Equal Employment Opportunity Commission v. Creative Networks, LLC et al

Filing 131

MEMORANDUM OF DECISION AND ORDER granting 93 Defendant Res-Care, Inc.'s Motion for Summary Judgment; Res-Care is dismissed from the present case. Signed by Judge Stephen M McNamee on 3/19/09.(LSP)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

WO

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, Plaintiff, v. CREATIVE NETWORKS, LLC, an Arizona corporation, and RES-CARE, INC., a Kentucky corporation, Defendants.

) ) ) ) ) ) ) ) ) ) ) ) )

No. CV 05-3032-PHX-SMM MEMORANDUM OF DECISION AND ORDER

Before the Court is Defendant Res-Care, Inc.'s ("Res-Care") Motion for Summary Judgment (Doc. 93). Having considered the parties' memoranda and other submissions, the Court now issues this Memorandum of Decision and Order granting Res-Care's motion.1 FACTUAL BACKGROUND On September 30, 2005, the Equal Employment Opportunity Commission ("EEOC") filed a complaint against Creative Networks, LLC ("Creative Networks") and its parent company, Res-Care, alleging unlawful employment practices under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e, et seq., and the Civil Rights Act of 1991, 42 U.S.C. § 1981a (Doc. 1). The EEOC's claim is that Rhonda Encinas-

Res-Care requests oral argument in connection with its Motion for Summary Judgment (Doc. 93). The parties have had the opportunity to submit evidence and briefing. Accordingly, the Court finds the pending motion for summary judgment suitable for decision without oral argument and Res-Care's request is denied. See LRCiv 7.2(f), 56.2.

1

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Castro ("Encinas-Castro") and Kathryn Allen ("Allen"), two former Creative Networks employees, were retaliated against "for having opposed discrimination and/or for having participated in a proceeding pursuant to Title VII, including an investigation of alleged employment discrimination." (Id.) Res-Care's Acquisition of Creative Networks/Hiring of Ron Cornelison Res-Care purchased Creative Networks in 1998 (Doc. 104, Pl's Statement of Facts ("PSOF") ¶ 4). Creative Networks is a wholly-owned subsidiary of Res-Care (Id. ¶ 35). Following the acquisition, Freda Smith ("Smith"), Res-Care's Vice President of Operations, determined that Creative Networks needed new leadership (Id. ¶¶ 1, 5). Smith was supervised at the time by Martin Miller ("Miller"), Senior Vice President of the Region for Res-Care (Id. ¶ 3). In the spring of 2001, Smith and Miller asked Ron Cornelison ("Cornelison") to become Executive Director of Creative Networks (Id. ¶ 7). Smith was involved in hiring Cornelison because it was her job to select and hire the individuals that led Res-Care's subsidiaries (Id. ¶¶ 2, 6). Cornelison was the director of Creative Networks during April and May of 2003 when the alleged retaliatory acts against Encinas-Castro and Allen occurred (Id. ¶ 16). As the Vice President of Operations, Smith visited Creative Networks four to five times each year (Id. ¶ 9). Smith and Miller held bi-weekly conference calls with the directors of Res-Care's subsidiaries, including Cornelison (Id. ¶ 10). Personnel matters were not discussed in these conference calls because the directors of the individual subsidiaries handled those matters themselves (Doc. 104, Ex. 1, Smith Dep. 21:4-22:13). Additionally, Res-Care supplied its subsidiaries with written policy manuals that included information on employee benefits, such as paid time off and health insurance (PSOF ¶¶ 11-12). Any changes to the manual to suit a particular subsidiary's needs were approved by Res-Care's regional staff (Id. ¶ 11). Investigation of Employee Complaints Prior to the hiring of Cornelison, Smith held meetings with employees of Creative Networks to address problems at the site during the transition period (Id. ¶ 19). Anne -2-

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Phillippi ("Phillippi"), a former Creative Networks employee, wrote a letter to Smith on October 3, 2003 in which she complained that Cornelison had verbally attacked her skills and damaged her reputation (Id. ¶ 20). Smith felt Phillippi's letter was from someone with sour grapes (Id. ¶ 21). Res-Care sent staff from Georgia to work with Phillippi and counsel her about her job performance (Id. ¶ 22). Additionally, Smith personally counseled Phillippi at Creative Networks on one occassion regarding her job performance (Id. ¶ 23). Furthermore, Res-Care sent Phillippi to Georgia to teach her Res-Care's way of doing business (Id. ¶ 24). While Res-Care had the power to investigate employee complaints against Cornelison, Res-Care did not investigate the complaint of Phillippi because Smith felt Phillippi was a person with "sour grapes." (Id. ¶¶ 25-26) As the Vice President of Operations, Smith was tasked with handling employee complaints at Res-Care's subsidiaries, including Creative Networks, as well as being aware of EEOC complaints against Creative Networks (Id. ¶¶ 27-28). Smith also had some responsibility for investigating discrimination charges filed with the EEOC (Id. ¶ 28). Despite this responsibility, Smith never met Encinas-Castro or investigated her charges of discrimination (Id. ¶ 30). After conversations with Cornelison, Smith believed that Encinas-Castro "talked too much" and that there were "issues with her performance." (Id.) Administrative Service Agreement On January 5, 1998, Res-Care and Creative Networks entered into an Administrative Service Agreement ("Agreement") (Id. ¶ 37). This Agreement has been in effect continuously since its enactment in 1998 and has never been terminated (Id. ¶ 52). Article III of the Agreement sets forth "Duties of Res-Care" and Article IV outlines "Duties of Company." "Company" refers to Creative Networks under the Agreement (Id. ¶ 38). Article III, Section 1 of the Agreement states, "Res-Care shall process the payroll for all of Company's employees, including the issuance of checks and the withholding of -3-

