      Case: 12-60242             Document: 00512141030   Page: 1    Date Filed: 02/11/2013




            IN THE UNITED STATES COURT OF APPEALS
                     FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                     Fifth Circuit

                                                                            FILED
                                                                         February 11, 2013

                                          No. 12-60242                     Lyle W. Cayce
                                                                                Clerk

In the Matter of: FLEXIBLE FLYER LIQUIDATING TRUST,

                                                   Debtor

------------------------------

DAVID D. ANGLES; GRADY BARCLAY; MEGAN BIBBS; PEARLY
BILLUPS; ROMELL BLACK; ET AL,

                                                   Appellants
v.

FLEXIBLE FLYER LIQUIDATING TRUST, formerly known as FF
Acquisition Corporation, doing business as Flexible-Flyer,

                                                   Appellee



                      Appeal from the United States District Court
                        for the Northern District of Mississippi
                                 USDC No. 1:11-CV-31


Before JOLLY, PRADO, and HIGGINSON, Circuit Judges.
PER CURIAM:*




        *
         Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
    Case: 12-60242      Document: 00512141030   Page: 2   Date Filed: 02/11/2013



                                 No. 12-60242

      This appeal addresses an employer’s duty to notify employees of a plant
closing and mass layoff under the Worker Adjustment and Retraining
Notification Act (“WARN Act”), where lenders suddenly and without advance
notice completely terminated the company’s financing. The question presented
is whether such circumstance satisfies the WARN Act exception for
“unforeseeable business circumstances.” The case largely turns on the factual
findings of the bankruptcy court. Because the findings are not clearly erroneous,
we AFFIRM.
                                       I.
      Cerberus Capital Management Corp. (“Cerberus”), a private equity hedge
fund, formed the now bankrupt Flexible Flyer in 1997 to purchase the assets of
a bankrupt company. Flexible Flyer manufactured swing sets, hobby horses, go-
carts, utility vehicles, and fitness equipment. These products were sold to a
variety of retailers, including Wal-Mart, Toys-R-Us, K-Mart, and Sam’s Club.
      Flexible Flyer never made a profit–indeed it constantly lost money–but
hope and a few good signs kept it going. Until late 2000, Flexible Flyer was
funded entirely by its parent company, Cerberus. During this time, Cerberus
infused Flexible Flyer with $85 million in capital. In late 2000, Flexible Flyer
obtained an additional source of operating capital when it entered into a
factoring arrangement with CIT Group Commercial Systems, LLC (“CIT”).
Under this arrangement, Flexible Flyer assigned its eligible accounts receivables
to CIT, and CIT advanced Flexible Flyer 80% of the receivables that it acquired.
The factoring arrangement with CIT and occasional capital infusions from
Cerberus were Flexible Flyer’s primary sources of operating funds during its
struggling existence.
      CIT and Cerberus closely monitored Flexible Flyer’s financial
performance, because, as we have indicated, Flexible Flyer consistently operated
at a deficit. Each year, Cerberus told Flexible Flyer that it would shut Flexible

                                       2
    Case: 12-60242     Document: 00512141030     Page: 3   Date Filed: 02/11/2013



                                  No. 12-60242

Flyer down if it did not become profitable within a year. But, despite the failure
to make a profit and despite issuing these warnings year after year, Cerberus
never took the steps to close Flexible Flyer. Cerberus continued to provide
capital and did not refuse Flexible Flyer’s requests for additional funding when
Flexible Flyer indicated that more funding was essential for its continued
operation.
      In 2005, Flexible Flyer’s situation became even more tenuous.             It
experienced a number of financial problems, and the company notified its
employees in April of possible layoffs in the go-cart section. Two months later,
Flexible Flyer was forced to recall 10,000 go-carts because of defective parts.
Around this same time, Wal-Mart, K-Mart, and Toys-R-Us notified Flexible
Flyer that they would be deferring the purchase of approximately $5 million in
swing sets until the next year. Another customer, Tractor Supply Company,
withheld $300,000 in payments for merchandise that had already been shipped.
      Michael Earrey, Flexible Flyer’s Chief Financial Officer, took a number of
actions attempting to address these problems. In August 2005, he convinced
Wal-Mart to pay its invoices sooner, and several vendors agreed to defer
payments due from Flexible Flyer. Earrey was less successful, however, in
convincing some customers, most notably Wal-Mart, to provide written
commitments regarding projected delivery dates or future orders. Despite the
lack of written commitments, Earrey testified that he remained optimistic
Flexible Flyer could weather the storm. During this time, Flexible Flyer’s
primary domestic competitor had filed for bankruptcy protection, leaving
Flexible Flyer as the only U.S. manufacturer of swing sets. Fewer competitors
gave Earrey a reason to be encouraged about Flexible Flyer’s future.
      Recognizing that it needed additional funds to operate, Flexible Flyer
consulted with an attorney in August 2005 to explore all of its options. Among
those options were exiting the go-cart business completely, selling the fitness

