Thielmann et al v. MF Global Finance USA, Inc. et al

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
MF GLOBAL HOLDINGS LTD;
MF GLOBAL FINANCE USA, INC., et al.,
Debtors.
NOT FOR PUBLICATION
Chapter 11
Case No. 11-15059 (MG)
Case No. 11-15058 (MG)
Jointly Administered
Todd Thielmann, Pierre-Yvan Desparois,
Natalia Sivova, Sandy Glover-Bowles and
Arton Sina, Individually, and on behalf of All
Other Similarly Situated Former Employees,
Plaintiffs,
v.
MF GLOBAL HOLDINGS, LTD;
MF GLOBAL HOLDINGS USA, INC.;
MF GLOBAL FINANCE USA, INC.,
Defendants.
Adv. Pro. No. 11-02880 (MG)
MEMORANDUM OPINION AND ORDER GRANTING DEFENDANTS’ MOTION TO
DISMISS THE SECOND AMENDED COMPLAINT
A P P E A R A N C E S:
PEPPER HAMILTON LLP
Special Counsel for Louis J. Freeh, Chapter 11 Trustee
The New York Times Building
620 Eighth Avenue, 37th Floor
New York, New York 10018-1405
By: 	Robert S. Hertzberg, Esq.
James D. VandeWyngearde, Esq. (pro hac vice)
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OUTTEN & GOLDEN LLP
Attorneys for Plaintiffs and the Putative Class
3 Park Avenue, 29th Floor
New York, New York 10016
By: 	Jack A. Raisner, Esq.
René S. Roupinian, Esq.
KLEHR HARRISON HARVEY BRANZBURG LLP
Attorneys for Plaintiffs and the Putative Class
1835 Market Street, Suite 1400
Philadelphia, Pennsylvania 19103
By: 	Charles A. Ercole, Esq. (pro hac vice)
Kathryn Evans Perkins, Esq. (pro hac vice)
Diana E. Lipschutz, Esq. (pro hac vice)
LANKENAU & MILLER, LLP
Cooperating Attorneys for the NLG Maurice and
Jane Sugar Law Center for Economic and
Social Justice; Attorneys for Plaintiffs and
the Putative Class
132 Nassau Street, Suite 423
New York, New York 10038
By: 	Stuart J. Miller (SJM 4276)
THE GARDNER FIRM, P.C.
Cooperating Attorneys for the NLG Maurice and
Jane Sugar Law Center for Economic and
Social Justice; Attorneys for Plaintiffs and
the Putative Class
210 S. Washington Avenue
Mobile, Alabama 36602
By: 	Mary E. Olsen, Esq.
M. Vance McCrary, Esq.
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
Pending before the Court is MF Global Holdings Ltd., MF Global Holdings USA, Inc.,
and MF Global Finance USA, Inc.’s Motion to Dismiss Second Amended Class Action Adversary
Proceeding Complaint (“Motion,” ECF Doc. # 67). The Plaintiffs filed their opposition (ECF
Doc. # 70), and the Defendants filed a reply (ECF Doc. # 72). The Court heard argument on the
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Motion on July 29, 2013. For the reasons explained below, the Court grants the Defendants’
Motion to dismiss with prejudice.
I. 	BACKGROUND
Between November 11, 2011 and November 14, 2011, three adversary complaints
seeking relief under state and federal WARN Acts were filed on behalf of employees terminated
by the Defendants. (See Adv. Pro. No. 11-02880-mg; Adv. Pro. No. 11-02881-mg; and Adv.
Pro. No. 11-02882-mg.) On December 12, 2011, a consolidated amended complaint (the
“Consolidated Complaint”) was filed on behalf of all plaintiffs. On March 5, 2012, two motions
to dismiss the Consolidated Complaint were filed: one by the SIPA Trustee on behalf of MF
Global Inc. (“MFGI”); and one by the Chapter 11 Trustee on behalf of the chapter 11 debtors,
MF Global Holdings, Ltd., MF Global Holdings USA, Inc., and MF Global Finance USA, Inc.
