# Fleming v. Bayou Steel BD Holdings II LLC

> District Court, E.D. Louisiana · April 30, 2021

URL: https://www.frixlaw.com/law-library/cases/10186600

## Case

- **Court:** District Court, E.D. Louisiana
- **Decided:** April 30, 2021
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10186600

## How later opinions describe it (automated extraction)

- finding subsidiary dependent on parent because ninety percent of the subsidiaries revenue was derived from transactions with the parent

## Opinion text

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA

TROY FLEMING, ET AL. CIVIL ACTION

VERSUS NO: 20-1476

BAYOU STEEL BD HOLDINGS II SECTION: “J”(4)
LLC, ET AL.

ORDER & REASONS
Before the Court are a Motion for Summary Judgment (Rec. Doc. 8) filed by
Bayou Steel BD Holdings II LLC and Black Diamond Capital Management LLC
(collectively “Defendants”); an opposition (Rec. Doc. 31) filed thereto by Troy Fleming,
Ronnie Millet, Jarrod Nabor, Davarian Ursin, and Charles Ziegeler (collectively
“Plaintiffs”); and a reply (Rec. Doc. 44) by Defendants. Having considered the motion
and legal memoranda, the record, and the applicable law, the Court finds that the
motion should be DENIED.
FACTS AND PROCEDURAL BACKGROUND
This case arises from an alleged violation of the Worker Adjustment and
Retraining Notification (WARN) Act by Defendants. Plaintiffs claim that they did not
receive notice before BD LaPlace, LLC, d/b/a Bayou Steel Group closed the Bayou
Steel mill, its corporate headquarters, and related facilities on October 1, 2019, in
violation of the WARN Act. Plaintiffs assert that Defendants, Bayou Steel BD
Holdings II, LLC and Black Diamond Capital Management, LLC, are liable for Bayou
Steel’s violation of the WARN Act as a “single employer.”
In order to understand Plaintiffs’ single employer argument, the ownership
structure of Bayou Steel, where Plaintiffs worked, must be explained. In spring of
2016, a non-defendant private equity fund known as Black Diamond Opportunity

Fund IV, LP acquired Bayou Steel. Subsequently, the ownership structure of Bayou
Steel was established as follows. Bayou Steel became BD LaPlace, LLC, d/b/a Bayou
Steel Group (hereinafter referred to as “Bayou Steel”), which is owned by Bayou Steel
Investment, LLC, which is owned by Bayou Steel BD Holdings, LLC. These three
non-defendant entities have jointly filed for bankruptcy in the District of Delaware.
In re Bayou Steel BD Holdings, L.L.C., et al, No. 19-12153 (KBO) (Bankr. D. Del.).

Bayou Steel BD Holdings, LLC is owned by Defendant Bayou Steel BD Holdings II,
LLC (“BD Holdings II”), which is a holding company with no employees owned by
non-defendant Black Diamond Opportunity Fund IV, LP.
Throughout BD LaPlace’s ownership of the Bayou Steel mill, a non-defendant
entity affiliated with Black Diamond known as Black Diamond Commercial Finance,
LLC provided a total of $21 million in loans to BD LaPlace. Finally, Defendant Black
Diamond Capital Management, LLC (“BDCM”) is a privately held investment

management firm that provides oversight and support to its portfolio of companies
invested in by Black Diamond’s affiliated private equity funds, such as the
aforementioned Black Diamond Opportunity Fund IV, LP. BDCM appointed three of
its professionals to serve on BD LaPlace’s six-member Board of Directors (the
“Board”), appointed one of BDCM’s directors as Vice President of BD LaPlace, and
offered strategic advice and support to BD LaPlace. Defendants provided the
following demonstrative exhibit to explain the ownership structure of Bayou Steel.
(Rec. Doc. 8-2).

