Loehrer v. McDonnell Douglas Corp., 95-3964

• Decision Date: 22 October 1996
• Docket Number: No. 95-3964,95-3964
• Citation: 98 F.3d 1056
• Parties: , 12 IER Cases 161 Dennis W. LOEHRER; Stephen D. Brandt, Plaintiffs-Appellants, James L. Loretta; Elmer W. Yordt; Richard L. Darling, on their own behalf and on behalf of all others similarly situated, Plaintiffs, v. McDONNELL DOUGLAS CORPORATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1056

98 F.3d 1056

65 USLW 2298, 12 IER Cases 161

Dennis W. LOEHRER; Stephen D. Brandt, Plaintiffs-Appellants James L. Loretta; Elmer W. Yordt; Richard L. Darling, on their own behalf and on behalf of all others similarly situated, Plaintiffs, v. McDONNELL DOUGLAS CORPORATION, Defendant-Appellee.

No. 95-3964.

United States Court of Appeals Eighth Circuit.

Submitted June 12, 1996.

Decided Oct. 22, 1996.

Francis E. Pennington, III, St. Louis, MO, argued (H. Todd Iveson, on the brief), for Appellant.

Thomas E. Wack, St. Louis, MO, argued (Elizabeth C. Carver and Robert T. Ebert, on the brief), for Appellee.

Before RICHARD S. ARNOLD, Chief Judge, and FLOYD R. GIBSON, Circuit Judge, and KORNMANN, ¹ District Judge.

FLOYD R. GIBSON, Circuit Judge.

This appeal represents yet another chapter in the litigation surrounding the United States Navy's turbulent, controversial, and ultimately unsuccessful attempt to design and manufacture the A-12 Avenger II fighter-bomber, extolled for years as the Service's "number one aviation priority." Appellants Dennis Loehrer and Stephen Brandt are former employees of appellee McDonnell Douglas Corporation ("McDonnell Douglas"), which along with the General Dynamics Corporation ("General Dynamics") served as contractor for the A-12 program. Following months of communications between the Government and the contractors which varied from contentious to conciliatory, the Secretary of Defense, Dick Cheney, withdrew support for the A-12 on January 7, 1991, and the Navy canceled the contract on that same day. As a consequence, McDonnell Douglas found it necessary to terminate the employment of thousands of workers in the St. Louis area. Loehrer received written notice on January 15, 1991 that he was to be laid off effective January 29, 1991; Brandt's notice of January 14, 1991 indicated that his last day of employment with the company would be January 25. Loehrer and Brandt subsequently initiated this suit in the United States District Court for the Eastern District of Missouri, claiming that McDonnell Douglas violated the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2101-2109 (1994) (the "WARN Act"), by failing to give 60 days notice before the company implemented a mass layoff. McDonnell Douglas concedes that it did not comply with the time period customarily prescribed by the WARN Act, but it maintains that the statute's exception for "unforeseeable business circumstances" applies to excuse the shortened notice in this case. After a two day bench trial, the district court ² entered judgment in favor of McDonnell Douglas. Loehrer and Brandt appeal, and we affirm.

I. BACKGROUND

On January 13, 1988, the Navy contracted with McDonnell Douglas and General Dynamics for the full scale engineering development of the A-12. On April 26, 1990, Secretary Cheney presented to the House Armed Services Committee the results of a Major Aircraft Review ("MAR") of four ongoing development programs, including the A-12. Based on the MAR, the Secretary believed that there were no major impediments to the timely completion of the A-12 program. In his testimony before the Committee, the Secretary recommended a reduction in the number of A-12 Avengers to be produced, but he underscored that the aircraft remained "one of our most urgent requirements."

Soon after the Secretary uttered these optimistic remarks, the A-12 program, and the relationship between the contractors and the Government, plunged into a downward spiral. By mid-1990, it was apparent that McDonnell Douglas and General Dynamics were experiencing considerable difficulties with the program and were unlikely to complete the project on time and within budget. The contractors discovered that production of the jet would be more troublesome than expected due to unanticipated problems with the manufacture of the aircraft's "big ribs." Due to this realization, McDonnell Douglas generated a contingency plan describing the options it would consider if the Navy refused to restructure the A-12 contract. One of these options included claiming "commercial impracticability to perform."

