Castro, Ronald v. Chicago Housing

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-2892
RONALD CASTRO, LAURETTA GRANT, CHERMI JONES,
WILLIE MIRANDA, VICTOR CASTILLO, GARRICK
WHITEHEAD, KENNETH AGEYEMAN, M. JEROME
ROCHELLE, ORLANDO MORRIS, MARCUS MILES,
SHINETTA JOHNSON, VICTOR BROWN, SONIA JONES,
ALLEN MCCULLOUGH, KIM DAVIS, GRANT OGBURN,
and CUPID STEWART, individually and on behalf of
a class of persons similarly situated,
Plaintiffs-Appellees,
v.
CHICAGO HOUSING AUTHORITY,
Defendant-Appellant.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 99 C 6910—Joan Humphrey Lefkow, Judge.
____________
ARGUED JANUARY 15, 2004—DECIDED MARCH 10, 2004
____________
Before COFFEY, KANNE, and EVANS, Circuit Judges.
EVANS, Circuit Judge. For 10 years, the Chicago Housing
Authority (CHA) operated its own police department,
providing police services to residents of its housing develop-
2 No. 03-2892
ments. On October 12, 1999, however, the CHA notified
its employees that it was closing the department. Two and
a half weeks later, on October 29, 1999, the CHA laid off its
police officers and security personnel. Seventeen ter
minated employees filed a class action lawsuit1 under the
Worker Adjustment and Retraining Notification Act (WARN
Act), 29 U.S.C. § 2101 et seq., arguing that the CHA failed
to give its employees 60 days notice before termination, as
the law requires. District Judge Joan Humphrey Lefkow
denied the CHA’s motion for summary judgment, rejecting
its argument that the CHA was not a covered employer
for purposes of the Act. After a 2-day bench trial, the court
awarded the employees some $1.2 million in damages. 2003
WL 21518321 (N.D. Ill. July 1, 2003). The CHA appeals,
presenting this court with an issue of first impres-
sion: whether a municipal corporation, or quasi-public body,
like the CHA is subject to the WARN Act.2 The CHA also
1
Plaintiffs represent a class of “all sworn officers and security
officers employed by the CHA Police Department who were ter-
minated as a result of the closing of the Chicago Housing Author-
ity Police Department.” There are 274 class members, including
5 commanders, 2 coordinators, 11 sergeants, 241 patrol officers,
and 15 security officers.
2
Housing authorities “are generally held to be quasi-municipal
corporations rather than municipal corporations, in the strict
sense of the term.” 1 McQuillin, The Law of Municipal
Corporations § 2.29.20 (3d ed. rev. 1999). See, e.g., Williams
v. Hanover Housing Auth., 113 F.3d 1294, 1295 (1st Cir. 1997)
(“The Authorities are quasi-public entities . . . .”). Because the
proper classification of the CHA is not necessary for our purposes,
however, we will use the terms “municipal corporation” and
“quasi-public” entity interchangeably. Both terms, significantly,
are to be considered distinct from traditional municipal corpora-
tions, such as cities, that are “created for political purposes only,
(continued...)
No. 03-2892 3
argues that Judge Lefkow erred in fail-ing to reduce the
damage award due to its good faith effort to comply with
the Act and the severance pay it provided to the terminated
employees. Finally, the CHA contends that the judge erred
in denying its motion for leave to file an affirmative
defense—that the employees waived their right to bring this
lawsuit in a settlement agreement signed between their
unions and the CHA.
The CHA is a municipal corporation organized under
the Illinois Housing Authorities Act, 310 ILCS 10/1 et seq.
Its purpose is to provide low-rent housing and rental as-
sistance in the city of Chicago. Id. at 10/2.2. A Board
of Commissioners appointed by the mayor of Chicago
and confirmed by the City Council administers the CHA.
The United States Department of Housing and Urban
Development (HUD) is the CHA’s primary source of fund-
ing. During 1998 and 1999, for example, federal grants and
subsidies made up over 80 percent of the CHA’s income.
Rent and other sources of income, such as local and state
grants and subsidies, made up the remaining 20 percent.
HUD’s funding is made through an “annual contributions
contract” (ACC) entered into between HUD and the CHA
which sets forth terms and conditions under which the CHA
is allowed to spend HUD funds.
In 1989, with legislative authorization (see An Act
Relating to Housing Authorities, No. 86-457 (codified at 310
ILCS 10/8.1a)), the CHA established its own police de-
partment. Police personnel subsequently came to be rep-
resented by three unions. The Captains, Lieutenants and
Sergeants Coalition, affiliated with Local 73, Service
(...continued)
with political powers to be exercised for purposes connected with
the public good in the administration of civil government . . . .”
McQuillin at § 2.03.
4 No. 03-2892
Employees International Union (the Coalition), represented
police supervisors. Police officers were represented by the
Illinois Fraternal Order of Police Labor Council (FOP).
Finally, the Service Employees International Union (SEIU)
represented security officers. The CHA and these three
unions were parties to collective bargaining agreements.
