Southland Manufacturing, Corp.

792 DECISIONS OF NATIONAL LABOR RELATIONS BOARD Southland Manufacturing, Corp. and Propper Interna- tional, Inc.' and United Hatters, Cap and Millinery Workers International Union, AFL-CIO. Cases 24-CA-1980, 24-CA-1984, 24-CA-2007, and 24-CA-2030 November 25, 1970 SUPPLEMENTAL DECISION AND ORDER BY CHAIRMAN MILLER AND MEMBERS FANNING AND JENKINS Pursuant to the provisions of Section 3(b) of the National Labor Relations Act, as amended, the National Labor Relations Board has delegated its powers in connection with this case to a three-member panel. The Board has reviewed the rulings of the Trial Examiner made at the hearing and finds that no prejudicial error was committed. The rulings are hereby affirmed. The Board has considered the Decision on Supplemental Hearing and the entire record in this case, including the exceptions and brief, and hereby adopts the findings, conclusions, and recommendations of the Trial Examiner. On April 1, 1966, the National Labor Relations Board issued a Decision and Order in the above- entitled case, finding that Respondent Southland Manufacturing Corp., hereafter Southland, had dis- criminated against certain employees in violation of Section 8(a)(1), (3) and (5) of the National Labor Relations Act, as amended.2 The Board's Order directed, inter alia, that the Respondent place certain named discriminatees on a preferential hiring list, and in the event it resumed operations,3 offer immediate and full reinstatement to said discriminatees and bargain with the Union as the exclusive bargaining representative of its employees, and make whole these discrinatees and an additional group who had been unlawfully locked out. Subsuquent to the Board's Decision, Propper International, Inc., hereafter Propper, acquired the facilities previously utilized by Southland and en- gaged in substantially similar operations as more fully detailed in the attached Trial Examiner's Decision on Supplemental Hearing. Thereafter, a controversy arose as to Propper's responsibility for remedying the unfair labor practices of Southland. On June 13, 1968, the Acting Regional Director for Region 24 issued and served on Propper and Southland a Notice of Supplemental Hearing. On June 28, 1968, Propper filed a motion for more definite statement which was denied. Upon appropri- ate notice, a hearing was held before Trial Examiner Scharnikow for the purpose of determining Propper's responsibility for remedying the unfair labor practices involved. All parties were afforded full opportunity to be heard, to examine and cross-examine witnesses, and to adduce evidence bearing on the issues to be heard. On July 15, 1969, the Trial Examiner issued his Decision on Supplemental Hearing finding that Propper was not the successor of Southland and therefore was not required to comply with the affirmative remedy provisions of the Board's Order against Southland. Thereafter, the Union filed excep- tions to the Trial Examiner's Decision on Supplemen- tal Hearing and a supporting brief. 186 NLRB No. I l l ORDER It is hereby ordered that the application of the General Counsel and the Union that Propper Interna- tional, Inc., be required to comply with the affirma- tive remedy provisions of the Board Order issued against Respondent Southland Manufacturing Corp. be, and hereby is, denied. Joined as a party pursuant to National Labor Relations Board Rules and Regulations , as amended , Section 102 .8. See Webb Tractor and Equipment Company and Inland Machinery Co., 181 N LRB No. 39. 2 157 NLRB 1356. ' At the time of issuance of the Board 's Order, it appeared that Southland had ceased operations. TRIAL EXAMINER'S DECISION ON SUPPLEMENTAL HEARING STATEMENT OF THE CASE WILLIAM F. SCHARNIKOw, Trial Examiner: An Order having been issued by the Board against the Respondent Southland Manufacturing Corp., in the above-entitled case on April 1, 1966,1 and the Order having been enforced by the Decree of the Court of Appeals for the District of Columbia Circuit on March 23, 1967,2 the Board's Acting Regional Director on June 13, 1968, issued and served on Propper International, Inc., a Notice of Supplemental Hearing to be held on September 16, 1968, before a Trial Examiner of the Board for the purpose of determining: 1. Whether Propper International, Inc., is a successor operator of the military cap manufacturing business formerly conducted by the Respondent Southland Manu- facturing Corp. at Mayaguez, Puerto Rico. 2. Whether and to what extent, Propper International, Inc., should be required to comply with the affirmative remedy provisions of the Board Order issued in the above proceedings against the Respondent Southland Manufac- turing Corp., in the event that said Propper International, Inc., is found to be the successor operator of the Respondent Southland's military cap manufacturing busi- ness in Puerto Rico. In response to a Motion for a more definite statement made by counsel for Propper International, Inc., on June 1 157 NLRB 1356. 2 375 F.2d 325. SOUTHLAND MANUFACTURING CORP. 793 28, 1968, the Regional Director replied by letter dated July 2, 1968: ... that the purpose of the supplemental hearing, as indicated by the Notice, is to determine whether Propper International, Inc. should be included as an additional party Respondent and named as such in the order issued by the Board in the Southland Manufac- turing Corp . proceedings if it is found by the Board to be a successor of the Southland's business operations. This special type of supplemental proceeding is that suggested by the Board in the case upon which we are relying, namely Perma Vinyl Co., 164 NLRB No. 119. The grounds relied upon are those which are indicated by the policy statement made by the Board in the Perma Vinyl case. By letter dated July 10, 1968, the Board's associate executive secretary further advised counsel for Propper International , Inc., that: In view of the Regional Director 's letter to you of July 2, 1968 advising you of the purpose of the supplemental hearing, your motion has become moot. Pursuant to the Notice of Supplemental Hearing and subsequent orders rescheduling the hearing , the hearing was held at Hato Rey, Puerto Rico, on November 18, 19, and 20, 1968, before me.' The General Counsel , Propper International, Inc. (hereinafter referred to as Propper, as is also William S. Propper, its principal stockholder and president), and United Hatters, Cap, and Millinery Workers International Union, AFL-CIO (the Charging Party hereinafter referred to as the Union), appeared by counsel and were afforded full opportunity to be heard, to examine and cross-examine witnesses, and to introduce evidence upon the questions raised by the Notice of Supplemental Hearing. On the written application of counsel for Propper made during the hearing, I issued subpoenas ad testificandum directed to Regional Director Raymond J. Compton and Regional Attorney Vincent M. Rotolo and a subpoena duces tecum directed to Regional Director Raymond J . Compton. Counsel for Propper also submitted in evidence a copy of a telegram sent by him to General Counsel Arnold Ordman asking for permission in writing (as required by Section 102.118(a) of the Board's Rules and Regulations) to take their evidence . In view of a lack of a reasonable time for receipt of a reply to this request and the fact that all other evidence which counsel intended to present had already been submitted, I deferred ruling on a motion by trial counsel for the General Counsel that the subpoenas be revoked, and at the end of the hearing day of November 20, 1968, I closed the hearing without prejudice to a later application for its reopening to take evidence from the Regional Director and the Regional Attorney , should I eventually deny the motion to revoke the subpoenas. On November 27, 1968 (following my return to Washington), the General Counsel, by letter, granted leave to the Director and the Regional Attorney to give such relevant evidence as was sought under the subpoenas. Thereafter the General Counsel withdrew his motion to revoke the subpoenas. In response to letters sent by me to all counsel, I was also advised by them that they were attempting to reach an agreeable stipulation setting forth the substance of the evidence of the Regional Director and the Regional Attorney in lieu of their appearances as witnesses.3 On April 30, 1969, I received such a stipulation signed i by All counsel] in j the I case! and; have marked and admitted it in evidence as Trial Examiner's Exhibit 1.4 Accordingly, in addition to the transcript of the evidence and the exhibits received at the supplemental hearing in November 1968, I include the stipulation as an evidentiary element in the record of this case and have considered it. Since the completion by counsel of the evidence submitted by them at the hearing and in their subsequent stipulation, briefs have been received from the General Counsel, counsel for Propper, and counsel for the Union, and I have considered them. Upon the entire record before me in the case and from my observation of the witnesses, I make the following: FINDINGS OF FACT AND CONCLUSIONS . I. SOUTHLAND' S OPERATION OF ITS BUSINESS UNTIL THE SPRING OF 1967 A. Unfair Labor Practice and Ancillary Proceedings Against Southland In the original stages of the unfair labor practice proceedings in this case the Board issued its Decision and Order against the Respondent, Southland Manufacturing Corp., on April 1, 1966,5 and the Court of Appeals for the District of Columbia Circuit issued a decree enforcing the Board's Order on March 23 , 1967.6 The Board and the court affirmed the unfair labor practice findings and conclusions made by Trial Examiner Max Rosenberg in his Trial Examiner's Decision on September 15,1965, following a hearing before him in February 1965. The Board and the court therefore concluded, as the Trial Examiner had found , that in the operation of its plant at Mayaguez , Puerto Rico, the Respondent had committed unfair labor practices inter alia by (1) refusing to bargain in good faith with the Union as the exclusive representative of an appropriate bargaining unit of its production and maintenance employees in violation of Section 8(a)(5) and (1) of the Act; and (2) discharging one employee, refusing to reinstate her and 49 other strikers on various dates in October 1964, and locking out these and the rest of its employees from December 7, 1964, to January 11, 1965, all in violation of Section 8(a)(3) and (1) of the Act. In its Decision, issued on April I. 1966, the Board noted that it had appeared during ancillary proceedings before the United States District Court of Puerto Rico under 3 Copies of the originals of the General Counsel's letter permitting the regional officials to give evidence, of the General Counsel's withdrawal of his motion to revoke the subpoenas, and of my exchanges with counsel in connection with the possible stipulation have been deposited in the Board's formal file for this case in Washington without special markings as exhibits. 