By Gerald L. Maatman, Jr. and Alex W. Karasik

Seyfarth Synopsis: In an EEOC lawsuit alleging that an employer failed to reasonably accommodate its Muslim employees’ requests for prayer breaks, a federal court in Colorado granted the EEOC’s motion for sanctions — as a result of the employer’s failure to preserve and produce various records — and barred the employer from presenting evidence, testimony, or arguments that unscheduled prayer breaks led to production line slowdowns or stoppages.  This ruling provides an important lesson for businesses regarding the preservation of documents in ongoing EEOC litigation.

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In EEOC v. JBS USA, LLC, Case No. 10-CV-02103, 2017 U.S. Dist. LEXIS 122908 (D. Colo. Aug. 4, 2017), the EEOC alleged that JBS USA, LLC (“JBS”), a meat packing company, discriminated against its Muslim employees on the basis of religion by engaging in a pattern or practice of retaliation, discriminatory discipline and discharge, harassment, and denying its Muslim employees reasonable religious accommodations.  After the EEOC moved for sanctions regarding JBS’s failure to produce two types of records relating to delays on JBS’s production line, Judge Phillip A. Brimmer of the U.S. District Court for the District of Colorado granted in part the EEOC’s motion and barred JBS from presenting evidence, testimony, or argument in its motions, at hearings, or at trial that unscheduled prayer breaks led to production line slowdowns or stoppages.

For employers involved in government enforcement litigation, this ruling serves as a cautionary tale regarding the importance of preserving and producing relevant records, and that the failure to do so might cost employers the ability to later use such records in their defense.

For more information on this lawsuit (and a similar Nebraska case where JBS successfully obtained summary judgment), see our blog posts here, here, here, here, here, here, and here.

Case Background

JBS operates a beef processing plant in Greeley, Colorado.  Id. at *2.  During the first week of Ramadan 2008, a dispute occurred between JBS and its Muslim employees over their opportunities to pray, resulting in hundreds of Muslim employees walking off the job.  On September 10, 2008, JBS fired 96 Muslim employees that refused to return to work.  After the mass termination, numerous former employees filed discrimination charges with the EEOC.  Id.  In response, on February 3, 2009, JBS submitted a position statement where it argued that granting prayer breaks to employees would be an undue burden, in part, due to losses resulting from “each minute of production down-time.”  Id.  JBS continued to assert its undue burden affirmative defense throughout the case, for instance, arguing in its summary judgment motion that production line slowdowns and downtime would have been caused by allowing prayer breaks to Muslim employees.

The EEOC sought discovery from JBS about its undue burden affirmative defense.  Relevant here, on November 21, 2012, the EEOC served a production request regarding the production of all reports or data showing all dates and times the fabrication lines on any and all shifts were stopped, as well as the speed of the lines.  In response, JBS produced documents that included records showing scheduled breaks, but did not provide or reference the Down Time Reports or Clipboards, which show unplanned downtime and slowdowns.  The EEOC thereafter moved for sanctions for the loss or destruction of documents directly relevant to JBS’s allegations of undue hardship.

The Court’s Decision

The Court granted the EEOC’s motion for sanctions.  While JBS had produced Clipboards from 2012-2016 and Down Time Reports from 2016, it claimed that all others had been destroyed.  JBS later testified via Rule 30(b)(6) deposition that the Down Time Reports were shipped to storage each year, but may have been destroyed.  After searching its warehouse for “a day” in 2017,  JBS later located and produced some additional records.  Id. at *6.  The Court thus found that JBS failed to supplement its production with responsive records in a timely manner.  The Court held that because JBS did not show that its failure to supplement was substantially justified or harmless, it would impose sanctions pursuant to Fed. R. Civ. P. 37(c)(1).  Id.

Next, the Court explained that spoliation occurs when a party loses or destroys evidence that it had a duty to preserve because it was relevant to proof of an issue at trial in current or anticipated litigation.  Id. at *7 (citation omitted).  JBS argued that it did not have a duty to preserve these documents because it had no way of knowing or anticipating that the EEOC would be interested in knowing the specific time of every instance of every day that the production line stopped for an unplanned or unexpected reason.  The Court rejected this argument, holding that JBS ignored the fact that it asserted an undue burden defense within a year of the September 2008 incident and after charges of discrimination had been filed against it.  As such, the Court held that JBS had a duty to preserve documents relevant to the burden posed by the proposed accommodations.  Id. at *8 (citation omitted).

Arguing that the lack of production of records did not cause a prejudice to the EEOC, JBS stated that the records did not show whether any slowdown or stoppage was related to a prayer break because the information they contained was “only as specific as the information known to the person filling out the Down Time Report.”  Id. at *10.  The Court rejected this argument, holding that “[r]ecords such as those sought, which potentially show the actual impact of unscheduled employee prayer breaks, are particularly important to understanding the impact such breaks would have on production line slowdowns or stoppages because they would provide contemporaneous records of whether unscheduled breaks led to production downtime.”  Id. at *12.  Accordingly, the Court found that the EEOC was prejudiced by JBS’s spoliation of evidence.  Id.

In fashioning a sanction that “appropriately addresses the prejudice to the EEOC resulting from JBS’s spoliation or failure to produce the records and is proportional to JBS’s culpability,” the Court held that it would bar JBS from presenting evidence, testimony, or argument in its motions, at hearings, or at trial that unscheduled prayer breaks led to production line slowdowns or stoppages.  Id. at *14.  The Court explained that this sanction was “tailored to the evidence lost, destroyed, or withheld by JBS because it alleviates the prejudice which the EEOC would otherwise suffer, namely, that JBS may present evidence of stoppages through witnesses, but the EEOC would not be able to rebut such testimony with records that would likely prove whether stoppages actually occurred and, perhaps, for what reason.”  Id.  Accordingly, the Court granted in part the EEOC’s motion for sanctions for the loss or destruction of documents.

Implications For Employers

An employer’s likelihood of defeating a workplace class action is often dependent on its ability maintain and preserve thorough employment records.  Here, the employer’s failure to preserve records that ultimately could have helped establish an affirmative defense resulted in the Court limiting the employer from using certain types of evidence in its defense of the litigation.  This sanction should serve as a cautionary tale for employers in regards to complying with the written discovery process, as employers are best-positioned to defeat workplace class actions when they have as many defenses as possible in their arsenal.

Readers can also find this post on our EEOC Countdown blog here.

washington-monument-754745_960_720Seyfarth Synopsis: Governmental enforcement litigation was a mixed bag in 2016. The U.S. Department of Labor (“DOL”) and the Equal Employment Opportunity Commission (“EEOC”) continued their aggressive enforcement programs, but their effectiveness was down “by the numbers” as compared to previous years. What does this mean for 2017?  In the 6th and final installment in our series of blog postings on workplace class action trends, we examine what employers are likely to see in 2017 on the government enforcement litigation front.

Introduction

Government enforcement lawsuits brought by the DOL and EEOC continued the aggressive litigation programs of both agencies, but by sheer numbers of cases, their enforcement activities were arguably limited in their effectiveness, at least when measured by lawsuit filings and recoveries compared to previous years. Settlement numbers for government enforcement litigation in 2016 decreased substantially as compared to 2015, as did the litigation dockets of the DOL and the EEOC. This trends is aptly illustrated by a comparison of settlement recoveries over the past 7 years. Settlement recoveries in 2016 were the second lowest of any year during that period.

