BAINS LLC, dba Flying B, Plaintiff-Appellee, v. ARCO PRODUCTS COMPANY, a division of Atlantic Richfield Co., Defendant-Appellant. Bains LLC, dba Flying B, Plaintiff-Appellee, v. Arco Products Company, a division of Atlantic Richfield Co., Defendant-Appellant.
Nos. 02-35906, 02-35993.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted Dec. 4, 2003. Filed April 19, 2005.
405 F.3d 764
Before KLEINFELD, GOULD, and TALLMAN, Circuit Judges.
Erik J. Heipt (argued and briefed) and Edwin S. Budge (briefed), Budge & Heipt, PLLC, Seattle, WA, for the appellee.
KLEINFELD, Circuit Judge.
This is a punitive damages case involving nominal compensatory damages brought by a corporation for racial discrimination.
Facts
This case went to trial before a jury, so we state the facts and interpret the evidence most favorably to the party that was successful at trial.1
The facts are well laid out in the published decision of the district court.2 In 1999 an Olympic Pipeline Company petroleum pipeline ruptured, interfering with the transportation of fuel from refineries in Northwest Washington to a distribution center in Seattle. It took two years to fix the pipeline. During that period ARCO hired a number of companies to truck fuel from its Blaine, Washington refinery to the distribution center.
Paul, Gary, and Deep Bains are American citizens who were born in the Punjab region of India. The Bains brothers
In June 2000, Flying B started hauling fuel for ARCO, and in August, after getting the necessary permits and safety clearances from ARCO, the company bought three more trucks and hired more drivers, although the Bains brothers themselves continued to drive trucks as well. But after four and a half months, about 600 loads (or 6.5 million gallons of gasoline), and 130,000 miles, Flying B‘s work ended on October 30, 2000, when ARCO terminated it.
During the period that Flying B transported fuel for ARCO, the Bains brothers and their drivers had to endure a considerable measure of abuse from Bill Davis, the lead man at ARCO‘s Seattle terminal where the drivers dropped off their fuel. Davis did not like the Flying B drivers and purposely made their unloading work at the Seattle terminal difficult. He made a point of delaying the Flying B drivers by ignoring their presence when they needed their papers signed after a delivery. Because ARCO paid by the load (about $460 for each load), the delays meant that Flying B‘s drivers could haul fewer loads and make less money. Davis made them stand out in the rain while other drivers were allowed to stay in their trucks or seek shelter. Davis also falsely accused Flying B drivers of various safety violations and made them clean up spills left by other drivers instead of making those responsible clean up their own spills.
Davis‘s rudeness included—and by inference arose from—his ethnic animus against Sikhs. Paul and Deep Bains, and many of the other Flying B drivers, were religiously observant Sikhs who wore turbans and long beards. Davis started his relationship with Paul Bains by refusing to shake his hand. He called Paul a “diaperhead” to his face despite Paul‘s protest that his turban was an important religious symbol. “Mr. Bains” or “Paul” were apparently too hard for Davis to say—he preferred “raghead.” One of Flying B‘s hired drivers said Davis commonly called him “stupid Indian,” “motherfucking Indian,” and similar sobriquets, and when he asked for a rag after Davis had told him to clean up a spill, Davis refused and told him to take the “fucking rag from your head and clean it.”
After months of Davis‘s abuse, the morale of Flying B drivers suffered and drivers threatened to quit. Even the non-Sikh Flying B drivers felt degraded by Davis‘s attitude toward their association with their company. Davis asked both Patrick Dauer and A.C. Morgan, the only two Caucasian Flying B drivers, “How did you get hooked up with these fuckers?”
