7. Tortious interference with prospective advantage
Defendants further contend that plaintiffs have failed to state a cause of action for tortious interference with prospective advantage. The complaint alleges that defendants illegally interfered with plaintiffs' attempt to obtain financing by publicly impugning HSI and Murphy. According to defendants, in order to state a claim for tortious interference with prospective advantage, plaintiffs must show that but for the alleged interference, a contract would have been entered into. It is not enough to allege that it was reasonably certain that it would been entered into. Because the complaint does not allege facts indicating that a contract would have been entered into, defendants request that the seventh claim be dismissed. Plaintiffs did not respond to this portion of defendants' motion.
8. Claims on behalf of Murphy individually
Defendants' final ground for 12(b)(6) dismissal is directed at the claims of behalf of Murphy individually. Defendants argue that these claims should be dismissed because the complaint fails to allege injury to him individually. HSI is the lessee and the operator of the Hotels; Murphy is not. While Murphy may be the beneficiary of a recovery in this action because he is the sole shareholder of HSI, defendants contend that "for a wrong against a corporation, a shareholder has no individual cause of action, though he loses the value of his investment or incurs personal liability to maintain the solvency of the corporation." Abrams v. Donati, 66 N.Y.2d 951, 953, 498 N.Y.S.2d 782, 783, 489 N.E.2d 751 (1985). Defendants argue that Murphy's claims of lost investment or potential liability as a guarantor of the corporate debt does not give him an individual and separate right of recovery. Plaintiffs did not directly respond to this portion of defendants' motion.
C. Qualified Immunity Requires that the Individual Defendants be Dismissed from the Action
Defendants' last argument in support of their motion to dismiss is that there is no basis for liability against defendants Young and Harrigan in their individual capacities. Defendants contend that public officials have a qualified immunity against civil liability and that such immunity may serve as the basis for a motion to dismiss. Furthermore, defendants assert that plaintiffs can prove no violation of any clearly established constitutional right because plaintiffs can prove no violation of any constitutional right. Therefore, defendants argue that because the individual defendants' qualified immunity cannot be defeated, any causes of action directed against them should be dismissed.
In opposition, plaintiffs argue that "defendants have not established that their action did not violate clearly established statutory or constitutional rights of which a reasonable person would have known." Harlow v. Fitzgerald, 457 U.S. 800, 818, 73 L. Ed. 2d 396, 102 S. Ct. 2727 (1982). Allegations that defendants had a personal vendetta to deprive citizens of their property is sufficient to defeat the motion to dismiss on this basis.
Defendants initially move to dismiss plaintiffs' § 1983 claim for lack of subject matter jurisdiction. The complaint alleges jurisdiction over the § 1983 claim pursuant to 28 U.S.C. § 1331, which provides that "district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, treaties of the United States." In arguing that the court lacks jurisdiction under § 1331, defendants invoke the substantiality doctrine, which requires that a district court dismiss a complaint seeking recovery under the Constitution or laws of the United States if the alleged federal claim either "clearly appears to be immaterial and solely made for the purpose of obtaining jurisdiction or where such a claim is wholly insubstantial and frivolous." Ricketts v. Midwest National Bank, 874 F.2d 1177, 1180 (7th Cir. 1989) (quoting Bell v. Hood, 327 U.S. 678, 681-82, 90 L. Ed. 939, 66 S. Ct. 773 (1946)). When the court determines that a complaint is undermined by either of these deficiencies, the complaint must be dismissed for want of federal subject matter jurisdiction. Ricketts, 874 F.2d at 1180. The Supreme Court has held that "federal courts are without power to entertain claims otherwise within their jurisdiction if they are 'so attenuated and unsubstantial as to be absolutely devoid of merit,' 'wholly insubstantial,' 'obviously frivolous,' 'plainly insubstantial,' or 'no longer open to discussion.'" Hagans v. Lavine, 415 U.S. 528, 536-537, 39 L. Ed. 2d 577, 94 S. Ct. 1372 (1974) (internal citations omitted). Thus, the determination of whether the merits of a complaint are sufficiently substantial is a threshold question which must be addressed by the court before it can exercise jurisdiction and proceed to the legal determination under Fed.R.Civ.P. 12(b)(6) of whether the complaint states a claim. Bell, 327 U.S. at 682-83; 13B Wright, Miller & Cooper, Federal Practice and Procedure, Jurisdiction 2d § 3564.
