Garner v. Behrman Bros. IV, LLC

Citation: 260 F. Supp. 3d 369Docket: 16 Civ. 6968 (PAE)

Court: District Court, S.D. New York; June 16, 2017; Federal District Court

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Plaintiffs Winifred Marie Garner and Sophia Theus filed a putative class action against Behrman Brothers IV, LLC and Behrman Brothers Management Corp., seeking unpaid wages and benefits under the Worker Adjustment and Retraining Notification Act (WARN Act). Behrman filed motions to dismiss the First Amended Complaint and to drop both defendants, which the Court denied.

Garner and Theus were employed by Atherotech, Inc. and Atherotech Holdings, Inc. until February 26, 2016, and represent over 300 employees who lost their jobs due to the closure of Atherotech facilities. The plaintiffs allege that Atherotech and Behrman operated as a "single employer," citing Behrman's substantial ownership interest in Atherotech, shared management personnel, and Behrman's control over Atherotech's operations.

Key allegations include that Behrman orchestrated the shutdown after a failed sale attempt and instructed Atherotech to mislead employees about the impending closure to prevent them from leaving prematurely. Communication between Behrman and Atherotech's management was frequent, and Behrman was alleged to have made labor decisions, including the decision to terminate employment abruptly. The plaintiffs argue these actions constitute violations of the WARN Act due to insufficient notice of plant closings.

McClintic misled Atherotech employees about the company's future while Behrman prepared a WARN notice regarding the plant's closure, instructing McClintic on its distribution shortly after the shutdown's effective date. On February 26, 2017, over 300 employees were terminated without cause due to plant closings. The plaintiffs allege violations of the WARN Act, which mandates a 60-day notice for mass layoffs, asserting they did not receive such notice or compensation for the 60-day period following their termination. The procedural history reveals that the plaintiffs filed an initial complaint on September 6, 2016, seeking various forms of compensation and class certification. Behrman responded with motions to dismiss and to drop defendants, leading to a series of filings and hearings, culminating in the Court allowing an amended complaint (FAC) to be filed on March 3, 2017. Behrman subsequently moved again to drop defendants and dismiss the FAC based on Rules 12(b)(6) and 12(b)(7). The Court evaluates these motions, noting that to survive a Rule 12(b)(6) dismissal, a complaint must present sufficient facts to support a plausible claim for relief, as established by Supreme Court precedents.

A district court must accept all well-pleaded factual allegations in a complaint as true and draw inferences in favor of the plaintiffs, but this does not apply to legal conclusions. Under the WARN Act, employers with 100 or more employees are required to give 60 days' written notice prior to a plant closing or mass layoff, which must include specific information such as the nature of the closure, expected dates, bumping rights, and contact information for a company official. Failure to provide this notice results in liability for 60 days of pay and benefits to affected employees. The WARN Act aims to provide advance notice to help workers transition to new employment following job loss. It does not explicitly address liability for affiliated corporations; however, courts utilize Department of Labor regulations to assess such liability, applying a multi-factor test that considers common ownership, directors, personnel policies, operational dependency, and control to determine if parent and subsidiary companies can be held jointly liable under the Act.

Application of the Department of Labor (DOL) factors for establishing liability under the WARN Act requires a detailed fact-specific analysis, where no single factor is decisive, and not all factors need to be present. The Court evaluates whether the allegations in the First Amended Complaint (FAC) provide a basis for a reasonable factfinder to hold Behrman liable. Behrman acknowledges that the plaintiffs have alleged sufficient facts regarding the first two factors—common ownership and common directors/officers—but contests the sufficiency of the allegations concerning the third, fourth, and fifth factors, which pertain to unity of personnel policies, dependency of operations, and de facto control. Behrman claims these elements are alleged in a conclusory manner, making the FAC inadequate for establishing Behrman as a "single employer" with Atherotech.

The Court finds that the FAC presents facts that could allow a jury to determine Behrman's liability for violating WARN Act notice provisions, with four out of five factors leaning toward liability, particularly emphasizing the de facto control factor. 

1. **Common Ownership**: This factor favors liability, as the FAC claims Behrman directly owns a significant stake in Atherotech, but mere stock ownership alone is insufficient for liability.