Eventually the Bains brothers decided to report Davis‘s abuse to Al Lawrence, the manager of the Seattle terminal and Davis‘s boss. The brothers decided that Deep would talk to Lawrence. Deep told Lawrence all about Davis‘s behavior, such as the names that Davis had called them—“diaperhead,” “stupid fucking Indian,” “raghead,” and “towelhead“—as well as
But the problems continued and Davis kept up his abuse. The Flying B drivers were subjected to lengthy security checks when other drivers were not. Deep complained to Lawrence again, but it did not do any good. Davis continued his ethnic abuse, and the security delays reserved exclusively for Flying B drivers continued. Gary Bains went to Lawrence and advised him yet again of the continuing abuse. But instead of stopping Davis‘s abuse, Lawrence and ARCO stopped Flying B. ARCO terminated Flying B without giving a reason and without notice, not even the thirty-day minimum notice required by their contract. Flying B was forced to lay off a number of employees and to sell their now superfluous trucks. Deep Bains contacted Tim Reichert, the Los Angeles central dispatch manager, who was above Lawrence in the ARCO hierarchy, to contest the termination, but to no effect. Reichert claimed that there were too many trucks for the job. After this litigation had begun, ARCO claimed that Flying B had committed various safety violations, including driving unsafe trucks, drivers smoking or using cell phones while delivering fuel, and drivers failing to clean up spills.
An important part of the case was whether the ethnic nastiness and coarse language was only Davis‘s independent foray into obnoxiousness, or whether ARCO, through Davis‘s supervisor, Al Lawrence, ought to have known about Davis‘s behavior and done something about it. The parties also disputed whether ARCO‘s termination of Flying B had anything to do with the racism. In addition to the Bains’ testimony that they had complained to Lawrence, a driver for another company, Torrance Holmes, testified that once he started chatting with the Bains brothers, Lawrence quit talking to him. Holmes also testified that he heard Davis brag that “we kicked those ragheads out of here and they‘re never coming back.”
In his own testimony, Bill Davis admitted that he had used the term “raghead” “once in a while” when referring to the Bains brothers in conversations with coworkers, typically when other people complained about Flying B drivers. Davis had admitted during discovery that he had used the term “raghead” with his boss Al Lawrence, but later clarified that this was when Lawrence had asked him whether he had called the Flying B drivers “ragheads,” and Davis responded that he had not. Thus, the gist of Davis‘s testimony was that he called the Flying B drivers “ragheads” only behind their backs, not to their faces. Lawrence never disciplined or reprimanded Davis, but Davis claimed that he quit using the term after his chat with Lawrence. Davis said he knew about ARCO‘s policy that prohibited racial discrimination and discriminatory language. Of course the jury may have disbelieved any or all of ARCO‘s exonerating testimony.
An economist testified that Flying B suffered a $576,000 loss on account of the termination. He calculated this based solely on the profits the company would have made from November 1, 2000, when Flying B was terminated, to June 30, 2001, when the pipeline was fixed and ARCO no longer needed drivers to move the fuel.
Tim Reichert, the manager above Lawrence who had the authority to terminate
Al Lawrence testified that Bill Davis had advised him of numerous infractions by Flying B, such as not using buckets to catch spills, leaving valves open, using cell phones while pumping, and lining up trucks improperly so as to inconvenience other drivers. Almost all the complaints he heard about involved Flying B, even though they were the smallest carrier ARCO used. Lawrence said that he suspended Flying B exclusively because of safety violations, and that race was never a factor. But Lawrence conceded he had not documented any of these safety concerns when they occurred. Lawrence had final authority over safety issues at the Seattle terminal and made the decision to lock Flying B out of the terminal facility, while Tim Reichert had final authority and made the decision to terminate the contract.
The jury delivered a special verdict. It found that ARCO had breached Flying B‘s contract, a state law claim, and awarded $50,000 in compensatory damages for the breach. The verdict also established that ARCO had discriminated against Flying B on account of race, in violation of
Analysis
I. Judgment as a Matter of Law or New Trial on § 1981
ARCO argues that it was entitled to judgment as a matter of law, or alternatively, a new trial, because a corporation cannot suffer racial discrimination actionable under
A. Corporate Plaintiff
ARCO argues that it is entitled to judgment as a matter of law because, to establish a
Contrary to ARCO‘s interpretation of
B. Economic Injury
ARCO argues that the jury verdict—awarding one dollar in nominal damages for the
First, the district court instructed the jury that, because the plaintiff was a corporation, the jury could award damages, even nominal damages, only for harm to the corporation, not for the emotional distress to its owners or employees. We
Second, the one dollar in nominal damages for the
We agree with the district court that the verdict is not inconsistent and does not establish the absence of economic harm. The district court correctly held that the jury may have found that Flying B‘s claimed damages for lost profits were not “shown with reasonable certainty” as required by jury instruction number 18. On the evidence in this record, the jury could well have concluded that (1) racial discrimination had caused lost profits by delaying Flying B‘s drivers and thereby reducing the number of loads Flying B hauled; but (2) the jury did not have testimony that would enable it to put a number on how many loads were lost; so (3) even though lost profits were proved, the “amount” of lost profits could not be established “with reasonable certainty,” as the jury instruction required.
