Easter House v. Felder

• Decision Date: 08 July 1988
• Docket Number: No. 86-2164,86-2164
• Citation: 852 F.2d 901
• Parties: EASTER HOUSE, an Illinois, not-for-profit corporation, Plaintiff-Appellee, v. Thomas FELDER, Florence McGuire and Joan Satoloe, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 901

852 F.2d 901

EASTER HOUSE, an Illinois, not-for-profit corporation Plaintiff-Appellee, v. Thomas FELDER, Florence McGuire and Joan Satoloe Defendants-Appellants.

No. 86-2164.

United States Court of Appeals Seventh Circuit.

Argued Nov. 2, 1987.

Decided July 8, 1988.

Thomas A. Ioppolo, Office of the Atty. Gen., Chicago, Ill., for defendants-appellants.

James R. Figliulo, Foran, Wiss & Schultz, Chicago, Ill., for plaintiff-appellee.

Before CUMMINGS, CUDAHY and KANNE, Circuit Judges.

CUDAHY, Circuit Judge.

Defendants in this section 1983 action, employees of the Illinois Department of Children and Family Services ("DCFS"), appeal from a judgment entered on a jury verdict. The jury found that in two separate instances these employees acted under color of state law to deprive Easter House, a Chicago-based adoption agency, of property without due process of law. On the first count, the jury found that during late 1974 and early 1975 the DCFS employees conspired with Millicent Smith, a former Easter House employee, to deprive Easter House of its operating license and to expedite the licensing of Smith's new agency, named Easter House Adoption Agency, Inc. ("Easter House II"), with the intention of transferring Easter House's business to Smith. On the second count, the jury found that two of the state employees again deprived Easter House of property without due process during 1977 and 1978 by conducting unwarranted investigations of its operations.

The trial court denied the defendants' motion for judgment n.o.v. or a new trial. The DCFS defendants then brought this appeal. (Millicent Smith, the sole private defendant remaining in the action by the time of the trial, did not appeal.) The defendants argue that (1) Easter House failed to identify any property interest of which it was deprived under color of state law; (2) section 1983 is not available to the plaintiffs because adequate state law remedies provided all the process that was due; (3) defendants are protected by qualified immunity because none of their actions clearly violated contemporaneous standards of due process; (4) the district court erred in its conspiracy instructions; and (5) the damages awarded on count I are excessive. For the reasons explained below, we affirm on count I as to liability and damages and reverse on count II on the grounds that the investigation infringed no protected property interest.

I.

Easter House claims that its property was taken without due process of law through two distinct conspiracies. The first was a plan by the DCFS defendants and Millicent Smith, Easter House's former Executive Director, to strip Easter House of its license to operate a "child welfare agency" in Illinois and to establish a new agency with an almost identical name under Smith's control. The second was an alleged plot by two of the three DCFS defendants to drive Easter House out of business by harassing it with continuing, unwarranted investigations of its operations. The essential facts surrounding these two episodes will be described separately.

A.

The first conspiracy that Easter House described to the jury proceeded on two fronts simultaneously. While DCFS was delaying the renewal of Easter House's license, it was also assisting in the creation of Easter House II. Events leading up to the delay of Easter House's license renewal began in late November 1974, as the November 30th expiration of Easter House's two-year license approached. The parties agree about most of the facts surrounding the delay in the issuance of Easter House's new license, though they disagree sharply about the inferences that a jury could reasonably draw from those events. Joan Satoloe, a licensing representative assigned to DCFS's Chicago office, prepared a relicensing study which recommended renewal of Easter House's license for the two-year period beginning December 1, 1974. This recommendation was then forwarded to DCFS's main office in Springfield where the licenses are issued.

