# Petition for Writ of Certiorari — Bradshaw v. G & G Fire Sprinklers, Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_1421%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1999 - **Citation:** 526 U.S. 1061 ## Text UrhiCe OF THE In The CLERK Supreme Court of the United States October Term, 1998 ° VICTORIA L. BRADSHAW, an individual, in her official capacity as Labor Commissioner of the State of California; LLOYD W. AUBRY, JR., an individual, in his official capacity as Director of the Department of Industrial Relations of the State of California; DANIEL DELLAROCCA, an individual, in his official capacity as Deputy Labor Commissioner of the State of California; ROGER MILLER, an individual in his official capacity as Deputy Labor Commissioner of the State of California; ROSA FRAZIER, an individual in her official capacity as Deputy Labor Commissioner of the State of California; DIVISION OF LABOR STANDARDS ENFORCEMENT, an agency of the State of California; DEPARTMENT OF INDUSTRIAL RELATIONS, an agency of the State of California, Petitioners, G & G FIRE SPRINKLERS, INC., Respondent. 4 On Petition For A Writ Of Certiorari To The United States Court Of Appeals For The Ninth Circuit + PETITION FOR A WRIT OF CERTIORARI ° Mires E. Locker, Chief Counsel Counsel of Record Division of Labor Standards Enforcement Department of Industrial Relations State of California 45 Fremont Street, Suite 3220 San Francisco, CA 94105 Telephone: (415) 975-2060 Attorney for Petitioners COCKLE LAW BRIEF PRINTING CO., (800) 225-6964 OR CALL COLLECT (402) 342-2831 2% e? QUESTION PRESENTED Is a commercial contractor who claims that a public agency breached a contract by failing to make payment entitled by the Due Process Clause of the Fourteenth Amendment to anything more than the opportunity to pursue its contract claim through an ordinary state court lawsuit? il TABLE OF CONTENTS Page OPINIONS: BELAIW ask seas eka hae ee vs Os 1 JURISDECTION 05.0. c 2005 cows Bet ean dae keen 2 CONSTITUTIONAL PROVISIONS AND STATUTES INVOLVED... «oie s cs kaks jueyee seh ee eee 2 STATEMENT OF THE CAS@ oc co cciciee i ceeestes 2 A. Facts... ice conse cen wana sana aaa 2 B. Proceedings Gelowss socio sc cheek es eosin 7 REASONS FOR GRANTING THE WRIT ........... 11 A. Conflict Exists Among the Circuits as to Whether Constitutionally Protected Property Rights Can Be Founded Upon a Commercial Contract With a State ASency «oo. si. s con ussewe habs saueeuned uae 12 B. The Ninth Circuit’s Holding that the State, In Enforcing the Provisions of a Public Works Con- tract, Acts as a Regulator Rather than a Market Participant, Conflicts With Applicable Supreme Court PreceGeat< ss ivsea seetaveaaseseapanes 5 18 C. Conflict Exists Among the Circuits as to Whether a Breach of Contract Action to Recover Amounts Purportedly Due Under a Contract With a Public Agency Provides a Sufficient Remedy.......... 23 CONCLUSEIN .. .iaek0k cack uenne wae eeee eens eenes 30 APPENDIX 6). 60 scs SaaS ep eka een eee, ae eens A-1 Rip aioe top Siete Ct aemlgnth oA ner ea iil TABLE OF AUTHORITIES Page CASES Atkin v. Kansas, 191 U.S. 207, 24 S.Ct. 124, 48 L.Ed. St a Guage aide oo ire tere ayraee on gee nearer yur k etree 20, 22 Bleeker v. Dukakis, 665 F2a 401 (1st Cir. 1981)....... 13 Board of Regents v. Roth, 408 U.S. 564, 92 S.Ct. 2701, ee etn I CEE RS bas C5 6 bx ks 60 4N S RA Soo ee 17 Brown v. Brienen, 722 F.2d 360 (7th Cir. 1983)..... 13, 25 Building & Construction Trades Council v. Associated Builders and Contractors, 507 U.S. 218, 113 S.Ct. Re ee Be RL) es ee vs by Christ Gatzonis Electrical Contractor, Inc. v. New York City School Construction Authority, 23 F.3d ee NE eS ec iein Gea weeds heeds 42,37 Daniels v. Williams, 474 U.S. 327, 106 S.Ct. 662, 88 SUR I RAR ons sas cae kS pas ps tarsubeawcsars 26 G & G Fire Sprinkers, Inc. v. Bradshaw, 136 F.3d 587, amended by 156 F.3d 893 (9th Cir. 1998)...... passim Hudson v. Palmer, 468 U.S. 517, 104 S.Ct. 3194, 82 eS eS |) aR a are eres 27, 28 Ingraham v. Wright, 430 U.S. 651, 97 S.Ct. 1401, 51 Ss SEE." | eR Ret ree gactan iy eer ea aipeD 27 Legal Tender Cases, 79 U.S. (12 Wall.) 457, 20 L.Ed. BF Ree cn bcc bier oS cpr W See R whee Kees Gaus 3% 16 Linan-Faye Construction Co., Inc. v. Housing Author- ity of the City of Camden, 49 F.3d 915 (3rd Cir. | SSE eee nr ern ay Pe eee eee re ee 14 iv TABLE OF AUTHORITIES — Continued Page Logan v. Zimmerman Brush Co., 455 U.S. 422, 101 S.Ct. 1448, 71 L-Ed.2d 265 (1962). 0.05 ies 18, 28, 29 Martz v. Village of Valley Stream, 22 F.3d 26 (2nd Cie: BOGGS Ss 5 hia vo is ree 12 Mathews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47 LBB 18 (1976) 6 io civnadvcn cheese yee 28, 29 New Energy Company of Indiana v. Limbach, 486 U.S. 269, 108 S.Ct. 1803, 100 L.Ed.2d 302 (1993)........ 21 O’Bannon v. Town Court Nursing Center, 447 U.S. 773, 100 S.Ct. 2467, 65 L.Ed.2d 506 (1980)......... 16 Parratt v. Taylor. 451 U.S. 527, 101 S.Ct. 1908, 68 k.Bette G20: (ISSN). iit sacel ete eens 26, 27, 28, 29 Perkins v. Lukens Steel Co., 310 U.S. 113, 60 S.Ct. $69, 84 L.Ed. 1108 C1960) 2s eee ee vearecases 20, 22 Reeves, Inc. v. Stake, 447 U.S. 429, 100 S.Ct. 2271, 65 Leh ees REO CLP ek inca cil own nh dacenes te ce een 21 Reich v. Beharry, 883 F.2d 239 (3rd Cir. 1989) ..... 14, 25 S & D Maintenance Co. v. Goldin, 844 F.2d 962 (2nd COE SI aire kines heaton cee eee 12, 13, 17 San Bernardino Physicians’ Services Medical Group, Inc. v. County of San Bernardino, 825 F.2d 1404 OU Rit. SOB 6 ooo ocr se ate hs eae 14, Sniadach v. Family Finance Corp., 395 U.S. 337, 89 S.Ct. 1820, 23 L.bd 2a SOP (1968)... ss ev sas Vv TABLE OF AUTHORITIES - Continued Page Stanislaus Pump, Machinery & Construction Corp. v. City of Modesto, 200 Cal.App.3d 1442, 246 RE eels: OUR CR 558s beeen kk oe ce a ens bao bad 25 United States Fidelity & Guaranty Co. v. Oak Grove School District, 205 Cal.App.2d 226, 22 Cal.Rptr. SEL ROOD i 6 iia 5 oo be eo hO USERS LCR eae ee OLGA cE: 25 Zinermon v. Burch, 494 U.S. 113, 110 S.Ct. 975, 108 Aptiaeit BOG (I99G). oc ci sci nnsevkes scab ee lie 28, 29 CONSTITUTIONAL PROVISIONS U.S. Constitution, Fourteenth Amendment Vhids es habad ss SEaeA daa K ASE ETC eS 2, 8, 11, 13, 14, 15 STATUTES California Ch Sees Se Se i a ccc ae cae oho 2, 7, 24 cel. SOUES SG BSR ns bo ac ea ees ba we 2, 7, 24 Cah Givin Ce © ANG ccc ioc hae ccs wkceen 2; Tian Rh. ROVE RO As 6 ok vce Ko vet hah cBdasd bheaees 2,7 COME SVE Oe © ts oss cw esas cdatissdankes a 2. ae Ce Re Oe ATO, gs vce cae eke ce cedancsa ees a3 Mee ROR SA AE BPO Ns so oo cae a MONE See ES 2; 373, 6 Cathar Code 8 1729... nk sen ennnaerucines 2, 4, 6, 24 Cal. Labor Code § 1730............. he Or 0; Fy Oe. OO vi TABLE OF AUTHORITIES —- Continued Page Cal. Labor Code © 27986 cess ines ave 2, 5, 6, 7, 8, 24, 30 Cal. Labor Coge: § 27526. v0 ia sta ous 2, 5, 6, 7, 8, 24, 30 Cal. Labor Code & 27505555 snes divs wien tunica cae passim Cal. Laban Come Ss ba cess apy vy op een ne aaes aa 9 Cal. Lames 4GG S isles civks iN ike ee < i Cal. Canon Cate B07 a eins Gos iwc: baa a, 2, & Cal. Labor Comet Bio get cond cis beans vn ean bee 2 Cal. Labor Code © 3776.5 6.50. o kh VER ees 2 Cal; Leber Code & 1975s 5. oo eee 2, 4, 8 Cal. Later Ge SFr 65s dea cee eans 2, 4, 8 Cal. £AnOr COGe © BGG iis ssc cece nse i vena ckave ya iy Federal PO Beha: DS LPOG) ie asc dk basen pe keeneaweeeasete 2 Fe Ais Te RAG 6 oka ob chan hs ba Fins os Cee Reade 7 2B US. BP ooo Ss ca ode See kkes eas ewe wees 7 42 SISA. OTs oss. cae eee 2, 7, 12, 14, 28 ACADEMIC COMMENTARY Kreynin, Breach of Contract as a Due Process Viola- tion: Can the Constitution Be a Font of Contract Law?, 90 Colum. L. Rev. 1098 (1990) .............. 26 ey 1 PETITION FOR A WRIT OF CERTIORARI Petitioners Victoria L. Bradshaw!, Lloyd W. Aubry, Jr.2, Daniel Dellarocca, Roger Miller, Rosa Frazier, the Division of Labor Standards Enforcement, and the Department of Industrial Relations of the State of Califor- nia, pray that a writ of certiorari issue to review the judgment of the United States Court of Appeals for the Ninth Circuit entered in the above action on September 10, 1998. OPINIONS BELOW The judgment of the District Court, entered on November 9, 1995, is not reported but is reprinted in the appendix to this petition at A-72. The original opinion of the United States Court of Appeals for the Ninth Circuit is reported at 136 F.3d 587 (9th Cir. 1998) and is reprinted at A-39. The Ninth Circuit issued a subsequent order and amended opinion on September 10, 1998, reported at 156 F.3d 893 (9th Cir. 1998), and reprinted at A-1. On October 28, 1998, the Ninth Circuit issued an order denying the State’s petition for rehearing, reprinted at A-75. 1 Victoria L. Bradshaw was sued in her official capacity as Labor Commissioner of the State of California, a position she held when this litigation commenced. The position is presently unfilled, and the duties of that office are currently being performed by Jose Millan, the Chief Deputy Labor Commissioner. 2 Lloyd W. Aubry, Jr., was sued in his official capacity as Director of the Department of Industrial Relations of the State of California, a position he held when this litigation commenced. Stephen J. Smith is the current Director. 2 JURISDICTION The Ninth Circuit issued its amended opinion and judgment on September 10, 1998. A timely petition for rehearing and rehearing en banc was denied on October 28, 1998. This petition for writ of certiorari is filed within ninety days of the denial of rehearing. This Court has jurisdiction under 28 U.S.C. § 1254(1). CONSTITUTIONAL PROVISIONS AND STATUTES INVOLVED The Fourteenth Amendment of the United States Constitution provides, in relevant part, “No State shall ... deprive any person of life, liberty, or property, with- out due process of law... . ” : 42 U.S.C. § 1983 provides, in relevant part, “Every person who, under color of any statute, ordinance, regu- lation, custom, or usage, of any State . . . subjects, or causes to be subjected any citizen of the United States or other person within the jurisdiction thereof to the depri- vation of any rights, privileges, or immunities secured by the Constitution and laws, shall be liable to the party injured in an action at law, suit in equity, or other proper proceeding for redress.” The relevant California statutory provisions are reproduced in the appendix at A-77, and include Califor- nia Labor Code sections 1720, 1727, 1729, 1730, 1731, 1732, 1733, 1771, 1772, 1773, 1773.2, 1774, 1775, 1776, and 1813, and California Civil Code sections 3103, 3181, 3184, 3186, 3210. STATEMENT OF THE CASE A. Facts Petitioners are state officials and the state agencies, the Division of Labor Standards Enforcement (“DLSE”) 7 i ha ent ae Le ee pee ae 3 and the Department of Industrial Relations, responsible for the enforcement of California’s prevailing wage law. Respondent, G & G Fire Sprinklers, Inc. (“G & G”), is a fire protection company that installs fire sprinkler sys- tems. G & G both contracts directly with building owners or, as here, does not contract directly with the building owner but instead, agrees to perform the specialized sprinkler installation as a subcontractor for a prime con- tractor. When the building owner is a California govern- mental entity, the construction work is a “public work.” On public works, the prime contractor agrees, in its con- tract with the governmental entity, that its construction workers, and those of the subcontractors whom it later selects to execute the contract, will be paid “prevailing wages.”* (A-9,10.) This case arose when DLSE, pursuant to California Labor Code § 1727, and following investigations of pre- vailing wage law violations concerning three separate projects, issued notices to withhold public works contract payments from the prime contractors because G & G, a subcontractor, failed to pay prevailing wages to its workers on all three projects, and in one of those projects failed to provide DLSE with certified payroll records. Following issuance of the notices to withhold, the award- ing bodies for each of the projects withheld money from the prime contractors. The prime contractors, in turn, 3 The term “public work” is defined at Cal. Labor Code § 1720 to include “construction, alteration, demolition, or repair work done under contract and paid in whole or in part out of public funds. ...” 4 Prevailing wages are fixed for each construction craft or classification in the locality in which the public work is performed. The procedure for determining prevailing wages is set out at Cal. Labor Code § 1773. 4 withheld payments otherwise due under their sub- contracts from G & G, as authorized by California Labor Code § 1729. The obligation to pay prevailing wages on a public works project, and to provide DLSE with certified payroll records, is founded upon both statute and contract. Cali- fornia Labor Code sections 1771 and 1774 require contrac- tors and subcontractors to pay prevailing wages to all workers employed on a public works project. The requirement to pay prevailing wages must be included as an express stipulation in any such public works contract. (Cal. Labor Code § 1773.2 and 1775). In order to ensure the proper payment of prevailing wages, all public works contractors and subcontractors are required to keep certified payroll records showing the names, job classifications, hours worked, and wages paid to all workers employed on the project. (Cal. Labor Code § 1776(a)). These certified payroll records must be made available, by the contractor and subcontractor, to DLSE upon request. (Cal. Labor Code § 1776(b)). Every public works contract must contain express stipulations con- cerning the requirements to maintain and furnish DLSE with copies of these certified payroll records. (Cal. Labor Code § 1776(h)). California Labor Code § 1775 provides for penalties if workers are paid less than the prevailing wage, and requires that every public works contract contain provi- sions authorizing the imposition of these penalties. Like- wise, as a matter of state law, all public works contracts must contain provisions authorizing the imposition of penalties for failure to provide DLSE with certified pay- roll records. (Cal. Labor Code § 1776(g) and (h)). Further, contractors and subcontractors are subject to a penalty if any worker employed on a public works project is required or permitted to work more than eight hours in no es FDS Se RR a ie lM RRR se Te A a APD. dee AAT ss Dok ah 5 one day or 40 hours in one week. Here too, every public works contract must contain a provision for the imposi- tion of such penalties. (Cal. Labor Code § 1813). Thus, all of the prime contractors that subcontracted work to G & G had agreed to the following contractual provisions in their public works contracts with the respective awarding bodies: (1) that prevailing wages would be paid to all workers employed on the project by the prime contractor and its subcontractors, (2) that certi- fied payroll records would be kept, and provided to DLSE upon request, showing the hours worked and wages paid to all workers employed on the project by the prime contractor and its subcontractors, and (3) that the public agencies that had awarded the contracts could withhold contract payments to cover unpaid wages and penalties if the agreements were breached. (A-19) Pursuant to California Labor Code § 1727, the public entity that awarded the contract must “withhold and retain therefrom all wages and penalties which have been forfeited pursuant to any stipulation in a contract for public work, and the terms of this chapter.” The with- holding must be preceded by a “full investigation” by either DLSE or by the awarding body, except in the case of a final payment. A withholding of payments from a prime contractor for unpaid prevailing wages and penalties can be chal- lenged by filing a lawsuit to recover the withheld funds.