(the “First Motions to Dismiss”).
On September 12, 2012, the Court heard argument on the First Motions to Dismiss.
During that hearing, Plaintiffs’ counsel said, in response to questions from the Court, that “[w]e
don’t know who effectively was [plaintiffs’] employer.” (Sept. 12, 2012 Tr. at 48:21 (ECF Doc.
# 61).) Later in the hearing, the Court stated: “[Y]ou can’t just throw out plaintiffs worked for
the defendants. That’s not going to cut it. . . . I need more—if you get as far as an amended
complaint you’re going to have to provide many more specifics. . . . If I dismiss the case against
MF Global, Inc. and any of the plaintiffs were employees of MF Global, Inc.—it certainly
sounds that Mr. Thielmann was an employee of MF Global, Inc.—you know, his claim is going
to go along with the dismissal.” (Id. at 62:15-63:2.)
At the September 12th hearing, the Court requested that counsel submit letters to the
Court identifying the entities by which each of the named Plaintiffs was employed. (Id. at 30:25-
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31:4.) On September 14, 2012, Defendants’ counsel complied with the Court’s request and
submitted a letter showing that each of the Plaintiffs was employed by MFGI. (ECF Doc. # 59.)
The letter stated that “According to the Companies’ records, each of the named Plaintiffs (Todd
Thielmann, Pierre-Yvan Desparois, Natalia Sivova, Sandy Glover-Bowles and Arton Sina) was
employed by MF Global, Inc.” Id. Plaintiffs’ counsel also submitted a letter, but the letter did
not identify the specific entity by which each of the named Plaintiffs was employed. (ECF Doc.
# 60.)
On October 23, 2012, the Court entered a Memorandum Opinion and Order (I) Granting
the SIPA Trustee’s Motion to Dismiss with Prejudice, and (II) Granting the Chapter 11 Trustee’s
Motion to Dismiss Without Prejudice and With Leave to Amend (ECF Doc. # 63). See
Thielmann v. MF Global Holdings Ltd. (In re MF Global Holdings Ltd.), 481 B.R. 268 (Bankr.
S.D.N.Y. 2012). In granting the SIPA Trustee’s motion to dismiss with prejudice, the Court
applied the “liquidating fiduciary” doctrine and found that
from the moment the SIPA proceeding was removed to this Court
on October 31, 2011, the SIPA Trustee was unquestionably a
“liquidating fiduciary.” 	The statute governing the appointment of
the SIPA Trustee states that the SIPA Trustee’s purpose is “to
liquidate the debtor’s business.” 	15 U.S.C. § 78fff(a). 	The SIPA
Trustee immediately began to wind down MFGI’s assets and
engage in other activities for the purpose of liquidating the estate.
Id. at 282-83. Accordingly, all claims against MFGI were dismissed with prejudice.
In the Court’s Opinion and Order, the Court declined to apply the “liquidating fiduciary”
doctrine to the chapter 11 debtor-defendants, id. at 283, but the Court dismissed the Amended
Complaint against the chapter 11 debtor-defendants without prejudice, because “the allegations
in the Amended Complaint are nevertheless deficient.” Id. The Court stated:
The complaint must be amended to include appropriate allegations.
More importantly, the Amended Complaint does not indicate
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where each Plaintiff worked (at MFGI or at one of the chapter 11
Debtors), who gave each Plaintiff a notice of termination, or when
it was given. 	If the complaint is going to survive, a further
amended 	complaint 	must 	be 	filed 	setting 	forth 	appropriate
allegations.
Id.
