                                                                                                                           Opinions of the United
1994 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


6-10-1994

Bouton v. BMW of North America, Inc.
Precedential or Non-Precedential:

Docket 93-5296




Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1994

Recommended Citation
"Bouton v. BMW of North America, Inc." (1994). 1994 Decisions. Paper 44.
http://digitalcommons.law.villanova.edu/thirdcircuit_1994/44


This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova
University School of Law Digital Repository. It has been accepted for inclusion in 1994 Decisions by an authorized administrator of Villanova
University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.
                                                            1



                 UNITED STATES COURT OF APPEALS
                      FOR THE THIRD CIRCUIT



                     NOS. 93-5296 & 93-5316


                        TRUDE S. BOUTON,

                                      Plaintiff,

                               v.

                   BMW OF NORTH AMERICA, INC.,

                                       Defendant.

             Trude Bouton, Appellant in No. 93-5296

         BMW of North America, Appellant in No. 93-5316


          Appeal from the United States District Court
                   for the District of New Jersey


                     D.C. Civil No. 90-2884


                      Argued March 8, 1994

       Before: MANSMANN, LEWIS and SEITZ, Circuit Judges.

                      Filed: June 10, 1994

Louis A. Bové (Argued)
Swartz, Campbell & Detweiler
1600 Land Title Building
100 South Broad Street
Philadelphia, PA 19110
   Attorney for Trude Bouton

Marilyn Sneirson (Argued)
Lynn B. Su
Thomas W. Dunn
Beattie Padovano
50 Chestnut Ridge Road
P. O. Box 244
                                                                         2


Montvale, NJ 07645
   Attorneys for BMW of North America, Inc.
                       OPINION OF THE COURT

SEITZ, Circuit Judge.


       Plaintiff,   Trude   Bouton,   filed   this   action    for   sexual

harassment under state and federal law seeking to hold BMW of

North America, Inc. ("BMW") liable as her employer.           The district

court entered judgment against Bouton on all claims.            As to her

Title VII claims, which were tried to the court,1 the district

court held that there was no employer liability.         The court also

ruled that the statute of limitations had expired on the only New

Jersey state law claim on which the jury found in Bouton's favor

and so entered judgment for BMW as a matter of law.           Finally, the

court entered judgment on the jury's verdict in favor of BMW on

the remaining claims; no appeal was taken on them.




1
A jury trial was not available in Title VII actions when this
suit was filed in July 1990. Roebuck v. Drexel Univ., 852 F.2d
715, 737 n.40 (3d Cir. 1988). The district court ruled that the
Civil Rights Act of 1991 amendment to Title VII that provided
access to juries did not apply retroactively. The Supreme Court
held in Landgraf v. USI Film Products, 62 U.S.L.W. 4255 (U.S.
Apr. 26, 1994), that the jury trial provision should not be
applied to cases complaining of pre-enactment conduct.
                                                                                       3


        Bouton appeals the adverse judgments on one Title VII

claim and the New Jersey Law Against Discrimination ("NJLAD")

claim that was decided as a matter of law.                  BMW cross-appeals the

NJLAD ruling, contending that even if the statute of limitations

extended    to   the    date    of    this    action,       the   district    court's

judgment should be affirmed on other grounds because the facts do

not support employer liability under New Jersey law.
I.      Background

        We first address the evidence having in mind that BMW is

entitled to the benefit of disputed facts.

        Trude    Bouton      was    employed    by    BMW    in   July    1984    as   a

bilingual    secretary         to    Karl     Hammermueller,        the     company's

Comptroller, and was promoted with him when he became Treasurer

in August 1985.         In early fall 1985, Bouton and Hammermueller

began a personal relationship.

        In April 1986, Bouton became Executive Secretary to the

Vice President of Service, Hans Duenzl.                      Hammermueller's boss

suggested    the       promotion      in     order    to     separate      her    from

Hammermueller.          In   October        1986,    Hammermueller        moved   into

Bouton's home, where he lived until they broke up in December

1986.
                                                                                   4


         Thereafter, Bouton took a medical leave.                  The incident

that precipitated her medical leave occurred while she was typing

as Duenzl dictated an urgent fax to Germany.               It was after 5:00

p.m. on Friday in Germany, and after 12:00 noon in New Jersey.

