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RICHARD v. BELL ATL. CORP.

November 25, 1996

IRIS RICHARD, JONATHAN BARNES, KAREEM ABDUL-ALI, ROSALYN BAYLOR, JOSEPH BISHOP, JR., EDWARD BROOKS, ALVERA BULLOCK, ERIC BURDEN, WILBERT BURGESS, MICHAEL CAMP, JAMES CARRINGTON, REGINALD CLARK, DIANN R. COOPER, DESTA DAGGETT, RAYMOND FLOWERS, CLEMANTIS FORTSON, MICHAEL GILLIS, FAYE GREEN KELVIN GUNN, SYED HASSAN, BRIAN HOLLOWAY, MARC HOUSTON, PATRICK HUNT, ELVIN JACKSON, CHRISTOPHER JOSEPH, KEVIN LOGAN, VIENT ARIES MCKOY, VENIDA MEDLOCK, MARY ELLEN MONK, CLARK PHILOGENE, EVERSE PULLEN, GREGORY ROSSER, TANGY SHIELDS, LEIGHTON SHROUDER, WILLIAM STELLMACHER, THOMAS TOLSON, LISA VAUGHN, MICHAEL ALAN WALKER, DENISE WALTON, WILLIAM WASHINGTON, BRENT WHITAKER, MYRA WILLIAMS, RAY WILLIAMS, STANLEY WILLIAMS, GWENDOLYN WOODARD, ERIK WRIGHT, and TERENCE WYNN, Plaintiffs,
v.
BELL ATLANTIC CORPORATION, RAYMOND W. SMITH, BRUCE S. GORDON, STUART C. JOHNSON, EDWARD SPROAT, DANNY R. KISER, ANTHONY T. MURRAY, JR., and ROBERTA LYNCH, Defendants.



The opinion of the court was delivered by: RICHEY

 UNITED STATES DISTRICT JUDGE

 I.

 INTRODUCTION

 Before the Court in the above-captioned race-discrimination case is the defendants' motion to dismiss, the plaintiffs' opposition thereto, and the defendants' reply thereto. Based on the pleadings, the entire record herein, the law applicable thereto, and for the reasons expressed herein, the Court shall GRANT, with prejudice, the defendants' motion to dismiss the plaintiffs' claims under Title VII and for intentional infliction of emotional distress against defendants Raymond W. Smith, Bruce S. Gordon, Stuart C. Johnson, Edward Sproat, Danny R. Kiser, Anthony T. Murray, Jr., and Roberta Lynch ("the individual defendants"), shall GRANT, without prejudice, the defendants' motion to dismiss the plaintiffs' claims against the individual defendants under 42 U.S.C. § 1981, shall GRANT, without prejudice, the defendants' motion to dismiss the individual defendants for lack of personal jurisdiction, shall GRANT, with prejudice, the defendants' motion to dismiss the plaintiffs' claims for intentional infliction of emotional distress against defendant Bell Atlantic Corporation ("BAC"), shall DENY, without prejudice, the defendants' motion to dismiss the plaintiffs' claims under Title VII and 42 U.S.C. § 1981 against BAC, and shall DENY, without prejudice, the defendants' motion to dismiss BAC for lack of personal jurisdiction. Further, the plaintiffs shall have sixty days to conduct discovery limited to the following three issues: (1) BAC's status as an "employer" under Title VII and 42 U.S.C. § 1981; (2) whether BAC is subject to personal jurisdiction in this Court; and (3) whether the individual defendants are subject to personal jurisdiction in this Court.

 If, by the end of the sixty-day period, the plaintiffs have not dismissed their entire complaint, with prejudice, they shall file an amended complaint to correct the deficiencies in their complaint. If the plaintiffs timely file an amended complaint, the defendants shall have an additional fifteen (15) days within which either to answer the amended complaint or to renew their motion to dismiss on the issues decided by the Court without prejudice. Except where the defendants' motion is based solely on the sufficiency of the allegations in the plaintiffs' amended complaint, said motion shall be in the form of a motion for summary judgment pursuant to Fed. R. Civ. P. 56 and shall be based upon a complete, clear and undisputed factual record. Both parties shall comply fully with the requirements of Local Rule 108(h).

