No. 14-1331

In The

Supreme Court of the United States

Spring Term 2015 __________

Veronica Murray, Individually and

on Behalf of all other similarly situated Former Employees,

Petitioners, v.

Fazal Oil, Inc., Respondent.

__________

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE THIRTEENTH CIRCUIT __________

BRIEF FOR PETITIONERS

__________

Team No. 25 Counsel for Petitioners

i Team No. 25 Team No. 25

QUESTIONS PRESENTED

I. Whether Fazal Oil was acting as an “employer” under § 2101 of the Worker Adjustment

and Retraining Notification Act when it terminated only 3,000 of its 10,000 employees

on May 6, 2013 and continued to operate a business enterprise in the normal commercial

sense.

II. Whether Fazal Oil was entitled to an exemption of the 60-day notice requirement for

termination of employees under the “unforeseeable business circumstances” and

“faltering company” exemptions of the Worker Adjustment and Retraining Notification

Act, despite the fact that 1) the notice it provided was inadequate to qualify for an

exemption and, even if the notice was adequate, 2) it willingly entered into a business

relationship with a volatile country and 3) it failed to prove that providing adequate

notice to its employees would preclude it from obtaining additional credit.

ii Team No. 25 Team No. 25

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED………………………………………………………………………i

TABLE OF CONTENTS…………………………………………………………………………ii

TABLE OF AUTHORITIES……………………………………………………………………..iv

STANDARD OF REVIEW……………………………………………………………………....1

OPINIONS BELOW…………………………………………………………………………...…1

STATUTORY PROVISIONS INVOLVED…………………………………………………...…1

STATEMENT OF THE CASE………………………………………………………………...…2

SUMMARY OF THE ARGUMENT……………………………………………………………..6

ARGUMENT……………………………………………………………………………………..9

I. FAZAL OIL WAS NOT EXEMPT FROM THE NOTIFICATION REQUIREMENTS OF THE WARN ACT BECAUSE FAZAL OIL WAS OPERATING AS A BUSINESS ENTERPRISE AND NOT AS A LIQUIDATING FIDUCIARY………………………………………………………..9

A. Allowing a Liquidating Fiduciary Exception Violates Congress’ Stated Purpose for Enacting the WARN Act and is Contrary to the Canons of Statutory Construction……………………………………………10

1. The Liquidating Fiduciary Exception Undermines the Stated Purpose of the WARN Act…………………………………………..10

2. The Implementation of a Liquidating Fiduciary Exception is Contrary to the Rules of Statutory Construction…………………….12

B. The Liquidating Fiduciary Exception Should Not be Applied in Chapter 11 Bankruptcy Cases Because the Debtor-in-Possession is Not a Former Employer……………………………………………………...13

C. Fazal Oil Has Failed to Demonstrate that it was Not Engaged in Business When it Issued its May 6, 2013 Termination Letter………………15

II. FAZAL OIL VIOLATED THE WARN ACT WHEN IT FAILED TO PROVIDE 60-DAY NOTICE BECAUSE IT DOES NOT QUALIFY FOR

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ANY OF THE EXEMPTIONS UNDER THE WARN ACT……………………..…17

A. Respondents Cannot Use Either of the WARN Act Exemptions Because the Notice Provided to Petitioners was Not Adequate……………..17

B. The Unforeseeable Business Circumstances Exemption Does Not Apply Because the Event Causing the Termination was Reasonably Foreseeable at the Time that 60-Day Notice Would Have Been Required…………………………………………………………………..…19

C. The Faltering Company Exemption Does Not Apply Because Fazal Oil Failed to Meet its Burden of Proof with Regard to Multiple Elements of the Exemption and it Failed to Demonstrate a Causal Connection Between its Failure to Obtain Capital and the Plant Closings……………………………………………………………………...24

CONCLUSION………………………………………………………………………………….30

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TABLE OF AUTHORITIES

U.S. Supreme Court Blum v. Stenson, 465 U.S. 886 (1994) …………………………………………………………..12 City of Arlington, Tex. v. F.C.C., 133 S. Ct. 1863 (2013) ………………………………………10 NLRB v. Bildisco, 465 U.S. 513 (1984) …………………………………………………………14 U.S. Court of Appeals Alarcon v. Keller Indus., Inc., 27 F.3d 386 (9th Cir. 1994) ……………………………………..18 Biltmore Assocs., LLC v. Twin City Fire Ins. Co., 572 F.3d 663 (9th Cir. 2009) ………………14 Carpenters Dist. Council of New Orleans & Vicinity v. Dillard Dep’t Stores, Inc., 15 F.3d 1275 (5th Cir. 1994) ……………………………………………………………21, 29, 30 Childress v. Darby Lumber, Inc., 357 F.3d 1000 (9th Cir. 2004) …………………...21, 23, 27, 28 Gross v. Hale-Halsell Co., 554 F.3d 870 (10th Cir. 2009) ……………………………………...20 Hogar Agua y Vida en el Desierto, Inc., v. Suarez-Medina, 36 F.3d 177 (1st Cir. 1994) ………12 Hotel Emps. and Restaurant Emps. Intern, Union Local 54 v. Elsinore Assocs., 173 F.3d 175 (3d Cir. 1999) ………………………………………………………………………9 In re APA Transp. Corp. Consol. Litig., 541 F.3d 233 (3d Cir. 2008) ………………………….26 Official Comm. of Unsecured Creditors of United Healthcare Sys. v. Medical Staff, Local 1199J (In re United Healthcare), 200 F.3d 170 (3d Cir. 1999) …………….....1, 10, 15, 16 Local Union 7107 v. Clinchfield Coal Co., 124 F.3d 639 (4th Cir. 1997) ……………………...12 Loehrer v. McDonnell Douglas Corp., 98 F.3d 1056 (8th Cir. 1996) …………………..20, 21, 23 Universal Minerals, Inc. v. C. A. Hughes & Co., 669 F.2d 98 (3d Cir. 1981) …………………...1 United Steel Workers of Am. Local 2660 v. U.S. Steel Corp., 683 F.3d 882 (8th Cir. 2012) ……………………………………………………………………………….20, 21 U.S. District Court Chestnut v. Stone Forest Indus., Inc., 817 F. Supp. 932 (N.D. Fla. 1993) ………….20, 21, 22, 23

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Cruz v. Robert Abbey, Inc., 778 F. Supp. 605 (E.D.N.Y. 1991) ………………………………...12 Grimmer v. Lord Day & Lord, 937 F. Supp. 255 (S.D.N.Y. 1996) …………………………17, 18 U.S. Bankruptcy Court Angles v. Flexible Flyer Liquidating Trust (In re FF Acquisition Corp.), 438 B.R. 886 (Bankr. N.D. Miss. 2010) ……………………………………………………………………21, 24 Barnett v. Jamesway Corp. (In re Jamesway Corp.), 235 B.R. 329 (Bankr. S.D.N.Y. 1999) …………………………………………………………………………17 Cohen v. Nat’l Union Fire Ins. Co. (In re County Seat Stores, Inc.), 280 B.R. 319 (Bankr. S.D.N.Y. 2002) …………………………………………………………………………14 Federal Statutes 11 U.S.C. § 101(13) (2012) ……………………………………………………………………..14 11 U.S.C. § 1101(1) (2012) ……………………………………………………………………..14 29 U.S.C. § 2101 (2012) …………………………………………………………………...…2, 12 29 U.S.C. § 2102 (2012) …………………………………………………………….1, 2, 9, 18, 20 29 U.S.C. § 2107 (2012) ………………………………………………………………………...10 Federal Regulations 20 C.F.R. § 639.1 (1989) ……………………………………………………………………..9, 11 20 C.F.R. § 639.7 (1989) ………………………………………………………………………..18 20 C.F.R. § 639.9 (1989) ……………………………………………………10, 17, 18, 20, 24, 25 Worker Adjustment and Retraining Notification, 54 Fed. Reg. 16042-01 (Apr. 20, 1989) (codified at 20 C.F.R. § 639) ……………………………….….10, 13, 14, 16, 29 Legislative Materials 134 Cong. Reg. H5500-01 (July 13, 1988) (statement of Rep. Clay) …………………………..11 Other Authorities Michael Busenkell, Third Circuit Sets a High Bar for “Faltering Company” Exception Under Warn Act, 27 Am. Bankr. Inst. J. 20 (2008) …………………………………27

vi Team No. 25 Team No. 25

Paul Maschmeyer et al., Collier Handbook for Trustees and Debtors in Possession (2014) ….13

