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Case number 16-1303 at L. Island Architectural Woodwork, Inc.

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Petitioner versus National Labor Relations Board.

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Mr. Mayor for Petitioner Island Agriculture Architectural Woodwork, Inc.

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Mr. Leolus for Petitioner Verde Demontable Petitions, Inc.

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and Ms.

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Johnston for the respondent.

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Good morning.

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Good morning.

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Jeffrey Meyer, Nixon Peabody, on behalf of Island Architectural Woodwork.

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The case we have today is a decision issued by, a decision order issued by the NLRB, which overturned an AOJ's decision regarding alter ego issue.

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The finding that the NLRB reached is not supported by the substantial evidence in the record.

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In fact, as this course is held in, recently held,

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In Fred Meyer's story, an August case coming from this court, the board totally ignores facts in the record and misconstrues findings of the ALJ.

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What do I mean by that?

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In order to find an alter ego, there are a number of factors that the trial level must find initially, and then the board approve or confirm their act.

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Those include common ownership of a business, substantial financial control over the secondary business,

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common equipment, common premises, and common operational or common management of the employees.

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None of those factors were met at the trial level.

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The board misconstrues the ALJ's decision on a number of points.

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Those being, if you read the ALJ's decision, he says that the two businesses, Island and Verde, my co-counsel's client, were in the same sphere of business.

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What that means is Island is a millwork, a high-end, one-off architectural millwork company.

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They produce the paneling in this room, the desks in front of us, the veneers that are on the bench performing.

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Verde, on the other hand, produces the mountable partitions.

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Those are wood, glass, steel, brass, any other type of material, walls that are removable and can be moved around in office space.

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Two separate businesses.

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Judge Green at the trial level said they were in the same spirit business.

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When you read the board's decision, they say it's the exact same business.

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The board also says that there's common equipment and common premises.

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That is also not true.

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You read the ALJ's decision.

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Judge Green says that Verde is operating out of a facility that Island formally operated in and formally used the equipment up, which is now rented to or leased to Verde from Island.

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The board misconstrues these facts to reach the desired result that they wanted to reach.

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Aside from the work that the general counsel did at the trial level, they did the GC's work for them by reaching the decision that they reached, separate and apart from the record evidence.

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Some of the other factors.

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Common ownership is one of the key elements of an alter ego finding.

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In this case, the record evidence shows there is zero common ownership.

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Verde is owned by a number of individuals, two of which happen to be the daughters of one of the owners of Island.

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There is no evidence in the record whatsoever that Mr. Raffrano, one of the owners of Island, financed or otherwise provided his daughter with any funding for the acquisition of Verde, of the product Verde, which is the demandable partitions.

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So I thought it was kind of interesting that the memorandum of understanding that was proposed, it had a provision in it that specifically contemplated the possibility that the owners of Island would become owners of Verde.

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Correct.

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And it specifically said that even if that happens,

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there still would be no alter ego relationship.

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Right.

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That was part of the negotiation with the union in the off chance that island was to ever acquire Verde, which has not happened, which based upon the production that Verde is engaged in and the business island is engaged in, is not going to happen.

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But then, but it seemed like, I mean, maybe

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you would know better than us whether it could happen.

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But the memorandum that was proposed specifically contemplated that if it did, there wouldn't be an alter ego relationship, which kind of indicates that I think you wouldn't disagree with the proposition that alter ego can exist even without common ownership.

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That's correct.

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Yeah.

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And so if the if the

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If the company that's trying to make something of the fact that there is no common ownership specifically proposes a provision under which common ownership actually wouldn't matter, then query whether the absence of common ownership actually matters all that much.

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I understand the point you raised, Your Honor.

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The response to that is,

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that memorandum was part of a negotiation with the union.

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As with any negotiation, and none of this was brought up by the general counsel at trial.

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Memorandum was entered, it was not, that part was not questioned, it was not raised.

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General counsel failed to pursue that avenue, which you're now hitting on.

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But the board made something of that, right?

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But the board made something up.

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The decision that we're reviewing, in other words, makes something of it.

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But the point is, as part of a negotiation, Ireland took the position that Verde is a separate entity.

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It's owned over here.

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It's a separate building.

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It's separate equipment.

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They make a separate product.

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We make something completely different.

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It's a different business plan.

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It's a different business model.

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It's mass production of a different entity, of a different material.

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It was put in there for negotiation purposes.

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And as with any negotiation with the union, the employer knew, Island knew, that there was going to be, there should have been a response from the union to counter that.

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It was put in there as a negotiation point.

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That's it.

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There was no alternative.

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There was no more intent to it than that as a negotiation point.

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Can I ask a record question, which is there is another consideration, which is motive, motivation, and the board reached the conclusion that there was a bad motive here.

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As far as I can tell, the ALJ didn't come down on one side or another on the motive question.

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I believe Judge Green found that there was no motive on behalf of Island.

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Where is that?

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Because I didn't see that anywhere.

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His point was that because there was no change in the bargaining unit's scope, that the union retained all of its bargaining unit employees at Island, and that did not change, that there was no union animus or unlawful motivation on behalf of Island in selling

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the very license, the very name to a new entity.

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Maybe, I don't want you to have to fish through it now, but maybe on rebuttal you could just point us to where in the opinion it actually says that.

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One of the problems with this case, as I see it, is that you make good points on individual factors, but it's a multi-factor test.

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And how are we to assess that here?

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Which factors, in other words, are in combination dispositive?

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I appreciate the question, you know.

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I think on all the points, the totality of the circumstances here, the substantial evidence which the board is required to meet,

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None of the factors even look together altogether.

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None of those, looking at all those, you can't reach the conclusion that an alter ego exists.

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So how did the board get it so wrong then?

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You said to reach their desired end.

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Why would they have a desired end in a case like this other than just trying to assess the alter ego doctrine as applied to particular facts?

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I think their construction of the alter ego theory doctrine was conflated.

