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Court ruling addresses multiple issues presented when contractor declares bankruptcy, includes enforcement actions previously publicized by the OFCCP

March 16th, 2017  |  Cynthia L. Hackerott

Only a small sliver of the OFCCP’s pending administrative claims, and potential administrative claims that might result from a pending compliance review, against chicken producing giant Pilgrim’s Pride Corporation (PPC) remained following the close of the company’s bankruptcy case, a federal bankruptcy court in Texas has ruled. The OFCCP could not pursue claims seeking relief in the form of economic-loss damages (lost wages, interest, front wages, and fringe benefits) against the company and the OFCCP requests for equitable instatement relief (i.e. the hiring of qualified individuals allegedly unlawfully denied employment) to the extent they arose from discrimination or other prohibited actions of the employer that occurred prior to the effective date of the PPC’s bankruptcy plan. In addition, the agency’s requests for cancellation, termination, and suspension of contracts, and the request for declaration of ineligibility against the reorganized company—to the extent such requests relied on alleged discriminatory or other prohibited actions by PPC that occurred prior to the effective date of the plan—were either disallowed or discharged claims themselves or were simply “backward-looking”  efforts to collect disallowed or discharged claims. Thus, the OFCCP was barred from pursuing those claims further. However, to the extent that agency’s requests for relief arose from discrimination or other prohibited actions of PPC that occurred after the bankruptcy plan went effective, such requests for relief did not constitute disallowed or discharged claims, and the OFCCP was free to pursue any such requests for relief. The court also ruled that the OFCCP’s requests to prospectively enjoin PPC from failing to comply with Executive Order (EO) 11246 and its implementing regulations were not claims that were disallowed or discharged in PPC’s bankruptcy case. Thus, the OFCCP was allowed to pursue such “forward-looking” relief against the company. (In re Pilgrim’s Pride Corp, February 15, 2017, Mullin, M.)

Bankruptcy case. On December 1, 2008, the company filed its bankruptcy case, and on May 18, 2009, the OFCCP filed its claim in that case alleging contingent and unliquidated claims against PPC based on the company’s alleged discriminatory hiring and employment practices from “July 20, 2005 to Present” at several of it processing plants, including two Texas plants in Mount Pleasant and Lufkin. On July 21, 2009, the bankruptcy court entered its claims objections procedure order. PPC and its affiliated debtors filed the bankruptcy plan on November 17, 2009; the court confirmed the plan and entered its confirmation order that became effective on December 28, 2009. After the plan went effective and pursuant to the claims objections procedure order, the company filed their objection to the OFCCP’s claim. On September 23, 2011, the court granted  the objection and disallowed the claim. The bankruptcy case was ultimately closed on September 14, 2015.

Administrative actions. The following day, the OFCCP filed with the DOL’s Office of Administrative Law Judges (OALJ) the first of three administrative complaints against the reorganized company. The first suit (ALJ Case No 2015- OFC-11),  alleged that PPC  systematically discriminated against qualified African-American, Caucasian, and female applicants for entry-level laborer and operative positions at its chicken plant in Athens, Alabama. Shortly thereafter, on October 2, 2015, the agency sued Pilgrim’s Pride again alleging that the contractor systematically discriminated against qualified African-American applicants seeking entry-level jobs as laborers and operatives at its chicken plant in Marshville, North Carolina (ALJ Case No 2016-OFC-1). In the third suit, filed on May 19, 2016 (ALJ Case No 2016-OFC-5), the OFCCP alleged that PPC systematically discriminated against female, African American and white jobseekers at its Mount Pleasant, Texas processing facility. In each of the complaints, the OFCCP sought both monetary and equitable relief, including: lost wages, interest, front wages, and fringe benefits, including but not limited to, retroactive seniority; the hiring of qualified individuals allegedly unlawfully denied employment; cancellation of all government contracts with the reorganized company; debarment of the company from future government contracts; and a permanent injunction against the company from alleged continuing violations of EO 11246. All of the allegations were based on actions that occurred prior to PPC’s bankruptcy filing.

Pending investigation. Meanwhile, the OFCCP is also currently conducting a compliance review into PPC’s hiring and employment practices at its Lufkin, Texas plant from January 1, 2007 to September 19, 2008 (i.e. also prior to PPC’s bankruptcy filing) that may have been in violation of EO 11246 and its implementing regulations. If and when the OFCCP chooses to file another complaint against PPC for any violations found in the Lufkin investigation, the agency would likely seek similar relief as that sought in its previous three complaints, the bankruptcy court noted.

