| August 2009 issue: Your Name Here! The Bankruptcy Section is looking for volunteers to write a Case Analysis for an upcoming addition. The Case Analysis is typically based on Court of Appeals or Supreme Court decisions, although you can use your discretion to discuss relevant BAP, District Court and Bankruptcy Court decisions -- especially those interpreting BAPCPA's amendments to the Code. If you are interested or would like to learn more, please send an email to the Managing Editor. You can view the archive here. Your subscription You have been subscribed to this list as part of your membership in the Bankruptcy Section of the Commercial Law League of America. CLLA 205 N. Michigan, Suite 2212, Phone: 312-240-1400 Newsletter design by: |
Sponsor the CLLA Events at NCBJThis fall, the CLLA will once again play a major role at the National Conference of Bankruptcy Judges - and we need your support! As you know, the Leagues' ability to obtain sponsorships for our programming is an important factor in our continued efforts to provide quality bankruptcy education. In addition, it provides your company with exposure among a prestigious group of bankruptcy professionals. Sua SponteDeborah K. Ebner Armed with our critical issues paper, I met Dave Goch on Capitol Hill in early August. Dave and I met congressional staffers after which I journeyed to the Senate office buildings and met with legislative counsel for Senators Durbin and Burris. I had never been to Capitol Hill in any capacity other than as a tourist. What caught my attention was the interest level that several of these staffers exhibited. It was genuine interest; they had an eagerness to talk to me and hear about the real world impact of BAPCPA 2005 and how the League's suggestions for change would impact their constituents. I happily explained how the creation of a Chapter 11 payment mechanism for administrative claimants could save thousands of jobs and prevent additional business closures. I went on to talk about how adding administrative insolvency as a ground to dismiss or convert a chapter 11 case would generate payment to those who continue to supply to debtors in financial distress, which practice leaves these suppliers financially vulnerable. I applied our critical issues to real situations; these folks understood. Not only did they understand, but they asked me to keep in touch with them. It's not me with whom they want to keep in touch. It's the League. It's our section. It truly seemed as if they would like to use us as a resource. It honestly appeared as if they want to engage in communication with us so that they can be aware of the true impact of our laws upon real citizens. Each of us can help with the supply of this information. As an organization, however, we can make a difference. Next time you plan to visit D.C., visit with your congressmen and senators and take with you our critical issues paper as a discussion piece. It's not difficult. It's appreciated and it is helpful to everyone. Watch your newsletters though; it's time to energize and create a Hill Day so more of us can become involved in this process. Many special interest groups around the country already descend upon Capitol Hill in an organized and periodic fashion. The reason for these visits? To positively educate our national policy makers about issues impacting their constituencies as well as the constituencies of those on Capitol Hill. I have talked about “Hill Day” in prior Sua Sponte articles. I am now talking about it again. I now personally understand how important it is for all of us and I therefore urge all of you to work with our section towards a goal of creating a formal program within our organization. I'll say it again because it bears repeating. We are an organization with tremendous experience and know how within our ranks. We can together, make a positive difference. Case Law AnalysisPaige E. Barr Individual Officers of Insolvent Entity May Be Personally Liable for Employees’ Unpaid Wages Claims. The United States Court of Appeals for the Ninth Circuit Court recently held in Boucher v. Shaw, Nos. 05-15454 and 05-15702; D.C. No. CV-04-01738 (9th Cir. July 27, 2009) that individual officers may be personally liable for employees’ unpaid wages claims under the Fair Labor Standards Act (“FLSA”). BACKGROUND Castaways Hotel, Casino and Bowling Center (“Castaways”) filed for protection under chapter 11 of the Bankruptcy Code on June 26, 2003. Three employees discharged while Castaways was operating as a debtor-in-possession and their local union filed a state court suit for unpaid wages against Castaways’ (i) chairman and chief executive officer (“CEO”) (ii) manager responsible for handling labor and employment matters (“HR Manager”) and (iii) chief financial officer (“CFO and collectively with the CEO and HR Manager, the “Managers”). The CEO and HR Manager also held ownership interests in Castaways. The employees and union alleged that the Managers should be personally liable for their unpaid wages under (i) Nevada law and (ii) the FLSA. The suit was removed to the United States District Court for the District of Nevada and ultimately all claims were dismissed on Federal Rule of Civil Procedure 12(b)(6) grounds. In its decision to dismiss the claims, the District Court found that (i) the Managers were not “employers” under Nevada law or FLSA and (ii) the union lacked standing to bring claims against the Mangers. The employees and union appealed. The United States Court of Appeals for the Ninth Circuit certified the state law question of whether the Managers qualified as “employers” under Nevada law to the Nevada Supreme Court. DISCUSSION The Ninth Circuit, adopting the Nevada Supreme Court’s decision