IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

 

No. 97-10651

 

ANNE MARIE LINDSEY, ET AL

Plaintiffs

LINDA ANN YORK

Plaintiff-Appellant

v.

PRIVE CORPORATION, doing business as Cabaret Royale; WALHILL

PARTNERS LTD; CRC OPERATING CORPORATION, also known as Dallas

Food & Beverage; DNL CORPORATION

Defendants-Appellees

****************************************************************

LINDA ANN YORK

Plaintiff-Appellant,

v.

PRIVE CORPORATION, doing business as Cabaret Royale

Defendant-Appellee

 

Appeal from the United States District Court

for the Northern District of Texas

 

November 24, 1998

Before KING, GARWOOD, and HIGGINBOTHAM, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Linda York appeals from a judgment entered on a jury verdict

against her. Her principal claim is that the trial should not have

been allowed to proceed, because the defendant’s legal
2

representative in bankruptcy had previously agreed to a settlement.

In the alternative, she argues that the district court made various

evidentiary and procedural errors that warrant reversal. We

affirm.

I

York and Anne Marie Lindsey brought Age Discrimination in

Employment Act claims against Prive Corp., operator of an upscale

gentleman’s club, which allegedly refused the women promotions and

constructively discharged them on the basis of their age. The

district court granted summary judgment. We vacated and remanded.

See Lindsey v. Prive Corp., 987 F.2d 324 (5th Cir. 1993). Prive

Corp. then filed for protection under Chapter 7 of the Bankruptcy

Code. Before the bankruptcy filing it transferred its assets to

defendant-appellee Walhill Partners, Ltd., which in turn

transferred to defendant-appellees CRC (Dallas Food and Beverage)

Operating Corp. and DNL Corp. The transfers are allegedly without

consideration.

Prive Corp.’s trustee in bankruptcy, Daniel Sherman, agreed to

entry of judgment in the amount of $3.3 million against Prive.

Plaintiffs maintain that the trustee arrived at this amount after

consulting with a labor law firm, reviewing the proof of claim, and

considering two mock jury verdicts that favored the plaintiffs.

Sherman, however, confessed little knowledge of age discrimination

law. Asked whether he “really just accepted the claims plaintiffs

here have filed to be allowed, and based on whatever damages they
3

claim to be able to support,” Sherman replied, “That’s pretty close

to being accurate, yes.” Sherman explained that Prive Corp. had no

assets, but that if it consented to a judgment, the plaintiffs

might be able to pursue the other corporations on a theory of

successor liability. Should the plaintiffs win, Sherman maintained

that Prive Corp. would receive at least 25% of the damages under

the terms of the agreed judgment, and that this was the best way of

getting money into the estate for the benefit of other creditors,

including the United States. As we will explain, in effect, the

agreement effectively gave Lindsey and York 75% contingency fees on

any recovery, and that from assets the trustee chose not to pursue

for the benefit of the estate. 

Bankruptcy Judge Harold C. Abramson approved the agreed upon

judgment, finding the litigation to be a “core matter” and

determining that the decision to settle “falls within the necessary

range of reasonableness considering the expense and delay

encountered in litigation of this type.” In re Prive Corp., No.

394-32837-HCA-7 (Bankr. N.D. Tex. Feb. 21, 1996). He verbally

added, however, “[T]his Court will not take a position with regard

to any effect of the claim in this case as to other Courts.”

Despite the agreed upon judgment, which is now final, the

district court required the plaintiffs to try their claims before

a jury, with the alleged successors in interest rather than the

trustee in bankruptcy defending the claims. Judge Solis explained

that he did not believe that the trustee in bankruptcy was the real
4

party in interest in defense of the age discrimination claims. The

district court ordered a bifurcated trial, the first part dealing

with questions of liability, and the second dealing with

successorship issues, contingent on a liability finding in the

first trial.

The jury found against York on both of her claims. The jury

rejected Lindsey’s constructive discharge claim after first

deadlocking 5-1 on her wrongful-denial-of-promotion claim, five

jurors apparently voting for her. During deliberations, the

holdout juror requested to be excused. Plaintiffs declined to

consent to a nonunanimous verdict. The parties agreed to allow the

court to question the juror outside the presence of counsel. The

juror explained that his desire to be excused was “just a matter of

conscience in regard to this case.” When counsel returned, the

judge told them that the juror had no personal reason to be

excused. Counsel accepted this general statement and did not ask

the judge for more detail.

