Trifax Corp v. DC, et al, No. 01-7195 (D.C. Cir. 2003)

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 21, 2002 Decided January 14, 2003

No. 01-7195

Trifax Corp.,

Appellant

v.

District of Columbia, et al.,

Appellees

Appeal from the United States District Court

for the District of Columbia

(No. 98cv02824)

Barbara E. Brown argued the cause and filed the briefs for

appellant.

Edward E. Schwab, Assistant Corporation Counsel, Office

of Corporation Counsel, argued the cause for appellee. With

him on the brief was Charles L. Reischel, Deputy Corporation

Counsel.

 Before: Sentelle, Henderson and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Tatel.

Tatel, Circuit Judge: In this case, a government contrac-

tor claims that the District of Columbia Inspector General, by

releasing an allegedly defamatory audit report, deprived it of

liberty to engage in its chosen business in violation of the

Fifth Amendment's Due Process Clause. Because the con-

tractor, though perhaps injured in some respects, cannot

demonstrate broad preclusion from government contracting,

as the law of this circuit requires, we affirm the district

court's grant of summary judgment for the District of Colum-

bia.

I.

Appellant Trifax Corporation supplies health care and

nursing services to District and federal agencies. In May

1997, at the request of a D.C. Councilmember, the District of

Columbia Office of Inspector General (OIG) opened an inqui-

ry into Trifax's performance of its contracts with District

agencies. After auditing two of Trifax's four contracts, the

OIG released a highly critical report that was later described

in a Washington Post article. According to the OIG report,

Trifax "consistently violated the requirements of the con-

tracts," as well as the federal Service Contract Act, 41 U.S.C.

s 351 et seq., by both underpaying its employees and over-

charging the District. See Review of the Department of

Human Services and the District of Columbia General Hospi-

tal Contracts with the Trifax Corporation, OIG No. 9713-25

at 3 (Nov. 20, 1997). Although the report also found Trifax's

misdeeds "sufficient to justify" a three-year debarment from

bidding on District contracts, it recommended that the Dis-

trict defer formal action pending completion of a parallel

investigation by the U.S. Department of Labor. Id. at 11.

For purposes of this case, the only important fact about the

OIG's audit is that the OIG never offered Trifax an opportu-

nity to comment on the unfavorable report before making it

public. After the report's release, Trifax wrote two letters to

the OIG calling the report factually inaccurate and requesting

its withdrawal. Based on "additional information" from Tri-

fax, the OIG released a revised report reaffirming that Trifax

underpaid employees and overcharged the District, but lower-

ing the estimate of total financial irregularities from $43,288,

as found in the initial report, to $28,104. See Review of the

Department of Human Services and the District of Columbia

General Hospital Contracts with a Selected Vendor, No. OIG-

9713-25 (Revised), OIG-00-2-02MA at 1-2 (Sept. 15, 2000).

Unlike the initial report, the revised report did not recom-

mend formal debarment.

Trifax brought suit in the United States District Court for

the District of Columbia against the District of Columbia,

various agencies, and various District officials in both their

official and individual capacities alleging (1) deprivation of due

process under 42 U.S.C. s 1983 and (2) defamation and negli-

gence under D.C. law. Acting pursuant to Federal Rule of

Civil Procedure 12(b)(6), the district court dismissed the

negligence and defamation counts, citing public duty and

absolute immunity doctrine, as well as the constitutional claim

as to D.C. officials sued in their individual capacities, citing

qualified immunity doctrine. Trifax Corp. v. Dist. of Colum-

bia, 53 F. Supp. 2d 20, 24-26, 28-31 (D.D.C. 1999) ("Trifax

I"). The district court later granted summary judgment for

the District of Columbia on the constitutional claim, finding

Trifax unable to prove that District officials had deprived it of

a liberty interest. Trifax Corp. v. Dist. of Columbia, No.

98-2824, mem. op. at 8-19 (D.D.C. Nov. 2, 2001) ("Trifax II").

Trifax appeals. Bearing in mind that "a complaint should

not be dismissed for failure to state a claim unless it appears

beyond doubt that the plaintiff can prove no set of facts in

support of his claim which would entitle him to relief," Conley

v. Gibson, 355 U.S. 41, 45-46 (1957), and that "summary

judgment will not lie ... if the evidence is such that a

reasonable jury could return a verdict for the nonmoving

party," Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

(1986), we review the district court's decisions de novo, see

Weyrich v. New Republic, Inc., 235 F.3d 617, 623 (D.C. Cir.

