Pena, Rufino v. American Meat ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-2396
RUFINO PENA, GERMAN ALVARADO, ROSA AYALA, et al.,
Plaintiffs-Appellants,
v.
AMERICAN MEAT PACKING CORPORATION,
Defendant-Appellee.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 02 C 2763—Ruben Castillo, Judge.
____________
ARGUED JANUARY 23, 2004—DECIDED MARCH 25, 2004
____________
Before BAUER, DIANE P. WOOD, and WILLIAMS, Circuit
Judges.
BAUER, Circuit Judge. The American Meat Packing
Corporation (“AMPAC”) closed its Chicago facility on
November 16, 2001 without giving its 350 employees prior
notice of the plant closing. The employees filed a class
action suit against AMPAC for violations of the Worker
Adjustment and Retraining Notification Act (“WARN Act”).
At issue was whether AMPAC could have reasonably fore-
seen the plant shutdown so as to provide the employees
2 No. 03-2396
prior notice. The district court found for AMPAC on sum-
mary judgment. Plaintiffs appeal; we reverse.
I. Background
AMPAC acquired its Chicago plant in 1998. Daniel
Ochylski was the president of AMPAC; Paul Espinosa was
AMPAC’s director of operations. The plant conducted the
slaughtering, butchering and packing of between 3,000-
3,400 “butcher hogs” per day until November 16, 2001 when
it closed. The daily processing of the hogs began with the
delivery of live hogs and ended with the shipping of neatly
packaged, chilled meat to cold storage facilities. In the year
prior to its closing, AMPAC’s Chicago plant suffered from
two problems: it had repeated difficulty maintaining
sanitary conditions for the slaughtering and butchering of
the hogs, and it was operating at a loss due to recent
expenditures to renovate the facility. Ultimately, the plant
shut down due to its inability to bring the plant into
compliance with United States Department of Agriculture
(“USDA”) regulations.
According to USDA regulation, “[e]ach official estab-
lishment must be operated and maintained in a manner
sufficient to prevent the creation of insanitary conditions
and to ensure that product is not adulterated.” 9 C.F.R.
416.1 (2004). In order to insure compliance with USDA
regulation, during its operation, AMPAC had five full-time
USDA inspectors at its plant to monitor sanitary conditions.
Each morning the inspectors would look over the various
areas of the plant to detect insanitary conditions. A report-
ing system was set up so that plant management was aware
of any insanitary conditions that existed, and had a chance
to remedy them.
On occasion, the USDA inspectors would issue
Noncompliance Records (“NR”) to document conditions
that were not compliant with USDA standards. When an in-
No. 03-2396 3
spector issued a NR it would identify the date and time the
insanitary condition was found, and the name of the
supervisor notified of the condition. The NRs contained
standard language stating, “this document serves as written
notification that your failure to comply with regulatory
requirements could result in additional regulatory or ad-
ministrative action,” in addition, AMPAC received a hand-
written note to the same effect on September 17, 2001.
When AMPAC received NRs it was required to respond
formally to the USDA. No product could be shipped unless
the USDA approved of the production process.
Prior to the plant’s shutdown, AMPAC received numerous
NRs. Specifically, during 2001 it received one in January,
one in February, three in March, four in May, one in July,
six in September, eight in October, and at least seven in
November. The NRs cited such insanitary conditions as:
water dripping onto the product, the presence of grease and
oil on hams, rust, hog carcasses on the floor, flaking paint,
rodent droppings, and the presence of meat with an open
abscess on cutting tables. On September 20, as a result of
the NRs, production was stopped temporarily; product was
also retained on September 14, 17 and 19.1 In response,
AMPAC took the following corrective actions: it wiped the
condensation away, counseled its employees to monitor
sanitary conditions at the plant, welded shut a breach in
the exhaust system, and installed a new door to reduce
airflow.
On October 31, 2001 the USDA withheld inspection after
observing a third incident of rodent droppings at the facil-
ity; this resulted in a stop in production. In response that
same day AMPAC hired a new exterminating service,
Ecolab. It also retained a private food safety consultant to
audit conditions at the plant. Neither Ecolab nor the new
1
That product was ultimately reconditioned and shipped.
4 No. 03-2396
consultant told AMPAC that its building had structural
problems, and both represented that they could fix
AMPAC’s problems. AMPAC sent a report to the USDA on
November 1. The USDA resumed inspection only to with-
hold it again on November 2 after citing AMPAC with an
additional four NRs; AMPAC was forced to cease produc-
tion. In response, AMPAC continued to try to improve
its facilities. It requested its employees help keep the
facility clean, retained an attorney to communicate with the
USDA on its behalf, asked the Chicago Department of
Public Health to rodent-proof an abandoned building ad-
jacent to the facility, and invested 1500 man hours in an
intensive cleaning over the weekend at a cost of $34,000.2
The USDA was unpersuaded; it suspended its assignment
of USDA inspectors at the facility on November 5, 2001.
