Local 217, Hotel & Restaurant Employees Union v. MHM, Inc.

• Decision Date: 24 September 1992
• Docket Number: No. 888,D,888
• Citation: 976 F.2d 805
• Parties: , 123 Lab.Cas. P 10,415, 123 Lab.Cas. P 10,465, 7 IER Cases 1313 LOCAL 217, HOTEL & RESTAURANT EMPLOYEES UNION, Joseph Jean, Frederick Grilli, on Behalf of Himself and Others Similarly Situated, Harry Parlee, on Behalf of Himself and Others Similarly Situated, Plaintiffs-Appellants, v. MHM, INC., Defendant-Appellee/Third-Party-Plaintiff, Colonial Constitution East Limited Partnership, Colonial Realty/USA Corporation, Constitution Management Corp., Third-Party-Defendants. ocket 91-7943.
• Court: U.S. Court of Appeals — Second Circuit

Page 805

976 F.2d 805

61 USLW 2236, 123 Lab.Cas. P 10,415,

123 Lab.Cas. P 10,465,

7 IER Cases 1313

LOCAL 217, HOTEL & RESTAURANT EMPLOYEES UNION, Joseph Jean Frederick Grilli, on Behalf of Himself and Others Similarly Situated, Harry Parlee, on Behalf of Himself and Others Similarly Situated, Plaintiffs-Appellants, v. MHM, INC., Defendant-Appellee/Third-Party-Plaintiff Colonial Constitution East Limited Partnership, Colonial Realty/USA Corporation, Constitution Management Corp., Third-Party-Defendants.

No. 888, Docket 91-7943.

United States Court of Appeals Second Circuit.

Argued Jan. 31, 1992.

Decided Sept. 24, 1992.

Daniel E. Livingston (Ruth L. Fulda, Gould, Livingston, Adler & Fulda, Hartford, Conn., of counsel), for plaintiffs-appellants.

Emanuel N. Psarakis (Duncan Ross MacKay, Robinson & Cole, Hartford, Conn., of counsel), for defendant-appellee.

Before: WINTER and MAHONEY, Circuit Judges, and KORMAN, ^* District Judge.

WINTER, Circuit Judge:

This is an appeal from Judge Cabranes's adoption of Magistrate Judge Margolis's report recommending denial of a motion for a preliminary injunction. 805 F.Supp. 93. Appellants are Local 217 of the Hotel & Restaurant Employees Union and certain of its members who are former employees of the Summit Hotel in Hartford, Connecticut. The Summit closed in August 1990. At that time, the Summit was owned by Colonial Constitution East Limited Partnership ("CCELP"), a limited partnership whose general partner was the now-defunct Colonial Realty Company. The hotel was operated and its employees worked under a collective bargaining agreement with MHM, Inc., a hotel management firm. Appellants sought a preliminary injunction directing MHM to provide medical care to the laid-off employees. The motion was based on two federal statutes. The first, the Worker Adjustment and Retraining Notification Act of 1988, 29 U.S.C. § 2101, et seq. (1988) ("WARN"), requires employers either to give sixty days notice of site closings or to compensate laid-off employees for sixty days salary and benefits. The second statute, part of the Consolidated Omnibus Budget Reconciliation Act, 29 U.S.C. § 1161 et seq. (1988) ("COBRA"), requires group health care plan sponsors to Because damages are the exclusive relief provided by WARN, appellants are not entitled to a preliminary injunction under that statute. Appellants have failed to show a likelihood of success on their COBRA claim. We therefore affirm the denial of injunctive relief.

provide continuation coverage for employees who are terminated from their employment under certain specified circumstances, including layoffs.

BACKGROUND

MHM managed the hotel during the period of CCELP's ownership. MHM was a party to a collective bargaining agreement with Local 217, which represented the hotel's employees, and was responsible for the hiring and firing of employees. MHM paid the employees with checks in its name.

On July 30, 1990, representatives of CCELP and MHM met to discuss the possibility of the hotel closing. They reached a tentative decision, finalized a few days later, to close in early August. On August 7, Robert Lobo, general manager of the hotel and an MHM employee, notified the hotel's employees that it would be closing in three days, as it did.

At the time of the closing, the collective bargaining agreement in force between Local 217 and MHM provided for a medical benefits plan. MHM had earlier elected to provide these benefits on a self-insured basis with Blue Cross/Blue Shield ("BC/BS") administering the plan through an Administrative Services Only ("ASO") agreement. On August 13, 1990, MHM notified BC/BS of the closing and stated that CCELP would continue to fund the existing insurance arrangement for a period of five months. BC/BS continued to administer the employees' medical coverage into September. However, on September 4 and September 7, CCELP's checks bounced. On September 18, BC/BS notified CCELP that it was terminating the ASO agreement because of insufficient funds for claims in the post-closing period. In fact, BC/BS is now owed over $100,000.

