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Jackson v. Statler Foundation

decided: December 4, 1973.


Appeal from dismissal of pro se civil rights complaint in the United States District Court for the Western District of New York, John T. Curtin, Judge. Affirmed in part, reversed in part and remanded.

Smith, Mansfield and Oakes, Circuit Judges. Friendly, Circuit Judge, with whom Hays and Mulligan, Circuit Judges, join, dissenting from the denial of reconsideration en banc.

Author: Smith

Smith, Circuit Judge:

This is an appeal from an order of the United States District Court, Western District of New York, John T. Curtin, Judge, dated March 7, 1973, dismissing appellant's complaint on the pleadings. We reverse in part, affirm in part and remand for further proceedings.

Appellant Reverend Jackson brought suit against thirteen charitable foundations located in the Buffalo, New York area alleging racial discrimination against himself, his children and his foundation in that the appellee foundations refused to hire him as a director of their foundations, refused to give scholarships to his children and refused to grant money to his foundation, all for reasons of race. Appellant also challenged an alleged pattern of discriminatory employment and investment by the foundations. Reverend Jackson sought injunctive and declaratory relief, damages, the revocation of appellees' tax exempt status under the Internal Revenue Code, and an order directing the foundations to surrender all their assets to the United States Treasury. Judge Curtin dismissed the complaint, ruling that insofar as appellant's claims were based on 42 U.S.C. § 1983, Moose Lodge No. 107 v. Irvis, 407 U.S. 163, 32 L. Ed. 2d 627, 92 S. Ct. 1965 (1972), precluded a finding of "state action" and thus required dismissal, that to the extent that the claims were based on 42 U.S.C. §§ 1981 and 1985 there were insufficient facts stated in the complaint, and that Reverend Jackson had no standing to challenge appellees' tax exemptions.

Throughout these proceedings, Reverend Jackson has appeared pro se. This fact no doubt explains much of the confusion in his complaint and in his briefs. That confusion is compounded by appellant's shotgun approach to this litigation, an approach which casts some doubt on the substantiality of his claims.*fn1 Still, courts must construe pro se complaints generously, Haines v. Kerner, 404 U.S. 519, 30 L. Ed. 2d 652, 92 S. Ct. 594 (1972), and it is for the district court and not for us to judge factual issues.


Although a liberal reading of appellant's complaint evidences a sufficient basis to give him standing to challenge appellees' tax exemptions, see, McGlotten v. Connally, 338 F. Supp. 448, 452 (D.D.C. 1972) (three-judge court), and Falkenstein v. Department of Revenue, 350 F. Supp. 887, 888 (D. Ore. 1972) (three-judge court), appeal dismissed, Oregon State Elks Asso. v. Falkenstein, 409 U.S. 1099, 93 S. Ct. 907, 34 L. Ed. 2d 681 (1973), the complaint, insofar as it seeks revocation of the appellees' federal and state tax exempt status, is deficient on its face for failure to join the Secretary of the Treasury and the New York State Tax Commissioner, who would be indispensable parties to a suit for such relief.*fn2 Moreover, appellant has not alleged facts which would give him standing to challenge past employment and investment patterns, failing to show how he personally has been affected by these practices.*fn3 Neither has he displayed an explicit intention to sue in a representative capacity. Since appellant is appearing pro se, we leave these matters for the district court to deal with on remand, without prejudice to motions to join necessary parties and to amend the complaint to allege additional facts. Further, the district court should consider requesting that counsel represent appellant. In this regard, we note that if appellant's foundation is incorporated it may only appear with counsel. Shapiro, Bernstein & Co. v. Continental Record Co., 386 F.2d 426 (2d Cir. 1967).

This court has jurisdiction to consider appellant's challenge to appellees' tax exemptions.*fn4 See, McGlotten, supra, at 452-53.


Appellant's § 1983 claim against the foundations as well as the tax exemption challenges require us to wade "into the murky waters of the 'state action' doctrine."

The court below dismissed appellant's § 1983 claim on the authority of Moose Lodge, supra. That decision involved a suit by a guest of a member of the lodge who was refused service because he was black. He brought suit under § 1983 against both the lodge and the Pennsylvania Liquor Authority, which had granted a liquor license to the lodge. The Supreme Court held that the grant of the license did not constitute "state action," distinguishing Burton v. Wilmington Parking Authority, 365 U.S. 715, 6 L. Ed. 2d 45, 81 S. Ct. 856 (1961), where "state action" had been found on the grounds that the discriminating Eagle Restaurant constituted part of the Parking Authority project. The Moose Lodge Court emphasized that Pennsylvania did not benefit from the lodge as Delaware had benefited from the restaurant (in terms of the enhanced viability of the Parking Authority), that the lodge was located on private property whereas the restaurant had been on public land, and that the lodge was a "private club" whereas the restaurant had been open to the general public, save black people.

Whether private conduct which is in some manner aided by the actions of the State is or is not "state action" for the purposes of the Fourteenth Amendment is not an easy question.*fn5 "Only by sifting facts and weighing circumstances can the non-obvious involvement of the State in private conduct be attributed its true significance. Burton . . . at 722." Moose Lodge, supra, at 172. This appears to be the first case in which the issue of the status of tax-exempt "private foundations"*fn6 has been raised.