The damages to Flying B, as a predicate for punitive damages, do not have to be from the termination. Section 1981 extends its prohibition against racial discrimination in the making and enforcement of contracts to cover all phases and incidents of the contractual relationship, not just the termination of a contract.15 The testimony established that ARCO employees made Flying B‘s drivers wait longer to fill their trucks and to use slower pumps than other drivers, and that Flying B drivers suffered damaged morale. The jury could have concluded that Flying B suffered economic harm during the contractual relationship from the intentional delays and its drivers’ damaged morale, which resulted in a reduced number of loads—and therefore less money under a contract that paid by the load—and that all of this was caused by Davis‘s racial harassment. Flying B‘s economics expert testified that Flying B would have made $576,000 if it had continued to haul the same number of loads it did until the broken pipeline was fixed, but he did not offer testimony on how much money Flying B lost because of the slowdowns caused by Davis‘s racial harassment. The jury could reasonably have concluded that Flying B had made less money while it was hauling because of Davis‘s racial harassment, yet reasonably have found no number that it could attach to the harm, and therefore awarded nominal damages.
The district court, having heard all the evidence, was able to reconcile the verdicts, and on our review of the evidence and arguments, we find no irreconcilable conflict.16
C. Pure Motive
ARCO argues that because Tim Reichert terminated Flying B for reasons that the verdict establishes were nondiscriminatory, there can be no
ARCO also makes a “mixed motive” argument, that if it can be shown that ARCO would have done what it did without the racial animus, then there can be no
We need not resolve this argument because the jury verdict establishes that ARCO did harm Flying B for racial reasons by mistreating and delaying its drivers, and that ARCO deserved to be punished for it, regardless of whether the termination of the contract was for the safety reasons urged by ARCO. The verdict does not establish that ARCO would have terminated Flying B had there been no racial animus.
An award of nominal damages does not mean that there were not actual economic damages, just that the exact amount of damages attributable to the improper conduct was not proven.17 The court instructed the jury to award nominal damages if it found that ARCO had harmed Flying B in violation of
D. Jury Instructions
In jury instruction number 15, the court instructed the jury that it should find in favor of ARCO if it found that ARCO had proven that it would have made the decision to terminate the contract even if the race of the Flying B‘s owners and employees had played no role. ARCO ar-
II. Managerial Misconduct and § 1981 Liability
ARCO argues that all the racial harassment of Flying B people was done by Bill Davis, and that since Davis was not a managerial employee (ARCO portrays Davis as a mere gas station attendant), the jury cannot award punitive damages against ARCO as the corporation that employed Davis.
