New Dimensions, Inc. v. Tarquini

• Court: Supreme Court of Virginia
• Decided: June 6, 2013
• Docket: 120760
• Status: Published

Opinion

PRESENT: All the Justices

NEW DIMENSIONS, INC. OPINION BY v. Record No. 120760 JUSTICE S. BERNARD GOODWYN June 6, 2013 CATHERINE TARQUINI

FROM THE CIRCUIT COURT OF PRINCE WILLIAM COUNTY Gaylord L. Finch, Jr. Judge

In this appeal, we consider whether the circuit court

erred in holding that the four defenses set forth in the

federal Equal Pay Act, 29 U.S.C. § 206(d)(1), are affirmative

defenses that are waived if not pled. We conclude that while

the defenses set forth in the Equal Pay Act are affirmative,

they were not waived under the facts presented in this case,

and the circuit court erred in precluding the introduction of

evidence related to those defenses.

Background

Catherine Tarquini filed an amended complaint against New

Dimensions, Inc. (NDI) in the Circuit Court of Prince William

County, alleging breach of contract, quantum meruit and

violation of the Equal Pay Act (EPA). Tarquini sought damages

of $160,000 for her breach of contract and quantum meruit

claims, and damages equal to the difference between her salary

commission rate and that paid to NDI’s male employees, in

addition to statutory liquidated damages, attorneys’ fees and

costs for the EPA claim. NDI answered. NDI denied Tarquini’s allegation that it

had violated the EPA but it did not affirmatively plead the

defenses articulated in the statute. The case proceeded to

discovery, during which NDI disclosed the substance and nature

of its alleged seniority and merit-based compensation system as

an explanation for why Tarquini was paid less than other

employees, both male and female, who held the same job. Two

business days before trial, Tarquini filed a motion in limine

to prohibit NDI from presenting evidence in defense of the EPA

claim because NDI had not pled any affirmative defense to the

claim. The circuit court granted the motion in limine and

denied NDI’s motion for reconsideration.

After a three-day bench trial, the circuit court issued a

letter opinion and held that Tarquini was entitled to

$33,985.53 in commissions under her express contract, and was

not entitled to quantum meruit recovery because the express

contract governed the parties’ relationship. Based on its

earlier ruling granting Tarquini’s motion in limine, the

circuit court refused to consider NDI’s defenses to the EPA

claim and awarded Tarquini $6,867.04 on the EPA claim, plus an

equal amount of liquidated damages. At a later hearing, the

parties presented expert testimony and argument on the issue of

attorneys’ fees and costs due Tarquini pursuant to the EPA.

2 The circuit court awarded Tarquini $116,282.50 in attorneys’

fees and $8,478.55 in costs on her EPA claim. NDI appeals.

Facts

Tarquini interviewed for a position as a design and sales

consultant with NDI, a homebuilding company, in 2005. NDI

offered Tarquini a commission of 2.12% of her total sales and

stated that commissions would be paid in accordance with the

construction draw schedule. Tarquini accepted the position and

was paid commissions at this rate. However, other design and

sales consultants previously hired by NDI, both male and

female, were paid commissions of 2.25%.

In 2007, Tarquini was terminated by NDI and was not paid

commissions for certain sales she had secured, although work on

these construction projects was substantially completed prior

to her termination. Tarquini retained counsel, and NDI sent

Tarquini’s attorney a check in the amount of approximately

$33,985.00, representing what it believed it owed in

commissions. Tarquini did not accept the check and filed this

action.

Analysis

NDI argues that the circuit court erred in granting

Tarquini’s motion in limine and preventing NDI from presenting

evidence of its gender-neutral compensation system at trial.

It asserts that it was not necessary for NDI to affirmatively

3 plead its gender-neutral compensation system as a defense

because the EPA specifically sets forth such a compensation

system as a defense. NDI claims that it was not required to

expressly plead any of the four enumerated statutory defenses,

and that this Court has held that there is no requirement to

affirmatively plead a defense that is evident from the subject

of an action.

NDI submits that the requirement that affirmative defenses

be pled exists to prevent surprise or prejudice at trial, and

that long before trial Tarquini was aware that NDI sought to

present evidence of a gender-neutral compensation system in

defense of her EPA claim. According to NDI, no prejudice would

have resulted from the presentation of such evidence.

Tarquini replies that the circuit court properly granted

her motion in limine because NDI failed to affirmatively plead

its statutory defenses under the EPA. She claims that it is

well-established under Virginia law that affirmative defenses

must be pled to prevent unfair surprise or prejudice at trial,

and although this Court has not considered whether the EPA

statutory defenses must be explicitly pled, federal courts have

determined that they are affirmative defenses. Thus, Tarquini

argues, NDI’s failure to properly plead its affirmative

defenses resulted in a waiver of those defenses, and that the

4 waiver was not excused by Tarquini’s awareness that such

defenses were possible.

