Cruz v. Farmers Insurance ( 2022 )

Appellate Case: 21-1069 Document: 010110719735 Date Filed: 08/03/2022 Page: 1
FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS August 3, 2022
Christopher M. Wolpert
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
MICHAEL CRUZ,
Plaintiff - Appellant,
v. No. 21-1069
FARMERS INSURANCE EXCHANGE;
TRUCK INSURANCE EXCHANGE;
FIRE INSURANCE EXCHANGE; MID-
CENTURY INSURANCE COMPANY;
FARMERS NEW WORLD LIFE
INSURANCE COMPANY,
Defendants - Appellees.
_________________________________
Appeal from the United States District Court
for the District of Colorado
(D.C. No. 1:19-CV-02337-MEH)
_________________________________
Ralph E. Lamar, Allentown, Pennsylvania, for Plaintiff-Appellant.
James R. Holland, II, (Laura Bailey Brown of Fisher & Phillips, LLP, with him on the
brief), Kansas City, Missouri, for Defendants-Appellees.
_________________________________
Before MORITZ, KELLY, and BRISCOE, Circuit Judges.
_________________________________
MORITZ, Circuit Judge.
_________________________________
Michael Cruz sued defendants alleging that they terminated his contract, under
which he sold defendants’ insurance products, on the basis of race, in violation of
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42 U.S.C. § 1981. In support, Cruz relied on a statement allegedly made by his
district manager, which Cruz argued represented direct evidence of discrimination, as
well as circumstantial evidence. The district court granted summary judgment to
defendants, ruling that the district manager’s statement was inadmissible hearsay and
that Cruz’s circumstantial evidence did not otherwise demonstrate discriminatory
intent. Without considering Cruz’s circumstantial evidence, we reverse because the
district manager’s alleged comment was not inadmissible hearsay; it was admissible
under Federal Rule of Evidence 801(d)(2)(D) as a party-opponent admission made by
an agent within the scope of the agency relationship. And because that admission
constitutes direct evidence of discrimination, it precludes summary judgment for
defendants.
Background
Cruz, a Hispanic man of Mexican-American heritage, brought this action against
Farmers Insurance Exchange, Truck Insurance Exchange, Fire Insurance Exchange, Mid-
Century Insurance Company, and Farmers New World Life Insurance Company
(collectively, Farmers). For over 30 years, Cruz sold Farmers insurance policies as an
independent contractor under an Agency Appointment Agreement, which we refer to here
simply as the contract. Although Farmers classifies insurance agents as independent
contractors, it maintains a hierarchy of managers who are responsible for certain
geographic regions: Territory managers oversee area sales managers. And area sales
managers oversee district managers, who in turn oversee insurance agents within their
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divisions. Farmers classifies district managers as independent contractors, but area sales
managers and territory managers are employees.
The events leading to Cruz’s lawsuit began in January 2017 when Dan French, a
local resident, 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 stated in his
email that he would need to report back to Brooks the next morning.
Meanwhile, French called back a third time when Cruz was out of the office. This
time, French spoke to Kandace Diekman, Cruz’s wife and office assistant. According to
Diekman, French was “raging,” “belligerent,” and “screaming.” App. vol. 2, 242, 244.
She testified that French said, “I’ve already called twice, and nobody’s helping me stop
this mail, and being as you’re not going to fix it, I’m going to come down to the office
and fix it.” Id. at 242. Diekman hung up after French called her profane names and
refused to calm down.
Shortly after, Diekman called Sales to inform him about the call. Sales asked
Diekman to send him an email describing what happened. Relevant to this appeal,
Diekman wrote the following sentence at the end of the email: “I’m not afraid[,] and we
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are going to be open[;] I carry[,] and if I feel threatened[,] I will blow a hole in him the
size of Uganda.”1 Id. at 285.
Sales continued to investigate, asking Cruz and Diekman to send a timeline of
events and telling them he would need to send the information to the territory office. 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’s investigation into the French
complaint. Elsbury stated that the territory office had reached out to French, listened to
his perspective on the incident, and resolved the issue by removing French from Farmers’
mailing list. Although Elsbury acknowledged Cruz’s position on the issue, as relayed by
Sales, Elsbury nevertheless cautioned Cruz to maintain professionalism and uphold the
Farmers brand. Elsbury concluded by stating, “No further actions will be taken at this
time, but I do want to remind you that any further incidents could jeopardize your
[contract].” Id. at 286.
