Brotherhood of Locomotive Engineers v. Springfield Terminal Railway Co.

This case requires us to decide whether the district court properly issued a Railway Labor Act (“RLA”) injunction barring a wood products company controlled by owners of a railroad from doing switching work historically performed by the railroad’s unions. See 45 U.S.C. § 151 and seq. The district court issued the injunction after finding that the Brotherhood of Locomotive Engineers and United Transportation Union (the “Unions”) were engaged in a “major” dispute with Springfield Terminal Railway Company (“Springfield”) and that Springfield was using Aroostook and Bangor Resources, Inc. (“ABR”) to violate its collective bargaining agreement. Springfield and ABR (the “appellants”) argue that ABR, although owned and controlled by Springfield’s owners, is an independent wood products company not subject to the RLA and therefore not subject to the district court’s order that it stop performing switching for Springfield customers while RLA mediation procedures are underway. We reject the contention that ABR is not subject to the injunctive provisions of the RLA, and we affirm both the district court’s finding that there was a “major” dispute between Springfield and its Unions and the district court’s injunction against ABR.

I.

A. The Labor Dispute

We begin by sketching the facts of this labor dispute, reserving for later a more detailed discussion of the district court’s findings. In doing so, “[w]e recite the facts in the light most favorable to the district court’s findings of fact.” Servicios Comerciales Andinos v. General Electric Del Caribe, Inc., 145 F.3d 463, 466 (1st Cir.1998).

In 1995 the Unions and Springfield negotiated a collective bargaining agreement that governs the rates of pay, rules, and working conditions for Springfield locomotive engineers, conductors, and trainmen. The agreement specifically provides that union employees “shall perform any and all services under the direct control of the Carrier required for the make up of trains and/or the movement of cars and trains over and through the Carrier’s trackage and in its business of servicing industrial sidings.”

One such “business of servicing industrial sidings” is switching, a service that rail carriers often provide for their customers on the customers’ properties. Springfield employees who are union members have historically provided this service to many of Springfield’s line-haul railway customers. Pursuant to the collective bargaining agreement, the union members performing these switching services have been paid and treated identically to engineers, conductors, and trainmen involved in other aspects of Springfield’s railway business.

In 1996 Springfield proposed that the union members engaged in switching accept a twenty-six percent pay cut and less favorable working conditions. Although the Unions’ leaders initially resisted, they eventually agreed to submit a proposed pay cut to their respective memberships. The memberships of both Unions rejected the changes in August 1996, opting instead to maintain the more favorable terms of the collective bargaining agreement. Despite the vote, Springfield persisted in seeking a pay cut for switching work.

Unable to persuade the Unions to accept lower pay for switching, Springfield took a series of steps in the spring of 1998 that resulted in ABR performing switching that *23had previously been done by Springfield’s unions. ABR is a non-unionized company located along Springfield’s railway lines engaged primarily in the manufacture of clothes pins and other wood products. Springfield executed an agreement with ABR in April 1998 giving ABR joint use of some railway tracks, and Springfield personnel trained two non-union ABR employees to use a leased track-mobile to perform the switching at the ABR wood products mill previously done by Springfield’s union employees. While joint use agreements of this type are fairly common in the railway industry, Springfield’s next move was unusual. Shortly after executing the joint use agreement, Springfield suggested to ABR that it truck its switching equipment from place to place so that it could perform switching work for various Springfield railway customers that had previously used Springfield (and the Unions) for switching. ABR agreed and by May of 1998 it was providing switching services for Springfield customers Lincoln Pulp & Paper (“Lincoln”) and Passadumkeag Stud Mill, owned by Champion International, Inc. (“Champion”). ABR also investigated performing switching work for other Springfield customers.

Although nominally an independent corporation, ABR is not unrelated to Springfield. Springfield is a wholly owned subsidiary of Guilford Transportation Industries, Inc. (“Guilford”), a holding company that owns several railroads in New England.1 Guilford, in turn, was closely held (at the time of the dispute) by four individuals who also served as its directors: David Andrew Fink, David Armstrong Fink, Richard Kelso and Timothy Mellon. Both of the Finks and Mellon were also the sole owners of ABR. The three companies shared the same four directors at the time the dispute arose: all three ABR owners plus Richard Kelso. While David Andrew Fink served as President of Springfield, his son, David Armstrong Fink, served as President of ABR (as well as a Director of Guilford and, later, as an Executive Vice-President at Springfield). It was David Armstrong Fink who met with a Springfield vice-president involved in the failed labor negotiations about the possibility of ABR performing the switching work previously done by the Unions.

