Jarvis v. Matlin Patterson Global Advisers, LLC

Citations: 867 F. Supp. 2d 559; 2012 U.S. Dist. LEXIS 80453; 2012 WL 2126924Docket: No. C.A. 11-864-RGA

Court: District Court, D. Delaware; June 11, 2012; Federal District Court

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Defendant Matlin Patterson Global Advisors, LLP filed a motion to dismiss the claims of Plaintiffs Linda Jarvis and Sara Villanueva, asserting claim preclusion. The Plaintiffs, former employees of Premium Protein Products, LLC (part of the PPP Entities), allege that the PPP Entities violated employee rights during mass layoffs and bankruptcy in 2009, seeking recovery from Matlin under 'single employer' and 'alter ego' theories. They claim Matlin had significant control over the entities, including making key operational decisions, which led to violations of the Worker Adjustment and Retraining Notification (WARN) Act and the Nebraska Wage Payment and Collection Act.

Previously, the Plaintiffs filed an Adversary Complaint in the PPP Entities' bankruptcy case, but Matlin was not a defendant. They dismissed this complaint with prejudice under a stipulation, allowing them to pursue class action claims through the Proof of Claim process. The bankruptcy court subsequently ordered asset distribution, leaving the Plaintiffs with no recovery as the assets were depleted, leading to dismissal of the bankruptcy proceeding.

Matlin argues that the stipulation constitutes a final judgment on the merits, fulfilling the requirements for claim preclusion, while the Plaintiffs contend it did not fully adjudicate their WARN Act claims. The court finds that a voluntary dismissal with prejudice is a final judgment on the merits, even in a bankruptcy context, and thus supports Matlin's motion to dismiss.

Plaintiffs entered a Stipulation with the PPP Entities, forfeiting their WARN Act litigation for the chance to pursue class claims through the proof of claims process. This decision, while regrettable for the Plaintiffs, provided a single avenue for potential recovery, contingent upon their relinquishment of the Adversary Complaint. The depletion of the estate does not affect their claims’ viability, as Plaintiffs were aware of the risks involved when agreeing to the Stipulation. The voluntary dismissal with prejudice constitutes a final judgment on the merits, akin to a baseball forfeit, regardless of whether the dismissed claims were tested. 

There is a dispute regarding whether the litigation constitutes a prior suit involving the same parties or their privies. Although Plaintiffs remain the same, the Defendants differ; the Adversary Complaint targeted the PPP Entities, while the current complaint is against Matlin, the majority shareholder. The question of privity arises, defined by a "close relationship" between parties. Plaintiffs assert that Matlin is intertwined with the PPP Entities' operations, alleging he had significant control over their strategic and operational decisions, making him financially responsible for the entities' employment law violations. 

Claim preclusion also hinges on whether the current suit against Matlin stems from the same cause of action as the suit against the PPP Entities. Plaintiffs contend that the narrow application of the 'same cause of action' test in bankruptcy cases should exempt them from claim preclusion, citing case law that underscores this distinction when litigating against a corporation and its controlling shareholder.

In Eastern Minerals, the plaintiff sought recovery from the bankrupt Delta corporation's sole shareholder under an alter ego theory, claiming breaches of fiduciary duty and loyalty. The defendant moved to dismiss the case on the grounds of claim preclusion, arguing the plaintiff should have pursued the claim during Delta’s bankruptcy. The Third Circuit emphasized that claim preclusion should be applied cautiously in bankruptcy contexts, asserting that a claim should only be barred if it closely aligns with claims actually litigated in bankruptcy. 

The court determined that the claims against the defendant, Mahan, were not precluded as the plaintiff's current claims did not seek the same relief or share factual underpinnings with any claims raised during the bankruptcy. Although the plaintiff participated actively in the bankruptcy, none of the claims filed, including a draft equitable subordination complaint, were similar to the current alter ego claim. The court found the claims to be markedly different.

In contrast, the plaintiffs in the current case had filed an Adversary Complaint during the bankruptcy of the PPP Entities, with identical factual underpinnings related to the shutdown of their meat processing plant and overlapping legal theories, including WARN Act violations. The addition of a Nebraska Wage Payment and Collection Act claim did not create a distinct cause of action. The Third Circuit's intent was to discourage splitting causes of action across multiple suits while acknowledging that claim preclusion only bars claims from the same cause of action already raised. 

Consequently, since both suits originated from the same facts and legal theories, the court ruled that the plaintiffs’ claims were claim precluded, granting Matlin's motion to dismiss with prejudice. An appropriate order will follow.

In the Third Circuit, the concept of 'same cause of action' is interpreted broadly, meaning that multiple causes of action stemming from a single transaction are considered equivalent for the purposes of claim preclusion. A distinction exists when the parties involved in subsequent proceedings differ from those in the original case; a close relationship between these parties is necessary for fairness and due process. Concerns expressed by plaintiffs regarding the requirement to bring alter ego claims against a non-debtor controlling shareholder within bankruptcy proceedings are unfounded. Such claims will not be precluded unless they share significant factual and legal similarities to claims already addressed in bankruptcy. Additionally, it was confirmed during oral arguments that the statutes of limitations for claims have not expired, allowing other class members to pursue similar lawsuits, even though the claims of the two named plaintiffs are concluded.