Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-03581/USCOURTS-cand-3_04-cv-03581-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (BAP)

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

In re

NORTHPOINT COMMUNICATIONS

GROUP, INC., NORTHPOINT

COMMUNICATIONS OF VIRGINIA, INC.,

AND NORTHPOINT INTERNATIONAL,

INC.,

Debtor,

______________________________________

DINA GAN, TRESSA JONES, TANJA

WARNER, ERIC JAMES and BRANDON

LANE, individually and on behalf of others

similarly situated,

Plaintiffs/Appellants

 v.

E. LYNN SCHOENMANN, chapter 7 trustee

successor to NorthPoint Communications, Inc.,

DOES 1-50

Appellee.

 /

No. C 04-03581 JSW

ORDER RE: BANKRUPTCY

APPEAL

Now before the court is Appellant’s appeal from the Judgment in favor of Appellee

Northpoint Communications Group and the Order granting Appellee’s Motion for Summary

Judgment. Pursuant to Civil Local Rule 16-4, the case has been submitted on the papers without oral

argument. Having carefully reviewed the administrative record and considered the parties’ papers and

the relevant authority, the Court hereby REVERSES and REMANDS to the Bankruptcy Court for

further proceedings consistent with this Order. 

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FACTUAL AND PROCEDURAL BACKGROUND

Appellants bring this action pursuant to 29 U.S.C. § 2101 to obtain judicial review of a final

decision of the Bankruptcy Court granting Appellee’s motion for summary judgment and entering

judgment in favor of Appellee. Appellants were employees of NorthPoint Communications Group

(hereinafter “NorthPoint”), a Delaware corporation that provided high-speed, local data network

services nationwide from its incorporation in March 1999, until March 2001. 

On November 30, 2000, NorthPoint experienced a widely reported business setback when

Verizon Communications, Inc. pulled out of a planned merger between the two companies. 

NorthPoint had expended substantial capital in reliance on the merger. As a result, Verizon’s

withdrawal left NorthPoint without the working capital to continue its operations. NorthPoint filed for

Chapter 11 bankruptcy protection on January 16, 2001. On January 17, 2001, NorthPoint filed

motions to fix procedures for the sale of substantially all of its assets and for post-petition financing. 

On March 22, 2001, NorthPoint informed the Bankruptcy Court that it was going to liquidate its

assets. On March 28, 2001, NorthPoint announced that it was terminating its network and ceasing

operation, which it did the following day. On March 30, 2001, NorthPoint laid off more than 700

employees. 

 Appellants, who were affected by the layoff, allege that NorthPoint violated the Worker

Adjustment and Retraining Notification Act (hereinafter “WARN”) by failing to provide its employees

with written notice 60 days prior to the layoff that it was terminating their jobs. Appellants contend

that NorthPoint was an “employer” governed by WARN when it conducted the layoff. 

In issuing its ruling on the cross-motions for summary judgment, the Bankruptcy Court found

that the historical facts were essentially uncontested. (Excerpt of Record on Appeal by

Plaintiffs/Appellants (“Record”) Exhibit 30, Certified Transcript of Record Proceedings, July 9, 2004

(“Tr.”) at 3-4 (emphasis added).) The Bankruptcy Court also stated, with respect to the two motions

filed shortly after the petition, that those motions:

stated explicitly that the business would be sold, that the Debtor had insufficient

cash to operate for more than 30 days without financing and 60 days with this

financing, and the debtor was intending to operate pending the sale in the hope

of selling the business as a going concern and preserving the goingconcern asset pending that sale. 

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 WARN defines “mass layoff” as “a reduction in force which . . . results in an employment loss at the

single site of employment during any 30-day period for: (i) At least 33 percent of the active employees,

excluding part-time employees, and (ii) At least 50 employees, excluding part-time employees.” 29 U.S.C. §

2102(a) The parties do not dispute that NorthPoint conducted a “mass layoff,” as defined by WARN, on March

30, 2001. Likewise, there is no contention that 60 days prior to the “mass layoff” NorthPoint provided written

notice. Evidence in the record shows that on March 30, 2001 employees were given a letter informing its

employees of the “mass layoff,” which includes language that tracks the “faltering business” exception to

WARN. (Record, Exhibit 25.)