B. The Railway Labor Act

The Unions filed suit under the RLA, arguing that Springfield was using ABR to violate the terms of its collective bargaining agreement. Under the RLA, a district court has no jurisdiction to rule on the merits of a labor dispute. Rather, the court may only decide what type of statutorily mandated dispute resolution procedure is appropriate, depending on the category of the dispute. See Elgin, J & E Ry. Co. v. Burley, 325 U.S. 711, 722-23, 65 S.Ct. 1282, 89 L.Ed. 1886 (1945). Minor disputes under the RLA are those in which the carrier’s challenged policies are at least arguably permitted under the existing collective bargaining agreement.2 If the dispute is “minor,” the district court dismisses the case in favor of binding arbitration. Major disputes, on the other hand, relate to carrier attempts to modify rates of pay, rules or working conditions in a fashion not even arguably covered by the collective bargaining agreement.3 See *24Brotherhood of Locomotive Eng’rs v. Boston & Maine Corp., 788 F.2d 794, 797 (1st Cir.1986); Maine Central R.R., Co. v. United Transp. Union, 787 F.2d 780, 782 (1st Cir.1986). If the dispute is “major,” the Act provides for extensive, non-binding mediation procedures.4 In major disputes — unlike minor disputes — the RLA bars the carrier from implementing the contested change until the mediation efforts are exhausted. See Detroit & Toledo Shore Line R.R. Co. v. United Transp. Union, 396 U.S. 142, 150-53, 90 S.Ct. 294, 24 L.Ed.2d 325 (1969). To invest these status quo requirements with judicial authority, the district court is permitted to issue an injunction ordering the parties to maintain the pre-dispute status quo while the mediation procedures take place. See Consolidated Rail Corp. v. Railway Labor Executives’ Ass’n, 491 U.S. 299, 303, 109 S.Ct. 2477, 105 L.Ed.2d 250 (1989) (“The district courts have subject-matter jurisdiction to enjoin a violation of the status quo pending completion of the required procedures.... ”).

C. The District Court Proceedings

The Unions argued to the district court that the arrangement between Springfield and ABR created a major dispute because Springfield was seeking t.o modify the collective bargaining agreement’s rules on pay and working conditions for those engaged in switching. The Unions claimed that Springfield was using ABR to implement this contested change before RLA mediation procedures were exhausted, thereby violating the RLA’s requirement that the carrier and union maintain the pre-dispute status quo. The appellants objected, arguing, inter alia, that Springfield had not done anything to alter the collective bargaining agreement and that ABR was acting independently in performing switching work for Springfield customers.

On the basis of a stipulated record, the district court' ruled that the dispute was major under the RLA. In so concluding, the court found that Springfield was attempting to evade the collective bargaining agreement by “allow[ing] a corporate relative not bound by the collective bargaining agreement to perform work covered by the collective bargaining agreement.” The court also rejected the appellants’ other defenses: their assertion that the arrangement with ABR did not alter the pay or working conditions of the Unions and their assertion that the arrangement was covered by “implied terms” in the collective bargaining agreement. The court then enjoined ABR from performing industrial switching for Lincoln, Champion and any companies for which Springfield currently provided switching services, pending the outcome of the RLA mediation procedures. ABR and Springfield appeal.5

*25II.

Appellants assert that there is no major dispute under the RLA because Springfield made no changes at all to the collective bargaining agreement. Rather, appellants claim, Springfield’s rail customers simply chose to use ABR for better service of their switching needs. Since ABR is a company independent from Springfield — a wood products shop and not a railway — the district court erred in attributing ABR’s actions to Springfield, despite the nearly total overlap in ownership.

We agree with Springfield that the dispute cannot be labeled “major” simply because 'the collective bargaining agreement required switching to be performed by the Unions. If ABR was truly acting on its own, an injunction against ABR would have been improper. The collective bargaining agreement is between Springfield and the Unions; ABR is not a party. Moreover, the RLA applies only to carriers; ABR is not a carrier. See 45 U.S.C. § 151, First. Unless the district court properly treated ABR as the alter ego of Springfield, and properly disregarded the separateness of the two corporations by piercing the corporate veil of ABR, it could not attribute ABR’s conduct to Springfield and enjoin ABR from switching Springfield customers. We must therefore assess whether veil piercing was appropriate.

In doing so, we must be clear about the sense in which we are using these terms. See Note, Piercing the Corporate Veil: The Alter Ego Doctrine under Federal Common Law, 95 Harv. L. Rev 853 (1982) (noting that the terms are amorphous). To pierce a corporate veil means to disregard its corporate formalities. See Black’s Law Dictionary 1168 (7th ed.1999) (noting that “piercing the corporate veil” and “disregarding the corporate entity” are the same thing). The veil may be pierced if one corporation is not an independent entity, but rather the mere “alter ego” of another. 1 James D. Cox, Thomas Lee Hazen & F. Hodge O’Neal, Corporations § 7.8 at 7.17 (1995); cf. Black’s Law Dictionary 385 (7th ed.1999) (defining “alter ego” as a “corporation used by an individual to conduct personal business”). In this case, ABR is Springfield’s “alter ego” in the context of this labor dispute if ABR is acting as a nonunion branch of Springfield rather than as an independent company. Likewise, when we speak of “piercing” ABR’s veil, we mean simply disregarding its corporate separateness in the limited context where it is allegedly serving as an alter ego.

A. Federal Common Law of Veil Piercing

We must determine whether state law or federal common law governs the veil-piercing inquiry. In federal question cases, such as this one, we look to federal choice of law principles. See Texas Indus., Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 642, 101 S.Ct. 2061, 68 L.Ed.2d 500 (1981); see also Edelmann v. Chase *26Manhattan Bank, 861 F.2d 1291, 1294 (1st Cir.1988). If the federal statute in question demands national uniformity, federal common law provides the determinative rules of decision. See United States v. Kimbell Foods, Inc., 440 U.S. 715, 728, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979).

National uniformity is essential in the interpretation of labor law. Federal courts have fashioned a body of federal common law to govern labor disputes, recognizing that harmonious labor relations are essential to interstate commerce. See, e.g., Textile Workers Union v. Lincoln Mills, 353 U.S. 448, 456, 77 S.Ct. 912, 1 L.Ed.2d 972 (1957). This general principle holds true for the RLA, a statute described as an industry-wide bargain between carriers and their unions aimed at preventing disruptions to interstate commerce. See Shore Line, 396 U.S. at 148-49, 90 S.Ct. 294; Trans World Airlines, Inc. v. Independent Fed’n of Flight Attendants, 489 U.S. 426, 432, 109 S.Ct. 1225, 103 L.Ed.2d 456 (1989) (noting that “federal common labor law ... may be helpful in deciding cáses under the RLA.”). National uniformity is particularly important in those RLA cases, like this one, that “implicate the consensual processes which labor law was designed to promote.” International Ass’n of Machinists & Aerospace Workers v. Alcha Airlines, Inc., 790 F.2d 727, 734 (9th Cir.1986).

A common federal standard is particularly needed in RLA veil-piercing cases. If courts were to rely on state law to determine when veil piercing was appropriate, RLA collective bargaining agreements might include some companies in one state and other companies in a neighboring state. A railway with operations in more than one state could find itself unable to determine whéther and when the RLA applied to it at all. Likewise, a federal veil-piercing standard is required to prevent carriers from using non-carriers (which are not themselves subject to the RLA) to circumvent federal labor law requirements. Although state law creates the corporate form, “the question of liability [for violation of federal regulations] is a federal question. The policy underlying a federal statute may not be defeated by an assertion of state power.” Anderson v. Abbott, 321 U.S. 349, 365, 64 S.Ct. 531, 88 L.Ed. 793 (1944) (piercing the veil); H.P. Lambert Co. v. Secretary of the Treasury, 354 F.2d 819, 822 (1st Cir.1965) (“However important it may be in other respects, the fiction of the corporate entity cannot stand athwart sound regulatory procedure.”).

