Rivera et al v. Greffin et al
Filing
361
Opinion and Order Signed by the Honorable William T. Hart on 1/20/2017.Mailed notice(clw, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
DANIEL RIVERA, STEPHEN
KENSINGER, DEBORAH JOY
MEACOCK, and REBECCA
SCHEUNEMAN,
Plaintiffs,
v.
ALLSTATE INSURANCE COMPANY,
Defendant.
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Case No. 10 C 1733
OPINION AND ORDER
Before the court are post-trial motions after the return of jury verdicts
totaling $27,114,848 in favor of four plaintiffs based on claims of defamation and
violations of the Fair Credit Reporting Act ("FCA"),15 U.S.C. § 1681a(y)(2).
Jurisdiction of the court is based on the FCA. The defamation claims are
governed by Illinois law.
Plaintiffs Daniel Rivera, Stephen Kensinger, Deborah Meacock, and
Rebecca Scheuneman, formerly employed by defendant Allstate Insurance
Company ("Allstate") as professional security analysts, each claim that Allstate
made false statements in a 10-K public report to the Securities and Exchange
Commission and in a memorandum issued to its employees. Each plaintiff also
claims that Allstate violated the FCA by failing to provide a summary of the
communication on which it based its decision to terminate each of them for
violation of its code of ethics.
A tortuous interference claim was previously dismissed. See Rivera v.
Allstate Ins. Co., 2010 WL 4024873 (N.D. Ill. Oct. 13, 2010) (Grady, J.).
Plaintiffs voluntarily dismissed claims against defendant Judy Greffin and
dismissed an age discrimination claim against Allstate. Defendant's subsequent
motion for summary judgment was denied. Rivera v. Allstate Ins. Co., 140 F.
Supp. 3d 722 (N.D. Ill. 2015) (Feinerman, J.).
The jury was instructed1 with respect to the defamation claims that each
plaintiff was required to prove that any published statement identified and
pertained to such plaintiff. In recognition of Allstate’s qualified privilege of
publication, the jury was instructed that malice--defined as with knowledge that
the statement was false or in reckless disregard of whether it was false--must be
1
The jury instructions are Entry 303 on the docket.
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proven by clear and convincing evidence. Because the case was submitted as per
quod claims, plaintiffs were required to prove actual damages.
Also, the jury was instructed that to prove a violation of the FCA, each
plaintiff was required to prove that, at the time of termination, Allstate, "having
received a communication in connection with an investigation of suspected
misconduct relating to employment," "failed to disclose the nature and substance
of the communication" when each plaintiff was fired. The jury was told that to
award statutory damages, the failure must be found to be willful.
The motions before the court are Allstate's motions for judgment as a
matter of law, or for a new trial and for a remittitur. Plaintiffs' motions, pursuant
to the FCRA, are for punitive damages and for attorney fees.
The Evidence
Allstate is engaged in the property, casualty, life insurance, retirement
and investment products business. It is the second largest company in the United
States engaging in such business, having assets in excess of $132 billion.
Plaintiffs are professional security analysts who were employed as buy-side
portfolio managers in the equity division of the Allstate investment department.
During the relevant time period, the equity division was managing and investing
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approximately $10 billion in capital-growth and capital-value portfolios, including
two pension security portfolios.
Each of the plaintiffs has attained a C.F.A. designation, Chartered
Financial Analyst or Charterholder. All of the plaintiffs have undergraduate
degrees and each, other than Deborah Meacock, has an M.B.A. degree. Stephen
Kensington is also a C.P.A. and a Certified Market Technician. According to the
C.F.A. Society, which gathers such information, plaintiffs were compensated in
the top quadrille of professional security analysts.
Daniel Rivera joined Allstate in 2004. At the time of his termination, he
was managing director of the 19-employee equity division and reported to Judy
Greffin, Allstate's chief investment officer. Rebecca Scheuneman joined Allstate
in 1999. She became an equity portfolio manager and was assigned to the growth
team. Deborah Meacock joined Allstate in 2006. At the time of her termination,
she was a senior equity portfolio manager on the growth team. Stephen Kensinger
joined Allstate in 2007. At the time of his termination, he was an equity portfolio
manager on the growth team.
