Bricklayers and Allied Craftworkers Local Union No. 3, AFL-CIO et al v. E & L Young Enterprises, Inc. et al

Filing 52

ORDER DENYING MOTION TO DISMISS 37 (Illston, Susan) (Filed on 7/2/2012)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

United States District Court
For the Northern District of California

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BRICKLAYERS & ALLIED
CRAFTWORKERS LOCAL UNION NO. 3,
AFL-CIO et al.,

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No. C 11-05051 SI
ORDER DENYING MOTION TO
DISMISS

Plaintiffs,
v.
E&L YOUNG ENTERPRISES,
Defendant.

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Currently before the Court is defendant’s motion to dismiss. The matter is set for hearing on

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July 6, 2012. Pursuant to Civil Local Rule 7-1(b), the Court finds this matter appropriate for resolution

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without oral argument and hereby VACATES the hearing. Having considered the papers submitted, and

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for good cause shown, the Court hereby DENIES defendant’s motion.

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BACKGROUND

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This action was filed by plaintiffs on October 13, 2011. Plaintiffs are a labor organization

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representing tile setters and finishers and related Trustees of employee benefit plans under the

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Employment Retirement Income Security Act of 1974 (ERISA). Plaintiffs allege that defendant E&L

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Young Enterprises, Inc. (“Corporation”) does business as Diablo Design Tile & Stone and is the alter-

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ego of an Eric Young (“Young”), an employer who is a signatory to a Collective Bargaining Agreement
(CBA) which expires on March 31, 2013. Plaintiffs allege that the Corporation – which, plaintiffs

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claim, is the alter ego of Eric Young, who signed the CBA – has failed to make fringe benefit payments

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required by the CBA from April 8, 2010 to present.1 Complaint, ¶¶ 7-9.

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Previously, on January 8, 2010, plaintiffs filed an action against Young, doing business as Diablo

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Designs Tile & Marble (“Sole Proprietorship”), for failure to pay fringe benefit contributions through

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February 28, 2010 based on the same CBA at issue in this case. See Bricklayers and Allied

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Craftworkers Local Union, No. 3, AFL-CIO, et al., v. Eric Lawrence Young, et al., Case No. 10-0112

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SBA (N.D. Cal.). That action resulted in a $89,749.84 default judgment against Eric Young dba Diablo

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Designs Tile & Marble. Id., ¶ 10.
On April 8, 2010, E&L Young Enterprises dba as Diablo Design Tile & Stone was incorporated.

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United States District Court
For the Northern District of California

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Eric Young and his wife are the sole shareholders. Id., ¶ 11. On August 8, 2011, Eric Young and his

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wife, Lorraine Young, filed a Chapter 7 bankruptcy petition. Case No. 11-48460, N.D. Cal.

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As noted above, this action was filed on October 31, 2011. By an Order dated May 2, 2012, this

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Court rejected the Corporation’s motion to refer this matter to the bankruptcy Court, finding that this

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action – seeking recovery under the CBA from the Corporation under an alter ego theory – was not a

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“core” proceeding under the Bankruptcy Code or otherwise sufficiently “related to” the Bankruptcy

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Court action to justify the referral of this matter to that Court. See Docket No. 35.

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Defendant now moves to dismiss this action, arguing that: (1) plaintiffs failed to plead relief to

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which they are entitled under 29 U.S.C. § 158; (2) actions based upon “alter ego” liability belong to the

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bankruptcy trustee (who is administering the Young’s personal bankruptcy petition); and (3) because

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the CBA was “rejected” in the bankruptcy court, it cannot be used to impose alter ego liability on the

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Corporation.2

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Defendant American Contractors Indemnity Company is the surety of the Corporation and
plaintiffs allege that ACIC is likewise responsible for the missed fringe benefit payments.
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On July 2, 2012, plaintiffs filed a First Amended Complaint. Nothing in that amended
complaint appears to be relevant to the determination of this motion.
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DISCUSSION
Defendant’s second argument was explicitly rejected by the Court in denying the motion to refer

