Francisco v. Susano

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT May 28, 2013
Elisabeth A. Shumaker
Clerk of Court
JOSE JUAN FRANCISCO; VINCIO
GONZALEZ; JOSE JUAREZ
RAMIREZ; PEDRO GREGORIO
RAFAEL,
Plaintiffs-Appellants,
v. No. 12-1376
(D.C. No. 1:10-CV-00332-CMA-MEH)
ALEJO SUSANO, individually and in his (D. Colo.)
official capacity; WILEY
INNOVATIONS CONSTRUCTION
CORP., a Nebraska corporation,
Defendants-Appellees.
ORDER AND JUDGMENT*
Before McKAY, BALDOCK, and O’BRIEN, Circuit Judges.
Plaintiffs appeal from the denial of compensatory and punitive damages on
their claims under the Trafficking Victims Protection Act (TVPA), as amended by
the Trafficking Victims Protection Reauthorization Act (TVPRA). See 18 U.S.C.
*
After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist the determination of this
appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
§ 1595. After entering a default judgment against the absent defendants, the district
judge decided the general statutory allowance of “damages,” see id. § 1595(a), did
not include punitive damages. She also decided compensatory damages, beyond
those already awarded plaintiffs under the Fair Labor Standards Act (FLSA),
29 U.S.C. §§ 206, 216, were unavailable on the TVPA claims for lack of evidence
and an associated metric to guide their calculation. As a result of these rulings, only
nominal damages of one dollar were awarded on plaintiffs’ TVPA claims.
The rulings on punitive and compensatory damages are both legal
determinations. See Ditullio v. Boehm, 662 F.3d 1091, 1096 (9th Cir. 2011)
(availability of punitive damages under TVPA reviewed de novo); Gaffney v.
Riverboat Servs. of Ind., Inc., 451 F.3d 424, 458 (7th Cir. 2006) (availability of
compensatory and punitive damages under federal statute reviewed de novo). As
such, they are subject to de novo review whether the matter under consideration is
the initial default judgment or the denial of plaintiffs’ ensuing motion to alter or
amend that judgment, see Devon Energy Prod. Co., L.P. v. Mosaic Potash Carlsbad,
Inc., 693 F.3d 1195, 1201-02 (10th Cir. 2012). For reasons detailed below we
reverse and remand for further proceedings.1
1
Like the district court, we are hampered by a lack of adversarial briefing. The
defendants did not appear either in the district court or in this court.
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I. DISTRICT COURT PROCEEDINGS
When plaintiffs moved for default judgment, they requested compensatory and
punitive TVPA damages in addition to the unpaid wages and attendant liquidated
damages (doubling the unpaid wages) sought under the FLSA. The judge set a
hearing for plaintiffs to show why the requested TVPA damages were justified by
defendants’ alleged conduct and the applicable law. At the hearing she emphasized
the narrowed focus of the relevant inquiry: the “whole purpose of th[e] hearing was
to tell [the court] what is the authority” for awarding the requested TVPA damages.2
App. 73. She repeatedly indicated additional evidence of damages—in particular,
proffered testimony from plaintiff Gonzalez—was unnecessary, because the question
was one of legal authority. See App. at 71-72; 79-80. At the close of the hearing,
she reserved ruling on TVPA damages and allowed plaintiffs “to submit further
briefing to substantiate any claims for damages in excess of the actual damages and
the liquidated damages [under the FLSA] that you have outlined already.” Id. at 79.
2
The judge did voice some doubts about whether the alleged conduct was even
actionable under the substantive provisions of the TVPA, 15 U.S.C. § 1589 (forced
labor) and § 1590 (trafficking with respect to forced labor), but made no definitive
holdings in this regard. See App. at 72-73, 75-76. If the complaint were insufficient
to state a TVPA claim and plaintiffs were unable to cure it by amendment, a default
judgment on the claim would not be warranted, see Bixler v. Foster, 596 F.3d 751,
762 (10th Cir. 2010), and any question of appropriate TVPA damages would be
immaterial. But while the legal sufficiency of a complaint may thus be challenged by
the defaulting party, see, e.g., id.; Marshall v. Baggett, 616 F.3d 849, 852 (8th Cir.
