Etzelsberger v. Fisker Automotive Holdings, Inc.

IN THE UNITED STATED BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

Tn re: ) Chapter 11

)

FAH LIQUIDATING CORP. (f/k/a/ FISKER ) Case No, 13-13087-KG

AUTOMOTIVE HOLDINGS, INC.), ef al., )

Debtors. } (Jointly Administered)

)

SVEN ETZELSBERGER, on behalf of )

himself and all others similarly situated, )

Plaintiff, )

)

v. ) Ady. Pro, No. 13-52517-KG

) Re: DI. 89

FISKER AUTOMOTIVE HOLDINGS, INC. )

and FISKER AUTOMOTIVE, INC., )

Defendants,

OPINION

INTRODUCTION

The Court presided over a trial in this adversary proceeding on November 12 and 13, 2019.

Previously, on November 22, 2013, Fisker Automotive Holdings, Inc. and Fisker Automotive, Inc.

(collectively, “Fisker’’) filed petitions for relief under Chapter 11 of the Bankruptcy Code (the

“Code”). On November 26, 2013, Sven Etzelsberger (“Plamtiff’), in his personal capacity and in

the capacity of Class Representative to the WARN Class, filed this adversary proceeding against

Fisker. He brought the case pursuant to the Worker Adjustment and Retraining Notification Act,

29 U.S.C. § 2101, et seg. (the “WARN Act”) and the California Labor Code, § 1400 e¢ seq.' The

issue for the Court is whether Fisker experienced a “cessation of business” within the meaning of

§§ 507(a)(4) and (a)(5) of the Code prior to October 2, 2013. The Court presided over the trial,

read the case law, reviewed the evidence, and has reached its decision. The Court finds that

' The parties did not present evidence regarding the California Labor Code.

]

Fisker’s business ceased prior to October 2, 2013 when, on April 5, 2013, it terminated the very

employees who now bring this claim. Accordingly, the Court finds in favor of Plaintiff and the

WARN Class.

JURISDICTION

The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. 3§ 157

and 1334. Venue is proper in the District of Delaware pursuant to 28 U.S.C. §§ 1408 and 1409,

Claims for priority treatment under 11 U.S.C. §§ 507(a)(4) and (a)(5) are core proceedings

pursuant to 28 U.S.C, § 157(b)(2)(A).

FACTS?

In 2007, Fisker was formed with the goal of designing, assembling, and manufacturing

plug-in hybrid electric vehicles (“PHEVs”). (Plaintiff's Trial Exhibit “P.E.” No. 48 at A409.) In

pursuit of this venture, Fisker secured a loan from the United States Department of Energy

(“DOE”) for $530 million (the “DOE Loan”), from which Fisker drew approximately $192

million. (FPO at § 1.) The DOE Loan contained certain milestones, including that Fisker sell

11,000 units of its flagship automobile, the Katma sedan (the “Karma”), by February 2012. (P.E.

No. 48 at A410.) The Karma was the world’s first environmentally-friendly luxury PHEV. (FPO

at 7 1.)

Despite the Karma’s innovativeness in the PHEV market, Fisker failed to meet its February

2012 sales milestone. (EPO at { 4.) This failure resulted largely from Fisker’s delayed initiation of

Karma production until October 2011 due to certain engineering, tooling, testing, certification, and

2 The Court will refer to the Final Pretrial Order throughout the opinion as the “FPO.” All facts cited to the

FPO come from Section Il (statement of facts which are admitted and require no proof). The Court may rely on the

undisputed facts stipulated to by the parties found in the FPO. See, e.g. Kohut v. Ackerman & Ackerman P.C. (In re

Mclinerney), 530 BR. 671, 672-73 (Bankr. E.D. Mich. 2015); Gold v. Nova World Int’l, LLC (In re Harvey Goldman

& Co,), 489 B.R. 657, 658 n.1 (Bankr, E.D. Mich, 2013). The remaining findings of fact come from trial evidence,

component specification issues, (P.E. No. 48 at A410.) A safety recall immediately following the

Karma launch also impacted sales. (FPO at | 4.) Although Fisker deemed itself an original

equipment manufacturer (©OEM”), (P.E. No. 48 at A423), Valmet Automotive, Inc. (“Valmet”)

assembled the Karma in Finland from its launch in October 2011 and until Fisker stopped Karma

production for a scheduled seasonal shutdown in July 2012. (P.E. No. 48 at A410-11.)

