Opinion
No 3:99-CV-592 (EBB)
June 26, 2000.
RULING ON DEFENDANT NATIONSCREDIT COMMERCIAL CORPORATION'S MOTION FOR SUMMARY JUDGEMENT
INTRODUCTION
Defendant Nationscredit Commercial Corporation ("NCC") brings this Motion for Summary Judgment as to Plaintiffs' entire Complaint as it pertains to NCC. NCC's first argument is that, as a mere lender to Defendant MedEd Educational Programs ("MedEd"), it is not a liable "employer" of Plaintiffs herein. NCC's second argument is that the fraudulent transfer claim must be dismissed against it, since NCC was not the transferee of the transfer alleged under either New Jersey or Connecticut law. Finally, NCC contends that the CUTPA claim must be dismissed because it is merely a reassertion of the fraudulent transfer claim.
STATEMENT OF FACTS
The Court sets forth only those facts deemed necessary to an understanding of the issues raised in, and the decision rendered on, this Motion. The statement of facts is distilled from the Complaint, the uncontroverted portions of the Local Rule 9 Statements, affidavits, and other exhibits submitted in support of, and opposition to, this Motion.
The Plaintiffs herein were employed by Defendant MedEd, which was a business involved in preparing materials for medical education. Plaintiff Lorraine Brown ("Brown") was a Vice President, Human Resources of MedEd, and held that position until her termination on or about April 30, 1998. Plaintiff Virginia Otis ("Otis") was also a Vice President, Account Group Supervisor, from September 16, 1996 to March 20, 1998.
MedEd had a subsidiary known as "NCME" (also a Defendant in this action) in Northern New Jersey, which produced specialized medical training materials.
NCC is a commercial lending institution in the business of making commercial loans to borrowers in a wide variety of industries nationwide. NCC has never been in the business of preparing materials for medical education. Per an unchallenged affidavit of one John Stockton, NCC and MedEd are completely distinct entities which do not have any interrelated operations, as NCC is in the business of making loans to industries nationwide, rather than the production of medical materials. MedEd, similarly, is not in the business of making commercial loans to industries.
NCC and MedEd, as lender and borrower, entered into a Credit Agreement and a Security Agreement in December, 1993. Pursuant to those documents, NCC was the senior secured lender of MedEd. Under the Credit Agreement and other related documents, including MedEd Holdings' Pledge Agreement with NCC, NCC had certain rights typically afforded secured creditors. These included the right to approve one board member of MedEd, the right to send two representatives to MedEd's Board meetings, the right to inspect MedEd's books and records, the right to receive monthly financial statements and, once MedEd was in default, the right to decide whether to keep advancing monies to MedEd, the right to vote with respect to any pledged stock, and the right to realize on collateral, including MedEd's assets.
Pursuant to these documents, the NCC account representative in charge of MedEd's account, Ken McArtney, sat on the Board of Directors of MedEd Holdings. He did not sit on the NCC Board. As part of NCC's usual procedure in monitoring its loans, in accordance with the rights afforded to NCC, at various times NCC representatives, including McArtney and one Ron Cohn, attended meetings at MedEd and used office space at MedEd for their convenience at such times. Further, in accordance with its usual procedure, as permitted by the Security Agreement, NCC routinely monitored MedEd's financial status.
In the summer of 1998, MedEd went out of business. It transferred substantially all of its assets, such as they were, to a corporation known as NCME Holdings Corp. This is alleged to be a fraudulent transfer; however, NCC asserts that, as a matter of law, it was not the transferee of this alleged transfer and could not be held liable for same.
LEGAL ANALYSIS
I. The Standard of Review
In a motion for summary judgment the burden is on the moving party to establish that there are no genuine issues of material fact in dispute and that it is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). See also Anderson v. Liberty Lobby, 477 U.S. 242, 256 (1986) (plaintiff must present affirmative evidence in order to defeat a properly supported motion for summary judgment).
If the nonmoving party has failed to make a sufficient showing on an essential element of his case with respect to which he has the burden of proof at trial, then summary judgment is appropriate. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). "In such a situation, there can be `no genuine issue as to any material fact,' since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Id. at 322-23. Accord, Goenaga v. March of Dimes Birth Defects Foundation, 51 F.3d 14, 18 (2d. Cir. 1995) (movant's burden satisfied if it can point to an absence of evidence to support an essential element of nonmoving party's claim).