2010), defendants have never appeared in the case to make such a challenge. Since
the adequacy of a complaint is, even in the default context, a matter subject to waiver
principles, see, e.g., Jennings v. Rivers, 394 F.3d 850, 854 n.3 (10th Cir. 2005);
(continued)
-3-
Plaintiffs submitted a supplemental memorandum of law, citing lower court
TVPA cases approving compensatory damages over and above promised wages, as
well as punitive damages. See App. at 64 (citing, in particular, Pena Canal v. de la
Rosa Dann, No. 09-03366 CW, 2010 WL 3491136 (N.D. Cal. Sept. 2, 2010), which
awarded default judgment for compensatory damages “consisting of . . . a fair hourly
wage for [plaintiff’s] work” and a recovery “for the emotional distress and other tort
damages caused by [defendant],” as well as punitive damages, id. at *4). In support
of their request for wage-related damages greater than those available under the
FLSA, plaintiffs attached a government document specifying prevailing wage rates in
the area for the kind of work they had performed. See App. at 68. The $18.50 hourly
rate they sought on this basis substantially exceeded the promised wage rates ($10 or
$11 per hour) they were ultimately awarded under the FLSA.3
City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 137 (2d Cir. 2011);
United States v. Conces, 507 F.3d 1028, 1038-39 (6th Cir. 2007), we do not
sua sponte test the sufficiency of plaintiffs’ TVPA allegations. In short, we shall
presume “the [unchallenged] default judgment establishes [defendants’] liability to
plaintiff.” Jennings, 394 F.3d at 854 n.3.
3
Actually, the FLSA wages awarded—based on rates promised to plaintiffs—
appear to exceed FLSA allowances in one respect. The FLSA remedies two distinct
violations: failure to pay statutorily set minimum wages, 29 U.S.C. § 206, and failure
to compensate overtime work, id. § 207. Overtime work must be compensated “at a
rate not less than one and one-half times the regular rate at which [the worker] is
employed,” id. § 207(a)(1) (emphasis added), so FLSA overtime claims look to the
actual amount the parties agreed upon for compensation, see Chavez v. City of
Albuquerque, 630 F.3d 1300, 1304-05 (10th Cir. 2011). But minimum-wage claims
rest on the legislatively set minimum rate for regular time, see 29 U.S.C. § 206(a)(1),
so the remedy for such claims is recovery of “the amount of [the employee’s] unpaid
minimum wages,” id. § 216(b) (emphasis added), not recovery of promised wages. In
(continued)
-4-
In its ensuing default judgment, the district court refused to award plaintiffs
any compensatory or punitive damages for the TVPA claims. The court’s analysis,
particularly on the question of punitive damages, was not fully articulated. The court
noted it was not persuaded by the fairly scant case law cited by plaintiffs supporting
punitive damages, but offered no authority or rationale for its contrary conclusion
that the general statutory allowance of “damages” excludes punitive damages. The
court merely stated that “[t]he statute offers no guidance regarding the appropriate
damage award, and the precedent on this point is limited.” Francisco v. Susano,
No. 10-cv-00332-CMA-MEH, 2011 WL 5593165, at *3 (D. Colo. Nov. 16, 2011).
The court also decided any claim for damages beyond the promised wages awarded
under the FLSA failed for lack of evidence and a corresponding metric for the
calculation of actual damages. Id.
Plaintiffs filed a motion to alter or amend the judgment. They claimed error in
holding punitive damages unavailable under the TVPA, and suggested either an
amount doubling the promised wages awarded under the FLSA or an amount
accounting for the higher prevailing wage rate (again supported by the government
documentation). As for compensatory damages, they argued they should not have
penalized for not putting on evidence at the hearing when the court itself had
basing its FLSA award on promised rates substantially higher than the statutory
minimum wage, the trial judge exceeded the prescribed remedy for plaintiffs’ § 206
claims. But the error may prove harmless in light of our holding that lost wages
determined at the even higher prevailing rates sought by plaintiffs under the TVPA
could properly be awarded on remand.
