Dennis Loehrer v. McDonnell Douglas , 98 F.3d 1056 ( 1996 )

No. 95-3964
Dennis W. Loehrer; Stephen D. *
Brandt, *
*
Plaintiffs - Appellants, *
*
James L. Loretta; Elmer W. *
Yordt; Richard L. Darling, on *
their own behalf and on behalf * Appeal from the United States
of all others similarly * District Court for the Eastern
situated, * District of Missouri.
*
Plaintiffs, *
*
v. *
*
McDonnell Douglas Corporation, *
*
Defendant - Appellee. *
Submitted: June 12, 1996
Filed: October 22, 1996
Before RICHARD S. ARNOLD, Chief Judge, FLOYD R. GIBSON, Circuit Judge,
and KORNMANN,1 District Judge.
FLOYD R. GIBSON, Circuit Judge.
This appeal represents yet another chapter in the litigation
surrounding the United States Navy's turbulent, controversial, and
ultimately unsuccessful attempt to design and manufacture the A-12 Avenger
II fighter-bomber, extolled for years as the Service's "number one aviation
priority." Appellants Dennis Loehrer and Stephen Brandt are former
employees of appellee McDonnell Douglas Corporation ("McDonnell Douglas"),
which along with the General
1
The HONORABLE CHARLES B. KORNMANN, United States District
Judge for the District of South Dakota, sitting by designation.
Dynamics Corporation ("General Dynamics") served as contractor for the A-12
program. Following months of communications between the Government and the
contractors which varied from contentious to conciliatory, the Secretary
of Defense, Dick Cheney, withdrew support for the A-12 on January 7, 1991,
and the Navy canceled the contract on that same day. As a consequence,
McDonnell Douglas found it necessary to terminate the employment of
thousands of workers in the St. Louis area. Loehrer received written
notice on January 15, 1991 that he was to be laid off effective January 29,
1991; Brandt's notice of January 14, 1991 indicated that his last day of
employment with the company would be January 25. Loehrer and Brandt
subsequently initiated this suit in the United States District Court for
the Eastern District of Missouri, claiming that McDonnell Douglas violated
the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2101-
2109 (1994)(the "WARN Act"), by failing to give 60 days notice before the
company implemented a mass layoff. McDonnell Douglas concedes that it did
not comply with the time period customarily prescribed by the WARN Act, but
it maintains that the statute's exception for "unforeseeable business
circumstances" applies to excuse the shortened notice in this case. After
2
a two day bench trial, the district court entered judgment in favor of
McDonnell Douglas. Loehrer and Brandt appeal, and we affirm.
I. BACKGROUND
On January 13, 1988, the Navy contracted with McDonnell Douglas and
General Dynamics for the full scale engineering development of the A-12.
On April 26, 1990, Secretary Cheney presented to the House Armed Services
Committee the results of a Major Aircraft Review ("MAR") of four ongoing
development programs, including the A-12. Based on the MAR, the Secretary
believed that
2
The HONORABLE EDWARD L. FILIPPINE, Senior United States
District Judge for the Eastern District of Missouri.
2
there were no major impediments to the timely completion of the A-12
program. In his testimony before the Committee, the Secretary recommended
a reduction in the number of A-12 Avengers to be produced, but he
underscored that the aircraft remained "one of our most urgent
requirements."
Soon after the Secretary uttered these optimistic remarks, the A-12
program, and the relationship between the contractors and the Government,
plunged into a downward spiral. By mid-1990, it was apparent that
McDonnell Douglas and General Dynamics were experiencing considerable
difficulties with the program and were unlikely to complete the project on
time and within budget. The contractors discovered that production of the
jet would be more troublesome than expected due to unanticipated problems
with the manufacture of the aircraft's "big ribs." Due to this
realization, McDonnell Douglas generated a contingency plan describing the
options it would consider if the Navy refused to restructure the A-12
contract. One of these options included claiming "commercial
impracticability to perform."
