Sharon Childress Dwayne Springer Mike Frisbie Stuart Ingraham Rick Buchanan Scott Rotering Phillip Cook David Hall Tari Conroy Lyle Goracke Robert Hackel Gerald Behling Brandon Zeiler Ray Luchi Randy Rennaker Dan Wiseman, Jr. Dan Wiseman, Sr. Greg Holt Steven Mossbrucker and Dave Osborn v. Darby Lumber, Inc. A Montana Corporation and Bob Russell Construction Inc. An Idaho Corporation
Docket: 01-35764
Court: Court of Appeals for the Ninth Circuit; February 5, 2004; Federal Appellate Court
Darby Lumber, Inc. and Bob Russell Construction, Inc. appeal a summary judgment from the U.S. District Court for the District of Montana favoring former employees, led by Sharon Childress, who claimed violations of the Worker Adjustment and Retraining Notification (WARN) Act. The Ninth Circuit considered whether the district court erred in: (1) classifying Darby Lumber and Bob Russell Construction as a single employer under the WARN Act; (2) determining that the companies were not exempt from the WARN Act's requirement for a sixty-day notice before mass layoffs; (3) resolving various discovery disputes; and (4) awarding attorney's fees to the plaintiffs. The court found no error in the district court's conclusions and affirmed the judgment.
The background reveals that Bob Russell Construction, incorporated in Idaho in 1976, and Darby Lumber, incorporated in Montana in 1984, were linked when Darby Lumber acquired all shares of Bob Russell Construction in 1996. At the relevant time, Darby Lumber employed 88 full-time employees, while Bob Russell Construction employed 18, all exceeding 1,000 hours of work. On September 24, 1998, a notice was distributed to Darby Lumber employees about impending layoffs due to financial troubles, which led to the closure of the mill and subsequent layoffs of both companies' employees over the following months. Former employees filed a lawsuit on February 8, 1999, alleging violations of the WARN Act, which mandates a sixty-day advance notice for layoffs affecting 50 or more employees at a single site.
Appellants DLI and BRC argued that the WARN Act was inapplicable as each company employed fewer than 100 full-time employees. They also contended that even if the Act applied, defenses such as "faltering company," "unforeseeable business circumstances," and "good faith" would exempt them from liability. Conversely, Appellees claimed that DLI and BRC constituted a "single employer" under the WARN Act, that the exceptions did not apply, and that even if they did, the notice of termination was insufficient, warranting sanctions.
The district court ruled, after analyzing factors from the Labor Management Relations Act and the WARN Act regarding single employer status, that DLI and BRC were indeed a single employer for WARN Act purposes. It determined that the asserted exceptions were inapplicable and found Darby Lumber liable regardless, due to inadequate notice. The court subsequently awarded plaintiffs $123,033.44 in attorney’s fees and $60,345.45 in damages, representing lost wages and benefits from the layoff starting September 25, 1998, minus any days worked.
The WARN Act aims to protect workers by mandating a 60-day notice prior to plant closings or mass layoffs, allowing time for adjustment and job searching. It applies to employers with 100 or more full-time employees, who must provide written notice of any plant closing or mass layoff. A "mass layoff" is defined as a reduction in force not resulting from a plant closure that affects at least 33% of employees or at least 50 or 500 employees within a 30-day period, calculated from the last date notice should have been given. On the notice date of July 27, 1998, DLI and BRC combined had over 100 employees, though individually they did not. The analysis of the "single employer" status involved considering evidence that supported the notion of DLI and BRC being distinct entities.
To ascertain "single employer" status under the LMRA, four key factors are evaluated: common ownership, common management, centralized control of labor relations, and interrelation of operations. Common ownership is deemed the least significant, while the other three serve as guiding principles. The determination of single employer status hinges on the overall circumstances of each case, particularly the absence of an arms-length relationship typical of separate entities.
Under WARN regulations, independent contractors and subsidiaries are classified as separate employers or part of a parent company based on their operational independence. Factors considered include: common ownership, common directors/officers, de facto control, unity of personnel policies, and operational dependency.
1. **Common ownership**: BRC is wholly owned by DLI, with Russell owning 49% of DLI and acting as trustee for the remaining shares. Despite corporate formalities, this establishes the necessary commonality of ownership.
2. **Common directors/officers**: BRC and DLI share directors and officers, a fact acknowledged by the appellants.
3. **De facto exercise of control**: While appellants claim BRC maintained distinct policies and management, evidence suggests DLI exerted control over BRC, with decisions made by DLI's manager impacting BRC’s operations. Russell's admission about his directive authority further supports this.
4. **Unity of personnel policies**: Significant differences in personnel policies between DLI and BRC exist, particularly regarding overtime, breaks, and health insurance, which appellants highlight.
