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ROQUET v. ARTHUR ANDERSEN LLP

March 22, 2004.

NANCY J. ROQUET and CORETTA ROBINSON, Plaintiffs,
v.
ARTHUR ANDERSEN LLP, Defendant



The opinion of the court was delivered by: JOHN W. DARRAH, District Judge

AMENDED MEMORANDUM OPINION AND ORDER

Plaintiffs, Nancy J. Roquet and Coretta Robinson, brought a class action suit against Defendant, Arthur Andersen LLP, alleging Defendant violated the Worker Adjustment and Retraining Notification Act ("WARN Act"), 29 U.S.C. § 2101-2109. On May 22, 2003, Plaintiffs' Cross-Motion for Partial Summary Judgment on the Issue of Existence of Mass Layoff was granted. On August 12, 2003, Plaintiffs' Renewed Motion for Class Certification was granted. Presently before the Court are the parties' cross-motions for summary judgment on the unforeseen circumstances exception to liability under the WARN Act.

The Warn Act requires sixty days' notice before a mass layoff, 28 U.S.C. § 2102(a); in this case, by February 22, 2203 (Def.'s 56.l(a)(3) Statement 1 15). The unforeseen circumstances exception reduces or eliminates the Warn Act's sixty-day notice if the mass layoff is "caused by business circumstances that were not reasonably foreseeable as of the time that notice would have been required." 29 U.S.C. § 2102(b)(2)(A).

  Andersen was engaged in the business of accounting, auditing and tax services, and Page 2 speciality consulting in various locations in the United States,*fn1 (Plaint.'s 56.1(a)(3) Statement ¶ 1). Nancy Roquet was an employee of Andersen from January 7, 2002 to April 24, 2002, at which time her employment was terminated. (Id., ¶ 2). Coretta Robinson was an employee of Andersen from October 6, 1997 to May 15, 2002, at which, time her employment was terminated, (Id., ¶ 3),

  In June 2001, Andersen entered into an agreement with the United States Securities Exchange, consenting to the entry of a permanent injunction enjoining it from violating Section I0(b) of the Securities Exchange Act of 1934 and Rule 10B05 thereunder. (Plaint's 56.1(a)(3) Statement ¶ 10), The agreement also required Andersen to pay a $7 million fine. (Id., ¶ 11). Andersen also agreed to allow the Securities & Exchange Commission ("SEC") to enter an order pursuant to Rule 102(e), censuring Andersen for unprofessional conduct, (Id., ¶ 12). The basis for the consent decree was the SEC's finding that Andersen had knowingly or recklessly issued false and misleading, unqualified audit reports on the annual financial statement between 1993 and 1996 for Waste Management, Inc. (Id., ¶ 13).

  In November 2001, there were discussions in the media that Andersen might be and was the subject of an SEC investigation in relation to its client Enron Corporation. (Plaint.'s 56.1(a)(3) Statement ¶¶ 14-15). In December 2001, the media was reporting that experts were speculating that Andersen might not survive the SEC's investigation. (Id., ¶ 16). In January 2002, the media reported that Andersen had announced that some of its employees had disposed of or deleted a number of documents related to Enron. (Td., ¶ 17). Page 3

  Initially, Andersen seeks to strike Plaintiffs' Statements of Undisputed Facts that are based on media reports, including newspapers and radio, because such statements are based on inadmissible hearsay.

  Evidence submitted for or in opposition to a motion for summary judgment must be admissible at trial under the Federal Rules of Evidence. See Stinnett v. Iron Works Gym/Executive Health Spa, Inc., 301 F.3d 610, 613 (7th Cir. 2002). "[H]earsay is inadmissible in summary judgment proceedings to the same extent that it is inadmissible in a trial." Eisenstadt v. Centel Corp., 113 F.3d 738, 742 (7th Cir. 1997) (Eisenstadt). Hearsay consists of an out-of-court statement offered to prove the truth of the matter asserted. See Fed.R.Evid. 802; Eisenstadt, 113 F.3d at 742. Media reports, including newspaper articles, that are being offered for the truth of the matter asserted are inadmissible hearsay and cannot be relied upon for summary judgment proceedings. See Chicago Fireftghters Local 2 v. City of Chicago, 249 F.3d 649, 654 (7th Cir. 2001); Eisenstadt, 113 F.3d at 742. Plaintiffs concede that the media reports would generally be considered hearsay but contend that they are admissible because they are not being offered for the truth of the matters asserted but rather to demonstrate constructive knowledge to Andersen of the grounds for a criminal indictment in the early part of 2002. Accordingly, the media reports will he considered only for that limited purpose, i.e., evidence of what was being reported in the media concerning Andersen but not for the truth of the contents of the media reports.

