In Re: AE Liquidation Inc. et al
MEMORANDUM ORDER: IT IS HEREBY ORDERED that the Bankruptcy Court's Opinion and Order are AFFIRMED. Signed by Judge Leonard P. Stark on 3/31/16. (ntl)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
Case No. 08-13031-MFW
AE LIQUIDATION, INC., et al.,
Adv. No. 09-50265-MFW
ANNETTE VARELA and JOHN J. DIMURA,
Civ. No. 14-1492-LPS
JEOFFREY L. BURTCH, Chapter 7 Trustee,
At Wilmington on this 31st day of March, 2016:
This matter coming before the Court upon Appellants ' appeal of the Memorandum Opinion
("Opinion") and Order ("Order") 1 entered by The Honorable Mary F. Walrath on November 18,
2014 in the above-captioned adversary proceeding on cross-motions for summary judgment with
respect to claims arising under the federal Worker Adjustment and Retraining Notification Act (the
IT IS HEREBY ORDERED that, for the reasons that follow, the Order is AFFIRMED.
This appeal arises from the Bankruptcy Court' s Order granting the Trustee ' s motion for
summary judgment, and denying that of Appellants, based on the Bankruptcy Court' s conclusion
that the "unforeseeable business circumstances" exception to the WARN Act applies.
See Varela v. Burtch, Adv. No. 09-50265 (MFW) (Bankr. D. Del.), D.I. (hereinafter "A.PD.I.")
119 (Opinion), 120 (Order). The Court will cite to the Opinion as "(Op. at_)".
The material facts of this case are undisputed. Appellants were employed by Eclipse
Aviation Corporation ("Eclipse"). Eclipse engineered, manufactured, and sold jet aircraft through
its facilities in Albuquerque, New Mexico. European Technology and Investment Research Center
("ETIRC") was the largest shareholder of Eclipse, and its Chairman, Roel Pieper, was also Eclipse's
Chairman and Chief Executive Officer.
Pre-petition, the business model of Eclipse failed. By November 1, 2008 , the company had
defaulted on its secured notes and its cash accounts were frozen. (See D.I. 15 at A546 (Nov. 1,
2008 Minutes of the Board of Directors of Eclipse Aviation Corp.) J. Mark Borseth, Eclipse's
Chief Financial Officer, suggested a bankruptcy filing to its Board of Directors. The Board
considered liquidating, but decided on a going-concern sale through "stalking horse" bid
procedures. On November 25, 2008, Eclipse filed a Chapter 11 petition with $20 million in debtorin-possession (DIP) financing provided by ETIRC. 2 On the same day, Eclipse filed a motion to
approve sale procedures to govern the sale of substantially all of its assets, which attached a form of
asset purchase agreement negotiated between Eclipse and EclipseJet Aviation International, Inc., an
affiliate ofETIRC, dated November 25, 2008. (B.D.I. 18) On December 23 , 2008, the Bankruptcy
Court entered an order approving certain bid procedures to govern the sale. (B.D.I. 229) On
December 29, 2008, Eclipse filed an executed Amended Asset Purchase Agreement, dated
December 22, 2008, with ETIRC as the stalking horse bidder, who represented that a Russian stateowned bank, Vnesheconombank, would finance the sale. (B.D.I. 239) On January 23 , 2009, the
Bankruptcy Court entered an order ("Sale Order") approving a Second Amended and Restated
Asset Purchase Agreement (the "APA") and the sale. (B.D.I. 446, Ex. 1)
See In re AE Liquidation, Inc. , et al. , Case No. 08-13031 (MFW) (Bankr. D. Del.), D.I.
(hereinafter "B .D .I.") 13.
Despite its approval by the Bankruptcy Court, ETIRC ' s financing and the closing of the sale
were delayed. On February 18, 2009, Eclipse sent an email to employees announcing a furlough:
We are sure that you have noticed that the sale of Eclipse Aviation is taking longer
than expected. The efforts of many people to finalize the sale of Eclipse to
EclipseJet is still on course but slower than we all had hoped for. Even with the
difficult financial markets around the world, all actions to date allow us to believe
that the sale and closing of the overall process is well within reach. In spite of this
optimism, we now find it prudent to take action to provide us the best possible
chance of assuring a sale closing occurs.
To make the company' s remaining cash last as long as possible and give us the most
time to complete the sale, the Board of Directors directed management to furlough
essentially all of the company's employees effective today. This means you can go
home and unless you are asked, you should not report to work starting tomorrow,
Thursday February 19, 2009, until further notice .. .
We regret the need to take this action but we ask that you see the necessity given the
circumstances. You will be contacted at your home address and/or by home phone
to notify you when to return to your job or to provide any additional updates.
While this is unpleasant and hopefully short lived, we are very thankful for all of the
ongoing support you are giving to Eclipse Aviation. We hope to have good news to
report to you in the coming days.
(D.I. 15 at A609) Despite repeated assurances from ETIRC that funding was forthcoming, the sale
ultimately did not close. On February 24, 2009, management sent a second message to employees:
We are very sad to report unexpected news today. Despite the efforts of many
people at Eclipse] et Aviation and ETIRC to obtain necessary funding to close the
purchase of the assets of Eclipse Aviation, the closing of the sale transaction has
stalled and our company is out of time and money. Given the dire circumstances in
today' s global marketplace and the lack of additional debtor-in-possession funding,
the senior secured creditors of the Company filed a motion today ... to convert the
Chapter 11 case to a Chapter 7 liquidation. This action, under the circumstances,
is being supported by the directors of Eclipse.