® (Cal. Labor Code § 1730-1733.) Any such funds withheld > The public agency which is buying the construction work (pursuant to the various specifications, including the agreement to pay the prevailing wage) is buying the construction work from the prime contractor — not its subcontractors, who may be unknown to the public agency at the time the contract is awarded. The withholding under Cal. Labor Code § 1727 is only from payments to the prime contractor. 6 from a public works contractor must be retained by the awarding body for 90 days following the completion of the contract. During that period, the contractor or his or her assignee may file a state court breach of contract action against the awarding body to recover the withheld funds. This breach of contract action “is the exclusive remedy of the contractor or his or her assignees” for the recovery of withheld wages and penalties. (Cal. Labor Code § 1732.) The action may be filed “without permis- sion from the state or other authority,” and it is “limited to the recovery of the wages or penalties” without preju- dice to any other rights or issues arising under the con- tract. (Cal. Labor Code § 1733.) DLSE may defend the lawsuit upon the request of the awarding body. If an action is not brought within this retention period, the awarding body must transfer the withheld funds to DLSE, and DLSE in turn disburses the withheld unpaid wages to the underpaid workers. If an action is brought within the retention period, the money is held in escrow until its resolution. These statutory provisions have been in effect for over sixty years. Pursuant to California Labor Code § 1729, a prime contractor who has had a payment withheld by a public agency, as a result of a subcontractor’s failure to comply with its prevailing wage obligations, can in turn withhold that amount from the funds the prime contractor would otherwise owe to the subcontractor under the sub- contract. With an assignment from the prime contractor, the subcontractor can then file a breach of contract action under California Labor Code § 1730-1733 to recover these funds from the public agency. If the subcontractor pro- ceeds by way of assignment, that lawsuit is the sub- contractor’s exclusive remedy for the recovery of the withheld funds. (Cal. Labor Code § 1732.) But if the PETRA ETON RS Se ih iy nsyi chase Vis eladeaiainaania eared 7 subcontractor does not obtain an assignment, the sub- contractor can pursue an alternative statutory remedy under the California Civil Code, consisting of the right to file a “stop notice”, setting forth the amount owed by the prime contractor to the subcontractor for work performed under the subcontract. The stop notice is filed with the public agency that awarded the contract. (Cal. Civil Code § 3103, 3181, 3184.) Upon receipt of a timely stop notice, the public agency is obligated to withhold from the prime contractor an amount sufficient to pay the claim stated by the subcontractor. (Cal. Civil Code § 3186.) The sub- contractor may file “an action against the [prime] contrac- tor and the public entity to enforce payment of the claim stated in the stop notice . . . at any time after 10 days from the date of the service of the stop notice upon the public entity... . ” (Cal. Civil Code § 3210.) The record herein contains no evidence (and no party has alleged) that either G & G, or any of its prime contractors, filed any state court actions claiming that G &G had not violated the contract specifications so as to be entitled to payment of the withheld amounts with respect to the three public works contracts on which funds were withheld. The evidence and pleadings do not reveal that any breach of contract actions to recover the withhheld amounts were filed pursuant to California Labor Code § 1730-1733, or that G & G filed any stop notices under the Civil Code in connection with any of these public works contracts. B. Proceedings Below G & G brought this action for declaratory an@ injunc- tive relief under 42 U.S.C. § 1983 and 28 ~ S.C. § 2201-2202, claiming that the issuance of the notices to withhold without a prior hearing constitutes a depriva- tion of property without due process of law, in violation 8 of the Fourteenth Amendment. The state responded with a motion to dismiss, and G & G later filed a motion for summary judgment. The district court denied the state’s motion to dismiss and granted G & G’s motion for sum- mary judgment. The district court’s judgment declared sections 1727, 1730-1733, 1775, 1776(g) and 1813 of the California Labor Code unconstitutional, and enjoined the state from enforcing those statutes against G & G. On February 3, 1998, Judge Hawkins, joined by Judge Reinhardt, issued an opinion, in part affirming and in part reversing the district court, and remanding the case for further proceedings consistent with the opinion. Judge Kozinski vigorously dissented. The panel majority held that due process requires that the state provide a subcontractor with either a pre- or prompt post-depriva- tion hearing when withholding payments from a public works contractor for unpaid wages or penalties. This holding is founded upon the majority’s view that a sub- contractor “has a property interest in being paid in full for the construction work it completed,” and that this interest, which “arises from its® public works contract,” is protected by the due process clause. (A-50, italics and footnote added.)” The panel concluded, however, that the district court’s injunction was overbroad in that the chal- lenged withholding provisions, while unconstitutional as applied, were not facially invalid. ¢ No party contended at any stage in this litigation that G &G, with respect to the three public works contracts at issue herein, was anything but a subcontractor — i.e., that it (rather than the prime contractors) had entered into any contracts with these public agencies. 7 This quote is also found at A-17 in the Amended Opinion that the Ninth Circuit issued on September 10, 1998. Subsequent citations will refer only to the Amended Opinion. Bi 2 BY a * 4 + hi 9 In his dissent, Judge Kozinski protested the major- ity’s “categorical approach that turns every right to receive payment on a public works contract into a prop- erty right protected by due process.” (A-35) Instead, Judge Kozinski insisted that any rights arising under commercial contracts, such as service contracts, material supply contracts, and construction contracts, are not pro- tected by the due process clause. Judge Kozinski warned that the majority decision not only conflicts with the opinions of other circuits, but that it is “very bad policy” because it saddles the state, when it engages in “the purely commercial activity of construc- tion”, with “a burden not suffered by private builders”, who routinely put provisions for payment withholdings for failure (or suspected failure) of performance into their private construction contracts. (A-36) Judge Kozinski explained that payment withholdings are consistent with the awarding bodies’ activities as market participants, and that any contractor or subcontractor who objects to provisions for withholdings is free not to do business with the state. Consequently, a dispute over withholdings is nothing more than a “run-of-the-mill contract dispute”, for which the subcontractors’ remedy lies in a state court breach of contract action against the prime contractor, or, as an assignee of the prime contractor, against the award- ing body. (A-37) Finally, Judge Kozinski cautioned that drastic conse- quences would result from the majority decision, as due process requirements would inexorably apply to any withholding of payments under a commercial contract with the state, be it a withholding for failure to pay prevailing wages, or in more mundane instances, a failure to complete a project on time or a failure to comply with applicable building codes. 10 The state petitioned for rehearing. This petition was granted, and on September 10, 1998, the panel issued an amended opinion and order. Once again, the panel split with Judge Kozinski in the minority. The only significant change in the majority’s opinion is its concession that “the state’s interest in ensuring payment of prevailing wages is sufficiently important to justify the withholding of funds pending the outcome of whatever kind of hear- ing may be afforded.” (A-22, internal citation and quota- tion omitted.) Thus, the majority concluded that a pre- deprivation hearing is not required, but that a prompt post-deprivation hearing is necessary to satisfy due pro- cess requirements. In his dissent to this amended opinion, Judge Kozinski found that under California law, every sub- contractor who wishes to challenge a withholding has an adequate state law remedy. Under California Labor Code § 1733, a subcontractor with an assignment from the contractor can file a breach of contract action against the awarding body to recover sums withheld.* Furthermore, Judge Kozinski noted, any subcontractor unable to obtain an assignment but whose payment had been withheld by the prime contractor could bring suit against the award- ing body under the theory of equitable subrogation. The panel majority, however, concluded that even if the aggrieved subcontractor could bring an action on the contract, that would not be sufficient. While conceding that the U.S. Supreme Court has held that in certain circumstances, a post-deprivation state court action may fulfill the requirements of due process, the majority held * G & G never alleged that any of its prime contractors refused, or for that matter, were ever asked to assign their rights to G & G to bring contract actions against the awarding bodies for the recovery of the withheld funds. 11 that the right to bring a breach of contract action to recover withheld payments, when the withholding was carried out by state officials pursuant to state policy, does not provide adequate due process. The state filed a timely petition for rehearing and suggested rehearing en banc. On October 28, 1998, the court entered an order denying the petition for rehearing, though indicating that Judge Kozinski had voted to grant the petition for rehearing and to accept the suggestion for rehearing en banc. REASONS FOR GRANTING THE WRIT The Ninth Circuit held in this case that a commercial contractor who claims that a public agency that has breached a contract by failing to make payment is enti- tled to more by the Fourteenth Amendment's Due Pro- cess Clause than the opportunity to litigate its contract dispute through an ordinary breach of contract lawsuit. This novel holding is in conflict with the decisions of every other circuit that has considered this issue. Both the doctrinal and practical consequences of the holding make this case worthy for review. The impact of this Ninth Circuit decision carries far beyond California’s borders. The issues of whether a constitutionally protected property right can be founded upon a commercial contract with a public entity, and if so, whether existing state law breach of contract remedies provide adequate due process, are of enormous conse- quence to every state, county, city, school district, and special use district in the nation. The G & G decision constitutes an enormous departure from the conclusions that every other circuit has reached when faced with these questions. The Supreme Court has never addressed these issues before. Determination of these issues by this Court is now imperative. 12 A. Conflict Exists Among the Circuits as to Whether Constitutionally Protected Property Rights Can Be Founded Upon a Commercial Contract With a State Agency. There is a direct conflict between the decision of the Ninth Circuit in this case and the decisions of the Second Circuit in S & D Maintenance Co. v. Goldin, 844 F.2d 962 (2nd Cir. 1988), Martz v. Village of Valley Stream, 22 F.3d 26 (2nd Cir. 1994), and Christ Gatzonis Electrical Contractor, Inc. v. New York City School Construction Authority, 23 F.3d 636 (2nd Cir. 1994). In each of these Second Circuit cases, contractors? filed actions under 42 U.S.C. § 1983 against public agencies that had withheld contract payments, asserting that the withholdings without hearings consti- tuted a violation of due process. The Second Circuit held that the contractual relationship between a contractor and a public agency does not create a constitutionally pro- tected interest in the payment of sums allegedly due pursuant the contract. In a nuanced analysis that distin- guishes between ordinary contract rights and property rights that are protected under the Due Process Clause, the Second Circuit reasoned: “An interest in enforcement of an ordinary com- mercial contract with a state is qualitatively dif- ferent from the interests the Supreme Court has thus far viewed as “property” entitled to pro- cedural due process protection. . . . [T]he Due Process Clause is invoked to protect something more than an ordinary contractual right. Rather, °S & D Maintenance had a contract to maintain city parking meters, Martz was a private attorney with a contract to provide legal services for a municipality, and Christ Gatzonis Electrical Contractor had construction contracts with the public agency that oversees construction and repair work at city schools. cag sk i eh i gaa aad soe SNS, - Sioa thy La ae tg RS ABE AS a RA lh lateatin Buna s) asta prpeeentiass TEA ae 13 procedural protection is sought in connection with a state’s revocation of a status, an estate within the public sphere characterized by a quality of either extreme dependence in the case of welfare benefits, or permanence in the case of tenure, or sometimes both, as frequently occurs in the case of social security benefits. ... But we hesitate to extend the doctrine further to consti- tutionalize contractual interests that are not associated with any cognizable status of the