Khan v. Bland

In the

United States Court of Appeals

For the Seventh Circuit

No. 09-1735

L ATIF K HAN,

Plaintiff-Appellant,

v.

E DWARD B LAND, H OUSING A UTHORITY OF

C HAMPAIGN C OUNTY, et al.,

Defendants-Appellees.

Appeal from the United States District Court

for the Central District of Illinois.

No. 06 C 2234—Michael P. McCuskey, Chief Judge.

S UBMITTED S EPTEMBER 13, 2010 Œ —D ECIDED D ECEMBER 23, 2010

Before E ASTERBROOK, Chief Judge, and P OSNER and

T INDER, Circuit Judges.

T INDER, Circuit Judge. Latif Khan is a landlord in Cham-

paign, Illinois, who began renting properties under

the Section 8 Housing Choice Voucher Program in 1993

Œ

The parties stipulated to waive oral argument.

2 No. 09-1735

through the Housing Authority of Champaign County

(HACC). Khan’s relationship with the HACC began

to deteriorate in 2005 when Khan evicted a Section 8

tenant from one of his units and Edward Bland, the

executive director of HACC, became aware that Khan

had entered into a side lease with the tenant for the

basement of the unit. Bland believed the side lease was

a violation of Khan’s Section 8 Housing Assistance Pay-

ment (HAP) contract and a violation of U.S. Depart-

ment of Housing and Urban Development (HUD) regula-

tions. At a meeting with Khan and his attorney, Bland

informed Khan that he was going to terminate all of

Khan’s existing HAP contracts and debar him from

doing business with HACC’s Section 8 program in the

future because of the violation. Bland refused to

consider Khan’s explanation of the side lease. A subse-

quent meeting between Bland and Khan’s attorney had

the same outcome. At the time, Khan had four HAP

contracts; HACC terminated two of those contracts, but

allowed two to continue. Khan was later informed by a

prospective Section 8 tenant that Pam Presley, HACC

Section 8 Coordinator, told her that Khan was an “unde-

sired person,” that he was not good to rent from, and that

she could not rent from him.

Kahn brought suit against Bland, HACC Section 8

Manager Tosha LeShure, HACC, and Secretary of HUD

Alphonso Jackson (who is not a party this appeal) for

violation of his substantive and procedural due process

rights under the Fourteenth Amendment pursuant to 42

U.S.C. § 1983. He contends that Defendants-Appellees

Bland and HACC wrongfully terminated his existing

No. 09-1735 3

HAP contracts and debarred him from the Sec-

tion 8 program without due process. Although LeShure

is a named party on appeal, Khan has not appealed the

district court’s ruling dismissing her from the lawsuit.

Khan presented evidence of his claims (some of which

are not at issue here) to a jury, and at the close of his case,

the appellees moved for judgment as a matter of law

pursuant to Rule 50(a) of the Federal Rules of Civil Proce-

dure. The district court granted the appellees’ motion,

finding that Khan had no property right in the renewal of

his HAP contracts or future contracts and at most, had

a state law breach of contract claim for the termination

of his existing contracts. Khan declined the court’s in-

vitation to amend his complaint to assert a breach of

contract action. Khan appeals, contending that the dis-

trict court erred in granting judgment as a matter of law.

We affirm. Khan does not have a property right in

his expectancy to enter into new contracts under the

Section 8 program. He has not pointed to any provision

of the HAP contract, federal law, or state law that would

entitle him to continued participation in the program,

and the relevant regulations state that owners/landlords

are not entitled to continued participation. While he

may have property rights in his existing HAP contracts

and extensions of those contracts, he was afforded all

the process that was due by his available post-depriva-

tion remedy of a state law breach of contract action.

Because Khan was not denied a present entitlement, the

due process clause does not require a pre-depriva-

tion hearing to interpret the terms of the HAP contracts

and incorporated federal regulations.

4 No. 09-1735

Further, although Khan argues that he has a liberty

interest at stake, he has forfeited this argument by

failing to raise it below. Even if we assume that Khan

preserved this line of argument and accept his conten-

tion that Presley’s allegedly defamatory statements

were directed by Bland, Khan cannot meet the stigma-

plus test set forth in Paul v. Davis, 424 U.S. 693 (1976),

because he has not shown an alteration of his legal

status—the “plus” prong of the test. In accordance with

this court’s holding in Medley v. City of Milwaukee, 969

F.2d 312 (7th Cir. 1992), Khan has no liberty interest in

participating in the Section 8 program—a government

assistance program designed to provide benefits to

third party participants.

Finally, Khan cannot make out a substantive due

process claim for his property interest in existing con-

tracts. A mere breach of contract does not support a

substantive due process claim. Khan cannot show that a

fundamental right was implicated by the alleged breach,

nor can he show that appellees violated some other

substantive constitutional right or that state law rem-

edies were inadequate to redress the alleged violation.

I.

Khan asserted seven counts in his complaint; the

only counts at issue in this appeal are Counts I

(procedural due process claim against Bland), III (sub-

stantive due process claim against Bland), and VI (due

process claim against the HACC). More specifically, in

Count I, Khan alleged that Bland, as executive director

No. 09-1735 5

of the HACC, deprived him of valuable property rights,

i.e., his contracts with the HACC and his expectancy to

continue to contract in the future, without due process

of law. In Count III, Khan alleged that Bland debarred

him from doing business with the HACC and that

Bland’s actions were done arbitrarily and capriciously,

with malice in retaliation against Khan for evicting a

tenant who had violated his lease. In Count VI, Khan

alleged that Bland was in a position to make and enforce

policies on behalf of the HACC and that his actions

in terminating Khan’s contracts with the HACC without

due process were the actions of HACC.

This court reviews de novo the district court’s grant of

a motion for judgment as a matter of law. Greene v.

Potter, 557 F.3d 765, 767 (7th Cir. 2009). Rule 50

authorizes the entry of judgment as a matter of law if

“a reasonable jury would not have a legally sufficient

evidentiary basis to find for the party on that issue.”