What does this mean for each employee? The furlough converted to a layoff
effective Thursday, February 19, 2009. Most regrettably, you will not be paid the
paycheck due on Thursday, March 5, 2009 nor is any vacation pay available. You
may have certain rights to seek payment in the bankruptcy proceeding; you may
receive additional information about that from the bankruptcy court.
As it stands today, all benefits coverage will end at midnight on February 28, 2009.
COBRA benefits will be available for the month of March if you wish to sign up for
medical, dental and/or vision coverage. Later this week you will receive a
termination package in the mail which will have information regarding all of your
(D.I. 15 at A622) The next day, on February 25, 2009, a termination benefits package was mailed
to the employees. (D.I. 15 at A625) On March 5, 2009, the Bankruptcy Court converted Eclipse' s
case to Chapter 7 and subsequently appointed Jeoffrey L. Burtch as trustee (the "Trustee").
Appellants commenced a class action adversary proceeding on March 3, 2009, alleging a
violation of the federal WARN Act. 3 On November 18, 2009, Appellants filed a motion for class
certification and related relief. (A.P.D.I. 17)4 On January 12, 2012, prior to discovery, the Trustee
filed a first motion for summary judgment, asserting, inter alia, that the closure was caused by
business circumstances that were not reasonably foreseeable at the time that any notice pursuant to
the WARN Act would have been required, and Eclipse was therefore excepted from the WARN Act
requirements. (A.P.D.I. 33 , 34) The Trustee ' s first motion for summary judgment was denied by
the Bankruptcy Court on August 30, 2012, based on the Bankruptcy Court' s conclusion that there
was a dispute of material facts regarding the Trustee ' s asserted "unforeseeable business
circumstances" ("UBC") defense. (A.P.D.I. 49) Following discovery, on February 14, 2014, the
Plaintiffs filed a motion for partial summary judgment, arguing that Eclipse could not invoke the
"faltering company" defense or the UBC defense. (A.P.D.I. 88, 89) On April 24, 2014, the Trustee
filed a cross-motion for summary judgment with respect to its asserted UBC defense. (A.P.D.I.
102, 103) Fallowing briefing and oral argument, the Bankruptcy Court issued the Opinion and
Order, granting the Trustee ' s motion for summary judgment.
Appellants have conceded that their New York W am Act claims are not valid because Eclipse is
not an "employer" under New York' s WARN regulations.
The motion for class certification has been stayed, first pending the Trustee ' s first motion for
summary judgment and then pursuant to stipulation.
Under the federal WARN Act, an employer cannot order a plant closing or mass layoff
without giving 60 days' written notice to affected employees. See 29 U.S.C. § 2102(a)(l). It is
undisputed that Eclipse did not provide employees with notice 60 days prior to termination. Eclipse
sent an email announcing a furlough on February 18, 2009, and a second email on February 24,
retroactively converting the furlough to a layoff. Any notice, therefore, was given after the fact.
The Trustee argues, however, that the UBC exception to the WARN Act applies. The statute
provides that "[a]n employer may order a plant closing or mass layoff before the conclusion of the
60-day period if the closing or mass layoff is caused by business circumstances that were not
reasonably foreseeable as of the time that notice would have been required. " 29 U.S.C.
§ 2102(b)(2)(A). To invoke this defense, it is the employer' s burden to show that the claimed
circumstance was unforeseeable and the layoffs were caused by that circumstance. See Gross v.
Hale-Halsell Co., 554 F.3d 870, 875 (10th Cir. 2009). To qualify for this defense, an employer is
still required to give as much notice as is practicable and, at that time, provide a brief statement
explaining the reason for reducing the notification period. See 29 U.S.C. § 2102(b)(3).
Appellants argue that the Bankruptcy Court' s holding that that Eclipse is entitled to the UBq
defense is reversible error for several reasons . First, Appellants argue that, as a gating issue,
Eclipse cannot invoke the UBC defense because Eclipse failed to meet the statutory requirement of
giving as much notice as practicable and that the notice that was given to employees did not contain
the "brief statement" required by the statute. (See D.I. 14 at 3) Second, Appellants argue that even
if the UBC defense could be invoked, the alleged unforeseeable event - the failure of the sale - did
not cause the terminations because the employees were subject to termination whether the sale
closed or not under the express terms of the AP A. (See id. at 4) Finally, Appellants argue that
Eclipse cannot invoke the UBC defense because the failure of the sale was foreseeable as of January
30, if not well before, when ETIRC failed to close the sale and never proposed a new date for
closing. At that point, Appellants argue, Eclipse was required to give notice that employees would
be terminated unless the sale closing occurred immediately, due to Eclipse ' s dwindling funds.
Having kept silent until the case converted to Chapter 7, Appellants argue that they should be
entitled, at least, to partial summary judgment for the final 25 days of the 60-day notice period, i.e.,
between January 30 and the February 25 notice to employees. (See id. )
The Trustee counters that Eclipse may invoke the UBC exception to the WARN Act' s 60day notice requirement because ETIRC's failure to fund the sale pursuant to the AP A constituted an
unforeseeable business circumstance. (See D.I. 18 at 2) The Trustee argues that no one could have
reasonably foreseen the failure of the sale 60 days before the layoff, in late December. The Trustee
argues that the UBC defense does not require the employer to issue a WARN Notice anytime a
layoff is merely possible; rather, the employer need only exercise commercially reasonable
judgment as to what is probable. The Trustee further contends that the failure of the sale was the
actual cause of the layoffs, and that Eclipse was not required to give its employees advance notice
of the layoffs because such notice was not practicable under the circumstances. (See id. ) Finally, in
the Trustee' s view, the three communications, read together, were based on the best information
available to Eclipse and were adequate to meet the statutory requirements of the WARN Act. (See
Standard of Review
Appeals from the Bankruptcy Court to this Court are governed by 28 U.S .C. § 158.
