Hampton v. Navigation Capital Partners Inc.

Filing 20

MEMORANDUM OPINION re 8 motion to dismiss. Signed by Judge Leonard P. Stark on 8/19/14. (ntl)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
DANIEL HAMPTON, on behalf of
himself and all others similarly situated,

Plaintiff,
C.A. No. 13-747-LPS

v.
NAVIGATION CAPITAL PARTNERS,
INC.,
Defendant.

Frederick Brian Rosner, Julia Bettina Klein, THE ROSNER LAW GROUP, LLC,
Wilmington, DE
Jack A. Raisner, Roupinian S. Rene, OUTTEN & GOLDEN, LLP,
New York, NY
Attorneys for Plaintiffs.

Kathleen Furey McDonough, Michael Brendan Rush, POTTER ANDERSON & CORROON,
LLP, Wilmington, DE
Flora Manship, James H. Coil, III, KILPATRICK, TOWNSEND & STOCKTON, LLP,
Atlanta, GA
Attorneys for Defendant.

MEMORANDUM OPINION

August 19, 2014
Wilmington, Delaware.

U.S. District Judge:
Presently before the Court is Defendant's Motion to Dismiss Plaintiffs Claims. (D.I. 8)
Defendants filed the motion on June 3, 2013, and the Court heard oral argument on March 20,
2014. For the reasons discussed below, the Court will deny Defendant's motion.

BACKGROUND'
I.

The Parties and the Complaint
Plaintiff Daniel Hampton ("Plaintiff') filed this putative class action against Defendant

Navigation Capital Partners, Inc. ("NCP" or "Defendant") alleging that Defendant and its
subsidiaries, Metadigm Holdings, Inc. ("Holdings"), Metadigm Services, Inc. ("Services"),
Metadigm Engineering, Inc. ("Engineering") (collectively, "Metadigm"), terminated Plaintiff and
other workers from employment in violation of the Worker Adjustment and Retraining
Notification Act ("WARN Act"), 29 U.S.C. § 2101 et seq. (D.I. 1)
NCP is a private equity firm that sought to engage in the electricity grid services market
by acquiring a series of companies operating in that sector. (D.I. 1 i1" 2) To that end, NCP first
created Holdings, retaining at least 68% of its shares, and hired an experienced industry
executive, Robert Shively, for the purpose of identifying potential acquisitions for NCP in the
market. (Id.

at~

2, 18) NCP then purchased a metering company, which became Services, and

subsequently acquired an engineering firm, which became Engineering, and made it a subsidiary
of Services. (Id.

at~

3, 4) NCP made Mr. Shively President, CEO, and a Director ofMetadigm

Holdings, Services, and Engineering and installed three of its partners, NCP founders Larry

'In reviewing a motion to dismiss for failure to state a claim, the Court takes all wellpleaded factual allegations as true.
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Mock and Eerik Giles as well as NCP Operating Partner Craig Kirsch, on the Metadigm entities'
boards as directors. (Id. at in! 3, 39(b)(i)-(iii)) NCP-which owned 68% of Holdings, which
itself wholly-owned Services, which in turn wholly-owned Engineering - was the ultimate owner
of Metadigm. (Id. at ii 39(a))
On March 18, 2013, Metadigm terminated Plaintiff and other workers from employment
at two of its facilities in the State of Georgia. (D.I. 1ii7) Three days later, on March 21, 2013,
Metadigm filed for Chapter 7 bankruptcy in the United States Bankruptcy Court for the District
of Northern Georgia. (Id. at ii 8) Plaintiff filed adversary proceedings against Metadigm on
March 27, 2013 in that same court. (Id. at ii 9) Thereafter, on April 29, 2013, Plaintiff brought
this action against NCP, seeking relief on the grounds that NCP failed to give him and roughly
150 other employees the 60 days' notice required under the WARN Act. (Id. at ii 10)

II.

