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CONSET CORP. v. COMMUNITY SERVS. ADMIN.

March 18, 1985

CONSET CORPORATION, et al., Plaintiffs
v.
COMMUNITY SERVICES ADMINISTRATION, et al., Defendants



The opinion of the court was delivered by: PENN

 JOHN GARRETT PENN, United States District Judge.

 The plaintiffs, Conset Corporation and its principal shareholder, Stanley Zimmerman, filed this action on April 27, 1979. *fn1" Plaintiffs allege that the manner in which the defendant agency officials terminated a business arrangement between Conset and the National Demonstration Water Project, a nonprofit federal grantee, infringed their Fifth Amendment due process rights. The matter is presently before the court on defendants' motion to dismiss, or for summary judgment.

 I

 The defendants Mr. Olivarez, Mr. Smith, Mr. Jones, and Mr. Ramsey were Director, Assistant Director, Chief Legal Officer and Chief of the Demonstration Division, respectively. The defendant, Community Services Administration (CSA), *fn2" was a federal antipoverty agency established by the Economic Opportunity Act of 1964, as amended, 42 U.S.C. ยงยง 2701 et seq. Section 2825 established pilot and demonstration projects, conducted by public or private agencies, designed to test or assist in the development of new approaches or methods that would aid in overcoming special conditions in furtherance of the public interest. The National Demonstration Water Project (NDWP), designed for the purposes of developing local water and sewer facilities for low income families, was such a demonstration project. Plaintiff, Conset Corporation, was a service corporation that sold management services to NDWP. Plaintiff, Stanley Zimmerman, the President of Conset, also served as the Executive Director of the NDWP until September 30, 1978.

 In 1977, CSA officials discussed the "dual status issue" with representatives from both the NDWP and Conset. A subsequent memorandum, dated November 7, 1977, also explored the potential conflict of interest issue. Discussions continued between the three parties and the plaintiffs were advised of the existence of the potential conflict issue, although the prior OEO/CSA administrations had always approved of the NWDP/Conset arrangements. Plaintiffs were instructed that even though the past arrangements had been consistently approved, the NDWP had not heretofore violated Instruction Number 6909-01, because the regulations permitted such conflicts to exist, provided that they were specifically approved by the CSA. See Mack affidavit para. 4. Despite the lingering existence of the potential conflict of interest, a "short term" contract was approved through January 1, 1978. CSA thereafter decided to provide further funding to NDWP and established a final grant for that organization which terminated on September 30, 1978. This grant was made on August 24, 1978, retroactively effective through February 1, 1978. CSA contends that the termination had nothing to do with the conflict of interest issue; rather, the officials felt that NDWP had fully demonstrated its effectiveness as a "demonstration" project and was suitable for funding by other agencies.

 In late February 1978, it came to the attention of CSA officers that the plaintiffs were representing to government and congressional officials that CSA had determined that there was no potential conflict of interest in the NDWP/Conset arrangement. It was at this juncture that the Assistant Director of the Office of Legal Affairs and General Counsel were compelled to issue the "General Counsel's Final Opinion Memorandum" dated March 9, 1978. It is this memorandum which is the subject of this action.

 Defendants contend that the March 9, 1978 memorandum was issued by high agency officials and counsel, as a final legal opinion re-evaluating the relationship between Conset and NDWP. Plaintiffs contend that they suffered substantial harm as a result of the memorandum and its alleged circulation outside the agency. Plaintiffs maintain that the memorandum ultimately forced the resignation of Zimmerman as Executive Director of the NDWP, foreclosed Conset's business opportunities, and eventually drove Conset out of business. Plaintiffs seek damages for violation of their constitutional rights, alleging that the defendants failed to afford them adequate notice and sufficient opportunity to respond, subsequent to the preparation of the allegedly "stigmatizing" March 9th memorandum, and before the allegedly "adverse action" of its dissemination outside of the agency.

 This court dismissed the action and denied plaintiffs' motion for injunctive relief. *fn4" The court of appeals, 655 F.2d 1291, affirmed the decision that plaintiffs had no property rights; but reversed and remanded on the issue of whether plaintiffs had a "liberty interest" which would implicate due process protection. *fn5" However, this Court resolves the action on the basis of two jurisdictional issues which have not heretofore been considered.

 II

 The defendants moved to dismiss the action, or for summary judgment, asserting Procunier v. Navarette, 434 U.S. 555, 98 S. Ct. 855, 55 L. Ed. 2d 24 (1978), to stand for the proposition that "there can be no individual liability for damages because the defendants are entitled to qualified immunity as a matter of law." In Procunier, an inmate, alleging infringement of his First Amendment rights, sought damages for the prison officials' interference with the outgoing prisoner mail. Noting that during the period of the alleged constitutional violations, there was no "clearly established" right protecting an inmate's mail privileges, the Supreme Court held that summary judgment was appropriate because "the defendant officials were entitled to qualified immunity as a matter of law." Id. 434 U.S. at 565, 98 S. Ct. at 861.

 The plaintiffs, in opposition, maintain that the qualified immunity defense is not available to the individual defendants because they "should have known" that their challenged actions would violate the plaintiff's constitutional rights. The Court finds that the government officials are entitled to qualified immunity as a matter of law.

 a) The Appropriate Qualified Immunity Standard

 The former Procunier test encompassed both objective and subjective components:

 
qualified immunity [was] denied an official who knew or should have known that the action he took within the sphere of official responsibility would violate the constitutional rights of the [complainant], or if [the official] took the action with malicious intention to cause a deprivation of constitutional rights or other injury.

 Id. at 434 U.S. at 562, 98 S. Ct. at 860; Wood v. Strickland, 420 U.S. 308, 322, 95 S. Ct. 992, 1001, 43 L. Ed. 2d 214 (1975). Thus under the Procunier standard, immunity was available only if the federal official had neither violated clearly established law, nor acted out of malice. Procunier, 434 U.S. at 562, 98 S. Ct. at 860.

 The subjective element required a showing that the official took the action in "good faith" without an intention to cause injury, however, the Court soon recognized that the good faith requirement often defeated summary judgment. As questions of subjective intent "are rarely amenable to resolution on motions for summary judgment; the broad-ranging discovery which resulted could often be disruptive of effective government." Harlow v. Fitzgerald, 457 U.S. 800, 816, 102 S. Ct. 2727, 2738, 73 L. Ed. 2d 396 (1982). The Harlow Court observed that the denial of immunity subjected government officials to harassing civil litigation.

 
It [is] not difficult for an ingenious plaintiff's counsel to create a material issue of fact on some element of the immunity defense where subtle questions of constitutional law and the decisionmaker's thought processes are involved. A sentence from a casual document or a difference in recollection with regard to a particular policy conversation held long ago would usually, under the normal summary judgment standards, be sufficient to force ...

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