## F I L E D United States Court of Appeals Tenth Circuit 

### DEC 14 1998 

### PATRICK FISHER Clerk 

### PUBLISH UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

RENA LOCKARD, Plaintiff-Appellee,

v. PIZZA HUT, INC., a corporation, doing business as Pizza Hut; A&M FOOD SERVICES, INC., a corporation, doing business as Pizza Hut, Defendants-Appellants Nos. 97-7027 97-7078

Appeal from the United States District Court for the Eastern District of Oklahoma (D.C. No. CV-96-294-S)

Richard W. Wassall (Harry A. Parrish with him on th e briefs) of Knight, Wilkerson, Parrish & Wassall, Tulsa, Oklahoma, for Defendants-Appellants. Thomas J. Hadley of Stamper, Hadley & Reasor, Antle rs, Oklahoma (David M. Kennedy of Kennedy, Minshew, Campbell & Morris, She rman, Texas, with him on the briefs), for Plaintiff-Appellee.

Before SEYMOUR , Chief Judge, PORFILIO , and HENRY , Circuit Judges.

SEYMOUR , Chief Judge.-2-

Rena Lockard brought suit against Pizza Hut, Inc. a nd A&M Food Service, Inc. asserting claims under Title VII for hostile w ork environment sexual harassment. The jury returned a verdict against de fendants, awarding Ms. Lockard $200,000 in compensatory damages. The district court denied defendants’ motions for judgment as a matter of law , for a new trial and for remittitur. The district court also awarded Ms. Lo ckard $1514.21 in costs and $37,088.75 in attorneys’ fees. Defendants appeal. We affirm the judgment against A&M and reverse the judgment against Pizza Hut.
I A&M Food Service, Inc. is a Pizza Hut franchisee th at owns and operates the Pizza Hut restaurant in Atoka, Oklahoma. PizzaHut, Inc. publishes policy bulletins and complaint procedures which are utiliz ed by all Pizza Hut restaurants. Pizza Hut’s employee orientation and training handb ook, “Your Guide to Success,” is distributed to each new employee at th e time of hire. All employees are required to sign a document stating that they h ave received and reviewed the publication. The handbook includes, among other thi ngs, Pizza Hut’s formal grievance procedure for any work-related concerns a s well as a section specifically discussing the problem of sexual haras sment. Pizza Hut’s formal grievance procedure instructs employees to:

Step 1 – Talk to your Manager and clearly

state the problem and your desired-3- solution. Step 2 – Not satisfied? Write down your

problem with your desired solution and send it to your Area Manager. Send a copy to your Division Human Resource Manager. Step 3 – If you receive a written response and

still are not satisfied, feel free to respond, in writing, to your Market Manager. Aplt. App. at 574. Employees who “are subjected to or have knowledge of sexual harassment or intimidation,” however, also have the opportunity to “report [such conduct] immediately to [their] Division Human Reso urce Manager.” Id. at 575. Pizza Hut’s grievance procedure and sexual harassme nt policy are posted in every restaurant. Moreover, if an employee desires “furt her information” regarding sexual harassment, she is directed to “ask [her] Manager for Policy #425.” Id. Policy #425, after defining sexual harassment and p roviding examples of sexually harassing behavior, provides that “[s]uch conduct whether committed by supervisory or non supervisory personnel, co-worker s or customers is specifically prohibited.” Id. at 562. With regard to reporting incidents of har assment, Policy #425 further states that “[a]ny management employee who has knowledge of harassment or intimidation should report the incide nt to his or her Human Resource Manager, whether or not the victim request s that management become involved.” Id. at 562. Pizza Hut also publishes a pamphlet for managementemployees entitled-4-

“Pizza Hut’s Policy on Harassment,” which provides instructions on responding to and investigating complaints of sexual harassment. All Pizza Hut management employees are required to receive training on sexua l harassment and are expected to review this pamphlet as part of that training. The pamphlet cautions managers against “ignor[ing] allegations or rumors that sexu al harassment is occurring,” directing them to “[r]espond immediately with conce rn.” Id. at 558. When a manager becomes aware of customers who harass employees, the pamphlet specifically instructs such managers to contact the Human Resource Manager and/or Area Manager and to

take such steps to correct the conduct, such as ask ing the customer to refrain from the conduct and if the cus tomer persists, asking the customer to leave the restaura nt. Id. at 557. Ms. Lockard was hired to work as a waitress for $2. 35/hour plus tips at the Pizza Hut unit in Atoka in September 1993. Her W-2 form lists A&M as her employer. She was directly supervised by Micky Jac k, who was the manager of Ms. Lockard’s shift. Mr. Jack reported to Joyce Se lby, the Unit Manager of the Atoka Pizza Hut, who was responsible for hiring. M s. Selby in turn reported to Larry Acklin, the Area Manager for Pizza Hut units located in Eastern Oklahoma. As part of her employee orientation and training, M s. Lockard signed a document stating that she had received and reviewed Pizza Hu t’s “Your Guide to Success.”-5-

Ms. Lockard’s duties included closing the store aft er the restaurant stopped serving customers at 10 p.m. on weekdays and 11 p.m . on weekends. Upon occasion, she and Mr. Jack were the only Pizza Hut employees at closing time and Mr. Jack would often play one of his favorite songs “Freak Me” on the jukebox. The song contains sexually explicit lyrics. Ms. Lo ckard testified that she informed both Mr. Jack and Ms. Selby that she foundthis song offensive and asked Mr. Jack to stop playing it, to no avail. Ot her than playing offensive music, Mr. Jack never directly acted improperly toward her

