James v. Truland Grp., Inc. (In re Truland Grp., Inc.)

520 B.R. 197

In re: Truland Group, Inc., et al., Debtors.

Satina Matthews Summer James, Plaintiffs

v.Truland Group, Inc., et al., Defendants.

Case No. 14–12766–BFK Jointly Administered

Adversary Proceeding No. 14–01136–BFK

United States Bankruptcy Court, E.D. Virginia, Alexandria Division .

Signed November 26, 2014

William A. Gray, Elizabeth L. Gunn, Sands Anderson PC, Richmond, VA, for Plaintiffs.

Alexander McDonald Laughlin, Wiley Rein LLP, McLean, VA, for Trustee.

MEMORANDUM OPINION AND ORDER

Brian F. Kenney, United States Bankruptcy Judge

This matter comes before the Court on the Trustee's Motion to Dismiss the Plaintiffs' Complaint pursuant to Bankruptcy Rule 7012. See Fed. R. Bankr. P. 7012 (incorporating Fed. R. Civ. P. 12(b)(6) ). The issues are: (1) whether the Plaintiffs' claims under the Worker Adjustment and Retraining Notification (WARN) Act (29 U.S.C. §§ 2101 –2109 ) rise to the level of administrative claims under 11 U.S.C. § 503(b)(1)(A)(ii) ; and (2) whether the Plaintiffs' claims are appropriate for class action treatment, as opposed to the ordinary proof of claim or administrative claim procedures set out in the Bankruptcy Rules. The Court holds, for the reasons stated below, that the Plaintiffs' claims, if allowed, will be entitled to administrative priority under Section 503(b)(1)(A)(ii) of the Code. The Court further holds that class certification is superior in these cases to the ordinary Bankruptcy Rules relating to proofs of claim, subject to certification of a class under Rule 23.

Facts Taken as True for Purposes of this Motion

The Complaint alleges that as of July 18, 2014, the Debtors were operating an electrical contractor business with approximately 1,000 full and part-time employees. Complaint at ¶ 1. It alleges that on or about July 21, 2014, the Debtors terminated all of their employees. Id. at ¶ 2. The Plaintiffs allege that the Debtors violated the WARN Act by failing to give the required 60 days' notice in advance of their terminations. Id. at ¶¶ 3–4.¹

On July 23, 2014, each of the Debtors filed a voluntary petition under Chapter 7 of the Bankruptcy Code. The cases are being jointly administered, but are not substantively consolidated. See In re The Truland Group, Inc., Case No. 14–12766–BFK, Dkt. No. 150 (Order Granting Motion for Joint Administration of Case No. 14–12766, with Case Nos. 14–12767, 1412768, 14–12769, 14–12770, 14–12771, 14–12772, 14–12773, 14–12774, 14–12775). Ms. Kindred is the duly appointed Chapter 7 Trustee.

Conclusions of Law

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the Order of Reference entered by the District Court for this District on August 15, 1984. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(B) (allowance or disallowance of claims against the estate).

Under the Supreme Court's decisions in Twombly and Iqbal, to survive a motion to dismiss under Rule 12(b)(6), the complaint must state a claim that is plausible on its face. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ; Ashcroft v. Iqbal, 556 U.S. 662, 663, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Twombly, 550 U.S. at 556, 127 S.Ct. 1955. In Iqbal , the Court held: “[W]hether a complaint states a plausible claim for relief will ... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at 679, 129 S.Ct. 1937.

The Court accepts as true all well-pleaded facts in the Complaint, but is not required to accept allegations that are legal conclusions. Walters v. McMahen, 684 F.3d 435, 439 (4th Cir.2012) (“[A]lthough a court must accept as true all factual allegations contained in a complaint, such deference is not accorded to legal conclusions stated therein. The mere recital of elements of a cause of action, supported only by conclusory statements, is not sufficient to survive a motion made pursuant to Rule 12(b)(6).”) (citing Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 ) (internal citations omitted).

