Judith RODRIGUEZ de QUINONEZ et al., Plaintiffs, Appellants, v. Honorable Julio Cesar PEREZ, etc., et al., Defendants, Appellees.
No. 78-1296.
United States Court of Appeals, First Circuit.
Decided March 30, 1979.
Rehearing Denied May 7, 1979.
596 F.2d 486
Argued Nov. 7, 1978.
Lirio Bernal De Gonzalez, Asst. Sol. Gen., Department of Justice, with whom Hector A. Colon Cruz, Sol. Gen., San Juan, P. R., was on brief, for defendants, appellees.
Before ALDRICH, CAMPBELL and BOWNES, Circuit Judges.
LEVIN H. CAMPBELL, Circuit Judge.
Plaintiffs, three former directors of Banco Cooperativo de Puerto Rico, bring this suit under
Banco Cooperativo was organized under and is subject to the provisions of
“When the Secretary of the Treasury determines there is evidence that any director or officer of the Cooperative Bank of Puerto Rico has violated this chapter, the rules and bylaws promulgated hereunder or a final cease and desist order, or has performed acts contrary to sound banking practices in connection with the Bank, or has participated in them, or has committed or participated in the commission of any act, omission or practice constituting a violation of his fiduciary duties as director or officer of the Bank, and the Secretary determines that the Bank has sustained or will probably sustain a substantial financial loss or other prejudice on account of such violation or practice or failure to carry out his fiduciary responsibilities and that such violation or failure is one involving personal dishonesty on the part of the director or officer, the Secretary of the Treasury may issue a written order suspending or removing him from his position in that Bank.”
Acting pursuant thereto, the Secretary removed plaintiffs prior to the expiration of their terms. A fourth director, not a party to this action, was also dismissed; the other five elected directors were not.
Arguing that removal without a prior or subsequent hearing deprived them of liberty and property without due process, plaintiffs seek a declaration that § 768a is unconstitutional, reinstatement to their positions as directors, damages, and attorneys’ fees. Because it determined that no “property” or “liberty” interest within the fourteenth amendment was involved, the district court dismissed the complaint.
Plaintiffs rely on Feinberg v. Federal Deposit Insurance Corp., 173 U.S.App.D.C. 120, 522 F.2d 1335 (1975) for the proposition that a directorship may be a property interest within the meaning of the fourteenth amendment. In that case, however, the plaintiff, who was president as well as director of a bank, was receiving a substantial salary, and it was the salary that the court specifically termed a “property” interest. Id., 173 U.S.App.D.C. 125, 522 F.2d at 1340. In contrast, plaintiffs here do not receive a salary; a salary as such is forbidden by bank regulations although a “fixed sum” is allowed to be set to compensate for attendance at meetings, and directors may be compensated for outside services to the Board.1 Plaintiffs’ sole monetary receipts for serving as directors were $25 for each day‘s attendance at board meetings plus travelling expenses. The magistrate characterized this $25 per diem as a reimbursement for expenses and the district court accepted the magistrate‘s findings and determined that as there was no expectation of deriving any property interest from the position of director, no property interest within the meaning of the fourteenth amendment was involved. On this record, which fails to establish that a directorship of this nature carries with it collateral benefits capable of economic valuation, we uphold this determination.