. Ms. Lockard’s more serious allegation of sexual har assment involved the failure of Mr. Jack to respond properly to the inap propriate conduct of two crude and rowdy male customers on November 6, 1993. Ms. Lockard testified that these two men had eaten at the restaurant several times p revious to November 6 and had made sexually offensive comments to her, such as “I would like to get into your pants.” After the two men made these remarks, Ms. Lockard informed Mr. Jack that she did not like waiting on them; however, the record contains no evidence that she told Mr. Jack why she did not like waiting on the men or that she ever relayed to him the substance of their remarks. On the evening of November 6, these customers again entered the restaurant. The wait staff, including younger male waiters, argued over who would seat them becau se no one on the staff wanted to serve them. Mr. Jack then instructed Ms. Lockard to wait on them.-6-

After being seated by Ms. Lockard, one of the custo mers commented that she smelled good and asked what kind of cologne she was wearing. Ms. Lockard responded that it was none of his business, and the customer grabbed her by the hair. She informed Mr. Jack that one of the custom ers had pulled her hair and that she did not want to continue waiting on them, and asked Mr. Jack if he could find someone else to serve them. Ms. Lockard testi fied that Mr. Jack denied her request, stating “You wait on them. You were hired to be a waitress. You waitress.” Aplt. App., Trial Tr. at 47. Ms. Locka rd returned to their table with a pitcher of beer. As she reached to put the beer on the table, the customer pulled her to him by the hair, grabbed her breast, and puthis mouth on her breast. At that point, Ms. Lockard told Mr. Jack that she was quitting and wanted to go home. She called her husband who picked her up. The next day Ms. Selby telephoned Ms. Lockard to qu estion her about the incident. Ms. Lockard related the events of the pr evious evening and asked Ms. Selby to obtain the names of the two customers. Ms . Selby provided Ms. Lockard with this information. Ms. Selby also asked Ms. Lo ckard whether she wished to continue working at Pizza Hut as a production perso n, which would not require her to come into contact with any customers, but Ms . Lockard declined the offer. Ms. Lockard provided Pizza Hut with her notice of t ermination on November 13, 1993. On the official Pizza Hut Notice of Terminat ion/Resignation form signed-7-

by Ms. Selby, the explanation given for the termination stated that Ms. Lockard “was sexual harrast [sic] by a customer–got underst andly [sic] upset + quit.” Aplee. Supp. App. at 1. For the two months she worked at Pizza Hut, Ms. Lockard earned a total of $1393.19. Donna Lowrance, an employee of Pizza Hut, Inc., hol ds the position of Manager of Equal Employment Opportunity and Affirmative Action. Her responsibilities include handling all EEOC complain ts filed against Pizza Hut restaurants nationwide. Upon receiving Ms. Lockard ’s EEOC complaint, Ms. Lowrance instructed Mr. Acklin, the Area Manager, t o investigate the complaint and gather employees’ statements concerning the all eged incident of harassment. Following this investigation, Ms. Lowrance wrote a letter to the EEOC, dated December 1994, setting out Pizza Hut’s position on Ms. Lockard’s sexual harassment charge. Pizza Hut denied the charge, as serting that Mr. Jack only became aware of the incident between Ms. Lockard an d the male customers after the men had left the restaurant. Aplee. Supp. App. at 31. At trial, Ms. Lockard testified she had been sexual ly assaulted by a friend of her father when she was a teenager. Although sh e had been able to cope with her prior sexual abuse before the November 6 incide nt, after the incident her emotional condition deteriorated significantly. Ms . Lockard testified she was frightened to be near men, even her father and her husband, and that her condition-8-

prevented her from working. Several family members testified to changes in Ms. Lockard’s behavior as a result of the incident, inc luding her fear of going out in public. Ms. Lockard sought psychological counselin g from Dr. Karen Rasile, who appeared as an expert witness at trial and stated t hat Ms. Lockard exhibited classic symptoms of post-traumatic stress disorder and major depression. After receiving treatment, Ms. Lockard’s condition improv ed sufficiently so that she was able to resume working in 1995, approximately two years after the incident. Ms. Lockard received training to work in home healt h care, and at her request attends only to female patients. Ms. Lockard brought suit against Pizza Hut, Inc. an d A&M Food Service, Inc., alleging a Title VII claim of hostile work en vironment sexual harassment and a state law claim of intentional infliction of emotional distress. Ms. Lockard requested an amount greater than $50,000 in compens atory and punitive damages as well as costs and attorneys’ fees. At the close of Ms. Lockard’s case, defendants moved for judgment as a matter of law, s eeking dismissal of the hostile work environment sexual harassment claim, the intentional infliction of emotional distress claim, Pizza Hut, Inc. as a party to the suit, and the punitive damages request for relief. The district court gra nted defendants’ motion for judgment as a matter of law with regard to the stat e law claim and the issue of punitive damages, but denied the remainder of defen dants’ motion. The jury-9-