-5-
forestalled the introduction of testimony from a proffered witness because the only
issues of concern were legal. They also attached extensive affidavits detailing the
inhumane treatment set out in the complaint and the resulting harm they endured.
The judge denied the motion in pertinent part, though she retreated from her
earlier reliance on evidentiary insufficiency as a complemental rationale for denying
TVPA damages. While faulting plaintiffs for not providing evidence establishing
such damages with their initial motion for default judgment, she did not hold this
omission sufficient to dispose of the matter.4 Rather, she explained, the evidentiary
record (including the newly submitted affidavits) was “immaterial,” because
“Plaintiffs failed to persuade the Court that it had authority to award the damages
requested.” Francisco v. Susano, No. 10-cv-00332-CMA-MEH, 2012 WL 3638774,
at *3 (D. Colo. Aug. 23, 2012). No further rationale was given to bolster the
summary holding that the court lacked the necessary legal authority to award the
requested compensatory and punitive damages.
II. DAMAGES AVAILABLE UNDER THE TVPA
A. Analytical Framework
Two Supreme Court decisions guide any inquiry into the availability of
damages for a federal statutory cause of action. In Franklin v. Gwinnett County
Public Schools, 503 U.S. 60 (1992), the Court reaffirmed a basic principle: “absent
4
Nor do we. The governing rule clearly contemplates an evidentiary hearing
when needed for a party to establish damages. See Fed. R. Civ. P. 55(b)(2)(B).
-6-
clear direction to the contrary by Congress, the federal courts have the power to
award any appropriate relief in a cognizable cause of action brought pursuant to a
federal statute.”5 Id. at 70-71; see also Bell v. Hood, 327 U.S. 678, 684 (1946)
(“[W]here legal rights have been invaded, and a federal statute provides for a general
right to sue for such invasion, federal courts may use any available remedy to make
good the wrong done.”). Applying that principle, Franklin reversed the lower courts
for limiting remedies available for sexual harassment in violation of Title IX of the
Education Amendments of 1972 to back pay and prospective relief. It considered
Congress’s remedial intent in the context of the common-law understanding that “the
denial of a remedy [i]s the exception rather than the rule,” which prevailed both
before and after a right of action was implied under Title IX. Franklin, 503 U.S.
at 71 (internal quotation marks omitted). Since Congress had “made no effort . . . to
alter the traditional presumption in favor of any appropriate relief for violation of a
federal right,” the Court concluded there was no legislative limitation on such relief.
Id. at 72-73. Rejecting the defendants’ objections regarding the impropriety of
money damages in Title IX cases, the Court decided such relief was available to the
plaintiff, see id. at 76.
5
As the Court pointed out, this principle contrasts starkly with that governing
the analytically prior question of a right to sue under a federal statute, where courts
must “examine the text and history of a statute to determine [affirmatively] whether
Congress intended to create a right of action.” Franklin, 530 U.S. at 66 (citing
Touche Ross & Co. v. Redington, 442 U.S. 560, 575-76 (1979)).
-7-
Ten years later, the Court expanded on the Franklin analysis, specifically with
respect to the “appropriate relief” prong, in a case involving the availability of
punitive damages under Title VI of the Civil Rights Act of 1964. See Barnes v.
Gorman, 536 U.S. 181, 185 (2002). The Court summarily invoked the Franklin
presumption and then turned its attention to the question whether punitive damages
were appropriate under Title VI when a funding recipient violated its correlative
obligations to the detriment of a third party. Guiding the inquiry were (1) the proper
legal characterization of the statute and hence the type of liability involved (contract,
tort, equity), id. at 186-87, and (2) the traditional remedial aim “‘to make good the
wrong done,’” id. at 189 (quoting Bell, 327 U.S. at 684). The Court noted Congress
enacted the statute pursuant to the Spending Clause, and the reciprocal obligations it
imposed were contractual in character, i.e., voluntarily and knowingly accepted by
funding recipients. Id. at 186-87. A remedy for noncompliance would therefore be
appropriate under Franklin “only if the funding recipient is on notice that, by
accepting federal funding, it exposes itself to liability of that nature.” Id. at 187.
