Ronald CASTRO, Lauretta Grant, Chermi Jones, Willie Miranda, Victor Castillo, Garrick Whitehead, Kenneth Ageyeman, M. Jerome Rochelle, Orlando Morris, Marcus Miles, Shinetta Johnson, Victor Brown, Sonia Jones, Allen McCullough, Kim Davis, Grant Ogburn, and Cupid Stewart, individually and on behalf of a class of persons similarly situated, Plaintiffs-Appellees, v. CHICAGO HOUSING AUTHORITY, Defendant-Appellant.
No. 03-2892.
United States Court of Appeals, Seventh Circuit.
Decided March 10, 2004.
361 F.3d 721
Argued Jan. 15, 2004.
TERENCE T. EVANS, Circuit Judge.
For 10 years, the Chicago Housing Authority (CHA) operated its own police department, providing police services to residents of its housing developments. On October 12, 1999, however, the CHA notified its employees that it was closing the department. Two and a half weeks later, on October 29, 1999, the CHA laid off its police officers and security personnel. Seventeen terminated employees filed a class action lawsuit1 under the Worker Adjustment and Retraining Notification Act (WARN Act),
that Judge Lefkow erred in failing to reduce the damage award due to its good faith effort to comply with the Act and the severance pay it provided to the terminated employees. Finally, the CHA contends that the judge erred in denying its motion for leave to file an affirmative defense—that the employees waived their right to bring this lawsuit in a settlеment agreement signed between their unions and the CHA.
The CHA is a municipal corporation organized under the Illinois Housing Authorities Act,
In June 1995, HUD declared a breach of the ACC and assumed control of the CHA. Relevant here, HUD found that the CHA was spending an “exorbitant amount” of funds on “very inefficient” security. As a result of the takeover, from June 1995 to May 1999 a HUD appointee, called a “chairperson,” administered the CHA. The chairperson was responsible for policymaking, approving contracts, and all other functions that were normally within the power of the CHA‘s Board of Commissioners. Day-to-day operations, however, remained with CHA officials. Joseph Shuldiner, CHA executive director from October 1995 to June 1999, testified that the CHA had the authority to determine how best to manage certain property, as long as HUD standards were met. Shuldiner also stated that the CHA generally handled the hiring and firing of its police officers as long as the CHA acted within HUD‘s funding constraints. Matthew Brandon, CHA police department deputy chief prior to July 1996, CHA police department acting first deputy from July 1996 through November 1996, and CHA police department acting chief from November 1996 through December 1996, confirmed that the CHA handled day-to-day operations. He stated, for example, that he “had indеpendent authority to manage the CHA police department budget within the parameters allowed by HUD.”
In October 1996, HUD issued a corrective action order (CAO) which required the CHA to reduce spending on security and police by at least $25 million during the 2-year period of fiscal years 1997 and 1998. If the CHA failed to abide by the CAO, HUD could have withheld some or all of the CHA‘s general grant program funds. To comply, the CHA laid off 69 of its 394 police officers in 1998, layoffs which were the subject of another lawsuit, see Rowan v. Chicago Housing Auth., 149 F.Supp.2d 390, 393 (N.D.Ill.2001) (concluding that the CHA did not conduct a “mass layoff” within the meaning of the WARN Act because the layoffs only affected some 17 percent of employees, less than the 33 percent the Act requires). HUD returned control of the CHA in May 1999.
A year after the initial layoffs, the CHA determined that it was necessary to close the entire police department. On September 7, 1999, Director of Labor Relations Kevin Krug met with representatives of the Trade Coalition, a union which represented CHA trade employees, including electricians, plumbers, plasterers, carpenters, and bricklayers. At that meeting Krug advised the union of upcoming layoffs. During negotiations, the union mentioned CHA‘s need to comply with the WARN Act.
As a result of that meeting, Krug asked Joseph Moriarty, the CHA‘s senior staff counsel, to determine if the WARN Act covered the CHA. In response, Moriarty testified, he reviewed annotated versions of the WARN Act, relevant case law, and accompanying regulations promulgated by the United States Department of Labor (DOL). Moriarty concluded that the CHA
The CHA, on September 23, 1999, sent a memorandum to Coalition members, pursuant to the collective bargaining agreement, stating thаt it was contemplating closing the police department. As for the other employees, it made the memorandum available by putting a copy in the command order book. Several weeks later, on October 12, the CHA sent a memorandum to all its employees stating that “the Chicago Housing Authority has decided that it will no longer operate it‘s [sic] own police department.” It notified the unions that the employees would be officially terminated on October 29, 1999.
