Equal Employment Opportunity Commission v. Management Hospitality of Racine, Inc.
2012 U.S. App. LEXIS 383
7th Cir.
2012

Background

  • EEOC sued management entities (MHR, Flipmeastack) and Janmohammed for sexually harassing servers Katrina Shisler and Michelle Powell at the Racine IHOP, a restaurant operated under MHR's franchise.
  • Evidence shows Gutierrez, the night/assistant manager, made repeated explicit sexual comments, touched Shisler and Powell, and management failed to act despite multiple complaints.
  • Policy materials included a Sexual Harassment and Diversity Policy and training, but evidence suggested the policy was not effectively implemented in practice.
  • Shisler and Powell reported harassment to Del Rio and Dahl; management did not take timely corrective action; Gutierrez resigned in May 2005, after private-investigator inquiry began.
  • Dahl later sued MHR for harassment by Smith; Dahl's case was dismissed on summary judgment; trial in this matter occurred November 2009 with verdict for plaintiffs on hostile environment and punitive damages for Powell.
  • District court denied Defendants’ Rule 50 motions and entered judgment against Flipmeastack; EEOC sought injunctive relief and corporate liability theories were contested.

Issues

Issue Plaintiff's Argument Defendant's Argument Held
Whether the harassment was severe or pervasive enough to support a hostile environment. Shisler and Powell faced repeated, explicit harassment by Gutierrez; conduct was severe and pervasive. Policy and management actions could negate liability; occasional incidents were not pervasive enough. Yes; rational juries could find severe and pervasive harassment.
Whether Defendants satisfied the Faragher/Ellerth defense requirements. Policy failed in practice; management did not promptly investigate or discipline; thus no effective defense. Defendants maintained a harassment policy and took some corrective actions; policy was reasonable on paper and practice. The defense could be found inadequate; jury could conclude policy ineffective and actions insufficient.
Whether punitive damages against Flipmeastack are proper and whether good-faith efforts were shown. Management consistently failed to enforce the policy; punitive damages appropriate. Policy showed good faith efforts to prevent harassment; punitive damages should be limited. Punitive damages upheld against MHR and Janmohammed; Flipmeastack’s liability remanded for further proceedings; good-faith theory insufficiently proven for full relief.
Whether Flipmeastack can be held liable as a de facto employer; district court erred in corporate liability ruling and injunction. Flipmeastack controlled HR functions and thus should be liable as employer. Flipmeastack was a separate entity; liability should not be pierced; the theory was injected post-trial. District court’s corporate-liability ruling reversed and remanded for trial on the control theory.

Key Cases Cited

  • Meritor Savings Bank, FSB v. Vinson, 477 U.S. 57 (1986) (establishes hostile environment standard and totality of circumstances)
  • Burlington Indus., Inc. v. Ellerth, 524 U.S. 742 (1998) (Faragher/Ellerth defense elements for employer liability)
  • Faragher v. City of Boca Raton, 524 U.S. 775 (1998) (articulates Faragher/Ellerth defense framework)
  • Gentry v. Expert Packaging Co., 238 F.3d 842 (7th Cir. 2001) (considers severity and impact in hostile environment cases)
  • Baskerville v. Culligan Int'l Co., 50 F.3d 428 (7th Cir. 1995) (distinguishes between egregious and merely offensive conduct)
  • Williams v. Waste Mgmt. of Illinois, 361 F.3d 1021 (7th Cir. 2004) (prompt investigation as a hallmark of corrective action)
  • Hardy v. Univ. of Illinois at Chicago, 328 F.3d 361 (7th Cir. 2003) (jury determines reasonableness of failure to report)
  • V&J Foods, Inc. v. EEOC, 507 F.3d 575 (7th Cir. 2007) (adequacy of complaint mechanisms and accommodations for teens)
  • Cerros v. Steel Tech., Inc., 398 F.3d 944 (7th Cir. 2005) (prompt investigation as a key factor in reasonableness)
  • Bruso v. United Airlines, Inc., 239 F.3d 848 (7th Cir. 2001) (good-faith effort and policy enforcement considerations)
  • Kolstad v. American Dental Ass'n, 527 U.S. 526 (1999) (three-part test for punitive damages; good-faith consideration)
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