Waterbury Hotel Mgmt, et al v. NLRB, No. 01-1403 (D.C. Cir. 2003)

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 18, 2002 Decided January 14, 2003

No. 01-1403

Waterbury Hotel Management, LLC and

Waterbury Hotel Equity, LLC,

Petitioners

v.

National Labor Relations Board,

Respondent

On Petition for Review and Cross-Application for

Enforcement of an Order of the National

Labor Relations Board

Scott V. Kamins argued the cause for petitioner. With him

on the briefs were Jay P. Krupin and D. Jay Sumner.

Alison N. Davis entered an appearance.

David A. Fleischer, Senior Attorney, National Labor Rela-

tions Board, argued the cause for respondent. With him on

the brief were Arthur F. Rosenfeld, General Counsel, John

H. Ferguson, Associate General Counsel, Aileen A. Arm-

strong, Deputy Associate General Counsel, and Fred L. Corn-

nell Jr., Supervisory Attorney.

Before: Sentelle, Henderson and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Tatel.

Tatel, Circuit Judge: The purchaser of a unionized hotel

petitions for review of the National Labor Relations Board's

finding that it committed unfair labor practices in an effort to

prevent further union activity at the hotel. Finding the

Board's determinations consistent with the National Labor

Relations Act and supported by substantial evidence, we deny

the petition for review and grant the Board's cross-application

for enforcement.

I.

The Waterbury Sheraton Hotel was first opened in the

mid-1980s by owners Joseph and Loretta Calabrese. The

Calabreses also owned a hotel management company, JLM,

Inc., which ran the hotel under a lease with the Calabreses.

In 1995, Local 217, Hotel and Restaurant Employees and

Bartenders Union, AFL-CIO, was certified as the bargaining

representative of the hotel's service, front desk, restaurant,

and maintenance employees.

When the Calabreses declared personal bankruptcy in

1994, Prudential Insurance Company, which held a mortgage

on the hotel property, began foreclosure proceedings. JLM

continued to operate the hotel for a short period, but it too

filed for bankruptcy, and the bankruptcy court appointed a

trustee who took over day-to-day operations of the hotel. In

the meantime, Prudential solicited and ultimately secured a

purchase offer from New Castle, LLC, a company that owns,

operates, and develops hotels and resorts throughout the

United States and Canada. New Castle acquired the facility,

then operating as a mid-market Sheraton Four Points hotel,

with the intention of converting it to a more upscale, four-star

operation. To run the hotel, New Castle set up two subsid-

iaries, Respondents Waterbury Hotel Equity and Waterbury

Hotel Management, to which we shall refer as "Waterbury."

Although the purchase and sale agreement, signed in No-

vember 1996, provided that Waterbury would "have no obli-

gation to hire any of the employees currently employed at the

Hotel property," New Castle President David Buffam and

other company representatives repeatedly assured the trust-

ee that Waterbury would interview current hotel employees.

When the trustee organized an on-site job fair at which

potential employers could interview the hotel's employees,

however, Waterbury refused to participate.

As it turned out, Waterbury had plans for its own job fair,

which it conducted over three days in late January. At the

fair, applicants were first interviewed by "screeners," who

would either reject them or pass them on for first, and

perhaps second, substantive interviews. In the end, Water-

bury hired 65 employees for positions within the bargaining

unit, 20 of whom had worked for the old hotel. The company

interviewed and rejected 62 other incumbent employees, in-

cluding all members of the Union's negotiating committee.

Among those hired were three Yale undergraduates and one

recent graduate whom, unbeknownst to Waterbury, the Un-

ion had asked to apply for jobs. Waterbury later fired two of

the undergraduates for wearing union buttons in violation of

the hotel's dress code. One week later, it fired the recent

graduate for job abandonment.