ARCO correctly argues that it is not enough for an award of punitive damages to show that an ARCO employee acted maliciously to deprive Flying B of its constitutional rights on account of ethnicity. Kolstad v. American Dental Association18 establishes, in the context of Title VII punitive damages, that an employee‘s conduct must be imputed to his employer to give rise to punitive damages liability.19 Agency principles limit vicarious liability for punitive damages awards.20 Under Swinton v. Potomac Corp.,21 an employer has a good faith defense to vicarious liability for discrimination if it undertakes appropriate steps to prevent and correct discriminatory conduct by its employees. If the harasser is a supervisor, the employer may be held vicariously liable, but if the harasser is a coworker, the plaintiff must prove that the employer knew or should have known of the harassment and did not take adequate steps to correct it.22 ARCO offers no reason why Kolstad and Swinton should not be applied in the context of a corporation that discriminates on account of ethnicity against another corporation that it hires as an independent contractor, and our decision to apply this body of law to
Agency principles limit vicarious liability in
ARCO does not challenge the instructions that the district court gave on vicarious liability, just the sufficiency of the evidence to establish it. We review ARCO‘s challenge to the sufficiency of evidence supporting the punitive damages award under the “substantial evidence” standard.25 “The test is whether ‘the evidence, construed in the light most favorable to the nonmoving party, permits only one reasonable conclusion, and that conclusion is contrary to that of the jury.‘”26
The district court reviewed the evidence with care, and concluded, correctly, that the jury could find that Davis was not a mere gas station attendant, but a supervisor. While ARCO claims that Davis had no managerial responsibilities, the evidence demonstrated that Davis had direct control over the daily fuel hauling operation and fuel carriers. Moreover, immediately after the termination of the contract, Davis himself took credit for getting Flying B terminated, bragging to non-Flying B drivers about his part in “kick[ing] those ragheads out” of the facility.27
Even were Davis not a supervisor, there can be no question under the evidence that Lawrence was. Lawrence was ARCO‘s official in charge of the Seattle terminal and, as Tim Reichert testified, Lawrence had full authority over safety issues at the terminal, including the power to lock Flying B out of the facility. The jury could conclude that when Flying B first complained to Lawrence about Davis‘s racial harassment, Lawrence simply made excuses for Davis‘s behavior and did nothing about it. And when Flying B repeated its complaints several times, Lawrence did nothing to restrain Davis, but instead terminated Flying B without even the thirty-days notice required by the contract.
Davis testified that Lawrence was present on occasions when he called the Flying B drivers “ragheads.” The jury did not have to conclude, as ARCO urges, that Lawrence locked out Flying B only for safety violations. The jury could conclude, to the contrary, that Lawrence perceived a conflict between Flying B and Davis—over Davis‘s harassment and intentional delays of those he called “ragheads“—and that Lawrence chose to back up Davis. That suffices for corporate liability. If a company official with sufficient authority to subject the company to vicarious liability backs-up a racist employee‘s racially-motivated conduct instead of protecting the victim from the employee, then the company is liable, even if the supervisor‘s motivation is non-racial, such as loyalty to his subordinate or a desire to avoid conflict within the company. A written antidiscrimination policy does not insulate a company from liability if it does not enforce the antidiscrimination policy and, by its actions, supports discrimination.28
III. Amount of Punitive Damages
ARCO argues that the $5 million in punitive damages awarded by the jury was excessive in light of BMW of
State Farm Mutual Automobile Insurance Co. v. Campbell33 enumerates the factors to be used when evaluating the reprehensibility of a defendant‘s conduct. We look to whether “the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident.”34 Here the harm to Flying B was economic and did not evince reckless disregard of health or safety. More than in Exxon Valdez, where we noted that the wrongdoing did not kill anyone,35 here there was no threat of physical harm. That reduces reprehensibility. On the other hand, the conduct was not an isolated incident but repeated, the target was highly vulnerable financially, and the harm resulted from intentional malicious conduct. An Exxon oil tanker that performs a socially valuable task can accidentally run aground causing damage. By contrast there can be no excuse for intentional, repeated ethnic harassment, so the reprehensibility here is worse than conduct that might have some legitimate purpose. In Exxon Valdez, we held that “[r]eprehensibility should be discounted if defendants act promptly and comprehensively to ameliorate any harm they cause in order to encourage such socially beneficial behavior.”36 Here, given ARCO‘s clear failure to remedy or even address the discriminatory effects of its employee‘s conduct, the jury could properly have concluded that punitive damages were necessary to prevent such discrimination from occurring in the future.37
As to the other two BMW factors, the disparity between the harm suffered and the punitive damages award, and the difference between this remedy and civil penalties authorized or imposed in comparable cases,38 ARCO is on stronger ground.
