Opinion
No. C 03-2082 CW
February 17, 2004
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT MORGAN, LEWIS BOCKIUS'S MOTION FOR SUMMARY JUDGMENT
Defendant Morgan, Lewis Bockius moves for summary judgment. Plaintiffs Robert McCaffrey, Neil Holloway, Tamara Frankhouser, Sandra Moore, Barbara Chaney, Clare M. Huntenburg, Charlene A. Carnell, Lynn Clecker, Lynette L. Craig-Harris, Querlyn Esther Moron, Jean A. Ramos, Patricia English, Cindy Milton, Dennis Crasser, Lisa L. Holland, Christopher Alksnis, Terry Ziegler, Kathleen McWilliams, Laurence W. Tinsley, David Liebendorfer, Linda L. Turner, Katharine Wood, Chris Bender, Steven S. White, Mark Hartwell, Regina I. Rodriguez, James K. Lewis, Jayne Loughry, Elizabeth Hartwood, Cheryl Hamill, Hector Carlos, Leslie H. Evans, Kevin M. Collins, Jorge Molina, Alana Searle, Mark Bevans, George Byron, Imberly L. Vinal, Kirstin Wolf, Roberta Weathers, and Jill C. Youkel oppose the motion. The matter was heard on August 8, 2003. Having considered all of the papers filed by the parties and oral argument on the motion, the Court GRANTS in part Defendant Morgan Lewis's motion for summary judgment and DENIES it in part.
Morgan Lewis's motion specified that it was moving to dismiss the claims against it or, in the alternative, for summary judgment. Morgan Lewis introduced evidence in support of its motions, and Plaintiffs have submitted evidence in response. Plaintiffs have not argued that they need additional time to obtain more evidence. Therefore, the Court will treat Morgan Lewis's motion as a motion for summary judgment.
BACKGROUND
Plaintiffs are former employees of Defendant Brobeck, Phleger Harrison, L.L.P., who were terminated from their jobs on February 14, 2003 as a result of Brobeck's decision to dissolve the partnership. Plaintiffs contend that they were entitled to, but did not, receive sixty days advance notice of their impending termination, pursuant to the requirements of the federal Worker Adjustment and Retraining Notification (WARN) Act, 29 U.S.C. Sec; 2101 et seq., and its California counterpart, Cal. Lab. Code § 1400 et seq.
As relevant here, Plaintiffs allege that Defendant Morgan, Lewis Bockius is Brobeck's purchaser and/or successor and/or alter ego and thus liable for failing to provide the requisite notice. In support of this contention, Plaintiffs point out that fifty-seven of the approximately 170 former Brobeck partners became Morgan Lewis partners as of February 12. Further, Morgan Lewis hired approximately 100 former Brobeck associates and 150 former Brobeck staff members on February 12, 13, and 14. On February 13, Morgan Lewis executed a letter agreement with Equities Office Properties, Brobeck's landlord, to lease the space at the One Market premises in San Francisco where Brobeck had its offices. The letter agreement sets an amount of money that Morgan Lewis shall pay to rent the premises for the period beginning February 12. Morgan Lewis also entered into a Purchase and Transition Agreement with Brobeck, effective February 14. According to the terms of that Agreement, Morgan Lewis allowed Brobeck's Liquidation Committee to continue to use office space at the One Market premises; Morgan Lewis purchased all the furniture, fixtures, equipment, and personal property owned by Brobeck and located at the One Market premises; Morgan Lewis purchased a license to use, and create derivative works of, all information available on Brobeck's intranet, including all form agreements, as well as all information available on Brobeck's internal document management system, other than client information that Morgan Lewis had not obtained permission to access; and Brobeck agreed to provide telephone service, WAN, internet access, and Blackberry service to Morgan Lewis employees previously employed by Brobeck. Morgan Lewis issued a press release on February 13 announcing it was "significantly expanding on the West Coast" by hiring over 150 former Brobeck lawyers and emphasizing the continuity of client relationships made possible by the transition of a large group of Brobeck lawyers to Morgan Lewis. Several former Brobeck employees assert that Morgan Lewis began to conduct business at the One Market premises no later than February 12. Finally, a former Brobeck employee asserts that he was terminated on February 18, the next business day, for having taken steps on February 14 to limit Morgan Lewis's wholesale access to Brobeck client data. Morgan Lewis now moves for summary judgment on Plaintiffs' federal and State WARN Act claims on the basis that this evidentiary showing is not sufficient to create a dispute of fact as to whether Morgan Lewis was responsible for providing the requisite notice. Morgan Lewis also moves for summary judgment on Plaintiffs' claim pursuant to California Business and Professions Code § 17200 and their claim for an equitable lien pursuant to Jewel v. Boxer, 156 Cal.App.3d 171 (1984).
