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 litigation

surrounding the United States Navy's turbulent, controversial, and

ultimately unsuccessful attempt to design and manufacture the A-12 Avenger

II fighter-bomber, extolled for years as the Service's "number one aviation

priority." Appellants Dennis Loehrer and Stephen Brandt are former

employees of appellee McDonnell Douglas Corporation ("McDonnell Douglas"),

which along with the General
 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-12

program. Following months of communications between the Government and the

contractors which varied from contentious to conciliatory, the Secretary

of Defense, Dick Cheney, withdrew support for the A-12 on January 7, 1991,

and the Navy canceled the contract on that same day. As a consequence,

McDonnell Douglas found it necessary to terminate the employment of

thousands of workers in the St. Louis area. Loehrer received written

notice on January 15, 1991 that he was to be laid off effective January 29,

1991; Brandt's notice of January 14, 1991 indicated that his last day of

employment with the company would be January 25. Loehrer and Brandt

subsequently initiated this suit in the United States District Court for

the Eastern District of Missouri, claiming that McDonnell Douglas violated

the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2101-

2109 (1994)(the "WARN Act"), by failing to give 60 days notice before the

company implemented a mass layoff. McDonnell Douglas concedes that it did

not comply with the time period customarily prescribed by the WARN Act, but

it maintains that the statute's exception for "unforeseeable business

circumstances" applies to excuse the shortened notice in this case. After

a two day bench trial, the district court entered judgment in favor of

2

McDonnell Douglas. Loehrer and Brandt appeal, and we affirm.

I. BACKGROUND

On January 13, 1988, the Navy contracted with McDonnell Douglas and

General Dynamics for the full scale engineering development of the A-12.

On April 26, 1990, Secretary Cheney presented to the House Armed Services

Committee the results of a Major Aircraft Review ("MAR") of four ongoing

development programs, including the A-12. Based on the MAR, the Secretary

believed that
 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

there were no major impediments to the timely completion of the A-12

program. In his testimony before the Committee, the Secretary recommended

a reduction in the number of A-12 Avengers to be produced, but he

underscored that the aircraft remained "one of our most urgent

requirements."

Soon after the Secretary uttered these optimistic remarks, the A-12

program, and the relationship between the contractors and the Government,

plunged into a downward spiral. By mid-1990, it was apparent that

McDonnell Douglas and General Dynamics were experiencing considerable

difficulties with the program and were unlikely to complete the project on

time and within budget. The contractors discovered that production of the

jet would be more troublesome than expected due to unanticipated problems

with the manufacture of the aircraft's "big ribs." Due to this

realization, McDonnell Douglas generated a contingency plan describing the

options it would consider if the Navy refused to restructure the A-12

contract. One of these options included claiming "commercial

impracticability to perform."

On June 13, 1990, McDonnell Douglas and General Dynamics informed

Lawrence Garrett, Secretary of the Navy, that the full scale development

costs would overrun the contract ceiling price by an amount the

3

contractors could not absorb, and the companies requested that the Navy

consent to restructure the agreement. Approximately one month later, the

Navy formally notified the contractors that they had failed to deliver the

first aircraft as required by the contract and that the entire A-12 program

was in jeopardy. Subsequently, on August 17, 1990, the Navy approved a
4

modification of the contract which unilaterally reestablished the delivery

schedule, but it specifically reserved the right to an equitable adjustment

in price as consideration for revising the time-line.

By letter dated September 5, 1990, McDonnell Douglas and General

Dynamics asserted that the Government had obligated insufficient funds to

the A-12 project to cover the corporations' costs. The contractors asked

for additional funds to be provided at a more rapid rate "to preclude the

possibility that the contractors may have to stop work under the contract."

On October 3, 1990, the Navy refused this plea for an accelerated delivery

of supplemental funds, but the Government continued to make regular

progress payments to the companies through December of 1990.

As it happened, these troubling events coincided with a review of the

A-12 by the Defense Acquisition Board ("DAB"). The DAB was responsible for

making a final recommendation regarding the continuation of the A-12

program. Before evaluation by the DAB, which was scheduled for December

7, 1990, the A-12 had to successfully undergo several intermediate

assessments. One of the most important of these was a phased examination

of the A-12 design known as the Critical Design Review ("CDR"). Problems

identified during the CDR were discussed at three design review boards.

At the last design review board, the chief Navy procurement officer

indicated that the parties had fixed the jet's structural problems and that

the resulting design would produce an effective aircraft.

