Michas, Christopher v. Health Cost ( 2000 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 99-2221
Christopher J. Michas,
Plaintiff-Appellant,
v.
Health Cost Controls of Illinois, Inc.,
Defendant-Appellee.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 96 C 5104--Rebecca R. Pallmeyer, Judge.
Argued January 21, 2000--Decided April 6, 2000
Before Bauer, Ripple and Kanne, Circuit Judges.
Kanne, Circuit Judge. Christopher Michas brought
suit against his former employer, Health Cost
Controls, Inc. ("HCC"),/1 claiming that HCC
wrongfully terminated him on the basis of his
age, in violation of the Age Discrimination in
Employment Act ("ADEA"), 29 U.S.C. sec. 621 et
seq. Following discovery, HCC moved for summary
judgment, and the district court granted HCC’s
motion. The district court found that Michas had
not made a prima facie case because he failed to
present sufficient evidence that his duties had
been transferred to similarly situated employees
who were not within the protected class and he
failed to present evidence that HCC’s reasons for
his dismissal were pretextual. Michas appeals
both decisions. We affirm.
I. History
The district court found that Michas failed to
comply with Local Rule 12(N),/2 so the court
made undisputed findings of fact based on HCC’s
Local Rule 12(M) submissions. As a threshold
matter, Michas argues that the district court
erred because his statement of additional facts,
filed in accordance with Local Rule 12(N)(3)(b)
and simultaneously with his Rule 12(N)(3)(a)
response, raised genuine issues of material fact
that must be construed in his favor. HCC properly
submitted its Rule 12(M) uncontested findings of
facts, and Michas’s Rule 12(N)(3)(a) response to
these facts never accompanied its denials of
HCC’s facts with citations to the record. "An
answer that does not deny the allegations in the
numbered paragraph with citations to supporting
evidence in the record constitutes an admission."
McGuire v. United Parcel Serv., 152 F.3d 673, 675
(7th Cir. 1998).
That Michas’s simultaneous submission of
additional findings of fact might pose a
challenge to these admissions is not relevant to
whether Michas properly filed his Rule
12(N)(3)(a) answer. The purpose of the Rule
12(N)(3) (b) statement is to provide additional
uncontested facts not raised in the movant’s Rule
12(M) statement; its purpose is not to provide a
forum to contest facts that should have been
contested in the non-movant’s Rule 12(N)(3)(a)
statement. Therefore, we conclude that the
district court did not err in accepting HCC’s
statements as uncontested, and we will do
likewise. However, to the extent that facts
included in Michas’s Rule 12(N)(3)(b) statement
prove relevant, we will consider these as well as
the admitted facts from the 12(M) statement in a
light most favorable to Michas.
A. Background
In 1963, Michas graduated from law school and
began to work for Montgomery Ward & Co. in its
corporate legal division located in Chicago.
During the course of his employment at Montgomery
Ward, Michas became acquainted with William
Hanley, an attorney employed by Montgomery Ward
in its labor relations department. In the mid-
1960s, Hanley left Montgomery Ward and entered
private practice.
In 1991, Montgomery Ward laid off most of its
corporate legal division, preferring instead to
out-source its legal work to the law firm of
Altheimer & Gray. Michas was one of the attorneys
laid off by Montgomery Ward. In March 1992,
Michas met Hanley again and told him that he was
unemployed. Hanley worked as a partner in a
private law firm, and in addition, he had
recently formed a new corporation, HCC. Hanley
referred Michas to a number of private law firms,
but these leads did not pay off. Ultimately,
Hanley introduced Michas to HCC’s co-founder and
CEO, John Demaret.
B. HCC
HCC asserts subrogation rights on behalf of
HMOs, health insurance carriers and other health
care plans against parties who may be liable in
tort to insured members of these organizations or
their members. In addition, HCC asserts the
contractual rights of health care organizations
against their members and insureds. HCC was
formed in 1988 by Hanley and Demaret, and during
all relevant periods, Hanley and Demaret were the
principal stockholders of the corporation.
