### The HONORABLE CHARLES B. KORNMANN, United States District 1 

### Judge for the District of South Dakota, sitting by designation. No. 95-3964
Dennis W. Loehrer; Stephen D. * Brandt, * * Plaintiffs - Appellants, * * James L. Loretta; Elmer W. * Yordt; Richard L. Darling, on * their own behalf and on behalf * Appeal from the United States of all others similarly * District Court for the Eastern situated, * District of Missouri. * Plaintiffs, * * v. * * McDonnell Douglas Corporation, * * Defendant - Appellee. *

Submitted: June 12, 1996 Filed: October 22, 1996
Before RICHARD S. ARNOLD, Chief Judge, FLOYD R. GIBSON, Circuit Judge , and KORNMANN, District Judge. 1

FLOYD R. GIBSON, Circuit Judge.

This appeal represents yet another chapter in the litigatio n surrounding the United States Navy's turbulent, controversial, an d ultimately unsuccessful attempt to design and ma nufacture the A-12 Avenger II fighter-bomber, extolled for years as the Service's "number one aviatio n priori ty." Appellants Dennis Loehrer and Stephen Brandt are forme r employees of appellee McDonnell Douglas Corporat ion ("McDonnell Douglas"), which along with the General

### The HONORABLE EDWARD L. FILIPPINE, Senior United States 2 

### District Judge for the Eastern District of Missouri.
2 Dynamics Corporation ("General Dynamics") served as contractor for the A-1 2 program. Following months of communications between the Government and th e contractors which varied from contentious to conciliatory, the Secretary of Defense, Dick Cheney, withdrew support for th e A-12 on January 7, 1991, and the Navy canceled the contract on that same day. As a consequence , McDonn ell Douglas found it necessary to terminate the employment o f thousands of workers in the St. Louis area. Loehrer received writte n notice on January 15, 1991 that he was to be laid off effective January 29 , 1991; Brandt's notice of January 14, 1991 indicated that his last day of empl oyment with the company would be January 25. Loehrer and Brand t subsequentlyinitiated this suit in the United States District Court for the Eastern District of Missouri, claiming that McDonnell Douglas violated the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2101- 2109 (1994)(the "WARN Act"), by failing to give 60 days notice before the company implemented a mass layoff. McDonnell Do uglas concedes that it did not comply with the time period customarily prescribed by the WARN Act, bu t it main tains that the statute's exception for "unforeseeable busines s circumstances" applies to excuse the shortened n otice in this case. After
a two da y bench trial, the district court entered judgment in favor o f 2 McDonnell Douglas. Loehrer and Brandt appeal, and we affirm.

I. BACKGROUND

On Januar y 13, 1988, the Navy contracted with McDonnell Douglas and General Dynamics for the full scale engineering development of the A-12. On April 26, 1990, Se cretary Cheney presented to the House Armed Services Committee the results of a Major Aircraft Review ("MAR") of four ongoing development programs, including the A-12. Basedon the MAR, the Secretary believed that

### The A-12 contract was a fixed-price agreement with a target 3 

### price of approximately $4.4 billion. The Government committed to pay all costs up to that amount. Costs between the target price of $4.4 billion and the ceiling price of approximately $4.8 billion were shared by the Government and the contractors: the Government paid sixty percent of the costs and the contractors paid forty percent. The contractors assumed all costs above the ceiling.
3 ther e were no major impediments to the timely completion of the A-1 2 program. In his testimony before the Committee, the Secretary recommended
a r eduction in the number of A-12 Avengers to be produced, but h e unders cored that the aircraft remained "one of our most urgen t requirements."

Soon afte r the Secretary uttered these optimistic remarks, the A-12 program, and the rela tionship between the contractors and the Government, plu nged into a downward spiral. By mid-1990, it was apparent tha t McD onnell Douglas and General Dynamics were experiencing considerabl e difficulties with the program and were unlikely to complete the project on time and within budget. The contractors discove red that production of the jet would be more tro ublesome than expected due to unanticipated problems with th e manufacture of the aircraft's "big ribs." Due to thi s realization, McDonnell Douglas generated a conti ngency plan describing the options it would consider if the Navy refused to restructure the A-1 2 contrac t. One of these options included claiming "commercia l impracticability to perform."