Top 10 Government Enforcement

This trend is critical to employers, as both agencies have a focus on “big impact” lawsuits against companies and “lead by example” in terms of areas that the private plaintiffs’ bar aims to pursue. The content and scope of enforcement litigation undertaken by the DOL and the EEOC in the Trump Administration remains to be seen; most believe there will be wholesale changes, which may well prompt the private plaintiffs’ class action bar to “fill the void” and expand the volume of litigation pursued against employers over the coming year.

Governmental Enforcement Litigation Trends In 2016

On the governmental enforcement front, both the EEOC and the DOL intensified the focus of their administrative enforcement activities and litigation filings in 2016.  At the same time, the number of lawsuits filed and the resulting recoveries by settlement – measured by aggregate litigation filings and the top 10 settlements in government enforcement litigation – were less than half of what the EEOC and DOL achieved in 2015.

The EEOC’s lawsuit count dropped precipitously. By continuing to follow through on the systemic enforcement and litigation strategy plan it announced in April of 2006 (that centers on the government bringing more systemic discrimination cases affecting large numbers of workers), the EEOC filed less cases overall but more systemic lawsuits. This manifested the notion that the Commission’s limited budget and bandwidth are best deployed to matters where a systemic focus is most needed and the largest numbers of alleged victims are at issue.  As 2016 demonstrated, the EEOC’s prosecution of pattern or practice lawsuits is now an agency-wide priority backed up by the numbers.  Many of the high-level investigations started in the last three years mushroomed into the institution of EEOC pattern or practice lawsuits in 2016. These numbers are shown by the following chart:

EEOC Systemic Cases: Filed, Resolved, And On Active Docket
FY 2013 – 2016

Cases Filed

The Commission’s 2016 Annual Report also announced that it expects to continue the dramatic shift in the composition of its litigation docket from small individual cases to systemic pattern or practice lawsuits on behalf of larger groups of workers.  The EEOC’s FY 2016 Annual Report detailed the EEOC’s activities from October 1, 2015 to September 30, 2016.  The EEOC’s Report indicated that:

  • The Commission completed work on 273 systemic investigations in FY 2016, which resulted in 21 settlements or conciliation agreements that yielded a total recovery of $20.5 million for systemic claims; six of the settlements involved 50 alleged victims or more, and 13 settlements included 20 or more alleged victims. The FY 2016 recoveries represent a decrease of systemic recoveries in FY 2015 when the Commission netted $33 million based on resolution of systemic investigations.
  • The EEOC recovered $347.9 million for alleged victims of employment discrimination in FY 2016 through mediation, conciliation, and settlements. This represented a decrease of $10.4 million as compared to FY 2015, when the Commission garnered $356.6 million for its enforcement efforts.
  • For its lawsuits, the EEOC secured $58.3 million in recoveries in FY 2016.  This figure was down $7 million as compared to the FY 2015 recoveries of $65.3 million. However, the EEOC resolved fewer lawsuits than it did last year, and recovered less money from those cases.  Specifically, the EEOC resolved 139 lawsuits during FY 2016 for a total recovery of $52.2 million; by comparison, the EEOC resolved 155 lawsuits in FY 2015 for a total recovery of $65.3 million.
  • The EEOC filed only 86 lawsuits in 2016 (down significantly from the 139 lawsuits it filed in 2015), of which 31 were “multiple victim” lawsuits, with 18 cases involved claims of systemic discrimination on behalf of 20 or more workers, and 13 cases involved multiple alleged discrimination victims of up to 20 individuals.  The EEOC had 165 cases on its active lawsuit docket by year end (down from FY 2015, when it had 218 cases on its docket, of which 48% involved multiple aggrieved parties and 28.5% involved challenges to alleged systemic discrimination).  Overall, this represented increases in these categories in terms of the make-up of the Commission’s litigation being tilted more heavily toward systemic cases.
  • The EEOC also received 91,503 administrative charges of discrimination, which was slightly up from the FY 2015 total of 89,385 charges and the FY 2014 total of 88,778 charges. Thus, charge activity was one of the heaviest in the 52 year history of the Commission.
  • The EEOC also encountered significant criticism in the manner in which it enforced anti-discrimination laws.  This criticism took various forms in terms of judicial sanctions, suits against the Commission by private litigants and States, and questioning by Congress over the EEOC’s alleged lack of transparency.

While the inevitable by-product of these governmental enforcement efforts is that employers are likely to face bigger lawsuits on behalf of larger groups of workers in 2017, the EEOC’s systemic litigation program is not without its detractors.  Several federal judges entered significant sanctions against the EEOC – some in excess of seven figures – for its pursuit of pattern or practice cases that were deemed to be without a good faith basis in fact or law. The U.S. Supreme Court in EEOC v. CRST Van Expedited, Inc., 136 S. Ct. 1642 (2016), examined the propriety of the $4.7 million fee sanction, the largest fee sanction ever leveled against the Commission; while the EEOC had been successful in its initial appeal in reversing the sanction before the Eighth Circuit, the Supreme Court unanimously rejected the EEOC’s position, remanded the fee sanction issue for review, and gave new life to the employer’s efforts to recoup millions of dollars against the Commission.

Fiscal year 2016 also marked another year in the EEOC’s 2012-2016 Strategic Enforcement Plan (“SEP”).  The SEP was created in 2012 as a blueprint to guide the EEOC’s enforcement activity.  Its most controversial and perhaps most far-reaching effect on the agency’s activity is the priority it gives to systemic cases: those pattern or practice, policy, or class-like cases where the alleged discrimination has a broad impact on an industry, profession, company, or geographic area.  Systemic cases have been the main driver of EEOC litigation over the past few years, and likely will be well into the future.  The EEOC is now fighting challenges to its power to bring those cases on a number of fronts.  Among other things, it is aggressively challenging any court’s ability to review how it conducts certain statutorily-mandated procedures before bringing suit, including how it investigates its cases and tries to conciliate those cases with employers.  If successful in those efforts, the EEOC will have greatly eased its path to pursuing systemic cases.

The EEOC is not only expanding its reach in procedural terms, but also it is attempting to broaden the scope of its authority through an expansion of the scope of anti-discrimination laws themselves.  In a number of recent cases, the EEOC has advanced novel legal theories that would, among other things, expand anti-discrimination protections to cover transgender employees and require employers to reasonably accommodate pregnant employees, even those who are experiencing normal pregnancies.  The EEOC continued to push the edge of the legal envelope in 2016, viewing itself as an agency that not only enforces the law, but also one that expands the scope of those laws as it deems appropriate.

For this and other reasons, the agency has come under increasing scrutiny and criticism by Republican members of Congress, business groups, and critics of an allegedly activist agency wasting the taxpayers’ dollars.  Such criticism is unlikely to stem the tide of systemic cases or deter the EEOC from continuing to try to expand its enforcement powers.  Subject to policy-directed changes mandated by the Trump Administration, employers can expect the EEOC will use the next year to continue to push for expansion of its procedural and substantive limits.

The DOL also undertook aggressive enforcement activities in 2016.

The Wage & Hour Division (“WHD”) kept up its aggressive enforcement actions in 2016, particularly in the hotel, restaurant, and retail industries.  Much of WHD’s enforcement and other activities took place under the umbrella of “fissured industries” initiatives, which focus on industries with high usage of franchising, sub-contracting, and independent contractors.  At the conclusion of those enforcement actions, WHD continued to increase its use of civil money penalties, liquidated damages, and enhanced compliance agreements.