DEMONSTRATIVE EXHIBIT

Private Equity sitiatien
Bayou Steel in Black Diamond
2016
Named Defendant :
company with no Named Defendant
employees | that is an investment
: ET a Denon ROryntelT advisor employing
Holder of the es Meare x ‘assionals that,
membership units { Pele Lute sg Ped Wo ne le | est tas
| provide certain
investment oversight
Filed for Chapter 11 Bankruptcy and support to a
SUYASSe aes Lhe Protection in Delaware portfolio of
| companies invested in
laintiffs? rae by Black Diamond’s
an affilated private
Employer Rte J = Named Defendant equity funds.

In response to the present litigation, Defendants filed the instant motion for
summary judgment, arguing that there is insufficient evidence to establish single
employer liability, thus they are entitled to summary judgment as a matter of law.
LEGAL STANDARD
Summary judgment is appropriate when “the pleadings, the discovery and
disclosure materials on file, and any affidavits show that there is no genuine issue as
to any material fact and that the movant is entitled to judgment as a matter of law.”
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (citing Fed. R. Civ. P. 56(c)); Little
v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994). When assessing whether a
dispute as to any material fact exists, a court considers “all of the evidence in the

record but refrains from making credibility determinations or weighing the evidence.”
Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 398 (5th
Cir. 2008). All reasonable inferences are drawn in favor of the nonmoving party, but

a party cannot defeat summary judgment with conclusory allegations or
unsubstantiated assertions. Little, 37 F.3d at 1075. A court ultimately must be
satisfied that “a reasonable jury could not return a verdict for the nonmoving party.”
Delta, 530 F.3d at 399.
If the dispositive issue is one on which the moving party will bear the burden
of proof at trial, the moving party “must come forward with evidence which would

‘entitle it to a directed verdict if the evidence went uncontroverted at trial.’” Int’l
Shortstop, Inc. v. Rally’s, Inc., 939 F.2d 1257, 1264-65 (5th Cir. 1991). The nonmoving
party can then defeat the motion by either countering with sufficient evidence of its
own, or “showing that the moving party's evidence is so sheer that it may not
persuade the reasonable fact-finder to return a verdict in favor of the moving party.”
Id. at 1265.
If the dispositive issue is one on which the nonmoving party will bear the

burden of proof at trial, the moving party may satisfy its burden by merely pointing
out that the evidence in the record is insufficient with respect to an essential element
of the nonmoving party's claim. See Celotex, 477 U.S. at 325. The burden then shifts
to the nonmoving party, who must, by submitting or referring to evidence, set out
specific facts showing that a genuine issue exists. See id. at 324. The nonmovant may
not rest upon the pleadings but must identify specific facts that establish a genuine
issue for trial. See, e.g., id. at 325; Little, 37 F.3d at 1075.
DISCUSSION

The WARN Act requires covered employers to provide employees with at least
sixty days’ notice before a plant closing or a mass layoff. 29 U.S.C. § 2102(a). An
employer who fails to comply with the WARN Act is liable to each employee for back
pay and benefits for up to sixty days, in addition to attorney’s fees. § 2104(a).
Defendants do not appear to dispute that the WARN Act was violated in this case,
but instead, argue that they are not liable for Bayou Steel’s violation of the WARN

Act because they are separate entities.
As a general rule, parent companies are not liable for the actions of their
subsidiaries. U.S. v. Bestfoods, 524 U.S. 51, 61 (1998). However, Plaintiffs argue that
Defendants are liable for Bayou Steel’s violation of the WARN Act as a “single
employer.” In determining whether a parent or entity is liable as a single employer
under the WARN Act, courts utilize a five-factor test created by the Department of
Labor. 20 C.F.R. § 639.3(a)(2). The five factors are: “(i) common ownership, (ii)

common directors and/or officers, (iii) de facto exercise of control, (iv) unity of
personnel policies emanating from a common source, and (v) the dependency of
operations.” Id.; Administaff Companies, Inc. v. New York Joint Bd., Shirt &
Leisurewear Div., 337 F.3d 454, 457 (5th Cir. 2003).
I. COMMON OWNERSHIP
There is no dispute that BD Holdings II was in the chain of ownership of Bayou
Steel. However, Plaintiffs argue that BDCM was the ultimate parent and owner of

