American Consumer Pub. Ass'n, Inc. v. Margosian

• Decision Date: 18 November 2003
• Docket Number: No. 01-36113.,01-36113.
• Citation: 349 F.3d 1122
• Parties: AMERICAN CONSUMER PUBLISHING ASSOCIATION, INC.; Dennis L. Simpson; I.C. Marketing Inc.; and Publishers Services Exchange, Plaintiffs-Appellants, v. Jan MARGOSIAN; Elizabeth Gordon; and Geoff Darling, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

349 F.3d 1122

AMERICAN CONSUMER PUBLISHING ASSOCIATION, INC.; Dennis L. Simpson; I.C. Marketing Inc.; and Publishers Services Exchange, Plaintiffs-Appellants, v. Jan MARGOSIAN; Elizabeth Gordon; and Geoff Darling, Defendants-Appellees.

No. 01-36113.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted September 9, 2003.

Filed November 18, 2003.

COPYRIGHT MATERIAL OMITTED

Alan R. Herson, Jacksonville, Oregon, for plaintiffs-appellants.

Brendan C. Dunn, Assistant Attorney General, Salem, Oregon, for defendants-appellees.

Appeal from the United States District Court for the District of Oregon; John P. Cooney, Magistrate Judge, Presiding. D.C. No. CV-01-03057-CO.

Before: Cynthia Holcomb HALL, Susan P. GRABER, and Ronald M. GOULD, Circuit Judges.

OPINION

GRABER, Circuit Judge:

The Attorney General of Oregon served a Notice of Unlawful Trade Practices on Plaintiffs American Consumer Publishing Association, Inc., Dennis L. Simpson, I.C. Marketing, and Publishers Services Exchange, advising them that a civil enforcement action for violations of several state statutes was imminent. Before the state proceedings were complete, Plaintiffs filed this action in federal court. Plaintiffs seek both damages and a declaration that the state statutes they allegedly violated are unconstitutional. The district court dismissed Plaintiffs' claims based on the abstention doctrine of Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971).

We affirm, in part on different grounds. First, we hold that Defendants were entitled to summary judgment on Plaintiffs' claim for damages for defamation under 42 U.S.C. § 1983, because Plaintiffs presented no evidence that Defendants deprived them of a constitutionally protected liberty or property interest.

Second, we hold that the remainder of Plaintiffs' claims properly were dismissed under the principles of Younger abstention. Plaintiffs' claims for declaratory relief present a textbook case for Younger abstention and dismissal. Application of Younger to Plaintiffs' remaining claims for § 1983 damages, however, raises difficult issues of unsettled law. Today, viewing our other precedents in the light of our en banc approach in Green v. City of Tucson, 255 F.3d 1086, 1093 (9th Cir.2001) (en banc), we hold that Younger abstention principles are properly invoked when, but only when, adjudicating a claim for § 1983 damages would interfere directly with a pending state proceeding. Although in many cases the proper method of applying Younger to § 1983 claims for damages is to order a stay, dismissal is warranted when an award of damages would require a declaration that a state statute or judgment is unconstitutional and § 1983 damages are available in the pending state-court proceeding.

FACTS AND PROCEDURAL HISTORY

Plaintiffs' nationwide direct-mail marketing company came under the scrutiny of the State of Oregon after the state's Attorney General received more than 120 consumer complaints about Plaintiffs' solicitations for magazine subscriptions. Consumers complained that the solicitations appeared to be bills and misleadingly implied that Plaintiffs were associated with the publishers of the magazines. The Attorney General found probable cause to believe that Plaintiffs' solicitations violated state statutes that prohibit using a "simulated invoice" that reasonably could be mistaken for an actual invoice, see Or.Rev. Stat. § 646.293; creating a likelihood of confusion about one's affiliation with another company, see id. § 646.608(1)(c); and employing an "unconscionable tactic" (here, knowingly permitting a customer to enter a transaction from which the customer will derive no material benefit), see id. § 646.607(1).

On June 26, 2001, the Attorney General served a Notice of Unlawful Trade Practices on Plaintiffs' lawyer. The Notice listed the alleged unlawful trade practices and advised Plaintiffs that, unless they delivered an Assurance of Voluntary Compliance within 10 days, the Attorney General would file an action against Plaintiffs in state court. Negotiations with the Attorney General failed, and Plaintiffs did not deliver the Assurance of Voluntary Compliance.

Instead, on July 6, 2001, Plaintiffs filed this action in federal district court against Defendants Jan Margosian, Elizabeth Gordon, and Geoff Darling, who are officials of the Attorney General's office. Plaintiffs asked the court to (1) declare unconstitutional the Oregon statutes that the Attorney General was trying to enforce, (2) declare that Oregon lacks "jurisdiction" to enforce its trade practices laws because of federal preemption, and (3) award compensatory and punitive damages under 42 U.S.C. § 1983 for violations of Plaintiffs' constitutional rights. On September 13, 2001, Defendants moved for summary judgment. Meanwhile, on September 11, 2001, the Attorney General had filed a civil complaint against Plaintiffs in state court.

