872 F.2d 862, *; 1989 U.S. App. LEXIS 4888, **
SYDELL R. KRAFT, LEVIN INTERNATIONAL CORPORATION, TRANS
ATLANTIC GAMES OF NEVADA, INC., and TRANS ATLANTIC GAMES, INC.,
Plaintiffs/Appellants, v. S. BARTON JACKA, MICHAEL D. RUMBOLZ, GUY T. HILLER,
and LARRY G. HICKMAN, Defendants/Appellees
No. 87-2804
UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
872 F.2d 862; 1989 U.S. App. LEXIS 4888
September 15, 1988, Argued and Submitted
April
12, 1989, Filed
PRIOR
HISTORY:
[**1] Appeal
from the United States District Court for the District of Nevada, D.C. No.
CV-86-0340-ECR, Edward C. Reed, Jr., District Judge, Presiding.
DISPOSITION: Affirmed.
CORE TERMS: license, licensing, gaming, property
interest, personal relationship, unsuitable, entitlement, reputation, licensee,
suitable, liberty interest, recommendation, revocation, intimate, assurance,
recommend, permanent license, summary judgment, suspension, deprived, renewal,
unsuitability, one-year, subterfuge, licensed, expire, process of law,
automatically, public meeting, establishment
COUNSEL: Martin J. Kravitz, Brown, Wells &
Kravitz, Las Vegas, Nevada, for the Plaintiffs-Appellants.
Brian McKay,
Attorney General, and Dan R. Reaser, Chief Deputy Attorney General, Las Vegas,
Nevada, for the Defendants-Appellees.
JUDGES: Herbert Y. C. Choy, William C. Canby, Jr.
and Stephen S. Trott, Circuit Judges. Canby, Circuit Judge, concurring.
OPINIONBY: CHOY
OPINION: [*863] CHOY, Circuit Judge
Sydell R. Kraft
("Kraft"), Levin International Corporation ("LIC"), Trans Atlantic Games, Inc.
("TAG"), and Trans Atlantic Games of Nevada ("TAG-Nevada") (collectively
referred to as "plaintiffs") appeal from the district court's grant of summary
judgment in their action under 42
U.S.C. § 1983 against members of the Nevada Gaming Board ("Board" or "Board
members"). This action arose from the Board's refusal to extend further
licensing to the plaintiffs after expiration of their one-year limited gaming
licenses.
The district court concluded that the Board members were
protected by absolute immunity. Alternatively, the district court ruled that the
Board members were entitled to qualified immunity because [**2] plaintiffs had not shown that the Board violated
clearly established constitutional rights of which a reasonable person would
have [*864] known. Harlow
v. Fitzgerald, 457 U.S. 800, 818, 73 L. Ed. 2d 396, 102 S. Ct. 2727
(1982). In part, this ruling was based on the court's determination that
plaintiffs had no protected property or liberty interest and thus could not make
out a claim for violation of due process rights.
Without reaching the
issue of immunity, we affirm and hold that the plaintiffs have failed to
establish a violation of procedural due process. Plaintiffs had no protected
property interest in further licensing and could show no other property or
liberty interest that would trigger due process protection. In addition, we hold
that plaintiff Kraft has failed to establish a violation of her fourteenth
amendment right to freedom of intimate association.
BACKGROUND
In 1984, plaintiffs applied to the Board for licenses to manufacture,
distribute, and operate gaming devices in Nevada. The Board considered the
applications at a public meeting on February 13, 1985. At that meeting, Board
members raised several concerns regarding matters uncovered during the
investigation of plaintiffs. Specifically, the Board was [**3] concerned that plaintiffs had engaged in the sale
and distribution of slot machines within Nevada without a license, had shipped a
machine into the state which had been approved in a particular form but had been
modified without approval, and apparently had difficulty maintaining control of
their machines in Nevada. The Board also was concerned that Howard Levin
("Levin"), who was then president of all the plaintiff corporations, had been
associating with a convicted felon.
The Board ultimately voted to
recommend approval of one-year limited licenses. The Board advised plaintiffs
that its action was merely a recommendation to the Nevada Gaming Commission
("Commission"), which would make the final decision.
The Commission
considered the recommendation at a public meeting on February 21, 1984. After
raising several of the same concerns expressed by the Board, the Commission
voted three to two to issue licenses in accordance with the Board's
recommendation. Each license stated that it was a "limited license to expire on
date of Nevada Gaming Commission meeting of February, 1986." The Commission's
orders of registration of LIC and TAG also stated that the sale of any equity in
LIC or [**4] TAG:
shall be void unless approved in advance by the . . . Board.
Such approval is deemed granted if an application . . . has been filed with
the Board for 30 days and the Board has not . . . ordered acceleration or
extension of time, or issued a stop order during such period.
In October, 1985, LIC filed a preliminary prospectus with the SEC in
connection with a proposed public offering. On November 20, 1985, the Board
issued an order stopping the offering. Two days later, the Board rescinded the
order.
Plaintiffs and Levin subsequently applied for licenses to become
effective at the end of the one-year period. The Board considered these
applications at a meeting on February 6, 1986. Kraft and Levin attended the
meeting. The Board members again raised numerous concerns, including Levin's
substantial gambling debts and the possibility that he had used subterfuge to
avoid repayment of those debts. Prior to any decision of the Board, plaintiffs
requested withdrawal of the LIC and TAG applications and a continuance of the
Board's consideration of the TAG-Nevada application. This continuance allowed
LIC, TAG, and Levin time to transfer their interests to Kraft so that only Kraft
and TAG-Nevada [**5] would be under
consideration.
