Johnson v. Saif

• Decision Date: 26 July 2007
• Docket Number: (CC 020707157; CA A123541; SC S53734)
• Citation: 343 Or. 139,164 P.3d 278
• Parties: John JOHNSON, individually and for all others similarly situated, Respondent on Review, v. SAIF CORPORATION, an Oregon public corporation, and Brenda Rocklin, Petitioners on Review.
• Court: Oregon Supreme Court

164 P.3d 278

343 Or. 139

John JOHNSON, individually and for all others similarly situated, Respondent on Review, v. SAIF CORPORATION, an Oregon public corporation, and Brenda Rocklin, Petitioners on Review.

(CC 020707157; CA A123541; SC S53734)

Supreme Court of Oregon.

Argued and Submitted January 9, 2007.

Decided July 26, 2007.

On review from the Court of Appeals.^*

Robert M. Atkinson, Assistant Attorney General, Salem, argued the cause and filed the briefs for petitioners on review. With him on the briefs were Hardy Myers, Attorney General, and Mary H. Williams, Solicitor General.

Meagan A. Flynn, of Preston Bunnell & Flynn LLP, Portland, argued the cause and filed the briefs for respondent on review.

Before DE MUNIZ, Chief Justice, and GILLETTE, DURHAM, BALMER KISTLER, and WALTERS, Justices.^**

BALMER, J.

The central issue before us in this case is whether the State Accident Insurance Fund Corporation (SAIF) may be sued for damages under 42 USC section 1983. Plaintiff filed a section 1983 action seeking damages and injunctive relief against SAIF and its president and chief executive officer (collectively, SAIF or defendant).¹ Plaintiff alleged that SAIF had deprived him of his right to due process under the Fourteenth Amendment to the United States Constitution when SAIF terminated his permanent total disability (PTD) workers' compensation benefits without a pretermination hearing. The trial court granted summary judgment in favor of defendants. The Court of Appeals affirmed the trial court's dismissal of plaintiff's claim for injunctive relief, but otherwise reversed and remanded, holding that SAIF is a "person" for purposes of Section 1983 and therefore could be sued for its alleged violation of plaintiff's due process rights. Johnson v. SAIF, 202 Or.App. 264, 122 P.3d 66 (2005) (Johnson I), adh'd to on recons., 205 Or.App. 41, 132 P.3d 1058 (2006) (Johnson II). We allowed SAIF's petition for review and, for the reasons set out below, affirm the decision of the Court of Appeals.

I. BACKGROUND AND PROCEDURAL HISTORY

In 1989, the Workers' Compensation Board (board) ordered SAIF to pay plaintiff PTD benefits as a result of a 1981 workplace injury. SAIF conducted periodic reviews of plaintiff's condition, as required by law. ORS 656.206(5).² At SAIF's request, several doctors examined plaintiff in January 2001. In June 2001, SAIF informed plaintiff that it was reevaluating his PTD benefits, but it did not seek from plaintiff, nor did plaintiff provide, any additional information concerning his physical condition. In September 2001, SAIF notified plaintiff that it had determined that he no longer was entitled to PTD benefits and that he was entitled to only permanent partial disability (PPD) benefits, which were smaller in amount than plaintiff's PTD benefits. No statute or rule required a hearing before SAIF terminated plaintiff's PTD benefits and, following its determination that plaintiff was entitled to only PPD benefits, SAIF paid plaintiff PPD benefits rather than the higher PTD benefits.

Administrative rules entitled plaintiff to an evidentiary hearing on SAIF's determination before the hearings division of the board. OAR 436-030-0065(6). Plaintiff requested a hearing, and, in October 2002, an administrative law judge conducted an evidentiary hearing to review SAIF's determination. At the hearing, plaintiff had the opportunity to contest SAIF's evidence and present his own evidence. In May 2003, the ALJ affirmed SAIF's determination. The board affirmed the opinion and order of the ALJ, and the Court of Appeals affirmed the board's decision without opinion. Johnson v. SAIF, 200 Or.App. 414, 115 P.3d 988 (2005).

In addition to appealing SAIF's September 2001 determination, plaintiff filed this section 1983 action against SAIF, alleging that SAIF had violated his rights under the Due Process Clause by terminating his PTD benefits without conducting a hearing prior to termination.³ Plaintiff sought as damages the amount of PTD benefits that SAIF had withheld prior to the evidentiary hearing, unspecified noneconomic compensatory damages, and an injunction barring SAIF from terminating his PTD benefits before conducting an evidentiary hearing.⁴

Section 1983 provides, in part:

"Every person who, under color of any statute, ordinance, regulation, custom, or usage, of any State[,] * * * subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof to the deprivation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress * * *."

