MEMORANDUM**

The National Labor Relations Board held that the two respondents are alter egos and a single employer and ordered them to comply with a collective bargaining agreement that originally existed between the International Brotherhood of Electrical Workers, Local Union 1547, AFL-CIO and Twin Cities' representative, the National Electrical Contractors' Association.

The Board is entitled to summary enforcement of the order against Twin Cities. Twin Cities has admittedly not complied with the union agreement, did not file an answer to the unfair labor practice, did not file exceptions to the administrative law judge's decision, and has not filed an answer with this court to the Board's application for enforcement.

We decline to enforce the Board order as it relates to Big G Electric & Engineering, Inc. There is not substantial evidence on the record as a whole to support the decision that Big G is derivatively responsible for the union contract and consequently in violation of Section 8(a)(5) and (1) of the National Labor Relations Act, (29 U.S.C.A. Secs. 158(2)(1) and (5)), for refusing to abide by a labor agreement with Twin Cities, and by failing to recognize and bargain with the union.

An alter ego conclusion is essentially factual and may not be disturbed if, looking at all the evidence, the determination is supported by substantial evidence. J.M. Tanaka Const. Inc. v. NLRB, 675 F.2d 1029, 1033 (9th Cir.1981). Substantial evidence has been defined as "... more than a mere scintilla. It means such evidence as a reasonable mind might accept as adequate to support a conclusion." Consolidated Edison Co. v. NLRB, 305 U.S. 197, 229, 59 S.Ct. 206, 217, 83 L.Ed. 126 (1938).

The crux of our decision lies in the failure of the Board to appreciate the uncontroverted evidence that (1) when Big G was formed Twin Cities was going out of business for reasons unrelated to the union contract, (2) that a solar turbine project, the only job that Twin Cities had at the time Big G was formed, would have had to be completed by some other entity because of Twin Cities' financial inability to meet the requirements of the contract, (3) that Twin Cities had repudiated the union contract several months prior to Big G's coming into existence, (4) that there was no pending proceeding for the enforcement of that contract, and (5) that none of Big G's principals thought that Twin Cities' union contract had not been terminated.

As to the reasons for the termination of Twin Cities, Gregory Gabriel, Sr. testified (1) that the company was on the verge of bankruptcy and unable to complete work on the solar turbine contract, (2) that the complete suspension of Twin Cities' operations in February 1988 was related to an inability to obtain financing, maintain a payroll, or purchase materials, and (3) that the company's place of business had been foreclosed upon. Twin Cities could not have continued in business, he stated, whether it operated union or non-union. The testimony as to the financial inability of Twin Cities to continue in business was corroborated by its accountant. There is no contrary evidence as to these facts.

There is no doubt that Gabriel, Sr., the sole proprietor of Twin Cities, told Tim Evans, the union business representative, that he would no longer comply with the collective bargaining agreement and ceased compliance in July 1987. The agreement otherwise would have extended to June 1988, but could have been terminated by giving written notice 150 days in advance of the agreement's anniversary date. Although no written notice was given, Gabriel testified that he thereafter conducted his business in the belief that the bargaining contract was legally terminated.

Big G came into corporate existence in January 1988. It leased Gabriel's electrical license and paid a $4500 down payment toward the purchase of Twin Cities' assets. Operating non-union, Big G succeeded to Twin Cities' solar turbine project in March 1988 with Gabriel acting as foreman. The union, detecting some identity between the operations of Big G and Twin Cities, questioned Big G's status by letter of May 24, 1988. An earlier union letter, which purportedly bears a February 21, 1988 date, has not been made a part of the record. In June 1988, the union filed formal charges claiming that as alter egos and a single employer, Twin Cities and Big G illegally refused to apply the labor agreement.

The criteria used by the Board to determine both single employer and alter ego status are: (1) common or substantially identical ownership; (2) common management; (3) interrelationship of operations; and (4) centralized control of employees. Dariano & Sons v. Dist. Council No. 33, 869 F.2d 514, 518 (9th Cir.1989). No one factor is by itself controlling, nor is it necessary that all factors be present. Tanaka Const. Inc., 675 F.2d at 1033.

Although there is substantial evidence to support the finding of the administrative law judge that the companies had to some extent the same business purpose, shared much of the same equipment and clientele, had to some extent the same supervision and common ownership, the respondents properly argue that the two companies do not have substantially identical management, business purposes, operations, equipment, customers, supervision, and ownership. Gabriel's five sons essentially started Big G. Their father, the sole owner of Twin Cities, ended up with a one-sixth interest. The Board has previously treated ownership interests held by family members as common ownership for single employer or alter ego purposes. See Bryar Construction Co., 240 NLRB 102, 104 (1979); see also, NLRB v. Stowe Spinning Co., 336 U.S. 226, 227, cert. denied, 69 S.Ct. 541, ----, 93 L.Ed. 638, ---- (1949).

