                  United States Court of Appeals,

                          Eleventh Circuit.

                               No. 95-6141.

 Erica Benson SPLUNGE, Sandra Calhoun, Tisha Scott, Jo Catherine
Smoot, Plaintiffs-Appellees,

                                    v.

               SHONEY'S, INC., Defendant-Appellant.

                           Oct. 10, 1996.

Appeal from the United States District Court for the Middle
District of Alabama. (No. CV 93-D-690-E, Ira DeMent, District
Judge.

Before EDMONDSON and DUBINA, Circuit Judges, and FARRIS*, Senior
Circuit Judge.

     EDMONDSON, Circuit Judge:

     The   Plaintiffs   here    brought   Title   VII    actions   against

Shoney's, Inc., alleging sexual harassment.        The jury rendered a

verdict in favor of Plaintiffs on the hostile environment claims.

We affirm the judgment on compensatory damages but reverse the

award of punitive damages.

I. Facts and Procedural Background

     Plaintiff-Appellees are female former employees of the Captain

D's restaurant in Alexander City, Alabama. The restaurant is owned

and operated by Defendant-Appellant Shoney's.           The events giving

rise to this case occurred between September 1991 and May 1992.

     The trial was mainly about the conduct of four Shoney's

employees:   McClellan (area supervisor, with responsibility for

multiple restaurants);    Johns (store manager at the plaintiffs'


     *
      Honorable Jerome Farris, Senior U.S. Circuit Judge for the
Ninth Circuit, sitting by designation.
Captain D's);     Webber (assistant manager);          and Smith (dining room

supervisor).       According to the evidence, the listed employees

grabbed   Plaintiffs,      commented    extensively      on    their    physical

attributes, showed them pornographic photos and videotapes, offered

them money for sex, favored other employees who had affairs with

them, speculated as to the plaintiffs' sexual prowess, and so on.

Shoney's does not contest here that the environment in which each

plaintiff worked was hostile by Title VII standards.                    Instead,

Shoney's contends that whatever environment existed, Shoney's, Inc.

cannot be held liable in damages.

      The parties stipulated that Shoney's had a sexual harassment

policy in effect during the relevant period, but they disagreed on

whether the policy was posted at the restaurant at which Plaintiffs

worked.     They    also    entered    into   stipulations      agreeing    that

McClellan and Johns were "lower management" at Shoney's and that,

before complaining to the EEOC, Plaintiffs never complained about

the   alleged   sexual     harassment    to   anyone     higher-ranking    than

McClellan at Shoney's, Inc.       Plaintiffs' immediate superiors were

the offending employees;       these superiors were obviously aware of

their own misconduct.       "Higher management" (starting with regional

director Cort Harwood, who occasionally visited the restaurant, and

extending up the corporate hierarchy) was never informed until

another   employee—not      involved    in    this   litigation—informed       a

vice-president, through a lawyer, that she too was being harassed.

That VP promptly investigated the allegations brought by the

employee,   and     his    investigation      resulted    in   the     immediate

termination of McClellan and Johns.
     The four plaintiffs sued for sexual harassment.            After the

jury verdict for Plaintiffs, Defendant moved, per Rule 50, for a

judgment in Defendant's favor.           The district court denied the

motion.   Defendant asserts the district court erred in concluding

that Shoney's had sufficient notice (actual or constructive) of the

hostile environment to which Plaintiffs were subjected;            because

Shoney's had no such knowledge, the argument goes, it cannot be

held liable in compensatory damages.       Defendant also contends that

Shoney's did not act with the level of malice or reckless disregard

for Plaintiffs' rights necessary to sustain the punitive damages

award under the Civil Rights Act of 1991.

II. Discussion

                        A. Compensatory Damages

       The Supreme Court announced in Meritor Savings Bank, FSB v.

Vinson, 477 U.S. 57, 106 S.Ct. 2399, 91 L.Ed.2d 49 (1986), that

sexual harassment could arise in two ways:        by       quid pro quo

propositions by superiors acting under color of their corporate

authority, or by the creation of a hostile environment by superiors

or coworkers.    Holding the company strictly liable for the acts of

its employees "is illogical in a pure hostile environment setting"

because there, "the supervisor acts outside the scope of actual or

apparent authority to hire, fire, discipline, or promote."            Steele

v.   Offshore    Shipbuilding,   Inc.,    867   F.2d   1311,   1316   (11th

Cir.1989). Therefore, hostile environment liability on the part of

an employer exists only where "the corporate defendant knew or

should have known of the harassment and failed to take prompt

remedial action against the supervisor."         Id. (emphasis added).
       Here, McClellan, Johns, Smith, and Webber doubtlessly knew of

the hostile environment;           and no contention is made that any

manager higher up than these people actually knew of the hostile

environment.       The   issue   is    thus   whether    the      notice   to     the

corporation required by Steele existed where all the supervisors

with whom Plaintiffs had regular contact were offenders and where

the company failed (by not posting the sexual harassment policy) to

provide Plaintiffs with guidance on how to contact upper-level

managers.

