The plaintiffs — independent investment managers who handle a portion of the assets of a Louisville, Kentucky, police pension fund — brought a federal civil rights/RICO lawsuit against the city, its outside lawyers, the mayor, and other city officials, all of whom were said to have been involved in efforts to have the plaintiffs fired as investment managers for the pension fund. The defendants moved for dismissal of the complaint under Rule 12, Fed.R.Civ.P., asserting, among other defenses, absolute and qualified immunity from suit on both the federal claims and numerous pendent state law claims by which the federal claims were accompanied.
The district court largely denied the motions to dismiss, and each of the defendants except the city perfected an interlocutory appeal from the denial of immunity. The plaintiffs then moved to dismiss the appeals on finality and substantiality grounds, but another panel of this court ruled against the plaintiffs on these issues.
We now conclude that the appellant defendants are entitled to qualified immunity on the federal claims. The denial of such immunity will be reversed. In remanding the case, we shall give the district court'an opportunity to consider the appropriate disposition of the state' law claims’ in light of our ruling on the federal claims.
I.
The plaintiffs’ allegations .are set forth in a 33-page complaint, á 14-page affidavit, and 13 exhibits. We accept as true, for present purposes, all well-pleaded; non-conclusory allegations contained in the plaintiffs’ papers.
A. Background — Plaintiffs
In the mid-1960s, it appears, the City of Louisville established a pension system for its police officers. The system, which is operated by a governing body commonly referred to as the board of trustees, is funded with appropriations from the city and with contributions from participating police officers.
The trustees of the pension fund engaged Stock Yards Bank &-Trust Co. to manage a portion of the fund’s assets. In 1977 plaintiff R. Keith Cullinan, who was employed by the bank as a trust officer for a number of
Since January of 1990 Mr. Cullinan has been the president and chief executive officer of plaintiff Cullinan Associates, Inc., an investment management firm of which Mr. Cullinan is a shareholder. Through Cullinan Associates he has continued to manage a portion of the police pension fund’s assets. Cullinan Associates is compensated for its services by fees that are generally set as a percentage of the‘assets under its management.
In his work for the pension fund, both as an employee of the bank and as an employee of Cullinan Associates, Mr. Cullinan has made extensive use of a technique known as covered call option writing. A call option is a contract that gives the purchaser of the option the right to buy shares of stock in a specified company at a specified price within a specified period of time. If the market price of the stock fails to rise above .the specified price before the option has expired, the holder of the option will have no incentive to exercise the call, and the seller (or “writer”) of the option will get to keep the premium paid by the purchaser without having to part with any shares of stock. If the market price of the stock does rise above the price specified in the option, on the other hand, the holder of the option can be expected to exercise the call — and the writer of the option, while still retaining the premium, will have to part with the stock for less than its current worth.
If the writer of the option does not already own the stock — if the option is “naked,” in the argot of the trade — the writer will have to buy shares on the open market in the event of a call. But the option writer need not buy shares if the option is “covered;” the writer of a covered option can meet the call with stock the writer already owns. The writing of covered options is thus considered more conservative than the writing of naked options.
Both techniques generate brokerage commissions that would not have to be paid if the options were not written. Stockbrokers benefit from option writing whether share prices rise, fall, or stay the same. If the market price of a security on which options have been written does not rise too much during the option period, the writer of the option likewise stands to benefit.