On November 26, 2012, the same five Plaintiffs who filed the initial Amended Complaint
filed their Second Amended Complaint. (ECF Doc. # 64.) On December 21, 2012, the
Defendants filed their Motion. The Defendants essentially argue that because Plaintiffs have still
not identified the specific MF Global entity that employed each of the Plaintiffs, they have failed
the Rule 12(b)(6) motion to dismiss standard. The Defendants’ counsel also notes that in the
September 14, 2012 letter to the Court, filed in response to the Court’s direction, counsel advised
that each of the Plaintiffs was employed by MFGI, a fact that Plaintiffs’ counsel has never
refuted. The Court has already determined in the October 23, 2012 Opinion and Order that
MFGI cannot be sued under the WARN Act because it was a “liquidating fiduciary,” and not an
“employer,” as the term is defined under the WARN Act. 481 B.R. at 282-83.
Rather than complying with the Court’s direction that any amended complaint must
identify the entity by which each Plaintiff was employed, Plaintiffs rest their opposition to the
Motion on their argument that the “single employer” doctrine applies, making the remaining
defendants liable on WARN Act claims no matter which entity employed the Plaintiffs.
According to the Plaintiffs, the “single employer” doctrine looks beyond company-given labels,
and focuses instead on how the nominal entities were related to one another. The Plaintiffs argue
that they have plead facts in the Amended Complaint establishing single employer liability under
the DOL’s specific five-prong test (common ownership, common directors/officers, de facto
exercise of control, unity of personnel policies, and dependency of operations).
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In their Reply, the Defendants argue that the “single employer” doctrine has never been
applied in the way that Plaintiffs urge the Court to apply it. Relying on the WARN Act
regulations governing the single employer doctrine, the Defendants argue that the doctrine only
allows that, under certain circumstances, multiple entities can be treated as one; it does not allow
state or federal WARN Act liability to attach to related entities after an employee’s WARN Act
claims against his or her immediate employer have been barred as a matter of law. The
Defendants argue that if Plaintiffs want to treat the remaining Defendants and MFGI as a single
employer, then the remaining Defendants should be entitled to rely upon the liquidating fiduciary
doctrine as a basis for dismissal.
II. 	DISCUSSION
To survive a motion to dismiss brought under Rule 12(b)(6), made applicable here by
FED. R. BANK. P. 7012, “a complaint must contain sufficient factual matter . . . to ‘state a claim
to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). “While a
complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual
allegations, a plaintiff’s obligation to provide the grounds of his entitlement to relief requires
more than labels and conclusions, and a formulaic recitation of the elements of a cause of action
will not do.” Twombly, 550 U.S. at 555 (internal quotation marks, citations, and alterations
omitted). Thus, unless a plaintiff’s well-pleaded allegations have “nudged [its] claims across the
line from conceivable to plausible, [the plaintiff’s] complaint must be dismissed.” Id. at. 570; see
also Iqbal, 556 U.S. at 679.
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Courts use a two-prong approach when considering a motion to dismiss. McHale v.
Citibank, N.A. (In re the 1031 Tax Group, LLC), 420 B.R. 178, 189-90 (Bankr. S.D.N.Y. 2009).
First, the court must accept all factual allegations in the complaint as true, discounting legal
conclusions clothed in factual garb. See, e.g., Kiobel v. Royal Dutch Petroleum Co., 621 F.3d
111, 124 (2d Cir. 2010) (stating that a court must “assum[e] all well-pleaded, nonconclusory
factual allegations in the complaint to be true”) (citing Iqbal, 556 U.S. at 678-79). Second, the
court must determine if these well-pleaded factual allegations state a “plausible claim for relief.”
Iqbal, 556 U.S. at 679 (citation omitted).
Courts do not make plausibility determinations in a vacuum; it is a “context specific task
that requires the reviewing court to draw on its judicial experience and common sense.” Id.
(citation omitted). A claim is plausible when the factual allegations permit “the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678 (citation
omitted). A complaint that only pleads facts that are “merely consistent with a defendant’s
liability” does not meet the plausibility requirement. Id. (quoting Bell Atl. Corp. v. Twombly,
550 U.S. at 557) (internal quotation marks omitted)). “A pleading that offers ‘labels and
conclusions’ or a ‘a formulaic recitation of the elements of a cause of action will not do.’” Id.
