NEW YORK LAW SCHOOL MOOT COURT ASSOCIATION
THE 39TH ANNUAL ROBERT F. WAGNER
NATIONAL LABOR & EMPLOYMENT LAW MOOT COURT COMPETITION
IN THE
SUPREME COURT OF THE UNITED STATES
SPRING TERM, 2015
Docket No. 14-1331
____________________________________________________________________
IN RE FAZAL OIL,
DEBTOR
VERONICA MURRAY, INDIVIDUALLY AND
ON BEHALF OF ALL OTHER SIMILARLY
SITUATED FORMER EMPLOYEES,
Petitioners,
v.
FAZAL OIL, INC.,
Respondents.
______________________________
On Writ of Certiorari to the
United States Court of Appeals for the
Thirteenth Circuit
________________________________
Brief for the Petitioners
________________________________
Team 31
i QUESTIONS PRESENTED
I.
A debtor-in-possession qualifies as an “employer” under § 2101 of the Worker
Adjustment and Retraining Notification Act whenever the debtor-in-possession
continues to operate the indebted entity in a normal commercial sense. Fazal Oil, a
debtor-in-possession, repeatedly attempted to procure capital to continue its
worldwide operations, fired only half of its staff in San Marcos so that it could carry
on essential functions at that site, and continued normal business operations at its
other worksites. Was Fazal Oil, Inc. acting as an “employer” when it fired 3,000
employees on May 6, 2013?
II.
An employer of more than 100 employees is liable to its employees for back pay and
benefits, pursuant to the WARN Act, when the employer fails to provide proper sixtyday notice before executing a plant closing or mass layoff. There are three exceptions
which relieve the employer of liability. Improper notice precludes an employer from
asserting any of these exceptions. Fazal Oil, Inc. failed to provide proper sixty-day
notice. But Fazal Oil, Inc. has asserted to of the exceptions which would relieve it of
liability. Is Fazal Oil, Inc. relieved of its liability for back pay and benefits?
ii TABLE OF CONTENTS
QUESTION PRESENTED ........................................................................................................... I
TABLE OF CONTENTS ............................................................................................................ II
TABLE OF AUTHORITIES ..................................................................................................... III
OPINIONS BELOW..................................................................................................................... 1
STATEMENT OF THE CASE .................................................................................................... 1
SUMMARY OF ARGUMENT .................................................................................................... 6
ARGUMENT ................................................................................................................................. 6
FAZAL OIL, A DEBTOR-IN-POSSESSION, ACTED AS AN “EMPLOYER” UNDER § 2101 OF THE
WARN ACT BECAUSE FAZAL OIL (A) HAD NOT EXHIBITED “INTENT TO LIQUIDATE” WHENEVER
IT LAID OFF 3,000 EMPLOYEES ON MAY 6, 2013 AND (B) USED CHAPTER 11 BANKRUPTCY TO
CIRCUMVENT THE LABOR RIGHTS ESPOUSED BY THE WARN ACT. ..............................................
a. Prior to May 6, 2013, Fazal Oil did not exhibit intent to liquidate because it left its
global workforce intact, retained workers at the San Marcos site to continue essential tasks,
and sought capital to continue operation. .............................................................................. 7
b. Exempting Fazal Oil from employer status undermines the policy behind the WARN Act.
II. FAZAL OIL, INC. VIOLATED THE WARN ACT BY PROVIDING INSUFFICIENT NOTICE AND IS
FURTHER INELIGIBLE FOR ANY EXEMPTIONS ............................................................................ 14
a. Fazal Oil, Inc. provided insufficient notice by failing to include the required brief
statement ............................................................................................................................... 16
b. Fazal Oil, Inc. is not exempt from liability because neither of its asserted exceptions
apply...................................................................................................................................... 20
i. The re-nationalization of the San Marcos oil industry is not a “natural disaster,” and,
thus, this exception does not apply ................................................................................... 21
ii. Fazal Oil, Inc. was not a “faltering company” because there is no evidence to support
its good faith claim that providing the notice would Have precluded it from obtaining
capital ................................................................................................................................ 22
iii. Had Fazal Oil, Inc. used commercially reasonable business judgment in its risk
assessment, it would have foreseen these business circumstances, thus the ‘unforeseeable
business circumstances” exception does not apply ........................................................... 24
CONCLUSION ........................................................................................................................... 29
iv
TABLE OF AUTHORITIES
Statutes
29 U.S.C.S. § 2102 (2012) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,15,17, 25
29 U.S.C.S. § 2107 (2012) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
United States Supreme Court Cases
Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc.,
467 U.S. 837 (1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Syl. Pt. 1, United States v. Mead Corp.,
533 U.S. 218 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
United States Court of Appeals Cases
Alarcon v. Keller Industries,
27 F.3d 386 (9th Cir. 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15, 17, 19
Angles v. Flexible Flyer Liquidating Trust (In re Flexible Flyer Liquidating Trust),
511 Fed. Appx. 369 (5th Cir. 2013) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Chauffeurs, Sales Drivers, Warehousemen, & Helpers Loc. 57, Intern. Broth. of Teamsters, AFLCIO v. Weslock Corp.,
66 F. 3d. 241 (9th Cir. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Childress v. Darby Lumber, Inc.,
357 F.3d 1000 (9th Cir. Mont. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 22, 25, 28
In re FBI Distribution Corp.,
330 F.3d 36 (1st Cir. 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
In re United Healthcare Sys., Inc.,
200 F.3d 170 (3d Cir. 1999). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 10
Pearson v. Component Tech. Corp.,
247 F.3d 471 (3d Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
District Court Cases
Childress v. Darby Lumber Co.,
126 F. Supp. 2d 1310 (D. Mont. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 22, 25, 26
D'Amico v. Tweeter Opco, LLC (In re Tweeter Opco, LLC),
453 B.R. 534 (Bankr. D. Del. 2011) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
iv
United Paperworkers Int'l Union v. Alden Corrugated Container Corp.,
901 F. Supp. 426 (D. Mass. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23, 24
Bankruptcy Court Cases
Barnett v. Jamesway Corp. (In re Jamesway Corp.),
235 B.R. 329, 343 (Bankr. S.D.N.Y. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 14, 15
Czyzewksi v. Jevic Transp. Inc. (In re Jevic Holding Corp.),
496 B.R. 151 (Bankr. D. Del. 2013) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
In re MF Global Holdings Ltd.,
481 B.R. 268, 282 (Bankr. S.D.N.Y. 2012) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 10
Regulations
1988 U.S. Code Cong. & Adm. News 2078,. at 2081-82 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22, 26
20 C.F.R. § 639.1 (2012) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 7, 12, 15
20 C.F.R. § 639.7 (2012). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 17, 19
20 C.F.R. § 639.9 (2012). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 16, 17, 21, 22, 25, 28
54 Fed. Reg. 16042-01 (Apr. 20, 1989) (to be codified at 20 C.F.R. pt. 639) . . . . . . . . . . . . . . . . 4
54 Fed. Reg. 16042-01 (Apr. 20, 1989) (to be codified at 20 C.F.R. pt. 639) . . . . . . . . . . . . . . . . 5
Other Authorities
134 Cong. Rec. H5500-01, (July 13, 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
134 Cong. Rec. S8854-02, (July 6, 1988) (statement by Senator Harkin), 1988 WL 173512 . . . .8
H.R. Rep. No. 576, 100th Cong., 2d Sess. (1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Worker Adjustment and Retraining Notification, 54 Fed. Reg. 16042-01 (Apr. 20, 1989) (to be
codified at 20 C.F.R. pt. 639 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
1 OPINIONS BELOW
The opinion of the United States Court of Appeals for the Thirteenth Circuit is reported
as In re Fazal Oil, 675 F.3d 671 (13th Cir. 2014). The opinion for the United States District
Court for the Southern District of Wagner is reported as In re Fazal Oil, 674 F.3d 171 (S.D.
Wag. 2014).
