Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_11-cv-01355/USCOURTS-azd-2_11-cv-01355-0/pdf.json

Nature of Suit Code: 442
Nature of Suit: Civil Rights Employment
Cause of Action: 42:2000e Job Discrimination (Employment)

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IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Equal Employment Opportunity 

Commission, 

Plaintiff, 

v. 

Recession Proof USA LLC, et al., 

Defendants.

No. CV-11-01355-PHX-BSB

REPORT AND 

RECOMMENDATION 

 Plaintiff the Equal Employment Opportunity Commission (EEOC) has filed a 

motion for default judgment in this case alleging race discrimination and retaliation.1

 

(Doc. 47.) In its First Amended Complaint, the EEOC alleges claims against Defendants 

Recession Proof USA LLC (Recession Proof), Phillip D. Smith d/b/a Recession Proof 

USA LLC, Phillip Smith d/b/a Prime Time Marketing Solutions LLC, and Prime Time 

Marketing Solutions LLC d/b/a/ USA Supreme Technology.2

 (Doc. 16.) The First 

Amended Complaint alleges that Defendants terminated Recession Proof employee 

Richard Miller for opposing what he reasonably believed was discrimination and that 

 1 The EEOC filed a Complaint on April 23, 2012 (Doc. 1), and filed a First 

Amended Complaint on January 19, 2012. (Doc. 16.) The EEOC consented to 

magistrate judge jurisdiction pursuant to 28 U.S.C. 636(c). (Doc. 9.) However, because Defendants have not appeared or consented to magistrate judge jurisdiction, the Court proceeds by a Report and Recommendation to the Honorable Stephen M. McNamee. See 

General Order 11-03. 

2

 The First Amended Complaint also asserted claims against Daniel Brunson d/b/a 

Recession Proof USA LLC. (Doc. 16.) The EEOC settled with Brunson and stipulated to the dismissal of its claims against him. (Docs. 42 and 43.) 

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they terminated Recession Proof employee Ron Frasso for participating in a proceeding 

under Title VII, in violation of Section 704(a) of Title VII, 42 U.S.C. §§ 2000e-3(a).3

 

(Doc. 16 ¶16-17.) The EEOC further alleges that Miller was terminated based on his race 

in violation of Section 703(a) of Title VII, 42 U.S.C. § 2000e-2(a).4

 (Doc. 16 ¶ 14.) The 

Court has original subject matter jurisdiction over the EEOC’s federal claims pursuant to 

28 U.S.C. § 1331. 

 The EEOC properly served Defendants. (Docs. 32, 33, and 34.) Based on 

Defendants’ failure to appear or otherwise respond to the Complaint, the Clerk of Court 

entered default against Defendants. (Docs. 37 and 46.) The Court held a hearing on the 

EEOC’s motion for default judgment and, for the reasons set forth below, recommends 

that default judgment be entered in favor of the EEOC and against Recession Proof USA 

LLC and Prime Time Marketing Solutions LLC d/b/a USA Supreme Technology. The 

Court further recommends that the EEOC’s request for default judgment against 

Defendants Phillip Smith d/b/a Recession Proof USA LLC and Phillip Smith d/b/a Prime 

Time Marketing Solutions LLC be denied. 

I. The EEOC’s Allegations and Request for Injunctive Relief and Damages

 During the relevant time, Recession Proof was an Arizona limited liability 

company and its members were Daniel Brunson and Phillip Smith.5

 (Doc. 51, Ex. 1.) 

Recession Proof helped its clients market their businesses through internet adverstising. 

(Doc. 16 ¶ 5.) Miller and Frasso were employees of Recession Proof in April and May 

2010. (Doc. 16 ¶ 12.) Miller worked for Recession Proof for about two weeks and 

Frasso worked for Recession Proof for about a month. (Doc. 51 at 4; Doc. 59 at 72, 

 3

 The First Amended Complaint refers to § 704(a) of Title VII, the retaliation 

provision, but erroneously cites that section as 42 U.S.C. § 2000e-2(a). (Doc. 16 ¶¶ 16, 17.) The correct citation is 42 U.S.C. § 2000e-3(a).

4

 The First Amended Complaint also alleged that Defendants subjected Miller and Frasso to a hostile work environment, but the EEOC has withdrawn that claim and the 

Court will not further consider it. (See Doc. 16 ¶ 18 and Doc. 51 n.3.) 

5

 On September 23, 2011, Recession Proof filed Articles of Termination. (Doc. 

51, Ex. 1; Hearing Ex. 39.) 

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117.)6 Miller and Frasso were part of Recession Proof’s sales team and sold advertising 

to business clients. (Doc. 51 at 4; Doc. 59 at 62-63.) 

 The First Amended Complaint alleges that in April 2010, Defendants terminated 

Miller based on his race, and for “opposing what he reasonably believed was 

discrimination including, but not limited to opposition to Brunson’s use of the ‘N’ word 

in the workplace.” (Doc. 16 ¶¶ 14 and 16.) The First Amended Complaint further 

alleges that in May 2010, Defendants terminated Frasso for participating in an interview 

during the EEOC investigation of Miller’s charge of discrimination. (Doc. 16 ¶ 17.) In 

its motion for default judgment and during the default damages hearing, the EEOC 

provided evidence of the following alleged unlawful conduct. 

 On April 22, 2010, a meeting occurred between Miller, his supervisor Doug Rice, 

and Recession Proof’s co-owner Brunson regarding a large advertising sale that Miller 

had made. (Doc. 51 at 4; Doc. 59 at 16, 23.)7

 During that meeting, Brunson, a 

Caucasian, congratulated Rice and Miller, who are both African-American, stating, “my 

nigga — high five.” Miller refused to “high five” Brunson. (Doc. 51 at 4; Doc. 59 at 23, 

73.) After the meeting, Miller approached Rice and told him that it was inappropriate for 

Brunson to use the “N” word. Several hours later when Miller was driving home from 

work, he received a text message from Brunson stating: 

Like u can’t say it to my . . . face like a man. U got a problem with me using the n word u confront me like a big ass 6ft tall Man that u are. I don’t wanna listen to you and Doug talk 

right in front of me like I’m not even there. And then u top it off and say “don’t tell him I said that either.” I can tell we are 

gonna bump a lot of heads working together. Say it to my face!!!!! 

(Doc. 51 at 5; Doc. 59 at 75-78.) 

 6

 Docket 51 is the EEOC’s Memorandum in Support of Motion for Judgment by Default. The exhibits to the memorandum appear on CM/ECF as attachments 1, 2 and 3 

to Docket 51. Attachment 1 contains exhibits 1, 2, and 3; attachment 2 contains exhibit 

4; and attachment 3 contains exhibits 5-12. 

7

 The transcript of the default damages hearing is at Docket 59. 

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 Miller responded, “Be right there!!!!!!! I was there! No disrespect but I found that 

to be very disrespectful to use tha[t] word!” (Doc. 51 at 5; Doc. 59 at 79.) Brunson 

replied, “I can tell we are gonna (sic) have issues and I don’t want any issues in my life. 

Ur (sic) check will be ready next Friday u (sic) wrote the business ill (sic) pay you for it.” 

(Doc. 51 at 5; Doc. 59 at 80.) Miller understood the message to mean that he had been 

fired. Miller attempted to return to work to talk to Brunson, but Rice blocked his return 

to the office and told Miller not to come back to work. (Doc. 51 at 5; Doc. 59 at 80.) 

 On April 26, 2010, Miller filed a charge of discrimination with the EEOC. On 

May 6, 2010, EEOC investigators went to Recession Proof’s office to serve the Notice of 

Charge of Discrimination and to conduct interviews. (Doc. 59 at 37, 41.) The EEOC 

investigators informed Brunson and Rice that participating in the interviews was 

considered a “protected activity.” (Doc. 59 at 46.) The investigators interviewed Frasso. 

Rice and Brunson were present during the interview and intermittently questioned 

Frasso’s responses to some of the investigators’ questions. (Doc. 51 at 5; Doc. 59 at 44, 

122-23.) Approximately thirty minutes after that interview, Rice and Brunson 

reprimanded Frasso and terminated his employment. (Doc. 51 at 5; Doc. 59 at 45-46, 

123.) 

II. Standards for the Entry of Default Judgment 

Federal Rule of Civil Procedure 55(a) provides that “[w]hen a party against whom 

a judgment for affirmative relief is sought has failed to plead or otherwise defend as 

provided by these rules . . . the clerk shall enter the party’s default.” After a default has 

been entered and the defendant fails to appear or move to set aside the default, the court 

may, on the plaintiff’s motion, enter a default judgment. Fed. R. Civ. P. 55(b)(2). Here, 

the Clerk of Court has entered Defendants’ default. Thus, the Court may consider the 

EEOC’s request for default judgment. 

 Once default is entered, the well-pleaded factual allegations in the complaint are 

taken as true, except for those relating to the amount of damages. TeleVideo Sys., Inc. v.

Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987). However, “necessary facts not 

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contained in the pleadings, and claims which are legally insufficient, are not established 

by default.” Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir.1992) (citing 

Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir.1978)); see also DIRECTV, Inc. v. Hoa 

Huynh, 503 F.3d 847, 854 (9th Cir. 2007) (for default judgment purposes, a defendant is 

not held to admit facts that are not well-pled or conclusions of law). The court must 

consider whether the alleged facts state a claim for relief. 10A Wright, Miller & Kane,

Federal Practice and Procedure: Civil 3d § 2688, at 63 (1998) (the court must “consider 

whether the unchallenged facts constitute a legitimate cause of action, since a party in 

default does not admit mere conclusions of law”). 

 Granting default judgment is within the court’s discretion. See Aldabe v. Aldabe, 

616 F.2d 1089, 1092 (9th Cir. 1980) (considering lack of merit in plaintiff’s substantive 

claims, the court did not abuse its discretion in declining to enter a default judgment). 

When deciding whether to grant default judgment, the court considers the following 

“Eitel” factors: (1) the possibility of prejudice to the plaintiff; (2) the merits of the 

plaintiff’s substantive claim; (3) the sufficiency of the complaint; (4) the sum of money at 

stake in the action; (5) the possibility of a dispute concerning material facts; (6) whether 

the default was due to excusable neglect; and (7) the strong policy underlying the Federal 

Rules of Civil Procedure favoring decisions on the merits. Eitel v. McCool, 782 F.2d 

1470, 1471–72 (9th Cir. 1986). 

 As set forth below, the Court has applied the Eitel factors to the EEOC’s motion 

for entry of default judgment, its supporting memorandum, and the testimony and 

evidence presented at the default damages hearing, and recommends that default 

judgment be entered against Recession Proof USA LLC and Prime Time Marketing 

Solutions LLC d/b/a USA Supreme Technology. The Court further recommends that 

Plaintiff’s motion for default judgment against Defendants Phillip Smith d/b/a Recession 

Proof USA LLC and Phillip Smith d/b/a Prime Time Marketing Solutions LLC be 

denied. 

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 A. The First, Fourth, Fifth, Sixth, and Seventh Eitel Factors 

 The first, sixth, and seventh Eitel factors weigh in favor of default judgment in this 

case. The first Eitel factor considers whether the claimants on whose behalf the EEOC 

brings this action will suffer prejudice if default judgment is not entered. Pepsico, Inc. v. 

Cal. Sec. Cans., 238 F. Supp. 2d 1172, 1177 (C.D. Cal. 2002). Defendants have failed to 

appear or otherwise defend this action. In the absence of a default judgment, the 

claimants “would be without other recourse for recovery,” to which they are entitled. See 

Philip Morris, 219 F.R.D. at 499. 

