LCF, Inc. v. National Labor Relations Board

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 7, 1997 Decided November 25, 1997
No. 96-1500
LCF, Inc. d/b/a La Conexion Familiar, and
Sprint Corporation,
Petitioners/Cross-Respondents
v.
National Labor Relations Board,
Respondent/Cross-Petitioner
Communications Workers of America,
Intervenor
On Petition for Review and Cross-Application
for Enforcement of an Order of the
National Labor Relations Board
Thomas J. Piskorski argued the cause for petition-
ers/cross-respondents, with whom Staci S. Beck and Stanley
E. Craven were on the briefs.
David A. Fleischer, Senior Attorney, National Labor Rela-
tions Board, argued the cause for respondent/cross-petitioner,
with whom Linda R. Sher, Associate General Counsel, and
Aileen A. Armstrong, Deputy Associate General Counsel,
were on the brief. Margaret G. Neigus, Supervisory Attor-
ney, entered an appearance.
James B. Coppess argued the cause for intervenor Commu-
nications Workers of America, with whom Laurence Gold was
on the brief.
Before: Wald, Ginsburg and Henderson, Circuit Judges.
Opinion for the Court filed by Circuit Judge Wald.
Wald, Circuit Judge: This case arises out of Sprint's
decision to terminate its "La Conexion Familiar" long-
distance program and dismiss all program employees. Sprint
argues that this decision was based on the program's substan-
tial financial losses and a continuing decline in its customer
base. The National Labor Relations Board ("NLRB"), how-
ever, found that Sprint acted because program employees
were about to unionize. It ordered Sprint to reinstate each
terminated employee as a substantially equivalent position
becomes available and to pay each employee the difference
between what the employee would have earned if never
terminated and what the employee actually earned during the
period before Sprint offered the employee reinstatement.
This case is before the court on Sprint's petition to review the
NLRB's order and on the NLRB's cross-application for en-
forcement of its order.
The NLRB's conclusion that union activity motivated
Sprint's closure decision lacks substantial evidence in the
record. Accordingly, we set the NLRB's order aside.
I. Background
Sprint created a wholly-owned subsidiary, LCF, Inc.
("LCF"), solely to acquire the La Conexion Familiar company
("La Conexion") in 1992. La Conexion specialized in selling
long-distance services to the Latino residential market, par-
ticularly to people who primarily spoke Spanish. Rather than
competing on the basis of price, its strategy was to develop
customer loyalty based on common culture and language.
Shortly after acquiring La Conexion, Sprint discovered that
the majority of its telemarketers were undocumented aliens
and sued La Conexion's sellers to rescind the purchase
agreement. Under a settlement reached in January 1994,
however, Sprint retained La Conexion for a reduced purchase
price.
During the course of this rescission suit, Sprint did not
invest significant additional time or money in LCF. After the
settlement, Sprint set out in early February 1994 to deter-
mine LCF's true financial condition and soon discovered that
LCF was in serious financial difficulty. Sprint instituted
some changes, including a new discount program, but LCF's
financial condition remained poor. In particular, LCF was
losing more customers than it was acquiring. By March
1994, Sprint's economic analysis indicated that LCF, which
Sprint had originally expected would generate a profit of
nearly $8 million in 1994, was now projected to lose almost $4
million that year. Sprint Consumer Services Group ("CSG")
Vice President Wallace Meyer, the officer ultimately in
charge of LCF but based in Kansas City, began spending at
least one day a week at LCF in San Francisco.
Union organizing activity at LCF also commenced in early
February 1994. In response to employee complaints about
working conditions, the Communications Workers of America
("CWA") began an organizational campaign that quickly
gained momentum. By February 14, the on-site LCF manag-
ers had learned that telemarketing employees were attending
union meetings and engaging in other union activities. The
Administrative Law Judge ("ALJ") and the NLRB both
found, on the basis of undisputed testimony, that some of
these on-site managers illegally interrogated employees about
the union and threatened them with plant closure if the
employees unionized. The LCF managers also kept Sprint
officials informed about the union activity at LCF.
