author: Mr. Justice Bkennan

text:
    GOLDEN STATE BOTTLING CO., INC., FORMERLY PEPSI-COLA BOTTLING CO. OF SACRAMENTO, et al. v. NATIONAL LABOR RELATIONS BOARD
    No. 72-702.
    Argued October 11, 1973
    Decided December 5, 1973

      BrenkaN, J., delivered the opinion for a unanimous Court.

      Morton B. Jackson argued the cause for petitioners. With him on the briefs was Gilford G. Rowland.

      Norton J. Gome argued the cause for respondent. With him on the brief were Solicitor General Bork, Allan A. Tuttle, Peter G. Nash, John S. Irving, Patrick Hardin, and William H. DuRoss III.

   Mr. Justice Bkennan

delivered the opinion of the Court.

The principal question for decision in this case is whether the bona fide purchaser of a business, who acquires and continues the business with knowledge that his predecessor has committed an unfair labor practice in the discharge of an employee, may be ordered by the National Labor Relations Board to reinstate the employee with backpay.

Petitioners are Golden State Bottling Co., Inc. (Golden State), and All American Beverages, Inc. (All American). All American bought Golden State’s soft drink bottling and distribution business after the National Labor Relations Board had ordered Golden State, “its officers, agents, successors, and assigns” to reinstate with back pay a driver-salesman, Kenneth L. Baker, whose discharge by Golden State was found by the Board to have been an unfair labor practice. In a subsequent back-pay specification proceeding to which both Golden State and All American were parties, see 29 CFR §§ 102.52-102.59, the Board found that All American continued after the acquisition to carry on the business without interruption or substantial changes in method of operation, employee complement, or supervisory personnel. In that circumstance, although All American was a bona fide purchaser of the business, unconnected with Golden State, the Board found that All American, having acquired the business with knowledge of the outstanding Board order, was a “successor” for purposes of the National Labor Relations Act and liable for the reinstatement of Baker with backpay under the principles announced in Perma Vinyl Corp., 164 N. L. R. B. 968 (1967), enforced sub nom. United States Pipe & Foundry Co. v. NLRB, 398 F. 2d 544 (CA5 1968). The Board therefore ordered that All American reinstate Baker and that Golden State and All American jointly or severally pay Baker a specified sum of net backpay. 187 N. L. R. B. 1017 (1971). The Court of Appeals for the Ninth Circuit, one judge dissenting, enforced the order, 467 F. 2d 164 (1972). We granted certiorari, 410 U. S. 953 (1973). We affirm.

I

There is a threshold question of whether the Court of Appeals erred in determining that the evidence “offered substantial support for the Board’s finding that All American purchased [the bottling business] with knowledge of the unfair labor practice litigation.” 467 F. 2d, at 165. We address that question mindful of the congressionally imposed limitation on this Court’s review of the Court of Appeals’ determination:

“Whether on the record as a whole there is substantial evidence to support agency findings is a question which Congress has placed in the keeping of the Courts of Appeals. This Court will intervene only in what ought to be the rare instance when the standard appears to have been misapprehended or grossly misapplied. Universal Camera Corp. v. NLRB, 340 U. S. 474, 491 (1951). (Emphasis added.)

Thus limited, we cannot find fault with the Court of Appeals’ conclusion that, on the record as a whole, substantial evidence supported the Board’s finding that All American purchased the business with knowledge of the unfair labor practice litigation. Eugene Schilling, Golden State’s secretary and manager of the bottling business, who had discharged Baker and then closely followed the progress of the litigation, continued with the enterprise under All American’s ownership with the title of general manager and “president.” Indeed, All American’s purchase of the business was conditioned on Schilling’s staying on in a managerial capacity; the sales contract expressly stipulated that Schilling “shall have agreed to be employed by [All American] for a period of one year after the Closing Date as General Manager . . . Schilling participated on at least one occasion with Golden State’s president, Edwin J. Crofoot, in the sale negotiations. Even if strict agency principles would not impute Schilling’s knowledge to All American until Schilling actually entered its employ, see Restatement (Second) of Agency § 9 (3) (1958); Thomas Engine Corp., 179 N. L. R. B. 1029, 1042 (1970), enforced sub nom. UAW v. NLRB, 442 F. 2d 1180 (CA9 1971), the Court of Appeals cannot be said to have “misapprehended or grossly misapplied” the governing standard in appraising this evidence as sufficiently substantial to support an inference that Schilling informed his prospective employer of the litigation before completion of the sale. It is true that both Schilling and Crofoot testified at the hearing in the specification proceeding that they had not informed All American of the litigation before the sale was completed. But the trial examiner refused to credit their testimony in light of documentary evidence from which he inferred that the Golden State officials had attempted to conceal the sale from the Board, 187 N. L. R. B., at 1021. The examiner also refused to credit Crofoot’s testimony that, while All American expressly asked him whether any litigation was pending, he did not mention the unfair labor practice case because he had forgotten it, although admitting that he had authorized payment of substantial fees in connection with it. Ibid. Finally, the examiner inferred from the unexplained failure of All American to produce its negotiators as witnesses that their testimony would not have supported All American’s disclaimer of knowledge.

On this state of the record, there is no justification for this Court’s intervention, since Universal Camera precludes us from substituting our judgment for that of the Court of Appeals. “This is not the place ... to reverse a Court of Appeals because were we in its place we would find the record tilting one way rather than the other . . . .” NLRB v. Pittsburgh S. S. Co., 340 U. S. 498, 503 (1951); see Central Hardware Co. v. NLRB, 407 U. S. 539, 548 (1972).

II

The Board has pursued an uneven course in its treatment of a bona fide successor’s liability to remedy the unfair labor practices of its predecessor. In 1944 the Board determined that liability would not be imposed on a bona fide successor, South Carolina Granite Co., 58 N. L. R. B. 1448, enforced sub nom. NLRB v. Blair Quarries,Inc., 152 F. 2d 25 (CA4 1945). In 1947 the Board abandoned that view and determined that joint and several remedial responsibility would be imposed upon a bona fide successor who had knowledge of the seller’s unfair labor practice at the time of the purchase, Alex ander Milburn Co., 78 N. L. R. B. 747. When, however, two Courts of Appeals refused to enforce remedial orders against bona fide successors, NLRB v. Birdsall-Stockdale Motor Co., 208 F. 2d 234 (CA10 1953), and NLRB v. Lunder Shoe Corp., 211 F. 2d 284 (CA1 1954), the Board, in 1954, re-examined and overruled Alexander Milburn Co., declaring, in Symns Grocer Co., 109 N. L. R. B. 346, that “[n]o provision of the [National Labor Relations] Act authorizes the Board to impose the responsibility for remedying unfair labor practices on persons who did not engage therein.” Id., at 348. Finally, in 1967, in yet another turnabout, the Board overruled Symns Grocer Co. in Perma Vinyl, supra, and announced that, in circumstances there defined, see n. 2, supra, remedial orders would be imposed upon bona fide successors for the unfair labor practices of their predecessors.

We must consider at the outset whether the issuance of a reinstatement and backpay order against a bona fide successor exceeds the Board's remedial powers under § 10 (c) of the Act, 29 U. S. C. § 160 (c). Section 10 (c), in pertinent part, provides:

“If upon the preponderance of the testimony taken the Board shall be of the opinion that any person named in the complaint has engaged in .. . any such unfair labor practice, then the Board . . . shall issue and cause to be served on such person an order requiring such person to cease and desist from such unfair labor practice, and to take such affirmative action including reinstatement of employees with or without back pay, as will effectuate the policies of this Act . . . .” (Emphasis added.)

The Board's restrictive view in Symns Grocer Co. of its remedial powers derived from a limitation perceived to inhere in the words “any person named in the complaint has engaged in . . . any such unfair labor practice” (emphasis added). These words were regarded as precluding authority to issue remedial orders against persons, like bona fide successors, who had not perpetrated the unfair labor practice. In Perma Vinyl, however, the Board found a broader authority in the words of the section authorizing the Board “to take such affirmative action ... as will effectuate the policies of this Act.” These words were construed as granting “broad administrative power ... to frame such remedial orders . . . not, of course, restricted to requiring remedial action by the offending employer alone,” 164 N. L. R. B., at 969, as were necessary to further the public interest subserved by the Act. See NLRB v. Colten, 105 F. 2d 179 (CA6 1939).

