PRINCE v. KIDS ARK LEARNING CENTER, LLC

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Docket Number

No. 09-2365.

Attorney(S)

Jill K. Harker, Omaha, NE, for appellant. Brenda Joyce Council, Omaha, NE, for appellee.

Judges

James B. Loken
Myron H. Bright
Raymond W. Gruender

Acts

Judiciary And Judicial Procedure — Courts Of Appeals — Jurisdiction And Venue — Final Decisions Of District Courts

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Smart Summary

Factual and Procedural Background

Angela Prince worked at Johnson's Christian Daycare (JCD) from 1996 until her termination in 2001, during which she was sexually harassed by Gary Johnson, son of the owner Frances Johnson. In 2003, Prince filed a charge with the EEOC against JCD. Around that time, Frances ceased operating JCD due to health problems and the daycare faced state probation related to management issues and drug charges against Gary Johnson. Frances' daughter, Gale Henderson, sought and obtained a new daycare license under the name Kids Ark Learning Center, leasing the JCD premises and taking over operations without interruption. Kids Ark hired several former JCD employees and used some of the same equipment.

In 2005, Prince filed a federal lawsuit against JCD for Title VII violations and later amended her complaint to add Kids Ark as a defendant under a theory of successor liability. After a jury found JCD liable for sexual harassment, the district court granted judgment as a matter of law in favor of Kids Ark on the successor liability claim. Prince's post-judgment motions were denied, and she timely appealed.

Legal Issues Presented

Whether Kids Ark Learning Center, LLC can be held liable as a successor employer for the discriminatory employment practices of its predecessor, Johnson's Christian Daycare, under Title VII of the Civil Rights Act of 1964.
The appropriate standard of review for the district court’s determination on successor liability in this context.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
EEOC v. MacMillan Bloedel Containers, Inc., 503 F.2d 1086 (6th Cir. 1974)	Established the nine-factor test for successor liability under Title VII and the principle that successor employers may be liable for predecessor’s discriminatory practices to preserve effective remedies.	Used as the leading framework to analyze whether Kids Ark should be liable as a successor employer.
Cobb v. Contract Transp., Inc., 452 F.3d 543 (6th Cir. 2006)	Clarified that successor liability is an equitable determination and emphasized the need to consider whether imposing liability is equitable and consistent with federal policy.	Supported the court’s approach to review the district court’s decision for abuse of discretion and to weigh equitable factors.
Wedow v. City of Kansas City, Mo., 442 F.3d 661 (8th Cir. 2006)	Established that district courts’ grant or denial of equitable relief under Title VII is reviewed for abuse of discretion.	Justified the standard of review applied to the district court’s successor liability ruling.
Sanders v. Clemco Indus., 862 F.2d 161 (8th Cir. 1988)	Clarified appellate review standards for Rule 59(e) motions and underlying rulings producing judgment.	Supported the court’s explanation of the standard of review applicable to Prince’s appeal.
Anderson v. Family Dollar Stores of Ark., Inc., 579 F.3d 858 (8th Cir. 2009)	Explained the distinction between de novo review of summary judgment and abuse of discretion review of Rule 59(e) motions.	Helped frame the appellate review standards for the case.
Roberson v. AFC Enters., Inc., 602 F.3d 931 (8th Cir. 2010)	Confirmed that judgment as a matter of law is generally reviewed de novo.	Referenced in discussing the appropriate standard of review for the successor liability issue.
Dominguez v. Hotel, Motel, Restaurant Miscellaneous Bartenders Union, Local 64; Holiday Inn, 674 F.2d 732 (8th Cir. 1982)	Previously suggested that successor liability determinations are reviewed for clear error.	Distinguished as not controlling because the standard of review was not at issue in that case.
Brecht v. Abrahamson, 507 U.S. 619 (1993)	Clarified that stare decisis does not bind courts on issues not squarely addressed.	Used to support the court’s rejection of the clear error standard in favor of abuse of discretion review.
Sakamoto v. Duty Free Shoppers, Ltd., 764 F.2d 1285 (9th Cir. 1985)	Held that unstated assumptions on non-litigated issues are not precedential holdings.	Supported the court’s view on the non-binding nature of prior standards of review not fully addressed.
Franks v. Bowman Transp. Co., 424 U.S. 747 (1976)	Noted federal courts’ broad discretion to fashion complete relief under Title VII.	Reinforced the equitable nature of successor liability determinations under Title VII.

Court's Reasoning and Analysis

The court began by clarifying the standard of review, explaining that successor liability determinations under Title VII are equitable and thus reviewed for abuse of discretion rather than de novo. It rejected the notion that the issue should be reviewed de novo despite the district court’s judgment as a matter of law, emphasizing the equitable nature of the inquiry.

The court applied the nine-factor test from MacMillan to the facts, noting that several factors favored imposing successor liability: Kids Ark had notice of the discrimination charge; JCD was unable to provide relief; Kids Ark operated in the same location; Kids Ark hired half of JCD’s employees who formed its initial workforce; the jobs and working conditions were substantially the same; and Kids Ark used some of the same equipment.

