Equal Employment Opportunity Commission v. Roark-Whitten Hospitality 2, LP

Filing 215

MEMORANDUM OPINION AND ORDER by Circuit Judge Paul Kelly, Jr. granting defendant SGI, LLC's motion to dismiss on the basis of failure to state a claim and denying it on the basis of subject matter jurisdiction. (rt)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO

EQUAL EMPLOYMENT
OPPORTUNITY COMMISSION,
Plaintiff,
v.
ROARK WHITTEN HOSPITALITY 2,
LP d/b/a WHITTEN INN, JAI
HANUMAN, LLC, d/b/a WHITTEN INN
TAOS AND/OR EL CAMINO LODGE,
AND SGI, LLC d/b/a EL CAMINO
LODGE,

No. 1:14-cv-00884-PJK-LF

Defendants.

MEMORANDUM OPINION AND ORDER
DISMISSING FOURTH AMENDED COMPLAINT

THIS MATTER is before the court on Defendant SGI, LLC’s Motion to Dismiss
for Lack of Subject Matter Jurisdiction and Failure to State a Claim filed September 10,
2018. ECF No. 203. Upon consideration thereof, the motion to dismiss is well taken and
should be granted on the basis of a failure to state a claim, not lack of subject matter
jurisdiction. 1

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This case was transferred to the undersigned in June 2019.

Background
The Equal Employment Opportunity Commission (EEOC) filed this public
enforcement action on September 30, 2014 seeking relief for eight named parties.
Compl. (ECF No. 1). The Complaint alleged that Defendant Roark-Whitten Hospitality 2
(RW2) engaged in unlawful employment practices by creating a hostile work
environment, engaging in discriminatory practices, and retaliating against employees at a
hotel owned by RW2 in Taos, New Mexico (Taos Hotel). Id. at ¶¶ 77-97. After learning
that RW2 sold the Taos Hotel, the EEOC filed an amended complaint on December 22,
2014, adding as a defendant “the unknown owner and/or XYZ
Company(s)/Corporations.” Am. Compl. at 2 (ECF No. 4).
Thereafter, the EEOC moved to substitute Jai Hanuman LLC “for the previously
unknown XYZ Company(s)/Corporations.” Pl’s Renewed Mot. to Am. Compl. at 1 (ECF
No. 52). The court granted the request, and the EEOC filed its Second Amended
Complaint. ECF No. 87. On December 16, 2016, after learning that Defendant Jai sold
the Taos Hotel to SGI, LLC (SGI), the EEOC filed its second motion to amend the
complaint to add SGI as a defendant. ECF No. 86. Jai and RW2 opposed the addition of
SGI, ECF No. 94, and Jai moved to dismiss the Second Amended Complaint pursuant to
Fed. R. Civ. P. 12(b)(6). ECF No. 96. The court granted the EEOC’s second motion to
amend and denied Jai’s motion to dismiss. ECF No. 178.
On September 28, 2017, the EEOC filed its Third Amended Complaint adding
SGI as a party under a theory of successor liability. ECF No. 179. SGI moved to dismiss
the Third Amended Complaint for failure to state a claim. ECF No. 186. SGI argued that
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the EEOC failed to plead adequately the essential elements necessary to establish
successor liability, including that SGI had notice of the lawsuit at the time it purchased
the Taos Hotel. Id. The court ruled that although the Third Amended Complaint
adequately pled many of the essential elements of successor liability, it failed to
adequately plead that SGI had notice of the lawsuit at the time it purchased the Taos
Hotel. Mem. Op. and Order at 8–10 (July 30, 2018) (ECF No. 199). While the court
granted SGI’s motion to dismiss, it also granted leave to the EEOC to amend its
complaint to cure the notice issue. Id. at 9–10.
On August 13, 2018, the EEOC filed its Fourth Amended Complaint. ECF No.
201. On September 10, 2018, SGI moved to dismiss the Fourth Amended Complaint
under Rule 12(b)(1) for lack of subject matter jurisdiction and under Rule 12(b)(6) for
failure to state a claim upon which relief can be granted. The court now considers this
motion. ECF No. 203.

