Bridges v. ContinentalAFA Dispensing Co. (In Re ContinentalAFA Dispensing Co.)Bridges v. ContinentalAFA Dispensing Co. (In Re ContinentalAFA Dispensing Co.)
ORDER
The matters before the Court are Defendants Harbinger Capital Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund, L.P.’s Motion to (I) Dismiss Complaint and (II) Extend the Automatic Stay (hereinafter “Defendants’ Motion”), Defendants Harbinger Capital Partners Master Fund I, Ltd. and Harbinger Capital Partnеrs Special Situations Fund, L.P.’s Memorandum of Law in Support of (I) Dismiss Complaint and (II) Extend the Automatic Stay (hereinafter “Defendants’ Memorandum”), Motion of Debtors, ContinentalAFA Dispensing Company, AFA Products, Inc. and Continental Sprayers International, Inc., to Dismiss Complaint (hereinafter “Debtors’ Motion”), Plaintiffs Oрposition to Debtors’ ContinentalAFA Dispensing Company, AFA Products, Inc. and Continental Sprayers International, Inc., Motion to Dismiss Adversary Proceeding Pursuant to Federal Rule of Civil Procedure 12(b)(6) (hereinafter “Plaintiffs Opposition to Debtors’ Motion”), Plaintiffs Opposition to Defendants Harbinger Capitаl Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund, L.P.’s Motion to (I) Dismiss Complaint and (II) Extend the Automatic Stay (hereinafter “Plaintiffs Opposition to Defendants’ Motion”), Joinder of the Official Committee of Unsecured Creditors to the Motions to Dismiss Filed by Debtors, Harbinger Capital Partners Mаster Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund, L.P. (hereinafter “Committee’s Joinder”), Defendants Harbinger Capital Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund, L.P.’s Reply in Support of Motion to (I) Dismiss Complaint and (II) Extend the Automatic Stay (hereinafter “Defendants’ Reply”), and Reply of Debtors, Continental AFA Dispensing Company, AFA Products, Inc. and Continental Sprayers International, Inc., in Support of Their Motion to Dismiss Complaint (hereinafter “Debtors’ Reply”). Defendants’ and Debtors’ Motions to Dismiss were set for hearing on November 19, 2008. All parties appearеd by counsel and presented oral argument.
ContinentalAFA Dispensing Company (hereinafter “CAFA”) is wholly owned by Harbinger Capital Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund, L.P. (hereinafter collectively “Harbinger” or “Defendants”). Defendants’ Memorandum, p. 2, ¶ 2. CAFA along with its affiliates, AFA Products, Inc. (hereinafter “AFA”) and Continental Sprayers International, Inc. (hereinafter “CSI”) (and hereinafter collectively “Debtors”), are the Debtors in this matter. CAFA оwns all of the common stock of the other Debtors, AFA and CSI. Defendants’ Memorandum p., ¶ 2. Also, Harbinger is a secured creditor with a second lien on substantially all of Debtors’ assets. Defendants’ Memorandum, p. 2, ¶ 2. Debtors designed, manufactured, and supplied plastic trigger sprayers and other liquid dispensing products to major consumer companies and industrial markets. Debtors’ Motion, p. 2. Debtors’ headquarters was located in St. Peters Missouri. Debtors’ Motion, p. 3. Additionally, Debtors operated manufacturing and assembly facilities in St. Peters, Missouri, Forest City, North Carolina, and Bridgeport, Connecticut. Debtors’ Motion, p. 3. Likewise, Debtors operated facilities in Juarez, Mexico and Cartago, Costa Rica until their closure in June and July 2008. Primarily, these locations produced injection molding and high-speed assembly of components into pumps and sprayers. Debtors’ Motion, p. 3.
Debtors retained Jeffries & Comрany, Inc. (hereinafter “Jeffries”), a financial ad-visor, in early 2008, after experiencing severe financial distress due to increasing costs of raw materials, outdated equipment and other issues. Debtors’ Motion, p. 3. Debtors along with Jeffries decided that selling the company was the only viable option while continuing to seek additional capital and/or refinancing. Debtors’ Motion, p. 3. In addition, Debtors and Jeffries contacted potential investors and purchasers. Debtors’ Motion, p. 3. After attempting to restructure by seeking additional loans from shareholders, Debtоrs realized that continuing business operations was no longer feasible. Debtors’ Motion, p. 3.
