Background
Hawaii Island Air, Inc. suffered years of heavy losses while owned first by the Lawrence J. Ellison Revocable Trust through Ohana Airline Holdings, LLC, and later by Ohana together with entities associated with Jeffrey Au and Jack Tsui. After filing for Chapter 11 bankruptcy, Island Air abruptly ceased operations in November 2017, notifying employees only one day before the shutdown and leaving them without their final paychecks. The case was converted to Chapter 7, and Elizabeth Kane became the bankruptcy trustee.
Kane and two employee unions sued Island Air’s former owners, directors, and lenders under Hawaii’s Dislocated Workers Act and the federal WARN Act and asserted fiduciary-duty and equitable claims. Following a jury trial and extensive post-trial proceedings, the district court entered a mixed judgment. The parties filed five consolidated appeals challenging jurisdiction, liability, damages, evidentiary rulings, and equitable remedies.
The Court’s Holding
The Ninth Circuit held that it had jurisdiction under 28 U.S.C. § 1291. When a district court withdraws the reference from a bankruptcy court and fully adjudicates a related civil proceeding, its judgment is final and appealable even though core bankruptcy-administration matters remain pending. The court also held that the trustee had standing to pursue claims based on harm to Island Air and that the unions had standing because each represented at least one employee satisfying Article III’s requirements.
On the merits, the court reversed judgment as a matter of law for Ohana and Lawrence Investments on two fiduciary-duty counts because a reasonable jury could find that they owed duties to Island Air. It also revived one claim against Paul Marinelli in his capacity as an Island Air director, while affirming dismissal of the claim against him in his capacity as trustee of the Ellison Trust. On the state-law claims, the court held that Hawaii’s definition of “employer” can reach minority owners, commonly controlled owners acting collectively, and upstream entities that exercise enough control to provide statutory notice and meet the law’s financial obligations. It therefore reversed the employer ruling as to Ohana and the Ellison Trust while affirming it as to the Au defendants.
The court further held that the Dislocated Workers Act’s safe harbor for an employer seeking a buyer applies only when the employer enters a binding sale, transfer, or merger agreement resulting in a transfer from one employer to another; merely seeking a buyer was insufficient. It affirmed the removal of Au’s individual WARN Act liability and most challenged evidentiary, damages, and equitable rulings. But it vacated the nominal-damages award on one fiduciary-duty count because the jury instructions were improperly formulated. The court affirmed veil piercing on specified fiduciary-duty claims, equitable subordination of Carbonview’s loans, refusal to recharacterize debt as equity, the constructive-fraud defense, and contribution from David Uchiyama, while permitting the district court to revisit veil piercing for revived claims on remand.
Key Takeaways
- A withdrawn bankruptcy-related proceeding may produce an appealable final judgment under Section 1291 even while core matters remain before the bankruptcy court.
- Under Hawaii’s Dislocated Workers Act, employer status turns on practical control and may extend to minority, collectively controlling, or upstream owners.
- The Act’s buyer-seeking safe harbor requires a binding transaction that would transfer the business to another employer, not unsuccessful efforts to locate a buyer.
Why It Matters
The decision broadens the potential reach of Hawaii’s worker-protection statute beyond formal majority owners and clarifies that affiliated entities may face liability when their collective or indirect control enables them to provide notice and satisfy statutory obligations. It also revives significant fiduciary-duty theories against entities and a director associated with Island Air’s former ownership structure.
Judge Forrest dissented on appellate jurisdiction, concluding that no final judgment existed because unresolved administrative-expense and damages-allocation issues remained and arguing that the panel should instead have sought possible Rule 54(b) certification from the district court.