Manning v. DHP Holdings II Corp. (In Re DHP Holdings II Corp.)Manning v. DHP Holdings II Corp. (In Re DHP Holdings II Corp.)
MEMORANDUM OPINION 1
The issue presented by the summary judgment motion before the Court is
1. BACKGROUND
DHP Holdings II Corp. (“Holdings”) and its direct and indirect subsidiaries (collectively the “Debtors”) were leading manufacturers, distributors, and marketers of vent-free heating appliances, outdoor heaters, lawn and garden electrical products, and consumer fastening systems in the United States. HIG is an indirect owner of Holdings. 3
The Debtors were parties to a credit agreement dated December 6, 2004 (the “Senior Credit Agreement”) with certain financial institutions (the “Senior Lenders”). HIG was neither a party to this agreement nor a guarantor of the Debtors’ obligations under this agreement.
After a series of defaults by the Debtors in March 2008, the Senior Lenders insisted that the Debtors sell their European division and use the proceeds to reduce their outstanding obligations to the Senior Lenders. After the Debtors were unable to close on a sale of the European Division, the Senior Lenders swept all of Debtors’ cash and froze their bank accounts on December 5, 2008.
At that time, the Senior Lenders also insisted that the Debtors hire Craig Dean of AEG Partners, LLC (“AEG”) as Chief Restructuring Officer (“CRO”). After the retention of Dean, several rounds of layoffs occurred, including the layoffs affecting the Plaintiffs on December 18, 2008.
Approximately two weeks later, the Debtors filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. The Plaintiffs filed this class action complaint against HIG and the Debtors alleging violations of the WARN Act. The Plaintiffs assert that the Debtors and HIG constitute a “single employer” under the WARN Act, entitling them to collect damages from both HIG and the Debtors.
The parties have agreed to suspend consideration of issues relating to class certification, liability, and damages, pending resolution of the “single employer” issue. HIG filed a Motion for summary judgment on the issue. Briefing on the Motion is complete, and the matter is ripe for decision.
II. JURISDICTION
This Court has jurisdiction over the adversary, which is a core proceeding pursuant to 28 U.S.C. §§ 1384 & 157(b)(2)(A), (B) & (O).
III. DISCUSSION
A. Standards for Summary Judgment
In considering a motion for summary judgment under Rule 56,
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the court must
The movant bears the burden of establishing that no genuine issue of material fact exists.
See Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
Once the moving party has established a prima facie case in its favor, the non-moving party must go beyond the pleadings and point to specific facts showing more than a scintilla of evidence that there is a genuine issue of fact for trial.
See, e.g., Anderson,
B. “Single Employer” Status under the WARN Act
Under the WARN Act, employers
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must provide employees with written notice of a mass layoff at least sixty days prior to the layoff. 29 U.S.C. § 2102(a). The Third Circuit has adopted the test set forth in regulations issued by the Department of Labor under the WARN Act to determine when an employer and its parent or lender may be considered a “single employer” (and therefore jointly liable) for WARN Act violations. 20 C.F.R. § 639.3(a)(2);
Pearson v. Component Tech. Corp.,
Under the Department of Labor regulations, relevant factors include: (i) common ownership, (ii) common directors and/or officers, (iii) de facto exercise of control, (iv) unity of personnel policies emanating from common source, and (v) the dependency of operations. 20 C.F.R. § 639.3(a)(2).
While these factors are indicative of single employer status, this is a not an exhaustive list.
Pearson,
1. Common ownership, directors and/or officers
The Plaintiffs argue that the first two factors are clearly present and thus weigh significantly in their favor. It is undisputed that HIG owns a seventy per
In addition, the Plaintiffs note that HIG associates held all of the director positions in Holdings and held four of the five director positions in the other Debtors. Further, HIG associates held four of the five officer positions at Holdings and two of the four officer positions at the other Debtors. The Plaintiffs assert that this management and ownership structure is sufficient to satisfy the first two factors.
HIG does not contest these facts, but simply argues that these two factors alone are not sufficient to establish WARN Act liability.
Pearson,
The Court finds that the Plaintiffs have satisfied the first two factors.
2. Defacto exercisé of control
According to HIG the critical inquiry in the
de facto
exercise of control analysis is whether HIG “was the decision maker responsible for the employment practice giving rise to the litigation.”
Pearson,
The Plaintiffs argue that it was the directors (controlled by HIG) who decided to file for bankruptcy and close certain facilities, thereby resulting in the alleged WARN Act violations. With respect to the specific firings, however, the Plaintiffs do not dispute that they were done by Dean, but assert that Dean was compelled to do so by the HIG directors. The Plaintiffs opine that Dean, a professional “restructuring agent,” would not come into an established company, with little experience in the industry, and take such actions without receiving orders from HIG.
Although there is no direct evidence of this, the Plaintiffs contend that this can be inferred from the fact that HIG had already planned to have the Debtors commence facility closings and terminate employees. The Plaintiffs cite emails and discussions among the HIG directors prior to the terminations, regarding the Debtors’ need for cost-cutting, the submission of budgets, and a liquidation analysis.