Demaret also served as HCC’s president and CEO
and ran the day-to-day operations of the company,
while Hanley was HCC’s chairman of the board and
worked primarily on marketing the company.
HCC’s employees worked as teams. Each team was
composed of attorneys, who acted as supervisors,
and claims adjusters. The teams attempted to
settle claims subrogated to HCC. If these claims
proceeded to litigation, the teams referred the
claims to Demaret who, in turn, generally
referred these claims to outside counsel for the
litigation.
C. Michas’s Employment with HCC
Soon after meeting Demaret, Michas began to
work for HCC as a contract attorney. The
relationship initially proved favorable, and in
July 1992, Demaret and Hanley hired Michas to
work full-time as head of HCC’s legal department.
The "legal department" consisted of Michas, a
paralegal and a secretary. Michas reported to
Demaret on all matters. Michas’s primary job
responsibilities included research, advising
staff on legal issues and acting as liaison to
the outside counsel who handled HCC’s core
business of litigation. As a part of this liaison
activity, Michas was responsible for monitoring
the fees charged by outside counsel, and Michas
also helped Demaret manage some of the claims
that outside counsel litigated for HCC.
Soon after Michas began to work for HCC,
Demaret became dissatisfied with Michas’s work
performance. The parties disagree over the extent
that Michas was informed of this growing
dissatisfaction. HCC has no formal evaluation
procedure, and as a result, much of the evidence
produced about Michas’s performance comes from
the parties’ deposition testimony. Michas was
given an incremental raise each year and a small
bonus in December 1993. Michas claims that Hanley
and Demaret told him when he was given these
raises that everything was fine with his
performance. Nonetheless, Demaret and Hanley
refused his request for a more substantial raise
in 1994. Demaret, Hanley and one of the team
leaders, Stephen Prazuch, all testified to
Demaret’s dissatisfaction with Michas’s
performance, and on a number of occasions,
Demaret criticized Michas’s performance in short
memos written to Michas.
In late 1994, Demaret began to consider ways to
improve the performance of his legal department.
He and Michas discussed expanding the department,
but Demaret ultimately decided against this
strategy. Hanley also asked Michas if he would
prefer to act as a team supervisor. Michas
declined this offer, so HCC hired another
attorney to fill this role. In early 1995, HCC
hired a new chief financial officer, Michael
Neil, a move that raised the fixed costs of the
firm. About the same time, a number of HCC’s
larger clients indicated their desire to cut ties
with the company. Faced with rising fixed costs
and a potentially precipitous decline in revenue,
Demaret began to consider laying off the legal
department.
In April 1995, Neil produced a summary
detailing the costs associated with maintaining
the legal department. The summary showed that HCC
would save $114,697 by dissolving the legal
department, and of this sum, $81,947 would be
saved by Michas’s discharge. Armed with these
numbers and the threat of lower revenues, Demaret
convinced an initially hesitant Hanley that the
legal department must be laid off. On April 24,
1995, Hanley and Demaret informed Michas that
they were firing him. Demaret and Hanley told
Michas that they were trying to reduce operating
costs in the face of a potential loss of
important clients. On that date, HCC also fired
the rest of the legal department--the secretary
and the paralegal--along with Michas. The
secretary was a member of the class protected by
the ADEA, which is to say that she was over forty
years old, but the paralegal was not. Michas was
fifty-five years old at the time of his
discharge.
D. HCC’s Later Activities
After the legal department was disbanded,
Demaret assumed most of Michas’s responsibilities
and delegated the remainder of Michas’s duties to
the team supervisors. Demaret is older than
Michas and a member of the protected class, but
some of the team supervisors who assumed Michas’s
responsibilities were not members of the
protected class.