Bouton   testified    that    she    requested     permission    to    go    to   the

bathroom and he responded in the crudest terms but without any

sexual connotation.         Duenzl recalls that she asked to go to lunch

and he refused because the recipients were waiting to begin their

weekend in Germany.         In any event, Bouton ran from the building,

bypassed    personnel,      and    went   to   Hammermueller's     office.         He

summoned Steve Thompson from the Human Resources Department and

she made her first contemporaneous complaint of harassment.

         BMW investigated the complaint, even involving its Presi-

dent, by having him interview Duenzl.             Although BMW could find no

harassment, the Human Resources Department decided Bouton should

not continue to work for Duenzl.               While Bouton was still on the

medical leave, BMW informed her that her request to be assigned

to   Carl   Hooser,   who    had    succeeded    Duenzl,   would      be    granted.

Bouton was never again bothered by Duenzl—indeed, she became

comfortable enough to complain to him about Hooser.
                                                                                           5


            Bouton's credibility was seriously challenged both when

she    complained        within    BMW    and    at   trial.          For    example,    she

testified that while she was cutting bagels for a staff meeting,

"Mr. Duenzl approached me from the back, and I could feel he had

an erection because he pushed hisself [sic] against my back."

However, the female managers who regularly attended those staff

meetings      testified       that    bagels     were    never       served—donuts      were

standard       fare.      Additionally,         there     was        other       conflicting

testimony as to Bouton's attendance at company dinners.

            After    Bouton     returned       from     medical      leave,       she   began

complaining about Hooser, her first American boss.                               She thought

he    was    too    informal—"too        Californian,"         not    a   strong     "German

manager."      Hooser      restricted      her    overtime        and     criticized     her

secretarial         skills      and   attitude.           He    insisted         that   they

communicate         in   writing,     which     he    explained       was     because    her

English      was    so   poor     that    he    needed    a    method       of    decreasing

miscommunications.           Bouton's self-typed autobiography illustrated

her inferior secretarial skills. Additionally, both her written

work and spoken transcripts portray sub-par proficiency with the

English language.
                                                                                        6


        A member of the personnel department surmised that these

problems had not been so glaring to her previous bilingual bosses

who valued her German skills and who may not have recognized the

errors in English.            Duenzl explained that he eventually learned

her phrasing was poor and asked American managers to edit his

correspondence.        Thus, the jury could readily attribute Hooser's

actions to the personality conflict and to Bouton's inadequacies

as a secretary without reflecting any sexual motivation.                         Indeed,

the   record    in    this     case       fairly    supports     the    conclusion    that

Hooser was very tolerant of Bouton when she tried to persuade the

President      of    BMW      to     fire    him.         The    jury    evaluated    its

interpretation of this evidence by rejecting all of Bouton's

complaints against Hooser.

        With this background, we proceed to consider whether the

District Court correctly absolved BMW of liability.
II.     Title VII Employer Liability

        Bouton argues that the district court's ruling against her

Title   VII    claim    is     impermissibly         inconsistent        with   the   jury

verdict favoring her NJLAD claim.                    BMW responds that the judge

correctly applied collateral estoppel to facts found by the jury,

but   decided       against    her     because      she    did   not    prove   employer

liability under Title VII.

        Under both Title VII and NJLAD, a hostile environment

claim   requires        proof        of     pervasive      or    severe     intentional

discrimination that affected the plaintiff and would also affect

a reasonable person.               See Meritor Sav. Bank, FSB v. Vinson, 477

U.S. 57, 67 (1986); Andrews v. City of Philadelphia, 895 F.2d
                                                                              7


1469, 1482 (3d Cir. 1990);2 Lehmann v. Toys `R' Us, Inc., 626

A.2d 445, 453 (N.J. 1993).           However, Bouton sought to have BMW

held liable rather than the harasser.           Thus, she also had to show

that employer liability was appropriate.                At the time of the

Bouton v. BMW trial, the New Jersey Supreme Court had not yet

decided the principle governing employer liability under NJLAD.

