State v. Chase Securities, Inc.

• Citation: 188 W.Va. 356,424 S.E.2d 591
• Decision Date: 25 November 1992
• Docket Number: No. 20863,20863
• Court: Supreme Court of West Virginia
• Parties: STATE of West Virginia, Plaintiff Below, Appellee, v. CHASE SECURITIES, INC., Defendant and Third-Party Plaintiff Below, Appellant, v. The WEST VIRGINIA STATE BOARD OF INVESTMENTS; Arch A. Moore, Jr.; Glen B. Gainer, Jr.; and A. James Manchin, Third-Party Defendants Below, Appellees.

Page 591

424 S.E.2d 591

188 W.Va. 356

STATE of West Virginia, Plaintiff Below, Appellee, v. CHASE SECURITIES, INC., Defendant and Third-Party Plaintiff Below, Appellant, v. The WEST VIRGINIA STATE BOARD OF INVESTMENTS; Arch A.

Moore, Jr.; Glen B. Gainer, Jr.; and A. James

Manchin, Third-Party Defendants Below, Appellees.

No. 20863.

Supreme Court of Appeals of West Virginia.

Submitted Sept. 22, 1992.

Decided Nov. 25, 1992.

Syllabus by the Court

A public executive official who is acting within the scope of his authority and is not covered by the provisions of W.Va.Code, 29-12A-1, et seq., is entitled to qualified immunity from personal liability for official acts if the involved conduct did not violate clearly established laws of which a reasonable official would have known. There is no immunity for an executive official whose acts are fraudulent, malicious, or otherwise oppressive. To the extent that State ex rel. Boone National Bank of Madison v. Manns, 126 W.Va. 643, 29 S.E.2d 621 (1944), is contrary, it is overruled.

Mary L. Wolff, Wolff Ardis, Memphis, Tenn., Rudolph L. DiTrapano, Rebecca A. Baitty, Debra L. Hamilton, DiTrapano & Jackson, Silas B. Taylor, Sr. Deputy Atty. Gen., Charleston, for appellee State of W.Va.

Joseph R. Goodwin, Richard E. Rowe, Goodwin & Goodwin, Charleston, for appellant.

John R. Hoblitzell, John Andrew Smith, Steven L. Thomas, Kay, Casto, Chaney, Love & Wise, Charleston, for appellee Arch A. Moore, Jr.

David P. Cleek, Kenneth E. Knopf, Stephen M. Fowler, Cleek, Pullin & Bibb, Charleston, for appellee Glen B. Gainer, Jr.

Richard L. Earles, Stephen D. Annand, Shuman, Annand & Poe, Charleston, for appellee A. James Manchin.

MILLER, Justice:

This appeal involves a question of immunity for state executive officials which arose in a civil action by the State of West Virginia against Chase Securities, Inc., (Chase) to recover damages for losses sustained by the Consolidated Fund (Fund) ¹ in the spring of 1987. Chase appeals from a September 17, 1991 order of the Circuit Court of Kanawha County which dismissed Chase's third-party complaint against Arch A. Moore, Jr., A. James Manchin, and Glen B. Gainer, Jr., who were the Governor, the Treasurer, and the Auditor, respectively, of this state at the time of the losses in question. By virtue of W.Va.Code, 12-6-3 (1978), these three public officials were members of the State Board of Investments (Board), ² which managed the Fund. We conclude that the lower court properly ruled that these Board members were immune from suit, and we affirm the dismissal of the third-party complaint.

I.

The basic facts are not disputed by the parties. In the spring of 1987, the Fund suffered substantial portfolio losses. Several New York City brokerage companies, including Chase, had handled the securities transactions that resulted in these losses. Chase had purchased from the Board a sixty-day put option on $100 million in United States Treasury bonds for a premium of over $800,000. The option gave Chase the right to sell the bonds back to the Board for a fixed price at a later date.

During the period of the option, treasury bonds declined substantially in value. Consequently, when Chase exercised its option to have the Board repurchase the bonds, the option price was substantially above the existing market price. As a result, the Fund sustained a loss of approximately $7.1 million on the transaction.

The State sued Chase in the Circuit Court of Kanawha County on the theory that its agents had caused employees of the Fund to execute the option resulting in the investment losses through the use of inducements and misrepresentations. Chase filed a third-party complaint against the members of the Board, claiming that their approval of the transaction made them equally liable for the loss. Chase argued that if the transaction was in violation of the investment laws, as contended by the State, then the three public officials who approved the transaction were also culpable. In response, the third-party defendants moved to dismiss Chase's complaint, alleging that because they were acting within the scope of their authority in approving the option transaction, they were entitled to immunity from personal liability.

