Court: United States Bankruptcy Court, D. Delaware; May 10, 2013; Us Bankruptcy; United States Bankruptcy Court
Brendan Linehan Shannon, Bankruptcy Judge, addressed cross-motions for summary judgment regarding the WARN Act in a case involving Class Plaintiffs (Casimir Czyzewski and others) against Defendants Jevic, Jevic Holding Corp., Creek Road Properties, LLC, and Sun Capital Partners, Inc. (Sun Cap). After discovery, Sun Cap moved for summary judgment, asserting it could not be liable under the WARN Act or New Jersey WARN Act, as it did not employ the Class Plaintiffs, was not a “single employer” with the Debtors, and could not be held accountable for the actions of its affiliates. Conversely, the Class Plaintiffs filed for partial summary judgment, claiming Sun Cap was a “single employer” and thus liable under the WARN Acts.
The Court ultimately denied the Class Plaintiffs’ motion and granted Sun Cap’s motion. The background reveals Jevic Transportation, Inc. began operations in 1981, employing around 1,785 employees before its 2008 bankruptcy filing. Jevic's operations were centralized, with its headquarters and largest terminal in New Jersey. Creek Road Properties held no assets, and Jevic Holding Corp. had no independent operations. Jevic went public in 1997 and was acquired by Yellow Corporation in 1999, which later spun it off in 2002. The economic downturn in 2006 led to revenue declines for the Debtors, prompting the acquisition by Sun Trans, a Sun Cap subsidiary, through a leveraged buyout. This acquisition involved a management services agreement and additional financial arrangements to stabilize the struggling operations, which ultimately fell below CIT's financing requirements by the end of 2007, leading to a forbearance agreement that included a guarantee from Sun Cap.
In February 2008, Jevic entered into consulting agreements with Morris Anderson & Associates and Black Management Advisors, hiring Brian Cassady as Interim Vice President for operational and financial consulting. Morris Anderson provided a 13-week cash flow projection indicating Jevic would maintain assets above $5 million until at least May 9, 2008. Jevic also engaged Stifel Nicolaus to find potential buyers. On March 27, 2008, CIT offered Sun Cap two options regarding additional funding, which Sun Cap declined, prompting Jevic to initiate an active sale process.
By early April, Daniel Dooley from Morris Anderson was appointed as Chief Restructuring Officer, leading to a reorganization plan focused on closing unprofitable facilities and liquidating assets to achieve monthly savings. Despite initial projections, declining sales and rising costs caused Jevic's assets to fall below the $5 million threshold by the end of April, violating CIT's financing covenant. Consequently, the expiration of the forbearance agreement was moved up to May 12.
Jevic engaged with potential buyers, including Pitt Ohio, which expressed preliminary interest but refused to sign a non-disclosure agreement, ultimately hindering the sale process. Attempts to secure capital from the New Jersey Economic Development Authority were unsuccessful. By May 13, 2008, Jevic faced a choice between selling to Pitt Ohio or filing for bankruptcy. CIT conditioned further funding on Sun Cap investing more, which it was unwilling to do. On May 16, 2008, with no viable options left, Jevic's board authorized a bankruptcy filing.
Termination notices were sent to employees under the WARN Act, received on May 19, 2008, followed by a voluntary Chapter 11 petition on May 20, 2008. Subsequently, Class Plaintiffs initiated an adversary proceeding against the Debtors and Sun Cap, alleging violations of the WARN Act for failing to provide a 60-day notice prior to layoffs. The Court certified the class and appointed representatives. Sun Cap filed a motion for summary judgment on September 26, 2012, with subsequent briefs exchanged between the parties, leading to the matter being fully briefed and ready for a decision.
