Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

CONNORS v. PELES

November 2, 1989

JOSEPH P. CONNORS, SR., DONALD E. PIERCE, JR., WILLIAM MILLER, WILLIAM B. JORDAN and PAUL R. DEAN, as Trustees of the UNITED MINE WORKERS OF AMERICA 1950 PENSION TRUST, 1950 BENEFIT PLAN AND TRUST, 1974 PENSION TRUST and the 1974 BENEFIT PLAN AND TRUST, Plaintiffs,
v.
NESTOR PELES, NICHOLAS REND, STEPHEN PELES and LINDA PELES KOHUT, Defendants



The opinion of the court was delivered by: SIMMONS

 FINDINGS OF FACT

 PAUL A. SIMMONS, UNITED STATES DISTRICT JUDGE

 1. Plaintiffs, Joseph P. Connors, Sr., Donald E. Pierce, Jr., William Miller, William B. Jordan and Paul R. Dean, are the Trustees of the United Mine Workers of America 1950 and 1974 Pension Plans.

 2. The Pension Plan is domiciled in the District of Columbia.

 4. Pelbro was incorporated by Defendant Nestor Peles, and his brother, Joseph Peles, to provide continuity of life to a business enterprise, for tax purposes and as a shield against personal liability.

 5. Defendants, Nestor Peles, Nicholas Rend, Stephen Peles and Linda Kohut are, at all time material hereto, were shareholders of Pelbro. Each of the Defendants was a resident of the Commonwealth of Pennsylvania at all times material to this litigation.

 6. On March 27, 1981, all of the outstanding and issued shares of Pelbro stock were held by Robert Westrick, and by Defendants Nestor Peles, Nicholas Rend, Stephen Peles and Linda Peles Kohut.

 7. From September 19, 1973, through the time of trial, Defendant Nestor Peles was the president and chief executive officer of Pelbro, and a director of Pelbro.

 8. At all times material to this litigation, Defendant Nicholas Rend was a vice president of Pelbro. Nicholas Rend served as a director of Pelbro from 1981 through the date of trial.

 9. From October 22, 1981 to July 1, 1984, Defendant Stephen Peles was a Vice President of Pelbro.

 10. From March 5, 1974 through September 17, 1974, Defendant Linda Peles Kohut served as secretary of Pelbro.

 11. From September 17, 1974, through October 21, 1981, Robert Westrick served as Secretary of Pelbro.

 12. Between October 26, 1976, and March 27, 1981, Pelbro and the United Mine Workers of America, were signatory to the 1974 Bituminous Coal Wage Agreement and the 1978 Bituminous Coal Wage Agreement.

 13. The National Bituminous Coal Wage Agreement of 1978 expired on March 27, 1981.

 14. Pursuant to Article XX(d)(1) of the National Bituminous Coal Wage Agreement of 1978, Pelbro was required to make contributions on behalf of its work force to the Pension Fund.

 15. Following the expiration of the 1978 National Bituminous Coal Wage Agreement on March 27, 1981, Pelbro has not been required to make contributions to the Pension Fund, and thereby incurred a "withdrawal" within the meaning of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et seq., as amended by the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA").

 16. At all times material hereto, Pelbro was engaged in the mining of bituminous coal in Western Pennsylvania.

 17. Between October 26, 1976 and March 27, 1981, Pelbro employed four to ten union employees under the Bituminous Coal Wage Agreements.

 18. In 1974, Pelbro acquired extensive mining rights to two separate undeveloped surface mining operations known as the "Penn Run" and "Brush Valley" jobs, covering in excess of 1,000 surface acres.

 19. Pelbro engaged in the mining of its "Penn Run" job from 1974 through 1976, and operated the "Brush Valley" job from 1976 through 1985. Pelbro ceased active mining operations in 1985, but has attended to backfilling and reclamation to some degree since that time.

 20. The "Penn Run" leases acquired by Pelbro had a value, at the time of acquisition, of $ 100,000 to $ 125,000.

 21. From 1974, and throughout the course of its coal mining operations, Pelbro held a valid surface mining operators license, mine drainage permits and mining permits on its strip mining operations, issued by the Department of Environmental Resources of the Commonwealth of Pennsylvania.