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

employment taxes." (Id. ¶ 39) In accordance with this provision, payroll for all of ResCare's subsidiaries is processed by one company, ADP, with whom Res-Care has a national contract to perform payroll and paycheck issuing services (Id.). The subsidiaries compile their payroll information locally and transmit this information to Res-Care (Id.). Res-Care, in turn, transmits it to ADP for processing (Id.). Article III, Section 1 also states, "Res-Care shall regularly publish positions open with all companies with which it has service contracts in order to furnish Company and other contracting parties access to individuals skilled in the field of developmental disabilities and other relevant disciplines." (Id. ¶ 40) This provision means that a list of open positions is compiled by Res-Care and then sent to all of its subsidiaries for publication to the employees (Id.). Article III, Section 2 states, "At Company's request, Res-Care shall furnish assistance in the area of labor relations . . ." (Id. ¶ 41) Pursuant to this provision of the Agreement, Res-Care helps Creative Networks with collective bargaining agreements, unions, and labor contracts (Id.). Article III, Section 3 of the Agreement states, Res-Care "shall enter into such contracts, in the name of and at the expense of Company, as may be deemed necessary or advisable for the furnishing of utilities, services, concessions, equipment and supplies for the maintenance and operation of the Facilities . . ." (Id. ¶ 42) Res-Care's 30(b)(6) deponent Deena Ombres ("Ombres") offered an example of how this provision operates at her deposition. "Res-Care entered into a national contract with Verizon to provide cell phone service, so employees have the option -- those employees who need a cell phone or a Blackberry to do their jobs have the option of entering into an agreement with Verizon to get a better deal . . .The same thing holds true for, say, copier equipment, office supplies, things like that." (Id.) Article III, Section 4 states, Res-Care "shall advise Company concerning all acts and things to be done in and about the Facilities as shall be required by any statute, ordinance, law, rule, regulation . . ." (Id. ¶ 43) Res-Care is responsible for offering its -4-

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

subsidiaries legal advice about compliance with applicable laws and the estimated costs of such compliance (Id.). Article III, Section 6 states that Res-Care "will provide corporate and regional resource personnel as requested, in the following areas to assist Company on an ongoing basis." (Id. ¶ 44) The areas include, among others, personnel management, personnel policies, wage and benefit scales, and employee benefit plans (Id.). Article III, Section 7 states that Res-Care "shall develop or update policies and procedures for Company and recommend changes, where necessary." (Id. ¶ 45) If a ResCare subsidiary needs a specific policy to be drafted, it can ask Res-Care to develop or update the policy to comply with the applicable law (Id.). Article III, Section 8 states that Res-Care "shall purchase supplies and equipment on behalf of Company, as requested, and shall offer participation in Res-Care's national and regional supply agreements, if any, and provide to Company the benefits resulting therefrom." (Id. ¶ 46) Article III, Section 9 states, Res-Care "shall, as required, maintain for itself and for Company, at Company's expense, certain annual insurance coverage." (Id. ¶ 47) This insurance coverage includes workers' compensation and employer's liability (Id.). Article III, Section 10 states that Res-Care "shall establish and/or maintain zero balance bank accounts, shall consolidate all receipts and monies arising from the operation of Company's business or otherwise received by Res-Care on behalf of Company's business, and shall provide funds for disbursements from the accounts of said business in such amounts and at such times as the same are required." (Id. ¶ 48) Article III, Section 11 states that Res-Care "shall institute and/or defend, in its own name or in Company's name, but in any event at Company's expense, any and all legal or administrative actions . . ." (Id. ¶ 49) This provision requires Res-Care's Legal Department to respond to any EEOC charges filed against Creative Networks (Id.). Indeed, the Legal Department drafted the position statements responding to the EEOC charges of discrimination in the present case (Id.). -5-

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Article III, Section 12 states, "At Company's request or as deemed necessary by Res-Care, Res-Care shall advance to Company working capital sufficient to sustain and continue Company's operations . . ." (Id. ¶ 50) If Creative Networks' expenses exceed its revenues, Res-Care is obligated to provide financial assistance to Creative Networks at its request (Id.). Article IX, Section 1 of the Agreement states that Res-Care "shall supervise and direct the keeping of full and accurate books of account and such other records reflecting the results of operations of the Facilities." (Id. ¶ 51) In accordance with this provision, Res-Care's Legal Department keeps the corporate records of Creative Networks, including budget information, accounts receivable, and accounts payable (Id.). Employee Information Guide Creative Networks' employees were given a copy of the manual "ResCare Building Lives Reaching Potential: Employee Information Guide" ("the Guide") that included Res-Care's policy on workplace discrimination and harassment (Id. ¶ 53). The Guide was revised four times: November 2002, December 2002, October 2003, and December 2006 (Id.). It was Res-Care's expectation that Creative Networks used the Guides that were created by Res-Care and distributed to its subsidiaries (Id. ¶ 56). The Guide included a President's Welcome signed by the Chairman/President/CEO of Res-Care (Id. ¶ 54). Additionally, the Guide invited employees of Creative Networks to voice complaints about their employment directly to Res-Care management (Id. ¶ 57). Furthermore, the Guide stated that retaliation was prohibited and if it was reported, an investigation would be conducted (Id. ¶ 58). Discrimination complaints against the Executive Director of Creative Networks would be investigated by Res-Care, rather than Creative Networks (Id.). On the latest version of the Guide, dated December 2006, Creative Networks' name appeared nowhere on the cover (Id. ¶ 59). Rather, the cover contained Res-Care's logo, name, corporate address, and website, along with a statement describing Res-Care's mission (Id.). At the bottom of each page, only Res-Care's logo appeared (Id.). In the -6-

