Cheatham v. Allstate Ins Co ( 2006 )

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT August 24, 2006
_____________________
Charles R. Fulbruge III
No. 05-60424 Clerk
(Summary Calendar)
_____________________
MARTHA A. CHEATHAM; SANDRA R. GILBERT; JOY E. LADD; JOHN MCCOY;
SHERRY L. PARHAM; CAROL D. STEGALL; BETTY M. WELLS; JOHN R.
KITCH; DENISE PEOPLES; MIKEL ANTHONY; JOSEPH E. JOHNSTON,
Plaintiffs - Appellants / Cross - Appellees
v.
ALLSTATE INSURANCE COMPANY,
Defendant - Appellee / Cross - Appellant.
________________________________________
Appeals from the United States District Court
for the Southern District of Mississippi
________________________________________
Before SMITH, GARZA, AND PRADO, Circuit Judges.
PER CURIAM:
Martha A. Cheatham, Sandra R. Gilbert, Joy E. Ladd, John
McCoy, Sherry L. Parham, Carol D. Stegall, Betty M. Wells, John
R. Kitch, Denise Peoples, Mikel Anthony, and Joseph E. Johnston
(collectively, “Appellants”) brought suit against their employer,
Allstate Insurance Company (“Allstate”), for violations of the
Age Discrimination Employment Act of 1967 (“ADEA”), 29 U.S.C. §
621, the Fair Labor Standard Act of 1938 (“FLSA”), 29 U.S.C. §
201, and for intentional infliction of emotional distress under
1
Mississippi law. Appellants appeal from the district court’s
order granting Allstate’s motion for summary judgment on all
three claims. Allstate cross-appeals for costs under Federal
Rule of Civil Procedure 54(d). For the following reasons, we
AFFIRM the district court’s grant of summary judgment on all
three claims. Because the district court did not state its
reasons in ordering each side to pay its own costs, as required
by Federal Rule of Civil Procedure 54(d)(1), we VACATE and REMAND
for the district court for a redetermination of costs.
I. Background
Appellants were managers, claim adjusters, and claims
processors in Allstate’s Jackson, Mississippi office. Allstate
requires that its claims personnel document their claims-handling
activities with regard to adjusting claims in the claim file,
including all communications with insureds and claimants,
interviews of witnesses, and negotiations with claimants and
their attorneys. Among other things, accurate claim file records
enable Allstate to confirm it has complied with state law and
regulations.
In 1995, Allstate adopted a software system called the Claim
Development System (“CDS”). Claims personnel used the system to
document their claims-handling activities and manually enter the
dates on which those activities took place. In 1997, Allstate
implemented an enhanced version of CDS that reflected a computer
generated date in a “footnote,” in addition to the manually
2
entered “headnote” date. While the headnote date would reflect
the date the activity took place, the footnote date would
indicate the date the activity was recorded. Upon completion of
an entry, the employee would press “enter,” at which point the
computer automatically inserts the current date at the bottom of
the screen.
Allstate first learned that the computer-generated footnote
date could be altered while it was preparing its defense in
another lawsuit in Mississippi in spring 2001. During discovery,
Allstate learned that a since-terminated Jackson office employee,
Joan Vines, had learned of a way to alter the footnote by
manually entering a footnote date and then prematurely turning
off the computer before pressing the enter key. The manually
entered footnote date would appear on the screen when rebooting
the computer.1 This process allowed employees to backdate
entries.
After learning that the footnote could be altered, Allstate
put together a multidisciplinary team to conduct a national audit
to determine if other employees were backdating the entries and
to identify these employees and the affected files. During the
investigation, which spanned from September 2001 to February
2002, the team determined that the problem centered in the
1
Allstate terminated Vines after she admitted to altering
footnote dates.
3
Jackson, Mississippi office.2
In April and May 2002, Allstate conducted interviews with
those employees whom it determined had made the alterations.
Cheatham, Gilbert, Kitch, Ladd, McCoy, Peoples, Parham, and
Stegall admitted to making alterations. Anthony denied making
the alterations, but could not offer an alternative explanation.
Johnston admitted he had conversations with some Jackson office
employees regarding the altering of electronic documents. Wells
admitted that she had been shown the process for altering the
date by Vines. Allstate concluded that Wells and Johnston, in
their positions as managers, had knowledge that their employees
were altering the footnote date and took no action to stop it.