returned a verdict in favor of Ms. Lockard and agai nst Pizza Hut and A&M on the hostile work environment sexual harassment claim, awarding Ms. Lockard $200,000 in compensatory damages. Defendants filed a post-trial motion for judgment a s a matter of law, basing their renewed motion on the following grounds: (1) Ms. Lockard was employed by A&M, not Pizza Hut, and Pizza Hut therefore coul d not be liable on the sexual harassment claim; (2) the harassment suffered by Ms . Lockard was not sufficiently severe or pervasive to constitute an a ctionable claim of sexual harassment; and (3) Pizza Hut and A&M cannot be hel d vicariously liable for the alleged customer-created hostile work environment. In the alternative, defendants argued they were entitled to a new trial because: (1) the jury verdict was excessive and not supported by the evidence; (2) th e district court erroneously allowed prejudicial testimony concerning Mr. Jack’s homosexuality; and (3) the court erroneously allowed the rebuttal testimony of Mona Harrison, a co-worker of Ms. Lockard’s at the time of the incident. Fina lly, defendants urged the court to order a remittitur of the jury verdict on the gr ound that it was excessive. The district court summarily denied all defendants’ post-trial motions and awarded Ms. Lockard $1514 in costs. Subsequently, the court awarded Ms. Lockard $37,088 in attorneys’ fees. We now turn to defendants’ consolidated appeals.-10- II Defendants first contend the district court erred i n denying their motion for judgment as a matter of law, arguing Ms. Lockard fa iled to demonstrate that Pizza Hut was her employer, that she suffered harassment sufficiently severe or pervasive to create an actionable hostile work envi ronment, or that Pizza Hut and A&M should be held vicariously liable for the alleg ed hostile work environment. We review de novo a district court’s determination of a motion for judgment as a matter of law, applying the same stan dard as the district court. Judgment as a matter of law is warranted “only if t he evidence points but one way and is susceptible to no reasonable inferences supp orting the party opposing the motion.” Mason v. Oklahoma Turnpike Auth. , 115 F.3d 1442, 1450 (10th Cir. 1997). “We do not weigh the evidence, pass on the credibility of the witnesses, or substitute our conclusions for that of the jury. However, we must enter judgment as a matter of law in favor of the moving party if ‘there is no legally sufficient evidentiary basis . . . with respect to a claim or defense . . . under the controlling law.’” Harolds Stores, Inc. v. Dillard ’s Dep’t Stores , 82 F.3d 1533, 1546 (10th Cir. 1996) (citation omitted) (quoting F ed. R. Civ. P. 50(a)). In conducting our review, we have construed “[t]he evi dence and inferences therefrom . . . most favorably to the nonmoving party.” Wolfgang v. MidAmerica Motorsports, Inc. , 111 F.3d 1515, 1522 (10th Cir. 1997). We address-11-

each argument in turn.
A Title VII provides that it is “an unlawful employme nt practice for an employer . . . to discriminate against any individu al with respect to his compensation, terms, conditions, or privileges of e mployment, because of such individual’s . . . sex.” 42 U.S.C. § 2000e-2(a). An employer is defined as “a person engaged in an industry affecting commerce wh o has fifteen or more employees.” Id. § 2000e(b). An employee, in turn, is defined as “ an individual employed by an employer.” Id. § 2000e(f). In order to establish a prima facie case under Titl e VII, Ms. Lockard was required to prove, among other things, that Pizza H ut, Inc., was her employer.
See Frank v. U.S. West, Inc. , 3 F.3d 1357, 1361 (10th Cir. 1993). Whether an entity is an employer under Title VII usually arise s as an issue in the following contexts: (1) where a plaintiff who is directly employed by a franchisee or subsidiary wishes to hold the franchisor or parent company liable for the discriminatory conduct of its franchisee’s or subsi diary’s employees; and (2) where it is unclear whether a plaintiff is an indep endent contractor or an employee of an entity. Courts have struggled with a variety of tests to determine whether a plaintiff has demonstrated an employee-employer relationship for Title VII purposes. In Lambertsen v. Utah Dep’t of Corre ctions , 79 F.3d 1024 (10th1 These factors include: (1) the kind of occupation at issue, with reference to whether the work usually is done under the direction of a supervisor or is done by a specialist without supervision; (2) the skill req uired in the particular occupation; (3) whether the employer or the employee furnishes the equipment used and the place of work; (4) the length of time the individual has worked; (5) the method of p ayment, whether by time or by job; (6) the manner in which the workrelationship is terminated; (7) whether annual leave is afforded; ( 8) whether the work is an integral part of the business of the emp loyer; (9) whether the worker accumulates retirement benefits; (10) wh ether the employer pays social security taxes; and (11) the i ntention of the parties. Lambertsen , 79 F.3d at 1028. -12- Cir. 1996), we identified three approaches: (1) the common law agency inquiry; (2) the “hybrid” common law-economic realities meth od; and (3) the single employer or true economic realities test. Id. at 1024; see also 1 L EXK. L ARSON , E MPLOYMENT D ISCRIMINATION§ 4.02, at 4-11 to 4-12 (2d ed. 1998). Under the common law agency inquiry, the focus is o n whether the putative employer “controls the means and manner by which wo rk is accomplished.” Lambertsen , 79 F.3d at 1028. The hybrid method combines the focus on the common law right to control with additional factors relating to the degree of economic dependence of the worker on the putative e mployer. See id. at 1028; 1
L ARSON , supra , § 4.02, at 4-12. 1 The third approach is used by courts that have “turned for guidance to a test promulgated by the N ational Labor Relations Board.” Evans v. McDonald’s Corp. , 936 F.2d 1087, 1089 (10th Cir. 1991). Under this approach, which is known as the “single employer,” “economic-13-

realities,” or “integrated enterprise” test, courts consider the following factors: interrelation of operations, centralized control of labor relations, common management, and common ownership or financial contr ol. See id. (citing McKenzie v. Davenport-Harris Funeral Home , 834 F.2d 930, 933 (11th Cir. 1987)). Unlike the “stringent” common law approach, which “ tends to exclude the greatest number of persons from Title VII coverage, ” 1 L ARSON , supra , § 4.02, at 4-12, courts adopting the single employer test have emphasized that a broad interpretation should be given to the employer and employee provisions of Title VII to effect its remedial purpose. See Armbruster v. Quinn , 711 F.2d 1332, 1336 (10th Cir. 1983). The single employer test is ther efore the approach most urged by plaintiffs in Title VII actions. See, e.g. , Lambertsen , 79 F.3d at 1029; Evans , 936 F.2d at 1089. The trend in Title VII cases app ears to be in favor of adopting this test. See Cook v. Arrowsmith Shelburne, Inc. , 69 F.3d 1235, 1241 (2d Cir. 1995) (“We believe that the appropriate test under Title VII for determining when parent companies may be considered employers of a s ubsidiary’s employees is the four-part [NLRB] test adopted by the Fifth, Sixth, and Eighth circuits.”). We have yet to adopt the single employer test, having found it unnecessary in several cases to resolve the issue definitively. See, e.g. , Lambertsen , 79 F.3d at 1029; Frank , 3 F.3d at 1362; Evans , 936 F.2d at 1090; see also Whitaker v. Professional-14-