1 Team No. 25

STANDARD OF REVIEW

This is an appeal from the Thirteenth Circuit’s decision reversing the Bankruptcy and

District Court by holding that Fazal Oil, Inc. acted both as a liquidating fiduciary and in

compliance with the notice requirements of the WARN Act under both the “unforeseeable

business circumstances” and “faltering company” exceptions. The parties in this case do not

dispute the Bankruptcy Court’s findings of fact, but instead dispute the sufficiency of the facts to

support its legal conclusions. Official Comm. of Unsecured Creditors of United Healthcare Sys.

v. Medical Staff, Local 1199J (In re United Healthcare System, Inc.), 200 F.3d 170, 175–76 (3d

Cir. 1999). This Court reviews a lower court’s “choice and interpretation of legal precepts and its

application of those precepts to the historical facts,” de novo. Universal Minerals, Inc. v. C. A.

Hughes & Co., 669 F.2d 98, 103 (3d Cir. 1981).

OPINIONS BELOW

The opinion for the United States District Court for the Southern District of Wagner is

reported at In re Fazal Oil, 674 F.3d 171 (S.D. Wag. 2014) and is included in the record at pages

1–17. The opinion of the United States Court of Appeals for the Thirteenth Circuit is reported at

In re Fazal Oil, 675 F.3d 671 (13th Cir. 2014) and is included in the record at pages 18–30.

STATUTORY PROVISIONS INVOLVED

This case involves interpretation of several sections of the Worker Adjustment and

Retraining Notification Act (WARN Act), which prohibits an employer from ordering “a plant

closing or mass layoff until the end of a 60-day period after the employer serves written notice.”

29 U.S.C. § 2102(a) (2012). First, this case involves the interpretation of the term “employer,”

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meaning “any business enterprise that employs” a certain number of employees. 29 U.S.C. §

2101(a)(1)(A) (2012). In addition, this case involves two exemptions under the WARN Act. The

“unforeseeable business circumstances” exemption allows an employer to “order a plant closing

or mass layoff before the conclusion of the 60-day period if the closing or mass layoff is caused

by business circumstances that were not reasonably foreseeable as of the time that notice would

have been required.” 29 U.S.C. § 2102(b)(2)(A) (2012). The “faltering company” exemption

allows an employer to

order the shutdown of a single site of employment before the conclusion of the 60-day period if as of the time that notice would have been required the employer was actively seeking capital or business which, if obtained, would have enabled the employer to avoid or postpone the shutdown and the employer reasonably and in good faith believed that giving the notice required would have precluded the employer from obtaining the needed capital or business.

29 U.S.C. § 2102(b)(1) (2012).

STATEMENT OF THE CASE

I. Factual Background

Fazal Oil, Inc. (hereinafter “Fazal Oil”), a multinational oil company, was incorporated in

the State of Wagner in 1994. R. at 1. Although predominantly securing oil reserves in the

Southwest of the United States, Fazal Oil expanded overseas in 2007, particularly in areas of the

world untouched by larger oil companies, such as the politically volatile Republic of San

Marcos, located in the South Pacific. R. at 1–2. For the past 100 years, civil wars, palace coup

d’états, and violent political opponents have marked San Marcos’ history. R. at 2. In June 2011,

Fazal Oil signed a joint venture agreement with San Marcos. R. at 2. As part of the agreement,

Fazal Oil was granted fifty-one percent ownership in Jimenez Oil, the state-operated energy

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company, while the government of San Marcos retained forty-nine percent. R. at 2. Later that

year, Fazal Oil struck a major find in a field in the eastern portion of the country. R. at 3.

In order to increase production in San Marcos, Fazal Oil obtained a five billion dollar

loan from WSB Bank in Wagner. R. at 3. Fazal Oil subsequently transferred 4,000 employees

to San Marcos. R. at 3. By 2013, 6,000 of Fazal Oil’s 10,000 employees were stationed in San

Marcos; 5,500 of these employees were American citizens and an additional 500 employees were

citizens of San Marcos. R. at 4.

While Fazal Oil was expanding in San Marcos, the political situation there became

increasingly unstable due to rising inflation, income inequality, and profuse government

spending. R. at 4. Multiple global warnings were issued regarding San Marcos’ political

instability and the coinciding increased risk of nationalization in late 2012, including a report

from Wagner University’s Center for Strategic Studies and a warning from World Risk LLC, a

leading private risk assessment agency. R. at 4. One of San Marcos’ political opponents, the

exiled Khushbu Bane, leader of the San Marcos Democratic Movement for Change, explicitly

disavowed all agreements that the standing government entered into. R. at 40. In particular, she

promised to nationalize the oil industry upon collapse of the standing government. R. at 42. On

April 1, 2013, the political instability came to a head when San Marcos’ Defense Minister

declared a coup d’état and a re-nationalization of the country’s oil industry. R. at 4–5.

The coup d’état had a dramatic effect on Fazal Oil’s stock prices. By April 4th, Fazal Oil

stock was down twenty percent, causing the Wagner Stock Exchange to call a halt in trading. R.

at 5. Natisha Fazal, CEO of Fazal Oil, issued a letter to employees stationed in San Marcos,

notifying them that the American employees would be terminated beginning on June 5, 2013,

because of the company’s weakening financial situation. R. at 5. Over the next thirty days,

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Fazal Oil tried unsuccessfully to secure additional capital from other financial institutions. R. at

5. On May 5, 2013, WSB declared the five billion dollar loan in default. R. at 6. The next day,

Fazal Oil filed for chapter 11 bankruptcy and simultaneously notified 3,000 of its American

employees in San Marcos that their employment would be immediately terminated. R. at 6. The

letter stated that the shortened notification of termination was due to the re-nationalization of San

Marcos’ oil industry and Fazal Oil’s failure to secure new financing. R. at 6.

Veronica Murray was hired by Fazal Oil as a Manager in the San Marcos market in 2011,

and was quickly promoted to the Associate Director of the Engineering Department. R. at 6.

Without warning, she, along with 2,999 of her fellow American employees in San Marcos,

received notification that their employment was immediately terminated. As a result, Murray

and the other terminated employees were trapped in a volatile country, were not provided time to

rearrange their personal lives and seek new employment, and lost a significant portion of their

401(k) savings that were primarily invested in Fazal Oil stock. R. at 6.