Although views differ as to the extent to which option writing makes sense from the option writer’s standpoint, a majority of the members of the board of trustees of the police pension fund appear to have been well satisfied with the performance of the portion of the assets managed by Mr. Cullinan. A study conducted by a brokerage firm in March of 1988 showed that over the preceding ten years the assets managed by Mr. Cullinan produced an annual return of 14.75%. Another brokerage firm calculated that the return had been 15.01% per annum. The net return for 1992 was 11.5%, and for 1993 it was 13.2%. The record does not disclose what the returns would have been had Mr. Cullinan made the same stpck selections without employing the covered option writing technique,
In addition to managing assets for the police officers’ pension fund, Mr. Cullinan provided investment management services to the Louisville Firefighters’ Pension Fund during a period that began in 1978 and ended in August of 1986. He used the covered call option .writing technique for the firefighters’ assets as well. The record does not disclose what percentage of the fund’s total assets he managed, but Stock Yards Bank received more than half the city’s 1985 contribution to the firefighters’ fund. For the five years
B. Background — Defendants
In November of 1985 defendant Jerry E. Abramson was elected mayor of the City of Louisville. After taking office in January of 1986 he appointed defendant Stuart P. Jay to the position of director of finance and budget for the city.
Mr. Jay, described in a 1983 magazine article as “one of Louisville’s young millionaires,” is said to have been chairman of RETS Electronic Institute until he sold it in 1985. He apparently decided to donate his services to the city — a decision that may or may not have been influenced by the fact that his home was located several hundred feet outside the city limits and he thus failed to meet a statutory residency requirement. The residency issue came to public attention in 1992, and Mr. Jay then relinquished the director of finance position to become a special assistant to the mayor.
At the time of his appointment as director of finance, Mr. Jay was on record as having disputed the efficacy of covered call option writing. (The complaint describes him as “a long-time opponent of this investment strategy.... ”) The director of finance is a member of the police pension fund board of trustees ex officio, and from the inception of his service on the board Mr. Jay attempted— unsuccessfully, as it turned out — to have Mr. Cullinan fired as one of the' fund’s money managers. Jay was joined in this effort by defendant Earl Mac Unger, a city employee who was likewise an ex officio member of the board of trustees. Jay and Unger were critical of the brokerage commissions paid by the fund on transactions involving assets managed by Cullinan, and Jay had his own investment strategies that he wanted the pension fund to follow.
The city was facing serious financial problems when the Abramson administration took office in 1986, and one of the ways in which the new mayor hoped to ease these problems was by having active members of the public safety forces transferred to the County Employee'Retirement System. With the city’s support, legislation making such transfers possible was enacted by the Kentucky General Assembly in April of 1986. The legislation provided, among other things, that .
“If policemen of [a] city of the first class [having a police officers’ pension system] elect entry into the County Employees Retirement System and thereby create excess funds [in the municipal pension system] ... these excess funds shall be distributed to the city for use by the city for any other purpose it may elect....” KRS 95.290(3).
. Louisville police officers who were on active status in 1986 could elect to transfer to the county retirement system, as we understand it, and police officers hired in the future were to be placed in the county system automatically. In July of 1986 the. city calculated that nearly $4 million (out of approximately $84 million in the police officers’ pension fund prior to the split-up of the fund) had become “excess” as a result of transfers to the county retirement system. Pursuant to an agreement negotiated with the collective bargaining representative of the police officers, the plaintiffs’ complaint avers, $3,955,540 was withdrawn from the police pension fund for uses agreed to by the city and the bargaining representative.
C. Prior Litigation
Mr. Cullinan repeatedly voiced opposition to any withdrawal of excess funds from the police pension fund, and he urged the board of trustees to contest the withdrawal. The board did so. In October of 1989, after attempts to negotiate a settlement had proved unsuccessful, the police pension fund filed a lawsuit against the city in a Kentucky state court. Alleging that the 1986 amendments to KRS 95.290 were unconstitutional and' that the’ city’s withdrawal of funds was illegal, the complaint sought thé return of approximately $3.4 million. ' '
The city retained outside legal counsel for the defense of the lawsuit, entering into a
In April of 1990 attorney Boone informed counsel for the pension fund, in writing, that the city planned to file a state court action against the fund’s five elected trustees and others (including Stock Yards Bank, Mr. Cullinan and Cullinan Associates) for “breach of fiduciary duty in employing the so-called ‘covered call option trading strategy’ resulting in excessive trading and improper mix of investments, excessive transactions, excess fees and commissions and reporting of incorrect value of Fund Assets.” Counsel for the city further stated that the proposed complaint would not be filed if the pending “excess funds” litigation were dismissed with prejudice and if the pension fund’s board of trustees met a number of other conditions. Among the conditions proposed were these: that Stock Yards Bank, Cullinan Associates, R. Keith Cullinan, and certain named stockbrokers would be barred from doing business with the police pension fund for 20 years; that the board of trustees would conduct competitive bidding for investment services under procedures to be approved by, the city’s director of finance; that ho more than one-third of the fund’s assets would be placed with a single investment manager; and that no more than 45 percent of the assets would be invested in stocks without approval of the director of finance.
