The Loan Agreement also defined events of default, and provided
that, in the event of a default, the lender could terminate any
further revolving credit advances, and declare all outstanding
obligations due and payable. Pls.' Ex. 100 at 76.
Thomas Gaffney's consulting contract was renewed, and he was
again indemnified from liability as a shareholder and as chairman
of the board of directors. Pls.' Ex. 11. Gaffney and Brooks
purchased all of Comptech's common stock. On March 31, the
Amended and Restated Certificate of Incorporation for Comptech, a
Delaware corporation, was recorded. Pls.' Ex. 45.
Comptech made arrangements to acquire Accu-Form, Inc.
("Accu-Form"), a plastic injection molder specializing in
medical, pharmaceutical, and electronic parts. Comptech, R & R
Plastics, Accu-Form, and Frances W. Czulewicz, who was
Accu-Form's sole shareholder and CEO, entered an Acquisition
Agreement, in which the parties agreed that Accu-Form and R & R
Plastics would merge. Pls.' Ex. 146.
Since GE Capital held a security interest in R & R Plastics,
the lender had to approve that merger. An Amended and Restated
Loan Agreement was entered on June 5, 1992, which essentially
acknowledged that R & R Plastics and Accu-Form had merged, and
that Accu-Form was replacing R & R Plastics as a party in the
loan documents. The amended agreement gave GE Capital a security
interest in Accu-Form to secure R & R's indebtedness. Pls.' Ex.
With the new Loan Agreement in place, Comptech continued
designing and marketing injection molds and GE Capital provided
funding to finance the plant's operation. GE Capital, and
particularly Jeanette Chen, closely monitored the Comptech
account, and there is an extensive record of correspondence
between the lender and borrower. On occasion, GE Capital made
decisions to extend financing even though no payments had been
made, and waived penalty interest on the unpaid loans. See e.g.
Pls.' Ex. 8, 10. In accordance with the Loan Agreement, Comptech
frequently had to request that the lender assent to certain
business plans and arrangements where those plans would affect GE
Capital's security interest.
In the fall of 1993, Comptech created a new subsidiary,
Comptech de Mexico, S.A. de C.V. ("Comptech de Mexico") at the
suggestion of one of its major customers, Mars Electronics, which
was moving its manufacturing facility to Mexico. Mars agreed to
provide start-up financing for the company, and Comptech
negotiated with Mexican financial institutions regarding a loan
for working capital. In addition, Comptech provided certain
equipment to the venture. Comptech also negotiated the purchase
of Phoenix International, a Mexican company, in connection with
Comptech de Mexico. Pls.' Ex. 147.
Since the Loan Agreement required GE Capital's assent before
Comptech could transfer any equipment in which the lender held a
security interest, or before it could create a subsidiary
corporation, GE Capital's assent was necessary before the
Comptech de Mexico plan could be implemented. An amendment to the
Loan Agreement was executed on November 23, 1993. Pls.' Ex. 153.
In that document, the circumstances of Comptech de Mexico's
creation were set forth, and GE Capital agreed to release its
security interest in the equipment and to waive or amend certain
provisions of the Loan Agreement. Comptech held 85% of its new
subsidiary's stock, and pledged those shares to GE Capital as
security on its loan. Pls.' Ex. 132.
In January of 1994, Comptech negotiated the sale of the
remaining assets of its subsidiary, R & R Plastics, to Fulton
Industries, and used the proceeds to prepay its term debt to GE
Capital in accordance with prepayment provisions of the Loan
Agreement. Pls.' Ex. 104.
Comptech continued to explore ways to expand its customer base
and to reduce its
operating expenses. For example, it proposed consolidating
Comptech's and Accu-Form's manufacturing operations in a single
new building. In developing this plan, Comptech negotiated with
the companies' existing landlords, as well as with contractors
for bids on a new facility. Pls.' Ex. 155. At times, the company
also made decisions to update its equipment. In one instance,
Comptech purchased new grinding and molding equipment, which was
financed by USL Capital, another lender. Pls.' Ex. 134.