The Union filed unfair labor practice charges, alleging that

Waterbury violated sections 8(a)(1), (a)(3), and (a)(5) of the

National Labor Relations Act by discriminatorily refusing to

hire incumbent hotel employees, unilaterally setting initial

terms and conditions of employment without bargaining with

the Union, and discharging the three Yale students because

they supported the Union. See 29 U.S.C. s 158(a)(1), (a)(3),

(a)(5). After a hearing, the Administrative Law Judge found

in favor of the Union. The Board adopted the ALJ's findings

and conclusions, as well as his recommended order. Water-

bury Hotel Mgmt. LLC, 333 N.L.R.B. No. 60, 2001 NLRB

LEXIS 136 (Mar. 9, 2001). Waterbury petitions for review,

and the Board cross-applies for enforcement.

II.

As we often observe, our role in reviewing decisions of the

National Labor Relations Board is limited. We will set aside

the Board's decision only if the Board "acted arbitrarily or

otherwise erred in applying established law to the facts at

issue, or if its findings are not supported by substantial

evidence." Plumbers & Pipe Fitters Local Union No. 32 v.

NLRB, 50 F.3d 29, 32 (D.C. Cir. 1995) (internal quotation

marks and citations omitted). With this highly deferential

standard of review in mind, we consider each of Waterbury's

challenges to the Board's decision.

ALJ Bias

We begin with the company's claim that the ALJ deprived

it of a fair hearing. According to Waterbury, the ALJ, who

had presided over a previous hearing concerning the hotel, at

which he found that the Calabreses' management company

had committed unfair labor practices, J.L.M., Inc., 312

N.L.R.B. 304 (1993), enforced in part, 31 F.3d 79 (2d Cir.

1994), erred by not disclosing this source of potential bias.

But if, as the Supreme Court has held, an ALJ is not

disqualified from presiding over the remand of a case in

which he previously ruled against the same employer, NLRB

v. Donnelly Garment Co., 330 U.S. 219, 236-37 (1947), then

New Castle could not have obtained the ALJ's disqualification

simply because he had ruled against a different employer,

Waterbury's predecessor, in an unrelated case.

Waterbury next claims that the ALJ's bias is evident in his

decision to adopt the Board's post-hearing brief more or less

verbatim. Although we have held that wholesale cutting and

pasting from proposed findings and conclusions warrants

particularly close scrutiny, Berger v. Iron Workers Reinforced

Rodmen Local 201, 843 F.2d 1395, 1407-08 & n.3 (D.C. Cir.

1998) (per curiam), we have never held, as Waterbury insists,

that this practice alone demonstrates impermissible bias, id.;

see also Anderson v. Bessemer City, 470 U.S. 564, 572 (1985)

("[E]ven when the trial judge adopts proposed findings verba-

tim, the findings are those of the court and may be reversed

only if clearly erroneous."). In this case, we are satisfied that

the Board, recognizing that the ALJ had made extensive use

of the General Counsel's brief, gave the ALJ's findings the

appropriate scrutiny: It "independently reviewed the entire

record, including the judge's decision, in consideration of the

exceptions and briefs." Waterbury Hotel Mgmt., 333

N.L.R.B. No. 60, 2001 NLRB LEXIS 136, at *6.

Finally, Waterbury detects bias in the ALJ's decisions to

disallow or ignore evidence tending to rebut the Board's case.

In each instance Waterbury cites, however, the ALJ actually

admitted the evidence, but determined--reasonably, we be-

lieve--either to discredit the evidence or that it was entitled

to little weight. Such adverse rulings alone hardly demon-

strate "that the ALJ had a fixed opinion--a closed mind on

the merits of the case." Pharaon v. Bd. of Governors of the

Fed. Reserve Sys., 135 F.3d 148, 155 (D.C. Cir. 1998) (internal

quotation marks and citations omitted).

Unlawful Hiring Practices

NLRA section 8(a)(3) makes it an unfair labor practice for

an employer to discriminate in hiring or in other employment

decisions in order to encourage or discourage membership in

a labor union. 29 U.S.C. s 158(a)(3). This prohibition of

discriminatory hiring extends to employers that take over

another business. Although under no obligation to hire pre-

decessor employees, such employers may not lawfully refuse

to hire them because of their union affiliation. Howard

Johnson Co. v. Detroit Local Joint Executive Bd., Hotel &

Restaurant Employees, 417 U.S. 249, 261 & n.8 (1974); ac-

cord Capital Cleaning Contractors, Inc. v. NLRB, 147 F.3d 999, 1005 (D.C. Cir. 1998).