 II.

 BACKGROUND

 Forty-eight purported current and former employees of BAC have brought a class action complaint against BAC, alleging race discrimination in the terms and conditions of their employment and retaliation. Counts I and III of the complaint allege employment discrimination on account of race and retaliation under Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000e to 2000e-17 (1994), as amended. Count II alleges employment discrimination under 42 U.S.C. § 1981 (1994). Count IV alleges a common law claim of intentional infliction of emotional distress.

 The Court held a status conference pursuant to Rule 16 of the Federal Rules of Civil Procedure on September 27, 1996. Counsel for the defendants stated that he would be filing a dispositive motion under Rule 12 of the Federal Rules of Civil Procedure, and requested a stay of pre-class certification discovery until the Court's resolution of said motion. The Court granted the defendant's request for a stay, pending resolution of the anticipated Rule 12 Motion. See Order of September 30, 1996.

 On October 11, 1996, the defendants filed a motion to dismiss "pursuant to Federal Rule of Civil Procedure 12(b)," arguing that the plaintiffs' complaint fails to allege that the plaintiffs are or were employees of BAC. Instead, the defendants argue, the plaintiffs are actually employees or former employees of several of BAC's wholly-owned subsidiaries, not BAC, and, therefore, BAC must be dismissed from this lawsuit. The defendants also moved to dismiss BAC and the individual defendants under Fed. R. Civ. P. 12(b)(2) for lack of personal jurisdiction, moved to dismiss the individual defendants on the separate grounds that they cannot be held personally liable for employment discrimination under Title VII and that the complaint's allegations are insufficient to state a claim against the individual defendants under 42 U.S.C. § 1981, and moved to dismiss the plaintiffs' claims for intentional infliction of emotional distress on the grounds that they are "subsumed" by their Title VII claims and, in any event, fail to state a claim upon which relief can be granted.

 III.

 DISCUSSION

 A. The Plaintiffs Have Not Created A Genuine Issue Of Material Fact That BAC Is Their "Employer" Under Title VII and 42 U.S.C. § 1981, But Will Be Permitted To Undertake Limited Discovery On This Issue.

 1. By The Close Of A Sixty-Day, Limited Discovery Period, The Plaintiffs Shall Either Dismiss Their Complaint Or Amend It To Allege The Subsidiaries For Whom The Plaintiffs Are Or Were Employed And To Allege Specifically BAC's Role, If Any, In The Alleged Employment Discrimination.

 Further, apparently relying on the "operates through" language, the plaintiffs argue that BAC is liable for the alleged discrimination by its subsidiaries under any one of a number of theories of parent corporation liability recognized by the Courts of Appeals. See, e.g., Frank v. U.S. West, Inc., 3 F.3d 1357, 1362 (10th Cir. 1993) (noting that there are at least four possible theories under which a parent company may be held liable for the discriminatory acts of its subsidiaries -- the integrated enterprise theory, the agency theory, the alter ego theory and the instrumentality theory). However, the complaint contains no allegations detailing the purported integrated relationship between BAC and its subsidiaries sufficient to inform the Court which, if any, of these theories the plaintiffs have invoked. A vague and conclusory allegation that BAC "operates through" its subsidiaries does not suffice. See Alie v. NYNEX Corp., 158 F.R.D. 239, 246-47 (E.D.N.Y. 1994) (holding that "plaintiff's vague, conclusory allegation of corporate identity of interest is wholly insufficient to withstand" the parent's motion to dismiss). Accordingly, the plaintiffs shall be ordered to supplement their allegations by the close of the limited discovery period to allege specifically how BAC is liable for discrimination allegedly carried out by or through its subsidiaries.

 2. The Defendants' Motion To Dismiss Shall Be Treated As A Motion For Summary Judgment On The Issue Of Whether Actually BAC Employs Or Employed The Plaintiffs.

