Rodriguez De Quinonez v. Perez

• Decision Date: 07 May 1979
• Docket Number: No. 78-1296,78-1296
• Citation: 596 F.2d 486
• Parties: Judith RODRIGUEZ de QUINONEZ et al., Plaintiffs, Appellants, v. Honorable Julio Cesar PEREZ, etc., et al., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 486

596 F.2d 486

Judith RODRIGUEZ de QUINONEZ et al., Plaintiffs, Appellants, v. Honorable Julio Cesar PEREZ, etc., et al., Defendants, Appellees.

No. 78-1296.

United States Court of Appeals First Circuit.

Argued Nov. 7, 1978.

Decided March 30, 1979.

Rehearing Denied May 7, 1979.

A. J. Amadeo Murga, Hato Rey, P. R., for plaintiffs, appellants.

Lirio Bernal De Gonzalez, Asst. Sol. Gen., Department of Justice, with whom Hector A. Colon Cruz, Sol. Gen., San Juan, P. R., was on brief, for defendants, appellees.

Before ALDRICH, CAMPBELL and BOWNES, Circuit Judges.

LEVIN H. CAMPBELL, Circuit Judge.

Plaintiffs, three former directors of Banco Cooperativo de Puerto Rico, bring this suit under 42 U.S.C. § 1983 and 28 U.S.C. § 1343 against the Secretary of the Treasury of Puerto Rico and the directors appointed to take their places. They contend that their removal as directors by the defendant Secretary deprived them of liberty and property without due process of law, in violation of the fourteenth amendment to the Constitution.

Banco Cooperativo was organized under and is subject to the provisions of title 7, chapter 66 of the laws of Puerto Rico. Plaintiffs, three of the bank's twelve-member "When the Secretary of the Treasury determines there is evidence that any director or officer of the Cooperative Bank of Puerto Rico has violated this chapter, the rules and bylaws promulgated hereunder or a final cease and desist order, or has performed acts contrary to sound banking practices in connection with the Bank, or has participated in them, or has committed or participated in the commission of any act, omission or practice constituting a violation of his fiduciary duties as director or officer of the Bank, and the Secretary determines that the Bank has sustained or will probably sustain a substantial financial loss or other prejudice on account of such violation or practice or failure to carry out his fiduciary responsibilities and that such violation or failure is one involving personal dishonesty on the part of the director or officer, the Secretary of the Treasury may issue a written order suspending or removing him from his position in that Bank."

board of directors, were elected to their positions for a three-year term by the general assembly of the bank's shareholders. Section 768a of chapter 66 authorizes the Secretary of the Treasury of Puerto Rico to suspend or remove directors. It provides,

Acting pursuant thereto, the Secretary removed plaintiffs prior to the expiration of their terms. A fourth director, not a party to this action, was also dismissed; the other five elected directors were not.

Arguing that removal without a prior or subsequent hearing deprived them of liberty and property without due process, plaintiffs seek a declaration that § 768a is unconstitutional, reinstatement to their positions as directors, damages, and attorneys' fees. Because it determined that no "property" or "liberty" interest within the fourteenth amendment was involved, the district court dismissed the complaint.

Plaintiffs rely on Feinberg v. Federal Deposit Insurance Corp.,173 U.S.App.D.C. 120, 522 F.2d 1335 (1975) for the proposition that a directorship may be a property interest within the meaning of the fourteenth amendment. In that case, however, the plaintiff, who was president as well as director of a bank, was receiving a substantial salary, and it was the salary that the court specifically termed a "property" interest. Id., 173 U.S.App.D.C. 125, 522 F.2d at 1340. In contrast, plaintiffs here do not receive a salary; a salary as such is forbidden by bank regulations although a "fixed sum" is allowed to be set to compensate for attendance at meetings, and directors may be compensated for outside services to the Board. ¹ Plaintiffs' sole monetary receipts for serving as directors were $25 for each day's attendance at board meetings plus travelling expenses. The magistrate characterized this $25 per diem as a reimbursement for expenses and the district court accepted the magistrate's findings and determined that as there was no expectation of deriving any property interest from the position of director, no property interest within the meaning of the fourteenth amendment was involved. On this record, which fails to establish that a directorship of this nature carries with it collateral benefits capable of economic valuation, we uphold this determination.

