Cruz v. Farmers Ins. Exch.

• Decision Date: 03 August 2022
• Docket Number: 21-1069
• Citation: 42 F.4th 1205
• Parties: Michael CRUZ, Plaintiff - Appellant, v. FARMERS INSURANCE EXCHANGE ; Truck Insurance Exchange; Fire Insurance Exchange; Mid-Century Insurance Company; Farmers New World Life Insurance Company, Defendants - Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

42 F.4th 1205

Michael CRUZ, Plaintiff - Appellant,

v.FARMERS INSURANCE EXCHANGE ; Truck Insurance Exchange; Fire Insurance Exchange; Mid-Century Insurance Company; Farmers New World Life Insurance Company, Defendants - Appellees.

No. 21-1069

United States Court of Appeals, Tenth Circuit.

FILED August 3, 2022

Ralph E. Lamar, Allentown, Pennsylvania, for Plaintiff-Appellant.

James R. Holland, II, (Laura Bailey Brown of Fisher & Phillips, LLP, with him on the brief), Kansas City, Missouri, for Defendants-Appellees.

Before MORITZ, KELLY, and BRISCOE, Circuit Judges.

MORITZ, Circuit Judge.

Michael Cruz sued defendants alleging that they terminated his contract, under which he sold defendants’ insurance products, on the basis of race, in violation of 42 U.S.C. § 1981. In support, Cruz relied on a statement allegedly made by his district manager, which Cruz argued represented direct evidence of discrimination, as well as circumstantial evidence. The district court granted summary judgment to defendants, ruling that the district manager's statement was inadmissible hearsay and that Cruz's circumstantial evidence did not otherwise demonstrate discriminatory intent. Without considering Cruz's circumstantial evidence, we reverse because the district manager's alleged comment was not inadmissible hearsay; it was admissible under Federal Rule of Evidence 801(d)(2)(D) as a party-opponent admission made by an agent within the scope of the agency relationship. And because that admission constitutes direct evidence of discrimination, it precludes summary judgment for defendants.

Background

Cruz, a Hispanic man of Mexican-American heritage, brought this action against Farmers Insurance Exchange, Truck Insurance Exchange, Fire Insurance Exchange, Mid-Century Insurance Company, and Farmers New World Life Insurance Company (collectively, Farmers). For over 30 years, Cruz sold Farmers insurance policies as an independent contractor under an Agency Appointment Agreement, which we refer to here simply as the contract. Although Farmers classifies insurance agents as independent contractors, it maintains a hierarchy of managers who are responsible for certain geographic regions: Territory managers oversee area sales managers. And area sales managers oversee district managers, who in turn oversee insurance agents within their divisions. Farmers classifies district managers as independent contractors, but area sales managers and territory managers are employees.

The events leading to Cruz's lawsuit began in January 2017 when Dan French, a local resident, called Cruz's office and asked to be removed from Farmers’ mailing list. According to Cruz, French was rude and disrespectful, leading Cruz to hang up the phone. French called back, and Cruz hung up again. After the calls, French located Roy Smith, a top Farmers executive, on LinkedIn and messaged him to complain that Cruz was unprofessional. Smith forwarded the complaint, which was eventually sent to Todd Brooks, a territory manager. Brooks asked Curt Elsbury, an area sales manager, and Clint Sales, a district manager, to investigate and resolve the issue. To begin the investigation, Sales emailed Cruz to arrange a phone call to discuss the incident. Sales stated in his email that he would need to report back to Brooks the next morning.

Meanwhile, French called back a third time when Cruz was out of the office. This time, French spoke to Kandace Diekman, Cruz's wife and office assistant. According to Diekman, French was "raging," "belligerent," and "screaming." App. vol. 2, 242, 244. She testified that French said, "I've already called twice, and nobody's helping me stop this mail, and being as you're not going to fix it, I'm going to come down to the office and fix it." Id. at 242. Diekman hung up after French called her profane names and refused to calm down.

Shortly after, Diekman called Sales to inform him about the call. Sales asked Diekman to send him an email describing what happened. Relevant to this appeal, Diekman wrote the following sentence at the end of the email: "I'm not afraid[,] and we are going to be open[;] I carry[,] and if I feel threatened[,] I will blow a hole in him the size of Uganda."¹ Id. at 285.

Sales continued to investigate, asking Cruz and Diekman to send a timeline of events and telling them he would need to send the information to the territory office. Cruz provided Sales with a timeline, and Sales spoke with Cruz and Diekman multiple times regarding the incident. Based on the information Sales gathered, he emailed Brooks and Elsbury to summarize the incident.

