Neu v. Corcoran, 88 Civ. 1495 (RWS).

• Decision Date: 22 September 1988
• Docket Number: No. 88 Civ. 1495 (RWS).,88 Civ. 1495 (RWS).
• Citation: 695 F. Supp. 1552
• Parties: Nicholas NEU, Plaintiff, v. James P. CORCORAN, individually, and as Superintendent of Insurance of the State of New York and James W. Randolph, individually and as Deputy Superintendent of Insurance of the State of New York, Defendants.
• Court: U.S. District Court — Southern District of New York

695 F. Supp. 1552

Nicholas NEU, Plaintiff, v. James P. CORCORAN, individually, and as Superintendent of Insurance of the State of New York and James W. Randolph, individually and as Deputy Superintendent of Insurance of the State of New York, Defendants.

No. 88 Civ. 1495 (RWS).

United States District Court, S.D. New York.

September 22, 1988.

Rosner & Goodman, New York City by Andrew J. Goodman, of counsel, for plaintiff.

Robert Abrams, Atty. Gen. of the State of N.Y., New York City by Ann Horowitz, August L. Fietkau, Asst. Atty. Gen., of counsel, for defendants.

OPINION

SWEET, District Judge.

Defendants James P. Corcoran, individually and as Superintendent of Insurance of the State of New York ("Corcoran"), and James W. Randolph, individually and as Deputy Superintendent of Insurance of the State of New York ("Randolph") (collectively the "defendants") have moved pursuant to Rule 12(b)(6), Fed.R.Civ.P. to dismiss the claim filed against them by Nicholas Neu ("Neu") for failure to state a claim upon which relief may be granted. For the reasons set forth below, the motion is denied.

Facts

From February 1985 through March 11, 1987, Neu was president of the American Motor Club, Inc. ("AMC"), a New York corporation engaged in selling pre-paid automobile collision contracts to the public. In 1985, the New York Insurance Department commenced a proceeding against AMC and an individual defendant in the Supreme Court of the State of New York. Neu was deemed a party to that action by the court on April 8, 1987 and was deemed to have answered by October 31, 1985. The petition in that proceeding alleged that AMC was selling insurance to the public in violation of the law of the State of New York.

Based on the evidence adduced at that trial, the New York Supreme Court rendered a decision holding that AMC was engaged in the illegal sale of insurance but that the respondents did not willfully violate the law. The judgment of April 8, 1987 assessed sanctions against Neu and another and appointed Randolph receiver of AMC. That judgment was appealed by Neu. In October 1987, the Appellate Division, First Department affirmed the court below insofar as it held that AMC was engaged in the unauthorized sale of insurance but reversed the judgment to the extent it imposed monetary sanction against Neu based on the ground that Neu's procedural due process rights had been violated.

In June, 1987, after the Supreme Court ruling but before the Appellate Division ruling, while Neu was engaged in the prepaid collision service business in California, the Defendants allegedly made disparaging remarks regarding Neu at a convention of Insurance Commissioners. The Defendants allegedly stated to the California and Louisiana Insurance Commissioners that Neu did not honor contracts, did not repair vehicles, and that he drove AMC into bankruptcy and associated with criminals. Neu, however, contends that it was during Randolph's stewardship that AMC abandoned its members and their vehicles, and that AMC was solvent when he left its employ. Thus, as a result of the Defendants' allegedly false statements Neu claims that his reputation was ruined and that he was forced out of the insurance business.

Prior Procedure

Neu filed this action on March 4, 1988 alleging deprivation of liberty without due process of law pursuant to 42 U.S.C. § 1983 and common law defamation. The defendants filed this motion to dismiss Neu's claims on April 15, 1988. This court heard oral argument and deemed the motion fully submitted on June 24, 1988.

Discussion

Federal Liability

42 U.S.C. § 1983 creates a cause of action against

Every person who, under color of any statute, ordinance, regulation, custom, or usage of any State or Territory, subjects, or causes to be subjected, any citizen of the United States or other person within the jurisdiction thereof the deprivation of any rights, privileges, or immunities secured by the Constitution and laws....

Thus, in examining a section 1983 claim, a court must determine "(1) whether the conduct complained of was committed by a person acting under color of state law; and (2) whether this conduct deprived a person of rights, privileges, or immunities secured by the Constitution or laws of the United States." Parratt v. Taylor, 451 U.S. 527, 535, 101 S.Ct. 1908, 1913, 68 L.Ed.2d 420 (1980). For the purposes of this motion, the defendants do not challenge that their alleged actions were committed under color of state law. However, they contend that the complaint does not allege the deprivation of a liberty right entitling Neu to a right of action in federal court.