A careful review of plaintiffs' complaint leads the court to conclude that the § 1983 claim is not "immaterial to the true thrust of the complaint" nor "wholly insubstantial and frivolous." Bell, 327 U.S. at 681-82. No previous court decision has directly addressed the issue presented by plaintiffs' § 1983 claim, namely whether due process protection extends to the contractual right to the benefits of owning and operating a hotel. While defendants may be correct in arguing that previous court decisions call into question the merits of the claim, this fact alone is insufficient to remove subject matter jurisdiction from the court. In short, the claim is not "so patently without merit as to justify . . . the court's dismissal for want of jurisdiction." Bell, 327 U.S. at 683. Nor can the court say that plaintiffs' claim is "so insubstantial, implausible, foreclosed by prior [court] decisions . . . or otherwise completely devoid of merit as not to involve a federal controversy within the jurisdiction of the district court." Oneida Indian Nation v. County of Oneida, 414 U.S. 661, 666-67, 39 L. Ed. 2d 73, 94 S. Ct. 772 (1974). Consequently, defendants' motion to dismiss plaintiffs' § 1983 claim on the ground of insubstantiality is denied.
In the alternative, defendants move to dismiss plaintiffs' § 1983 claim pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief can be granted. Dismissal is appropriate under Rule 12(b)(6) if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Hughes v. Rowe, 449 U.S. 5, 10, 66 L. Ed. 2d 163, 101 S. Ct. 173 (1980) (citing Haines v. Kerner, 404 U.S. 519, 520-21, 30 L. Ed. 2d 652, 92 S. Ct. 594 (1972)). In passing on a motion to dismiss, "the allegations of the complaint should be construed favorably to the pleader." Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974). Moreover, the court is required to accept the material facts alleged in the complaint as true. Easton V. Sundram, 947 F.2d 1011, 1014-15 (2d Cir. 1991).
Section 1983 imposes civil liability on any person who, under color of state law, subjects another to the deprivation of any rights "secured by the Constitution and laws." Where, as here, the right alleged to have been denied is protected by the Fourteenth Amendment, the plaintiff must establish that the deprivation was without due process of law. Costello v. Town of Fairfield, 811 F.2d 782, 784 (2d Cir. 1987). A two-step analysis is employed in the determination of any due process claim. "First, the Court ascertains whether that which the plaintiff claims he was deprived of amounts to a property interest entitled to due process protection, and second, the Court determines the nature of the process due." Beacon Syracuse Associates v. City of Syracuse, 560 F. Supp. 188, 194 (N.D.N.Y. 1983) (citing Morrissey v. Brewer, 408 U.S. 471, 481, 33 L. Ed. 2d 484, 92 S. Ct. 2593 (1972)).
Accordingly, the court must first determine whether plaintiffs were deprived of a constitutionally protected property interest. "Property interests may take many forms." Board of Regents of State Colleges v. Roth, 408 U.S. 564, 576, 33 L. Ed. 2d 548, 92 S. Ct. 2701 (1972). Welfare payments and tenured teaching positions are now considered property as a result of the Supreme Court's broadened interpretation of the term. S & D Maintenance Co. v. Goldin, 844 F.2d 962, 965 (2d Cir. 1988) (internal citations omitted). However, an abstract need or desire for benefits is not enough to establish a property interest. Roth, 408 U.S. at 577. A person "must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it." Id.