In April, Dave Sapenoff, Sprint's group manager for corpo-
rate labor relations, visited the LCF facility. Mr. Sapenoff
met with the LCF supervisors, collected the names of em-
ployees who supported the union, and instructed the supervi-
sors to try to convince these employees to change their
minds. However, he also told both the LCF employees and
their supervisors that LCF would not close if the employees
unionized. Upon his return to Sprint headquarters, Mr.
Sapenoff reported the union activity to Dave Schmieg, the
Sprint CSG President, and to Carl Doerr, the vice president
for labor relations and fair employment practices. After
receiving this information, Mr. Doerr told Mr. Schmieg that
there was a significant possibility that CWA would file a
representation petition. Mr. Schmieg responded by reiterat-
ing a remark that he had previously made to Mr. Doerr. He
told Mr. Doerr that it was his intent to close LCF because he
did not believe that Sprint " 'had any business being in that
business.' " Mr. Doerr then stated that, given the likelihood
of CWA filing a petition, Mr. Schmieg should " 'create a paper
trail' " if he intended to close LCF. LCF, Inc., d/b/a La
Conexion Familiar and Sprint Corporation and Communi-
cations Workers of America, District Nine and Local 9410,
AFL-CIO, 322 N.L.R.B. No. 137 at 4, 1996 WL 742383 (Dec.
27, 1996) (hereinafter "NLRB Decision").
Meanwhile, Mr. Meyer's concerns about LCF's finances
continued throughout April. These concerns led him to con-
vene a meeting of LCF's board of directors on May 6, just
three months after LCF had been placed under his jurisdic-
tion. At this meeting, Mr. Meyer presented his projection
that LCF would lose almost $4 million in 1994, instead of
earning the nearly $8 million profit that Sprint had anticipat-
ed in early 1994. He further outlined two managerial options
in light of LCF's financial difficulties. The first, which Mr.
Meyer supported, was to cease LCF operations immediately.
The other option was to continue operations through Decem-
ber 1994. After some discussion, the LCF board took neither
option; it voted against closing LCF immediately and decided
to reconvene in sixty days in order to review LCF's financial
performance and discuss six options for LCF's future. The
meeting minutes summarize this decision as follows:
"The Board was universal in its concern regarding the
company's revenue shortfall from the 1994 budget and
accompanying operating loss. As a result, the Board will
again review the company's financial performance
against the revenue forecast in July at the next meeting.
Also at the next meeting, six strategic options governing
disposition and longevity of the LCF, Inc. business will
be presented. These options are: (a) immediate discon-
tinuance of current business, (b) sell LCF business and
assets, (c) continue business as planned but review prog-
ress against revised financial objections every 60 days,
(d) employ an agent as business manager ...., (e)
relocate business to establish greater alignment/proximi-
ty to Sprint resources, and (f) continue business through
at least December 1994 utilizing 1994 performance and
1995/96 financial projections as evaluation criteria."
NLRB Decision at 4.
The LCF board also decided at the May 6 meeting to hire
Maury Rosas as president of LCF. Mr. Rosas signed a one-
year employment contract on May 13. He was not told that
LCF might close in light of its financial situation and, upon
assuming his position on June 1, Mr. Rosas operated LCF on
the assumption that the enterprise would remain in business.
LCF continued hiring and training employees and proceeded
with plans for extensive office renovations. Mr. Meyer testi-
fied that he planned to use Mr. Rosas elsewhere within Sprint
if LCF closed.
On June 3, CWA filed a petition to represent the LCF
employees. To show their support for this filing, over 100 of
the approximately 177 bargaining-unit employees wore, or
displayed, union T-shirts on June 3. LCF's management was
aware of the T-shirt demonstration, and supervisors were
instructed to report the number of employees wearing the
shirts. Mr. Rosas and other LCF officials conferred with
Sprint headquarters about the matter. On June 22, LCF and
CWA entered into a stipulated election agreement and sched-
uled a representation election for July 22.