Legislatures and government agencies in various states and municipalities also increased their activities on the wage & hour front.  Whether increasing the minimum or living wage, enacting scheduling laws and ordinances, implementing wage theft prohibitions, or increasing the minimum salary level required for exemption, many have already revised or are actively planning to revise laws and rules governing how businesses pay employees in 2017.

With the approaching ten-year anniversary of the last time Congress enacted a minimum wage increase (2007), advocates of a minimum wage increase are likely to turn up the volume on their requests for an increase to the federal minimum wage in 2017.  This may well depend on the politics of the debate, for the incoming Republican Administration appears opposed to such an increase.

Finally, if history is a guide, the incoming Administration is likely to return to the decades-old practice of issuing opinion letters in response to specific requests, which had been abandoned by the Obama Administration’s decision-makers at the DOL.

Over the past several years, the DOL’s Wage & Hour Division (“WHD”) fundamentally changed the way in which it pursues its investigations.  Suffice to say, the investigations are more searching and extensive, and often result in higher monetary penalties for employers. According to the DOL, since early 2009, the WHD has closed 200,000 cases nationwide, resulting in more than $1.8 billion in back wages for over 2 million workers.  In FY 2016, the WHD collected more than $266.5 million in back pay wages, an increase of $20.5 million over the past year. Hence, in 2016, employers finally saw the impact of these changes on the WHD’s enforcement priorities, and 2017 is apt to bring much of the same absent a stark change in priorities under the Trump Administration.

The DOL also focused its activities in 2016 on wage & hour enforcement on what it terms “24/7.” The WHD’s Administrator, Dr. David Weil, was an architect of the WHD’s fissured industry initiative.  This initiative focuses on several priority industries, including food services (both limited service/full service establishments), hotel/motel, residential construction, janitorial services, moving companies/logistics providers, agricultural products, landscaping/horticultural services, healthcare services, home healthcare services, grocery stores, and retail trade.  In FY 2016, the WHD reported recoveries of $143,274,845 for nearly 19,000 workers within these fissured industries.

Not to be outdone, the National Labor Relations Board (“NLRB”) undertook an ambitious agenda in 2016 too.  It reconsidered well-settled NLRB principles on joint employer rules and representative elections, entertained the possibility of extending the protections of the National Labor Relations Act (“NLRA”) to college athletes, and litigated novel claims seeking to hold franchisors liable for the personnel decisions of franchisees. More than any other area impacting workplace litigation, the NLRB also remained steadfast in its view that workplace arbitration agreements limiting class or collective claims are void under § 7 of the NLRA. It pursued a myriad of unfair labor practice charges against employers for alleged violation of the NLRA for use of arbitration agreements with class action and collective action waivers.

Implications For Employers In 2017?

So what are employers likely to see in 2017 on the government enforcement litigation front? In the early days of the Trump Administration, clear direction on litigation policy remain unclear. Most pundits believe that employers can expect less litigation and less regulation than during the Obama Administration. Furthermore, the phenomenon of “regulation by enforcement litigation” is likely no longer the by-product of the DOL and the EEOC’s enforcement litigation programs. Most likely, control of agency budgets may well provide the lever that the Trump White House may use to force its policy choices upon the government enforcement litigation programs of the DOL and the EEOC.

supremecourtBy Gerald L. Maatman, Jr., Christina M. Janice, and Alex W. Karasik

Seyfarth Synopsis: In a landmark case for EEOC litigation involving fee sanctions, while employer CRST successfully argued that a ruling “on-the-merits” is not necessary to be a prevailing party, the SCOTUS remanded the case back down to the Eighth Circuit to determine whether a preclusive judgment existed and if the EEOC should be responsible to pay over $4.5 million in fees as a sanction.

Today, the U.S. Supreme Court issued its much anticipated ruling in EEOC v. CRST Van Expedited, Inc., unanimously ruling in favor of the employer. We have kept our blog readers up to date on this litigation as it wound through the lower courts and progressed at the Supreme Court.  Readers can find the previous posts here, here, here, here, here, here, here, here, here, here, here, and here.

At stake was the largest fee sanction award ever levied against the EEOC — nearly $4.7 million.  While the SCOTUS remanded the case back to the U.S. Court of Appeals for the Eighth Circuit for further proceedings, and therefore did not directly rule on the appropriateness of the record fee sanction, the Supreme Court nonetheless held that a favorable ruling on the merits is not a necessary predicate to find that a defendant is a “prevailing party” for purposes of recovering legal fees under Title VII.

Though a procedural ruling, EEOC v. CRST Van Expedited, Inc. is apt to have significant practical implications for the future of EEOC litigation.

Case Background

Finding that the EEOC’s actions in pursuing this lawsuit were unreasonable, contrary to the procedure outlined by Title VII, and imposed an unnecessary burden on the employer and the judicial process, the U.S. District Court for the Northern District of Iowa granted CRST’s motion for an award of attorneys’ fees and costs, directing the EEOC to pay CRST a record fee sanction of nearly $4.7 million.  On the EEOC’s appeal, the Eighth Circuit reversed and held that the District Court “did not make particularized findings of frivolousness, unreasonableness, or groundlessness as to each individual claim” and remanded these claims to the District Court to make such individualized determinations.  Further, the Eighth Circuit found that the District Court’s dismissal of 67 claims based on the EEOC’s failure to satisfy Title VII’s pre-suit obligations “[did] not constitute a ruling on the merits,” and that “[t]herefore, CRST is not a prevailing party as to these claims.”  Accordingly, the Eighth Circuit’s holding provided the EEOC some breathing room in terms of complying with its Title VII pre-suit obligations.

In its Supreme Court brief, CRST asserted two arguments as to why the Eighth Circuit’s decision was improper.  First, CRST argued that the Eighth Circuit’s rule that a prevailing defendant may recover fees only when a case is decided “on the merits” has no basis in the statute, conflicts with Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 422 (1978), and severely undermines the policy of Section 706(k) of Title VII.  Second, CRST posited that even if the “on the merits” standard applied, CRST was successful on the merits when it defeated certain claims by demonstrating that the EEOC did not investigate, find reasonable cause for, or attempt to conciliate any of these claims as required by the statute.  In essence, CRST asserted that the EEOC never identified the allegedly injured workers prior to filing its lawsuit; instead, it filed suit and then fished for the identities of the claimants by using discovery.

In its response, having abandoned its original contention that only a dismissal “on the merits” may be the subject of an attorneys’ fee award, the EEOC argued that the District Court’s finding that the EEOC failed to satisfy Title VII’s administrative preconditions to filing a lawsuit did not authorize an award of attorneys’ fees under 42 U.S.C. 2000e-5(k), because such a dismissal does not make the defendant a “prevailing party.”  The EEOC further noted the District Court’s original dismissal was not “with prejudice,” and that the later agreed-upon “with prejudice” dismissal did not and could not modify the District Court’s earlier dismissal of the claims at issue here, which had already been affirmed by the Eighth Circuit.  Finally, citing Mach Mining, LLC v. EEOC, 135 S. Ct. 1645, 1656 (2015), the EEOC also contended that the award of attorneys’ fees and costs in this litigation was improper because the Commission’s suit was not “frivolous, unreasonable, or groundless.”