In June 1995, HUD declared a breach of the ACC and
assumed control of the CHA. Relevant here, HUD found
that the CHA was spending an “exorbitant amount” of
funds on “very inefficient” security. As a result of the take-
over, from June 1995 to May 1999 a HUD appointee, called
a “chairperson,” administered the CHA. The chairperson
was responsible for policymaking, approving contracts, and
all other functions that were normally within the power of
the CHA’s Board of Commissioners. Day-to-day operations,
however, remained with CHA officials. Joseph Shuldiner,
CHA executive director from October 1995 to June 1999,
testified that the CHA had the authority to determine how
best to manage certain property, as long as HUD standards
were met. Shuldiner also stated that the CHA generally
handled the hiring and firing of its police officers as long as
the CHA acted within HUD’s funding constraints. Matthew
Brandon, CHA police department deputy chief prior to July
1996, CHA police department acting first deputy from July
1996 through November 1996, and CHA police department
acting chief from November 1996 through December 1996,
confirmed that the CHA handled day-to-day operations. He
stated, for example, that he “had independent authority to
manage the CHA police department budget within the
parameters allowed by HUD.”
In October 1996, HUD issued a corrective action order
(CAO) which required the CHA to reduce spending on se-
curity and police by at least $25 million during the 2-year
period of fiscal years 1997 and 1998. If the CHA failed to
abide by the CAO, HUD could have withheld some or all of
the CHA’s general grant program funds. To comply, the
No. 03-2892 5
CHA laid off 69 of its 394 police officers in 1998, layoffs
which were the subject of another lawsuit, see Rowen v.
Chicago Housing Auth., 149 F. Supp. 2d 390, 393 (N.D. Ill.
2001) (concluding that the CHA did not conduct a “mass
layoff” within the meaning of the WARN Act because the
layoffs only affected some 17 percent of employees, less
than the 33 percent the Act requires). HUD returned con-
trol of the CHA in May 1999.
A year after the initial layoffs, the CHA determined that
it was necessary to close the entire police department. On
September 7, 1999, Director of Labor Relations Kevin Krug
met with representatives of the Trade Coalition, a union
which represented CHA trade employees, including elec-
tricians, plumbers, plasterers, carpenters, and bricklayers.
At that meeting Krug advised the union of upcoming lay-
offs. During negotiations, the union mentioned CHA’s need
to comply with the WARN Act.
As a result of that meeting, Krug asked Joseph Moriarty,
the CHA’s senior staff counsel, to determine if the WARN
Act covered the CHA. In response, Moriarty testified, he
reviewed annotated versions of the WARN Act, relevant
case law, and accompanying regulations promulgated by the
United States Department of Labor (DOL). Moriarty
concluded that the CHA was not subject to the WARN Act
because it was not an “employer” as defined by the DOL.
Moriarty testified that he communicated this conclusion to
CHA officials, including Krug, but not to the CHA Board or
its chairperson, Sharon Gist Gilliam. Nor did he write
anything down or maintain any files. Krug, who is not an
attorney, also reviewed the applicability of the WARN
Act. He obtained an internet publication entitled “WARN
Act Guide to Advance Notice of Closings & Layoffs.” That
document stated that “[p]rivate, for-profit employers and
private, nonprofit employers are covered, as are public
and quasi-public entities which operate in a commercial
context and are separately organized from the regular gov-
6 No. 03-2892
ernment. Regular Federal, State, and local government en-
tities which provide public services are not covered.” Krug,
like Moriarty, concluded that the WARN Act did not apply
to the CHA.
The CHA, on September 23, 1999, sent a memorandum to
Coalition members, pursuant to the collective bargaining
agreement, stating that it was contemplating closing the
police department. As for the other employees, it made the
memorandum available by putting a copy in the command
order book. Several weeks later, on October 12, the CHA
sent a memorandum to all its employees stating that “the
Chicago Housing Authority has decided that it will no
longer operate it’s [sic] own police department.” It notified
the unions that the employees would be officially termi-
nated on October 29, 1999.
On October 18, 1999, Acting Chief Harvey Radney
distributed a memorandum informing the department’s
personnel that all officers affected by the layoff were being
placed on administrative leave beginning October 19, 1999
(a few personnel were retained for administrative purposes
for a short transition after October 29). The officers placed
on administrative leave were paid through October 29,
1999, and provided health and dental insurance benefits
through December 31, 1999. After negotiations, the CHA
signed settlement and severance agreements with the three
relevant unions. Among other provisions, the unions waived
any past and future legal action. The total severance pay
totaled $516,000. The CHA provided a variety of job
counseling and one-on-one outplacement services to the
police and security personnel who lost their jobs. It paid
$5,000 for each officer who participated in the counseling.
These services were provided until May 2000, 7 months
after the police department closed. On November 1, 1999,
the CHA conducted a job fair where at least 170 personnel
received a job search manual and information about posi-
tions at other police departments. The CHA also opened two
career centers.
No. 03-2892 7
Approximately one week before being terminated, on
October 21, 1999, the affected employees filed this suit un-
der the WARN Act, arguing that they were entitled to 60
days notice before being laid off. Today we resolve the
CHA’s appeal of the loss it suffered in the district court.
