MF Global Holdings Ltd. and Litigation Trustee of the MF Global Litigation Tru

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
In re
MF GLOBAL HOLDINGS, LTD, et al.,
Debtors.
NOT FOR PUBLICATION
Chapter 11
Case No. 11-15059 (MG)
Jointly Administered
MEMORANDUM OPINION AND ORDER SUSTAINING OBJECTION TO
VACATION PAY CLAIMS
A P P E A R A N C E S:
KLEHR HARRISON HARVEY BRANZBURG LLP
Attorneys for Employee Representative Plaintiffs in
Adversary Proceeding 11-02880 (MG)
1835 Market Street, Suite 1400
Philadelphia, PA 19103
By: 	Charles A. Ercole, Esq.
OUTTEN & GOLDEN LLP
Attorneys for Employee Representative Plaintiffs in
Adversary Proceeding 11-02880 (MG)
3 Park Avenue, 29th Floor
New York, New York 10016
By: 	Jack A. Raisner, Esq.
MORRISON & FOERSTER LLP
Counsel for MF Global Holdings Ltd., as Plan Administrator
250 West 55th Street
New York, New York 10019
By: 	William M. Hildbold, Esq.
MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE:
Pending before the Court is the Objection of the Plan Administrator to the Claim of
Plaintiffs in Adversary 11-02880 (MG) (Claim No. 1793) (the “Objection,” ECF Doc. # 1847)
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filed by MF Global Holdings Ltd. (“Holdings” or the “Plan Administrator”). The Plan
Administrator seeks an order disallowing and expunging proof of claim number 1793 (the
“Holdings Class Claim”) filed by Charles A. Ercole on behalf of the “Plaintiffs in Adversary 11-
02880 (MG)” (the “Holdings Class Claimants”). The Holdings Class Claimants filed a response
(the “Response,” ECF Doc. # 1880), and the Plan Administrator filed a reply (the “Reply,” ECF
Doc. # 1922). The Court heard argument on the Objection on June 19, 2014. For the reasons
that follow, the Court SUSTAINS the Objection. 1
I. 	BACKGROUND
A. 	The WARN Act Adversary Proceedings
In November 2011, individuals who claimed to be former employees of MF Global, Inc.
(“MFGI”) and the chapter 11 Debtors 2 (the “Plaintiffs”) filed three adversary complaints seeking
relief under state and federal WARN Acts for termination of their employment without the
statutorily required advance notice. (See Adv. Pro. No. 11-02880-mg; Adv. Pro. No. 11-02881-
mg; and Adv. Pro. No. 11-02882-mg; collectively, the “Adversary Proceedings”). 3 The Court
consolidated the Adversary Proceedings on January 30, 2012. On December 12, 2011, the
Plaintiffs filed a consolidated Amended Complaint. (Adv. Pro. Doc. # 4.) The Amended
Complaint included claims for unpaid accrued vacation time under New York and Illinois wage
payment laws.
On October 23, 2012, the Court dismissed with prejudice all WARN Act claims against
1 	In a companion Opinion and Order entered in the SIPA proceeding, the Court finds that the same class
claimants may proceed with their claims for vacation pay against their former employer, MF Global, Inc. (“MFGI”).
See Case No. 11-2790, ECF Doc. # 8092. As explained below, the difference in the result here is that the class
claimants have not shown that they were employed by the chapter 11 Debtors.
2 	The chapter 11 Debtors include Holdings, MF Global Finance USA, Inc. (“FinCo”), and MF Global
Holdings USA, Inc.
3 	Unless otherwise noted, references to the docket in the Adversary Proceedings refer to Adv. Pro. No. 11-
2880.
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MFGI, holding that the “liquidating fiduciary” principle immunized MFGI from WARN Act
liability. See Thielmann v. MF Global Holdings Ltd. (In re MF Global Holdings Ltd.), 481 B.R.
268, 284 (Bankr. S.D.N.Y. 2012) (Thielmann I). As to Holdings, the Court dismissed the
WARN Act claims without prejudice. The Court held that it could not decide, as a matter of law,
whether the “liquidating fiduciary” principal barred a suit against the chapter 11 Debtors, and
requested more facts to ascertain whether a suit could be maintained against the chapter 11
Debtors at all. Id. at 283. The Court granted the Plaintiffs leave to further amend their Amended
Complaint to allege that the Debtors were attempting to reorganize. The Court also requested
information regarding “where each Plaintiff worked (at MFGI or at one of the chapter 11
Debtors), who gave each Plaintiff a notice of termination, [and] when was it given.” Id. In a
footnote, the Court stated:
[R]equiring the Plaintiffs to plead these facts is not intended to preclude their
“single employer” theory. 	But if the Plaintiffs worked for MFGI (even if their
payroll checks came from MF Global USA) and were terminated at the direction
of the SIPA Trustee, it is not clear on what basis their claims can survive against
the chapter 11 Debtors. 	Plaintiffs cannot hide behind vague allegations to avoid
confronting the issues.
