Equal Employment Opportunity Commission c. Wal-Mart Stores, Inc 00-16997 IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT No. 00-16997 EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, Plaintiff-Appellant, v. WAL-MART STORES, INC., Defendant-Appellee. On Appeal from the United States District Court for the District of Arizona BRIEF OF THE EQUAL EMPLOYMENT OPPORTUNITY COMMISSION AS PLAINTIFF-APPELLANT GWENDOLYN YOUNG REAMS Associate General Counsel PHILIP B. SKLOVER Associate General Counsel LORRAINE C. DAVIS Assistant General Counsel ROBERT J. GREGORY Senior Attorney EQUAL EMPLOYMENT OPPORTUNITY COMMISSION 1801 L Street, N.W. Washington, D.C. 20507 (202) 663-4059 STATEMENT OF SUBJECT MATTER AND APPELLATE JURISDICTION This is a public enforcement action brought by the Equal Employment Opportunity Commission ("Commission") pursuant to Section 706(f)(1) of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000 et seq. ("Title VII"). A jury returned a special verdict on August 3, 2000, rejecting the Commission's claim for punitive damages. ER 94.<1> The district court entered judgment on the jury's special verdict on August 17, 2000. Id. at 95. The Commission filed a timely notice of appeal within 60 days of the district court's entry of judgment. Id. at 97. See F.R.A.P. 4(a)(1)(B). The district court had jurisdiction of the case under 28 U.S.C. §§ 1331 and 1345. This Court has jurisdiction of the final judgment of the district court under 28 U.S.C. § 1291. STATEMENT OF THE ISSUES 1. Whether the district court violated the "law of the case" and committed reversible error by preventing the Commission from presenting evidence of Wal-Mart's post-charge cover-up of the unlawful discrimination against the charging party Jamey Stern, when this Court, in remanding the case for a new trial on punitive damages, specifically cited the cover-up evidence as supporting an award of punitive damages. Reviewability and Standard of Review: The district court first ruled on this issue prior to the second trial on punitive damages, held in May 2000. ER 16-25. That trial resulted in a hung jury (as did the first trial on punitive damages, held in February 1999). The court renewed its ruling on this point before the third trial on punitive damages, held in August 2000. Id. at 26-33. That trial resulted in a jury verdict on punitive damages in favor of Wal-Mart. This Court reviews a district court's evidentiary rulings under an abuse of discretion standard. See Heyne v. Caruso, 69 F.3d 1475, 1478 (9th Cir. 1995). A district court commits legal error and, thus, abuses its discretion, when it acts in a manner that is inconsistent with the controlling "law of the case" as established by this Court. See Vucinich v. Paine, Webber, Jackson & Curtis, Inc., 803 F.2d 454, 458-60 (9th Cir. 1986). Reversal of a jury verdict is warranted if a court's evidentiary error "affects a party's substantial rights." Heyne, 69 F.3d at 1478. 2. Whether the district court violated the Seventh Amendment and committed reversible error by allowing Wal-Mart's managers to provide testimony on what they claim occurred during the interview process with the charging party Jamey Stern, when Wal-Mart's version of what occurred was necessarily rejected by the liability jury's finding of unlawful discrimination. Reviewability and Standard of Review: The Commission objected to the testimony during the third trial on punitive damages. ER 40-41. The court explicitly overruled the Commission's objection and allowed the testimony. Id. The Seventh Amendment requires a trial judge, and any subsequent jury, "to follow the [first] jury's implicit or explicit factual determinations." Miller v. Fairchild Indus., Inc., 885 F.2d 498, 507 (9th Cir. 1989). A court violates the Seventh Amendment when it allows a fact necessarily determined, if only implicitly, by the first jury to be "re-examined" in any subsequent proceeding in that case. See Los Angeles Police Protective League v. Gates, 995 F.2d 1469, 1473-74 (9th Cir. 1993). STATEMENT OF THE CASE 1. Nature of the Case This case involves a claim of sex discrimination under Title VII. The Commission has already established unlawful conduct on the part of the defendant, Wal-Mart Stores, Inc. ("Wal-Mart"). Specifically, a jury has found that Wal-Mart refused to hire the charging party, Jamey Stern, because of her pregnancy. This appeal concerns the Commission's claim for punitive damages for Wal-Mart's unlawful discrimination against Stern. 2. Course of Proceedings The Commission filed its Complaint on July 11, 1994. CR 1. The case was tried to a jury in April 1997, which returned a verdict in the Commission's favor. CR 101. As a result of that verdict, Stern was awarded $1,678.49 in back pay and interest. CR 118. Although the Commission prevailed on its claim of discrimination, the district court refused to submit the issue of punitive damages to the jury. The Commission appealed to this Court and prevailed in a published opinion. See EEOC v. Wal-Mart Stores, Inc., 156 F.3d 989 (9th Cir. 1998). This Court remanded the case for a new trial on punitive damages only. Since this Court's remand, the parties have participated in three trials on punitive damages. The first trial, held in February 1999, resulted in a hung jury. CR 160. The second trial, held in May 2000, also resulted in a hung jury. CR 215. The third trial, held in August 2000, resulted in a verdict in Wal-Mart's favor on the punitive damages issue. ER 94. 3. Statement of Facts In November 1991, Jamey Stern applied for a position with Wal-Mart's Green Valley, Arizona store. Trial Tr. (April 1, 1997) at 44, 47. Stern was not hired for the position. Id. at 49-52. Stern filed a charge alleging pregnancy discrimination. Id. at 57-58. Wal-Mart initially claimed, in response to that charge, that Wal-Mart rejected Stern because she had indicated on her application that she was unable to work more than two days a week. Id. at 118. Stern's application, however, contained no such limitation. Id. at 118-20. The Commission investigated the charge and determined that there was reasonable cause to believe that discrimination had occurred. Id. at 117-18. The case was tried to a jury in April 1997. Stern testified at length concerning the interview process. Stern testified that she was initially interviewed by Nance Hammond, the Green Valley store's Training/Personnel Manager. Trial Tr. (April 1, 1997) at 46, 123. During the interview, Stern informed Hammond of her pregnancy. Id. at 47. Hammond indicated that Stern would be hired, subject to Stern passing a drug test that was to be administered, at some future point, by Patricia Ledbetter, the store's Assistant Manager. Id. at 48. Stern testified that she never met with Ledbetter. Instead, over the next few days, Stern attempted to contact Ledbetter to set up an appointment for the drug test. Id. at 49. Ledbetter did not return her calls. Id. at 50. When Stern was finally able to reach Ledbetter, Ledbetter informed Stern that she was not being hired because of the "conditions" of her pregnancy. Id. at 51. Although Stern assured Ledbetter that she was willing and able to work, id., Ledbetter was unpersuaded. Ledbetter urged Stern to reapply in June "after you've had the baby." Id. at 52. Wal-Mart offered a different version of the interview process. Wal-Mart no longer claimed, as it had during the investigative stage, that Stern had been rejected because she had indicated on her application that she was unable to work more than two days a week. Instead, Wal-Mart claimed that Stern had not been hired because Stern chose not to take the job due to her own concerns about her pregnancy. Ledbetter testified that, on the same day that Hammond interviewed Stern, Stern had a second interview in-person with Ledbetter.