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Nature of Suit Code: 442
Nature of Suit: Civil Rights Employment
Cause of Action: 

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In the

United States Court of Appeals

For the Seventh Circuit ____________________

No. 14-1660

EQUAL EMPLOYMENT 

OPPORTUNITY COMMISSION,

Plaintiff-Appellee,

v.

NORTHERN STAR

HOSPITALITY, INC., d/b/a

SPARX RESTAURANT, et al.,

Defendants-Appellants.

____________________

Appeal from the United States District Court for the

Western District of Wisconsin.

No. 3:12-cv-00214 — Barbara B. Crabb, Judge.

____________________

ARGUED SEPTEMBER 26, 2014 — DECIDED JANUARY 29, 2015

____________________

Before FLAUM, MANION, and KANNE, Circuit Judges.

KANNE, Circuit Judge. This case is about equitable 

remedies under Title VII of the Civil Rights Act of 1964. 

There is no question that Dion Miller suffered unlawful 

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discrimination under Title VII. He experienced a racist 

episode in the workplace and was fired in retaliation for 

opposing it. The sole issue here involves the remedies

designed to make him whole.

Specifically, Appellants challenge the district court’s 

decision to hold certain entities—Northern Star Properties, 

LLC (“Properties”), and North Broadway Holdings, Inc.

(“Holdings”)—liable for the actions of a dissolved entity—

Northern Star Hospitality, Inc. (“Hospitality”). Appellants 

also challenge the district court’s tax-component award to

Miller, which comprises additional damages designed to 

offset his tax liability on his back-pay award. 

For the reasons expressed below, we affirm the judgment 

of the district court.

I.BACKGROUND

Dion Miller is an African-American male who worked as 

a cook for Hospitality, a company that did business as Sparx 

Restaurant. During his time at Sparx, Miller rose to the 

position of assistant kitchen manager, earning $14 per hour. 

He was, by all accounts, a satisfactory employee.

A. The Discrimination

On October 1, 2010, Miller arrived at Sparx to begin his 

morning shift. A coworker told him to look at the kitchen 

cooler. When he did, he discovered a defaced dollar bill. The 

dollar bill depicted a noose around President Washington’s 

neck with a swastika on his forehead and a darkened area on 

his cheek. Adjacent to President Washington’s head was a 

hooded Klansman on horseback with “KKK” sketched on 

his hood. A separate picture of the late Gary Coleman—a 

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No. 14-1660 3

famous African-American child actor—was posted on the 

cooler below the dollar bill.

Miller asked a coworker to take a photo of the display, 

and then he lodged a complaint. Kitchen manager Evan 

Openshaw and kitchen supervisor Chris Jarmuzek took

responsibility for the display. Openshaw said he posted the 

picture of Gary Coleman, while Jarmuzek said he posted the 

defaced dollar bill. The restaurant’s general manager 

testified that the posting of the racist dollar bill qualified as a 

termination-worthy offense. Yet, for whatever reason, 

Jarmuzek was not terminated; he was only given a warning. 

Openshaw was not disciplined at all.

Soon after Miller’s complaint, Openshaw and Jarmuzek 

began to criticize Miller’s work performance. He had 

received no such complaints before. Sparx fired Miller on

October 23, 2010.

Less than two years later, Sparx closed its doors when 

Hospitality dissolved. In its stead emerged Holdings, a 

second company that did business as a Denny’s Restaurant. 

Both Hospitality and Holdings operated their restaurants in

a building owned by Properties, a third company. 

Importantly, all three companies were owned by Chris 

Brekken. But we’ll return to that fact later.

B. The Enforcement Action

On March 27, 2012, the United States Equal Employment 

Opportunity Commission (“EEOC”) filed a complaint on 

Miller’s behalf. The EEOC alleged that Hospitality violated 

Sections 703(a) and 704(a) of Title VII, 42 U.S.C. §§ 2000e2(a), 3(a), by subjecting Miller to racial harassment and by 

terminating him in retaliation for opposing the harassment. 

