Jones v. Kayser-Roth Hosiery, Inc., Civ. 3-89-545.

• Decision Date: 18 July 1990
• Docket Number: No. Civ. 3-89-545.,Civ. 3-89-545.
• Citation: 748 F. Supp. 1276
• Parties: Edith JONES, et al., Plaintiffs, v. KAYSER-ROTH HOSIERY, INC., Defendant.
• Court: U.S. District Court — Eastern District of Tennessee

748 F. Supp. 1276

Edith JONES, et al., Plaintiffs, v. KAYSER-ROTH HOSIERY, INC., Defendant.

No. Civ. 3-89-545.

United States District Court, E.D. Tennessee, N.D.

July 18, 1990.

COPYRIGHT MATERIAL OMITTED

Thomas M. Hale, E.H. Rayson, Kramer, Rayson, McVeigh, Leake & Rodgers, Knoxville, Tenn., J. Polk Cooley, Cooley, Simmons & Cooley, Rockwood, Tenn., Richard K. Evans, Kingston, Tenn., for plaintiffs.

Martin N. Erwin, Smith, Helms, Mulliss & Moore, Greensboro, N.C., D. Michael Swiney, Paine, Swiney, and Tarwater, Knoxville, Tenn., for defendant.

MEMORANDUM OPINION

ROBERT P. MURRIAN, United States Magistrate.

This case is before the undersigned pursuant to 28 U.S.C. § 636(c) and Rule 73(b), Federal Rules of Civil Procedure, for all further proceedings, including entry of judgment Doc. 4.

This is a class action brought pursuant to the Worker Adjustment and Retraining Notification Act ("WARN"), 29 U.S.C. § 2101, et seq. The class is comprised of all former employees at the Harriman facility of Kayser-Roth Hosiery, Inc. ("KR"), who are "affected employees" within the meaning of 29 U.S.C. § 2101(a)(5), and who sustained an "employment loss" within the meaning of 29 U.S.C. § 2101(a)(6), including but not limited to all employees terminated, laid off or separated from employment by the defendant on or about May 18, 1989, June 26, 1989, and/or September 8, 1989, except for discharge for cause, voluntary departure, or retirement, with respect to the following cause of action: Any claims under the Act, 29 U.S.C. § 2101, et seq., resulting from the defendant's ordering of a plant closing or mass layoff without providing its employees with timely notice of the alleged plant closing and/or mass layoff as required by the Act.

The plaintiff class contends that on June 26, 1989, KR gave notice to its employees that the manufacturing facility in Harriman, Tennessee, would be closing on September 8, 1989; that the shutdown of the Harriman facility constituted a "plant closing" within the meaning of 29 U.S.C. § 2101(a)(2), or a series of "mass layoffs" within the meaning of 29 U.S.C. § 2101(a)(3); that a large number of employees were notified on June 26, 1989, that their employment was being terminated effective immediately (i.e., June 26, 1989); that said employees were given no prior notice of their termination as part of the plant closing; and that other members of the plaintiff class were given notice of their terminations at various times after June 26, 1989, but before the expiration of 60 days from the time of the notice see Doc. 25. Plaintiffs further contend that the defense of "business circumstances that were not reasonably foreseeable as of the time that notice would have been required" (hereinafter referred to as "business circumstances" defense), 29 U.S.C. § 2102(b)(2)(A) does not justify KR's failure to give less than 60 days notice; that the defendant's decision to close the Harriman plant was a result of manufacturing capacity greater than the demand for product and the poor quality of the product produced at said plant coupled with the defendant's inability to correct the quality problems; that these circumstances were reasonably foreseeable; and that even if KR is entitled to the business circumstances defense, defendant did not give as much notice as was practicable see Doc. 25.

The defendant admits that the action taken on June 26, 1989, constituted a mass layoff or plant closing as defined in WARN and that no notice of the plant closing or mass layoff was given prior to June 26, 1989 see Doc. 28. Rather, the defendant contends that it was the irrevocable loss of business from J.C. Penney ("JCP"), the Harriman plant's major customer, which caused the need to close the Harriman plant; that although the plant was not to close until September 8, 1989, approximately one-third of the Harriman employees could not be retained to phase out the plant's operations; that these employees were terminated immediately on June 26, 1989; that the loss of JCP's business was not reasonably foreseeable on April 26, 1989; that defendant was, therefore, not required to give 60 days advance notice to employees terminated on June 26; and that defendant gave notice as soon as practicable after the loss of JCP business became reasonably foreseeable see Doc. 26.

It was determined at the pretrial conference in this case that the issue of liability should be bifurcated from the issue of damages see Doc. 28. In accordance with the Pretrial Order, the first phase of trial commenced before the undersigned without a jury on April 23 and 24, 1990, with regard to the following issues:

1. Did the defendant violate 29 U.S.C. § 2101(a)(1) as to one or more of the plaintiffs?

2. If so, is the defendant's conduct excused pursuant to 29 U.S.C. § 2102(b)(2)(A) and (3)?

3. Whether or not defendant would be entitled to a credit for any severance pay which may have been paid to class members (not to include a determination of the actual amounts involved during the first phase); and

4. What types of benefits might be recoverable pursuant to 29 U.S.C. § 2104(a)(1)(B), e.g., life insurance benefits where no death occurred, health insurance benefits where no medical expenses were incurred (not to include a determination of actual amounts during the first phase).