On June 13, 1990, McDonnell Douglas and General Dynamics informe d Lawrence Garrett, Secretary of the Navy, that the full scale development
cos ts would overrun the contract ceiling price by an amount th e 3

con tractors could not absorb, and the companies requested that the Nav y consent to restructur e the agreement. Approximately one month later, the Navy formally notified the contractors that they had failed to deliver the first aircraft as required by the contract and that the entire A-12 progra m was in jeopardy. Subsequently, on August 17, 1990, the Navy approved a

### 4

modification of the contract which unilaterally reestablished the delivery schedule, but it specifically reserved the right to an equitable adjustmen t in price as consideration for revising the time-line.

By letter dated September 5, 1990, McDonnell Douglas and Genera l Dynamics asserted tha t the Government had obligated insufficient funds to the A-12 project to c over the corporations' costs. The contractors asked for additional funds to be provided at a more rapid rate "to preclude the possibility that the contractors may have to stop work under the contract. " On October 3, 1990, the Navy refused this plea f or an accelerated delivery of sup plemental funds, but the Government continued to make regula r progress payments to the companies through December of 1990.
As it happened, these troubling events coincided with a review of the A-12 by the Defense Acquisition Board ("DAB"). The DAB was responsible fo r making a final recommendation regarding the continuation of the A-1 2 program. Before evaluation by the DAB, which was scheduled for December 7, 199 0, the A-12 had to successfully undergo several intermediat e assessments. One of the most important of these was a phased examination of the A-12 design kn own as the Critical Design Review ("CDR"). Problems ide ntified during the CDR were discussed at three design review boards

. At the last design review board, the chief Navy procurement office r indicated that the parties had fixed the jet's structural problems and tha t the resulting design would produce an effective aircraft.

Secre taryCheney, who was ultimately responsible for deciding th e fate of the fighter-bomber, was also monitoring the progress of the A-12 progr am. Following his rosy remarks to Congress he, of course, becam e aware of the complica tions experienced by the contractors. The Secretary respon ded by pursuing a positive, yet cautious, approach to ongoin g development of the plane. On June 19, 1990, he reiterated his belief that the Avenger was a high

### 5

priority Navy program . In October, though, he ordered the Navy to create
a new av iation plan that could be activated in the event that the A-1 2 project fa iled or was significantly reduced or delayed. Still, in a n interview printed in the December 17, 1990 issue of Defense Week , th e Sec retaryrefused to speculate on the possible cancellation of the A-1 2 program. The article reflected the Secretary's understanding that defense contractors often exceed their budgets and fall behind schedule. In fact, the di strict court determined that "the [G]overnment has rarely eve r cancelled a contract for a program for which the [G]overnment had stated

a n eed. In the past, when a contractor encountered difficulty with a
con tract, either additional funding was provided, the schedule o f production was altered, or the output requirement was modified."

In hi ndsight, it is apparent that the death knell for the A-1 2 programbegan to sound in December of 1990. On December 14, Secretar y Cheney di rected the Navy to "show cause" by January 4, 1991 why th e Government should not terminate the contract. By letter dated December 17 , 199 0, the Navy notified McDonnell Douglas and General Dynamics that th e corporations' performance was "unsatisfactory" and that unless specified "conditions are cured by 2 January 1991 the Government may terminate for defaul t." These events prompted McDonnell Douglas to issue advisor y memoranda to its workers. On December 20, the company distributed a lette r to all its employees explaining that the A-12 program was in danger. The letter further indicated that cancellation of the contract could require the corporation to layoff 4,000 persons, and it stated that employees at immedi ate risk would receive a follow-up communication. The memorandu m concluded, "If you do not receive such a letter you will not be laid off in c onnection with our near-term actions in response to the possibl e cancella tion of this program." On the next day, December 21, th e contractor, as promis ed, notified roughly 2,500 employees that they would lose

### General Dynamics, McDonnell Douglas's cocontractor, 4 

### transmitted comparable communications to its employees on the same days. In a substantia lly similar suit against General Dynamics, the district court characterized the December 21 letters as "conditional WARN notices." International Ass'n of Machinists, AFL-CIO v. General Dynamics Corp. , 821 F. Supp. 1306, 1310 (E.D. Mo. 1993). The court proceeded to conclude that General Dynamics had not violated the WARN Act, and the plaintiffs in that case did not file an appeal.
6 their jobs if the A-12 project were terminated. Neither Loehrer no r 4 Brandt received the December 21 letter.