One week later, the Board considered the revised
applications at a public meeting. The Board expressed concerns about the
financial strength of TAG-Nevada, the continued involvement of Levin, and the
genuineness of the separation of Levin from Kraft and TAG-Nevada. The Board
ultimately voted unanimously to recommend denial of the applications "without
prejudice," meaning that the applicants could attempt to cure the deficiencies
in their applications and reapply.
[*865] On February 20, 1986 (one week later), the
Commission considered the Board recommendation at a public meeting. Kraft
attended the meeting with her attorney. The Commission echoed the concerns of
the Board, and voted four to one against approval of either permanent licenses
or six-month limited licenses.
The one-year licenses expired on February
21, 1986. On March 7, 1986, Board Chairman Jacka wrote to all Nevada licensees
and their affiliates to notify them of the denial of new licenses to plaintiffs,
quoting provisions of Nevada law requiring Commission approval prior to engaging
in business transactions with denied applicants.
On July 18, 1986,
plaintiffs filed their complaint in district court [**6] against S. Barton Jacka, Michael D. Rumbolz, and Guy
T. Hillyer, members of the Board, and Larry G. Hickman, an employee of the
Board. The complaint included two claims for relief under RICO, a claim based on
common law fraud, and a request for injunctive relief. The complaint also
included two claims under 42
U.S.C. §§ 1983, 1985, and 1986. The plaintiffs alleged their civil rights
had been violated because they had been deprived of protected property and
liberty interests without due process of law.
The Board moved for
summary judgment on October 3, 1986. On August 31, 1987, the district court held
a hearing on the motion. On September 4, 1987, the court issued its opinion
granting the motion for summary judgment. Kraft
v. Jacka, 669 F. Supp. 333 (D. Nev. 1987). The district court concluded
that the Board members were entitled to absolute immunity. Alternatively, the
court held that the Board members were entitled to qualified immunity on the
civil rights claims. The court determined that there was no procedural due
process violation because plaintiffs could not show a protected property
interest in further licensing after the limited licenses expired automatically
in February, [**7] 1986. Id.
at 337-39. The court further determined that the Board was not the actual or
proximate cause of the injuries stemming from the refusal to license, since the
Board only made recommendations and the Commission was responsible for the
ultimate decision to license. n1 Id.
at 339.
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n1 The district court noted that the
plaintiffs had voluntarily withdrawn their claims under RICO. 669 F. Supp. at
337. The court dismissed the plaintiffs' 42
U.S.C. § 1985 claim because plaintiffs failed to allege class-based animus.
The court denied the request for injunctive relief. Finally, having granted
summary judgment on the federal claims, the court noted that its pendent
jurisdiction over the state fraud claim was lost. Id. at 340-41.
Plaintiffs do not raise the § 1985 claim or the state fraud claim on appeal, nor
do they discuss injunctive relief.
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On appeal, plaintiffs
attack a variety of the findings and conclusions of the district court with
respect to their action under 42
U.S.C. § 1983. n2 The plaintiffs contend that the district court erred by
failing to view factual disputes in a manner most favorable to them as opponents
of a summary judgment motion. Further, they contend [**8] that they were denied their procedural due process
rights in the licensing proceedings and that the district court erred by failing
to find protected property or liberty interests that would entitle them to due
process of law. Plaintiff Kraft contends that the Board violated her right to
free association by denying her application for a license because she would not
terminate her personal relationship with Levin. Finally, the plaintiffs contend
that the district court erred in determining that the Board was immune from
suit.
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n2 To proceed under 42
U.S.C. § 1983, plaintiffs must allege deprivation of a constitutionally
protected right under color of state law. Learned
v. City of Bellevue, 860 F.2d 928, 933 (9th Cir. 1988).
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- -
STANDARD OF REVIEW
We review de novo a grant of
summary judgment, using the same standard that is used by the trial court. Bonner
v. Lewis, 857 F.2d 559, 561 (9th Cir. 1988). Summary judgment is
appropriate if, viewing the evidence in the light most favorable to the party
opposing the motion, the court finds that there is no genuine issue of material
fact and the moving party is entitled to [*866]
judgment as a matter of law. Fed. R. Civ. P. 56(c); Lundy
[**9] v. Union Carbide Corp., 695 F.2d 394, 396 (9th Cir.
1982), cert. denied, 474
U.S. 848, 106 S. Ct. 143 88 L. Ed. 2d 118 (1985).
DISCUSSION
I. Protected Property or Liberty Interests
As a
threshold requirement to any due process claim, the plaintiffs must show that
they have a protected property or liberty interest. Board
of Regents v. Roth, 408 U.S. 564, 569-71, 92 S. Ct. 2701 33 L. Ed. 2d 548
(1972). The plaintiffs contend they were deprived of two separate property
interests: (1) the property interest of TAG-Nevada in its limited licenses, and
(2) the property interest of LIC in its common stock. In addition, plaintiffs
assert that a protected liberty interest in reputation was violated. Plaintiffs
TAG and LIC assert that their interest in reputation was violated by a finding
of unsuitability issued by the Board without notice to them. Plaintiffs
TAG-Nevada and Kraft contend that their reputations were damaged by the letter
the Board sent to all Nevada gaming licensees, informing the licensees that
Kraft and TAG-Nevada had been denied further licensing.