Investors Ins. Group , No. 91-5125, 1992 WL 279245, at *1 (10th Cir. Oct . 5, 1992). Despite an abundance of case law on this issue, nei ther Ms. Lockard nor defendants cited to any relevant legal authorities either in the district court or on appeal to support their respective positions. None theless, even assuming the lenient single employer test applies here, Ms. Lock ard has failed to meet her burden of establishing that Pizza Hut was her emplo yer. Underlying the single employer test is the requirem ent “that there be sufficient indicia of an interrelationship between the immediate corporate employer and the affiliated corporation to justify the belief on the part of an aggrieved employee that the affiliated corporation is jointly responsible for the acts of the immediate employer.” Armbruster , 711 F.2d at 1337. The key factor of this four-part test is therefore whether the put ative employer has centralized control of labor relations. See Cook , 69 F.3d at 1241; Frank , 3 F.3d at 1363;
Evans , 936 F.2d at 1090. “The critical question is, ‘[w ]hat entity made the final decisions regarding employment matters related to t he person claiming discrimination?’” Frank , 3 F.3d at 1363 (quoting Trevino v. Celanese Corp. , 701 F.2d 397, 404 (5th Cir. 1983)). In determining whether a parent corporation should be held liable for the acts of its wholly-owned subsidiary’s employees, we have stated that a “parent’s-15-

broad general policy statements regarding employment matters are not enough” to make the required showing of centralized control ov er labor relations. Frank , 3 F.3d at 1362. “To satisfy the control prong, a par ent must control the day-to-day employment decisions of the subsidiary.” Id. (emphasis added). In holding that a franchisor was not a Title VII employer with respec t to the employees of an independently owned franchise, we were not persuade d by evidence that the franchisor “may have stringently controlled the man ner of its franchisee’s operations, conducted frequent inspections, and pro vided training for franchise employees,” when the franchisor did not have contro l over its franchisee’s labor relations or financial control over the franchisee. Evans , 936 F.2d at 1090. In contrast, the Second Circuit has held that contr ol over labor relations was established where the evidence demonstrated that the parent ran its wholly owned subsidiary in a direct, hands-on fashion; app lications for employment with the subsidiary went through the parent; all personn el status reports were approved by the parent; and the subsidiary cleared all majoremployment decisions with the parent. See Cook , 69 F.3d at 1241. Similarly, the Sixth Circuit ha s held that a parent company and its wholly owned subsidiary coul d be considered a single employer for Title VII purposes where the parent bypractice and policy authorized all purchases over $200 made by its subs idiary; the parent handled its subsidiary’s payroll and cash accounting, and monit ored all sales shipments; and-16-

the parent approved all of the subsidiary’s hiring decisions. See Armbruster , 711 F.2d at 1338-39; see also Frank , 3 F.3d at 1363 (listing type of evidence routinel y used to show interrelated operations and control ov er labor relations prongs; e.g., parent kept subsidiary’s books, issued its paycheck s, and paid its bills; parent and subsidiary had common employees, shared services, e quipment, employees and office space; parent controlled subsidiary’s payrol l and benefit program). Ms. Lockard points to the following evidence in the record to support her claim that Pizza Hut and A&M should be considered asingle employer for the purpose of her Title VII suit: (1) the policies an d procedures in effect at the Atoka restaurant were those of Pizza Hut; (2) DonnaLowrance, a Pizza Hut employee, handled Ms. Lockard’s EEOC complaint agai nst both A&M and Pizza Hut and set forth “Pizza Hut’s position,” Aplee. Supp. App. at 31; (3) Ms. Lowrance’s position letter to the EEOC denying Ms. Lockard’s charge “related” that Ms. Lockard was employed by “the Company,” id. ; and (4) Brian Cole was a vice-president of both A&M and Pizza Hut, Inc. Our careful review of the record reveals that Ms. L ockard failed to present the type of evidence routinely required by courts t o satisfy the showing of interrelated operations and control over labor relations required by the single employer test. In fact, the record does not contai n even the most basic information about the relationship between the two entities, such as whether2 We have stated that the “doctrine of limited liabi lity creates a strong

presumption that a parent company is not the employ er of its subsidiary’s employees, and the courts have found otherwise onlyin extraordinary circumstances.” Frank , 3. F.3d at 1362. In order to hold a parent compa ny liable as an employer under Title VII, the parent must exe rcise a degree of control that exceeds that normally exercised by a parent corporation. See id. at 1363. As we discuss infra, Ms. Lockard has failed to put forth sufficient evidence for us to assess whether extraordinary circumstances or an ex cessive degree of control exists between Pizza Hut and A&M. -17- A&M operates independent Pizza Hut franchises or wh ether A&M is a whollyowned subsidiary of Pizza Hut. We only learned that A&M was a wholly-owned subsidiary of Pizza Hut at oral argument when we sp ecifically asked counsel for Pizza Hut and A&M for this information. Although the record establishes some common managem ent between the two entities, it is not sufficient to satisfy the c ommon management requirement of the single employer test. See Frank , 3 F.3d at 1364. Even A&M’s status as a wholly-owned subsidiary of Pizza Hut merely demonstrates common ownership which, “standing alone, can never be sufficient to establish parent liability.” Id. 2 The record simply contains no evidence from which afinder of fact could determine whether Pizza Hut controlled the day-to-d ay employment decisions of A&M, whether Pizza Hut made the final decisions reg arding employment matters for A&M, or the degree of interrelatedness between the two companies. Although Pizza Hut’s policies were utilized at the Atoka res taurant, Ms. Lockard has produced no evidence indicating what role, if any, Pizza Hut played in3 We note that the jury was not instructed to determ ine whether Pizza Hut

was Ms. Lockard’s employer under Title VII and ther efore a proper party to the suit. We thus find ourselves in the somewhat unusu al situation of reviewing whether the evidence is legally sufficient to susta in a finding which the jury never expressly made. Nevertheless, we have reviewed the record and conclude as a matter of law that Ms. Lockard failed to present su fficient evidence that the two companies were integrated. -18- implementing or effecting these policies. The exis tence of the policies is not enough to demonstrate Pizza Hut’s centralized contr ol of A&M’s labor relations.

