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S & D Maintenance Co. v. Goldin

decided: April 14, 1988.


Appeal from a judgment of the District Court for the Southern District of New York (Richard Owen, Judge) granting defendants' motion for summary judgment in a suit alleging denial of procedural due process in connection with the defendants' refusal to pay plaintiff for services rendered to maintain parking meters.

Feinberg, Chief Judge, Winter and Newman, Circuit Judges.

Author: Newman

JON O. NEWMAN, Circuit Judge:

This appeal concerns primarily consideration of the circumstances under which a governmental contract may be said to create a property interest protected by procedural due process. S & D Maintenance Co., Inc. ("S & D") brought this suit under 42 U.S.C. § 1983 (1982), against the City of New York and six City officials,*fn1 alleging a denial of procedural due process in connection with the City's refusal to pay S & D for services rendered to maintain parking meters. The City had withheld payments to S & D pending a criminal investigation into the circumstances under which S & D obtained one of the meter maintenance contracts. The District Court for the Southern District of New York (Richard Owen, Judge) granted defendants' motion for summary judgment on the alternative grounds that (1) the requirements of procedural due process are satisfied by the availability to S & D of a post-deprivation remedy in state court for breach of contract and (2) a pre-deprivation hearing, even if normally required, need not be accorded when a related criminal investigation is pending. We affirm on the ground that S & D's contractual relationship with the City did not create a constitutionally protected property interest.


In June 1984, S & D entered into a contract with New York City to maintain the City's on-street parking meters for the two-year period from July 1, 1984, through June 30, 1986 (the "1984 contract"). In June 1986, S & D obtained a contract from the City to maintain the on-street meters from July 1, 1986, to June 30, 1988 (the "1986 contract"). Each contract was awarded by the City's Department of Transportation (DOT) after competitive bidding. Between July 1, 1986, and September 8, 1986, S & D submitted to the DOT Commissioner, Ross Sandler, three separate invoices for work performed in May and June 1986 under the 1984 contract and in July 1986 under the 1986 contract. These invoices were certified by Commissioner Sandler in the amount of $552,955.10, $453,411.29, and $636,112.39, respectively, and were filed with the City Comptroller, Harrison Goldin. Comptroller Goldin, however, refused to authorize the City Commissioner of Finance, Abraham Biderman, to pay these certified invoices, and S & D has allegedly not received payment for the meter maintenance work it undertook for the City after May 1, 1986.

On July 22, 1986, S & D President Henry Simpson sent a letter to the DOT seeking an explanation for the City's failure to pay the May 1986 invoice. Simpson was informed that the matter was being handled by the Office of the Comptroller, to which he subsequently made repeated written and oral requests for an explanation. According to Simpson, Assistant Comptroller Steven Matthews told him that payment would be suspended pending a "payment audit." Matthews allegedly refused to discuss the reason for the audit, its nature, or its anticipated duration. S & D wrote to Comptroller Goldin on August 15, 1986, requesting "immediate clarification" of the matter. Two weeks later S & D again wrote to Goldin seeking payment and complaining that "despite letters, calls, etc., your organization . . . refuses to discuss the matter and more important to tell us what the problem is, if there is a problem." S & D alleges that no response was ever made to these requests for information. By letter dated September 12, 1986, S & D again informed the DOT that payments had not been received for work performed after May 1, 1986, under both the 1984 and 1986 contracts, and threatened to cease performance under the 1986 contract if payment was not made by September 24. In response, the DOT twice informed S & D by letter that the Department had "acted in good faith and with due diligence" in processing the invoices, and that the City would consider S & D in default of the contract if it stopped work as threatened.