On the facts of this case, in determining the correct amount of punitive damages,
Flying B argues that because “potential harm” may properly be considered under TXO Production Corp. v. Alliance Resources Corp.,39 a much higher punitive damages award is appropriate. But TXO was speaking of the potential harm “if the wrongful plan had succeeded, as well as the possible harm to other victims.”40 Here the wrongful conduct did succeed. It is not as though Davis had fired a shot at Flying B and missed. Davis bragged that he had “gotten rid of those ragheads.” As for the harm to the individual drivers, the award to Flying B did not impair their own rights to sue for whatever common law or state statutory torts that might lie, such as intentional infliction of mental distress. Potential harm to others is best considered when victims are not in a position to vindicate the wrongs against themselves, not where, as here, they are in such a position.
In State Farm, the Supreme Court held that “in practice, few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.”41 The rare exception might be a case where “a particularly egregious act has resulted in only a small amount of economic damages.”42 This is not a “small amount” case because the economic damages were substantial—$50,000. The controlling Supreme Court authority therefore implies a punitive damages ceiling in this case of, at most, $450,000 (nine times the compensatory damages)—not anywhere near the $5,000,000 (100 times the compensatory damages) that was awarded by the jury.
Flying B argues that we should sustain the $5 million amount under Swinton, because there we upheld a $1 million punitive damages for racial harassment where the compensatory damages award was $35,600.43 That argument is not persuasive for several reasons. First, Swinton involves a much lower award, $1 million instead of $5 million, and less than one-third the ratio—punitive damages that were only 28, not 100, times the compensatory damages. Second, we decided Swinton before the Supreme Court decided State Farm, which limits Swinton. State Farm emphasizes and supplements the BMW limitation by holding that “[w]hen compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee.”44 In Zhang v. American Gem Seafoods, Inc.,45 a post-State Farm
We need not rely solely on the ratio, because the third BMW guidepost—which looks to the difference between the amount of punitive damages awarded and the civil penalties authorized or imposed in comparable cases47—provides us with another measure that restrains the permissible amount. Both pre-State Farm in Swinton, and post-State Farm in Zhang, we noted that the $300,000 statutory limitation on punitive damages in Title VII cases was an appropriate benchmark for reviewing
Flying B argues that the huge corporate assets of ARCO justify a higher award than might be justified for a defendant less able to pay it. A punitive damages award is supposed to sting so as to deter a defendant‘s reprehensible conduct, and juries have traditionally been permitted to consider a defendant‘s assets in determining an award that will carry the right degree of sting. But there are limits. “The wealth of a defendant cannot justify an otherwise unconstitutional punitive damages award,” and “cannot make up for the failure of other factors, such as ‘reprehensibility,’ to constrain significantly an award that purports to punish a defendant‘s conduct.”49
Thus what we are left with is a case of highly reprehensible conduct, though not threatening to life or limb, that caused economic harm to a corporation. The jury found $50,000 of actual harm, and, as this is not the “rare case” for which State Farm leaves room, the ratio approach suggests that punitive damages could not, consistent with due process, exceed $450,000. Comparing the award to the civil penalty authorized in Title VII for comparable harm suggests that Congress regards $300,000 as the highest appropriate amount in somewhat comparable cases. The conclusion we reach is that the district court must, to comply with State Farm (which came down after the district court had ruled) and BMW, reduce the amount of punitive damages to a figure somewhere between $300,000 and $450,000.
CONCLUSION
We affirm the jury verdict and the rulings of the district court on all issues, except for the amount of punitive damages, which we vacate. The award exceeds constitutional limits, so on de novo review, we are required to reduce it or to remand so that the district court may order a new trial, unless the plaintiff accepts a remittitur. The level of punitive damages is not a finding of “fact” that must be determined by the jury; it may be determined de novo by the court.50 Because the district court tried the case and has greater understanding of the facts than we do, we remand the case and leave the amount, within the $300,000 to $450,000 range, to the district court.
Each party shall bear its own costs on appeal.
Notes
(a) Statement of equal rights
All persons within the jurisdiction of the United States shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give evidence, and to the full and equal benefit of all laws and proceedings for the security of persons and property as is enjoyed by white citizens, and shall be subject to like punishment, pains, penalties, taxes, licenses, and exactions of every kind, and to no other.
(b) “Make and enforce contracts” defined
For purposes of this section, the term “make and enforce contracts” includes the making, performance, modification, and termination of contracts, and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship.