Lindsey v. Prive Corporation

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 97-10651
ANNE MARIE LINDSEY, ET AL
Plaintiffs
LINDA ANN YORK
Plaintiff-Appellant
v.
PRIVE CORPORATION, doing business as Cabaret Royale; WALHILL
PARTNERS LTD; CRC OPERATING CORPORATION, also known as Dallas
Food & Beverage; DNL CORPORATION
Defendants-Appellees
****************************************************************
LINDA ANN YORK
Plaintiff-Appellant,
v.
PRIVE CORPORATION, doing business as Cabaret Royale
Defendant-Appellee
Appeal from the United States District Court
for the Northern District of Texas
November 24, 1998
Before KING, GARWOOD, and HIGGINBOTHAM, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
Linda York appeals from a judgment entered on a jury verdict
against her. Her principal claim is that the trial should not have
been allowed to proceed, because the defendant’s legal
representative in bankruptcy had previously agreed to a settlement.
In the alternative, she argues that the district court made various
evidentiary and procedural errors that warrant reversal. We
affirm.
I
York and Anne Marie Lindsey brought Age Discrimination in
Employment Act claims against Prive Corp., operator of an upscale
gentleman’s club, which allegedly refused the women promotions and
constructively discharged them on the basis of their age. The
district court granted summary judgment. We vacated and remanded.
See Lindsey v. Prive Corp., 987 F.2d 324 (5th Cir. 1993). Prive
Corp. then filed for protection under Chapter 7 of the Bankruptcy
Code. Before the bankruptcy filing it transferred its assets to
defendant-appellee Walhill Partners, Ltd., which in turn
transferred to defendant-appellees CRC (Dallas Food and Beverage)
Operating Corp. and DNL Corp. The transfers are allegedly without
consideration.
Prive Corp.’s trustee in bankruptcy, Daniel Sherman, agreed to
entry of judgment in the amount of $3.3 million against Prive.
Plaintiffs maintain that the trustee arrived at this amount after
consulting with a labor law firm, reviewing the proof of claim, and
considering two mock jury verdicts that favored the plaintiffs.
Sherman, however, confessed little knowledge of age discrimination
law. Asked whether he “really just accepted the claims plaintiffs
here have filed to be allowed, and based on whatever damages they
2
claim to be able to support,” Sherman replied, “That’s pretty close
to being accurate, yes.” Sherman explained that Prive Corp. had no
assets, but that if it consented to a judgment, the plaintiffs
might be able to pursue the other corporations on a theory of
successor liability. Should the plaintiffs win, Sherman maintained
that Prive Corp. would receive at least 25% of the damages under
the terms of the agreed judgment, and that this was the best way of
getting money into the estate for the benefit of other creditors,
including the United States. As we will explain, in effect, the
agreement effectively gave Lindsey and York 75% contingency fees on
any recovery, and that from assets the trustee chose not to pursue
for the benefit of the estate.
Bankruptcy Judge Harold C. Abramson approved the agreed upon
judgment, finding the litigation to be a “core matter” and
determining that the decision to settle “falls within the necessary
range of reasonableness considering the expense and delay
encountered in litigation of this type.” In re Prive Corp., No.
394-32837-HCA-7 (Bankr. N.D. Tex. Feb. 21, 1996). He verbally
added, however, “[T]his Court will not take a position with regard
to any effect of the claim in this case as to other Courts.”
Despite the agreed upon judgment, which is now final, the
district court required the plaintiffs to try their claims before
a jury, with the alleged successors in interest rather than the
trustee in bankruptcy defending the claims. Judge Solis explained
that he did not believe that the trustee in bankruptcy was the real
3
party in interest in defense of the age discrimination claims. The
district court ordered a bifurcated trial, the first part dealing
with questions of liability, and the second dealing with
successorship issues, contingent on a liability finding in the
first trial.
The jury found against York on both of her claims. The jury
rejected Lindsey’s constructive discharge claim after first
deadlocking 5-1 on her wrongful-denial-of-promotion claim, five
jurors apparently voting for her. During deliberations, the
holdout juror requested to be excused. Plaintiffs declined to
consent to a nonunanimous verdict. The parties agreed to allow the
court to question the juror outside the presence of counsel. The
juror explained that his desire to be excused was “just a matter of
conscience in regard to this case.” When counsel returned, the
judge told them that the juror had no personal reason to be
excused. Counsel accepted this general statement and did not ask
the judge for more detail.