<2> Trial Tr. (April 2, 1997) at 24-29. Ledbetter claimed that, during this interview, Stern expressed concerns about her ability to meet the physical demands of the position. Id. According to Ledbetter, by the end of the interview, Stern had concluded that she could not work at the job during her pregnancy. Id. Although Ledbetter testified that she had completed an interviewer's comments sheet for the Stern interview, Wal-Mart was never able to produce a copy of the comments sheet. Id. at 46. There was evidence that it was routine for Wal-Mart to retain the comments sheet when, in fact, a second interview was conducted. Trial Tr. (April 1, 1997) at 134-37. The trial testimony left the jury with two, diametrically opposed versions of what occurred during the interview process. If the jury believed Stern, it had little choice but to find in the Commission's favor; there was direct evidence that Ledbetter had rejected Stern's bid for employment due to Stern's pregnancy. If the jury believed Wal-Mart's witnesses, it had little choice but to find in Wal-Mart's favor; there could be no unlawful discrimination if there was a second interview with Ledbetter during which Stern essentially withdrew her application. The jury accepted Stern's version of the events and returned a verdict in the Commission's favor. CR 101. Stern received $1,678.49 in back pay and interest. CR 118. The Commission also sought punitive damages for Wal-Mart's discrimination. The district court refused to submit the issue of punitive damages to the jury. The court specifically ruled that the Commission's evidence was insufficient to support an award of punitive damages. Trial Tr. (April 2, 1997) at 78-79, 92-93. The Commission appealed the district court's ruling on punitive damages to this Court. In an opinion dated September 24, 1998, this Court reversed the district court's ruling on punitive damages and remanded for a new trial on the issue of punitive damages only. This Court ruled that the Commission "met even a heightened standard for punitive damages because it presented evidence that reasonably could support a finding that 'Wal-Mart's decisionmakers deliberately rejected Stern because of her pregnancy and conspired to cover up their unlawful discrimination by fabricating an interview that never took place.'" 156 F.3d at 992. This Court stressed that this was more than a case of "'negligent decisionmaking' and 'poor communication among managers.'" Id. Instead, there was "direct evidence" that Ledbetter "specifically told Stern that she would not be hired because of the conditions of her pregnancy," despite Stern's assurances that her pregnancy would not "affect her ability to do the job for which she was applying." Id. In addition, there was "evidence regarding the attempts by Wal-Mart managers to cover up their discriminatory conduct," evidence which supported "the EEOC's claim of reckless indifference to Stern's federally protected rights." Id. at 993. As this Court explained: In this case, the EEOC presented the jury with evidence that Wal-Mart provided false reasons for not hiring Stern. For instance, during the EEOC investigation, Wal-Mart claimed that Stern was not hired because she chose not to take the job due to concerns about her pregnancy, and because her job application indicated that she was available to work only limited hours. Wal-Mart eventually was forced to admit that the latter reason was contrived, as Stern's application showed that she never requested limited hours. Thus, at trial, Wal-Mart claimed only that Stern wasn't hired because she chose not to work because of her pregnancy. However, the EEOC presented evidence that supports a finding that Wal-Mart, in order to cover up the discrimination, fabricated Stern's face-to-face interview with Ledbetter, during which Stern allegedly expressed her concerns about her pregnancy and her ability to perform the layaway job. . . . In sum, the jury was presented with evidence that an assistant manager at Wal-Mart's Green Valley store intentionally discriminated against Stern based on her pregnancy and that the assistant manager and other Wal-Mart officials attempted to cover up their discriminatory conduct. Id. The first trial on punitive damages was held in February 1999. The Commission proposed that the jury be instructed as follows concerning the first trial on liability: "A jury has already determined that Wal-Mart intentionally discriminated against Ms. Stern because she was pregnant. You must therefore accept as a proven fact that Wal-Mart intentionally discriminated against Jamey Stern because of her pregnancy when it failed to hire her." CR 133, Plaintiff's Proposed Jury Instruction #30. Wal-Mart countered that the "jury should not be advised of the previous jury determination or the specifics of such determination. Rather, the jury should simply be advised that they are only to decide the issue of punitive damages." CR 149 at 2. Wal-Mart proposed the following instruction: "The only issue for you to decide in this case is the issue of punitive damages. All other issues have been determined before this trial." CR 148, Defendant's Proposed Jury Instruction #1. The court essentially agreed with Wal-Mart. The court made reference in its instruction to a prior determination of discrimination. The court, however, did not instruct the jury that a prior jury had already found Wal-Mart liable for intentional discrimination. Trial Tr. (Feb. 10, 1999). The court's instruction effectively forced the parties to retry the case, as if the issue of liability had not already been resolved in the Commission's favor. In keeping with the court's instruction, Wal-Mart contested virtually every factual point surrounding the underlying claim of discrimination. Wal-Mart denied that "it tried to cover up any alleged act of discrimination, or that it purposefully discriminated against Jamey Stern because of her pregnancy." CR 136 at 6. Wal-Mart suggested to the jury that the refusal to hire Stern was "probably" just the result of "confusion." Trial Tr. (Feb. 8, 1999) at 3, 11. Wal-Mart vigorously cross-examined Stern, challenging Stern's account of what occurred during the interview process. Trial Tr. (Feb. 9, 1999) at 68-86. Wal-Mart, through the testimony of Hammond and Ledbetter, presented its own version of the events, i.e., Stern withdrew her application after her in-person interview with Ledbetter. Id. at 152-56, 239-47. The case was submitted to the jury, which asked questions that went to the underlying issue of discrimination, e.g., "did anyone validate Jamey's calls and/or return to the store, customer service, after this interview with management?" Trial