By order dated September 17, 1991, the circuit court granted the motion to dismiss, citing two reasons for its decision. First, the court concluded that "[t]he claims against the third-party defendants are in the nature of defenses to the State's claim against Chase." Second, the circuit court found that the action of the third-party defendants "in executing the Board Authorization for the put option to Chase were discretionary acts within the scope of their authority as members of the Board of Investments." The circuit court went on to state that even if "the transaction was in violation of a state statute and/or Board of Investment guidelines, the third-party defendants are immune from liability absent a showing of willful, malicious or oppressive conduct in approving the transaction."

On appeal, Chase admits that there is no evidence to demonstrate that the members of the Board acted in a willful, malicious manner or were guilty of oppressive conduct. Instead, Chase argues that the Board members are chargeable with the conduct of the Fund's investment employees, which the State characterizes as ultra vires ³ and without lawful authority.

We note, however, that the circuit court's decision was not based on an ultra vires theory, but rather on an immunity analysis. There is no contention by Chase that the members of the Board did not have the authority to approve the option contract investment. Consequently, we decline to discuss the ultra vires argument.

II.

Admittedly, our law with regard to public official immunity is meager. As an initial matter, we make a distinction between the immunity that is available to state executive officials, such as the three individuals involved in this case, and the immunity afforded public officials who are employed by political subdivisions under W.Va.Code, 29-12A-1, et seq. This statute is known as the Governmental Tort Claims and Insurance Reform Act, and the immunity conferred therein is not at issue in this case.

Perhaps because of the paucity of our law as to immunity of public officials, the various parties to this appeal have declined to address the immunity issue in any comprehensive fashion. The Board members place principal reliance on State ex rel. Boone National Bank of Madison v. Manns, 126 W.Va. 643, 29 S.E.2d 621 (1944), where members of a county commission were sued because they had expended funds in excess of that year's levy. In the course of the opinion, we made this statement:

"No public officer is liable to one dealing with him for the ill-performance of an official act, if he is legally vested with discretion, or must use his own judgment, as to the manner or method of performing such act. Judicial and legislative officers are, accordingly, ordinarily immune from such liability, and are not even required to give bond. Other officers in performing acts which involve official discretion likewise incur no personal liability in the absence of fraud." 126 W.Va. at 647, 29 S.E.2d at 623-24. (Citations omitted). ⁴

Under this standard, a public official performing a discretionary act in his or her public capacity is shielded from liability unless he or she is guilty of fraud, malice, or other willful, oppressive conduct. For reasons that we discuss more fully in Part III, infra, we do not adopt this standard except as to the fraud, malice, or other oppressive conduct portion.

To determine an appropriate standard for deciding whether a state executive officer is immune from personal liability, we believe it is prudent to consider the development of the law by the United States Supreme Court. There are several cogent reasons that support such an approach.

First, litigation directed at state officials is most frequently brought pursuant to 42 U.S.C. § 1983, which creates a remedy for violation of federal rights committed by persons acting under color of state law. ⁵ The interpretation of this statute by the federal courts has resulted in a substantial body of law regarding immunity for public officials. This law has developed by considering common law immunity concepts, as the United States Supreme Court observed in Owen v. City of Independence, 445 U.S. 622, 638, 100 S.Ct. 1398, 1409, 63 L.Ed.2d 673, 685 (1980):

"In each of these cases, our finding of § 1983 immunity 'was predicated upon a considered inquiry into the immunity historically accorded the relevant official at common law and the interests behind it.' Imbler v. Pachtman, [424 U.S. 409], at 421 [96 S.Ct. 984, 990, 47 L.Ed.2d 128, 138 (1976) ]. Where the immunity claimed by the defendant was well established at common law at the time § 1983 was enacted, and where its rationale was compatible with the purposes of the Civil Rights Act, we have construed the statute to incorporate that immunity." ⁶

See also Malley v. Briggs, 475 U.S. 335, 106 S.Ct. 1092, 89 L.Ed.2d 271 (1986). Thus, these precepts are compatible with our common law traditions.

Another reason for utilizing the federal law is the holding in Howlett v. Rose, 496 U.S. 356, 110 S.Ct. 2430, 110 L.Ed.2d 332 (1990), that in Section 1983 litigation a state may not create an immunity for state officials that is greater than the federal immunity. The Court in Howlett pointed out that Section 1983 suits could be brought in state courts ⁷ and that under the Supremacy Clause, federal substantive law must be applied in such actions. In Howlett, the Florida court had held that the state's absolute immunity from suit applied to state governmental entities in Section 1983 actions. In rejecting this contention, the Supreme Court stated:

"If the District Court of Appeal meant to hold that governmental entities subject to § 1983 liability enjoy an immunity over and above...