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This section contains the nature of the case and procedural background.

P was hired by D and worked as a test engineer in the company's defense systems department where she wrote and revised procedures used for testing of the payload system on highly classified items. P learned that her immediate supervisor, Richard Turner, had given her a low ranking for layoff purposes. P filed an ethics complaint alleging Ronald Bills, her second-level supervisor, had engaged in favoritism toward male employees by treating them more favorably with respect to overtime pay, and that Bills engaged in discriminatory, gender-related promotional practices. Bills resigned, and Turner was removed from his supervisory position. Shupe, the new manager, informed P that she would be laid off. P filed a charge with the Equal Employment Opportunity Commission (EEOC) alleging sex discrimination and retaliation, and the EEOC issued her a notice of right to sue. P filed this action. In 1997, P learned of job openings in the test engineering area in D. P met with Gary Mueller, the technical staffing manager for the test department, but he informed her that Shupe had given him a new organizational chart and stated he did not intend to fill the open positions in test engineering. P contacted Wayne Scott about available test conductor positions. Scott informed P he would discuss the possibility of her filling one of the positions with other management employees, but later told her she would not receive a job offer. P amended her complaint to include another retaliation claim based on D's refusal to rehire her. A jury trial resulted in a verdict in favor of D on the first discrimination and retaliation claims, but in favor of P on the latter claim. The court awarded P compensatory damages of $50,000 and punitive damages of $200,000, and further entered judgment in favor of P for back pay of $112,800, front pay of $36,000, and attorney fees of $65,610, plus pre-judgment and post-judgment interest. D appealed. D contends the district court erred in not allowing D to present a good faith compliance defense with Title VII. D's newly-proposed affirmative defense was based on the recent decision in Kolstad.

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