Labor & Employment Law Daily Wrap Up, LABOR—LAYOFFS—9th Cir.: Shareholders of bankrupt airline were ‘employers’ under Hawaii’s Dislocated Workers Act, (Sep 30, 2026)

By Ronald Miller, J.D.

The appeals court left it to the district court to determine whether Ohana and the Ellison Trust’s employer status may be decided as a matter of law or must be submitted to a jury.

Following the bankruptcy filing of Hawaii Island Air, the Ninth Circuit affirmed a district court’s ruling that the owners of two-thirds of the airline’s stock—the Au Defendants—were an “employer” under Hawaii’s Dislocated Workers Act. However, the appeals court reversed the lower court’s rulings as to employer status of Ohana and the Ellison Trust’s. Ellison exercised substantial financial leverage over the airline through loans, and airline leases, and could effectively dictate key operational decisions. With respect to WARN Act claims, the appeals court concluded that the district court did not abuse its discretion by amending the judgment and granting relief to Au, since it was unclear whether Au was properly named as a defendant in the complaint. Judge Forrest filed a separate dissenting opinion (In re Hawaii Island Air, Inc., Nos. 24-3683, 24-6024, 24-6026, 24-6290 and 24-6345 (9th Cir. Sept. 29, 2026)).

Airline finances. Hawaii Island Air, Inc., operated in Hawaii’s interisland market for nearly 21 years. In February 2013, the Lawrence J. Ellison Revocable Trust acquired Island Air through Ohana Airline Holdings, LLC (Ohana), an entity created for that purpose. Ohana sat within a web of Ellison-affiliated entities.

Under Ellison’s ownership, Island Air experienced substantial losses. In early spring 2015, Island Air sold its entire fleet to Ellison’s aircraft-leasing affiliate, Island Leasing, LLC, and leased the planes back. In 2016, Ellison sold a two-thirds interest to entities controlled by local businessman Jeffrey Au. Ellison kept the final third and lent significant capital to the deal.

A change in leadership did not improve Island Air’s fortunes and the airline continued to hemorrhage. After the airline experienced several payroll crises, Ellison declined to provide additional funding. Over the following months, Island Air’s financial problems accelerated. On October 16, Island Air filed for Chapter 11 bankruptcy. The airline abruptly ceased operations on November 10, having only informed employees of the impending shutdown the day before via email, leaving them without their final paychecks.

Adversary proceedings. In 2019, a bankruptcy trustee and two employee unions initiated two adversary proceedings in bankruptcy court. The plaintiffs alleged that all of the defendants except Carbonview had violated Hawaii’s Dislocated Workers Act (DWA) by failing to give adequate notice of Island Air’s shutdown and failing to promptly pay wages and benefits. They also alleged that PaCap Aviation Finance (PAF), Malama Investments, and Ohana violated the WARN Act by failing to provide adequate notice.

The Au Group was alleged to have breached their fiduciary duties by allowing the company to violate the DWA and WARN Act. The Au Group was also alleged to have breached duties of loyalty by allowing assets to dissipate in furtherance of their own interests.

Jury trial. In September 2023, the case proceeded to a jury trial. In the middle of trial, the plaintiffs, the Ellison Defendants, and the Au Defendants all moved for judgment as a matter of law (JMOL) on the DWA claims, the WARN Act claim, and the fiduciary duty claims.

On the plaintiffs’ two DWA claims, the court held that no Ellison Defendant was liable because none was “an employer” under Haw. Rev. Stat. § 394B-2. The court conversely granted JMOL against the Au Defendants on the DWA claims but permitted the Au Defendants to assert an affirmative defense under Haw. Rev. Stat. § 394B-9(c).

WARN Act. The court found PAF and Malama liable to the unions for violating the WARN Act and awarded $2,970,761. The court found for the Ellison Defendants (other than Marinelli) on all of the fiduciary duty claims. The court granted JMOL in favor of Marinelli, finding that he did not owe fiduciary duties at the time of the relevant transaction, and finding no evidence showed Marinelli resigned in bad faith, since a director may resign at any time.