Because the district court predicted that New Jersey would adopt

strict   liability,   it     did   not   instruct    the   jury    on   employer

liability.      When the district court reached the Title VII deci-

sion, it applied the jury's findings to the first four elements,

but then concluded that employer liability was not appropriate

because "as soon as [BMW] knew of the conduct, it took prompt and

adequate remedial measures."         Op. at 18.

         The United States Supreme Court has instructed courts to

use    agency   principles    when    deciding      employer   liability     for

sexually hostile work environments.             Meritor Sav. Bank, FSB v.

Vinson, 477 U.S. 57, 72 (1986).          Meritor rejects the possibility

that employers are strictly liable for hostile environments and

also   repudiates    the   notion    that   a    grievance     procedure    will

automatically protect the employer.          Id. at 72-73.        The challenge

2
We note that Andrews' formulation differs from Meritor in that
Andrews suggests that the discrimination must be "pervasive and
regular" whereas the Supreme Court described that element as
"pervasive or severe." Both tests are met here so we do not find
it necessary to resolve whether this was inadvertent although we
understand that the distinction may be important.    See T.L. v.
Toys `R' Us, Inc., 605 A.2d 1125, 1138 (App. Div. 1992), aff'd as
modified sub nom. Lehmann v. Toys `R' Us, Inc., 626 A.2d 445
(N.J. 1993); id. at 1145 (Skillman, J.A.D., concurring &
dissenting); Watts v. New York City Police Dep't, 724 F. Supp.
99, 106 n.6 (S.D.N.Y. 1989).
                                                                                          8


before this court is to determine what middle ground remains in

agency law.

          The Restatement (Second) of Agency § 219 provides three

potential       bases    for      holding        employers      liable      for       sexual

harassment perpetrated by their employees.                      Section 219(1) holds

employers       responsible       for    torts    committed     by     their    employees

within the scope of their employment.                    Two of the four reasons

listed in § 219(2) for imposing liability when an employee acts

outside    the     scope     of      employment     could     also     apply.          Under

§ 219(2)(b),       masters      are     liable    for   their    own      negligence      or

recklessness; in a harassment case, this is typically negligent

failure to discipline or fire, or failure to take remedial action

upon notice of harassment. Finally, under § 219(2)(d), if the

servant relied upon apparent authority or was aided by the agency

relationship, the master is required to answer.

          Under § 219(1), Bouton asserts that BMW is liable because

Duenzl was acting within the scope of his employment.                           Scope-of-

employment      liability       is    often   invoked    in     quid      pro   quo    cases

because the supervisor has used his authority over the employee's

job to extort sexual favors.                  Without the agency relationship,

quid pro quo harassment would be impossible, so the employer is

responsible. See, e.g., Karibian v. Columbia Univ., 14 F.3d 773,

777-78 (2d Cir. 1994), petition for cert. filed, 62 U.S.L.W. 3724

(U.S.    Apr.    22,    1994)     (No.    93-1674).       However,        in    a   hostile

environment case, the harasser is not explicitly raising the

mantle    of    authority       to    cloak   the   plaintiff        in    an   unwelcome
                                                                                          9


atmosphere.         Employer liability should not be imputed under §

219(1) without use of actual authority.

            Courts of appeals that have spoken readily accept the

negligence concept of § 219(2)(b) if the harassment is reported

to    the    employer.       Failure    to    investigate        and     remediate      will

result in employer liability.               See, e.g., EEOC v. Hacienda Hotel,

881 F.2d 1504 (9th Cir. 1989); Lipsett v. University of Puerto

Rico, 864 F.2d 881, 903 (1st Cir. 1988).                           Conversely, under

negligence         principles,      prompt    and       effective      action      by   the

employer will relieve it of liability.                       In Andrews, this court

joined other circuits in interpreting these principles to impose

liability      when    the       employer    knew      or    should    have     known    of

harassment and failed to take prompt remedial action.                         Andrews v.

City of Philadelphia, 895 F.2d at 1486.