“[R]elief traditionally available in suits for breach of contract” would have been
tacitly accepted and hence appropriate, “[b]ut punitive damages, unlike compensatory
damages and injunction, are generally not available for breach of contract” and hence
would not be appropriate. Id. Further, by the same token, “the wrong done” in the
contractual setting “is ‘made good’ when the recipient compensates . . . for the loss
caused by th[e] failure [to comply with its obligations]”—and because “[p]unitive
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damages are not compensatory” they “are not embraced within the [make-good-the-
wrong-done] rule,” id. at 189. For these reasons, the Court concluded punitive
damages were not available.
In sum, Franklin and Barnes direct a two-step inquiry: “First, we are invited
to determine whether there is any clear indication of congressional intent to limit the
presumption in favor of any and all appropriate damage remedies; second, absent any
such indication, we are invited to determine whether the remedy in question is
‘appropriate.’” Moreno v. Consol. Rail Corp., 99 F.3d 782, 789 (6th Cir. 1996)6;
see also Lebow v. Am. Trans Air, Inc., 86 F.3d 661, 670-72 (7th Cir. 1996) (holding
punitive damages available under Railway Labor Act (RLA) because “(1) Congress
has [not] indicated punitive damages are not recoverable under the RLA and (2)
punitive damages are . . . appropriate under the RLA”). The second step of the
inquiry looks to the nature of the statutory right involved and whether the desired
remedy rectifies the wrong done when that right is violated. We turn now to the
TVPA and the remedies at issue in this case.
6
Noting that punitive damages were not at issue in Franklin, the Moreno court
was “by no means sure” it had to engage in the two-step inquiry summarized above
when punitive damages were at issue, but it did so “out of an abundance of caution.”
99 F.3d at 789. With the benefit of the subsequent Barnes decision, it is now clear
the analysis of punitive and compensatory damages is the same—a result entirely
consistent with the scope of the operative presumption, which covers “any
appropriate relief.”
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B. Punitive Damages
Punitive damages are a well-established component of traditional common law
remedies. See, e.g., Atl. Sounding Co. v. Townsend, 557 U.S. 404, 409-10 (2009).
The Court has, accordingly, recognized punitive damages as a remedy under various
federal statutes that did not expressly provide for such relief. See, e.g., Smith v.
Wade, 461 U.S. 30, 35-36 (1983) (addressing remedy under 42 U.S.C. § 1983);
Johnson v. Ry. Express Agency, Inc., 421 U.S. 454, 460 (1975) (addressing remedy
under 42 U.S.C. § 1981). Indeed, Barnes itself reflects the presumptive availability
of punitive damages for federal statutory violations, though of course it ultimately
held such relief was not appropriate under the statute it reviewed.
The question, therefore, at the first step of the Franklin inquiry is whether
Congress has indicated an intent to exclude punitive damages from the full range of
common law remedies otherwise presumptively afforded in the TVPA. See Franklin,
503 U.S. at 70-71. In specifying the relief available, the statute refers broadly to
“damages.” 18 U.S.C. § 1595. “[T]he term ‘damages’ is ambiguous: it could refer to
compensatory damages, punitive damages, nominal damages, or some combination of
the three.”7 Ditullio, 662 F.3d at 1096. Under the circumstances, we cannot say the
7
Legislative history does not clarify the matter. An early draft’s reference to
“actual damages [and] punitive damages” was ultimately replaced with the current
reference to “damages,” but “[n]either the significance of this change nor the reason
for it appear in the legislative history.” Ditullio, 662 F.3d at 1098 n.5 (internal
quotation marks omitted). If the intent was to exclude punitive damages, the obvious
revision would have been retention of the reference to actual damages as a limiting
(continued)
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TVPA excludes punitive damages. First of all, as Franklin pointed out, see supra
note 5 and accompanying text, the onus is on negation, not affirmation: traditional
remedies are available “absent clear direction to the contrary by Congress.”
