In re Leslie Fay Companies, Inc.

• Decision Date: 18 August 1997
• Docket Number: Bankruptcy No. 93 B 41724(TLB).
• Parties: In re THE LESLIE FAY COMPANIES, INC., et al.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

212 B.R. 747 (1997)

In re THE LESLIE FAY COMPANIES, INC., et al.

Bankruptcy No. 93 B 41724(TLB).

United States Bankruptcy Court, S.D. New York.

August 18, 1997.

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Wisehart & Koch by Arthur M. Wisehart and Heather R. Boshak, New York City, for claimants.

McDermott, Will & Emery by Joel E. Cohen and Barbara Funt, New York City, for debtors.

DECISION AFTER TRIAL ON EMPLOYEES' DISCRIMINATION CLAIMS

TINA L. BROZMAN, Chief Judge.

The Leslie Fay Companies, Inc. ("Leslie Fay"), a domestic clothing manufacturing company which has confirmed a plan of reorganization, objects to the claims of six former employees all of whom contend that they were the victims of one form or another of prohibited discrimination in regard to either or both the termination of their employment and Leslie Fay's failure to rehire them. Collectively, the claimants seek over $80 million in asserted administrative priority claims. These claimants are not alone in the ranks of the terminated, for over the course of four years, Leslie Fay let go some 3,700 employees, constituting two-thirds of its work force.

Claimant Elizabeth Michaud, who suffers from diabetes and hypertension, alleges that she was not promoted and suffered a series of discriminatory and humiliating acts deliberately inflicted upon her by her supervisor which made it impossible for her to perform her duties effectively or to remain in her position. She contends that she was thereby constructively discharged and suffered retaliation due to her gender and disability in violation of Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e et seq., the Americans with Disabilities Act of 1990 ("ADA"), 42 U.S.C. § 12101 et seq., the New York State Human Rights Law ("NYSHRL"), N.Y. Exec. Law § 290 et seq. (McKinney 1993), and the Pennsylvania Human Relations Act ("PHRA"), 43 Pa. Stat. Ann. § 951 et seq. (1996).

Jacob Falbaum, Anthony Gill, Lee Kishbaugh, Emile Lewkowiez and Raymond Terwilliger allege that their employment with Leslie Fay was terminated and they were not rehired because of their ages, in violation of the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. § 621 et seq. (1985), the New York State Human Rights Law ("NYSHRL"), article 15, and the Pennsylvania Human Relations Act ("PHRA"), 43 Pa. Stat. Ann. § 955. In addition, Terwilliger claims that, in violation of the ADEA, he was terminated in retaliation for voicing objections to Leslie Fay's discriminatory employment practices.

I.

A. Background and Prior Proceedings

Leslie Fay, a Delaware corporation with its principal place of business in New York, was a publicly held company engaged in the design, manufacture and sale of diversified lines of women's dresses, suits, blouses and sportswear. It operated in two major divisions, its core businesses, called "Leslie Fay", and its "Sassco" division.¹ On April 5, 1993, precipitated by the discovery of certain "accounting irregularities," Leslie Fay and certain of its affiliates filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code. Although the magnitude of the overstatement of its financial statements was not fully identified at the time of the filing, eventually the company restated its earnings for the years 1990, 1991, and 1992 to reflect income that was some $81 million less than had been originally reported. See generally In re Leslie Fay Cos., Inc., 207 B.R. 764 (Bankr.S.D.N.Y.1997); In re Leslie Fay Cos., Inc., 175 B.R. 525 (Bankr. S.D.N.Y.1994).

Leslie Fay continued to operate its business and manage its property as a debtor in possession. In due course, a final date for the filing of proofs of claim was fixed and the six claimants filed proofs of claim against the estate.

All of the claimants save Terwilliger worked in Leslie Fay's domestic manufacturing or distribution facilities in Pennsylvania. Terwilliger, who served as Leslie Fay's Vice President of Human Resources, was also based in Pennsylvania. Falbaum and Lewkowiez were terminated in August 1992, pursuant to a reduction in force ("RIF"); Terwilliger's employment was terminated the same month, but not pursuant to the RIF; Gill's employment was terminated in May 1992, not pursuant to an RIF; Kishbaugh was terminated post-bankruptcy in connection with the November 1993 closing of his factory; and Michaud retired on December 31, 1992. (Pre-Trial Order, Undisputed Facts at ¶¶ 4, 6, 8, 10, 13, and 16).