Thereafter, the district court granted Defendants' motion for summary judgment. Applying the Younger abstention doctrine, the court dismissed all of Plaintiffs' claims. This timely appeal followed.

STANDARD OF REVIEW

We review de novo a district court's decision to dismiss a claim on the basis of Younger abstention. Green, 255 F.3d at 1093. We also review de novo a grant of summary judgment. Robi v. Reed, 173 F.3d 736, 739 (9th Cir.1999). We may affirm a grant of summary judgment on any ground supported by the record. Sicor Ltd. v. Cetus Corp., 51 F.3d 848, 861 n. 17 (9th Cir.1995).

DISCUSSION

As to Plaintiffs' claim for § 1983 damages for defamation, we affirm the summary judgment for Defendants because of Plaintiffs' failure to satisfy the "stigma-plus" test for § 1983 defamation claims. As to Plaintiffs' claims for declaratory relief, as well their remaining § 1983 claims for damages, we affirm the district court's dismissal under Younger.

A. Plaintiffs failed to satisfy the "stigma-plus" test for defamation claims brought under § 1983.

To recover damages for defamation under § 1983, a plaintiff must satisfy what has become known as the "stigma-plus" test. Cooper v. Dupnik, 924 F.2d 1520, 1532 (9th Cir.1991), rev'd on other grounds, 963 F.2d 1220, 1235 n. 6 (9th Cir.1992) (en banc). Under that test, "a plaintiff must allege loss of a recognizable property or liberty interest in conjunction with the allegation of injury to reputation." 924 F.2d at 1532. Furthermore, "the `stigma-plus' test requires that the defamation be accompanied by an injury directly caused by the Government, rather than an injury caused by the act of some third party [in reaction to the Government's defamatory statements]." WMX Techs., Inc. v. Miller, 80 F.3d 1315, 1320(9th Cir.1996) (emphasis added), appeal dismissed on other grounds, 104 F.3d 1133 (9th Cir. 1997) (en banc).

Plaintiffs allege that Defendant Margosian, a consumer information coordinator with the Oregon Attorney General's office, made defamatory statements to the media during the Attorney General's investigation of Plaintiffs' business activities. Plaintiffs claim that, after Margosian told a reporter that Plaintiffs' solicitations were deceptive, "misleading," and "phony," Plaintiffs suffered an "appreciable disruption of business" because Plaintiffs' employees were worried about their job security and "at least one cancelled order."

Even if we assume the truth of Plaintiffs' factual allegations, they fail to satisfy the "stigma-plus" test. As to the first claim of damages, Plaintiffs have no constitutionally protected interest in maintaining a positive state of mind among their employees. As to the second claim of damages, even if Plaintiffs had a protected property interest in their existing orders, they allege only that a customer cancelled an order in reaction to Margosian's statements. Plaintiffs do not allege that Margosian's defamatory statements directly caused any injury to a constitutionally protected liberty or property interest. See WMX Techs., 80 F.3d at 1320(holding that injuries caused by a third party's response to government statements are not cognizable under § 1983). Summary judgment was therefore appropriate on Plaintiffs' § 1983 defamation claim.

B. The district court properly dismissed Plaintiffs' claim for declaratory relief based on Younger abstention.

Younger abstention is a "circumscribed exception to mandatory federal jurisdiction." Green, 255 F.3d at 1099. If the circumstances giving rise to Younger abstention are present, the district court generally must dismiss the action. Id. at 1093. As a threshold matter, for Younger abstention to apply, the federal relief sought must directly interfere with a state proceeding. Id. at 1097. Next, in determining whether abstention is proper, the court must examine:

(1) The nature of the state proceedings in order to determine whether the proceedings implicate important state interests, (2) the timing of the request for federal relief in order to determine whether there are ongoing state proceedings, and (3) the ability of the federal plaintiff to litigate its federal constitutional claims in the state proceedings.

Kenneally v. Lungren, 967 F.2d 329, 331 (9th Cir.1992) (internal quotation marks omitted).¹

The declaratory relief that Plaintiffs seek in this case — invalidation of the trade practices statutes and a declaration that the state lacks "jurisdiction" to enforce them — would interfere with the state enforcement proceeding exactly as we contemplated in Green. As we said there,

much as a federal injunction against an ongoing state enforcement proceeding effectively stops that proceeding cold, so too may a declaratory judgment. The Supreme Court thus held that Younger barred a suit for declaratory relief against the operation of a state criminal statute under which the plaintiff was being prosecuted in state court because declaratory relief, the Court determined, would "result in precisely the same interference with and disruption...