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They took the position that just because Mr. Raffrano's daughters

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had an interest in the new company.

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I saw that in your briefs.

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You think it's a father-daughter thing.

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An implicit presumption that daughters who take over a business are necessarily controlled by their father.

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That seems to be what the board's implication was in reaching their decision.

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How do you get to that conclusion?

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The board didn't say that.

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There's nothing in the board's decision.

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That's my point in this whole appeal, Your Honor, is the exact same thing.

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The board reached these decisions without any evidence at the trial level.

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The record doesn't provide for any substantial finding that there's an alter ego.

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Wasn't the

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informality of the financial agreements between Island and Verde, a significant part of the board's determination that this is not arm's length, and it's parent-child because one thing that shows that it's not arm's length is that only when they get challenged in terms of their compliance with the labor law do they try to pay for that.

[00:09:15] Speaker 03:
Well, the uncontroverted testimony raised at trial, Your Honor, was that this agreement, this transaction was in place.

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It was in the works for a substantial amount of time.

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There are more than just Mr. Rufano's daughters as owners and as investors in Verde.

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You have a German architectural firm, one of the largest in the world, if not the largest in the world.

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You have two other investors who have industry knowledge in this particular field, the demountable partition systems.

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And there's no overlap?

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Is that right?

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Zero.

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In terms of ownership?

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Yes.

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Zero.

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So what is the explanation for why Ireland and Verde failed to document the significant benefits that Ireland is giving to Verde?

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His testimony was and the fact is that these agreements were being negotiated

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the lease was put in place earlier in the year, I believe in June or July, that they were working out the financial terms of the deal.

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And once it got to a point where counsel, other counsel, excluding McGinty, McGinty, which the board focuses on as the same attorney for both sides in their subpoenas,

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that the deal was consummated and finally put to paper.

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But the deal, the terms, the conditions, the sale price, the rental, the square foot rentals, everything was put in place.

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It just took a while, given the number of investors and the number of eyes that had to be on this thing, that it took that long to document.

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To the tune of several hundred thousand dollars benefiting Verde.

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at Island's expense.

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Here's the thing with that.

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The board takes a position earlier in the case.

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They say that the type of work that Verde did compared to Island and the change from wood partitions to metal and glass was just an insubstantial deviation because of market factors.

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They put on their economist hat and they draw that conclusion that's nowhere in the underlying record.

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What they don't put on, which they just pass over, is a hat of a realer.

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This was an empty space that was being used sparingly, if at all, after Island had brought in an efficiency expert, after the downturn of the market.

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It was tens of thousands of square feet in an empty building that wasn't being used.

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A commercial real estate broker,

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had the board put on that hat, we think it reasonable that if you have a few months free rent to bring in a tenant, which they did, they're paying rent at market values, $11 per square foot, and continue to pay those market rates.

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That's a concession that was made as part of the negotiation.

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It shows that there was an arms-like transaction.

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The board communally ignores that fact.

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They become economists and they want to become economists to shoot down Judge Green's trial-level decision, but yet they ignore the fact that market realities in the real estate world bear out that transaction and deem it reasonable.

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How do we assess, in the posture in which this case comes to us, and I'd be interested to know the board's thoughts on this, how do we assess the board's credibility determinations?

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It is interesting, and I think the board's probably better off speaking to their own credibility, but it is interesting that the board, in their decision and order, adopts or finds that Judge Green's credibility decisions at the trial level were sufficient, were met.

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There was no issue with that, given the standard drywall test that this board is very well aware of.

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However, given the fact of the limited witnesses that were subpoenaed by the GC, Judge Green adopts the testimony of Mr. Raffrano on behalf of Ireland.

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He adopts his testimony as credible in finding that there was no alter ego.

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The board, even though they say they adopt the credibility findings, they turn Mr. Raffrano's testimony on its head and effectively deem him incredible, not incredible, which flies in the face of standard drywall and what the board's role in issuing these decisions and orders is.

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Do any witnesses dispute the testimony of the union members that Rufrano actually wanted them to sign memorandum of agreement as a condition of further bargaining?

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And isn't that enough to show the intent?

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Again, Your Honor, I think that's part of the negotiation.

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The discussions between the Union and Island at that point were that the Union was questioning what was going on in the back building, in the Haynes building, where Verde was now operating as of October of 13.

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It was Island's position, and still is Island's position, but that's a separate entity.

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And that it's fully lawful to say you have to sign this

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That they are separate entities and they are not part of the island bargaining unit?

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I believe so, yes.

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I believe that is lawful.

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To exclude them, there are exclusions.

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There's definitions of a bargaining unit.

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For one party to agree with another party, they could have said the company down the street.

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They could have said island diversified, which is mentioned in the record, a separate entity completely across the street.

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Island diversified, even though it shares the same name.

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or a similar name, is not part of the same bargaining unit, and there is no right or access to those employees.

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Same concept there.

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The fact that it's a different entity, there's different ownership.

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Again, all of the alter ego factors were met in terms of disproving that an alter ego exists.

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That is 100% part of the negotiation process.

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Thank you.

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We'll give you some time on rebuttal.

[00:14:49] Speaker 04:
Thank you.

[00:14:59] Speaker 02:
May it please the court, my name is Harris Leolis and I represent Verdi, the Mountable Partitions.

[00:15:05] Speaker 02:
Your Honor, as Mr. Minor discussed with you, none of the factors were met to prove that this is an alter ego.

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With respect to the business purpose, while Mr. Meyer explains to you your beautiful paneling here and the wooden desks here, the work of Ireland, what Verley does is, imagine a raw space, and you need to have four employees today.

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They built the multiple partition system for the offices.

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However, tomorrow you only have three employees, and you need a conference room.

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Those partition systems open, make different rooms, different doors.

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This is completely different than a custom woodworking shop.

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Therefore, although Judge Green did indicate it was the same sphere, that's like saying any interior construction is the same sphere, an electrician with a plumber.