Based on the record before us, we cannot conclude Ms. Lockard satisfied her burden of proving that Pizza Hut should be heldliable as an employer under Title VII. We therefore reverse the district court ’s denial of defendants’ motion for judgment as a matter of law on this ground. 3
B Sexual harassment is actionable under a hostile work environment theory when the harassing conduct is “sufficiently severe or pervasive ‘to alter the conditions [of the victim’s] employment and create an abusive working environment.’” Meritor Sav. Bank, FSB v. Vinson , 477 U.S. 57, 67 (1986) (quoting Henson v. Dundee , 682 F.2d 897, 904 (11th Cir.1982)). The conduct must be both objectively and subjectively abusive, and need not lead to a nervous breakdown before Title VII comes into play. See Harris v. Forklift Sys., Inc. , 510 U.S. 17, 21-22 (1993).-19-

The Supreme Court recognized that the standard for determining an actionable hostile work environment set forth in Me ritorand reaffirmed in Harris is not and could not be “a mathematically precise t est.” Id. at 22. The Court provided some guidance for applying the standard byarticulating the following nonexhaustive list of factors relevant to the deter mination:

the frequency of the discriminatory conduct; its se verity; whether it is physically threatening or humiliating , or a mere offensive utterance; and whether it unreasonab ly interferes with an employee’s work performance. Id. at 23. The Court further emphasized that in decid ing this issue courts should “look[ ] at all the circumstances” and that “no sin gle factor is required.” Id. Ms. Lockard alleges that Mr. Jack created a hostile work environment when he played the sexually explicit song “Freak Me” on the jukebox and when he refused to address the harassing conduct of two mal e customers. Ms. Lockard testified, however, that she did not find the music in and of itself so offensive as to make her want to quit her job. We therefore que stion whether Ms. Lockard “subjectively perceive[d] the environment to be abu sive,” id. at 21, based solely on this conduct. We need not decide this issue bec ause we conclude that the harassing conduct by the two male customers was suf ficiently severe to create an abusive environment. We thus focus our attention o n the acts of the customers. Ms. Lockard testified that prior to November 6 thes e men had come into Pizza Hut on several occasions and had made “filthy ” comments to her such as “I-20-

would like to get into your pants.” Aplt. App., Tr ial Tr. at 44. On the evening of November 6, they commented that Ms. Lockard smelled nice and one of the customers grabbed her by the hair. When Ms. Lockar d returned to the table with their beer, the customer again pulled her hair, the n grabbed her breast and placed his mouth on it. Ms. Lockard testified that as a r esult of the incident, her emotional condition deteriorated to the point that she feared going out in public, and that she was thus prevented from continuing to work. She sought psychological counseling for the emotional problems caused by this incident. The conduct of these customers on November 6 was mo re than a mere offensive utterance. Grabbing Ms. Lockard’s hair a nd breast while she attempted to take their orders and serve their beer is physic ally threatening and humiliating behavior which unreasonably interfered with Ms. Loc kard’s ability to perform her duties as a waitress. Defendants essentially argue that the physically threatening conduct of these two customers was simply a one-tim e incident and was therefore not pervasive enough to create an abusive environme nt, comparing the single incident here with the repeated incidents of sexual abuse suffered by the plaintiff in Meritor . However, in Harris the Court made clear that the “appalling conduct alleged in Meritor. . . merely present[s] some especially egregious examples of harassment. They do not mark the boundary of what is actionable.” Harris , 510 U.S. at 22. The “frequency of the discriminatory c onduct,” id. at 23, is simply-21-

one factor in the analysis, and “no single factor i s required,” id . Conduct is actionable if it is “sufficiently severe orpervasive.” Meritor , 477 U.S. at 67 (emphasis added); see also Burlington Indus., Inc. v. Ellerth , 118 S. Ct. 2257, 2264 (1998); Harris , 510 U.S. at 21-22. We therefore disagree with de fendants’ assertions that a single incident of physically thr eatening conduct can never be sufficient to create an abusive environment. “[L]o oking at all the circumstances,” as we must, Harris , 510 U.S. at 23, we are persuaded that the record contains sufficient evidence to support the jury’s conclusio n that the harassing conduct of the customers was severe enough to create an action able hostile work environment.
C A&M asserts that even if a hostile work environmentwas created, Ms. Lockard’s claim under Title VII must fail because a n employer cannot be held vicariously liable for the harassing conduct of cus tomers. We have not yet ruled on this issue and must therefore decide whether Tit le VII applies to acts of harassment by customers. If we answer this questio n in the affirmative, we must then determine the appropriate standard of employerliability for nonemployee harassment. Finally, we must determine whether Ms. Lockard has satisfied this standard. EEOC regulations specifically provide that an-22-

