Jarvis et al v. Matlin Patterson Global Advisers LLC
MEMORANDUM OPINION re 6 MOTION to Dismiss. Signed by Judge Richard G. Andrews on 6/11/2012. (nms)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
LINDA JARVIS and SARA
VILLANUEVA, Individually and as Class
MATLIN PATTERSON GLOBAL
DavidS. Eagle, Esq., Wilmington, Delaware; Charles A. Ercole, Esq. (argued),
Philadelphia, Pennsylvania; Attorneys for Plaintiffs Linda Jarvis and Sara Villan*eva.
Bradley R. Aronstam, Esq., Wilmington, Delaware; Michael C. Hefter, Esq. (arg\led),
New York, New York; Attorneys for Defendant Matlin Patterson Global Advisers, LLC.
Defendant Matlin Patterson Global Advisors, LLP brings a motion to dismiss agMnst
Plaintiffs Linda Jarvis and Sara Villanueva based on the theory of claim preclusion.
The allegations of the complaint are accepted as true for the purposes of deciding the
Plaintiffs formerly worked for Premium Protein Products, LLC, a wholly owned
subsidiary ofPPP Holdings, LLC (collectively, "PPP Entities"). (D.I. 1, ~ 1.) Matlin w~s the
majority shareholder of the PPP Entities. (D.I. 1, ~ 1.) The PPP Entities conducted mas$ layoffs
and filed for bankruptcy in 2009. (D.I. 1, ~~ 1-2.) Plaintiffs allege that the manner ofth~se
layoffs violated employee rights, and seek recovery on an individual and a class basis agft.inst
Matlin, alleging that Matlin is liable for the PPP Entities' violations through "single em~loyer"
and "alter ego" theories. (D.I. 1, ~ 2.) Plaintiffs allege that Matlin "maintained direct
responsibility for the PPP Entities' strategic, financial, human resources and benefits fuqctions
by, among other things, exercising control over the PPP Entities' business plans (includi~g those
concerning the day-to-day operation ofthe business) and making decisions to obtain finJ,ncing,
fund the PPP Entities, declare bankruptcy, layoff employees and/or dissolve the company, to the
detriment of the PPP Entities and their employees." (D.I. 1, ~ 2.) Consequently, Matlin Violated
the Worker Adjustment and Retraining Notification ("WARN") Act and the Nebraska \\fage
Payment and Collection Act by conducting layoffs without proper notice to employees $d by
failing to pay severance, benefits, earned wages, bonuses and other compensation. (D.I. 1, ~ 2.)
Plaintiffs previously filed an Adversary Complaint against the PPP Entities in thd PPP
Entities' bankruptcy proceeding. (D.I. 8, Exh. 1 at~ 1.) Matlin was not named as a defepdant.
(D.I. 8, Exh. 1 at~ 1.) The Adversary Complaint alleged that the PPP Entities shut dowp
operations and conducted layoffs in a manner that violated employee rights under the W~RN
Act. (D.I. 8, Exh. 1 at~ 1.) Plaintiffs, however, entered into the "Stipulation to Dismis~
Adversary Complaints and Proceed as Class Proofs of Claim" ("Stipulation.") (D.I. 8, Bxh. 4.)
This Stipulation provided for the "voluntary dismiss[ sal] with prejudice" of the Adversaty
Complaint in exchange for allowing Plaintiffs to pursue the class action claims through ~he
"Proof of claim" process. (D.I. 8, Exh. 4.) The bankruptcy court later ordered a sale an4
distribution of the PPP Entities' assets pursuant to Section 363 of the Bankruptcy Code. ,(D.I. 8,
Exh. 5.) As a result of this sale, Plaintiffs were unable to recover anything on their clai~s
because the PPP Entities' assets were exhausted. (D.I. 11, p. 6.) The Bankruptcy Court i
dismissed the PPP Entities proceeding. (D.I. 8, Exh. 6.) Subsequent to these events, Pl~ntiffs
filed the instant complaint against Matlin.
Matlin moves to dismiss all of Plaintiffs' claims as barred by the doctrine of clairp
preclusion. For claim preclusion to apply, there must have been "( 1) a final judgment o~ the
merits in (2) a prior suit involving the same parties or their privies, and (3) a subsequent ~uit
based on the same cause of action." Selkridge v. United of Omaha Life Ins. Co., 360 F.3d 155,
172 (3d Cir. 2004). 1 "If these three factors are present, a claim that was or could have b~en
raised previously must be dismissed." ld.
