James Calloway v. Caraco Pharm. Lab., Ltd.

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 15a0210p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
_________________
JAMES CALLOWAY, individually and as a ┐
representative of a class of former Caraco │
employees, │
│ No. 14-2526
Plaintiff-Appellee,
│
>
│
v.
│
│
CARACO PHARMACEUTICAL LABORATORIES, LTD., │
Defendant-Appellant. │
┘
Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 2:11-cv-15465—Mark A. Goldsmith, District Judge.
Argued: July 30, 2015
Decided and Filed: August 26, 2015
Before: COLE, Chief Judge; GIBBONS and STRANCH, Circuit Judges.
_________________
COUNSEL
ARGUED: Christopher P. Mazzoli, BODMAN PLC, Troy, Michigan, for Appellant. Alan B.
Posner, KELMAN LORIA, PLLC, Southfield, Michigan, for Appellee. ON BRIEF:
Christopher P. Mazzoli, John C. Cashen, BODMAN PLC, Troy, Michigan, for Appellant. Alan
B. Posner, KELMAN LORIA, PLLC, Southfield, Michigan, for Appellee.
_________________
OPINION
_________________
COLE, Chief Judge. Defendant Caraco Pharmaceutical Laboratories, Ltd. (“Caraco”),
appeals the district court’s judgment in favor of the plaintiffs, former Caraco employees.
1
No. 14-2526 Calloway v. Caraco Page 2
Following a bench trial, the district court found that Caraco violated the Worker Adjustment and
Retraining Notification (“WARN”) Act, 29 U.S.C. §§ 2101–2109, by failing to comply with the
Act’s notification provision when it closed its drug manufacturing operation. The sole issue
before us is whether the United States Food and Drug Administration’s (“FDA”) mass seizure of
Caraco products was an unforeseeable business circumstance that would excuse Caraco from
complying with the WARN Act’s requirement to notify employees at least 60 days prior to a
mass layoff. We conclude that it was not and therefore affirm the district court’s judgment.
I. BACKGROUND
A. Factual Background
Caraco is a Michigan pharmaceutical manufacturer. James Calloway was an employee of
Caraco at its Detroit facility from 2006 until he was laid off on June 29, 2009. He is a member
and representative of a class of former Caraco employees certified by the district court.
As a drug manufacturer, Caraco was subject to the regulatory authority of the FDA.
The FDA enforces its regulations through periodic inspections of facilities under its jurisdiction.
After an inspection, the FDA may issue a Form 483, which “is intended for use in notifying the
inspected establishment’s top management in writing of significant objectionable conditions,
relating to products and/or processes . . . which were observed during the inspection.” (FDA
Invest. Op. Manual at 5.2.3, R. 23-5, PageID 487.) A Form 483 is issued when an investigator
believes that a drug has “been adulterated or . . . prepared, packed, or held under conditions
whereby [it] may become adulterated or rendered injurious to health.” (Id.)
More serious than a Form 483, a warning letter is “a correspondence that notifies
regulated industry about violations that FDA has documented during its inspections or
investigations.” (FDA Regulatory Procedures Manual, R. 23-6, PageID 495.) “Warning Letters
should only be issued for violations of regulatory significance, i.e., those that may actually lead
to an enforcement action if the documented violations are not promptly and adequately
corrected.” (Id.) Alternatively, an untitled letter may be issued in order to “cite[] violations that
do not meet the threshold of a Warning Letter.” (Id.)
No. 14-2526 Calloway v. Caraco Page 3
Several years before the mass layoff in question here, the FDA issued two warning letters
to Caraco, on July 6, 2000 and October 11, 2002. Both letters stated that the company’s failure
to correct the violations promptly could result in enforcement action by the FDA without further
notice. After the 2000 warning letter, the FDA conducted a follow-up inspection in 2001 and
issued a Form 483 with 17 observations of violations. The 2002 warning letter dealt with only a
single product.
The FDA issued another Form 483 to Caraco on May 11, 2005. Caraco’s new chief
executive officer, Daniel Movens, responded on June 10, 2005, stating that the company had
“determined that most of the observations presented in the FDA 483 were isolated events and not
reflective of overall systemic failures.” (6/10/05 Movens Letter, R. 22-6, PageID 215.) On
August 5, 2005, Movens again wrote to the FDA to report that the company had taken corrective
action on 10 of the 13 observations in the May 2005 Form 483 and to update the FDA on its
progress in dealing with the other three observations. Judith Putz, an FDA compliance officer,
responded on August 19, 2005, disagreeing with Movens’s characterization of most of the
observations as isolated and not reflective of systemic failures. On August 10, 2005, the FDA
also conducted a meeting with Movens, in which Putz urged Caraco to submit a more definitive
timeline for its corrective actions. On September 9, 2005, Movens wrote to the FDA to describe
further corrective actions to its handling and packaging procedures that it had taken or planned to
take.
On September 16, 2005, the FDA issued a Form 483 with four observations to an
independent company, Future Pak, Ltd., whose premises Caraco used as a packaging facility
(where it was responsible for FDA compliance). On June 21, 2006, the FDA issued another
Form 483 to Caraco with 22 observations. That same month, Caraco issued a recall of Midrin
capsules. On July 20, 2006, and again on August 25, 2006, Movens wrote to the FDA to notify it
that Caraco was taking additional corrective actions regarding the 22 observations from the June
2005 Form 483.
After an inspection in August 2007, the FDA issued a Form 483 and Caraco again
responded. In February 2008, Caraco issued a recall of metformin tablets. The FDA issued
another Form 483 on March 6, 2008, noting four significant deviations from current good
No. 14-2526 Calloway v. Caraco Page 4
manufacturing practices (“cGMPs”), to which Caraco responded on March 31, 2008. On June
11, 2008, the FDA issued another Form 483 detailing 14 significant deviations from cGMP. In
his response to this Form 483, Movens admitted that these 14 violations were “not all inclusive
and could represent broader issues.” (7/10/08 Movens Letter, R. 22-20, PageID 290.)
