861 F. Supp. 2d 392
S.D.N.Y.2012Background
- Cornelia Fifth owned the Cornelia Day Resort; SCFAL acquired assets via an asset purchase agreement on February 6, 2009.
- Plaintiffs, former employees of Cornelia Fifth (some later hired by SCFAL), allege unpaid wages prior to the APA closing.
- APA allocated certain liabilities to SCFAL and expressly excluded others; it included warranties and indemnities.
- Post-closing, SCFAL operated the Spa Chakra Fifth Avenue Spa at the former site; disputes arose over wage obligations and funding.
- SCFAL faced financial distress and bankruptcy; Cornelia Fifth and related entities persisted.
- Plaintiffs filed suit April 27, 2009 seeking, among other things, wages under the FLSA and ERISA-related claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SCFAL is a successor liable for wages | SCFAL may be liable under substantial continuity. | Only traditional successor liability applies; SCFAL not a mere continuation. | Genuine issues of material fact as to substantial continuity; denial of summary judgment on successor liability. |
| Whether Cañizales can be personally liable as a successor | Cañizales as an officer/employer is jointly liable with SCFAL under FLSA. | Cañizales should not be personally liable absent veil-piercing; SCFAL is the successor. | Triable issues on personal joint and several liability; summary judgment denied for personal liability. |
| Notice requirement for successor liability under FLSA | Cañizales had notice of unpaid wages before closing via conversations and Wells affidavit. | No actual notice before closing; claims arose post-closing. | Notice issue involves genuine facts; not resolved as a matter of law; material disputed facts remain. |
| Substantial continuity factors beyond notice | Multiple factors show continuity; same location, some shared workforce, continued operations. | Continuity disputed; percentages of shared staff and operations unclear. | Genuine issues of material fact remain on substantial continuity of operations. |
| Predecessor's ability to provide relief | Predecessor could have provided relief; equitable considerations support liability. | Unclear assets/ability; reliance on the APA defenses. | Issues of fact exist regarding predecessor’s ability to provide relief. |
Key Cases Cited
- New York v. National Serv. Indus., Inc., 460 F.3d 201 (2d Cir. 2006) (traditional successor liability exceptions under New York law)
- Steinbach v. Hubbard, 51 F.3d 843 (9th Cir. 1995) (broad substantial continuity approach in labor context)
- Fall River Dyeing & Finishing Corp. v. NLRB, 482 U.S. 27 (U.S. Supreme Court 1987) (substantial continuity doctrine origin for successor liability)
- Kaur v. Royal Arcadia Palace, Inc., 643 F. Supp. 2d 276 (E.D.N.Y. 2007) (debated applicability of broad continuity in FLSA context)
- Musikiwamba v. ESSI, Inc., 760 F.2d 740 (7th Cir. 1985) (labor/employment successor liability considerations; continuity of operations)
- Golden State Bottling Co. v. NLRB, 414 U.S. 168 (U.S. Supreme Court 1973) (notice rationale in successor liability for labor relations)
- Barfield v. N.Y. City Health & Hosp. Corp., 537 F.3d 132 (2d Cir. 2008) (FLSA remedial purpose and broad employer definition context)
- Herman v. RSR Sec. Servs. Ltd., 172 F.3d 132 (2d Cir. 1999) (economic reality approach to who is an employer under FLSA)
- Moon v. Kwon, 248 F. Supp. 2d 201 (S.D.N.Y. 2002) (corporate officer as employer for FLSA purposes)