Maswamba Musikiwamba v. Essi, Inc. And Shalabh Kumar

SWYGERT, Circuit Judge. Senior presents question This a case of first impression in this circuit: does the succes- apply employ- sor doctrine to claims for brought ment discrimination under the Civ- § Rights il Act of U.S.C. (1982)? The district that held doctrine not apply; accordingly, does she dismissed the federal discrimination claims pendent state law claims ESSI, corporation, (“ESSI”) Inc. president shareholder, and its and sole part, Shalabh Kumar. affirm We re- part, verse in pro- remand further ceedings.

I Plaintiff Maswamba Musikiwamba is a thirty-year-old black man. fall an expeditor by he was hired as de- Support Systems, fendants Electronic Inc. (“Electronic”) Gary Crews and Jack M. Heeren, officers of Electronic. As a condi- tion of employment, Musikiwamba was re- quired sign agreement containing compete. broad covenant not to Musiki- alleges similarly wamba situated white expeditors at Electronic were required sign agreement. such an In November major 1978 Musikiwamba became ac- representative counts at Electronic. Plain- qualified tiff claims that he was for this position job performed and that he sat- isfactorily, but that he was denied same salary granted sales commissions and to all representatives of the other sales who were white. Plaintiff further claims that promised, in January 1979 he was but nev- received, equal er a sales commission paid representatives. other sales Mu- E. Juergensmeyer, Juergensmeyer John discharged from sikiwamba was Electronic Assoc., 111., & Elgin, plaintiff-appellant. alleges 1980. He October that he Creswell, Mass, A. Joseph- replaced by Scott Miller & employee a white who was 111., son, Davis, Chicago, Atty. Lorraine C. paid substantially higher salary. month after his dis- Electronic’s secured and Approximately one unsecured debts accepted job $2,235,000, charge, Musikiwamba with was and the “amount of new major competitors. one paid of Electronic’s consideration” to be for the assets of subsequently $1,480,000. Electronic sued Musikiwamba Electronic ESSI was for violation of the covenant not to com- July day On the transfer of as- but, unclear, pete, that are reasons occur, sets was to Musikiwamba filed a voluntarily withdrew the lawsuit Octo- Temporary Petition for a “Verified Re- ber straining Order and a Motion to Add Addi- 4, 1981, On December Musikiwamba filed Defendants,” seeking tional enjoin Electronic, Crews, suit and Heeren sale of the assets and to add ESSI and pursuant alleging to U.S.C. 1981 Kumar as defendants. Shalabh He claimed they discharged had him and denied him Electronic, that he was a creditor higher salary sales commissions and a be- inadequate that the sale was for considera- $650,000 cause he is black. He claimed in tion, $855,- being the actual consideration punitive damages. actual The and defend- existing 000 less than the total of the se- job ants answered that Musikiwamba’s was cured and unsecured He further debts. employ- not the same as that of the white irreparably claimed that he would be ees and that he was therefore not entitled harmed because after the sale Electronic higher salary. They to commissions or a corporate and its officers would have no also claimed that dis- Musikiwamba was pay assets with which to his claims and charged as a result of a severe curtailment he because would lose access to certain in Electronic’s business. prose- documents which were crucial to the 1, 1982, day, cution of his lawsuit. On the same On November Musikiwamba voluntarily complaint alleging pe- Musikiwamba withdrew his filed an amended in facts, entirety judge tition its when the adding same a claim for “inten- district requiring under section entered an order ESSI and Ku- tional discrimination” contract, preserve state claims for mar and make available the and law breach meruit, wrongful discharge, and documents which Musikiwamba claimed he quantum implied contract. needed. Defendants ESSI and Kumar en- breach of He claimed $300,000 appearance day solely compensatory damages and one tered on that for purposes hearing and not as punitive damages. million dollars in defendants, party although it is unclear Throughout 1982 and the first few they from- the record if were added as discovery months of 1983 substantial took party day July defendants on that or on 12, July 1983, place. On Musikiwamba re- See Order Discovery (July Protection ceived from ESSI a “Notice to Creditors of 19, 1983); (August 1983). Minute Order Bulk Transfer.” That notice informed Mu- place The transfer of assets took later on transferring that Electronic sikiwamba was July 19. ESSI, substantially pur- all of its assets to 19, 1983, Act, August suant to Illinois’ Bulk Transfer Ill.Rev. On Musikiwamba filed §§ Stat., complaint specifically ch. 26 Art. 6-101-106 a second amended naming place The transfer was scheduled to take ESSI and Kumar as additional de- July alleged July on 1983. The notice stated that fendants. He that on 19 ESSI sale/purchase involved the transfer of and Kumar became “successors” Elec- “furniture, fixtures, (1) property consisting of tronic because: there was a substantial (2) continuity operations; equipment and used Electronic business ESSI boards, plant, equipment, printed using manufacture of circuit ac- was the same ma- receivable, names, trademark, chinery process, and methods of and em- counts trade numbers, receivable, force and the telephone ploying successor in 1981 doctrine actions.” Dis- that Kumar be personally could held liable Opinion trict Court Memorandum and Or- state, claims, all the federal and judge ques- der at 1. The district first incorporated he ESSI and knew of the tioned whether ap- that doctrine was even prior transfer, claim to though the even he plicable to discrimination personally had not against discriminated brought claims under Title the VII of Civil Musikiwamba. Rights Act of as amended codified We hold that the §§ successor doctrine (“Ti- (1982) at 42 U.S.C. 2000e-2000e-17 applied in section 1981 claims em- VII”). tle She if reasoned that even it note, ployment discrimination. We how- were, the existing substantial differences ever, complaint in the instant case Title