2. **Common Directors/Officers**: This factor also favors liability since the FAC alleges shared directors and officers between Behrman and Atherotech. However, common directorship is generally not enough to establish liability without additional context.

3. **Unity of Personnel Policies**: This factor supports liability, drawing parallels to centralized control of labor operations, which is critical in the context of mass layoffs, the primary concern under the WARN Act.

Overall, the Court concludes that the allegations in the FAC, if proven true, could substantiate Behrman's liability under the WARN Act.

In *Vogt v. Greenmarine Holding, LLC*, the court addressed allegations against defendant companies for violating the WARN Act's notice provisions by deciding to lay off employees without proper notification. Despite the lack of direct involvement in daily personnel operations by the defendants, the court found that the allegations regarding their role in the termination decisions satisfied the unity of personnel policies factor for WARN liability. This case predates the stricter pleading standards established by *Bell Atl. Corp. v. Twombly*, which has led courts to require more than conclusory allegations for establishing liability.

In the current case, the First Amended Complaint (FAC) alleges that Behrman made the decision to shut down Atherotech and terminate its employees in violation of the WARN Act. Unlike in *Vogt*, the allegations in the FAC are detailed, specifying that Behrman not only decided to shut down the company but also drafted a WARN notice and directed communication strategies to mislead employees. Furthermore, the FAC asserts that Visser, acting on behalf of Behrman, played a significant role in managing Atherotech's personnel policies, regularly communicating with McClintic and providing instructions regarding operations. The court recognizes that Visser acted as a conduit for Behrman’s directives and managed personnel policies directly tied to the alleged WARN violations. Consequently, the court finds that the unity of personnel policies factor strongly supports liability against the defendants.

The factor of de facto control indicates a strong basis for liability, focusing on whether one company was the decision-maker responsible for the employment practices at issue. The Second Circuit in Guippone emphasized that de facto control is crucial, noting that if a parent company disregards the separate legal personality of its subsidiary, this can justify liability even without other supporting factors. In Guippone, the court vacated a summary judgment in a WARN Act claim, citing evidence that the parent company directed layoffs without regard for the subsidiary’s corporate form. Similarly, in Vogt, the court allowed a WARN Act complaint to proceed based on allegations that defendants instructed an employer to file for bankruptcy and shut down operations, indicating sufficient grounds for discovery. 

The allegations against Behrman assert that he made decisions regarding Atherotech's shutdown and bankruptcy, communicated these to McClintic, and influenced how the shutdown was presented to employees. These claims align with those in Austen v. Catterton Partners, where similar allegations about control over bankruptcy and layoffs were found sufficient to imply de facto control. The court concludes that the allegations regarding Behrman’s control over Atherotech and Visser’s instructions to McClintic significantly support the plaintiffs' claims for liability under the WARN Act.

The dependency of operations factor is the sole element disfavoring liability, focusing on three areas: sharing of services, interchanges of employees or equipment, and commingled finances. The First Amended Complaint (FAC) lacks allegations in these areas; however, this absence does not preclude a finding of liability, as no single factor is decisive. Evaluating the Department of Labor (DOL) factors collectively reveals sufficient grounds for a jury to find Behrman liable for WARN Act violations, with factors such as common ownership, directors, personnel policies, and de facto control outweighing the dependency of operations factor. Consequently, the Court denies Behrman's motion to dismiss under Rule 12(b)(6).

Regarding Rule 12(b)(7), dismissal for failure to join a necessary party requires that: (1) the absent party is required, (2) it is unfeasible to join the party, and (3) the action should not proceed without that party in equity and good conscience. A party is "required" if complete relief cannot be granted among current parties or if the absence impairs the absent party's ability to protect their interest. Asserting a claim of interest must be supported, not merely alleged. If a party is deemed necessary but cannot be joined, the court assesses whether that party is indispensable under Rule 19(b) by considering factors such as potential prejudice to the absent party, the adequacy of judgment in their absence, and the plaintiff's potential remedies if the case is dismissed. Behrman contends that Atherotech is a necessary and indispensable party, justifying its motion to dismiss under Rule 12(b)(7).

