Industrial Security Services Corp.

INDUSTRIAL SECURITY SERVICES Industrial Security Services Corporation and Jimmie R. Woodard and Nancy Hall. Cases 23-CA- 9232(E) and 23-CA-9233(E) June 29, 1988 DECISION AND ORDER BY CHAIRMAN STEPHENS AND MEMBERS JOHANSEN AND BABSON On April 1, 1987, Administrative Law Judge David L. Evans issued the attached second supple- mental decision. The Applicant filed exceptions and the General Counsel 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 second supplemen- tal decision and the record in light of the excep- tions and brief and has decided to affirm the judge's rulings, findings, and conclusions 1 and to adopt the recommended Order. We agree with the judge that the net worth statement submitted by the Applicant's accountant relies on the same unattested to and unaudited fi- nancial statements previously considered and previ- ously found deficient by the Board-in the original Order remanding this proceeding to the judge re- ported at 272 NLRB 1083 (1984).2 Furthermore, we also find that the three affidavits of Merrill Gregory, the Applicant's administrative assistant, do not provide the requisite evidence of the Appli- cant's net worth. Gregory has stated in his affida- vits that he has reviewed the net worth statement prepared by the accountant and has concluded that it accurately states the Applicant's net worth. However, Gregory did not explicitly declare that he prepared or reviewed any of the business records supporting the financial statement supplied to the accountant or how otherwise he knows that the accountant's net worth statement is accurate. 1 In affirming the judge's second supplemental decision , we do not rely on the judge's opinion that the accountant's use of the term "general ac- counting principles of certified public accountants" seemingly indicates a lower standard of accuracy than the term "generally accepted accounting principles." 2 The key factor here, as emphasized by the judge, is that the account- ant's January 21 , 1987 affidavit states, in essence, that he applied his pro- fessional expertise only to the extent of verifying the summary arithmetic contained in the financial statement prepared by the Applicant. As the accountant had previously stated in his July 29, 1983 letter to the Appli- cant, he did not examine any of the underlying business records and therefore he refrained from expressing his professional opinion as to the accuracy of the financial statement "taken as a whole." This procedure is in sharp contrast to that employed in American Pacific Concrete Pipe Co. v. NLRB, 788 F.2d 586 (9th Cit. 1986), one of the two cases relied on by our dissenting colleague . There the financial statement itself was prepared in accordance with "generally accepted accounting principles" and thus was based on the accountant's professional opinion that the statement was accurate. In D'Amico v. Shipbuilding Workers, 630 F.Supp. 919 (D.Md. 1986), there is no indication by the court that the claim of eligibility was not based on the accountant's personal knowledge. 459 We note that pursuant to Federal Rule of Evidence 901(a), evidence must be authenticated, and that Federal Rule of Evidence 901(b)(1) permits authen- tication through the testimony of a witness with firsthand knowledge. As Gregory has not claimed such knowledge, his affidavits are not admissible to prove that the statement is an accurate indication of the Applicant's net worth.3 By contrast, under those rules, Gregory's affidavits concerning em- ployee complement are admissible to establish that the Applicant had fewer than 500 employees. Gregory has averred in his affidavits that the em- ployee complement statement, which was prepared under his supervision and direction, was compiled from business records and documents and that he has personal knowledge concerning the contents of those documents. Accordingly, while the Applicant has established that it has fewer than 500 employ- ees, we conclude that the Applicant has failed to submit probative evidence of its net worth and its Equal Access to Justice Act (EAJA) application, therefore, must fail. We recognize that this result may appear harsh. It should not be interpreted as meaning that every applicant for an award under EAJA must incur the expense of securing an audited statement of its records in order to satisfy EAJA's eligibility re- quirements. It should be read to mean, however, that an applicant must submit accurate and proper- ly authenticated evidence of its net worth in order to satisfy the burden of eligibility that Congress has imposed. As the Applicant has failed to submit such evidence, we shall dismiss the application. ORDER The National Labor Relations Board adopts the recommended Order of the administrative law judge and orders that the application of the