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Pink-slipped workers sue American Home, folding mortgage giants

BrokerNewswire - Lori Lesko
Published: September 24, 2007

Former employees of American Home Mortgage and other big-name lenders have filed separate class action lawsuits on behalf of thousands of employees terminated as a result of the shrinking mortgage market. The workers claim they were not given proper 60-day notice - which they allege is a violation of the Workers Adjustment and Retraining Notification - and want their pay. Who else was served papers and what former No. 1 lender could be next? Read on for our exclusive report.

American Home Mortgage, Homebanc Mortgage Corp. and First Magnus Financial Corp. are the targets of separate class action lawsuits on behalf of thousands of employees terminated as part of mass layoffs and who are alleging the layoffs were conducted without 60-day notice in violation of the Workers Adjustment and Retraining Notification (WARN Act).

If found culpable, the three firms could be liable for back wages and benefits, Broker Newswire has learned.

"The lawsuits were triggered by the shutdowns and mass layoffs, violating the WARN Act which requires companies to provide their employees with 60 days written notice in advance of a mass lay-off or plant closing," said attorney René S. Roupinian of Outten & Golden LLP, a New York-based law firm specializing in employment discrimination issues.

"In the absence of such notice, employers may be liable to each affected employee for 60 days wages and benefits," she said.

These kinds of lawsuits are not common, but are surfacing more frequently in light of the recent mass layoffs and shutdowns in the mortgage industry, Roupinian said.

Countrywide, one of the nation's largest mortgage lenders, could be next.

"We are also investigating a possible WARN Act case against Countrywide," Roupinian told Broker Newswire on Sept. 11. "I'm sure you've seen the layoffs reported in the news."

Countrywide expects to cut up to 12,000 workers - or about 20 percent of its workforce - in the next three months, she said.

American Home Mortgage

American Home announced Aug. 2 that it stopped accepting mortgage applications and was pink-slipping about 6,000 employees, effective Aug. 3, Broker Newswire reported earlier. On Aug. 6 the firm filed for bankruptcy.

American Home reportedly had 7,400 employees as of Dec. 31, 2006. The company reported it will keep about 750 employees to uphold its thrift and servicing business, but plans to slash its operating costs to preserve the value of its remaining assets.

American Home employees, terminated on Aug. 3, filed a lawsuit Aug. 28 in U.S. Bankruptcy Court for the District of Delaware.

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Each of the plaintiffs and other similarly situated employees of American Home Mortgage are entitled under the WARN Act to recover from the defendants their wages and ERISA benefits for 60 days, none of which has been paid, the lawsuit states.

Since the plaintiffs seek back-pay attributable to a period of time after the filing of the debtors' bankruptcy petitions, and which arose as the result of the debtors' violation of a federal law, the plaintiffs' claim against American Home is entitled to administrative priority status pursuant to the U.S. Bankruptcy Code §503(b)(1)(A).

Headquartered in Melville, N.Y., American Home filed voluntary petitions for relief under Chapter 11 on Aug. 6.

Until their terminations, the employee plaintiffs were employed by American Home at its facilities in Fort Wayne, Ind.; Irving, Texas; Melville, N.Y.; Irvine, Calif.; Columbia, Md. and Mount Prospect, Ill.

The employees' action alleges American Home failed to pay the plaintiffs their respective wages, salary, commissions, bonuses, accrued holiday pay and accrued vacation for 60 calendar days following their respective terminations, and failed to make the 401(k) contributions and provide them with health insurance coverage and other employee benefits under ERISA for 60 calendar days from and after the dates of their respective terminations.

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