About the same time that HCC laid off its legal
department, HCC was approached by a venture
capital firm, JMI, which was interested in
purchasing the company. As a part of the deal,
JMI requested that HCC hire consultant John
Blaney, who has since become president of the
company. Blaney was hired on April 25, 1995, the
day after Michas’s discharge, at a salary of
$180,000 per year. Negotiations over the purchase
progressed through mid-1995, and in July, Demaret
decided that he again needed an in-house
attorney. Demaret wanted the new attorney to
manage outstanding cases, so that he could focus
on preparing HCC to be sold. Thus, the new
attorney would assume a role similar in many
respects to the role Michas served before his
discharge.
HCC initially offered the job to Prazuch, a
team leader. Prazuch was not a member of the
protected class. Prazuch initially accepted the
offer, but after further consideration, he
decided to refuse. Instead, in October 1995, HCC
hired Henry Romano as corporate counsel. Romano
assumed most of Michas’s previous functions, as
well as many functions that had never been
delegated to Michas. Romano was a member of the
protected class. In late 1995, JMI completed the
purchase of a majority of HCC’s outstanding
stock. For this reason, Demaret no longer
maintains an active role in the company. Most of
the case management duties once performed by
Demaret are now handled by Romano, who has
assumed the position of corporate counsel.
Soon after his discharge, Michas filed a
complaint against HCC in district court, claiming
that HCC had violated the ADEA by discharging
him. The parties proceeded through discovery, and
at its close, HCC moved for summary judgment. HCC
claimed that Michas could not make a prima facie
case for age discrimination because he was not
replaced by someone outside the protected class
and because he could not prove he was performing
to HCC’s legitimate expectations. In addition,
HCC claimed that it had two legitimate reasons to
terminate Michas: his subpar performance and its
need to cut costs. Because Michas failed to
comply with Local Rule 12(N)(3)(a), the district
court accepted HCC’s uncontested statement of
facts as true. On these facts, the court found
that Michas could not make out a prima facie
case, nor could he show that HCC’s reasons for
discharging him were pretextual. Therefore, the
district court granted HCC’s motion for summary
judgment.
II. Analysis
On appeal, Michas argues that the district
court erred in finding that the evidence, even
when weighed in his favor, failed to raise
material questions of fact. First, Michas argues
that he included sufficient evidence that his
position remained open and he was performing
adequately to make a prima facie case against
HCC. Second, he argues that he presented evidence
sufficient to demonstrate that HCC’s articulated
legitimate non-discriminatory reasons for
terminating him were pretextual.
We review de novo the district court’s grant of
summary judgment, drawing conclusions of law and
fact from the record before us. See Feldman v.
American Memorial Life Ins. Co., 196 F.3d 783,
789 (7th Cir. 1999). Summary judgment is proper
when "the pleadings, depositions, answers to
interrogatories, and admissions on file, together
with the affidavits, if any, show there is no
genuine issue as to any material fact and that
the moving party is entitled to a judgment as a
matter of law." Fed. R. Civ. P. 56(c); see also
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23
(1986). In determining whether any genuine issue
of material fact exists, we must construe all
facts in the light most favorable to the non-
moving party and draw all reasonable and
justifiable inferences in favor of that party.
See Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 255 (1986). "A genuine issue for trial
exists only when a reasonable jury could find for
the party opposing the motion based on the record
as a whole." Pipitone v. United States, 180 F.3d
859, 861 (7th Cir. 1999) (citation omitted).
We apply the summary judgment standard with
special scrutiny to employment discrimination
cases, which often turn on the issues of intent
and credibility. See Bellaver v. Quanex Corp.,
200 F.3d 485, 491 (7th Cir. 2000); Geier v.
Medtronic, Inc., 99 F.3d 238, 240 (7th Cir.
1996). However, neither "the mere existence of
some alleged factual dispute between the
parties," Anderson, 477 U.S. at 247, nor the
existence of "some metaphysical doubt as to the
material facts," Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 586 (1986),
will defeat a motion for summary judgment.
A. Michas’s Prima Facie Case
The ADEA makes it unlawful "to fail or refuse
to hire or to discharge any individual or
otherwise discriminate against any individual .
