Finch v. Hercules Inc.

• Decision Date: 02 September 1994
• Docket Number: Civ. A. No. 92-251 MMS.
• Parties: David G. FINCH, Plaintiff, v. HERCULES INCORPORATED, Defendant.
• Court: U.S. District Court — District of Delaware

865 F. Supp. 1104

David G. FINCH, Plaintiff, v. HERCULES INCORPORATED, Defendant.

Civ. A. No. 92-251 MMS.

United States District Court, D. Delaware.

September 2, 1994.

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Richard G. Elliott, Jr., Helen M. Richards, Richards, Layton & Finger, Wilmington, DE, for plaintiff.

Sheldon N. Sandler, Bhavana Sontakay, Young, Conaway, Stargatt & Taylor, Wilmington, DE, for defendant.

OPINION

MURRAY M. SCHWARTZ, Senior District Judge.

Plaintiff David G. Finch has filed suit against defendant Hercules Incorporated, alleging he was discriminated against because of his age in violation of the Age Discrimination in Employment Act "ADEA", 29 U.S.C. § 621-34.¹ Finch contends Hercules discriminated against him when it terminated his position following a reduction in force at corporate headquarters. In response to Finch's claim of disparate treatment under the ADEA, Hercules moved for summary judgment. Docket Item "D.I." 117.

Prior to oral argument on Hercules' motion for summary judgment, Finch moved the Court allow him to amend his complaint to allege a claim of disparate impact under the ADEA. D.I. 147. The Court reserved decision on Hercules' motion for summary judgment, but granted Finch leave to amend the complaint and extended the discovery deadline, solely as to the issue of disparate impact. Hercules then moved for partial summary judgment on Finch's claim of disparate impact. D.I. 166. On August 18, 1994, the Court entertained oral argument on Hercules' motion.

For the reasons which follow, the Court will deny Hercules' motion for summary judgment on Finch's disparate treatment claim and grant Hercules' motion for summary judgment on Finch's claim of disparate impact.

I. FACTUAL BACKGROUND

Hercules hired Finch in 1962 as a Systems Analyst. In 1974, he became Financial Director of Hercules' Organics Department and was later promoted to manager of the financial analysts for all Hercules' business groups. D.I. 121 at B45-50. From 1980 until his termination, Finch held the position of General Auditor at Hercules. D.I. 119 at A102. As General Auditor, Finch reported to the Audit Committee² of the Board of Directors and Arden B. Engebretsen, Hercules' Chief Financial Officer. D.I. 121 at B50-51.

In the mid 1980's, responding to its declining economic performance, Hercules began a program of restructuring, including several employee reductions in force "RIFs". D.I. 119 at A15. Hercules lowered its total employment from approximately 25,450 employees in January 1985 to approximately 17,300 employees in January 1991. D.I. 121 at B388-89.

In 1988, David Hollingsworth, Hercules' Chief Executive Officer "CEO" at that time, appointed Vice President of Operations Support James D. Beach, Jr. to address a perceived staff imbalance between Hercules' headquarters and its other locations. D.I. 119 at A227, A270-71. Beach hired the accounting firm of Coopers & Lybrand "C & L", Hercules' outside auditors, to study staff functions and make recommendations for improvements. Beach then hired Thomas S. Litras to help implement C & L's recommendations, the Indirect Productivity Improvement "IPI" study. Id. at A11, A203-04, A480-84. Among other things, the IPI study indicated Hercules needed a more proactive, involved audit department.³ Id. at A485-86.

Titan Missile Problems

In late 1989, Hercules was forced to take a $300 million write-off because of a cost overrun at its Titan IV missile plant in Bacchus, Utah. Id. at A55-56, A322. The costs for the Titan were spread over two contracts: a quality development contract which Hercules had, and a production contract it hoped to secure. D.I. 121 at B42-43. According to Arthur C. Nielsen, Jr., the former Chairman of Hercules' Audit Committee, this accounting treatment was proper, so long as Hercules would realize a profit from the two contracts together. Id. at B139-43. Likewise, both Engebretsen and Francis J. Van Kirk of C & L stated internal audit could not have discovered the Titan problem earlier and was not responsible for the write-off. Id. at B37, B165, B446-61.

Defendant, however, contends this write-off led to the first annual loss in Hercules' history and created a "great uproar" among members of the Audit Committee. D.I. 118 at 9; D.I. 119 at A56-57, A408-09. The Titan cost overrun led to heightened scrutiny of financial areas of the company, with some members of Hercules' Board of Directors concluding Hercules needed higher quality senior management in internal audit. D.I. 119 at A57-59, A64-65, A408-09.

