Archive for the ‘Business Law’ Category

Common Ownership of HVAC Firms Not Enough to Pierce Corporate Veil

by HDlawblog Posted: Tuesday, 7/9/2013

Earlier this year in Sheet Metal Workers’ Int’l Ass’n Local 19 v. Main Line Mech. Inc., the Eastern District of Pennsylvania decided a case that is important to members of the construction industry who own multiple companies.  In the aforementioned case, two HVAC firms shared common ownership and a union that had a contract with one of the HVAC firms was trying to piece the corporate veil of the other HVAC firm based upon the common ownership.  The court ruled against the union, holding that although the HVAC firms shared common ownership, the corporate veil of the HVAC firm that never entered into a contract with the union could not be pierced because the companies did not share employees and the companies targeted different types of HVAC work.  The facts of the case, which I discuss in greater detail below, are quite interesting.

  1. HVAC Company No. 1 Enters Into Collective Bargaining Agreement With Union

Main Line Mech. Inc. was a Pennsylvania based HVAC firm.  Several years after its incorporation, Main Line entered into a collective bargaining agreement with Sheet Metal Contractors Association, which contract contained a number of provisions that required Main Line to perform sheet metal work using only union-represented workers.  The contract also forbid Main Line from setting up another business to evade contract obligations.  Leonard Santos served as the president of Main Line and was a minority shareholder in the firm while the majority of the stock was owned by his wife.

  1. HVAC Company No. 2 Does Business Outside of the Union’s Jurisdiction

Santos and his wife also owned another HVAC firm referred to as “Sands.”  Sands and Main Line maintained an office at the same location.  Santos formed Sands to seek business in Northern New Jersey outside the union’s jurisdiction.  Santos and his wife performed work at Sands that was similar to their activities at Main Line, but the court said other than the couple, no one worked for both companies at the same time.

  1. Separation of the HVAC Businesses

Despite the common ownership, Sand and Main Line kept separate unconnected offices and equipment, along with separate finances and corporate records.  Sands competed for public projects in New Jersey requiring payment of prevailing wages, and the court found that the nonunion firm never undertook any contracts within the union’s jurisdiction while Main Line was an active HVAC installation business.

  1. The Nature of HVAC Company No. 1 Changes

Unfortunately, Main Line lost a job in Pennsylvania and was sued for poor performance.  Subsequently, the company gave up HVAC work and limited itself to buying and reselling equipment.

  1. Union officials spot HVAC Company No. 1’s equipment being used by HVAC Company No. 2

Thereafter, Sands was awarded a contract to do HVAC work in New Jersey where union officials spotted the company using several gang boxes and ladders that were labeled Main Line property.  The union filed a grievance against Main Line alleging the company used Sands to perform bargaining unit work, bypassing the union’s contract.  The union-management adjustment board sustained the grievance and assessed more than $202,000 against the firm. Thereafter, the union filed a lawsuit under Section 301 of the Labor-Management Relations Act seeking confirmation of the arbitration award.  The district judge confirmed the award against Main Line, but rejected the union’s request to hold Sands jointly and several liable as the alter ego of Main Line.

  1. The Legal Analysis

In rejecting the request to hold HVAC Company No 2 liable for HVAC Company No. 1, the court examined whether the two organizations had substantially identical supervision, business purpose, operations, equipment or customers.

Although Santos ran both companies, the daily operations were handled by supervisors who differed from one company to the other.  Moreover, Main Line installed large rooftop heating and cooling units on top of hotels, schools, and other large buildings while Sands installed small HVAC units in multifamily residential complexes.  Significantly, apart from Mr. and Mrs. Santos, the companies at no time shared the same employees.

Lessons Learned:  Members of the construction industry who operate multiple construction related businesses need to be vigilant in their efforts to separate the entities.  Here, it was the presence of the Main Line equipment spotted on a Sands job that raised suspicions.  Fortunately,  there was evidence that Main Line had formally sold at least some of the equipment to Sands, but it would have been best for Sands to have removed Main Line’s name from the equipment before using it.

This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice. Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.