. . because of such individual’s age." 29 U.S.C.
sec. 623(a)(1). We will find an ADEA violation
when a plaintiff presents evidence that
demonstrates that age was a "determining factor"
in a discharge decision. See Smith v. Great Am.
Restaurants, Inc., 969 F.2d 430, 434 (7th Cir.
1992) (citations omitted). A plaintiff pursuing
an ADEA claim has two ways to make such a prima
facie case. Either he can present direct evidence
that age was a determining factor in his
discharge, see Cowan v. Glenbrook Sec. Servs.,
Inc., 123 F.3d 438, 443 (7th Cir. 1997), or he
can present indirect evidence to demonstrate that
the employment decision "was motivated by the
employer’s discriminatory animus." Bellaver, 200
F.3d at 492.
Michas presents no direct evidence that his age
was a determining factor in his discharge and
attempts to make a prima facie case by
circumstantial evidence. Because he presents no
direct evidence of discriminatory animus, Michas
must rely on the inferences that we may draw from
indirect evidence. The traditional test for
determining workplace discrimination by indirect
evidence requires the plaintiff to make a prima
facie case of discrimination, then shifts the
burden of producing evidence of a legitimate non-
discriminatory motive to the defendant. See
McDonnell Douglas Corp. v. Green, 411 U.S. 792,
802 (1973); see also Baron v. City of Highland
Park, 195 F.3d 333, 338 (7th Cir. 1999) (applying
McDonnell Douglas burden-shifting analysis to
ADEA claims). If the defendant provides a
legitimate motive for termination, the burden
shifts again to the plaintiff to provide evidence
that this motive was pretextual. See id.
Under the traditional McDonnell Douglas test,
the plaintiff is required to present evidence on
four prongs to make a prima facie case. He must
show that (1) he is a member of a protected
class, (2) he reasonably performed to his
employer’s expectations, (3) he was subject to an
adverse employment action and (4) the position
remained open. See McDonnell Douglas, 411 U.S. at
802. However, recognizing the variety of adverse
employment actions covered within the broad reach
of the discrimination statutes, we have adapted
the requirements for making a prima facie case in
special cases to reflect the reality of the
workplace. See Bellaver, 200 F.3d at 494. Here,
the parties agree that Michas’s termination
constitutes a special case, but they differ in
their description of the type of case presented
and in the requirements that must be met to make
a prima facie case.
HCC argues that Michas’s termination was a part
of a reduction in force ("RIF"). A RIF occurs
when an employer permanently eliminates certain
positions from its workforce. See id. Because the
employer has removed a position entirely, the
position will never be refilled. In such a case,
it makes little sense to require a plaintiff to
meet the fourth prong of the McDonnell Douglas
test, in which the plaintiff must demonstrate
that the position remained open or was filled by
someone who is not a member of the protected
class. Instead, we require a plaintiff to
demonstrate that other similarly situated
employees who were not members of the protected
class were treated more favorably. See id.
To prove discrimination in a RIF, Michas must
prove that there were "similarly situated"
younger employees who were treated more favorably
than he was. To make this proof, Michas first
must have shown that his position was "similarly
situated" with younger employees who were not
terminated. The district court found that Michas
presented no evidence that his job was fungible
with the younger team leaders who were not
terminated. For this reason, the court found no
genuine issue of material fact about whether
"similarly situated" individuals were treated
better than Michas.
Michas seeks to recharacterize his termination
not as a true RIF, but as a case of what this
circuit has dubbed a "mini-RIF." See Bellaver,
200 F.3d at 495. In a mini-RIF, a single employee
is discharged and his position is not filled.