employer may also be responsible for the acts of no nemployees, with respect to sexual harassment of emp loyees in the workplace, where the employer (or its agents or supervisory employees) knows or should have known o f the conduct and fails to take immediate and appropriate corrective action. 29 C.F.R. § 1604.11(e) (1997). The First, Eighth, and Ninth Circuits have followed the EEOC’s guidelines on the issue of hara ssment by nonemployees. In Rodriguez-Hernandez v. Miranda-Velez , 132 F.3d 848 (1st Cir. 1998), a female employee sued her employer under Title VII a lleging that she was discharged from her job after complaining to her employer about the sexual advances made by a high-level executive of one of h er employer’s most important customers. The First Circuit upheld the jury’s ver dict for the plaintiff based on the customer’s harassing behavior, stating that “employers can be held liable for a customer’s unwanted sexual advances, if the employe r ratifies or acquiesces in the customer’s demands.” Id. at 854. The court concluded the employer “not onl y acquiesced in the customer’s demands, but explicitl y told her to give in to those demands and satisfy the customer.” Id. In Crist v. Focus Homes, Inc. , 122 F.3d 1107 (8th Cir. 1997), the plaintiffs were employed as caregivers by a for-profit residential home for individuals with developmental disabilities. J.L., a resident of th e home, repeatedly sexually assaulted the plaintiffs. The plaintiffs reported the assaults to management, who failed to respond adequately, asking one plaintiff to allow J.L. to assault her in4 See also Menchaca v. Rose Records, Inc. , No. 94 C 1376, 1995 WL

151847, at *3 (Apr. 3, 1995 N.D. Ill.) (“harasser’s status as a non-employee does not as a matter of law shield the employer from lia bility under Title VII, if the (continued...) -23- front of the home’s executives so they could view t he conduct. The Eighth Circuit rejected the residential home’s contentions that it could not be held liable for J.L.’s conduct because the home could not contr ol his behavior. The court observed that defendants “clearly controlled the en vironment in which J.L. resided, and it had the ability to alter those cond itions to a substantial degree.” Id. at 1112. In Folkerson v. Circus Circus Enter., Inc. , 107 F.3d 754 (9th Cir. 1997), the plaintiff was a mime employed by a casino as a livi ng doll. She brought a Title VII suit against the casino alleging that she was s exually harassed by a casino patron who touched her as she was performing and th at she was fired in retaliation for rejecting the harassment by hitting the patron on the mouth. The Ninth Circuit held that “an employer may be held li able for sexual harassment on the part of a private individual, such as the casin o patron, where the employer either ratifies or acquiesces in the harassment by not taking immediate and/or corrective action when it knew or should have knownof the conduct.” Id. at 756. The court affirmed the district court’s grant of su mmary judgment against the plaintiff, however, concluding that the mime failed to present any facts demonstrating that the casino ratified or acquiesce d in the harassment. Id. 44 (...continued)

employer knew or should have known of the harassment”); Powell v. Las Vegas Hilton Corp. , 841 F. Supp. 1024, 1028 (D. Nev. 1992) (“in the appropriate case, an employer could be liable for the sexual harassme nt of employees by nonemployees, including its customers”); EEOC v. Sa ge Realty Corp. , 507 F. Supp. 599 (S.D.N.Y. 1981) (Title VII violated where employer required female lobby attendant to wear very revealing “Bicentennia l uniform” when the employer knew wearing the uniform would subject her to sexua l harassment by building tenants and strangers). -24- We agree with our sister circuits that an employer may be found liable for the harassing conduct of its customers. The focus of the inquiry in a hostile work environment claim, as the name suggests, is on whet her “the workplace is permeated with ‘discriminatory intimidation, ridicu le, and insult.’” Harris , 510 U.S. at 21 (quoting Meritor , 477 U.S. at 65). An employer who condones or tolerates the creation of such an environment shoul d be held liable regardless of whether the environment was created by a co-employe e or a nonemployee, since the employer ultimately controls the conditions of the work environment. Moreover, we agree with those courts that have appl ied a negligence theory of liability to the harassing acts of customers. I n cases involving harassment by co-workers, as opposed to harassment perpetrated bysupervisory employees, the only basis for employer liability available is a ne gligence theory under Restatement (Second) of Agency § 219(2)(b). See Hirschfeld v. New Mexico Corrections Dep’t , 916 F.2d 572, 577 (10th Cir. 1990); see also 29 C.F.R. § 1604.11(d) (1997); Burlington Indus., Inc. , 118 S. Ct. at 2268; Adler v. Wal-Mart5 Pizza Hut’s policy manual on harassment for manage ment employees

includes hypothetical scenarios and suggested solut ions illustrating appropriate manager responses in these situations. In one scen ario, a female employee is subjected to sexual harassment by a co-worker and a sks the assistant manager for a transfer, informing him that she does not feel co mfortable working with her coworker. The female employee, however, does not spe cifically tell her manager about the incidents of harassment. The policy manu al instructs the assistant manager to ask the female employee why she felt unc omfortable. The manual states that “[t]he company was put on notice that t here was a situation in the unit where one employee no longer felt comfortable worki ng with another employee. This knowledge should prompt additional questions t o find out if sexual harassment is the problem.” Aplt. App. at 560. Th e assistant manager is directed to share this conversation with the unit manager, a nd the unit manager is directed (continued...) -25- Stores, Inc. , 144 F.3d 664, 683 (10th Cir. 1998) (Briscoe, J., dissenting). Because harassment by customers is more analogous to harass ment by co-workers than by supervisors, we hold the same standard of liabilityapplies to both co-worker and customer harassment. Thus, employers may be held l iable in these circumstances if they “fail[ ] to remedy or prevent a hostile or offensive work environment of which management-level employees knew, or in the ex ercise of reasonable care should have known.” Hirschfeld , 916 F.2d at 577 (internal quotation omitted). Ms. Lockard testified she had informed Mr. Jack bef ore November 6 that she felt uncomfortable waiting on these men. On th e night of November 6, before Ms. Lockard seated these customers, she again state d to Mr. Jack that she did not want to serve them. Ms. Lockard further testified that Mr. Jack knew the customers were the same men she had complained about previously. Without any further inquiry as to why Ms. Lockard felt uncomfortable, 5 Mr. Jack instructed her5 (...continued)