In 2008, Movens hired Quintiles Consulting to conduct an independent audit of Caraco’s
facilities. In an email to Movens on July 7, 2008, Maxine Fritz, a vice president at Quintiles,
noted that “[i]t is our opinion that the company faces the real possibility of FDA enforcement
action. We believe it likely that FDA will initiate some form of seizure action which may target
individual products or, conceivably may be a ‘mass seizure.’” (7/7/08 Fritz Email, R. 23-10,
PageID 523.) Further, Fritz stated that “FDA’s recent enforcement strategy has been to favor
seizure of product and resolution of such action with a consent decree of permanent
injunction. . . . We have been involved in many such actions and I can tell you they are to be
avoided at all costs.” (Id.) Fritz further stated that “[a]t this point, we believe it will be very
difficult to dissuade [the] FDA from the enforcement approach we believe it is pursuing,” but
that if Caraco was “more aggressive and comprehensive in demonstrating to the FDA” that it
was willing and able to take significant corrective action, the FDA might be willing to give
Caraco another chance. (Id.) As part of this strategy, Fritz recommended an in-person meeting
with the FDA to outline Caraco’s plan and receive feedback on it, and a response to the most
recent Form 483 that would include not only specific responses to the most recent observations
but also a “Quality Systems Enhancement Plan” with several elements. (Id.) These elements
included a comprehensive approach to reach cGMPs, specific timelines, an emphasis on
Caraco’s commitment to quality principles, and offers to the FDA to make periodic progress
reports and get feedback. Fritz also wrote that if there was no seizure, a warning letter was still
“a virtual certainty.” (Id. at 524.)
Movens later testified at trial that Fritz’s email “startled” Caraco’s management because
they “hadn’t seen seizures happening in the industry as [Fritz] had claimed.” (Trial Tr., R. 46,
PageID 1470.) Although Movens spoke to Caraco vice presidents Robert Kurkiewicz and Dan
Barone, who both thought Fritz was “being an alarmist,” Movens testified that Caraco “still went
forward with [the] remediation efforts, worked with [Quintiles] to be responsive to the FDA
No. 14-2526 Calloway v. Caraco Page 5
inquiry and basically started a training program on the steps [Caraco] wanted to remediate.”
(Id. at 1470, 1471.)
After receiving Fritz’s email, Movens updated the FDA on its progress approximately
every two or three weeks until October 24, 2008. On October 31, 2008, the FDA issued Caraco
a formal warning letter based on the June 11, 2008 inspection and associated Form 483,
determining that Caraco’s drug products were adulterated and that its manufacturing, processing,
and holding policies did not conform with cGMP. The warning letter also noted that Caraco’s
previous responses to earlier Form 483s had been significantly inadequate, and that many current
failures of its processes and policies had been previously noted by the FDA and not corrected by
Caraco. The letter further stated that the FDA had “serious concerns” regarding the firm’s
compliance history, the serious nature of the violations, Caraco’s plans for expansion despite the
serious deficiencies, and the potential product contamination and associated risk to consumers.
(10/31/08 Warning Letter, R. 23-11, PageID 531.) Finally, the letter stated that “[f]ailure to
promptly correct these violations may result in legal action without further notice, including,
without limitation, seizure and injunction.” (Id.) Caraco did not dispute the findings in the
warning letter, nor had it disputed previous warning letters.
According to Movens, after receiving the warning letter, he did not ask Quintiles whether
Caraco would receive any more chances to correct the violations before being subject to an
enforcement action. Caraco then hired Kendle International as an outside consultant. In an
email to Movens on November 6, 2008, Kendle’s senior vice president, Tony Celeste, attached
an article he had written advising how to respond to FDA warning letters. The letter stated:
An FDA “Warning Letter” is considered by the agency to be the first step in the
enforcement process. . . . The firm’s response to a warning letter may be the last
opportunity a firm has, prior to a legal or administrative action, to adequately
address a situation that FDA has concluded constitutes a violation . . . .
Immediate affirmative action to correct the objectionable conditions and inform
the proper office of the action is necessary to satisfy FDA and to prevent further
regulatory action.
(11/06/08 Celeste Email, R. 22-24, PageID 322.)
On November 12, 2008, Celeste emailed Movens again with feedback on Movens’s draft
response to the warning letter. (11/12/08 Celeste Email, R. 22-25, PageID 324.) Celeste’s email
No. 14-2526 Calloway v. Caraco Page 6
noted that Quintiles, Caraco’s previous consultant, “ha[d], of late, not had a lot of success with
FDA remediation programs,” and noted two examples in which Quintiles had not been
successful in helping prevent enforcement actions. (11/12/08 Celeste Email, R. 22-25, PageID
324.) Celeste reiterated that the “FDA did not want Caraco to describe specific actions that were
already submitted,” but instead wanted to be informed about “new information and corrections,
especially where the previous responses were deemed inadequate.” (Id.) He explicitly stated
that Kendle “believe[d] that the company is at risk of an enforcement action. This action would
probably take the form of a civil injunction . . . .” (Id.) Celeste also made four specific
suggestions for Caraco to prevent an enforcement action, including (1) recalling certain products;
(2) destroying two lots of cross-contaminated products; (3) delaying moving into a new facility
until the FDA inspected and agreed that Caraco had achieved compliance; and (4) agreeing not
to start production of any newly approved products.