Class Plaintiffs claim that Defendant Sun Cap should be considered a “single employer” with the Debtors, making it liable for any violations of the WARN Act committed by the Debtors. They assert that Sun Cap meets the five-factor test established by the Third Circuit for affiliate liability under the WARN Act. In contrast, Sun Cap contends that it was not the employer of the Class Plaintiffs and therefore bears no liability under the WARN Act. Additionally, Sun Cap argues that the actions of other Sun Cap entities cannot be attributed to it and, even if they could, those entities do not meet the five-factor test for “single employer” status.
Jurisdiction for this matter is established under 28 U.S.C. 157(a), (b)(1), and 1334(b), with proper venue under 28 U.S.C. 1408 and 1409. The issue at hand is classified as a “core proceeding” under 28 U.S.C. 157(b)(2)(A), (B), and (O).
Regarding the legal analysis, the standard for summary judgment requires that when evidence is viewed favorably for the non-moving party, if no genuine dispute of material fact exists, the moving party is entitled to judgment. The burden lies with the movant to demonstrate the absence of any genuine dispute. If met, the opposing party must then provide specific factual evidence to show the existence of a genuine dispute, beyond mere speculation. The court’s role is to assess whether such disputes exist, not to weigh evidence or determine truth. Genuine disputes are recognized when reasonable minds could differ on the outcome. When both parties file for summary judgment, the analysis remains unchanged; each must independently establish the lack of genuine issues of material fact, and both motions will be denied if any genuine issues remain.
The WARN Act mandates that employers provide a 60-day written notice before executing a plant closing or mass layoff, aimed at protecting workers and allowing them time to adjust and seek alternative employment. An "employer" under the Act is defined as any business entity employing 100 or more employees. The Department of Labor (DOL) treats subsidiaries as separate or part of a parent company based on their independence, considering factors such as common ownership, directors, control, personnel policies, and operational dependency. The Third Circuit has adopted a five-factor test from the DOL to assess whether affiliated corporations qualify as a "single employer" under the WARN Act, emphasizing that these factors are not exhaustive and require a balancing approach focusing on control.
In the specific case analyzed, the court concluded that three factors, particularly de facto control, indicated a lack of "single employer" liability. The court found no genuine dispute regarding this liability and decided to grant Defendant Sun Cap’s motion for summary judgment while denying the Class Plaintiffs’ partial motion for summary judgment. The common ownership factor was acknowledged, with the court noting that Sun Cap, as the parent corporation, owned 100% of its subsidiary, which weighed in favor of the Class Plaintiffs, but common ownership alone does not suffice to establish "single employer" status.
Class Plaintiffs assert that Sun Cap and the Debtors had overlapping directors and officers, which supports their case. Sun Cap counters that no such overlap exists between Jevic’s management team and any Sun Cap entity. The relevant criteria for determining this overlap include whether individuals hold formal officer or director positions in both companies, frequently transfer management personnel between them, or serve in formal management roles for each other. Jevic’s three-member board included Michael Gillen and Dixon McElwee, who also held positions at Sun Cap. Sun Cap claims that Jevic’s senior management, not its board, controlled operations, and thus, Class Plaintiffs cannot meet this factor. However, case law, including In re Tweeter Opco, LLC and Pearson, indicates that the focus is on formal officer or director roles. The court concludes that Sun Cap and the Debtors indeed shared common directors and officers, favoring Class Plaintiffs.
Regarding de facto control, Class Plaintiffs argue that Sun Cap’s refusal to fund the Debtors, lack of independence, and shared legal counsel indicate control. Sun Cap contends that it did not control the decision-making processes regarding employee terminations or WARN notices. The court emphasizes that determining de facto control involves assessing whether the parent company directed the employment practices at issue, as established in case law. The focus remains on identifying who was responsible for the employment decisions relevant to the litigation.