claimant beyond its temporary role as a govern- mental contractor.” S & D Maintenance Co., supra, 844 F.2d at 966-67. This analysis, distinguishing ordinary contract rights from the sort of property that is protected by due process, resonates in the decisions of several other circuits. Justice Breyer, then on the First Circuit, wrote: “A mere breach of a contractual right is not a deprivation of property with- ovt constitutional due process of law. . . . Otherwise virtually every controversy involving an alleged breach of contract by a government or governmental institution or agency or instrumentality would be a constitutional case.” Bleeker v. Dukakis, 665 F.2d 401, 403 (1st Cir. 1981). The Seventh Circuit, in affirming the dismissal of a sec- tion 1983 action brought by county employees asserting that the county violated their due process rights by its refusal to abide by a contract to permit time off in com- pensation for overtime hours worked, cautioned that “It]here is reason to doubt whether the Fourteenth Amendment was intended to allow every person with a breach of contract claim against a state to bring that claim in federal Court”, and that the Amendment was “not intended to shift the whole of the public law of the states into the federal courts.” Brown v. Brienen, 722 F.2d 360, 364 (7th Cir. 1983). The Third Circuit has likewise observed that “if every breach of contract by someone acting under color 14 of state law constituted a deprivation of property for procedural due process purposes, the federal courts would be called upon to pass judgment on procedural fairness of the processing of a myriad of contractual claims against public entities,” and that the “wholesale federalization of state public contract law seems far afield from the great purposes of the due process clause.” Reich v. Beharry, 883 F.2d 239, 242 (3rd Cir. 1989). Following this analysis, the Third Circuit upheld a summary judgment against a building contractor as to a section 1983 claim asserting a protectable property interest in its contract with a city housing authority, while permitting the con- tractor’s claim for unpaid compensation for work allegedly performed under the contract to proceed under the state public contract law. Linan-Faye Construction Co., Inc. v. Housing Authority of the City of Camden, 49 F.3d 915 (3rd Cir. 1995). The court further held that whatever severe consequential damages the contractor may have suffered as a result of the housing authority’s allegedly wrongful retention of the contractor’s performance bond, that fact “cannot convert a contract claim into a depriva- tion of liberty.” Ibid., at 932. With its decision in G & G, the Ninth Circuit became the only circuit to find a property right, protectable under the Fourteenth Amendment, in a contract between a pub- lic agency and a contractor. The Second and Third Cir- cuits have both directly held otherwise in cases involving public contractors’ claims for payment of amounts pur- portedly owed pursuant to their contracts. The First and Seventh Circuits have also reached conclusions contrary to the holding of the G & G panel majority. Moreover, as Judge Kozinski observed in his dissent, the Ninth Circuit itself is now in disagreement on this issue. Prior to G & G, the Ninth Circuit had stood in the mainstream of circuit law on the issue. In San Bernardino Physicians’ Services 15 Medical Group, Inc. v. County of San Bernardino, 825 F.2d 1404, 1408 (9th Cir. 1987), the court explained “[e]ven though every contract may confer some legal rights under state law, that fact alone need not place all con- tracts within federal due process protection.” In drawing the line between those government contracts that may create rights that are protected by the Fourteenth Amend- ment and those that do not, the court focused on the distinction between employment contracts and ordinary commercial contracts, such as contracts to perform a con- struction project or to supply the state with services or materials. “The right of an individual not to be deprived of employment that he or she has been guaranteed is more easily characterized as a civil right, meant to be protected by section 1983, than are many other contrac- tual rights.” Ibid. at 1409. Consequently, “the farther the purely contractual claim is from an interest as central to the individual as employment, the more difficult it is to extend it constitutional protection without subsuming the entire state law of public contracts.” Ibid. Stemming from this analysis, the court held that a corporation’s contract to supply medical services to a county hospital does not implicate any constitutionally protected interest, and that such a “contract to supply services to the state cannot sensibly be distinguished from construction contracts or even purely material supply contracts, for purposes of federal protection.” Ibid. at 1410. The G & G panel majority abandoned this restrained approach in favor of a sweeping expansion of property rights and due process protections. Its holding rests squarely on the existence of a public contract, a fact common to all of the cases discussed above in which every other circuit found no constitutionally protected property rights. G & G’s constitutional claim, according 16 to the panel majority, “arises from its public works con- tract; it has a property interest in being paid in full for the construction work it has completed.”!° (A-17) Assuming, arguendo, that a subcontractor that lacks privity of con- tract with an awarding body can nonetheless assert a claim based on the awarding body’s contract with the prime contractor, the question that must be carefully analyzed is whether, under either the public works con- tract or applicable state law, there is an entitlement to prompt payment in full once the job is purportedly com- pleted. The answer to this question is that under the California prevailing wage law, and under the contracts that G & G rely on as a basis for its due process claim, there is no entitlement to payment of sums withheld for unpaid wages and penalties. These contracts expressly provide for the withholding of payments to cover unpaid wages and penalties. (A-19) The contractor’s right to payment in full is contingent not only on completion of 10 Of course, the public works contracts upon which G & G asserts this “property interest” were contracts between public agencies and prime contractors, who in turn subcontracted part of the work to G & G. The sums withheld by the public agencies were withheld from the prime contractors in accordance with the agencies’ contracts with the prime contractors. The fact that there was no privity between G & G and the awarding bodies was of no consequence to the panel majority. The decision is thus fundamentally at odds with O’Bannon v. Town Court Nursing Center, 447 U.S. 773, 788-789, 100 S.Ct. 2467, 2477, 65 L.Ed.2d 506 (1980), where, in holding that nursing home residents had no constitutional right to a hearing to challenge a government revocation of the nursing home’s authority to provide them with nursing care at government expense, the Supreme Court observed that in the Legal Tender Cases, 79 U.S. (12 Wall.) 457, 551, 20 L.Ed. 287 (1870), “[o]ver a century ago this Court recognized the principle that the due process provision .. . does not apply to the indirect adverse effects of governmental action.” 17 the work, but also on the contractor’s and its subcontrac- tors’ compliance with prevailing wage and certified pay- roll record keeping requirements. In both S & D Maintenance and Christ Gatzonis Electri- cal Contractor, the Second Circuit held that there can be “‘no legitimate claim of entitlement’ to funds allegedly due” pursuant to a “contract [that] vested the municipal official with the discretion to withhold interim pay- ments.” Christ Gatzonis Electrical Contractor, Inc., supra, 23 F.3d at 640. This holding stems from the application of the well known test adopted in Board of Regents v. Roth, 408 U.S. 564, 576-78, 92 S.Ct. 2701, 2708-09, 33 L.Ed.2d 548 (1972). Under this test, “Property interests, of course, 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... .” 408 U.S. at 577, 92 S.Ct. at 2709. In contrast, the Ninth Circuit G & G panel majority looks beyond state law, and beyond the state’s contracts, to the Constitution as an independent source of property rights. Ultimately unable to find any basis for G & G’s asserted property interest in the provisions of the public works contracts or in state law, the panel majority relies on Sniadach v. Family Finance Corp., 395 U.S. 337, 89 S.Ct. 1820, 23 L.Ed.2d 349 (1969), to conclude that although G & G has no right to prompt payment (and no right to a deprivation hearing) under the state’s statutory scheme (A-19), any withholding under this scheme is constitu- tionally infirm. Sniadach, however, does not provide any basis for peremptorily resolving this circuit conflict in favor of the G & G panel majority. In a garnishment case such as Sniadach, a creditor seeks to seize funds that are indisputably owed by a third party to the debtor. The funds being seized are the debtor’s property. In contrast, in a public works contract case such as this, there is a 18 substantive dispute between the immediate parties to the contract as to whether the contract requires payment of the amounts withheld. The awarding body did promise to make the payment; but the contractor promised that pre- vailing wages would be paid and that certified payroll records would be kept and made available as conditions precedent to receiving payment. To say that the contrac- tor is entitled to the withheld funds, and therefore that the state’s failure to make payment has deprived the contractor of its “property” without due process of law, is to decide the merits of the substantive dispute — a dispute founded upon a breach of contract claim — between the contracting parties. The Ninth Circuit mischaracterized the nature of the “property interest” in this dispute. When the parties to a bilateral contract dispute whether certain sums are owed under that contract, those sums cannot fairly be said to be the “property” of either party until the dispute is resolved. The most that can be said is that the contractor has a due process property interest in its claim for breach of contract. See Logan v. Zimmerman Brush Co., 455 U.S. 422, 101 S.Ct. 1148, 71 L.Ed.2d 265 (1982). And, as dis- cussed in subsection C, infra, a lawsuit in state court - a -remedy that is available to any public works contractor or subcontractor — is an adequate means of resolving the disputed claim. B. The Ninth Circuit’s Holding that the State, in Enforcing the Provisions of a Public Works Contract, Acts as a Regulator Rather than a Market Participant, Conflicts With Applicable Supreme Court Precedent. Underlying the panel majority’s refusal to character- ize this payment withholding as nothing more than a garden-variety contract dispute is its insistence that 19 because the contractual provisions authorizing the with- holding were required by state law, the state here is acting as regulator, rather than as a mere party to a contract. The majority thus recasts this contract dispute as “a direct constitutional challenge to the state’s regula- tory power as embodied in these statutes.” (A-19) And that, for the majority, becomes dispositive — because the contractual provisions for withholding payments had to be inserted in the contracts as a matter of state law, the state is precluded from enforcing these provisions with- out a deprivation hearing. Since states, and their subordi- nate parts, normally promulgate their standard contract requirements by some official public means — statutes, regulations, ordinances, or resolutions — the implications of the Ninth Circuit’s holding are truly enormous. Judge Kozinski’s dissent underscores the novelty of this hold- ing, and the ways in which it subjects the state, in its role as a market participant, to burdens not shared by any private property developer. Prevailing wage laws only apply to public works projects, that is, to projects owned and funded by the State or one of its political subdivisions. As Judge Kozinski aptly pointed out in his dissent, in the area of public works, the state is engaged in a commercial activ- ity, and in that context, the state should be free to contract under whatever terms it wishes, much the same as any private builder, subject of course, to the same prohibi- tions against unlawful discrimination that would apply to any builder. The state should have the same freedom as private parties to put both “traditional” and “exotic” terms into a construction contract — terms that may include the construction specifications, completion dates, health and safety codes, building codes, record keeping requirements, prevailing wage requirements, and pay- ment withholdings for a breach of any of these terms. The 20 private builder who believes that a contractor has failed to perform some part of the contract — for example, the plumbing that was installed does not comply with the applicable building code — may resort to “the standard remedy” of withholding payments. There is no reason to allow the state any less. As Judge Kozinski explained, the fact that the California Labor Code requires the inclusion of prevailing wage and payment withholding provisions in all public works contracts is of no consequence, because no contractor or subcontractor is forced to com- ply unless he agrees to do business with the state. Judge Kozinski’s dissent is founded upon the long acknowledged right of a state to dictate the terms and conditions for the performance of public works contracts. In Atkin v. Kansas, 191 U.S. 207, 24 S.Ct. 124, 48 L.Ed. 148 (1903), the Supreme Court upheld a state law providing for maximum hours of work and requiring minimum rates of pay on public works projects. The Court stated: “It cannot be deemed a part of the liberty of any contractor that he be allowed to do public work in any mode he may choose to adopt, without regard to the wishes of the state. On the con- trary, it belongs to the state, as the guardian and trustee for its people, and having control of its affairs, to prescribe the conditions upon which it will permit public work to be done on its behalf, or on behalf of its municipalities. No court has - authority to review its action in that respect.” 191 U.S. at 222-223, 24 S.Ct. at 127-128. In Perkins v. Lukens Steel Co., 310 U.S. 113, 127, 60 S.Ct. 869, 876, 84 L.Ed. 1108 (1940), the Court, in uphold- ing the Public Contracts Act, observed, “[l]ike private individuals and businesses, the government enjoys the unrestricted power to . . . determine those with whom it will deal, and to fix the terms and conditions upon which it will make needed purchases.” 