Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-canb-3_01-ap-03107/USCOURTS-canb-3_01-ap-03107-0/pdf.json

Parties Involved:
Dina Gan
Plaintiff
Tanja Warner
Plaintiff
E. Lynn Schoenmann
Defendant
Tressa Jones
Plaintiff
Eric James
Plaintiff

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MEMORANDUM RE MOTION FOR LEAVE TO AMEND ANSWER

UNITED STATES BANKRUPTCY COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

In re

NORTHPOINT COMMUNICATIONS

GROUP, INC., NORTHPOINT

COMMUNICATIONS, INC.,

NORTHPOINT COMMUNICATIONS OF 

VIRGINIA, INC., NORTHPOINT

INTERNATIONAL, INC.,

Debtors.

 

DINA GAN, TANJA WARNER, TRESSA JONES 

ERIC JAMES and BRANDON LANE,

individually and on behalf of others

similarly situated,

Plaintiffs, 

vs.

E. LYNN SCHOENMANN, Trustee of

Northpoint Communications, Inc., 

Defendant.

 

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Case No: 01-30127 TC

(Jointly Administered with

#01-30125, #01-30126, and

#01-30128)

Chapter 7

Adv. Proc. No. 01-3107 TC

Date: July 29, 2005

Time: 9:30 a.m.

Ctrm: Hon. Thomas E. Carlson

 235 Pine Street

 San Francisco, CA 

MEMORANDUM RE MOTION FOR LEAVE TO AMEND ANSWER

Signed and Filed: August 04, 2005

________________________________________

THOMAS E. CARLSON

U.S. Bankruptcy Judge

________________________________________

Entered on Docket 

August 05, 2005

GLORIA L. FRANKLIN, CLERK 

U.S BANKRUPTCY COURT 

NORTHERN DISTRICT OF CALIFORNIA

Case: 01-03107 Doc# 67 Filed: 08/04/05 Entered: 08/05/05 17:02:31 Page 1 of 4 
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MEMORANDUM RE MOTION FOR LEAVE TO AMEND ANSWER

-2-

On July 29, 2005, this court held a hearing regarding the

motion of Defendant, chapter 11 trustee E. Lynn Schoenmann

(Trustee), to amend her answer in this action to add two

affirmative defenses. Dennis D. Davis appeared for Trustee. David

A. Lowe and Christopher D. Kuhner appeared for Plaintiff. Upon due

consideration, and for the reasons stated below, the motion is

denied regarding the “faltering company” defense, and granted

regarding the “good faith” exception.

Faltering Company Exception

Trustee’s request to amend her answer to assert the “faltering

company” exception is denied on the basis that the amendment would

be futile. To invoke that exception, the employer must (1) be

actively seeking financing, (2) that it has a realistic opportunity

to obtain, (3) that would enable the employer to postpone a

shutdown for a reasonable period of time, and (4) that the employer

could not obtain if WARN Act notice was provided to the employees. 

20 C.F.R. § 639.9(a).

Trustee cannot establish the third requirement of the

exception - that the financing sought would postpone the shutdown

for a reasonable period of time. Debtor filed its motion to obtain

financing on January 17, 2001. The motion indicates that even with

the desired financing, Debtor could not operate beyond March 31,

2001, and that Debtor intended not to operate indefinitely, but to

close a sale of its assets by the end of March. The financing thus

would have allowed Debtor to operate for only 73 days, little more

than the 60-day WARN Act notice period, at which time Debtor would

definitely cease operations. Although Debtor hoped that a buyer

would hire Debtor’s employees, it had no reasonable basis to expect

Case: 01-03107 Doc# 67 Filed: 08/04/05 Entered: 08/05/05 17:02:31 Page 2 of 4 
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MEMORANDUM RE MOTION FOR LEAVE TO AMEND ANSWER

-3-

that would happen. As of 60 days before its expected shutdown, 

Debtor had not found a buyer, it was merely pursuing a process of

seeking a buyer. Moreover, Debtor’s proposed sales procedures did

not specify that the purchaser was to retain Debtor’s employees or

to be responsible for providing WARN Act notice to those employees. 

Thus, this case is not at all like Burnsides v. MJ Optical, Inc.,

128 F.3d 700, 703 (8th Cir. 1997), in which the purchaser had agreed

to retain the acquired company’s employees until just before the

sale closed. In sum, Debtor knew it would shut down approximately

73 days after it obtained the financing, and had no demonstrable

basis to expect that a purchaser would retain its employees

afterward.

Good Faith Exception

Trustee’s request to amend her answer to assert the “good

faith” exception is granted. Leave to amend should be granted,

because the case has not yet been set for trial, discovery is not

closed, the defense does not involve a wholly new set of facts, and

the amendment does not appear to be futile.

**END OF MEMORANDUM**

Case: 01-03107 Doc# 67 Filed: 08/04/05 Entered: 08/05/05 17:02:31 Page 3 of 4 
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Court Service List

Dennis D. Davis, Esq.

Goldberg, Stinnett, Meyers & Davis

44 Montgomery Street, #2900

San Francisco, CA 94104 

Christopher D. Kuhner, Esq.

Kornfield, Paul & Nyberg

1999 Harrison Street, #2675

Oakland, CA 94612 

David A. Lowe, Esq.

Rudy, Exelrod & Zieff, LLP

351 California Street, #700

San Francisco, CA 94104

Michael S. Lurey, Esq.

Law Offices of Latham & Watkins

633 W 5th Street, #4000

Los Angeles, CA 90071-2007 

Joshua M. Mester, Esq.

Hennigan, Bennett & Dorman

601 S Figueroa Street, #3300

Los Angeles, CA 90017 

Office of the U.S. Trustee

235 Pine Street, #700

San Francisco, CA 94104

Case: 01-03107 Doc# 67 Filed: 08/04/05 Entered: 08/05/05 17:02:31 Page 4 of 4