The court granted partial final judgment. The defendants
received a judgment on both of York’s claims. Because Lindsey’s
two claims were intertwined, the court did not enter judgment on
either of them. Only York appeals.
II
4
Our first question is whether the bankruptcy court’s judgment
was entitled to issue preclusive effect against the successors in
interest.1 We hold that it was not.
A trustee in bankruptcy has the authority to settle claims
filed against the estate. See, e.g., Marks v. Brucker, 434 F.2d
897, 900-01 (9th Cir. 1970). Judgments of bankruptcy courts enjoy
the issue preclusive effects of a final judgment by a court of
competent jurisdiction. See Katchen v. Landy, 382 U.S. 323, 334
(1966); see also Burkett v. Shell Oil, 487 F.2d 1308, 1315 (5th
Cir. 1997).
These general principles do not decide this case, however, for
the judgment was the product not of adversaries, but of joint
venturers. The plain purpose was to agree to an extraordinarily
high judgment against Prive and impose the liability upon asserted
successors in interest -- with no opportunity for the true
defendants to defend the merit of the judgment. The basis of this
successor liability was said to be a series of fraudulent transfers
of Prive's assets to them. The trustee could have pursued the
return of the assets for the benefit of all creditors. If
successful, the assets would have been returned. The trustee's
interest would then have been to defend York's claim against Prive.
The trustee explains that pursuing the assets would have been
expensive and this was a no asset case. The trustee's solution was
1
We need not reach the question of whether the settlement is
binding against Prive Corp. itself.
5
in essence to allow another party to pursue the claim and take 75%
of the assets. We need not unfold the full tale to expose the
agreed judgment for what it was.
“Redetermination of issues is warranted if there is reason to
doubt the quality, extensiveness, or fairness of procedures
followed in prior litigation.” Montana v. United States, 440 U.S.
147, 164 n.11 (1979); see also Kremer v. Chemical Const. Corp., 456
U.S. 461, 480-81 (1982) (requiring a full and fair opportunity to
litigate a claim as a prerequisite to application of preclusion
doctrines); Universal Am. Barge Corp. v. J-Chem, Inc., 946 F.2d
1131, 1139 (5th Cir. 1991) (discussing the requirement in an
indemnity case).2
The defendant-appellees were not given a full and fair chance
to defend the age discrimination claim. Indeed, they were given no
chance. Thus, the successors in interest remained free to try the
liability issue in a subsequent proceeding. See 18 James Wm.
Moore, Moore’s Federal Practice 3d, § 132.03[2][I] (“Issues that
2
We have also noted on occasion that issue preclusion applies
only where there is "no special circumstance that would render
preclusion inappropriate or unfair." E.g., United States v.
Shanbaum, 10 F.3d 305, 311 (5th Cir. 1994). But see 18 Charles A.
Wright et al., Federal Practice and Procedure § 4426, at 264-65
(1981) (arguing that “[s]uch general statements should be
approached with great caution"). This requirement originated from
concerns about offensive collateral estoppel, see Recoveredge L.P.
v. Pentecost, 44 F.3d 1284, 1291 n.12 (5th Cir. 1995), which is at
issue here. Nonetheless, because we find that there was not a full
and fair opportunity to litigate the liability issue determined by
the bankruptcy court, we need not label the peculiar facts here a
“special circumstance.”
6
were only addressed in the trial court’s adoption of a consent
agreement, and were not contested or litigated, may be litigated in
a subsequent action.”).
This conclusion is consistent with the general principle that
“parties who choose to resolve litigation through settlement may
not dispose of the claims of a third party, and a fortiori may not
impose duties or obligations on a third party, without that party's
agreement.” Local No. 93, Intern. Ass’n of Firemen v. City of
Cleveland, 478 U.S. 501, 529 (1986); see also id. (“A court's
approval of a consent decree between some of the parties therefore
cannot dispose of the valid claims of nonconsenting intervenors; if
properly raised, these claims remain and may be litigated by the
intervenor. . . . [A] court may not enter a consent decree that
imposes obligations on a party that did not consent to the
decree.”); cf. In re Del Grosso, 106 B.R. 165, 168 (Bankr. N.D.
