October 23, 2012 / 9:13 PM / 8 years ago

Judge dismisses MF Global employee lawsuit

NEW YORK (Reuters) - A judge on Tuesday dismissed claims MF Global’s MFGLQ.PK trustees fired employees without proper notice but left the door open for former employees to file an amended complaint against the bankrupt brokerage’s parent company.

Lawyers for the trustees of failed futures brokerage MF Global Inc and its parent, MF Global Holdings, had argued that they were not subject to the Worker Adjustment and Retraining Notification (WARN) Act, which requires employers to give notice of mass layoffs, because liquidating companies are not considered employers.

U.S. Bankruptcy Judge Martin Glenn agreed with that line of reasoning for MF Global Inc, noting that trustee James Giddens was appointed under the Securities Investors Protection Act (SIPA) and was from the get-go charged with liquidating the company.

That makes Giddens a “liquidating fiduciary” not subject to the requirements of the WARN Act, Judge Glenn concluded, dismissing the complaint against MF Global Inc “with prejudice”.

MF Global’s holding company, which filed for bankruptcy protection under Chapter 11, may be a different case, Glenn said.

“The only purpose of the SIPA proceeding is liquidation; conversely, the chapter 11 cases were filed at least initially with the hope of reorganization, according to counsel for the debtors-in-possession,” Glenn wrote in his order.

Glenn granted Chapter 11 trustee Louis Freeh’s motion to dismiss, citing gaps in the complaint, but gave the former employees 30 days to amend their complaint against the parent company if they chose.

A handful of MF Global employees filed the lawsuit last year, saying more than 1,000 workers were fired without warning shortly after the firm’s October bankruptcy filing.

An amended complaint against the MF Global parent company must include allegations about whether the parent company was indeed attempting to reorganize, Glenn said.

MF Global collapsed nearly one year ago over fears about its exposure to risky European debt, leaving customers with a $1.6 billion shortfall in their accounts.

Reporting By Ann Saphir; editing by Andrew Hay

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