Southeast Kansas Comm. Action Program, Inc. v. Lyng

• Decision Date: 07 February 1991
• Docket Number: No. 88-1562.,88-1562.
• Citation: 758 F. Supp. 1430
• Parties: SOUTHEAST KANSAS COMMUNITY ACTION PROGRAM, INC., Plaintiff, v. Richard E. LYNG, in his Office Capacity as Secretary of Agriculture of the United States, Stanley C. Grant, in his Office Capacity as Secretary of the Kansas Department of Health and Environment and Their Agents, Employees and Those Working in Concert with Them, Defendants.
• Court: U.S. District Court — District of Kansas

758 F. Supp. 1430

SOUTHEAST KANSAS COMMUNITY ACTION PROGRAM, INC., Plaintiff, v. Richard E. LYNG, in his Office Capacity as Secretary of Agriculture of the United States, Stanley C. Grant, in his Office Capacity as Secretary of the Kansas Department of Health and Environment and Their Agents, Employees and Those Working in Concert with Them, Defendants.

No. 88-1562.

United States District Court, D. Kansas.

February 7, 1991.

William E. Metcalf, Metcalf and Justus, Topeka, Kan., for plaintiff.

Marvin G. Stottlemire, Kansas Dept. of Health and Environment, Topeka, Kan., for Stanley C. Grant et al.

Stephen K. Lester, Asst. U.S. Atty., Wichita, Kan., and John L. Daugherty, Staff Atty., U.S. Dept. of Agriculture, Washington, D.C., for Richard E. Lyng.

MEMORANDUM ORDER

CROW, District Judge.

This matter comes before the court upon the defendants' motions for dismissal of the plaintiff's amended complaint. Southeast Kansas Community Action Program (SEK-CAP), a not-for-profit corporation, is a local agency which formerly received grant funds under the Supplemental Food Program for Women, Infants and Children (WIC).¹ The defendants are the Secretary of Agriculture and the Secretary of Kansas Department of Health and Environment (KDHE). This federal question case arises from the non-renewal of SEK-CAP's contract to administer a WIC nutrition program. SEK-CAP also challenges federal regulations promulgated by the Secretary of Agriculture. SEK-CAP seeks both monetary and injunctive relief.

In its amended complaint, SEK-CAP alleges five separate counts. In Count I, SEK-CAP claims that the KDHE issued a monitoring report to the public that made derogatory statements about SEK-CAP. SEK-CAP alleges that it could defend most of the charges found in that report. Apparently, that report formed the basis of the decision not to renew SEK-CAP's contract. SEK-CAP claims that it was not provided with a hearing on the issue of contract renewal or the monitoring report. SEK-CAP claims this action of the KDHE are violations of its rights under the 14th Amendment in that it was deprived of liberty and property without due process of law. SEK-CAP claims actual damages in excess of $10,000 and punitive damages in excess of $10,000.

In Count II, SEK-CAP incorporates its factual contentions in Count I, but claims irreparable injury and no adequate remedy at law and seeks a mandatory injunction compelling the defendants to continue funding until an adequate hearing is conducted on the issue of non-renewal. In Count III, SEK-CAP seeks actual and punitive damages as well as a mandatory injunction compelling the defendants to continue funding until an adequate hearing is held.

In Count IV, SEK-CAP alleges that Richard Lyng has promulgated regulations that violate the statutory mandate of 42 U.S.C. § 1986. SEK-CAP claims that it is entitled to a hearing under the statute, but that the regulations deny it of that right. SEK-CAP seeks an order declaring those regulations void and a mandatory injunction compelling the continued funding of the WIC program until an adequate hearing has been held.

In Count V, SEK-CAP claims that the regulations promulgated by Richard Lyng which establish a priority system to be used for the selection of new agencies to administer WIC programs are not authorized by Congress and that the use of the regulatory system established by the priority system has been used to deny its application. SEK-CAP seeks to declare those regulations void and an order compelling the defendants to continue funding its operation until an adequate hearing is held on the merits.

On September 30, 1988, the court conducted a hearing to determine whether SEK-CAP was entitled to a temporary restraining order. The court denied SEK-CAP's motion for a temporary restraining order.

The court, having considered the briefs of counsel and applicable law, is now prepared to rule on the defendants' motions to dismiss. "Under Rule 12(b)(6), dismissal is inappropriate unless plaintiff can prove no set of facts in support of his claim to entitle him to relief." Thatcher Enterprises v. Cache County Corp., 902 F.2d 1472 (10th Cir.1990).