Bayou Steel through BD Holdings II and other intermediaries, which Defendants
deny. In support of their argument, Plaintiffs cite to the deposition testimony of
Bayou Steel executives, wherein they state that they believed that BDCM owned
Bayou Steel. (Rec. Doc. 31-3, at p. 18; 31-5, at p. 5). Plaintiffs also cite to a power
point generated by BDCM, which represents that “BDCM & affiliates” owned 100%
of Bayou Steel Group. (Rec. Doc. 31-12, at p. 110). Finally, Plaintiffs cite to another

memorandum from BDCM, which states that BDCM owns 100% of Bayou Steel’s
equity through Black Diamond Opportunity Fund IV, LP. (Id. at p. 111).
In its reply to this argument, BDCM explains that it does not own Black
Diamond Opportunity Fund IV, LP, but instead, provides that entity with support
and oversight, as it does with other private equity funds. (Rec. Doc. 44, at p. 3).
Further, BDCM cites to the sworn declaration of the managing director of BDCM’s
private equity group, Sahand Farahnak, wherein he explains that Black Diamond

Opportunity Fund IV, L.P. is owned by institutional investors, not BDCM. (Rec. Doc.
8-3, at p. 2). Although BDCM strongly denies that it was the ultimate parent of Bayou
Steel, the Court finds that Plaintiffs have, at the least, presented sufficient evidence
to create a genuine dispute of this fact through BDCM’s own internal documents.
Plaintiffs argue in the alternative that BDCM had financial control over Bayou
Steel, which satisfies the common ownership factor under the holding of In re Tweeter
OPCO, LLC, 453 B.R. 534, 542 (Bankr. Del. 2011) (“Tweeter”). However, Tweeter is
easily distinguishable in that the defendant in that case was “first in line” in security
and had complete control over the cash collateral, whereas, in this case, Bank of

America and SunTrust held first priority liens over nearly all of Bayou Steel’s assets.
(Rec. Doc. 8-3, at pp. 4-5). Further, the entity that ultimately decided not to further
finance Bayou Steel’s operations was Black Diamond Commercial Finance, LLC, not
BDCM. Accordingly, the Court finds Plaintiffs’ financial control argument is not
persuasive; however, the Court also finds that Plaintiffs have presented sufficient
evidence to create a genuine dispute regarding whether BDCM was the ultimate

parent of Bayou Steel.
II. COMMON DIRECTORS AND OFFICERS
It is undisputed that BD Holdings II is a holding company with no employees,
and thus, it has no common directors or officers with Bayou Steel; however, three
BDCM employees served as members of the Board. Philip Raygorodetsky, a BDCM
managing director, served as chairman of the Board. Sahand Farahnak, another
BDCM managing director, served as vice president of Bayou Steel and was also a

director. James Hogarth, an employee of BDCM, also served as a director.
Plaintiffs do not argue that BDCM employees occupied the majority of the
Board, but instead, they argue that the remaining independent directors were not
actually independent because they took direction from BDCM and reported to
Raygorodetsky and Farahnak. Specifically, Plaintiffs assert that BDCM unilaterally
appointed and removed Bayou Steel’s directors, who were compensated with $50,000
per year plus expenses and participation in a stock bonus plan. Plaintiffs also note
that two of the independent directors, Bob Unfried and Terry Taft, were retained by
Bayou Steel as consultants, which earned them an addition $1,000 per day.

