Roquet, Nancy J. v. Arthur Andersen LLP ( 2005 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 04-1616 & 04-1838
NANCY J. ROQUET and CORETTA ROBINSON,
Plaintiffs-Appellants,
Cross-Appellees,
v.
ARTHUR ANDERSEN LLP,
Defendant-Appellee,
Cross-Appellant.
____________
Appeals from the United States District Court for
the Northern District of Illinois, Eastern Division.
No. 02 C 2689—John W. Darrah, Judge.
____________
ARGUED OCTOBER 28, 2004—DECIDED FEBRUARY 9, 2005
____________
Before RIPPLE, WOOD, and EVANS, Circuit Judges.
EVANS, Circuit Judge. This case involves the Worker
Adjustment and Retraining Notification Act, 29 U.S.C.
§§ 2101-2109, better known by its shortened name, the
WARN Act. The Act became law in 1989, and its purpose is
to soften the economic blow suffered by workers who
unexpectedly face plant closings or mass layoffs. Among
other things, the Act requires that companies subject to its
2 Nos. 04-1616 & 04-1838
reach (generally large employers) give employees 60 days
notice in advance of any mass layoffs or plant closings. The
notice gives affected workers a little time to adjust to a job
loss, find new employment, or, if necessary, obtain retrain-
ing.
Our case, however, is not your typical WARN Act fare as
it involves hot-button topics like “Enron,” “document
shredding,” and “indictment.” And it concerns an exception
to the WARN Act’s notification requirement: the Act’s 60-
day-notice obligation is eliminated, or reduced to a shorter
term, if a mass layoff or plant closing is “caused by business
circumstances that were not reasonably foreseeable as of
the time that notice would have been required.” Id.§ 2102(b)(2)(A). The defendant here, the giant accounting
and consulting firm Arthur Andersen LLP, convinced the
district court that its failure to comply with the Act was
excused by the exception we just quoted. The plaintiffs, a
purported class of former Andersen employees, are here
challenging that decision on appeal.
First, a little background. As of early 2002, Andersen had
over 27,000 employees in 80 locations throughout the coun-
try. In addition to providing direct accounting and consult-
ing services for clients, Andersen performed administrative
support services for approximately 80 international practice
firms that used the Andersen name. One of the firm’s major
clients was the Enron Corporation, the infamous Houston,
Texas, energy marketer that fell like a house of cards in
2001 when it came to light that the company had grossly
misstated its earnings. Andersen was at the center of
Hurricane Enron—it audited the company’s publicly filed
financial statements and provided internal counseling. See
United States v. Arthur Andersen, LLP, 374 F.3d 281 (5th
Cir. 2004).
In November of 2001, Andersen received bad news in the
form of a subpoena from the SEC requesting Enron-related
documents. During the course of its investigation, the SEC
discovered that Andersen employees destroyed thousands
Nos. 04-1616 & 04-1838 3
of relevant documents in the 6 weeks leading up to its
receipt of the subpoena. Over the next few months, the
media began to speculate about Andersen’s continuing
viability. Stories also circulated that Andersen’s employees
were concerned about layoffs and that some of the com-
pany’s clients were contemplating defection.
During this time, Andersen worked hard to try to resolve
its Enron-related ills with the SEC and the Department of
Justice (DOJ). As of February 22, 2002, Andersen had not
suffered a significant loss of business nor was it giving any
thought to a mass layoff. That day, Andersen’s lawyers met
with lawyers from the DOJ. The next day, counsel briefed
Andersen’s management team, and a participating manager
e-mailed the following update to employees:
At our meeting on Saturday, February 23, the current
status of the investigation into document destruction
was presented by the outside lawyers from Davis Polk.
They are moving forward as quickly as possible to bring
this matter to a conclusion as it relates to the Firm with
the Department of Justice. Our desired timetable is to
be in a position at the end of February to have the
desired conclusion and an agreement in principle with
the DOJ, so that we can finalize our disciplinary actions
and prepare an internal announcement followed closely
by a public announcement of the resolution of this
investigation.
Discussions continued over the next few days.