At the outset, we must determine whether the WARN Act
applies to quasi-public entities like the CHA. While a
question of first impression,3 the DOL has aided us in our
task. In implementing regulations under the Act, the DOL
noted:
Because of the use of the term “business enterprise”,
DOL concludes that regular Federal, State, and local
government public agencies and services are outside the
purview of WARN. . . . The legislative history is not
helpful on the specific question of coverage of public and
quasi-public business enterprises. DOL agrees that the
underlying intent of WARN is worker protection. Given
the nature and the language of the law, DOL concludes
that the term “business enterprise” used in the statute
includes public and quasi-public entities which engage
in business (i.e., take part in a commercial or industrial
enterprise; supply a service or good on a mercantile
basis, or provide independent management of public
assets, raising revenue and making desired invest-
ments). Whether a particular public or quasi-public
3
Only one other court has reviewed the WARN Act in the public
sector. That case, however, is not helpful. In Schmelzer v. Office
of Compliance, 155 F.3d 1364 (Fed. Cir. 1998), the Federal Circuit
held that the House Postal Operations, a division of the Office of
the Chief Administrative Officer of the U.S.
House of Representatives, was subject to the Act. In that case, the
Congressional Accountability Act of 1995, 2 U.S.C. § 1315,
adopted the WARN Act and therefore made it applicable to the
legislative branch. Id. at 1367. The court concluded, however, that
the plaintiffs’ rights were not violated. Id. at 1370.
8 No. 03-2892
entity is covered will be determined by the functional
test described above and by an organizational test, i.e.,
whether the entity is managed by a separately orga-
nized governing body with independent authority to
manage its personnel and assets. . . . The test that has
been adopted is intended to be a relatively precise one
that will include such entities as regional transporta-
tion authorities and independent municipal utilities,
but will exclude such organizations as school boards.
54 Fed. Reg. at 16044 (April 20, 1989).
Consistent with the above analysis, the DOL issued
the following regulation, defining a covered “employer” as
including
public and quasi-public entities which engage in busi-
ness (i.e., take part in a commercial or industrial
enterprise, supply a service or good on a mercantile
basis, or provide independent management of public
assets, raising revenue and making desired invest-
ments), and which are separately organized from the
regular government, which have their own governing
bodies and which have independent authority to man-
age their personnel and assets.
20 C.F.R. § 639.3.
CHA argues first that the DOL regulation is an impermis-
sible construction of the statute. In the alternative, it
contends that if the regulation is valid, the CHA is not
covered by the DOL’s definition of an employer. We will
address each of these arguments in turn.
In assessing the CHA’s claim that the DOL regulation is
invalid, we are guided by the familiar Chevron doctrine.
Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467
U.S. 837 (1984), requires us to engage in a two-step inquiry.
At step one, we inquire whether Congress “has directly
spoken to the precise question at issue,” in which case we
No. 03-2892 9
“must give effect to the unambiguously expressed intent of
Congress.” Id. at 842-43. If the statute is silent
or ambiguous on the issue, we will defer at step two to any
reasonable agency interpretation. Id. at 843.
Examining the text of the statute, we agree with the dis-
trict court that the statute is ambiguous with respect to
whether entities like the CHA are covered. The Act defines
“employer” as “any business enterprise that employs” a
requisite number of employees. 29 U.S.C. § 2101(a)(1). The
Act does not, however, define “business enterprise.” Leg-
islative history is also unhelpful. The House Conference
Report states that the “[c]onferees intend that a ‘business
enterprise’ be deemed synonymous with the terms company,
firm or business . . . .” H.R. Rep. No. 100-156, at 1046
(1988), reprinted in 1988 U.S.C.A.A.N. 2078, 2079. Both
sides concede, and the DOL regulation emphasizes, that
since the definition speaks in terms of the business charac-
ter of an entity, the Act does not cover traditional govern-
mental units such as, for example, the city of Chicago.
Municipal corporations like the CHA, however, while
formed for a public purpose, also engage in commercial
activities that characterize traditional businesses. Indeed,
as the name itself suggests, a municipal corporation “has a
dual character, the one public and the other private . . . .”
Black’s Law Dictionary 1017 (6th ed. 1990). The CHA, for
example, rents, leases, purchases, and sells property like
any other real estate owner, 310 ILCS 10/8.3. It has,
moreover, the authority to borrow money and make invest-
ments, id. at 10/8.4, and enter into contracts, id. at 10/8.5,
all functions traditional private businesses perform. Thus,
there is no reason to conclude that the term “business
enterprise” necessarily excludes quasi-public entities.
Indeed, there is simply no evidence that Congress even
considered where municipal corporations fit in its regula-
tory scheme, let alone spoke precisely to the issue. Cf.
Ragsdale v. Wolverine World Wide, Inc., 535 U.S. 81, 93-94
10 No. 03-2892
(2002) (striking down regulation which had effect of giving
plaintiff more than 12 weeks of leave because it “amends
the FMLA’s most fundamental substantive guarantee—the
employee’s entitlement to ‘a total of 12 workweeks of leave
during any 12-month period’ ”); Sierra Club v. EPA, 311
F.3d 853, 858 (7th Cir. 2002) (“The most obvious problem
with the EPA’s approach is that Congress has already
spoken to the precise question of extensions under the CAA
by enacting an extension provision that looks nothing like
the agency’s Extension Policy.”); Diersen v. Chicago Car
Exch., 110 F.3d 481, 486 (7th Cir. 1997) (regulation exempt-
ing older cars from the requirements of the Vehicle Infor-
mation and Cost Savings Act (Odometer Act) was invalid
where express language of the statute contained no excep-
tions).