Movens responded to the warning letter on November 24, 2008, reiterating that Caraco
recognized the seriousness of the violations and describing the actions Caraco was taking to
correct them. In particular, Movens wrote that the goal of its expansion project was not to
introduce new products but to “allow[] the consolidation and modernization of [Caraco’s]
manufacturing activities as well as allowing executive management to be located in the
manufacturing facility.” (11/24/08 Movens Letter, R. 23-12, PageID 536.) Movens stated that
Caraco would “delay moving any production related activities” until after Caraco had
successfully implemented its new quality management system. (Id.) As Celeste suggested,
Caraco also destroyed the two lots of cross-contaminated products.
The FDA replied to Caraco’s letter on December 22, 2008, characterizing Caraco’s
response to the warning letter as “positive.” (12/22/08 FDA Letter, R. 23-14, PageID 565.) The
letter also raised another issue that Putz had discussed with Caraco management—the varying
sizes of the tablets it produced—instructing Caraco to resolve this issue “as it has been going on
for quite some time.” (Id.) On the same day, the FDA issued Caraco another Form 483 with five
observations.
On January 21, 2009, Movens responded to each of the observations in the Form 483.
The letter claimed that Caraco had “taken immediate action to correct the systems that caused
No. 14-2526 Calloway v. Caraco Page 7
these lapses.” (1/21/09 Movens Letter, R. 23-16, PageID 571.) Movens also insisted that “[i]n
spite of the specific lapses found during the inspection, Caraco has no evidence that any product
commercially distributed failed to meet its quality, purity, or identity standards[.]” (Id.) He also
reiterated that Caraco had hired an outside firm for additional training and audits.
On January 29, 2009, Caraco issued a press release reporting results of its net sales. The
press release cited the FDA’s 2008 warning letter, noting specifically that the FDA had stated
that a “failure to promptly correct the deficiencies may result in legal action without further
notice, including, without limitation, seizure and injunction.” (1/29/09 Press Release, R. 22-31,
PageID 361.) The press release included a quote from Movens: “We believe we are
substantially compliant with cGMP. We have corrective actions in place and continue to work to
improve our quality system.” (Id.) Movens also stated that “[t]he Company intends to
aggressively move forward with the development of new products,” and that Caraco was
“continu[ing] to add products to our portfolio through Sun Pharma and its affiliates that we will
launch into the US.” (Id. at 360, 361.)
On February 2, 2009, Caraco filed a Form 10-Q with the United States Securities and
Exchange Commission (“SEC”), which acknowledged the most recent FDA warning letter. The
Form 10-Q noted that the FDA had commented on Caraco’s corrective action plans in the wake
of the warning letter and had “added that failure to promptly correct the deficiencies may result
in legal action without further notice, including, without limitation, seizure and injunction.”
(2/22/09 SEC Form 10-Q, R. 22-32, PageID 367.)
On February 19, 2009, Movens wrote again to the FDA to update the agency on the steps
taken by Caraco in its “corrective action program since [Caraco’s] last communication.”
(2/19/09 Movens Letter, R. 23-17, PageID 625.) One of the actions to be taken was a rolling
shut-down of several manufacturing units to re-emphasize quality control.
On March 31, 2009, Caraco issued a nationwide Class I recall1 of digoxin tablets due to
their size variability, which could indicate varying drug dosage levels. On April 16, 2009, the
1
A Class I recall is the most serious kind of recall, constituting “a situation in which there is a reasonable
probability that the use of, or exposure to, a violative product will cause serious adverse health consequences or
death.” (FDA Enforcement Statistics, R. 23-7, PageID 512.) A Class II recall “is a situation in which use of, or
No. 14-2526 Calloway v. Caraco Page 8
company issued Class II recalls on Metoprolol and Clonazepam tablets. The recalls were
initiated due to concern that the products were defectively manufactured and unsafe for public
consumption. Kendle had previously recommended that Caraco begin recalling products in
November of 2008.
On April 14 through 17 of 2009, Kendle performed a limited audit on Caraco in which it
noted nine observations, eight of which it classified as major, or likely to appear on a future
Form 483. Kendle informed Caraco of these results on April 23, 2009.
On May 12, 2009, the FDA issued Caraco another Form 483, citing 18 cGMP deviations.
Caraco responded on June 19, 2009, admitting that its quality control systems needed to be
revamped and insisting that it “completely underst[ood] the serious nature of the observations.”
(6/19/09 Movens Letter, R. 23-19, PageID 699.)
On June 24, 2009, the FDA filed a Complaint for Forfeiture of Adulterated Articles of
Drug. The following day, the FDA, with the assistance of United States Marshals, served Caraco
with the complaint and a warrant for arrest and seized various products manufactured by the
company at its Detroit and Farmington Hills facilities. On June 26, 2009, the company began a
mass layoff of hourly and salaried workers at those facilities. The company granted no notice to
any of the employees until the layoffs began, and eventually issued WARN Act notices on July
6, 2009, 11 days after the layoff began, which stated that the notices were tardy because the
company did not “reasonably foresee that the FDA would take the action that it did.”
B. Procedural History
On December 14, 2011, the plaintiffs filed a complaint in the United States District Court
for the Eastern District of Michigan, alleging that Caraco violated the WARN Act by failing to
give a 60-day notice of the mass layoff to the affected employees. On August 17, 2012, the
district court certified a proposed class of former Caraco employees. The parties filed cross-
motions for summary judgment, and the district court denied both motions. The district court
conducted a bench trial on November 21–22, 2013.
exposure to, a violative product may cause temporary or medically reversible adverse health consequences or where
the probability of serious adverse health consequences is remote.” (Id.)
