Ien v. Transcare Corp. (In re Transcare Corp.)
| Decision Date | 07 May 2020 |
| Docket Number | Case No. 16-10407 (SMB) (Jointly Administered),Adv. Proc. No. 16-01033 (SMB) |
| Citation | 614 B.R. 187 |
| Parties | IN RE: TRANSCARE CORP., et al., Debtors. Shameeka Ien on behalf of herself and all Others similarly situated, Plaintiff, v. Transcare Corp., Transcare New York, Inc., Transcare ML, Inc., TC Ambulance Group, Inc., Transcare Management Services, Inc., TCBA Ambulance, Inc., TC Billing and Services Corp., Transcare Westchester, Inc., Transcare Maryland, Inc., TC Ambulance North, Inc., Transcare Harford County, Inc., Lynn Tilton, Ark II CLO 2001-1 Limited, Ark Investment Partners II, L.P., Patriarch Partners, LLC, and Patriarch Partners III, LLC, Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
RAISNER ROUPINIAN LLP, Attorneys for Plaintiff, 500 Fifth Avenue, Suite 1600, New York, NY 10110, Jack A. Raisner, Esq. René S. Roupinian, Esq., Of Counsel
PROSKAUER ROSE LLP, Attorneys for Movants, Eleven Times Square, New York, NY 10036, Nicole A. Eichberger, Esq., Gillian G. Egan, Esq., Kathleen M. McKenna, Esq., Of Counsel
LAMONICA HERBST & MANISCALCO, LLP, Attorneys for Chapter 7 Trustee, 3305 Jerusalem Avenue, Wantagh, NY 11793, Joseph S. Maniscalco, Esq., Holly R. Holecek, Esq., Of Counsel
The Plaintiff, Shameeka Ien, brought this class action on behalf of herself and similarly situated former employees of Defendants TransCare Corporation, TransCare New York, Inc., TransCare ML, Inc., TC Ambulance Group, Inc., TransCare Management Services, Inc., TCBA Ambulance, Inc., TC Billing and Services Corporation, TransCare Westchester, Inc., TransCare Maryland, Inc., TC Ambulance North, Inc. and TransCare Harford County, Inc. (collectively, "TransCare" or "Debtors") to recover damages under the Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101 et seq. ("US WARN Act"), the New York State Worker Adjustment and Retraining Notification Act, N.Y. LAB. LAW ("NYLL") § 860 et seq. (), and the unpaid wage laws of New York, Pennsylvania and Maryland.
The non-TransCare Defendants (collectively, the "Movants") have moved for summary judgment ("Motion"). (See Non-Debtor Defendants' Memorandum of Law in Support of Their Motion for Summary Judgment , dated May 21, 2019 ("Moving Brief ") (ECF1 Doc. # 109).)2 The Movants include Patriarch Partners, LLC ("Patriarch Partners"), Patriarch Partners III, LLC ("Patriarch III"), Ark Investment Partners II, L.P. ("AIP II"), Ark II CLO 2001-1 Limited ("Ark II," and collectively with Patriarch Partners, Patriarch III, and AIP II, the "Entity Defendants"), and Lynn Tilton. The Plaintiff opposes the Motion.3 (See Plaintiff's Opposition to Non-Debtor Defendants' Motion for Summary Judgment , dated June 28, 2019 ("Opposition Brief ") (ECF Doc. # 131).)4 For the reasons set forth below, the Motion is granted in part and denied in part. In addition, the Court grants partial summary judgment on behalf of the Plaintiff and against Tilton on the state wage claims.
At all relevant times prior to February 24, 2016, the Debtors provided ambulance and paratransit transportation services in New York, Pennsylvania, and Maryland. (DF ¶ 1.) Glenn Leland served as TransCare's CEO until his employment was terminated on January 8, 2016. Mark Bonilla served as TransCare's CFO until his resignation on or about September 29, 2015, and continued as a consultant until about January 8, 2016. The remaining TransCare officers were Peter Wolf (COO), Tom Fuchs (VP of Transit Services), and Glen Youngblood (VP of Performance Excellence). (DF ¶ 3.) Lynn Tilton served as TransCare's sole director, (DF ¶ 12), and indirectly holds a majority equity stake in TransCare through her personal investment funds Ark II and AIP II (together, the "Funds"). (DF ¶ 23; PF ¶ 104; Amended Answer to Amended Adversary Class Action Complaint , dated Dec. 13, 2019 at ¶ 27 (ECF Doc. # 148).)
Tilton also controls and directly or indirectly owns the other Entity Defendants. They include Defendant Patriarch Partners, a private equity firm, (DF ¶ 14; PF ¶ 101), whose employees, including Brian Stephens (senior director, legal), Michael Greenberg (director of portfolio management), and W. Randall Jones (managing director), worked on TransCare matters. (DF ¶ 17.) Jean Luc Pelissier, an employee of non-party affiliate Patriarch Partners Management Group, LLC ("Patriarch Management"), also worked on TransCare matters. (DF ¶ 18.) Patriarch III is a limited partner of AIP II and was previously the collateral manager for AIP II. (DF ¶¶ 28, 29.) In addition to using the Funds to hold equity, Tilton also used the Funds to make secured loans to TransCare. (DF ¶¶ 24, 50.)6 Tilton controls and manages the Funds and Patriarch III, and those entities have no other employees. (DF ¶¶ 23, 25, 28, 31, Declaration of Lynn Tilton in Support of Non-Debtor Defendants' Supplemental Memorandum in Support of Their Motion for Summary Judgment, Seeking Judgment in Favor of Non-Debtor Defendant Ark II CLO 2001-1 Limited , signed Dec. 11, 2019 at ¶¶ 1, 4 (ECF Doc. # 149-1).)
