Arthur CLEMENS, Jr., Plаintiff-Appellee/ Cross-Appellant, v. CENTURYLINK INC., Defendant, and Qwest Corporation, Defendant-Appellant/ Cross-Appellee.
Nos. 15-35160, 15-35183
United States Court of Appeals, Ninth Circuit
Filed November 3, 2017
1113
Argued and Submitted October 2, 2017—Seattle, Washington
Alexander J. Higgins (argued), Law Offices of Alex J. Higgins, Seattle, Washington; Rebecca E. Ary, Law Office of Rebecca E. Ary, Sеattle, Washington; Daniel F. Johnson, Breskin Johnson & Townsend, Seattle, Washington; for Plaintiff-Appellee/Cross-Appellant.
Before: KIM McLANE WARDLAW, RICHARD R. CLIFTON, and JOHN B. OWENS, Circuit Judges.
OPINION
OWENS, Circuit Judge:
Arthur Clemens, Jr., sued his employer Qwest Corрoration (“Qwest“) for Title VII violations. A jury awarded damages for back pay and emotional distress, as well as punitive damages. On appeal, Clemens challenges the district court‘s refusal to consider adjusting his lump-sum back-pay
I. FACTS AND PROCEDURAL HISTORY
In 2008, Qwest initiated disciplinary proceedings against Clemens, a long-time employee and active union member. For a period longer than the American Civil War, Clemens and Qwest contested his work performance in internal proceedings and interviews, in arbitration, and before the Washington State Human Rights Commission.
In September 2013, Clemens sued Qwest for race discrimination and retaliation in violation of Title VII (
The district court also granted Clemens‘s motions for attorney‘s fees and, in part, an interest award. However, it denied his request for a “tax consequence adjustment” or “gross uр” to compensate for increased income-tax liability resulting from his receipt of his back-pay award in one lump sum. The district court explained that “[g]iven the lack оf authorization from the Ninth Circuit, the split among other Circuits on this issue, and the parties’ disagreement regarding an appropriate methodology for calculating the tax сonsequences of a lump sum payment,” it declined “to exercise its discretion to ‘gross up’ plaintiff‘s damages award.” Clemens now challenges that decision.
II. DISCUSSION
A. Standard of Review
Whether Title VII рermits gross-up adjustments is a legal question which we review de novo. See, e.g., Ileto v. Glock, Inc., 565 F.3d 1126, 1131 (9th Cir. 2009).
B. Title VII Grants Courts The Authority To Award Back-Pay “Gross Ups”
Title VII exists in large part “to make persons whole for injuries suffered on aсcount of unlawful employment discrimination.” Albemarle Paper Co. v. Moody, 422 U.S. 405, 418, 95 S.Ct. 2362, 45 L.Ed.2d 280 (1975); accord, e.g., Rivera v. NIBCO, Inc., 364 F.3d 1057, 1069 (9th Cir. 2004) (“Title VII‘s central statutory purpose is eradicating discrimination throughout the economy and making persons whole for injuries suffered thrоugh past discrimination.” (internal quotation marks omitted)); Kraszewski v. State Farm Gen. Ins. Co., 912 F.2d 1182, 1184-86 (9th Cir. 1990) (endorsing granting of equitable relief under Title VII where it is “necessary to put the victim in the place he would have been—to mаke him whole“); Thorne v. City of El Segundo, 802 F.2d 1131, 1133-34 (9th Cir. 1986) (to the same effect). And Title VII provides courts with considerable equitable discretion to ensure adequate compensation. See
Indeed, we recently reiterated that “[i]t is the historic purpose of equity to secure complete justice,” and that “[i]n the context of a claim brought under a federal statute intended to combat discrimination, the phrase ‘complete justice’ has a clear meaning: ‘the [district] court has not merely the power but the duty to render a decree which will so far as possible eliminate the discriminatory effects of the past as well as bar like discrimination in the future.‘” Bayer v. Neiman Marcus Grp., Inc., 861 F.3d 853, 873 (9th Cir. 2017) (some alterations in Bayer) (footnote, citations, and some internal quotation marks omitted) (quoting Gen. Tel. Co., 599 F.2d at 334, and Albemarle, 422 U.S. at 418, 95 S.Ct. 2362); see also Kraszewski, 912 F.2d at 1185-86. Back pay is one manifestation of this principle, see Loeffler v. Frank, 486 U.S. 549, 558, 108 S.Ct. 1965, 100 L.Ed.2d 549 (1988), as is prejudgment interest on back-pay awards, see id. at 557, 108 S.Ct. 1965 (recognizing that the courts of aрpeals unanimously hold “that Title VII authorizes prejudgment interest as part of [back-pay awards]“).
But unfortunately for successful Title VII plaintiffs, back-pay awards are taxablе. See Comm‘r v. Schleier, 515 U.S. 323, 327, 115 S.Ct. 2159, 132 L.Ed.2d 294 (1995); see also
As the district court recognized, we are not the first tribunal to confront this issue. The Third, Seventh, and Tenth Circuits have all held that district courts have the discretion to “gross up” an award to account for income-tax consequences. See Eshelman v. Agere Sys., Inc., 554 F.3d 426, 440-43 (3d Cir. 2009) (“[A] district court may, pursuant to its broad equitable powers granted by [
The D.C. Circuit, however, does not permit such gross ups. In a per curiam opinion (and a mere one paragraph), it rejected
We join the thoughtful analysis of the Third, Sеventh, and Tenth Circuits, and reject the matchbook musings of the D.C. Circuit. In so doing, we also agree with those courts that the decision to award a gross up—and the appropriаte amount of any such gross up—is left to the sound discretion of the district court. As the Third Circuit put it, “we do not suggest that a prevailing plaintiff in discrimination cases is presumptively entitled tо an additional award to offset tax consequences. ... The nature and amount of relief needed to make an aggrieved party whole necessarily varies from case to case,” Eshelman, 554 F.3d at 443, and the “circumstances peculiar to the case” drive that decision, id. (quoting Albemarle, 422 U.S. at 424, 95 S.Ct. 2362).
There may be many cases where a gross up is not appropriаte for a variety of reasons, such as the difficulty in determining the proper gross up or the negligibility of the amount at issue. In any case, the party seeking relief will bear the burden оf showing an income-tax disparity and justifying any adjustment. We express no opinion on whether a gross up is appropriate here—that is for the district court to decide on remand.
Acknowledging the circuit split, Qwest puts up little resistance to the majority view. It argues for the first time on appeal that monetary relief is legal, not equitable. That argumеnt is both waived, see Smith v. Marsh, 194 F.3d 1045, 1052 (9th Cir. 1999) (“[A]n appellate court will not consider issues not properly raised before the district court.“), and at odds with the controlling Title VII case law discussed above. Qwest also suggests that only a jury can award a back-pay tax adjustment—another argument that is both waived because it is made to our court first, see id., and wrong under Title VII case law, see Lutz v. Glendale Union High Sch., 403 F.3d 1061, 1068-69 (9th Cir. 2005) (“[T]here is no right to have a jury determine the appropriate amount of back pay under Title VII. ... Instead, back pay remains an equitable remedy to be awarded by the district court in its discrеtion.“).
Qwest finally argues that the district court did exercise its discretion in refusing Clemens a tax gross up. While we appreciate that the district court‘s ruling on this issue was somewhat opaque, what is clear is that the court declined to consider a gross up in part because the Ninth Circuit had never authorized one. Consistent with all of the courts that have thoughtfully аddressed this issue, we do so now.
The district court‘s order denying an adjustment is vacated and the case remanded for further proceedings.
VACATED AND REMANDED.