On a question dividing the courts, a district judge in Arkansas came down on the side of workers by holding that “a class action here is superior [to] the bankruptcy claims process for adjudicating the WARN Act claims” of former employees.
Before conversion of a chapter 11 reorganization to a chapter 7 liquidation, a fired worker initiated a purported class action under the Worker Adjustment and Retraining Notification Act, or WARN Act, which gives claims to employees who were not given 60 days’ notice of mass terminations. WARN Act claims can be more significant than general unsecured creditor claims because they are sometimes entitled to priority as chapter 11 administrative expenses.
The class suit had been stayed on agreement until it became clear whether there were assets to pay claims. When the chapter 7 trustee decided there would be a distribution, the WARN plaintiffs filed a motion, granted by the bankruptcy judge, to lift the stay and allow the class suit to proceed. The trustee responded with a successful motion to withdraw the reference, thus lodging the suit in district court.
The plaintiff filed a motion to certify the class under F.R.C.P. 23, which District Judge J. Leon Holmes of Little Rock, Ark., granted in an opinion on April 26.
Judge Holmes concluded that the plaintiffs had satisfied the numerosity, commonality, typicality and adequacy requirements of Rule 23(a). He then turned to the question under Rule 23(b) calling for “a comparative analysis between the advantages and disadvantages of the class action mechanism and the advantages and disadvantages of the bankruptcy claims allowance process.”
Judge Holmes said that courts have divergent views on whether class suits are superior to ordinary claims administration. He said that “factors traditionally associated with Rule 23(b)” make “class resolution superior to other methods for fairly and efficiently adjudicating the controversy.”
With no class suit, Judge Holmes said that each worker “would be left alone to defend” his or her claim. That process, he said, “would be impracticable because the claims are small.” He therefore held that “resolving plaintiffs’ WARN Act claims collectively through a class action will be more efficient than handling them in a piece-meal fashion as individual proofs of claim in the bankruptcy proceeding.”
Because he was the moving party on withdrawal of the reference, the trustee made opposition to class certification more difficult for himself because, as Judge Holmes said, the trustee “never explained how the bankruptcy claims process would be superior to a class action if withdrawal of the reference was mandatory and the bankruptcy court may be without authority to resolve individual WARN Act claims.”
Although it might be a complete defense to the suit itself on the merits, Judge Holmes said that the “liquidating fiduciary” principle was not a factor in class certification.