on the state law issue, affirmed in part and reversed in part. The Nevada Supreme Court found that the Managers did not qualify as “employers” under Nevada law. Chapter 608 of the Nevada Revised Statutes provides a statutory scheme for wage protection and imposes liability on “employers” for violations of the statute. Specifically, “employer includes every person having control or custody of any employment, place of employment or any employee.” Nev. Rev. Stat. § 608.011. Due to the statute’s omission of any specific inclusion of corporate managers, agents or officers in the definition of “employer,” the Nevada Supreme Court refused to expand the common law definition of “employer” to include individual managers. However, the Ninth Circuit found that the individual Managers could be personally liable under FLSA. Like Nevada law, FLSA also provides a statutory scheme for wage protection and imposes liability on “employers” for violations of the statute. FLSA defines “employer” as “any person acting directly or indirectly in the interest of an employer in relation to an employee ....” 29 U.S.C. § 203(d). However, in contrast to the state court’s interpretation of Nevada state law, the Ninth Circuit has treated the definition of “employer” under FLSA with an “expansive interpretation in order to effectuate the FLSA’s broad remedial purposes.” It has found that “where an individual exercises ‘control over the nature and structure of the employment relationship,’ or ‘economic control’ over the relationship, that individual is an employer within the meaning of [FLSA], and is subject to liability.” For example, the Ninth Circuit has found liability under FLSA against a chief operating officer and chief executive officer where the officers had a significant ownership interest, control over the corporations day-to-day operations and the power to hire and fire employees. In addition, the Ninth Circuit found that the Managers could be held liable even after the corporation has filed for bankruptcy because the managers were independently liable under FLSA and, therefore, the claims were not related to the bankruptcy estate. Accordingly, the Ninth Circuit affirmed the dismissal of the state law claims, but reversed the dismissal of the FLSA claims. COMMENT In this economic climate, the Boucher opinion should serve as a warning to managers that they cannot assume that a bankruptcy filing by their company will automatically allow them to walk away from liability for unpaid wages. In addition, the allegations necessary to support claims of such liability only need to meet a very low threshold. Unlike several previous cases where courts found managers personally liable for unpaid wages, the Boucher claims survived a motion to dismiss by merely alleging the Managers’ positions and stock ownership of two of the Managers. The claims against the CFO were upheld even though he didn’t hold any ownership interest in Castaways. The Boucher opinion also brings to light alternative measures of recovery for employees who may have otherwise forgone suing an insolvent employer for unpaid wages. Case Law UpdateAvailable at: www.lp.findlaw.com In re: Jersey Tractor Trailor Training, Inc. In a dispute between creditors with competing claims to a bankruptcy debtor's accounts receivable, district court's judgment is affirmed to the extent it affirms a bankruptcy court's determination that one creditor did not waive its security interest in debtor's accounts receivable. District court's holding that a competing creditor did not act in good faith, and therefore cannot be a holder in due course or a purchaser of instruments, is vacated and remanded. Craig v. Educational Management Corp. In an appeal from a bankruptcy court order declining to discharge debtor's student loan in bankruptcy under 11 U.S.C. section 523(a)(8) based on undue hardship, the order is vacated where it was unclear from the record how the bankruptcy court arrived at its conclusion regarding debtor's ability to make the required monthly payments. Mitan
v. Duval In an appeal from the Bankruptcy Court's order converting Debtor's bankruptcy case from Chapter 11 to Chapter 7 nunc pro tunc, the order is affirmed, where the equitable powers granted to the Bankruptcy Court under 11 U.S.C. section 105(a) include the power to enter such a conversion order. In
re MarchFIRST, Inc. Bankruptcy court judgment sustaining the objection to creditor Avnet, Inc.'s untimely claim against the estate of MarchFIRST in a bankruptcy proceeding is affirmed where: 1) the court properly rejected Avnet's argument that MarchFIRST should have accepted the faxed submission of its proof of claim forms, as the bankruptcy notice was sufficiently clear that submission by mail or by hand were the only permissible methods of transmittal; and 2) the court did not abuse its discretion in declining to deem Avnet's claim timely under Federal Rules of Bankruptcy Procedure 5005(c), as Avnet did not offer convincing justification or explanation for its untimely filing. Tech.
Lending Ptnrs. LLC v. San Patricio Cty. Cmty. Action Agency District court's dismissal of creditors' appeal of a bankruptcy court's approval of a settlement order is reversed where the district court improperly applied the doctrine of equitable mootness because the relief requested would not affect the success of the plan or the rights of parties not before the court. Caplan
v. B-Line, LLC In an appeal from a bankruptcy court's disallowance of creditor's claim in a Chapter 13 bankruptcy case, Bankruptcy Appellate Panel's judgment reversing the bankruptcy court ruling is reversed where the creditor failed to provide documentation in support of its claim, and thus it was properly disallowed. |