George E. Waddell, Jr. v. James Forney Henry Garcia, Individually and as Assistant Regional Deputy of the National Credit Union Administration (Ncua) Mark Treichel, Individually and as Examiner for the National Credit Union Administration, Dutrac Community Credit Union, Intervenor Below

Citation: 108 F.3d 889Docket: 96-1339

Court: Court of Appeals for the Eighth Circuit; May 14, 1997; Federal Appellate Court

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George E. Waddell, Jr. filed a lawsuit against James Forney, Henry Garcia, and Mark Treichel, after being terminated from his position as general manager of a state-chartered credit union. Waddell claimed that the defendants violated his protected property and liberty interests in his employment without providing procedural due process. The defendants appealed the district court's denial of their motions for summary judgment based on qualified immunity, arguing that Waddell's constitutional rights were not clearly established. The court affirmed in part and reversed in part, addressing Waddell's claim that the appeal lacked jurisdiction under Johnson v. Jones due to disputed factual issues. The district court found genuine issues of fact regarding the defendants' conduct and determined that a reasonable jury could side with Waddell. 

The court noted it could not review the district court’s factual determinations but could assess whether the defendants' conduct was objectively reasonable under the law. The analysis of qualified immunity hinges on whether the defendants violated clearly established statutory or constitutional rights that a reasonable person would have recognized. Waddell alleged unlawful interference with his employment, a deprivation of his protected property interest without due process, and a deprivation of his protected liberty interest. The court then proceeded to evaluate each of Waddell's constitutional claims.

Waddell served as the general manager of First Family Credit Union in Dubuque, Iowa, starting in September 1985, with deposit funds insured by the National Credit Union Administration (NCUA). The NCUA, an independent federal agency, has the authority to examine state-chartered credit unions and can terminate their insured status or remove officers after due process. According to NCUA guidelines, removal of management should only be recommended for criminal acts, emphasizing that such actions should be the decision of credit union officials and must follow established legal procedures.

During the relevant time, Henry Garcia was an Assistant Regional Deputy of the NCUA, and Mark Treichel was an examiner under Garcia's supervision. First Family was also regulated by the Iowa Credit Union Division (ICUD), overseen by Superintendent James Forney, who similarly had the authority to remove credit union personnel for legal violations or unsafe practices.

In 1990, following concerns about First Family's financial stability, the ICUD and NCUA conducted a joint examination. Forney requested the credit union to justify its charter retention. First Family presented a business plan during a meeting attended by Forney, ICUD members, and NCUA officials, but no immediate decision was made regarding charter revocation. Treichel later audited First Family and concluded it was insolvent, attributing significant responsibility to Waddell's negligence. He recommended Waddell's termination without severance pay, a report which Garcia adopted as the NCUA's official stance. Subsequently, Garcia informed Forney that, in the NCUA's view, First Family was insolvent due to Waddell’s imprudent lending practices.

On September 28, Forney requested Waddell's resignation, which Waddell refused, demanding a hearing to contest allegations from the NCUA report. Forney then met with the credit union board, relaying NCUA officials' recommendations for Waddell's immediate removal and presenting three options: NCUA takeover with a new manager, selection of a new manager by Forney and First Family, or retention of Waddell with the threat of administrative action and a notice about loss of insurance. The board deemed the first two options unrealistic and viewed the third as a threat that would jeopardize the credit union's funds. They proposed a fourth option: a merger with another credit union, which Forney accepted but insisted on Waddell's termination. 

Despite the board's desire to retain Waddell, they felt compelled to terminate him due to NCUA's clear directives. In the following days, NCUA's threats escalated, including potential personal liability for board members. Forney and Garcia dictated the termination process, demanding adherence to Waddell's contract while disregarding the need for substantiated charges and prior notice. On October 8, the board voted to terminate Waddell, citing policy violations, and notified his attorney, allowing for a presentation at the next meeting. Waddell contended that his presentation was ineffective as the decision to terminate him was already predetermined to facilitate the merger, asserting that the board's actions were coerced by NCUA's threats and instructions.