I. The Plaintiffs' WARN Act Claims, if Allowed, are Entitled to Administrative Priority.

The WARN Act was enacted on August 4, 1988, and became effective on February 4, 1989. The Act requires 60 days' notice to affected employees, or their representatives, of a plant closing or mass layoff. 29 U.S.C. § 2102(a)(1). The term “employer” means any business enterprise that employs 100 or more employees, excluding part-time employees. 29 U.S.C. § 2101(a)(1)(A). Certain reductions of the notice period are statutorily permitted, in the event that: (a) the employer “was actively seeking capital or business which, if obtained, would have enabled the employer to avoid or postpone the shutdown and the employer reasonably and in good faith believed that giving the notice required would have precluded the employer from obtaining the needed capital or business;” (b) there were “business circumstances that were not reasonably foreseeable as of the time that the notice would have been required;” or (c) the business is the subject of a natural disaster. 29 U.S.C. § 2102(b)(1)–(3). In the event of a violation, employees are entitled to back pay and benefits calculated for the period of the violation, up to a maximum of 60 days, but in no event more than one-half the number of days the employee was employed by the employer. 29 U.S.C. § 2104(a)(1).

There is a good faith exception to liability for employers who are able “to prove to the satisfaction of the court that the violation was in good faith and that the employer had reasonable grounds for believing that the act or omission was not a violation, in which event the court may, in its discretion, reduce the amount of the liability.” 29 U.S.C. § 2104(a)(4). The Act provides for jurisdiction in any district court in which the violation is alleged to have occurred or in which the employer transacts business. See 29 U.S.C. § 2104(a)(5).

On April 20, 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”). Prior to BAPCPA, Section 503(b)(1)(A) of the Code provided for allowed administrative expense claims for “the actual, necessary costs and expenses of preserving the estate including wages, salaries, and commissions for services rendered after the commencement of the case[.]” 11 U.S.C. § 503(b)(1)(A) (2004). Before BAPCPA, the courts held that WARN Act damages were, at best, third or fourth priority claims under Sections 507(a)(3) or (4), up to the amount of the statutory cap. See, e.g., In re Kitty Hawk, Inc., 255 B.R. 428, 436 (Bankr.N.D.Tex.2000).

The BAPCPA Amendments added subsection (ii) to Section 503(b)(1)(A), to provide administrative expense priority as follows:

[T]he actual, necessary costs and expenses of preserving the estate including—

(i) wages, salaries, and commissions for services rendered after the commencement of the case; and

(ii) wages and benefits awarded pursuant to a judicial proceeding or a proceeding of the National Labor Relations Board as back pay attributable to any period of time occurring after commencement of the case under this title, as a result of a violation of Federal or State law by the debtor, without regard to the time of the occurrence of unlawful conduct on which such award is based or to whether any services were rendered, if the court determines that payment of wages and benefits by reason of the operation of this clause will not substantially increase the probability of layoff or termination of current employees, or of nonpayment of domestic support obligations, during the case under this title[.]

11 U.S.C. § 503(b)(1)(A) (2013).

There is virtually no legislative history to subsection (ii), other than a restatement of the language itself. See H.R.Rep. No. 109–31, at 84 (2005), reprinted in 2005 U.S.C.C.A.N. 88, 150. The statute appears to contradict itself. On the one hand, the introductory language requires that the claim for administrative expenses be for “the actual, necessary costs and expenses of preserving the estate.” 11 U.S.C. § 503(b)(1)(A). On the other hand, subsection (ii) allows an administrative expense “without regard to the time of the occurrence of unlawful conduct on which such award is based or to whether any services were rendered.” 11 U.S.C. § 503(b)(1)(A)(ii). One court has noted that the addition of subsection (ii) “vitiates” the emphasis on a benefit to the estate, “allowing for administrative expense claims when the claimant did not necessarily provide a concrete benefit to the estate.” In re Powermate Holding Corp ., 394 B.R. 765, 776 n. 66 (Bankr.D.Del.2008).

The Trustee in this case concedes, properly, that the Plaintiffs have alleged sufficient facts to sustain the conclusion that a WARN Act violation has occurred, subject to whatever affirmative defenses may be available. There is no dispute that a mass layoff occurred of over 100 full-time employees, just prior to the time that the Debtors filed their bankruptcy petitions under Chapter 7.

A. First Magnus's Reliance on the Word “And.”

The Trustee argues first that the word “and” between subsections (i) and (ii) indicates that administrative claimants must prove both that the claim is for “wages, salaries, and commissions for services rendered after the commencement of the case” under subsection (i), and that the requirements of subsection (ii) are satisfied, relying on In re First Magnus Financial Corp ., 390 B.R. 667, 677 (Bankr.D.Az.2008), aff'd 403 B.R. 659 (D.Ariz.2009). Two courts have rejected First Magnus's reliance on the word “and” between subsections (i) and (ii). In the case of In re Powermate Holding Corp., the court, focusing on the word “including” in the introductory language of Section 503(b)(1)(A), held that the “and” meant that subsections (i) and (ii) “are...