3

A sale of assets, of some of the assets, was approved at a hearing on March

22nd. The Debtor had been unable to find any buyer willing to buy the

business as a going concern and to keep the employees. Certain of the assets

were sold; certain of the assets were not sold. The employees were laid off

approximately one week later, which is more than 60 days after the petition

date. 

(Tr. at 3-4 (emphasis added).) 

Upon these factual findings, the Bankruptcy Court determined as a matter of law that

NorthPoint was not an “employer” subject to WARN at the time of the layoff. The Bankruptcy Court

thus denied Appellant’s motion for summary judgment granted Appellee’s cross-motion for summary

judgment and entered summary judgment in favor of NorthPoint. 

ANALYSIS

A. Standard of Review of Bankruptcy Court's Decision to Grant Summary Judgment.

District courts have jurisdiction to hear appeals from final judgments, orders, and decrees of

bankruptcy judges. 28 U.S.C. § 158. A grant of summary judgment is reviewed de novo. 

Halverson v. Skagit County, 42 F.3d 1257, 1259 (9th Cir. 1994). In reviewing the Bankruptcy

Court order, this Court must determine, viewing the evidence in the light most favorable to the

nonmoving party, whether there are any genuine issues of material fact and whether the Bankruptcy

Court correctly applied the relevant substantive law. Jesinger v. Nevada Fed. Credit Union, 24

F.3d 1127, 1130 (9th Cir. 1994).

B. NorthPoint Was an Employer Under WARN.

The issue on appeal is whether NorthPoint was an “employer” and therefore subject to the

notice requirement of WARN when it conducted its layoff. Subject to certain exceptions, WARN

requires that “[a]n employer shall not order a plant closing or mass layoff until the end of a 60-day

period after the employer serves written notice of such an order.”1 29 U.S.C. § 2102(a). 

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 On filing for Chapter 11 bankruptcy, NorthPoint was operating its affairs as a debtor in possession. 

The parties do not dispute that there are circumstances under which a debtor in possession would constitute a

“business enterprise” under § 2101(a)(1). 

4

“Employers” that violate these proscriptions become liable to affected employees for up to 60 days

back pay. 29 U.S.C. § 2104(a)(1).

WARN defines an “employer” as “any business enterprise that employs . . . 100 or more

employees.” 29 U.S.C. § 2101(a)(1). Thus, in order to be an “employer,” NorthPoint must both

employ at least 100 people and be a “business enterprise.”

It is uncontested that NorthPoint employed more than 100 employees. Therefore if NorthPoint

was a “business enterprise” as defined by WARN, then it was an “employer.”2 Thus, to decide this

dispute, the Court must decide whether the manner in which NorthPoint conducted its affairs rendered

it a “business enterprise.”

1. Prior Interpretations of “Business Enterprise.”

Although the facts presented by Appellants appear to raise an issue of first impression, the

Court is not without guidance in reaching its decision. The Ninth Circuit has interpreted the term

“business enterprise” as follows:

The simplicity of the definition emphasizes its apparent breadth. The plain

language of the statute easily embraces any defendant who engages in a

“business enterprise.” In this regard, we think the crucial question [in

determining whether an entity is a business enterprise] is not the status of the

defendant’s legal relationship to the business, but, instead, if at the time of the

plant closing or mass layoff the defendant is responsible for operating the

business as a going concern. 

Chauffeurs, Sales Drivers, Warehousemen & Helpers Union Local 572 v. Weslock Corp., 66

F.3d 241, 244 (9th Cir. 1995) (finding that a secured creditor operating in the “normal commercial

sense” could qualify as a “business enterprise” under WARN, but finding that the particular creditor

before the court was not a “business enterprise”). Thus, the Chauffeurs court appears to have used

the terms “going concern” and “normal commercial sense” interchangeably to conclude that any entity

operating as such should be considered a “business enterprise” for WARN purposes. The

Chauffeurs court drew support for its interpretation from commentary appended to the Department of

Labor’s (“DOL”) final regulations on WARN. That commentary provides:

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[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. 16045 (1989). Thus, if NorthPoint operated in the “normal commercial sense,” or as a

“going concern,” then it was a “business enterprise,” and thus an “employer” under WARN.