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Although it initially only named Hospitality as the 

defendant, the EEOC amended its complaint on September 

7, 2012, to add Properties and Holdings as defendants. 

Hospitality quickly moved for summary judgment on all 

claims. The district court granted the motion in part and 

denied it in part. Regarding the claim of racial harassment, 

the district court found that no reasonable juror could 

conclude that Miller was subjected to sufficiently severe or 

pervasive harassment. It consequently granted summary 

judgment for Hospitality on that claim.

By contrast, the district court denied summary judgment 

on the retaliation claim. Given the suspicious timing of 

Miller’s termination, the ambiguous reasons offered for it, 

and Miller’s discipline-free history juxtaposed against the 

company’s progressive discipline policy, the district court

found that a reasonable juror could conclude that Miller was 

terminated in retaliation for his complaint about the kitchencooler display.

Before a reasonable juror could actually answer that 

question, though, the district court convened a bench trial on 

August 12, 2012, to determine whether Properties or 

Holdings (or both) could be held liable for the actions of 

Hospitality. By that point in the case, Hospitality had 

dissolved, leaving only Properties and Holdings in its wake. 

And if neither of those entities could be held liable for the 

actions of Hospitality, then Miller would have been left with 

no one to recover from. Fortunately for Miller, the district 

court found Properties and Holdings eligible for liability. It 

did so based on two alternate and equitable determinations: 

(1) a pierced corporate veil and (2) successor liability.

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After that critical ruling, a jury trial commenced. The 

EEOC won its suit on the retaliation claim, and the jury 

awarded Miller $15,000 in compensatory damages. Despite 

finding that Appellants acted with reckless disregard for 

Miller’s civil rights (a predicate for punitive damages under 

Title VII), the jury did not order punitive damages. So to 

make Miller whole, the EEOC sought additional remedies

from the district court. It requested front pay and back pay, 

along with a tax-component award to offset Miler’s 

impending income-tax liability on the lump-sum back-pay 

award.

The district court denied the front-pay request but 

granted the back-pay and tax-component awards. It

awarded Miller $43,300.50 in back pay (and interest) and an 

additional $6,495.00 to offset the impending taxes estimated 

at fifteen percent of the back-pay award. The district court 

also enjoined Appellants from discharging their employees 

in retaliation for complaints against racially offensive 

postings. It further required them to adopt policies, 

investigative processes, and annual training consistent with 

Title VII.

Appellants challenge the district court’s decision to hold 

Properties and Holdings liable for the actions of Hospitality. 

Appellants also challenge the decision to award Miller the

tax-component award. We examine each issue in turn.

II. ANALYSIS

A district court’s determination to grant equitable 

remedies is reviewed for abuse of discretion. See Hicks v. 

Forest Pres. Dist., 677 F.3d 781, 792 (7th Cir. 2012); see also

Bruso v. United Airlines, 239 F.3d 848, 861 (7th Cir. 2004).

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Successor liability is an equitable determination. Chicago 

Truck Drivers, Helpers & Warehouse Workers Union (Indep.) 

Pension Fund v. Tasemkin, 59 F.3d 48, 49 (7th Cir. 1995). So is

an award to offset tax liability for a lump-sum back-pay 

award. Eshelman v. Agere Sys., 554 F.3d 426, 441-42 (3d Cir. 

2009). We turn to successor liability first. 

A. Successor Liability

In a case involving more than one corporate entity, 

successor liability is “the default rule ... to enforce federal 

labor or employment laws.” Teed v. Thomas & Betts Power 

Solutions, LLC, 711 F.3d 763, 769 (7th Cir. 2013). Without it, 

“the victim of the illegal employment practice is helpless to 

protect his rights against an employer’s change in the 

business.” Musikiwamba v. ESSI, Inc., 760 F.2d 740, 746 (7th 

Cir. 1985) (“A predecessor’s illegal act may have left the 

employee without a job, promotion, or other employment 

benefits that he cannot now obtain from another employer, 

but that he might have received from the successor had the 

predecessor not violated the employee’s rights.”). Where the 

successor has notice of a predecessor’s liability, there is a 

presumption in favor of finding successor liability. Worth v. 

