[1982] OLRB Rep. July 1080
0109-82-R United Steelworkers of America, Applicant, v. U S L Industries Inc., Respondent
BEFORE: E.N. Davis, Vice-Chairman, and Board Members John Murray and W.F. Rutherford.
APPEARANCES: J. Egner, B. Nicol, R. Hines, R. Pontieri and Burnett Shaw for the applicant, W. McNaughton and M. Fagan for the respondent.
DECISION OF E.N. DAVIS, VICE-CHAIRMAN, AND BOARD MEMBER J.W. MURRAY; July 9, 1982
The applicant seeks a declaration pursuant to section 63 of the Labour Relations Act that there has been a sale of business by Universal Sections Limited to U S L Industries Inc.
Universal Sections Limited (hereinafter referred to as "Universal") was an operating holding company with a number of subsidiary corporation throughout Canada, United States and the United Kingdom. The Canadian subsidiaries were a mixture of manufacturing companies and distributor-type companies which latter were concentrated primarily in Western Canada and which handled the products of the major manufacturing companies. Universal operated a manufacturing plant in Markham, Ontario, which is the subject of the instant application. The Markham operation manufactured wall systems, studs, soffits and siding for the residential market and also acted as a distributor of Gypsum Board. The soffits and siding were marketed through a Universal subsidiary also located in the Markham plant. The Markham plant at one time accounted for 25-30% of the dollar sales volume of Universal, and about 40% of the Markham production was sold through other Universal subsidiaries.
Commencing in early 1980 Universal was experiencing financial difficulties then centred in respect to its Montreal based manufacturing subsidiaries, leading to their sale by a Trustee in bankruptcy. Also in November 1980, the Western Canada subsidiaries were sold and the U.K. subsidiary "died a natural death". In respect to Ontario operations, the physical assets were seized by Richter and Co. in May 1981, pursuant to their debenture and in June 1981, Peat Marwick was appointed Receiver-Manager on behalf of the Canadian Imperial Bank of Commerce. In July 1981, an application for bankruptcy was filed on behalf of the unsecured creditors by Coopers Lybrand and that application was finally granted in December 1981, retroactive to July 1981.
Subsequent to Peat Marwick's appointment as Receiver-Manager, the shares of Professional Machinery and Tool Ltd., an Ontario subsidiary, were disposed of as were those of a Florida based corporation. The Ottawa Division of the Company was sold. Peat Marwick, under an arrangement with Richter and Co., continued to operate the Markham facility for a time principally to run out inventory which was sold either as finished product or ran inventory. Peat Marwick also collected the receivables. This process was completed by September 1981. During this period, it is said that the Receiver-Manager made efforts to dispose of the business as a going concern without success, and in the words of Mr. Maurice Fagan, who was then (and now) President of Universal, Richter and Co. ultimately lost patience and decided to put up the physical assets at Markham for sale by tender.
Sealed tenders were called, returnable on September 4, 1981, in respect to 34 parcels of assets and conditioned on "a bulk bid must include a separate allocation for each parcel". It was Fagan's testimony that the successful tender was submitted by Danbury Sales (1971) Ltd. and believes that that was so in respect to all parcels but he was not sure whether two parcels involving leases of premises at 60 Esna Park Drive and 10-30 Alden Road, both in Markham, were acquired by Danbury Sales.
On August 18, 1981, the present respondent, U S L Industries Inc. (hereinafter referred to as "U S L") was brought into existence with Mr. Maurice Fagan as President. None of the Directors of Universal, other than Fagan, have at any time had any involvement or interest in U S L. The objective of U S L was to negotiate a purchase of equipment from Danbury Sales and to find suitable partners with financial resources to this end. The putting together of financial backing was finally accomplished and on December 14, 1981, U S L purchased most of the fixed assets consisting of machinery and equipment in the Markham plant. Fagan testified that this purchase corresponded to 27 of the parcels which had been put up for tender by Richter & Co.: the assets in the remaining parcels consisted of office furniture and fixtures, motor vehicles and the two leaseholds. Fagan also testified that there was no connection of any kind between Danbury Sales and U S L. In the transaction between Danbury Sales and U S L, U S L did not acquire the operating name, accounts receivable, goodwill, customer lists, telephone number, Universal shares, real property leases, patents or transfer of licensing agreements.
The landlord in respect to property at Markham in which Universal had a leasehold interest was Helter Investments Ltd. in respect to the Esna Park Drive property and Maurice Fagan as head lessee of the Alden Road property, part of which was property used by Universal. Helter Investments Ltd. was held by third parties and negotiations were conducted with Helter by the "Fagan family" which included members other than Maurice Fagan. This resulted in Helter's leasehold interest being acquired in November 1981 by the "Fagan family". Fagan explains the objective in these negotiations as being primarily for investment purposes; and that if U S L was ultimately successful in negotiating the purchase of assets from Danbury Sales, it would enable them to remain there, and if those purchase negotiations were not successful, it was desired to control the whole building in any event. Helter Investments Ltd. was at that time controlled by the "Fagan family" and a 49% interest was held by Business Ventures Co. which was managed by Millard Roth and Marvin Mandell (who are now Directors of U S L) and which 49% interest is now owned by U S L. Business Ventures Co. was also the final financial backer of U S L. As part and parcel of the December 1981 transaction, a lease was entered into between Helter Investments Ltd. as landlord and U S L as Tenant. Of the five directors of Universal other than Maurice Fagan, none of them were involved with either Helter Investments or Business Ventures and have at no time been involved in U S L.