Although there is no evidence, from either the statute
itself or legislative history, of Congress’s intent on the is-
sue, the CHA argues that we should infer from Congress’s
silence that it did not intend to cover quasi-public entities.
In support of this position, the CHA contends that when
Congress means to cover public sector employees, it knows
how to do so. See, e.g., Fair Labor Standards Act (FLSA), 29
U.S.C. § 203(d),(x) (defining “employer” to include “a public
agency” which is defined as “the Government of the United
States; the government of a State or political subdivision
thereof; any agency of the United States . . . , a State, or a
political subdivision of a State; or any interstate govern-
mental agency”); Civil Rights Act of 1964, as amended, 42
U.S.C. § 2000e(a) (extending Act to state and local govern-
ments); Age Discrimination in Employment Act (ADEA), 29
U.S.C. § 630(b) (same); Americans with Disabilities Act
(ADA), 42 U.S.C. § 12111(7) (expressly applying the Act to
public employers); Family and Medical Leave Act (FMLA),
29 U.S.C. § 2611(4)(A)(iii) (applying the Act to government
entities). While true, we also note that when Congress
specifically intends to exclude governmental entities, it also
No. 03-2892 11
knows how to do so. See, e.g., National Labor Relations Act,
29 U.S.C. § 152 (defining “employer” as specifically “not
includ[ing] the United States or any wholly owned Govern-
ment corporation, or any Federal Reserve Bank, or any
State or political subdivision thereof . . . .”). Thus, all we
can deem from congressional silence on the issue is just
that—that Congress was silent on the issue. As we recently
noted, “inferences from congressional silence are treacher-
ous; oversights are common in the hurly-burly of congressio-
nal enactment; omissions are not enactments; and even
deliberate omissions are often subject to alternative
interpretations . . . .” Alto Dairy v. Veneman, 336 F.3d 560,
566 (7th Cir. 2003). See also Brown v. Gardner, 513 U.S.
115, 121 (1994) (“congressional silence ‘lacks persuasive
significance’ ”) (internal citation omitted).
Having found Congress silent as to whether the Act
covers quasi-public entities like the CHA, we proceed to the
second Chevron step, whether the DOL’s interpretation of
the statute is reasonable. We note that we must defer to the
DOL’s interpretation so long as it is “a permissible con-
struction of the statute.” Chevron, 467 U.S. at 843. We
“need not conclude that the agency construction was the
only one it permissibly could have adopted to uphold the
construction, or even the reading the court would have
reached if the question initially had arisen in a judicial
proceeding.” Id. at 843 n.11. Applying this standard, the
DOL’s interpretation of “business enterprise” is entirely
reasonable. As we have noted, quasi-public entities like the
CHA have many characteristics of traditional businesses.
For this reason, the DOL’s decision to include these entities
in the definition of a covered “employer” is a permissible
construction of the statute.
Concluding that the DOL regulation is valid, we turn
to whether the CHA is an “employer” under 20 C.F.R.
§ 639.3. The DOL emphasizes several factors in determin-
ing if a quasi-public entity is a “business enterprise” for
12 No. 03-2892
purposes of the Act: (1) does it engage in business (i.e., take
part in a commercial or industrial enterprise, supply a
service or good on a mercantile basis, or provide independ-
ent management of public assets, raising revenue
and making desired investments); and (2) is it separately
organized from the regular government, having its own
governing bodies and independent authority to manage its
personnel and assets? It is inescapable, examining these
factors, that the CHA is a covered “employer.” First, the
CHA engages in business. It rents, leases, purchases, and
sells real estate. Furthermore, it independently manages
public assets, raises its own revenue, and makes invest-
ments. See 310 ILCS 10/8.4 (power to borrow and invest);
310 ILCS 10/11 (power to issue bonds and obtain loans).
Although public funds are a significant percentage of
its operating budget, most quasi-public entities, including
those the DOL specifically mentions as being covered, like
regional transportation authorities and independent mu-
nicipal utilities, see 54 Fed. Reg. 16044, are subsidized
by taxpayers. There is, moreover, no question that it is
separate from the city of Chicago. It is not a department of
the city, it has its own governing commission and commis-
sioners, and it has independent authority to manage its
personnel. Significantly, even when the CHA was placed
under HUD control (control which, noticeably, reverted
back to the CHA over 60 days prior to the layoffs), day-to-
day operations remained with CHA officials. Joseph
Shuldiner testified that the CHA had the authority to
determine how best to manage certain property and handle
personnel decisions. Matthew Brandon confirmed
Shuldiner’s description that the CHA handled day-to-day
operations. He stated that he “had independent authority
to manage the CHA police department budget within the
parameters allowed by HUD.” Considering these facts, the
CHA falls squarely within the DOL’s definition of a covered
employer under the WARN Act.