 The sixth Eitel factor considers whether the default was due to excusable neglect. 

There is no evidence that Defendants’ failure to appear or otherwise defend was the result 

of excusable neglect. Rather, the record reflects that Defendants failed to appear after 

being served with the First Amended Complaint. Thus, the sixth Eitel factor weighs in 

favor of default judgment. 

 Under the seventh Eitel factor, the Court considers the policy that, whenever 

possible, cases should be tried on the merits. Id. at 1472. The existence of Rule 55(b), 

however, indicates that the preference for resolving cases on the merits is not absolute. 

PepsiCo, Inc., 238 F. Supp. 2d. at 1177. Because Defendants have not appeared or 

responded in this action, deciding this case on the merits is “impractical,” if not 

impossible. Id. Thus, the seventh Eitel factor weighs in favor of default judgment. 

 The fourth and fifth Eitel factors are neutral in this case. The fourth Eitel factor 

balances the amount of money at stake in relation to the seriousness of the defendant’s 

conduct. Eitel, 782 F.2d at 1471-72. Here, the EEOC seeks injunctive relief to prevent 

future discrimination. The EEOC also seeks monetary damages totaling $259,710.90 for 

Miller and Frasso. Although this is a sizeable amount, considering the seriousness of the 

allegations and the need to deter such behavior in the future, the amount at stake is not 

necessarily excessive. Thus, the fourth factor is neutral. 

 The fifth Eitel factor considers the possibility that material facts may be in dispute. 

Eitel, 782 F.2d at 1471-72. Because Defendants have failed to respond in this action, and 

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thus have not asserted that there are material facts in dispute, the Court cannot adequately 

weigh this factor. Thus, this factor is neutral. 

B. The Second and Third Eitel Factors Applied to Plaintiff’s Claims Against Recession Proof 

 The second and third Eitel factors consider the merits of the plaintiff’s claims and 

the sufficiency of the complaint. As set forth below, the EEOC has sufficiently pleaded 

that Recession Proof terminated Miller and Frasso for engaging in protected activity and 

also terminated Miller based on his race. Thus, the First Amended Complaint sufficiently 

alleges retaliation and discrimination. 

 1. Retaliation 

 The EEOC alleges retaliation in violation of Title VII of the Civil Rights Act of 

1964, 42 U.S.C. § 2000e-3(a). Title VII makes it unlawful for an employer to 

discriminate against an individual because he “has opposed any practice made an 

unlawful employment practice” by Title VII, or because “he has made a charge, testified, 

assisted, or participated in any manner in an investigation, proceeding, or hearing” under 

Title VII. 42 U.S.C. § 2000e-3(a). This provision has two components: an opposition 

clause and a participation clause. The participation clause is “broadly construed.” 

Learned v. City of Bellevue, 860 F.2d 928, 932 (9th Cir. 1988) (“The participation clause 

is broadly construed to protect employees who utilize the tools provided by Congress to 

protect their rights.”). 

 To establish a prima facie case of retaliation in violation of Title VII, a plaintiff 

must show that: (1) he engaged in a protected activity; (2) his employer subjected him to 

an adverse employment action; and (3) there is a causal connection between the protected 

activity and the adverse action.8

 Vasquez v. Cnty of Los Angeles, 349 F.3d 634, 646 (9th 

 8

 Once the plaintiff establishes a prima facie case, the burden of production shifts to the defendant to articulate some legitimate, non-retaliatory reason for the adverse action. Gunther v. Cnty of Wash., 623 F.2d 1303, 1314 (9th Cir. 1979). If the defendant 

meets this burden, the plaintiff must show that the asserted reason was a pretext for retaliation. Id. In determining whether to enter a default judgment, the Court need only consider whether Plaintiff establishes a prima facie case because Defendants have not 

appeared to offer any explanation for Miller’s and Frasso’s terminations. 

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Cir. 2003). “To show the requisite causal link, the plaintiff must present sufficient 

evidence to raise the inference that [the] protected activity was the likely reason for the 

adverse action.” Cohen v. Fred Meyer, Inc., 686 F.2d 793, 796 (9th Cir. 1982). 

 Additionally, Title VII liability is premised upon “some connection with an 

employment relationship.” Lutcher v. Musicians Union Local 47, 633 F.2d 880, 883 (9th 

Cir. 1980). With limited exceptions related primarily to prospective employers and 

applicants for employment, the employer charged with discrimination under Title VII 

must have been the plaintiff’s employer at the time of the alleged discrimination for 

plaintiff to prevail. See City of L.A. v. Manhart, 435 U.S. 702, 718 n.33 (1978) (stating 

that Title VII “primarily govern[s] relations between employees and their employer, not 

between employees and third parties”). 

 Here, based on Defendants’ default, there is no dispute that Recession Proof met 

the statutory definition of employer under 42 U.S.C. § 2000e(b), and that Recession 

Proof was Miller’s and Frasso’s employer. (Doc. 16 ¶¶ 5-8, 12.) There is also no dispute 

that Miller engaged in protected activity by opposing Brunson’s use of the “N” word, and 

that he was terminated for opposing what he reasonably believed was discrimination. 

(Doc. 16 ¶ 16.) During the default damages hearing, Miller testified that shortly after he 

complained to his supervisor Rice about Brunson’s use of the “N” word, Brunson sent 

Miller a text message challenging him to complain face-to-face. (Doc. 59 at 74, 78.) 

That same day, as part of the same string of text messages, Brunson terminated Miller. 

(Doc. 59 at 79-80.) Smith later approved Miller’s termination after Brunson advised him 

of the incident. (Doc. 59 at 23-24.) Considering the short period of time between the 

protected conduct and the adverse action, there is sufficient evidence to raise an inference 

that Miller’s protected conduct — opposing the use of the “N” word — was the reason 

for his termination. See Miller v. Fairchild Indus., Inc., 885 F.2d 498, 505 (9th Cir. 

1988) (stating that a jury could find retaliation when the adverse action occurred within 

forty-two days of the protected conduct for one plaintiff and within fifty-nine days for the 

second plaintiff). 

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 Frasso also engaged in protected activity by participating as a witness during the 

EEOC’s investigation of Miller’s charge of discrimination. See Crawford v. Metro. 

Gov’t of Nashville and Davidson Cnty, Tenn., 555 U.S. 271, 278-280 (the anti-retaliation 

provision 42 U.S.C. § 2000e-3(a) is meant to prevent harm to employees who report 

discriminatory employment practices or assist in the investigation of these practices). 

Almost immediately after Frasso participated in the EEOC investigation, he was 

reprimanded and terminated. (Doc. 16 ¶ 17, Doc. 59 at 122-23.) Considering the short 

period of time between the protected conduct and the adverse action, there is sufficient 

evidence to raise an inference that Frasso was likely terminated in retaliation for 

engaging in protected conduct. See id. 

The EEOC has sufficiently pleaded that Recession Proof was Miller’s and 

Frasso’s employer. The EEOC has also sufficiently pleaded that Miller was terminated 

for opposing what he reasonably believed was discrimination in violation of 42 U.S.C. 

§ 2000e-3(a), and that Frasso was terminated for participating in an EEOC investigation 

in violation 42 U.S.C. § 2000e-3(a). Accordingly, the second and third Eitel factors favor 

entry of default judgment against Recession Proof on the EEOC’s retaliation claims. 

 2. Racially-Motivated Termination 

 The First Amended Complaint also alleges that Defendants terminated Miller’s 

employment based on his race, African-American, in violation of Section 703(a) of Title 

VII, 42 U.S.C. § 2000e-2(a). (Doc. 16 ¶ 14.) Title VII prohibits employers from failing 

or refusing to hire or discharging “any individual . . . because of such individual’s . 

. . race . . . .” Id. § 2000e–2(a)(1). A Title VII plaintiff carries the initial burden of 

“establishing a prima facie case of racial discrimination.” McDonnell Douglas Corp. v. 

Green, 411 U.S. 792, 802 (1973). “The prima facie case may be based either on a 

presumption arising from the factors such as those set forth in McDonnell Douglas,

9

 or 

 9

 Applying the McDonnell-Douglas factors in the context of discriminatory termination, a plaintiff must show: (1) that he was member of a protected class; (2) he was adequately performing his job; and (3) that his employer sought a replacement with similar qualifications to his own, thus showing a continued need for the same skills. 

Sengupta v. Morrison-Knudsen Co., 804 F.2d 1072, 1075 (9th Cir.1986). 

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by more direct evidence of discriminatory intent.” Godwin v. Hunt Wesson, Inc., 150 

F.3d 1217, 1220 (9th Cir. 1998) (quoting Wallis v. J.R. Simplot Co., 26 F.3d 885, 889 

(9th Cir. 1994)). 

 Here, the First Amended Complaint alleges that Miller was terminated on the basis 

of his race, African-American. (Doc. 16 ¶ 14.) The First Amended Complaint alleges 

that a Recession Proof supervisor referred to Miller by using a racial epithet, the “N” 

word, and that Miller was terminated after objecting to that term. The use of “N” word is 

sufficient evidence of racial animus. See Cornwell v. Electra Cent. Credit Union, 439 

F.3d 1018, 1029 n.7 (9th Cir. 2006) (“[A] plaintiff could offer direct evidence of an 

employer’s discriminatory intent, for example an employer’s use of a racial epithet.”). 

Thus, the EEOC has sufficiently pleaded that Miller was terminated based on his race in 

violation of 42 U.S.C. § 2000e-2(a). Accordingly, the second and third Eitel factors 

favor entry of default judgment against Recession Proof on the EEOC’s claim of 

discriminatory termination. 

C. The Second and Third Eitel Factors Applied to Plaintiff’s Claims 

 Against Smith and the Other Remaining Defendants 

In addition to its claims against Recession Proof, the EEOC argues that Phillip 

Smith, and entities with which he is affiliated, are also liable for the discrimination and 

retaliation directed at Miller and Frasso at Recession Proof. The EEOC argues that Smith 

is liable as a member of Recession Proof through alter ego/veil piercing, as a joint 

employer with Recession Proof through Prime Time Marketing Solutions LLC, and as a 

sole proprietor of USA Supreme Technology. Under the second and third Eitel factors, 

the Court must consider the merits of the EEOC’s claims against these Defendants and 

the sufficiency of the First Amended Complaint. 

 1. Smith’s Alter Ego Liability for Recession Proof

 The EEOC asserts that the Court should “pierce the corporate veil” as to 

Recession Proof, a limited liability company, and hold one of its members, Phillip Smith, 

personally liable. (Doc. 51 at 9, Doc. 59 at 147.) The EEOC argues that Recession Proof 

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was a “sham,” that it was undercapitalized, and that Smith “was Recession Proof in that 

he bankrolled it.” (Doc. 59 at 146.) Under the second and third Eitel factors, the Court 

will consider whether the First Amended Complaint sufficiently alleges that the limited 

liability company veil should be pierced. Eitel, 782 F.2d at 1471. 

 a. Choice of Law — Alter Ego/Veil Piercing Doctrine

 “‘[I]n determining whether alter ego liability applies, [federal courts] apply the 

law of the forum state.’”10 Sandpiper Resorts Development Corp. v. Global Realty Invs., 

LLC, 2012 WL 3234242, at *6 (D. Ariz. Aug. 6, 2012) (quoting In re Schwarzkopf, 626 

F.3d 1032, 1037 (9th Cir. 2010)); see also Towe Antique Ford Found. v. IRS, 999 F.2d 

1387, 1390 (9th Cir. 1993) (applying Montana law to determine whether “reverse 

piercing” of the corporate veil was appropriate in a wrongful levy action under 26 U.S.C. 