Under Leslie Fay company policy, an involuntarily terminated employee was not eligible for severance benefits unless he or she executed a release agreement waiving any and all claims against the company in connection with his or her employment or the termination thereof.² Pearson, Tr. 67 (October 11, 1995); Tully, Tr. 95-96 (Feb. 18, 1997); Silvi, Tr. 38-39 (Feb. 18, 1997). Leslie Fay offered Falbaum, Gill, Terwilliger, Kishbaugh and Lewkowiez the opportunity to obtain severance benefits in consideration for the execution of releases. Because Michaud retired, she was not offered severance and did not sign a release.

Falbaum, Gill, Terwilliger and Kishbaugh executed releases by which they agreed to "release and discharge Leslie Fay from any and all charges, claims and actions arising out of their employment with Leslie Fay . . ." Each of them received severance benefits. Kishbaugh's release was concededly invalid, although he has not returned the severance benefit in return for which he executed the release. Lewkowiez declined to sign a release and thus received no severance. Lewkowiez, Tr. 183-84 (Feb. 18, 1997) and Tr. 72 (May 28, 1997).

Despite their execution of releases, Falbaum, Gill and Terwilliger filed charges with the Equal Employment Opportunity Commission ("EEOC"), the New York State Division of Human Rights and the Pennsylvania Human Relations Commission against Leslie Fay and certain of its former officers and directors. Lewkowiez and Michaud did the same. While these charges were pending, those of the claimants who had by then been terminated filed their proofs of claim. Fourteen months later Kishbaugh, newly terminated, did so, too.

On February 14, 1995, Leslie Fay filed objections to the proofs of claims interposed by Falbaum, Gill and Terwilliger on the ground that the claims arising before or out of their terminations were barred by the assertedly valid releases which they had executed. I ordered the proceedings bifurcated so that the merits of the discrimination claims would not be tried until the issue of the binding effect of the releases was first determined. I conducted a trial on that limited issue on October 11, November 27, and December 11, 1995 and January 16, 1996. On January 24, 1996, I read into the record my decision upholding the validity of the releases. By order dated February 7, 1996, I expunged the pre-termination and termination-related claims of the three claimants. Needless to say, perhaps, the release portion of the claims objection hearing constitutes part of the record here. In any event, the parties stipulated that the testimony taken and exhibits admitted into evidence were deemed a part of this record.

The releases aside, Falbaum, Gill and Terwilliger all contend that Leslie Fay did not rehire them because of their ages. Inasmuch as those claims allege discriminatory acts separate and distinct from their employment and termination claims and were not encompassed within the releases, they are not barred. See 29 U.S.C. § 626(f)(1)(C).

Although Kishbaugh's release does not comport with the mandatory requirements of the Older Workers Benefit & Protection Act ("OWBPA"), 29 U.S.C. § 626(f), the 1990 amendment to the ADEA, Leslie Fay nevertheless contends that Kishbaugh may be said to have ratified the release, or, stated differently, to have waived the protections of the OWBPA, because he failed to tender back the severance benefits he received under the release agreement.

On the eve of the hearing to consider approval of the joint plan of reorganization filed by the debtors and the Official Committee of Unsecured Creditors, Leslie Fay filed objections to the claims of Kishbaugh, Michaud and Lewkowiez. Because there was insufficient time before the scheduled confirmation hearing to ready the balance of the matters for trial, I held an estimation hearing on February 18 and 19, 1997, with regard to all of the claims except Michaud's. Its purpose was to enable me to determine whether the plan had been accepted and whether it was feasible.³ I indicated that my factual findings would have no preclusive effect at trial although any legal principles decided would be binding. See In re Ralph Lauren Womenswear, Inc., 197 B.R. 771, 775 (Bankr.S.D.N.Y.1996) (in estimating claims, bankruptcy court may use whatever method is best suited to the circumstances of the case). Among the legal determinations which I made was that the claims asserted by Gill, Terwilliger, Lewkowiez, and Falbaum were all general, unsecured claims. (I did not deal with the priority of Kishbaugh's claim because I had estimated its value at zero.) Subsequently, the parties commendably stipulated to admit into evidence all of the testimony and exhibits from the estimation hearing. The remaining testimony was adduced and evidence received during the trial held on May 28 and 29, and June 9, 16, and 23, 1997.

B. Leslie Fay Reduces Its Work Force

In the early 1990s, Leslie Fay's so-called Dress Group (which is part of the core "Leslie Fay" businesses) maintained substantial domestic manufacturing operations in Pennsylvania, including factories, a distribution center and independent contractor shops which produced some of its goods. The Dress Group's design staff, technical services personnel, and sales and materials management were headquartered in New York. All of the plaintiffs except Terwilliger were employed in the Dress Group....