Following the seasonal shutdown, Fisker intended to move Karma production to a facility

it purchased in Delaware. (P.E. No. 48 at A414.) But Karma production never restarted in

Delaware, Finland, or anywhere else. (FPO at { 6.) In October 2012, the sole company responsible

for supplying Fisker with Karma’s high-voltage battery pack filed for bankruptcy, leaving Fisker

without a battery pack supplier. (P.E. No. 48 at A410--11.) Also in October 2012, Hurricane Sandy

destroyed substantially all of Fisker’s United States Karma inventory, and insurance denied

coverage for the loss. (P.E. No. 48 at A425.) By the end of October 2012, Fisker officially ceased

Karma production. (FPO at □□□

In November 2012, Fisker’s Board of Directors (the “Board”) contemplated three plans to

move the company forward. (Transcript of the Evidentiary Hearing held on November 13, 2019

“Tr. Day 2,” 16:18-20.) The first plan included finding a strategic partner to contribute $150

million and resuming Karma production either in Delaware or overseas. (FPO at { 8.) The second

plan included reducing headcount by 50%, ceasing Karma. production, and developing Fisker’s

next automotive model, the Atlantic sedan (the “Atlantic”). (FPO at {| 8.) And the third plan

included Fisker licensing or marketing its powertrain technology to other OEMs to incorporate

into their cars. (Tr. Day 2, 37:25, 38:1-2.) The Board selected to pursue the first plan (FPO at §

8) and in December 2012 Fisker began searching for investors with the help of outside advisors.

(FPO at § 11.)

In December 2012, Fisker management determined the cost to restart Karma production

had increased to $200 million. (FPO at { 12.) Management also determined that Fisker’s path

forward required that the DOE waive a $30 million minimum cash requirement on the DOE Loan.

(FPO at { 12.) The Board learned that Fisker might need to file for bankruptcy as soon as January

2013. (FPO at § 14.)

In January 2013, realizing that it would only have $1.5 million through March 2013, Fisker

considered three paths: a strategic partnership, a sale, or a liquidation. (FPO at J 10.) On January

18, 2013, the Board hired Huron Consulting Services LLC (“Huron”) as adviser to the Board. (P.E.

No. 10 at 497.) Also in January 2013, the Board discussed the risk that lack of funding had on the

prospective relaunching of Karma production. (FPO at § 15.)

By mid-February, Fisker entered “hibernation mode.” (FPO at { 18.) With the cessation of

Karma manufacturing, hibernation mode entailed U.S.-based Fisker employees identifying open

quality control issues previously assigned to Valmet employees in Finland and transferring those

issues to F'isker employees in the United States using Fisker’s “JIRA” database.’ (FPO at 4 18.)

On March 7, 2013, the Board directed management to prepare “forward-looking estimates

and pro forma business plans” that contemplated the relaunch of Karma production and initiation

of the Atlantic program. (P.E. No. 12 at A105.) On March 8, 2013, the Board received one such

plan, which indicated that to accomplish the plan, Fisker needed up to $300 million in funding.

(FPO at § 20.) The plan also included moving Karma production from Finland to Delaware, which

would delay the relaunch of Karma production from May 2013 to January 2014, and included an

update on the Atlantic program, which indicated that production of the first automobile im the

Atlantic series would commence in August 2015. (P.E. No, 14 at A123, A125.)

3 JIRA was a software Fisker used internally to track all issues with its cars. (Transcript of the Evidentiary

Hearing held on November 12, 2019 “Tr. Day 1,” 139:1-2.)

On March 14, 2013, the Board discussed: (i) Fisker’s 30-50 key employees, (ii)

approaching the DOE for access to frozen funds so that it could find stalking horse bidders for a

bankruptcy sale or an alternative going concern transaction, (iii) proposals for going concern sales

and packaged asset sales in conjunction with the aforementioned, and (iv) the formation of

“NewCo” for the stalking horse process. (FPO at §{[ 10, 21-23.) It was conceptualized that NewCo

would hold the key assets necessary for a relaunch of PHEV manufacturing and would employ

Fisker’s key employees. (FPO at { 23.)