Waddell alleges that the defendants' actions violated his right to be free from unlawful government interference in his employment, claiming a protected property interest based on his contract stipulating termination only for cause, after written notice and an opportunity to respond. Both claims essentially address procedural due process, contingent on whether government agents exerted coercive power or significantly encouraged First Family's decision to terminate him. 

The right to be free from such interference was established in 1989 by the court in Chernin v. Lyng, which recognized that government agencies could not compel private employers to dismiss employees against their will. This precedent was supported by Merritt v. Mackey, where similar circumstances led to the conclusion that the plaintiffs had protected property interests that warranted due process protections. 

In Waddell's case, the defendants pressured First Family to terminate him under the threat of losing insurance on deposit funds. Although Waddell received written notice of the charges and a form of opportunity to respond, the hearing was not meaningful, as the board was predisposed to terminate him. The defendants were aware of Waddell's contractual rights and should have recognized that their actions violated due process. The district court determined that a genuine issue of fact regarding the defendants' conduct exists, ruling that summary judgment based on qualified immunity was inappropriate for this claim.

Defendants contend that Waddell's right to be free from government interference was not clearly established, citing that the district court's referenced cases did not involve troubled financial institutions. They reference United States v. Gaubert to argue their regulatory discretion allows for informal corrective actions, but the ruling does not negate an individual's right against arbitrary government interference in employment. Gaubert's focus was on the federal agents' conduct under the Federal Tort Claims Act, not the due process rights related to employment.

Defendants also cite Mann v. Carver, which noted that had a constitutional claim been made, it likely would not have succeeded. However, this case does not directly address the constitutional claim and predates significant developments in case law that affirm protected rights. The circuit employs a flexible standard in determining whether a legal right is clearly established, requiring some similarity to precedent and adherence to well-developed legal principles.

Defendants further argue that First Family's decision-making was independent and not attributable to the government, claiming their actions aimed solely at restoring the credit union's financial stability. However, Waddell's allegations and supporting testimony suggest a demand for his immediate termination, violating the NCUA Examiner's Guide. The precedent in Chernin and Merritt indicates that government actions, while directed at the employer, must respect individuals' constitutional rights.

Treichel argues against responsibility for violating Waddell's rights due to limited involvement in coercive dealings. Nonetheless, the district court found that Treichel's recommendations for Waddell's termination, linked to financial assistance conditions, were significant enough to affirm the denial of qualified immunity for all named defendants, pending trial evidence.

Waddell asserts that the defendants' actions violated his constitutionally protected liberty interest in his reputation and ability to work, stemming from statements made about a bond claim against him during a merger discussion. He argues these statements were false and damaging, as bondability is essential for employment in Iowa's financial sector. The district court denied the defendants' summary judgment motion, citing a potential due process violation. However, to substantiate a liberty interest, Waddell must show that the defendants publicly made false, damaging accusations that would severely harm his community standing or employment prospects. 

Despite accepting Waddell's claims as true, the court determined he did not establish a protected liberty interest. The comments, while implying negligence, did not accuse him of dishonesty, immorality, or criminality, which are typically necessary for such claims. Waddell failed to provide evidence of difficulty in securing subsequent employment due to these statements. He claimed he was not hired by the new credit union not because of the comments but due to external demands. Moreover, the statements were made in a private meeting, not publicly, and were not directly related to his discharge, which was already determined prior to the statements being made. The court concluded that Waddell's allegations lacked clarity regarding the timing and context of the statements and reversed the district court's denial of summary judgment regarding his liberty interest claim, while affirming the denial related to his property claim. The case is analyzed under Bivens and section 1983, with both claims sharing similar legal foundations.

The Ninth Circuit has previously affirmed a constitutional right to due process when government agencies compel private employers to terminate employees against their will, as seen in Merritt v. Mackey and Chernin. In Chernin, the USDA withheld inspection services from a meatpacking company until it dismissed a convicted felon employee, leading to claims of economic coercion. The court ruled that this termination violated the plaintiff's due process rights under the Fifth Amendment. Similarly, in Merritt, officials conditioned funding on the firing of a counselor, which the court found created a protected property interest in continued employment, thus necessitating a meaningful hearing before termination. Both cases rejected the argument that terminations were purely private decisions, establishing that government actions can be causally linked to job terminations, thereby implicating due process rights. In the case at hand, allegations against the defendants indicate they pressured First Family to fire Waddell, compromising his due process rights despite his notification of charges. The court found that Waddell's hearing lacked meaningfulness and that the defendants should have recognized their actions could violate his rights. Consequently, the district court determined that there remained a genuine issue of fact regarding the defendants' conduct and that qualified immunity for this claim was not warranted. The defendants contended that Waddell's right was not clearly established due to the unique context of a troubled financial institution, referencing precedent from United States v. Gaubert.