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And the other big point is that Verdi actually

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creates products that Island never did, the metal and glass partitions.

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70% of the business, which is unrefuted in the record, is the metal and glass partitions.

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They did the wood partitions, right?

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They did the wood partitions, Island.

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Island did wood partitions initially.

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And that was spun off.

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Correct.

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Right.

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So now the business evolved into a metal and glass partition.

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The fact that Verdi was able to evolve into this different type of business shows that it's a completely different business than that.

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Island does woodwork.

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They don't do metal.

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Island could have never been able to take the advantage that Verdi has to do the metal and glass partitions.

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And just to touch on also what Mr. Meyer stated, there is zero evidence that Mr. Rufano gave any money to any of his daughters to fund this business.

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His daughters are two partners in a business, along with one of the biggest architectural firms in the country, along with a prior partner in that architectural firm, Mr. Jeffrey Bright and Alan Shatton.

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These are separate and distinct owners.

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who came together to form a separate business of a line that was basically dying at Island, because Island didn't have the capacity to do what Verdi is now doing.

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One of them being the metal and glass partitions.

[00:17:17] Speaker 05:
And another important point is... You say that he didn't give his daughters any money, but he gave them assets and equipment, real estate of great value.

[00:17:27] Speaker 02:
For a price.

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That's not disputed.

[00:17:29] Speaker 05:
Well, no, for a period of time, not for a price.

[00:17:32] Speaker 02:
You know, let's take the lease first.

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At that time, I think it was 2014, the market was a lot lower than it was.

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Many landlords are giving incentives to their tenants to come in, whether they pay for the build out, give them a four-month build out period.

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This is the same thing as any other landlord-tenant relationship.

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They basically had, I think, a six-month period where they weren't paying rent from October to June when that lease was solidified.

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And in connection with the notes, that's the same thing.

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I know it's on the record and speculate.

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Many businesses are sold based on notes.

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Not everybody pays the full purchase price at the transaction.

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The fact that the notes are spread over 36 months also is not indicative of anything.

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At the end of the day, they're also paying interest on those notes.

[00:18:16] Speaker 02:
And with respect to the equipment lease, it's the same thing.

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At the end of the day, I think for the equipment lease, if I did the math, they're paying $750,000.

[00:18:24] Speaker 02:
So essentially, this is really a business sale of 1.5.

[00:18:27] Speaker 05:
But none of that is documented.

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There's no effort to use this as a sweetener to get other potential tenants who might pay more.

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There's no evaluation of the value of this and taking it as a loss on the part of Island.

[00:18:43] Speaker 05:
I mean, we just don't have any information that one would expect in the kinds of transactions you're talking about, where someone says, hey, we're going to give you upfront

[00:18:54] Speaker 05:
some freebies to tempt you in.

[00:18:56] Speaker 05:
It just doesn't look like that.

[00:18:58] Speaker 02:
Well, I think the other big consideration here also was Mr. Rufano's relationship with the big architectural firm.

[00:19:04] Speaker 02:
He couldn't sell it to anybody.

[00:19:06] Speaker 02:
He tried to sell it to two or three different distributors.

[00:19:08] Speaker 02:
I think one of them was null, one of them was steel case.

[00:19:10] Speaker 02:
And the architectural firm didn't work with them and therefore would not have agreed to that.

[00:19:15] Speaker 02:
I mean, that's another big distinction here is that

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Mr. Rufrano had to keep his relationship with the architectural firm.

[00:19:24] Speaker 02:
Rather than him letting this line, this green line die, and possibly his rest of his business with the architectural firm, he had to find a suitable person to do that.

[00:19:34] Speaker 02:
Jeffrey Bright had worked with his daughter.

[00:19:36] Speaker 02:
Therefore, over the four years that this entire transaction really evolved over a four-year period, it's not like all of a sudden one day they decided, hey, we're going to sell this to these individuals.

[00:19:47] Speaker 02:
It kept evolving to the point where Jeffrey Breit felt comfortable working with, and this is all on the record, Jeffrey Breit felt comfortable working with Tracy DeGotta.

[00:19:54] Speaker 02:
This was Jeffrey Breit's idea to work with Tracy.

[00:19:57] Speaker 04:
How does the fact that it was attempted to be sold to another entity play into the sham or alter ego analysis?

[00:20:05] Speaker 02:
How does it that it was attempted?

[00:20:07] Speaker 02:
it shows that it was an armed flank transaction, because he did try to sell it somewhere else.

[00:20:11] Speaker 02:
It's not like he just went right to his daughters and then said, you know what, tomorrow we're closing up shop, and this is it.

[00:20:16] Speaker 02:
I mean, the testimony and the record, all of it as a whole, there's no basis to find that this is an alter ego.

[00:20:23] Speaker 02:
And in addition, the island's own shop steward, Mr. Hortsman, testified that Verde employees never direct the employees of Island.

[00:20:37] Speaker 02:
If there is some product that has to be part of that agreement, if there is some product that Island is working on at the time, they determine how to do that and how to create that product.

[00:20:47] Speaker 02:
It's just like any other vendor of ND relationship.

[00:20:50] Speaker 02:
There's no difference here.

[00:20:52] Speaker 04:
Thank you very much.

[00:21:04] Speaker 00:
May it please the court, Rebecca Johnston from the National Labor Relations Board.

[00:21:09] Speaker 00:
The Council for Ireland and Verde paid an entirely different picture that is not borne out by the record evidence.

[00:21:15] Speaker 00:
In fact, substantial evidence supports the board's finding that the two entities are in fact alter egos and violated the act when they did not

[00:21:25] Speaker 00:
recognize and bargain with the union as the representative of Verde employees who are performing bargaining unit work in the back building.

[00:21:35] Speaker 04:
So common ownership, you agree that there's no overlap in ownership, correct?

