Gene F. Lenz, and v. Roger W. Dewey and Sue E. Mecca, And ( 1995 )

PAUL KELLY, Jr., Circuit Judge.

Defendants-appellants and cross-appellees Roger W. Dewey and Sue E. Mecca appeal from the entry of a $60,000 judgment against them in Plaintiff-appellee and cross-appellant Gene F. Lenz’s civil action for deprivation of employment without due process of law under 42 U.S.C. § 1983. They contend that the district court erred by denying qualified immunity, denying their Rule 50(a) motion for judgment as a matter of law on the grounds that the Plaintiff had no protected property interest in his employment at the Bank, contending that even if he did, Defendants’ conduct did not deprive Mr. Lenz of that interest, and giving the jury an erroneous instruction on nominal damages. Mr. Lenz cross appeals arguing that the district court erred in holding that he had a property interest only in his position as an officer and director of the Bank’s holding company and not in his terminable at will position as the Bank’s director and president. We have jurisdiction under 28 U.S.C. § 1291. We reverse the district court’s denial of Defendants’ motion for qualified immunity.

Background

From 1986 to 1991, Mr. Lenz served as president and chief executive officer of the Lusk State Bank (“Bank”) as well as director and shareholder of Banker’s Capital Corporation, the Bank’s holding company. The Bank was chartered by the State of Wyoming and therefore subject to regulation by the state banking commissioner (formerly the State Examiner). It was also regulated by the Federal Reserve Board as a member bank.

During Mr. Lenz’s tenure, the Bank experienced innumerable regulatory problems. In the 1980’s, the Bank had over one thousand citations for state and federal banking violations, the worst record in the Kansas City Federal Reserve district. On January 17, 1990, the Kansas City Federal Reserve Bank notified the Bank’s board of directors of its intent to initiate formal supervisory action over the Bank due to its continued legal violations, also problems related to the Bank’s securities trading, the mismatch between its interest rate sensitive liabilities and assets, and its excessive loan documentation problems.

On June 1, 1990, the Federal Reserve and the Bank’s board entered into a Written Agreement requiring the Bank to take a series of remedial actions. On October 31, 1990, both state and federal regulators examined the Bank’s compliance with the Written Agreement and concluded that it was deficient. In the months that followed, the Bank received a number of warnings stating that failure to comply with the Written Agreement might subject directors to the imposition of civil monetary penalties. On April 29, 1991, the state and federal regulators held a meeting with the Bank’s board of directors. Again, the regulators warned that the Bank was not in compliance with the Written Agreement, each board member was potentially liable for up to $370,000 under 12 U.S.C. § 1818(i)(2), and they did not find Mr. Lenz capable of complying with the Written Agreement.

At this meeting, Roger W. Dewey, director of the Wyoming Department of Audit and acting State Examiner, and Sue E. Mecca, then manager of the Banking Division of the Wyoming Department of Audit, presented a proposed Letter of Understanding (“Letter”) to the board. Essentially, the Letter tracked the requirements of the Written Agreement and imposed additional requirements, making it clear that any significant noncompliance would result in an order to remove Mr. Lenz from office under Wyo.Stat. § 13-3-104(a) (1977).

Thereafter, the board members convened and concluded that if they did not seek Mr. Lenz’s removal, they could be hable for the monetary penalties. Mr. Dewey confirmed that the Letter need not be implemented if the Bank terminated its relationship with Mr. Lenz. The board advised Mr. Lenz that they would purchase his bank stock if he resigned, but if he refused to resign, it would fire him without purchasing the stock. Mr. Lenz and the board entered negotiations that lasted through May and most of June. On June 21, 1991, Mr. Lenz resigned from his “terminable at will” position as president and director of the Bank, in accordance with a Severance of Connection/Stock Purchase Agreement. In exchange for his resignation, Mr. Lenz received $230,000 in cash and notes for his stock in Banker’s Capital Corporation, plus additional consideration in the form of severance pay and personal property.

The issues before us on appeal stem from the § 1983 action Mr. Lenz brought against Mr. Dewey and Ms. Mecca. Mr. Lenz alleged that the Defendants deprived him of employment without due process of law and adversely affected his ability to obtain suitable employment in the banking industry in the future. The essence of his civil right claim was that Mr. Dewey and Ms. Mecca threatened each of the Bank’s board of directors with civil monetary penalties and left them no choice but to request Mr. Lenz’s resignation. According to Mr. Lenz, Mr. Dewey and Ms. Mecca effectively removed him from employment without affording him a hearing, thereby violating due process under the United States Constitution, the Wyoming Constitution, and Wyo.Stat. § 13 — 3— 104(d).

Before trial, Defendants moved for summary judgment on the affirmative defense of qualified immunity. The district court denied the motion, and the parties proceeded to trial before an advisory jury. The jury found that Mr. Dewey and Ms. Mecca had deprived Mr. Lenz of his property interest as an officer and director of the Bank’s holding company without affording him due process of law and awarded him $60,000. The district court incorporated this decision in its judgment.

Discussion

Mr. Dewey and Ms. Mecca contend that the district court erred in holding that they were not shielded by qualified immunity on summary judgment. Because the court’s denial of their qualified immunity defense turned solely on issues of law, error has been preserved for appeal. Wilson v. Union Pac. R.R. Co., 56 F.3d 1226, 1229 (10th Cir.1995) (summary judgment on legal issues may be appealed despite lack of Fed.R.Civ.P. 50(a) motion); Ruyle v. Continental Oil Co., 44 F.3d 837, 841-42 (10th Cir.1994) (same), cert. denied, — U.S. —, 116 S.Ct. 272, — L.Ed.2d — (1995). We review “the presence or absence of qualified immunity ... de novo.” Langley v. Adams County, 987 F.2d 1473, 1476 (10th Cir.1993).

