CHICAGO (CN) – The Seventh Circuit overturned a $27 million jury award to four former Allstate traders who claimed the company’s statements about their ethical conduct effectively made them unemployable in the financial industry.
“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,” U.S. Circuit Judge Diane Sykes said in Wednesday’s opinion. “That’s fatal to the defamation claims.”
In 2009, Allstate learned that some of its traders were timing trades to boost their bonus pay at the expense of the company’s portfolios – which included two pension funds to which Allstate owed fiduciary duties.
Following the investigation, the entire equity division was shuttered and outsourced to Goldman Sachs, but only four traders – Daniel Rivera, Rebecca Scheuneman, Deborah Meacock and Stephen Kensinger – were fired for cause and denied severance.
In February 2010, Allstate informed the Securities and Exchange Commission in a public 10-K form that “some employees” may have timed the execution of trades to enhance their incentive compensation, and that these trades had adversely affected clients’ portfolio performance by as much as $91 million.
The plaintiffs claim that the “some employees” statement clearly applied to them, since they were the only ones singled out and punished after the investigation.
Allstate paid the pension plans $91 million to make up for the purported loss due to employee misconduct.
But the insurer later conceded to the U.S. Department of Labor that its methodology for calculating portfolio losses was unreliable, and the trading practices at the equity desk had virtually no effect on trader bonuses.
In a letter, Allstate told the Labor Department that “[n]o one [at Allstate] believed, then or now, that this was an accurate description of the activity on the equity desk,” according to court records.
The fired traders swiftly sued their former employer for claims of defamation and violation of the Fair Credit Reporting Act.
A jury awarded them $27 million in damages, but the Seventh Circuit was skeptical of their claim at oral arguments last year, and overturned the award on Wednesday.
“The plaintiffs failed to present the testimony of even a single prospective employer who declined to hire them because of the statements in the 10-K,” Judge Sykes said in her 30-page opinion. “As a result the jury was ‘left to speculate’ based on circumstantial evidence alone whether the defamatory statements actually caused the claimed harm. That’s a failure of proof.”
U.S. Circuit Judge Michael Kanne and U.S. District Judge Sara Darrow, sitting by designation, also served on the three-judge panel.