In Re: United Health Care Syst, Inc.

Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit

12-29-1999

In Re: United Health Care Syst, Inc.
Precedential or Non-Precedential:

Docket 98-6490

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Filed December 29, 1999

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 98-6490

IN RE: UNITED HEALTHCARE SYSTEM, INC.,
Debtor

OFFICIAL COMMITTEE OF UNSECURED CREDITORS
OF UNITED HEALTHCARE SYSTEM, INC.,
Appellant

v.

UNITED HEALTHCARE SYSTEM, INC.;
MEDICAL STAFF; DAIWA; LOCAL 1199J

On Appeal from the United States District Court
for the District of New Jersey
D.C. Civil Action No. 97-cv-02495
(Honorable Joseph A. Greenaway, Jr.)

Argued July 26, 1999

Before: SCIRICA and STAPLETON, Circuit Judges,
and SHAPIRO, District Judge*

(Filed: December 29, 1999)

_________________________________________________________________

* The Honorable Norma L. Shapiro, United States District Judge for the
Eastern District of Pennsylvania, sitting by designation.
DENNIS J. O'GRADY, ESQUIRE
(ARGUED)
Riker, Danzig, Scherer, Hyland
& Perretti
One Speedwell Avenue
Headquarters Plaza
Morristown, New Jersey 07962-1981

Attorney for Appellant,
Official Committee of Unsecured
Creditors of United Healthcare
System, Inc.

LEO V. LEYVA, ESQUIRE (ARGUED)
GERALD H. GLINE, ESQUIRE
Cole, Schotz, Meisel, Forman
& Leonard
25 Main Street
Hackensack, New Jersey 07601

Attorney for Appellee,
United Healthcare System, Inc.

ARNOLD S. COHEN, ESQUIRE
Balk, Oxfeld, Mandell & Cohen
50 Commerce Street
Newark, New Jersey 07102

Attorney for Appellee,
Local 1199J

RAYMOND G. HEINEMAN, ESQUIRE
Kroll & Heineman
300 Executive Drive, Suite 010
West Orange, New Jersey 07052

Attorney for Appellee,
JNESO District Council 1,
International Union of Operating
Engineers, AFL-CIO

2
OPINION OF THE COURT

SCIRICA, Circuit Judge.

This case brought under the Worker Adjustment and
Retraining Notification Act (WARN Act), 29 U.S.C.S 2101 et
seq., arises from the Chapter 11 bankruptcy of United
Healthcare System, Inc. The Official Committee of
Unsecured Creditors of United Healthcare System, Inc.
appeals a judgment that former United Healthcare
employees are entitled to WARN Act back pay, and receive
first priority administrative status in the bankruptcy
proceedings. Because we conclude United Healthcare was
no longer an "employer" within the meaning of the WARN
Act when it terminated these employees and therefore was
not subject to the WARN Act, we will reverse.

I.

United Healthcare System, Inc. was a New Jersey not-for-
profit corporation that provided hospital and healthcare
services in the Newark area. Since 1993, United Healthcare
had experienced financial difficulties. But these problems
did not become acute until 1996, when the company
suffered substantial operating losses and encountered
trouble maintaining essential supplies (such as blood).
Attempting to alleviate these problems, United Healthcare
entered into partnership negotiations with Children's
Hospital of Philadelphia and merger negotiations with
Atlantic Health Care System. Nothing came to fruition.

Despite its difficulties, United Healthcare did not believe
financial problems would force it to close and in mid-
December of 1996, its board of directors unanimously
approved a budget for 1997. The budget anticipated losses
for the first three months of 1997 but projected positive
revenues for the rest of the year and predicted a year-end
surplus of $1.2 million. United Healthcare's President and
Chief Executive Officer John Dandridge later testified that
the budget represented the board's good-faith attempt to
forecast United Healthcare's finances for the forthcoming

3
year. Shortly after approving the budget, United
Healthcare's board commenced discussions with other
potential merger partners or purchasers, retaining Merrill
Lynch for assistance and to find additional potential
partners.

