Stern v. U.S. Gypsum, Inc.

• Decision Date: 12 January 1977
• Docket Number: No. 76-1070,76-1070
• Citation: 547 F.2d 1329
• Parties: Sherwin S. STERN, Plaintiff-Appellee, v. UNITED STATES GYPSUM, INC., et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1329

547 F.2d 1329

Sherwin S. STERN, Plaintiff-Appellee, v. UNITED STATES GYPSUM, INC., et al., Defendants-Appellants.

No. 76-1070.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 21, 1976.

Decided Jan. 12, 1977.

Edward S. Silber, George E. Bullwinkle and William G. Schopf, Jr., Chicago, Ill., for defendants-appellants.

Robert Weinberg, Robert M. Tobias, Washington, D. C., Harvey M. Silets, Chicago, Ill., for plaintiff-appellee.

Before HASTINGS, Senior Circuit Judge, PELL and WOOD, Circuit Judges.

PELL, Circuit Judge.

This interlocutory appeal, taken pursuant to 28 U.S.C. § 1292(b), from the district court's order denying defendants' motion to dismiss for lack of subject matter jurisdiction, presents questions of first impression ¹ in the construction of 42 U.S.C. § 1985(1). ² The first count of plaintiff Stern's complaint purports to state a claim arising under that section, and accordingly asserts jurisdiction under 28 U.S.C. §§ 1331(a) and 1343(1), (2), and (4). The second and third counts allege state law claims, sounding in defamation and malicious interference with Stern's contract rights, respectively. As to these counts, Stern invokes the jurisdiction of the federal courts under the doctrine of pendent jurisdiction. That doctrine, based on considerations of fairness and judicial economy, recognizes power in the federal courts to resolve a state law claim brought in conjunction with a federal claim where both "derive from a common nucleus of operative fact." ³ United Mine Workers of America v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 1138 (1966). Because it is the federal claim that provides the basis for the exercise of pendent jurisdiction, that claim "must have substance sufficient to confer subject matter jurisdiction on the court." Id.

Defendants-appellants do not argue that the district court would lack jurisdiction to resolve all the issues raised in Stern's complaint if the complaint sufficiently alleged a cause of action under Section 1985(1). Instead they insist that the complaint does not do so; and because it reveals on its face a lack of diversity of parties, there is no available basis for federal jurisdiction. Stern, in response, offers no alternate jurisdictional theories but rests on the claim that his complaint does state a cause of action under Section 1985(1). The sole and dispositive issue presented, then, while jurisdictional in its effect, is simply whether or not the complaint states a claim upon which relief under Section 1985(1) can be granted. In deciding that issue, we proceed under the accepted rule for determining the sufficiency of a complaint, that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957) (footnote omitted).

The well-pleaded material allegations of the complaint, liberally read and accepted for the purposes of this appeal as true, Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 174-75, 86 S.Ct. 347, 15 L.Ed.2d 247 (1965), present the following facts. Plaintiff-appellee Stern is, and was at all material times, an agent of the federal Internal Revenue Service (IRS). In February 1972 the Chicago District Office of the IRS began an audit of United States Gypsum, Inc. (USG), one of the defendants-appellants; ⁴ and Stern, in his capacity as a large case manager for the IRS, was placed in charge of the team of revenue agents conducting the audit. Stern at that time enjoyed the highest professional reputation. Defendants-appellants Dykes, Hogan, and Heffernan, at all material times the Executive Vice President, Treasurer, and Tax Manager, respectively, of USG, conspired to injure Stern on account of the lawful performance of his official duties and to molest, interrupt, hinder and impede him in the performance of those duties. To accomplish these ends, Dykes, Hogan, and Heffernan knowingly and maliciously fabricated false and defamatory charges of serious professional misconduct by Stern in the course of the USG audit, ⁵ and communicated or caused to be communicated these charges to Stern's IRS superiors. As a result, in March 1974 Stern was removed from his assignment on the USG audit. Thereafter, a notice of adverse employment action was issued to Stern, proposing a reduction in grade, salary, and responsibility and a geographic transfer. ⁶ His professional reputation, alleged to be peculiarly necessary for the practice of his profession, was seriously injured, his opportunities for advancement have been irreparably limited, and he has suffered humiliation, mental anguish, and physical and emotional distress.

