Cheatham v. Allstate Ins. Co.

• Decision Date: 24 August 2006
• Docket Number: No. 05-60424.,05-60424.
• Parties: 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.
• Court: U.S. Court of Appeals — Fifth Circuit

465 F.3d 578

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.

No. 05-60424. Summary Calendar.

United States Court of Appeals, Fifth Circuit.

August 24, 2006.

Mariano Javier Barvie, Alben N. Hopkins, Alben Norris Hopkins, Jr., Hopkins, Barvie & Hopkins, Gulfport, MS, for Plaintiffs-Appellants/Cross-Appellees.

Albert L. Vreeland, II, Lehr, Middlebrooks, Price & Vreeland, Birmingham, AL, for Allstate Ins. Co.

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 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 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 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 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 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 proffered 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, 101 S.Ct. 1089, 67 L.Ed.2d 207 (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 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 pretextual 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 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...