Marsco, Inc. And Martin Arsham

MARSCO, INC Martin Arsham Sewing Co ., a/k/a Marsco, Inc. and Martin Arsham and International Ladies Gar- ment Workers Union, Local 29. Case 8-CA- 11894 16 December 1987 SECOND SUPPLEMENTAL DECISION AND ORDER BY CHAIRMAN DOTSON AND MEMBERS BABSON AND STEPHENS On 22 June 1987 Administrative Law Judge Joel A. Harmatz issued the attached decision. The Re- spondent filed exceptions and a supporting brief, and the Charging Party filed an answering brief The National Labor Relations Board has delegat- ed its authority in this proceeding to a three- member panel. The Board has considered the decision and the record in light of the exceptions and briefs and has decided to affirm the judge's rulings, findings, i and conclusions, to modify his remedy,2 and to adopt the recommended Order. ORDER The National Labor Relations Board adopts the recommended Order of the administrative law judge and orders that the Respondent, Martin Arsham, Cleveland, Ohio, his agents, successors, and assigns, shall take the action set forth in the Order. i The judge erroneously referred to the amount of backpay ordered in the Board's Supplemental Decision and Order of 30 March 1982, 260 NLRB 1309, as $41,677 31 The correct figure is $31,940 39 The judge's citation to William B Allen, Allcon, Inc is corrected to read 267 NLRB 700, 706-707 (1983) In Finding Martin Arsham personally liable for a portion of the Board's backpay award, the judge commented (at fn 23) that the alleged inad- equate capitalization of the Respondent corporation is "among several items which arouse curiosity as to the credulity of Arsham's activities with respect to Marsco " Contrary to the judge's statement, the facts demonstrate, and the parties stipulated at the hearing, that the Respond- ent corporation was not undercapitalized We note that by cognovit promissory note of 21 December 1980, Arsham loaned the corporate Respondent $10,000 Although the record fails to indicate for what purpose such funds were invested into the cor- porate Respondent, presumably it was an attempt by Arsham to maintain corporate viability for some additional period of time Regardless of the reason for the infusion of capital, Arsham's course of action in that in- stance does not negate our finding that his overall effort was to limit his personal losses by deliberately stripping the Company of assets which otherwise could have been applied towards the satisfaction of the Board's backpay claim 2 In accordance with our decision in New Horizons for the Retarded, 283 NLRB 1173 (1987), interest on and after 1 January 1987 shall be computed at the "short-term Federal rate" for the underpayment of taxes as set out in the 1986 amendment to 26 US C § 6621 Interest on amounts accrued prior to 1 January 1987 (the effective date of the 1986 amendment to 26 U S C § 6621) shall be computed in accordance with Florida Steel Corp, 231 NLRB 651 (1977) 923 CHAIRMAN DOTSON, dissenting. For the reasons set forth in my prior dissent in this case,' I would have denied the General Coun- sel's supplemental motion for determination of (Martin Arsham's) personal liability on the basis of the analysis set forth in the Board's denial of the General Counsel's original motion on 31 May 1985.2, Consequently, I dissent from the majority's adoption here of the judge's recommended Order imposing personal liability 1 280 NLRB 696 (1986) 2 275 NLRB 633 (1985) Richard F. Mack, Esq, for the General Counsel Robert T. Rosenfeld, Esq. and Kenneth Zirm, Esq. (Walter, Harverfield, Buescher & Chockley), of Cleve- land, Ohio, for the Respondent Thurlow Smoot, Esq., of Cleveland , Ohio, for the Charg- ing Party SECOND SUPPLEMENTAL DECISION JOEL A HARMATZ, Administrative Law Judge This proceeding presented the issue of whether limited per- sonal liability for backpay should be imposed on Martin Arsham, an individual, who owned, operated, and con- trolled a now defunct corporate employer, which the Board previously deemed guilty of unlawful discrimina- tion. A hearing on the matter was conductd by the me in Cleveland, Olio,' on 17 November 1986 pursuant to an order of the National Labor Relations Board dated 24 June 1986 2 A. Chronology The Martin Arsham Sewing Co (the Corporate Re- spondent or MARSCO) was established in 1976 as a con- tract sewing operation. At all times material, Martin Arsham was the sole owner, president, and principal op- erating official. Arsham and his wife were the only di- rectors, and with the exception of James B Koplow, the assistant secretary, held all corporate offices. The General Counsel's present motion entails a quali- fied attempt to fix a modicum of responsibility for an un- satisfied Board remedy. This effort stems from a history of litigation traceable to unfair labor practice charges filed on 1 May 1978, an outgrowth of a union organiza- tion campaign waged in the spring of that year Later, on 14 June 1978 a complaint issued against the Corporate Respondent alleging violations of Section 8(a)(1), (3), and (5). The complaint included an allegation that Martin Arsham constructively discharged 16 employees for rea- sons proscribed by the Act