Pursuant to§ 158(a), district courts have mandatory jurisdiction to hear appeals "from final
judgments, orders, and decrees" and discretionary jurisdiction to hear appeals "from other
interlocutory orders and decrees." 28 U.S.C. § 158(a)(l) , (3). In reviewing a bankruptcy court' s
grant of summary judgment, this court applies a plenary, or de novo, standard of review to legal
determinations. See Biase v. Congress Fin. Corp. (Jn re Tops Appliance City, Inc.) , 3 72 F .3d 510,
513 (3d Cir. 2004); Am. Flint Glass Workers Union v. Anchor Resolution Corp., 197 F.3d 76, 80
(3d Cir. 1999). Under that standard, courts look to whether the record demonstrates "a genuine
issue of material fact and, if not, whether the moving party is entitled to judgment as a matter of
law." Saldana v. Kmart Corp. , 260 F.3d 228, 232 (3d Cir. 2001). A disputed fact is "material" if it
would affect the outcome of the suit as determined by the substantive law. See Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). Courts must view the facts in the light most favorable to the
nonmoving party and draw all inferences in that party' s favor. See Gray v. York Newspapers, Inc.,
957 F.2d 1070, 1078 (3d Cir. 1992).
The purpose of the WARN Act is to extend:
protection to workers, their families and communities by requiring employers to
provide notification 60 calendar days in advance of plant closings and mass
layoffs. Advance notice provides workers and their families some transition time
to adjust to the prospective loss of employment, to seek and obtain alternative
jobs and, if necessary, to enter skill training or retraining that will allow these
workers to successfully compete in the job market.
20 C.F .R. § 63 9 .1. The full 60-day notice period is not required if the closing is "caused by
business circumstances that were not reasonably foreseeable as of the time that notice would have
been required." 29 U.S.C. § 2102(b)(2)(A). In order to qualify for the UBC exception, the
defendant must prove two elements: (A) that the circumstances complained of were unforeseeable;
and (B) that the circumstances complained of actually caused the mass layoff or plant shutdown.
See Calloway v. Caraco Pharmaceutical Laboratories, Ltd. , 2015 WL 5023560, *6 (6th Cir. Aug.
26, 2015). The burden is on the employer to show that the statutory exception applies. 20 C.F.R. §
639.9; see In re Advanced Accessory Systems, LLC, 443 B.R. 756, 766 (Bankr. E.D. Mich. 2011 )
(holding that former employer met its burden of proof that UBC exception applied) .
The UBC exception is not narrowly construed. See In re Jevic Holding Corp., 496 B.R.
151, 163 n.36 (Ban1a. D. Del. 2013) (noting that while Department of Labor requires "faltering
company" exception be narrowly construed, there is no such requirement for UBC exception); see
also 54 Fed. Reg. 16,061 (1996) ("The Department has reviewed the legislative history and agrees it
may not [be] appropriate to say that the unforeseeable business circumstances . . . exception
should be narrowly construed."). Courts evaluate the UBC exception objectively, at the time the
decisions were made, and not with the benefit of 20120 hindsight. See Jevic, 496 B.R. at 161;
Watson v. Mich. Indus. Holdings, Inc. , 311 F.3d 760, 764 (6th Cir. 2002) ("In making this
determination, a reviewing court must be careful to avoid analysis by hindsight ... "). Notably:
WARN was not intended to force financially fragile, yet economically viable,
employers to provide WARN notice and close its doors when there is a possibility
that the business may fail at some undetermined time in the future. Such a reading
of the Act would force many employers to lay off their employees prematurely,
harming precisely those individuals WARN attempts to protect. A company that
is struggling to survive financially may be able to continue on for years and it was
not Congress ' s intent to force such a company to close its doors to comply with
WARN' s notice requirement.
Watson, 311 F.3d at 765. The WARN Act allows leeway for a company' s exercise ofreasonable
business judgment, and the regulations "are intended to encourage employers to take all reasonable
actions to preserve the company and the jobs." Jevic, 496 B.R. at 161 (quoting Angles v. Flexible
Flyer Liquidating Trust (Jn re Flexible Flyer Liquidating Trust), 2013 WL 586823, at *4 (5th Cir.
Feb. 11 , 2013)).
Even where the UBC exception applies, however, the employer must still give as much
notice as practicable, and that notice must contain a brief statement of the basis for reducing the
notification period. 29 U.S.C. § 2102(b)(3). The brief statement must set forth "reasonably
specific" facts that make the exception applicable, and mere generalized statements will not suffice.
See Alarcon v. Keller Indus., Inc. , 27 F.3d 386, 389-90 (9 1h Cir. 1994). The notice must be based on
the best information available to the employer at the time the notice is served. 20 C.F.R. § 639.7.
The delivery of the notice must be designed to ensure its receipt. Id. at§ 639.8. The Court may
also consider whether multiple communications to employees, read together, satisfy the statute. See
Kalwaytis v. Preferred Meal Systems, Inc., 78 F.3d 117, 122 (3d Cir. 1996).
To qualify for the UBC defense, the Trustee must first establish that the business
circumstance that caused the layoff was unforeseeable. See Calloway, 2015 WL 5023560 at *6.