On Januar y 2, 1991, the contractors submitted a written response to the Navy's December 17 cure demand, noting that many previously existing problems had been cor rected and explaining the current status of the A-12 program. In addition, the companies offered a proposal for continuation of the project. On January 2-3, 1991, representatives from the contractor s met with Assistant Secretary of the Navy Gerald Cohn; Rear Admiral Morris, the senior A-12 contr acting officer; Eleanor Spector, Director of Defense Procurement, Department of Defense; Under-Secret ary of Defense Yockey; and several attorneys from the Department of Defense. After presentation of the contractors' prop osal and two days of negotiations, McDonnell Douglas and General Dynamics agreed to absorb a $1.5 billion loss in exchange for
a restructuring of the contract, $500 million of which was an up fron t loss. Ad miral Morris gave McDonnell Douglas a draft of a Memorandum o f Understanding outlining terms under which the Navy was willing to rework the A-12 project. The memorandum evidences that the Navy planned t o support the contractors in their application for "extraordinary relief" in the fo rm of an additional appropriation from Congress. Under-Secretar y Yockey told McDonnell Douglas that there was "no[] intent to terminate."
Despite this encouraging meeting, an d although Congress had recently expressed continued conditional support for the A-12

### Though this case originally involved five named plaintiffs, 5 

### Loehrer and Brandt were the only plaintiffs whose claims proceeded to trial.
7 program, Secretary Cheney on January 7, 1991 instructed the Navy t o terminate the A-12 contract. Accordingly, the Navy immediately canceled the contract for default. As mentioned above, L oehrer and Brandt received notice early in 1991 that their positions would be eliminated on January 29 and January 25, re spectively. The two employees thereafter instituted this suit against McDonnell Douglas and alleged that the company ha d violated the WARN Act. 5

After con templating the evidence, the district court found, and the parties evidently agree, that the layoff in ques tion falls within the WARN Act's general parameters. Therefore, under normal conditions, McDonnell Douglas would have been obliged to give all "affected employees," includin g Loe hrer and Brandt, sixty days notice preceding the terminations

. Nonetheless, the district court decided that McD onnell Douglas was excused from the Act's sixty day standard under the exception for mass layoff s caused by "business c ircumstances that were not reasonably foreseeable as of the ti me that notice would have been required." 29 U.S.C. § 2102(b )(2)(A) (1994). The court determined that, throughout the latte r half of 1990, the cor poration had "exercised reasonable business judgment in cont inuing to believe that termination [of the contract] would no t occur." Because the events precipitating the mass layoff did not become reasonab lyforeseeable until January 7, 1991, the very date of th e contract's cancellation, the court concluded that the company satisfied th e WARNAct by giving Loehrer and Brandt as much notice as was practicable. The c ourt recognized that relevant regulations might have permitte d Mc Donnell Douglas to transmit earlier conditional notice to affecte d employees, but it held that the circulation of such notice is permissive rather than mandatory. On appeal, Loehrer and Brandt challenge th e dis trict court's interpretation and application of the "unforeseeabl e business

### 8

circumstances" exception.

II. DISCUSSION
Under the WARN Act, certain large employers who order a plant c losing
or mass layoff must provide sixty days advance written notice to, amon g others, affected empl oyees or their union representatives. See 29 U.S.C. § 2102(a) (1994). The purpose of the Act is to extend
prote ction to workers, their families and communities b y requiring employers to provide notification 60 cale ndar days in adv ance of plant closings and mass layoffs. Advance notic e provides workers and their families some transition time t o adj ust to the prospective loss of employment, to seek an d obtain alternative jobs and, if necessary, to enter skil l train ing or retraining that will allow these workers t o successfully compete in the job market.