Fed. R. Civ. P. 50(a)(1). “In other words, the question is

simply whether the evidence as a whole, when com-

bined with all reasonable inferences permissibly drawn

from that evidence, is sufficient to allow a reasonable

jury to find in favor of the plaintiff.” Hall v. Forest River,

Inc., 536 F.3d 615, 619 (7th Cir. 2008).

A. The Section 8 Housing Choice Voucher Program

Before exploring the details of this case, we begin by

discussing some general aspects of the federal housing

subsidy program. The Section 8 Housing Choice Voucher

Program provides rental assistance to low-income families

6 No. 09-1735

to enable them to participate in the private rental market.

This program is administered by HUD. 42 U.S.C.

§ 1437f(o); 24 C.F.R. pt. 982. Although funded by

the federal government, it is generally administered by

state or local government entities known as public

housing agencies (PHAs). 24 C.F.R. § 982.1(a). A PHA

must comply with HUD regulations and other HUD

requirements for the program. 24 C.F.R. § 982.52(a).

Federal regulations require PHAs to adopt written ad-

ministrative plans that establish local policies for admin-

istration of the program in accordance with HUD re-

quirements. 24 C.F.R. § 982.54.

The HACC is the local PHA that administers the

Section 8 program for Champaign County, Illinois. The

HACC Board of Commissioners establishes the policies

under which the HACC conducts business. The principal

staff member of the HACC is Executive Director Edward

Bland. Bland reports to the Board and is responsible

for carrying out HACC policies and managing its day-to-

day operations. Bland can draft written policies for

HACC, but he must take them before the Board for ap-

proval. The HACC’s administrative plan and local

policies are not part of the record in this case.

Eligibility for the Section 8 housing voucher is deter-

mined by income. 24 C.F.R. § 982.201. Qualified partici-

pants pay a percentage of their income toward rent and

utilities and receive subsidies for the balance of the

rental payment. 42 U.S.C. § 1437f. The participant’s por-

tion of the rent cannot exceed forty percent of his or her

monthly adjusted income. 24 C.F.R. § 982.305(a). The

No. 09-1735 7

subsidized portion of the rent is paid by the PHA to the

rental property owner (the “person . . . with the legal

right to lease . . . . a unit to a participant” under the pro-

gram, 24 C.F.R. § 982.4) pursuant to an HAP contract.

Once a PHA determines that a participant is eligible

and that there is available space in the program, the

PHA issues the participant a voucher and the par-

ticipant can search for housing. 24 C.F.R. §§ 982.202,

982.302.

If a property owner agrees to lease a unit to a tenant

under the program, he must enter into an HAP contract

with the PHA. The HAP contract is prescribed by

HUD and specifies the maximum monthly rent an owner

may charge. 42 U.S.C. § 1437f(c)(1). Before the PHA enters

into an HAP contract, the PHA must determine that

the cost of the unit is reasonable and meets HUD’s pre-

scribed housing quality standards (HQS). 42 U.S.C.

§ 1437f(o)(8); 24 C.F.R. § 982.305(a); 24 C.F.R. § 982.401.

The HAP contract provides that it “shall be interpreted

and implemented in accordance with HUD requirements,

including the HUD program regulations at 24 Code

of Federal Regulations Part 982.” HUD-52641, Part B

(3/2000), ¶ 16(b).

The Section 8 participant enters into a separate lease

with the owner that must meet certain requirements

pursuant to 42 U.S.C. § 1437f(o)(7). For example, the lease

must include the required tenancy addendum. 24 C.F.R.

§ 982.305(a). The housing must also be inspected annually

to ensure that it continues to meet the HQS. 42 U.S.C.

§ 1437f(o)(8)(B)-(D). Tenants must also re-certify family

8 No. 09-1735

income and composition annually to continue in the

program. 24 C.F.R. § 982.516.

B. Factual Background

And now for the details specifically pertinent to this

appeal. Khan began participating in the Section 8

program in 1993 through the HACC. Up until 2005

when Khan evicted Andrew Washington, a tenant partici-

pating in the Section 8 program, Khan had a seemingly

good relationship with the HACC. Khan first began

renting to Washington in 2003. The house Khan rented

to Washington had a basement that was not part of the

subsidized rental unit and could not be rented as

living space. Washington asked to rent the basement

for storage. Khan testified that he called Nancy Stone-

Johnson, an HACC inspector who did the pre-inspection

for the unit rented to Washington, and asked if he

could rent the basement as a storage unit to Washington

under a separate unsubsidized lease. According to

Khan, Stone-Johnson said that since the basement was

a separate unit and was not part of the subsidized unit,

he could rent it as storage. Stone-Johnson testified that

she worked for HACC until 2001, but Khan did not rent

to Washington until 2003, so she would not have been

an employee of HACC at the time. The testimony at

trial, however, indicates that she was employed at

HACC when Khan contacted her; neither party

addressed this inconsistency. In any event, after speaking

with Stone-Johnson, we presume as an employee of

HACC, Khan entered into a separate unsubsidized lease

with Washington for the basement as storage.

No. 09-1735 9

Khan then began having problems with Washington as

a tenant. He suspected that there were illegal activities

going on at the premises and observed that there were

inoperable cars and dangerous dogs on the property,

smoke detectors and screens that were missing, some

windows that were broken, and pests due to uncleanliness.

Washington also fell behind on his payment for the

storage and apartment leases. Khan sued to evict Wash-

ington for late payment of rent and prevailed in

December 2005. Around that time, Washington brought

the side lease to Bland’s attention. Bland called Khan’s

attorney who brought the eviction action to inform

him that Khan was in violation of HUD’s rules for

entering into a side lease with Washington and that

Khan could lose all his Section 8 payments.

A meeting was held between Bland, Khan, and Khan’s

attorney (a different attorney from the one handling the

eviction proceeding) later that month. Bland informed

Khan’s attorney that he believed Khan was attempting

to get more rent than was allowed under the HAP

contract and that he did not think the basement was

being rented as storage, but instead was used as a way

to get around the rent regulations. Bland said that Khan

was not the type of person they wanted in the program.

Bland informed Khan that he was terminating all of

his HAP contracts and that Khan was being debarred

from the program. Khan was not given the opportunity

to explain his position.