The regulations promulgated by the United States Department of Labor concerning the WARN Act
do not offer examples of circumstances that are per se unforeseeable. Rather, the Department of
Labor indicated that the propriety of utilizing the exception in any particular scenario involves a
highly factual inquiry to be assessed on a case-by-case basis. See Loehrer v. McDonnell Douglas
Corp. , 98 F.3d 1056, 1060 (8th Cir. 1996). The regulations explain that " [a]n important indicator of
a business circumstance that is not reasonabl y foreseeable is that the circumstance is caused by
some sudden, dramatic, and unexpected action or condition outside the employer' s control." 20
C.F.R. § 639.9(b)(l ).
The test is an objective one: "When determining whether a closing was caused by
unforeseeable business circumstances, we evaluate whether a ' similarly situated employer' in the
exercise of commercially reasonable business judgment would have foreseen the closing." Hotel
Employees and Rest. Employees Int '/ Union Local 54 v. Elsinore Shore Assocs., 173 F.3d 175, 186
(3d Cir. 1999) (quoting 20 C.F.R. § 639.9(b)(2)). Importantly, "it is the probability of occurrence
that makes a business circumstance reasonably foreseeable, rather than the mere possibility of such
a circumstance." Watson , 311 F.3d at 765 (internal quotations and citations omitted); see also
Jevic, 496 B.R. at 160-61 ("The case law makes clear that the determining factor on the
foreseeability issue is whether the triggering event was probable or possible.").
Appellants argued below that the ETIRC ' s failure to close on the sale of Eclipse was
reasonably foreseeable 60 days before employees received notice because ETIRC had been unable
to obtain financing from the Russian government for an earlier project; the commitment letters that
ETIRC submitted did not appear to be binding; and no other qualified purchasers had come forward
in the sale process. The Bankruptcy Court disagreed, finding that ETIRC ' s failure to close on the
sale of Eclipse was not reasonably foreseeable on December 28, which was 60 days prior to the date
employees received notice of the termination. (See Op. at 10) In reaching this conclusion, the
Bankruptcy Court noted that at the time of the sale hearing on January 16, Pieper testified that
ETIRC had lined-up the necessary financing commitments and that, aside from entry of a sale order,
there were no contingencies in connection with the sale. (See B.D.I. 448, 1/ 16/09 Hr' g. Tr. at 112)
On February 3, Pieper and an ETIRC officer, Daniel Bolotin, told Eclipse 's Board that there was a
high likelihood that funding would be approved by the Russian government in the coming days .
(See A.P.D.I. 90 at A204) On February 16, Pieper and Bolotin confirmed that Russian Prime
Minister Putin had given final approval for the financing and that no additional approvals were
necessary. (See A.P .D.I. 90 at A213) The Bankruptcy Court found that ETIRC made many other
such representations during the 60-day period, and ETIRC itself had committed $20 million in DIP
financing to Eclipse in anticipation of the sale closing. (See Op. at 11 ; B.D.I. 230) Based on these
findings, the Bankruptcy Court concluded that the Trustee had established that the failure of the sale
was not reasonably foreseeable on December 28. (See Op. at 12)
On appeal, Appellants argue that "the Bankruptcy Court erred in finding that the buyer' s
inability to close was unforeseeable as matter of law in December and thereafter - indeed it was a
fact-on-the-ground weeks before the layoff." (See D.I. 14 at 26) Appellants assert that "Eclipse
knew the odds of completing the sale were low" and that whatever expectation that Eclipse may
have had of the sale closing before it ran out of money, that expectation was shattered when ETIRC
failed to close the sale by January 30. (See id. at 4, 26) Appellants argue that the Bankruptcy Court
did not explain why failure was unforeseeable after January 30, and its grant of summary judgment
on that issue was erroneous. (See id. at 27)
In support of its position, the Trustee argues that no one could have foreseen the failure of
the sale in late December. (See D.I. 18 at 4) At that time, the parties had entered into a form of the
AP A, and the sale closing was contingent only upon Bankruptcy Court approval of the AP A and
entry of the Sale Order. (See D.I. 15 at A290 (AP A§ 8.2(d))) The Bankruptcy Court did not
approve the bidding procedures until December 23 , and scheduled the sale hearing for January 16,