As it turned out, that was not the end of the matter. Farmers contends 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. After
1
Diekman sent the email from Cruz’s email account, which caused confusion
about the true author. The parties argue at length about whether Farmers knew that
Diekman wrote the email but nevertheless blamed Cruz. Because this dispute is not
relevant to our disposition of the appeal, we need not address it.
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Brooks and Kautz learned about the email about a month or two later, they “re[]opened
the matter to determine if further action was warranted.” App. vol. 4, 622.
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 testified that Sales said, “I don’t even know how
to tell you this. I’ve been on the phone this morning with [Elsbury], and they want to
terminate [Cruz’s] contract.” App. vol. 2, 246. Diekman asked for more detail 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.”2 Id. at 246–47.
Two days later, Sales asked Elsbury for an update by email, and Elsbury replied
that Farmers was “re[]reviewing the situation between [Cruz] and [French].” Id. at 273.
Sales forwarded this update to Cruz.
Shortly thereafter, Elsbury sent a memorandum to Kautz recommending that
Farmers terminate the contract. Elsbury referenced Sales’s investigation, 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
2
We observe that Diekman initially testified that Sales told her, “they
[Farmers] don’t want . . . some crazy brown man running around with a gun.” App.
vol. 2, 247 (emphasis added). In response to a leading question, Diekman later
indicated that Sales attributed the comment to Elsbury, stating that “he [Elsbury]
didn’t want a crazy brown man running around with a gun.” Id. at 248 (emphasis
added).
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practice.” Id. at 275 (quoting id. at 259). The memorandum also stated that Elsbury had
reviewed Cruz’s file and there were “other previous happenings” demonstrating a pattern
of behavior supporting Elsbury’s recommendation. Id. Elsbury attached a memorandum
from Cruz’s file indicating that Cruz had been accused more than seven years earlier of
using inappropriate language and threatening a claims adjuster. Kautz forwarded
Elsbury’s recommendation to Bob Anderson, a high-level manager located in the home
office, who responded that the home office approved the termination.
After receiving a termination notice, Cruz appealed the decision through an
internal review board, which upheld the termination. Cruz later filed this action alleging
that Farmers terminated the contract based on race, in violation of § 1981.3 Farmers
moved for summary judgment, which the district court (a magistrate judge proceeding by
consent of the parties) granted. The district court held that Cruz’s alleged direct evidence
of discrimination—the “brown-man” comment relayed to Diekman by Sales—was
inadmissible hearsay. The district court also held that Cruz had otherwise failed, on the
basis of circumstantial evidence, to meet his burden to show that Farmers’ proffered
nondiscriminatory reason for terminating the contract (Cruz’s alleged breach for “failing
to conform to normal good business practice”) was pretext for discrimination. Id. at 317.
3
Cruz also filed a state-law claim for breach of the covenant of good faith and
fair dealing. The district court granted summary judgment for Farmers on that claim,
and Cruz does not appeal that ruling.
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Cruz appeals.
Analysis
We generally review an order granting summary judgment de novo, viewing
the evidence and drawing all reasonable inferences therefrom in the light most
favorable to the nonmoving party. See Fassbender v. Correct Care Sols., LLC, 890
F.3d 875, 882 (10th Cir. 2018). But when, as here, a party challenges the district
court’s underlying decision to exclude evidence at the summary-judgment stage, we
review that underlying decision for abuse of discretion. Doe v. Univ. of Denver, 952
F.3d 1182, 1191 (10th Cir. 2020). “A district court abuses its discretion where it
commits a legal error or relies on clearly erroneous factual findings, or where there is
no rational basis in the evidence for its ruling.” Trentadue v. F.B.I., 572 F.3d 794,
806 (10th Cir. 2009) (quoting Breaux v. Am. Fam. Mut. Ins. Co., 554 F.3d 854, 866
(10th Cir. 2009)). Summary judgment is warranted when “there is no genuine dispute
as to any material fact” and the moving party “is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56(a). A genuine factual dispute exists only if, from the
evidence presented, a rational jury could find in the nonmoving party’s favor. See
Fassbender, 890 F.3d at 882.