To say that federal common law applies in this case does not fully resolve the matter. As we recently acknowledged, the federal standard “for when it is proper to pierce the corporate veil is notably imprecise and fact-intensive.” Crane v. Green & Freedman Baking Co., 134 F.3d 17, 21 (1st Cir.1998); see also Note, supra, 95 Harv. L.Rev. at 852 (noting that federal common law on veil piercing is amorphous and must be flexibly applied). Federal courts are not bound by “the strict standards of the common law alter ego doctrine which would apply in a tort or contract action.” Capital Tel. Co. v. FCC, 498 F.2d 734, 738 (D.C.Cir.1974). Nor is there any “litmus test in the federal courts governing when to disregard corporate form.” Alman v. Danin, 801 F.2d 1, 3 (1st Cir.1986). Instead, the rule in federal cases is founded only on the broad principle that “a corporate entity may be disregarded in the interests of public convenience, fairness and equity.” Town of Brookline v. Gorsuch, 667 F.2d 215, 221 (1st Cir.1981).

In Gorsuch we recognized that this principle must be applied with sensitivity to the demands of the federal statute at issue:

In applying this rule, federal courts will look closely to the purpose of the federal statute to determine whether the statute .places importance on the corporate form, an inquiry that usually gives less respect to the corporate form than does *27the strict common law alter ego doctrine.

Id. (internal citations omitted); see also First National City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 630, 103 S.Ct. 2591, 77 L.Ed.2d 46 (1983) (“[T]he Court has consistently refused to give effect to the corporate form where it is interposed to defeat legislative policies.”); United Elect., Radio and Mach. Workers of Am. v. 163 Pleasant St. Corp., 960 F.2d 1080, 1091 (1st Cir.1992) (“[I]n federal question cases, courts are wary of allowing the corporate form to stymie legislative policies”). Given the need to consider the purposes of the federal statute, we have crafted what we termed a “less rigorous” veil-piercing standard tailored to ERISA cases in order to fulfill that statute’s goals. 163 Pleasant St., 960 F.2d at 1092 (“The rationale for encouraging a modicum of corporate disregard in ERISA cases is grounded on congressional intent.”); see also Alman v. Danin, 801 F.2d 1, 4 (1st Cir.1986) (“Indeed, deferring too readily to the corporate identity may run contrary to the explicit purposes of [ERISA].”) Other Circuits too have considered the specific legislative policies at issue and whether piercing the corporate veil is necessary to further those policies. See Stotter & Co. v. Amstar Corp., 579 F.2d 13, 18-19 (3rd Cir.1978) (veil piercing necessary to fulfill purposes of Clayton Act); Capital Tel. Co., 498 F.2d at 738 (liberal veil piercing to fulfill purposes of Communications Act of 1934); Kavanaugh v. Ford Motor Co., 353 F.2d 710, 716-17 (7th Cir.1965) (veil piercing necessary to fulfill purposes of Dealers’ Day in Court Act). We must therefore consider the RLA status quo provisions to determine when veil piercing is necessary to prevent frustration of the RLA’s purposes.

B. The Railway Labor Act and Veil Piercing

“[T]he major purpose of Congress in passing the Rahway Labor Act was to provide a machinery to prevent strikes.” Texas & N.O.R. Co. v. Brotherhood of Ry. & S.S. Clerks, 281 U.S. 548, 565, 50 S.Ct. 427, 74 L.Ed. 1034 (1930) (internal quotation marks omitted). The risk of strikes was considered to be “particularly acute in the area of ‘major disputes,’ those disputes involving the formation of collective agreements and efforts to change them.” Shore Line, 396 U.S. at 148, 90 S.Ct. 294, 24 L.Ed.2d 325. For these disputes, the railroad and union representatives who drafted the Act favored non-binding mediation. See id. at 148-49, 90 S.Ct. 294. To prevent strikes from breaking out while mediation was underway, the Act required that both parties maintain the pre-dispute status quo. See id. at 149, 90 S.Ct. 294. As the Court noted in Shore Line, the Act’s status quo provision was “central to its design”:

Its immediate effect is to prevent the union from striking and management from doing anything that would justify a strike. In the long run, delaying the time when the parties can resort to self-help provides time for tempers to cool, helps create an atmosphere in which rational bargaining can occur, and permits the forces of public opinion to be mobilized in favor of a settlement without a strike or lockout. Moreover, since disputes usually arise when one party wants to change the status quo without undue delay, the power which the Act gives the other party to preserve the status quo for a prolonged period will frequently make it worth while for the moving party to compromise with the interests of the other side and thus reach agreement without interruption to commerce.