To establish a section 8(a)(3) violation, the Board must first

determine "whether the employer's actions are motivated by

anti-union considerations." Teamsters Local Union No. 171

v. NLRB, 863 F.2d 946, 955 (D.C. Cir. 1988) (internal quota-

tion marks and citation omitted). The Board may rely on

both direct and circumstantial evidence in resolving this

question of fact. Id.; Elastic Stop Nut Div. of Harvard

Indus. v. NLRB, 921 F.2d 1275, 1280 (D.C. Cir. 1990). Once

the General Counsel has established that the employer was in

fact motivated by anti-union animus, the Board must find a

violation of the Act unless the employer can show that "it

would have taken the [same] action regardless of the exis-

tence of such animus." Elastic Stop Nut, 921 F.2d at 1280;

see also NLRB v. Transp. Mgmt. Corp., 462 U.S. 393, 403-04

(1983), aff'g NLRB v. Wright Line, 251 N.L.R.B. 1083 (1980),

enforced, 662 F.2d 899 (1st Cir. 1981).

The record in this case contains substantial, unrebutted

evidence that Waterbury's hiring decisions were motivated by

anti-union animus. The trustee, whom the ALJ credited,

testified that New Castle President David Buffam, explaining

why the company refused to participate in the trustee's job

fair, said that "he had received advice of counsel and ...

needed to be concerned about who he hired and how he

hired"; that "there were certain hiring parameters that he

couldn't exceed"; and that "they could have labor issues down

the road." Waterbury Hotel Mgmt., 333 N.L.R.B. No. 60,

2001 NLRB LEXIS 136, at *53-*54. When a former employ-

ee was brought on as a temporary worker because of the

hotel's pressing need for banquet employees, but then denied

permanent employment, the acting banquet manager ex-

plained, "I'm sorry, but we were told not to hire any of the

old people back." Id. at *182. And when asked by one of the

Yale students if there was a union at the hotel, the accounting

director responded, "No, there is no union here, the word

'union' has been wiped clear of this place." Id. at *276.

From these and similar statements in the record, the ALJ

could have properly inferred that the company's hiring deci-

sions were motivated by anti-union animus. See, e.g., Capital

Cleaning Contractors, 147 F.3d at 1005 (upholding finding of

anti-union animus based on company vice-president's state-

ments that he did not want to hire union members); Elastic

Stop Nut, 921 F.2d at 1281 (statements that employer would

hire no more than 25 percent of predecessor's work force).

 Substantial evidence also supports the Board's conclusion

that Waterbury was determined not to hire enough incum-

bent employees to trigger a bargaining obligation. To begin

with, record evidence indicates that Waterbury's hiring proce-

dures departed from its usual practice. Normally when New

Castle purchased a hotel, it interviewed the existing work-

force while the hotel was still operating. In this case, the

company refused to participate in the trustee's job fair for

former employees, instead conducting its own fair after the

predecessor hotel had closed. Cf. Southwire Co. v. NLRB,

820 F.2d 453, 460, 463 (D.C. Cir. 1987) (departing from usual

practice can be evidence of anti-union motive). Record evi-

dence also indicates that Waterbury conducted the job fair in

a manner that put incumbent employees at a disadvantage.

The ALJ found that the human resources director, in prepa-

ration for the job fair, winnowed Waterbury's list of post-

screening interview questions down to a few highly general,

abstract questions, excluding all inquiries relating to inter-

viewees' experience. As the ALJ saw it, this refusal to credit

job experience reflected a desire to avoid hiring incumbent,

union employees. We think this sufficient to establish a

prima facie case that Waterbury's hiring decisions were moti-

vated by anti-union considerations.