Plaintiffs were paid an annual salary and eligible to earn additional
bonus compensation under Allstate’s "pay-for-performance" plan. Rivera and
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Scheuneman earned a bonus in 2005, 2006, and 2007; Meacock in 2006 and 2007;
and Kensinger in 2007. The plan included a cap. In certain years the bonuses also
included a subjective amount, at the discretion of senior management. All payfor-performance compensation was suspended in 2008. Bonuses were
discretionary in that year. Starting in 2009, Allstate changed its pay-forperformance measure from a relative return to an absolute return on portfolio
values.
In June 2009, Allstate's chief risk and investment compliance officer
received an anonymous report that equity division employees might be timing
trades to inflate their bonuses. Suspicions focused on an algorithm called the
"Dietz method," which had been used by Allstate since the mid-1990s to estimate
daily portfolio returns. Owners of security portfolios that have multiple daily cash
flows use this formula because it is impractical to use a true time-weighted return
to recalculate a portfolio's value when there is a high volume of cash flows.2 The
formula was also used to calculate security analysts' bonuses.
Implementing the Dietz formula requires the selection of a factor, which
establishes an assumption regarding the point during the day when cash flows
2
Peter O. Dietz created this formula in 1966, as explained in his book on
performance measurement, Pension Funds, Measuring Investment Performance.
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occur or peak. The Dietz factor used by Allstate assumed that the portfolio's net
cash flow occurred at mid-day, to provide a rough average of cash flows occurring
throughout the day. The Dietz formula used by Allstate was as follows:
Return = (EMV - BMV) - (P - S) / BMV + DF(P - S).
EMV is the market value of the portfolio at the end of the day; BMV is the market
value of the portfolio at the beginning of the day; P is purchases; S is sales; and ,
DF is the Dietz factor. In Allstate's formula, the Dietz factor was .5, which
produces a mid-day return value. A Dietz factor of .0, for example, will measure
return at the end of the day.
It was speculated that, when the mid-day Dietz formula is used, analysts
had the ability to do better than the daily measurement by waiting to know
whether the market will end up or down. Delaying trading is a market technique
used by all professional security analysts, and it is not alone improper conduct. If
the market is going down, they may execute buy transactions and if the market is
going up, they may execute sell transactions which may be more favorable than
the daily calculation. While it is reasonably assumed that all portfolio managers
seek to sell on an up day and buy on a down day, if that timing calculation does
not take into account the adverse effects in the market of waiting through several
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down days to sell or several up days to buy in order to obtain a performance bump,
the portfolio could be disadvantaged. However, when it was adopted Allstate
considered that the way the bonus system worked, realized gains or losses on a
particular day would offset over time.
When the report of possible improper timing of trades occurred, Allstate
became concerned that its public reports to the Securities and Exchange
Commission could be inaccurate and that its fiduciary obligations to the pension
funds governed by the Employee Retirement Income Security Act, under the
oversight of the Department of Labor ("DOL"), could have been violated. Allstate
hired the law firm of Steptoe & Johnson LLP to conduct an investigation of
trading practices. The law firm hired NERA Economic Consulting ("NERA"), an
economic consulting firm to aid in the investigation. An attorney for Allstate
testified that the results of the investigation were not submitted to Allstate in
writing but reported only orally. However, after meeting with DOL attorneys in
December 2009, Steptoe & Johnson submitted a letter and memorandum to the
DOL providing details of the investigation.3
3
The letter was ordered produced during discovery over the objection of
Allstate.
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It was reported to the DOL that none of the anecdotal information
provided the parameters of potential disadvantage to the pension plans. A search
was made through almost two million e-mails from or to 26 individuals working in
Allstate's equity investment management and trading group for the period from
May 2003 to May 2009. Only a half dozen e-mails were uncovered which seemed
problematic. NERA then analyzed 1,511 trading days during this period which
consisted of over 110,000 trades for the pension plans. The report states that there
was no evidence that e-mails captured all trading instructions.