Id. at n.12.
As to all defendants, the Court specifically declined to rule on the vacation pay portion of
the Amended Complaint, stating:
With respect to the claims for unpaid accrued vacation time and unpaid wages and
benefits, Plaintiffs’ counsel acknowledged at the hearing that these claims should
be asserted in proofs of claim filed in the SIPA and chapter 11 cases, rather than
in an adversary complaint. 	Plaintiffs’ counsel also said they have filed class
proofs of claim seeking relief with respect to these claims. 	Both Trustees’
counsel acknowledged that those claims will be dealt with in the normal claims
allowance process. 	In dismissing the Amended Complaint, this ruling is without
prejudice to the assertion of claims for unpaid accrued vacation or unpaid wages
and benefits.
Id. at 272 n.1 (internal quotation marks omitted).
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On November 26, 2012, the same Plaintiffs who filed the initial Amended Complaint
filed their Second Amended Complaint. (Adv. Pro. Doc. # 64.) The Second Amended
Complaint asserted causes of action for violation of both the federal and New York WARN Acts,
and included a request for unpaid accrued vacation time. (See Second Am. Compl. at 18.) On
December 21, 2012, the chapter 11 Debtors filed a Motion to Dismiss the Second Amended
Complaint.
On August 23, 2013, the Court issued a second decision, dismissing with prejudice the
WARN Act claims against the chapter 11 Debtors. See Thielmann v. MF Global Holdings Ltd.
(In re MF Global Holdings Ltd), Nos. 11-15059, 11-15058, Adv. Pro. No. 11-02880, 2013 WL
4511863, at *4 (Bankr. S.D.N.Y. Aug. 23, 2013) (Thielmann II). Specifically, the Court rejected
the Plaintiffs’ attempt to use the “single employer” doctrine, and explained as follows:
The “single employer” doctrine is an exception to the doctrine of limited liability.
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 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. 	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.
Id.
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The Plaintiffs appealed the Thielmann II decision (see Notice of Appeal, Adv. Pro. Doc.
# 77); that appeal remains pending.
B. 	The Holdings Class Claim
On November 2, 2012, Ercole filed the Holdings Class Claim on behalf of “Plaintiffs in
Adversary 11-02880 (MG).” (See Holdings Class Claim, attached as Ex. A to the Response,
ECF Doc. # 1880-1.) 4 The stated basis for the Holdings Class Claim is: “Claims for WARN Act
Violations as well as unpaid vacation time.” The Claim was filed against “MF Global Finance
LTD*” and references case number 11-5059, which does not correlate with any existing entity.
Attached to the Holdings Class Claim is the following statement:
* This proof of claim is being filed in conjunction with the adversary seeking to
recover both WARN Act damages, as well as unpaid wages and vacation pay as
alleged in the adversary pending before this Court in 11-02880(MG). 	It is
intended to be a claim against each of the following estates:
MF Global Holdings Ltd. 11-15059
MF Global Finance USA Inc. 11-15058
MF Global Capital LLC 11-15808
MF Global Market Services 11-15810
MF Global FX Clear LLC 11-15810
MF Global Holdings USA 12-10863
4 	The Holdings Class Claim apparently amends Claim No. 10, which Ercole filed on November 18, 2011, on
behalf of “Todd Thielmann and Pierre-Yvan Desparois, individually, and on behalf a Class of All Other Former
Employees Similarly Situated.” (See Obl. ¶ 19.) Claim No. 10 was filed against Holdings and “MF Global Finance
LTD,” which Holdings characterizes as “a non-existent or, at a minimum, non-debtor entity.” (See id.) The case
numbers listed on the claim were 11-15058 and 11-15059—the case numbers for the proceedings of FinCo and
Holdings, respectively. On April 19, 2013, the Court entered an order expunging Claim No. 10 as amended and
superseded by the Holdings Class Claim (Claim No. 1793). (See Order Granting the Fifth Omnibus Objection of
Plan Proponents Seeking to Disallow Certain Amended and/or Superseded Claims, ECF Doc. # 1341.) In its
objection, the Plan Administrator asserts (in a single sentence) that the Holdings Class Claim was an improper
amendment to the earlier filed Claim No. 10. (See Obj. ¶ 20.) The Claimants respond by asserting that amendments
are liberally allowed, see In re Orion Refining Corp., 317 B.R. 660, 664 (D. Del. 2004), and by pointing to the fact
that the earlier claim was already expunged as an amended and superseded claim. Holdings did not press this issue
further in its Reply, and appears to have abandoned the argument. In any event, the Court rejects this argument as a
basis for disallowing the Holdings Class Claim.
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(Holdings Class Claim at 4 (emphasis added).) 5
C. 	The Objection
Holdings objects to the WARN Act claim on the grounds that it is barred by res judicata
since the Court dismissed that claim with prejudice in Thielmann II. Holdings objects to the
claim for unpaid accrued vacation time on the grounds that (1) it is also barred by res judicata
and (2) the Class Claimants failed to state a claim because they did not provide evidence as to
who their employer was.