U S L started its operation in the Markham facility in January 1982, using the previous fixed assets of Universal as acquired from Danbury Sales. Other than Maurice Fagan, President of U S L, no persons who were officers of Universal are officers of U S L. The U S L Accountant is a new employee; the Sales Manager is a former salesman of Universal, the Plant Manager is a person who had been employed in a different capacity by Universal up to some two years ago. Additionally, in the office are two former employees of Universal working on invoices and computer work. U S Lalso employs two of the five former foremen of Universal and six out of twenty "bargaining unit" employees were formerly employees of Universal.
Since the commencement of operations in January 1982, U S L has concentrated on using the equipment to manufacture custom rolled form sections, a segment of business in which Universal had previously done little. It also produces products going into the wall system, and has produced some ceiling systems principally for customers who had previously been left with partially completed projects. Fagan explained that because of the long delay due to production interruption, the trade turned to competitive systems and it is almost impossible for U S L to get into the market with the old system. He stated that Universal had manufactured for inventory but because the Universal system was not compatible with competitive systems which the trade has been using for a year, it will be necessary to re-design. He stated there have been discussions on re-design and re-tooling for this system but the immediate priority is to build the custom cold-rolled forming business. He also stated that the U S L no longer makes steel siding and are now endeavoring to develop aluminum siding on a custom basis for other major users, and to produce for major wholesalers using the customer's materials. The soffit system is not on production but U S I. makes some components not made by other manufacturing and U S L no longer acts as a distributor of Gypsum Board. He stated that many products made by U S L are generally identical to products made by Universal but also the same as those marked by other manufacturers. Fagan also stated that all materials have C.S.A. specifications and that the approvals secured by Universal in this regard were not transferred to U S L but that currently U S L is in the process of getting temporary approvals of fire testing of ceiling materials. He conceded that it was possible that some shipping cartons used by Universal could have had the letters "U S L" on them but when asked if the letters "U S L" had been synonymous with "Universal", his reply was that the word "Universal" was used as a general rule.
The evidence was that all customer records and accounts were retained by Peat Marwick and later by the Trustee in bankruptcy. Fagan stated that a President of Universal, he had some general knowledge of customers but no information relating to quantities or to payment patterns. He acknowledged that the current Sales Manager of U S L probably had his own customer list from the time he had worked as a salesman with Universal but pointed out that such a list was of no value under present circumstances to U S L inasmuch as it would relate to Soffitt Systems. It was stated that U S L is attempting to make sales to what had once been Universal subsidiaries and had accounted for 40% of the Markham production, but that these accounts had, in the interim, made other arrangements and in the case of the former Montreal subsidiary was now a direct competitor of U S L.
The question before the Board is whether within the meaning of Section 63 of the Act there has been a sale by Universal of its business or part thereof to U S L. We have no doubt that the Markham operation itself was initially a viable, integrated business entity which was severable from Universal and capable of existing as an individual business venture, and therefore, capable of being brought within the meaning of section 63(1) of the Act which reads:
63(1) In this section,
(a) "business" includes a part or parts thereof;
(b) "sells" includes leases, transfers and any other manner of disposition, and "sold" and "sale" have corresponding meanings.
- The issue here is whether it is the "business" of Universal which has been transferred and now is carried on by U S L or whether, as the respondent argues, it has only acquired physical assets once the property of Universal and is employing them in the conduct of a similar business. In this regard, we adopt with approval a statement made by this Board in Metropolitan Parking Inc. [1979] OLRB Rep. Dec. 1193 at paragraph 44, where it was said:
"For a transaction to be considered a "sale of a business" there must be more than the performance of a like functions by another business entity. There must be a transfer from the predecessor of the essential elements of the business as a block or as a "going concern". A business is not synonymous with its customers or the work it performs or its employees. Rather, it is the economic organization which is used to attract customers or perform the work. The Legislature could have provided for the continuation of bargaining rights whenever there is a continuity of the work performed, but it did not do so. Bargaining rights are continued only when the employer transfers his business. The use of the active verb and possessive pronoun is not insignificant."
The instant case differs from that of Marvel Jewellry Limited and Danbury Sales (1971) Ltd. [1975] OLRB Rep. Sept. 733, as in that case, the nominal purchaser was not in fact the real purchaser from the Receiver-Manager. There was no evidence in the case before us that the sale and purchase transaction of September 1981 did, in any way, directly or indirectly, involve U S L, nor was there any evidence of any transaction between U S L and Universal, or U S L and the Receiver-Manager acting for Universal. It therefore becomes necessary to determine whether, in the September transaction, Danbury Sales (1971) Ltd. acquired the business of Universal. If it did not, it is obvious that Danbury could not transfer or sell that business to U S L. If Danbury did acquire the Universal business in September 1981, it remains a question of fact as to whether Danbury then sold the business to US L.
