In re Powermate Holding Corp.
| Decision Date | 10 October 2008 |
| Docket Number | Bankruptcy No. 08-10498(KG).,Adversary No. 08-50559(KG). |
| Citation | 394 B.R. 765 |
| Parties | In re POWERMATE HOLDING CORP., a Delaware corporation, et al., Debtors. Greg Henderson on his own behalf and on behalf of all other persons similarly situated, Plaintiffs, Powermate Holding Corp., Powermate Corporation, Powermate International, Inc., Sun Capital Partners, LLC, Sun Powermate, LLC, SCSF Powermate, LLC, York Street Mezzannine Partners, L.P., and John Does 1-20, Defendants. |
| Court | U.S. Bankruptcy Court — District of Delaware |
James E. Huggett, Margolis Edelstein, Wilmington, DE, for Plaintiffs.
Kenneth J. Enos, Young, Conaway, Stargatt & Taylor, Wilmington, DE, Gary D. Anderson, Kirkland & Ellis LLP, Washington, DC, for Defendants.
Sun Capital Partners, LLC, pro se.
SCSF Powermate, LLC, pro se.
John Does 1-20, pro se.
The matter before the Court is one of first impression in this Circuit, raising the claim status of discharged employees under the 2005 Amendments to the Bankruptcy Code. Plaintiff alleges that he is entitled to administrative expense status pursuant to 11 U.S.C. § 503(b)(1)(A)(ii) (the "Amendment"). Procedurally, pending is the defendants' motion to dismiss plaintiff's request for an administrative priority claim. The Court heard oral argument on this motion on August 21, 2008. For the reasons set forth below, the Court will grant the motion for partial dismissal; to the extent that any damages are recovered, they will be general unsecured claims rather than administrative expenses.
The Court's jurisdiction rests upon 28 U.S.C. §§ 157(b)(1) and 1334(b) and (d). The adversary proceeding is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B) and (O).
Powermate Holding Corp. ("Powermate Holding"), Powermate Corporation ("Powermate"), and Powermate International, Inc. ("Powermate International" and, collectively, "Debtor Defendants") filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code on March 17, 2008. Prior to filing, the Debtor Defendants operated in three states. Their corporate headquarters and main operations center was in Aurora, Illinois, with additional facilities in Kearny, Nebraska and Springfield, Minnesota. On March 10, 2008, the Debtor Defendants sold all of their assets located in Springfield, Minnesota, and terminated the employment of all workers at that location.
On March 17, 2008 ("the Discharge Date"), prior to their bankruptcy filings, Debtor Defendants discharged all of their remaining employees without prior notice. Approximately 260 employees lost their jobs.
Greg Henderson ("the Plaintiff) is a former employee of the Debtor Defendants. He worked at the Kearney, Nebraska facility until the Discharge Date. On April 3, 2008, he sued the Debtor Defendants on behalf of himself and other discharged employees alleging that they violated his rights under the Worker Adjustment and Retraining Notification Act2 ("WARN Act") in what he referred to as "part of a mass layoff and/or plant closing"3 at the Kearny, Nebraska and Aurora, Illinois locations. Plaintiff further alleged that he and the other similarly situated former employees are entitled to recover their wages and ERISA and other benefits for sixty days pursuant to the WARN Act, and that these damages are entitled to administrative priority status pursuant to the Amendment.4
On June 4, 2008, Debtor Defendants answered the complaint and moved to dismiss. In the Motion to Dismiss, the Debtor Defendants seek this Court's determination that if the Court finds that there are WARN Act violations, any damages be assigned fourth (or fifth) priority status under §§ 507(a)(4), (5) and not administrative expense priority status.5
"A claim is not ripe for adjudication if it rests upon `contingent future events that may not occur as anticipated, or indeed may not occur at all.'"6 Conceivably, Debtor Defendants' liability for WARN Act damages is contingent on whether this Court finds that all of the elements for a WARN Act claim are satisfied and that there are no valid excuses for failing to provide notice to Plaintiff.