II. Procedural Background On June 28, 2013, Murray, on behalf of herself and other employees stationed in San

Marcos and terminated by Fazal Oil, filed a proof of claim asserting their claims and priority

status in the bankruptcy action for the back pay owed under the WARN Act on the grounds that

Fazal Oil failed to provide adequate notice to the employees at the time of the May 6th

terminations. R. at 6-7. In response, Fazal Oil, as debtor-in-possession, objected to the claim and

asserted its own priority status in the bankruptcy action. R. at 7. Specifically, Fazal Oil claimed,

first, that it was not an employer under the WARN Act because it was a liquidating fiduciary,

and second, that if it was acting as an employer, it was exempt from providing the full 60-day

notice under the WARN Act under both the “faltering company” and “unforeseeable business

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circumstances” exemptions. R. at 7. The District Court adopted the holding of the Bankruptcy

Court in its entirety, R. at 1, holding that Fazal Oil was neither relieved from liability under the

WARN Act under the liquidating fiduciary exception, nor was it eligible for any of the

exemptions allowing for shortened notice. R. at 18.

Fazal Oil appealed the judgment of the District Court, and the Court of Appeals for the

Thirteenth Circuit reversed. R. at 18. Specifically, the Court of Appeals first found that Fazal Oil

was acting as a liquidating fiduciary rather than an employer, precluding application of WARN

Act liability. R. at 22. Second, the Court of Appeals held that, even if Fazal Oil was acting as an

employer under the WARN Act, that it qualified for both the “unforeseeable business

circumstances” exemption, R. at 28, and the “faltering company” exemption, R. at 29, permitting

it to give shortened notice.

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SUMMARY OF THE ARGUMENT

I. The Worker Adjustment and Retraining Notification Act (WARN Act or Act) was

enacted by Congress in 1988 requiring employers to provide 60-days’ advance notice of mass

layoffs and plant closings. The Act provides three statutory exceptions to the 60-day notice

requirement—faltering companies, unforeseeable business circumstances, and natural

disasters—but does not provide an exception allowing liquidating fiduciaries to circumvent the

Act’s notice requirements.

Fazal Oil’s reliance on the judicially created liquidating fiduciary exception is improper.

The liquidating fiduciary exception contravenes Congress’ stated purpose and is contrary to the

canons of statutory construction for remedial legislation. Even assuming that a liquidating

fiduciary exception does exist, it could not apply to Fazal Oil when it filed for bankruptcy

because Fazal Oil was a debtor-in-possession. Under the bankruptcy code, the debtor-in-

possession is the same entity as the pre-petition debtor, and the liquidating fiduciary exception

only applies to former employers. Finally, even if the liquidating fiduciary exception could

apply to a debtor-in-possession, Fazal Oil has not met its burden in proving that it ceased to

operate as a business enterprise operating in a normal commercial sense. For these reasons, the

appellate decision finding that Fazal Oil was not an employer under the WARN Act should be

reversed.

II. Fazal Oil cannot utilize either the “unforeseeable business circumstances” or

“faltering company” exemptions because the notice provided on May 6, 2013 was inadequate.

With regard to the timing aspect of the notice requirement, only when claiming the natural

disaster exemption can the notice be provided after the fact. Here, the notice provided to the

employees terminated them “immediately,” meaning that their positions were already gone,

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creating notice after the fact. Moreover, the content of the notice was inadequate, both because it

did not explain the factual bases of the exemptions in a language understandable to employees

when it relied upon jargon such as “re-nationalization” and because it lacked specificity,

particularly with regard to the ‘faltering company” exemption, as it merely restated legal

elements of the claim.

Even if the notice was adequate, however, Fazal Oil does not qualify for the

“unforeseeable business circumstances” exemption. First, Fazal Oil has not met its burden of

proving that similarly situated employers would have reacted similarly in like circumstances, and

could not make such a showing. Second, even if Fazal Oil has introduced evidence of this nature,

they cannot take advantage of the unforeseeable business exemption because the events leading

up to the termination were foreseeable, as shown by many public statements. Third, even if Fazal

Oil has somehow proven unforeseeability, it would go against public policy to allow it to

terminate all of its employees without notice.

Fazal Oil also does not qualify for the “faltering company” exemption. First, Fazal Oil

failed to meet its burden of proving the first element of the faltering company exemption, as

there is no evidence to suggest that Fazal Oil was actively seeking capital as of March 6th, when

the 60-day notice would have been required. Second, Fazal Oil also did not meet its burden with

regard to the fourth element of the “faltering company” exemption, because it failed to offer any

evidence that it reasonably and in good faith believed that providing adequate notice would

prevent it from obtaining necessary credit. Not only did it fail to offer evidence of such a belief,

but any claim of such a belief would, in fact, be unreasonable considering that Fazal Oil had

already given notice to its employees in San Marcos on April 4th, prior to engaging in its 30-day

search for additional capital. Lastly, Fazal Oil failed to demonstrate the causal connection

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between its failure to obtain capital and its decision to close all of its San Marcos plants, a

prerequisite to application of the “faltering company” exemption.

Thus, this Court should reverse the Court of Appeals’ judgment and reinstate the District

Court’s judgment finding Fazal Oil liable for adequate compensation and fees under the WARN

Act.

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ARGUMENT

I. FAZAL OIL WAS NOT EXEMPT FROM THE NOTIFICATION REQUIREMENTS OF THE WARN ACT BECAUSE FAZAL OIL WAS OPERATING AS A BUSINESS ENTERPRISE AND NOT AS A LIQUIDATING FIDUCIARY.

Congress enacted the WARN Act in 1988 in order to protect workers, their families, and

communities from plant closings and mass layoffs. 20 C.F.R. § 639.1(a) (1989). The Act was

adopted in response to widespread worker dislocation in the 1970s and 1980s. Hotel Emps. and

Restaurant Emps. Intern. Union Local 54 v. Elsinore Shore Assocs., 173 F.3d 175, 182 (3d Cir.

1999). The purpose of the Act is remedial, requiring employers to provide 60-days advance

notice of mass layoffs so that workers may pursue new employment, seek training or retraining,

and adjust to loss of employment. 20 C.F.R. § 639.1(a). The Act allows three narrow exceptions

to the sixty-day notice requirement: faltering company, unforeseeable business circumstances,

and natural disaster. 29 U.S.C. § 2102(b) (2012). Nowhere in the Act does Congress provide an

exception for a liquidating fiduciary in bankruptcy.

Fazal Oil first argues that it is exempt from the notification requirements of the WARN

Act because it does not meet the statutory definition of an “employer.” Fazal Oil relies on the

judicially created liquidating fiduciary exception to the Act’s notification requirements, arguing

that it ceased to operate as an employer at the time of its May 6, 2013 termination letter, in order

to sidestep the statutory protections Congress provided to employees. The liquidating fiduciary

exception creates a loophole in the Act that goes against its stated purpose and is contrary to the

canons of statutory construction. Additionally, the liquidating fiduciary exception cannot apply

to a debtor-in-possession under chapter 11 bankruptcy because a debtor-in-possession is not a

former employer. Finally, even assuming that a liquidating fiduciary exception does exist, Fazal

Oil has failed to demonstrate that it ceased to operate a business enterprise in a normal

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commercial sense at the time it issued its May 6, 2013 termination letter. Therefore, the Court of

Appeals’ decision holding that Fazal Oil was not acting as an employer should be reversed.

A. Allowing a Liquidating Fiduciary Exception Violates Congress’ Stated Purpose for Enacting the WARN Act and is Contrary to the Canons of Statutory Construction.

