July 01, 2026|Franchise Frontlines
July 1, 2026 | United States Bankruptcy Court for the District of Delaware | Slip Copy — Not Yet Reported (2026 WL 1907385)
Executive Summary
In a decision available only by its Westlaw citation, Judge Thomas M. Horan of the United States Bankruptcy Court for the District of Delaware granted in part and denied in part a Rule 12(b)(6) motion to dismiss filed by Hilco Merchant Resources, LLC (“Hilco”), the firm retained to run the going-out-of-business sales for the Christmas Tree Shops (“CTS”) retail chain after CTS entered chapter 11 and later converted to chapter 7. Plaintiffs Christopher Corbin and Rich Seronick, former CTS employees suing individually and on behalf of putative Massachusetts and nationwide subclasses, alleged that Hilco was their joint employer and, in that capacity, failed to timely pay final wages, accrued vacation pay, and promised retention bonuses under the Massachusetts Wage Act, and misrepresented that it would fund those bonuses. Hilco argued that the court’s Store Closing Order and the underlying Store Closing Agreement declared it acted “solely as an independent consultant” and “shall not be deemed to be an employer,” and that those instruments barred every claim. The court held that, on this record and accepting the complaint’s well-pleaded allegations as true, neither the order nor the agreement foreclosed the claims: it allowed the Wage Act claim for final wages and vacation pay and the intentional-misrepresentation and unjust-enrichment claims (as to the store-level subclass represented by Mr. Seronick) to proceed, while dismissing the Wage Act claim as to retention bonuses with prejudice, dismissing the negligent-misrepresentation count with prejudice, and dismissing Mr. Corbin’s claims under the store-level counts.
Relevant Background
Christmas Tree Shops, a New England retail chain, filed chapter 11 petitions in the District of Delaware on May 5, 2023, and within months moved to convert to chapter 7. Before the filing, CTS and ReStore Capital, LLC had entered a consignment agreement requiring CTS to engage Hilco to conduct any liquidation sales; Ian Fredericks served as president of both Hilco and ReStore. After the petition, CTS engaged Hilco under a Store Closing Agreement to serve as a “consultant” for the going-out-of-business sales, and on May 31, 2023 the court entered a Store Closing Order under certification of counsel and without a hearing.
According to the complaint, whose well-pleaded allegations the court accepted as true for purposes of the motion, Hilco did more than advise. The plaintiffs alleged that Hilco requested an employee roster and, jointly with CTS, determined which employees would be retained or terminated, installed supervisors to oversee and manage the stores, provided direction to corporate and store-level employees, and, on August 12, 2023, instructed CTS to terminate all remaining employees effective immediately. Mr. Fredericks allegedly represented that Hilco and ReStore would fund retention bonuses — ranging from one week’s wages for associates to four weeks’ wages for store managers — for employees who stayed through their store’s final day, a promise CTS relayed to its workers. The workers stayed, Hilco retained 92.5 percent of the gross proceeds of certain goods sold, and the bonuses were not funded.
The plaintiffs sued Hilco, asserting four counts: violation of the Massachusetts Wage Act (Count 1, on a joint-employer theory), intentional misrepresentation (Count 2), negligent misrepresentation (Count 3), and unjust enrichment (Count 4). Mr. Corbin had been a Vice President in CTS’s corporate office; Mr. Seronick was a store-level associate. Counts 2 through 4 were brought on behalf of store-level employees and the nationwide subclass. Hilco moved to dismiss the entire complaint under Rule 12(b)(6), relying principally on the consultant and employer-disclaimer language in the Store Closing Agreement and paragraph 48 of the Store Closing Order.
Decision
Applying the Rule 12(b)(6) standard — accepting well-pleaded allegations as true and asking whether the complaint states a plausible claim — the court first addressed Hilco’s central contention that paragraph 48’s declaration that Hilco “shall not be deemed to be an employer … for any purpose whatsoever” barred all claims. The court found the analysis “more nuanced than Hilco suggests” and rejected the disclaimer defense on three independent grounds. First, paragraph 48 extended its protection only if Hilco “act[ed] solely as an independent consultant,” and the court held that the allegations — that Hilco helped decide who was retained or fired, installed supervisors, directed the timing of closings, and ordered the final terminations — plausibly alleged conduct “outside the scope” of that limitation. Second, the court read paragraph 32 of the order as preserving “laws of general applicability, including … labor [and] employment … laws,” and held that section C(i) of the agreement could not circumvent the Wage Act, which forbids an employer from exempting itself “by a special contract … or by any other means.” Third, the court held that the law-of-the-case doctrine did not make paragraph 48 dispositive, because the order was entered under certification of counsel without a hearing, the enforceability of the employer-disclaimer provision was never actually litigated, and “[n]o CTS employee was a party to the Store Closing Motion.”