 The defendants have not simply argued that the complaint is deficient on its face. They also have argued that, as a matter of undisputed material fact, the plaintiffs cannot show that BAC can be held liable for discrimination by its subsidiaries. This argument goes not to the quality of the plaintiffs' pleading, but to the factual basis which underpins the complaint. Accordingly, while the defendants have styled their motion as one under Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted, it is also a de facto motion for summary judgment pursuant to Fed. R. Civ. P. 56, because the Court is required to look beyond the allegations in the complaint. See Fed. R. Civ. P. 12(b)(6); see also Sargent v. McGrath, 685 F. Supp. 1087 (E.D. Wis. 1988) (where a parent corporation moved to dismiss the Title VII claim brought by an employee of one of its subsidiaries, but referred to matters outside of the pleadings including affidavits, deposition transcripts and corporate annual reports, the parent's motion would be treated as one for partial summary judgment and disposed of pursuant to Fed. R. Civ. P. 56); accord Wood v. Southern Bell Tel. and Tel. Co., 725 F. Supp. 1244, 1247 (N.D. Ga. 1989). *fn1" Thus, the question before the Court on the defendants' motion is whether there is a genuine issue of material fact that BAC may be held liable as an "employer" of the named plaintiffs in this employment discrimination class action under Title VII and 42 U.S.C. § 1981. *fn2"

 3. Consistent With Every Court Of Appeals That Has Addressed The Issue, The Court Shall Apply The "Integrated Enterprise" Test To Determine If There Is A Genuine Issue That BAC Employs Or Employed The Plaintiffs.

 Title VII defines the term "employer" to mean "a person engaged in an industry affecting commerce who has fifteen or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year, and any agent of such a person . . ." 42 U.S.C. § 2000e(b) (1994). The defendants appear to argue that the plaintiffs can have only one employer for purposes of their discrimination claims, that is, if the plaintiffs are or were all employees of BAC subsidiaries, they cannot be and could not have been employees of BAC at the same time. Such an assertion is wrong as a matter of law. *fn3" Rather, in the parent-subsidiary context, the question of whether a parent is an "employer" turns "upon whether [the parent] is liable for the acts of its subsidiary . . ." Frank v. U.S. West, Inc., 3 F.3d 1357, 1361 (10th Cir. 1993) (emphasis added); see also E.E.O.C. v. St. Francis Xavier Parochial School, 928 F. Supp. 29, 33 (D.D.C. 1996) (Harris, J.) (Superficially distinct entities that represent a single, integrated enterprise may be exposed to liability as a single employer.").

 While the defendants are quick to point out that "the doctrine of limited liability creates a strong presumption that a parent company is not the employer of its subsidiary's employees," *fn4" they failed to inform the Court (until raised by the plaintiffs), that "the courts have applied four different tests to determine whether a parent corporation is liable for the acts of its subsidiary." Frank, 3 F.3d at 1362. These tests are: (1) the "agency" test under which the plaintiffs must establish that the parent exercised a significant degree of control over the subsidiary's decisionmaking; (2) the "alter ego" test which is founded in equity and permits the court to pierce the corporate veil when the court must prevent fraud, illegality or injustice, or when recognition of the corporate entity would defeat public policy or shield someone from liability from a crime; (3) the "instrumentality" test under which the plaintiff must establish that the parent exercises extensive control over the acts of the subsidiary giving rise to the claim of wrongdoing; and (4) the "integrated enterprise" test under which the court considers (a) interrelation of operations, (b) centralized control of labor relations, (c) common management, and (d) common ownership or financial control. Id. at 1362 n.2 (citations omitted).

 Regardless of which test the Court applies herein, its analysis does not terminate upon reaching the undisputed conclusion that BAC and its subsidiaries are formally distinct corporate entities, as the defendants appear to suggest. To the contrary, it is only the beginning of the analysis, whereupon the Court must determine the degree of control, if any, Bell Atlantic Corporation exercises over its subsidiaries' employment practices.

