On February 1, 2012, Judge William Lawrence of the U.S. District Court for the Southern District of Indiana gave employers an added boost in combating a common EEOC litigation tactic in pattern or practice cases. Judge Lawrence’s decision in EEOC v. New Indianapolis Hotels, LLC, Case No. 1:10-CV-1234 (S.D. Ind. Feb. 1, 2012), addressed the EEOC’s practice of seeking “punitive damages in Phase I” bifurcation, and its push for corresponding discovery bifurcation in pattern or practice cases. Judge Lawrence’s four page opinion is a short read but important for employers facing the EEOC in pattern or practice litigation.
The EEOC’s Claims
The EEOC sued New Indianapolis Hotels LLC and Noble Management LLC, alleging a wide range of discrimination theories, including claims for discriminatory/retaliatory termination of African-American housekeepers, disparate wages and hours for African-American housekeepers, and hiring discrimination with respect to African-American applicants for housekeeping positions, among other claims. Id. at 1.
The EEOC’s Procedural Tactics And The Teamsters Bifurcation Model
EEOC pattern or practice claims are analyzed under the framework first articulated by the U.S. Supreme Court in International Brotherhood of Teamsters v. United States, 431 U.S. 324 (1977). Under that model, the EEOC must first demonstrate in Phase I of a trial that unlawful discrimination is a standard employer procedure or policy. If the EEOC carries this burden, the employer can defend itself by challenging the EEOC’s proof or providing non-discriminatory explanations for its procedures. If the employer cannot mount such a defense, however, the Court can conclude that a widespread violation of the law has occurred, and it is presumed that all of the members of the class are victims of that violation. In Phase II of the trial, an employer may rebut individual claims and or challenge the award of damages to individual claimants, but it is an uphill battle at that point given what is known as the “Teamsters presumption.”
A common EEOC tactic is to demand that punitive damages be determined in Phase I, after a liability finding but before any individual determinations of damages and possible defenses are made. The EEOC reasons that after a violation of the law is found, it is appropriate for the same jury to decide punitive damages, as the evidence of employer’s misconduct that created liability will be the same evidence used to support punitive damages. In keeping with this argument, the EEOC often argues that individual damages discovery should come later in the litigation, separate from the liability discovery, contending that individualized economic damages discovery would be too costly and time consuming before Phase I of the trial.
This tactic – seeking a bifurcated trial, a Phase I punitive damages determination, and bifurcated discovery – is precisely what the EEOC sought in the New Indianapolis Hotels case. Judge Lawrence rejected the EEOC’s tactics in part. The Court bifurcated the trial according to Teamsters, but rebuffed the EEOC’s play for bifurcated discovery and a Phase I punitive damages determination.
The Court’s Holding Denying Bifurcated Discovery And A Phase I Punitive Damages Determination
Judge Lawrence determined that a bifurcated trial was appropriate but that punitive damages must be decided in Phase II, commenting that “presenting evidence of damages to a jury before a finding of liability is, with respect to a class of this size, putting the cart before the horse.” Id at 3.
The Court disagreed with the EEOC that discovery should be bifurcated, noting that “[discovery] bifurcation … results in an even greater inefficiencies; namely, denying discovery on applicant class members’ individualized damages until after liability is decided necessitates a separate jury be empanelled to decide damages.” Id. Judge Lawrence reasoned that empanelling and familiarizing a new jury saddled both the Court and the parties with more of a burden than unified discovery would. Id.
In essence, the EEOC’s discovery argument boomeranged on the government. As a justification for its bifurcated discovery model, the EEOC argued that it would be too inefficient and expensive to use a separate jury for each phase of the trial. Judge Lawrence noted that conducting all individual discovery before trial, then using the same jury for Phase I and Phase II, would address the EEOC’s concerns that repeating the liability evidence for punitive damages would be wasteful. Id. Under Judge Lawrence’s model, all discovery would be completed before any jury was even selected, i.e., one jury for both Phases.
Lessons For Employers
The ruling in EEOC v. New Indianapolis Hotels is believed to be the third decision rejecting the EEOC’s “punitive damages in Phase I” bifurcation strategy. The rulings in EEOC v. Sterling Jewelers, 2011 U.S. LEXIS 44255 (W.D.N.Y. April 25, 2011), and EEOC v. McCormick & Schmick’s, 2008 U.S. Dist. LEXIS 112283 (D. Md. Nov. 4, 2008), are the other reported opinions rejecting the EEOC’s strategy. Although Judge Lawrence did not focus on it in his order, the “punitive damages in Phase I” bifurcation device is also improper due to additional statutory or constitutional grounds, as both EEOC v. Sterling Jewelers and EEOC v. McCormick & Schmick’s rejected the EEOC’s strategy based on the Rules Enabling Act and the due process clause. Employers are well served to utilize those arguments, for bifurcation with “punitive damages in Phase I” can be a “game-changer” for defense of these types of claims.
The EEOC has limited resources, and sometimes its reach exceeds its grasp. In EEOC v. New Indianapolis Hotels, the EEOC balked at the written and oral discovery of the over 100 of its applicant class members. Although the EEOC purported to be concerned about taxing the resources of both Plaintiff and Defendants alike, Judge Lawrence noted in footnote 2 of his opinion that Defendants did not share that concern, and had signaled that they were up to the task of full-throttle discovery. This is another example of the wisdom of calling the EEOC’s bluff and demanding that the government litigate the full scope of the case it has brought; a move that often results in a strategic advantage for employers.