Unfried, who concerned himself with all aspects of Bayou Steel’s business, and
Taft, who primarily focused on sales, routinely visited Bayou Steel, which Plaintiffs
argue is unusual for directors. Plaintiffs allege that Unfried and Taft reported to
Farahnak and Raygorodetsky and did not share their reports with Bayou Steel’s
management. Plaintiffs also cite to the deposition testimony of Alton Davis, wherein
he testified that Unfried was sent by Farahnak and Raygorodetsky to “snoop, spy, try

to improve certain things, [and] evaluate certain things that should be a management
function.” (Rec. Doc. 31-3, at p. 61). Further, Plaintiffs cite to an e-mail from Unfried
to Farahnak, in which he wrote, “[c]learly we received good value for BSG [Bayou
Steel Group] and knew it would be a lot of work.” (Rec. Doc. 31-12, at p. 161). The use
of the word “we” tends to indicate that Unfried believed that he was working at the
behest of some entity other than Bayou Steel. In this same e-mail, Unfried criticized
Bayou Steel’s then-CEO, Bob Simon, and suggested that he should be replaced, while

suggesting he would be an appropriate replacement and requesting to be paid fairly
for his work. (Id. at 161-62). Although Unfried was never made CEO, after Simon was
terminated, he described himself in an e-mail to Raygorodetsky as wearing a Black
Diamond hat and a quasi-CEO/Consultant/Bayou Steel hat. (Id. at p. 22).
These communications are clearly sufficient to present a genuine issue of
material fact that these “independent” directors, specifically Unfried, may have been
influenced by BDCM, such that they were not truly independent.

III. DE FACTO EXERCISE OF CONTROL
The third factor, de facto control, considers “whether the parent has specifically
directed the allegedly illegal employment practice that forms the basis for the
litigation.” Pearson v. Component Technology Corp., 247 F.3d 471, 503 (3d Cir. 2001).
It is “not intended to support liability based on a parent’s exercise of control pursuant
to the ordinary incidents of stock ownership.” Id. at 503. This factor is the most

heavily weighted because, if the evidence of de facto control is egregious, such
evidence alone could be sufficient to warrant single employer liability. Id. The weight
attributed to this factor is rooted in the text of the WARN Act, which only imposes
liability on an “employer who orders a plant closing or mass layoff.” 29 U.S.C. §
2104(a)(1); see also Administaff, 337 F.3d at 456.
In August 2019, Farahnak and Raygorodetsky alerted Steve Deckoff, the
managing principal of BDCM, that Bayou Steel needed $8 million to survive its

financial situation. Deckoff approved a $1 million advance conditioned upon it being
a secured loan. In September 2019, Deckoff twice visited Bayou Steel in order to
discuss a plan developed by Bayou Steel’s then-CEO, Mike Williams, to make Bayou
Steel profitable through a significant financial commitment. During the second visit
on September 18-19, Deckoff asked John Fontana, a BDCM senior executive, his
opinion on whether Bayou Steel should be reorganized or liquidated. On September
20, Fontana recommended liquidation but also offered to lead Bayou Steel if Deckoff
was willing to spend more to salvage the business through Black Diamond
Commercial Finance, LLC. (Rec. Doc. 31-12, at p. 36). On September 22, Hogarth also

sent Deckoff an analysis of debtor in possession financing that projects Bayou Steel’s
operating capacity, sales, and expenses in the event it entered a bankruptcy. (Id. at
p. 106). In response to Fontana’s e-mail, Deckoff stated that he did not want to put
any more money into Bayou Steel. (Rec. Doc. 31-12, at p. 36).
Plaintiffs argue that BDCM, through Deckoff’s decision not to provide
additional funding to Bayou Steel, essentially forced them to enter bankruptcy. This

argument is complicated by the fact that the entity that ultimately decided not to
further finance Bayou Steel’s operations was Black Diamond Commercial Finance,
LLC, not BDCM. However, regardless of the corporate structure at play in this case,
Plaintiffs have failed to provide the Court with any cases establishing single employer
liability for a parent company’s decision not to provide additional financing to a
subsidiary. On the other hand, Defendants have cited multiple cases where courts
have declined to find single employer liability due to a parent’s decision not to provide

additional financing to its subsidiary under the WARN Act.1 Accordingly, the Court
finds Plaintiffs’ de facto control through financing argument unavailing.

