Equal Employment Opportunity Commission v. Northern Star Hospitality, Inc.
2015 U.S. App. LEXIS 1465
| 7th Cir. | 2015Background
- Dion Miller, an African-American cook and assistant kitchen manager at Sparx (Northern Star Hospitality, Inc.), found a racist display (defaced dollar bill and image of Gary Coleman) in the workplace on Oct. 1, 2010; he complained and was fired on Oct. 23, 2010 in apparent retaliation.
- Hospitality later dissolved; Chris Brekken (sole owner/officer) owned three related entities: Hospitality (Sparx), Properties (building owner/landlord), and Holdings (formed later to operate a Denny’s in the same location).
- EEOC sued on Miller’s behalf under Title VII for racial harassment and retaliation; amended complaint added Properties and Holdings after Hospitality dissolved.
- A district court found no triable harassment claim but denied summary judgment on retaliation; after a bench trial it held Holdings (and Properties) liable for Hospitality’s acts via successor liability and veil-piercing; a jury awarded $15,000 compensatory damages for retaliation.
- The district court awarded back pay ($43,300.50 plus interest) and a tax-component payment of $6,495 (15% of back pay) to offset higher tax liability from lump-sum payment; it denied front pay and ordered injunctive relief and remedial policies.
- On appeal, the Seventh Circuit affirmed: it found successor liability appropriate for Holdings and upheld the modest tax-component award, while noting district courts should explain the basis for tax-percentage calculations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Holdings (and Properties) can be held liable for Hospitality’s Title VII violations | Miller/EEOC: successor liability and veil-piercing appropriate because Holdings continued the business, hired same staff/management, and Brekken had notice | Appellants: Holdings did not exist when the harm occurred; defendants implore integrated-enterprise or no successor liability | Court: Affirmed successor liability (Teed five-factor test factors favor successor); no need to address veil-piercing because successor liability suffices |
| Whether successor liability applied under Teed factors (notice, ability to provide relief, continuity, etc.) | Miller/EEOC: Holdings had notice (via Brekken), continued operations, hired same employees/management, and can provide relief | Appellants: continuity insufficient; Holdings formed after harm so should not inherit liability | Court: All five Teed factors weigh in favor of successor liability; Holdings liable |
| Whether integrated-enterprise theory should limit successor/liability findings | Appellants: integrated-enterprise approach controls and precludes liability for a non-existent successor | EEOC: approach abrogated in Seventh Circuit; successor analysis controls | Court: Reaffirmed that integrated-enterprise approach was abrogated; rejected defendants’ argument |
| Whether district court abused discretion by awarding a tax-component to offset lump-sum back-pay tax consequences | EEOC/Miller: tax-component required to make plaintiff whole because lump sum pushes him into higher bracket | Appellants: contest the award and its amount (15%) and argue district court abused discretion | Court: Upheld modest tax-component award (joins Third and Tenth Circuits); remanded no relief but admonished district courts to explain calculation basis |
Key Cases Cited
- Hicks v. Forest Pres. Dist., 677 F.3d 781 (7th Cir. 2012) (standard: review of equitable remedies is for abuse of discretion)
- Teed v. Thomas & Betts Power Solutions, LLC, 711 F.3d 763 (7th Cir. 2013) (articulates five-factor successor-liability test in employment cases)
- Musikiwamba v. ESSI, Inc., 760 F.2d 740 (7th Cir. 1985) (successor liability protects victims against employer business changes)
- Worth v. Tyer, 276 F.3d 249 (7th Cir. 2001) (presumption favoring successor liability when successor has notice)
- EEOC v. Vucitech, 842 F.2d 936 (7th Cir. 1988) (notice to successor supports successor liability)
- Eshelman v. Agere Sys., 554 F.3d 426 (3d Cir. 2009) (upholding tax-component award to make prevailing employee whole)
- Sears v. Atchison, Topeka & Santa Fe Ry. Co., 749 F.2d 1451 (10th Cir. 1984) (recognizing district courts’ broad remedial discretion, including tax-component awards)