The excerpt highlights a court's interpretation of liability related to a parent's control over a subsidiary. It references the case of Pearson, where CompTech obtained a $25 million loan from GECC, leading to GECC gaining voting rights and control over management after CompTech defaulted. GECC's actions included installing new directors, hiring a CEO, and requiring CompTech to seek approval for significant financial decisions, indicating substantial oversight. Despite this, the court concluded that such oversight did not equate to a "de facto exercise of control" by GECC over CompTech. The court noted that while GECC's financial support was crucial for CompTech's survival, the ultimate decision to liquidate was presented as a business decision rather than a directive from GECC. The ruling emphasized that CompTech operated independently in seeking financing and that there was no direct involvement from Sun Cap in the day-to-day operations or employment decisions of Jevic. The distinction between financial influence and operational control was pivotal in the court's determination against finding GECC liable for CompTech's closure.
Jevic’s management engaged in discussions regarding WARN Act notices, consulting Morris Anderson for legal and bankruptcy guidance. Class Plaintiffs argue that the shared in-house legal counsel indicates a “de facto exercise of control” between the Debtors and Sun Cap, referencing a single email from McElwee to Sun Cap's general counsel related to the Debtors’ Chief Restructuring Officer appointment. The Court finds this insufficient to demonstrate shared counsel as contemplated in In re Tweeter Opco, LLC.
Additionally, the Class Plaintiffs contend that Sun Cap’s decision to cease funding is actionable due to its assumed responsibility for the company's viability. The Court disagrees, asserting that the Debtors retained ultimate responsibility for the company’s operations, as evidenced by their decision to shut down and sign the WARN notice. The Debtors independently sought capital and buyers, engaging Morris Anderson and Stifel Nicolaus, reflecting their own decision-making processes.
The Court also rejects the Plaintiffs' distinction between Sun Cap as a parent company and GECC as a lender, maintaining that the same test for de facto control applies to both. Citing precedent, the Court concludes that there is no genuine dispute regarding the DOL factor of “de facto exercise of control,” ruling in favor of Sun Cap.
Class Plaintiffs argue that Defendant Sun Cap and the Debtors had a unified healthcare initiative and incentive programs for management. They cite instances such as Jevic’s CEO receiving a "best practices" kit and the CFO attending a training conference to support their claim of integrated personnel policies. However, Sun Cap disputes these allegations, asserting that the Debtors did not join its healthcare initiative or participate in its incentive program. The relevant legal standard, as established by the Third Circuit, requires evidence that the companies operated as a single entity regarding employee relations, which includes centralized hiring and wage payment practices.
The evidence presented by Class Plaintiffs is deemed insufficient to demonstrate integrated personnel policies. They reference a single training conference attended by Jevic's CFO, but this is seen as too isolated. The CEO’s receipt of the toolkit is undermined by his testimony that he only briefly reviewed it, and its use was not mandatory. Claims regarding the Debtors' participation in Sun Cap’s healthcare initiative lack supporting documentation. Furthermore, while Class Plaintiffs suggest that Sun Cap assisted in budget planning for Jevic, the record indicates that Jevic's management was responsible for these plans. Lastly, sharing of certain benefit plans or employee monitoring does not satisfy the criteria for establishing a unified operation under the WARN Act.
The Court concludes that no unity of personnel policies exists between the Debtors and Sun Cap, given their differing natures as an investment company and a mattress manufacturer. The limited oversight by GECC over high-level management does not indicate a regular integration of operations necessary to prove a single employer status. Consequently, there are no material factual disputes regarding this factor, favoring Defendant Sun Cap.
Plaintiffs argue that the Debtors were dependent on Defendant Sun Cap due to Sun Cap officers' involvement in the Debtors' daily decisions and financial reliance. Sun Cap counters that it operated independently after the Debtors' bankruptcy and maintained separate records. The Third Circuit assesses “dependency of operations” by examining arrangements like shared services, employee interchanges, and commingled finances. While control over daily operations indicates interrelation, mere reporting structures do not prove dependency.
Although American Capital supervised some Debtor activities and occupied board seats, the Debtors functioned as separate entities without reliance on American Capital for daily operations. Ordinary ownership powers do not establish dependency, nor do loans from parent to subsidiary. The Third Circuit discourages interpreting necessary loans as creating operational dependency, especially when aimed at returning to profitability.
