Varela v. AE Liquidation, Inc.
866 F.3d 515
| 3rd Cir. | 2017Background
- Eclipse Aviation filed Chapter 11 in Nov. 2008 and negotiated an amended asset purchase agreement to sell substantially all assets to ETIRC, a longtime investor and bidder, with financing expected from Russian state bank VEB.
- The asset purchase agreement envisioned a going-concern sale and required Eclipse to continue operating and retaining employees through closing; ETIRC did not expressly contract to assume employee liabilities but planned to operate the business post-closing.
- Repeated assurances from ETIRC representatives (who also sat on Eclipse’s board) and from Russian officials indicated funding was imminent, but VEB’s funding repeatedly stalled in January–February 2009.
- Eclipse ran out of debtor-in-possession funds, furloughed employees on Feb. 18, 2009, and after noteholders moved to convert the case to Chapter 7, filed the conversion motion on Feb. 24 and sent an email notifying employees that the furlough was retroactively converted to layoffs effective Feb. 19.
- Employees sued under the WARN Act for failure to provide 60 days’ notice; the Bankruptcy Court granted summary judgment to Eclipse relying on the WARN Act’s "unforeseeable business circumstances" exception; the District Court affirmed; this appeal followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Appropriate foreseeability standard under WARN | WARN should be triggered by reasonably foreseeable possibilities (less than >50%) | WARN triggers only when layoffs are probable (more likely than not) | Court adopts the probability (>50%) standard as objective test |
| Whether ETIRC/VEB funding failure caused the layoffs (causation) | Sale terms reserved buyer discretion; no guarantee employees would be retained, so failure to close may not be the but-for cause | Going-concern sale presumption and evidence show employee retention was expected; failure to obtain financing caused layoffs | Court holds sale failure caused the layoffs (presumption of continued employment not rebutted) |
| Whether Eclipse’s post-facto notice satisfied WARN content and delivery requirements | Notice was deficient in content/method (e.g., wrong addresses, lacked explicit WARN reference) | Email plus mailed termination packages met content and delivery requirements; any omitted WARN reference was waived | Court finds notice adequate under WARN (email + mailed materials sufficed) |
| Whether unforeseeable business circumstances exception applies | Failure to obtain financing was foreseeable earlier in 60-day window; exception does not apply | Financing failure was not probable until Feb. 24; exception applies | Court holds exception applies as layoffs were not probable before Feb. 24, 2009 |
Key Cases Cited
- Hotel Emps. & Rest. Emps. Int’l Union Local 54 v. Elsinore Shore Assocs., 173 F.3d 175 (3d Cir. 1999) (discusses reasonable foreseeability and WARN’s purpose; supports avoiding premature notice when closure unlikely)
- Halkias v. Gen. Dynamics Corp., 137 F.3d 333 (5th Cir. 1998) (adopts probability standard for foreseeability under WARN)
- United Steel Workers of Am. Local 2660 v. U.S. Steel Corp., 683 F.3d 882 (8th Cir. 2012) (applies probability test; employer not liable where failure was not probable before notice date)
- Gross v. Hale-Halsell Co., 554 F.3d 870 (10th Cir. 2009) (employs probability standard; mere possibility insufficient)
- Roquet v. Arthur Andersen LLP, 398 F.3d 585 (7th Cir. 2005) (probability standard; unlikely events held unforeseeable)
- Watson v. Mich. Indus. Holdings, Inc., 311 F.3d 760 (6th Cir. 2002) (adopts probability test and explains WARN is not meant to force fragile but viable employers to give premature notice)