During the oral arguments on March 29, 2016, the Supreme Court asked nearly twice as many questions to the EEOC’s counsel than the Justices did to CRST’s counsel.  The grilling of the government is best summarized with a notable quote from Chief Justice Roberts, who opined that conciliation without the threat of fees would not necessarily incentivize the EEOC to abide by Title VII obligations, “But if they were subject to fees because they ignored their duty to conciliate, it seems to me that might give them some incentive to get it right the first time.”  Our blog post on that argument is here.

The Supreme Court’s Ruling

In vacating the judgment of the Eighth Circuit, the Supreme Court ­unanimously held that a favorable ruling on the merits is not a necessary predicate to find that a defendant is a “prevailing party” in order to recover attorneys’ fees under Title VII.

After thoroughly detailing the intricate procedural history of this ten-year litigation, the Supreme Court initially noted the question of whether the petitioner was a prevailing party was the central issue presented by the decision of the Eighth Circuit.  Id. at 3.  The Supreme Court opined that “[c]ommon sense undermines the notion that a defendant cannot ‘prevail’ unless the relevant disposition is on the merits . . . The defendant may prevail even if the court’s final judgment rejects the plaintiff ’s claim for a non-merits reason.”  Id. at 12.  The Supreme Court reasoned that this is so because while a plaintiff seeks a “material alteration in the legal relationship between the parties that is in its favor, a defendant seeks to prevent that material alteration.  Where the defendant succeeds and the plaintiff’s challenge is “rebuffed,” the defendant prevails.  Id.

Looking beyond the letter of Title VII to Congressional intent in enacting a fee shifting statutory scheme, the Supreme Court noted that “Congress must have intended that a defendant could recover fees expended in frivolous, unreasonable, or groundless litigation when the case is resolved in the defendant’s favor, whether on the merits or not. Imposing an on-the-merits requirement for a defendant to obtain prevailing party status would undermine that congressional policy by blocking a whole category of defendants for whom Congress wished to make fee awards available.”  Id. at 13.  Accordingly, the Supreme Court held that neither the text of the fee-shifting statute nor the policy which underpins it counsels in favor of adopting the Eighth Circuit’s on-the-merits requirement.  Id. at 14.

Turning to the EEOC’s specific arguments, the Supreme Court observed that the EEOC had abandoned its defense of the Eighth Circuit’s requirement that a party prevail on the merits, and instead urged the Supreme Court to hold that a defendant must obtain a “preclusive” judgment in order to prevail.  Id.  The Supreme Court declined to decide this issue, and noted in an implied bench-slap how the EEOC “changed its argument between the certiorari and merits stages… [and] [a]s a result, the Commission may have forfeited the preclusion argument by not raising it earlier.”  Thus, the Supreme Court took issue with the EEOC’s strategy of advancing new arguments at the “11th hour,” and further noted that this tactic resulted in inadequate briefing on the issue.  Id. at 15.

In addition, the Supreme Court avoided consideration of the EEOC’s argument that even if CRST was the prevailing party, the EEOC should prevail upon the fee request because its claim that it had satisfied its pre-suit obligations was not frivolous, unreasonable, or groundless.  Noting that the Court of Appeals had not decided this “fact sensitive issue,” the Supreme Court declined to address it.  Id.

By remanding the case for further proceedings consistent with its holding that a party need not prevail “on the merits” to be eligible to recover attorney fees under Title VII, the Supreme Court left the door open for the EEOC to continue to defend against CRST’s fee petition. That being said, the record and the circumstances in the case suggest rough sledding for the EEOC on remand and the likelihood of having to face a record-setting fee sanction for its litigation tactics.

Implications For Employers

In the context of potential fee sanction motions brought by employers mired in improper EEOC litigation, the Supreme Court’s holding that a favorable ruling “on the merits” is not a necessary for an employer to seek an award of legal fees in EEOC-initiated Title VII litigation can certainly be beneficial to employers.

In practice, the SCOTUS decision may well have the significant practical effect of forcing the EEOC to “come clean” during conciliation and to provide fulsome information about the identities, number, and alleged injuries of claimants rather than threatening employers with the costs and adverse publicity of a systemic lawsuit. Clearly, a litigation strategy based on “fishing for claimants” after filing a lawsuit is a process that is likely to be deemed inconsistent with the proper utilization of taxpayer dollars for enforcing Title VII.

Readers can also find this post on our EEOC Countdown blog here.

By Gerald L. Maatman, Jr., and Alexis P. Robertson

On January 8, 2015, in S37 Management, Inc. v. Advance Refrigeration Co., No. 06 CH 20999 (Ill. Cir Ct. Jan 8, 2015),  an Illinois Circuit Court, located in Cook County’s Chancery Division, denied a Defendant’s motion to certify a question for interlocutory appeal regarding the application of the crime-fraud exception to the attorney-client and work product privilege as it applies to communications between a defendant, its counsel, and putative class members during the opt-out period.

Although not a workplace class action, the decision is significant to the process of defending any type of class action in terms of discovery from putative class members and the notice process following class certification.

Case Background

The Court granted Plaintiff’s motion for certification of a class consisting of  Advance Refrigeration’s  (“Advance”) customers who had paid a particular fee to Advance in association with their purchases. The Class Notice described the nature of the claims, and directed putative class members to contact class counsel in writing regarding any question on the Notice. The Notice did not direct putative class members to contact Advance’s counsel.

Plaintiff subsequently filed a motion requesting a protective order and sanctions, asserting that Advance had impermissibly engaged in a campaign to urge its customers to opt-out of the class during the opt-out period. The Court subsequently issued an order barring Advance from communication with any class members. Plaintiff then filed an amended motion for a protective order and sanctions, providing additional evidence of Advance’s alleged communication to its customers during the opt-out period.  Plaintiff also sought discovery from Advance’s counsel about their role in Advances’ communications.

Specifically, Plaintiff moved to compel all documents “relating to communications between Defendant and Defense Counsel regarding Defendant’s communications to members of the Class regarding opting out of the Class.” Id. at 2. Advance objected to the Plaintiff’s request based on the attorney-client and work product privileges. In response, Plaintiff argued that the crime-fraud exception applied to its request, and therefore, the privilege did not bar the discovery request. Plaintiff attached evidence to the motion illustrating that there was reason to believe that counsel had assisted Advance in unilaterally reaching out to its customers and urging them to opt- out of the case. Plaintiff alleged that this was accomplished using misleading information about the litigation, which constituted illegal or fraudulent activity.

The Court found that this evidence gave it reasonable basis to suspect Advance’s counsel may have assisted or advised in the communication asserted to be an illegal or fraudulent opt-out campaign. On this basis, the Court granted Plaintiff’s motion to compel discovery regarding Advance’s counsel’s communications with the class.

The Decision Of The Circuit Court

Advance then filed a motion under Rule 308(a) of the Illinois Supreme Court Rules to certify a question for interlocutory appeal. The question Advance sought to certify was, “[w]heather the crime-fraud exception to the attorney-client and work product privilege applies to communications between a defendant and its counsel that relate to the defendant’s communications with putative class members during the opt-out period.” Id. at 6-7. The Court denied Advance’s motion.