There remains the question whether plaintiffs have a liberty interest in serving as directors which is protected by the fourteenth amendment. Apart from fundamental rights and rights guaranteed by one of the provisions of the Bill of Rights which has been incorporated into the fourteenth amendment (which is not involved here), interests comprehended within the meaning of fourteenth amendment liberty or property attain their constitutional While defamation by a governmental official, standing alone, does not work a deprivation of liberty protected by the fourteenth amendment, Paul v. Davis, 424 U.S. 693, 96 S.Ct. 1155, 47 L.Ed.2d 405 (1976), governmental action altering a right or status previously held under state law "combined with the injury resulting from the defamation, justifie(s) the invocation of procedural safeguards." Id. at 708-09, 96 S.Ct. at 1164. See also Ventetuolo v. Burke, 596 F.2d 476 (1st Cir. 1979). The Fifth Circuit has capsulized the import of Paul v. Davis into the following "stigma-plus" test: " 'To establish a liberty interest sufficient to implicate fourteenth amendment safeguards, the individual must be not only stigmatized but also stigmatized in connection with a denial of a right or status previously recognized under state law'." Dennis v. S & S Consolidated Rural High School District, 577 F.2d 338, 341 (5th Cir. 1978), Quoting Moore v. Otero, 557 F.2d at 437. We have said that "when a state holds out a right to citizens to engage in an activity on equal terms with others, a state-recognized status exists." Medina v. Rudman, 545 F.2d 244, 250 (1st Cir. 1976), Cert. denied, 434 U.S. 891, 98 S.Ct. 266, 54 L.Ed.2d 177. Here, title 7, chapter 66 of the laws of Puerto Rico sets forth general terms pursuant to which an individual may serve as a director; hence, we think the "plus" of the stigma-plus test is satisfied.

status by virtue of the fact that they have been initially recognized and protected by state law, Paul v. Davis, 424 U.S. 693, 710, 96 S.Ct. 1155, 47 L.Ed.2d 405 (1976), and the dimensions of these interests are shaped by state law. Bishop v. Wood, 426 U.S. 341, 96 S.Ct. 2074, 48 L.Ed.2d 684 (1976). Arguably, plaintiffs are in a position somewhat similar to that of the plaintiff in Bishop v. Wood, who claimed that a city ordinance conferred upon him a sufficient expectancy of continued employment to constitute a protected property interest. The ordinance provided: "If a permanent employee fails to perform work up to the standard of the classification held, or continues to be negligent, inefficient, or unfit to perform his duties, he may be dismissed by the City Manager." Id. at 344 n.5, 96 S.Ct. at 2077 n.5. The Supreme Court, noting that plaintiff's interpretation of the ordinance was a possible one, stated it could also be read as "merely conditioning an employee's removal on compliance with certain specified procedures," Id. at 345, 96 S.Ct. at 2078, and deferred to the district court's interpretation to the latter effect. Thus, the ordinance in Bishop v. Wood, while setting forth conditions for termination, committed the determination of the existence of those conditions solely to the City Manager. See also Moore v. Otero, 557 F.2d 435, 437 n.6 (5th Cir. 1977) (department's operating procedure which set forth the conditions upon which police corporals are appointed and retained did not confer a property interest but merely informed the chief of police's discretion). Section 768a may be open to an interpretation, in line with that given the ordinance in Bishop v. Wood, negating the existence of any fourteenth amendment interest in serving as a director, although three factors not present in Bishop v. Wood the existence of a specific term (three years), the exceptional grounds for removal (dishonesty), and the fact that the appointing authority (the shareholders) differs from the removing authority (the Secretary) point against such an interpretation. We do not pursue the matter further, however, because wholly apart from whether a directorship itself is an interest protected by the fourteenth amendment, we believe that adding the stigma of a discharge for dishonesty gives rise to such an interest.

Clearly, furthermore, there was serious "stigma" here. The very act of removal under this statute necessarily brings into question the directors' integrity. The statutory grounds for removal, phrased in the conjunctive, require a determination by the Secretary that "there is evidence . . . that such (statutorily enumerated) violation It is true that, strictly read, the statute does not require an official determination or charge of dishonesty, but only a finding that there is sufficient "evidence" of dishonesty to warrant invoking the statute. This superfine distinction would have little practical effect, however, in reducing the clear imputation of dishonesty flowing from removal under this statute. ³ We thus think that removal from bank director status, as it is recognized by Puerto Rico law, on the ground of dishonesty, actual or suspected, affects a liberty interest requiring due process safeguards.

or failure is one involving personal dishonesty." ²

We turn next to the question of what process was due. We disagree with plaintiffs' contention that a pre-termination hearing was constitutionally required. There is particular justification for summary action in the banking field. In Fahey v. Mallonee, 332 U.S. 245, 67 S.Ct. 1552, 91 L.Ed. 2030 (1947), a regulation authorizing the Federal Home Loan Bank...