Dawn Lui has worked for USPS since 1992 and served as Postmaster of the Shelton, Washington post office beginning in 2014. On October 28, 2019, Seattle district post office manager Carter Clark issued her a notice of proposed downgrade from a level 21 postmaster in Shelton to a level 18 postmaster in Roy, Washington, citing three grounds: an improper compensation arrangement with a rural carrier; an incident in which she allegedly threw a clipboard and kicked packages; and improperly inviting an employee's husband into an employee-only area of the workplace to investigate his claim that another employee had sexually harassed his wife. On February 11, 2020, Tacoma postmaster Karen Bacon affirmed the downgrade on the first two grounds. After the Merit Systems Protection Board also affirmed the demotion, Lui sued Postmaster General Louis DeJoy under Title VII and the ADEA, alleging disparate treatment, hostile work environment, and retaliation.
The case has a prior appellate history. The district court initially dismissed Lui's hostile-work-environment claim in 2023 for failure to exhaust administrative remedies, concluding she had not timely notified an EEO counselor within 45 days of any discriminatory act forming the basis of her claim. The Ninth Circuit vacated that ruling in Lui v. DeJoy, 129 F.4th 770 (9th Cir. 2025), holding that the notice of proposed downgrade could be considered the culmination of the alleged conduct underlying the claim and that Lui had therefore exhausted her remedies. The Ninth Circuit also reversed dismissal of the disparate treatment claim, holding that the circumstances surrounding Lui's demotion — including her replacement by a white man — support an inference of discrimination. It affirmed dismissal of the retaliation claim.
On remand, Judge Benjamin H. Settle denied DeJoy's second motion for summary judgment on the hostile-work-environment claim. DeJoy argued that Lui offered only vague allegations and what he characterized as personal beliefs that employees targeted her because of her protected-class membership, and that she was downgraded for legitimate nondiscriminatory reasons. The court disagreed.
The order points to deposition testimony from Lui and her supervisor Roberts as the core of the factual dispute. Lui testified that Roberts told her employees had called her "gay," "too Chinese," referred to her as an "Asian bitch" and "witch," and said they did not "want an Asian Postmaster in Shelton." Roberts himself testified that employees asked whether he was married to Lui or engaged in a sexual relationship with her because they knew he was married to an Asian woman. Lui also testified that the USPS Acting District Manager told her that based on her race she should work on her communication skills, and that the investigator assigned to her misconduct complaints subjected her to a humiliating interview that she attributed to racial animus.
The court concluded that a reasonable juror could find the entire investigatory process was tainted by discriminatory bias, particularly because the derogatory comments came not only from subordinates but also from the investigator, Lui's immediate supervisor, and the acting district manager. The court further concluded that a reasonable juror could find the conduct sufficiently severe or pervasive given that it resulted in actual employment consequences — changes to job responsibilities, multiple reassignments, and the eventual downgrade. The case proceeds toward trial on the hostile-work-environment and disparate-treatment claims.