REPORT AND RECOMMENDATION
ELIZABETH DEAVERS, Magistrate Judge
This matter is before the Court for consideration of Defendant Reliant Inventory Solutions' Motion for Sanctions (Doc. # 72). Defendant specifically accuses Plaintiff's counsel Stephen Brown of interfering with third-party witness Monroe Hodges. The Court referred this matter to the undersigned to issue a Report and Recommendation for the disposition of Defendant's Motion for Sanctions. For the reasons that follow, it is RECOMMENDED that the Court DENY Defendant's Motion for Sanctions and Plaintiff's counter-request for attorneys' fees and costs.
I. BACKGROUND
Plaintiff Richard A. Garvais, Jr. brings this action for breach of contract, accounting, declaratory judgment, and breach of fiduciary duty against Defendants Reliant Inventory Solutions Inc. (hereinafter "Solutions"), Reliant Inventory Services Inc., Barrett Hoffman (hereinafter "Hoffman"), and Steven Miller. (See Am. Compl.) Plaintiff specifically alleges that Defendants breached an employment agreement. (Id. at ¶¶ 10-15.) In their Motion for Summary Judgment, Defendants raise issues regarding Plaintiff's relationship with Piggly Wiggly, a grocery store chain and customer of Defendant Solutions. ( See Doc. # 58-1 at 7-8.)
Because the docket reflects numerous filings relevant to Defendant's Motion for Sanctions, the Court will cite primarily to document numbers contained in the record for the sake of clarity.
On June 24, 2010, Defendants filed their Response in Opposition to Plaintiff's Motion for Partial Summary Judgment (Doc. # 62). Defendants attached the unsigned Declaration of Monroe Hodges, an employee of Piggly Wiggly, to this filing. (Doc. # 62-8.) On the same day, Defendant Solutions submitted a Motion for Extension of Time (Doc. # 63). In this Motion, Defendant Solutions explained that the Declaration was unsigned because Mr. Hodges was on vacation, but that Solutions had discussed the substance of the Declaration with Mr. Hodges, and, therefore, only a short extension of time was needed to have Mr. Hodges sign the document. (Doc. # 63 at 2.)
Plaintiff moved to strike the unsigned Declaration from the record, maintaining that Defendants had not properly disclosed Monroe Hodges as a witness in discovery. (Doc. # 64.) The Court has since stricken the unsigned Declaration from the record. (Doc. # 90.)
The undersigned held a telephone status conference on June 30, 2010. At the conference Defense counsel Barry Freeman sought sanctions, alleging that Plaintiff's counsel, Stephen Brown, had interfered with and impeded the testimony of Mr. Hodges. Mr. Freeman specifically alleged that Mr. Brown had intimidated Mr. Hodges, and that Mr. Hodges no longer was willing to execute the unsigned Declaration. Consequently, the undersigned ordered Defendants to file a motion for sanctions, and set a briefing schedule to resolve the issue. The Court referred this matter, pursuant to 28 U.S.C. § 636(b)(1)(B), to the undersigned to conduct a hearing and issue a Report and Recommendation regarding the disposition of the Motion for Sanctions. (Doc. # 69.)
On July 9, 2010, Defendant Solutions filed its Motion for Sanctions (Doc. # 72). In the Motion, Defendant maintains that Mr. Brown intimidated Mr. Hodges, and used Piggly Wiggly to restrain Mr. Hodges, in order to prevent Mr. Hodges from executing his Declaration. (Doc. # 72-1 at 1.) To support these accusations, Defendant Solutions relies on the Declaration of Defendant Hoffman as well as emails between Mr. Freeman and Mr. Brown. In his Declaration, Defendant Hoffman details a call he received from Mr. Hodges in which Mr. Hodges expressed concern about signing the Declaration. (Doc. # 67-1 at ¶¶ 3-9.) According to Defendant Hoffman, Mr. Hodges' concern was the product of telephone calls from Mr. Brown as well as contact between Mr. Brown and other employees of Piggly Wiggly. (Id.) The emails consist of communications between Mr. Freeman and Mr. Brown regarding this matter shortly before the June 30, 2010 status conference. (See Docs. # 72-6, 72-7.)
Plaintiff filed its Opposition to Defendant's Motion for Sanctions on July 16, 2010. (Doc. # 74.) In an attached affidavit, Mr. Brown denied ever speaking with or emailing Mr. Hodges, and denied any improper conduct in this matter. (Doc. # 74-1 at ¶¶ 8-9, 13.) In his Opposition, Plaintiff maintains that Defendant's Motion for Sanctions is replete with no more than hearsay statements and in fact contained no admissible evidence of misconduct on the part of Mr. Brown. (Doc. # 74 at 5-7.) Plaintiff and his counsel maintain that they are entitled to attorneys' fees and costs based on the behavior of Defendants and their counsel in pursuing sanctions. (Doc. # 74 at 12.)
In its Reply, Defendant Solutions maintains, in part, that the Federal Rules of Evidence do not apply to the Court when considering whether to impose sanctions, and, therefore, the hearsay statements of Defendant Hoffman are admissible. (Doc. # 75 at 6-7.)
Because of the serious nature of the accusations of Defendant Solutions and its counsel, the Court scheduled an evidentiary hearing for August 16, 2010. As the Motion for Sanctions centered around the conduct of Mr. Brown, the Court ordered him to appear at the hearing.
On August 13, 2010, Plaintiff submitted notice of the Affidavits of Monroe Hodges and Andreas Satterfield, counsel for Piggly Wiggly, to the Court. (Doc. # 78.) In his Affidavit, Mr. Hodges states that he has never spoken with or otherwise communicated with Mr. Brown; that he never approved the unsigned Declaration that Defendants submitted; that he decided to stay out of the dispute for business reasons; and that Mr. Brown never behaved improperly towards him, intimidated him, or counseled him not to testify. (Doc. 78-1 at ¶¶ 3-5.) Mr. Satterfield's Affadavit provides, in conclusory fashion, that he investigated the matter for his client Piggly Wiggly and found that no misconduct occurred. (See Doc. 78-2.) On the same day, at the request of Mr. Freeman, the Court continued its August 16, 2010 evidentiary hearing to allow Defendant Solutions to decide whether to withdraw its Motion for Sanctions.
Without seeking leave of the Court and after the close of discovery, Mr. Freeman served a subpoena on Mr. Brown, pursuant to the authority of the United States District Court of South Carolina, demanding the production of documents pertaining to any communications between Mr. Brown and Piggly Wiggly. (Doc. # 81-3.) Mr. Brown objected to the subpoena, maintaining that Mr. Freeman was without authority to issue it and that the materials in question were privileged attorney work product. On August 23, 2010, Defendant Solutions filed an Emergency Motion to Compel (Doc. # 81) the documents in question.
The Court recognizes that the events that gave rise to Defendant's Motion for Sanctions, necessitating an evidentiary hearing regarding sanctions, occurred after discovery had closed in this case. Nevertheless, the Court finds that under the circumstances, Mr. Freeman should have sought leave from the Court to re-open discovery if he found that discovery on this issue was necessary. See Fed.R.Civ.P. 16(b)(4).
On August 26, 2010, the undersigned held an evidentiary hearing. After performing an in camera inspection of the documents in question, the Court orally denied Defendant's Emergency Motion to Compel (Doc. # 81). Additionally, the Court indicated that nothing in the documents constituted sanctionable conduct on the part of Mr. Brown. At the hearing, the Court heard the testimony of Mr. Brown, Defendant Hoffmann, and Mr. Freeman. The Court also admitted other evidence, including a June 28, 2010 voicemail message from Monroe Hodges to Defendant Hoffman. In the voicemail, Monroe Hodges indicated that his phone had been ringing off the hook with regard to the Declaration, and referenced Mr. Brown. In addition to testimony surrounding the conduct of Mr. Brown, the Court heard testimony regarding Plaintiff's counter-motion for sanctions, focusing on Defendant Solutions and Mr. Freeman's decision to pursue the Motion for Sanctions.
Plaintiff had no objection to this inspection.