No. 14-2526 Calloway v. Caraco Page 9
On September 16, 2014, the district court granted judgment for the plaintiffs. The court
found that it was reasonably foreseeable in April 2009 that the FDA would execute a large-scale
enforcement action against Caraco. The district court cited several facts on which it based its
conclusion that Caraco did not meet its burden of proof to show that the mass layoff was caused
by unforeseeable business circumstances:
(1) the tenor of the FDA’s October 2008 warning letter which uncovered
numerous violations dating back to 2005, (2) the gravity of the concerns raised in
this warning letter including the risks to consumers, (3) Caraco’s inability to
accurately assess its own state of compliance leading up to nearly every FDA
inspection, (4) Caraco’s refusal to adopt the findings of its independent
consultants, both of which warned the Company of the very real possibility of an
FDA enforcement action, (5) the FDA’s December 22, 2008 directive to correct a
long-standing issue with tablet size variation, (6) the number and breadth of
Caraco’s product recalls, totaling a half million bottles of 29 different products
between January and April 2009, (7) Caraco’s failure or inability to account for a
large quantity of a dangerous substance, digoxin, (8) Caraco’s lengthy history of
GMP violations, dating back to 2000, and (9) the proximity in time between the
FDA’s warning letter in October 2008 and Kendles’ [sic] post-inspection report,
which indicated that, after the passage of approximately six months, Caraco
continued to experience significant unresolved compliance issues.
(Order, R. 55, PageID 2072.)
The district court awarded damages to the plaintiffs in the stipulated amount of
$491,723.99, as well as prejudgment interest and attorney’s fees. Carcaco now seeks reversal of
the district court’s judgment, entry of judgment in its favor, and an award of attorney’s fees and
costs.
II. ANALYSIS
A. Standard of Review
Following a bench trial, we review a district court’s factual findings for clear error and its
legal conclusions de novo. Foster v. Nationwide Mut. Ins. Co., 710 F.3d 640, 643–44 (6th Cir.
2013). In reviewing factual findings for clear error, “the reviewing court must give due regard to
the trial court’s opportunity to judge the witnesses’ credibility.” Fed. R. Civ. P. 52(a)(6). “We
cannot find that the district court committed clear error where there are two permissible views of
No. 14-2526 Calloway v. Caraco Page 10
the evidence, even if we would have weighed the evidence differently.” King v. Zamiara,
680 F.3d 686, 694 (6th Cir. 2012) (internal quotation marks, citations, and brackets omitted).
B. The Unforeseeable Business Circumstances Exception
The WARN Act requires employers to give a 60-day notice to affected employees before
a plant closing or mass layoff. 29 U.S.C. § 2102(a).2 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).
The full 60-day notice period is not required if the closing is “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). In order to qualify for the exception, the defendant “must
prove two elements: (A) that the circumstances complained of were unforeseeable; and (B) that
the circumstances complained of actually caused the mass layoff or plant shutdown.” Pearce v.
Faurecia Exhaust Sys., Inc., 529 F. App’x 454, 457 (6th Cir. 2013). The only issue before us is
whether, on the record before it, the district court properly found that the mass seizure was
foreseeable.
Regulations promulgated by the United States Department of Labor have explained that
“[a]n 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.” 20 C.F.R. § 639.9(b)(1). A government-ordered closing of an
employment site that occurs without prior notice may be an unforeseeable business
circumstance. Id.
“The test for determining when business circumstances are not reasonably foreseeable
focuses on an employer’s business judgment.” 20 C.F.R. § 639.9(b)(2). “The employer must
2
The parties do not dispute that Caraco is an employer within the meaning of the Act, that the class
members are affected employees, and that the mass layoff was proximately caused by the FDA’s seizure.
No. 14-2526 Calloway v. Caraco Page 11
exercise such commercially reasonable business judgment as would a similarly situated
employer in predicting the demands of its particular market.” Id. Importantly, our court has
noted 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.” Watson v. Mich. Indus. Holdings, Inc.,
311 F.3d 760, 764 (6th Cir. 2002) (internal quotation marks omitted).
We have cautioned that “[i]n making this determination, a reviewing court must be
careful to avoid analysis by hindsight and remember that an employer’s commercially reasonable
business judgment dictates the scope of this exception.” Id. at 765. “[I]t is the probability of
occurrence that makes a business circumstance reasonably foreseeable, rather than the mere
possibility of such a circumstance.” Id. (internal quotation marks omitted). “WARN was not
intended to force financially fragile, yet economically viable, employers to provide WARN
notice and close its doors when there is a possibility that the business may fail at some
undetermined time in the future.” Id. (emphasis in original).
1. The District Court Properly Found that the Enforcement Action was
Foreseeable
Caraco argues that both the nature and timing of any possible enforcement action were
not foreseeable by April 27, 2009, and that to hold otherwise would be contrary to the WARN
Act’s intent to protect employees because economically viable employers would be forced to
issue WARN notices and close at even a remote possibility of enforcement action. In support of
its argument, Caraco contends that seizures are a very infrequent consequence of FDA warning
letters, citing FDA enforcement statistics that show that between 2007 and 2009, the agency
issued 1,390 warning letters but conducted only 22 seizures. Attempting to analogize its
circumstances to several out-of-circuit cases where the unforeseeable business circumstances
exception applied, Caraco further insists that it had no reason to believe that the FDA would
initiate a mass seizure when, in the past, the agency had not done so after issuing earlier warning
letters, and that in any case it would not have been possible to predict the timing of such a
seizure. Caraco also contends that the tenor of the 2008 warning letter contained the same
“boilerplate warning” of possible enforcement action as all of the previous warning letters the
FDA had issued to Caraco, and that there was no indication that this warning letter suggested a
higher probability of enforcement action than the prior letters.