A hearing on that complaint before Administrative Law Judge Claude R. Wolfe closed on 1 November 1978. i Certain errors in the transcript have been noted and corrected 2 280 NLRB 696 (1986) (Members Dennis, Babson, and Stevens, with Chairman Dotson dissenting ) 287 NLRB No. 93 924 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD Prior to issuance of Judge Wolfe's decision , the Cor- porate Respondent and Martin Arsham on 5 February 1979 collaborated on a transaction that is central to the General Counsel's present claim . On that date, the Cor- porate Respondent , through its president , Arsham, exe- cuted a cognitive promissory note to Arsham acknowl- edging past unsecured loans by Arsham to the Company of $37,700 3 Interest at the rate of 8 percent annually was to be paid Arsham , within the note due immediately on nonpayment of interest . 4 Most significant , however, was the security agreement executed that same day pledging all corporate assets as collateral for these prior debts.5 Subsequently, on 21 March 1979, Judge Wolfe issued his decision concluding, inter alia, that 12 employees were unlawfully terminated . Arsham's personal involve- ment in the incident was detailed in Judge Wolfe's de- scription of the critical confrontation between Arsham, his employees , and union representatives, as follows- Arsham and the union representatives briefly con- tinued to express their views . Finally Arsham stated that whoever signed the cards could get their coats and leave, that the door swung both ways, and the employees could leave with the Union or stay and work . Freeland [the union representative ] then said "get your coats" and 12 employees left the shop The judge construed Arsham's statement as follows: 3 See Jt Exh 9(b) 4 See Jt Exh 13(a) At no time since execution of the security arrange- ment, has the Corporate Respondent paid Arsham any interest s This was not the first time that an Arsham loan was secured under such an arrangement On 24 August 1977 a corporate debt to Arsham of $2500 was subject to a similar agreement on all equipment owned by the Company That agreement included form language to the effect that Arsham was to be secured for "all other habllllties due or to become due, now existing or hereafter arising " See Jt Exhs 7 and 7( a) Relying on this language, Respondent argued that the loans referred to in the 1979 security arrangement were already secured by the 1977 security agreement and that the former was unnecessary or a mere "update " Hence it is claimed that the judgment subsequently obtained was based on a security arrangement executed prior to the unfair labor practice pro- ceeding Although I would agree that the language in the 1977 security transaction would secure future obligations and new debts emerging from the same loan, such as interest delinquencies, the parties obviously did not intend to construe the 1977 arrangement as encumbering corporate assets on any broader basis Thus, at the time the Corpoartion also was indebted to Arsham in the amount of $22,809 28 Yet the 1977 authoriza- tion mentioned no indebtedness other than the $2500 advanced by Arsham in September 1977 See Jt Exh 6(s) Moreover, while Arsham's testimony is to the effect that the 1979 transaction was executed as a "legal way to close the company and get out of there," he does not men- tion the 1977 arrangement as contributing to that end Indeed, the lan- guage of the corporate resolution of January 31, 1979 (Jt Exh 6( x)) and the 1979 security agreement (Jt Exh (b)) attests to the fact that Arsham and his wife and their advisors understood and intended that the 1977 agreement related exclusively to the indebtness of $2500 and that execu- tion of the second security agreement in 1979 was a necessary step if Arsham were to enjoy a preference for the balance of unpaid loans in- curred in the interim In the final anyalysis, not only was the 1977 au- thorization by the board of directors specifically limited to the $2500 loan, but the action taken in February 1979 was consistent with that limi- tation in its express statement that only the $2500 debt is presently se- cured "leaving an unsecured balance prior to the execution of this agree- ment of ($37,700 00) " See Jt Exh 9(b) Thus, the security agreement ex- ecuted in 1977 is of no moment to the issue of whether Arsham's actions in 1979 and thereafter constituted a fraudulent conveyance [Arsham's] statement to the employees that their options were leaving with the Union or staying to work . . . clearly gave them the choice of abandon- ing the Union as their representative or leaving the premises, thereby conditioning continued employ- ment on such abandonment Respondent could not impose such a choice on its employees without vio- lating the Act, and when the employees elected to leave rather than forsake the Union, they were con- structively discharged in violation of Section 8(a)(3) and (1) 6 On 7 September 1979, the Board issued its decision, finding that Respondent violated Section 8(a)(1), (3), and (5) of the Act.7 The Board expanded Judge Wolfe's find- ings of discrimination to include four additional employ- ees