            Bouton contends that the grievance procedure BMW offered

was    insufficient         to   relieve     it   of    liability       and   it    should

therefore      be    held    liable    under      the       negligence    principle      of

Restatement § 219(2)(b).             She cites a Ninth Circuit case for the

proposition that the existence of a grievance procedure does not

insulate an employer from liability as a matter of law.                            EEOC v.

Hacienda Hotel, 881 F.2d 1504, 1516 (9th Cir. 1989).                               Meritor

allowed      for    the     possibility      that      an    employer     could     escape

liability if the procedure was sufficiently effective.                           Meritor,

477 U.S. at 73.

            All of the witnesses who worked for BMW (save one who was

not asked) testified that the company has an "open-door policy"

for reporting grievances.               The President, Dr. Gunter Kramer,
                                                                                            10


explained that he began the open-door policy when he started to

work at BMW and continuously advertised it.                           Complaints about a

supervisor could be lodged with any of the supervisor's peers or

superiors or the Human Resources Department.                      Bouton used each of

these avenues to register grievances while employed at BMW.3

        Bouton      fails    to    distinguish            her     own    refusal       of    a

potentially effective grievance procedure from the Hacienda Hotel

employee     who    did    not    try    to    use       an    obviously        ineffective

procedure.         BMW    investigated        upon   her        first    contemporaneous

complaint     of    harassment.           Although            Bouton     had     previously

complained     frequently         to    members      of         the     Human     Resources

Department, she did not report any incidents that they considered

to be sexual harassment.4               Indeed, when queried, she indicated

that she did not believe she had been sexually harassed and did

not   want   an    investigation.             If   she    had     reported       any   event

involving unwelcome touching or that the personnel department

viewed as sexual harassment, personnel managers testified—and she

agreed—that the company would have investigated regardless of her

3
 Bouton apparently felt so comfortable with her right to
communicate to senior management that she circulated a petition
suggesting Hammermueller's further promotion to chief financial
officer. She withdrew it when the President explained to her why
the petition was inappropriate.
4
 In addition to the three representatives of the Human Resources
Department, four women who worked with Bouton testified that
Bouton complained incessantly about both personal and personnel
problems, but never described anything that they considered to be
sexual harassment.   Furthermore, they said they never witnessed
any acts that would contribute to a hostile environment. On the
contrary, Bouton reported things such as "Mr. Hooser had not
noticed her new earrings, that she had been at work for an hour,
over an hour, and he had not noticed her new earrings.      Trude
said that is — that is clearly sexual harassment."
                                                                          11


wishes.     The "dictation incident" was the first episode that she

timely complained about.         Her other reports recounted occasions

that had since grown stale by the passage of weeks or months.

Therefore, Human Resources did not previously perceive a need to

investigate.5

          Bouton also complains that the remedy was inadequate as a

matter of fact because Duenzl's transfer was planned before her

complaints.     She appears to propose that BMW should assign her to

a third boss just because she complained about Duenzl after a

transfer to Hooser was planned.           She ignores the fact that her

own transfer had not been decided6 and that the remedy does not

become ineffective solely by virtue of dual motives.                In this

case,   the   district   court    found   that   BMW   acted   promptly   and

effectively when it was notified of possible harassment, so BMW

may not be held liable under a negligence theory.

          The legal effect of a grievance procedure when a judgment

is requested under a theory other than negligence or if the

5
 When Bouton later protested that Hooser told her to act more
like a woman, Kevin Clark, the Human Resources Development
Manager, investigated promptly.   Clark's investigation revealed
that Hooser recalls saying he "told her that she should be more
human, she should be more humane to the people, not act as
arrogant to the people."
6
 She claims that "[I]t was undisputed that it was BMW's policy
that the secretary of a particular department would stay with
that particular department so that the new person would know the
procedure and have a more simple transition period."      It was
clearly disputed and proven to be untrue by her own employment
history. She transferred with Hammermueller when he was promoted
from Controller to Treasurer.    Members of the Human Resources
Department testified that her position upon Hooser succeeding
Duenzl was not decided until a week after she began her medical
leave. Indeed, she claims Duenzl insisted that she transfer with
him. These facts repudiate her purported belief.
                                                                                          12


harassment is not alleviated due to a failure to complain or a

failure of the procedure remains unresolved.                        Bouton asks us to

grant    relief    from        the    employer         regardless   of   any     grievance

procedure.      For the answer we look to the last available option

in the Restatement.

