The opinion of the court was delivered by: Clarkson S. Fisher, District Judge.
Before this court is a motion for summary judgment brought pursuant to Rule 56 of the Federal Rules of Civil Procedure by defendants, Erico International, Inc. ("International"), Erico Investment Company, Inc. ("Investment") and Erico Products, Inc. ("Products"), requesting that the court dismiss the plaintiff's complaint alleging liability under the Worker Adjustment and Retraining Notification Acts of 1988 (the "WARN Act"), 29 U.S.C. § 2101 et seq. Also before this court is a cross-motion for partial summary judgment as to the liability of Investment and International brought by plaintiff, Local 397, International Union of Electronic, Electrical, Salaried, Machine and Furniture Workers, AFL-CIO ("Local 397"). Plaintiff has stipulated to the dismissal of Products as a defendant in this action. For the reasons set forth below, the defendants' motion for summary judgment is denied, and the plaintiff's motion for partial summary judgment as to the liability of Investment and International is granted.
This action is brought by Local 397 under the WARN Act, 29 U.S.C. § 2101 et seq. The plaintiff claims that defendant Midwest Fasteners, Inc. d/b/a Erico Fastening Systems ("EFS") failed to provide plaintiff's members with sixty (60) days' notice prior to the closing of its Moorestown, New Jersey, plant as required by the WARN Act. Essentially, the plaintiff is seeking sixty days' pay and benefits for each employee in the bargaining unit. In addition to EFS, plaintiff has named as defendants EFS's parent, International, and International's parent, Investment. Plaintiff's theory of the case is that Erico is a single, integrated enterprise with separately incorporated subsidiaries for tax reasons and to meet local requirements in other countries.
Defendants Investment and International have moved for summary judgment, arguing that plaintiff should not be permitted to hold EFS's corporate relatives liable for any alleged violations of the WARN Act. Plaintiff has cross-moved for partial summary judgment as to the liability of defendants International and Investment. Because the parties have submitted a substantial amount of material, the court will apply the relevant factual material to the various legal tests set forth below.
Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56; Brown v. Hilton, 492 F.Supp. 771, 774 (D.N.J.1980). The burden of showing that no genuine issue of material fact exists rests initially on the moving party. Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir.1976), cert. denied, 429 U.S. 1038, 97 S.Ct. 732, 50 L.Ed.2d 748 (1977). This "burden ... may be discharged by 'showing' ... that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). Once a properly supported motion for summary judgment is made, the burden shifts to the nonmoving party to "set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986).
There is no issue for trial unless the nonmoving party can demonstrate that there is sufficient evidence favoring the nonmoving party so that a reasonable jury could return a verdict in that party's favor. Anderson, 477 U.S. at 249, 106 S.Ct. at 2510-11. In deciding a motion for summary judgment, the court must construe the facts and inferences in a light most favorable to the nonmoving party. Pollock v. American Tel. & Tel. Long Lines, 794 F.2d 860, 864 (3d Cir.1986). The role of the court, however, is not "to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial." Anderson, 477 U.S. at 249, 106 S.Ct. at 2511. The facts of this case are undisputed, and both parties urge this court to resolve the parental liability issue.
These cross-motions require the court to evaluate the corporate structures of the defendants to determine whether International and Investment are proper defendants in this action. As the starting point for analysis of this issue, the court must examine the statute upon which plaintiff has based its cause of action.
The WARN Act, 29 U.S.C. § 2101 et seq., was enacted by Congress in 1988 to provide workers with job security by requiring "employers" falling within the statutory definition to give at least sixty days' advance notice of any plant closing or mass layoff. 29 U.S.C. § 2101(a). The Act sets forth the definition of employer. The section provides:
(1) The term "employer" means any business enterprise that employs
(A) One hundred or more employees, excluding part-time employees; or
(B) One hundred or more employees who in the aggregate work at least 4,000 hours per week (exclusive of hours of overtime);
The plaintiff alleges that EFS, a wholly-owned subsidiary of International, a wholly-owned subsidiary of Investment, failed to provide the requisite sixty days' notice when it closed its Moorestown, New Jersey, plant. It is undisputed that EFS fits the statutory definition of an employer. Plaintiff, however, believes that, should it obtain a judgment against EFS for its WARN Act violation, EFS will be unable to pay such judgment. Accordingly, plaintiff, alleging that the parent companies should be held liable for the acts of their subsidiary, seeks to hold EFS's parent, International, and International's parent, Investment, liable for EFS's WARN Act violation. In the alternative, the plaintiff seeks to hold Investment and International directly liable for the WARN Act violation because, plaintiff contends, it was the corporate parent's decision to close the Moorestown facility, thereby causing the WARN Act violation.