On the merits of the Wage Act count, the court analyzed joint-employer status under Jinks v. Credico, which asks whether an entity “retained for itself sufficient control over the terms and conditions of employment” through a four-factor totality inquiry: the power to hire and fire, supervision and control of work schedules or conditions, determination of the rate and method of payment, and maintenance of employment records. The court held the complaint adequately alleged facts supporting an inference that Hilco was a joint employer — pointing to the allegations that Hilco determined which employees would be retained or terminated and directed the August 12 terminations, installed supervisors and directed store-level staff, managed employee-relations matters, and, through Mr. Fredericks, directed validation of retention-bonus eligibility. The court rejected Hilco’s argument that Jinks did not apply because the plaintiffs were CTS’s own employees rather than workers Hilco hired, reasoning that the doctrine turns on control over “terms and conditions of employment” “regardless of the structural direction of the hiring relationship.” Accordingly, the Wage Act claim survived as to unpaid final wages and accrued vacation pay, which the court noted are “wages” under section 148.
The court dismissed several theories. It dismissed the Wage Act claim insofar as it sought retention bonuses, holding under the Supreme Judicial Court’s decision in Nunez v. Syncsort Inc. that bonuses conditioned on continued employment are “additional, contingent compensation outside the ambit of the Wage Act” because they are “not made solely in exchange for the plaintiff’s labor or services,” and that a plaintiff cannot use the “special contract” label to pull such bonuses back within the statute. It dismissed the negligent-misrepresentation count with prejudice, reasoning that the only representation attributed to Hilco — that it “intended to pay retention bonuses” — was “unambiguously a promise” of future conduct, and that negligent misrepresentation under Massachusetts law “reaches only a false statement of existing fact,” so amendment would be futile. It allowed the intentional-misrepresentation claim to proceed, finding the Rule 9(b) particularity requirement satisfied by the alleged oral representation and the July 26 text messages and the scienter element supported by allegations that Hilco never intended to fund the bonuses. Finally, it declined to dismiss the unjust-enrichment claim, holding that dismissal was premature because the availability of an adequate legal remedy turned on the still-unresolved employer-status question, that the plaintiffs were not parties to the Store Closing Agreement so no express-contract bar applied, and that the complaint identified a measurable benefit in the sale proceeds Hilco retained. Because Mr. Corbin was a corporate-office employee rather than a member of the store-level subclasses, the court dismissed his claims under Counts 2 and 4 while allowing Mr. Seronick and the store-level subclasses to proceed.
Looking Forward
This decision arises under Massachusetts wage law within a Delaware chapter 7 liquidation and involves a corporate retail chain and its liquidation manager rather than a franchisor or franchisee. Its reasoning is therefore persuasive rather than controlling for branded systems, but it may inform how courts approach a recurring defense-side concern: whether a third party retained to operate or wind down a multi-unit branded business can be swept into joint-employer wage liability despite paperwork disclaiming that status. The court’s willingness to look past the “independent consultant” label to the operator’s alleged day-to-day control — hiring and firing decisions, installation of supervisors, direction of store-level staff, and control over pay eligibility — tracks the same control-focused inquiry that franchisors face in joint-employer disputes, and it is a reminder that a status recital may do little work if actual conduct diverges from it.
The most cautionary point for franchisors, employers, and branded systems concerns the limits of disclaimers and even favorable court-order language. Here the defendant held both a contractual carve-out and an employer-disclaimer provision embedded in a bankruptcy court’s Store Closing Order, yet on this record neither foreclosed the claims. The court relied on a general-applicability savings clause preserving labor and employment laws, on the Wage Act’s prohibition against exempting oneself “by … any other means,” and on the fact that the affected employees were not parties to the order and its enforceability had never been litigated. Parties that build employer-disclaimer language into store-closing orders, engagement agreements, or similar instruments should not assume that such recitals will bar downstream statutory wage claims by non-party workers, particularly where a savings clause preserves general employment laws. The durable lesson is that operational discipline — keeping hiring, firing, scheduling, supervision, and pay decisions with the actual employer and defining an outside firm’s role in genuinely advisory terms — protects better than status labels alone.
Defense-side readers should also note the decision’s real limits and its useful franchisor-favorable strands. The court did not find that Hilco was a joint employer or that it owed any wages; it held only that the allegations were plausible enough to survive a motion to dismiss, and Hilco’s adequate-remedy and employer-status defenses remain open on a developed record. The court also handed the defense meaningful wins: it confirmed, under Nunez, that contingent retention bonuses fall outside the Wage Act and cannot be dragged back in through the “special contract” doctrine, and it dismissed the negligent-misrepresentation theory with prejudice as an unactionable promise of future conduct, narrowing the surviving claims and the recoverable damages. For franchisors negotiating turnaround, interim-management, or wind-down engagements, the practical takeaway is to pair careful role definition with clear indemnification and allocation-of-wage-responsibility terms, and to ensure the day-to-day reality matches the words on the page.
Thomas O’Connell is a Partner at Buchalter LLP and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case. It was drafted with the assistance of an artificial intelligence system. AI systems can make mistakes, including in describing legal authority. Readers should independently confirm any legal authority before relying on it.
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