AMPAC was unable to ship some one million pounds of
meat, valued at $638,000.
AMPAC continued its efforts to bring the facility into
compliance with USDA regulations. It took the following
actions: AMPAC retained another outside expert to assess
the facility, had Ecolab visit the facility and install over
one-hundred additional traps, retained the American Igloo
company to study and identify airflow problems that could
be causing the condensation problems, had management
review and update policy for meeting USDA requirements,
solicited quotes for the cost of testing the retained product
for contamination, assessed the cost for possibly repairing
a cooler, and it formed a crisis team to identify and correct
regulatory issues.
On November 7, AMPAC requested permission from the
USDA to ship its product; the USDA denied the request and
2
The cleaning effort included purchasing a new stainless steel
augur belt, plugging holes, covering previously uncovered floors
and beams, removing unused overhead apparatus and cleaning
the rendering building.
No. 03-2396 5
ordered the product be destroyed. On November 14, AMPAC
received information that repairs to its coolers would cost
$3 million and would take six months to complete. On
November 15, Ochylski again corresponded with the USDA,
detailing its efforts to improve the facility and outlining its
plan to spend the $3 million to upgrade the cooler if USDA
allowed them to continue operating. The USDA responded
that the measures taken up to that point were unsatisfac-
tory, and AMPAC could not resume operations. The USDA
also ordered AMPAC to destroy an additional 1.2 million
pounds of previously inspected and approved product, worth
about $545,500. On November 15, Ochylski decided to close
the plant the following day; notice was sent to employees on
November 16.
II. Discussion
The district court granted AMPAC’s motion for summary
judgment, stating that the USDA’s actions, resulting in the
closure of the plant, were not reasonably foreseeable. We
review the district court’s decision to grant summary judg-
ment de novo. Brademas v. Indiana Hous. Fin. Auth., 354
F.3d 681, 685 (7th Cir. 2004). Summary judgment is appro-
priate when there is no genuine issue of material fact and
the moving party is entitled to judgment as a matter of law.
FED. R. CIV. P. 56(c). In determining whether summary
judgment was appropriate we consider the evidence in the
light most favorable to the Plaintiffs.
The WARN Act requires employers, such as AMPAC,
to give its employees 60 days’ advance notice of a plant
closing. 29 U.S.C. § 2102(a). The purpose of the statute is to
provide workers transition time to seek alternative jobs
and, if necessary, seek retraining to allow them to suc-
cessfully compete in the job market. 20 C.F.R. § 639.1
(2004). Under WARN, the required 60-day notice period
may be reduced or eliminated if the closing was caused by
6 No. 03-2396
“business circumstances that were not reasonably foresee-
able as of the time that notice would have been required.”
29 U.S.C. § 2102(b)(2)(A). Such unforeseen business cir-
cumstances must be, “caused by some sudden, dramatic,
and unexpected action or condition outside the employer’s
control.” 20 C.F.R. § 639.9(b)(1).
The Department of Labor has been hesitant to create per
se rules as to what constitutes unforeseen business circum-
stances, and encourages a case-by-case examination of the
facts. Hotel Employees and Rest. Employees Int’l Union
Local 54 v. Elsinore Shore Assocs., 173 F.3d 175, 180 (3d
Cir. 1999); 54 Fed. Reg. 16,062, 16,062-63 (April 20, 1989).
In these situations, the Third Circuit has aptly noted,
“[w]hat is a harbinger of disaster in one context may be
an everyday occurrence in another.” Elsinore, 173 F.3d
at 186. In determining whether business circumstances
were “unforeseeable” we do not consider the employer’s own
subjective assessment, but rather whether it had exercised,
“such commercially reasonable business judgment as would
a similarly situated employer.” 20 C.F.R. § 639.9(b)(2)
(2004). In this case we consider whether a similarly situ-
ated meat packing facility would have foreseen heightened
USDA actions in November given AMPAC’s experiences
during the prior months.
The Federal Regulations contemplate the situation before
us and explicitly state that “[a] government ordered closing
of an employment site . . . may be an unforeseeable busi-
ness circumstance.” 20 C.F.R. § 639.9(b)(1) (2004).3 The
3
In discussing such government actions, the Department of
Labor differentiated government actions that directly order the
closing of a business (as contemplated in the Regulations) and
government actions that indirectly do so (as discussed in the
Commentary). Indirect closings occur in such situations where an
(continued...)