4 In the meantime, not having received advice from counsel that such a stipulation would be reached. I issued a telegraphic order on March 7, 1969. directing that the hearing be reopened on April 9, 1969. On April 7, 1969. however, having been then advised by counsel that the stipulation was agreed on and would be forwarded to me, I issued a further telegraphic order canceling further hearing. 157 NLRB 1356. s 375 F.2d 325. 794 DECISIONS OF NATIONAL LABOR RELATIONS BOARD Section 10(j) of the Act in December 1965, that Southland had "closed down its plant for economic reasons in February 1965" and that it was "doubtful whether the Respondent [Southland] will ever resume operations." For this reason, the Board modified the Trial Examiner's recommendations for an order requiring Southland to bargain immediately with the Union and to reinstate the strikers immediately with backpay, but "expressly reserved the right [further] to modify the backpay and reinstatement provisions of this Decision and Order if made necessary by a change of conditions in the future, and to make such supplements thereto as may hereafter become necessary in order to define or clarify their application to a specific set of circumstances not now apparent." Accordingly, the Board's Order and Court's enforcing decree directed Southland "its officers, agents, successors and assigns" to cease and desist from a continuance of the unfair labor practice found, and, affirmatively, (1) to make whole the discharge employee and the strikers, and the employees locked out on December 7, 1964, for their loss of pay up to the date of the economic shutdown of the plant in February 1965, the exact date to be determined in compliance proceedings; and (2) "I[f ] and when the Respondent [Southland] reopens its plant:" (a) "To create a preferential hiring list" of these employees and offer them full reinstatement in the order in which their names appeared on such list; and (b) To bargain with the Union as the exclusive bargaining representative of the employees in the appropriate bargain- ing unit. During the pendency of the unfair labor practice proceedings before the Board and the enforcement proceedings in the Court of Appeals, the United States District Court for Puerto Rico (on December 3, 1965) and then the Court of Appeals (on September 20, 1966) issued orders against Southland Manufacturing Corporation "its officers, agents, servants, employees, attorneys and all affiliates and persons acting in concert or participation with it or with them," enjoining them from: (a) In any manner or by any means selling, transferring or otherwise disposing of any of its assets including, but not limited to, machinery, equipment, raw materials, and finished products except as it may be required to do so pursuant to any conditional sales contract of record or bona fide lien of record, recorded prior to the filing of the charges involved herein, except that Respondent may sell or transfer its assets for a full, fair and present consideration actually paid to said Respondent, provid- ed that the receipts from any such sale or transfer shall be held intact and not be disbursed except to the extent that it is necessary to do so to pay current business operating expenses such as rent, utilities, maintenance, insurance, salaries, legal fees and expenses or to satisfy bona fide liens of record or judgments of record which were recorded prior to the filing of the charges therein; (b) In any manner by any means entering into any arrangement or agreement providing for, or which 7 See pps. 3 and 4 of the findings made by the Board of Contract Appeals which is in evidence in the present supplemental proceeding as G.C. Exh. 10. 8 Ibid., and see also Trial Examiner Rosenberg's findings in his Decision. would result in, a lien on any of the Company's current assets or pledging any of its current assets as security or encumbering any of its current assets ; pending further order of this court. B. Southland's Operations at Mayaguez Southland, whose corporate officers and managers were Morris Milstein and Bertha Milstein, his wife, began the manufacture of military hats and caps at a plant in Mayaguez, Puerto Rico, in 1960. From the beginning, it was accorded tax exempt status by the Insular Government and produced military headgear under contracts from the United States Defense Supply Agency. In 1963, Fomento, an Insular agency established to foster industrial expansion and increase employment, acquired land and constructed a new Mayaguez plant building which Southland thereupon leased from PRIDCO, another Insular agency, and began occupying in early 1964. About this time, Southland purchased additional new machinery and equipment, including 350 sewing machines which were financed under a chattel mortgage on a loan from the Small Business Administration, herein called SBA. Southland's expansion with this assistance was accompa- nied by an increase of defense contracts from a total of $1 million in the year ending in April 1964 to $2,741,000 in the 3-month period ending in October 1964. Until this increase in defense contracts, Southland's production force re- mained approximately what it had been in 1963, that is, between 160 and 210. For, at the time of the Board representation election won by the Union on April 2, 1964, there were still only 191 employees who were eligible to vote in the bargaining unit. However, despite the strike which began on June 1, 1964, and which is described in Trial Examiner's Rosenberg's Decision, Southland rapidly increased the number of employees on its payroll until, according to Morris Milstein' s later statement to the Armed Services Board of Contract Appeals, its plant shut down on December 6, 1964, affected 350 employees.7 As a result of the plant shut down and Milstein's failure to comply with a 10-day notice to resume production, the Defense Supply Agency terminated Southland's defense contracts on December 22, 1964.8 Although Southland did reopen its plant on January 11, 1965, it never thereafter secured any further defense contracts which had been its principal source of work, and from that time forward, in the unfulfilled hope of sometime reacquiring its defense contracts, it employed a dwindling staff in the production of small orders for P.X.'s and other civilian, nongovernmental customers. Thus, by February 1965, and from then until February 16, 1966, at the latest, it never employed more than 15 operators.9 Thereafter, and until August 17, 1966, the number of employees varied from 3 to 15; and after August 17, 1966, and until January 11, 1967, the number on each weekly payroll was only either 2 or 1. Finally, on January 11, 1967, Southland's employment records show that it stopped production completely and 9 The maximum figure is supplied by the testimony of Rosario Martinez de Moreno who worked for Southland until June 1966. Exact employment figures for the period after February 16, 1966, however, are furnished by Southland's employment records. SOUTHLAND MANUFACTURING CORP. 795 never resumed. Three weeks later, on January 31, 1967, the Armed Services Board of Contract Appeals dismissed Southland's appeal from the Defense Supply Agency's default termination of its government contracts. By this time, Southland was seriously in default in its rent to PRIDCO and in its payments to the Small Business Administration on the loan secured by the chattel mortgage of the 350 sewing machines. II. PROPPER'S COMING TO PUERTO RICO IN 1967 A. William Propper's Prior Business Interests William S. Propper is a St. Louis businessman who, in the latter part of 1966, was the principal investor in, and the managing officer of, three companies engaged in the textile and garment industry. One of them was the Laddonia Garment Company which employed from 35 to 50 workers in the manufacture of plant work clothes at a plant in Laddonia, Missouri. Another was the William S. Propper Company which also employed 50 workers at a St. Louis plant in the manufacture and dyeing of synthetic yarn, and whose business involved it to some extent in dealings under Government contracts. The third company was the Propper Gale Corporation which was engaged in St. Louis in the merchandising, but not the manufacture, of ladies' sportswear. The first two of these companies were still in business at the time of the supplemental hearing in November 1968. The Propper Gale Corporation, however, discontinued business in the beginning of 1967. Before 1967, Propper had been connected with no business engaged in the manufacture of military headwear. He had no business dealings with Milstein, Southland, or either the Atlantic Headwear Company or the M. and B. Company which had been operated by Milstein in Richmond, Virginia, before Milstein came to Puerto Rico in 1960.10 In December 1966, however, the Propper Gale Corporation had received an invitation from the Defense Supply Agency to bid upon a defense contract for the same type of military headwear which Southland had manufac- tured. On behalf of his Company, Propper had submitted and bid but was not awarded the contract. At the hearing, Propper testified, and I credit his testimony, that if the bid had been accepted, it was his intention to subcontract the work to one of three midwest manufacturers with whom the Propper Gale Corporation had had an association "in the yarn business" but which had no business relations with either Southland or Milstein. B. Propper's Consideration and Development of a Puerto Rico Business Operation 1. December 1966 conversation with Milstein in Washington In December 1966 Propper in St. Louis heard a rumor which "was rife in the entire cap industry" of "the possible sale of equipment of (the Southland) plant in Mayaguez," because the plant had had "labor troubles" and "was about to be closed by the government." Propper thereupon telephoned Morris Milstein, whom he did not know, and asked if they could meet. The two men arranged a meeting later that same month (December 1966) when Milstein said he expected to be in Washington. As arranged, the meeting took place in Washington in December 1966 between Propper and Morris Milstein, who was accompanied by his wife, Bertha, and Milstein's attorney, Robert Rollnick. During their conversation, Propper asked Milstein the general questions whether Milstein had the right to sell his plant, whether he wanted to sell, and whether he could sell free of "any possible encumbrances." At this initial exploratory stage of a possible business deal, according to Propper's testimony, he was concerned with the willingness of Milstein to sell and his ability to sell the plant or equipment free of encumbrance, and not with the details of possible obstacles which could be left to further examination and discussion. Accordingly, neither he nor Milstein referred to South- land's loss of government contracts, its financial straits, or labor difficulties, of which Propper had heard rumors. Nor at that time did Propper know of, nor did Milstein refer to, the Board Order against Southland, nor any specific encumbrances. Although the men had a long conversation, it was inconclusive. For, although Milstein said he might be interested in selling, he said he could give no answer as to whether he had the right to sell or whether he could sell free of encumbrances. The meeting ended merely with the understanding that when the time came that Milstein could be specific as to his right to sell his equipment "without encumbrance," he would inform Propper and they could meet again. 