A.
Protected Property Interests
1. TAG-Nevada's Property
Interest in its Limited Licenses
Plaintiffs contend that TAG-Nevada
had a property interest in its limited licenses [**10] which was protected by due process. Property
rights protected by procedural due process "are not created by the Constitution.
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." Roth,
408 U.S. at 577. Thus, the issue before us is whether state law or any other
source confers upon a limited licensee an expectation of entitlement to
continued licensing that would give rise to a property interest protected by the
federal Constitution. "A reasonable expectation of entitlement is determined
largely by the language of the statute and the extent to which the entitlement
is couched in mandatory terms." Association
of Orange County Deputy Sheriffs v. Gates, 716 F.2d 733, 734 (9th Cir.
1983), cert. denied sub nom. Singer
v. Gates, 466 U.S. 937, 104 S. Ct. 1909 80 L. Ed. 2d 458 (1984).
The district court determined that plaintiffs stood in the shoes of
first time applicants as of the date their limited licenses expired. n3 Relying
on Jacobson
v. Hannifin, 627 F.2d 177, 179 (9th Cir. 1980), in which we [**11] held that a first time applicant has no protected
property interest in a new gaming license, the district court concluded that
plaintiffs had no constitutional or statutory right to further licensing.
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n3 Plaintiffs contend that the district court was required
to characterize TAG-Nevada's property interest in the limited licenses in the
light most favorable to them, as required by Fed. R. Civ. P. 56(c). This
contention is meritless. Fed. R. Civ. P. 56 (3) requires only that the
evidence be construed most favorably to the opponent of a summary
judgment motion. The characterization of TAG-Nevada's property interest depends
primarily on statutory construction and is thus a question of law which does not
need to be construed most favorably to either party. This court reviews
questions of law de
novo. Brock v. Plumbers Int'l Union of America Local 375, 860 F.2d 346, 349
(9th Cir. 1988).
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Footnotes- - - - - - - - - - - - - - - - -
Plaintiffs make two arguments
that the district court erred in holding they had no expectation of entitlement
to continued licensing. First, plaintiffs assert that they were licensed and in
active business at the time their limited licenses were reviewed and thus the
refusal to extend any further licensing [**12]
to them was more a revocation of existing licenses than a denial of new
licensing. As holders of existing gaming licenses, they contend that they had a
sufficient property interest to warrant procedural due process protection upon
revocation of the licenses. n4
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-Footnotes- - - - - - - - - - - - - - - - - -
n4 Plaintiffs cite Barry
v. Barchi, 443 U.S. 55, 99 S. Ct. 2642 61 L. Ed. 2d 365 (1979), and Kerley
Industries, Inc. v. Pima County, 785 F.2d 1444 (9th Cir. 1986), to
support their argument that the holder of an existing gaming license would have
a property interest in revocation or suspension of that license. In
Barry, the Supreme Court determined that a harness racing trainer had a
property interest in his racing license that was protected by the Due Process
Clause against suspension or revocation without proof of culpable conduct. In
Kerley, the owner of a chemical plant was granted a conditional permit
allowing the plant to operate for a limited period of time. The County
subsequently revoked the conditional permit without prior notice and a hearing.
State law set forth detailed provisions for suspension and revocation of
conditional use permits. We concluded that "this body of law endowed appellant
with a sufficient claim of entitlement to its conditional use permit . . . to
establish a property right and to trigger the constitutional requirement of due
process." Id.
at 1446.
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[*867] We need not decide whether there
is a state-created property interest in an existing gaming license that would be
protected by the federal Constitution. A close look at the statutory scheme
governing licensing and the specific purposes behind issuance of a limited
license instead of a permanent license reveals that the decision to deny further
licensing did not operate as a revocation or suspension of an existing license.
Rather, it is clear as a matter of statutory interpretation that plaintiffs
stood in the shoes of first time applicants when they appeared before the Board
in 1986. As first time applicants, plaintiffs had no protected property interest
in further licensing. Jacobson,
627 F.2d at 180.
Under the Nevada Gaming Control Act (the "Act"),
Nev. Rev. Stat. §§ 463.010 et seq., gaming is regulated primarily
through licensing and control by the Commission and the Board. The Board has
"full and absolute power and authority to recommend [to the Commission] the
denial of any application, the limitation, conditioning, or restriction of any
license . . . [or] the suspension or revocation of any license . . . for any
cause deemed reasonable by the board." n5 Nev. Rev. Stat. [**14] § 463.1405(2).
The Commission has the same
broad authority in making final rulings on licensing applications. Id.
§ 463.1405(3).
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n5 A gaming license can be restricted or
nonrestricted. A restricted license is a license to operate no more than 15 slot
machines. All other licenses are nonrestricted. Nev. Gaming Comm'n Reg.
4.030(1); Nev. Rev. Stat. §§ 463.0177, 463.0189. A nonrestricted license can be
limited to a set period of time or conditioned on the performance of certain
acts. The licenses possessed by the plaintiffs were nonrestricted, subject to
certain conditions, and limited to a period of one year.