Federal defendants assert their regulatory authority allows them to terminate a credit union's insured status or take direct action against an employee, Waddell, but they also have discretion to pursue informal corrective measures. While discretionary authority is recognized, it does not negate an individual's right to be free from arbitrary governmental interference in employment. The case of Gaubert is cited, where the court examined whether the actions of federal agents constituted a breach of due process regarding employment rights, but the focus was on the agency's supervisory authority rather than specific actions affecting plaintiff's rights. Thus, the defendants' reliance on Gaubert is deemed inappropriate.

In Mann v. Carver, a similar case mentioned in dicta regarding a constitutional claim, the court did not fully address the issue, and this case predates Chernin, which established a clear legal right. The circuit applies a flexible standard for determining if a legal right is clearly established, requiring some factual correspondence with precedent. The authorities in Holloway acknowledged Chernin's validity despite differing facts.

Defendants argue that because First Family had options and could suggest alternatives, Waddell's situation cannot be attributed to government action. However, Waddell's allegations, supported by testimony, indicate more than mere suggestions; most alternatives involved demands for Waddell's immediate termination, which would violate the NCUA Examiner's Guide. First Family felt compelled to act against Waddell, indicating coercion. The cases cited demonstrate that while the government may address issues affecting an employer, it must also respect individuals' constitutional rights.

Lastly, Treichel claims he should not be held accountable for Waddell's constitutional violations due to limited involvement. However, the district court finds that Treichel's involvement was significant, contradicting his assertion.

Treichel recommended Waddell's termination and the denial of his contractual termination benefits to Garcia, indicating these recommendations were tied to financial assistance for First Family and likely communicated to the board. This action initiated the potential constitutional deprivation. The district court upheld the denial of qualified immunity for the defendants, indicating Waddell's claims warrant trial examination. 

Waddell asserts that the defendants' actions compromised his constitutionally protected liberty interest in his reputation and professional pursuits, particularly through false statements about a bond claim against him, which he argues are damaging as bondability is essential for employment in Iowa's financial sector. The district court found sufficient grounds to deny the defendants' motion for summary judgment related to qualified immunity, citing a potential due process violation.

To establish a protected liberty interest, Waddell must show that the defendants made public, untrue charges that would severely harm his reputation or employment opportunities. The court referenced relevant precedents, noting that the stigma must typically involve grave accusations such as dishonesty or criminality. While the comments implied negligence, they did not directly question Waddell's honesty or morality. Waddell failed to prove that the statements hindered his employment prospects, as he attributed his non-hiring by the merged credit union to demands from others rather than the contested statements. Additionally, the comments were made in a private meeting, lacking the public dissemination required for a claim of reputational harm. Finally, Waddell did not demonstrate that the statements were related to his discharge, as an injury to reputation must coincide with a legal status alteration.

Waddell's allegations regarding the timing of statements made by board members are imprecise, occurring after board members felt pressured to terminate him due to defendants' demands but before his official termination. The statements were made during merger discussions where Waddell's termination was already anticipated. The court concludes that Waddell has not established a constitutionally-protected liberty interest, leading to the reversal of the district court's denial of summary judgment on this claim. Conversely, the denial of summary judgment regarding Waddell's property claim is affirmed. Waddell's action against federal defendants is based on the precedent set by Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics, while his claim against state defendant Forney arises under section 1983; both claims are analyzed together due to their similarities. Waddell's employment contract stipulates that termination requires written notice following a formal board resolution, and he must be given a chance to respond to any charges before termination. The court notes a distinction in the Ninth Circuit regarding claims of unconstitutional government interference, highlighting that Waddell had a legitimate expectation of continued employment based on his contract, which protects against arbitrary government actions regardless of at-will employment status.