2. Propper's first trip to Puerto Rico in March or April 1967 Receiving no word from Milstein during the next few months, Propper made a trip to Puerto Rico in March or April 1967. His first step was to seek information from various government officials in San Juan. At the offices of Fomento and PRIDCO (a subsidiary corporation), he asked John Elwin, Jr., one of their officials, about the conditions, incentives, locations, and terms available to possible investors in the garment industry in Puerto Rico, and the status of Southland's operations . Elwin gave Propper the general information requested. He also said that Southland "had been defunct as a going operation" and that "there would be a public auction held [by the SBA] for the sale of the assets of Southland." Propper thereupon telephoned , and then visited, the San Juan offices of SBA. He was told that there would be a public auction of some of Southland's equipment under a claim of $42,000 and, upon his request, that the SBA would notify Propper when the auction would be held . Propper suggested that the SBA might sell him Southland 's note for the balance due, but was later informed by the SBA officials that their superiors in Washington had said this could not be done and that the equipment would have to be sold at auction. Having completed these governmental inquiries in San 10 See fn 2 and the related text of Trial Examiner Rosenberg's Decision (157 NLRB at 1364) 796 DECISIONS OF NATIONAL LABOR RELATIONS BOARD Juan, Propper flew to Mayaguez where he was met at the airport by Milstein and taken to the Southland plant and then to Milstein's home. There were no employees at the plant but Milstein showed Propper the plant and the equipment, and Propper and Milstein thereupon resumed their earlier conversation first at the plant and then at Milstein's home where Propper was introduced to Mrs. Milstein. In their conversation, Propper again asked Milstein whether it would be possible to purchase Southland's physical assets without encumbrances. But Milstein said that he was interested only in selling "the corporation" at its "net worth" as set forth in a financial statement which he showed to Propper. In this connection, there was some discussion of "encumbrances" but at no point in the conversation was there any mention of Southland's labor difficulties nor a discussion of South- land's general liabilities. The conversation ended with Proppper insisting that he was interested only in buying Southland's physical assets free of encumbrance and Milstein's insisting that he would only sell "the corpora- tion" at its "net value." Before returning home from this visit to Puerto Rico, Propper went to the employment office of the Department of Labor for the Commonwealth in Mayaguez. He asked a Mrs. Vidal, assistant to the director, whether there were sewing machine operators available in the area and was told that there was a large labor pool of experienced operators. Neither he nor Mrs. Vidal made any reference to Southland. 3. Propper's later trips to Puerto Rico in 1967, his purchase of the sewing machines at foreclosure sale on June 12, 1967, and his execution of a lease from PRIDCO of the former Southland plant on August 7, 1967 On May 29, 1967, the SBA published a newspaper notice, and gave separately mailed notice also to Propper, that there would be a public auction on June 12, 1967, of Southland's 350 sewing machines on the foreclosure of the chattel mortgage held by the SBA. Propper came to Puerto Rico before the sale, introduced himself to Stanley Segal (a San Juan attorney whom Propper had not met but who Milstein said had represented him in a number of matters), and retained Segal to appear with him at the public sale and handle any language or legal problems that might arise during the bidding. Propper and Segal accordingly attended the auction together on June 12, 1967. Milstein, whom Propper had not seen nor heard from since his previous visit to Puerto Rico, was also there. There were a number of other bidders at the sale-manufacturers and machine dealers from the States and one from San Juan-and the bidding was active. Propper made the highest bid of $42,000, the. amount due on Southland's note to the SBA and, in due course, received a bill of sale for the 350 sewing machines. As Propper explained in his testimony, which I credit, he bought the sewing machines at the foreclosure sale because he thought that the price was a good price and he could either resell them at a profit in the open market, or use some or all of them in any garment manufacturing plant either in the States or in Puerto Rico. With the last possibility in mind, before he again returned home, he spoke with Milstein about Milstein's acting as his manager but Milstein refused. And he also began talks (apparently in June 1968) with officials of Fomento and PRIDCO concerning Propper's taking a lease of one of three other available plants in Puerto Rico or the Southland plant in Mayaguez. When it came to considering a possible lease of the Mayaguez plant, Milstein was brought into the discussions because, although $11,000 or $18,000 in arrears in its rent payments, Southland still held the lease. Propper would not consider taking over Southland's lease or assuming the obligation of its rent default. Nor did he enter into the discussion between Milstein and Fomento's representative of the difficulties presented. Since these difficulties remain unsolved, PRIDCO's and Fomento's representative could not make any offer at that time to lease the plant to Propper. And although some attempts at drafting a lease were made, it was not until several months later that Fomento and PRIDCO actually presented a lease of the Southland plant without any reference to Southland's obligations. Propper thereupon signed this lease on August 7, 1967, and on August 23, 1967, through Propper International, Inc., began operations at the Mayaguez plant with a small staff of newly hired employees. Before Propper actually signed the lease of the former Southland plant on August 7, 1967, however, the Union and the Board's Regional Office had raised questions as to whether he might not be held accountable for some of Southland's obligations with respect to its employees and the Union as their representative. Thus, on June 27, 1967, Vincent Rotolo, the Board's Regional Attorney in San Juan, telephoned Attorney Federico Ramirez, a partner of Stanley Segal who had appeared with Propper at the SBA foreclosure sale. And on July 31, 1967, at the Regional Attorney's suggestion, Propper and Attorney Segal met and had a lengthy conversation with Regional Director Ray Compton and Regional Attorney Rotolo at the Board's Regional Office in San Juan. Even before this, the Union had written to Propper on June 15, 1967, and, as a result, Propper met at various times with the Union's officials between July 5, 1967, and December 8, 1967. The next two sections of this Decision present the substance of the communications between Propper, the Board's Regional officials, and the Union's officials. 4. The Regional Office's communication with Propper There is no dispute as to the substance of Regional Attorney Rotolo's telephone conversation with Attorney Ramirez on June 27, 1967, nor as to the substance of the Regional Director's and the Regional Attorney's confer- ence with Propper and Attorney Segal on August 3, 1967. Indeed, counsel for the General Counsel, Propper, and the Union have executed a stipulation setting forth the substance of these conversations which I adopt verbatim as the basis for the following findings: On June 27, 1967, Regional Attorney Rotolo called Attorney Federico Ramirez Ros of the law firm of Ramirez, Segal & Latimer, local attorneys for Mr. William Propper. The call was made to ascertain whether Propper had decided to use the machinery which he had purchased at SOUTHLAND MANUFACTURING CORP. 797 the foreclosure sale of the Small Business Administration to reestablish the Southland plant and to continue manufac- turing military caps in the same manner as had been done by the Southland Manufacturing Co. Ramirez advised that it was true that Propper had purchased the machinery, but that he had not as yet made a decision as to whether he would establish a plant in Puerto Rico to manufacture military caps He further stated Propper had not as yet signed any documents to lease the former Southland plant premises from Fomento (Commonwealth Development Corp.), the owner of the building. Rotolo then informed Ramirez that if Propper should decide to establish the same type of business at the same place, there was the possibility that the Board would hold Propper to be a successor of the Southland business and that he would be required to remedy the unfair labor practices committed by Southland. Rotolo informed Ramirez that he had called to be fair with Propper to let him know about a recent change in Board policy dealing with bona fide purchasers of businesses who had knowledge of unfair labor practices committed by the seller. Rotolo then mentioned the Perma Vinyl decision of the Board in which the Board required a bona fide purchaser of a business to offer employees unlawfully discharged by the seller reinstatement in accordance with the requirements of a Board Order issued against the seller. Rotolo told Ramirez that he could not tell how far the Board's new policy would go, but he expressed the opinion that if Propper established his plant in the same building, producing the same product with the same equipment, there was a good possibility that the Board would at least require him to contact the former Southland employees who had been discriminated against by Southland and offer them reinstatement or preferential hiring privileges. Rotolo then suggested that Ramirez bring Propper to the Regional Office to discuss the whole matter with the Regional Director before he made a final decision to take over the plant premises. Ramirez agreed this was a good decision. Later on the same day Attorney Fuste, Mr. Ramirez's assistant, called to request the citation of the Perma Vinyl decision and of the Board and court citations of the Southland case These were given to him. Subsequently a copy of the court decree issued against Southland was requested, which was also furnished. On August 3, 1967, Attorney Stanley Segal, law partner of Attorney Ramirez, appeared at the Regional Office with Propper to confer with the Regional Director concerning the impact of the Board's Perma Vinyl policy on his situation. Propper informed the Regional Director that he had not as yet made a decision as to whether he would establish a plant at the former site of the Southland Co. to manufacture military caps, and that he had not as yet signed any papers with the Commonwealth Development Corp., the owner of the plant building. The Regional Director advised him and Segal that under the Board's Perma Vinyl policy, there was a possibility that if Propper used the machinery which he had purchased at the Small Business Administration foreclosure sale to establish a plant in the same building to manufacture military caps for the Government, the Board would require him to comply with the requirements of the Board Order issued against Southland. Each of the requirements of the Board, i.e., union recognition, reinstatement of employees, and back- pay was discussed. Propper said he would have to get an opinion from his stateside attorney, Frank Constangy, before he took a final step in the direction of establishing a business at the former Southland plant. He promised to advise the Regional Director of his future plans in this respect. 