Blackout Sealcoating, Incorpor v. Terry Peterson , 733 F.3d 688 ( 2013 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 12-3352
B LACKOUT S EALCOATING, INCORPORATED ,
K IMBERLY K OLINEK, and P AUL K OLINEK,
Plaintiffs-Appellants,
v.
T ERRY P ETERSON, et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 12 C 4369—Elaine E. Bucklo, Judge.
A RGUED A PRIL 11, 2013—D ECIDED JULY 18, 2013
Before E ASTERBROOK, Chief Judge, and M ANION and
R OVNER, Circuit Judges.
E ASTERBROOK , Chief Judge. Blackout Sealcoating per-
forms asphalt paving work and other services for pub-
lic and private construction projects. Until spring 2012
the Chicago Transit Authority was among its clients.
Blackout’s two contracts with the CTA were terminable
at will, and on May 8, 2012, the CTA informed Blackout
2 No. 12-3352
that it would not do business with the firm for the
next year. The CTA calls such a decision debarment.
Because the contracts were terminable at will, Blackout
could not get damages for breach—and at all events
such a suit would belong in state court even if the firm
asserted that breach of contract deprived it of a property
interest. See, e.g., Mid-American Waste Systems, Inc. v. Gary,
49 F.3d 286 (7th Cir. 1995); cf. Simmons v. Gillespie, 712
F.3d 1041 (7th Cir. 2013). Illinois law allows judicial
review of public bodies’ debarment decisions, see
Arroyo v. Chicago Transit Authority, 394 Ill. App. 3d 822,
827 (2009), but Blackout did not avail itself of that op-
portunity. Nor did it use the law of libel, even though
it insists that every public announcement of debar-
ment is defamatory. The CTA announced the debarment
without giving a public reason. During the litigation, the
reason came out: Blackout had hired Michael Ferro, who
was under debarment at the CTA. The CTA viewed this
as a stratagem to evade its decision about Ferro. Blackout
contends that it did not know of Ferro’s debarment.
The CTA’s decision to employ a strict-liability or no-
fault approach to derivative debarment may be harsh
but would not be defamatory. But one way or the
other defamation is a state-law issue that was never
presented to the state judiciary.
Having foregone their opportunity to litigate statu-
tory and common-law claims in state court, Blackout
and its two owner-managers filed this suit in federal
court under 42 U.S.C. §1983, contending that the
CTA had deprived it of “occupational liberty” without
No. 12-3352 3
due process of law. The theory of such a suit, based on
Wisconsin v. Constantineau, 400 U.S. 433 (1971), as limited
by Paul v. Davis, 424 U.S. 693 (1976), is that, even though
defamation affects neither “liberty” nor “property”
for the purpose of the fourteenth amendment, and even
though Blackout lacked a property right in the at-will
contract, defamation that substantially limits one’s
ability to pursue the common callings of life is a depri-
vation of liberty. The year’s debarment has ended, but
the case is not moot because plaintiffs seek damages.
The district court dismissed the complaint, ruling that
it did not state a claim on which relief may be granted.
894 F. Supp. 2d 1067 (N.D. Ill. 2012). The court held
that inability to work for a single employer does not
deprive a person or corporation of occupational lib-
erty—and that the complaint, which does not allege
that plaintiffs bid for work at any other public agency
after the CTA’s decision, does not plausibly allege
inability to work for public or private entities other than
the CTA. See, e.g., Ashcroft v. Iqbal, 556 U.S. 662 (2009);
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).
The district court’s approach tracks this court’s
decisions in Wroblewski v. Washburn, 965 F.2d 452, 455 (7th
Cir. 1992), and McMahon v. Kindlarski, 512 F.3d 983, 988
(7th. Cir. 2008), which hold that the removal of one job or
employer from the universe of all jobs does not affect
occupational liberty. Other circuits agree. See, e.g., Serrano
Medina v. United States, 709 F.2d 104 (1st Cir. 1983);
Ferencz v. Hairston, 119 F.3d 1244 (6th Cir. 1997); Bank of
Jackson County v. Cherry, 980 F.2d 1362, 1368 (11th Cir.
4 No. 12-3352
1991). The law could hardly be otherwise. To treat being
suspended or fired by a single employer (that’s what
the CTA did to Blackout) as a deprivation of liberty or
property would be to override the Supreme Court’s
conclusion that public employers need not give notice or
hold hearings before ending at-will contracts. Compare
Board of Regents v. Roth, 408 U.S. 564 (1972), with Perry
v. Sindermann, 408 U.S. 593 (1972). The court held in
Roth that, to have a protected interest, a person must
have a “legitimate claim of entitlement” rather than
just a hope or expectation. 408 U.S. at 577. A term
contract can create a legitimate claim of entitlement
until the term’s expiration; an at-will contract does not.
So Blackout had no entitlement to do work for the
CTA, which therefore was not required to provide
notice and a hearing unless its decision closed many
other doors and effectively prevented Blackout from
getting other people’s business.