Appli- cant, Industrial Security Services Corporation, Houston, Texas, for an award under the Equal Access to Justice Act is dismissed. MEMBER BABSON, dissenting. I would find that the Applicant is eligible under EAJA and would therefore reach the merits of the Applicant's entitlement to an EAJA award. The Applicant has submitted the sworn affidavit of its certified public accountant who states that he has prepared the attached statement of the Applicant's net worth in accordance with "general accounting principles of certified public accountants." That statement indicates that the Applicant's net worth s Our dissenting colleague stresses Gregory's statement that he has "personal" knowledge of the Applicant's "financial status." However, Gregory does not state how he acquired that knowledge or what is meant by "financial status," a less exact term than "net worth." 289 NLRB No. 53 460 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD is well below the statutory amount that a party must satisfy in order to be eligible for an EAJA award. Now read in conjunction with the affidavits of Merrill Gregory,' the Applicant's administrative assistant who, as the judge notes, has "personal knowledge of [the Applicant's] operations [and] fi- nancial status," the net worth statement provides sufficient evidence that the Applicant satisfies the EAJA net worth requirement. See generally D'Amico v. Shipbuilding Workers, 630 F.Supp. 919, 922 (D.Md. 1986); American Pacific Concrete Pipe Co. v. NLRB, 788 F.2d 586, 591 (9th Cir. 1986).2 Furthermore, I agree with the judge that the Ap- plicant's detailed statement reflecting the number of employees it had on the relevant date satisfies the other jurisdictional requirement that an appli- cant must meet. Consequently, notwithstanding whatever prudence guided the Board in its earlier deliberations in this matter, I find that the Appli- cant has now met its burden of establishing eligibil- ity under EAJA. In my view, the evidentiary burden imposed on this applicant by my colleagues is inconsistent with the intent of Congress in enact- ing EAJA and inconsistent with the above court decisions that found similar documentary evidence submitted by EAJA applicants to be sufficient. Ac- cordingly, I respectfully dissent. i The affidavits of Gregory were submitted with the Applicant's initial and various supplemental applications for an award of attorneys' fees and expenses. All the affidavits state that in his capacity as the Applicant's administrative assistant, Gregory has "personal knowledge of the oper- ations, financial status, and work force" of the Applicant. Gregory has also averred in his most recent affidavit that he has reviewed the finan- cial statement prepared by the accountant and "know[s] that it is a true and accurate statement of the total net worth" of the Applicant. 2 In Shipbuilding Workers, the applicant submitted the affidavit of the individual who performed its accounting services, which averred that the applicant satisfied the net worth requirement Rejecting the argument that the applicant should have submitted a balance sheet showing its net worth, the court concluded that "an applicant's affidavit which indicates eligibility should be sufficient to meet the applicant 's burden, absent some at least minimally factually supported argument by the government that the applicant is not eligible " Shipbuilding Workers, 630 F.Supp at 922 By requiring Gregory to prove "how otherwise he knows that the ac- countant's net worth statement is accurate" and "how he acquired knowledge" of the Applicant's financial status when the General Counsel has faded to present at least some minimally factually supported argu- ment that the Applicant is not eligible, my colleagues have imposed the type of requirements that the court rejected in Shipbuilding Workers. Further, the Ninth trircuit in America Pacific Concrete Pipe determined that the applicant had satisfied its net worth eligibility by submitting a financial statement that was prepared "in accordance with general ac- counting principles" and that showed a net worth below the statutory ceiling I find unpersuasive my collegues' argument that the procedure used by the accountant in the present case stands in "sharp contrast" to that employed by the individual who prepared the financial statement in American Pacific Concrete Pipe The court's opinion in that case is devoid of any further description of that accountant's procedure other than that the balance sheet prepared included an allowance for depreciation Tamara J. Gant, Esq., for the General Counsel. A. Martin Wickliff, Jr. (Mayor, Day & Caldwell), of Hous- ton, Texas, for the Applicant. SECOND SUPPLEMENTAL DECISION Equal Access to Justice Act DAVID L. EVANS, Administrative Law Judge. On 30 September 1985, by unpublished