[00:21:42] Speaker 00:
Yes, the board found there was no common ownership.

[00:21:44] Speaker 00:
However, in the absence of common ownership, the board looks to other factors.

[00:21:49] Speaker 04:
So on the other factors, there's no overlap in management, correct?

[00:21:55] Speaker 00:
There's also no overlap in labor management.

[00:21:59] Speaker 00:
However, here, going back to the common ownership, in absence of common ownership, the board has found alter egos where there is substantial financial control.

[00:22:08] Speaker 00:
Here, as you were discussing with opposing counsel, there was a lack of an arm's length relationship.

[00:22:15] Speaker 04:
Is that simply because they're daughters?

[00:22:18] Speaker 00:
No, the board did not rely on the fact that this was a family relationship.

[00:22:22] Speaker 00:
Council goes into great detail citing a number of family cases of the boards.

[00:22:28] Speaker 00:
And those cases simply show that the board is cognizant that family members can go into business with each other and not be alter egos.

[00:22:35] Speaker 00:
But here the problem is that the relationship was not at arm's length.

[00:22:40] Speaker 00:
Verdy was permitted to operate in islands premises, on islands equipment, with some of islands former employees.

[00:22:50] Speaker 04:
Were they paying for them?

[00:22:52] Speaker 04:
the premises?

[00:22:54] Speaker 00:
Uh, not for they were not paying for a full eight months.

[00:22:59] Speaker 04:
Um, only after that after that, do they pay for the premises?

[00:23:02] Speaker 00:
There's no evidence in the record that they're making payments, but there is at least and and that we used to assigned in june and they make different products.

[00:23:13] Speaker 00:
Uh, the board found that they have a substantially similar business purpose.

[00:23:17] Speaker 00:
Opposing counsel is looking at the wrong point in time for

[00:23:21] Speaker 00:
For most alter ego cases, or many alter ego cases, one business shuts down entirely, and another business starts back up doing the same thing.

[00:23:30] Speaker 04:
Right, the whole thing's a big sham is the term that you see in a lot of the cases, I think, is sham.

[00:23:39] Speaker 04:
And we don't have a shutdown of the original business in this case.

[00:23:45] Speaker 00:
Right here it's just a portion of the business and you'll see that in the Third Circuit case in Stardine where they just shut down a portion of the business and that portion became non-union.

[00:23:56] Speaker 00:
A similar thing happened here.

[00:23:58] Speaker 00:
Island was attempting to make these Verde demountable partitions.

[00:24:02] Speaker 00:
They found that it wasn't possible and

[00:24:05] Speaker 00:
shut down that portion of the business and transferred it over to this purportedly new entity to pick up.

[00:24:11] Speaker 04:
But on that transfer to the purportedly new entity, that was not the first move they made.

[00:24:16] Speaker 04:
They tried to, correct me if I'm wrong, tried to interest other arm's-length businesses in taking over that portion of the business, I think to placate the client, correct?

[00:24:30] Speaker 00:
Yes, the record shows that they did try to

[00:24:34] Speaker 00:
sell the business to a number of entities?

[00:24:36] Speaker 04:
That shows a – it's not dispositive, clearly, but it does show that there's not some immediate sham motivation here in the way that – where you have the shutdown and restart with a new name or something like that.

[00:24:55] Speaker 00:
Possibly, however, they were in talks during this time with this Jeffrey Bright.

[00:25:01] Speaker 00:
Rufrano was in talks with Jeffrey Bright at this time.

[00:25:03] Speaker 00:
They were shopping it on the open market, and then also, as my understanding of the record, they were also having these other discussions, including formation of this new purported entity, Verde, with Rufrano's daughter.

[00:25:21] Speaker 04:
What are we to make of the ALJ's decision?

[00:25:24] Speaker 04:
I've said this for about 11 years now, but whenever I see an agency disagree with an ALJ, it's at least a yellow flag if it's not on the law, purely, if there's some factual component to it.

[00:25:38] Speaker 04:
And the ALJ here, of course, I'm not sure how you characterize this.

[00:25:43] Speaker 04:
It's kind of a mixed question of law and fact.

[00:25:45] Speaker 04:
But the ALJ, as you know, reached the opposite decision.

[00:25:48] Speaker 04:
What are we to make of that?

[00:25:50] Speaker 00:
That's right.

[00:25:50] Speaker 00:
This court has said that the standard of review does not change.

[00:25:54] Speaker 00:
It's still a substantial evidence test.

[00:25:58] Speaker 00:
The board is the agency that Congress has been requested to administer the labor laws and is able to substitute its findings for that of the administrative law judge, as long as they explain, which they did here, and as long as their decision is supported by substantial record evidence, which it is here.

[00:26:17] Speaker 00:
Regarding the credibility findings, there simply aren't a lot of credibility findings by the administrative law judge.

[00:26:23] Speaker 00:
I think there's one where he credits the two union employees that Raffronos refused to meet.

[00:26:32] Speaker 04:
Your point, and this is a helpful question for you, is that this is, in essence, a mix of factors and the ultimate determination is more in the nature of a legal determination than a factual determination.

[00:26:43] Speaker 00:
I think that's right.

[00:26:44] Speaker 00:
It's mixed and not heavily reliant on credibility determination.

[00:26:48] Speaker 01:
As I read the ALJ's decision, the ALJ went through a lot of cases in the part of the analysis that did the legal work and documented the considerations that were set forth in all the cases.

[00:26:58] Speaker 01:
And then there's a concluding paragraph at appendix 15 that says, after considering the facts in the present case in light of the multi-factor test set forth in the cases described above, it's my conclusion that the balance of evidence shows that Verde is not the alter ego.

[00:27:12] Speaker 01:
And I don't know if there's a whole lot more to the analysis than that statement of conclusion informed by the way the cases that the ALJ went through sifted through circumstances that were applicable in those cases.

[00:27:27] Speaker 00:
That's right.