The pension fund declined to accept these terms, and the city promptly filed the threatened lawsuit. The state trial court dismissed the suit on the ground that the city lacked standing to sue. The Supreme Court of Kentucky reversed the dismissal, however, and ordered the suit reinstated. The Supreme Court pointed out that the city was required to “guarantee payment of pension benefits in the event of a shortfall of investment income and member contributions,” and the Court went on to observe that “[n]ot only has [the city] made direct payments to the fund to maintain its fiscal soundness, it also has the additional duty, in the interest of sound public policy, to guarantee that active police officers have a dependable pension plan, one free of waste and mismanagement.” Louisville v. Stock Yards Bank & Trust Co.,
A few months after the Supreme Court ordered reinstatement of the city’s lawsuit, Stock Yards Bank entered into a settlement agreement under which the bank was to pay the city $175,000 in return for the dismissal of both the city’s suit and a substantially identical suit brought by defendant John H. Nevin. (Mr. Nevin, a city employee who was a pension plan beneficiary, had been asked to bring the suit after the city’s action had been dismissed for lack of standing; Nevin’s counsel of record was defendant Christiná Heavrin, the law director of the city.)
Mr. Cullinan knew nothing of the settlement agreement until after it had been signed. His counsel subsequently asked the city’s counsel not to have the claims against Cullinan and his firm dismissed, but this request was ignored. Orders dismissing with prejudice all claims against Mr. Cullinan and Cullinan Associates were tendered by the .city and entered by the state court. Mr. Cullinan and his company paid nothing toward the settlement, and they have consistently maintained, that the claims against them were baseless.
II.
The present lawsuit was commenced in federal district court in March of 1994. The citizenship of the parties is not diverse, but the plaintiffs invoked the court’s federal question jurisdiction by asserting claims for relief under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq., and the Ku Klux Klan Act of 1871, now codified at 42 U.S.C. § 1983.
Section 1983 provides "for civil liability on the part of any person who, under color of state law, subjects' any U.S. citizen or other
The RICO statute creates a treble-damages remedy for any person injured in his business or property by reason of a violation of 18 U.S.C. § 1962. Section 1962 provides, among other things, that funds derived from a pattern of racketeering activity may not be used or invested in the acquisition or operation of any enterprise engaged in or affecting interstate commerce; that no person may acquire or maintain any interest in or control of an enterprise engaged in or affecting interstate commerce if the acquisition or maintenance of such interest or control is accomplished through a pattern of racketeering activity; that no person employed by or associated with an enterprise engaged in or affecting interstate commerce may conduct or participate in the affairs of such enterprise through a pattern of racketeering activity; and that no person may conspire to violate any of the above prohibitions. Each of the defendants except the city was accused by Cullinan and Cullinan Associates of violating one or more of these RICO provisions. We shall spare the reader the details of the plaintiffs’ theories in this regard. .
