Walsh v. Century City Doctors Hospital, LLC et al

OCR transcription for search; preserved printed pages are authoritative

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AUTH
U.S. GO
INFO!

: 09 18:57:27 Desc
Case 2:09-ap-01101-PC Doc 35_ Filed 08/17/09 Entered 08/18/
Main Document Page 1o
ENTERED - FILED
AUG 1.8 2008 We 17
ATR. BigtticT OF SALI OPN A
EY Det “eth j
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
In re: Case No.: LAQ8-23318SB
CENTURY CITY DOCTORS HOSPITAL, Chapter 7
LLC,
Adv. Case No. 09-ap-01101SB
bt .
Debtor(s) OPINION DISMISSING WARN ACT
CLAIM
HEATHER WALSH, Date: May 19, 2009
Plaintiffs). Time: 11:00 a.m.
Ctrm: 1575
Floor: 15th
Vv.
CENTURY CITY DOCTORS HOSPITAL,
LLC,
Defendant(s).
|. INTRODUCTION the court does not foreclose a possibility that
the WARN Act may apply in an appropriate
This case raises the issue of whether chapter 7 trustee, the court finds that, under
the Worker Adjustment and Retraining the facts of this case, the chapter 7 trustee
Notification Act (the “WARN Act” or “the Act”), was not acting as an “employer” within the
29 U.S.C. § 2101-2109 (2006), applies to a meaning of the Act, and thus, was not subject
trustee in a chapter 7' bankruptcy case. While to the Act's requirements. Accordingly,
debtor's former employees’ WARN Act claim
ee
' Unless otherwise indicated, af chapter, (West 2009) and to the Federal Rules of
section and rule references are to the Bankruptcy Procedure, Rules 1001-9036.

Bankruptcy Code, 11 U.S.C.A. §§ 101-1532

TICATED
/ERNMENT
MATION

GPO

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Case 2:09-ap-01101-PC Doc35_ Filed 08/17/09 Entered 08/18/09 18:57:27 Des

Main Document

against the trustee is dismissed on the
grounds that it fails to state a claim upon
which relief can be granted.

i. RELEVANT FACTS

At the time of the filing of the chapter
7 bankruptcy petition, debtor Century City
Doctors Hospital (“CCDH") was operating a
176-bed acute care hospital and had
approximately 30 patients under care.
Immediately upon filing, the trustee obtained
authority to operate CCDH for a limited period
of time for the purpose of attending to its
remaining patients, shutting down _ its
operations and complying with government
regulations relating to the disposal of medical
waste and hazardous materials. In fact, within
the first week after filing, most of the patients
were discharged and the remaining patients
were transferred to other hospitals.

Plaintiffs are former CCDH
employees, Some two hours after the
bankruptcy filing, the trustee caused a mass
layoff of employees, including some of the
plaintiffs. The trustee operated CCDH with the
remaining staff members for several days for
the limited purpose of providing medical
services for the remaining patients and
ensuring that CCDH's business was wound up
in a timely and efficient manner.

Gn August 26, 2008, four days after
the bankruptcy filing, the trustee mailed out to
the remaining plaintiffs a memorandum
announcing their termination. Plaintiffs
brought this adversary complaint against the
estate for violation of the WARN Act.

lll ANALYSIS

The WARN Act requires an
“employer” to provide its employees with sixty
days notice” of a “plant closing” or “mass
layoff.”* 29 U.S.C. § 2102. If the employer

* The WARN Act provides for certain
exclusions and exemptions from the sixty day
notification requirements. See 29 U.S.C. §§
2101{b); 2103 (2006), However, none of
those exceptions is applicable in this case.

* “(T]he term ‘plant closing’ means the
permanent or temporary shutdown of a single

Page 2 of 6

fails to do so, it may be liable for up to sixty
days’ back pay. See jd. § 2104. The issue in
this case is whether the trustee, acting on
behalf of the estate of CCDH, was an
“employer” within the meaning of the WARN
Act, and was therefore subject to WARN Act
notification requirements when plaintiffs were
laid off following the chapter 7 bankruptcy
filing. if the trustee did not continue operation
of CCDH's business as an “employer” under
the Act, he was not subject to the Act’s
notification requirements and the WARN Act
claim against him should be dismissed. See
In re United Healthcare System, Inc., 200 F.3d
170 (3d Cir. 1999).