No. 03-2892 13
Once the CHA is deemed an “employer,” it is undisputed
that it violated the Act—it did not give its employees 60
days notice before they lost their jobs. The WARN Act
provides that an employer found liable must pay each ag-
grieved worker back pay for each day of violation and
certain benefits under an employee benefit plan. 29 U.S.C.
§ 2104(a)(1). The district court set those damages at
$1,268,087.60. (For a detailed description of the calcula-
tions, see 2003 WL 21518321 (N.D. Ill. July 1, 2003)). The
CHA contends, however, that the court erred in failing to
reduce the damages due to CHA’s good faith effort to com-
ply with the statute and as a result of certain wages and
severance payments received by the discharged workers.
We address these affirmative defenses in order.
First, the CHA argues that it entertained a “good faith”
and reasonable belief that it was not covered by the Act.
Thus, the district court should have reduced its liability
pursuant to 29 U.S.C. § 2104(a)(4), which provides:
If an employer which has violated [the] Act proves to
the satisfaction of the court that the act or omission
that violated [the] Act was in good faith and that the
employer had reasonable grounds for believing that the
act or omission was not a violation of [the] Act the court
may, in its discretion, reduce the amount of the liability
or penalty provided for in this section.
The good faith defense requires proof of the employ-
er’s subjective intent to comply with the Act, as well as
evidence of objective reasonableness in the employer’s
application of the Act. See, e.g., Saxion v. Titan-C-
Manufacturing, Inc., 86 F.3d 553, 561-62 (6th Cir. 1996);
Frymire v. Ampex Corp., 61 F.3d 757, 767-68 (10th Cir.
1995). As the employer, the CHA bears the burden of proof
as to this mitigation defense. Moreover, this defense must
be narrowly construed. See Bankston v. State of Ill., 60 F.3d
1249, 1254 (7th Cir. 1995) (An employer seeking to avoid
14 No. 03-2892
imposition of liquidated damages under the FLSA “bears a
substantial burden in showing that it acted reasonably and
in good faith.”) (internal citation omitted) (emphasis
added).4 As the Act commands, we review the district
court’s decision not to reduce damages under an abuse of
discretion standard. Saxion, 86 F.3d at 562 (“even where
good faith is manifest, moreover, the decision to reduce the
amount of damages is within the discretion of the district
court”); Lee v. Coahama County, 937 F.2d 220, 227 (5th Cir.
1991) (under FLSA, “even if the district court determines
that the employer’s actions were in good faith and based on
reasonable grounds, the court has discretion to award
liquidated damages”). Applying this standard, we cannot
say that the district court abused its discretion.
The CHA’s good faith argument is based largely on
Moriarty’s efforts to determine whether the CHA was
4
Section 2104(a)(4) emerged from section 334(a)(5) of S. 538,
the Senate bill which was ultimately included in H.R. 3 and ve-
toed by President Reagan. The language of section 334(a)(5) was
identical in all relevant aspects to the language eventually
adopted in the WARN Act. Richard W. McHugh, “Fair Warning or
Foul? An Analysis of the Worker Adjustment and Retraining
Notification (WARN) Act in Practice.” 14 Berkeley J. Emp. & Lab.
L. 1, 51 (1993). The Committee report, in discussing section
334(a)(5), states that it was modeled on and should be interpreted
in accordance with the case law under § 11 of the Portal-to-Portal
Act, 29 U.S.C. § 260, which amended the FLSA. S. Rep. No. 62,
100th Cong. 1st Sess. at 24-25 (1987). That statute reads: “[I]f the
employer shows to the satisfaction of the court that the act or
omission giving rise to such action was in good faith and that he
had reasonable grounds for believing that his act or omission was
not a violation of the Fair Labor Standards Act of 1938 . . . the
court may, in its sound discretion, award no liquidated damages
or award any amount thereof . . . .” 29 U.S.C. § 260. Based on this,
we rely on case law under the Portal-to-Portal Act in interpreting
the good faith reduction under the WARN Act.
No. 03-2892 15
a covered entity under the Act. See Frymire, 61 F.3d at
768 (evidence that the employer subjectively intended to
comply with the Act “can include proof that the employer
worked with legal counsel to determine whether the com-
pany was in compliance with WARN, as well as more
general evidence that the company had its employees’
welfare in mind”). Significantly, however, the issue of the
WARN Act was only brought up by an opposing union rep-
resentative. As Judge Lefkow keenly observed, “the WARN
Act was nothing but an afterthought to the CHA with
respect to all of the terminations it was planning.” At least
with the trade unions, the CHA was already bargaining
over the effects of termination before it considered the
WARN Act. The natural inference is that this was the case
with the police, too. Moriarty, moreover, did not share his
opinion with the CHA Board or its chairperson. While he
was not required to, the seriousness of the CHA’s efforts
to comply with the Act is suspect where the ultimate
decisionmakers showed no interest in the conclusions of
their legal counsel. Finally, deference is due the trial court,
which could weigh Moriarty’s testimony and credibility with
respect to the comprehensiveness of his efforts. Without the
production of one scintilla of physical evidence, since
Moriarty maintained and produced no papers, no memo-
randa, and no files related to his research, we have no way
to determine whether he conducted extensive research into
the issue or merely made a cursory glance at the statutes
and case law. Compare General Elec. Co. v. Porter, 208 F.2d
805, 816 (9th Cir. 1953) (attorneys “studied for a long period
of time the question whether the Act was applicable to
these firemen. After extensive research and numerous
conferences, the attorneys for General Electric rendered an
opinion that the firemen were excluded from the coverage
of the Act.”), with Washington v. Aircap Indus., Inc., 860 F.