Ill. 1989) (noting, in another bankruptcy context, that proponents
of settlement and the bankruptcy trustee must show that the
settlement agreement was not collusive).3
3
York challenges the relevance of this principle, noting that
the Seventh Circuit has found that “[t]here is an exception to the
general rule that parties to a consent decree may not impose
obligations on an unwilling third party,” and particularly that
“federal courts may require an innocent third party to participate
in remedies for illegal discrimination.” United States v. City of
Chicago, 978 F.2d 325, 332 (7th Cir. 1992) (citing Zipes v. Trans
World Airlines, 455 U.S. 385, 400 (1982); International Bhd. of
Teamsters v. United States, 431 U.S. 324, 372-75 (1977)).
York, however, fails to note the Seventh Circuit’s explanation
of this exception: “This exception permits third-party entitlements
to be altered if a court finds that alteration necessary to an
7
III
Two additional points of error claimed by the defendant hinge
directly on our resolution of the validity of the settlement. York
maintains that the district court erred by allowing the successors
in interest to assume Prive Corp.’s defense at trial and
prohibiting the trustee in bankruptcy from appearing or testifying
at trial. The defendants on the plaintiffs’ successorship claims,
however, are necessarily the alleged successors of Prive Corp. The
district court was not trying again Prive Corp.’s liability, but
rather litigating the alleged successors’ successorship liability.
Because the collusive settlement has no preclusive effect, this
liability depended not only on a finding that they were successors,
but also on a finding that illegal discrimination occurred. Thus,
the trial was not of Prive Corp.’s liability, but that of the
successors, and Prive Corp. had no direct interest in the outcome.4
appropriate remedy for a legal wrong." Id. (internal quotation
marks omitted). In the case of a collusive consent decree, there
is no need to search for an “appropriate remedy,” because there has
been no legitimate finding of a “legal wrong.”
Moreover, the genesis of the Seventh Circuit’s exception is
language in Zipes emphasizing that the legislative history of Title
VII gives "emphatic confirmation that federal courts are empowered
to fashion such relief as the particular circumstances of a case
may require to effect restitution, making whole in so far as
possible the victims of ... discrimination." Zipes, 455 U.S. at
399. If anything, the need to accommodate relief to “particular
circumstances” weighs against kneejerk imposition of relief here.
4
Even if Prive Corp. were viewed as the defendant, the trial
judge’s decision to allow representation by the successors in
interest is consistent with the stipulation of Federal Rule of
Civil Procedure 24(a) allowing intervention when “the applicant is
so situated that the disposition of the action may as a practical
8
IV
The district court acted well within his discretion in
bifurcating the trial into one proceeding to determine liability
and another to determine successorship issues. Bifurcation is
appropriate where convenient, economical, or necessary to avoid
prejudice. See Fed. R. Civ. P. 42(b) (“The court, in furtherance
of convenience or to avoid prejudice, or when separate trials will
be conducive to expedition and economy, may order a separate trial
of any claim, cross-claim, counterclaim, or third-party claim, or
of any separate issue . . . .”). Essentially, plaintiffs argue
that this decision prevented them from countering appellees’
characterization of Prive’s business as legitimate and its owners
as innocent. These issues, however, are irrelevant to the age
discrimination claim. York argues that the delay caused by
bifurcation was highly prejudicial, making collection of her claim
more difficult. Any such prejudice could not have had any effect
given the jury verdict resulting in an adverse judgment.
Relatedly, the district court did not abuse its discretion in
excluding evidence of bankruptcy or fraud by the employer in the
matter impair or impede the applicant's ability to protect that
interest, unless the applicant's interest is adequately represented
by existing parties.” It is not clear whether the defendant-
appellees filed a motion for intervention pursuant to Rule 24(c),
but the trial judge’s decision was within his discretion. See,
e.g., Smith v. Pacific Mo. R.R. Co., 615 F.2d 683, 684-85 (5th Cir.
1980) (finding that regardless of whether a request was considered
a Rule 60(b) motion or a Rule 24(a) motion, its resolution was
within the sound discretion of the trial judge).