STATEMENT OF THE CASE
Fazal Oil, Inc. was incorporated under the laws of the State of Wagner in 1991.1 During
its first ten years, Fazal Oil secured and developed oil reserves in the U.S. Southwest.2 Fazal Oil
began to explore overseas opportunities. In 2007, Fazal Oil acquired production rights in
Kurdish Iraq, Azerbaijan, and Niger.3
In 2007, the Republic of San Marcos liberalized its foreign investment laws. Id. See
Exhibit A. In 2009, the government of San Marcos invited investment in Jimenez Oil – a state
operated energy enterprise with exclusive rights to reserves in eastern San Marcos.4 After
extensive negotiations, Fazal Oil and the government of San Marcos signed a joint venture
agreement.5 The agreement granted Fazal Oil a 51 percent stake in Jimenez Oil, and the
government of San Marcos retained 49 percent of the ownership.6
In late 2011, Fazal Oil struck a major find at the “A-24” field in eastern San Marcos.7 At
the same time, oil prices worldwide were skyrocketing and crude was being traded at a historical
high of $111.67 per barrel, which was significantly higher than the average price of $56.28
1
In re Fazal Oil, 674 F.3d
Id. 3
Id. 4
Id. at 172 5
Id. at 172 See Exhibit C 6
Id. at 172 7
Id. at 172 2
171 (S.D.Wag. 2014). 2 during the preceding three years.8 Prior to the discovery, Fazal Oil stock had traded at an
average of $6 per share but afterward the stock price rose to $15 per share.9 As of 2012, Fazal
Oil had 10,000 employees worldwide, including 2,000 employees stationed in San Marcos.10 Of
these, 1,500 were American citizens and the remaining 500 employees were citizens of San
Marcos.11
In early 2012, in an effort to increase Fazal Oil’s production capacity in San Marcos, the
company secured a five billion dollar loan from the Wagner based WSB Bank (WSB).12 Under
the terms of the loan, Fazal Oil was to receive one billion dollars every year for five years and
repay the loan over a ten year period at an interest rate of ten percent.13 The terms of the loan
stipulated that the payments to WSB were to be made on the first of each month and that
significant changes in the company’s revenue or outlook would automatically trigger a default of
the loan.14 To secure the loan, WSB acquired an interest in Fazal Oil’s drilling equipment at all
of its locations worldwide.15 Fazal Oil transferred 4,000 of its employees to locations in San
Marcos and began construction on a new international headquarters in the center of San
Marcos.16 As of 2013, Fazal Oil had 6,000 of its 10,000 employees stationed in San Marcos. Of
these, 5,500 were American citizens, and the remaining 500 employees were citizens of San
Marcos.17 By early 2013, the drilling activities in San Marcos accounted for 65 percent of Fazal
8
Id. at 172 Id. at 172 10
Id. at 172 11
Id. at 173 12
Id. at 173 13
Id. at 173 14
Id. at 173 15
Id. at 173 16
Id. at 173 17
Id. at 173 9
3 Oil’s worldwide revenues.18
The political situation in San Marcos grew more unstable.19 San Marcos was also
experiencing dramatic inflation, and, although the country was experiencing high economic
growth, it still had one of the highest levels of income inequality in the world, as measured by
the GINI Index which is used by the World Bank to measure income inequality.20 In late 2012,
Wagner University’s Center for Strategic Studies issued a report warning about the “increasingly
unstable situation” in San Marcos.21 Additionally, World Risk LLC, a leading private risk
assessment agency, warned that the continued turmoil in San Marcos was creating a greater risk
of “nationalization” if the Mellish regime collapsed.22
On April 1, 2013, San Marcos’s Defense Minister declared a coup d’etatand further
declared that the San Marcos oil industry would be re-nationalized.23 On April 2, 2013, Fazal
Oil issued a press release downplaying the coup d’etat, stating that the company did not expect
the change in the San Marcos government to affect its operations in the country. Fazal Oil’s
management maintained close ties to those in top levels of the State Department of the United
States, who in turn were communicating with representatives of the various factions in San
Marcos to maintain economic stability there.24 State Department officials assured Fazal Oil’s top
management that talks were ongoing, that they had hopes that business relations between the
United States and San Marcos could be maintained, and that ongoing communications could
18
Id.
Id.
20
Id.
21
Id.
22
Id.
23
Id.
24
Id.
19
at 173 at 173 at 174 at 174 at 174, See Exhibit D. at 174 at 174 4 pave the way for Fazal Oil to maintain its business operations there.25 However, because much
of this work involved sensitive information, the details of the communications could not be made
public.26
Despite the press release and other reassurances from Fazal Oil, its stock was trending
lower in after-hours trading on April 3rd. When the markets opened on April 4th, Fazal Oil stock
was down 20 percent, and WSE authorities had to halt trading of the stock.27 The Wagner Stock
Exchange is authorized to halt trading of shares due to extraordinary market volatility.28 Fazal
sent a letter to the Fazal Oil employees stationed in San Marcos, notifying them that the 5,500
American employees would be terminated in 60 days beginning on June 5, 2013.29 The letter
explained that the termination was due to the quickly deteriorating financial situation that was
sparked by the political events in San Marcos.30 Over the next 30 days Fazal Oil sought
additional capital from various financial institutions but was unsuccessful.31 On May 5, 2013,
WSB announced that the five billion dollar loan had defaulted, and that WSB would be seeking
immediate repayment of the loan.32 On May 6, 2013, Fazal Oil, Inc. filed for voluntary Chapter
11 protection and immediately, via letter, terminated 3,000 of its Fazal Oil American employees
stationed in San Marcos, retaining the other 2,500 American employees to carry out essential
tasks.33 The letter explained that the shortened notice of termination was due to the re-
25
Id.
Id.
27
Id.
28
Id.
29
Id.
30
Id.
31
Id.
32
Id.
33
Id.
26
at 174 at 174 at 175 at 175 at 175 See Exhibit E. at 175 at 175 at 175 at 175 See Exhibit F. 5 nationalization of the San Marcos oil industry and Fazal Oil’s failure to obtain new financing.34
The letter also asserted that Fazal Oil was exempt from the 60-day WARN Act notice
requirement under the “unforeseeable business circumstances” and “faltering company”
exemptions.35 Following the bankruptcy filing, Fazal Oil, Inc. was operating as a debtor-inpossession.36 WSB sent another letter on May 7th indicating that WSB was exploring several
options, specifically, considering purchasing Fazal Oil’s assets in an auction in exchange for the
company’s debt.37
Veronica Murray, an American citizen, received her termination letter from Fazal Oil in
May of 2013.38 On June 28, 2013, Veronica Murray, on behalf of herself and others similarly
situated, filed a proof of claim asserting their claims and priority status in the bankruptcy action
for the back pay they are owed under the Worker Adjustment and Retraining Notification Act on
the grounds that Fazal Oil failed to provide adequate notice to the employees at the time of the
May 6th terminations.39
Fazal Oil, as debtor-in-possession, objected to the claim and its asserted priority status,
contending that it was exempt from providing full notice under the “faltering company” and
“unforeseeable business circumstances” exemptions. In addition, Fazal Oil claims that it was not
an employer under the act because the liquidating fiduciary exception applied.40
34
Id.at 175 Id. at 175 36
Id. at 175 37
Id. at 175 38
Id. at 175 39
Id. at 176 40
Id. at 176. 35
6 SUMMARY OF ARGUMENT
Fazal Oil, a debtor-in-possession, acted as an “employer” under § 2101 of the WARN
Act because Fazal Oil prior to May 6, 2013, Fazal Oil did not exhibit intent to liquidate because
it left its global workforce intact, retained workers at the San Marcos site to continue essential
tasks, and sought capital to continue operation. Additionally, Fazal Oil used Chapter 11
bankruptcy to circumvent the labor rights espoused by the WARN Act.
Fazal Oil, Inc. Violated the Worker Adjustment Retraining Notification Act. Fazal Oil,
Inc. Provided Insufficient Notice by Failing to Include the Required Brief Statement. Further
Fazal Oil is Ineligible for Any Exemptions:
The re-nationalization of the San Marcos oil industry is not a “Natural Disaster,” and thus
this exception does not apply. Fazal Oil, Inc. was not a “Faltering Company” because there is no
evidence to support its good faith claim that providing the notice would have precluded it from
obtaining capital and thus this Exception does not apply. Had Fazal Oil, Inc. used commercially
reasonable business judgment in its risk assessment, it would have foreseen these business
circumstances, thus the ‘Unforeseeable Business Circumstances” Exception does not apply.
Lastly, exempting Fazal Oil from employer status undermines the policy behind the WARN Act.
ARGUMENT
I.
Fazal Oil, a debtor-in-possession, acted as an “employer” under § 2101 of the
WARN Act because Fazal Oil (a) had not exhibited “intent to liquidate”
whenever it laid off 3,000 employees on May 6, 2013 and (b) used Chapter 11
bankruptcy to circumvent the labor rights espoused by the WARN Act.
