Jurcev v. Central Community Hosp.

Citation7 F.3d 618
Decision Date14 October 1993
Docket Number92-2379,Nos. 92-1927,s. 92-1927
Parties126 Lab.Cas. P 10,908, 27 Fed.R.Serv.3d 760, 8 IER Cases 1505 Myrna JURCEV, Stanley Miller, Florence Moore, Rosemary Riordan, and Dr. Cosette Z. Villanueva, Plaintiffs-Appellants, v. CENTRAL COMMUNITY HOSPITAL, an Illinois not-for-profit corporation, and The Prairie Foundation, formerly Central Community Foundation, an Illinois not-for-profit corporation, Defendants- Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

David J. Stetler (argued), McDermott, Will & Emery, Chicago, IL, Joseph D. Keenan, III, Sklodowski, Franklin, Puchalski & Reimer, Chicago, IL, for plaintiffs-appellants.

John A. Dienner, III (argued), Lydon & Griffin, Chicago, IL, for defendants-appellees.

Before COFFEY and ROVNER, Circuit Judges, and ESCHBACH, Senior Circuit Judge.

COFFEY, Circuit Judge.

The Worker Adjustment and Retraining Notification Act ("WARN" Act) requires some employers of 100 or more full-time employees to give at least sixty days' advance written notice of plant closings and mass layoffs to affected employees. See 29 U.S.C. § 2102(a) (1988). 1 On February 26 1990, the Board of Trustees of Central Community Hospital (the "Hospital") voted to close the Hospital on March 14, 1990, and gave the employees written notice of its decision that same day. A class of employees who lost their jobs when the Hospital closed brought an action against the Hospital, Central Community Foundation (the "Foundation"), which was the not-for-profit corporation that managed the Hospital's financial affairs, and the Foundation's successor, The Prairie Foundation. The class alleged that: (1) the defendants violated the WARN Act by failing to notify employees that the Hospital would be closing at least sixty days in advance of its scheduled closing on March 14, 1990; and (2) the defendants breached an agreement in the Hospital's employee policy manual and violated the Illinois Wage Payment and Collection Act, 820 ILCS 115/1 et seq. (1993), by refusing to pay employees for accumulated sick leave. The district court granted summary judgment in favor of the defendants on the WARN Act claim, ruling that the defendants were not required to give the employees the full sixty days' notice that the Hospital would be closing because the closing was necessitated by business circumstances that were not reasonably foreseeable. See 29 U.S.C. § 2102(b)(2)(A). The court thereafter dismissed the state law claims for lack of subject-matter jurisdiction. The class filed a notice of appeal from the denial of its motion for summary judgment, the grant of the Hospital's motion for summary judgment, as well as certain interlocutory discovery rulings. The district court subsequently ordered the class to pay the Hospital's costs, a sum of $2,314.75. The class appealed from that order. By order dated June 10, 1992, we consolidated the appeals. We affirm the summary judgment and the award of costs.

A. Facts

The Hospital was an Illinois not-for-profit corporation that was exempt from federal income taxes pursuant to 26 U.S.C. § 501(c)(3) (1988). The Foundation, also an Illinois not-for-profit corporation, was incorporated in December of 1983 to serve as a "support foundation" for the Hospital's benefit pursuant to 26 U.S.C. § 509(a)(3) (1988). The Hospital's Board of Trustees appointed the Foundation's Board of Trustees. 2 The Foundation's articles of incorporation expressly empowered the Foundation "to receive gifts, devises, bequests and contributions in any form, and to use, apply, invest and reinvest the principal and/or income therefrom or distribute the same" for the benefit of and to carry out the purposes of the Hospital. In its application for exemption from federal income taxes the Foundation advised the Internal Revenue Service that it proposed to establish an endowment fund with all of the monies received and to use the income generated from the fund to support the Hospital. In December of 1984 the Internal Revenue Service issued a letter stating that the Foundation was exempt from federal income tax "based upon information supplied and assuming [its] operations will be as stated in [its] application." The Board of Trustees of the Hospital thereafter transferred the Hospital's entire investment portfolio (assets in excess of 19 million dollars) to the Foundation. Between November 4, 1985, and January 22, 1990, the Foundation made a total of $11,950,000 in unrestricted subventions to the Hospital. The Hospital's financial condition was in such grave condition that the Hospital depended on the Foundation's subventions to cover its losses and remain open.