The court granted partial final judgment. The defendants

received a judgment on both of York’s claims. Because Lindsey’s

two claims were intertwined, the court did not enter judgment on

either of them. Only York appeals.

II
1We need not reach the question of whether the settlement is

binding against Prive Corp. itself.

5

Our first question is whether the bankruptcy court’s judgment

was entitled to issue preclusive effect against the successors in

interest.1 We hold that it was not.

A trustee in bankruptcy has the authority to settle claims

filed against the estate. See, e.g., Marks v. Brucker, 434 F.2d

897, 900-01 (9th Cir. 1970). Judgments of bankruptcy courts enjoy

the issue preclusive effects of a final judgment by a court of

competent jurisdiction. See Katchen v. Landy, 382 U.S. 323, 334

(1966); see also Burkett v. Shell Oil, 487 F.2d 1308, 1315 (5th

Cir. 1997). 

These general principles do not decide this case, however, for

the judgment was the product not of adversaries, but of joint

venturers. The plain purpose was to agree to an extraordinarily

high judgment against Prive and impose the liability upon asserted

successors in interest -- with no opportunity for the true

defendants to defend the merit of the judgment. The basis of this

successor liability was said to be a series of fraudulent transfers

of Prive's assets to them. The trustee could have pursued the

return of the assets for the benefit of all creditors. If

successful, the assets would have been returned. The trustee's

interest would then have been to defend York's claim against Prive.

The trustee explains that pursuing the assets would have been

expensive and this was a no asset case. The trustee's solution was
2We have also noted on occasion that issue preclusion applies

only where there is "no special circumstance that would render

preclusion inappropriate or unfair." E.g., United States v.

Shanbaum, 10 F.3d 305, 311 (5th Cir. 1994). But see 18 Charles A.

Wright et al., Federal Practice and Procedure § 4426, at 264-65

(1981) (arguing that “[s]uch general statements should be

approached with great caution"). This requirement originated from

concerns about offensive collateral estoppel, see Recoveredge L.P.

v. Pentecost, 44 F.3d 1284, 1291 n.12 (5th Cir. 1995), which is at

issue here. Nonetheless, because we find that there was not a full

and fair opportunity to litigate the liability issue determined by

the bankruptcy court, we need not label the peculiar facts here a

“special circumstance.”

6

in essence to allow another party to pursue the claim and take 75%

of the assets. We need not unfold the full tale to expose the

agreed judgment for what it was. 

“Redetermination of issues is warranted if there is reason to

doubt the quality, extensiveness, or fairness of procedures

followed in prior litigation.” Montana v. United States, 440 U.S.

147, 164 n.11 (1979); see also Kremer v. Chemical Const. Corp., 456

U.S. 461, 480-81 (1982) (requiring a full and fair opportunity to

litigate a claim as a prerequisite to application of preclusion

doctrines); Universal Am. Barge Corp. v. J-Chem, Inc., 946 F.2d

1131, 1139 (5th Cir. 1991) (discussing the requirement in an

indemnity case).2

The defendant-appellees were not given a full and fair chance

to defend the age discrimination claim. Indeed, they were given no

chance. Thus, the successors in interest remained free to try the

liability issue in a subsequent proceeding. See 18 James Wm.

Moore, Moore’s Federal Practice 3d, § 132.03[2][I] (“Issues that
3York challenges the relevance of this principle, noting that

the Seventh Circuit has found that “[t]here is an exception to the

general rule that parties to a consent decree may not impose

obligations on an unwilling third party,” and particularly that

“federal courts may require an innocent third party to participate

in remedies for illegal discrimination.” United States v. City of

Chicago, 978 F.2d 325, 332 (7th Cir. 1992) (citing Zipes v. Trans

World Airlines, 455 U.S. 385, 400 (1982); International Bhd. of

Teamsters v. United States, 431 U.S. 324, 372-75 (1977)). 

York, however, fails to note the Seventh Circuit’s explanation

of this exception: “This exception permits third-party entitlements

to be altered if a court finds that alteration necessary to an

7

were only addressed in the trial court’s adoption of a consent

agreement, and were not contested or litigated, may be litigated in

a subsequent action.”). 