between VII and section militat- not properly allege does specificity with a against extending ed the successor doctrine Nonetheless, liability. to of claim successor claims discrimination brought under we believe that giv- section 1981. The district the should be judge plain- noted that a en an opportunity under section 1981 remand to amend the prove tiff must discriminatory complaint intent or to cure its deficiencies. We fur- if purpose; brings he an action under Title hold against ther that the federal claims VII, however, may or may he not need to properly Kumar were dismissed because intent, prove discriminatory depending Kumar is not and because upon proceeds theory he whether on a allegations are per- there no that Kumar impact disparate disparate treatment. sonally discriminated Musikiwam- judge- The district believed that strict officer, An incorporator, ba. and share- requirement of discriminatory “may intent corporation holder a successor incurs no be somewhat at with an test easy odds personal liability predecessor’s for the il- liability.” vicarious District Memo- Court legal merely because he Opinion Order randum and at 2. pending knew the lawsuit before the negotiated sale its assets because he judge

The district also observed the Finally, for the sale of assets. Act, we National Labor Relations hold codified §§ (1982) district did not abuse amended 29 U.S.C. her (“the NLRA”), dismissing Title VII were both discretion the state law objective promoting formulated with the claims Kumar. (1974),

II merely was another extension of balancing approach applied in John Wi- Supreme Court first considered the Sons, ley & Inc. and Burns International liability in doctrine of successor John Wi- Services, Security Inc. In Howard John- Sons, Livingston, 376 ley & Inc. v. U.S. Co., the son Court held that a successor (1964), 11 L.Ed.2d 898 S.Ct. employer required was any to hire arising case section 301 of the predecessor’s employees and that when case, In NLRA. Court held that a only prede- hired a few of the bargain successor must with the union rec- employees required cessor’s he was not ognized by predecessor, and it must arbitrate with the incumbent union. The bargaining arbitrate under the collective distinguished Sons, Court Wiley John & agreed by contract Inc. and Burns Security International provi- extent to which it was bound Services, Inc. on the basis that in Howard holding This sions of the contract. corporate Johnson Co. the in- transaction premised specifically on considerations of only volved the sale of some of the assets policy. national labor The Court observed predecessors and the remained as “viable plays a central in pro- that arbitration role corporate entities.” Id. at 94 S.Ct. at peaceful moting policy the federal settle- view, the Court’s the balance disputes ment of labor and that con- labor favored the successor prede- because the special tracts sometimes are accorded con- cessor was available to the union applicable to siderations not routine con- Moreover, remedy.” with “a realistic Id. employees tracts. The Court added that Co., in Howard Johnson the successor helpless protect statutory are often their only hired em- few rights employer sells when their the busi- ployees, Sons, Wiley whereas John & employers’ rights ness or its assets. Thus Security Inc. Burns International freely “rearrange their business Services, Inc. successors hired most if employers even to eliminate themselves as predecessors’ not all of employees. protection be balanced some [must] Thus, predecessor employees’ rights employees change from a sudden represented by choosing a union of their employment relationship.” Id. at weighed against when insubstantial S.Ct. at 914. the majority interest of a of the successors’ In NLRB v. Burns International Secur employees bargaining to choose their own Services, Inc., 272, ity 406 U.S. 92 S.Ct. 258, representative. Id. at 94 S.Ct. at 2241. 1571, (1972), 32 L.Ed.2d 61 the Court held Finally, by purchasing only some of the though that even a successor could re be assets, predecessor’s the did not quired bargain and arbitrate with the operate predecessor’s continue to the busi- union, incumbent a successor was not contrast, By in Wiley ness in toto. John provisions bound all of the substantive Sons, predecessor; merged & Inc. the into predecessor’s of the bargaining collective “holding the successor and thus ... [the agreement. again The Court invoked fed bound to under arbitrate its successor] policy poli eral and labor reasoned that the predecessor’s collective-bargaining agree- cy private bargaining of without official may fairly ment have been within rea- the compulsion substantially would be under expectations parties.” sonable of the at Id. required if a mined successor were to as 257, 94 S.Ct. at 2241. predecessor’s sume the contract. It also NLRB, Bottling In Golden State Co. requirement might noted that such a inhibit 414, 414 U.S. 94 S.Ct. 38 L.Ed.2d 388 capital the free transfer of and restrict an (1973), only the other successor employer making necessary changes in Court, Supreme case to reach the the Court 281-91, his Id. at 92 at business. S.Ct. again employed balancing test. It held 1579-84. employer acquires that an who substantial predecessor continues, Employ- Howard Johnson Co. v. Hotel assets of a and who ees, interruptions 41 417 U.S. 94 S.Ct. L.Ed.2d without or substantial