II. 	DISCUSSION
A. 	Claims Allowance
Claims objections have a shifting burden of proof. Correctly filed proofs of claim
“constitute prima facie evidence of the validity and amount of the claim . . . . To overcome this
prima facie evidence, an objecting party must come forth with evidence which, if believed,
would refute at least one of the allegations essential to the claim.” Sherman v. Novak (In re
Reilly), 245 B.R. 768, 773 (2d Cir. B.A.P. 2000). By producing “evidence equal in force to the
prima facie case,” an objector can negate a claim’s presumptive legal validity, thereby shifting
the burden back to the claimant to “prove by a preponderance of the evidence that under
applicable law the claim should be allowed.” Creamer v. Motors Liquidation Co. GUC Trust (In
re Motors Liquidation Co.), No. 12 Civ. 6074 (RJS), 2013 U.S. Dist. LEXIS 143957, at *12–13
(S.D.N.Y. Sept. 26, 2013) (internal quotation marks omitted). If the objector does not
5 	The Plan Administrator argues that the Claim should be disallowed and expunged because the Class
Claimants did not follow the explicit instructions in the Claims Bar Date Order by failing to properly identify the
corporate entity or case number against which the claim was asserted. (See Claims Bar Date Order, ECF Doc. # 40
at 4(f) (“[P]roofs of Claim must specify by name and case number the Debtor against which the claim is filed. If a
claimant asserts a claim against more than one Debtor or has claims against different Debtors, a separate Proof of
Claim Form must be filed with respect to each Debtor.”).) The Court rejects this argument. The Plan Administrator
admittedly presumes that the Holdings Class Claimants intended to reference case number 11-15059—the case
number for this chapter 11 proceeding, (see Reply at 6 n.4), and the Debtors’ claims processing agent scheduled the
Claim as asserting a claim against Holdings in the chapter 11 proceeding.
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“introduce[] evidence as to the invalidity of the claim or the excessiveness of its amount, the
claimant need offer no further proof of the merits of the claim.” 4 C OLLIER ON BANKRUPTCY
¶ 502.02 (16th rev. ed. 2013).
B. 	Res Judicata
Res judicata provides that “a final judgment on the merits of an action precludes the
parties or their privies from relitigating issues that were or could have been raised in that action.”
Burgos v. Hopkins, 14 F.3d 787, 789 (2d Cir. 1994) (quoting Allen v. McCurry, 449 U.S. 90, 94
(1980)); Niles v. Wilshire Inv. Grp., LLC, 859 F. Supp. 2d 308, 338 (E.D.N.Y. 2012). Under
federal law, res judicata “bars later litigation if [an] earlier decision was (1) a final judgment on
the merits, (2) by a court of competent jurisdiction, (3) in a case involving the same parties or
their privies, and (4) involving the same cause of action.” EDP Med. Computer Sys., Inc. v.
United States, 480 F.3d 621, 624 (2d Cir. 2007) (alteration in original) (internal quotation marks
omitted). Further, the pendency of an appeal does not affect a decision’s finality for res judicata
purposes. See Huron Holding Corp. v. Lincoln Mine Operating Co., 312 U.S. 183, 189 (1941)
(“In the federal courts the general rule has long been recognized that while appeal with proper
supersedeas stays execution of the judgment, it does not—until and unless reversed—detract
from its decisiveness and finality.”).
Here, the Court dismissed with prejudice the WARN Act claims against Holdings in
Thielmann II. That decision is final, notwithstanding the Class Claimants’ pending appeal.
Indeed, the Class Claimants concede that res judicata bars the WARN Act portions of their
claims. (See Resp. ¶ 4.) Therefore the Court SUSTAINS the Objection to the WARN Act
claims.
But the Court specifically declined to rule on the vacation pay portion of the Class Claim
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in its prior rulings. Still, because the Court held in Thielmann II that the “single employer
theory” did not apply in these cases, the Class Claimants cannot rely on that doctrine to support a
claim for unpaid accrued vacation time. Therefore, the Claimants must show that they were
employees of the Debtors, and not just employees of MFGI.
C. 	The Claimants Failed to Show That They Were Employees of the Chapter 11
Debtors
Through the Objection, the Debtors shifted the burden of proving the validity of the Class
Claim back to the Claimants. Despite repeated requests from the Court, the Holdings Class
Claimants have failed to offer any proof that they were employed by the chapter 11 Debtors—a
prerequisite for their entitlement to vacation pay. Therefore, the Class Claimants have failed to
show by a preponderance of the evidence the validity of their claim for unpaid accrued vacation
time, and the Objection is SUSTAINED on that ground.
III. 	CONCLUSION
For all of the foregoing reasons, the Court SUSTAINS the Objection.
IT IS SO ORDERED.
Dated: July 17, 2014
New York, New York
_____Martin Glenn____________
MARTIN GLENN
United States Bankruptcy Judge
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