Secretary Cheney, who was ultimately responsible for deciding the

fate of the fighter-bomber, was also monitoring the progress of the A-12

program. Following his rosy remarks to Congress he, of course, became

aware of the complications experienced by the contractors. The Secretary

responded by pursuing a positive, yet cautious, approach to ongoing

development of the plane. On June 19, 1990, he reiterated his belief that

the Avenger was a high
5

priority Navy program. In October, though, he ordered the Navy to create

a new aviation plan that could be activated in the event that the A-12

project failed or was significantly reduced or delayed. Still, in an

interview printed in the December 17, 1990 issue of Defense Week, the

Secretary refused to speculate on the possible cancellation of the A-12

program. The article reflected the Secretary's understanding that defense

contractors often exceed their budgets and fall behind schedule. In fact,

the district court determined that "the [G]overnment has rarely ever

cancelled a contract for a program for which the [G]overnment had stated

a need. In the past, when a contractor encountered difficulty with a

contract, either additional funding was provided, the schedule of

production was altered, or the output requirement was modified."

In hindsight, it is apparent that the death knell for the A-12

program began to sound in December of 1990. On December 14, Secretary

Cheney directed the Navy to "show cause" by January 4, 1991 why the

Government should not terminate the contract. By letter dated December 17,

1990, the Navy notified McDonnell Douglas and General Dynamics that the

corporations' performance was "unsatisfactory" and that unless specified

"conditions are cured by 2 January 1991 the Government may terminate for

default." These events prompted McDonnell Douglas to issue advisory

memoranda to its workers. On December 20, the company distributed a letter

to all its employees explaining that the A-12 program was in danger. The

letter further indicated that cancellation of the contract could require

the corporation to layoff 4,000 persons, and it stated that employees at

immediate risk would receive a follow-up communication. The memorandum

concluded, "If you do not receive such a letter you will not be laid off

in connection with our near-term actions in response to the possible

cancellation of this program." On the next day, December 21, the

contractor, as promised, notified roughly 2,500 employees that they would

lose
 General Dynamics, McDonnell Douglas's cocontractor, 4

transmitted comparable communications to its employees on the

same days. In a substantially similar suit against General

Dynamics, the district court characterized the December 21

letters as "conditional WARN notices." International Ass'n of

Machinists, AFL-CIO v. General Dynamics Corp., 821 F. Supp. 1306,

1310 (E.D. Mo. 1993). The court proceeded to conclude that

General Dynamics had not violated the WARN Act, and the

plaintiffs in that case did not file an appeal.

6

their jobs if the A-12 project were terminated. Neither Loehrer nor

4

Brandt received the December 21 letter.

On January 2, 1991, the contractors submitted a written response to

the Navy's December 17 cure demand, noting that many previously existing

problems had been corrected and explaining the current status of the A-12

program. In addition, the companies offered a proposal for continuation

of the project. On January 2-3, 1991, representatives from the contractors

met with Assistant Secretary of the Navy Gerald Cohn; Rear Admiral Morris,

the senior A-12 contracting officer; Eleanor Spector, Director of Defense

Procurement, Department of Defense; Under-Secretary of Defense Yockey; and

several attorneys from the Department of Defense. After presentation of

the contractors' proposal and two days of negotiations, McDonnell Douglas

and General Dynamics agreed to absorb a $1.5 billion loss in exchange for

a restructuring of the contract, $500 million of which was an up front

loss. Admiral Morris gave McDonnell Douglas a draft of a Memorandum of

Understanding outlining terms under which the Navy was willing to rework

the A-12 project. The memorandum evidences that the Navy planned to

support the contractors in their application for "extraordinary relief" in

the form of an additional appropriation from Congress. Under-Secretary

Yockey told McDonnell Douglas that there was "no[] intent to terminate."

Despite this encouraging meeting, and although Congress had recently

expressed continued conditional support for the A-12
 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 to

terminate the A-12 contract. Accordingly, the Navy immediately canceled

the contract for default. As mentioned above, Loehrer and Brandt received

notice early in 1991 that their positions would be eliminated on January

29 and January 25, respectively. The two employees thereafter instituted

this suit against McDonnell Douglas and alleged that the company had

violated the WARN Act.5

After contemplating the evidence, the district court found, and the

parties evidently agree, that the layoff in question falls within the WARN

Act's general parameters. Therefore, under normal conditions, McDonnell

Douglas would have been obliged to give all "affected employees," including

Loehrer and Brandt, sixty days notice preceding the terminations.

Nonetheless, the district court decided that McDonnell Douglas was excused

from the Act's sixty day standard under the exception for mass layoffs

caused by "business circumstances that were not reasonably foreseeable as

of the time that notice would have been required." 29 U.S.C. §

2102(b)(2)(A) (1994). The court determined that, throughout the latter

half of 1990, the corporation had "exercised reasonable business judgment

in continuing to believe that termination [of the contract] would not

occur." Because the events precipitating the mass layoff did not become

reasonably foreseeable until January 7, 1991, the very date of the

contract's cancellation, the court concluded that the company satisfied the

WARN Act by giving Loehrer and Brandt as much notice as was practicable.