         Restatement § 219(2)(d) imposes liability on the master

when:
         the servant purported to act or to speak on behalf
         of the principal and there was reliance upon appar-
         ent authority, or he was aided in accomplishing the
         tort by the existence of the agency relation.


This section appears to provide multiple theories, but they all

dovetail.

         The final phrase of § 219(2)(d) poses an issue whether the

perpetrator was aided by the existence of the agency relation.

The   relationship        can        aid    a    harasser   in   two     ways.      First,

employment provides proximity.                   However, access to the victim is

provided by the employment of either a supervisor or a co-worker.

Most courts agree that negligence principles are appropriate when

resolving liability for a co-worker's actions.                      See, e.g., Hunter

v. Allis-Chalmers Corp., Engine Div., 797 F.2d 1417, 1422 (7th

Cir. 1986). Therefore, the task is to distinguish supervisors and

co-workers.       The    second            way   the    relationship      can     aid     the

tortfeasor is by giving the harasser power over the victim—this

is analyzed as apparent authority.

         Bouton's strongest argument for holding BMW liable is that

Duenzl    was     such    a     high-level         executive     that    his     acts     are

attributable      to     the    company.           There    is   intuitive       appeal    to
                                                                                     13


imposing liability for the torts of high-level executives because

they may speak for the company whenever they open their mouths.

See Kotcher v. Rosa & Sullivan Appliance Ctr., Inc., 957 F.2d 59,

64    (2d    Cir.   1992).          On    the   other    hand,     Duenzl    was     not

sufficiently powerful to be wielding actual authority:                            Bouton

did not believe acts of harassment were BMW policy—she believed

she had a remedy by speaking to Duenzl's boss, the president of

the company.

          Apparent authority is invoked by the two purest implemen-

tations of Meritor's instruction to use agency principles for

guidance.      Eleventh Circuit employer liability law has evolved

over several hostile environment cases so that it now requires

considering the authority of the harasser over the plaintiff and

the    structure         of   the   workplace     to     determine     whether       the

perpetrator is an agent under the EEOC guidelines.                           Vance v.

Southern Bell Tel. & Tel. Co., 863 F.2d 1503, 1515 (11th Cir.

1989), rev'd on other grounds, Patterson v. McLean Credit Union,

491 U.S. 164 (1989). Prompt remediation by the employer will

absolve it of liability. Steele v. Offshore Shipbuilding, Inc.,

867 F.2d 1311, 1316 (11th Cir. 1989).                   A post-Meritor law review

article suggests using an agency test that considers whether the

harasser had the power to hire, fire, promote, or discipline the

plaintiff in both hostile environment and quid pro quo cases.

David Holtzman & Eric Trelz, Recent Developments in the Law of

Sexual      Harassment:       Abusive     Environment      Claims    After       Meritor

Savings     Bank    v.    Vinson,    31   St.   Louis     U.L.J.    239,    at    *16-17

(1987).       If the harasser was an agent of the employer, the
                                                                           14


employer   is    liable.    Any   grievance   procedure   offered    by   the

employer is relevant exclusively to the plaintiff's remedy.

        Several district courts have refused to impose liability

under § 219(2)(d) when the employee could not have believed (or

at least did not believe) harassment was the employer's policy,

thus erasing the appearance of authority.            See, e.g., Watts v.

New York City Police Dep't, 724 F. Supp. 99, 106 n.6 (S.D.N.Y.