The Court also finds guidance in DOL commentary, which notes that:

the term “employer” includes public and quasi-public entities which engage in

business (i.e., take part in a commercial or industrial enterprise, supply a service

or good on a mercantile basis, or provide independent management of public

assets, raising revenue and making desired investments). . . . 

20 C.F.R. § 639.3(a)(1)(ii). The parenthetical examples provide insight into what the DOL meant by

“normal commercial sense” and suggest that the DOL believed that an entity that conducts these types

of activities operates in the “normal commercial sense.” 

The Third Circuit has also interpreted the meaning of “business enterprise” in the bankruptcy

context. In re United Healthcare System, Inc., 200 F.3d 170 (3rd Cir. 1999). Relying upon both

excerpts from the DOL commentary cited above, as well as Chauffeurs, the court in United

Healthcare stated that whether particular debtors in possession are “employers” should be resolved

“in part on the nature and extent of the entity’s business conduct and activities while in bankruptcy.”

Id. at 177. The United Healthcare court concluded that: 

The more closely the entity’s activities resemble those of a business

operating as a going concern, the more likely it is that the entity is an

“employer;” the more closely the entity’s activities resemble those of a

business winding up its affairs, the more likely it is the entity is not

subject to the WARN Act.

Id. at 179. While United Healthcare is not binding, because it is consistent with Chauffeurs, this

Court finds it persuasive. 

2. The Facts in This Case Support A Finding That NorthPoint Was Operating as

A “Business Enterprise.”

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United Healthcare makes clear that the Court should take into account “the debtor’s

economic activities leading up to and during the bankruptcy proceedings,” when determining

whether NorthPoint was an “business enterprise.” United Healthcare, 200 F.3d at 179 (emphasis

added). Although the Bankruptcy Court seemed to focus on events after March 22, 2001, this Court

shall evaluate NorthPoint’s activities prior to and following January 16, 2001, when NorthPoint filed

for bankruptcy. 

Upon entering bankruptcy, NorthPoint immediately sought to move towards selling its business

as a going concern. NorthPoint stated as much through a Declaration by Michael Glinsky,

NorthPoint’s former Vice President and Chief Financial Officer, which was submitted to the Court

with NorthPoint’s Motion to Fix Procedures for Sale on the day after NorthPoint filed for bankruptcy.

The Debtors believe that a “going-concern” sale of their business (the

“Sale”) is significantly preferable to a liquidation of their assets. In

particular, the Debtors believe that creditors stand to gain significantly

greater returns in the Sale than they would in a liquidation. In addition,

the Debtors believe that (i) hundreds of jobs may be preserved through

the Sale and (ii) the Sale would minimize the likelihood that DSL

services would be interrupted for thousands of small businesses and

residences. In a liquidation, on the other hand, the Debtors would be

forced to terminate immediately their employees and discontinue DSL

services to end-user residences and businesses.

(Record Exhibit 7, Declaration of Michael Glinsky, attached to Plaintiffs’ Request to Take Judicial

Notice (hereinafter “Glinsky Dec.”) at ¶ 22.) In addition, NorthPoint sought and received financing in

order to continue in operation as a going concern until it was sold.

In light of the Ninth Circuit’s broad interpretation of “business enterprise” in Chauffeurs, as

well as the analytical framework established in United Healthcare, these facts lean heavily in favor of

concluding that NorthPoint was an “employer.” NorthPoint itself distinguished its plan to continue as a

going concern from the alternative of liquidating its assets. A plan to liquidate assets would certainly

more closely resemble “a business winding up its affairs,” as the business would cease to exist. In

contrast, NorthPoint’s intentions were to continue on as it always had while it sought out new owners

who, after the sale, would maintain the business. 

Examination of NorthPoint’s activities while in bankruptcy further suggest that NorthPoint was

an “employer.” Until after the motion to liquidate NorthPoint’s assets on March 22, 2001, the nature

of the work that NorthPoint’s employees engaged during NorthPoint’s bankruptcy reflected no

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change from their normal daily activities prior to NorthPoint filing for bankruptcy. Indeed, evidence in

the record suggests that NorthPoint had its employees continue marketing and selling new service

contracts to customers and develop its products. (See e.g., Record, Exhibits 8-21 (Declarations by

former NorthPoint employees).)