II. APPLICABLE LAW
A. The Court's Inherent Authority
In its Motion for Sanctions, Defendant Solutions requests that the Court use its inherent authority to sanction Plaintiff and his counsel. The Supreme Court has held that the federal courts have "[c]ertain implied powers . . . which cannot be dispensed with in a Court, because they are necessary to the exercise of all others." Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991). A primary aspect of the Court's inherent power "is the ability to fashion an appropriate sanction for conduct which abuses the judicial process." Id. at 44-45. "A court's reliance upon its inherent authority to sanction derives from its equitable power to control the litigants before it and to guarantee the integrity of the court and its proceedings." Dell, Inc. v. Elles, No. 07-2082, 2008 WL 4613978, at *2 (6th Cir. June 10, 2008) (citing Chambers, 501 U.S. at 43). The Court must exercise its inherent authority "with restraint and discretion." Chambers, 501 U.S. at 44. Furthermore, "the inherent power of a court can be invoked even if procedural rules exist which sanction the same conduct." Id. at 49.
As the Supreme Court noted in Chambers, a court may impose a sanction, such as attorney's fees, when a party has "`acted in bad faith, vexatiously, wantonly, or for oppressive reasons.'" Id. at 45-46 (quoting Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421 U.S. 240, 258-59 (1975)). The Sixth Circuit has also noted that "[t]he `imposition of inherent power sanctions requires a finding of bad faith,' . . . or conduct `tantamount to bad faith.'" Dell, 2008 WL 4613978, at *2 (quoting First Bank of Marietta v. Hartford Underwriters Ins. Co., 307 F.3d 501, 517 (6th Cir. 2002); Roadway Express, Inc. v. Piper, 447 U.S. 752, 767 (1980)).
It is not improper for an attorney to attempt to contact a potential third-party witness. Nevertheless, an attempt to interfere with, intimidate, or tamper with a potential witness is sanctionable misconduct. See Ty Inc. v. Softbelly's, Inc., 517 F.3d 494, 498 (7th Cir. 2008) ("Trying improperly to influence a witness is fraud on the court and on the opposing party. . . ."); Ramsey v. Broy, No. 08-CV-0290, 2010 WL 1251199, at *4 (S.D. Ill. Mar. 24, 2010) ("Not only does witness tampering interfere with the judicial branch's ability to function properly, it is a federal crime.") (citing 18 U.S.C. § 1512(b)); see also United States v. Vasilakos, 508 F.3d 401, 411 (6th Cir. 2007) ("A federal court's authority to protect the integrity of its proceedings encompasses the authority to take reasonable actions to avoid intimidation or coercion of witnesses.").
As other courts have concluded, the Court places the burden of proof on the party moving for sanctions. See Ramsey, 2010 WL 1251199, at *5. At the evidentiary hearing, Defense counsel maintained, and cited case law to support, that the Court should apply a preponderance of the evidence standard in determining sanctions. See Grogan v. Garner, 498 U.S. 279, 286 (1991) (quoting Herman MacLean v. Huddleston, 459 U.S. 375, 389-390 (1983)) ("Because the preponderance-of-the-evidence standard results in a roughly equal allocation of the risk of error between litigants, we presume that this standard is applicable in civil actions between private litigants unless `particularly important individual interests or rights are at stake.'"); see also Wade v. Soo Line R.R. Corp., 500 F.3d 559, 564 (7th Cir. 2007) (implying in dicta that sanctions pursuant to Federal Rule of Civil Procedure 37 did not require clear and convincing evidence). Nevertheless, other courts have cast doubt on whether a preponderance of the evidence standard is appropriate when a court uses inherent power to impose sanctions:
The present case, however, involves not a ruling under Rule 37 but an exercise of a federal court's inherent authority to sanction misconduct in litigation before it; and a number of cases hold that the imposition of such a sanction (when indeed it is punitive and not merely compensatory) requires proof by clear and convincing evidence.
See Shepherd v. American Broadcasting Cos., 62 F.3d 1469, 1476-78 (D.C. Cir. 1995), and cases cited there. . . . The logic of these holdings is that in the absence of a statute or rule, the exercise of judicial authority should be governed by traditional common law or equitable principles, such as the familiar principle that fraud must be proved by clear and convincing evidence.
E.g., Barr Rubber Products Co. v. Sun Rubber Co., 425 F.2d 1114, 1120-21 (2d Cir. 1970);
Shepherd v. American Broadcasting Cos., supra, 62 F.3d at 1477.
Ty Inc. v. Softbelly's, Inc., 517 F.3d at 498-99. In this case, the undersigned finds the distinction irrelevant because, for the reasons described below, sanctions against Mr. Brown would be inappropriate pursuant to either standard.
Additionally, the undersigned does not find that the question of which standard to apply affects the decision with regard to Defendant Solution and Mr. Freeman's prosecution of the Motion for Sanctions.
B. Admissibility of Evidence in Considering Sanctions
The parties dispute the applicability of the Federal Rules of Evidence in determining sanctions. (See generally Docs. # 74, 75, 85, 87.) Plaintiff maintain, pursuant to Federal Rule of Evidence 1101, that the Federal Rules of Evidence should apply when the Court decides to hold an evidentiary hearing to consider sanctions. (Doc. # 85 at 3-6.) Defendant, on the other hand, contends that the United States Court of Appeals for the Sixth Circuit has found that the Federal Rules of Evidence are not strictly applicable to sanction considerations. (Doc. # 75 at 6-7 (citing Cook v. Am. Steamphsip Co., 134 F.3d 771 (6th Cir. 1998)).) The issue of whether the Rules apply matters, because, at the time of the hearing, Defendant Solutions' evidence consisted primarily of hearsay statements of Mr. Hodges as interpreted by Mr. Hoffman. At the August 26, 2010 sanctions hearing, the Court reserved its ruling on this issue, and received all the evidence the parties offered.
Defendant does argue, in the alternative, that if the Court does find hearsay inadmissible it should exclude the Affidavits of Monroe Hodges and Mr. Satterfield which Plaintiff submitted on August 13, 2010.
Rule 1101 provides that the Federal Rules of Evidence "apply generally to civil actions and proceedings, including . . . contempt proceedings. . . ." Fed.R.Evid. 1101(b). Rule 1101 also provides a list of miscellaneous proceedings to which the Rules do not apply, including "[p]roceedings for extradition or rendition; preliminary examinations in criminal cases; sentencing, or granting or revoking probation; issuance of warrants for arrest, criminal summonses, and search warrants; and proceedings with respect to release on bail or otherwise." Fed.R.Evid. 1101(d)(3). Some courts have found that the list in Rule 1101(d) is not exhaustive. See, e.g., Arista Records LLC v. Doe 1-27, 584 F.Supp.2d 240, 255 (D. Me. 2008) (citing United States v. Zannino, No. 83-235-N-3, 1985 WL 2305, at *3 (D. Mass. June 5, 1985)); see also Forseberg v. Perfanis, 261 F.R.D. 694, 699 (N.D. Ga. 2009) (discussing the uncertain nature of whether the Federal Rules of Evidence are applicable to a sanctions hearing).
In Cook, the United States Court of Appeals for the Sixth Circuit held that a district court did not violate an attorney's rights in refusing to hold an evidentiary hearing, pursuant to the Federal Rules of Evidence. Cook, 134 F.3d at 774. The Sixth Circuit specifically determined that even though the incident leading to sanctions occurred outside the district court's presence, the court had the discretion to determine whether an evidentiary hearing was necessary before assessing sanctions. Id. at 775. Finally, the Sixth Circuit allowed the lower court to base its sanctions on an incident report that contained witnesses' statements. Id. at 776. The Cook decision did not reach the issue of the applicable Rules of Evidence if a court does hold a sanctions hearing.
In performing the instant analysis, the undersigned applies the Federal Rules of Evidence and excludes hearsay testimony, including the testimony of Mr. Hoffman relating to the statements of Mr. Hodges, offered at the August 26, 2010 hearing. Specifically, the undersigned finds an evidentiary hearing regarding sanctions to be analogous to contempt proceedings, where the Federal Rules of Evidence apply. The Cook case is not binding because the Sixth Circuit did not reach this exact issue. Nevertheless, the undersigned will consider the affidavits, submitted before the hearing, from each party. Although these affidavits are also technically out of court statements, the Cook decision gives the Court some discretion in this regard, as these affidavits are similar to the witness statements Cook allowed the lower court to rely upon. Cook, 134 F.3d at 766.
This determination does not make a strong practical difference in this Report and Recommendation. Even considering all the evidence presented at the sanctions hearing, including hearsay statements, the undersigned finds that sanctions against Mr. Brown are inappropriate in this case.