§ 7426). 

 Under Arizona law, it is not established that veil piercing can be used in the 

context of a limited liability company. Sandpiper Resorts, 2012 WL 3234242, at *6. 

However, in another case in this district, the court concluded “that the rationale behind 

piercing the veil of a corporation would also apply to an LLC given the similar liability 

shields that are provided by corporations and LLCs to their respective owners.” Great 

 10 But see Viera v. Chehaiber, 2010 WL 960347, at *3 (C.D. Cal. Mar. 16, 2010) 

(stating that because jurisdiction was based on a federal question, the Truth in Lending Act, the Home Ownership and Equity Protection Act, and the Real Estate Settlement 

Procedures Acts, federal common law controlled the issue of piercing the corporate veil and noting that the Ninth Circuit has a rigorous standard for piercing the corporate veil (quoting Stephen B. Presser, Piercing the Corporate Veil 3-114 to -15 (1999))). 

Under Ninth Circuit law, it is appropriate to pierce the corporate veil when (1) “there is such a unity of interest and ownership between the corporation and the shareholder that the two no longer exist as separate entities,” Seymour v. Hull & Moreland Eng’g, 605 F.2d 1105, 1111 (9th Cir.1979), (2) “failure to disregard the corporation would result in fraud or injustice,” id., and (3) either the incorporators of the corporation formed the corporation with fraudulent intent or the corporate form was fraudulently misused following incorporation, or both. See Board of Trs, v. Valley Cabinet & Mfg. Co., 877 F.2d 769, 773–774 (9th Cir. 1989). Because of the similarity between Arizona and Ninth Circuit law on alter ego liability, and in the absence of Ninth 

Circuit law clarifying whether federal law or the law of a the forum governs the issue of alter ego/veil piercing in the context of a Title VII case, the Court will apply Arizona law. The EEOC addressed its alter ego/veil piercing argument under Arizona law. 

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Am. Duck Races v. Intellectual Solutions, Inc., 2013 WL 1092990, at *3 (D. Ariz. Mar. 

15, 2013) (citing NetsJets Aviation, Inc. v. LHC, 537 F.3d 168 (2d Cir. 2008) (applying 

the principles of corporate veil piercing to LLCs under Delaware law and noting that 

emerging case law illustrates that LLC veil piercing and corporate veil piercing are 

similar)). 

 Under Arizona law “[a] corporate entity will be disregarded, and the corporate veil 

pierced, only if there is sufficient evidence that: (1) the corporation is the alter ego or 

business conduit of a person; and (2) disregarding the corporation’s separate legal status 

is necessary to prevent injustice.” Loiselle v. Casa Mgmt Group, LLC 228 P.3d 943, 950 

(Ariz. Ct. App. 2010). In Arizona, “alter-ego status . . . exists when there is such a unity 

of interest and ownership that the separate personalities of the corporation and owners 

cease to exist.” Dietel v. Day, 492 P.2d 455, 457 (Ariz. Ct. App. 1972). Relevant factors 

include: payment of salaries and expenses of the corporation by shareholders; failure to 

maintain corporate formalities; undercapitalization; commingling of corporate and 

personal finances; plaintiff’s lack of knowledge about a separate corporate existence; 

owners making interest free loans to the corporation; and diversion of corporate property 

for personal use. Great Am., 2013 WL at 1092990, at *2 (citing Deutsche Credit Corp. v. 

Case Power & Equip. Co., 876 P.2d 1190, 1195 (Ariz. Ct. App. 1994)). 

 b. Rule 8(a) — Pleading Alter Ego/Veil Piercing 

 The Federal Rules of Civil Procedure require “only ‘a short and plain statement of 

the claim showing that the pleader is entitled to relief,’ in order to give the defendant fair 

notice of what the . . . claim is and the grounds upon which it rests.’” Bell Atl. Corp. v. 

Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)); 

see also Fed. R. Civ. P. 8(a)(2). Thus, a complaint is insufficient if it fails to state a claim 

on its face. Lucas v. Bechtel Corp., 633 F.2d 757, 759 (9th Cir.1980); see also Fed. 

R. Civ. P. 12(b)(6). Although a complaint “does not need detailed factual allegations, a 

plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle [ment] to relief’ requires 

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more than labels and conclusions, and a formulaic recitation of the elements of a cause of 

action will not do.” Twombly, 550 U.S. at 555 (citations omitted). 

 “In alleging alter ego liability under the pleading standard of Rule 8(a), the 

plaintiff must do more that make conclusory statements regarding an alter ego 

relationship between individual and corporate defendants; the plaintiff must allege 

specific facts supporting application of the alter ego doctrine.” See Barba v. Seung Heun 

Lee, 2009 WL 8747368, at *4 (D. Ariz. Nov. 4, 2009) (comparing Skydive Ariz., Inc. v. 

Quattrochi, 2006 WL 2460595, at *7–8 (D. Ariz. Aug. 22, 2006) (finding plaintiff failed 

to state a claim against defendants because the complaint simply alleged the alter ego 

theory with no factual basis), with Whitney v. Wurtz, 2006 WL 83119, at *2 (N.D. Cal. 

Jan. 11, 2006) (finding complaint established a cognizable alter ego theory by alleging 

individual defendants “used assets of the corporation for their personal use,” “controlled, 

dominated and operated” corporation “as their individual business and alter ego” without 

“holding of director’s or shareholder’s meetings,” and “caused monies to be withdrawn 

from the funds of defendant corporation and distributed to themselves without any 

consideration to the corporation”)). 

 In the caption of the First Amended Complaint, the EEOC names “Recession 

Proof USA LLC” and “Phillip D. Smith d/b/a Recession Proof USA LLC” as Defendants. 

The “doing business as” designation suggests that the EEOC is suing Smith in his 

individual capacity, but “it is a legal conclusion, . . . and [the EEOC] cannot simply 

collapse [Recession Proof into Phillip Smith] without alleging at least ‘a few facts which 

outline [its] claim.’” See Lachmund v. ADM Investor Servs., Inc., 26 F. Supp. 2d 1107, 

1113 (N.D. Ind. 1998). The First Amended Complaint does not contain any allegations 

regarding the alter ego relationship between Smith and Recession Proof. The First 

Amended Complaint merely names Smith as a party doing business as Recession Proof 

USA LLC. (Doc. 16 at 1.) None of the allegations refer to Recession Proof as Smith’s 

alter ego. There are no allegations that Smith treated Recession Proof’s assets as his 

own, that he commingled funds with Recession Proof, or that Recession Proof was 

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undercapitalized. Without such allegations, the issue of alter ego/veil piercing was not 

sufficiently pleaded. See Coeur D’Alene Tribe v. Asarco Inc, 2009 WL 3402365, at *5-6 

(D. Idaho 2000) (noting that under Ninth Circuit law corporate veil piercing is a means of 

imposing liability and that complaint did not satisfy the notice pleading requirements for 

asserting a veil piercing theory); Kingsburg Apple Packers Inc. v. Ballantine Produce 

Co., 2010 WL 2817056, at *5 (E.D. Cal. Jul. 16, 2010) (finding complaint insufficient to 

plead an alter ego relationship because allegations were conclusory and merely recited 

the factors that a court considers in evaluating an alter ego claim); China Eastern Airlines 

v. Yang, 2004 WL 5645595, at *5 (C.D. Cal. Nov. 15, 2004) (denying application for 

default judgment against individual defendant when complaint contained only conclusory 

allegations that business entity was individual defendant’s alter ego). 

 In the memorandum in support of its Motion for Default Judgment and during the 

default damages hearing, the EEOC presented additional allegations and evidence 

regarding its alter ego/veil piercing theory. (Docs. 51 and 59.) Although the Court is 

mindful that the EEOC’s ability to develop the facts underlying this theory was impeded 

by Defendants’ default, the EEOC does not explain why it failed to include any factual 

allegations relevant to its alter ego/veil piercing theory in its First Amended Complaint. 

The EEOC apparently developed this additional information — without discovery from 

Defendants — through Miller, Frasso, and its own investigation. 

 The Ninth Circuit recognizes that “[a] request to pierce the corporate veil is only a 

means of imposing liability for an underlying cause of action and it not a cause of action 

itself.” Local 159, 342, 343, & 444 v. Nor-Cal Plumbing, 185 F.3d 978, 985 (9th Cir. 

1999) (citation omitted). Nonetheless, because a plaintiff must allege “those facts 

necessary to a finding of liability,” a plaintiff seeking to impose liability on an individual 

based on an alter ego/veil piercing theory must include such allegations in the 

complaint.11 See Barba, 2009 WL 874368, at *5 (denying Rule 12(b)(6) motion to 

 11 Arizona courts do not appear to have specifically addressed whether an alter ego claim is a separate cause of action under Arizona law. See Five Points Hotel P’ship v. Pinsonneault, 835 F. Supp. 2d 753, 760 (D. Ariz. 2011) (discussing cases). However, as 

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dismiss finding that plaintiff sufficiently pleaded the corporate veil piercing doctrine 

under Arizona law based on allegations in the complaint that individual defendant used 

corporate assets for his personal use, intermingled assets and employees between various 

corporations, did not hold shareholder meetings, and transferred corporate funds without 

adequate consideration). 

 Courts within the Ninth Circuit have discussed the sufficiency of a plaintiff’s 

allegations supporting the alter ego/veil piercing doctrine in various contexts. See 

F.D.I.C. v. Quest F.S., Inc. 2011 WL 2560428, at *3 n.3 (C.D. Cal. Jun. 27, 2011) (on 

default judgment individual defendants could be held liable for breach of contract 

because the complaint sufficiently pleaded their alter ego status); Woodard v. Delportas, 

2008 WL 5082186, at *1 (D. Ariz. Nov. 26, 2008) (entering default judgment against 

individual and corporate defendants when complaint alleged corporate veil piercing/alter 

ego); In re Don’s Making Money, LLP, 2007 BR 2784351, at *2 (Bkrtcy. D. Ariz. Sept. 

24, 2007) (chapter 7 Trustee asserted a claim of “alter ego/piercing the corporate veil” in 

 the court in Five Points Hotel noted, dicta from several Arizona cases suggests that an alter ego/veil piercing theory may be an independent claim. Id. (citing Chalpin v. Snyder, 207 P.3d 666, 670 (Ariz. Ct. App. 2008) (“The trial court, however, allowed Reliance to 

take its claims of fraud and alter-ego to a jury. Ultimately, Reliance did not request a jury instruction for its alter-ego claim.”); GM Dev. Corp. v. Cmty. Am. Mortg. Corp., 795 P.2d 

827, 835 (Ariz. Ct. App.1990) (“In the case before us, the complaint contained four counts . . . Count I alleged that [ ] was responsible for the debt owed by [ ] and [ ] pursuant to an alter ego theory of liability . . . Clearly, the breach of contract claim 

requires proof of different facts than would be required for the fraud, racketeering, and alter ego claims.”)). Relying on those cases, the court in Five Points Hotel “assume[d] 

that Arizona recognizes the alter ego theory as a claim that can stand alone.” Five Points 

Hotel, 835 F. Supp. 2d at 760. 

On the other hand, at least one court within this district discussing the alter ego doctrine under Arizona law has stated that the doctrine of veil piercing “is not a cause of action in itself. Rather, it is a means to vindicate the interests of the parties injured through a breach of contract or a tort.” In re Elegant Custom Homes, Inc., 2007 WL 

14124556, *5 (D. Ariz. May 14, 2007) (citing Int’l Fin. Servs. Corp. v. Chromas Tech. Canada, Inc., 356 F.3d 731, 735-36 (7th Cir. 2004) (“Piercing the corporate veil, after all is not itself an action; it is merely a procedural means of allowing liability on a substantive claim[.]”)) 