We agree that the Board's remedial powers under § 10 (c) include broad discretion to fashion and issue the order before us as relief adequate to achieve the ends, and effectuate the policies, of the Act. Early on, this Court recognized that § 10 (c) does not limit the Board’s remedial powers to the actual perpetrator of an unfair labor practice and thereby prevent the Board from issuing orders binding a successor who did not himself commit the unlawful act. We have said that a Board order that, as in this case, runs to the “officers, agents, successors, and assigns” of an offending employer, may be applied, not only to a new employer who is “merely a disguised continuance of the old employer,” Southport Petroleum Co. v. NLRB, 315 U. S. 100, 106 (1942), but also “ ‘in appropriate circumstances . . . [to] those to whom the busine^á may have been transferred, whether as a means of evading the judgment or for other reasons.’ ” Regal Knitwear Co. v. NLRB, 324 U. S. 9, 14 (1945) (emphasis added); see also NLRB v. Ozark Hardwood Co., 282 F. 2d 1, 5 (CA8 1960). If the words “person named in the complaint has engaged in . . . any . . . unfair labor practice” in § 10 (c) do not restrict Board authority to prevent orders running to the offending employer’s successors and assigns who have acquired the business as a means of evading the Board order, we do not see how those words may be read to bar the Board from issuing reinstatement and backpay orders against bona fide successors when the Board has properly found such orders to be necessary to protect the public interest in effectuating the policies of the Act. The Board’s orders run to the evader and the bona fide purchaser, not because the act of evasion or the bona fide purchase is an unfair labor practice, but because the Board is obligated to effectuate the policies of the Act. Construing § 10 (c) thus to grant the Board remedial power to issue such orders results in a reading of the section, as it should be read, in the light of “ 'the provisions of the whole law, and ... its object and policy.’ ” Mastro Plastics Corp. v. NLRB, 350 U. S. 270, 285 (1956); see NLRB v. Lion Oil Co., 352 U. S. 282, 288 (1957).

It is also argued, however, that Fed. Rule Civ. Proc. 65 (d), in any event, is a bar to judicial enforcement of a Board order requiring that a bona fide successor reinstate with backpay an employee illegally discharged by its predecessor. We disagree. Rule 65 (d) provides that injunctions and restraining orders shall be “binding only upon the parties to the action, their officers, agents, servants, employees, and attorneys, and upon those persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise.” See generally O. Fiss, Injunctions 691-700 (1972). We reject petitioners’ contention that Regal Knitwear Co. v. NLRB, supra, at 14, supports the argument that this Rule is a bar to judicial authority to enforce Board orders against bona fide successors. In Regal Knitwear, the Court refused the offending employer’s application to strike the phrase “successors and assigns” from the Board’s order, citing Walling v. James V. Reuter, Inc., 321 U. S. 671 (1944), which involved an injunction against violation of the Fair Labor Standards Act. Regal Knitwear treated a Board cease-and-desist order as “somewhat analogous” to such an injunction, and stated:

“ ‘Not only is such an injunction enforcible by contempt proceedings against the corporation, its agents and officers and those individuals associated with it in the conduct of its business, but it may also, in appropriate circumstances, be enforced against those to whom the business may have been transferred, whether as a means of evading the judgment or for other reasons.' . . .
“We do not undertake to decide whether or under what circumstances any kind of successor or assign will be liable for violation of a Labor Board order. . . . [Wjhether one brings himself in contempt as a ‘successor or assign’ depends on an appraisal of his relations and behavior and not upon mere construction of terms of the order.” 324 U. S., at 14-15.

Plainly then, Regal Knitwear recognizes that Rule 65 (d) is not a bar to enforcement of all Board orders running to successors or assigns not themselves offending employers. The Court simply left open the question of whether the Rule precludes the enforcement of remedial orders running to a successor who is a bona fide purchaser. We answer that question today by holding that the Rule is not a bar to judicial enforcement of the Board order entered against the bona fide successor in this case.

Rule 65 (d) “is derived from the common-law doctrine that a decree of injunction not only binds the parties defendant but also those identified with them in interest, in ‘privity’ with them, represented by them or subject to their control.” Regal Knitwear, 324 U. S., at 14. Persons acquiring an interest in property that is a subject of litigation are bound by, or entitled to the benefit of, a subsequent judgment, despite a lack of knowledge. Restatement of Judgments § 89, and comment c (1942); see 1 J. Story, Equity Jurisprudence § 536 (14th ed. 1918). This principle has not been limited to in rem or quasi in rem proceedings. Restatement of Judgments, supra, § 89, comment d; see ICC v. Western N. Y. & P. R. Co., 82 F. 192, 194 (WD Pa. 1897). We apply that principle here in order to effectuate the public policies of the Act. “Courts of equity may, and frequently do, go much farther both to give and withhold relief in furtherance of the public interest than they are accustomed to go when only private interests are involved.” Virginian R. Co. v. System Federation, 300 U. S. 515, 552 (1937); see Walling v. James V. Reuter, Inc., 321 U. S., at 674-675. We hold that a bona fide purchaser, acquiring, with knowledge that the wrong remains unremedied, the employing enterprise which was the locus of the unfair labor practice, may be considered in privity with its predecessor for purposes of Rule 65 (d). Cf. United States v. Hall, 472 F. 2d 261, 266-267 (CA5 1972); Rivera v. Lawton, 35 F. 2d 823 (CA1 1929) ; United States v. Dean Rubber Mfg. Co., 71 F. Supp. 96 (WD Mo. 1946); United Gilpin Corp. v. Wilmore, 100 Colo. 453, 68 P. 2d 34 (1937); 7 J. Moore, Federal Practice ¶ 65.13, p. 109 and n. 1 (2d ed. 1973).

Our holding in no way contravenes the policy underlying Rule 65 (d), of not having “order[s] or injunction [s] so broad as to make punishable the conduct of persons who act independently and whose rights have not been adjudged according to law.” Regal Knitwear, 324 U. S., at 13; see Alemite Mfg. Corp. v. Staff, 42 F. 2d 832 (CA2 1930). The tie between the offending employer and the bona fide purchaser of the business, supplied by a Board finding of a continuing business enterprise, establishes the requisite relationship of dependence. Moreover, procedures were announced in Perma Vinyl which provide the necessary procedural safeguards. There will be no adjudication of liability against a bona fide successor “without affording [it] a full opportunity at a hearing, after adequate notice, to present evidence on the question of whether it is a successor which is responsible for remedying a predecessor’s unfair labor practices. The successor [will] also be entitled, of course, to be heard against the enforcement of any order issued against it.” 164 N. L. R. B., at 969.

In this case, All American has no complaint that it was denied due notice and a fair hearing. It was made a party to the supplemental backpay specification proceeding, given notice of the hearing, and afforded full opportunity, with the assistance of counsel, to contest the question of its successorship for purposes of the Act and its knowledge of the pendency of the unfair labor practice litigation at the time of purchase.

We now turn to the question whether the Board properly exercised its discretion in issuing the order against All American. The Board’s decisional process in the Perma Vinyl line of cases has involved striking a balance between the conflicting legitimate interests of the bona fide successor, the public, and the affected employee. What we said of the Board’s decisional process in another context is pertinent here:

“The ultimate problem is the balancing of the conflicting legitimate interests. The function of striking that balance to effectuate national labor policy is often a difficult and delicate responsibility, which the Congress committed primarily to the National Labor Relations Board, subject to limited judicial review.” NLRB v. Teamsters Local 449, 353 U. S. 87, 96 (1957).

The Board’s Perma Vinyl principles introduced into the balancing process an emphasis upon protection for the victimized employee:

“Especially in need of help, it seems to us, are the employee victims of unfair labor practices who, because of their unlawful discharge, are now without meaningful remedy when title to the employing business operation changes hands.” 164 N. L. R. B., at 969.

The Board found support for this policy, and we think properly, in the Court’s observation in John Wiley & Sons, Inc. v. Livingston, 376 U. S. 543, 549 (1964):

“Employees . . . ordinarily do not take part in negotiations leading to a change in corporate ownership. The negotiations will ordinarily not concern the well-being of the employees, whose advantage or disadvantage, potentially great, will inevitably be incidental to the main considerations. The objectives of national labor policy, reflected in established principles of federal law, require that the rightful prerogative of owners independently to rearrange their businesses and even eliminate themselves as employers be balanced by some protection to the employees from a sudden change in the employment relationship.”

In Wiley a labor union sued under § 301 of the Labor Management Relations Act, 1947, 61 Stat. 156, 29 U. S. C. § 185, to compel a corporate employer to arbitrate under a collective-bargaining agreement. The agreement originally had been entered into with another corporation which had subsequently merged with Wiley for genuine business reasons. We held that the disappearance of the contracting corporation by merger did not necessarily terminate the rights of employees guaranteed by the agreement and that the successor employer could be compelled to arbitrate, so long as there was a “substantial continuity of identity in the business enterprise,” evidenced there by the wholesale transfer of the predecessor’s employees to the successor. 376 U. S., at 551.

Later, in NLRB v. Burns International Security Services, Inc., 406 U. S. 272 (1972), the Court extended the Wiley principle to a case where the original employer, a plant protection company, was displaced by a different company. The new company hired a majority of the employees of the old company. The Court held that the new company had been properly ordered to bargain with the bargaining representative which had been certified to the old company, since the bargaining unit remained essentially unchanged. It was also held, however, that the new employer was not bound by the collective-bargaining agreement agreed to by the union and the predecessor employer, inasmuch as § 8 (d) of the Act, as well as the legislative history of the labor laws, reflected a policy against compelling a party to agree to substantive contractual obligations. 406 U. S., at 281-284, 291. Similarly, the Court refused to bind the union, since it might have made bargaining concessions with the previous employer which it would not necessarily agree to in negotiations with the successor. Id., at 288.