On June 13, 1990, McDonnell Douglas and General Dynamics informed
Lawrence Garrett, Secretary of the Navy, that the full scale development
costs would overrun the contract ceiling price3 by an amount the
contractors could not absorb, and the companies requested that the Navy
consent to restructure the agreement. Approximately one month later, the
Navy formally notified the contractors that they had failed to deliver the
first aircraft as required by the contract and that the entire A-12 program
was in jeopardy. Subsequently, on August 17, 1990, the Navy approved a
3
The A-12 contract was a fixed-price agreement with a target
price of approximately $4.4 billion. The Government committed to
pay all costs up to that amount. Costs between the target price
of $4.4 billion and the ceiling price of approximately $4.8
billion were shared by the Government and the contractors: the
Government paid sixty percent of the costs and the contractors
paid forty percent. The contractors assumed all costs above the
ceiling.
3
modification of the contract which unilaterally reestablished the delivery
schedule, but it specifically reserved the right to an equitable adjustment
in price as consideration for revising the time-line.
By letter dated September 5, 1990, McDonnell Douglas and General
Dynamics asserted that the Government had obligated insufficient funds to
the A-12 project to cover the corporations' costs. The contractors asked
for additional funds to be provided at a more rapid rate "to preclude the
possibility that the contractors may have to stop work under the contract."
On October 3, 1990, the Navy refused this plea for an accelerated delivery
of supplemental funds, but the Government continued to make regular
progress payments to the companies through December of 1990.
As it happened, these troubling events coincided with a review of the
A-12 by the Defense Acquisition Board ("DAB"). The DAB was responsible for
making a final recommendation regarding the continuation of the A-12
program. Before evaluation by the DAB, which was scheduled for December
7, 1990, the A-12 had to successfully undergo several intermediate
assessments. One of the most important of these was a phased examination
of the A-12 design known as the Critical Design Review ("CDR"). Problems
identified during the CDR were discussed at three design review boards.
At the last design review board, the chief Navy procurement officer
indicated that the parties had fixed the jet's structural problems and that
the resulting design would produce an effective aircraft.
Secretary Cheney, who was ultimately responsible for deciding the
fate of the fighter-bomber, was also monitoring the progress of the A-12
program. Following his rosy remarks to Congress he, of course, became
aware of the complications experienced by the contractors. The Secretary
responded by pursuing a positive, yet cautious, approach to ongoing
development of the plane. On June 19, 1990, he reiterated his belief that
the Avenger was a high
4
priority Navy program. In October, though, he ordered the Navy to create
a new aviation plan that could be activated in the event that the A-12
project failed or was significantly reduced or delayed. Still, in an
interview printed in the December 17, 1990 issue of Defense Week, the
Secretary refused to speculate on the possible cancellation of the A-12
program. The article reflected the Secretary's understanding that defense
contractors often exceed their budgets and fall behind schedule. In fact,
the district court determined that "the [G]overnment has rarely ever
cancelled a contract for a program for which the [G]overnment had stated
a need. In the past, when a contractor encountered difficulty with a
contract, either additional funding was provided, the schedule of
production was altered, or the output requirement was modified."
In hindsight, it is apparent that the death knell for the A-12
program began to sound in December of 1990. On December 14, Secretary
Cheney directed the Navy to "show cause" by January 4, 1991 why the
Government should not terminate the contract. By letter dated December 17,
1990, the Navy notified McDonnell Douglas and General Dynamics that the
corporations' performance was "unsatisfactory" and that unless specified
"conditions are cured by 2 January 1991 the Government may terminate for
default." These events prompted McDonnell Douglas to issue advisory
memoranda to its workers. On December 20, the company distributed a letter
to all its employees explaining that the A-12 program was in danger. The
letter further indicated that cancellation of the contract could require
the corporation to layoff 4,000 persons, and it stated that employees at
immediate risk would receive a follow-up communication. The memorandum
concluded, "If you do not receive such a letter you will not be laid off
in connection with our near-term actions in response to the possible
cancellation of this program." On the next day, December 21, the
contractor, as promised, notified roughly 2,500 employees that they would
lose
5
their jobs if the A-12 project were terminated.4 Neither Loehrer nor
Brandt received the December 21 letter.