Allstate’s in-house counsel Judith Gaston recommended
terminating Appellants for altering company documents, in
violation of the Allstate Code of Ethics, the P-CCSO Code of
Ethics, and the Allstate Human Resources Policy Guide. These
manuals forbid employees from altering company documents,
including electronic documents, and threaten immediate
termination of employees found to have falsified company
2
Allstate identified that there were 6,736 alterations on
2,625 files in which an employee manipulated data in electronic
documents. The audit revealed that Stegall had made 890
alterations on 382 files; Ladd had made 720 alterations on 278
files; Cheatham had made 454 alterations on 236 files; Parham had
made 420 alterations on 156 files; McCoy had made 409 alterations
on 170 files; Peoples had made 357 alterations on 199 files;
Kitch had made 214 alterations on 129 files; Gilbert had made 65
alterations on 38 files; and Anthony had made 9 alterations on 7
files.
4
documents. Allstate terminated Appellants on June 13 and 14,
2002. Those employees who were at work met individually with a
local human resources representative at a hotel conference room,
outside of which an armed security guard was present. Each
Appellant was informed that they were being terminated for a
violation of company policies, and each was not permitted to
return to the office to collect their personal belongings at that
time.
Appellants each filed charges of employment discrimination
with the Equal Employment Opportunity Commission (“EEOC”),
pursuant to 29 U.S.C. § 626(d). Appealing from the district
court’s grant of summary judgment to Allstate, Appellants claim
that (1) Allstate wrongfully terminated them based on their age,
(2) they are entitled to overtime compensation benefits and
damages due to Allstate’s failure to pay those benefits, and (3)
they are entitled to damages for intentional infliction of
emotional distress (“IIED”) as a result of the manner in which
Allstate terminated them.
II. Discussion
We review the grant of a summary judgment motion de novo,
and apply the same standard as the district court. Duffy v.
Leading Edge Prods. Inc., 44 F.3d 308, 312 (5th Cir. 1995); FED.
R. CIV. P. 56. We resolve any factual inferences in favor of
Appellants, the nonmovants, and ask whether Allstate, the movant,
is entitled to judgment as a matter of law. See Degan v. Ford
5
Motor Co., 869 F.2d 889, 892 (5th Cir. 1989). We consider each
claim in turn.
A. Age Discrimination in Employment Act
Appellants challenge Allstate’s reason for terminating them
as pretext, and alternatively argue that age was a motivating
factor behind their terminations. The burden shifting standard
for claims of ADEA violations in the Fifth Circuit is well-
settled. See, e.g., Meinecke v. H&R Block of Houston, 66 F.3d
77, 83 (5th Cir. 1995). First, Appellants must state a prima
facie case of age discrimination. Id. If they succeed, the
burden shifts to Allstate to provide a legitimate,
nondiscriminatory reason for terminating Appellants. Id. If
Allstate satisfies this burden, the burden again shifts to
Appellants to prove that Allstate’s proferred reason was
pretextual. Id. Appellants may also prove that age was a
motivating factor for their terminations. Keelan v. Majesco
Software, Inc., 407 F.3d 332, 340 (5th Cir. 2005). “The
plaintiff retains the ultimate burden of persuasion throughout
the case.” Faruki v. Parsons S.I.P., Inc., 123 F.3d 315, 319
(citing Tex. Dep’t of Cmty. Affairs v. Burdine, 450 U.S. 248, 253
(1981)).
Allstate terminated Appellants after a multidisciplinary
team composed of lawyers, corporation security personnel, and
claims employees completed a nationwide investigation that
revealed that the employees engaged in the practice of altering
6
the footnote date when they entered their activities in the CDS,
or, in the case of Wells and Johnston, they knew of the practice
but did nothing to stop it. Allstate undertook the investigation
because it considered the practice to be a serious threat to the
integrity of its claims files.3
Assuming arguendo that Appellants have established a prima
facie case,4 they have failed to show that Allstate’s legitimate
reason for their terminations is pretexual or that age was a
motivating factor for their terminations. Appellants’ arguments
that Allstate sanctioned the practice fail. First, Appellants’
argument that employees regularly backdated handwritten entries
prior to the implementation of the CDS is irrelevant, as the
computer system was designed to capture the date on which entries
3
Indeed, Allstate was forced to settle the earlier lawsuit,
mentioned supra, after Vines admitted to having altered the
claims files, because the alterations called into question the
integrity of Allstate’s files, not to mention the integrity of
Allstate’s employees.
