Stewart v. Art Van Furniture, LLC (In re Art Van Furniture, LLC)

• Decision Date: 21 March 2022
• Docket Number: Case No. 20-10553 (CSS),Adv. Pro. No.: 20-50548 (CSS)
• Citation: 638 B.R. 523
• Parties: IN RE: ART VAN FURNITURE, LLC, et al., Debtors. Todd Stewart and Jennifer Sawle on behalf of themselves and all others similarly situated, Plaintiffs, v. Art Van Furniture, LLC, et al., Defendants.
• Court: U.S. Bankruptcy Court — District of Delaware

638 B.R. 523

IN RE: ART VAN FURNITURE, LLC, et al., Debtors.Todd Stewart and Jennifer Sawle on behalf of themselves and all others similarly situated, Plaintiffs,

v.Art Van Furniture, LLC, et al., Defendants.

Case No. 20-10553 (CSS)

Adv. Pro. No.: 20-50548 (CSS)

United States Bankruptcy Court, D. Delaware.

Signed March 21, 2022

JOYCE, LLC,, Michael J. Joyce, 1225 King Street, Wilmington, DE 19801, Counsel for Todd Stewart, Jennifer Sawle and the Putative Class

PACHULSKI STANG ZIEHL & JONES LLP, Bradford J. Sandler Beth Levine Colin R. Robinson Peter J. Keane 919 North Market Street, 17^th Floor Wilmington, DE 19801 Counsel for Alfred T. Guiliano Chapter 7 Trustee

Related Adv. Docket No.: 43

OPINION ¹

Sontchi, J.

INTRODUCTION

Plaintiffs Todd Stewart and Jennifer Sawle (the "Plaintiffs") filed an adversary complaint alleging that the Debtors² violated the Federal Worker Adjustment and Retraining Notification Act (the "WARN Act")³ by failing to provide them (and similarly situated persons) with at least 60 days’ notice of their employment termination. Before the Court is the Chapter 7 Trustee's Motion for Summary Judgment asserting three defenses to the Complaint: (i) notice was not required because the relevant Debtors were "liquidating fiduciaries" and not "employers" under the WARN Act; (ii) notice was not required because an "unforeseeable business circumstance" caused the mass layoffs; and (iii) notice was not required because a natural disaster caused the mass layoffs. For the reasons set forth herein, the Court concludes that both the unforeseeable business circumstance and natural disaster exceptions apply here and, therefore, the Debtors were not required to provide the 60-days WARN Act notice to employees before the March 20, 2020 layoff. The Trustee's Summary Judgment Motion will be granted.

JURISDICTION

This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334. Venue is proper in the United States Bankruptcy Court for the District of Delaware pursuant to 28 U.S.C. § 1409. This is a core proceeding pursuant to § 157(b)(2)(A), (B) and (O), and this Court has the Constitutional authority to enter a final order.

FACTS

The Trustee filed a Statement of Undisputed Facts in Support of the Summary Judgment Motion (the "SOF").⁴ The Plaintiffs filed a response to the Trustee's SOF, often objecting to the Trustee's characterization of certain facts, and arguing that the Plaintiffs were not given an adequate opportunity to conduct discovery before the Trustee filed the Summary Judgment Motion.⁵ Below, however, are the facts as agreed to by the Plaintiffs and facts arising from orders or transcripts in this bankruptcy case. Because the Court concludes that this combination of undisputed facts and facts in the record provide a sufficient basis for ruling on the Trustee's Summary Judgment Motion, the Plaintiffs’ Cross-Motion to Defer Ruling is denied.⁶

Art Van Furniture, LLC ("Art Van") was a brick-and-mortar furniture and mattress retailer headquartered in Warren, Michigan.⁷ Art Van was founded in 1959 and was owned by its founder, Art Van Elslander, until it was sold to funds affiliated with Thomas H. Lee Partners, L.P. ("THL") in March 2017.⁸ Pennsylvania-based Levin Furniture and Wolf Furniture were acquired by Art Van in November 2017.⁹

On March 8, 2020, when the Debtors filed chapter 11 bankruptcy petitions, the Debtors operated 169 locations (including 92 furniture and mattress showrooms and 77 freestanding mattress and specialty locations) throughout Michigan, Indiana, Ohio, Illinois, Pennsylvania, Maryland, Missouri, and Virginia.¹⁰

In the months leading up to the Petition Date, Art Van was struggling under the weight of poor sales and $208.5 in secured debt encumbering substantially all of its assets, including (i) $33.5 million in an asset-backed loan ("ABL Loan") from Wells Fargo Bank ("Wells Fargo") and (ii) a $175 million term loan (the "Tern Loan") from FS KKR Capital Corp. (the "Term Lenders").¹¹

On February 5, 2020, Art Van defaulted on the ABL Loan and obtained a forbearance from Wells Fargo through February 28, 2020, giving it 23 days to find a buyer, an investor or a means of recapitalizing the business.¹² The Debtors were unable to secure financing or attract a going concern buyer by the February 28, 2020 deadline.¹³ The Debtors negotiated a wind-down budget with Wells Fargo, hired a liquidator, and announced publicly that they were going out of business.¹⁴

