Opinions of the United
1994 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


12-6-1994

Stardyne, Inc. v. NLRB
Precedential or Non-Precedential:

Docket 94-3054




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         UNITED STATES COURT OF APPEALS
             FOR THE THIRD CIRCUIT
                  ____________

                  No. 94-3054
                  ____________

                STARDYNE, INC.,
                   Petitioner

                       v.

        NATIONAL LABOR RELATIONS BOARD,
                   Respondent

  United Steelworkers of America, AFL-CIO-CLC,
             Intervenor-Respondent

                  ____________

                  No. 94-3056
                  ____________

             JOHNSTOWN CORPORATION,
                   Petitioner

                       v.

        NATIONAL LABOR RELATIONS BOARD,
                   Respondent

The United Steelworkers of America, AFL-CIO-CLC,
             Intervenor-Respondent

                  ____________

                  No. 94-3096
                  ____________

        NATIONAL LABOR RELATIONS BOARD,
                  Petitioner

                       v.
                 JOHNSTOWN CORPORATION, and its
                   alter ego, STARDYNE, INC.,
                           Respondent

          United Steelworkers of America, AFL-CIO-CLC,
                     Intervenor-Respondent

          ON PETITION FOR REVIEW AND CROSS-APPLICATION
                 FOR ENFORCEMENT OF AN ORDER OF
               THE NATIONAL LABOR RELATIONS BOARD

                        (No. 6-CA-22363)
                      ____________________

                    Argued: September 12, 1994
      Before:   STAPLETON, ALITO, and LEWIS, Circuit Judges

                (Opinion Filed: December 6, 1994)

                      ____________________

                         MARK E. SCOTT, ESQ. (Argued)
                         P. O. Box 95
                         Bridgeville, PA 15017

                         Attorney for Stardyne, Inc.

                         CLARE M. GALLAGHER, ESQ. (Argued)
                         DOEPKEN KEEVICAN WEISS & MEDVED
                         PROFESSIONAL CORPORATION
                         37th Floor, USX Tower
                         600 Grant Street
                         Pittsburgh, PA 15219

                         Attorneys for Johnstown Corporation

                         FREDERICK C. HAVARD (Argued)
                         Supervising Attorney
                         MARILYN O'ROURKE, Attorney
                         National Labor Relations Board
                         Washington, D.C. 20570

FREDERICK L. FEINSTEIN
General Counsel
LINDA SHER
Acting Associate General Counsel
AILEEN A. ARMSTRONG
Deputy Associate General Counsel

                         Attorneys for the National Labor
                            Relations Board

                           DAVID I. GOLDMAN (Argued)
                           Assistant General Counsel
                           United Steelworkers of America
                           Five Gateway Center
                           Pittsburgh, PA 15222

                           Attorney for Intervenor


                        ____________________

                        OPINION OF THE COURT
                        ____________________


ALITO, Circuit Judge:


     Johnstown Corporation ("Johnstown") and Stardyne, Inc.

("Stardyne") have petitioned for review of an order of the

National Labor Relations Board ("the Board"), holding that they

violated Section 8(a)(1) and (5) of the National Labor Relations

Act ("the Act"), 29 U.S.C. § 158(a)(1) and (5), and the Board has

cross-petitioned for enforcement of its order.       The Board's order

was predicated on the conclusion that Johnstown and Stardyne were

"alter egos."    In reaching this conclusion, the Board did not

disturb a finding by the administrative law judge ("ALJ") that

Stardyne was not created to evade Johnstown's responsibilities

under the Act.    In addition, the Board found it unnecessary to

decide whether Johnstown and Stardyne constituted a "single

employer."

     In their petition for review, Johnstown and Stardyne

contend, first, that the Board's conclusion that they are alter

egos is inconsistent with the ALJ's undisturbed finding that
Stardyne was not created for the purpose of evading Johnstown's

obligations under the Act.   We disagree with this argument.

Johnstown and Stardyne next argue that the Board's holding on the

alter ego question is not supported by substantial evidence.

Again, we disagree.   Finally, Johnstown and Stardyne contend that

the Board's alter ego holding is inconsistent with Board

precedent to the effect that the alter ego doctrine is a "subset"

of the single employer doctrine.     We find this argument

meritorious.   We therefore grant the petition for review in part,

and we deny the Board's cross-petition for enforcement in part.

We remand to the Board for clarification of its precedents

concerning the relationship between the alter ego and single

employer doctrines.


                                I.

     In 1988, Johnstown, a manufacturer of steel products,

established an innovative laser welding operation at its main

facility in Johnstown, Pennsylvania.     Scientists affiliated with

Pennsylvania State University headed the project, and Johnstown

also assigned ten of its production and maintenance employees to

work on the laser operation.   These employees were members of a

bargaining unit represented by the United Steelworkers of America

(the "union"), and they continued to be covered by Johnstown's

collective bargaining agreement with the union when they were

transferred to the laser operation.