Persons derive claims of entitlement not through the Constitution itself, but rather "'they are created and their dimensions are defined by 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.'" Beacon, 560 F. Supp. at 194 (quoting Roth, 408 U.S. at 577). While entitlement to protected benefits may be conferred by statute or by contract, it is relatively clear that a contract dispute, in and of itself, is not sufficient to give rise to a cause of action under § 1983. S & D Maintenance, 844 F.2d at 966; Costello, 811 F.2d at 784. Courts have been wary of the consequences that might arise if § 1983 were expanded to encompass substantially all public contract rights. In fact, the Second Circuit has stated that "the doctrinal implications of constitutionalizing all public contract rights would raise substantial concerns, and we seriously doubt that Roth and its progeny portend such a result . . . ." S & D Maintenance, 844 F.2d at 966-67.
Here, plaintiffs claim property rights in the Hotels both as real property and as an ongoing business enterprise. The source or nature of the claimed property interests are the contracts and agreements between plaintiffs and defendants,
as well as the express and implied understandings that formed the basis for entering into the agreements.
Plaintiffs argue that the claimed property interests in the case at bar are analogous to the property rights in contractual employment addressed by the Supreme Court in Roth and Perry v. Sindermann, 408 U.S. 593, 33 L. Ed. 2d 570, 92 S. Ct. 2694 (1972), which turned on the question of a mutually understood entitlement to continued enjoyment of the contractual right. This was determined by the existence, or nonexistence, of a tenure clause or other understanding of continued employment for a period of time barring some transgression. According to plaintiffs, if a contract or understanding creates an interest that the private party is entitled to enjoy for a period of time or as long as specified conditions are satisfied, the interest can be protected constitutionally. In the case at bar, plaintiffs assert that the contracts and understandings between plaintiffs and defendants provide them with an interest in the beneficial ownership and operation of the Hotels until certain conditions occur, and therefore their interest in the contracts is protected by the Constitution.
Plaintiffs also assert that the Roth and Perry holdings have not been limited to public employment contracts. According to plaintiffs, the Second Circuit has applied the Roth/Perry reasoning to a commercial equipment contract in S & D Maintenance. In that case, the plaintiff alleged, inter alia, that termination by New York City of a parking meter maintenance contract violated its due process rights. The contract contained one provision that permitted the City to terminate the contract at any time, without cause; a second provision allowed the City to terminate by default, but only after notice and a hearing. Based on these contract provisions, the court determined that S & D held no property interest in having its services retained throughout the term of the contract, but did hold a property interest in not being terminated on the ground that it was in default. S & D Maintenance, 844 F.2d at 968. Because the City acted to terminate the contract under the provision allowing for termination without cause and not the default provision, the court concluded that no deprivation of property had occurred. Conversely, in this case the contracts at issue specify the grounds and procedures for termination, and therefore are terminable only for cause. Based on this fact, plaintiffs argue that their interest in the contracts is entitled to due process protection.
Defendants, on the other hand, contend that due process protection has only been afforded to contractual rights conferring governmental benefits, such as welfare or tenured employment, not the type of private benefits involved in the case at bar. Defendants also contend that plaintiffs mistakenly rely on S & D Maintenance. For the reasons set forth below, the court agrees.
In S & D Maintenance, the Second Circuit never reached the issue presently before this court, namely whether the contractual rights asserted by plaintiffs are protected property interests under the Due Process Clause. Rather, the court addressed the threshold issue of whether the plaintiff had a concrete entitlement to the rights asserted as required by Roth. 844 F.2d at 967. The court concluded that plaintiff did not have such an entitlement because plaintiff was terminated under a contract provision permitting defendant to unilaterally terminate the contract at any time. In this case, there is little question that the contractual rights asserted by plaintiffs provide them with concrete entitlements within the traditional interpretation of Roth. See Walentas v. Lipper, 862 F.2d 414, 418-419 (2d Cir. 1988); S & D Maintenance, 844 F.2d at 967. The contracts upon which plaintiffs base their property rights to continued possession and operation the Hotels free from defendants' interference specify the grounds and procedures for termination of the agreements. Unlike the contract involved in S & D Maintenance, the contracts here are not susceptible to at-will termination by defendants.