Khan’s attorney asked about an appeal process and

Bland said, “Well, if he wants to follow that process,

10 No. 09-1735

I’ll have the Inspector General come in and investigate

for fraud.” Khan similarly testified that Bland never

told him he had a right to a hearing or to an appeal and

instead said that “[i]f you do not listen to what I have

said, if you ever contest it, I will have you prosecuted

criminally.” Bland told Khan he had the authority to

debar Khan, that he had debarred people before, and

that Khan would not be the last person he debarred.

Bland testified at trial that an owner can appeal

Bland’s decisions to the Board and stated that the

HACC has a grievance process in place. Nothing in the

record describes the process; Bland only testified that a

landlord “could write a letter . . . requesting to speak to

the Board.” As noted, neither Khan nor his attorney

were informed of such a process.

On February 10, 2006, Irma Harris, HACC Section 8

Coordinator, sent a letter notifying Khan’s Section 8

tenants that Khan’s HAP contracts would be terminated

effective March 31, 2006, and that they could move to

new units effective April 1. On March 28, Khan received

a letter from Tosha LeSure (spelled “LeShure” in the

pleadings), HACC Section 8 Manager, explaining that the

HACC recently sent letters to his tenants informing

them that it would be terminating his HAP contracts

and that “tenants were also informed that they would

need to move from their current units by April 1, 2006.”

LeSure further explained that the HACC was made

aware that moving would cause a hardship for some

tenants, so “[f]or those tenants who would face a

hardship by moving, the [HACC] will allow them to

remain in their current units,” but that Khan “MUST

No. 09-1735 11

comply with all Housing Quality Standards (HQS) and

maintain the units in habitable condition.” (emphasis

in original). LeSure testified that Bland made the

decision to terminate Khan’s contracts.

Khan retained yet another attorney who scheduled a

second meeting with Bland around the end of March.

Khan did not attend this second meeting. Bland

informed Khan’s attorney that he was not going to

allow Khan to continue in the program and if Khan

“continued to fight this contract termination that he

was simply going to go to HUD . . . and report some

violations that he alleged existed for Mr. Khan.” Khan’s

attorney tried to find out what violations Bland was

referring to, but Bland would not give any specifics.

Instead he said that if Khan continued to push the issue,

he would seek criminal charges against him, either

“through HUD or the federal level” (presumably

through other federal authorities).

At this time, Khan had four Section 8 tenants: Eddie

Jackson, Caroline Hill, Carol Dorsey, and Melody

Decker. Testimony at trial revealed that Dorsey and Hill

were allowed to stay in Khan’s units, his HAP contracts

for those tenants were not terminated, and he continued

to receive Section 8 payments for them. Khan’s HAP

contract for the Jackson rental was terminated pursuant

to the February 2006 letter; Jackson moved out on April 1.

Khan’s HAP contract for the Decker rental was ter-

minated, according to the appellees, but disputed by

Khan, for failing to pass the annual HQS inspection.

Khan and Decker received a letter from HACC on

January 27, 2006, informing them that the annual HQS

12 No. 09-1735

inspection was scheduled for February 13. The Decker

unit failed the first inspection and a second inspection

was scheduled for March 13. After the unit purportedly

failed the second inspection, the HACC sent Khan a

letter dated March 15 informing him that as of April 1,

the contract would be terminated for failure to

correct noted deficiencies and Decker would be allowed

to move immediately. Decker moved from the property

but testified that she wanted to stay.

Khan testified that the inspection of the Decker

rental was done differently than the ones previously

done by the HACC. He stated that his contractor fixed

everything on the list from the February inspection and

that during the March inspection, the HACC only

noted minor repairs that were needed, such as a loose

toilet base and two inoperable electrical outlets. Until

this point, Khan never had a property that was

terminated for failing an inspection. The year

before, rent for the same property was going to be

abated (meaning no HAP payments until repairs are

made), but Khan fixed the problem before abatement.

There was one other instance where Khan received a

letter from HACC stating that he had to do emergency

repairs on one of his units or his HAP payments would

be abated. Although not clear from the testimony, it

appears that this issue was resolved without abatement.

Monique Hassan, a prospective Section 8 tenant,

testified that she had a voucher for Section 8 housing

and wanted to rent from Khan around the end of

2006. She spoke with Pam Presley, HACC Section 8 Co-

No. 09-1735 13

ordinator, about renting the property. Presley told her

that Khan was an “undesired person,” that he wasn’t

good to rent from, and she could not rent from him.

Hassan informed Khan of her conversation with

Presley and found another unit to rent.

II.

Khan alleges that Bland and the HACC violated his

procedural and substantive due process rights under

the Fourteenth Amendment. He asserts that he had

property rights in his existing HAP contracts and his

expectancy to contract in the future and that Bland

and HACC terminated his contracts and debarred

him from the program without due process. Khan also

alleges that the termination of his contracts, debarment

from the program, and Presley’s statement to Hassan

that he was undesirable and unfit for the program con-

stituted a deprivation of his liberty interest. He further

alleges that his substantive due process rights were

violated when Bland debarred him from the Section 8

program arbitrarily and capriciously with malice in

retaliation for evicting a tenant. These theories are dis-

cussed below.

A. Procedural Due Process

The Due Process Clause of the Fourteenth Amendment

forbids a state from depriving any person of “life, liberty,

or property, without due process of law.” U.S. Const.

amend. XIV, § 1. “An essential component of a pro-

14 No. 09-1735

cedural due process claim is a protected property or

liberty interest.” Minch v. City of Chi., 486 F.3d 294, 302

(7th Cir. 2007). “If the plaintiffs can establish such a

loss, we then must determine what process was due

regarding that loss.” Belcher v. Norton, 497 F.3d 742, 750

(7th Cir. 2007).

1. Property Interest

To demonstrate a procedural due process violation of

a property right, the plaintiff must establish that there

is “(1) a cognizable property interest; (2) a deprivation

of that property interest; and (3) a denial of due process.”

Hudson v. City of Chi., 374 F.3d 554, 559 (7th Cir. 2004)

(citation omitted). Accordingly, a plaintiff asserting a

procedural due process claim must have a protected

property interest in that which he claims to have been

denied without due process. Barrows v. Wiley, 478 F.3d

776, 780 (7th Cir. 2007). Khan has no protected property

interest in future HAP contracts with HACC, so his

procedural due process claim on that basis fails.