Thereafter, on 6 November 1980 the Corporate Re- spondent agreed not to contest the Board's Order. Con- sistent therewith, on 11 March 1981, a backpay specifica- tion and notice of hearing was issued. An answer was filed, but withdrawn on 22 October 1981. Accordingly, on 30 March 1982, the Board issued a Supplemental De- cision and Order on backpay, determining8 that $41,677.31 was due to 15 discriminatees 9 For reasons set forth below, no backpay has been paid to date On 21 October 1981 the Arshams, as corporate direc- tors, took steps to change the name of "Martin Arsham Sewing Co." to "MARSCO." (See G.C. Exh 6(Z) ) About 9 December 1981 Martin Arsham, in his own behalf, filed a state court action against the Corporate Respondent to enforce the confessed judgment provi- sions in the cognovit promissory note made on 5 Febru- ary 1979 10 On 17 December 1981 the uncontested judg- ment became final.I I By resolution of the directors (the Arshams) dated 12 December 1981 all property of the Corporate Respond- ent was ceded to Martin Arsham in satisfaction of the aforedescribed judgment, as follows- IT IS HEREBY RESOLVED [sic] that all of the above dscribed collateral securing the debts owing to Martin Arsham has been possessed by him from the 10th day of December 1981, and from that date has been his property free and clear of any rights and interest of this corporation, said Martin Arsham having permitted this corporation to continue using the equipment and machinery necessary to continue operating its business up to this present date.I2 Through this means Arsham acceded to all assets of MARSCO, leaving it asset free. On 24 December 1981 MARSCO ceased doing business. 6 244 NLRB 918, 921 (1979) 7 244 NLRB 918 a 260 NLRB 1309 9 One of the named dlscnmmatees, Joan Massingill, was not mentioned as among those entitled to backpay 10 See Jt Exh 13(a) 11 See Jt Exh 13, p 2 12 See Jt Exh 6(BB) MARSCO, INC On 30 December 1981, the Arshams, as directors of the Corporate Respondent, resolved as follows This corporation being unable to continue operating as a solvent business does hereby resolve to discon- tinue doing business from this day forward and does further authorize Martin Arsham as president to file a Petition in Bankruptcy so as to discharge this cor- poration from all existing debts 13 That same day, a voluntary petition in bankruptcy was filed In the bankruptcy petition, the Board was listed among the unsecured creditors. 14 On 24 February 1982 the Board filed its proof of claim with the bankruptcy court 15 On 1 April 1982 Martin Arsham sold machinery, equipment, and other assets he had recovered from MARSCO in December 1981 (prior to the bankruptcy filing) to the Drape Factory, Inc. for $20,000 16 On 2 June 1982 a Board agent wrote the trustee in bankruptcy inquiring whether the Drape Factory could be considered a "successor" to Martin Arsham Sewing Company (See Jt Exh 14(1) ) The bankrupt estate and the trustee were discharged by order of the United States Bankruptcy Court dated 18 January 1983 (See Jt Exh 14(k)) In the course of the bankruptcy proceeding, the Board did not avail itself of the opportunity to examine Martin Arsham, and other than its proof of claim and the successorship inquiry, it did not participate there On 30 November 1984 the General Counsel filed a "Motion for Determination of Personal Liability" against Martin Arsham. Liability was sought only regarding the $20,000 sale by Arsham of the assets he obtained from MARSCO At that juncture, the General Counsel alter- natively sought either an order fixing Arsham's liability at that amount, or a hearing to resolve the matter. No response was filed. The Board (Chairman Dotson and Member Hunter, Member Dennis dissenting) denied the motion on 31 May 1985.17 The majority, in material part, reasoned as follows- We find that the General Counsel has not demon- strated that Arsham committed any act which would justify piercing the veil of the corporate Re- spondent to reach Arsham as an individual under the principles set forth in Riley Aeronautics Corp., 178 NLRB 495 (1969), and Chef Nathan Sez Eat Here, Inc., 201 NLRB 343 (1973). Thus, there is no 13 Jt Exh 6(cc) 14 Jt Exh 14(a) 15 Jt Exh 14(d)(1) 16 The Drape Factory, Inc was founded by the Arshams in 1979 At the start, Arsham's the wife was the only employee of that firm In his testimony, Martin Arsham could not recall whether ownership of the stock was split between himself and his wife, or if he was the sole owner According to his testimony, the Drape Factory was in operation prior to the demise of MARSCO, which, according to Arsham, had "Just gotten worse and the Drape Factory had gotten better, and at some point in time we had to stop with one and start with the other " The parties stipu- lated that "That Drape Factory, Inc is not an alter ego of MARSCO or Martin Arsham and is no way liable for the backpay obligation at issue in this case" See it Exh 1(a) 17 275 NLRB 633, 633-634 925 factual assertion which could warrant a finding that Arsham perpetrated a fraud, dissipated or diverted corporate assets, intermingled personal and corpo- rate affairs, or otherwise attempted