The WARN Act
Congress enacted the WARN Act in 1986 in response to extensive worker dislocation

occurring throughout the 1970s and 1980s as a result of companies being acquired, merging, or
closing. See In re APA Transp. Corp. Consol. Litig., 541 F.3d 233, 239-40 (3d Cir. 2008). Not
only did employees working at these companies often lose their jobs without any notice, but at
times the projected closing was actively concealed from the employees. See Hotel Employees &

Rest. Employees Int'! Union Local 54 v. Elsinore Shore Associates, 173 F.3d 175, 182 (3d Cir.
1999). Thus the stated purpose of the WARN Act is "to allow workers to adjust to the
prospective loss of employment, to seek and obtain alternative jobs and ... to enter skill training
or retraining that will allow [them] to successfully compete in the job market." Id. (internal
quotation marks omitted). Therefore, the "thrust of WARN is to give fair warning in advance of

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prospective plant closings." Id.
Giving effect to this intent, the WARN Act requires that employers employing at least
100 full time employees provide 60 days written notice prior to a plant shutdown or a mass
layoff. See 29 U.S.C. § 2101 et seq. Employers that violate the WARN Act's notice requirement
are liable to the affected workers for each day notice is not provided, for up to 60 days. See 29
U.S.C. § 2104(a).

LEGAL STANDARDS

I.

Rule 12(b)(6)
The sufficiency of pleadings for non-fraud cases is governed by Rule 8 of the Federal

Rules of Civil Procedure, which requires "a short and plain statement of the claim showing that
the pleader is entitled to relief." When presented with a Rule 12(b)(6) motion to dismiss for
failure to state a claim, courts conduct a two-part analysis. See Fowler v. UPMC Shadyside, 578
F .3d 203, 210 (3d Cir. 2009). First, courts separate the factual and legal elements of a claim,
accepting "all of the complaint's well-pleaded facts as true, but [disregarding] any legal
conclusions." Id. at 210-11. This step requires courts to draw all reasonable inferences in favor
of the non-moving party. See Maio v. Aetna, Inc., 221 F.3d 472, 500 (3d Cir. 2000). However,
the Court is not obligated to accept as true "bald assertions," Morse v. Lower Merion Sch. Dist.,
132 F.3d 902, 906 (3d Cir. 1997) (internal quotation marks omitted), "unsupported conclusions
and unwarranted inferences," Schuylkill Energy Res., Inc. v. Pa. Power & Light Co., 113 F.3d
405, 417 (3d Cir. 1997), or allegations that are "self-evidently false," Nami v. Fauver, 82 F.3d
63, 69 (3d Cir. 1996).
Second, courts determine "whether the facts alleged in the

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complain~

are sufficient to

show that the plaintiff has a 'plausible claim for relief."' Fowler, 578 F.3d at 211 (quoting
Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). A claim is facially plausible "when the plaintiff

pleads factual content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged." Iqbal, 556 U.S. at 678. This is a context-specific
determination, requiring the court "to draw on its judicial experience and common sense." Id. at
679. At bottom, "[t]he complaint must state enough facts to raise a reasonable expectation that
discovery will reveal evidence of [each] necessary element" of a claim. Wilkerson v. New Media
Tech. Charter Sch. Inc., 522 F.3d 315, 321 (3d Cir. 2008) (internal quotation marks omitted).

"[W]hen the allegations in a complaint, however true, could not raise a claim of
entitlement to relief, this basic deficiency should ... be exposed at the point of minimum
expenditure of time and money by the parties and the court." Bell Atl. Corp. v. Twombly, 550
U.S. 544, 558 (2007) (internal quotation marks omitted). Finally, although a non-fraud claim
need not be pled with particularity or specificity, that claim must "give the defendant fair notice
of what the ... claim is and the grounds upon which it rests." Id. at 555.

II.

Venue
A court may dismiss a lawsuit for improper venue pursuant to Federal Rule of Civil

Procedure 12(b)(3). For purposes of venue under the general venue statute, 28 U.S.C. §
1391(c)(2), a corporation "reside[s] ... in any judicial district in which such defendant is subject
to the court's personal jurisdiction with respect to the civil action in question." The moving
party has the burden of proving that venue is improper. See Myers v. Am. Dental Ass'n, 695 F.2d
716, 725 (3d Cir. 1982).