                                        3
     Case: 12-60242      Document: 00512141030         Page: 4    Date Filed: 02/11/2013



                                      No. 12-60242

equipment business, or possibly filing for Chapter 11 bankruptcy protection.
Before Flexible Flyer decided on which course of action to take, however, CIT
reduced its credit line. Instead of continuing to advance Flexible Flyer 80% of
its receivables, CIT cut the amount to 50%. Earrey believed that Flexible Flyer
could continue to operate at the 50% rate, but two weeks after the initial cut,
CIT informed Flexible Flyer that it would no longer be advancing credit at all.
Earrey attempted to get funding from Cerberus, but this time, Cerberus refused.
With no cash to operate, Flexible Flyer was forced to file for bankruptcy on
September 9, 2005, two days after CIT terminated all funding. That same day,
Flexible Flyer notified its employees that it would be terminating business
operations, resulting in company-wide layoffs.
       A group of over 100 former Flexible Flyer employees filed an adversary
action in Flexible Flyer’s bankruptcy proceeding, alleging that Flexible Flyer
was liable under the WARN Act for failing to give them the required sixty-day
layoff notice. Both parties agreed that there were more than 100 employees
involved, that Flexible Flyer had failed to give the sixty-day notice, and that
consequently the WARN Act applied. After a bench trial, the bankruptcy court
determined, however, that Flexible Flyer was excused from providing advance
notice because it had established that the shutdown was the result of an
unforeseeable business circumstance.1 The court credited Earrey’s testimony,
finding that the abrupt unavailability of operating funds caused the layoffs and
that the sudden lack of funds was completely unanticipated.                    The court
concluded that “[t]he shutdown of Flexible Flyer and the mass layoffs were not
planned, proposed, or foreseeable” and found that Flexible Flyer had provided



       1
        The bankruptcy court determined that another exception also applied—the faltering
business exception—but it found the unforeseeable business circumstance exception to be more
compelling. Because we find that the bankruptcy court correctly found that the unforeseeable
business circumstance exception applied, we do not reach the faltering business exception.

                                             4
    Case: 12-60242     Document: 00512141030     Page: 5   Date Filed: 02/11/2013



                                  No. 12-60242

WARN Act notice at “the earliest practical date that such a notice could be
provided.”
      The employees appealed to the district court, which held that “the factual
determinations made by the [bankruptcy] court were not clearly erroneous, and
the legal conclusions were thorough and correct.” This timely appeal from the
district court’s judgment followed.
                                       II.
      We review the district court’s decision using the same standard that the
district court used to review the bankruptcy court’s findings of fact and
conclusions of law. Gen. Electric Capital Corp. v. Acosta (In re Acosta), 406 F.3d
367, 372 (5th Cir. 2005). “A bankruptcy court’s findings of fact are subject to
review for clear error, and its conclusions of law are reviewed de novo.” Morrison
v. W. Builders of Amarillo, Inc. (In re Morrison), 555 F.3d 473, 480 (5th Cir.
2009). In reviewing for clear error, we “will reverse only if, on the entire
evidence, we are left with the definite and firm conviction that a mistake has
been made.” Id. (internal quotation marks omitted).
                                       III.
      The WARN Act, 29 U.S.C. §§ 2101–2109, requires covered employers who
are planning a plant closing or mass layoff to give affected employees sixty days
notice of such action. 20 C.F.R. § 639.2. Advance notice is meant to provide
“workers and their families some transition time to adjust to the prospective loss
of employment, to seek and obtain alternative jobs and, if necessary, to enter
skill training or retraining.” Id. § 639.1. There are exceptions, however, that
excuse employers who fail to provide the required notice. See id. § 639.9. If a
WARN Act exception applies, employers are required to give only “as much
notice as is practicable.” Id.
      The unforeseeable business circumstance exception applies when the
closing or layoff was “caused by business circumstances that were not reasonably

                                        5
    Case: 12-60242    Document: 00512141030     Page: 6   Date Filed: 02/11/2013



                                 No. 12-60242

foreseeable as of the time that notice would have been required.” 29 U.S.C.
§ 2102(b)(2)(A); see also 20 C.F.R. § 639.9(b). Closings and layoffs are not
foreseeable when “caused by some sudden, dramatic, and unexpected action or
condition outside the employer’s control.” 20 C.F.R. § 639.9(b)(1). In assessing
the foreseeability of business circumstances, our focus is “on an employer’s
business judgment.” Id. § 639.9(b)(2). An employer is required only to “exercise
such commercially reasonable business judgment as would a similarly situated
employer in predicting the demands of its particular market.” Id.
      We previously have stated that where it only is possible that the business
circumstance at issue may occur, such circumstances are not reasonably
foreseeable. See Halkias v. Gen. Dynamics Corp., 137 F.3d 333, 336 (5th Cir.
1998). Rather, “it is the probability of occurrence that makes a business
circumstance ‘reasonably foreseeable’ and thereby forecloses use of the
[unforeseeable business circumstances] exception.” Id. For example, in Halkias,
there was “no doubt that the evidence showed General Dynamics’ board of
directors knew of the possibility of contract cancellation and mass lay-offs as
early as June, 1990,” when notice was not given until December 21, 1990. Id.
But, we ultimately concluded that the board of directors’ knowledge of the
potential business circumstance, contract cancellation, did not make the
circumstance’s occurrence reasonably foreseeable. See id. Cancellation was a
possible outcome, not necessarily a probable one, and it was a circumstance
outside of the board of directors’ control. See id.; see also Carpenters Dist.
Council of New Orleans v. Dillard Dep’t Stores, Inc., 15 F.3d 1275, 1281–82 (5th
Cir. 1994).
      Here, the bankruptcy court was the finder of fact. It determined that the
September 9, 2005 closing of Flexible Flyer’s business was not reasonably
foreseeable. The record showed that sixty days before the shutdown, Flexible
Flyer was undisputedly experiencing financial difficulties. But, even so, there

