Introduction

The Missouri courts have recently produced a flurry of opinions on punitive damages issues (eg, see "Missouri Supreme Court Makes Fundamental Mistakes In Conducting Excessiveness Review Of Million-Dollar Punitive Award", which addresses the errors in the Missouri Supreme Court's excessiveness analysis in Lewellen v Franklin; and "Missouri Supreme Court Strikes Down State's Punitive Damages Cap As Applied To Common-Law Causes Of Action", which discusses the court's holding in the same case that Missouri's cap on punitive damages violates the state constitution as applied to common law causes of action).

This update addresses the Missouri Court of Appeals' decision in Diaz v AutoZoners, LLC.Although - from the defence perspective - it adds to the bad case law on excessiveness, the decision provides some helpful case law on the test for determining whether a parent company is an employer for purposes of employment discrimination cases.

Facts

The plaintiff in Diaz sued her employer, AutoZoners, LLC, and its parent AutoZone, Inc under the Missouri Human Rights Act, alleging that they had failed to respond adequately to pervasive sexual harassment that was committed by a commercial customer and had retaliated against her when she complained.

The jury found both defendants liable for the plaintiff's hostile environment claim and awarded $75,000 in compensatory damages against the defendants jointly and severally, as well as $1 million in punitive damages against AutoZoners and $1.5 million in punitive damages against AutoZone. The jury found against the plaintiff on the retaliation claim. All parties appealed.

Appeal decision

Determination of employer

The Missouri Court of Appeals began its opinion by holding that AutoZone, Inc was not the plaintiff's 'employer' for purposes of the Missouri Human Rights Act. The court held that an entity that is not the employer in fact can be deemed an employer under the Missouri Human Rights Act only if it "directly overs[aw] or [was] actively involved in the discriminatory conduct".

The court explained that the factors relevant to making this determination are:

"(1) who was responsible for establishing policies and training employees concerning harassment; (2) who was responsible for receiving, investigating, and responding to harassment complaints; and (3) who had the power to discipline employees who may have failed to comply with anti-harassment policies."

The court deemed it irrelevant that AutoZone:

  • was the source of the store handbook and code of conduct that apply to all employees of AutoZone subsidiaries throughout the United States;
  • had provided the documents that are used for human resources and loss-prevention investigations; and
  • had responded to the plaintiff's charge of discrimination after the harassment had been remedied.

As the court saw it, although this evidence:

"may support a determination that AutoZone, Inc., was responsible for establishing policies, it does not demonstrate that AutoZone, Inc., was responsible for training employees; receiving, investigating, and responding to complaints; or disciplining noncompliant employees."

The court also rejected the plaintiff's invocation of the well-established factors that courts use in determining whether two distinct entities should be deemed a single employer, explaining that:

"[w]e have found no Missouri case recognizing or applying the 'single employer' doctrine. In fact, it appears that Missouri recognizes only 'two doctrines by which to hold a parent corporation liable for the acts of a subsidiary: piercing the corporate veil and agency.'"

This is a significant holding because the single-employer factors are malleable and often result in allowing liability against a corporate parent that had no real involvement in the subsidiary's alleged misconduct.

More broadly, the court's strict view of the circumstances in which a company other than the employer in fact may be held liable for employment discrimination is a helpful countermeasure to the growing trend of plaintiffs suing multiple members of the same corporate family in an effort to obtain multiple punitive awards for the same conduct.

Determination of punitive award

The court's holding that the $1 million punitive award against AutoZoners was not unconstitutionally excessive is less helpful to business defendants.

The court began by refusing to consider the third BMW guidepost – legislatively established penalties for comparable conduct – calling this factor "inconsequential". Unburdened of that potential limit on punitive damages, the court proceeded to address the remaining two guideposts: the degree of reprehensibility of the conduct and the ratio of punitive to compensatory damages. Without attempting to place AutoZoner's conduct on a spectrum of reprehensibility, the court opined that "there was a sufficient degree of reprehensibility on the part of AutoZoners, LLC, to justify a sizeable award". The court reached this decision notwithstanding that:

  • there admittedly was no physical harm or deceit; and
  • AutoZoner's conduct had involved the passive failure to do more to shield the plaintiff from the sexual harassment that was perpetrated by the customer, rather than any kind of active misconduct by an employee of the company.

The court's conclusion that AutoZoner's conduct could support a $1 million punitive award rested almost entirely on the repugnance of the customer's conduct and evidence from which the court thought that the jury could reasonably conclude that AutoZoner's managerial employees had had an economic motivation to violate the company's zero-tolerance rule by not protecting the plaintiff from the customer whose account they allegedly were trying to maintain. In effect, the court conflated a finding of conduct that is sufficiently reprehensible to support the imposition of punitive damages with highly reprehensible conduct that justifies a large amount of punitive damages.

The court's treatment of the ratio guidepost is even more disconcerting. Although essentially conceding that the compensatory damages were not sufficiently small to justify a double-digit ratio under US Supreme Court precedent, the court reasoned that the ratio guidepost did not require reducing the exaction because the US Supreme Court has characterised the reprehensibility guidepost as "the most important".

After first eliminating the third guidepost and then watering down the reprehensibility guidepost, the court entirely subordinated the ratio guidepost to the reprehensibility guidepost. In effect, the court's treatment of the three BMW guideposts returns Missouri to the days before there was any constitutional limitation on punitive damages and state courts rubberstamped all but the most shocking of punitive exactions.

For further information on this topic please contact Evan M Tager at Mayer Brown LLP by telephone (+1 202 263 3000) or email (etager@mayerbrown.com). The Mayer Brown International LLP website can be accessed at www.mayerbrown.com.

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