Suarez Corporation Industries Emerson Sonny Clopper Patricia Clopper Elizabeth Pishner v. Darrell v. McGraw Jr., Attorney General of the State of West Virginia, in His Official Capacity Thomas Rodd, Individually, and John Doe, I-Iii, Individually, Thomas Tinder, Party in Interest

Citations: 202 F.3d 676; 2000 U.S. App. LEXIS 1302Docket: 98-2696

Court: Court of Appeals for the Fourth Circuit; February 1, 2000; Federal Appellate Court

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Darrell V. McGraw, Jr., Attorney General of West Virginia, and Thomas Rodd, a former Deputy Attorney General, appealed a district court decision that denied their motion for summary judgment regarding a 42 U.S.C. § 1983 claim brought by Suarez Corporation Industries (SCI). SCI alleged retaliation for exercising its First Amendment right to free speech. McGraw and Rodd argued they were entitled to qualified immunity. The Fourth Circuit agreed with their assertion of qualified immunity, vacated the district court's order, and remanded the case for further proceedings.

Suarez Corporation Industries, an Ohio corporation, marketed various consumer goods through direct mail, including three notable solicitations prior to September 1994: a "free" cubic zirconium diamond simulant for $19 (CZ solicitation), a cash prize via a clutch purse for $12 (clutch purse solicitation), and leaded crystal candlesticks for $19 (candlesticks solicitation). The CZ solicitation claimed consumers had won a diamond simulant and could win an additional $10,000, with conditions that required purchasing the mounting to enhance their winning chance. Consumers had to follow specific procedures to claim their "free" simulant, which included completing forms and returning them properly to SCI, or risk forfeiting their prize.

Consumers attempting to claim a cash prize were pressured by SCI to purchase additional products, with follow-up solicitations threatening the closure of their claim files and ineligibility for the prize unless they bought the mounting. A clutch purse solicitation advertised a cash prize of "up to $1000," but in 99.5% of cases, the prize was only $1, despite claims that purchase would lead to priority handling. To claim the cash prize without making a purchase, consumers faced a complex procedure involving cutting out a bar code and submitting it with personal information, whereas purchasers had a simplified process. A similar strategy was employed in a candlestick solicitation, where buyers received priority and were led to believe that their chances of winning a $1000 prize improved with their purchase. Non-purchasing consumers had to follow a detailed submission process to maintain eligibility for the prize.

In January 1994, the West Virginia Attorney General's office initiated legal action against SCI and other companies for violations of consumer protection laws. After initial proceedings, the AG's office decided to pursue only SCI. Tensions escalated during settlement discussions, with SCI alleging that the Deputy Attorney General threatened punitive actions against the company unless it ceased its marketing operations in West Virginia. Following these confrontations, SCI filed a complaint with the Better Government Bureau, prompting a Freedom of Information Act request regarding the AG's office's actions.

In late August 1994, members of the West Virginia Attorney General's (AG) office accused SCI/Lindenwold of financial misconduct against residents. Concurrently, the AG's office learned from the Washington State Attorney General's office that SCI often countered state investigations with media campaigns attacking public officials. West Virginia Managing Deputy Attorney General Fran Hughes raised concerns about an impending SCI media campaign to AGs McGraw and Rodd.

On September 2, 1994, SCI responded with a two-page advertisement in The Charleston Gazette, criticizing McGraw's legal actions against them and questioning the allocation of taxpayer resources while serious crimes went unprosecuted. On September 9, a state circuit court found reasonable grounds to believe that SCI's solicitation practices were illegal and issued a preliminary injunction against several of its marketing methods.

Following the court ruling, media reported Rodd's statements about public concern for elderly victims and McGraw's determination not to be intimidated. McGraw also informed other state AGs that SCI faced a lawsuit for mail fraud from the United States Postal Service, which SCI disputed. In an October 6 letter to state AGs, McGraw alleged that SCI's lawyer had threatened Rodd and suggested that SCI might engage in violent conduct.

In fall 1994, Michael Paris, president of the Better Business Bureau/Canton Regional, sought to expand the BBB's influence in West Virginia but was informed by Rodd that the AG's office would not support the expansion if SCI remained a member. At an October 11 meeting, the BBB's executive committee discussed SCI's litigation history and Rodd's comments about the credibility of the BBB due to its association with SCI. Ultimately, the BBB expelled SCI in February 1995 but later reinstated it due to a lawsuit filed by SCI against the BBB.