21 In commerce clause cases, the Court has recognized this distinction between the special role of the state as a “market participant” and its more general role as a regu- lator, so that when the state is operating as a market participant, buying or selling goods or services, “its busi- ness methods .. . are of no greater constitutional concern than those of a private business.” New Energy Company of Indiana v. Limbach, 486 U.S. 269, 277, 108 S.Ct. 1803, 1809, 100 L.Ed.2d 302 (1993). These cases highlight “the sim- ilarities of private businesses and public entities when they function in the marketplace,” and hold that “when acting as proprietors, States should similarly share exis- ting freedoms from federal constraints. . . .” Reeves, Inc. v. Stake, 447 U.S. 429, 439, 100 S.Ct. 2271, 2278-79, 65 L.Ed.2d 244 (1980). Likewise, in its analysis of the preemptive effect of certain federal laws, the Supreme Court has not hesitated to distinguish between state proprietary and regulatory functions, recognizing that, as a general matter, federal statutes are not to be construed as preempting state actions that are undertaken in its proprietary capacity. Thus, in Building & Construction Trades Council v. Assoct- ated Builders and Contractors, 507 U.S. 218, 113 S.Ct. 1190, 122 L.Ed.2d 565 (1993) [“Boston Harbor”], the Court explained: “To the extent that a private purchaser may choose a contractor based upon that contractor’s willingness to enter into [specific contractual terms], a public entity as purchaser should be permitted to do the same. .. . In the absence of any express or implied indication by Congress that a State may not manage its own property when it pursues its purely proprietary interests, and where analogous private conduct would be permitted, this Court will not infer such a 22 restriction.” 507 U.S. at 231-232, 113 S.Ct. at 1198. (emphasis in original.) Thus, when purchasing construction services, a public entity that requires contractors to enter into a specific agreement in order to obtain the contract, “does not ‘regulate’ the workings of the market forces . . . it exem- plifies them.” Ibid., 507 U.S. at 233, 113 S.Ct. at 1199, quoting from the Court of Appeals dissent authored by J. Breyer in the case below. In withholding payments in the amount of any unpaid wages plus pre-established penalties, pursuant to express contractual provisions, the state’s public agencies were only doing what any private builder could have done. The well-settled principles enunciated in Atkin, Lukens, and the more contemporary cases spring from a simple concept: when the state is operating in the mar- ketplace in the same manner as a private business, it will function at a disadvantage, to the detriment of the citi- zens it serves, if it is held to a different standard, in the conduct of its proprietary functions, than a private busi- ness. The G & G decision is fundamentally at odds with this concept. In failing to see this dispute for what it is — a contract dispute between a public works subcontractor and public agencies in their role as market participants, the panel majority has opened the floodgates to a deluge of consti- tutional claims involving contractors’ and subcontractors’ newly created property rights. As Judge Kozinski makes clear, under the logic of this decision, deprivation hear- ings will invariably be required whenever a_ public agency seeks to withheld contract payments as a conse- quence of the contractor’s breach. And as long as the contract provisions at issue are required or inserted pur- suant to state law or local ordinances (e.g., workplace health and safety laws, anti-discrimination laws, building 23 and fire codes, workers’ compensation insurance require- ments, licensing and bonding requirements, etc.), the Ninth Circuit would find not a contract dispute, but “a direct constitutional challenge to the state’s regulatory power.” (A-19) The ostensible limits placed on this deci- sion by the majority are not limits at all, and in short order, virtually every commercial contract dispute involv- ing a public agency will be cloaked in constitutional trappings. C. Conflict Exists Among the Circuits as to Whether a Breach of Contract Action to Recover Amounts Purportedly Due Under a Contract With a Public Agency Provides a Sufficient Remedy. The G & G panel majority held that a state court breach of contract action to recover the withheld funds does not provide adequate due process. Because the Court of Appeal viewed the availability of a breach of contract lawsuit as insufficient to satisfy due process, it failed to focus on what should have been the dispositive issue in this case: whether state law does provide such a remedy to a public works subcontractor. G & G claimed that state law provided it with no remedy at all in the hypothetical event of a contractor refusing to assign its contract claiin. The Ninth Circuit expressed “doubt” that a subcontractor without an assignment would have any remedy, based on the absence of state law on this issue. (A-24) The question, though, in a due process case is whether the plaintiff has been denied due process, not whether such a denial might theoretically occur. And a plaintiff certainly does not sustain its burden in a facial due process attack on state statutes merely by demon- strating ambiguity, even if that ambiguity leads to some “doubt” as to whether the state scheme would meet con- stitutional standards in practice. Rather, considerations of 24 judicial restraint and respect for state sovereignty require that the plaintiff actually prove the non-existence of an adequate state procedural remedy, or at the very least, allege that some attempt was made to secure its rights through existing state remedies. Here, there is no evidence in the record (nor any allegation in the pleadings) that G & G attempted to obtain the assignments from the prime contractors that it claimed to need. Nor does the record contain any evi- dence (or allegation) that G & G sought to pursue any of its state law remedies in the absence of such an assign- ment. Three separate state law remedies were available. First, G & G could have sued its prime contractors for breach of contract to recover the withheld payments. Cal. Labor Code § 1729 does no more than permit a prime contractor to withhold payments from a subcontractor “on account of the subcontractor’s failure to comply with the terms of this chapter” — it does not permit the with- holding absent such a failure to comply, nor does it make the withholding unchallengeable. Second, as noted by Judge Kozinski, a subcontractor whose payments are withheld can bring an action against the awarding body under Cal. Labor Code § 1730-1733 under a theory of equitable subrogation, by operation of law and without a formal assignment. Lastly, a subcontractor without an assignment has an unconditional statutory right, under the California Civil Code, to file a “stop notice” with the awarding body, setting forth the amount owed by the public works prime contractor for work performed under the subcontract. (Cal. Civil Code § 3103, 3181, 3184.) The subcontractor may file “an action against the [prime] contractor and the public entity to enforce payment of the claim stated in the stop notice.” (Cal. Civil Code § 3210.) Thus, the majority's finding that “the Labor Code does not grant subcontractors the right to any type of hearing to 25 contest a withholding” (A-15, italics added), even if cor- rect, misses the fact that the Civil Code already provides subcontractors with such a remedy. The effectiveness of the stop notice as a remedy is well established under California law See, e.g., United States Fidelity & Guaranty Co. v. Oak Grove Union School Dist., 205 Cal.App.2d 226, 22 Cal.Rptr. 907 (1962) [the filing of a stop notice imposes a trust obligation on the public agency in favor of the claimant]; Stanislaus Pump, Machinery & Construction Corp. v. City of Modesto, 200 Cal.App.3d 1442, 246 Cal.Rptr. 601 (1988) [public entity has an absolute statu- tory duty to pay the valid amounts to stop notice claim- ants and to no one else}. The Ninth Circuit panel majority’s most critical fail- ing, however, is not its misreading of California law, but rather, its holding that even had G & G obtained assign- ments to file breach of contract lawsuits against the awarding bodies, that would not constitute adequate due process. (A-23) In this regard too, this decision stands in conflict with the law of other circuits. In Brown v. Brienen, supra, 722 F.2d 360, the Seventh Circuit held that even if a county’s denial of time off for overtime worked by county employees could be said to implicate any property rights (a proposition the court found extremely doubtful), the availability of a post-deprivation state court action for breach of contract which could make the employees whole for any losses provided an adequate remedy that satisfied the requirements of due process. Likewise, in Reich v. Beharry, supra, 883 F.2d 239, 242-243, the Third Circuit, after expressing “considerable doubt” that a pri- vate attorney had a protectable property interest in the payment of amounts allegedly due as a result of work he had performed under a contract with a county, held that the availability of a breach of contract remedy in state court under which he could be made whole for the 26 unpaid fees provides “all the process that was constitu- tionally due.” The panel majority, while acknowledging that the state has an overwhelming interest in ensuring that con- tract funds will be available to pay amounts believed to be due to employees for wage underpayments, and that this interest is sufficiently important to justify the with- holding of funds without a pre-deprivation hearing, nonetheless holds that an administrative hearing must be afforded promptly following the withholding, and that a post-deprivation lawsuit fails to provide the requisite due process. The adequacy of post-deprivation state court remedies is an issue that has come before this Court on a number of occasions. This case presents the Court with an opportunity, for the first time, to address this issue in the context of an alleged deprivation of property founded upon a commercial contract with a state entity." In Parratt v. Taylor, 451 U.S. 527, 101 S.Ct. 1908, 68 L.Ed.2d 420 (1981), overruled in part on other grounds by Daniels v. Williams, 474 U.S. 327, 106 S.Ct. 662, 88 L.Ed.2d 662 (1986), the Court recognized that under certain cir- cumstances, “postdeprivation remedies made available by the State can satisfy the Due Process Clause.” 451 U.S. at 538, 101 S.Ct. at 1914. The Court reasoned that, “either the necessity of quick action by the State or the imprac- ticality of providing any meaningful predeprivation pro- cess, when coupled with the availability of some meaningful means by which to assess the propriety of the '! An academic commentator’s detailed examination of this issue concluded that “[cjontractual interests, though protected by the Constitution, receive adequate protection in state court post-deprivation proceedings.” Kreynin, Breach of Contract as a Due Process Violation: Can the Constitution Be a Font of Contract Law?, 90 Colum. L. Rev. 1098, 1122 (1990). 27 State’s action at some time after the initial taking, can satisfy the requirements of procedural due process.” 451 U.S. at 539, 101 S.Ct. at 1915. The Court held that although an action under section 1983 might provide more relief than a state tort action, the available state remedies “could have fully compensated the respondent for the property loss he suffered, and we hold that they are sufficient to satisfy the requirements of due process.” 451 U.S. at 544, 101 S.Ct. at 1917. In Hudson v. Palmer, 468 U.S. 517, 104 S.Ct. 3194, 82 L.Ed.2d 393 (1984), like Parratt, the Court found the avail- ability of a post-deprivation state tort action that could provide compensation for the loss constitutes sufficient due process with respect to prisoners’ claims of wrongful destruction of property by prison officers. To be sure, part of the rationale behind these decisions was that the alleged destruction of the property did not stem from the proper implementation of an established state procedure, but rather, from the unauthorized and unanticipated acts of state employees. But the fact that the challenged state action is autho- rized by state law and implemented in an anticipated way by state employees consistent with established methods does not necessarily mean that a state court post-deprivation remedy is inadequate. For example, in Ingraham v. Wright, 430 U.S. 651, 97 S.Ct. 1401, 51 L.Ed.2d 711 (1977), the Court held that state tort remedies pro- vided adequate process for students subjected to corporal punishment in school. Having concluded that a pre-disci- plinary administrative hearing was not required, the Court could have insisted on a post-disciplinary hearing. it did not, as a post-disciplinary tort action could ade- quately compensate the student for the wrongful imposi- tion of discipline. 