2009. The sale hearing was continued to January 20, and the Sale Order was entered on January 23 .
Thus, the Trustee argues that the failure of the sale was not reasonably foreseeable in late
December. Nor was the sale's failure reasonably foreseeable when ETIRC failed to close as
expected on January 30, as the APA provided a time cushion for closing through at least February
28. (See D.I. 15 at A405) Contrary to Appellants' assertion that failure of the sale was not merely
possibility but an actuality on January 30, the Trustee argues that it would not have been
commercially prudent for Eclipse to walk away from a court-approved sale worth more than $185
million to creditors merely because of a delay in closing. (See D .I. 18 at 19) The Trustee adds that
Eclipse received repeated assurances from ETIRC after January 30 that the funds were forthcoming
and the sale would close. (See id. at 15-17) In light of these assurances, the Trustee contends that
failure of the sale did not become reasonably foreseeable until after the employee furlough on
February 19, when - on February 24- the secured noteholders moved to convert the Chapter 11
case to Chapter 7, which would end Eclipse' s ability to utilize cash collateral. (See id. at 19)
The touchstone inquiry here is whether a similarly situated employer in the exercise of
commercially reasonable business judgment would have foreseen the need for the mass layoffs. See
Elsinore, 173 F.3d at 186 (citing 20 C.F.R. § 639.9(b)(2)). The employer must exercise such
commercially reasonable judgment as would a similarly situated employer in predicting the
demands of a particular market. 20 C.F.R. § 639.9(b)(2) . As noted by the Bankruptcy Court, " [i]n
determining whether a crippling business circumstance is foreseeable, we must bear in mind that it
is the probability of the occurrence that makes a business circumstance reasonably foreseeable,
rather than the mere possibility of such a circumstance." (Op. at 11-12 (quoting Roquet v. Arthur
Anderson LLP, 398 F.3d 585, 589 (7th Cir. 2005) (internal quotations omitted)))
Based on a review of the record, and applying the summary judgment standard, the Court
agrees that ETIRC ' s failure to close on the sale of Eclipse was not "probable" in late December
2008, 60 days prior to the date the employees received notice of the layoff. The record reflects that
following Eclipse' s Chapter 11 filing, ETIRC had committed $20 million in DIP financing to
Eclipse as the company attempted to sell its business on a going concern basis. (See B.D.I. 230)
The parties had entered into a binding AP A, court approval of which was still pending. The Court
cannot agree that a similarly-situated employer in the exercise of commercially reasonable business
judgment would have foreseen a failure of the sale closing at that time. Appellants argue the failure
of the sale was reasonably foreseeable well before the January 30 closing date and was a "fact-onthe ground weeks before the layoff." (D.I. 14 at 26) However, Pieper testified under oath at the
January sale hearing that EclipseJet had lined-up financing commitments sufficient to execute its
business plan and that there were no financing contingences in connection with the purchase of the
business. (See B.D.I. 448 (1/16/09 Hr' g. Tr. at 112)) EclipseJet had also filed its business
application to operate in New York and provided a post-closing budget. (See A.P.D.I. 104, Ex. 1)
Nor did the failure of the sale become "probable" when the sale failed to close on January
30. Appellants argue that while " [t]he sale' s failure might arguably have been unforeseeable in
December, once the closing failed on January 30, it became the actuality." (D.I. 14 at 26-27)
Again, the determining factor on foreseeability is whether the triggering event was probable, not
merely possible. See Jevic, 496 B.R. at 160-61 . The WARN Act does not require the employer to
issue a notice any time a mass layoff is merely possible. While the failure of the sale was certainly
possible upon ETIRC ' s failure to close on the projected closing date, ETIRC provided continuous
assurances to Eclipse and other parties in interest that funding was secured and forthcoming and that
closing of the sale was imminent. (See Op. at 11-12) Indeed, the Board was assured as late as
February 16 - two days before the email announcing the employee furlough - that Russian Prime
Minister Putin had given final approval for the financing and that no additional approvals were
necessary. (See A.P.D.I. 90 at A213) Based on this record, applying the summary judgment
standard, the Court concludes that a similarly-situated employer in the exercise of commercially
reasonable business judgment would not have foreseen the need for mass layoffs on January 30.
Importantly, the failure of the sale did not need to be "out of the blue" for it to be considered
"sudden, dramatic, or unexpected." See Jevic, 496 B.R. at 161. Although Eclipse was financially
failing and the potential for layoffs was well-known by management, the APA provided that the
sale could close as late as February 28 -providing a one-month time cushion after entry of the Sale
Order (s ee D.I. 15 at A405) - and Eclipse ' s Board was assured that "that the Company had
sufficient cash to make payroll and pay invoices as they come due through the week ending Friday,
February 20, 2009 . (See D.I. 14 at 12; D.I. 15 at A600-01) In light of the repeated assurances that
funding of the sale was imminent, allowing extra time for the purchaser to close was within
Eclipse' s reasonable business judgment and consistent with taking " all reasonable actions to
preserve the company and the jobs." Jevic, 496 B.R. at 161 ; Flexible Flyer, 2013 WL 586823 , at
*4. Eclipse' s reaction to the failure to close on January 30 was consistent with that of "other
reasonable employers within its own market." See Roquet, 398 F.3d at 588.
In support of their contrary position, Appellants cite the MRC case. (See D .I. 14 at 27)
(citing Int'! Union, United Auto., Aerospace & Agr. Implement Workers ofAm. v. MRC Indus. Grp.,
Inc. , 541 F. Supp. 2d 902 (E.D. Mich. 2008) ("MRC'). In MRC, a proposed buyer announced it
would not have financing to purchase a business as a going concern, and the seller terminated its
employees without notice. See MRC, 541 F. Supp. 2d at 910. TheMRC court rejected the
defendants ' summary judgment argument that the company was entitled to the UBC defense, noting
that where "the pitfalls associated with a sale" are "neither hidden nor imagined" the fact that the
sale does not come to "fruition cannot be characterized, as a matter oflaw, as unforeseen,
unexpected, or sudden." Id. at 911. Appellants argue that the pitfalls of Eclipse ' s sale to ETIRC
were obvious as well because ETIRC made empty promises regarding prior transactions, funding
for the sale depended on the approval of the Russian state-owned bank, Eclipse was aware of the
global financial meltdown that had just occurred, and Eclipse had contracted around the possibility
that the sale may fail in the AP A. (See D.I. 14 at 25, 28)
The Court is not persuaded by Appellants ' reliance on the MRC case. Seeking summary
judgment on the UBC defense, the employer in that case simply argued that the purchaser intended
to operate post-sale closing, and it was not reasonably foreseeable that the sale would fall through.