Defendant Brobeck, Phleger Harrison also moved to dismiss the complaint or for summary judgment. However, Defendant Brobeck is currently in bankruptcy proceedings. Therefore, the claims against Defendant Brobeck are automatically stayed pursuant to the provisions of 11 U.S.C. § 362.
LEGAL STANDARD
Summary judgment is properly granted when no genuine and disputed issues of material fact remain, and when, viewing the evidence most favorably to the non-moving party, the movant is clearly entitled to prevail as a matter of law. Fed.R.Civ.Proc. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1288-89 (9th Cir. 1987).
Material facts which would preclude entry of summary judgment are those which, under applicable substantive law, may affect the outcome of the case. The substantive law will identify which facts are material. Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 248 (1986).
The moving party bears the burden of showing that there is no material factual dispute. Therefore, the Court must regard as true the opposing party's evidence, if supported by affidavits or other evidentiary material. Celotex, 477 U.S. at 324; Eisenberg, 815 F.2d at 1289. The Court must draw all reasonable inferences in favor of the party against whom summary judgment is sought. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986);Intel Corp. v. Hartford Accident Indem. Co., 952 F.2d 1551, 1558 (9th Cir. 1991).
Where the moving party does not bear the burden of proof on an issue at trial, the moving party may discharge its burden of showing that no genuine issue of material fact remains by demonstrating that "there is an absence of evidence to support the nonmoving party's case."Celotex, 477 U.S. at 325. The moving party is not required to produce evidence showing the absence of a material fact on such issues, nor must the moving party support its motion with evidence negating the non-moving party's claim. Id.; see also Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 885 (1990); Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1409 (9th Cir. 1991), cert. denied. 502 U.S. 994 (1991). If the moving party shows an absence of evidence to support the non-moving party's case, the burden then shifts to the opposing party to produce "specific evidence, through affidavits or admissible discovery material, to show that the dispute exists." Bhan 929 F.2d at 1409. A complete failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial. Celotex, 477 U.S. at 323.
DISCUSSION
I. Federal WARN Act Claim
The federal WARN Act requires that an employer give sixty days advance warning before any "plant closing" or "mass layoff" that causes an "employment loss." 29 U.S.C. § 2101(a)(2) (3). For purposes of this motion, Morgan Lewis does not dispute that Plaintiffs were entitled to receive this notice. However, Morgan Lewis contends that Brobeck, not it, was Plaintiffs' employer and so Brobeck, not it, was obliged to provide the requisite notice. Plaintiffs respond that Morgan Lewis can be held liable for failing to provide the requisite notice based on a provision of the WARN Act that makes a purchaser of all or part of an employer's business responsible for providing notice for any plant closing or mass layoff that occurs after the effective date of the sale. 29 U.S.C. § 2101(b). Plaintiffs also claim that Morgan Lewis can be held liable based on the common law doctrines of successor liability and alter ego liability.
Plaintiffs contend that Morgan Lewis was required to give them notice because Morgan Lewis purchased part of Brobeck's business as explicated in 29 U.S.C. § 2101(b), entitled "Exclusion from definition of employment loss." That section provides:
In the case of a sale of part or all of an employer's business, the seller shall be responsible for providing notice for any plant closing or mass layoff in accordance with section 2102 of this title, up to and including the effective date of the sale. After the effective date of the sale of part or all of an employer's business, the purchaser shall be responsible for providing notice of any plant closing or mass layoff in accordance with section 2101 of this title. Notwithstanding any other provision of this chapter, any person who is an employee of the seller (other than a part-time employee) as of the effective date of the sale shall be considered an employee of the purchaser immediately after the effective date of the sale.