28 In cases where the Supreme Court has distinguished Parratt and Hudson, the available state court remedy could not provide adequate compensation for the depri- vation. Thus, in Logan v. Zimmerman Brush Co., 455 U.S. 422, 435-37, 101 S.Ct. 1148, 1157-58, 71 L.Ed.2d 265 (1982), the Court, after observing that a post-deprivation tort remedy was not capable of making the plaintiff whole, held that the availability of such a remedy did not satisfy the requirements of due process. The deprivation consis- ted of a state administrative agency’s wrongful failure to proceed on a claim that was filed, within the agency’s jurisdiction, against an employer for having discharged the claimant in violation of the state’s anti-discrimination laws. The Court noted that reinstatement was not an available remedy under a tort claim, and thus, even a successful lawsuit could not provide him with the relief that would have been available but for the state’s depri- vation of his right to proceed on his anti-discrimination claim. Likewise, in Zinermon v. Burch, 494 U.S. 113, 110 S.Ct. 975, 108 L.Ed.2d 100 (1990), a sharply divided Court held that allegations in a mental patient’s complaint, that employees of a state mental treatment facility admitted him to the facility as a voluntary patient without taking any steps to ascertain whether he was mentally compe- tent to sign admission forms, were sufficient to state a section 1983 claim, notwithstanding the availability of post-deprivation tort remedies. In ascertaining the ade- quacy of the state’s post-deprivation tort remedies, the Court applied the familiar tripartite test set forth in Mathews v. Eldridge, 424 U.S. 319, 335, 96 S.Ct. 893, 903, 47 L.Ed.2d 18 (1976), weighing the following factors: “First, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if or 29 any, of additional or substitute procedural safe- guards; and finally, the Government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail.” Zinermon v. Burch, supra, 494 U.S. at 127, 110 S.Ct. at 984. Not surprisingly, in applying this test to a situation where the deprivation consisted of an extremely lengthy stay in a mental institution, the Court concluded that the state’s post-deprivation tort remedy was inadequate. In contrast to plaintiffs’ injuries in Logan and Ziner- mon, the nature of the deprivation allegedly suffered by G & G is wholly compensable through the state’s post- deprivation breach of contract remedy. Having concluded that a pre-deprivation hearing is not required under the Mathews test, the Ninth Circuit nonetheless insists upon a post-deprivation administrative hearing, despite the fact that such a process offers no remedy beyond what could be attained by a state court breach of contract action. Here, as in Parratt, the necessity for quick action is cou- pled with the availability of a “meaningful means” by which to assess the propriety of the state’s challenged action. The statutory remedy offers a streamlined process for obtaining a judicial determination of the dispute. As set out at California Labor Code § 1733, an action is “limited to the recovery of the wages and penalties with- held,” and “no other issues shall be presented to the court.” Thus, the awarding body is precluded from rai- sing counterclaims concerning any other alleged failure of performance. It is a one issue case that may be brought “without the permission of the state or other authority.” (Cal. Labor Code § 1733.) And although there is no reason to believe (and no evidence or even allegation in the record) that a subcontractor without a formal assignment from its prime contractor has ever been prohibited from 30 pursuing an action under California Labor Code §§ 1730-1733, the availability of the Civil Code stop notice procedures provide guaranteed access to court for every such subcontractor seeking to pursue a breach of contract claim. The Ninth Circuit’s refusal to follow the holdings of those other circuits that have concluded that a state court breach of contract action provides a sufficient remedy, and all the process that is due to a contractor challenging the state’s failure to make payments allegedly owed under a commercial contract, will result in an enormous burden to states, counties, cities, and all other public agencies that award contracts. Sadly, this burden on the federalist value of allowing states to choose between an administrative or judicial remedy is unnecessary, as such administrative hearings will provide nothing to contrac- tors and subcontractors beyond what they can already obtain through existing state court remedies. CONCLUSION For the reasons stated above, this Petition for Writ of Certiorari should be granted. Respectfully submitted, Mixes E. Locker, Chief Counsel Division of Labor Standards Enforcement Department of Industrial Relations State of California 45 Fremont Street, Suite 3220 San Francisco, California 94105 (415) 975-2060 A-l FOR PUBLICATION UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT G & G Fire Sprinkcers, INc., Plaintiff-Appellee, - No. 95-56639 Victoria L. BRADSHAW, an D.C. No individual, in her capacity as On sere} Labor Commissioner of the State CV-95-04899-MLR of California; LLoyp W. Ausry, Jr., ORDER AND Director; Danie. DeLLARoOccA, an AMENDED individual, in his official capacity OPINION ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) as Deputy Labor Commissioner of the State of California; Rocer Miter, an individual in his official capacity as Deputy Labor Commissioner of the State of California; Rosa Frazier, an individual in her capacity as Deputy Labor Commissioner of the State of California, Defendants-Appellants. A-2 G & G Fire Sprinkters, INc., Plaintiff-Appellee, V. Victoria L. BRADSHAW, an individual, in her official capacity as Labor Commissioner of the State of California; LLoyp W. Aupsry, Jr., an individual, in his official capacity as Director of the Department of Industrial Relations of the State of California; DANrEL DeELLAROCCA, an individual, in his official capacity as Deputy Labor Commissioner of the State of California; RoGer MILLER, an individual in his official capacity as Deputy Labor Commissioner of the State of California; Rosa Frazier, an individual in her official capacity as Deputy Labor Commissioner of the State of California; Division or Lasor STANDARDS ENFORCEMENT, an agency of the State of California; DEPARTMENT OF INDUSTRIAL RELATIONS, an agency of the State of California, Defendants-Appellants. I No. 96-55194 D.C. No. CV-95-04839-R Appeals from the United States District Court for the Central District of California Manuel L. Real, Chief District Judge, Presiding A-3 No. 95-56639 Argued and Submitted May 7, 1996 — Pasadena, California No. 96-55194 Submitted August 27, 1997* Pasadena, California Filed February 3, 1998 Amended September 10, 1998 Before: Stephen Reinhardt, Alex Kozinski and Michael Daly Hawkins, Circuit Judges. Opinion by Judge Hawkins; Dissent by Judge Kozinski COUNSEL Thomas S. Kerrigan, State of California Department of Industrial Relations, Los Angeles, California for the defendants-appellants. Stephen A. Seideman, Levin, Stein, Chyten & Schneider, Los Angeles, California, for the plaintiff-appellee in No. 95-56639. Thomas J. McDermott and Harvey Rochman, Manatt, Phelps & Phillips, Los Angeles, California, for the plain- tiff-appellee in No. 96-55194. William P. Gemmill, Gascou, Gemmill & Thornton, Los Angeles, California, for the plaintiff-appellee on rehear- ing. *The panel finds this case appropriate for submission without argument pursuant to Fed. R. App. P. 34(a) and Ninth Circuit Rule 34-4. A-4 Scott A. Kronland, Altshuler, Berzon, Nussbaum, Berzon & Rubin, San Francisco, California, for the amici curiae on rehearing. ORDER The Opinion filed on February 3, 1998, and appearing at 136 F.3d 587 (9th Cir. 1998), is amended as follows: (1) Page 591, second column — the counsel listing is revised as follows: Thomas S. Kerrigan, State of California Department of Industrial Relations, Los Angeles, California for the defendants-appellants. Stephen A. Seideman, Levin, Stein, Chyten & Schneider, Los Angeles, California, for the plaintiff-appellee in No. 95-56639. Thomas J. McDermott and Harvey Rochman, Manatt, Phelps & Phillips, Los Angeles, California, for the plain- tiff-appellee in No. 96-55194. William P. Gemmill, Gascou, Gemmill & Thornton, Los Angeles, California, for the plaintiff-appellee on rehear- ing. Scott A. Kronland, Altshuler, Berzon, Nussbaum, Berzon & Rubin, San Francisco, California, for the amici curiae on rehearing. (2) Page 596, first column, lines 29-31 — revise sen- tence to read “This case thus involves a direct constitu- tional challenge to the state’s regulatory power as embodied in these statutes, not a mere contractual dis- pute.” A-5 (3) Page 597, second column, between the first full paragraph and the second full paragraph — insert: Here, we have no doubt that the state’s interest in ensuring the payment of prevailing wages is sufficiently “important,” see Mallen, 486 U.S. at 240, to justify the withholding of funds pending the outcome of whatever kind of hear- ing may be afforded. Whether a hearing is before or after the giving of notice or the actual withholding is a matter for the state to deter- mine on the basis of the practical considerations involved. See, e.g., Gilbert v. Homar, 117 S. Ct. 1807, 1812 (1997) (citing Morissey v. Brewer, 408 U.S. 471, 481 (1972)). (4) Page 597, second column, second full paragraph, line 1 — insert “however,” between “case,” and “sub- contractors” (5) Page 598, first column, first paragraph — delete paragraph beginning “What specific type of process” and ending “payments and assessing penalties.10” and substi- tute in its place: Although the decision as to which specific type of hearing will be afforded subcontractors may depend upon the factual circumstances, the state must, upon determining that a subcontrac- tor has failed to pay prevailing wages, provide the contractor with a reasonably prompt hearing of some sort.!° Pending the outcome of such a hearing, the state may withhold payments and penalty funds.!! A-6 The corresponding footnotes are as follows: 10 The question of when a post-deprivation hearing is adequate is separate from the ques- tion of what constitutes a sufficient post-depri- vation procedure. The Supreme Court has made it clear that no single model is required in all cases, but that the nature of the deprivation and the other underlying circumstances dictate how much process is due. See Logan v. Zimmerman Brush Co., 455 U.S. 422, 434 (1982) (citing Mem- phis Light, Gas & Water Div. v. Craft, 436 US. 1, 19 (1978); Goss v. Lopez, 419 U.S. 565, 579 (1975)). ‘1 Contrary to the state’s concerns, our deci- sion today does not affect the validity of the Davis-Bacon Act, 40 U.S.C. §§ 276a et seq., upon which the California law was patterned, because the Davis-Bacon Act provides for an extensive hearing and appeal structure through its imple- menting regulations. Within 30 days after a withholding, either the prime contractor or the subcontractor may request an administrative hearing to review the findings of the Adminis- trator of the Wage and Hour Division of the Department of Labor. 29 C.F.R. § 5.11. The find- ings and rulings of the administrator may be appealed to an administrative law judge (“ALJ”), whose decision may be appealed to the Wage Appeals Board. Id. Ultimately, the Board’s decision may be appealed to the federal court. 5 U.S.C. § 704. (6) Page 598, footnote 9, second paragraph - delete paragraph beginning “Moreover, even if Parratt and Hud- son were” and ending “have no such independent right” and substitute in its place: A-7 Moreover, we doubt the viability of a sub- contractor’s hypothetical suit against a prime contractor based on theories of breach of the covenant of good faith and fair dealing or equi- table subrogation. The state and amici curiae have been unable to cite a single California case utilizing either theory in this context. The prime contractor could easily defeat any breach of cov- enant suit by demonstrating that its withholding of payment was authorized by law. See § 1729. And the facts of this case clearly do not meet the traditional elements of equitable subrogation. See Caito v. United California Bank, 576 P.2d 466, 471 (Cal. 1978). OPINION HAWKINS, Circuit Judge: This case requires us to decide whether certain Cali- fornia Labor Code provisions, authorizing the state to seize money and impose penalties for a subcontractor’s failure to comply with prevailing wage requirements, violate the Due Process Clause of the Fourteenth Amend- ment because no notice or hearing is required before such adverse action is taken. Specifically, Victoria L. Bradshaw, Labor Commissioner of the State of California, and others appeal the district court’s order granting summary judg- ment in favor of G & G Fire Sprinklers, Inc. (“G & G”), the public works subcontractor here, and permanently enjoining Bradshaw from enforcing California Labor Code §§ 1727, 1730-33, 1775, 1776(g) and 1813 against G & G for alleged violations of California prevailing wage laws. We hold that G & G has standing to maintain this action and that due process requires either a pre- or post- A-8 deprivation hearing, but that the district court’s injunc- tion should be narrowed to apply only until such time as the state may adopt by regulation or otherwise appropri- ate procedures affording such hearings. I. Facts A. The Parties Appellee G & G is a fire protection company that installs fire sprinkler systems. G & G has performed numerous public works projects as a contractor or sub- contractor. Appellants are the California Division of Labor Standards Enforcement (“DLSE”), Department of Industrial Relations, and officials thereof (collectively “the state”). B. The California Labor Code The California Labor Code requires contractors and subcontractors on public works projects to pay a state- determined prevailing wage to’ all their workers. Cal. Lab. Code § 1771. To enforce this requirement, the body awarding the contract (“the awarding body”) is allowed to withhold funds from a prime contractor should it determine that the contractor or one of its subcontractors has violated the prevailing wage law. § 1727. The state is authorized to withhold an amount equal to the total amount that all the workers have been underpaid, as well as up to $50 per day, per worker in fines for each instance in which the contractor fails to pay the prevailing wage. § 1775. A withholding order can only be issued after a full investigation by DLSE or the awarding body, unless A-9 the withholding is from the final payment to be made to the prime contractor. § 1727. If the violator is a sub- contractor, the prime contractor is authorized to withhold an equivalent amount from its payments to the sub- contractor~§ 1729. All of these provisions must be incor- porated into all public works contracts. Cal. Admin. Code, Title 8, § 16430. A notice to withhold to an awarding body is a stan- dard procedure utilized by DLSE, but no notice or hear- ing is required prior to its issuance. DLSE is not required to produce any evidence of a violation of the law, no specific standard is applied in determining whether to issue a notice to withhold, and no procedure exists to guard against the issuance of improper or excessive notices to withhold. Moreover, while DLSE has no formal procedures for conducting investigations, as a general rule, information from a witness/informant must be veri- fied with an independent source. In addition, recommen- dations to withhold must be reviewed by a supervisor. The exclusive remedy after withholding is a lawsuit by the prime contractor against the awarding body for wcovery of the money withheld. §§ 1730-33. Such a suit must be filed within 90 days of the withholding, and the contractor bears the burden of establishing that there was no violation. § 1733. DLSE may defend the lawsuit upon request by the awarding body. Id. Subcontractors are not given the right to bring suit, although a prime contractor is allowed to assign its right to sue. Id. If a suit is not brought within 90 days, the state disburses the withheld funds to the underpaid workers; if a suit is brought within this period, then the money is held in escrow until its resolution. § 1731. A-10 C. The Dispute This case arose when DLSE issued three withholding notices against G & G for a total of at least $120,000. The notices were for three separate projects on which G & G had served as a subcontractor.! The awarding bodies for each of the projects have withheld money from the prime contractors, who in turn have withheld payment from G & G. No evidence in the record explains