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In making a licensing decision, the Board and Commission are required to
consider numerous factors which indicate whether the applicant is suitable to
participate in Nevada gaming. n6 See Nev. Rev. Stat. §§ 463.1405,
463.170. The Board has discretion to recommend issuance of a limited license,
rather than a permanent license, when there are serious concerns regarding an
applicant's suitability. A limited license is issued to allow a licensee to
engage in business temporarily, as a testing period. If the concerns regarding
suitability are resolved during the term of [**15] the limited license, the Board recommends further
licensing. If the concerns are not resolved, the Board has discretion to
recommend denial of an application for further licensing.
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n6 Nev. Rev. Stat. § 463.170 provides in part:
2. An application to
receive a license or be found suitable shall not be granted unless the
commission is satisfied that the applicant is:
(a) A person of good character, honesty and integrity;
(b)
A person whose prior activities, criminal record, if any, reputation, habits
and associations do not pose a threat to the public interest of this state or
to the effective regulation and control of gaming . . .; and
(c) In
all other respects qualified to be licensed or found suitable consistently
with the declared policy of the state.
3. A license
to operate a gaming establishment shall not be granted unless the applicant has
satisfied the commission that:
(a) He has adequate business probity, competence and experience,
in gaming or generally; and
(b) The proposed financing of the entire
operation is:
(1) Adequate for the nature of the proposed operation; and (2)
From a suitable source.
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We conclude that the Nevada legislature could not have intended to
confer [**16] any entitlement to further
licensing on licensees who initially had not been considered suitable enough for
the Board to recommend issuance of a permanent license. This conclusion is
consistent with the sections of [*868] the Act
that govern renewal and revocation or suspension of permanent licenses. A
permanent license must be renewed each year on January 1, but renewal is
virtually automatic upon payment of the proper fees and taxes. n7 Nev. Rev.
Stat. § 463.270. Presumably, the holder of a permanent license could allow the
license to expire by failing to pay the renewal fees. As long as fees are paid,
however, the holder has a continuing license unless the Board, upon proper
investigation, decides to initiate a hearing before the Commission to limit,
condition, suspend, or revoke the license. See Nev. Rev. Stat. §
463.310(2).
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n7 Nev. Rev. Stat. § 463.270 provides, in
part:
1. Subject to the power of the commission to deny, revoke,
suspend, condition or limit licenses, any state license in force may be
renewed by the commission for the next succeeding license period upon proper
application for renewal and payment of state license fees and taxes as
required by law and the regulations of the commission.
2. All state gaming
licenses are subject to renewal on the 1st day of each January. . .
.
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Footnotes- - - - - - - - - - - - - - - - - [**17]
TAG-Nevada's limited licenses differed
from a permanent license in that they were set to expire automatically in
February, 1986. During the term of the licenses, the Board presumably would have
been required to initiate a hearing before it could revoke or suspend the
licenses. However, in the 1986 licensing proceedings, the Board had the option
to allow the limited licenses to expire without further action by the Board or
to grant TAG-Nevada's request for further licensing. The Board was not required
to revoke the limited licenses and TAG-Nevada was not automatically entitled to
renewal upon payment of fees. TAG-Nevada's position was indistinguishable from
that of any other first time applicant.
Our conclusion that plaintiffs
had no entitlement to further licensing also is consistent with our reasoning in
Jacobson. In Jacobson, we determined that the Commission's
broad discretion to grant or deny gaming license applications negated a claim to
a state-created property interest in a new gaming license. 627
F.2d at 180. We stated:
the specific question before us is whether the Nevada Gaming
Control Act provides in Jacobson an expectation of an entitlement to a license
sufficient [**18] to create a property
interest. That will depend largely upon the extent to which the statute
contains mandatory language that restricts the discretion of the Commission to
deny licenses to applicants who claim to meet minimum eligibility
requirements.
627
F.2d at 179-80 (citations omitted). As was the case in Jacobson
which dealt with a new applicant, the Nevada legislature has done nothing to
restrict the Board's discretion to deny further licensing to a licensee when
suitability concerns have not been resolved during the term of a limited
license. The limited licenses possessed by plaintiffs were set to expire
automatically on the date of the Nevada Gaming Commission meeting of February,
1986. The Board's total discretion to deny further licensing beyond that date
once again "negates [plaintiffs'] claim to a protectible property interest
created by the State." Id.
at 180.
The plaintiffs' second argument is that they were assured by
the Board that they would be granted continued licensing if they met with
certain conditions attached to the limited licenses. They contend that they have
invested hundreds of thousands of dollars in their business in reliance on this
assurance [**19] and that they strictly adhered
to the conditions attached to their licenses. Because of their compliance with
the conditions, they contend that they had a reasonable expectation of
entitlement to further licensing.
This contention is without merit.
Assuming that such an assurance by the Board could give rise to an entitlement
sufficient to trigger procedural due process protections, n8 there is absolutely
no support for the plaintiffs' contention that the promise [*869] was made. The sole basis for plaintiffs'
assertion is a statement by one Board member at the first licensing proceeding
in 1985 that if, during the term of the one-year license, the Board found no
"material problems," the Board "may very well entertain going to the full
license." This is hardly an assurance that further licensing would be automatic.
There is no other place in the record before the district court where any Board
member makes any assurance to the plaintiffs that satisfaction of the conditions
would result in automatic permanent licenses. In addition, as the Board and the
Commission pointed out in the 1986 proceedings, such an assurance would be
contrary to their duty to consider all of the statutory criteria [**20] that would indicate the plaintiffs were suitable
to operate a gaming establishment.
