New Dimensions, Inc. v. Tarquini ( 2013 )

PRESENT: All the Justices
NEW DIMENSIONS, INC.
OPINION BY
v. Record No. 120760 JUSTICE S. BERNARD GOODWYN
June 6, 2013
CATHERINE TARQUINI
FROM THE CIRCUIT COURT OF PRINCE WILLIAM COUNTY
Gaylord L. Finch, Jr. Judge
In this appeal, we consider whether the circuit court
erred in holding that the four defenses set forth in the
federal Equal Pay Act, 29 U.S.C. § 206(d)(1), are affirmative
defenses that are waived if not pled. We conclude that while
the defenses set forth in the Equal Pay Act are affirmative,
they were not waived under the facts presented in this case,
and the circuit court erred in precluding the introduction of
evidence related to those defenses.
Background
Catherine Tarquini filed an amended complaint against New
Dimensions, Inc. (NDI) in the Circuit Court of Prince William
County, alleging breach of contract, quantum meruit and
violation of the Equal Pay Act (EPA). Tarquini sought damages
of $160,000 for her breach of contract and quantum meruit
claims, and damages equal to the difference between her salary
commission rate and that paid to NDI’s male employees, in
addition to statutory liquidated damages, attorneys’ fees and
costs for the EPA claim.
NDI answered. NDI denied Tarquini’s allegation that it
had violated the EPA but it did not affirmatively plead the
defenses articulated in the statute. The case proceeded to
discovery, during which NDI disclosed the substance and nature
of its alleged seniority and merit-based compensation system as
an explanation for why Tarquini was paid less than other
employees, both male and female, who held the same job. Two
business days before trial, Tarquini filed a motion in limine
to prohibit NDI from presenting evidence in defense of the EPA
claim because NDI had not pled any affirmative defense to the
claim. The circuit court granted the motion in limine and
denied NDI’s motion for reconsideration.
After a three-day bench trial, the circuit court issued a
letter opinion and held that Tarquini was entitled to
$33,985.53 in commissions under her express contract, and was
not entitled to quantum meruit recovery because the express
contract governed the parties’ relationship. Based on its
earlier ruling granting Tarquini’s motion in limine, the
circuit court refused to consider NDI’s defenses to the EPA
claim and awarded Tarquini $6,867.04 on the EPA claim, plus an
equal amount of liquidated damages. At a later hearing, the
parties presented expert testimony and argument on the issue of
attorneys’ fees and costs due Tarquini pursuant to the EPA.
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The circuit court awarded Tarquini $116,282.50 in attorneys’
fees and $8,478.55 in costs on her EPA claim. NDI appeals.
Facts
Tarquini interviewed for a position as a design and sales
consultant with NDI, a homebuilding company, in 2005. NDI
offered Tarquini a commission of 2.12% of her total sales and
stated that commissions would be paid in accordance with the
construction draw schedule. Tarquini accepted the position and
was paid commissions at this rate. However, other design and
sales consultants previously hired by NDI, both male and
female, were paid commissions of 2.25%.
In 2007, Tarquini was terminated by NDI and was not paid
commissions for certain sales she had secured, although work on
these construction projects was substantially completed prior
to her termination. Tarquini retained counsel, and NDI sent
Tarquini’s attorney a check in the amount of approximately
$33,985.00, representing what it believed it owed in
commissions. Tarquini did not accept the check and filed this
action.
Analysis
NDI argues that the circuit court erred in granting
Tarquini’s motion in limine and preventing NDI from presenting
evidence of its gender-neutral compensation system at trial.
It asserts that it was not necessary for NDI to affirmatively
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plead its gender-neutral compensation system as a defense
because the EPA specifically sets forth such a compensation
system as a defense. NDI claims that it was not required to
expressly plead any of the four enumerated statutory defenses,
and that this Court has held that there is no requirement to
affirmatively plead a defense that is evident from the subject
of an action.
NDI submits that the requirement that affirmative defenses
be pled exists to prevent surprise or prejudice at trial, and
that long before trial Tarquini was aware that NDI sought to
present evidence of a gender-neutral compensation system in
defense of her EPA claim. According to NDI, no prejudice would
have resulted from the presentation of such evidence.
Tarquini replies that the circuit court properly granted
her motion in limine because NDI failed to affirmatively plead
its statutory defenses under the EPA. She claims that it is
well-established under Virginia law that affirmative defenses
must be pled to prevent unfair surprise or prejudice at trial,
and although this Court has not considered whether the EPA
statutory defenses must be explicitly pled, federal courts have
determined that they are affirmative defenses. Thus, Tarquini
argues, NDI’s failure to properly plead its affirmative
defenses resulted in a waiver of those defenses, and that the
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waiver was not excused by Tarquini’s awareness that such
defenses were possible.
Whether the statutory defenses set forth in the EPA are
affirmative defenses is a pure question of law that this Court
reviews de novo. See, e.g., Moreau v. Fuller, 276 Va. 127,
133, 661 S.E.2d 841, 844-45 (2008). This standard likewise
applies to the determination of whether any such affirmative
defenses would be waived if not pled. See id. These are
questions of first impression.
