United States District Court, D. Delaware
In re: JEVIC HOLDING CORP., et al., Chapter 11, Debtors.
SUN CAPITAL PARTNERS, INC., Appellee. CASIMIR CZYZEWSKI, et al., Appellants, Civ. No. 13-1127-SLR
SUE L. ROBINSON, District Judge.
At Wilmington this 29th day of September, 2014, having reviewed the appeal taken by Casimir Czyzewski, Melvin L. Myers, Jeffrey Oehlers, Arthur E. Perigard, and Daniel C. Richards ("appellants"),  and the papers submitted in connection therewith; the court issues its decision based on the following analysis:
1. Background. Jevic Transportation Inc. ("Jevic"), Jevic Holding Corp. ("Jevic Holding"),  and Creek Road Properties, LLC (collectively, "debtors") are a trucking company. Jevic had an initial public offering in 1997 and was acquired by Yellow Corporation in 1999. In 2002, Yellow Corporation spun off Jevic and its sister company, Saia Motor Freight Line, to form SCS Transportation. Starting in 2006, a nationwide decline in freight volumes led to a decline in debtors' revenue. SCS evaluated alternatives for Jevic, including a sale or liquidation, and contemplated filing for bankruptcy.
2. On June 30, 2006, Sun Transportation, LLC ("Sun Transportation"), a wholly-owned subsidiary of Sun Capital Partners, Inc. ("appellee"), acquired Jevic from Saia Motor Freight Line and SCS Transportation in a leveraged buyout. (D.I. 17 at 4) The buyout included an $85 million revolving credit facility from a bank group led by CIT Group/Business Credit, Inc. ("CIT"). CIT's financing agreement required the debtors to maintain assets and collateral of at least $5 million in order to access its line of credit. Appellee, through Sun Transportation, paid $1 million to Jevic Holding, which was created for the acquisition of all of Jevic's shares.
3. Upon the merger, Jevic and appellee entered into a Management Services Agreement, which governed the relationship between appellee and Jevic and provided for consulting services and compensation for such services. By the end of 2007, the debtors' assets fell below $5 million, in default of CIT's financing covenant. CIT and the debtors entered into a forbearance agreement that went into effect on January 8, 2008. Under the agreement, appellee provided a $2 million guarantee. Appellee also negotiated further forbearance extensions through April 2008.
4. In March 2008, appellee chose not to invest more money in Jevic and Jevic began an active sale process. Although Jevic retained consulting services and implemented a reorganization plan with the intention of realizing substantial monthly savings and maintaining asset values above $5 million, by the end of April, Jevic's assets again fell below $5 million, in default of CIT's financing covenant. After meetings with two potential buyers did not lead to a sale, Jevic's board formally authorized a bankruptcy filing on May 16, 2008. Jevic sent its employees termination notices pursuant to the Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101 et seq. (the "WARN Act"). The notices were received on May 19, 2008.
5. On May 20, 2008, debtors filed a voluntary petition for relief in the bankruptcy court under Chapter 11 of Title 11 of the Bankruptcy Code. On May 21, 2008, appellants filed a complaint alleging WARN Act and New Jersey Millville Dallas Airmotive Plant Job Loss Notification Act, PL.2007, c.212, C.34:21-2 ("New Jersey WARN Act") violations for failing to provide employees with the requisite 60-day notice before a plant closing or mass layoff. On December 10, 2008, the bankruptcy court certified the WARN class and directed the named appellants as the class representatives.
6. Discovery began in mid-2008 and ended on September 7, 2012. (D.I. 17 at 4) During discovery, appellants took the depositions of twelve individuals affiliated with Sun entities,  the debtors and non-parties. Id. On June 29, 2012, appellants noticed the depositions of appellee's co-CEOs Rodger Krouse and Marc Leder. Id. Appellee moved for a protective order because Mr. Krouse and Mr. Leder did not have personal or unique knowledge of the employment practices at issue. Id. The bankruptcy court accordingly quashed appellants' deposition notices. Id.