[00:27:28] Speaker 00:
The ALJ did make some findings before it goes through the cases.

[00:27:32] Speaker 00:
It found that they shared a business purpose.

[00:27:35] Speaker 00:
They shared interrelated operations.

[00:27:38] Speaker 00:
equipment premises where the ALJ differed from the board was ownership or substantial financial control.

[00:27:47] Speaker 04:
And I do believe he- And how's the- I'm sorry to interrupt.

[00:27:50] Speaker 04:
Go ahead.

[00:27:51] Speaker 00:
Oh, I do believe he sort of made a finding on motive with respect to harm to the bargaining unit.

[00:27:58] Speaker 00:
He didn't address the memorandum.

[00:28:01] Speaker 00:
He didn't address these comments that Raffrano made that

[00:28:04] Speaker 00:
Verdi could produce the product more cheaply because it was non-union, and he didn't address additional evidence of motive.

[00:28:14] Speaker 04:
Where there's no common ownership or even overlap in ownership, no overlap in management, and they make different products now, at least.

[00:28:27] Speaker 04:
What's your best case?

[00:28:31] Speaker 00:
I'm not sure.

[00:28:32] Speaker 00:
I could get back to you on that.

[00:28:34] Speaker 00:
I'm not sure I have a case exactly on point.

[00:28:36] Speaker 00:
I wouldn't submit that they are making different products here though.

[00:28:40] Speaker 00:
I can see that there is separate ownership and I can see that there is separate management of labor relations.

[00:28:48] Speaker 00:
They do make this spin off the product.

[00:28:52] Speaker 04:
Maybe I'm just burdened by alter ego doctrine in other lines of the law or maybe burdened by common sense.

[00:28:59] Speaker 04:
But this doesn't seem like alter ego in the usual way you think of an alter ego when there's no overlapping ownership or management.

[00:29:06] Speaker 04:
and they're now making different things, and there is rent being paid.

[00:29:10] Speaker 04:
And I take the point that there was a gap there.

[00:29:13] Speaker 04:
But that's not the... That's not usually... You don't usually look at that situation and say, oh, that's alter ego, unless you throw in the family aspect.

[00:29:22] Speaker 04:
And I think that's the point that the blue brief was making, is that the cloud of the family relationship always raises a suspicion

[00:29:32] Speaker 04:
that the family's operating as a unit that's trumping the business formalities.

[00:29:37] Speaker 04:
And I think that's not stated in the board's opinion, but the blue brief seems to suggest it's implicit in how the board reached its result here.

[00:29:46] Speaker 04:
Given that there's no common ownership, no common management, they make different things.

[00:29:50] Speaker 00:
Certainly the family dynamic sort of colors the relationship and perhaps explains that it was a lack of an arm's length feeling.

[00:29:59] Speaker 04:
Also, in discussing this... Can a father and daughter have an arms-length transaction?

[00:30:03] Speaker 00:
Certainly, but here that's not what happens.

[00:30:05] Speaker 00:
They have this sort of interrelated operations.

[00:30:11] Speaker 01:
There's some families that don't get along at all.

[00:30:13] Speaker 01:
I think it would be more than an arms-length transaction, depending on the circumstances, you'd ever...

[00:30:18] Speaker 01:
Can a friendly father and daughter have an arm's length transaction?

[00:30:22] Speaker 00:
Certainly.

[00:30:22] Speaker 00:
And many of the board's cases that housing counsel has found, has found arm's length transactions between family members.

[00:30:29] Speaker 00:
The board isn't trying to limit family members from going into business.

[00:30:33] Speaker 00:
The board's concern here is the substantial financial control as evidenced by the lack of arm's length dealing.

[00:30:41] Speaker 00:
And also, there's strong evidence of motive.

[00:30:44] Speaker 00:
Rafferano testified that he

[00:30:46] Speaker 00:
was concerned about the plight of unionization and his inability to compete on the market in producing history.

[00:30:53] Speaker 04:
Well that's every small business owner in the country would say something like that.

[00:30:58] Speaker 05:
The different product, I thought it was sort of an evolving situation where first Verde was making something that Island had been making, the wood versions, and that they sort of

[00:31:12] Speaker 05:
after they were established, they quickly switched toward more of the metal and the glass.

[00:31:19] Speaker 05:
But at the time, it was a kind of, here's something we're doing, we're going to roll it off into a new unit.

[00:31:27] Speaker 00:
Is that?

[00:31:27] Speaker 00:
That's right.

[00:31:28] Speaker 00:
At the time of the so-called transfer to the business, they just simply took off where Island left off in attempting to manufacture these green partitions.

[00:31:38] Speaker 05:
So you don't concede that it's a different product for purposes of this analysis?

[00:31:42] Speaker 00:
Not the green partitions, no, but they did.

[00:31:45] Speaker 04:
The other partitions are a different product.

[00:31:47] Speaker 04:
They were never manufactured by islands, right?

[00:31:49] Speaker 00:
That's right.

[00:31:50] Speaker 00:
Due to lack of market demand, they began manufacturing these metal partitions.

[00:31:56] Speaker 00:
And at the time of the hearing, which was approximately, it was over a year later, they were making 70% metal and 30%.

[00:32:04] Speaker 04:
The anti-union motive, to me,

[00:32:08] Speaker 04:
doesn't jump out at me, and here's why, and you tell me why I'm wrong.

[00:32:13] Speaker 04:
What jumps out at me is they wanted to placate this client and keep the client's business.

[00:32:17] Speaker 04:
They wanted to do that.

[00:32:18] Speaker 04:
They needed to have a partition.

[00:32:20] Speaker 04:
They thought they would help, correct me if I'm wrong, to have a partition business, but it wasn't profitable for them to do it.

[00:32:27] Speaker 04:
So they tried to find other businesses to do the partition business that then the client, the firm, could deal with.

[00:32:35] Speaker 04:
That didn't work.