The Court will exclude statements within these affidavits that it finds to be hearsay within hearsay, however. Additionally, the Court notes that it gives Mr. Satterfield's Affidavit no weight. Mr. Satterfield's Affidavit is highly conclusory and the undersigned finds that it is ultimately the Court's obligation to assess whether sanctionable misconduct occurred in this case.
Although these materials are excluded for the truth of the matter asserted, the undersigned will consider all the evidence presented in evaluating the propriety of Defendant Solutions and Mr. Freeman's decision to bring the Motion for Sanctions. Specifically, because of the uncertainty surrounding the applicability of the Federal Rules of Evidence in sanctions considerations, the undersigned finds that Mr. Freeman and Defendant Solutions could have reasonably believed such evidence would be admitted. After all, at least one Court of Appeals has interpreted the Cook decision in a similar manner. See Jensen v. Phillips Screw Co., 546 F.3d 59, 66 n. 5 (1st Cir. 2008) (citing Cook for the notion that the Federal Rules of Evidence do not "necessarily apply to factfinding in the context of sanctions").
III. ANALYSIS
A. Mr. Brown
Considering the evidence as a whole, the undersigned finds that sanctions against Mr. Brown are not warranted. Once again, an attorney acts wholly within his or her ethical boundaries by attempting to communicate with a potential third-party witness. It is only when an attorney attempts to interfere in some way with that witness' testimony that misconduct occurs.
The Model Rules of Professional Responsibility do set forth guidelines addressing communications and dealings with unrepresented and represented persons. See Model Rules of Prof'l Conduct 4.2 (instructing a lawyer not to communicate directly with a person it knows to be represented in the relevant matter); Model Rules of Prof'l Conduct 4.3 (setting forth guidelines for attorneys in dealing with unrepresented parties). Neither of these rules prohibits a lawyer from contacting a potential third-party witness who is unrepresented in the matter.
In this case, the evidence does not demonstrate that Mr. Brown attempted to prevent Monroe Hodges from providing testimony. Rather, the evidence indicates that Mr. Brown was investigating Defendants' filing of the unsigned Declaration of Monroe Hodges, a witness who Defendants never identified and who Plaintiff did not anticipate would testify or participate in this case until the date of Defendants' filing. According to Mr. Brown, the information in the Declaration was inconsistent with the facts of the case as he understood them, giving him further reason to investigate the matter. After contacting Piggly Wiggly and receiving Mr. Hodges' number, Mr. Brown ultimately placed two telephone calls with Mr. Hodges that went unanswered. Mr. Brown testified that he did not leave a message.
The August 13, 2010 Affidavit of Monroe Hodges further supports Mr. Brown's account of the events. Mr. Hodges' Affidavit specifically provides:
3. I do not know, and have never met, spoken with or otherwise communicated with attorney Stephen H. Brown.
4. I now know that an unsigned document entitled Declaration of Monroe Hodges was filed with this Court on June 24, 2010. I had never seen or approved that document prior to the time it was filed . . .
5. . . . I have elected to stay out of the dispute between the parties to this action . . . The decision . . . was [my] own business decision and was not a result of any conduct by Mr. Brown as alleged by the Defendants. To my knowledge, Mr. Brown has not acted improperly or unprofessionally in any manner related to this case. He certainly has not coerced or intimidated me. . . .
6. Mr. Brown has never suggested or counseled that I should not provide my truthful testimony to this Court. . . .
(Doc. # 78-1 at 3-6.)
Defendant Solutions failed to satisfy its burden to demonstrate that Mr. Brown acted improperly. Accordingly, based on consideration of the evidence as a whole, the undersigned RECOMMENDS that the Court DENY Defendant's Motion for Sanctions against Plaintiff's counsel Stephen Brown.
B. Defendant Solutions and Mr. Freeman
In their Memorandum in Opposition, and also orally during the August 26, 2010 evidentiary hearing, Plaintiff and his legal counsel request attorneys' fees and costs as a result of Defendant Solutions and Mr. Freeman's pursuit of sanctions. Plaintiff primarily bases his request for attorneys' fees and costs on the notion that Defendant Solutions and Mr. Freeman brought the Motion for Sanctions without any admissible evidence. (Doc. # 74 at 11-12.) For the sake of judicial efficiency, the Court received testimony and evidence regarding this issue during the August 26, 2010 hearing.
1. Rule 11
Plaintiff's request for attorneys' fees and costs rests on one basic contention: that Defendant Solution's sanction motion contains insufficient evidentiary support and is therefore an unreasonable motion. This type of motion ordinarily would be brought under Rule 11 of the Federal Rules of Civil Procedure. See Fed.R.Civ.P. 11(b)(3) (requiring that when a party presents a motion to the Court it represents "the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery"). Nevertheless, Rule 11 requires a party to file a motion "separately from any other motion," and also provides for a safe-harbor period in which the opposing party has an opportunity to withdraw the allegedly improper document. Because of this safe-harbor provision, a Rule 11 motion ordinarily "should be served promptly after the inappropriate paper is filed." Fed.R.Civ.P. 11, Advisory Committee Notes (1993 Amendments). The Advisory Committee Notes to Rule 11 further provide that "[g]iven the `safe harbor' provisions . . . a party cannot delay serving its Rule 11 motion until conclusion of the case (or judicial rejection of the offending contention)." Id.
In this case, Plaintiff has not brought a separate Rule 11 motion, but instead requests attorneys' fees and costs within their Memorandum in Opposition. The Court finds that any Rule 11 motion would now be untimely, and also would have been untimely anytime after the August 26, 2010 hearing, as Defendant Solutions and Mr. Freeman would not have the appropriate "safe harbor" time to withdraw the Motion for Sanctions. Accordingly, Rule 11 does not form an appropriate basis for sanctions in this case.
Mr. Brown reiterated this request at the August 26, 2010 evidentiary hearing.
The Court has considered the possibility of instituting sanctions on its own initiative pursuant to Fed.R.Civ.P. 11(c)(3). Nevertheless, under Rule 11(c)(3), the Court is not permitted to impose a sanction of attorney's fees or costs, as Plaintiff requests. Fed.R.Civ.P. 11(c)(4) (stating that a court may impose the payment of "attorney's fees and other expenses" to a party only "if imposed on motion"); see also Fed.R.Civ.P. 11, Advisory Committee Notes (1993 Amendments) (Rule 11 "provides that a monetary sanction imposed after a court-initiated show cause order be limited to a penalty payable to the court . . ."). Under such circumstances, the undersigned finds that it would be inappropriate to further prolong this matter by initiating show cause proceedings against Defendant Solutions and Mr. Freeman.
2. Inherent Authority
Although Rule 11 sanctions of attorneys' fees or costs are unavailable in this case, the Court may also consider whether to sanction Defendant Solutions and Mr. Freeman under its inherent authority. See First Bank of Marietta v. Hartford Underwriters Ins. Co., 307 F.3d 501, 510-19 (6th Cir. 2002) (allowing a court to use its inherent authority to impose sanctions when Rule 11 sanctions were procedurally unavailable); see also Chambers, 501 U.S. at 50 ("[N]othing in the other sanctioning mechanisms . . . warrants a conclusion that a federal court may not, as a matter of law, resort to its inherent power to impose attorney's fees as a sanction. . . ."). Furthermore, the Supreme Court has emphasized that inherent authority "extends to a full range of litigation abuses." Chambers, 501 U.S. at 46.
While inherent authority is broad in scope, as set forth above, it is generally reserved to circumstances where an attorney's behavior constitutes bad faith as opposed to mere unreasonableness. Id. at 46-47. The United States Court of Appeals for the Sixth Circuit has required conduct to be at least tantamount to bad faith to justify the imposition of inherent-authority sanctions. First Bank of Marietta, 307 F.3d at 520. "`In order to award attorney fees under this bad faith exception, a district court must find that the claims advanced were meritless, that counsel knew or should have known this, and that the motive for filing the suit was for an improper purpose such as harassment.'" First Bank of Marietta, 307 F.3d at 512 (quoting Big Yank Corp. v. Liberty Mut. Fire Ins. Co., 125 F.3d 308, 313 (6th Cir. 1997)) (emphasis added).