9
liability proceeding. Because such evidence is irrelevant to
liability on the age discrimination claim, excluding these issues
at trial was proper. See, e.g., United States v. Masat, 948 F.2d
923, 933 (5th Cir. 1991) (noting the district court’s broad
discretion in assessing the relevance and materiality of evidence).
York complains that the defense was able to admit promotional
videotapes to demonstrate its upstanding business practices. The
videotapes were admitted to show the appearance and atmosphere of
Cabaret Royale. This evidence was plainly relevant, and we find no
prejudice.
V
York protests the district court’s refusal to enter a default
judgment against defendant Walhill. The court had warned that a
default judgment would be entered if Walhill did not obtain
counsel. Walhill continued unrepresented, allegedly because of a
lawyer’s mistaken conclusion that Walhill no longer existed as an
entity. Arguing that we should reverse the district court’s
failure to enter a default judgment against Walhill, York cites
Link v. Wabash R. Co., 370 U.S. 626 (1962), and National Hockey
League v. Metropolitan Hockey Club, Inc., 427 U.S. 639 (1976).
York emphasizes her compliance with Federal Rule of Civil Procedure
55(b) in providing appropriate notice to the opposing party.
Entry of default, however, was not required. Indeed, both
Link and Metropolitan Hockey affirm challenges to dismissals, and
York cites no case in which a reviewing court reversed a failure to
10
enter a default judgment. The clerk may enter a default judgment
only where the defendant initially fails to appear, which was not
the case here. See Fed. R. Civ. P. 55(b)(1). Thus, the relevant
provision is Rule 55(b)(2), but this rule does not include any
mandatory language. Indeed, Rule 55(c) reads: “For good cause
shown the court may set aside an entry of default and, if a
judgment by default has been entered, may likewise set it aside in
accordance with Rule 60(b).” This reveals that a district court has
the discretion to decline to enter a default judgment.
As appellees note, default judgments are disfavored. See 10
Moore, supra, § 55.20[2][b] (noting “a strong policy in favor of
decisions on the merits and against resolution of cases through
default judgments”); 10 Charles A. Wright et al., Federal Practice
& Procedure § 2681, at 402 (2d ed. 1983); see also Sun Bank v.
Pelican Homestead & Sav. Ass’n, 874 F.2d 274, 276 (5th Cir. 1989)
(“The Federal Rules of Civil Procedure are designed for the just,
speedy, and inexpensive disposition of cases on their merits, not
for the termination of litigation by procedural maneuver. Default
judgments are a drastic remedy, not favored by the Federal Rules
and resorted to by courts only in extreme situations.”) (footnotes
omitted). Relevant factors include whether material issues of fact
are at issue, whether there has been substantial prejudice, whether
the grounds for default are clearly established, whether the
default was caused by a good faith mistake or excusable neglect,
the harshness of a default judgment, and whether the court would
11
think itself obliged to set aside the default on the defendant’s
motion. See 10 Wright et al., supra, § 2685. These factors offer
little support to York, and the factors concerning prejudice, good
faith mistake, and harshness weigh in favor of appellee. The
district judge therefore did not comment on abuse of discretion.
VI
Alleged discovery abuses by appellees also did not mandate a
continuance or a dismissal. A magistrate judge did observe that
the behavior of appellees’ counsel C. Gregory Shamoun at a
deposition was the worst he had ever seen and recommended
sanctions. The law, however, does not require continuances or
dismissals for discovery abuses. In support of her request for a
continuance, York cites only Sierra Club v. Cedar Point Oil Co., 73
F.3d 546 (5th Cir. 1996). This case, however, held only that “Rule
37 of the Federal Rules of Civil Procedure, which governs the
imposition of sanctions for failure to make disclosures, does not
require that a party file a motion to compel before moving for
sanctions.” Id. at 572. Rule 37 does not appear to require the
granting of a continuance, and Cedar Point merely affirmed the
district court’s imposition of sanctions; it did not mandate any
such sanctions for discovery abuse.
York claims prejudice resulted because counsel was required to
spend two weeks prior to trial conducting discovery that would have
occurred much earlier but for the defendants’ discovery abuses.
The discovery, however, pertained to successor liability issues.
12
York neither makes clear why such discovery needed to take place
prior to the liability portion of the trial, nor why extensive
trial preparation for the liability portion was needed given the
years of litigation preceding the trial date. Moreover, the
magistrate judge also noted that York exhibited an “obvious lack of
diligence” in pursuing discovery; York can hardly now complain that
her counsel did not have adequate time to prepare.
