Norma J. Nesbit v. Gears Unlimited, Inc.

Title VII of the Civil Rights Act of 1964 prohibits
companies employing "fifteen or more" persons from
discriminating on the basis of sex in hiring, discharge,
compensation, or terms of employment. 42 U.S.C.
§§ 2000e(b), 2000e-2(a)(1). Norma Nesbit alleges that Gears
Unlimited, Inc. ("Gears") terminated her employment as a
machine operator because of her sex. She concedes that
Gears did not employ fifteen persons during the pertinent
time period, but argues that we should also count the
employees at a related entity, Winters Performance
Products ("Winters"). Together, Gears and Winters had
more than fifteen employees. We hold that the District
Court properly refused to aggregate the number of
employees at these companies. Because Title VII does not
cover Gears by itself, we affirm the dismissal of Nesbit's
complaint. But we part with the District Court on the path
to this result. It viewed Title VII's "fifteen or more" person
requirement as jurisdictional. We affirm the dismissal of
Nesbit's complaint on the merits rather than for lack of
subject matter jurisdiction.

I. FACTS AND PROCEDURAL HISTORY

In 1973, Vaughn Winter, Sr. ("Vaughn Sr.") founded
Winters, which manufactures "rear ends" for highperformance
automobiles. In 1990, he acquired Gears, a
transmission parts manufacturer. Vaughn Sr. and his wife,
Madeline Winter ("Madeline"), also formed Maverick
Industries, Inc. ("Maverick"), which warehouses automotive
parts, including parts produced at Winters. At the time of
the events relating to this suit - December 1994 through
August 1997 - Vaughn Sr. had a stake in three automotive
companies: Gears, Winters, and Maverick.

The Winter family shares ownership and control of these
three companies. Vaughn Sr. owns ten percent of Gears,
with the remainder held in trust in equal shares for his children - Nina and Vaughn Jr. Vaughn Sr. is president of
Gears and his children are corporate officers. He and
Madeline own Winters and Maverick in equal shares. He is
president of Winters and Maverick, and Madeline is the
Secretary/Treasurer at Winters.

Gears and Winters occupy separate plants about one
mile apart in York, Pennsylvania. In almost all respects,
they operate independently. Their products are distinct -
Gears produces transmissions and Winters produces
automotive rear ends - and each company has its own
equipment and production lines. Winters contracts to buy
parts from Gears at market rates. The companies maintain
separate financial records and payrolls, write separate
checks, and file separate tax returns.

Vaughn Sr. monitors operations at both Gears and
Winters. While he participates in day-to-day management
at Winters, Gears is managed by Randy Lau. Vaughn Sr.
testified that he visits the Gears facility only about twice a
month, usually because a machine has broken down.
Nesbit disputes this testimony, contending that Vaughn Sr.
spends time at Gears "pretty much every day."

The only area in which Gears and Winters cooperate
considerably is in hiring. Typically, if either Gears or
Winters has an opening, a Winters employee will place a
"help wanted" sign on the street in front of the Winters
building. Prospective employees obtain applications at the
Winters front office and return them there as well. If
Winters is hiring, either Vaughn Sr. or his wife will invite
qualified applicants for an interview. If Gears has an
opening, someone at Winters will communicate with the
applicant on Lau's behalf and then direct him or her to the
Gears plant to interview with Lau. The hiring decision is
then Lau's "prerogative." However, Vaughn Sr. (who, as
noted above, normally does not participate in Gears
management) can request that Gears hire a particular
applicant and Gears will generally do so. Either Lau or the
Winter children normally decide whether to terminate an
employee, but Vaughn Sr. testified that he could ask Gears
to fire an employee who engaged in significant misconduct.

On December 14, 1994, Nesbit submitted a standard employment application to Winters for a machine operator
position. That day, either Vaughn Sr. or Madeline
interviewed her.1 The interviewer concluded that no
available positions at Winters would be suitable for Nesbit
and instead referred her to Gears, which hired her as a
machine operator.2 Vaughn Sr. personally accompanied
Nesbit to meet Lau, but the parties dispute whether
Vaughn Sr. or Lau actually made the hiring decision.