1 See, e.g., Pearson, 247 F.3d at 495 (“[J]ust as a parent’s ownership of stock will not suffice to create
liability for the parent,” so too the failure to invest further in a subsidiary does not create “single
employer” WARN Act liability); In re Jevic Holding Corp., 492 B.R. 416, 429 (Bankr. D. Del. 2013),
aff'd, 526 B.R. 547 (D. Del. 2014), aff'd, 656 F. App'x 617 (3d Cir. 2016); Adams v. Erwin Weller Co.,
87 F.3d 269, 272 (8th Cir. 1996) (“Although WCC’s position as EWC’s financial life-line undoubtedly
gave it the capacity to exert influence over EWC’s decisions, this power is inherent in any debtor-
creditor relationship and its exercise does not translate into decision making control for the purposes
of WARN’s employer rule.”).
Plaintiffs also argue that BDCM and its employee/directors at Bayou Steel
extered de facto control in conceiving, adopting, and implementing the plan to
liquidate Bayou Steel and lay off its employees. It is a “well established principle that

directors and officers holding positions with a parent and its subsidiary can and do
‘change hats’ to represent the two corporations separately.” United States v.
Bestfoods, 524 U.S. 51, 69 (1998). Further, there is a presumption that the activity of
the directors is on behalf of the subsidiary, which “is strongest when the act is
perfectly consistent with the norms of corporate behavior” and weakest when an act
appears to be “plainly contrary to the interests of the subsidiary yet nonetheless

advantageous to the parent.” Id. at 70 n.13. Thus, to expose a parent or affiliated
company to single employer liability due to the directors’ dual positions, a plaintiff
must point to evidence that the directors were actually acting in their capacity as a
representative of the parent or affiliate rather than the subsidiary. Lusk v. Foxmeyer
Health Corp., 129 F.3d 773, 779 (5th Cir. 1997).
On September 22, Black Diamond’s in-house counsel contacted a financial
advisor from Candlewood Partners, LLC and bankruptcy counsel from Polsinelli, PC.

Later that day, Hogarth met with Bayou Steel’s other directors, discussed BDCM’s
likely unwillingness to continue to fund the business, and recommended that the
company retain bankruptcy financial advisor and counsel to prepare for potential
bankruptcy. (Rec. Doc. 31-12, at p. 106). The Board subsequently approved a motion
to retain BDCM’s recommended bankruptcy financial advisor and counsel,
Candlewood and Polsinelli. (Id.). On September 27, Candlewood and Polsinelli
presented to the Board concerning the company’s financial condition and issues
related to a potential bankruptcy. (Rec. Doc. 8-3, at p. 9). After the presentation, the
Board voted to file for bankruptcy with all BDCM affiliated directors abstaining from

the decision. (Id. at p. 10).
Plaintiffs appear to place much emphasis on the fact that BDCM began
preparing for Bayou Steel’s bankruptcy before the Board voted to file for bankruptcy;
however, BDCM was already aware that Bayou Steel needed another $7 million in
financing to survive. Thus, once Deckoff decided that Black Diamond Commercial
Finance, LLC would not provide Bayou Steel with further financing, it was

reasonable for BDCM to assume that the company would be left with no option but
to file for bankruptcy. Further, BDCM affiliated directors abstained from the vote to
file for bankruptcy, and, again, the company needed additional financing to survive,
which it had no means of attaining. Finally, as noted by Defendants, Plaintiffs have
provided no indicia of how BDCM or BD Holdings II benefitted from the Board’s
decision to declare bankruptcy.
On the other hand, Plaintiffs have cited to plenty of evidence showing that

most of the members of the Board were, at the very least, heavily influenced by
BDCM. Further, although the BDCM affiliated directors may have abstained from
the vote to file bankruptcy, they did vote to hire BDCM’s recommended bankruptcy
counsel and financial advisor, who presented to the remainder members of the Board
before those members voted to file for bankruptcy. Finally, as mentioned above, there
is evidence supporting Plaintiffs’ argument that Unfried and Taft were heavily
influenced by BDCM. Accordingly, the Court finds that there is sufficient evidence to
establish a genuine issue of material fact regarding whether BDCM exerted de facto
control over Bayou Steel.

