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Chief Judge Gross Dismisses Adversary Proceeding Under FRBP 7012(b)(6),(7)

By Evan T. Miller

On October 23, 2013, Chief Judge Kevin Gross of the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) issued his Memorandum Opinion in Jackson v. Fenway Partners, LLC (In re Coach Am Group Holdings Corp.), Adv. No. 13-51197 (KG), granting Fenway Partners, LLC’s (“Defendant”) motion to dismiss (the “Motion”) James Jackson’s (“Plaintiff”) complaint (as amended, the “Complaint”) for failure to join the Debtors as a necessary party and for failure to state a claim upon which relief could be granted.

Defendant is an investment advisor to a group of private investment funds, one of which is Fenway Partners Capital Fund, III LP (“Fenway III”).  Fenway III became a limited partner in the Debtor Coach Am Group Holdings, LP, and had the right to nominate members of the board of directors of the parent corporation of all the Debtors.  Fenway III directors did not participate in the management of the Debtors, parent or otherwise, in any capacity.

Plaintiff was a bus driver for a Debtor subsidiary.  On behalf of himself and others similarly situated, he filed the Complaint in California Superior Court – after which it was removed, transferred and referred to the Bankruptcy Court – alleging violations of state and federal laws, including the Fair Labor Standards Act (“FLSA”), the California Labor Code, California Business and Professions Code, and California Industrial Welfare Commission Order No 9-2001.  In response, Defendant sought dismissal under Rules 7012(b)(6), (7), and 7021 of the Federal Rules of Bankruptcy Procedure (“FRBP”).

The Court granted the Motion based upon two salient considerations: (1) the Complaint did not contain sufficient, plausible facts upon which the Complaint could survive; and (2) the Plaintiff’s claim that Defendant controlled the employment related issues of which Plaintiff complained was highly implausible.  The Court noted that the Complaint contained no allegations that Defendant was involved in the operations of the Debtors’ operating subsidiaries; to the contrary, the Court found that the Defendant was far removed from day-to-day operations, given that it was merely an advisor to an investor in the Debtors.  In light of this and the Plaintiff’s failure to join the Debtors – Plaintiff’s employers – in the Complaint, the Court found the Complaint to be fatally deficient under FRBP 7012(b)(7).  The Court was not swayed by the Complaint’s supplemental declarations quoting material form the Defendant’s website regarding its philosophy and methods.

In addition, the Court found grounds for dismissal pursuant to FRBP 7012(b)(6) because under the FLSA, liability for any violation requires that the aggrieving party be an “employer”.  Applying the FLSA “employer” test elucidated in In re Enterprise Rent-a-Car Wage & Hour Emp’t Practices Litig., 683 F.3d 462 (3d Cir. 2012), the Court found that there was no evidence Defendant maintained such control over employment matters that it could be reasonably held liable for employee complaints.

For the foregoing reasons, the Court dismissed the Complaint.  A copy of the opinion can be found here.

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