Arthur Clemens, Jr. v. Qwest Corp.
FILED OPINION (KIM MCLANE WARDLAW, RICHARD R. CLIFTON and JOHN B. OWENS) VACATED; REMANDED. Judge: JBO Authoring. FILED AND ENTERED JUDGMENT.  [15-35160, 15-35183]--[Edited: Magistrate Judge Donahue's name corrected. 11/03/2017 by RY]
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UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ARTHUR CLEMENS, JR.,
Appeal from the United States District Court
for the Western District of Washington
James P. Donohue, Magistrate Judge, Presiding
Argued and Submitted October 2, 2017
Filed November 3, 2017
Before: Kim McLane Wardlaw, Richard R. Clifton,
and John B. Owens, Circuit Judges.
Opinion by Judge Owens
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CLEMENS V. QWEST
The panel vacated the district court’s order denying the
plaintiff a tax adjustment of a damages award in a Title VII
Agreeing with the Third, Seventh, and Tenth Circuits,
the panel held that in Title VII cases, district courts have
discretion to award the equitable relief of a “gross-up”
adjustment to compensate for increased income-tax liability
resulting from a plaintiff’s receipt of a back-pay award in
one lump sum.
The panel remanded the case for further proceedings. It
addressed other issues in a concurrently filed memorandum
Eric D. Miller (argued) and James Sanders, Perkins Coie
LLP, Seattle, Washington, for Defendant-Appellant/CrossAppellee.
Alexander J. Higgins (argued), Law Offices of Alex J.
Higgins, Seattle, Washington; Rebecca E. Ary, Law Office
of Rebecca E. Ary, Seattle, Washington; Daniel F. Johnson,
This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
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CLEMENS V. QWEST
Breskin Johnson & Townsend, Seattle, Washington; for
OWENS, Circuit Judge:
Arthur Clemens, Jr., sued his employer Qwest
Corporation (“Qwest”) for Title VII violations. A jury
awarded damages for back pay and emotional distress, as
well as punitive damages. On appeal, Clemens challenges
the district court’s refusal to consider adjusting his lumpsum back-pay award to account for the corresponding
increase in his tax liability. We have jurisdiction under
28 U.S.C. § 1291. We vacate the district court’s order
denying a tax adjustment and remand for further
I. FACTS AND PROCEDURAL HISTORY
In 2008, Qwest initiated disciplinary proceedings against
Clemens, a long-time employee and active union member.
For a period longer than the American Civil War, Clemens
and Qwest contested his work performance in internal
proceedings and interviews, in arbitration, and before the
Washington State Human Rights Commission.
In September 2013, Clemens sued Qwest for race
discrimination and retaliation in violation of Title VII
(42 U.S.C. §§ 2000e et seq.). After removal from state to
A concurrently filed memorandum disposition resolves Qwest’s
challenges to the jury’s verdict and affirms the district court in those
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CLEMENS V. QWEST
federal court, the parties consented to a jury trial before a
magistrate judge. The jury found for Clemens on his
retaliation claim and awarded him over $157,000 for lost
wages and benefits, over $275,000 for emotional distress,
and $100,000 in punitive damages. The district court
reduced the latter two awards to $300,000 to comply with
Title VII’s cap on compensatory and punitive damages. See
42 U.S.C. § 1981a(b)(3)(D).
The district court also granted Clemens’s motions for
attorney’s fees and, in part, an interest award. However, it
denied his request for a “tax consequence adjustment” or
“gross up” to compensate for increased income-tax liability
resulting from his receipt of his back-pay award in one lump
sum. The district court explained that “[g]iven the lack of
authorization from the Ninth Circuit, the split among other
Circuits on this issue, and the parties’ disagreement
regarding an appropriate methodology for calculating the tax
consequences of a lump sum payment,” it declined “to
exercise its discretion to ‘gross up’ plaintiff’s damages
award.” Clemens now challenges that decision.
Standard of Review
Whether Title VII permits gross-up adjustments is a legal
question which we review de novo. See, e.g., Ileto v. Glock,
Inc., 565 F.3d 1126, 1131 (9th Cir. 2009).
