Carpenters' District Council v. W. O. Kessel Co.

Citations: 487 F. Supp. 54; 107 L.R.R.M. (BNA) 2211; 1980 U.S. Dist. LEXIS 12153Docket: Civ. A. 78-52 B Erie

Court: District Court, W.D. Pennsylvania; March 26, 1980; Federal District Court

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The case involves the Carpenters' District Council of Western Pennsylvania (the Union) suing W. O. Kessel Co. Inc. and its successor, Kessel Construction Co. Inc., for violating a collective bargaining agreement under the Labor-Management Relations Act of 1947. Jurisdiction is established under Section 301 of the Act. The Union seeks injunctive and monetary relief due to a breach of a collective bargaining agreement that was established in April 1976 and automatically renewed unless terminated with proper notice.

Key findings include that W. O. Kessel Co. had a longstanding relationship with the Union and faced financial difficulties in 1977, leading to the sale of its assets to Angelo and Douglas Micale, who continued operations under a different name while adhering to the collective agreement. Richard Kessel then established Kessel Construction Co. Inc., which operated with assets leased from Kessel Leasing Co., owned by Richard Kessel, and employed former W. O. Kessel employees who were not union members. In March 1978, Richard Kessel informed the Union that he believed the new corporation was not bound by the collective bargaining agreement and intended to disregard it. Both companies operated from the same facilities and engaged in similar construction activities.

Defendant argues that no contract exists with the Union as its employees were not union members and Kessel Construction Co. Inc. did not sign a contract with the Union, thus asserting a lack of jurisdiction under Section 301 of the Labor Management Relations Act (29 U.S.C. § 185(a)). The court's jurisdiction to address contract existence and violations relies on proving that Kessel Construction is the alter ego of W. O. Kessel Co. Inc., which had a contract with the Union. The plaintiff's claim centers on the assertion that the sale of W. O. Kessel Co. Inc. to the Micales was a sham, intended to allow Richard Kessel to avoid the collective bargaining agreement. Instead of considering Kessel Construction a successor corporation, the plaintiff contends it is the same entity as W. O. Kessel, warranting disregard of the new corporate structure due to its allegedly unlawful purpose. The concept of successorship relates to changes in corporate structure and obligations under existing agreements. The sale of W. O. Kessel’s name and assets to the Micales resulted in them becoming the successor corporation, and they have continued to honor the collective bargaining agreement. The Union seeks to establish that Kessel Construction is the alter ego of W. O. Kessel, thus responsible for upholding the agreement. Precedent from a similar case illustrates that when one corporation operates under the guise of another to evade contractual obligations, the court may require compliance with the agreement based on public policy.

A corporation is fundamentally a group of individuals, and its recognition as a legal entity is a legal fiction meant to facilitate business operations. Pennsylvania courts uphold this corporate entity but allow for its disregard in cases of fraud, illegality, injustice, or public policy violations. Labor law emphasizes protecting employees during corporate restructuring, balancing owners' rights to reorganize with employees’ rights to stable employment. The Supreme Court in John Wiley and Sons v. Livingston highlighted the need to protect employees from abrupt changes in their employment relationships. Subsequent rulings extended this duty to successors in corporate transactions, requiring consideration of the employees' perspective in determining if employment relationships are significantly altered.

In the case of W. O. Kessel Co. Inc., the Micale brothers continued to honor the existing employment contracts, employing all previous union members and maintaining wage and benefit provisions. The union's claim of lost dues due to changes in employment status is deemed insufficient to warrant disregarding the corporate entity, as the union ultimately benefits from the continuity of employment under the new owners. The Micale brothers' compliance with the contract protects employees' rights, indicating no justification for overturning the corporate structure merely because Richard Kessel reincorporated without union employees. The sale was necessary to prevent the dissolution of the business and the loss of jobs for union members, thus maintaining the status quo for the union and its members.