Waterbury argues that even if it did act with anti-union

animus, such animus was not a but-for cause of its hiring

decisions. According to Waterbury, it had legitimate reasons

for not considering incumbent employees' job experience,

given that they gained that experience while working for an

operation that ultimately fell into bankruptcy. But Water-

bury points to no evidence showing that any incumbent

employees were in any way responsible for the decline and

fall of the Calabreses' hotel. Quite to the contrary, in a

proposal seeking financing for its new hotel, the company

attributed the predecessor hotel's failure not to the employ-

ees, but to the "regional and national recession" and to the

"lack of experienced and efficient management." Cf. Capital

Cleaning Contractors, 147 F.3d at 1007 (rejecting an affirma-

tive defense based on clients' dissatisfaction with employees'

performance where there was no evidence that the client had

singled out any individual employees).

Waterbury contends that it would have refused to hire

incumbent employees no matter their union affiliation because

they failed to satisfy the neutral hiring criteria used at the

job fair. Record evidence shows, however, that the company

applied its neutral criteria inconsistently. For example, Wa-

terbury rejected incumbent employees on the basis of "incom-

patible hours" because they were in school, yet hired the two

Yale students, as well as other newcomers also attending

school. Waterbury also rejected incumbent employees on the

basis of "pay not acceptable" because they said they expected

$6.25 or $6.50 per hour for what was, unbeknownst to them, a

$6.00 per hour housekeeping job, yet hired nonincumbents

who asked for $7.00 per hour. The record is full of similar

inconsistencies. Substantial evidence thus supports the

Board's conclusion that the hiring criteria served as little

more than pretext for weeding out incumbent, union employ-

ees. See United Food & Commercial Workers Int'l Union v.

NLRB, 768 F.2d 1463, 1475 (D.C. Cir. 1985) (discrediting

employer's argument that neutral hiring criteria were imple-

mented for legitimate business purposes where they were

disproportionately applied against union employees).

Successorship

Waterbury next contends that it did not violate the NLRA

by unilaterally setting initial employment conditions for its

employees without first bargaining with the Union. Although

NLRA section 8(a)(5) makes it an unfair labor practice for an

employer "to refuse to bargain collectively with the represen-

tatives of [its] employees," 29 U.S.C. s 158(a)(5), a new

employer generally assumes an obligation to bargain with the

representative of its predecessor's employees only if the new

employer is considered a "successor" to the old--that is, if it

(1) conducts essentially the same business as its predecessor,

and (2) hires a "substantial and representative complement"

of the predecessor's work force, and a majority of the new

work force had been employees of the predecessor. Capital

Cleaning Contractors, 147 F.3d at 1005, 1007; see also Fall

River Dyeing & Finishing Corp. v. NLRB, 482 U.S. 27, 41

(1987). Waterbury contends that it fits neither of these two

criteria.

Whether a new employer is a successor to the old is a fact-

intensive inquiry requiring consideration of whether, in view

of "the totality of the circumstances," there is "substantial

continuity" between the new and predecessor employers.

Harter Tomato Prods. Co. v. NLRB, 133 F.3d 934, 937 (D.C.

Cir. 1998). Factors affecting the determination of whether

such continuity exists include "whether the business of both

employers is essentially the same; whether the employees of

the new company are doing the same jobs in the same

working conditions under the same supervisors; and whether

the new entity has the same production process, produces the

same products, and basically has the same body of custom-

ers." Fall River, 482 U.S. at 43. Because the NLRA's

purpose is to "further industrial peace," including avoiding

the labor unrest that might result if employees' "legitimate

expectations in continued representation by their union are

thwarted," the central question the Board must consider is

"whether those employees who have been retained will under-

standably view their job situations as essentially unaltered."

Id. at 39, 43 (internal quotation marks and citation omitted).

Pointing out that the Supreme Court has also said that the

substantial continuity test directs the Board to focus on

"whether the new company has 'acquired substantial assets of

its predecessor,' " id. (quoting Golden State Bottling Co. v.