     By 1989, the laser operation was experiencing significant

financial problems.   Although Johnstown believed that the
operation could become profitable, the company was not prepared

to spend any more money on it.    Moreover, the scientists who were

working on the project were demanding a share of the operation.

In order to address these problems, Johnstown decided to sell the

laser operation for approximately $2,550,000 to Stardyne, a newly

created corporation that was jointly owned by Johnstown and

officers of the new company.1    To finance the purchase, Stardyne

borrowed three million dollars.    After the arrangements for the

spin-off had been made, management representatives met with the

Johnstown production and maintenance employees who were

interested in continuing to work on the laser operation.    All but

one of these employees accepted a job with Stardyne, but under

terms different from those contained in Johnstown's collective

bargaining agreement.

     After learning that management had negotiated directly with

and hired production and maintenance employees from Johnstown,

the union wrote a letter to Stardyne requesting that Stardyne

recognize the union as the collective bargaining representative

for these employees.    Stardyne, however, refused this request,

and the union filed unfair labor practice charges with the Board.

In response to these charges, the General Counsel filed a

complaint alleging that Johnstown and Stardyne were a "single

employer" and/or "alter egos," or at a minimum, that Stardyne was

1
 . Shares of Stardyne were distributed at this time as follows:
40% to Johnstown; 20% to Jack Sheehan (Chairman of the Board and
majority stockholder in Johnstown); 20% to Ed Sheehan (Jack
Sheehan's brother and CEO of Stardyne); and 20% to Stardyne's
other officers.
a "successor" to Johnstown.    The complaint charged that Johnstown

and Stardyne had violated Section 8(a)(1) and (5) of the Act, 29

U.S.C. § 158(a)(1) and (5), by bargaining individually with

employees represented by the union, by imposing new working

conditions on these employees, and by repudiating its collective

bargaining agreement with the union.

        After notice and a hearing, an ALJ held that Johnstown and

Stardyne were guilty of the unfair labor practices charged in the

complaint.    The ALJ turned first to the question whether

Johnstown and Stardyne constituted a single employer or alter

egos.    When two entities are found to be a single employer, one

entity's collective bargaining agreement covers the other entity

as well, provided that the two entities' employees constitute a

single appropriate bargaining unit.    See South Prairie Constr.

Co. v. Local No. 627, Int'l Union of Operating Engineers, 

, 805 (1976).    However, if two entities are found to be

alter egos, a collective bargaining agreement covering one entity

is automatically deemed to cover the other.     Howard Johnson Co.

v. Detroit Local Joint Executive Bd. Hotel & Restaurant
Employees, 

, 259 n.5 (1974); NLRB v. Omnitest

Inspection Services, Inc., 

, 122 (3d Cir. 1991).

        The ALJ listed the determinative criteria for a single

employer finding as "interrelations of operations, common

management, centralized control of labor relations and common

ownership."    

, 178 (1993).   The ALJ found that

there was common ownership but no interrelation of operations,

and he found that the evidence was unclear regarding the
participation of Johnstown's management in day-to-day operations

and labor relations decisionmaking at Stardyne.     

     On

balance, the ALJ refused to hold that Johnstown and Stardyne were

a single employer.

       By contrast, the ALJ found that Johnstown and Stardyne were

alter egos.    The ALJ observed that "[t]he Board's criteria for

finding that two entities are alter egos are somewhat broader

than its standards for finding a single employe relationship."

to the factors considered in deciding whether

two entities constitute a single employer, the ALJ noted, other

relevant factors in making an alter ego determination include

"substantially identical business purposes, operations,

equipment, customers and supervision."   

consideration," the ALJ noted, "is whether the new company was

created `to evade responsibilities under the Act.'"        

Continental Corp., 

(1982)).          In

this case, the ALJ found that Johnstown and Stardyne had

substantially identical ownership, business purposes, operations,

equipment, customers, supervision, and employees.    

refused to find that Stardyne was created to evade Johnstown's

obligations under the Act,2 but the ALJ nevertheless concluded,
2
.     The ALJ stated:

       When Stardyne went into operation at the end of that
       year, twelve of [Johnstown's] 390 employes were
       employed by Stardyne. It seems illogical to me that
       Johnstown would have staged such an elaborate charade,
       involving the borrowing of $3,000,000; considerable
       investment in time and money by the Ed Sheehans,
       father and son, who became officers in Stardyne and by
       Jack Sheehan, who became a director; what must have
based on the totality of the factors, that Johnstown and Stardyne

were alter egos.   

  Relying on these same factors, the

ALJ also concluded that Stardyne was Johnstown's successor and

was therefore obligated to recognize and bargain with the union

that represented Johnstown's employees.3   

the substance of the charges in the complaint,

the ALJ held that the two companies had violated Section 8(a)(1)

and (5) of the Act, 29 U.S.C. § 158(a)(1) and (5), when

management representatives bypassed the union, dealt directly

with the Johnstown employees assigned to the laser project, and

induced them to enter into separate employment agreements.    The

ALJ further held that the companies had violated Section 8(a)(1)

and (5) by unilaterally altering these employees' working

conditions.   The ALJ therefore recommended that the companies be

ordered to recognize and bargain with the union, to abide by the
(..continued)
     been substantial sums of money paid to accountants,
     bankers and lawyers to set up the new corporation,
     arrange for loans and bank accounts, incorporate
     Stardyne and draft numerous documents such as
     agreements of purchase and sale, and, complex long-
     term lease, where in the end, the object was to carve
     out a unit of twelve or so people from the bargaining
     unit. Whatever long-term goals Johnstown may have
     envisioned for Stardyne, or may have now, it does not
     seem to me to have been a businesslike decision to
     incur all of these expenses for such a meager 

.
3
 . A successor, although not bound by its predecessor's
collective bargaining agreement, is required to recognize and
bargain with the union that represented its predecessor's
employees. NLRB v. Burns Int'l Security Servs. Inc., 

, 281 (1972); Systems Management Inc. v. NLRB, 

,
301 (3d Cir. 1990).
terms of the collective bargaining agreement, and to reimburse

any employees who had been injured as a result of any failure to

abide by this agreement. 

        Both Johnstown and Stardyne filed exceptions to the ALJ's

decision with the Board, but the Board adopted the ALJ's

recommended order.     The Board concluded that it was unnecessary

to review the ALJ's determination that Johnstown and Stardyne

were a single employer, because the ALJ was correct in finding

that "Stardyne is a successor to Johnstown [] as well as an alter

ego."    

  The Board so held even though it agreed with

the ALJ that "there [was] not sufficient evidence to establish

that Stardyne was created so that Johnstown could `evade

responsibilities under the Act.'"     

        Johnstown and Stardyne independently petitioned this court

for review, and the Board filed a cross-application for

enforcement of its order.     In their petitions for review, the

companies each argue that they cannot be alter egos as a matter

of law because the Board expressly found that Stardyne was not

created to evade responsibilities under the National Labor

Relations Act.    They also argue that the Board's finding that

they were alter egos is not supported by substantial evidence.

Last, Johnstown and Stardyne argue that under established Board

precedent, the ALJ's undisturbed finding that they were not a

single employer precluded a finding that they were alter egos.

They do not contest the Board's conclusion that Stardyne was

Johnstown's successor.
                               II.

     A.   Application of the National Labor Relations Act to

cases involving a reorganization of an employer has proven to be

vexing.   In order to deal with such cases, the Board developed

its alter ego doctrine, which was first recognized by the Supreme

Court in Southport Petroleum Co. v. NLRB, 

, 106
(1942).

     In Southport, after the Board had issued a remedial order

against a company, the company was dissolved and reorganized, and

the Board then sought enforcement against the new corporation.

The new shareholders sought dismissal of the order because the

predecessor company had been dissolved, but the Supreme Court

rejected their claims, noting that "[w]hether there was a bona

fide discontinuance and a true change of ownership--which would

terminate the duty of reinstatement created by the Board's order-

-or merely a disguised continuance of the old employer . . . is a

question of fact to be resolved by the Board . . . ."   

Court later explained in Howard 

n.5:
     [Alter ego] 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 its predecessor.

     Following Southport and Howard Johnson, the Board, in
Crawford Door Sales Co., 

(1976), enunciated

seven objective factors that it has consistently applied in

evaluating whether two companies are alter egos.   These factors
are whether "the two enterprises have `substantially identical'

management, business purpose, operation, equipment, customers,

and supervision, as well as ownership."   

does not

require the presence of each factor to conclude that alter ego

status should be applied.   See, e.g., Fugazy Continental 

.

     B.   A major issue in this case is whether the Board, when

it seeks to apply the alter ego doctrine, must find that the

change in ownership was motivated by an intent to avoid

obligations under the National Labor Relations Act.   This issue

has yielded no consensus among the courts of appeals that have

considered it.4   The Board, however, does not require a finding
4
 . Generally, the circuits have taken three different
approaches. See generally Gary MacDonald, Labor Law's Alter Ego
Doctrine: The Role of Employer Motive in Corporate
Transformations, 

. Rev. 1024, 1039-52 (1988) (surveying
the positions taken by the courts of appeals). Both the First
Circuit and Eighth Circuits have held that illicit intent is the
critical inquiry in an alter ego determination. Penntech Papers,
Inc. v. NLRB, 

, 24 (1st Cir.), cert. denied, 

(1983); Iowa Express Distribution, Inc. v. NLRB, 

, 1311 (8th Cir.), cert. denied, 

(1984). The
Second, Fifth, Sixth, Seventh, Ninth, and District of Columbia
Circuits have held that intent is not essential to the imposition
of alter ego liability but is a factor that the Board may take
into consideration. Goodman Piping Prods. v. NLRB, 

,
11 (2d Cir. 1984); Carpenters Local Union No. 1846 v. Pratt-
Farnsworth, Inc. 

, 508 (5th Cir. 1982), cert. denied,

(1983); NLRB v. Allcoast Transfer, Inc., 

, 581 (6th Cir. 1986); NLRB v. Bell Co., 

, 1268
n.4 (7th Cir. 1977); Tanaka Constr., Inc. v. NLRB, 

,
1033 (9th Cir. 1982); NLRB v. Tricor Prods., 

, 270
(10th Cir. 1980); Fugazy Continental Corp. v. NLRB, 

, 1419 (D.C. Cir. 1984). Finally, the Fourth Circuit has
adopted a "reasonably foreseeable benefit" standard that focuses
on "whether the transfer resulted in an expected or reasonably
foreseeable benefit to the old employer related to the
elimination of its labor obligations." Alkire v. NLRB, 

, 1019-20 (4th Cir. 1983).
of "intent to evade responsibilities under the Act," but treats

such intent as an additional factor to be considered (in addition

to the Crawford Doors factors) when determining alter ego status.

See, e.g., Hiysota Fuel Co., 

, 763 n.2 (1986);

Fugazy Continental 

; Advanced

Electric, Inc., 

, 1002 (1984).

       In deciding whether the Board's position should be

sustained, we apply the standards set out by the Supreme Court in

Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc.,

(1984).   See ABF Freight Systems, Inc. v. NLRB, 

, 839 (1994); Lechmere, Inc. v. NLRB, 

,

847-48(1992); Resorts Int'l Hotel Casino v. NLRB, 

,

1555 (3d Cir. 1993).   We first ask "whether Congress has directly

spoken to the precise question at issue."    

.   "If the intent of Congress is clear, that is the end of the

matter."   

is not, we may not "simply impose [our] own

construction on the statute."   

the statute is

silent or ambiguous with respect to the specific issue, the

(..continued)

    The commentators who have discussed this issue are also
divided. Compare Frederick Slicker, A Reconsideration of the
Doctrine of Employer Successorship--A Step Toward a Rational
Approach, 

. Rev. 1051, 1064 (1973) (arguing for an
intent based standard); Comment, Bargaining Obligations After
Corporate Transformations, 54 N.Y.U. L. Rev. 624, 638 (1979)
(same) with Stephen Befort, Labor Law and the Double Breasted
Employer: A Critique of the Single Employer and Alter Ego
Doctrines and a Proposed Reformulation, 67 Wisc. L. Rev. 67, 101
(1987) (arguing against requiring intent); Gary MacDonald, Labor
Law's Alter Ego Doctrine: The Role of Employer Motive in
Corporate Transformations, 

. Rev. 1024, 1056 (1988)
(same).
question for the court is whether the agency's answer is based on

a permissible construction of the statute."    

; see Pauley v. Bethenergy Mines, Inc., 

, 2534

(1991).

     In the present case, it is clear that Congress has not

"directly spoken to the precise question at issue."     

.   Section 8(a) of the National Labor Relations Act,

29 U.S.C. § 158(a), makes it an unfair labor practice for an

"employer" to engage in certain practices, including those

charged in this case, i.e., interfering with employees in the

exercise of their rights under Section 7 of the Act, 29 U.S.C. §

157, and refusing to bargain with their employees'

representatives.   29 U.S.C. § 158(a)(1) and (5).   Section 2(2) of

the Act, 29 U.S.C. § 152(2), defines the term "employer" broadly,

stating that it "includes any person acting as an agent of the

employer, directly or indirectly . . . ,"   and the use of the

term "includes" clearly indicates that this definition was not

meant to be comprehensive.   Therefore, the language of the Act

does not dictate the definition of an alter ego.

     The Board, however, is charged with the responsibility of

interpreting and enforcing the Act.   NLRB v. Curtin Matheson
Scientific, Inc., 

, 786-87 (1990); NLRB v. Erie

Resistor Corp., 

, 236 (1963).     Thus, the Board's

alter ego policy is properly viewed as a gap-filling measure,

adopted through case-by-case adjudication, to flesh out the

concept of an "employer" under the relevant provisions of the
Act.5    See Morton v. Ruiz, 

, 231 (1974) ("The power

of an administrative agency to administer a congressionally

created and funded program necessarily requires the formulation

of policy and the making of rules to fill any gap left,

implicitly or explicitly, by Congress")

        Although the Act does not compel the Board's alter ego

test, we defer to that test because it is consistent with the

purposes and policies of the Act. See 

.

We recognize the "Board's special function of applying the

general provisions of the Act to the complexities of industrial

life."    Erie 

; see 29 U.S.C.A. § 156.

In the present context, determining the role of intent in alter

ego analysis involves a policy choice requiring a balancing of,

on the one hand, an employer's "freedom to contract . . .

includ[ing] the right to transfer its assets, reorganize its

business or close a portion thereof without imposing on its

vendee the obligation to adopt its labor contract," 

(Sloviter, J., dissenting), and, on the other, the

desire to protect employees from "sudden change[s] in the

employment relationship," John Wiley & Sons, Inc. v. Livingston,

(1964), and to "prevent employers from evading




5
 . See In re Goodman, 

, 602-03 (2d Cir. 1989)
(holding that the question of whether an employer is an alter ego
of a prior employer for purposes of liability under the Act is a
"question of substantive federal labor law" to be determined by
the Board).
obligations under the Act by merely changing or altering their

corporate form."    

.6

     We view the Board's resolution of this conflict as

consistent with the Act.    First, it can be argued that the

Board's policy, which relies primarily on an examination of

objective criteria, provides for easier and more consistent

application of the Act than one in which intent is an essential

element.    It may be difficult to determine intent when there are

facially legitimate business reasons that support a change in

corporate form.    See 

.   Accordingly, the

Board's objective test arguably serves to prevent "industrial

strife and unrest," 29 U.S.C. § 151, by restricting the ability

of employers to use a pretext in order to avoid their labor

obligations.    Second, the Board's policy can be defended on the

ground that it provides a degree of protection for the legitimate

expectations of workers who enter into a collective bargaining

agreement with the understanding that it will continue to apply

so long as they are working for what they regard as the "same"

employer.    It can also be argued that the Board's policy

furnishes this protection while at the same time generally

6
 .  As the Supreme Court in United States v. Shimmer, 

, 383 (1961), made clear, it is the agency's prerogative to
choose between two competing, justifiable policy considerations:

     If this choice represents a reasonable accommodation of
     conflicting policies that were committed to the
     agency's care by the statute, we should not disturb it
     unless it appears from the statute . . . that the
     accommodation is not one that Congress would have
     sanctioned.
permitting changes in ownership of employers without saddling the

successor with collective bargaining agreements to which they did

not agree.   See 

.7,   In this way, the

Board's rule can be said to promote the Act's goal of encouraging

the use of collective bargaining arrangements as a way to balance

economic bargaining power.8   See 29 U.S.C. § 151.   In short,

while we are by no means sure that we would select the Board's

test if we were choosing on our own, we find that test to be a

permissible construction of the Act.

     C.    Johnstown and Stardyne argue that the Board's

interpretation of the Act is not controlling because our court

has already held that intent is a necessary element in an alter

ego determination.   A careful review of the law of this circuit,

however, indicates that we have not definitively resolved this

issue.

     Our court first addressed the role of intent in this

context in NLRB v. Scott Printing Corp., 

(3rd Cir.

1979).    In that case, Scott Printing sold one portion of its

business, the composing room, to two employees, 

and a

divided panel of our court sustained the Board's conclusion that

the new company was an alter ego of the original company and was


7
 . Nor does the Act prevent an employer from going out of
business. See Textile Workers Union v. Darlington Manufacturing
Co., 

, 272 (1965).
8
 . The reasonableness of the Board's policy is further supported
by the fact that it has been adopted by the majority of the
circuits that have addressed the issue. See supra note 4.
therefore obligated under the Act to assume its collective

bargaining obligations, 

    In support of its

holding, the majority noted that operation of the composing room

remained unchanged after the sale, that no rent was paid, and

that there was substantial intermingling in the use of supplies

and support staff.     

  As for the requirement of

intent, the majority stated: "Assuming without deciding in this

case the General Counsel must prove that Scott Printing intended

to evade its duty to bargain, we find that there is substantial

evidence to support the ALJ's conclusion."      

(emphasis

added).    Thus, although Judge Sloviter argued vigorously in

dissent that antiunion animus or an intent to evade labor

obligations is required to support a finding that two entities

are alter egos, 

the majority did not reach this

question.

        Our court again found it unnecessary to resolve this

question in NLRB v. Al Bryant, Inc., 

(3rd Cir.

1983), cert. denied, 

(1984).      There, we affirmed a

Board decision holding that two construction companies were alter

egos.    

  We noted the presence of objective factors

indicative of alter ego status, such as shared space, assumption

of debts, and the employment of the same workers.     

intent, we noted:      "[I]t is significant, if not crucial, that

[the successor company] was created after the filing of unfair

labor practice charges against the [predecessor companies] . . .

."   

     We again discussed the alter ego question in NLRB &

Omnitest Inspection Services, Inc., 

(3rd Cir. 1991),

where we upheld the Board's determination of alter ego status

based on the substantial identity of the two businesses.    On the

question of intent, we first stated:
     For an alter ego relationship to exist, a purpose to
     avoid the old employer's labor obligations under a
     collective bargaining agreement or under the Act must
     underlie the formation of the new employer. Fugazy
     Continental 

.

  While this statement appears to support the argument

advanced by Johnstown and Stardyne in this case, we do not

interpret Omnitest as having conclusively resolved the question

at issue.   It is noteworthy that the previously quoted statement

from the Omnitest opinion was supported solely by a citation to

Fugazy Continental 

.   In Fugazy

Continental Corp., after reviewing the objective factors that

must be considered in making an alter ego determination, the

Board added:
     We must also consider whether the purpose behind the
     creation of the alleged alter ego was legitimate or
     whether, instead, its purpose was to evade
     responsibilities under the 

(emphasis added) (footnote omitted).

Moreover, other language in the Omnitest opinion suggests that no

single factor is essential to a determination that two entities

are alter egos.   After listing the factors that are relevant, the

court wrote:
     None of these factors, however, "taken alone, is the
     sine qua non of alter ego status." Fugazy Continental
     

; Woodline Motor
     

, enforced in relevant
     

. Instead, the sum total of
     the factors, viewed together, help determine whether
     the two employers are "`the same business in the same
     market.'" Fugazy Continental 

(quoting International Harvester Co. & Muller
     International Trucks, Inc., 

, 798
     

.   Later, the court reiterated:

     As we have explained, no one factor, "taken alone, is
     the sine qua non of alter ego status." Fugazy
     Continental 

.

  These statements, coupled with the court's repeated

reliance on Fugazy Continental Corp., suggest that the court did

not intend to go beyond the proposition endorsed by the Board in

Fugazy Continental Corp., viz., that an intent to evade

responsibilities under the Act is a factor that must be

considered.

     Furthermore, we believe that the Omnitest court's holding -

- that the Board's alter ego finding was supported by substantial

evidence -- is consistent with this interpretation.   The Board's

finding was based on numerous factors (including an intent to
evade obligations under the Act), and our court found that the

Board's findings concerning these multiple factors were supported

by substantial evidence.   Nothing in our opinion, with the

possible exception of the first statement quoted above, suggests

that the finding of an intent to evade responsibilities under the

Act was critical to our holding.   For all of these reasons, we do

not interpret Omnitest as binding circuit precedent for the
proposition that an alter ego relationship cannot exist without

an intent to escape obligations under the Act.

        We most recently referred to the alter ego doctrine in

Eichleay Corp. v. International Assoc. of Bridge, Structural and

Ornamental Iron Workers, 

(3d Cir. 1991), cert.

dismissed, 

(1992).    Eichleay Corporation, a union

shop construction company, was a signatory to nationwide

collective bargaining agreements known as NMAs.    After a non-

union shop subsidiary, Eichleay Constructors, Inc. ("ECI"),

entered into a joint venture to renovate a steel mill, several

unions filed grievances against Eichleay, claiming that it was

performing work on the renovation project in violation of the

NMAs.    The arbitration panel issued awards in favor of the

unions, finding that Eichleay was "present at the project" and

was obligated to apply the NMAs to work performed on the project.

, 1058 n.11; Eichleay App. at 461-62.      The

district court vacated the awards, but we directed that they be

confirmed in part.

        We interpreted part of the awards to be based on the theory

that the NMAs impliedly required Eichleay to refrain from setting

up another "corporation to which it transferred work to avoid the

(citation omitted).   Applying the

"extremely deferential" standard employed in reviewing

arbitration awards, 

we held that there was
sufficient evidence to support the portion of the awards based on

this theory, 

   Thus, in Eichleay we sustained an

arbitration award based on the breach of an implied contractual
obligation.   In reviewing this award, it was not necessary to

interpret or apply the National Labor Relations Act or the alter

ego doctrine that the Board has developed pursuant to the Act.

     Nevertheless, apparently because the contract question at

issue implicated the nature of the relationship between Eichleay

and ECI, our opinion discussed the Board's alter ego doctrine,

and in the course of that discussion our opinion made several

statements that appear to support the view that the Board cannot

find an alter ego relationship unless the employer intended to

evade its obligations under the Act. We stated:
     The ultimate focus of alter ego analysis, however, is
     "the existence of a disguised continuance or an
     attempt to avoid the obligations of a collective
     bargaining agreement through a sham transaction or a
     technical change in 

(quoting Al 

) (quoting

Carpenters Local, 

at 508).   Moreover, after noting

that the Board, in an order not under review by our court, had

held that Eichleay and the ECI were a single employer, we said:
     The additional finding required for alter ego status,
     that the second company be formed to avoid the
     responsibilities of the first company's collective
     bargaining agreement, is also supported in this 

.

     Although these statements seem to support the arguments

advanced by Johnstown and Stardyne here, we do not regard them as

controlling, since they were clearly dicta rendered in a

substantially different context.   While it is a tradition of our

court that one panel may not overrule a decision of a prior

panel, that does not mean that important questions, such as the
one before us, should be decided based on dicta such as the

statements quoted above.

     We therefore find that the Board's construction of the Act

is not in conflict with any prior decision of our court, and

since the Board's interpretation of the Act is reasonable, it

should be accorded deference.


                                III.

     We now consider whether the record supports the Board's

application of its policy to the facts of the case.     The

determination whether two companies are alter egos is a question

of fact for the Board, 

, and we must,

of course, accept the Board's factual determinations and

reasonable inferences derived from factual determinations if they

are supported by substantial evidence.     29 U.S.C. § 160(e);

Universal Camera Corp. v. NLRB, 

, 488 (1951); 

;    NLRB v. Eagle Material Handling, Inc., 

, 164 n.6 (3d Cir. 1977).    Consequently, we are not free to

substitute our view of the record even if we would have reached

different conclusions on de novo review.    Universal 

.

     As discussed above, in order to determine whether there has

been a true change in ownership or merely a disguised

continuance, the Board looks to whether the new and old employers

share "'substantially identical' management, business purpose,

operation, equipment, customers, and supervision, as well as

ownership."    Crawford 

.   In addition,
as noted, an intent to evade the Act is an important, but not an

essential, factor.   See, e.g., Hiysota 

n.2.   The main focus of the inquiry is to determine whether the

two employers are the same business in the same market.

International Harvester Co. & Muller Int'l Trucks, Inc., 

, 798 (1980).

       We find that there is substantial evidence on the record to

uphold the Board's conclusion that most of the Crawford Doors

factors are present in this case.   Although the record does not

indicate that Johnstown actually managed Stardyne after the spin-

off, the record does support the Board's finding of a continuity

in the management and supervision of the laser operation.

Several Stardyne managers, including Stardyne's president,

managed the laser operations at Johnstown.   See Al 

(alter ego finding where old managers continued to

perform same function in new company).

       The Board's finding of a continuity of business purpose is

also supported in the record.   Although Stardyne argues that

laser production took a more commercial focus under its

leadership, the record supports the Board's view that this was a

basic purpose of the facility under Johnstown.   Likewise, the

Board's conclusion that a substantial identity of operation

existed is also supported in the record.   The record clearly

indicates that the day-to-day operation of the laser remained

nearly unchanged after the transition.   As to identity of

equipment, the record indicates that Stardyne used mostly the

same equipment, except for one new laser, as was used at the
Johnstown facility and that Stardyne's operation is located in

the exact same place where Johnstown operated the laser

facility.9   See 

(alter ego finding when

new business stayed in the same location).    The record also

indicates an overlap in customer base between the two operations.

Finally, the Board correctly concluded that Johnstown and

Stardyne had substantially identical ownership since Johnstown

owned 40% of Stardyne and Jack Sheehan, Johnstown's principal

stockholder, also owned 20% of Stardyne. App. 171-72, 480-81; see

Scott 

(alter ego finding where previous

owners retained substantial control after sale of business); see

also Haley & Haley, Inc., 

, 652 (1988), enforced

(9th Cir. 1989) (substantial identity of ownership

found in parent-subsidiary relationship).    Thus, although there

was no finding that Johnstown exercised centralized control over

the management of Stardyne, the remainder of the Crawford Doors

factors are supported by the record.   The lack of an intent to

evade obligations under the Act, weighs against a finding of

alter ego status.   Nevertheless, the record as a whole contains

substantial evidence supporting the Board's alter ego finding.




9
 .   The record also indicates that Stardyne used Johnstown's
address and retained its previous telephone number.
                                 IV.

     The companies' final argument is that Board precedent

prevents a finding of alter ego status because of the ALJ's

undisturbed finding that the companies were not a single

employer.10    In making this argument, the companies rely on the

Board's decision in Gartner-Harf Co., 

, 533 n.8

(1992), which stated that "in Board law, alter ego is in effect a

subset of the single employer concept . . . ."      The companies

argue that because they do not constitute a single employer, they

cannot be alter egos.

     Putting aside Gartner-Harf, we see no reason why the alter

ego doctrine must be considered a subset of the single employer

doctrine.     Although these two doctrines are related, the Board

has traditionally taken the position that they are distinct,

see, e.g., Dahl Fish Co., 

, 1086 (1986).       See

also Al 

.       See generally Iowa 

(explaining difference between the two doctrines).11

The single employer doctrine generally applies to situations

where two entities concurrently perform the same function and one


10
 . The Board did not reach the ALJ's single employer
determination because it found that the ALJ's alter ego finding
was sufficient to support the ALJ's 

.
11
 .    Another difference between the two doctrines is that a
finding that two employers are a single employer does not end the
analysis. The two groups of employees must still be determined
to be an appropriate single unit in order for the collective
bargaining agreement of one to apply to the other.     See, e.g.,
South Prairie 

.
entity recognizes the union and the other does not.     Gilroy Sheet

Metal, 

n.1 (1986); Iowa 

; Carpenters 

.   In making a single

employer determination, the Board uses four criteria:

interrelation of operations, common management, centralized

control of labor relations, and common ownership.   See Radio &

Television Broadcast Technicians Local 1264 v. Broadcast Serv. of

Mobile, Inc., 

, 256 (1965) (per curiam); Al 

; see generally McDonald, supra at 1033 n.66.    The

alter ego doctrine, by contrast, examines seven objective

criteria plus intent and usually comes into play when a new legal

entity has replaced the predecessor (or at least the unionized

portion of the predecessor).   See Howard 

n.5.

       While we are thus unsure why the alter ego should be

regarded as a subset of the single employer doctrine, the Board

in Gartner-Harf appears to have so held.   Gartner-Harf involved

the question whether a company was the alter ego of the entities

that took over its business.   The ALJ found that the company was

the alter ego of these entities and, although he indicated that

the employers in question could be considered a "single

employer," he did not expressly find that they 

.   The Board reversed the ALJ, explicitly finding

that the companies in question were not a "single employer."    