746 change, predecessor’s opera- arbitrary business unfair and pending tions and who has notice of a practices implicated. special con- practice charge unfair at the time he labor with employment practices cern cannot be acquires required the assets be to rem- can sufficiently passing underscored. In both edy practice. unfair predecessor’s labor the NLRA and antidiscrimination stat- policy utes, The Court reasoned that federal it is Congress’ objec- clear that main avoiding disputes, promoting of labor practices was to eradicate tive that arbi- employee’s rights the free exercise of an trarily person’s ability interfered with a NLRA, providing victim- earn his livelihood. ized employees remedy with could be Second, illegal employ victim the achieved at a cost to minimal bona fide practice protect is helpless ment acquired successors who rights employer’s change in the charge. Any notice assets with lia- predecessor’s illegal business. A act reinstatement, bility backpay, or senior- employee job, have left the pro without ity imposed on the successor could have motion, or other benefits that been purchase price reflected he cannot employ now obtain from another assets or an indemnification clause er, might but that he have received from 182-85, agreement. sales S.Ct. at Id. 94 the successor had the not vio 424-25. Third, employee’s rights. lated the the suc cases, each these the Court found cessor can relief at minimum cost. that the successor doctrine was applicable Price, F.Supp. United States v. 523 Cf. 1055 particular to the cause of action it (D.N.J.1981), aff'd, (3d 688 F.2d 204 promoted poli- the well-established national Cir.1982) (interpreting section 7003 of Re cy “extending protection provid- to and Recovery Act, source Conservation ing prohibited relief victims of em- (1976 1980) U.S.C. Supp. & IV ployment practices,” Equal Employment imposing liability on successor because of Opportunity Commission v. MacMillan public policy up necessitating clean of haz Containers, Inc., Bloedel 503 F.2d sites); ardous waste United States v. (6th Cir.1974). Nonetheless, Industries, F.Supp. (E.D. Waste Court found that in Burns International N.C.1982) (finding purchaser liable for sell Services, Security Inc. Howard John- disposal ers’ hazardous waste because they son Co. could not be continuing nuisance); are current owners imposed legal obligation because the Comment, Changes Ownership sought imposed successor sub- Disposal Original Hazardous Sites: stantially outweighed the benefits Liability, Marq.L.Rev. Successor gained by injured union employees (1984) (arguing Compre or public. the As Court the said in How- Response, hensive Environmental Compen Co., question ard Johnson the in these Liability sation and Act 1980 (“Super of cases is not whether the §§ successor doctrine fund”), 42 (Supp. U.S.C. IV apply should ever but whether the 1980), Congress abrogated traditional com particular facts of case to be decided mon law limitations on successor liability liability equitably successor could be im- because of substantial national interest in posed clearly to further a established na- sites). cleaning up hazardous waste tional objective. argue The defendants that successor lia- view, analysis bility

In our forth applied employment set should not be Supreme justify Court to brought successor discrimination claims under section liability arising because, recover, in cases under the NLRA plain- in order to justifies liability also employ prove predecessor successor tiff must that the inten- ment types tionally discrimination cases. In both discriminated him. De- cases, fendants, however, of the same three considerations sur do not explain why this First, overriding policy face. an application imposition federal is relevant to the or In Recent decisions from this and oth liability. these successor of successor er circuits make clear that intent is no cases, liability imposed on the successor is pivotal longer deciding factor when otherwise, acts, of a for the intentional impose liability whether to on an innocent solely policies of predecessor because party discriminatory for another’s acts. substantially promot- at issue are laws Homes, Horn v. Duke 755 F.2d 599 See recognize that specifically ed. The courts (7th Cir.1985); Dundee, City Henson v. party, and it is an innocent of (11th Cir.1982); Bundy 682 F.2d 897 precisely the successor is inno- is Jackson, (D.C.Cir.1981). 641 F.2d 934 impose are reluctant to cent that the courts Horn this circuit addressed the issue placed liability unless the burden liability imposed whether vicarious could be minimis, easily on the successor is de can employer supervisor’s on an for one of its culpable party, and is be diverted to sexual harassment of employee. a female substantially outweighed by policies recognized general The court has re- the statute. As the Ninth Circuit employer’s liability employees’ for its noted, cases, cently successorship it is “[i]n wrongful are acts limited to those commit distinguish the neces- necessary to between employees’ scope employ ted within the sity finding discrimination the first Nonetheless, ment. the court held that an instance, the enforcement of an al- employer strictly sexually for the liable ready obligation against a suc- established discriminatory supervi acts of one of its employer.” cessor Bates v. Mari- Pacific The sors. court noted that in a sense the (9th Assoc., 744 F.2d Cir. time supervisor acting scope within 1984). employment employed his because he precedent supports Supreme Court this supervisory powers almost unlimited Co., Bottling conclusion. In Golden State sexual coerce favors from subordinates. 414 U.S. 94 S.Ct. 38 L.Ed.2d The court also policy noted that the federal eradicating sex liability held that could im- discrimination in the Court workplace is substantially promoted by posed on a successor for a placing liability employer, on the who is in discharge employee of an because of that hire, fire, position the best and control employee’s discharge union activities. This supervisors.” Finally, “sexist the court ob 8(a)(3) NLRA, violated section justification served that the modern 158(a)(3), finding and “a of a viola- U.S.C. imposing society’s vicarious is that normally turns [of section] interests are best served when the entire discriminatory whether conduct was wrong burden of the does not fall on an purpose.” motivated an antiunion injured party who is less able to bear that Trailers, NLRB v. Dane Great U.S. party. burden than the innocent third 26, 33, 1792, 1797, 87 S.Ct. 18 L.Ed.2d 1027 Horn demonstrates that for em suggested Court never ployee imposed discrimination should requirement proof discriminatory in- avoider”; the “most efficient cost as a re might liability. tent absolve successor of sult, liability” “strict dis Thus, view, already in our the Court has crimination the norm than should be rather determined that the fact that a Thus, exception. predecessor prove must that a intended to context, plain whether rights imposi- does not violate his bar prove tiff must inten liability. tion of successor also See Gener- tionally against him discriminated is of lim Penn, Building Ass’n v. al Contractors deciding ited relevance whether a succes 375, 404, 3141, 3157, 102 73 458 U.S. S.Ct. sor should be saddled with the burden of J., (1982) (O’Connor, L.Ed.2d 835 concur- illegal rectifying that conduct. (suggesting that cir- ring) under certain employer may argue held vi- cumstances The defendants the instant case cariously persuasively policies for a union’s violations of more of sec- liable 1981). support application tion 1981 do not of section 748 1981, hand, successor doctrine to for em- actions on the other is Section aimed