VII
We also affirm five evidentiary rulings by the trial court.
First, York objects to the exclusion of testimony and a
written statement by Frank Casperson, a former manager at the
Cabaret Royale, concerning hiring practices. Casperson, according
to York, would have testified that the defendants routinely hired
and promoted younger women who were far less attractive than
plaintiff Lindsey to dancer positions, and his letter indicated
much the same thing. York urges that this court already decided
that Casperson’s testimony was admissible in its earlier appeal.
This is an exaggeration. We mentioned Casperson’s affidavit in
finding that there were sufficient questions of fact to warrant a
trial. See Lindsey, 987 F.2d at 328 & n.18. We did not decide
that the statement will be admissible, the context of trial
notwithstanding. In any event, the district court expressly
allowed York to elicit testimony about the facts stated in the
letter. Moreover, while the letter might be relevant to Lindsey’s
case, it was tangentially, not materially, related to York’s.
13
Second, to support her claim that Cabaret Royale had a
“climate of age bias,” York wished to call Tamara Davis, a dancer,
to testify that Joe Najjar, onetime food and beverage manager for
Prive, told her that she was too old to work there, and to testify
that Brian Paul, who allegedly made the decision not to allow
Lindsey to dance, abused alcohol and drugs; and Art Householder, to
testify that a management official of Prive had told him directly
that Lindsey was not allowed to dance because of her age. This
evidence was not directly relevant to claims of age discrimination
by York. But the assertion is that the trial court should have
allowed the evidence to show an ongoing pattern and practice of age
discriminatory treatment of older workers, “a climate of age bias”.
See Estes v. Dick Smith Ford, Inc., 856 F.2d 1097, 1102 (8th Cir.
1988). We agree that the excluded evidence had relevance. We are,
however, persuaded that the evidence was cumulative. See, e.g.,
United States v. Kalmutz, 309 F.2d 437, 440 (5th Cir. 1962) (“'The
propriety of admitting evidence which is merely cumulative is a
matter for the determination of the court in the exercise of sound
discretion. Error is not predicable on its admission or its
exclusion unless an abuse of discretion is established.'”) (quoting
4 Jones on Evidence § 981 (5th ed.)). The district court did not
abuse its discretion in excluding this evidence.
Third, York alleges that the district court erred in admitting
a non-final determination by the EEOC of the plaintiffs’ claims.
“[U]nder precedents of this circuit, EEOC determinations and
14
findings of fact, although not binding on the trier of fact, are
admissible as evidence in civil proceedings as probative of a claim
of employment discrimination at issue in the civil proceedings.”
McClure v. Mexia Ind. Sch. Dist., 750 F.2d 396, 400 (5th Cir.
1985). While York presses that McClure provides only that final
EEOC determinations are admissible, McClure does not distinguish
between intermediate and final EEOC determinations. Nor does
Johnson v. Yellow Freight Sys., Inc., 734 F.2d 1304 (1984), upon
which York also relies. Moreover, intermediate EEOC determinations
are not inherently less trustworthy than final ones. See Fed. R.
Evid. 803(8)(C) (rendering EEOC evidence inadmissible upon showing
that "the sources of information or other circumstances indicate
the lack of trustworthiness"). “[T]he defendant is free to present
evidence refuting the findings of the EEOC or point out
deficiencies in the same, with regard to the weight, if any, to be
given by the trier of fact to the EEOC determination.” McClure, 750
F.2d at 400; see also Smith v. Universal Servs., Inc., 454 F.2d
154, 157 (5th Cir. 1972) (“[T]he report is in no sense binding on
the district court and is to be given no more weight than any other
testimony given at trial.”).5
5
York also claims that the EEOC report was prejudicial because
it was based on a bona fide occupational qualification defense that
defendants waived before trial. This argument, however, was raised
for the first time in York’s reply brief, and it is therefore
waived. See Najarro v. First Federal Sav. & Loan Ass’n, 918 F.2d
513, 515 (5th Cir. 1990).