In this case, although far from condoning Defendant Solutions and Mr. Freeman's conduct, the undersigned does not find sufficient evidence of bad faith, or conduct tantamount to bad faith, to justify inherent-authority sanctions. Defendants and Defense counsel understandably were frustrated that Monroe Hodges, who apparently informally agreed through oral communications to provide much of the information detailed in his unsigned Declaration, ultimately decided to refrain from giving testimony in this dispute. Furthermore, the testimony of Mr. Hoffman regarding his conversations with Mr. Hodges, as well as the voicemail Mr. Hodges left Mr. Hoffman, amount to some circumstantial evidence indicating the possibility that Mr. Brown applied improper pressure on either Piggly Wiggly or Mr. Hodges. Although much of this evidence is inadmissible hearsay, based on the Sixth Circuit's decision in Cook, Mr. Freeman could have believed that this evidence might be admissible for the purpose of sanctions.
Based on the evidence presented, the undersigned finds some ambiguity as to what extent Mr. Hodges actually agreed to provide testimony through declaration to the Court. Nevertheless, the undersigned concludes from the testimony of Mr. Hoffman and Mr. Freeman at the evidentiary hearing that Defendants had a good faith belief that Mr. Hodges had agreed to the information in the Declaration. Additionally, Defendants were open to the Court regarding the unsigned nature of the Declaration. Consequently, to the extent Plaintiff seeks sanctions with regard to the filing of the unsigned declaration, the undersigned finds no sanctionable conduct on the part of Defendants. Finally, to the extent Plaintiff seeks sanctions based on Defendants' failure to earlier identify Mr. Hodges as a witness, the Court has already stricken Mr. Hodges unsigned Declaration and finds that any further action against Defendants, for this conduct, would be inappropriate.
Nevertheless, Defendant Solutions and Mr. Freeman were overzealous, at the very least, in their prosecution of their Motion for Sanctions. Beginning during the scheduling of the June 30, 2010 status conference, Mr. Freeman indicated to the Court that Defendants would vigorously seek sanctions against Mr. Brown. It appears to the Court that Defendant Solutions and Mr. Freeman interpreted the information they possessed in the worst possible light, assuming the worst of Mr. Brown, and never took the opportunity to consider that his conduct may have been more innocent than their initial frustration led them to believe. The undersigned finds that it was primarily this mind-set, on the part of Defendants and their counsel, that propelled this matter to this undesirable stage.
On August 13, 2010, Plaintiff submitted the Affidavit of Monroe Hodges. (See Doc. # 78-1.) In the Affidavit, Mr. Hodges detailed that he had never communicated with Mr. Brown and that his decision to stay out of this case was not a result of any conduct on the part of Mr. Brown. (Id.) Based on the combination of Mr. Hodges' Affidavit; Mr. Brown's earlier Affidavit; and the evidence Defendants and Mr. Freeman ultimately presented at the August 26, 2010 hearing, the undersigned finds it incomprehensible that Mr. Freeman could have anticipated any realistic chance of success on the Motion for Sanctions. Although Mr. Freeman might have considered Mr. Hodges' Affidavit inadmissible hearsay, this would also mean that all the hearsay evidence he wished to offer would also be inadmissible. Furthermore, Mr. Freeman's own voicemail to Mr. Brown, which Plaintiff presented at the hearing, indicated that after reading the Affidavit Mr. Freeman was sorry for his actions towards Mr. Brown. Consequently, the undersigned finds that, at the latest, Defendant Solutions and Mr. Freeman should have withdrawn their Motion for Sanctions after Plaintiff filed Mr. Hodges' Affidavit.
Mr. Freeman did also provide that he would need to speak to his client before taking any definitive action with regard to the Motion for Sanctions.
Although Defendant Solutions and Mr. Freeman's pursuit of sanctions after August 13, 2010 appears to have been unreasonable, the undersigned declines to invoke the Court's inherent authority to issue sanctions. The record does not bear out that Defendant Hoffman or Mr. Freeman acted in bad faith, for improper purposes, or with any other ill motive. Mr. Freeman's telephone call to Mr. Brown implies that he considered withdrawing Defendant Solutions' Motion for Sanctions after reading Mr. Hodges' Affidavit. During his testimony at the hearing, however, Mr. Freeman indicated that after speaking with his client he was once again confident that Mr. Brown committed some type of misconduct. While it is possible that an improper purpose motivated Mr. Freeman's prosecution of the Motion for Sanctions after this point, it is just as possible, and in fact appears more likely, that after speaking to his client, Mr. Freeman simply was re-convinced that his client's testimony justified the Motion for Sanctions. In the end, there is simply too little evidence for the undersigned to conclude that Defendant Solutions' and Mr. Freeman's actions were the product of anything worse than unreasonable decision-making, poor judgment, and over-zealous advocacy.
Mr. Freeman's subsequent subpoena of Mr. Brown's documents supports the notion that Mr. Freeman genuinely believed that some misconduct, whether through direct or indirect influence of Mr. Hodges, had occurred.
IV. CONCLUSION
For the foregoing reasons, it is RECOMMENDED that the Court DENY Defendant Reliant Inventory Solutions' Motion for Sanctions (Doc. # 72) and Plaintiff's counter-request for sanctions. It is also RECOMMENDED that the Court DENY Plaintiff's Motion in Limine to Exclude Hearsay Testimony (Doc. # 85) as moot in light of this Report and Recommendation.
V. NOTICE
If any party seeks review by the District Judge of this Report and Recommendation, that party may, within fourteen (14) days, file and serve on all parties objections to the Report and Recommendation, specifically designating this Report and Recommendation, and the part in question, as well as the basis for objection. 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b). Response to objections must be filed within fourteen (14) days after being served with a copy. Fed.R.Civ.P. 72(b).
The parties are specifically advised that the failure to object to the Report and Recommendation will result in a waiver of the right to de novo review by the District Judge and waiver of the right to appeal the judgment of the District Court. See, e.g., Pfahler v. Nat'l Latex Prod. Co., 517 F.3d 816, 829 (6th Cir. 2007) (holding that "failure to object to the magistrate judge's recommendations constituted a waiver of [the defendant's] ability to appeal the district court's ruling"); United States v. Sullivan, 431 F.3d 976, 984 (6th Cir. 2005) (holding that defendant waived appeal of district court's denial of pretrial motion by failing to timely object to magistrate judge's report and recommendation). Even when timely objections are filed, appellate review of issues not raised in those objections is waived. Robert v. Tesson, 507 F.3d 981, 994 (6th Cir. 2007) ("[A] general objection to a magistrate judge's report, which fails to specify the issues of contention, does not suffice to preserve an issue for appeal. . . .") (citation omitted)).
November 15, 2010
gricultural-research-technology-group#p534916 F.2d 528, 534 (9th Cir. 1990);
California Architectural Bldg. Prod., Inc. v. Franciscan Ceramics, Inc.,
818 F.2d 1466, 1468 (9th Cir. 1987).
DISCUSSION
Plaintiffs brought claims for a violation of their civil rights under 42 U.S.C. § 1983, wrongful discharge, breach of contract, and wage claims under Oregon law. Plaintiffs also seek injunctive relief, in the form of reinstatement in their former positions and expungement of all references to their terminations and the surrounding accusations from the District's records. Before the court is the District's motion for summary judgment on all of plaintiffs' claims except for injunctive relief. Defendants also seek to establish that defendant Fisher is entitled to qualified immunity on the § 1983 claims.
I. Constructive Discharge
The parties agree that a threshold issue is whether the plaintiffs were constructively discharged. The standard differs under federal and state law, and plaintiffs bring claims under both.
A. Federal
When a plaintiff brings a § 1983 claim based on constructive discharge, the court evaluates the alleged constructive discharge under federal law. See e.g. Knappenberger v. City of Phoenix, 566 F.3d 936, 940-41 (9th Cir. 2009). In the Ninth Circuit, the standard for constructive discharge differs depending on the circumstances. In situations where an employee quits because of the conditions of her working environment, the inquiry is whether "working conditions bec[a]me so intolerable that a reasonable person in the employee's position would have felt compelled to resign?" Poland v. Chertoff, 494 F.3d 1174, 1184 (9th Cir. 2007). A constructive discharge does not always, however, demand "unendurable working conditions." See e.g. Kalvinskas v. Cal. Institute of Tech., 96 F.3d 1305 (9th Cir. 1996). The Ninth Circuit also recognizes "employment claims based on a theory of coercion," where "a resignation may be found involuntary if, from the totality of the circumstances, it appears that the employer's conduct in . . . obtaining the resignation effectively deprived the employee of free choice in the matter." Knappenberger, 566 F.3d at 941 (citations omitted). In such situations, "resignation may be involuntary and constitute a deprivation of property for purposes of a due process claim in the absence of intolerable working conditions." Id.