5. Contacts between the Union and Propper As already found, the Union's contacts with Propper began with a letter written to Propper on June 15, 1967, 2 days after Propper had bought Southland's 350 sewing machines at the SBA foreclosure sale. It was signed and mailed by Vice President and Executive Secretary Gerald R. Coleman at the Union's New York City office, and its full text was the following: We learned within the last few days that you have purchased the business of Southland Manufacturing Corporation at Mayaguez, Puerto Rico. As you have already been advised orally, the United Hatters, Cap and Millinery Workers International Union, AFL-CIO, is the certified bargaining representative of the production and maintenance employees at Southland's plant in Mayaguez. Since your company is the successor employer of that business, you will, of course, be required to recognize and bargain with the union on behalf of such employees. It is our understanding that you intend to resume this operation in the near future. Accordingly, it is essential that we meet with you promptly at a mutually acceptable time and place so that we may confer concerning the resumption of operations, recall of employees, the terms and conditions of their employ- ment, and other outstanding legal obligations flowing from your successorship. Needless to say, we are delighted that you plan to operate in Mayaguez and provide much needed work opportunities for the employees we represent. We look forward to a long and mutually beneficial relationship. On June 30, 1967, Propper telephoned Vice President Coleman and, stating that he was troubled by Coleman's letter because its language was similar to a communication received from the NLRB,ii arranged to meet Coleman at the Kennedy Airport in New York on his way to Puerto Rico on July 5. As arranged, Coleman, accompanied by Nicholas Gyory, the Union's vice president, met with Propper at the airport on July 5. Propper told the union officials he had heard some things about the Union's difficulties with Southland and wanted to hear the Union's version. Coleman briefly related the Union's problems with Southland and an earlier tenant of the same plant. Propper asked whether the Union had had any tentative agreement with Milstein of Southland and was told that Secretary-Treasurer Al Smoke of the Union had negotiated an agreement with Attorney Robert Rollneck of Washington who had acted on Ii it will be noted that this was 3 days after Regional Attorney Rotolo had spoken with Propper's San Juan attorney Federico Ramirez 798 DECISIONS OF NATIONAL LABOR RELATIONS BOARD Milstein's behalf, but that Milstein had then refused to sign it.12 Coleman then spoke of some provisions such as a health and welfare plan and a minimum with Attorney Robert Rollnick of Washington who had acted on Milstein's wage which the Union would want in a contract with Propper. Propper said he wanted time to think about the matter. Propper met again with Coleman and Gyory at the Kennedy Airport on July 13. Again the men generally discussed some of the terms of a possible contract such as its duration, the wage rate in excess of the prescribed minimum rate, and a contract reopening clause. No contract language was proposed or discussed. At Propper's request, Gyory agreed to send Propper a sample, standard contract and also variations of the possible reopening clauses to be drafted by the Union's attorneys. Gyory mailed Propper a sample standard form of contract, apparently on July 17. About the same time, Propper telephoned Coleman and suggested that he meet thereafter with Secretary-Treasurer Al Smoke who had represented the Union in the negotiations with Milstein and was presumably familiar with the problems that might arise. Coleman agreed and arranged for a meeting between Smoke and Propper at the Union's New York City office on Sunday, July 30, when Propper would be in New York on his way to or from Puerto Rico. As arranged, Propper did meet with Smoke at the latter's New York City office on Sunday, July 30. It will be noted that this was only a few days before Propper and his San Juan attorney conferred with the Board's Regional Director and Regional Attorney on August 3, and roughly a week before Propper accepted and executed a lease with PRIDCO for the former Southland plant. In his meeting with Smoke on July 30, Propper denied that there was any relationship between him and Milstein, and said that, although he had discussed with Milstein the possibility of Milstein's acting as his plant manager, Milstein had rejected the suggestion. Propper produced, and gave Smoke a copy of, a 6-page typewritten "Memorandum," which set forth the substance of the advice given to him by his Atlanta, Georgia, labor counsel; his consideration of the options which appeared to be open to him; and a "Contract Offer" which he asked the Union, through Smoke, to "either reject or accept by July 31." According to this "Memorandum" given by Propper to Smoke, Propper's attorney had advised him, "after making a thorough research on the situation," that Propper would not be "a successor to Southland," but that, although the "chances ... of his prevailing" in any possible litigation would be "about 4 to 1" in his favor, such litigation would involve time and attorney's fees. The "Memorandum" also stated in substance that, in view of his attorney's further advice that no possible charge of successorship would succeed if Propper leased a plant other than Southland's, Propper had decided to lease the Southland plant rather than another plant only if he could "make an immediate satisfactory agreement with [the union] by next Monday, July 31." The "Memorandum" then set forth an uncompli- mentary appraisal of the Union's chances of organizing employees in Mayaguez "without company cooperation" and various economic arguments why the terms of the included "Contract Offer" were the best that Propper could suggest to the Union. At the end of the "Memorandum," Propper detailed his "Contract Offer," setting forth provisions with respect to such matters as union security ( 120 days after hire), wage rates, holidays, vacation pay, pregnancy pay, a hospital and medical fund, hours of work, and a no-strike provision coupled with arbitration. Finally, in the form of an apparent addendum to the "Contract Offer," Propper certified that he and his company had never had, nor ever would have, "any association with the Southland Manufac- turing principals" and conditioned his "Contract Offer" upon both the Union's advising the Board, and the Board's acquiescence to the Union's advice and commitment, that there would be no "attempt to hold [Propper or his] company liable for the obligations of Southland" as a "successor." In proffering the contract to the Union upon these general terms and conditions, Propper's "Memorandum" agreed that he "would enter a contract immediately for a period of 5 years and from year to year thereafter" subject to a 90-day notice of termination prior to the end of the contract period or any extension, and that "An agreement would be worked out between the union and company lawyers concerning union representation for all [production] employees...." In their discussion of the substance of the "Memorandum" and its included "Contract Offer" on July 30, Smoke told Propper he disagreed with Propper's statement that there could be no enforceable claim of "successorship" if Propper should lease and use a plant other than the Southland plant. Propper testified, but Smoke denied, that in their conversation he told Smoke that he was offering the Union a contract "provided they [the Union] were successful in an election that [should be] held by the union in Mayaguez." On this conflict I find that Propper's testimony presents the substance of his remarks with Smoke and the intendment of the "Memorandum." For in spite of his denial of the ultimate point involved in Propper's testimony, Smoke further testified that he understood that his negotiations with Propper would leave the question of "recognition" to be worked out by the lawyers, that "Propper had pointed out that one of the problems in the successorship matter was that he did not want his company to be . . . [held liable] for moneys due to the striking workers . . . and therefore he did not want to make an open admission of successorship . . ."; that "the point raised [by Propper] was, how do we go about recognizing the union without my having to take on additional liabilities and it was for that reason that the matter [of the basis and manner of recognition ] was left to the lawyers to work it out." In answer to Propper's request on July 30, that the Union accept or reject the "Contract Offer" by July 31 because Propper had to decide within a short time whether to sign a lease with PRIDCO for the former Southland plant, Smoke said that it was a new matter so far as he was concerned and 12 See the finding of Trial Examiner Rosenberg to this effect in his Decision. SOUTHLAND MANUFACTURING CORP. he could not make a decision that quickly. He therefore asked Propper for more time. Propper agreed to an additional day and then, at Smoke's suggestion, agreed to ask PRIDCO for a 5-day extension during which time Smoke and Propper could be in touch with each other by telephone. On August 3, 1967, Smoke told Propper over the telephone that the Union was prepared to make a counterproposal and wanted to discuss the matter with Propper. Apparently at least part of the counterproposal was discussed and Propper said he would have to take up its feasibility with his attorney and his accountants. During the next 10 or 12 days, there were further telephone conversations between Smoke and Propper until the Union's representative in Puerto Rico reported to Smoke that Propper was hiring employees other than