The parties dispute whether the Stipulation is a final judgment on the merits. Matlin
argues that the Stipulation meets this requirement, because Plaintiffs agreed to dismiss the
WARN Act claims with prejudice. Plaintiffs disagree, arguing that the Stipulation did n~t fully
Other Third Circuit cases make clear that the "same cause of action" is interpreted broadly, so that multiJle causes
of action arising from one transaction are considered to be the same cause of action for claim preclusion p4fPoses.
See Gregory v. Chehi, 843 F.2d 111, 117 (3d Cir. 1988).
adjudicate the WARN Act claims, as those claims continued through the bankruptcy prdof of
claim process, and were never declared valid or invalid; they were only discharged becahse no
assets remained in the bankruptcy estate.
Plaintiffs' position is without merit. It is undisputed that the voluntary dismissal: of a
claim with prejudice constitutes a final judgment on the merits. See Gambocz v.
F.2d 837, 840 (3d Cir. 1972). This is true even when the dismissal occurs within the ba4kruptcy
context. See In re Martin, 96 F. App'x 62, 63-64 (3d Cir. 2004). In entering into the
Plaintiffs made a deal with the PPP Entities. They agreed to forfeit the WARN Act
exchange for an opportunity to realize the class claims through the proof of claims proc~ss.
Plaintiffs may now regret this deal. The deal gave them one path to the possibility of rec)overythrough the proof of claims process. The process was available to Plaintiffs precisely bebause
they relinquished the right to pursue the Adversary Complaint. The depletion of the est~e before
Plaintiffs could realize their claims is irrelevant. The risk of coming up empty should hajve been
known, and undoubtedly was known, to Plaintiffs when they made the Stipulation. Furt*er, it
makes no difference that the validity of the dismissed claims was never tested; there is n
requirement for a claim to be factually vetted to be a final judgment on the merits. See S~llcridge,
360 F.3d at 172. The Stipulation is analogous to a forfeit in baseball; no at-bats were taken, no
pitches were thrown, but it counts as a loss in the final standings. The voluntary dismiss~! with
prejudice is a final judgment on the merits.
The parties also dispute whether the litigation was "a prior suit involving the
or their privies." Id. The Plaintiffs are the same in both cases. The Defendants, howevet, are
not identical, as the Adversary Complaint was filed against the PPP Entities, while the int;tant
complaint was filed against Matlin, the majority shareholder of the PPP Entities. The qubtion
then is whether Matlin and the PPP Entities are privies. The concept of privity in the context of
claim preclusion is an elastic one grounded in principles of fairness, requiring a "close
relationship" between the alleged privies. 2 "[A] lesser degree of privity is required for ainew
defendant to benefit from claim preclusion than for a plaintiff to bind a new defendant iii a later
action." See Lubrizol Corp. v. Exxon Corp., 929 F.2d 960, 966 (3d Cir. 1991). Plaintiff$'
allegations establish privity between Matlin and the PPP Entities, as they allege that Ma~in was
so intertwined with the operations of the PPP Entities that Matlin should be financially
responsible for the PPP Entities' employment law violations. Specifically, Plaintiffs all9ge that,
"Matlin maintained direct responsibility for the PPP Entities' strategic, financial, human i
resources and benefits functions by, among other things, exercising control over the PPPI
Entities' business plans (including those concerning the day-to-day operations of the bus~ness)
and making decisions to obtain financing, fund the PPP entities, declare bankruptcy, layqff
employees and/or dissolve the company." (D.I. 1, ~2.) Plaintiffs' entire complaint is th~s
predicated upon an extremely close relationship between Matlin and the PPP Entities. P~nciples
of fairness are furthered by this result. It would be unfair to allow them a second bite of the
apple by filing essentially the same suit against Matlin. The Court holds that Matlin and jthe PPP
Entities are privies.
The final element required to establish claim preclusion asks whether the instant $uit
against Matlin is based on the same cause of action as the prior suit against the PPP Entitiies.
Selkridge, 360 F.3d at 172. "[A] party may not split a cause of action into separate grounds of
recovery and raise the separate grounds in successive lawsuits; instead, a party must rais~ in a
"Where the party to be bound in a second proceeding is different from the party against whom the original
adjudication was made, a close relationship between them is a requirement of fairness and may be necessazy to
provide due process oflaw." Bruszewski v. United States, 181 F.2d 419,422 (3d Cir. 1950).
single lawsuit all the grounds of recovery arising from a single transaction or series of
transactions that can be brought together." Mars Inc. v. Nippon Conlux Kabushiki-Kaisha, 58
F.3d 616, 619 (Fed. Cir. 1995) (interpreting Third Circuit case law).