15
Fourth, York argues that the district court should have
admitted the official response Prive submitted to the EEOC during
its investigation of the plaintiffs’ charges. The response
essentially would show that Prive had changed its position over the
course of litigation. York points to Olitsky v. Spencer Gifts,
Inc. (Olitsky II), 964 F.2d 1471, 1476-77 (5th Cir. 1993), for the
proposition that such response letters are always admissible.
Olitsky in fact held only that the district court did not abuse its
discretion in admitting such evidence. See id. at 1477. The
Olitsky court specifically held inadmissible “‘proposals and
counter-proposals of compromise made by the parties during the
[EEOC's] efforts to conciliate,’” id. at 1477 (quoting Branch v.
Phillips Petroleum Co., 638 F.2d 873, 881 (5th Cir. Unit A Mar.
1981)). Regardless of whether appellees’ response letter
constituted such a proposal or counter-proposal, it does not
constitute “purely factual material relating to the merits of [the]
charge,” id., which the trial judge could admit.
Fifth, York urges that the district court erred in allowing
hearsay testimony from management witnesses of what other managers
told the plaintiffs. York notes, as an example, that the trial
court allowed the defendants to solicit testimony from Don Dotson,
a Cabaret Royale manager, regarding the reasons he terminated York,
even though he was only repeating what another manager told him.
Dotson, however, did not quote another manager, but merely stated
what his understanding of York’s conduct was. The testimony was
16
thus not offered for the truth of the matter of what York had done,
but to explain the manager’s motive and state of mind when he
terminated her. In any event, the testimony of Dotson and others
was collateral, and any error made would have been harmless.
VIII
York also urges that the district court committed error in sua
sponte requesting that she provide evidence that her claims were
within the scope of her EEOC charge, even though the defendants had
admitted that the court had jurisdiction. We disagree. The entire
examination was conducted outside the presence of the jury, and the
court ultimately concluded that it did have jurisdiction. We find
no error and certainly no prejudice.
IX
We also find that there was no error in the jury charge.
First, York urges that the district court should not have required
her to prove that age was a “determining” factor in the decision to
fire her. The Supreme Court, however, has stated in an ADEA case,
“Whatever the employer's decisionmaking process, a disparate
treatment claim cannot succeed unless the employee's protected
trait actually played a role in that process and had a
determinative influence on the outcome.” Hazen Paper Co. v.
Biggins, 507 U.S. 604, 610 (1993); see also Woodhouse v. Magnolia
Hosp., 92 F.3d 248, 253 (5th Cir. 1996) (“Although age need not be
17
the sole reason for the adverse employment decision, it must
actually play a role in the employer's decisionmaking process and
have a determinative influence on the outcome.”); LaPierre v.
Benson Nissan, Inc., 86 F.3d 444, 449 (5th Cir. 1996); Rhodes v.
Guiberson Oil Tools, 75 F.3d 989, 994 (5th Cir. 1996). York argues
that Mooney v. Aramco Servs. Co., 54 F.3d 1207, 1216-17 (5th Cir.
1995), which reaches a similar conclusion in the Title VII context,
was an incorrect interpretation of Price Waterhouse v. Hopkins, 490
U.S. 228 (1989). Regardless of whether this is correct, and we do
not suggest otherwise, the Fifth Circuit’s consistent holdings in
this area are binding on the panel.
Second, York claims error in the district court’s use of the
word “negligence” in describing the plaintiffs’ burden on the
willful violation instruction. The jury, however, never reached
this instruction, and thus any error could not have been
prejudicial.
X
York also objects to the trial court’s failure to inform her
counsel of the statement of Anderson, the holdout juror on one of
Lindsey’s claims, that his desire to be excused was “just a matter
of conscience.” All counsel agreed that the judge would alone
interview the juror. The judge faithfully reported the essence of
his conversation -- that the juror “doesn’t have any reason why he
needs to be excused, it just pertains to service on the jury.”
When the judge asked, “Well, do you have any suggestions from
18
here,” counsel returned the discussion to whether counsel would
accept less than a unanimous verdict. The response of the juror
was ambiguous. We cannot fault the completeness of the report of
the district judge. Any shortcoming was waived by counsel who
would have had the court reporter read the notes of the conference
or ask the judge if anything else was said that might bear on their
decision whether to proceed with fewer that six persons.
XI
For the above reasons, we affirm the judgment of the district
court with respect to York’s claims.
AFFIRMED.
19