HIG does not dispute that it prepared cost-cutting plans for the Debtors. In fact, Dean’s first day declaration states that over the year proceeding the bankruptcy filing, “the Debtors had begun the implementation of a significant restructuring plan to substantially improve their operating and income performance.” (Burns Decl. at Ex. D, 4.) HIG asserts, however, that the Debtors’ restructuring efforts were thwarted by the Senior Lenders who rejected the proposed budgets (which required additional funding) and decided to sweep and freeze the Debtors’ bank accounts. According to HIG, once the Senior Lenders froze the accounts and Dean was appointed CRO, the decision regarding plant closings and terminations was left to Dean’s discretion.
The only communications Dean had with individuals tied to HIG were discussions with Stokes, one of the HIG directors.
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(Burns Decl. at Ex. A, 36-37.) Both Dean and Stokes testified that in those conversations, Dean merely updated Stokes (as the
They further testified that Dean conducted the terminations without seeking any prior authority from the Debtors’ directors or any HIG employee. There is no evidence in the record that any HIG employee ever had any knowledge of which employees were being terminated, when the terminations were to occur, or the manner in which the employees were informed of the terminations.
The uncontroverted testimony establishes that it was Dean, acting as the Debtors’ CRO, who made the decision to close the facilities and terminate the employees. There is no evidence that HIG controlled that decision. The Court finds the fact that both Dean and the HIG directors reached the same conclusion regarding cost-cuts and facility closings is insufficient to support the conclusion that HIG directed the termination of the employees, especially in light of the testimony to the contrary. Therefore, the Court concludes that the Plaintiffs have failed to present sufficient evidence to show that HIG exercised defacto control over the Debtors and the termination of the Debtors’ employees.
Further, the fact that the Debtors’ boards (including HIG directors) approved the bankruptcy filing or facility closings, is insufficient to establish that HIG ordered the terminations.
See, e.g., Azzata v. American Bedding Indus., Inc. (In re Consolidated Bedding, Inc.),
The Court finds that the Plaintiffs have failed to demonstrate that HIG was the decision maker responsible for the terminations and consequently, have failed to prove that HIG exercised de facto control over the Debtors’ decision to terminate the employees.
3. Unity of personnel policies
HIG argues, and the Plaintiffs do not dispute, that the Debtors and HIG did not have unified personnel policies emanating from a common source. This factor requires a showing that HIG and the Debtors “actually functioned as a single entity with regard to its relationship with employees.”
Pearson,
HIG argues that based on the evidence presented this factor does not favor the Plaintiff. First, the Debtors negotiated their own labor contracts separately, as evidenced by the CRO’s negotiation of the Debtors’ employment contracts and bonus structures. (Burns Decl. at Ex. A.) Second, the Debtors had their own human resources officer and, therefore, the two entities did not have a common supervisor to whom employees reported. (Id.) Third, there is no evidence that HIG had any control over the compensation structure of the Debtors’ employees. (Id.) Finally, HIG and the Debtors had separate tax identification numbers and filed separate tax returns. (Id. at Ex. H.) The Plaintiffs failed to present any evidence to the contrary.
Based on the record presented, the Court finds that HIG and the Debtors did not share a unified personnel policy emanating from a common source. Therefore, this factor favors HIG.
HIG argues, and the Plaintiffs do not dispute, that the evidence presented fails to show a dependency of operations. Such a finding would require the existence of agreements between HIG and the Debtors, such as the sharing of “administrative or purchasing services, interchange of employees or equipment, and commingled finances.”
Pearson,
HIG was an investment company without any operations other than managing its investments.
Pearson,
The Court finds that there was no dependency of operations between HIG and the Debtors. This factor favors HIG.
5. Summary
After an evaluation of the five factors the Court finds that only the first two factors favor the Plaintiff. The satisfaction of the first two factors alone, however, is not sufficient to establish WARN Act liability.
Pearson,
III. CONCLUSION
For the reasons set forth above, the Court will grant HIG’s Motion for Summary Judgment.
An appropriate Order is attached.
ORDER
AND NOW, this 26th day of APRIL, 2011, upon consideration of the Defendant’s Motion for Summary Judgment and for the reasons set forth in the accompanying Memorandum Opinion, it is hereby
ORDERED that the Defendant’s Motion for Summary Judgment is GRANTED.
. This Memorandum Opinion constitutes the findings of fact and conclusions of law of the Court pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
Notes
. The WARN Act is the Worker Adjustment and Retraining Notification Act. 29 U.S.C. § 2101 et seq.
. HIG owns a seventy percent (70%) stake in DHP Acquisition Corp., which owns all of Debtor Holdings, which owns all of Debtor Desa LLC, the parent of all the other Debtors.
.Rule 7056 of the Federal Rules of Bankruptcy Procedure incorporates Rule 56 of the Federal Rules of Civil Procedure in adversary proceedings. In addition, Rule 9014(c) makes Rule 7056 applicable to contested matters.
. An employer is defined in the WARN Act as an enterprise that has one hundred or more employees that work collectively at least four thousand hours per week. 29 U.S.C. § 2101(a)(1)(A), (B).
. On some occasions Brian McMullin, another HIG employee, was also on the call. (Burns Decl. At Ex. A, 36-37.)