ployment brought rectifying at discrimination individual acts of discrimina- They argue that, statute. unlike the racial and ethnic minorities in VII, situations, myriad NLRA and Title in- a clearly section 1981 was of and it lacks individual, remedy to personal tended dis- purpose. Section “make-whole” 1981’s crimination, regulate emphasis eradicating to not the terms and personal direct dis- employment. conditions of making crimination and on of victims such discrimination more than “whole” mir- There is no doubt defendants are correct. that, recover, rored the fact order to specifically The NLRA pro- was to enacted always must prove that the de- peace by labor regulating mote collec- intentionally fendant discriminated activity employees tive employ- of and their him and the remedies available to an response er’s to it. VII Title was enacted injured i.e., plaintiff, punitive damages and regulate to employer/ employee rela- compensatory damages physical tionship regard with to mental humiliation and emotional harm. employment. explicitly It was patterned See, Walker, e.g., F.2d 684 at 1364 & n. 13. particular, after NLRA. In Title VII’s provisions remedial directly were drawn emphasis Section 1981’s eradicat 10(c) NLRA, from section 29 U.S.C. ing discrimination should not appli bar the § 160(c). NLRA, Under Title VII and the cation of successor to these types (the adjudicators NLRB) courts and the of cases. It is settled an employ now given were equitable powers substantial may ee an employer sue under section 1981 present eradicate and future effects of for intentional discrimination in the terms See, e.g., discrimination. United States v. employment and conditions of in much the 169, 210, Carpenters, Local 457 F.2d 216 same manner that he sue for such (7th Cir.1972). VII, Title although discrimination under The similar provisions remedial Title procedural there are certain differences be VII and the Johnson, NLRA both been inter have tween the two statutes. 421 U.S. preted prohibiting punitive 459-61, the award of 95 at S.Ct. 1719-20. Section damages compensatory damages originally promulgated 1981 humiliation, pain, suffering. regulate mental however, workplace; it is now NLRB, See Consolidated routinely Edison Co. v. invoked to circumscribe an em 197, 206, 305 U.S. 59 S.Ct. 83 L.Ed. ployer’s right alter terms and condi (1938); Co., Walker v. Ford Motor 684 tions of on the basis of an 1355, (11th Cir.1982) F.2d employee’s 1363-64 & n. 14 race or origin. national In this therein; manner, and cases cited Harrington it is similar NLRA and Title Education, Vandalia Butler Board 585 VII which employer’s both seek to limit an 192, (6th Cir.1978), F.2d right cert. de unfettered run business in the nied, 441 U.S. 99 S.Ct. protecting interests individual em (1979). L.Ed.2d also ployee arbitrary See Johnson v. from or discriminatory Railway Express, and, treatment, extent, 421 U.S. lesser to clear 1716, 1719, S.Ct. L.Ed.2d workplace “poisoned atmosphere” This limitation is resulting derived from the lan arbitrary from unremedied em guage of purposes ployer strong the statutes and their policy action. federal “restoring the economic quo eradicating status that Title VII of discrimination in would have obtained but workplace making ... and of victims [the wrongful Bottling Golden State discrimination whole for their act].” Co., 414 U.S. at 94 S.Ct. at Thus equally losses is manifested in section 1981 the NLRA and VII purely both Title are that statute when is invoked to remedy designed workplace Thus, make-whole statutes to eradicate discrimination. although arbitrary employ and unfair treatment section originally 1981 was not promulgat workplace, ment. to regulate ed it now serves remedy liability on successor in all section it is purpose that when invoked An employment discrimination. for discrimination. employment claims any employee should not denied injured be 1981’s lack of “make-whole” But section puni- remedy merely whatsoever availability in purpose, manifested compensatory damages should not tive or damages, punitive compensatory and some successor, imposed particularly on a be imposition of successor against cuts nothing congressional in policy nor where The succes- liability in section cases. prohibits a court doctrine remedi- designed grant sor doctrine was limiting im- that can be reinstatement, from remedies i.e., backpay, or al relief — posed make who, on a successor to those that employee solely be- seniority an—to Indeed, for change ownership, unable the victim whole his losses. is cause of predeces- relief nature and is sub- similar from the extent of obtain “[t]he formula, ject is to purpose sor. The the doctrine to no determined must be employee made “whole” ensure that an is upon the facts and of each circumstances gone has out of busi- MacMillan, when the case.” F.2d at 1092. damages gener- are ness. Punitive —which argument The defendants make one final wrong- ally punish imposed to the actual against the use of the successor doctrine acting illegally him doer to deter from and They ar- employment discrimination cases. damages again compensatory —which —or gue that a victim of discrimi- imposed are relief for the collat- granted any should not be favored nation eral, merely job-related, effects of dis- not status over other unsecured creditors of go beyond purpose. far this crimination — True, bankruptcy predecessor. argued Although it can that a successor laws, Congress has manifested its view price negotiate could reduction based imposing losses on the unsecured cred- punitive compensatory on the claimed itors rather than is sometimes debtor damages, ability to seek the successor’s acceptable anticipated an method of compensation undertaking for the of this promoting business. 1 Nor- generally See key to risk is not the the successor doc- Bankruptcy ton Law and Practice Par. Rather, key trine. is to balance the usually 3-5 most 1.02 at But parties interests of two innocent to achieve already creditors com- unsecured have been clearly goal. national That established pensated payments in the form of interest by im- goal national better achieved prices goods they for the risk higher or damages posing punitive compensatory or predecessor might took that the not be able successor, may never on an innocent who repay Employees them. on the other employee, have discriminated ante, compensated, for the hand are not ex unlikely by thus who is to be deterred employer might risk that their discriminate penalties. imposition substantial addition, enacting In them. Parlee, Liability Puni- See Vicarious laws, Congress has al- antidiscrimination Suggested tive in Law Damages: Changes ready determined discrim- Policy Analysis, Marq.L.Rev. Through and that there ination should be eradicated (1984) (discussing under what employment dis- never be a risk of should puni- vicarious circumstances Note, also Creditor crimination. See Tort corpo- damages imposed tive should be System: Priority Secured Credit addition, rations). the threat of an Times, Times, Asbestos Worst punitive compensatory dam- award of (1984) 1054-57, 1076-84 Stan.L.Rev. unduly hamper ages might business trans- (arguing that tort victims are treated un- actions, particularly because the amount system ought credit fairly secured damages easily computed is not be- such from to secured elevated unsecured fore trial. creditors). Nonetheless, persuaded we are not re- reason that district court these One availability remedies doctrine to prohibi- lead fused to extend 1981 should to a flat section 750