In 1995, Dun & Bradstreet released a report on SCI, which referenced information from the Attorney General's office indicating that the United States Postal Service had issued a temporary restraining order against SCI due to six counts of mail fraud. The report noted that SCI declared mailings void in several states, highlighted multiple complaints against SCI reported by the BBB (most of which were resolved), and mentioned two civil suits for false representation filed by the U.S. Postal Service against SCI. Additionally, McGraw and Rodd were accused of defaming SCI by claiming it preyed on vulnerable populations, operated as a gambling syndicate, had violent representatives, and had ties to organized crime. 

On April 4, 1995, SCI, along with Emerson Clopper, Patricia Clopper, and Elizabeth Pishner, filed a lawsuit against McGraw and Rodd in the U.S. District Court for the Southern District of West Virginia. An amended complaint was filed on August 28, 1995, consisting of nine counts. Counts one, two, three, and six cited violations of 42 U.S.C. § 1983, seeking declaratory and injunctive relief for retaliation against SCI's First Amendment rights and equal protection violations, as well as monetary damages for retaliation. The remaining counts were based on West Virginia state law, addressing defamation, intentional interference with contractual relations, deprivation of state constitutional rights, interference with prospective contractual relations, and prima facie tort claims.

On September 21, 1995, McGraw and Rodd sought to dismiss the amended complaint on the basis of absolute immunity, but the district court denied this motion on November 16, 1995. Subsequently, McGraw and Rodd filed an interlocutory appeal challenging the denial of their motion to dismiss.

On appeal, McGraw and Rodd introduced claims of absolute immunity and asserted for the first time that the plaintiffs' claims were barred by the Eleventh Amendment and principles of qualified immunity. On September 11, 1997, the court affirmed, reversed, vacated, and remanded various counts. Specifically, it reversed the district court's decision regarding count seven, ruling it was barred by the Eleventh Amendment, while affirming that the remaining counts were not subject to absolute immunity. Counts one, two, six, and seven were affected by a state circuit court's permanent injunction, leading to their vacatur and remand for dismissal under the Rooker-Feldman doctrine. The court declined to consider the qualified immunity defense as it was raised for the first time on appeal.

On remand, McGraw and Rodd moved for summary judgment and reasserted the Rooker-Feldman doctrine along with qualified immunity. The district court ruled that counts one, two, and six were barred by the Rooker-Feldman doctrine, while counts five and eight failed to state a claim and were similarly barred. Count nine was dismissed for failure to state a claim, and counts three and four were subject to genuine issues of material fact, preventing summary judgment.

In addressing qualified immunity for count three, the district court found sufficient allegations of retaliation against SCI for exercising its First Amendment rights, determining that this right was clearly established at the time of the alleged misconduct. After denial of qualified immunity, McGraw and Rodd appealed this issue, leading the district court to stay proceedings pending the appeal. The denial of qualified immunity, when based on a legal issue, is considered an appealable final decision under 28 U.S.C. 1291. Summary judgment is reviewed de novo, with the record viewed in favor of the nonmoving party, and is only granted when there are no genuine issues of material fact.

Qualified immunity protects government officials from civil damage suits for discretionary actions unless their conduct violates clearly established rights that a reasonable person would recognize. The Supreme Court established a two-prong test for qualified immunity claims: first, courts must determine if the plaintiff has alleged a violation of a constitutional right; second, they must assess whether that right was clearly established at the time of the alleged violation. In the context of this case, SCI alleges that officials McGraw and Rodd violated its First Amendment right to free speech through retaliatory actions against its speech. The First Amendment not only guarantees the right to speak but also protects against retaliation that may inhibit the exercise of that right. 

To establish a claim of retaliation under Section 1983, a plaintiff must prove three elements: (1) the speech was protected, (2) the retaliatory action adversely affected that speech, and (3) there is a causal link between the speech and the retaliatory action. The parties agree that SCI's advertisements criticizing McGraw and Rodd qualified as protected speech; however, the dispute lies in whether the officials' conduct had an adverse effect on that speech and if a causal relationship exists. Evaluating whether a plaintiff's First Amendment rights were adversely affected by retaliatory conduct involves a detailed analysis of various factors, including the roles of the speaker and the retaliator, their relationship, and the nature of the retaliatory acts. The definition of adverse action can vary depending on the context, particularly in public employment situations.

The employment relationship between a public employee and a government employer involves balancing the employee's First Amendment rights to comment on public concerns against the government's interest in maintaining service efficiency. Courts have determined that retaliatory actions by a public employer must be more than trivial to adversely affect an employee's rights. Adverse actions include refusal to rehire or decisions regarding promotions and hiring based on an employee's exercise of their First Amendment rights. However, actions such as criticism or verbal reprimands do not typically constitute adverse effects. 

The nature of retaliatory acts is also crucial when a private citizen's speech is involved, particularly if a public official restricts benefits based on the citizen's First Amendment exercise. If a public official's retaliatory speech does not involve threats or coercion, it generally does not adversely affect the citizen's rights, even if the speech is defamatory.