We in no way qualify the Burns holdings in concluding that the Board’s order against All American strikes an equitable balance. When a new employer, such as All American, has acquired substantial assets of its predecessor and continued, without interruption or substantial change, the predecessor’s business operations, those employees who have been retained will understandably view their job situations as essentially unaltered. Under these circumstances, the employees may well perceive the successor’s failure to remedy the predecessor employer’s unfair labor practices arising out of an unlawful discharge as a continuation of the predecessor’s labor policies. To the extent that the employees’ legitimate expectation is that the unfair labor practices will be remedied, a successor’s failure to do so may result in labor unrest as the employees engage in collective activity to force remedial action. Similarly, if the employees identify the new employer’s labor policies with those of the predecessor but do not take collective action, the successor may benefit from the unfair labor practices due to a continuing deterrent effect on union activities. Moreover, the Board’s experience may reasonably lead it to believe that employers intent on suppressing union activity may select for discharge those employees most actively engaged in union affairs, so that a failure to reinstate may result in a leadership vacuum in the bargaining unit. Cf. Phelps Dodge Corp. v. NLRB, 313 U. S. 177, 193 (1941). Further, unlike Burns, where an important labor policy opposed saddling the successor employer with the obligations of the collective-bargaining agreement, there is no underlying congressional policy here militating against the imposition of liability.

Avoidance of labor strife, prevention of a deterrent effect on the exercise of rights guaranteed employees by § 7 of the Act, 29 U. S. C. § 157, and protection for the victimized employee — all important policies subserved by the National Labor Relations Act, see 29 U. S. C. § 141 — are achieved at a relatively minimal cost to the bona fide successor. Since the successor must have notice before liability can be imposed, “his potential liability for remedying the unfair labor practices is a matter which can be reflected in the price he pays for the business, or he may secure an indemnity clause in the sales contract which will indemnify him for liability arising from the seller’s unfair labor practices.” Perma Vinyl Corp., 164 N. L. R. B., at 969. If the reinstated employee does not effectively perform, he may, of course, be discharged for cause. See 29 U. S. C. § 160 (c).

Ill

Golden State attacked in the Court of Appeals the provision of the Board’s order directing that it and All American jointly or severally pay Baker a specified sum of net backpay. Golden State contends that, at most, it “should be ordered to pay to Baker back pay he would have earned as a driver-salesman in Golden State’s employ from the date of this wrongful termination until the date of sale of the bottling company by Golden State, January 31,1968.” Brief for Petitioners 60. The Court of Appeals declined to consider this argument because Golden State had agreed orally and in the contract of sale to indemnify All American for any back-pay paid Baker by All American and therefore was “liable for such wages by virtue of its agreement, whether or not it would also be liable absent that agreement.” 467 F. 2d, at 166. But Golden State’s contractual obligation may be subject to contractual defenses and for that reason may not in fact be the equivalent of the liability imposed upon Golden State by the order. We shall therefore decide Golden State’s challenge to the validity of the imposition of joint and several liability upon Golden State. We find no merit in the challenge.

The Board justified such provisions in Perma Vinyl in these words: “With respect to the offending employer himself, it must be obvious that it cannot be in the public interest to permit the violator of the Act to shed all responsibility for remedying his own unfair labor practices by simply disposing of the business. If he has unlawfully discharged employees before transferring ownership to another, he should at least be required to make whole the dischargees for any loss of pay suffered by reason of the discharges until such time as they secure substantially equivalent employment with another employer.” 164 N. L. R. B., at 970. In addition, joint and several liability will more fully insure that the employee is fully recompensed by protecting him, e. g., against the insolvency of the successor. The possibility that the successor will unjustifiably delay reinstatement to the predecessor’s prejudice can be met by a protective provision in the contract of sale. We cannot say that the Board has erred in thus “striking [the] balance to effectuate national labor policy . . . .” NLRB v. Teamsters Local 449, 353 U. S., at 96.

IV

When Baker was discharged on August 16,1963, he was Golden State’s leading driver-salesman. On October 1, 1964, Golden State began converting its top driver-salesmen to distributors, or independent contractors, who realized net profits, after the deduction of their operating expenses, from the purchase of products from Golden State and the resale to customers. The Board found that Baker would have become a distributor on October 1, 1964, but for his discharge on August 16, 1963. The Board therefore computed Baker’s gross backpay subsequent to October 1, 1964, on the basis of what he would have earned as a distributor after that date.

Petitioners argue that the change on October 1, 1964, from driver-salesman to distributor ended their liability to Baker on that date because distributors are “independent contractors” excluded from coverage of the Act by 29 U. S. C. § 162 (3). The Court of Appeals rejected that contention, stating:

“However, it is undisputed that when Baker was discriminatorily discharged he was an ordinary employee. The Act’s remedies are not thwarted by the fact that an employee who is within the Act’s protections when the discrimination occurs would have been promoted or transferred to a position not covered by the Act if he had not been discriminated against. NLRB v. Bell Aircraft Corp., 206 F. 2d 235, 236-237 (2d Cir.1953).” 467 F. 2d, at 166.

We agree with the Court of Appeals and add only the observation that its conclusion is buttressed by the consideration that an order requiring reinstatement and back-pay is aimed at “restoring the economic status quo that would have obtained but for the company’s wrongful refusal to reinstate . . . .” NLRB v. J. H. Rutter-Rex Mfg. Co., Inc., 396 U. S. 258, 263 (1969). The Board treats net profits of the employee who goes into business on his own as interim earnings for the purpose of computing net backpay. Mastro Plastics Corp., 136 N. L. R. B. 1342, 1350 (1962), enforced in part, NLRB v. Mastro Plastics Corp., 354 F. 2d 170 (CA2 1965). In the effort to restore the economic status quo that would have obtained but for Baker’s wrongful discharge, it was also proper to compute what he would have earned after October 1, 1964, on the basis of his net profits as a distributor. Cf. NLRB v. Rice Lake Creamery Co., 124 U. S. App. D. C. 355, 358, 365 F. 2d 888, 891 (1966); NLRB v. Mooney Aircraft, Inc., 375 F. 2d 402 (CA5 1967).

Affirmed.

       On June 10, 1964, the Board found that Golden State violated §§ 8 (a) (3) and (1) of the National Labor Relations Act, 49 Stat. 452, as amended, 29 U. S. C. §§ 158 (a)(3) and (1), by discharging Baker, on August 16, 1963, because of union activities, and ordered Baker’s reinstatement with backpay. 147 N. L. R. B. 410. On December 2, 1965, the Court of Appeals for the Ninth Circuit enforced the Board’s order with respect to Baker. 353 F. 2d 667. Due to a delay in the Court of Appeals’ disposition of the Board’s petition for rehearing on a portion of the court’s decision unrelated to Baker, a final decree was not entered until November 27, 1968, see 401 F. 2d 454. employees reassured of their statutory rights. And it is the successor who has taken over control of the business who is generally in the best position to remedy such unfair labor practices most effectively. The imposition of this responsibility upon even the bona fide purchaser does not work an unfair hardship upon him. When he substituted himself in place of the perpetrator of the unfair labor practices, he became the beneficiary of the unremedied unfair labor practices. Also, his potential liability for remedying the unfair labor practices is a matter which can be reflected in the price he pays for the business, or he may secure an indemnity clause in the sales contract which will indemnify him for liability arising from the seller’s unfair labor practices.” 164 N. L. R. B. 968, 969 (footnotes omitted).

         Perma Vinyl states the principles and their rationale as follows: “To further the public interest involved in effectuating the policies of the Act and achieve the 'objectives of national labor policy, reflected in established principles of federal law,’ we are persuaded that one who acquires and operates a business of an employer found guilty of unfair labor practices in basically unchanged form under circumstances which charge him with notice of unfair labor practice charges against his predecessor should be held responsible for remedying his predecessor’s unlawful conduct.
      “In imposing this responsibility upon a bona fide purchaser, we are not unmindful of the fact that he was not a party to the unfair labor practices and continues to operate the business without any connection with his predecessor. However, in balancing the equities involved there are other significant factors which must be taken into account. Thus, 'It is the employing industry that is sought to be regulated and brought within the corrective and remedial provisions of the Act in the interest of industrial peace.’ When a new employer is substituted in the employing industry there has been no real change in the employing industry insofar as the victims of past unfair labor practices are concerned, or the need for remedying those unfair labor practices. Appropriate steps must still be taken if the effects of the unfair labor practices are to be erased and all

       See, e. g., Interstate Circuit, Inc. v. United States, 306 U. S. 208, 226 (1939); NLRB v. Dorn’s Transp. Co., Inc., 405 F. 2d 706, 713 (CA2 1969).

