San Bernardino Physicians' Services Medical Group, Inc. v. San Bernardino County

• Decision Date: 26 August 1987
• Docket Number: No. 85-6344,85-6344
• Citation: 825 F.2d 1404
• Parties: , 2 Indiv.Empl.Rts.Cas. 719 SAN BERNARDINO PHYSICIANS' SERVICES MEDICAL GROUP, INC., Plaintiff/Appellant, v. COUNTY OF SAN BERNARDINO, Board of Supervisors for San Bernardino, Francis L. Comunale, Defendants/Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1404

825 F.2d 1404

56 USLW 2135, 2 Indiv.Empl.Rts.Cas. 719

SAN BERNARDINO PHYSICIANS' SERVICES MEDICAL GROUP, INC. Plaintiff/Appellant, v. COUNTY OF SAN BERNARDINO, Board of Supervisors for San Bernardino, Francis L. Comunale, Defendants/Appellees.

No. 85-6344.

United States Court of Appeals Ninth Circuit.

Argued and Submitted April 11, 1986.

Decided Aug. 26, 1987.

Lisa Lorea-Correll, Los Angeles, Cal., for plaintiff-appellant.

Christopher Lockwood, San Bernardino, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before HUG, CANBY, ^* and NORRIS, Circuit Judges.

CANBY, Circuit Judge:

INTRODUCTION

Appellant San Bernardino Physicians' Services Medical Group (Physicians' Group) contends that the San Bernardino County Board of Supervisors constructively breached Physicians' Group's four-year contract to provide professional services at the San Bernardino Medical Center (Medical Center). Physicians' Group brought a civil rights suit under 42 U.S.C. Sec. 1983, alleging that the County deprived the Group of its property interest in the contract without due process of law. The district court granted the defendants' motion for summary judgment or a directed verdict on the ground that our opinion in Loehr v. Ventura County Community College District, 743 F.2d 1310 (9th Cir.1984), established that the right to performance of a contract is not a "property interest" protected by the Fourteenth Amendment.

Although we read Loehr more narrowly than did the district court, we agree that appellant had no protected property interest. We therefore affirm the summary judgment.

FACTS

In January 1980, appellant Physicians' Group, a California professional corporation, contracted with the Board of Supervisors to provide professional emergency room and burn care treatment services to the county-operated Medical Center. The written four-year contract provided for automatic one-year extensions if neither party gave 180 days notice of termination before the contract expired. The contract could be terminated within its term only "for cause." The terminating party was required to give 120 days' notice of the breach that prompted the decision to terminate; if the other party cured the breach, notice of termination would be cancelled. Physicians' Group's sole shareholder, Dr. Dressler, insisted on these protective measures because he was relocating from Boston and was concerned about his ability to attract qualified physicians to supply contract services.

Physicians' Group and the County entered into a second contract in June 1980, this time for Physicians' Group to provide general surgical services at the Medical Center. The second contract had a fixed term of one year. The contract was automatically renewable for additional one-year periods under the same terms and conditions as the emergency room and burn care services contract.

In May 1981, during both contracts' fixed terms, the County notified Physicians' Group that it was terminating the contracts effective that following fall. Physicians' Group challenged the termination in state court, arguing that the County's reliance on the 180 day notice provision ignored the contracts' further requirement of termination during the fixed term only for cause. The Board rescinded the termination notices before trial.

Meanwhile, various County employees and the Board allegedly harassed Physicians' Group employees, threatened to terminate the contract prematurely, delayed payments due Physicians' Group, conducted unwarranted and overly intrusive audits of the Group's records, and refused to provide adequate office space. Physicians' Group responded in December 1981 by suing the County, the Board, and certain Medical Center administrators in federal court. The complaint asserted claims under 42 U.S.C. Secs. 1983 and 1985, ¹ alleging that the defendants' concerted actions violated Physicians' Group's civil rights under the Fifth and Fourteenth Amendments by depriving them of property without due process. The complaint requested injunctive relief, compensatory and punitive damages, and attorneys' fees.

In June 1982, during discovery in the federal case, Physicians' Group allowed the surgical services contract to expire by its own terms. The Group also terminated the emergency room and burn care services contract in October 1982, approximately 18 months before its fixed expiration date. The Group contends that both actions grew directly out of the continued harassment by defendants.