Prior case law while not directly controlling is not, of course, unenlightening. It is noteworthy that several courts have considered claims that the activities of tax-exempt organizations constitute "state action." Significantly, these cases divide into two groups: Where racial discrimination is involved, the courts have found "state action" to exist; where other constitutional claims are at issue (due process, freedom of speech), the courts have generally concluded that no "state action" has occurred. Compare, McGlotten, supra ;*fn7 Pitts v. Department of Revenue, 333 F. Supp. 662 (E.D. Wisc. 1971) (three-judge court); Falkenstein, supra ; Smith v. YMCA of Montgomery, 316 F. Supp. 899 (M.D. Ala. 1970), modified, 462 F.2d 634 (5th Cir. 1972), with Powe v. Miles, 407 F.2d 73 (2d Cir. 1968); Browns v. Mitchell, 409 F.2d 593 (10th Cir. 1969); Chicago Joint Board, Amalgamated Clothing Workers v. Chicago Tribune Co., 435 F.2d 470 (7th Cir. 1970), cert. denied, 402 U.S. 973, 29 L. Ed. 2d 138, 91 S. Ct. 1662 (1971); Bright v. Isenbarger, 314 F. Supp. 1382 (N.D. Ind. 1970), aff'd 445 F.2d 412 (7th Cir. 1971) and Marker v. Schultz, 158 U.S. App. D.C. 224, 485 F.2d 1003 (D.C. Cir. 1973). See also, Walz v. Tax Commission, 397 U.S. 664, 25 L. Ed. 2d 697, 90 S. Ct. 1409 (1970). This dichotomy is explained in part by the double "state action" standard which has been recognized -- one, a less onerous test for cases involving racial discrimination, and a more rigorous standard for other claims. See, e.g., Lefcourt v. Legal Aid Society, 445 F.2d 1150, 1155 n. 6 (2d Cir. 1971); Wolin v. Port Authority, 392 F.2d 83, 89 (2d Cir. 1968), cert. denied, 393 U.S. 940, 21 L. Ed. 2d 275, 89 S. Ct. 290 (1969); Powe, supra, at 81-82; Pitts, supra, at 668-69. However, these results may also be explainable in terms of facts and circumstances peculiar to each case.

A review of the "state action" case law suggests five factors which are particularly important to a determination of "state action": (1) the degree to which the "private" organization is dependent on governmental aid; (2) the extent and intrusiveness of the governmental regulatory scheme; (3) whether that scheme connotes government approval of the activity or whether the assistance is merely provided to all without such connotation; (4) the extent to which the organization serves a public function or acts as a surrogate for the State; (5) whether the organization has legitimate claims to recognition as a "private" organization in associational or other constitutional terms.

Each of these factors is material; no one factor is conclusive.

While the record before us with regard to the particular defendant foundations is meager, it does appear that private tax-exempt foundations in many instances may well involve "state action."

The defendant foundations no doubt receive substantial assistance in the form of tax exemptions. Green v. Kennedy, 309 F. Supp. 1127, 1134 (D.D.C. 1970) (three-judge court); Norwood v. Harrison, 413 U.S. 455, 37 L. Ed. 2d 723, 730-33, 93 S. Ct. 2804 (1973); Marker, supra, at 1006, n. 4; McGlotten, supra, at 456, n. 37 and 459, n. 58; Bob Jones University v. Connally, 341 F. Supp. 277, 281 (D.S.C. 1971), rev'd on other grounds, 472 F.2d 903, 906 (4th Cir. 1973), cert. granted, 414 U.S. 817, 38 L. Ed. 2d 49, 94 S. Ct. 116, 42 U.S.L.W. 3194 (1973). It is highly unlikely that they could sustain their programs at anywhere near present levels without the exemptions.*fn8 It might well be that, absent these exemptions, these foundations would never have been established.

It appears also that these foundations are subject to a "sustained and detailed administrative relationship . . . for enforcement of statutory . . . standards. . . ." Walz, supra, at 675.

The 1969 Tax Reform Act requires every tax-exempt foundation to file an annual information return with the Internal Revenue Service.*fn9 The annual report must be made available for public inspection for a period of 180 days after newspaper notice of its availability.*fn10 The Internal Revenue Service has assured Congress that it is closely scrutinizing the activities of "private foundations."*fn11 The 1969 Tax Reform Act imposed an excise tax on the net investment income of private exempt foundations, the revenue to finance the surveillance mechanisms contemplated by the Act.*fn12 The Tax Reform Act also mandated certain changes in the charters of exempt foundations. Foundation charters must now include provisions which expressly require adherence to the substantive limitations on foundation activity provided for in the Act.*fn13

The most relevant of the substantive limitations is 26 U.S.C. § 4945(a)-(d) and (g).*fn14 These sections provide that a foundation which gives grants to individuals must do so in an "objective and non-discriminatory" manner. If it does not do so, the foundation and the manager who approved that grant are respectively subject to an "excise tax" of 10% and 2 1/2% of the offending grant. If the offending grant is not recovered to the extent that recovery is possible by the foundation within a certain time, the fines are increased to 100% and 50%. These provisions would appear to apply to Reverend Jackson's complaint of ...

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