter ego found, despite ostensible lack of common ownership,

where sale of disguised continuance “was not a bona fide arm’s-length transaction”).

10 See, e.g., US Reinforcing, 350 NLRB 404, 404 (2007).

11 An alter ego relationship may be found even where the disguised continuance is a

previously-existing business entity. See, e.g., Yerger Trucking, 307 NLRB 567, 574-

75 (1992) (finding firms were alter egos and employer violated the Act when owner

switched all of his business from one firm to another, and offered pretextual,

“concocted” reasons for this conduct); Groves Truck & Trailer, 294 NLRB 1, 9 (1989).

(b) (5)