 To the Court's knowledge, this Circuit has yet to address the proper test to apply when determining whether a parent company should be held liable for the alleged discriminatory acts of its subsidiaries. However, the clear majority of circuits to have addressed the issue have applied the four-factor "integrated enterprise" test noted above. See Cook v. Arrowsmith Shelburne, Inc., 69 F.3d 1235, 1241 (2nd Cir. 1995); Garcia v. Elf Atochem North America, 28 F.3d 446, 450 (5th Cir. 1994); Frank v. U.S. West, Inc., 3 F.3d 1357, 1362 (10th Cir. 1993); Johnson v. Flowers Indus., Inc., 814 F.2d 978, 980 (4th Cir. 1987); Baker v. Stuart Broadcasting, 560 F.2d 389, 392 (8th Cir. 1977); accord St. Francis Xavier Parochial School, 928 F. Supp. at 33. Thus, the Court herein shall apply the integrated enterprise test to the evidence presented to determine if there is a genuine issue.

 In applying the integrated enterprise test, courts have noted the following to be probative evidence that the parent employs the subsidiary's employees for purposes of Title VII liability:

 
(1) Parent company employees hired and fired the subsidiary employees and/or authorized lay offs, recalls, and promotions of such employees. See Cook, 69 F.3d at 1241; Frank, 3 F.3d at 1362; Johnson, 814 F.2d at 981; Trevino v. Celanese Corp., 701 F.2d 397, 404 (5th Cir. 1983).
 
(2) The parent company routinely transferred employees between it and its subsidiary, used the same work force, and/or handled the subsidiary's payroll. See Johnson, 814 F.2d at 981; Armbruster v. Quinn, 711 F.2d 1332, 1338 (6th Cir. 1983).
 
(3) The parent company exercises more than general oversight of the subsidiary's operations by supervising the subsidiary's daily operations, such as production, distribution, purchasing, marketing, advertising, and accounts receivable. See Cook, 69 F.3d at 1241; Johnson, 814 F.2d at 981-82; Armbruster, 711 F.2d at 1338.
 
(4) The parent and subsidiary have common management in the form of interlocking boards of directors and/or common officers and managers. See Frank, 3 F.3d at 1364; Johnson, 814 F.2d at 982.
 
(5) The parent and subsidiary fail to observe basic formalities like keeping separate books and holding separate shareholder and board meetings. See Johnson, 814 F.2d at 981.
 
(6) The parent and subsidiary fail to maintain separate bank accounts. See Johnson, 814 F.2d at 982.
 
(7) The parent and subsidiary file joint tax returns. See Johnson v. Flowers Indus., Inc., 814 F.2d at 982.

 No one of the above-listed factors is dispositive, although evidence tending to show "centralized control of labor relations" -- factors (1) and (2) -- should be the focus of the Court's analysis. See Cook, 69 F.3d at 1241; Armbruster, 711 F.2d at 1337; accord Rogers v. Sugar Tree Products, Inc., 7 F.3d 577, 582 (7th Cir. 1993) (ADEA case). Thus, the critical question on summary judgment is: Is there a genuine issue that the parent controls the day-to-day employment decisions of the subsidiaries that employ or employed the plaintiffs? See Frank, 3 F.3d at 1363 (10th Cir. 1993); St. Francis Xavier Parochial School, 928 F. Supp. at 34.

 It is important to note that several factors are of low or no probative value to this inquiry: (1) that the operations of the subsidiaries, themselves, are interrelated, Frank, 3 F.3d at 1362; (2) that the parent ultimately benefits from the work of the subsidiary, id. ; (3) that the supervisors of the subsidiary ultimately reported to officers in the parent company, or that certain high level management employees perform functions for both companies, id.; Kelber v. Forest Electric Corp., 799 F. Supp. 326, 331 (S.D.N.Y. 1992); (4) that the parent has promulgated broad general policy statements regarding employment matters, including statements governing equal employment opportunity issues, particularly where the subsidiary has discretion concerning whether to use them, Frank, 3 F.3d at 1363; Wood, 725 F. Supp. at 1249; (5) that the parent and subsidiary have common advertising guidelines, Frank, 3 F.3d at 1363 n.3; (6) that the plaintiffs believed that they were employees of the parent, Marzano v. Computer Science Corp. Inc., 91 F.3d 497, 514 (3rd Cir. 1996); and (7) that the plaintiffs belonged to the parent's pension plan, or that the parent served as the plan administrator for the subsidiary's severance pay plan, id.; Frank, 3 F.3d at 1363.

