In Re: WorldSpace, Inc v.
16-3919
| 3rd Cir. | Nov 16, 2017Background
- Sebastian worked as Managing Director for WorldSpace Middle East FZCo (FZCo) under a July 1, 2008 letter that repeatedly references FZCo and states his employment is with the “Company” (FZCo); the letter was signed by WorldSpace’s COO.
- WorldSpace, the parent company, filed Chapter 11 four months after the letter; FZCo did not join the bankruptcy.
- Sebastian resigned in March 2010 after WorldSpace’s restructuring officer directed him to wind down FZCo’s Dubai operations; Sebastian later filed a proof of claim for $170,705.90 for unpaid wages relying on the July 1, 2008 letter.
- WorldSpace objected, arguing Sebastian was an employee of non-debtor FZCo and not the debtor; the Bankruptcy Court sustained the objection and dismissed Sebastian’s derivative suit for lack of creditor standing.
- The District Court affirmed (adding an alternative ground that Sebastian lacked Bankruptcy Court permission to file the derivative action); the Third Circuit reviewed de novo and affirmed on the standing ground.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Sebastian is a creditor of WorldSpace under the July 1, 2008 letter | Letter unambiguously binds WorldSpace (signed by WorldSpace COO; references to reporting and incentive plan show liability) | The letter unambiguously establishes employment with FZCo; WorldSpace never assumed contractual obligations | Court held Sebastian is not a WorldSpace creditor; contract unambiguously with FZCo |
| Whether extrinsic evidence can be used to show WorldSpace assumed liability | Extrinsic context (COO signature, reporting line, benefit eligibility) shows WorldSpace assumption | Contract text is unambiguous; extrinsic evidence not admissible to create obligation | Court held contract unambiguous; interpretation is a question of law; extrinsic evidence not used |
| Whether parent’s control or benefit provisioning makes it liable as employer | Reporting to COO and eligibility for parent benefits imply parent employer liability | Parent direction of benefits or reporting does not by itself create contractual obligation | Court held those factors insufficient to establish WorldSpace as obligor |
| Whether lack of creditor standing bars derivative suit | Sebastian contends he is a creditor and may bring derivative claims on estate’s behalf | Defendants argue only creditors of the debtor may bring such derivative claims; Sebastian is not a debtor creditor | Court held Sebastian lacked creditor standing; derivative action dismissed |
Key Cases Cited
- N. Am. Catholic Educ. Programming Found., Ins. v. Gheewalla, 930 A.2d 92 (Del. 2007) (creditors may bring certain derivative suits on behalf of debtor)
- Cochran v. Norkunas, 919 A.2d 700 (Md. 2007) (unambiguous contract interpretation focuses on text; extrinsic evidence excluded)
- Calomiris v. Woods, 727 A.2d 358 (Md. 1999) (plain-meaning rule and limits on extrinsic evidence for unambiguous contracts)
- City of Bowie v. Mie, Props., Inc., 922 A.2d 509 (Md. 2007) (determination of ambiguity is a question of law; extrinsic evidence for ambiguous texts)
- In re Glob. Indus. Techs., Inc., 645 F.3d 201 (3d Cir. 2011) (creditor standing required for derivative claims in bankruptcy context)
- In re Enterprise Rent-A-Car Wage & Hour Emp’t Practices Litig., 683 F.3d 462 (3d Cir. 2012) (parent’s provision of benefits and limited control does not on its own establish joint-employer or parent liability)