 22. From 1976 to 1978, Pelbro's coal production was sold to Greenwich Collieries, a division of Pennsylvania Mines Corporation. Pennsylvania Mines Corporation was a subsidiary of Pennsylvania Power and Light Corporation.

 23. From January 1, 1979, and thereafter, Pelbro sold its coal production to Yellow Creek Coal Sales.

 24. Yellow Creek Coal Sales was a sole proprietorship owned by Stephen Peles.

 25. Yellow Creek Coal Sales did not hold a surface mining operators license, mine drainage permits or mining permits and was not authorized by the Commonwealth of Pennsylvania to engage in coal mining operations, and never engaged in coal production. Yellow Creek Coal Sales was solely engaged in the purchase, marketing and sale of coal.

 26. Yellow Creek Coal Sales was formed by Stephen Peles, upon the advice of his father, Nestor Peles, after consultation between Pelbro officials and officials of the Pennsylvania Power and Light network, for the specific purpose of creating a separate business entity to provide a market for Pelbro's coal, and to acquire coal from other sources independent of Pelbro, of different quality and specification than the Pelbro coal, to meet certain standards of the PP&L coal order, resulting from an existing deterioration in the sulphur quality of the Pelbro coal production, which threatened Pelbro's purchase order with the PP&L network.

 27. Pelbro was advised by Pennsylvania Power and Light officials, that if the purchase orders were taken from Pelbro and granted to Yellow Creek Coal Sales, that the purchase orders should thereafter permanently remain with Yellow Creek Coal Sales.

 28. On December 26, 1978, Pelbro sent written notice to the United Mine Workers of America, advising them that Pelbro's coal production would be sold to Yellow Creek Coal Sales, effective January 1, 1979.

 29. PR & W was a partnership comprised of Nestor Peles, Nicholas Rend, Linda Peles Kohut and Robert Westrick, formed for the purpose of providing management and consulting services to Pelbro.

 30. PR & W from time to time provided management and consulting services to Pelbro. Following the creation of Yellow Creek Coal Sales in 1979, PR & W provided management and consulting services to Yellow Creek Coal Sales.

 31. PR & W was terminated in 1982 following Robert Westrick's sale of his stock in Pelbro.

 32. A successor partnership to PR & W was formed by Nestor Peles, Nicholas Rend, Stephen Peles and Linda Peles Kohut, under the name of Ren-Koe.

 33. Pelbro paid management and consulting fees of $ 65,000 to PR & W, comprised of a payment of $ 45,000 on November 25, 1979, $ 10,000 on April 9, 1980 and $ 10,000 on June 10, 1980. Management and consulting fees were paid by Pelbro to Ren-Koe of $ 3,000 on September 10, 1985.

 34. Yellow Creek Coal Sales paid management and consulting fees to PR&W of $ 158,798 during calendar year 1979, $ 146,898 during calendar year 1980 and $ 223,006 during calendar year 1981.

 35. Fair and reasonable compensation paid to managers and supervisors of coal mining operations in Western Pennsylvania during the years material to this litigation was $ 50,000 to $ 75,000 per year.

 36. On March 27, 1981, the United Mine Workers of America commenced a prolonged strike, resulting in a cessation of Pelbro's mining operations for approximately two and one-half months.

 37. Pelbro did not engage in coal mining operations during the term of the strike.

 38. Following the conclusion of the strike, all but two of Pelbro's employees returned to work with Pelbro, however, they did not return as non-union employees, and at no time thereafter was Pelbro a party to any further collective bargaining agreement with the United Mine Workers of America, nor obligated to make further contributions to the Pension Plan, resulting in Pelbro's withdrawal under ERISA from the Pension Fund.

 40. During 1982, Pelbro encountered an unexpected geologic fault, from a vein of coal previously mined by Pelbro of approximately 38 inches, dipping and rolling down to meager veins of, at times, 6 inches, in the coal seams at its Brush Valley job, resulting in a total, catastrophic loss of its coal reserves.

 41. From time to time, Pelbro borrowed funds from banks, from its shareholders, from PR & W and from Yellow Creek Coal Sales.