After learning that CWA had filed this petition, Labor
Relations Vice President Doerr received materials relating to
the May 6 board meeting.1 Mr. Doerr became concerned
that these materials did not sufficiently reflect an intent to
retain the closing of LCF as an option. He therefore decided
to create a paper trail showing that Sprint's intent to close
LCF existed prior to the filing of the petition. Mr. Doerr
accomplished this by soliciting a backdated letter from an
outplacement service. This letter was falsely dated April 7
and discussed a prior request by Mr. Doerr for outplacement
services for the LCF employees. Mr. Doerr admittedly
sought this backdated letter to counter any contention that
Sprint decided to close LCF in response to the union activity.
As the LCF board had agreed on May 6, the next meeting
of the LCF board was scheduled for July 6 in Kansas City.
Before this meeting took place, Mr. Meyer, anticipating that
the board would vote to close LCF, instructed a subordinate
to begin assembling a transition team to implement the
closure of LCF. In the past, Sprint had assembled such
transition teams only after the decision to close a facility had
been formally made. Mr. Meyer also informed Mr. Rosas,
just one day before the July 6 meeting, that the board was
considering closing LCF.
The July 6 meeting began with Sprint CSG President
Schmieg stating that the decisions about to be made would be
" 'based solely on the economic justification that is set forth in
the financial documents.' " NLRB Decision at 5. At no time
during the meeting was there any discussion of the union
activity or the upcoming representation election.
__________
1 There is some dispute about whether Mr. Doerr reviewed the
minutes for the May 6 meeting, or the financial reports that Mr.
Meyer presented at this meeting. Although the NLRB decision
states that Mr. Doerr read the minutes, the ALJ found that Mr.
Doerr had read Mr. Meyer's financial presentation.
The financial reports presented at the July 6 meeting
demonstrated that LCF remained unprofitable and recom-
mended that Sprint discontinue LCF's operations immediate-
ly. Indeed, LCF was now projected to lose approximately
$4.5 million in 1994. While LCF did experience some slight
financial improvements during its last three months, Sprint's
financial experts argued that the resources necessary to
achieve a LCF turnaround could be better ut ilized elsewhere
in the corporation: Sprint's comparative investment study
concluded that a dollar invested in Sprint's in-house Latino-
oriented program would earn ninety cents in a year, while a
dollar invested in LCF would lose thirty cents in the same
period. The LCF board voted 5-0 (with Mr. Rosas abstain-
ing) to close LCF, effective July 14. Shortly after this
meeting, Sprint's transition team met to begin implementing
the closure. They were instructed to keep their activities
confidential and required to sign confidentiality agreements.
On July 14, eight days before the scheduled representation
election, Mr. Rosas announced to LCF's employees that LCF
was closing immediately due to financial difficulties. In a
departure from its prior practice when closing other facilities
covered under the Worker Adjustment and Retraining Act, 29
U.S.C. ss 2101-2109 (1994), Sprint terminated the LCF em-
ployees immediately and gave them sixty days of wages and
benefits, rather than providing the employees with sixty days
of advance notice and requiring them to work during that
period. Sprint rerouted all of LCF's incoming customer
service calls to a Sprint customer service center in Dallas.
The ALJ credited both Sprint's evidence on LCF's financial
decline and Sprint's testimony that it closed LCF solely for
financial reasons. He rejected the opposing contention that
the board decided at the May 6 meeting to keep LCF in
operation indefinitely and also concluded that Sprint's activi-
ties after this meeting, including the hiring of Mr. Rosas, did
not indicate an intent to continue operating LCF into the
indefinite future. The ALJ further held that the board's July
6 decision to close LCF was a lawful exercise of its business
judgment, despite recent indications that LCF's financial
fortunes were improving slightly. In light of the evidence
"that Sprint had valid and compelling economic reasons for
closing LCF," the ALJ dismissed Mr. Doerr's misconduct in
engineering a fabricated letter as "no more than an interest-
ing but relatively insignificant event without much probative
value." Moreover, he found "that only the confirmation letter
was fabricated, and that Doerr did in fact have a conversation
with an official of the outplacement firm relative to the
possible closure of LCF well prior to any union activity."