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III.

SinKle Employer Liability Under the WARN Act

Plaintiff grounds his theory for recovery under the WARN Act on the basis that NCP and
Metadigm acted as a single employer when effecting the mass layoffs. (D.I. 1if38) In order to
recover against NCP, a legally distinct company, Plaintiff must show that NCP and Metadigm
acted as a "single employer" in making the wrongful termination. See Pearson v. Component
Tech. Corp., 247 F.3d 471, 477-78 (3d Cir. 2001). Courts in the Third Circuit analyze this issue

by employing a five-factor balancing test set forth in the Department of Labor's ("DOL")
regulations issued under the WARN Act. See id. at 489. The DOL regulation provides that:
Under existing legal rules, independent contractors and subsidiaries
which are wholly or partially owned by a parent company are
treated as separate employers or as a part of the parent or
contracting company depending upon the degree of their
independence from the parent. Some of the factors to be
considered in making this determination are (i) common
ownership, (ii) common directors and/or officers, (iii) de facto
exercise of control, (iv) unity of personnel policies emanating from
a common source, and (v) the dependency of operations.
20 C.F.R. § 639.3(a)(2). These factors "are meant as a nonexhaustive list" so as to allow courts
to "(exercise] the flexibility that this area oflaw requires." Pearson, 247 F.3d at 491. The DOL
balancing test therefore is not a "mechanical exercise" and is "ultimately an inquiry into whether
the two nominally separate entities operated at arm's length." Id. at 504.
Generally, if only the first two factors are present - common ownership coupled with
common management - liability is not established. See id. at 494. The last three factors - de
facto exercise of control, unity of personnel policies emanating from a common source, and
dependency of operations - are often the determinative factors. See In re APA Transport, 54 l
F.3d at 244. Among these three factors, de facto exercise of control is the most important, and a

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"particularly striking" showing of de facto control can warrant liability even in the absence of the
other factors. Pearson, 24 7 F .3d at 504. The de facto control factor involves a determination as
to whether one company "was the decision-maker responsible for the employment practice
giving rise to the litigation." In re APA Transp., 541 F.3d at 245 (internal quotation marks
omitted).
The fourth factor looks to whether there was a unity of personnel policies, and is
"analogous to a determination of whether the companies had a centralized control of labor
operations." Young v. Fortis Plastics, LLC, 2013 WL 5406276, at *6 (N.D. Ind. Sept. 24, 2013).
The overall question is "whether the companies actually functioned as a single entity with regard
to [their] relationship[] with employees." In re APA Transp., 541 F.3d at 245 (internal quotation
marks omitted). This inquiry considers "whether the two companies in question engaged in
centralized hiring and firing, payment of wages, and personnel and benefits recordkeeping." Id.
Nevertheless, "the mere fact that the subsidiary's chain-of-command ultimately results in the top
officers of the subsidiary reporting to the parent corporation does not establish the kind of
day-to-day control necessary to establish an interrelation of operations." Pearson, 247 F.3d at
501.
Finally, the fifth factor considers whether there was a dependency of operations between
the two companies. Courts must look to the "existence of arrangements such as the sharing of
administrative or purchasing services, interchanges of employees or equipment, and commingled
finances." In re APA Transp., 541 F.3d at 245 (internal quotation marks omitted). This factor
"cannot be established [merely] by the parent corporation's exercise of its ordinary powers of
ownership, i.e; to vote in directors and set general policies." Pearson, 247 F.3d at 501. Instead,
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this factor requires that "plaintiffs [] establish the existence of what was known at common law
as a 'master-servant' agency relationship." Id.