The court is mandated to "resolve all ambiguities and draw all inferences in favor of the nonmoving party. . . ." Aldrich v. Randolph Cent. Sch. Dist., 963 F.2d 520, 523 (2d Cir.), cert. denied, 506 U.S. 965 (1992). "Only when reasonable minds could not differ as to the import of the evidence is summary judgment proper." Bryant v. Maffucci, 923 F.2d 979, 982 (2d Cir.), cert. denied, 502 U.S. 849 (1991). If the nonmoving party submits evidence which is "merely colorable", or is not "significantly probative," summary judgment may be granted. Anderson, 477 U.S. at 249-50.
[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact. As to materiality, the substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted." Id. at 247-48 (emphasis in original).
"Indeed the salutary purposes of summary judgment — avoiding protracted, expensive, and harassing trials — apply no less to discrimination cases. . .", such as is the present Complaint.Meiri v. Dacon, 759 F.2d 989, 998 (2d Cir.), cert. denied, 474 U.S. 829 (1985). Accord, McLee v. Chrysler Corp., 38 F.3d 67, 68 (2d Cir. 1997) (summary judgment available for dismissal of discrimination claims in cases lacking genuine issues of material fact).
II. The Standard As Applied A. NCC As Plaintiffs' Employer
The Complaint contains claims against NCC for alleged violations of the Age Discrimination Act ("ADEA"), 29 U.S.C. § 621 et seq. (Counts 6-8); the Fair Labor Standards Act ("Equal Pay Act"), 29 U.S.C. § 206 (Counts 9-10); the Equal Opportunities Act ("Title VII"), 42 U.S.C. § 2000e et seq (Counts ll-12)and the Connecticut Fair Employment Practices Act ("CFEPA") Conn.Gen.Stat. § 46a-60 (collectively the "antidiscrimination statutes"), (Counts 13-17); fraudulent transfer of assets (Count 20); Connecticut Unfair Trade Practices Act ("CUTPA") (Count 21); and negligent retention, (Count 22).
Each of the anti-discrimination acts provides only for the liability of an "employer". See 29 U.S.C. § 623(a) (ADEA) ("It shall be unlawful for an employer. . . ."); 29 U.S.C. § 206(d) (equal pay) ("No employer having employees subject to any provision of this statute shall discriminate. . . ."); 42 U.S.C. § 2000e-2a (Title VII) ("It shall be an unlawful employment practice for an employer. . . ."); Conn. Gen. Stat. § 46a-60(a)(1) (discriminatory employment practices) ("It shall be a discriminatory practice in violation of this section for an employer. . . . "). Inasmuch as none of these statutes actually define "employer", one must turn to the case law interpreting the word in order to determine whether NCC was an "employer" of the Plaintiffs.
The most recent test enunciated by the Second Circuit Court of Appeals may be found in Pietras v. Board of Fire Commissioners of Farmingville, 180 F.3d 468 (2d Cir. 1999). In Pietras, the question was whether a probationary firefighter was an "employee" for purposes of Title VII. The Pietras Court cited Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 313, 322-33 (1992), for the common sense proposition that "Congress had in mind `the conventional master-servant relationship as understood by common-law agency doctrine'." Within that framework, the Second Circuit has stated that the question of whether someone is an employee for purposes of Title VII usually turns on whether he or she has received "direct or indirect remuneration from the alleged employer." Pietras, 180 F.3d at 473, citing O'Connor v. Davis, 126 F.3d 112, 116 (2d Cir. 1997), cert. denied 522 U.S. 1114 (1998). The Pietras Court held that "indirect remuneration" meant "significant benefits" such as "disability pension, survivors' benefits, group life insurance, and scholarships for dependents upon death." Id. at 473, citing to Haavistola v. Community Fire Co., 6 F.3d 211, 221-22 (4th Cir. 1993) (plaintiff volunteer firefighter employee of the fire company because she received significant indirect remuneration from company). It is not claimed that Plaintiffs receive any direct remuneration from NCC and it is clear that Plaintiffs do not receive any such indirect benefits from NCC, as required by Pietras.
Pietras was found to be employed by the Board, as she received numerous firefighters benefits from the Board, as mandated by state law.