In Kalvinskas, a long-time employee was effectively given a choice between retiring and receiving his pension or remaining employed, but having the disability benefits he was receiving reduced to nothing. 96 F.3d at 1306. The Ninth Circuit held that, because "a reasonable person in [his] position would feel he had no choice but to retire," Kalvinskas's retirement was involuntary for purposes of the ADEA's prohibition of retirement plans that require or permit involuntary retirement. Id. at 1308. The court deemed Kalvinskas's choice to be involuntary not because of discriminatory or intolerable working conditions, but rather, "because of the coercion inherent in the choice between retirement and a complete deprivation of income." Id.; see also Lojek v. Thomas, 716 F.2d 675, 683 (9th Cir. 1983) (suggesting an employee coerced into resigning could demonstrate he left his employment involuntarily).
Here, the evidence in the record shows that the plaintiffs were given the ultimatum to pay thousands of dollars in a short period of time, or be fired. There was no mechanism to contest the validity or legality of the ultimatum. Plaintiff Dunn testified that "if one is fired, that's a big black mark on your record" and "you are not going to get another job." Brown Decl. Att. 7, at 7. Plaintiff Masunaga testified, "Rather than being fired, I resigned . . . [b]ecause I knew I needed a job, and I was not going to get a job if I was going to be fired from the school district." Brown Decl. Att. 8, at 4.
Given the coercion inherent in the ultimatum to pay a substantial sum of money or be fired, and based on the evidence of the negative effects of being fired, I find that, from the totality of the circumstances, there is a question of fact whether the District's conduct in obtaining the resignation of the plaintiffs deprived Dunn and Masunaga of free choice in the matter, effectively constructively discharging plaintiffs under federal law.
B. Oregon Law
Plaintiffs argue that under Sheets v. Knight, 308 Or. 220, 779 P.2d 1000 (1989), an individual has been constructively discharged if she resigned rather than be fired. The District responds that Sheets was expressly overruled by McGanty v. Stadenraus, 321 Or. 532, 557, 901 P.2d 841, 856-57 (1995), which holds,
to establish a constructive discharge, a plaintiff must
allege and prove that (1) the employer intentionally created or intentionally maintained specified working condition(s); (2) those working conditions were so intolerable that a reasonable person in the employee's position would have resigned because of them; (3) the employer desired to cause the employee to leave employment as a result of those working conditions or knew that the employee was certain, or substantially certain, to leave employment as a result of those working conditions; and (4) the employee did leave the employment as a result of those working conditions.
The Oregon Supreme Court, however, has held that McGanty did not overrule Sheets with respect to the relevant issue. See Stupek v. Wyle Laboratories Corp., 327 Or. 433, 439, 963 P.2d 678, 681 (1998). Although the Stupek court quoted the McGanty formulation of the elements of constructive discharge, it also cited Sheets for the proposition that "[a] forced resignation may support a claim for wrongful discharge." Id. The Stupek court explained,
Where the employee unconditionally has been told `resign today or be fired,' the employer has decided that the employment relationship is at an end and that the employee shall leave. The employee merely selects the manner in which the employer's will is accomplished. Under such circumstances a fact finder may find that a `resignation' was a discharge.
Id. (citing
Sheets,
308 Or. at 227). In so explaining, the Supreme Court effectively held that
Sheets offers an alternative to
McGanty's requirement that working conditions were so intolerable that a reasonable person in the employee's position would have resigned because of them.
Here, the evidence demonstrates that Fisher insisted Dunn and Masunaga would have to pay substantial sums of money to pay back allegedly erroneous reimbursements they had received, if they wanted to continue working for the District. Pay us back or be fired. By April 23, 2009, Fisher knew Dunn and Masunaga were substantially certain to leave their employment, one way or another, because of the condition he'd imposed. No longer requesting payment, he wrote,
On April 22, 2009, you willfully disobeyed my order and did not repay the District the [money], which you have been notified would be considered insubordination. Before I make my recommendation to dismiss you from the Reynolds School District to the Board of Education, I am scheduling a pre-termination for you to respond to the potential charges leading to your dismissal.
Brown Decl. Att. 13, at 1; Att. 14, at 1. In her words, Masunaga resigned "in lieu of being terminated from my position." Brown Decl. Att. 8, at 4. Dunn resigned "[b]ecause if [she] didn't resign [she] would be fired." Brown Decl. Att. 7, at 7.
Viewed in the light most favorable to the nonmoving plaintiffs, there is an issue of material fact whether a finder of fact would find that in this case plaintiffs' resignations were actually discharges. Defendants' motion for summary judgment on the state law issue is denied.
II. Violation of Due Process Rights Under the Fourteenth Amendment
In their complaint, plaintiffs allege that "Defendant Fisher, while acting under color of state law, effected taking of plaintiff Masunaga's property in violation of her right to due process of law" by "coercing her resignation. . . . terminating plaintiff's employment. . . . [and] by depriving plaintiff access to the judicial process for determination of a matter in dispute between her and her employer." Compl. ¶ 35. Broadly construed, the language of the complaint alleges two property interests each: a property interest in the job of principal and a property interest in the unused accrued vacation days. In addition, the language of the complaint alleges a procedural due process violation.
A. Procedural Due Process
The Fourteenth Amendment protects against the deprivation of property or liberty without due process. See Carey v. Piphus, 435 U.S. 247, 259 (1978); Brady v. Gebbie, 859 F.2d 1543, 1547 (9th Cir. 1988). A § 1983 claim based upon the deprivation of procedural due process thus has three elements: (1) a liberty or property interest protected by the Constitution; (2) a deprivation of the interest by the government; and (3) lack of process. Portman v. County of Santa Clara, 995 F.2d 898, 904 (9th Cir. 1993).
1. Property Interest Protected by Constitution
a. Property Interest in Employment
An employee has a constitutionally protected property interest in continued employment if he has a "reasonable expectation or a `legitimate claim of entitlement' to it." Brady, 859 F.2d at 1547-48 (quoting Roth, 408 U.S. at 577.). A legitimate claim of entitlement arises if it is created by existing rules or understandings that stem from an independent source, such as state law. See id. at 1548; see also Trivoli v. Multnomah County Rural Fire Protection Dist. No. 10, 74 Or. App. 550, 554 (1985). A statute, rule or contract may also confer the property interest. Trivoli, 74 Or. App. at 554.
Here, the District concedes that both plaintiffs had contracts for employment with it from July 1, 2008, through June 30, 2011. Therefore, each had a constitutionally protected property interest in continued employment through the end date of the contracts.
b. Property Interest in Unused Vacation Days
The Supreme Court has held,
The procedural component of the Due Process Clause does not protect everything that might be described as a `benefit': To have a property interest in a benefit, a person clearly must have more than an abstract need or desire and more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it. Such entitlements are, of course, . . . not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law. . . . Our cases recognize that a benefit is not a protected entitlement if government officials may grant or deny it in their discretion.
Town of Castle Rock, Colo. v. Gonzales, 545 U.S. 748, 756 (2005) (internal citations and quotations omitted).
The Ninth Circuit has never considered the precise question of whether accrued leave is the type of property protected by the Fourteenth Amendment. Portman v. County of Santa Clara, 995 F.2d 898, 906 (9th Cir. 1993). The Ninth Circuit declined to answer an analogous question of whether accrued sick leave is protected.Id. at 907. The court noted, however, that in the Sixth Circuit, because deprivation of a specific employment benefit is a loss which is easily defined, "entitlement to accumulated sick leave, although a property interest, is not constitutionally protected."Id. at 906 (citing Ramsey v. Bd. of Education, 844 F.2d 1268, 1272 (6th Cir. 1988).).
In a District of Arizona case analogous to the case at bar, a school principal was asked to resign from her position while under contract. Ordway v. Lucero, No. CV-04-1046-PCT-MHM, 2007 WL 951963, at *1 (D. Ariz. 2007). The principal brought a § 1983 case against the school district, claiming among other things, a violation of her due process rights with regard to non-payment of her accrued sick leave. Id. at *6. The court noted that "the written policy of the District is clear that in order to receive payment for such leave upon separation, the employee must have ten years of continuous service with the District." Id. at *7. Since the principal in the case did not have ten years of service, the court held that the principal did not have a property interest in her unpaid leave. Id.