20 C.F.R. § 639.1(a) (1996). Though the nearly two-month notice perio d mandated b y the Act goes far to attain these laudable goals, Congres s recogn ized, through the enactment of various exceptions in the statute , that supplying generous advance notice would not be possible, or desirable , in all cases. See 29 U.S.C. § 2102(b) (1994). One of these exceptions, pertai ning to plant closings or mass layoffs caused by unforeseeabl e bus iness circumstances, is the focal point of this appeal. See id

. § 2102(b)(2)(A).

A. The unforeseeable business circumstances exception

The WARN Act expressly confirms that "[a]n employer may order a plant closing or mass layoff before the conclusion of the 60-day period if the closing or mass layoff is caused by business circumstances that were not
reaso nablyforeseeable as of the time that notice would have bee n required." Id . In formulating regulations interpreting this exemption, the Department of Labor ("DOL") was reluctant to list examples of events that would,

### 9

without deviation, qualify as unforeseeable business circumstances. See Analysis of Final Rul e and Comments, 54 Fed. Reg. 16,062 (1989). Rather, the D OL indicated that the propriety of utilizing the exception in an y particular scenario i nvolves a highly factual inquiry to be assessed on a case by case basis. Id . at 16,062-63. The regulations explain:

An important indicator of a business ci rcumstance that is not reasonably foreseeable is that the circumstance is caused by som e sudden, dramatic, and unexpected action or conditio n outsid e the employer's control. A principal client's sudde n and u nexpected termination of a major contract with th e employer . . . might . . . be considered a busines s circumstance that is not reasonably foreseeable.
* * *
The test for determining when business circumstances are no t reasonably foreseeable focuses on an employer's busines s judg ment. The employer must exercise such commerciall y reasonable business judgment as would a similarly situate d employer in predicting t he demands of its particular market. .

. .
20 C.F.R. § 639.9(b)(1)-(2) (1996); see also 54 Fed. Reg. 16,063 (1996 ) ("What is important is that the circumstance be 'sudden, dramatic an d unexpected.'"). Additionally, because unforeseeable business circumstance s operate as an affirmative defense to WARN liability, the employer bears th e burden of proving the existence of conditions giving rise to the exception

. General Dynamics , 821 F. Supp. at 1311; 20 C.F.R. § 639.9 (1996).

In th is case, the district court acknowledged the extrem e difficulties experien ced by the A-12 cocontractors during the latter half of 1990, culminating in the Government's December 17 communicatio n indicating that the contract might be terminated for default. Despit e these disquieting undercurrents, though, negotiations among the contractin g parties were progressing favorably toward the en d of the year; indeed, the court expressly found that, until the last possi ble minute, the Government and

### 10

McDonnell Douglas undertook extraordinary measures in an attempt to save the program. Against this backdrop of events, the court held tha t "termi nation of the A-12 contract was not reasonably foreseeable unti l January 7 , 1991." Unlike Loehrer and Brandt, we find no fault in th e district court's analysis.

B. Standard of Review

As an initial matter, the parties di spute the amount of deference we should give to the di strict court's ultimate determination that the facts of thi s case fall within the exception for unforeseeable busines s circumstances. It goes without saying, of course, that we review for clea r error the district co urt's findings of historical facts, see Fed. R. Civ. P. 52(a), and it is equally plain that we evaluate de novo the tria l court's construction and interpretation of a statute, Rifkin v. McDonnell Douglas C orp , 78 F.3d 1277, 1280 (8th Cir. 1996). When, as here, th e distri ct court has applied an objective legal standard to establishe d facts, we are confronted with a mixed question of law and fact. Se e Orn elas v. United States , 116 S. Ct. 1657, 1661-62 (1996). Though w e normal lyexercise plenary review over mixed questions, we will affor d deference to the dist rict court's decision if "application of the rule of law to the facts requires an inquiry . . . that is founded 'on th e application of the fact-finding tribunal's exper ience with the mainsprings of human conduct.'" United States v. McConney , 728 F.2d 1195, 1202 (9th Cir.)(en banc), cert. denied , 469 U.S. 824 (1984 ); see also Nodaway Valley Bank v. C ontinental Casualty Co. , 916 F.2d 1362, 1366 (8th Cir

. 1990)(expressing approval for the Ninth Circuit's opinion in McConney ).