4
The district court properly dismissed Appellant Ladd on
these grounds because she was thirty-nine years old when she was
terminated, and the ADEA only applies to individuals who are at
least forty years of age. 29 U.S.C. § 631(a). It did not decide
whether Appellant Wells established a prima facie case, where she
was replaced by someone who was “insignificantly” younger,
because it found that Appellants cannot show that Allstate’s
legitimate reason for their termination was merely a pretext for
discrimination. The parties do not dispute that the remaining
Appellants have established a prima facie case.
To establish a prima facie case, each Appellant must show
that: (1) he is a member of a protected class; (2) he was
qualified for the position that he held; (3) he suffered an
adverse employment action; and (4) he was replaced by someone
younger. See Meinecke v. H&R Block of Houston, 66 F.3d 77, 83
(5th Cir. 1995).
7
were actually entered. Second, Appellants’ argument that
Allstate failed to provide written or verbal instructions that
altering the date was against company policy is counterintuitive,
as Allstate did not learn of the practice until Vines described
the procedure in an earlier lawsuit. Third, Appellants’ argument
that Allstate allowed the practice to continue for months after
learning of it is misplaced, as Allstate promptly initiated its
several months long investigation to determine the prevalence of
the problem and what actions it would take in response. Finally,
Appellants are inaccurate in stating that Allstate did not
prosecute Appellants nor report to the Mississippi Insurance
Commissioner or Attorney General that the reason for Appellants’
termination was the falsification of documents, as Allstate has
discretion to determine whether it will seek prosecution in a
given situation, and it did report the transgressions to the
Insurance Commissioner and the Attorney General. Clearly,
Allstate did not sanction the Appellants’ practice.
Appellants also argue that the closing of Allstate’s Little
Rock, Arkansas office in March of 2002 required Allstate to
relocate the younger employees from that office to the Jackson,
Mississippi office. Appellants offer statistics to support their
claim: they assert that prior to their lawsuit, Allstate hired
ten adjusters, eight of whom were under the age of forty, and two
of whom were forty years or older. They claim that after they
filed their lawsuit, Allstate hired four adjusters over the age
8
of forty and seven under the age of forty. These statistics are
not probative of discriminatory intent because they are devoid of
context. See EEOC v. Texas Instruments, 100 F.3d 1173, 1185 (5th
Cir. 1996) (“The probative value of statistical evidence
ultimately depends on all the surrounding facts, circumstances,
and other evidence of discrimination.”)
Appellants further argue that similarly situated younger
employees were treated differently from them. Even if these
employees were younger than Appellants,5 they are not similarly
situated to them: unlike these employees, Appellants engaged in
the systematic practice of altering footnote dates. The audit
revealed that some claims personnel had only altered the footnote
date once, occasions that were attributable to an instance when
Vines showed them how to change the footnote date. These
employees were not terminated because they were not managers and
did not engage in the practice. The audit revealed that a
Colorado employee may have engaged in the practice three times,
but Allstate determined she had inadequate understanding of the
system to have intentionally altered the footnote date.
B. Fair Labor Standards Act
Appellants Anthony, Parham, Peoples, Johnson, Cheatham,
5
At least two of four employees identified by Appellants as
“similarly situated” are in the protected class: Marguerite
Lowery, a Jackson, Mississippi employee, was 41 at the time of
Appellants’ terminations; Renee Honda, the Colorado employee, was
47.
9
McCoy, and Kitch sought overtime compensation from Allstate under
the FLSA for hours worked in excess of forty hours per week. In
granting Allstate’s motion for summary judgment on this claim,
the district court held that these Appellants were employed in an
administrative capacity and thus exempt from 29 U.S.C. §
207(a)(1)’s requirement of overtime compensation for employment
in excess of forty hours.
“The decision ‘whether an employee is exempt under the
[FLSA] is primarily a question of fact which must be reviewed
under the clearly erroneous standard . . . .’” Smith v. City of
Jackson, Miss., 954 F.2d 296, 298 (5th Cir. 1992) (quoting
Blackmon v. Brookshire Grocery Co., 835 F.2d 1135, 1137 (5th Cir.
1988)). However, “[t]he ultimate decision whether an employee is
exempt from the FLSA’s overtime compensation provisions is a
question of law.” Lott v. Howard Wilson Chrysler-Plymouth, 203
F.3d 326, 331 (5th Cir. 2000) (citing Dalheim v. KDFW-TV, 918
F.2d 1220 (5th Cir. 1990)). Thus, we review the district court’s
ultimate conclusion de novo. We construe FLSA exemptions
narrowly; and the burden of proof lies with the employer. Vela
v. City of Houston, 276 F.3d 659, 666 (5th Cir. 2001) (citations
omitted).