In early 1997, United Healthcare's financial problems
worsened and the company began to divert withholding and
other tax payments to meet general operating expenses. On
January 15, Primary Healthcare Systems made an offer to
purchase United Healthcare and continue United
Healthcare's operations in the existing Newark facilities
with United Healthcare's employees. Taking into account
Primary Healthcare's financial condition as well as the time
and money it invested in preparing its offer, United
Healthcare President Dandridge concluded Primary
Healthcare could successfully complete the proposed
purchase and continue United Healthcare's business.

As the parties continued to negotiate over Primary
Healthcare's proposal in late January, United Healthcare's
secured creditor Daiwa Healthco-2 L.L.C. warned that
recent financial reports had caused it to doubt United
Healthcare's financial viability. Responding that a computer
error caused the reports to contain incorrect data, United
Healthcare assured Daiwa that it would soon complete a
transaction allowing United Healthcare's facilities to remain
open and its employees to remain on the job. But this
response did not allay Daiwa's fears and on February 3
Daiwa suspended funding to United Healthcare. As a
result, United Healthcare was unable to meet its operating
expenses, closed its emergency room and reduced its
number of patients. To alleviate United Healthcare's
financial problems and to allow it to increase its number of
patients, the State of New Jersey gave United Healthcare an
emergency funding advance of $5,000,000. After receipt of
the advance, United Healthcare apparently increased its
number of patients from 120 to 180. But, at the same time,
United Healthcare accelerated its merger discussions and
then issued requests for merger or acquisition proposals to
several health care providers, four of which responded with
proposals.

4
On February 13, 1997, Daiwa issued United Healthcare
a notice of default terminating all financing. As a result,
United Healthcare was unable to continue operations and
meet daily expenses. Also on February 13, Blue Cross
terminated, for non-payment, the health insurance United
Healthcare provided its employees.

On Sunday, February 16, United Healthcare's board,
management, medical staff, consultants and attorneys
heard proposals for merger, joint venture or sale of assets
and goodwill from Primary Healthcare Systems, St.
Barnabas Corporation and UMDNJ/Cathedral Healthcare
System, Inc. St. Barnabas and UMDNJ/Cathedral proposed
to purchase only a portion of United Healthcare's assets
and then terminate its operation. Primary Healthcare
proposed to continue operating United Healthcare as a
going concern and to retain 980 of United Healthcare's
approximately 1,300 employees. Although United
Healthcare's medical staff voted to accept Primary
Healthcare's offer, United Healthcare's board voted to
accept St. Barnabas' offer to purchase its assets and to
close the hospital.

On February 19, United Healthcare advised the New
Jersey Department of Health that it would close and
surrendered its certificates of need.1 On that same day, the
Department of Health revoked United Healthcare's
certificates of need, and issued new certificates of need to
a St. Barnabas affiliate as required for the transfer of
United Healthcare's services. Also on February 19, United
Healthcare filed a voluntary Chapter 11 bankruptcy
petition, and provided its approximately 1,300 employees
with 60 days' notice of termination of employment pursuant
to the WARN Act.2 The notice explained that their
_________________________________________________________________

1. Under New Jersey law, health care facilities are required to maintain
certificates of need issued by the Department of Health. N.J.S.A. 26:2H-7
(West 1999) ("No health care facility shall be constructed or expanded,
and no new health care service shall be instituted .. . except upon
application for and receipt of a certificate of need . . . .").

2. As is more fully explained, the WARN Act requires an employer to
provide employees 60 days' notice of a "plant closing" or "mass layoff."
29 U.S.C. S 2102. United Healthcare claims the WARN notice followed
the bankruptcy filing; the Bankruptcy Court found the two acts were
simultaneous.