Nesbit remained at Gears for two years and eight months.
She perceived that Lau was her "boss" and was "more or
less in charge" at Gears. Occasionally she also worked an
extra shift at Winters following her regular shift at Gears.
She would punch out on the time clock at Gears and then
punch in at Winters. When working a Winters shift, she
received a separate paycheck. Her hours at the two plants
were not consolidated for overtime pay.

On August 19, 1997, Nesbit's machine at Gears
"crashed," leaving it unusable without repairs. Nesbit
became upset, which apparently caused her to develop a
headache and neck pains. She informed the acting
supervisor, Greg Pell, that she was leaving work to visit her
chiropractor. When she returned the next day, Lau was on
vacation, and Vaughn Sr. discharged her for
insubordination.

After receiving permission from the Equal Employment
Opportunity Commission, Nesbit filed suit in the United
States District Court for the Middle District of Pennsylvania
alleging that Gears discriminated against her because of
gender. Gears moved to dismiss the complaint under
Federal Rule of Civil Procedure 12(b)(1) for lack of subject
matter jurisdiction on the basis that it employed fewer than
fifteen persons during the relevant time period and
therefore was not an "employer" subject to Title VII.

Nesbit then filed an amended complaint alleging that Gears and its "associate corporation" Winters Transmission,
Inc. - a company different from Winters that Vaughn Sr.
owned from 1955 to 1985 - were really a single employer
with more than fifteen employees. Gears moved again for a
dismissal, this time observing that the entity called
"Winters Transmission, Inc." had ceased operation long
before Nesbit began working at Gears. Nesbit then filed a
second amended complaint, alleging that Gears and
Winters are associate corporations that together meet the
fifteen-employee threshold. On the basis of that allegation,
the District Court ordered discovery limited to the question
whether Gears and Winters constitute a single employer
under Title VII. Following discovery, the District Court
issued a memorandum and order in which it concluded
that Gears and Winters are separate entities and, because
Gears unquestionably employs fewer than fifteen persons
by itself, dismissed Nesbit's complaint for lack of subject
matter jurisdiction. This appeal followed.

II. DISCUSSION

A. Is the Number of Employees a Jurisdictional
Requirement?

We first address whether Title VII's fifteen-employee
threshold is a jurisdictional prerequisite - as the District
Court believed it was in dismissing Nesbit's complaint
pursuant to Rule 12(b)(1) - or whether it is a substantive
element of a Title VII claim. Whether an aspect of a claim
concerns subject matter jurisdiction or the merits has at
least three implications. First, because subject matter
jurisdiction is non-waivable, courts have an independent
obligation to satisfy themselves of jurisdiction if it is in
doubt. See Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle,
429 U.S. 274, 278 (1977). A necessary corollary is that the
court can raise sua sponte subject-matter jurisdiction
concerns. Second, if the fifteen-employee requirement is not
jurisdictional, a Title VII claim for which the number of
employees is in doubt nonetheless will support
supplemental jurisdiction under 28 U.S.C. § 1367 over state
claims. Da Silva v. Kinsho Int'l Corp., 229 F.3d 358, 362 &
365 (2d Cir. 2000); 13B Wright, Miller & Cooper, Federal
Practice and Procedure § 3564, at 73-5 (2d ed. 1984). Third, in most contexts the question will be important to the
plaintiff 's burden of proof. If an aspect of a claim concerns
jurisdiction, and when jurisdiction turns on whether a
particular fact is true as here (as opposed to whether the
complaint sufficiently alleges jurisdiction on its face), a
court may inquire into the jurisdictional facts without
viewing the evidence in a light favorable to either party. See
Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884,
891 (3d Cir. 1977). By contrast, if an aspect of a claim
concerns the merits, on a Rule 12(b)(6) motion to dismiss
for failure to state a claim a court must accept the
complaint's allegations as true, United States Express Lines
Ltd. v. Higgins, 281 F.3d 383, 388 (3d Cir. 2002); on a Rule
56 motion for summary judgment it must view the evidence
in the light most favorable to the non-moving party and, if
there are disputes over genuine issues of material fact, they
are for the jury to resolve, Huang v. BP Amoco Corp., 271
F.3d 560, 564 (3d Cir. 2001).