Just as there are substantial similarities between the two corporations, there are substantial differences. Gabriel Sr. owns only one-sixth of Big G. Each of the other corporate shareholders, though members of the Gabriel family, contributed their own capital to the formation of the corporation. Management of the two companies differs significantly. Big G's supervision is divided among all directors and other employees while Gabriel, Sr. was solely responsible for Twin Cities' supervision. Gabriel, Sr. is not a corporate officer of Big G. Big G's need for and purchase of equipment over and above that required by Twin Cities is also part of the testimonial evidence.

Big G took over the only contract that Twin Cities had when it went out of business. The record contains testimony that Big G paid fair market value for Twin Cities' assets which is supported by a June 1, 1988 contract, alleging a $65,000 purchase price. There is testimony that the purchase included the $28,000 acquisition of the solar turbine project, that prices were investigated and compared, and that Big G's initial purchase offer was rejected by Twin Cities. The administrative law judge could be properly skeptical about this part of the testimony. The administrative law judge can, in the proper situation, discredit uncontradicted testimony. This Court has held that a judge "need not accept as true statements made by a respondent's own witnesses, even if uncontradicted ... and the [judge] is entitled to make such a determination solely on the basis of his evaluation of the witnesses' demeanors." NLRB v. Ayer Lar Sanatarium, 436 F.2d 45, 49 (9th Cir.1970).

Contrary to Big G's argument, there does not have to be a complete identity of the above factors to result in derivative liability when the facts and circumstances show that the two corporations should be treated as the same for unfair labor practice purposes. But where there is such a difference between the two as demonstrated by this record, there should be some element of intent or motive present to justify assessing liability against one for the contracts of the other. The evidence is irrefutable, however, that Big G succeeded to Twin Cities' solar turbine project only after Twin Cities was forced to discontinue its performance of the contract for economic reasons unrelated to its union contract.

Under the circumstances of this case, the alter ego finding requires evidence of bad faith or intent to evade the Labor Act through "disguised continuance" or "sham." Dariano, 869 F.2d at 519. See also Iowa Exp. Distribution, Inc. v. NLRB, 739 F.2d 1305, 1311 (8th Cir.), cert. denied, 469 U.S. 1008, 205 S.Ct. 595, 83 L.Ed.2d 704 (1984); NLRB v. Tricor Products, Inc., 636 F.2d 266, 270 (10th Cir.1980).

The administrative law judge found that "the record supports the inference that Gabriel, Sr. and his sons brought Big G into being, at least in important part, to escape Twin Cities' ties to the Union." In our judgment this finding is critical in this case, and is not supported by substantial evidence on the record as a whole. The uncontradicted evidence is that all the principals of Big G were under the impression that Twin Cities became non-union in the summer of 1987. The union never made a demand on Big G to comply with the terms of the collective bargaining agreement until May 1988, long after all of the events which could impose alter ego liability had occurred. Whether Twin Cities was still legally bound under the contract would not bear on motive and purpose which must be established on the basis of what the parties knew or thought they knew at the time the alleged infringing actions occurred.

The Board's reliance upon Kenmore Contracting Co., 289 NLRB No. 56, 128 LRRM 1227 (1988) was misplaced. In Kenmore, not only was the original employer not going out of business, but there was also direct testimony indicating an antiunion motive for forming the alter ego. The lack of unlawful-motivation evidence in the instant case renders it more akin to First Class Maintenance Service, 289 NLRB No. 60, 128 LRRM 1334 (1988) and Adanac Coal Co., 293 NLRB No. 26, 130 LRRM 1409 (1989), where the Board determined that there were legitimate economic and business considerations behind the challenged actions and that unlawful motivation was not a factor. See also Alabama Metal Products, Inc., 280 NLRB No. 123 at 1096 (1986) ("Nor is there any significant evidence that the establishment of [the alleged alter ego] was designed to thwart or evade the bargaining agreement with the Union. [Rather,] the decision ... was based on economic considerations"); Gilroy Sheet Metal, Inc., 280 NLRB No. 121 n. 1 ("the cessation of one company and formation of the other resulted from matters unrelated to the Union, including personal health, financial, and marital difficulties"); Best Mechanical Contractors, Inc., 273 NLRB No. 19 at 86 (1984) (no alter ego finding given "lack of evidence showing that the cessation of operations by the one and the creation of the other were motivated by antiunion considerations"); Davis Van & Storage, 218 NLRB No. 205 (1975) (no alter ego where the closing of the original employer was involuntary and therefore could not have been motivated by anti-union animus).

There being insufficient evidence to support the decision that Big G was derivately liable on Twin Cities' union contract on the alter ego/single employer theory of liability, the petition to enforce the Board's order against Big G is denied.

GRANTED AND ENFORCED IN PART, DENIED IN PART.