In the well-known children’s story book written by P.D. Eastman and edited by beloved Dr. Seuss, a baby bird embarks on a quest to find his mother, asking a hen, a dog, and a kitten, among others, the famous question, “Are you my mother?”   If Dr. Seuss had penned the recently-decided case of Thielman v. MF Global Holdings, Ltd. (In re MF Global Holdings Ltd.), he might have called it, “Are You My Employer?” and its plot would have centered around the WARN Act plaintiffs’ efforts to convince the court that the MF Global enterprise, collectively, was the plaintiffs’ mother ahem employer. Just as the baby bird in Are You My Mother was faced with a journey before he could meet his mother, so too did the plaintiffs in MF Global Holdings embark on a journey of sorts—meeting the bankruptcy court and then the Southern District of New York along the way —before finding out that maybe in, some instances, it’s not necessary to know exactly who your mother, ahem employer, is. 

Background

On December 12, 2011, the plaintiffs, alleged former employees of MF Global, filed their first amended complaint against the defendants (who are debtors in various bankruptcy cases pending in the bankruptcy court for the Southern District of New York) and MF Global Inc. (MFGI), a broker-dealer affiliate of the defendants (who is subject to a proceeding under the Securities Investor Protection Act (SIPA)). The SIPA trustee was appointed prior to the termination of the plaintiffs. In their complaint, the plaintiffs asserted claims that the defendants had failed to provide them with advance notice of their termination as required under the federal and New York Worker Adjustment and Retraining Notification (WARN) Acts.

Before the court could address the substance of the allegations, the defendants (including MFGI) filed motions to dismiss. The identity of the plaintiffs’ employer was a threshold issue before the court. The plaintiffs argued that they were employed by MF Global collectively rather than by a single defendant. After repeated requests from the bankruptcy court that the parties identify which entity employed each of the plaintiffs, the defendants filed a letter with the court identifying MFGI as the employer for all of the plaintiffs. The plaintiffs also filed a letter in which they continued to assert that they were employed by MF Global, collectively. The bankruptcy court granted the motion to dismiss against MFGI with prejudice and found that, as a liquidating fiduciary, the SIPA trustee cannot be considered an “employer” subject to liability under the WARN Acts. The bankruptcy court dismissed the claims against the defendants without prejudice on the basis that the complaint failed to indicate the specific employer of each plaintiff. We blogged about the bankruptcy court’s decision here.

The plaintiffs filed their second amended complaint on November 26, 2012 against the defendants other than MFGI. The defendants again sought to dismiss the second amended complaint, and the bankruptcy court granted the defendants’ motion with prejudice. The bankruptcy court found that the plaintiffs failed to allege that they were employed by an entity other than MFGI, which the court had already determined was not subject to WARN liability. The plaintiffs appealed.

On appeal, the district court concluded that the bankruptcy court could not have reached its decision without considering information not properly before it. The district court reasoned that the bankruptcy court based its decision on the assumption that the plaintiffs were solely employees of MFGI and of no other defendant entities. As such, the SIPA trustee, alone, was responsible for their termination. The district court observed that, nowhere in the pleadings, however, did the plaintiffs allege that MFGI was their employer. Instead, this was an assertion of the defendants in the letter that was filed with the court in connection with the first amended complaint. The district court further noted that the bankruptcy court misapplied the legal standard for a motion to dismiss in the case because “[p]laintiffs do not carry the burden of rebutting evidence proffered by [d]efendants.”

The district court also held that a plaintiff is not required to plead a nominal or immediate employer in order to plead that two or more business entities operate as a single employer—a conclusion implicit in the bankruptcy court’s decision. Under the WARN regulations, an employer may encompass both a parent and a subsidiary, depending on the degree of interdependence between the entities. The district court explained that if the operations of the defendants were so interdependent that the employees’ nominal or immediate employer was not reasonably apparent, then requiring such identification would have the effect of rendering employers immune from liability under federal employment statutes.

Consequently, the district court reversed and remanded to the bankruptcy court for further proceedings consistent with its decision.

Conclusion

Unlike P.D. Eastman’s Are You My Mother?, the MF Global decision is likely to have a sequel as the bankruptcy court determines whether the defendants did, as the plaintiffs claim, have a duty to warn them of their imminent termination. We will continue to monitor the decision and keep you apprised of any interesting developments.