[00:32:36] Speaker 04:
Again, the motive is the firm, keeping the business with the firm.

[00:32:41] Speaker 04:
And finally, they spin it off into this with people they know, but not common ownership, not common management, and paying rent and the like, and using the same equipment.

[00:32:53] Speaker 04:
The motive of anti-unionization that we see definitely in a lot of cases, much more directly, seems

[00:33:01] Speaker 04:
pretty deep in the background here.

[00:33:02] Speaker 04:
The motives here seem to be let's let's placate the firm.

[00:33:05] Speaker 04:
Let's find another business that can do the partitions.

[00:33:08] Speaker 04:
Let's figure out a way to keep this going.

[00:33:11] Speaker 00:
That's that's the why is that wrong?

[00:33:13] Speaker 00:
That's opposing counsel's version.

[00:33:15] Speaker 00:
I know.

[00:33:16] Speaker 00:
Why?

[00:33:16] Speaker 04:
Why is that wrong?

[00:33:17] Speaker 00:
Supported by the record.

[00:33:18] Speaker 00:
Sure.

[00:33:19] Speaker 00:
And we're not looking for the kind of animus that would make a separate 81 violation.

[00:33:24] Speaker 00:
We're looking for an intent to avoid

[00:33:26] Speaker 00:
their obligations to the union under the collective bargaining agreement.

[00:33:30] Speaker 00:
So you have several examples of motive.

[00:33:33] Speaker 00:
Raffrano repeatedly communicated his intent that the Verde employees not be unionized.

[00:33:39] Speaker 00:
Assuming these are two separate entities, why is he wanting these employees of another entity not to be unionized?

[00:33:47] Speaker 00:
He again said that he had the plight of a union contractor, suggesting that he couldn't make

[00:33:56] Speaker 00:
these partitions competitively because of his status as a union contractor.

[00:34:01] Speaker 04:
Was that false?

[00:34:04] Speaker 00:
He appeared to have been losing money in trying to make these partitions.

[00:34:10] Speaker 00:
But he also then told the union.

[00:34:12] Speaker 05:
That seems like a funny way.

[00:34:14] Speaker 05:
I mean, the board says, you know, he communicated his intention that the Verde employees not be unionized.

[00:34:22] Speaker 05:
And he's saying, you know, you union from here, you won't go over there.

[00:34:26] Speaker 05:
No union employee can set foot in there.

[00:34:29] Speaker 05:
I mean, it's the business case.

[00:34:31] Speaker 05:
I don't know.

[00:34:31] Speaker 05:
Is the business case actually anti-union, if it's actually true?

[00:34:39] Speaker 00:
I'm sorry, I don't understand.

[00:34:40] Speaker 05:
Well, to the extent that someone says, I can't make money doing this and paying union wages, do you construe that to be an impermissible anti-union motive?

[00:34:51] Speaker 00:
If he creates an alter ego to continue the business.

[00:34:56] Speaker 05:
But that's sort of circular, because what we're trying to find out is did he create an alter ego?

[00:35:03] Speaker 05:
And one of the factors was the reason for doing it.

[00:35:06] Speaker 05:
If there was a business reason for doing it, that would seem to me to cut the other way.

[00:35:09] Speaker 05:
and say it's permissible.

[00:35:12] Speaker 05:
Whereas if he says, I'm going to create this other unit, and I'm going to draw a bright line between that unit and this unit because I want to confine union membership, that seems different from saying, whatever I'm doing in this place is losing money, including the wage levels I'm paying under the agreement.

[00:35:30] Speaker 05:
I'm going to set up something that's more efficient in the back building.

[00:35:34] Speaker 05:
That would seem to me not to be anti-union, but you equate the two.

[00:35:40] Speaker 00:
Right, and in the board's view, that is evidence of motive.

[00:35:43] Speaker 00:
And even if there were more than one motive for creating this other entity, there still is, according to the board's view of the evidence, strong evidence of anti-union motive.

[00:35:57] Speaker 01:
Can you just continue with the list?

[00:35:59] Speaker 01:
So the first one was that Raffrano was saying that he wants Verde to be anti-union, and why would he be doing that if he has no control over

[00:36:08] Speaker 01:
over Verde.

[00:36:09] Speaker 01:
So I got that one.

[00:36:11] Speaker 01:
What's the rest of your list?

[00:36:14] Speaker 00:
And in keeping with that, his continued pressure that the union disavow bargaining unit work over there.

[00:36:21] Speaker 00:
And in this memorandum of agreement, he makes promises to the union that he will have exclusive business deals with Verde because they are able to produce it more cheaply as a non-union entity.

[00:36:35] Speaker 00:
an island would stand to gain millions of dollars from this sort of setup.

[00:36:42] Speaker 01:
If Verde stays non-union.

[00:36:43] Speaker 00:
That's right.

[00:36:44] Speaker 00:
And another evidence of motive is the timing of signing these formal documents.

[00:36:51] Speaker 00:
Again, this wasn't an arms-length transaction.

[00:36:53] Speaker 00:
They operated for eight months to a year without these formal documents.

[00:36:56] Speaker 00:
They only signed these agreements

[00:36:59] Speaker 00:
the day before producing them pursuant to the general counsel's subpoena.

[00:37:03] Speaker 04:
That goes to the alter ego question.

[00:37:05] Speaker 04:
I'm not sure that goes to an anti-union motive.

[00:37:08] Speaker 00:
It goes to sort of the concealment from the union of what exactly was happening and hiding what was going on.

[00:37:15] Speaker 00:
And that was my final point was that they never told the union what was going on.

[00:37:21] Speaker 00:
They simply told the bargaining unit

[00:37:24] Speaker 00:
members who were working in the back building to leave.

[00:37:26] Speaker 00:
They said no union members were allowed to ever enter this building again.

[00:37:29] Speaker 00:
They didn't say no island employees.

[00:37:32] Speaker 00:
They said no union members.

