Sharpe v. Jefferson Distributing Co., 97-1066

• Decision Date: 29 June 1998
• Docket Number: No. 97-1066,97-1066
• Parties: 77 Fair Empl.Prac.Cas. (BNA) 797, 74 Empl. Prac. Dec. P 45,545 Susan SHARPE, Plaintiff-Appellant, v. JEFFERSON DISTRIBUTING CO., Data Genesis Corporation, and Robert A. McMillan, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 676

148 F.3d 676

77 Fair Empl.Prac.Cas. (BNA) 797,

74 Empl. Prac. Dec. P 45,545

Susan SHARPE, Plaintiff-Appellant, v. JEFFERSON DISTRIBUTING CO., Data Genesis Corporation, and Robert A. McMillan, Defendants-Appellees.

No. 97-1066.

United States Court of Appeals Seventh Circuit.

Argued April 21, 1998.

Decided June 3, 1998.

Rehearing and Suggestion for Rehearing En Banc Denied June 29, 1998.

Frederick S. Rhine (argued), Terence J. Moran, J. Eric VanderArend, Peter M. Katsaros, Gessler, Hughes & Socol, Chicago, IL, Jennifer L. Fischer, Chicago, IL, for Plaintiff-Appellant.

Michael J. Howlett, Jr., Allan T. Slagel (argued), Cary E. Donham, Shefsky & Froelich, Chicago, IL, William K. Blanchard, Evanston, IL, for Defendants-Appellees.

Before COFFEY, EASTERBROOK, and EVANS, Circuit Judges.

EASTERBROOK, Circuit Judge.

During 1991 Susan Sharpe and Robert Moroney came up with an idea for computer software useful to insurers' marketing departments. Needing money to turn the idea into a working program, they went looking for a venture capitalist and found Robert McMillan, who committed $1 million to the project. McMillan became the sole shareholder of Data Genesis Corporation, which was formed to develop and sell the intellectual property. Data Genesis had a payroll of two: Sharpe and Moroney, each of whom expected to receive a salary plus 10% of Data Genesis's stock (after completion of the software and its profitable sale), to be followed by full control of the corporation once McMillan had recovered his investment. Moroney was to write the software, and Sharpe was to develop a clientele. Sharpe and Moroney set to work in Illinois; McMillan monitored progress and paid the bills from West Virginia, the headquarters of his principal enterprise, a beverage distributor called Jefferson Distributing Company. In April 1994 Data Genesis fired Sharpe. She says that McMillan demanded sexual rather than marketing services and cashiered her when she balked. The district court dismissed Sharpe's claim under Title VII of the Civil Rights Act of 1964 and sent the rest of the case to West Virginia in light of the forum-selection clause in the contract.

Title VII applies only to firms with more than 15 employees. 42 U.S.C. § 2000e(b); Walters v. Metropolitan Educational Enterprises, Inc., 519 U.S. 202, 117 S.Ct. 660, 136 L.Ed.2d 644 (1997). Sharpe contends that Data Genesis (which had 2 employees) and Jefferson Distributing (which has considerably more than 13) should be treated as one entity. The parties made two assumptions in the district court that affect how this contention was resolved. The first is that the number of employees is a "jurisdictional" issue, which the district judge may decide under Fed.R.Civ.P. 12(b)(1) by receiving evidence and making findings. This assumption is incorrect. Sharpe presents a non-frivolous claim under federal law; no more is necessary for subject-matter jurisdiction. A plaintiff's inability to demonstrate that the defendant has 15 employees is just like any other failure to meet a statutory requirement. There is a gulf between defeat on the merits and a lack of jurisdiction. E.g., Steel Co. v. Citizens for a Better Environment, --- U.S. ----, ---- - ----, 118 S.Ct. 1003, 1009-12, 140 L.Ed.2d 210 (1998). So we held, for § 2000e(b) in particular, in Ost v. West Suburban Travelers Limousine Inc., 88 F.3d 435, 438 n. 1 (7th Cir.1996). Surely the number of employees is not the sort of question a court (including appellate court) must raise on its own, which a "jurisdictional" characterization would entail. But Sharpe does not argue that the district judge erred in receiving evidence and drawing inferences under Rule 12(b)(1), so we approach the case as if she had agreed to a bench trial of this question. Stewart v. RCA Corp., 790 F.2d 624, 629-31 (7th Cir.1986). The second assumption is that federal common law determines when two firms are treated as a single employer. Many a case applies to the employment-discrimination laws (Title VII, the ADA, the ADEA, and so on) the same approach the National Labor Relations Board uses to determine whether multiple corporate entities should be treated as one employer. See Rogers v. Sugar Tree Products, Inc., 7 F.3d 577, 582-84 (7th Cir.1993). But an unresolved choice-of-law question lurks behind the NLRB cases, see NLRB v. International Measurement and Control Co., 978 F.2d 334 (7th Cir.1992), and therefore behind the employment-discrimination cases too. Because the parties have not briefed this issue, and because a court of appeals need not explore choice-of-law matters unbidden, see Kamen v. Kemper Financial Services, Inc., 500 U.S. 90, 100 n. 5, 111 S.Ct. 1711, 114 L.Ed.2d 152 (1991), we approach the case, as the parties do, on the assumption that a federal common law of employment relations supplies the rule of decision--but without foreclosing attention to this subject in the future.

When deciding that Data Genesis and Jefferson Distributing are not a single employer the district judge used a list of factors recapitulated in Rogers, 7 F.3d at 582: whether the firms have closely related operations, common management, centralized control of labor relations, and common ownership. Some of these factors favor Sharpe, and some the defendants. On the one hand, McMillan owns the stock of both Jefferson Distributing and Data Genesis. The corporations mingled some of their operations, and McMillan treated both corporations' assets as his own. Sharpe's salary was paid from a Jefferson Distributing account, and McMillan sometimes used Jefferson Distributing stationery to conduct Data Genesis business. During the four months between McMillan's initial investment and the formal contract between Sharpe and Data Genesis, she worked as a consultant to Jefferson Distributing. On the other hand, both the physical operations and the labor relations of the firms are distinct. Sharpe and Moroney developed a software business in Illinois, an activity unrelated to beverage distribution in West Virginia. The "labor relations" of Data Genesis consisted in the implementation of detailed contracts with two high-salaried white collar software developers, unlike the hourly, time-clock-punching labor engaged in West Virginia. Not for a second would the NLRB consider grouping Sharpe, Moroney, and the West Virginia workers in a bargaining unit! McMillan was the only member of the board common to the two firms; Sharpe and Moroney were on the Data Genesis board but not the Jefferson Distributing board. The day-to-day managers of the beverage operation had nothing to do with Data Genesis. Sharpe and Moroney were promised equity interests in Data Genesis, not in Jefferson Distributing.

Rogers explained that none of these factors is controlling. All should be considered, we wrote, in order to understand whether the corporations are "highly integrated with respect to ownership and operations". 7 F.3d at 583 (emphasis in original). An employer may not use multiple incorporations to put a single enterprise beyond the scope of Title VII, but neither Title VII nor any other federal law lumps together as one firm all businesses owned by a single person. So was the district judge, as trier of fact, obliged to conclude that McMillan tried to use multiple corporate shells to fracture a single business and avoid the operation of federal law? We don't think so. Jefferson Distributing was in existence before Sharpe and Moroney conceived their idea. Venture capitalists keep new projects separate from existing businesses, so that failure of one does not drag all down. If Sharpe and Moroney had found someone other than...