to thwart the Respondent's backpay liability Not only do we find no basis for granting the General Counsel's motion to impose personal liability, we also conclude that the General Counsel's alternative request for a hear- ing is insufficiently supported In denying the motion, we note the lack of certain information crit- ical to our granting the relief requested by the Gen- eral Counsel For instance, although the General Counsel indicated that Arsham was listed in the bankruptcy proceeding as the Respondent's sole se- cured creditor, there is no evidence as to the amount of Arsham's claim or whether it was con- tested in the bankruptcy proceeding. Further, there is no evidence regarding the status in the bankrupt- cy proceeding of Arsham's state court judgment, the relative priorities of the unsecured claims, or the ultimate disposition of the Respondent's assets by the Bankruptcy Court. We also note the lack of any evidence as to whether the Drape transaction was subject to the jurisdiction of the Bankruptcy Court or was considered by that forum. According to our interpretation of the General Counsel's representa- tions, Arsham, in selling "assets recovered from Re- spondent," might as a secured creditor have lawful- ly transferred outside the scope of the bankruptcy proceeding those "securities" he had "peacefully re- possessed." Finally, the General Counsel has pro- vided no explanation why the issues now presented to the Board should not more appropriately be re- solved in the bankruptcy proceeding in which Region 8 of the Board filed its Proof of Claim Inas- much as there is insufficient evidence that the Board or the discrimmatees were in any way preju- diced by Arsham's actions or that Arsham caused the financial demise of the Respondent or otherwise acted unlawfully, as alleged by the General Coun- sel, the Motion for Determination of Personal Li- ability shall be denied Thereafter, the General Counsel on 13 November 1985 filed a "Supplemental Motion to Determine Personal Li- ability," averring, inter alia, that MARSCO possessed no assets when it filed for bankruptcy This time by Order dated 24 June 1986, the Board (Members Dennis, Babson, and Stephens; Chairman Dotson and Member Johansen dissenting) remanded the issue for hearing with the majority stating at 280 NLRB 696 as follows. On 15 November 1985 the General Counsel filed a Supplemental Motion for Determination of Per- sonal Liability, providing the Board with additional information regarding Arsham's actions in late 1981, particularly in December 1981, with respect to the commencement of corporate bankruptcy prceedings and the repossession of company assets secured by a cognovit promissory note and security agreement of early 1979 926 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD The Board, having duly considered the matter, finds that the General Counsel has raised substantial issues of fact and law material to the question of whether the Board should impose personal liability upon Arsham and concludes that the disposition of the issues presented here requires further findings by an Administrative Law Judge 18 B Positions of the Parties All parties agreed that the yardstick for determining when and under what circumstances the Board will pierce the corporate veil is set forth in Riley Aeronautics Corp., 178 NLRB 495 (1969), as follows. [T]he corporate veil will be pierced whenever it is employed to perpetrate fraud, evade existing obliga- tions, or circumvent a statute . . Thus, in the field of labor relations; the courts and Board have looked beyond organizational form where an individual or corporate employer was no more than an alter ego or a "disguised continuance of the old employer" . . or was in active concert or participation in a scheme or plan of evasion or siphoned off assets for the purpose of rendering insolvent and frustrating a monetary obligation such as backpay . . . or so integrated or intermingled his assets and affairs that "no distinct corporate lines are main- tained " [178 NLRB at 501.] Here, the Charging Party and the General Counsel concede that Arsham was not an alter ego or disguised continuance of MARSCO As a corollary, there is no intent to saddle him personally with full liability for the backpay due and owing in this case. Instead the claim for personal liability is limited to the value of corporate assets retained by Arsham and allegedly converted to his personal use to avoid satisfaction of the Board's remedy Multiple grounds, procedural and substantive, are ad- vanced on behalf of the defense's claim that imposition of personal liability would be improper. They are out- lined as follows (1) The Board is estopped from attempting to impose personal liability at this time, because it failed to seek relief before the bankruptcy tribunal. (2) There is no basis for piercing the corporate veil as the evidence confirms that Martin Arsham and MARSCO were treated as separate independent entitites, and the record does not demonstrate that Arsham either. (a) Used the corporate form as a shell in which to conduct his personal affairs, or (b) Dissipated corporate assets or intermingled