1. Relevant Caselaw

The question whether Title VII's fifteen-employee
threshold is a jurisdictional prerequisite when a plaintiff
brings a colorable Title VII claim has divided the courts of
appeals.3 The Second and Seventh Circuits conclude that it
is a substantive element that the plaintiff must prove
unless the claim that there are fifteen employees is so
obviously unfounded that it fails to raise a genuine federal
controversy. Da Silva, 229 F.3d at 364-65 (2d Cir.); Johnson v. Apna Ghar, Inc., 330 F.3d 999, 1001-02 (7th
Cir. 2003), petition for cert. filed, 72 U.S.L.W. 3021 (U.S.
Sept. 2, 2003) (No. 03-354); Papa v. Katy Indus., Inc., 166
F.3d 937, 943 (7th Cir. 1999); Sharpe v. Jefferson Distrib.
Co., 148 F.3d 676, 677-678 (7th Cir. 1998). Moreover, the
D.C. Circuit has held the Americans with Disabilities Act's
("ADA") fifteen-employee threshold an element of the merits.
EEOC v. St. Francis Xavier Parochial Sch., 117 F.3d 621,
623-25 (D.C. Cir. 1997). In this context, the ADA's fifteenemployee
requirement is in all relevant respects
indistinguishable from Title VII's.

By contrast, the Fifth, Sixth, Ninth, Tenth, and Eleventh
Circuits have said that the fifteen-employee threshold is
jurisdictional. Greenless v. Eidenmuller Enters., Inc., 32
F.3d 197, 198 (5th Cir. 1994); Armbuster v. Quinn, 711
F.2d 1332, 1335 (6th Cir. 1983); Childs v. Local 18, IBEW,
719 F.2d 1379, 1382 (9th Cir. 1983); Owens v. Rush, 636
F.2d 283, 287 (10th Cir. 1980);4 Scarfo v. Ginsberg, 175
F.3d 957, 960 (11th Cir. 1999). Moreover, in Thurber v.
Jack Reilly's, Inc., 717 F.2d 633 (1st Cir. 1983), the First
Circuit upheld a district court's dismissal of a Title VII case
for lack of subject matter jurisdiction (although the basis
for the District Court's dismissal in Thurber - lack of
jurisdiction or the merits - was uncontested; at issue was
the number of employees the employer had). The Fourth
Circuit also held that the number of employees is
jurisdictional in a case brought under the Family and
Medical Leave Act ("FMLA"), a holding that suggests it
would deem the number of employees jurisdictional in the
Title VII context as well. See Hukill v. Auto Care, Inc., 192
F.3d 437, 441 (4th Cir. 1999) ("A district court lacks
subject matter jurisdiction over an FMLA claim if the
defendant is not an employer as that term is defined in the
FMLA [which defines an employer as "any person . . . who
employs 50 or more employees.]").

The division is deeper than merely inter-circuit. Even within certain circuits that have held Title VII's fifteenemployee
threshold jurisdictional, there is conflict. While in
Owens the Tenth Circuit assumed (without analysis) that
the requirement is jurisdictional, in Wheeler v. Hurdman,
825 F.2d 257 (10th Cir. 1987), that Court held that the
fifteen-employee threshold is both jurisdictional and
"intertwined with the merits of the case," and therefore
should have been resolved as if on the merits. Id. at 259.