In late July 2008, Debtors terminated the majority of their 743 employees. Debtors’ Motion, p. 3. On August 7, 2008, Debtors filed their Chapter 11 bankruptcy petitions. Debtors’ Motion, p. 2. During the first hearing held on August 8, 2008, Debtors advised the Court that due to the recent termination of sale discussions, Debtors had no alternative than to cease operations and begin liquidating assets. Defendants’ Memorandum, p. 2, ¶ 3; Debtors’ Motion, p. 3. Debtors ceased mostly all operations and have been winding down their businesses, utilizing 20 employees. Dеbtors’ Motion, p. 2. Debtors retained one member of their management team to oversee the liquidation of assets. Debtors’ Motion, p. 2.
Plaintiff Joshua Bridges (hereinafter “Plaintiff’) filed Class Action Adversary Proceeding Complaint (hereinafter “Complaint”) on August 11, 2008, on behalf of himself and a class оf similarly situated former employees of Debtors seeking damages under the Worker Adjustment and Retraining Notification Act (hereinafter the “WARN Act”) for termination of employment without 60-days advance written notice by Debtors. Plaintiffs Complaint, p. 1-2, ¶ 1; Debtors’ Motion, p. 4; Defendants’ Motion, p. 2, ¶4. Plaintiff seеks to recover 60 days of wages and benefits. Plaintiffs Complaint, p. 2, ¶ 2.
Defendants argue that this Court lacks jurisdiction over pre-petition WARN Act claims, especially where a non-debtor, such
Debtors argue that Plaintiffs Complaint should be dismissed because it duplicates the existing claims process established by the Bankruptcy Court and wastes judiciаl resources and limited resources of Debtors’ estates. Debtors assert that Plaintiff is prohibited from pursuing allowance of his claims through an adversary proceeding in that an adversary proceeding should be used where equitable relief is sought and not a money judgment. Debtors dispute thе claim that it violated the WARN Act. Debtors claim that its actions fall under an exception to the requirement of 60 days notice of a plant closing to employees and argue that due to its continued efforts to seek capital, the closing was due to unforeseeable business circumstances. Debtors argue that Plaintiffs claims are not entitled to a first priority administrative expense claim in that Plaintiffs claims are for alleged pre-petition wages. Debtors further asserted that Plaintiffs attorneys’ fees are not entitled to administrative expense status.
Debtоrs and Defendants both argue that the filing of the Complaint by Plaintiff violates the automatic stay. Debtors and Defendants both go on to argue that the automatic stay should be extended to Defendants because under the circumstances of Defendants being CAFA’s only shareholder, Debtors would still be involved in this litigation if the action were allowed to continue against Defendants.
Plaintiff argues that Plaintiff is entitled to back pay because Plaintiff did not receive a 60-day notice pursuant to the WARN Act, before Plaintiffs employment was terminated due to the plant closing. Plaintiff argues thаt a class action is the proper vehicle and a superior method for the fair and efficient adjudication of this matter. Plaintiff asserts that where class members lack the financial resources to vigorously prosecute a lawsuit in federal court in a WARN Act litigation, class аction is appropriate. Plaintiff further argues that the Bankruptcy Code permits adversary proceedings to secure equitable relief. Plaintiff asserts that the Complaint is not duplicative of the claims process and has not been brought for an improper purpose. Plаintiff contends that the class action Adversary Proceeding provides a more economical means to resolve WARN Act Claims. Plaintiff argues that both the WARN Act Claims and Plaintiffs attorneys fees are entitled to first priority administrative expense claim status. Therefore, Plaintiff requests that Dеfendants’ and Debtors’ Motions be denied.