Relief sought by the debtor company. Arguing that the actual and potential claims and relief sought in the three administrative complaints and the Lufkin compliance review have been disallowed in PPC’s bankruptcy case or discharged by PPC’s bankruptcy plan and confirmation order, the company filed a motion asking the court to: (a) enforce to order granting the objection; (b) enforce the plan and confirmation order; and (c) declare that the claims and relief sought in the three administrative cases and potentially sought pursuant to the Lufkin compliance review are barred and should be dismissed. The court granted this motion for the most part, denying it only as to the OFCCP’s “forward-looking” claims for relief.

“Claims” under the Bankruptcy Code. First, the court analyzed whether the OFCCP was asserting any “claims,” as defined by the bankruptcy code, against the company that could have been disallowed or discharged in the bankruptcy case. To that end, it relied upon the Fifth Circuit’s 1995 unpublished ruling in Vega v. Rexene Corp. In Vega, an employeewho was terminated before his former employer filed its Chapter 11 bankruptcy case but before its plan was confirmed—brought Title VII and the Texas Commission on Human Rights Act claims against the employer. Despite receiving notice of the employer’s bankruptcy filing, he waited until after the employer’s plan was confirmed to sue the reorganized company in federal district court. The Vega court ruled that the employee’s post-petition, pre-confirmation monetary damages and equitable reinstatement claims were discharged by the employer’s confirmed plan. That court rejected the employee’s assertion that reinstatement was an equitable remedy, and thus, not a dischargeable “claim.” It distinguished an injunction to prevent ongoing or future harm of the type that is not dischargeable because the relief cannot be converted into a monetary obligation (such as pollution) from the type of relief that can be converted into a monetary obligation, such as the employee’s request for reinstatement, which was an alternative to monetary front pay under Title VII (and was, therefore, discharged under the employer’s plan).

“Backward-looking” relief dischargeable . . . Applying Vega, the bankruptcy court here concluded that the economic-loss monetary damages sought in the OFCCP’s administrative actions (lost wages, interest, front wages, and fringe benefits) all constituted potentially dischargeable claims to the extent they arose from discrimination that occurred prior to confirmation of the plan. Further, equitable instatement relief (i.e. the hiring of qualified individuals allegedly unlawfully denied employment) arising from pre-confirmation discrimination also constituted a potentially dischargeable claim because such equitable relief is an alternative to front pay, the bankruptcy court determined. Although not specifically addressed in Vega, the OFCCP’s request for cancellation of all government contracts with the reorganized PPC and for debarment from future government contracts also constituted either claims themselves or are simply “backward-looking” efforts to collect discharged claims, at least to the extent that the OFCCP relied on discrimination that occurred prior to PPC’s plan confirmation.

…but “forward-looking” relief not dischargeable. In contrast, the OFCCP’s final requested remedy, to enjoin the reorganized PPC from failing to comply with EO 11246 and its implementing regulations in the future constituted a “forward-looking” effort by the agency to prevent ongoing or future discrimination. Pursuant to Vega, such a post confirmation and forward-looking equitable request for relief is not convertible into a monetary obligation and, therefore, does not constitute the type of “claim” that was or could have been disallowed in PPC’s bankruptcy case or discharged by the plan and confirmation order. Therefore, the OFCCP was not barred from pursuing such equitable “forward-looking” relief against the reorganized PPC, the bankruptcy court ruled.

Order granting the objection disallowing the Texas plant claims enforceable. Second, the court examined whether the OFCCP had sufficient notice of PPC’s bankruptcy case and if the OFCCP was properly served with relevant notices issued therein such that any filed bankruptcy claims were disallowed and any unfiled bankruptcy claims were discharged by the plan and confirmation order. The court detailed the various forms of notices it issued and authorized in the bankruptcy case. The first notice relevant here was the notice of the claims’ bar date, which, in part, directed all governmental units to file proofs of claim by June 1, 2009. In compliance with that notice, the OFCCP filed its claim in PPC’s bankruptcy case on May 18, 2009. At the time, the bankruptcy court’s local rules did not provide procedures for filing and serving omnibus claims objections; therefore, PPC filed its “Motion of the Debtors for Approval of Procedures for Objecting to Claims and for Notifying Claimants of Such Objections” (the claims objections procedures motion) and served it on the U.S. Attorney for the Northern District of Texas.

On July 21, 2009, the court entered its claims objections procedure order, and pursuant to the requirements of that order, the reorganized PPC filed their objection to the OFCCP’s claim and served it, along with, the corresponding hearing notice to the designated notice recipient listed in the claim on the U.S. Attorney for the Northern District of Texas. Because no response was filed to the objection, the court entered its order granting the objection and disallowed the OFCCP’s claim.