The Eleventh Circuit is similarly conflicted. In Garcia v.
Copenhaver, Bell & Associates, M.D.'s, P.A., 104 F.3d 1256
(11th Cir. 1997), the Court opined that the Age
Discrimination in Employment Act's twenty-employee
threshold "goes to the merits of an ADEA case." Id. at 1258.
It reasoned that "the section of the ADEA that provides the
substantive relief " - the section forbidding an employer
from discriminating - "is intertwined and dependent on
the section of the ADEA that defines the scope of the act"
- the section defining "employer" as one who employs more
than twenty employees. Id. at 1263. However, in a later
case, Scarfo, 175 F.3d 957, the Eleventh Circuit dismissed
a plaintiff 's Title VII claim for lack of subject matter
jurisdiction when the defendant fell short of fifteen
employees. A third case, Morrison v. Amway Corp., 323
F.3d 920 (11th Cir. 2003), recognized this intra-circuit
conflict and essentially joined both camps. It stated that, in
the FMLA context, a fifty-employee threshold "implicate[s]
both jurisdiction and the underlying merits." Id. at 929
(emphasis added). However, it held that Garcia correctly
disposed of the issue as a matter of procedure: "the district
court was required to find that jurisdiction exists and deal
with the objection as a direct attack on the merits of
plaintiff 's case" because of the degree to which the
jurisdictional and merits inquiries were intertwined. Id. at
929-30 (internal quotation marks omitted).5

2. Title VII's Fifteen-Employee Requirement is an Element
of the Merits

With this conflict in mind, we begin our determination by
noting that subject matter jurisdiction is the "courts'
statutory or constitutional power to adjudicate" particular
cases. Steel Co. v. Citizens for a Better Env't, 523 U.S. 83,
89 (1998) (emphasis in original). Steel Co. requires that
courts normally should not conflate subject matter
jurisdiction with elements of an action's merits. The
Supreme Court held that the elements of another federal
statute - the Emergency Planning and Community Right-
To-Know Act of 1986 ("EPCRA"), 42 U.S.C. § 11046(a)(1) -
are not jurisdictional prerequisites. Steel Co., 523 U.S. at
90-93. In relevant part, EPCRA requires users of specified
hazardous chemicals to file annual reports detailing their
chemical inventories, waste-disposal methods, and recent
releases of chemicals from their facilities into the
environment, and provides that the "district courts shall
have jurisdiction in actions brought under subsection (a) of
this section against an owner or operator of a facility to
enforce the requirement concerned and to impose any civil
penalty provided for violation of that requirement." 42
U.S.C. § 11046(c). The Steel Co. plaintiff, a group to protect
environmental rights, sued a Chicago manufacturer and
asserted past violations of EPCRA. After being notified that
it was in arrears on its filings, the manufacturer filed all
the overdue reports. The plaintiff nonetheless continued its
suit, seeking relief for past reporting violations.

The District Court concluded that EPCRA does not
support suits for past violations and therefore dismissed
the plaintiff 's complaint under both Rules 12(b)(1) and
12(b)(6). The Court of Appeals for the Fourth Circuit
reversed, holding that EPCRA permits such suits. The
Supreme Court determined that the case raised (1) whether the plaintiff had constitutional standing and (2) whether
allegations of past violations state a cause of action under
EPCRA, Steel Co., 523 U.S. at 88. As to the latter, the Court
decided that the past violations question was on the merits
and not a jurisdictional requirement. Id. at 110. In so
doing, Steel Co. rejected attempts to portray the
requirement to prove all elements of a cause of action as
relevant to federal courts' jurisdiction to hear a suit. The
Court reasoned that "[i]t is firmly established in our cases
that absence of a valid (as opposed to arguable) cause of
action does not implicate subject matter jurisdiction." Id. at
89. On the contrary,

‘[j]urisdiction . . . is not defeated . . . by the possibility
that the averments might fail to state a cause of action
on which petitioners could actually recover.' Rather,
the district court has jurisdiction if ‘the right of the
petitioners to recover under their complaint will be
sustained if the Constitution and laws of the United
States are given one construction and will be defeated
if they are given another . . . .'

Id. at 89 (quoting Bell v. Hood, 327 U.S. 678, 685 (1946)).