The 1991 Reduction In Force

In September 1990, Hercules determined it needed to make additional reductions in its workforce to lower its indirect costs. D.I. 121 at B310. As part of a planned 1991 RIF, Litras conducted a demographic study of Hercules' corporate headquarters. This study compared the number of employees before the RIF who were under forty years of age and over forty years of age, and the number under fifty and over fifty, with the projected numbers after the proposed RIF. Id. at B276-77. In implementing the RIF, Hercules created a policy designed to retain better employees and avoid discrimination. Hercules also created a Policy Compliance Committee "PCC", which was intended to assure both compliance with the law and the retention of qualified personnel. D.I. 119 at A23, A61, A165-67, A193-94, A475. The PCC had authority to approve all RIF decisions, but could not order corporate restructuring or elimination of positions. D.I. 119 at A22, A471; D.I. 121 at B305.

Litras also helped Hercules identify positions which could be eliminated and met with the managers of each Hercules' unit to agree upon a number of persons to be eliminated through the RIF. D.I. 119 at A230. He then published a list for each department of the agreed number, the number he recommended, and a "stretch number" that Litras thought was the outside limit for a feasible RIF. Id. at A235-A235-1.

Litras contended the performance appraisal process then in use at Hercules was not helpful in determining which individuals should be terminated through the proposed RIF. D.I. 121 at B313. As a result, he proposed a process of forced ranking and paired comparison by which employees would be grouped into functional categories and then ranked against each other.⁴ Starting from the bottom of the list, Hercules would terminate lower ranked employees in the RIF. Id. at B9, B369-71. In ranking employees, Litras proposed considering "performance, education, versatility, flexibility, and continuous service. Age to be the last factor considered, and then only if a `tie-breaker' is required." D.I. 119 at A488 (emphasis in original). If there was a tie, Hercules was to retain the older employee. Id. at A217-18. Job performance was to be measured through the performance appraisal system and dialogue with the supervisor. D.I. 121 at B6.

Gossage Becomes Hercules' Chief Executive Officer (CEO)

In late 1990, CEO David Hollingsworth announced his plans to retire. In its search for a replacement, Hercules' Board of Directors interviewed Thomas L. Gossage, the president of a Hercules' subsidiary, Aqualon. D.I. 119 at A263, A398. During the interview process, Gossage informed the Board that the financial side of the company, including the Audit Department, was weak and that as CEO, he would downsize and cut expenses. Id. at A64, A268-69, A292, A296.

After being selected as Hercules' new CEO, Gossage instructed Beach to proceed with the planned RIF based on Litras' stretch number. Id. at A14-15, A270. Finch's position, General Auditor, was not identified in Litras' January 4, 1991 report as a position to be eliminated in the RIF.⁵ D.I. 121 at B312-15. Gossage asserts that other than approving the adoption of the stretch number, he had minimal involvement in the RIF. D.I. 119 at A273; see D.I. 159 Ex. 1 at 60 (other than approving its costs and terms, Gossage was not involved in the RIF process). In December 1990, Hercules placed the estimated cost of the RIF, $17,000,000, on its corporate books. Id. at A272, A298.

Plaintiff has proffered statements Gossage made during an interview with a local newspaper as evidence of age bias at Hercules. The article quotes Gossage as saying:

The young people in the company want us to bring Hercules back to where it ought to be again.... Older people will see friends impacted and will feel bad about it. But we'll get this behind us.

Id. at A539; D.I. 121 at B327. Gossage subsequently stated that the article "captures the spirit of what I said, at least, if it's not a direct quote." D.I. 121 at B71. Likewise, at a Hercules' question and answer session, an employee asked Gossage to explain his statement to the local newspaper. He responded that:

What I said was that younger employees want to know when the company will get up and turn itself around, and I acknowledged that to those with long service to the company, it was painful to watch what was going on. I'd say it again.

Id. at B288. Defendant contends plaintiff has taken these statements out of context because they refer to Hercules' voluntary early retirement program. The reference to "older people," according to defendant, merely indicates more senior employees would qualify for the early retirement program. D.I. 118 at 47.

Promotions and Succession Planning

To further support his claim that Gossage was motivated by age bias, Finch has proffered deposition testimony of William E. Hosker and C. Doyle Miller. In January 1992, Hosker, the head of Hercules' Resins Group, asked to meet with Gossage to find out why he had not been promoted to Group Vice President. D.I. 158 Exhibit "Ex." 1 at 19. According to Hosker, Gossage informed him that he had promised the Board of Directors that Hercules would have a cadre of trained people in their early 50s as CEO candidates by the time Gossage retired.⁶ Hosker also stated...