On January 2, 1991, the contractors submitted a written response to
the Navy's December 17 cure demand, noting that many previously existing
problems had been corrected and explaining the current status of the A-12
program. In addition, the companies offered a proposal for continuation
of the project. On January 2-3, 1991, representatives from the contractors
met with Assistant Secretary of the Navy Gerald Cohn; Rear Admiral Morris,
the senior A-12 contracting officer; Eleanor Spector, Director of Defense
Procurement, Department of Defense; Under-Secretary of Defense Yockey; and
several attorneys from the Department of Defense. After presentation of
the contractors' proposal and two days of negotiations, McDonnell Douglas
and General Dynamics agreed to absorb a $1.5 billion loss in exchange for
a restructuring of the contract, $500 million of which was an up front
loss. Admiral Morris gave McDonnell Douglas a draft of a Memorandum of
Understanding outlining terms under which the Navy was willing to rework
the A-12 project. The memorandum evidences that the Navy planned to
support the contractors in their application for "extraordinary relief" in
the form of an additional appropriation from Congress. Under-Secretary
Yockey told McDonnell Douglas that there was "no[] intent to terminate."
Despite this encouraging meeting, and although Congress had recently
expressed continued conditional support for the A-12
4
General Dynamics, McDonnell Douglas's cocontractor,
transmitted comparable communications to its employees on the
same days. In a substantially similar suit against General
Dynamics, the district court characterized the December 21
letters as "conditional WARN notices." International Ass'n of
Machinists, AFL-CIO v. General Dynamics Corp., 821 F. Supp. 1306,
1310 (E.D. Mo. 1993). The court proceeded to conclude that
General Dynamics had not violated the WARN Act, and the
plaintiffs in that case did not file an appeal.
6
program, Secretary Cheney on January 7, 1991 instructed the Navy to
terminate the A-12 contract. Accordingly, the Navy immediately canceled
the contract for default. As mentioned above, Loehrer and Brandt received
notice early in 1991 that their positions would be eliminated on January
29 and January 25, respectively. The two employees thereafter instituted
this suit against McDonnell Douglas and alleged that the company had
violated the WARN Act.5
After contemplating the evidence, the district court found, and the
parties evidently agree, that the layoff in question falls within the WARN
Act's general parameters. Therefore, under normal conditions, McDonnell
Douglas would have been obliged to give all "affected employees," including
Loehrer and Brandt, sixty days notice preceding the terminations.
Nonetheless, the district court decided that McDonnell Douglas was excused
from the Act's sixty day standard under the exception for mass layoffs
caused by "business circumstances that were not reasonably foreseeable as
of the time that notice would have been required." 29 U.S.C. §
2102(b)(2)(A) (1994). The court determined that, throughout the latter
half of 1990, the corporation had "exercised reasonable business judgment
in continuing to believe that termination [of the contract] would not
occur." Because the events precipitating the mass layoff did not become
reasonably foreseeable until January 7, 1991, the very date of the
contract's cancellation, the court concluded that the company satisfied the
WARN Act by giving Loehrer and Brandt as much notice as was practicable.
The court recognized that relevant regulations might have permitted
McDonnell Douglas to transmit earlier conditional notice to affected
employees, but it held that the circulation of such notice is permissive
rather than mandatory. On appeal, Loehrer and Brandt challenge the
district court's interpretation and application of the "unforeseeable
business
5
Though this case originally involved five named plaintiffs,
Loehrer and Brandt were the only plaintiffs whose claims
proceeded to trial.
7
circumstances" exception.
II. DISCUSSION
Under the WARN Act, certain large employers who order a plant closing
or mass layoff must provide sixty days advance written notice to, among
others, affected employees or their union representatives. See 29 U.S.C.
§ 2102(a) (1994). The purpose of the Act is to extend
protection to workers, their families and communities by
requiring employers to provide notification 60 calendar days in
advance of plant closings and mass layoffs. Advance notice
provides workers and their families some transition time to
adjust to the prospective loss of employment, to seek and
obtain alternative jobs and, if necessary, to enter skill
training or retraining that will allow these workers to
successfully compete in the job market.