No. 14-2526 Calloway v. Caraco Page 12
We have addressed the unforeseeable business circumstances exception only twice, first
in Watson v. Michigan Industrial Holdings, Inc., where we agreed with the district court that the
exception applied when an auto-parts supplier had “operated under financial difficulties for
years” yet had maintained a consistent relationship with its primary customer, which then closed
abruptly, forcing the supplier to shut down. 311 F.3d at 766. Because the customer had
previously promised the supplier that it would continue to purchase parts for at least a month past
the date that it ultimately shut down, we found that the customer’s earlier warning that at some
point in the future it planned to begin purchasing at least some parts from another supplier was
insufficient to make the shutdown foreseeable absent any other warning. Id. at 765–66. In
Pearce v. Faurecia Exhaust Systems, Inc., we likewise found that the unforeseeable business
circumstances exception applied where employees failed to offer any evidence that an employer
had knowledge that the company’s primary customer was on the verge of filing for bankruptcy.
529 F. App’x at 458. In both of these cases, a fact-based inquiry revealed that there was no
evidence of the employers’ advance knowledge of the loss of a major customer.
Several of our sister circuits have examined the unforeseeable business circumstances
exception in cases where a government order caused the mass layoff. The facts before us here
are similar to those in Pena v. American Meat Packing Corp., where the Seventh Circuit held
that a reasonable jury could find that a government agency’s multiple citations of a company for
regulatory violations over a lengthy period of time would have made an enforcement action
foreseeable to a reasonable employer. 362 F.3d 418, 422 (7th Cir. 2004). In Pena, the United
States Department of Agriculture (“USDA”) issued at least 31 noncompliance records (“NRs”)
documenting sanitation violations to a slaughterhouse over the course of a year and then ordered
it to shut down. Id. at 419–20. The NRs contained a standard warning that failure to comply
with regulatory requirements could result in adverse consequences. Id. at 419. After receiving
several NRs, the slaughterhouse retained two outside consultants, both of which told the
company that its problems could be fixed, and the slaughterhouse maintained frequent
communications with the USDA and took several actions to remedy the sanitation violations,
including installing additional rodent traps, retaining an expert to identify airflow problems in the
facility, soliciting quotes for the cost of testing products for contamination, and forming a crisis
No. 14-2526 Calloway v. Caraco Page 13
team to identify and correct various deficiencies. Id. at 420. The USDA nevertheless ordered
the shutdown because “the measures taken up to that point were unsatisfactory.” Id.
The Seventh Circuit rejected the employer’s argument that the shutdown could not have
been foreseeable because its experienced top management had never before experienced a
shutdown caused by regulatory violations. Id. at 422. In support of this conclusion, the court
cited new USDA rules for slaughterhouses that it characterized as “results-driven” rather than
focusing on the “efforts” of the company. Id. Given the ineffective results of the
slaughterhouse’s attempts to remedy its unsanitary conditions, the court found a genuine issue of
material fact about whether it was reasonably foreseeable that a failure to improve such
conditions would result in enforcement action, and therefore it reversed the district court’s grant
of summary judgment to the employer. Id.
Caraco attempts to distinguish Pena by pointing out that the FDA did not change its
enforcement strategy or increase its number of enforcement actions in the months preceding the
seizure. But both Caraco and the slaughterhouse in Pena faced a similar pattern of escalating
violations that culminated in a shutdown despite management’s long experience with operating a
facility without0 such an enforcement action. If anything, Caraco received more pessimistic
feedback from its consultants about the likelihood of an enforcement action than the defendant in
Pena.
Caraco contends that its mass layoff was no more foreseeable than those in three other
out-of-circuit cases in which a government order rendered a layoff unforeseeable. In Roquet v.
Arthur Andersen LLP, the Seventh Circuit found that the accounting firm Arthur Andersen was
entitled to the benefit of the unforeseeable business circumstances exception when it announced
mass layoffs after the United States Department of Justice unsealed an indictment of the
company for obstruction of an SEC investigation. 398 F.3d 585, 588, 591 (7th Cir. 2005). The
court held that the layoffs were not reasonably foreseeable before the indictment was unsealed
because “in the past, the government typically went after culpable individuals, not companies as
a whole,” and therefore “it was not a foregone conclusion that Andersen would be indicted as a
company.” Id. at 589. Because the company continued to negotiate with the government up
until the indictment became public, and it was unknown whether or when the government would
No. 14-2526 Calloway v. Caraco Page 14
indict the firm as a whole, the court found that it would have been “a poor business decision” to
conduct a mass layoff before the indictment was unsealed. Id.
In Hotel Employees and Restaurant Employees International Union Local 54 v. Elsinore
Shore Associates, the Third Circuit determined that the unforeseeable business circumstances
exception applied when the Atlantis Hotel and Casino was forced to close after its gaming
license was not renewed. 173 F.3d 175, 187 (3d Cir. 1999). The court held that it was not
reasonably foreseeable if or when the Commission would order the closing of Atlantis because
an auditor’s determination in early March that Elsinore’s finances “raised substantial doubt about
[its] ability to continue as a going concern for more than a year . . . [did] not reflect an opinion as
to [Elsinore’s] ability to operate for any specific period less than one year,” especially since the
auditors had made such statements for several years in a row. Id. at 186–87 (internal quotation
marks omitted). The court also noted that the Commission had never before declined to renew a
casino license, “even for applicants in serious financial distress.” Id. at 186. Finally, the court
pointed out that when the Commission appointed a conservator who subsequently blocked a
proposed sale of the casino, a reasonable employer could have interpreted such an action as
increasing the likelihood that the casino would remain open, even after the Division of Gaming
Enforcement recommended that it be closed. Id. at 187.