the strikers listed in the Board's Order against Southland. Acting on this report, Smoke wrote the following letter to Propper on August 21, 1967: As you will remember, on or about June 15, 1967, the United Hatters, Cap and Millinery Workers Interna- tional Union, AFL-CIO, requested a meeting to discuss, among other things, the recall of employees of Southland Manufacturing Corporation. We have now been informed by our members that you have already recalled certain supervisory personnel of Southland and are making arrangements to recall production and maintenance employees. In the light of these developments we hereby reiterate our formal request, on behalf of all employees of Southland represented by the union, that they be recalled and reinstated to their former positions, in accordance with their rights under law and priorities established under the outstanding NLRB orders, with respect to all bargaining unit jobs at the Southland plant. On September 9, 1967, Propper wrote Smoke a note apologizing for failing to reply earlier, and explained the delay as being caused by the absence of his Atlanta attorney, Frank Constangey, at an American Bar Associa- tion convention and the attorney's subsequent illness. Propper said also in this note that his attorney would be in touch with the Union's attorney very shortly. On September 19, 1967, Smoke wrote Propper the following letter: Our General Counsel Isadore Katz informs me that he has been contacted by Frank Costangey's office I understand that the delay was caused by Constangey's illness. I believe that we should try to finalize our understand- ing as quickly as possible. Nick Gyory tells me that he sent you a copy of a contract at the time you were meeting with him. This contract should be modified in accordance with our understanding We continue to maintain contact with our members in Mayaguez, P. R. According to information we have received, you have hired sixteen workers, only two of which are union members. We are asking that when you hire additional workers, you select our members. I 799 believe that approximately twenty-five of them applied forjobs. I am aware that there are problems in obtaining an award for a government contract. Our Union may be able to help you, but I feel that it is important that we first reach full agreement and sign a collective bargaining agreement with you. I will try to reach you by phone. If I have been unable to do so by the time you receive this letter, I would appreciate your calling me. Following this letter, there were a number of telephone conversations between Smoke and Propper, in which Smoke asserted that there was "possible discrimination" in Propper's hiring his Mayaguez staff and Propper said that he was hiring people according to their qualifications and was leaving the matter entirely in the hands of a Mrs. Rosario Martinez who "was acquainted with these people." 13 In the last of these telephone conversations in November, Propper agreed to meet with Smoke on December 7 at the airport in Miami where Smoke would be attending an AFL-CIO convention. Confirming this appointment, Smoke wrote Propper the following letter on November 30, 1967: In accordance with our phone conversation, we will meet at the Miami airport on Thursday, December 7th at 12:10 P.M., Eastern Airlines, Flight 958. I will look for you as you disembark from the plane. I hope we can resolve our differences and leave it to Frank Costangy and Elliot Bredhoff to draft an acceptable agreement. May I again request that you reinstate Bartolo. I believe he was employed as a presser and is entitled to an opportunity to prove himself. As you know, there still remains the legal question whether your firm is the successor to Southland. If so, Bartolo would be entitled to reinstatement under the N.L.R.B. order. You must realize that if we ignore the few loyal union members that remain withoutjobs, the settlement, no matter how good the economic terms, would not be an honorable one. In the event there is any change in plans, you can contact me at the Singapore, Bal Harbor, Florida. In accordance with a last minute postponement, the meeting between Smoke and Propper actually took place at the Miami Airport on December 8, instead of December 7. Smoke was accompanied by Executive Vice President Nicholas Gyory and the Union's attorney Elliot Bredhoff. The men never did speak on this occasion about resolving the terms of any possible contract between Propper and the Union. For Smoke immediately expressed his concern about Propper's not having "reinstated" the Union members who had previously been employed by Southland. And, in the discussion which followed, Propper told the Union's representatives that the Union "did not represent a majority of the workers in the factory." Smoke asked Propper, "Do you mean to say that after we have gone through all this we are now expected to organize the workers in your factory?" Propper's reply was, "Yes, that is 11 Mrs Martinez' role on behalf of Propper is discussed in the next section of this Decision 800 DECISIONS OF NATIONAL LABOR RELATIONS BOARD up to you-if you want to go ahead and organize and get them to sign the cards then we can bargain." With this, the meeting broke up. Following this brief meeting on December 8, 1967, there were no further contacts or communications between Propper and any of the Union's officials. Ill. THE BUSINESS OPERATIONS OF PROPPER SINCE AUGUST 7, 1967 During the period of these exchanges between Propper and the Union, Propper leased the former Southland plant from PRIDCO on August 7, 1967, hired Mrs. Rosario Martinez de Moreno as his first personnel and production manager,, and, through her, his first employees who began working for him at the plant on August 23, 1967. Starting with 17 employees for the first weekly payroll ending on August 28, 1967 and conducting the business through Propper International, Inc., he has since produced the same type of military cap that had been produced by Southland. For the remaining few months of 1967, his production was solely for civilian customers and by the end of the year he employed 21 workers. In January 1968, as the result of a series of successful bids which he began submitting to the Department of Defense in the end of October 1967, Propper began producing these caps under the same type of defense contract that Southland had lost in December 1964. He thereupon increased his production staff until, by the time of the hearing in mid-November 1968, there were 114 employees on Propper's payroll and his production under defense contracts amounted to 65 percent of his total production. Mrs. Martinez,14 whom Propper hired to recruit his production staff in August 1967 and who is still employed by him as his personnel manager, had worked for Southland from some time in 1960, first as a stock clerk, then as an office clerk in charge of production records, and finally as "assistant personnel manager" under Mrs. Bertha Milstein. While serving in this last capacity under Mrs. Milstein, she had followed the lead of the Milsteins in their commission of unfair labor practices (as Trial Examiner Rosenberg found in his Decision) by telling employees on April 2, 1964 that Milstein would close the plant or refuse to bid for more work if the Union won the representation election that day; by urging working employees to counterpicket the strikers in June 1964; and, upon specific instructions from Mrs. Milstein, by telling each of the 50 strikers who applied for reinstatement on October 12, 1964 pursuant to the strike settlement agreement, that Southland was under no obligation to reinstate them. Upon my appraisal of Mrs. Martinez' participation in the Milsteins' chain of unfair labor practices as found by Trial Examiner Rosenberg, it appears that her role was comparatively a minor one, that she was simply following the course laid down and required by her employers, the Milsteins, and that she took no such action on her own initiative as would indicate her own personal commitment to the suppression of union activities or union representation. Thus the acts 14 Although Rosario Martinez de Moreno was addressed by counsel as "Mrs. Moreno" during her testimony in the instant supplemental hearing, Trial Examiner Rosenberg referred to her in his Decision as "Rosario Martinez," and, for clarity and consistency, she is accordingly referred to committed by her, although supporting the Milsteins' unfair labor practices, contrasted with the acts of various production supervisors such as Raymond Valez (or Velez), Angel Vazquez, and Dixon Ortiz, which as found by Trial Examiner Rosenberg show that these men acted upon their own initiative and, with an apparent personal antiunion zeal not attributable to Mrs. Martinez, extended the effort of the Milsteins by instigating and participating with the employees in threatening to fight the union pickets and in marching on the Governor's mansion in a mock funeral procession on August 7, 1964. In any event, after Mrs. Martinez quit her job with Southland in June 1966, she went to work for United Pharmacal 15 as a production supervisor, and when she left that job and was hired by Propper in August 1967 more than a year later, it was not the result of her being sought out by Propper nor her being recommended by the Milsteins or by anyone familiar with the role she had played in supporting their unfair labor practices in 1964. Instead, hearing from a friend that Propper was hiring, she made inquiry of Mrs. Vidal, the assistant director of the employment office of the Commonwealth Department of Labor (to whom Propper had already spoken about his needs) and was referred to Propper by Mrs. Vidal. Upon this referral, Mrs. Martinez was interviewed and hired by Propper. Since then she has hired all of Propper's employees. Except in the beginning when she hired "a few friends," all her hiring has been through the Insular Department of Labor in Mayaguez with the result that 95 percent of all Propper's hiring has been on referral by the Department of Labor. When applications were made directly to Mrs. Martinez acting on behalf of Propper, she sent them to the Department of Labor for a referral and considered their applications only upon their returning with such a referral. Several of the former striking Southland employees, having made such direct applications to Mrs. Martinez and having been sent to the Labor Department, never came back with a referral and were therefore not hired. Following the above practice, Mrs. Martinez hired 17 employees for Propper's first payroll for the week ending August 28, 1967. All but two of them, had been employees of Southland preceding the 1964 strike but none had been strikers. Between August 23, 1967 and December 29, 1967, during which time Propper engaged solely in civilian production, Mrs. Martinez was his only supervisor as well as his personnel manager, and with the departure of two of the original employees and Mrs. Martinez' hire of five new employees, Propper's working staff increased to 21, of whom 18 were former Southland employees other than the 1964 strikers. From the beginning of January 1968 until the last payroll preceding the November 1968 supplemental hearing, during which time Propper became predominantly engaged in production under defense contracts, Propper's production staff, as the result of further hiring by Mrs. Martinez offset only in part by quits, numbered 114, of whom only 44 had previously worked for Southland and in the present Supplemental Decision as "Mrs. Martinez." 