In the spring of 1994, Gaffney, acting as chairman of the
board, fired Brooks as Comptech's president and replaced him with
Charles V. Villa. On May 16, 1994, Villa sent Chen a detailed
update on Comptech's business plans, and asked for additional
funds to cover operational losses and to finance new equipment.
Pls.' Ex. 7.
In June of 1994, Gaffney and Brooks sold all of their Comptech
stock to Villa, and Gaffney resigned. GE Capital had a call on
all of Villa's shares of Comptech stock.
By late summer, it appears that Comptech was at least
contemplating that the plant might have to be closed. Comptech
asked its attorneys for advice as to whether it had an obligation
to provide notice to the plant's employees before closing the
facility. In a memo dated August 29, 1994, Comptech's attorney
advised that, as the employer, Comptech would be obligated to
give sixty days notice under the WARN Act. Pls.' Ex. 16.
On September 24, 1994, Comptech and Accu-Form notified GE
Capital that they needed an additional $2 million in working
capital in order to continue operations for the remainder of
1994. Pls.' Ex. 21. They were informed that the lender would not
provide further funds. In an internal memo dated September 30,
1994, Chen recommended that GE Capital liquidate Comptech's
assets as partial payment on the outstanding loans. Pls.' Ex. 4.
Comptech was also seeking financing from other sources, and
Villa had discussions with CitiBank Venture Capital Limited
regarding securing the $2 million needed to continue to operate
Comptech through 1994.
In a letter to Ed Christie, GE Capital's senior vice president
of Portfolio Development and Support, Comptech's sales director,
Henry Makie, pleaded with the lender to continue to provide
financing, and stated that "our management is working to complete
a transfer sale to another financial entity." Pls.' Ex. 36.
However, GE Capital decided not to extend further credit, and to
accept Comptech's liquidated assets as collateral on unpaid
loans. By early October, the outstanding principal balance on
Comptech's loans was $6,650,000. Pls.' Ex. 24.
TIFD VIII-R was incorporated to conduct the liquidation, and GE
Capital assigned its rights in the collateral to TIFD. Pls.' Ex.
113. Negotiations ensued between counsel for the creditor and
counsel for Comptech, and drafts of the proposed agreements were
circulated on October 11 and 12, 1994. These documents were
drafted in accordance with Pennsylvania UCC § 9-505(b). They
included an Asset Turnover Agreement, Pls.' Ex. 160, an Asset
Retention and Purchase Agreement, and a Supplemental Funding
Agreement to fund the wind-up costs, including accrued employee
wages and benefits. The agreements were signed on October 13,
On October 14, Comptech's employees learned that the plant was
closing, effective immediately, when Charles Villa posted the
closing notice. Pls.' Ex. 50. Paragraph 6 of the notice gave this
explanation of the closing:
6. The unexpected temporary separation occurred on
October 13, 1994 when General Electric Credit
Corporation refused to extend additional financing to
Component Technology Corp. ("Company") and withdrew
current funds. Since the unexpected temporary closing
it has become apparent that the Company will not be
financially able to reopen and that the closing will
most likely be permanent. This notice was not
provided sixty (60) days prior to the plant closing
because the Company did not know that further
financing would be denied. The Company also believed
that giving the required notice would have precluded
the Company from obtaining the needed financing which
would have been sufficient to avoid or postpone the
Pls.' Ex. 50.
As agreed, Comptech turned over the assets pledged as
collateral to TIFD, which conducted a liquidation of the assets.
TIFD also attempted to fill outstanding orders. The proceeds
partially satisfied Comptech's obligations to GE Capital, and the
lender wrote off the balance of the debt in 1996.
This action, brought by former Comptech employees against
Comptech and the GE Capital defendants, followed.
II. Summary Judgment Standard
Summary judgment is proper where there is no genuine issue as
to any material fact, and the moving party is entitled to
judgment as a matter of law. Fed. R.Civ.P. 56(c); Childers v.