in detail the basis for the state’s decision to withhold funds from G &G. The issuance of the notices to withhold has a sub- stantial detrimental effect on G & G's ability to do busi- ness, as their effect is to reduce, or cut off, payments for work performed and to damage G & G’s reputation in the industry. Inasmuch as G & G intends to perform further public works projects in the future, the issuance of addi- tional improper notices to withhold also could impair G & G’s cash flow and ability to do business. G & G filed this action for declaratory and injunctive relief, claiming that the issuance of the notices to with- hold without a prior hearing constitutes a deprivation of property without due process of law in \.olation of the Fourteenth Amendment. The state responded with a motion to dismiss, and G & G later filed a motion for summary judgment. The district court granted G & G’s motion for summary judgment and denied the state’s motion to dismiss. The district court’s judgment declares ' Withholding notices had also been issued on projects on which G & G had served as the prime contractor, but those notices were withdrawn before this suit ensued. A-11 sections 1727, 1730-33, 1775, 1776(g) and 1813 of the Cali- fornia Labor Code and the state’s practices thereunder unconstitutional and enjoins the state from enforcing these sections against G & G. II. Standing We first address whether G & G has standing to maintain this action.? The state argues G & G does not have standing because subcontractors lack privity of con- tract with the state under the Labor Code and because the state withheld monies from the prime contractors, not G & G, thus precluding any direct causal connection between G & G's alleged injury and the state’s conduct. Standing is a question of law that we review de novo. Sahni v. American Diversified Partners, 83 F.sa 1054, 1056 (9th Cir. 1996). To establish standing, a federal plaintiff must show (1) an injury in fact; (2) a causal connection 2 We note at the outset that whether a party has standing is a separate question from whether a party has an interest protected by the Due Process Clause — here, a property interest. “Standing to bring a state court claim of deprivation of property rights does not establish a protected property interest.” Kim Constr. Co. v. Board of Trustees, 14 F.3d 1243, 1249 (7th Cir. 1994). Moreover, that a party has no constitutionally protected property interest under a statute does not mean that it has no standing to bring a claim under that statute. See id. Accordingly, cases such as O’Bannon v. Town Court Nursing Ctr., 447 U.S. 773 (1980), and San Bernardino Physicians’ Servs. Med. Group, Inc. v. County of San Bernardino, 825 F.2d 1404 (9th Cir. 1987), which the state cites to argue that G & G has no standing, are inapposite because they address whether parties have protectible property interests, not standing. A-12 between the injury and the conduct complained of; and (3) that it is ikely, as opposed to speculative, that the injury will be redressed by favorable decision. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992). To establish injury in fact, a plaintiff must demon- strate that the injury is “concrete and particularized” and that it is “actual or imminent, not conjectural or hypo- thetical.” Id. at 560. The injury here is both concrete and actual. As a result of the state’s withholding procedures, G & G has not been paid approximately $120,000, to which it claims it is entitled. G & G meets the first requirement for standing. A plaintiff must also show that the injury “fairly can be traced to the challenged action of the defendant” and that it does not result “from the independent action of some third party not before the court.” Simon v. Eastern Kentucky Welfare Rights Org., 426 U.S. 26, 41-42 (1976). The Supreme Court detailed the methodology to be followed in determining causation in a case of this type: When the suit is one challenging the legality of government action or inaction, the nature and extent of the facts that must be averred (at the summary judgment stage) .. . in order to estab- lish standing depends considerably upon whether the plaintiff is himself an object of the action (or forgone action) at issue. If he is, there is ordinarily little question that the action or inaction has caused him injury, and that a judg- ment ... will redress it. When ... a plaintiff's asserted injury arises from the government's allegedly unlawful regulation (or lack of regula- tion) of someone else, much more is needed. In that circumstance, causation and redressability A-13 ordinarily hinge on the response of the regu- lated (or regulable) third party to the govern- ment action or inaction .. . it becomes the burden of the plaintiff to adduce facts showing that those choices [of the third party] have been or will be made in such manner as to produce causation and permit redressability of injury. Lujan, 504 U.S. at 561-62 (emphasis in original). The state contends that G & G cannot establish causa- tion because this case involves the state’s regulation of a third party, the prime contractors, whose own indepen- dent choices are an intervening cause of G & G’s injury. Specifically, the state cites California Labor Code § 1729, which states that “[i]t shall be lawful for any contractor to withhold from any subcontractor under him sufficient sums to cover any penalties withheld from him” (emphasis added), in support of its argument that the prime contractors were not required to withhold money from G & G and that their decision to do so was the true cause of G & G's injury. This argument elevates form over substance. The state’s action here is targeted at G & G; the p-vime contrac- tors’ only role in the dispute is that of a conduit, not some third party whose independent choices caused G & G’s injury. The state investigated G & G’s conduct, not the prime contractors’, and the withholding notices explicitly named G & G as the violator of the California Labor Code. G & G was clearly the “object of the action” as the Supreme Court used the term. As such, the state’s con- duct is the cause of G & G’s injury: the money would not A-14 have been withheld but for the state’s actions.* That was the intended result of the state’s action, in accordance with the overarching purpose of its regulatory scheme to ensure that prime contractors and subcontractors pay their workers the state-determined prevailing wage. Even if we somehow assume that G & G is not itself the object of the action, but is indirectly affected by the state’s regulation of the prime contractors, our conclusion would be the same. That the harm to G & G may have resulted indirectly does not in itself preclude standing. As the Supreme Court stated in Warth v. Seldin, 422 U.S. at 505: When a governmental prohibition or restriction imposed on one party causes specific harm to a third party, harm that a constitutional provision or statute was intended to prevent, the indirect- ness of the injury does not necessarily deprive the person harmed of standing to vindicate his rights. * This case differs from those in which the Supreme Court has found the requisite “but for” causation lacking. See, e.g., Asarco, Inc. v. Kadish, 490 U.S. 605 (1989) (individual taxpayers and teachers’ organization lacked standing to challenge Arizona land management statute when only alleged injuries were increased taxes and reduced school funding because of impossibility of showing statute had direct causal impact on taxes or school funding); Simon, 426 U.S. at 26 (plaintiffs lacked standing to sue due to inability to establish causal relationship between IRS ruling and hospitals’ decisions not to provide treatment); Warth v. Seldin, 422 U.S. 490 (1975) (plaintiffs asserting inability to find homes in city based on exclusionary zoning practices failed to establish causation). A-15 Furthermore, G & G can show that the prime contractors’ (third party) choices “have been or will be made in such a manner as to produce causation and permit redressability of injury.” Lujan, 504 U.S. at 562. Here, the prime contrac- tors have withheld payment from G & G, completing the causal link between G & G's injury and the state’s action and permitting redressability. Accordingly, G & G’s injury can be directly traced to the state’s conduct and the second requirement for standing is also satisfied. To meet the third requirement for standing, a plaintiff must show that his injury will be redressed if he prevails in his legal action. In this case, G & G’s injury will be redressed by this suit because if G & G prevails, the withheld money will be released to the prime contractors, who will be obligated by contract to pay it to G & G. That G & G as a subcontractor lacks privity of con- tract with the state only bolsters our conclusion. Under California’s Labor Code, subcontractors cannot sue the state for withholding funds; only prime contractors can. A subcontractor theoretically could sue the prime con- tractor, but the latter has a defense of withholding the funds pursuant to state law. In addition, the Labor Code does not grant subcontractors the right to any type of hearing to contest a withholding. Therefore, if a prime contractor chooses not to contest a withholding or to assign its rights to sue to the subcontractor, the sub- contractor is left holding a quite empty bag.4 4 The state cites Lloyd v. Stewart & Nuss, Inc., 327 F.2d 642, 645-46 (9th Cir. 1964), for the proposition that a subcontractor has no property right to funds withheld by an awarding body A-16 G & G has standing to maintain this suit. III. Due Process Claim A due process claim has two elements: (1) a depriva- tion of a protectible interest, and (2) denial of adequate procedural protections. See Goldberg v. Kelly, 397 U.S. 254 (1970). We consider each of these elements in turn. A. Protectible Interest To determine whether G & G has suffered a depriva- tion of a protectible interest, we must evaluate (1) what type of interest has been deprived, and (2) whether that and hence has no standing to challenge such a withholding. We reject this argument for several reasons. First, Lloyd is a bankruptcy case holding that amounts withheld from a prime contractor by the state upon request of a trucking service doing work for a subcontractor did not constitute property owned or possessed by the debtor subcontractor and hence the bankruptcy court had no summary jurisdiction over the property. The case does not even involve constitutional issues, let alone due process concerns, and it never discusses standing. Second, even if we were to deem Lloyd remotely relevant to this case, its decision that the subcontractor debtor had no property right in the debt owed to the prime contractor by the state sheds no light on whether a subcontractor has a protectible property interest in wages withheld from it pursuant to state law. In fact, Lloyd acknowledges that the subcontractor and the trucking service “both possessed the right to claim against the fund, but only in the event they were not paid by their respective principal obligors.” Id. at 646. Here, G & G was not paid by its respective principal obligor, the prime contractor, and it is asking for an opportunity to contest that deprivation. A-17 interest is protected by the Due Process Clause. Board of Regents of State Colleges v. Roth, 408 U.S. 569-70 (1972). G & G's interest arises from its public works contract; it has a property interest in being paid in full for the construction work it has completed. See Sniadach v. Family Finance Corp., 395 U.S. 337, 342 (1969) (holding that Wis- consin’s garnishment procedure allowing wages to be frozen upon request of creditor’s lawyer constituted “obvious” deprivation of property). The state’s withhold- ing of over $120,000 has deprived G & G of its interest in full payment for services rendered. The state quite properly notes, however, that not all property interests are protected by the Due Process Clause. While both federal and California law recognize that a contract with the state can create a constitutionally protected property interest, Perry v. Sindermann, 408 U.S. 593, 601 (1972); Walker v. Northern San Diego County Hosp. Dist., 185 Cal. Rptr. 617, 620 (1982), not all public con- tracts give rise to a protectible due process interest. See San Bernardino Physicians’ Servs. Med. Group, Inc., 825 F.2d at 1408. Indeed, because any breach of contract claim against the state logically can be construed as a due process claim, “ ‘we must bear in mind that the Four- teenth Amendment was not intended to shift the whole of the public law of the states into the federal courts.’ ” Id. (quoting Brown v. Brienen, 722 F.2d 360, 364 (7th Cir. 1983)). Even though every contract may confer some legal rights under state law, that fact alone need not place all contracts within federal due pro- cess protection. Although the underlying sub- stantive interest is created by an independent A-18 source such as state law, federal constitutional law determines whether that interest rises to the level of a legitimate claim of entitlement pro- tected by the Due Process Clause. Id. at 1408-09 (internal quotations omitted). Drawing on these principles, the state asserts that because the withholding procedure at issue is contained in G & G's contract, this case is nothing more than a contractual dispute that does not rise to the level of a constitutional claim. Moreover, the state argues that con- struing this case to present a constitutional claim would result in the “federalization” of state contract law by giving G & G and all others who contract with the state an opportunity to have their grievances reviewed in fed- eral court when they should be confined to their contrac- tually bargained-for remedies under state law. This argument, however, misses the mark. Unlike the cases cited by the state, this case does not involve a breach of contract claim or a challenge to the contract itself.5 G & G ° All the cases cited by the state to support its argument that G & G's interest is not constitutionally protected involve due process claims arising from an alleged breach of contract. See, e.g., Unger v. National Residents Matching Program, 928 F.2d 1392, 1399 (3d Cir. 1991) (termination of residency program after plaintiff's acceptance into program failed to implicate due process rights because contract with university hospital did not confer protected status and did not include provision of for- cause termination only); S & D Maintenance Co. v. Goldin, 844 F.2d 962, 968-69 (2d Cir. 1988) (contractor alleging state breached contract by withholding funds pending result of criminal investigation failed to establish due process claim because neither contract nor state law contained for-cause termination provision or right to prompt payment); San A-19 concedes that the express terms of the contract grant the state the authority to withhold funds for wage violations; the withholding is not a breach of contract.