15 Her interim employer is not otherwise described in the present record. SOUTHLAND MANUFACTURING CORP. none of whom had apparently engaged in the 1964 strike. Of 140 employees who had worked for Propper at sometime during this penod of approximately 10 months but had left his employ before the supplemental heanng,i6 25 had been former Southland employees but, again, none had appar- ently been strikers. As already found, Mrs. Martinez acted as Propper's personnel manager and only supervisor until the end of December 1967. After January 1, 1968, when Propper began production under defense contracts, Mrs. Martinez continued as "personnel manager" and continued to do all the hiring but Propper also hired a number of production supervisors beginning on January 1968 and a production manager, Bonk E. Bendien, who has since been in daily direct charge of the plant, with Propper himself as the nominal plant manager. So far as the record shows, Bendien had had no relationship to Southland. Of the first five supervisors hired by Propper on or before April 1, 1967, four had been nonsupervisory employees of Southland but had not been strikers. At the time of the supplemental hearing in November 1968, Propper employed seven supervisors including Mrs. Martinez. Three of them had been former Southland nonsupervisory employees and only two of them (Mrs. Martinez and Santos Martinez, a cutting supervisor) had been Southland supervisors. None of the former Southland supervisors who were activists in their support of the Milsteins' unfair labor practices (i.e., Raymond Valez, Angel Vazquez, or Dixon Ortiz) were hired by Propper either as supervisors or as nonsupervisory employees. One other former Southland supervisor, Israel Velez, was hired by Propper as a nonsupervisory employee but not a supervisor. From Trial Examiner Rosenberg's findings in his Decision, it appears that Israel Velez, like Mrs. Martinez, played only a minor role in the Milsteins' unfair labor practices. For, according to these findings, his only involvement was to tell one of the strikers she should abandon the strike because Milstein would not negotiate with the Union and would refuse to give references to the strikers. A. Conclusions The present supplementary proceeding was instituted by the Regional Director to determine, in accordance with the Board's policy statement and criteria set forth in its Perma Vinyl decision,17 whether Propper is the "successor" of the Respondent Southland and as such "successor" should be required to comply with any or all of the affirmative bargaining, reinstatement, and backpay provisions of the order issued by the Board, and enforced by the Court of Appeals, against Southland as the result of Southland's commission of extensive unfair labor practices.18 Consist- ent with the special application of the Perma Vinyl principle, neither the General Counsel nor the Union 16 See p 59, 1 20 of the present transcript relating to these people, wherein the word , "natives" should be corrected, and is hereby corrected, to read "mac[rves " 11 Permit Vinyl Corporation, et at, 164 NLRB No 119, enfd 398 F 2d 544 (C A 5) 18 Southland Mfg Corp, 157 NLRB 1356, enfd 375 F 2d 325 (CADC) 19 The Board has thus reverted to essentially its original position in The Alexander Milburn case, 78 NLRB 747 (1948) and has specifically overruled 801 contends that Propper has acted in concert with Southland or is in any sense Southland's alter ego. They contend merely (as the General Counsel states in his brief) that Propper should be bound to comply with the affirmative provisions of the Board's order because Propper "has become the successor employer of the same employing industry which had been conducted by the Southland Corporation at the time it committed the unfair labor practices found by the Board and that it had full knowledge of the requirements of the Board order when it became such successor employer." Perma Vinyl sets forth the current position of the Board extending the reach of a Board unfair labor practice order, in each case upon a proper balancing of relevant interests, to a "successor" who is the "bona fide purchaser of a business'; with knowledge of its predecessor's unfair labor practices.19 In reaching this conclusion, the Board noted that the Act was intended to regulate "the employing industry . . in the interest of industrial peace," 20 and that in its recent opinion in the Wiley case 2i holding that a contractual grievance and arbitration provision survived both a change in corporate ownership and the term of the contract, the Supreme Courthad stated: Employees . . . ordinarily do not take part in negotiations leading to a change in corporate owner- ship. The negotiations will ordinarily not concern the wil '•eing of the employees, whose advantage or d advantage, potentially great, will inevitably be ii..idental to the main considerations. The objectives of national labor policy, reflected in established principles of federal law, require that the rightful prerogative of owners independently to rearrange their businesses and even eliminate them as employers be balanced by some protection to the employees from a sudden change in the employment relationship. In the light of this language which it quoted from the Wiley opinion the Board then set forth in the following passages of its Perma Vinyl decision the basis and the general criteria upon which it would hold a bona fide purchaser of a business responsible for remedying his predecessor's unfair labor practices: .. . Especially in need of help, it seems to us, are the employee victims of unfair labor practices who, because of their unlawful discharge, are now without meaning- ful remedy when title to the employing business operation changes hands. We believe that the Board is empowered to require more effective action in the matter of remedying unfair labor practices. We find this authority in the Act's delegation of broad administrative power to the Board to frame such remedial orders "as will effectuate the policies of the Act." In the exercise of this authority the Board is not, of course, restricted to requiring remedial Symns Grocer Co, 109 NLRB 346 (1954) which, in the meantime, had limited the reach of Board orders to "successors" who, consistent with Rule 65(d) of the Federal Rules of Civil Procedure, either were alter egos of, or collusive active participants with, their predecessors in the commission of the unfair labor practices, or the evasive transfer or operation of the businesses See Regal Knitwear Co v N L R B, 324 U S 9 (1945) 20 N L R B v Cotten, 105 F 2d 179,183 (C A 6) 21 John Wiley & Sons, Inc v Livingston. 376 U S 543, 549 802 DECISIONS OF NATIONAL LABOR RELATIONS BOARD action by the offending employer alone; hence its orders run to such employer's successors and assigns as well. . . . To further the public interest involved in effectuating the policies of the Act and achieve the "objectives of national labor policy, reflected in established principles of federal law," we are persuaded that one who acquires and operates a business of an employer found guilty of unfair labor practices in basically unchanged form under circumstances which charge him with notice of unfair labor practice charges against his predecessor should be held responsible for remedying his predecessor's unlawful conduct. In imposing this responsibility upon a bona fide purchaser, we we are not unmindful of the fact that he was not a party to the unfair labor practices and continues to operate the business without any connec- tion with his predecessor . However, in balancing the equities involved there are other significant factors which must be taken into account.... When a new employer is substituted in the employing industry there has been no real change in the employing industry insofar as the victims of past unfair labor practices are concerned, or the need for remedying those unfair labor practices. Appropriate steps must still be taken if the effects of the unfair labor practices are to be erased and all employees reasured of their statutory rights. And it is the successor who has taken over control of the business who is generally in the pest position to remedy such unfair labor practices most effectively. The imposition of this responsi- bility upon even the bona fide purchaser does not work an unfair hardship upon him. When he substituted himself in place of the perpetrator of the unfair labor practices, he became the beneficiary of the unremedied unfair labor practices. Also, his potential liability for remedying the unfair labor practices is a matter which can be reflected in the price he pays for the business, or he may secure an indemnity clause in the sales contract which will indemnify him for liability arising from the seller's unfair labor practices. (Footnotes omitted; emphasis supplied.) In 1967, Perma Vinyl thus extended to a "successor," whenever required upon "a balancing of the equities involved," the obligation of remedying the known unfair labor practices of his predecessor, including specifically an indemnification and reinstatement of employees unlawfully discharged by the predecessor. Even before as well as since Perma Vinyl, however, the Board relying upon the language of the Wiley decision in a line of cases beginning with Chemrock Corporation in 1965,22 had similarly extended and enforced by its bargaining orders the obligation of a "successor" to recognize and bargain with a union whose status as statutory exclusive bargaining representative of an identifiable continuing employee bargaining unit had been 22 151 NLRB 1074. 23 Quaker Tools and Die Company, 162 NLRB 1307 enfd. 403 F.2d 1021, 69 LRRM 2728 (C.A. 6); Ideal Laundry Corp., 172 NLRB No. 138; International Chemical Workers Union v. N.L.R.B., 395 F.2d 639, 68 LRRM 2065 (C.A.D.C.); Webster Wood Industries, Inc., 169 NLRB No. 14. And see also the earlier decisions to the same effect in Johnson Ready Mix Co., 142 NLRB 437 and Maintenance Incorporated, 148 NLRB 1299. 