The O'Connor Court discussed the principles of the common-law of agency as set forth in Nationwide. The court determined that only when an individual was "hired" by a corporation was he or she an employee of that corporation. Id. at 115. TheO'Connor Court also held that compensation "is an essential condition to the employee-employer relationship." Id. at 116, citing Graves v. Women's Prof'l Rodeo Association, 907 F.2d 71, 73 (8th Cir. 1990). Accordingly, it was determined that the defendant at issue was not an employer because, as a work study student, the plaintiff received no salary or other wages, and no employee benefits such as health insurance or vacation or sick pay, nor was she promised any compensation.
This "essential" condition of remuneration has been recognized by the lower Courts of this Circuit as well. In Tadro v. Coleman, 717 F. Supp. 996 (S.D.N.Y. 1989), aff'd 498 F.2d 10 (2d. Cir.), cert. denied, 489 U.S. 869 (1990), the Court found that Cornell Medical College was not the employer of a volunteer on its faculty inasmuch as the plaintiff did not receive any salary, health benefits, retirement benefits, and also had no hours assigned him by the hospital. The antidiscrimination statutes are " only available to employees . . . seeking redress for unlawful acts of their employers." Tadros, 717. F. Supp. at 1002 (emphasis added).
Under this remuneration test, it is also patently clear that NCC was not the employer of the Plaintiffs herein. All of the acoutrements of the employer-employee relationship were between Plaintiffs and MedEd. NCC did not pay any of Plaintiffs' salary, offered no health or retirement benefits, gave no sick or vacation time, gave no disability or survivor's benefits and did not control the hours worked by Plaintiffs. All of the remuneration received by Plaintiffs came from MedEd, not NCC.
Plaintiffs' reliance on both Spirit v. Teachers Insurance and Annuity Association, 691 F.2d 1054 (2d Cir. 1982) and Owens v. American National Red Cross, 673 F. Supp. 1156 (D.Conn. 1987) is further unavailing to them. The Spirit case involved plaintiffs who worked for a university, while the defendant was an insurance company to whom the university delegated its authority to provide employment benefits to plaintiffs. Defendant used sex-distinct mortality tables which the court found to be discriminatory based solely on gender. Recognizing that the defendant was not plaintiffs' employer per se, the Second Circuit nevertheless granted relief to plaintiffs by holding that an "employer" is one who significantly affects access of any individual to employment opportunities. In the present case, NCC did not affect Plaintiffs' employment opportunities. Rather, MedEd continued to control all aspects of Plaintiffs' employment opportunities. The only rights which belonged to NCC were those of a typical secured lender. The ability to sit one Board member of its choice, the ability to monitor MedEd's finances, the ability to send two representatives of its choice to Board meetings, and other normal secured lender's rights had nothing to do with Plaintiffs' employment opportunities. To the contrary, it was MedEd which decided on remuneration, the continuation of employment, the granting or continuation of all employee benefits and all other indicia of an employer. MedEd delegated no responsibilities for the day-today oversight of Plaintiffs' employment opportunities and the Court will not permit Plaintiffs to transmogrify NCC's secured lender rights into "employer" status within the meaning ofSpirit.
Plaintiffs insist that because NCC has admitted as true the facts as alleged in their complaint, NCC has waived its right to summary judgment. Plaintiffs miss the point. Under Rule 56, all well-pleaded factual allegations are deemed admitted. NCC has followed this mandate by doing just that. This does not mean, however, that as a matter of law, summary judgment is unavailable to NCC.
Plaintiffs next rely on the four-factor test set down in Owens v. American National Red Cross, 673 F. Supp. 1156 (D.Conn. 1987). In Owens, the plaintiff brought an action for wrongful discharge and breach of contract against the local chapter of the Red Cross and its national parent, American National Red Cross ("ANRC"). Owens asserted that ANRC, along with the local chapter, was liable to her because ANRC was her employer for purposes of her wrongful discharge. The court applied a four-factor test originally developed by the National Labor Relations Board ("NLRB") and endorsed by the Supreme Court in Radio Television Broadcast Technicians Local Union 1264 v. Broadcast Service of Mobile, Inc., 380 U.S. 255, 256 (1965) (per curiam) in order to determine whether two or more apparent entities are actually a single entity in its relationship to employees. The Owens Court noted that this test had been utilized in an ADEA case, Guthrie v. Ciba-Geiby. Ltd., 620 F. Supp. 91, 93 (D.Conn. 1984), and a Title VII case, Baker v. Stuart Broadcasting Company, 560 F.2d 389, 392 (8th Cir. 1977). The court also noted a recent Title VII case which was virtually identical to the one before it in which the court, applying the four-factor test, determined that the ANRC was not the employer of the plaintiff therein and dismissed the ANRC as a defendant.