The Department of Labor is authorized to “prescribe such regulations as may be

necessary to carry out [the WARN] Act.” 29 U.S.C. § 2107 (2012). An agency’s interpretation

of the statute will be upheld as long as “it is based on a permissible construction of the statute.”

City of Arlington, Tex. v. F.C.C., 133 S. Ct. 1863, 1874–75 (2013) (citing Chevron, U.S.A., Inc.

v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842 (1984)). When drafting regulations under

the WARN Act, the Department of Labor defined the three narrowly tailored statutory

exceptions to the WARN Act’s 60-day notification requirement: faltering company,

unforeseeable business circumstances, and natural disasters. 20 C.F.R. § 639.9 (1989). Nowhere

in the regulations does the Department of Labor lay out an exception for liquidating fiduciaries.

The liquidating fiduciary exception was derived from the WARN Act’s Preamble in In re

United Healthcare. 200 F.3d at 177. In the Preamble, the Department of Labor stated that 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

fiduciary is not operating a ‘business enterprise’ in the normal commercial sense.” Worker

Adjustment and Retraining Notification, 54 Fed. Reg. 16042-01 (Apr. 20, 1989) (codified at 20

C.F.R. § 639). However, fiduciaries that “continue to operate the business for the benefit of

creditors” are still subject to the notification requirements. Id. The implementation of a

liquidating fiduciary exception provides businesses an opportunity to circumvent the purposes of

the Act and is inconsistent with the canons of statutory construction.

1. The Liquidating Fiduciary Exception Undermines the Stated Purpose of the WARN Act.

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The Department of Labor specifically states that the purpose of the WARN Act is to

protect workers and their families. 20 C.F.R. § 639.1(a). Passage of the Act was meant to

minimize the impact of negative economic pressures on employees and the economy:

Sixty days’ notice can make a difference in the life of a worker, a family, a community. It is a basic protection that is afforded workers of nearly all industrialized nations. Working conditions in this country should be second to none. Beyond basic decency, advance notice is good for economic stability . . . . [S]tudies have shown that workers who get notice are far more likely to find appropriate training than workers who receive no notice.

134 Cong. Rec. H5500-01 (July 13, 1988) (statement of Rep. Clay). While recognizing that the

application of regulations may be ambiguous at times, the Department of Labor defaults to

providing advance notification: “It is civically desirable and it would appear to be good business

practice for an employer to provide advance notice to its workers or unions, local government

and the State when terminating a significant number of employees.” 20 C.F.R. § 639.1(e).

In the present case, Fazal Oil justifies the lack of adequate notification to 3,000 of its

American employees stationed in San Marcos on the basis that it was acting as a “liquidating

fiduciary.” Fazal Oil terminated the employees the same day that it filed for bankruptcy, and in

doing so was able to strategically time its bankruptcy petition in order to avoid providing

adequate notification to its employees. In doing so it left 3,000 of its employees stranded in a

politically volatile country. This kind of gamesmanship is clearly not the “basic decency”

Congress intended when it passed the Act to protect workers and promote economic stability.

The liquidating fiduciary exception should not be recognized because it undermines

Congressional intent by allowing employers to dishonestly skirt the notification requirements by

filing a bankruptcy petition.

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2. The Implementation of a Liquidating Fiduciary Exception is Contrary to the Rules of Statutory Construction.

The WARN Act is remedial legislation. Local Union 7107 v. Clinchfield Coal Co., 124

F.3d 639, 640–41 (4th Cir. 1997). Exemptions from a remedial statute should be narrowly

construed so as not to read into the statute exceptions not provided for by the legislature. Hogar

Agua y. Vida en el Desierto, Inc., v. Suarez-Medina, 36 F.3d 177, 182 (1st Cir. 1994). If the

language of a statute is unclear, the Court should look to the legislative history. Blum v. Stenson,

465 U.S., 886, 896 (1994). In order for a liquidating fiduciary exception to apply, an exception

must be warranted by the statutory definition of “employer” or through an examination of the

Act’s legislative history.

The Act defines “employer” as “any business enterprise that employs – (A) 100 or more

employees, excluding part-time employees; or (B) 100 or more employees who in the aggregate

work at least 4,000 hours per week (exclusive of hours of overtime).” 29 USC § 2101(1) (2012).

Nothing in this definition forecloses the application of “employer” to a debtor-in-possession.

Although “business enterprise” is not defined, the legislative history shows that the term was

used to ensure that all types of business entities—corporations, limited liability companies,

limited partnerships, etc.—were covered by the Act. Cruz v. Robert Abbey, Inc., 778 F.Supp.

605, 609 (E.D.N.Y. 1991). The legislative history demonstrates that Congress only intended to

exclude individuals from the term “employer.” The legislative history does not discuss

exempting bankrupt entities, and there is no indication that Congress intended to do so. If

Congress had intended for bankrupt entities to be excluded from the term “employer,” it could

easily have written an exception into the Act.

There is also no indication that the Department of Labor intended to exempt bankrupt

entities from the Act. Below, the Thirteenth Circuit stated that the Department of Labor did not

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intend the WARN Act to apply to bankrupt entities. R. at 21. On the contrary, the Department

of Labor stated that “[s]ince adequate protections for fiduciaries are available through the

bankruptcy courts, the Department does not think it appropriate to change the regulations” to

exclude fiduciaries in bankruptcy proceedings from the definition of employer. Worker

Adjustment and Retraining Notification, 54 Fed. Reg. at 16045. Clearly, the Department of

Labor thought the protections afforded under bankruptcy law were sufficient to protect

fiduciaries.

Because the WARN Act is remedial legislation, it is improper to read into the Act

exceptions that are not explicitly set forth. Neither Congress nor the Department of Labor

provide for an exception for liquidating fiduciaries, and the legislative history of the WARN Act

is devoid of discussion of such an exception. Instead, the Department of Labor unequivocally

stated that bankruptcy law was sufficient to protect bankrupt entities. Therefore, the Thirteenth

Circuit improperly recognized and applied a liquidating fiduciary exception for Fazal Oil.

B. The Liquidating Fiduciary Exception Should Not be Applied in Chapter 11 Bankruptcy Cases Because the Debtor-in-Possession is Not a Former Employer.

The purpose of chapter 11 bankruptcy is to “preserve the earning capacity of the debtor.”

Paul Maschmeyer et al., Collier Handbook for Trustees and Debtors in Possession ¶ 20.02

(2014). “Chapter 11 contemplates rehabilitation of the debtor rather than dissolution of the

business. Consequently, chapter 11 presumes continued operation of the business and

negotiation of a reorganization plan with creditors and shareholders.” Id. Chapter 7, on the

other hand, is used for the liquidation of businesses. Id. Presumptively, since Fazal Oil filed for

chapter 11 bankruptcy, Fazal Oil intended to rehabilitate the business rather than dissolve. Even

assuming that Fazal Oil filed for chapter 11 protection with the intent to liquidate, application of

a liquidating fiduciary exception is improper because the pre-petition debtor and post-petition

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debtor-in-possession under chapter 11 are the same entity. The Department of Labor’s Preamble

to the Act states that a fiduciary liquidating for the benefit of creditors “does not succeed to the

notice obligations of the former employer.” Worker Adjustment and Retraining Notification,

54 Fed. Reg. at 16045 (emphasis added). The application of the liquidating fiduciary exception,

therefore, hinges on the existence of a “former employer.”

