Mr. Cotter next contends that the Funds have no contribution claim for any time after the confirmation of the Plan because the CBA was rejected in the bankruptcy proceeding. As the Funds point out, however, American, Inc. never adequately rejected the CBA.
Congress has enacted a specific provision of the Bankruptcy Code to govern collective bargaining agreements. Under this provision, a debtor "may assume or reject a collective bargaining agreement only in accordance with the provisions of this section." 11 U.S.C. § 1113(a) (1993). It sets forth specific procedural requirements to be followed by a debtor wishing to reject a collective bargaining agreement and precludes employers from unilaterally altering collective bargaining agreements. 11 U.S.C. § 1113(f) ("No provision of this title shall be construed to permit a trustee to unilaterally terminate or alter any provisions of a collective bargaining agreement prior to compliance with the provisions of this section.").
This section provides the exclusive means by which to reject a collective bargaining agreement. See, e.g., In re Ionosphere Clubs, Inc., 922 F.2d 984, 989-991 (2d Cir. 1990) ("Congress intended that a collective bargaining agreement remain in effect and that the collective bargaining process continue after the filing of a bankruptcy petition unless and until the debtor complies with the provisions of § 1113."), cert. denied, 502 U.S. 808 (1991). The parties do not dispute that American, Inc. did not follow the appropriate procedure under Section 1113.
Mr. Cotter contends, however, that American, Inc. rejected the CBA when the Plan was confirmed anyway. He argues that the Funds should have objected to American Inc.'s failure to follow the appropriate procedure when the creditors voted on the plan. According to Mr. Cotter, the Funds have waived their right to raise this argument by failing to do so at the appropriate time. The Funds argue that American, Inc. simply never rejected the CBA and therefore they had no obligation to raise their objection earlier, when they had no real objection to make.
To support his proposition that American, Inc. rejected the CBA in bankruptcy, Mr. Cotter makes several arguments. First, Mr. Cotter claims that the paragraph of the confirmed plan rejecting all executory contracts not explicitly assumed covers the CBA.
According to Mr. Cotter, American Inc. rejected all executory contracts under Section 365 through this Plan provision, including the CBA.
Section 1113 makes clear, however, that collective bargaining agreements cannot be rejected through Section 365. See, e.g., In re Alabama Symphony Assoc., 155 Bankr. 556, 571 (Bankr. N.D. Ala. 1993) ("[Section 1113] has been interpreted to mean that no other provision of the Code may be used to allow a debtor to bypass the requirements of Section 1113. In other words, a CBA cannot be rejected under Section 365.").
Second, Mr. Cotter notes that American Inc.'s bankruptcy disclosure statement notified all creditors that American, Inc. no longer had any employees except Mr. Cotter himself. According to Mr. Cotter, this disclosure gave the Funds notice that American, Inc. did not intend to assume the CBA. Mr. Cotter does not explain, however, how this "notice" substitutes for the clear requirements of Section 1113 for rejecting a CBA. Courts have held that Section 1113 creates no less than nine separate factors to be met before the rejection will be completed. See, e.g., Alabama Symphony, supra, 155 Bankr. at 573. American, Inc.'s disclosure that it no longer had any union employees is insufficient.
Finally, Mr. Cotter argues that if American, Inc. had assumed the collective bargaining agreement, the Plan would have had to provide for the payment of claims pursuant to the CBA according to the Bankruptcy Code's priority scheme. See In re Moline, 144 Bankr. 75, 78 (Bankr. N.D. Ill. 1992) ("Unless and until the debtor rejects the collective bargaining agreement, the debtor must abide by its terms. If the debtor never rejects the collective bargaining agreement and thus assumes the agreement by inaction, [priority is governed by section 5073."). Although I find the Plan's silence on the CBA troubling, I do not conclude from it that the CBA was adequately rejected. Section 1113 creates strict requirements for debtors to follow when rejecting a collective bargaining agreement. It makes clear Congressional intent to put the burden on the debtor to affirmatively resolve a collective bargaining agreement. Although the Funds should perhaps have noticed American, Inc.'s error earlier, they had no duty to come forward. American, Inc. is therefore still bound to the terms of the collective bargaining agreement.
C. Mr. Cotter as a Named Defendant
Mr. Cotter claims that he is not a proper defendant in this case because he never individually, nor doing business as American Underground Engineering ("American"), entered into a collective bargaining agreement with the Funds. Mr. Cotter, however, may still be liable for plan contributions under several different theories. First, the Funds contend that Mr. Cotter, as the former president of American, Inc., may be liable for the contributions that American, Inc. owes the Funds.
Mr. Cotter argues that he cannot be held liable for any delinquent contributions of American, Inc., because it was dissolved in October of 1993 and he did not have notice of its dissolution. In support of this argument he cites H & H Press, Inc. v. Axelrod, 265 Ill. App. 3d 670, 638 N.E.2d 333, 202 Ill. Dec. 687 (1st Dist. 1994). In H & H Press, the court held that one of the defendants, although an officer of the debtor corporation, could not be held personally liable for the corporation's debt. 638 N.E.2d at 340. In making this determination, the court noted that an officer may be held liable "if she knew or, because of her position, should have known of the dissolution." Id. The court did not find the defendant in H & H Press liable because there was no evidence in the record to show that she had been sent notice of the dissolution and therefore no evidence to show that she should have known about it. She was not listed as an officer on the form documents filed with the Secretary of State and was only found to be a de facto officer based on conflicting evidence regarding her role in the corporation.