DISCUSSION
Defendant moves to dismiss the complaint by arguing that: (i) Plaintiff has not alleged
facts sufficient to support an inference that Defendant can be held liable as a single employer
under the DOL test (D.I. 9 at 5-6); (ii) Plaintiff failed to plead essential elements of a WARN Act
claim by not alleging the length of his or any of the other proposed class member's tenures with
Metadigm (id. at 15); and (iii) under the WARN Act's special venue provision, 29 U.S.C.

§ 2104(a)(5), venue is improper and the complaint should be dismissed, or in the alternative,
transferred. (id. at 17).
I.

Sinele Employer Liability
Defendant does not dispute that Plaintiff has adequately pled facts establishing the first

two prongs of the DOL test. (Id. at 5; see also D.I. 1if39(a) (satisfying common ownership); id.
at iMf 3, 39(b)(i)-(iii) (satisfying common management)) Instead, Defendant argues that Plaintiff
has made no showing under any of the last three factors - de facto exercise of control, unity of
personnel policies, dependency of operations - and, thus, the case should be dismissed. (D.I. 9 at
5)

Plaintiff argues that ''the directness ofNCP's control over the activities at Metadigm is
exceptional." (D.I. 11 at 8) Plaintiff contends that it has pled sufficient facts which, taken as
true, demonstrate that NCP made or authorized the decision to terminate the Metadigm
employees. (D.I. 1 iMf 23, 25, 38-40, 42) For example, Plaintiff alleges that NCP's thorough
control over Metadigm is evidenced by its pattern of acquiring companies, renaming them as part

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of a Metadigm brand, and creating Metadigm Holdings to effectuate NCP's control. (Id. at
iiii 17-22) Plaintiff also alleges that NCP exerted control by installing its own executives as the
chief executive, vice-president, treasurer, and board members for all three Metadigm companies
(D.I. 11 at 1-2, 8; D.I. 1ii39(b)(i)-(iii)), ultimately installing four of the six board members of
Services (D.1. 1 ii 3). Additionally, NCP's Operational Partner, Craig Kirsch, allegedly oversaw
and managed Metadigm by serving as a bridge to the CEO (id. at iiii 5-6, 39(c)(iv)), and
Metadigm paid NCP $75,000 (plus expenses) to be managed by NCP (id. at ii 39(c)(ii)).
Defendant counters that to the extent Plaintiff is relying on the fact that NCP officers sat
on Metadigm's board, Plaintiff has failed to plead facts showing that these individuals were
wearing their NCP "hats" when they participated in the Metadigm decision to terminate the
employees. (D.1. 13 at 7) Defendant adds that a general deficiency in Plaintiff's effort to plead
the final three factors, including de facto exercise of control, is that it ultimately relies on nothing
more than the allegation of common officers and directors between NCP and Metadigm. (See id.
at 6-9)
The Court concludes that, taking the complaint's well-pleaded factual allegations as true
and drawing all reasonable inferences from those facts in Plaintiff's favor, Plaintiff has stated a
plausible claim that NCP and Metadigm should be treated as a single employer for purposes of
the WARN Act. It is undisputed that the first two factors of the five-factor test- common
ownership, and common directors and/or officers - are present here. Skipping ahead to the
fourth and fifth factors - unity of personnel policies and dependency of operations - Plaintiff's
allegations are wholly conclusory. (See D.I. 1 at ii 39(d)-(e); see also Iqbal, 556 U.S. at 678 (("A

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pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of

J

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action will not do.")
Turning to the third factor, de facto exercise of control, the Court concludes that Plaintiff
has offered adequate allegations, and this conclusion, in this case, tilts the overall balance in
favor of Plaintiff. The totality of the facts alleged in the complaint support a plausible inference
that NCP "disregard[ed] the separate legal personality" ofMetadigm. Pearson, 247 F.3d at 496.
In reaching this conclusion, the Court disagrees with Defendant's contention that facts which