The EPA prohibits employers from discriminating on the
basis of gender:
No employer having employees subject to any
provisions of this section shall discriminate, within
any establishment in which such employees are
employed, between employees on the basis of sex by
paying wages to employees in such establishment at a
rate less than the rate at which he pays wages to
employees of the opposite sex in such establishment
for equal work on jobs the performance of which
requires equal skill, effort, and responsibility, and
which are performed under similar working conditions,
except where such payment is made pursuant to (i) a
seniority system; (ii) a merit system; (iii) a system
which measures earnings by quantity or quality of
production; or (iv) a differential based on any other
factor other than sex . . . .
29 U.S.C. § 206(d)(1)(emphasis added).
“To make out a prima facie case under the EPA, the burden
falls on the plaintiff to show that the skill, effort and
responsibility required in her job performance are equal to
those of a higher-paid male employee.” Wheatley v. Wicomico
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Cnty., 390 F.3d 328, 332 (4th Cir. 2004). Upon the plaintiff
establishing a prima facie case, “the burden then shifts to the
employer to prove, by a preponderance of evidence, that the pay
differential is justified by the existence of one of the four
statutory exceptions set forth in § 206(d)(1): (1) a seniority
system, (2) a merit system, (3) a system that measures earnings
by quantity or quality of production, or (4) a differential
based on any factor other than sex.” Strag v. Board of Trs.,
55 F.3d 943, 948 (4th Cir. 1995). If the employer successfully
bears this burden, the plaintiff’s claim fails unless she is
able to rebut the employer’s evidence. Id.
This case presents an instance in which application of
reverse-Erie doctrine 1 is appropriate: a federal statutory
cause of action brought for trial in state court. This Court
therefore applies federal substantive law and must determine
whether Virginia procedural law governs the procedural aspects
of the federal statutory cause of action.
The federal law applicable in this case is the EPA.
Whether the four enumerated exceptions to the statutory
1
Erie doctrine is the principle under which federal courts
sitting in cases of diversity jurisdiction apply state
substantive law and federal procedural law. See Hanna v.
Plumer, 380 U.S. 460, 473-74 (1965); Erie R. Co. v. Tompkins,
304 U.S. 64, 78-79 (1938). Reverse-Erie doctrine involves the
application of state procedural law to federal substantive
causes of action in state court. See Felder v. Casey, 487 U.S.
131, 151 (1988).
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provisions are affirmative defenses is likewise a matter of
federal substantive law. See Blair v. Manhattan Life Ins. Co.,
692 F.2d 296, 299 (3d Cir. 1982) (“‘The question of which party
bears the burden of proof in a diversity case ordinarily is a
matter of substantive law within the meaning of Erie R. Co. v.
Tompkins, 304 U.S. 64 (1938), and so is governed by state law.
In such a case, the district court is obligated to determine
the burden of proof in accordance with the law of the forum
state . . . .’” (quoting DeMarines v. KLM Royal Dutch Airlines,
580 F.2d 1193, 1200 (3d Cir. 1978))) (internal citations
omitted). The Supreme Court of the United States and other
federal courts have categorized the EPA defenses as
affirmative. See, e.g., County of Washington v. Gunther, 452
U.S. 161, 169 (1981) (“The Equal Pay Act is divided into two
parts: a definition of the violation, followed by four
affirmative defenses.”); Corning Glass Works v. Brennan, 417
U.S. 188, 196-97 (1974); Brinkley-Obu v. Hughes Training, Inc.,
36 F.3d 336, 344 (4th Cir. 1994) (“The defendant must prove one
of four affirmative defenses to avoid liability.”). We
therefore hold that the enumerated EPA statutory defenses are
affirmative defenses in accordance with federal law.
Under Erie, in federal diversity actions substantive state
law determines whether a defense is affirmative. The Federal
Rules of Civil Procedure “provide the manner and time in which
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defenses are raised and when waiver occurs . . . .” Arismendez
v. Nightingale Home Health Care, Inc., 493 F.3d 602, 610 (5th
Cir. 2007) (citation omitted). The inverse is true in cases
where state courts apply federal substantive law, subject to
certain constraints. See Felder, 487 U.S. at 150 (“Federal law
takes state courts as it finds them only insofar as those
courts employ rules that do not ‘impose unnecessary burdens
upon rights of recovery authorized by federal laws.’” (quoting
Brown v. Western Ry. Co., 338 U.S. 294, 298-99 (1949))).
“Just as federal courts are constitutionally obligated to
apply state law to state claims, so too the Supremacy Clause
imposes on state courts a constitutional duty ‘to proceed in
such manner that all the substantial rights of the parties
under controlling federal law [are] protected.’” Id. (quoting
Garrett v. Moore-McCormack Co., 317 U.S. 239, 245 (1942)).