corporate and personal funds to evade liability, or 18 Among the procedural defenses raised by the Respondent is a claim that the supplemental motion filed with the Board "should have been dis- missed as an untimely motion for reconsideration " That argument is little more than an attempt to attack collaterally action by the Board, and hence, Respondent's contention in this respect is denied as generating an issue beyond the purview of an administrative law judge (c) Engaged in other devious conduct to evade liability and benefit only himself (3) Arsham's due process rights were offended by the General Counsel's failure to name him as a party and personally to serve him with the instant notice of hearing. (4) The Motion is barred by the Ohio Statute of Limitations C. Conclusions 1. Procedural issues a The failure to name Arsham as a party and the question of personal service Respondent argued that the failure of the General Counsel to name Arsham as a party renders it "improper to impose liability upon him as an individual " In reject- ing this contention, I construe the General Counsel's motion as a conditional request that Arsham be made a party if personal liability is deemed appropriate Accord- ingly, the omission is not regarded as prejudicial Also lacking merit is the defense based on the failure to serve Arsham personally with the notice of hearing. This contention is grounded on the form of service, not its substance. Arsham was served directly with the Gen- eral Counsel's original and supplemental "Motion for Determination of Personal Liability " Thus, Arsham and his counsel would be hard pressed to deny that, on a timely basis, they were fully apprised of the allegations against the former and the process by which those alle- gations would be resolved. Concerning the hearing, Arsham was subpoenaed by the General Counsel, and appeared pursuant thereto, under conditions allowing full access by his attorney and the opportunity to be exam- ined in connection with all issues. It has been held that a technical deficiency in the notice process will not itself void a proceeding; the noncompliance must be accompa- nied by evidence of prejudice. NLRB v Jordan Bus Co., 380 F 2d 219, 222-223 (10th Cir 1967), NLRB v Western Temporary Services, 821 F.2d 1258 (7th Cir 1987), enfg. 278 NLRB 469 (1986) Here, Respondent's contention is denied, as lacking to suggestion of any detrimental effect. b The statute of limitations There is no merit in Respondent's contention that the present action is barred by Ohio's 4-year statute of limi- tations for fraud Ohio Revised Code Section 2305 09. Limitations is an affirmative defense which Respondent must prove. St Mary's Infant Home, 258 NLRB 1024 (1981). As Respondent observes, limitations begins to run only after an injured party acquires actual notice of a fraud or sufficient indicia of fraud to alert a reasonable person that a fraud has been committed To meet this re- quirement, Respondent pointed to the fact that the Feb- ruary 1979 security agreement is pivotal to the General Counsel's claim and argues that, because this transaction had been memorailized in public records, at the time of such filing there "was sufficient indicia to alert the Board to the fraud." This view is unpersuasive The recordation of the security transaction, although serving notice to MARSCO, INC 927 putative creditors, would hardly reflect the elements nec- essary to support a nonfrivolous cause of action against Arsham. Fraud would not turn on that act alone, and, knowledge of the 1979 security transaction could not foretell whether the Company ultimately would meet ob- ligations to all creditors, or whether as an ongoing ven- ture it would prove profitable or insolvent and judgment proof. In other words an awareness that Arsham had se- cured a preference would hardly suggest that some 3 years later, Arsham would take advantage of that con- veyance to personally acquire all corporate assets. The Respondent has failed to point to any other evidence that the requisite knowledge to support a litigable claim was acquired outside the relevant period of limitations, or under circumstances that would render the General Counsel guilty of sleeping on her rights under the doc- trine of laches 19 Accordingly, it is concluded that the present motion is not time-barred on either ground c The asserted primacy of the bankruptcy process The argument on behalf of Arsham that the General Counsel should have proceded in bankruptcy to perfect the present claim misconceives the nature of this pro- ceeding. Thus, Arsham's involvement in bankruptcy was only in his capacity as an alleged creditor. He did not file for bankruptcy in his own name The chapter 11 pro- ceeding was invoked by and on behalf of the Corporate Respondent, in its name, as the sole debtor. The present motion of the General Counsel is not addressed to the Corporate Respondent, and does not seek to disturb, re- arrange, or in any manner tamper with priorities estab- lished against the debtor through bankruptcy.20 It simply attempts to interdict assets that never were a part of the bankrupt estate, and that Arsham