employment arising injured employee discrimination claims the interests of the policy against section the national 1981 was that section 1981 is discrimination. limited to claims for dis- Although provide these factors a useful crimination. do not But we believe that it starting point analyze to a successor’s lia- impracticable impossible is either or to lim- bility under section the substantial application it it—if should be limited—the existing wrongs dissimilarities between of that doctrine to section 1981 claims for and remedies for violations of the NLRA employment discrimination. Hence we be- require and section a dif- 1981 somewhat lieve the successor doctrine can be analytical ferent framework. applied employ- section 1981 actions for two identified in first factors ment discrimination. imposition MacMillan are critical to the liability. The successor doctrine equitable principles, is derived from and it Ill unfair, grossly be in the except would most though Even the successor doctrine can exceptional circumstances, impose to suc claims, applied to such that does not liability purchaser cessor on an innocent necessarily applied mean that it should be predecessor capable fully when question to the instant case. The is not providing or relief when the successor did liability whether successor can im- ever be opportunity protect not have the itself posed an by an acquisi indemnification clause in the brought claim under section agreement or a purchase price. lower Co., when. See Howard Johnson U.S. See, 710-11; e.g., Bates, 744 F.2d at Brown 9,n. at 262 at 2243 n. S.Ct. 9. Each case Assoc., Evening F.Supp. News must be on its determined own facts. See (E.D.Mich.1979); Barksdale, Succes MacMillan, 503 F.2d 1091. Liability sor the National Under Labor MacMillan, the Sixth Circuit set forth VII, Relations Act and Title 54 Tex.L.Rev. determining the factors be considered in whether successor should be im- view, In our it is also relevant whether (1) posed particular case: whether the predecessor could provided any have or company had notice of relief plaintiff prior all the trans- charge pending prior acquir- or lawsuit underlying fer of assets. One rea- ing predeces- the business or assets of the sons for the successor doctrine is that an sor; (2) the ability of the employee’s statutory rights should not be relief; (3) there has been a whether mere vitiated fact of sudden continuity opera- substantial of business change employer’s business. That (4) tions; whether the employer new uses employee should able to enforce plant; (5) the same whether he uses the judgment a successor a claim or that he substantially force; same the same work successfully could have enforced (6) whether he uses the same or substan- predecessor. extraordinary Unless circum-