IV. UNITY OF PERSONNEL POLICIES EMANATING FROM A COMMON SOURCE
Unity of personnel policies is present when the parent “had a particular
interest in how the [subsidiaries’] policies were designed or issued specific directives
to [the subsidiary] on the subject.” Pearson, at 499. In support of their argument that
BDCM directed personnel policies at Bayou Steel, Plaintiffs cite to an e-mail from
Raygorodetsky to his fellow directors, in which he states that his “boss” (presumably

Deckoff) approved his proposal to cut costs in a manner that reflects the tough
financial situation that Bayou Steel was in. (Rec. Doc. 31-12, at pp. 228-29). In this
e-mail, Raygorodetsky elaborated that “we” (presumably he and BDCM) planned to
cut headcount, compensation, benefits, and any other advisable cuts to get Bayou
Steel through its financial difficulties. (Id.) Subsequently, Bayou Steel implemented
a retirement plan discontinuance, 401k match freeze, insurance plan changes, pay
cuts, and a freeze on the incentive plan for some supervisors. Plaintiffs argue that

Raygorodetsky’s emails, which indicate that he received approval from BDCM, and
the subsequent policies implemented by Bayou Steel to cut costs, are evidence
sufficient to show BDCM was directing personnel policies.
In response, Defendants argue that Bayou Steel had its own internal human
resources department that sets its internal policies. Further, as explained above,
Defendants again point to the fact that Bayou Steel was in financial danger and
implementing cost-cutting measures is a normal response to the company’s
precarious position.
Defendants’ argument misses the mark. The unity of personnel factor requires

the factfinder to weigh whether the parent or affiliated company influenced or
directed policy decisions, not whether the policy decisions are normal for a
corporation to take under the circumstances. It is clear from Raygorodetsky’s emails
that he discussed cost-cutting measures for Bayou Steel with BDCM management,
communicated these measures to the Board, and Bayou Steel subsequently
implemented these measures. This evidence alone is sufficient to create a genuine

issue of material fact regarding whether BDCM directed personnel policies through
Raygorodetsky.
V. DEPENDENCY OF OPERATIONS
In determining whether a subsidiary is dependent on the parent or affiliate for
its operations, the factfinder must look to whether the companies share
“administrative or purchasing services, interchange employees or equipment, [or]
commingle finances.” In re APA Trasp. Corp. Consol. Litig., 541 F.3d 233, 245 (3d Cir.

2008).
Plaintiffs argue that BDCM arranged Bayou Steel’s financing such that it was
entirely dependent on BDCM for further infusions of working capital to continue
operations. However, this argument is more analogous to the financial control
argument Plaintiffs asserted under the first factor. The question under this factor is
not whether BDCM had financial control over Bayou Steel, but instead, whether the
parent comingled assets such that the subsidiary was entirely dependent on the
parent to continue operations. See Childress v. Darby Lumber, Inc., 357 F3d 1000,
1006-07 (9th Cir. 2004) (finding subsidiary dependent on parent because ninety
percent of the subsidiaries revenue was derived from transactions with the parent).
Further, Black Diamond Commercial Finance, LLC, not BDCM, was the entity
providing financing to Bayou Steel. Thus, there is no genuine dispute that Bayou
Steel was not dependent on BDCM for its operations.
In sum, there are genuine issues of material fact regarding four of the five
factors in the single employer liability test, including the all-important de facto
control factor. Therefore, the Court finds that summary judgment is inappropriate in
this case.
CONCLUSION
Accordingly,
IT IS HEREBY ORDERED that Defendants’ Motion for Summary Judgment
(Rec. Doc. 8) is DENIED.
New Orleans, Louisiana, this 29th day of April, 2021.
Php I,
MA □□□
CARL J.B niles
UNITED STATES DISTRICT JUDGE

15

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10186600. Public record. Not legal advice.