 42. On March 27, 1981, the sum of the non-bank loans outstanding to Pelbro was $ 255,000, comprised of a loan from Nestor Peles of $ 90,000, Yellow Creek Coal Sales $ 35,000 and PR & W $ 130,000.

 43. By August 31, 1983, the aggregate of the non-bank loans to Pelbro had risen to $ 569,853, an increase of $ 314,853 over the loan balances at August 31, 1981. The August 31, 1983 loan balance was comprised of loans due PR & W of $ 73,053, Yellow Creek Coal Sales of $ 154,400, Nestor Peles of $ 132,101, Nicholas Rend of $ 73,500, Stephen Peles of $ 73,500, Linda Kohut Peles of $ 23,299 and Ren-Koe of $ 40,000. These additional loans were made to Pelbro to enable Pelbro to comply with the backfilling order of the Department of Environmental Resources of the Commonwealth of Pennsylvania.

 44. Although the monies loaned to Pelbro by its shareholders, PR & W and Yellow Creek Coal Sales were not contemporaneously evidenced by Notes or other written obligations of Pelbro, all of the loans were evidenced as such by written notations on the bank deposit records. Although interest was not paid on the loans, the loans were nevertheless recognized as loans at the time by both Pelbro and the lenders and were bona fide loans.

 45. Pelbro paid dividends to its shareholders during each of its eight fiscal years commencing with its initial fiscal year ending August 31, 1974. 46. Pelbro had the following retained earnings: FYE AMOUNT 8/31/74 $ 92,228.62 8/31/75 205,496.48 8/31/76 34,248.01 8/31/77 6,933.01 8/31/78 53,109.23 8/31/79 4,616.29 8/31/80 145,457.92 8/31/81 220,311.18

 47. On September 17, 1983, Pelbro transferred a piece of heavy mining equipment, a dragline, to its shareholders and to PR & W, in consideration of certain loans previously made by these parties to Pelbro, totalling $ 373,383.73. The dragline then had a fair market value of $ 350,000 to $ 400,000. The transfer of the dragline resulted in a cancellation of the indebtedness of Pelbro to these parties for the loans previously made. The transaction was evidenced by a corporate resolution and by a bill of sale.

 48. In 1983, Pelbro transferred 7 motor vehicles, having an approximate fair market value of $ 30,000, to Defendants. The motor vehicles were transferred by Pelbro to the shareholders as partial payment for the loan indebtedness of Pelbro to the shareholders.

 49. During the years 1983 and 1984, Pelbro disposed of substantial other equipment, through bona fide sales and bank repossessions. Additional other equipment noted on Pelbro's depreciation schedules, not presently owned by Pelbro, reflect junked property, property earlier traded-in on other equipment and items of "capital repairs", capitalized on its depreciation schedules and disposed of at the time that the subject equipment was removed. Neither the shareholders, PR & W or Yellow Creek Coal Sales received any financial benefit as a result of these transactions.

 51. Each of the corporate officers and directors played a viable function in the performance of their duties on behalf of the corporation. Each of the officers and directors was personally involved in the business of the corporation. Each of the officers and directors devoted time, energy and attention to the affairs of the corporation.

 52. At all times material to this litigation, Pelbro observed basic corporate formalities, although in an informal manner. Pelbro gave the appearance to all concerned that it was a corporation. Pelbro issued stock certificates to its shareholders, maintained a corporate minute book and stock register and utilized a corporate seal. Corporate meetings were conducted from time to time. Officers and directors were elected. Pelbro maintained offices, had business stationery and a business telephone. The assets utilized by Pelbro were titled in Pelbro's name. Pelbro used the suffix "Inc." at the time of the execution of the National Bituminous Coal Wage Agreement of 1974 and the National Bituminous Coal Wage Agreement of 1978, on its tax returns and on most other documents compiled by Pelbro.

 53. Pelbro was an entity distinct from its shareholders, distinct from Yellow Creek Coal Sales and distinct from PR & W and Ren-Koe. Pelbro was engaged in the mining and extraction of coal, was the employer of four to ten employees and an operating company.

