In Re: United Health Care Syst, Inc. ( 1999 )


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  •                                                                                                                            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    Precedential or Non-Precedential: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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    http://digitalcommons.law.villanova.edu/thirdcircuit_1999/331
    
    
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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
    
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    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).
    
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    A True Copy:
    Teste:
    
           Clerk of the United States Court of Appeals
           for the Third Circuit
    
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