Title VII Grants Courts The Authority To Award
Back-Pay “Gross Ups”
Title VII exists in large part “to make persons whole for
injuries suffered on account of unlawful employment
discrimination.” Albemarle Paper Co. v. Moody, 422 U.S.
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CLEMENS V. QWEST
405, 418 (1975); accord, e.g., Rivera v. NIBCO, Inc.,
364 F.3d 1057, 1069 (9th Cir. 2004) (“Title VII’s central
statutory purpose is eradicating discrimination throughout
the economy and making persons whole for injuries suffered
through past discrimination.” (internal quotation marks
omitted)); Kraszewski v. State Farm Gen. Ins. Co., 912 F.2d
1182, 1184–86 (9th Cir. 1990) (endorsing granting of
equitable relief under Title VII where it is “necessary to put
the victim in the place he would have been—to make him
whole”); Thorne v. City of El Segundo, 802 F.2d 1131,
1133–34 (9th Cir. 1986) (to the same effect). And Title VII
provides courts with considerable equitable discretion to
ensure adequate compensation. See 42 U.S.C. § 2000e5(g)(1) (authorizing “any other equitable relief as the court
deems appropriate”); see also, e.g., Albemarle, 422 U.S. at
418–21; Int’l Bhd. of Teamsters v. United States, 431 U.S.
324, 364–65 (1977) (confirming that Title VII “vest[s] broad
equitable powers in . . . courts”); Franks v. Bowman Transp.
Co., 424 U.S. 747, 763–64 (1976) (same); EEOC v. Gen. Tel.
Co. of the Nw., 599 F.2d 322, 334–35 (9th Cir. 1979)
(“Congress armed the courts with full equitable powers in
Title VII cases. . . . The courts will be alert to adjust their
remedies so as to grant the necessary relief.”).
Indeed, we recently reiterated that “[i]t is the historic
purpose of equity to secure complete justice,” and that “[i]n
the context of a claim brought under a federal statute
intended to combat discrimination, the phrase ‘complete
justice’ has a clear meaning: ‘the [district] court has not
merely the power but the duty to render a decree which will
so far as possible eliminate the discriminatory effects of the
past as well as bar like discrimination in the future.’” Bayer
v. Neiman Marcus Grp., Inc., 861 F.3d 853, 873 (9th Cir.
2017) (some alterations in Bayer) (footnote, citations, and
some internal quotation marks omitted) (quoting Gen. Tel.
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CLEMENS V. QWEST
Co., 599 F.2d at 334, and Albemarle, 422 U.S. at 418); see
also Kraszewski, 912 F.2d at 1185–86. Back pay is one
manifestation of this principle, see Loeffler v. Frank,
486 U.S. 549, 558 (1988), as is prejudgment interest on
back-pay awards, see id. at 557 (recognizing that the courts
of appeals unanimously hold “that Title VII authorizes
prejudgment interest as part of [back-pay awards]”).
But unfortunately for successful Title VII plaintiffs,
back-pay awards are taxable. See Comm’r v. Schleier,
515 U.S. 323, 327 (1995); see also 26 U.S.C. § 104(a)(2)
(restricting income-tax exclusion for personal-injury awards
to those “received . . . on account of personal physical
injuries or physical sickness” (emphasis added)). And a
lump-sum award will sometimes push a plaintiff into a
higher tax bracket than he would have occupied had he
received his pay incrementally over several years. Clemens
claims that very side effect here. He argues that the taxman’s
expanded cut effectively denies him what Title VII
promises—full relief that puts Clemens where he would be
had the unlawful employment discrimination never
As the district court recognized, we are not the first
tribunal to confront this issue. The Third, Seventh, and
Tenth Circuits have all held that district courts have the
discretion to “gross up” an award to account for income-tax
consequences. See Eshelman v. Agere Sys., Inc., 554 F.3d
426, 440–43 (3d Cir. 2009) (“[A] district court may,
pursuant to its broad equitable powers granted by [42 U.S.C.