There i s some force to the argument that a deferential standard o f review should guide o ur analysis in this case. Nevertheless, though this is undeniably an interesting quodlibet, we need not address the issue at present. Because affirmance would

### For analogous reasons, we need not decide whether to 6 

### narrowly construe the exception for unforeseeable business circumstances. Compare Carpenters Dist. Council v. Dillard Dep't Stores, Inc. , 15 F.3d 1275, 1282 (5th Cir. 1994)("[T]his exception to the general rule is to be narrowly construed."), cert. denied , 115 S. Ct. 933 (1995) with 54 Fed. Reg. 16,061 (1996)("The Department has reviewed the legislative history and agrees that it may not [be] appropriate to say that the unforeseeable business circumstances . . . exception[] should be narrowly construed."). We join other courts in rejecting an interpretation of this 7 

### exception which would require an employer to establish that it would not have been economically feasible to wait sixty days before instituting the plant closing or mass layoff. See Jurcev v. Central Community Hosp. , 7 F.3d 618, 624-625 (7th Cir. 1993), cert. denied , 114 S. Ct. 1830 (1994); Teamsters Nat'l Freight Indus. Negotiating Comm. v. Churchill Truck Lines, Inc. , No. 94-1004-CV11 be appropriate regardless of the weight we give to the district court' s relevant conclusions, we save the resolution of this question for another day. 6

C. Reasonable Foreseeability

We are mindful that an employer's commercially reasonable busines s judgment, rather than hindsight, dictates the scope of the unforeseeable business circumstances exception. As such, a co mpany will be excused from WARN liability if, when confronted with potentially devastatin g occurrences, it reacts as would reasonable employers within its own market

. See Chestnut v. Stone Forest Indus., Inc. , 817 F. Supp. 932, 936 (N.D. Fla

. 1993)("[T]he statute imposes a standard of commercial reasonableness, base d
on what a similarly situated employer would do in predicting the demands of its particular mar ket."); 20 C.F.R. § 639.9(b)(2) (1996). The Act and its regulations necessarily recognize that even the most conscientiou s employe rs are not perfect, and they thus allow needed flexibility fo r predictions about ultimate consequences that, though objectivel y reasonable, proved wrong. So long as it may sti ll fairly be said that the eventual plant closing or mass layoff is caused by a sudden, dramatic, and unexpected event outside the employer's control, the exception applies. 7

### W-8, 1996 WL 480683, at *5 (W.D. Mo. Aug. 9, 1996)("The 'business

circumstance exception' . . . does not impose upon an employer a requirement to provide sixty days notice or continue in business to its detriment for the sixty-day notice period, simply because it is economically feasible or possible to do so.").
12 See Jurcev v. Central

### 13

CommunityHosp. , 7 F.3d 618, 625-27 (7th Cir. 1993)(analyzing facts t o determine whether par ticular event was sudden, dramatic, and unexpected), cert. denied , 114 S. Ct. 1830 (1994); 20 C.F.R. § 639.9(b)(1) (1996).

After ex amining the record, we are convinced that the facts befor e
us fal l squarely within the exception for unforeseeable busines s circumstances. In so deciding, we certainly rea lize that the A-12 program fell upon rocky times in 1990. The scheduling d elays and severe budgetary
ov erruns, coupled with the Government's obvious unhappiness with th e cocontractors' performance, would undoubtedly raise the eyebrows of an y prude nt businessperson. In fact, these events did not go unnoticed a t McDonn ell Douglas, as that corporation sent advisory memoranda to it s employees explaining the precarious situation.
Despite this worrisome state of affairs, and under the totality o f the circumstances, we think that the Government' s cancellation of the A-12 contra ct was not reasonably foreseeable to McDonnell Douglas prior t o January7, 1991. To begin with, this case involves the rather unique , poli ticallycharged area of defense contracts. In this setting, th e commercial reasonable ness of McDonnell Douglas's reluctance to issue WARN notices, even after the Government's December 17 cure letter, is manifest. As noted by the district court, "the [G]overnment has rarely ever cancelle d
a contrac t for a program for which the [G]overnment had stated a need. " The G overnment had most definitely stated a need for the A-12 fighter

bomber, and high leve l defense officials continued to tout the program as imperative to national security. Placing some

