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Cruz v. Farmers Insurance Exchange.

No. 21-1069. 8/3/2022. D.Colo. Judge Moritz. Employment Discrimination—42 USC § 1981—Summary Judgment—FRE 801(d)(2)(D) (Admission by Non-Party Opponent)—Direct versus Circumstantial Evidence.

August 3, 2022

Plaintiff, a Hispanic man of Mexican-American heritage, brought this action against Farmers Insurance Exchange, Truck Insurance Exchange, Fire Insurance Exchange, MidCentury Insurance Co., and Farmers New World Life Insurance Co. (collectively, Farmers). Plaintiff sold Farmers insurance policies as an independent contractor for over 30 years. In January 2017, a local resident called plaintiff’s office and asked to be removed from Farmers’ mailing list. According to plaintiff, the caller was rude and disrespectful, leading plaintiff to hang up on him. The sequence repeated. After the calls, the resident contacted a Farmers executive on LinkedIn and complained about plaintiff. Farmers’ management requested that the district manager, also an independent contractor, investigate and resolve the issue. Meanwhile, the resident called back a third time and spoke with plaintiff’s wife and office assistant. According to the subsequent district court complaint, the resident was raging and belligerent. Plaintiff’s wife hung up after the caller called her profane names and refused to calm down. Following the investigation, the district manager emailed two senior Farmers’ managers, who were employees, to summarize the incident. Farmers proceeded to caution plaintiff to maintain professionalism and noted that further incidents could jeopardize plaintiff’s contract.

This was not the end of the matter, however. When the senior managers learned that plaintiff’s wife had sent an email to the district manager stating that she carries, and if threatened by the belligerent resident, “I will blow a hole in him the size of Uganda,” they renewed the investigation. According to the complaint, following the additional investigation, the district manager called plaintiff’s wife to tell her that Farmers wanted to terminate the contract and that “they don’t want a brown man running around—some crazy brown man running around with a gun.” Farmers subsequently terminated plaintiff’s contract.

Plaintiff appealed the determination to an internal review board, which upheld the termination. He then filed suit under 42 USC § 1981, alleging that Farmers terminated the contract based on race. The district court granted Farmers’ motion for summary judgment, finding that the direct evidence of discrimination (the “brown man” comment) was inadmissible hearsay. The court also held that plaintiff failed, on the basis of circumstantial evidence, to meet his burden to show that the proffered reason for terminating the contract was a pretext for discrimination. Plaintiff appealed.

At issue was whether Farmers intended to discriminate on the basis of race. A plaintiff may prove intentional discrimination under this element with either direct evidence or circumstantial evidence that satisfies the burden-shifting framework under McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973). Plaintiff contended that the district court erred in holding that the district manager’s comment was inadmissible hearsay.

Hearsay testimony that would not be admissible at trial is not sufficient to defeat a motion for summary judgment. Under FRE 801(d)(2)(D), a statement is not hearsay if it “is offered against an opposing party and . . . was made by the party’s agent or employee on a matter within the scope of that relationship and while it existed.” Although the district manager was not an employee, the Tenth Circuit concluded that he was an agent, based on the common-law definition from the Restatement (Third) of Agency. Here, Farmers directed the district manager’s work with respect to the investigation and reopening the investigation. Further, the statement was made within the scope of the agency relationship, because the district manager was involved in the decision-making process affecting the employment action. The Tenth Circuit therefore held that the district court abused its discretion in refusing to admit the statement under FRE 801(d)(2)(D).

The Tenth Circuit next rejected Farmers’ argument, made in oral argument, that the statement did not constitute “direct evidence.” Direct evidence is evidence that, if believed, proves the existence of a fact in issue without inference or presumption. The Tenth Circuit determined that the comments illustrated a discriminatory motive, and there was a nexus between the comment and the termination decision. The statement therefore raised a genuine issue of material fact as to whether the contract was terminated based on race, and the Tenth Circuit therefore declined to address plaintiff’s argument that he could also establish discrimination through circumstantial evidence.

The Tenth Circuit reversed the district court’s order granting summary judgment and remanded the case for further proceedings.

Official US Court of Appeals for the Tenth Circuit proceedings can be found at the US Court of Appeals for the Tenth Circuit website.

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