However, the employee’s responsibilities are
assumed by other members of the corporate
workforce. See Gadsby v. Norwalk Furniture Corp.,
71 F.3d 1324, 1331 (7th Cir. 1995). Because of
the fear that employers might misuse the RIF
description to recharacterize ordinary
terminations as reductions in force when they
terminate an individual with a unique job, we
have dispensed with the requirement that the
plaintiff show "similarly situated" employees who
were treated more favorably. Instead, because the
fired employee’s duties are absorbed by other
workers and the employee was "’replaced,’ not
eliminated," we only require that a plaintiff
demonstrate that his duties were absorbed by
employees who were not members of the protected
class. See Bellaver, 200 F.3d at 495.
Ultimately, calling an adverse employment action
a "mini-RIF" merely emphasizes that McDonnell
Douglas, rather than the RIF test, should apply.
In both the traditional McDonnell Douglas
analysis and the mini-RIF analysis, the
discharged employee’s duties are assumed by other
employees (or in the mini-RIF scenario, the
position is absorbed by other employees); in the
RIF context, the employer no longer needs the
discharged employee’s duties performed. Thus, our
decision whether an action is a RIF depends on
whether HCC still needed Michas’s job
responsibilities to be performed. Even though HCC
discharged multiple employees at the time it
discharged Michas, HCC’s own evidence
demonstrates that HCC still needed someone to
perform Michas’s responsibilities and that
Demaret intended, at the time of Michas’s
discharge, to perform them. Because Michas’s
responsibilities were absorbed and not
eliminated, we will apply the McDonnell
Douglas/mini-RIF standard.
Under McDonnell Douglas, Michas needed to
present evidence that his position was absorbed,
not eliminated to meet this aspect of his prima
facie case. In its findings of fact, the district
court accepted HCC’s statement that Michas’s
responsibilities were assumed by Demaret. This
evidence is sufficient to create a genuine
question of fact as to whether Michas met the
fourth prong of the McDonnell Douglas test.
Therefore, had the district court granted summary
judgment on this basis alone, we would find that
the court erred in its grant of summary judgment.
The district court also found that Michas
failed to make a prima facie case because he
failed to present sufficient evidence that he was
performing to HCC’s expectations. HCC blames
Michas’s discharge, in part, on Michas’s subpar
performance. Because of the overlap between this
element of Michas’s prima facie case and his
claim of pretext, we will analyze the dispute
over Michas’s performance within the context of
HCC’s grounds for discharge. However, we will
discuss the district court’s analysis of this
only if we determine that HCC’s other claim, that
it discharged its legal department in an effort
to reduce costs, was pretextual. The district
court found that Michas presented no evidence to
refute HCC’s claimed legitimate non-
discriminatory motive. Michas contends that he
produced evidence sufficient to create a genuine
issue of fact that these claims were pretextual.
B. Pretext
When a plaintiff presents facts that constitute
a prima facie case of discrimination, a
presumption of discrimination arises, and the
burden shifts to the defendant employer to
present a legitimate non-discriminatory motive
for the adverse employment action. See Testerman
v. EDS Technical Products Corp., 98 F.3d 297, 302
(7th Cir. 1996). If the defendant proffers such
reasons, "the plaintiff must then have an
opportunity to prove by a preponderance of the
evidence that the legitimate reasons offered by
the defendant were not its true reasons, but were
a pretext for discrimination." Texas Dep’t of
Community Affairs v. Burdine, 450 U.S. 248, 253
(1981). "A plaintiff can establish pretext by
showing either that a discriminatory reason more
likely motivated the employer or that the
employer’s explanation is unworthy of credence."
Chiaramonte v. Fashion Bed Group, Inc., 129 F.3d
397, 398 (7th Cir. 1997).
HCC argues that its decision to discharge him
was economically motivated. Michas contends that
this explanation is incredible and presents facts
that he believes raise a question of fact about
HCC’s credibility. He contends that because HCC
considered expanding the legal department only
six months before laying it off and because HCC
hired three new employees in the period directly
preceding his discharge, HCC could not have been
in the financial pickle that it claimed. Michas
also notes that on the day after he left, HCC
hired a consultant at a salary of $180,000 per
year and that HCC’s net income remained constant
despite all these additional expenses.