Rule 4 service as to Texas cases. Accordingly, the company asserted that because the OFCCP’s claim in the bankruptcy case, which included the two Texas processing plant cases, was disallowed, the OFCCP was barred from pursuing the claims pertaining to the Mount Pleasant action and any potential action resulting from the Lufkin compliance review.  The OFCCP, however, argued that the order granting the objection was void because PPC did not also serve the objection and hearing notice on the U.S. Attorney General pursuant to Federal Civil Rule 4.

Disagreeing with the agency, the court found that the claims objections procedures order governed service of omnibus claims objections filed in the bankruptcy case, and that order did not require service pursuant to Federal Civil Rule 4. As such, the court ruled that PPC complied with the claims objections procedures order, and by doing so, the company provided the OFCCP with good, adequate, and sufficient notice of the objection and hearing notice.

Because the claims that the OFCCP is currently pursuing in the Mount Pleasant action and those it might potentially assert as a result of the Lufkin investigation are the same claims that were disallowed by the order granting the objection in the bankruptcy case, the court found that the OFCCP was “prohibited from continuing its impermissible collateral attack” on the order granting the objection. Therefore, the agency was barred from asserting such previously disallowed claims against the reorganized company, and must dismiss such claims in the Mount Pleasant action and cease pursuing such claims in the Lufkin compliance review.

OFCCP actions pertaining to plants not included in bankruptcy case claim. The OFCCP’s administrative claims currently pending against PPC regarding the Athens, Alabama and Marshville, North Carolina plants were not asserted or filed as proofs of claim in the bankruptcy case. Nevertheless, the OFCCP Southeastern regional office had initiated compliance investigations concerning PPC’s pre-petition hiring and employment practices at or about the time PPC filed its bankruptcy case.

The company contended that, because the OFCCP  irrefutably had actual notice of PPC’s bankruptcy case, as evidenced by the claim that was timely filed (which included the Texas cases), the agency should have filed any and all claims it could have asserted, including any and all claims relating to the pre-petition hiring and employment practices at the Athens and Marshville plants. Given that the OFCCP did not do so, those claims were discharged by the plan and Confirmation order.

Yet, the OFCCP countered that it was not properly served with formal notice of PPC’s bankruptcy case and that several of its six regional offices, including its Southeastern regional office, did not have formal or actual knowledge of PPC’s bankruptcy case until long after the plan went effective. Even though the OFCCP’s Southwest and Rocky Mountain regional office (covering Texas) had actual notice, that notice could not be imputed to the entire OFCCP and all of its other regional offices, the agency argued.

The court, however, did not see it that way. Through one of its regional offices, the OFCCP timely filed the claim concerning at least seven of PPC’s plants located in three states, including the two Texas plants, the court pointed out. On top of that, the OFCCP acknowledged that PPC was the largest chicken processor in the United States, was one of the leading suppliers of chicken products to the United States Department of Agriculture, and was providing chicken products to government installations and offices under a number of government contracts. Thus, given the extensive contracts PPC had with the U.S. government, and the active investigations pending against PPC when it filed its bankruptcy case, any and all monetary and equitable claims that the OFCCP did assert, or could have asserted, with respect to any and all active and possible PPC plant investigations were also discharged by the plan and confirmation order, the court ruled. Consequently, the court barred the OFCCP from pursuing any such claims, including, but not limited to, the monetary and equitable claims and requests for relief asserted in the Athens, the Marshville, and the Mount Pleasant administrative actions as well as any potential claims resulting from the Lufkin compliance review.

Estoppel. Finally, the court rejected the OFCCP’s argument that the reorganized PPC was equitably estopped from making its bankruptcy disallowance of claims and discharge arguments because it waited too long to assert them in the pending administrative actions. According to the OFCCP, PPC, both before and after it was reorganized through the bankruptcy case, delayed for years before raising the bankruptcy defenses in the pending administrative actions. However, the court pointed out that the OFCCP knew that PPC filed bankruptcy, and the agency knew or should have known that PPC sought and obtained a discharge in its bankruptcy case. Also, the agency knew or should have known that its filed claim would be reviewed, would be subject to potential objections, and ultimately would be treated in PPC’s bankruptcy case. Thus, the OFCCP could not have reasonably relied on the company’s alleged silence to assume that it was abandoning the benefits of the bankruptcy court’s order granting its objection to the OFCCP’s claim and of PPC’s discharge under the plan and confirmation order.

[Update:  On March 3, 2017, the OFCCP notified ALJ Stephen R. Henley that it was withdrawing the administrative complaint filed against PPC regarding the Mount Pleasant, Texas processing facility (OALJ Case No 2016-OFC-00005). Following the parties joint stipulation that the matter be dismissed, the ALJ issued an order dismissing the case on March 13, 2017.]

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