The court recognized that relevant regulations might have permitted

McDonnell Douglas to transmit earlier conditional notice to affected

employees, but it held that the circulation of such notice is permissive

rather than mandatory. On appeal, Loehrer and Brandt challenge the

district court's interpretation and application of the "unforeseeable

business
8

circumstances" exception.

II. DISCUSSION

Under the WARN Act, certain large employers who order a plant closing

or mass layoff must provide sixty days advance written notice to, among

others, affected employees or their union representatives. See 29 U.S.C.

§ 2102(a) (1994). The purpose of the Act is to extend

protection to workers, their families and communities by

requiring employers to provide notification 60 calendar days in

advance of plant closings and mass layoffs. Advance notice

provides workers and their families some transition time to

adjust to the prospective loss of employment, to seek and

obtain alternative jobs and, if necessary, to enter skill

training or retraining that will allow these workers to

successfully compete in the job market.

20 C.F.R. § 639.1(a) (1996). Though the nearly two-month notice period

mandated by the Act goes far to attain these laudable goals, Congress

recognized, through the enactment of various exceptions in the statute,

that supplying generous advance notice would not be possible, or desirable,

in all cases. See 29 U.S.C. § 2102(b) (1994). One of these exceptions,

pertaining to plant closings or mass layoffs caused by unforeseeable

business circumstances, is the focal point of this appeal. See id. §

2102(b)(2)(A). 

A. The unforeseeable business circumstances exception

The WARN Act expressly confirms that "[a]n employer may order a plant

closing or mass layoff before the conclusion of the 60-day period if the

closing or mass layoff is caused by business circumstances that were not

reasonably foreseeable as of the time that notice would have been

required." Id. In formulating regulations interpreting this exemption,

the Department of Labor ("DOL") was reluctant to list examples of events

that would,
9

without deviation, qualify as unforeseeable business circumstances. See

Analysis of Final Rule and Comments, 54 Fed. Reg. 16,062 (1989). Rather,

the DOL indicated that the propriety of utilizing the exception in any

particular scenario involves a highly factual inquiry to be assessed on a

case by case basis. Id. at 16,062-63. The regulations explain:

An important indicator of a business circumstance that is

not reasonably foreseeable is that the circumstance is caused

by some sudden, dramatic, and unexpected action or condition

outside the employer's control. A principal client's sudden

and unexpected termination of a major contract with the

employer . . . might . . . be considered a business

circumstance that is not reasonably foreseeable.

* * *

The test for determining when business circumstances are

not reasonably foreseeable focuses on an employer's business

judgment. The employer must exercise such commercially

reasonable business judgment as would a similarly situated

employer in predicting the demands of its particular market. .

. . 

20 C.F.R. § 639.9(b)(1)-(2) (1996); see also 54 Fed. Reg. 16,063 (1996)

("What is important is that the circumstance be 'sudden, dramatic and

unexpected.'"). Additionally, because unforeseeable business circumstances

operate as an affirmative defense to WARN liability, the employer bears the

burden of proving the existence of conditions giving rise to the exception.

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

In this case, the district court acknowledged the extreme

difficulties experienced by the A-12 cocontractors during the latter half

of 1990, culminating in the Government's December 17 communication

indicating that the contract might be terminated for default. Despite

these disquieting undercurrents, though, negotiations among the contracting

parties were progressing favorably toward the end of the year; indeed, the

court expressly found that, until the last possible minute, the Government

and
10

McDonnell Douglas undertook extraordinary measures in an attempt to save

the program. Against this backdrop of events, the court held that

"termination of the A-12 contract was not reasonably foreseeable until

January 7, 1991." Unlike Loehrer and Brandt, we find no fault in the

district court's analysis.

B. Standard of Review

As an initial matter, the parties dispute the amount of deference we

should give to the district court's ultimate determination that the facts

of this case fall within the exception for unforeseeable business

circumstances. It goes without saying, of course, that we review for clear

error the district court's findings of historical facts, see Fed. R. Civ.

P. 52(a), and it is equally plain that we evaluate de novo the trial

court's construction and interpretation of a statute, Rifkin v. McDonnell

Douglas Corp, 78 F.3d 1277, 1280 (8th Cir. 1996). When, as here, the

district court has applied an objective legal standard to established

facts, we are confronted with a mixed question of law and fact. See

Ornelas v. United States, 116 S. Ct. 1657, 1661-62 (1996). Though we

normally exercise plenary review over mixed questions, we will afford

deference to the district court's decision if "application of the rule of

law to the facts requires an inquiry . . . that is founded 'on the

application of the fact-finding tribunal's experience with the mainsprings

of human conduct.'" United States v. McConney, 728 F.2d 1195, 1202 (9th

Cir.)(en banc), cert. denied, 469 U.S. 824 (1984); see also Nodaway Valley

Bank v. Continental Casualty Co., 916 F.2d 1362, 1366 (8th Cir.