Tr. (Feb. 10, 1999) at 60. The jury eventually deadlocked, and the court declared a mistrial. CR 160. After the first trial on punitive damages, the Supreme Court issued its opinion in Kolstad v. American Dental Ass'n, 527 U.S. 526 (1999). In that case, the Court rejected the argument that a plaintiff must demonstrate "egregious" conduct to support a claim of punitive damages. The Court ruled that the statutory standard for punitive damages was satisfied by evidence that the defendant discriminated "in the face of a perceived risk that its actions will violate federal law." Id. at 536. The Court also ruled that a defendant could defeat a claim for punitive damages, in cases in which the decision-makers are low-level managers, by demonstrating that the managers' discrimination was "contrary to the employer's 'good-faith efforts to comply with Title VII.'" Id. at 545-46. In light of the intervening decision in Kolstad, the parties conducted additional discovery, bearing largely on the good-faith defense. At the conclusion of discovery, Wal-Mart moved for summary judgment, arguing that the "overwhelming" evidence of its "good faith implementation of an anti-discrimination policy" entitled Wal-Mart to judgment as a matter of law on the punitive damages issue. CR 189 at 4. The Commission responded that summary judgment was not proper because, under the Kolstad standard, "'an employer must show not only that it has adopted an anti-discrimination policy, but that it has implemented it in good faith.'" CR 191 at 9. The Commission pointed out that, in its decision remanding the case for a new trial on punitive damages, this Court had cited evidence of "'Wal-Mart managers attempt[ing] to cover up the discriminatory conduct, including fabricating an interview that never took place,'" id. at 2, evidence that could well support a finding that Wal-Mart had not effectively implemented its anti-discrimination policy. The district court denied Wal-Mart's motion and set the case for trial. CR 197. The second trial on punitive damages was held in May 2000. Again, the Commission requested an instruction regarding the finding of the liability jury. This time, the district court agreed with the Commission.<3> The court gave the following preliminary instruction to the jury: A trial was held some time ago and the EEOC on behalf of Jamey Stern sued Wal-Mart. The jury in that case has decided that Wal-Mart intentionally discriminated against Ms. Stern by refusing to hire her in November of 1991 because she was pregnant. You must therefore accept as proven fact that Wal-Mart intentionally discriminated against Ms. Stern because of her pregnancy when it failed to rehire her. The previous jury also found that Ms. Stern was damaged by Wal-Mart's actions and Ms. Stern was compensated for that loss. The only issue for you to decide in this matter is whether Ms. Stern is entitled to punitive damages, and, if so, how much. Trial Tr. (May 22, 2000) at 46-47. Although the court provided the Commission with its requested instruction, it severely limited the Commission's proof. Prior to trial, the Commission raised an objection with respect to Wal-Mart's proposed exhibits, purporting to show training materials developed after the first trial on liability (which was held in April 1997). ER 19. The Commission urged that these materials, published some six years or more after the incident in question, were not relevant "to what Wal-Mart did in relation to Ms. Stern or even after her charge of discrimination, which had come a number of years before that." Id. The court agreed with the Commission, with the caveat that "[i]f they're going to accuse you [Wal-Mart] of being so callous you're still doing what you did back then, or some argument like that, then I'll let them in." Id. at 20. This ruling prompted Wal-Mart to raise questions about the Commission's intention to present evidence concerning Wal-Mart's response to Stern's charge, e.g., its cover-up of the discrimination through false explanations and a fabricated interview. Id. at 20-21. The Commission explained that there was a significant difference between miscellaneous training materials developed six years or more after the incident in question and Wal-Mart's actions in direct response to Stern's complaint. Id. at 22. The Commission clarified that, if the court were to take an "all or nothing approach" with respect to the admissibility of post-discrimination evidence, the Commission would prefer a ruling that allowed everything in, including Wal-Mart's post-April 1997 training materials, rather than one that had the effect of excluding evidence of Wal-Mart's deceitful conduct in the wake of Stern's charge. Id. at 22-25. The court disagreed, ruling that all of the post-discrimination evidence was to be excluded. As the court put it: Well, I'm going to exclude that evidence. I don't think it's relevant, Ms. Shanley. What we're talking about here is what happened to Ms. Stern in '91. . . . [B]ut that's what we're talking about, the conduct that happened in '91, Wal-Mart's frame of mind, the employees of Wal-Mart, et cetera, and we've crossed those bridges except for the question of good faith in place in '91, not what they did afterwards. And I'm not going to allow any post-'91 conduct. Id. at 25. The effect of the court's ruling was to preclude the Commission from putting on any evidence of Wal-Mart's cover-up of the discriminatory conduct. Despite being hamstrung by the court's evidentiary rulings, the Commission nearly prevailed on its claim. The evidence shows that, after several hours of deliberations, the jury reached an impasse. All eight jurors agreed that punitive damages were proper. Trial Tr. (May 24, 2000) at 3. The jurors, however, could not agree on a specific amount of damages.<4> Id. The court eventually declared a mistrial. CR 215. The third trial on punitive damages was held in August 2000. This trial was essentially tried on the same terms as the second trial on punitive damages. The court provided the same preliminary instruction concerning the finding of intentional discrimination at the liability phase. Trial Tr. (Aug. 2, 2000) at 12-13. The court reiterated its ruling that post-1991 evidence was to be excluded. ER 26-33. The court did so despite the Commission's insistence that the evidence be admitted. Id. Wal-Mart put on a two-pronged defense. First, Wal-Mart urged that the Commission could not demonstrate that Wal-Mart's managers acted with malice or with reckless indifference to Stern's Title VII rights. Trial Tr. (Aug. 2, 2000) at 66. Second, Wal-Mart urged that it had policies and training programs in place, at the time of the incident in question, that demonstrated its "good-faith" efforts to comply with the law. Id. On the first point, the Commission pointed to the fact that the prior jury had found that Wal-Mart's managers intentionally discriminated against Stern in denying her employment. Id. at 198-202. Because of the court's evidentiary ruling, the Commission was unable to provide evidence showing that Wal-Mart's managers had lied and covered up the discrimination. On the second point, the Commission contended that the policies and training programs were not strong evidence of Wal-Mart's "good-faith" efforts to comply with the law because there was no specific evidence that these policies and programs had been effectively implemented at the Green Valley store. Id. at 205-11. Although the Commission was able to make that general argument, it was unable to put on evidence showing that, in this particular case, Wal-Mart's managers had responded to Stern's charge by covering-up the discrimination and fabricating explanations for the hiring decision. The Commission's ability to present its case was also hampered by another ruling of the district court. The Commission called Ledbetter as a witness. The Commission limited its questions to matters concerning Ledbetter's knowledge of the prohibition against pregnancy discrimination and the training she received while a manager at Wal-Mart. ER 34-40. On cross-examination, however, Wal-Mart attempted to ask Ledbetter about the events underlying the claim of discrimination. Id. at 40-41. The Commission objected, stating that, at this stage of the case (the liability issue having been resolved against Wal-Mart), the version of the events proffered by Wal-Mart's witnesses was irrelevant. Id. The district court disagreed, ruling that Wal-Mart's version of what occurred during the interview process was indeed relevant to punitive damages. Id. As a result of the district court's ruling, both Ledbetter and Hammond were allowed to offer their version of the interview process, e.g., that there was a second interview during which Stern withdrew her application. Id. at 47-51, 66-69. Having secured favorable evidentiary rulings from the district court, Wal-Mart exploited those rulings to its advantage. In its closing statement, Wal-Mart repeatedly stated that there was no evidence to show that its managers acted with the type of malice or reckless indifference that would support an award of punitive damages. Wal-Mart, for example, made the following statement: They [the Commission] have the burden of proof on the issue that not only did Wal-Mart violate the law or the jury determined they did, but it's worse than that. It's bad, it's evil, it's mean, it's 'I don't care.' That's what they have to prove. And there's no evidence of that. Anywhere. I defy anyone to suggest that. Well, they knew it was wrong and they did it anyway. So that's their case they said. That's their conclusion. There's no smoke in that gun, folks. None. ER 77. Wal-Mart later told the jury: And the question that you ask as a jury in this case, according to the instructions His Honor is going to give you, is: Has the government proven these allegations that Trish Ledbetter and Nance Hammond are bad people? That they acted badly? That they didn't care, they knew they were violating the law and they still didn't care? That's what they have to prove. That's what your government has alleged, folks, and when they come to court they have to prove it. I submit to you they haven't. . . . I can't blame Nance Hammond and Trish Ledbetter. I just can't leave them without emphasizing what they've been through personally, what they've seen, what they've been trained, what they know, how they did their job. And to even suggest that they didn't care, that they violated the law, that they just recklessly didn't care, they were essentially intending to harm -- pick your adjective; those are the ones you have to choose from -- is -- well, it's unfortunate, to say the least, that those allegations were made and not proved. Those are good people. Those are credible people. They try and do a good job and they did. ER 80. In still another portion of its closing statement, Wal-Mart remarked: They [the Commission] have to prove that these women acted horribly, terribly, mean, indifferent, recklessly indifferent, bad, [the] kind of thing that somebody should be punished for, that they should be punished for. And they have to prove it. I submit to you they have not proven it. . . . I submit to you, folks, that this should be an easy case. Please don't read me as being pompous when I make that statement, but there is no proof these we [sic] were bad people. There is no proof that they acted badly in the way that the government has alleged that they did. ER 91-92. Wal-Mart also argued to the jury that it had "implemented and put into effect and force a good faith, bona fide training program to try to avoid discrimination." ER 81. Again, Wal-Mart cited an alleged failure of proof on the Commission's part. As Wal-Mart put the matter: So, folks, I submit to you, I'm not going to stand here and tell you what a perfect program it is because I don't know. If anybody knows if this is not a good-faith program, or if there's something wrong with what they're doing, it's the federal government, the EEOC, the people that in their words walk the walk everyday. And there has not been any evidence at all that this is not a good-faith program. Wal-Mart has done that, they've done it for years, they were doing it in the relevant time frame, which is, you know, why we're focused on that time. Did they -- were they doing their job at the relevant time? Id. at 89. Finally, Wal-Mart created the impression, in its closing statement, that the jury was free to accept the testimony of Ledbetter and Hammond with respect to what occurred during the interview process, the very testimony that had been admitted by the court over the Commission's objection. Wal-Mart stated: "There is no proof that they acted badly in the way that the government has alleged that they did. The only thing we know for sure that both parties agree on was that there were concerns about the fact that she [Stern] raised her pregnancy." ER 92-93. Wal-Mart referred to Ledbetter and Hammond as "good people," "credible people," people who did a "good job." Id. at 80. The jury returned a verdict in Wal-Mart's favor. ER 94. The court entered judgment on that verdict on August 17, 2001. Id. at 95. SUMMARY OF ARGUMENT The district court violated the "law of the case" and committed reversible error by preventing the Commission from presenting evidence of Wal-Mart's post-charge cover-up of the unlawful discrimination. In its opinion on punitive damages in this case, this Court ruled that the Commission's claim for punitive damages was supported by evidence that Wal-Mart's decisionmakers conspired to cover up the unlawful discrimination against Stern by falsifying explanations for the decision and fabricating a second interview that never took place. This Court remanded the case for a new trial on punitive damages on the premise that these proofs might well persuade a jury to impose a punitive sanction. The district court did not adhere to the mandate of this Court. The court excluded the evidence of Wal-Mart's deceitful behavior in response to Stern's complaint. The court's error plainly caused the Commission prejudice because it impaired the Commission's ability to establish the requisite mental state for a punitive award, to rebut Wal-Mart's good-faith defense, and to demonstrate the type of wrongful conduct that might persuade a jury of the need to impose a punitive sanction. The district court also committed reversible error by allowing Wal-Mart's managers to provide testimony on what they claim occurred during