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Shareholder Loses Discrimination Claim and Ordered to Pay Fees

By Douglas E. Motzenbecker, Litigation News Associate Editor – February 20, 2015

 

Reaffirming that employees—not shareholders—may recover for discrimination by employers, the U.S. Court of Appeals for the Seventh Circuit recently upheld an attorney fee award against an anesthesiologist and her attorney. Bluestein v. Central Wisc. Anesthesiology. Observers question the chilling effect that the appellate court’s decision may have on litigants pushing the contours of existing law.


Employers Are Unprotected
Linda Bluestein, M.D., joined the defendant medical practice in 1996 as an employee, but shortly thereafter became a shareholder and voting member of the board of directors. The board made hiring, firing, and other administrative decisions by vote of all board members, including Bluestein.


Bluestein requested an indefinite leave of absence after suffering a debilitating injury. With Bluestein voting in dissent, a majority of the board voted to terminate her employment if she refused to resign. The practice then terminated her employment, prompting herto file suit for discrimination under the Americans with Disabilities Act of 1990 (ADA), the Rehabilitation Act of 1973, and sex discrimination under Title VII of the Civil Rights Act of 1964 (Title VII).


The U.S. District Court for the Western District of Wisconsin entered summary judgment for the practice because the plaintiff was not an “employee.” The district court found the issues so one-sided that it also awarded attorney fees against Bluestein and her counsel.


The appellate court affirmed, ruling that Bluestein was not an employee entitled to protection underthe statutes in question. It relied on common law concepts of control to identify “employees,” because the ADA, the Rehabilitation Act, and Title VII provide onlycircular definitions of the term. For example, the ADA and Title VII define “employee” as “an individual employed by an employer.” Applying the six-factor test adopted by the U.S. Supreme Court in Clackamas Gastroenterology Assocs., P.C. v. Wells, the court stressed that Bluestein was: (a) a shareholder; (b) a full member of the board of directors; (c) unsupervised in the performance of her work as an anesthesiologist; (d) entitled to vote on all issues coming before the board, including her own termination; and (e) subject to the same board and committee policies as all other shareholders.


Although Bluestein argued that she often found herself dissenting from the majority, the appellate court concluded that her vote evidenced a sufficient degree of control to influence the organization for her to be deemed an “employer.” The court considered it insignificant that Bluestein had signed what the parties called an employment agreement and that she received W-2 forms, concluding that this evidence did not bear upon her substantive rights. It also ruled that she failed to prove that she did not share equally in the profits and losses of the firm.


Sanctions Upheld
The appellate court did not disturb the attorney fees awarded against Bluestein and her counsel, noting that the district found her claims meritless even if she could have proven that she was an employee. The district court additionally found that Bluestein could not prove that her firm received financial assistance from the federal government—an essential element of her Rehabilitation Act claims; that she was not aqualified individual with a disability potentially protected by the ADA; that she failed to specify how the defendant could have accommodated her disability; that her request for open-ended leave was not a reasonable accommodation; and that she offered no evidence of gender discrimination. The appellate court chose not to award attorney fees and costs, however, for the appeal.


Were Attorney Fees Warranted?
Section leaders generally agree that summary judgment was appropriate but differ over whether Bluestein and her attorney should have been sanctioned. “I agree that under the common law analysis that Bluestein should not have been considered an ‘employee’ under the statutes in question,” says Teresa R. Bult, Nashville, TN, cochair of the ABA Section of Litigation 's Employment & Labor Relations Law Committee. “Ultimately, the court’s decision came down to the fact that Bluestein had a sufficient amount of control over the business,” adds Bult. In rejecting Bluestein’s claim of employee status, “both the district court and the Seventh Circuit seem to have gotten it right,” notes Jon W. Green, Florham Park, NJ, a Section member and former cochair of the Section of Litigation’s Employment & Labor Relations Law Committee.


As for the award of attorney fees, Bult notes that “district courts very rarely award sanctions for frivolous claims under Title VII or the ADA or any other statute for that matter, and, thus, when a lower court takes such a stand, the assumption is there must be a good reason.” She finds that “Bluestein and her attorneys probably knew her lawsuit was a ‘long shot.’”


Green believes, however, the “award of sanctions against both the plaintiff and her attorney was arbitrary and unnecessarily punitive, because the plaintiff was exploring the contours of the law.” Green sees an uneven playing field, noting that, in hisexperience, “employers’ counsel constantly raise frivolous defenses and arguments regarding discovery and that, nevertheless, the federal judiciary rarely imposes sanctions.”


Keywords: ADA, Rehabilitation Act, Title VII, attorney fees


 
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