2001) (dismissal for failure to state a claim reviewed de novo);

Troy Corp. v. Browner, 120 F.3d 277, 281 (D.C. Cir. 1997)

(grant of summary judgment reviewed de novo).

 II.

We begin our analysis of the constitutional claim with two

due process principles that fit together somewhat uneasily in

the circumstances of this case. First, a person's "right to ...

follow a chosen profession free from unreasonable govern-

mental interference comes within the 'liberty' ... concept[ ]

of the Fifth Amendment." Greene v. McElroy, 360 U.S. 474,

492 (1959); see also Kartseva v. Dep't of State, 37 F.3d 1524,

1529 (D.C. Cir. 1994) (acknowledging a "constitutionally pro-

tected 'right to follow a chosen trade or profession' " (quoting

Cafeteria & Restaurant Workers Local 473 v. McElroy, 367 U.S. 886, 895-96 (1961))). Because this "liberty concept"

protects corporations as well as individuals, formally debar-

ring a corporation from government contract bidding consti-

tutes a deprivation of liberty that triggers the procedural

guarantees of the Due Process Clause. Old Dominion Dairy

Prods., Inc. v. Sec'y of Defense, 631 F.2d 953, 961-62 (D.C.

Cir. 1980). Second, persons whose future employment pros-

pects have been impaired by government defamation "lack

... any constitutional protection for the interest in reputa-

tion." Siegert v. Gilley, 500 U.S. 226, 234 (1991). This

principle derives from Paul v. Davis, 424 U.S. 693 (1976),

which held that police distribution of a flyer labeling the

plaintiff an "Active Shoplifter[ ]," though "seriously im-

pair[ing] his future employment opportunities," infringed no

liberty interest because it harmed only the plaintiff's reputa-

tion. Id. at 697, 711-12. Reiterating this principle in Siegert

v. Gilley, the Supreme Court held that a plaintiff whose

former government employer sent an admittedly libelous

letter of reference that "would undoubtedly ... impair his

future employment prospects" stated no constitutional viola-

tion "so long as such damage flows from injury caused by the

defendant to a plaintiff's reputation." 500 U.S. at 234.

The case before us reveals the tension between these two

lines of due process cases. Had the District formally de-

barred Trifax from bidding on government contracts, that

would have unquestionably constituted a deprivation of liber-

ty. Conceding that it was not formally debarred, however,

Trifax claims to have suffered "broad preclusion" from gov-

ernment contracting. Appellant's Rep. Br. at 8-11. In view

of the fact that formal debarment would constitute a depriva-

tion of liberty, it would be odd if broad preclusion, equivalent

in every practical sense to formal debarment, did not also

constitute a deprivation simply because the harm was reputa-

tional. For exactly this reason, and notwithstanding the

strong language in Paul v. Davis and Siegert v. Gilley, we

have held on several occasions that government stigmatiza-

tion that broadly precludes individuals or corporations from a

chosen trade or business deprives them of liberty in violation

of the Due Process Clause.

For example, in Old Dominion Dairy Products, Inc. v.

Secretary of Defense, a government contractor unfavorably

audited by the government, though not formally debarred,

was "effectively put ... out of business." 631 F.2d at 963.

We held that "when the Government effectively bars a con-

tractor from virtually all Government work due to charges

that the contractor lacks honesty or integrity, due process

requires that the contractor be given notice of those charges

as soon as possible and some opportunity to respond to the

charges before adverse action is taken." Id. at 955-56. We

reached a similar result in Kartseva v. Department of State,

where a government contractor fired a Russian translator

after the State Department informed the contractor that

employing the translator raised " 'counterintelligence con-

cerns.' " 37 F.3d at 1525 (internal citation omitted). We held

that a liberty interest was implicated if the State Depart-

ment's action (1) "formally or automatically excludes Kartseva

from work," or (2) "does not have this binding effect, but

nevertheless has the broad effect of largely precluding Kart-

seva from pursuing her chosen career as a Russian transla-

tor." Id. at 1528 (emphasis in original). In still another due

process employment case, Taylor v. Resolution Trust Corp.,

56 F.3d 1497 (D.C. Cir. 1995), we relied on Kartseva for the

proposition that "government action precluding a litigant

from future employment opportunities will infringe upon his

constitutionally protected liberty interests ... when that

preclusion is either sufficiently formal or sufficiently broad."

