Johnson v. Oregon Department of Revenue

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

SUSAN JOHNSON,

Plaintiff, Case No. 6:19-cv-01659-MC

v. OPINION AND ORDER

OREGON DEPARTMENT OF REVENUE,

a political subdivision of the State of

Oregon, and NIA RAY, Director of the

Oregon Department of Revenue,

individually, and as an agent of the Oregon

Department of Revenue,

Defendant.

MCSHANE, Judge:

Plaintiff Susan Johnson brings this suit alleging wrongful discharge against Defendant

Oregon Department of Revenue (“DOR”) and violation of Plaintiff's procedural and substantive

due process rights against Defendant Nia Ray. Pl.’s Compl. § 25-51, ECF No. 1. Defendants

move to dismiss Plaintiff’s claims with prejudice pursuant to Fed. R. Civ. P. 12(b)(1).! Defs.’

Am. Mot. 1-2, ECF No. 12. Because Plaintiff has failed to identify a clearly established liberty

interest in continued employment at DOR and exhaust her contract remedies, Plaintiff's

' Plaintiff also brought then voluntarily dismissed her claims for violation of her procedural and substantive due

process rights against DOR and intentional interference with economic relations against Ms. Ray. Pl.’s Resp.1 and 5,

ECF No. 13.

substantive due process claim is dismissed with prejudice and wrongful discharge claim is

dismissed without prejudice. Because Plaintiff’s procedural due process claim is plausible on its

face, Defendants’ Motion is DENIED as to that claim.

BACKGROUND2

While working at the real estate division of a Wells Fargo branch in Sacramento in 1979,

Plaintiff transferred $8,000 from idle escrow accounts to her personal bank account. Pl.’s Compl.

¶ 9–10. Plaintiff used the money to evade her abusive ex-husband and take her son to Oregon. Id.

at ¶ 10. Once safe, Plaintiff turned herself in to the Federal Bureau of Investigation in Portland.

Id. at ¶ 11. On October 26, 1981, Plaintiff plead guilty to one charge of embezzlement by a bank

employee. Id. Plaintiff does not have any subsequent criminal history. Id. at ¶ 13.

Plaintiff began working at DOR nearly twenty years after her conviction. She worked at

DOR for more than twenty years. Id. at ¶ 15. DOR promoted Plaintiff to an Information System

Specialist (“ISS”) position, which gave her access to confidential taxpayer information and

required her to process two to three million dollars per day in electronic funds transfers. Id. at ¶

15–16. In 2016, DOR started doing fingerprint-based background checks on all employees with

access to sensitive taxpayer information. Id. at ¶ 18. DOR requested a background check on

Plaintiff on June 23, 2017 and November 8, 2017. Id. After Plaintiff’s embezzlement conviction

surfaced, Ms. Ray, Director of DOR, determined that the public and DOR’s federal partners:

[M]ight be concerned knowing the Department retained an employee after learning she

had a prior felony conviction for a financial crime, and that there was no identifiable

passage of time after commission of a financial crime that would be sufficient to mitigate

the effects of such a crime for a fitness determination with the DOR.

2 At the motion to dismiss stage, this Court takes all of Plaintiffs’ allegations as true. See Burget v. Lokelani Bernice

Pauahi Bishop Trust, 200 F.3d 661, 663 (9th Cir. 2000).

Id. at ¶ 22. On November 30, 2017, DOR issued a Fitness Determination and Notification

explaining that Plaintiff was unfit to continue work as an ISS. Id. at ¶ 23.

The parties appeared before the Office of Administrative Hearings on May 23, 2018 to

determine whether DOR correctly performed the final fitness determination. Id. at ¶ 28. The ALJ

found that DOR failed to adequately consider intervening factors as required by ORS

181A.195(10)(c) and OAR 125-007-0260 and failed to correctly perform Plaintiff’s final fitness

determination. Id. at ¶ 29. The ALJ issued a Proposed Order requiring DOR to set aside the

Fitness Determination and Layoff Notification. Id. at ¶ 30. DOR rejected the Proposed Order. Id.

at ¶ 31.

STANDARD OF REVIEW

To survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a complaint must contain

sufficient factual matter that “state[s] a claim to relief that is plausible on its face.” Bell Atlantic

Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible on its face when the factual

allegations allow the court to infer the defendant’s liability based on the alleged conduct.

Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009). The factual allegations must present more than “the

mere possibility of misconduct.” Id. at 678.

When considering a motion to dismiss, the court must accept all allegations of material

fact as true and construe those facts in the light most favorable to the non-movant, Burget v.

Lokelani Bernice Pauahi Bishop Trust, 200 F.3d 661, 663 (9th Cir. 2000), but the court is “not

bound to accept as true a legal conclusion couched as a factual allegation,” Twombly, 550 U.S. at

555. If the complaint is dismissed, leave to amend should be granted unless the court

“determines that the pleading could not possibly be cured by the allegation of other facts.” Doe v.

United States, 58 F.3d 494, 497 (9th Cir. 1995).

DISCUSSION

I. Substantive and Procedural Due Process Claims

Plaintiff alleges that Ms. Ray violated her substantive due process right to continued

employment, privacy, and pursuit of livelihood. Pl.’s Compl. ¶ 38.

Substantive due process “forbids the government from depriving a person of life, liberty,

or property in such a way that ‘shocks the conscience’ or ‘interferes with rights implicit in the

concept of ordered liberty.’” Nunez v. City of Los Angeles, 147 F.3d 867, 871 (9th Cir.

1998) (quoting United States v. Salerno, 481 U.S. 739, 746 (1987)); see also Daniels v.

Williams, 474 U.S. 327, 331 (1986) (explaining that substantive due process protects against

government power arbitrarily and oppressively exercised). To sustain a substantive due process

claim, a plaintiff must show that she had a constitutionally protected liberty or property

interest. Wedges/Ledges of Cal., Inc. v. City of Phoenix, 24 F.3d 56, 62 (9th Cir. 1994). Most

courts have rejected the notion that substantive due process protects the right to a particular

public employment position, and the Ninth Circuit has yet to decide the issue. Engquist v.

Oregon Dept. of Agric., 478 F.3d 985, 996–97 (9th Cir. 2007).

There is a generalized due process right to choose one's field of private

employment. Conn v. Gabbert, 526 U.S. 286, 291–92 (1999). One has a protected liberty interest

in pursuing an occupation of her choice. See Dittman v. Cal., 191 F.3d 1020, 1029–30 (9th Cir.

1999). A plaintiff can sustain a substantive due process claim if she is unable to pursue an

occupation due to government actions that were arbitrary and lacking a rational basis. Sagana v.

Tenorio, 384 F.3d 731, 742–43 (9th Cir. 2004). Here, Plaintiff alleges that Ms. Ray’s actions

barred her from positions within DOR dealing with sensitive taxpayer information, not other

positions within DOR. Because Plaintiff does not have a constitutionally protected liberty or

property interest in her ISS position specifically, Defendants’ Motion is granted with respect to

Plaintiff’s substantive due process claim.

Plaintiff also asserts that Ms. Ray violated her procedural due process right in rejecting

the Office of Administrative Hearings’ Proposed Order to set aside the fitness determination.

Pl.’s Compl. ¶ 31. The Fourteenth Amendment protects against the deprivation of property or

liberty without due process. Brady v. Gebbie, 859 F .2d 1543, 1547 (9th Cir. 1988). A §

1983 claim based upon the deprivation of procedural due process has three elements: (1) a liberty

or property interest protected by the Constitution; (2) deprivation of the interest by the

government; and (3) lack of process. Portman v. County of Santa Clara, 995 F.2d 898, 904 (9th

Cir. 1993). A plaintiff has a protected property interest if she has a legitimate claim of

entitlement to continued employment. See Brady, 859 F.2d at 1547–48. A legitimate claim of

entitlement arises if it is created by existing rules or understandings that stem from an

independent source, such as state law. Id. at 1548. A statute, rule, or contract may also confer the

property interest. Trivoli v. Multnomah County Rural Fire Protection Dist. No. 10, 703 P.2d 285,

287 (Or. App. 1985). Here, Plaintiff’s employment contract with DOR created a protected

property interest. Ms. Ray deprived Plaintiff of this interest when she terminated Plaintiff. Ms.

Ray’s rejection of the Office of Administrative Hearings’ Proposed Order to set aside the fitness

determination demonstrates a lack of process from which the Court can infer liability.