Supp. 307, 318 (D.S.C. 1994) (“To hold that Aircap acted in
good faith by obtaining an ‘off the cuff’ oral opinion [from
16 No. 03-2892
counsel] that directly affected the lives of 257 long term
employees would eviscerate the purpose of the WARN
Act.”).
The CHA next argues that the damage award should have
been reduced by 13 days of back pay because of the notice
it sent out on September 23, 1999. Frymire, 61 F.3d at 769
(in considering good faith reduction, noting that “while
Ampex did violate WARN’s sixty-day notice requirement,
the company had provided all of its employees, months in
advance, more generalized notice that major layoffs were
imminent”). Judge Lefkow rejected this defense on the
ground that the notice was not sent to all of the officers, but
only to members of the Coalition. Also, she held that since
the collective bargaining agreement with the Coalition
required the CHA to notify it that it was contemplating
closing the department, it defeats the CHA’s good faith
defense. We agree.
The good faith reduction is intended for circumstances
where the employer technically violates the law but shows
that it did everything possible to ensure that its employees
received sufficient notice that they would be laid off. See,
e.g., Saxion, 86 F.3d at 561 (“[N]either the Act nor the
regulations suggest that defective notice is automatically to
be treated as though no notice had been provided at all.”);
Carpenters Dist. Council v. Dillard Dept. Stores, 15 F.3d
1275, 1287 n.19 (5th Cir. 1994) (same). Here, however, the
evidence presented to the trial court does not establish that
CHA did everything possible to “eas[e] the personal and
financial difficulties for [its] workers . . . .”, S. Rep. No. 100-
62 at 3, by giving advance notice to ensure that its officers
and their families had adequate time to plan for the day
they were out of a job, especially a job that would seem to
be rather impervious to an economic downturn. The evi-
dence here, which Judge Lefkow was certainly free to
credit, was that the CHA only did what it was minimally
required to do. Krug admitted at trial that while the
No. 03-2892 17
memorandum was addressed to “all personnel,” it was only
sent to Coalition members, which the CHA was required to
do under its collective bargaining agreement, and that no
similar document was sent to the regular police and
security officers. While the memorandum was placed in the
command order book, ostensibly where all employees could
view it, had the CHA truly intended to give a wide notice to
the employees who were going to be out of work it could
have done it with ease. A simple mailing would have done
the trick. Furthermore, the memorandum merely notified
employees that the CHA was “contemplating” closing the
department. This is not the type of information that would
allow employees and their families to make necessary plans
and arrangements.
A comparison with cases in which courts did find a good
faith effort to comply is warranted. In Oil, Chemical and
Atomic Workers International Union v. American Home
Products Corp., 790 F. Supp. 1441, 1452-53 (N.D. Ind.
1992), although the employer technically violated the Act,
the court permitted a good faith reduction where the em-
ployer gave notice in November that the plant would be
completely shut down by the last quarter of the following
year. The notice included a tentative schedule identifying
the quarter in which the employer expected to terminate
each job grouping. In UAW Local 1077 v. Shadyside Stamp-
ing Corp., 1991 WL 340191 (S.D. Ohio 1991), aff’d without
opinion, 947 F.2d 946 (6th Cir. 1991), the employer advised
the union in writing in late September 1988 that it expected
layoffs from February 1, 1989, to April 30, 1989, due to the
cancellation of a large contract. A second letter to the union
in early January 1989 confirmed the layoffs would take
place as previously advised. On February 3, 1989, 31
employees were laid off, and on February 27 another 15
employees were laid off. A third letter to the union on
March 15 warned of more layoffs on April 3. On that date,
66 employees were laid off. On April 10, the employer
18 No. 03-2892
provided advance notice of another layoff of 50 employees to
take place on June 9. Reviewing this evidence, the court
concluded that, while the employer technically violated the
Act, “there can be no question that the employer proceeded
in good faith in its attempt to properly notify the employees
of future layoffs.” Id. at *9. The same cannot be said here.
Finally, the CHA contends that it demonstrated its
subjective intent to comply with the Act through its efforts
to help police and security personnel find new employment.
It points out that it hired Challenger, Gray and Christmas,
an outplacement consulting firm, to conduct a job fair, it
maintained two career centers, and it provided one-on-one
job counseling. The CHA also provided health benefits for
60 days beyond the date the department ceased operating.