20 C.F.R. § 639.1(a) (1996). Though the nearly two-month notice period
mandated by the Act goes far to attain these laudable goals, Congress
recognized, through the enactment of various exceptions in the statute,
that supplying generous advance notice would not be possible, or desirable,
in all cases. See 29 U.S.C. § 2102(b) (1994). One of these exceptions,
pertaining to plant closings or mass layoffs caused by unforeseeable
business circumstances, is the focal point of this appeal. See id. §
2102(b)(2)(A).
A. The unforeseeable business circumstances exception
The WARN Act expressly confirms that "[a]n employer may order a plant
closing or mass layoff before the conclusion of the 60-day period if the
closing or mass layoff is caused by business circumstances that were not
reasonably foreseeable as of the time that notice would have been
required." Id. In formulating regulations interpreting this exemption,
the Department of Labor ("DOL") was reluctant to list examples of events
that would,
8
without deviation, qualify as unforeseeable business circumstances. See
Analysis of Final Rule and Comments, 54 Fed. Reg. 16,062 (1989). Rather,
the DOL indicated that the propriety of utilizing the exception in any
particular scenario involves a highly factual inquiry to be assessed on a
case by case basis. Id. at 16,062-63. The regulations explain:
An important indicator of a business circumstance that is
not reasonably foreseeable is that the circumstance is caused
by some sudden, dramatic, and unexpected action or condition
outside the employer's control. A principal client's sudden
and unexpected termination of a major contract with the
employer . . . might . . . be considered a business
circumstance that is not reasonably foreseeable.
* * *
The test for determining when business circumstances are
not reasonably foreseeable focuses on an employer's business
judgment. The employer must exercise such commercially
reasonable business judgment as would a similarly situated
employer in predicting the demands of its particular market. .
. .
20 C.F.R. § 639.9(b)(1)-(2) (1996); see also 54 Fed. Reg. 16,063 (1996)
("What is important is that the circumstance be 'sudden, dramatic and
unexpected.'"). Additionally, because unforeseeable business circumstances
operate as an affirmative defense to WARN liability, the employer bears the
burden of proving the existence of conditions giving rise to the exception.
General Dynamics, 821 F. Supp. at 1311; 20 C.F.R. § 639.9 (1996).
In this case, the district court acknowledged the extreme
difficulties experienced by the A-12 cocontractors during the latter half
of 1990, culminating in the Government's December 17 communication
indicating that the contract might be terminated for default. Despite
these disquieting undercurrents, though, negotiations among the contracting
parties were progressing favorably toward the end of the year; indeed, the
court expressly found that, until the last possible minute, the Government
and
9
McDonnell Douglas undertook extraordinary measures in an attempt to save
the program. Against this backdrop of events, the court held that
"termination of the A-12 contract was not reasonably foreseeable until
January 7, 1991." Unlike Loehrer and Brandt, we find no fault in the
district court's analysis.
B. Standard of Review
As an initial matter, the parties dispute the amount of deference we
should give to the district court's ultimate determination that the facts
of this case fall within the exception for unforeseeable business
circumstances. It goes without saying, of course, that we review for clear
error the district court's findings of historical facts, see Fed. R. Civ.
P. 52(a), and it is equally plain that we evaluate de novo the trial
court's construction and interpretation of a statute, Rifkin v. McDonnell
Douglas Corp, 78 F.3d 1277, 1280 (8th Cir. 1996). When, as here, the
district court has applied an objective legal standard to established
facts, we are confronted with a mixed question of law and fact. See
Ornelas v. United States, 116 S. Ct. 1657, 1661-62 (1996). Though we
normally exercise plenary review over mixed questions, we will afford
deference to the district court's decision if "application of the rule of
law to the facts requires an inquiry . . . that is founded 'on the
application of the fact-finding tribunal's experience with the mainsprings
of human conduct.'" United States v. McConney, 728 F.2d 1195, 1202 (9th
Cir.)(en banc), cert. denied, 469 U.S. 824 (1984); see also Nodaway Valley
Bank v. Continental Casualty Co., 916 F.2d 1362, 1366 (8th Cir.