This summary-judgment appeal involves Cruz’s § 1981 claim. Section 1981
guarantees that “[a]ll persons . . . shall have the same right . . . to make and enforce
contracts . . . as is enjoyed by white citizens.” § 1981(a). As relevant here, “the term
‘make and enforce contracts’ includes . . . termination of contracts[] and the
enjoyment of all benefits, privileges, terms, and conditions of the contractual
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relationship.” § 1981(b). To prevail on a § 1981 discrimination claim, a plaintiff must
show: (1) membership in a protected class; (2) the defendant intended to discriminate
on the basis of race; and (3) the alleged discrimination interfered with a protected
activity as defined in the statute (that is, making or enforcing a contract). Hampton v.
Dillard Dep’t Stores, Inc., 247 F.3d 1091, 1101–02 (10th Cir. 2001). Farmers does
not dispute the first and third elements, so the second element is the only one at issue.
A plaintiff may prove intentional discrimination under the second element with
either direct evidence or circumstantial evidence that satisfies the McDonnell
Douglas burden-shifting framework. See Kendrick v. Penske Transp. Servs., Inc., 220
F.3d 1220, 1225–26 (10th Cir. 2000) (citing McDonnell Douglas Corp. v. Green, 411
U.S. 792 (1973)). Here, Cruz supports his claim with both types of evidence. The
district court granted summary judgment to Farmers under McDonnell Douglas. In so
doing, it refused to consider Cruz’s proffered direct evidence—the “brown-man”
comment—because it concluded that the comment was inadmissible hearsay. We
begin our analysis there. Because we find that the comment is admissible direct
evidence of discrimination and, as such, precludes summary judgment, we do not
reach Cruz’s circumstantial-evidence arguments.
I. Admissibility
Cruz challenges the district court’s determination that Sales’s comment—“it
comes down to[,] they don’t want . . . some crazy brown man running around with a
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gun”—is inadmissible hearsay.4 App. vol. 2, 246–47. “Hearsay testimony that would
not be admissible at trial is not sufficient to defeat a motion for summary judgment.”
Jaramillo v. Colo. Jud. Dep’t, 427 F.3d 1303, 1314 (10th Cir. 2005) (per curiam). As
Cruz asserted below and emphasizes on appeal, a statement is not hearsay, however,
if the “statement 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.” Fed. R. Evid. 801(d)(2)(D). According to Cruz, Sales was an agent of
Farmers for purposes of Rule 801(d)(2)(D), and his comment is therefore admissible
as a statement offered against an opposing party.
The district court concluded that the “brown-man” comment did not satisfy the
definition of nonhearsay in Rule 801(d)(2)(D). Without addressing Cruz’s argument
that Sales was an “agent” for purposes of the rule, the district court emphasized that
Sales was an independent contractor, not an employee, and determined that the
statement was inadmissible because Sales lacked “ultimate” decision-making
authority over Cruz. App. vol. 4, 632. In reaching this conclusion, the district court
relied on Jaramillo, 427 F.3d 1303, and Johnson v. Weld County, 594 F.3d 1202(10th Cir. 2010). On appeal, Cruz reasserts his view that the comment is admissible
4
Farmers correctly observes that Diekman’s testimony consists of two
separate out-of-court statements: (1) what Elsbury allegedly told Sales; and (2) what
Sales allegedly told Diekman. To be admissible, both statements must either qualify
as nonhearsay or conform to an exception to the hearsay rule. Fed. R. Evid. 805. But
Farmers recognized below that the first statement may be admissible under Federal
Rule of Evidence 801(d)(2)(D) and did not separately brief the admissibility of the
first statement on appeal. Thus, we address only the second statement.
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under Rule 801(d)(2)(D) as a party-opponent admission made by an agent within the
scope of the agency relationship and contends that Jaramillo and Johnson are
distinguishable. We consider each issue in turn.
A. Agency Relationship
Rule 801(d)(2)(D) applies to statements made by a party’s “agent or employee.”
Farmers asserts that Sales is not a Farmers employee but is instead classified as an
independent contractor whose relationship with Farmers is defined contractually.
According to Farmers, Sales’s statement is inadmissible because “[s]tatements of
independent contractors typically do not come within Rule 801(d)(2)(D).” Aplee. Br. 48.
But, as Cruz argues, although an independent contractor may not be an employee, he or
she may nevertheless be an agent.5 See Restatement (Third) of Agency § 1.01 (Am. L.