Thus, federal substantive law is applied under state procedural
rules to the extent that the state rules do not interfere with
the consistent operation of federal law. Id. at 151. This
Court must determine the procedural law applicable to the
pleading of the EPA affirmative defenses in Virginia courts.
The Virginia rules concerning the pleading of affirmative
defenses are not expressly preempted by federal statute. There
is no statute-specific or blanket federal provision that could
have been intended to apply to the pleading of the EPA
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affirmative defenses, save Rule 8(c) of the Federal Rules of
Civil Procedure. The Commonwealth has a discrete interest in
controlling litigation conducted in its courts under consistent
rules, and we hold that application of Virginia pleading
standards to the EPA affirmative defenses would not lead to a
substantial difference in outcomes of state and federal EPA
actions. Therefore, we will apply Virginia procedural law
concerning the pleading of affirmative defenses in EPA actions
brought in Virginia courts.
In doing so, this Court necessarily looks to the
procedural pleading principles articulated in Monahan v. Obici
Med. Mgmt. Servs., 271 Va. 621, 628 S.E.2d 330 (2006). See
Chesapeake & Ohio Ry. Co. v. Meadows, 119 Va. 33, 43, 89 S.E.
244, 247 (1916) (applying Virginia procedure in FELA matter).
Our jurisprudence has long “required that a party raise
specific defenses (just as a plaintiff must give notice of
claims) so that surprise and prejudice at trial from late
revelation of unanticipated legal theories is avoided.”
Monahan, 271 Va. at 632, 628 S.E.2d at 336. “This has
generally led to a requirement that affirmative defenses must
be pled in order to be relied upon at trial.” Id.
This Court, however, has found exceptions to the general
requirement that affirmative defenses be pled, including: (1)
where the issue addressed by the affirmative defense was not
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disclosed in the plaintiff’s pleading; (2) where the
affirmative defense is not an absolute bar to recovery; and (3)
where the affirmative defense is “addressed by statute.” Id.
at 632-34, 628 S.E.2d at 336-37. The affirmative defense at
issue in Monahan was mitigation of damages, and in holding that
the defense need not be specifically pled, this Court noted
that “we express no opinion as to the specific pleading of any
other affirmative defense.” Id. at 634 n.11, 628 S.E.2d at 337
n.11.
Traditional affirmative defenses or special pleas that
constitute an absolute bar to recovery include “statute of
limitations, absence of proper parties, res judicata, usury, a
release, prior award, infancy, bankruptcy, denial of
partnership, bona fide purchaser, and denial of an essential
jurisdictional fact alleged in the bill.” Id. at 634, 628
S.E.2d at 337. The requirement that most such defenses be
specifically pled arises from their collateral nature. Where a
defendant seeks to rely upon an affirmative defense not
apparent from the allegations pled and unrelated to the
elements of a plaintiff’s cause of action, that affirmative
defense must be pled to avoid unfair surprise or prejudice to
the plaintiff.
Unlike traditional affirmative defenses, the EPA
“affirmative defenses” are specifically listed as exclusions in
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the statute that creates the cause of action. The affirmative
defenses are broad and include the general defense that the
plaintiff was not discriminated against on the basis of gender.
29 U.S.C. § 206(d)(1).
The EPA does not on its face require that its affirmative
defenses be pled. See id.; cf. Jones v. Jones, 249 Va. 565,
571-72, 457 S.E.2d 365, 369 (1995) (noting that the affirmative
defense of the statute of limitations must be pled, per the
statute). Because the EPA defenses are stated in the statute
creating the cause of action, and include any defense that the
differential is based on a factor other than gender, the
plaintiff is put on notice of the assertion of an affirmative
defense when the defendant denies that any pay differential is
based on gender. In such an instance, there is little risk of
prejudice or surprise resulting from not also requiring the
pleading of an affirmative general defense.
In this matter, for example, NDI’s answer denied
Tarquini’s allegation that she was paid less because of her
gender, putting her on notice of its defense. Tarquini
undisputedly acquired knowledge of NDI’s defense during the
protracted litigation of the case. No prejudice resulted from
NDI generally denying the allegation that Tarquini was paid
less because of her gender, without also affirmatively pleading
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that it was asserting, as a defense, “a differential based on
[a] factor other than sex.” 29 U.S.C. § 206(d)(1)(iv).
We hold that because the four statutory defenses under the
EPA are express exceptions contained within the statute that
creates the cause of action, and because in such cases there is
little risk of prejudice or surprise, Virginia procedural law
does not require that such EPA affirmative defenses be pled to
avoid waiver of the right to assert those defenses to the
claim. We therefore reverse the circuit court and hold that
NDI did not waive its right to present evidence regarding its
defenses to the EPA claim. 2
Conclusion
Accordingly, for the reasons stated, we will reverse the
judgment of the circuit court and remand this case for further
proceedings consistent with this opinion.
Reversed and remanded.
2
Given this holding, there is no need to address the issue
of attorneys’ fees.
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