Despite these factors, the court deferred to the district court’s equitable judgment. The district court found that JCD’s cessation was due to the owner’s health problems and regulatory issues unrelated to the discrimination claim, that Kids Ark had new management and financing, and that there was no direct connection between Kids Ark’s formation and the discriminatory conduct. These findings led the district court to conclude successor liability was inappropriate.

Given the abuse of discretion standard, the appellate court found no abuse in the district court’s determination and affirmed the judgment.

Holding and Implications

The court AFFIRMED the district court’s grant of judgment as a matter of law in favor of Kids Ark Learning Center, LLC on the issue of successor liability under Title VII.

The effect of this decision is that Kids Ark is not held liable as a successor employer for the discriminatory acts of JCD. The court’s ruling does not establish new precedent altering the principles of successor liability but confirms that such liability is an equitable determination subject to abuse of discretion review and dependent on the totality of circumstances.

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Angela PRINCE, Plaintiff-Appellant, v. KIDS ARK LEARNING CENTER, LLC; Life Changers Academy, LLC, Defendants-Appellees.

PER CURIAM.

Angela Prince appeals from judgment as a matter of law entered in favor of Kids Ark Learning Center, LLC (Kids Ark). Under Title VII of the Civil Rights Act of 1964, in some circumstances a "successor employer" may be held liable for the discriminatory employment practices of its predecessor. EEOC v. MacMillan Bloedel Containers, Inc., 503 F.2d 1086, 1090-91 (6th Cir. 1974) ( MacMillan). A jury found that Prince suffered sexual harassment in violation of Title VII, and Prince sought to impose successor liability on Kids Ark because the violator, Johnson's Christian Daycare (JCD), was defunct. The district court concluded that imposition of successor liability would be inappropriate and entered judgment for Kids Ark. We affirm, concluding the district court did not abuse its discretion.

I. Background

Frances Johnson owned JCD, a daycare business that began operating in the early 1990s and by 1996 had moved into a building purchased by Frances. Prince worked at JCD from 1996 until Frances terminated her employment in 2001. While employed by JCD, Prince was sexually harassed by Gary Johnson, the son of Frances.

In February 2003, Prince filed a charge against JCD with the EEOC. During this same period, several events occurred relevant to this lawsuit. Frances stopped running JCD because she was experiencing health problems which required surgery and she could not work. The state began investigating JCD, and Frances' daycare license was placed on probation because of drug charges against Gary and because a child had been left unattended. Frances asked her daughter, Gale Henderson, who owned and operated a different daycare center, if she wanted to expand her daycare operations into the JCD location.

Over the next several months, Henderson contacted the appropriate authorities and sought a new daycare license under the name Kids Ark Learning Center. Gale testified she sought a new license because she did not want the problems at Kids Ark affecting her other daycare operation. Gale entered into a lease with Frances of $5,000 per month for use of JCD's building, furniture, toys, and some vehicles. Daycare operations at JCD continued to operate during this period and never ceased at the JCD location because Kids Ark simply took over. Kids Ark hired five of JCD's employees, who initially comprised the only employees of Kids Ark, and JCD's office manager took the same position within Kids Ark.

In 2005 Prince filed suit against JCD in federal court for violations of Title VIL Prince later amended her complaint, adding Kids Ark as a defendant on a theory of successor liability. At the close of Prince's case-in-chief, Kids Ark moved for judgment as a matter of law. The district court denied the motion.

Prince also brought suit against Caring Hearts (a daycare business owned and operated by Gary Johnson), as well as Gary and Frances individually. Prince later moved to dismiss the individual defendants and Caring Hearts.

The jury returned a verdict in favor of Prince, finding JCD violated Title VII. The jury did not consider the issue of successor liability. The district court then granted Kids Ark's renewed motion for judgment as a matter of law. Within ten days of entry of judgment, Prince moved for reconsideration under Federal Rules of Civil Procedure 59(e) and 60(b). The district court denied Prince relief, and Prince timely appealed.

Although Prince filed a notice of appeal well past the thirty days allotted by Fed.R.App.P. 4, she filed her Rule 59(e) Motion to Alter or Amend a Judgment within ten days of the December 2008 entry of judgment, thereby tolling the thirty-day period, see Fed.R.App.P. 4(a)(4)(A)(iv), until entry of the March 30, 2009, order denying her Rule 59(e) motion. See also Sanders v. Clemco Indus., 862 F.2d 161, 168 (8th Cir. 1988) (discussing tolling). Prince timely appealed the March 2009 order. We have jurisdiction under 28 U.S.C. § 1291.

II. Discussion

A preliminary issue is the standard of review. Prince correctly contends that appeal from the denial of a Rule 59(e) motion allows challenge of the underlying ruling that produced the judgment — in this case, judgment as a matter of law. See Sanders v. Clemco Indus., 862 F.2d 161, 165 n. 3 (8th Cir. 1988) (stating that an appeal from a Rule 59(e) motion permits the appellant "to challenge . . . all rulings that produced the judgment," but the denial of the Rule 59(e) motion itself is reviewed for abuse of discretion); Anderson v. Family Dollar Stores of Ark., Inc., 579 F.3d 858, 861-62 (8th Cir. 2009) (reviewing underlying summary judgment de novo but reviewing Rule 59(e) motion for abuse of discretion). Prince next correctly asserts that we generally review judgment as a matter of law de novo. See Roberson v. AFC Enters., Inc., 602 F.3d 931, 933 (8th Cir. 2010). Prince thus argues that we review the successorship issue de novo because the district court granted judgment as a matter of law on this issue. We disagree.