the interview process with Stern. The Seventh Amendment prohibits a damages jury from re-examining facts that were resolved, either explicitly or implicitly, by a liability jury. In this case, the liability jury was confronted with two, diametrically opposed versions of what occurred during the interview process. By finding Wal-Mart liable for intentional discrimination, that jury, by necessity, rejected Wal-Mart's version of what occurred during the interview process, e.g., Stern withdrew her application during an in-person interview with Ledbetter. The district court's error prejudiced the Commission by compounding the harm caused by the court's erroneous exclusion of the cover-up evidence, while leaving the impression that Wal-Mart's version of what occurred during the interview process might well be accurate. In remanding this case, this Court should provide explicit instructions to the district court on how to conduct the punitive damages trial. Such instructions are necessary to ensure that the Commission receives a fair trial on punitive damages and that closure is brought to this protracted litigation. The district court should be directed to provide the damages jury with a list of those specific facts, necessarily determined by the liability jury, that must be taken as true. The damages jury would be told, among other things, that there was no second interview with Ledbetter, that Wal-Mart's managers manufactured false explanations for the decision, and that Ledbetter, in her sworn testimony, fabricated a second interview that never took place. Based on this established set of facts, the damages jury would be asked to determine, under the governing legal standards, whether a punitive award is justified in this case. ARGUMENT I. THE DISTRICT COURT VIOLATED THE LAW OF THE CASE AND COMMITTED REVERSIBLE ERROR BY PREVENTING THE COMMISSION FROM PRESENTING EVIDENCE OF WAL-MART'S POST-CHARGE COVER-UP OF THE UNLAWFUL DISCRIMINATION. Our first claim of error is that the district court violated the law of the case by preventing the Commission from presenting evidence of Wal-Mart's attempts to cover up the unlawful discrimination against Stern.<5> In its decision remanding the issue of punitive damages to the jury, this Court made explicit reference to the evidence that "'Wal-Mart's decisionmakers deliberately rejected Stern because of her pregnancy and conspired to cover up their unlawful discrimination by fabricating an interview that never took place.'" 156 F.3d at 992. This Court ruled that "the evidence regarding the attempts by Wal-Mart managers to cover up their discriminatory conduct," including evidence that these managers falsified an explanation for their decision and fabricated a second interview with Stern, "supports the EEOC's claim of reckless indifference to Stern's federally protected rights." Id. at 993. This Court "remanded the case to the district court for further proceedings consistent with this opinion." Id. at 994. Under this Court's ruling, the district court was required to conduct a new trial on punitive damages; the Commission was entitled, at that trial, to present evidence of Wal-Mart's deceitful behavior in response to Stern's charge of discrimination. The district court ignored the clear directive of this Court. The court ruled that the Commission was precluded from presenting any evidence of Wal-Mart's post-1991 response to Stern's charge. The court prevented the Commission from adducing evidence of Wal-Mart's deceitful attempt to cover-up the unlawful discrimination against Stern, the very evidence that this Court cited as supporting the Commission's claim for punitive damages. "When a case has been decided by an appellate court and remanded, the court to which it is remanded must proceed in accordance with the mandate and such law of the case as was established by the appellate court." Odima v. Westin Tucson Hotel, 53 F.3d 1484, 1497 (9th Cir. 1995). The district court in this case failed to adhere to the "law of the case" established by this Court's decision on the punitive damages issue. Although this Court issued its decision in this case prior to the Supreme Court's decision in Kolstad, the evidence cited by this Court remains relevant under the Kolstad standard. First, Kolstad makes clear that, while the standard for punitive damages does not include an "independent, 'egregiousness' requirement," "egregious or outrageous acts may serve as evidence supporting an inference of the requisite 'evil motive.'" 527 U.S. at 538-39. Evidence that an employer's managers have attempted to cover up discrimination, by fabricating events, supports a finding that these managers have acted with such a motive. See Wal-Mart, 156 F.3d at 993 (finding of "malice" or "reckless indifference" supported by evidence that employer's agents "'planned and/or attempted to conceal or cover-up the discriminatory practices or conduct'"). Second, Kolstad stresses that the punitive damages standard focuses on the actor's "knowledge" of wrongdoing. 527 U.S. at 536. Evidence of a post-discrimination cover-up by the relevant decision-makers supports a finding that the decision-makers acted with the requisite knowledge, i.e., "in the face of a perceived risk that [their] actions will violate federal law." Id.; see Merriweather v. Family Dollar Stores of Indiana, Inc., 103 F.3d 576, 582 (7th Cir. 1996) (reckless indifference to federal rights can be inferred from the fact that the employer "deliberately gave false reasons for firing [the plaintiff]"). Notably, this Court has since ruled, in a post-Kolstad case, that an award of punitive damages is supported by evidence of post-discrimination misconduct by the employer's agents. In Passantino v. Johnson & Johnson Consumer Prods., Inc., 212 F.3d 493, 515-16 (9th Cir. 2000), this Court held that there was sufficient evidence to support a finding that the defendant acted with "malice or reckless indifference to [the plaintiff's] federally protected rights." This Court specifically cited evidence "that defense witnesses lied (both to [the plaintiff] and at trial) about their actions, as part of a continuing effort to cover up their campaign against her." Id. at 516. This Court concluded that, under the Kolstad standard, this evidence supported a finding that the defendant "could not have reasonably believed that its conduct was lawful." Id. The evidence of Wal-Mart's cover-up is also relevant to the good-faith defense announced in Kolstad. The key to the good-faith defense is how the employer's anti-discrimination policies are "implemented." Passantino, 212 F.3d at 517. It is not enough for an employer to show "that it has adopted an anti-discrimination policy." Id. The employer must demonstrate that its policy "was fairly and adequately enforced" during the relevant time-frame. Id. Evidence that an employer's agents have sought to cover-up unlawful conduct, while engaging in an on-going pattern of deceit and fabrication, all with the implicit imprimatur of the company (which has sponsored the agents' lies through years of investigation and litigation), strongly undercuts the argument that the employer has made "good-faith" efforts to implement its anti-discrimination policy. See Romano v. U-Haul Int'l, 233 F.3d 655, 670 (1st Cir. 2000) (to prevail on good-faith defense, employer must show "that efforts have been made to implement its anti-discrimination policy, through education of its employees and active enforcement of its mandate"); Cadena v. Pacesetter Corp., 224 F.3d 1203, 1210 (10th Cir. 2000) ("even if an employer-defendant adduces evidence showing it maintains on paper a strong non-discrimination policy and makes good faith efforts to educate its employees about that policy and Title VII, a plaintiff may still recover punitive damages if she demonstrates the employer failed to adequately address Title VII violations of which it was aware"); Ogden v. Wax Works, Inc., 214 F.3d 999, 1010 (8th Cir. 2000) (employer's anti-discrimination policies did not suffice, as a matter of law, to establish good faith efforts "in the face of substantial evidence that the company 'minimized' [the plaintiff's] complaints; performed a cursory investigation . . . ; and forced [the plaintiff] to resign while imposing no discipline upon [the harasser]"); Lowery v. Circuit City Stores, Inc., 206 F.3d 431, 446 (4th Cir.) (employer's good-faith defense undercut by evidence that a manager "buried two internal reports reflecting a negative attitude on behalf of [the employer] against racial minorities and failed to take any remedial action in response to the negative findings in the reports"), cert. denied, 121 S. Ct. 66 (2000). The "law of the case" doctrine dictated that the district court admit the evidence of Wal-Mart's post-charge cover-up. Subsequent decisions of the Supreme Court and this Court confirm the relevance of this evidence to the punitive damages inquiry. The district court committed a clear error in preventing the Commission from presenting the evidence of Wal-Mart's post-charge cover-up. In addition to showing that the district court erred in excluding evidence, the Commission must also demonstrate that the district court's error caused the Commission prejudice. See Heyne, 69 F.3d at 1478 (stating that, to support reversal of a jury verdict, an evidentiary error must affect a party's "substantial rights"). In this case, the prejudice is manifest. First, the exclusion of the cover-up evidence severely hampered the Commission's ability to prove that Wal-Mart's managers acted with malice or with reckless indifference to Stern's federally protected rights. The cover-up evidence supports a finding that Wal-Mart's managers acted with full knowledge of the illegality of their conduct. Indeed, it supports a finding that they acted with the type of "spite" or "evil intent" that would support a finding of malice. Unable to get this evidence before the jury, the Commission was forced to rely on the wooden finding of discrimination by the liability jury. This left Wal-Mart free to argue to the jury, as it did, that there were no bad actors in this case. Wal-Mart proclaimed that there was no evidence to show that Wal-Mart's managers "knew it was wrong" and "did it anyway." ER 77. Wal-Mart faulted the Commission for "even suggest[ing] that [Ledbetter and Hammond] didn't care, that they violated the law, that they just recklessly didn't care, they were essentially intending to harm -- pick your adjective." Id. at 80. Describing Ledbetter and Hammond as "good people," "credible people," people who did a "good job," Wal-Mart declared it to be "unfortunate, to say the least, that those allegations [of reckless indifference] were made and not proved." Id. The exclusion of the cover-up evidence also prejudiced the Commission on the issue of the Kolstad "good-faith" defense. Wal-Mart spent much of its defense time extolling the supposed virtues of its anti-discrimination policy. The Commission had several rejoinders, going to whether Wal-Mart successfully implemented that policy at its Green Valley store. The best evidence on this point, however, is the response of Wal-Mart and its managers in this case, which bears directly on whether the anti-discrimination policy was "fairly and adequately enforced." Passantino, 212 F.3d at 517. The evidence shows that Ledbetter overtly discriminated against Stern. Wal-Mart's agents then responded to Stern's charge by inventing explanations for the decision to reject Stern's employment. Ledbetter, in particular, fabricated a second interview that never took place, an interview during which Stern supposedly withdrew her application. Ledbetter, in sworn testimony, provided elaborate detail of this non-existent interview. The evidence further shows that, through years of investigation and litigation, Wal-Mart never disavowed the conduct of its managers. As a result of the district court's evidentiary ruling, none of this evidence was heard by the jury. Again, this evidentiary hole left Wal-Mart free to fault the Commission for a failure of proof. Wal-Mart told the jury that, "[i]f anybody knows if this is not a good-faith program, . . . it's the federal government, the EEOC," and "there has not been any evidence at all that this is not a good-faith program." ER 89. Finally, harm to the Commission is inherent in the nature of the punitive damages inquiry. Punitive damages are awarded on the basis of a jury's "discretionary moral judgment." Smith v. Wade, 461 U.S. 30, 52 (1983). Even if the evidence meets the legal threshold for punitive damages, a jury is not required to award punitive damages, since the jury might still have to be persuaded of the need to "'punish [the defendant] for his outrageous conduct and to deter him and others like him from similar conduct in the future.'" Id. at 54; see Larez v. City of Los Angeles, 946 F.2d 630, 648 (9th Cir. 1991) (stressing that the "purely discretionary nature of punitive damages require[s] not only a finding that the 'conduct [meets] the recklessness threshold (a question of ultimate fact), but also that [the] conduct merit[s]'" a punitive sanction).<6> Wal-Mart exploited this feature of punitive damages in its closing statement to the jury. Wal-Mart stressed that the Commission has "to prove that these women acted horribly, terribly, mean, indifferent, recklessly indifferent, bad, [the] kind of thing that somebody should be punished for, that they should be punished for. And they have to prove it. I submit to you they have not proven it." ER 91 (emphasis added). The problem, of course, is that critical evidence, supporting the need for such "punishment," was kept from the jury. It is one thing to be told that a prior jury has made a finding of intentional discrimination. It is another thing to be confronted with the fact that a company's agents have fabricated explanations for the employment decision; that they have lied under oath about the events in question; and that they have engaged in this deceitful behavior for years with the company's full support. Plainly, the Commission's "substantial rights" were affected by the district court's evidentiary exclusion. II. THE DISTRICT COURT VIOLATED THE SEVENTH AMENDMENT AND COMMITTED REVERSIBLE ERROR BY ALLOWING WAL-MART'S MANAGERS TO PROVIDE TESTIMONY ON WHAT THEY CLAIM OCCURRED DURING THE INTERVIEW PROCESS WITH STERN. For the foregoing reasons, we believe that the district court committed reversible error by excluding