1990)(expressing approval for the Ninth Circuit's opinion in McConney).
There is some force to the argument that a deferential standard of
review should guide our analysis in this case. Nevertheless, though this
is undeniably an interesting quodlibet, we need not address the issue at
present. Because affirmance would
10
be appropriate regardless of the weight we give to the district court's
relevant conclusions, we save the resolution of this question for another
day.6
C. Reasonable Foreseeability
We are mindful that an employer's commercially reasonable business
judgment, rather than hindsight, dictates the scope of the unforeseeable
business circumstances exception. As such, a company will be excused from
WARN liability if, when confronted with potentially devastating
occurrences, it reacts as would reasonable employers within its own market.
See Chestnut v. Stone Forest Indus., Inc., 817 F. Supp. 932, 936 (N.D. Fla.
1993)("[T]he statute imposes a standard of commercial reasonableness, based
on what a similarly situated employer would do in predicting the demands
of its particular market."); 20 C.F.R. § 639.9(b)(2) (1996). The Act and
its regulations necessarily recognize that even the most conscientious
employers are not perfect, and they thus allow needed flexibility for
predictions about ultimate consequences that, though objectively
reasonable, proved wrong. So long as it may still fairly be said that the
eventual plant closing or mass layoff is caused by a sudden, dramatic, and
unexpected event outside the employer's control, the exception applies.7
6
For analogous reasons, we need not decide whether to
narrowly construe the exception for unforeseeable business
circumstances. Compare Carpenters Dist. Council v. Dillard Dep't
Stores, Inc., 15 F.3d 1275, 1282 (5th Cir. 1994)("[T]his
exception to the general rule is to be narrowly construed."),
cert. denied, 115 S. Ct. 933 (1995) with 54 Fed. Reg. 16,061
(1996)("The Department has reviewed the legislative history and
agrees that it may not [be] appropriate to say that the
unforeseeable business circumstances . . . exception[] should be
narrowly construed.").
7
We join other courts in rejecting an interpretation of this
exception which would require an employer to establish that it
would not have been economically feasible to wait sixty days
before instituting the plant closing or mass layoff. See Jurcev
v. Central Community Hosp., 7 F.3d 618, 624-625 (7th Cir. 1993),
cert. denied, 114 S. Ct. 1830 (1994); Teamsters Nat'l Freight
Indus.
Negotiating Comm. v. Churchill Truck Lines, Inc., No. 94-1004-CV-
11
See Jurcev v. Central
W-8, 1996 WL 480683, at *5 (W.D. Mo. Aug. 9, 1996)("The 'business
circumstance exception' . . . does not impose upon an employer a
requirement to provide sixty days notice or continue in business
to its detriment for the sixty-day notice period, simply because
it is economically feasible or possible to do so.").
12
Community Hosp., 7 F.3d 618, 625-27 (7th Cir. 1993)(analyzing facts to
determine whether particular event was sudden, dramatic, and unexpected),
cert. denied, 114 S. Ct. 1830 (1994); 20 C.F.R. § 639.9(b)(1) (1996).
After examining the record, we are convinced that the facts before
us fall squarely within the exception for unforeseeable business
circumstances. In so deciding, we certainly realize that the A-12 program
fell upon rocky times in 1990. The scheduling delays and severe budgetary
overruns, coupled with the Government's obvious unhappiness with the
cocontractors' performance, would undoubtedly raise the eyebrows of any
prudent businessperson. In fact, these events did not go unnoticed at
McDonnell Douglas, as that corporation sent advisory memoranda to its
employees explaining the precarious situation.
Despite this worrisome state of affairs, and under the totality of
the circumstances, we think that the Government's cancellation of the A-12
contract was not reasonably foreseeable to McDonnell Douglas prior to
January 7, 1991. To begin with, this case involves the rather unique,
politically charged area of defense contracts. In this setting, the
commercial reasonableness of McDonnell Douglas's reluctance to issue WARN
notices, even after the Government's December 17 cure letter, is manifest.