Tyer, 276 F.3d 249, 260 (7th Cir. 2001) (citing EEOC v. Vucitech, 

842 F.2d 936, 945 (7th Cir. 1988)).

We recently articulated a five-factor test for successor 

liability in the federal employment-law context: (1) whether 

the successor had notice of the pending lawsuit; (2) whether 

the predecessor could have provided the relief sought before

the sale or dissolution; (3) whether the predecessor could 

have provided relief after the sale or dissolution; (4) whether 

the successor can provide the relief sought; and (5) whether 

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there is continuity between the operations and work force of 

the predecessor and successor. Teed, 711 F.3d at 765-66.

Although the district court did not expressly cite this test 

when it found Holdings a successor of Hospitality, we 

conclude that it adequately adhered to the test’s framework. 

For example, the district court correctly noted that Holdings 

had notice of the lawsuit against Hospitality. EEOC v. N. Star 

Hospitality, No. 12-cv-214, 2013 U.S. Dist. LEXIS 117638, at 

*19 (W.D. Wis. Aug. 20, 2013) (“It knew about Hospitality’s 

potential liability for the retaliation against Miller; and it 

knew, because Brekken knew and Brekken was the only 

owner or officer of Holdings”).

Chris Brekken, central to the district court’s reasoning on 

notice, is a key actor in this story. He is the sole owner of 

Properties—the company that leased the same building to 

Hospitality and Holdings so that each could operate its 

restaurant—as well as the sole shareholder, officer, and 

director of Hospitality and Holdings. Recall that Hospitality 

did business as the Sparx Restaurant. It was formed at 

approximately the same time as Properties in late 2004. 

Holdings, on the other hand, was formed on March 27, 2012. 

Brekken formed that company to operate a Denny’s 

Restaurant in the building owned by Properties after he 

closed Sparx on June 3, 2012. There can be no doubt, then,

that Holdings was on notice of what happened at 

Hospitality: Brekken had notice, so his companies had 

notice. Under both Teed and Vucitech, this factor weighs in 

favor of successor liability.

As for factor two, the district court did not expressly 

discuss Hospitality’s ability to provide relief to Miller before 

its dissolution. The court did, however, detail facts that 

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suggest it could have provided such relief, which weighs in 

favor of successor liability. For example, Hospitality 

continually made payments on Properties’ mortgage, paid 

for corporate training for Holdings’ eventual management 

team, paid severance fees to its former employees, and paid 

the liquor license fees for the future Denny’s Restaurant

operated by Holdings.1

That brings us to factor three. The district court found

that Hospitality could not have paid any judgment obtained 

against it, presumably because of its dissolution. This

finding also weighs in favor of successor liability.

Musikiwamba, 760 F.2d at 746 (noting successor liability 

protects victims against an employer’s change in business). 

Factor four. Much like factor two, the district court did 

not expressly discuss this factor. But as we observed in Teed, 

factor four “is a goes without saying condition, not usually 

mentioned.” 711 F.3d at 766 (internal quotations omitted). 

The district court’s silence, therefore, gives us no pause. 

Operating as a Denny’s Restaurant, Holdings can provide 

the relief sought.

Finally, factor five also weighs in favor of successor 

liability. The district court found:

[Holdings] moved into a building prepared for it by 

Hospitality to the specifications of the Denny’s 

Corporation, hired more than half of the employees 

previously employed by Hospitality, hired 

Hospitality’s management team, the members of 

1 Hospitality paid all this money despite incurring substantial operating 

losses in 2009 and 2012 and despite holding over $2 million in debt. It 

offered no explanation as to how this debt disappeared.

 

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which had been trained by Denny’s at Hospitality’s 

expense, and used the same work rules for the 

employees that Hospitality had used at Sparx. In 

other words, Holdings carried on the restaurant 

business at 1827 North Broadway, albeit with a 

different name and theme.