Assuming Khan has a protected property interest in his

existing HAP contracts, his due process rights were

satisfied by his ability to bring a state law breach of

contract action to remedy any alleged violations.

To claim a property interest protected by the Fourteenth

Amendment, “a person . . . must have more than a unilat-

eral expectation of [the claimed interest]. He must,

instead, have a legitimate claim of entitlement to it.” Bd. of

Regents of State Colls. v. Roth, 408 U.S. 564, 577 (1972). “A

legitimate claim of entitlement to warrant a due process

No. 09-1735 15

hearing occurs only when the statutes [or] regulations

in question establish a framework of factual conditions

delimiting entitlements which are capable of being ex-

plored at a due process hearing.” Fincher v. South Bend

Heritage Found., 606 F.3d 331, 334 (7th Cir. 2010) (internal

quotations and citations omitted). “A property interest

of constitutional magnitude exists only when the

state’s discretion is ‘clearly limited’ such that the plain-

tiff cannot be denied the interest ‘unless specific

conditions are met.’ ” Brown v. City of Michigan City, Ind.,

462 F.3d 720, 729 (7th Cir. 2006) (internal quotations and

citation omitted).

Using these guideposts, we have held that participants

who have been issued a certification for rent assistance

have a property interest in the assistance and must be

heard before being expelled from the program, Simmons

v. Drew, 716 F.2d 1160, 1162 (7th Cir. 1983), but Section 8

housing applicants who have been deemed eligible

do not have a protected right that entitles them to due

process when they are denied a specific Section 8

housing unit because landlords have considerable dis-

cretion in making final tenancy decisions, Fincher, 606

F.3d at 333-34. The issue here is whether under relevant

statutes, regulations, rules, policies or contracts, Khan—

a Section 8 landlord, rather than a tenant—has a legiti-

mate claim of entitlement to continue his existing HAP

contracts and enter into future contracts.

We begin our analysis with Khan’s claim of debarment.

Khan argues that Bland debarred him from the Section 8

program so he could not enter into future HAP contracts

16 No. 09-1735

or participate in any government programs, including

research grants. The record contains no evidence

that Khan was actually debarred from other federal

programs or was denied any research grants. Debarment

is a sanction that excludes an individual from con-

ducting business with any federal agency government-

wide. See 2 C.F.R. pt. 180 (explaining debarment process

as conducted by federal agency); see also 2 C.F.R. pt. 2424

(formerly 24 C.F.R. pt. 24) (HUD debarment proce-

dure). Arthur Orton, Director of Compliance for the

Departmental Enforcement Center for HUD, attested

(through an affidavit admitted at trial) that Khan was

never debarred by HUD.

Further, Bland, despite his threatening statements, did

not have authority to officially debar Khan from partic-

ipation in federal programs. In fact, Khan continued to

participate in the Section 8 program through the

HACC with respect to two of his properties. If Khan

was officially debarred, suspended, or denied participa-

tion in a HUD program, the regulations set forth pro-

cedures for contesting the imposed sanction. See, e.g., 2

C.F.R. § 2424.1130 (formerly 24 C.F.R. § 24.1130) (proce-

dures for contesting a limited denial of participation

from HUD program). Khan did not contact HUD to

determine whether he was officially debarred, nor does

he argue on appeal that the procedures set forth in the

applicable regulations should have been followed. This

is probably because the regulations apply to debarment

by HUD and as noted, Khan was not debarred by HUD

and so, was not denied participation in other govern-

ment programs.

No. 09-1735 17

Bland, however, effectively debarred Khan from the

Section 8 program administered in Champaign County

by declining to enter into new contracts with him. So we

consider whether Khan had a property interest in his

expectancy to enter into new HAP contracts. To establish

such a property interest, Khan must show that he has

an entitlement to participate through regulations, rules

or understandings, such that if certain substantive predi-

cates are met, a particular outcome necessarily follows.

See Kim Const. Co., Inc. v. Bd. of Trs. of Vill. of Mundelein,

14 F.3d 1243, 1246-48 (7th Cir. 1994) (finding that a disap-

pointed bidder had no property interest in a contract for

a municipal sewer project even though he was the low

bidder where the relevant statute and regulations gave

the municipality the right to reject any and all bids); see

also Perry v. Sindermann, 408 U.S. 593, 601 (1972) (stating

that a person’s interest in a benefit is “property” under

the Fourteenth Amendment “if there are such rules or

mutually explicit understandings that support [a] claim

of entitlement” that may be invoked at a hearing).

Khan has not shown that the relevant regulations

established eligibility criteria that, if satisfied, entitled him

to participation in the Section 8 program. The regula-

tions prescribe seven reasons why a PHA may, in its

administrative discretion, disapprove an owner and

deny the owner a lease under the program, including

an owner’s violation of his obligations under an HAP

contract. 24 C.F.R. § 982.306(c)(1)-(7). That section also

plainly states that “[n]othing in this rule is intended to

give any owner any right to participate in the program.”

24 C.F.R. § 982.306(e) (emphasis added). When issuing

18 No. 09-1735

final implementing regulations in 1999, HUD responded

to a public comment suggesting an appeal process for

owners prohibited from participating in Section 8. HUD

stated: “Owners have no statutory or regulatory right

to participate in the housing choice voucher program,

and consequently have no due process right to a hearing

on a PHA’s decision to disapprove owner participation.

There is no federal mandate for PHAs or HUD to grant

owners a process for appeal of a PHA decision to disap-

prove owner participation.” Section 8 Tenant-Based

Assistance, 64 Fed. Reg. 56,894, 56,901 (Oct. 21, 1999). In

dicta, the Fifth Circuit has noted: “Congress plainly

expressed its intent to provide housing assistance for

the benefit of the low-income families participating in

the program; it would be absurd to treat the voucher

program as a landlords’ relief act!” Johnson v. Hous. Auth.

of Jefferson Parish, 442 F.3d 356, 363 (5th Cir. 2006).