On March 15, 2013, Fisker representatives met with the DOE to request continuing access

to the remaining $10.3 million balance of the debt reserves account. (F'PO at § 24.) Representatives

ftom the DOE recommended that Fisker begin planning for a potential bankruptcy if the DOE did

not grant access to the funds. (FPO at § 24.) The DOE rejected Fisker’s request for access to the

funds three days later. (FPO at 4 25.)

On March 21 and March 26, 2013, the Board discussed the DOE’s request that Fisker

terminate the majority of its employees and file for bankruptcy. (PO at 27, 30, 33.) Also on

March 26, 2013, Huron made available its executive, Hugh Sawyer, to serve as Fisker’s Chief

Restructuring Officer. (P.E. No. 22 at A206.)

In. an email dated March 27, 2013, Mr. Sawyer shared with members of Fisker’s Board and

management a memorandum enumerating fifty-three Fisker employees needed for the stalking

horse process and for a smooth bankruptcy administration. (P.E. Nos, 24 at A216—17 and 25 at

A218-20); (FPO at { 34.) Nine employees would be retained for their “[c]ritical expertise needed

to support the mechanics of an orderly bankruptcy process, support the post-petition asset sale

diligence process[, or support] the potential liquidation of assets.” (P.E. No. 25 at A218.) Forty-

four employees would be retained for their “[c]ritical knowledge needed to maximize the economic

potential of a post-petition asset sale process and to respond to bidder diligence.” (P.E. No. 25 at

A219.) The forty-four employees also “represente[ed] [] key aspect[s] of the intellectual capital of

the Company” and were “required to derive value from the asscts to be sold” because of their

“intrinsic[] link[s] to the value of the asset[s].” (P.E. No. 25 at A219.) The remainder of Fisker’s

employees would face termination in a “headcount reduction.” (P.E. No. 26 at A222.) On April 4,

2013, the Board met and unanimously voted to approve Mr. Sawyer’s proposed headcount

reduction. (P.E. No. 29 at A247.)

On April 5, 2013, Fisker informed 156 employees of their terminations. (FPO at 40.) The

terminated employees (the “WARN Class”) also received “WARN Notice” letters. (P.E. No. 31 at

A265.) The relevant 180-day WARN Act period ran from the April 5, 2013 termination date until

October 2, 2013.

During the WARN Act period, Fisker’s management, the Board, and its advisors, shared

emails, presentations, and business plans. Two such presentation included: “KARMA relaunch,”

dated May 29, 2013 (Hybrid’s Trial Exhibit “H.E.” No. 12 at B164-83), and “Karma Program

Restart,” dated June 12, 2013 (H.E. No. 21 at B315—73.) By the end of September 2013, only

twenty individuals remained employed at Fisker, (FPO at {[ 56.) After April 5, 2013, Fisker no

longer had any employees involved in development, human resources, vehicle sales, service parts

sales, marketing, procurement, supply chain management, dealer relations, or customer support,

all of which, prior to the headcount reduction, had been departments at Fisker. (FPO at { 56.) Also

after April 5, 2013, only two employees of approximately sixteen remained employed in the

information technology (“IT”) department. (Tr. Day 1, 47:17-18, 48:6-10.) One of the two

remaining IT employees testified at trial that, after April 5, 2013, that his day-to-day work

transitioned from developing and expanding Fisker’s IT systems to mostly keeping the system

from crashing. (Tr. Day 1, 63:2-6.) He also testified that, after April 5, 2013, many IT’ systems

were not being used (Tr. Day 1, 64:14) and other departments stopped making “normal business

requests” of IT to modify applications or parts of the system. (Tr. Day 1, 71:25, 72:1-7.)

On October 11, 2013, the DOE held a live auction to sell its interest in the DOE Loan.

(FPO at | 57.) On November 22, 2013, the loan sale closed with Hybrid Tech Holdings (“Hybrid”),

the winning bidder. (FPO at { 58.) Fisker filed for bankruptcy on November 22, 2013. (PO at □

58.) Four days later, Plaintiff filed this adversary proceeding.