On June 13, 1990, McDonnell Douglas and General Dynamics informed Lawrence Garrett, Secretary of the Navy, that the full scale development costs would overrun the contract ceiling price ³ by an amount the contractors could not absorb, and the companies requested that the Navy consent to restructure the agreement. Approximately one month later, the Navy formally notified the contractors that they had failed to deliver the first aircraft as required by the contract and that the entire A-12 program was in jeopardy. Subsequently, on August 17, 1990, the Navy approved a modification of the contract which unilaterally reestablished the delivery schedule, but it specifically reserved the right to an equitable adjustment in price as consideration for revising the time-line.

By letter dated September 5, 1990, McDonnell Douglas and General Dynamics asserted that the Government had obligated insufficient funds to the A-12 project to cover the corporations' costs. The contractors asked for additional funds to be provided at a more rapid rate "to preclude the possibility that the contractors may have to stop work under the contract." On October 3, 1990, the Navy refused this plea for an accelerated delivery of supplemental funds, but the Government continued to make regular progress payments to the companies through December of 1990.

As it happened, these troubling events coincided with a review of the A-12 by the Defense Acquisition Board ("DAB"). The DAB was responsible for making a final recommendation regarding the continuation of the A-12 program. Before evaluation by the DAB, which was scheduled for December 7, 1990, the A-12 had to successfully undergo several intermediate assessments. One of the most important of these was a phased examination of the A-12 design known as the Critical Design Review ("CDR"). Problems identified during the CDR were discussed at three design review boards. At the last design review board, the chief Navy procurement officer indicated that the parties had fixed the jet's structural problems and that the resulting design would produce an effective aircraft.

Secretary Cheney, who was ultimately responsible for deciding the fate of the fighter-bomber, was also monitoring the progress of the A-12 program. Following his rosy remarks to Congress he, of course, became aware of the complications experienced by the contractors. The Secretary responded by pursuing a positive, yet cautious, approach to ongoing development of the plane. On June 19, 1990, he reiterated his belief that the Avenger was a high priority Navy program. In October, though, he ordered the Navy to create a new aviation plan that could be activated in the event that the A-12 project failed or was significantly reduced or delayed. Still, in an interview printed in the December 17, 1990 issue of Defense Week, the Secretary refused to speculate on the possible cancellation of the A-12 program. The article reflected the Secretary's understanding that defense contractors often exceed their budgets and fall behind schedule. In fact, the district court determined that "the [G]overnment has rarely ever cancelled a contract for a program for which the [G]overnment had stated a need. In the past, when a contractor encountered difficulty with a contract, either additional funding was provided, the schedule of production was altered, or the output requirement was modified."

In hindsight, it is apparent that the death knell for the A-12 program began to sound in December of 1990. On December 14, Secretary Cheney directed the Navy to "show cause" by January 4, 1991 why the Government should not terminate the contract. By letter dated December 17, 1990, the Navy notified McDonnell Douglas and General Dynamics that the corporations' performance was "unsatisfactory" and that unless specified "conditions are cured by 2 January 1991 the Government may terminate for default." These events prompted McDonnell Douglas to issue advisory memoranda to its workers. On December 20, the company distributed a letter to all its employees explaining that the A-12 program was in danger. The letter further indicated that cancellation of the contract could require the corporation to layoff 4,000 persons, and it stated that employees at immediate risk would receive a follow-up communication. The memorandum concluded, "If you do not receive such a letter you will not be laid off in connection with our near-term actions in response to the possible cancellation of this program." On the next day, December 21, the contractor, as promised, notified roughly 2,500 employees that they would lose their jobs if the A-12 project were terminated. ⁴ Neither Loehrer nor Brandt received the December 21 letter.

On January 2, 1991, the contractors submitted a written response to the Navy's December 17 cure demand, noting that many previously existing problems had been corrected and explaining the current status of the A-12 program. In addition, the companies offered a proposal for continuation of the project. On January 2-3, 1991, representatives from the contractors met with Assistant Secretary of the Navy Gerald Cohn; Rear Admiral Morris, the senior A-12 contracting officer; Eleanor Spector, Director of Defense Procurement, Department of Defense; Under-Secretary of Defense Yockey; and several attorneys from the Department of Defense. After presentation of the contractors' proposal and two days of negotiations, McDonnell Douglas and General Dynamics agreed to absorb a $1.5 billion loss in exchange for a restructuring of the contract, $500 million of which was an up front loss. Admiral Morris gave McDonnell Douglas a draft of a Memorandum of Understanding outlining terms under which the Navy was willing to rework the A-12 project. The memorandum evidences that the Navy planned to support the contractors in...