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and the Court need not revisit that issue. Docket No. 35, Order Denying Motion to Refer. With respect

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to defendant’s first argument, defendant argues that under 29 U.S.C. § 158, the only relief plaintiffs can

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seek is an order requiring the Corporation to collectively bargain in good faith. Plaintiffs argue that

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defendant is confusing the “successorship liability doctrine” with the “alter ego liability doctrine.” The

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Court agrees. Under the “successorship liability doctrine,” where a party to a CBA sells its business

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to an unrelated entity, that successor entity may be required to collectively bargain with the union. See,

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e.g., NLRB v. Jeffries Lithograph Co., 752 F.2d 459, 463 (9th Cir. 1985). However, under the “alter

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United States District Court
For the Northern District of California

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ego liability doctrine” alleged here, the appropriate remedy – if alter ego is established – is the relief

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owed under the applicable CBA. See, e.g., Sheet Metal Workers International Asso., Local No. 359 v.

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Arizona Mechanical & Stainless, Inc., 863 F.2d 647, 651 (9th Cir. 1988). As the allegations in this case

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are all clearly “alter ego” allegations, plaintiffs seek appropriate relief.

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Turning to defendant’s third argument – newly raised in reply and addressed by plaintiffs in the

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Court ordered sur-reply– the Court finds that nothing in the bankruptcy action has terminated the CBA

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or otherwise undermined plaintiffs’ ability to assert that the Corporation is liable as the alter ego of

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Young as signatory of the CBA. As plaintiffs acknowledge, by operation of law under 11 U.S.C.

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§ 365(g), since the bankruptcy trustee in the Youngs’ personal Chapter 7 bankruptcy case did not

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assume the CBA within 60 days of the filing of the bankruptcy petition, the CBA is considered

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“rejected” as a matter of law for purposes of those proceedings. However, simply because the CBA as

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an executory contract is rejected, does not mean it is terminated or without legal effect outside of the

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bankruptcy proceedings. See, e.g., In re Continental Airlines, 981 F.2d 1450, 1459 (5th Cir. Tex. 1993)

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(no support for argument that “rejection” of CBA rescinds the CBA; “Significantly, § 365(g)(1) speaks

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only in terms of ‘breach.’ The statute does not invalidate the contract, or treat the contract as if it did

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not exist.”); see also In re Modern Textile, Inc., 900 F.2d 1184, 1191 (8th Cir. 1990) (commercial lease

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obligations);

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In re Ortiz, 400 B.R. 755, 764-65 (C.D. Cal. 2009) (personal services contract). The NLRB has

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explicitly recognized that an alter ego of an employer in bankruptcy remains liable under the employer’s
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CBA. See, e.g., Metalsmith Recycling 329 N.L.R.B. 124, 125 (N.L.R.B. 1999) (“Since the rejection of

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the Metalsmith contract in bankruptcy did not affect the agreement’s continued existence, the judge

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correctly found that Second Street was bound to the agreement under ordinary alter ego doctrine.”).

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Moreover, the allegations here are that the Corporation was formed well over a year before the

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Youngs filed their Chapter 7 bankruptcy petition. As, as noted in the prior Order, the Corporation is not

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a party to the Chapter 7 petition and the bankruptcy trustee is not taking any action with respect to the

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stock or property of the Corporation controlled by the Youngs. In these circumstances, the rejection of

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the CBA by operation of law in the bankruptcy proceeding does not terminate the CBA or otherwise

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undermine plaintiffs’ ability to seek to hold the Corporation responsible under the CBA.

United States District Court
For the Northern District of California

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CONCLUSION
For the foregoing reasons, defendant’s motion to dismiss is DENIED.

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IT IS SO ORDERED.

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Dated: July 2, 2012

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SUSAN ILLSTON
UNITED STATES DISTRICT JUDGE

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