5
employment would end on April 20 or within fourteen days
of that date but stated that they should continue to report
to work until United Healthcare closed. United Healthcare
also filed an emergency application for the sale of its
goodwill to St. Barnabas. Because all of United Healthcare's
patients had either been transferred to the St. Barnabas
hospital affiliate or sent home by February 21, within 48
hours after United Healthcare issued the WARN notice, its
employees were unable to perform their regular duties but
instead cleaned, took inventory and prepared the
company's assets for sale.

On March 4, the Official Committee of Unsecured
Creditors of United Healthcare System, Inc. ("Committee")3
filed a motion asking the Bankruptcy Court to order United
Healthcare to terminate all employees immediately. On
March 6, before the court ruled on the Committee's motion,
United Healthcare informed 1,200 of its 1,300 employees
that they were no longer to report to work. United
Healthcare retained 100 employees to secure the plant
facility and to maintain necessary equipment.

On March 7, United Healthcare and the Committee
stipulated before the Bankruptcy Court that United
Healthcare's February 19 WARN Act notice created a"$7.3
million payroll obligation." The parties agreed that United
Healthcare's 1,200 furloughed employees were entitled to
be paid for the sixteen days they actually worked,
amounting to $1.7 million. But the parties could not agree
whether the employees were entitled to WARN Act"back pay"4
_________________________________________________________________

3. The Committee represents Unsecured Creditors' interests of
approximately $20 million.

4. The WARN Act provides:

(1) Any employer who orders a plant closing or mas s layoff in
violation of section 2102 of this title shall be liable to each
aggrieved
employee who suffers an employment loss as a result of such
closing or layoff for--

(A) back pay for each day of violation at a rate o f compensation
not less than the higher of --

(i) the average regular rate received by such employee during
the last 3 years of the employee's employment; or

(ii) the final regular rate received by such employee....

29 U.S.C. S 2104(a).
6
for the remaining forty-four days, an amount of $5.1
million. United Healthcare asserted that the employees were
entitled to WARN Act "back pay" for these forty-four days
and were also entitled to first priority administrative claim
status in bankruptcy under 11 U.S.C. SS 503(b)(1)(A) and
507(a)(1). The Committee responded that the employees
were not entitled to WARN Act back pay because United
Healthcare ceased to be an "employer" subject to the WARN
Act once it surrendered its certificates of need on February
18. In the alternative, it also contended United Healthcare
was excused from providing notice under the WARN Act's
"faltering company" and "unforeseeable business
circumstances" exceptions. Additionally, the Committee
maintained that if United Healthcare's furloughed
employees were entitled to "back pay" under the WARN Act,
they held only unsecured claims limited to $4,000 per
employee under 11 U.S.C. S 507(a)(3), rather than first
priority administrative claims.

In an order dated March 26, 1997, the Bankruptcy Court
rejected the Committee's arguments, holding that United
Healthcare's employees were entitled to WARN Act back pay
and that their claims should be granted first priority
administrative claim status. In re United Healthcare System,
Inc., No. 97-21785, slip op. (Bankr. D.N.J. Mar. 26, 1997).
The Bankruptcy Court held that United Healthcare
remained an "employer" subject to the Act after it filed its
bankruptcy petition because it continued to employ its
1,300 person workforce for sixteen days after the Chapter
11 petition was filed. In reaching this conclusion, the court
was guided by a Department of Labor WARN Act comment
which provides, "where the fiduciary may continue to
operate the business for the benefit of creditors, the
fiduciary would succeed to the WARN obligations of the
employers precisely because the fiduciary continues the
business in operation." 54 Fed. Reg. 16042 (1989).

