Wmx Technologies, Inc., a Delaware Corporation Waste Management of California, Inc., a California Corporation v. Edwin L. Miller, Jr., as District Attorney of San Diego County, California
Docket: 97-55336
Court: Court of Appeals for the Ninth Circuit; September 2, 1999; Federal Appellate Court
The case involves WMX Technologies, Inc. and Waste Management of California, Inc. (collectively referred to as "Waste Management") filing an action under 42 U.S.C. § 1983 against Edwin L. Miller, Jr., the District Attorney of San Diego County. The plaintiffs allege that a report generated by Miller, which was intended to assess their application for landfill development permits, contained defamatory statements that violated their rights to property and liberty without due process, as well as their First and Fourteenth Amendment rights to petition the government.
The San Diego County Board of Supervisors had requested Miller to investigate allegations against Waste Management, including price-fixing, criminal conduct, environmental violations, insufficient liability insurance, and organized crime connections. On April 1, 1992, Miller submitted a comprehensive report to the Board that included various sections addressing these allegations. Waste Management subsequently initiated legal action following the report's dissemination.
The district court dismissed the case under Federal Rule of Civil Procedure 12(b)(6), and the Ninth Circuit Court of Appeals affirmed this dismissal, maintaining jurisdiction under 28 U.S.C. § 1291.
The complaint alleges that Section V of a report implies that Waste Management is associated with organized crime, referencing Exhibit C, which includes this section. However, Exhibit C does not make such a direct conclusion. Waste Management asserts that the title "Organized Crime Connections" is misleading and suggests a connection without supporting evidence from the section itself. The section outlines historical lawsuits and government actions from 1960 to 1984 related to entities associated with Waste Management but does not claim any current ties to organized crime. The heading may simply serve as a topic for discussion requested by Susan Golding.
Additionally, other parts of the report criticize Waste Management for environmental violations, public corruption, antitrust issues, and unfair business practices, but the final conclusions in Section IX do not mention organized crime. It highlights a consistent pattern of civil and criminal violations, raising concerns about Waste Management's business practices, though it remains unclear if these are due to management failure or corporate policy.
The complaint only seeks relief regarding Section V and not concerning the other critical findings in the report. Waste Management seeks a declaration that the report's references to organized crime infringe upon its rights under the First, Fifth, and Fourteenth Amendments and requests that these portions be deemed invalid.
Waste Management seeks several court orders against Miller, including a cease and desist directive regarding the report's references to organized crime, an ongoing obligation for Miller to retrieve disseminated portions of the report, and a requirement for him to destroy these parts while providing proof of destruction. The complaint alleges that Section V of the report harmed Waste Management's reputation and goodwill, asserting that Miller acted with intent to cause this damage. It claims violations of due process regarding business goodwill as a property interest, and First Amendment rights related to the right to petition the government. The specific claims include deprivation of business goodwill without due process, stigmatization leading to loss of liberty and property interest, and public adjudication of criminal activity without due process.
The district court dismissed Waste Management's First Amended Complaint under Federal Rule of Civil Procedure 12(b)(6), with claims one, two, and five dismissed with prejudice, while claims three and four were dismissed with the opportunity to amend. Waste Management chose not to amend but instead appealed without a final judgment. A divided three-judge panel affirmed the dismissal, ruling that the appeal was valid as the plaintiffs opted to stand on their complaint. The case was then taken en banc, where the court ruled that a judgment is not final if a district court allows for amendment; thus, the appeal was dismissed for lack of jurisdiction. Following this, the parties secured a final judgment, allowing the appellate court to address the substantive legal issues. The standard of review for the district court's dismissal is de novo, accepting the plaintiffs' factual allegations as true and viewing them favorably for the nonmoving party.
To establish a valid claim under § 1983, a plaintiff must demonstrate that the defendants acted under state law and violated rights protected by the Constitution or federal statutes. In the case at hand, Waste Management asserts that its rights were infringed upon due to a report alleging "Organized Crime Connections," which hindered its ability to obtain a use permit for a landfill and retaliated against its First Amendment right to petition the government. However, the court determines that Waste Management's application for a use permit does not qualify as a petition for redress under the First Amendment, as it lacks the necessary association or speech implications required for protection. Thus, the third claim related to the right to petition fails.
Moreover, Waste Management claims violations of its due process rights concerning its reputation in several claims. However, the Fourteenth Amendment's procedural due process protections only apply when there is a deprivation of a constitutionally protected liberty or property interest. The Supreme Court has ruled that reputation alone does not constitute a protected interest under the Constitution, and thus, Waste Management's arguments regarding the damage to its reputation do not satisfy the criteria for due process violations.
