Indiana District Courts Finds Private Equity Firm Potentially Liable in WARN Class Action

by BakerHostetler

This seems to be the month for class action cases presenting unusual issues in combination. Last week we wrote about a class action disparate impact claim of disability discrimination against the obese in which the court ultimately awarded sanctions against the plaintiff. (Rare on all three counts). This week we have a WARN Act class action in which the court both certified the class and held that, at least based on the allegations set forth in the complaint, a private equity company might be held liable for the employment decisions made by a company it owned. (One simply unusual, the second extremely so).

This will be one of our longer blogs because both sets of issues addressed by the court require a little explanation, and both are worthy of comment.

In Young v. Fortis Plastics LLC, Case No. 3:12-cv-00364 (N.D. Ind. Sept. 24, 2013), the court addressed WARN Act claims arising out of the closing of a Fortis Plastics facility in Fort Smith, Arkansas in October, 2011. The plaintiff contended that he and approximately 90 other employees were not provided with the 60-day notice the WARN Act required. He attempted to assert claims on behalf of the affected employees, and also named as a defendant a private equity company that, the complaint alleged, owned Fortis and made employment decisions on its behalf. The employee sought class certification, and the private equity company sought to dismiss the claims against it. The court ultimately denied the motion to dismiss and certified a class of those who had worked at the facilities in the 60 days before it closed.

Let’s start with the class action issue. If you want to read about the issue of the liability of the private equity firm, just skip over the next few paragraphs.

The Class Certification Issues

WARN Act claims are relatively uncommon due in large part to the very fortunate reason that plant closings affecting over 50 employees, while newsworthy, occur far less frequently than the types of decisions that might be challenged in other class actions (such as pay practices, promotions, etc., that occur every day). In addition, employers are generally aware of the WARN Act’s requirements, and apart from having the foresight to give 60 days’ notice, the drafting of the notices themselves typically is not a time-intensive process.

WARN Act cases, when they are brought, may be good subjects for class treatment. They almost by definition meet the numerosity requirement because the Act isn’t even triggered unless 50 employees have been affected. Further, employers typically give or do not give notice; there are few cases brought in which some affected employees contend that they were not given notice while others were. And the issues, often, are the same for all of the employees:  whether the employer gave notice, whether the notice was timely, whether an exception applied, etc.

In this case, however, both sides arguably missed the mark in one or more respects.

For its part, the employer raised the right arguments in a sense by challenging commonality and typicality under Rule 23(a) and predominance and superiority under Rule 23(b)(3). The problem, though, was that while it identified the most likely candidates for challenge, it could not identify why there was no commonality, typicality, superiority, or predominance, but simply asked for discovery to find a basis to challenge them. There might very well have been a basis – for example different separation dates for employees, unexpected business changes that affected one group of employees versus another, coverage issues, discharge of the lead plaintiff for cause, etc. – but the employer could not identify them. Further, most would likely be in the employer’s knowledge in any event. Given all this, it is not surprising that the district court rejected the employer’s arguments.

The employee, too, made mistakes, but less serious ones. First, part of his numerosity argument rested upon a hearsay newspaper article that even the district court acknowledged was not evidence. The district court, in a questionable holding, relied upon the article on the basis that the plaintiff’s showing need not be of evidentiary quality at the class certification stage. A better practice might have been to use competent evidence to avoid such a challenge, particularly since the issue was an objective fact (the number of people affected by the closing) one that a different court might well have accepted.

Second, the plaintiff asserted class claims under Rule 23(b)(2), which is easier in some respects than those under Rule 23(b)(3), but such claims must be ones for equitable relief. The Supreme Court emphasized that requirement only two years ago in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2557-60 (2011), and the relief under WARN is overwhelmingly monetary, not equitable. While the district court rejected the application of Rule 23(b)(2) on this basis, the plaintiff’s claims still survived under Rule 23(b)(3) because, as explained above, it appeared that superiority and predominance had been adequately claimed.

