In re Preston Trucking Co., Inc., Bankruptcy No. 99-59994-JS.

Decision Date18 August 2008
Docket NumberAdversary No. 01-5293-JS.,Civ. No. L-05-1298.,Bankruptcy No. 99-59994-JS.
Citation392 B.R. 623
PartiesIn re PRESTON TRUCKING COMPANY, INC., Debtor. Preston Trucking Company, Inc., Plaintiff v. Liquidity Solutions, Inc., et al., Defendants Teamsters National Freight Industry Negotiating Committee, et al., Appellants v. Liquidity Solutions, Inc., Appellee.
CourtU.S. District Court — District of Maryland

Lawrence A. Katz, Venable, LLP, Vienna, VA, for Debtor.

Stephen E. Leach, Leach Travell Britt, PC, McLean, VA, for Debtor/Plaintiff.

C. Kevin Kobbe, DLA Piper US LLP, Maria Ellena Chavez-Ruark, Tydings & Rosenberg, LLP, Kimberly L. Bradley Abato, Rubenstein et al, Baltimore, MD, for Defendants.

MEMORANDUM

BENSON EVERETT LEGG, Chief Judge.

This is an appeal from a final judgment entered by the United States Bankruptcy Court for the District of Maryland. During Preston Trucking Company Inc's ("Preston") Chapter 11 bankruptcy proceedings, Liquidity Solutions, Inc., ("Liquidity") purported to purchase from certain Preston employees (the "employees") their claims against Preston arising under an existing collective bargaining agreement and under the Worker Adjustment and Retraining Notification Act (the "WARN Act"). The bankruptcy judge, the Honorable James F. Schneider, ruled that the employees had legally transferred their claims to Liquidity.

The Teamsters National Freight Industry Negotiating Committee and a number of Teamster Local Unions affiliated with the International Brotherhood of Teamsters (collectively the "Teamsters") have appealed that ruling, contending that the Teamsters "own" the claims because they litigated them in Preston's bankruptcy proceeding and thus the employees had no right to assign the claims to Liquidity. The Teamsters also contend that, even if the employees could assign their claims, the specific assignments in this case were invalid.

On May 28, 2008, the Court held oral argument on the appeal. For the reasons that follow, the Court finds that the employees had the right to receive the proceeds of the litigation that the Teamsters pursued on their behalf. Furthermore, the Court finds that those rights are assignable, and the employees properly assigned them to Liquidity. Accordingly, the Court will, by separate order, AFFIRM, the bankruptcy court's decision.

I. Background

On July 26, 1999, Preston, formerly one of the largest interstate motor freight carriers in the United States, ceased all operations and laid off all of its employees. On July 30, 1999, it filed a voluntary bankruptcy petition, under Chapter 11 of the United States Bankruptcy Code.

On various dates in October and November of 1999, approximately fifty individual Preston employees filed proofs of claim with the bankruptcy court. On November 19, 1999, the Teamsters filed a proof of claim for "grievances under the collective bargaining agreement." The proof of claim stated that the amount of the claim was "unknown and unliquidated." On November 22, 1999, the Teamsters filed a second proof of claim for $58.6 million under the WARN Act on behalf of union employees. Preston objected to the Teamsters' WARN Act claim. On March 6, 2000, Judge Schneider consolidated the Teamsters' WARN Act claim with an adversary proceeding that non-union employees, pursuing their own WARN Act claims, had previously filed.

In late 1999, and into 2000, Liquidity, which is in the business of buying and selling claims in bankruptcy cases, solicited Preston employees, seeking to purchase their claims against Preston. Liquidity sent a letter to each employee who held a claim against Preston for $1,000 or more.1 Each letter offered to purchase the employee's claim for $.35 on the dollar and contained a boilerplate assignment contract by which the employee could transfer his or her claim against Preston to Liquidity.2

Liquidity vice president Robert Minkoff, who is also a licensed attorney in New York, testified that Liquidity fielded phone calls in response to the letters but never placed any calls to Preston employees. Approximately eighty-five Teamsters members returned completed assignment contracts to Liquidity. Once Liquidity received a signed assignment contract from an employee, it sent the contract along with a "transfer of claim" notice to the bankruptcy court for filing and docketing.

Word of the assignments soon reached the Teamsters. In January 2001, counsel for the Teamsters contacted Liquidity, purporting to represent the Preston employees who had assigned their claims. The Teamsters advised Liquidity that the employees would not perform their obligations under the assignments.