      The jury verdict holding Shoney's liable will be upheld

because there was sufficient evidence that Shoney's (through its

"higher management") had at least constructive notice of the

hostile environment.       See Henson v. City of Dundee, 682 F.2d 897,

905   (11th   Cir.1982)    ("The     employee   can   demonstrate       that      the

employer knew of the harassment by showing that she complained to

higher   management       of   the    harassment,       or   by     showing       the

pervasiveness of the harassment, which gives rise to the inference

of knowledge or constructive knowledge.") (citations omitted).

      The hostile environment in this case was so pervasive and

managers at the restaurant were so inextricably intertwined in this

environment that higher management could be deemed by a jury to

have constructive knowledge. So, the district court did not err on

the   question   of   compensatory     damages.       The    evidence      here    of

harassment is extremely extensive, and that so many employees were

involved indicates that the events at Captain D's were not cloaked

in secrecy.      Therefore, the district court's conclusion that the

evidence was enough to show that Shoney's higher management had
constructive knowledge was not error.             See generally Reich v.

Department of Conservation and Natural Resources, 28 F.3d 1076,

1082 (11th Cir.1994) (reviewing question of constructive knowledge

as question of fact "for clear error").

     And, Shoney's cannot complain about its lack of notice:                a

reasonable jury could find that Shoney's sexual harassment policy

was never communicated to Plaintiffs.        The Supreme Court stated in

Meritor Savings Bank, FSB v. Vinson, 477 U.S. 57, 106 S.Ct. 2399,

91   L.Ed.2d    49    (1986),   that    "Petitioner's     contention     that

respondent's failure [to complain to higher management] should

insulate it from liability might be substantially stronger if its

procedures     were   better    calculated   to    encourage   victims     of

harassment to come forward."           See also Sparks v. Pilot Freight

Carriers, Inc., 830 F.2d 1554, 1560 (11th Cir.1987) (noting that

under Meritor, employer may shield itself from liability only by

"enacting an explicit policy against sexual harassment and an

effective grievance procedure ") (emphasis added). Thus, the award

of compensatory damages stands.

                           B. Punitive Damages

         Defendant argues that even if Shoney's had constructive

knowledge of the hostile environment, the constructive knowledge

still does not satisfy the requirement of the Civil Rights Act of

1991 that, before Plaintiffs can collect punitive damages from the

company, they must show the company acted with malice or reckless

indifference to Plaintiffs' federal rights.1            The district judge

     1
      Under the Civil Rights Act of 1991, 42 U.S.C. § 1981a,
punitive damages are available where "the complaining party
demonstrates" that the employer "engaged in ... discriminatory
rejected this argument of Defendant.         But, we conclude that not

enough evidence supports the determination that Shoney's acted with

malice or reckless indifference to Plaintiffs' federally protected

rights;    and so we reverse the award of punitive damages.

       The record fails to show, first, that no member of Shoney's

management higher up the corporate hierarchy than the harassing

employees themselves acted with the state of mind required by

section 1981a.    The plain language of section 1981a, which refers

to malicious or reckless acts, compels the conclusion that Shoney's

mere "constructive knowledge" of the harassment cannot support

punitive damages.

       One court has defined malice, for section 1981a purposes, as

meaning "with an intent to harm," and recklessness as "with serious

disregard for the consequences of [one's] actions." Canada v. Boyd

Group, Inc., 809 F.Supp. 771, 781 (D.Nev.1992).           We accept these

definitions and conclude that they do not reach the employer with

only   constructive   knowledge,    at   least   when   that   constructive

knowledge flows from negligence, as opposed to willful blindness.

As one court has written:

       [A]lthough the defendant should have had knowledge of the
       pervasive   hostile   working   environment   which   existed,
       nonetheless, it cannot be said that its failure to act earlier
       was in any way a reckless or callous disregard of or
       indifference to the rights of plaintiff Marina Dombeck or
       other persons. It was a negligent failure to conduct a more
       extensive investigation and to provide for earlier remedial
       measures which would have eliminated the hostile environment.