In interpreting this statutory provision, the parties focus on the meaning of the phrase "a sale of part or all of an employer's business." Morgan Lewis asserts that it did not buy Brobeck's business; in fact, it had previously deliberately decided not to merge with Brobeck. Morgan Lewis argues that merely extending offers of partnership to some former Brobeck partners and offers of employment to some former Brobeck employees, as well as purchasing a relatively small quantity of tangible assets, is not sufficient to render it the purchaser of Brobeck's business. However, as Plaintiffs point out, Morgan Lewis did more than that. Morgan Lewis also leased Brobeck's former premises, purchased access to Brobeck's informational infrastructure, obtained access to Brobeck's client files, and emphasized lawyer continuity in press releases geared toward convincing Brobeck's clients to become Morgan Lewis's clients. Thus, although Morgan Lewis neither assumed Brobeck's liabilities nor acquired its accounts receivable, Morgan Lewis did put together a series of transactions that allowed many of the same lawyers to practice law using much of the same infrastructure with the explicit hope that this would allow it to acquire Brobeck's clients. Considering these facts in light of the functional understanding of the phrase "a sale of part or all of an employer's business" adopted by the Ninth Circuit in International Alliance of Theatrical Stage Employees Moving Picture Machine Operators v. Compact Video Services. Inc., 50 F.3d 1464, 1467 (1995), a reasonable jury could determine that there was a "a sale of part or all of [Brobeck's] business" within the meaning of 29 U.S.C. § 2101(b). Thus, whether there was a sale of all or part of a business within the meaning of 29 U.S.C. § 2101(b) is a question for a jury.
However, Plaintiffs' contention that the common law doctrines of successorship or alter ego liability render Morgan Lewis responsible for failing to provide the requisite notice fails as a matter of law. In support of their assertion that such doctrines can be invoked to establish liability under the WARN Act, Plaintiffs point to 20 C.F.R. § 693.3(a)(2) which, in defining the term "employer," states, "Under existing legal rules, independent contractors and subsidiaries which are wholly and partially owned by a parent company are treated as separate employers or as part of the parent or contracting company depending upon the degree of their independence from the parent." The Department of Labor (DOL) has clarified that this regulation is not intended to supplant existing statutory and common law standards for determining the liability of related employers. 54 F.R. 16,042, 16,045 (1989) ("The intent of the regulatory provision relating to independent contractors and subsidiaries is not to create a special definition of these terms for WARN purposes; the definition is intended only to summarize existing law that has developed under State Corporations laws and such statutes as the NLRA, the Fair Labor Standards Act (FLSA) and the Employee Retirement Income Security Act (ERISA)."). The Ninth Circuit has explicitly adopted this interpretation. Local 952 v. Am. Delivery Serv. Co., Inc., 50 F.3d 770, 775-76 (9th Cir. 1995). This regulation, and its related commentary, addresses the standards of liability for related entities, as the DOL has noted. 54 F.R. 16,042, 16,045 ("[T]he regulation is not intended to foreclose any application of existing law or to identify the source of legal authority for making determinations of whether related entities are separate."). There is no indication that this regulation was intended to address the liability of sequential business owners, an issue explicitly addressed by 29 U.S.C. § 2101(b). Thus, the Court concludes that the doctrine of successor liability, as it has developed in federal labor law, is inapplicable to the Court's determination of Morgan Lewis's potential WARN Act liability.
However, alter ego liability is a State common law doctrine that addresses the liability of related corporate entities. Thus, pursuant to 20 C.F.R. § 693.3(a)(2), as it has been interpreted by the DOL and the Ninth Circuit, Plaintiffs could assert that Morgan Lewis is liable for Brobeck's failure to provide the requisite notice if Plaintiffs could prove that Morgan Lewis and Brobeck are alter egos. The alter ego doctrine prevents individuals or other corporations from misusing the corporate laws by the device of a sham corporate entity formed for the purpose of committing fraud or other misdeeds. Associated Vendors. Inc. v. Oakland Meat Co., 210 Cal.App.2d 825, 842 (1962). "In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone." Sonora Diamond Corp. v. Sup. Ct., 83 Cal.App.4th 523, 538 (2000). "Among the factors to be considered in [determining whether there is such a unity of interest and ownership] are commingling of funds and other assets of the two entities, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other." Roman Catholic Archbishop v. Sup. Ct., 15 Cal.App.3d 405, 411 (1971). "Other factors which have been described in the case law include inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers."Sonora Diamond. 83 Cal.App.4th at 539. Applying these factors to the undisputed facts of this case, it is clear that Morgan Lewis is not Brobeck's alter ego. Most importantly, Plaintiffs have not demonstrated that Morgan Lewis was Brobeck's equitable owner. Further, Plaintiffs have offered no evidence that Brobeck, a law firm established in San Francisco. in 1926 that as of February 2, 2003 had approximately 170 partners and employed more than 975 people in fourteen different offices throughout the world, was a mere conduit or shell for the affairs of Morgan Lewis. Thus, Morgan Lewis cannot be held liable for the failure to give the requisite notice on the basis of alter ego liability.