evidence that was vital to the Commission's claim of punitive damages. In addition to improperly excluding evidence, the district court made a related error by admitting evidence that should have been excluded -- it permitted Ledbetter and Hammond to testify as to their version of what occurred during the interview process. When a case is tried to a jury, the jury's findings are entitled to the protection of the Seventh Amendment. That Amendment provides that "no fact tried by a jury shall be otherwise re-examined in any Court of the United States." U.S. CONST. amend. VII. The Seventh Amendment requires the trial judge, and any subsequent jury, "to follow the jury's implicit or explicit factual determinations." Miller, 885 F.2d at 507. In a case in which the liability issue is decided by one jury and a second jury is empaneled to hear an issue of damages, the second jury must accept as true all facts necessarily determined, if only "'implicit[ly],'" by the first jury. Los Angeles Police Protective League, 995 F.2d at 1473; accord In re Rhone-Poulenc Rorer Inc., 51 F.3d 1293, 1303 (7th Cir. 1995); McDaniel v. Anheuser-Busch, Inc., 987 F.2d 298, 304-05 (5th Cir. 1993); Lindsey v. American Cast Iron Pipe Co., 810 F.2d 1094, 1098 (11th Cir. 1987); see also Hanna Boys Ctr. v. Miller, 853 F.2d 682, 686 (9th Cir. 1988) ("law of the case applies to 'issues decided explicitly or by necessary implication in this court's previous disposition'"). Here, the liability jury was confronted with two, diametrically opposed versions of the events. Stern's version had Ledbetter explicitly rejecting Stern's bid for employment in a telephone conversation that took place a few days after her initial interview with Hammond. Wal-Mart's version had Stern withdrawing her application in an in-person interview with Ledbetter, conducted the same day as the first interview with Hammond. The jury returned a verdict in the Commission's favor. It was impossible for the jury to find in the Commission's favor without rejecting Wal-Mart's version of the events. The jury must have believed Stern's account: Stern interviewed with Hammond only; Stern informed Hammond that she was pregnant; Hammond indicated that Stern had the job, subject to a drug test to be administered by Ledbetter; no second interview with Ledbetter ever took place; Stern made repeated attempts to contact Ledbetter; when she finally reached Ledbetter by phone, Ledbetter informed Stern that she was being rejected because of the conditions of her pregnancy; Ledbetter stood by that decision despite Stern's protestations that she could do the job. The jury must have concluded that Wal-Mart's managers falsified explanations for the decision and fabricated a second interview with Stern that never took place. By necessity, the factual issues surrounding the interview process were resolved in the Commission's favor by the liability jury's finding of unlawful discrimination. Despite the preclusive reach of the liability jury's finding of unlawful discrimination, the district court allowed Wal-Mart to present evidence of its version of the underlying events. Thus, Ledbetter was allowed to testify about her second interview with Stern, during which Stern supposedly withdrew her application. This testimony had no place in the case. It flatly contradicted the findings necessarily subsumed within the verdict of the liability jury. Allowing this testimony risked the very thing that the Seventh Amendment seeks to avoid -- the "same issue [being] reexamined by different juries." In re Rhone-Poulenc Rorer Inc., 51 F.3d at 1303. The effect of the court's error was to compound the effect of the court's erroneous exclusion of the cover-up evidence. The Commission had already been hamstrung in its ability to demonstrate the wrongful nature of Wal-Mart's conduct. Now, Wal-Mart was able to tell its side of the story, as if the first trial on liability had never taken place. In its closing statement, Wal-Mart stood firmly behind its managers, referring to them as "credible people." ER 80. Wal-Mart told the jury: "There is no proof that they acted badly in the way that the government has alleged that they did. The only thing we know for sure that both parties agree on was that there were concerns about the fact that she [Stern] raised her pregnancy." Id. at 92-93 (emphasis added). These statements created the clear impression that the issue of what occurred during the interview process was unresolved; that Wal-Mart's account of what occurred might very well be accurate. It is true, of course, that the jury was instructed that a prior jury had found Wal-Mart liable for intentional discrimination. The jury was also instructed that it must accept that finding as a proven fact. But a general instruction of this nature does not cure the harm caused by the admission of the Ledbetter and Hammond testimony. The jury may have understood that a prior jury had found Wal-Mart liable. It may have understood that it was not authorized to re-decide the liability issue as such. It may have believed, however, that the prior jury found Wal-Mart liable despite the truthfulness of Wal-Mart's account of the interview process. It may have believed that the discrimination resulted from a simple mistake or breakdown in communication, the type of thing that might support a finding of liability, in a technical sense, but would not support a punitive sanction. The finding of the liability jury necessarily carried with it a finding that Wal-Mart's managers were "bad actors;" they overtly discriminated and then covered up that discrimination through a pattern of deceit and fabrication. The damages jury was impermissibly allowed to speculate that, despite the verdict against Wal-Mart, Wal-Mart's managers had been truthful in their account of the interview process. III. THIS COURT SHOULD REMAND THE CASE TO THE DISTRICT COURT WITH EXPLICIT INSTRUCTIONS ON HOW TO CONDUCT THE PUNITIVE DAMAGES TRIAL. Assuming this Court agrees that the district court's evidentiary rulings support the Commission's claim of reversible error, this Court must remand the case for a new trial on punitive damages. We urge this Court, in remanding the case, to provide explicit instructions to the district court on how to conduct the punitive damages trial. This relatively simple case has now been the subject of four trials (one on liability, three on punitive damages). The multiplicity of trials has resulted from the multiple errors of the district court. The court initially erred by refusing to submit the issue of punitive damages to the jury. On remand, the court conducted three trials. In the first trial, the court gave instructions that required the Commission virtually to retry its case. In the second trial, the court cured that error but severely limited the Commission's proof. In the third trial, the court repeated its evidentiary error, limiting the Commission's proof, and then compounded that error by permitting Wal-Mart's witnesses to testify, over the Commission's objection, to their version of what occurred in the interview process. The Commission is entitled to a fair trial on punitive damages. Everyone concerned, however, is entitled to closure of this protracted litigation. The only way to ensure that both of these goals are achieved is to provide the district court with a clear road map on how to conduct the punitive damages trial. In our view, the proper course is as follows. The district court should instruct the jury on the specific facts necessarily resolved in the Commission's favor by the liability jury. It is not enough to tell the jury that there was a finding of intentional discrimination in a prior trial. The court should provide a list of those specific facts, necessarily determined by the liability jury, that the damages jury must accept as true. Those established facts would include the facts surrounding the interview process, as Stern testified to them in the first trial (see supra p. 33); the jury should be told that there was no second interview with Ledbetter, that Wal-Mart's managers manufactured false explanations for the decision, and that Ledbetter, in her sworn testimony, fabricated a second interview that never took place.