satisfy the first two prongs cannot also be relied on to show that the third prong, de facto control,
is satisfied as well. Given "the flexibility that this area of law requires," id. at 491, and the nonexhaustive nature of the listed factors, see id. at 478, Defendant's approach is overly rigid.
Plaintiff alleges that NCP constructed a brand (Metadigm) and used the Metadigm companies as
alter egos in order to dominate a particular section of the energy market (D.I. 1 iii! 2, 39(c)(i)),
including by: hiring an executive to identify prime acquisition companies, buying these
companies, and then folding them into a single corporate chain (id. at if 2-4); creating a holding
company purely for the purpose of managing these companies (id. at if 18); populating at least
one of the Metadigm companies (Services) with enough NCP executives to comprise a majority
on its board (id. at if 3) and installing the same executives in the same important positions in the
other companies (Holdings and Engineering) (id. at iril 3, 39(b), 39(c)(iv)), including positions
involving closely overseeing the operations, finances, and strategy ofMetadigm (id. at if 6). In
context, this alleged pattern of branding, acquisition, and control, is sufficient to render plausible
the allegation that the relationship between Metadigm and NCP was not at arm's length.
Accordingly, the Court will deny Defendant's motion to dismiss for failure to state a
claim on the theory of single employer liability.

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II.

Claim Elements Under the WARN Act
Defendant further contends that the complaint "fails to allege that at each of the two sites,

at least 50 of the affected employees had been employed for at least six of those preceding
months, which is essential to stating a claim under the WARN Act." (D.I. 9 at 15) Defendant
adds that "Plaintiff fails to allege the length of his or any of the proposed class members' tenure
with the actual employer." (Id.) It follows, in Defendant's view, that Plaintiff has failed to plead
the essential elements of a WARN Act claim for relief.
The Court disagrees. The WARN Act prohibits employers from ordering a plant closing
or mass layoff without providing 60 days of notice to affected employees. See 29 U .S.C.
§ 2102(a). Under§ 2101(a)(l), an "employer" is defined as "any business enterprise that
employs ... 100 or more employees, excluding part-time employees; or ... 100 or more
employees who in the aggregate work at least 4,000 hours per week (exclusive of hours of
overtime)." Under§ 2101(a)(2) a "plant closing" "means the ... shutdown of a single site of
employment, ... [resulting] in an employment loss at the single site of employment during any
30-day period for 50 or more employees excluding any part-time employees," while a "mass
layoff' is defined as:
[A] reduction in force which ... is not the result of a plant closing;
and ... results in an employment loss at the single site of
employment during any 30-day period for ... at least 33 percent of
the employees (excluding any part-time employees); and ... at
least 50 employees (excluding any part-time employees; or ... at
least 500 employees (excluding any part-time employees).
Id. at (a)(3). Finally, an "affected employee" is defined broadly as any "employee[] who may

reasonably be expected to experience an employment loss as a consequence of a proposed plant

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closing or mass layoff by their employer." Id. at (a)(5).
Pursuant to these statutory definitions, Plaintiff has adequately alleged that Defendant is
an employer (D.I. 1 ~ 38), that Defendant effected a "mass layoff' and/or "plant closing" at one
or more facilities (id. at ~ 40), and that Plaintiff and the proposed class members number among
the "affected employees" (id.

at~

42, 43). Defendant's argument to the contrary is essentially

that the statute does not include part-time employees as "employees" for purposes of the
minimum number of employees required in order to trigger WARN Act obligations, see 29
U.S.C. § 2101(a)(3) (excluding part-time employees from calculation of job losses), and Plaintiff
does not affirmatively allege that he or other class members are not part-time employees, see id.
§ 2101(a)(8) (defining part-time employee as "an employee who is employed for an average of

fewer than 20 hours per week or who has been employed for fewer than 6 of the 12 months
preceding the date on which notice is required"). But, again, the complaint alleges that at least
150 "employees" were terminated at the two Georgir sites, and there is no reason (on a motion to
dismiss) to read Plaintiff's allegation of "employee" as anything other than the statutory
definition of "employee" (and not as "part-time employees"). (See D.I. 1 ~ 7) Indeed, to the
contrary, the complaint expressly alleges that it is "excluding 'part-time employees,' as that term
is defined by 29 U.S.C. § 2101(a)(8)."