NERA used the e-mails to identify 24 instances of delayed trading for
one pension plan and 25 instances of delayed trading for the other plan. NERA
calculated that the plans' disadvantage from these e-mails indicated delays costing
as much as $8.2 million. However, some delays produced gains to the plans of
about $6.8 million, resulting in an estimate of a possible net disadvantage of
approximately $1.4 million. In addition, for four of the e-mails, tracking the data
showed that the trades were made on the same day as the e-mail, which eliminated
the trade from the problematic trade group.
The equities group personnel and their supervisors were interviewed by
Steptoe & Johnson lawyers. No interviews were reduced to writing. The equities
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group understood how the Dietz factor affected its bonuses. No one suggested
that the Dietz effect was the only reason or even the primary reason for the timing
of a trade. It was, apparently, only one of a few factors used to determine when to
execute a trade. Information from the interviews was reported to Allstate's inside
counsel orally.
Allstate wanted to be sure that other violations of the law did not occur,
such as cross trading, or principal trading. NERA searched for trades where a
security with the same identifier would have been bought and sold in the same
amount in the same day. No such trades were discovered. Tests were run to
determine if the equities group was engaging in any "round trip" transactions-selling a security, only to buy it back, in order to obtain a performance "bump," or
buying a security and then selling it out promptly. No such trades were
uncovered.
NERA created an algorithm, an analysis assuming that any sale executed
on a market up day (if it was preceded by a down day) and all purchases occurring
on a market down day (if preceded by an up day) could have been improperly
delayed trades. Looking back to the next preceding day it was assumed that if the
instruction had been received on that day, the trade would have been executed on
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that day. Based on these assumptions, a calculation was made to determine what a
purchase would have cost the plan had it been executed on the first down day after
the next preceding up day. If the amount was greater than the actual trade results,
it was assumed that the difference should be reimbursed. (The converse analysis
was made for sales.)
Using the stated assumptions, it was reported that the disadvantage to
one plan was $61.5 million and for the other about $17 million. Adding DOL
underpayment rates brought the total possible reimbursement to approximately
$91 million for the two plans. However, this calculation ignored all delayed trades
that produced gains to the portfolios which would have reduced the $91 million
figure to at least $53 million.
The conclusion of the report states:
We believe that this amount, which assumes that nearly
every trade was inappropriately delayed, overstates any actual
economic disadvantage suffered by the plans for several
reasons. It is unlikely, based on the interviews, that small
trades were delayed. Nonetheless, no de minimis exclusion
was used. The figures do not exclude the trades made prior to
midday, even though the Dietz motivation would have
assumed late afternoon trading. No time related exclusion
was used. In addition, during the past several years of equity
market volatility, a very large amount of trading throughout
the markets occurred near the end of the day and it is not
unreasonable to assume that the Allstate traders were acting in
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a similar manner, regardless of any Dietz factor motivation.
And, as noted above, there was no netting of "gain days"
against "loss days." That netting would have reduced the $91
million to about $53 million. Finally, as discussed earlier, the
economic disadvantage calculation was not limited to those
trades for which we had clear e-mail indication of Dietz
motivation. If we limited the reimbursement to the trades for
which we had e-mails showing such motivations the
reimbursement would have been $8.2 million and with
netting, $1.4 million.
We want to emphasize that the effect of this trading on
the total bonuses paid to this group was minimal over the sixyear period. Allstate, taking account returns recalculated by
NERA, estimated the impact of this trading to the 25
employees who were in the equity group for some or all of
2003 through 2008 as an increase in the aggregate bonuses for
the entire group of 25 employees over those years of
approximately $1.2 million.