The WARN Act defines the term
“employer” as “any business enterprise that
employs 100 or more employees, excluding
part time employees...” id. § 2101.
Although the statute does not define the term
“business enterprise,” the Department of
Labor comment provides some guidance as to
when a bankruptcy trustee may be a “business
enterprise” subject to the WARN Act:

[A] fiduciary whose sole function in
the bankruptcy process is to
liquidate a failed business for the
benefit of creditors does not
succeed to the notice obligations of
the former employer because the

site of employment, or one or more facilities or
operating units within a single site of
employment, if the shutdown results in an
employment loss at the single site of
employment during any 30-day period for 50
or more employees excluding any part-time
employees,” and “the term ‘mass _ layoff’
means a reduction in force which is not the
result of a plant closing; and results in an
employment loss at the single site of
employment during any 30-day period for at
least 33 percent of the employees (excluding
any part-time employees); and at least 50
employees (excluding any part-time
employees); or at least 500 employees
(excluding any part-time employees)[.]” Id. §
2101.

* In this case, the requisite number of
employees to be subject to the WARN Act is
satisfied.

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Case 2:09-ap-01101-PC Doc35_ Filed 08/17/09 Entered 08/18/09 18:57:27 Des

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fiduciary is not operating a
“business enterprise” in the normal
commercial sense. .. . In other
situations, where the fiduciary may
continue to operate the business for
the benefit of creditors, the fiduciary
would succeed to the WARN
obligations of the employer precisely
because the fiduciary continues the
business in operation.

54 Fed. Reg. 16,042, 16,045 (1989). Thus,
whether a bankruptcy trustee is an “employer”
under the Act turns on the facts of the
particular case.

The closest case on point is in re
United Healthcare System. Relying on the
Department of Labor commentary, the Third
Circuit reasoned that the qualification of a
debtor in possession in a chapter 11 case as
an “employer” under the WARN Act “depends
on the nature and extent of the entity’s
business and commercial activities while in
bankruptcy, and not merely on whether
employees continue to work ‘on a daily basis’.”
id. at 178. The court further stated;

The more closely the entity’s
activities resemble those of a
business operating as a going
concern, the more likely it is that the
entity is an ‘employer;’ the more
closely the activities resemble those
of a business winding up its affairs,
the more likely it is the entity is not
subject to the WARN Act.

id. The United Healthcare System court found
that the actions of the debtor in possession
from the time of filing the case clearly
demonstrated an intent to liquidate. fd. In
consequence, the court found that the WARN
Act did not apply, even though the debtor
operated the business under chapter 11 for a
period of time.

In contrast to the United Healthcare
System case, this is a chapter 7 case.
Because there is no caselaw or statutory
provision regarding the application of the
WARN Act in chapter 7 cases, the Department
of Labor's comments are entitled great
deference in interpreting a federal labor
statute. See, eg., Chauffeurs, Sales Drivers,
Warehousemen & Helpers Union Local 572 v.

Page 3 of 6

Wesilock Corp., 66 F.3d 241, 244 (9th Cir.
1995) (relying on the Department of Labor
comments as authoritative interpretations of
the WARN Act in determining that a creditor
that took possession of a business to enforce
a security interest was not subject to the
WARN Act); United Health Care System, 200
F.3d at 176-77 (same).

Under the interpretation of the
Department of Labor, a chapter 7 trustee
would rarely be subject to the WARN Act,
because the trustee does not “operat[e] a
‘business enterprise’ in the normal commercial
sense.” The purpose of a chapter 7 case is
the liquidation of a debtor's business, not its
operation. See 11 U.S.C. § 704.

This analysis may not be strictly
applicable in all chapter 7 cases. A chapter 7
trustee may decide to operate a business
enterprise in the “normal commercial sense”
for a period of time, such that the WARN Act
may apply to the termination of employees
during such operations. Thus, it appears
possible that a WARN Act claim could properly
be asserted if a chapter 7 trustee were to
continue to operate a business for a period of
time. The Department of Labor interpretation
of the WARN Act supports this view: “[T]he
Department does not think it appropriate to
exclude all bankrupt companies from the
definition of ‘[employer’.]" 54 Fed. Reg. at
16045. Accordingly, the Department rejected
the bright-lineé rule that a trustee in a
bankruptcy case should always be excluded
from the definition of employer. fd.

This raises a question of how and how
long the trustee must operate the business “in
the normal commercial sense” to become
subject to the WARN Act. Plaintiffs point to
the fact that the trustee did operate the
hospital in this case pursuant to court authority
for a few days, and argue that this made the
trustee subject to the WARN Act.

The court need not decide in this case
how long a trustee must operate a business to
become subject to the WARN Act. From the
outset of this case, the trustee did not operate
the business of CCDH “in the normal
commercial sense.” In accordance with the
court’s order, the trustee operated CCDH
solely for the limited purpose “of shutting down
the Debtor's operations and complying with
government regulations relating to disposal of
medical waste and hazardous materials.”