24 Chemrock Corp., supra, 151 NLRB at 1075-1080; Martin Marietta Corp., 159 NLRB 905; Valleydale Packers, Inc., 162 NLRB 1486, enfd. F.2d , 69 LRRM 2622 (C.A. 5); K.B. & J. Young's Supermarkets, Inc., 157 NLRB 271, 273, 277, enfd. 377 F.2d 463 (C.A. 9) cert. den. 389 U.S. established during the predecessor's operation of the business either by Board certification23 or by the predecessor's recognition or contract with the Union.24 And the Board has also further held with judicial approval, that a successor was also bound to bargain with a union which his predecessor had refused to recognize in violation of the Act.25 Both Perma Vinyl and the Chemrock line of decisions apply only to successorship situations where (as the Board said in Perma Vinyl and has repeated in substance in its other decisions) the new employer is one who has acquired and operated the "business" of his predecessor in "basically unchanged form." In making this determination, the Board and the courts have considered whether or not he took over the business as a "going concern" 26 and whether or not there has been a continuity of the corpus and operation of the business as an enterprise "in the employing industry" as disclosed not only by some essential elements of a substantial continuity in the work force and a similarity or identity of product or services, but also, of lesser but still substantial importance, by possible additional elements of continuity in plant location, management, supervision, equipment, and methods of production.27 But even when these elements of continuity substantially appear after the transfer of a business, it must also appear, as the Board said in Perma Vinyl, that a "balancing of the equities" justifies a remedial order against the putative successor in the business. This balancing process may require the Board to consider different factors, to ascribe varying degrees of importance to the usual elements indicating the continuity or lack of continuity of the ',usiness enterprise, and even to come to different conclusions in any given situation with respect to imposing a mere bargaining obligation upon a particular "successor" and imposing the obviously more onerous and restrictive obligation of reinstating with backpay employees whom his predecessor had unlawfully discharged. For the competing "equities" to be considered by the Board may not in every case be limited to those of the predecessor's employees and their representative union and those of the "successor." As in the present case, there may also be reasons for considering the "equities" not only of the "successor's" newly hired employees but also of other parties with indirect but nevertheless substantial interests in the business such as the landlord of the plant and encumbranc- ers of the predecessor's equipment. For example, with respect to the possible imposition of the predecessor's bargaining obligation upon the successor, the Board is concerned in a situation like the one in the present case with the propriety of imposing a bargaining representative on employees in a substantially changed unit. In such a situation, the determinant could well be 841; Glenn Goulding, 165 NLRB No. 22; Randolph Rubber Company, Inc., 152 NLRB 496; Overnite Transportation Co. v. N.L.R.B., 372 F.2d 765 (C.A. 4) cert. den. 389 U .S. 838. 25 Makela'Welding Inc. v. N.LR.B., 387 F.2d 40, enfg. as modified in another respect 159 NLRB 964. 26 Martin Marietta Corp., 159 NLRB 905. 905-907. 27 See for example Chemrock, supra, 151 NLRB at 1078 ; Randolph Rubber Company, Inc., 152 NLRB 496; Glenn Goulding, 165 NLRB No. 22; Webster Wood Industries, Inc., 169 NLRB No. 14; N.L.R.B. V. John Stepp's Friendly Ford, Inc., 338 F.2d 833; International Chemical Workers Union v. N.L.R.B., 395 F.2d 639.68 LRRM 2065 (C.A.D.C.). SOUTHLAND MANUFACTURING CORP. whether the "successor" in his hiring had discriminated against the predecessor's union employees and had thus prevented the union's retention of a majority designation in the otherwise continuing bargaining unit.28 In making this determination or any other determination affecting a continuing bargaining obligation, it would be of little or no importance whether there was a sale of the business or equipment by the predecessor to the successor and therefore privity between them.29 What is important is the continuance of essentially the same business as a "going concern" without significant interval, as disclosed by the other usual elements of continuity including, as one essential, at least an identifiable continuing bargaining unit. On the other hand, with respect to the imposition of the burden of reinstatement and backpay upon a "successor," the "equities" may be quite different. For, following the Board's reasoning and language in Perma Vinyl, it would certainly "work an unfair hardship" upon the putative successor if, under circumstances such as those presented in the instant case, either (1) the "successor" had not become "the beneficiary of the [predecessor's] unfair labor practices" because a substantial time gap following the predecessor's cessation of business and his employment of any production staff, made it necessary for the "successor" to start and develop the business and its staff anew, or (2) the "successor," not having in fact acquired the business or equipment on a sale by the preceding owner (i.e., having had no "privity" with him), had been unable to adjust "the price he [paid] for the business, or . . [to] secure an indemnity clause in the sales contract which [would] indemnify him for liability arising from the seller's unfair labor practices." Moreover, when as in the present case, the "successor" has merely bought the bulk of equipment he is now using, not from the predecessor in the business but on a foreclosure sale of a chattel mortgage, and has merely rented the plant previously used by the predecessor from a third party landlord, the "equities" of such a mortgagee and landlord, particularly after lengthy defaults by the prede- cessor in the business, must also be considered. For there can be no question that the imposition of a reinstatement as well as a backpay obligation, would so seriously limit the normal freedom of possible purchasers of the equipment and users of the plant in a rebirth of the former business as to diminish, substantially, the value of the mortgagee's security and the rental value and possible user of the plant. Turning now to the interplay of these various considera- tions in the instant case, the facts already found present some of the ordinary, but not necessarily controlling, indicia of a "successorship" by Propper to the Southland business. For as both the General Counsel and the Union point out, in starting and continuing to operate his own business at Mayaguez since August 1967, Propper (1) has used the same plant and equipment; (2) has manufactured the same product; (3) has delegated hiring and some supervision to a supervisor (Mrs. Martinez) who had the same or similar authority during her employment by Southland until June 1966; (4) has employed the same type of workers to perform the same tasks; and (5) has served the 28 See International Association of Machinists, District Lodge 94, AFL-CIO, et at v N L R B, ( especially Judge Leventhal's concurring opinion and cases therein cited), 4141F 2d 1135, 71 LRRM 2130 (C A D 803 same type of customers-civilians and government-with government defense contracts eventually predominating as was the case with Southland. But, as Propper points out in his brief, the Board in determining whether Propper is Southland's responsible successor under the Perma Vinyl principle, must also consider and weigh "the equities," the time gap between the businesses, the absence of any privity on a direct transfer of business or assets, and the change in personnel in the corresponding bargaining units. Propper contends that a consideration of these factors requires the conclusion that he was not, and is not, Southland's successor and that he should therefore not be required to remedy Southland's unfair labor practices by bargaining with the Union or giving preferential hiring right and backpay to Southland employees under the Board's order against Southland. In their briefs, the General Counsel and the Union have submitted a chain of arguments to overcome Propper's defense and to affirmatively establish his responsible "successorship" to Southland notwithstanding the time gap, the absence of a direct transfer of business or assets, and the difference in unit composition. The substance and bases of their arguments, as more fully developed in the Union's brief, are that (I) the hiatus between the businesses was too short to be material ; (2) Propper intended to purchase either Southland's business or its equipment and thus to take the usual route to "successorship" but this was made impossible because of Southland's unfair labor practices; (3) in any event Propper intended to become, and has in fact become, Southland's successor, "in the employing industry"; (4) Propper was actually ready and willing to bargain and enter into a contract with the Union if relieved of the burden of paying Southland's employees their backpay; and (5) Propper refused to hire, and "unlawfully refused to bargain" with the Union concerning the hire of the Southland employees embraced by the Board's Order. In the circumstances shown by the evidence in the case, and for the following reasons, I find these arguments of the General Counsel and the Union to be without ment, not only so far as they are directed to the general question of Propper's successorship under the Perma Vinyl principles but also as they are intended to have a specific bearing upon the ultimate questions of Propper's responsibility under either the reinstatement and backpay provisions or the bargaining provisions of the Board's Order against Southland. The hiatus between Southland's operation of its business and Propper's starting his own business was at least 7 months (if we count only the months in 1967 when the plant was completely shut down) but realistically and actually it was the 2-1/2 years from February 1965 after which Southland practically shut down its plant that had employed more than 300 workers on government contracts by employing only a skeleton staff which dwindled from 15 to 2 until in mid-January it ceased employment and production completely. As a result, and also because it could not pay the chattel mortgage on its equipment nor its C May 2,1 1969). 