Rosario Juarez worked at AutoZone but now can buy 1 percent of its total market capitalization.

Juarez began as a retail salesperson in San Diego in 2000. She was promoted to Parts Sales Manager but was unsuccessful in seeking advancement to store manager until she complained of discrimination and threatened a lawsuit. Her career became even more difficult after she became pregnant in 2005.

Juarez claimed that her district manager repeatedly told her that she could not handle her position because she was pregnant and advised her to step down, which she refused to do. After she gave birth, AutoZone demoted her and decreased her pay. In January 2007, Juarez filed a charge with the California Department of Fair Employment and Housing alleging that AutoZone had treated demoted her for discriminatory reasons based on her gender and pregnancy. In November 2008, AutoZone fired her following an incident in which $400 went missing.

Last week, a federal jury in California gave Juarez a $185 million punitive damages award.

Understanding the trial

This eight-day trial took place over two weeks before a jury of three women and five men. As is common in punitive damage cases, the jury deliberated twice. The first deliberation resulted in favor of Juarez with an award of $872,000 in compensatory damages for lost wages and emotional distress. In addition, the jury found that Juarez had presented clear and convincing evidence (1) that the discriminatory and retaliatory conduct was committed with malice, oppression or fraud and (2) that it was conducted by or through, or known to, an AutoZone officer, director or manager. This triggered the second deliberation under applicable law.

The judge directed the jury to consider a punitive damages award, pursuant to written jury instructions that solely addressed this question. These instructions stated that the jury could only consider the impact AutoZone’s alleged misconduct had on Juarez, expressly forbidding the panel from punishing AutoZone for harm its behavior may have caused anyone else.

Upon deliberating, the jury concluded that $185 million was the amount necessary to punish AutoZone for its actions and to discourage future wrongful conduct; this was an amount more than 200 times the compensatory damages award and $25 million more than Juarez’s attorney asked the jury to grant in punitive damages.

Understanding the $185 million award

Allegations of discrimination like Juarez’s may not be unique, but the amount the jury awarded her in punitive damages is truly a one-off. What facts apparently triggered the jury to hand down an award of punitives in an order of magnitude never before seen in an individual employment discrimination case?

First, “good people versus bad people” is a compelling narrative routinely used by the plaintiff’s  bar for the morality play of punitive damages. AutoZone justified Juarez’s termination on the missing money incident. This allegation, however, collapsed when the person who had performed the investigation for its Loss Prevention Department testified that she never believed Juarez had taken the cash and, instead, felt that AutoZone had targeted Juarez.

Second, admitting institutionalized indifference to women is fatal. Juarez’s former district manager (now an ordained minister) testified that the company had acquired a competitor subject to a consent decree for prior discrimination and held a meeting in 2004 when that consent decree expired. There, the Vice President of Operations announced the expiration of the consent decree (which was news that everyone in attendance celebrated) and issued directives to AutoZone’s district managers to “start thinning out women” and “not to hire women.” In fact, this former district manager further testified that AutoZone had offered him a promotion if he fired all the women in his stores.

Third, “numbers never lie” is a common supposition in jury rooms. Here, the jury heard misleading evidence about the company’s financials: i.e., AutoZone generates in excess of $20 million in cash each week after operating and other expenses. This suggested that it would take a substantial amount of money to get AutoZone’s attention – a factor the jury was instructed to take into account when contemplating punitive damages.

$185 million – it’s easy as one, two, three.

Understanding the aftermath

A jury’s award of punitive damages is never final. There are post-trial motions and appeals. Will this award stand when all that is done?  Not likely. There are both legal and factual bases for such challenges which are likely to reduce this award (which nonetheless remains a cautionary message to employers).  

There is a requirement under California law that punitive damages can only be awarded for the misconduct of officers, directors or managing agents. During trial, the trial court agreed with AutoZone that the individuals identified as participants in Juarez’s demotion and subsequent termination (e.g., the human resources manager and her district manager) were not AutoZone officers, directors or managing agents and that although the Vice President of Operations (identified as having directed branch managers to purge the company of female managers) was an officer, his few comments were not sufficient to support a punitive damages award. The trial judge let punitives go to the jury on a curious factual predicate: AutoZone’s legal department  in Memphis, Tennessee, reviewed and advised on most, if not all, personnel decisions. Thus, the trial court opined, a jury could reasonably conclude that the legal department acted as an officer, director or managing agent of the company, and further could conclude that the company’s legal department had committed, authorized and/or ratified the actions of the lower managerial employees that harmed Juarez.

Beyond that, there are a series of Supreme Court decisions imposing legal limits on the amount of punitive damages under the constitution’s due process clause. As a general rule, the permitted ratio is less than ten to one, which would create a ceiling of less than $10 million here. See, State Farm Mutual Insurance Co. v. Campbell, 538 U.S. 408 (2003) (striking down a punitive damages award of $145 million, where compensatory damages were only $1 million and holding that the ratio of punitive damages to compensatory damages awarded must generally not exceed a single-digit ratio).