Nevertheless, even if veil piercing is not an independent claim, the case law supports applying Rule 8(a)’s pleading requirements to an assertion of that doctrine as a 

theory of liability. (See Section II(C)(1)(b) at page 15 (discussing cases).) 

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an action to collect a default judgment); Wady v. Provident Life and Accident Ins. Co. of 

Am., 216 F. Supp. 2d 1060 (C.D. Cal. Apr. 30, 2002) (granting summary judgment 

because complaint did not put defendant on notice of alter ego theory and granting leave 

to amend to allege alter ego theory would be futile).12 

 Here, the First Amended Complaint did not include any allegations regarding the 

EEOC’s alter ego/veil piercing theory of liability against Smith and thus was insufficient 

to establish such liability. Although the EEOC might argue that it should be granted 

leave to further amend its First Amended Complaint, the Court concludes in its discretion 

that amendment would be untimely and would prolong completion of a case that has 

proceeded to the judgment stage. Accordingly, the second and third Eitel factors weigh 

against entering default judgment against Phillip D. Smith d/b/a Recession Proof USA 

LLC on an alter ego/veil piercing theory of liability. 

 2. Smith’s Joint Employer Liability 

 The EEOC also argues that “Phillip D. Smith d/b/a Recession Proof USA LLC,” 

“Phillip D. Smith d/b/a Prime Time Marketing Solutions LLC,” and “Prime Time 

Marketing Solutions LLC d/b/a USA Supreme Technology” were joint employers of 

Miller and Frasso with Recession Proof. The EEOC submitted exhibits from the Arizona 

Corporation Commission indicating that Recession Proof USA LLC was a limited 

liability company and that its members were Daniel Brunson and Phillip D. Smith. 

(Doc. 51, Ex. 1.) The EEOC also submitted evidence that Prime Time Marketing 

Solutions LLC was a limited liability company, with Smith as its managing member. 

 12 Courts outside the Ninth Circuit have also found that when a party seeks to pierce the limited liability company veil, the company must be named in the complaint, the complaint should give adequate notice of the veil-piercing theory against the LLC, and the complaint must allege facts sufficient to pierce the veil of the LLC. See Rual 

Trade Ltd. v. Viva Trade LLC, 549 F. Supp. 2d 1067 (E.D. Wis. 2008); Flentye v. Kathrein, 485 F. Supp. 2d 903 (N.D. Ill. 2007) (complaint sufficiently alleged a veil piercing claim when it named Kathrein as a party doing business as Lee Street Management and alleged that defendant Lee devised the Kathrein LLC for the sole 

purpose of holding title to real estate through which he operated Lee Street Management). When the complaint is insufficient, however, the veil of the limited liability company will not be pierced. Sudamax Industria e Comerico de Cigarros, Ltda v. Buttes & Ashes, Inc., 516 F. Supp. 2d 841 (W.D. Ky. 2007). 

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(Doc. 51, Ex. 3.) By alleging that Smith was “doing business as” Recession Proof USA 

LLC and Prime Time Marketing Solutions LLC, and by offering evidence that these 

entities were LLCs, it appears that the EEOC sued Smith “d/b/a” these LLCs in an effort 

to hold Smith liable in his personal capacity, not as a member of these LLCs. Indeed the 

EEOC does not allege that a member of an LLC can be held liable as a joint employer 

with the LLC in the context of Title VII. Thus, it appears that the EEOC’s allegations 

that Smith, doing business as various entities, was a “joint employer” with Recession 

Proof are simply another attempt to pierce the LLC veil of these entities (Recession Proof 

USA LLC and Prime Time Marketing Solutions LLC) and impose alter ego liability on 

Smith. 

 As set forth above in Section II(C)(1)(b), the First Amended Complaint does not 

contain any allegations regarding the EEOC’s alter ego/veil piercing theory of liability 

against Smith as a member of Recession Proof USA LLC. The First Amended 

Complaint also does not contain any allegations to establish an alter ego/veil piercing 

theory of liability against Smith as a member of Prime Time Marketing Solutions LLC. 

Therefore, because the First Amended Complaint is insufficient to establish Smith’s 

liability in his personal capacity for the actions of these entities, the Court will only 

consider whether Recession Proof USA LLC and Prime Time Marketing Solutions LLC 

d/b/a USA Supreme Technology are liable as joint employers for the discriminatory 

conduct directed at Miller and Frasso. 

 3. Joint Employer Liability of the Remaining Defendants 

 As set forth in Section II(B)(1), Title VII liability is premised upon “some 

connection with an employment relationship.” Lutcher, 633 F.2d at 883. To be subject 

to liability under Title VII, a defendant must qualify as an “employer” under the statute.13 

 13 Title VII defines an “employer” as “a person engaged in an industry affecting commerce who has fifteen or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year . . . .” 42 U.S.C. § 2000e(b). Here, the First Amended Complaint sufficiently alleges that each Defendant satisfies the statutory criteria of an employer under Title VII. (Doc. 16 at ¶¶ 6-8.) 

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However, “[a] direct employment relationship is not a prerequisite to Title VII liability. 

Although ‘there must be some connection with an employment relationship for Title VII 

protections to apply,’ that ‘connection with employment need not necessarily be direct.’” 

Ass’n of Mexican–Am. Educators v. California, 231 F.3d 572, 580 (9th Cir.2000) 

(quoting Lutcher, 633 F.2d at 883). The Ninth Circuit has recognized several legal 

theories under which the conduct of an entity that is not an employee’s direct employer 

could nonetheless result in Title VII liability, including the “joint employer” theory of 

liability. See DaOro v. Eskaton, 2013 WL 789120, at *4-6 (E.D. Cal. Mar. 1, 2013) 

(analyzing whether defendant could be considered a joint employer for purposes of Title 

VII); EEOC v. Global Horizons, Inc., 860 F. Supp. 2d 1172, 1183 (D. Hawaii Mar. 16, 

2012) (citing Anderson v. Pac. Mar. Ass’n, 336 F.3d 924, 930 (9th Cir. 2003)) (same). 

 To determine whether a joint employment relationship exists, the Ninth Circuit 

uses an “economic realities test” that takes into account various factors including: 

“whether the alleged joint employer (1) supervised the employee, (2) had the power to 

hire and fire him, and (3) had the power to discipline him, and (4) supervised, monitored 

and/or controlled the employee and his work site.” Global Horizons, 860 F. Supp. 2d. at 

1183 (citing Pac. Mar. Ass’n, 336 F.3d at 930. Even when two entities are deemed a 

joint employer, they are not necessarily both liable for the discriminatory conduct. 

Rather, the “‘plaintiff must still show that the joint employer knew or should have known 

of the discriminatory conduct and failed to take corrective measures within its control.’” 

Global Horizons, 860 F. Supp. 2d at 1184 (quoting Lima v. Addeco, 634 F. Supp. 2d 394, 

400 (S.D.N.Y. 2009)). 

 It is not clear, however, whether the joint employer theory of liability remains 

viable in the Title VII context because the Ninth Circuit effectively withdrew Anderson v. 

Pacific Maritime, its only opinion applying this standard in a Title VII case. See Brown 

v. Arizona, 2011 WL 2911054, at *3 n.2 (D. Ariz. Jul. 20, 2011) (discussing procedural 

history of Pacific Maritime). As explained in Brown, the Ninth Circuit granted a 

rehearing in Pacific Maritime, but the parties stipulated to a dismissal before the 

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rehearing took place. The “Ninth Circuit, however, never vacated its prior order or 

reinstated the opinion of the three panel judge.” Id. Thus, the court in Brown considered 

Pacific Maritime persuasive rather than binding. Id. As another court in this district has 

noted, however, district courts within the Ninth Circuit continue to cite “Pacific Maritime

for proposition that the [joint employer theory of liability] and economic realities test 

appl[y] in the Title VII context.” See Drottz v. Park Electrochemical Corp., 2012 WL 

1344729, at *5 n.6 (D. Ariz. Apr. 18, 2012) (collecting cases).14 Relying on this 

authority, and in view of “Congress’ directive to read Title VII broadly so as to best 

effectuate its remedial purposes,” Duffield v. Robertson Stephens & Co., 144 F.3d 1182, 

1192 (9th Cir. 1998), the Court finds that the joint employer theory of liability may be 

applied in this Title VII case. 

 Although the First Amended Complaint contains minimal allegations that could be 

construed as asserting a joint employer theory of liability, it is sufficient because 

“whether a plaintiff is jointly employed is typically a factual issue addressed after the 

plaintiff has had an opportunity to conduct discovery.” Boire v. Greyhound Corp., 376 

U.S. 473 (1964) (stating that “whether [an entity] possessed sufficient indicia of control 

to be an ‘employer’ is essentially a factual issue); see also Global Horizons, 860 

F. Supp. 2d at 1178, 1182–83 (applying the joint liability test in a Title VII case filed by 

foreign workers against both a recruitment company and the farms in the United States 

where they worked to determine that the foreign workers sufficiently alleged that the 

farms and the company “jointly controlled the terms and conditions of employment,” and 

denying the farms’ motions to dismiss). 

 During the default damages hearing, the EEOC presented testimony and evidence 

supporting a finding that Recession Proof USA LLC and Prime Time Marketing 

 14 The court in Drottz further found that the Ninth Circuit approved of applying the joint employer test in Title VII cases in its later decision in Murray v. Principal Fin. 

Group, Inc., 613 F.3d 943, 945 (9th Cir. 2010). Drottz, 2012 WL 1344729, at *4. 

However, in Murray the court clarified the standard for distinguishing between employees and independent contractors, not for determining which entity is a plaintiff’s employer. See id. (citing Murray, 613 F.3d at 945). 

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Solutions LLC d/b/a USA Supreme Technology were joint employers of Miller and 

Frasso. Brunson and Smith were both members of Recession Proof. (Doc. 51, Ex. 1.) 

Smith was the managing member of Prime Time Marketing Solutions LLC, and USA 

Supreme Technology is a trade name owned by Prime Time Marketing Solutions. 

(Doc. 51, Ex. 3.) Employees of Recession Proof were required to enter a confidentiality 

agreement with Brunson, Recession Proof, Smith, and “USA Supreme Tech.” (Doc. 51, 

Ex. 7; Doc. 59 at 68.) 

 In addition, USA Supreme Technology is referenced in the Recession Proof terms 

and conditions as having a financial relationship with Recession Proof. (Doc. 51, Ex. 5; 

Doc. 59 at 31-32, 71-72.) Specifically, the provision outlining the terms and conditions 

between the client or prospect and Recession Proof states that: “Cardholder 

acknowledged receipt of services/goods in the amount of the total shown on the 

customer’s authorization form and agrees to perform the obligations set forth in the 

cardholder’s agreement with the issuer to USA Supreme Technology.” (Doc. 59 at 32.) 

Rice also testified that Recession Proof employees obtained computer equipment and 

office supplies from USA Supreme Technology. (Doc. 59 at 28.) Rice further testified 

that he believed USA Supreme Technology was Recession Proof’s “parent company” 

because Recession Proof’s invoices notified customers that “were getting in business 

with USA Supreme Technologies and Recession Proof USA.” (Doc. 59 at 30.) 