Prince's appeal from the denial of a Rule 60(b) motion, on the other hand, "does not raise the underlying judgment for review; it presents the appellate court only with the question of whether the trial court abused its discretion in ruling on the motion." Sanders, 862 F.2d at 169. Thus, insofar as Prince appeals the denial of her Rule 60(b) motion, this court may only consider whether the district court abused its discretion in denying that motion. But this distinction is immaterial in this case because our review of the court's successorship determination answers the Rule 60(b) question.

Successor liability is an equitable determination. Cobb v. Contract Transp., Inc., 452 F.3d 543, 553-54 (6th Cir. 2006) (citing MacMillan, 503 F.2d at 1089-91). "We review for an abuse of discretion the district court's grant or denial of equitable relief under Title VII." Wedow v. City of Kansas City, Mo., 442 F.3d 661, 676 (8th Cir. 2006) (reviewing the denial of an injunction) (citing Gumbhir v. Curators of the Univ. of Mo., 157 F.3d 1141, 1144 (8th Cir. 1998)); see also Franks v. Bowman Transp. Co., 424 U.S. 747, 764, 96 S.Ct. 1251, 47 L.Ed.2d 444 (1976) (noting that federal courts have wide discretion "to fashion the most complete relief possible" because Title VII is intended to make whole the victims of discrimination). Here, the jury did not decide the issue of successor liability, and we conclude that, as an equitable determination, we review a district court's determination of successor liability under Title VII for abuse of discretion.

Although a previous Eighth Circuit decision suggests that we review successorship for clear error, see Dominguez v. Hotel, Motel, Restaurant Miscellaneous Bartenders Union, Local # 64; Holiday Inn, 674 F.2d 732, 733 (8th Cir. 1982) (holding the district court's successorship determination was not clearly erroneous), the standard of review was not at issue in Dominguez, and therefore that case does not control. See Brecht v. Abrahamson, 507 U.S. 619, 630-31, 113 S.Ct. 1710, 123 L.Ed.2d 353 (1993) (holding that stare decisis does not bind future courts on issues not squarely addressed); Sakamoto v. Duty Free Shoppers, Ltd., 764 F.2d 1285, 1288 (9th Cir. 1985) ("[U]nstated assumptions on non-litigated issues are not precedential holdings binding future decisions. ").

The premise of successor liability is that "[f]ailure to hold a successor employer liable for the discriminatory practices of its predecessor could emasculate the relief provisions of Title VII by leaving the discriminatee without a remedy or with an incomplete remedy." MacMillan, 503 F.2d at 1091. The leading approach to resolving questions of successor liability remains the Sixth Circuit's decision in MacMillan, where the court set forth a nine-factor test to be applied on a case-by-case basis. 503 F.2d at 1094. These considerations include: (1) whether the successor company had notice of the charge; (2) the ability of the predecessor to provide relief; (3) whether there has been a substantial continuation of business operations; (4) whether the new employer uses the same plant; (5) whether the new employer uses the same or substantially the same work force; (6) whether the new employer uses the same or substantially the same supervisory personnel; (7) whether the same jobs exist under substantially the same working conditions; (8) whether the new employer uses the same machinery, equipment, and methods of production; and (9) whether the new employer produces the same product. Id.

Here, several factors support the imposition of successor liability. The record indicates that Kids Ark had notice of the discrimination charge against JCD. The district court acknowledged that JCD was unable to provide relief. Kids Ark operates in the same location as JCD. The district court found that Kids Ark only had "a few" of the employees that previously worked at JCD. But Mildred Maclin, a supervisor at JCD, testified that JCD had ten employees when it ceased operating, five of whom went over to Kids Ark and constituted the entire initial staff of Kids Ark. Both businesses provided daycare and therefore the jobs existed under substantially the same working conditions. Maclin also testified that Kids Ark used the same playground equipment as JCD and some of the same vehicles used by JCD.

Although several of these factors favor the imposition of liability, we cannot conclude the district court abused its discretion. As the Sixth Circuit recently explained, the factors listed in MacMillan "are not in themselves the test for successor liability. . . . The ultimate inquiry always remains whether the imposition of the particular legal obligation at issue would be equitable and in keeping with federal policy." Cobb, 452 F.3d at 554. Here, the district court found that JCD could not continue operations because its owner (Frances Johnson) had poor health; JCD was on probation with the state due to mismanagement; and JCD was losing its license notwithstanding the discriminatory conduct. The district court also found that Kids Ark had new management (Frances' daughter, Gale) and new financing. The court found no connection between the formation of Kids Ark and Prince's claim of discrimination. Thus the court determined that imposing successor liability would be "inappropriate."

In light of our standard of review, we affirm.