### 14

emphasis on this underlying context, we believe that McDonnell Douglas's conduct was in accord with what would be expected from a reasonable defens e contractor. Cf

. General Dynamics , 821 F. Supp. at 1312 ("General Dynamics officials were exercising reasonable business judgment in the context of their particular market when they concluded that termination was not a likely outcome.").

Moreover, other factors buttressed M cDonnell Douglas's optimism. In the months preceding the program's cancellation, Congress expressed ongoin g conditional support for the A-12, and the Navy's chief procurement officer indicated that the co ntractors had remedied the jet's structural defects. Also, upbeat negotiations progressed through early 1991, resulting in a draft of a Memorandum of Understanding exhibiting the Navy's willingness to restructure the agreement, and on January 2, 1991 Under-Secretary Yocke y declared that the Government had no intention to terminate the contract. Given these developments, we have little difficu lty in concluding that the Government's January 7 announcement was sudden, dramatic, and unexpected. Furthe rmore, while McDonnell Douglas admittedly was aware of th e Government's dissatisfaction with the cocontractors' performance, tha t knowledge alone cannot in this case suffice to prevent the operation of th e exception for unforeseeable business circumstances. See Wholesale & Retai l Food Distribution Local 63 v. Santa Fe Terminal Servs., Inc. , 826 F. Supp. 326, 332 (C.D. Cal. 1993)("This information [of a client' s diss atisfaction], however, did not rise to the level of putting [th e employ er] on notice that the service agreement would be terminated.") ; Jones v. Kayser-Roth Hosiery, Inc. , 748 F. Supp. 1276, 1286-88 (E.D. Tenn. 1990) (finding loss o f major account unforeseeable even though client had vocalized displeasure with product).

In sum, McDonnell Douglas carried its burden of showing that th e unforeseeable business circumstances exception applies in this

### This appeal is readily distinguishable from Carpenters , 15 8 

### F.3d at 1282, in which the Court of Appeals for the Fifth Circuit reasoned that a merger of two companies was not unforeseeable to the very corporations promoting the merger. Here, in contrast to the situation in Carpenters , both the Government and McDonnell Douglas were working feverishly to prevent the occurrence of the event which caused the mass layoff. The former employees have also argued that McDonnell 9 

### Douglas, at some earlier time, should have given them conditional notice. The regulations permit conditional notice where the occurrence or nonoccurrence of some future event, which is certain to transpire, will necessarily lead within sixty days to a plant closing or mass layoff. 20 C.F.R. § 639.7(a)(3) (1996). To be sure, if the regulatory prerequisites to the issuance of conditional notice are satisfied, it seems that an employer would in most situations be well-advised to undertake notification in order to fend off the prospect of liability. It is clear, however, that a decision whether to give conditional notice is committed to an employer's discretion. See id . ("Notice may be given conditional upon the occurrence or nonoccurrence of an event . . . ."). Therefore, even assuming that it would have been appropriate for McDonnell Douglas to distribute conditional notice in the instant case, cf . 54 Fed. Reg. 16,059 (1989)("[C]onditional notice is permitted only if there is a definite event . . . ."), a failure to circulate conditional notice cannot, in itself, justify the imposition of WARN liability, see id . ("[T]he regulations specify that conditional notice is optional to avoid the problem of imposing liability on employers for failing to give a conditional notice.").
15 case. T he termination of the A-12 program did not become reasonabl y

8 for eseeable until January 7, 1991. Because Loehrer and Brandt receive d notice as soon as practicable after that date, there was no violation of the WARN Act. 9

III. CONCLUSION

The di strict court correctly determined that the exception fo r unf oreseeable business circumstances shields McDonnell Douglas fro m liability under the WARN Act. Consequently, we affirm the district court' s entry of judgment in favor of the company.

AFFIRMED.

### 16

### 17 A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.