In addition to asserting claims under RICO and § 1983, the plaintiffs asserted pendent state law claims for wrongful use of civil proceedings; abuse of process; interference with prospective and actual contractual relationships; punitive damages under KRS 411.182; and outrageous conduct causing severe emotional distress to Mr. Cullinan. The plaintiffs further sought to hold the city liablé as an indemnitor for damages awarded against other defendants; to hold defendants Jay, Unger and Heavrin hable for violations of miscellaneous state statutes; and to hold Mayor Abramson and the City of Louisville hable for defamation. The plaintiffs’ damages were alleged to be in excess of $10 million.
In due course the defendants moved, individually or in groups, for dismissal of the complaint. The grounds on which the defendants relied included both absolute immunity and qualified immunity. After the issues had been thoroughly briefed by the parties, the district court entered an order dismissing certain portions of the RICO and defamation claims, all of the indemnity and outrageous conduct claims, portions of the claims for interference with contractual relationships, and the abuse of process and § 1983 claims asserted against defendant Boone. In all other respects the motions to dismiss were denied.
The district court did not rule out the possibility that some or all of the defendants might be entitled to qualified immunity. Observing that “[djismissal on the basis of qualified immunity is typically granted at the summary judgment level,” however, the court coneldded that “the status [of] and actions taken by each defendant need further fleshing out.” ■
Pursuant to the collateral order doctrine of Cohen v. Beneficial Indus. Loan Corp.,
m.
A. Absolute Immunity from Suit on Federal Claims
Judges and prosecutors have long been held to be absolutely immune from
Executive branch officials other than prosecutors may be entitled to absolute immunity from suit for acts that are functionally equivalent to the acts of prosecutors or judges. See Butz,
Absolute immunity is not the norm, however. For executive branch officials in both state government (see Scheuer v. Rhodes,
The defendants in the case at bar argue vigorously that they are entitled to absolute immunity with respect to the alleged violations of the plaintiffs’ civil rights, the activities in question being functionally equivalent to quasi-judicial activities for which absolute immunity has been held to be available. We conclude that the defendants are entitled to qualified immunity in any event, however, and we shall pretermit the question of their entitlement to absolute immunity.
B. Qualified Immunity from Suit on Federal Claims
The/otos et origo of contemporary learning on qualified immunity is Harlow v. Fitzgerald,
“[Gjovernment officials performing discretionary functions generally are shielded from liability for civil damages insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known.” Id. at 818,102 S.Ct. at 2738 (emphasis supplied).
The statutory or constitutional rights in question must have been “so clearly established when the acts were committed that any officer in the defendant’s position, measured objectively, would have clearly understood that he was under an affirmative duty to have refrained from such conduct.” Dominque v. Telb,
In the case at bar the district court concluded that the plaintiffs’ complaint “sufficiently alleged that the defendants’ acts were not in good faith, and in violation of clearly recognized constitutional rights.” Memorandum Opinion at 21. As we have seen, however, an allegation of subjective lack of good faith cannot suffice to defeat qualified immunity. See also Malley v. Briggs,
It is true, of course, that the right of Mr. Cullinan and Cullinan Associates to freedom of speech was clearly established, just as their rights not to be deprived of property without due process and not to be victimized by patterns of racketeering activity were clearly established. But the operation of the “objective legal reasonableness” standard “depends substantially upon the level of generality at which the relevant ‘legal rule’ is to be identified.” Anderson v. Creighton,
“For example, the right to due process of law is quite clearly established by the Due Process Clause, and thus there is a sense in which any action' that violates that Clause (no matter how unclear it may be that the particular action is a violation) violates a clearly established right. Much the same could be said of any other constitutional or statutory violation. But if the test of ‘clearly established law’ were to be applied at this level of generality, it would bear no relationship to the ‘objective legal reasonableness’ that is the touchstone of Harlow. Plaintiffs would be able to convert the rule of qualified immunity that our cases plainly establish into a rule of virtually unqualified liability simply by alleging violation of extremely abstract rights.” Id.