to contact the Human Resource Manager and initiate an investigation. -26- to wait on their table. After Ms. Lockard seated t hem, one of the men grabbed her hair. Ms. Lockard reported the hair-pulling in cident to Mr. Jack and asked that another waiter serve the men. Mr. Jack refuse d her request and instructed Ms. Lockard to continue to wait on them. Following Mr. Jack’s orders, Ms. Lockard returned and was sexually assaulted. As the shift manager, Mr. Jack clearly had authority over Ms. Lockard and her co-workers; he ordered Ms. Lockard to wait on the two offensive customers despite Ms. Lockard’s requests that he ask another waiter to do so. Moreover, Mr. Jack testified that he was the acting manager o f the Atoka Pizza Hut when Ms. Selby, the Unit Manager, was not present at the restaurant. Under Pizza Hut’s policy manual on sexual harassment, which ins tructs managers on the steps they should take once they become aware of customer s who harass employees, managers are specifically authorized to “ask[] the customer to refrain from the conduct and if the customer persists, ask[] the cus tomer to leave the restaurant.” Aplt. App. at 557. Mr. Jack thus had control over the working environment at the Atoka Pizza Hut and “the ability to alter those con ditions to a substantial degree.” Crist , 122 F.3d at 1112. Mr. Jack therefore was a manag ement-level employee for our purposes. See Adler , 144 F.3d at 674 (“low-level supervisor” was “management-level employee” because he was titled s upervisor, had “some6 We have also imputed an employee’s knowledge of sexual misconduc t to an employer, regardless of whether an employee i s management, where company policy specifically designates that employee as the proper person to re ceive and discuss complaints of sexual harassment. See, e .g., Hirase-Doi [v. U.S. Communications, Inc.] , 61 F.3d [777,] 784-85 [(10th Cir. 1995)] (report of harassm ent to union vice-president constituted notice to employer where employee policy manual provided that employee s could discuss problems of sexual discrimination with union vice-president); Baker v. Weyerhaeuser Co. , 903 F.2d 1342, 1345 (10th Cir.1990) (employer had notic e of harassment once plaintiff reported incident to imme diate supervisors who under company policy were required to pass on information to “upstairs management”). Jeffries v. State of Kansas , No. 96-3381, 1998 WL 318533, at *7 n.7 (10th Cir. June 17, 1998). The sexual harassment policy at Pi zza Hut first instructs a harassed employee to speak with her manager or imme diate supervisor, in this case Mr. Jack. Once a manager becomes aware of an incident of harassment, he is responsible for informing the appropriate higherofficials “whether or not the victim requests that management become involved.” Aplt. App. at 562. When Ms. Lockard, in accordance with Pizza Hut’s policy, informed Mr. Jack that a (continued...) -27- authority” over plaintiff and her co-workers, and r eported to manager who had authority to hire, fire, and formally discipline employees). Prior to the sexual assault, Ms. Lockard had inform ed Mr. Jack of the hairpulling incident and had also told him on three occ asions that she did not wish to serve these customers. We hold that this informati on was sufficient to place Mr. Jack on notice that these customers were likely to sexually harass Ms. Lockard. Accordingly, once Ms. Lockard reported this information to Mr. Jack, A&M’s obligation to respond adequately and promptly was triggered. 6 Mr. Jack clearly6 (...continued)

customer had grabbed her by the hair, this knowledg e was imputed to the company. -28- did not respond adequately to Ms. Lockard’s complai nt. Instead of following the guidelines set forth in Pizza Hut’s policy manual, Mr. Jack ordered Ms. Lockard to continue waiting on the two customers, despite t heir display of physically aggressive sexual behavior. Mr. Jack placed Ms. Lo ckard in an abusive and potentially dangerous situation, although he clearl y had both the means and the authority to avoid doing so by directing a male wai ter to serve these men, waiting on them himself, or asking them to leave the restau rant. Ms. Lockard, under the instruction of Mr. Jack, returned to their table an d was again subjected to sexually abusive conduct. Because Mr. Jack had notice of th e customers’ harassing conduct and failed to remedy or prevent the hostile work environment, A&M is liable for Mr. Jack’s failure.
III Defendants next contend that the district court err ed in denying their motion for a new trial or in the alternative for a remittitur, erred in admitting testimony concerning Mr. Jack’s homosexuality and the rebuttal testimony of Ms. Lockard’s co-worker Mona Harrison, and erred in awarding Ms. Lockard $1514.21 in costs. We review all three decisions u nder an abuse of discretion7See Malloy v. Monahan , 73 F.3d 1012, 1017 (10th Cir. 1996)

(excessiveness of verdict); Cartier v. Jackson , 59 F.3d 1046, 1048 (10th Cir. 1995) (admission of evidence); United States v. All emand , 34 F.3d 923, 929 (10th Cir. 1994) (witness testimony); Riggs v. Scrivner, Inc. , 927 F.2d 1146, 1149 (10th Cir. 1991) (costs).