Here, the Reynolds Personnel Policy entitled "GCDC — Administrator Vacation," dated January 4, 2007, read,
Vacation When Terminating. Administrators whose contract year runs July 1 through June 30, and who have vacation available as a benefit, will be paid for unused vacation time, not to exceed forty-two days (forty-three days if a leap year is involved).
Brown Decl. Att. 17, at 1.
The clear contractual language creates a property right in the unused vacation days.
2. Deprivation of Interest by Government
Again, in the Ninth Circuit, "resignation may . . . constitute a deprivation of property for purposes of a due process claim."Knappenberger, 566 F.3d at 941. A school district, which is a local governmental entity, qualifies as the government for purposes of a § 1983 due process claim. See Plumeau v. Yamhill County School Dist. No. 40, 907 F. Supp. 1423, 1435-36 (D. Or. 1995).
a. Deprivation of Employment by Government
I have already held that there is a material issue of fact whether the plaintiffs' resignations were involuntary, and thus a constructive discharge. Defendants do not contest that the employer whose conduct obtained the resignation, Fisher, on behalf of the District, qualifies as the government under this prong of the test.
b. Deprivation of Unused Vacation Days
Dunn and Masunaga's resignation letters set an effective date of June 30, 2009, and set forth that they expected to be paid for any unused vacation days in addition to being paid under the contract through June 30. On acceptance of the resignations, Fisher modified the terms of plaintiffs' resignations, and wrote:
1. You are required to use all of your unused vacation days, which means your last workday will be May 20, 2009. . . .
4. If you prefer to move your resignation date prior to May 20, 2009, and receive payment for your unused vacation pay on your last day of work, please submit a letter to Ken Richardson to that effect by 4:00 pm on Wednesday, May 6, 2009.
Brown Decl. Att. 15, at 1; Att. 16, at 1.
There are situations in which an employer may legitimately force an employee to use vacation days during a set period. For example, under FMLA, "an employer may require the employee, to substitute any of the accrued paid vacation leave . . . for [FMLA leave] . . . for any part of the 12-week period of such leave." 29 U.S.C. § 2612(d)(2)(A); see also 29 C.F.R. § 825.207. "The logical purpose underlying the substitution language in the FMLA and accompanying regulations is to protect employers who offer paid . . . leave benefits to their employees from having to provide both the statutory 12 weeks of leave required by the FMLA and the paid leave benefit separately." Strickland v. Water Works and Sewer Bd. of City of Birmingham, 239 F.3d 1199, 1206 (11th Cir. 2001). By analogy, the District could perhaps argue that it was not required to both pay the plaintiffs through their desired resignation date of June 30, as well as provide a lump sum for unused vacation days after that date.
The District did not, however, make such an argument, whatever its merits might be on these facts, in the motion. The District argued first that the plaintiffs had no property interest in their unused vacation days because it wasn't in the contract, and second, that Dunn agreed to take her vacation days before leaving work-both arguments, however, are controverted by evidence in the record. Therefore, on the basis of the arguments in support of the motion, I hold there is an issue of fact whether Fisher, acting on behalf of the District, deprived the plaintiffs of their property right in the unused vacation days.
3. Lack of Process
"The base requirement of the Due Process Clause is that a person deprived of property be given an opportunity to be heard at a meaningful time and in a meaningful manner." Brewster v. Bd. of Educ. of Lynwood Unified School Dist., 149 F.3d 971, 984 (9th Cir. 1998). Depending on the circumstances, the hearing may be held before or after the deprivation, so long as the opportunity to be heard is meaningful. Id.
At times the question of whether a deprivation occurred without due process requires an analysis of whether available state law process can constitute "due process." Lujan v. G G Fire Sprinklers, Inc., 532 U.S. 189, 195-97 (2001). A "common law breach of contract claim provides adequate process for the deprivation of a property right derived from a contract, unless the deprivation constitutes a denial of a present entitlement."DeBoer v. Pennington, 287 F.3d 748, 750 (9th Cir. 2002). The Supreme Court has described "present entitlement" as "a right by virtue of which [one is] presently entitled either to exercise ownership dominion over real or personal property, or to pursue a gainful occupation." Lujan, 532 U.S. at 190.
In Lujan, a state agency determined that a subcontractor on a public works project had violated the California Labor Code, and issued notices directing the withholding of payment to the subcontractor. Id. at 191-93. The subcontractor sued the state parties under § 1983, claiming that the issuance of the notices without a hearing violated its due process rights. Id. at 193. The Court held that the subcontractor "ha[d] not been denied any present entitlement," but merely a "payment that it contends it is owed under a contract," which in turn is an interest "that can be fully protected by an ordinary breach-of-contract suit." Id. at 196. (distinguishing the case from situations in which a claimant is denied "a right by virtue of which he was presently entitled either to exercise ownership dominion over real or personal property, or to pursue a gainful occupation"). In summary, the Court stated, "[w]e hold that if California makes ordinary judicial process available to respondent for resolving its contractual dispute, that process is due process." Id. at 197.
a. Lack of Process Regarding Employment
Here, defendants moved for summary judgment as to plaintiffs' § 1983 claims on the basis that plaintiffs were not deprived of their employment because they resigned. Defendants did not move against this claim by attempting to show that the process afforded Dunn and Masunaga was adequate.
I have already held there is an issue of material fact whether the defendants deprived the plaintiffs of a property interest in their jobs. The issue remains whether the plaintiffs were given an opportunity to be heard at a meaningful time and in a meaningful manner under Brewster.
The evidence in the record shows that Fisher held a pre-termination hearing on April 28, 2009. There are few details in the record about what transpired at the hearing. Fisher has not established the absence of a material issue of fact whether Dunn and Masunaga were afforded an opportunity to be heard in a meaningful manner. Accordingly, defendant's summary judgment motion as to this claim is denied.
b. Lack of Process Regarding Vacation Days
Under Lujan, plaintiffs' property right in their unused vacation days is easily definable and governed by contract. Plaintiffs allege they were entitled to payment for a specific number of vacation days, presumably with each vacation day worth a certain amount. Just as in Lujan, this property right can be fully protected by an ordinary breach of contract suit. Therefore I find that a typical state law breach of contract action would constitute due process. There is nothing in the record suggesting they were deprived of judicial process.
Accordingly, with respect to the claims for accrued vacation days, I grant defendants' motion for summary judgment against the § 1983 procedural due process claims.
B. Subtantive Due Process
The substantive component of the Due Process Clause "forbids the government from depriving a person of life, liberty, or property in such a way that `shocks the conscience' or `interferes with rights implicit in the concept of ordered liberty.'" Nunez v. City of Los Angeles, 147 F.3d 867, 871 (9th Cir. 1998) (quoting United States v. Salerno, 481 U.S. 739, 746 (1987)); Daniels v. Williams, 474 U.S. 327, 331 (1986) (explaining that substantive due process protects against government power arbitrarily and oppressively exercised). "A threshold requirement to a substantive or procedural due process claim is the plaintiff's showing of a liberty or property interest protected by the Constitution." Wedges/Ledges of Cal., Inc. v. City of Phoenix, 24 F.3d 56, 62 (9th Cir. 1994). Most courts around the country have rejected the claim that substantive due process protects the right to a particular public employment position, and the Ninth Circuit has yet to decide the issue. Engquist v. Oregon Dept. of Agric., 478 F.3d 985, 996-97 (9th Cir. 2007).
The Supreme Court has not specified the boundaries of the right to pursue a profession, but has identified it generally. See Conn v. Gabbert, 526 U.S. 286, 291-92 (1999) (stating that there is "some generalized due process right to choose one's field of private employment"). The Court has noted, however, that cases recognizing the right "all deal with a complete prohibition of the right to engage in a calling, and not [a] sort of brief interruption." Id. at 292. The Ninth Circuit has recognized the liberty interest in pursuing an occupation of one's choice. See Dittman v. Cal., 191 F.3d 1020, 1029-30 (9th Cir. 1999). A plaintiff can make out a substantive due process claim if she is unable to pursue an occupation and this inability is caused by government actions that were arbitrary and lacking a rational basis. Sagana v. Tenorio, 384 F.3d 731, 742-43 (9th Cir. 2004),cert. denied, 543 U.S. 1149 (2005); Wedges/Ledges, 24 F.3d at 65.But see Zorzi v. County of Putnam, 30 F.3d 885, 895 (7th Cir. 1994) (holding that this occupational liberty is protected only by procedural due process rights, and not substantive due process).
