Stewart v. Giuliano (In re Start Man Furniture, LLC)
| Decision Date | 13 December 2022 |
| Docket Number | Case No. 20-10553 (CTG) (Jointly Administered),Adv. No. 20-50548 (CTG),Civ. No. 22-450 (GBW), Civ. No. 22-489 (GBW) |
| Parties | IN RE: START MAN FURNITURE, LLC (f/k/a Art Van Furniture, LLC ), et al., Debtors. Todd Stewart and Jennifer Sawle, on behalf of themselves and all others similarly situated, Appellants and Cross-Appellees, v. Alfred T. Giuliano, Chapter 7 Trustee for Debtors Start Man Furniture, LLC, et al., Cross-Appellant and Appellee. |
| Court | U.S. District Court — District of Delaware |
Michael J. Joyce, Joyce, LLC, Wilmington, DE; René S. Roupinian, Jack A. Raisner, Gail C. Lin, RAISNER ROUPINIAN LLP, New York, NY – Counsel to Appellants and Cross-Appellees.
Bradford J. Sandler, Pachulski Stang Ziehl & Jones LLP, Wilmington, DE – Counsel to Alfred T. Giuliano, Cross-Appellant and Appellee.
This dispute arises from an adversary proceeding filed by former employees Todd Stewart and Jennifer Sawle ("Plaintiffs"), on behalf of themselves and all others similarly situated, against the above-captioned debtors asserting claims based upon debtors’ failure to provide required notice to employees before a March 20, 2020 mass layoff under the Federal Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101 et seq. (the "WARN Act"). Chapter 7 trustee Alfred T. Giuliano ("Trustee") filed a motion for summary judgment asserting three exceptions to the WARN Act as defenses: that notice was not required because debtors were "liquidating fiduciaries" and not "employers" under the WARN Act; or, in the alternative, that debtors were "employers" under the WARN Act, but that notice was not required because an "unforeseeable business circumstance" caused the mass layoff and/or a "natural disaster" caused the mass layoff.
As the mass layoff was contemporaneous with the beginning of the COVID-19 pandemic and unprecedented government-ordered shutdowns, the motion for summary judgment required the Bankruptcy Court to apply the WARN Act notice exceptions to unusual facts and circumstances. On March 21, 2022, the Bankruptcy Court issued an Order (Adv. D.I. 64, A001722)1 and accompanying Opinion, In re Art Van Furniture, LLC , 638 B.R. 523 (Bankr. D. Del. 2022), which granted, in part, the Trustee's motion for summary judgment. The Honorable Christopher S. Sontchi2 held that both the "unforeseeable business circumstance" and "natural disaster" exceptions applied and, therefore, the debtors were not required to provide the WARN Act's 60-day notice to employees before the layoff. Before the Court is Plaintiffs’ appeal of those holdings, along with the Trustee's cross-appeal of the Bankruptcy Court's determination that the facts of the case did not satisfy the "liquidating fiduciary" exception to the WARN Act. For the reasons set forth herein, the Court will affirm the Order, in part, and reverse the Order, in part.
Founded in 1959, Art Van Furniture, LLC ("Art Van," and, together with Sam Levin Inc. ("SLI") and certain other affiliates, the "Debtors") is a brick-and-mortar furniture and mattress retailer headquartered in Warren, Michigan. (A000001-A000032 ("Ladd Decl.") ¶ 5). 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. Pennsylvania-based companies Levin Furniture and Wolf Furniture were acquired by Art Van in November 2017.