Joseph, 842 F.2d 689 (3d Cir. 1988). "Rule 56 mandates the entry
of summary judgment, after adequate time for discovery and upon
motion, against the party who fails to make a showing sufficient
to establish the existence of an element essential to that
party's case, and on which that party will bear the burden of
proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322,
106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A court considering
summary judgment must examine the entire record in the light most
favorable to the nonmoving party, and draw all reasonable
inferences in its favor. Anderson v. Liberty Lobby,
477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
The WARN Act requires employers of 100 persons or more to give
their employees sixty days written notice prior to a plant
closing or mass layoff. 29 U.S.C. § 2102(a). An employer who
violates WARN, and who is not protected by certain
narrowly-construed exceptions, is liable to each aggrieved
employee for back pay and benefits. 29 U.S.C. § 2102(a)(1). It is
clear to us that the factual background of the Comptech closing
establishes the essential elements of a WARN cause of action. It
is undisputed that the closing of the Comptech facility was a
"plant closing," which constituted a "WARN event" and caused an
"employment loss" to the requisite number of employees. Comptech
notified its employees of the closing on the same day the plant
ceased operation, and thus provided insufficient notice under the
As previously noted, we have entered a default judgment against
the employer on the charges contained in the complaint. The sole
question before us today is whether WARN liability attaches to
the remaining defendants to this lawsuit, the GE Capital
defendants, as "employers" under the statute, so that they may be
held liable for Comptech's failure to notify its employees as the
Plaintiffs contend that we must grant summary judgment in their
favor under three different theories, each of which is premised
on GE Capital's alleged control over Comptech: (1) they contend
that GE Capital is liable as a matter of law because it held the
voting rights to all of Comptech's stock after June 22, 1994; (2)
they argue that GE Capital is liable as a WARN employer under
general principles of corporate law, because it was Comptech's
parent corporation and owner, or because it acted as Comptech's
alter ego; and (3) they assert that GE Capital is directly liable
as an "employer" under the WARN Act because of the degree of
control it exercised, through the loan documents, over Comptech.
We will address these arguments seriatim.
A. Lender Liability Under WARN
Before turning to the plaintiffs' theories of liability,
however, we must first consider
whether such liability may attach to a creditor such as GE
Capital. The Court of Appeals for the Third Circuit has not yet
decided whether a secured creditor may be considered an employer
under the WARN Act, and, if so, what the threshold for such
liability might be.
The Act itself clearly holds only the employer liable for a
failure to warn. In deciding whether a secured creditor may fall
under the statutory definition of "employer," we look first to
the plain language of the statute, which provides as follows:
(1) the term "employer" means any business enterprise
that employs —
(A) 100 or more employees, excluding part-time
(B) 100 or more employees who in the aggregate work
at least 4,000 hours per week (exclusive of hours
29 U.S.C. § 2101(a)(1).
Thus, the statute's definition of "employer" considers only the
size of the workforce, and does not contemplate the sorts of
entities which might, under certain conditions, assume employer
status under the Act.
Since the statutory language alone fails to satisfy our
inquiry, we turn to the Department of Labor's ("DOL") final
regulations and commentary. Agency interpretation is accorded
deference when courts are deciding the meaning or reach of a
statute. Chevron, USA, Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837, 843-44, 104 S.Ct. 2778, 81 L.Ed.2d
694 (1984). Here, the agency's regulations do not directly speak
to whether a secured creditor may be considered a WARN employer.
However, they do address a somewhat analogous situation where a
fiduciary or trustee in a bankruptcy action takes possession of a
debtor's business assets. The DOL's commentary states that under
certain conditions, liability as a WARN employer attaches to the
DOL agrees that a fiduciary whose sole function in
the bankruptcy process is to liquidate a failed
business for the benefit of creditors does not
succeed to the notice obligations of the former
employer because the fiduciary is not operating a
"business enterprise" in the normal commercial sense.
In other situations, where the fiduciary may continue
to operate the business for the benefit of creditors,
the fiduciary would succeed to the WARN obligations
of the employer precisely because the fiduciary
continues the business in operation.
54 Fed.Reg. 16,045 (1989).