On March 4, 2020, debtor Sam Levin, Inc. ("SLI") entered into a letter agreement (the "Levin LOI") pursuant to which SLI agreed to sell 44 stores (most of which were in Pennsylvania), two distribution centers and certain other assets (the "SLI Assets") to Robert Levin (the "Levin Sale").¹⁵ The Levin LOI contemplated that the Levin Sale stores would continue operating, pending the closing of the Levin Sale.¹⁶ Robert Levin agreed to extend $10 million of debtor-in-possession ("DIP") financing to SLI (the "Levin DIP Loan") to facilitate the Levin Sale, which $10 million then would be repaid with and deducted from the sales proceeds of the Levin Sale.¹⁷

On March 5, 2020, Art Van publicly announced that it was liquidating and going out of business.¹⁸ Also on March 5, 2020, Art Van issued a WARN Act notice (the "First WARN Notice") to approximately 1,400 potentially affected employees. Providing, in part, that:¹⁹

Art Van Furniture, LLC (the "Company") made the difficult decision to winddown its operations, which will include the closure of [certain facilities], and will be permanently terminating the employment of all employees at these locations.

....

While an exact date has not yet been established for these closures, it is anticipated that your employment with the Company will terminate on May 5, 2020 or a date within 14 days thereafter which may be provided to you by the Company (your "Termination Date").²⁰

The Debtors commenced store closing sales (the "GOB Sales") and deposits from inventory sales occurring between March 5, 2020 through March 8, 2020 were in excess of $23 million.²¹

On March 8, 2020 (the "Petition Date"), the Debtors filed their Chapter 11 Cases and filed first day motions to obtain approval of, inter alia , the Wind-Down Budget, the Levin DIP, the GOB Sales, and the Consulting Agreement with the Liquidator.²² On March 11, 2020, the Bankruptcy Court entered an interim cash collateral order (the "Interim CC Order"), authorizing the Debtors to use cash collateral in accordance with the Wind-Down Budget until April 7, 2020 (unless terminated earlier due to default or entry of a final order) to conduct the GOB Sales.²³

On March 13, 2020, then-President Trump declared a national emergency concerning the novel coronavirus disease (COVID-19) outbreak.²⁴ By March 14, 2020 Governor Tom Wolf of Pennsylvania issued guidance urging all non-essential businesses to close.²⁵ Two days later, Governor Wolf repeated and amplified that guidance, declaring: "The Wolf Administration is relying on businesses to act now before the governor or the Secretary of Health finds it necessary to compel closures under the law for the interest of public health ...."²⁶

On March 16, 2020, Governor Gretchen Whitmer of Michigan entered an executive order that closed Michigan's bars, theaters, casinos, and other public spaces.²⁷ Governor Whitmer urged Michigan residents to "mak[e] smart choices" by "not putting [themselves] or others at risk by going out in public unless it is absolutely necessary."²⁸

On March 19, 2020, Pennsylvania issued a "stay at home" or "shelter in place" order.²⁹ Similar orders soon followed in Michigan, Ohio, and Illinois, all of which were in lock-down by March 23, 2020.³⁰

During the initial days of the GOB Sales from March 5-8, 2020, deposits from inventory sales were in excess of $23 million; however, for the full week ending March 15, 2020, deposits from sales were just $8 million.³¹ On March 19, 2020, the proposed purchaser for the Levin Sale notified the Debtors that they would not proceed with the transaction.³²

On March 19, 2020, Art Van issued a WARN Act notice (the "Second WARN Notice") to some of its employees which stated, in part:

On March 5, 2020, Art Van Furniture, LLC (the "Company") informed employees that it had made the difficult decision to wind-down its operations, to include the closure of its retail facilities located at [seven Michigan sites], which would in the permanent termination the employment [sic ] of all employees at these locations.

Since initial notice, the Company has been impacted by the novel COVID-19 virus and the resulting, and sudden, negative economic impact. Due to these unforeseen events, the Company can no longer support the wind-down of its retail operations through the originally projected termination date. The Company, therefore, submits this revised notice to you to satisfy any obligation that may exist under the federal Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101 et seq. (the "WARN Act").

All terminations of employment will be permanent and you will not have bumping rights for other positions (i.e., you will not have the right to displace employees with less seniority). The employment of Art Van's sales associates and other commissioned employees, visuals, housekeepers, drivers, helpers, and other hub warehouse staff, Selling Managers and Outlet Managers as well as any Sales or Store Manager who is not scheduled to perform services on March 21, 2020 or March 22, 2020, will be terminated on March 20, 2020. All CPU's and office staff, along with the Store Manager and/or Sales Manager scheduled to work on March 21, 2020 or March 22, 2020 will be terminated at the end of the business day on March 22, 2020. Nothing in this letter alters your at-will employment status with the Company. You will be required to work through your Termination Date, following which date you will not be required to report to work or provide any services to the Company.³³

Wells...