 54. Pelbro maintained substantial records and complied with the general record keeping standards required of a business corporation. Corporate minutes and resolutions were prepared with some degree of regularity. A corporate minute book was maintained. By-laws were adopted by the corporation. Stock certificates were issued by the corporation to its shareholders. A stock transfer ledger was acquired by Pelbro, kept up-to-date and maintained along with corporate records. The corporation maintained ledgers and books of account, and financial statements were routinely prepared. Federal and state tax returns were routinely filed. Pelbro's records were kept separate and apart from the records of its shareholders and from the records of Yellow Creek Coal Sales and PR & W/Ren-Koe. Pelbro routinely compiled and submitted employers quarterly federal tax returns, unemployment compensation reports, workers compensation reports, federal coal excise tax returns and surface and reclamation returns. All loans made to Pelbro by the shareholders were recorded as loans on the deposit records of Pelbro.

 55. Pelbro was not insolvent at any time through March 27, 1981

 56. Pelbro maintained separate bank accounts, and maintained its funds separate and apart from any funds of its shareholders, Yellow Creek Coal Sales, PR & W or Ren-Koe. At no time did Pelbro comingle its funds with the funds of any other person.

 57. Pelbro was incorporated by the incorporators for legitimate purposes, and not as a fraud or subterfuge or facade for the operations of any other person.

 58. Pelbro never operated as a facade for the operations of any other person.

 59. Pelbro's insolvency arose as a result of economic conditions resulting from a backfilling order imposed by the Department of Environmental Resources of the Commonwealth of Pennsylvania, and the attendant costs to comply with the backfilling order and the loss of coal production resulting from coal mining equipment being utilized for backfilling purposes, and as a result of the loss of its coal reserves from the subsurface geologic conditions encountered at the Brush Valley job.

 60. Plaintiffs never sent written notice to the Defendants, as individuals, advising Defendants that they were personally liable for the payment of the withdrawal liability of Pelbro.

 61. Defendants are not employers, as that term is defined under ERISA, and Defendants are not the alter ego of Pelbro.

 1. This Court has subject matter jurisdiction as conferred by ERISA, 29 USC § 1451(c). Further, the Court has personal jurisdiction over Defendants and venue is proper in this Court pursuant to ERISA 29 U.S.C. § 1451(d).

 2. Pelbro Fuel, Inc., a Pennsylvania business corporation incurred a "withdrawal" from the pension plans administered by Plaintiff, as defined under ERISA, on March 27, 1981, resulting in an obligation of "withdrawal liability" to Plaintiffs.

 3. The claim asserted by Plaintiffs before the Court at trial is founded exclusively upon the "alter ego" theory of "piercing the corporate veil" and Defendants were never lawfully notified as to Plaintiff's claim against them.

 4. Defendants were not the "alter ego" of Pelbro on March 27, 1981, before or at any time thereafter material to this litigation. The facts found in this case do not justify a piercing of the corporate veil.

 5. Plaintiffs have not pleaded, nor are they entitled to recover upon any theory of preferential transfers, defacto liquidations, fraudulent conveyances or the like under the "Avoidance" statutes of ERISA, 29 U.S.C. § 1392(c).

 6. Plaintiffs have not pleaded, nor are entitled to recover under the "controlled group" statutes, 29 U.S.C. § 1301(b)(1).

 7. Defendants are entitled to reasonable attorneys fees and costs, 29 U.S.C. § 1132(g)(1), to be determined by the Court upon application to be by Defendants within ten (10) days after the date of entry of judgment by the Court, and after consideration of any answer thereto, to be filed by plaintiffs within ten (10) days after service of Defendants' application for attorneys fees and costs.

 DISCUSSION OF FACTS

 This action is before this Court pursuant to a complaint filed by the Plaintiffs, Trustees of the United Mine Workers of America (hereinafter "UMWA") 1950 and 1974 Pension Plans (hereinafter "Plans") against the Defendants seeking "withdrawal liability" as provided under the Employee Retirement Income Security Act of 1974 (ERISA) 29 U.S.C. § 1001, et seq., as amended by the Multi-Employer Pension Plan Amendments Act of 1980 ("MPPAA").