-29- standard, 7and address each argument in turn.
A The jury awarded Ms. Lockard $200,000 in compensat ory damages. Ms. Lockard and several family members testified that s he had been sexually abused as a teenager. She therefore had a pre-existing co ndition which was aggravated by the incident of harassment she suffered while wo rking at the Atoka Pizza Hut. For two years after the incident, she was unable to go out in public and was fearful of being around men, including male family members. Ms. Lockard received psychological counseling and was diagnosedwith post-traumatic stress syndrome and depression. She testified that she re mained frightened of men, and that at her new job she requested that she care onl y for female patients. In view of the emotional injury suffered by Ms. Lockard as a result of the incident, the district court did not abuse its discretion by decl ining to reduce the verdict or grant a new trial. The verdict was not so excessiv e as to “shock[ ] the judicial conscience and raise[ ] an irresistible inference t hat passion, prejudice, corruption or other improper cause invaded the trial.” Fitzge rald v. Mountain States Tel. & Tel. Co. , 68 F.3d 1257, 1261 (10th Cir. 1995).-30- B Defendants made a motion in limine requesting thatthe district court exclude all evidence concerning Mr. Jack’s homosexu ality. The court denied the motion, finding Mr. Jack’s homosexuality relevant t o his attitude toward sexual harassment and his inattention to Ms. Lockard’s complaints. In his opening statement, Ms. Lockard’s attorney pointed to Mr. Ja ck’s homosexuality as an explanation for his insensitivity to Ms. Lockard’s complaints of harassment by the two male customers. Defendants did not object. Th e only other reference to Mr. Jack’s homosexuality occurred during Mr. Jack’s cro ss-examination when Ms. Lockard’s attorney questioned him about any discuss ions he might have had with Pizza Hut employees regarding his sexual preference . Defendants objected on the basis of relevance, and the court sustained the obj ection. The suggestion that Mr. Jack’s homosexuality would make him less sensitive to Ms. Lockard’s complaints seems to us l ittle more than an attempt to further an unfounded stereotype. Moreover, the unf air prejudice that necessarily accompanies such evidence mandates its exclusion. See Cohn v. Papke , 655 F.2d 191, 194 (9th Cir. 1981). However, we are not pers uaded that these two very limited references to Mr. Jack’s homosexuality were sufficiently prejudicial to warrant a new trial. With regard to the admission of the rebuttal testim ony of Ms. Harrison, Ms.8 Because Ms. Harrison was unable to testify in pers on as a result of trial

delays and a personal conflict, her deposition test imony was read into the record. -31- Lockard offered the court specific examples of the way in which Ms. Harrison’s testimony would rebut the testimony of defendants’ witnesses. The district court clearly did not abuse its discretion by allowing it

. C We reject out of hand defendants’ argument that the magnitude of Ms. Lockard’s verdict precludes the district court from awarding her costs. We also find meritless defendants’ contention that because Ms. Lockard’s family members would have attended the trial anyway the district c ourt erred in awarding her the costs associated with the attendance of those famil y members who testified, and defendants’ assertion that because Ms. Harrison ult imately was not able to testify in person, 8 the court erred in awarding the costs associated w ith her attendance at trial. The district court acted within its discret ion in awarding costs to Ms. Lockard.
IV In a separate appeal, defendants maintain the distr ict court erred in awarding Ms. Lockard $37,088 in attorneys’ fees. W e review for an abuse of discretion. See Mann v. Reynolds , 46 F.3d 1055, 1062 (10th Cir. 1995). Defendants first contend Ms. Lockard was precluded from receiving any attorneys’ fees. Title VII provides that a success ful plaintiff is entitled to recover-32-

attorneys’ fees except in “unusual circumstances.” 42 U.S.C. § 2000e-5(k). The only circumstance to which defendants point is the size of the verdict. We have already held that the verdict amount is supported b y the evidence and we therefore doubt that its size could be considered a n unusual circumstance within the meaning of section 2000e-5(k). Moreover, defen dants cite no authority for their assertion that where a plaintiff receives an award that is allegedly disproportionately high the court need not grant attorneys’ fees. The district court did not abuse its discretion in awarding Ms. Lockar d attorneys’ fees. Defendants next contest the amount of fees awarded to Ms. Lockard. Two attorneys worked on Ms. Lockard’s case. The primary attorney sought compensation for 227.77 hours for attorney time and9.85 hours for travel time. The second attorney, who joined Ms. Lockard’s case a month before trial, sought compensation for 60.2 hours attorney time and 12 ho urs travel time. Both attorneys requested an hourly rate of $150 for lega l services and of $100 for travel time. Defendants’ experts testified that $1 00 would be a reasonable hourly rate for a case like Ms. Lockard’s in Muskogee, Okl ahoma, while Ms. Lockard’s experts testified to the reasonableness of $150. T he trial lasted two-and-a-half days and involved ten witnesses. Counsel conductednumerous pre-trial depositions and defendants filed a motion in limine , an objection to the bill of costs, and a motion for judgment as a matter of law . The district court set the-33-

hourly rate at $125 for legal services and $50 for travel time, but did not reduce the hours of either attorney. Defendants contend the court should have reduced th e hours because Ms. Lockard’s case was not so complicated as to require two attorneys, and therefore the total number of hours included duplicated effort. Defendants further contend the hours should have been reduced because Ms. Lock ard’s attorneys block-billed their time and failed to maintain precise time reco rds. Defendants do not argue that the total time spent by Ms. Lockard’s attorney s was inordinate. We note that “[t]ime spent by two attorneys on the same general task is not . . . per se duplicative. Careful preparation often requires co llaboration and rehearsal . . . .” Rodriguez-Hernandez , 132 F.3d at 860. Our review of the record convin ces us that the district court did not abuse its discretio n in setting either the rates or the number of hours used to calculate Ms. Lockard’s award of attorneys’ fees.
V In sum, we hold that Ms. Lockard failed to establis h that Pizza Hut, Inc. is an employer under Title VII. We further hold that the evidence is sufficient to sustain the jury’s verdict against A&M on the hosti le work environment sexual harassment claim, and that the district court did n ot abuse its discretion on the evidentiary or excessive verdict issues or in award ing Ms. Lockard costs and attorneys’ fees.-34-

We REVERSE the judgment against Pizza Hut, Inc. and AFFIRM the judgment in all respects against A&M.