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

section titled "Prohibition of Harassment," the Guide stated that Creative Networks employees may contact Res-Care's "Region/Division Human Resources Director at the regional office, and/or the Vice President of Labor and Employee Relations or the Chief People Officer at the Resource Center." (Id.) This Guide was distributed to all Creative Networks employees (Id.). Code of Conduct Res-Care published a "Code of Conduct" and distributed it to all employees of its subsidiaries, including Creative Networks (Id. ¶ 60). Res-Care expected that all employees would be familiar with the Code of Conduct (Id.). Violations were required to be reported to Res-Care through either its website or the "Compliance Action Line." (Id. ¶ 63) If an alleged violation involved human resource concerns, Res-Care's regional HR official might be tasked with responding to the allegations (Id. ¶ 60). The Code of Conduct displayed only the Res-Care name and logo and did not contain any reference to Creative Networks (Id. ¶ 61). Contained in the Code of Conduct was a letter to "Fellow ResCare Employee" and signed by Res-Care's Chairman/President/CEO and a Board of Directors member (Id. ¶ 62). Employee Processing Documents Many of the forms that Creative Networks employees were required to sign contained Res-Care's name (Id. ¶ 64). The employee acknowledgment form signed by Encinas-Castro explained that she should contact Res-Care if she was the subject of discriminatory harassment (Id. ¶ 65). Res-Care's affirmative action plan applies to all of its subsidiaries, including Creative Networks (Id. ¶ 66). The form titled "Authorization to Request Records Applicant Information" completed by Encinas-Castro as a condition of her employment at Creative Networks lists Res-Care as the entity granted authority to obtain her records (Id. ¶ 67). Creative Networks is not mentioned anywhere on the form (Id.).

-7-

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

The "Exit Interview Compliance Form" and "Employee Separation-Exit Interview Checklist" form signed by Encinas-Castro upon her termination contains only Res-Care's name and logo (Id. ¶ 68). PROCEDURAL BACKGROUND On May 20, 2003, Encinas-Castro filed a charge of discrimination against Creative Networks (Doc. 94, Ex. A, Encinas-Castro's May 2003 Charge). Creative Networks' parent company, Res-Care, was not mentioned in the charge (Id.). Next, on June 3, 2003, Allen filed a charge of retaliation against Creative Networks that did not reference ResCare (Doc. 94, Ex. B, Allen's June 2003 Charge). Also, on June 3, Encinas-Castro filed a new charge of retaliation against Creative Networks (Doc. 94, Ex. C, Encinas-Castro's Amended Charge). There was no reference to Res-Care in her charge, either (Id.). Finally, in March 2005, Encinas-Castro and Allen amended their charges to include ResCare as a party in addition to Creative Networks (Doc. 94, Ex. D, 2005 Amended Charges). On November 18, 2005, Res-Care filed a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) (Doc. 8). In its Motion to Dismiss, Res-Care claimed that a parent corporation was not liable for the Title VII violations of its wholly-owned subsidiary absent special circumstances (Id.). The Court denied this motion, finding that "It is not beyond doubt that the EEOC can prove no set of facts in support of the claim against Res-Care." (emphasis in original) (Doc. 19, 6:23-25) Now that discovery has been completed, Res-Care brings the present summary judgment motion arguing that the EEOC can prove no set of facts supporting a claim against ResCare. STANDARD OF REVIEW A court must grant summary judgment if the pleadings and supporting documents, viewed in the light most favorable to the nonmoving party, "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); see Celotex Corp v. Catrett, 477 U.S. 317, 322-23 (1986); -8-

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Jesinger v. Nev. Fed. Credit Union, 24 F.3d 1127, 1130 (9th Cir. 1994). Substantive law determines which facts are material. See Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986); see also Jesinger, 24 F.3d at 1130. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248. The dispute must also be genuine, that is, the evidence must be "such that a reasonable jury could return a verdict for the nonmoving party." Id.; see Jesinger, 24 F.3d at 1130. A principal purpose of summary judgment is "to isolate and dispose of factually unsupported claims." Celotex, 477 U.S. at 323-24. Summary judgment is appropriate against a party who "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322; see also Citadel Holding Corp. v. Roven, 26 F.3d 960, 964 (9th Cir. 1994). The moving party need not disprove matters on which the opponent has the burden of proof at trial. See Celotex, 477 U.S. at 323-24. The party opposing summary judgment need not produce evidence "in a form that would be admissible at trial in order to avoid summary judgment." Id. at 324. However, the nonmovant "may not rest upon the mere allegations or denials of [the party's] pleadings, but . . . must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e); see Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585-88 (1986); Brinson v. Linda Rose Joint Venture, 53 F.3d 1044, 1049 (9th Cir. 1995). DISCUSSION Res-Care seeks summary judgment, asserting that there are no genuine issues of material fact from which a jury could conclude that Res-Care retaliated against EncinasCastro and Allen in violation of Title VII. Specifically, Res-Care asserts that it had nothing to do with the personnel decisions of its subsidiary, Creative Networks, and thus, there is no basis for the EEOC to keep Res-Care in the case (Doc. 93, 1:14-18; 6:3-4).