       A short answer to petitioners’ argument might appear to be that, because the Board’s supplemental order to All American required only reinstatement and backpay, and not that All American cease and desist from future unlawful activity, no injunctive relief was ordered, and therefore Rule 65 (d) need not be considered. But we have previously found Rule 65 (d) applicable to mandatory injunctions and have noted that the courts of appeals have applied it “not only to prohibitory injunctions but to enforcement orders and affirmative decrees as well.” International Longshoremen’s Assn. v. Philadelphia Marine Trade Assn., 389 U. S. 64, 75 and n. 14 (1967) ; see generally Developments in the Law — Injunctions, 78 Harv. L. Rev. 994, 1061-1063 (1965).
      In not requiring the bona fide purchaser to cease and desist, the Board followed prior practice. See Thomas Engine Corp., 179 N. L. R. B. 1029 and n. 4 (1970), enforced sub nom. UAW v. NLRB, 442 F. 2d 1180 (CA9 1971). This approach seems consistent with the fact that the successor’s obligations do not arise out of its own unfair labor practices. The Board’s practice after its earlier decision in Alexander Milburn Co., 78 N. L. R. B. 747 (1947), had been to order the bona fide purchaser to cease and desist. This may account for decisions of the courts of appeals, e. g., NLRB v. Birdsall-Stockdale Motor Co., 208 F. 2d 234, 236 (CA10 1953), opposing the Board’s position in Alexander Milburn, which eventually led to the Board’s overruling of that decision in Symns Grocer Co., 109 N. L. R. B. 346 (1954). See DuRoss, Protecting Employee Remedial Rights Under the Perma Vinyl Doctrine, 39 Geo. Wash. L. Rev. 1063, 1089 (1971).

       We recognize that, unlike the situation in Wiley where state law provided some support for holding the successor by consolidation liable, see 376 U. S., at 547-548, the general rule of corporate liability is that, when a corporation sells all of its assets to another, the latter is not responsible for the seller’s debts or liabilities, except where (1) the purchaser expressly or impliedly agrees to assume the obligations; (2) the purchaser is merely a continuation of the selling corporation; or (3) the transaction is entered into to escape liability. See 15 W. Fletcher, Cyclopedia Corporations §§ 7122-7123 (1961 rev. ed.); Kloberdanz v. Joy Mfg. Co., 288 F. Supp. 817 (Colo. 1968). The perimeters of the labor-law doctrine of successorship, however, have not been so narrowly confined. See 15 W. Fletcher, supra, § 7122, p. 196 (Supp. 1972); Slicker, A Reconsideration of the Doctrine of Employer Successorship — A Step Toward a Rational Approach, 57 Minn. L. Rev. 1051, 1062-1063 (1973). Successor-ship has been found “where the new employer purchases a part or all of the assets of the predecessor employer, NLRB v. Interstate 65 Corp., 453 F. 2d 269 (CA6 1971); [and] where the entire business is purchased by the new employer, NLRB v. McFarland, 306 F. 2d 219 (CA10 1962) . . . .” NLRB v. Burns International Security Services, Inc., 406 U. S. 272, 306 (1972) (opinion of Rehnquist, J.); see id., at 291 (opinion of the Court). The refusal to adopt a mode of analysis requiring the Board to distinguish among mergers, consolidations, and purchases of assets is attributable to the fact that, so long as there is a continuity in the “employing industry,” the public policies underlying the doctrine will be served by its broad application. Cf. NLRB v. Colten, 105 F. 2d 179, 183 (CA6 1939).

       A purchasing company cannot be obligated to carry out under § 10 (c) every outstanding and unsatisfied order of the Board. For example, because the purchaser is not obligated by the Act to hire any of the predecessor’s employees, see NLRB v. Burns International Security Services, Inc., supra, at 280 n. 5, the purchaser, if it does not hire any or a majority of those employees, will not be bound by an outstanding order to bargain issued by the Board against the predecessor or by any order tied to the continuance of the bargaining agent in the unit involved. Id., at 280-281.

       The only court of appeals panel which has considered the Perma Vinyl decision, other than the Fifth Circuit in enforcing the Board's order in that case, United States Pipe & Foundry Co. v. NLRB, 398 F. 2d 544, and the Ninth Circuit in the decision under review, 467 F. 2d 164, has expressed its approval. UAW v. NLRB, 442 F. 2d, at 1183 (Tuttle, J.). Commentators have generally concurred. See DuRoss, supra, n. 4; Goldberg, The Labor Law Obligations of a Successor Employer, 63 Nw. U. L, Rev. 735 (1969); Comment, Successor Employer’s Obligation to Remedy Unfair Labor Practices, 68 Col. L. Rev. 1602 (1968); Comment, 42 N. Y. U. L. Rev. 1202 (1967); Comment, 47 N. C. L. Rev. 459 (1969); Comment, 41 Temp. L. Q. 156 (1967); Comment, 13 Vill. L. Rev. 232 (1967).

       Although the original order of the Board required Golden State to reinstate Baker, 147 N. L. R. B., at 412, the Board concedes that the sale to All American terminated Golden State’s reinstatement obligation. See NLRB v. New Madrid Mfg. Co., 215 F. 2d 908 (CA8 1954).

       Golden State’s reliance on Textile Workers v. Darlington Mfg. Co., 380 U. S. 263 (1965), is misplaced. In Darlington, it was held that an employer’s liquidation of its entire business, even if motivated by antiunion animus, would not be an unfair labor practice. Id., at 273-274. But Golden State committed an unfair labor practice over four years prior to the sale of the bottling business to All American, and in that circumstance, the sale could not terminate its continuing liability for backpay.

       It is apparent that had Golden State already reinstated Baker with backpay before the sale of its business, and thereby fully complied with the Board’s order, All American would have had no more obligation to employ him in the continuing business than it had to employ any of Golden State’s other employees. See n. 6, supra.


source: Caselaw Access Project

author: Mr. Justice Stewart Me. Justice Brennan,

license: Public Domain

text:
    FALK et al. v. BRENNAN, SECRETARY OF LABOR
    No. 72-844.
    Argued October 11, 1973
    Decided December 5, 1973

      Stewart, J., delivered the opinion of the Court, in which Burger, C. J., and BlackmuN, Powell, and RehNQUist, JJ., joined. BreN-NAN, J., filed an opinion concurring in part and dissenting in part, in which Douglas, White, and Marshall, JJ., joined, post, p. 202.

      Herbert V. Kelly argued the cause for petitioners. With him on the brief were Franklin O. Blechman and E. D. David.

      Andrew L. Frey argued the cause for respondent. With him on the brief were Solicitor General Bork and Sylvia S. Ellison

        Howard Lichtenstein and Marvin Dicker filed a brief for the Realty Advisory Board on Labor Relations, Inc., as amicus curiae urging reversal.

   Mr. Justice Stewart

delivered the opinion of the Court.

The Secretary of Labor initiated this action against the petitioners, partners in a real estate management company, for an injunction against future violations of various provisions of the Fair Labor Standards Act of 1938, 52 Stat. 1060, as amended, 29 U. S. C. § 201 et seq., and for back wages allegedly due to employees affected by past violations of the Act. The petitioners’ defense was that they are not “employers” of the employees involved, and that their business is not a single “enterprise” that is subject to the Act’s requirements. This latter contention brought together two separate arguments. First, the petitioners contended that their combined activities do not constitute an “enterprise,” as that term is defined in § 3 (r), 29 U. S. C. § 203 (r). Second, the petitioners argued, even. if their business activities do amount to an “enterprise,” they are not an “[enterprise engaged in commerce or in the production of goods for commerce,” as that term is defined in § 3 (s), 29 U. S. C. § 203 (s), because they do not have an “annual gross volume of sales made or business done” of $500,000.

Under the partnership name of Drucker & Falk (D & F), the petitioners render management services for the owners of a number of apartment complexes in the State of Virginia. Under its contracts with the apartment owners, D & F agrees to perform, on behalf of each owner and under his nominal supervision, virtually all management functions that are ordinarily required for the proper functioning of an apartment complex. These contracts are for a stated term of not less than one year. Each party can terminate the arrangement by giving the other party 30 days’ notice of his intent to do so. Neither D &. F nor any of its partners hold any property interest in the buildings that D & F manages. D & F receives as compensation a fixed percentage of the gross rentals collected from each project.

The rentals collected by D & F are deposited in local bank accounts. From these accounts it pays all expenses incurred in operating and maintaining the buildings. After deducting its compensation, as well as any other applicable expenses, D & F transmits payments to the various owners on a periodic basis. If disbursements for any apartment complex exceed its gross rental receipts, the owner is required under the contract to reimburse D & F.

The subject of the Secretary’s complaint was the wages and hours of the maintenance personnel who work at each of the apartment complexes, the contention being that D & F is in violation of the minimum wage, overtime, and recordkeeping provisions of the Act with respect to these maintenance workers. These employees work under the supervision of D & F and are paid from the rentals received at the apartment complexes where they are employed. They are considered in the contracts between the owners and D & F as “employees of the project owners.”