 4. The Court Will Deny The Defendants' Motion For Summary Judgment, Without Prejudice, Because The Plaintiffs Have Articulated Several Bases Upon Which BAC Could Be Found To Be Their "Employer" And Because There Has Been No Formal Discovery In This Case.

 The defendants have submitted the following information in support of their position that BAC is and was not the plaintiffs' employer: (1) the first Bulliner affidavit; (2) the second Bulliner affidavit; (3) the Hessenthaler affidavit; and (4) the named plaintiffs' W-2 Forms, appended to the Hessenthaler affidavit.

 The first Bulliner affidavit avers that BAC is the parent corporation of various subsidiary companies, including Bell Atlantic - Virginia, Inc. (formerly The Chesapeake and Potomac Telephone Company of Virginia), Bell Atlantic Network Services, Inc. (formerly Bell Atlantic Management Services, Inc.), Bell Atlantic - Washington, D.C., Inc. (formerly The Chesapeake and Potomac Telephone Company) and Bell Atlantic - Maryland, Inc. (formerly The Chesapeake and Potomac Telephone Company of Virginia). First Bulliner Aff. at P 4. The affidavit then states that a search of the named plaintiffs' payroll records "disclosed no evidence that any of the named plaintiffs ever had been employed by [BAC]," but rather that all are or were employed by subsidiaries. Id. at P 5. The Hessenthaler similarly asserts that, based on the plaintiffs' W-2 Forms, "none of the plaintiffs is or was employed by Bell Atlantic Corporation itself," but by several of its subsidiaries. Hessenthaler Aff. at P 3. Implicit in this affidavit testimony is the dubious assumption that one's payroll records is dispositive of employer status under Title VII and 42 U.S.C. § 1981. This is clearly not the case. Indeed, even if the W-2's happen to identify the subsidiaries that employ each plaintiff, if BAC prepares the W-2's for the subsidiaries' employees, such a fact would weigh in favor of finding BAC to be the plaintiffs' employer.

 While the second Bulliner affidavit is conclusory in parts, it does testify competently to the following facts:

 
(1) BAC is a Delaware Corporation with its principal place of business in Philadelphia, Pennsylvania that serves as a regional holding company and parent corporation of a number of subsidiaries that provide telephone services to certain mid-Atlantic states, including Maryland and Virginia, and to the District of Columbia. Second Bulliner Aff. at P 2.
 
(2) BAC does not provide any telephone services. Id.
 
(3) BAC and its subsidiaries each maintain a separate corporate existence, and observe all corporate formalities. Id. at P 3.
 
(4) There is no overlap between the boards of directors of BAC and the subsidiaries for whom the named plaintiffs are or were employed, namely, Bell Atlantic Network Services, Inc., Bell Atlantic - Maryland, Inc., and Bell Atlantic - Virginia, Inc. Id. at P 4.
 
(5) All of the at-issue subsidiaries are adequately capitalized, as evidenced by the fact that their respective operations, management, payroll records, budgets, workforces and bank accounts are separate from those of BAC. Id.
 
(6) BAC does not control its subsidiaries' employment decisions "below senior management level" -- a level purportedly higher than that of any of the named plaintiffs in this lawsuit. Id. at P 5.

 Thus, the second Bulliner affidavit makes a prima facie showing that BAC is not involved in the day-to-day employment decisions of the subsidiaries that employ or employed the plaintiffs.

 The plaintiffs, by contrast, claim that "evidence abounds" to the contrary, and have attached no less than 38 exhibits to prove their point. While many of these exhibits are immaterial, *fn5" others suggest that it would not be proper for the Court to conclude that as a matter of undisputed material fact BAC is not the plaintiffs' employer," if for no other reason than that the ...


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