Behrman contends that Atherotech is essential to the case but cannot be joined due to the plaintiffs missing the deadline for claims against the company, which is currently in bankruptcy. Atherotech is described as the primary participant in the dispute, possessing crucial facts, records, and witnesses relevant to the litigation. Behrman argues that Atherotech, not himself, made the decisions regarding facility closures and employee terminations. Under the WARN Act, a plaintiff can assert claims without naming a direct employer, as established by the Supreme Court in Temple v. Synthes Corp., where joint tortfeasors are not deemed indispensable parties under Rule 19(a). The Advisory Committee Notes clarify that such tortfeasors are merely permissive parties in actions against others with similar liabilities. Courts have ruled that the absence of all joint tortfeasors does not prejudice defendants, as those found liable can seek contribution from others. In Law v. American Capital Strategies, the court upheld that plaintiffs could pursue WARN Act claims against American Capital without joining the direct employer, which was in bankruptcy, reinforcing that joint tortfeasors are not indispensable parties under federal rules.

Behrman fails to provide any case law contradicting the assertion that a WARN Act claim can proceed without suing the plaintiffs' direct employer. Instead, Behrman references cases where corporate subsidiaries were deemed necessary parties due to their separate legal status and involvement in the alleged wrongdoing. However, these cases do not pertain to WARN Act claims or to a parent company’s liability based on its own actions. In this instance, the allegations against Behrman assert its direct violation of the WARN Act through its own decisions regarding the shutdown of Atherotech and the termination of its employees without proper notice. Consequently, the court denies Behrman's motion to dismiss based on Rule 12(b)(7).

Additionally, under Rule 20(a), multiple plaintiffs can be joined if they share a common right to relief from the same event and if common legal or factual questions arise. Both criteria must be met for proper joinder, and failure to do so results in misjoinder. Under Rule 21, a court has the discretion to sever misjoined parties or claims. Behrman argues for the dismissal of both defendants under Rule 21, claiming misjoinder since it does not qualify as the plaintiffs' employer according to the Department of Labor (DOL) test. This motion reiterates Behrman's dismissal arguments under Rule 12(b)(6) and disputes various factual claims in the First Amended Complaint (FAC), including its role in Atherotech’s shutdown and its ownership stake.

Behrman submits two declarations by Visser to support an alternative factual narrative, which the Court cannot consider in a motion to dismiss under Rule 12(b)(6) because it must accept the factual allegations in the First Amended Complaint (FAC) as true. Behrman’s motion under Rule 21 seeks a reevaluation of the case based on its own factual assertions from the Visser declarations, but this is deemed an improper application of Rule 21. Defendants cannot circumvent the 12(b)(6) review standard by merely reclassifying their motion. Dismissing both defendants would effectively terminate the case, which is not permissible under Federal Rule of Civil Procedure 21, as misjoinder alone does not warrant dismissal. Although Behrman's narrative may eventually be validated, the Court cannot make that assumption at this stage.

The cited cases that Behrman relies on do not support the use of Rule 21 for dismissal; they involve unique circumstances where parties were removed by mutual agreement or where substitutions were made to allow the case to progress. Consequently, the Court maintains its discretion in addressing motions under Rule 21, emphasizing that the circumstances presented do not warrant using this rule to halt the case.

Behrman’s motions to dismiss under Rules 12(b)(6) and 12(b)(7), as well as the motion to drop both defendants under Rule 21, are denied by the Court. The Clerk of Court is instructed to close the motions referenced in Dkts. 40 and 42. The parties must submit a joint letter to the Court within two weeks detailing a proposed schedule for next steps, aiming to complete fact discovery within four months. The Court's findings are primarily based on the First Amended Complaint (FAC), Dkt. 34-1. In evaluating the motion to dismiss under Rule 12(b)(6), the Court accepts all factual allegations in the FAC as true and draws reasonable inferences in favor of the plaintiffs. For the motions under Rules 12(b)(7) and 21, the Court considers facts outside the pleadings, including affidavits submitted by defendants. The FAC claims that Atherotech, Inc. lacked a board of directors.