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Of Spoiled Milk—Warnings That Should and Should Not Have Been Issued: Another Take on the Potential for Management and Controlling Shareholder Liability Related to an Insolvent Company’s WARN Act Violations

For the better part of three decades, an apocryphal tale has circulated on the Internet about a man who leaps from a terminal height off a building only to be mortally wounded by a shotgun blast as he hurtles past an open window on the way down.  This dark fable then asks whether the medical examiner should conclude that the death of this man, who was imminently going to perish by his own hand, was a suicide or was murder.

The Delaware bankruptcy court’s brief opinion in Stanziale v. MILK072011, LLC (In re Golden Guernsey Dairy, LLC), 548 B.R. 410 (Bankr. D. Del. 2015), addressed the insolvency analogue to this hypothetical.  Otherwise stated, if management and a controlling member of a Delaware limited liability company that is already hopelessly insolvent, without any apparent justification fail to take action that could have prevented the company from incurring a substantial liability, is their failure to act wrongful as to the company, and does equity provide a remedy for that wrong?  According to the Golden Guernsey decision, the answer is plainly “yes.”  This, it is submitted, is the real import of this six-page opinion issued in a lawsuit filed in connection with the chapter 7 bankruptcy liquidation of a failed private-equity-backed dairy operation.

If the name “Golden Guernsey” sounds familiar, it is because the opinion was the subject of an article by Bret Amron that appeared in the July 2017 issue of this publication. Amron provides readers with a thorough and helpful review of state and federal WARN Act obligations.  At issue in Golden Guernsey was the company’s violations of the Wisconsin Wage Payment Act (WWPA).  The WWPA is one example of many “baby” WARN Acts various states have enacted, modeled to one extent or another on the federal Worker Adjustment and Retraining Notification Act (federal WARN Act).  Given that the differences between the federal WARN Act and the WWPA are immaterial for purposes of this article, both are generically referred to herein as the WARN Act.

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Gregory W. Werkheiser, “Of Spoiled Milk—Warnings That Should and Should Not Have Been Issued: Another Take on the Potential for Management and Controlling Shareholder Liability Related to an Insolvent Company’s WARN Act Violations,” Business Law Today (August 2017)

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