Arnold v. LME, Inc.

Background

LME, a motor carrier company, notified its employees on July 11, 2019, that it would close all of its terminals the next day. The plaintiffs, former LME employees, alleged that this violated the Worker Adjustment and Retraining Notification Act (WARN Act), which generally requires 60 days’ notice before a covered plant closing. They sought back pay and lost benefits for up to 60 days after the closing and sought certification of a class of similarly situated people.

The plaintiffs sued LME and its owners and officers, Roger and Shari Wilsey. They alleged that the Wilseys controlled LME, dominated its finances and business practices, failed to observe corporate formalities, siphoned corporate funds, and used LME as a façade for their individual dealings. They also relied on allegations involving Lakeville Motor Express, another company owned and operated by the Wilseys, and Finish Line Express, which allegedly took over some of LME’s operations after LME closed.

Motion to Dismiss

The Wilseys moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), arguing that the plaintiffs had not plausibly alleged that the Wilseys were alter egos of LME. The court explained that the WARN Act defines an employer as a business enterprise and that direct claims against individuals, including owners, are generally not recognized. The court therefore concluded that direct claims could not be made against the Wilseys.

The court nevertheless held that individuals may be subject to indirect WARN Act liability through an alter-ego or veil-piercing theory. Veil piercing is a legal doctrine that can allow a court to disregard a corporation’s separate legal identity and hold individuals responsible for the corporation’s obligations.

Applicable Legal Test

The court held that federal common law, rather than Minnesota law, should govern the alter-ego question. It applied the two-part test described in Minn. Laborers Health & Welfare Fund v. Scanlan. The first part asks whether there was such unity of interest and disregard for the corporation’s separate identity that the corporation and the individual were effectively indistinct. The second asks whether respecting the corporate structure would sanction fraud, promote injustice, or allow evasion of legal obligations.

For the first part, the court considered the allegations that the Wilseys completely controlled LME, dominated its finances and business practices, failed to maintain corporate formalities, diverted corporate funds, and used LME as a façade. Although the court described the allegations as sparse in detail, it held that they were sufficient at the pleading stage to identify the veil-piercing theory and allege facts that, if true, could satisfy the first part of the test.

For the second part, the court considered allegations concerning the closure of Lakeville without proper notice, the National Labor Relations Board’s order involving LME and alter egos, and Finish Line Express’s alleged takeover of LME operations. The court held that, if true, these allegations could show that the corporate structure was used to evade federal obligations and avoid paying back pay and lost benefits under the WARN Act. The court also found it plausible that the Wilseys shared some responsibility for the alleged unfairness because they owned at least Lakeville and LME.

Disposition

The court concluded that the plaintiffs had plausibly alleged both parts of the alter-ego test. It denied defendants’ Motion to Dismiss [Docket No. 20]. The opinion did not decide whether the plaintiffs would ultimately prove the alter-ego allegations or establish liability under the WARN Act.