The Court also criticized the implications of treating the
validity of a cause of action as jurisdictional. Id. at 92-93.
Under that approach, each element of every cause of action
would have a legitimate claim to being a jurisdictional
requirement - essentially eviscerating the distinction
between the jurisdictional and merits inquiry (and requiring
a court to dismiss a claim for lack of jurisdiction whenever
the plaintiff does not prevail). The Court made plain,
however, that subject matter jurisdiction is lacking if the
alleged basis for jurisdiction "clearly appears to be
immaterial and made solely for the purpose of obtaining
jurisdiction or where such a claim is wholly insubstantial
or frivolous." Id. at 89.

We presaged Steel Co. in a case decided five years earlier.
In Growth Horizons, Inc. v. Delaware County, 983 F.2d
1277, 1280-81 (3d Cir. 1993), the District Court dismissed
a claim under the Fair Housing Act for lack of subject
matter jurisdiction. The Fair Housing Act makes it
unlawful, inter alia, "[t]o discriminate in the sale or rental, or to otherwise make unavailable or deny, a dwelling to any
buyer or renter because of a handicap." 42 U.S.C.
§ 3604(f)(1). The District Court concluded that the
defendant did not "make unavailable or deny" housing to
the plaintiff and that the Fair Housing Act was therefore
not implicated. We reversed, holding that "[a] district court
has federal question jurisdiction in any case where a
plaintiff with standing makes a non-frivolous allegation that
he or she is entitled to relief because the defendant's
conduct violated a federal statute." Growth Horizons, 983
F.2d at 1281. We further explained that "[d]ismissal for lack
of jurisdiction is not appropriate merely because the legal
theory alleged is probably false, but only because the right
claimed is ‘so insubstantial, implausible, foreclosed by prior
decisions of this Court, or otherwise completely devoid of
merit as not to involve a federal controversy.' " Id. at 1280-
81 (citing Kulick v. Pocono Downs Racing Ass'n, 816 F.2d
895, 899 (3d Cir. 1987) (quoting Oneida Indian Nation v.
County of Oneida, 414 U.S. 661, 666 (1974))); see also 2
Moore's Federal Practice § 12.30[1], at 12-36 (3d ed. 2000)
("Subject matter jurisdiction in federal-question cases is
sometimes erroneously conflated with a plaintiff 's need and
ability to prove the defendant bound by the federal law
asserted as a predicate for relief - a merits-related
determination.").6

Turning to Title VII, we note that those courts that have
held the fifteen-employee requirement jurisdictional have
provided no reasons for their holding; rather, they have
assumed it so or stated the conclusion without meaningful
analysis. Moreover, in reading 42 U.S.C. § 2000e(b) we
perceive no congressional intent to make the requirement
jurisdictional. Indeed, Title VII contains an explicit
jurisdictional section, § 2000e-5(f)(3), which provides that
"[e]ach United States district court and each United States
court of a place subject to the jurisdiction of the United
States shall have jurisdiction of actions brought under this
subchapter." By contrast, § 2000e(b) - in which the fifteenemployee
requirement appears - is a definitional section,
defining "employer." We doubt that Congress intended this
definitional section to have subject matter jurisdictional
import. If Congress had so intended, we believe its intention
would be clearer. Notably, § 2000e(b) does not even contain
the word "jurisdiction." Compare 28 U.S.C. § 1331 ("The
district courts shall have original jurisdiction of all civil
actions arising under the Constitution, laws, or treaties of
the United States."); id. § 1332 (explicitly making diverse
citizenship and a $75,000 amount-in-controversy
jurisdictional prerequisites). Moreover, congressional debate
(albeit postdating the requirement that an "employer" have
more than fifteen employees) reveals that at least some
legislators regard the fifteen-employee minimum not as
jurisdictional but as an element of the cause of action. See
137 Cong. Rec. H9505-01 (Daily ed. Nov. 7, 1991)
(statement of Rep. Brooks) ("[W]hen a company has less
than 15 employees, there are no damages available
whatsoever because there is no cause of action under our
current antidiscrimination statutes.").

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