The Bankruptcy Code establishes that the chapter 11 debtor-in-possession and the pre-

petition debtor are the same entity. Under the Bankruptcy Code, the debtor-in-possession is

defined as the debtor. 11 USC § 1101(1) (2012). Debtor is defined as a “person or municipality

concerning which a case under this title has been commenced.” 11 USC § 101(13) (2012).

Using these definitions, the Ninth Circuit held that the debtor-in-possession is the same entity for

bankruptcy purposes as the pre-bankruptcy corporation in Biltmore Assocs., LLC v. Twin City

Fire Ins. Co., 572 F.3d 663, 671 (9th Cir. 2009) (“Applying these statutory provisions literally,

[ ] the debtor in possession[ ] is the same person for bankruptcy purposes as [ ] the pre-

bankruptcy corporation.”). The Supreme Court reached the same conclusion in the labor context

in NLRB v. Bildisco, 465 U.S. 513, 528 (1984) (statutorily overruled on other grounds by 11

USC § 1113), stating “it is sensible to view the debtor-in-possession as the same ‘entity’ which

existed before the filing of the bankruptcy petition . . . .” On the other hand, a bankruptcy trustee

and debtor are legally distinct entities. See Cohen v. Nat’l Union Fire Ins. Co. (In re County Seat

Stores, Inc.), 280 B.R. 319, 326 (Bankr. S.D.N.Y. 2002) (holding that the bankruptcy trustee is

an independent and disinterested entity as distinguished from the debtor-in-possession).

Had Fazal Oil filed for chapter 7 bankruptcy, or had a trustee been appointed, a

liquidating fiduciary exception might be applicable. In that instance, a separate legal entity

would have been formed, a “former employer” would exist, and the language of the Preamble

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would apply. Here, however, Fazal Oil filed for chapter 11 bankruptcy and became a debtor-in-

possession. As such, pre-petition Fazal Oil and post-petition Fazal Oil are the same legal entity.

Fazal Oil did not become a “former employer” and is therefore still subject to the notification

requirements of the WARN Act. The Thirteenth Circuit improperly applied the liquidating

fiduciary exception to Fazal Oil as a debtor-in-possession.

C. Fazal Oil Has Failed to Demonstrate that it Was Not Engaged in Business When it Issued its May 6, 2013 Termination Letter.

The impropriety of the liquidating fiduciary exception or its inapplicability to a debtor-in-

possession notwithstanding, Fazal Oil has failed to demonstrate that it operated as a liquidating

fiduciary when it issued its termination notice on May 6, 2013. Fazal Oil has not shown that it

was “engaged in business” when it terminated only 3,000 of its 10,000 employees.

In the seminal case for the exception, In re United Healthcare, the hospital debtor

suffered substantial economic losses and defaulted on its financing. 200 F.3d at 172. United

Healthcare filed for chapter 11 bankruptcy and provided its employees 60-days’ notice of

termination of their employment. Id. at 173. Prior to the end of the sixty days, United

Healthcare filed a motion with the Bankruptcy Court for an order to terminate all employees

immediately. Id. The Bankruptcy Court held that United Healthcare remained an employer after

it filed for bankruptcy and that the employees were entitled to back pay. Id. at 174. The District

Court affirmed the decision. Id. at 175. United Healthcare appealed, arguing that it was a

liquidating fiduciary and was not subject to the Act’s notification requirements. Id.

The Third Circuit reversed on appeal, holding that United Healthcare was no longer an

“employer” under the WARN Act. Id. at 171. To determine whether United Healthcare was an

“employer,” the court looked to whether the hospital was “engaged in business” during the time

prior to closing. Id. at 177. Whether a bankrupt entity qualifies as an employer under the Act

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“depends on the nature and extent of the entity’s business and commercial activities while in

bankruptcy . . . . 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. at 178. In support of

its holding, the Third Circuit noted that United Healthcare surrendered its certificates of need and

stopped treating patients upon filing. Id. Furthermore, the hospital’s employees were

performing tasks designed to prepare the hospital for liquidation instead of performing their

regular duties. Id.

In the present case, Fazal Oil has not met its burden of proving it was a business winding

up its affairs. In May 2013, Fazal Oil had 6,000 of its 10,000 employees stationed in San

Marcos, 5,500 of which were American citizens. R. at 4. After filing for chapter 11 bankruptcy,

Fazal Oil terminated 3,000 American employees, all stationed in San Marcos. R. at 47. Fazal

Oil retained half of its employees stationed in San Marcos, as well as the remaining 4,000

employees stationed elsewhere in the world. Unlike In re United Healthcare, where the hospital

retained employees solely to perform liquidation tasks, Fazal Oil retained all 4,000 of its

employees in markets outside of San Marcos with no indication that their duties would be

limited.

Below, the Thirteenth Circuit argued that because Fazal Oil is a multinational oil

corporation it “cannot simply wind down its operations all at once.” R. at 21. When considering

the definition of employer under the Act, however, “an employer is defined in terms of the

overall corporate or business entity, not in terms of any particular plant.” Worker Adjustment

and Retraining Notification, 54 Fed. Reg. at 16042. While Fazal Oil did terminate a significant

portion of its employees in the San Marcos market, Fazal Oil’s status must be judged not by its

activities in San Marcos alone, but by its overall corporate activities. The record is factually

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devoid of any evidence demonstrating that Fazal Oil intended to close or liquidate any of its

assets in other markets, or made any efforts to do so. By retaining all of its employees outside of

the San Marcos market, however, Fazal Oil demonstrated that it intended to continue to operate

as a business enterprise.

The Thirteenth Circuit improperly applied the liquidating fiduciary exception to Fazal

Oil. The exception is contrary to Congress’ intent in passing the WARN Act, and is contrary to

the canons of statutory construction for remedial legislation. Assuming that a liquidating

fiduciary exception is warranted under the Act, it was not warranted here where Fazal Oil was a

debtor-in-possession because Fazal Oil was not a “former employer.” Finally, even assuming

that the liquidating fiduciary exception would be applicable to a debtor-in-possession, Fazal Oil

has failed to demonstrate that it ceased operating as a business enterprise. Accordingly, the

Thirteenth Circuit’s holding should be reversed.

II. FAZAL OIL VIOLATED THE WARN ACT WHEN IT FAILED TO PROVIDE 60-DAY NOTICE BECAUSE IT DOES NOT QUALIFY FOR ANY OF THE EXEMPTIONS UNDER THE WARN ACT.

A. Respondents Cannot Use Either of the WARN Act Exemptions Because the Notice Provided to the Petitioners Was Not Adequate.

The “faltering company” and “unforeseeable business circumstances” exemptions can be

invoked only if the threshold issue of adequate notice is met, Grimmer v. Lord Day & Lord, 937

F. Supp. 255, 256 (S.D.N.Y. 1996), and the notice in this case was not adequate. The WARN Act

regulations state that “[i]f one of the exceptions is applicable, the employer must give as much

notice as is practicable.” 20 C.F.R. § 639.9. With regard to the timing of the notice, “[t]he statute

and regulations are clear that an employer can give affected employees ‘after the fact’ notice of a

plant closing or mass layoff only when a ‘natural disaster’ causes it.” Barnett v. Jamesway Corp.