LCF, Inc. d/b/a La Conexion Familiar and Sprint Corpora-
tion (Aug. 30, 1995), reprinted in NLRB Decision at 28
(hereinafter "ALJ Decision"). Finally, the ALJ rejected the
argument that the Sprint executives were being untruthful
when they stated that the LCF board did not discuss union
activity at either the May 6 or the July 6 meeting, finding
"that placed in its appropriate context the Union situation at
LCF was a matter of such incidental significance, when
compared to the more pressing financial matters then con-
fronting the board, that it is not implausible that the board
members would be preoccupied with more immediate con-
cerns." Id.
The NLRB reversed. In doing so, it stated that it "ac-
cept[ed] the [administrative law] judge's credibility resolu-
tions," but not his "inferences drawn from the facts set forth
in the credited testimony and documentary evidence."
NLRB Decision at 7. The NLRB reasoned this way:
[T]he action of the [LCF] board on May 6--most notably
the failure to adopt the recommendation for immediate
closure while at the same time authorizing the hiring of
Rosas--indicates that the board was inclined toward the
option of keeping the business going for at least long
enough to allow the turnaround initiatives to take hold.
While an abrupt and dramatic change in the financial
picture might likely have caused the board to vote, on
July 6, for the immediate closure option rather than for
any of the five strategic options identified at the May 6
meeting, no such change from the May forecasts ap-
peared in the report presented in July....
[T]here was no compelling financial development that
explains the July 6 vote for immediate closure. The lack
of such evidence, together with the compelling evidence
of antiunion motivation established in the General Coun-
sel's prima facie case, leads logically to the inference that
another, unspoken concern ultimately persuaded the
board of directors to vote for LCF's immediate closure,
i.e., the upcoming representation election with the likeli-
hood of a union victory.
Id. at 8. The NLRB concluded that Mr. Schmieg's comment
at the July 6 meeting that the board's decisions would be
" 'based solely on the economic justification set forth in the
financial documents' " indicated "an unexpressed agenda re-
lating to the upcoming union election." Id. It also found
revealing the fact that Sprint terminated the LCF employees
just eight days before their representation election. Finally,
it rejected the ALJ's finding that Mr. Doerr's fabricated
letter recorded events that actually took place, finding insuffi-
cient evidence for that proposition.
II. Analysis
Terminating employees because of their union activity vio-
lates section 8(a)(3) and (1) of the National Labor Relations
Act. See 29 U.S.C. s 158(a)(3), (1) (1994); Allegheny Lud-
lum Corp. v. NLRB, 104 F.3d 1354, 1367 (D.C. Cir. 1997);
Power Inc. v. NLRB, 40 F.3d 409, 417 (D.C. Cir. 1994);
Teamsters Local Union No. 171 v. NLRB, 863 F.2d 946, 955
(D.C. Cir. 1988). Moreover, accelerating the timing of a
management action that results in the termination of employ-
ees is also unlawful if done in response to union activity, even
if the employer would have taken the same action at a later
time. See Matson Terminals, Inc. v. NLRB, 114 F.3d 300,
303 (D.C. Cir. 1997).
Under the framework that the Supreme Court approved in
NLRB v. Transportation Management Corp., 462 U.S. 393,
399-403 (1983), overruled in part on other grounds by Dep't
of Labor v. Greenwich Collieries, 512 U.S. 267, 276-78 (1994),
the NLRB's General Counsel must first establish that pro-
tected union activity "was a substantial or motivating factor"
in the employer's closure decision. If the General Counsel
meets that burden, then the employer may present the "affir-
mative defense" that it would have closed its facility at the
same time, even in the absence of protected union activity and
the employer's antiunion motivation. Id. at 401 ("[T]he
[NLRB]'s construction of the statute permits an employer to
avoid being adjudicated a violator by showing what his actions
would have been regardless of his forbidden motivation. It
extends to the employer what the Board considers to be an
affirmative defense but does not change or add to the ele-
ments of the unfair labor practice that the General Counsel
has the burden of proving under s 10(c)."); see also Alleghe-
ny Ludlum, 104 F.3d at 1367.