Under the Worker Adjustment and Retraining Notification Act, employers must provide
employees with sixty days notice before mass layoffs or plant closings.41 Commentary from the
Department of Labor suggests that certain bankrupt entities do not qualify as employers.
41
29 U.S.C. § 2102 (2012).
7 However, the Department advised that those bankrupt entities that “continue to operate the
business for the benefit of creditors” must fulfill the notice requirements of the WARN Act.42
Based on that commentary, courts have created the “liquidating fiduciary exception.” Under the
liquidating fiduciary exception, bankrupt entities that exhibit a clear “intent to liquidate” are not
considered employers and, as such, are not required to provide the notice required by the WARN
Act.
Here, Fazal Oil, a debtor-in-possession, fired half of its San Marcos workforce—leaving
the rest of its global workforce intact—the day that it declared bankruptcy. Prior to that date, the
company sought revenue for continued operations. Because Fazal Oil did not exhibit a clear
“intent to liquidate,” Fazal Oil qualifies as an employer under the WARN Act.
Furthermore, the WARN Act was promulgated to “[offer] protection to workers . . . .”43
Fazal Oil attempted to use the fiduciary shield of bankruptcy as a sword to sunder the rights
created by the WARN act. As such, exempting Fazal Oil from the WARN Act requirements
undermines the very right that the statute was promulgated to protect. Because (1) Fazal Oil does
not fall under the liquidating fiduciary exception and (2) the policy behind the WARN Act does
not support application of the liquidating fiduciary exception to Fazal Oil, this Court should hold
that Fazal Oil is an employer under § 2101 of the WARN Act.
a.
Prior to May 6, 2013, Fazal Oil did not exhibit intent to liquidate because it
left its global workforce intact, retained workers at the San Marcos site to
continue essential tasks, and sought capital to continue operation.
Worker Adjustment and Retraining Notification, 54 Fed. Reg. 16042-01 (Apr. 20, 1989) (to be
codified at 20 C.F.R. pt. 639). 43 20 C.F.R. § 639.1 (2014).
42
8 Per the WARN Act, “employers [are required] to provide notice 60 days in advance of
covered plant closings and mass layoffs.”44 Specifically, the statute applies to all nongovernment employers, whether profit or non-profit, that have one hundred or more employees.45
The statute is silent regarding the status bankrupt companies as employers; however, the
Department of Labor—the agency tasked with enforcing the WARN Act—stated that
a fiduciary whose sole function in the bankruptcy process is to
liquidate a failed business for the benefit of creditors does not
succeed to the notice obligations of the former employer because
the fiduciary is not operating a “business enterprise” in the normal
commercial sense. In other situations, where the fiduciary may
continue to operate the business for the benefit of creditors, the
fiduciary would succeed to the WARN obligations of the employer
precisely because the fiduciary continues the business in
operation.46
Courts have interpreted this commentary to exempt certain liquidating fiduciaries from
the notice requirement of the WARN Act. In the seminal United Healthcare System, the Third
Circuit determined that courts must examine whether a debtor-in-possession operated as a
business enterprise to ascertain whether the debtor-in-possession qualified as an employer under
the WARN Act.47 In United Healthcare System, a hospital declared voluntary Chapter 11
bankruptcy.48 On the same day it declared bankruptcy, the hospital notified a state agency that it
was closing, surrendered documents certifying it to see patients, transferred its patients and
notified employees that they would be terminated in sixty days.49 Within two days, all of the
hospital’s patients were transferred, and the hospital’s employees cleaned and took inventory for
44
§ 2102.
29 U.S.C. § 2101 (2012).
46
Worker Adjustment and Retraining Notification, 54 Fed. Reg. 16042-01 (Apr. 20, 1989) (to be codified at 20
C.F.R. pt. 639).
47
In re United Healthcare Sys., Inc., 200 F.3d 170 (3d Cir. 1999).
48
Id. at 172-75
49
Id. 45
9 an asset sale in lieu of their regular duties.50 Sixteen days after informing its employees that they
would be terminated in sixty days, the hospital fired 1,200 of its 1,300 employees.51 The
terminated employees then brought suit, alleging that the hospital violated the WARN Act when
it failed give them notice sixty days prior to their termination.52 Because the Third Circuit
determined that the hospital was no longer operating its business as a “going concern” and
evinced a clear “intent to liquidate” by transferring it patients, halting normal employment
activities, and preparing to sell its assets, it held that the hospital was exempt from the WARN
Act because the hospital was a “liquidating fiduciary”—not an employer.53 In holding that the
hospital illustrated an intent to liquidate, the court considered whether the business was operating
in a “normal commercial sense.”54
Where a company has taken specific steps to begin liquidation, courts have held that the
liquidating fiduciary does not apply.55 In Global Holdings, an investment company began
mandatory Securities Investor Protection Act liquidation.56 After beginning the statutory
liquidation process, the company terminated its employees.57 Because the investment company
began the statutorily mandated liquidation process prior to terminating employees, the court held
50
Id.
Id.
52
Id.
53
Id. at 177-79. See also Pearson v. Component Tech. Corp., 247 F.3d 471, 497 (3rd Cir. 2001) (holding that a
secured creditor does not incur WARN Act liability unless the creditor is operating the secured entity in the “normal
commercial sense); Chauffeurs, Sales Drivers, Warehousemen, & Helpers Loc. 57, Intern. Broth. of Teamsters,
AFL-CIO v. Weslock Corp., 66 F. 3d. 241, 244 (9th Cir. 1995) (holding that the liquidating fiduciary exception is
applicable to secured creditors who are no longer operating the secured entity in the “normal commercial sense).
54
United Healthcare, 200 F.3d at 177.
55
In re MF Global Holdings Ltd., 481 B.R. 268, 282 (Bankr. S.D.N.Y. 2012).
51
56
57
Id. at 271-76.
Id. 10 that the liquidating fiduciary exception applied and the company was not liable under the WARN
Act.58
Here, Fazal Oil did not illustrate a clear intent to liquidate; indeed, it continued to operate
in a normal commercial sense. Unlike the hospital in United Healthcare, Fazal Oil did not halt
normal operations: Prior to May 6, 2013, it did not surrender its rights to drill oil, it did not
inform any government agencies that it intended to halt drilling, it did not assign employees at
the San Marcos site to duties outside of those performed in the normal course of their
employment, and it continued operating the rest of its global operation regularly. In short, it was
business as usual for Fazal Oil. Indeed, although the company faced dire financial straits, Fazal
Oil remained hopeful that it could continue operating in San Marcos—it attempted to procure
new capital up until the day it defaulted on its loan. The facts prove—unequivocally—that before
May 6, 2013, Fazal oil operated its business as a “going concern,”59 it continued “normal
commercial operations,”60 and, as such, it evinced no clear “intent to liquidate.”61
Furthermore, Fazal Oil did not take any specific steps toward liquidation until after it
fired its employees. Prior to May 6, 2013, Fazal Oil took no overt action to indicate that intended
to liquidate. Indeed, it was only after the company unceremoniously fired 3,000 workers—
leaving them stranded in an unstable foreign country—that Fazal Oil received WSB’s letter
stating its intent to purchase Fazal Oil’s assets. Although Fazal will likely argue that the decision
to give all 5,500 American employees at the San Marcos site notice of their layoff on April 4,
58
Id. at 282. See In re Jamesway Corp., 235 B.R. 329, 343-44 (Bankr. S.D.N.Y. 1999). (holding a corporation liable
to its former employees under the WARN Act because the employer failed to take overt steps toward liquidation
before terminating employees).
59
United Healthcare, 200 F.3d at 178.
Chauffeurs, 66 F.3d at 244.
61
United Healthcare, 200 F.3d at 178.
60
11 2013 indicated that the company was “winding up its affairs,”62 that argument is absurd; Surely,
Congress did not intend the sixty-day notice required by the WARN Act to bar employee action
if an employer enacts a mass layoff before the sixty-day period is up. Because Fazal Oil did not
receive WSB’s letter until after it laid off 3,000 workers and Fazal Oil’s notice that it was firing
all 5,500 employees in San Marcos does not constitute a specific step toward liquidation, Fazal
Oil did not take any specific steps toward liquidation.