“[0]ur cases establish that the right the official is alleged to have violated must have been ‘clearly established’ in a more particularized, and hence more relevant, sense: The contours of the right must be sufficiently clear that a reasonable official would understand that what- he is doing violates that right.” Id., quoting Anderson v. Creighton,483 U.S. at 640 ,107 S.Ct. at 3039 (citation omitted).
Garvie, as we had occasion to observe in Guercio v. Brody,
The complaint and affidavit filed by the plaintiffs in the case at bar were commendably fact-specific. We are not persuaded that the facts need further “fleshing out” via expensive discovery proceedings; it seems to us that the papers already before the court present a reasonably clear picture of who the defendants are and what they are supposed to have done. •
Thé district court thought the record unclear as to which defendants were acting as public officials. But the plaintiffs’ papers leave no room for doubt that defendant Abramson was acting as the duly elected mayor of the City of Louisville, an office he assumed in January of 1986. Defendant Jay was acting as the city’s director of finance and budget, a post he occupied from 1986 to 1992. (It is undisputed that Jay was functioning both as the finance director and as an ex officio member of the police pension fund board of trustees — and what counts, in our view, is the function; whether Jay was legally entitled to hold the offices he occupied is immaterial.) Defendant Unger was likewise acting as a city employee and ex officio member of the pension fund board, and no question has been raised as to the legality of Unger’s tenure. Defendants Heavrin and Nevin also were city employees, and the complaint adds that Nevin was a retired city police officer and a beneficiary of the pension fund. Defendant GTB & M was a law partnership retained to represent the city in its litigation with the pension fund and the elected trustees, while the GTB & M lawyers actively engaged in the litigation on the city’s behalf, defendants Boone, Hinkle, and Halliday, were all acting as counsel for the city.
There is' a legal question as to whether the “outside counsel” status of the GTB & M lawyers and their firm makes these defendants ineligible for qualified immunity. In Duncan v. Peck,
This is an accurate proposition in most factual-contexts, but not here. As the Supreme Court recently had occasion to note, it appears that the common law “did provide a kind of immunity for certain private defendants, such as doctors or lawyers who performed services at the behest of the sovereign.” Richardson v. McKnight, — U.S. -,-,
Another factor that the district court may have seen as militating against an early grant of qualified immunity to the appellants in the case at bar is that “a suit against
The plaintiffs’ brief on appeal makes it clear that these “[defendants have been sued in their individual capacities.” If the complaint was ambiguous on this ■ point, it makes no difference for present purposes; an individual is not entitled to qualified immunity against an official-capacity claim, to be sure, but neither can he be held personally liable for damages on such a claim. The viability of the plaintiffs’ lawsuit against the city itself is not at issue in the present appeal. All we are concerned with here is the question whether the appellants are entitled to qualified immunity from suit for damages insofar as liability is sought to be imposed on them in their individual capacities.
The defendants’ entitlement to qualified immunity on the federal claims turns, as we have said, on the answer to the question whether reasonable officials/lawyers standing in the defendants’ shoes would necessarily have known that in attempting to oust Cullinan as an investment manager for the Louisville police pension fund, and in bringing a retaliatory lawsuit which we must assume the city could not have won had the case gone to trial, they were violating Cullinan’s rights under federal law. This question may not be answered in favor of the plaintiffs, of course, unless the federal rights claimed to have been violated were “clearly established” in the particularized sense required under the easelaw cited above.
Ordinarily, at least, in determining whether a right is “clearly established” this court will not look beyond Supreme Court and Sixth Circuit precedent. Walton,
The first decision, NAACP v. Claiborne Hardware Co.,
In the case at bar the district court relied on Claiborne Hardware to show that “[a] First Amendment right to speak freely on matters of public concern is well established.” Memorandum Opinion at 22. As an abstract proposition, this is obviously true. When we reach the level of generality at which we are required to focus our analysis here, however, it is far from obvious to us that reasonable people standing in the shoes of the mayor of Louisville and his associates would have read Claiborne Hardware as establishing that the First Amendment. (a) forecloses efforts to replace a pension plan money manager whose investment strategies run counter to those favored by the finance director of the city whose police officers are the beneficiaries of the plan, and (b) immunizes the money manager from retaliatory litigation.