 The EEOC presented evidence that Smith participated in Recession Proof’s 

decision making and daily activities including approving sales scripts, approving Miller’s 

hiring, and approving Miller’s termination after Brunson informed him of the incident, 

including his use of the “N” word. (Doc. 59 at 20-24.) Rice testified that Brunson 

provided Smith with daily updates about Recession Proof’s operations, e-mailed him 

updates of the sales script for his approval, and contacted him daily about “one issue or 

another issue.” (Doc. 59 at 20-21.) 

 In addition, the EEOC investigator, Michael Jaimez, testified that he contacted 

Brunson and Smith regarding Miller’s charge of discrimination, but that Smith never 

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responded. (Doc. 59 at 55.) Another Recession Proof employee, Kyle Wheeler, later 

advised the EEOC that Smith had authorized him to conciliate the charge, unless it 

involved a financial component. (Doc. 59 at 55-56.) 

 Although it is not clear in what role Smith participated in Recession Proof’s daily 

affairs — as a member of Recession Proof or as a member of Prime Time Marketing 

Solutions LLC d/b/a USA Supreme Technology — because Defendants’ default 

precluded discovery on this issue, the Court infers that Smith acted on behalf of both 

entities. Cf. Taylor Made Golf Co., Inc. v. Carsten Sports, Ltd., 175 F.R.D. 658, 663 

(S.D. Cal. 1997) (“doubts about the actual assessment of damages will be resolved 

against the party who frustrates the proof of such, and the fact finder may calculate 

damages at the highest reasonably ascertainable value”). Thus, Smith’s actions, on 

behalf of Prime Time Marketing Solutions LLC d/b/a USA Supreme Technology, were 

sufficient to establish that Prime Time Marketing Solutions LLC is liable as a joint 

employer with Recession Proof of Miller and Frasso. 

 The EEOC has sufficiently established a joint employer relationship between 

Recession Proof and Prime Time Marketing Solutions LLC d/b/a USA Supreme 

Technology. Additionally, based on testimony that Smith approved the decision to 

terminate Miller after being informed of the incident giving rise to his termination, the 

EEOC has also sufficiently shown that these employers are liable for the discriminatory 

conduct as to Miller. See Guifu Li v. A Perfect Day Franchise, Inc., 2012 WL 2236752, 

at *10 (N.D. Cal. Jun. 15, 2002) (taking the well-pleaded allegations that defendants were 

joint employers as true on default). Because Defendants’ default frustrated the EEOC’s 

ability to conduct further discovery on its joint employer theory of liability, the Court 

finds that the record supports an inference that Recession Proof and Prime Time 

Marketing Solutions LLC d/b/a USA Supreme Technology were also aware of the 

discriminatory conduct as to Frasso. Cf. Taylor Made Golf, 175 F.R.D. at 663. 

Accordingly, the Court recommends that Recession Proof USA LLC and Prime Time 

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Marketing Solutions d/b/a USA Supreme Technology be held liable as joint employers 

for the discriminatory conduct alleged in the First Amended Complaint. 

 4. Smith’s Liability as a Sole Proprietor

 Finally, the EEOC alleges that Phillip Smith may be held liable under Title VII as 

a sole proprietor of USA Supreme Technology to facilitate the EEOC’s ability to satisfy 

any judgment in this case. (Doc. 51 at 14.) “USA Supreme Technology” is a trade name 

used by Prime Time Marketing Solutions LLC. (Doc. 51, Ex. 3.) To support its “sole 

proprietor” argument, the EEOC cites a Seventh Circuit case, EEOC v. Oak Lawn Ltd., 

987 F. Supp. 647, 650 (N.D. Ill. 1997), in which the court found that, if an individual is a 

sole proprietor with fifteen or more employees, that individual may be liable under Title 

VII. Id. (citing EEOC v. AIC Security Investigators, Ltd., 55 F.3d 1276, 1280 n.2 (7th 

Cir. 1995). 

 The EEOC, however, has not cited any Ninth Circuit or other authority in support 

of its assertion that Smith, a managing member of Prime Time Marketing Solutions LLC, 

doing business under the trade name USA Supreme Technology, can be held individually 

liable “as a sole proprietor USA Supreme Technology.” (Doc. 51 at 14.) The EEOC 

does not explain how the Oak Lawn decision — which did not involve an LLC and its 

managing member or an LLC operating under a trade name — applies here. Indeed, it 

appears the EEOC’s “sole proprietor” argument is simply another attempt to pierce the 

LLC veil and hold Smith personally liable for Prime Time Marketing Solutions LLC, 

operating under the trade name USA Supreme Technology. 

 In view of the EEOC’s failure to fully explain its argument and in the absence of 

controlling authority, the Court resolves this issue against the EEOC. Therefore, the 

Court concludes that the second and third Eitel factors do not support the entry of default 

judgment against Smith as a sole proprietor. 

III. Standards for an Award of Damages in a Default Judgment

 Having determined that Recession Proof USA LLC and Prime Time Marketing 

Solutions LLC d/b/a/ USA Supreme Technology are liable under Title VII, the Court next 

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determines the “amount and character” of relief to award. See James v. Frame, 6 F.3d 

307, 310 (9th Cir. 1993) (district court has “wide latitude” and discretion in determining 

the amount of damages to award upon default judgment). Entry of a default judgment for 

monetary damages is appropriate without a hearing if “the amount claimed is a liquidated 

sum or capable of mathematical calculation.” Davis v. Fendler, 650 F.2d 1154, 1161 (9th 

Cir.1981) (no hearing necessary when documents show that the judgment amount is 

based upon a definite figure). 

 Unliquidated and punitive damages, however, require “proving up” at an 

evidentiary hearing or through other means. See Black & Decker, Inc. v. All Spares, Inc., 

2010 WL 3034887, at *3 (D. Ariz. Aug. 3, 2010). “[P]laintiff’s burden in ‘proving up’ 

damages on a motion for default judgment is relatively lenient. If proximate cause is 

properly alleged in the complaint, it is admitted upon default. Injury is established and 

plaintiff need only prove that the compensation sought relates to the damages that 

naturally flow from the injuries pled.” Id. (citing Philip Morris USA, Inc. v. Castworld 

Prods, Inc., 219 F.R.D. 494, 498 (C.D. Cal. 2003)). “In determining damages, the court 

can rely on the declarations submitted by the plaintiff.” Philip Morris, 219 F.R.D. at 498. 

The plaintiff must provide evidence of its damages, and the damages “must not differ in 

kind, form, or exceed in amount, what is demanded in the pleadings.” Fed. R. Civ. P. 

54(c); see also Freemyer v. Kyrene Village II, LLC, 2011 WL 42681, at *3 (D. Ariz. Jan. 

6, 2011)). 

IV. Remedies Available Under Title VII 

Having found that default judgment should be entered in favor of the EEOC 

against Defendants Recession Proof USA LLC and Prime Time Marketing Solutions 

LLC, the Court considers Miller’s and Frasso’s claimed damages and the EEOC’s 

request for injunctive relief. As the Supreme Court explained in Albemarle Paper Co. v. 

Moody, 422 U.S. 405, 418 (1975), the main objectives of Title VII are to eradicate 

employment discrimination and to make persons whole for injuries suffered due to such 

discrimination. The Court directed that “[t]he injured party is to be placed, as near as may 

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be, in the situation he would have occupied if the wrong had not been committed.” Id. at 

419–20. (quoting Wicker v. Hoppock, 73 U.S. 94 (1867)). Title VII permits courts to 

grant equitable remedies to employees who have been impermissibly discriminated 

against. See 42 U.S.C. § 2000e-5(g). The relevant remedies include reinstatement, 

reassignment, awards of front pay, back pay, and prejudgment interest. Edwards v. 

Occidental Chem. Corp., 892 F.2d 1442, 1448 (9th Cir. 1990). “The district court has 

wide discretion in awarding remedies to make a Title VII plaintiff whole.” Edwards, 892 

F.2d at 1448. Here, the EEOC has asserted claims for back pay, prejudgment interest, 

compensatory damages, punitive damages, and injunctive relief. 

A. Back Pay 

 Courts routinely award back pay in Title VII cases. Kraszewski v. State Farm 

Gen. Ins. Co., 912 F.2d 1182, 1184 (9th Cir. 1990). Back pay “[d]amages are determined 

by measuring the difference between the actual earnings for the period and those which 

[the plaintiff] would have earned absent the discrimination by defendant.” Gotthardt v. 

Nat’l R.R Passenger Corp., 191 F.3d 1148, 1158 (9th Cir. 1999); see also Caudle v. 

Bristow Optical Co., 224 F.3d 1014, 1020 (9th Cir. 2000). 

 Back pay is generally calculated from the date of the discriminatory discharge 

until the date of the final judgment. Kraszewski, 912 F.2d at 1184–85; Edwards, 892 

F.2d at 1449. However, when a defendant employer’s business is sold, closed or 

terminated, the period of back pay ends at the time the business ceased to operate. See

Richardson v. Rest. Mkt. Assocs., Inc., 527 F. Supp. 690, 696 n.1 (N.D. Cal. 1981) 

(noting that the court would not award back pay for the period after the defendant ceased 

operations in the area); Helbling v. Unclaimed Salvage and Freight Co., 489 F. Supp. 

956, 963 (E.D. Pa. 1980) (explaining that back pay calculated from date of injury until 

defendant store closed and job ceased to exist). 

 In calculating an award of back pay, the court should subtract “[a]ny wages the 

plaintiff actually earned after termination, plus the amount the plaintiff would have 

earned if he had made reasonable efforts.” Cassino v. Reichhold Chems. Inc., 817 F.2d 

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1338, 1345 (9th Cir. 1987). However, “state unemployment benefits should not be 

deducted from any award of back pay under Title VII.” Murrell-Travland v.On Q Fin., 

Inc., 2013 WL 393133, at *3 (D. Ariz. Jul. 30, 2013) (citing Kauffman v. Sidereal, 695 

F.2d 343, 347 (9th Cir. 1982)). “[B]ack pay should be denied only for reasons 

which . . . would not frustrate the central statutory purposes of eradicating discrimination 

throughout the economy and making persons whole for injuries suffered through past 

discrimination.” Odima v. Westin Tucson Hotel, 53 F.3d 1484, 1495 (9th Cir.1995) 

(internal quotation marks omitted) (quoting Albemarle Paper Co. v. Moody, 422 U.S. 

405, 421 (1975)); see also Caudle, 224 F.3d at 1020 (stating that there is a presumption 

in favor of awarding back pay damages). 

 In addition, when requested in the complaint, the court should add prejudgment 

interest to awards of back pay damages to compensate employees for the loss of use of 

their money prior to judgment. See Loeffler v. Frank, 486 U.S. 549, (1988) (recognizing 

that Title VII authorizes prejudgment interest as part of the back pay remedy) (citing 42 

U.S.C. § 2000e-5(g)). 

 1. Back Pay Damages for Miller

 Miller was terminated from Recession Proof on April 22, 2010. (Doc. 59 at 94.) 