1989) (opining that § 219(2)(d) liability is appropriate "if the

conduct is accomplished by means furnished to the supervisor by

his employer (such as the supervisor's influence or control over

hiring, job performance evaluations, work assignments, or promo-

tions), and the employer has not put in place strong policies and

procedures that effectively belie the appearance of such authori-

ty"); Schroeder v. Schock, 42 Fair Empl. Prac. Cas. 1112 (BNA),

1986 WL 15483, at *4 (D. Kan. Dec. 29, 1986) ("The capacity of

any person to create a hostile or offensive environment is not

necessarily enhanced or diminished by any degree of authority

which   the     employer   confers   upon   that   individual.      When    a

supervisor gratuitously insults an employee, he generally does so

for his reasons and by his own means.          He thus acts outside the

scope of the authority he possesses as a supervisor.             His conduct

cannot automatically be imputed to the employer any more so than

the conduct of an ordinary employee.").

        These district courts vary in the perspective from which

they view whether the authority to harass has been communicated

or repudiated.      One proposes that "the supervisor must `purport

to act on behalf of the [employer] by his inappropriate actions
                                                                               15


toward plaintiff.'"        Andresen v. McDonnell Douglas Corp., 55 Fair

Empl. Prac. Cas. 525 (BNA), 1991 WL 96053, at *4 (D. Utah Feb.

21, 1991) (quoting Hirschfeld v. New Mexico Corrections Dep't,

916 F.2d 572, 579 (10th Cir. 1990)).                     Another looks to the

message sent by the employer.               Fields v. Horizon House, Inc.,

1987   WL    26652,   at   *4   (E.D.     Pa.   1987)    ("[A]pparent    authority

exists only if it is reasonable for the third party (victim) to

believe that the agent is authorized in his actions. . . .                    [I]t

would surely be rare under traditional agency principles where in

non-quid pro quo sexual harassment cases an employer could be

found to have communicated to his employee that the employee's

supervisor had the authority to sexually harass the employee by

creating      an   hostile      working    environment.").          As   a   third

alternative, an objective view may be appropriate.                       Young v.

Mariner Corp., 56 Empl. Prac. Dec. ¶ 40814, 1991 WL 172927, at

*27 (N.D. Ala. Apr. 23, 1991) (concluding that the employer's

policy      against   sexual    harassment      and     an   effective   grievance

procedure divested the boss of any actual or apparent authority

to harass the plaintiff).

         Our agency precedent requires the belief in the agent's

apparent authority to be reasonable before the principal will be

bound.      Reading Co. v. Dredge Delaware Valley, 468 F.2d 1161,

1163 (3d Cir. 1972).             This theory reconciles the exonerating

effect of a remedial policy, which appears to stem from the

negligence principles of § 219(2)(b), with the apparent authority

theory of § 219(2)(d).          It also indicates that the reasonableness
                                                                                  16


of the employee's perception of the combined message from the

harasser and the employer is important.

         The    lack     of    a   separate,    written    grievance    policy    for

sexual harassment is not dispositive.7                    BMW's policy on sexual

harassment was stated most succinctly by Hooser:                   "there will be

none"; the other managers agreed.                It was also clear to all who

testified      that     sexual     harassment    complaints     could   be   pursued

through the general grievance procedures.

         Although rarely explicitly recognized, the choice whether

to permit a grievance procedure to alleviate liability under

§ 219(2)(d) is a policy decision based on the appropriate amount

of deterrence.           If employers are liable whenever supervisors

harass their subordinates, they have an economic incentive in the

amount    of      the    potential     judgments    to     recruit,     train,    and

supervise their managers to prevent hostile environments.                         Cf.

Horn v. Duke Homes, Div. of Windsor Mobile Homes, Inc., 755 F.2d

599,    605    (7th     Cir.   1985)   (endorsing    strict     liability    as the

appropriate incentive level prior to Meritor).                        The marginal

reduction in the incentive that occurs if employers can rely on

an     internal       grievance     procedure     may     be   justified     by   the

concomitant decrease in litigation.                This rationale is supported

by the statutory policy that requires complaint to the EEOC and a

conciliation process before a complainant has a right to sue.