Inst. 2006), cmt. c (explaining that “the common term ‘independent contractor’ is
equivocal in meaning and confusing in usage because some termed independent
contractors are agents”); id. § 1.01 cmt. g (“The common law of agency encompasses
employment as well as nonemployment relations.”); Alfaro-Huitron v. Cervantes
Agribusiness, 982 F.3d 1242, 1252, 1256 (10th Cir. 2020) (emphasizing that “[w]hat is
very important, but often overlooked, is that not every agent is an employee” and that “an
5
The district court did not address this argument. Instead, it simply noted
Sales’s status as an independent contractor rather than an employee without
considering the parties’ dispute about whether Sales may nevertheless qualify as an
“agent” under Rule 801(d)(2)(D). We nevertheless consider this argument on appeal
because Cruz preserved the argument below and it forms a critical aspect of his
appeal. See Attocknie v. Smith, 798 F.3d 1252, 1259 (10th Cir. 2015) (“If the district
court failed to address an issue, we can still reverse on that ground if the issue was
preserved and is meritorious.”).
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independent contractor may be an agent even if it is not an employee”). We have also
said in other contexts that “an independent contractor can be an agent,” and an agent
“need not be an employee.” 1-800 Contacts, Inc. v. Lens.com, Inc., 722 F.3d 1229, 1251
(10th Cir. 2013) (collecting cases); cf. also Bradbury v. Phillips Petrol. Co., 815 F.2d
1356, 1360 (10th Cir. 1987) (noting that “agent” and “independent contractor” are not
mutually exclusive terms; finding sufficient evidence from which jury could conclude
that entity designated by contract as “independent contractor” was agent). Thus, even if
we accept Farmers’ assertion that Sales is an independent contractor, we must
nevertheless address whether Sales acted as an agent during the relevant time period.
Federal law governs whether a declarant acted as an agent for purposes of Rule
801(d)(2)(D). Boren v. Sable, 887 F.2d 1032, 1038 (10th Cir. 1989). The Federal Rules
of Evidence do not define “agent,” and thus we turn to the common-law definition. See
id. Like other circuits, we utilize the common-law definition from the Restatement
(Third) of Agency. See id. (looking to then-current Restatement (Second) of Agency
(Am. L. Inst. 1958) to define “agency”); Alfaro-Huitron, 982 F.3d at 1250–51 (looking
primarily to Restatement (Third) of Agency to define “agency” under New Mexico law);
Salyers v. Metro. Life Ins. Co., 871 F.3d 934, 939 n.3 (9th Cir. 2017) (“The federal
common law of agency has frequently been derived from the Restatement of Agency.”).
According to the Restatement, “[a]gency is the fiduciary relationship that arises when one
person (a ‘principal’) manifests assent to another person (an ‘agent’) that the agent shall
act on the principal’s behalf and subject to the principal’s control, and the agent manifests
assent or otherwise consents so to act.” Restatement (Third) of Agency § 1.01. “A person
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manifests assent or intention through written or spoken words or other conduct.” Id.
§ 1.03. How the parties label their relationship in a contract is not dispositive of whether
an agency relationship exists. Id. § 1.02; cf. also Bradbury, 815 F.2d at 1360.
With these principles in mind, we turn to the evidence presented in this case. The
evidence shows that Brooks and Elsbury directed Sales’s work with respect to the French
investigation and the later reopening of the investigation. See Restatement (Third) of
Agency § 1.01. Specifically, Brooks acknowledged in his deposition that he told Sales
and Elsbury to investigate the French incident. When Sales emailed Cruz to discuss the
matter, he said that he would need to report back to the territory office, which is evidence
that Sales was acting on behalf of the territory office and not on his own accord. And
after Sales gathered information, he reported his findings to his superiors. Even more
importantly, Sales made the alleged “brown-man” comment during a phone call with
Diekman that, according to Sales, Elsbury directed Sales to make for the purpose of
informing Cruz’s office that Farmers was considering terminating Cruz’s contract. Thus,
when Sales made the comment on the phone call, he was acting at Elsbury’s direction.
Viewed in the light most favorable to Cruz, this evidence shows that Sales was acting as
Farmers’ agent during the initial French investigation and the later reopening of that
investigation, both of which collectively inform the nature of Sales’s agency relationship
with Farmers. See Alfaro-Huitron, 982 F.3d at 1253 (“If the principal requests another to
act on the principal’s behalf, indicating that the action should be taken without further
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communication and the other consents so to act, an agency relationship exists.” (quoting
Restatement (Third) of Agency § 1.01 cmt. c.)).