Whether the statutory defenses set forth in the EPA are

affirmative defenses is a pure question of law that this Court

reviews de novo. See, e.g., Moreau v. Fuller, 276 Va. 127,

133, 661 S.E.2d 841, 844-45 (2008). This standard likewise

applies to the determination of whether any such affirmative

defenses would be waived if not pled. See id. These are

questions of first impression.

The EPA prohibits employers from discriminating on the

basis of gender:

No employer having employees subject to any provisions of this section shall discriminate, within any establishment in which such employees are employed, between employees on the basis of sex by paying wages to employees in such establishment at a rate less than the rate at which he pays wages to employees of the opposite sex in such establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions, except where such payment is made pursuant to (i) a seniority system; (ii) a merit system; (iii) a system which measures earnings by quantity or quality of production; or (iv) a differential based on any other factor other than sex . . . .

29 U.S.C. § 206(d)(1)(emphasis added).

“To make out a prima facie case under the EPA, the burden

falls on the plaintiff to show that the skill, effort and

responsibility required in her job performance are equal to

those of a higher-paid male employee.” Wheatley v. Wicomico

5 Cnty., 390 F.3d 328, 332 (4th Cir. 2004). Upon the plaintiff

establishing a prima facie case, “the burden then shifts to the

employer to prove, by a preponderance of evidence, that the pay

differential is justified by the existence of one of the four

statutory exceptions set forth in § 206(d)(1): (1) a seniority

system, (2) a merit system, (3) a system that measures earnings

by quantity or quality of production, or (4) a differential

based on any factor other than sex.” Strag v. Board of Trs.,

55 F.3d 943, 948 (4th Cir. 1995). If the employer successfully

bears this burden, the plaintiff’s claim fails unless she is

able to rebut the employer’s evidence. Id.

This case presents an instance in which application of

reverse-Erie doctrine 1 is appropriate: a federal statutory

cause of action brought for trial in state court. This Court

therefore applies federal substantive law and must determine

whether Virginia procedural law governs the procedural aspects

of the federal statutory cause of action.

The federal law applicable in this case is the EPA.

Whether the four enumerated exceptions to the statutory

1 Erie doctrine is the principle under which federal courts sitting in cases of diversity jurisdiction apply state substantive law and federal procedural law. See Hanna v. Plumer, 380 U.S. 460, 473-74 (1965); Erie R. Co. v. Tompkins, 304 U.S. 64, 78-79 (1938). Reverse-Erie doctrine involves the application of state procedural law to federal substantive causes of action in state court. See Felder v. Casey, 487 U.S. 131, 151 (1988).

6 provisions are affirmative defenses is likewise a matter of

federal substantive law. See Blair v. Manhattan Life Ins. Co.,

692 F.2d 296, 299 (3d Cir. 1982) (“‘The question of which party

bears the burden of proof in a diversity case ordinarily is a

matter of substantive law within the meaning of Erie R. Co. v.

Tompkins, 304 U.S. 64 (1938), and so is governed by state law.

In such a case, the district court is obligated to determine

the burden of proof in accordance with the law of the forum

state . . . .’” (quoting DeMarines v. KLM Royal Dutch Airlines,

580 F.2d 1193, 1200 (3d Cir. 1978))) (internal citations

omitted). The Supreme Court of the United States and other

federal courts have categorized the EPA defenses as

affirmative. See, e.g., County of Washington v. Gunther, 452

U.S. 161, 169 (1981) (“The Equal Pay Act is divided into two

parts: a definition of the violation, followed by four

affirmative defenses.”); Corning Glass Works v. Brennan, 417

U.S. 188, 196-97 (1974); Brinkley-Obu v. Hughes Training, Inc.,

36 F.3d 336, 344 (4th Cir. 1994) (“The defendant must prove one

of four affirmative defenses to avoid liability.”). We

therefore hold that the enumerated EPA statutory defenses are

affirmative defenses in accordance with federal law.

Under Erie, in federal diversity actions substantive state

law determines whether a defense is affirmative. The Federal

Rules of Civil Procedure “provide the manner and time in which

7 defenses are raised and when waiver occurs . . . .” Arismendez

v. Nightingale Home Health Care, Inc., 493 F.3d 602, 610 (5th

Cir. 2007) (citation omitted). The inverse is true in cases

where state courts apply federal substantive law, subject to

certain constraints. See Felder, 487 U.S. at 150 (“Federal law

takes state courts as it finds them only insofar as those

courts employ rules that do not ‘impose unnecessary burdens

upon rights of recovery authorized by federal laws.’” (quoting

Brown v. Western Ry. Co., 338 U.S. 294, 298-99 (1949))).

“Just as federal courts are constitutionally obligated to

apply state law to state claims, so too the Supremacy Clause

imposes on state courts a constitutional duty ‘to proceed in

such manner that all the substantial rights of the parties

under controlling federal law [are] protected.’” Id. (quoting

Garrett v. Moore-McCormack Co., 317 U.S. 239, 245 (1942)).