personally acquired prior to the filing of the bankruptcy petition .21 Thus, bankruptcy is not the focus of the present motion, but merely an effect of a sequential course that indisputably shows that the bankrupt estate was denied corporate assets previously diverted to Arsham's personal use and benefit. Independent research fails to disclose, and Respondent cites no case, holding that the bankruptcy court has pri- mary, exclusive jurisdiction over claims against owners or other insiders where assets are not, and have never been, part of the bankrupt estate On the other hand, a creditor's right to trace assets to the individual propri- etors of a bankrupt corporation in the courts of general jurisdiction and outside the bankruptcy process has been 19 At odds with the view that laches might constitmte a substantial de- fense is the pronouncement that the "Board is not required to place the consequences of its own delay, even if inordinate, upon wronged employ- ees to the benefit of wrongdoing employers " NLRB v Rutter-Rex Mfg Co, 396 U S 258, 265 (1969) 2° See International Technical Products Corp, 249 NLRB 1301, 1304 In 10 (1980), distinguishing Nathanson v NLRB, 344 U S 25 (1952), on this very ground 2 i The assertion on behalf of Arsham that he had not "personally ben- efited from the bankruptcy of MARSCO" arouses curiousity The fact that MARSCO's assets were not converted to cash by Arsham does not mean that he realized no personal gain Arsham's gain is evidenced by his opting to sell certain of these assets to his new corporation, the Drape Factory, while obtaining a promissory note in exchange with a face value of $20,000 upheld. See, e.g., Nashville Album Productions, 33 B.R. 123 (D C Tenn. 1983); K F C. Corp. v. Milton, 27 B.R. 58 (US DC, E.D. VA 1983). Indeed, the fact that an em- ploying entity is in bankruptcy will not restrain the Board from proceeding against related persons, who are outside bankruptcy jurisdiction, to strengthen the effec- tiveness of its remedial orders. See William B. Allen, 267 NLRB 700, 706-707 (1983) Accordingly, no compelling authority has been offered to support the notion that the Board should defer to an- other forum a cause raising questions as to a possible abuse of the Board's remedial process 2. The merits of the claim against Arsham As heretofore indicated the General Counsel and the Charging Party contend that Martin Arsham, as the owner, principal functionary, and chief perpetrator of the unfair labor practice, should be held personally liable for backpay. Their claim, however, is tailored to the secur- ing, levy, and $20,000 resale of MARSCO assets on the theory that Arsham to that extent engaged in a "plan of evasion of siphoning off . . assets for the purpose of rendering Respondent insolvent thereby frustrating the backpay claim." Respondent on the other hand perceives the security transaction, confessed judgment process, and reduction of his firm to an asset-free shell as a legitimate utilization of the protective guarantees inherent in the corporate process As matter of established policy, "the corporate veil will be pierced whenever it is employed to perpetrate fraud, evade existing obligations, or circumvent a stat- ute." Riley Aeronautics Corp., supra, 178 NLRB at 501. This rule is to be applied with an eye to tension between the right of independent businessmen to conduct their af- fairs through the protective corporate shield, on the one hand, and the need for the Board to maintan public con- fidence and respect for its remedial process In maintain- ing the requisite balance, the fact that a corporate enter- prise has been unprofitable and costly to the corporate owner would not alone warrant a shifting of this volun- tarily assumed risk of loss, even in part, to victims of un- lawful discrimination. Equally true is the observation on Arsham's behalf that the corporate veil will not be pierced solely because the individual committing the unfair labor practice and corporate ownership and con- trol are unified in a single individual. See Contris Packing Co., 268 NLRB 193 (1983); Riley Aeronautics Corp., supra. The question is whether, as a matter of substance, the owner, against whom personal liability is sought, has intermingled personal interests with those of the corpora- tion, or has utilized corporate powers for personal en- richment at the expense of remedies imposed for unfair labor practices. See, e.g., Air Vac Industries, 282 NLRB 703 (1987) Here, the General Counsel's motion is aligned with Board policy to the effect that: "[T]he General Counsel may, without proving alter ego status, seek to impose limited liability on corporate officers or shareholders to the extent of specific corporate assets wrongfully distrib- uted to them in avoidance of backpay liability." Las Villas Produce, 279 NLRB 883 (1986). See also Cera 928 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD International Corp, 272 NLRB 1360 ( 1984) (Chairman Dotson and Members Zimmerman and Hunter) Con- trary to the Respondent , should the record demonstrate such an evasive scheme, the owner's rights will be prop- erly subordinated to claims on behalf