Khan has not pointed to any provision of the contract,

federal law, or state law that would entitle him to con-

tinued participation in the Section 8 program beyond

performance of his existing contracts. The regulations

themselves state that owners are not entitled to participa-

tion. Compare Talley v. Lane, 13 F.3d 1031, 1035 (7th Cir.

1994) (finding that applicant for subsidized housing

program for the disabled had no constitutionally pro-

tected property interest in the program where housing

authority had discretion to establish tenant selection

criteria and to determine that applicant was undesirable

because of his extensive criminal record), with Cont’l

Training Servs., Inc. v. Cavazos, 893 F.2d 877, 893 (7th Cir.

1990) (finding that plaintiff had property interest as a

No. 09-1735 19

vocational school to participate in the federal student

financial aid program under the Higher Education

Act for the benefit of its students because the eligibility

standards in the Act provided “the sort of ‘substantive

predicate’ the courts have required before finding that

property interests exist.” (citations omitted)), and Easter

House v. Felder, 910 F.2d 1387, 1395 (7th Cir. 1990) (en banc)

(finding that statutory and regulatory limitations upon

the Illinois Department of Children and Family Services’

authority to deny license renewals to child welfare agen-

cies created a legitimate claim of entitlement and thus,

a property interest). Because Khan is not afforded a

substantive right to participate in the program, he is not

afforded procedural due process rights upon denial.

Khan may, however, have a property right in his

existing contracts with HACC. See Mid-Am. Waste Sys., Inc.

v. City of Gary, Ind., 49 F.3d 286, 290 (7th Cir. 1995) (“If

a contract creates rights specific enough to be enforced

in state court by awards of damages or specific perfor-

mance, then it creates a legitimate claim of entitlement;

and if it creates such a claim, it is ‘property.’ ”). This right

appears to include the continuation of these contracts

beyond a twelve-month term. The HAP contract states

that “[t]he term of the HAP contract begins on the first

day of the initial term of the lease, and terminates on

the last day of the term of the lease (including the initial

lease term and any extensions).” HUD-52641, Part B (3/2000),

¶ 4(a) (emphasis added); see also 24 C.F.R. § 982.451(a)(2)

(“The term of the HAP contract is the same as the term

of the lease.”). Jackson’s lease stated that “[t]his lease is

for one year and extends automatically for another year

20 No. 09-1735

after that unless terminated by either party at one

month notice before the end of the year.” Pl’s Ex. 21.

Decker’s lease provided that “[t]his lease agreement

extend[s] automatically for another year if not

terminated by either side before the expiration of the

current lease by . . . certified mail.” Pl’s Ex. 25.

Although the defendants presented evidence that the

initial lease terms typed on the front of the HAP contracts

were for twelve months, the term of the HAP contract

includes the initial lease term and any extensions. While

the applicant must undergo re-certification and the

rental unit must pass an HQS inspection annually to

continue the HAP contract, if those conditions are met,

the term of the HAP contract, by its express provisions,

includes any extensions of the lease. Further, LeSure

testified that a landlord could expect that as long as he

complied with HQS inspections and cooperated with the

annual re-certification process, the HAP contract would

renew. The HACC, however, can terminate HAP

contracts if it determines that the unit does not meet

all requirements of the HQS, or if the owner has other-

wise breached the contract. HUD-52641, Part B, ¶¶ 4(b)(8),

10(a) and (c).

Whether Khan’s existing HAP contracts were wrong-

fully terminated requires an evaluation of the terms of

the contract and incorporated federal regulations. The

HAP lists actions by the owner that constitute a breach,

including:

(1) If the owner has violated any obligation under the

HAP contract, including the owner’s obligation to

maintain the unit in accordance with the HQS.

No. 09-1735 21

(2) If the owner has violated any obligation under

any other housing assistance payments contract

under Section 8.

(3) If the owner has committed fraud, bribery or any

other corrupt or criminal act in connection with any

Federal housing assistance program. . . .

HUD-52641, Part B, ¶ 10(a); see also 24 C.F.R. § 982.453.

When the HACC determines that a breach has occurred,

it “shall notify the owner of such determination,

including a brief statement of the reasons for the deter-

mination.” HUD-52641, Part B, ¶ 10(b). Any notice must

be in writing. HUD-52641, Part B, ¶ 15.

Bland testified that he is authorized to terminate HAP

contracts when he believes the owner has violated the

terms of the agreement. He terminated the HAP contract

for the Decker rental because of alleged HQS failures.

He terminated the Jackson rental because of Khan’s

alleged violation of his HAP contract on the Washington

unit, but did not provide Khan with the required written

notice. Khan contends that the HAP contract on the

Decker rental should not have been terminated for such

minor HQS violations that Khan was ready, able, and

willing to fix. Khan testified that he repaired the items

noted from the February inspection and the March in-

spection only revealed minor items that he could have

fixed; yet, the HACC terminated his contract. The reg-

ulations, however, provide that the owner must main-

tain the unit in accordance with HQS and if he fails to

do so, the housing authority “must take prompt and

vigorous action to enforce the owner obligations,” such as

22 No. 09-1735

“termination of the HAP contract.” 24 C.F.R. § 982.404(a)(1)

and (2); see also 24 C.F.R. § 982.452(b)(2) (stating that

the owner is responsible for “[m]aintaining the unit in

accordance with HQS, including performance of ordi-

nary and extraordinary maintenance”).

Even assuming the HAP contract for Decker was prop-

erly terminated for HQS violations, Khan contends that

the HAP contract for Jackson should not have been termi-

nated. If, however, Khan violated the HAP contract on

the Washington rental by entering into a side lease for

storage space, then the HACC could terminate his

other HAP contracts pursuant to HUD-52641, Part B,

¶ 10(a)(2). At trial, the parties disputed whether the side

lease was a violation of the HAP contract.