(Id.~

41) Plaintiff has adequately pled the elements of

his WARN Act claim.

III.

Venue
Defendant argues in the alternative that the Court should dismiss or transfer the litigation

because venue is improper under the WARN Act's venue provision, 29 U.S.C. § 2104(a)(5).
(See D.I. 9 at 17-18) Defendant contends that, like the venue provision contained in Title VII, 42

11

U.S.C. § 2000e-5(f)(3), the WARN Act's venue provision is the "exclusive basis on which venue
may be established for a WARN Act claim." (D.l. 9 at 17) While the general venue provision,
28 U.S.C. § 1391(b)(l), provides that a civil action "maybe brought in ... a judicial district in
which any defendant resides," the WARN Act's venue provision, § 2104(a)(5), provides that:
A person seeking to enforce ... liability [under the WARN Act],
including a representative of employees or a unit of local
government aggrieved under paragraph (1) or (3), may sue either
for such person or for other persons similarly situated, or both, in
any district court of the United States for any district in which the
violation is alleged to have occurred, or in which the employer
transacts business.
Defendant continues by asserting that although it is a Delaware corporation (see D.I. 1 iJ 14)
venue is improper because the WARN Act violation is not alleged to have occurred here and
NCP does not transact business in Delaware (see D.I. 9 at 17; id. at ex. A).
Plaintiff counters that venue is proper in Delaware because of the general venue statute.
(D.l. 11 at 17) To Plaintiff, the WARN Act's venue provision supplements, rather than restricts,
the general venue statute. (See id.) Plaintiff argues that this is consistent with how courts
typically interpret special venue provisions absent specific evidence to the contrary. (See id.)
(citing cases)
The Court agrees with Plaintiff. There is no language of exclusivity or restriction in the
WARN Act venue provision. See Farmers Bank ofState ofDel. v. Bell Mortgage Corp., 452 F.
Supp. 1278, 1280-81 (D. Del. 1978) (finding that venue provision of RICO Act does not restrict
general venue provision which identifies fora where claim "may" be brought). Nor is there other
specific evidence contradicting a view that the general and specific venue provisions at issue here
supplement one another. Delaware is where NCP, as a Delaware corporation, resides. "The

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most convenient forum for a defendant is normally the forum of residence, and it would take a
very powerful reason ever to suggest that Congress would have meant to eliminate [that] venue."

Cortez Byrd Chips, Inc. v. Bill Harbert Const. Co., 529 U.S. 193, 200 (2000). Defendant
presents no evidence that Congress meant to eliminate this forum for WARN Act claims.
Defendant's analogy to Title VII's venue provision is inapt. (See D.I. 9 at 17) Unlike the
WARN Act's venue provision, Title VII's special venue provision, § 2000e-5(f)(3), lists the
judicial districts in which an action may be brought - "in any judicial district ... in which the
unlawful employment practice is alleged to have been committed, ... the employment records
relevant to such practice are maintained and administered, or in the judicial district in which the
aggrieved person would have worked but for the alleged unlawful employment practice" - and
then adds that if "the respondent is not found within any such district, such an action may be
brought within the judicial district in which the respondent has his principal office." With
respect to Title VII claims, then, allowing venue under the general venue statute, 28 U.S.C.
§ 1391, would conflict with Title VII's specific requirement that a plaintiff first look to the three
fora listed in Title VII's specific venue provision. Hence, Title VII's venue provision is
restrictive-see, e.g., Stebbins v. State Farm Mutual Automobile Insurance Company, 413 F.2d
1100 (D.C. Cir. 1969); Thurmon v. Martin Marietta Data Systems, 596 F. Supp. 367 (M.D. Pa.
1984) - in a way that the WARN Act's venue provision is not.
Therefore, the Court will deny Defendant's motion to dismiss or transfer for improper
venue.

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CONCLUSION
For the reasons discussed above, the Court will deny Defendant's motion to dismiss. An
appropriate order follows.

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