In determining whether the unresolved issue of liability presents a bar to this Court's ability to decide the priority of any awarded damages, an Abbott Laboratories evaluation is necessary. This test "requir[es] us to evaluate both the fitness of the issue for judicial decision and the hardship to the parties of withholding court consideration."7 As for the first prong, "fitness," the Third Circuit has enumerated several factors that contribute to this determination, including "whether the issue is purely legal (as against factual) ... whether the claim involves uncertain and contingent events that may not occur as anticipated or at all, the extent to which further factual development would aid decision, and whether the parties to the action are sufficiently adverse."8
In this case, the issue is purely legal, requiring interpretation of a newly adopted statute. Further, the parties to this action are adverse; this Court's determination will have significant consequences for both parties as well as other creditors.9 Also, no further factual information is necessary to make a determination on this issue, as the relevant facts are not in dispute. The only relevant factor under the "fitness" evaluation that weighs against deciding the issue now rather than later is whether the claim involves uncertain and contingent events. Because the Court has not yet ruled whether the Debtor Defendants are liable or, if liable, excused from giving notice and therefore has not awarded or refused to award damages, the priority of any potential damages claim may not be ripe for review. The Court does not, however, see this as an obstacle to deciding the issue at this time. First, on the issue of liability, the Debtor Defendants have admitted to several allegations that implicate some elements of a WARN Act claim.10 Second, even if the WARN Act claims are mitigated by one of the defenses contained in 29 U.S.C. § 2102(b), other courts have held that failure to give any notice at all, as the Debtor Defendants did here, will render the "faltering business" or "unforeseen circumstances" exceptions unavailable as a complete defense.11 If so the exceptions to the notice requirement may not completely eliminate the claims against the Debtor Defendants. Therefore, the Court is likely to eventually adjudicate the level of priority under which it will administer such claims.
The second prong of the Abbott Laboratories test is the "hardship" to the parties. This "focuses on whether a plaintiff faces a direct and immediate dilemma, such that lack of review will put it to costly choices."12 Without a determination of the priority status of the Plaintiff's claims, the Debtor Defendants will be frustrated in their efforts to proceed any further in their bankruptcy, to formulate a plan as well as to negotiate with creditors. Depending on the outcome of this issue, the claims of the Plaintiff13 could be of a sufficient magnitude and priority that there may be nothing left for distribution to other, lower priority creditors. Until the Debtor Defendants know if the WARN Act claims will diminish the estate, the case will stall, further taxing the estate via other incurred administrative expenses and reducing liquidity until after a trial on the WARN Act violations which could take considerable time. Therefore, the Court must render a decision regarding the priority status of the claims now so that the Debtor Defendants have a better understanding of their position going forward.
Congress passed the WARN Act in 1988 following two decades during which many workers were terminated without notice as a result of mergers, acquisitions and closings.14 Congress interceded to protect workers, their families and communities, and to give them "some transition time to adjust to the prospective loss of employment, to seek and obtain alternative jobs and, if necessary, to enter skill training or retraining that will allow these workers to successfully compete in the job market."15
Under the WARN Act, affected employees16 are entitled to at least sixty days' notice of a potential termination.17 When an employer18 fails to give such a warning, such affected employees are entitled to back pay and benefits for up to sixty days.19 The amount to which the affected employees are entitled is calculated based on the period of the violation.20 The WARN Act does, however, provide exceptions to the notice requirement, including exceptions when terminations are a result of shut downs that were not reasonably foreseeable, natural disasters, or situations where notice would preclude attempts by the employer to obtain capital investments that would have prevented the terminations.21
Here, Debtor Defendants dispute that there were WARN Act violations, arguing both that the alleged facts do not fit within the scope of the statute and that even if they do, they were excepted from warning the Plaintiff and other employees under 29 U.S.C. § 2102(b)(1), (2)(A).22 Whether such violations occurred or were exempted from liability is not at issue here; only the priority of potential damages if the Court later finds Debtor Defendants culpable is relevant.
"The broad purpose of the Bankruptcy Act is to bring about an equitable distribution of the bankruptcy's estate among creditors...."23 Debtors, however, are often unable to pay all of their creditors in full. Therefore, Congress has set out a statutory priority scheme under which creditors receive their distributions.24
Claims arising under the WARN Act are prioritized under the various...
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