JURISDICTION AND VENUE
This Court has jurisdiction of this matter pursuant to 28 U.S.C. §§ 151, 157 and 1334 (2008) and Local Rule 81 — 9.01(B) of the United States District Court for the Eastern District of Missouri. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (G), and (O) (2008). Venue is proper in this District under 28 U.S.C. § 1409(a) (2008).
The main issue is whether an employee terminated pre-рetition by a debtor can be granted an administrative expense claim for back pay under the WARN Act. Pursuant to 29 U.S.C. § 2102(a), employers must give affected workers 60 days written notice of a plant closing or mass layoff. 29 U.S.C. § 2102(a) (2008). Any employer who orders a plant closing or mass layoff in violation of § 2102 is liable to employees for back pay for each day of violation. 29 U.S.C. § 2104(a)(1)(A) (2008).
The WARN Act was intended to provide workers and their families the chance to adjust to their impending loss of income.
In re First Magnus Fin. Corp.,
Wage claims qualify for administrative status only if service was rendered to the estate post-petition.
Palau,
“The theory behind this ‘super-priority’ treatment for administrative expenses is that the services rendered to a debtor, which help preserve the value of the estate, whether for continuation of the business or immediate liquidation, benefit all of the pre-petition creditor body.” Id. Plaintiff must show that his claim arose from post-petition transactions with or for services to Debtors. Furthermore, Plaintiff must show that his claim provided a direct and substantial benefit to the Debtors’ estate. Id. at 674.
“[A] WARN Act claim, for an employee terminated pre-petition, can never be an actual and necessary expense of preserving an estate.” Id. at 679 (emphasis original). The rationale is that “the claim did not originate post-petition, and the employee did nothing to preserve the bankruptcy estate.” Id. Here, Plаintiff was terminated before Debtors filed their petitions and therefore, Plaintiff performed no work after the petitions were filed. Thus, Plaintiff has a pre-petition claim. The revision of § 503(b) was not meant to slant the law totally in favor of terminated employees nor confer additionаl power to the bankruptcy court regarding the WARN Act. Id. Therefore, Plaintiffs claim does not qualify for administrative status.
The next issue is whether filing the Complaint violates the automatic stay. According to 11 U.S.C. § 362, the automatic stay prohibits judicial proceedings and enforcement of judgments agаinst a debtor
The automаtic stay does not apply to actions against non-debtors.
Id.
at 454. However, here, Harbinger and Debtors correctly state that the automatic stay should be extended to Harbinger due to its close relationship to Debtors. The Court in
Veeco
articulated that the “unusual circumstances” exсeption applies to § 362.
Veeco
discusses the fact that this exception should be applied whenever the identity of the debtor is so entangled with a third-party defendant that judgment against the third-party defendant will in effect be a judgment against the debtor.
Id.
at 454 (citing
A.H. Robins Co., Inc. v. Piccinin,
The final issue is whether Plaintiffs attorney’s fees are entitled to administrative expense status. Plaintiff argues that both Plaintiffs WARN Act Claim and Plaintiffs аttorney’s fees are entitled to first priority administrative status. According to 29 U.S.C. § 2104(6), a plaintiff who prevails on his WARN Act claim may receive his attorney’s fees at the court’s discretion. 29 U.S.C. § 2104(6) (2008). Here, Plaintiffs claim does not qualify for administrative claim status. Plaintiffs attorney’s fees are also not entitled to administrative expense status. Therefore,
IT IS ORDERED THAT Defendants Harbinger Capital Partners Master Fund I, Ltd. and Harbinger Capital Partners Special Situations Fund, L.P.’s Motion to (D Dismiss Complaint and (II) Extend the Automatic Stay is GRANTED; and
IT IS FURTHER ORDERED THAT Motion of Debtors, ContinentalAFA Dispensing Company, AFA Products, Inc. and Continental Sprayers International, Inc., to Dismiss Complaint is GRANTED; and
IT IS FURTHER ORDERED THAT this Adversary Proceeding is DISMISSED.
Notes
. Back pay is accrued but uncollected wages or benefits Black's Law Dictionary, 133 (7th ed.1999)