In re Llc.

• Decision Date: 08 July 2011
• Docket Number: Adversary No. 08–51800 (MFW).,Bankruptcy No. 08–12646 (MFW).
• Citation: 55 Bankr.Ct.Dec. 41,453 B.R. 534
• Parties: In re TWEETER OPCO, LLC., et al., Debtors.Andrew D'Amico, Eric Welter and Franklin Hemmings on their own behalf and on behalf of all other persons similarly situated, Plaintiffs,v.Tweeter Opco, LLC, and Schultze Asset Management, LLC, Defendants.
• Court: U.S. Bankruptcy Court — District of Delaware

453 B.R. 534

55 Bankr.Ct.Dec. 41

In re TWEETER OPCO, LLC., et al., Debtors.Andrew D'Amico, Eric Welter and Franklin Hemmings on their own behalf and on behalf of all other persons similarly situated, Plaintiffs,

v.Tweeter Opco, LLC, and Schultze Asset Management, LLC, Defendants.

Bankruptcy No. 08–12646 (MFW).

Adversary No. 08–51800 (MFW).

United States Bankruptcy Court, D. Delaware.

July 8, 2011.

James E. Huggett, Margolis Edelstein, Wilmington, DE, for Plaintiffs.Caroline Hong, Ricardo Palacio, Esq., Ashby & Geddes PA, Wilmington, DE, Peter C. Hughes, Dilworth Paxson LLP, Philadelphia, PA, for Defendants.

MEMORANDUM OPINION ¹

MARY F. WALRATH, Bankruptcy Judge.

Currently before the Court are cross-motions for summary judgment on claims arising under the Worker Adjustment and Retraining Notification Act (the “WARN Act”). The question presented is whether Schultze Asset Management, LLC (“SAM”) is liable with the Debtor as a single employer for the alleged WARN Act violations.

I. BACKGROUND

Tweeter Opco, LLC (the “Debtor”) filed a voluntary petition under chapter 11 on November 5, 2008. The Plaintiffs commenced this class action adversary proceeding the same day. The Plaintiffs' class consists of former employees of the Debtor who were fired without the sixty-days' written notice required by the WARN Act. 29 U.S.C. § 2102(a) (“An employer shall not order a plant closing or mass layoff until the end of a 60–day period after the employer serves written notice....”). The Plaintiffs assert that SAM is an “employer” liable with the Debtor under the WARN Act.

The Debtor's bankruptcy case was subsequently converted to chapter 7. The Court approved a stipulation staying the proceeding against the Debtor but continuing it as to SAM.

Cross motions for summary judgment were filed raising the following issues: (1) whether SAM and the Debtor are a single employer under the WARN Act, (2) if SAM and the Debtor are a single employer, whether SAM is entitled to the faltering company exception available under the WARN Act, and (3) whether the Debtor acted in good faith, thereby precluding damages under the WARN Act.

Notices of completion of briefing on the cross-motions for summary judgment were filed and the matter is ripe for decision.

II. JURISDICTION

The Court has core subject matter jurisdiction over this adversary proceeding. 28 U.S.C. §§ 1334(b) & 157(b)(2)(A), (B) & (O).

III. DISCUSSIONA. Summary Judgment Standard

Summary judgment is proper if there is no genuine dispute over any material fact and if, viewing the facts in the light most favorable to the non-moving party, the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Fed. R. Bankr.P. 7056. See also Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

The movant bears the burden of establishing that no genuine disputes as to any material fact exist. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585 n. 10, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). A fact is material when it could “affect the outcome of the suit.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Once the moving party establishes a prima facie case in its favor, the opposing party must go beyond the pleadings and identify specific facts showing more than a scintilla of evidence that a genuine dispute of material fact exists. See, e.g., Anderson, 477 U.S. at 252, 106 S.Ct. 2505; Matsushita, 475 U.S. at 585–86, 106 S.Ct. 1348; Michaels v. New Jersey, 222 F.3d 118, 121 (3d Cir.2000).

The filing of cross-motions for summary judgment does not alter the Court's analysis. “The [C]ourt must rule on each party's motion on an individual and separate basis, determining, for each side, whether a judgment may be entered in accordance with the Rule 56 standard.” Charles A. Wright, Arthur R. Miller & Mary K. Kane, Federal Practice and Procedure, § 2720, at 23 (1983). See also Wells Fargo Bank, N.A. v. Am. Home Mortg. Inv. Corp. (In re Am. Home Mortg., Inc.), No. 07–51741, 2008 WL 4753342, at *3–4, 2008 Bankr.LEXIS 2805, at *12 (Bankr.D.Del. Oct. 30, 2008).

B. The WARN Act

1. Prima Facie WARN Act Violation

Under the WARN Act, a covered employer cannot close a plant or conduct mass layoffs of at least fifty employees before the end of a sixty-day period that begins to run only when the employer serves sufficient written notice of the upcoming plant closing or mass layoffs to each employee or the employees' representative. 29 U.S.C. § 2102(a).