Id. at 150, 90 S.Ct. 294. The Act fashioned a fundamental compromise: during the RLA mediation procedures, the union must refrain from striking and the carrier must refrain from implementing the contested policy.

The Shore Line Court emphasized that the status quo provisions of the RLA must be applied flexibly to fulfill the statute’s goal. In Shore Line, the carrier had ar*28gued that the RLA required it to preserve the status quo only in those working conditions explicitly covered by the parties’ collective bargaining agreement. See id. at 147-48, 90 S.Ct. 294. Since the collective bargaining agreement was silent on the challenged practice, the carrier argued that it should be allowed to continue this practice while RLA mediation to modify the agreement was ongoing. See id. The Court rejected this interpretation, calling it “fundamentally at odds with the Act’s primary objective — the prevention of strikes.... If the railroad is free at this stage to take advantage of the agreement’s silence and resort to self-help, the union cannot be expected to hold back its own economic weapons, including the strike.” Id. at 154-55, 90 S.Ct. 294. The Court therefore held that the status quo provision must be “broadly conceived” to preserve the “actual, objective working conditions out of which the dispute arose, irrespective of whether these conditions are covered in an existing collective agreement.” Id. at 143, 90 S.Ct. 294.

The Court’s effort to give practical meaning to the status quo requirement would be circumvented if carriers could use third parties to alter the collective bargaining agreement while the dispute was ongoing. Thus courts have held that a carrier may not hire an independent company to carry out the changes that the unions protest. See e.g., St. Louis S.W. Ry. v. Brotherhood of R.R. Signalmen, 665 F.2d 987, 995 (10th Cir.1981) (“There is nothing which leaves room for a suggestion that the [RLA] can be avoided by employing a contractor to perform the work.”). In the same vein, the RLA is defeated if a carrier uses a related corporation to alter the status quo. The RLA itself acknowledges the possibility that carriers may attempt to use affiliates to achieve their goals by giving courts jurisdiction over railroads and those non-railroads that are “directly or indirectly owned or controlled by or under common control with any carrier by railroad.... ” 45 U.S.C. § 151. While this provision alone does not justify the issuance of an injunction against a non-railroad corporation, it emphasizes that courts must look beyond corporate formalities if the nominally independent corporation is serving as the alter ego of the carrier.

In several cases, courts have engaged in veil piercing when the carrier used an affiliate to escape its collective bargaining agreement and violate the status quo requirements of the RLA. In Burlington Northern R.R. Co. v. United Transp. Union, 862 F.2d 1266 (7th Cir.1988), the railroad, after failing to convince a local union to accept smaller crews for a particular train service, transferred the work to a subsidiary, Winona Bridge. Finding that the subsidiary was “serving as the alter ego” of the carrier, the court held that “a carrier cannot evade its duties under a collective bargaining agreement or the RLA by directing business to an entity within the same corporate family and not obligated by the existing collective bargaining agreement.” Id. at 1275. Similarly, in Butte, Anaconda & Pacific Ry. v. Brotherhood of Locomotive Firemen and Enginemen, the carrier argued that its major dispute mediation procedures could be “terminated” after a wholly owned subsidiary began performing the disputed work. 268 F.2d 54, 59 (9th Cir.1959). The court acknowledged that there would no longer be a major dispute if the work was performed by “an independent shipper, not acting in concert with its carrier.” Id. After assessing the links between carrier and subsidiary, however, the court held that the acts of the latter “must be regarded as the act of the carrier. Otherwise, a carrier by interrelation with its shippers would always have it within its power to circumvent the mediation provision of the Railway Labor Act.” Id. at 59-60.6