Once a defendant asserts qualified immunity, the plaintiff bears the burden of proving that the defendants violated a law that was clearly established. Patrick v. Miller, 953 F.2d 1240, 1243 (10th Cir.1992). The plaintiff must make a particularized showing, demonstrating that the contours of the violated right were so established that “a reasonable official would understand that what he [wa]s doing violate[d] that right,” Anderson v. Creighton, 483 U.S. 635, 640, 107 S.Ct. 3034, 3039, 97 L.Ed.2d 523 (1987), or that the official did not act in good faith. See Harlow v. Fitzgerald, 457 U.S. 800, 815, 102 S.Ct. 2727, 2736-37, 73 L.Ed.2d 396 (1982).

The record reveals that Mr. Dewey and Ms. Mecca acted within the scope of their employment as state regulators and in accordance with Wyo.Stat. 13-1-603 (1977). There is no evidence that the Defendants violated any law, much less any evidence that they knew or should have known that their warnings to the board triggered Mr. Lenz’s right to due process. Furthermore, there is no evidence that they did not act in good faith. Hence, qualified immunity should have protected them from liability. See Lassiter v. Alabama A & M Univ. Bd. of Trustees, 28 F.3d 1146, 1149 (11th Cir.1994) (en banc).

The district court found, however, that the Defendants were not entitled to qualified immunity because they were on notice of Mr. Lenz’s right to a hearing under Wyo.Stat. § 13-3-104(d). We conclude that the district court erred by denying Defendants’ qualified immunity defense based on this statute. Section 13-3-104(d) explicitly provides the opportunity for a hearing in conjunction with an order that is issued pursuant to the statute. Defendants never issued such an order, and therefore the hearing requirement under Wyo.Stat. 13-3-104(d) never came into play.

All that Mr. Dewey and Ms. Mecca did was to inform the board of the Bank’s legal violations, the need for the Bank to comply with the Written Agreement, members’ potential liability for monetary penalties, and the possibility of Mr. Lenz’s removal if noncompliance continued. It was entirely the board’s prerogative to stand behind its president. Had it done so and had an order subsequently been issued pursuant to statute, a hearing could have been requested and would have been required. However, those are not the facts of this case.

Mr. Lenz also asserts that he was deprived of a protected property interest in his employment in violation of state and federal constitutional rights to due process. In the employment context, “the Supreme Court has defined a property interest as a legitimate expectation in continued employment.” Russillo v. Scarborough, 935 F.2d 1167, 1170 (10th Cir.1991) (citing Board of Regents v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548 (1972)). The district court determined that Mr. Lenz could not assert a protected property interest in his employment as president and CEO of the Bank because it was terminable at will. We agree.

We define property interests according to “existing rules or understandings that stem from an independent source such as state law — rules or understandings that secure certain benefits and that support claims of entitlement to those benefits.” Roth, 408 U.S. at 577, 92 S.Ct. at 2709. “Ordinarily an employee’s at-will status forecloses a property interest claim because the employee has no legitimate expectation of future employment.” Russillo, 935 F.2d at 1170. There is no evidence of any independent source — either state law, see Hatfield v. Converse County, 52 F.3d 858, 863 (10th Cir.1995), or an internal Bank policy — that endows Mr. Lenz with a protected property interest in his at-will employment.

The district court held, on the other hand, that Mr. Lenz did have a protected property interest in his stock ownership and directorship of the Bank’s holding company. While this may be true, see F.D.I.C. v. Molten, 486 U.S. 230, 240, 108 S.Ct. 1780, 1787, 100 L.Ed.2d 265 (1988), Mr. Lenz has not established that the Defendants deprived him of these rights. There is no suggestion in the briefs or the record that Mr. Lenz’s stock ownership or holding company directorship was the subject of any discussion by the Defendants with anyone. It was the board, not the Defendants, who gave Mr. Lenz the choice between resignation from the holding company board with payment of his stock or termination without payment. Even if we impute the board’s actions to Mr. Dewey and Ms. Mecca, we find that by voluntarily resigning from the holding company board, Mr. Lenz relinquished any property interest he might have had and was not deprived of due process by the Defendants. Parker v. Board of Regents, 981 F.2d 1159, 1162 (10th Cir.1992).

We have held that offering an employee a choice between resignation and termination does not violate an employee’s due process of law, as long as the resignation is “voluntary.” Id. In order to assess the voluntariness of an employee’s resignation, we must consider (1) whether the employee was given an alternative to resignation, (2) whether the employee understood the nature of the choice he was given, (3) whether the employee was given a reasonable time in which to choose, and (4) whether the employee could select the effective date of resignation. Id. Mr. Lenz was given a choice of resignation with stock payment or without, there is no evidence that he did not comprehend his choice, the board and Mr. Lenz negotiated the terms of his Severance Agreement for a month-and-a-half, and he chose to resign on June 21, 1991. We therefore conclude that Mr. Lenz resigned voluntarily. Consequently, qualified immunity acts to bar this action against the Defendants, id., and the other issues the parties raise regarding the trial are no longer relevant.

REVERSED.