Mr. Cotter provides no evidence regarding the dissolution of American, Inc. He simply states in his memorandum of law that it did dissolve in October of 1993. He then states in an improperly notarized affidavit that his previous attorney "did not inform [him] of the dissolution of AUE Inc. [He] only learned of the dissolution through [his] current attorney."
This affidavit is not sufficient for me to set aside the default judgment. Even assuming American, Inc. was dissolved in 1993, Mr. Cotter has not explained why, as President of American, Inc., he should not be charged with knowledge of its dissolution. In H & H Press, the court found that the defendant was not in a position necessarily to have knowledge because she was only found to be a de facto officer based on her actions. Mr. Cotter makes no similar argument here.
The Funds also argue that Mr. Cotter is liable for plan contributions because he is operating a sole proprietorship under the name of American. The Funds argue that he should therefore be liable for American, Inc.'s delinquent contributions, as its successor corporation. The Funds also argue that Mr. Cotter is still bound to the CBA and thus still incurring contribution obligations. The Funds do not really distinguish these two theories of liability, but they are distinct.
As an initial matter, I note that Mr. Cotter first responds by declaring that he never operated American as a sole proprietorship. What type of work was performed by Mr. Cotter or American is a question of fact, which the Funds are entitled to prove by conducting their audit.
The Funds contend that as the successor of American, Inc., Mr. Cotter d/b/a American is liable for American, Inc.'s delinquent contributions. Under this theory, Mr. Cotter would at most be liable for contributions for hours worked by union employees from the date of plan confirmation until the date of American, Inc.'s dissolution.
Pension liability may be transferred to a successor corporation. See Upholsterers' International Pension Fund v. Artistic Furniture of Pontiac, 920 F.2d 1323 (7th Cir. 1990). To do so requires "sufficient indicia of continuity between the two companies." Id. at 1329. Based on the record before me, however, I cannot decide whether Mr. Cotter d/b/a American has the necessary nexus with American, Inc. to be held liable for its contributions. The Funds are entitled to conduct their audit in order to obtain the necessary information to prove this theory.
The Funds also contend that Mr. Cotter d/b/a American continues to be bound to the CBA and is therefore responsible for contributions for union workers who worked for him, even after American, Inc. was dissolved. Although ordinarily a successor company is not bound to a collective bargaining agreement signed by its predecessor, an "'alter ego' of the predecessor, where it is 'merely a disguised continuance of the old employer,'" it will be so bound. Howard Johnson Co. v. Detroit Local Joint Executive Board, 417 U.S. 249, 259 n.5, 41 L. Ed. 2d 46, 94 S. Ct. 2236 (1974) (quoting Southport Petroleum Co. v. NLRB, 315 U.S. 100, 106, 86 L. Ed. 718, 62 S. Ct. 452 (1942)).
Such cases involve a mere technical change in the structure or identity of the employing entity, frequently to avoid the effect of the labor laws, without any substantial change in its ownership or management. In these circumstances, the courts have had little difficulty holding that the successor is in reality the same employer and is subject to all the legal and contractual obligations of the predecessor.
Whether the alleged sole proprietorship American Underground Engineering is the alter ego of American Underground Engineering, Inc. is a question of fact. Chicago District Council of Carpenters Pension Fund v. T.M.R. Construction, Inc., No. 84 C 6074, 1985 WL 1230 (N.D. Ill. May 2, 1985). In determining whether a successor corporation is the alter ego of its predecessor, courts consider several factors: whether they have substantially identical management, business purpose, operation, equipment, customers, supervision, and ownership. Id. Although courts may consider whether the change was motivated by anti-union sentiment, it is not necessary to find this motivation in order to conclude that the successor is an alter ego. See Masonry Institute of Cook County Welfare Fund v. Andrist, 1988 U.S. Dist. LEXIS 3406, No. 87 C 4464, 1988 WL 37754 (N.D. Ill. April 19, 1988).
In this case, there is an insufficient record on which to make a finding of alter ego status. Mr. Cotter is not entitled to judgment in his favor on this ground. The Funds may still conduct their audit in order to assess the appropriate plan contributions.
D. Sub-Contracting Work
Mr. Cotter declares that neither he nor American, Inc. have used any union employees since American, Inc.'s Plan was confirmed. He argues, therefore, that the Funds are entitled to no contributions and should not be allowed to examine his books. The Funds insist that they believe that Mr. Cotter has been subcontracting work to union employees and that they are entitled to conduct their audit in order to determine whether Mr. Cotter is liable for contributions for them.
If a collective bargaining agreement unambiguously requires employers to make contributions for hours worked by subcontracted union employees, that provision is enforceable. Illinois Conference of Teamsters and Employers Welfare v. Mrowicki, 44 F.3d 451, 458-59 (7th Cir. 1993). On the evidence presently before me, I cannot determine whether Mr. Cotter should be held liable for contributions on any employees. The Funds have not yet pointed to any specific employees for whom Mr. Cotter should make contributions. They cannot obtain this information without conducting their audit. Mr. Cotter has not convinced me that the Funds are not at least entitled to conduct an audit to determine whether any union employees were employed through a subcontracting agreement.
For the reasons stated above, the Funds are entitled to conduct their audit of Mr. Cotter's books. Should they wish to obtain any contributions from Mr. Cotter, I will decide then whether Mr. Cotter can be held liable. Mr. Cotter's motion is granted in part and denied in part in accordance with this opinion.
Elaine E. Bucklo
United States District Judge
Dated: January 3, 1996