(In re Jamesway Corp.), 235 B.R. 329, 339 (Bankr. S.D.N.Y. 1999). As to the content of the

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notice, “[t]he employer must, at the time notice actually is given, provide a brief statement of the

reason for reducing the notice period, in addition to the other elements set out in § 639.7.” 20

C.F.R. § 639.9. Notice must be specific, “based on the best information available to the employer

at the time notice is served,” and must be written in a language understandable to the employees,

among other things. 20 C.F.R. § 639.7(a) (1989).

However, as the District Court noted, neither the legislative history of the WARN Act nor

the regulations specify what exactly is required in the “brief statement” given to justify a

shortened notice. R. at 9, see § 2102(b)(3); see also 20 C.F.R. § 639.9. In Alarcon v. Keller

Indus., Inc., the Ninth Circuit concluded that the purpose “in requiring a brief statement must

have been to provide employees with information that would assist them in determining whether

the notice period was properly shortened.” 27 F.3d 386, 389 (9th Cir. 1994). “Accordingly, a

company's statement . . . should set forth the underlying factual events which led to the shortened

period.” Id. Additionally, “[s]uch a requirement focuses employers on the statutory conditions

that must be met to reduce the notice period by prohibiting employers from relying on a vague

justification for giving shortened notice.” Grimmer, 937 F. Supp. at 257. For example, it would

be insufficient for an employer to merely claim one of the WARN Act exemptions itself, without

more, as the basis for giving shortened notice. Alarcon, 27 F.3d at 390. Although an employer

may meet the burden by providing a factual basis along with a reference to the WARN Act itself,

the brief statement must provide “an adequate, specific explanation to affected workers.” Id.

The notice Fazal Oil provided to its employees was inadequate for numerous reasons.

First, the timing of the notice was inadequate because it did not provide advance notice of

termination. In this case, a natural disaster was not the cause of the termination, so notice of

termination must have been given in advance. When petitioners received their notices on May

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6th, they were informed that they were terminated “immediately,” meaning their positions had

already been terminated, which is termination “after the fact.” For this reason, the timing of the

notice was inadequate.

Second, the content of the notice was inadequate for two reasons. First, the notice of

termination did not explain the circumstances in a way that employees would understand when it

relied upon the statement that San Marcos had “unexpectedly re-nationalized its oil industry.”

The average employee would not understand what “re-nationalization” means, and therefore

Fazal Oil should have provided a more specific explanation of the terminology used and the

reason for closing. Second, the notice lacked specificity, which is required for all WARN Act

notices in order to focus the employer on the statutory requirements of claiming the exemption.

Rather, regarding the “faltering company” exemption, the notice merely re-stated one of the

elements of the exemption, that is, Fazal Oil simply referenced its failure to obtain additional

credit. The May 6th notice did nothing to add a factual basis to that element, as required by the

WARN Act. Between the technical jargon used and the vague restatements of the elements of the

exemptions, a common employee reading the notice would not have reason to understand why

the notice was shortened, even combined with a cross-reference to the applicable WARN Act

provision. Therefore, Fazal Oil failed to satisfy the adequate notice requirement.

B. The Unforeseeable Business Circumstances Exemption Does Not Apply Because the Event Causing the Termination Was Reasonably Foreseeable at the Time that 60-day Notice Would Have Been Required. Even if Fazal Oil’s notice was adequate, it nonetheless does not qualify for any of the

statutory exemptions under the WARN Act. There are three exemptions to the 60-day notice

requirement, one of which is “unforeseeable business circumstances,” where the circumstances

causing a mass layoff are unforeseeable at the time that 60-day notice would have been required.

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29 U.S.C. § 2102(b)(2)(A). The employer must prove 1) that the circumstance was

unforeseeable, and 2) that the termination was caused by that circumstance. Gross v. Hale-

Halsell Co., 554 F.3d 870, 875 (10th Cir. 2009). “An important indicator of a business

circumstance that is not reasonably foreseeable is that the circumstance is caused by some

sudden, dramatic, and unexpected action or condition outside the employer's control.” 20 C.F.R.

§ 639.9(b)(1). Examples of possibly unforeseeable circumstances include a “principal client's

sudden and unexpected termination of a major contract with the employer . . . [or] an

unanticipated and dramatic major economic downturn.” Id. However, the Department of Labor

did not wish to list examples of circumstances that would qualify as unforeseeable per se, and

“the propriety of utilizing the exception in any particular scenario involves a highly factual

inquiry to be assessed on a case by case basis.” Loehrer v. McDonnell Douglas Corp., 98 F.3d

1056, 1060 (8th Cir. 1996) (citations omitted).

“The test . . . focuses on an employer's business judgment. The employer must exercise

such commercially reasonable business judgment as would a similarly situated employer in

predicting the demands of its particular market.” 20 C.F.R. § 639.9(b)(2). Therefore, “a

company will be excused from WARN liability if, when confronted with potentially devastating

occurrences, it reacts as would reasonable employers within its own market.” United Steel

Workers of Am. Local 2660 v. U.S. Steel Corp., 683 F.3d 882, 886 (8th Cir. 2012) (citation

omitted). The “employer bears the burden of proof that conditions for the exceptions have been

met.” Id. at 885. “Once [the employer] satisfies its burden, it is then incumbent upon the

[employees] to come forth with evidence sufficient to rebut the defense.” Chestnut v. Stone

Forest Indus., Inc., 817 F. Supp. 932, 936–37 (N.D. Fla. 1993). Thus, in Chestnut, the company

established the conditions of the exception when it introduced the testimony of a sales manager

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from another lumber company. Id. at 936. The employees failed to rebut that defense when they

did not present testimony of other employers’ actions. Id.

“[T]his exception to the general rule is to be narrowly construed.” Carpenters Dist.

Council of New Orleans & Vicinity v. Dillard Dep't Stores, Inc., 15 F.3d 1275, 1282 (5th Cir.

1994) (citations omitted). However, it is important to remember that it is not the mere possibility,

but the probability of a circumstance that makes it reasonably foreseeable. United Steel, 683 F.3d

at 887. Nor is hindsight an adequate test of foreseeability. Loehrer, 98 F.3d at 1061.

Many cases have illustrated when a business circumstance is unforeseeable, including

Angles v. Flexible Flyer Liquidating Trust (In re FF Acquisition Corp.), in which the court held

that where a business’s operations would have continued but for a sudden and unprecedented

termination of funding, which the company had never anticipated, the exemption applies. 438

B.R. 886, 894 (Bankr. N.D. Miss. 2010). In Loehrer, the court held that where the government

had a history of following through on contracts and continuously expressed support of the

contract relationship, their subsequent cancellation was unforeseeable. 98 F.3d at 1062. In

Chestnut, the terminations were due to a purely economic downturn, a market-based crash in

lumber prices. 817 F.Supp. at 936. Conversely, the Ninth Circuit determined that it was “evident

that the plant closure . . . was caused by a variety of factors which accumulated over time,

making the closure foreseeable.” Childress v. Darby Lumber, Inc., 357 F.3d 1000, 1008 (9th Cir.

2004).

In this case, the “unforeseeable business circumstances” exemption does not apply

because 1) the record shows no attempts by respondents to prove that similarly situated

employers would have reacted similarly, 2) the events leading to the termination were

foreseeable, and 3) applying the exemption in this case would controvert the purpose of the

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WARN Act. First, the “unforeseeable business circumstances” exemption does not apply

because the record does not show that the respondents have met their burden of proving that

similarly situated employers would have reacted similarly. Therefore, because there is no

indication that Fazal Oil presented testimony of similarly situated employers, as did the employer

in Chestnut, they cannot take advantage of this exemption.