In the months leading up to the Petition Date, Debtors struggled under the weight of poor sales and $208.5 million in secured debt, encumbering substantially all of their assets, consisting of: (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 "Term Loan") from FS KKR Capital Corp (the "Term Lenders" and together with Wells Fargo, the "Secured Lenders"). (Ladd Decl. ¶¶ 7-8, 13-14, 16-18, 31-36). On February 5, 2020, Debtors defaulted on the ABL Loan, and were only able to obtain a forbearance from Wells Fargo through February 28, 2020, giving Debtors just 23 days to find a buyer, an investor, or a means of recapitalizing the business. As a condition to the forbearance, Wells Fargo insisted that the Debtors begin preparing for going-out-of-business store closing ("GOB") sales. (Ladd Decl. ¶¶ 14, 36). Debtors were unable to secure financing or attract a going concern buyer. On February 28, 2020, the forbearance period ended. (Ladd Decl. ¶ 16). Debtors negotiated a wind-down budget with Wells Fargo and entered into a consulting agreement with HilcoMerchant Resources, LLC ("Liquidator") (A001084-A001123) ("Consulting Agreement"). (Ladd Decl. ¶¶ 16-18).
Parallel with these efforts, Debtors continued to pursue alternative transactions, and in the days leading up to the Petition Date, reached an agreement-in-principle with Robert Levin, the former owner of Levin Furniture, regarding a going-concern sale of certain of the assets of SLI and LF Trucking, Inc. ("Levin Sale"). (Ladd Decl. ¶ 19). On March 4, 2020, Debtors entered into a letter agreement, which contemplated that the Levin Sale would: provide for cash and non-cash consideration, including the assumption of liabilities related to customer deposits, employee obligations, specified cure costs, and potential claims under § 503(b)(9) of the Bankruptcy Code ; preserve nearly 1,000 jobs; and provide for the continued operation of approximately 44 retail store locations under the Wolf and Levin store banners and two related distribution centers. (Ladd Decl. ¶ 19). The letter agreement thus contemplated continued operations of the Levin Sale stores pending approval of the sale by the Bankruptcy Court in order to preserve the value of those stores for the buyer. (Id. ) The Levin Sale was expected to be consummated in early April 2020. (Ladd Decl. at ¶ 18). Because Debtors had no money to operate these stores, the purchaser agreed to extend $10 million of debtor-in-possession ("DIP") financing to Debtor SLI (Bankr. D.I. 137 ("Levin DIP").
On March 5, 2020, Debtors publicly announced that they were going out of business. The same day, Debtors issued a WARN Act notice to approximately 1,400 potentially "affected employees" who worked in or reported to seven facilities in Michigan, two facilities in Illinois and one in Pennsylvania. Each of the Plaintiffs who worked at an affected location in Michigan were notified as follows:
(A000875) ("GOB Sale WARN Notice").
On March 8, 2020 ("Petition Date"), Debtors filed voluntary petitions under Chapter 11 of the Bankruptcy Code with the intention of winding down their affairs through an orderly liquidation to maximize the liquidation value of the estates’ assets and the recoveries for the Debtors’ creditors. The Debtors’ plan for an orderly liquidation and wind-down included liquidating their inventory through the GOB sales and the Levin Sale, paying down their secured debt, and using any remaining proceeds of their GOB sales to wind-down operations. (Ladd Decl. ¶ 2). Debtors’ "first day motions" sought obtain approval of the wind-down budget, the Levin DIP, and the GOB sales, along with assumption of their Consulting Agreement with the Liquidator (A000110-A000237). On March 11, 2020, the Bankruptcy Court entered an interim cash collateral 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 (A000238-A000302). The wind-down budget assumed that the GOB sales would continue unabated through April 30, 2020, and provided that "the failure by the Debtors to continue sales of the Assets in accordance with the Consulting Agreement and to assume the Consulting Agreement on a timely basis" is a default. Debtors therefore continued their ongoing GOB sales.
Shortly after the Petition Date, Debtors assert that their situation changed drastically, as "the restrictions on economic and other activity that various state and local governments determined to be necessary to slow the spread of the COVID-19 disease mandated that the Debtors discontinue all retail operations and other non-essential business operations." (A000304-A000333 ("Conversion Motion") ¶¶ 1-2). The unprecedented and extraordinary adverse effects during this period (social, economic, and business) caused by...
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