In the District Court, D & F contended that its management activities at the several apartment complexes do not constitute a single “enterprise,” as that term is defined in § 3 (r) of the Act, 29 U. S. C. § 203 (r) ; that, even if its business is a single “enterprise,” it does not have the $500,000 “annual gross volume of sales made or business done” required by § 3 (s)(l), 29 U. S. C. § 203 (s) (1), for coverage by the Act; and that it is not an “employer” of these maintenance workers, as that term is defined in § 3 (d), 29 U. S. C. § 203 (d). The District Court agreed with all three of these contentions and dismissed the complaint. The Court of Appeals reversed. It held that the management activities performed by D & F constitute a single “enterprise” for coverage purposes and that D & F meets the statutory definition of “employer” with respect to the maintenance workers. The appellate court also concluded that, in determining whether the enterprise satisifi.es the dollar-volume limitation, it is the gross rentals that D & F collects at all the apartment complexes that must be considered, rather than, as the District Court had held, the gross commissions that D & F receives from the apartment owners. Since there is no question that these gross rentals exceed $500,000 annually, the court held that D & F is subject to the Act and in violation thereof with respect to the maintenance workers.

We granted certiorari to review this judgment of the Court of Appeals. Two days later, we held, in Brennan v. Arnheim & Neely, Inc., 410 U. S. 512 (1973), that a fully integrated real estate management company that directs management operations at several separately owned buildings was a single “enterprise” for purposes of the Act, thus confirming the holding of the Court of Appeals on that issue in the present case. But our decision in Arnheim & Neely did not reach the other two statutory questions raised by D & F. We accordingly limited the grant of certiorari to questions 2 and 3 presented by the petition:

"(2) Under the Fair Labor Standards Act to be covered an enterprise must have an ‘annual gross volume of sales made or business done’ of $500,000. Is this figure to be measured by the gross rentals collected by the agent or by that agent’s gross commissions?
“(3) Are maintenance workers employed at the buildings managed by petitioners employees of the apartment owner or of the petitioners?” 410 U. S. 954.

I

As to question 3, the “employees” issue, it is clear that the maintenance workers are employees of the building owners. But we think that the Court of Appeals was unquestionably correct in holding that D & F is also an “employer” of the maintenance workers under § 3 (d) of the Act, which defines “employer” as “any person acting directly or indirectly in the interest of an employer in relation to an employee.” 29 U. S. C. § 203 (d). Section 3 (e) defines “employee” to include “any individual employed by an employer.” 29 U. S. C. § 203 (e). In view of the expansiveness of the Act’s definition of “employer” and the extent of D & F’s managerial responsibilities at each of the buildings, which gave it substantial control of the terms and conditions of the work of these employees, we hold that D & F is, under the statutory definition, an “employer” of the maintenance workers. We turn, therefore, to the other question embraced in the grant of certiorari.

II

In Brennan v. Arnheim & Neely Inc., supra, we held that the integrated operations of a real estate management company satisfied the definition of “enterprise” under § 3 (r) of the Act. This holding was based upon the conclusion that the management activities met the three statutory tests of an “enterprise”: related activities, unified operation or common control, and common business purpose. It is important to understand, however, that the “enterprise” the Court found in Arn-heim & Neely consisted of the sale of management services by the respondent. The Court did not hold that the separate property interests of each apartment owner were to be considered part of the management enterprise of Arnheim & Neely. Indeed, § 3 (r) and the legislative history of the 1961 “enterprise amendments” to the Act strongly suggest that the use of common agents by independent entities is not sufficient to convert to a single “enterprise” what otherwise are independent businesses. Thus, D & F’s enterprise in the present case, as in Arnheim & Neely, consists of and is limited to its combined management activities at the various apartment complexes.

The Act imposes its requirements, not on every “enterprise,” but only on an “enterprise engaged in commerce or in the production of goods for commerce.” One of the statutory elements of the latter term is the dollar-volume limitation, which in this case is $500,000 annually. The bone of contention between the Secretary and D & F is whether this dollar-volume limitation is to be measured by the annual gross rentals collected by D & F as agent of the apartment owners, or by the gross commissions paid to D & F by the owners as compensation for its management services. Section 3(s)(l), which prescribes the dollar-volume limitation, speaks of “an enterprise whose annual gross volume of sales made or business done is not less than $500,000.” 29 U. S. C. § 203 (b)(1). (Emphasis added.) This statutory language requires that, after determining what the relevant enterprise is, we turn our attention to what that enterprise sells or to what business it does.

Any doubt about whether the rental of space is a “sale” for purposes of the Act was removed when Congress amended § 3 (s) in 1966 to provide that the dollar-volume limitation would henceforth be measured by “annual gross volume of sales made or business done,” 80 Stat. 831 (emphasis added). The Senate Report on the 1966 amendments makes clear that the added language was intended to dispel any uncertainty that revenue derived from services, rentals, or loans, even though perhaps not literally “sales,” was nevertheless to be considered in measuring the dollar-volume limitation of § 3 (s). The Report indicates that the amendment was intended to signify legislative approval of the result in Wirtz v. Savannah Bank & Trust Co., 362 F. 2d 857, which so interpreted § 3 (s) as it read before -the addition of the “business done” language. As the Senate Report explained:

“The annual gross volume of sales made or business done by an enterprise, within the meaning of section 3 (s), will thus continue to include both the gross dollar volume of the sales . . . which it makes, as measured by the price paid by the purchaser for the property or services sold to him . . . , and the gross dollar volume of any other business activity in which the enterprise engages which can be similarly measured on a dollar basis. This would include, for example, such activity by an enterprise as making loans or renting or leasing property of any kind.” S. Rep. No. 1487, 89th Cong., 2d Sess., 7-8.

But, a determination that rentals are “sales made or business done” within the meaning of the Act does not begin to dispose of the issue before us. The question remains, under § 3 (s)(l), what enterprise made the sales or did the business.

The Secretary contends that the “sales made or business done” by D & F includes the gross rental income of apartments in the buildings that it manages. He argues that the fact that D & F does not own the buildings should not preclude attribution of the rentals to it. D & F argues that it sells only managerial services and thus that the rentals it collects on behalf of the owners are not “sales made or business done” by its enterprise. It contends, therefore, that its gross sales should be measured, not by the rentals it collects from the tenants, but rather by the management fees that the owners pay it as compensation for its services — i. e., its gross commissions.

The line between a seller of a product and a seller of a service is not always readily discernible, especially when one of the services relates to the sale of a product or, what amounts to the same thing for purposes of the Act, the rental of space. As an abstract proposition, the Secretary is undoubtedly correct in his position that ownership is not necessarily determinative in attributing “sales made or business done” for purposes of the statute. For example, a consignment seller's gross sales might properly be measured by his gross receipts from sales of the product, even though he did not actually hold title to the product that he sold. Realistically, such a seller is in the business of selling the product that is consigned to him, and he is functionally in a position no different from that of a seller who has purchased the product before resale. The only practical difference may be that the “cost of goods sold” element of the profit equation is expended before resale in the one case and after resale in the other.

In the present case, however, we are convinced that the enterprise of D & F is limited to the sale of its professional management services, and, accordingly, that the commissions it receives are the relevant measure of its gross sales made or business done for purposes of the dollar-volume limitation in § 3 (s) (1). D & F collects a number of rentals on behalf of the property owners. In nearly every case, these rentals are paid pursuant to lease agreements of significant duration. Some may predate D & F’s management of the premises, and D & F may thus have had absolutely nothing to do with the “sales” underlying the periodic rentals it collects for the owner. When a lease does expire and is not renewed by the tenant, D & F undertakes to find a new tenant for the owner and serves as agent for the owner in the negotiation and execution of a new lease. With respect to such a lease, a colorable argument can be made for attribution of the rentals to D & F, since its negotiation of a new lease increases, or at least maintains, the volume of rents collected and thus also its percentage compensation. But such an argument does not withstand any but the most superficial analysis.

In the typical commodity sale the seller’s remuneration is a function of the gross margin between the cost of the product to him and the resale price. At first blush, the determination of D & F’s compensation as a percentage of the gross rentals seems somewhat akin to the margin of. the typical seller. Upon reflection, however, a critical difference appears: when a lease is negotiated by D & F, its remuneration is calculated, not from the proceeds derived from that lease, but only from the rentals collected during its managerial tenure, during which period it renders significant and substantial management services beyond its earlier service in negotiating the lease. It is clear, therefore, that the business of the D & F enterprise is not the sale of a product (the rental of realty) but a sale of professional management services. This conclusion follows logically from our holding in Arnheim & Neely that the relevant enterprise for purposes of deciding whether a real estate management company is covered by the Act, consists of its “aggregate management activities” at the various buildings that it supervises. 410 U. S., at 519. In this regard, the commissions received by D & F differ even from the compensation received by the typical broker of realty or stock, whose primary undertaking is to negotiate a sale of the principal’s property and whose compensation is calculated on the proceeds of that sale.

On these facts, we think the conclusion is inescapable that D & F vends only its professional management services, and that the gross rentals it collects as part of these services do not represent sales attributable to its enterprise. It follows that the correct measure of the “gross volume of sales made or business done” by D & F is the gross commissions it receives from the apartment owners as compensation for the management services it renders. Since these commissions did not reach $500,000 annually during the period involved in this litigation, it follows that D & F was not an “[enterprise engaged in commerce or in the production of goods for commerce,” within the meaning of the Act.

The judgment of the Court of Appeals is vacated and the case is remanded to the District Court for further proceedings consistent with this opinion.

It is so ordered.