 Plaintiffs' original complaint set forth three separate counts wherein Plaintiffs alleged that the Defendants were responsible for the "Withdrawal Liability" under the provision of 1950 and 1974 UMWA Pension Plans. Counts I and II of Plaintiffs' original Complaint were dismissed by Order of this Court on April 8, 1987, because the Defendants were not "employers" as defined under ERISA or the Labor Management Relations Act and because the pendant state law claim asserting that Defendants were employers under a Pennsylvania Statute is pre-empted by ERISA and the "MPPAA".

 Plaintiff filed an amended complaint *fn1" alleging that Pelbro Fuel, Inc., a signatory to the National Bituminous Coal Wage Agreements of 1974 and 1978 and the individual defendants had incurred "Withdrawal Liability" as imposed by ERISA; that Pelbro Fuel, Inc., and the Defendants were notified of the assessment of "Withdrawal Liability" that Pelbro Fuel, Inc., and the individual Defendants had failed to discharge their "Withdrawal Liability" obligations; that the individual Defendants had significant ownership interest and control over the operation of Pelbro Fuel, Inc.; that the individual Defendants were personally involved in matters pertaining to the 1950 and the 1974 U.M.W.A Pension Trusts and the decision of Pelbro Fuel, Inc. to withdraw therefrom; that the individual Defendants acted in the interest of Pelbro Fuel, Inc. in relation to the Pension Trusts; that Pelbro Fuel, Inc. was undercapitalized; that corporate formalities had not been observed in the operation of Pelbro Fuel, Inc.; that Pelbro Fuel, Inc. had failed to pay dividends; that the individual Defendants had siphoned the funds of Pelbro Fuel, Inc.; that Pelbro Fuel, Inc. was a facade for the operations of the individual Defendants; that the individual Defendants operated Pelbro Fuel, Inc. with personal funds and loaned large sums of money to Pelbro Fuel, Inc.; that the individual Defendants repaid their loans to Pelbro Fuel, Inc. from Pelbro Fuel, Inc. funds while Pelbro Fuel, Inc. was failing; that consequently the individual Defendants and Pelbro Fuel, Inc. were alter egos and that the individual Defendants are jointly and severally liable to the plaintiffs for the withdrawal liability.

 Defendants have denied all of the plaintiffs relevant allegations and contend that they have no financial obligation of any kind to the plaintiffs, and in any event they were not lawfully notified of plaintiffs' claim.

 A non-jury trial of some length was held and this Court has hereinabove determined the findings of fact from the evidence presented in said case, and has formulated appropriate conclusions of law as hereinabove stated, and this Opinion, which now follows, is a discussion of the same.

 Pelbro is a Pennsylvania corporation engaged in coal mining, that was signatory to the 1974 and 1978 Bituminous Coal Wage Agreements with the UMWA between October 26, 1976, and the expiration of the 1978 Bituminous Coal Wage Agreement on March 27, 1981 (Paragraphs 8 and 11, Amended Complaint and Answer, Defendants' Exh. 34 and 36).

 Defendants, Nestor Peles, Nicholas Rend, Stephen Peles and Linda Kohut are all residents of the Commonwealth of Pennsylvania. Nestor Peles served as Chairman of the Board, President and Director of Pelbro Fuel, Inc. ("Pelbro"), a Pennsylvania corporation (Stipulation of Parties N.T. 6-7). Nicholas Rend served as Secretary/Treasurer of Pelbro Fuel, Inc. (N.T. 10-22), and has served as Director of Pelbro since October 22, 1981 (Plaintiffs' Exh. 11 p. 18). Stephen Peles served as a vice-president of Pelbro from October 22, 1981 (Plaintiffs' Exh. 11, p. 18) through July 1, 1984 (Plaintiffs' Exh. 11, p. 29). Nestor Peles, Nicholas Rend, Stephen Peles and Linda Kohut are all shareholders of Pelbro (N.T. 6-11).

 Between October 26, 1976 and March 27, 1981, Pelbro employed between four to ten employees (N.T. 367-368, 1020), remitting dues through check-offs to the UMWA regularly on their behalf (N.T. 1136-1138), Defendants' Exh. 39).