In *Paul v. Davis*, the plaintiff, Davis, whose shoplifting charge was dismissed, challenged the police's distribution of a flyer labeling him as an active shoplifter under 42 U.S.C. § 1983, claiming a deprivation of his constitutional rights. The Court acknowledged that the flyer could lead to reputational harm, limiting Davis's ability to enter businesses and affecting his employment prospects, which could constitute a defamation claim under state law. However, the Court ruled that the police chiefs were not liable under § 1983, emphasizing that while interests related to "liberty" and "property" under the Due Process Clause exist, reputation alone does not fall within these categories. The Court distinguished between reputation and the "liberty" or "property" interests that warrant procedural protections, noting that Kentucky law does not provide a legal guarantee of reputation alteration due to state actions. Additionally, regarding the property interests claimed by Waste Management, the Court assumed that allegations of damage to its business reputation, particularly linked to organized crime insinuations, are harmful. Waste Management argued that such damage equates to a loss of business goodwill, which is recognized as a legislatively created property interest in California.
The California Business and Professions Code defines "goodwill" as the expectation of continued patronage and classifies it as property transferable by businesses. Goodwill encompasses factors such as location, customer relationships, supplier relations, employee experience, and management effectiveness, but it is distinct from reputation. Damage to reputation can impact goodwill but does not equate to a constitutional interest. In Paul v. Davis, the court ruled that reputation alone does not warrant protection under § 1983, indicating that a state tort action is more appropriate for reputational harm. The question arises whether the outcome would differ if the plaintiff were a business owner. In the case at hand, Miller's Final Report did not deprive Waste Management, Inc. of its goodwill or any state rights, although it may have damaged its reputation, which would be suitable for a state defamation claim but not a federal § 1983 claim. The Supreme Court has clarified that the Fourteenth Amendment does not serve as a basis for tort law, and allowing reputation damage to be treated as a deprivation of goodwill under § 1983 would conflict with existing precedent. Waste Management's reliance on Soranno's Gasco v. Morgan is unfounded; in that case, there was direct interference with goodwill through actions taken by county officials, unlike the mere reputational damage claimed by Waste Management.
Allegedly defamatory remarks directed at the county and the public regarding Waste Management's business reputation do not constitute a constitutionally protected property interest, as established in Paul v. Davis, where damage to reputation alone is insufficient for due process protections. Consequently, allowing Waste Management to pursue a claim under § 1983 for reputational damage would improperly elevate state defamation law to constitutional status and unfairly differentiate between the reputations of businesses and individuals.
Waste Management's second claim relies on the "stigma-plus" test, asserting that state action caused reputational stigma and deprived them of a recognized property interest. However, since the alleged reputational damage does not equate to a federally protected property interest, this claim was correctly dismissed.
The fourth claim, asserting that Miller damaged Waste Management's reputation while exercising the First Amendment right to petition, also fails under the "stigma-plus" test, as the application for a permit does not invoke Petition Clause protections, necessitating dismissal.
Lastly, the fifth claim invokes Jenkins v. McKeithen, arguing that Miller's investigation and report effectively adjudicated criminal conduct, branding Waste Management as connected to organized crime without due process. Jenkins established that entities conducting public trials concerning criminal law must adhere to due process. However, Waste Management's claim that Miller's actions necessitated notice and a hearing prior to public disclosure remains unaddressed in the excerpt.
The court rejected the argument presented in Paul v. Davis, stating that Jenkins was not applicable in this scenario. It differentiated the actions of the defendants from the formal proceedings of the Commission on Civil Rights, which were upheld in Hannah v. Larche. The Commission does not adjudicate, issue orders, or impose legal sanctions; its role is limited to fact-finding for potential legislative or executive action. The court acknowledged that any collateral consequences from the Commission's investigations do not undermine its investigative function.
In the present case, the investigation conducted by Miller for the County of San Diego was purely investigative, aimed at assisting the Board in evaluating Waste Management's application for a major use permit. This investigation was intended to compare Waste Management's operating record with industry standards, aligning with the Commission's purpose in Hannah v. Larche. Consequently, the court found that the fifth claim for relief was properly dismissed, affirming the district court's dismissal of all five claims for relief due to the failure to state a valid claim.
The court unanimously determined that the case was appropriate for decision without further oral argument, following a prior dismissal for lack of jurisdiction. Waste Management did not argue that California law provides protection for reputation as a liberty or property interest, aside from its relation to business goodwill. The court highlighted that if the respondent's interpretation were accepted, it would imply that individuals could claim under § 1983 for reputational harm caused by law enforcement officers, which could extend to various state-inflicted injuries. The court expressed skepticism about this interpretation, noting that it would contradict the original understanding of the Fourteenth Amendment and existing case law.
The court acknowledged a differing position from the Fifth Circuit in Marrero v. City of Hialeah, which recognized business reputation as a property interest but not personal reputation. The emphasis was placed on the distinction between reputation and goodwill, clarifying that while reputation can influence goodwill, it does not equate to it. The court also referenced critiques of the Marrero analysis from other jurisdictions, reinforcing its stance on the matter.