On March 1, the DOJ delivered dire news—it was going
to seek an indictment of the company. Andersen tried to
convince the DOJ to change its mind, but to no avail. On
March 7, an Andersen managing partner, Terry Hatchett,
sent an e-mail informing employees that the firm was “pres-
ently engaged in discussions with the Department of Justice
regarding the parties’ respective views” and that “[n]o final
conclusions have been reached.” That very day, however,
4 Nos. 04-1616 & 04-1838
the DOJ filed a sealed indictment charging the firm with
obstructing the SEC investigation by destroying and with-
holding documents (18 U.S.C. § 1512(b)(2)). On March 13,
Andersen’s lawyers asked the DOJ to defer prosecution of
the company and focus instead on culpable individual
employees. The DOJ refused to budge, and on March 14 the
indictment was unsealed.
To the surprise of no one, news of the indictment trig-
gered massive client defection. From March 15 to the 31st,
Andersen lost $300 million in business. During this time
period, the practice group on West Monroe Street in Chicago
alone lost $57 million, roughly 14 percent of its fees. To put
the gravity of these losses in perspective, the firm had lost
only $5 million, or 1 percent, in the 10 weeks preceding the
indictment. On March 28, Andersen announced that it was
eliminating support services for its international network,
which would result in additional revenue loss.
In light of these setbacks, and with additional hemorrhag-
ing expected, Andersen decided to lay off thousands of
employees. On April 8, management at West Monroe gave
notices of termination to 560 employees, including Nancy
Roquet and Coretta Robinson, the named plaintiffs in this
suit. After receiving notice, Roquet remained on the payroll
for 2 weeks and Robinson for 5 weeks. Andersen also made
major cuts at its North Michigan Avenue site in Chicago as
well as at its training facility in St. Charles, Illinois.
Roquet and Robinson filed a class-action complaint in fed-
eral district court alleging that Andersen violated the
WARN Act by failing to give 60 days notice to its workers
before laying them off. They sought back pay and lost bene-
fits. In August of 2002, the court certified a class consisting
of workers from the two Chicago sites and the St. Charles
facility. Both sides eventually moved for summary judgment
on the issue of whether Andersen’s workforce reduction
qualified as a “mass layoff” under the Act. The court con-
cluded that it did and granted the plaintiffs’ motion.
Nos. 04-1616 & 04-1838 5
The parties then moved for summary judgment on the
question of whether Andersen was exempt from liability un-
der the WARN Act’s “unforeseen business circumstances”
exception. The district court concluded that the need for lay-
offs was not reasonably foreseeable 60 days before the
decision was made and entered summary judgment in favor
of Andersen. The plaintiffs appeal that decision, which we
review de novo.
In evaluating this appeal, we note that the Department
of Labor has provided some guidance regarding when the
“unforeseen business circumstances” exception applies. In
doing so, however, the agency eschewed per se rules and in-
stead encouraged a case-by-case examination of the facts.
See Pena v. Am. Meat Packing Corp., 362 F.3d 418, 421 (7th
Cir. 2004). A business circumstance may be reasonably un-
foreseeable if it was caused by some sudden, dramatic, and
unexpected action, or by conditions outside the employer’s
control. 20 C.F.R. § 639.9(b)(1). When determining whether
a mass layoff was caused by unforeseeable business circum-
stances, courts evaluate whether a similarly situated
employer exercising reasonable judgment could have fore-
seen the circumstances that caused the layoff. Id. § 639.9(b)(2).
Thus, a company will not be liable if, when confronted with
potentially devastating occurrences, it reacts the same way
that other reasonable employers within its own market
would react. Watson v. Mich. Indus. Holdings, Inc., 311 F.3d
760, 765 (6th Cir. 2002); Loehrer v. McDonnell Douglas Corp.,
98 F.3d 1056, 1061 (8th Cir. 1996).
The parties dispute whether Andersen established either
element of the exception—causation and foreseeability. See
Jurcev v. Cent. Cmty. Hosp., 7 F.3d 618, 622-27 (7th Cir.
1993). The district court concluded that the need for mass
layoffs was caused by the public announcement of the in-
dictment on March 14. We agree. Up until then, Andersen
suffered no marked loss of business despite a spate of nega-
tive publicity. It is clear that economic hemorrhaging really
6 Nos. 04-1616 & 04-1838
did not begin until word of the indictment got out. The
plaintiffs contend that Andersen’s felonious misconduct
caused the layoffs, not the indictment. But, while it is true
that the illegal acts of some Andersen employees were the
root cause of the firm’s ultimate downfall, not until the
indictment became public did it feel the pain. Had the DOJ
indicted only individual Andersen employees instead of the
firm as a whole, or targeted only the Houston office, the
layoffs here may never have occurred.
The heart of the dispute in this case centers on foresee-
ability. In determining whether a crippling business circum-
stance is foreseeable, we must bear in mind that “it is the
‘probability of occurrence that makes a business circum-
stance “reasonably foreseeable,” ’ rather than the ‘mere
possibility of such a circumstance.’ ” Watson, 311 F.3d at
765 (quoting Halkias v. Gen. Dynamics Corp., 137 F.3d 333,
336 (5th Cir. 1998)). The layoffs began on April 23, which
means that Andersen was required to notify employees 60
days earlier, or February 22. The plaintiffs argue that the
indictment was reasonably foreseeable on that date because
“the DOJ disclosed to Andersen that an indictment was
highly probable.” But the record does not support this posi-
tion. The plaintiffs point to Andersen’s meeting with the
DOJ on February 22 and its subsequent efforts to fight off
an indictment. The February 23 e-mail summarizing that
meeting, however, makes no mention of the firm being
indicted. And Andersen’s subsequent negotiations with the
government do not mean that it knew an indictment was
likely. Possible? Certainly. But probable? No. See Halkias,
137 F.3d at 336 (business circumstances triggering layoff
must be “probable” to be reasonably foreseeable; a lesser
standard of “possibility” would be impracticable). Indeed, as
of February 22 it was not a foregone conclusion that
Andersen would be indicted as a company—in the past, the
government typically went after culpable individuals, not
Nos. 04-1616 & 04-1838 7
companies as a whole.1 By all accounts, this was an unusual
move by the DOJ. There is evidence in the record suggest-
ing that Andersen could have reasonably foreseen the
indictment by March 1—the date it was told by the DOJ
that it was being indicted. But hope still remained that the
dreaded act could be stalled if not avoided.
We believe that a reasonable company in Andersen’s posi-
tion would have reacted as it did. Confronted with the pos-
sibility of an indictment that threatened its very survival,
the firm continued to negotiate with the government until
the very end and turned to layoffs only after the indictment
became public. The plaintiffs argue that Andersen should
have notified employees of layoffs on February 22. We do
not agree. At that point, Andersen had not yet lost business
or been indicted. Indeed, in our view, a mass layoff at that
point would have been a poor business decision. What if the
government decided not to indict the firm as a whole, or
waited 6 months to make the decision? The only reason for
providing notice so early would be to ward off potential
WARN Act liability. But, as the Sixth Circuit explained in
Watson, the WARN Act is not intended to deter companies
from fighting to stay afloat:
WARN was not intended to force financially fragile, yet
economically viable, employers to provide WARN notice
and close its doors when there is a possibility that the
business may fail at some undetermined time in the
future. Such a reading of the Act would force many
employers to lay off their employees prematurely, harm-
ing precisely those individuals WARN attempts to pro-
tect. A company that is struggling to survive financially
1
This rather unprecedented step will be considered soon by the
Supreme Court, which just recently agreed to consider whether
indicting (and convicting) the company as an entity was a proper
application of 18 U.S.C. § 1512(b)(2).
8 Nos. 04-1616 & 04-1838
may be able to continue on for years and it was not
Congress’s intent to force such a company to close its
doors to comply with WARN’s notice requirement.
311 F.3d at 765. These same concerns were at play here.
Thus, Andersen’s failure to notify employees earlier than it
did was not unreasonable.
The plaintiffs argue that the layoffs were foreseeable as
a matter of law under 20 C.F.R. § 639.9(b)(1) because the
indictment was not sudden, dramatic, and unexpected nor
outside the employer’s control. In their view, Andersen was
long aware of its misconduct, and punishment for that mis-
conduct was inherently foreseeable. But the indictment was
certainly sudden and dramatic in that Andersen did not
know if it would be indicted as a firm. Nor did Andersen
really know when the indictment would be returned until
the act occurred. Again, the WARN Act deals in reasonable
probabilities, not possibilities. Moreover, an employer does
not have to be caught completely off guard by a dire busi-
ness circumstance for it to be “sudden, dramatic, or unex-
pected.” Case law reveals that WARN Act defendants need
not show that the circumstances which caused a plant
closing or mass layoff arose from out of the blue to qualify
for the exception. See Jurcev, 7 F.3d at 626 (hospital entitled
to the exemption despite awareness of precarious financial
condition and potential loss of funding which ultimately led
to its closing); Hotel Employees & Rest. Employees Int’l
Union Local 54 v. Elsinore Shore Assocs., 173 F.3d 175, 186
(3rd Cir. 1999) (casino owner entitled to exception where it
could not be sure if or when gaming commission would re-
voke its license); Loehrer, 98 F.3d at 1062 (defense contractor
exempt despite being aware that government might cancel
bomber/fighter contract).
Our dissenting colleague tells us that “Andersen knew
enough ‘long before’ April 8, 2002, to give the required stat-
utory notice to its employees.” (We’ve added the internal
Nos. 04-1616 & 04-1838 9
quotation marks.) That’s an odd statement, for the statu-
tory notice requires 60 days, and the dissent goes on to tell
us in the same paragraph that the “impending catastrophe
was not foreseeable as of February 22, 2002. So, by that
count alone, “long before” April 8 (when notice was given)
is at best 45, not 60, days. And “long before” eventually be-
comes shorter still as the dissent settles on March 1, 38 days
before the April 8 notice actually went out, as the trigger
date. While we concede that an argument could be made that
March 14, the date the indictment was unsealed, could be
viewed as a WARN Act trigger date (which would further
shorten the “long before” window to 25 days), we don’t think
it should be so viewed. We think the company, faced with
this unprecedented cataclysmic event, reasonably needed a
little time to assess how things would shake out. And it was
not unreasonable for the company to think it could survive
the carnage until early April, when on the 8th it ran up the
white flag of surrender and gave the bad news to its
employees.
The lead time in the notice Andersen ended up giving var-
ied from employee to employee. Our two named plaintiffs,
for example, got 2 (Roquet) and 5 (Robinson) weeks notice
before they were out of work. Given the situation here, and
the “business circumstances” exception in § 2102(b)(2)(A),
Andersen, although deserving of no roses for the acts of some
of its agents in the Enron mess, did not violate the WARN
Act by giving the notice as it did on April 8.
We also reject the notion that the timing of the notice was
under Andersen’s control. The plaintiffs are confusing
Andersen’s responsibility and culpability for its misbehavior
with its “control” over the indictment within the meaning of
the regulation. Stated simply, Andersen could not indict
itself. Andersen was not like a company that secretly plotted
for a long time to move its operation to Mexico and closed
up shop without any notice to its employees.
10 Nos. 04-1616 & 04-1838
Andersen has appealed the district court’s entry of
summary judgment for the plaintiffs on the question of
whether its workforce reduction constituted a “mass lay-
off” under the Act. But because we agree with the court’s
dismissal of the suit under the WARN Act’s “unforeseen
business circumstances” exception, we need not address the
contention.
The judgment of the district court is AFFIRMED.
WOOD, Circuit Judge, dissenting. No one could dispute
the majority’s observation that the layoffs involved in this
case were high-profile. The pages of the country’s newspa-
pers in 2001 and 2002 were filled for weeks, if not months,
with the unfolding Enron story and the role that Enron’s
advisors, including Arthur Andersen, played in that saga.