Order of that date, the Board, for the second time, remanded this matter to me for the purpose of receiving new evidence concerning Applicant's eligibility for any award of fees and expenses under the Equal Access to Justice Act (EAJA) and for the further purpose of considering, under EAJA, Appli- cant's petition for fees and expenses incurred following my supplemental decision issued 11 June 1984. The Board further ordered that I issue this second supple- mental decision setting forth findings and conclusions on these issues. On 26 January 1987, Applicant filed its second supple- mental application for award of fees and expenses. Con- tained therein is certain information purporting to estab- lish Applicant's eligibility under EAJA and further con- taining a statement of fees and expenses as provided for in the Board's Order. The General Counsel filed no re- sponse to this submission. Eligibility of Applicant The underlying complaint was filed on 17 May 1983; therefore, the eligibility standards for an award under EAJA are determined by 5 U.S.C. § 504 (1982); to wit, Applicant must have had at that date a net worth that did not exceed $5 million, and it must have employed no more than 500 employees. 1. Employee complement Attached to the second supplemental application is the affidavit of M. V. Gregory, Applicant's administrative assistant. Gregory testified that in his capacity as admin- istrative assistant he had personal knowledge of "the op- erations, financial status and work for of Applicant." Gregory further testified that the business records and documents of Applicant are under his "jurisdiction and control." Gregory testified that compilations submitted with his affidavit are based on such company records of which he had personal knowledge, and he knows such compilations to be accurate. The compilations reflect that Applicant, in its business of providing security serv- ices in Harris and surrounding Texas counties, employed during the month of May 1983, a total of 423 employees. The compilation also details the job descriptions and lo- cations of these employees during the relevant period. Therefore, Applicant has produced probative, firsthand evidence that during the relevant period it employed no more than 500 employees. 2. Net worth In its "Order Reopening Record and Remanding Pro- ceeding for Further Hearing," dated 8 November 1984,1 the Board reviewed an exhibit of net worth that had been submitted by Applicant. The exhibit contained a balance sheet, which, on its face, purported to reflect 1 272 NLRB 1083 INDUSTRIAL SECURITY SERVICES Applicant's financial condition as of 31 March 1983. The Board found that the exhibit was not of probative value because it was not attested to by Applicant's accountant or any other responsible management official. The Board noted that a letter from Applicant's accoutant, Russell G. Davis, indicated that the financial statements submitted were prepared by Applicant's management and that the accounting firm merely reviewed them in a fashion that was "substantially less in scope than an exmaination in accordance with the generally accepted auditing stand- ards." Finding this inadequate the Board remanded the case "for a hearing for the limited purpose of receiving new evidence with respect to the issue of Applicant's eli- gibility for an award of fees and expenses under the Equal Access To Justice Act." On 16 January 1985, counsel for the General Counsel submitted a "Motion to Withdraw Portion of Answer and for Reconsideration." In the motion the General Counsel acknowledged that, on inspection of documenta- ry evidence submitted to the General Counsel after the Board's 8 November 1984 remand, the General Counsel was satisfied that Applicant was eligible for relief under EAJA, and the General Counsel further moved to amend her previously submitted answer denying such eli- gibility. On 29 January 1985, by order of that date, I granted the motion and resubmitted the matter to the Board for its consideration of the matter on the merits. In its 30 September 1985 "Supplemental Order Re- opening and Remanding Proceeding," the Board noted: While the General Counsel may now be satisfied that Applicant meets the EAJA requirements, we cannot decide this jurisdictional question based on an undocumented, off-the-record exchange of infor- mation by the parties. Based on the documentary evidence now before us, we are unable to ascertain whether Applicant has adequately established its eli- gibility for an award. Until this threshold question is resolved, we cannot determine the merits of the ap- plication. The Board therefore ordered that the record be re- opened "for the purpose of receiving new evidence con- cerning Applicant's eligibility for an award of fees and expenses under the Equal Access To Justice Act" and