-9-

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

I.

Special Circumstances Test in Watson Ninth Circuit jurisprudence holds that "[i]n the absence of special circumstances, a

parent corporation is not liable for the Title VII violations of its wholly owned subsidiary." Watson v. Gulf & W. Indus., 650 F.2d 990, 993 (9th Cir. 1981).2 In Watson, the Ninth Circuit Court of Appeals affirmed the trial court's grant of summary judgment to a parent corporation because there was "no indication that the parent-subsidiary relationship [was] a `sham' or that circumstances exist that would render the parent liable for debts of its subsidiary." Id. The court noted a different result would occur, however, if there had been evidence that the parent "participated in or influenced the employment policies" of the subsidiary, or that the parent "had undercapitalized [the subsidiary] in a way that defeated potential recovery by a Title VII plaintiff." Id. Cases following Watson have engaged in a factual analysis to determine whether a parent "participated in or influenced" its subsidiary's personnel policies. In Allen v. Pacific Bell, cited by Res-Care, the district court held that SBC was entitled to summary judgment because it was not a proper party. 212 F. Supp. 2d 1180, 1200 (C.D. Cal. 2002), aff'd in part, 348 F.3d 1113 (9th Cir. 2003). The court determined that SBC's only connection to the case was as the parent corporation of Pacific Bell, and that SBC had exercised no greater control over its subsidiary than was typical in a parent/subsidiary relationship. Id. The subsidiary Pacific Bell had separate offices, facilities, human resource professionals, financial staff, accounting, and board of directors from SBC. Id. at 1189. Additionally, Pacific Bell and SBC maintained separate payroll records, paid
2

Watson cites to two cases in support of this proposition. In the first, Hassell v. Harmon Foods, Inc., the court looked to whether the relationship between the parent and subsidiary was a "sham." 336 F. Supp. 432, 433 (W.D. Tenn. 1971), aff'd, 454 F.2d 199 (6th Cir. 1972). The second case, Lottice v. Ingersoll-Rand Co., focused on the parent and subsidiary's separate corporate structures and lack of common employees. 14 Fair Employment Practice 708 (N.D. Cal. 1977). The parent and subsidiary remained distinct corporate entities incorporated in two different states. Id. Also, the parent did not control the subsidiary's decisions as to hiring, salary, promotion, job classifications, termination, or any other term of employment. Id. - 10 -

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

their state and federal employment taxes separately, processed their payroll taxes separately, issued separate W-2's, and had separate tax identification numbers. Id. Finally, Pacific Bell was responsible for making all hiring and work assignment decisions, and SBC exercised no day-to-day control over Pacific Bell's workforce. Id. In another case cited by Res-Care, Krahel v. Owens-Brockway Glass Container, Inc., the district court dismissed the parent company, Owens-Illinois, from the suit. 971 F. Supp. 440, 456 (D. Or. 1997). The court emphasized that the subsidiary had enough employees to fall within Title VII and had enough financial assets to pay any potential judgment. Id. Res-Care argues that there are no special circumstances as articulated in Watson that would prevent summary judgment in its favor (Doc. 93, 7:9-10).3 Rather, the

Res-Care also bases its argument on Morgan v. Safeway Stores, Inc., another Ninth Circuit case. 884 F.2d 1211 (9th Cir. 1989). In that case, the plaintiff was employed by Safeway. Id. at 1212. Rather that suing Safeway for discrimination, the plaintiff sued a federal credit union associated with Safeway. Id. Since the credit union had fewer than fifteen employees, the Ninth Circuit applied what is known as the integrated enterprise test to determine whether Safeway and its credit union could be treated as a single employer for purposes of Title VII. Id. at 1213-14. This analysis would allow the plaintiff to bring her Title VII discrimination claim against the credit union despite its small number of employees. Despite Res-Care's argument, the Court finds that the integrated enterprise test is not applicable in the present case. Under the integrated enterprise test, "A plaintiff with an otherwise cognizable Title VII claim against an employer with less than 15 employees may assert that the employer is so interconnected with another employer that the two form an integrated enterprise, and that collectively this enterprise meets the 15-employee minimum standard. [The court] uses the integrated enterprise test to judge the magnitude of interconnectivity for determining statutory coverage." Anderson v. Pac. Maritime Ass'n, 336 F.3d 924, 929 (9th Cir. 2003) (discussing the intergrated enterprise test). Thus, the analysis is focused on whether a defendant can meet the statutory criteria in terms of number of employees to qualify as an "employer" under Title VII. In the present case, Res-Care is using the integrated enterprise test to argue instead that Res-Care is not jointly liable for the Title VII violations of its subsidiary. While other circuits have used the integrated enterprise test to establish the liability of a parent for a subsidiary's Title VII violations, the Ninth Circuit has never done so. Norwick v. Gammell, 351 F. Supp. 2d 1025, 1034 n.28 (D. Haw. 2004). Indeed, the Ninth Circuit has stated that "the [integrated enterprise] test does not determine joint liability . . . but instead determines whether a defendant can meet the statutory criteria of an `employer' for Title VII applicability." Anderson, 336 F.3d at 928 (emphasis in original). As such, - 11 -