SCI alleges that certain statements made by public officials McGraw and Rodd to the media, which included claims that SCI preyed on vulnerable populations and had ties to organized crime, constituted actionable retaliation. However, SCI failed to demonstrate that these statements implied any threats of punishment or adverse actions against them. Additionally, SCI argues that Rodd's statements to the Better Business Bureau (BBB) led to its expulsion from the organization, but the evidence from Rodd's deposition did not support that these comments were retaliatory or adversely affected SCI's rights.

Paris convened a special executive committee meeting of the Better Business Bureau (BBB) following discussions with Rodd. The meeting minutes reveal that Paris outlined the historical context of SCI, noting several issues: SCI faced problems in its early years with the BBB, was dropped from membership in June 1980 for noncompliance, was reinstated in 1982, and had multiple legal actions from 1991 to 1994. At the time of the meeting, a civil suit was pending against SCI in West Virginia, and recent mail fraud was identified by postal authorities in one of SCI's promotions. Rodd commented that SCI's membership diminished the BBB's credibility, reflecting a sentiment echoed nationally. 

Rodd's remarks, which SCI seemingly acknowledges as accurate, did not infringe on SCI's First Amendment rights, nor did they imply any threats or adverse actions against SCI or the BBB. The BBB interpreted Rodd's comments as a refusal to support membership with such members, which did not constitute coercive speech. 

Additionally, SCI claimed retaliation through defamatory statements made by Rodd to Dun & Bradstreet, alleging that Rodd indicated a temporary restraining order had been issued against SCI and that SCI had declared mailings void in several states. While SCI contended these statements harmed its credit history, the court found that SCI failed to provide evidence suggesting Rodd's statements implied any punitive intentions. The information in Dun & Bradstreet's report was simply a reflection of Rodd's responses to inquiries from the Attorney General's office. 

Consequently, the court vacated the relevant portion of the district court's order and remanded the case for further proceedings, while also noting that the state's lawsuit against the defendants involved allegations of illegal solicitation from West Virginians based on misleading practices, seeking consumer restitution and civil penalties.

The Attorney General selected representative mailings from SCI to illustrate the solicitations at issue involving all defendants. Rodd's deposition indicates a focus on significant civil penalties that could severely impact SCI. The BGB, an Ohio corporation claiming to fight government abuse, was found to be under SCI's influence, leading to a lawsuit against McGraw, which was resolved in McGraw's favor in 1998. In West Virginia, the Attorney General cannot initiate criminal prosecutions; this power lies with county prosecuting attorneys. The West Virginia Supreme Court affirmed a preliminary injunction against SCI in 1996, ruling that SCI's sweepstakes were deceptive tactics designed to mislead consumers into purchasing products under false expectations of rewards. The court noted that SCI exploited fear and confusion to drive sales. A subsequent permanent injunction against SCI was granted in 1997 and upheld by the Supreme Court in 1998. A separate action by the United States Postal Service against SCI was settled in 1995 after claims of retaliation for political speech. Additionally, SCI actively criticized McGraw and Rodd through ads and mass mailings during the alleged misconduct period, even targeting their personal lives, and SCI's president spent over $300,000 in efforts to defeat McGraw during his reelection campaign.

Suarez established a political action committee with a $100,000 budget to support the opponent of McGraw's brother, who was running for the West Virginia Supreme Court of Appeals. West Virginia residents Emerson Clopper, Patricia Clopper, and Elizabeth Pishner interacted with SCI, purchasing goods or participating in promotions. The court considered McGraw and Rodd's Eleventh Amendment immunity argument, raised for the first time on appeal, noting its jurisdictional nature. It emphasized the need to balance the First Amendment rights of citizens with those of public officials, who must be free to criticize practices within their duties, even if they lack direct regulatory authority. In specific cases, non-retaliatory speech may be actionable, as the Supreme Court recognized in Paul v. Davis regarding defamatory statements affecting tangible interests. SCI alleged that McGraw and Rodd's defamatory remarks linked them to organized crime, but the BBB's investigation into SCI indicated procedural delays. The court found that Rodd's statements were neither threatening nor coercive, and thus did not need to determine whether such threats could target third parties. Additionally, evidence showed that McGraw and Rodd's actions predated SCI's First Amendment exercise, undermining SCI's retaliation claim. The West Virginia Supreme Court's findings suggested that McGraw and Rodd acted to eliminate SCI's illegal marketing practices, and since their conduct did not impair SCI's First Amendment rights, the court did not analyze the causal connection in SCI's retaliation claims. Finally, SCI's attempt to integrate a due process claim into its First Amendment retaliation claim, based on defamation and deprivation of tangible interests, was found to lack merit.