The FLSA excludes from the requirement those employees
working in bona fide executive, administrative, or professional
capacities. 29 U.S.C. § 213(a)(1). Because it is undisputed
that Appellants each earned a salary of at least $250 per week,
10
the Department of Labor’s “short test” for determining
administrative employee status applies to Appellants.6 29 C.F.R.
§ 541.214. The district court noted that Appellants admitted in
court that they met part of the test in that their duties
consisted primarily of “office or nonmanual work directly related
to management policies or general business operations of his
employer or his employer’s customers.” See id. However, they
now dispute this. They also contest the district court’s finding
that they exercised discretion and independent judgment in their
6
The FLSA delegates regulation-making to the Department of
Labor. Although the regulations were revised after the pertinent
events occurred, the revision did not change the criteria for the
administrative exemption. The prior regulations are cited by the
parties, and herein, as well.
The “short test” is found within § 541.214. It reads, in
pertinent part:
(a) [Section] 541.2 contains a special proviso including
within the definition of “administrative” an employee who is
compensated on a salary or fee basis at a rate of not less
than $250 per week exclusive of board, lodging, or other
facilities, and whose primary duty consists of either the
performance of office or nonmanual work directly related to
management policies or general business operations of the
employer or the employer’s customers, or the performance of
functions in the administration of a school system, or
educational establishment or institution, or of a department
or subdivision thereof, in work directly related to the
academic instruction or training carried on therein, where
the performance of such primary duty includes work requiring
the exercise of discretion and independent judgment. Such a
highly paid employee having such work as his or her primary
duty is deemed to meet all the requirements in § 541.2(a)
through (e). If an employee qualifies for exemption under
this proviso, it is not necessary to test the employee’s
qualification in detail under § 541.2(a) through (e).
29 C.F.R § 541.214.
11
respective positions. See id.
We find that the district court’s findings are not clearly
erroneous. The district court gathered historical facts, see
Dalheim, 918 F.2d at 1226, that is, how the employees spent their
working time, Bratt v. City of Los Angeles, 912 F.2d 1066, 1068
(9th Cir. 1990), from Appellants’ depositions. It noted that,
although Appellants had different job titles, they were all
adjusters who handled liability claims for bodily injury and
damage to property, and that Appellants seemed to agree that the
work performed by each was substantially the same. The district
court organized Appellants’ duties into several categories.7
Next, the district court made findings “based on inferences
drawn from historical facts, such as whether a particular job
required ‘skill and initiative’ . . . .” Dalheim, 918 F.2d at
7
These categories include: (1) setting and/or adjusting
reserves based upon the adjuster’s preliminary evaluation of the
case, (2) investigating issues that relate to coverage and
determining the steps necessary to complete a coverage
investigation, (3) determining whether coverage should be
approved or denied, with only denials of coverage subject to
supervisory approval, (4) conducting investigation to determine
liability, including making credibility determinations regarding
interviewees, (5) consulting local traffic and negligence laws
and applying those laws to the facts of the claim to determine
who was at fault, (6) determining whether a claim has subrogation
potential, (7) identifying underwriting risks, (8) identifying
potentially fraudulent claims, (9) determining liability and
apportioning fault to parties in comparative negligence cases,
(10) determining the value of claims based upon many factors such
as the claimant’s credibility, age, gender, together with any
physical injury or property damage, the reputation of the
attorney representing the claimant, litigation costs, and venue,
and (11) negotiating final settlement with the claimant(s)
attorney that was binding upon Allstate.
12
1226. The district court was correct in concluding that these
categorized duties constitute Allstate’s administrative
operations; they directly relate to Allstate’s management
policies or general business operations, as distinguished from
production. See 29 C.F.R. § 541.205(a). An insurance company’s
product is its policies, and Appellants’ duties did not include
writing and selling insurance. See Reich v. John Alden Life Ins.
Co., 126 F.3d 1, 9 (1st Cir. 1997). Indeed, as insurance company
adjusters, Appellants advised the management, represented
Allstate, and negotiated on Allstate’s behalf; these duties are
administrative in nature. See 29 C.F.R. § 541.205(b) (defining
“administrative operations”); Op. Dep’t of Labor FLSA2002-11.
Second, despite Appellants’ claim that since Allstate
implemented a new system of practices and procedures called “Core
Claim Process Redesign” (“CCPR”) they no longer exercised
independent judgment, the district court determined that their
job duties undoubtedly required independent judgment because they
considered and evaluated alternative courses of conduct and took
action or made a decision after considering the various
possibilities. See 29 C.F.R. § 541.207(a). Appellants claim
that CCPR relegated them to nothing more than data input clerks.
