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Nov 24, 2014

By Ashley Manfull

Last week, the U.S. District Court for the Southern District of California ruled that a former female manager of AutoZone can keep a record-breaking $185 million punitive damages award on her claims of pregnancy-related harassment, discrimination, and retaliation in Juarez v. AutoZone Stores, Inc.

In 2008, Ms. Juarez filed her complaint against AutoZone, alleging the company had a culture of discriminating against and refusing to promote female employees to management positions. Ms. Juarez was promoted to parts sales manager in 2004 after she complained about lack of promotion opportunities and threatened to sue the company.

The lawsuit against AutoZone

When she became pregnant in September 2005, Ms. Juarez claimed that her male district manager immediately told her she could no longer handle the position and needed to step down. When she refused to step down, Ms. Juarez alleged that she was harassed, put on a performance improvement plan, and demoted for poor performance.

Ms. Juarez stated the harassment continued even though she made multiple complaints and filed an administrative charge. Shortly after Ms. Juarez filed her lawsuit, her employment was terminated over $400 in missing money from a cash register.

At trial, the jury found in favor of Ms. Juarez, awarding her $872,720 in compensatory damages and finding sufficient “malice, oppression or fraud” for a punitive damage award in the amount of $185 million — believed to be the largest punitive damage award ever issued to an individual plaintiff.

AutoZone immediately moved for judgment as a matter of law, arguing Ms. Juarez presented no clear and convincing evidence that malicious, oppressive or fraudulent conduct was committed or authorized by an officer, director or managing agent of the company, as is required for a punitive damage award.

Are in-house attorneys officers of the company?

Even though the District Court agreed that none of Ms. Juarez’s supervisors who took adverse action against her held an officer, director or managing agent position with the company, the Court found that AutoZone’s legal department qualified as an officer, director or managing agent.

The Court reasoned that AutoZone’s in-house legal department provided advice and counsel on almost all of the personnel decisions involving Ms. Juarez, including the decisions to demote and then terminate her, and spoke on behalf of the company in responding to Ms. Juarez’s administrative complaint.

Therefore, the Court found it was reasonable for a jury to believe there was clear and convincing evidence that the legal department was an officer, director or managing agent — even though no one individual within the legal department was specifically identified as being involved in the personnel decisions affecting Ms. Juarez.

Takeaways for employers

What is particularly troubling about this case is the fact that the District Court likely would have overturned the jury’s $185 million award of punitive damages if AutoZone’s legal department had no role in counseling and advising Ms. Juarez’s managers on disciplinary decisions.

Ironically, by exercising prudence in having its in-house legal counsel review personnel decisions, the company actually exposed itself to greater liability than if its managers had acted without legal advice and counsel.

The appeals process will take months, if not years, before a final resolution is reached, but there are several issues to consider based on the Court’s decision.

  • First, with the potential that in-house legal counsel may be treated as an officer of the company for purposes of punitive damages, it is crucial that in-house counsel has all of the facts before providing guidance and counseling on personnel issues.
  • In-house legal departments should be cautious about providing off-the-cuff responses to disciplinary questions and should carefully consider whether any underlying bias or unlawful motives may be driving the decision-making.
  • Finally, juries are unpredictable. No matter how many helpful facts are on your side, there is simply no guarantee that a jury will look at, or value, a case the same way you do.