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n8 A property interest
may be established through an implied contract or "by some other
'mutually explicit understandings.'" Parks
v. Watson, 716 F.2d 646, 656 (9th Cir. 1983) (quoting Perry
v. Sindermann, 408 U.S. 593, 601, 92 S. Ct. 2694, 33 L. Ed. 2d 570
(1971)).
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The transcripts of the Board and Commission
hearings, which were part of the record before the district court, contain no
assurance of continued licensing. No other evidence of an assurance, other than
that dealt with above, was presented. Thus, there was no issue of material fact
on this point and the plaintiffs cannot establish an entitlement to further
licensing on the basis of the Board's alleged promise. Since plaintiffs stood in
the shoes of first time applicants in the 1986 licensing proceedings and have
not established an entitlement to permanent licensing on any other ground,
plaintiffs had no protected property interest in further licensing.
2.
LIC's Property Interest in its Common Stock
Plaintiffs next
argue that the Board violated their constitutional right by issuing a stop order
as to an out-of-state sale of corporate securities by LIC. They contend [**21] that the Board's action deprived them of corporate
property in violation of the Commerce Clause, and thus in violation of 42
U.S.C. § 1983.
The Commerce Clause places restraints upon the power
of the states. Philadelphia
v. New Jersey, 437 U.S. 617, 623, 98 S. Ct. 2531, 57 L. Ed. 2d 475
(1978). It divides power between the states and the federal government. We
have previously stated that "§ 1983 was not intended to encompass those
constitutional provisions which allocate power between the state and federal
government." White
Mountain Apache Tribe v. Williams, 810 F.2d 844, 848 (9th Cir. 1984)
(Supremacy Clause, which establishes federal-state priorities, does not secure
individual rights under § 1983), cert. denied, 479
U.S. 1060, 93 L. Ed. 2d 990, 107 S. Ct. 940 (1987); see also Consolidated
Freightways Corp. v. Kassel, 730 F.2d 1139, 1144 (8th Cir. 1984) (The
Commerce Clause is "an allocating provision, not one that secures rights
cognizable under § 1983."), cert. denied, 469
U.S. 834, 83 L. Ed. 2d 68, 105 S. Ct. 126 (1984). Thus, assuming that the
Board's actions in any way implicated the Commerce Clause, the plaintiffs cannot
state a cause of action under § 1983 for violation of the Clause.
B. Liberty Interests in Reputation
The plaintiffs make two
arguments [**22] that they were deprived of a
protected liberty interest in reputation without due process of law. Plaintiffs
TAG and LIC contend that they were deprived of their liberty interest when the
Board, without first giving notice to the two companies, issued an order finding
them unsuitable to engage in Nevada gaming. In addition, plaintiffs TAG-Nevada
and Kraft contend that they were deprived of their liberty interest when the
Board sent out a letter to all Nevada licensees informing the licensees that the
application of TAG-Nevada and Kraft had been denied.
An interest in
reputation "is, without more, 'neither "liberty" nor "property" guaranteed
against state deprivation without due process of law.'" Fleming
v. Department of Public Safety, 837 F.2d 401, 409 (9th Cir. 1988)
(quoting Paul
v. Davis, 424 U.S. 693, 713, 96 S. Ct. 1155, 47 L. Ed. 2d 405 (1976)),
cert. denied, 488
U.S. 889, 109 S. Ct. 222, 102 L. Ed. 2d 212 (1988). To implicate
constitutional liberty interests, state action must be "sufficiently serious to
'stigmatize' or otherwise burden the individual so that he is not able to take
advantage [*870] of other . . . opportunities."
Bollow
v. Federal Reserve Bank of San Francisco, 650 F.2d 1093, 1101 (9th Cir.
1981) (citing Board
of Regents [**23] v. Roth, 408 U.S. at 573-74), cert. denied, 455
U.S. 948, 71 L. Ed. 2d 662, 102 S. Ct. 1449 (1982). The statements at issue
must involve charges which rise to the level of "moral turpitude"; "charges that
do not reach this level of severity do not infringe constitutional liberty
interests." Id.
1. Liberty Interests of TAG and LIC
At the February 13, 1986, meeting, the Board voiced concerns regarding
Kraft's and TAG-Nevada's continued involvement with LIC, TAG, and Levin. The
Board issued an order recommending to the Commission that TAG-Nevada's
application be denied. That order stated that one reason for recommending denial
was that Kraft had proposed to continue her business association with TAG, LIC,
and Levin, "all of whom are found to be unsuitable by the Board." Neither TAG
nor LIC was represented at the February 13 meeting because both companies had
withdrawn their license applications. Plaintiffs contend that the Board's
statement regarding unsuitability "banished" both TAG and LIC from association
with gaming in Nevada, and thus stigmatized them sufficiently to impair liberty
interests. Since they were not present at the meeting, they contend that this
finding of unsuitability violated due process. [**24]
Neither TAG nor LIC was directly affected
by the Board's statement that they were unsuitable. Because neither company was
before the board as an applicant, the statement did not have the effect of a
"finding" of unsuitability which would result in denial of a licensing
application. The Board was required to consider Kraft's associations, both
business and personal, in ruling on TAG-Nevada's licensing application. Nev.
