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The Delaware Bankruptcy Insider is a premier blog designed to bring its readers a comprehensive analysis of the latest Delaware corporate bankruptcy news and rulings. Brought to you by Ashby & Geddes, P.A.
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- Delaware District Court Finds Section 506(b) Does Not Limit Allowability of Unsecured Claims for Contractual Postpetition Attorneys’ Fees
- Post-Confirmation Purchasers of Shares Be Aware: Third Circuit Holds Shares are Subject to the Plan, Including Its Releases
- Delaware District Court Agrees That Plans Need Not Reflect Bargained For Priority Provisions in Subordination Agreements
WARN Act Claims Dismissed, But Court Grants Leave to Amend
Czarniak v. Entm’t Publ’n LLC (In re Entm’t Publ’n LLC), Adv. No. 13-50912 (CSS) (Bankr. D. Del. Mar. 12, 2014)
On March 12, 2014, the Bankruptcy Court issued an Opinion dismissing a class action lawsuit under the Federal Worker Adjustment Retraining Notification Act (the “WARN Act“) against certain affiliated non-debtors under the “single employer” theory. However, pursuant to Third Circuit case law, the Court provided the Plaintiff with leave to amend her complaint.
When a company lays off its employees suddenly and without sufficient notice, as may be the case with companies headed for bankruptcy, the WARN Act may be implicated. Generally, the WARN Act requires a company employing 100 or more employees to provide 60 days’ written notice to its employees of a plant closing or mass layoff. Failure to do so may result in employer liability. Moreover, liability may be imposed upon the employer’s parent company or affiliates under the “single employer” doctrine. Under this doctrine, an affiliated company may be held liable for an employer’s WARN Act liabilities if it is determined that the affiliate is functionally integrated with the employer. This theory is often attractive to employees seeking a WARN Act recovery as it is often futile to seek recovery against a debtor who may be insolvent and lack funds to pay claims.
Following Third Circuit precedent, Judge Sontchi analyzed the complaint filed in Czarniak under the Department of Labor’s five factor test for “single employer” liability–(1) common ownership; (2) common directors/officers; (3) de facto exercise of control; (4) unity of personnel policies emanating from a common source; and (5) the dependency of operations. Citing and drawing similarities to Judge Shannon’s recent opinion in In re Jevic Holding Corp., 492 B.R. 416 (Bankr. D. Del. 2013), the Court held that the Plaintiff’s complaint was “woefully deficient” and did not satisfy any of the five factors considered for “single employer” liability. Therefore, the Court found that “plaintiff has not pled facts with enough specificity to show that [the employer] and the [parent entities] are plausibly a ‘single employer’ for WARN Act purposes.” Czarniak at *2.