Chaney v. Vt. Bread Co.
| Docket Number | 2:21-cv-120 |
| Decision Date | 24 August 2023 |
| Parties | Matthew Chaney, Nadine Miller and Arthur Gustafson, on behalf of themselves and all others similarly situated, Plaintiffs, v. Vermont Bread Company, Superior Bakery, Inc., Koffee Kup Bakery, Inc., Koffee Kup Distribution LLC, KK Bakery Investment Company LLC, KK Bakery Holding Acquisition Company, and American Industrial Acquisition Corporation, Defendants, and Linda Joy Sullivan, in her capacity as the Dissolution Receiver for Koffee Kup Bakery, Inc., Vermont Bread Company, Inc. and Superior Bakery, Inc., Intervenor-Defendant-Crossclaimant, v. KK Bakery Investment Company, LLC, KK Bakery Holding Acquisition Company, and American Industrial Acquisition Corporation, Crossclaim Defendants. |
| Court | U.S. District Court — District of Vermont |
1
Matthew Chaney, Nadine Miller and Arthur Gustafson, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
Vermont Bread Company, Superior Bakery, Inc., Koffee Kup Bakery, Inc., Koffee Kup Distribution LLC, KK Bakery Investment Company LLC, KK Bakery Holding Acquisition Company, and American Industrial Acquisition Corporation, Defendants,
and
Linda Joy Sullivan, in her capacity as the Dissolution Receiver for Koffee Kup Bakery, Inc., Vermont Bread Company, Inc. and Superior Bakery, Inc., Intervenor-Defendant-Crossclaimant,
v.
KK Bakery Investment Company, LLC, KK Bakery Holding Acquisition Company, and American Industrial Acquisition Corporation, Crossclaim Defendants.
No. 2:21-cv-120
United States District Court, D. Vermont
August 24, 2023
AMENDED OPINION AND ORDER
WILLIAM K. SESSIONS III U.S. DISTRICT COURT JUDGE
Plaintiffs Matthew Chaney, Nadine Miller, and Arthur Gustafson, on behalf of themselves and a class of similarly-situated persons, bring this action alleging violations of the Worker Adjustment and Retraining Notification (“WARN”) Act of 1988, 29 U.S.C. §§ 2101-2109, et seq. Plaintiffs and other class members are former employees of Koffee Kup Bakery, Inc. (“Koffee Kup”), Vermont Bread Company, Inc. (“Vermont Bread”), and/or Superior Bakery, Inc. (“Superior”) (collectively the “Koffee Kup Entities”). Those Koffee Kup Entities appear in this case through the intervening, state-court-appointed Dissolution Receiver of their assets, Linda Joy Sullivan (the “DR”). Other defendants include the alleged purchasers of the Koffee Kup Entities, American Industrial Acquisition Corporation (“AIAC”) and Koffee Kup Bakery Investment Company, Inc. (“KKBIC”).[1]The DR has asserted a crossclaim against AIAC and KKBIC seeking indemnification.
Several motions are pending before the Court, including motions for summary judgment filed by Plaintiffs, the DR, and AIAC/KKBIC, respectively, and Plaintiffs' two motions to strike
certain affidavits. For the reasons set forth below, Plaintiffs' motions to strike are denied without prejudice; their motion for summary judgment is granted in part and denied in part; the DR's motion for summary judgment is granted in part and denied in part; and AIAC/KKBIC's motion for summary judgment is denied.
Factual Background
On or about April 26, 2021, three bakeries - Koffee Kup, Vermont Bread, and Superior - ceased operations. As a result, hundreds of people lost their jobs. Plaintiffs, representing a class of those former bakery employees, allege that they were not provided advance notice of their terminations as required by the WARN Act. If Plaintiffs succeed on their claims, including the allegation that all three bakeries were owned and operated by a single employer, the employer may be subject to civil liability in the form of back pay and benefits for up to a maximum of 60 days for each of the over 400 members of the class. See 29 U.S.C. § 2104(a)(1).
The three bakeries were owned by Kup Co., a holding company. More specifically, Vermont Bread and Superior were subsidiaries of Koffee Kup, and Koffee Kup was wholly owned by Kup Co. ECF No. 87-8. None of the three bakeries had their own board of directors. ECF No. 203-11 at 27. Kup Co. had a board of directors, and during the period in question the bakeries
shared the same upper management, including a single Chief Executive Officer (“CEO”).
Prior to April 2021, Kup Co. was in poor financial condition and was in default to its primary lender, Key Bank. The company's forbearance agreement with Key Bank had lapsed and was not renewed. In late 2020 and the first quarter of 2021, Koffee Kup hired G2 Capital Advisors, LLC (“G2 Capital Advisors”) to search for a purchaser or partner to provide the company with working capital. ECF No. 203-11 at 26. In the course of that effort, G2 Capital Advisors provided financial information to Jeffrey Sands. Sands was working with Leonard Levie and Levie's company, AIAC. ECF No. 203-18 at 2-4. Sands' company, Dorset Partners, LLC, had an engagement agreement with AIAC. ECF No. 203-5 at 3. It was Sands who brought Koffee Kup to AIAC's attention. ECF No. 203-13 at 9.