Danbury was not before the Board in this matter and we have no direct evidence as to the nature and scope of the transaction between Danbury and Richter and Partners Inc. as Receiver and Manager of Universal. What we have is Fagan's testimony as to the fact that tenders were called in respect to parcels of certain assets of Universal and that Danbury was the successful tenderer, although there was uncertainty as to whether Danbury successfully tendered on the two parcels comprising the bases on the Markham property. There was evidence that, subsequent to the cessation of production at the end of August 1981, two or three Universal employees continued to be employed in the Markham premises, and that fact would seem to militate against Danbury having acquired the leases. The notice of sale by tender provided that "all tenders shall be made on and subject to the Conditions of Sale" which will be available at the time of inspection of the assets and, upon acceptance, shall constitute the Agreement of Purchase and Sale. There was no evidence of the Conditions of Sale placed before us.
We take it as established that Danbury in September acquired the machinery and equipment assets. We conclude that Danbury did not acquire a property interest in the manufacturing premises and there does not appear to have been any finished product or raw material inventories offered for sale by tender. Nor is there any evidence of transfer of customer lists or other forms of goodwill to Danbury or of Danbury acquiring any of the managerial skills or expertise or, of any of the former Universal employees. There is no evidence that Danbury actively operated the former business of Universal or indeed took any steps to do so. In examining the totality of the transaction, it cannot be said that the Universal business continued to function under Danbury's direction. The totality of the transaction justifies the conclusion that Danbury purchased a bundle of discrete assets which were essentially the tools of production. But as has been said by the Board on other occasions, a business consists not just of physical assets but includes the managerial and employee skills which attracts an identifiable customer group for the specific product being produced. In this sense, it is our conclusion that there was not a sale of business by Universal to Danbury within the meaning of section 63 of the Act. Having arrived at that conclusion, it follows that any transaction between Danbury and U S L could not have included the transfer of the Universal business to USL.
The application is therefore dismissed.
DECISION OF BOARD MEMBER W.F. RUTHERFORD:
I dissent.
The findings of fact relating to the bankruptcy of Universal Sections Ltd., and the sale of its assets to Danbury and then to U S L are set out in the majority decision of the Board and it is unnecessary for me to repeat these findings with which I am in substantial agreement.
However, in light of all the circumstances of this case, I disagree with the conclusion of the Board that there was no "sale" of business of U S L within the meaning of section 63 of the Labour Relations Act.
The establishment of U S L with Mr. Fagan as its chief executive officer with the objectives of buying back Universal's assets from Danbury leads me to this conclusion. Of particular relevance is the fact that U S L was established in August, 1981, i.e. before the purchase by Danbury of Universal's assets in September 1981. This raises a very strong suspicion of a "deal" between Danbury and U S L such that Danbury was merely an intermediary between Universal and U S L. I would have held that these circumstances raised a presumption that Danbury was acting on behalf of U S L in purchasing these assets and that the respondent failed to rebut this presumption insofar as it failed to present detailed evidence on the nature and scope of the transaction between Richter and Danbury.
My conclusion is that there was the sale of part of Universal's business to U S L through Danbury. Although this sale took the form of the sale of discrete physical assets it was in substance the sale of a "business". This case is on all fours with the facts in Marvel Jewellry Ltd. [1975] OLRB Rep. Sept. 733, where the Board held that there had been the sale of a business despite the fact that the "formal transaction may have given the appearance of a sale of assets". (At 735.) This conclusion is supported by various factors including the continuity of personnel from Universal to U S L from the highest to the lowest levels within the corporate structure, the continuity in production functions and, in particular, the obvious connection between the corporate names of Universal and U S L. In fact it is obvious that U S L was attempting to capitalize on Universal's goodwill by adopting this name. Admittedly, this goodwill may have been somewhat dissipated over the four month shutdown. Nevertheless, I cannot believe that the nexus between the corporate names of U S L and Universal is coincidental or that this name was chosen for purely sentimental as opposed to sound business reasons. I would hold that, in fact, there was a "sale" of goodwill from Universal to U S L in the form of Universal's corporate name despite the fact that this name was never the subject of a formal sale transaction between Universal and Danbury or Universal and U S L. The definition of "sale" in section 63(1) is certainly broad enough to cover the effective disposition of Universal's goodwill to U S L in this case. Indeed, it is obvious that the broad wording of this section was precisely intended to allow the Board to pierce the corporate veil and circumvent corporate chicanery in situations such as bankruptcies where the confusion ensuing from the dissolution of a corporate entity may facilitate the negation of employee's collective bargaining rights.
There is no doubt, viewing the evidence in its entirety, that Mr. Fagan planned to revive a viable part of Universal's operations behind a different corporate veil and that he is now taking advantage of Universal's bankruptcy to eliminate the bargaining rights of the applicant union with respect to this operation. I would have found a sale of this portion of Universal's business to U S L, in part through a formal sale of assets via Danbury, and in part through a direct transfer of goodwill, knowledge and expertise from Universal to U S L. Accordingly, I would have continued the bargaining rights of the applicant union in relation to the respondent.