Rivera v. Allstate Ins. Co.

140 F.Supp.3d 722

Daniel Rivera, Stephen Kensinger, Deborah Joy Meacock, and Rebecca Scheuneman, Plaintiffs,

v.Allstate Insurance Company, Defendant.

10 C 1733

United States District Court, N.D. Illinois, Eastern Division.

Signed September 29, 2015

Robert D. Sweeney, RDS Law, Chicago, IL, for Plaintiffs.

Gerald L. Pauling, Asilia S. Backus, Barbara Holly Borowski, Uma Chandrasekaran, Seyfarth Shaw LLP, Chicago, IL, for Defendant.

MEMORANDUM OPINION AND ORDER

Gary Feinerman, United States District Judge

Daniel Rivera, Stephen Kensinger, Deborah Joy Meacock, and Rebecca Scheuneman brought this suit against their former employer, Allstate Insurance Company, and their supervisor, Judy Greffin, for violating the Fair Credit Reporting Act ("FCRA"), 15 U.S.C. § 1681 et seq., defamation, and tortious interference with prospective economic advantage. Doc. 1. On a Rule 12(b)(6) motion directed at the defamation and tortious interference claims, the court dismissed the tortious interference claim but allowed the defamation claim to proceed. Docs. 27–28 (Grady, J.) (reported at Rivera v. Allstate Ins. Co., 2010 WL 4024873 (N.D.Ill. Oct. 13, 2010) ). Plaintiffs then filed an amended complaint adding a claim under the Age Discrimination in Employment Act ("ADEA"), 29 U.S.C. § 621 et seq . Doc. 29. Plaintiffs later voluntarily dismissed the ADEA claim, Docs. 68, 70, and all of their claims against Greffin, Doc. 46.

What remains are Plaintiffs' FCRA and defamation claims against Allstate. Allstate moved for summary judgment, Doc. 127, and after the motion was fully briefed, this case was reassigned to the undersigned judge, Doc. 162. With the parties' agreement, a jury trial has been set for January 11, 2016. Doc. 170. For the following reasons, Allstate's motion is granted as to the defamation claim insofar as it relies on a per se theory, and is denied as to the defamation claim insofar as it relies on a per quod theory and as to the FCRA claim.

Background

The following facts are stated as favorably to Plaintiffs, the non-movants, as the record and Local Rule 56.1 allow. See Hanners v. Trent, 674 F.3d 683, 691 (7th Cir.2012). In considering Allstate's summary judgment motion, the court must assume the truth of those facts, but does not vouch for them. See Smith v. Bray, 681 F.3d 888, 892 (7th Cir.2012).

Plaintiffs worked for Allstate in the company's Equity Division, which managed equity portfolios for Allstate's property and casualty insurance businesses and its pension plans. Rivera was the Equity Division's managing director and Meacock, Kensinger, and Scheuneman were members of the growth group, which traded individual securities on behalf of the pension plans. Rivera reported to Greffin, Allstate's Chief Investments Officer. Doc 150 at ¶¶ 4–10. Plaintiffs were salaried employees and eligible to receive bonus compensation under Allstate's "pay-for-performance" plan. Id. at ¶¶ 11–14.

Sometime in Spring 2009, Trond Odegaard, Allstate's Chief Risk Officer and the Investment Department's Compliance Officer, became concerned about trading practices in the Equity Division. He suggested to Greffin that Equity Division employees might be timing trades to inflate their bonuses. Id. at ¶¶ 30–32. Odegaard's suspicions focused on an algorithm called the "Dietz method," which was used to estimate portfolio returns and calculate Plaintiffs' performance bonuses. The Dietz method is an approximation; it assumes that all cash flows into and out of the portfolio take place at the same time each day, and thus can overstate or understate a portfolio's true performance by a small amount. The error term, called the "Dietz effect," can be either positive or negative. Id. at ¶¶ 15–19. Theoretically, therefore, a trader with knowledge of the algorithm could time trades so as to make the Dietz estimate look better than the portfolio's true return and thereby inflate her bonus calculation.

After further work by Odegaard, Allstate decided to retain an outside law firm, Steptoe & Johnson, to investigate the allegations. Id. at ¶ 37. Steptoe engaged an economic consulting firm, NERA, to review trading data to determine the possible impact of timed trading on the portfolios. In addition, Steptoe lawyers reviewed Equity Division emails and trading data and interviewed Allstate employees, including Plaintiffs, about their understanding of the Dietz method, their trading processes, and Allstate's method for calculating bonuses. Id. at ¶¶ 37–47.

Around the time of Steptoe's investigation, Greffin informed the Equity Division that Allstate had decided to outsource to Goldman Sachs most of its equity portfolio management. Due to the outsourcing decision, all Equity Division employees, except for the group responsible for trading convertible bonds, would be disbanded. Id. at ¶¶ 23–25. On December 3, 2009, Human Resources Director Brett Winchell informed Plaintiffs that they were being terminated for cause for violating Allstate's ethics code. Because Plaintiffs were terminated for cause, they did not receive severance pay. Id. at ¶¶ 56–57, 59–65. The terminations took effect the following day. Id. at ¶ 66.

In February 2010, Allstate filed its annual Form 10–K with the Securities and Exchange Commission. The 10–K disclosed that Allstate had conducted an investigation into alleged trading improprieties and paid $91 million into the company's pension plans to cover the potential adverse impact. The 10–K stated, in relevant part:

In 2009, we became aware of allegations that some employees responsible for trading equity securities in certain 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 into 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 portfolio could have been adversely impacted by approximately $116 million (including interest) in the aggregate over the six-year period under review. We believe that our financial statements and those for 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 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 the potential 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.

Id. at ¶¶ 71–72.

The same day that Allstate filed its 10–K, Greffin sent a memorandum (the "Greffin Memorandum") to the Investment Department. It read:

Allstate released its annual financial report on Form 10–K 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 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 consultant 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 this entire period. This matter did

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