On October 14, 2010, the Vice President, Secretary, and
Deputy General Counsel of Allstate wrote, in response to an inquiry
from DOL, as follows:
[T]he NERA algorithm was a way for counsel and
Allstate to estimate a possible maximum impact of any
potential "Dietz" motivated equity trading. No one believed,
then or now, that this was an accurate description of the
activity on the equity desk, nor that any actual impact on
portfolios was anywhere near the result produced by using the
NERA algorithm. Just as we wanted to see a possible
maximum portfolio impact, we wanted to estimate the
corresponding impact on bonuses. If one looked only at the
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actual e-mails that arguably could demonstrate bad
motivation, there would have been virtually no effect on
bonuses
The letter also states, in part:
Bonuses for the year 2008 were discretionary, and not a
result of a formulaic calculation based on equity returns.
***
Again, as noted above, the NERA algorithm is not
reality; we have no proof that the returns resulting from the
algorithm would ever have been realized. Thus, while we
asked NERA to rerun the bonus calculations as if the
algorithm actually reflected trading activity, the revised bonus
calculations are speculative and may be vastly overstated as is
the case with the calculation of potential portfolio impact.
Plaintiffs testified at trial of their intent to sell securities when the
market was up and to buy securities when the market was down. They denied that
their transactions were motivated by an intent to obtain a bonus bump. They did
not deny that they were aware of whether or not the Dietz effect was favorable to
their bonuses. Plaintiffs stated that their ability to time trades was limited. With
the exception of Rivera, plaintiffs did not control the trading desk. Plaintiffs could
select securities for purchase and sale, but the trading desk specialists decided the
time for the trades. Rivera had the authority to decide when to go into or out of
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the market, but he denied he used the authority, leaving that judgment to the
trading specialists.
There is no evidence in the record that contradicts plaintiffs testimony.
No specific transaction has been traced to any plaintiff to show that a trade was
timed or delayed which benefitted a bonus but caused a loss to a portfolio.
On October 6, 2009, Greffin called a meeting of the equity division to
announce that Allstate had decided to close the division and outsource the
management of the equity portfolios, other than the convertible portfolios
managed by two employees, to Goldman Sachs. Seventeen employees, including
plaintiffs, were told that they were redundant. The employees were told that
severance payments would be made; they could remain in the Allstate office until
the end of 2009; and Allstate would provide assistance to them in obtaining new
employment.
Immediately after the termination announcement, plaintiffs hired an
executive recruiter and also turned to the sell-side brokers, who had been calling
on Allstate buy-side brokers, for information about security analyst opportunities.
There is evidence that the members of the C.F.A. community of top professional
security analysts are acquainted and that the group is not large. Also, there is a
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C.F.A. Society information network available to prospective employers. Among
other annual questions asked of each C.F.A. member is if the member has been
accused of any ethics violation and, if so, how it was resolved.
On December 3, 2009, while plaintiffs were in their offices at Allstate,
each was called to an individual meeting with the human resources director
Winchell and immediately terminated for cause, without severance benefits, for
violation of Allstate's ethics code. No details of any specific violation was
provided. Plaintiffs were immediately escorted from the premises and told that
would not be allowed to return to the premises without a company escort.
Plaintiffs' removals from the premises were immediately obvious and known to the
employees of the staff of over 300 in the investment division as well as by sellside brokers calling on Allstate. Plaintiffs' phones and communication systems
were stopped.
On February 25, 2010, Allstate filed its 2009 annual report on Form
10-K with the Securities and Exchange Commission. Under the topic Pension
Plans, it was reported, in part, as follows:
PENSION PLANS
In 2009, we became aware of allegations that some
employees responsible for trading equity securities in certain
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portfolios of two AIC [Allstate Insurance Company] defined
benefit pension plans and certain portfolios of AIC and an
AIC subsidiary may have timed the execution of certain trades
in order to enhance their individual performance under
incentive compensation plans, without regard to whether such
timing adversely impacted the actual investment performance
of the portfolios.
We retained outside counsel, who in turn engaged an
independent economic consulting firm to conduct a review
and assist us in understanding the facts surrounding, and the
potential implications of, the alleged timing of these trades for
the period from June 2003 to May 2009 The consulting firm
reported that it was unable to determine from our records the
precise amounts by which portfolio performance might have
been adversely impacted during that period. Accordingly, the
economic consultant applied economic modeling techniques
and assumptions reasonably designed to estimate the potential
adverse impact on the pension plans and the company
accounts, taking account among other things, the distinctions
between the pension plans and the company portfolios.