Fazal Oil will likely argue that its financial woes and subsequent decision to declare
bankruptcy show that company was no longer operating as a “going concern” and, as such, the
company should fall under the liquidating fiduciary exception. However, financial woes are not
enough to exempt a company from the WARN Act’s requirements; the company must
demonstrate a clear “intent to liquidate.”63 Furthermore, the act of declaring bankruptcy—
especially Chapter 11 bankruptcy, a bankruptcy proceeding widely understood to be designed to
“preserve . . . ongoing business”—should not, by itself, exempt a company from the WARN Act.
Companies should not be permitted to use the protective shield of bankruptcy as a sword to shear
workers’ rights. This is particularly true where, as in the present case, Fazal Oil did not exhibit a
clear intent to liquidate or take actual, palpable steps toward liquidation before terminating
employees. Because Fazal Oil did not exhibit a clear intent to liquidate and failed to take steps
toward liquidation prior to terminating employees on May 6, 2013, Fazal Oil does not fall under
the liquidating fiduciary exception. As such, it constitutes an employer under § 2101 of the
WARN Act.
62
63
Id.
Id.
12 b.
Exempting Fazal Oil from employer status undermines the policy behind the
WARN Act.
The WARN Act and its enforcing regulations are intended to “[provide] protection to
workers, their families, and communities . . . .”64 To do this, the WARN Act requires that
employers give employees sixty calendar days notice before mass layoffs so that “workers and
their families [are provided] some transition time to adjust to the prospective loss of
employment, to seek and obtain alternative jobs and, if necessary, to enter skill training . . . that
will allow these workers to successfully compete in the job market.”65 The WARN Act was
promulgated to address the growing problem of worker attrition in the 1980s. Indeed, one
Congressional Representative noted that 11 million workers had been laid off between 1981 and
1986, and that thirty-six percent of those workers had less than two weeks to adjust to the loss of
their jobs.66
The original text of the WARN Act did not address the status of bankrupt entities or
debtors-in-possession. However, the Department of Labor made it clear that not all bankrupt
entities are excluded from the WARN Act because “adequate protections are available through
the bankruptcy courts . . . .”67 Put simply, the Department of Labor was unwilling to broadly
exclude bankrupt entities from the WARN Act because bankrupt entities have a manner of
protection—protection that the average worker does not have. Only those bankrupt entities that,
as discussed above, clearly intend to liquidate the entity are exempt from WARN Act warnings.
This exception makes sense. Entities that intend to continue business operations should not be
64
§ 639.1.
Id.
66
134 Cong. Rec. H5500-01, (July 13, 1988) (statement by Rep. Traficant), 1988 WL 179962.
67
Worker Adjustment and Retraining Notification, 54 Fed. Reg. 16042-01 (Apr. 20, 1989) (to be codified at 20
C.F.R. pt. 639).
65
13 permitted to skirt the workers’ rights created by the WARN Act; bankruptcy—particularly
Chapter 11 bankruptcy—was intended to be a shield68, not a sword to sever workers’ rights.
Here, Fazel Oil operated a multinational oil company. It found itself in dire financial
straits after San Marcos—its central oil provider—destabilized politically. However, Fazal Oil
attempted to keep its company afloat; it negotiated with government, sought funding to keep
itself afloat, and left its staff outside of San Marcos intact. As the situation in San Marcos
deteriorated, Fazal gave its employees the sixty day notice of layoff required by the WARN Act.
This gave its employees in San Marcos time to gather resources, plan their future, and make their
way back to the United States—all crucial activities when working in a destabilized foreign
environment. However, after Fazal defaulted on its loan from WSB, it declared bankruptcy and
fired 3,000 employees the very day after receiving the news. Without warning, 3,000 Americans
were stranded in a foreign country; unlike cases involving a fiduciary that exhibits a clear intent
to liquidate and could cease to operate at any time, these workers were under the impression that
they would have sixty days to plan their finances, their exit from the country, and their future
employment. Unfortunately, Fazal Oil bowed to outside financial forces, declared bankruptcy,
and attempted to use that bankruptcy as a sword to sever the rights of its employees. This
undermines of the WARN Act’s goal of protecting workers—individuals who are not afforded
the same protections that corporations in bankruptcy receive.
Fazal will likely argue that Congressional statements offered while the bill was being
considered suggests that WARN Act exemptions should be applied flexibly.69 However, the
Congressional statement relied on by the Thirteenth Circuit do not stem from a debate over the
68
See generally In re FBI Distribution Corp., 330 F.3d 36, 41 (1st Cir. 2003) (stating that the paramount objective
of Chapter 11 bankruptcy is “to rehabilitate and preserve the value of the financially distressed business”).
69
134 Cong. Rec. S8854-02, (July 6, 1988) (statement by Senator Harkin), 1988 WL 173512 (stating that “The
circumstances of each case will dictate whether the exemption applies. We cannot anticipate those circumstances,
and we should not try . . . .).
14 liquidating fiduciary exception; instead, those comments are directed toward the three
enumerated exceptions placed into the text of the WARN Act.70 Surely, Congress did not intend
for the WARN Act to be applied so flexibly that any cunning employer could abridge the rights
of their employees. Here, Fazal Oil has attempted to use Chapter 11 bankruptcy, a protective
proceedings, in a manner that deprives its employees of their WARN Act rights; Exempting
Fazal Oil from its status as an employer severely undermines the principles underlying the
WARN Act. As such, this Court should overturn the ruling of the Thirteenth Circuit.
II.
Fazal Oil, Inc. Violated the Worker Adjustment Retraining Notification Act by
Providing Insufficient Notice and is Further Ineligible for Any Exemptions
When Fazal Oil, Inc. notified its 5,500 American employees stationed in San Marcos that
they were terminated, effective immediately, it violated the sixty-day notice requirement of the
Worker Adjustment Retraining Notification Act (WARN Act).71 First, by providing inadequate
notice to its employees, Fazal is precluded from claiming any exception to the sixty-day notice
requirement.72 Second, even if the Court finds the notice adequate, neither the “faltering
company” exception nor the “unforeseeable business circumstances” exception applies to Fazal.
Thus the company is in violation of the WARN Act and is liable to its 5,500 terminated
employees for up to sixty days of back pay and various benefits.73 Fazal cannot use the WARN
Act shield as a sword against its employees. Such a usage defies the purpose and policy behind
the Act’s creation.
The WARN Act is, in essence, the workers’ shield against immediate and unmitigated
70
Id. (discussing issues with a proposed particularity amendment regarding the unforeseen business circumstances
objection).
71
29 U.S.C.S. § 2102 (2012),
72
Barnett v. Jamesway Corp., 235 B.R. 329, 343 (Bankr. S.D.N.Y. 1999).
73
29 U.S.C.S. § 2102(a)(1)(A) and (B) (2012).
15 loss of employment. It states that employers of 100 or more employees must give their affected
employees written notice sixty days before ordering any plant closing or mass layoff.74 The
Department of Labor (DOL) explains that the purpose of this Act is to protect workers by
“provid[ing] . . . 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.”75 Furthermore, legislative history
provides that Congress and the DOL deemed it “civically desirable” to provide workers with
advance notice before permitting termination of a large number of employees.76 It is a statutory
workers’ shield.
However, there are exemptions to this sixty-day notice requirement which take into
account situations outside of the employer’s control. Such exceptions are presumably designed
to avoid needlessly punishing the employers. These exceptions include allowances made for
natural disasters, faltering companies, and unforeseeable business circumstances.77 But
employers bear the burden of establishing that an exception applies.78 When one of these
exceptions applies, the employer is instead required to provide “as much notice as is practicable”
with a “brief statement” explaining the cause for the shortened notification period.79 As courts
have recognized since the earliest WARN cases, employers may not successfully claim an
exemption if the notice provided is inadequate.80
74
29 U.S.C.S. § 2102(a) (2012).
20 C.F.R. § 639.1(a) (2012).
76
20 C.F.R. § 639.1 (2012).
77
See 29 U.S.C.S. § 2102(b) (2012).