Nonetheless, the Worker Adjustment and Retraining
Notification Act, 29 U.S.C. §§ 2101-2109, (the WARN Act)
applies to all cases, not just to those that are dull enough to
stay below the press’s radar screen. The majority finds here
that Andersen was entitled to take advantage of the
unforeseen circumstances exception to the obligation to
notify affected workers 60 days prior to a mass layoff or
plant closing. In so holding, it either finds that notice was
impossible right up to April 8, 2002, when the employees
finally received the bad news, or it finds that the statute as
a matter of law takes an all-or-nothing approach—if 60
days’ notice is impossible, then no notice at all is required.
Neither one of those possibilities is correct, in my opinion;
the first fails as a matter of fact, and the second as a matter
of law. I would find that notice was possible, and thus
Nos. 04-1616 & 04-1838 11
required, no later than March 1, 2002, and I would remand
for further proceedings on that basis.
First, a review of the facts shows that Andersen knew
enough long before April 8, 2002, to give the required stat-
utory notice to its employees. Plaintiff Nancy Roquet re-
mained on the payroll for two more weeks, until April 23,
which was the date when the mass layoffs began. Under the
statute, therefore, she and the many other Andersen
employees in her position should have received notice of their
terminations no later than February 22, 2002, assuming
critically that Andersen realized that the firm was about to
crumble. Although the plaintiffs have argued strenuously
that Andersen knew enough as of that date to trigger the
notice obligation, I agree with the majority that the im-
pending catastrophe was not foreseeable as of February 22,
2002. At that point, despite the negative Enron publicity,
Andersen had not experienced a significant loss of business.
Its lawyers advised it on February 23 that they were mov-
ing quickly to a resolution of the matter with the Depart-
ment of Justice (DOJ). The tone of the e-mail sent to the
employees, reproduced ante at 3, suggests that the firm be-
lieved that some heads would roll, but that the firm itself
would carry on.
This relatively positive outlook was shattered on March 1,
when the DOJ informed Andersen that it was about to be
indicted. No one could have been in any doubt about the
grim prospects the firm faced after indictment. Such a dras-
tic step was close to unprecedented, as the many articles
commenting on it after-the-fact observed. See, e.g., Editorial,
Frontier Justice, WALL ST. J., March 18, 2002; James O’Toole,
Spreading the Blame at Andersen, N.Y. TIMES, March 26,
2002, at A25. (Indeed, the Supreme Court has just granted
certiorari in Andersen’s criminal case, indicating that it is
yet to be determined whether the firm should have been
convicted. See Arthur Andersen LLP v. United States, No.
04-368, cert. granted, 125 S. Ct. 823 (Jan. 7, 2005.) Even
12 Nos. 04-1616 & 04-1838
though Andersen made a last-ditch effort to persuade DOJ
to change its mind, it knew that it was in serious trouble.
The DOJ does not lightly tell firms that a grand jury is
about to indict them, after all. Under the WARN Act, this
was enough to trigger its legal obligation to give notice to its
employees. By this time, to put the point in terms of the
statutory exception to the 60-day rule, it was at least
“reasonably foreseeable” to the firm that the closing or mass
layoffs would occur. This does not mean, in my view, that
Andersen had to tell its threatened employees the reason
why such a drastic restructuring was possible; it simply had
the obligation to tell them that their jobs were at risk. And
indeed those jobs were at risk: on March 7, as promised,
DOJ filed a sealed indictment charging the firm itself with
obstruction of justice. A week later, on March 14, the indict-
ment was unsealed. Predictably, the news of the indictment
dealt a body-blow to the firm, as the majority has recounted.
Facing massive losses in business, Andersen gave notice to
550 of its employees on April 8 that they were going to be
terminated; a short two weeks later, the departures began.
The facts simply cannot bear the interpretation that the
necessity for mass layoffs was not reasonably foreseeable
prior to April 8. Thus, if this is the true rationale of the
majority’s opinion, I cannot subscribe to it. It is also pos-
sible, though by no means necessary, to read the majority’s
opinion as holding that if the need for the layoffs was not
reasonably foreseeable at the 60-day mark (February 22),
then no notice at all was required by the statute. In Pena v.