This conclusion is consistent with the general principle that

“parties who choose to resolve litigation through settlement may

not dispose of the claims of a third party, and a fortiori may not

impose duties or obligations on a third party, without that party's

agreement.” Local No. 93, Intern. Ass’n of Firemen v. City of

Cleveland, 478 U.S. 501, 529 (1986); see also id. (“A court's

approval of a consent decree between some of the parties therefore

cannot dispose of the valid claims of nonconsenting intervenors; if

properly raised, these claims remain and may be litigated by the

intervenor. . . . [A] court may not enter a consent decree that

imposes obligations on a party that did not consent to the

decree.”); cf. In re Del Grosso, 106 B.R. 165, 168 (Bankr. N.D.

Ill. 1989) (noting, in another bankruptcy context, that proponents

of settlement and the bankruptcy trustee must show that the

settlement agreement was not collusive).3
appropriate remedy for a legal wrong." Id. (internal quotation

marks omitted). In the case of a collusive consent decree, there

is no need to search for an “appropriate remedy,” because there has

been no legitimate finding of a “legal wrong.”

Moreover, the genesis of the Seventh Circuit’s exception is

language in Zipes emphasizing that the legislative history of Title

VII gives "emphatic confirmation that federal courts are empowered

to fashion such relief as the particular circumstances of a case

may require to effect restitution, making whole in so far as

possible the victims of ... discrimination." Zipes, 455 U.S. at

399. If anything, the need to accommodate relief to “particular

circumstances” weighs against kneejerk imposition of relief here.

4Even if Prive Corp. were viewed as the defendant, the trial

judge’s decision to allow representation by the successors in

interest is consistent with the stipulation of Federal Rule of

Civil Procedure 24(a) allowing intervention when “the applicant is

so situated that the disposition of the action may as a practical

8

III

Two additional points of error claimed by the defendant hinge

directly on our resolution of the validity of the settlement. York

maintains that the district court erred by allowing the successors

in interest to assume Prive Corp.’s defense at trial and

prohibiting the trustee in bankruptcy from appearing or testifying

at trial. The defendants on the plaintiffs’ successorship claims,

however, are necessarily the alleged successors of Prive Corp. The

district court was not trying again Prive Corp.’s liability, but

rather litigating the alleged successors’ successorship liability.

Because the collusive settlement has no preclusive effect, this

liability depended not only on a finding that they were successors,

but also on a finding that illegal discrimination occurred. Thus,

the trial was not of Prive Corp.’s liability, but that of the

successors, and Prive Corp. had no direct interest in the outcome.4
matter impair or impede the applicant's ability to protect that

interest, unless the applicant's interest is adequately represented

by existing parties.” It is not clear whether the defendantappellees filed a motion for intervention pursuant to Rule 24(c),

but the trial judge’s decision was within his discretion. See,

e.g., Smith v. Pacific Mo. R.R. Co., 615 F.2d 683, 684-85 (5th Cir.

1980) (finding that regardless of whether a request was considered

a Rule 60(b) motion or a Rule 24(a) motion, its resolution was

within the sound discretion of the trial judge).

9

IV

The district court acted well within his discretion in

bifurcating the trial into one proceeding to determine liability

and another to determine successorship issues. Bifurcation is

appropriate where convenient, economical, or necessary to avoid

prejudice. See Fed. R. Civ. P. 42(b) (“The court, in furtherance

of convenience or to avoid prejudice, or when separate trials will

be conducive to expedition and economy, may order a separate trial

of any claim, cross-claim, counterclaim, or third-party claim, or

of any separate issue . . . .”). Essentially, plaintiffs argue

that this decision prevented them from countering appellees’

characterization of Prive’s business as legitimate and its owners

as innocent. These issues, however, are irrelevant to the age

discrimination claim. York argues that the delay caused by

bifurcation was highly prejudicial, making collection of her claim

more difficult. Any such prejudice could not have had any effect

given the jury verdict resulting in an adverse judgment.

Relatedly, the district court did not abuse its discretion in

excluding evidence of bankruptcy or fraud by the employer in the
10

liability proceeding. Because such evidence is irrelevant to

liability on the age discrimination claim, excluding these issues

at trial was proper. See, e.g., United States v. Masat, 948 F.2d

923, 933 (5th Cir. 1991) (noting the district court’s broad

discretion in assessing the relevance and materiality of evidence).