The Bankruptcy Court also concluded the so-called
"unforeseeable business circumstances" exception, which
excuses an employer from providing WARN notice if closing
is not reasonably foreseeable sixty days in advance, 5 did not
_________________________________________________________________

5. 29 U.S.C. S 2102(b)(2)(A) sets forth what has come to be known as the
"unforeseeable business circumstances exception." It provides:

7
excuse United Healthcare from providing notice because it
found there were "months of warning signals" that placed
the board of directors on notice that "United was in
financial extremis." Specifically, the court found United
Healthcare had suffered substantial losses and had
experienced "chronic" supply problems for more than a year
before closing. In addition, the court noted that Daiwa had
complained to United Healthcare about the "quality of
financial information" since December 1996 and that the
New Jersey Department of Health had advanced United
Healthcare substantial future payments in January 1997.

The Bankruptcy Court also concluded that United
Healthcare was not absolved of its WARN Act obligations by
the Act's "faltering business" exception, which permits an
employer to withhold notice if it is "actively seeking capital
or business" that would allow it to postpone or avoid
closing and if it reasonably believed that giving notice
would have prevented it from obtaining the capital or
business.6 The court determined the exception did not
apply because United Healthcare's "deep, long-term and
critical" financial problems prevented it from reasonably
believing new capital or business would allow it to remain
open.
_________________________________________________________________

An employer may order a plant closing or mass layoff before the
conclusion of the 60-day period if the closing or mass layoff is
caused by business circumstances that were not reasonably
foreseeable as of the time that notice would have been required.

See Hotel Employees and Restaurant Employees Int'l Union Local 54 v.
Elsinore Shore Associates, 173 F.3d 175, 184-87 (3d Cir. 1999) for a
discussion of the "unforeseeable business circumstances exception."

6. This exception is set forth in 29 U.S.C. S 2102(b)(1):

An employer may order the shutdown of a single site of employment
before the conclusion of the 60-day period if as of the time that
notice would have been required the employer was actively seeking
capital or business which, if obtained, would have enabled the
employer to avoid or postpone the shutdown and the employer
reasonably believed that giving the notice would have precluded the
employer from obtaining the necessary capital or business.

8
Finally, the Bankruptcy Court concluded that United
Healthcare's employees' WARN Act claims were entitled to
first priority administrative status under 11 U.S.C.
SS 503(b)(1)(A) and 507(a)(1) rather than treatment as
unsecured claims for wages because the employees' post-
petition services "clearly benefitted the estate" and were
therefore "actual, necessary costs and expenses," 11 U.S.C.
S 503(b)(1)(A), of preserving United Healthcare's bankruptcy
estate.

The Committee appealed the Bankruptcy Court's
judgment to the District Court, which affirmed. The District
Court concluded without explanation that United
Healthcare was an employer for "sixteen days after the
bankruptcy filing." It also held that neither the faltering
business exception nor the unforeseeable business
circumstances exception applied because of United
Healthcare's "sizable, long-term and critical" financial
problems and because "merely refinancing or acquiring new
lenders would not prevent the closing of the hospital."
Finally, the Court held the employees' WARN Act claims
were entitled to first priority administrative status because
the employees had performed "necessary and valuable
services."

The Committee has appealed.

II.

The Bankruptcy Court had jurisdiction under 28 U.S.C.
S 157(b)(2)(B). The District Court had jurisdiction under 28
U.S.C. S 158(a). We have jurisdiction under 28 U.S.C.
S 1291.

III.

We address only the threshold question on appeal:
whether the Bankruptcy Court and the District Court
correctly concluded United Healthcare continued as an
"employer" within the meaning of the WARN Act after filing
for Chapter 11 bankruptcy, and was therefore subject to
the WARN Act notification requirements when it furloughed
its 1,200 employees on March 6, 1997.7 Although we review
_________________________________________________________________

7. Because we hold that United Healthcare was not subject to the WARN
Act, we need not decide whether the WARN Act's "unforeseeable business

9
a bankruptcy court's findings of historical or narrative fact
for clear error, see Mellon Bank v. Metro Communications,
Inc., 945 F.2d 635, 642 (3d Cir. 1991), the parties do not
dispute the accuracy of the Bankruptcy Court's findings of
fact, which were undisturbed by the District Court. Instead,
the parties dispute whether the facts were sufficient to
support the Bankruptcy Court's legal conclusion that
United Healthcare was an employer under the WARN Act,
and had violated the Act's notice provisions when it
terminated its employees on March 6, 1997. Because this
dispute requires us to review the Bankruptcy Court's
" `choice and interpretation of legal precepts and its
application of those precepts to the historical facts,' " we
apply plenary review. See id. (quoting Universal Minerals,
Inc. v. C.A. Hughes & Co., 669 F.2d 98, 101-02 (3d Cir.
1981)).