Although Hybrid is not Fisker’s successor in interest,’ Hybrid retains the right to serve as

the defendant in this adversary proceeding. Order Confirming Debtors’ Second Amended Joint

Plan of Liquidation Pursuant to Chapter 11 of the Bankruptcy Code (with Technical

Modifications) (D.I. 1137 at 25); Debtors’ Second Amended Joint Plan of Liquidation Pursuant to

Chapter 11 of the Bankruptcy Code (With Technical Modifications) (D.1. 1059 at 28) (“Hybrid . .

shall have the right to defend the WARN Adversary Proceeding and the WARN Adversary

Claims on behalf of the Estates.”)

DISCUSSION

The question before the Court is whether Fisker experienced a “cessation of business”

within the meaning of §§ 507(a)(4) and (a)(5) of the Code prior to October 2, 2013. Plaintiff argues

that Fisker ceased business sometime after the April 5, 2013 headcount reduction but before

October 2, 2013 when the WARN Act period ran. Hybrid contends that Fisker either never ceased

business or, if it did, that the cessation occurred no sooner than October 2012 when Fisker ceased

Karma production but no later than February 2013 when it entered “hibernation mode.” Based on

4 Wanxiang America Corporation (“Wanxiang”) purchased Fisker in 2014. (Tr. Day 1, 109:14—17,) After

purchasing Fisker, Wanxiang (i) hired certain former Fisker employees who had been terminated in 2013 (Tr. Day 1,

112:23-25, 113:18), and (ii) has built and sold a car called the Karma Revero. (Tr. Day 1, 112:14-22.)

the evidence presented, the Court finds that Fisker’s business ceased on April 5, 2013 when it

terminated the very employees who now bring this claim.

A, Legal Standard

Section 507(a) affords certain parties an allowed unsecured priority claim. Section

507(a)(4) states in relevant part:

(a) The following expenses and claims have priority in the

following order:

(4) Fourth, allowed unsecured claims, but to the extent of

$12,475 for each individual ... earned within 180 days

before the date of the filing of the petition or the date of the

cessation of the debtor’s business, whichever occurs first,

or wages, salaries, or commissions, including vacation,

severanice, and sick leave pay earned by an individual]|.|

11 U.S.C. § 507(a)(4). (Emphasis added.) Section 507(a)(5) echoes the same for an employee

benefit plan subject to certain unrelated exceptions. 11 U.S.C. § 507(a)G).

Congress added the “cessation of business” language to “protect employees whose

employers stopped paying them, or pays them at a reduced rate, and goes out of business, but then

waits longer than [180] days to file a bankruptcy petition.” In re Bodin Apparel, Inc., 46 B.R. 555,

559 (Bankr. 8.D.N.Y. 1985) (‘Bodin P’), aff'd, 56 B.R. 728 SDNY. 1985) (“Bodin IT’) (citation

omitted). For this reason, the term “cessation of business” must be “construed broadly” rather than

with “exacting literainess.” Bodin H, 56 B.R. at 731. Moreover, courts are “not bound by legal

formalism” and “may always pierce a paper existence.” Davidson Transfer v. Teamsters Pension

Trust Fund, 817 F.2d 1121, 1123-24 (4th Cir, 1987).

Although there is surprisingly little case law available on this issue, the Court finds helpful

the balancing test set forth in In re Adcock Excavating, Inc., 42 B.R. 84 (Bankr. N.D. Til. 1984).

Pursuant to that test, the Court looks first to “whether at some point prior to filing for bankruptcy

the debtor had discharged substantially all its enrployees,” and second to “whether the debtor had

ceased performing its usual work and whether the debtor had liquidated or continued in business.”

Bodin IT, 56 B.R. at 732 (citing In re Adcock Excavating, Inc., 42. B.R. at 85-86).

B. Analysis

1, Fisker Discharged Substantially All Its Employees

The first issue is whether Fisker, at some point prior to filing for bankruptcy, discharged

“substantially all” its employees. /d. (citing In re Adcock Excavating, Inc., 42 B.R. at 85-86).

Although this issue is not in dispute, and Hybrid acknowledges that it weighs in Plaintiff's favor

(Tr. Day 1, 15:22-25), the Court reviews the applicable case law.

