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Court dumps WARN Act suit against over-extended law firm, but laid-off employees may amend

A putative class action filed by a group of employees summarily laid off by a law firm that had over-extended itself by way of an “acquisition binge” saw their claims dismissed by a federal court in Florida. In addition to pursuing the law firm with their WARN Act claims, the employees had sought to hold the majority shareholder separately accountable; however, the court found that individual liability was not possible under the WARN Act, nor could the shareholder be considered part of a “single employer” with the firm. The employees also failed to provide sufficient notice of the contract provisions that the firm allegedly violated in support of their breach of contract claims. The defendants’ motion to dismiss was granted, but the plaintiffs were permitted leave to amend (Regal v. Butler & Hosch, P.A., October 8, 2015, Bloom, B.).

A law firm that employed almost 700 attorneys, paralegals, and other staff members, Butler & Hosch, P.A., specialized in mortgage banking and actively prosecuted between 50,000 and 60,000 foreclosure files. In 2013, the firm began an “acquisition binge,” whereby it quickly expanded its national presence by acquiring other businesses in the industry. It obtained millions in credit from lenders and, by 2015, had begun creating millions of dollars’ worth of fake receivables to fool its creditors, according to the complaint.

Layoffs, lawsuit. A few months later, and two years into its “binge,” the law firm fired approximately 700 employees, including the plaintiffs. The firm sent an email to the laid-off workers telling them of their termination, and that they would not be paid wages due for the previous three weeks, or a severance. Although the employer anticipated the layoffs, it failed to give 60-day notice to the employees or to state and local officials, as required under the WARN Act.

The plaintiffs filed suit on behalf of all former full-time employees who were laid off without notice. They named not only the law firm, but also the firm’s founder and sole owner as an individual defendant. In addition to their WARN Act claim, they brought a cause of action against the firm for breach of contract.

Liability of owner. The employees sought to pierce the corporate veil in order to impose liability on the owner in his individual capacity. Noting that the corporate veil could be pierced to hold a shareholder liable only in certain circumstances, such as fraud, the court first considered whether the employees’ alter ego allegations could be pled as a distinct cause of action. Although Florida courts allowed the plaintiffs to do so, federal courts were “generally averse to the practice,” the court said. While the employees could employ the alter ego doctrine to assert liability against the owner, they could not do so as a separate cause of action.

No individual liability. Moving on to whether alter ego liability could actually be imposed under the WARN Act, the court considered the statute’s definition of “employer.” That term is defined under the Act as “any business enterprise” employing 100 or more employees, with certain restrictions. The employer argued that the owner, as an individual, could not qualify as a “business enterprise,” and the court explained that several federal courts were in agreement with that point of view, including district courts in New York and Maryland. Other courts had found that individual liability could not be imposed under the WARN Act, including federal courts in Michigan and Louisiana. Agreeing with the holdings in those cases, the court concluded that the “plain language of the WARN Act, associated regulations, and legislative history indicate that an individual does not qualify as a ‘business enterprise’ as the term is used in the Act.”

In fact, the court explained, there was “simply no reference to individual liability in the statute, legislative history, or pertinent regulations” and the employees submitted no authority supporting their contention to the contrary. The employees attempted to rely on the Black’s Law Dictionary definition—a “persuasive tool” for interpretation, the court noted, but the definition was “outdated.” The definition in the reference’s current edition did not support the same conclusion.

No “single employer” liability. Likewise, the employer rejected the assertion that the firm and the majority shareholder were a “single employer” under WARN. This argument failed on the same point: the owner was not an “employer” under the Act because he could not be considered a “business enterprise.”

Breach of contract. The employees’ breach of contract allegations were sufficient, with one exception. Although the complaint was “not the most precise pleading,” according to the court, it did allege that the employer breached by failing to pay their “earned unpaid wages, salary, commissions, bonuses, accrued holiday pay, accrued vacation pay, all accrued paid time off, pension and 401(k) contributions, COBRA benefits, and other benefits.” The phrase “other benefits” was the rub; Rule 8 required greater precision than “ambiguous catchall allegations.” If the employees wished to allege a breach as to other promised benefits, they would have to do so by way of amendment. Likewise, as for their claim for breach of implied contract.

Not a “shotgun pleading,” but not great. Finally, the defendants contended that the employees’ complaint amounted to a “shotgun pleading” in that it inappropriately incorporated all previous allegations with each count. To the court, however, the pleading was a “far cry from the rambling, incoherent allegations generally indicative of a shotgun pleading.” Thus, while it granted the defendants’ motion to dismiss, the court permitted the plaintiffs to “remedy this scrivener’s error,” granting leave to amend.