York complains that the defense was able to admit promotional

videotapes to demonstrate its upstanding business practices. The

videotapes were admitted to show the appearance and atmosphere of

Cabaret Royale. This evidence was plainly relevant, and we find no

prejudice.

V

York protests the district court’s refusal to enter a default

judgment against defendant Walhill. The court had warned that a

default judgment would be entered if Walhill did not obtain

counsel. Walhill continued unrepresented, allegedly because of a

lawyer’s mistaken conclusion that Walhill no longer existed as an

entity. Arguing that we should reverse the district court’s

failure to enter a default judgment against Walhill, York cites

Link v. Wabash R. Co., 370 U.S. 626 (1962), and National Hockey

League v. Metropolitan Hockey Club, Inc., 427 U.S. 639 (1976).

York emphasizes her compliance with Federal Rule of Civil Procedure

55(b) in providing appropriate notice to the opposing party.

Entry of default, however, was not required. Indeed, both

Link and Metropolitan Hockey affirm challenges to dismissals, and

York cites no case in which a reviewing court reversed a failure to
11

enter a default judgment. The clerk may enter a default judgment

only where the defendant initially fails to appear, which was not

the case here. See Fed. R. Civ. P. 55(b)(1). Thus, the relevant

provision is Rule 55(b)(2), but this rule does not include any

mandatory language. Indeed, Rule 55(c) reads: “For good cause

shown the court may set aside an entry of default and, if a

judgment by default has been entered, may likewise set it aside in

accordance with Rule 60(b).” This reveals that a district court has

the discretion to decline to enter a default judgment. 

As appellees note, default judgments are disfavored. See 10

Moore, supra, § 55.20[2][b] (noting “a strong policy in favor of

decisions on the merits and against resolution of cases through

default judgments”); 10 Charles A. Wright et al., Federal Practice

& Procedure § 2681, at 402 (2d ed. 1983); see also Sun Bank v.

Pelican Homestead & Sav. Ass’n, 874 F.2d 274, 276 (5th Cir. 1989)

(“The Federal Rules of Civil Procedure are designed for the just,

speedy, and inexpensive disposition of cases on their merits, not

for the termination of litigation by procedural maneuver. Default

judgments are a drastic remedy, not favored by the Federal Rules

and resorted to by courts only in extreme situations.”) (footnotes

omitted). Relevant factors include whether material issues of fact

are at issue, whether there has been substantial prejudice, whether

the grounds for default are clearly established, whether the

default was caused by a good faith mistake or excusable neglect,

the harshness of a default judgment, and whether the court would
12

think itself obliged to set aside the default on the defendant’s

motion. See 10 Wright et al., supra, § 2685. These factors offer

little support to York, and the factors concerning prejudice, good

faith mistake, and harshness weigh in favor of appellee. The

district judge therefore did not comment on abuse of discretion.

VI

Alleged discovery abuses by appellees also did not mandate a

continuance or a dismissal. A magistrate judge did observe that

the behavior of appellees’ counsel C. Gregory Shamoun at a

deposition was the worst he had ever seen and recommended

sanctions. The law, however, does not require continuances or

dismissals for discovery abuses. In support of her request for a

continuance, York cites only Sierra Club v. Cedar Point Oil Co., 73

F.3d 546 (5th Cir. 1996). This case, however, held only that “Rule

37 of the Federal Rules of Civil Procedure, which governs the

imposition of sanctions for failure to make disclosures, does not

require that a party file a motion to compel before moving for

sanctions.” Id. at 572. Rule 37 does not appear to require the

granting of a continuance, and Cedar Point merely affirmed the

district court’s imposition of sanctions; it did not mandate any

such sanctions for discovery abuse.

York claims prejudice resulted because counsel was required to

spend two weeks prior to trial conducting discovery that would have

occurred much earlier but for the defendants’ discovery abuses.

The discovery, however, pertained to successor liability issues.
13

York neither makes clear why such discovery needed to take place

prior to the liability portion of the trial, nor why extensive

trial preparation for the liability portion was needed given the

years of litigation preceding the trial date. Moreover, the

magistrate judge also noted that York exhibited an “obvious lack of

diligence” in pursuing discovery; York can hardly now complain that

her counsel did not have adequate time to prepare.