® Instead, G & G challenges the constitutionality of several provi- sions of the California Labor Code as violative of its federal due process rights.’ Those provisions, incorpo- rated by state law into all public works contracts, autho- rize the state to withhold payment of money owed to contractors or subcontractors for alleged violations of the state prevailing wage law. This case thus involves a direct constitutional challenge to the state’s regulatory power as embodied in these statutes, not a mere contractual dis- pute. The state, relying on O'Bannon, 447 U.S. at 773, also contends that G & G’s property interest is not protectible because this case involves the indirect effects of state action. In O'Bannon, the Supreme Court reiterated the principle that “the due process provision of the Fifth Amendment does not apply to the indirect adverse effects Bernardino Physicians’ Servs. Med. Group, Inc., 825 F.2d at 1406 (physicians’ group’s challenge to termination of service contract with state did not implicate due process interest because status of employees depended entirely upon their contracts with group, not upon contracts between group and state). * G &G points out that a prime contractor has none of the usual breach of contract remedies. It may not declare a material breach by the awarding body for withholding payments and it may not rescind the contract. The prime contractor must continue to perform, to pay for labor and materials, even if payments have been cut off. The exclusive remedy is a lawsuit. Cal. Labor Code §§ 1731-33. 7G & G's complaint seeks declaratory relief from the “facial unconstitutionality of state laws.” A-20 of governmental action.” 447 U.S. at 789. Specifically, the Court held that residents of a nursing home that had its license revoked did not have a right to a hearing because the revocation “did not directly affect the patients’ legal rights or deprive them of any constitutionally protected interest in life, liberty, or property.” Id. at 790. It further stated, “[T]he fact that the decertification of a home may lead to severe hardship for some of its elderly residents does not turn the decertification into a governmental decision to impose that harm.” Id. at 789. In a footnote, however, the Court expressly noted: We of course need not and do not hold that a person may never have a right to a hearing before his interests may be indirectly affected by government action. Conceivably, for example, if the Government were acting against one person for the purpose of punishing or restraining another, the indirectly affected individual might have a constitutional right to some sort of hear- ing. But in this case the Government is enforcing its regulations against the home for the benefit of the patients as a whole and the home itself has a strong financial incentive to contest its enforcement decision; under these circum- stances the parties suffering an indirect adverse effect clearly have no constitutional right to par- ticipate in the enforcement proceedings. Id. at n.22. The state’s reliance on O'Bannon is misplaced.* Unlike the nursing home residents in that case, G & G is * The other cases cited by the state are similarly inapposite. See Castaneda v. United States Dept. of Agric., 807 F.2d 1478 (9th Cir, 1987) (employee of convenience store who was fired after A-21 the target of the state’s action here. Hence there is no “indirect” governmental action despite the presence of the prime contractors in the chain of causation. Even if we were to accept the state’s contention that its withhold- ing of funds constitutes indirect action, such action would fall within the category expressly left open by the O'Bannon Court — action taken by the government against one party for the purpose of punishing or restraining another. Either way, we hold that G & G has suffered a deprivation of a protectible property interest as a result of the state’s action. B. Process Due We now examine whether the state accorded G & G due process when it effected this deprivation. As a gen- eral rule, the Due Process Clause requires that individ- uals rereive notice and a meaningful opportunity to be heard before the government deprives them of property. United Stu.es v. James Daniel Good Real Prop., 510 U.S. 43, 48 (1993). Twenty five years ago, the Supreme Court announced an exception to this rule for “extraordinary situations where some valid governmental interest is at stake.” Fuentes v. Shevin, 407 U.S. 67, 82 (1972) (quoting Boddie v. Connecticut, 401 U.S. 371, 378-79 (1971)). More store was disqualified from food stamp program did not have right to hearing even though employee's fraudulent conduct was cause of termination); Grove City College v. Bell, 687 F.2d 684 (3d Cir. 1982), aff'd, 465 U.S. 555 (1984) (students of college that refused to comply with requirements of federal student aid program did not have right to hearing before college's eligibility to receive student aid was revoked). A-22 recently, the Court has refined the exception: “An impor- tant government interest, accompanied by a substantial assurance that the deprivation is not baseless or unwar- ranted, may in limited cases demanding prompt action justify postponing the opportunity to be heard until after the initial deprivation.” Federal Deposit Ins. Corp. v. Mal- len, 486 U.S. 230, 240 (1988). Over the years, the Court has broadened this exception considerably, frequently hold- ing a post-deprivation hearing to be sufficient. Compare Board of Regents, 408 U.S. at 570 n.7 (describing use of exception as “rare”), with e.g., Barry v. Barchi, 443 U.S. 55 (1979) (holding that state’s interest in preserving integrity of sport of horse racing justifies lack of pre-deprivation hearing), and Mallen, 486 U.S. 230 (holding that state’s interest in maintaining public confidence in bank man- agement justifies post-deprivation hearing for removal of bank manager). Where extraordinary circumstances justify dispens- ing with a pre-deprivation hearing, however, a prompt post-deprivation hearing must be provided. See Mallen, 486 U.S. at 242. In determining whether a post-depriva- tion hearing procedure is reasonably prompt, a court should “examine the importance of the private interest and the harm to this interest occasioned by delay; the justification offered by the Government for delay and its relation to the underlying governmental interest; and the likelihood that the interim decision may have been mis- taken.” Id. Here, we have no doubt that the state’s interest in ensuring the payment of prevailing wages is sufficiently “important,” see Mallen, 486 U.S. at 240, to justify the withholding of funds pending the outcome of whatever A-23 kind of hearing may be afforded. Whether a hearing is before or after the giving of notice or the actual withhold- ing is a matter for the state to determine on the basis of the practical considerations involved. See, e.g., Gilbert v. Homar, 117 S. Ct. 1807, 1812 (1997) (citing Morrissey v. Brewer, 408 U.S. 471, 481 (1972)). In this case, however, subcontractors like G & G are afforded neither a pre- nor post-deprivation hearing when payments are withheld. Once the state determines that a violation of the prevailing wage law has occurred, it may withhold and disburse money directly to the workers and may impose fines both without providing any hearing at which the subcontractor might challenge the validity of the state’s finding. Accordingly, sub- contractors have no opportunity to be heard at a mean- ingful time in a meaningful manner. See Fuentes, 407 U.S. at 80. This scheme violates the Due Process Clause of the Fourteenth Amendment.’ % Cal. Lab. Code §§ 1730-33. The state’s argument that due process is satisfied because an aggrieved party may bring a suit on the contract is unavailing. The state relies on Parratt v. Taylor, 451 U.S. 527 (1981), overruled in part on other grounds by Daniels v. Williams, 474 U.S. 327 (1986), and Hudson v. Palmer, 468 U.S. 517 (1984), which held that in certain circumstances, a post- deprivation remedy under state law may fulfill the require- ments of due process. We have stated, however, that “[wJe apply Parratt and Hudson only when the state administrative machinery did not and could not have learned of the deprivation until after it occurred, not when state officials acted pursuant to state policy and followed state procedures they believed were proper.” Knudson v. City of Ellensburg, 832 F.2d 1142, 1149 (9th Cir. 1987) (internal quotations omitted). There is no question here, and the state does not contest, that the officials A-24 Although the decision as to what specific type of hearing will be afforded subcontractors may depend upon the factual circumstances, the state must, upon determining that a subcontractor has failed to pay pre- vailing wages, provide the contractor with a reasonably prompt hearing of some sort.!° Pending the outcome of such a hearing, the state may withhold payments and penalty funds.!! in this case acted pursuant to state policy and followed state procedures. Thus, Knudson forecloses the state’s argument. Moreover, we doubt the viability of a subcontractor’s hypothetical suit against a prime contractor based on theories of breach of the covenant of good faith and fair dealing or equitable subrogation. The state and amici curiae have been unable to cite a single California case utilizing either theory in this context. The prime contractor could easily defeat any breach of covenant suit by demonstrating that its withholding of payment was authorized by law. See § 1729. And the facts of this case clearly do not meet the traditional elements of equitable subrogation. See Caito v. United California Bank, 576 P.2d 466, 471 (Cal. 1978). !0 The question of when a post-deprivation hearing is adequate is separate from the question of what constitutes a sufficient post-deprivation procedure. The Supreme Court has made it clear that no single model is required in all cases, but that the nature of the deprivation and the other underlying circumstances dictate how much process is due. See Logan v. Zimmerman Brush Co., 455 U.S. 422, 434 (1982) (citing Memphis Light, Gas & Water Div. v. Craft, 436 U.S. 1, 19 (1978); Goss v. Lopez, 419 U.S. 565, 579 (1975)). 1! Contrary to the state’s concerns, our decision today does not affect the validity of the Davis-Bacon Act, 40 U.S.C. §§ 276a et seq., upon which the California law was patterned, because the Davis-Bacon Act provides for an extensive hearing and appeal structure through its implementing regulations. Within 30 days after a withholding, either the prime contractor or the A-25 IV. Other Issues Raised by the State The state asserts that G & G’s summary judgment motion was premature and hence should have been denied. Federal Rule of Civil Procedure 56(a) allows a motion for summary judgment to be made any time more than twenty days after commencement of the action. G & G’s motion complied with this rule and with the notice requirements under Local Rule 7.4.!2 Moreover, the state did not file a Rule 56(f) declaration indicating why it needed discovery and the facts it hoped to discover. Given the state’s receipt of adequate notice and an oppor- tunity to respond to the motion, and its failure to file a Rule 56(f) declaration, the di. trict court did not err in considering the summary judgment motion. The state also contends that the individual defen- dants in this case are entitled to qualified immunity. “Qualified immunity is an affirmative defense to damage liability; it does not bar actions for declaratory or injunc- tive relief.” American Fire, Theft & Collision Managers, Inc. v. Gillespie, 932 F.2d 816, 818 (9th Cir. 1991) (internal subcontractor may request an administrative hearing to review the findings of the Administrator of the Wage and Hour Division of the Department of Labor. 29 C.F.R. § 5.11. The findings and rulings of the administrator may be appealed to an administrative law judge (“ALJ”), whose decision may be appealed to the Wage Appeals Board. Id. Ultimately, the Board’s decision may be appealed to the federal court. 5 U.S.C. § 704. 2G & G points out that it had filed essentially the same motion in a prior case, relying om the same authorities cited here. Thus, the state was aware of G & G’s argument and the authorities on which it relied. A-26 quotation omitted) (emphasis added). Therefore, the indi- vidual defendants cannot claim qualified immunity as an affirmative defense to this action seeking declaratory and injunctive relief. In addition, the district court did not err in denying the state’s motion to dismiss. The state asserts that defects on the face of the complaint mandated its dis- missal, but these alleged defects relate to issues such as standing, whether G & G was deprived of any constitu- tional right, and the qualified immunity defense. To the extent that we have decided all of these issues in G & G’s favor, we affirm the district court’s decision. V. The Injunction The district court’s judgment declared seven separate provisions of the California Labor Code unconstitutional and enjoined the state from enforcing any of those provi- sions against G & G. The state argues that the injunction is overbroad, and we agree. When a federal court holds that a constitutional vio- lation has occurred, the nature of the remedy it grants must be determined by the nature and the scope of the constitutional violation. Milliken v. Bradley, 433 U.S. 267, 280 (1977); see also Califano v. Yamasaki, 442 U.S. 682, 701 (1979) (“[T]he scope of injunctive relief is dictated by the extent of the violation established. ... ”). In devising a remedy for constitutional violations by state agencies or officials, the court “must take into account the interests of state and local authorities in managing their own affairs, consistent with the Constitution.” Id. A-27 The district court’s injunction here was overbroad in two respects. First, by invalidating all California Labor Code provisions relating to the withholding procedure, the district court created a remedy beyond what was required to address the constitutional violation — the state’s failure to provide subcontractors like G & G a pre- or post-deprivation hearing as required by the Due Pro- cess Clause. Declaring the withholding provisions to be unconstitutional as applied is sufficient relief, as it allows the state to remedy the violation by adopting regulations providing for a pre- or post-deprivation hearing and to manage its own affairs in a manner consistent with the Constitution. See Milliken, 433 U.S. at 280. Second, the district court issued a permanent injunc- tion prohibiting the state from enforcing the withholding provisions against G & G. The sweeping