In Stanziale v. MILK072011 (In re Golden Guernsey Dairy LLC), Adv. Pro. No. 14-50953 (KG) (Bankr. D. Del. Sept. 21, 2015), U.S. Bankruptcy Judge Kevin Gross of the District of Delaware held that a Chapter 7 trustee stated a cause of action for breach of fiduciary duty against the parent company and manager of a debtor for causing the debtor to violate a state Worker Adjustment and Retraining Notification (WARN) Act statute and thereby incur liability. Gross rejected the defendants’ arguments that the trustee lacked standing since the debtor suffered no harm because it was already insolvent prior to the WARN Act violations and that the trustee was actually suing on behalf of the general unsecured creditors of the debtor who themselves lacked standing to maintain derivative claims against the debtor.

The facts alleged were simple and not uncommon. Before bankruptcy, the debtor, a Delaware limited liability company, operated a dairy and milk processing facility in Wisconsin. The debtor ceased operating and filed for bankruptcy protection under Chapter 7 of the Bankruptcy Code. Subsequently, the Wisconsin Department of Workforce Development filed a claim on behalf of some of the debtor’s former employees claiming damages for the debtor’s alleged violation of the Wisconsin Business Closing and Mass Layoff Law (the Wisconsin WARN Act) by failing to give 60 days’ advance written notice to the debtor’s employees that they were being laid off as a result of the closing of the debtor’s business. The department asserted a priority claim for more than $1.5 million.

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