Id. at 1505.

These employment and government contracting due pro-

cess cases establish what we call a "reputation plus" require-

ment--plaintiffs must show not only that the government

harmed their reputation, but also that the resulting stigma

"altered [their] status in a tangible way." Orange v. Dist. of

Columbia, 59 F.3d 1267, 1274 (D.C. Cir. 1995) (internal

quotation marks and citations omitted) (alteration in original).

This "change in status requirement," id. (internal quotation

marks omitted), explains why Paul v. Davis and Siegert v.

Gilley have no applicability to the claims here: Both cases

involve harms analogous to common-law defamation, while the

"reputation plus" cases involve harms approaching, in terms

of practical effect, formal exclusion from a chosen trade or

profession, as in Old Dominion. The key inquiry then is this:

Has the government, by attacking personal or corporate

reputation, achieved in substance an alteration of status that,

if accomplished through formal means, would constitute a

deprivation of liberty? For this reason, plaintiffs claiming

"broad preclusion" must show that "the government 'has

seriously affected, if not destroyed, [their] ability to obtain

employment [or contracts] in [their] field.' " Taylor, 56 F.3d

at 1506 (quoting Greene v. McElroy, 360 U.S. at 492).

Turning to the facts of this case, we agree with the district

court that Trifax failed to show anything remotely close to

"broad preclusion." As the district court found, the record

demonstrates that Trifax " 'won some and lost some' in

retaining and bidding on government contracts after the

original OIG Report was released." Trifax II, No. 98-2824

mem. op. at 14. To be sure, in the year following the release

of the OIG report, the District declined to renew at least two

contracts with Trifax. Later that same year, however, the

District of Columbia General Hospital--the contracting agen-

cy in one of the two OIG-audited contracts--actually awarded

Trifax a new contract. Id.; cf. Advanced Mgmt. Tech., Inc. v.

Fed. Aviation Admin., 211 F.3d 633, 636 (D.C. Cir. 2000)

(holding that the " 'all is forgiven' message implicit" in the

present award of a government contract "suggests the im-

probability of ... a [reputational] shadow" arising from past

criticism by the same agency). It is also true that Trifax

later failed to win two federal contracts, but the district court

concluded, correctly we believe, that neither of these unfavor-

able results is traceable to the OIG report. Trifax II, No.

98-2824 mem. op. at 16-17. Indeed, in one of the bid

processes, the United States Comptroller General formally

prohibited the contracting agency from penalizing Trifax for

the OIG report; in the other, a District of Columbia agency

sent a recommendation letter calling Trifax "a reliable, com-

petent ... company" and noting "no complaints or contract

deficiencies" in Trifax's file. Id. at 16, 17 & n.9.

In sum, because these facts are more than sufficient to

preclude a reasonable jury from finding Trifax broadly pre-

cluded from government contracting, we affirm the district

court's grant of summary judgment for the District. We thus

have no need to address Trifax's claim that the authors of the

OIG report enjoy no qualified immunity from constitutional

torts committed in their individual capacities.

III.

Trifax's challenge to the district court's dismissal of its

defamation and negligence claims requires little discussion.

As the district court's fine opinion explains, the defamation

claim fails because the government officials acted " 'within the

ambit of [their] discretion' " when they prepared the OIG

report and are thus entitled to " 'absolute immunity for

common law defamation.' " Trifax I, 53 F. Supp. 2d at 29

(quoting Sami v. United States, 617 F.2d 755, 768 (D.C. Cir.

1979) (emphasis added) (internal quotation marks omitted)).

The negligence claim fails, again as the district court's opinion

demonstrates, because District officials had no "special rela-

tionship" with Trifax that would preclude application of the

public duty doctrine. Trifax I, 53 F. Supp. 2d at 31; see also

Powell v. Dist. of Columbia, 602 A.2d 1123, 1129-30 (D.C.

1992).

 IV.

Because Trifax fails either to demonstrate broad preclusion

from government contracting or to plead state law defamation

or negligence claims, we affirm in all respects.

So ordered.