Finally, the court pierced the corporate veil between PAF and its owners and between Malama and its owner. It did not reach veil piercing for the fiduciary duty claims against the Ellison Defendants.

With respect to the plaintiffs’ DWA § 394B-11 claim regarding prompt payment, the jury awarded $2,981,668 in damages against the Au Defendants. On the DWA Section 394B-9 claim for failure to provide notice of closure, the jury found for the Au Defendants on the grounds that they were actively seeking a buyer.

DWA claims. In 1983, the Hawaii Legislature enacted the DWA to “protect employees from the effects of unexpected and sudden layoffs or terminations resulting from closings, plant closures, partial plant closures, and relocations.” The DWA gives employees the right to 60 days’ written notice from their employer prior to a closing, divestiture, partial closing, or relocation.

Island Air’s noncompliance with the DWA was not disputed. When the airline closed, its employees received one day’s notice and were not paid their final wages, benefits, or other compensation due and owing. The unions brought DWA claims on behalf of their member employees against the Au and Ellison Defendants for these violations.

Defendants’ liability hinged on two questions of statutory interpretation, both of first impression: the meaning of “employer” in Section 394B-2, and the scope of an affirmative defense in Section 394B-9(c).

“Employer” under DWA. Whether the Au and Ellison Defendants may be held liable turned, as a threshold matter, on the construction and application of the DWA’s definition of “employer.” The DWA defines an “employer” as “any individual or entity that, directly or indirectly, owns, operates, or has a controlling interest in a covered establishment, excluding the State or any political subdivision thereof.” It is undisputed that Island Air was a “covered establishment.” What matters was whether any of the Ellison or Au Defendants “directly or indirectly, own[ed], operate[d], or ha[d] a controlling interest” in Island Air at the time of the violations.

The plaintiffs read the statutory definition to sweep in partial owners. The Ellison Defendants, in turn, read the statutory definition to exclude entities with minority ownership interests.

The statutory definition sets out a trio of parallel predicate verbs—“owns,” “operates,” and “has a controlling interest”—connected by the disjunctive “or.” Each describes the requisite relationship of an employer vis-à-vis a covered establishment. Because the coordinate terms are disjunctive, any one suffices, and so the court found it did not need to interpret them all; “controlling interest” was decisive here.

The definition of “employer” reaches not only persons or entities that wholly own or have a majority stake in the covered establishment, but also those that, directly or indirectly, exercise sufficient control to be able to provide the required notice and satisfy the statute’s financial obligations—even if their ownership stake is less than 50 percent.

Application. With respect to the Au Defendants, the court observed that at the time of the violations, PAF owned 33.3 percent of Island Air’s equity and Malama owned another 33.3 percent. Those entities “collectively had the power to elect two of Island Air’s three directors,” and there was “no genuine dispute that they always acted in concert.” Together they controlled more than 50 percent of Island Air and Au effectively controlled both PAF and Malama. Thus, PAF, Malama, the Tsui Trust, and Au directly or indirectly held a controlling interest in Island Air and therefore were “employers” under the DWA.

As to Ohana and the Ellison Trust, there was ample evidence from which a jury could determine that they too had controlling interests and were thus employers. At the time of the violations, Ohana held a 33.3 percent stake in Island Air. Ohana’s one-third equity stake, board-designation right, and affiliated creditor and lending leverage gave it actual control over Island Air.

The appeals court left it to the district court to determine whether the question could be decided as a matter of law or should go to a jury. If the district court determines, or a jury finds, that Ohana and the Ellison Trust were “employers,” then the district court should find Ellison and Au Defendants are jointly and severally liable for the DWA violations.