A.

With certain exceptions, the WARN Act, 29 U.S.C.S 2101
et seq., requires an "employer" to provide its employees with
sixty days' notice of a "plant closing" or "mass layoff." 29
U.S.C. S 2102.8 If the employer fails to do so, it may be
_________________________________________________________________

circumstances" and "faltering business" exceptions apply or whether the
"back pay" claims were entitled to first priority administrative claim
status.

8. The statute defines "plant closing" as

the permanent or temporary shutdown of a single site of
employment, or one or more facilities or operating units within a
single site of employment, if the shutdown results in an employment
loss at the single site of employment during any 30-day period for
50 or more employees excluding any part-time employees.

29 U.S.C. S 2101(a)(2).

The statute defines "mass layoff " as

a reduction in force which--

(A) is not the result of a plant closing; and

(B) results in an employment loss at the single si te of employment
during any 30-day period of

10
liable for up to sixty days' back pay. See 29 U.S.C.
S 2104(a).

The Committee contends United Healthcare ceased to be
an "employer" under the WARN Act when it surrendered its
certificates of need, and filed for bankruptcy on February
19, 1997. From that date forward, the Committee
maintains, United Healthcare was no longer a business
enterprise operating as a going concern, but rather was a
company winding up its affairs and preparing for
liquidation. United Healthcare contends that after it filed its
bankruptcy petition, it continued as an "employer,"
operating its business for the benefit of creditors, and was
therefore subject to the WARN Act notice requirements.

As with all questions of statutory interpretation, we begin
with the language of the statute itself. See United States ex
rel. LaCorte v. SmithKline Beecham Clinical Lab., Inc., 149
F.3d 227, 232 (3d Cir. 1998); In re TMI, 67 F.3d 1119, 1123
(3d Cir. 1995). The WARN Act defines an "employer" as

any business enterprise that employs--

(A) 100 or more employees, excluding part-time
employees; or

(B) 100 or more employees who in the aggregate wor k
at least 4,000 hours per week (exclusive of hours of
overtime) . . . .

29 U.S.C. S 2101(a)(1). As another court of appeals has
explained, this language is general and not especially
helpful in determining whether a particular employer is
subject to WARN. See Adams v. Erwin Weller Co., 87 F.3d
269, 271 (8th Cir. 1996) (stating that section 2101(a)(1)
"does not tell us what it takes to be an employer subject to
_________________________________________________________________

(i)(I) at least 33 percent of the employees (e xcluding any part-
time employees); and

(II) at least 50 employees (excluding any part -time employees);
or

(ii) at least 500 employees (excluding any par t-time employees).

Id. S 2101(a)(3).

11
WARN"). But it does set forth two requirements: an
"employer" must employ a certain number of employees
and must also be a "business enterprise," a term the
statute does not define. In this case, there is no doubt
United Healthcare employed the requisite number of
employees. But it is less clear that United Healthcare
remained a "business enterprise" after it surrendered its
certificates of need, stopped treating patients, and entered
bankruptcy to liquidate its assets. Each of those events
precluded United Healthcare from performing the everyday
business functions of a hospital and health care service. On
the other hand, despite those events, United Healthcare
remained a corporation that employed for sixteen days a
substantial number of employees to whom it assigned
various tasks all related to shutting down its operations.
Addressing the facts here in context, we do not believe
WARN's plain language resolves whether United Healthcare
was an "employer" required to provide sixty days notice
prior to its termination of the 1,200 employees.

