Defamation Claim

Listen to this article

7^th Circuit Court of Appeals

Case Name: Daniel Rivera, et al. v. Allstate Insurance Company

Case No.: 17-1310; 17-1649

Officials: KANNE and SYKES, Circuit Judges, and DARROW, District Judge.*

Focus: Defamation Claim 

In 2009 Allstate Insurance Company launched an internal investigation into suspicious trading on its equity desk. The initial inquiry unearthed email evidence suggesting that several portfolio managers might be timing trades to inflate their bonuses at the expense of their portfolios, which included two pension funds to which Allstate owed fiduciary duties. Allstate retained attorneys from Steptoe & Johnson to investigate further, and they in turn hired an economic consulting firm to calculate potential losses. Based on the email evidence, the consulting firm found reason to believe that timed trading had potentially cost the portfolios $8 million and possibly much more. Because actual losses could not be established, the consultants used an algorithm to estimate a potential adverse impact of $91 million on the pension funds. Everyone understood that this estimate was wildly unrealistic, but in an abundance of caution, Allstate poured $91 million into the pension portfolios.

When the investigation wrapped up, Steptoe lawyers delivered oral findings to Allstate. The company thereafter determined that four portfolio managers—Daniel Rivera, Stephen Kensinger, Deborah Meacock, and Rebecca Scheuneman—had violated the company’s conflict-of-interest policy by timing trades to improve their bonuses. On December 3, 2009, Allstate fired them for cause.

Allstate’s appeal attacks the defamation awards on multiple grounds. We need address only one. The statements in the 10-K and internal memo were not defamatory per se, so they are actionable (if at all) only on a theory of defamation per quod. This type of claim requires proof of special damages causally connected to the publication of the defamatory statements. So the plaintiffs had to prove that prospective employers declined to hire them because of Allstate’s defamatory statements and that they suffered damages as a result. The plaintiffs testified that they could not find comparably lucrative work after they were fired, but they presented no evidence that any prospective employer declined to hire them as a consequence of Allstate’s statements in the 10-K or the internal memo. That’s fatal to the defamation claims.

As for the FCRA claims, we’re skeptical that § 1681a(y)(2) applies at all, but Allstate hasn’t raised this point. Rather, Allstate argues that the awards must be vacated for lack of standing under Spokeo, Inc. v. Robbins, 136 S. Ct. 1540 (2016). We agree. We therefore vacate the judgment and remand for entry of judgment for Allstate on the defamation claims and dismissal of the FCRA claims.

Vacated and Remanded

Full Text

Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.