Under the HAP contract, the owner certifies that

“[e]xcept for the rent to owner, the owner has not

received and will not receive any payments or other

consideration . . . for rental of the contract unit during the

HAP contract term.” HUD-52641, Part B, ¶ 8(d) (emphasis

added); see also 24 C.F.R. § 982.451(b)(4)(i) and (ii) (“The

part of the rent to owner which is paid by the tenant

may not be more than: (A) The rent to owner; minus

(B) The PHA housing assistance payment to the owner”

and “[t]he owner may not demand or accept any rent

payment from the tenant in excess of this maximum . . . .”);

see also HUD-52641, Part C, ¶ 5(e) (“The owner may not

charge or accept, from the family or from any other

source, any payment for rent of the unit in addition to

the rent to owner.”) (emphasis added). The rent

includes “all housing services, maintenance, utilities and

No. 09-1735 23

appliances to be provided and paid by the owner in

accordance with the lease” and the “owner may not

charge the tenant extra amounts for items customarily

included in rent to owner in the locality.” HUD-52641,

Part C, ¶ 5(e) and (6)(c); see also 24 C.F.R. § 982.510(c).

The tenancy addendum further states that “if the

tenant and the owner agree to any . . . changes in the

lease, such changes must be in writing, and the owner

must immediately give the [HACC] a copy of such

changes.” HUD-52641, Part C, ¶ 15(a). Any changes “must

be in accordance with the requirements of the tenancy

addendum.” HUD-52641, Part C, ¶ 15(a). “The owner

must notify the [HACC] of any changes in the amount

of the rent to owner at least sixty days before any

such changes go into effect, and the amount of the rent

to owner following any such agreed change may not

exceed the reasonable rent for the unit as most recently

determined or redetermined by the [HACC] . . . .” HUD-

52641, Part C, ¶ 15(d) (emphasis added).

Khan contends that he did not violate these provi-

sions because he was renting a different unit, not for

housing, but for storage. He points to the definition of

“[c]ontract unit” under the HAP: “The housing unit

rented by the tenant with assistance under the program.”

HUD-52641, Part C, ¶ 17. Because the storage space

was not part of the housing unit rented under the

program, Khan asserts that his side lease did not violate

the HAP. He further asserts that Stone-Johnson, HACC

inspector, confirmed that he could enter into the side lease.

However, we need not decide whether the side lease

was a breach of the HAP contract because Khan could

24 No. 09-1735

have asserted his rights under the contract through a

breach of contract action. Due process does not neces-

sarily require that Khan be given a predeprivation

hearing where there is no present entitlement and the

issue is an ordinary state law claim of breach of contract

by a public body. Where a “postdeprivation hearing

not only is feasible but will give the deprived individual

a completely adequate remedy” due process does not

necessarily require a predeprivation hearing. See, e.g., Chi.

United Indus., Ltd. v. City of Chi., 445 F.3d 940, 944 (7th

Cir. 2006) (quoting Ellis v. Sheahan, 412 F.3d 754, 758

(7th Cir. 2005)). “[T]he adequacy of litigation as a means

to determine the meaning of a contract is a premise of

our legal system.” Id. (quoting Mid-Am. Waste Sys., 49

F.3d at 291); see also Indiana Land Co. v. City of

Greenwood, 378 F.3d 705, 710 (7th Cir. 2004) (“All states

provide judicial remedies for breach of contract and

these remedies will almost always provide all the

process that is constitutionally due.”).

In Lujan v. G & G Fire Sprinklers, Inc., 532 U.S. 189, 191

(2001), the California Labor Code authorized the state of

California to withhold payments due a contractor on a

public works project if a subcontractor failed to

comply with certain Code requirements and in turn,

permitted the contractor to withhold those sums from

the subcontractor. An unpaid subcontractor brought

suit under the Due Process Clause of the Fourteenth

Amendment because the statutory scheme did not

afford it a hearing before or after the sums were with-

held. Id. The Supreme Court assumed without de-

ciding that the subcontractor had a property interest

No. 09-1735 25

in payment, but held that California law afforded the

subcontractor sufficient opportunity to pursue that

claim in state court. Id. at 195. The Court distinguished

this case from others where a reasonably prompt

hearing was required because in such cases, “the

claimant was denied a right by virtue of which he was

presently entitled either to exercise ownership domin-

ion over real or personal property, or to pursue a

gainful occupation.” Id. at 196. The Court reasoned that

“[u]nlike those claimants, [the subcontractor] ha[d] not

been denied any present entitlement.” Id. Rather, the

subcontractor had been denied payment under a con-

tract based on the state’s determination that it failed

to comply with the contract’s terms. Id. Accordingly,

the subcontractor’s interest could be protected by an

ordinary contract suit. Id.

Similarly, Khan has not been deprived a present entitle-

ment, but rather, monies owed under his HAP contracts

and lease agreements. His rights under the HAP contracts

can be fully protected by bringing a breach of contract

action. A postdeprivation process is appropriate in

this case because Khan is not being deprived of his

ability to rent housing to other tenants, only his ability

to rent under the program. He can still pursue his occupa-

tion as a landlord; his need to remedy the deprivation

is not particularly time sensitive. See, e.g., DeBoer v. Pen-

nington, 287 F.3d 748, 750 (9th Cir. 2002) (applying

Lujan’s holding to the property interest of former

managers of a city-owned cemetery whose management

contract was terminated by the city and reasoning that

because the “contract here has not given rise to a greater

interest than the contract itself,” the deprivation was

26 No. 09-1735

a mere contractual injury that could be adequately pro-

tected by a state breach of contract suit); cf. Baird v. Bd. of

Educ. for Warren Cmty. Unit, 389 F.3d 685, 691-92 (7th Cir.

2004) (distinguishing Lujan because a state law breach

of contract action is not an adequate remedy for

a terminated employee who possesses a present entitle-

ment and who has been afforded only a limited

pretermination hearing; it does not satisfy the require-

ment of promptness, which is essential for employees

to pursue remedies such as reinstatement).