3

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

relationship between Res-Care and Creative Networks is a typical parent-subsidiary relationship where the parent supplies cost-saving, centralized services to the subsidiary (Id. 7:10-11). The subsidiary is not undercapitalized and is able to defend any charges against it (Id. 7:11-12). Moreover, there is no evidence that Res-Care has influenced the employment policies of Creative Networks (Id. 7:12-14). As evidence of Res-Care's lack of influence over its subsidiaries' employment policies, Res-Care relies on Article IV of the Agreement between Res-Care and Creative Networks (Id. 3:17-4:5, 7:14-16). This provision allegedly gives responsibility for employment and personnel issues to the subsidiary, Creative Networks (Doc. 94, Def.'s Statement of Facts ("DSOF") ¶ 6-7). ARTICLE IV DUTIES OF THE COMPANY 1. Responsibility for Management. [Creative Networks] shall be responsible for the management, supervision and operation of its Facilities. Specifically, [Creative Networks] shall select and employ all personnel at its Facilities, including the Administrator and all other management personnel. [Creative Networks] shall be responsible for the formulation and implementation of all rules, regulations, policies and procedures of the Facilities. (Id. ¶ 7). Additionally, Res-Care relies on the affidavit of Creative Networks Human Resources director James Plutowski ("Plutowski")4 and 30(b)(6) witness Ombres. the test has no application if there is an otherwise qualified employer subject to suit in the case. Here, there is no indication by any party that Creative Networks does not employ at least fifteen employees. Since Creative Networks is a defendant in the present case, the Court finds that the integrated enterprise test is inapplicable. The EEOC objects to Plutowski's affidavit on grounds that he was never identified in Defendants' disclosure statements (Doc. 105). The EEOC asks that the Court strike the affidavit. The Court finds that this objection is unfounded, and therefore, it will not strike Plutowski's affidavit. The purpose of pretrial disclosures is to provide the names of those individuals likely to have discoverable information so that the opposing party may depose them in advance of trial. It is unlikely that Plutowski would ever testify at trial, as he appears to have no information regarding the alleged discrimination of Encinas-Castro and Allen. His affidavit is solely for summary judgment purposes to show Res-Care's lack of involvement in employment matters at Creative Networks (Doc. 94, Ex. F, Plutowski Aff. ¶¶ 3-4). Federal Rule of Civil Procedure 56(e)(1) permits a party to submit affidavits with - 12 4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Plutowski stated that Res-Care had no responsibility for the day-to-day employment matters at Creative Networks, including decisions regarding hiring, discipline, or termination (Id. ¶ 8). Rather, Creative Networks was the one charged with enforcing its applicable personnel policies and procedures (Id.). Indeed, in the present case, all of the decisions related to the EEOC charges filed by Encinas-Castro and Allen were made by Creative Networks with no oversight by Res-Care (Id). In her deposition, Ombres testified regarding the respective responsibilities of the parent corporation Res-Care and its subsidiaries, including Creative Networks. · · · · · · · Creative Networks is a wholly-owned subsidiary of Res-Care, and is registered in the State of Arizona as its own legal entity. The subsidiaries are responsible for training their own employees. EEO training is provided by the subsidiaries' HR Manager/Director. The subsidiaries conduct their own internal investigations of discrimination or retaliation complaints made by employees. Subsidiaries compile their payroll locally and transmit the information to the payroll service ADP. ADP then processes the payroll and issues checks to the subsidiary's employees. Res-Care enters into national contracts with carriers such as Verizon to provide cost efficiencies to its subsidiaries. Examples include phone service, copier equipment, office supplies, and travel services. Subsidiaries make their own budgets and revenue projections. Res-Care maintains a resource center with employees available to help the subsidiaries on an as-needed basis. The resource center staffs a regional human resources director and regional finance director. Subsidiaries complete their own marketing and development plans. Res-Care's Legal Department is responsible for drafting position statements in response to EEOC complaints. The subsidiaries, however, pay all legal costs. Subsidiaries maintain their own books of account. Res-Care creates the Guide which it then distributes to all of its subsidiaries. The subsidiaries then make revisions to adapt the Guide to its specific operations and business.

· · · ·

a summary judgment motion, provided the affidavit is based upon personal knowledge, sets out facts that would be admissible in evidence, and shows the affiant is competent to testify on the stated matters. Fed. R. Civ. P. 56(e)(1). Plutoswki's affidavit is based upon his personal knowledge as the Humans Resources Director of Creative Networks for fifteen years. If the EEOC had wanted to depose him, it could have made a request to the Court. Rule 56(f) allows a court to order a continuance for depositions to be taken if the non-moving party shows by affidavit that it cannot present facts essential to its opposition. Fed. R. Civ. P. 56(f). As no such request was made, the affidavit will not be stricken. - 13 -

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

· · · (Id. ¶ 9)

Template employee forms are provided to the subsidiaries who then adapt the forms to their needs. Subsidiaries' personnel files are maintained at the subsidiary. Completed employee forms are kept at the subsidiaries themselves, rather than at Res-Care.