Ms. Ray asserts that she is entitled to qualified immunity. Defs.’ Am. Mot. 5–6. The

Court disagrees. Qualified immunity applies when a government official’s conduct “does not

violate clearly established statutory or constitutional rights of which a reasonable person would

have known.” White v. Pauly, 137 U.S. 548, 551 (2017). There are two prongs to analyzing

qualified immunity: (1) whether the officer violated plaintiff’s constitutional rights; and (2)

whether the rights were “‘clearly established’ at the time of the violation.” Tolan v. Cotton, 572

U.S. 650, 655–56 (2014) (citation omitted). These prongs may be evaluated in any order. Id.

“‘[E]xisting precedent must have placed the statutory or constitutional question beyond debate.’”

White, 137 U.S. at 551 (citations omitted, brackets in original). Put differently, immunity

protects “‘all but the plainly incompetent or those who knowingly violate the law.’” Id. (citation

omitted). It is well established that the state may not deprive a person of life, liberty, or property

without “notice and opportunity for hearing appropriate to the nature of the case.” Mullane v.

Central Hanover Bank & Tr. Co., 339 U.S. 306, 313 (1950). An appropriate hearing is one that is

provided “at a meaningful time and in a meaningful manner.” Armstrong v. Manzo, 380 U.S.

545, 552 (1965); see also State ex rel. Juv. Dept. v. Geist, 796 P.2d 1193 (Or. 1990).

Here, Ms. Ray rejected the Office of Administrative Hearings’ Proposed Order to set

aside the fitness determination and refused to consider the intervening factors in this matter as

required by ORS 181A.195(10)(c) and OAR 125-007-0260. See Pl.’s Compl. ¶ 29–31. Ms. Ray’s

disregard for the Office’s recommendation and her duty to take the intervening factors into

account demonstrate that Plaintiff was not provided a hearing in a meaningful manner.

Defendants’ Motion is denied with respect to Plaintiff’s procedural due process claim.

II. Wrongful Discharge Claim

Plaintiff alleges that DOR violated her employment contract and dismissed her without

just cause. Pl.’s Compl. ¶ 51. This Court lacks subject matter jurisdiction over this claim because

it is preempted by the Public Employees Collective Bargaining Act (“PECBA”), Or. Rev. Stat. §

243.005–974 et seq. (2020).

“The purpose and policy underlying PECBA is that public employers and public

employees resolve their disputes through resort to collective bargaining when there is a

collective bargaining agreement.” Shockey v. City of Portland, 837 P.2d 505, 508 (Or. 1992).

Under PECBA, it is an unfair labor practice to “[v]iolate the provisions of any written contract

with respect to employment relations.” Or. Rev. Stat. § 243.672(1)(g). The Employment

Relations Board is authorized to investigate, hear, and resolve unfair labor practice claims. Or.

Rev. Stat. § 243.676. Because Plaintiff’s wrongful discharge claim is based on a violation of her

employment contract, it falls squarely within the Employment Relations Board’s jurisdiction.

Plaintiff argues that this Court has subject matter jurisdiction based on Shockey. See 837

P.2d 505. In Shockey, the court decided that the plaintiff’s wrongful discharge claim did not

“thwart the act’s intent that disputes first be resolved through resort to contract remedies.” 837

P.2d at 509. The plaintiff in Shockey, however, “successfully exhausted his contract remedies”

prior to bringing his claim for wrongful discharge. Id. Here, Plaintiff has not exhausted her

contract remedies. Defs.’ Am. Mot. 8. This Court, therefore, lacks subject matter jurisdiction

over Plaintiff’s wrongful discharge claim. Defendants’ Motion is granted with respect to

Plaintiff’s wrongful discharge claim.

CONCLUSION

Defendants’ Amended Motion to Dismiss, ECF No. 12, is GRANTED in part and

DENIED in part, consistent with this opinion. Plaintiff’s substantive due process is dismissed

with prejudice. Plaintiff’s wrongful discharge claim is dismissed without prejudice. Plaintiff’s

procedural due process claim may proceed.

IT IS SO ORDERED.

DATED this 28th day of April, 2020.

_s/Michael J. McShane________

Michael J. McShane

United States District Judge