B. Scope
To be admissible, Sales’s statement must also be “made on a matter within the
scope of [the agency] relationship.” Fed. R. Evid. 801(d)(2)(D). As explained above,
when Sales made the statement at issue, the evidence shows he was acting at
Elsbury’s direction. While Elsbury may not have specifically dictated Sales’s
comments to Diekman, the rule does not require that the principal authorize the
specific statement made by the agent. Indeed, the Advisory Committee Notes to Rule
801 caution that limiting its scope in this manner would result in the loss of “valuable
and helpful evidence” because “few principals employ agents for the purpose of
making damaging statements.” Fed. R. Evid. 801(d)(2)(D) advisory committee’s note
to 1972 amendment. Thus, the rule simply requires a statement made on a matter
within the scope of the agency relationship. See id.; Fed. R. Evid. 801(d)(2)(D). And
this requirement is met when the declarant makes the statement while performing his
or her agency duties, even if the declarant may have lacked authorization to make the
specific statement at issue, so long as the statement “relate[s] to” those duties.
Rainbow Travel Serv., Inc. v. Hilton Hotels Corp., 896 F.2d 1233, 1242 (10th Cir.
1990); see also id. (affirming admission of shuttle-bus driver’s damaging statements
regarding hotel’s reservation practices made while transporting guests, over objection
that driver “was not qualified to make statements” on that subject, because statements
“related to” matter within scope of driver’s agency); Fed. R. Evid. 801(d)(2)(D)
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advisory committee’s note to 1972 amendment (explaining that “[a] substantial trend
favors admitting statements related to a matter within the scope of the agency”
(emphasis added)). Here, because Sales made the alleged statement while carrying
out Elsbury’s instruction to inform Cruz that Farmers may terminate his contract,
Sales’s comment was related to a matter within the scope of his agency.6
Yet this conclusion does not end our inquiry. Relying on Jaramillo and
Johnson, the district court also found, and Farmers argues on appeal, that Sales’s
comment does not meet Rule 801(d)(2)(D)’s scope requirement because Sales “did
not have ultimate decision-making authority” to terminate Cruz’s contract and was
not involved in the recommendation or decision to terminate Cruz’s contract. App.
vol. 4, 632. As we will explain, however, the district court and Farmers read our
precedents too narrowly.
In Jaramillo, the plaintiff sued her employer under Title VII for sex
6
In support of its position that statements made by its independent contractors
are not admissible under Rule 801(d)(2)(D), Farmers cites Merrick v. Farmers
Insurance Group, 892 F.2d 1434 (9th Cir. 1990). There, the Ninth Circuit held that
statements made by a Farmers insurance agent and district manager “about what had
transpired at [a] Christmas party” were inadmissible under Rule 801(d)(2)(D)
because the plaintiff did not show that those individuals were “agents” as opposed to
“independent contractors” or that their statements “concerned a matter within the
scope of their agency.” See 892 F.2d at 1440. Merrick is not only nonbinding but also
distinguishable—there, unlike here, no evidence showed that the insurance agent and
district manager were involved in the process leading to the adverse employment
decision or that their statements about events at a Christmas party were made within
the scope of their agency. See id. Moreover, the Ninth Circuit has more recently
clarified that “a finding that a speaker is an independent contractor does not preclude
a finding that the speaker is also an agent for some purposes.” United States v. Bonds,
608 F.3d 495, 505 (9th Cir. 2010). Merrick thus sheds no light on whether Sales was
acting as a Farmers’ agent under the facts of this case.
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discrimination after she applied for a promotion, but a male employee was chosen
instead. 427 F.3d at 1306. In support of her discrimination claim, she testified that
several coworkers told her that the male employee told them that he had been
promised a promotion. Id. at 1313. The plaintiff argued that the male employee’s
statements were nonhearsay admissions of a party opponent. Id. at 1314. But because
the male employee “was not involved in the hiring or promotion process,” we held
that his statements were made outside the scope of his employment and thus were
inadmissible under Rule 801(d)(2)(D). Id.In Johnson, the plaintiff sued her employer under Title VII, alleging
discrimination based on sex and disability when she applied to replace her direct
supervisor (who had resigned), but a male candidate was chosen instead. 594 F.3d at
1207. In support of her discrimination claim, the plaintiff alleged that the male
candidate told her that the hiring manager told him that the hiring manager did not
hire the plaintiff because of her gender and disability. Id. at 1208. The plaintiff
argued that the male candidate’s statement was admissible under Rule 801(d)(2)(D)
because he was a party opponent. Id. We disagreed, reasoning that the male
candidate’s statements were not attributable to the employer as a party-opponent
admission because the male candidate was merely another candidate for the position,
was not yet an employee, and was not “remotely” involved in the hiring process. Id.at 1208–09. Thus, as in Jaramillo, we held that Rule 801(d)(2)(D)’s scope
requirement was not met. Id.As this examination of Jaramillo and Johnson illustrates, these cases are
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factually dissimilar from this case and thus do not prohibit the admissibility of
Sales’s comment. Contrary to the district court’s view, neither case imposes a
requirement that the declarant (here, Sales) be the “ultimate” decision-maker. App.
