Laid off Celadon workers seek assurance for class action suit

February 2020

Greg Grisolano

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The fallout from Celadon’s bankruptcy continues as former employees seek class action status for a lawsuit alleging the carrier violated federal labor laws in the WARN Act by not providing adequate notice of its impending shutdown.

The Worker Adjustment and Retraining Notification Act requires large companies to give a 60-day notice of layoffs to employees. Employers found to be in violation of the notice may be liable for back pay and benefits for a period of up to 60 days as well as being subject to civil penalties.

The WARN Act lawsuit seeks damages in the amount of 60 days’ pay and ERISA benefits for the class members. The lawsuit estimates the claims to be at about $25 million.

According to court documents, Celadon officials filed a plan to close the sale of the company’s assets by Jan. 24. But a group of unsecured creditors filed a motion objecting to the plan, saying the timeline “does not appear to be a value-maximizing process.” The committee also objected to the Jan. 24 closing date because it would also have the effect of shortening the amount of time they would have to challenge any existing liens the company has on its assets and property. The committee had been given until Feb. 17 to bring forth any challenges to those issues.

Attorneys for the two named plaintiffs in the WARN class action lawsuit also filed a motion objecting to the Jan. 24 sale.

“While the debtors face significant administrative liabilities to their employees, the proposed financing plan filed by Celadon provides no funding for the WARN Act administrative claims,” reads the motion.

The motion also claims that since the company is aiming to sell off its remaining assets and shut down operations in less than two months, “their strategy is clear – run out the clock on the WARN Act plaintiffs and thrust the case into administrative insolvency with no hope of satisfying their employees’ administrative claims.”

“The court cannot condone such brazen gamesmanship with the rights of the debtors’ employees and should either deny the proposed (debtor-in-possession) financing or require a funding of an adequate reserve by the DIP lenders or the prepetition lenders as a condition to approval of the DIP financing to insure that employees’ administrative claims under the WARN Act are satisfied when the claims are fully liquidated,” the motion states.

Stuart Miller, an attorney with Lankenau and Miller – a New York City-based law firm seeking to represent Celadon employees in the case – says the company shut down so abruptly that employees were not given any sort of notification.

“It’s a very strong WARN Act case for many reasons,” Miller said in a phone interview with Land Line in December. “Based on our interviews and review of the facts, we don’t believe the company will be able to rely on any of the WARN Act’s defenses.”

One class of employees who may not be eligible for relief under the WARN Act would be independent contractors, according to Miller.

“To the extent any particular driver is an independent and not an employee, it’s likely they would have no claim, because the WARN Act only covers employees,” he said.

Miller is urging any Celadon employees who want to be part of the case to email his office at sjm@lankmill.com.

Further muddying a potential sale is a $42.2 million restitution payment the company owes its shareholders as part of a conspiracy to commit securities fraud, concocted by former executives.

Bankruptcy filing

On Dec. 9, Celadon filed for Chapter 11 bankruptcy and announced that it “will shut down all of its business operations.”

In a statement issued at the time of the filing, Celadon CEO Paul Svinland said the company faced “a number of legacy and market headwinds” that made it impossible to keep the business going. The statement also referenced the company’s “significant costs associated with a multiyear investigation” into a securities fraud scheme involving former members of the management team.

The bankruptcy filing includes a total of 26 companies under the Celadon umbrella. Celadon Group lists total assets of approximately $427 million and total debts of $391 million owed to between 5,000 and 10,000 creditors, according to the court filing. The company claimed in its filings that it has approximately 3,800 employees, including approximately 2,500 truckers.

At the top of the list of the company’s creditors is the U.S. Department of Justice, with a $33 million litigation claim related to the securities fraud scheme. The bankruptcy filing also lists a $2.8 million obligation to Comdata Corp. and a $2.5 million obligation to Pilot Travel Centers as part of its 50 largest creditors.

Bankruptcy court grants wage motion

The U.S. Bankruptcy Court for the District of Delaware approved a pair of orders that authorize the company to pay millions in unpaid wages, contracts and termination bonuses.

The bulk of that money was set to go toward unpaid wages for employees, with a portion of the funds set aside for independent contractors and for employee benefits. While the court order authorizes Celadon to pay the wages owed, it does not require the company to pay.

As part of the bankruptcy filing, Celadon filed a motion estimating it has more than $4.4 million in unpaid compensation to workers and independent contractors and another $1 million in obligations to its “termination bonus program.” The program would “incentivize the driver employees and independent contractors” into completing the truckload trips in progress and returning the company’s equipment to its designated areas.  LL

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Greg Grisolano

Greg Grisolano joined Land Line in 2013. He was formerly a reporter for the Joplin Globe. He brings business writing and photography skills to Land Line, and has a passion for finding and telling stories about the people who make up the trucking industry.