  Beginning in January 2002, media outlets were reporting that some of Andersen's employees were concerned about layoffs. (Id., ¶ 19). It was also reported that some of Andersen's clients were contemplating switching or had decided to switch to other auditors. (Id., ¶ 20). Page 4

  As of January 2002, Andersen employed approximately 27, 000 persons at over 80 locations throughout the United States. (Def.'s Additional Facts ¶ 5). As of this date, Andersen provided services to clients throughout the United States with annual revenues of about $4 to $4.5 billion. (Id., ¶ 9).

  As of February 22, 2002, Andersen representatives were continuing to work with the representatives of the SEC and the Department of Justice ("DOJ") in an attempt to agree upon a global resolution of Enron Corporation-related issues. Such resolution would not have included the return of criminal charges against Andersen. (Def.'s Additional Facts ¶ 3). As of February 22, 2002, the Andersen Administrative Board did not believe that criminal charges against Andersen were probable and expected that a conclusion of matters with the SEC and DOJ would not result in substantial damage to the financial integrity of Andersen. No consideration was being given, at that time, to the termination of large numbers of employees because there was no reason to believe that the workforce needed to be downsized. (Id., ¶ 4). As of February 22, 2002, the energies of the Andersen Administrative Board were directed primarily toward resolving the legal problems of Andersen and keeping client service teams in place with ongoing work for clients. (Td., ¶ 6). As of February 2002, the role of Andersen as a major provider of administrative support services to the Andersen network was intact or "business as usual." (Id., ¶ 7). As of February 22, 2002, Andersen had no factual basis for expecting an indictment was probable, and, if so, when an indictment would occur, and, if so, which and how many clients would withdraw their business and when such clients would withdraw their business. Accordingly, as of February 22, 2002, the extent and identification of persons or groups that would be necessary to layoff 60 days later because of the business damage Page 5 from the March 14, 2002 indictment would have been pure guesswork based on what was known by or on February 22, 2002. (Def.'s 56.1(a)(3) Statement ¶ 15).

  Between January 1, 2002 and March 14, 2002, only four major clients, other than Enron, had left Andersen with a revenue loss of less than $20 million annually. Andersen's client engagements and retention was in normal limits in keeping with general business conditions; and as of mid-February, almost all clients were still being served. (Def.'s Additional Facts ¶ 6).

  On March 1, 2002, the DOJ informed Andersen that it intended to seek an indictment against the firm. This development was a surprise to the Andersen Administrative Board, After March 1, 2002 and through March 13, 2002, discussions occurred on an ongoing basis between Andersen and the DOJ for the purpose of attempting to resolve issues without an indictment of Andersen and a public trial. On March 5, 2002, counsel for Andersen sent a correspondence to the DOJ stating, in pertinent part, "As we have explained to DOJ's investigative team during the last ten days . . . a criminal action by DOJ against Andersen will cause the rapid collapse of the firm." (Plaint's Additional Facts ¶ 41). On March 7, 2002, Andersen Country Managing Partner, Terry Hatchett, sent a communication to all United States Andersen personnel stating, in part, that no final conclusions had been reached concerning the negotiations with the DOJ. (Def.'s 56.1(a)(3) Statement ¶ 15).

  On March 14, 2002, the United States DOJ unsealed an indictment charging Andersen with obstruction of justice. (Plaint.'s 56.1(a)(3) Statement ¶ 22). According to the indictment, on or about and between October 10, 2001 and November 9, 2001, Andersen knowingly and corruptly persuaded and attempted to persuade others to ...


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