This court's review of the NLRB's factual conclusions is
highly deferential. We reject NLRB factual findings only if
there is no substantial evidence in the record as a whole to
support them. See, e.g., Universal Camera Corp. v. NLRB,
340 U.S. 474, 488 (1951); Schaeff Inc. v. NLRB, 113 F.3d 264,
266 (D.C. Cir. 1997); Gold Coast Restaurant Corp. v. NLRB,
995 F.2d 257, 263 (D.C. Cir. 1993); Laro Maintenance Corp.
v. NLRB, 56 F.3d 224, 228-29 (D.C. Cir. 1995). " 'So long as
the Board's findings are reasonable, they may not be dis-
placed on review even if the court might have reached a
different result had the matter been before it de novo.' "
Laro Maintenance, 56 F.3d at 229 (quoting Clark & Wilkins
Indus., Inc. v. NLRB, 887 F.2d 308, 312 (D.C. Cir. 1989)).
However, this court's analysis "consider[s] not only the evi-
dence supporting the Board's decision but also 'whatever in
the record fairly detracts from its weight.' " Schaeff, 113
F.3d at 266 (quoting Universal Camera, 340 U.S. at 488).
"The court's review of the Board's determination with
respect to motive is even more deferential. Motive is a
question of fact that may be inferred from direct or circum-
stantial evidence. In most cases only circumstantial evidence
of motive is likely to be available. Drawing such inferences
from the evidence to assess an employer's ... motive involves
the experience of the Board, and consequently, the court
gives substantial deference to inferences the Board has drawn
from the facts, including inferences of impermissible motive."
Laro Maintenance, 56 F.3d at 229 (internal citations omit-
ted); see also Power, 40 F.3d at 418 ("[T]he NLRB may rely
on both direct and circumstantial evidence to establish an
employer's motive, considering such factors as the employer's
knowledge of the employee's union activities, the employer's
hostility toward the union, and the timing of the employer's
action.").
This case presents the question of whether there is sub-
stantial evidence to support the first prong of the Transporta-
tion Management Corp. test, i.e., NLRB's finding that anti-
union animus "was a substantial or motivating factor" in
Sprint's decision to close LCF. 462 U.S. at 401. Locating
direct evidence of antiunion motivation in a plant closure is
often impossible, and here the NLRB's General Counsel has
acknowledgedly amassed some relevant circumstantial evi-
dence pointing to such motivation. In particular, the illegal
antiunion campaign that LCF officials conducted in the spring
of 1994 is an important piece of evidence.
The NLRB found that Sprint had decided at the May 6
board meeting to keep LCF open indefinitely; since nothing
significant happened between then and the July 6 meeting--
except for the scheduling of a representation election and the
emergence of evidence that union victory was likely--it in-
ferred that the changing labor situation at LCF explained
Sprint's new course. The NLRB's conclusion that Sprint
acted out of antiunion animus, however, ultimately lacks
substantial evidence in the record. Simply put, the enormous
body of financial data and testimony recording LCF's ex-
tremely serious financial decline dominates the record and
indicates that, as the ALJ concluded, "Sprint had valid and
compelling economic reasons for closing LCF." ALJ Deci-
sion at 28.
Indeed, the ALJ's factual findings, based on fourteen days
of hearings and voluminous documentary evidence, demon-
strate that LCF's prospects were grim. By March 1994, Vice
President Meyer's financial projections indicated that LCF
would make $12 million less in 1994 than Sprint had expected,
losing $4 million in the year rather than earning its anticipat-
ed $8 million annual profit. This "ominous forecast," id. at
13, was predicated on the basis of a number of troubling
economic indicators. LCF's "churn rate," the percentage of
its customer base lost each month, was 20.5% in January
1994, 18.5% in February, and 22.5% in March. In addition,
LCF's telemarketers were unable to attract enough new
customers to even keep the customer base stable. The rate
of sales per hour for LCF's telemarketers declined by ap-
proximately 50% between January and March. By May,
LCF was losing 1.41 customers for every customer that it was
acquiring; LCF lost about 16,000 customers in May and June
alone. By June 30, LCF's customer base had declined to
about 85,000 customers, down from 130,000 in January. By
July 14, when LCF closed its doors, LCF had just 76,532
customers.