Based on their work, the economic consultants
estimated that the performance of the pension plans’
portfolios could have been adversely impacted by
approximately $91 million (including interest) and that the
performance of the company portfolios could have been
adversely impacted aby approximately $116 million
(including interest) in the aggregate over the six-year period
under review. We believe that our financial statements and
those of the pension plans properly reflected the portfolios’
actual investment performance results during the entire period
that was reviewed.
In December 2009, based on the economic consultant's
modeled estimates, we paid an aggregate of $91 million into
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the two defined benefit pension plans. These payments had
no material impact on our reported earnings or shareholders’
equity, but reduced our assets, operating cash flows, and
unfunded pension liability to the plans. At December 31,
2009, our total assets, operating cash flows and shareholders’
equity were $132.65 billion, $4.30 billion and $16.69 billion,
respectively. At all times during this period, the plans were
adequately funded pursuant to applicable regulatory and
actuarial requirements. As a result of these additional funds
in the plans, our future contributions to the plans, based on
actuarial analysis, may be reduced. Using the economic
consultant’s calculation of adverse impact on the portfolios,
we currently estimate that the additional compensation paid to
all the employees working in the affected group was
approximately $1.2 million over the six-year period as a result
of these activities. In late 2009 we retained an independent
investment firm to conduct portfolio management and trading
activity for the specific portfolios impacted by these activities.
We have reported this matter to the U.S. Department of Labor
and the U.S. Securities and Exchange Commission and have
advised both agencies that we will respond to any questions
they might have.
The same day that Allstate filed its 10-K, Greffin sent a memorandum to
the investment department, consisting of over 300 employees, stating:
Allstate released its annual financial report on Form 10K today. Within that filing, we disclosed details around
allegations regarding trading practices within our equity
portfolios that came to light in the past year. We took this
matter very seriously and launched an investigation as soon as
we became aware of the allegations.
Outside counsel was retained to assist us in
understanding the facts surrounding, and the potential
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implications of, these activities. As part of their analysis, an
independent economic consulting firm was retained to
estimate the potential adverse impact to the performance of
our portfolios. The consultants determined that the
performance on some of our portfolios, as well as our two
pension plan portfolios could have been adversely impacted
by the activities. As a result, Allstate made a contribution to
the pension plans during the 4th quarter which is disclosed in
the 10-K.
We believe that our financial statements and those of
the pension plans properly reflected the portfolios' actual
investment performance and the pension plans were
adequately funded during the entire period. This matter did
not affect the plans' ability to continue to provide benefits to
plan participants.
Situations like this can be unsettling and can reflect
poorly on our organization. However, I believe organizations
are also defined by how they respond to events like this. We
were transparent in reporting this matter to the U. S.
Department of Labor and the S.E.C., and disclosed to our
investors. We're taking steps to improve our governance
practices and training.
We remain committed to the highest levels of ethics and
integrity in the stewardship of Allstate’s assets.
10-K reports are read by the financial community as well as by
professional security analysts. After the issuance of the February 10-K report, the
recruiter that plaintiffs hired stopped looking for new positions for them. Since
then, none of the plaintiffs have been able to find positions comparable to their
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positions at Allstate. Meacock and Rivera began looking for lower-paying work
outside the United States. Scheuneman and Kensinger could not do that.
Scheuneman took a much lower paying unrelated position and Kensinger is still
unemployed as a security analyst.
Motion for Judgment as a Matter of Law
Judgment as a matter of law in favor of a defendant is appropriate only
when "a reasonable jury would not have a legally sufficient evidentiary basis to
find for the party on that issue." Fed. R. Civ. P. 50(a)(1). The court must construe
the evidence strictly in favor of the party who prevailed before the jury and
examine the evidence only to determine whether the jury's verdict could
reasonably be based upon the evidence. Passananti v. Cook County, 689 F.3d
655, 659 (7th Cir. 2012). The court does not make credibility determinations and
must disregard evidence favorable to the moving party that the jury was not
required to believe.