No. 03-2396 7
commentary to the regulations instructs that, “[d]epending
on the length of the notice given, a claim that [indirect
government] closings qualify for reduced notice under the
unforeseeable business circumstances exception may be
available.” 54 Fed. Reg. 16,042, 16,053-54 (April 20, 1989)
(emphasis added).
AMPAC argues that it was excused from its notification
requirement because the actions taken by the USDA in mid-
November were sudden and “not reasonably foreseeable” in
September. AMPAC believes the following three actions by
the USDA led to its decision to close the plant: its Novem-
ber 5 suspension of inspection, its combined November 7
and 15 orders to destroy over 2 million pounds of meat, and
its November 15 insistence on costly repairs to the cooler at
the facility. Whether these actions were reasonably foresee-
able depends on how a similarly situated manager of a meat
packing facility would react armed with the knowledge of
the conditions of its facility, the extent of its attempts to
repair the facility, and how the USDA generally operates
with regard to non-compliance with sanitation regulations.
We know that by mid-September (60 days prior to the
closing) AMPAC was receiving an escalating number of
NRs. Plaintiffs contend that AMPAC’s President, Ochylski,
was aware of the problematic conditions of the facility as far
as a year earlier, as evidenced by plans in 2000 to improve
the coolers that were later scrapped. Record at 23, ¶ 145-47
(...continued)
agency, “take[s] enforcement actions which might result in the
closing of a plant by the employer either to remedy the violation
or because it cannot continue to operate.” 54 Fed. Reg. 16,042,
16,053-54 (April 20, 1989). The commentary goes on to state,
“[s]uch [indirect] closings, although they may result from a gov-
ernment action, are not government ordered and are not subject
to the same treatment.” Id. The USDA’s actions are properly
classified as an indirect closing of AMPAC’s facility in Chicago.
8 No. 03-2396
(Statement of Uncontested Facts). They also assert that he
knew the remedial actions he was taking in response to the
NRs were ineffective to correct the underlying problems due
to the receipt of multiple citations for the same problems,
and the relatively small amount of money expended to
correct the conditions. Br. of Plaintiffs-Appellants at 16, 20.
Finally, Plaintiffs believe that Ochylski was unfamiliar
with USDA procedures and the seriousness of NRs. Record
at 30, ¶ 34 and 184. In short, they contend that a similarly
situated business person, exercising reasonable commercial
judgment would have foreseen in September the escalating
NRs would result in the USDA’s November actions, causing
the plant to close.
Case law on this topic is sparse and offers us little
guidance. The most similar fact pattern arose in the Third
Circuit. Elsinore, 173 F.3d at 175. In that case a casino was
shut down when a government agency refused to renew its
license due to the casino’s ongoing financial difficulties. The
court held that the shutdown was unforeseeable because
the commission in question had never before refused to
renew a casino license “even for applicants in serious
financial distress.” Id. at 186. In this case, AMPAC hopes to
align itself with Elsinore by asserting that Ochylski and
Espinosa had a combined fifty years of experience operating
slaughterhouses, and had never experienced similar harsh
actions on the part of the USDA following the issuance of
NRs. In our case the waters are further muddied by the fact
that beginning in January 2000 the USDA implemented
new rules regarding sanitation requirements for meat and
poultry establishments. The new rules were to be results-
driven standards, rather than a list of dos and don’ts. The
Commentary to the Regulations contemplates such situa-
tions and states that changes in agency rules are not
always unforeseeable because “regulatory changes are often
preceded by lengthy notice and comment procedures, [and]
often have delayed effective dates.” 54 Fed. Reg. 16,042,
No. 03-2396 9
16,062-63 (April 20, 1989). This analysis seems appropriate
to our situation, given the fact that the USDA published its
proposal for these changes in 1997. So, even though
Ochylski and Espinosa had not previously experienced a
plant shutdown due to USDA withholding of inspection
following its issuance of multiple NRs, a reasonable,
similarly situated business person might have foreseen that
the new USDA rules would result in such actions, especially
given the fact that the new rules focused on results (rather
than efforts), and AMPAC had been unable to provide
effective remedies to its sanitation problems.
Viewed in a light most favorable to Plaintiffs, we think
that there exists a genuine issue of material fact as to
whether the business conditions that caused AMPAC to
close its facility were unforeseeable. Further, if the con-
ditions were unforeseeable, it is unclear whether this qua-
lifies AMPAC for merely a reduction in its required notice
period or the complete elimination of it. We believe these
questions are best answered by a finder of fact. For this
reason, we REVERSE.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—3-25-04