5. **Dependency of operations**: Appellees argue that BRC was highly dependent on DLI, with over 90% of its activities linked to DLI. BRC's financial records were kept at DLI, and some employees worked for both entities. Conversely, appellants assert that BRC operated independently before DLI's establishment and could provide services to other clients, indicating operational viability outside DLI's influence.
Overall, the analysis favors DLI's de facto control and operational interdependence with BRC, while acknowledging some distinctions in personnel policies.
BRC primarily provided services to DLI, indicating a dependency between the two entities, as BRC ceased operations shortly after the closure of the DLI mill. This relationship led the district court to conclude that BRC and DLI acted as a single employer under the WARN Act. The appellants argued they were exempt from the WARN Act’s sixty-day notice requirement for layoffs based on three exceptions: good faith, business circumstances, and faltering company.
Regarding the good faith exception, the WARN Act allows for reduced liability if an employer proves it acted in good faith and had reasonable belief that it was compliant. However, the appellants failed to demonstrate a genuine intent to comply with the Act or to show reasonable grounds for their belief in compliance. Their ignorance of the WARN Act was insufficient to establish good faith.
For the business circumstances exception, the WARN Act does not require notice if layoffs result from unforeseeable business circumstances. The relevant regulations provide further clarification on what constitutes such circumstances.
An unforeseeable business circumstance is characterized by sudden, dramatic events beyond an employer's control, such as the unexpected termination of a major contract, strikes at crucial suppliers, or sudden economic downturns. A government-mandated closure without prior notice may also qualify. The determination of foreseeability hinges on the employer's business judgment, requiring that they act as a similarly situated employer would in assessing market demands, without needing to predict broader economic trends. In this case, the appellants claimed that the abrupt decision by U.S. Bank on September 7, 1998, to deny credit led to the mill's closure. However, their own discovery response indicated that the closure resulted from several cumulative factors over time, including a depressed lumber market and increased raw material costs, suggesting it was foreseeable. The district court affirmed that the business circumstances exception did not apply.
Regarding the faltering company exception outlined in 20 C.F.R. 639.9(a), it applies only to plant closings, not mass layoffs, and is narrowly interpreted. This exception allows for reduced notice if the employer was actively seeking capital, had a realistic chance of obtaining it, and believed that providing notice would hinder their ability to secure financing or business. Employers must demonstrate that potential financiers would be disinclined to engage with a troubled company if aware of potential layoffs or closures.
Appellants aim to invoke the "faltering company" exception due to their pursuit of a credit line from U.S. Bank. However, they failed to present evidence demonstrating a reasonable belief that providing a sixty-day notice to employees during these negotiations would hinder their chances of securing funding. The district court's decision to deny the applicability of the faltering company exception was upheld.
In terms of discovery disputes, the district court's rulings are reviewed for abuse of discretion.
A. The request for a protective order to reschedule depositions was denied because appellees showed substantial efforts to accommodate witness schedules, and appellants did not respond in a timely manner.
B. Appellants contested sanctions levied for not producing documents during a deposition of DLI's former accountant. They argued that since the witness had recently left DLI, she lacked access to the required documents. However, the court noted that the witness had sought guidance from a DLI officer before the deposition and was advised against bringing the documents. The court found it appropriate to sanction appellants for the absence of these documents and awarded plaintiffs costs and fees totaling $10,770.20, which appellants did not successfully contest as being excessive.
C. The motion to compel discovery responses was denied due to the lack of a good faith conference prior to filing the motion. Although appellants claimed to have submitted a Certification of Good Faith Conference, the court ruled that the local rule required a pre-motion discussion of all disputed issues, which was not demonstrated. Thus, the court did not abuse its discretion in denying the motion to compel.
Appellants argued that the district court should have excluded Dr. Vinso's expert opinions due to appellees' non-compliance with Federal Rule of Civil Procedure 26(a)(2)(B). However, the court found that appellees did file a disclosure statement, which was limited in detail due to appellants' failure to provide necessary documents during discovery. Dr. Vinso’s report was subsequently made available to the appellants without evidence of an abuse of discretion by the district court in denying the motion to exclude.
Concerning attorney's fees, the WARN Act allows the prevailing party to recover reasonable fees. The district court granted $123,033.44 in fees to appellees, who prevailed overall, while denying fees to appellants despite their partial victories. Appellants claimed entitlement to fees, asserting that their wins on two claims made them the prevailing party. However, prevailing status is determined by whether the plaintiff materially alters the legal relationship with the defendant, as established in Farrar v. Hobby. Since appellees secured a judgment of $60,345.45 against appellants, they were deemed the prevailing party.
The court's standards for awarding fees to prevailing defendants require that the plaintiffs' claims be deemed frivolous or unreasonable. The appellants contested the amount awarded to the plaintiffs, arguing it was excessive relative to their recovery. Nonetheless, the district court correctly applied the lodestar method for calculating fees, supported by legal precedents. The court concluded that the lodestar represents a reasonable fee, regardless of whether it is fixed or contingent.
The appellate court affirmed all rulings of the district court.