Allstate argues that plaintiffs have not proven that any statement
identified the plaintiffs; denies that any statement was false and defamatory; states
that there was no clear and convincing evidence that Allstate acted with malice so
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as to overcome the defense of qualified privilege; and states that plaintiffs have
not proved damages.
Defamation can occur even if the name of the person defamed is not
mentioned if it is clear that the persons to whom the statement is published would
reasonably understand that the statement identified the plaintiff. Bryson v. News
Am. Publ'ns, Inc., 672 N.E.2d 1207, 1218 (Ill. 1996). See also Jury Instr. at 19.
The jury had before it abundant evidence that the 10-K and the Greffin
memorandum referred to the plaintiffs. The open termination of plaintiffs from
the equity division was followed by the reference in the 10-K to "employees
responsible for trading equity positions in certain portfolios of two AIC defined
benefit pension plans and certain portfolios of AIC and an AIC subsidiary." The
10-K described the transfer of portfolios to an "independent investment firm to
conduct portfolio management and trading activity for the specific portfolios
impacted by these activities." The Greffin memorandum to the investment
department calls attention to the 10-K and repeats the information. This conduct
and the publications provided substantial support for the jury to find that the 10-K
and the Greffin memorandum identified and referred to the plaintiffs.
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To overcome the defense of qualified privilege to publish the 10-K,
plaintiffs were required to prove that the statement was made with knowledge of
its falsity or in reckless disregard of whether it was false or true. Mittelman v.
Witous, 552 N.E.2d 973, 981 (Ill. 1989) (adopting Restatement (Second) of
Torts § 600, cmts. a, b (1977)). See also Jury Instr. at 22. Reckless disregard is
defined as proceeding to publish defamatory matter despite having an awareness
of probable falsity, or serious doubts as to the truth of the publication. Id.
(quoting Harte-Hanks Commc'ns, Inc. v. Connaughton, 491 U. S. 657, 667
(1989)).
The 10-K asserts that responsible employees "may have timed the
execution of certain trades to enhance their individual performance under
incentive compensation plans without regard to whether such timing adversely
impacted the actual investment performance of the portfolios." It is stated that
losses to the pension plans were estimated to be as much as $91million. The
performance of the company portfolio "could have been adversely impacted by
approximately $116 million." Additional bonus compensation from timed trades
was estimated to be approximately $1.2 million over a six year period. It is further
stated in the 10-K that an investigation was undertaken, the portfolios were
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transferred to an investment firm, and the SEC and DOL were informed of serious
misconduct.
The 10-K recited a serious charge of timed trading resulting in
substantial losses and unearned bonuses. However, based on the evidence, the
jury could find the loss statements to be false, unproven as to the plaintiffs and,
because of their nature, seriously defamatory as to plaintiffs.
The plaintiffs testified that they did not time trades to enhance their
bonuses. No specific documentary or testimonial evidence was offered to dispute
their testimony as to any trade. The $91 million loss to the funds was admittedly
incorrect if not unfounded. It was not adjusted for, among other things, instances
in which the funds benefitted by delayed trades. Such adjustment, or the
acknowledgment of the propriety of such adjustment, would have significantly
reduced the alleged estimate of loss to the funds and would have eliminated the
$1.2 million bonus overcompensation estimate.
Counsel for Allstate told the DOL that "[i]f one looked only at the actual
e-mails that arguably could demonstrate bad motivation, there would have been
virtually no effect on bonuses.” The jury could well find that there was
knowledge of the falsity of the 10-K.
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There is clear and convincing evidence that the statements in the 10-K
were false and made in reckless disregard of their defamatory affect on the
reputations of the plaintiffs.
That plaintiffs were unable to obtain comparable re-employment was
shown by the evidence. There was ample evidence of damage to plaintiffs'
reputation which provided proof of damages.
Allstate’s motion for judgment as a matter of law must be denied.