N. Star Hospitality, 2013 U.S. Dist. LEXIS 117638, at *18-19.

In sum, when Hospitality dissolved, Holdings was 

created. Successor liability is meant for this very scenario; it 

helps make victims of discrimination whole under Title VII

by combatting similar changes in business. See Teed, 711 F.3d 

at 766 (“The predecessor’s inability to provide relief favors 

successor liability, as without it the plaintiffs’ claim is 

worthless.”). Because each of the above factors weighs in 

favor of successor liability, the district court did not abuse its 

discretion when it found Holdings to be a successor of 

Hospitality and therefore liable to Miller.

Unsatisfied with this result, Appellants press us to apply 

the integrated-enterprise approach. That approach, they 

contend, warrants relief from the district court’s judgment 

because Holdings was not in existence at the time the harm 

occurred. It follows, the argument goes, that it cannot be 

held liable for the actions of Hospitality. But we cannot 

accept this argument. We abrogated the integratedenterprise approach to Title VII cases long ago, see Worth, 276 

F.3d at 260 (citing Papa v. Katy Ind., Inc., 166 F.3d 937, 941-43 

(7th Cir. 1999)), and we see no good reason to change course

now.

Because the district court did not abuse its discretion 

when it found Holdings liable as a successor to Hospitality, 

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we need not review its decision to pierce the corporate veil 

to find affiliate companies Properties and Holdings liable for 

Hospitality’s actions. It is enough of a remedy for Miller that 

Holdings is liable as a successor. It must now pay the 

judgment. 

We turn to the final equitable remedy at issue: the fifteen 

percent tax-component award granted by the district court.

B. Tax Component Award

As discussed, Appellants challenge the district court’s 

award to Miller of $6,495 to offset the tax burden he shall 

carry as a result of his lump-sum back-pay award. Although 

other circuits have examined these awards, see, e.g., Eshelman 

v. Agere Sys., 554 F.3d 426, 441 (3d Cir. 2009) (“[A]n award to 

compensate a prevailing employee for her increased tax 

burden as a result of a lump sum award will, in the 

appropriate case, help to make a victim whole.”); Sears v. 

Atchison, Topeka & Santa Fe Ry. Co., 749 F.2d 1451, 1456 (10th 

Cir. 1984) (upholding award of tax component to back pay 

given a district court’s “wide discretion in fashioning 

remedies to make victims of discrimination whole”), this 

case presents our first occasion to do so.

Today, we join the Third and Tenth Circuits in affirming a 

tax-component award in the Title VII context. Upon Miller’s 

receipt of the $43,300.50 in back pay, taxable as wages in the 

year received, see IRS Pub. No. 957 (Rev. Jan. 2013), available 

at www.irs.gov/pub/irs-pdf/p957.pdf, Miller will be bumped 

into a higher tax bracket. The resulting tax increase, which 

would not have occurred had he received the pay on a 

regular, scheduled basis, will then decrease the sum total he 

should have received had he not been unlawfully terminated 

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by Hospitality. Put simply, without the tax-component 

award, he will not be made whole, a result that offends Title 

VII’s remedial scheme. See Williams v. Pharmacia, Inc., 137 

F.3d 944, 952 (7th Cir. 1998) (“We have noted previously that 

‘the remedial scheme in Title VII is designed to make the 

plaintiff whole.’” (quoting McKnight v. General Motors Corp., 

908 F.2d 104, 116 (7th Cir. 1990))).

To be sure, the district court should have told us how it 

arrived at the fifteen percent figure amounting to $6,495. 

Silence on the issue tends to frustrate appellate review, and it 

would be wise for district courts to show their work if and 

when they adjudge similar tax-component awards in the 

future.2 Eshelman, 554 F.3d at 443 (emphasizing district 

courts should adjudge tax-component remedies in the 

discrimination context based on “circumstances peculiar to 

the case”). Nevertheless, in this case, the district court did 

not abuse its wide discretion in granting this modest, 

equitable remedy.

III. CONCLUSION

For the foregoing reasons, the judgment of the district 

court is AFFIRMED. 

2 The EEOC offers a justification on appeal, contending the fifteenpercent figure represents the lowest marginal rate at which the IRS will

tax Miller once he receives his back pay.

 

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