Gan et al v. Schoenmann

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MEMORANDUM RE MOTION FOR LEAVE TO AMEND ANSWER
UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re
NORTHPOINT COMMUNICATIONS
GROUP, INC., NORTHPOINT
COMMUNICATIONS, INC.,
NORTHPOINT COMMUNICATIONS OF
VIRGINIA, INC., NORTHPOINT
INTERNATIONAL, INC.,
Debtors.
DINA GAN, TANJA WARNER, TRESSA JONES
ERIC JAMES and BRANDON LANE,
individually and on behalf of others
similarly situated,
Plaintiffs,
vs.
E. LYNN SCHOENMANN, Trustee of
Northpoint Communications, Inc.,
Defendant.
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Case No: 01-30127 TC
(Jointly Administered with
#01-30125, #01-30126, and
#01-30128)
Chapter 7
Adv. Proc. No. 01-3107 TC
Date: July 29, 2005
Time: 9:30 a.m.
Ctrm: Hon. Thomas E. Carlson
235 Pine Street
San Francisco, CA
MEMORANDUM RE MOTION FOR LEAVE TO AMEND ANSWER
Signed and Filed: August 04, 2005
________________________________________
THOMAS E. CARLSON
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
August 05, 2005
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 01-03107 Doc# 67 Filed: 08/04/05 Entered: 08/05/05 17:02:31 Page 1 of 4

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MEMORANDUM RE MOTION FOR LEAVE TO AMEND ANSWER
-2-
On July 29, 2005, this court held a hearing regarding the
motion of Defendant, chapter 11 trustee E. Lynn Schoenmann
(Trustee), to amend her answer in this action to add two
affirmative defenses. 	Dennis D. Davis appeared for Trustee. 	David
A. Lowe and Christopher D. Kuhner appeared for Plaintiff. 	Upon due
consideration, and for the reasons stated below, the motion is
denied regarding the “faltering company” defense, and granted
regarding the “good faith” exception.
Faltering Company Exception
Trustee’s request to amend her answer to assert the “faltering
company” exception is denied on the basis that the amendment would
be futile. 	To invoke that exception, the employer must (1) be
actively seeking financing, (2) that it has a realistic opportunity
to obtain, (3) that would enable the employer to postpone a
shutdown for a reasonable period of time, and (4) that the employer
could not obtain if WARN Act notice was provided to the employees.
20 C.F.R. § 639.9(a).
Trustee cannot establish the third requirement of the
exception - that the financing sought would postpone the shutdown
for a reasonable period of time. 	Debtor filed its motion to obtain
financing on January 17, 2001. 	The motion indicates that even with
the desired financing, Debtor could not operate beyond March 31,
2001, and that Debtor intended not to operate indefinitely, but to
close a sale of its assets by the end of March. 	The financing thus
would have allowed Debtor to operate for only 73 days, little more
than the 60-day WARN Act notice period, at which time Debtor would
definitely cease operations. 	Although Debtor hoped that a buyer
would hire Debtor’s employees, it had no reasonable basis to expect
Case: 01-03107 Doc# 67 Filed: 08/04/05 Entered: 08/05/05 17:02:31 Page 2 of 4

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MEMORANDUM RE MOTION FOR LEAVE TO AMEND ANSWER
-3-
that would happen. 	As of 60 days before its expected shutdown,
Debtor had not found a buyer, it was merely pursuing a process of
seeking a buyer. 	Moreover, Debtor’s proposed sales procedures did
not specify that the purchaser was to retain Debtor’s employees or
to be responsible for providing WARN Act notice to those employees.
Thus, this case is not at all like Burnsides v. MJ Optical, Inc.,
128 F.3d 700, 703 (8 th Cir. 1997), in which the purchaser had agreed
to retain the acquired company’s employees until just before the
sale closed. 	In sum, Debtor knew it would shut down approximately
73 days after it obtained the financing, and had no demonstrable
basis to expect that a purchaser would retain its employees
afterward.
Good Faith Exception
Trustee’s request to amend her answer to assert the “good
faith” exception is granted. 	Leave to amend should be granted,
because the case has not yet been set for trial, discovery is not
closed, the defense does not involve a wholly new set of facts, and
the amendment does not appear to be futile.
**END OF MEMORANDUM**
Case: 01-03107 Doc# 67 Filed: 08/04/05 Entered: 08/05/05 17:02:31 Page 3 of 4

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Court Service List
Dennis D. Davis, Esq.
Goldberg, Stinnett, Meyers & Davis
44 Montgomery Street, #2900
San Francisco, CA 94104
Christopher D. Kuhner, Esq.
Kornfield, Paul & Nyberg
1999 Harrison Street, #2675
Oakland, CA 94612
David A. Lowe, Esq.
Rudy, Exelrod & Zieff, LLP
351 California Street, #700
San Francisco, CA 94104
Michael S. Lurey, Esq.
Law Offices of Latham & Watkins
633 W 5th Street, #4000
Los Angeles, CA 90071-2007
Joshua M. Mester, Esq.
Hennigan, Bennett & Dorman
601 S Figueroa Street, #3300
Los Angeles, CA 90017
Office of the U.S. Trustee
235 Pine Street, #700
San Francisco, CA 94104
Case: 01-03107 Doc# 67 Filed: 08/04/05 Entered: 08/05/05 17:02:31 Page 4 of 4