The EEOC attempts to dispute each of these claims and contends that there are disputed issues of material fact regarding Res-Care's involvement in Creative Networks' employment policies. First, the EEOC asserts that there is evidence Res-Care authored and distributed the written employment policies used by Creative Networks, including its Guide and Code of Conduct (Doc. 103, 4:7-9). The Guide was distributed to all Creative Networks employees and contained the company's policy on workplace harassment and discrimination (PSOF ¶ 53). It also included a "President's Welcome" signed by the Chairman/President/CEO of Res-Care (Id. ¶ 54). Furthermore, the Guide displayed ResCare's logo, name, corporate address, website and mission statement on its cover with no mention of Creative Networks (Id. ¶ 59). At the bottom of each page, only Res-Care's logo appeared (Id.). The section of the Guide titled "Prohibition of Harassment" directed employees to contact Res-Care management with any concerns (Id.). As to the Code of Conduct, the EEOC argues that it was drafted by Res-Care and distributed to all of its subsidiaries, including Creative Networks (Id. ¶ 60). The Code of Conduct bears only the Res-Care name and logo, without any reference to Creative Networks (Id. ¶ 61). Employees at Creative Networks were expected to be familiar with the Code of Conduct, and violations were to be reported to Res-Care, either through its website or the "Compliance Action Line." (Id. ¶¶ 60, 63) Violations relating to Human Resource matters were sometimes responded to by Res-Care's regional HR official (Id. ¶ 60). Finally, many of the employee processing documents filled out by Creative Networks employees contained only the Res-Care name and logo (Id. ¶¶ 64-68). Second, the EEOC argues that Res-Care influenced Creative Networks' policies and practices through its executive employees, such as Cornelison (Doc. 103, 7:6-8). Res-Care retained the power to remove Creative Networks' Executive Director and - 14 -

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

replace him with Cornelison (PSOF ¶¶ 5-8). Smith had the power to call meetings with Creative Networks employees, and in fact, she did so during the transition period prior to Cornelison's hiring (Id. ¶ 19). For example, Smith counseled Phillippi about her poor job performance (Id. ¶ 23). Moreover, Smith was responsible for handling employee complaints against Creative Networks and keeping abreast of any EEOC complaints filed (Id. ¶¶ 26, 28). Smith had some responsibility to investigate discrimination charges filed with the EEOC (Id. ¶ 28). Third, the EEOC points out that the Agreement between Res-Care and Creative Networks gave Res-Care some additional responsibilities, including the following: · · · · · · · Participating in the processing of its subsidiaries' payroll; Compiling information about job vacancies from its subsidiaries and then distributing the list of openings to its subsidiaries' employees; Assisting its subsidiaries with labor contracts and collective bargaining agreements; Supplying its subsidiaries with legal advice regarding employment disputes; Providing regional personnel to assist the subsidiaries with personnel management, wage and benefit scales, and employee benefit plans; Developing and updating company procedures; and Maintaining workers' compensation and employer's liability insurance for its subsidiaries.

(Id. ¶¶ 39-41, 43-45, 47, 49) Having considered the briefing and evidence submitted by both parties, the Court finds that the EEOC has not presented sufficient evidence to create a genuine issue of material fact as to Res-Care's inclusion in the case. First, Res-Care and Creative Networks were distinct corporate entities (DSOF ¶ 9). Creative Networks did its own human resources, financials, payroll, marketing, development, bookkeeping, and accounting (Doc. 104, Ex. 2, Ombres Dep. 36:10-37:3). While Res-Care provided regional personnel to assist Creative Networks with areas such as personnel policies, this help was on an "as-requested" basis (PSOF ¶ 44; Doc. 104, Ex. 2, Ombres Dep. 31:2432:20). Furthermore, Creative Networks had its own tax identification number (Doc. 104, Ex. 2, Ombres Dep. 31:5-19).

- 15 -

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Second, there is no evidence that Res-Care participated in any way in the decision to terminate Encinas-Castro or to discipline Allen. Rather, Creative Networks was responsible for making all hiring, work assignment, and termination decisions, and ResCare exercised no day-to-day control over Creative Networks' workforce (DSOF ¶ 8; Doc. 94, Ex. F, Plutowski Aff. ¶¶ 3-4). The subsidiaries conducted their own training sessions, including EEO training (Doc. 94, Ex. G, Ombres Dep. 105:14-24). The subsidiaries also performed their own internal investigations into allegations of harassment and retaliation (Doc. 104, Ex. 2, Ombres Dep. 98:15-24).5 Furthermore, employees' personnel files were kept at the subsidiary along with all of the completed employee forms (Id. 70:19-71:23; Doc. 94, Ex. G, Ombres Dep. 123:22-124:7). This delegation of responsibility for employment matters to Creative Networks was reinforced by Article IV of the Agreement. Article IV gives Creative Networks responsibility "for the management, supervision and operations of its Facilities," including selecting all personnel and formulating and implementing all rules, regulations, policies and procedures of the Facilities (DSOF ¶ 7). Although Smith visited Creative Networks four or five times each year (PSOF ¶ 9), had the power to call meetings with Creative Networks' employees, and to counsel them about their job performance (PSOF ¶¶ 19-26), these activities only occurred during the transition period following Res-Care's acquisition of Creative Networks (Doc. 129, Ex. E, Smith Dep. 17:8-18:19, 34:20-35:8; Ex. B, Smith Aff. ¶¶ 4-5). After Cornelison was hired as the Executive Director of Creative Networks, Smith did hold conference calls with the directors of Res-Care's subsidiaries, but did not discuss personnel issues (PSOF ¶ 10; Doc. 104, Ex. 1, Smith Dep. 20:22-22:13).