29 See Maintenance Incorporated, 148 NLRB 1299, 1301 804 DECISIONS OF NATIONAL LABOR RELATIONS BOARD rent on the plant, Southland had no business nor any equipment or other assets which it could sell to Propper. That Propper might at some time have considered buying either the Southland business or its equipment directly from Southland is therefore immaterial because in fact he did not and could not do so. What is material is that, under the circumstances, Propper in order to go into the headgear business, was forced to start and develop his own business and not Southland's business. Accordingly, in view of the substantial hiatus in business operations during which Southland's business had actually become extinct, in no sense can it be said that the hiatus was too short to be significant , or that, Propper took over the Southland business as "a going concern." Nor can it be said, as the General Counsel and the Union argue, that, although he may not be regarded as continuing Southland's "business ," Propper should still be held responsible as Southland's "successor" because he intended to become, and has become, the substitute for Southland "in the employing industry." For despite the use of this shorthand phrase by the Board , it is clear from the Board's more exact language and the results of its decisions ,30 that what the Board has been doing is to hold a new employer responsible for the obligations of his predecessor upon taking over the predecessor's "business" or "enterprise" "in the employing industry" and'then only after due considera- tion of the "equities" in the situation. More complicated questions are raised by the General Counsel's and the Union's related arguments based on Propper's alleged discriminatory refusal to hire, or even bargain about the hire of, any of the former Southland employees covered by the provisions of the Board's Order, and his asserted willingness to enter into a contract with the Union provided he was released from any obligation under the reinstatement and backpay provisions. The intent of these arguments is to establish Propper's acceptance of a general obligation to recognize the Union under the order, and his inconsistent attempt at the same time completely to avoid both his full bargaining obligation and his reinstate- ment and backpay obligation as Southland's successor by discriminatorily refusing to hire the Southland group and by then claiming that because of this exclusion it was doubtful that the Union represented a majority of the employees in the Propper bargaining unit. In my view , the evidence does not support the essential factual premises relied upon by the General Counsel and the Union in these arguments and at some points the arguments become circular in their implicit assumption that Propper was Southland's fully obligated successor. At no point did Propper's actions given any ground for a finding that he was accepting or willing to accept responsibility as Southland's successor under either the bargaining provision or the reinstatement and backpay provisions of the Board's Order. On the contrary, his "Memorandum" delivered to Union Secretary Smoke with his offer of contract terms on July 30, 1967, as well as his statements to Smoke at that time, made it clear that he was rejecting the Union 's claim and the Regional Director's warning that he might be Southland's successor, and that, although as a layman he was willing to sign a contract with the Union on the terms outlined, it would necessarily include "an agreement .. . worked out between the union and company lawyers concerning union representation for all employees," another way of his telling Smoke, as I have found he actually did at the time, that the contract would depend upon the Union's being "successful in an election held by the Union in Mayaguez." Similarly, as Smoke's as well as Propper's testimony showed, Propper made it clear that he did not, and would not accept responsibility as a "successor" for Southland's obligation to reinstate the Southland employees named in the Board's Order with backpay. With respect to Propper's asserted "unlawful refusal to bargain" with the Union concerning the hire of these employees, the Union's argument to this effect assumes either that Propper had voluntarily accepted a bargaining responsibility as Southland's successor under the Board's Order (contrary to the conclusion I have just reached) or that Propper, regardless of his stated position, was, as a matter of law, Southland's successor under the circumstances of this case and therefore bound to bargain with the Union and reinstate the Southland employees with backpay under the Board's Order, which is the very point at issue in this supplementary proceeding. Finally, with respect to Propper's asserted discriminatory refusal to hire the Southland group and thus intentionally depriving the Union of a continuing rightful majority in the Propper employees' bargaining unit, the Union's argument is based not only again in part upon an assumption of the point in issue (i.e., that Propper was Southland 's successor and as such was obligated under the Order against Southland to reinstate or hire the Southland employees on the Union's requests in its letter of August 21 and September 19, 1967), but also in part upon a factual premise which in my opinion is unsupported by the evidence. For the evidence shows, as I have found , that Mrs. Martinez has hired all of Propper's employees starting with an initial staff of 17 on August 23, 1967 ; that although she at first hired a "few friends," all her hiring thereafter has been through the Insular Department of Labor with the result that 95 percent of Propper's hiring has been on referral by the Department of Labor ; that direct applicants for employment were sent to the Department of Labor for referral ; that several of them were former striking Southland employees who were not hired because they did not return with such referral; that in following this course of a required referral practice through Mrs . Martinez, Propper has not hired any of the former Southland strikers named in the Board's preferential hiring order against Southland although 15 of the 17 employees on his payroll on August 28, 1967, 18 of 21 on December 29, 1967 and 44 of 114 in November 1968 were other former Southland employees who had been neither strikers nor supervisory activists in Southland's unfair labor practices ; and that, although Mrs. Martinez through whom Propper had done all this hiring had been Southland's "assistant personnel manager" until a year before being hired by Propper, she had not planned or participated in Southland's unfair labor practices in any such manner or to any such extent as would indicate her own personal commitment to the suppression of union activities or union representation . This evidence, in my opinion , indicates in 30 See for example the basic Perma Vinyl decision , supra. SOUTHLAND MANUFACTURING CORP general such a reasonable fair course of nondiscriminatory hiring practice that precludes the finding urged by the Union and the General Counsel that Propper discriminated against the former Southland strikers and union members and thereby intentionally prevented the Union from retaining the majority it apparently had had in the bargaining unit during Southland's operation. All the material circumstances in the case, most important of which was the complete extinction of the Southland business in the 2-1/2 years before Propper began his business, negate the General Counsel's and the Union's claim that Propper became Southland's "successor" under the Perma Vinyl doctrine. Certainly, Propper did not take over Southland's business as a "going concern." Nor did he take over Southland's staff. Instead, he began his own business, recruited his own staff almost entirely through the Department of Labor, bought his initial equipment not from Southland, but on the Small Business Administra- tion's foreclosure, and made his own lease with PRIDCO. Moreover, he took no customers from Southland but developed his own business until, apparently meriting confidence through his own performance, he has been able to procure the government contracts that Southland had lost because of its stubborn, foolish persistence in its unlawful course of conduct Finally, although we may sympathize with Southland's strikers and the Union's attempt to remedy the wrongs done to them by Southland, we cannot overlook the "equities" in the situation which would make any imposition of Southland's remedial obligations upon Propper not only "unfair" to Propper who had nothing to do with Southland's unlawful conduct and should therefore be accorded the fullest possible lawful "enterpreneurial freedom" of operating his own business efficiently, but also to Propper's employees, the Small Business Administration, and PRIDCO.31 For with respect to Southland's bargaining obligation under the Board's Order, since it does not appear Propper discriminatorily excluded any of Southland's employees from hire nor that a majority of Propper's production employees since August 23, 1967 have ever indicated the Union to be their choice as bargaining representative, it would be improper to impose the Union upon Propper's employees as their statutory exclusive bargaining representative.32 Finally, with respect to Southland's obligation to give preferential hiring rights and backpay to its strikers under the Board's Order, it 11 The International Association of Machinists, District Lodge 94, AFL-CIO v N LRB, supra, 414'F2011351, 71 LRRM 2150 (CA DC, May 2 1969) 805 would be "unfair" to the legitimate interests of Propper, the Small Business Administration, and PRIDCO, were the Board to adopt any rule which would impose liability upon Propper for complying with these provisions of the Order. For in view of the fact that Propper neither took over Southland's business as a "going concern" nor made any purchase of the business or assets from Southland, it cannot be said that he benefited from Southland's unfair labor practices or that he was in a position to make provision for Southland's bearing the burden of compliance with the Board's Order either through an adjustment of price or an indemnification as part of a transfer agreement. Even further than this, to make a new employer in Propper's situation responsible for reinstatement and backpay would substantially restrict the use of equipment and plant to purposes other than that of the former operator of the business, and would seriously diminish the value of the security of a chattel mortgagee such as the Small Business Administration and the rental value of the plant. The policy for protecting such a mortgagee and landlord is particularly strong in the present case since the Small Business Administration and PRIDCO are public agencies which have been entrusted with the function and power of promoting the general public interest. For the foregoing reasons, I conclude upon the facts shown by the evidence and the arguments made by the parties, that: 1. Propper International, Inc., is not within the intent of the Perma Vinyl doctrine a successor operator of the military cap manufacturing business formerly conducted by the Respondent Southland Manufacturing Corp. at Mayaguez, Puerto Rico. 2. Propper International, Inc., should therefore not be required to comply with the affirmative remedy provisions of the Board Order issued in the above proceeding against the Respondent Southland Manufacturing Corp. RECOMMENDED ORDER Upon the basis of the foregoing findings of fact, the conclusions, and the entire record in this supplementary proceeding, it is recommended that the application of the General Counsel and the Union that Propper International, Inc. be required to comply with the affirmative remedy provisions of the Board Order issued against the Respon- dent Southland Manufacturing Corp., be denied. 12 /bid And see also Gari in Corporation, et al , v N L R B, 374 F 2d 295 (C A -D C ) cert denied 387 U S 942