Khan v. Gallitano

• Decision Date: 11 June 1999
• Docket Number: Nos. 98-2281,98-3392,s. 98-2281
• Citation: 180 F.3d 829
• Parties: Lynda J. KHAN, Plaintiff-Appellant, Cross-Appellee, v. Dennis J. GALLITANO, Nancy J. Czarnik, Craig B. Johnson, et al., Defendants-Appellees, Cross-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

180 F.3d 829

Lynda J. KHAN, Plaintiff-Appellant, Cross-Appellee, v. Dennis J. GALLITANO, Nancy J. Czarnik, Craig B. Johnson, et al., Defendants-Appellees, Cross-Appellants.

Nos. 98-2281, 98-3392.

United States Court of Appeals Seventh Circuit.

Argued Feb. 18, 1999.

Decided June 11, 1999.

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 98 C 649--Charles P. Kocoras, Judge.

Before BAUER, MANION, and ROVNER, Circuit Judges.

MANION, Circuit Judge.

Plaintiff Lynda Khan, an attorney representing herself pro se, sued six former or current officials of Elk Grove Village, Illinois, and two private attorneys, alleging that the defendants had wrongfully interfered with a contract between Khan and a client. Khan asserted two claims: an Illinois tort law claim for interference with contract and a federal claim under 42 U.S.C. § 1983. For her federal claim, Khan alleged that the defendants violated her rights under the Contracts Clause and the Due Process Clause of the Fourteenth Amendment. The district court dismissed the federal claim under Fed.R.Civ.P. 12(b)(6), and then declined to exercise supplemental jurisdiction over the state law claim. Khan now appeals the dismissal of her § 1983 claim, and the defendants cross-appeal the district court's refusing to award them attorney's fees as the prevailing party under 42 U.S.C. § 1988. We affirm.

I. Background

We take Khan's well-pleaded facts as true, and we take some of the background facts from our prior decision in a related case, Serfecz v. Jewel Food Stores, Inc., 67 F.3d 591 (7th Cir.1995). In 1977, Joseph Serfecz purchased Grove Mall in Elk Grove Village. Serfecz's anchor tenant was Jewel Food Stores, Inc., which had leased space to operate a grocery store in the mall since 1963. Jewel's lease expired in 1986, and Jewel renewed it for five years, which the lease permitted it to do up to three times. But in 1987 Jewel moved its store into the newer Elk Crossing Mall, which was across the street from Grove Mall. Jewel continued to pay rent under its lease with Serfecz's Grove Mall, and, allegedly as a means of keeping out any competing grocery stores, had no intention of terminating the lease. Indeed, after its initial five-year renewal expired, Jewel renewed for another five years, although it was paying for empty space. Later Jewel wanted to sublease its space in Grove Mall to a roller rink, but Serfecz refused to allow it. Jewel then sued Serfecz in the Illinois state courts, seeking a declaration that Jewel could sub-lease its space to the roller rink. As will be seen, this was the first of numerous lawsuits involving Serfecz. He hired Khan to defend this suit, and she won a judgment that the proposed sublease was not permitted. The judgment was affirmed on appeal.

Serfecz then retained Khan to sue Jewel, and they made a contingency fee contract that promised Khan one-third of Serfecz's recovery. In June 1992, Khan filed a complaint for Serfecz in federal district court against Jewel and numerous others asserting violations of the Sherman Act, breach of the lease agreement, and malicious prosecution. The district court ultimately granted summary judgment to the defendants on Serfecz's antitrust claims and his malicious prosecution claim, but permitted the case to proceed on one part of the breach of lease claim. The district court entered a final judgment under Fed.R.Civ.P. 54(b) on the claims for which it had granted summary judgment, and this court affirmed. Serfecz, 67 F.3d at 603. (Apparently the remaining part of this suit is still pending.)

In 1994, before the grant of partial summary judgment against Serfecz, defendant Gallitano became president of the Elk Grove Board of Trustees. He publicly announced that he would have Grove Mall condemned if Serfecz did not drop his suit against Jewel. Serfecz requested a zoning change so that he could redevelop Grove Mall. Elk Grove denied the request, but Gallitano stated publicly that if Serfecz dismissed his antitrust suit against Jewel, the request would be approved. Khan alleges numerous other instances in which Gallitano and others in the Elk Grove government pressured Serfecz to abandon his legal rights. Serfecz even filed a federal civil rights suit against Gallitano and others, but he dismissed it in the Fall of 1994 when Elk Grove officials assured him that they would cooperate with his redeveloping Grove Mall. That redevelopment never happened.