The four factors are:
1) functional interrelation of operations;
2) centralized control of labor relations;
3) common management; and
4) common ownership or financial control.
An application of these factors clearly favors NCC. First, there was no functional interrelation of operations. NCC is a financial organization whose business was making loans nationwide to businesses or other entities. MedEd was a supplier of medical education programs. The only functional interrelation of operations between the entities was as secured lender and borrower. It is true that NCC had rights which, by a strained construction, could be deemed as having something to do with MedEd's operations, but a clear analysis of the issue demonstrates that the only functional interrelation were those rights typically given a secured lender in the Security and Credit Agreements. Although NCC had the right to have one member of MedEd's Board of Directors, this person had no more control than any other member. No member of MedEd sits on the Board of NCC. No officer of NCC is an officer of MedEd and no officer of MedEd is an officer of NCC. MedEd acted autonomously with regard to the day-to-day employment of its employees. For example, MedEd, not NCC, was the withholding agent for payment of federal and state taxes. Thus, it cannot be said as a matter of law that there existed any functional interrelation of operations between NCC and MedEd.
The second factor — centralized control of labor relations — is not truly applicable to this case. Suffice it to reiterate that the day-to-day employment assignments, benefits, and all other indicia of employment were between MedEd and its employees. NCC did not hire, supervise, train or discharge MedEd's employees. This factor, then, favors NCC.
Plaintiffs assert that the third factor — common management — must be found in their favor due to the financial arrangement between MedEd and NCC. The Court disagrees with Plaintiffs. The only management of the MedEd employees was handled by MedEd, not NCC. The fact that, under the financing agreements, NCC had the right to place one member on the Board of Directors of MedEd, that two representatives of NCC could attend these meetings and that NCC could review monthly financial records, is not indicative of common management. One must keep in mind that the test is one of functuality. Owens, 673 F. Supp. at 1161.
Common Ownership or financial control is the fourth factor to be reviewed. It must be noted that this factor is written in the disjunctive and either may be indicia of "employer" status. Firstly, there is no common ownership between MedEd and NCC. Theirs is simply a business arrangement between a borrower and its secured lender. NCC was at all times a wholly-owned subsidiary of Nationsbank (later, Bank of America); MedEd was at all times a wholly owned subsidiary of MedEd Holdings, which was owned by an investor group consisting of Evelio Sardina, William Walsh and an investment firm owned by Walsh. It is beyond cavil, then, that there existed no common ownership of NCC and MedEd.
As to financial control, if any existed it was of MedEd and not of MedEd's employees. It is unlikely that a secured lender could be said to be in "financial control", in any event. Giving the Plaintiffs all benefits of the test, however, the Court still cannot say that the lender-borrower relationship a fortiori turns the lender into having financial control of the borrower's employees. Plaintiffs have provided no support for this novel theory, nor has the Court found any on its own. The only case on point is provided by NCC in Pearson v. Component Technology Corp., 80 F. Supp.2d 510 (W.D.Pa. 1999). The Pearson Court found that, even if it were to accept "control" as the primary indicia of "employer", a secured lender's relationship with a borrower is deemed insufficient, as a matter of law, to turn the lender into an "employer." This is so even where the secured lender removed the borrower's directors and replaced them with the lender's nominees and in fact exercised control, because a secured lender is contractually entitled to take steps to protect its security. In Pearson, the secured lender, among other things similar to what Plaintiffs herein claim:
1) renewed consultant's contracts and indemnified them against relevant liabilities;
2) "closely monitored" the borrower's business and required "assent to certain business plans and arrangements where those plans would affect the secured lender's security interests";
3) controlled the sale of the borrower's assets after deciding that the borrower should be shut down.
Clearly, this is much more than NCC did in the present case.
The Pearson plaintiffs contended that this exercise of control made the secured lender an employer, a contention with which the court disagreed. The court noted that a secured lender should be granted broad leeway in protecting its interests, including monitoring assets, inventory and expenditures, influencing management decisions and suggesting changes in personnel. Id. at 520-21. "[A] lender acts as an employer when it operates the borrower's assets as a business enterprise in the normal commercial sense." Id. at 518 (citation omitted). Accordingly, this Court holds that only when a secured lender assumes overall responsibility for the management of the borrower's business, when it assumes an employer's role with the borrowers' employees, by hiring, firing, paying or supervising them, or when it participates in the functional operations of the borrower's business, including making the decisions regarding production, marketing, or employment practices, may it be considered as an "employer" for the purposes of liability under the anti-discrimination statues.
