Varela v. Burtch (In re AE Liquidation, Inc.), Case No. 08–13031–MFW Jointly Administered

• Decision Date: 31 March 2016
• Docket Number: Adv. No. 09–50265–MFW,Case No. 08–13031–MFW Jointly Administered,Civ. No. 14–1492–LPS
• Citation: 556 B.R. 609
• Parties: In re: AE Liquidation, Inc., et al., Debtors. Annette Varela and John J. Dimura, Appellants, v. Jeoffrey L. Burtch, Chapter 7 Trustee, Appellee.
• Court: U.S. District Court — District of Delaware

556 B.R. 609

In re: AE Liquidation, Inc., et al., Debtors.Annette Varela and John J. Dimura, Appellants,

v.Jeoffrey L. Burtch, Chapter 7 Trustee, Appellee.

Case No. 08–13031–MFW Jointly Administered

Adv. No. 09–50265–MFW

Civ. No. 14–1492–LPS

United States District Court, D. Delaware.

Signed March 31, 2016

Christopher D. Loizides, Loizides & Associates, Wilmington, DE, for Appellants.

Jack A. Raisner, Pro Hac Vice.

Rene S. Roupinian, Pro Hac Vice.

Mark E. Felger, Cozen & O'Connor, Wilmington, DE, for Appellees.

MEMORANDUM ORDER

HON. LEONARD P. STARK, UNITED STATES DISTRICT COURT

At Wilmington on this 31st day of March, 2016:

This matter coming before the Court upon Appellants' appeal of the Memorandum Opinion (“Opinion”) and Order (“Order”)¹ entered by The Honorable Mary F. Walrath on November 18, 2014 in the above-captioned adversary proceeding on cross-motions for summary judgment with respect to claims arising under the federal Worker Adjustment and Retraining Notification Act (the “WARN Act”);

IT IS HEREBY ORDERED that, for the reasons that follow, the Order is AFFIRMED.

I. Relevant Background

This appeal arises from the Bankruptcy Court's Order granting the Trustee's motion for summary judgment, and denying that of Appellants, based on the Bankruptcy Court's conclusion that the “unforeseeable business circumstances” exception to the WARN Act applies.

The material facts of this case are undisputed. Appellants were employed by Eclipse Aviation Corporation (“Eclipse”). Eclipse engineered, manufactured, and sold jet aircraft through its facilities in Albuquerque, New Mexico. European Technology and Investment Research Center (“ETIRC”) was the largest shareholder of Eclipse, and its Chairman, Roel Pieper, was also Eclipse's Chairman and Chief Executive Officer.

Pre-petition, the business model of Eclipse failed. By November 1, 2008, the company had defaulted on its secured notes and its cash accounts were frozen. (See D.I. 15 at A546 (Nov. 1, 2008 Minutes of the Board of Directors of Eclipse Aviation Corp.) J. Mark Borseth, Eclipse's Chief Financial Officer, suggested a bankruptcy filing to its Board of Directors. The Board considered liquidating, but decided on a going-concern sale through “stalking horse” bid procedures. On November 25, 2008, Eclipse filed a Chapter 11 petition with $20 million in debtorin-possession (DIP) financing provided by ETIRC.² On the same day, Eclipse filed a motion to approve sale procedures to govern the sale of substantially all of its assets, which attached a form of asset purchase agreement negotiated between Eclipse and EclipseJet Aviation International, Inc., an affiliate of ETIRC, dated November 25, 2008. (B.D.I.18) On December 23, 2008, the Bankruptcy Court entered an order approving certain bid procedures to govern the sale. (B.D.I.229) On December 29, 2008, Eclipse filed an executed Amended Asset Purchase Agreement, dated December 22, 2008, with ETIRC as the stalking horse bidder, who represented that a Russian state-owned bank, Vnesheconombank, would finance the sale. (B.D.I.239) On January 23, 2009, the Bankruptcy Court entered an order (“Sale Order”) approving a Second Amended and Restated Asset Purchase Agreement (the “APA”) and the sale. (B.D.I.446, Ex. 1)

Despite its approval by the Bankruptcy Court, ETIRC's financing and the closing of the sale were delayed. On February 18, 2009, Eclipse sent an email to employees announcing a furlough:

We are sure that you have noticed that the sale of Eclipse Aviation is taking longer than expected. The efforts of many people to finalize the sale of Eclipse to EclipseJet is still on course but slower than we all had hoped for. Even with the difficult financial markets around the world, all actions to date allow us to believe that the sale and closing of the overall process is well within reach. In spite of this optimism, we now find it prudent to take action to provide us the best possible chance of assuring a sale closing occurs.

To make the company's remaining cash last as long as possible and give us the most time to complete the sale, the Board of Directors directed management to furlough essentially all of the company's employees effective today. This means you can go home and unless you are asked, you should not report to work starting tomorrow, Thursday February 19, 2009, until further notice ...

