Vartan v. Sobolevitch, Civ. A. No. 1:CV-91-1065.

• Decision Date: 20 November 1991
• Docket Number: Civ. A. No. 1:CV-91-1065.
• Parties: John O. VARTAN, trading as Independent American Investments, a registered fictitious name, Plaintiff, v. Nancy M. SOBOLEVITCH, Defendant.
• Court: U.S. District Court — Middle District of Pennsylvania

783 F. Supp. 911

John O. VARTAN, trading as Independent American Investments, a registered fictitious name, Plaintiff, v. Nancy M. SOBOLEVITCH, Defendant.

Civ. A. No. 1:CV-91-1065.

United States District Court, M.D. Pennsylvania.

November 20, 1991.

Carleton O. Strouss, John P. Krill, Jr., Andrew H. Cline, Kirkpatrick & Lockhart, Harrisburg, Pa., for plaintiff.

Howard M. Holmes, Kenneth R. Wilson, Supreme Court of Pa., Administrative Office of Pa. Courts, Philadelphia, Pa., Robert J. Cindrich, Paul H. Titus, Mansmann Cindrich & Titus, Pittsburgh, Pa., for defendant.

MEMORANDUM

CALDWELL, District Judge.

Pursuant, in part, to Fed.R.Civ.P. 12(b)(6), the defendant, Nancy M. Sobolevitch, Court Administrator of Pennsylvania and the Chief Administrative Officer of the Administrative Office of Pennsylvania Courts (AOPC), has filed a motion to dismiss the complaint. The plaintiff, John O. Vartan, trading as Independent American Investments, sued Sobolevitch under 42 U.S.C. § 1983, alleging that she violated his right to due process under the fourteenth amendment when she terminated a lease between Vartan and the AOPC without first giving him an opportunity to contest the termination.

The lease, executed on October 10, 1989, was for a courthouse intended as the home of the Pennsylvania Commonwealth Court. It was for an initial leasehold of twenty-nine years and would have required Vartan to build the courthouse in downtown Harrisburg, Pennsylvania. Plaintiff asserts that in the months following the execution of the agreement he expended great time, money and effort to advance the construction of the project, which all went to naught when Sobolevitch terminated the contract on June 6, 1990. She did so pursuant to the apparent authority the lease conferred upon her if she was not able to obtain the approval of the "judicial branch of the Commonwealth of Pennsylvania" for the lease. (complaint, exhibit D, the lease agreement). Vartan believes that Sobolevitch had, in fact, already obtained the necessary approval at the time she wrote her letter and that the termination was therefore in breach of the lease.

Among other reasons for dismissal, defendant asserts Vartan's claim is for a mere breach of contract and that such a claim is not protected by the due process clause. In opposition, the plaintiff contends that he had a property interest in the lease because Sobolevitch could not terminate it except on certain grounds. Because defendant therefore could not have terminated the lease except, as Vartan has argued, "for cause," the contract created a property right which is protected by the due process clause.

"Today it is beyond dispute that a contract with a state entity can give rise to a property right protected under the Fourteenth Amendment," Unger v. National Residents Matching Program, 928 F.2d 1392, 1397 (3d Cir.1991), but, as also noted by the court of appeals in Unger, not "every state contract gives rise to a property interest." Id. Further, the Third Circuit has been reluctant to recognize such a right for a very good reason:

Many ... courts have observed that if every breach of contract by someone acting under color of state law constituted a deprivation of property for procedural due process purposes, the federal courts would be called upon to pass judgment on the procedural fairness of the processing of a myriad of contractual claims against public entities. We agree that such a wholesale federalization of state public contract law seems far afield from the great purposes of the due process clause.

Id. at 1398 (quoting Reich v. Beharry, 883 F.2d 239, 242 (3d Cir.1989) (citations omitted in Unger)).

