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June 5, 1984


The opinion of the court was delivered by: Shadur, District Judge.


Jonathan E. Jaffe ("Jaffe") has filed an amended complaint (the "Complaint") against the Federal Reserve Bank of Chicago ("Bank") and its alleged agents R.M. Scheider ("Scheider"), R.P. Bush ("Bush") and Andrew M. Cook ("Cook") in connection with Bank's termination of Jaffe's employment. Jaffe, a white man, alleges he was terminated as a direct result of a complaint by a black co-worker that he had made racist remarks in her presence. Defendants now move pursuant to Fed.R.Civ.P. ("Rule") 12(b)(6) to dismiss each of the Complaint's four counts for various reasons. For the reasons stated in this memorandum opinion and order, defendants' motion is granted as to Count I and III and denied as to Counts II and IV.

Count I

Count I alleges defendants deprived Jaffe of his property interest in continued employment without due process of law.*fn1 Existence of such a property interest often is an inappropriate issue for resolution on a motion to dismiss. See, e.g., Folak v. Sheriff's Office, 579 F. Supp. 1338, 1340-41 (N.D.Ill. 1984). Contracts, statutes or the type of established grievance procedure on which Jaffe relies may constitute "rules or understandings that secure certain benefits and that support claims of entitlement to those benefits" (Board of Regents v. Roth, 408 U.S. 564, 577, 92 S.Ct. 2701, 2709, 33 L.Ed.2d 548 (1972)).

Here however a statute resolves the issue as a matter of law. Under 12 U.S.C. § 341, Fifth each Federal Reserve Bank has the power "to dismiss at pleasure . . . officers and employees." Courts uniformly hold that statute precludes the enforcement of any employment contract against a Federal Reserve Bank and prevents the development of any reasonable expectation of continued employment. Bollow v. Federal Reserve Bank of San Francisco, 650 F.2d 1093, 1098-1100 (9th Cir. 1981); Obradovich v. Federal Reserve Bank of New York, 569 F. Supp. 785, 790-91 (S.D.N.Y. 1983); Armano v. Federal Reserve Bank of Boston, 468 F. Supp. 674 (D.Mass. 1979). Count I must be dismissed with prejudice.

Count II

Count II alleges defendants, acting without due process of law, deprived Jaffe of his liberty interest in seeking other employment. As is required on motions to dismiss (Wolfolk v. Rivera, 729 F.2d 1114, 1116 (7th Cir. 1984)), the following allegations are taken as true and considered in the light most favorable to Jaffe:

    1. Bank's personnel files pertaining to Jaffe
  state he was terminated because of a "racial
  incident" and his "inability to get along with
  others" (Count II ¶ 29).

2. That information is false (id. ¶ 30).

    3. That information has been released to
  Illinois' Division of Unemployment Compensation
  (id. ¶ 29).
    4. United States Naval Reserve Intelligence
  Program (the "Naval Reserve"), a prospective
  employer, desires to obtain the contents of
  Jaffe's file. Unless Bank is enjoined from
  maintaining or releasing that information, the
  Naval Reserve will obtain that information and
  deny Jaffe employment on that basis (id. ¶¶ 25-28).

Defendants argue those allegations do not indicate the presence of sufficient stigma, publication or tangible harm to support the existence of a liberty interest.

On the issues of publication and tangible harm this case is controlled by the same analysis as in Zurek v. Hasten, 553 F. Supp. 745, 746-48 (N.D.Ill. 1982). In Zurek the existence of stigmatizing information in plaintiff's government personnel file, coupled with the prospect of dissemination of that information to all government agencies requesting it, was sufficient to establish both publication and tangible harm on a motion to dismiss. Rule 12(b)(6) principles require this Court to draw the inference Jaffe has been similarly foreclosed from all federal government employment opportunities, and that is sufficient to implicate constitutionally protected liberty interests under Larry v. Lawler, 605 F.2d 954, 958 (7th Cir. 1978). If anything Jaffe's position is stronger than that of the plaintiff in Zurek, because Jaffe actually alleges imminent publication to a prospective employer and foreclosure of employment,*fn2 while publication to a particular prospective employer had to be inferred from the allegations in Zurek.

Smith v. Board of Education, 708 F.2d 258 (7th Cir. 1983), decided after Zurek, controls whether the adverse publicity Jaffe alleges is sufficiently stigmatizing to implicate protected liberty interests. Under Smith, 708 F.2d at 265 the statements must be "so critical" Jaffe either is foreclosed from "new employment in similar . . . positions" or becomes an outcast in his community. If the publicity is no worse than the fact of his discharge it cannot rise to ...

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