vol. 4, 632. Instead, both cases merely stand for the proposition that, to come within
Rule 801(d)(2)(D)’s scope requirement in employment-discrimination cases, the
declarant must be “‘involved in the decision[-]making process affecting the
employment action’ at issue.”7 Johnson, 594 F.3d at 1209 (emphasis added) (quoting
Jaramillo, 427 F.3d at 1314).
And, unlike the declarants in Jaramillo and Johnson—who were wholly
uninvolved in the employment action at issue—Sales did participate in the process
leading to the termination decision. The evidence shows that Sales was the principal
investigator into the French dispute and was instructed to “resolve the issue.” App.
vol. 2, 181. In response to Brooks’s request to investigate, Sales gathered information
from Cruz and Diekman, reported the information up the chain of command, and
7
We note that Jaramillo cited only Aliotta v. National Railroad Passenger
Corp., 315 F.3d 756 (7th Cir. 2003), in support of its conclusion that the declarant
must be involved in the decision-making process, 427 F.3d at 1314. In Aliotta, the
Seventh Circuit acknowledged that decision-making “may be critical” to meet Rule
801(d)(2)(D)’s scope requirement in employment cases in which the admission
pertains to an adverse employment decision, but it explained that “no similar
requirement exists in other contexts.” 315 F.3d at 762 (emphasis added); see also
Rainbow Travel Serv., 896 F.2d at 1242 (affirming admissibility of statement under
Rule 801(d)(2)(D) in breach-of-contract case without considering declarant’s
involvement in actions at issue). But we need not decide here whether Jaramillo and
Johnson apply outside the employment context because, as we will explain,
Jaramillo and Johnson impose no impediment to the admissibility of Sales’s
comment under the facts of this case.
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acted as a communication channel between upper-level managers and Cruz and
Diekman. When Farmers reopened the French investigation and considered
terminating Cruz’s contract, Sales testified that Elsbury told Sales to deliver the
news. After informing Cruz’s office regarding the potential termination, Sales asked
Elsbury for an update two days later and then sent Elsbury’s response to Cruz. And in
Elsbury’s memorandum recommending Cruz’s termination, Elsbury relied on Sales’s
investigation and copied Sales, further illustrating the importance of Sales’s
investigation and his key role in the process. In a similar factual situation, we found
that Rule 801(d)(2)(D)’s scope requirement was met. See Fester v. Farmer Bros. Co.,
49 F. App’x 785, 797 (10th Cir. 2002) (unpublished) (finding division manager’s
statement was within scope of his employment because he led investigation that
resulted in employee’s discharge and notified employee of termination).8
Several of our sibling circuits have similarly recognized that a statement may
be admissible under Rule 801(d)(2)(D), regardless of whether the declarant was a
decision-maker, so long as the declarant was involved in the process leading to the
challenged decision. See, e.g., Weil v. Citizens Telecom Servs. Co., 922 F.3d 993, 999
(9th Cir. 2019) (noting that “a matter may fall within the scope of a declarant’s
employment even though the declarant did not have final decision-making authority”;
collecting cases from other circuits “similarly focus[ing] the scope inquiry on
whether the declarant was involved in a process leading up to a challenged decision,
8
We cite this unpublished case only for its persuasive value. See 10th Cir. R.
32.1(A).
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rather than focusing on whether the declarant was a final decision-maker”); Simple v.