Almost all of the Ninth Circuit cases recognizing this substantive due process right dealt with government legislation or regulation, and not the acts of a government as an employer, which allegedly prevented the plaintiff from pursuing a specific profession. Engquist, 478 F.3d at 997. Substantive due process claims for a public employer's violations of occupational liberty are limited to extreme cases, such as a "government blacklist, which when circulated or otherwise publicized to prospective employers effectively excludes the blacklisted individual from his occupation, much as if the government had yanked the license of an individual in an occupation that requires licensure." Id. at 997-98. (quoting Olivieri v. Rodriguez, 122 F.3d 406, 408 (7th Cir. 1997)). Put another way, "there is substantive due process protection against government employer actions that foreclose access to a particular profession to the same degree as government regulation." Id. at 998.
In Engquist, the plaintiff worked for the Oregon Department of Agriculture. Id. at 990. After a supervisor made repeated statements about planning to fire the plaintiff, during a budget crisis, the supervisor discharged the plaintiff. Id. at 991. After being discharged, the plaintiff applied to roughly 200 jobs, and was not offered a position by any employer. Id. After filing suit against her former employer for violation of her substantive due process rights, the plaintiff presented evidence that her supervisors made defamatory statements about her to two or three others in the industry. Id. at 999. There was no evidence, however, that the defamatory statements were the cause of plaintiff's inability to procure another job in her given field.Id. Therefore, the Ninth Circuit held that the plaintiff "did not present sufficient evidence to sustain her substantive due process claim." Id.
1. Substantive Due Process Claim for Employment
Here, plaintiffs resigned in order to avoid a "black mark" that might have inhibited their abilities to practice their chosen profession. I held, above, that Fisher's conduct in obtaining the resignations may equate to constructive discharge. Thus, the plaintiffs might argue that Fisher's conduct related to their constructive discharge rises to the level of making the plaintiffs unable to pursue their profession. On the other hand, the plaintiffs preemptively resigned, thus avoiding the damaging result of the "black mark" and the corresponding inability to find employment elsewhere as a principal. By analogy to contract law, the plaintiffs mitigated the damage that might have occurred.
The facts of this case are less egregious than those ofEnquist, where the plaintiff was fired, the supervisor made defamatory comments to others in the industry, and the plaintiff unsuccessfully applied to two hundred jobs. In this case, the evidence shows only that plaintiffs resigned or were constructively discharged. There is no case law in the Ninth Circuit holding that mere discharge, without more, could foreclose access to a profession to the same degree as a government regulation, and thus constitute a substantive due process violation.
Accordingly, to the extent plaintiffs' claim a violation of substantive due process as to their employment, I grant summary judgment to the defendants.
2. Substantive Due Process Claim for Benefits
There are no Ninth Circuit cases where a plaintiff has succeeded in asserting a substantive due process claim for the value of lost vacation days, or anything similar, upon termination. Fisher's actions as to the vacation days did not deprive Dunn or Masunaga of property in such a way that shocks the conscience or interferes with rights implicit in the concept of ordered liberty.
Accordingly, to the extent plaintiffs claim a substantive due process violation with respect to accrued vacation time, I grant summary judgment to the defendants.
In summary, defendants' motion for summary judgment against plaintiffs'
(1) procedural due process claims for employment is denied,
(2) procedural due process claims for unused vacation days is granted, and
(3) substantive due process claims is granted.
III. Qualified Immunity
With respect to § 1983 claims that involve, as here, a defense of qualified immunity, the United States Supreme Court has stated:
Section 1983 provides a federal cause of action against any person who, acting under color of state law, deprives another of his federal rights.
42 U.S.C. § 1983. In order to prevail in a § 1983 action for civil damages from a government official performing discretionary functions, the defense of qualified immunity that our cases have recognized requires that the official be shown to have violated `clearly established statutory or constitutional rights of which a reasonable person would have known.'
Harlow v. Fitzgerald,
457 U.S. 800, 818 (1982).
Conn v. Gabbert, 526 U.S. 286, 290 (1999). A defendant is entitled to qualified immunity for his "official conduct so long as
that conduct is objectively reasonable and does not violate clearly-established federal rights."
Cmty. House, Inc. v. City of Boise, Idaho, ___ F.3d ___,
2010 WL 3895700, 15 (9th Cir. 2010).
I have already held, above, that plaintiffs' § 1983 claims, inasmuch as they intend to state a claim for substantive due process, do not survive summary judgment. There is no need to analyze qualified immunity for those claims. The issue, then, is whether defendant Fisher met his burden of establishing that any procedural due process claim raised by this factual record was not clearly established at the relevant time.
I have previously noted in this opinion that defendant Fisher's challenge was a challenge to whether a termination occurred only. Having held there is a question of fact in this regard, and without any challenge to the other aspects of a procedural due process claim, nor to the law in that regard being clearly established at the time of the acts in this case, Fisher has failed to meet his burden of proving that he is entitled to qualified immunity on the § 1983 claims. His motion is denied in this regard.
IV. Wrongful Discharge under Oregon Law
Plaintiffs third and fourth claims for relief are for wrongful discharge under Oregon law, for Dunn and Masunaga, respectively.
Under Oregon law, an employer may discharge an employee at any time for any reason unless doing so violates a contractual, statutory, or constitutional requirement. Babick v. Oregon Arena Corp., 333 Or. 401, 407, 40 P.3d 1059 (2002) (citing Patton v. J.C. Penney Co., 301 Or. 117, 120, 719 P.2d 854 (1986)). The tort of wrongful discharge is a narrow exception to this general rule.Id.
Oregon courts have recognized two circumstances that give rise to the common law tort of wrongful discharge: (1) discharge for exercising a job-related right of important public interest and (2) discharge for complying with a public duty. Babick, 333 Or. at 407, 40 P.3d 1059. Examples of the first category include discharge for filing a worker's compensation claim (Brown v. Transcon Lines, 284 Or. 597, 588 P.2d 1087 (1978)) and resisting sexual harassment by a supervisor (Holien v. Sears, Roebuck Co., 298 Or. 76, 689 P.2d 1292 (1984)). Examples of the second category include discharge for serving on jury duty (Nees v. Hocks, 272 Or. 210, 536 P.2d 512 (1975)), for reporting patient abuse at a nursing home (McQuary v. Bel Air Convalescent Home, Inc., 69 Or. App. 107, 684 P.2d 21 (1984)), and for refusing to sign a false report regarding a fellow employee's work-related conduct (Delaney v. Taco Time Int'l Inc., 297 Or. 10, 681 P.2d 114 (1984)).
In Oregon, however, the tort of wrongful discharge was not intended to be a tort of general application, but rather an interstitial tort to provide a remedy when the conduct in question is unacceptable and no other remedy is available.Cantley v. DSMF, Inc., 422 F. Supp. 2d 1214, 12220 (D.Or. 2006) (citing Draper v. Astoria School Dist., 995 F. Supp. 1122, 1128 (D.Or. 1998)) (internal quotation omitted). See also Walsh v. Consol. Freightways, Inc., 278 Or. 347, 351-52, 563 P.2d 1205 (1977). "The underlying purpose of that tort in this state is not to vindicate individual interests of the employee by assuring that he or she receives the maximum possible recovery, but rather to protect important public policies by punishing conduct that thwarts those interests." Draper v. Astoria Sch. Dist., 995 F. Supp. 1122, 1130 (D.Or. 1998). Thus, a claim for common-law wrongful discharge is not available in Oregon if (1) an existing remedy adequately protects the public interest in question and (2) the legislature has intentionally abrogated the common-law remedies by establishing an exclusive remedy regardless whether the courts perceive that remedy to be adequate. Olsen v. Deschutes Cnty., 204 Or. App. 7, 14, 127 P.3d 655 (2006).
When determining whether the plaintiff may pursue both a common law claim for wrongful discharge and a § 1983 claim arising from the same facts, "the question is not whether the existing remedy [under § 1983] is `the best possible remedy' or `identical to the tort remedy' but merely whether it is sufficient to `adequately protect the employment related right.'" Draper, 995 F. Supp. at 1134. Section 1983 generally provides an adequate remedy to protect the public interest in certain employment-related rights of a public employee and, accordingly, has operated to dismiss the plaintiff's wrongful discharge claims in those cases on summary judgment or in response to motions to dismiss. See, e.g., Shultz v. Multnomah Cnty., No. 08-CV-886, 2009 WL 1476689, at *12 (D.Or. May 27, 2009); Baynton v. Wyatt, 411 F. Supp. 2d 1223 (D.Or. 2006); Carlton v. Marion Cnty., No. 03-CV-6202, 2004 WL 1442598 (D.Or. Feb. 19, 2002); Minter v. Multnomah Cnty., No. 01-CV-352, 2002 WL 31496404 (D.Or. May 10, 2002).