In Loehrer v. McDonnell Douglas Corp., the United States Navy terminated its contract
with the McDonnell Douglas Corporation and another contractor to build the A-12 fighter-
bomber, leading to mass layoffs at McDonnell Douglas. 98 F.3d 1056, 1057 (8th Cir. 1996).
The Eighth Circuit noted that McDonnell Douglas was certainly aware of a multitude of
problems with the contract, including scheduling delays, budgetary overruns, and difficulties
with the manufacturing process. Id. at 1057–58, 1062. However, due in part to the “rather
unique, politically charged area of defense contracts,” the court found that the termination of the
contract was not reasonably foreseeable. Id. at 1062. The court noted that the government had
expressed a need for the program, Congress had expressed “ongoing conditional support for the
A–12,” and five days before the termination announcement, the under-secretary of the Navy had
declared that the government had no intention of terminating the contract. Id.
No. 14-2526 Calloway v. Caraco Page 15
The circumstances of Roquet, Elsinore, and Loehrer are distinguishable from those
leading up to the shutdown here. In Roquet, because it was highly unusual for the government to
indict an entire company, Arthur Andersen’s decision to continue negotiating with the
government without issuing a WARN notice until the indictment was unsealed was reasonable.
Caraco, on the other hand, knew that enforcement action could result from product deficiencies
and its consultants had told them such action was likely. Moreover, Caraco had already publicly
acknowledged the 2008 warning letter in its January 2009 press release and February 2009 SEC
filing, so the specter of regulatory action, unlike the sealed indictment in Roquet, was not
shielded from public view. In Elsinore, it was reasonable for the company to believe that the
casino’s sale might be stopped if a prospective buyer stepped forward, and the company also
knew that the Commission had never revoked a casino license and had been aware of the
casino’s precarious financial situation for years. Here, the FDA had initiated seizures before,
and the district court found that Caraco knew as early as July 2008 that an FDA seizure was
likely and would be very difficult to avoid. And in Loehrer, the company was faced with
contradictory news—criticism and serious problems with the contract, but also support from
Congress and a statement by the under-secretary of the Navy that the contract would not be
terminated. Caraco, on the other hand, while occasionally garnering positive feedback from the
FDA regarding its attempts to comply, also received increasingly critical Form 483s, warning
letters, and feedback from its consultants that the company was at serious risk of an enforcement
action including a mass seizure. The case law militates against the application of the
unforeseeable business circumstances exception here.
The district court properly concluded that Caraco’s actions in the months leading up to
April 27, 2009 demonstrate that the company was aware of serious deficiencies at its facilities
that rendered imminent enforcement action foreseeable. Caraco publicly acknowledged the 2008
warning letter in its January 2009 press release even as it stated an intent to move forward with
its expansion plans, which the FDA had cautioned against. It issued nationwide recalls of
multiple products in late March and early April. Later in April, Kendle’s audit revealed multiple
outstanding observations that Caraco had failed to address after receiving the 2008 warning
letter. Taken together, and combined with the warnings from both of Caraco’s consultants and
No. 14-2526 Calloway v. Caraco Page 16
the FDA’s dissatisfaction with Caraco’s previous corrective actions, the enforcement action was
reasonably foreseeable by April 27, 2009.
Caraco relies on the Elsinore court’s discussion of the difficulty of predicting the exact
timing of a shutdown. But it would make little sense to require that the exact date of an
enforcement action be predictable in order for WARN liability to attach, and nothing in the
statute or regulations so requires. Caraco argues that premature WARN notices would force
employers to lay off employees prematurely and thus hurt the intended beneficiaries of the Act.
But the Act mandates notice, not layoffs. Caraco could have issued notice to its employees of
(or conditional notice of probable layoffs caused by) an imminent enforcement action without
actually conducting the layoffs if the action never occurred. To hold otherwise would all but do
away with the WARN Act’s requirements because the exact date of a government enforcement
action will rarely, if ever, be foreseeable. Therefore, we reject Caraco’s argument that based on
the factual circumstances here, the timing of the enforcement action was unforeseeable.
2. The District Court Did Not Engage in Analysis by Hindsight
Caraco next contends that the district court ran afoul of Watson by viewing the facts
through the lens of hindsight rather than asking whether Caraco “exercise[d] such commercially
reasonable business judgment as would a similarly situated employer.” 20 C.F.R. § 639.9(b)(2);
see also Watson, 311 F.3d at 765 (“In making this determination, a reviewing court must be
careful to avoid analysis by hindsight. . . .”). In particular, Caraco asserts that it would not have
been reasonable to issue a WARN notice in April 2009 because the FDA was still conducting an
inspection and had not yet issued a follow-up Form 483. However, in an audit conducted from
April 14 to 17, 2009, Kendle had made Caraco aware of nine outstanding observations, eight of
which the FDA was “likely” to note on a future Form 483 and that Caraco had not resolved since
receiving the 2008 warning letter. (Kendle Audit, R. 28-3, PageID 1245, 1246.)
It was not analysis by hindsight for the district court to find that a reasonable, similarly
situated employer would have realized—based on the tenor of the 2008 warning letter, the
multiple outstanding violations dating back several years of which management was aware, and
the advice of the company’s consultants—that an enforcement action was imminent. The district
court reasonably relied on these factors when it concluded that the audit showed that “Caraco
No. 14-2526 Calloway v. Caraco Page 17
had seemingly made little, if any, progress during the six months which followed the issuance of
the FDA’s warning letter,” and that therefore an enforcement action was foreseeable at this time
even though the FDA did not ultimately issue a Form 483 for these violations until May 2009.
(Order, R. 55, PageID 2071.)