On October 18, 1999, Acting Chief Harvey Radney distributed a memorandum informing the department‘s personnel that all officers affected by the layoff were being placed on administrative leave beginning October 19, 1999 (a few personnel were retained for administrative purposes for a short transition after October 29). The officers placed on administrative leave were paid through October 29, 1999, and provided health and dental insurance benefits through December 31, 1999. After negotiations, the CHA signed settlement and severance agreements with the three relevant unions. Among other provisions, the unions waived any past and future legal action. The total severance pay totaled $516,000. The CHA provided a variety of job counseling and one-on-one outplacement services to the police and security personnel who lost their jobs. It paid $5,000 for each officer who participated in the counseling. These services were provided until May 2000, 7 months after the police department closed. On November 1, 1999, the CHA conducted a job fair where at least 170 personnel received a job search manual and information about positions at other police departments. The CHA also opened two сareer centers.
Approximately one week before being terminated, on October 21, 1999, the affected employees filed this suit under the WARN Act, arguing that they were entitled to 60 days notice before being laid off. Today we resolve the CHA‘s appeal of the loss it suffered in the district court.
At the outset, we must determine whether the WARN Act applies to quasi-public entities like the CHA. While a question of first impression,3 the DOL has aid-
Because of the use of the term “business enterprise“, DOL concludes that regular Federal, State, and local government public agencies and services are outside the purview of WARN.... The legislative history is not helpful on the specific question of coverage of public and quasi-public business enterprises. DOL agrees that the underlying intent of WARN is worker protection. Given the nature аnd the language of the law, DOL concludes that the term “business enterprise” used in the statute includes public and quasi-public entities which engage in business (i.e., take part in a commercial or industrial enterprise; supply a service or good on a mercantile basis, or provide independent management of public assets, raising revenue and making desired investments). Whether a particular public or quasi-public entity is covered will be determined by the functional test described above and by an organizational test, i.e., whether the entity is managed by a separately organized governing body with independent authority to manage its personnel and assets.... The test that has been adopted is intended to be a relatively precise one that will include such entities as regional transportation authorities and independent municipal utilities, but will exclude suсh organizations as school boards.
54 Fed. Reg. at 16044 (April 20, 1989). Consistent with the above analysis, the DOL issued the following regulation, defining a covered “employer” as including
public and quasi-public entities which engage in business (i.e., take part in a commercial or industrial enterprise, supply a service or good on a mercantile basis, or provide independent management of public assets, raising revenue and making desired investments), and which are separately organized from the regular government, which have their own governing bodies and which have independent authority to manage their personnel and assets.
CHA argues first that the DOL regulation is an impermissible construction of the statute. In the alternative, it contends that if the regulation is valid, the CHA is not covered by the DOL‘s definition of an employer. We will address each of these arguments in turn.
In assessing the CHA‘s claim that thе DOL regulation is invalid, we are guided by the familiar Chevron doctrine. Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), requires us to engage in a two-step inquiry. At step one, we inquire whether Congress “has directly spoken to the precise question at issue,” in which case we “must give effect to the unambiguously expressed intent of Congress.” Id. at 842-43, 104 S.Ct. 2778. If the statute is silent or ambiguous on the issue, we will defer at step two to any reasonable agency interpretation. Id. at 843, 104 S.Ct. 2778.
Examining the text of the statute, we agree with the district court that the statute is ambiguous with respect to whether entities like the CHA are covered. The Act defines “employer” as “any business enterprise that employs” a requisite number of employees.