tially (7) supervisory personnel; same exist, injured employee stances should jobs whether the same exist under substan- change not be made off worse conditions; tially working (8) the same injured business. But neither should an machinery, whether he uses the same employee be made better off. It can be equipment, production; and methods of argued that national policy labor (9) product. produces whether he the same eradicating employment discrimination is F.2d at These are the same overriding so that a successor should be applied factors that have if predecessor, been to determine liable held even had it business, a successor’s for a pro- remained could not have employee the injured any violation NLRA. No one factor is vided relief. But controlling. Services, Security A court must look all of Burns International by balancing public them and decision makes make its Inc. clear has a sub- apply equal does not with capi- transfer of This rationale in the free stantial interest discrimination con- force unprofitable reorganization of tal and the purpose requiring “The of a succes- text. Imposing on a succes- businesses. remedy predecessor’s discrimina- sor to provid- could have predecessor sor when a employees the free to tion is not to leave likely severely is ed no relief whatsoever discretionary rights protect exercise but of reorganization or transfer inhibit the nondiscrimination, statutory purpose the failing company A assets of a business. employees which inheres to all as a matter bankruptcy may find itself verge the Barksdale, right.” Tex.L. supra, 54 for em- deluged meretricious claims with Thus, “continu- Rev. at 732. the amount of employees see ployment discrimination ity” required predecessor between the deep-pocket provide prospect the of a vary depending upon the will the successor company might also failing The relief. employees adversely affected number desperate- dissipate have to substantial remedy action and the to defend these ly needed assets requested by injured employee(s). In addition, company will In lawsuits. case, example, the instant less continui- difficulty selling its assets or business have ty required plaintiff is not is because price successors for a decedent because reinstatement, seeking retroactive seniori- unwilling to assume a in- will business be ty, placement preferential hiring on a time-consuming and in volved substantial continuity required list. Greater would be expensive litigation when the assets them- plaintiff seeking if the were more than Thus, the lack substantial value. selves monetary perhaps relief. And no amount predecessor’s ability some relief continuity impose would suffice to liabili- to the transfer is one factor to be prior ty predecessor on a successor when a has determining if successor lia- considered discriminated an entire class of in- imposed. bility should be remedy dividuals and the is some sort of injunctive action decree or re- in affirmative The other seven factors identified See, Airlines, lief. In e.g., re National provide a merely MacMillan foundation 695, (11th Cir.1983); Inc., F.2d 699 larger question of analyzing the whether Barksdale, supra, 54 Tex.L.Rev. at 732-33. continuity operations and the there is a Co., 414 Bottling But see Golden State predeces work force of the successor (Fed.R.Civ.P. 180, at 94 S.Ct. at 423 U.S. employers. This factor was first devel sor 65(d) imposing injunctive relief no bar to compel a oped in actions to successor successor); Bates, F.2d nonparty at recognize bargain with incumbent cases, however, 710-11. In all of these Security union. See Burns International enough continuity between the Services, Inc., 406 U.S. S.Ct. must exist so that it can and successor 61; Sons, Inc., Wiley 32 L.Ed.2d John & fairly inferred that the successor and 376 U.S. 84 S.Ct. L.Ed.2d 898. predecessor reasonably expected that particular It relevant stat because Howard successor would be bound. See employees’ utory right at issue was the Co., 257, 94 S.Ct. 417 U.S. at Johnson right represent the same union to have 2240. Bottling In them. Golden State Co. continuity requirement was also relevant to case, plaintiff’s In the instant em issue of whether the successor’s part perfunc allegations are for the most might unduly coerced in the ployees tory the nine factors set forth recitation of rights under the exercise of their section by the court. Plaintiff does MacMillan unfair NLRA of the unremedied that ESSI had no allege particularity with practices. pending 414 U.S. at 94 S.Ct. at lawsuit it at labor tice of the one month respect, type tempted of unfair to settle the lawsuit this of assets. We are not predeces prior of the to the sale practice, the number labor however, by plaintiff’s other ar type remedy persuaded, employees sor’s and the had notice of gument that the successors sought all be relevant. would they to the prior alleged lawsuit sale because none these facts are the com- plaintiffs were as defendants on plaint, listed nor is the “Notice to Creditors” even Restraining “Verified Petition Or- attached Second Amended Com- expediency listing der.” The mere a plaint. sufficiency complaint of a pleading defendant as a on a only well-pleaded based on the facts con- proposed filed day of a sale does not complaint, tained not those extrane- join Moreover, party. as a ous to it that plain- are later raised even if is correct that ESSI and sufficiency tiff to bolster the of the com- joined day, Kumar were that defendants Second, plaint. inadequacy of considera- we do not that filing believe a lawsuit on may imply tion some kind of sham transac- day place gives the is a sale to take the tion, alleged here, which has not been it but requisite successor plain- the notice of the necessarily imply not original does that the tiffs The claims. basis of the notice re- longer any defendants no have assets with quirement is the has that successor some satisfy to plaintiffs which claim. Plaintiff time negotiate change purchase to a admits that paid new consideration was to agreement potential liability to reflect the original defendants, the and there are no lawsuit; of a pleading a the filed at Elev- allegations that be this will insufficient or naming enth Hour the successor as a de- Thus, pay to plaintiffs unavailable claim. gives fendant clearly a little if no plaintiff does nothing more than state time to reconsider a sale that all intents conclusion with support no facts to it. purposes has completed. been This allege Plaintiff also does not that the mean, course, does not plaintiff that the original defendants would have been able has the providing burden of to notice the to him grant relief had Electronic not Normally, successor. the burden would be Indeed, transferred its assets ESSI. the on the find out from the facts this case belie this conclusion. The outstanding potential all purchaser gave and seller a statutory no- actual But a liabilities. successor who has normally only tice to creditors that is re- diligence exercised due and failed to uncov- quired when the is already transferor or er plaintiffs evidence of the lawsuit will may be insolvent. Ill.Rev.Stat. See ch. not be plead- found to have notice when §6, 6-106, Art. Illinois Code Comment ing listing it as a filed defendant is the (1963). This gave warning notice advance very day place. the transaction is to take they of the sale to all creditors so that plaintiff also conclusorily alleges enjoined have sought could the sale or that because Electronic has transferred all the satisfy attach assets to transferred its parties, original assets to other the de- their claims. Plaintiff voluntarily with- fendants will unable to him any be sale, enjoin drew motion to suggest- allege, however, relief. He not does that ing he might believed that he be better original defendants are not still busi- off place if sale took or that he could ness or do not have funds which with conveyance for inadequate not show con- pay plaintiff argues him. The that we can