                                       6
    Case: 12-60242     Document: 00512141030     Page: 7   Date Filed: 02/11/2013



                                  No. 12-60242

was no indication that a company shutdown was imminent.              Indeed, the
bankruptcy court credited Earrey’s testimony that, until almost the last
moment, he had been working tirelessly to turn the company around and was
considering a number of cost-saving measures designed to keep the company
operating for as long as possible. Moreover, Flexible Flyer’s position in the
market had improved as a result of its competitor’s demise, and Earrey had
presented Wal-Mart with projections for Flexible Flyer’s 2006 operations,
demonstrating his belief that the company would continue operations into the
new year. Earrey also testified that he was considering options for “an orderly
downsizing of the business over time, not an immediate shutdown.” All of the
evidence proffered thus shows that the focus of Flexible Flyer’s management was
on saving the company, not planning for an upcoming shutdown. Based on
Earrey’s testimony, the bankruptcy court found that, “Earrey’s exercise of his
business judgment, in keeping Flexible Flyer going and in anticipating that
Flexible Flyer would continue operations into 2006, was completely reasonable.”
We cannot say that the bankruptcy court clearly erred in crediting Earrey’s
testimony or in concluding that his exercise of business judgment was
reasonable under the circumstances.
      The holdings of the bankruptcy and district courts are further supported
by the showing that during the time period immediately preceding the closure,
Flexible Flyer still had financing in place from CIT, as well as back-up funding
from Cerberus, who had never refused Flexible Flyer’s previous requests for
additional capital. It was only when CIT and Cerberus both decided to cut off
funding completely, and did so almost simultaneously without warning, that the
shutdown became inevitable. Earrey testified that he had “no clue” that CIT
was going to cut funding, and Cerberus’s refusal to provide capital was a sudden
departure from its prior actions in response to Flexible Flyer’s funding requests.
Again crediting Earrey’s testimony, the bankruptcy court concluded that the

                                        7
    Case: 12-60242     Document: 00512141030     Page: 8   Date Filed: 02/11/2013



                                  No. 12-60242

“abrupt unavailability of operating funds” caused the layoffs, and that CIT and
Cerberus’s actions were “completely unanticipated.” Nothing in the record
suggests that these findings and conclusions were clearly erroneous.
      The arguments of the former employees suggest that the sixty days notice
should have been issued sometime following the June 2005 go-cart recall.
Contrary to the contention of the former employees, Flexible Flyer’s financial
difficulties in July and in the ensuing weeks, do not establish the foreseeability
of a complete withdrawal of funding; nor consequently, the company’s sudden
closure on September 9, 2005. As noted above, the bankruptcy court credited
Earrey’s testimony that CIT and Cerberus’s decision to cut all funding was an
unanticipated event taking place two days before the shutdown. Under Halkias
and the WARN Act regulations, the focus of the analysis of this appeal must be
on the probability that the plant closure and subsequent layoffs would occur, and
the employer’s exercise of business judgment. It is true that Flexible Flyer’s
financial condition was perilous for much of its eight-year existence. But it is
also true that encouraging events continued to renew probabilities that better
days may be ahead. The WARN Act allows good faith, well-grounded hope, and
reasonable expectations. Its regulations protect the employer’s exercise of
business judgment and are intended to encourage employers to take all
reasonable actions to preserve the company and the jobs. Holding Flexible Flyer
liable for a WARN Act violation on the facts found by the bankruptcy court
would serve only to encourage employers to abandon companies even when there
is some probability of some success.
      Thus, we hold that the bankruptcy court did not err in finding Earrey’s
testimony credible; based on his testimony, he pursued numerous options to save
Flexible Flyer up until the sudden termination of all funding by CIT and
Cerberus. Termination of outside funding may have always been possible, but
it cannot be said on the record before us that Flexible Flyer probably knew

                                        8
    Case: 12-60242      Document: 00512141030   Page: 9   Date Filed: 02/11/2013



                                 No. 12-60242

during or before July 2005 that it would be stripped of funding, causing an
immediate shutdown. This case presents a convincing example of an event that
meets the unforeseeable business circumstance exception. The bankruptcy court
correctly concluded that the exception applied in this case. The district court’s
judgment therefore is
                                                                   AFFIRMED.




                                       9