Although there is no evidence, from either the statute itself or legislative history, of Congress‘s intent on the issue, the CHA argues that we should infer from Congress‘s silence that it did not intend to cover quasi-public entities. In support of this position, the CHA contends that when Congress means to cover public sector employees, it knows how to do so. See, e.g., Fair Labor Standards Act (FLSA),
Having found Congress silent as to whether the Act covers quasi-public entities like the CHA, we proceed to the second Chevron step, whether the DOL‘s interpretation of the statute is reasonable. We note that we must defer to the DOL‘s interpretation so long as it is “a permissible construction of the statute.” Chevron, 467 U.S. at 843, 104 S.Ct. 2778. We “need not conclude that the agency construction was the only one it permissibly could have adopted to uphold the construction, or even the reading the court would have reached if the question initially had arisen in a judicial proceeding.” Id. at 843 n. 11, 104 S.Ct. 2778. Applying this standard, the DOL‘s interpretation of “business enterprise” is entirely reasonable. As we have noted, quasi-public entities like the CHA have many characteristics of traditional businesses. For this reason, the DOL‘s decision to include these entities in the definition of a covered “employer” is a permissible construction of the statute.
Concluding that the DOL regulation is valid, we turn to whether the CHA is an “employer” under
Once the CHA is deemed an “employer,” it is undisputed that it violated the Act—it did not give its employees 60 days notice before they lost their jobs. The WARN Act provides that an employer found liable must pay each aggrieved worker back pay for each day of violation and certain benefits under аn employee benefit plan.
First, the CHA argues that it entertained a “good faith” and reasonable belief that it was not covered by the Act. Thus, the district court should have reduced its liability pursuant to
If an employer which has violated [the] Act proves to the satisfaction of the court that the act or omission that violated [the] Act was in good faith and that the employer had reasonable grounds for believing that the act or omission was not a violatiоn of [the] Act the court may, in its discretion, reduce the amount of the liability or penalty provided for in this section.
The good faith defense requires proof of the employer‘s subjective intent to comply with the Act, as well as evidence of objective reasonableness in the employer‘s application of the Act. See, e.g., Saxion v. Titan-C-Manufacturing, Inc., 86 F.3d 553, 561-62 (6th Cir.1996); Frymire v. Ampex Corp., 61 F.3d 757, 767-68 (10th Cir.1995). As the employer, the CHA bears the burden of proof as to this mitigation defense. Moreover, this defense must be narrowly construed. See Bankston v. State of Ill., 60 F.3d 1249, 1254 (7th Cir. 1995) (An employer seeking to avoid imposition of liquidated damages under the FLSA “bears a substantial burden in showing that it acted reasonably and in good faith.“) (internal citation omitted) (emphasis added).4 As the Act commands, we review the district court‘s decision not to reduce damages under an abuse of discretion standard. Saxion, 86 F.3d at 562 (“even where good faith is manifest, moreover, the decision to reduce the amount of damages is within the discretion of the district court“); Lee v. Coahoma County, 937 F.2d 220, 227 (5th Cir.1991) (under FLSA, “even if the district court deter-
The CHA‘s good faith argument is based largely on Moriarty‘s efforts to determine whether the CHA was a covered entity under the Act. See Frymire, 61 F.3d at 768 (evidence that the employer subjectively intended to comply with the Act “can include proof that the employer worked with legal counsel to determine whether the company was in compliance with WARN, as well as more general evidence that the company had its employees’ welfare in mind“). Significantly, however, the issue of the WARN Act was only brought up by an opposing union representative. As Judge Lefkow keenly observed, “the WARN Act was nothing but an afterthought to the CHA with respect to all of the terminations it was planning.” At least with the trade unions, the CHA was already bargaining over the effects of termination before it considered the WARN Act. The natural inference is that this was the case with the police, too. Moriarty, moreover, did not share his opinion with the CHA Board or its chairperson. While he was not required to, the seriousness of the CHA‘s efforts to comply with the Act is suspect where the ultimate decisionmakers showed no interest in the conclusions of their legal counsel. Finally, deference is due the trial court, which could weigh Moriarty‘s testimony and credibility with respect to the comprehensiveness of his efforts. Without the production of one scintilla of physical evidence, since Moriarty maintained and produced no papers, no memoranda, and no files related to his research, we have no way to determine whether he conducted extensive research into the issue or merely made a cursory glance at the statutes and case law. Compare General Elec. Co. v. Porter, 208 F.2d 805, 816 (9th Cir.1953) (attorneys “studied for a long period of time the question whether the Act was applicable to these firemen. After extensive research and numerous conferences, the attorneys for General Electric rendered an opinion that the firemen were excluded from the coverage of the Act.“), with Washington v. Aircap Indus., Inc., 860 F.Supp. 307, 318 (D.S.C.1994) (“To hold that Aircap acted in good faith by obtaining an ‘off the cuff oral opinion [from counsel] that directly affected the lives of 257 long term employees would eviscerate the purpose of the WARN Act.“).
The CHA next argues that the damage award should have been reduced by 13 days of back pay because of the notice it sent out on September 23, 1999. Frymire, 61 F.3d at 769 (in considering good faith reduction, noting that “while Ampex did violate WARN‘s sixty-day notice requirement, the company had provided all of its employees, months in advance, more generalized notice that major layoffs were imminent“). Judge Lefkow rejected this defense on the ground that the notice was not sent to all of the officers, but only to members of the Coalition. Also, she held that since the collective bargaining agreement with the Coalition required the CHA to notify it that it was contemplating closing the department, it defeats the CHA‘s good faith defense. We agree.
The good faith reduction is intended for circumstances where the employer technically violates the law but shows that it did everything possible to ensure that its employees received sufficient notice that they would be laid off. See, e.g., Saxion, 86 F.3d at 561 (“[N]either the Act nor the regulations suggest that defective notice is automatically to be treated as though no notice had been provided at all.“); Carpen-
A comparison with cases in which courts did find a good faith effort to comply is warranted. In Oil, Chemical and Atomic Workers International Union v. American Home Products Corp., 790 F.Supp. 1441, 1452-53 (N.D.Ind.1992), although the employer technically violated the Act, the court permitted a good faith reduction where the employer gave notice in November that the plant would be completely shut down by the last quarter of the following year. The notice included a tentative schedule identifying the quarter in which the employer expected to terminate each job grouping. In UAW Local 1077 v. Shadyside Stamping Corp., 1991 WL 340191 (S.D.Ohio 1991), aff‘d without opinion, 947 F.2d 946 (6th Cir.1991), the employer advised the union in writing in late September 1988 that it expected layoffs from February 1, 1989, to April 30, 1989, due to the cancellation of a large contract. A second letter to the union in early January 1989 confirmed the layoffs would take place as previously advised. On February 3, 1989, 31 employees were laid off, and on February 27 аnother 15 employees were laid off. A third letter to the union on March 15 warned of more layoffs on April 3. On that date, 66 employees were laid off. On April 10, the employer provided advance notice of another layoff of 50 employees to take place on June 9. Reviewing this evidence, the court concluded that, while the employer technically violated the Act, “there can be no question that the employer proceeded in good faith in its attempt to properly notify the employees of future layoffs.” Id. at *9. The same cannot be said here.
Finally, the CHA contends that it demonstrated its subjective intent to comply with the Act through its efforts to help police and security personnel find new employment. It points out that it hired Challenger, Gray and Christmas, an outplacement consulting firm, to conduct a job fair, it maintained two career centers, and it provided one-on-one job counseling. The CHA also provided health benefits for 60 days beyond the date the department ceased operating. Moreover, it paid unemployment compensation, and it settled all the disputes it had with the three unions representing the class members and provided over $2 million to former police and security officers as a result of that settle-
Considering all of these facts and arguments, we cannot say that Judge Lefkow abused her discretion in not reducing damages under
Having concluded that the CHA was not entitled to a reduction in damages under
Both under the Illinois Public Labor Relations Act, (IPLRA),
At both trial and on appeal, the CHA attempts to disconnect the severance pay and settlement agreements. Krug, for example, testified that the parties intended the agreements to be separate and that the severance package was generously given to the officers out of a desire to “lessen the impact” of the loss of jobs. In contrast, however, Brandon testified that “[o]ne would not have been signed without the other.” He testified that the agreements were negotiated at the same time and that they were part and parcel of one agreement. The evidence overwhelmingly supports Brandon‘s observation.
At a minimum, it is hard for the CHA to argue that the severance package with the security officers’ union was not connected to the settlement agreement since they are part of the same document. Moreover, examining the settlement and severance agreements between the Coalition and CHA, the indisputable inference is that they are connected. First, the agreements refer to each other. The severance agreement states that “the Union represents and acknowledges that, except for this Severance Agreement and the Settlement Agreement ... there are no other agreements or understandings, written or oral, between the Parties.” It continues, “Approval of this Severance Agreement by the CHA‘s Board of Commissioners and by the United States Department of Housing and Urban Development (hereafter ‘HUD‘) and approval of and execution of the Settlement Agreement ... are conditions precedent to the Parties’ obligations under this Severance Agreement.” (Emphasis added.) The document continues, “In the event any provision of this Severance Agreement and/or the Settlement Agree-ment is found by any court, administrative agency, or other tribunal or entity of competent jurisdiction to be unenforceable or void as contrary to law ... said finding or order shall be deemed a failure of a condition precedent to this Severance Agreement.” (Emphasis added.)
The settlement agreement with the FOP also strongly evidences the fact that the two documents were conneсted. It contains condition precedent language that is similar to the language in the agreement with the Coalition. The agreement reads, moreover:
Whereas the Union and the CHA have engaged in bargaining over the impact and effects of the CHA‘s decision to cease active operation of the CHAPD and the resulting permanent separation of all employees in the sworn bargaining unit and have reached agreement on all issues related to the decision or impact and effects of that decision, which agreement is memorialized in a contemporaneously executed Severance Agreement[.] (Emphasis added.)
Considering this evidence, the CHA has not established that the severance payments were voluntary and unconditional. In fact, all of the evidence shows that the CHA, rather than unconditionally giving its emplоyees severance pay, made payments to the members of the unions in consideration for the unions’ actions with respect to settlement of pending arbitrations, grievances, challenges to disciplinary matters, litigation, and unfair labor practices charges. As a result, Judge Lefkow did not err in failing to reduce the CHA‘s damages. See, e.g., Local Joint Executive Trust Fund v. Las Vegas Sands, 244 F.3d 1152, 1159 (9th Cir.2001) (severance and other payments and benefits made pursuant to agreements with plaintiffs’ unions are not voluntary and unconditional, are required by legal obligation, and therefore
The CHA next argues that the class members waived their WARN claims through their unions’ settlement agreements. The CHA, however, failed to raise this affirmative defense in its responsive pleаdings, and the district court denied the CHA‘s motion for leave to file the additional defense, a decision we review for abuse of discretion. Because we hold that the district court did not abuse its discretion in denying the CHA‘s motion, there is no need to consider the merits of the CHA‘s argument on appeal.
We recognize that the [affirmative] defense may have been meritorious; and [the plaintiff‘s] counsel should have had some inkling that the defense might be raised .... But if Rule 8(c) is not to become a nullity, we must not countenance attempts to invoke such defenses at the eleventh hour, without excuse and without adequate notice to the plaintiff. (Emphasis in original.)
Here, the employees filed their lawsuit on October 21, 1999, before settlement agreements with the unions were signed. On April 17, 2000, the CHA filed its first answer containing three affirmative defenses, and in February 2001 it filed its summary judgment motion. That motion was denied on June 21, 2001. It was not until 6 months later, on December 14, 2001, that the CHA filed a motion for leave to tack on additional defenses, including one that the employees waived their WARN Act claims. Judge Lefkow, considering the delay, denied the motion, emphasizing that until the denial of summary judgment, “the case was at a standstill due to CHA‘s motion practice.” Although, on appeal, the CHA argues that the delay was “due to Plaintiffs motion practice” and attempts to minimize the delay caused by such “routine” matters as the substitution of its attorney, we emphasize that a district сourt is in a much better position than we to judge the course and progress of cases before it, and we will defer to the district judge‘s firsthand knowledge of the cause of delays unless its conclusion strikes us as completely unreasonable.
Judge Lefkow also emphasized that there was no excuse for the CHA‘s failure to raise its affirmative defense earlier. Noticeably, the fact that the CHA and the employees’ unions signed a settlement agreement couldn‘t have been a surprise to the CHA. Indeed, the CHA relied on the severance agreements, signed at the same time, in its initial answer, which sought a reduction of damages under
Finally, we do not believe the district judge abused her discretion in
The judgment of the district court is AFFIRMED.
TERENCE T. EVANS
UNITED STATES CIRCUIT JUDGE