The opinion of the court was delivered by: J. Paul Oetken, District Judge:
This is a collective action for unpaid wages under the Fair Labor Standards Act, 29 U.S.C. §§ 201, et seq. ("FLSA") and a class action for violations of the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001, et seq. ("ERISA"), and New York state labor laws.
Presently before the Court is a motion by one of the defendants, Michael Canizales, for partial summary judgment (a) dismissing the plaintiffs' complaint as against Canizales; and (b) dismissing the cross-claims against Canizales by co-defendants Cornelia Fifth Avenue, LLC ("Cornelia Fifth"), Cornelia Zicu International, LLC ("Zicu"), Cornelia International 401(K) Plan ("Cornelia 401(K)"), Richard Aidekman and Ellen Sackoff (collectively, the "Cornelia Defendants").
For the reasons that follow, Canizales' motion is granted in part and denied in part.
The following facts are drawn from the parties' Local Civil Rule 56.1 Statements and other submissions in connection with the instant motion, and are undisputed unless otherwise noted.
Until February 6, 2009, Defendant Cornelia Fifth owned and operated the Cornelia Day Resort at One East 52nd Street, New York, New York. Defendant Richard Aidekman was the owner of Samson Spas, LLC, which owned defendant Zicu, which, in turn, was the managing member of Cornelia Fifth.*fn1
Defendant Michael Canizales was a part owner and member of defendant Spa Chakra Fifth Avenue, LLC ("SCFAL").
During 2009, Aidekman entered into negotiations with Canizales to sell certain assets of Cornelia Fifth to SCFAL. On February 6, 2009, SCFAL entered into an asset purchase agreement with Cornelia Fifth (with Richard Aidekman and Defendant Ellen Sackoff as principals). (See Affidavit of Michael Canizales ("Canizales Aff."), Ex. A, Asset Purchase Agreement Dated as of February 6, 2009 Among Spa Chakra Fifth Avenue, LLC, as Buyer, Cornelia Fifth Avenue, LLC, as Seller, and Richard Aidekman and Ellen Sackoff, as Principals, Dkt. No. 142 ("APA").)
Plaintiffs are a class of individuals who were employees of Cornelia Fifth, and at least some of whom were also hired by SCFAL. (Defendant Michael Canizales' Rule 56.1 Statement of Undisputed Facts in Support of His Motion for Partial Summary Judgment, Dkt. No. 143 ("Canizales 56.1 Stmt."), ¶ 45.) They include, inter alia, hairstylists, nail technicians, massage therapists, make-up artists, and department managers. (Third Amended Class Action Complaint, Dkt. No. 109 ("Comp."), ¶¶ 7-68.) Plaintiffs are allegedly owed wages incurred during the weeks leading up to the closing of the APA that were not paid by Cornelia Fifth or SCFAL.
B. The Asset Purchase Agreement
The APA contained several provisions relevant to this motion.
APA § 2.1 identified particular assets that were being purchased by SCFAL, including, inter alia,inventory, equipment, certain contracts related to the business, accounts receivable, and goodwill of the business as a going concern. APA § 2.2 sets forth certain assets that were expressly not being sold, including, inter alia, shares of the capital stock of the seller, corporate policies of the seller, all marks, and other documents having to do with the corporate organization of Cornelia Fifth, including seals, charter documents, minute books, stock books, tax returns, and books of account. APA § 2.3 sets forth particular liabilities being transferred, and § 2.4 sets forth excluded liabilities.*fn2 The latter section provides that "[n]either the Buyer nor any of its Affiliates shall assume any Liabilities of the Seller . . . other than solely those specifically set forth in Section 2.3," and expressly excludes "all other Liabilities, regardless of when made or asserted, which arise out of or are based upon any events occurring or actions taken or omitted to be taken by the Seller, or otherwise arising out of or incurred in connection with the conduct of the Business, on or before the Closing Date." (APA § 2.4.)
Article IV of the APA contains the seller's representations and warranties, including that Cornelia Fifth "has conducted, and is conducting, the Business in material compliance with all applicable laws . . ."; that "[n]o event has occurred and that no circumstances exist that . . . would result in a violation of, conflict with or failure on the part of the Seller to conduct the business in compliance with, any applicable Law"; and that "[t]he Seller has not received notice regarding any violation of, conflict with, or failure to conduct the Business in compliance with any applicable Law." (APA § 4.8.) Cornelia Fifth also specifically warranted that "[t]here are, and have been, no violations of any other Law respecting the hiring, hours, wages, occupational safety and health, employment, promotion, termination or benefits of any Business Employee or other Person in connection with the Business." (APA § 4.18.)
Under Article VI of the APA, containing the parties' covenants, Cornelia Fifth covenanted that "[a]ny and all Liabilities relating to or arising out of the employment, or cessation of employment, of any Business Employee . . . on or prior to the close of business on the Closing Date. . . . shall be the sole responsibility of Seller including wages and other renumeration due through the close of business on the Closing Date . . . ." (APA § 6.4(b).) Section 6.6 provides that "[f]rom and after the Closing, Seller shall pay and discharge on a timely basis all of the Excluded Liabilities." (APA § 6.6(a).)
The APA also contained indemnification provisions for each side. The seller (i.e., Cornelia Fifth) and the principals (i.e., Aidekman and Sackoff) agreed to indemnify "the Buyer [i.e., SCFAL] and its Affiliates and their respective stockholders, members, managers, officers, directors, employees, agents, successors and assigns" for various losses arising in connection with any breach of the APA (including the representations, warranties and covenants) by the seller or its principals. (APA § 7.2(a).) The buyer (i.e., SCFAL) agreed to indemnify "the Seller and its Affiliates and their respective stockholders, members, managers, officers, directors, employees, agents, successors and assigns" against, inter alia, breaches of the APA or failure to perform the assumed liabilities by SCFAL. (APA § 7.3.)