The dispute here involves the interpretation and ap-

plication of the parties’ contractual relationship. The due

process clause does not “require hearings to resolve

disputes about the meaning and effect of laws, regula-

tions, and contracts.” Goros v. Cnty. of Cook, 489 F.3d

857, 859-60 (7th Cir. 2007). “[U]nless the plaintiff

maintains that the state actor had to offer a hearing to

resolve some contested issue of fact, the dispute belongs

in state court under state law.” Id. at 860. Khan is con-

tending that his contracts should not have been

terminated for his failure to remedy minor HQS viola-

tions or for entering into a side lease agreement with

Washington for storage when he was given approval by

Stone-Johnson. These issues will ultimately be resolved

by reviewing the contract terms, the incorporated reg-

ulations, and the parties’ understanding under the con-

tract. Khan is seeking to enforce the HAP contract sub-

stantively against the HACC and such action cannot

be maintained in federal court under the due process

clause. See, e.g., Kay v. Bd. of Educ. of City of Chi., 547

F.3d 736, 739 (7th Cir. 2008).

No. 09-1735 27

Khan contends that because Bland’s conduct was not

random and unauthorized, a predeprivation hearing is

required, but “[i]n a variety of cases not limited to ones

in which the seizure is random and unauthorized,

predeprivation process has not been required.” Ellis,

412 F.3d at 758 (citations omitted); see also Mid-Am. Waste

Sys., 49 F.3d at 291 (ruling not to invoke principle in

Parratt v. Taylor, 451 U.S. 527 (1981) that deals with sit-

uations where state actors ought to provide some kind

of hearing before acting, but mistake or other happen-

stance intervenes; in contrast, “when the issue is the

meaning of a commercial contract, a prior hearing is

unnecessary, and the opportunity to litigate in state court

is all the process ‘due’ to determine whether the state

has kept its promise.”). Khan could have asserted a

claim for breach of contract, but he declined the

district court’s invitation to amend his complaint to do

so. Khan’s claim that he was denied due process upon

deprivation of his property rights must therefore fail.

2. Liberty Interest

On appeal, Khan also argues that the termination of his

HAP contracts, debarment from the program, and

Presley’s statement that he was undesirable and unfit

for the program constitute a deprivation of his liberty

interests without due process of law. Khan, however,

did not allege a claim for deprivation of liberty interest

in the complaint or in response to the motion for judg-

ment as a matter of law. Khan did address stigma as it

related to substantive due process, but not procedural

28 No. 09-1735

due process. He has therefore forfeited this claim.

Kinslow v. Pullara, 538 F.3d 687, 692 (7th Cir. 2008) (a

claim not raised below is forfeited).

In any event, even if not forfeited, his claim fails. This

court addressed a similar argument in Medley v. City of

Milwaukee, 969 F.2d 312 (7th Cir. 1992). In that case, the

Medleys contracted with the Housing Authority of the

City of Milwaukee to rent units to persons participating

in the federally-funded rent assistance program. Id. at

313. The Medleys requested that a tenant pay extra for

parking space (even though the tenant did not have a

car) without seeking the housing authority’s approval.

The Medleys eventually initiated eviction proceedings

against the tenant for nonpayment of rent. During the

proceedings, the state judge found that the Medleys

had violated the terms of their HAP contract because

the housing authority had not approved the extra rent

payments. Id. at 314-15. As a result of the violation,

the housing authority barred the Medleys from future

participation in the rental program. Id. at 315. One of the

issues on appeal was whether the Medleys had a liberty

interest in participating in the program. Id. at 316.

We found they did not.

The Medleys argued that their debarment from partic-

ipation in the program deprived them of a liberty

interest because they were accused of illegally col-

lecting rental monies above and beyond the amounts

set forth in the approved leases. Id. at 317. They argued

that they were deprived of this liberty interest without

due process of law when they were debarred without

No. 09-1735 29

prior notice or a hearing. Id. We initially noted that

“there is a liberty interest in not being barred from

bidding on government contracts or seeking govern-

mental employment when the basis for the bar is a

charge of misconduct which in turn affects the reputa-

tion of the person or entity involved, and the bar may

substantially affect future employment or contracting

opportunities.” Id. (citations omitted).

We, however, addressed several problems with the

Medley’s argument as it applied to the Section 8 pro-

gram. First, the Medleys were not bidding on a govern-

ment contract or seeking government employment

and they could cite no case where a court has found a

liberty interest in a private party’s participation in a

government assistance program designed to provide

benefits for a third party. Id. at 317. Further, their debar-

ment did not foreclose the opportunity to contract with

any local or state housing assistance programs or to

lease their units to persons who were not in the pro-

gram. Id. at 317-18. At the time the housing authority

decided not to renew the Medleys’ contracts, only four

of their units were leased to program participants. Id.

The Medleys’ debarment, therefore, “did not ‘effectively

put [them] out of business.’ ” Id. (quoting Old Dominion

Dairy Products, Inc. v. Sec’y of Def., 631 F.2d 953, 963 (D.C.

Cir. 1980)). The Medleys also provided no explana-

tion how the actions of the defendants damaged their

reputations. Id. “In order to possess a liberty interest in

a debarment case, the plaintiff must demonstrate that

his ‘good name, reputation, honor or integrity is at

stake because of what the government is doing to

30 No. 09-1735

him.’ ” Id. (quoting in part Bd. of Regents, 408 U.S. at 573).

There was no allegation that the defendants published

the reason for the debarment to any one other than the

Medleys. Accordingly, the court found that the

Medleys had no liberty interest in continued participa-

tion in the program. Id.

Similar to Medley, Khan was not barred from renting

his units and could continue his occupation as landlord;

thus, he was not put out of business by Bland’s actions.

He similarly failed to show that he has a liberty interest

to participate in a government assistance program de-

signed to provide benefits for third parties. Unlike

Medley though, there is evidence that Presley, an HACC

employee, told Hassan, a prospective Section 8 tenant,

that Khan was an “undesired person” and “wasn’t a

good person to rent [from].” However, even if these

allegedly defamatory statements were made at the di-

rection of Bland, “mere defamation by the government

does not deprive a person of liberty protected by the

Fourteenth Amendment, even when it causes serious

impairment of one’s future employment,” Hojnacki v.

Klein-Acosta, 285 F.3d 544, 548 (7th Cir. 2002) (internal

quotation marks, brackets and citation omitted); see also

Paul v. Davis, 424 U.S. 693, 697, 708-09 (1976). Rather, it is

the “alteration of legal status,” such as the govern-

mental deprivation of a right securely held, “which,

combined w ith the injury resulting from the

defamation, [that] justifie[s] the invocation of procedural

safeguards.” Paul, 424 U.S. at 708-09; see also Brown v.