7
Bouton included material on this subject in her appendix that
was not part of the trial record and of which opposing counsel
was not advised during preparation of the appendix.    This, of
course, is impermissible. See Fed. R. App. P. 30(a)-(b). BMW's
Motion to Strike will be granted.
                                                                      17


See 42 U.S.C. § 2000e—5.     See generally Comment, When Should an

Employer Be Held Liable for the Sexual Harassment by a Supervisor

Who Creates a Hostile Work Environment?          A Proposed Theory of

Liability, 19 Ariz. St. L.J. 285, 321 (1987) (suggesting that the

policies of Title VII may be best served by permitting employers

to escape liability if they take prompt remedial action).

        Finally, Bouton complains that "[b]y its admission, BMW's

`remedial measures' (which proportedly [sic] included Bouton's

`transfer' from Duenzl to Hooser and Dr. Kramer's conversation

with Duenzl) all took place after Bouton sustained those injuries

. . . ."   The Andrews rule envisions prompt remedial action when

the hostile environment is discovered.          Andrews, 895 F.2d at

1486.   "Remediation"   contemplates   curing   an   existing   problem—a

line cannot be erased until it has been drawn.
                                                                                         18


          In sum, we hold that an effective grievance procedure—one

that is known to the victim and that timely stops the harassment—

shields    the    employer       from    Title    VII    liability      for    a   hostile

environment.          By    definition,      there      is   no    negligence      if    the

procedure is effective.            A policy known to potential victims also

eradicates       apparent        authority    the       harasser       might    otherwise

possess. Because the complaint mechanism was well known to Bouton

and further harassment was prevented in response to her first

contemporaneous complaint, we have no occasion to pass upon the

outcome if Bouton did not understand the procedure or the initial

attempt at a remedy was not successful.                           The district court

correctly concluded that BMW is not liable for Duenzl's acts

under Title VII.
III.      The New Jersey Law Against Discrimination Claim

          A.          NJLAD Employer Liability

          By modest extension of Vandenbark v. Owens-Illinois Glass

Co., 311 U.S. 538 (1941), this court is required to apply the

current, definitive statement of New Jersey law.                               Vandenbark

requires federal courts to revise their opinions in diversity

cases still on direct review when an intervening decision of the

highest state court changes the result.                           Id. at 543.           More

precisely, it requires reconsideration in cases controlled by the

Rules of Decision Act.             Id.    The Rules of Decision Act arguably

is also the source of authority for applying state statute of

limitations      to    state      law    claims     brought       under    supplemental

jurisdiction.              See   28     U.S.C.    § 1652;         28   U.S.C.      § 1367.

Therefore, federal courts should change their rulings on pending
                                                                        19


supplemental jurisdiction claims upon a change in relevant state

law.

       Since this case was submitted to the jury, the New Jersey

Supreme Court has spoken on the standards for employer liability

under NJLAD.    When   the   district   court   charged   the   jury,   it

predicted that New Jersey would impose strict liability based on

a New Jersey Appellate Division decision.       Op. at 16 (citing T.L.

v. Toys `R' Us, Inc., 605 A.2d 1125, 1138, 255 N.J. Super. 616,

639-40 (App. Div. 1992)).       After that opinion, the New Jersey

Supreme Court held that strict liability is appropriate only for

equitable remedies, but agency principles should be applied for

compensatory damages, and more than negligence is required for

punitive damages. Lehmann v. Toys `R' Us, Inc., 626 A.2d 445

(N.J. 1993)).

       Applying the pertinent facts to the agency principles set

forth in part II, BMW is not liable under the New Jersey Law

Against Discrimination.      The same acts that divested Duenzl of

apparent authority under federal law also prevented him from

rendering BMW liable for compensatory damages under New Jersey

state law.
       B.       The Statute of Limitations
                                                                 20


       Because we have held that BMW is not liable under NJLAD,

we need not address Bouton's challenge to the district court's

ruling that the statute of limitations bars her NJLAD claim.
IV.    Conclusion

       On this record, the district court correctly applied the

agency principles required by Meritor to hold that BMW is not

liable under Title VII.   Now that the New Jersey Supreme Court

has held these same principles applicable to its state law, they

must be implemented by relieving BMW of liability under NJLAD.

       The judgment of the district court will be affirmed.