On March 12, 2001, Preston agreed to settle the Teamsters' two "master" claims on behalf of Preston's employees for a lump sum of $18,443,501.00. The settlement was incorporated into Preston's First Amended Plan of Liquidation ("the Plan"), which the Bankruptcy Court approved on April 13, 2001. The Plan assigned each union employee a portion of the settlement based on agreed upon estimates of the value of each employee's claim. The Plan also provided that the Teamsters could adjust the amounts awarded to each union employee, provided that the aggregate total of all the claims remained the same. The Teamsters adjusted the awards on hundreds of occasions.

The plan was consummated in May or June 2001. Because the Teamsters and Liquidity asserted conflicting claims of ownership to the amounts Preston was to pay out to the employees, Preston filed an interpleader action.

Preston filed its interpleader complaint on June 11, 2001. At stake was approximately $220,083.11, which represented the amounts that were to be distributed from the bankruptcy estate to the employees who had assigned their claims against Preston to Liquidity.

The Teamsters and Liquidity promptly answered and filed cross-claims against each other. The Teamsters' cross-claim included three counts, all of which attacked the validity of the employees' assignments to Liquidity.3 Liquidity brought a cross-claim against the employees for breach of contract and brought a cross-claim against the Teamsters for tortious interference with its contracts.

On September 28, 2001, Liquidity filed a motion for partial judgment on the pleadings. On October 4, 2001, the Teamsters filed a motion for summary judgment. The motions were denied by the Bankruptcy Court on February 21, 2002.

Judge Schneider held a bench trial on February 27, 2002 and on March 14, 2002. He issued a written opinion on April 8, 2005 denying the Teamsters' claims, granting Liquidity's breach of contract claim, and denying Liquidity's tortious interference claim. The Teamsters then brought this appeal, challenging Judge Schneider's rulings.4

II. STANDARD OF REVIEW

The bankruptcy court's findings of fact are reviewed under a clearly erroneous standard, See In re Club Assoc., 951 F.2d 1223, 1228 (11th Cir.1992), and are to be reversed only if an examination of the record yields the definite and firm conviction that a mistake has been made. In re Morris Communications NC, Inc., 914 F.2d 458, 467 (4th Cir.1990); see also Bankr.Rule 8013; Lowe's of Virginia, Inc. v. Thomas, 60 B.R. 418, 419 (W.D.Va. 1986). The bankruptcy court's conclusions of law, however, are reviewed de novo. In re Club Assoc., 951 F.2d at 1228-29; In re Morris Communications NC, Inc., 914 F.2d at 467.

III. ANALYSIS

The Teamsters make three arguments in their appeal of the bankruptcy court's ruling. The Teamsters argue that: (i) the employees did not own the claims they purported to assign; (ii) claims arising under a collective bargaining agreement and under the WARN Act are unassignable; and, (iii) the specific assignments in this case should be voided because they are unconscionable and Liquidity procured them through fraud and prohibited attorney-party contacts. The Court finds that each argument fails and will address each in turn.

A. "Ownership" of the Claims

The first issue that the Court must address is the parties' dispute over who "owns" the employees' claims under the collective bargaining agreement and under the WARN Act. The claims that the employees purported to assign to Liquidity fell into two categories: (i) claims for wages under the collective bargaining agreement brought pursuant to § 301 of the Labor Management Relations Act (the "LMRA"), 29 U.S.C. § 185, and (ii) claims under the WARN Act.

The Court finds that while the Teamsters litigated the individual employees' claims, the employees retained the right to receive any recovery from that litigation. It is these rights that the employees transferred to Liquidity. Although the result is the same, the analysis with respect to each type of claim varies slightly.

1. Claims under the WARN Act

The WARN Act, 29 U.S.C. § 2101, et. seq., requires that employers covered by the act provide 60-days notice of a plant closing or mass layoff to statutorily-defined employees. 29 U.S.C. §§ 2102(a)(1), (a)(5). An employer who fails to provide the required notice is liable to "each aggrieved employee who suffers an employment loss as a result of such plant closing or layoff." 29 U.S.C. § 2104(a)(1).

As the bankruptcy court noted, the structure of the statute demonstrates that while a union may bring a WARN Act claim, any recovery is ultimately owed to its individual members. The WARN Act states that the employer is liable to the individual "aggrieved employee." See 29 U.S.C. § 2104(a)(1). The statute goes on to state that either the aggrieved employee or its "representative" may sue to recover the amounts owed under the statute. 29 U.S.C. § 2104(a)(5). The WARN Act defines "representative" as the "exclusive representative" of the employees under 29 U.S.C. § 159, i.e. the employees' union. 29 U.S.C. § 2101(a)(4).5 Taken together, these sections show that either a union or an individual union member may bring a WARN Act claim, but the individual...

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