Castro v. Chicago Housing Authority

• Decision Date: 10 March 2004
• Docket Number: No. 03-2892.,03-2892.
• Parties: 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.
• Court: U.S. Court of Appeals — Seventh Circuit

360 F.3d 721

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.

Argued January 15, 2004.

Decided March 10, 2004.

COPYRIGHT MATERIAL OMITTED

Zane D. Smith (argued), Smith, Rubin & Associates, Chicago, IL, Plaintiffs-Appellees.

John A. Relias (argued), Franczek Sullivan, Chicago, IL, for Defendant-Appellant.

Before COFFEY, KANNE, and EVANS, Circuit Judges.

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), 29 U.S.C. § 2101 et seq., arguing that the CHA failed to give its employees 60 days notice before termination, as the law requires. District Judge Joan Humphrey Lefkow denied the CHA's motion for summary judgment, rejecting its argument that the CHA was not a covered employer for purposes of the Act. After a 2-day bench trial, the court awarded the employees some $1.2 million in damages. 2003 WL 21518321 (N.D.Ill. July 1, 2003). The CHA appeals, presenting this court with an issue of first impression: whether a municipal corporation, or quasi-public body, like the CHA is subject to the WARN Act.² The CHA also argues 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 settlement agreement signed between their unions and the CHA.

The CHA is a municipal corporation organized under the Illinois Housing Authorities Act, 310 ILCS 10/1 et seq. Its purpose is to provide low-rent housing and rental assistance in the city of Chicago. Id. at 10/2.2. A Board of Commissioners appointed by the mayor of Chicago and confirmed by the City Council administers the CHA. The United States Department of Housing and Urban Development (HUD) is the CHA's primary source of funding. During 1998 and 1999, for example, federal grants and subsidies made up over 80 percent of the CHA's income. Rent and other sources of income, such as local and state grants and subsidies, made up the remaining 20 percent. HUD's funding is made through an "annual contributions contract" (ACC) entered into between HUD and the CHA which sets forth terms and conditions under which the CHA is allowed to spend HUD funds.

In 1989, with legislative authorization (see An Act Relating to Housing Authorities, No. 86-457 (codified at 310 ILCS 10/8.1a)), the CHA established its own police department. Police personnel subsequently came to be represented by three unions. The Captains, Lieutenants and Sergeants Coalition, affiliated with Local 73, Service Employees International Union (the Coalition), represented police supervisors. Police officers were represented by the Illinois Fraternal Order of Police Labor Council (FOP). Finally, the Service Employees International Union (SEIU) represented security officers. The CHA and these three unions were parties to collective bargaining agreements.

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 independent 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 was not subject to the WARN Act because it was not an "employer" as defined by the DOL. Moriarty testified that he communicated this conclusion to CHA officials, including Krug, but not to the CHA Board or its chairperson, Sharon Gist Gilliam. Nor did he write anything down or maintain any files. Krug, who is not an attorney, also reviewed the applicability of the WARN Act. He obtained an internet publication entitled "WARN Act Guide to Advance Notice of Closings & Layoffs." That document stated that "[p]rivate, for-profit employers and private, nonprofit employers are covered, as are public and quasi-public entities which operate in a commercial context and are separately organized from the regular government. Regular Federal, State, and local government entities which provide public services are not covered." Krug, like Moriarty, concluded that the WARN Act did not apply to the CHA.

The CHA, on September 23, 1999, sent a memorandum to Coalition members, pursuant to the collective bargaining agreement, stating that 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 career 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 aided us in our task. In implementing...