AIAC specializes in purchasing underperforming companies and working to make them profitable. ECF No. 203-23 at 3. Sands pitched AIAC as the best potential buyer for Kup Co., describing AIAC as
a family office with no limited partners. They invest their own funds to build strong companies which they hold for the long term. AIAC is an active owner. Our Chairman receives daily cash, working capital and loan data from each company We manage professionally and conservatively to build strong businesses. AIAC has over 8,500 employees with deep pools of talent to solve complex operational and financial problems.
Id. An email sent by Sands to G2 Capital Advisors dated December 31, 2020 outlined a new Koffee Kup management team that would “report to Leonard [Levie] at AIAC headquarters.... Leonard is the founder and sole shareholder of AIAC. He wants to buy KK, has owned other commercial bakeries and two of his most successful companies are in Vermont.” ECF No. 203-27. A PowerPoint presentation offered by Sands identified “AIAC Executive Leadership for Koffee Kup” as Sands and new CEO Mark Gauthier. ECF 203-23.
Prior to the purchase of Kup Co., Sands reportedly requested financial information about Kup Co.'s sales and earnings for the third financial period of 2021 (“P3”), ending March 21, 2021. ECF No. 202-4 at 3-4. On March 18, 2021, G2 Capital Advisors sent Sands copies of Kup Co.'s 2021 budget. Id. at 3. Sands attests that when he inquired in late March 2021 about the company's performance during P3, Koffee Kup's Mark Coles reported that sales “were slightly off for the period while G2 Capital Advisors also indicated that there was no material change [from the budgeted projections].” Id. at 4.
Evidence submitted by the DR suggests that AIAC representatives were given full access to the bakeries' sales data. ECF No. 214-5 at 5. According to the testimony of Koffee Kup's Coles, on March 12, 2021, Koffee Kup gave AIAC access to and training on the company's “BIRST” system, which tracked
sales. Id. Coles testified that information from the BIRST system would have allowed AIAC to predict any net revenue shortfall in the P3 financials. Id. at 8-9.
The offer to purchase Kup Co. was submitted on AIAC letterhead signed by Levie as “Chairman AIAC.” ECF No. 203-30. Levie authorized the formation of KKBIC on March 29, 2021. ECF No. 203-25. Levie ultimately owned 85% of KKBIC and Sands the other 15%. Pursuant to a Stock Purchase Agreement (“SPA”) dated April 1, 2021, KKBIC purchased 80% of the stock of Kup Co. for a price of $1.00. ECF No. 198-10 at 6, 13. KKBIC also purchased $14,314,000 of Kup Co.'s subordinated debt for $1,000,000. Id. at 13, 35.[2]After KKBIC purchased the majority of Kup Co.'s shares, Levie and Sands occupied two of the three seats on Kup Co.'s board of directors.
The $1,000,000 for the purchase was provided by Alliance Manufacturing and Trading Company (“AMTC”), an AIAC affiliate. ECF No. 203-13 at 16-17. Although AIAC and KKBIC initially testified through their designated deponents that AMTC loaned the funds to KKBIC for the acquisition, each entity stated in subsequent errata sheets that no formal loan existed. ECF Nos. 203-35, 203-36. As part of the purchase agreement, KKBIC also
agreed to contribute up to $2.5 million as needed. ECF Nos. 198-10 at 13, 203-30 at 3-4. It is unclear where that money would come from, since KKBIC had no bank account and is insolvent. ECF Nos. 203-26 at 2, 203-6 at 10.
On April 1, 2021, Sands sent an email to Koffee Kup managerial employees stating that “AIAC has brought in their inhouse turnaround team to restructure the business, manage it through a transition and then establish a long-term strategic plan to guide the business in the decades which follow.” ECF No. 203-38 at 58. Sands also sent employees a PowerPoint presentation that included the statement: “On April 1, 2021, AIAC made a control investment in Koffee Kup Bakery.” ECF No. 203-38 at 64.
Sands attests that within days of the purchase, he discovered Kup Co.'s financial situation was much worse than previously disclosed. Sands states that on April 5, 2021, he learned that the company's P3 gross sales were $963,693 below budget. ECF No. 202-4 at 4. He further contends that the P3 financials were prepared prior the SPA closing, and were wrongfully withheld until after the sale was finalized. Id. at 5. According to Sands, a new “forecast based upon the true financials projected substantial, multi-million-dollar losses and a negative cash balance by the end of 2021.” Id. at 6.
The DR contests Sands' accusations, asserting that Sands and CEO Gauthier had access to all of the company's financials, including access to the BIRST system, prior to the SPA closing. ECF No. 198-23 at 2 (Coles Timeline, to which Coles attested in his deposition at ECF No. 203-12 at 25). Those financials reportedly showed significant losses through 2021 P2, requiring the former shareholders to advance over $14 million to keep the company operating. When asked for the P3 financials in late March 2021, Coles responded to Sands that the company did not have complete sales data at that time, and that the information would not be final until April 1. ECF No. 198-23 at 2.
The P3 financials were emailed to Coles at 4:29 p.m. on April 1. ECF No. 209-22 at 2. The DR submits that there is no evidentiary support, aside from Sands' own statement, for the claim that G2 Capital Advisors delayed those financials or misled anyone about the strength of the company. The DR further contends that if access to the P3 financials was critical for closing, the buyer could have waited a few more days before completing the deal.
In his deposition, Sands recalled...
To continue reading
Request your trial