November 22, 2021 - This Week at the Ninth

This Week at the Ninth: Title VII and Discretionary Jurisdiction

This week, the Ninth Circuit explores what constitutes a hostile work environment and unravels a tricky jurisdictional puzzle that arises when a defendant brings a conditional counterclaim in an action for declaratory relief.

FRIED v. WYNN LAS VEGAS LLC

The Court holds that an employer’s failure to respond to an employee’s complaints about a customer’s sexual advances can give rise to a hostile work environment claim.

Panel: Judges Christen, Bennett, and Silver (D. Az.), with Judge Christen writing the opinion.

Key highlight: “Reasonable jurors could decide that Fried’s manager condoned the customer’s conduct and conveyed that sexual harassment would be tolerated in the salon because she took no action to stop it—such as requiring the customer to leave the premises immediately.”

Background: Plaintiff Vincent Fried was a manicurist in the Wynn Hotel in Las Vegas. He sometimes expressed his frustration that customers would book more appointments with female manicurists rather than male ones, but his manager told him that he was working in a “female job related environment,” and one coworker suggested that he wear a wig. After a male customer sexually propositioned him during a pedicure, Fried complained. He was told to complete the pedicure, which he did. When he later complained again about the incident, his manager and his coworkers dismissed his concerns, with one coworker suggesting that he should take it as a compliment.

Fried brought suit against Wynn, alleging a Title VII hostile work environment claim. The district court granted summary judgment to Wynn, and Fried appealed.

Result: The Ninth Circuit reversed in part. Fried’s hostile work environment claim required Fried to prove, among other things, that “(1) he was subjected to verbal or physical conduct of a sexual nature; (2) the conduct was unwelcome; and (3) the conduct was sufficiently severe or pervasive to alter the conditions of employment and create an abusive working environment.” The Court concluded that comments that Fried was in a “female job related environment,” and that he should look elsewhere for work or wear a wig, were not sufficiently severe or pervasive to create Title VII liability. As the Court explained, the “objective severity” of these comments “pale[d] in comparison” to other comments the Court had previously deemed insufficient to support a hostile work environment claim—including one case involving a supervisor who referred to women as “bitches,” and another involving coworkers’ “patently offensive racial comments and acts.” “Even viewed cumulatively,” the Court declared, “this is the type of infrequent joking or teasing we have held to be part of the ordinary tribulations of the workplace.”

The Court reached a different conclusion about the response to the customer’s sexual advances. The district court deemed this episode insufficient to support Fried’s claim because he “was not touched physically, other than a brief touch on the arm,” was not alone at the time, and completed the pedicure. The Ninth Circuit held that the district court “erred when it focused on the customer’s conduct,” as “an employer’s response to a third party’s unwelcome sexual advances toward an employee can independently create a hostile work environment.” Critically, the Court emphasized, Fried’s manager did not take any corrective action; instead, she directed Fried to finish the pedicure. Moreover, the Court continued, a jury could find that this response created a hostile work environment, as the evidence showed that Fried felt “uncomfortable” while completing the pedicure and the customer continued to harass him. Finally, the Court also concluded that the insensitive comments made by Fried’s coworkers following the incident, even if not alone sufficient to support his claim, “contributed to the salon’s hostile work environment.”

ARGONAUT INS. CO. v. ST. FRANCIS MEDICAL CENTER

The Court holds that a defendant that asserts a threshold defense that the district court should decline to exercise jurisdiction over declaratory claims, while also asserting a monetary counterclaim if the court retains jurisdiction, does not require the district court to exercise jurisdiction.

Panel: Judges Clifton, Nelson, and Collins, with Judge Nelson writing the opinion.

Key highlight: “Because parties can plead a conditional counterclaim and still preserve objections to jurisdiction, we hold that such conditionally pled counterclaims, without more, do not trigger mandatory jurisdiction over declaratory claims. And because the district court properly exercised its discretion in deciding to dismiss, we affirm.”

Background: Former students sued Kamehameha Schools in Hawaii state court, alleging sexual abuse by a doctor from the late 1950s through the early 1980s. Because the doctor had practiced at St. Francis Medical Center, Kamehameha Schools filed crossclaims against St. Francis, which referred them to its insurer, Argonaut, to defend. Argonaut initially denied coverage, but eventually agreed to represent St. Francis subject to a reservation of rights. Argonaut then sought declaratory relief in federal court as to what policies Argonaut had issued to St. Francis during the relevant period; the terms of those policies; and what rights and duties Argonaut owed. St. Francis asked the district court to decline jurisdiction over Argonaut’s declaratory claim because it presented issues of state law during the pendency of parallel proceedings in state court. St. Francis also filed two counterclaims, one for declaratory relief on the same questions raised by Argonaut, and another seeking damages for Argonaut’s alleged breach of its duty of good faith. But it said it was asserting those claims only “[i]f the Court asserts jurisdiction over Argonaut’s declaratory relief claim.” The district court declined jurisdiction.

Result: The Ninth Circuit affirmed. As the Court explained, the Declaratory Judgment Act ordinarily gives federal courts discretionary, not mandatory, jurisdiction, with substantial leeway to decline to decide declaratory questions so long as it considers relevant factors. One exception to that rule, however, is “when other claims [for monetary relief] are joined with an action for declaratory relief.” If a monetary claim is “independent”—meaning “it satisfies subject matter jurisdiction on its own and is not required to be brought with a declaratory claim”—district courts have a "virtually unflagging obligation to exercise jurisdiction over these claims.”

The Ninth Circuit held that such mandatory jurisdiction does not apply when an otherwise independent counterclaim is asserted on the condition that the court exercises discretionary jurisdiction over a declaratory claim. That outcome was supported by several principles of federal practice, the Court said. Federal Rule of Civil Procedure 12 allows defendants to “assert a defense by answer without risking forfeiture of that defense,” while Rule 13 “directs a defendant to assert compulsory and permissive counterclaims in its answer.” “[I]t follows that because the Rules allow threshold defenses . . . to be pled by answer, those defenses are preserved even if coupled with counterclaims.” And while conditional pleadings are not expressly addressed in the Federal Rules, they nonetheless “are a recognized part of federal practice.” Because St. Francis’s counterclaims were conditional on the Court exercising discretionary jurisdiction, they could not independently trigger mandatory jurisdiction. “To hold otherwise would be to allow one of [St. Francis’s] pleadings to defeat the other, even though [St. Francis] pleaded them in a manner explicitly allowed by the Rules.”

Argonaut’s contrary arguments did not hold up. St. Francis had not made any jurisdictionally relevant admissions in its pleadings. Nor did it waive its jurisdictional objections by engaging in routine post-answer and pre-discovery litigation conduct. Finally, the Ninth Circuit held that the district court did not abuse its discretion by declining jurisdiction, properly basing its decision on the existence of related litigation in state court; the fact that insurance is typically a matter of state law; the absence of a compelling federal interest; the need to discourage forum shopping and avoid duplicative litigation that “would entangle the state and federal court systems”; and the convenience of the state forum.