Plaintiffs argue that claim preclusion should not apply because the "same cause qf
action" test is viewed narrowly in the context of a bankruptcy case, especially when the ~rior suit
involved a cause of action against a corporation in that corporation's bankruptcy proceeqing and
the current suit is against that corporation's controlling shareholder. Plaintiffs cite Eastern
Mineral & Chemical Co. v. Mahan, 225 F.3d 330, 338 (3d Cir. 2000) for this propositioq.. In
Eastern Minerals, the plaintiff pursued recovery from the sole shareholder of the bankrupt Delta
corporation based on an alter ego theory, alleging that the defendant breached his fiducia)ry duty
and the duty ofloyalty. Id. at 330, 333. The defendant moved to dismiss the plaintiffs suit for
claim preclusion, arguing that the plaintiff should have pursued its claim in the context or Delta's
bankruptcy case. Id. at 330. The Third Circuit noted that district courts should proceed ¢arefully
in applying claim preclusion principles to litigation that take place in the context of a brulkruptcy
case. See id. at 337. Specifically, the Third Circuit concluded that "a claim should not b~ barred
unless the factual underpinnings, theory of the case, and relief sought against the parties to the
proceeding are so close to a claim actually litigated in the bankruptcy that it would be
unreasonable not to have brought them both at the same time in the bankruptcy forum." M. at
The claims against Mahan were not precluded, because the "[plaintiff] never sought what
its current claim would accomplish." Id. at 338. The plaintiffhad been an active particip~nt in
the bankruptcy, filing a number of motions and objections that claimed inequitable conduct on
the part of various entities controlled by the defendant. Id. at 337. No claim brought in the
bankruptcy, however, shared factual underpinnings or the underlying legal theories with ~he alter
ego claim of the instant suit. See id. The most similar claim was an equitable subordination
complaint, which existed in draft form, that sought to subordinate the claims of other cre~itors
controlled by the defendant. !d. This claim, however, was never actually filed. !d. The I
subsequent complaint against Mahan sought recovery against him personally, alleging a ~reach
of fiduciary duty in using Delta as Mahan's "mere instrumentality" for personal benefit.
338. The Third Circuit found the theories of relief so "markedly different" that the
clai~s of the
instant complaint could not be said to have arisen from the same cause of action as anyt~ing that
occurred in Delta's bankruptcy. See id.
The facts of the case at hand are distinguishable from Eastern Minerals. Unlike ~he
plaintiff of Eastern Minerals, the Plaintiffs here did in fact file a cause of action during tf.e PPP
Entities' bankruptcy, namely the Adversary Complaint. Importantly, the factual underpi~nings
giving rise to the theory of relief in both suits are identical. Both hinge upon the uncere+onious
shutdown of the meat processing plant where Plaintiffs worked. The legal theories overl~p, as
both suits allege WARN Act violations. The mere fact that Plaintiffs added a count alleging
violations of the Nebraska Wage Payment and Collection Act to the instant complaint d9es not
make that suit one arising from a distinct cause of action. The Third Circuit in Eastern finerals
did not intend to abandon the traditional rule that a plaintiff may not split a cause of acti~n into
several suits in order to avoid the consequences of claim preclusion. Instead, the Court's main
concern was that bankruptcy jurisdiction is very broad, and a rule the consequences of which
would be to multiply the number of bankruptcy proceedings was not desirable. "Claim ;
preclusion only bars claims arising from the same cause of action previously raised, not +very
conceivable claim that could have been brought in the context of a bankruptcy case over !which
the court would have had jurisdiction." !d. at 33 7. Because both of Plaintiffs' suits stem from
the same factual incidents and allege overlapping legal theories, and the first suit was ac*ally
brought in the bankruptcy proceeding, the Court holds that the suits are based on the same cause
For all these reasons, the Court holds that Plaintiffs' claims are claim precluded $d
grants Matlin's motion to dismiss with prejudice. 4
An appropriate order will enter.
Plaintiffs fear the Court's decision will have the "practical ramifications" of requiring any alter ego claims a
creditor may have against a non-debtor controlling shareholder in the bankruptcy to be brought in the ba~ptcy
itself or be deemed precluded. This fear is unfounded, as "any claim" a creditor may have against the sha~holder
will not be precluded; the claims must share close factual and legal similarities to a claim actually brought lin the
bankruptcy proceeding for preclusion to apply. See Eastern Minerals, 225 F.3d at 338.
At oral argument, counsel for Plaintiffs noted that the relevant statutes of limitations had not run, and that other
members of the class could bring the same lawsuit and seek class status. Thus, while this ruling ends the 9laims of
the two named plaintiffs, it has no effect on the ability of other members of the class to bring suit.