7. On September 26, 2012 and October 15, 2012, respectively, appellee and appellants filed motions for summary judgment on the issue of whether appellee could be held liable for any WARN Act violations as a "single employer." Id. On May 10, 2013, Judge Brendan L. Shannon issued a Memorandum Opinion and Order granting appellee's motion for summary judgment and denying appellants' motion for summary judgment, holding that appellee was not a "single employer" for purposes of appellants' claims under the WARN Act and the New Jersey WARN Act. (08-11006-BLS, D.I. 240, 241, 242, 243) On June 24, 2013, appellants filed a timely notice of appeal. (D.I. 1)
8. Standard of Review. This court has jurisdiction to hear an appeal from the bankruptcy court pursuant to 28 U.S.C. § 158(a). In undertaking a review of the issues on appeal, the court applies a clearly erroneous standard to the bankruptcy court's findings of fact and a plenary standard to that court's legal conclusions. See Am. Flint Glass Workers Union v. Anchor Resolution Corp., 197 F.3d 76, 80 (3d Cir. 1999). With mixed questions of law and fact, the court must accept the bankruptcy court's "finding of historical or narrative facts unless clearly erroneous, but exercise[s] plenary review of the [bankruptcy] court's choice and interpretation of legal precepts and its application of those precepts to the historical facts." Mellon Bank, N.A. v. Metro Communications, Inc., 945 F.2d 635, 642 (3d Cir. 1991) (citing Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 101-02 (3d Cir. 1981)). The district court's appellate responsibilities are further informed by the directive of the United States Court of Appeals for the Third Circuit, which effectively reviews on a de novo basis bankruptcy court opinions. In re Hechinger, 298 F.3d 219, 224 (3d Cir. 2002); In re Telegroup, 281 F.3d 133, 136 (3d Cir. 2002).
9. Decisions regarding discovery management and the scope of discovery are discretionary and reviewed under an abuse of discretion standard. In re Kiwi International Air Lines, Inc., 344 F.3d 311, 323 (3d Cir. 2003); In re Mazzocone, 200 B.R. 568, 573 (E.D. Pa. 1996).
10. Analysis. By this appeal, appellants contend: (1) the bankruptcy court erred in finding that appellee was not a "single employer" under the WARN Act; and (2) the bankruptcy court incorrectly granted appellee's motion for a protective order to quash the subpoenas of appellee's co-CEOs, Rodger Krouse and Marc Leder. (D.I. 14 at 1) With respect to the first contention, appellants may recover damages for unnoticed plant closings if they can establish that appellee was a single "business enterprise" or single employer with Jevic. See Pearson v. Component Tech. Corp., 247 F.3d 471, 482 (3d Cir. 2001).
11. The standard for inter-corporate liability under the WARN Act rests on whether the relevant companies have become "so entangled with [one another's] affairs" that the separate companies "are not what they appear to be, [and] in truth they are but divisions or departments of a single enterprise." NLRB v. Browning-Ferris Indus. of Pa, Inc., 691 F.2d 1117, 1122 (3d Cir.1982). The Department of Labor ("DOL") has explicitly promulgated relevant factors for courts to use when considering whether to impose derivative liability under the WARN Act on an affiliated corporation: (1) common ownership; (2) common directors and/or officers; (3) de facto exercise of control; (4) unity of personnel policies; and (5) dependency of operations. See 20 C.F.R. § 639.3(a)(2). These DOL factors are similar to those of the "single entity" analysis under the federal alter ego test, but conflicts within existing case law have resulted in various jurisdictions applying slightly different tests for liability under the WARN Act. Pearson, 247 F.3d at 477.
12. In Pearson, a suit brought by employees against an employer's creditor for damages under the WARN Act for the employer's unnoticed plants closures, the Third Circuit concluded that the appropriate test for corporate veil piercing under the WARN Act consists of the DOL factors. Id. at 478 ("The DOL's instruction that courts apply existing law' was not intended to undermine the force of its own regulation on the subject, but was instead intended to instruct courts that existing precedent applying other tests... may be useful and appropriate to resolve analogous questions arising under the WARN Act."). The factors, however, "are not balanced equally: the first and second factors, common ownership and common directors and/or ...