See MRC 541 F. Supp. 2d at 910. The MRC court found, however, that the employer' s
characterization of events was "undermined by the record." Id. at 911 . While the employer in MR q
had selected a stalking horse purchaser, the court noted that the parties had trouble negotiating an
asset purchase agreement, and the purchaser would only agree to an unusually low deposit. See id.
Unlike this case, there was no binding asset purchase agreement or unconditional promise to close
the sale. The MRC court further noted that at the same time the parties were pursuing the sale, the
employer was simultaneously planning an orderly wind down of operations. See id. In denying
summary judgment on the UBC defense, the MRC court further noted that even after the sale failed
to close, and the employer sold its assets to a liquidator, the employer did not give notice to its
employees as required under the WARN Act. See id. Here, by contrast, Eclipse had entered into a
binding AP A upon reliance on a stalking horse purchaser's representations that the sale was not
subject to any financing contingencies. The Court finds that MRC involves different facts and does
not support Appellants ' position that ETIRC 's failure to close the sale was reasonably foreseeable.
The Court finds no genuine issue of material fact with respect to foreseeability and no error
in the Bankruptcy Court's conclusion that the Trustee has carried the burden of establishing that the
business circumstances that triggered the layoff were not reasonably foreseeable at the time that
notice was required. 5
In addition to establishing that the failure of the sale was unforeseeable, the Trustee also has
the burden of establishing that that the circumstances complained of actually caused the mass
layoff. See Calloway, 2015 WL 5023560, at *6. In granting the Trustee's cross-motion for
summary judgment, the Bankruptcy Court found that "ETIRC's failure to consummate the sale was
the cause of the termination by Eclipse of its workforce." (See Op. at 13) In reaching this
conclusion, the Bankruptcy Court rejected Appellants ' argument that the termination of employees
would have taken place regardless of whether ETIRC had consummated the sale because ETIRC
was not obligated under the AP A to retain Eclipse's employees. (See id. at 12) The Bankruptcy
Court found that Eclipse sought to sell its business as a going concern and that Eclipse 's work force
was highly skilled and integral to the business operations. (See id. at 13) The Bankruptcy Court
further found that two executive management committee members, Mark Borseth and Michael
McConnell, testified that they believed ETIRC intended to retain Eclipse ' s workforce post-closing.
Because the Court finds no error in the Bankruptcy Court' s conclusion that the business
circumstances that caused the layoff were not reasonably foreseeable at the time that notice would
have been required under the WARN Act, the Court does not reach the Bankruptcy Court's
independent holding that, even if the layoffs were reasonably foreseeable, Eclipse was in no
position to predict a specific date or 14-day period when the sale would fail and the layoffs would
occur. (See Op. at 12)
(See A.P.D.I. 104, Ex. 3 at 68:19-23 ; Ex. 2 at 84:6-12) The Bankruptcy Court noted that it had
approved the sale in part because of the expectation that the employees would keep their jobs. (See
D .I. 450 at 106) Additionally, the buyer' s contemplated annual budget for the post-sale entity was
$125 to $150 million, which also supported Eclipse ' s beliefthat ETIRC was committed to
continuing operations. (See D.I. 448 (1 /1 6/09 Hr' g. Tr. at 107-08)) Although the APA stated that
ETIRC had no hiring obligations, the Bankruptcy Court noted that such terms are boilerplate in
going-concern sales and merely allowed the buyer to pick which employees to retain. (See Op. at
13) For these reasons, the Bankruptcy Court rejected Appellants ' argument under the AP A and
concluded that ETIRC ' s failure to consummate the sale was the cause of the termination. (See id. )
Appellants argue that the Bankruptcy Court should not have granted summary judgment
because there is a dispute of fact as to whether ETIRC would have hired Eclipse' s employees postclosing. (See D.I. 14 at 25-26) Appellants argue that the AP A specifically absolved ETIRC of any
responsibility to retain Eclipse ' s employees. (See id. at 25)
The Court is not persuaded by Appellants' arguments relating to the AP A. The record and
testimony support the Bankruptcy Court' s conclusion that Eclipse reasonably believed that the
employees would be retained for operations of the business and that the contemplated budget
provided for the same. Additionally, the AP A stated that a condition of the closing was that the
"Sellers shall be operating the Business as a going concern on a basis consistent with the Budget
and otherwise consistent with past practice or acting as a debtor-in-possession in a Chapter 11
bankruptcy case." (D.I. 15 at A290) As noted by the Trustee, the terms of the APA required
Eclipse to use commercially reasonable efforts to:
maintain the business organization of the Business intact, including its agents,
employees, consultants, and independent contractors, ... preserve the goodwill
of the manufacturers, suppliers, contractors, licensors, employees, customers
distributors, and others . . . In connection therewith, no Seller shall (1 ) offer
employment for any period on or after the Closing Date to any employee or agent
of the Business unless Buyer has determined not to make an offer of
employment in accordance with the terms set forth herein to such employee or
agent; or (2) otherwise attempt to persuade any such employee or agent to
terminate his or her relationship with the Business.
D.I. 15 at A282 (emphasis added). Thus, under the APA, Eclipse was under an affirmative
obligation to retain employees and maintain the status quo through the sale ' s closing, which further
supports Eclipse ' s belief that ETIRC intended to maintain the employees post-closing, and that
laying off employees would have frustrated the purchaser's business plan. The AP A' s boilerplate
language addresses a buyer' s typical litigation concerns over successor liability and third-party
beneficiary claims, and the fact that the AP A did not provide for retention of the employees does
not create a dispute of material fact concerning the cause of the layoff. The record does not support
Appellants ' argument that termination of employees would have taken place regardless of whether
ETIRC had consummated the sale simply because ETIRC was not obligated to retain Eclipse ' s
employees under the AP A.