The facts here are quite distinguishable from the situation in United Healthcare, in which the

Third Circuit held that because employees immediately shifted roles when the company filed for

bankruptcy protection and began to prepare the company for liquidation, the company more closely

resembled “a business winding up its affairs.” United Healthcare, 200 F.3d at 178-179. In contrast,

NorthPoint’s activities in bankruptcy reveal that NorthPoint preserved its company as a profitable

business, albeit one for sale. 

The Bankruptcy Court relied heavily on NorthPoint’s intended disposition in concluding that

NorthPoint was an employer. (Tr. 6.) Appellants have argued that United Healthcare demands that

the Court’s focus should rest on the activities of the entity while in bankruptcy and that the Bankruptcy

Court was improperly focused on NorthPoint’s intent in reaching its decision. 

United Healthcare does emphasize the activities of an entity while in bankruptcy. 

Nevertheless, a thorough reading of the case reveals that the court found that intent was important to

the determination of whether an entity is a “business enterprise.” The court stated that “United

Healthcare’s actions from the time it filed its Chapter 11 petition throughout the proceedings clearly

demonstrate its intent to liquidate.” United Healthcare, 200 F.3d at 178. This statement indicates

that the court believed that an entity’s activities were essential to its determination precisely because

they provide insight into the entity’s intent. Thus, this Court believes that the Bankruptcy Court was

correct in looking to NorthPoint’s intended disposition in assessing whether it was an “employer”

under WARN.

Nevertheless, this Court comes to a different conclusion than the Bankruptcy Court. 

NorthPoint’s intended disposition during the majority of its bankruptcy proceedings more closely

resembled that of “a business operating as a going concern” than “a business winding up its affairs.” 

First, the DOL commentary discussed in Chauffeurs supports a finding that NorthPoint was an

“operating as a going concern.” The comments state that an entity that “continue[s] to operate the

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3

 A debtor-in-possession is a fiduciary for its estate and for its creditors. See 11 U.S.C. § 1107(a).

4

 Nevertheless, the DOL did consider the fact that employers may face difficult decisions regarding

whether to give notice to its employees in ambiguous situations. 20 C.F.R. § 639.1(e). The DOL commented that

employers would be well served to consider the relative costs of giving notice and having to pay its employees

60 days wages and benefits in deciding whether to give notice. Id. While the DOL’s comments are only

hortatory, or at most precatory, the DOL stated that “[g]iven the relative costs involved, the employer is best

advised to give notice unless it is certain, at the time it must decide to give notice, that there is no possibility

of [being subject to WARN’s notification requirements].” 54 Fed.Reg 16042 (emphasis in original). 

8

business for the benefit of creditors” succeeds to the notice requirements of WARN. 54 Fed. Reg.

16045 (1989). NorthPoint was a debtor in possession attempting to sell its company as an

operational business for the benefit of its creditors.3 Mr. Glinsky’s Declaration explicitly speaks of the

benefit NorthPoint’s creditors will receive from selling the company as a going concern, rather than

liquidating its assets. (Glinsky Dec. ¶ 22.) Thus, the Court concludes NorthPoint is the type of entity

that WARN was intended to cover.

In addition, it is fair to infer from 20 C.F.R. § 693.3(a)(1)(ii), discussed above, that when

entities “take part in a commercial or industrial enterprise, [or] supply a service or good on a

mercantile basis,” they operate in the “normal commercial sense” and are “employers.” Thus, the fact

that NorthPoint continued to market and sell its goods places it squarely within the DOL’s vision of

“employers.”

The Bankruptcy Court, however, believed that there was strong policy weighing against

subjecting entities in bankruptcy to heightened liability should they attempt to sell their businesses as

functional concerns. 

I think it would be very bad policy to burden the fiduciary or to restrict the

fiduciary in how the fiduciary could liquidate and imposing . . . the WARN Act

restrictions on a fiduciary trying to liquidate a business would discourage the

fiduciary from trying to sell an enterprise as a going concern value. I think that

would diminish the value of the sale. It would also decrease the likelihood that

somebody would buy the business as a going concern and keep the jobs and in

some ways would undercut the very purposes of the Act.