sideration. infer from the “Notice to Creditors” that Finally, plaintiff not allege any does with sale of assets was for inadequate con- particularity regarding facts sideration “continui- because the amount of new con- ty enterprise” although of the $855,000 this sideration was failure less than total serious, entirely unobjection- is less amount of not secured and unsecured debts. able, given only claiming We can further infer he is from the fact that the mone- inadequate tary predecessor’s sale was for relief consideration that discrimina- original defendants have no funds to supra him. at 751. We See compensate accept plain- many predecessor’s him. Even if are told how we argument successor, tiffs employees sale for inade- were hired consideration, quate plaintiffs rest of which supervisory per- argument First, fails for two successor, reasons. sonnel were hired jobs performing in fact they liability. what doctrine of successor liability, any, only Kumar’s if there can for the successor. liability. derivative of ESSI’s successor then, plaintiffs respects, most recognized The district implicitly this allegations grossly are deficient. None fact when she dismissed the federal claims theless, general policy in light of the favor against Kumar because Kumar “... is not ing pleadings liberal construction alleged participant to have been an active against deciding solely the merits of claims alleged against plain- pleadings, Wright on the basis of the 5 C. tiff.” District Court Memorandum and Or- Miller, & A. Federal Practice Procedure & der at 5. (1969), 1357 at 599 and the fact that this appears argue Plaintiff presents question impres case of first Kumar liability” does have this “derivative sion, we believe that the should be officer, shareholder, because Kumar is an opportunity afforded an on remand to incorporator reject of ESSI. We this complaint adequately amend the state a argument. agree We with the Fourth Cir allega liability. claim for successor His personal liability cuit that im cannot be complaint in tions the second amended suf posed corporate on a official corpo for the ficiently put defendant ESSI on notice of ration’s violation of section 1981 when that it, against the claims and the defendant has alleged official is not participated have argued seriously that Musikiwamba against actual discrimination plead adequately has failed to sufficient plaintiff. See Tillman v. Wheaton-Haven facts withstand motion to dismiss. Ass’n, Inc., 1141, 1144 Recreation 517 F.2d Further, discovery may remand reveal (4th Cir.1975). See also Leslie v. Philadel enough facts to Musikiwamba to favorable phia Corporation, 1976 Bicentennial 332 prosecute permit him to continue to (E.D.Pa.1971); F.Supp. Note, Per against claims the successor. We there Liability Corporate sonal Un of can Officials fore hold that Musikiwamba assert VII, Title 3 J. der Suffolk Acad.L. 53-66 against defendant for Electron claim ESSI (1983). corporation General law is clear alleged of 1981 and ic’s violation section personal liability corporation’s that permitted he that should be on remand imposed person cannot debts on a mere complaint. amend his officer, ly shareholder, because he is an incorporator corporation. of that IV Knepper, Liability Corporate of Officers agree We with defendants that the (1978); Fletcher, and Directors 168-69 against proper federal claims Kumar were Cyclopedia Corpo Private Law ly allega dismissed. Musikiwamba’s sole (Rev. 1975) (Supp.1984). ed. rations (1) against tions Kumar are that Kumar is the This law of Illinois as well. Nation ESSI, (2) incorporated Kumar is the chief Pintura, Acceptance al 94 Ill. Co. major executive officer and a shareholder App.3d 50 Ill.Dec. 418 N.E.2d ESSI, (3) pend and Kumar knew the liability Personal is im prior ing lawsuit to the transfer of assets. when, posed only alleged the officer is argues Musikiwamba that these facts make part illegal initially have taken act successor, Kumar “successor.” The how giving corporation’s liability. rise to the ever, party actually purchases is the that Tillman, 1144; Fletcher, at 517 F.2d predecessor and continues the assets of §§ 1135, supra, case, predecessor’s In this business. view, corpo admits that it In our this limited Musikiwamba ration, ESSI, Kumar, individually, corporate wrongdoing and not officials for the corporation apply should also purchased who the assets of Electronic and their own Electronic; corporation. allegedly operate continued to officers of a successor To ESSI, Kumar, hence, pierce corporate the successor’s veil in cir only and not would any obligations of Electronic cumstances which the cor- succeed to porate them has pierced against veil not be would because Musikiwamba would manifestly create a of cor- to state a claim under Illinois law. unjust extension failed porate argu- is not warranted the The defendants also advanced this law that court, equitable liability. of successor ment before the district doctrine effect, doctrine, penalizes Having did not the issue. judge successor resolve party by against dismissed the claims Ku- party innocent because that federal ESSI, virtue of most effi- mar and she law its own actions is the dismissed state Appeals cient To reach claims because Court of cost-avoider. behind “[t]he penalize yet direct successor to another this Circuit not have closed the door finally party probably concept pendent party third does not on the innocent who perceives jurisdiction, have the financial resources of direct but the court no rea- equitable why pendent jurisdiction simply party stretches the son would especially appropriate too far. foundations of this case.” Thus, Opinion we hold an officer of a successor District Court Memorandum predeces- personal liability incurs no for a at 5. we Order Given that have reinstated ESSI, sor’s employment against discrimination unless the federal claims and that personally properly officer discriminated judge therefore district could plaintiff, jurisdiction somehow aided the exercised over the have state claims, predecessor to discriminate law we believe that the proper plaintiff, or colluded with the officers of route for us to is to follow remand this a “sham transaction” case to the district a determina- designed to defraud creditors. the in- of the state respect law issue with case, stant allegations there are no defendant ESSI. personally Kumar ever discriminated believe, however, We that the dis against Musikiwamba or that this was a judge properly trict exercised her discre sham transaction. dismissing the state law claims argument, Plaintiff one final makes how- against Although Kumar. this has court ever, support of his federal claims pendent the party sustained exercise against He Kumar. asserts that because jurisdiction, Marketplace see Moore v. The ESSI, personally incorporated per- Kumar Restaurant, Inc., 1336, 1337, F.2d sonally negotiated for the of as- transfer (7th Cir.1985) (separate opinion by sets, personally continued to act as an Posner, J.) therein, and cases cited the ex officer of the after the transfer of business jurisdiction ercise such is within the assets, participated he in the acts which discretion sound of the district court. See gave potential rise to ESSI’s successor lia- United Mine Workers v. America bility and hence he can too. But be liable Gibbs, 715, 726, 383 U.S. 86 S.Ct. all legal merely of Kumar’s acts were 16 L.Ed.2d 218 We do not part job corporate of his as a officer. pendent that the dismissing party believe part They discriminatory were of the against claims Kumar was an abuse against plaintiff they per- acts nor did claims are discretion where those essential petuate illegal As a discrimination. ly attempt slip to a section 1981 claim result, they give any person- cannot rise to door, through policies the back where the part liability al on of Kumar for the do not of the successor doctrine extend to predecessor’s alleged discrimination. imposing liability on an officer of the suc