After the January 22, 1990, subvention the Foundation's president, Sherwin Stone, requested that the Hospital's comptroller prepare a list of all subventions paid to date. When Stone received the report he learned that the Foundation's subventions to the Hospital were in excess of the Foundation's earnings and thus had invaded principal. Stone relayed the information to the Hospital's administrator on February 19, 1990, and a meeting of the Hospital's Board of Trustees was convened shortly thereafter. During this meeting Stone advised the Board that the question whether the invasions of the principal would impair the Foundation's tax-exempt status and other legal issues were being researched, and that he would report back to the Board as soon as he had an answer. He further informed the Board that, in light of the uncertain legality of the Foundation's invasion of principal, the Foundation might very well be precluded from making further subventions in excess of income until past invasions of principal were repaid.

Stone subsequently discussed the legal issues with the other attorneys in his firm and the tax issues with the accounting firm that represented both the Hospital and the Foundation. The attorneys provided Stone with a written memorandum of law which concluded that further subventions in excess of income might very well jeopardize the tax-exempt status of the Foundation and expose the individual members of the Foundation's Board of Trustees to liability for breach of their fiduciary duties. The memorandum recommended that no further subventions be made until a ruling was obtained from the Internal Revenue Service permitting or prohibiting further invasions of principal, a process that might conceivably require a number of months. After a series of conversations with Stone, the tax consultant agreed with the conclusions the attorneys reached.

The Foundation's Board of Trustees met on the morning of February 26, 1990, and Stone reported to the Board what the attorneys and accountants had advised. The Board voted to cease making subventions to the Hospital until the Hospital repaid the invasions of the principal, or the Foundation earned sufficient monies to offset the invasions, or the Foundation received a ruling from the Internal Revenue Service permitting the payment of principal to the Hospital. That afternoon the Hospital's Board of Trustees convened, and Stone apprised them of the situation. Stone included in his briefing to the Hospital's Board the Foundation's resolution to halt further subventions unless one of the three conditions set forth by the Foundation's Board was met. The Board debated the alternatives and heard from the Hospital's administrator who projected that, based on its current cash receipts, the Hospital could remain open only for approximately two more weeks. The Board, faced with the Foundation's ultimatum and the administrator's report, voted to close the Hospital effective March 14, 1990, and immediately began to notify employees of the impending closure.

Later on February 26 the Hospital's departmental heads met. The departmental heads were apprised of the Hospital's dire financial condition and were given written copies of a letter from the Hospital's administrator announcing the closure of the Hospital effective March 14, 1990, and explaining the necessity of the early date of closure. The departmental heads were instructed to return to their departments and tell their employees of the closure. Copies of the letter were posted throughout the Hospital. The closure was publicly announced on February 26 and news stories appeared in the media the following day. The Hospital also gave each employee a copy of the letter in the envelope containing his March 8, 1990, paycheck. The Hospital closed on March 14, 1990, as scheduled.

B. Proceedings in the District Court

The class filed a complaint in the United States District Court for the Northern District of Illinois on March 28, 1990, in which it named the Hospital as the sole defendant. It alleged that the Hospital had violated 29 U.S.C. § 2102(a), by failing to give its employees sixty days' advance notice that it was closing. 3 The Hospital conceded that it had not given its employees the sixty-days' advance notice of closure but claimed that it was not required to do so because the closure was caused by the Foundation's decision to discontinue making subventions to the Hospital, and this decision was "not reasonably foreseeable at the time the notice would have been required." 29 U.S.C. § 2102(b)(2)(A). The class sought to discover, among other things, documents relating to the number of patients that the Hospital admitted from 1986 to 1990 and the Hospital's income and liabilities during that period of time, as well as documents relating to the financial condition of the Hospital after February 28, 1990. In October of 1990 the court issued a protective order restricting disclosure to the public of confidential documents relating to the Hospital's income, liabilities, and admissions. (The court subsequently amended the protective order on November 2, 1990, and again on March 20, 1992.) In a February 1, 1991, ruling the court denied discovery of the post-closure financial documents.

The Hospital...

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