Moreover, it paid unemployment compensation, and it
settled all the disputes it had with the three unions repre-
senting the class members and provided over $2 million to
former police and security officers as a result of that
settlement. All of these payments, however, were provided
to the employees after the WARN Act violation. As one
court emphasized, “the defendant’s conduct after the
violation is not relevant to the determination of good faith
contemplated by the statute. The pertinent inquiry in
deciding whether to exercise the court’s discretion in favor
of reducing the defendant’s liability is the defendant’s
conduct prior to the notice[.]” Jones v. Kayser-Roth Hosiery,
Inc., 748 F. Supp. 1276, 1291 (E.D. Tenn. 1990). Further-
more, with respect to the unemployment compensation, the
CHA was required to make these payments under Illinois
law. With regard to the $2 million it provided as part of
settlement agreements, the CHA received something very
substantial in return, the settlement of all pending labor
disputes. Following state law and settling potential law-
suits hardly evidences one’s good faith effort to ease the
employees’ burden.
No. 03-2892 19
Considering all of these facts and arguments, we cannot
say that Judge Lefkow abused her discretion in not re-
ducing damages under § 2104(a)(4). And, because we agree
that the CHA did not meet its substantial burden in
establishing that it subjectively intended to comply with the
Act, we need not determine whether the CHA’s belief that
it was not covered by the Act was objectively reasonable.
Having concluded that the CHA was not entitled to a
reduction in damages under § 2104(a)(4), we turn our at-
tention to § 2104(a)(2), which allows an employer to reduce
its liability by “any voluntary and unconditional payment
by the employer to the employee that is not required by any
legal obligation.” 29 U.S.C. § 2104(a)(2)(B). The CHA argues
it was entitled to a reduction of damages due to severance
payments it provided class members, an amount that
totaled $516,000. Because the severance pay was intimately
tied to settlement agreements in which the unions agreed
to drop all pending lawsuits, we again agree with Judge
Lefkow that the payments were not voluntary and uncondi-
tional and that they are thus not deductible.
Both under the Illinois Public Labor Relations Act,
(IPLRA), 5 ILCS 315/1 et seq., and the collective bargaining
agreements with the three unions, the CHA was required to
bargain over the impact of the decision to close the depart-
ment.5 Out of those negotiations, the CHA signed five
5
IPLRA requires parties “to negotiate in good faith with respect
to wages, hours, and other conditions of employment . . . but such
obligation does not compel either party to agree to a proposal or
require the making of a concession.” 5 ILCS 315/7. The collective
bargaining agreement with the captains’ Coalition (Art. 24) said
that “[i]n the event the CHAPD is merged or terminated, the
Authority will meet with the Union prior to making a final de-
cision for the purpose of discussing the decision and any feasible
alternatives.” The agreement with FOP (Art. 11) said that “[i]n
(continued...)
20 No. 03-2892
documents with the three unions representing its officers;
both the FOP and Coalition signed separate settlement and
severance agreements with the CHA and there was a
combined agreement between the CHA and the security
officers’ union. The settlement agreements consisted of
resolving the various arbitration and union complaints that
were filed with the CHA. The agreements also settled all
pending labor charges.
At both trial and on appeal, the CHA attempts to dis-
connect the severance pay and settlement agreements.
Krug, for example, testified that the parties intended the
agreements to be separate and that the severance package
was generously given to the officers out of a desire to “les-
sen the impact” of the loss of jobs. In contrast, however,
Brandon testified that “[o]ne would not have been signed
without the other.” He testified that the agreements were
negotiated at the same time and that they were part and
parcel of one agreement. The evidence overwhelmingly
supports Brandon’s observation.
At a minimum, it is hard for the CHA to argue that the
severance package with the security officers’ union was not
connected to the settlement agreement since they are part
of the same document. Moreover, examining the settlement
(...continued)
the event the Authority intends to lay-off a majority of the bar-
gaining unit or eliminate the Police Department, the Labor
Council reserves the right to impact and effects bargain upon
written notice to the Authority within fifteen (15) days of the labor
Council’s receipt of such notice.” The agreement with the security
officers union (Art. 5, ¶ J) read: “In the event the Authority
decides to discontinue the management of any operation or
function, it shall provide the Union with at least thirty (30)
calendar days’ prior notice and shall, upon request, negotiate with
the Union over the effects, if any, on members of the bargaining
unit if such decision will directly result in the permanent layoff of
any bargaining unit members[.]”
No. 03-2892 21
and severance agreements between the Coalition and CHA,
the indisputable inference is that they are connected. First,
the agreements refer to each other. The severance agree-
ment states that “the Union represents and acknowledges
that, except for this Severance Agreement and the Settle-
ment Agreement . . . there are no other agreements or
understandings, written or oral, between the Parties.” It
continues, “Approval of this Severance Agreement by the
CHA’s Board of Commissioners and by the United States
Department of Housing and Urban Development (hereafter
‘HUD’) and approval of and execution of the Settlement
Agreement . . . are conditions precedent to the Parties’
obligations under this Severance Agreement.” (Emphasis
added.) The document continues, “In the event any provi-
sion of this Severance Agreement and/or the Settlement
Agreement is found by any court, administrative agency, or
other tribunal or entity of competent jurisdiction to be
unenforceable or void as contrary to law . . . said finding or
order shall be deemed a failure of a condition precedent to
this Severance Agreement.” (Emphasis added.)