Ombres testified that when a charge of discrimination is filed against a subsidiary, the charge is forwarded to Res-Care's Legal Department (Doc. 104, Ex. 2, 46:14-21). The Legal Department then drafts a position statement using information supplied by the subsidiary (Id.). However, Res-Care has no involvement in the day-to-day employment decisions that give rise to such charges of discrimination. - 16 -

5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Third, as to the employment manuals that the EEOC argues were created by ResCare, these were merely templates that were modified by the subsidiaries to suit their particular circumstances and needs (Doc. 104, Ex. 2, Ombres Dep. 58:19-59:3).6 Indeed, the Guide given to Creative Networks' employees exhibits multiple alterations to the version supplied by Res-Care (See e.g., id. 59:21-60:19). Likewise, the employee forms given by Res-Care to the subsidiaries were templates that could be adapted as needed (Doc. 94, Ex. G, Ombres Dep. 115:13-116:22). Moreover, while individuals at Res-Care are identified in the Guide and Code of Conduct as contacts for reporting discrimination and Code of Conduct violations, Creative Networks employees also are listed (PSOF ¶¶ 59-60; Doc. 104, Ex. 5, Employee Information Guide, Creative000442; Ex. 6, Code of Conduct, Creative 000537). Fourth, Res-Care also entered into nationwide contracts with companies such as ADP and Verizon to provide cost efficiencies to its subsidiaries and their employees (PSOF ¶¶ 39, 42; Doc. 104, Ex. 2, Ombres Dep. 17:8-14; 24:16-25:2). However, this is not indicative of the type of influence and participation in employment policies spoken of in Watson. The contract with ADP still required the subsidiaries to process their own payroll locally, and checks had Creative Networks' name on them (PSOF ¶ 39; Doc. 104, Ex. 2, Ombres Dep. 17:6-24). Finally, the EEOC has offered no evidence that the parent-subsidiary relationship between Res-Care and Creative Networks is a "sham" or that Creative Networks is undercapitalized in a way that would prevent Encinas-Castro and Allen from recovering any judgment awarded. Indeed, the primary evidence regarding Creative Networks' finances is the affidavit of Cornelison offered by Res-Care (DSOF ¶ 10; Doc. 94, Ex. H, Cornelison Aff.). In it, Cornelison states that Creative Networks is able to defend the

The EEOC claims that any changes made by the subsidiaries needed to be approved by Res-Care's regional staff, and thus, this fact further illustrates Res-Care's control over Creative Networks (PSOF ¶ 11). However, the testimony of Ombres indicates that such approval was not in fact required (Doc. 104, Ex. 2, Ombres Dep. 59:4-10). - 17 -

6

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

case brought against it, and capable of paying any resulting judgment or settlement (Doc. 94, Ex. H, Cornelison Aff. ¶ 3). Moreover, Res-Care provided Creative Networks working capital as needed to sustain its operations (PSOF ¶ 50). In the absence of controverting evidence, the Court concludes that Creative Networks is adequately funded. II. Ron Cornelison as Agent of Res-Care As an alternative argument, the EEOC argues that Ron Cornelison was a direct employee of Res-Care, and thus, he acted as its agent in committing the allegedly retaliatory acts against Encinas-Castro and Allen (Doc. 103, 2:8-9, 17-23). The EEOC claims it is undisputed that Res-Care hired Cornelison to serve as the Executive Director of Creative Networks and maintained the power to supervise, promote, or fire him (Id. 2:10-12). Moreover, it is undisputed that Cornelison had authority over Encinas-Castro and Allen, including the authority to terminate them (Id. 2:13-16). Drawing on the United States Supreme Court case of Faragher v. City of Boca Raton, 524 U.S. 775, 807 (1998), the EEOC argues that Res-Care is vicariously liable for the discriminatory acts of its agent, Cornelison (Id. 2:24-26). In response to this argument, Res-Care claims that Cornelison cannot be made the target of the case (Doc. 129, 6:7). Cornelison was never mentioned in the initial Complaint and the alleged victims, Encinas-Castro and Allen, based their retaliation claims on meetings held with multiple Creative Networks managers, not only Cornelison (Id. 6:8-11). Additionally, Res-Care contends that Faragher held that an employer can be vicariously liable for the discriminatory conduct of its supervisors (Id. 6:14-15). Since the employer, Creative Networks, is a defendant in the present case, it is the one who would be vicariously responsible for any misconduct by its managers, not Res-Care (Id. 6:17-19). Indeed, Res-Care is one step removed from the situation in Faragher and thus, the case is inapplicable (Id. 6:16-17). The Court finds that the situation in Faragher is distinguishable from the present case. In that case, a former city lifeguard, Beth Ann Faragher, brought a claim against her immediate supervisors, alleging that the supervisors created a sexually hostile work - 18 -