VII

We also affirm five evidentiary rulings by the trial court.

First, York objects to the exclusion of testimony and a

written statement by Frank Casperson, a former manager at the

Cabaret Royale, concerning hiring practices. Casperson, according

to York, would have testified that the defendants routinely hired

and promoted younger women who were far less attractive than

plaintiff Lindsey to dancer positions, and his letter indicated

much the same thing. York urges that this court already decided

that Casperson’s testimony was admissible in its earlier appeal.

This is an exaggeration. We mentioned Casperson’s affidavit in

finding that there were sufficient questions of fact to warrant a

trial. See Lindsey, 987 F.2d at 328 & n.18. We did not decide

that the statement will be admissible, the context of trial

notwithstanding. In any event, the district court expressly

allowed York to elicit testimony about the facts stated in the

letter. Moreover, while the letter might be relevant to Lindsey’s

case, it was tangentially, not materially, related to York’s.
14

Second, to support her claim that Cabaret Royale had a

“climate of age bias,” York wished to call Tamara Davis, a dancer,

to testify that Joe Najjar, onetime food and beverage manager for

Prive, told her that she was too old to work there, and to testify

that Brian Paul, who allegedly made the decision not to allow

Lindsey to dance, abused alcohol and drugs; and Art Householder, to

testify that a management official of Prive had told him directly

that Lindsey was not allowed to dance because of her age. This

evidence was not directly relevant to claims of age discrimination

by York. But the assertion is that the trial court should have

allowed the evidence to show an ongoing pattern and practice of age

discriminatory treatment of older workers, “a climate of age bias”.

See Estes v. Dick Smith Ford, Inc., 856 F.2d 1097, 1102 (8th Cir.

1988). We agree that the excluded evidence had relevance. We are,

however, persuaded that the evidence was cumulative. See, e.g.,

United States v. Kalmutz, 309 F.2d 437, 440 (5th Cir. 1962) (“'The

propriety of admitting evidence which is merely cumulative is a

matter for the determination of the court in the exercise of sound

discretion. Error is not predicable on its admission or its

exclusion unless an abuse of discretion is established.'”) (quoting

4 Jones on Evidence § 981 (5th ed.)). The district court did not

abuse its discretion in excluding this evidence.

Third, York alleges that the district court erred in admitting

a non-final determination by the EEOC of the plaintiffs’ claims.

“[U]nder precedents of this circuit, EEOC determinations and
5York also claims that the EEOC report was prejudicial because

it was based on a bona fide occupational qualification defense that

defendants waived before trial. This argument, however, was raised

for the first time in York’s reply brief, and it is therefore

waived. See Najarro v. First Federal Sav. & Loan Ass’n, 918 F.2d

513, 515 (5th Cir. 1990). 

15

findings of fact, although not binding on the trier of fact, are

admissible as evidence in civil proceedings as probative of a claim

of employment discrimination at issue in the civil proceedings.”

McClure v. Mexia Ind. Sch. Dist., 750 F.2d 396, 400 (5th Cir.

1985). While York presses that McClure provides only that final

EEOC determinations are admissible, McClure does not distinguish

between intermediate and final EEOC determinations. Nor does

Johnson v. Yellow Freight Sys., Inc., 734 F.2d 1304 (1984), upon

which York also relies. Moreover, intermediate EEOC determinations

are not inherently less trustworthy than final ones. See Fed. R.

Evid. 803(8)(C) (rendering EEOC evidence inadmissible upon showing

that "the sources of information or other circumstances indicate

the lack of trustworthiness"). “[T]he defendant is free to present

evidence refuting the findings of the EEOC or point out

deficiencies in the same, with regard to the weight, if any, to be

given by the trier of fact to the EEOC determination.” McClure, 750

F.2d at 400; see also Smith v. Universal Servs., Inc., 454 F.2d

154, 157 (5th Cir. 1972) (“[T]he report is in no sense binding on

the district court and is to be given no more weight than any other

testimony given at trial.”).5
16

Fourth, York argues that the district court should have

admitted the official response Prive submitted to the EEOC during

its investigation of the plaintiffs’ charges. The response

essentially would show that Prive had changed its position over the

course of litigation. York points to Olitsky v. Spencer Gifts,

Inc. (Olitsky II), 964 F.2d 1471, 1476-77 (5th Cir. 1993), for the

proposition that such response letters are always admissible.