Rev. Stat. §§ 463.170(2)(b), (3)(b)(2). The Board's statement constituted only a
determination that TAG-Nevada should not be allowed to participate in gaming
because the company's president, Kraft, had unsuitable associations. TAG and LIC
were not "banished" from Nevada gaming by virtue of the Board's statement. Since
the plaintiffs have not shown that the statement had a stigmatizing effect on
the companies' ability to pursue future licensing applications, the asserted
interest in reputation does not rise to the level of a constitutional liberty
interest.
2. Liberty Interests of TAG-Nevada and Kraft
After the Commission issued its order denying TAG-Nevada's application
for further licensing, the Board sent a letter to all Nevada gaming licensees
informing them that [**25] TAG-Nevada and Kraft
were no longer able to conduct business in the gaming industry. The Board's
action did not invade a constitutional liberty interest in reputation.
"Unpublicized accusations do not infringe constitutional liberty interests
because, by definition, they cannot harm 'good name, reputation, honor or
integrity.'. . . When reasons are not given, inferences drawn from [the state
action at issue] are simply insufficient to implicate liberty interests." Bollow,
650 F.2d at 1101 (quoting Bishop
v. Wood, 426 U.S. 341, 348, 96 S. Ct. 2074, 48 L. Ed. 2d 684 (1976)).
The Board's letter did not state any reasons for the denial and did not even say
that TAG-Nevada or Kraft had been declared unsuitable. An inference of
unsuitability could have been drawn from the denial alone. However, as we stated
in Bollow, a mere inference is not sufficient to implicate a liberty
interest in reputation.
Plaintiffs had no protected property interest in
further licensing and could not make out a claim under § 1983 for an alleged
violation of the Commerce Clause. In addition, plaintiffs have failed to
establish a protected liberty interest in reputation. Since plaintiffs had no
protected property or liberty interests, [**26]
they cannot show that their due process rights were violated. Roth,
408 U.S. at 569-71.
II. Kraft's Free Association Claim
Kraft contends that the Board violated her free association rights by
basing the [*871] denial of TAG-Nevada's
application on her personal association with Levin. Kraft and Levin live
together as single adults.
There are two possible sources of
constitutional protection for personal relationships. The first amendment
protects expressive associations that involve the other activities protected by
the amendment such as speaking, religious exercise, and petitioning the
government. IDK,
Inc. v. Clark County, 836 F.2d 1185, 1192 (9th Cir. 1988). The
fourteenth amendment protects "'certain intimate human relationships . . .
against undue intrusion by the State because of the role of such relationships
in safeguarding the individual freedom that is central to our constitutional
scheme.'" Id.
at 1191 (quoting Roberts
v. United States Jaycees, 468 U.S. 609, 617-18, 104 S. Ct. 3244, 82 L. Ed.
2d 462 (1984)). Kraft contends that the Board's denial of her licensing
application violated her fourteenth amendment right to free association, because
the Board's denial was based on its disapproval [**27] of her personal relationship with Levin.
During the Board's meeting on February 6, 1986, it became obvious that
the Board was concerned with Levin's suitability and was prepared to deny his
application for licensing. The Board granted plaintiffs a continuance of their
applications so that LIC, TAG, and Levin could transfer their interests in
TAG-Nevada to Kraft. Kraft purchased TAG-Nevada, in exchange for a promissory
note, so that only Kraft and TAG-Nevada would be under consideration.
At
the February 13 Board meeting, the Board expressed serious concerns about the
financial stability of TAG-Nevada and the possibility that Levin would continue
to participate in the management of the company. n9 In the Board's order
recommending denial of TAG-Nevada's application, the Board stated as one reason
for the recommendation that "the applicant, SYDELL R. KRAFT, has proposed to
continue her business association with TAG, [LIC], and Howard S. Levin,
all of whom are found to be unsuitable by the Board, and this association will
create or enhance the danger of unsuitable practices, methods and activities in
the carrying on of business and financial arrangements incidental to the conduct
[**28] of gaming by the applicants . . . ."
(emphasis added). Business relationships do not fall within the fourteenth
amendment's protection of intimate associations. IDK,
Inc., 836 F.2d at 1193. If the Board had denied the application solely
on the basis of Kraft's business ties with Levin, there clearly would be no
constitutional violation.
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-Footnotes- - - - - - - - - - - - - - - - - -
n9 There was some doubt
that the company would be able to make enough money to support itself and it
seemed more likely that the company would operate at a loss. The Board was
concerned that Levin, through TAG and LIC, held the promissory note on
TAG-Nevada and would be able to exert some control over the company because of
that. Also, there was some discussion about whether Kraft intended to hire Levin
as a consultant for mathematical or statistical services and whether he would
have any management role in the company. Finally, Kraft stated that she intended
to continue working for TAG and LIC in the same position that she had previously
held.
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- - - - - - - - - -
However, the transcript of the Board meeting shows
that the Board also was concerned that Kraft would continue to have a personal
relationship with Levin. n10 In fact, one Board member stated that Kraft "could
[**29] not have structured this deal to [his]
satisfaction . . . because the only way [he] would be willing to look at this
favorably would be with conditions that Sydell Kraft not work for nor be
associated with LIC, TAG, Inc., or Howard Levin." (emphasis added). Another
Board member stated that "if [he] were to move forward as one Board member today
with a recommendation [*872] to approve this
transaction, it would be with a condition that [Kraft] sever herself totally
from Mr. Levin." Thus, we must decide whether the Board violated Kraft's free
association rights when it denied her licensing application.