Thus, the Court denies Morgan Lewis's motion for summary judgment as to Plaintiffs' federal WARN Act claim on the basis that there is a dispute of fact as to whether Morgan Lewis can be held liable for failing to give the requisite notice as a purchaser of part or all of Brobeck's business within the meaning of 29 U.S.C. § 2101(b).
II. State WARN Act Claim
Morgan Lewis argues that it is entitled to summary judgment on Plaintiffs' State WARN Act claim on the basis that it was never Plaintiffs' employer. See Cal. Lab. Code § 1401(a) ("An employer may not order a mass layoff, relocation, or termination at a covered establishment unless, 60 days before the order takes effect, the employer gives written notice of the order."); Cal. Lab. Code § 1400(b) ("`Employer' means any person . . . who directly or indirectly owns and operates a covered establishment."). Unlike the federal Act, the State WARN Act does not include any provisions specifically addressing the allocation of responsibility for providing notice in circumstances involving the alleged sale of a business. However, the statute does provide that it is the "employer" that is responsible for providing the requisite notice. The common legal understanding of the term "employer" is an entity that is paying a wage or salary to an employee for the employee to perform work on the employer's behalf where the entity has the power or right to control and direct the work-related activities of the employee. Here, there is simply no evidence that Morgan Lewis was ever assumed such a relationship with Plaintiffs. Thus, Morgan Lewis cannot be held liable for any State WARN Act liability that may exist on the basis that it was Plaintiffs' employer.
However, it is possible that Morgan Lewis can be held liable under the State WARN Act as Brobeck's successor. "[A]s a general rule, a corporation purchasing the assets of another corporation is insulated from the debts and liabilities of its predecessor. Monarch Bay II v. Prof'l Serv. Indus., Inc., 75 Cal.App.4th 1213, 1216 (1999). However, liability will be imposed on the successor where: " (1) there is an express or implied agreement of assumption, (2) the transaction amounts to a consolidation or merger of the two corporations, (3) the purchasing corporation is a mere continuation of the seller, or (4) the transfer of assets to the purchaser is for the fraudulent purpose of escaping liability for the seller's debts." Ray v. Alad Corp., 19 Cal.3d 22, 28 (1977). At this stage in the proceedings, the Court cannot conclude that none of these exceptions are applicable. Therefore, the Court denies Morgan Lewis's motion for summary judgment as to Plaintiffs' State WARN Act claims on the basis that Morgan Lewis may potentially be held liable as Brobeck's successor.
III. Section 17200 Claim
Morgan Lewis argues that it is entitled to summary judgment as to Plaintiffs' California Business and Professions Code § 17200 claim because an unfair competition claim cannot be based on an employer's treatment of its employees and that, even if it could be, Plaintiffs have not established that they are entitled to relief under either the federal or State WARN Acts. Morgan Lewis is mistaken in its belief that an employer's treatment of its employees cannot form the basis for an unfair competition claim; the California courts have held that it can.Application Group, Inc. v. Hunter Group. Inc., 61 Cal.App.4th 881, 907 (1998). And, as discussed above, Plaintiffs' federal and State WARN Act claims survive Morgan Lewis' motion for summary judgment. Therefore, the Court denies Morgan Lewis' motion for summary judgment as to Plaintiffs' § 17200 claim.
IV. Jewel v. Boxer Claim
Morgan Lewis argues that it is entitled to summary judgment as to Plaintiffs' claim for an equitable lien pursuant to Jewel v. Boxer, 156 Cal.App.3d 171 (1984), for a variety of reasons. Plaintiffs have not opposed this argument. Therefore, the Court grants Morgan Lewis' motion for summary judgment as to the Jewel v. Boxer claim.
CONCLUSION
For the foregoing reasons, Defendant Morgan, Lewis Bockius's motion for summary judgment (Docket No. 13) is GRANTED with respect to Plaintiffs' claim pursuant to Jewel v. Boxer. However, it is DENIED with respect to Plaintiffs' claims pursuant to the federal WARN Act, the California WARN Act, and California Business and Professions Code § 17200. A further case management conference will be held on March 5, 2004 at 1:30 p.m. A joint case management statement shall be filed on February 27, 2004.
IT IS SO ORDERED.