Court Opinions: 10th Circuit Court of Appeals Opinion from August 3

The 10th Circuit Court of Appeals

Editor’s Note: Law Week Colorado edits court opinion summaries for style and, when necessary, length.

Cruz v. Farmers Insurance, et al.

For more than 30 years, Michael Cruz sold insurance policies as an independent contractor for Farmers Insurance. 

Although Farmers classifies insurance agents as independent contractors, it maintains a hierarchy of managers responsible for specific geographic regions. Territory managers oversee area sales managers, who oversee district managers, who oversee insurance agents within their divisions. Both area sales managers and territory managers are employees. 

In January 2017, Dan French 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 said in his email he needed to report back to Brooks the next morning.

French called back a third time when Cruz was out of the office. French spoke to Kandace Diekman, Cruz’s wife and office assistant. According to Diekman, French was “raging,” “belligerent” and “screaming.” She hung up after French called her profane names and refused to calm down, threatening to come to the office to fix the issue himself. 

Diekman called Sales to inform him about the call and he asked her to send an email describing what happened. 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’ investigation into French’s complaint. According to him, the territory office reached out to French, listened to his perspective on the incident and resolved the issue by removing French from the mailing list. He cautioned Cruz to maintain professionalism and uphold the Farmers brand but said no further action would be taken. 

Farmers contended 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. A month later, when they learned about the email, they reopened the matter to determine if further action was warranted. 

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 asked for more details 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.”

Shortly thereafter, Elsbury sent a memo to Kautz recommending that Farmers terminate the contract, 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.” 

The memo also said Elsbury reviewed Cruz’s file and found “other previous happenings” demonstrating a pattern of behavior supporting the recommendation. He attached a note from the file more than seven years earlier accusing Cruz of using inappropriate language and threatening a claims adjuster. Kautz forwarded the recommendation to Bob Anderson, a high-level manager located in the home office, who approved the termination. 

After receiving the termination notice, Cruz appealed the decision through an internal review board, which upheld the termination. Cruz sued, alleging the termination was racially based. 

Farmers moved for summary judgment, which a district court granted, holding that Cruz’s alleged direct evidence of discrimination was inadmissible hearsay and Cruz had otherwise failed to show that Farmers’ nondiscriminatory reason for terminating the contract was pretext for discrimination.

Cruz appealed, citing abuse of discretion. 

The 10th Circuit Court of Appeals determined that the Sales’ comment is admissible direct evidence of discrimination and, as such, precludes summary judgment. 

Beyond its admissibility, the court agreed with Cruz that Sales’ comment reflects direct evidence of discriminatory intent for two reasons. First, the substance of the comment illustrates a discriminatory motive. Although Elsbury denied making the comment, he nevertheless acknowledged in his deposition that the comment is “racist” and “discriminatory.”

Second, the context and timing of Sales’ statement are closely linked with the adverse decision. As Sales explained in his deposition, immediately before Sales called Diekman and made the alleged comment, Elsbury told him to call and inform Cruz’s agency that Farmers was considering terminating the contract. Upon receiving this unwelcome news, Diekman pressed Sales for an explanation, and Sales made the comment in response. According to the circuit, there’s also a close link between the timing of the statement and the termination decision.

The 10th Circuit determined the statement is both admissible and constitutes direct evidence of racial discrimination that a rational jury could rely on to find in Cruz’s favor, raising a genuine issue of material fact as to whether Farmers’ termination of the contract was racially based. It concluded that the district court improperly granted summary judgment for Farmers and remanded the case for further proceedings.

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