City of Mich. City, Ind., 462 F.3d 720, 730 (7th Cir. 2006).

This is known as the “stigma plus” test, and Khan

cannot fulfill the “plus” factor.

No. 09-1735 31

This court recognizes a valid liberty interest when “[an]

employee’s good name, reputation, honor or integrity

[is] called into question in a manner that ma[kes] it virtu-

ally impossible for the employee to find new employ-

ment in his chosen field.” Brown, 462 F.3d at 730

(quoting Townsend v. Vallas, 256 F.3d 661, 670 (7th Cir.

2001)); see also Abcarian v. McDonald, 617 F.3d 931, 941 (7th

Cir. 2010) (holding no liberty interest where even

though the plaintiff feared that he would not be

employed at additional health care institutions in the

future, “it is the liberty to pursue a calling or occupation,

and not the right to a specific job, that is secured by the

Fourteenth Amendment.” (emphasis added) (quotation

marks, brackets and citation omitted)). No lesser

showing would be sufficient under the circumstances

of this case.

There is a lack of evidence that Khan was precluded

from pursuing his chosen occupation because of the

appellees’ actions. He could still rent to non-Section 8

housing tenants and participate in other state or govern-

ment assistance programs. Although Khan contends he

was debarred from other government programs, the

undisputed evidence shows that he was not officially

debarred. Accordingly, Khan cannot establish a liberty

interest in continued participation in the Section 8

program through the HACC.

B. Substantive Due Process

Khan contends that the appellees’ debarment of him

from further participation in the Section 8 program was

32 No. 09-1735

arbitrary and capricious and done with malice in retalia-

tion for his eviction of Washington. As such, he contends

the debarment was a violation of his substantive due

process rights and no adequate state law remedy exists.

“Intrusion upon a cognizable property interest is a

threshold prerequisite to a substantive due process

claim.” Gen. Auto Serv. Station v. City of Chi., 526 F.3d

991, 1002 (7th Cir. 2008) (citing Am. Mfrs. Mut. Ins. Co. v.

Sullivan, 526 U.S. 40, 59 (1999)) (“The first inquiry in

every due process challenge is whether the plaintiff has

been deprived of a protected interest in ‘property’ or

‘liberty.’ ”). “[T]he lack of a protected property interest

is fatal to a substantive due process claim.” Id. As set

forth above, Khan has not established a property or

liberty interest in his expectancy to enter into new HAP

contracts and therefore, his debarment from the program

cannot be a basis for his substantive due process claim.

Khan’s potential breach of contract action also cannot

support his substantive due process claim. No fundamen-

tal rights are implicated by the alleged breach. “There

are only a handful of fundamental rights for which the

due process clause has a substantive component,” Taake

v. Cnty. of Monroe, 530 F.3d 538, 542 (7th Cir. 2008)

(internal quotations and brackets omitted) (quoting Goros

v. Cnty. of Cook, 489 F.3d 857, 860 (7th Cir. 2007)), and

courts must be reluctant to expand substantive due

process rights “because guideposts for responsible

decisionmaking in this unchartered area are scarce and

open-ended.” Collins v. Harker Heights, Tex., 503 U.S. 115,

125 (1992). Fundamental rights are rights “deeply rooted

No. 09-1735 33

in this Nation’s history and tradition, and implicit in

the concept of ordered liberty, such that neither liberty

nor justice would exist if they were sacrificed.” Washington

v. Glucksberg, 521 U.S. 702, 720-21 (1997) (citations and

quotations omitted).

“[M]ere breaches of contract by the government do not

support substantive due process claims under the Consti-

tution.” Taake, 530 F.3d at 542. “[A] unit of state or

local government does not violate the federal Constitu-

tion just because it violates . . . the law of contracts.” Garcia

v. Kankakee Cnty. Hous. Auth., 279 F.3d 532, 535 (7th

Cir. 2002) (citations omitted). “If a state’s violation of its

own laws and regulations does not violate the due

process clause, it is hard to see how failure to keep a

promise contained in a contract can violate the due

process clause.” Mid-Am. Waste Sys. Inc., 49 F.3d at 290.

Khan is seeking the right to a government subsidy; this

is not a fundamental right protected by substantive due

process. See, e.g., Glucksberg, 521 U.S. at 722 (stating that

the development of the Court’s substantive-due-

process jurisprudence has “been carefully refined by

concrete examples involving fundamental rights found

to be deeply rooted in our legal tradition.”); see also Idris

v. City of Chi., 552 F.3d 564 (7th Cir. 2009) (“Glucksberg

and the [Supreme] Court’s other opinions are adamant:

only state action that impinges fundamental rights is

subject to evaluation under substantive due process.”).

Khan’s remedy lies in a breach of contract action, not

a federal substantive due process claim. See Khan v.

Gallitano, 180 F.3d 829, 835 (7th Cir. 1999) (finding no

34 No. 09-1735

due process claim where the plaintiff failed to show why

the right to be free from tortious interference by state

actors is a fundamental right deeply rooted in our

history and tradition or implicit in the concept of ordered

liberty or why a state law remedy is inadequate under

the federal constitution).

Khan also has not shown that there was a violation

of some other substantive constitutional right or that

available state law remedies are inadequate. See Palka v.

Shelton, 623 F.3d 447, 453 (7th Cir. 2010) (stating that

substantive due process claim is limited to fundamental

rights and wrongful termination of public employment

is not actionable as a violation of substantive due

process unless the employee also alleges the defendant

violated some other constitutional right or state rem-

edies were inadequate). Nor has Khan shown that

the Bland’s actions rose to the level of shocking the con-

science. “Official misconduct will rise to the level of a

constitutional violation only if it shocks the conscience.”

Palka, 623 F.3d at 454; see also Khan v. Gallitano, 180 F.3d

829 (7th Cir. 1999) (discussing applicability of “shocks

the conscience” standard). Khan’s substantive due pro-

cess claim, therefore, fails.

Accordingly, for the reasons stated, the judgment of

the district court is A FFIRMED.

12-23-10