The EEOC’s motion requests back pay for the period from April 22, 2010 to December 

2012. During the default damages hearing, the EEOC offered evidence in support of 

back pay damages for Miller for that same period. However, Recession Proof filed 

articles of termination and ceased to exist on September 23, 2011. (Doc. 51, Ex. 1; 

Hearing Ex. 39). Thus, the Court limits its calculation of back pay damages to the period 

from April 22, 2010 to September 23, 2011.15 

 15 At the default judgment hearing, EEOC investigator Jaimez testified that, in a February 17, 2011 telephone conversation, Brunson said he was not going to “go down or drown” because of the EEOC and that he would close the company and declare bankruptcy. (Doc. 59 at 48-51.) Through this testimony, the EEOC may be suggesting that Brunson or Smith dissolved Recession Proof in an effort to avoid liability and, therefore, an award of back pay should be calculated beyond the dissolution of Recession 

Proof. The Court would reject any such suggestion because Recession Proof was not terminated until September 23, 2011, seven months after Brunson’s statements (Doc. 51, 

Ex. 1; Hearing Ex. 39), and other testimony at the default damages hearing established 

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 During the default damages hearing, Miller testified that he was paid twenty-five 

percent commission for each sale he made at Recession Proof. (Doc. 59 at 92.) Miller 

testified that he made one $7,000.00 sale during his employment that generated 

commission of $1,750.00. (Doc. 59 at 80, 91-93.) Miller explained that the advertising 

packages that were available to sell ranged from $500.00 to $10,000.00. (Doc. 59 at 

105.) Although a $7,000.00 sale was on the high end, based on his twenty-four years of 

sales experience and the ease with which he made the $7,000.00 sale, Miller estimated 

that he could have made seven $7,000.00 sales per quarter while working at Recession 

Proof and, thus could have earned $12,250.00 commission per quarter ($7,000 x .25 

commission x 7 sales = $12,250.00). (Doc. 59 at 62, 93-94, 105.) 

 Miller’s estimate that he could have made seven $7,000.00 sales per quarter likely 

overstates his damages because it is based on a single $7,000.00 sale that Miller 

acknowledges was at the high end of the $500.00 to $10,000.00 range of advertising 

packages that he could have sold. An average of those packages, $5,200.00 is a more 

reasonable figure. Accordingly, the Court finds that Miller could have made seven 

$5,200.00 sales per quarter resulting in $9,100.00 in commission per quarter ($5,200.00 x 

.25 commission x 7 sales per quarter = $9,100.00 or $3,033 per month). 

 After Miller was terminated, he was unemployed for approximately two-and-onehalf months. (Doc. 59 at 94.) He worked at IFree America from July 2010 to August 

2010 and earned $200.00. (Doc. 59 at 94, 103.) Miller was unemployed from September 

10, 2010 until January 2011. (Id. at 95.) Miller worked for TV Travel from January 

2011 to October 2011 where he earned $3,300.00 per quarter.16 (Id.) 

 that Recession Proof had operating issues that were unrelated to the EEOC investigation. (See Doc. 59 at 26-28 (former Recession Proof employee Doug Rice testified that he would not characterize Recession Proof as a “good business,” but as “scam” because from shortly after it began operations, it was not able to provide the services it was 

selling to customers)). 

16 In October 2011, Miller went to work for Jim Glover Chevrolet in Oklahoma 

making $3,500.00 per month from October 2011 to December 2011. (Id. at 96-97.) 

Miller worked for Jim Glover Chevrolet in 2012 where he made $1,600 per month for three months, and $3,500 per month for the remaining nine months. (Id. at 97-98.) The 

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 If Miller had not been terminated, he would have earned $51,561.00 ($5,200 x .25 

commission x 7 sales per quarter x 5 and2/3 quarters or $3,033 per month x 17months) at 

Recession Proof from April 2010 to September 2011. During the default damages 

hearing, Miller presented evidence that during the time period after his termination until 

September 2011 he earned $10,100, which leaves him $41,461.00 in damages for back 

pay. (Hearing Ex. 45, Doc. 59 at 138-39.) 

 2. Back Pay Damages for Frasso

 Frasso was terminated from Recession Proof on May 6, 2010. (Doc. 51 at 5-7.) 

The EEOC’s motion requests back pay for the period from May 2010 to December 2012. 

(Doc. 51.) During the default damages hearing, the EEOC offered evidence in support of 

back pay damages for Frasso for that same period. (Doc. 59 at 143.) As set forth above, 

Recession Proof ceased to exist in September 2011. Therefore, the Court limits its 

calculation of back pay damages to the period from May 2010 to September 2011. 

 During the default damages hearing, Frasso testified that earned $650.00 per week, 

or approximately $2,600.00 per month (or $7,800.00 per quarter), at Recession Proof. 

(Doc. 59 at 126.) Based on his “initial meeting,” Frasso expected that after his first 

month of employment, he would become the sales floor manager and earn $1,000.00 per 

week. Frasso’s employment was terminated and he never became a sales manager and he 

does not seek damages based on that higher anticipated figure. (Id.) Frasso estimated 

that he could have earned $83,200.00 ($7,800.00 per quarter for ten quarters = 

$78,000.00 + $5,200.00 for .66 percent of the second quarter in 2010) working for 

Recession Proof from May 2010 to December 2012. (Doc. 59 at 144.) The Court, 

however, finds that for the period May 2010 to September 2011, Frasso would have 

earned $67,000.00 at Recession Proof ($2,600 per month x 16 months). 

 After Frasso was terminated, he was unemployed from May 2010 to July 2010. 

(Id. at 127.) Frasso then worked for Consolidated Marketing Services from July 2010 

 Court does not consider this income in reducing Miller’s back pay award because it was earned after the period for the back pay calculation. 

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until June 2011. (Id.) Frasso’s pay ranged from $100.00 to $650.00 per week, which is 

between $400.00 to $2,600.00 per month. (Id. at 128.) Because Frasso did not provide 

more specific information about his earnings for this period, and this information was 

within his control and not information that the EEOC needed to obtain in discovery, the 

Court will calculate Frasso’s earnings for this period at $2,500 per month, which is at the 

high end of the range he provided and, therefore, calculate the reduction in his back pay 

as $2,500 per month for eleven months, from July 2010 and June 2011 ($2,500 x 11 = 

$27,500.00). Frasso next worked for TV Travel from July 2011 until February 14, 2012, 

where he earned $8.00 per hour (for 30 to 37 hours per week), plus approximately 

$500.00 per month in commission.17 (Id. at 128-29.) Again, because Frasso did not 

provide more specific information about his earnings in this period, the Court will 

calculate the reduction in his back pay based on an average of his reported hours, or 33.5 

hours per week, at $8.00 per hour, for three months, plus $500.00 per month in 

commissions. (33.5 x 8 x 4 x 3 = $3,216 + $1,500 ($500 x 3) = $4,716). Therefore, for 

the period after his termination from Recession Proof in May 2010, until the company 

ceased to exist in September 2011, Frasso earned $32,216.00 leaving him $34,784.00 in 

damages for back pay. 

 3. Prejudgment Interest on Back Pay

 An award of prejudgment interest on a back pay award is appropriate. Domingo v. 

New England Fish Co., 727 F.2d 1429 (9th Cir.1984). The rate of return on prejudgment interest is within the court’s discretion. W. Pac. Fisheries, Inv. v. SS President 

Grant, 730 F.2d 1280, 1288 (9th Cir.1984). In exercising this discretion, the court must 

consider that prejudgment interest is an element of compensation, not a penalty. Id. 

 17 Frasso was unemployed from February 14, 2012 until April, May, or June of 2012. (Id. at 130.) During that time, Frasso did odd jobs and earned about $1,000.00. 

(Id. at 131.) Frasso next worked for FLS from June 2012 to November 2012. He was 

paid about $1,700.00 per month. (Id. at 131-32.) Frasso earned $1,000.00 working for The Money Factory for four weeks in December 2012. (Id. at 132-33.) Because Frasso’s 

income after September 2011 was earned after the period for the back pay award, the 

Court does not consider it in calculating the reduction of Frasso’s back pay award. 

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 The EEOC seeks prejudgment interest on the back pay awards based on the IRS 

prime rate per quarter. (Doc. ¶ 16; Doc. 59 at 142, 144.) The Court finds the appropriate 

rate at which to award prejudgment interest is the weekly average one-year constant 

maturity Treasury yield. See Blankenship v. Liberty Life Assur. Co. of Boston, 486 F.3d 

620, 628 (9th Cir. 2007) (“Generally, ‘the interest rate prescribed for post judgment 

interest under 28 U.S.C. § 1961 is appropriate for fixing the rate of prejudgment interest 

unless the trial judge finds, on substantial evidence, that the equities of that particular 

case require a different rate.’” (quoting Grosz–Salomon v. Paul Revere Life Ins. Co., 237 

F.3d 1154, 1163-64 (9th Cir. 2001)); see also W. Pac. Fisheries, 730 F.2d at 1288 

(same); Columbia Brick Works, Inc. v. Royal Ins. Co., 768 F.2d 1066, 1071 (9th Cir. 

1985) (calculating interest using the Treasury bill rate). 

 Here, the Court has applied an average of the one-year constant maturity Treasury 

rate to determine the prejudgment interest on the recommended back pay awards, from 

the time of Miller’s and Frasso’s terminations until the present, which the Court 

calculates as .20%. See http://www.federalreserve.gov/releases/H15/data.htm.

18 Based 

on a back pay award of $41,461.00 for Miller, and a per annum calculation, the Court 

awards Miller prejudgment interest in the amount of $276.00. ($41,461.00 x .002 = 

$82.92 ÷ 365 = $.23 x 1215 days[April 22, 2010 to Aug. 19, 2013 = 1215 days of 

prejudgment interest] = $276.00). Based on an award of $34,784.00 for Frasso, and a 

per annum calculation, the Court awards Frasso prejudgment interest in the amount of 

 18 This interest rate is based on information on the Board of Governors of the 

Federal Reserve System website using historical data for treasury constant maturities, one-year, annual, for years 2010, 2011, and 2012, and the weekly average one-year constant Treasury yield for the week preceding the date of this report and recommendation for 2013. See http://www.federalreserve.gov/releases/H15/data.htm (2010, .32%; 2011 .18%, 2012, .17%, 2013, .12%). The Court determined the applicable interest rate, .20%, by averaging these interest rates [(.32 + .18 + .17 +.12.) ÷ 4)]. 

Although this calculation may not precisely reflect the applicable weekly average one- year constant maturity Treasury yield for the period from date on which the back pay periods commenced until the present, the Court exercises its discretion to award 

prejudgment interest based on this approximate calculation because prejudgment interest is an element of compensation, not a penalty. See W. Pac. Fisheries, 730 F.2d at 1288. 

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$228.19. ($34,784.00 x .002 = $69.56 ÷ 365 = $.19 x 1201 days [May 6, 2010 to Aug. 

19, 2013 = 1201 days of prejudgment interest] = $228.19). 

B. Compensatory Damages 

 The Court may award compensatory damages for “future pecuniary losses, 

emotional pain, suffering, inconvenience, mental anguish, loss of enjoyment of life, and 

other nonpecuniary losses.” 42 U.S.C. § 1981a(b)(3). A claimant’s testimony alone may 

be sufficient to support an award of compensatory damages for emotional harm. See 

Chalmers v. City of L.A., 762 F.2d 753, 761 (9th Cir. 1985) (affirming compensatory 

damages awarded based upon plaintiff’s testimony); Williams v. TransWorld Airlines, 

Inc., 660 F.2d 1267, 1273 (8th Cir. 1981) (recognizing that “the plaintiff’s own testimony 

may be solely sufficient to establish humiliation or emotional distress); Muldrew v 

Anheuser-Busch, Inc., 728 F.2d 989 (8th Cir. 1984) (awarding plaintiff $52,644.80 in 

damages for mental anguish and emotional distress resulting from losing his house and 

car, marital harmony, and the respect of his children after he was discriminatorily 

discharged). 

 Compensatory and punitive damages are capped at limits set by the statute based 

on the defendant employer’s number of employees.19 Id. In this case, those damages are 

capped at $50,000.00 per claimant.20 See 42 U.S.C. § 1981a(b)(3)(A) (when an employer 

has more 14 and fewer than 101 employees, “[t]he sum of the amount of compensatory 

damages . . . and the amount of punitive damages, shall not exceed [$50,000], for each 

complaining party”). 