The district court determined that these allegations stated a cause of action under 42 U.S.C. § 1985(1), and concluded therefore that it had jurisdiction of the case. In attempting to persuade us otherwise, defendants-appellants make a number of arguments: (1) there can be no conspiracy between the agents of a single corporate taxpayer; (2) the complaint does not allege violence, intimidation or threat of the direct and illegal nature contemplated by § 1985(1); (3) § 1985(1) provides a remedy only for federal officials injured in attempting to enforce the provisions of the Fourteenth Amendment to the Constitution; (4) the requirement of an invidiously discriminatory conspiratorial animus, which has been applied to § 1985(3), should be applied to § 1985(1) as well, and Stern has alleged no such animus; and (5) if § 1985(1) applies to the facts of this case, it unconstitutionally infringes on the right to petition the Government for a redress of grievances. We will consider each argument in turn.

I. The Intra-Corporate Conspiracy Question

A necessary element of a cause of action under § 1985(1) is that "two or more persons in any State or Territory conspire . . . ." Relying on this court's decision in Dombrowski v. Dowling, 459 F.2d 190 (7th Cir. 1972) (interpreting 42 U.S.C. § 1985(3)), appellants insist that Stern's complaint is fatally deficient in this regard, because the named conspirators were all officers or agents of USG and no conspiracy can be found in the business decisions of a single corporation, even if, as is often true, more than one corporate agent participated in making them. Stern disputes this argument on its merits.

We do not decide the question thus presented, for appellants did not present this theory to the district court, it was not part of the controlling question of law certified by that court, and appellants did not include it in the grounds supporting their petition for leave to appeal to this court. It is a well-settled general proposition that "a litigant cannot present to this court as a ground for reversal an issue which was not presented to the trial court and which it, therefore, had no opportunity to decide." Desert Palace, Inc. v. Salisbury, 401 F.2d 320, 324 (7th Cir. 1968); Hamilton Die Cast, Inc. v. United States Fidelity and Guaranty Company, 508 F.2d 417, 420 (7th Cir. 1975).

To be sure, this rule has narrow exceptions, e. g., where jurisdictional questions are presented or where, in exceptional cases, justice demands more flexibility. Federal Savings and Loan Insurance Corporation v. Quinn, 419 F.2d 1014, 1019 (7th Cir. 1969). Appellants argue that the lack of a federal claim which flows from an inadequate conspiracy allegation is, in this case, jurisdictional. Additionally, they point out that most of the cases establishing the general rule cited here arose on direct appeal of a final judgment, but see Barrett v. Browning Arms Company, 433 F.2d 141, 144 (5th Cir. 1970) (same rule applied to interlocutory appeal), and that different policy considerations apply to interlocutory appeals. In such cases, appellants suggest, the interests of justice and judicial economy are better served by considering all issues raised, whether presented to the court below or not.

At least in the circumstances of this case, we find appellants' arguments unpersuasive. If appellants had raised this conspiracy theory before the district court, and if that court had found Dombrowski, supra, to be controlling and had dismissed the complaint, Stern would have had the opportunity to seek leave to amend his complaint. Fed.R.Civ.P. 15(a). Rule 15(a) provides that "leave shall be freely given when justice so requires," and this circuit has adopted a liberal policy respecting amendments to pleadings so that cases may be decided on the merits and not on the basis of technicalities. Fuhrer v. Fuhrer, 202 F.2d 140, 143 (7th Cir. 1961); Asher v. Harrington, 461 F.2d 890, 895 (7th Cir. 1972). As was stated in Fuhrer v. Fuhrer, supra, at 143, "(l)eave to amend should be freely given unless it appears to a certainty that plaintiff would not be entitled to any relief under any state of facts which could be proved in support of his claim." Stern has represented to this court that he would have sought leave to amend if it had become necessary, and, specifically, that at the time of the district court's order, he had acquired information justifying an allegation that persons neither employed by nor agents of USG participated in the conspiracy. Because such an amended allegation would cure the asserted Dombrowski deficiency in the complaint, this would appear to be a classic case for application of the liberal leave-to-amend policy; in any event, we will not assume that the district court, to which the matter was never presented, would decide otherwise. This case in its present posture indicates to us both the soundness of the general rule limiting appellate review to issues presented below and the undesirability of departing from it here.

II. An Overview of the Legislative History of § 1985(1)

Each of the appellants' remaining three nonconstitutional arguments, in...