C. The Running and Subsequent Failure of the Business
After the closing, SCFAL opened the Spa Chakra Fifth Avenue Spa at the former location of the Cornelia Day Resort. Some, but not all, of the Cornelia Fifth employees were hired by SCFAL. SCFAL also hired additional new employees who had not worked for Cornelia Fifth. SCFAL did not sell the Cornelia-branded beauty products that had previously been sold at that location, but the business was operated as a beauty spa. Customers calling the new spa were informed of the change in the business when they called to make appointments. SCFAL created a new website for the spa.
Canizales states in an affidavit that "SCFAL had made clear to all of its employees that it was a new company and that they were no longer working for Cornelia Fifth. They all knew that [Canizales] was now in charge of operations, whereas [he] had no part in the prior operations of Cornelia Fifth." (Canizales Aff. ¶ 27.)
What happened next is the subject of sharp dispute among the defendants. There is no dispute that soon after the closing, SCFAL ran into financial difficulty and the business failed less than a year after the closing. Canizales claims that the failure was a result of various undisclosed liabilities and obligations of the Cornelia Defendants, and the Cornelia Defendants' subsequent refusal to indemnify SCFAL and pay the various liabilities they had agreed to pay in the APA. For their part, the Cornelia Defendants contend that the failure of the business was due to Mr. Canizales' violations of the APA. In particular, they contend that he diverted to his other businesses funds that they had transferred to him pursuant to the APA. (See generally Affidavit of Richard Aidekman (Dkt. No. 150).)
Suffice it to say that there are genuine issues of material fact regarding the precise causes and effects of all of these events, but these issues are not material to the instant motion, so it is unnecessary for the Court to resolve these disputes. It is, however, undisputed that the business did fail, and that on November 30, 2009, three of SCFAL's creditors filed an involuntary petition against SCFAL under Chapter 7 of the United States Bankruptcy Code; that Spa Chakra, Inc. later filed a Chapter 11 petition; and that both cases were later consolidated into one Chapter 11 case. After certain reorganization efforts ultimately failed, the Spa Chakra branded spa at One East 52nd Street closed. It is also undisputed that Richard Aidekman and Ellen Sackoff later filed for bankruptcy protection, but that Cornelia Fifth and Zicu still exist as business entities.
When Cornelia Fifth sold the assets of the business to SCFAL, it had allegedly not yet paid its employees' wages for January 2009 and February 2009 through the closing date. Canizales states that "[a]t or about the time of the February 6, 2009 closing of the APA, Aidekman told [him] that Cornelia Fifth had not yet paid its employees" these wages, but that "Cornelia Fifth would promptly make arrangements to pay the employees for their wages for the period January 4 through January 17, 2009, by leaving sufficient funds in an operating account to be turned over to SCFAL so that SCFAL could, on Cornelia Fifth's behalf, remit the wage payments to the employees." (Canizales 56.1 Stmt. ¶ 52.) Canizales contends that Cornelia Fifth did not turn over accounts containing sufficient funds from which to make these payments, and that "[s]hortly after the closing, Aidekman told [him] that none of the Cornelia Fifth employees would be paid for the period January 18 through January 31, 2009 because Cornelia Fifth did not have the funds to pay them." (Id. ¶ 55.)*fn3
Plaintiffs submit an affidavit from one of the class members, Amanda Wells, the Director of Marketing and Public Relations for Cornelia Fifth, and subsequently for SCFAL. (Dkt. No. 147 ("Wells Aff.").) Wells states that after a power-point presentation to the Cornelia Fifth employees by Canizales on February 4, 2009, she overheard Canizales and Aidekman arguing "for several hours" in the next office. (Wells Aff. ¶ 5.) She states that she heard Canizales tell Aidekman "that Cornelia Fifth would have to be responsible to pay all of the employees, including [herself] and plaintiffs, all outstanding unpaid wages." (Id.)
Canizales concedes that he became aware prior to the closing that Cornelia Fifth had not yet paid the employees' wages for January and February 2009, but states that Aidekman assured him that Cornelia Fifth had sufficient assets to make those payments, and would do so. Canizales states that SCFAL "relied on that representation," and states further that [t]he fact that this became an issue caused SCFAL to make sure that the APA required Cornelia Fifth to attend to this important obligation precisely so that SCFAL would not face any unanticipated liability. Thus, Cornelia Fifth represented that it was in compliance with applicable laws pertaining to its employees and that there were no known claims against it. (Reply Affidavit of Michael Canizales, Dkt. No. 156, ("Canizales Reply Aff.") ¶ 3.)
The parties dispute the significance of certain actions that SCFAL allegedly took after the closing and after it became clear that Cornelia Fifth had not yet paid the employees' back wages. For example, SCFAL offered certain cash advances to the employees against their paychecks to help provide them with assistance until they were fully paid. Canizales contends that these actions did not amount to an admission of any kind of obligation to pay these wages, but rather was just an effort to help his employees. In any event, these issues are not ultimately material to this motion, as Canizales' potential liability as a successor is not based on any kind of implied concession based on his actions after the closing. Instead, any liability on the part of Canizales would be based on the factors under the relevant test for successor liability.
It is undisputed that Plaintiffs did not file any formal claim for unpaid wages until this lawsuit was initiated on April 27, 2009.
Plaintiffs filed this action on April 27, 2009 as a class action under Rule 23 of the Federal Rules of Civil Procedure, and as a collective action under FLSA. At that time, the case was ...