- -
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n10 The transcript contains the following testimony:
Member Hillyer: Mrs. Kraft, how about your personal
relationship with Mr. Levin? . . . Are you still going to be sharing a
household?
Ms. Kraft: That is what we are doing today. . . . We have a
very close personal relationship. I hope that it continues, but there are no
guarantees . . . .
Member Hillyer: So the personal relationship with Mr.
Levin as it stands right now is planned to continue status quo; is that
correct?
Ms. Kraft: As far as personal relationship, as far as I know from
today, yes.
- - - - - - - - - - - - - - -
- -End Footnotes- - - - - - - - - - - - - - - - -
We have previously
stated that [**30] the freedom of intimate
association is coextensive with the right of privacy. Fleisher
v. City of Signal Hill, 829 F.2d 1491, 1500 (9th Cir. 1987), cert.
denied, 485
U.S. 961, 108 S. Ct. 1225, 99 L. Ed. 2d 425 (1988). As we noted in
Fleisher, the Supreme Court has extended the right of privacy to
unmarried individuals only in cases involving contraception and abortion. Id.
at 1497. The relationship between Kraft and Levin as cohabitating, single
adults may fit within our description of an intimate protected association in IDK,
Inc. v. Clark County, 836 F.2d at 1193. However, we need not decide
whether the relationship between Kraft and Levin is a protected one, because we
conclude that the Board's actions did not intrude on Kraft's free association
right.
Neither the right to privacy nor the right to free association is
absolute. In some cases, these rights must give way to compelling governmental
interests. See Fleisher,
829 F.2d at 1500 (no violation of free association rights when police
officer was terminated for having sexual relationship with a minor); Fugate
v. Phoenix Civil Serv. Bd., 791 F.2d 736, 741 (9th Cir. 1986) (no
violation of right to privacy when police officers were terminated [**31] for having sexual relationships with prostitutes);
see also Karst, The Freedom of Intimate Association, 89 Yale
L.J. 624, 627 (1980) (freedom of intimate association is presumptive rather than
absolute and may give way to overriding governmental interests in particular
cases). "The more fundamental the rights on which the state's activities
encroach, the more weighty must be the state's interest in pursuing that course
of conduct." Thorne
v. City of El Segundo, 726 F.2d 459, 471 (citing Moore
v. City of East Cleveland, 431 U.S. 494, 499, 97 S. Ct. 1932, 52 L. Ed. 2d
531 (1977), and Kelley
v. Johnson, 425 U.S. 238, 245, 96 S. Ct. 1440, 47 L. Ed. 2d 708
(1976)).
On the surface, the Board might appear to be violating
Kraft's fourteenth amendment right by conditioning receipt of a gaming license
on the termination of a possibly protected relationship. However, the Board did
not deny licensing because it disapproved of the fact that Levin and Kraft were
unmarried. The personal relationship between Kraft and Levin was not even the
principal reason for the denial. The Board members clearly indicated that the
personal relationship would not have been a deciding factor in the decision to
deny further licensing if the transfer of control over [**32] TAG-Nevada from Levin to Kraft had not looked so
much like a mere subterfuge. n11
- - - - - - - - - - - - - - - -
- -Footnotes- - - - - - - - - - - - - - - - - -
n11 The transcript of
the February 13 Board meeting contains the following testimony:
Member Rumbolz: The question of Mr. Levin's relationship with
her, frankly, I was prepared to consider under the totality of the
circumstances.
. . .
Mr. Silver: Well, I think if in fact you had
indicated that Miss Kraft could not be associated with Mr. Levin, knowing that
she had this relationship, that it would be an unfair burden on us coming
forward, and if we had been told of that fact, probably we would have made
other arrangements.
Member Rumbolz: Mr. Silver, I am talking about right
now. As I mentioned to you earlier, I was prepared to look at that
relationship after having seen all of the other severances of relationships
and her good faith intent to be out here running a company.
. . .
Chairman Jacka: If I were to move forward as one Board member today with a
recommendation to approve this transaction, it would be with a condition that
she sever herself totally from Mr. Levin. Financially she cannot do that by
her own admission today. And then that puts the company in a very tenuous
position from a financial perspective.
- -
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[**33]
In this case, there was a
significant governmental interest that justified the intrusion on any free
association right Kraft might have. The Nevada Gaming Control Act sets forth the
declared public policy of the state that "the continued growth and success of
gaming is dependent upon public confidence and trust that licensed gaming
[*873] is conducted honestly and competitively,
that the rights of the creditors of licensees are protected and that gaming is
free from criminal and corruptive elements." Nev. Rev. Stat. § 463.0129. This
public confidence and trust is to be maintained by "strict regulation of all
persons, locations, practices, associations and activities related to the
operation of licensed gaming establishments and the manufacture or distribution
of gambling devices and equipment." Id. In considering the
qualifications of a licensee, the Board is required to consider whether the
licensee's associations will adversely affect the operation of a gaming
establishment. Nev. Rev. Stat. § 463.170(2)(b). n12
- - - - - - -
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n12
Nev. Rev. Stat. § 463.170(2)(b) provides that "an application to receive a
license or be found suitable shall not be granted unless the commission is
satisfied that the applicant is: . . . (b) A person whose . . . reputation,
habits and associations do not pose a threat to the public interest of this
state or to the effective regulation and control of gaming, or create or enhance
the dangers of unsuitable, unfair or illegal practices methods and activities in
the conduct of gaming or the carrying on of the business and financial
arrangements incidental thereto . . . ."