To state a prima facie WARN Act claim in this action, the Plaintiffs must establish that (a) the Debtor was an “employer” covered under the WARN Act; (b) the Debtor's corporate headquarters (40 Pequot Way, Canton, Massachusetts) and the adjacent building (10 Pequot Way) constituted a “single site of employment” under the WARN Act; ² (c) the permanent shutdowns of the Massachusetts and Pennsylvania facilities caused at least fifty employees from each site to suffer an “employment loss”; and (d) the WARN Act's mandatory sixty-day written notice was not provided to each “affected employee.”

a. Employer

An “employer” is defined by the WARN Act as any “business enterprise” that employs 100 or more full-time individuals. 29 U.S.C. § 2101(a)(1); 20 C.F.R. § 639.3(a). The parties agree that the Debtor is a covered “employer” under the WARN Act.

b. Single Site of Employment

The parties dispute whether 40 and 10 Pequot Way constituted a single site of employment. SAM contends that they are not because each location served completely different functions and was referred to by different internal location codes.

The Plaintiffs argue that 40 and 10 Pequot Way do in fact constitute a single site of employment because the two buildings were contiguous. The Plaintiffs note that the two buildings were adjacent to each other at the end of a cul-de-sac and shared a parking lot, a receptionist, IT equipment, and some departmental offices. SAM does not dispute these facts.

Proximity and contiguity are the two most significant criteria in making single site determinations. See Frymire v. Ampex Corp., 61 F.3d 757, 766 (10th Cir.1995) (“[T]hese regulations suggest that proximity and contiguity are the most important criteria for making single site determinations.”). When buildings are immediately proximate or contiguous, a single site is presumed. See Kephart v. Data Systems Int'l., Inc., 243 F.Supp.2d 1205, 1221 (D.Kan.2003). Here, this presumption is reinforced by the shared parking lot, IT equipment, and departmental offices. The Court concludes that 40 and 10 Pequot Way constitute a single site of employment.

c. Number of Employees Terminated

SAM does not dispute that at least fifty employees were terminated at the Massachusetts facility. SAM argues, however, that the shutdown at the Pennsylvania facility did not cause the loss of employment for fifty or more employees.

The Plaintiffs rely on the deposition of the Debtor's former Chief Executive Officer, George Granoff, who testified that “from May 1, 2008 until October 31, 2008, [the Debtor] employed at least 50 employees ... at [the Pennsylvania] facility.” (Granoff Dep. at 14:14–20.) The Plaintiffs add that the Debtor's issuance of WARN Act notices (on the termination day) to employees terminated at the Pennsylvania facility is evidence that at least fifty employees worked at the facility.

In response, SAM quotes the deposition testimony of the Debtor's Vice President of Human Resources, Michael Rudman, who stated that as of October 31, 2008, the first day of the terminations, “it was very much on the cusp of whether there were fifty people or not” at the Pennsylvania facility. (Rudman Dep. at 33:20–34:12.) Mr. Rudman also testified, however, that fifty-four employees worked at the Pennsylvania facility on October 20, 2008, only eleven days before the terminations. (Rudman Dep. at 76:13–82:17.)

The Court finds that the Debtor terminated at least fifty employees at the Pennsylvania facility. SAM's evidence is not sufficient to overcome (or cast doubt on) the direct testimony of the Debtor's CEO that at least fifty full-time workers were employed at the Pennsylvania facility until October 31, 2008.

Further, under the WARN Act, if two or more groups of employees at a single site are terminated within any ninety-day period, it is considered one termination for purposes of the WARN Act, “unless the employer demonstrates that the employment losses are the result of separate and distinct actions and causes and are not an attempt by the employer to evade the requirements of [the WARN Act].” 29 U.S.C. § 2102(d). In this case, SAM acknowledges that fifty-four employees worked at the Pennsylvania facility as of October 20, 2008. Therefore, either fifty-four employees were terminated on October 31 or were terminated at different times between October 20 and 31, clearly within ninety days. SAM failed to establish any facts to demonstrate the employment losses at the Pennsylvania facility were the result of separate or distinct actions. Consequently, the Court concludes that at least fifty employees were terminated at the Pennsylvania facility for purposes of the WARN Act.

d. Sixty–Day Notice Requirement

SAM concedes that same-day notice, rather than sixty-day notice, was given to the employees terminated on October 31, 2008 and November 7, 2008. The Court, therefore, concludes that the Plaintiffs have established each of the elements of a WARN Act violation.

C. Single Employer Status under the WARN Act

The Plaintiffs contend that SAM and the Debtor constituted a single employer under the WARN Act. The single employer liability test is “ultimately an inquiry into whether the two nominally separate entities operated at arm's length.” Pearson v. Component Tech. Corp., 247 F.3d 471, 495 (3d Cir.2001). The Third Circuit has adopted the Department of Labor (“DOL”) five-factor test to determine whether a lender or parent is liable...