[00:37:33] Speaker 00:
They slapped up a Verdi sign and then told a continually evolving story to the union about what was happening in the back building.

[00:37:42] Speaker 00:
First, Raffano said he wouldn't set foot back there.

[00:37:44] Speaker 00:
I thought it was an entirely separate

[00:37:47] Speaker 00:
entity, and then he later conceded that he would be involved, though he couldn't give them details.

[00:37:52] Speaker 04:
And this goes... Do you think if he had the opinion, which he expressed, had the opinion that a company engaged in this partition business would not be able to compete with other suppliers or other competitors if they had a unionized workforce?

[00:38:11] Speaker 04:
Is that evidence of anti-union animus to state that?

[00:38:16] Speaker 00:
not necessarily anti-union animus, but certainly an intent to evade his collective bargaining obligations.

[00:38:22] Speaker 04:
This is a more legal question now.

[00:38:26] Speaker 04:
The relationship between successorship doctrine and alter ego doctrine, can you give me the, because I think that affects the back pay obligation here, if this were a successor

[00:38:45] Speaker 04:
There might not be a back pay obligation under the alter ego finding there is a back pay obligation.

[00:38:51] Speaker 04:
What is the distinction between those two things as you see it?

[00:38:54] Speaker 00:
Right.

[00:38:54] Speaker 00:
As successor, there's no significant change in the essential nature of the business, and also a majority of the new employees were employed by the predecessor.

[00:39:05] Speaker 04:
And that's the part that's missing here?

[00:39:07] Speaker 00:
Arguably.

[00:39:07] Speaker 00:
This was never a part of the general counsel's case, but it would affect the remedy.

[00:39:12] Speaker 04:
And why go with alter ego rather than successor if you're the general counsel?

[00:39:17] Speaker 00:
The remedy is different.

[00:39:19] Speaker 04:
You're trying to get the back pay.

[00:39:21] Speaker 00:
I can't speak to why they chose to plead the case this way, but the remedy is different.

[00:39:27] Speaker 05:
How much money is involved?

[00:39:28] Speaker 05:
I don't have the answer.

[00:39:30] Speaker 04:
For the back pay?

[00:39:32] Speaker 00:
I think I cut you off.

[00:39:40] Speaker 01:
I have a conceptual question.

[00:39:42] Speaker 01:
So if you have a circumstance in which a business who's covered by a collective bargaining agreement says, you know, it would be much more profitable if I could have this one division be non-union, but the CBA doesn't allow me to do that.

[00:39:55] Speaker 01:
And so what I'd like to do is just siphon that part of the business off into a separate entity.

[00:40:03] Speaker 01:
I'm doing it for the reason that I can't make profits off it.

[00:40:07] Speaker 01:
as it stands.

[00:40:08] Speaker 01:
So this is my whole objective is to not be subject to the collective bargaining agreement with respect to these particular employees because this is cost me an arm and a leg.

[00:40:19] Speaker 01:
But then everything that the entity does in creating that is entirely above board so that it's bonafide transaction, it's arm's length,

[00:40:28] Speaker 01:
It's a separate entity, it's got separate ownership, it's got separate management.

[00:40:33] Speaker 01:
There's no reason to think that there's anything nefarious about the operations of the entity that's cordoned off.

[00:40:39] Speaker 01:
Would that be a problem?

[00:40:41] Speaker 00:
under those.

[00:40:42] Speaker 00:
I can't totally bind the board, but under those facts, that would seem to suggest that it's not an alter ego.

[00:40:50] Speaker 00:
Those facts are remarkably different here, though.

[00:40:53] Speaker 01:
Yeah, no, I'm not suggesting that.

[00:40:55] Speaker 01:
I'm just trying to figure out, as a legal matter, what role motive plays.

[00:40:59] Speaker 00:
In the analysis and so it's not it's not necessary, but it certainly colors colors.

[00:41:05] Speaker 04:
I thought it is.

[00:41:06] Speaker 04:
And this is the oddity of my earlier the oddity that I was trying to get out of my earlier question.

[00:41:12] Speaker 04:
Judge Srinivasan's question isolates this, which is normally when you think about alter ego.

[00:41:16] Speaker 04:
I guess I don't think about motive.

[00:41:18] Speaker 04:
You think about the construct of the business.

[00:41:21] Speaker 04:
But motive is definitely part of the board's analysis of alter ego in the labor law context.

[00:41:26] Speaker 04:
And I understand why.

[00:41:27] Speaker 04:
And the question, I think, to Trinivasan's question, helpfully isolates for me, is how much of a factor is it?

[00:41:35] Speaker 04:
If you have nothing else, can it be enough when you just create a separate business or a separate business is created if the motive was to get out from under the union obligations?

[00:41:45] Speaker 00:
I don't think motive alone would create it.

[00:41:48] Speaker 04:
Right.

[00:41:49] Speaker 04:
And then the question is how much.

[00:41:50] Speaker 01:
Yeah.

[00:41:50] Speaker 01:
Yeah, I'm not necessarily sure it would be wrong to say that motive alone would be enough as a matter.

[00:41:55] Speaker 01:
I mean, I don't know that we know whether that would be an invalid interpretation of the statute.

[00:41:58] Speaker 01:
I was just curious as to the way that the board currently interprets things under its decisions, whether it views motive to be an independent driver or whether it's more of a

[00:42:08] Speaker 01:
an additional consideration that informs a conclusion that at least has to be borne out in some other respects in favor of an alter ego determination.

[00:42:16] Speaker 01:
And it sounds like it's that, it's the latter.

[00:42:18] Speaker 04:
Yeah, okay.

[00:42:21] Speaker 04:
If you just had the motive, but it was a totally separate business, isn't that where the successorship doctrine can kick in?

[00:42:29] Speaker 04:
Or am I wrong about that?

[00:42:30] Speaker 04:
If the employees are all the same?