By credit agreement dated as of August 4, 2003 ("2003 Credit Agreement"), TransCare Corporation borrowed funds from a group of term loan lenders comprised of (i) AIP II, (ii) Zohar CDO 2003-1, Ltd., ("Zohar CDO") (iii) Zohar II 2005-1, Ltd. ("Zohar II"), (iv) Zohar III, Ltd. ("Zohar III," and collectively with Zohar CDO and Zohar II, the "Zohar Lenders"), (v) Credit Suisse Alternative Capital, Inc., and (vi) First Dominion Funding I. (PF ¶ 106.) Non-party Patriarch Partners Agency Services, LLC ("PPAS") – an entity ultimately owned and controlled by Tilton (PF ¶ 102) – served as the administrative agent under the 2003 Credit Agreement. (PF ¶ 106.) Patriarch Partners performed collateral management duties for the Zohar Lenders until it resigned as collateral manager on March 3, 2016. (DF ¶ 15.)
On or about October 13, 2006, Wells Fargo Bank, N.A. ("Wells Fargo") and TransCare entered into an asset-based lending agreement ("ABL Agreement") which allowed TransCare to borrow funds from Wells Fargo secured by TransCare's inventory and receivables. (DF ¶¶ 36-37.)
TransCare was in severe financial distress from at least 2015. It was significantly behind in satisfying its outstanding accounts payable to the point that various critical suppliers refused to continue doing business with TransCare until their debts were satisfied. (See Deposition7 of Glenn Leland, dated Nov. 27, 2018 ("Leland Dep. I")8 at 53:19-55:5, 57:3-58:19; Deposition of Glenn Leland, dated Jan. 3, 2019 ("Leland Dep. II")9 at 619:15-620:2.)10 TransCare often struggled to make weekly payroll, (Leland Dep. I at 76:7-10, 124:12-17), and missed payroll in July and December 2015. (Leland Dep. II at 520:25-521:9, 621:3-14, 629:8-17.) TransCare's fleet of ambulances was old and in dire need of repair and/or replacement. (Leland Dep. I at 55:6-57:3, 67:6-69:10; Deposition of John Husson, dated Nov. 12, 201811 at 19:12-16.) Moreover, TransCare lacked the funds to pay premiums for vital insurance policies and lost workers' compensation coverage at one point. (Leland Dep. I at 60:20-61:14.) TransCare also had to make substantial interest payments under the 2003 Credit Agreement including to Tilton-owned entities affiliated with Patriarch Partners. (Husson Dep. II at 17:12-24.) As a result of these financial pressures, Tilton-owned entities had to inject capital into TransCare on several occasions to fund payroll and prevent interruption of critical supplies. (Husson Dep. I at 16:25-17:13, 32:6-12; Leland Dep. I at 58:24-59:4; Leland Dep. II at 520:25-521:9.) These cash infusions, however, were never enough to remedy the underlying liquidity issues TransCare faced. (Leland Dep. II at 614:15-21.)
On October 2, 2015, Wells Fargo issued a notice of intent to waive renewal of the ABL Agreement, which would otherwise renew automatically at the end of January 2016, in favor of negotiating a new agreement with TransCare. (DF ¶¶ 41-42.) In November 2015, representatives of TransCare (Leland, Bonilla, Wolf, Youngblood), Patriarch Partners (Greenberg), Patriarch Management (Pelissier), and Well Fargo met to discuss renewal of the ABL Agreement. Wells Fargo conveyed that a prerequisite to a renewal of the ABL Agreement was an investment by Patriarch into TransCare. (See Email from Leland to Tilton, et al. , dated Nov. 21, 2015.)12 Moreover, the deterioration of the business negatively affected TransCare's ability to borrow funds under the ABL Agreement. Wells Fargo's collateral base was shrinking, (Husson Dep. I at 38:8-25), and Wells Fargo eventually downgraded TransCare's credit rating citing, inter alia , (i) "significant deterioration" in financial performance, (ii) the age of the ambulance fleet, (iii) the existence of a financial covenant default, (iv) weak IT systems, (v) significant turnover in senior management, and (vi) substantial interest payment obligations under subordinated debt, of which approximately 90% was "owed to Patriarch," totaling over $7,500,000 in the past two years. (See Email chain among Wells Fargo personnel, dated Feb. 21-23, 2015;13 Husson Dep. II at 20:5-13, 108:3-24.)
On December 3, 2015, Leland told a colleague that TransCare was "close to the end" unless it received a capital investment of $6.4 million from Patriarch – an amount based on a financial model that Bonilla had built. (See Email chain between Leland and colleague, dated Dec. 2-3, 2015.)14 No investment came in December, Bonilla updated his model in early January 2016, and the passage of one month increased the required capital investment to $7.8 million. (See Email chain between Leland and...
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Lamonica v. Tilton (In re TransCare Corp.)
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