The settlement agreement with the FOP also strongly
evidences the fact that the two documents were connected.
It contains condition precedent language that is similar to
the language in the agreement with the Coalition. The
agreement reads, moreover:
Whereas the Union and the CHA have engaged in bar-
gaining over the impact and effects of the CHA’s deci-
sion to cease active operation of the CHAPD and the
resulting permanent separation of all employees in the
sworn bargaining unit and have reached agreement on
all issues related to the decision or impact and effects
of that decision, which agreement is memorialized in a
contemporaneously executed Severance Agreement[.]
(Emphasis added.)
Considering this evidence, the CHA has not established
that the severance payments were voluntary and uncondi-
22 No. 03-2892
tional. In fact, all of the evidence shows that the CHA,
rather than unconditionally giving its employees severance
pay, made payments to the members of the unions in con-
sideration for the unions’ actions with respect to settlement
of pending arbitrations, grievances, challenges to disciplin-
ary matters, litigation, and unfair labor practices charges.
As a result, Judge Lefkow did not err in failing to reduce
the CHA’s damages. See, e.g., Local Joint Executive Trust
Fund v. Las Vegas Sands, 244 F.3d 1152, 1159 (9th Cir.
2001) (severance and other payments and benefits made
pursuant to agreements with plaintiffs’ unions are not
voluntary and unconditional, are required by legal obliga-
tion, and therefore are not deductible from liability);
Ciarlante v. Brown & Williamson Tobacco Corp., 143 F.3d
139, 152 (3rd Cir. 1998) (an employer was not entitled to
reduce its damages based on payments made pursuant to
an ERISA plan).
The CHA next argues that the class members waived
their WARN claims through their unions’ settlement
agreements. The CHA, however, failed to raise this affirm-
ative defense in its responsive pleadings, and the district
court denied the CHA’s motion for leave to file the addi-
tional defense, a decision we review for abuse of discretion.
Because we hold that the district court did not abuse its
discretion in denying the CHA’s motion, there is no need to
consider the merits of the CHA’s argument on appeal.
Federal Rule of Civil Procedure 8(c) requires that de-
fendants raise all affirmative defenses that will defeat the
allegations in the complaint in a responsive pleading. We
have stated numerous times that if a defendant does not
raise defenses at the time of filing an answer, those de-
fenses are deemed waived. See, e.g., Perry v. Sullivan, 207
F.3d 379, 382 (7th Cir. 2000). As we emphasized in Venters
v. City of Delphi, 123 F.3d 956, 969 (7th Cir. 1997):
We recognize that the [affirmative] defense may have
been meritorious; and [the plaintiff’s] counsel should
No. 03-2892 23
have had some inkling that the defense might be raised
. . . . But . . . if Rule 8(c) is not to become a nullity, we
must not countenance attempts to invoke such defenses
at the eleventh hour, without excuse and without
adequate notice to the plaintiff.
(Emphasis in original.) Here, the employees filed their
lawsuit on October 21, 1999, before settlement agreements
with the unions were signed. On April 17, 2000, the CHA
filed its first answer containing three affirmative defenses,
and in February 2001 it filed its summary judgment mo-
tion. That motion was denied on June 21, 2001. It was not
until 6 months later, on December 14, 2001, that the CHA
filed a motion for leave to tack on additional defenses, in-
cluding one that the employees waived their WARN Act
claims. Judge Lefkow, considering the delay, denied the
motion, emphasizing that until the denial of summary
judgment, “the case was at a standstill due to CHA’s motion
practice.” Although, on appeal, the CHA argues that the
delay was “due to Plaintiff’s motion practice” and attempts
to minimize the delay caused by such “routine” matters as
the substitution of its attorney, we emphasize that a district
court is in a much better position than we to judge the
course and progress of cases before it, and we will defer to
the district judge’s firsthand knowledge of the cause of
delays unless its conclusion strikes us as completely
unreasonable.
Judge Lefkow also emphasized that there was no ex-
cuse for the CHA’s failure to raise its affirmative defense
earlier. Noticeably, the fact that the CHA and the employ-
ees’ unions signed a settlement agreement couldn’t have
been a surprise to the CHA. Indeed, the CHA relied on
the severance agreements, signed at the same time, in its
initial answer, which sought a reduction of damages under
§ 2104(a)(2)(B). Thus, it was irrelevant, as the CHA argues,
that discovery in the case did not begin on the merits until
December 2001. The CHA knew about the settlement
24 No. 03-2892
agreements from the beginning and could have raised its
defense before the court decided the summary judgment
motion. Considering these facts, we cannot say the district
judge abused her discretion in denying the CHA’s motion.
Finally, we do not believe the district judge abused her
discretion in granting the employees’ motion in limine pro-
hibiting the CHA from presenting evidence regarding the
class members’ release of their WARN claims through the
settlement agreements. And we agree that the employees
did not impliedly consent to try the issue by discussing the
agreements when introducing evidence regarding CHA’s
§ 2104(a)(2)(B) defense.
The judgment of the district court is AFFIRMED.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—3-10-04