*29Noting that neither Burlington nor Butte detail the standard that must be applied in an RLA veil-piercing inquiry, appellants claim that these cases support RLA veil piercing only when the pierced corporation is a wholly owned subsidiary of the carrier. We reject this reading. First, while these cases deal with wholly owned subsidiaries, they do not state that veil piercing is inappropriate for other types of corporate relatives. In fact, Burlington speaks of piercing not just subsidiaries, but of entities in the “same corporate family.” 862 F.2d at 1275. While alter ego liability may be most common in an ordinary parent-subsidiary context, “the equitable doctrine of piercing the corporate veil is not limited to the parent-subsidiary relationship.” C M Corp. v. Oberer Dev. Co., 631 F.2d 536, 538 (7th Cir.1980). Indeed, “[t]he separate corporateness of affiliated corporations owned by the same parent may be equally disregarded under the proper circumstances.” In re Bowen Transps., Inc. v. Bowen Transports, Inc., 551 F.2d 171, 179 (7th Cir.1977). Courts have pierced the veil in cases involving “sibling” corporations, and in cases involving even more intricately arranged corporate structures. See Minnesota Power v. Armco, Inc., 937 F.2d 1363, 1364 (8th Cir.1991) (complex partnership scheme); cf. Century Oil Tool, Inc. v. Production Specialties, Inc., 737 F.2d 1316, 1317 (5th Cir.1984) (“[W]e see no relevant difference between a corporation wholly owned by another corporation, two corporations wholly owned by a third corporation or two corporations wholly owned by three persons who together manage all affairs of the two corporations.”). The misuse of the corporate form to evade federal regulatory requirements may be easier to prove, as an evidentiary matter, when there is a straightforward parent-subsidiary relationship. However, the RLA status quo provisions could be thwarted if courts were categorically barred from considering other types of corporate relationships that were being used to avoid a collective bargaining agreement.

Of course, the corporate ties between the carrier and the related corporation provide only a starting point for the analysis. Common ownership by itself is insufficient to pierce the veil. See United States v. Bestfoods, 524 U.S. 51, 118 S.Ct. 1876, 1884, 141 L.Ed.2d 43 (1998) (“[A] parent corporation ... is not liable for the acts of its subsidiaries.”). The record must include evidence that the carrier used the related corporation for the purpose of evading the collective bargaining agreement and the status quo requirements of the RLA. In making this determination, no single factor is dispositive. The district court may consider the chronology of events: if the carrier only transferred work to the related corporation after unsuccessful union negotiations, that fact may suggest that the carrier shifted the work in an effort to avoid the RLA status quo provisions. See Burlington, 862 F.2d at 1274 (“Thus Burlington plainly acknowledged that Winona Bridge was Burlington’s second choice, an alternative to unsuccessful union negotiations.”). That inference of evasion may be stronger when the work shifted to the related corporation is distinct from the related corporation’s primary line of business. Other factors may also be relevant, such as whether the carrier and the related corporation fail to observe separate corporate formalities, or whether the related corporation is undercapitalized. See id. at 1276 n. 6 (noting that subsidiary had “no equipment or rail-service employees”).

*30We emphasize, however, that the record need not portray the related corporation as a “sham” business, expressly created or operated primarily to defeat the RLA. In Butte, for example, the subsidiary had been created and then operated as a separate, legitimate business until the railroad used it to defeat the RLA obligations. 268 F.2d at 54. It would make little sense to ignore current relationships and arrangements between corporations, and thereby grant the railroad immunity from veil piercing, in those cases where the related corporation being used to defeat the RLA was originally formed (or simultaneously used) for a legitimate purpose.

It must be remembered that veil piercing in the RLA context serves a different function than it does in the ordinary state law veil piercing cases. In a typical tort or contract case, the primary purpose of the veil-piercing analysis is exposure of the assets of one corporation for payment of the debts or obligations of a related corporation. In the RLA major dispute proceedings, veil piercing operates only to block the related corporation from assisting the carrier in altering the collective bargaining agreement before mediation procedures are exhausted. Indeed, there is no final judgment on the merits against the related corporation: if the RLA mediation procedures do not achieve a negotiated solution, the law will not block the related corporation from engaging in the contested activities. See Consolidated Rail Corp. v. Railway Labor Executives’ Ass’n., 491 U.S. 299, 303, 109 S.Ct. 2477, 105 L.Ed.2d 250 (1989) (“Once this protracted process ends and no agreement has been reached, the part