It is appropriate, therefore, to consider agency
regulations and comments as well as the case law. See
Hotel Employees, 173 F.3d at 181-83 (considering
regulations, legislative history, cases and legislative
purpose when WARN's plain language did not indicate
statute's scope). The Department of Labor's comments to its
regulations implementing the WARN Act suggest that
whether an entity (bankrupt or otherwise) is an"employer"
under the WARN Act depends in part on the nature of the
entity's activities.

[T]he 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. S 639.3(a)(1)(ii), 54 Fed. Reg. 16042, 16065 (1989)
(emphasis added). Thus, in determining whether an entity
is an "employer," we will consider whether the entity was
"engage[d] in business" during the time prior to the plant
closing or mass layoff. Elsewhere, the commentary

12
specifically addresses entities in bankruptcy at the time the
closing or layoff occurred:

[T]he Department does not think it appropriate to
[exclude all bankrupt companies from the definition of
"employer"]. Further, DOL agrees that 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. at 16045. Thus, the question for us to resolve
is whether United Healthcare, as the debtor-in-possession,9
was operating as an ongoing business enterprise, or
whether it was merely engaged in the liquidation of assets.
As discussed in the Department of Labor commentary,
merely filing for bankruptcy does not exempt an entity from
the WARN Act. Instead, the commentary's focus on the
bankruptcy fiduciary's responsibilities indicates that
whether a bankrupt entity is an "employer" under the
WARN Act depends in part on the nature and extent of the
entity's business conduct and activities while in
bankruptcy.

Two courts of appeals have relied upon this comment in
determining whether a secured creditor can be an
"employer" under the WARN Act. In Chauffers, Sales
Drivers, Warehousemen & Helpers Union Local 572 v.
Weslock Corp., the Court of Appeals for the Ninth Circuit
examined the secured creditor's degree of control over the
debtor, holding a secured creditor could be an employer if
it "operates the debtor's asset as a `business enterprise' in
the `normal commercial sense.' " 66 F.3d 241, 244 (1995)
(quoting 54 Fed. Reg. 16045 (1989)). Drawing on Chauffers,
_________________________________________________________________

9. United Healthcare, as a debtor-in-possession, is a fiduciary for its
estate and for its creditors. See 11 U.S.C.S 1107(a); Commodity Futures
Trading Comm'n v. Weintraub, 471 U.S. 343, 355 (1985).

13
the Court of Appeals for the Eighth Circuit also focused on
the nature and extent of the secured creditor's involvement
with the debtor, holding a creditor acquires "employer"
status when it "becomes so entangled with its borrower that
it has assumed responsibility for the overall management of
the borrower's business." Adams, 87 F.3d at 272.

The Bankruptcy Court, after reviewing the Department of
Labor Commentary, held United Healthcare was subject to
the WARN Act notification requirements, finding:

In this case, there is no doubt that United Healthcare's
plant closing and massive layoff of employees would,
absent bankruptcy, trigger the notification
requirements under WARN. In the Chapter 11 context,
however, the debtor-in-possession ("DIP") asfiduciary
succeeded to the WARN obligations of United . . . since
debtor's 1,300 employees continued to work on a daily
basis for sixteen days after the Chapter 11 petition was
filed.

We disagree. In light of the Department of Labor
commentary to the regulations and the cases cited, we
believe that whether a bankrupt entity is an "employer"
under the WARN Act depends on the nature and extent of
the entity's business and commercial activities while in
bankruptcy, and not merely on whether the entity's
employees continue to work "on a daily basis." 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 activities
resemble those of a business winding up its affairs, the
more likely it is the entity is not subject to the WARN Act.