Former employees of the Summit discovered the cancellation of their medical insurance when their requests for reimbursement were denied. Appellants commenced this action against MHM on December 18, 1990. They sought declaratory and injunctive relief and damages against MHM based, inter alia, on the WARN and COBRA claims that are the subject of the instant appeal. The next day, they moved for a preliminary injunction enjoining MHM from: (1) refusing to provide fifty-seven days of health insurance due under WARN; and (2) refusing to provide the opportunity to purchase continuation medical coverage as required by COBRA.

The motion for a preliminary injunction was referred to Magistrate Judge Margolis. Her report, adopted by Judge Cabranes as his opinion, recommended that the district court deny the motion for preliminary injunction. The Magistrate Judge stated that appellants had not established that they were likely to succeed on the merits. Addressing Local 217's WARN claim, she found that MHM was not the employer of the laid-off employees for purposes of WARN. As to the COBRA claim, the Magistrate Judge stated that MHM was both the "employer" and the "plan sponsor" within the terms of COBRA but that she lacked the power to order MHM to enter into an insurance agreement with an insurer that was not a party to the litigation. She reasoned that no insurer would be likely to enter into such an agreement. This appeal followed.

DISCUSSION

1. The WARN Claim

Section 2102(a) of WARN requires employers to give employees sixty days written notice prior to an employment site closing or a mass layoff. 29 U.S.C. § 2102(a). WARN defines "employer" as "any business enterprise that employs ... more than 100 employees." 29 U.S.C. § 2101(a)(1)(A). WARN further provides that

[a]ny employer who orders a [site] closing or mass layoff in violation of section 2102 of this title shall be liable to each aggrieved employee who suffers an employment loss as a result of such closing 29 U.S.C. § 2104(a)(1). A civil action for damages under this Section is "the exclusive remed[y] for any violation of this chapter." 29 U.S.C. § 2104(b).

or layoff for (A) back pay ... and (B) benefits ... including the cost of medical expenses incurred during the employment loss which would have been covered under an employee benefit plan if the employment loss had not occurred.

The Magistrate Judge treated the issue of MHM's status as an employer under WARN as a question of "Who ran the show?" Relying on the then-available decisions interpreting WARN, Hotel Employees Restaurant Employees Int'l Union Local 54 v. Elsinore Shore Associates, 724 F.Supp. 333 (D.N.J.1989) and Finkler v. Elsinore Shore Associates, 725 F.Supp. 828 (D.N.J.1989), she stated that because CCELP exercised ultimate authority for the closing of the hotel, it, rather than MHM, was the employer for purposes of WARN. The Elsinore Shore cases, however, are not dispositive of the instant matter. They involved a claim that, because a state-appointed conservator had been appointed to supervise the operations of a hotel, the conservator and not the hotel was the WARN employer. In those cases, the court held only that, because the conservator had only a limited role and the defendants "continued the business in operation," the hotel was the WARN employer. Hotel Employees, 724 F.Supp. at 335; Finkler, 725 F.Supp. at 831-32.

It is true that in the instant matter CCELP made the decision to close the hotel. It by no means follows, however, that MHM was not a WARN employer. Section 2101(a)(1)(A) defines employer as "[a]ny business enterprise ... employ[ing] more than 100 employees." Giving the statutory language its common meaning, MHM was undeniably the "employer" of the laid-off employees. It bargained with, hired, fired, supervised, paid, and ultimately laid off the employees. The collective bargaining agreement governing labor-management relations at the Summit Hotel was between MHM as the employer and Local 217 as the representative of the employees. The only question, therefore, is whether there is some compelling reason to ignore the plain import of the statutory language.

MHM argues that it was powerless to comply with WARN's notice provisions because it could not control either the timing or the substance of CCELP's decisions regarding the continuation of the hotel's operations. That is hardly a compelling argument, however. Even if WARN contained an "Act of God" or "force majeure" exemption, the circumstances here would not trigger it. MHM entered into a contractual arrangement with CCELP to manage the hotel. CCELP was thus a customer of services provided by MHM. Nothing prevented MHM from charging a management fee that took potential liability under WARN into account. For all that appears on this record, MHM may have done so. Nor did anything prevent MHM from bargaining for specific contractual terms that would give it notice of closure sufficient to meet its obligations under WARN or from bargaining for a monetary arrangement, such as an escrow account, that would guarantee payment of the damages specified in Section 2104(a)(1)(A) and (B). MHM therefore voluntarily exposed itself to the obligations imposed by WARN. To hold otherwise would not only flaunt the statutory language but would also invite resort to arrangements separating real estate and operational aspects of businesses solely to evade WARN. In analogous circumstances, we would not seriously entertain an argument that an employer need not comply with safety laws or regulations governing physical plants because the plant was leased and the landlord refused to allow modifications or repairs.

Although we conclude that MHM was a WARN employer, Local 217 is not entitled to the relief it seeks. As noted, WARN § 2104(a) provides a damages action for back pay and for "the cost of medical...