The Motion for a New Trial
Allstate seeks a new trial pursuant to Fed. R. Civ. P. 59, claiming that
plaintiffs improperly introduced evidence and arguments surrounding the
unfairness of their terminations; that the court erred in refusing to instruct the jury
concerning plaintiffs' failure to make timely production of job search documents;
and testimony concerning the conduct of a job search recruiter should have been
excluded.
Allstate's argument that the evidence relating to terminations of
plaintiffs was not proper proof overlooks that the proof was appropriate to show
that readers of the 10-K would know of the circumstances surrounding their firing
when reading the 10-K, and know that the 10-K referred to them. Moreover, the
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related FCRA claims in this case had to do with circumstances of plaintiffs'
terminations. An abrupt termination was a factor to be considered when deciding
whether there has been a willful failure to provide a summary of the investigation
on which the action was taken at the time of the termination.
Plaintiffs failed to make a timely production of job search documents.
As a consequence, it was ruled that neither plaintiffs nor their expert could rely on
the material. Defendant claims that their untimely production prevented an
investigation of the validity of the material. The delay of production did not
impact the trial or have any impact on any of the proof.
Plaintiff Meacock testified that executive recruiter Cathy Graham
stopped looking for positions for the plaintiffs after the 10-K was issued.
Meacock was not allowed to testify to any conversations with Graham, who was
on the plaintiffs' witness list. Ultimately, plaintiffs were unable to call Graham.
Meacock’s statement that Graham stopped looking for employment for plaintiffs
was allowed to stand as non-verbal conduct not considered to be hearsay within
the meaning of Fed. R. Evid. 801.
Allstate’s motion for a new trial will be denied.
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Remittitur
Allstate argues that the compensatory and punitive damages awarded are
excessive and must be reduced. Both sides introduced damages evidence. The
court's analysis is guided by three factors: whether the award is monstrously
excessive; whether there is no rational connection between the award and the
evidence; and whether the award is roughly comparable to awards in similar cases.
The court must review the record in the light most favorable to the verdict.
G. G. v. Grindle, 665 F.3d 795, 798 (7th Cir. 2011); Farfaras v. Citizens Bank &
Trust, 433 F.3d 558, 566-67 (7th Cir. 2006); Adams v. City of Chicago, 798 F.3d
539, 543 (7th Cir. 2015).
The jury verdict entered against Allstate was as follows: Daniel Rivera
$7,156,972 defamation damages, $4,000,000 punitive damages, and $1,000 FCRA
damages; Deborah Meacock $3,602,317 defamation damages, $3,000,000 punitive
damages, and $1,000 FCRA damages; Stephen Kensinger $2,913,531 defamation
damages, $2,000,000 punitive damages, and $1,000 FCRA damages; and Rebecca
Scheuneman $3,438,028 defamation damages, $1,000,000 punitive damages, and
$1,000 FCRA damages.
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Both sides in this case introduced expert damages evidence which
included the experts' reports as joint exhibits. The jury awarded approximately
$17.1 million in compensatory damages to the four plaintiffs. Plaintiffs' expert
computed damages of approximately $21 million. Allstate's expert found that, if
liability existed, damages would be in the range of $11.1 million.
The jury was not without guidance from the parties, and it did not
deviate from the range of damages found by the experts. Also, there has been no
showing by Allstate that the awards exceed damages in similar cases.
Accordingly, there is no basis to set aside the compensatory damage verdicts.
With respect to punitive damages, the jury was instructed, in part, that it
may assess punitive damages if it found that the "defendant was malicious or in
reckless disregard of a particular plaintiff's rights." Jury Instr. at 33. On this
record, the jury could make such a finding. The amount of punitive damages
awarded, $10 million, approximately 60% of the compensatory damages, was not
out of proportion with appropriate standards for the award of such damages.
BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 574-85 (1996); State Farm Mut.
Auto Ins. Co. v. Campbell, 538 U.S. 408, 417 (2003).
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Allstate's motion for a remittitur of compensatory and punitive damages
will be denied.
FCRA Punitive Damages and Attorney Fees
Plaintiffs have moved for a determination by the court of punitive
damages under 15 U.S.C. § 1681n(a)(2), which provides for punitive damages for
willful noncompliance with the FCRA.