 Compensatory damages “may be had for any proximate consequences which can 

be established with requisite certainty.” See EEOC Enforcement Guidance: 

Compensatory and Punitive Damages Available under § 102 of the Civil Rights Act of 

 19 The cap represents the total amount of compensatory and punitive damages that each claimant may recover, no matter how many separate Title VII claims are brought before the court. See Baty v. Willamette Indus., Inc., 985 F. Supp. 987 (D. Kan. 1997). 

20 The EEOC alleges that Defendants had “at least 15 employees” and states that 

the $50,000 statutory cap applies. (Doc. 16 ¶¶ 5 and 7; Doc. 59 at 141.) 

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1991 (EEOC Enforcement Guidance), 1992 WL 1364354, at *4 (citing 22 Am. Jur. 2d 

Damages § 45 (1965)). Although compensatory damages are available for emotional 

harm, the claimant must establish its “existence, nature, and severity.” Id. at *5. 

“Emotional harm may manifest itself, for example, as sleeplessness, anxiety, stress, 

depression, marital strain, humiliation, emotional distress, loss of self-esteem, excessive 

fatigue, or a nervous breakdown.” Id. Emotional harm may manifest physically as 

“ulcers, gastrointestinal disorders, hair loss, or headaches.” Id. An award for emotional 

harm is warranted only if there is a sufficient causal connection between the respondent’s 

illegal actions and the claimant’s injury. Id. (citing Gore v. Turner, 563 F.2d 159, 164 

(5th Cir. 1977)). The court should consider facts that are relevant to whether and to what 

extent the employer caused the employee’s emotional harm. See Vance v. Bell Tel. and 

Tel. Co., 863 F.2d 1503, 1516 (11th Cir. 1989) (finding award of $500,000 in 

compensatory damages excessive when claimant’s emotional harm was due in part to 

personal difficulties — such as an automobile accident, dietary issues, and family illness 

and death — that were not caused or exacerbated by the discriminatory conduct). 

 1. Compensatory Damages for Miller

 Miller testified that before he worked for Recession Proof, he lived in a large 

house with a roommate and her son for over four years. (Doc. 59 at 81) Miller’s 

roommate Marcia Rose testified that after his termination, Miller was “depressed [and] 

withdrawn,” and that he was not the “jolly happy person” that he was before the 

termination. (Doc. 59 at 113-114.) After his termination, Miller could not afford to pay 

rent and moved to a two bedroom apartment. 

 Miller eventually sold his belongings and moved to Oklahoma where he lived with 

his parents for five months until he “got [his] own place.” (Id. at 81-83, 86-88.) Miller 

described the living arrangement as strained. Miller testified that he was “devastated,” 

and felt like he was “losing everything.” (Id. at 82.) Miller felt like “less of a man” 

because he had to borrow money from his roommate and his parents. (Doc. 59 at 82-83.) 

Miller’s relationship with a girlfriend of eight months and with other friends suffered due 

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to the stress of his termination. (Doc. 59 at 83-84.) Miller lost touch with his friends 

because he could not “afford to hang out with” them and also lost his girlfriend. (Id. at 

82-84, 87.) 

 About a month after his termination, Miller was hospitalized for three days for 

chest pain due to a tear in the lining of his esophagus. (Doc. 59 at 84.) During his 

hospital stay, Miller learned that he had high blood pressure and he continues to take 

blood pressure medication. (Doc. 59 at 85.) Although Miller had experienced heart burn 

before his termination, he did not take blood pressure medication until after he was 

terminated. (Id.) 

 Since his termination, Miller has had low self-esteem and “think[s] that people are 

still looking at [him] as a black person” and wonders if other employment-related 

decisions are based on his race. (Id. at 88-89.) Miller was confident in his sales ability 

and had high self-esteem before his termination. (Id. at. 88) He testified that now he is 

unsure of himself. (Id. at 89.) 

 The record reflects that Miller experienced personal difficulties after his 

termination including strained relationships with family members, loss of self-esteem and 

self-confidence, and worsening physical problems, including high blood pressure. These 

complaints are considered possible manifestations of emotional harm in the EEOC 

Guidelines. See EEOC Enforcement Guidance, 1992 WL 1992 WL 1364354, at *4 (Jul. 

14, 1992) (stating that manifestations of emotional harm include “sleeplessness, anxiety, 

stress, depression, marital strain, humiliation, emotional distress, loss of self-esteem, 

excessive fatigue, . . . a nervous breakdown[,] . . . ulcers, gastrointestinal disorders, hair 

loss, or headaches”). 

 Although Miller’s emotional harm does not appear severe, that harm has continued 

for over two years since his termination and Miller continues to suffer from low selfesteem and continues to take high blood pressure medication. Considering Miller’s and 

Rose’s testimony and the facts of this case, including that Miller was subjected to a single 

incident of discriminatory conduct, the Court finds the EEOC’s request for $30,000 in 

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compensatory damages for Miller is excessive and recommends that Miller be awarded 

$15,000 in compensatory damages. See Turic v. Holland Hospitality, Inc., 85 F.3d 1211, 

1215-16 (6th Cir. 1996) (affirming award of $50,000 in compensatory damages when 

witnesses testified that plaintiff was “extremely upset and frightened after she was 

discharged,” and plaintiff testified that she continued to suffer nightmares, weight loss 

during her pregnancy, and excessive nervousness); DeNieva v. Reyes, 966 F.2d 480, 487 

(9th Cir.1992) (plaintiff testified to suffering emotional distress manifested by insomnia, 

dizziness and vomiting and received $50,000 compensatory damages); Sec’y of HUD v. 

Blackwell, 908 F.2d 864, 872-73 (11th Cir. 1990) ($40,000 award upheld on basis of 

testimony regarding humiliation, insomnia and headaches); Moody v. Pepsi-Cola Metro 

Bottling Co., 915 F.2d 201, 210 (6th Cir.1990) ($150,000 award upheld on basis of 

testimony that plaintiff was shocked and humiliated and forced to live apart from family 

because of termination); EEOC v. Trimbco, Inc., 2009 WL 733888, at *3-4 (N.D. Cal. 

Mar. 17, 2009) (awarding plaintiffs in a hostile work environment case based on sex and 

national origin $50,000 each in compensatory damages based on complaints of stress, 

anxiety, loss of sleep, vomiting, loss of contact with friends, loss of self-esteem, and 

strained relationship with family members); Erebia v. Chrysler Plastic Prods. Corp., 772 

F.2d 1250, 1260 (6th Cir. 1985) (reversing award of $10,000 in compensatory damages 

and directing district court to award nominal compensatory damages when plaintiff’s 

only proof of emotional harm included statements that he was “highly upset” about racial 

slurs and that “you can only take so much.”); Gilbert v. Hotline Delivery, 2001 WL 

799576, at *3 (S.D.N.Y. Jul. 10, 2001) (awarding $2,000 in compensatory damages 

because plaintiff’s termination likely exacerbated health-related problems and noting that 

after plaintiff’s termination, he could not afford medication co-payments, had to abandon 

his health insurance, had to apply for medicaid and food stamps and take out student 

loans, and experienced increased stress and high blood pressure that interfered with his 

academic performance). 

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 2. Compensatory Damages for Frasso

 Frasso testified that after his termination, he and his wife of eleven years separated 

for “a couple of months.” (Doc. 59 at 116, 125.) Frasso had difficulty paying his bills 

and his wife had to assume his share of their financial obligations. (Id.) Frasso felt “less 

than a man [because] he wasn’t able to take care of [his] responsibilities . . . .” (Id.) 

Frasso felt “angry,” “betrayed[,] sad[, and] disappointed.” (Id.) He worried about 

getting evicted because of the financial strain. (Id. at 126.) Frasso still feels angry and 

upset. (Id. at 133.) 

 Considering Frasso’s testimony and the facts of this case, the EEOC’s request for 

$20,000 in compensatory damages on Frasso’s behalf is excessive. After his termination, 

Frasso experienced marital strain and was separated from his wife for several months. 

Marital strain is recognized as a possible manifestation of emotional harm in the EEOC 

Guidelines. See EEOC Enforcement Guidance, 1992 WL 1364354, at *4. However, 

feelings of anger and betrayal are not included as manifestations of emotional harm and 

do not support an award of compensatory damages. Additionally, Frasso’s emotional 

harm appears non-severe, and other than the two-month separation from his wife, there is 

no evidence about the duration of his personal difficulties, including financial hardship. 

On these facts, the Court exercises its discretion to recommend that Frasso be awarded 

$5,000.00 in compensatory damages. 

C. Punitive Damages

 Under the Civil Rights Act of 1991, a plaintiff can recover punitive damages when 

a defendant “engaged in unlawful intentional discrimination” prohibited by Title VII. 

42 U.S.C. § 1981a(a)(1). Punitive damages are permissible “if the complaining party 

demonstrates that the respondent engaged in a discriminatory practice or discriminatory 

practices with malice or with reckless indifference to the federally protected rights of an 

aggrieved individual.” 42 U.S.C. § 1981a(b)(1). In Kolstad v. Am. Dental Ass’n, 527 

U.S. 526 (1999), the Supreme Court clarified the standard to be applied in assessing 

punitive damages in the employment discrimination context. The Court rejected the 

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argument that punitive damages are available only when an employer’s was “egregious.” 

Id. at 534. Rather, the Court held that to be liable for punitive damages, the employer 

“must at least discriminate in the face of a perceived risk that its actions will violate 

federal law . . . .” Id. at 536. Some of the factors considered in an award of punitive 

damages are the outrageousness of the defendant’s conduct, the defendant’s financial 

status, the injury suffered, the relationship between the parties, and the aggravating and 

mitigating factors. Conseco Fin. Serv. Corp. v. N. Am. Mtg. Co., 381 F.3d 811, 823 (8th 

Cir.2004). 

 In support of its request for punitive damages, the EEOC argues that the Court 

should send “a strong message” to Smith and the business entities. (Doc. 59 at 141.) In 

the First Amended Complaint, the EEOC alleges that Defendants’ conduct was 

“malicious” or evidenced “reckless indifference.” (Doc. 16 ¶ 7.) The First Amended 

Complaint alleges that Brunson regularly called or referred to Frasso and other 

employees by the “N” word. (Doc. 16 ¶ 15.) The First Amended Complaint further 

alleges that Miller was terminated for opposing the use of the “N” word, and Frasso was 

terminated for participating in an investigation pursuant to Title VII. (Doc. 16 ¶¶ 16-17.) 

The testimony at the default damages hearing supported the specific allegations of 

racially offensive comments directed at Miller and his termination for opposing such 

comments (Doc. 59 at 23, 73, 75-80), Brunson’s regular use of racially offensive 

comments directed toward Frasso and other employees (Doc. 59 at 121), and Frasso’s 

termination for engaging in protected activity (Doc. 59 at 44, 46, 123). 

 Miller and Frasso have presented sufficient evidence to show that Defendants 

engaged in unlawful discrimination against them with malice or reckless indifference to 

their federally protected rights. Defendants fired Miller on the same day that he 

complained to his supervisor about Brunson’s use of the “N” word. Similarly, although 

Brunson and Rice had been advised that participation in the EEOC’s investigation was a 

“protected activity,” they fired Frasso almost immediately after he participated in a Title 

VII investigation of Miller’s charge of discrimination. Defendants’ intentional 

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discriminatory actions constitute malice. See Hunter v. Allis-Chalmers, 797 F.2d 1417, 

1425 (7th Cir. 1986) (awarding punitive damages when defendant fired a worker for 

making a well-founded complaint with state FEP agency about persistent acts of racial 

harassment). Accordingly, the Court will award punitive damages. The EEOC requests 

$14,650.00 in punitive damages for Miller and $29,350.00 for Frasso.21 (Doc. 59 at 142.) 

