Just in time for the holidays, a present of sorts appears to be on its way for the more than 200 former Colortree Group employees who lost their jobs when the local printing company abruptly closed its doors in June.
An arrangement is being worked out in the now-defunct company’s forced bankruptcy proceedings that would allow its court-appointed trustee to pull from $500,000 in available cash collateral to pay to former employees who are a party to a separate class-action lawsuit brought against Colortree.
A settlement agreement was reached with Sterling National Bank, Colortree’s secured lender in the case, for the bankruptcy trustee – Kutak Rock attorney Peter Barrett – to use a $500,000 deposit that previously was paid to the bank to award payments to those 240 employees, who are considered creditors in the case.
The funds, which the bank received as a deposit for a court-authorized auction of Colortree property that was held in September, also would go toward payment of attorney fees and other expenses related to the case – meaning the full $500,000 would not go to the employees.
But a good amount of it will, said Jack Raisner, an attorney with Outten & Golden in New York who is representing the employees in the class-action suit.
“By far more than half of it is going to be, certainly, under any circumstance,” said Raisner, who noted that specific numbers, as well as individual awards, would be determined in a settlement order at a hearing scheduled Dec. 5. Individual claims likely would vary based on positions held and other factors.
“Overall, this is a very good settlement,” Raisner said, “because the financial condition of the company vis-à-vis its creditors, particularly its secured lender, made it very hard to count on there being money at all for the employees in this case. The ability to have a $500,000 amount be distributed towards them is a very good outcome.”
‘Employees got the shaft’
Barrett, who is based in Kutak Rock’s Richmond office, described the scenario as unusual but structured intentionally to provide the former employees with some money in light of how they lost their jobs. The class-action suit argues that the closure violated the federal WARN Act and Virginia Wage Payment Act by not providing employees with 60 days’ written notice of their terminations.
“The employees really got the shaft in that case,” Barrett said. “It’s always bad to get laid off, but it’s really bad when the doors are locked when you show up.”
“The focus is on getting dollars back to the employees, and get them back as soon as possible,” Barrett said, adding that if the settlement order is approved Dec. 5, employees could receive those awards by the end of the year – likely before Christmas.
Barrett said the timing around the holidays played a part in the arrangement, which he described as unusual in that his office is alleging claims against the lender to award the money quickly.
“That’s something that certainly went into our thinking, that if we could get dollars to them prior to the holidays, it would be nice,” Barrett said. “We weren’t going to compromise our position and accept less money just for the timing, but it’s something that certainly came into our minds.”
Justin Paget with Hunton Andrews Kurth’s Richmond office is representing Sterling in the bankruptcy case.
Williams Mullen attorney Laura Windsor is representing Colortree in the case. Employees in the class action are represented locally by Spotts Fain attorneys Jennifer West and Edward Bagnell Jr., who are working the case with Outten & Golden’s Raisner and Rene Roupinian.
When Colortree shut its doors on June 3, some employees said they were given 15 minutes to clear out before the building was locked following a conference call in which it was conveyed to employees listening in that the company was shutting down. The 31-year-old company had operated out of a 142,000-square-foot industrial building at 8000 Villa Park Drive in Henrico County.
Several employees told BizSense at the time that they did not receive direct deposits and were owed for days worked before and up to the closure. Some employees in a Facebook group for former Colortree workers had later reported receiving payments.
The events prompted job offers to pour in from other companies, and workers were invited to area job fairs and fundraisers. Several found jobs with local companies, such as locally based TemperPack, which said this week it employed nearly a dozen former Colortree workers. The Virginia Employment Commission, which helped coordinate a job fair in June, said several employers who participated reported making multiple hires.
In September, three companies that did business with Colortree filed an involuntary petition to force the company into bankruptcy in an effort to retrieve over $8 million. The same month, an auction of Colortree’s presses, equipment and other assets was held at the company’s building, with proceeds to benefit Sterling National Bank.
The $500,000 was paid to the bank as a deposit as part of an agreement to allow the auction to continue in light of the involuntary bankruptcy petition. The Chapter 7 liquidation that followed put a stay on the class-action suit when Barrett was appointed bankruptcy trustee in late September.
While he acknowledged the payment scenario involved his office going out of its way to structure it accordingly, Barrett said it falls into his purview as the bankruptcy’s trustee to secure funds for the benefit of Colortree’s creditors – in this case, its 240 former employees.
“We had a unique situation where we had leverage with the secured lender that allowed us to bring in a significant amount of cash into the estate quickly, and provide that to the employees quickly,” Barrett said. “And then, hopefully, have a return for other creditors in the future.
“My job as trustee is to make the best recovery for the creditors that I can, and here, the priority creditors are the employees.”