Measured against this yardstick, in no manner may NCC be considered Plaintiff's employer. This is not only true of thePearson test, but of each test set forth herein. Summary judgment shall be granted to NCC as to Counts Six to Eight (ADEA), Counts Nine and Ten (Equal Pay Act), Counts Eleven and Twelve (Title VII) and Counts Thirteen to Seventeen (CFEPA).
B. The Negligent Retention Claim
Similarly, summary judgment is granted as to the "negligent retention" claim against NCC found in Count Twenty-Two. Count Twenty-Two contends that Evelio Sardina was an unfit supervisor and should have been removed from his position. The claim is brought against NCC, MedEd and MedEd Holdings. "Negligent retention occurs, when during the course of employment, the employer becomes aware of problems with an employee that indicates his unfitness and the employer fails to take further action." Doe v. Abrahante, 1998 WL 225089 (Conn.Super. April 28, 1998), citing Foster v. Loft. Inc., 26 Mass. App. Ct. 289, 291 (Mass.App.Ct. 1988). Inasmuch as this Court has determined that NCC was not the employer of Plaintiffs (or Sardina, for that matter) this claim is meritless vis a vis NCC.
C. NCC As Fraudulent Transferee
Count Twenty is brought against NCC, MedEd, MedEd Holdings, NCME Corp. and Projects in Knowledge. It is alleged therein that, upon information and belief, MedEd "transferred substantially all of its assets to at least one other corporate entity which upon information and belief is NCME Holdings Corporation without receiving a reasonably equivalent value in exchange for the transfer of assets with the intent of defrauding certain of MedEd's creditors, including but not limited to Otis and Brown in violation of Conn.Gen.Stat. Sections 52-552(e) (f) and New Jersey Stat Section 25:2-3." It is further alleged that NCC's involvement consists of "upon information and belief, NCC directed and/or ratified the formation of this entity and MedEd's fraudulent transfer of assets to such entity." Nowhere is it alleged that NCC was the transferee; hence this claim must fall as a matter of law because such cause of action may be brought only against the actual transferee. No where in the statutes cited, nor in any case law found by the Court in its extensive research, is to be found any cause of action for allegedly "directing and/or ratifying" a fraudulent transfer.
Further, such action could have a nullifying effect on all of the financial agreements with MedEd, as same were between NCC and MedEd and MedEd Holdings, Inc. The only information Plaintiffs supplied in the responses to interrogatories as to such "direction and/or ratification" is inadmissible hearsay, as this alleged conversation was supposedly overheard by Plaintiff Otis, as she stood outside a closed door meeting during which she claims the parties discussed the fact that the new entity would be financed by NCC. Nowhere is this supported by evidence of financial agreements or the like between NCME Holdings Company or Projects in Knowledge, Inc. and NCC.
Finally, it belies credibility to believe that NCC would direct and/or ratify a fraudulent transfer when it was the lender to and largest creditor of MedEd. Accordingly, summary judgment is granted as to Count Twenty of the Complaint.
D. The CUTPA Count
Count Twenty-One is a restatement of the fraudulent transfer claim found in Count Twenty. In Nora Beverages, Inc. v. Perrier Group of America et al., 164 F.3d 736 (2d Cir. 1998) the Second Circuit Court of Appeals upheld the district court's grant of summary judgment on the CUTPA count, which merely restated two individual claims upon which the court had granted summary judgment. "Because the district court already had granted summary judgment on each of the individual claims referenced in Nora's CUTPA claim, it also granted summary judgment on the CUTPA claim." Id. at 751. The present CUTPA count is indistinguishable from that in Nora. As the Court has already granted summary judgment on the fraudulent transfer claim, a fortiori it now grants summary judgment on the CUTPA claim, which merely rests on the identical fraudulent transfer allegations.
CONCLUSION
Inasmuch as Plaintiffs have failed to demonstrate genuine issues of material fact on which they would bear the burden at trial, Defendant NCC's Motion for Summary Judgment [Doc. No. 54] is hereby GRANTED.
SO ORDERED
Dated at New Haven, Connecticut this 26th day of June, 2000.