The Court reasoned that the manner which Advance had worded the question was improper. As worded, the question would require the Illinois Appellate Court to determine whether the crime-fraud exception could ever apply, as a matter of law, to attorney/defendant communications that relate to a defendant’s communications with putative class members during the opt-out period. The Court reasoned that there was no substantial ground to dispute that the crime-fraud exception could apply to such communications, if a sufficient showing was made. Additionally, the Court found that the question did not accurately address the specific issue on which it had ruled.  It had not ruled that any and all communications between a client and its attorney, that involve the client speaking to class member during an opt-out period, were automatically subject to the crime-fraud exception. Rather, the ruling was explicitly premised on evidence which raised the possibility, that defense counsel conferred with Advance about soliciting customers to fill out opt-out forms and affidavits during the opt-out period.

Implications For Employers

The circumstances, and outcome, in this case are somewhat novel and unique. It is rare that we see the crime-fraud exception applied to pierce the protections of the attorney-client and work production productions, especially in the class action context.  Nonetheless, this case is a reminder to employers, and attorneys alike, that the protections offered by these doctrines are not absolute, and can be applied in the class action, and other contexts, to discover communications between attorney and client.

By Christopher J. DeGroff, Matthew J. Gagnon, and Gerald L. Maatman, Jr.

As we reported in our recent Annual EEOC Report (found here), the EEOC prides itself on its aggressive litigation theories and strategies.  But just one week into 2015, the EEOC’s envelope-pushing tactics have already been shot down twice.  In  EEOC v. Performance Food Group, Inc., No. 1:13-CV-01712 (D. Md. Jan. 6, 2015), the U.S. District Court for the District of Maryland denied the EEOC’s efforts to impose harsh sanctions on an employer that the agency believed was late in complying with its discovery obligations.  And in EEOC v. Royal Caribbean Cruises, Ltd., No. 13-13519 (11th Cir. Jan. 6, 2015), the EEOC failed yet again to enforce an overbroad subpoena after having lost on that issue on three separate occasions: first before the Magistrate Judge, then before the District Court Judge, and then again on appeal before an Eleventh Circuit panel.

If these decisions are any indication, it will be another year in which the agency pushes the limits of the legal envelope in terms of tactical advantage, leaving it to the Courts to police the boundaries of what is reasonable.  Here is our take of these two early 2015 cases and what employers can learn from them:

EEOC v. Performance Food Group, Inc., No. 1:13-CV-01712 (D. Md. Jan. 6, 2015)

In EEOC v. Performance Food Group, Inc., the EEOC sought sanctions against a foodservice distribution company in a gender discrimination case for allegedly failing to meet discovery deadlines.  Specifically, the EEOC argued that the company had failed to produce paper applications for some of its facilities and certain employee data that the agency had subpoenaed from the company’s third-party vendors.  The company argued that sanctions were unwarranted because it had provided most of the requested information within the time frame set by the Court and had been acting in good faith to produce the remaining documents and information.  According to the company’s filings, it was working to gather and produce all requested information and had kept the agency informed of its progress.  The company also produced approximately 300,000 pages of additional documents along with and immediately after filing its response brief to the EEOC’s motion.  The EEOC was unimpressed by these efforts and asked the Court to impose severe sanctions.  In addition to asking the Court to require the company to pay the EEOC’s attorneys’ fees for the filing of the motion, it also requested that the Court impose a daily monetary penalty for each day that the company fails to produce the requested documents.  The agency even criticized the company’s delayed production, arguing that the document “dumps” were disorganized and that they made it impossible to ascertain whether the company had complied with its discovery obligations.

The District Court of Maryland flatly rejected the EEOC’s motion.  The Court acknowledged that the company’s document production was late, but concluded from its own review of the record that sanctions were not warranted.  The Court cautioned the employer, however, noting that while it understood that the document production would be voluminous and would cover an extensive period of time and many different facilities, it still expected the company to comply with its discovery obligations in a timely manner.  The Court also appeared to warn the EEOC, noting that in the case of anticipated delays in production, it expected that counsel would engage in an open and cooperative dialogue to resolve the dispute and would only bring it to the attention of the Court if it was necessary to do so.

Employers should read the Performance Food Group case as a cautionary tale:  the EEOC can and will take unreasonable – and at times draconian – positions in discovery disputes, even in the face of reasonable efforts by an employer.  This case highlights the EEOC’s troubling view that business records and evidence are ready-made for litigation; even information and records that were never contemplated to be produced in later government-initiated litigation.

EEOC v. Royal Caribbean Cruises, Ltd., No. 13-13519 (11th Cir. Jan. 6, 2015)

In EEOC v. Royal Caribbean Cruises, Ltd., the Eleventh Circuit denied for the second time the EEOC’s attempt to enforce a subpoena against Royal Caribbean that could only charitably be called “overbroad.”  This termination case arose out of a single charge of disability discrimination.  The EEOC’s subpoena sought, among other things, a list of all employees who were discharged and applicants who were not hired, including relevant identifying information as well as employment applications and other related documents.  At the District Court level, the Magistrate Judge recommended that the subpoena be denied because the information sought was not relevant to the charge and that compliance with the disputed portions of the subpoena would be unduly burdensome.  The District Court affirmed and adopted that recommendation.  The EEOC appealed in August, 2013.  On November 6, 2014, a panel of the Eleventh Circuit upheld the District Court’s decision.  The EEOC petitioned for rehearing en banc on December 19, 2014.  That petition was denied on January 6, 2015.

The Eleventh Circuit acknowledged that certain courts have construed the EEOC’s administrative subpoena power quite broadly.  But the Court reasoned that it could not be construed so broadly as to make the requirement that the subpoena be relevant to the underlying charge a mere “nullity.”  The court faulted the EEOC for not making it clear how the requested information bore on the subject matter of the individual complaint.  This was especially true here, where the employer actually stipulated that it had terminated the charging party due to his medical condition.  The Eleventh Circuit reasoned that it would not be necessary to introduce statistical data to determine whether a facially neutral explanation for an adverse employment action was merely a pretext for discrimination.  Nor did the court credit the EEOC’s argument that it should be entitled to expand its investigation to uncover other potential violations and victims of discrimination.  Although the Court allowed that such information would be “related” to the charge, it would not countenance expanding the investigation to include information that is “related” but not necessarily “relevant” to the charge.  This case joins several other instances (that can be reviewed here, here, and here) where the EEOC has doggedly pursued subpoenas.  As reported here, the EEOC stepped up its enforcement actions in FY 2014, and we expect this trend to continue in 2015.

Implications For Employers

These decisions demonstrate that the EEOC is far from giving up on the aggressive litigation tactics that have defined EEOC litigation over the past few years.  Although these are two favorable decisions for employers, the agency will undoubtedly win some of these disputes.  Employers would be well served to keep abreast of these developments so that they do not fall victim to these types of strategies in the future.

Readers can also find this post on our EEOC Countdown blog here.

By Gerald L. Maatman Jr., Howard M. Wexler, and Nadia Bandukda

In a case we previously blogged about (here and here), EEOC v. Womble Carlyle Sandridge & Rice, LLP, 13-CV-46 (E.D.N.C. Mar. 24, 2014), Magistrate Judge L. Patrick Auld held the EEOC liable for spoliation sanctions based on the “negligence, if not gross negligence” exhibited by the charging party it brought suit on behalf of – one Ms. Charlesetta Jennings (“Ms. Jennings”). On March 24, 2014 Magistrate Judge Auld ordered the EEOC responsible for $22,900 as the reasonable costs incurred by Womble Carlyle that the EEOC must pay. On April 29, 2014, Judge Eagles of the U.S. District Court for the Middle District of North Carolina issued an order affirming Judge Auld’s sanction award and rejecting the EEOC’s contention that the amount was too high.