In Adcock, 42 B.R. at 85, the debtors were involved in the businesses of paving and

excavating. Within the two months preceding its bankruptcy petitions, the debtors terminated

approximately all but one engineer. /d. The remaining engineer continued to perform paving and

excavating jobs up until the debtors filed their bankruptcy petitions. Jd. at 85-86, In reviewing the

facts, the court in Adcock oddly (in the Court’s view) found that the debtors did not “discharge

substantially all its employees prior to filing so as to conclude that it ceased doing business prior

to the filing of the Chapter 11 petition.” Jd. at 87. The apparent reason for the court’s finding was

that the single remaining employee continued to perform the debtors’ paving and excavating work.

The court in Davidson Transfer, 817 F.2d at 1122, likewise found that the debtor did not

cease doing business despite the termination of a large portion of its employees. There, the debtor

consisted of four operating divisions, employed over 800 workers and engaged in the

transportation and moving business. Jd. Due to financial hardships associated with the debtor’s

general freight division, the debtor decided to eliminate the division and terminate its

approximately 600 employees. Jd. Although the debtor terminated approximately 75% of its

workforce, the court determined that the debtor did not experience a “cessation of business”

because the other three operating divisions continued in business as they did prior to the closing

of the subdivision. Jd. at 1123-24,

Conversely, in Jn re Stunzi, U.S.A, Inc., 7 B.R. 401, 403 (Bankr. W.D. Va. 1980), the court

determined that the debtor did in fact cease business prior to filing its petitions. There, a

representative for the debtor provided a union representative notice of the debtor’s decision to

cease and terminate manufacturing operations at the debtor’s plant. Jd. With that notice, all the

debtor’s employees were terminated “except a special few who performed temporary duties for

the closing of the plant and protection of assets,” /d.

Here, Fisker terminated 156 employees on April 5, 2013, leaving only fifty-three

individuals employed. (FPO at ¢ 40.) By the end of September 2013, Fisker had only twenty

employees. (FPO at § 56.) When Fisker filed its petitions for bankruptcy on November 22, 2013,

approximately 90% of its employees had been terminated. At first glance, layoffs in this quantity

appear to be a company’s termination of substantially all its employees. But implicit in the Adcock

test is the requirement that something more than a decrease in headcount is needed to establish the

discharge of “substantially all” of the debtor’s employees within the context of the term “cessation

of business.” In other words, “substantially all” is not merely a mathematical exercise. Rather, the

Court looks to the qualitative aspects of the work the remaining employees performed. The court

in Stunzi lends the Court guidance as to what the something more may be: it is the retention of a

“special few” employees to perform duties germane to the preparation of a bankruptcy filing, when

the company contemplates filing for bankruptcy over the horizon, instead of conducting its usual

and principal business. See Jn re Stunzi, ULS.A., Inc., 7 B.R. at A403.

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In this instance, Mr. Sawyer, then the CRO, expressed that the fifty-three employees

retained by Fisker after the April 5, 2013 headcount reduction included specifically the few key

employees necessary to the stalking horse process and for a smooth bankruptcy administration.

No, 25 at A218) (“Each retained employee was carefully selected in a review conducted by

management and advisors and the employees were linked to specific assets that are currently being

marketed through the sale process or the employees are necessary to support the orderly

administration of a bankruptcy process.”); see also FPO at 39. Fisker’s termination of the other

approximately 75% of its workforce on April 5, 2013—and its additional pre-petition

terminations—together with its deliberate retention of only a “special few” employces it deemed

necessary to navigate the bankruptcy it contemplated filing over the horizon, satisfies the first

inquiry under Adcock.

2. Debtor Ceased Performing Its Usual Work and Did Not Continue in Business

The second issue is whether Fisker ceased performing its usual work and whether it had

liquidated or continued in business. Bodin If, 56 B.R. at 732 (citing In re Adcock Excavating, Inc.,

42 B.R. at 85-86.) The Court reviews the two inquiries together because in order fo determine

whether the debtor ceased its usual work or continued in business, the Court must first answer the

question present in the subtext of both inquiries: what was the debtor’s business?

