499 F.3d 144 (2nd Cir. 2007), 05-6440, Coppola v. Bear Stearns & Co., Inc.

Docket Nº:Docket No. 05-6440-cv.
Citation:499 F.3d 144
Party Name:Vincent J. COPPOLA, Michael Breslin, and Olin McDonald, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. BEAR STEARNS & CO., INC., Bear Stearns Home Equity Trust, Bear Stearns International Limited, and EMC Mortgage Corporation, Defendants-Appellees.
Case Date:August 30, 2007
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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Page 144

499 F.3d 144 (2nd Cir. 2007)

Vincent J. COPPOLA, Michael Breslin, and Olin McDonald, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants,

v.

BEAR STEARNS & CO., INC., Bear Stearns Home Equity Trust, Bear Stearns International Limited, and EMC Mortgage Corporation, Defendants-Appellees.

Docket No. 05-6440-cv.

United States Court of Appeals, Second Circuit

August 30, 2007.

Argued: January 11, 2007.

Appeal from a judgment of the United States District Court for the Northern District of New York (Scullin, J.) granting summary judgment to defendants-appellees on the ground that defendant-appellee Bear Stearns was not an "employer" of plaintiffs-appellants under the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2101-09. We affirm.

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Cornelius D. Murray (Pamela A. Nichols, Michael D. Assaf, of counsel), O'Connell & Aronowitz, Albany, NY, for Plaintiffs-Appellants.

Neil L. Levine (Alan J. Goldberg, John P. Calareso, Jr., of counsel), Whiteman Osterman & Hanna LLP, Albany, NY, for Defendants-Appellees.

Before: WINTER, CABRANES, Circuit Judges, and KORMAN, District Judge.[*]

WINTER, Circuit Judge:

The appellants here filed a class-action lawsuit against appellees Bear Stearns & Co., Inc. ("Bear Stearns" or "Bear"), Bear Stearns Home Equity Trust, Bear Stearns International Limited, and EMC Mortgage Corporation, for violation of the Worker Adjustment and Retraining Notification Act ("WARN"), 29 U.S.C. §§ 2101-09. Appellants claim that Bear Stearns closed the principal offices of National Finance Corporation ("NFC"), their employer and a debtor of Bear Stearns, and terminated their employment without the advance written notice required by WARN. Judge Scullin granted appellees' motion for summary judgment, holding that appellees had no liability under WARN because Bear

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was not appellants' "employer" within the meaning of the statute. We agree and affirm.

BACKGROUND

Given the procedural posture of this matter, we view the facts in the light most favorable to appellants. Cioffi v. Averill Park Cent. Sch. Dist. Bd. Of Educ., 444 F.3d 158, 162 (2d Cir. 2006). Appellants were employees of NFC until its closure on December 23, 1999. NFC's business consisted of the origination and resale of mortgages and home equity loans to residential customers. It earned revenue from fees charged for originating the loans and from premiums paid by purchasers of the loans in the secondary market. To conduct this business, NFC relied on two lines of credit: a short-term "operating" credit line from BankBoston ("BB"), and a longer-term "warehouse" credit line from Bear Stearns. NFC used the BB line to fund its origination of loans, which became collateral for the debt incurred to BB. If a loan on the BB line sold quickly in the secondary market, NFC would use the receipts to pay off its debt to BB. Otherwise, NFC would sell the loan to Bear and "sweep" it into the warehouse line, with the right and obligation to repurchase it from Bear in the event of resale or default on the part of NFC. When NFC sold a loan on the Bear warehouse line, it would pay Bear an agreed-on price to repurchase the loan from Bear and retain any profit earned from the sale. NFC paid off the amount owed on the BB line on an approximately weekly basis.

NFC fell on hard times in the fall of 1998, and by February 1999, could not fund its continued operations. To obtain the needed funds, NFC, chiefly through David Silipigno, NFC's then-President and CEO, retained money from sales of loans on the warehouse line that it should have paid to Bear Stearns. NFC covered its tracks by falsifying the weekly loan schedules it submitted to Bear, listing resold loans as unsold and still available as collateral on the warehouse line.

In August 1999, NFC's misappropriations -- which by that point amounted to $5.6 million of Bear's money -- were discovered by Westwood Capital ("Westwood"), a company NFC had hired to help sell NFC. In November 1999, Westwood persuaded NFC to disclose its conduct to Bear. NFC's actions had placed NFC in default under the terms of the Master Repurchase Agreement ("MRA") governing its relationship with Bear, and Bear consequently had the right under the MRA to seize all loans on the warehouse credit line to pay off the line. Instead, Bear pursued a workout strategy that would allow NFC to remain in business for a time in the hope of selling NFC and using the proceeds to repay Bear.

Bear refused, however, to continue to do business with the individuals responsible for the fraud. In response, David Silipigno, Joseph Silipigno, and the other NFC personnel involved in the theft resigned as officers of NFC. Harvey Marcus, NFC's General Counsel, volunteered to serve as the new President and CEO. He was confirmed in this position by a "Unanimous Consent" executed on November 24, 1999, by NFC's board, which appears to have consisted solely of David and Joseph Silipigno. The Unanimous Consent also reflected that the Silipignos' resignation as officers was effective as of November 23, 1999.

On November 23, 1999, NFC and Bear entered into a letter agreement (the "November 23 Agreement") formalizing the terms on which they would agree to continue their business relationship. Because Marcus had no experience managing a mortgage business, NFC hired an individual

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named Bill Bradley to run NFC until it was sold. Bear agreed to subordinate its claims against NFC to Bradley's bonus in the event of NFC's sale or bankruptcy.

Bear also accepted stock pledge agreements from the Silipignos representing their entire ownership interests in NFC (in total, 96% of NFC's stock). The pledge agreements reflect that Bear was entitled to exercise its...

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