Holcomb v. Pilot Freight Carriers, Inc.
| Decision Date | 14 September 1990 |
| Docket Number | No. C-89-227-WS.,C-89-227-WS. |
| Citation | 120 BR 35 |
| Parties | Bettie C. HOLCOMB, et al., Plaintiffs, v. PILOT FREIGHT CARRIERS, INC., et al., Defendants. |
| Court | U.S. District Court — Middle District of North Carolina |
J. Kevin Morton, J. Griffin Morgan, Robert M. Elliot, B. Ervin Brown, II, Winston-Salem, N.C., J. David James, Marion G. Follin, III, Greensboro, N.C., James A. McCall, Teamsters Natl. Frt. Ind., Negot. Comm., James T. Grady, Int. Broth. of Teamsters, Chauffeurs, Warehousemen and Helpers of America, AFL-CIO, Washington, D.C., for plaintiffs.
Reid Phillips, Greensboro, N.C., Lawrence W. Marquess, Heron, Buchette, Ruckert & Rothwell, Denver, Colo., for defendants.
On July 30, 1990, the United States Magistrate's Findings and Recommendation was filed and notice was served on the parties pursuant to 28 U.S.C. § 636. Thereafter, the Court received plaintiffs' objections to the Magistrate's Findings and Recommendation.
The Court has appropriately reviewed plaintiffs' objections de novo and finds they do not change the substance of the Magistrate's rulings which are affirmed and adopted.
NOW, THEREFORE, pursuant to the Magistrate's Findings and Recommendation, it is ORDERED that defendants' motion to stay this action pending the lifting of the automatic stay provisions of 11 U.S.C. § 362 be, and the same hereby is, granted but otherwise is denied.
IT IS FURTHER ORDERED that this action be referred to the bankruptcy court of this District (in the case In re Pilot Freight Carriers, Inc., B-89-01552C-7) for further proceedings for disposition of the alter ego claims as more particularly discussed in the Findings and Recommendation.
RUSSELL A. ELIASON, United States Magistrate.
This matter comes before the Court on a series of motions. What had started out to be a simple request by defendants to delay discovery has now blossomed into their challenge to this Court's subject matter jurisdiction or at least the plaintiffs' standing to pursue these actions. These actions were filed separately. The plaintiffs are all different in each suit but the defendants are the same. Because the present issues before the Court are the same, the matters are consolidated for purposes of this decision. A brief discussion of the procedural history of these cases is in order.
The events which provoked these two lawsuits resulted from the closing of Pilot Freight Carriers, Inc. ("Pilot"). The Holcomb suit was filed first, on March 31, 1989. These plaintiffs, who are former nonunion workers of Pilot brought a class action lawsuit alleging (1) Pilot failed to give the 60-day notice required by the newly enacted Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101, et seq. ("WARN"), (2) a violation of the Employee Retirement Income Security Act, 29 U.S.C. § 1001, et seq. ("ERISA"), (3) a violation of the North Carolina Wage and Hour Act, N.C.G.S. § 95-25.1, et seq., (4) common law fraud as to wages and benefits, (5) common law fraud in the liquidation of company assets, and (6) punitive damages. Each of these allegations allege that the defendants, other than Pilot, who had controlling interest in Pilot or each other, all of whom were allegedly ultimately controlled by Allan D. Musgrove, were the alter ego of Pilot and operated Pilot as a mere instrumentality and that within 84 days of obtaining a controlling interest in Pilot, they sold Pilot's assets and eventually closed the company.
The Kinton lawsuit was filed by Pilot's union employees and the union, who seek relief against Pilot for a violation of WARN and alleging that the other defendants were also their employer under WARN and that these defendants aided and abetted Pilot in its actions. In another cause of action, these other defendants are alleged to have pilfered Pilot's assets and operated it as their mere alter ego. Finally, Pilot was cited for violating the North Carolina Wage and Hour Act.
In the summer of 1989, the matter came before the Court on plaintiffs' motion for a preliminary injunction. On June 20, 1989, a hearing was held. Before a decision was reached, Pilot was brought into bankruptcy court by an involuntary Chapter 7 petition which automatically stayed this and any related actions involving Pilot. In re Pilot Freight Carriers, Inc., B-89-01552C-7 (M.D.N.C.). These matters are reflected in a July 27, 1989 Order. In that Order, the court found the request for preliminary injunctive relief to be moot, because of the bankruptcy, with respect to the then present assertions, and thus the motion for preliminary injunction was denied without prejudice. Because of these rapid turn of events, the Court sua sponte directed that plaintiffs supplement their motion for class certification and their motion to amend and supplement their complaint in order to address the new problems facing the Court as a result of Pilot's bankruptcy proceeding. (August 7, 1989 Order.)