Based upon our review of the Bankruptcy Court's
findings of fact, we find that United Healthcare, as the
fiduciary in bankruptcy proceedings, was operating not as
a "business operating as a going concern," but rather as a
business liquidating its affairs. On February 18, 1997,
United Healthcare surrendered its certificates of need; on
February 19, it filed a voluntary bankruptcy plan under
which it would liquidate its assets and cease to exist; and,
no later than February 21, United Healthcare had
discharged or transferred all of its patients and was no

14
longer admitting new patients. Significantly, after February
19, but in any event no later than February 21, its
employees were no longer engaged in their regular duties
but instead were performing tasks solely designed to
prepare United Healthcare for liquidation.

We recognize that United Healthcare filed for Chapter 11
bankruptcy, ordinarily used to reorganize, rather than
Chapter 7 bankruptcy, generally used to liquidate. But as
discussed, United Healthcare's actions from the time it filed
its Chapter 11 petition throughout the proceedings clearly
demonstrate its intent to liquidate. Simultaneously, United
Healthcare filed for bankruptcy, agreed to sell its assets
and goodwill to St. Barnabas, and surrendered its
certificates of need. Had United Healthcare's conduct and
activities demonstrated a bona fide effort toward
reorganization, the evidence may have shown that United
Healthcare was an "employer" subject to the WARN Act.

We believe this analysis is consistent with the legislative
purpose behind WARN. In Hotel Employees, we stated:

The WARN Act was adopted in response to the
extensive worker dislocation that occurred in the 1970s
and 1980s. As companies were merged, acquired, or
closed, many employees lost their jobs, often without
notice. In some circumstances, the projected closing
was concealed from the employees. Congress enacted
WARN to protect workers and their families from these
situations. WARN's notice period was designed to allow
workers "to adjust to the prospective loss of
employment, to seek and obtain retraining that will
allow [them] to successfully compete in the job
market." [20 C.F.R. 639(a)(1)]. The thrust of WARN is to
give fair warning in advance of prospective plant
closings. It would appear, therefore, that if an employer
knew of a . . . . closing and failed to notify its
employees, the WARN Act would apply.

173 F.3d at 182. In this case, there is no evidence United
Healthcare knew in advance that it would be forced to close
but concealed that knowledge from its employees. Instead,
the record demonstrates that United Healthcare made
repeated and intensive good-faith efforts to remain

15
financially viable and to ensure its employees would keep
their jobs. Furthermore, United Healthcare willingly
disclosed its financial difficulties to its employees, including
them in its efforts to find a merger partner. Clearly, United
Healthcare did not file for bankruptcy in an effort to avoid
its WARN Act responsibilities.

Although we find WARN Act liability does not attach
under these facts and circumstances, we do not foreclose
the possibility that WARN Act liability may apply to other
situations where an employer files for bankruptcy and then
terminates its employees. An employer as fiduciary will
succeed to its WARN Act obligations if an examination of
the debtor's economic activities leading up to and during
the bankruptcy proceedings reveals that the fiduciary has
continued in an "employer" capacity, operating the business
as an ongoing concern.

IV.

In conclusion, we do not believe United Healthcare
continued as an "employer" within the meaning of the
WARN Act when it assumed the role of fiduciary following
the filing for bankruptcy. At that time, it ceased operating
its business as a going concern and was simply preparing
itself for liquidation. The bankruptcy plan it filed
simultaneously with its Chapter 11 petition confirms this
assessment: United Healthcare planned to sell its goodwill
to St. Barnabas and would itself cease to exist. Given these
prospects and the absence of any evidence United
Healthcare structured its bankruptcy petition and the
furlough of its employees to avoid WARN Act liability, we
hold United Healthcare was no longer subject to the WARN
Act when it furloughed its employees.10

For these reasons, we will reverse the District Court's
order of November 5, 1998, to the extent it is inconsistent
with this opinion and will remand for proceedings
consistent with this opinion.
_________________________________________________________________

10. We express no opinion on whether United incurred WARN liabilities
at some point prior to the filing of its petition and whether the United
employees have WARN claims entitled to priority under Section 507(a)(3).

16
A True Copy:
Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

17