Me. Justice Brennan,

with whom Me. Justice Douglas, Mr. Justice White, and Mr. Justice Marshall join, concurring in part and dissenting in part.

I concur in the Court’s holding that petitioners are “employers” of the maintenance workers who service the apartment buildings managed by D & F.

I dissent, however, from the holding that, for the purposes of § 3 (s)(l), “the enterprise of D & F is limited to the sale of its professional management services,” and that those services must be measured by D & F’s commissions. The record in this case leaves no doubt whatever that D & F’s enterprise activities resulted in both the sale of professional management services and rental space. While the Court acknowledges that sales of rental space are “sales made or business done” within the meaning of § 3 (s) (1), ante, at 197, it nevertheless decides that rental sales should not be attributed to D & F because, “when a lease is negotiated by D & F, its remuneration is calculated not from the proceeds derived from that lease, but only from the rentals collected during its managerial tenure, during which period it renders significant and substantial management services beyond its earlier service in negotiating the lease.” Ante, at 200.

To be sure, D & F’s remuneration for renting an apartment may not be subject to precise calculation at the time of the sale: compensation for the sale is derived from D & F’s percentage of monthly rent receipts, which includes D & F’s compensation for building operation and maintenance; and conceivably the building owner might terminate D & F’s management contract before the tenant makes all the monthly payments required under the lease, thus reducing D & F’s compensation for the sale of the rental space. It is also true that after selling the rental space, D & F performs other significant and substantial management services. But these rather unsurprising observations hardly supply a basis for the Court’s conclusion that: “It is clear, therefore, that the business of the D & F enterprise is not the sale of a product (the rental of realty) but a sale of professional management services,” and that such services must be measured by commissions. Neither the facts in this case, nor the plain words of §3 (s)(l), and the uncommonly unambiguous legislative history of that section support the Court’s conclusion that Congress meant to measure one particular enterprise activity to the exclusion of others.

I

Section 3 (s) (1) limits coverage under the Act to those enterprises “whose annual gross volume of sales made or business done is not less than $500,000_” 29 U. S. C. § 203 (s) (1). The term “sales” employed in § 3 (s) (1) is defined with specificity in § 3 (k) of the Act, 29 U. S. C. § 203 (k), to mean “any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition” (emphasis added). Those are simple and entirely unambiguous words that do not even remotely imply that only some “sales made or business done” should be measured. Clearly, §3 (s)(l), in terms, embraces the gross volume of apartment leases sold by D & F, as well as the professional management services sold by D & F to building owners.

In addition, even were the wording of § 3 (s) (1) less clear, “[t]his is not a case where perforce we must attempt to resolve a controversy as to the true meaning of equivocal statutory language unaided by any reliable extrinsic guide to legislative intention,” Mitchell v. Kentucky Finance Co., 359 U. S. 290, 293 (1959). Senate and House Reports concerning the 1961 and 1966 “enterprise amendments” to the Act show explicitly that Congress intended enterprise activities to be measured by all “sales made or business done.”

Prior to 1961, the protections of the Act were extended only to employees who were themselves “engaged in commerce or in the production of goods for commerce,” §§ 6 (a), 7 (a), 29 U. S. C. §§ 206 (a), 207 (a). With the enterprise amendments of 1961, Congress substantially broadened the coverage of the Act to include all employees “employed in an enterprise engaged in commerce,” 75 Stat. 67, 69. But not every enterprise meeting the statutory definition in § 3 (r) of the Act was brought within the Act’s coverage. Section 3(s)(l) prescribed a. dollar-volume test that limited the Act’s coverage to those enterprises that had an “annual gross volume of sales of . . . not less than $1,000,000,” id., at 66. The Senate and House Reports show that the dollar-volume test was adopted to establish an economic standard that predicates coverage of the Act upon the size of the enterprise and its impact upon commerce. See H. R. Rep. No. 75, 87th Cong., 1st Sess., 3, 7, 13 (1961); S. Rep. No. 145, 87th Cong., 1st Sess., 6-7, 31 (1961); see also the Staff Report of Labor Subcommittee offered on the floor by Senator McNamara, 107 Cong. Rec. 5840-5842 (1961).

To insure that the term “sales” would not be given a narrow or technical interpretation that might exclude some enterprises that have the requisite dollar volume of business, but that do not make typical commodity sales, Congress amended the enterprise provisions of the Act in 1966, 80 Stat. 831, by substituting the wording “annual gross volume of sales made or business done” (emphasis added), for “annual gross volume of sales,” the term employed in the 1961 amendments. The Senate Report fully explains Congress’ reasons for changing the terminology:

“This test ... is intended to measure the size of an enterprise for purposes of enterprise coverage in terms of the annual gross volume in dollars (exclusive of specified taxes) of the business transactions which result from activities of the enterprise, regardless of whether such transactions are ‘sales’ in a technical sense.
“. . . The addition of the term ‘business done’ to the statutory language should make this intent abundantly plain for the future and remove any possible reason for misapprehension. The annual gross volume of sales made or business done by an enterprise, within the meaning of section 3 (s), will thus continue [under the 1966 Amendments] to include both the gross dollar volume of the sales (as defined in sec. 3 (k)) which it makes, as measured by the price paid by the purchaser for the property or services sold to him (exclusive of any excise taxes at the retail level which are separately stated), and the gross dollar volume of any other business activity in which the enterprise engages which can be similarly measured on a dollar basis. This would include, for example, such activity by an enterprise as making loans or renting or leasing property of any kind. S. Rep. No. 1487, 89th Cong., 2d Sess., 7-8 (1966). (Emphasis added.)

Congressional intent, with respect to the dollar-volume test in § 3 (s) (1), could not be more clear: “the business transactions which result from activities of the enterprise” are to be measured. No transactions are excepted from measurement. Nothing in the legislative history suggests that when remuneration for essentially different transactions is in some way commingled, or when an enterprise engages in closely related activities, only those transactions constituting the essence of enterprise should be measured. For the purposes of § 3 (s) (1), the only relevant inquiry is what activities the enterprise engages in, and what sales or business transactions result from those activities. Measurement of the dollar volume of those transactions indicates the size of the enterprise and its impact upon commerce.

Turning to the facts in this case, it is clear from the stipulated record in the District Court that D & F engages in essentially two distinct, though related, activities. First, D & F rents apartments to the public. In this connection, D & F employs a staff of sales personnel who advertise available apartments, interview prospective tenants, and negotiate and renew leases on behalf of the apartment-building owner. Second, D & F operates and maintains apartment buildings. By contract with the building owner, D & F agrees to collect rent; initiate, prosecute, and settle all legal proceedings for eviction, possession of the premises, and unpaid rent; make repairs and alterations; negotiate contracts for utilities and other necessary services; purchase supplies; pay all bills, including mortgage payments; prepare an operating budget for the building owner’s review and approval; submit periodic reports to the owner; and hire, discharge, and supervise all labor and employees required for the operation and maintenance of the premises. Thus, D & F performs both brokerage and management activities. Indeed, the first article of every contract entered into by D & F and a building owner states: “Owners hereby employ and appoint [¶] & F] as the sole and exclusive renting and management agent . . (emphasis added).

The business transactions resulting from these activities are quite distinct and subject to separate measurement. D & F’s brokerage activities result in the sale of rental space to the public. D & F’s management activities result in a business transaction between D & F and the building owner, i. e., D & F’s sale of professional management services.

The Court, however, focuses upon D & F’s management activities and measures only the resulting transaction between D & F and the building owners. To be sure, these transactions have an impact upon commerce and must, therefore, be measured under the dollar-volume test. As a result of these transactions, D & F hires and supervises more than 100 persons who perform all the functions necessary for the efficient operation and maintenance of apartment buildings, and thus engages in activities which clearly induce a flow of men, money, and materials across state lines. But, as significant as this impact upon commerce may be, it pales by comparison to the impact caused by D & F’s brokerage activities. To sell apartments, D & F employs a special staff of personnel whose duties include developing marketing strategies, placing advertisements in various media, interviewing prospective tenants, and negotiating leases. These activities generate a flow of millions of dollars per year in gross rent receipts, with consequent impacts upon commerce too numerous and obvious to trace here. The significant impact of D & F’s brokerage activities upon commerce is not diminished by the fact that the apartment buildings are owned by others. It is D & F’s brokerage activities — not the building owners’— that result in the sale of rental space. In this respect, D & F, as a broker selling rental space owned by others, is indistinguishable from the salesman of consignment goods, whose “sales made or business done,” the Court concedes, ante, at 199, must be measured by the gross receipts from sales of the product.

Ignoring D & F’s brokerage activities and their resulting transactions, therefore, not only contradicts Congress’ clearly expressed intention that transactions resulting from any activity of the enterprise be measured, but also undermines the effectiveness of the dollar-volume test as a measure of an enterprise’s size and impact upon commerce. “Where both the words of a statute and its legislative history clearly indicate the purpose of Congress, it should be respected,” Schwegmann Bros. v. Calvert Distillers Corp., 341 U. S. 384, 402 (1951) (Frankfurter, J., dissenting).

