Rosewood Services v. Sunflower Diversified

• Decision Date: 29 June 2005
• Docket Number: No. 03-3288.,03-3288.
• Parties: ROSEWOOD SERVICES, INC.; Tammy Hammond, Plaintiffs-Appellees, v. SUNFLOWER DIVERSIFIED SERVICES, INC., also known as Central Kansas Developmental Disabilities Organization; James Johnson, Defendants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

413 F.3d 1163

ROSEWOOD SERVICES, INC.; Tammy Hammond, Plaintiffs-Appellees, v. SUNFLOWER DIVERSIFIED SERVICES, INC., also known as Central Kansas Developmental Disabilities Organization; James Johnson, Defendants-Appellants.

No. 03-3288.

United States Court of Appeals, Tenth Circuit.

June 29, 2005.

Teresa L. Sittenauer (J. Steven Pigg, on the briefs), Fisher, Patterson, Sayler & Smith, L.L.P., Topeka, KS, appearing for Appellants.

Dan Biles, Gates, Biles, Shields & Ryan, P.A., Overland Park, KS, appearing for Appellees.

Before TACHA, Chief Circuit Judge, HENRY, and HARTZ, Circuit Judges.

TACHA, Chief Circuit Judge.

Plaintiffs-Appellees Rosewood Services, Inc. ("Rosewood") and Tammy Hammond, Rosewood's sole shareholder, brought suit under 42 U.S.C. § 1983, alleging violations of constitutional rights guaranteed by the First and Fourteenth Amendments. Defendants-Appellants Sunflower Diversified Services, Inc. ("Sunflower"), a private non-profit corporation, and James Johnson, Sunflower's President, moved for summary judgment arguing that qualified immunity precludes this suit. The District Court held that the Defendants are not entitled to assert qualified immunity because they are non-governmental officials subject to the constraints of market forces. See Richardson v. McKnight, 521 U.S. 399, 117 S.Ct. 2100, 138 L.Ed.2d 540 (1997). The Defendants bring an interlocutory appeal of the District Court's denial of qualified immunity.¹ We take jurisdiction under 28 U.S.C. § 1291 and AFFIRM.

I. BACKGROUND

In 1995, the Kansas legislature reformed the way the state distributes funds to developmental disability service providers. See Developmental Disabilities Reform Act of 1995, Kan. Stat. Ann. § 39-1801 et seq. Under the provisions of the Act, the state's Department of Social and Rehabilitation Services ("SRS") distributes state and federal funds for providing services to the developmentally disabled to community developmental disability organizations ("CDDOs"). Kan. Stat. Ann. § 39-1804(e). These CDDOs, which are private, non-profit organizations, then distribute the funds to the community services providers, who directly assist the state's developmentally disabled residents.² Kan. Stat. Ann. § 39-1805.

When this case began, Sunflower served as both the CDDO and as a community service provider for five counties: Barton, Rice, Pawnee, Rush, and Stafford. In March 1996, Sunflower hired Ms. Hammond to be a case manager. As a case manager, she worked with many of the disabled residents of these counties. While working for Sunflower, Ms. Hammond was approached by parents and guardians of Sunflower's clients who apparently were dissatisfied with the service they were receiving. Ms. Hammond was asked if she would consider opening her own provider agency. In May 1998, Ms. Hammond quit her job at Sunflower and formed Rosewood. Soon after Ms. Hammond left Sunflower, a number of Sunflower's clients switched to Rosewood.

Rosewood quickly became a serious competitor to Sunflower for providing services to the developmentally disabled. Because Sunflower was also the area's CDDO, it was in charge of overseeing the distribution of funds to both Rosewood and itself. This potential conflict-of-interest is the root of the problems between Rosewood and Sunflower that are the basis of this suit. Eventually, Ms. Hammond, in conjunction with a community group called the Alliance, began lobbying to require "independent CDDOs" (i.e., a CDDO that was not a service provider as well). This action apparently angered Mr. Johnson. Allegedly in retaliation, Mr. Johnson filed baseless complaints with SRS, Rosewood's licensing agency, and subjected Rosewood to rigorous review that other service providers did not undergo.

On March 29, 2002, Ms. Hammond and Rosewood filed this § 1983 suit against Sunflower and Mr. Johnson. The Defendants moved for summary judgment, arguing, inter alia, that they were entitled to qualified immunity. Because the Defendants are private parties, and not government officials, the District Court had to decide whether these Defendants could even assert qualified immunity before determining whether qualified immunity was appropriate based on the facts of this case.