of discriminatees even if each and every step in the transaction otherwise is lawful under, or authorized by, the Uniform Commer- cial Code or other state laws enabling the corporate form of business. Consistent with the foregoing , in F & W Oldsmobile, 272 NLRB 1150 (1984), the Board (Chairman Dotson and Members Zimmerman and Dennis) affirmed a ruling by an administrative law judge that personal liability should be extended to a president and vice president of a corporate respondent, the sole shareholders of the com- pany, to the extent that they authorized - and acquired corporate assets as part of a cessation of operations almost contemporaneous with an unfair labor practice hearing . The judge viewed the distribution of these funds as a "dissipation of corporate assets and an attempt to evade backpay liability," stating further. Clearly . the Company and its officers were on notice of a pending claim when the distribution of corporate assets took place Accordingly, I be- lieve that the corporate veil should be pierced to the extent of holding the individuals liable up to the amount of funds which were distributed to them from corporate assets.22 Earlier in Concrete Mfg. Co., 262 NLRB 727 (1982) (Chairman Van de Water , Members Fanning and Jen- kins) 'personal liability was imposed upon both the presi- dent and plant manager of a corporate respondent, where 11 months after the Board issued its decision, which included a backpay remedy, the remaining assets of the corporation, consisting of a retirement fund sur- plus, were distributed , on their authorization as directors for their personal use The Board stated at 729. Obviously . . . the board of directors' action oc- curred at a time when it had actual knowledge of the Board's Decision providing for backpay to the discriminatees. By taking the action they did and converting assets of Respondent Company to their own personal use (the individuals) acted to frustrate the Board's directions by rendering Respondent Company insolvent and thus incapable of satisfying the Board -ordered backpay relief. Thus, it is evident that the Board will not honor the corporate form blindly without concern for the sanctity of backpay orders. To preserve its remedies, corporate assets were traced to insiders in F & W Oldsmobile and Concrete Mfg. without inquiry as to the existence of other creditors or a showing of a specific fraudulent intent-an approach consistent with the Supreme Court's admonition that transactions involving corporate "insid- ers" be subject to "vigorous scrutiny and where any of their contracts or engagements with the corporation is challenged, the burden is on the director or stockholder 22 272 NLRB at 1151 not only to prove the good faith of the transaction but also to show its fairness from the viewpoint of the corpo- ration and those interested therein ." Pepper v. Litton, 308 U.S 275, 306 (1939).23 Factually, this is a powerhouse case for relief under the above line of precedent Here the proof demonstrates that the Corporation was stripped as a deliberate ploy to shift the burdern of business loss, albeit partial, from Martin Arsham, the entrepreneur, to the beneficiaries of a pending unfair labor practice proceeding. It is true that Arsham, on questioning by the General Counsel , swore under oath that the 1979 security trans- action was not in any sense influenced by the Board pro- ceeding. However, this self-serving portrayal about the purity of his state of mind was inconsistent with logic and the realities. The unfair labor practice proceeding was pending when Arsham, the corporate president, exe- cuted the cognitive promissory note and security agree- ment to Arsham, the individual , and then as president, with his wife, first authorized and next took steps to obtain a confessed judgment thereon, paving the way for his acquisition and personal ownership of all corporate assets. That case involved allegations that 16 employees were discriminatorily terminated The possibility of ex- tensive backpay liability inherent in such a cause would naturally prove formidable to any small , closely held family venture. Sectors of Arsham's own testimony throw consider- able light on the true motive behind the above transac- tions. For he admits that these intruments were executed on counseling from attorneys to the effect that the firm was losing money and was going to go out of business, and that he should do everything possible to secure le- gally the money that he had put into the business. But against whom was this preference sought ? Apart from the Board proceeding , in February 1979 there was no imminent need for such protection. There were no out- side creditors No current loan was in the offing. And Arsham admits that MARCO's credit posture was so poor in February 1979 that he alone would be the source of future funding. Thus, Arsham would pass off the transaction as an abstraction unrelated to current exigen- cies, yet designed to afford him a priority with respect to unsecured loans dating all the way back to the first month of the firm's operation 24 23 Inadequate capitalization is among the factors that tend to show