This evidence of LCF's severe and continuing financial
decline overwhelms the circumstances on which the NLRB
relies. In fact, it renders NLRB's characterization of the
May 6 meeting, which is the cornerstone of the NLRB's
decision, implausible. The mere fact that the LCF board
decided on May 6 to reconvene in sixty days after fully
considering all of its options does not suggest, in light of all
the other record evidence, that the board was then "inclined
toward the option of keeping the business going for at least
long enough to allow the turnaround initiatives to take hold"
and only changed its collective mind at some point on or
before July 6. NLRB Decision at 8. The decision to hire
Mr. Rosas ultimately does not alter the tenor of this meeting.
Sprint may have mistreated Mr. Rosas by hiring him and
giving him the go-ahead to manage LCF for five weeks
without telling him that the board was considering closing
LCF. But one of Sprint's largest concerns about LCF was
that its lack of a full-time, on-site manager required Vice
President Meyer to devote approximately one day a week to a
small, failing, and geographically distant part of the business
under his jurisdiction. Moreover, if, as seems more natural,
the May 6 board decision is read as a sign that the board was
already seriously concerned about LCF, then the NLRB's
focus on the lack of change in LCF's finances during the sixty
days between the May meeting and the July meeting no
longer makes sense: LCF may not have been losing money
and customers at a faster rate between May and July, but it
was surely plummeting downward on its unprofitable course.
Furthermore, Mr. Doerr's fabricated letter does not enable
the NLRB to meet the substantial evidence requirement for
its decision, given the weight of the other evidence in the
record. There is no indication that Mr. Doerr acted in
concert with anyone, or that his decision to create a false
paper trail reflected anything but misguided overcautious-
ness. Cf. TIC--The Industrial Company Southeast, Inc. v.
NLRB, No. 96-1465, slip opinion at 9 (D.C. Cir. Oct. 7, 1997)
("[T]he single, isolated comment that forms the entire basis
for the alleged 8(a)(1) violation did not constitute substantial
evidence of restraint, coercion, or interference with employ-
ees exercising protected rights under section 8(a)(1).").
Similarly, there is no evidence to support the contention
that Mr. Schmieg's instructions to the LCF board at the July
6 meeting that it was to consider only the financial data were
related to the upcoming union election.
Finally, the timing of Sprint's actions is not sufficient to
compensate for the other evidentiary deficiencies in the
NLRB's decision. To be sure, the LCF board voted twenty-
two days before the scheduled representation election to close
LCF. Sprint's further decision to dismiss the LCF employ-
ees immediately and pay them for sixty days, rather than
giving the LCF employees advance notice and requiring them
to work during that period, conveniently terminated the LCF
employees just eight days before the representation election
that CWA was expected to win. But the July 6 meeting had
been planned since May 6, well before CWA filed its repre-
sentation petition. Moreover, the General Counsel and CWA
have put forth no evidence of antiunion animus in the days
after July 6, except for the bare fact of Sprint's timing.
Sprint, in turn, has articulated a number of legitimate busi-
ness reasons for its decision to terminate the LCF employees
immediately, including the recognition that there was no point
in having the LCF telemarketers continue to sell a product
that would no longer be available. In a stronger case, the
timing of Sprint's actions, particularly after July 6, might
have taken the General Counsel's case over the edge. But
here timing is not enough to make an otherwise unpersuasive
NLRB decision survive judicial scrutiny.
III. Conclusion
The NLRB's decision ultimately lacks substantial evidence
in the record given the overwhelming record evidence that
LCF was in a serious and sustained financial decline through-
out the months before its closure. For the foregoing reasons,
we set the NLRB's order aside. In light of this decision, we
need not reach Sprint's challenge to the remedy that the
NLRB formulated.
So ordered.