As the text of the statute indicates, to prevail in a section 1983 action, a plaintiff must prove that a "person" acting "under color of" state law deprived the plaintiff of a federal right. Plaintiff alleged that SAIF was a "person"; that, in terminating his PTD benefits, SAIF had acted under color of state law; and that SAIF's prehearing termination of those benefits had "violated his federal right to due process of law." Johnson I, 202 Or.App. at 268, 122 P.3d 66.

SAIF moved for summary judgment on four grounds. First, it argued that it was not a "person" for purposes of section 1983 because that statute does not include the state or its agencies—or state employees acting in their official capacities—in its use of the word "person." Second, it claimed that neither SAIF nor its president and CEO had acted under "color of state law" in taking the actions alleged in the complaint. Third, SAIF asserted that the claim was moot because plaintiff had received a full evidentiary hearing, albeit after SAIF had terminated plaintiff's PTD benefits. Fourth, SAIF argued that plaintiff's due process claim was barred by claim preclusion because plaintiff failed to raise it when he challenged the termination of his PTD benefits at his administrative hearing. Plaintiff filed a cross-motion for summary judgment, arguing that SAIF's termination of his PTD without a pretermination hearing violated his rights under the Due Process Clause.

The trial court granted summary judgment in favor of defendant on the ground that SAIF is not a "person" subject to an action for damages under section 1983. The trial court also rejected plaintiff's claim for injunctive relief as moot, because plaintiff had already had a post-termination hearing. Although the trial court based its decision on those grounds, the court also accepted two other arguments that SAIF had offered in support of its summary judgment motion: first, that SAIF had not acted under color of state law when it failed to provide plaintiff with a pretermination hearing because SAIF had acted consistently with state statutes and regulations; and, second, that plaintiff's due process claim was barred by claim preclusion because he did not raise that claim at his workers' compensation hearing. Because those rulings were fatal to plaintiff's section 1983 action, the trial court did not address the merits of plaintiff's procedural due process claim.

Plaintiff appealed to the Court of Appeals. That court affirmed the trial court's summary judgment on the claim for injunctive relief but otherwise reversed. The Court of Appeals concluded that SAIF is not an arm of the state for the purposes of the Eleventh Amendment to the United States Constitution⁵ and, therefore, is a "person" that may be sued under section 1983. Among other grounds for reaching that conclusion, the Court of Appeals, examining one of the considerations that the United States Supreme Court has identified as important in deciding that issue, emphasized that the Oregon State Treasury was not liable for the debts and obligations of SAIF. Johnson I, 202 Or.App. at 293, 122 P.3d 66. The court further observed that SAIF is "fiscally independent of the state" and is funded by employer premium payments, not by the state's general fund. Id.

The court also concluded, however, that, although SAIF is not an arm of the state for Eleventh Amendment purposes, it was sufficiently tied to the state that it was acting "under color of state law" for purposes of section 1983. Johnson I, 202 Or.App. at 296-98, 122 P.3d 66. Additionally, the court held that plaintiff's claim was not barred by claim preclusion because the board did not have authority to award the civil damages that plaintiff claimed and because his challenge was not to any board hearing procedure, but rather to SAIF's actions before the hearing. Id. at 299-300, 122 P.3d 66.

SAIF moved for reconsideration, challenging the Court of Appeals' holding that SAIF was not an arm of the state for Eleventh Amendment purposes and, therefore, that it was a "person" subject to section 1983 claims. In support of that motion, SAIF filed affidavits to refute the Court of Appeals' statement that SAIF was fiscally independent of the state treasury. SAIF's submissions included documents showing that the Risk Management Division of the Department of Administrative Services had paid certain tort claims against SAIF. The Court of Appeals allowed reconsideration, but adhered to its prior opinion. Johnson II, 205 Or.App. 41, 132 P.3d 1058. According to the Court of Appeals, even assuming that the court could take judicial notice of the submitted documents, they demonstrated only that SAIF participates in a state-managed insurance fund that operates on an actuarial basis, is separate from the general fund, and is open to participation by local government entities that are not arms of the state. In the Court of Appeals' view, SAIF's participation in the state's risk management pool did not change its conclusion that SAIF was not an "arm of the state" for Eleventh Amendment purposes. Id. at 47, 132 P.3d 1058.

SAIF petitioned this court for review of two issues that the Court of Appeals decided. First, is SAIF a "person" subject to suit under section 1983? And,...