Decision: On November 10, 2015, in Diaz v. AutoZoners, LLC, No. WD77861, the Missouri Court of Appeals upheld a jury award of punitive damages against an employee’s direct employer but reversed the verdict against the employer’s parent company because that company did not qualify as an “employer” under Missouri law. In Diaz, the plaintiff sued her employer, AutoZoners, and its parent, AutoZone, Inc., under the Missouri Human Rights Act (MHRA), alleging that both companies failed to adequately respond to pervasive sexual harassment by a commercial customer and that they retaliated against her when she complained. The jury found both entities liable and awarded the plaintiff compensatory damages of $75,000. In addition, the plaintiff was awarded punitive damages in the amount of $1 million against AutoZoners and $1.5 million against parent company, AutoZone, Inc.

On appeal, the Missouri Court of Appeals drew an important line that precluded the parent company from being held liable for the subsidiary’s acts. Although the parent, AutoZone, Inc., created the Store Handbook and Code of Conduct for its subsidiaries’ employees, provided documents used for HR investigations and responded to the plaintiff’s discrimination charge, the court concluded that the conduct “d[id] not demonstrate that AutoZone, Inc., was responsible for training employees; receiving, investigating, and responding to complaints; or disciplining noncompliant employees.”

The court declined the opportunity to invalidate the $1 million punitive damages award against AutoZoners, determining that the award was not unconstitutionally excessive. Applying the guideposts articulated by the US Supreme Court in BMW of North America v. Gore, 517 U.S. 559 (1996), the Missouri Court of Appeals first held that the third guidepost—legislatively established penalties for comparable conduct—was “inconsequential,” before addressing the other two guideposts: the degree of reprehensibility of the conduct and the ratio of punitive to compensatory damages.

The court opined that even without physical harm or active wrongdoing, “there was a sufficient degree of reprehensibility on the part of AutoZoners, LLC, to justify a sizeable award.” The court based this decision almost entirely on the repugnance of the customer’s conduct and the court’s belief that the jury could have reasonably concluded that AutoZoner’s managerial employees had an economic motivation to violate the company’s zero-tolerance rule in order to maintain the customer’s account. In effect, the court did not analyze the amount of the award or the ratio of punitive to compensatory damages, but simply blessed the jury’s verdict based on conduct it found sufficient to justify a punitive damages award.

Impact: While Diaz is another example of a state appellate court paying little attention to the BMW due process guideposts, the silver lining for employers is that the decision provides a helpful precedent in screening a parent company from liability as an “employer.” Courts have often given short shrift to such arguments, holding a corporate parent jointly liable even where it has no substantive involvement in its subsidiary’s alleged misconduct.

Diaz also highlights the importance of a strong focus on combating punitive damages early in a case, before trial, during trial, and in all steps leading to appeal, since an errant punitive damages award has the potential to transform a trivial case into a significant risk for a corporate employer.