Court Opinion

ID: 45833
Source: CourtListenerOpinion
Date Created: 2010-04-25 22:45:35+00
Date Added: 2024-06-11T09:01:10.639385
License: Public Domain

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
                      No. 2:02-CV-893EEF-JCW
            ________________________________________

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, 29 U.S.C. § 621, the

     *
       Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.

                                   1
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

to 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

                                 2
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

     1
       Allstate terminated Vines after she admitted to altering
footnote dates.

                                   3
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 who 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

     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
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 he or she was being terminated for a

violation of company policies, and each was not permitted to

return to the office to collect his or her personal belongings at

that time.

     Appellants each filed charges of employment discrimination

with the 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, (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 (DOL) “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

                                 13
having to adhere to computer software and the CCPR manual, that

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(a).   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 (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