Walgreen Co., 511 F.3d 668, 672 (7th Cir. 2007) (holding that declarant’s statement
was admissible because even though she “was not involved in the employment action,
she “was involved in the process that led up to that action” (emphases added)); Kidd
v. Mando Am. Corp., 731 F.3d 1196, 1208 n.16 (11th Cir. 2013) (recognizing that “a
statement made by a non[]decision[-]maker may be both relevant and attributable to
the defendant employer if the non[]decision[-]maker was sufficiently involved in the
decision[-]making process leading up to the adverse employment action”); Walsh v.
N.Y.C. Hous. Auth., 828 F.3d 70, 79 (2d Cir. 2016) (explaining that declarant need
only be “an advisor or other significant participant” in decision-making process for
declarant’s statement to be admissible (quoting United States v. Rioux, 97 F.3d 648,
661 (2d Cir. 1996))).
We are persuaded that Sales’s involvement in the process leading to Farmers’
termination decision—particularly his initial investigation and later role in notifying
Cruz’s office that Farmers was considering termination—was sufficient to bring his
statement squarely within Rule 801(d)(2)(D)’s scope. Thus, the district court abused
its discretion in refusing to admit the statement under Rule 801(d)(2)(D).9 See
9
In response to questioning during oral argument, Farmers’ counsel asserted
that Sales was not involved in the decision-making process because his investigation
pertained only to the French complaint, not Diekman’s email. We need not consider
this argument because it was raised for the first time at oral argument. Ross v. Univ.
of Tulsa, 859 F.3d 1280, 1292 n.10 (10th Cir. 2017) (explaining that arguments first
raised during oral argument are waived). Nevertheless, we reject this theory. To the
extent Farmers attempts to argue that there were two separate investigations—one
about the French complaint and another about the email—Farmers argued otherwise
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Trentadue, 572 F.3d at 806.
II. Direct Evidence
Having determined that the “brown-man” comment is admissible, we turn to
Cruz’s contention that it constitutes direct evidence of Farmers’ discriminatory
intent. The district court did not address whether Sales’s comment, if admissible,
qualifies as direct evidence. Neither did Farmers. For the first time at oral argument
on appeal, Farmers contended that the comment requires an inference of
discriminatory intent and thus does not constitute direct evidence. Because Farmers
raised this argument—which we construe as an alternative ground for affirmance—
for the first time at oral argument, we are not obligated to consider it. Elkins v.
Comfort, 392 F.3d 1159, 1162 (10th Cir. 2004) (noting that whether argument “was
fully briefed and argued here and below” informs our discretion to consider
both below and in its appellate briefing. Specifically, Farmers stated below that it
“re[]opened the matter to determine if further action was warranted regarding [Cruz’s
contract].” App. vol. 1, 95 (emphasis added). And in its appellate briefing, Farmers
again repeatedly characterized the latter portion of the investigation as a
“re[]open[ing]” or a “re[]review[],” and it advanced no argument about separate
investigations. Aplee Br. 11, 39. Moreover, the record evidence supports Farmers’
framing of a single investigation that initially concluded but was later reopened:
Elsbury explained in an email to Sales that Farmers was “re[]reviewing the situation
between [Cruz] and [French].” App. vol. 2, 273 (emphasis added). For that reason,
Sales’s role in investigating the situation between Cruz and French was sufficiently
related to Farmers’ ultimate termination decision such that Sales was involved in the
decision-making process affecting the termination of Cruz’s contract. See Johnson,
594 F.3d at 1209. And even if we accepted Farmers’ argument that there were two
investigations, we would find that Sales was sufficiently involved in the second
investigation given his role in notifying Cruz’s office about the potential termination
and his later role updating Cruz on the status of Farmers’ termination decision as
communicated to Sales by Elsbury’s email.
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alternative ground for affirmance). But in any event, we reject this late-blooming
argument.
Recall that a plaintiff may prove intentional discrimination with direct
evidence. Kendrick, 220 F.3d at 1225. “Direct evidence is evidence, which if
believed, proves the existence of a fact in issue without inference or presumption.”
Vaughn v. Epworth Villa, 537 F.3d 1147, 1154 (10th Cir. 2008) (quoting Hall v. U.S.
Dep’t of Lab., 476 F.3d 847, 854 (10th Cir. 2007)). “A statement that can plausibly
be interpreted two different ways—one discriminatory and the other benign—does
not directly reflect illegal animus, and, thus, does not constitute direct evidence.”
Vaughn, 537 F.3d at 1154–55 (quoting Hall, 476 F.3d at 855).
