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KUFALK v. HART

March 18, 1985

ROBERT L. KUFALK, PLAINTIFF,
v.
DONALD W. HART, FRED W. KRAISS, RICHARD F.KUNNERT, PATRICIA A. MCGRAIL, RANDALL J. MANUS, STEVEN L. NORDQUIST, ANNE M. BRANNON, MICHAEL C. SABO, BEATRICE PRESTON, AND BARBARA OLSON SCHOOL OF HOPE, DEFENDANTS.



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

      ORDER

Before the court are defendants' motions to dismiss. The court's subject matter jurisdiction is asserted to rest upon 28 U.S.C. § 1343 (1982) and 42 U.S.C. § 1983 (1982). For the reasons set forth herein, defendants' motions are denied.

I. BACKGROUND

Plaintiff's complaint alleges a violation of § 1983 and also alleges pendent state tort and contract actions. For purposes of the present motions, the facts alleged in the plaintiff's complaint must be accepted as true. The relevant factual allegations are essentially as follows.

Plaintiff, Robert L. Kufalk, was employed as executive director of the defendant, Barbara Olson School of Hope ("School of Hope"), from September 2, 1974 until June 9, 1983. The defendant, School of Hope, is a not-for-profit corporation providing day training, work activity programs and sheltered workshop programs for developmentally disabled adult clients. At least since 1974, a "major portion" of the operating funds of the defendant, School of Hope, have been provided by the Illinois Department of Mental Health and Developmental Disabilities ("DMH"). These funds are provided for the purpose of affording education, training and supervision for developmentally disabled wards of the state.

As a result of his criticisms, plaintiff alleges he became the object of a conspiracy to injure him in his employment and to deprive him of rights secured by the First, Fifth and Fourteenth Amendments. The paticipants in the alleged conspiracy included defendants, Hart, Kraiss and Kunnert, along with defendants, Patricia A. McGrail and Randall J. Manus, employees of the Illinois Guardianship and Advocacy Commission (collectively referred to as "the state defendants"). The state defendants allegedly conspired with the defendant, School of Hope, and with defendants, Steven L. Nordquist, Anne M. Brannon and Michael C. Sabo, officers and directors of the School of Hope, and Beatrice Preston, a member of the School of Hope's education Committee (collectively referred to as the "Hope defendants").

According to the allegations in the complaint, in June 1982, the state defendants issued findings based upon an investigation of the defendant, School of Hope. Those findings disclosed that over one hundred confirmed reports of physical injuries to clients "resulting from accident or abuse had been made since January, 1982." The tone of the report was critical of the plaintiff's personnel policies and of the administration's failure to agree on the issues. Plaintiff alleges various reasons why the state defendants "knew or should have known upon reasonable inquiry that said findings were false, misleading, and pretextual."

On April 22, 1983, plaintiff alleges the state defendants caused a letter to be sent to the defendant, School of Hope's, Board of Directors referring to him as the "administration" and charging him with a "lack of cooperation", "defensiveness", and an incorrect "behavioral attitude" concerning the issue of client abuse. In addition, the letter allegedly stated that recommended policy and procedural changes could not be successfully implemented "until the attitude and philosophy of the administration changes to provide a more appropriate treatment environment within the agency." Plaintiff again alleges various reasons why state defendants, Manus and McGrail, the authors of the letter, "knew or should have known upon reasonable inquiry that the statements concerning plaintiff in the said letter of April 22, 1983, were false, misleading, and pretextual."

On or about April 29, 1983, defendant, Hart, allegedly notified defendant, Nordquist, then president of the School of Hope's Board of Directors, that DMH funding would be held up pending resolution of "serious issues". Without citing any specific provisions, plaintiff alleges there "were no issues justifying withholding the funding under the law or constitution of the State of Illinois." Plaintiff alleges the "alleged issues were merely pretextual reasons to pressure plaintiff's employer to punish plaintiff for his expression of his opinions in disagreement with those of the [state defendants]."

On May 19, 1983, certain of the state defendants met with certain of the Hope defendants to discuss the withholding of DMH funds. At that meeting, plaintiff alleges that state defendants, Hart, Kraiss and Kunnert, "made certain false, misleading, and pretextual statements concerning the withholding of funding . . . and concerning plaintiff's suitability as executive director" Specifically, plaintiff alleges state defendant, Kraiss, expressed dissatisfaction "with how $20,000 of a prior state appropriation had been spent by plaintiff." Once again, citing various reasons, plaintiff alleges the state defendants "knew or should have known upon reasonable inquiry that said statements of May 19, 1983 were false, misleading and pretextual."

On May 20, 1983, at a Board of Directors meeting, plaintiff alleges Hope defendants, Nordquist and Preston, "acting in concert with [the state defendants] and in furtherance of their plan to interfere with plaintiff's employment, made certain false, misleading and pretextual statements" concerning the events transpiring at the May 19, 1983 meeting. Specifically, plaintiff alleges defendant, Preston, stated the plaintiff "had misused $20,000 of funds received under a contract with [the state]." Plaintiff alleges the Hope defendants "knew or should have known upon reasonable inquiry that their said statements of May 20, 1983 were false, misleading and pretextual."

On or about May 28, 1983, plaintiff alleges an ad hoc meeting of the defendant, School of Hope's, Board of Directors was held to investigate the withholding of funds. At the meeting, the plaintiff alleges the state defendants "repeated and added to the earlier, false, misleading and pretextual statements concerning the plaintiff." Plaintiff alleges the state defendants' statements were intended to convince the Directors that DMH funds "would not be released unless plaintiff [was] fired from his position with [the] defendant, [School of Hope]."