Background

The EEOC filed suit on behalf of Ms. Jennings in 2013 alleging that Womble Carlyle failed to accommodate her disability and subsequently terminated her employment because of the disability in violation of the Americans With Disabilities Act (“ADA”). As the EEOC sought back pay on behalf of Ms. Jennings, Womble Carlyle served document demands and interrogatories designed to determine whether she properly mitigated her damages by seeking alternative employment. While being deposed in September 2013, Ms. Jennings testified that she had previously maintained a detailed log chronicling her efforts to obtain alternative employment while she was receiving unemployment insurance benefits; however, once these benefits ended in February 2013, she shredded the log. Further, she testified that she discarded additional material regarding her efforts to obtain employment in June of 2013 – which was after the EEOC had already filed its lawsuit on behalf of Ms. Jennings in January 2013.

Based on Ms. Jennings’ destruction of these documents, Womble Carlyle sought sanctions for spoliation of evidence, which the Magistrate Judge granted and ordered the EEOC to reimburse Womble Carlyle its costs and fees associated with having to bring the spoliation motion.  As a result, Womble Carlyle submitted a Statement of Expenses totaling $29,651.00. On March 24, 2014, Magistrate Judge Auld ordered the EEOC to pay Womble Carlyle $22,900 in sanctions. The EEOC timely filed Rule 72 objections to Judge Auld’s Report and Recommendation as to the money awarded to Womble Carlyle.

The Court’s Decision

In her two page Order, Judge Eagles noted that she reviewed Magistrate Judge Auld’s Report and Recommendation de novo and determined that “the amount awarded by the Magistrate Judge is appropriate.” Id. at 1. As such, Judge Eagles affirmed and adopted the sanction award and ordered the EEOC to pay Womble Carlyle the full $22,900 amount within 120 days “to reimburse the defendant for its reasonable expenses incurred in attempting to conduct additional discovery regarding mitigation of damages and in bringing its motion for sanctions.” Id. at 2.

Implications For Employers

As this case demonstrates, decisions made regarding the preservation of evidence issues at the beginning of, and even leading up to, litigation can have very serious implications, whether in the form of sanctions, an adverse inference at trial or even outright dismissal. This decision (and Magistrate Judge Auld’s prior Report and Recommendation) should be added to employers’ defense toolkits, as the preservation of documents and information is a two-way street that employees (and the EEOC) must also follow once litigation is reasonably foreseeable – or proceed at their own peril.

Readers can also find this post on our EEOC Countdown blog here.

By Christopher DeGroff, Gerald L. Maatman, Jr., and Lily M. Strumwasser

This week the Fourth Circuit put its foot down on a decision almost eleven years in the making, ordering the government to pay Propack Logistics $189,113.50 in attorneys’ fees.  This welcome news brings the EEOC’s long battle in EEOC v. Propak Logistics Inc., Case No. 13-CV-1687 (4th Cir. 2014) to an end. 

After the EEOC took a stunning eight years to investigate a charge of discrimination, the Commission finally filed suit in 2009, which the U.S. District Court for the Western District of North Carolina subsequently dismissed in August 2012.  Ever since, the EEOC and Propak have battled over attorneys’ fees and costs.  After all is said and done, Propak came out on top yet again:  defeating both the EEOC’s discrimination claims and securing hefty attorneys’ fees.

Background

We first reported on this case here in 2012.  By way of background, in EEOC v. Propak Logistics, Inc., Case No. 09-CV-311 (W.D.N.C. Aug. 7, 2012), the EEOC claimed Propak refused to hire non-Hispanic applicants and employees for non-management positions at a Wal-Mart distribution center.  Before the lawsuit was filed, and beginning in 2003, the EEOC investigated a discrimination charge from an applicant.   The investigation included an initial interview with the Charging Party in August 2003, an interview of Propak’s witness in August 2003, several requests for information from Propak from May 2003 to September 2008, interviews with Propak’s management in April 2004, interviews of potential class members in May and June 2006, and subpoenas issued by the EEOC to third-party entities in late 2007.  Id. at 12-13.

Nearly five years after the initial charge was filed, the EEOC issued a right to sue letter to the Charging Party in February 2008.  Curiously, the letter was issued before the EEOC completed its the investigation into the Charging Party’s allegations.  This is rare because as a result, the EEOC made no finding as to the allegations contained in the Charging Party’s Charge of Discrimination at the time it issued the right to sue letter.  Id. at 7.  The Charging Party later filed suit, and the Court dismissed his claims.  Shortly thereafter, the EEOC concluded its investigation and issued a letter of determination finding reasonable cause of discrimination, and “conciliation failure” as declared by the Commission. The EEOC then filed its lawsuit in August 2009 — almost a full year after it declared conciliation failure, and seven years after the Charging Party filed a charge of discrimination. Id.

Propack filed a motion for summary judgment relying on the defense of laches.  To prevail on the equitable defense of laches, the Court reasoned that Propak was required to prove:  (1) lack of diligence by the EEOC, and (2) that Propak suffered undue prejudice as a result.  Id. at 16.  The U.S. District Court for the Western District of North Carolina granted the motion. The Court found that the EEOC dealt Propak “a double-fisted blow” and reasoned that the Commission’s delay in investigating the alleged discrimination was unreasonable.  The Court later granted Propak’s request for attorneys’ fees and ordered the EEOC to pay Propak $189,113.50 in fees and $61.20 in costs.  The Court’s decision reiterated its position that the EEOC was unreasonable in filing a case after an eight-year investigation.

The Fourth Circuit’s Decision

The EEOC appealed the District Court’s grant of attorneys’ fees and costs claiming that the District Court abused its discretion in reaching its decision.  The EEOC argued that it had a reasonable basis for believing it could defeat Propak’s defense, and that it had valid support for its position that the defense of laches did not bar the EEOC from filing is lawsuit.  Case No. 13-CV-1687 (4th Cir. 2014) at 9-10.  Thus, the EEOC claimed that it should not be required to pay Propak $189,113.50 in attorneys’ fees.

The EEOC struck out again when the Fourth Circuit concluded that the District Court did not abuse its discretion in holding that the EEOC acted unreasonably in initiating the litigation.  The Fourth Circuit explained that it “disagree[s] with the EEOC’s argument that the district court engaged in ‘hindsight logic’ in explaining its award of attorneys’ fees.”  Id. at 13.  The Fourth Circuit explained that the record lacks any description of the substance of the EEOC’s alleged interviews with potential class members, or of any other interviews that may have been conducted to identify the class of purported victims.  Id. at 16.  The record also failed to establish that any of the people who received contact letters from the EEOC fell within the EEOC’s definition of the target class.  Id. at 17.  For these reasons, the Fourth Circuit did not have a “definite and firm” conviction that the District Court mistakenly awarded Propak attorneys’ fees.  Accordingly, the three-judge panel affirmed the District Court’s judgment and grant of fees to Propak.