Dombeck    v.   Milwaukee   Valve    Co.,    823   F.Supp.     1475,   1480

practices with malice or with reckless indifference to the
federally protected rights of an aggrieved individual."
(Emphasis added.) This restriction does not apply to the
recovery of compensatory damages.
(W.D.Wis.1993)        (declining     to    assess      punitive    damages       against

employer) (emphasis added.) Dombeck was vacated on the ground that

the    Civil    Rights   Act    of   1991    should      not     have    been    applied

retroactively, but its reasoning has continued merit.                        Therefore,

considering the plain language of the statute and the limited case

law, we conclude that, at least ordinarily, constructive knowledge

alone is insufficient to authorize the award of punitive damages

under section 1981a.

       Here, Shoney's had "constructive knowledge" of the hostile

environment only because it failed to exercise a reasonable level

of vigilance. No evidence shows Shoney's failed to become aware of

the hostile environment because of any established policy of

willful blindness;           Shoney's had a general policy against sexual

harassment      and    did    investigate       the    complaints       it    received.

Therefore, we decline to hold that Shoney's constructive knowledge

of the acts of its employees renders it liable in punitive damages

under the Civil Rights Act of 1991.

         And,    we    also    decline     to    hold    that,     in    the     instant

circumstances, the state of mind of the harassing employees counts

as the state of mind of Shoney's, the corporate employer, for

punitive damages purposes.           This decision is consistent with those

of other courts who have overturned a punitive damages award

imposed on an employer for the hostile environment created by an

employee,      when   that     employee's       acts    were     not    authorized     or

approved, implicitly or explicitly, by the company.

       For example, in Patterson v. PHP Healthcare Corp.,                        90 F.3d

927,   943     (5th   Cir.1996),     the    Fifth      Circuit    decided       that   the
harassing employee's "actions may be attributed to PHP Healthcare

for purposes of compensatory damages, given his supervisory role as

project manager."   Id.   Still, the court concluded that punitive

damages could not be assessed against the company.       The Fifth

Circuit announced that it reached this conclusion because the

company did nothing to countenance or approve the harassment:

     All of the discriminatory acts in this case were solely acts
     of Kennedy [the harassing employee].       Kennedy was not a
     corporate officer of PHP Healthcare but was the "project
     manager"....    The record is completely void of evidence
     showing that [PHP] took part in any discriminatory conduct
     much less any "malicious" or "reckless" conduct.           The
     existence of the employment handbook setting forth a policy of
     non-discrimination is at least prima facie evidence of
     awareness on the part of [PHP] of the federally protected
     rights of [the plaintiffs];     and there is nothing in this
     record which purports to show that [PHP] took any action which
     was inconsistent with that policy.       Similarly, there is
     nothing [to] show that [PHP] had knowledge of Kennedy's
     malicious or reckless conduct, or authorized, ratified, or
     approved Kennedy's actions.

Id. at 943;   see also Dombeck, 823 F.Supp. at 1480.   The same can

be said for this case.2   Here, we conclude that Plaintiffs failed

     2
      Some acknowledgment for the conclusion that the harassing
employees' state of mind is not Shoney's state of mind is
provided by the stipulation entered into by Plaintiffs before
trial. There, Plaintiffs agreed, as later recalled in court by
the district judge, that "Mr. Johns and Mr. McClellan [the
higher-ranking of the harassing employees] were both lower
management for Shoney's." Plaintiffs suggest this stipulation
should be ignored "to insure there is a just result." We note,
however, that stipulations are not to be disregarded lightly.
See Laird v. Air Carrier Engine Service, Inc., 263 F.2d 948, 953
(5th Cir.1959) ("Those statements or agreements which dispense
with proof of facts are made with respect to the impending trial
and until withdrawn are not merely evidence as in the case of an
ordinary admission. They are absolutely binding. As long as
they stand, they foreclose the matter altogether.").
Stipulations to pure questions of law are of course not binding
on courts. See Noel Shows, Inc. v. United States, 721 F.2d 327,
330 (11th Cir.1983). The stipulation here may involve a mixed
question of law and fact. But to the extent the stipulation
constitutes a representation of fact on the named employees'
roles in the Shoney's management structure—we believe that is the
to show that Shoney's acted with the state of mind required for the

imposition of punitive damages under section 1981a.

     The decision of the district court is AFFIRMED in part and

REVERSED in part.




substance of it—that representation is not to be disregarded
lightly.