We regret the need to take this action but we ask that you see the necessity given the circumstances. You will be contacted at your home address and/or by home phone to notify you when to return to your job or to provide any additional updates.

While this is unpleasant and hopefully short lived, we are very thankful for all of the ongoing support you are giving to Eclipse Aviation. We hope to have good news to report to you in the coming days.

(D.I. 15 at A609) Despite repeated assurances from ETIRC that funding was forthcoming, the sale ultimately did not close. On February 24, 2009, management sent a second message to employees:

We are very sad to report unexpected news today. Despite the efforts of many people at EclipseJet Aviation and ETIRC to obtain necessary funding to close the purchase of the assets of Eclipse Aviation, the closing of the sale transaction has stalled and our company is out of time and money. Given the dire circumstances in today's global marketplace and the lack of additional debtor-in-possession funding, the senior secured creditors of the Company filed a motion today ... to convert the Chapter 11 case to a Chapter 7 liquidation. This action, under the circumstances, is being supported by the directors of Eclipse.

What does this mean for each employee? The furlough converted to a layoff effective Thursday, February 19, 2009. Most regrettably, you will not be paid the paycheck due on Thursday, March 5, 2009 nor is any vacation pay available. You may have certain rights to seek payment in the bankruptcy proceeding; you may receive additional information about that from the bankruptcy court.

As it stands today, all benefits coverage will end at midnight on February 28, 2009. COBRA benefits will be available for the month of March if you wish to sign up for medical, dental and/or vision coverage. Later this week you will receive a termination package in the mail which will have information regarding all of your benefits.

(D.I. 15 at A622) The next day, on February 25, 2009, a termination benefits package was mailed to the employees. (D.I. 15 at A625) On March 5, 2009, the Bankruptcy Court converted Eclipse's case to Chapter 7 and subsequently appointed Jeoffrey L. Burtch as trustee (the “Trustee”).

Appellants commenced a class action adversary proceeding on March 3, 2009, alleging a violation of the federal WARN Act.³ On November 18, 2009, Appellants filed a motion for class certification and related relief. (A.P.D.I.17)⁴ On January 12, 2012, prior to discovery, the Trustee filed a first motion for summary judgment, asserting, inter alia, that the closure was caused by business circumstances that were not reasonably foreseeable at the time that any notice pursuant to the WARN Act would have been required, and Eclipse was therefore excepted from the WARN Act requirements. (A.P.D.I.33, 34) The Trustee's first motion for summary judgment was denied by the Bankruptcy Court on August 30, 2012, based on the Bankruptcy Court's conclusion that there was a dispute of material facts regarding the Trustee's asserted “unforeseeable business circumstances” (“UBC”) defense. (A.P.D.I.49) Following discovery, on February 14, 2014, the Plaintiffs filed a motion for partial summary judgment, arguing that Eclipse could not invoke the “faltering company” defense or the UBC defense. (A.P.D.I.88, 89) On April 24, 2014, the Trustee filed a cross-motion for summary judgment with respect to its asserted UBC defense. (A.P.D.I. 102, 103) Following briefing and oral argument, the Bankruptcy Court issued the Opinion and Order, granting the Trustee's motion for summary judgment.

II. Parties' Contentions

Under the federal WARN Act, an employer cannot order a plant closing or mass layoff without giving 60 days' written notice to affected employees. See 29 U.S.C. § 2102(a)(1). It is undisputed that Eclipse did not provide employees with notice 60 days prior to termination. Eclipse sent an email announcing a furlough on February 18, 2009, and a second email on February 24, retroactively converting the furlough to a layoff. Any notice, therefore, was given after the fact. The Trustee argues, however, that the UBC exception to the WARN Act applies. The statute provides that “[a]n employer may order a plant closing or mass layoff before the conclusion of the 60–day period if the closing or mass layoff is caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required.” 29 U.S.C. § 2102(b)(2)(A). To invoke this defense, it is the employer's burden to show that the claimed circumstance was unforeseeable and the layoffs were caused by that circumstance. See Gross v. Hale–Halsell Co., 554 F.3d 870, 875 (10th Cir.2009). To qualify for this defense, an employer is still required to give as much notice as is practicable and, at that time, provide a brief statement explaining the reason for reducing the notification period. See 29 U.S.C. § 2102(b)(3).

Appellants argue that the Bankruptcy Court's holding that that Eclipse is entitled to the UBC defense is reversible error for several reasons. First, Appellants argue that, as a gating issue, Eclipse cannot invoke the UBC defense because Eclipse failed to meet the statutory requirement of giving as much notice as practicable and that the notice that was given to employees did not contain the “brief statement” required by the statute. (See D.I. 14 at 3) Second, Appellants argue that even if the UBC defense could be invoked, the alleged unforeseeable event—the failure of the sale—did not cause the terminations because the employees were subject to termination whether the...