Implications For Employers

Employers across the nation can relate to the pains of dealing with such long investigations spearheaded by the EEOC.  In this case, the long hard fight was worth it for Propak – who eventually prevailed against the Commission.  Through challenging the EEOC’s investigative techniques, Propak also put a spotlight back on the EEOC’s often misguided tactics in pursuing systemic investigations.  The Fourth Circuit’s ruling gives employers one more piece of ammunition to use against the EEOC when it drags its feet for years during investigations – an all-to-common occurrence.

Readers can also find this post on our EEOC Countdown blog.

By Gerald L. Maatman, Jr. and Howard M. Wexler

In a case we previously blogged about, EEOC v. Womble Carlyle Sandridge & Rice, LLP, 13-CV-46 (E.D.N.C. Mar. 24, 2014), Magistrate Judge L. Patrick Auld held the EEOC liable for spoliation sanctions based on the “negligence, if not gross negligence” exhibited by the charging party it brought suit on behalf of – one Ms. Charlesetta Jennings (“Ms. Jennings”).  When served with the bill of costs by Womble Carlyle, the EEOC objected to the amount as unreasonable.  In his decision, Judge Auld rejected the EEOC’s argument and ordered the EEOC responsible for $22,900 as the reasonable costs incurred by Womble Carlyle.

Background

The EEOC filed suit on behalf of Ms. Jennings in 2013 alleging that Womble Carlyle failed to accommodate her disability and subsequently terminated her employment because of the disability in violation of the Americans With Disabilities Act (“ADA”).  Id. at 1.  As the EEOC sought back pay on behalf of Ms. Jennings, Womble Carlyle served document demands and interrogatories designed to determine whether she properly mitigated her damages by seeking alternative employment. While being deposed in September 2013, Ms. Jennings testified that she had previously maintained a detailed log chronicling her efforts to obtain alternative employment while she was receiving unemployment insurance benefits; however, once these benefits ended in February 2013, she shredded the log. Further, she testified that she discarded additional material regarding her efforts to obtain employment in June of 2013 – which was after the EEOC had already filed its lawsuit on behalf of Ms. Jennings in January 2013.

Based on Ms. Jennings’ destruction of these documents, Womble Carlyle sought sanctions for spoliation of evidence, which the Court granted and ordered the EEOC to reimburse Womble Carlyle its costs and fees associated with having to bring the spoliation motion.  Id. at 2.  As a result, Womble Carlyle submitted a Statement of Expenses totaling $29,651.  Id.  The EEOC contested the $29,651 amount as unreasonable on several grounds, including its position that Womble Carlyle attorneys “duplicated their efforts” during discovery and that it should not have to pay for the time spent by one attorney reviewing the work of another, where both attorneys are experienced litigators.  Id. at 3-4.

The Court’s Decision

As the EEOC objected to the number of hours spent by Womble Carlyle attorneys in relation to the spoliation motion, Judge Auld held it was up to Womble Carlyle to “document the need to have devoted the amount of time for which it seeks compensation” through the submission of “reliable billing records, and…exercise of billing judgment” to deduct time “not properly shown to have been incurred in pursuit of the matter at issue or that is otherwise not reasonable in amount of necessarily incurred.”  Id. at 3.

Judge Auld rejected the EEOC’s contention that Womble Carlyle attorneys unnecessarily duplicated their efforts in drafting discovery and that it should not be forced to pay for the time spent by one attorney reviewing the work of another attorney “where both attorneys are experienced litigators.”  Id. at  5.  In doing so, Judge Auld held that after his review, the billing records of Womble Carlyle’s attorneys were reasonable given the nature of the sanction motion and were not duplicative.  Id.

Additionally, Judge Auld rejected the EEOC’s request that the Court should reduce by two-thirds the amount of costs since the Court only awarded monetary sanctions and did not grant the other two forms of relief requested by Womble Carlyle: dismissal of the back pay claim, and an adverse inference jury instruction (which the court reserved judgment on until trial).  Id. at 6.  Judge Auld held that “the fact that the undersigned Magistrate Judge declined to recommend one form of sanction…should not reduce the amount of the recommended sanction of reasonable expenses.”  Id.

 Judge Auld, however, did reduce Womble Carlyle’s cost application by $6,600 because it failed to demonstrate why it spent 12 more hours on an 11 page reply brief with 6 exhibits than it spent on an 18-page opening brief with 16 exhibits. Id. at 7.  Additionally, Judge Auld reduced the cost award by $151 based on certain block billing entries which were insufficient to meet Womble Carlyle’s burden to support its fee request. Id. at 9.  As a result, Judge Auld held the EEOC liable for a total of $22,900 of Womble Carlyle’s costs and fees associated with the spoliation motion.  Id. at 10.

Implications For Employers

As this case demonstrates, decisions made regarding the preservation of evidence issues at the beginning of, and even leading up to, litigation can have very serious implications, whether in the form of sanctions, an adverse inference at trial or even outright dismissal.  This decision (and Judge Auld’s prior decision) should be added to employers’ defense toolkits, as the preservation of documents and information is a two-way street that employees (and the EEOC) must also follow once litigation is reasonably foreseeable – or proceed at their own peril.

Readers can also find this post on our EEOC Countdown blog.

By Gerald L. Maatman Jr. and Howard M. Wexler

In employment litigation, like in any other lawsuit, the duty to preserve potentially relevant information and documents is an affirmative obligation that is triggered when the party who has the evidence knows that litigation is probable and can foresee the harm or prejudice that would be caused to the party seeking the evidence if the evidence were to be discarded. As such, parties are obligated to preserve what they know, or reasonably should know, will likely be requested in reasonably foreseeable litigation. Conversely, the destruction or significant alteration of evidence, or the failure to preserve property for another’s use as evidence in pending or reasonable foreseeable litigation is considered spoliation. This is pretty standard fare.

In a recent case from the U.S. District Court for the Middle District of North Carolina, the EEOC received a reminder from U.S. Magistrate Judge Patrick Auld in the form of Report and Recommendation in EEOC v. Womble Carlyle Sandridge & Rice, LLP, 13-CV-46 (M.D.N.C. Jan. 6, 2014), that an employer may be awarded spoliation sanctions against the EEOC for failing to satisfy the affirmative obligation to ensure that a party which has chosen to bring a lawsuit retains documents relevant to the pending litigation.

Case Background

In EEOC v. Womble Carlyle Sandridge & Rice, LLP, the Commission brought a lawsuit on behalf of Charlesetta Jennings (“Ms. Jennings”) against her former employer, a law firm, alleging that it failed to accommodate her disability and subsequently terminated her employment because of the disability in violation of the Americans With Disabilities Act (“ADA”). Id. at 1.

As the EEOC sought back pay on behalf of Ms. Jennings, the employer served document demands and interrogatories designed to determine whether she properly mitigated her damages by seeking alternative employment. Id. at 2-3. In June of 2013 the EEOC answered the employer’s discovery demands and noted that Ms. Jennings did not retain any of the employment applications, job postings, or any other documents relating to her job search. Id. at 4. While being deposed in September 2013 Ms. Jennings testified that she had previously maintained a detailed log chronicling her efforts to obtain alternative employment while she was receiving unemployment insurance benefits; however, once these benefits ended in February 2013, she shredded the log. Id. at 5. Further, she testified that she discarded additional material regarding her efforts to obtain employment in June of 2013 – which was after the EEOC had already filed its lawsuit on behalf of Ms. Jennings in January 2013. Based on Ms. Jennings destruction of these documents, the employer sought sanctions for spoliation of evidence. Id.

