On August 12, 2011, the US Court of Appeals for the Eighth Circuit issued an opinion in NLRB v. Leiferman Enterprises, LLC, holding a successor-in-interest liable for unfair labor practices of the purchased company. Auto Glass Repair and Windshield Replacement Service (WRS) purchased Leiferman Enterprises, LLC (Leiferman) in receivership proceedings while unfair labor practice claims against Leiferman were pending before the NLRB. The key issue in the case was whether WRS was a successor under the NLRA based on Golden State Bottling Co. v. NLRB, 414 U.S. 168 (1973).

Leiferman sold and installed automotive glass, and financed the purchase of its business through secured-lending agreements with Harmon Auto Glass Intellectual Property (HAIP). When Leiferman defaulted on its loan, Leiferman and HAIP agreed that Leiferman would make periodic payments under a forbearance agreement and sell its business to a third party by September 15, 2006. Leiferman defaulted on its payments and HAIP demanded possession of the business. When Leiferman refused, HAIP filed a complaint in Minnesota state court to appoint a receiver.

At the same time, Leiferman was negotiating the terms of a new collective bargaining agreement with the International Union of Painters and Allied Trades District Council 82 (Union). On August 13, 2006, Leiferman suspended negotiations with the Union and unilaterally altered its employees' terms and conditions of employment. The Union filed unfair labor practice charges with the NLRB. While Leiferman was in receivership, the NLRB issued a complaint and notice of hearing alleging Leiferman had violated the NLRA by:

On January 31, 2007, WRS bought Leiferman while the NLRB complaint was pending. As a condition of purchase, HAIP agreed to indemnify WRS from any pending claims in the litigation before the NLRB. The Minnesota court's order approving the sale found the sale was commercially reasonable and "free and clear of any liens and encumbrances."

On February 21, 2008, the NLRB's administrative law judge (ALJ) recommended an order that Leiferman make its employees whole for losses suffered because of Leiferman's unfair labor practices. However, since the ALJ found WRS liable as Leiferman's successor under Golden State, he recommended assessing the penalties on WRS.

WRS appealed the decision to the five-member panel (Board) that heads the judicial function of the NLRB, claiming it was immune from Golden State successorship liability because:

The Board rejected WRS's arguments and found that it satisfied all the requirements for liability under Golden State, including the key requirement of substantial continuity between Leiferman's and WRS's business operations. The NLRB petitioned the Eighth Circuit for enforcement of its order and WRS cross-petitioned for review of the order, claiming Golden State successorship was inapplicable for the same reasons above. WRS also claimed it was not a successor under Golden State because:

The Eighth Circuit upheld the Board's decision and found WRS liable as a successor-in-interest under Golden State.

In Golden State, the Supreme Court held that under the NLRA, the NLRB has authority to hold a purchaser of a company liable for unfair labor practices committed before the purchase where the purchaser:

The Eighth Circuit applied Golden State in NLRB v. Winco Petroleum Co., 668 F.2d 973 (8th Cir. 1982), and found successorship was appropriate where the purchaser met all of the Golden State requirements and a majority of the purchaser's employees at the acquired company's old locations were former employees of the acquired company.

In this case, the court found that WRS met all of these requirements for Golden State successor liability:

Although WRS claimed it used different corporate management and headquarters, paid former Leiferman employees different benefits, and had different terms and conditions of employment, the court found these alterations were relatively minor.

The court rejected WRS's argument that it would be inequitable for HAIP to pay penalties for the unfair labor practices, since HAIP voluntarily agreed to indemnify WRS to recover some value from its Leiferman assets through the sale. The court also dismissed WRS's argument about the Minnesota court order, as the Minnesota court found the terms of the sale were reasonable, and the indemnification clause was a term of the sale.

The court did not directly address WRS's final argument that even if substantial continuity did exist, it was in the place of Leiferman which was unable to pay the claims because it was in receivership.

The Eighth Circuit's opinion confirms that successor liability under Golden State is applicable where the company is purchased through receivership proceedings. The case underlines the importance of understanding any potential successor liability before entering into these transactions as either a secured creditor forcing the sale of a debtor company through receivership proceedings, or as purchaser of that company. In particular:

For more information on labor law, see Practice Note, Labor Law: Overview.