Franklin, 503 U.S. at 70-71 (emphasis added). Ambiguity is not clear direction.
Further, evaluating the TVPA’s civil remedy in light of the contemporary legal
landscape, see id. at 71-72 (considering state of the law when statute was passed and
amended in determining available remedy), only buttresses our conclusion that the
text does not exclude punitive damages. As noted below in connection with the
appropriate-relief step in the inquiry, the TVPA addresses tortious conduct—indeed,
conduct so reprehensible Congress made it criminal even before adding the civil
remedy in 2003. Under settled principles of tort law, “punitive damages are
‘awarded against a person to punish him for his outrageous conduct and to deter him
and others like him from similar conduct in the future[,]’” and are specifically
warranted for “‘conduct involving some element of outrage similar to that usually
found in crime.’” Ditullio, 662 F.3d at 1096-97 (quoting Restatement (Second) of
Torts § 908 and cmt. b. (1979)). The Supreme Court has repeatedly acknowledged
the traditional use of punitive damages in tort law and, twenty years before Congress
created the TVPA’s civil remedy, confirmed the availability of punitive damages
under § 1983, stating it could “discern no reason why a person whose federally
specification of remedy. Unqualified use of the general term “damages,” especially
after an express recognition of the two relevant sub-types of damages, just as likely
suggests a mere simplification of reference rather than any truncation of referent.
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guaranteed rights have been violated should be granted a more restrictive remedy
than a person asserting an ordinary tort cause of action.” Smith, 461 U.S. at 48-49.
Against this backdrop, Congress’ use of the unqualified term “damages” to specify
the remedy for the criminal conduct it made civilly actionable in § 1595 cannot be
considered a clear direction to exclude punitive damages. And, it is worth noting,
that provision was enacted well after Franklin explained that such a clear direction
would be necessary if Congress intended to limit the relief available.
Turning to the second step in the inquiry, regarding the appropriateness of the
remedy sought, we ask whether punitive damages are a proper part of righting the
wrong done by violation of the TVPA. That wrong involves injury to basic rights of
personal liberty, safety, and security traditionally protected at common law, not (as in
Barnes) rights dependent on contract for their creation and enforcement.8 The TVPA
imposes criminal and civil liability for knowingly obtaining, providing, benefitting
from, or trafficking in labor or services secured by means of force or physical
restraint, threats of force or physical restraint, harm or threats of serious harm, abuse
or threatened abuse of legal process, or a scheme or plan intended to make a victim
believe serious harm or physical restraint will be imposed if labor or services are not
performed. See 18 U.S.C. §§ 1589 (forced labor), 1590 (trafficking), 1595 (civil
penalty). In providing a civil remedy for such conduct, the TVPA plainly “creates a
8
We note the TVPA was enacted under Congress’ Commerce Clause powers,
not the Spending Clause powers relied on for the contract remedy addressed in
Barnes. See Ditullio, 662 F.3d at 1097 n.4.
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cause of action that sounds in tort.” Ditullio, 662 F.3d at 1096. Thus, in assessing
the appropriateness of a remedy we look “to the common law of torts . . . with such
modification or adaption as might be necessary to carry out the purpose and policy of
the statute.” Id. at 1097 (quoting Smith, 461 U.S. at 34) (alteration omitted).
As noted above, the traditional use of punitive damages is to punish and deter
misconduct involving an element of outrage. The TVPA “creates a cause of action
for tortious conduct that is ordinarily intentional and outrageous”—what “Congress
described as ‘a contemporaneous manifestation of slavery.’”9 Id. at 1098 (quoting
Pub. L. No. 106-386, § 102, 114 Stat. 1464, 1466 (2000)). “Such conduct obviously
meets the common law standards for award of punitive damages[.]” Id. And the
purpose and policy of the statute require no modification of the common law
understanding: “permitting punitive damages is consistent with Congress’ purposes
in enacting the TVPA [and later including a civil remedy in the TVPRA], which
include increased protection for victims of trafficking and punishment of traffickers.”