Other factors upon which the district court relied in reaching this conclusion included the
number and breadth of recalls in early 2009, the missing digoxin, and the FDA’s December 22,
2008 order to correct Caraco’s longstanding problem of tablet-size variation. None of these
factors required the benefit of hindsight to suggest that a significant enforcement action was
imminent, and they all implicated consumer safety concerns that a reasonable employer in the
pharmaceutical manufacturing industry would understand to be serious.
Although Caraco is correct that FDA enforcement actions are relatively rare, we reject
the company’s argument that an enforcement action was foreseeable only in hindsight. Caraco
did not present any statistical evidence beyond the number of warning letters issued and
enforcement actions undertaken in a three-year period; such evidence could just as easily be
interpreted to show that enforcement actions were rare not because they were empty threats but
because other employers who were issued warning letters promptly corrected their deficiencies
or in some other way were not similarly situated to Caraco when the FDA seized its products.
Therefore, we find Caraco’s reliance on enforcement statistics insufficient to meet its burden to
establish the applicability of the exception.
Finally, although previous warning letters to Caraco had not resulted in enforcement
action, the district court reasonably concluded that the number of serious and longstanding
violations, coupled with the advice of Quintiles and Kendle, among other factors, would have put
a reasonable employer on notice that an enforcement action was imminent. See Blough v.
Voisard Mfg., Inc., No. 1:14-CV-263, 2015 WL 366934, at *6–7 (N.D. Ohio Jan. 27, 2015)
(denying summary judgment to an employer because the record equally lent itself to either of
two interpretations: (1) that it was unforeseeable that the employer’s bank would freeze its line
of credit because in the past the bank had always worked with the company to modify the loan
agreement, or (2) that the bank’s actions were foreseeable because its previous extensions were
No. 14-2526 Calloway v. Caraco Page 18
intended to be temporary). We find that the district court did not engage in analysis by
hindsight.
3. The District Court Did Not Fail to Consider the Circumstances that Led to the
Mass Layoff
Caraco next contends that the district court did not consider the circumstances that led to
the mass layoff, including Caraco’s history with the FDA and the nature of the pharmaceutical
industry. In support of its argument that it maintained a cooperative relationship with the FDA,
Caraco argues that it undertook the steps that Kendle recommended in order to avoid an
enforcement action, including voluntary recalls of some products, replacing ineffective
management personnel, hiring additional consultants to conduct audits and train employees,
acquiring additional machinery, and conducting rolling shutdowns of manufacturing units that
were the subject of observations from the FDA.
This argument is unavailing. A reasonable drug manufacturer should have known that a
positive working relationship with the FDA would not be enough to insulate it from the
possibility of regulatory action, just as the multitude of corrective actions taken by the employer
in Pena were not enough to forestall a shutdown. Moreover, it was not unreasonable for the
district court to conclude, based on the record before it, that Caraco was not, in fact, sufficiently
cooperative with the FDA based on, for example, the longstanding problem with tablet size
variation that it had failed to correct, as well as multiple recalls and the April 14–17 audit, which
showed a lack of improvement since the 2008 warning letter. Furthermore, this court “must give
due regard to the trial court’s opportunity to judge the witnesses’ credibility.” Madden v.
Chattanooga City Wide Serv. Dep’t, 549 F.3d 666, 674 (6th Cir. 2008) (quoting Fed. R. Civ. P.
52(a)(6)). The district court was entitled to evaluate the credibility of Caraco’s executives based
on the record and their testimony about their working relationship with the FDA, and nothing
Caraco points to suggests that we should doubt its determination. See In re Flexible Flyer
Liquidating Trust, 511 F. App’x 369, 374 (5th Cir. 2013).
Similarly, the fact that Kurkiewicz had never experienced a mass enforcement action and
that such actions were statistically rare are not sufficient, in a fact-intensive, case-by-case
inquiry, to settle this question. First, Quintiles had recently worked with two companies against
No. 14-2526 Calloway v. Caraco Page 19
which the FDA conducted mass seizures, and Quintiles’s vice president Fritz also told Movens
that Quintiles had worked with many companies that were subject to seizures. Thus, Movens
was apprised of the fact that seizures occurred yet disregarded the advice of his consultants.
Second, and more importantly, although enforcement actions were rare and outside of the
personal experience of Caraco management, the multiple factors cited by the district court show
that the district court engaged in a proper case-by-case analysis and relied on the multitude of
regulatory issues and actions taken or not taken by Caraco management in issuing its judgment.
Caraco also argues that because the FDA issued a Form 483 with 17 observations in its
inspection the year after the 2000 warning letter, a reasonable employer would not have expected
an enforcement action to result from a similar inspection with a large number of observations
that immediately followed the warning letter in 2008. However, the language of the 2000
warning letter can reasonably be distinguished from that of the 2008 letter. Although the 2000
letter documented several critical deviations from protocol and noted that many deficiencies
were repeat violations from the previous year’s inspection, the 2008 letter characterized Caraco’s
responses to the previous Form 483 as “troublesome,” and noted “significant inadequacies . . . ,
including inconsistencies with other explanations you provided previously during the
inspection.” (2000 Warning Letter, R. 27-8, PageID 912–14; 2008 Warning Letter, R. 23-11,
PageID 527.)
4. The District Court’s Factual Findings Were Not Clearly Erroneous
Finally, Caraco argues that several of the district court’s factual findings were clearly
erroneous, including: (1) that Movens repeatedly refused to acknowledge the significance of the
FDA’s findings; (2) that Caraco refused to adopt the findings of its independent consultants; and
(3) that Caraco gave no indication of making changes in its business practices in response to the
FDA’s warning letters.