78
20 C.F.R. § 639.9 (2012).
79
29 U.S.C.S. § 2102(b)(3) (2012).
80
See Barnett v. Jamesway Corp., 235 B.R. 329, 343 (Bankr. S.D.N.Y. 1999) (holding that the company’s failure to
provide adequate WARN notice precluded it from availing itself of the faltering business or unforeseeable business
circumstances exceptions); Alarcon v. Keller Industries, 27 F.3d 386, 388-89 (9th Cir. 1994) ("When the notice
period is shortened, the employer must give as much notice as is practicable, and 'at the time notice actually is given,
[the employer must] provide a brief statement of the reasons for reducing the notice period, in addition to the other
75
16 Because Fazal’s shortened notice to its employees fails to provide a brief statement, it
does not meet the required standards, and Fazal is in violation of the WARN Act. Additionally,
because it failed to provide adequate notice, Fazal is precluded from succeeding on its claimed
exceptions. But, in the alternative, if this Court finds that the notice was adequate, then Fazal is
still liable, because neither of the asserted exceptions applies. Therefore, the Court should
reverse the United States Court of Appeals for the Thirteenth Circuit and keep the worker’s
shield from acting as an employer’s sword.
a. Fazal Oil, Inc. Provided Insufficient Notice by Failing to Include the
Required Brief Statement
Fazal was required to provide a brief statement explaining the basis for its shortened
notice and failed to do so. For this reason, Fazal has violated the WARN Act and is liable to its
employees. Although the Act itself is unclear as to the notice required, the agency provides more
specific details and resolves the ambiguity. This Court has previously recognized that an
agency’s interpretation should be upheld so long as it “is based on a permissible construction of
the statute.”81 Further, in Chevron, this Court provided a category of “interpretive choices
distinguished by an additional reason for judicial deference.”82 What this means is that it can be
inferred from an agency’s authority that Congress expects the agency to be able to “speak with
the force of law” when resolving ambiguity.83 A clear indicator of such authority is “express
congressional authorizations to engage in the rulemaking or adjudication process that produces
the regulations or rulings for which deference is claimed.”84 The Department of Labor has
elements [of proper notice] set out in [20 C.F.R.] § 639.7.'" quoting 20 C.F.R. § 639.9)); D'Amico v. Tweeter Opco,
LLC (In re Tweeter Opco, LLC), 453 B.R. 534 (Bankr. D. Del. 2011) (holding that, because the company failed to
explain the reduced notification period in its termination notice, it was not entitled to the faltering company
exception). 81
Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842 (1984)
82
United States v. Mead Corp., 533 U.S. 218, Syll. (2001)
83
Id.
84
Id.
17 congressionally authorized power to create regulations “as may be necessary to carry out [the
WARN Act].”85 Thus, the DOL has the authority needed to “speak with the force of law” when
it resolves the Act’s ambiguity, and its regulations are to be owed such judicial deference.
In its resolution of the ambiguity, the DOL provides that notice must be specific and it
must provide the best information available to the employer at the time of issuance.86 In
addition, notice provided to employees without a representative, as was the case here, must
include the following in “plain or understandable language”: (1) A statement as to whether the planned action is expected to be permanent or
temporary and, if the entire plant is to be closed, a statement to that effect;
(2) The expected date when the plant closing or mass layoff will commence and the
expected date when the individual employee will be separated;
(3) An indication whether or not bumping rights exist; [and]
(4) The name and telephone number of a company official to contact for further
information.87
Further, when there is a reduced notification period, the employer must give a “brief
statement” explaining the basis for the reduced notice period, “in addition to the other elements
set out in § 639.7.”88 That brief statement must be more than simply citing “faltering business”
or “unforeseeable business circumstances.”89 Rather, because the brief statement is “in addition
to” the other requirements prescribed to the standard sixty-day notice, the brief statement is also
subject to the requirements of specificity, “plain or understandable language,” and providing the
“best information available.”90 A conference committee report from an initial draft of the Act
states that the statement should "explain[] why earlier notice [was] not . . . given."91 Further, "an
85
29 U.S.C.S. § 2107(a) (2012).
20 C.F.R. 639.7(a)(1) and (4) (2012). 87
20 C.F.R. § 639.7 (2012).
88
20 C.F.R. § 639.9 (2012); see also 29 USCS § 2102(b)(3) (statement must give the "basis" for reducing the
notification period).
89
Alarcon, 27 F.3d 386, 390 (9th Circuit 1994).
90
Id. at 389.
91
H.R. Rep. No. 576, 100th Cong., 2d Sess. (1988), reprinted in 1988 U.S.C.C.A.N. 1547, 2083.
86
18 employer omits vital information at its peril” if the employer’s stated basis for reducing the
notice period is later determined not to be the actual cause of the reduction.92
On April 4, 2013, Fazal sent notice--purporting to comply with the sixty-day
requirement—to its 5,500 American employees stationed in San Marcos.93 In this notice, Fazal
warned that all of its employees would be terminated, starting June 5, 2013, as a result of the
Khushbu Bane’s political takeover and Fazal’s plummeting stock.94 Specifically, Fazal stated
that its agreement with the previous government had been “invalidated.” Fazal made no mention
of San Marcos’s re-nationalization of its oil industry. However, on May 6, 2013, before those
sixty days had lapsed, Fazal sent a second notice, immediately terminating 3,000 of its 5,500
American employees.95 This latter notice made reference to the “shocking . . . [and]
unexpected[] re[nationali[zation]” of the San Marcos oil industry, which had occurred a month
prior and had not been mentioned in the April notice.96
But despite Fazal’s reference to the re-nationalization, the notice did not cite such as the
basis for its shortened notice. In fact, Fazal failed to provide any brief statement. Much of what
could possibly be construed as Fazal’s “brief statement” were in fact the same circumstances
mentioned in the April sixty-day notice. For instance, both the April notice and the
foreshortened May notice referenced Fazal’s suspension from the stock market.97 However, in
the May notice, there is a new reference made to an unsuccessful attempt to secure additional
funding.98 But the only clear “basis” given for the sudden terminations are citations to the
92
Childress v. Darby Lumber Co., 126 F. Supp. 2d 1310 (D. Mont. 2001).
See Exhibit E.
94
Id.
95
See Exhibit F.
96
Id.
97
See Exhibits E and F.
98
See Exhibit F.
93
19 “faltering business” and “unforeseeable business circumstances” exceptions.99 Despite Fazal’s
reliance on Alarcon, the Alarcon court rejected such a pro forma brief statement.100
Fazal also failed to include the best information available at the time the notice was
served. Compliance with this requirement found in 20 CFR § 639.7(a)(4) would have meant disclosing
the re-nationalization of the oil industry and what that meant for the company’s future. When San Marcos
re-nationalized its oil industry on April 1, 2013, Fazal no longer had any stake in Jimenez Oil. Had the
stocks not plummeted and even had WSB not recalled its loan, Fazal Oil, Inc. would have been forced to
close its San Marcos locations as a result of the re-nationalization. Thus, this information—available to
Fazal before the first notice was issued—is the “best information available.” It is also the information
that should have been included in the brief statement to the employees, because it is the ultimate cause of
the layoffs.
Fazal has failed to comply with the DOL regulations. In order to comply, Fazal must
have provided a specific basis in plain language understandable to an employee. For instance, in
Czyzewksi v. Jevic Transp. Inc., Jevic Transportation, Inc. a hybrid less-than-truckload and
truckload carrier service employed approximately 2,000 workers. Jevic ultimately had to close
its doors when its investor stopped funding it and attempts at selling the business were
unsuccessful. The company provided the following brief statement: “Record high fuel costs, an
economic downturn that has impacted freight volumes, higher insurance costs, and a tightening
credit market have made this decision necessary."101 The Czyzewksi court held that this was
sufficient because it provided a plain and specific, albeit very brief, statement explaining the
basis for the shortened notice.102
99
Id.
Alarcon, 27 F.3d 386, 390 (9th Circuit 1994). 101
Czyzewksi v. Jevic Transp. Inc. (In re Jevic Holding Corp.), 496 B.R. 151, 159 (Bankr. D. Del. 2013).
102
Id.
100
20 Fazal has asserted and the United States Court of Appeals for the Thirteenth Circuit has
held that the notice requirements should not be strictly construed. The Court of Appeals held
that the two letters, when read together, satisfy the notice requirements.103 But even when read
together, the two letters fail to provide a brief statement. Further, there is no language in the
regulations allowing for such remedy of insufficient notice. Legislative history shows that
Congress and the DOL did not wish to punish employers for inadvertent and technical errors
with regards to notice. The DOL agreed that “technical violations . . . not intended to evade the
purposes of WARN ought to be treated differently than either the failure to give notice or the
giving of notice intended to evade the purposes of the Act.”104 But the language and comments
made are clear that violations like the failure to provide required information may constitute a
violation of WARN.105
Fazal failed to provide information required by the WARN Act and its coinciding
regulations. Fazal failed to provide the best information available to it at the time of notice: the
re-nationalization of the oil industry meant inevitable layoffs. Fazal failed to provide a brief
statement explaining to the employees why the notice was shortened. In so doing, Fazal violated
the WARN Act. By providing insufficient notice, Fazal is precluded from claiming an exception
to its violation of the sixty-day notice requirement. If this Court were to affirm the Court of
Appeals, it would effectively turn the shield into the sword, allowing a company to cut corners at
the expense of its workers.
b. Fazal Oil, Inc. is not Exempt from Liability Because Neither of its Asserted
Exceptions Apply
Fazal claims that it is eligible for an exception from liability for violating the
103
R-24. 54 FR 16042.