§ 2000e-5], award a prevailing employee an additional sum
of money to compensate for the increased tax burden a back
pay award may create.”); EEOC v. N. Star Hosp., Inc.,
777 F.3d 898, 903–04 (7th Cir. 2015) (agreeing with Third
and Tenth Circuits that “without the tax-component award,
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[the plaintiff] will not be made whole, a result that offends
Title VII’s remedial scheme”); Sears v. Atchison, Topeka &
Santa Fe Ry., Co., 749 F.2d 1451, 1456–57 (10th Cir. 1984)
(upholding a tax gross up because under Title VII, “the trial
court has wide discretion in fashioning remedies to make
victims of discrimination whole”); see also Thomas R.
Ireland, Tax Consequences of Lump Sum Awards in
Wrongful Termination Cases, 17 J. Legal Econ. 51, 53–54
(2010) (explaining the circuits’ approaches to equitable tax
The D.C. Circuit, however, does not permit such gross
ups. In a per curiam opinion (and a mere one paragraph), it
rejected gross ups because it knew “of no authority for such
relief” and “[g]iven the complete lack of support in existing
case law for tax gross-ups,” it “decline[d] so to extend the
law in this case.” Dashnaw v. Pena, 12 F.3d 1112, 1116
(D.C. Cir. 1994) (per curiam), abrogated on other grounds
by Rann v. Chao, 346 F.3d 192, 197–98 (D.C. Cir. 2003).
Of course, that paragraph ignored the Tenth Circuit’s
decision in Sears and the Supreme Court’s reasoning in
cases like Albemarle, Loeffler, and Franks, as well as Title
VII’s equitable underpinnings.
We join the thoughtful analysis of the Third, Seventh,
and Tenth Circuits, and reject the matchbook musings of the
D.C. Circuit. In so doing, we also agree with those courts
that the decision to award a gross up—and the appropriate
amount of any such gross up—is left to the sound discretion
of the district court. As the Third Circuit put it, “we do not
suggest that a prevailing plaintiff in discrimination cases is
presumptively entitled to an additional award to offset tax
consequences . . . . The nature and amount of relief needed
to make an aggrieved party whole necessarily varies from
case to case,” Eshelman, 554 F.3d at 443, and the
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“circumstances peculiar to the case” drive that decision, id.
(quoting Albemarle, 422 U.S. at 424).
There may be many cases where a gross up is not
appropriate for a variety of reasons, such as the difficulty in
determining the proper gross up or the negligibility of the
amount at issue. In any case, the party seeking relief will
bear the burden of showing an income-tax disparity and
justifying any adjustment. We express no opinion on
whether a gross up is appropriate here—that is for the district
court to decide on remand.
Acknowledging the circuit split, Qwest puts up little
resistance to the majority view. It argues for the first time
on appeal that monetary relief is legal, not equitable. That
argument is both waived, see Smith v. Marsh, 194 F.3d 1045,
1052 (9th Cir. 1999) (“[A]n appellate court will not consider
issues not properly raised before the district court.”), and at
odds with the controlling Title VII case law discussed above.
Qwest also suggests that only a jury can award a back-pay
tax adjustment—another argument that is both waived
because it is made to our court first, see id., and wrong under
Title VII case law, see Lutz v. Glendale Union High Sch.,
403 F.3d 1061, 1068–69 (9th Cir. 2005) (“[T]here is no right
to have a jury determine the appropriate amount of back pay
under Title VII . . . . Instead, back pay remains an equitable
remedy to be awarded by the district court in its discretion.”).
Qwest finally argues that the district court did exercise
its discretion in refusing Clemens a tax gross up. While we
appreciate that the district court’s ruling on this issue was
somewhat opaque, what is clear is that the court declined to
consider a gross up in part because the Ninth Circuit had
never authorized one. Consistent with all of the courts that
have thoughtfully addressed this issue, we do so now.
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CLEMENS V. QWEST
The district court’s order denying an adjustment is
vacated and the case remanded for further proceedings.
VACATED AND REMANDED.
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