II

Even proceeding on the Court’s erroneous basic premise, however, D & F’s sales of professional management services exceed $500,000 when computed, as Congress required, under the specific regulations promulgated by the Wage and Hour Division of the Department of Labor to effectuate §3(s)(l). As a guide to making computations under § 3 (s)(l), Congress instructed that:

“The method of calculating the requisite dollar volume of sales or business [for enterprise coverage purposes] will be the same as is now followed under the law with respect to calculating the annual dollar volume of sales in retail and service establishments, and in laundries under the exemptions provided in section 13(a)(2), (3), (4), and (13) of the act. The procedure for making the calculation is set forth in the Department’s Interpretative Bulletin [pertaining to retailers of goods and services]. As it is there stated, the 'annual dollar volume of sales’ consists of the gross receipts from all types of sales during a 12-month period.” S. Rep. No. 145, 87th Cong., 1st Sess., 38 (1961). (Emphasis added.)

This “gross receipts” method of computation is presently embodied in regulations which state: “The annual gross dollar volume of sales made or business done of an enterprise or establishment consists of the gross receipts from all of its sales or its volume of business done during a 12-month period,” 29 CFR § 779.265. (Emphasis added.) See also 29 CFR §§ 779.259, 779.266-779.269.

Gross receipts from “sales” of professional services are not necessarily limited to commissions. True, if the “sale” is only of the personal labor of the seller, commissions may well be the sole measure of “sales made or business done” because commissions are the seller’s only gross receipts. And where, in addition to his own labor, the seller of professional services provides, for a commission, personnel and materials as an integral part of the professional services rendered, the commission still constitutes the gross receipts for the sale of services. If, on the other hand, the purchaser of the professional services reimburses the seller for the costs of men and material and also pays a commission, plainly “gross receipts” under the statute and regulation are the reimbursement plus the commission.

D & F was compensated for its professional management services on a cost-plus-commission basis. It employed maintenance workers and purchased materials necessary for the operation and maintenance of the apartment buildings. By contract, the building owner agreed to reimburse D & F for these operation and maintenance costs, and, in addition, to pay D & F a commission. Thus, D & F’s gross receipts must include amounts paid by the building owner to cover operation and maintenance costs, plus the amount paid as commissions.

       The complaint alleged violations of the minimum wage (29 U. S. C. §206 (b)), overtime (29 U. S. C. §207 (a)(2)), and recordkeeping (29 U. S. C. §211 (c)) provisions of the Act.

       Section 3 (d), 29 U. S. C. §203 (d), states that an “'Employer' includes any person acting directly or indirectly in the interest of an employer in relation to an employee.”

       The dollar-volume limitation was $500,000 at all times relevant to this action. 29 U. S. C. §203 (s)(l). On February 1, 1969, the dollar-volume limitation was reduced to $250,000.

         D & F performs all the functions required for leasing, maintaining, and operating the apartment buildings. These include advertising the availability of apartments for rent; signing, renewing, and canceling leases; collecting rents; instituting, prosecuting, and settling all legal proceedings for eviction, possession of the premises, and unpaid rent; maldng necessary repairs and alterations; negotiating contracts for essential utilities and other services; purchasing supplies; paying bills; preparing operating budgets for the property owners’ review and approval; submitting periodic reports to the owners; and hiring and supervising all employees required for the operation and maintenance of the buildings and grounds.

       The commission that D & F receives varies between 4% and 6%, depending on the particular arrangements with the building owner.

       The rents for all the buildings managed by D & F totaled over $7,700,000 in 1967 and over $8,600,000 in 1968.

       Both the District Court and the Court of Appeals had this case before them twice. Initially, the District Court dismissed the complaint. The Court of Appeals reversed and remanded for further proceedings. Shultz v. Falk, 439 F. 2d 340. The petitioners sought certiorari, and we denied the writ. Falk v. Hodgson, 404 U. S. 827 (1971). On remand to the District Court, the petitioners resisted the imposition of judgment and particularly the awarding of prejudgment interest. The District Court rendered judgment against the petitioners and awarded prejudgment interest. The Court of Appeals affirmed, and the petitioners again sought certiorari.

       Section 3 (r), 29 U. S. C. §203 (r) provides, in pertinent part: “[A] retail or service establishment which is under independent ownership shall not be deemed to be so operated or controlled as to be other than a separate and distinct enterprise by reason of any arrangement, which includes, but is not necessarily limited to, an agreement, (1) that it will sell, or sell only, certain goods specified by a particular manufacturer, distributor, or advertiser, or (2) that it will join with other such establishments in the same industry for the purpose of collective purchasing, or (3) that it will have the exclusive right to sell the goods or use the brand name of a manufacturer, distributor, or advertiser within a specified area, or by reason of the fact it occupies premises leased to it by a person who also leases premises to other retail or service establishments.”
      The Senate Report on the 1961 amendments to the Act included the following statements regarding this portion of § 3 (r):
      "[T]he mere fact that a group of independently owned and operated stores join together to combine their purchasing activities or to run combined advertising will not for these reasons mean that their activities are performed through unified operation or common control and they will not for these reasons be considered a part of the same ‘enterprise.’ ” S. Rep. No. 145, 87th Cong., 1st Sess., 42.

       See, e. g., § 6 (b) (29 U. S. C. §206 (b)), § 7 (a) (29 U. S. C. §207 (a)), and § 11 (e) (29 U. S. C. §211 (c)).

       The petitioners’ gross commissions amounted to slightly more than $434,000 and somewhat less than $463,000 in 1967 and 1968, respectively, the years involved in this litigation.

       The record does not show what proportion of the rentals is attributable to leases predating D & F’s managerial tenure at each building. When the underlying lease does predate D & F’s contract with the owner, however, the total absence of any participation by D & F in the lease transaction, of which the periodic rentals are merely the proceeds, belies any attempt to attribute these rentals to D & F as an index of its gross “sales made or business done.”

       Part II of the dissent suggests that the “annual gross volume of sales made or business done” of D & F’s enterprise “must include amounts paid by the building owner to cover operation and maintenance costs, plus the amount paid as commissions.” Post, at 211. The dissent’s rationale is that D & F was in effect paying the operation and maintenance costs itself and then being reimbursed by the apartment owners. Such an argument was not made by the Secretary. Even if such a payment and reimbursement arrangement would cause the operation and maintenance costs to be included in measuring “annual gross volume of sales made or business done” (which we do not decide), it is clear that such an arrangement did not exist between D & F and the building owners. The rentals were collected by D & F as the agent for the owners and were placed in bank accounts on their behalf. D & F paid the operation and maintenance costs of the buildings from the owners’ funds pursuant to its agreement with, and on the authority of, the owners.

       A footnote in the Secretary's brief states that, in addition to its management services, D & F also sells insurance and real estate. These operations might bring D & F’s “annual gross volume of sales made or business done” to more than $500,000 for the years in question if the insurance, real estate sales, and real estate management operations of D & F’s business are “related activities” for enterprise coverage purposes under § 3 (r) of the Act. We leave for the District Court the consideration of the Secretary’s contention.

       Section 3 (r) of the Act, 29 U. S. C. §203 (r), defines “enterprise” to mean:
      “the related activities performed (either through unified operation or common control) by any person or persons for a common business purpose, and includes all such activities whether performed in one or more establishments or by one or more corporate or other organizational units including departments of an establishment operated through leasing arrangements, but shall not include the related activities performed for such enterprise by an independent contractor . . .

      The dollar-volume test of § 3 (s) (1) of the Act, 29 U. S. C. §203 (s)(l), limits coverage during the period February 1, 1967, through January 31, 1969, to those enterprises “whose annual gross volume of sales made or business done is not less than $500,000 (exclusive of excise taxes at the retail level which are separately stated) . . . .” On February 1, 1969, the dollar-volume test was reduced to $250,000. It is not disputed that each year since February 1, 1969, petitioners have met the dollar-volume requirement of the Act.

       In addition to the Court of Appeals below, the Courts of Appeals for the Fifth and Tenth Circuits have held that the leasing of rental property constitutes a “sale” within the meaning of the enterprise provisions of the Act. See Wirtz v. Savannah Bank & Trust Co., 362 F. 2d 857 (CA5 1966); Wirtz v. First National Bank & Trust Co., 365 F. 2d 641 (CA10 1966).

       A continuance of the judicial practice of liberal interpretation of the Act was clearly contemplated by Congress:
      “In keeping with the broad statutory definitions of the coverage phrases used, the courts have repeatedly expressed and adhered to the principle that the coverage phrases should receive a liberal interpretation, consonant with the definitions, with the purpose of the Act, and with its character as remedial and humanitarian legislation.” H. R. Rep. No. 1366, 89th Cong., 2d Sess., 10 (accompanying the 1966 amendments to the Act).

       Questions concerning the scope of the term “sales” in the dollar-volume provision of the 1961 enterprise amendments had arisen in suits brought by the Secretary of Labor to enforce the Act. For example, in Wirtz v. Savannah Bank & Trust Co., supra, the defendant bank contended “that the term 'sales’ must be given a 'literal interpretation’ and . . . would not include rental receipts, interest on loans and securities or income from services.” 362 F. 2d, at 862-863 (footnote omitted).