Both plaintiff and defendants point to the Department of Labor regulations concerning when it is appropriate to hold a separate entity liable as an employer under the WARN Act. 20 C.F.R. § 693.3(a)(2), 54 Fed.Reg. 16065 (April 20, 1989). The regulation provides:
Under existing legal rules, independent contractors and subsidiaries which are wholly or partially owned by a parent company are treated as separate employers or as part of the parent contracting company depending upon the degree of their independence from the parent. Some of the factors to be considered in making this determination are (i) common ownership, (ii) common directors and/or officers, (iii) de facto exercise of control, (iv) unity of personnel policies emanating from a common source, and (v) the dependency of operations.
Id. Although the parties disagree over whether the D.O.L. regulations are substantive or interpretive, the difference in this case seems to be a difference without distinction, because both plaintiff and defendants rely on the regulations in urging the court to apply the law that each believes best benefits its point of view. It is this question of what law to apply in determining whether the parent can be held liable for the actions of a subsidiary that the court must initially confront.
I. The Appropriate Rule of Decision
As previously set forth, the D.O.L. regulations provide that subsidiaries which are wholly or partially owned by a parent company will be treated as separate employers depending upon the degree of their independence from the parent. This determination is made based on "existing legal rules" and the five factors enumerated in the regulation. While it is true that the defendant argues that these regulations do not have the force of law, both parties point to the Department of Labor's "supplementary information" for the interpretation of the meaning of "existing legal rules." See 54 Fed.Reg. 16045 (April 20, 1989). The Federal Register states:
The intent of the regulatory provision relating to independent contractors and subsidiaries is not to create a special definition of these terms for WARN purposes; the definition is intended only to summarize existing law that has developed under state corporations laws and such statutes as the NLRA, the Fair Labor Standards Act (FLSA) and the Employee Retirement Income Security Act (ERISA). The Department does not believe that there is any reason to attempt to create new law in this area, especially for WARN purposes, when relevant concepts of state and federal law adequately cover the issue. Thus, no change has been made in the definition. Similarly, the regulation is not intended to foreclose any application of existing law or to identify the source of legal authority for making determinations of whether related entities are separate....
Thus, the D.O.L. believes that to determine whether a subsidiary is sufficiently independent of the parent so as to negate the WARN liability of the parent, both state corporation law and federal common law as it relates to federal employment statutes should be evaluated in conjunction with the five factors enumerated in the regulation. It is apparent that the D.O.L. did not envision a conflict between state corporation law "alter ego" and "piercing the corporate veil" doctrines and the federal common law "single employer" doctrine. Yet an inherent difference in the interpretation of the parent/subsidiary relationship within the various spheres has been perceived. See Holcomb v. Pilot Freight Carriers, Inc., 120 B.R. 35, 43 (M.D.N.C.1990) (in federal question cases "Congress often adopts an expansive definition of [employer]. In such an instance, less importance is placed on the corporate form and the inquiry of who is an employer usually gives less respect to the corporate form when applying the common law alter ego doctrine.")
The defendants urge this court to formulate a rule of decision that is consistent with Third Circuit precedent by applying "federal common law alter ego factors." Defendants' reply memorandum at p. 8. The defendants' formulation of the federal common law alter ego test includes the criteria enumerated in cases that have evaluated federal labor statutes. See id. at p. 12 ("The reason for the DOL's citation to other federal labor statutes is not that they are to serve as the rule of decision in WARN cases. Rather, case law under these other statutes are to provide criteria for courts to consider along with traditional federal common law elements, since the former also arises out of the latter").
Alternatively, the defendant urges the court to utilize the D.O.L.'s suggested list of factors giving "due consideration to the federal common law factors." Id.