Doc. 28, Parts IV(a), (b) and X(d)(1), (2) and (3). Final arguments were postponed until after preparation of the trial transcript and post-trial briefs; thus, final arguments were heard on June 29, 1990; see Doc. 38. After considering the evidence presented, the arguments of counsel, and their memoranda of law, the following findings and conclusions are made.

I. FACTS

The defendant, KR, is a manufacturer of women's hosiery and socks with five operating divisions. The Sheer Hosiery Division manufactures ladies hosiery, primarily pantyhose, and is the division involved in this case. KR was a major supplier of ladies hosiery to JCP between the early 1950s until JCP withdrew its business from KR in 1989 Defendant's Exh. 45. The JCP business represented 40% of the Harriman plant's production volume and brought in approximately $20 million dollars in business. Testimony of Robert Fooshee at T.T.¹ 2-5; 2-7; Plaintiff Exh. 1, Cerchio Deposition at 8. The JCP account was very profitable for KR and was considered a "jewel" in KR's portfolio of businesses. Testimony of Fooshee, id. The remaining 60% of Harriman's production was only marginally profitable, if at all, and did not contribute substantially to any profit made by KR. Id., T.T. 2-5 to 2-6. For example, in 1989, the Harriman plant budgeted $7.6 million of fixed overhead, which constitutes expenses that do not vary according to the volume flowing through a plant. Id. at 2-5. Fixed overhead includes costs such as annual insurance premiums, annual tax bills, etc. Id., at 2-6-7. Thus, the only way to vary fixed overhead is to get rid of it completely. Id. at 2-7. The JCP business absorbed $3 million of the Harriman plant's fixed overhead. Id. at 2-5. KR manufactured eight styles² for JCP and these eight styles represented 94 percent of JCP's $20 million business. Id. at 2-7; Plaintiff Exh. 2, Cerchio Dep., Exh. 1.

Mr. Dominick Cerchio, KR's Vice President of Sales for the private label hosiery division, was the sales contact with JCP and was directly responsible for the JCP account. In October, 1988, KR began experiencing shipping problems due to a shortage of lycra in the industry. Defendant's Exh. 5; Testimony of Cerchio, T.T. at 27. Dorothy Rainey, JCP's buyer for women's hosiery, testified at her deposition taken in February, 1990, that deliveries were terrible in that partial shipments were outnumbering complete shipments at a ratio of 75% partial to 25% complete. Plaintiff Exh. 2, dep. of Rainey at p. 12. Significant complaints with regard to quality began in December, 1988. Plaintiff's Exh. 1, Cerchio Dep. at p. 15; plaintiff's Exh. 2, Rainey dep. at pp. 13-19. Thus, in January, 1989, JCP reinstituted a practice of routine and periodic audits or inspections of the product manufactured at the Harriman plant. Plaintiff's Exh. 2, Rainey dep. at pp. 26-27; Plaintiff's Exh. 1, Cerchio dep. at pp. 15; 17-18. On January 18 and 19, 1989, JCP audited four styles of hosiery (i.e., KR# s 609, 904, 925, and 735). Plaintiff's Exh. 2, Rainey dep., exhibits attached thereto. Each style "barely" passed inspection, in that each style contained the maximum number of defects allowed. Id.; Testimony of Cerchio at T.T. 65-66; Testimony of Walter Pilcher at T.T. 2-97-98. As a result, JCP became very concerned about the quality problems with the hosiery manufactured at the Harriman plant and Dorothy Rainey scheduled a second audit in 60 days. Testimony of Cerchio at T.T. 66. Six styles were audited on March 14 and 16, 1989 (KR# s 904, 735, 609, 645, 790, and 637). Plaintiff's Exh. 2, Rainey Dep., exhibits attached thereto. Two styles, # s 735 and 609, failed the inspection and the other four passed. Id.; Defendant's Exh. 30. The poor results of the March audit precipitated a meeting between the defendant and JCP management on March 20, 1989, in Dallas, Texas. Testimony of Cerchio, T.T. at 67. In attendance at said meeting were Mr. Dominick Cerchio, Charles Poteat, Vice President of Manufacturing at the Harriman and Dayton plants at all times pertinent; Bill Brookshire, KR's Vice President of Planning; Ladd Perry, KR's quality control person; Bill Truncali, Senior Vice President of Sales; Dot Rainey, and Arthur ("Art") Kapplow, JCP's merchandise manager for women's accessories and jewelry. Defendant's Exh. 7. At the close of the March 20 meeting KR was informed that it was losing style # 609 to Ithaca, Industries, a competitor of KR, which style represented approximately $4 million dollars worth of JCP's $20 million dollar business with KR. Testimony of Cerchio, T.T. at 68; defendant's Exh. 7. In an inter office memorandum from Bill Truncali to Walt...