“The issue, as we see it, is whether the Department of Defense has been authorized to create an industrial security clearance program under which affected persons may lose their jobs and may be restrained in following their chosen professions on the basis of fact determinations concerning their fitness for clearance made in proceedings in which they are denied the traditional procedural safeguards of confrontation and cross-examination.” Id. at 493,79 S.Ct. at 1412 .
Citing earlier authority, the Greene Court did note that “the right to hold specific private employment and to follow a chosen profession free from unreasonable governmental interference comes within the ‘liberty’ and ‘property’ concepts of the Fifth Amendment. ...” Id. at 492,
As far as the plaintiffs’ RICO claim is concerned, it would unduly prolong an opinion that may already have tested the acceptable limits of prolixity if we were to explore in depth the arguments on which that claim rests. The arguments are ingenious, but we know of no Supreme Court or Sixth Circuit precedent that could properly be said to have informed the defendants that they could not do what they stand accused of doing without violating “clearly established” rights conferred on the plaintiffs by the RICO statute. As far as we are concerned, this ends the matter.
C. Immunity from Suit on State Claims
Whether, and to what extent, the defendants are immune from suit on the plaintiffs’ pendent state law claims is a question that turns on state law, as does the appealability of the denial of immunity on the state law claims. See Marrical v. Detroit News, Inc.
We find it unnecessary, at this stage, either to review the merits of the district court’s initial rulings on the state law immunity claims or to determine the appealability of those rulings. In light of our conclusion that the federal claims must be dismissed in their entirety, the district court may wish to exercise its discretion to dismiss the state law claims without prejudice. Alternatively, the district court may wish to revisit the substance of its initial rulings in light of our decision on the defendants’ right to immunity from suit on the federal claims. (Although our decision is in no way binding insofar as the state law claims are concerned, state 'courts not infrequently look to federal law for guidance with respect to issues of state law:) The posture of the case now having undergone' a father considerable change,' we think it appropriate to leave the next step to the sound discretion of the district court.
IV.
The order appealed from is REVERSED insofar as it denied the appellants’ motions for dismissal of the federal claims on quali
Notes
. Mr. Cullinan rose through the ranks to the position ol executive vice president, and he became a member of the bank’s board of directors.
. For a price, of course, the option writer can buy back the option (or an equivalent option) at any time.
. We do not know, similarly, whether Mr. Cullinan would have invested in the same stocks had he not planned to write options on them.
. The complaint also contains an oblique reference to the withdrawal from the firefighters' pension fund of "excess funds” in an amount of approximately $20 million.
. The complaint also alleged that the defendants' objectives, in addition to giving the city more control over the selection of investment managers and investment strategies for the police pension fund, included the forestalling of a prospective suit against the city to recover the $20 million in excess funds taken from the firefighters' pension fund.
. Such immunity also extends to legislators and-their aides when performing acts of a legislative nature, see Gravel v. United States,
. A classic justification for immunity from suit on claims arising out of an official's performance of official duties was offered by Judge Learned Hand in Gregoire v. Biddle, 177 F.2d 579, 581 (2d Cir. 1949), cert. denied,
"The justification ... is that it is impossible to know whether the claim is well founded until the case has been tried, and that to submit all officials, the innocent as well as the guilty, to the burden of a trial and to the inevitable danger of its outcome, would dampen the ardor of all but the most resolute, or the most irresponsible, in the unflinching discharge of their duties. Again and again the public interest calls for action which may turn out to be founded on a mistake, in the face of which an official may later find himself hard put to it to satisfy a'jury of his good faith."
. There is no consensus among the circuits as to whether a claim of malicious prosecution can support a § 1983 action. See Braley v. City of Pontiac,