In fact, the evidence shows that Fazal Oil would be unable to present such evidence, as

other employers would not and did not behave similarly. From as early as 1980, media reported

that the country would not hold interest to international investors due to its instability. Not only

was the risk of a regime change high, but the existing regime was known to hate Western culture,

making re-nationalization a risk whether the regime changed or not. Fazal Oil, however,

expanded overseas by concentrating on countries overlooked by larger oil companies. The

unwillingness of other companies to enter into a relationship with San Marcos from the very

beginning of the Mellish regime shows that the actions of Fazal Oil were not reasonable, as it

shows that other similarly situated employees would not have behaved similarly in like

circumstances. There is a reason that those larger oil companies shied away from San Marcos, as

the political instability of the country was well-documented in the media. Had Fazal Oil simply

beaten other companies to the punch in entering into a business relationship with San Marcos,

they may have an argument for this exemption. However, the very reason that they were able to

enter into a relationship with San Marcos was because other companies were so hesitant to do so.

Second, the “unforeseeable business circumstances” exemption does not apply because

the events leading to the termination were foreseeable. While re-nationalization could be likened

to a “principal client's termination of a major contract with the employer,” it was neither sudden

nor unexpected, as would be required for the exemption to apply. In fact, the probability of re-

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nationalization was high at least 60 days prior to the May 6th termination of employees, as shown

by statements made by independent assessments and the new San Marcos government itself.

The events leading to the termination accumulated over time, making them foreseeable,

much like in Childress. San Marcos is a country whose history is marked by civil wars, coup

d’états, and violent opposition. At the time that San Marcos and Fazal Oil made a deal in 2011,

the DMC made known that it would not recognize the agreement. In fact, the DMC promised to

nationalize San Marcos’ oil industry again in 2012. Also in 2012, World Risk, LLC released a

study showing that there was a high risk of instability for the oil sector in San Marcos, due to the

growing opposition to the Mellish government. Every one of these warning signs occurred well

in advance of 60 days prior to May 6, 2013. With such a history, Fazal Oil should have

reasonably foreseen the regime change and ensuing nationalization of the oil industry in San

Marcos. In fact, Fazal Oil admitted to the instability itself in the first termination letter, when it

indicated that it had anticipated the terminations, by saying that “nothing in the oil market is risk

free” and “environmental turmoil is a dire consequence of the industry.”

The Respondents may argue that this is a case about volatile stock markets and economic

downturns, which are described as being inherently unforeseeable. Respondents would be

incorrect. This is a case about political turmoil, which caused the economic downturn. The

company stated itself in the termination letters that the terminations were due to the regime

change and the DMC’s decision to re-nationalize the oil industry. Therefore, both Chestnut and

Loehrer are distinguishable, and their fact-specific holdings have no bearing on this case.

Chestnut concerned a purely economic downturn, a drop in the price of their product. Similarly,

in Loehrer, the demand for the company’s product disappeared, which was another pure

economic downturn. Here, the price of Fazal Oil’s product did not drop, nor did the demand for

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their product disappear. Nor is this case like In re FF Acquisition Corp., because that case

involved a sudden and unprecedented loss of funding. Rather, the reasonably foreseeable coup

d’état and the resulting re-nationalization of San Marcos’ oil caused the stocks to drop.

Third, the “unforeseeable business circumstances” exemption does not apply because

applying the exemption in this case would controvert the purpose of the WARN Act. The

WARN Act was intended to provide protection for employees, and the exemption is meant to be

construed narrowly. Therefore, there is a presumption that employers will not fall under the

exemption, and only in rare circumstances should it be applied. We cannot allow employers to

enter into high-risk industries and high-risk environments without a certain amount of

protections for their employees. As a result of the sudden termination, Petitioners were left

behind in San Marcos with no income, no prospects, and no arrangements. Nowhere is the

purpose of the WARN Act more important than when employees are working overseas in a

potentially violent country. Therefore, as a policy matter, it would be contrary to the stated

purpose of the WARN Act to allow Fazal Oil to walk away from this termination without

compensating their employees.

C. The Faltering Company Exemption Does Not Apply Because Fazal Oil Failed to Meet its Burden of Proof with Regard to Multiple Elements of the Exemption and it Failed to Demonstrate a Causal Connection Between its Failure to Obtain Capital and the Plant Closings.

Another exemption from the 60-day notification period is termed the “faltering company”

exemption. 20 C.F.R. § 639.9(a). In order for an employer to qualify for this exemption, the

employer must satisfy four elements. 20 C.F.R. § 639.9(a)(1)–(4). First, the “employer must

have been actively seeking capital or business at the time that 60–day notice would have been

required.” 20 C.F.R. § 639.9(a)(1). To satisfy this element, the employer must additionally be

able to identify specific efforts made to obtain such capital or business. Id. Second, “[t]here must

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have been a realistic opportunity to obtain the financing or business sought.” 20 C.F.R. §

639.9(a)(2). Third, the employer must objectively demonstrate that “the financing or business

sought [would be] sufficient, if obtained, to have enabled the employer to avoid or postpone the

shutdown,” and to keep the facility open for a reasonable period of time. 20 C.F.R. § 639.9(a)(3).

Fourth, “[t]he employer reasonably and in good faith must have believed that giving the

required notice would have precluded the employer from obtaining the needed capital or

business.” 20 C.F.R. § 639.9(a)(4). Specifically, the employer must objectively show its

reasonable belief that, had it given notice at the time the 60-day notice was required, meaning the

employees, customers, or public would have been made aware of the closing of the facility, the

potential source of financing would have been unwilling to provide the new business or capital.

Id. An employer can satisfy the fourth element of the “faltering company” exemption by

showing that a potential source of additional financing would refuse to do business with a

“troubled company or with a company whose workforce would be looking for other jobs.” Id.

The “faltering company” exemption “should be narrowly construed,” 20 C.F.R. § 639.9(a), and

the employer bears the sole burden of proof for showing that any WARN Act exemption has

been met. 20 C.F.R. § 639.9. Under this narrow reading, the “faltering company” exemption is

inapplicable to relieve Fazal Oil from liability for several reasons.

First, Fazal Oil failed to satisfy the first element of the “faltering company” exemption.

The first element requires an employer to have been actively seeking capital at the time the 60-

day notice would have been required. 20 C.F.R. § 639.9(a). In order to terminate its employees

on May 6th in accordance with the 60-day notification requirement, the notice would have been

required on March 6, 2013. There is no evidence to suggest that Fazal Oil was actively seeking

capital as of March 6th, nor has Fazal Oil identified any specific steps it took to obtain new

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business. The Third Circuit’s ruling in In re APA Trans. Corp. Consol. Litig. supports this

finding. 541 F.3d 233, 250–51 (3d Cir. 2008).

In In re APA Trans. Corp., the employer first sent notice to its employees on February

11th, nine days prior to permanently shutting its terminals on February 20th. Id. at 237–38. The

Third Circuit held that because the employer failed in its burden to demonstrate that, 60 days

prior to shutting its terminals, on December 20th, it was actively seeking financing, it failed to

satisfy the first element of the “faltering company” exemption. Id. at 250–51. In fact, because the

employer did not begin its search for additional capital until January 2nd, well after the 60-day

period began, the “faltering company” exemption did not apply. Id. at 248, 250. The employer

argued that “‘prediction of the date a company will need to shut down is not an exact science,’”

and thus that it would be unreasonable for the court to require it to have been actively seeking

financing when the 60-day period began. Id. at 238. In response, the court explained that this

argument

essentially asks this Court to read a ‘foreseeability’ requirement into the faltering business exception: in APA Transport’s view, if an employer does not foresee that it is 60 days away from plant closing, it should not be held liable for failing to take specific steps at the time to secure financing. We believe such an approach runs counter to both the text and purpose of the WARN Act.