The jury made a separate determination that Allstate's violations of the
FCRA were willful. Allstate opposed the submission to the jury of the issue of the
amount of punitive damages. The language of the statue -- "such amount of
punitive damages as the court may allow" -- is open to the interpretation that the
issue is for the court and not for the jury. The issue was reserved and is now
before the court.
Allstate argues that it complied with § 1681a(y)(2) which requires, after
taking any adverse action based on "a communication made to an employer in
connection with an investigation of suspected misconduct," the employer shall
disclose "the nature and substance of the communication." Alternatively, it
contends that the statute is unclear as to what is required and, because it has not
been construed, Allstate should not be liable.
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Brett Winchell, the director of human resources for the investment
division of Allstate, notified each plaintiff of termination. He was not involved in
the trading investigation and did not speak to the lawyers or consultants who made
oral reports to Allstate counsel.
Winchell testified that his conversations with plaintiffs were based on a
script which included five bullet points. The first was to remind them that there
had been an investigation of the pay-for- performance plan; second, that they had
been interviewed once or several times by attorneys; third, the decision had been
made to terminate the employee for cause immediately, without severance
benefits, for violation of the conflict-of-interest policy of the Allstate Code of
Ethics; fourth, that the decision was probably not what the employee expected;
and fifth, an apology was made for the length of time it took to provide this
information. No mention was made to any plaintiff of a specific delayed trade
timed to enhance a bonus. No mention was made of any specific adverse affect
from any trade. It is doubtful whether Winchell was aware of a summary of the
investigation.
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Later, when counsel for the plaintiffs requested a summary of the
investigation, counsel for Allstate replied that there was no written summary and,
accordingly, there was nothing to provide.
Allstate argues that there is no requirement in the statute for a written
summary and it isn’t clear what is required by he statute. The argument is
unreasonable. The statue is clear without construction. It is intended to provide
an employee with the information, oral or written, when an "adverse action,"
(firing) is based, on a "communication made to an employer in connection with an
investigation of suspected misconduct relating to employment." That is what
happened in this case. Compliance in this case would have revealed that, after an
extensive investigation, Allstate did not have proof that any delayed trade by any
of the plaintiffs was a timed trade intended to enhance a bonus at the expense of a
portfolio security. Had there been compliance with the statute, the termination
conversation, as intended by the statute, would not have been only one-way.
There is ample evidence to support the jury finding of a willful violation of the
statutory duty.
The FCRA provides for the imposition of punitive damages for willful
noncompliance of any requirement of the act. On the facts of this case, it is
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appropriate to observe that the jury awarded full compensatory and significant
punitive damages to the plaintiffs on the defamation claims, and plaintiffs are
allowed to claim costs and attorney fees. Accordingly, the court will award each
plaintiff, as punitive damages, triple the $1,000 statutory damages awarded by the
jury. The plaintiffs' claims for punitive damages of greater sums are denied.
In the event of willful noncompliance of the FCRA, a defendant is liable
for the costs of the action together with reasonable attorney fees as determined by
the court. 15 U.S.C. § 1681n(a)(3). Plaintiffs' motion for the allowance of costs
and attorney fees will be granted.
IT IS THEREFORE ORDERED AS FOLLOWS:
(1) Defendant's motions for judgment as a matter of law [296, 310], for a
new trial [313], and for remittitur [316] are denied.
(2) Plaintiffs' motions for FCRA punitive damages [320] and costs and
attorney fees [322] are granted.
(3) The Clerk of the Court is directed to enter a supplemental judgement
in favor of plaintiffs Rivera, Kensinger, Meacock, and Scheuneman in the amount
of $3,000 each against defendant Allstate Insurance Company as punitive damages
imposed as a result of wilful violations the Fair Credit Reporting Act.
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(4) By January 30, 2017, plaintiffs shall submit their bill of costs.
Consolidated answer to fee and cost petitions is to be filed by February 13, 2017.
Reply is due February 21, 2017.
ENTER:
UNITED STATES DISTRICT JUDGE
DATED: JANUARY 20, 2017
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