American Meat Packing Corp., 362 F.3d 418 (7th Cir. 2004),
this court left open the question whether a sufficient unfore-
seen circumstance occurring within the 60-day window
excuses an employer from providing any notice at all, or if
instead it merely reduces the amount of notice required. See
id. at 422 (“Further, if the conditions were unforeseeable, it
is unclear whether this qualifies AMPAC for merely a
reduction in its required notice period or the complete
elimination of it.”).
Nos. 04-1616 & 04-1838 13
In my view, we should reach that question in the case
before us. Taking into account the language and purpose of
the WARN Act, we should hold that the 60-day period is
merely reduced, not eliminated, when the necessity for a
mass layoff or plant closing becomes apparent within that
time period. Indeed, immediately after describing the un-
foreseen circumstances exception, the statute reads: “An
employer relying on this subsection shall give as much
notice as is practicable and at that time shall give a brief
statement of the basis for reducing the notification period.”
29 U.S.C. § 2102(b)(3). If the all-or-nothing rule is truly be-
ing adopted by the majority, it is creating a conflict with the
Eighth Circuit, see Burnsides v. MJ Optical, Inc., 128 F.3d
700, 704 (1997) (finding that the “unforeseeable business
circumstances defense still requires [an] employer to give as
much notice of closing as practicable once [the] causal event
becomes known”), and the opinion should be circulated
under Circuit Rule 40(e). The Third and Fifth Circuits also
appear to be on the side of the Eighth on this issue. The
Third Circuit has written that “in the event that an un-
foreseeable business circumstance arises, the notice period
may be reduced or eliminated.” Hotel Employees and Rest.
Employees Intern. Union Local 54 v. Elsinore Shore Assocs.,
173 F.3d 175, 187 (3d Cir. 1999). Although the Fifth Circuit
in Halkias v. General Dynamics Corp., 137 F.3d 333, 336
(5th Cir. 1998), afforded the employer a week to provide no-
tice once the probability of the mass layoff became fore-
seeable, it did so only because it accepted that the employer
provided as much notice as was practicable.
The crucial date under the WARN Act is not the date
when the company knows that a mass layoff is imminent,
nor is it the date when the company finally gets around to
identifying the exact employees affected by the mass layoff.
The Act states plainly that the trigger date is the date when
a mass layoff is “reasonably foreseeable.” As soon as it is
probable that a mass layoff will occur, the employer must
provide notice as soon as is practicable. Here, Andersen knew
14 Nos. 04-1616 & 04-1838
of the indictment on March 1, yet it waited over five weeks
before providing any notice to its employees.
This is not a trivial point for the employees concerned.
Under my view of the statute, Roquet should have received
notice on March 1 (which, obviously, is less than 60 days
prior to her actual date of layoff, April 23) or very shortly
thereafter. Under the most conservative approach I can
imagine, she should have received notice on March 14, when
the indictment was unsealed and the hemorrhaging began.
(Given the majority’s disposition, there is no need to resolve
which date is correct; I would remand this question as well
to the district court). Using March 1, her notice was 38 days
late; using March 14, it was 25 days late. She should receive
compensation for that time period. For other employees, the
time periods between date of notice and date of layoff will
differ, depending on when they actually lost their jobs.
Robinson stayed for five weeks after April 8; a full 60 days’
notice would have been possible for her.
The majority worries that giving the required WARN Act
notice might exacerbate problems for a floundering company.
While this may be true, the fact is that Congress weighed
the interests of companies and workers in the statute, and
it drew the 60-day line we have. Companies can protect
themselves to a certain degree in the wording of the notices
they give. As I stated above, the company need not be able
to identify each affected employee by name; a general no-
tice, alerting the employees as a group to the possibility of
a layoff, is what the statute requires. Finally, at least on
the present facts, Andersen’s troubles were not exactly a
state secret. There was nothing left to hide after March 14,
when the indictment hit the front pages of the country’s
newspapers. By March 1, it was reasonably foreseeable to
the firm that it would need to reduce its staff drastically.
For these reasons, I would reverse and remand for further
proceedings. I respectfully dissent.
Nos. 04-1616 & 04-1838 15
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—2-9-05