## Facts

- Darby Lumber, Inc. (DLI) operated a lumber mill; Bob Russell Construction, Inc. (BRC) performed construction and logging support work tied to DLI’s mill operations.
- BRC was incorporated in Idaho (1976); DLI was incorporated in Montana (1984).
- In 1996, DLI acquired 100% of BRC’s shares; DLI’s stock was owned approximately 49% by Robert E. Russell and 51% by an employee stock ownership trust.
- Over the relevant period, DLI had 88 employees and BRC had 18 employees who each worked more than 1,000 hours.
- DLI experienced sustained financial losses related to a depressed lumber market and related operational problems.
- On September 7, 1998, DLI’s bank refused to restructure credit; DLI later lost its credit line.
- On September 24, 1998, DLI advised employees in writing that financial difficulties would lead to a “major layoff.”
- On September 25, 1998, DLI shut down the mill and laid off mill employees; a planer operation continued for several weeks before those employees were also laid off.
- BRC employees were laid off over the following months.
- Management had limited awareness of WARN Act requirements.
- Employees sued under the Worker Adjustment and Retraining Notification (WARN) Act, alleging failure to provide 60 days’ notice of a plant closing or mass layoff.
- The district court granted summary judgment for employees, treated DLI and BRC as a single employer, rejected statutory exceptions/defenses, and awarded damages and attorney’s fees; defendants appealed.

## Issues

1. Whether DLI and BRC should be treated as a single employer under WARN, allowing aggregation of employees to meet the statute’s coverage threshold.
2. Whether defendants qualified for WARN’s faltering company or unforeseeable business circumstances exceptions, or a good faith reduction of liability.
3. Whether the district court abused its discretion in discovery rulings.
4. Whether the district court abused its discretion in awarding attorney’s fees.

## Decision

- The Ninth Circuit affirmed the judgment in full.
- DLI and BRC were a single employer for WARN purposes under the Department of Labor’s five-factor test, given common ownership, overlapping management/control, and interrelated operations.
- WARN coverage applied because the combined workforce met the statutory employee threshold.
- Defendants failed to prove the faltering company exception because they did not show active, qualifying capital-seeking during the notice period or that notice would have interfered with obtaining financing.
- Defendants failed to prove unforeseeable business circumstances because the financial decline and credit problems developed over time and were reasonably foreseeable.
- Defendants failed to establish a good faith defense because ignorance of WARN and lack of concrete compliance efforts were insufficient.
- The district court did not abuse its discretion in discovery rulings or in awarding attorney’s fees to prevailing employees.

## Legal Principles

- Separate corporations may be treated as a single employer under WARN when the Department of Labor factors (including common ownership, common management, de facto control, unity of personnel policies, and interrelation of operations) show a functionally integrated enterprise.
- WARN’s faltering company exception requires proof of active capital- or business-seeking that could have avoided or postponed closure and proof that providing notice would have impeded obtaining that capital or business.
- The unforeseeable business circumstances exception requires that the circumstances causing the closing or layoff were not reasonably foreseeable at the time WARN notice would have been due; gradually worsening conditions generally do not qualify.
- A WARN good faith reduction requires reasonable grounds and affirmative efforts toward compliance; lack of knowledge of the statute, without concrete compliance steps, does not satisfy the standard.
- Discovery and attorney’s fee determinations are reviewed for abuse of discretion; prevailing employees may recover reasonable attorney’s fees under WARN.

## Conclusion

The Ninth Circuit upheld summary judgment for employees, holding that the mill operator and its wholly owned support company were a single WARN employer and that the employers failed to satisfy any asserted exception or defense to liability, while also affirming the district court’s discovery rulings and attorney’s fee award.


Childress v. Darby Lumber, Inc., 357 F.3d 1000 (9th Cir. 2004)