Appellants further argue that ETIRC ' s failure to consummate the sale did not cause the
layoff because, for the UBC defense to apply, the circumstances that cause the layoff "must relate to
the economic conditions of operating the business itself, rather than conditions encountered in the
sale of a business." (D.I. 14 at 24 (citing Snider v. Commercial Fin. Servs., Inc., 288 B.R. 890, 896
(N.D. Okla. 2002)). In support of this argument, Appellants rely on the Snider case, where, as here,
an employer was attempting to sell its business. See 288 B.R. at 894. In Snider, the employer' s
("CFS") advisor first recommended sale of the business as a going concern but later changed its
advice because CFS ' s "bloated workforce was a deterrent to generating interest" amo;ig prospective
buyers. See id. This change of advice prompted CFS to conduct a mass layoff without affording its
employees the 60-day notice required by the WARN Act. See id. The bankruptcy court in that case
held that the changed advice was a business circumstance that was not reasonably foreseeable, but
the district court reversed, holding that "the changed advice did not, by its very nature, necessitate
or ' cause' the layoff," thus CFS could not avail itself of the UBC defense. See id. at 896.
In dicta , the Snider court noted that even if the changed advice had caused the layoff, there
was a question as to whether the UBC defense applied to the process of selling a business, or
whether it was "confined to circumstances affecting the conduct of the underlying business." Id. at
896. Based upon a review of other cases, the Snider court was "not persuaded that the defense
should be properly applied to the sale of CFS ." Id. However, in discussing the Burnsides case - a
case which applied the UBC defense to the failed sale of a business - the Snider court found that
case "markedly different" because the employer in Burnsides had a signed letter of intent and
reasonably believed that the purchaser would continue to employ the employees. See id. at 897
(discussing Burnsides v. MJ Optical, Inc. , 128 F.3d 700, 703 (8th Cir. 1997)). In contrast to
Burnsides, CFS ' s sales process was a "speculative scenario" with "only a sales process in place that
might result in a sale . .. [and] hopefully identify a potential buyer who might retain some
employees." Snider, 288 B.R. at 897 (emphasis in original).
Snider is cited by Appellants in support of their argument that the UBC defense cannot
apply to the failure of the sale. (See D.I. 14 at 24) But this case, like the Burnsides case
distinguished by the Snider court, involved very different facts than Snider. Here, a stalking horse
bidder had been identified, executed a binding AP A, and made repeated assurances and
representations as to its ability to fund the sale, all providing Eclipse a reasonable belief that the
purchaser intended to continue operations and retain Eclipse ' s employees post-closing. Here, then,
the record, when reviewed under the summary judgment standard, establishes that the failure of
ETIRC to close the sale as required under the AP A caused the layoff. The Court rejects Appellants'
argument that to qualify for the UBC defense, the cause of a layoff is necessarily confined to
circumstances affecting the conduct of the underlying business failure or that the UBC defense
cannot ever be applied in the context of a failed business sale. The Court finds no genuine issue of
material fact with respect to causation and no error in the Bankruptcy Court' s conclusion that
ETIRC's failure to consummate the sale was the cause of the layoff. (See Op. at 13)
C. Sufficiency of Notice
An employer seeking to avail itself of the UBC defense must also satisfy the UBC ' s notice
requirement by " giv[ing] as much notice as is practicable" and "at that time ... giv[ing] a brief
statement of the basis for reducing the notification period." See 29 U.S.C. § 2102(b)(3). Reviewing
this record under the summary judgment standard, the Court finds no genuine issue of material fact
that Eclipse gave as much notice as practicable under the circumstances and that the notice satisfied
the statutory requirements.
1. Notice After the Fact
In granting summary judgment on Eclipse ' s UBC defense, the Bankruptcy Court found that
Eclipse gave as much notice of the layoff as was practicable under the circumstances. (See Op. at
13) In reaching this conclusion, the Bankruptcy Court found that, on February 24, Eclipse' s
secured lenders moved to convert to a Chapter 7 liquidation, and only then was it clear that there
would be no going-concern sale. (See id.) That same evening, management emailed employees
notice of the layoff; they mailed termination packages the following day. (See id. at 13-14) The
Bankruptcy Court concluded that such notice constituted as much notice as was practicable under
the circumstances. (See id. at 13)
Appellants argue that where multiple notices are considered together, the date of the last
notice is effective, and here, the termination package was mailed on February 25 - 6 days after the
effective date of the termination on February 19. Appellants argue that after-the-fact notice is not
enough notice to satisfy the WARN Act and cite several cases in support of this argument. (See D.I.
14 at 17-18) However, the Department of Labor regulations clearly contemplate that, in certain
circumstances, after-the-fact notice may be as much notice as practicable. See 20 C.F.R. § 639.9
("If one of the exceptions [to the WARN Act] is applicable, the employer must give as much notice
as is practicable .. . and this may, in some circumstances, be notice after the fact. "). The Third
Circuit has noted that the 60-day notice period "is reduced or eliminated if the closing or mass
layoff is caused by business circumstances that were not reasonably foreseeable as of the time that
the notice would have been required." Elsinore, 173 F.3d at 180 (internal quotations omitted).