The defendants moved alternatively for summary judgment or a directed verdict on June 25, 1985. For purposes of its ruling, the district court assumed that the defendants committed material breaches of contract; that the breaches were part of a deliberate pattern intended to frustrate the Group's performance; and that the breaches effectively frustrated Physicians' Group's performance and justified the Group's premature termination of the contract. The court determined as a matter of law that, absent state or local laws to supplement an employee's contractual rights, a government contract by itself cannot create a constitutionally protected property interest. The district court distinguished appellant's interests from constitutionally protected interests in public-employment cases; it found that the protected interests in public-employment cases derived from state or local laws, not from contracts. Memorandum of Decision at 5. The district court therefore granted summary judgment, ² reasoning that the plaintiff could not "establish a 'legitimate claim of entitlement' to continuation of the service contract." Id. at 7. The court's sole authority for its result was this court's decision in Loehr, 743 F.2d 1310.

ISSUE

Appellant contends, and we agree, that the district court interpreted Loehr too broadly in applying it to this case. The critical issue, however, is whether appellant Physicians' Group's rights to performance on the contracts, as a supplier of services to the government, were sufficient property interests to merit constitutional protection. If so, we then must consider whether appellant was denied "due process." Board of Regents v. Roth, 408 U.S. 564, 569-70, 92 S.Ct. 2701, 2705, 33 L.Ed.2d 548 (1972).

STANDARD OF REVIEW

This court reviews a grant of summary judgment de novo. Loehr, 743 F.2d at 1313. We may affirm the district court only if the record, read in the light most favorable to appellant, reveals no genuine issues of material fact and shows that appellees were entitled to judgment as a matter of law. Id. We also review de novo the district court's interpretation of state and federal law, Matter of McLinn, 739 F.2d 1395, 1399-1400 (9th Cir.1984) (en banc), and we may affirm on any ground that the record supports. Islamic Republic of Iran v. Boeing Co., 771 F.2d 1279, 1288 (9th Cir.1985), cert. dismissed, --- U.S. ----, 107 S.Ct. 450, 93 L.Ed.2d 397 (1986).

DISCUSSION

42 U.S.C. Sec. 1983 creates a federal cause of action for deprivation, under color of state law, of rights guaranteed by the United States Constitution or laws. Stonecipher v. Bray, 653 F.2d 398, 401 (9th Cir.1981), cert. denied, 454 U.S. 1145, 102 S.Ct. 1006, 71 L.Ed.2d 297 (1982). A corporation such as Physicians' Group is a "person" possessing Fourteenth Amendment due process rights. First National Bank of Boston v. Bellotti, 435 U.S. 765, 778-80, 98 S.Ct. 1407, 1416-18, 55 L.Ed.2d 707 (1978); Northeast Georgia Radiological Associates v. Tidwell, 670 F.2d 507, 512 (5th Cir.1982). The jurisdictional statute for section 1983 actions, 28 U.S.C. Sec. 1343(3), makes no distinction between deprivation of personal liberties and proprietary rights. Lynch v. Household Finance Corporation, 405 U.S. 538, 542, 92 S.Ct. 1113, 1116, 31 L.Ed.2d 424 (1972).

I. Property Interests Protected by the Due Process Clause

A. Loehr

The district court understood Loehr to hold that contractual rights alone cannot create property interests protected by the Due Process Clause. Memorandum of Decision at 6. In so ruling, the court read Loehr too broadly and arrived at a conclusion contrary to federal and state decisions holding that contracts may create protected property interests.

In Loehr, this court considered the section 1983 claim of a school district superintendent. Loehr contended that the school district deprived him of a property interest without due process of law when it terminated his four-year contract in mid-term. He asserted three related sources for his protected property interest: his employment contract with the school district, state law, and official district policy. Loehr, 743 F.2d at 1314.

We began in Loehr by interpreting the employment contract. Id. We determined that Loehr "contracted for no more than California law automatically provides." Id. at 1316; see also id. at 1314. Reviewing the relevant state statutes, we concluded that California had, by statute, restricted the property interests of school district administrators to the right to hold their original classroom teaching positions. Id. at 1314-16. Accordingly, Loehr had no property interest in continued employment as school superintendent and was not, therefore, entitled to due process before the district terminated his contract. We expressly refrained from deciding whether the applicable statute would have permitted Loehr independently to contract for a constitutionally protected property interest in his position as superintendent. Id. at 1316.

B. Property Interests Arising From Contract

In fact, it has long been settled that a contract can create a constitutionally protected property interest. In Roth, 408 U.S. at 577, 92 S.Ct. at 2709, the Supreme Court explained that property interests "are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law." In Perry v. Sindermann, 408 U.S. 593, 92 S.Ct. 2694, 33...