Discussion
A. Subject Matter Jurisdiction
SGI argues that the EEOC failed to adequately allege notice in connection with
successor jurisdiction, Def.’s Mot. to Dismiss at 2 (ECF No. 203). SGI argues that
before determining successor liability, a court must determine if it maintains jurisdiction
over a Title VII claim. Id. The EEOC does not address SGI’s jurisdictional argument in
its response, but the court concludes that SGI’s argument is foreclosed by Supreme Court
precedent. See Fort Bend Cty. v. Davis, 139 S. Ct. 1843, 1850–51 (2019).

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SGI argues that Title VII’s charge-filing requirement must be satisfied to confer
subject-matter jurisdiction. Def.’s Mot. to Dismiss at 2–4. According to SGI, because
successor companies are not named in the original EEOC charge, a court lacks subjectmatter jurisdiction over successor companies unless the successor had notice of the Title
VII charge and an opportunity to voluntarily comply with the law. Id. The Supreme
Court recently held that “Title VII's charge-filing requirement is not of jurisdictional
cast.” Fort Bend Cty., 139 S. Ct. at 1850–51. The Court explained that “federal courts
exercise jurisdiction over Title VII actions pursuant to 28 U.S.C. § 1331's grant of
general federal-question jurisdiction, and Title VII's own jurisdictional provision, 42
U.S.C. § 2000e–5(f)(3).” Id. Accordingly, the court rejects SGI’s jurisdictional
challenge because it is now clear that Title VII jurisdiction does not hinge on notice.
B. Successor Liability
SGI also urges dismissal under Rule 12(b)(6) because the EEOC’s Fourth
Amended Complaint does not sufficiently allege that SGI had actual or constructive
notice of the pending EEOC claim when it purchased the Taos Hotel from Jai and
therefore does not support a claim of successor liability. Def.’s Mot. to Dismiss at 4–8.
The court agrees.
To survive a motion to dismiss for failure to state a claim under Rule 12(b)(6), the
complaint must contain sufficient facts that, taken as true, state a claim to relief that is
plausible on its face. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The
court accepts all facts alleged in a well-pleaded complaint as true and views the facts in
the light most favorable to the plaintiff. Potts v. Ctr. for Excellence in Higher Educ., Inc.,
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908 F.3d 610, 613 (10th Cir. 2018). But labels and conclusions cannot suffice for facts.
Twombly, 550 U.S. at 555.
The general rule of nonliability for successor corporations is subject to four
exceptions: “(1) [w]here the purchaser expressly or impliedly agrees to assume such
debts; (2) where the transaction amounts to a consolidation or merger of the corporations;
(3) where the purchasing corporation is merely a continuation of the selling corporation;
and (4) where the transaction is entered into fraudulently in order to escape liability for
such debts.” Trujillo v. Longhorn Mfg. Co., 694 F.2d 221, 224 (10th Cir. 1982) (quoting
W. Tex. Ref. & Dev. Co. v. Comm’r of Internal Revenue, 68 F.2d 77, 81 (10th Cir.
1933)).
As noted during this litigation, Mem. Op. and Order at 6 (ECF No. 199), the Tenth
Circuit broadened Trujillo’s third exception — i.e., the “continuation buyer” exception —
in the context of Title VII claims by adopting the Sixth Circuit’s nine-factor test for
determining successor liability. See Trujillo, 694 F.2d at 224–25 & n.4. 2

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The MacMillan factors include:

1) whether the successor company had notice of the charge, 2) the
ability of the predecessor to provide relief, 3) whether there has been a
substantial continuity of business operations, 4) whether the new employer
uses the same plant, 5) whether he uses the same or substantially the same
work force, 6) whether he uses the same or substantially the same supervisory
personnel, 7) whether the same jobs exist under substantially the same
working conditions, 8) whether he uses the same machinery, equipment and
methods of production and 9) whether he produces the same product.
EEOC v. MacMillan Bloedel Containers, Inc., 503 F.2d 1086, 1094 (6th Cir.
1974). Although the EEOC argues that it is “premature to conduct the fact5