further ordered me to consider the petition for Appli- cant's fees and expenses incurred following my decision of 11 June 1984. On 26 January 1987, Applicant submitted its "Second Supplemental Application for Award of Fees and Ex- penses under the Equal Access To Justice Act." As noted above, in this supplemental application Applicant submitted a detailed statement of employee complement by one having personal, firsthand knowledge on that issue, M. V. Gregory. However, regarding the net worth and issue, Applicant submitted no such evidence. Applicant submitted an affidavit, dated 21 January 1987 by accountant Davis, the substantive paragraph of which states: The attached financial information (Exhibit 2A), showing total assets of One Million Seven Hundred 461 Seventy-nine Thousand Seven Hundred Ninety-two and 00/100 Dollars ($1,779,792.00) and total liabil- ities of Two Hundred Sixty-nine Thousand Nine and 00/100 Dollars ($269,009.00) as of May 21, 1983 was developed from the financial statements of Industrial Security Services Corporation. The at- tached Exhibit 2A also shows a total equity of One Million Four Hundred Eighty-three Thousand Seven Hundred Eight-three and 00/100 Dollars ($1,483,783.00), representing a net worth of One Million Four Hundred Eighty-three Thousand Seven Hundred Eighty-three and 00/100 Dollars ($1,483,783.00). This net worth statement was ar- rived at by me in accordance with general account- ing principles of certified public accountants. The attached document "Exhibit 2A" is a letter to Ap- plicant over the signature of Davis. The letter states: RE: Our review report dated July 29, 1983, on your unaudited financial statements as of May 31, 1983 FINANCIAL INFORMATION. The following information is extracted from ref- erence unaudited financial statements: Total assets $1,779,792 Total liabilities 296,009 Total equity 1,483,783 The "reference unaudited financial statements" to which Davis here refers are apparently the same unverified statements previously submitted, and rejected, by the Board in its original decision. Obviously, Applicant has submitted no additional in- formation by virtue of Davis' above-quoted affidavit and its "Exhibit 2A." The above-quoted affidavit of Davis does no more than state a simple proposition of subtract- ing and calls the result Applicant's "net worth." Davis did not state that he had reviewed Applicant's records, which demonstrate Applicant's May 1983 net worth; he testified only that he had reviewed unidentified "refer- ence unaudited financial statements," and, accepting the accuracy thereof, a net worth can be computed by sub- tracting represented liabilities from represented assets. Perhaps the person who compiled the unidentified "ref- erence unaudited financial statements" and submitted them to Davis has (or had) first-hand knowledge of what Applicant's records reflect, but that person's testimony has not been produced despite the opportunity given Ap- plicant by the Board. In summary, the unattested infor- mation on which Davis relies is no more probative than the unattested balance sheets, and Davis' review thereof, which were previously found to be inadequate by the Board.2 Therefore, I find and conclude that Applicant, 2 Applicant's second supplemental application represents that Davis' 21 January 1987 affidavit "states, on his personal knowledge, the net worth of Applicant, as of May, 1983 " Davis' affidavit states no such thing, but the representation, like Gregory's affidavit on the issue of employee com- plement, demonstrates that Applicant knows what character of evidence the Board requires Note further that in the 21 January 1987 affidavit Continued 462 DECISIONS OF THE NATIONAL LABOR RELATIONS BOARD although given ample opportunity to do so, has failed to On these findings of fact and conclusions of law and prove a net worth of less than $5 million and, according- on the entire record, I issue the following recommend- ly, has failed to prove that it is entitled to any award ed3 under the Equal Access to Justice Act. ORDER It is recommended that the applcation of Industrial Se- curity Services Corporation, for an award under the Equal Access to Justice Act be denied. Davis eschews the term of art "generally accepted accounting pnnci - 9 If no exceptions are filed as provided by Sec 102 46 of the Board's plea," although that term was employed in his original affidavit submitted Rules and Regulations, the findings, conclusions, and recommended to, and found inadequate by, the Board. This time Davis calls his process Order shall, as provided in Sec. 102.48 of the Rules, be adopted by the of subtraction "general accounting principles of certified public account- Board and all objections to them shall be deemed waived for all pur- ants," a seemingly lower standard of accuracy poses