On June 8, 1983, plaintiff alleges that similiar statements were made by state defendants, Manus and McGrail, at another special meeting of the Board of Directors. Earlier that day, plaintiff alleges Hope defendants, Nordquist, Brannon and Sabo, had asked the plaintiff for the documents he had prepared in response to the DMH demands and had been shown "that the documents were complete, or virtually complete." At the special meeting, however, plaintiff alleges those same Hope defendants, "failed to disclose and concealed that plaintiff had completed the tasks requested [by DMH] . . . although [state] defendant[s] Manus and McGrail then and there charged that plaintiff had failed to carry out those tasks." As a result, plaintiff alleges the Board of Directors voted to give the plaintiff the "option" to voluntarily resign or be terminated. On June 9, 1983, plaintiff resigned.

II. DISCUSSION

A. § 1983 Claims

1. State Action

Defendants initially move for dismissal contending the plaintiff has failed to allege a sufficient nexus between his constructive discharge and any "state action." Section 1983 prohibits persons acting under "color of" state law from depriving any person of any rights, privileges or immunities secured by the Constitution or federal law; it does not, however, prohibit wholly private deprivations of Constitutional rights. See Loyd v. Loyd, 731 F.2d 393, 398 (7th Cir. 1984).

a. State Defendants

The state defendants argue there is not a sufficient nexus between the plaintiff's forced resignation and their actions to invoke § 1983. The state defendants contend the decision to force the plaintiff's resignation was a wholly private one. Thus, despite the state's funding and regulation of the School of Hope, the state defendants contend Blum v. Yaretsky, 457 U.S. 991, 102 S.Ct. 2777, 73 L.Ed.2d 534 (1982) bars the plaintiff's action.

In Blum, a class of state medicaid patients brought an action complaining of nursing home transfers and discharges without notice or an opportunity for hearing. 102 S.Ct. at 2780. While the class members conceded the transfer and discharge decisions originated with the private nursing homes, they attempted to hold the state regulating officials liable for the private nursing homes' decisions. 102 S.Ct. at 2785. Despite the state's funding and regulation of the Medicaid program, however, the Court held there was no state action sufficient to invoke § 1983.

While the Court in Blum held that mere approval of, or acquiescence in, the actions of private parties is insufficient to constitute state action, it was also recognized that a state can be held liable for an ostensibly private decision where "it has exercised coercive power or has provided such encouragement either overt or covert, that the choice in law must be deemed to be that of the state." 102 S.Ct. at 2786. In the view of this court, the plaintiff's complaint alleges sufficient facts to fall within the cited exception. Plaintiff alleges far more than mere acquiescence by the state defendants in a private, unilateral decision to terminate his employment. Rather, plaintiff alleges the state defendants "pressure[d] plaintiff's employer to punish plaintiff for his expression of his opinions" Moreover, plaintiff alleges various facts, including the withholding of funds, that indicate the exercise of coercive power by the state defendants. Thus, in the view of this court, the plaintiff has adequately alleged the state defendants acted under "color of" state law.

b. Hope Defendants

Similarly, the Hope defendants contend they did not act under "color of" state law so as to be liable under § 1983. Plaintiff, on the other hand, contends the Hope defendants acted under "color of" state law because: (1) the defendant, School of Hope, is largely state funded, (2) the defendant, School of Hope, fulfills a traditional state function, and (3) the Hope defendants acted in concert with the state defendants.

1) State Funding

In Rendell-Baker v. Kohn, 457 U.S. 830, 102 S.Ct. 2764, 73 L.Ed.2d 418 (1982), the Court was asked to decide whether a private school, whose income was derived primarily from public sources and which was regulated by public authorities, acted under color of state law when it discharged certain employees. 102 S.Ct. at 2766. The private school in Rendell-Baker specialized in dealing with students who had experienced difficulty completing public high school because of drug, alcohol, behavioral problems, or other special needs. 102 S.Ct. at 2767. Nearly all of the school's students were referred directly by public agencies which paid their full tuition. Id. Indeed, between 90 and 99 percent of the school's operating budget was provided by the state, and the school was subject to detailed state regulation. Id.

The plaintiffs in Rendell-Baker alleged the school's officials had violated 42 U.S.C. § 1983 by discharging them because of their exercise of their First Amendment right of free speech. 102 S.Ct. at 2769. In addition, the plaintiffs alleged the school violated § 1983 by discharging them without the process due them under the Fourteenth Amendment. Id. The Court dismissed the plaintiffs' actions concluding the school's relationship with the state was not sufficient to satisfy the "color of" state law requirement of § 1983.

In the view of this court, Rendell-Baker is fully applicable to the present case. In the instant case, plaintiff merely alleges a "major portion" of the operating funds of the defendant, School of Hope, are provided by the state. Even if a "major portion" is equivalent to 99 percent, Rendell-Baker makes clear that such funding, standing alone, is insufficient to make the defendant, School of Hope, a de facto state agency.

2) State Function

Plaintiff seeks to distinguish Rendell-Baker on the grounds that the services in the present case constitute an "exclusive state function." In Rendell-Baker, the Court stated:

  our holdings [have] made clear that the relevant question is
  not simply whether a private group is serving a `public
  function'. We have held that the question is whether the
  function performed has been ...

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