Here, it only became clear to Eclipse that there would be no going-concern sale on February
24 - the day the secured lenders filed the motion to convert the bankruptcy cases to Chapter 7
liquidation, terminating Eclipse ' s ability to utilize cash collateral and pay operating expenses. At
that time, the cessation of Eclipse ' s operations went from merely "possible" to "probable." On the
same day that the secured lenders moved to convert the case, Eclipse contacted employees by email
regarding the layoff and then it mailed termination packages the very next day. Reviewing this
record under the summary judgment standard, the Court finds no genuine issue of material fact that
Eclipse gave its employees as much notice as practicable under the circumstances, even if it was
after the fact.
2. Content of the Notice
The Bankruptcy Court further found that upon consideration of the notices together, Eclipse
had met the content requirements of the WARN Act: "From these communications, an employee
would understand that she had been terminated and why she did not receive earlier notice." (See
Op. at 14-15) A WARN notice must contain a "brief statement" that explains the basis for reducing
the 60-day notice period by setting forth specific facts explaining the reason for the reduced period
of notice. See In re Tweeter OPCO, LLC, 453 B.R. 534, 547 (Bankr. D. Del. 2011 ) (citing Grimmer
v. Lord Day & Lord, 937 F. Supp. 255 , 257 (S.D.N.Y. 1996)). Generalized statements will not
suffice; rather, the presence of "reasonably specific facts" is required. See Alarcon, 27 F.3d at 389-
90. These specific facts must make an exception to the statutory notice period applicable, and
explain to the affected workers why the full 60 day notice was not given. See id. In addition to the
brief statement, a WARN Act notice must also tell employees: (1 ) whether the action will be
permanent or temporary, (2) the expected date when the layoff will begin and when the individual
will be separated, (3 ) whether "bumping rights" exist,6 and (4) the name and telephone number of a
company official who can be contacted for further information. See 20 C.F.R. § 639.7(d).
Appellants argue that the piecemeal communications sent by Eclipse do not satisfy the
WARN Act' s "bright line requirement of a single, complete notice. " (D.I. 14 at 18) However, the
Third Circuit has allowed that multiple communications to employees, read together, may satisfy
the statute. See Kalwaytis, 78 F.3d at 122 (" Giving a reasonably pragmatic interpretation of the two
letters, we conclude that, read together, they do meet the statutory requirements of notice .").
Appellants further argue that none of the three communications sent to Eclipse' s employees
contained the brief statement explaining why a shortened notice period was required or why earlier
notice of the layoff had not been given. (See D.I. 14 at 18) Congress intended that the "brief
statement" describing the basis for the shortened notice be "something more than a citation to the
statute or a conclusory statement summarizing the statutory provision." Jevic, 496 B.R. at 158
(citing Tweeter OPCO, LLC, 453 B .R. at 547). The February 18 email states that there will be a
furlough because efforts to finalize a sale have been unexpectedly delayed, and the February 24
email provides specific facts regarding why notice had not been given earlier. (See D.I. 15 at A609,
A622) The February 24 email states that "the closing of the sale transaction bas stalled and our
company is out of time and money," that given "the lack of additional debtor-in-possession funding,
the senior secured creditors of the Company filed a motion today . .. to convert the Chapter 11 case
An employee has a "bumping right" where the employee has the ability to use his or her seniority
to remain employed by displacing another employee from his or her job. Bumping rights are not
applicable to this case.
to a Chapter 7 liquidation," and that this action "is being supported by the directors of Eclipse."
(D.I. 15 at A622)
These notices together set forth sufficiently specific facts to explain why Eclipse was
providing shortened notice: the sale closing was unexpectedly delayed, the company was unable to
locate additional funding to pursue the sale, and the company' s secured lenders had filed a motion
to convert to a Chapter 7 liquidation. This information is sufficient to satisfy the "brief statement"
requirement of the statute. Eclipse did not simply quote the statute, but instead provided employees
with some explanation, albeit brief, for the short notice and for their termination. See e.g., Jevic,
496 B.R. at 159 (finding that brief explanation for shortened notice and termination can satisfy
"brief statement" requirement) . The February 24 e-mail went on to state that these actions meant
that "[t]he furlough converted to a layoff effective Thursday, February 19, 2009" and that "you will
not be paid the paycheck due on Thursday, March 5, 2009 nor is any vacation pay available." (D.I.
15 at A622) This was followed by the February 25 termination package, which informed the
employees that they had "been laid off effective February 19, 2009." (D.I. 15 at A625) The
termination packages were sent to employees' home addresses and contained a letter specifying a
number to call with questions. (See id.)
Reviewing this record under the summary judgment standard, the Court finds no genuine
issue of material fact that these communications, considered together, contain the information
required by the statute.
3. Delivery of the Notice
The Bankruptcy Court further found that Eclipse had met the delivery requirements under
the WARN Act. (See Op. at 15) The regulations provide: "Any reasonable method of delivery to
the [employees] which is designed to ensure receipt ... is acceptable (e.g., first class mail)." 20
C.F.R § 639.8 . The February 18 and February 24 notices were sent to employees' workplace
emails, and the February 25 termination package was sent to employees ' home addresses. The
Bankruptcy Court concluded that because Eclipse had both emailed employees and sent notice to
their home addresses, delivery was proper. (See Op. at 15) The Court need not determine whether,
on its own, a message sent to the workplace email of a furloughed employee satisfies the WARN
Act' s delivery requirements. Reviewing this record under the summary judgment standard, the
Court finds no genuine issue of material fact that the method of delivery was reasonable and
designed to ensure receipt.
For the reasons set forth above, the Bankruptcy Court' s Opinion and Order are AFFIRMED.
The Clerk of Court is directed to CLOSE this case.
HON. LEONARD P. STARK
UNITED STATES DISTRICT COURT
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