misuse of the corporate privilege From that standpoint , the structure of MARSCO is not above suspicion Counsel states that MARSCO was fi- nanced by a single capital contribution of $34,002 53, consisting of Ar- sham's share of a dissolved firm, J M Wall Company He goes on to suggest that this sum consisted of Arsham' s share of Wall's assets of $56,811 81 , less that firm's liabilities of $22,804 38 It is clear, however, that this latter amount , during the early days of MARSCO, by action of the Arshams , as directors , was authorized to be carried as a corporate debt to Arsham See Jt Exh 6 (o), p 3 Corporate records fail to explain this transaction , nor do they identify the consideration supporting this in- debtedness Although my ultimate conclusion places no reliance on the question of capitalization , the references in the record to that matter are among several items which arouse curiousity as to the credulity of Ar- sham's activities with respect to MARSCO 24 The only arguable consideration flowing to the Corporation in ex- change for this tying up of its assets also failed to implement a current corporate need Thus, while Arsham testified that the only advantage Continued MARSCO, INC. 929 There is also an implication in Arsham's testimony that the security arrangement could have harmed the Corpo- ration Thus, the dim prospect of obtaining outside fi- nancing obviously would have been impaired further by this new cloud on all corporate collateral To prejudice a corporation's credit position without interest in securing a gain against someone or something would involve a unique act of business judgment From the foreging it is clear beyond peradventure that the timing of the action taken in February 1979 was not explainable as a step taken to insulate Arsham from claims of voluntary creditors, past, present, or future. On, the other hand, it is as clear now, as it must have been then, that the security arrangement would have utility only in the event that the Board might resolve the unfair labor practice case against the Corporate Respondent.25 achieved by the Corporation in entering the security arrangement was to insure that Arsham would be a continued source of financing, it was not until December 1980, almost 2 years later, that Arsham next extended credit to the Corporation 25 For unexplained reasons, the 1979 security agreement was not filed for public record until 30 April 1979, almost 3 months after its execution and some 6 weeks after issuance of Judge Wolfe's decision See it Exh 9(a), p 4 From all appearances, the security arrangement, when executed was not fraudulent to any outside creditor other than the Board In Feb- ruary 1979, Arsham was the only other creditor Later, another emerged Thus, in the bankruptcy filings Rita Kremser was listed as due the sum of $12,600 The circumstances surrounding this loan were unusual to say the least Arsham denied that he ever met Kremser, who was described as the wife of a "business associate " According to Arsham this loan would have been made in 1980, when MARSCO's assets had been totally tied up, with independent collateral nonexistent Arsham's account as to how this debt was obtained was as follows Our company was in need of funds and I looked to where ever I could to get it David Kremser was a very wealthy young man, very wealthy young man, and he was looking to invest some more recently ac- quired funds, and he said, why don't I lend you some money and In the total circumstances, the conclusion is inescap- able that Arsham's actions were purely personal, served no genuine corporate interest, and, notwithstanding his testimony to the contrary, involved a step-by-step proc- ess of preference, judgment, and execution on corporate assets to frustrate Board remedial processes In sum, Ar- sham's denial of this nexus is discredited, and the hold- ings in F & W Oldsmobile and Concrete Mfg, supra, are viewed as dispositive. On these findings of fact and conclusions of law and on the entire record, I issue the following recommend- ed26 ORDER It is ordered that the General Counsel's motion for de- termination of personal liability be, and it is, granted. IT IS FURTHER ORDERED that Martin Arsham be made a party to this proceeding and that he be declared per- sonally liable in the limited amount of $20,000 to satisfy the backpay liability of Respondent MARSCO a/k/a Martin Arsham Sewing Co. as set forth in the Board's Supplemental Decision and Order reported at 260 NLRB 1309. you'll pay interest on it I said , wonderful It was like manna from heaven Sometime thereafter, he came in and he said, I want to make sure that it is in my wife's name With the possible exception of a single payment of $350 made during the 90-day period prior to the bankruptcy filing, and hence voided by the trustee, it does not appear that principal on the Kremser loan had been retired 26 If no exceptions are filed as provided by Sec 102 46 of the Board's Rules and Regulations , the findings, conclusions, and recommended Order shall, as provided in Sec 102 48 of the Rules, be adopted by the Board and all objections to them shall be deemed waived for all pur- poses