For two reasons, we agree with Cruz that Sales’s comment reflects direct
evidence of discriminatory intent. First, the substance of the comment illustrates a
discriminatory motive. According to Diekman, Sales stated that the reason Farmers
was considering terminating Cruz’s contract “c[a]me[] down to” the fact that “they
don’t want . . . some crazy brown man running around with a gun.” App. vol. 2, 246–
47. This statement, if made, indicates that Farmers terminated the contract “because
of” an impermissible factor. See Sanders v. Sw. Bell Tel., L.P., 544 F.3d 1101, 1104
(10th Cir. 2008) (explaining that direct evidence demonstrates that decision was
made “because of” impermissible factor). Indeed, although Elsbury denied making
the comment, he nevertheless acknowledged in his deposition that the comment is
“racist” and “discriminatory.” App. vol. 3, 403.
Second, the context and timing of Sales’s statement is closely linked with the
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adverse decision. Cf. Tabor v. Hilti, Inc., 703 F.3d 1206, 1216 (10th Cir. 2013)
(“[D]iscriminatory statements do not qualify as direct evidence if the context or
timing of the statements is not closely linked to 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—thus, there is a nexus between the discriminatory comment (the cause) and
Farmers’ termination decision (the effect). There is also a close link between the
timing of the statement and the termination decision—Elsbury sent his memorandum
recommending termination just four days after Sales made the alleged comment.
To be sure, Sales and Elsbury denied making the comment, and Elsbury also
denied instructing Sales to inform Cruz that Farmers wanted to terminate Cruz’s
contract. But their denials do not change the outcome because, at this stage, it is not
our role to “assess the credibility of . . . conflicting testimony.” See Starr v. Pearle
Vision, Inc., 54 F.3d 1548, 1557 (10th Cir. 1995). Rather, we must view the facts in
the light most favorable to Cruz, assume his admissible evidence is true, and resolve
all doubts against Farmers. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255
(1986); Fassbender, 890 F.3d at 882.
Viewed in such a light, we conclude that this statement constitutes direct
evidence of racial discrimination, thereby raising a genuine issue of material fact as
to whether Farmers terminated the contract based on Cruz’s race. Because we resolve
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the appeal on that basis, we need not address Cruz’s argument that he can also
establish discrimination via circumstantial evidence under the McDonnell Douglas
framework.10 See Trans World Airlines, Inc. v. Thurston, 469 U.S. 111, 121 (1985)
(“[T]he McDonnell Douglas test is inapplicable where the plaintiff presents direct
evidence of discrimination. The shifting burdens of proof set forth in McDonnell
Douglas are designed to assure that the ‘plaintiff [has] his [or her] day in court
despite the unavailability of direct evidence.’” (second alteration in original) (citation
omitted) (quoting Loeb v. Textron, Inc., 600 F.2d 1003, 1014 (1st Cir. 1979)));
Fischer v. Forestwood Co., 525 F.3d 972, 986–87 (10th Cir. 2008) (declining to
resolve whether plaintiff survived summary judgment under McDonnell Douglas
burden-shifting framework based on circumstantial evidence because plaintiff
survived summary judgment based on direct evidence); Hankins, 189 F.3d at 364–65,
369 n.9 (declining to address district court’s circumstantial-evidence ruling under
McDonnell Douglas framework because district court had erroneously rejected
plaintiff’s proffered direct evidence). Thus, we conclude the district court improperly
granted summary judgment for Farmers on Cruz’s § 1981 claim.
10
Although we resolve this appeal based on direct evidence, Cruz is not
precluded from also relying on circumstantial evidence at trial. Hankins v. City of
Phila., 189 F.3d 353, 369 n.9 (3rd Cir. 1999), aff’d en banc, 216 F.3d 1076 (3rd Cir.
2000) (“Because we conclude that . . . plaintiff is entitled to a jury trial, we need not
address his alternative argument that he survive[s] summary judgment under the
McDonnell Douglas pretext formula. Of course, this does not preclude plaintiff from
pursuing a pretext theory at trial.”).
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Conclusion
Based on the record before us, we hold that Sales’s “brown-man” comment is
admissible under Rule 801(d)(2)(D) and constitutes direct evidence of racial
discrimination that a rational jury could rely on to find in Cruz’s favor. Thus, we
reverse the district court’s order granting summary judgment on Cruz’s § 1981 claim
and remand for further proceedings consistent with this opinion.
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