NLRB, 414 U.S. 168, 184 (1973)), Waterbury argues that it

cannot be a successor because, although it acquired the

Calabreses' hotel from Prudential, it did not acquire the

substantial assets of JLM, the Calabreses' hotel management

company which employed the hotel's management team and

employees. We disagree. While the Supreme Court has

certainly said that acquisition of the predecessor's assets may

be evidence of substantial continuity in business operations,

as in Golden State Bottling Co. v. NLRB, 414 U.S. 168, 184

(1973), it has never held that transfer of assets is either a

necessary or a sufficient condition for that finding. The core

inquiry in the successorship analysis, after all, is not whether

assets have been transferred, but whether employees may

legitimately expect the change in control to affect their

continued union representation. We thus hold, as have all of

our sister circuits to have squarely considered the issue, that

the acquisition of substantial assets is not a prerequisite for

successorship. See Saks & Co. v. NLRB, 634 F.2d 681, 687

(2d Cir. 1980) ("[W]hile a transfer of assets may be evidence

of the requisite continuity of business operations, it has not

been thought to be a necessary condition...."); see also

NLRB v. Houston Bldg. Serv., Inc., 936 F.2d 178, 180-81 &

n.2 (5th Cir. 1991) ("Transfer of ownership of assets ... is

only one factor we consider."); Tom-a-Hawk Transit, Inc. v.

NLRB, 419 F.2d 1025, 1027-28 (7th Cir. 1969) ("The duty of

an employer who has taken over an 'employing industry' to

honor the employees' choice of bargaining agent is not one

that ... necessarily turns upon the acquisition of assets.")

(quoting Maintenance, Inc., 148 N.L.R.B. 1299, 1301 (1964)).

Considering the "totality of the circumstances," moreover,

we find in the record sufficient evidence of continuity of

business operations to support the Board's successorship

determination. Although it never acquired the assets of

JLM, the legal entity that ran the hotel, Waterbury did

acquire the assets--the hotel property, fixtures, and equip-

ment--of JLM's sole owners. Waterbury provides the same

type of service as its predecessor, and it does not dispute that

employees at the new hotel continue performing largely the

same set of jobs that they had performed before Waterbury

came on the scene.

Further objecting to the Board's successorship finding,

Waterbury points to extensive renovations and policy changes

it made in an effort to transform the facility into a more

upscale hotel targeted at "higher-caliber" customers. Peti-

tioners' Br. at 24. According to Waterbury, this attempt to

upgrade the quality of service marks a fundamental break

from the prior business. Record evidence, however, reveals

that for at least two years, Waterbury continued operating

the hotel as a mid-market Four Points hotel, rather than an

upscale Sheraton. And even though in its effort to enhance

the quality of hotel service, Waterbury changed a substantial

complement of the hotel managers, corporate policies, and

sales and service contracts, we believe the Board reasonably

determined that these changes were not "essential changes"

likely to affect employee attitudes about union representation.

See Clarion Hotel-Marin, 279 N.L.R.B. 481 (1986) (finding

that a hotel's conversion from a Holiday Inn to a Clarion

Hotel, with attendant changes to conform with Clarion stan-

dards, was not an "essential change" that would affect em-

ployee attitudes about representation); cf. Harter, 133 F.3d

at 938 ("We ask not whether [the employer's] view of the

facts supports its version of what happened, but rather

whether the Board's interpretation of the facts is reasonably

defensible.") (internal quotation marks and citation omitted).

Next, Waterbury argues that even if the record contains

substantial evidence of continuity of business operations, it

remained free to set initial terms and conditions of employ-

ment because a majority of its employees never worked for

its predecessor. See NLRB v. Burns Int'l Sec. Servs., Inc.,

406 U.S. 272, 281-82 (1972) (successors are generally free to

set initial terms and conditions of employment). But where,

as here, a successor refuses to hire predecessor employees

because of anti-union animus, the Board presumes that but

for such discrimination, the successor would have hired a

majority of incumbent employees. Capital Cleaning Contrac-

tors, 147 F.3d at 1008. In other words, "when a successor

refuses to hire its predecessor's employees based upon anti-

union animus, the successor loses the right unilaterally to set

the initial terms and conditions of employment." Id. Al-

though Waterbury thinks this rule is "unreasonable and

arbitrary," Petitioners' Br. at 42, both this and every other

circuit to have considered the issue have approved it. See

Capital Cleaning Contractors, 147 F.3d at 1008.

