As we noted in a post earlier this year, the Missouri courts seem to produce more than their fair share of opinions on punitive damages issues. About a year ago we wrote a post addressing the errors in the Missouri Supreme Court’s excessiveness analysis in Lewellen v. Franklin and a second post about the court’s holding in the same case that Missouri’s cap on punitive damages violates the state constitution as applied to common-law causes of action.

Set of auto partsToday’s topic is the Missouri Court of Appeals’ decision in Diaz v. AutoZoners, LLC.  Though adding to the bad case law on excessiveness, the decision makes some helpful law on the test for determining whether a parent company is an employer for purposes of employment-discrimination cases.

The plaintiff in Diaz sued her employer AutoZoners, LLC and its parent AutoZone, Inc. under the Missouri Human Rights Act, alleging that they failed to respond adequately to pervasive sexual harassment committed by a commercial customer and retaliated against her when she complained.

The jury found both defendants liable on the plaintiff’s hostile-environment claim and awarded $75,000 in compensatory damages against the defendants jointly and severally, as well as $1 million in punitive damages against AutoZoners and $1.5 million in punitive damages against AutoZone, Inc. The jury found against the plaintiff on the retaliation claim.  All parties appealed.

The Court of Appeals began its opinion on a promising note, holding that AutoZone, Inc. was not the plaintiff’s “employer” for purposes of the MHRA. The court held that an entity that is not the employer-in-fact can be deemed an employer under the MHRA only if it “directly overs[aw] or [was] actively involved in the discriminatory conduct.”

The court explained that the factors relevant to making this determination are “(1) who was responsible for establishing policies and training employees concerning harassment; (2) who was responsible for receiving, investigating, and responding to harassment complaints; and (3) who had the power to discipline employees who may have failed to comply with anti-harassment policies.”

The court deemed it irrelevant that AutoZone, Inc. was the source of the Store Handbook and Code of Conduct that apply to all employees of AutoZone subsidiaries throughout the country, that AutoZone, Inc. provided the documents used for HR and loss prevention investigations, and that AutoZone, Inc. responded to the plaintiff’s charge of discrimination after the harassment had been remedied. As the court saw it, though this evidence “may support a determination that AutoZone, Inc., was responsible for establishing policies, it does not demonstrate that AutoZone, Inc., was responsible for training employees; receiving, investigating, and responding to complaints; or disciplining noncompliant employees.”

The court also rejected the plaintiff’s invocation of the well-established factors that courts use in determining whether two distinct entities should be deemed a “single employer,” explaining that “[w]e have found no Missouri case recognizing or applying the ‘single employer’ doctrine. In fact, it appears that Missouri recognizes only ‘two doctrines by which to hold a parent corporation liable for the acts of a subsidiary: piercing the corporate veil and agency.’”   This is a very significant holding because the single-employer factors are malleable and often result in allowing liability against a corporate parent that had no real involvement in the subsidiary’s alleged misconduct.

More broadly, the Missouri Court of Appeals’ strict view of the circumstances in which a company other than the employer-in-fact may be held liable for employment discrimination is a helpful countermeasure to the growing trend of plaintiffs suing multiple members of the same corporate family in an effort to obtain multiple punitive awards for the same conduct.

Less helpful, though, is the court’s holding that the $1 million punitive award against AutoZoners was not unconstitutionally excessive.

The court began by refusing to consider the third BMW guidepost—legislatively established penalties for comparable conduct—calling this factor “inconsequential.”  Unburdened of that potential limit on punitive damages, the court proceeded to address the remaining two guideposts—the degree of reprehensibility of the conduct and the ratio of punitive to compensatory damages.

Without making any effort to place AutoZoner’s conduct on a spectrum of reprehensibility, the court opined that “there was a sufficient degree of reprehensibility on the part of AutoZoners, LLC, to justify a sizeable award.” The court reached this decision notwithstanding that there admittedly was no physical harm or deceit and that AutoZoner’s conduct involved the passive failure to do more to shield the plaintiff from the sexual harassment perpetrated by the customer rather than any kind of active misconduct by any employee of the company targeting the plaintiff.

The court’s conclusion that AutoZoner’s conduct could support a $1 million punitive award rested almost entirely on the repugnance of the customer’s conduct and evidence from which the court thought the jury reasonably could conclude that AutoZoner’s managerial employees had an economic motivation to violate the company’s zero-tolerance rule by not protecting the plaintiff from the customer whose account they allegedly were trying to maintain. In effect, the court’s holding conflates a finding of conduct sufficiently reprehensible to support imposing punitive damages in the first placel with highly reprehensible conduct justifying a large amount of punitive damages.

The Court of Appeals’ treatment of the ratio guidepost is even more disconcerting. Although essentially conceding that the compensatory damages were not sufficiently small to justify a double-digit ratio under U.S. Supreme Court precedent, the court reasoned that the ratio guidepost did not require reducing the exaction because the Supreme Court has characterized the reprehensibility guidepost as “the most important.”

In other words, after first eliminating the third guidepost and then watering down the reprehensibility guidepost, the court provided the coup de grace by entirely subordinating the ratio guidepost to the reprehensibility guidepost. In effect, the court’s treatment of the three BMW guideposts returns Missouri to the days before there was any constitutional limitation on punitive damages and state courts rubberstamped all but the most grotesque of punitive exactions.