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

There is some force to the argument that a deferential standard of

review should guide our analysis in this case. Nevertheless, though this

is undeniably an interesting quodlibet, we need not address the issue at

present. Because affirmance would
 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 business

judgment, rather than hindsight, dictates the scope of the unforeseeable

business circumstances exception. As such, a company will be excused from

WARN liability if, when confronted with potentially devastating

occurrences, it reacts as would reasonable employers within its own market.

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

1993)("[T]he statute imposes a standard of commercial reasonableness, based

on what a similarly situated employer would do in predicting the demands

of its particular market."); 20 C.F.R. § 639.9(b)(2) (1996). The Act and

its regulations necessarily recognize that even the most conscientious

employers are not perfect, and they thus allow needed flexibility for

predictions about ultimate consequences that, though objectively

reasonable, proved wrong. So long as it may still fairly be said that the

eventual plant closing or mass layoff is caused by a sudden, dramatic, and

unexpected event outside the employer's control, the exception applies.7
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

Community Hosp., 7 F.3d 618, 625-27 (7th Cir. 1993)(analyzing facts to

determine whether particular event was sudden, dramatic, and unexpected),

cert. denied, 114 S. Ct. 1830 (1994); 20 C.F.R. § 639.9(b)(1) (1996).

After examining the record, we are convinced that the facts before

us fall squarely within the exception for unforeseeable business

circumstances. In so deciding, we certainly realize that the A-12 program

fell upon rocky times in 1990. The scheduling delays and severe budgetary

overruns, coupled with the Government's obvious unhappiness with the

cocontractors' performance, would undoubtedly raise the eyebrows of any

prudent businessperson. In fact, these events did not go unnoticed at

McDonnell Douglas, as that corporation sent advisory memoranda to its

employees explaining the precarious situation.

Despite this worrisome state of affairs, and under the totality of

the circumstances, we think that the Government's cancellation of the A-12

contract was not reasonably foreseeable to McDonnell Douglas prior to

January 7, 1991. To begin with, this case involves the rather unique,

politically charged area of defense contracts. In this setting, the

commercial reasonableness of McDonnell Douglas's reluctance to issue WARN

notices, even after the Government's December 17 cure letter, is manifest.

As noted by the district court, "the [G]overnment has rarely ever cancelled

a contract for a program for which the [G]overnment had stated a need."

The Government had most definitely stated a need for the A-12 fighterbomber, and high level 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 defense

contractor. Cf. General Dynamics, 821 F. Supp. at 1312 ("General Dynamics

officials were exercising reasonable business judgment in the context of

their particular market when they concluded that termination was not a

likely outcome.").

Moreover, other factors buttressed McDonnell Douglas's optimism. In

the months preceding the program's cancellation, Congress expressed ongoing

conditional support for the A-12, and the Navy's chief procurement officer

indicated that the contractors had remedied the jet's structural defects.

Also, upbeat negotiations progressed through early 1991, resulting in a

draft of a Memorandum of Understanding exhibiting the Navy's willingness

to restructure the agreement, and on January 2, 1991 Under-Secretary Yockey

declared that the Government had no intention to terminate the contract.

Given these developments, we have little difficulty in concluding that the

Government's January 7 announcement was sudden, dramatic, and unexpected.

Furthermore, while McDonnell Douglas admittedly was aware of the

Government's dissatisfaction with the cocontractors' performance, that

knowledge alone cannot in this case suffice to prevent the operation of the

exception for unforeseeable business circumstances. See Wholesale & Retail

Food Distribution Local 63 v. Santa Fe Terminal Servs., Inc., 826 F. Supp.

326, 332 (C.D. Cal. 1993)("This information [of a client's

dissatisfaction], however, did not rise to the level of putting [the

employer] on notice that the service agreement would be terminated.");

Jones v. Kayser-Roth Hosiery, Inc., 748 F. Supp. 1276, 1286-88 (E.D. Tenn.

1990) (finding loss of major account unforeseeable even though client had

vocalized displeasure with product).

In sum, McDonnell Douglas carried its burden of showing that the

unforeseeable business circumstances exception applies in this
 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. The termination of the A-12 program did not become reasonably

8

foreseeable until January 7, 1991. Because Loehrer and Brandt received

notice as soon as practicable after that date, there was no violation of

the WARN Act.9

III. CONCLUSION

The district court correctly determined that the exception for

unforeseeable business circumstances shields McDonnell Douglas from

liability under the WARN Act. Consequently, we affirm the district court's

entry of judgment in favor of the company.

AFFIRMED.
16
17

A true copy.

Attest:

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