       An enterprise’s dollar volume of “sales made or business done” is measured by its “gross receipts,” see part II, infra. The record indicates that D & F collected gross rent receipts of $7,752,600.86 in 1967 and $8,607,086.04 in 1968. That portion of the gross rent receipts attributable to D & F’s sales of rental space constitutes the proper dollar-volume measure of D & F’s brokerage activities. As discussed in part II, infra, D & F’s “gross receipts” for its management activities must be measured by the commissions D & F receives for such services plus any reimbursements D & F receives for the cost of men and materials. Since D & F is paid a single commission for both its brokerage and management activities, that portion representing compensation for its sale of rental space must be subtracted from the total commission in order accurately to measure that portion of the commission attributable to its professional management services.

       Section 602 of Pub. L. 89-601, 80 Stat. 844, provides that the Secretary of Labor is “authorized to promulgate necessary rules, regulations, or orders with regard to the [1966 enterprise] amendments made by this Act.”

       The apartment building owners never actually sent funds to D & F to cover its costs and commissions. Rather, these sums were deducted by D & F from the total receipts it collected from the tenants of each apartment building.

       D & F’s commissions are either 4% or 6% of gross rent receipts, depending upon the extent of the services it agrees to render.


author: Per Curiam.

text:
    FOLEY et al. v. BLAIR & CO., INC., et al.
    No. 72-1154.
    Argued November 12, 1973
    Decided December 5, 1973

      Leo H. Raines argued the cause and filed a brief for petitioners.

      Harvey R. Miller argued the cause for respondents. With him on the brief were Charles Seligson, Michael L. Cook, and Donald J. Zoeller.

   Per Curiam.

Blair & Co., Inc., was a member of the New York Stock Exchange, engaged in the general brokerage and commission business. In the early summer of 1970, as the result of operating losses and a shrinkage of capital, Blair began a program of self-liquidation, which involved the transfer of customer accounts to other broker-dealers and the delivery of securities to customers so requesting. Blair apparently believed that its resources were sufficient to allow it to discharge its obligations to all customers and general creditors through this program. In September 1970, however, Blair concluded that successful implementation of this program might require the assistance of a Special Trust Fund which the New York Stock Exchange had established in 1964 to avoid bankruptcy of member firms.

Consequently, on September 21, 1970, Blair entered into an agreement with the New York Stock Exchange, whereby the trustees of the special fund would make loans and guarantees to protect Blair’s customers against loss. The agreement provided that the first such loan, guarantee, or advance by the fund would give the New York Stock Exchange the power to appoint a Liquidator of its own choosing to manage Blair’s affairs. The powers of the Liquidator were set forth in the agreement.

On September 25, 1970, the trustees made an initial advance of $1,000, which triggered the appointment of respondent Patrick E. Scorese as Liquidator. Any plans for further advances or loans were terminated four days later, however, when the petitioners, holders of subordinated debentures of Blair, filed an involuntary petition in bankruptcy against Blair in the United States District Court for the Southern District of New York. Inter alia, the petition alleged that the appointment of the Liquidator constituted an act of bankruptcy under § 3a (5) of the Bankruptcy Act, 11 U. S. C. § 21 (a)(5). That section makes it an act of bankruptcy if any person

“(5) while insolvent or unable to pay his debts as they mature, procured, permitted, or suffered voluntarily or involuntarily the appointment of a receiver or trustee to take charge of his property.”

Concluding that Blair's consent to the appointment of the Liquidator in fact constituted this fifth act of bankruptcy, the Referee adjudicated Blair an involuntary bankrupt. The District Court denied a petition to review his order. On appeal, however, a divided panel of the Court of Appeals for the Second Circuit reversed, reasoning that the Liquidator was not a “receiver or trustee” within the statutory definition. 471 F. 2d 178. We granted the writ of certiorari, 411 U. S. 930, in order to resolve this issue of seeming importance in the administration of the Bankruptcy Act, and oral argument was heard on November 12, 1973.

The respondents have suggested, however, that we should not decide the merits of the controversy, because the present circumstances of Blair & Co. render the case moot. The suggestion is premised on a series of events following the filing of the original involuntary petition. On April 15, 1971, two days after the Referee had granted the petitioners’ motion for summary judgment on the issue of whether Blair had committed the fifth act of bankruptcy, Blair filed a petition for relief under Chapter XI of the Bankruptcy Act, pursuant to § 321 of the Act, 11 U. S. C. § 721. On May 18, 1971, the Referee entered an order pursuant to § 325 of the Act, 11 U. S. C. § 725, staying ordinary bankruptcy proceedings under Chapters I-VII pending the determination of the Chapter XI petition.

On May 26, 1971, Blair filed with the District Court its proposed arrangement with its creditors under Chapter XI. On September 27, 1971, the bankruptcy court found that the proposed arrangement had been accepted in writing by the requisite majority in number and amount of Blair’s creditors, in accordance with §§ 336 (4) and 362 of the Act, 11 U. S. C. §§ 736 (4), 762. Shortly thereafter on October 4, 1971, the petitioners moved in the District Court to dismiss the Chapter XI proceedings. This motion was not acted upon until February 16, 1973, after the Court of Appeals had reversed the adjudication of Blair as an involuntary bankrupt; on that date, the motion was denied. On June 12, 1973, the District Court denied a petition for review of that order. On October 2, 1973, while the present case was awaiting argument in this Court, the bankruptcy court entered an order confirming the arrangement proposed by Blair under Chapter XI. Apparently, no appeal was taken from the order of confirmation.

In light of the confirmation of the Chapter XI arrangement, the respondents suggest that this case no longer presents a live controversy. They rely upon § 371 of the Act, 11 U. S. C. § 771, which provides that confirmation of an arrangement “shall discharge a debtor from all his unsecured debts and liabilities provided for by the arrangement,” and argue that the petitioners thus no longer have any monetary stake in resolution of the controversy over whether the fifth act of bankruptcy was committed. See generally 9 W. Collier, Bankruptcy ¶¶ 9.32, 9.33 (14th ed. 1972). The respondents also argue that the original adjudication of bankruptcy is irrelevant to the present situation, since § 322 of the Act, 11 U. S. C. § 722, does not make the pendency of bankruptcy proceedings a prerequisite to the filing of a petition for relief under Chapter XI.

While the issue of mootness was briefed and argued before this Court, it was not treated in the opinion of the Court of Appeals, no doubt because the final confirmation order was not entered by the District Court until well after the appellate court had issued its judgment. Under these circumstances, we think it appropriate that the Court of Appeals have the opportunity to consider the mootness issue in the first instance. In reviewing the question of mootness, the Court of Appeals should consider the effect of § 64a (1) of the Act, 11 U. S. C. § 104 (a) (1). Inter alia, that section provides that “one reasonable attorney’s fee” for the services rendered to petitioning-creditors in involuntary cases shall be treated aá4a priority debt in bankruptcy proceedings, payable out of the estate in advance of distribution of any dividends to creditors. Section 64 is made applicable to | 321 Chapter XI proceedings by § 802 of the Act, 11 U. S. C. § 702, and thus might allow the treatment of at least some of the petitioners’ counsel fees as a priority expense. See 8 W. Collier, Bankruptcy ¶ 5.33 [3.1] and n. 25 (14th ed. 1972); see also Reading Co. v. Brown, 391 U. S. 471, 475.

For the reasons stated above, we vacate the judgment of the Court of Appeals, and remand the case to that court to consider whether it has now become moot.

It is so ordered.

       The Special Trust Fund is authorized by the Constitution of the New York Stock Exchange, Art. XIX, § 1.

       Paragraph VIII of the agreement provided:
      “Immediately following his appointment by the Exchange, the Liquidator shall take control of the business and property of the Corporation for the purpose of liquidating the business of the Corporation and shall proceed as follows in connection with the liquidation:
      “i.) he shall promptly take such steps as he may deem practicable to reduce the Corporation’s operating expenses and to dispose of the Corporation’s salable assets;
      “ii.) he shall have power to retain independent public accountants, consultants, counsel and other agents and assistants and shall have power to augment and reduce or eliminate the staff of the Corporation;
      “iii.) he shall, as soon as practicable, assert and collect or settle all claims and rights of the Corporation;

        “iv.) he shall pay any claim against the Corporation considered by him to be a valid claim of any customer of the Corporation;
      “v.) he shall take such other steps as he deems necessary or appropriate to liquidate the business of the Corporation.
      “It is agreed that consistent with the duty of the Liquidator to effect a fair and orderly liquidation of the business of the Corporation to enable prompt settlement with its customers, the Liquidator shall act in accordance with what he deems to be good business practice.”
      On the same date that this agreement was signed, Blair executed a second instrument that more specifically delineated the powers of the Liquidator, who was described as “the true and lawful attorney and agent of and for the Corporation [Blair].”

       The actual order adjudging Blair a bankrupt was not issued until April 27, 1971.

         The September 27 finding was an oral one, made in open court. Written findings to the same effect were filed on December 27, 1971.

       While the effect of § 64a (1) upon the issue of mootness was discussed at oral argument, it was not the subject of briefing by either of the parties.