Plaintiff argues that Fisker was in the car manufacturing business. Hybrid argues, however,

that Fisker’s business included anything done in pursuit of its goa/ of designing, assembling, and

manufacturing cars, including (i) searching for sources of badly needed funding and (ii) planning

for a restart of production if and when such funding could be secured. In support of its argument,

Lybrid relies on emails, presentations, and business plans shared between Fisker’s management,

the Board, and its advisors, created during the WARN Act period. Hybrid highlights certain

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exhibits, which were admitted into evidence, including the following presentations: “KARMA

relaunch,” dated May 29, 2013 (H.E. No. 12 at B164-83), and “Karma Program Restart,” dated

June 12, 2013 (H.E. No. 21 at B315~73.)

The “KARMA relaunch” and “Karma Program Restart” programs certainly expressed

Fisker’s goal. But the goal alone, without the capacity to “relaunch” or “restart” Karma production,

fails to negate the fact that Fisker’s business, the “designing, assembling, and manufacturing” of

PHEVs (P.E. No, 48 at A409), had ceased when Fisker no longer maintained the necessary

employees to achieve the goal.

The Court considers how other courts determined the nature of a debtor’s business. In

Bodin I, 46 B.R. at 557, the court determined that the debtor was a clothing manufacturer because

its “principal business activity was the design, manufacture and sale of sportswear.” In Boatwright

v. Rau □□□ □□ Rau), 113 B.R. 619, 621 (B.AP. 9th Cir. 1990), the court determined that the debtor

was both a mining business and a restaurant business because “the debtors’ mining operation was

entirely separate from their restaurant, except for the fact of their common ownership.” Finally, in

In re Elsinore Corp., 228 B.R. 731, 733-34 (B.A.P, 9th Cir. 1999), the court held that a holding

company with control over multiple subsidiaries that were in the business of operating hotels and

casinos was not itself in the business of operating any one specific hotel or casino.

The facts before the Court differ from those in Elsinore. There, the holding company in

issue “had many subsidiaries and affiliates.” fd. at 732. Here, however, Fisker’s corporate structure

provides that Fisker Automotive Holdings, Inc.’s only subsidiary is Fisker Automotive, Inc.

Disclosure Statement for the Debtors’ Second Amended Joint Plan of Liquidation Pursuant to

Chapter 11 of the Bankruptcy Code (D.1. 984-2 at 2.) The facts before the Court are also dissimilar

to those in Rav. Unlike the debtors in Rau, Fisker engaged in only one line of business, that being

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the manufacturing of PHEVs. Instead, the facts here are most similar to those in Bedin Iand Bodin

II. There, as here, the debtor engaged in the designing, manufacturing, and selling of its products.

Applying those findings, the court in Bodin J found the debtor to be a clothing manufacturer. See

Bodin I, 46 B.R. at 557 (“Although Bodin’s principal business activity was the design, manufacture

and sale of sportswear, it asserts that the activities it was engaged in . . . constituted doing

business.”) In this instance, the Court finds that Fisker was a car manufacturer.

Having established what Fisker’s business was, the Court turns to (i) whether Fisker ceased

its usual work and (ii) whether it had liquidated or continued in business. Bodin IT, 56 B.R. at 732

(citing In re Adcock Excavating, Inc., 42 B.R. at 85—86).

i. Fisker Ceased its Usual Work

A debtor’s usual work is necessarily defined by its business. When the debtor has more

than one business, “all of the debtor’s various business operations” are considered “in aggregate.”

Inre Rau, 113 BR. at 622. But when the debtor does not operate more than one business operation,

the Court looks to the debtor’s principal business. See Bodin I, 46 B.R. at 560 (citing Jn re Stunzi,

US.A., Inc., 7 B.R. at 403) (“The Stunzi court found the date of cessation to be the date when

cessation logically occurred, i.e. the date when all employees necessary to the debtor’s principal

business activity were terminated.”) (Emphasis added.) The Court has found that Fisker was a car

manufacturer, Therefore, Fisker’s “usual work” consisted of the design, manufacturing, and sale

of cars, and not the “planning” for a restart of Karma or Atlantic, or morphing into a powertrain

company, as Hybrid argues. (Tr. Day 1, 24:17-18.) The Court therefore must determine whether

Fisker ceased its usual (design, manufacturing, and sale) work.