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

environment in violation of Title VII. Faragher, 524 U.S. at 780. Faragher also claimed that her supervisors were agents of the City of Boca Raton, and thus, she also sought a judgment against the City. Id. at 781. The United States Supreme Court held that "An employer is subject to vicarious liability to a victimized employee for an actionable hostile environment created by a supervisor with immediate (or successively higher) authority over the employee." Id. at 807. As a result, the City of Boca Raton was vicariously liable to Faragher for the actions of its supervisors. Id. at 808. Here, Encinas-Castro and Allen's EEOC charges listed multiple Creative Networks employees responsible for the discrimination, not merely Cornelison (Doc. 94, Exs. A-D). If Encinas-Castro and Allen are able to show wrongful retaliation by Creative Networks' supervisors, Creative Networks will be the one vicariously responsible for the supervisors' conduct, rather than Res-Care. Therefore, Faragher's holding does not support keeping Res-Care in the case. III. Indirect Employer Theory Alternatively, in opposing summary judgment, the EEOC argues that Res-Care is liable for Creative Networks' Title VII violations under the indirect employer theory (Doc. 103, 8:24-27). This theory was articulated in Sibley Memorial Hospital v. Wilson, 488 F.2d 1338 (D.C. Cir. 1973) and later embraced by the Ninth Circuit in Gomez v. Alexian Brothers Hospital of San Jose, 698 F.2d 1019 (9th Cir. 1983). In its indirect employer cases, the Ninth Circuit has held that a defendant need not be the plaintiff's direct employer to be liable under Title VII. Rather, an indirect employment relationship may be enough for Title VII liability. The statute covers those situations where "a defendant subject to Title VII interferes with an individual's employment opportunities with another employer." Gomez, 698 F.2d at 1021 (quoting Lutcher v. Musicians Union Local 47, 633 F.2d 880, 883 n.3 (9th Cir. 1980)). See also Ass'n of Mexican-Am. Educators v. State of Cal., 231 F.3d 572, 579-84 (9th Cir. 2000); Anderson, 336 F.3d at 929-932.

- 19 -

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

In Sibley, the defendant hospital operated a nursing office where hospital patients could request the services of a private duty nurse. 488 F.2d at 1339. Upon a patient's request, the nursing office would contact outside referral services and ask that a private nurse be sent to the hospital to aid the patient. Id. The private nurses were considered employees of the patient, and were compensated by them. Id. A male private nurse sued the hospital under Title VII, claiming that on two occasions a supervisory nurse turned him away upon his arrival because the requesting patients were female. Id. at 1339-40. The hospital moved to dismiss arguing that no employer-employee relationship existed as required to come under Title VII's coverage. Id. at 1340. The District of Columbia Circuit held on appeal that Title VII did not require a direct employer-employee relationship. Id. at 1340-41. Then in Gomez, the Ninth Circuit adopted Sibley's reasoning to find a hospital was an indirect employer. A Hispanic physician working for the corporation AES submitted a proposal to the defendant hospital to operate the hospital's emergency room. Gomez, 698 F.2d at 1020. The hospital allegedly rejected the proposal due to the high number of Hispanics working for AES. Id. After the physician sued under Title VII, the district court granted the hospital summary judgment on grounds of standing. Id. The district court held that under the contract, the plaintiff would have been an employee of AES, rather than the hospital, and AES would have been merely an independent contractor. Id. The Ninth Circuit reversed, and held that AES's status as an independent contractor did not mean that the hospital had not somehow interfered with the employment relationship between the physician and AES. Id. at 1021-22. The Ninth Circuit noted the perverse result if the hospital were allowed "`to exploit circumstances peculiarly affording it the capability of discriminatorily interfering with an individual's employment opportunities with another employer, while it could not do so'" with its own employees. Id. at 1021 (quoting Sibley, 488 F.3d at 1341).

- 20 -

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 favor.

Despite the EEOC's arguments, the Court finds the indirect employer theory inapplicable in the present case.7 Each of the Ninth Circuit cases drawing on Sibley's rationale has done so in cases where the indirect employer was the entity engaging in the discriminatory conduct. In Sibley, the indirect employer was the hospital that refused to allow the male nurse to treat the female patient, while in Gomez, it was the hospital that refused to employ AES because of its Hispanic doctors. See Sibley,488 F.2d at 1338; Gomez, 698 F.2d at 1019. In the present case, however, the alleged retaliation did not occur at a facility controlled by Res-Care, but instead at its subsidiary, Creative Networks, that actually employs and supervises Encinas-Castro and Allen and their alleged harassers. Under these circumstances, the considerations justifying liability for indirect employers under Title VII are not applicable. Moreover, Sibley and its progeny extended Title VII coverage to indirect employers when they "`interfere[d] with an individual's employment opportunities with another employer.'" Gomez, 698 F.2d at 1021 (quoting Lutcher, 633 F.2d at 883 n.3). Res-Care is not interfering with EncinasCastro and Allen's relationship with their employer, Creative Networks, because it was Creative Networks that allowed the retaliation to occur at its workplace. CONCLUSION In conclusion, the EEOC has not raised a genuine issue of material fact for its claims against Res-Care, and therefore, the Court grants summary judgment in Res-Care's

Accordingly, IT IS HEREBY ORDERED GRANTING Defendant Res-Care, Inc.'s Motion for Summary Judgment (Doc. 93).

The EEOC gives a list of factors supposedly relevant to the indirect employer analysis and cites to Anderson (Doc. 103, 9:7-16). While the Ninth Circuit in Anderson took such considerations into account in its analysis, it is not clear that an analysis of these factors is always required under either Sibley or its progeny. Since the Court finds the indirect employer theory inapplicable in the instant case, it does not consider these factors. - 21 -

7

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

IT IS FURTHER ORDERED that Defendant Res-Care is dismissed from the present case. DATED this 19th day of March, 2009.

- 22 -