In September, 1989, plaintiffs' motion for class certification (Kinton) or its supplementation (Holcomb) was filed. Instead of responding directly to that motion, the non-bankrupt defendants (hereinafter simply referred to as defendants) filed a motion to stay discovery until the bankruptcy court lifted the automatic stay resulting from 11 U.S.C. § 362 with respect to Pilot Freight. They also moved for an order completely staying this action pending a lifting of the section 362 automatic stay. Finally, defendants request a stay pursuant to the Court's general equitable powers found in 11 U.S.C. § 105(a). Plaintiffs in both actions opposed the motion. Interestingly, the Kinton plaintiffs argue that the bankruptcy court has jurisdiction over these actions pursuant to 28 U.S.C. § 157(a).
The Kinton plaintiffs argue as follows. Section 157(a) provides each district court with the discretion to refer cases defined in Section 157 to the bankruptcy judge. This Court, in its Standing Order No. 10, activates the automatic referral provisions of Section 157 and refers "cases under Title 11 of the United States Code, and proceedings arising under Title 11 of the United States Code or arising in or related to cases under Title 11. . . ." Additional, but not exclusive jurisdiction, is provided the district court as to all civil proceedings arising under Title 11 or related to cases under Title 11 in 28 U.S.C. § 1334(b). A "related case" has been defined by the Third Circuit in Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984), to be as follows:
The usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy. citations omitted Thus, the proceeding need not necessarily be against the debtor or against the debtor\'s property. An action is related to bankruptcy if the outcome could alter the debtor\'s rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.
The Fourth, Fifth, Eighth and Ninth Circuits have adopted this definition. In re A.H. Robbins Co., 788 F.2d 994, 1002 n. 11 (4th Cir.) (dicta), cert. denied, 479 U.S. 876, 107 S.Ct. 251, 93 L.Ed.2d 177 (1986); In re Fietz, 852 F.2d 455, 457 (9th Cir.1988) (listing cases).
According to the Kinton plaintiffs, these actions are purportedly already pending in the bankruptcy court because of the automatic referral. On this basis, the Kinton plaintiffs expressly object to this Court staying discovery or staying this action pursuant to either 11 U.S.C. § 105(a) or § 362(a)(1). And, in any event, both sets of plaintiffs argue that these sections do not support a stay of discovery or of the actions.
After plaintiffs filed their response, defendants filed a reply and raised an entirely different issue. For the first time, defendants now argue that the bankruptcy petition against Pilot and the appointment of a bankruptcy trustee strips the plaintiffs of any right to bring independent causes of action on theories of alter ego against defendants because such claims are a property of the bankruptcy estate and may only be asserted by the bankruptcy trustee.
Because of the alter ego claims in the complaints, the defendants also argue that the entire action should be stayed. Clearly, with respect to the Holcomb case, that complaint does allege in each cause of action that defendants acted as Pilot's alter ego. However, the Kinton plaintiffs only allege an alter ego claim in Count II of the complaint. Count III which alleges aiding and abetting may well be a mere variant of an alter ego claim. However, in Count I, plaintiffs allege that defendants in fact were the employees' employer in that they were a "common business enterprise" as used to define an employer by WARN. The defendants gloss over this distinction and fail to address the problem of the non-alter ego claims in the Kinton complaint. Plaintiffs themselves do not adequately address the issue of how the Court should proceed with the non-alter ego claims if it accepts defendants' argument with respect to the alter ego claims. Because the Court finds the defendants have the better of the argument, this problem will have to be addressed.
The question of whether the bankruptcy trustee is the proper party to bring an alter ego claim has been the subject of much recent litigation. The Second Circuit Court of Appeals was the last one to announce its position. In St. Paul Fire and Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688 (2d Cir.1989) ("PepsiCo"), it surveys the recent litigation. Id. at 696. It, along with the Fourth, Fifth, Seventh and Tenth Circuits, has determined that whether a bankruptcy trustee alone has a right to bring alter ego claims, on behalf of unsecured creditors and the debtor...
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