The District Court concluded that a private corporation could never claim qualified immunity, and thus the court only considered Mr. Johnson's qualified immunity argument in detail. The District Court noted that the "sole argument" made by the Defendants was "that public policy considerations warrant the extension of qualified immunity in this case." Rosewood Servs., Inc. v. Sunflower Diversified Servs., Inc., 2003 WL 22090897 at *23 n. 7 (D.Kan.2003) (unpublished). The District Court then considered the Defendants' arguments and held that under Richardson v. McKnight, 521 U.S. 399, 117 S.Ct. 2100, 138 L.Ed.2d 540 (1997), public policy considerations did not warrant permitting Mr. Johnson to assert qualified immunity. The Defendants timely appealed the District Court's decision that neither Sunflower nor Mr. Johnson can claim qualified immunity. We address these arguments below.

II. DISCUSSION

A. Jurisdiction and Standard of Review

We have limited jurisdiction to hear interlocutory appeals of denials of qualified immunity. Our jurisdiction is limited to reviewing denials of summary judgment based on qualified immunity when we are "present[ed with] neat abstract issues of law." Clanton v. Cooper, 129 F.3d 1147, 1153 (10th Cir.1997) (internal quotations omitted). We lack jurisdiction to review a denial of summary judgment based on qualified immunity if the claim on appeal is based on disputed facts. See Johnson v. Jones, 515 U.S. 304, 307, 115 S.Ct. 2151, 132 L.Ed.2d 238 (1995).

Because the issues raised on appeal do not rely on disputed facts, we have jurisdiction to decide this appeal. Furthermore, the fact that the Defendants are private entities does not prevent us from hearing this interlocutory appeal. See DeVargas v. Mason & Hanger-Silas Mason Co., Inc., 844 F.2d 714, 717 (10th Cir.1988) (holding "that private parties acting pursuant to contractual duties may bring interlocutory appeals from the denial of qualified immunity").³

Having determined that we have jurisdiction to hear this appeal, we now review de novo the District Court's determination that the Defendants cannot assert qualified immunity. See Bisbee v. Bey, 39 F.3d 1096, 1099-1100 (10th Cir. 1994).

B. Qualified Immunity for a Private Corporation

The District Court held that "qualified immunity only potentially shields Mr. Johnson, not Sunflower, from liability in this case." Rosewood Servs., 2003 WL 22090897 at *21. The court cited cases stating that qualified immunity protected "government officials" and reasoned that when applied to private defendants, qualified immunity must only apply to individuals and not corporations. Id. (citing Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S.Ct. 2727, 73 L.Ed.2d 396 (1982); Baptiste v. J.C. Penney Co., 147 F.3d 1252, 1255 (10th Cir.1998)). The District Court's conclusion, however, is contrary to existing Circuit precedent.

In DeVargas, this Court stated that "[i]n the area of § 1983 immunities, the critical distinction is not between employer and individual defendants, but between defendants that are governmental bodies and other defendants." 844 F.2d at 723. We further observed that the reasons for extending qualified immunity beyond government officials "apply equally to all private defendants acting pursuant to contract, whether individuals or corporations." Id. Consequently, we held that "when private parties act pursuant to contractual duties and perform governmental functions, they can claim qualified immunity. That a private party defendant is a corporation should not change this result." Id.

Under DeVargas, then, the fact that Sunflower is a corporation does not preclude it from arguing that it is entitled to assert qualified immunity. We therefore hold that there is no bar against a private corporation claiming qualified immunity.

C. Private Defendants' Ability to Assert Qualified Immunity

On appeal, the Defendants do not distinguish between Sunflower as a corporate entity and Mr. Johnson in his individual capacity in arguing that public policy concerns warrant permitting them to assert qualified immunity. As such, we consider the arguments for qualified immunity as applying to both Defendants. The Defendants provide two grounds to support the notion that they can assert qualified immunity: (1) Qualified immunity may be asserted because Sunflower is substantially overseen by SRS; and (2) Policy considerations warrant extending qualified immunity to them. These arguments must be addressed in light of the Supreme Court's most recent decision on whether private parties can assert qualified immunity, Richardson v. McKnight, 521 U.S. 399, 117 S.Ct. 2100, 138 L.Ed.2d 540 (1997).

In Richardson, the Supreme Court held that prison guards at a private, for-profit prison could not assert qualified immunity. The Court held that a private individual is only entitled to qualified immunity if a claim of immunity is supported by historical practice or based on public policy considerations. Id. at 403-04, 117 S.Ct. 2100. In discussing the policy considerations, the Court recognized three purposes served by qualified immunity. First, by reducing the threat of litigation, qualified immunity "protect[s] the public from unwarranted timidity on the part of public officials." Id. at 408, 117 S.Ct. 2100. Second, qualified immunity helps "'to ensure that talented candidates [are] not deterred by the threat of damages suits from entering public service.'" Id. (quoting Wyatt v. Cole, 504 U.S. 158, 167, 1.12 S.Ct. 1827, 118 L.Ed.2d 504 (1992)). Third, qualified immunity reduces the chance that lawsuits will distract officials from their governmental duties. Id. The Court determined that these considerations did not weigh in favor of permitting...