105
Id. 104
21 WARN Act notice requirement. It is not. First, as mentioned above, Fazal gave inadequate notice
and is thus precluded from asserting an exception. Second, Fazal has failed to meet its burden of
proving that either of its asserted claims are applicable. When enacting the WARN Act,
Congress allowed for narrow exceptions to the sixty-day notice requirement. The language of
the Act provides for three scenarios based on which the employer may provide shortened notice.
Those exceptions are (1) natural disasters, (2) faltering business, and (3) unforeseeable business
circumstances.106 The employer bears the burden of proof in establishing that one of these
exceptions applies to their failure to provide sixty-day notice.107 When one of these exceptions
does apply, then the employer must provide as much notice “as is practicable,” in which it must
provide the brief statement explaining the basis for the shortened notice period, as discussed
above.108 These exceptions relieve the employer of liability for back pay and benefits when they
properly apply. But again, the burden of proof is on the employer to prove their applicability.
Fazal has failed to make that showing.
i. The Re-Nationalization of the San Marcos Oil Industry is not a
“Natural Disaster,” and thus this Exception does not Apply
Absolutely no advance notice is required when the plant closing or mass layoff is the
result of a natural disaster.109 Natural disasters include events like “flood, earthquake, or
drought.”110 Notice ought to be given, though, as is practicable after the fact.111 However, this
exception does not apply in this instance.
106
See 29 U.S.C.S. § 2102(b)(1), (b)(2), and (b)(2)(B) (2012).
20 C.F.R. § 639.9 (2012).
108
29 U.S.C.S. § 2102(b)(3) (2012).
109
20 U.S.C.S. § 2102(b)(2)(B) (2012).
110
Id.; see also 20 C.F.R. § 639.9(c) (2012).
111
Id. 107
22 ii. Fazal Oil, Inc. was not a “Faltering Company” Because There is No
Evidence to Support its Good Faith Claim that Providing the Notice
Would Have Precluded it from Obtaining Capital
Fazal is not eligible for the “faltering company” exception because it has
failed to establish the elements of the claim. In order to claim the “faltering company”
exception, the regulations demand that an employer prove the following:
(1) it “must have been actively seeking capital or business at the time that the sixty-day
notice would have been required;”
(2) “[t]here must have been a realistic opportunity to obtain the financing or business
sought;”
(3) if obtained, “the financing or business . . . sought would have enabled the employer to
postpone or avoid the shutdown;” and
(4) “the employer reasonably and in good faith must have believed that giving the
required notice would have precluded the employer from obtaining the needed capital or
business.”112
To prove the first element, legislative history provides that it is the employer’s duty to
prove the specific steps it had taken, “at or shortly before” the point at which notice would have
been required, to avoid the shutdown.113 Both the DOL regulations and ensuing case law
emphasize that the faltering company exception is to be narrowly construed and only applies to
plant closings.114 Based on Fazal’s inability to prove a good faith belief that providing the
required notice would have precluded it from obtaining the needed capital, the faltering company
exception does not apply.
First, Fazal claims to have been actively seeking capital at the time that notice would
have been required.115 Indeed, Fazal referenced its inability to obtain additional financing when
it provided the shortened notice to its affected employees.116 But the record fails to show Fazal’s
specific steps taken at or around the time at which notice must have been given. Without
112
20 C.F.R. § 639.9(a)(1)-(4) (2012).
1988 U.S. Code Cong. & Adm. News 2078,. at 2081-82.
114
See Id.; Childress v. Darby Lumber Co., 126 F. Supp. 2d 1310, 1317 (D. Mont. 2001).
115
R-13.
116
See Exhibit F.
113
23 showing specific steps, Fazal likely fails on this point. Second, it is true that WSB Bank, Fazal’s
creditor, was contemplating purchasing the company’s assets in exchange for their debt.117
Third, the ultimate cause of the plant closure was the re-nationalization of the oil industry.
Based on this fact, it is an odd argument to assert that, provided an influx of capital, Fazal would
have been able to avert the shutdown. The 5,500 Americans employed in San Marcos would
have either been relocated or laid off regardless of Fazal’s economic state. The alternative to this
inevitability would mean employing 5,500 individuals in a location which would not and could
not produce oil. No amount of capital could have reasonably assured the re-welcoming of
foreign investment in Jimenez Oil.
Fourth, Fazal has failed to prove that providing notice to its affected employees would
have prevented it from obtaining capital from new investors. As the District Court noted, the
suspension of Fazal’s trading was public news.118 Therefore, potential investors had notice of
Fazal’s struggles with or without Fazal’s compliance with the WARN Act. There is no evidence
of a good faith belief that providing the requisite notice would have precluded investment.
Rather, this appears to be Fazal’s attempt at circumventing the WARN Act.
An analogy may be found in United Paperworkers Int'l Union v. Alden Corrugated
Container Corporation.119 In this District Court case, Alden, a corrugated sheets manufacturing
operation, was subject to a called loan when it showed very poor year-end figures.120 Alden
failed to provide sixty-day notice to its employees before it was ordered to cease business.121
117
R-6. R-13.
119
United Paperworkers Int'l Union v. Alden Corrugated Container Corp., 901 F. Supp. 426 (D. Mass. 1995).
120
Id. at 431.
121
Id.
118
24 When it asserted the “faltering company” exception to its WARN Act violation, the court held
that Alden had failed to carry the burden necessary to prove the exception’s applicability.122
Much like Fazal, Alden offered no specific evidence with regard to the steps it had taken
to secure new financing or business.123 Also like Fazal, it is possible that the bank believed that
Alden was “saleable” as an ongoing business concern, but there was no more objective evidence
proffered.124 This is precisely the case with Fazal. The employer’s only proffered evidence
supporting its “realistic” opportunity to obtain capital is the fact that WSB Bank was considering
purchasing its assets. Last, Fazal and Alden share one more common factor. Each employer
claimed that providing the required notice would have prevented new investment without a
“scintilla of objective proof” for such an assertion.125 The Alden court properly held that the
employer had failed to prove the applicability of the “faltering company” exception. As Fazal
has also failed to proffer sufficient evidence, this Court should find that the faltering company
exception is inappropriate in this case.
iii. Had Fazal Oil, Inc. Used Commercially Reasonable Business
Judgment in its Risk Assessment, it would have Foreseen these
Business Circumstances, thus the ‘Unforeseeable Business
Circumstances” Exception does not Apply
Fazal cannot relieve itself of liability by relying on the “unforeseeable business
circumstances” exception because a similarly situated employer in Fazal’s position would have
reasonably expected such business circumstances. The WARN Act provides protection for an
employer by building in the exception for unforeseeable business circumstances. The language
of the Act maintains that the circumstance must not have been foreseeable at the time notice
122
Id. at 442.
Id. at 441.
124
Id. 125
Id.
123
25 would have been required to comply with the Act.126 The DOL regulations emphasize that the
test for this exception “focuses on the employer’s business judgment.”127 It states that the
“employer must exercise such commercially reasonable business judgment as would a similarly
situated employer in predicting the demands of its particular market.”128 In addition, the
regulations offer an “indicator” for a business circumstance that is not reasonably foreseeable: a
circumstance which was “caused by some sudden, dramatic, and unexpected action or condition
outside the employer's control.” However, various circuits have applied different tests in order
to determine if the business circumstances were foreseeable or not.