As noted by the district court, "the [G]overnment has rarely ever cancelled
a contract for a program for which the [G]overnment had stated a need."
The Government had most definitely stated a need for the A-12 fighter-
bomber, and high level defense officials continued to tout the program as
imperative to national security. Placing some
13
emphasis on this underlying context, we believe that McDonnell Douglas's
conduct was in accord with what would be expected from a reasonable defense
contractor. Cf. General Dynamics, 821 F. Supp. at 1312 ("General Dynamics
officials were exercising reasonable business judgment in the context of
their particular market when they concluded that termination was not a
likely outcome.").
Moreover, other factors buttressed McDonnell Douglas's optimism. In
the months preceding the program's cancellation, Congress expressed ongoing
conditional support for the A-12, and the Navy's chief procurement officer
indicated that the contractors had remedied the jet's structural defects.
Also, upbeat negotiations progressed through early 1991, resulting in a
draft of a Memorandum of Understanding exhibiting the Navy's willingness
to restructure the agreement, and on January 2, 1991 Under-Secretary Yockey
declared that the Government had no intention to terminate the contract.
Given these developments, we have little difficulty in concluding that the
Government's January 7 announcement was sudden, dramatic, and unexpected.
Furthermore, while McDonnell Douglas admittedly was aware of the
Government's dissatisfaction with the cocontractors' performance, that
knowledge alone cannot in this case suffice to prevent the operation of the
exception for unforeseeable business circumstances. See Wholesale & Retail
Food Distribution Local 63 v. Santa Fe Terminal Servs., Inc., 826 F. Supp.
326, 332 (C.D. Cal. 1993)("This information [of a client's
dissatisfaction], however, did not rise to the level of putting [the
employer] on notice that the service agreement would be terminated.");
Jones v. Kayser-Roth Hosiery, Inc., 748 F. Supp. 1276, 1286-88 (E.D. Tenn.
1990) (finding loss of major account unforeseeable even though client had
vocalized displeasure with product).
In sum, McDonnell Douglas carried its burden of showing that the
unforeseeable business circumstances exception applies in this
14
case.8 The termination of the A-12 program did not become reasonably
foreseeable until January 7, 1991. Because Loehrer and Brandt received
notice as soon as practicable after that date, there was no violation of
the WARN Act.9
III. CONCLUSION
The district court correctly determined that the exception for
unforeseeable business circumstances shields McDonnell Douglas from
liability under the WARN Act. Consequently, we affirm the district court's
entry of judgment in favor of the company.
AFFIRMED.
8
This appeal is readily distinguishable from Carpenters, 15
F.3d at 1282, in which the Court of Appeals for the Fifth Circuit
reasoned that a merger of two companies was not unforeseeable to
the very corporations promoting the merger. Here, in contrast to
the situation in Carpenters, both the Government and McDonnell
Douglas were working feverishly to prevent the occurrence of the
event which caused the mass layoff.
9
The former employees have also argued that McDonnell
Douglas, at some earlier time, should have given them conditional
notice. The regulations permit conditional notice where the
occurrence or nonoccurrence of some future event, which is
certain to transpire, will necessarily lead within sixty days to
a plant closing or mass layoff. 20 C.F.R. § 639.7(a)(3) (1996).
To be sure, if the regulatory prerequisites to the issuance of
conditional notice are satisfied, it seems that an employer would
in most situations be well-advised to undertake notification in
order to fend off the prospect of liability. It is clear,
however, that a decision whether to give conditional notice is
committed to an employer's discretion. See id. ("Notice may be
given conditional upon the occurrence or nonoccurrence of an
event . . . ."). Therefore, even assuming that it would have
been appropriate for McDonnell Douglas to distribute conditional
notice in the instant case, cf. 54 Fed. Reg. 16,059
(1989)("[C]onditional notice is permitted only if there is a
definite event . . . ."), a failure to circulate conditional
notice cannot, in itself, justify the imposition of WARN
liability, see id. ("[T]he regulations specify that conditional
notice is optional to avoid the problem of imposing liability on
employers for failing to give a conditional notice.").
15
16
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
17