We now come to the two lawsuits that principally concern us here: Elk Grove's condemnation proceeding and Serfecz's second federal civil rights suit. In January 1995 Elk Grove filed a proceeding to condemn Grove Mall. Serfecz hired defendant Hurley, a private attorney, to represent him. Eventually defendant Serfecz-Edlund, another private attorney who we are told is Serfecz's niece, also joined Hurley in defending this action. Khan was not involved in this proceeding. For several months, the parties apparently tried to negotiate a settlement to this proceeding but were unsuccessful. While Hurley and Serfecz-Edlund continued to represent Serfecz in the condemnation proceeding, in August 1995 Serfecz again retained Khan to bring another federal civil rights suit. Serfecz and Khan made a second contingency fee agreement. Again, Khan would get one-third of Serfecz's recovery. Serfecz agreed not to dismiss the suit without consulting Khan and agreed that she would have to be a part of any settlement negotiations. On September 8, 1995, Khan filed a complaint for Serfecz in the Northern District of Illinois against Gallitano and numerous others alleging various federal civil rights violations.

In April 1996 Hurley and Serfecz-Edlund finally negotiated a settlement of the condemnation proceeding with Elk Grove. Serfecz would receive nearly $7 million as compensation for the mall, and he would dismiss the civil rights action that Khan had filed on his behalf. No one apprised Khan of the negotiations and she was not involved in them. Counsel for the defendants in the civil rights case--without Khan's knowledge--told the district court that they had settled that case and gave the court a copy of a settlement agreement signed by Serfecz. So the court dismissed the suit with leave to refile within 30 days.

On February 3, 1998, Khan filed this suit. She alleged that Serfecz agreed to dismiss the civil rights action only because the defendants had wrongfully coerced him. Khan asserted a federal claim under § 1983 and a state tort claim. The district court dismissed the federal claim under Fed.R.Civ.P. 12(b)(6) and declined to take supplemental jurisdiction over the state claim. The defendants sought attorney's fees as the prevailing parties under 42 U.S.C. § 1988, but the district court awarded no fees because it concluded that Khan had in good faith argued to extend existing law. Khan appealed the dismissal and the defendants cross-appealed the denial of fees.

II. Analysis

A. Khan's § 1983 Claim

Because the district court dismissed Khan's federal claim under Fed.R.Civ.P. 12(b)(6), we must decide a legal question: Assuming the facts alleged in the complaint are true, and giving Khan the benefit of all reasonable inferences to be drawn from those facts, has she stated a cognizable cause of action under 42 U.S.C. § 1983? See Kaplan v. Shure Brothers, Inc., 153 F.3d 413, 417-18 (7th Cir.1998). Section 1983 provides that "[e]very person who, under color of statute, ordinance, regulation, custom, or usage, of any State ... subjects, or causes to be subjected, any citizen of the United States ... to the deprivation of any rights secured by the Constitution and laws, shall be liable to the party injured in an action at law...." Khan alleges that the defendants violated two separate provisions of the federal constitution: the Contracts Clause and the Due Process Clause of the Fourteenth Amendment. We address each one in turn. ¹

1. Contracts Clause

Section 10 of Article I sets out a series of limits on the powers of the States, including the limit that "[n]o State shall ... pass any ... law impairing the Obligation of Contracts." A State violates the Contracts Clause if a "change in state law has 'operated as a substantial impairment of a contractual relationship.' " General Motors Corp. v. Romein, 503 U.S. 181, 186, 112 S.Ct. 1105, 117 L.Ed.2d 328 (1992) (quoting Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 244, 98 S.Ct. 2716, 57 L.Ed.2d 727 (1978)). "This inquiry has three components: whether there is a contractual relationship, whether a change in law impairs that contractual relationship, and whether the impairment is substantial." Id. Here the first component is met because Khan and Serfecz had a contract, but the second component is not met. The defendants' allegedly wrongful acts that induced Serfecz to terminate his contract with Khan were not a "change in law," even though the defendants were state actors. It has long been settled that the language of the Contracts Clause--pass any law--prohibits only legislative changes that impair contracts. See Tidal Oil Co. v. Flanagan, 263 U.S. 444, 451 & n. 1, 44 S.Ct. 197, 68 L.Ed. 382 (1924) (collecting cases); Barrows v. Jackson, 346 U.S. 249, 260, 73 S.Ct. 1031, 97 L.Ed. 1586 (1953) (citing Tidal Oil); Nowicki v. Ullsvik, 69 F.3d 1320, 1325 (7th Cir.1995) (citing Barrows). Khan argues that there was a legislative change here because the Elk Grove board approved the settlement of the condemnation proceeding. We reject that argument. Khan has alleged that the defendants acted tortiously, possibly unconstitutionally, and Elk Grove approved the result of their wrongful acts. But she has not alleged that a legislature "pass[ed]" an unconstitutional law.

2. Substantive Due Process

Khan also alleges that the defendants violated her rights under the Due Process Clause of the Fourteenth Amendment. Section One of the Fourteenth Amendment provides: "nor shall any...