Operations In Fiscal Year 1988 - National Labor Relations Board

168 Fifty-Third Annual Report of the National Labor Relations BoardC. Bankruptcy LitigationIn NLRB v. Better Building Supply Corp.," the Ninth Circuitruled that the liability of a corporation for backpay under theNLRA survives Chapter 7 bankruptcy proceedings and willattach to alter egos formed after bankruptcy. On appeal from adecision of the Board in an unfair labor practice case, the fmdingsof alter ego status were not disputed. Rather, the respondents.&intended that the backpay liability incurred under theNLRA Was discharged by application of the Bankruptcy Code.The Ninth Circuit, agreeing with the Board, found that the liabilityof the surviving alter ego was not discharged as a result ofthe liquidation proceedings undergone by the predecessors. Thecourt observed that Section 727 of the Bankruptcy Code (11U.S.C. § 727) specifically provides that the court shall grant the'debtor a discharge only when the debtor is an individual. Thus,although partnerships and corporations may be liquidated underChapter 7, they do not thereby receive a discharge of their debts.Indeed, the court noted that the legislative history of 11 U.S.C. §727 shows that it was enacted precisely to prohibit the traffickingin corporate shells undertaken by respondents before the Board.Finally, the court concluded that the personal discharge of theprincipal owner of the various alter egos would not be permittedto insulate the companies from their remedial obligations. Althoughthe common management and control of labor relationsof the various entities were relevant to their alter ego status, thecourt found that they were not sufficient to warrant the conclusionthat the corporate liability was to be treated as the owners'perking liability subject to discharge under 11 U.S.C. § 727.In another case, In re Goodman," the Board's General Counselissued an unfair labor practice complaint alleging that variouscompanies and James Goodman were alter egos and, as such,they were continuing to violate Section 8(a)(5) of the Act, aswell as the bargaining obligations previously established in E. G.Sprinkler Corp., 268 NLRB 1241 (1984), by failing to apply theterms of a collective-bargaining contract executed by one of thealter ego entities, unilaterally changing conditions of employment,and refusing to provide relevant information to the union.Goodman and one of the alleged alter egos then filed a complaintin bankruptcy court seeking protection from the GeneralCounsel's prosecution. The bankruptcy court initially held that ithad no jurisdiciton to adjudicate claims brought by alleged alterego GASC because GASC had not previously been a debtorbefore the court. The court went on, however, to fmd thatGoodman's prior discharge relieved him of the obligation underthe NLRA to recognize and bargain with the union, and further15 837 F.2d 377 (9th dr.). This appeal, adjudicated under 29 U.S.C. § 160, is treated with the speciallitigation cases because of its significant bankruptcy issue.14 No. 84-21376 (Bankr. W.D.N.Y.), reversed in part 81 B.R. 786.