In Paul v. Davis, 424 U.S. 693, 96 S.Ct. 1155, 47 L.Ed.2d 405 (1976), rehrng. denied, 425 U.S. 985, 96 S.Ct. 2194, 48 L.Ed. 2d 811 (1977), the Supreme Court held that defamation of an individual by a public official did not deprive that individual of a liberty interest secured by the Constitution. The Court held that while damage to reputation constituted a state law cause of action for defamation, section 1983 could not be utilized to transform all such actions into federal claims through the fourteenth amendment thereby rendering that amendment a "font of tort law." Id. at 701, 96 S.Ct. at 1160. The Court, in examining older cases, determined that to be actionable, damage to reputation must be accompanied by damage of some tangible interest, such as loss of government employment, id. at 706, 96 S.Ct. at 1163, or loss of a right or status previously recognized by state law, id. at 711, 96 S.Ct. at 1165.

Cases in this circuit have reaffirmed Paul's requirement of "reputation plus" for setting forth a claim of deprivation of liberty under the fourteenth amendment based on defamation.

In Huntley v. Community School Board, 543 F.2d 979 (2d Cir.1976), cert. denied, 430 U.S. 929, 97 S.Ct. 1547, 51 L.Ed.2d 773 (1977), the Second Circuit held that a public school principal's due process rights were violated when in the process of his termination, public remarks were made stigmatizing him and making it unlikely that he would find future employment in a similar capacity in the public schools or elsewhere.

In Baden v. Koch, 799 F.2d 825 (2d Cir. 1986), the court held that a Chief Medical Examiner's demotion to Deputy Chief Medical Examiner with accompanying damaging public announcements did not set forth a claim under section 1983 because the state actions did not result in his being foreclosed from a range of opportunities. Baden quotes from Meyer v. Nebraska, 262 U.S. 390, 399, 43 S.Ct. 625, 626, 67 L.Ed. 1042 (1923), which states that fourteenth amendment liberty interests include the right "to engage in any of the common occupations of life." Baden, supra, 799 F.2d at 829. However, the court went on to discuss how the Supreme Court has "refined the parameters of liberty," citing such cases as Paul v. Davis, and Board of Regents v. Roth, 408 U.S. 564, 92 S.Ct. 2701, 33 L.Ed.2d 548 (1972) (no property or liberty interest implicated when state fails to rehire non-tenured teacher absent charges against him amounting to stigma or foreclosing other employment). Moreover, the Second Circuit in Baden stated that Baden's interest was less significant than many asserted in Supreme Court cases in that Baden was not terminated and "not `not rehired'" but was merely demoted. 799 F.2d at 830. Thus, since Baden was able to continue to work in his chosen profession, he did not suffer a deprivation of liberty.

Recently, in Rudow v. City of New York, 822 F.2d 324 (2d Cir.1987), the court held that an executive who suffered loss of job, poor health, and public humiliation based on charges of sexual harassment did not set forth a cause of action under section 1983 against the state's attorney. That attorney had prosecuted the action without discovering that the victim had fabricated evidence. The court held that Rudow had failed to satisfy the "reputation plus" test as he had not suffered the loss of public employment nor had he been prevented from practicing his profession. 822 F.2d at 330. The court held that "his loss of the top job at his firm is an inadequate addendum to his reputation claim.... He has not been prevented from engaging in the everyday activities of life.... The collateral consequences of his being adjudged guilty of sexual harassment do not abridge a property right to his business reputation, as they might if that right were based on a statute." Id. (citations omitted); see also Brandt v. Board of Cooperative Educational Services, 820 F.2d 41 (2d Cir.1987) (upholding the complaint in case where state employee was dismissed and stigmatizing statements were placed in employment file).

These cases stand for the proposition that in order to make out a claim for loss of liberty without due process of law stemming from governmental defamation, the plaintiff must allege damage to reputation, plus deprivation of the ability to engage in the everyday activities of his life, apparently construed to mean his chosen occupation. Taking the allegations in the complaint to be true for the purposes of this motion, Conley v. Gibson, 355 U.S. 41, 45, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957), Neu alleged such loss. His complaint states that because of the Defendants' defamatory statements, he was precluded from engaging in his chosen profession, namely, the auto repair contract business. Under Huntley, Baden, and Rudow, allegations of foreclosure from practicing one's chosen profession together with stigmatizing remarks constitute a cause of action under 42 U.S.C. § 1983.

Federal Immunity

The Defendants next assert that even if Neu has stated a cause of action based on deprivation of liberty, they are entitled to immunity under federal law. The parties agree that the Supreme Court case of Anderson v. Creighton, ___ U.S. ___, 107 S.Ct. 3034, 97 L.Ed.2d 523 (1987) is controlling on this question. The Court in that case held that public officials are entitled to qualified...