There remains the question whether plaintiffs have a liberty interest in serving as directors which is protected by the fourteenth amendment. Apart from fundamental rights and rights guaranteed by one of the provisions of the Bill of Rights which has been incorporated into the fourteenth amendment (which is not involved here), interests comprehended within the meaning of fourteenth amendment liberty or property attain their constitutional
While defamation by a governmental official, standing alone, does not work a deprivation of liberty protected by the fourteenth amendment, Paul v. Davis, 424 U.S. 693, 96 S.Ct. 1155, 47 L.Ed.2d 405 (1976), governmental action altering a right or status previously held under state law “combined with the injury resulting from the defamation, justifie[s] the invocation of procedural safeguards.” Id. at 708-09, 96 S.Ct. at 1164. See also Ventetuolo v. Burke, 596 F.2d 476 (1st Cir. 1979). The Fifth Circuit has capsulized the import of Paul v. Davis into the following “stigma-plus” test: “To establish a liberty interest sufficient to implicate fourteenth amendment safeguards, the individual must be not only stigmatized but also stigmatized in connection with a denial of a right or status previously recognized under state law.” Dennis v. S & S Consolidated Rural High School District, 577 F.2d 338, 341 (5th Cir. 1978), quoting Moore v. Otero, 557 F.2d at 437. We have said that “when a state holds out a right to citizens to engage in an activity on equal terms with others, a state-recognized status exists.” Medina v. Rudman, 545 F.2d 244, 250 (1st Cir. 1976), cert. denied, 434 U.S. 891, 98 S.Ct. 266, 54 L.Ed.2d 177. Here,
Clearly, furthermore, there was serious “stigma” here. The very act of removal under this statute necessarily brings into question the directors’ integrity. The statutory grounds for removal, phrased in the conjunctive, require a determination by the Secretary that “there is evidence that such [statutorily enumerated] violation
It is true that, strictly read, the statute does not require an official determination or charge of dishonesty, but only a finding that there is sufficient “evidence” of dishonesty to warrant invoking the statute. This superfine distinction would have little practical effect, however, in reducing the clear imputation of dishonesty flowing from removal under this statute.3 We thus think that removal from bank director status, as it is recognized by Puerto Rico law, on the ground of dishonesty, actual or suspected, affects a liberty interest requiring due process safeguards.
We turn next to the question of what process was due. We disagree with plaintiffs’ contention that a pre-termination hearing was constitutionally required. There is particular justification for summary action in the banking field. In Fahey v. Mallonee, 332 U.S. 245, 67 S.Ct. 1552, 91 L.Ed. 2030 (1947), a regulation authorizing the Federal Home Loan Bank Board, with-out prior hearing, to appoint a conservator to take possession of a bank‘s assets was challenged. The Supreme Court upheld the regulation stating that “the delicate nature of the [banking] institution and the impossibility of preserving credit during an investigation has made it an almost invariable custom to apply supervisory authority in this summary manner.” Id. at 253, 67 S.Ct. at 1556. Similar reasons pertain to the removal of a director under the conditions set forth in § 768a. Requiring retention of plaintiffs as directors pending a hearing would severely hamper, if not curtail, the Commonwealth‘s ability to deal with a perceived economic crisis. We have affirmed the denial of a pre-termination hearing under circumstances where the intrusion into governmental functioning, while substantial, was much less obstructive than it would have been here. Levesque v. Maine, 587 F.2d 78 (1st Cir. 1978).
While, therefore, a pre-termination hearing was not required, opportunity for a post-termination hearing affording plaintiffs an opportunity to clear their names was required. Section 768a is unconstitutional insofar as it is construed to empower the Secretary to remove elected directors on the stigmatizing ground set forth without affording them notice of the charges against them and a reasonably prompt post-termination hearing.
We turn next to the question of relief. As their primary remedy, plaintiffs seek reinstatement to their positions as directors; in the alternative they ask for damages. We need not decide whether or not directors removed pursuant to § 768a would ever be entitled to reinstatement as that remedy is not now appropriate. The terms to which plaintiffs were elected by the shareholders have long since expired, and other elected directors are now serving. It would be an unwarranted interference with the bank‘s internal affairs to order plaintiffs’ reinstatement.