Third, the plaintiff offered a convoluted class definition that included date, statutory requirements, and foreseeability limits. The court rejected this definition in favor of one that encompassed those who had worked at the facility within 60 days prior to its closing. Incidentally, this, too, might prove problematic in the future if, for example, that group included those who accepted transfers (and therefore never lost employment), who were independent contractors, or who otherwise would have fallen outside of the WARN Act’s ambit, but it does not appear that either side raised these issues if they existed at all.

The court therefore certified a class under Rule 23(b)(3) of those who had worked at the plant during the 60 days before it closed.

Liability of the Private Equity Firm

So, let’s turn to the private equity issue.

There was no dispute that Fortis Plastic was the plaintiff’s employer, but he also sued the private equity firm that, he claimed, was its owner. The reason for doing so is obvious: Fortis had closed not only the plant at issue but several others, suggesting financial trouble. Should Fortis not be able to satisfy a judgment, a solvent private equity firm that was also on the hook might. 

The employment and labor laws are far less respectful of corporate boundaries than many other areas of the law.  Under the WARN Act, a claimant need not establish the high standard for piercing the corporate veil under traditional law, but can claim that the owner of a company is also an employer based upon having sufficient inter-relatedness and control. More specifically, under the WARN Act’s regulations:

independent contractors and subsidiaries which are wholly or partially owned by a parent company are treated as separate employers or as a part of the parent or contracting company depending upon the degree of their independence from the parent.

 29 C.F.R. § 639.3(2).

 The regulations also describe how to determine whether two entities are sufficiently separate:

Some of the factors to be considered in making this determination are (i) common ownership, (ii) common directors and/or officers, (iii) de facto exercise of control, (iv) unity of personnel policies emanating from a common source, and (v) the dependency of operations.


These are simply a list of factors and a plaintiff need not satisfy all of them. For those concerned about their liability under Title VII, the FLSA, the NLRA and a host of other employment statutes, there are similar rules that may come as a surprise with those accustomed to the rules of corporate law in other arenas, but we’ll focus on the WARN Act for now. The district court not only accepted the regulation, but also commented that one purpose for it might be to require those “partially responsible” for the closing  “to assume certain of those obligations.”

The private equity firm moved to dismiss the complaint on the grounds that it was not the employer and could not be held as the employer even under the WARN Act’s regulations. The court was troubled with some of the allegations made in the complaint but found that, it did allege at various points that the private equity firm: (a) owned Fortis; (b) maintained “a continuous presence” at the plant and “ordered” its closing; (c) “controlled” labor relations at the plant; (d) was paid a $500,000 annual fee to manage Fortis; (e) had employees that supervised the management of the plant. While the court was unimpressed by the plaintiff’s showing on other issues, such as common officers and directors, uniform employment policies, and interdependency of operations, the exercise of control was by far the most important factor and was sufficiently alleged to avoid dismissal.

The decision in Young as to the role of the private equity firm is rightly of concern. It not only relates to private equity firm, but will likely be argued to apply to management turnaround firms and potentially others who assist struggling operations return to profitability.

But it also has its limits. First, the court itself recognized that the case was “a close call” and that it ruled against dismissal only because of the lenient standard the plaintiff had to meet at that stage of the case. Second, it all but invited the defendant to move for summary judgment at the close of discovery if the plaintiff could not prove the allegations of control it had made in the complaint. It is difficult to predict whether this will ever happen as Fortis, the undisputed employer, is still a defendant and the opinion does not reflect what defenses might be raised. Still, the Young case makes it clear that.

One issue the court never explains is its reference that those “partially responsible” for a closing might be required to “assume certain of [the WARN Act’s] obligations”. Would liability be pro-rated? Would the private equity company only be required to provide part of a notice? The opinion never says, but the plaintiff, if the issue arises, will certainly argue that if the private equity company is an “employer” it is liable for the full amount of WARN Act relief.

The Bottom Line: Those owning or working with failing companies or facilities should not only observe corporate formalities, but keep their lines of authority sufficiently separate to avoid allegations of joint control.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© BakerHostetler | Attorney Advertising

Written by:


BakerHostetler on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.