Governance structures utilized by private equity funds continue to be examined by the courts when the investment fails and the acquired company files for bankruptcy. We previously reported how a court analyzed PE fund structures in the context of federal statutory pension withdrawal liability. Today we turn to Guippone v. BH S&B Holdings LLC, No. 12-183-cv (Dec. 10, 2013), where the U.S. Court of Appeals for the Second Circuit held that the parent holding company established by investment funds can be held liable under the Worker Adjustment and Retraining Notification Act (WARN Act) if it directs the employment practice that forms the basis for liability of its subsidiary.

Steve & Barry’s Owner and Its Owner’s Owner

According to the opinion, the plaintiffs, Michael Guippone, individually and on behalf of all other similarly situated employees, were employed by Steve & Barry’s, a chain of retail apparel stores (S&B). The stores and inventory were purchased in bankruptcy in August 2008 by two investment firms, Bay Harbour Management LC and York Capital Management LP, and certain of their respective affiliates. According to the opinion, Bay Harbour and York created a series of interrelated entities to purchase and manage S&B, including BH S&B Holdings LLC, the owner of the Steve & Barry’s stores and other purchased assets, and BHY S&B HoldCo LLC, Holdings’ sole managing member. The opinion states the asset purchase was accomplished using $70 million from Bay Harbour and York, plus an additional $125 million loan from Ableco Finance LLC.

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