Bayou Steel workers sue shuttered plant’s hedge fund owner for back pay

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A group of former Bayou Steel employees is suing the former owners of the LaPlace plant, alleging they deliberately reneged on an employment contract without warning before shutting down the plant last year.

The 40-year-old steelworks, which specialized in recycling scrap steel, was forced into Chapter 11 bankruptcy in September by its beneficial owner, the Connecticut-based hedge fund Black Diamond Capital Management. The company laid off 376 workers at the LaPlace plant. Another 100 employees at three other operations around the country were also laid off.

Ronnie Millet, Troy Fleming, Jarrod Nabor, Davarian Ursin, and Charles Ziegeler were operators and supervisors at Bayou Steel with decades of combined service at the plant.

Their lawsuit alleges that Black Diamond and its owner, Stephen Deckoff, had negotiated a new employment contract with steelworkers in bad faith, knowing for some time before it signed the contract in late September that it planned to shut the plant just a few days later.

“Several weeks prior to the closing of the Louisiana facility, members of the senior Black Diamond management team, including Stephen Deckhoff, founder and managing principal of Black Diamond, visited the Louisiana facility and conducted closed-door meetings with Alton Davis,” the plant’s chief operating officer at that time, the lawsuit alleges.

“The purpose of the visit by Stephen Deckhoff and the Black Diamond management team was to finalize the plans for closing of the Louisiana facility, including terminating the plaintiffs and class members with no prior notice whatsoever,” which would be a violation of federal labor law, the suit further alleges.

The lawsuit also recounts testimony given by Alton Davis in bankruptcy court in Delaware at the end of last year, stating that Bayou Steel had been running down its inventory of scrap steel for months in anticipation of declaring bankruptcy.

Neither Deckhoff nor any other representative of Black Diamond responded to requests for comment about the allegations. 

Attorneys for the plaintiffs expect more former workers to join the class action suit, which is seeking 60 days of pay as well as benefits.

Brent Barriere, a lawyer at Fishman Haygood who is a spokesman for the six law firms that are representing the plaintiffs, said that the owners of Bayou Steel must have known when the plant’s management signed a new employment contract with the United Steelworkers at the end of the previous week that they planned to shut it down.

“It is inconceivable they didn’t know when they reached an agreement on the Friday that they were going to fire them all on the Monday,” Barriere asserts.

Black Diamond is a $9 billion hedge fund that specializes in buying the debt of companies that are in financial trouble in order to profit either from the resuscitation of the businesses or by selling off their assets at a profit. Firms like Black Diamond typically have both an equity interest in a company and are major lenders to it, as was the case with its involvement in Bayou Steel.

It first acquired Bayou Steel in 2003 for about $185 million, including about $30 million in debt, after the steelmaker had fallen on hard times. It sold it five years later to Arcelor Mittal for $475 million and then bought it back again at a steep discount in 2016 — the price was undisclosed, but Arcelor Mittal declared losses on Bayou Steel and some smaller U.S. assets totaling $262 million that year.

In the years before bankruptcy, Black Diamond cut costs, including reducing the workforce by about one-third.

When it was forced into Chapter 11 bankruptcy — an effort to restructure its debt and keep the company as a going concern — Bayou Steel owed up to $100 million to around 2,000 creditors, including local suppliers and service providers, and had less than $50,000 in liquid assets available.

First in line to claim whatever assets were available were secured creditors Bank of America Corp. and SunTrust Banks Inc., which were owed $39 million. Also, Black Diamond had a first lien on the real estate owned by Bayou Steel and second lien on proceeds of other assets above $39 million.

The main assets of the company were sold in January for $28 million to Liberty Steel Group, a unit of a conglomerate owned by British-Indian industrialist Sanjeev Gupta, leaving little for most of Bayou Steel’s creditors.

David Delaneuville, the United Steelworkers representative who negotiated the Bayou Steel contract last year, said he hopes the former workers are able to recoup their back pay and benefits. But he said he doesn’t hold out much hope based on previous experience in trying to recoup employment debts from companies that have declared bankruptcy.

“I do hope they get what they’re owed but I wouldn’t put a nickel on it,” Delaneuville said. “The money people bankrupted them and then it’s up to the bankruptcy judge. It’s like getting blood from a turnip.”

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