Nevertheless, in a review of Supreme Court and federal appellate case law, the Third Circuit has acknowledged:

two general types of contract rights that have been found to be property protected under the Fourteenth Amendment. As the Second Circuit noted in S & D Maintenance Co., Inc. v. Goldin, 844 F.2d 962, 966 (2d Cir.1988), the first type arises where the contract confers a protected status, such as those "characterized by a quality of either extreme dependence in the case of welfare benefits, or permanence in the case of tenure, or sometimes both, as frequently occurs in the case of social security benefits." The second, albeit related type of property interest arises where the contract itself includes a provision that the state entity can terminate the contract only for cause.

928 F.2d at 1399 (brackets added).

Vartan asserts that his lease was of the second type. Although he concedes that the lease did not specify that it could be terminated only for cause, he contends its substantive provisions, permitting termination only on the happening of certain events, had that effect. Hence, the contract did create a property right which he further asserts required a pretermination hearing before the agreement could be ended.

Whether the contract creates a property right is a difficult question. It appears that Farr v. Chesney, 437 F.Supp. 521 (M.D.Pa.1977) would support such a conclusion, but it was decided prior to the Third Circuit's decision in Unger so we are not inclined to follow Farr. In any event, that case is distinguishable because a contract to provide personal services was at issue there. See San Bernardino Physicians' Services Medical Group, Inc. v. County of San Bernardino, 825 F.2d 1404, 1409 n. 5 (9th Cir.1987). Other cases from this district would support the opposite conclusion but they are distinguishable as well. In Ruman v. Commonwealth of Pennsylvania, Department of Revenue, 462 F.Supp. 1355 (M.D.Pa.1979), the court stated that a mere breach of contract could not constitute a due process violation but no argument was made there that the contract could not be terminated except for cause. In Swin Resource Systems, Inc. v. Lycoming County, 678 F.Supp. 1116 (M.D.Pa. 1988), the plaintiff advanced a substantive due process claim.

However, we need not decide this issue. Assuming that the contract does create a property right, due process does not require the pretermination hearing that Vartan has requested.

To determine whether predeprivation process was required, we must apply the familiar tripartite test set out in Mathews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976). Under that test, we must weigh the importance of the interest of which the plaintiff is being deprived, the extent, if any, to which the particular procedure contended for will reduce the risk of an erroneous deprivation, and the burden that would be imposed upon the government if that predeprivation process were required.

Reich v. Beharry, 883 F.2d 239, 242 (3d Cir.1989).

It appears that plaintiff's interest is only a monetary one. Vartan has emphasized the great dollar value of the lease and the magnitude of his now apparently wasted investment and effort, but he has not contended that he has suffered any other injury from Sobolevitch's conduct. He has not asserted, for example, that lost profits from the loss of the lease or wasted costs of construction preparation have had a fatal impact upon his business. Thus, if his claim is meritorious, Vartan can be fully compensated for his damages in his state proceedings, now pending in the commonwealth court on his appeal from an adverse decision of the Pennsylvania Board of Claims. See Reich, 883 F.2d at 243. The mere magnitude of those damages alone is insufficient to find that this first factor should favor plaintiff.

"The second factor to be considered is the `fairness and reliability of the existing procedures, and the probable value, if any, of additional procedural safeguards.' Mathews, 424 U.S. at 343, 96 S.Ct. at 907." Reich, 883 F.2d at 243. Vartan strenuously questions the fairness and reliability of the existing procedures — the postdeprivation proceedings before the Board of Claims which may very well proceed through the appellate process to the Pennsylvania Supreme Court. Plaintiff asserts that the members of that court were responsible for Sobolevitch's decision to terminate the lease. He argues that they therefore cannot be impartial arbiters of his claim. He also contends that they cannot be expected to award damages that would have to come from their own budget.

However, problems arising in individual cases, even those of a potentially constitutional magnitude, are not appropriate for consideration in regard to the second factor. In considering that factor, the Supreme Court and the Third Circuit have said that "we must keep in mind that `procedural due process rules are shaped by the risk of error inherent in the truthfinding process as applied to the generality of cases, not the rare exceptions.'" Reich, 883 F.2d at 243 (emphasis in Reich) (quoting Mathews). We recognize that this statement was made in cases in which the fairness of the potentially...