All these facts tend to suggest that HCC was
not in dire financial straits when it decided to
eliminate its legal department. However, HCC does
not contend that it was financially desperate.
The company merely claims that it faced a large
loss in revenue and rising fixed costs. Because
of these financial factors and the desire to put
its financial house right pending its
acquisition, HCC decided that its financial
interests would best be served by reducing
expenses in departments considered extraneous.
HCC presents evidence to support this claim,
including deposition testimony of the threat of
lost business (although only one of the three
clients considering leaving actually left),
stagnant net income for 1995 despite a 25 percent
increase in gross revenues and testimony about
HCC’s need to cut costs in the face of a
potential acquisition.
To show pretext, Michas must present evidence
from which we may infer that HCC did not, at the
time of his discharge, honestly believe the
reason they gave for firing him. See McCoy v. WGN
Continental Broadcasting Co., 957 F.2d 368, 373
(7th Cir. 1992). Michas provides no evidence that
HCC did not believe that it needed to cut costs
where it could. Instead, Michas again wishes us
to infer from the circumstantial evidence that a
seemingly legitimate business decision was based
on discriminatory motive. In the absence of any
direct evidence, however, we will not second-
guess the business decisions made by an employer.
See Wolf v. Buss (America) Inc., 77 F.3d 914, 920
(7th Cir. 1996). Michas claims that this business
decision was motivated not by a decision to cut
costs, but by discriminatory animus. However, he
presents no evidence of such animus, nor any
evidence that would tend to disprove that HCC was
motivated by a desire to cut costs. We find that
Michas has failed to present evidence sufficient
to create a genuine question of material fact
whether HCC’s legitimate business motive for
dissolving his department was pretextual.
HCC also argues that its decision to discharge
Michas in part was based on his subpar
performance. This argument may be considered an
alternative motive for Michas’s termination, or
it may merely have been provided to explain why
the legal department was chosen to be dissolved
as a cost cutting measure. Nevertheless, we need
not address the question whether Michas’s
performance met HCC’s expectations or was a basis
for his discharge. Michas has not produced
evidence sufficient to create a question of fact
as to whether HCC’s decision to terminate its
legal department was pretextual. Therefore, we
find no error in the district court’s grant of
summary judgment on this ground.
III. Conclusion
Because Michas failed to present evidence
sufficient to create a question of fact as to
whether HCC’s reasons for discharging him were
pretextual, we find that the district court did
not err in granting defendant HCC’s motion for
summary judgment. Therefore, the decision of the
district court is AFFIRMED.
/1 Although the named party to the suit is Health
Cost Controls of Illinois, Inc., this corporation
is a shell subsidiary of Health Cost Controls of
America, Inc. Health Cost Controls of Illinois
has no employees and could not have been
responsible for the actions claimed by Michas.
Because Michas was actually employed by Health
Cost Controls of America, Inc., we will refer to
Health Cost Controls of America, Inc. ("HCC") as
the defendant to this action.
/2 Local Rule 12(N) requires the non-movant to
submit a response to the movant’s Local Rule
12(M) submission of uncontested facts "to each
numbered paragraph in the moving party’s
statement, including, in the case of any
disagreement, specific references to the
affidavits, parts of the record, and other
supporting materials relied upon." United States
District Court for the Northern District of
Illinois Local General Rule 12(N)(3)(a). Local
Rule 12(M) requires the movant to submit with its
motion for summary judgment "a statement of
material facts as to which the moving party
contends there is no genuine issue and that
entitle the moving party to a judgment as a
matter of law." N.D. Ill. Local Rule 12(M)(3).
Local Rule 12(N)(3)(b) also allows the non-movant
to supplement the record with a statement of
additional facts that require a denial of summary
judgment. Local Rule 12(N) states that "[a]ll
material facts set forth in the statement
required of the moving party will be deemed to be
admitted unless controverted by the statement of
the opposing party." N.D. Ill. Local Rule
12(N)(3)(B).