Employee Discharges

Finally, Waterbury challenges the Board's finding that it

violated NLRA section 8(a)(3), which makes it an unfair labor

practice for an employer to dismiss employees for engaging in

protected union activities, 29 U.S.C. s 158(a)(3), when it

dismissed the three Yale students--Joann Lo, Francis En-

gler, and Jonathan Zerolnick.

Waterbury fired Lo and Engler for wearing union buttons

in violation of the hotel's general prohibition against wearing

unauthorized pins and badges. Although the NLRA general-

ly protects employees' right to wear union buttons or other

insignia, Republic Aviation Corp. v. NLRB, 324 U.S. 793,

801-03 & n.7 (1945); accord Pioneer Hotel, Inc. v. NLRB, 182 F.3d 939, 946 (D.C. Cir. 1999), employers may enforce rules

that have the effect of interfering with such protected activi-

ties under "special circumstances." Pioneer Hotel, 182 F.3d

at 946. Citing Burger King Corp. v. NLRB, 725 F.2d 1053,

1054-55 (6th Cir. 1984), in which the Sixth Circuit held that

"where an employer enforces a policy that its employees may

only wear authorized uniforms in a consistent and nondiscrim-

inatory fashion and where those employees have contact with

the public, a 'special circumstance' exists as a matter of law

which justifies the banning of union buttons," Waterbury

argues that similar circumstances justified its dress code

because its employees deal with the public. Petitioners' Br.

at 42-43.

We need not consider the validity of Waterbury's across-

the-board no-buttons policy, however, for the record contains

substantial evidence that the company did not apply the

policy across the board. Both Lo and Engler testified that

they had worn unauthorized shamrock buttons in plain view

of hotel managers, and that the managers, perhaps swept up

in the St. Patrick's Day spirit, said not a word to them. In

contrast, when the two appeared at work wearing unautho-

rized union buttons, both were promptly reprimanded and

dismissed. Even if, as some courts have held, dress codes

such as Waterbury's might be valid, selective enforcement to

banish only pro-union buttons and insignia from the work-

place is certainly not. See Burger King, 725 F.2d at 1054-55

(6th Cir. 1994) (an employer may enforce a no-buttons policy

for employees who have contact with the public if it does so

"in a consistent and nondiscriminatory fashion").

 One week after dismissing Lo and Engler, Waterbury also

fired their roommate, Jonathan Zerolnick, the recent Yale

graduate. Whether Waterbury fired Zerolnick for abandon-

ing his job, as the company claims, or for associating with

union supporters, as the Board found, is a close call. The

record certainly contains some evidence to support Water-

bury's claim that it fired Zerolnick for job abandonment.

After being told that he could take a temporary leave of

absence and that he should contact his supervisor when ready

to return, he made no contact with anyone at the hotel for

several weeks. Our job, however, is to determine whether

the Board's view of the facts, not the employer's, is supported

by substantial evidence. See Harter, 133 F.3d at 938. In

light of record evidence indicating that Waterbury granted

Zerolnick the leave of absence without setting firm dates for

his return to work or for contacting the hotel, that no one

from Waterbury contacted him before sending the termi-

nation letter, and that Waterbury sent the letter just one

week after discovering his roommates' union affiliation, we

think the Board had a sufficient basis for concluding that

Waterbury fired Zerolnick because of his association with

union supporters.

III.

Having considered Waterbury's remaining arguments and

found them to be without merit, we deny the petition for

review and grant the Board's cross-application for enforce-

ment.

So ordered.