[00:42:33] Speaker 00:
Possibly, yes.

[00:42:36] Speaker 04:
Right, and the difference between the successorship and the alter ego would be the remedy, right?

[00:42:42] Speaker 04:
And that's why they probably went for alter ego here, but you don't need to concede that.

[00:42:50] Speaker 00:
Are there any further questions?

[00:42:53] Speaker 04:
No, thank you very much.

[00:42:55] Speaker 04:
And we'll give you a time on rebuttal.

[00:43:03] Speaker 03:
Judge, just to hit on the couple of points in the underlying, the trial decision.

[00:43:07] Speaker 03:
Yeah.

[00:43:08] Speaker 03:
Appendix A12 and A14.

[00:43:11] Speaker 03:
Bottom right column, last paragraph on A12.

[00:43:15] Speaker 03:
Judge Green starts his analysis of the union motive or lack of union motive in this case.

[00:43:20] Speaker 03:
And that carries over, or doesn't carry over.

[00:43:22] Speaker 03:
There's a new paragraph at the top of, or continued on to the top of A14, where he also addresses the lack of union motivation in the transaction.

[00:43:34] Speaker 01:
Yeah, so that goes to, right, motive insofar as it's informed by adverse effect on employees.

[00:43:39] Speaker 01:
Yeah.

[00:43:40] Speaker 01:
Okay.

[00:43:40] Speaker 01:
Got it.

[00:43:41] Speaker 01:
Thank you.

[00:43:42] Speaker 03:
And just to touch base on the last point we've been talking about, about union motivation or the lack thereof.

[00:43:50] Speaker 03:
We still have to be mindful that the work at all – well, two things.

[00:43:56] Speaker 03:
One, Ireland's original negotiation with the union in saying that we are not one and the same with Verde.

[00:44:02] Speaker 03:
Verde is not part of our bargaining unit.

[00:44:04] Speaker 03:
stems from the simple presumption that Island, as it is, or Verde is, a separate entity.

[00:44:11] Speaker 03:
You cannot, as Island, bargain on behalf of another company's employees.

[00:44:14] Speaker 03:
That's the simple motivation behind the MOA when you boil it down.

[00:44:18] Speaker 03:
They're not our employees.

[00:44:19] Speaker 03:
We can't bargain on their behalf.

[00:44:20] Speaker 03:
That's up to Verde to do whatever Verde wants to do.

[00:44:22] Speaker 03:
They're not Island employees.

[00:44:23] Speaker 03:
We cannot lawfully or legitimately bargain on their behalf.

[00:44:26] Speaker 03:
It's a whole new group of employees back there.

[00:44:28] Speaker 03:
It's a different unit.

[00:44:29] Speaker 03:
They're not ours.

[00:44:30] Speaker 03:
That's as simple as that can be boiled down from Ireland's perspective.

[00:44:34] Speaker 03:
Also, in terms of any benefit, a financial benefit that Raffrano or Ireland could theoretically reap from Verde being union or non-union, it doesn't matter to them.

[00:44:44] Speaker 03:
It did not matter to them at that time, regardless of whatever Verde was paying in terms of wages or benefits.

[00:44:49] Speaker 03:
Because what Ireland was getting out of it was cost plus 20 percent of the veneer work they were doing.

[00:44:54] Speaker 03:
It didn't matter what Verde was paying out of pocket.

[00:44:57] Speaker 03:
They had a profit margin built in place for work they were doing.

[00:44:59] Speaker 03:
It didn't matter.

[00:45:01] Speaker 04:
Well, didn't they care about the ongoing success of Verde because that would help with the firm and they had a relationship with the firm and they were trying to make sure the firm was covered on this other?

[00:45:10] Speaker 03:
Sure, but that's as a mass-produced, demandable partition business, which is what Verde was evolving into.

[00:45:19] Speaker 03:
Whether it was union or non-union was not a motivation.

[00:45:21] Speaker 03:
Ireland's motivation was, look, they're going to mass produce it, we're not handling it, it's a new entity.

[00:45:27] Speaker 03:
And if they have some work for us, we're going to do it across the state.

[00:45:30] Speaker 04:
Well, didn't they think there were more?

[00:45:31] Speaker 04:
Maybe I'm misunderstanding, but I think the board's counsel suggested, or maybe I was putting words in her mouth, but that there was an expression that Verde would not be as successful or couldn't make a go of it if it had unionized workforce.

[00:45:47] Speaker 03:
I don't know where that exists in the record, Your Honor.

[00:45:49] Speaker 03:
I do not recall that.

[00:45:51] Speaker 03:
I don't believe that was part of the underlying record or trial transcript.

[00:45:54] Speaker 05:
Well, I think it's JAA.

[00:45:58] Speaker 05:
It's a couple of places in the board opinion.

[00:46:01] Speaker 05:
It talks about the plight of union contractors.

[00:46:04] Speaker 05:
And the union would benefit from islands increased profits if Verde remained non-unionized.

[00:46:08] Speaker 05:
And then an island could get business through Verde or have contracts in which it would collaborate with Verde.

[00:46:17] Speaker 03:
What site was that?

[00:46:20] Speaker 05:
Well, the JA248, JA444, just a few places where

[00:46:28] Speaker 05:
Rufrano is talking about everything's going to be better if they're non-union.

[00:46:36] Speaker 03:
The simple answer to that question is still, from an island's perspective, their profit margin was based upon the work they did for Verde and not because of Verde's union or non-union status.

[00:46:47] Speaker 03:
It didn't matter.

[00:46:54] Speaker 04:
OK.

[00:46:55] Speaker 04:
Thank you.

[00:46:55] Speaker 04:
Thank you.

[00:46:57] Speaker 04:
Do you want any time on rebuttal or are you good?

[00:46:59] Speaker 04:
You're good.

[00:47:00] Speaker 04:
Okay, thank you to all counsel.

[00:47:02] Speaker 04:
The case is submitted.