For instance, the Fifth Circuit applies a probability test in which the circumstance must
have exceeded possibility and become probable in order to be foreseeable.129 Otherwise the
employer could still successfully claim the exception even if the circumstance was possible.130
In Angles v. Flexible Flyer Liquidating Trust, the court held that the employer was eligible for
the exception because, despite their “perilous” financial state, a shutdown was not
“imminent.”131 The court emphasized that the event leading to the shutdown or layoffs must be
“probable” for it to be “foreseeable.”132
On the other hand, the Ninth Circuit upheld the District Court of Montana’s use of a
reasonable foreseeability test.133 In Childress v. Darby Lumber, Inc., the employer referenced
several factors which led to its “running out of money.” The court found that, given these factors
and the employer’s contemplation of layoffs months before the actual shutdown, the
126
29 U.S.C.S. § 2102(b)(2) (2012).
20 C.F.R. 639.9(b)(2) (2012).
128
Id. 129
Angles v. Flexible Flyer Liquidating Trust (In re Flexible Flyer Liquidating Trust), 511 Fed. Appx. 369, 373 (5th
Cir. Miss. 2013)
130
Id.
131
Id. at 373-374.
132
Id.
133
Childress v. Darby Lumber, Inc., 357 F.3d 1000 (9th Cir. Mont. 2004) (affirming Childress v. Darby Lumber
Co., 126 F. Supp. 2d 1310 (D. Mont. 2001)).
127
26 circumstances were foreseeable.134 The Childress court further provided that an unforeseeable
circumstance may have a “trigger event” which makes it a “sudden situation.”135 For example, a
contract cancellation or a strike at a primary supplier would constitute a “trigger event”
contemplated by the WARN Act.136 The congressional committee report further supports the
Ninth Circuit test by emphasizing that the employer is required to give notice “as soon as the
closing or mass layoff becomes reasonably foreseeable.”137 The Ninth Circuit’s approach
closely follows the statutory and regulatory language, remaining true to the legislative intent.
Without any statutory or congressional support for an additional “probability” test, the
Ninth Circuit’s approach is much more appropriate. Thus the analysis will deal with the
following: Fazal’s business judgment and foreseeability of the shutdown at the time notice would
have been required. This analysis is informed by statutory, regulatory, and judicial guidance.
Fazal used unreasonable business judgment by ignoring the obvious signs of risk
stemming from the political situation in San Marcos. In its initial sixty-day notice to its affected
employees, Fazal stated that it “considers risk at every stage of development.”138 But despite this
claim, Fazal ignored the signs of risk. When the agreement was made between Fazal Oil, Inc.
and the Mellish government of San Marcos, Khushbu Bane issued the following statement: “The
DMC does not recognize any agreements signed with the illegitimate Mellish regime.”139 It is
possible that a similarly situated employer would not have even made the agreement with San
Marcos.
134
Childress v. Darby Lumber Co., 126 F. Supp. 2d 1310, 1316 (D. Mont. 2001)
Id.
136
Id. 137
1988 U.S. Code Cong. & Adm. News 2078 at 2082.
138
See Exhibit E.
139
See Exhibit C.
135
27 Fazal showed a lack of commercial reason when it ignored a report issued by World Risk,
LLC, which stated that San Marcos continued to be “highly unstable” in late 2012.140 The risk
report went on to highlight the structural instabilities in San Marcos and the very tangible threat
to the oil sector, an investment “endanger[ed]” by the “growing opposition” to the Mellish
government.141 This point was punctuated by the opposition leader’s renewed promise to renationalize the oil industry once the Mellish government collapses.142 Notably, this report was
published in the Wagner Daily News on December 1, 2012.143 Throughout the prior year, Fazal
had taken out a five billion dollar loan from WSB Bank, moved 60% of its employees to San
Marcos, and begun construction of an international headquarters in the center of San Marcos.144
Following the 2012 report, 65% of Fazal’s worldwide drilling revenues came from San
Marcos.145
As of early 2013, Fazal had a clear majority of employees, expenditures, revenue, and
efforts based in San Marcos. Despite this, Fazal made no efforts to counterbalance or change its
business epicenter in the likely event that its relationship with San Marcos would change, if not
deteriorate altogether. A similarly situated employer in Fazal’s precarious situation would not
have failed to take precautions of any kind. A similarly situated employer would not have
ignored the staggering inflation or the reports issued by the World Risk, LLC, and by the Wagner
University’s Center for Strategic Studies which both warned of the “increasingly unstable
situation” in San Marcos.146 These factors together not only formed warning signs, but also
made the ensuing takeover and re-nationalization foreseeable.
140
See Exhibit D.
Id.
142
Id. 143
See Exhibit D.
144
R-3.
145
R-4.
146
R-4.
141
28 The Childress court provides an analogue to Fazal’s situation. Childress recognized that
there was no “trigger event” when the financial crisis, which eventually led to Darby Lumber’s
shutdown, had been increasing throughout the year leading up to the closing.147 The court also
recognized that there was no “dramatic and unexpected” event like a sudden, unanticipated
contract cancellation.148 Everything that occurred in Childress, much as in this case, was
reasonably foreseeable. Darby Lumber argued, like Fazal has argued, that a triggering event
existed when its bank closed its line of credit.149 But in both cases, the banks’ actions have been
the inevitable result of a long series of events. Childress noted that an employer is not required
"to accurately predict general economic conditions that also may affect demand for its products
or services."150 An employer must simply exercise commercially reasonable judgment.151 Darby
Lumber did not, and neither did Fazal Oil.
As of March 6, 2013, sixty days prior to the shutdown, the foreseeability of a shutdown
or mass layoff was reasonable because the San Marcos country was experiencing grave inflation
as well as both political and economic instability. Fazal had notice of the political and economic
turbulence. The reports and articles released throughout the two years leading up until the
takeover and re-nationalization each noted the growing instability and opposition to the Mellish
government.
An unforeseeable business circumstance is one which results from a “sudden, dramatic,
and unexpected action or condition that is outside of the employer’s control.”152 The takeover
and re-nationalization meet none of these criteria. It was an inevitable occurrence--one which
147
Childress, 126 F. Supp. 3d 1310, 1316.
Id. 149
Id.
150
Id. citing 20 C.F.R. § 639.9(b)(2) (2012).
151
Id.
152
20 C.F.R. § 639.9(b) (2012). 148
29 had been forewarned by multiple sources including the opposition leader himself. As each of the
reports and articles exhibit, the instability, opposition, and ensuing government collapse was not
sudden. The re-nationalization was not dramatic. It was a simple, nonviolent coup detat. None
of the unfolding events were unexpected. Fazal placed a majority of its employees, money, and
resources in San Marcos. When the government inevitably failed, Fazal’s failure was natural.
Had Fazal made commercially reasonable decisions when it received notice of the growing risks,
it perhaps would not have had to terminate 60% of its employees and file bankruptcy. But what
occurred was foreseeable.
CONCLUSION
For all of the Reasons outlined above, we respectfully request that this court reverse the
opinion of the United States Circuit Court for the Thirteenth Circuit, and adopt a syllabus point
sufficient to provide guidance providing protections for American workers and reliability for
American businesses operating in the global market as to the WARN Act.
a APPENDIX: TRIAL EXHIBITS
Exhibit A
Wagner Tribune
November 11, 2000
By Khalil Singh
A1
San Marcos Celebrates 20 Chaotic Years
San Marcos City, Republic of San Marcos– Today, San Marcos celebrates its independence.
Over the past twenty years San Marcos has been ruled by Fielding Mellish, who is better known
for his lifestyle than the competence of his leadership. A regular on the French Riviera, Mellish
has largely ruled his languishing nation by cozying up to world superpowers. Prior to the
collapse of the Soviet Union, San Marcos was both an ally to the United States and the Soviet
Union. After 1992, and with much of the foreign aid drying up, San Marcos became a destination
for an assorted group of foreign expatriates: Lebanese bankers, Russian arms traders, Indian gold
merchants, and Israeli security advisors. These foreign characters are attracted by San Marcos’s lax banking laws, its regressive tax system, and its laissez-faire business environment.
Despite Mellish’s efforts to attract economic growth, the country continues to be plagued by mismanagement, high unemployment, and income inequality. But these problems did not
dampen celebrations to mark 20 years of independence. To mark the occasion, Mellish cut the
ribbon on the newly completed San Marcos City Opera. The new Opera house, located on Dr.
Dulcamara Boulevard, was built by the world famous architect Leonard Abraham, and is styled
on La Scala. It is currently not known if any opera singers live in San Marcos.
However, not everyone is celebrating. Khushbu Bane, leader of San Marcos Democratic
Movement for Change (“DMC”) issued the following statement from exile: “Despite the new name, San Marcos continues to languish under the incompetence of the Mellish regime. There is
not much to celebrate.”