(Tr. 6-7). The Bankruptcy Court’s economic concerns are surely valid. Nevertheless, protecting

economic efficiency in the sale of bankrupt companies is not at the heart of WARN’s purposes.4

Additionally, the Bankruptcy Court’s concerns over job losses are consistent with the general spirit of

WARN. Nonetheless, preventing unemployment was not the precise purpose of the WARN Act. 

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Rather, the purpose of WARN is to provide “protection to workers, their families and communities by

requiring employers to provide notification.” 20 C.F.R. § 639.1(a) (2005). 

Subjecting NorthPoint to WARN’s notice requirement does comport with the public policy

underlying WARN. The notice requirement was intended to give workers “some transition time to

adjust to the prospective loss of employment, to seek and obtain alternative jobs and, if necessary, to

enter skill training or retraining.” 20 C.F.R. § 639.1(a). See also United Healthcare, 200 F.3d at

178 (quoting Hotel Employees and Restaurant Employees Int’l Union Local 54 v. Elsinore Shore

Associates, 173 F.3d 175, 182 (3rd Cir. 1999) (environment of an unstable job market caused by

mergers and closures of numerous businesses, WARN was adopted to protect workers through

providing them fair notice).

Further, employers are not relieved from WARN’s notification requirements even after a

company announces it will be sold. Rather, WARN expressly provides that an employer maintains

liability to its employees until the effective time of sale of its company:

In the case of a sale of part or all of an employer’s business, the seller shall be

responsible for providing notice for any plant closing or mass layoff in

accordance with section 3 of this Act [29 U.S.C. § 2102], up to and including

the effective date of the sale.

29 U.S.C. § 2101(b)(1) (2005). The foregoing indicates that Congress, while accepting

unemployment as inevitable, intended that employees not bear the burden of major workforce cuts

without sufficient notice with which to plan. Under WARN, this burden was allocated instead to

employers which were assumed to be in position to anticipate the need for such cuts. 

The record is clear that NorthPoint entered bankruptcy proceedings publicizing its intention to

secure a sale of all its assets as a going concern, which would have eliminated the need for a mass

layoff. (Glinsky Dec. at ¶ 22.) NorthPoint made such representations not only to the Bankruptcy

Court, but also its employees. (See e.g., Record, Exhibit 19, Declaration of Ramon Garcia at 2-3.) 

Indeed, NorthPoint espoused the retention of hundreds of jobs as one of the reasons that selling the

company as a going concern was preferable to liquidating its assets. (Glinsky Dec. at ¶ 22.)

At the same time, NorthPoint knew upon entering bankruptcy that it could only continue in

operation for around 60 days if it could not find a buyer. (Glinsky Dec. at ¶ 25.) Because NorthPoint

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expected that after a sale it would continue to operate indefinitely; however, it provided no indication

to its employees that their positions were in jeopardy. (See, e.g., Record, Exhibits 8-21.) Rather, at

the outset of its bankruptcy proceedings, NorthPoint expressed confidence that it would receive bids

for such a sale, doubtless inspiring confidence in its employees that their jobs would be safe. (Glinsky

Dec. at ¶ 22.) WARN was crafted precisely for the purpose of preventing employees from suffering

harm due to such reliance. Thus, it is consistent with WARN’s purposes to place the burden of

complications resulting from the attempted sale of the company as a going concern on NorthPoint. 

For the foregoing reasons, the Court concludes based upon the record that NorthPoint

operated as a “business enterprise” and therefore was an “employer,” for purposes of WARN. 

CONCLUSION

For the forgoing reasons, the Court hereby VACATES the judgment entered against

Plaintiffs/Appellants and REVERSES the Bankruptcy Court’s grant of Summary Judgment for

Appellees/Defendants. The Court REMANDS this case to the Bankruptcy Court for further

proceedings consistent with this Order.

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The Clerk is directed to close the file.

IT IS SO ORDERED.

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Dated: May 6, 2005 /s/ Jeffrey S. White 

JEFFREY S. WHITE

UNITED STATES DISTRICT JUDGE

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