Olitsky in fact held only that the district court did not abuse its

discretion in admitting such evidence. See id. at 1477. The

Olitsky court specifically held inadmissible “‘proposals and

counter-proposals of compromise made by the parties during the

[EEOC's] efforts to conciliate,’” id. at 1477 (quoting Branch v.

Phillips Petroleum Co., 638 F.2d 873, 881 (5th Cir. Unit A Mar.

1981)). Regardless of whether appellees’ response letter

constituted such a proposal or counter-proposal, it does not

constitute “purely factual material relating to the merits of [the]

charge,” id., which the trial judge could admit.

Fifth, York urges that the district court erred in allowing

hearsay testimony from management witnesses of what other managers

told the plaintiffs. York notes, as an example, that the trial

court allowed the defendants to solicit testimony from Don Dotson,

a Cabaret Royale manager, regarding the reasons he terminated York,

even though he was only repeating what another manager told him.

Dotson, however, did not quote another manager, but merely stated

what his understanding of York’s conduct was. The testimony was
17

thus not offered for the truth of the matter of what York had done,

but to explain the manager’s motive and state of mind when he

terminated her. In any event, the testimony of Dotson and others

was collateral, and any error made would have been harmless.

VIII

York also urges that the district court committed error in sua

sponte requesting that she provide evidence that her claims were

within the scope of her EEOC charge, even though the defendants had

admitted that the court had jurisdiction. We disagree. The entire

examination was conducted outside the presence of the jury, and the

court ultimately concluded that it did have jurisdiction. We find

no error and certainly no prejudice.

IX

We also find that there was no error in the jury charge.

First, York urges that the district court should not have required

her to prove that age was a “determining” factor in the decision to

fire her. The Supreme Court, however, has stated in an ADEA case,

“Whatever the employer's decisionmaking process, a disparate

treatment claim cannot succeed unless the employee's protected

trait actually played a role in that process and had a

determinative influence on the outcome.” Hazen Paper Co. v.

Biggins, 507 U.S. 604, 610 (1993); see also Woodhouse v. Magnolia

Hosp., 92 F.3d 248, 253 (5th Cir. 1996) (“Although age need not be
18

the sole reason for the adverse employment decision, it must

actually play a role in the employer's decisionmaking process and

have a determinative influence on the outcome.”); LaPierre v.

Benson Nissan, Inc., 86 F.3d 444, 449 (5th Cir. 1996); Rhodes v.

Guiberson Oil Tools, 75 F.3d 989, 994 (5th Cir. 1996). York argues

that Mooney v. Aramco Servs. Co., 54 F.3d 1207, 1216-17 (5th Cir.

1995), which reaches a similar conclusion in the Title VII context,

was an incorrect interpretation of Price Waterhouse v. Hopkins, 490

U.S. 228 (1989). Regardless of whether this is correct, and we do

not suggest otherwise, the Fifth Circuit’s consistent holdings in

this area are binding on the panel.

Second, York claims error in the district court’s use of the

word “negligence” in describing the plaintiffs’ burden on the

willful violation instruction. The jury, however, never reached

this instruction, and thus any error could not have been

prejudicial.

X

York also objects to the trial court’s failure to inform her

counsel of the statement of Anderson, the holdout juror on one of

Lindsey’s claims, that his desire to be excused was “just a matter

of conscience.” All counsel agreed that the judge would alone

interview the juror. The judge faithfully reported the essence of

his conversation -- that the juror “doesn’t have any reason why he

needs to be excused, it just pertains to service on the jury.”

When the judge asked, “Well, do you have any suggestions from
19

here,” counsel returned the discussion to whether counsel would

accept less than a unanimous verdict. The response of the juror

was ambiguous. We cannot fault the completeness of the report of

the district judge. Any shortcoming was waived by counsel who

would have had the court reporter read the notes of the conference

or ask the judge if anything else was said that might bear on their

decision whether to proceed with fewer that six persons. 

XI

For the above reasons, we affirm the judgment of the district

court with respect to York’s claims.

AFFIRMED.