The Court’s Decision

In determining whether to impose sanctions, the Court noted that it has wide-ranging discretion in terms of what remedies are necessary in order to “level the playing field…for the purpose of sanctioning … improper conduct,” including the outright dismissal of a lawsuit. Id. at 6. The Court also held that in determining whether to award sanctions it must look at the spoliator’s conduct to determine his or her culpability and state of mind at the time of the destruction. Id. at 7.

Although the EEOC argued that in December 2012 it advised Ms. Jennings to retain documents relating to her job search, Ms. Jennings – under oath – swore that she did not recall whether the EEOC gave her such an instruction. Id. at 8. Ms. Jennings testified that she did not destroy the documents in an attempt to hide them. Instead, she did not understand their relevancy to her lawsuit. Id. Based on this information, the Court held that the EEOC and/or Ms. Jennings bear “some degree of fault” since “the EEOC has not explained the full context or exact content of its instructions to Jennings, has provided no contemporaneous documents regarding any such instructions, and has acknowledged that Jennings does not recall being advised to retain the records and that she still professors ignorance about her obligation to preserve these materials.” Id. at 9. Furthermore, the Court held that the timing of the destruction of documents – after the filing of the lawsuit in January 2013 – supported a finding of culpability based on conduct rising to the level of “negligence, if not gross negligence.” Id.

Having determined that the EEOC and/or Ms. Jennings were culpable, the Court analyzed what remedy to impose. Id. Because the employer could still establish that Ms. Jennings failed to mitigate her damages (e.g., by subpoenaing those employers she claims to have submitted job applications to after her termination), the Court held that the employer had not been denied the ability to defend itself. Id. at 11. Therefore, the Court declined to strike the EEOC’s demand for back pay, but awarded the employer its costs and fees associated with all of the additional discovery necessitated by Ms. Jennings’ destruction of documents. Id. at 12. Finally, the Court deferred a ruling until trial as to the employer’s request that an adverse inference against the EEOC and/or Ms. Jennings be drawn based on the destruction of documents. Id. at 13.

Implications For Employers

The ability to effectively litigate employment matters can sometimes hinge on decisions made regarding preservation of evidence — the scope, timing, and the logistical realities involved. As this case demonstrates, decisions made regarding these issues at the beginning of, and even leading up to, litigation can have very serious implications even years after a complaint is filed.  Accordingly, given the potentially severe sanctions for spoliation, including an adverse inference at trial or even outright dismissal, employers should add this case to their defense toolkits, as the preservation of documents and information is a two-way street that employees (and the EEOC) must also follow once litigation is reasonably foreseeable.

Readers can also find this post on our EEOC Countdown blog here.

By Gerald L. Maatman Jr. and Howard M. Wexler

On October 7, 2013 the U.S. Court of Appeals for the Sixth Circuit upheld a district court’s award of $751,942.48 against the EEOC in the case of EEOC v. Peoplemark, Inc., No. 11-2582 (6th Cir. Oct. 7, 2013). This decision marks yet another significant win for employers faced with the EEOC’s “shoot-first, aim later” litigation tactics as well as yet another defeat for the EEOC in a high profile case based on a purported (and unfounded) disparate impact theory of liability stemming from an employer’s use of background checks.

Background

As we previously blogged, the EEOC alleged in this case that Peoplemark’s policy of not hiring individuals with a criminal record had a disparate impact on African-Americans. Id. at 1. The problem with the EEOC’s theory was its assertion that Peoplemark had a blanket no-hire policy; this was simply not true.  In fact, of the 286 individuals the EEOC purported to represent in this case, only 22% actually had been hired and placed by Peoplemark. Id. at 4-6. Significantly, the district court found that even after the EEOC knew that was the case, it proceeded with the litigation anyway. It was only after the EEOC failed to designate a statistical expert per a scheduling deadline that it finally folded and agreed to dismiss the case pursuant to a stipulation that allowed Peoplemark to seek fees as a prevailing party. Id. at 5.

In its Motion for Fees, Costs, and Sanctions, Peoplemark argued that the EEOC had deliberately caused the company to incur attorneys’ fees and expert fees when it should have known that the company did not have the blanket no-hire policy. Both a magistrate judge and district court judge agreed, finding that if the EEOC had done a reasonable investigation, it should have known that Peoplemark had, in fact, hired a number of the allegedly injured individuals, thereby undercutting the EEOC’s central “blanket policy” position. Id. at 6-8. As such, the district court entered an award against the EEOC totaling $751,942.28, which included $219,350.70 in attorneys’ fees, $526,172 in expert witness fees, and $6,419.78 in other expenses. Id. at 6.

Sixth Circuit’s Decision

On appeal, the Sixth Circuit rejected the EEOC’s argument that the district court abused its discretion when it imposed attorneys’ and expert fees. Id. at 9. Although holding that the EEOC’s case was not groundless when it was first filed, the Sixth Circuit held that, “when discovery clearly indicated Osten’s [Peoplemark’s Vice President] statements belied the facts, the Commission should have reassessed its claim.” Id. at 10. As such, the Sixth Circuit held that, “from that point forward, it was unreasonable to continue to litigate the Commissioner’s pleaded claim because the claim was based on a companywide policy that did not exist.” Id. Citing the longstanding case of Christiansburg Garment Co. v. EEOC, 434 U.S. 412 (1978), the Sixth Circuit held that a fee award against the EEOC was appropriate since the EEOC “could not prove a prima facie case because its claim was groundless…” Id. 

Agreeing with the district court, the Sixth Circuit held that the EEOC should be held liable for Peoplemark’s fees from October 1, 2009 through the end of the litigation because by this point, the EEOC “should have known it could not prove its claim as pleaded.” Id. at 12. Finally, the Sixth Circuit also upheld the grant of expert fees to Peoplemark since the retention of an expert was necessary to mount a defense against the EEOC’s claims. Id. at 14.

In a strongly worded 50-page dissent, the Honorable James G. Carr reasoned that the district court abused its discretion in awarding Peoplemark attorneys’ fees and expert fees since, in his belief, the EEOC’s claims were not “frivolous, unreasonable, or groundless, or that the [EEOC] continued to litigate after it clearly became so.” Id. at 17. As Judge Carr stated in a footnote, “Most simply put, my disagreement with the majority’s analysis and result arises from my different reading, as explained in this dissent of the record. Where the majority sees mis-focus and dilatoriness on the part of the EEOC, I see an effort to gain information to refocus and reassess the defendant’s conduct and practices, and, as importantly, obstructive tactics on the defendant’s part that needless, but successful, ate up much of the time the court allocated for discovery.” Id.  at fn. 1. 

Despite Judge Carr’s dissent, and his belief as to the lack of unreasonableness demonstrated by the EEOC, the Sixth Circuit fully upheld the $751,942.48 award against the EEOC.

Implications For Employers

EEOC v. Peoplemark, Inc. joins cases like EEOC v. Bloomberg L.P., EEOC v. Freeman, and EEOC v. CRST, that demonstrate a growing intolerance for the EEOC’s “shoot-first, aim later” tactics in large-scale pattern or practice cases. This decision provides employers with even more ammunition with which to challenge unreasonable and groundless claims advanced by the EEOC.

Readers can also find this post on our EEOC Countdown blog here.