Scarborough v. Federated Mutual Insurance Company

Background

Jonathan Scarborough was Federated Mutual Insurance Company’s Regional Marketing Manager for its Central Region. He supervised District Marketing Managers, including Frederick Johnston, and reviewed and approved their expense accounts.

In July 2014, Federated investigated Johnston after discovering a personal framing expense and learning that Johnston had submitted invoices for meeting rooms at Husch Blackwell that had been provided free of charge. Scarborough told his supervisor about Johnston’s use of the meeting rooms, later forwarded confirmation that the rooms were free, and allegedly said that Johnston’s invoicing practice was illegal and could involve tax violations. Federated investigated Scarborough as well. The company concluded that he had known about Johnston’s conduct, encouraged another employee to use a similar practice, mishandled certain expenses and referral credits, spread information about possible terminations, and engaged in other misconduct. Scarborough disputed those allegations.

Federated warned Scarborough, demoted him, and terminated his employment on August 20, 2014. Scarborough sued under the Minnesota Whistleblower Act, which protects an employee who, in good faith, reports an actual, suspected, or planned violation of law to an employer. The court had previously granted Federated summary judgment, but the Eighth Circuit Court of Appeals vacated that judgment and sent the case back for reconsideration after a Minnesota Supreme Court decision clarified the Act’s good-faith standard.

Legal standard

The court applied the summary-judgment standard. Summary judgment is appropriate when the evidence shows no genuine dispute over a fact that could affect the result and the moving party is entitled to judgment under the law. The court viewed the evidence and reasonable inferences in Scarborough’s favor.

Under the Minnesota Whistleblower Act, Scarborough had to show protected conduct, an adverse employment action, and a causal connection between the two. If he established that initial case, Federated had to identify a legitimate, non-retaliatory reason for its actions. Scarborough then had to provide evidence that those reasons were a pretext, meaning a cover for unlawful retaliation.

Protected reports

The court distinguished between making a report and making it in good faith. After the Minnesota Supreme Court’s decision in the earlier related proceeding, a report is made in good faith so long as it is not knowingly false or made with reckless disregard for the truth. The court stated that this decision did not eliminate the separate requirement that the employee actually communicate about an actual, suspected, or planned violation.

The court ruled that Scarborough did not make a protected report during the July 7 meeting because he did not yet know that the Husch Blackwell meeting rooms were free and therefore was not reporting suspected falsification of expense reports at that point. The court concluded that his later communications about the expense-report misconduct qualified as reports protected by the Act, even though Federated already knew about the misconduct.

Causation

The court rejected Scarborough’s argument that the evidence directly showed retaliation. It reasoned that the evidence more closely suggested Federated acted because it believed Scarborough was involved in Johnston’s misconduct and had lied about his knowledge, rather than because Scarborough reported the misconduct.

The court also rejected an inference of causation based on timing and Federated’s knowledge of the reports. It found that timing alone was insufficient and that the evidence did not otherwise support a causal link. The court further found that intervening events—including Federated’s belief that Scarborough had participated in or encouraged fraudulent expense practices and had engaged in other misconduct—undermined any inference of retaliation. It therefore held that Scarborough had not established the causal element of a prima facie whistleblower-retaliation case.

Legitimate reasons and pretext

The court alternatively held that Federated had identified legitimate, non-retaliatory reasons for warning, demoting, and terminating Scarborough. Those reasons included Federated’s conclusions that Scarborough knew about and approved Johnston’s fraudulent invoices, encouraged another employee to do the same, improperly used referral credits and company funds, spread false or inaccurate information about possible firings, and engaged in other misconduct.

The court found that Scarborough had not produced enough evidence for a reasonable jury to determine that these reasons were a pretext for retaliation. It stated that whether the alleged misconduct justified termination was Federated’s business decision, not one for the court to reweigh as an employment supervisor.

Disposition

The court granted Federated’s Motion for Summary Judgment on Scarborough’s Minnesota Whistleblower Act claim. The order states that the motion was “GRANTED” and directs that judgment be entered accordingly.