In late September 1986, before carrying out its threat to halt performance, S & D commenced two Article 78 proceedings, N.Y. Civ. Proc. L. & R. § 7801 (McKinney 1981), in the New York Supreme Court for orders in the nature of mandamus to compel payment of its invoices. In the course of these proceedings S & D learned, allegedly for the first time, that payment was being withheld pending a criminal investigation into corruption in City government. More specifically, affidavits submitted by Assistant Comptroller Matthews, David A. Burns, an examining attorney with the New York Department of Investigation (DOI) and a Special Assistant United States Attorney, and David Lawrence, an Assistant United States Attorney, revealed that the DOI and the United States Attorney's office were engaged in a joint investigation into the circumstances surrounding the award of the 1984 contract to S & D. Though details of the investigation were refused to S & D pursuant to Fed. R. Crim. P. 6, it became clear in the Article 78 proceedings that allegations of fraudulent procurement of the 1984 contract had been made against S & D and that the basis for these allegations was primarily the fact that S & D had retained Stanley Friedman, then Bronx Democratic Party leader,*fn2 to represent its interests before the DOT. S & D was also informed that the City would not pay for services rendered pursuant to either the 1984 or 1986 contract pending the outcome of the investigation. On October 17, 1986, the state judge determined that an Article 78 proceeding was not appropriate because the Comptroller's role in processing the invoices was not purely ministerial. Rather than dismissing the action, however, the judge permitted S & D to convert the mandamus proceedings into a consolidated plenary action on the contracts. The current status of this state court action is not clear from the record.

Upon learning of the City's intention not to pay pending the outcome of the investigation, S & D informed the DOT on October 8, 1986, that it would immediately suspend performance under the 1986 contract. That same day DOT Commissioner Sandler ordered a default hearing pursuant to Article 12 of the 1986 contract, which permits the Commissioner, after notice and hearing, to declare S & D in default for specified reasons, including abandonment. A default hearing was convened on October 14, 1986, but was adjourned at the request of the DOT pending the outcome of the Article 78 proceeding. After the conversion of the Article 78 proceedings, S & D twice requested without success that the default hearing be resumed. On December 31, 1986, Commissioner Sandler advised S & D that the 1986 contract was terminated, effective immediately, pursuant to Article 44 of the contract, which authorizes termination by the Commissioner without cause.

S & D commenced the present action on December 16, 1986. The complaint alleged ten causes of action, three under the Due Process Clause of the Fourteenth Amendment and seven under state law. The District Court granted defendants' motion for summary judgment on the federal claims and consequently dismissed the pendent state claims for lack of jurisdiction.


S & D contends that the defendant's actions have deprived it of both property and liberty interests without due process of law. We shall consider each alleged interest separately.

Property. The Supreme Court over the past two decades has enlarged the scope of interests protected by the procedural guarantees of the Due Process Clause. See Board of Regents v. Roth, 408 U.S. 564, 571 & n.9, 33 L. Ed. 2d 548, 92 S. Ct. 2701 (1972). This result has been accomplished in part through a broadened understanding of the word "property," as used in the Due Process Clause, to include rights to some governmental benefits conferred by statute, see, e.g., Goldberg v. Kelly, 397 U.S. 254, 25 L. Ed. 2d 287, 90 S. Ct. 1011 (1970) (welfare payments), or by contract, see, e.g., Perry v. Sindermann, 408 U.S. 593, 33 L. Ed. 2d 570, 92 S. Ct. 2694 (1972) (tenured teaching position). The Court has suggested that a rationale for constitutionalizing some of these so-called "new property" rights is the functional importance of governmental benefits like welfare to citizens in contemporary society, see Goldberg v. Kelley, supra, 397 U.S. at 262 n.8 (citations omitted).*fn3 The Court has emphasized, however, that all interests warranting procedural protection as property rights require something in addition to their importance to the claimant: "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 a legitimate claim of entitlement to it." Board of Regents v. Roth, supra, 408 U.S. at 577.

The present case requires that we determine whether S & D has a contractual right giving rise to a "legitimate claim of entitlement" and thus a constitutionally protected property interest under Roth. In one sense, of course, every enforceable contract right can be said to be an "entitlement." As long as a state provides judicial remedies for the enforcement of contracts, either specific performance or damages for breach, every person holds a legitimate expectation that his contractually conferred rights are secure. And whenever a person contracts with a state, breach by the state can be considered a denial of his entitlement to performance of the contract. If the concept of "entitlement" were this expansive, federal courts could be asked to examine the procedural fairness of every action by a state alleged to be in breach of its contracts. Yet, as the Seventh Circuit has observed, "We must bear in mind that the Fourteenth Amendment was not intended to shift the whole of the public law of the states into the federal courts." Brown v. Brienen, 722 F.2d 360, 364 (7th Cir. 1983). The result would not be quite as unsettling as the Seventh Circuit apprehends, since constitutionalizing public contract rights would normally permit inquiry concerning only procedural regularity in ...

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