The complaint alleges that it had this effect, but the
district judge thought the allegation implausible in the
absence of a statute giving one agency’s debarment an
effect elsewhere, or a contention that Blackout had sub-
mitted the low bid for work elsewhere and been turned
down. Repeated failure to get work under circumstances
where success is normal could support an inference
that debarment by the CTA amounted to blackballing
from the industry. Blackout replies that, since its
owners knew that bids would have been futile, there
was no need to try—and that at the complaint stage
the district court should have indulged that assumption
in its favor.
No. 12-3352 5
Yet many a person fired by one employer can find
a job at another. Debarment is either like firing or is
equivalent to an employee’s suspension for misconduct;
neither necessarily means unemployment for life or
even a need to change occupations. Plaintiffs’ difficulty
is not simply that Blackout failed to allege that it
submitted bids to other public agencies (and for that
matter failed to allege the effect of the CTA’s decision on
its portfolio of private contracts) but that Blackout con-
cedes that it stopped bidding for public contracts. That
would produce a failure of proof at trial as surely as it
produced a speculative complaint. Plaintiffs might have
made up for the lack of personal experience by showing
what happened to other contractors that the CTA
has debarred, but the complaint does not contain any al-
legations along those lines. The district judge thus
acted within the scope of her authority under Iqbal and
Twombly to distinguish plausible from speculative claims.
While the appeal was pending, Blackout submitted a
bid to a public agency (a school district) and won the
contract. It says that the contract was small and the
process complex, since it had to persuade the school
district that the CTA’s decision did not imply that it
was irresponsible. Blackout commendably brought this
successful bid to our attention by a letter under Fed. R.
App. P. 28. We do not rely on it as a reason to affirm; the
record closed when the district court entered its judg-
ment; but it certainly shows that the complaint’s predic-
tions of doom would be hard to support on summary
judgment or trial.
6 No. 12-3352
Suppose the district judge erred in thinking the com-
plaint too gloomy about Blackout’s business prospects.
What the due process clause requires is notice and an
opportunity to respond—people “must be given some
kind of notice and afforded some kind of hearing”, the
Supreme Court wrote in Goss v. Lopez, 419 U.S. 565, 579
(1975) (emphasis in original). See also Cleveland Board of
Education v. Loudermill, 470 U.S. 532 (1985); Henry J.
Friendly, “Some Kind of Hearing,” 123 U. Pa. L. Rev. 1267(1975). Often an opportunity to comment in writing is all
the hearing required. Indeed, that’s all the hearing
most litigants in federal court receive; trials occur in less
than 5% of civil suits and are never necessary unless
material facts are in dispute. In September 2010 the
CTA sent Blackout a “notice of intent to debar.” Blackout
had, and used, the opportunity to respond in writing.
The CTA sent an amended notice in March 2011;
Blackout again replied in writing. Blackout has never
argued that it did not employ Ferro; it argued only that
it did not know about Ferro’s debarment, and the
CTA evidently thought that possibility immaterial.
In this court Blackout denigrates the two
written exchanges. It contends that the CTA violated
the Constitution by not providing a third round, after
Marina Popovic, one of the CTA’s vice-presidents, pre-
sented her recommendation to the CTA’s Debarment
and Suspension Committee. That strikes us as equivalent
to arguing that a district court violates the Constitution
if, after the briefs have been exchanged on a motion for
summary judgment, the judge asks her law clerk for a
memorandum and does not circulate that recommenda-
No. 12-3352 7
tion to the parties before acting on it. The due process
clause requires notice and an opportunity to present one’s
position; it does not require an extended to-and-fro in
which every internal recommendation kicks off a new
round of submissions. Plaintiffs do not contend that the
letters in September 2010 and March 2011 failed to
notify it of the CTA’s concerns. One opportunity to re-
spond was enough; two was ample; the Constitution
does not mandate a third. Perhaps Illinois law requires
more, but plaintiffs rely exclusively on the Constitution.
One final comment. We have resolved this appeal on
the assumption that corporations have “occupational
liberty.” It is not clear to us that this is so. Kimberly and
Paul Kolinek assuredly have personal liberty, including
occupational liberty. Whether personal liberty may be
exercised through the corporate form is an issue that has
occasioned disagreement among courts of appeals. Com-
pare Hobby Lobby Stores, Inc. v. Sebelius, 2013 U.S. App.
L EXIS 13316 (10th Cir. June 27, 2013) (en banc), with
Conestoga Wood Specialties Corp. v. Secretary of Health and
Human Services, 2013 U.S. App. L EXIS 2706 (3d Cir. Feb. 7,
2013). We need not pursue that subject today. What gives
us pause about imputing “occupational liberty” to a
corporation is that the claim is derivative. Corporations
do not have occupations; they are legal constructs.
If debarment sounds the death knell for Blackout
Sealcoating, Inc., the Kolineks may be able to organize
another firm through which to practice their occupa-
tion. The record does not show whether that would be
feasible. We mention the issue only to show that we
have not resolved it one way or the other. See also Chicago
8 No. 12-3352
United Industries, Inc. v. Chicago, 669 F.3d 847, 850 (7th
Cir. 2012) (reserving the question).
A FFIRMED
7-18-13