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Bankrupt Firms Face Employee Lawsuits

Bankrupt Firms Face Employee LawsuitsWARN notices at issue

August 24, 2007


Two lawsuits seeking class action status have been filed against two bankrupt mortgage lenders. At issue is the notice employers are required to give states 60 days ahead of employee layoffs.

Three former employees of HomeBanc Mortgage are seeking 60 days worth of wages, salaries, commissions, bonuses and benefits for themselves and “approximately 1000 other similarly situated employees” in a complaint filed Tuesday in U.S. Bankruptcy Court.

HomeBanc failed to provide 60 days advance written notice to the employees as required by the Worker Adjustment and Retraining and Notification Act, or WARN Act, according to the complaint, which said the employees worked at various HomeBanc facilities in Florida, Georgia, North Carolina and Tennessee.

The three who filed the complaint in the District of Delaware — Hiwot Mekonnen, Kyiesha Shepard and Sharon Thompson — all worked in HomeBanc’s headquarters office in Atlanta.

HomeBanc filed for Chapter 11 bankruptcy in the Delaware court on Aug. 9.

According to that filing, HomeBanc, on June 30, had $5.1 billion in total assets and $4.9 billion in total debts. The filing also listed 72 creditors as holding the largest unsecured claims.

The complaint maintains that the plaintiffs and the class members are “entitled to first priority administrative expense status” because their situation arose as the result of HomeBanc’s “violation of federal laws.” It maintains they are entitled to 60 days, less any days prior to the Aug. 10 closing for which notification was received, of “wages, salary, commissions, bonuses, accrued holiday pay, accrued vacation pay, pension and 401(k) contributions and other ERISA benefits.”

Each former employee could, alternatively, be entitled to $10,950 of the WARN Act claims on a priority basis, with the remainder being treated as a general unsecured claim, the complaint notes.

A similar complaint, also charging violations of the WARN Act, was filed against American Home Mortgage Corp. on Aug. 8. That suit, filed by two former employees on Aug. 8, refers to “approximately 400” other similarly situated former employees

A pre-trial hearing has been scheduled for October 1 and, after that hearing, a class action certification will be requested, one of the attorneys for the plaintiffs told

American Home filed for bankruptcy on Aug. 6, listing the “estimated number of creditors” as “over 100,000.” Two of its 40 largest creditors — Credit Suisse First Boston Mortgage Capital and Morgan Stanley Mortgage Capital Holdings — have filed separate suits in bankruptcy court seeking the transfer to them of certain servicing files, servicing rights, and custodial and escrow account funds on the grounds of breaches of contracts and agreements.

HomeBanc, in a filing Tuesday, asked the bankruptcy court for approval of a sale of a pool of mortgages with unpaid principals totaling $238.1 million. HomeBanc said Countrywide’s offer was the best offer it received after putting the pool out for bids. Under terms of the sale Countrywide will pay 101.08 percent for loans with unpaid balances totaling $138.1 million and 101.67 percent for the remaining loans.

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