Specifically, they state that they are checked in their
determination of liability by having to adhere to a liability
matrix, that they are limited in their ability to negotiate by
having to adhere to computer software and the CCPR manual, that
13
they may not set reserves without consulting with a computer
program, and that they must seek approval before settling a
claim.
We are unpersuaded by these arguments. As correctly
determined by the district court, the requirement that Allstate
adjusters must consult with manuals or guidelines does not
preclude their exercise of discretion and independent judgment.
See McAllister v. Transamerica Occidental Life Ins. Co., 325 F.3d
997, 1001 (8th Cir. 2003). In addition, “[t]he decision made as
a result of the exercise of discretion and independent judgment
may consist of recommendations for action rather than the actual
taking of action.” 29 C.F.R. § 541.207(e)(1). The district
court determined that, in seeking approval, Appellants were
expected to make a recommendation based on their experience and
knowledge of the case and to explain their reasons for
recommendation. Appellants exercised discretion in determining
coverage, conducting investigations, determining liability and
assigning percentages of fault to parties, evaluating bodily
injuries, negotiating a final settlement, setting and adjusting
reserves based upon a preliminary evaluation of the case,
investigating issues that relate to coverage and determining the
steps necessary to complete a coverage investigation, and
determining whether coverage should be approved or denied. The
district court correctly determined that Appellants exercised
independent judgment as Allstate adjusters.
14
The facts establish that Appellants’ duties were directly
related to and were important to Allstate’s management policies
and its general business operations, and required Appellants’
exercise of discretion and independent judgment. Appellants
qualify for the administrative exemption. Thus, they are not
entitled to overtime compensation.
C. Intentional Infliction of Emotional Distress
Under Mississippi law, the standard for IIED “is very high:
the defendant’s conduct must be ‘wanton and wilful and [such
that] it would evoke outrage or revulsion.’” Hatley v. Hilton
Hotels Corp., 308 F.3d 473, 476 (5th Cir. 2002) (quoting Leaf
River Forest Prods., Inc. v. Ferguson, 662 So. 2d 648, 659 (Miss.
1995)). “A Mississippi federal court defined the necessary
severity as acts so outrageous in character, and so extreme in
degree, as to go beyond all possible bounds of decency, and to be
regarded as atrocious, and utterly intolerable in a civilized
community.” Speed v. Scott, 787 So. 2d 626, 630 (Miss. 2001).
Employment disputes do not ordinarily sustain claims for IIED.
Pegues v. Emerson Elec. Co., 913 F. Supp. 976, 982-83 (N.D. Miss.
1996) (“Recognition of a cause of action for [IIED] in a
workplace environment has usually been limited to cases involving
a pattern of deliberate, repeated harassment over a period of
time.”) (citations omitted)).
Appellants point to the following facts surrounding their
terminations in asserting their IIED claim: Allstate hired an
15
armed security guard to be present outside the hotel conference
room where Appellants were terminated; they were spoken to in a
disrespectful tone; they were not immediately allowed to retrieve
their belongings; an Allstate employee told another insurance
company about the firings; and yet another Allstate employee told
an attorney about the firings. We find that Allstate’s actions
do not rise to the level of outrageous conduct. Although
Appellants maintain that they were wrongfully accused of
falsifying company documents, the facts belie their belief.
Their claim for IIED cannot stand.
D. Cross Appeal on Rule 54(d)
Rule 54(d)(1) of the Federal Rules of Civil Procedure
provides that “costs, other than attorneys’ fees shall be allowed
as of course to the prevailing party unless the district court
otherwise directs . . . .” FED. R. CIV. P. 54(d)(1). We review
the district court’s denial of the award for abuse of discretion.
Schwarz v. Folloder, 767 F.2d 125, 131 (5th Cir. 1985).
There is a strong presumption under Rule 54(d)(1) that the
prevailing party will be awarded costs. Id. at 131 (citing Delta
Air Lines, Inc. v. August, 450 U.S. 346, 352 (1981)). Thus, when
a trial court denies costs, “‘it should state reasons for its
decision.’” Id. (quoting Walters Roadway Express, Inc., 557 F.2d
521 (5th Cir. 1977)). The district court failed to state a
reason for its decision to upset Rule 54(d)’s presumption.
III. Conclusion
16
We AFFIRM the district court’s grant of summary judgment on
all three claims. We VACATE and REMAND solely for a
redetermination of whether costs should be awarded to Allstate.
17