nature of this relief suggests that even if the state were to provide G & G with an extensive hearing procedure, it still would be enjoined from penalizing G & G for noncompliance and noncooperation, from obtaining the disputed funds from the awarding body, and from disbursing back wages to underpaid workers even if G & G did not contest the withholding. In short, the district court has simply pro- hibited the state from enforcing the prevailing wage law against G & G. The appropriate course in this case, given all the circumstances, would be to enjoin the state from enforcing the withholding provisions against G & G unless within a reasonable period it chooses to adopt procedures that afford G & G and others either a pre- or post-deprivation hearing, and to specify the time within which the state must do so. A-28 We vacate the district court’s injunction and remand for a modification in the manner stated. VI. Attorney Fees in a companion appeal that has been submitted on the briefs and consolidated with this case, the state con- tests the district court’s award of attorney fees toG & G following its grant of a permanent injunction in G & G’s favor. Specifically, the state asserts that the district court abused its discretion in (1) determining that G & G was the prevailing party under 42 U.S.C. § 1988; (2) awarding attorney fees in light of G & G’s alleged failure to satisfy the applicable criteria for such relief; and (3) awarding attorney fees to G & G for work performed in a previous lawsuit alleging identical claims for relief against the same defendants. A. Procedural History In December 1994, G & G filed a lawsuit entitled G & G Fire Sprinklers, Inc. v. Juan Garza et al., No. CV-94-8542 R (“the Garza lawsuit”). G & G’s claims in the Garza lawsuit were the same as those presented in this case. The Garza lawsuit ended in a settlement agreement providing that G & G could refile the lawsuit if the state took further action against G & G, which is precisely what happened. The s\ate’s further action — a subsequent notice to withhold — prompted G & G to file the present action. After the district court’s grant of the injunction, the state filed a motion to stay the judgment in this Court, A-29 which was denied by a motions panel. Next, the district court issued an attorney fees award totaling $25,830.28, which is the subject of this appeal. Subsequently, we reconsidered our previous denial of the motion to stay the judgment, granted a stay pending appeal, and set the case for an early hearing on the merits. B. Prevailing Party The state argues that G & G is not a prevailing party under 42 U.S.C. § 1988 because while it received the relief it requested — an injunction — the staying of that injunc- tion somehow nullified its legal effect or its mandate that the state alter its unlawful conduct. We reject this argu- ment. In Farrar v. Hobby, the Supreme Court held that to be considered a prevailing party, a plaintiff must “obtain an enforceable judgment against the defendant from whom fees are sought, or comparable relief through a consent decree or settlement.” 506 U.S. 103, 111 (1992) (citations omitted). “In short, a plaintiff ‘prevails’ when actual relief on the merits of his claim materially alters the legal relationship between the parties by modifying the defen- dant’s behavior in a way that directly benefits the plain- tiff.” Id. at 111-12. Here, G & G obtained an injunction from the district court, which materially altered the legal relationship between the parties by prohibiting the state from depriv- ing G & G of property without any hearing. Certainly that change benefitted G & G and it is the prevailing party. See Herrington v. County of Sonoma, 883 F.2d 739, 744 (9th Cir. 1989) (injunction, which appellate court upheld, rendered A-30 plaintiffs prevailing parties despite vacatur of damage award); see also Baumgartner v. Harrisburg Hous. Auth., 21 F.3d 541, 543 (3d Cir. 1994) (plaintiff who has received injunctive relief has prevailed for purposes of section 1988). That a stay was issued after the district court's grant of the injunction does not alter G & G’s status as the prevailing party in the district court, as the district court’s judgment is a statement of the rights of the parties unless and until that judgment is altered by a higher court. We have decided not to do so. C. General Award of Fees The state also claims that the district court erro- neously awarded attorney fees based solely on the decla- ration of Stephen A. Seideman (“Seideman declaration”), G & G’s attorney in the district court.'> More specifically, the state argues that the Seideman declaration fails to discuss many of the factors discussed in Kerr v. Screen Extras Guild, Inc., 526 F.2d 67, 69-70 (9th Cir. 1975), to be considered by a district court in awarding attorney fees. These include: (1) the time and labor required; (2) the novelty and difficulty of the questions; (3) the skill requi- site to perform the legal services properly; (4) the preclu- sion of other employment due to acceptance of the case; (5) the customary fee; (6) the contingent or fixed nature of the fee; (7) the limitations imposed by the client or the case; (8) the amount involved and the results obtained; 13 The state does not dispute any specific items, such as the services provided or the hourly rate, or the total amount of fees; it simply asserts that G & G's evidence was not sufficient to support an award of fees. A-31 (9) the experience, reputation, and ability; (10) the unde- sirability of the case; (11) the nature of the professional relationship with the client; and (12) awards in similar cases. A district court, however, need not discuss each and every factor separately in making its decision. Rather, a strong presumption exists that the lodestar (reasonable number of hours times reasonable hourly rate) represents a reasonable fee, and “many of these factors usually are subsumed” within the lodestar calculation. Jordan v. Mult- nomah County, 815 F.2d 1258, 1262 (9th Cir. 1987) (quoting Hensley v. Eckerhart, 461 U.S. 424, 434 (1983)). Thus, G&G only had to prove that its hourly rate was reasonable and that the total number of hours expended was reasonable. See Dennis v. Chang, 611 F.2d 1302, 1308 (9th Cir. 1980) (award of attorney fees properly granted where based solely on skill and experience of counsel, rates of com- pensation “typical” of those charged by attorneys for comparable service, and reasonable amount of time spent). Nevertheless, we agree with the state that G & G did not satisfy its “burden of producing satisfactory evidence, in addition to the affidavits of its counsel, that the requested rates are in line with those prevailing in the community for similar services of lawyers of reasonably comparable skill and reputation.” Jordan, 815 F.2d at 1263 (emphasis added). The only evidence in the record about the hourly rate is Mr. Seideman’s statement in his declaration that “[t]he hourly rates which I billed Plaintiff are equal to or less than those generally billed by attorneys in Los Angeles for similar services,” and a similar statement A-32 with regard to the paralegal’s hourly rates. These state- ments constitute an “insufficient basis from which to conclude that the rates requested are ‘reasonable.’ ” Southerland v. International Longshoremen’s and Warehouse- men’s Union, 845 F.2d 796, 801 (9th Cir. 1987). Therefore, while G & G certainly is entitled to fees, we remand to the district court the issue of whether the claimed hourly rates are reasonable. On remand, both G & G and the State should be allowed to supplement the record with additional evidence so that the district court can reevalu- ate the reasonableness of the fees requested. In addition, we do not find persuasive the state's related argument that the California Division of Labor Standards Enforcement (“DLSE”) and the Department of Industrial Relations were not made parties to the present suit until the First Amended Complaint on September 7, 1995 and hence should not be held accountable for any fees incurred prior to that time. We hold that these parties are jointly and severally liable for the fees, given that the work involved aided in the preparation of the case against all the defendants and the case was not one in which the claims against each defendant varied or one defendant was more culpable than another. See Woods v. Graphic Communications, 925 F.2d 1195, 1207 (9th Cir. 1991) (defendant liable for fees previously incurred where fees assisted in preparing case against defendant and served as developmental work for case). A-33 D. Award of Fees for Work Performed in Previous Law- suit The state asserts that the district court should not have allowed G & G to recoup attorney fees from the Garza lawsuit given that it did not prevail in that lawsuit. We uphold the district court’s decision. In Webb v. Board of Educ., 471 U.S. 234, 243 (1985), the Supreme Court affirmed a district court’s decision to deny attorney fees for time spent pursuing optional administrative remedies, specifically school board pro- ceedings. But the Court noted that the petitioner in that case “made no suggestion below that any discrete portion of the work product from the administrative proceedings was work that was both useful and of a type ordinarily necessary to advance the civil rights litigation to the stage it reached before settlement,” id., suggesting that if that had happened, maybe the result would have been differ- ent. We followed the Supreme Court’s lead in Rock Creek Ltd. Partnership v. State Water Resources Control Bd., 972 F.2d 274, 279 (9th Cir. 1992), holding that a sponsor of a hydroelectric project was not entitled to attorney fees under §§ 1983 and 1988 for administrative proceedings before FERC. We reasoned that the FERC proceeding was not a condition precedent to plaintiff’s entry to federal court, nor was it a part of a continuing federal court action. Because the FERC proceeding was not related or dependent, it could not form the basis for attorney fees. Id. Cases from other circuits have addressed sin ilar fee issues in non-administrative contexts. For example, the Third Circuit held in Keenan v. City of Philadelphia, 983 A-34 F.2d 459, 474 (3d Cir. 1992), that the district court did not abuse its discretion in including the time spent in labor arbitration in its fee calculation. It based its decision on the following interpretation of Webb by the Third Circuit: “IFjor the time spent pursuing optional administrative proceedings properly to be included in the calculation of a reasonable attorney's fee, the work must be ‘useful and of a type ordinarily necessary’ to secure the final result obtained from the litigation.” Pennsylvania v. Delaware Valley Citizens’ Council for Clean Air, 478 U.S. 546, 561 (1986). In addition, the Eighth Circuit briefly addressed a similar situation in Perkins v. Cross, 728 F.2d 1099, 1100 (8th Cir. 1984), an action by picketers against municipal officials for violation of their civil rights. The court held that fees could be awarded for any “time the lawyer spent defending the plaintiffs in the original municipal court proceeding to the extent, if any, that research or investigation done in connection with that proceeding proved directly relevant to the successful prosecution of [their] later civil rights claims.” Id. Here, G & G made a showing that the work done in the Garza lawsuit was directly related to the present action — the atlegations in that suit were identical to those made here. Counsel for G & G stated that the legal research and analysis performed in Garza were necessary for this action and accordingly saved him from expending more time on this lawsuit. Thus, unlike the Rock Creek case, the prior proceeding here was related to the present action. The two can even be viewed as a continuum of proceedings necessary to achieve the relief finally granted, given that the Garza case ended in a settlement stating that if the state took further action, G & G could A-35 refile the lawsuit, which is what happened. Moreover, caselaw reveals no requirement that a party must have prevailed in a prior proceeding to use that as a basis for attorney fees in another action. AFFIRMED IN PART, REVERSED AND REMANDED IN PART. Costs to Appellee G & G Fire Sprinklers, Inc. KOZINSKI, Circuit Judge, dissenting. In San Bernardino Physicians’ Services Medical Group v. County of San Bernardino, 825 F.2d 1404 (9th Cir. 1987), we held that “[iJt is neither workable nor within the intent of section 1983 to convert every breach of contract claim against a state into a federal claim.” Id. at 1408 (footnote omitted). While we recognized that any contract with the state gives rise to what could be characterized as a prop- erty interest, we held that thi: alone is not a basis for invoking the protections of due process. Rather, the inter- est in question must fall within a narrow category that might fairly be characterized as a civil right, see id. at 1409, a right in public employment being the quintessen- tial example. See id. (citing Board of Regents v. Roth, 408 U.S. 564 (1972), and Perry v. Sindermann, 408 U.S. 593 (1972)). San Bernardino said that “construction contracts [and] purely material supply contracts” — contracts like the one we have here - do not create rights protected by the due process clause. Id. at 1410. The majority abandons San Bernardino’s nuanced framework in favor of a categorical approach that turns every right to receive payment on a public works contract into a property right protected by due process: “G & G’s interest arises from its public works contract; it has a property interest in being paid in full for the construction A-36 work it has completed.” Maj. op. at 10658. The opinion thus conflicts with San Bernardino, as well as the opinions of two other circuits. See Mid-American Waste Sys., Inc. v. City of Gary, 49 F.3d 286, 291 (7th Cir. 1995); Walentas v. Lipper, 862 F.2d 414, 418 (2d Cir. 1988); S & D Maintenance Co. v. Goldin, 844 F.2d 962, 966 (2d Cir. 1988). It is also very bad policy. The state here is engaged in a commercial activity; it holds no special sway over other parties by virtue of its regulatory powers. In carrying out its project, the state has bargained for the construction to be done according to plan, on schedule, and consistent with health and safety codes; these are ordinary terms just like the ones private parties put into their construc- tion contracts. The state has also bargained for a more exotic term, namely that contractors and subcontractors pay a prevailing wage to their employees. While this differs from what ordinarily appears in private construc- tion contracts, it is not an exercise of the state’s regula- tory power; rather, it is a t [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385017_1421%3A1. Public record. Not legal advice.