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Case 2:09-ap-01101-PC Doc35_ Filed 08/17/09 Entered 08/18/09 18:57:27 Des
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Order Granting Motion for Authority to Operate
the Debtor's Business, Aug. 22, 2008. The
trustee’s intentions have consistently been to
close the hospital business at the earliest
reasonable time and to liquidate its assets for
the benefit of its creditors. The trustee only
operated CCDH for approximately a week
from the date of filing, and the trustee's brief
operation of CCDH was not for any
commercial purpose. Thus, the trustee acted
solely as a “liquidating fiduciary,” rather than
an employer “operating a business enterprise
in the normal commercial sense.”

IV. CONCLUSION

While the court leaves open the
guestion whether the WARN Act can ever
apply in a chapter 7 case, it finds the Act is
clearly inapplicable in this case. From the
outset, this has been a liquidation case. Thus,
the chapter 7 trustee is “a fiduciary whose sole
function in the bankruptcy process is to
liquidate a failed business for the benefit of
creditors.” The trustee in fact operated the
business only for a few days, and solely to
complete the care of patients in the hospital,
or to transfer them to other facilities.
In consequence, the trustee is not an
“employer" within the meaning of the WARN
Act, and as such, does net succeed to the
notice obligations of the former employer. The
motion to dismiss the WARN Act claim against
the trustee is granted without leave to amend,

Dated: August 17, 2009 Alin a9 2009

‘Hone uel L. Bufford
tates Bankruptcy Judge

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Case 2:09-ap-01101-PC Doc35_ Filed 08/17/09 Entered 08/18/09 18:57:27 Desc

Main Document Page 5 of6

NOTE TO USERS OF THIS FORM:

1) Attach this form to the last page of a proposed Order or Judgment. Do not file as a separate document.

2) The title of the judgment or order and all service information must be filled in by the party lodging the order.
3} Category |. below: The United States trustee and case trustee (if any) will always be in this category.

4) Category I. below: List ONLY addresses for debtor (and attorney), movant (or attorney} and person/entity
(or attorney) who filed an opposition to the requested relief. DO NOT list an address if person/entity is listed in
category I.

NOTICE OF ENTERED ORDER AND SERVICE LIST

Notice is given by the court that a judgment or order entitled (specify) OPINION DISMISSING WARN
ACT CLAIM was entered on the date indicated as “Entered” on the first page of this judgment or order
and will be served in the manner indicated below:

|. SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (*NEF”}) - Pursuant to
controlling General Order(s} and Local Bankruptcy Rule(s), the foregoing document was served on
the following person(s} by the court via NEF and hyperlink to the judgment or order. As of August 17,
2009, the following person(s) are currently on the Electronic Mail Notice List for this bankruptcy case
or adversary proceeding to receive NEF transmission at the email address(es) indicated below.

Blake Lindemann, Esq. ecf@llgbankruptcy.com
Richard K. Diamond, Trustee rdiamond@ecf.epiqsystems.com, jlv@dgdk.com
Steven J. Schwartz, Esq. sschwartz@dgdk.com
United States Trustee ustpregion16 la.ecf@usdoj.gov
CL] Service information continued on attached page

ll. SERVED BY THE COURT VIA U.S. MAIL: A copy of this notice and a true copy of this judgment
or order was sent by United States Mail, first class, postage prepaid, to the following person(s) and/or
entity{ies) at the address(es) indicated below:

Heather Walsh
1330 Manhattan Beach Boulevard
Manhattan Beach, California 90266

Century City Doctors Hospital, LLC
120 South Spalding Drive

#233

Beverly Hills, California 90212

Randy Rosen

c/o Devin McRae, Esq.
Glaser, Weil, Fink et al.

10250 Constellation Boulevard
19th Floor

Los Angeles, California 90067

Peter M. Jaynes, Esq.

Berman Berman & Berman LLP
14900 West Olympic Boulevard
Suite 600

Los Angeles, California 90064-1151

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Case 2:09-ap-01101-PC Doc35_ Filed 08/17/09 Entered 08/18/09 18:57:27 Des
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Salus Surgical Group, LLC
c/o Linda Kenworthy

120 South Spalding Drive
#233

Beverly Hills, California 90212

L] Service information continued on attached page

I, TO BE SERVED BY THE LODGING PARTY: Within 72 hours after receipt of a copy of this
judgment or order which bears an “Entered” stamp, the party lodging the judgment or order will serve
a complete copy bearing an “Entered” stamp by U.S. Mail, overnight mail, facsimile transmission or
email and file a proof of service of the entered order on the following person(s) and/or entity(ies) at
the address(es), facsimile transmission number(s), and/or email address(es) indicated below:

ia Service information continued on attached page

ADDITIONAL SERVICE INFORMATION {if needed):