The more difficult question facing the court today is whether the contractual rights asserted by plaintiffs are the kind protectable under § 1983. The Supreme Court has accorded procedural due process protection to interests that "extend well beyond actual ownership of real estate, chattels, or money." Roth, 408 U.S. at 572. However, the doctrine has not been extended to constitutionalize contractual interests that are not associated with any cognizable status of the claimant beyond its temporary role as a governmental contractor. S & D Maintenance, 844 F.2d at 967. The Second Circuit has stated, in dicta, that the Due Process Clause is invoked in the contractual context to protect something more than ordinary contractual rights. Id. at 966. Procedural protection is extended to prevent the government's revocation of a "status," an estate within the public sphere characterized by a quality of either extreme dependence or permanence, without due process protection. Id. No such status is involved in the case at bar. Unlike a tenured employment situation, the contracts upon which plaintiffs in this case rely do not provide an interest as fundamental as an individual's employment. See San Bernardino Physicians' Services Medical Group, Inc. v. County of San Bernardino, 825 F.2d 1404, 1409-10 (9th Cir. 1987) ("the farther the purely contractual claim is from an interest as central to the individual as employment, the more difficult it is to extend it constitutional protection without subsuming the entire state law of public contracts"); see also Brown v. Brienen, 722 F.2d 360, 364 (7th Cir. 1983). The importance to plaintiffs of their interest in owning and operating the hotels is principally financial, whereas the importance to an individual of retaining his/her tenured employment can be much more substantial than that. Losing one's job may impair one's self-worth; one may find it difficult, if not impossible, without protracted and costly search to find an equivalent job, and may in the end have to settle for an inferior job at lower pay. Further, the individual may be forced to seek public assistance to pay for such necessities as food and shelter. In short, while the interest of plaintiffs in the benefits of owning and operating the Hotels is not insubstantial, it is considerably less weighty than an individual's interest in the termination of social security benefits or tenured employment, and therefore does not come under due process protection. At best, plaintiffs have an action for common law breach of contract. Plaintiffs' additional argument that each time a contract or understanding creates an interest that a private party is entitled to enjoy for a period of time or as long as specified conditions are satisfied the interest is protected constitutionally, albeit creative, is not persuasive. Such a conclusion would lead to the wholesale federalization of state public contract law, an outcome which does not comport with the fundamental purposes of the Due Process Clause. See Unger v. National Residents Matching Program, 928 F.2d 1392, 1398 (3rd Cir. 1991). In sum, the contractual interest of plaintiffs in the beneficial ownership and operation of the Hotels is simply not a protected property interest within the meaning of the Due Process Clause. See, e.g., San Bernadino Physicians' Services Medical Group, 825 F.2d at 1404 (denying due process protection for corporation's contractual right to supply medical services for four-year term).
The next source of the claimed property interest is the express and implied understandings that formed the basis for entering into the contracts/agreements. The first alleged understanding is that of an implied covenant of good faith and fair dealing. New York recognizes, in appropriate circumstances, an implied obligation of good faith when entering into contracts. See Murphy v. American Home Products Corp., 58 N.Y.2d 293, 304, 461 N.Y.S.2d 232, 237, 448 N.E.2d 86 (1983). However, "that obligation is not a property interest protected by the due process clause." Walentas v. Lipper, 636 F. Supp. 331, 335 (S.D.N.Y. 1986). Rather, it is merely another contractual right and is not entitled to constitutional protection. Id. Therefore, it cannot serve as the basis for sustaining plaintiffs' § 1983 cause of action in the case at bar.
Finally, plaintiffs contend that they have a protected property interest in defendants' assurances that downtown Syracuse would be revitalized. In essence, plaintiffs argue that they have an investment-backed expectation in the development of downtown Syracuse. Plaintiffs contend that, unlike the circumstances in Beacon where the plaintiff was found not to have a property interest in an investment-backed expectation, they have a concrete property interest in the assurances of downtown development based on the contracts and agreements with defendants. However, as discussed above, the contracts and agreements do not provide plaintiffs with protectable property interests. But even assuming that plaintiffs did have property interests in the contracts and agreements, there is no evidence that plaintiffs were deprived of their rights by defendants' actions. Rather, their own default on the lease led to the eviction notice. It is clear that the process for default set forth by the lease was complied with. The lease prescribed the events of default, and a notice was served on plaintiffs by defendants in accordance therewith. It is undisputed that HSI was in default when the notice was served. Moreover, as the New York Supreme Court determined, plaintiffs were properly served with the eviction notice. Order and Judgment, Exh. A attached to Doc. 5, at 4.