Thus, we hold that the federal claims predecessor’s for a section cessor 1981 vio against properly Kumar were dismissed. lation, Howard, Aldinger see 427 U.S. (1976); 49 L.Ed.2d 276 96 S.Ct.

V Moore, 754 F.2d at and where Ku argue if state liability The defendants that even we mar’s law for the against ques sustain the federal claims them state violations is law there dismiss the state law claims at best because have been no we should tionable allegations charged that Kumar did the personally engaged cessor acts as discriminato- promoted any illegal in or of the acts ry- against Musikiwamba. See discussion su- supplement I understand the Court to

pra at 753-754. holding by attaching this at least the fol- sum, lowing liability we hold that the successor doc- conditions to successor applied employ- impose plaintiff trine can be to claims for burden brought pursuant pleading proving ment discrimination them: remand, plaintiff section 1981. On should (a) predecessor must be liable to the given opportunity to amend his com- plaintiff discrimination un- plaint properly state a claim under that requirement der 1981. The of an inten- However, allegations doctrine. absent relaxed, tional act of discrimination is not participated the officer of the successor though even the successor need not have against plaintiff the discrimination committed such an act. colluding in the officer is a sham (b) The successor must have had actual transaction, that officer has no or constructive notice of the claim or plaintiff predecessor’s alleged for the charge Hence the feder- violation of section 1981. against predecessor sufficiently in ad- properly claims Kumar dis- al were closing vance of the transaction to pendent missed as were the state law negotiate compen- enable the successor to claims. The dismissal of the state law exposure sation for its claims ESSI for failure to state a plaintiff impose. seeks to claim under Illinois law be considered (c) appear complaint It must from the district remand. provide is unable to apply. Rule shall not Each Circuit with the relief he seeks from party costs. is to bear its own the successor. (d) succession, predeces- But for the ESCHBACH, Judge, concurring. Circuit sor would have been able groundbreaking today In this case we plaintiff with the relief he seeks from the appeals recog- the first court of become successor. nize that the doctrine of successor (e) continuity There must be sufficient apply proper in a case in can which the business of the between seeks relief under 42 U.S.C. sup- and the of the successor to business § 1981 for discrimination. port type sought. of relief agree While I with the result and with reasoning, sep- purport much of the I Court’s write While this list does not to be an arately emphasize my understanding exhaustive statement of the elements of a § holding, of our the condi- claim for successor 1981 in narrowness cases, imposition I agree tions we attach to the of succes- § 1981, liability under and the limita- sor with the Court these five conditions may properly imposed necessary ingredi- tions on the relief that are obtained. of such a claim. ents it, principal holding I our As understand indeed, amounting only Finally, I is narrow understand Court hold following: certain it is that the relief from the succes- Under conditions obtainable (or employee confined to the reme- possible for an former em- sor is “make-whole” Title to state a claim for which relief dies available under VII the Civil ployee) § 2000e; may granted Rights under 42 U.S.C. 1981 for Act of U.S.C. a com- not be assessed additional employment discrimination compensatory punitive damages. I to the business of his pany that succeeds (former) agree proper that this is restriction of the employer, employee when the al- remedies, gives. for the reasons the Court leges predecessor and not the suc- notes inven- the same work same (3) supplies, supervisory personnel; and ESSI contin- tory, materials and customer list orders, jobs substantially pricing formulas and customer and ued the same working process.” estimated total of same conditions. He further al- work place good leged knowledge peace and labor Kumar and ESSI had work pending against of his lawsuit Electronic relations and that the successor doctrine prior July 1983. He transfer objective. developed to further was 28, 1983, alleged that on June Kumar met hand, Section other not attorney and with Musikiwamba adopted remedy prob- relations labor Finally, offered to case. he al- settle the lems, regulate designed and it was never leged that the as- balance Electronic’s employment. terms and conditions of been parties sets had transferred to other The district also reasoned that sec- Heeren, Electronic, than leaving ESSI limited for em- is not to claims ability Crews without an relief. discrimination; ployment extending the against Plaintiff’s claims ESSI and Kumar to a successor doctrine section claim against are identical to those made might lead defendants, original original and those de- unnecessarily of that extension doc- party fendants are retained as defendants. types trine to other section claims. August 26, 1983, On ESSI and Kumar Creating exception employ- a limited filed a motion to all dismiss claims brought pursu- ment discrimination claims ground purchas- on the them as mere arbitrary ant to section 1981 would be they ers of assets of Electronic were unmanageable. perhaps Accordingly, she liable the debts Electronic. The dismissed federal pendent state granted court district motion law claims ESSI and Kumar. She inappropriate apply its “... it view specifically rejected plaintiff’s argument

Case Details

Case Name: Maswamba Musikiwamba v. Essi, Inc. And Shalabh Kumar

Court Name: Court of Appeals for the Seventh Circuit

Date Published: May 13, 1985

Citation: 760 F.2d 740

Docket Number: 83-3268

Court Abbreviation: 7th Cir.