  The Board noted that the General Counsel had admitted in

his brief that "in Board law, alter ego is in effect a subset of

the single employer concept (i.e., not all single employers are
alter egos, but all alter egos by definition met [sic] the

criteria for single employer status)."    

n.8.    The

Board then disposed of the General Counsel's alter ego claim by

stating that it failed "a fortiori" since the companies did not

constitute a single employer.   

Board added:

"We also note that the record does not show that the Respondent

is merely a disguised continuance of the old employer."      

case, the Board majority attempted to distinguish

Gartner-Harf.   Stating that it refused to "engage in extended

dicta on theoretical differences between alter ego and single

employer 

n.3, a majority of the

Board asserted that Gartner-Harf did not apply because in

Gartner-Harf, unlike this case, the record showed that there was

no disguised continuance. 

Board majority, without

repudiating Gartner-Harf's teaching concerning the relationship

between the single employer and alter ego doctrines, held that

Johnstown and Stardyne, although apparently not a single

employer, were nevertheless alter egos.

     We cannot accept the Board majority's reasoning.       If it is

true, as Gartner-Harf held, that "all alter egos by definition
[meet] the criteria for single employer 

n.8, and if it is true, as the ALJ in this case found, that

Johnstown and Stardyne are not a single employer, then it must

follow that Johnstown and Stardyne are not alter egos.      On the

other hand, if Johnstown and Stardyne are alter egos, as the

Board held, then either Gartner-Harf's holding with respect to
the relationship between the single employer and alter ego
doctrines was wrong or the ALJ's finding that Johnstown and

Stardyne are not a single employer was wrong.    For these reasons,

the Board majority's failure to follow or repudiate Gartner-

Harf's teaching is troubling to us, as it was to the Board member

who concurred in this case.     

(Member

Raudabaugh, concurring).    We are further disturbed by the Board's

subsequent decision in Teamsters Local 776, 

(1994).    In that case, the Board affirmed the judgment of an ALJ

who explicitly relied on Gartner-Harf's reasoning in deciding a

question of alter ego status.    Teamsters 

.

        We hold that the Board's failure in this case to follow or

repudiate its prior holding in Gartner-Harf was arbitrary and

capricious and a violation of the Administrative Procedures Act.

5 U.S.C. § 706(2)(A).12    It is well established that even when an

agency is creating policies to fill a gap in an ambiguous

statute, the agency has a responsibility to explain its failure

to follow established precedent.    Atchison, Topeka & Santa Fe Ry.

v. Wichita Bd. of Trade, 

, 807-09 (1973); King
Broadcasting Co. v. FCC, 

, 470 (D.C. Cir. 1988).     The

12
 .   Section 706 states:

            The reviewing court shall . . .

             (2) hold unlawful and set aside agency action,
        findings, and conclusions found to be . . .

                     (A) arbitrary, capricious, an abuse of
            discretion, or otherwise not in accordance with
            law.
"requirement that the Board provide analysis and findings serves

as a prophylaxis against an arbitrary exercise of the Board's

power."   NLRB v. Armcor Industries, 

, 245 (3d Cir.

1976) (quoting Walgreen Co. v. NLRB, 

, 1018 (7th

Cir. 1975)).   This not to say that the Board is forever bound by

prior precedent, but only that when it departs from controlling

precedent, it must present a reasoned explanation for the

departure. See NLRB v. J. Weingarten, Inc., 

, 265-66

(1975) (Board may change policies through evolving case law).      As

the Supreme Court has explained:
     [An] agency may flatly repudiate those norms,
     deciding, for example that changed circumstances mean
     that they are no longer required in order to
     effectuate congressional policy. Or it may narrow the
     zone in which the rule will be applied, because it
     appears that a more discriminating invocation of the
     rule will best serve some congressional policy. Or it
     may find that, although the rule in general serves
     useful purposes, peculiarities of the case before it
     suggest that the rule not be applied in that case.
     Whatever the ground for the departure from prior
     norms, however, it must be clearly set forth so that
     the reviewing court may understand the basis of the
     agency's action and so may judge the consistency of
     that action with the agency's mandate.


Atchison, Topeka & Santa Fe 

.

     Here, the Board's explanation for its failure to apply

Gartner-Harf fell short of this standard, and we therefore remand

this case to the Board so that it can reconcile the contradictory

case law that it has developed.   We express no view on how this

resolution should be made, but hold only that the Board must

provide a reasoned explanation for its refusal to apply Gartner-

Harf to this case.
                                V.

     The Board's finding that Stardyne is Johnstown's successor

is unchallenged on appeal, and therefore we grant the Board's

application to enforce the portion of its order requiring

Stardyne to recognize and bargain with the union that represents

Johnstown's employees.   See page 8, footnote 

.   Due to

the need for a remand on the Gartner-Harf issue, however, we

grant the companies' petition for review and deny the Board's

petition for enforcement of the remainder of the order, and we

remand this case to the Board for further proceedings.