In sum, the court concludes that plaintiffs can prove no set of facts in support of their § 1983 claim that would entitle them to relief. See Hughes, 449 U.S. at 10. Therefore, defendants' motion to dismiss plaintiffs' § 1983 claim pursuant to Fed.R.Civ.P. 12(b)(6) is granted. The court notes, however, that this dismissal is without prejudice. As the Second Circuit acknowledged in Salahuddin v. Cuomo, 861 F.2d 40, 42 (2d Cir. 1988), the district court has discretion upon a Rule 12(b)(6) dismissal to permit a plaintiff to replead. If plaintiffs intend to pursue their § 1983 claim, they must file an amended complaint within 60 days of the date of this decision.
The court next turns to defendants' motion to dismiss the remaining state law claims on the ground that diversity jurisdiction is lacking. See 28 U.S.C. § 1332. Specifically, defendants assert that plaintiff HSI and all of the defendants are citizens of New York, and therefore complete diversity is lacking. Plaintiffs admit that HSI lacks diversity, but nevertheless argue that the court should retain jurisdiction over individual plaintiff Murphy's state law claims. The court cannot retain jurisdiction, however, since 28 U.S.C. § 1332 requires that the parties to the action be completely diverse. This mandates that all plaintiffs and all defendants be diverse. Cushing v. Moore, 970 F.2d 1103, 1106 (2d Cir. 1992) (emphasis supplied). Since the requirement of complete diversity is not met in the case at bar, the court concludes that it does not have diversity jurisdiction over the remaining state claims.
The court may, however, retain jurisdiction over these pendant claims by way of its supplemental jurisdiction. Pursuant to 28 U.S.C. § 1367(a), district courts have supplemental jurisdiction over all state claims which are related to claims over which the court has original jurisdiction. However, the "district courts may decline to exercise supplemental jurisdiction over a [state] claim if the district court has dismissed all claims over which it has original jurisdiction." 28 U.S.C. § 1367(c)(3). The court is conferred broad discretion in deciding whether to continue hearing the state claims. See Maybee v. Town of Newfield, 789 F. Supp. 86, 92 (N.D.N.Y. 1992) (McCurn, C.J.). However, it is generally accepted that state claims must be dismissed if the federal claim is dismissed before trial. United Mine Workers v. Gibbs, 383 U.S. 715, 726, 16 L. Ed. 2d 218, 86 S. Ct. 1130 (1966); Town of Hartford v. Operation Rescue, 915 F.2d 92, 104 (2d Cir. 1990).
In the case at bar, through this Memorandum-Decision and Order, plaintiffs' § 1983 claim has been dismissed well before trial and well before extensive discovery has been conducted. Accordingly, the court declines to exercise its discretion to retain supplemental jurisdiction over plaintiffs' remaining state claims and said claims are hereby dismissed. Based on this decision, the court does not reach defendants' remaining arguments for dismissal.
Because the contractual and other interests asserted by plaintiffs do not rise to a sufficient level to merit Fourteenth Amendment protection, defendants' Rule 12(b)(6) motion to dismiss plaintiffs' 42 U.S.C. § 1983 claim for failure to state a claim is granted. Plaintiffs' state law claims are also dismissed on the ground that the court declines to retain supplemental jurisdiction over them pursuant to 28 U.S.C. § 1367(a). The Clerk of the Court is directed to dismiss plaintiffs' complaint in its entirety, without prejudice. In the event that plaintiffs fail to file an amended complaint within 60 days of the date of this decision, the Clerk of the Court is directed to enter judgment in favor of defendants.
It is So Ordered.
Dated: November 11, 1992
Syracuse, New York
HOWARD G. MUNSON
SENIOR UNITED STATES DISTRICT JUDGE