Elsbury then sent Cruz a letter outlining Sales's investigation into the French complaint. Elsbury stated that the territory office had reached out to French, listened to his perspective on the incident, and resolved the issue by removing French from Farmers’ mailing list. Although Elsbury acknowledged Cruz's position on the issue, as relayed by Sales, Elsbury nevertheless cautioned Cruz to maintain professionalism and uphold the Farmers brand. Elsbury concluded by stating, "No further actions will be taken at this time, but I do want to remind you that any further incidents could jeopardize your [contract]." Id. at 286.

As it turned out, that was not the end of the matter. Farmers contends that when Elsbury said no further action would be taken, Brooks and Chara Kautz, a territory agency manager who reported to Brooks, were unaware of Diekman's email. After Brooks and Kautz learned about the email about a month or two later, they "re[ ]opened the matter to determine if further action was warranted." App. vol. 4, 622.

Based on this reopening, Elsbury informed Sales that Farmers was considering terminating Cruz's contract. According to Sales, Elsbury instructed him to contact Cruz's office to let him know that Farmers was considering terminating the contract and to schedule an appointment between Elsbury and Cruz. The same day, Sales called Cruz's office and spoke to Diekman. Diekman testified that Sales said, "I don't even know how to tell you this. I've been on the phone this morning with [Elsbury], and they want to terminate [Cruz's] contract." App. vol. 2, 246. Diekman asked for more detail and, according to her, Sales responded, "[I]t comes down to[,] they don't want a brown man running around—some crazy brown man running around with a gun."² Id. at 246–47.

Two days later, Sales asked Elsbury for an update by email, and Elsbury replied that Farmers was "re[ ]reviewing the situation between [Cruz] and [French]." Id. at 273. Sales forwarded this update to Cruz.

Shortly thereafter, Elsbury sent a memorandum to Kautz recommending that Farmers terminate the contract. Elsbury referenced Sales's investigation, citing the French incident and Diekman's email as grounds for termination. According to Elsbury, Cruz breached the contract's requirement that agents "conform to normal good business practice." Id. at 275 (quoting id. at 259). The memorandum also stated that Elsbury had reviewed Cruz's file and there were "other previous happenings" demonstrating a pattern of behavior supporting Elsbury's recommendation. Id. Elsbury attached a memorandum from Cruz's file indicating that Cruz had been accused more than seven years earlier of using inappropriate language and threatening a claims adjuster. Kautz forwarded Elsbury's recommendation to Bob Anderson, a high-level manager located in the home office, who responded that the home office approved the termination.

After receiving a termination notice, Cruz appealed the decision through an internal review board, which upheld the termination. Cruz later filed this action alleging that Farmers terminated the contract based on race, in violation of § 1981.³

Farmers moved for summary judgment, which the district court (a magistrate judge proceeding by consent of the parties) granted. The district court held that Cruz's alleged direct evidence of discrimination—the "brown-man" comment relayed to Diekman by Sales—was inadmissible hearsay. The district court also held that Cruz had otherwise failed, on the basis of circumstantial evidence, to meet his burden to show that Farmers’ proffered nondiscriminatory reason for terminating the contract (Cruz's alleged breach for "failing to conform to normal good business practice") was pretext for discrimination. Id. at 317.

Cruz appeals.

Analysis

We generally review an order granting summary judgment de novo, viewing the evidence and drawing all reasonable inferences therefrom in the light most favorable to the nonmoving party. See Fassbender v. Correct Care Sols., LLC , 890 F.3d 875, 882 (10th Cir. 2018). But when, as here, a party challenges the district court's underlying decision to exclude evidence at the summary-judgment stage, we review that underlying decision for abuse of discretion. Doe v. Univ. of Denver , 952 F.3d 1182, 1191 (10th Cir. 2020). "A district court abuses its discretion where it commits a legal error or relies on clearly erroneous factual findings, or where there is no rational basis in the evidence for its ruling." Trentadue v. F.B.I. , 572 F.3d 794, 806 (10th Cir. 2009) (quoting Breaux v. Am. Fam. Mut. Ins. Co. , 554 F.3d 854, 866 (10th Cir. 2009) ). Summary judgment is warranted when "there is no genuine dispute as to any material fact" and the moving party "is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). A genuine factual dispute exists only if, from the evidence presented, a rational jury could find in the nonmoving party's favor. See Fassbender , 890 F.3d at 882.

This summary-judgment appeal involves Cruz's § 1981 claim. Section 1981 guarantees that "[a]ll persons ... shall have the same right ... to make and enforce contracts ... as is enjoyed by white citizens." § 1981(a). As relevant here, "the term ‘make and enforce contracts’ includes ... termination of contracts[ ] and the enjoyment of all benefits, privileges, terms, and conditions of the contractual relationship." § 1981(b). To...