<7> Wal-Mart would be entitled to argue that, despite these facts, a punitive award is not justified. It would not be able, however, to contest these facts. Based on these established facts and any additional evidence presented on the good-faith defense (e.g, evidence of Wal-Mart's anti-discrimination policies and training programs), the jury would be in a position to resolve the critical issues. Did Wal-Mart's managers act with malice or with reckless indifference to Stern's federally protected rights? Did Wal-Mart engage in good-faith efforts to comply with Title VII? Is this the type of case that merits a punitive sanction? No doubt, the established facts put Wal-Mart in a difficult position. But that is how it should be. Wal-Mart has been found liable for intentional discrimination. As part of that finding, the liability jury necessarily determined that Wal-Mart's agents lied under oath and engaged in an elaborate cover-up of the unlawful discrimination. Wal-Mart does not enter the damages trial with a clean slate. It enters the trial with two strikes against it and Bob Gibson on the mound, prepared to throw the heat. Any trial on punitive damages must fully account for the findings of the liability jury, findings which, by necessity, cast Wal-Mart's conduct in an extremely negative light. CONCLUSION The district court improperly excluded evidence of Wal-Mart's post-charge cover-up of the discrimination against Stern. The court also erred in allowing Wal-Mart to present its version of what occurred during the interview process, a version that is foreclosed by the liability finding of the first jury. Both errors prejudiced the Commission. This Court should reverse the judgment of the district court and remand the case for a new trial on punitive damages with explicit instructions to the district court on how to conduct the punitive damages trial. Respectfully Submitted, GWENDOLYN YOUNG REAMS Associate General Counsel PHILIP B. SKLOVER Associate General Counsel LORRAINE C. DAVIS Assistant General Counsel ROBERT J. GREGORY Senior Attorney EQUAL EMPLOYMENT OPPORTUNITY COMMISSION 1801 L Street, N.W. Washington, D.C. 20507 April 9, 2001 (202) 663-4059 STATEMENT OF RELATED CASES The Commission is unaware of any related cases.CERTIFICATE OF COMPLIANCE I, Robert J. Gregory, hereby certify that this brief complies with the type-volume limitations imposed under F.R.A.P. 32(a)(7)(B)(i). The brief contains 9102 words. Robert J. Gregory CERTIFICATE OF SERVICE I, Robert J. Gregory, hereby certify that on this 9th day of April, 2001, two copies of the attached brief were sent by first-class mail, postage prepaid, to the following counsel of record: Stephanie D. Gordon Wal-Mart In-House Litigation Team 702 S.W. 8th Street Bentonville, Arkansas 72716-8313 Robert J. Gregory 1 References to the record are to the relevant pages of the Excerpts of Record ("ER"), in accordance with Circuit Rule 28-2.8. With respect to documents not included in the Excerpts of Record, the brief references either the document number of the original clerk's record ("CR") or the trial transcript ("Trial Tr."). 2 Ledbetter never mentioned any such second interview during the Commission's investigation of Stern's charge. Trial Tr. (April 1, 1997) at 129. 3 By the time of the second trial on punitive damages, the case had been assigned to a new district court judge, Judge William Browning. CR 168. Judge Browning apparently took a different view of the issue than the predecessor judge, Judge Alfredo Marquez (who had also presided over the liability trial). 4 One of the questions asked by the jury was whether the amount of damages awarded to Stern in the first trial was "substantial." Trial Tr. (May 23, 2000) at 150. The Commission proposed that the jury be told that the amount awarded was "not substantial." Id. at 151. Wal-Mart objected to any disclosure of the amount of damages awarded in the liability trial. Id. at 150-51. The court agreed with Wal-Mart, informing the jury that the amount awarded "in the first lawsuit is not of any concern to you in deciding this case." Id. at 151. 5 By necessity, our argument focuses on the errors committed during the third trial on punitive damages, which resulted in the adverse jury verdict. Similar errors, however, were made during the first two trials on punitive damages. If nothing else, the first two trials provide relevant background for assessing the district court's rulings in the third trial. Indeed, taken as a whole, the three trials reveal that the Commission was stymied in its attempt to present the damages juries with a complete picture of Wal-Mart's wrongdoing, including its overt discrimination and its cover-up of that discrimination through deceit and fabrication. 6 In keeping with this view, the district court instructed the jury that the "purpose of punitive damages is to punish the defendant for its conduct and to deter the defendant and other people, other corporations and companies similarly situated, from engaging in similar conduct in the future." Trial Tr. (Aug. 2, 2000) at 13. 7 There is support in the law for this type of detailed factual instruction in cases in which a first jury has determined liability and the case is remanded for a new trial on damages before a second jury. See Robertson Oil Co. v. Phillips Petroleum Co., 930 F.2d 1342, 1344-45 (8th Cir. 1991) (affirming the district court's decision to provide the damages jury with explicit instructions as to the specific facts resolved by the liability jury); MCI Communications Corp. v. American Tel. & Tel. Co., 708 F.2d 1081, 1168 (7th Cir. 1983) (stressing that, "to be effective, separate trials of liability and damages . . . must be grounded upon a clear understanding between the court and the parties of the issues and proof involved in each phase of the trial;" if at all possible, stipulations and admissions should be relied upon to "educate" the damages jury on the issues resolved by the liability jury); see also See Local 159 v. Nor-Cal Plumbing, Inc., 1999 WL 547400, *1 (9th Cir. July 27, 1999) [unpublished] (affirming a district court's decision to provide the jury with a "Statement of Established Facts" summarizing the facts implicitly determined in the first phase of the litigation).