Id. We thus agree with the only other circuit to address the matter and hold punitive
damages to be available under § 1595. See id.; see also Doe v. Howard,
No. 1:11-cv-1105, 2012 WL 3834867, at *4 (E.D. Va. Sept. 4, 2012) (following
Ditullio to hold “[p]unitive damages are available under the TVPA because the Act’s
9
Congress was prominently focused on sexual exploitation, but also made it
clear that “[t]rafficking in persons is not limited to the sex industry. This growing
transnational crime also includes forced labor and involves significant violations of
labor, public health, and human rights standards worldwide.” Pub. L. No. 106-386,
§ 102(a)(3), 114 Stat. 1466.
- 13 -
civil remedy provision creates a cause of action that sounds in tort” (internal
quotation marks omitted)). Of course, whether and/or in what amount punitive
damages should be awarded to the plaintiffs in this particular case are matters left to
be determined on remand.
C. Compensatory Damages
From what we have already said in connection with punitive damages, the
Franklin inquiry with respect to compensatory damages should not detain us for long.
Nothing in the statute’s text, on its face or considered in light of legislative history,
provides a clear direction to exclude compensatory damages ordinarily allowable in
tort. The only question is whether such damages, or at least the specific sub-types of
such damages sought by the plaintiffs, are appropriate. That is, do they make good
the kind of wrong addressed by the TVPA, and do so in a manner consistent with the
purpose of the statute. They do.
As noted above, the TVPA is intended to remedy conduct condemned as
outrageous, involving significant violations not only of labor standards but
fundamental health and personal rights as well. With respect to the former, there is
nothing inappropriate in requiring those who have engaged in or benefited from
forced labor to rectify the wrong by compensating the victim at the prevailing wage
rate for the work done. As explained earlier, see supra note 3, that is more than
would be awarded under the FLSA, but the FLSA simply remedies the failure to pay
wages at the statutory minimum rage, so compensation determined by reference to
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the shortfall makes good that wrong. The forced labor addressed by the TVPA is a
categorically different wrong, involving work extracted from victims by the illegal
and coercive means specified in the statute. Limiting TVPA victims to the FLSA
remedy would inappropriately afford criminals engaged in such egregious practices
the benefit of the lowest-common-denominator minimum wage set for legitimate
employers. As for damages to redress noneconomic harm, particularly suffering
related to the squalid, restricted, and threatening working/living conditions imposed
on TVPA victims, the case law consistently reflects the propriety of providing the
traditional tort remedy of damages for emotional distress caused by outrageous
conduct. See, e.g., Doe, 2012 WL 3834867, at *3-*4 (awarding, and discussing
several prior cases that awarded, substantial emotional distress damages for TVPA
violations); Pena Canal, 2010 WL 3491136, at *4. That is consistent with the
availability of such damages under other federal statutes. See, e.g., Hampton v.
Dillard Dep’t Stores, Inc., 247 F.3d 1091, 1114-15 (10th Cir. 2001) (addressing
§ 1981); McClure v. Indep. Sch. Dist. No. 16, 228 F.3d 1205, 1213-14 (10th Cir.
2000) (addressing § 1983).
Our holding is limited: damages of the sort sought by plaintiffs are available as
a general matter under the TVPA; we direct no particular award. On remand,
plaintiffs should be allowed an adequate opportunity, either at an evidentiary hearing
or by documentary proffer, to support their requests for damages with whatever
evidence and associated argument is deemed necessary.
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The judgment of the district court, insofar as it relates to the damages awarded
to plaintiffs, is reversed and the case is remanded for further proceedings consistent
with the principles discussed in this order and judgment.
Entered for the Court
Terrence L. O’Brien
Circuit Judge
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