- - - - - - - - - - - -
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The Board determined that Levin was
unsuitable to be associated with Kraft because he lacked the business probity,
competence, and experience to be in control of a gaming operation. The Board was
concerned that Levin's personal relationship with Kraft would allow him to
continue to exercise substantial control over TAG-Nevada. n13 In addition, the
Board was concerned that the transfer of TAG-Nevada stock from Levin to Kraft
was a mere subterfuge, because the entire transfer was financed through
promissory notes, Kraft's personal relationship with Levin remained unchanged,
and Kraft intended to continue working for TAG and LIC in the same position she
had previously held. n14
- - - - - - - - - - - - - - - - -
-Footnotes- - - - - - - - - - - - - - - - - -
n13 As Board member
Rumbolz stated during the licensing proceedings,
Mr. Levin was not in my mind unsuitable because of
associations with organized crime members or some nefarious criminal past he
may himself have had. However, I am very concerned since he is the gentleman
that's been teaching this lady her management in gaming companies, since he is
the gentleman that will undoubtedly be the person she looks to for advice for
management of a gaming company, that she will be receiving advice and has
received training from somebody who does not understand this industry and is
unsuitable for licensing.
. . . .
LIC and TAG, Inc., are unsuitable
companies . . . . I also feel Mr. Levin is unsuitable. I think that should
have been abundantly clear from our meeting last week.
I have a real
concern that you are going to continue to work for two unsuitable companies
while you are purportedly the head of a company that would hold a Nevada
gaming license. In addition, I am concerned that you would continue to have a
personal relationship with someone I consider to be unsuitable while you were
the purported head of a company with a Nevada gaming license.
[**35]
n14 Board member Rumbolz
stated:
What we have is your client continuing her employment as an
employee of Mr. Levin, continuing to live with him, continuing to live in the
East Coast, putting nothing at risk in purchasing this company, and as far as
I can see, having no different involvement with this company than she had
before, other than the name change of title.
I view this as nothing
more than a subterfuge. I think this is Howard Levin using Sydell Kraft to
maintain the same relationship he had before . . . .
- - - - - - - - - - - - - - - - -End Footnotes- - - - - - - -
- - - - - - - - -
The state of Nevada has a significant interest in
ensuring that only suitable individuals will have control of gaming operations.
Here, the Board was concerned that Kraft's personal relationship with Levin
would allow Levin to exert indirect control over TAG-Nevada even though he was
not considered suitable to hold a gaming license. This concern is directly
related to the state's interest in maintaining public trust and confidence in
the gaming industry. The denial of Kraft's application was based in part on her
refusal to sever her personal ties with Levin. However, the Board's action was
not directed at the personal aspects of the relationship. Instead, the Board's
[**36] decision was based on the appearance of
subterfuge and the possibilities Levin would have to exert control over
TAG-Nevada through his personal relationship with Kraft. Because the Board's
denial of licensing was directly related to a significant state interest, the
Board's action did not violate any free association right Kraft may have.
[*874] CONCLUSION
Plaintiffs
have failed to establish protected liberty or property interests that would
trigger procedural due process protections. In addition, plaintiff Kraft has
failed to establish a violation of any free association right that may arise
from her relationship with Levin. Because we conclude that plaintiffs cannot
succeed on the merits of their claims, we find it unnecessary to address the
issues of immunity and causation. The district court's order of summary judgment
in favor of the Board is AFFIRMED.
CONCURBY: CANBY
CONCUR: CANBY, Circuit Judge, concurring:
I concur in Judge Choy's thorough opinion. I write separately only
because I wish to add a few words regarding Kraft's freedom of association
claim. Kraft contends that the Board violated her free association rights by
basing its denial of TAG-Nevada's license on her personal relationship with
[**37] Levin.
That claim, however,
misperceives the record. Kraft's intimate association was far from the focus of
the Board's action. The uncontroverted evidence makes clear that the Board's
central concern was that Levin, whom it had found unsuitable to hold a Nevada
gaming license, remained in effective control of TAG-Nevada. The totality of
circumstances known to the Board lent substance to its fears. Levin had conveyed
the ownership interest in TAG-Nevada to Kraft only after it became clear that
the Board would deny a license if Levin remained as owner. Kraft gave only a
note in return for the ownership interest; she made no other investment in
TAG-Nevada and remained financially dependent upon Levin. And she continued to
live with Levin. None of these facts is controverted. For the Board to have
determined from all of the circumstances that Levin remained in control, or was
likely to resume control, of TAG-Nevada was certainly permissible. To
characterize the Board's action as a penalty or condition imposed on Kraft's
intimate association with Levin is to ignore most of the evidence.
It is
true that Kraft's living with Levin was one of the many circumstances that the
Board considered [**38] relevant to the question
of Levin's control of TAG-Nevada. To the extent that such consideration may be
viewed as an incidental burden on Kraft's associational interests, it was
justified in the circumstances of this case by Nevada's governmental interest in
maintaining the integrity of public licensed gaming. See Nev. Rev.
Stat. § 463.0129. Whether the Board would or could prevail if it were faced
only with the fact of Kraft's personal relationship with Levin need not
be decided; the Board acted on the totality of circumstances. In so acting, it
did not infringe Kraft's rights.