The nine MacMillan factors can be distilled into a three-factor test: “(1) whether
the successor employer had prior notice of the claim against the predecessor; (2) whether
the predecessor is able, or was able prior to the purchase, to provide the relief requested;
and (3) whether there has been a sufficient continuity in the business operations of the
predecessor and successor.” Gamez v. Country Cottage Care & Rehab., 377 F. Supp. 2d
1103, 1116 (D.N.M. 2005) ((quoting Wheeler v. Snyder Buick, Inc., 794 F.2d 1228, 1236
(7th Cir. 1986)). “Of the three criteria to be considered, the first two — (1) notice of the
claim to the successor prior to the purchase of assets and (2) the ability of the predecessor
to provide the relief requested by the plaintiff—are the most important.” Jackson v.
Lockie Corp., 108 F. Supp. 2d 1164, 1167 (D. Colo 2000). These two factors are critical
because of the “inequity of holding a successor liable when the predecessor is fully
capable of providing relief or when the successor did not have the opportunity to protect
itself by an indemnification clause or lower purchase price.” Gamez, 377 F. Supp. 2d at
1117 (quoting Wheeler, 794 F.2d at 1236 (internal quotations omitted)).
Shortly after deciding MacMillan, the Sixth Circuit affirmed the importance of the
notice requirement, holding that MacMillan’s broader exception to successor liability
should not apply when (1) charges were not filed with the EEOC at the time of the
acquisition and (2) the successor corporation had no notice of any claim of discrimination

intensive weighing of the MacMillan factors,” Pl.’s Resp. in Opp’n to Mot. at 17
(ECF No. 206), this court’s decision is one on the sufficiency of the complaint
given a motion to dismiss, a pure question of law. See Ashcroft v. Iqbal, 556 U.S.
662, 674 (2009); Lowe v. Raemisch, 864 F.3d 1205, 1207 (10th Cir. 2017).

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at the time of the acquisition. See Wiggins v. Spector Freight Sys., Inc., 583 F.2d 882,
886 (6th Cir. 1978). Given the importance of the notice factor, the court now analyzes
whether the EEOC has adequately alleged that SGI had notice of the claim.
The Tenth Circuit has not decided whether constructive notice constitutes notice in
this context. That said, a few district courts within the circuit have concluded that such
notice is sufficient. See, e.g., Walker v. Faith Techs., Inc., 344 F. Supp. 2d 1261, 1268–
69 (D. Kan. 2004); Scott v. Sopris Imps. Ltd., 962 F. Supp. 1356, 1359 (D. Colo. 1997).
Assuming without deciding that constructive notice is sufficient, the Fourth Amended
Complaint’s allegations are insufficient to show constructive notice as explained below.
Constructive notice is a legal presumption that arises “from the existence of facts and
circumstances that a party had a duty to take notice of” and is imputed to the party
regardless whether the party actually had notice of the particular factual circumstance.
Constructive Notice, Black’s Law Dictionary (11th ed. 2019).
SGI points out that the EEOC has not alleged that SGI had actual notice of the
pending claims. Def.’s Mot. to Dismiss at 4. The EEOC does not argue otherwise. No
allegation claims that SGI had actual notice of the EEOC’s lawsuit in the Fourth
Amended Complaint. Accordingly, the next question is whether the Fourth Amended
Complaint alleges facts sufficient to plausibly support constructive notice.
SGI argues that the Fourth Amended Complaint does not allege facts sufficient to
show constructive notice. Def.’s Mot. to Dismiss at 4–8. The court agrees. The EEOC’s
factual allegations relevant to the question of constructive notice fall into several
categories:
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(1) the terms of the purchase agreement between SGI and the seller, including
SGI’s right to conduct due diligence, Fourth Am. Compl. ¶¶ 35(a)–(f), (h)–(k);
(2) the existence of the lawsuit at the time of the purchase and what a Google
search for “Whitten Inn Taos” would have revealed about the lawsuit and
dispute, id. ¶¶ 35(g), (o), (p);
(3) the due diligence that SGI conducted and SGI’s president’s statement that he
could have discovered the lawsuit through due diligence, id. ¶¶ 35(l)–(n), (q);
and
(4) that SGI had constructive notice of the lawsuit, id. ¶ 35(r).
Taking each of these categories in turn, viewed in the light most favorable to the
EEOC, none are sufficient to plausibly claim that SGI had constructive notice of the
lawsuit. The complaint quotes portions of the purchase agreement signed by SGI’s
principal where the parties agreed that the property would be sold “as is,” that SGI
waived all claims against the seller for any losses, and that the buyer would inspect the
property condition. But these allegations say nothing about SGI’s duty to perform due
diligence vis-à-vis the behavior or liabilities of the previous corporations that owned the
property. Rather, by their plain language, these terms allocated liabilities concerning the
parcel of land. 3