Due Process

The protection of procedural due process is not available until the plaintiff establishes the existence of a recognized property or liberty interest. Setliff v. Memorial Hosp. of Sheridan County, 850 F.2d 1384, 1394 (10th Cir.1988). "The range of interests protected by procedural due process is not infinite." Board of Regents of State Colleges v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548 (1972). Corporations are persons within the meaning of the Fourteenth Amendment. Minneapolis & S.L.R. Co. v. Beckwith, 129 U.S. 26, 9 S.Ct. 207, 32 L.Ed. 585 (1889); see First National Bank of Boston v. Bellotti, 435 U.S. 765, 98 S.Ct. 1407, 55 L.Ed.2d 707 (1978) (court rejects argument that liberty guaranteed by the Fourteenth Amendment against deprivation without due process of law only applies to natural persons); see also Old Dominion Dairy Products Inc. v. Secretary of Defense, 631 F.2d 953, 961-962 (D.C.Cir. 1980) (corporation may be deprived of due process liberty interest).

Property Interest

"To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have legitimate claim of entitlement to it." 408 U.S. at 577, 92 S.Ct. at 2709. "The hallmark of property, the Court has emphasized, is an individual entitlement grounded in state law, which cannot be removed except `for cause.'" Logan v. Zimmerman Brush Co., 455 U.S. 422, 430, 102 S.Ct. 1148, 1155, 71 L.Ed.2d 265 (1982).

In Superior Engineering & Electronics Co. v. Sanders, 833 F.2d 823 (9th Cir.1987), the ninth circuit rejected the plaintiff's contention that due process required a hearing before the expiration of its term of participation in a Small Business program. The court commented:

A firm's interest in participating in the Section 8(a) Program must rise to a claim of "entitlement" in order to require fair process in determining whether termination is proper. Board of Regents of State Colleges v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701-2709, 33 L.Ed.2d 548 (1972); J. Nowak, R. Rotunda & J. Young, Constitutional Law, § 15.3 at 549 (2ed.1983). Entitlement is determined by looking at the applicable law. If the statute creates no claim to future benefits, there is no entitlement to continued benefits. Id. at 550. "... A state may be allowed to eliminate the need for hearings to determine the basis for termination of benefits by establishing a system which clearly indicates that there is not right to continuation of benefits ..." Id.. The mutual negotiation of a fixed program participation term between the SBA and the participant provides clear notice that once the term has expired the participant has no right to continue receiving benefits.

Id. at 826-827.

SEK-CAP's contends that it has a property interest in continued funding due to the "existing rules and understandings" defining the WIC grant. The WIC grant contract itself does not support such a contention. The contract covered the time period from July 1, 1987 to September 30, 1988; the preamble fixed the expiration date as September 30, 1988. The contract itself clearly demonstrates that it had no entitlement to WIC grant funds beyond September 30, 1988. In short, the non-renewal of SEK-CAP's WIC contract was not a deprivation of a property interest.

Liberty Interest

Notwithstanding the absence of a property interest, a procedural due process hearing may still be necessary if a liberty interest is implicated. Rich v. Secretary of the Army, 735 F.2d 1220, 1226 (10th Cir. 1984). In Paul v. Davis, 424 U.S. 693, 96 S.Ct. 1155, 47 L.Ed.2d 405 (1976), the Supreme Court considered the issue of whether the plaintiff who was allegedly defamed by a flier circulated by the police department bearing his name and photograph which supposedly depicting "active shoplifters" stated a claim for relief under 42 U.S.C. § 1983 and the Fourteenth Amendment. The Court concluded that injury alone to reputation does not violate the liberty or property interests of the due process clause.

The Court stated that there is "no constitutional doctrine converting every defamation by a public official into a deprivation of liberty within the meaning of the Due Process Clause of the Fifth or Fourteenth Amendment." Id. at 702, 96 S.Ct. at 1161. The proper remedy for such an injury is through a state tort action for defamation. Id. at 697-699, 96 S.Ct. at 1158-60. In Paul, the Court concluded that the plaintiff had suffered no constitutional injury because he could not "assert denial of any right vouchsafed to him by the State and thereby protected under the Fourteenth Amendment." Id. at 712, 96 S.Ct. at 1166.

Thus, in order to present a viable liberty deprivation claim, the plaintiff must demonstrate more than a mere injury to reputation; due process requirements are not triggered unless the injury to reputation is entangled with the loss of a more tangible interest. See Setliff, 850 F.2d at 1396. The plaintiff is also required to demonstrate that the publication of information was false and stigmatizing. See Derstein v. State of Kan., 915 F.2d 1410 (10th Cir. 1990); Conaway v. Smith, 853 F.2d 789, 794 (10th Cir.1988); Sipes v. United States, 744 F.2d 1418, 1421 (10th Cir.1984).

Codd v. Velger, 429 U.S. 624, 97 S.Ct. 882, 51 L.Ed.2d 92 (1977), requires a plaintiff seeking to recover for deprivation of a liberty interest to allege that the defendant's "defamatory" statements are false.

The defendants in the case at bar contend that SEK-CAP has failed to allege that the monitoring review was false and defamatory. In its amended complaint, SEK-CAP alleges that the defendant's statements were "derogatory" or that it can "defend against most of the charges." In its response to the...