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Johns v. Harborage I

July 3, 2003



1. Minnesota Rule of Civil Procedure 15.01 permits post-judgment amendment of a complaint.

2. The federal doctrine of successor-employer liability applies to claims of sexual harassment brought in state court under Title VII of the 1964 Civil Rights Act.


Heard, considered, and decided by the court en banc.

The opinion of the court was delivered by: Hanson, Justice.

Dissenting, Gilbert J.


In 1993, appellant Lori Johns was employed as a server at the Gators Bar and Restaurant at the Mall of America. In 1995, she brought a sexual harassment action against Gators under both Title VII of the Federal Civil Rights Act, 42 U.S.C. § 2000(e), and section 363.01 of the Minnesota Human Rights Act (MHRA). At the time of the lawsuit, Gators was one of several bars that were organized by two principals, Charles Greener and Joyce McReynolds, who operated each bar through a combination of several legal entities.

Johns obtained two judgments against one of those entities, a limited partnership named Harborage I, Ltd., but Johns was unable to collect the judgments because Harborage I's assets were liquidated following the sale of Gators to respondent Jillian's Entertainment Corporation. Post judgment, Johns moved to amend her complaint to assert a claim of successor liability against Jillian's. Leave to amend was granted and both parties moved for summary judgment. The district court granted Johns' motion and determined that Jillian's was liable as a successor to Harborage I. The court of appeals reversed, applying successor-corporation liability law. Before this court, Johns argues that a broader concept of successor-employer liability, as recognized by federal courts in Title VII cases, is the appropriate standard. Johns also asserts that Minn. R. Civ. P. 15.01 permits post-judgment, post-appeal amendments to the complaint. We reverse the court of appeals and reinstate the judgment against Jillian's.

When Johns was employed at Gators, it was owned and operated by a combination of limited partnerships and corporations, all of which essentially traced a common source to Greener and McReynolds. All the entities shared the same offices in Dallas, Texas. The entities that operated Gators were:

1. FPM, Ltd., a Texas limited partnership whose general partner was a corporation controlled by McReynolds. FPM was the lessee of the premises and the holder of the liquor license.

2. Harborage I, Ltd., a Texas limited partnership whose general partner was a corporation in which McReynolds was one of three directors. Harborage I was the manager of Gators.

3. Harborage, Inc., a Texas corporation in which McReynolds was one of three directors, provided employees to Gators and issued paychecks.

After a bench trial, the district court found that Gators had violated both Title VII and the MHRA; that Harborage I and Harborage, Inc. were so interrelated that both could be treated as the "employer" of Johns for purposes of Title VII; and that Harborage I was liable to Johns under Title VII and the MHRA. The court determined, however, that FPM was not the employer of Johns and thus was not liable under Title VII or the MHRA. The court ordered judgment in favor of Johns against Harborage I in the amount of $25,000 in compensatory damages and $8,500 in punitive damages. Later, a separate judgment for $65,894.46 in attorney fees and costs was also entered. On appeal by Harborage I, the court of appeals affirmed the findings of the district court in all respects save for the grant of punitive damages. Johns v. Harborage I, 585 N.W.2d 853, 864 (Minn. App. 1998). The court of appeals awarded Johns' appellate attorney fees of $12,500. The judgments now total $103,394.46.

When Johns began efforts to collect the judgments, she was unable to do so because the assets of Harborage I had been liquidated and the ownership and operation of Gators had been transferred to Jillian's. The transfer of Gators to Jillian's was accomplished by two agreements, an Asset Purchase Agreement (APA) and a Transition Services Agreement (TSA). Each agreement referenced the transfer of several bars connected with Greener and McReynolds. The APA listed eight different entities as the sellers. FPM, the lessee and liquor licensee of Gators, FPM I, the general partner of FPM, and Main Event, a corporation that held McReynolds' limited partnership interest in FPM, were all listed on the APA. Harborage I was not listed on the APA.

Under the APA, Jillian's assumed all of the "assumed liabilities," defined as "sellers' trade payables up to an amount equal to the saleable inventory * * * plus accrued vacation benefits * * *." Jillian's did not assume any of the "retained liabilities," defined as "all liabilities and obligations, absolute or contingent, known or unknown, due or to become due, now existing or hereafter incurred, of seller and the partnerships other than the Assumed Liabilities." The APA also provided that Jillian's would be indemnified from any adverse consequences caused by any of the retained liabilities.

Although Harborage I was not a party to the APA, it was a party to the separate TSA with Main Event and Jillian's. The TSA stated that Harborage I and Main Event rendered substantial and valuable administrative and support services to the parties to the APA. The TSA noted that Jillian's would require the services of certain employees of Harborage I during the transition of ownership. The TSA also provided that certain "designated employees" of Harborage I would become employed by Jillian's, while other employees of Harborage I, acting through Main Event and Harborage I, would supply support services to the sites involved in the APA during the transition period. Finally, the TSA stated that compensation for those support services would be paid solely to Main Event.

Pursuant to these two agreements, Jillian's took over Gators and operated it exactly as Harborage I (and its related entities) had. The name of the bar and location remained the same, the supervisors, managers, and employees were the same, uniforms, pay, and benefits remained the same, and the bar used the same décor, menu, furniture, and equipment.

Johns moved to amend her complaint to add Jillian's as a defendant. That motion was granted and Johns then moved for summary judgment, as did Jillian's. In its cross-motion for summary judgment, Jillian's did not challenge Johns' factual assertions but rather concentrated on three key points:

Harborage I was not a party to the APA by which Jillian's acquired Gators and the TSA was the only explicit business transaction between Jillian's and Harborage I.

Jillian's could most properly be considered a successor to FPM, which was a party to the APA but had been ...

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