Although no court has decided the issue currently presented, the court believes that the most appropriate analysis of the issue includes a review of the Third Circuit cases that have been decided under the common law interpretation of "piercing the corporate veil" and "alter ego" doctrines, as well as the federal common law's "single employer" doctrine incorporated in the federal statutes enumerated above. See 54 Fed.Reg. 16045 (NLRA, FLSA and ERISA). For the most part, these cases have synthesized the relevant state common law considerations inherent in parent/subsidiary analysis. Additionally, this court will apply the five factors enumerated by the D.O.L. to evaluate further whether the parent can be held liable for the WARN Act violation of the subsidiary. While this approach may seem unduly cumbersome, it is imperative to keep in mind that the determination of whether a parent can be held liable for the acts of its subsidiary is a fact-specific inquiry. Allied Corp. v. Frola, 701 F.Supp. 1084, 1089 (D.N.J.1988) ("every case in which a piercing of the corporate veil is sought is sui generis and must be evaluated on its facts."). The court will undertake this examination by applying the undisputed facts, as presented by the parties, to the various standards set forth by the federal courts for a determination of whether to hold the parent liable in this case.
II. Application of Facts to the Various Tests
A. Third Circuit "Alter Ego" Doctrine
Primarily, it should be noted that the court is not engaged in a formal application of an established legal test. Phoenix Canada Oil Co. v. Texaco, Inc., 842 F.2d 1466, 1476 (3d Cir.1988) ("The relationship between parent and subsidiary corporations has been a fruitful source of litigation and although the case law on the subject is extensive, it is neither uniform nor clear.
Some decisions apply an agency theory to assess parental liability, others focus on an alter ego basis, and some speak in the terms of 'piercing the corporate veil.' "); American Bell, Inc. v. Federation of Tel. Workers, 736 F.2d 879, 886 (3d Cir.1984) (the tests for piercing the corporate veil are "imprecise in their various formulations"). Rather, the court is undertaking a fact-specific inquiry whereby the court must determine from a multiplicity of criteria whether the operations of the parent and subsidiary are so interrelated as to hold the parent liable for the violation of the WARN Act by the subsidiary.
Although New Jersey law does not provide the law of the case in this instance, an evaluation of the standards applied to pierce the corporate veil under state common law will be helpful in determining the federal standard to be applied. In State, Department of Environmental Protection v. Ventron Corp., 94 N.J. 473, 500, 468 A.2d 150 (1983), the New Jersey Supreme Court explained that the law of that state prevents the corporate veil from being pierced easily. Id. ("Except in the case of fraud, injustice, or the like, courts will not pierce a corporate veil."). The court stated:
We begin with the fundamental proposition that a corporation is a separate entity from its shareholders ... and that a primary reason for incorporation is the insulation of shareholders from the liabilities of the corporate enterprise.... Even in the case of a parent corporation and its wholly-owned subsidiary, limited liability will not be abrogated....
The court explained that a parent will not be held liable "unless the parent has abused the privilege of incorporation by using the subsidiary to perpetrate a fraud or injustice or otherwise to circumvent the law." Id. at 501, 468 A.2d 150. Thus, under the New Jersey common law it is difficult for a plaintiff to pierce the corporate veil.
The Third Circuit standard in common law cases for piercing the corporate veil, or the "alter ego doctrine" is also difficult for a plaintiff to meet. See American Bell, Inc., 736 F.2d at 887 (quoting Zubik v. Zubik, 384 F.2d 267, 272 (3d Cir.1967) "There must be 'specific, unusual circumstances' ")). The plaintiff bears the burden of convincing the court that it should invoke this "tool of equity" to "prevent fraud, illegality or injustice" or if allowing the parent to be shielded from liability "would defeat public policy or shield someone from public liability for a crime." Carpenters Health & Welfare Fund v. Kenneth R. Ambrose, Inc., 727 F.2d 279, 284 (3d Cir.1983) (quoting Publicker Indus. v. Roman Ceramics, Corp., 603 F.2d 1065, 1069 (3d Cir.1979)). The Third Circuit has delineated a nonexclusive list of factors that the court should look at to determine whether to disregard the corporate entity. See United States v. Pisani, 646 F.2d 83, 88 (3d Cir.1981). Adopting the standard utilized in the Fourth Circuit, the Pisani court explained that, in addition to determining whether the corporation is grossly undercapitalized, the court should also evaluate the following factors:
failure to observe corporate formalities, non-payment of dividends, the insolvency of the debtor corporation at the time, siphoning of funds of the corporation by the dominant stockholder, nonfunctioning of other officers or directors, absence of corporate records, and the fact that the corporation is ...