 

 

 

 

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Federal Court Weighs in on Affordable Care Act, the Mennonite Faith, and Birth Control

by HDlawblog Posted: Wednesday, 1/30/2013

A provision of the Affordable Care Act  commonly referred to as the “preventive services mandate” requires employers to provide employee health plans that cover, without cost to the employee, contraceptives, abortifacients, abortion, and sterilization.  In Conestoga Wood Specialties Corp. v. Sebelius, a closely held, secular, for-profit corporation, operated by a family of the Mennonite faith, claimed that compliance with that the Affordable Care Act’s preventive services mandate violated the corporation’s sincerely held religious beliefs.

This raised an issue of first impression for the U.S. District Court of the Eastern District of Pennsylvania as to whether a secular, for-profit corporation has religious rights under the First Amendment.  Although federal district and appeals courts are split on the issue of whether secular corporations have a right to challenge the validity of the preventive services mandate, the Eastern District held that a corporation does not possess such a right based upon: (1) a lack of historical support for the proposition that a secular, for-profit corporation possesses the right to free exercise of religion (in other words, religious rights are purely personal guarantees that have only been extended to individuals); and (2) an adherence to the corporate form.

In the Conestoga Wood case, the corporation unsuccessfully argued that it should be considered the alter egos of its shareholders, all of whom practice the Mennonite faith.  In rejecting this argument, the court stated that it would be entirely inconsistent to allow the shareholders to enjoy the benefits and protections of incorporation while simultaneously piercing the corporate veil for the limited purpose of challenging the preventive services mandate.

The court further reasoned that because the ultimate and deeply private choice to use an abortifacient contraceptive rests not with the shareholders of the corporation, but with the corporation’s employees, any burdens imposed upon the employer by the regulations would be too attenuated to be considered substantial.  Moreover, the court stated that the regulations apply to the employer corporation, not to the shareholders individually.  Accordingly, the court said that whatever burden the shareholders may feel from being involved with a for-profit corporation that provides health insurance that could possibly be used to pay for contraceptives, is too indirect of a burden to be considered substantial under the Religious Freedom Restoration Act.

This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice. Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.

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Advertising within the Ambit of the Law

by HDlawblog Posted: Friday, 4/20/2012

Whether you are a start-up or have grown to a large corporation, you must comply with business laws and regulations, and specifically with advertising laws.  Therefore, before you delve into advertising and marking your business to potential consumers, you need to understand some basic rules. 

All businesses are subject to federal regulations regarding advertising and some businesses may be subject to state and local government regulations.  This blog focuses on federal regulations.  The Federal Trade Commission (“FTC”) is the main federal agency charged with enforcing advertising laws and regulations.  Under the Federal Trade Commission Act:

  • Advertising must be truthful and non-deceptive;
  • Advertisers must have evidence to support their claims; and
  • Advertisements cannot be unfair.

Certain specialized products such as alcoholic beverages, automobiles and real estate, for example, are subject to additional advertising regulations.

The FTC’s Deception Policy Statement describes a deceptive ad as one that contains a material misleading statement (or omits information) that is important to a reasonable consumer’s decision to buy or use the product under the circumstances.

Before a company runs an ad, it needs to have a “reasonable basis” for its claims, which means objective evidence, often times in the form of tests, studies, or other scientific evidence.  Keep in mind that statements from satisfied customers usually are not sufficient to support a health or safety claim, or any other claim that requires objective evaluation.

The FTC pays closest attention to ads that make claims: (1) about health and safety; and (2) that consumers would have trouble determining for themselves.  Ads that make subjective claims or claims that consumers can judge for themselves are less likely to receive FTC attention.  For example, the statement, “this perfume smells fantastic,” is unlikely to receive FTC attention.  Additionally, the FTC concentrates on national advertising campaigns and usually refers local matters to state, county, or city agencies.

If the FTC determines that your company is running a false or deceptive ad, it can impose penalties against your company, including cease and desist orders and/or civil penalties in the form of fines or refunds to consumers.

Thus, as a rule of thumb, before you engage in an advertising campaign whether print, online, or through another medium, carefully scrutinize whether your ad could be viewed as false or deceptive and research whether any additional advertising regulations apply to your particular industry or product.  Harmon & Davies can assist you with determining whether there are any advertising restrictions that apply to your particular industry, product, or the type of advertising that you want to engage in.

This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice.  Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.

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