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The EEOC argues that the purchase agreement also meets the first Trujillo exception
(where the purchaser expressly or impliedly assumes the seller’s liabilities). The court is
not at all persuaded. Indemnity contracts “must clearly and definitely show an intention
to indemnify against the loss or liability involved.” Allied Hotels Co. v. H. & J. Const.
Co., 376 F.2d 1, 2 (10th Cir. 1967). The purchase agreement did not do so. As described
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Second, the existence of the lawsuit at the time of the purchase is not sufficient to
show that SGI should have known that it could be exposed to successor liability. The
EEOC has not alleged that there were any facts made known to SGI that would have
given it notice to inquire further. See Trs. of Chi. Plastering Inst. Pension Tr. v. Elite
Plastering Co., 603 F. Supp. 2d. 1143, 1151 (N.D. Ill. 2009) (requiring that successor
must have prior knowledge of facts that would then mandate performing further
diligence). If the simple existence of a lawsuit were enough to impute constructive notice
to a successor owner, such a rule would require prospective purchasers to search infinite
court dockets, using all possible names of their predecessors to determine whether
potential liabilities may arise. Courts should be reluctant to impose due diligence
requirements that are the product of 20–20 hindsight.
The EEOC suggests that a Google search could have revealed information
pertinent to the dispute, but the court is extremely hesitant to require a particular internet
search tool, let alone impose a methodology for such searches. Such is far afield from the
proper, and properly limited, role of the court in commercial and social transactions.
Next, the EEOC alleges that SGI’s president did not complete a thorough review
of the business. This conclusion adds nothing, however, without allegations that there
were some facts available to SGI that would call for it to perform such diligence. See
Wheeler, 974 F.2d at 1237 & n.9 (successor company not liable even when it did not

in the complaint, the purchase agreement simply released Jai from liability for claims that
SGI might have against Jai but did not broadly indemnify Jai for its past liabilities. See
Fourth Am. Compl. ¶¶ 35(a)–(c).
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perform due diligence); Trs. of Chi. Plastering Inst. Pension Tr., 603 F. Supp. 2d. at 1151.
The notice analysis does not turn on the diligence exercised. Rather, it turns on whether
there were facts and circumstances of which a party had a duty to take notice. See also
Constructive Notice, Black’s Law Dictionary (11th ed. 2019). Imposing a duty to
uncover an employment dispute involving a predecessor’s predecessor, with little or no
knowledge of circumstances that mandate further inquiry, would turn constructive notice
into needle-in-a-haystack notice.
As for the last category of allegations concerning notice, that SGI had constructive
notice of the employment dispute when it purchased the property, labels and legal
conclusions do not suffice for facts. The court will not consider this category. See
Twombly, 550 U.S. at 555.
The EEOC has failed to allege sufficient facts to show that SGI had notice of the
employment dispute when it purchased the Taos Hotel and dismisses the claim against
SGI under Rule 12(b)(6). 4
NOW, THEREFORE, IT IS ORDERED, ADJUDGED, and DECREED that:
Defendant SGI, LLC’s Motion to Dismiss for Lack of Subject Matter Jurisdiction and
Failure to State a Claim filed September 10, 2018 (ECF No. 203) is granted on the basis
of a failure to state a claim and denied on the basis of subject matter jurisdiction.

4

SGI also contends that the EEOC has not alleged sufficient facts to satisfy the
remaining MacMillan/Trujillo factors. Def.’s Mot. to Dismiss at 8–10. Having already
decided in favor of SGI on the basis of lack of notice, the court does not reach the merits
of SGI’s additional argument.
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DATED this 20th day of August 2019, at Santa Fe, New Mexico.
/s/ Paul Kelly, Jr.
United States Circuit Judge
Sitting by Designation
Counsel:
Paul Frye and W. Gregory Kelly, Frye and Kelly, P.C., Albuquerque, New Mexico for
Defendant SGI, LLC.
Jeff A. Lee, Senior Trial Attorney, Equal Employment Opportunity Commission,
Albuquerque Area Office, Albuquerque, New Mexico, for Plaintiff EEOC.

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