Townsend v. Benjamin Enterprises, Inc., No. 09-0197 (2d Cir. May 9, 2012)

By Paul Mollica

The Second Circuit issues in important decision today in the fields of Title VII sex harassment and retaliation. The panel affirms a jury verdict of $5200 for a Title VII and New York state law hostile work environment claim, holding that the employer cannot raise a defense under Faragher/Ellerth when the harasser is also a senior executive “alter ego” of the employer. But the panel also affirms dismissal of a Title VII retaliation claim, for an HR executive engaged in an internal investigation of the harassment, holding that the “participation” clause does not cover an internal investigation of a complaint of discrimination before an EEOC charge is filed.

Townsend v. Benjamin Enterprises, Inc., No. 09-0197 (2d Cir. May 9, 2012): The case involved two plaintiffs: the harassment victim (Townsend) and the HR director who investigated her complaint (Grey-Allen). Townsend alleged that she was harassed by Hugh Benjamin, husband of the president of the company (BEI), as well as corporate vice president and one-time major shareholder. The harassment allegedly included sexually offensive comments, propositioning, touching and sexual assault.

Townsend complained to Hugh’s wife, Michelle, who turned the investigation over to Grey-Allen. Grey-Allen was fired and replaced by an outside consultant before she completed her work on the matter.

In the district court, Grey-Allen’s claim was dismissed on summary judgment, holding that “by participating in an internal investigation into Townsend’s sexual harassment allegations that was not associated with any EEOC proceeding, Grey-Allen had not engaged in protected activity under the participation clause of Title VII’s anti retaliation provision.” (Grey-Allen conceded that she was not covered by the “participation clause.”)

Townsend’s claims went to trial under Title VII and New York law. The jury awarded $5200 against BEI, along with Michelle and Hugh Benjamin, and an addition al $25,200 against Hugh for a tort claim under state law. Another $141,308 was awarded in attorney’s fees and costs.

The Second Circuit affirms the entire judgment. With respect to the retaliation claim, the panel carefully observes that it is not prejudging whether an internal investigation of a harassment claim might be a protected activity either under the opposition clause or when an EEOC charge has been officially filed. Focusing in the narrow claim before it, the panel holds that section 704(a) does not cover Grey-Allen’s claim, citing the plain language of the statute and the consensus of court of appeals decisions.

It rejects a novel argument that the affirmative defense under Faragher and Ellerth necessarily brings internal investigations within the ambit of participation:

“While the Faragher/Ellerth affirmative defense creates an incentive for employers to conduct internal investigations in order to show that they have met the first prong of this defense, it does not impose an obligation on employees to participate in such investigations as a necessary prerequisite to bringing a discrimination claim under Title VII . . . . Faragher and Ellerth do not provide a basis for bringing internal investigations not associated with a formal EEOC charge ‘under this subchapter’ within the language of the participation clause.”

In a separate concurring opinion, Judge Lohier “reluctantly concur[s] in its decision to affirm the dismissal of Grey-Allen’s claim,” holding that while the resolution of the statutory question is not free of doubt, analysis of the Title VII language and legislative history inclines the judge to hold that only governmental (not private, internal) investigations were covered. “[I]t is up to Congress, now accustomed to the centrality of internal investigations in the employment context as a result of these developments, to consider the issue. Congress is best placed to fill this statutory gap between the text and history of the participation clause on the one hand, and Title VII’s broad anti retaliation goals on the other hand. It may decide to do so by clarifying that the participation clause prohibits private employers from firing their human resources directors and EEO officers simply  because they have conducted an internal investigation of, say, a sexual harassment complaint.”

With respect to Townsend’s claim, the panel affirms, holding that a hostile work environment fostered by a highly-place senior figure in the company is directly imputable to the employer, without regard to corrective measures under the Faragher/Ellerth defense. Holds the Court, the “alter ego” or “proxy” doctrine – as recognized in Faragher – “holds an employer liable in its own right for wrongful harassing conduct, rather than vicariously liable for actions of the employer’s agents . . . . Faragher and Ellerth made clear that they did not intend to depart from these well-established theories of employer liability in sexual harassment cases.”

The panel also affirms the jury’s finding that Hugh Benjamin was properly within the class of “alter ego” employers. “Here, Hugh Benjamin is the only corporate Vice President of BEI, operating as second-in-command, with a position immediately below Michelle Benjamin in the corporate hierarchy. He is also a corporate shareholder with a financial stake in BEI. All of BEI’s corporate shares are held by Hugh Benjamin, Michelle Benjamin, and their two children. Given these facts, the jury reasonably could have concluded that Hugh Benjamin was sufficiently high within the corporate hierarchy to qualify as BEI’s alter ego . . . . Moreover, Hugh Benjamin exercised a significant degree of control over corporate affairs, which is consistent with alter ego liability. He collaborated with Michelle Benjamin on corporate decisions including hiring, and the supervisors and managers in the field reported directly to him.”