Thus, federal substantive law is applied under state procedural

rules to the extent that the state rules do not interfere with

the consistent operation of federal law. Id. at 151. This

Court must determine the procedural law applicable to the

pleading of the EPA affirmative defenses in Virginia courts.

The Virginia rules concerning the pleading of affirmative

defenses are not expressly preempted by federal statute. There

is no statute-specific or blanket federal provision that could

have been intended to apply to the pleading of the EPA

8 affirmative defenses, save Rule 8(c) of the Federal Rules of

Civil Procedure. The Commonwealth has a discrete interest in

controlling litigation conducted in its courts under consistent

rules, and we hold that application of Virginia pleading

standards to the EPA affirmative defenses would not lead to a

substantial difference in outcomes of state and federal EPA

actions. Therefore, we will apply Virginia procedural law

concerning the pleading of affirmative defenses in EPA actions

brought in Virginia courts.

In doing so, this Court necessarily looks to the

procedural pleading principles articulated in Monahan v. Obici

Med. Mgmt. Servs., 271 Va. 621, 628 S.E.2d 330 (2006). See

Chesapeake & Ohio Ry. Co. v. Meadows, 119 Va. 33, 43, 89 S.E.

244, 247 (1916) (applying Virginia procedure in FELA matter).

Our jurisprudence has long “required that a party raise

specific defenses (just as a plaintiff must give notice of

claims) so that surprise and prejudice at trial from late

revelation of unanticipated legal theories is avoided.”

Monahan, 271 Va. at 632, 628 S.E.2d at 336. “This has

generally led to a requirement that affirmative defenses must

be pled in order to be relied upon at trial.” Id.

This Court, however, has found exceptions to the general

requirement that affirmative defenses be pled, including: (1)

where the issue addressed by the affirmative defense was not

9 disclosed in the plaintiff’s pleading; (2) where the

affirmative defense is not an absolute bar to recovery; and (3)

where the affirmative defense is “addressed by statute.” Id.

at 632-34, 628 S.E.2d at 336-37. The affirmative defense at

issue in Monahan was mitigation of damages, and in holding that

the defense need not be specifically pled, this Court noted

that “we express no opinion as to the specific pleading of any

other affirmative defense.” Id. at 634 n.11, 628 S.E.2d at 337

n.11.

Traditional affirmative defenses or special pleas that

constitute an absolute bar to recovery include “statute of

limitations, absence of proper parties, res judicata, usury, a

release, prior award, infancy, bankruptcy, denial of

partnership, bona fide purchaser, and denial of an essential

jurisdictional fact alleged in the bill.” Id. at 634, 628

S.E.2d at 337. The requirement that most such defenses be

specifically pled arises from their collateral nature. Where a

defendant seeks to rely upon an affirmative defense not

apparent from the allegations pled and unrelated to the

elements of a plaintiff’s cause of action, that affirmative

defense must be pled to avoid unfair surprise or prejudice to

the plaintiff.

Unlike traditional affirmative defenses, the EPA

“affirmative defenses” are specifically listed as exclusions in

10 the statute that creates the cause of action. The affirmative

defenses are broad and include the general defense that the

plaintiff was not discriminated against on the basis of gender.

29 U.S.C. § 206(d)(1).

The EPA does not on its face require that its affirmative

defenses be pled. See id.; cf. Jones v. Jones, 249 Va. 565,

571-72, 457 S.E.2d 365, 369 (1995) (noting that the affirmative

defense of the statute of limitations must be pled, per the

statute). Because the EPA defenses are stated in the statute

creating the cause of action, and include any defense that the

differential is based on a factor other than gender, the

plaintiff is put on notice of the assertion of an affirmative

defense when the defendant denies that any pay differential is

based on gender. In such an instance, there is little risk of

prejudice or surprise resulting from not also requiring the

pleading of an affirmative general defense.

In this matter, for example, NDI’s answer denied

Tarquini’s allegation that she was paid less because of her

gender, putting her on notice of its defense. Tarquini

undisputedly acquired knowledge of NDI’s defense during the

protracted litigation of the case. No prejudice resulted from

NDI generally denying the allegation that Tarquini was paid

less because of her gender, without also affirmatively pleading

11 that it was asserting, as a defense, “a differential based on

[a] factor other than sex.” 29 U.S.C. § 206(d)(1)(iv).

We hold that because the four statutory defenses under the

EPA are express exceptions contained within the statute that

creates the cause of action, and because in such cases there is

little risk of prejudice or surprise, Virginia procedural law

does not require that such EPA affirmative defenses be pled to

avoid waiver of the right to assert those defenses to the

claim. We therefore reverse the circuit court and hold that

NDI did not waive its right to present evidence regarding its

defenses to the EPA claim. 2

Conclusion

Accordingly, for the reasons stated, we will reverse the

judgment of the circuit court and remand this case for further

proceedings consistent with this opinion.

Reversed and remanded.

2 Given this holding, there is no need to address the issue of attorneys’ fees.