On December 30, 1974, while Satoloe was on vacation, Smith met at DCFS's Chicago offices with Satoloe's immediate superior, Florence McGuire, the licensing supervisor for DCFS's central district. According to Smith's testimony, this was her second discussion with McGuire concerning her plans to leave Easter House, the first having occurred at some point prior to December 17th as Smith was preparing the incorporation forms for Easter House II. ¹ During the December 30th meeting, according to a memorandum from McGuire to Satoloe written later that day, Smith described the reasons for her growing disenchantment with Easter House and her plans to found Easter House II. Smith reported that she had decided to leave Easter House because Seymour Kurtz, Easter House's owner and president, had altered his longstanding practice of delegating day-to-day management to Smith and started to play a more active role. Smith also stated that Easter House had brought several new people into the operation who answered to Kurtz rather than to her. Smith indicated that she was frustrated by her inability to halt practices of the new employees that she found objectionable, including careless handling of confidential adoption records and telephone solicitation of affluent former clients to increase the number of placements. McGuire's memorandum also recounted vague allegations that Easter House was connected to foreign adoption agencies through which Kurtz had told Smith he expected "to make a million."

Smith, according to the memorandum, indicated that she intended to leave Easter House immediately and disclosed some of the details of her plan. To minimize Kurtz's opposition to the new agency, Smith had concealed her plan from Kurtz. She had arranged for her sister, Pacita Haire, to sign the charter application and had waited for Kurtz's year-end vacation to make her move. To ensure that her leaving would not deprive her of the rewards to which she felt entitled based on her long tenure at Easter House, Smith had resolved to use a name closely resembling Easter House's and to take Easter House's files. Smith reported having removed all the active case files and indicated that she planned to remove the closed files before Kurtz's return.

After the meeting, McGuire called DCFS's Springfield office to request a delay in the mailing of Easter House's renewed license. On the following day, December 31st, Smith wrote to McGuire, Sataloe and Thomas Felder, the Chief of DCFS for the central district. Smith described the prior day's meeting to Satoloe and Thomas Felder and stressed the importance of rapid action on Easter House II's charter application. In her letter to McGuire, Smith indicated that Fran Riley, Easter House's only other trained social worker, had decided to leave Easter House and join Easter House II. Smith also thanked McGuire for withholding Easter House's license. On that same day, Smith wrote to Kurtz resigning her position at Easter House.

After discussing Easter House's situation with McGuire, Felder decided that Easter House's renewed license should be kept on hold at the Springfield office. On January 6, 1975, Felder wrote to Kurtz informing him that the departures of Smith and Riley, Easter House's only trained social workers, had put the agency out of compliance with DCFS's licensing standards and that if Easter House wished to resume operations it would have to reattain minimum standards and reapply for a license. ² At trial, Felder testified that he withheld renewal of Easter House's license under authority of section 8(1) of the Illinois Child Care Act of 1969. 1969 Ill.Laws 105 (current version at Ill.Rev.Stat. ch. 23, para. 2218(1) (1986)). This provision authorized DCFS to refuse to renew the license of an agency that "consistently fail[ed] to maintain standards prescribed and published by the Department." Felder conceded during cross-examination, however, that the suspension was inconsistent with the Illinois Child Care Act and with the Department's regulations and enforcement manual, which set forth various steps that the Department would take to bring a licensee into compliance with minimum standards before revoking or refusing to renew a license. ³

Two days after sending the first letter, Felder, on the advice of a DCFS attorney, wrote a second letter to Kurtz informing him that the January 6th letter had been incorrect and that Easter House would have ten days from receipt of the second letter to request a hearing before DCFS's refusal to renew would become final. Felder was advised to extend this request for a hearing because the Illinois Child Care Act of 1969 allowed licensees ten days to request a hearing to contest the Department's proposed revocation or refusal to renew a license. The second letter did not, however, offer to provide the assistance required by the Department's regulations and enforcement manual.

Kurtz did not receive the first or second letters from DCFS until January 21, 1975, because Millicent Smith had directed the Post Office to forward Easter House's mail to Easter House II. On January 22nd, Kurtz wrote to DCFS requesting a hearing and a written statement of charges. During the period between the decision to withhold renewal and Kurtz's response, DCFS received two inquiries about the status of Easter House, one from a lawyer representing prospective clients and one from a social worker interested in applying for the position that Smith had left. Both callers were told that Easter House had no license; the prospective job applicant was further informed that DCFS was in the process of reviewing Easter House's "entire program." Also during this period, Felder wrote to Judge Comerford, then the Chief Judge for adoptions in Cook County, and notified him that Easter House was no longer licensed to make adoption placements.

Within four weeks of receiving DCFS's letters, Kurtz obtained his renewed license. On February 4th, two weeks after...