33
-End-
b Exhibit B
London International Tribune
November 23, 1980
By Garrett Ricchiuto and Alisha Pettinato
A1
San Marcos Declared Independent
San Marcos City, Republic of San Marcos– In a ceremony at Government House – former seat of
the British colonial government – the Republic of San Marcos was declared independent. The
ceremony was attended by members of the new government, the Secretary-General of the United
Nations, and neighboring governments. The British government was represented by the Lord
Roderick Glossop VII, 8th Marquess of Salisbury, and representatives of the two superpowers,
the United States, represented by Augustus “Gussie” Fink-Nottle, Assistant Deputy Secretary of
State for the Periphery, and Sergei Federov, Third Deputy Foreign Minister of the Union of
Soviet Socialist Republics (U.S.S.R.).
The new nation is headed by Fielding Mellish, the scion of the San Marcos political
dynasty. The Mellish family has ruled San Marcos since the early 1900’s. Earlier this year, with
the help of some of the country’s top generals, Fielding Mellish overthrew his uncle, Arroyo Mellish, in a palace coup d’etat to assume control of San Marcos. Shortly after the assassination, Fielding Mellish invited his uncle’s 50 strongest supporters onto a military ship that Mellish had turned into his private yacht for entertaining powerful political figures. However, the yacht had
been sabotaged and began to sink once it reached neutral waters. By the time the plot was
discovered Mellish had safely escaped on his private plane modeled after the Batplane. The
bodies were never found.
Mellish has a reputation of being an eccentric. Prior to coming into power, he spent three
years completing a degree at Oxbridge University, followed by a year studying Welsh language
and culture at the College of Wales. The young leader is a master squash player, and is known to
36
be a lover of opera. In particular, he is known to cry during the second act of Donizetti’s L’elisir d’amore.
The new nation’s capital, San Marcos City, is largely a lifeless colonial wilderness. With little infrastructure, and no discernable economic activity, the new nation is not expected to hold
much interest to international investors. Moreover, the new government is plagued by internal
and external opposition.
From her exile in Portugal, the main opposition leader, Khushbu Bane, leader of the San
Marcos Democratic Movement for Change (“DMC”) issued the following statement: “While the DMC celebrates with our countryman, we refuse to accept the new government headed by the
incompetent Mellish family. At this hour of great hope for the people of San Marcos, we call for
a government not headed by the imbecile Mellish clan.” -End
c EXHIBIT C
World Financial Times
June 25, 2011
By Ali Nociolo and Katerina Gonzalez
A2
Major Oil Deal Signed
London – At a signing ceremony attended by international bankers, corporate lawyers, and oil
executives, representatives of the Republic of San Marcos and Fazal Oil, Inc. signed an exclusive
deal granting Fazal Oil a 51 percent holding in Jimenez Oil, a state owned oil producer in San
Marcos. The government of San Marcos will retain a 49 percent stake in the company. The deal
has the potential to transform San Marcos’s economy and to grant Fazal Oil an equity position in millions of barrels of oil reserves.
The signing of the acquisition of Jimenez Oil will give Fazal Oil exclusive rights to
explore oil reserves in the “A-24” field located in eastern San Marcos. For years geologists have
suspected that eastern San Marcos has rich oil reserves, but the country’s stringent energy laws and lack of engineering expertise have been obstacles to further exploration.
In a statement issued by the office of President Fielding Mellish, the President stated
“This agreement will create jobs for hundreds if not thousands of San Marcos residents, and we
will stake our claim as a world oil power and enjoy all the wealth that comes with it.” The news was greeted positively by the markets, with one prominent oil watcher in Wagner City stating:
“Fazal Oil really needs these reserves. The company has gone through some rough patches and
this deal should create some new capital opportunities.”
However, not everyone was happy with the deal. Even before the ink dried, the perennial
foe of the Mellish regime, Khushbu Bane, leader of the San Marcos Democratic Movement for
Change (“DMC”) issued the following statement from exile: “The DMC does not recognize any agreements signed with the illegitimate Mellish regime.”
39
-End-
d EXHIBIT D
Wagner Daily News
December 1, 2012
By Victoria Medina
A6
News in Brief: Report Finds San Marcos Unstable
Despite increasing oil revenues, the economy of San Marcos continues to be highly
unstable according to a new report by World Risk, LLC. According to Jason Guzman, Chief Risk
Analyst at World Risk Frontier Markets Group, the situation in San Marcos has become highly
unstable. In the report Mr. Guzman writes: “We continue to worry about the situation in San Marcos. Despite higher oil revenues, the country is plagued by numerous structural problems,
including 20 percent unemployment. In particular, growing opposition to the Mellish
government could endanger the oil sector.”
The World Risk report also highlighted a recent United Nations report showing that San
Marcos had one of the world’s highest levels of income inequality, as measured by the GINI Index. Moreover, the government recently arrested a number of opposition figures, including the
Parliamentary leader of San Marcos Democratic League, which is known to have ties to the
exiled San Marcos Democratic Movement for Change. Their whereabouts are currently
unknown.
The report from World Risk comes weeks after the leading opposition party, the San
Marcos Democratic Movement for Change, renewed its promise to nationalize the country’s oil industry when the Mellish government collapses.
-End-
42
e EXHIBIT E
Fazal Oil, Inc.
622 Corporate Avenue
Wagner City, Wagner
Phone: 800-555-0199
E-Mail: hr@fazaloil.com
April 4, 2013
Dear Team-Member:
Fazal Oil Inc.’s strategy is focused on productivity and our desire to expand development and exploration. We are a team creating unique geoscience capabilities to identify and prioritize
quality resources. Technology is more important today than ever before, as a significant portion
of the world's oil is located in challenging environments. Extended reach technology enables
Fazal Oil to develop long-reach wells that can extend horizontally for miles underground and
reduces our environmental footprint.
Fazal Oil considers risk at every stage of development, and we continuously work to
reduce environmental impacts. As part of this effort, we have selected the appropriate business
model approach for our sales markets while continuing to offer our product in the U.S. market
with a strong focus on maintaining business continuity. We have determined each market
approach based on local market dynamics and our ability to profitably deliver local variants.
Even so, nothing in the oil market is risk free. With San Marcos’s recent takeover by Khushbu Bane, leader of the San Marcos Democratic Movement for Change, our agreement
signed with the Fielding Mellish administration has been invalidated by the new regime. As a
consequence, the company stock has plummeted and has been suspended from trading. Due to
these unforeseen circumstances, a complete termination of all 5,500 American employees
44
stationed in San Marcos will take effect starting on June 5, 2013 (in compliance with the 60-day
notice of termination required under the Worker Adjustment And Retraining Notification Act).
This action is expected to be permanent, as all plants located in San Marcos will be closing. We
recognize these changes are broad and have very difficult implications for many of our team
members. We will work to provide as much clarity and information as possible. Please contact
Jamie Liu, Director of Human Resources, at the contact information listed above. Attached to
this letter is a full list of all employees and job titles affected, specific termination dates, and
bumping rights.
We operate in a competitive industry that moves rapidly, and environmental turmoil is a
dire consequence of the industry. As difficult as some of these changes are today, we hope that
every team-member revels in the success and productivity that once was Fazal Oil!
Sincerely,
Natisha Fazal
CEO, Fazal Oil, Inc.
f EXHIBIT F
Fazal Oil, Inc.
622 Corporate Avenue
Wagner City, Wagner
Phone: 800-555-0199
E-Mail: hr@fazaloil.com
May 6, 2013
Dear Team-Member:
As many of you have now heard from the shocking news, the government of San Marcos
has unexpectedly re-nationalized its oil industry. Consequently, the Fazal Oil stock price has
decreased to the point that our stock has been suspended from trading. As diligent as the
company has been in attempting to obtain additional credit, we were unable to do so. In
accordance with the Worker Adjustment And Retraining Notification Act’s “Unforeseeable
Business Circumstance” and “Faltering Company” exemptions, Fazal Oil provides this notice to
inform all employees that 3,000 American employees stationed in San Marcos will be terminated
immediately. This action is expected to be permanent, as all plants located in San Marcos will be
closing. We recognize these rapid changes are broad and have very difficult implications for
many of our team members. We will work to provide as much clarity and information as
possible. Please contact Jamie Liu, Director of Human Resources at the contact information
listed above. Attached to this letter is a full list of all employees and job titles affected, specific
termination dates, and bumping rights.
As difficult as some of these changes have been, we hope every team member continues
to revel in the success and productivity that once was Fazal Oil!
Sincerely,
Natisha Fazal
CEO, Fazal Oil, Inc.
47