Affirmative Defense. The appeals court next turned to the availability of an affirmative defense to the 60-day notice requirement. At issue was whether the Au and Ellison Defendants could avoid liability for failing to give employees 60 days’ notice before Island Air’s closing by invoking the safe harbor in Section 394B-9(c), which defers the notice obligation for an employer actively seeking a buyer.

Section 394B-9(c) is best read as available only when the employer enters a binding sale, transfer, or merger agreement that will “result[] in a divestiture” (i.e., a transfer from one employer to another). Accordingly, if the covered establishment only suffered a closing and not a divestiture, as here, Section 394B-9(c) offers no affirmative defense to the Section 394B-9(a) notice violation.

Liability under WARN Act. Like the DWA, the WARN Act requires employers to provide 60 days’ notice in advance of a plant closing or mass layoff. Because it was undisputed that Island Air had failed to provide notice to its employees before closing, the district court granted JMOL against PAF and Malama for violating the WARN Act. The court initially found Au liable for the same violation, but it later concluded that it had erred in doing so. The plaintiffs appealed from the district court’s decision amending the judgment to relieve Au of WARN Act liability.

The appeals court concluded that the district court did not abuse its discretion by amending the judgment and granting relief to Au on the WARN Act claim. Whether Au was properly named as a defendant in the complaint was unclear. The WARN Act claim listed only three defendants—PAF, Malama, and Ohana—but the allegations referred to the “Control Group,” which was defined earlier in the complaint to include Au. The district court also noted that pretrial correspondence suggested that both Au and the plaintiffs believed Au to be a defendant for WARN Act claim, at least prior to trial.

At any rate, the district court was well within its discretion to deem such claims forfeited by the time trial commenced. A chart of all active claims submitted jointly by the parties listed only PAF, Malama, and Ohana as defendants under the WARN Act claim.

Given its repeated requests for the parties to clarify the claims and defendants before it, the district court did not abuse its discretion in determining that the plaintiffs had forfeited any WARN Act claim against Au. Thus, the appeals court affirmed the district court’s ruling dismissing Au from the WARN Act claim.

Dissent. Finding no final judgment before the appeals court, Judge Forrest argued that the court lacked appellate jurisdiction under 28 U.S.C. § 1291. While the district court granted judgment in favor of the plaintiffs on the DWA claims and awarded recovery, it remains unresolved who will get the recovery, how much each plaintiff may receive, and how the recovery will be awarded. The appeals court’s jurisdiction in this case is governed by Section 1291 because the district court heard the subject adversary proceeding in the first instance. Thus, the question was whether the district court’s Amended Judgment is “final” under that statute.

The majority asserted finality was required only as to the adversary proceeding. Judge Forrest raised doubts. The dissent analyzed whether the district court’s judgment is final for purposes of Section 1291 considering both the entire bankruptcy case and the specific adversary proceeding at issue. Regardless of how the case was untangled, the dissent concluded that the appeals court lacked jurisdiction under Section 1291.

The cases are Nos. 24-3683, 24-6024, 24-6026, 24-6290 and 24-6345.

Judge: Bybee, J.

Attorneys: Nickolas A. Kacprowski (Dentons US LLP) and Thomas N. Ciantra, Air Line Pilots Association International, for Air Line Pilots Association and Hawaii Teamsters and Allied Workers, Local 996. Peter W. Ito (Ito Law Group), Aileen M. McGrath (Morrison & Foerster), Christian K. Adams (Adams Krek), Christopher J. Muzzi (Tsugawa Lau & Muzzi), Scott E. Kubota (Scott E. Kubota AAL LLLC) and Neal K. Aoki (Law Offices of Neal K. Aoki) for PaCap Aviation Finance, LLC, Malama Investments, Inc., and Carbonview Limited, LLC.

Companies: Air Line Pilots Association; Hawaii Teamsters and Allied Workers - Local 996; PaCap Aviation Finance, LLC; PacificCap Investment Management, LLC; Malama Investments, LLC; Snowbiz Ventures, LLC; PaCap Management Solutions, LLC; PaCap Advisors, LLC

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