 The award of punitive damages should bear some relationship to the harm caused 

by defendant’s conduct. Gore, 517 U.S. at 580 (explaining that the proper inquiry is 

whether there is a reasonable relationship between the punitive damage award and the 

harm likely to result from the defendant’s conduct as well as the harm that actually 

occurred). Some courts have found a punitive award of three times the compensatory 

damages to be a suitable punitive award. See Lampley v. Oynx Acceptance Corp., 340 

F.3d 478, 483 (7th Cir. 2003); David v. Caterpillar, Inc., 185 F. Supp. 2d 918, 926-27 

(C.D. Ill. 2002). The Supreme Court, however, continues to rebuke the imposition of any 

rigid mathematical formula in determining the reasonableness of a punitive to 

compensatory damages ratio. 

 In this case, although the discriminatory conduct was of limited duration, it was 

extreme and it had severe results — the termination of Miller and Frasso. Therefore, the 

Court finds that an award of two times the compensatory damages award is reasonable. 

See State Farm, 538 U.S. at 425 (stating that the Court has “consistently rejected the 

notion that the constitutional line is marked by a simple mathematical formula” and has 

recognized that “few awards exceeding a single-digit ration between punitive and 

compensatory damages, to a significant degree, will satisfy due process”). Accordingly, 

 21 The EEOC seeks the statutory cap of $50,000.00 each for compensatory and punitive damages for Miller and Frasso. Because the EEOC seeks $30,000.00 in 

compensatory damages for Miller, it argues he should receive $20,000 in punitive damges, less the $5,350.00 received in settlement from Brunson. (Doc. 42, Ex. A.) It 

further argues that Frasso should receive $20,000.00 in compensatory damages and $30,000.00 in punitive damages, less the $650.00 received in settlement from Brunson. 

(Id.) 

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the Court recommends that Miller be awarded punitive damages in the amount of 

$30,000 and that Frasso be awarded punitive damages in the amount of $10,000. 

D. Injunctive Relief

 The EEOC also seeks injunctive relief. The court may grant equitable relief to 

effectuate the purposes of Title VII 42 U.S.C.2000e–5(g); see also EEOC v. Goodyear

Aerospace Corp., 813 F.2d 1539, 1544 (9th Cir. 1987) (“Generally, a person subjected to 

employment discrimination is entitled to an injunction against future discrimination.”) 

The Supreme Court has recognized that “Congress’ purpose in vesting a variety of 

‘discretionary’ powers in the court was . . . to make possible the ‘fashioning of the most 

complete relief possible.’” Albermarle Paper Co, 422 U.S. at 421. 

 In an effort to prevent Defendants from engaging in further discrimination, the 

Court recommends injunctive relief: (1) enjoining Recession Proof USA LLC, and Prime 

Time Marketing Solutions LLC d/b/a USA Supreme Technology, their officers, 

successors, assigns, and all persons in active concert or participation with them, from 

engaging in discrimination based on race; and (2) ordering Recession Proof USA LLC, 

and Prime Time Marketing Solutions LLC d/b/a USA Supreme Technology, to institute 

and carry out policies, practices, and programs that provide equal employment 

opportunities for its employees and that eradicate the effects of its past and present 

unlawful employment practice. The Court recommends an award injunctive relief in the 

form of the proposed order attached to this Report and Recommendation. 

E. Attorneys’ Fees and Costs

 The EEOC seeks $3,971.71 in costs ($3,704.17 in costs in Miller’s travel costs and 

$267.00 in service costs.) (Doc. 51 at 16.) Pursuant to Federal Rule of Civil Procedure 

54(a) and Local Rule of Civil Procedure 54.1 and 54.2, the time for filing claims for 

costs, attorney’s fees, and non-taxable expenses is after judgment has been entered. 

According to Local Rule 54.2(b)(1) the party seeking attorney’s fees must file a motion 

within fourteen days after the entry of judgment. The motion must specify the 

“applicable judgment and the statutory or contractual authority entitling the party to the 

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award [] and the amount of attorney’s fees sought or a fair estimate of such amount.” 

Then, within sixty days of judgment, a memorandum is to be filed that includes 

documentation required by Local Rule 54.2(d). Accordingly, a determination of costs, 

attorney’s fees, and non-taxable expenses is not before the Court at this time. 

 Accordingly, 

IT IS RECOMMENDED that Plaintiff’s hostile work environment claim be 

dismissed pursuant to Plaintiff’s voluntary withdrawal of that claim. (see Doc. 51 at 7). 

IT IS FURTHER RECOMMENDED that Plaintiff’s Motion for Default 

Judgment (Doc. 48) be GRANTED against Defendants Recession Proof USA LLC and 

Prime Time Marketing Solutions LLC d/b/a USA Supreme Technology, as set forth 

below, and be denied in all other respects.

 IT IS FURTHER RECOMMENDED that Richard Miller be granted equitable 

remedies in the amount of $41,461.00 in back pay and $276.00 in prejudgment interest, 

totaling $41,737.0 in equitable damages. 

IT IS FURTHER RECOMMENDED that Ron Frasso be granted equitable 

remedies in the amount of $34,784.00 in back pay and $228.19 in prejudgment interest, 

totaling $35,012.00 in equitable damages. 

IT IS FURTHER RECOMMENDED Richard Miller be awarded $15,000.00 in 

compensatory and $30,000.00 in punitive damages. 

IT IS FURTHER RECOMMENDED that Ron Frasso be awarded $5,000.00 in 

compensatory and $10,000.00 in punitive damages. 

IT IS FURTHER RECOMMENDED that Miller and Frasso be awarded postjudgment interest under 28 U.S.C. § 1961. 

IT IS FURTHER RECOMMENDED that Plaintiff’s request for attorney’s fees 

and costs be denied without prejudice. 

IT IS FURTHER RECOMMENDED that the Court enter an Order providing 

permanent injunctive relief in the form attached to this report and recommendation. 

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 This recommendation is not an order that is immediately appealable to the Ninth 

Circuit Court of Appeals. Any notice of appeal pursuant to Federal Rule of Appellate 

Procedure 4(a)(1) should not be filed until entry of the District Court’s judgment. The 

parties shall have fourteen days from the date of service of a copy of this 

recommendation within which to file specific written objections with the Court. See 28 

U.S.C. § 636(b)(1); Fed. R. Civ. P. 6 and 72. Thereafter, the parties have fourteen days 

within which to file a response to the objections. Failure to file timely objections to the 

Magistrate Judge’s Report and Recommendation may result in the District Court’s 

acceptance of the Report and Recommendation without further review. See United States 

v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003). Failure to file timely objections to 

any factual determinations of the Magistrate Judge may be considered a waiver of a 

party’s right to appellate review of the findings of fact in an order or judgment entered 

pursuant to the Magistrate Judge’s recommendation. See Fed. R. Civ. P. 72. 

 Dated this 19th day of August, 2013. 

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ATTACHMENT 

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IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Equal Employment Opportunity 

Commission, 

Plaintiff, 

v. 

Recession Proof USA LLC, et al., 

Defendants.

No. CV-11-01355-PHX-BSB

[PROPOSED] ORDER 

 On April 27, 2012, the Clerk of Court entered default as to Defendants Phillip D. 

Smith d/b/a Recession Proof USA LLC, Phillip D. Smith d/b/a Prime Time Marketing 

Solutions LLC, and Prime Time Marketing Solutions LLC d/b/a USA Supreme 

Technology. (Doc. 37.) On September 7, 2012, the Clerk of Court entered default 

against Defendant Recession Proof USA LLC. (Doc. 47.) 

 On October 15, 2012, this Court ordered Plaintiff, Equal Employment Opportunity 

Commission, to file a proposed order for injunctive relief. On _______, 2013, the Court 

entered default judgment against Defendants Recession Proof USA LLC and Prime Time 

Marketing Solutions LLC d/b/a/ USA Supreme Technology. (Doc. ___.) 

 Having considered the pleadings, the record, and supporting documents submitted 

in this matter, as to Defendants Recession Proof USA LLC and Prime Time Marketing 

Solutions LLC d/b/a/ USA Supreme Technology (Defendants),

 

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 IT IS ORDERED THAT: 

 1. Defendants and their officers, agents, employees, successors, assigns and 

all persons in active concert or participation with them, are permanently enjoined from 

(a) discriminating against any employee on the basis of race and (b) retaliating against 

any employee because he or she (i) opposed discriminatory conduct believed to be 

unlawful under Title VII, (ii) reported conduct believed to be unlawful under Title VII to 

Defendants’ managers, (iii) filed a charge or assisted or participated in the filing of a 

charge of race discrimination, or (iv) assisted or participated in an investigation or 

proceeding resulting from any of the preceding conduct. 

 2. Defendants must develop written policies concerning racial discrimination 

and retaliation to conform to the law. The written policies must include at a minimum: a 

clear and complete definition of racial discrimination and retaliation; a statement that 

racial discrimination and retaliation are prohibited and will not be tolerated; and, a 

description of the consequences, up to and including termination that will be imposed 

upon violators of the policy. The policy shall be distributed to each of Defendants’ 

current employees within ninety (90) days of the entry of this order and to all new 

employees of Defendants when hired. 

 3. Defendants must implement injunctive relief, including but not limited to 

employee training on Title VII’s prohibitions against racial discrimination and retaliation 

for all employees in the State of Arizona. Defendants shall provide this live training at 

least once a year for a period of two years. 

 4. Defendants must post a notice, attached as Attachment A, at all facilities, 

buildings, or offices in the State of Arizona regarding their intent to comply with Title 

VII; advising its employees of their right to complain about or oppose race 

discrimination; to be free from retaliation; and advising its employees of their right to 

contact federal and state anti-discrimination agencies. This notice shall provide current 

contact information for the United States Equal Employment Opportunity Commission 

and the Arizona Civil Rights Division. 

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Attachment A 

NOTICE TO ALL EMPLOYEES 

 It is unlawful under federal law, Title VII of the Civil Rights Act, and state law to 

discriminate against an employee on the basis of race in the recruitment, hiring, firing, 

compensation, assignment, or other terms, and conditions or privileges of employment. It 

is also unlawful to retaliate against any person because the person protested or reported 

the discriminatory practices to management or the Equal Employment Opportunity 

Commission (EEOC). 

 Employers shall not discriminate against any employee on the basis of race and 

shall not retaliate against any employee for complaining about race discrimination. 

 If you believe you have been discriminated against, you have the right to seek 

assistance from: 

EEOC, 3300 North Central Avenue, Suite 690 

Phoenix, Arizona 85012 

Telephone: (602) 640-5000 

TTY: (602) 640-5072 

Website (national): www.eeoc.gov 

 You have the right to file a charge with the EEOC if you believe you are being 

discriminated against or retaliated against for reporting discrimination. 

 No Retaliation Clause. It is against the law for any action to be taken against you 

by any supervisory or management official of your employer for: (1) opposing race 

discrimination or other discriminatory practices made unlawful by federal or state law; 

(2) filing a charge or assisting or participating in the filing of a charge of discrimination; 

or (3) assisting or participating in an investigation or proceeding brought under Title VII. 

Should any such retaliatory actions be taken against you, you should immediately contact 

the EEOC at the address or telephone number listed above. 

Case 2:11-cv-01355-BSB Document 60 Filed 08/20/13 Page 43 of 43