In Baynton, the plaintiff was a human resources manager for defendant the Port of Portland. 411 F.Supp.2d at 1224. The Port performed a reorganization of labor, after which plaintiff was asked to assume additional duties. Id. Plaintiff's supervisor also discussed with her many policy issues, including public status and management of resources, possible discrimination against African American employees, unequal pay increases, compensation for public employees, and pay increases for politically-connected employees. Id. at 1224-25. Plaintiff was subsequently fired. Id. at 1225. Plaintiff brought claims for wrongful discharge and under § 1983. Id. Defendant moved to dismiss the wrongful discharge claim on the basis that plaintiff already had an adequate statutory remedy under § 1983. Id. Plaintiff argued that she may not have an adequate remedy under § 1983 depending on the facts proven in each claim and the defenses raised. Id. Judge King held that "a plaintiff suing under § 1983 for First Amendment retaliation has the same remedies as under her wrongful discharge claim, and the analysis does not require the court to determine the merits of the claim; rather the court evaluates whether the claim, if proven, provides an adequate remedy." Id. The court held the plaintiff's remedy under § 1983 was the same, if not better, than it would be under the wrongful discharge claim. Id. On that basis, the court dismissed the wrongful discharge claim. Id.
Here, if proven, Dunn and Masunaga's § 1983 claim provides an adequate remedy. Therefore, the plaintiffs may not pursue both claims. Accordingly, I grant the District's motion for summary judgment as to the claims for wrongful discharge.
V. Breach of Contract
Plaintiffs' fifth, sixth, seventh, and eighth claims for relief are for breach of contract related to pay for unused sick days and for breach of the implied covenant of good faith and fair dealing.
A. Unused Sick Pay
The District argues that there is no provision in the Administrator Agreements that provides for payment for unused sick days. But the plaintiffs point out that the Agreements each contain a provision reading:
2. Fringe Benefits:
Any benefit granted to the Reynolds Education Association . . . that is not covered in this agreement shall automatically accrue to administrators covered by this agreement (see Reynolds Education Association . . . contract[]).
Mersereau Decl., Ex. 9, at 1; Ex. 10, at 1. In turn, the 2006-2009 agreement between Reynolds School District and the Reynolds Education Association provides, in part,
4. Payment for Unused Sick Leave
The District will make payment for unused, accumulated sick leave for employees retiring under the provision of PERS with the following provisions:
a. Payments shall be $50.00 per accumulated sick leave day."
Brown Decl. Att. 18, at 3.
The District argues that because the Administrator Agreement provision regarding Fringe Benefits only applies to benefits "not covered in this agreement," and because benefits available upon early retirement are covered in the Agreement on page 5, the pay for unused sick days provision in the Reynold Education Association agreement does not apply.
I am not persuaded by the District's reasoning. The plain meaning of the Fringe Benefits clause is that if a specific benefit is not addressed in the Administrator Agreement, but the specific benefit is granted under the Reynolds Education Association contract, then the party signing the Administrator Agreement gets the benefit. The early retirement provision of the Administrator Agreement does not explicitly address payment for unused sick leave. In order to avoid inclusion of the unused sick leave benefit under the Fringe Benefits clause, the Administrator Agreement must contain explicit language that addresses unused sick leave one way or another. It does not. Accordingly, defendants' motion for summary judgment as to this claim is denied.
B. Breach of Covenant of Good Faith and Fair Dealing
In general, every contract has an obligation of good faith in its performance and enforcement under the common law. Elliott v. Tektronix, Inc., 102 Or. App. 388, 396, 796 P.2d 361, rev den, 311 Or. 13, 803 P.2d 731 (1990). "[A] party may violate its duty of good faith and fair dealing without also breaching the express provisions of a contract." Elliott, 102 Or. App. at 396. In addition, a claim for breach of the duty of good faith and fair dealing "may be pursued independently of a claim for breach of the express terms of the contract." McKenzie v. Pac. Health Life Ins. Co., 118 Or. App. 377, 381, 847 P.2d 879 (1993), rev dismissed, 318 Or. 476, 869 P.2d 859 (1994). The purpose of that duty is to prohibit improper behavior in the performance and enforcement of contracts, and to ensure that the parties "will refrain from any act that would `have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.'" Iron Horse Eng'g v. Nw. Rubber, 193 Or. App. 402, 421, 89 P.3d 1249 (2004) (quoting Perkins v. Standard Oil Co., 235 Or. 7, 16, 383 P.2d 107 (1963)). Yet, the duty "cannot contradict an express contractual term, nor otherwise provide a remedy for an unpleasantly motivated act that is expressly permitted by the contract." Zygar v. Johnson, 169 Or. App. 638, 645, 10 P.3d 326 (2000), rev den, 331 Or. 584, 19 P.3d 356 (2001).
The duty "does not operate in a vacuum[,]" rather it "focuses on the `agreed common purpose' and the `justified expectations' of the parties, both of which are intimately related to the parties' manifestation of their purposes and expectations in the express provisions of the contract." OUS v. OPEU, 185 Or. App. 506, 515-16, 60 P.3d 567 (2002). The common law implied duty of good faith and fair dealing serves to effectuate the objectively reasonable expectations of the parties. Klamath Off-Project Water Users, Inc. v. Pacificorp, 237 Or. App. 434, 445 (2010).
In their complaint, Dunn and Masunaga each simply allege, "By threatening and thereafter initiating plaintiff's dismissal for the purpose of coercing her to pay money, which was not a lawful basis for any adverse employment action, defendant Fisher acted unfairly and in bad faith." Compl. ¶¶ 56, 66.
Without citing any law, the District simply argues that it did not breach the implied covenant of good faith and fair dealing because no one terminated the principals — they resigned.
I have already addressed the issue of resignation and held there is a material issue of fact regarding whether the plaintiffs were constructively discharged. Therefore, on the narrow basis of defendants' motion as to this claim, the District's motion for summary judgment as to this claim is denied. It remains to be seen what will come of this claim at trial.
VI. Wage Claims
The plaintiffs argue that the provision for payment for unused sick leave was compensation within the meaning of ORS 652.150, and that failure to pay compensation for the unused sick leave was in violation of the statute.
The statute delineates the penalty "if an employer willfully fails to pay any wages or compensation of any employee whose employment ceases, as provided in ORS 652.140 and 652.145." ORS 652.150. In turn, ORS 652.140(1) provides, "When an employer discharges an employee or when employment is terminated by mutual agreement, all wages earned and unpaid at the time of the discharge or termination become due and payable not later than the end of the first business day after the discharge or termination." "Wages" means "all compensation for performance of service by an employee for an employer whether paid by the employer or another person. Wages include the cash value of all compensation paid in any medium other than cash and all compensation owed an employee by an employer." OAR 839-001-0410.
As discussed above, the Payment for Unused Sick Leave provision in the 2006-2009 agreement between Reynolds School District and the Reynolds Education Association provides that "[t]he District will make payment for unused, accumulated sick leave" in the amount of "$50.00 per accumulated sick leave day." Brown Decl. Att. 18, at 3. The sick leave provision expressly provides that employees will be compensated for unused, accumulated sick leave. Due to the contractual language, such compensation falls within the meaning of "wages" under ORS 652.150.
Therefore, defendant's motion for summary judgment as to plaintiffs' wage claims is denied.
CONCLUSION
Defendants' motion for summary judgment [#18] is granted, in part, and denied, in part. Defendants' motion is
(1) granted with regard to plaintiffs' § 1983 claims for substantive due process,
(2) granted with regard to procedural due process related to unused vacation days,
(3) denied with regard to plaintiffs' § 1983 claim for procedural due process related to employment,
(4) denied with regard to defendant Fisher's defense of qualified immunity,
(5) granted with regard to plaintiffs' claims for wrongful discharge,
(6) denied with regard to plaintiffs' claims for breach of contract, and
(7) denied with regard to plaintiffs' wage claims.
IT IS SO ORDERED,
Dated this 15th day of November, 2010.