In Bodin J, 46 B.R. at 561, the court held that the debtor ceased its usual work as a clothing

manufacturer when it last maintained its manufacturing facility. The court reasoned that shipping

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the debtor’s remaining goods and engaging in the sort of work that accompanies the winding-down

of a business is not “doing business” within the context of the debtor’s business. Jd. However, in

Davidson Transfer, 817 F.2d at 1123, the court found that the debtor did not cease its usual

transportation and moving work despite having eliminated one of its four subdivisions because the

remaining three operating divisions continued in business. And in Adcock, 42 B.R. at 87, the court

determined that the debtors did not cease business because they continued to perform their usual

paving and excavating work until the debtors filed for bankruptcy.

The difference as it readily appears to the Court is that the debtor in Bodin I and Bodin I,

when it no longer maintained its manufacturing facility, did not have the capacity to reengage in

and facilitate its usual work; whereas, the debtors in Davidson Transfer and Adcock did not

foreclose any such opportunity. Fisker, like the debtor in Bodin J and Bodin II, ceased its usual

work when it could no longer seamlessly reengage in manufacturing the PHEVs it designed. Fisker

did not cease its usual work in October 2012 when it officially discontinued Karma production.

This only resulted in Fisker entering what it called “hibernation mode.” (FPO at { 18.) Even in

hibernation mode, however, Fisker continued the employment of a critical portion of its workforce.

Fisker maintained the capacity to awaken from hibernation through a restart of Karma production

or a meaningful initiation of the Atlantic program. But Fisker shifted from hibernation to near

death when, on April 5, 2013, it executed the headcount reduction to terminate all its employees

except for the “special few” retained to navigate the stalking horse process and bankruptcy

administration. After April 5, 2013, Fisker no longer had any employees involved in development,

human resources, vehicle sales, service parts sales, marketing, procurement, supply chain

management, dealer relations, or customer support. (FPO at { 56.) And it is not disputed that after

April 5, 2013, Fisker lacked the sufficient workforce to actually roll cars off the assembly line.

1A

(Tr, Day 1, 24:20-22.) As such, Fisker ceased its usual work on April 5, 2013 when it changed

gears from manufacturing cars to navigating bankruptcy.

ii. Fisker Neither Liquidated nor Continued in Business

All that remains for the Court to decide is whether Fisker liquidated or continued in

business. Bodin IT, 56 B.R. at 732 (citing In re Adcock Excavating, Inc., 42 B.R. at 85-86).

Although Fisker was not liquidated as of October 2, 2013 when the WARN Act period ran, the

Court must still determine whether Fisker continued in business. The continuation of debtor’s

business is the “antithesis of cessation of the debtor’s business.” Bodin [, 46 B.R. at 560. When

considering whether a debtor continued in business under Adcock, the reviewing court must look

to whether the debtor continued in business a /a its usual work, not merely to whether the debtor’s

business continued in perpetual corporate existence. See In re Adcock Excavating, Inc., 42 B.R. at

87 (“[I]t appears that the debtor performed its usual work until the time of filing the petitions.

Finally, the debtor continues to perform that work to the present time. Therefore, the claims . . .

should not be granted priority status.”) (Emphasis added.) In Adcock, the court held that the debtor

continued in business specifically because it continued to perform its usual paving and excavating

work. Id. Because Fisker ceased performing its usual work after April 5, 2013, it also did not

continue in business within the meaning of §§ 507(a)(4) and (a)(5) after April 5, 2013. Simply put,

when Fisker ceased its usual work, it no longer continued in its normal business. As such, the

second inquiry under Adcock is satisfied.

CONCLUSION

The Court holds that Fisker experienced a “cessation of business” within the meaning of

§§ 507(a)(4) and (a)(5) of the Code before October 2, 2013 when, on April 5, 2013, it terminated

Plaintiff and the WARN Class. For the foregoing reasons, Plaintiff and the WARN Class are

entitled to priority treatment on their federal WARN Act claims.

Dated: December 27 , 2019 KEVIN GROSS

Wilmington, Delaware UNITED STATES BANKRUPTCY JUDGE

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