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Publish Date: 
Wednesday, November 26, 2014

On Tuesday, November 18, 2014, Judge Mary Walrath of the United States Bankruptcy Court for the District of Delaware granted Defendant AE Liquidation’s (formerly known as Eclipse Aviation) motion for summary judgment thus dismissing Plaintiff Annette Varela’s multimillion dollar Worker Adjustment and Retraining Notification Act (WARN) claims.

Pursuant to the WARN Act, employers with 100 or more employees must provide their employees notification of plant closings or mass layoffs 60 calendar days in advance.  Federal law provides very few exceptions to this requirement, however, if a defendant employer can prove that it suffered an “unforeseen business circumstance,” their requirement to provide 60 days notice may be alleviated.  To invoke this defense, the employer must show that: 1) the claimed circumstance was unforeseeable, and 2) the layoffs were caused by that circumstance.  Whether or not the claimed circumstance was indeed unforeseeable is a fact intensive, objective determination made by the Court.

In this case, Plaintiff Annette Varela was an employee of Eclipse Aviation, an Albuquerque, New Mexico based aviation company which designed and manufactured a small, twin engine jet airplane intended for private use and aero taxi operation.  Following a period of poor business performance, Eclipse filed for Chapter 11 bankruptcy protection on November 25, 2008 in an effort to reorganize and attempt to achieve profitability.  Thereafter, Eclipse entered into a Bankruptcy Court approved asset purchase agreement on January 20, 2009, with a company called ETIRC, in which ETIRC would purchase the company and continue its operation.  The majority of the funding for the purchase was to be provided by the Russian government owned Vnesheconombank (VEB).  Over the course of the next several weeks, the President of ETIRC, Roel Pieper, continued to make assurances to the executive officers and management of Eclipse that the purchase would go forward as set forth in the APA.  Mr. Pieper communicated with Eclipse management on an almost daily basis up until the middle of February, reaffirming that he was simply waiting for Kremlin approval of the loan from the VEB.  While waiting for the transaction to move forward, Eclipse continued to suffer from cash flow problems and on February 18, 2009, it furloughed a majority of its employees, fully intending for them to return once the purchase was finalized.  Days later, however, it became clear that the VEB would not be providing the financing promised, and on February 24, 2009, Eclipse filed for Chapter 7 bankruptcy liquidation.  As a result, all employees of Eclipse Aviation were notified that their employment had been terminated effective February 18, 2009.

In March of 2009, the law firm of Outten & Golden filed suit against Eclipse Aviation on behalf of Annette Varela, alleging that Eclipse had violated both state and federal WARN Act requirements by failing to provide proper notice of termination.  Outten & Golden, through its attorneys, also filed a motion to certify all employees of Eclipse who had been terminated as a class in an effort to litigate the case as a class action.  The motion to certify all employees as a class was put on hold, and litigation proceeded with Cooch and Taylor attorneys acting as counsel for Bankruptcy Court appointed Chapter 7 Trustee, Jeoffrey Burtch.  After several rounds of extensive written discovery and several depositions of key former Eclipse executive employees, the parties filed cross motions for summary judgment in mid-2014.  Ms. Varela sought a judgment in her favor and for similarly situated employees and sought damages in the tens of millions of dollars.  Cooch and Taylor sought a judgment dismissing the WARN claims against Eclipse on the basis that the failure of the VEB to fund the asset purchase agreement as promised was an unforeseen business circumstance which alleviated Eclipse’s obligation to provide 60 days notice of termination.

Upon review of the undisputed facts and the applicable law as set forth in the parties briefings, Judge Walrath concluded that the sudden failure of VEB to fund the ETIRC’s purchase of Eclipse Aviation was indeed an unforeseen business circumstance which eliminated Eclipse’s obligation to provide 60 days notice of termination to its employees.  Judge Walrath also concluded that upon learning of the unforeseen business circumstance, Eclipse provided proper notification under the WARN act, and therefore dismissed Plaintiff’s multimillion dollar claims.  As a result, Eclipse’s legitimate creditors now have a much more significant opportunity to recover debts owed to them by Eclipse Aviation.

Chapter 7 Trustee Jeoffrey Burtch was represented by Cooch and Taylor bankruptcy attorneys, Adam Singer, Claire McCudden, and Greg Fischer and Cooch and Taylor litigation attorney, Christopher Lee.