Neither party has briefed or argued the issue of damages, and at this stage we cannot determine whether or not plaintiffs are entitled to more than nominal damages. Perez v. Rodriguez Bou, 575 F.2d 21 (1st Cir. 1978). We therefore remand this issue to the district court but with several observations. The significant due process violation which occurred here was not the removal itself but the failure to accord plaintiffs a more detailed notification of charges and a reasonably prompt post-termination hearing at which to clear their names. Hence, “the remedy mandated by the Due Process Clause of the Fourteenth Amendment is ‘an opportunity to refute the
In the absence of proof of injury4 resulting from the procedural due process violation, damages other than nominal damages are generally not appropriate. Carey v. Piphus, 435 U.S. 247, 260, 98 S.Ct. 1042, 55 L.Ed.2d 252 (1978). Thus, if the alleged tarnish of plaintiffs’ reputations would have occurred even had plaintiffs been afforded an appropriate hearing, plaintiffs’ reputations have not been damaged by the due process violations.5 This would be the case, for example, if the Secretary had sufficient evidence of plaintiffs’
The issue of attorneys’ fees is also remanded for determination by the district court in accordance with our guidelines set forth in King v. Greenblatt, 560 F.2d 1024 (1st Cir. 1977), cert. denied, 438 U.S. 916, 98 S.Ct. 3146, 57 L.Ed.2d 1161.
Reversed.
ON PETITION FOR REHEARING
PER CURIAM.
This case was brought, and heard, to determine plaintiffs’ rights under
It does not follow that we should grant the petition. Even under the amended statute, it is a close question, given the accompanying circumstances, whether there was not such a stigma as to give rise to the due process rights discussed in our opinion. In any event, we find defendants’ failure to call our attention to the amended language inexcusable.
Defendants, by virtue of their official positions, were no strangers to the banking laws. Their counsel was not some fly-by-night, but the Solicitor General of the Commonwealth. After taking the time of a magistrate, a district judge, and a court of appeals, they offer no explanation why they were not familiar with their own statutes; not even an apology. Instead, their petition concludes with the extraordinary statement that “[e]ven though no mention of the amended law, applicable in this case, was made either in appellants’ or appellees’ brief, the same was fully discussed at the hearing of the case held on November 7, 1978 before this Honorable Court.”
The court has no such recollection. Rather, defendants’ counsel presented the court with individual copies of the May, 1976 law, with no indication of any change. Black does not become white with the stroke of a pen. Seldom, if ever, do we grant petitions to rehear matters which were not presented merely because of some counsel‘s oversight. By the same token, where so elementary an error is committed as the failure to acquaint the court with the text of a controlling amendment, particularly one to which we have no ready access except through the parties, this is not excusable neglect. Cf. Spound v. Mohasco Industries, Inc., 1 Cir., 1976, 534 F.2d 404, 411, cert. denied, 429 U.S. 886, 97 S.Ct. 238, 50 L.Ed.2d 167. We find it an intolerable imposition on our time and limited resources to grant a rehearing for the purpose of entertaining arguments addressed to that hitherto undisclosed statute. The case stands on the statute prior to the amendment and the district court is instructed so to regard it.
Petition denied.
Notes
“None of the Directors have as such a right to salary but the Board can from time to time set a fixed sum as compensation for the attendance of Board meeting or meetings of any authorized committee. The Board can also authorize payment for compensation which it considers reasonable for any and all of its members for services rendered to the Board that are not for assistance to the meetings of the Board of Directors or such committees.”
“Pursuant to the authority conferred upon me by Article 18A of the Law No. 88, enacted June 21, 1976, as amended, Law of the Banco Cooperativo de Puerto Rico, [7 L.P.R.A. § 768a] I hereby remove you from the position of member of the Board of Directors of the Banco Cooperativo de Puerto Rico for having participated in acts contrary to sound banking practices and having incurred in omissions or practices that constitute a violation of your fiduciary duties as directors that has had as result that the Bank has suffered a substantial financial loss.”
Arguably, these allegations could be founded on exercises of poor business judgment rather than upon acts of dishonesty. As there is no indication in the record that this letter was published, we need not decide whether these charges alone could form the basis for a claim that plaintiffs’ “‘good name, reputation, honor, or integrity‘” have been impaired. Bishop v. Wood, 426 U.S. 341, 348, 96 S.Ct. 2074, 2079, 48 L.Ed.2d 684 (1976).