The evidence shows that Sun Cap and the Debtors operated as distinct businesses, with Jevic maintaining its own books, bank accounts, and financial statements, without shared administrative resources. Sun Cap was designated as an “independent contractor” in the Management Services Agreement, which emphasized that Debtors' activities were under their directors' control. No evidence suggests Sun Cap employees engaged in Jevic's daily operations to demonstrate dependency.
The Court determined that the Class Plaintiffs' argument of financial dependence on Sun Cap fails, referencing Third Circuit precedent that indicates a company's independent pursuit of financing undermines claims of dependency. The Debtors actively sought additional financing from the New Jersey Economic Development Authority (NJEDA) and considered buyers, which contradicts claims of financial dependency. Sun Cap's actions, including guaranteeing up to $2 million for Jevic and an initial $1 million investment, do not establish dependency, as there is no evidence that these transactions were outside the ordinary course of business or not conducted at arm’s length. The Court emphasized that merely borrowing money does not imply operational dependency. Furthermore, the Court highlighted that Sun Cap's efforts were aimed at rescuing Jevic, not creating a dependency relationship. Consequently, it concluded there is no material dispute of fact regarding Sun Cap’s status as a "single employer" under the WARN Act and the New Jersey WARN Act, granting the Defendant’s motion for summary judgment and denying the Class Plaintiffs’ partial motion for summary judgment. The opinion serves as the Court's findings of fact and conclusions of law, specifically regarding Sun Cap, while claims related to the Debtors are addressed in a separate opinion. The proceedings are agreed to be "core" under jurisdictional standards, and the analyses under both WARN Acts are noted to be substantially similar.
The legal document adopts the five-factor Department of Labor (DOL) test for determining "single employer" liability under the New Jersey WARN Act, which parallels its federal counterpart. The Court concluded that there is no "single employer" liability among different Sun Cap entities and thus did not address the argument made by Defendant Sun Cap regarding liability for actions of other entities. Key facts include that Sun Cap invested $1 million in acquiring the Debtors and guaranteed a credit facility for them, but common ownership and management alone do not establish liability under the WARN Act. Notable individuals such as Mike Gillen and Brian Cassady had roles within the Sun family entities, with Cassady being familiar with Sun Cap's operations. The Plaintiffs failed to provide evidence that Sun Cap specifically directed layoffs; instead, the evidence suggested that decisions regarding layoffs were made by Sun Cap’s co-CEOs concerning investments rather than direct involvement in terminations. The Court referenced prior case law, emphasizing that de facto control over employee terminations is crucial for liability, contrasting with its findings in the current case. The Court also considered the WARN Act's policies in its analysis, reinforcing the importance of encouraging business rescues rather than deterring loans.
Jevic maintained an Employee Handbook outlining its training policies and employee guidelines prior to and following Sun Cap’s acquisition of the Debtors. This Handbook detailed various employment practices, including compensation, benefits, policies on time off, personal development, workplace environment, and termination procedures. Despite some claims from the Plaintiffs suggesting that the Debtors appeared likely to participate in Sun Cap's healthcare program, evidence indicates that Jevic did not join that initiative and continued with its previous healthcare provider until the end. The Court clarified that the Plaintiffs’ arguments regarding the relationship between Sun Cap and Jevic are not applicable in this case, noting that it is illogical for a parent company to fail alongside a single subsidiary. The precedent cited by Sun Cap is distinguishable as it involved a different corporate structure. Additionally, the Management Services Agreement explicitly stated that the parties were not joint venturers or partners, and did not create an employer-employee relationship. Gorman, as Jevic’s President and CEO, held ultimate decision-making authority. The assertion that the Management Services Agreement lacked an arm’s length basis was countered by evidence of Sun Capital’s focus on revitalizing struggling companies and its role in providing consulting and advisory support to Jevic's leadership.