 Pelbro was incorporated on September 19, 1973, under the laws of the Commonwealth of Pennsylvania, by the filing of Articles of Incorporation with the Corporation Bureau of the Department of State (Plaintiffs' Exh. 1). The initial incorporators were Nestor Peles, one of the Defendants herein, and his brother, Joseph Peles (N.T. 32-33). Nestor Peles and Joseph Peles had been involved in coal mining operations for many years prior to the formation of Pelbro. Pelbro did not commence operations immediately following incorporation and did not engage in business until 1974 (N.T. 40-41). Joseph Peles, in the interim, transferred his stock in Pelbro to Nestor Peles, prior to the commencement of coal mining operations (N.T. 42). The purpose of incorporation was to provide continuity of life to the business entity (N.T. 84), for tax reasons and as a shield against personal liability (N.T. 984-981). Following the acquisition by Nestor Peles of the stock of his brother, Joseph Peles, certain stock issues in Pelbro were acquired by the other Defendants, all children or spouses of the children of Nestor Peles, through stock gifts from Nestor Peles or through subsequent original issues by the corporation (N.T. 1296). *fn2"

  The paid-in capital reflected on Pelbro's books for its original stock issue was $ 2,000.00 (N.T. 1297). The paid-in capital reflected on the books of the corporation has never exceeded $ 3,846.00 (N.T. 502). Pelbro was a cash basis taxpayer and maintained its books and records on a cash basis (N.T. 549, 584). Shortly after its incorporation, however, Pelbro acquired a series of coal leases from its incorporation, Nestor Peles and Joseph Peles, through an assignment dated March 15, 1974, (Defendants' Exh. 4, N.T. 992-993), at about the time that Joseph Peles transferred his shares to Nestor Peles, and prior to commencing business operations. The coal leases (Defendants' Exh. 5-11 and 12-15) covered extensive mining rights to two separate undeveloped surface mining operations known as the "Penn Run" and "Brush Valley" jobs (N.T. 998-1015) covering in excess of 1,000 surface acres (N.T. 1019, 1143-1146). The value of the "Penn Run" leases alone was estimated by Nestor Peles to be between $ 100,000 and $ 125,000 (N.T. 1016-1018) and estimated by Pelbro's accountant to be $ 125,000 at the time the leases were contributed to the corporation (N.T. 508-509). For bookkeeping purposes, the leases were never recorded as an asset on any of the corporations' financial statements, as Pelbro was a cash basis taxpayer and nothing was ever paid by Pelbro for the leases (N.T. 507, 508). Pelbro had issued "no par" stock. When the "Penn Run" and "Brush Valley" leases were contributed to the capital of Pelbro, the true value of the Pelbro stock would have increased proportionately (N.T. 504-505).

 Pelbro engaged in the mining of its "Penn Run" job from 1974 through 1976 (N.T. 1027-1028). During this time, Pelbro's gross revenues from the Penn Run job, through exploitation of the "Penn Run" leases (Defendants' Exh. 5-11) were approximately $ 2,796,771. *fn3" At the "Penn Run" job, Pelbro mined the "B" seams of coal, a vein with a uniform thickness of 36 to 38 inches (N.T. 1006-1007).

 After extraction of the mineable coal from the Penn Run job, Pelbro commenced operations at its Brush Valley job site in the fall of 1976, although Pelbro continued backfilling and reclamation operations at its Penn Run job (N.T. 1027-1028).

 At the time that the Brush Valley leases (Defendants' Exh. 12-15) were contributed to the capitalization of Pelbro, their value was unknown because of a lack of specific data (N.T. 1016-1018). This aspect of Pelbro's capitalization, however, resulted in substantial income to Pelbro over the years, as reflected in Pelbro's tax returns (Plaintiff Exh. 29, 33-37). *fn4"

 From 1976 to 1978, Pelbro's coal production was sold to Greenwich Collieries, a division of Pennsylvania Mines Corporation. Pennsylvania Mines Corporation was a subsidiary of Pennsylvania Power and Light Corporation, (Court Exh. 1).