Id. at 248. Specifically, the court determined that even an informal meeting between the

employer and its lender on October 24th did not constitute “actively seeking” financing as of

December 20th, when the 60-day period began. Id. at 249–50. Fazal Oil cannot even claim so

much as an informal meeting with a lender as of March 6th. On the contrary, there is no evidence

in the record prior to April 4th to indicate that Fazal Oil had ever sought additional capital. R. at

5. Although Fazal Oil may claim that a shutdown was not on the horizon when the 60-day period

began, this argument would, as the Third Circuit reasoned, “allow the defense to swallow the

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statute.” Michael Busenkell, Third Circuit Sets A High Bar for "Faltering Company" Exception

Under Warn Act, 27 Am. Bankr. Inst. J. 20, 55 (2008).

In fact, to use the “faltering company” exemption under this ruling, it appears that courts

may even require “formal written requests for financing as a prerequisite to qualifying for the

‘faltering company’ exception.” Id. at 56. At the very least, “financially distressed companies

must ensure that their efforts to obtain financing are well-documented and sufficient to

demonstrate active pursuit of financing at the time the notice would otherwise be required under

the Act.” Id. Because Fazal Oil can point to no specific efforts it made to obtain financing until

April 4th, well after the 60-day notice was required, it failed to satisfy the first element of the

“faltering company” exemption.

Second, as the District Court correctly held below, Fazal Oil failed to satisfy the fourth

element of the “faltering company” exemption, because it failed to offer any evidence that it

reasonably and in good faith believed that providing adequate notice would prevent it from

obtaining necessary credit. R. at 13. Specifically, Fazal Oil merely claims “any notice given to

employees before negotiations with other potential investors took place would have decreased

the likelihood of acquiring new financing.” Id. This mere assertion, standing alone, does not

satisfy Fazal Oil’s burden of proving its objective belief that it would lose an opportunity to

acquire additional capital if notice was given. If an employer fails to meet its burden of proof

with regard to the fourth element of the “faltering company” exemption, even assuming the

satisfaction of the other three elements, the employer cannot qualify for the exemption.

Childress, 357 F.3d at 1009.

The Court of Appeals held below that it was reasonable for Fazal Oil to forego a 60-day

notice, as such notice “could have had a negative impact on Fazal Oil’s viability with potential

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lenders, as well as its employees.” R. at 29. This finding misunderstands the fourth element of

the “faltering company” exemption. A mere finding by the Court of Appeals that providing

notice “could have” hurt Fazal Oil’s chances with potential lenders is irrelevant to the inquiry.

Rather, the fourth element specifically requires the employer to have “provided evidence that [it]

reasonably and in good faith believed that giving the sixty-day notice to [its] employees during

the negotiations” would have prevented it from obtaining credit. Childress, 357 F.3d at 1009.

The record is factually devoid of any evidence from Fazal Oil of such a belief. Because Fazal Oil

offered no evidence to that end, it failed to satisfy the fourth element of the “faltering company”

exemption.

Moreover, not only did Fazal Oil fail to offer objective proof of its reasonable belief, but

any contention that it feared losing a potential source of credit as a repercussion of giving notice

is, in fact, unreasonable in light of the fact that had already given a notice to its employees in

San Marcos on April 4th, prior to its 30-day search for additional capital. The April 4th notice

informed San Marcos employees that the 5,500 American employees stationed in San Marcos

would be terminated 60 days from the date of the notice due to the deteriorating financial

situation caused by the political turmoil in San Marcos. R. at 45. The April 4th notice readily

stated that the terminations, prompted by the plummeting of Fazal Oil stock and suspension from

trading, were expected to be permanent, as all of the company’s plants in San Marcos would be

closing. R. at 44–45.

Because, prior to engaging in its search for additional capital, Fazal Oil had already given

notice of the plant closings, it is difficult to understand how Fazal Oil could contend, and how

the Court of Appeals could find, that at the time Fazal Oil was seeking credit from potential

lenders, “[e]ven if the stock closing was public knowledge, the potential closing of the company

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was not . . . .” R. at 29. On the contrary, the April 4th notice explicitly stated that all of Fazal

Oil’s San Marcos plants would be closing, R. at 45, information Fazal Oil included in the

notification before it began its search for new capital. R. at 5. Only after the sending of this

notification did Fazal Oil spend the next 30 days seeking additional credit. Id. There is no

evidence in the record to suggest that Fazal Oil ever begun to look for additional capital before

issuing the April 4th notice.

If it is true, as the Court of Appeals found, that “notice to affected employees would have

done more harm than good,” R. at 29, the damage was already done before Fazal Oil ever

attempted to obtain new capital. Not only was the District Court correct in concluding that “the

suspension of Fazal Oil stock was a matter of public knowledge” at the time Fazal Oil sought

additional credit and thus that “giving notice to those affected employees would not have harmed

negotiations in any way,” R. at 13, but it is also true that the terminations and closings of San

Marcos plants were also public knowledge prior to Fazal Oil’s search for new capital, and further

shows that notice would not have harmed negotiations in any way. Therefore, the finding that

“notice to all affected employees could have further undermined [Fazal Oil’s] attempts to stay

afloat,” R. at 29, is completely without merit.

Lastly, Fazal Oil does not qualify for the “faltering company” exemption because it failed

to demonstrate the causal connection between its failure to obtain capital and its decision to close

all of its San Marcos plants. As the Thirteenth Circuit noted, under the “faltering company”

exemption, “the need for notice will only be triggered if the employer fails to obtain the business

or financing it seeks.” R. at 28; Worker Adjustment and Retraining Notification, 54 Fed. Reg. at

16061. More specifically, “[t]his exception applies only when a layoff is caused by the

employer's failure to obtain sufficient capital.” Id. In Carpenters Dist. Council, the Fifth Circuit

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explained that when “there is no causal connection between [the] search for capital and the

ultimate reduction in work force,” the “faltering company” exemption does not apply. 15 F.3d at

1281. The Fifth Circuit held that, because the reduction in the workforce was not caused by the

failure to obtain additional financing, but was actually caused by a company merger, the

“faltering company” exemption was inapplicable. Id.

In this case, Fazal Oil gave notice of the termination of its employees before it ever

engaged in negotiations for additional credit, meaning that it planned to terminate its employees

regardless of its success or failure in obtaining new capital, and its failure to obtain additional

credit therefore did not cause the terminations. Rather, the actual cause of the ultimate layoffs

was, as the District and Bankruptcy Courts found, the re-nationalization of the San Marcos oil

industry. R. at 13. Because “no causal relationship existed between” Fazal Oil’s search for

additional capital and the termination of 5,500 Fazal Oil employees, the “faltering company”

exemption does not apply to relieve Fazal Oil from liability.

Accordingly, this Court should reverse the decision of the Thirteenth Circuit and find the

“faltering company” exemption inapplicable to relieve Fazal Oil from liability under the WARN

Act.

CONCLUSION

For the aforementioned reasons, Petitioners respectfully request this Court to reverse the

decision of the Thirteenth Circuit.

Respectfully submitted,

ATTORNEYS FOR PETITIONERS