There is some evidence that Movens acknowledged that the FDA’s observations were
“serious” and that Caraco expressed a sense of urgency to address its regulatory violations. And
the district court did appear to rely in part on Movens’s statement that he believed the FDA’s
observations were only “isolated,” which he wrote on June 10, 2005, well before the key events
in question here. (See Order, R. 55, PageID 2069.) However, there was also ample evidence in
No. 14-2526 Calloway v. Caraco Page 20
the record that Movens did not acknowledge the seriousness of the FDA’s warnings. For
example, Movens credited Kurkiewicz’s assurances that an FDA enforcement action was not
probable, despite the two independent consultants’ warnings to the contrary. Indeed, Movens
admitted at trial that it “may be true” that the advice he received from Kurkiewicz and Barone by
mid-2008 was unreliable given that the FDA had found several times by then that Caraco was
not FDA-compliant, despite Kurkiewicz’s and Barone’s assurances to the contrary. (Trial Tr., R.
46, PageID 1539–40; see also id. at 1522, 1534.) Furthermore, after Fritz’s email to Movens on
July 7, 2008, in which she opined that an FDA seizure action was “likely,” and that “it will be
very difficult to dissuade FDA from the enforcement approach we believe it is pursuing,”
Movens discussed the email with Kurkiewicz, who told Movens he thought Fritz was being
“alarmist.” (7/7/08 Fritz Email, R. 23-10, PageID 522–24; Trial Tr., R. 49, PageID 1840.)
Movens also testified that he credited Kurkiewicz’s and Barone’s views over Fritz’s because
“[t]he consultant was new to the company and hadn’t created that relationship of trust yet.”
(Trial Tr., R. 46, PageID 1549.) Additionally, Movens stated that he spoke to Kurkiewicz and
Barone about how many additional chances the FDA might give Caraco to fix its compliance
problems before resorting to an enforcement action, and he said “[t]hey had no view” on that
question. (Id. at 1557–58.) Yet he did not attempt to discern the answer by asking Quintiles the
same question. (Id.) Finally, Movens stated in the January 29, 2009 press release that “[w]e
believe we are substantially compliant with cGMP.” (1/29/09 Press Release, R. 22-31, PageID
361.) Based on the evidence before it, the district court did not err in concluding that Movens
refused to acknowledge the significance of the FDA’s findings.
The district court’s factual finding that Caraco did not adopt the findings of its
independent consultants was also not clearly erroneous. In addition to Quintiles’s strongly
worded warning to Movens that an enforcement action was likely, Kendle also warned Caraco
that the company was “at risk of an enforcement action. This action would probably take the
form of a civil injunction.” (11/12/08 Celeste Email, R. 23-13, PageID 562.) Movens testified
that he thought Celeste, Kendle’s vice president, was “overly cautious” or “conservative” in
evaluating the FDA’s expected response. (Trial Tr., R. 46, PageID 1572.) Moreover, Movens’s
failure to “tie [] together” Quintiles’s warning that the FDA was taking an enforcement approach
with Kendle’s information that Quintiles had recently worked with two other companies that had
No. 14-2526 Calloway v. Caraco Page 21
been subjected to FDA enforcement actions was surely unreasonable. (Id. at 1573.) Finally,
Kendle strongly recommended that Caraco not move forward on the development of new
products until it had achieved cGMP compliance, but the January press release indicated that
Caraco still planned to do so. Based on these warnings from the consultants and Movens’s own
admissions that he relied on Kurkiewicz and Barone instead of the consultants on multiple
occasions, the district court did not err in inferring that Caraco unreasonably refused to adopt its
consultants’ recommendations.
It was also reasonable for the district court to conclude that Caraco gave no indication of
making changes in its business practices in the wake of the FDA’s 2008 warning letter.
Although Caraco did take some action in response to the warning letters and Form 483s, the
district court did not err in determining that these actions fell short of the kind of significant
change that a reasonable employer should have known was necessary to forestall an enforcement
action. First, Caraco’s January 2009 press release stating that it planned “to aggressively move
forward with the development of new products” was not a reasonable strategy in light of the
serious regulatory problems Caraco faced at that time and was contradictory to Kendle’s advice.
(Press Release, R. 22-31, PageID 360.) Second, Kendle’s April 14–17, 2009 audit of Caraco,
which Kendle characterized as only “a very limited tour during which we did not attempt to
conduct a comprehensive evaluation of cGMPs,” revealed nine observations, including eight that
would be classified as major and thus likely to appear on a subsequent Form 483. (Kendle
Audit, R. 28-3, PageID 1245, 1246.) Finally, the district court noted that Caraco’s nationwide
Class I recall of digoxin tablets due to size variability and the loss of a significant quantity of
digoxin at its facility were additional factors that would cause a reasonable employer to expect
that an enforcement action was probable.
The district court also noted that the “number and breadth of Caraco’s product recalls,
totaling a half million bottles of 29 different products between January and April 2009,”
militated in favor of finding the enforcement action foreseeable. (Order, R. 55, PageID 2072.) It
was therefore reasonable for the district court to conclude that Caraco did not make significant
changes to its business practices after the issuance of the 2008 warning letter. See Childress v.
Darby Lumber Inc., 126 F. Supp. 2d 1310, 1316 (D. Mont. 2001) (holding that a company’s
No. 14-2526 Calloway v. Caraco Page 22
closing was foreseeable because the bank that provided the credit line to the company “notified
the company on multiple occasions throughout [the previous year] that the company was in
violations [sic] of its covenants, and that the company needed to come into compliance or risk
[its] losing credit with the bank”). Accordingly, the district court’s factual findings were not
clearly erroneous.
III. CONCLUSION
Because it was reasonably foreseeable on April 27, 2009 that an FDA enforcement action
was imminent, Caraco was not entitled to the unforeseeable business circumstances exception
under the WARN Act. We therefore affirm the judgment of the district court.