 At all times material to this litigation, Pelbro held a valid Surface Mining Operators License issued by the Department of Environmental Resources of the Commonwealth of Pennsylvania (N.T. 1150-1153, Defendants' Exh. 42). At all times Pelbro held valid Mine Drainage Permits and Mining Permits on its strip mine operations (N.T. 1143-1149, Defendants' Exh. 41). The combination of the mining "license" and mining "permits" entitled Pelbro to engage in strip mining operations under the laws of the Commonwealth of Pennsylvania.

 The principals assumed different roles and functions on behalf of Pelbro. Nestor Peles, its President, served as the general supervisor of all field and business matters and, essentially, was the chief executive officer and figure-head of the corporation (N.T. 372). Nicholas Rend, directly supervised the coal extraction and loading operations (N.T. 373) and was in charge of mine safety (N.T. 1024-1026). Stephen Peles was responsible for supervision of machinery and mechanical repairs (N.T. 373, 1029). Robert Westrick was primarily responsible for bookkeeping and similar functions (N.T. 1024-1026). There was by necessity, given the closely-held nature of the business, substantial overlapping of responsibilities and functions (N.T. 1024-1026).

 In 1978, Pelbro encountered serious concerns with the quality of the coal at its "Brush Valley" job, essentially a "deteriorating" high sulfur grade encountered in the seam and being mined (N.T. 1040-1041). The problem threatened Pelbro's purchase order with the Pennsylvania Power and Light network and led to serious talks with PP & L officials (N.T. 1041, 1043-1044). At this point, Pelbro was producing significant quantities of coal and, as described by Nestor Peles, things were "going too fast" (N.T. 1155-1159).

 In an attempt to solve the serious problems encountered by Pelbro with the high sulfur content of its coal, Nestor Peles suggested the formation of a separate company as a "Marketing agent" and source for the purchase of Pelbro's coal. The idea, reviewed with and approved by management of the PP & L network, gave rise to the formation of "Yellow Creek Coal Sales", *fn5" an independent company. The independence of Yellow Creek from Pelbro enabled Yellow Creek to more readily purchase coal from other coal producers who were reluctant to sell coal to other coal operators with whom they competed on a day-to-day basis (N.T. 1304, 1312-1314).

  Following substantial discussions with PP & L officials, a determination was made by the PP & L network to terminate the Pelbro coal orders, and to commence an ongoing purchase arrangement with Yellow Creek (N.T. 1046)

  At the time the purchase order was given up by Pelbro and acquired by Yellow Creek, the PP & L officials made it plain that they viewed a long-term relationship with their customers as paramount, and that, if the order were obtained by Yellow Creek, that the arrangement should be permanent (N.T. 1063). Accordingly, Pelbro sent written notice to the UMWA on December 26, 1978 (Defendants' Exh. 43, Plaintiffs' Exh. 59) that its coal production would thereafter be sold to Yellow Creek. The Pension Fund also received a copy of the letter (Plaintiffs' Exh. 59, p. 88).

  Yellow Creek was engaged strictly in the business of the purchase and sale of coal. Yellow Creek never held a surface mining license or surface mining permits (N.T. 1149-1150). Yellow Creek utilized its own business stationery (Defendants' Exh. 33) and its financial transactions were the subject of separate tax reporting by Stephen Peles (Plaintiffs' Exh. 44-49). Although Yellow Creek did not require a separate office, its files were kept separate and apart from the Pelbro records (N.T. 1073-1074). Trucking and transportation expenses for delivery of the coal purchased by Yellow Creek to the Greenwich Collieries facilities were paid by Yellow Creek (N.T. 295-296).

  Following the creation of Yellow Creek, Pelbro sold its coal production on an on-going basis directly to Yellow Creek. During 1979, Yellow Creek purchased all of Pelbro's coal production and purchased approximately 352,000 ton of low sulfur grade coal from independent sources (N.T. 779-782, 1171). Under an arrangement worked out between Yellow Creek and Greenwich Collieries (through the PP & L network), Yellow Creek shipped all of the coal acquired from Pelbro directly to Greenwich Collieries, and shipped all of the low grade sulfur coal acquired from independent sources directly to Greenwich Collieries. Under the purchase order between Greenwich Collieries and Yellow Creek, all of the coal sold by Yellow Creek during any calendar ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.