(quoting Twombly, 550 U.S. at 555) (internal quotation marks omitted)). “Threadbare recitals of
the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id.
(citation omitted). “The pleadings must create the possibility of a right to relief that is more than
speculative.” Id.
Plaintiffs’ Second Amended Complaint asserts two causes of action: (1) an alleged
violation of the WARN Act, 29 U.S.C. § 2101 et seq; and (2) an alleged violation of the New
York WARN Act, Labor Law § 860, et seq. Essential to both of these causes of action is the
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notion that they be brought by an employee against his or her “employer.” See, e.g., 29 U.S.C. §
2104(a)(1) (“Any employer who orders a plant closing or mass layoff in violation of section 3 of
this Act shall be liable to each aggrieved employee . . . .”); N.Y. Lab. Law. § 860-g(1) (“An
employer who fails to give [60 days’ written] notice as required . . . is liable to each employee
entitled to notice . . . .”).
Section 2101(a)(1) defines an “employer” as follows:
(1) the term “employer” means any business enterprise that
employs—
(A) 100 or more employees, excluding part-time employees; or
(B) 100 or more employees who in the aggregate work at least
4,000 hours per week (exclusive of hours of overtime);
29 U.S.C. § 2101(a)(1) (emphasis added).
The WARN Act does not define the term “business enterprise.” However, pursuant to
her authority to prescribe interpretive regulations set forth in 29 U.S.C. § 2107(a), the Secretary
of Labor enacted § 639.3(a)(2) of Title 20 of the Code of Federal Regulations which provides
that a subsidiary employer may be considered part of its parent, and, together, may be held to be
a “single business enterprise” subject to liability under the WARN Act. 20 C.F.R. § 639.3(a)(2)
(subsidiaries are treated “as separate employers or as a part of the parent or contracting company
depending upon the degree of their independence from the parent”); see In re APA Transp. Corp.
Consol. Litig., 541 F.3d 233, 242-43 (3d Cir. 2008). The “single employer” doctrine is an
exception to the doctrine of limited liability. See Murray v. Miner, 74 F.3d 402, 405 (2d Cir.
1996).
Where the parent or an affiliate makes the decision to shut down the business, it may be
appropriate to extend liability to the parent or affiliate on the basis of the single employer
doctrine. But that rationale makes no sense in the context of a registered broker-dealer that is
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subject to SIPA. Here, the Securities Investor Protection Corporation (“SIPC”), acting on its
own for the protection of customers of a broker-dealer, filed the proceeding leading to the
appointment of the SIPA Trustee and the statutorily required liquidation of the business of
MFGI. When employment is terminated of the requisite number of employees of the liquidating
broker-dealer in the SIPA proceeding that would otherwise trigger WARN liability, the Court
has already held that the liquidating fiduciary doctrine is a defense to WARN liability. See
Thielmann, 481 B.R. at 282-83. In such circumstances, there is no basis for extending liability to
the parent or other affiliates; termination of employment results from the commencement of the
SIPA proceeding by SIPC, not from any act of the parent or affiliates.
Here, Plaintiffs’ counsel failed to amend the complaint to allege that the named Plaintiffs
were employed by anyone other than MFGI. Rather than amending the complaint as directed by
the Court, Plaintiffs’ counsel chose instead to rely on the “single employer” doctrine that cannot
apply in the circumstances present in this case. Under these circumstances, the Second Amended
Complaint should be dismissed with prejudice.
III. 	CONCLUSION
For the reasons set forth above, the Defendants’ Motion is GRANTED. The Second
Amended Complaint is dismissed with prejudice.
IT IS SO ORDERED.
Dated: August 23, 2013
New York, New York
_____Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
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