Unpublished Disposition, 876 F.2d 897 (9th Cir. 1987)

MEMORANDUM^* 

Appellant Oceanside Golf Institute, Inc., (Oceanside) appeals the district court's dismissal of its 42 U.S.C. § 1983 action against the City of Oceanside and several Oceanside City Council members (City) alleging that the City Council members conspired to make Oceanside's contractually required development of the Center City Golf Course economically unfeasible in order to regain possession of the course. The City cross-appeals the denial of its motion for attorneys' fees under 42 U.S.C. § 1988 and the contract. We affirm.

BACKGROUND

In 1982, Oceanside and the City signed an agreement in which Oceanside agreed to operate, maintain, and improve the Center City Golf Course owned by the City. Under the terms of the lease, Oceanside was to expand the course from nine to eighteen holes, perform other improvements, and add additional services. Oceanside was entitled to the revenues generated from the operation of the course, and was required to make minimum and percentage rent payments. The lease permitted the City to declare Oceanside in default for failure to perform any of its obligations under the lease. Upon notice of default by the City, Oceanside was permitted 60 days in which to cure the alleged violations cited as the basis for default. The City could terminate the agreement if Oceanside failed to cure the alleged default within the 60 day period.

The City issued a notice of default in April 1987. The notice listed approximately nine items of noncompliance under the agreement by Oceanside. Oceanside responded to the notice within the 60 day period, but alleges that it was never granted its request to appear before the City Council. Once the 60 day period elapsed, the City Council voted to terminate the agreement and filed an action in state court. That action was stayed pending outcome of this case, and was reinstated when this case was dismissed by the district court.

On August 20, 1987, Oceanside filed a one count complaint under 42 U.S.C. § 1983, alleging that after the City Council election in 1986, a majority of the Council conspired to regain possession of the course by forcing Oceanside to forfeit its right to operate the golf course. The complaint alleges that the City engaged in various conduct to make completion of the course redevelopment economically unfeasible. It states that the defendants "exhibited a malicious, wanton and reckless disregard for Oceanside's constitutional rights and protected expectancies resulting from its redevelopment of the golf course pursuant to the agreement," (Compl. at 10) but does not specify what constitutional provision was violated. Oceanside requests a declaratory judgment that it was not in default under the agreement, as well as compensatory damages, attorneys' fees, and costs.

In ruling on the City's motion to dismiss, the district court apparently assumed that the only claim alleged by plaintiff was a procedural due process claim. Relying on San Bernardino Physicians' Services Medical Group, Inc. v. County of San Bernardino, 825 F.2d 1404 (9th Cir. 1987), the court concluded that the contract did not create the type of property interest normally accorded protection by the due process clause, and dismissed the case.

Oceanside filed a timely appeal of the dismissal and the City filed a timely cross-appeal challenging the denial of attorneys' fees under the contract. We have jurisdiction under 28 U.S.C. § 1291 (1982).

ANALYSIS

Oceanside contends that the dismissal should be reversed because the district court improperly concluded that Oceanside's contract with the City did not create a property right under the due process clause. Dismissal for failure to state a claim is a ruling on a question of law which we review de novo. Western Reserve Oil & Gas Co. v. New, 765 F.2d 1428, 1430 (9th Cir. 1985), cert. denied, 474 U.S. 1056 (1986).

Initially, we note that it is unclear which type of due process violation Oceanside alleges: procedural, substantive, or both. Oceanside's lack of a property interest, however, is fatal to either type of due process claim.

Procedural Due Process

In order to prove its procedural due process claim, Oceanside must show that it has a property interest entitling it to due process, and that it was deprived of that interest without due process. Knudson v. City of Ellensburg, 832 F.2d 1142, 1145 (9th Cir. 1987). It is well settled that property interests are not created by federal constitutional law, but "are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law...." Board of Regents v. Roth, 408 U.S. 564, 577 (1972). Federal constitutional law, however, determines whether the interest constitutes property protected by the fourteenth amendment. Memphis Light, Gas & Water Div. v. Craft, 436 U.S. 1, 9 (1978); Brady v. Gebbie, 859 F.2d 1543, 1548 n. 3. (9th Cir. 1988), cert. denied, 109 S. Ct. 1577 (1989); Knudson, 832 F.2d at 1144-45. "Not every state entitlement rises to the level of a constitutionally protected property interest." Id. at 1145.

Oceanside contends that its contract with the City creates a property interest protected under the due process clause. We agree with the district court that San Bernardino is dispositive of Oceanside's claim. In San Bernardino an incorporated physicians group brought suit against a medical center alleging that the medical center's termination of the physicians group's four-year contract to provide medical services to the medical center constituted a deprivation of procedural due process. 825 F.2d at 1405. The district court granted the medical center's motion for summary judgment on the ground that a government contract by itself cannot create a constitutionally protected property interest. Id. at 1406.

On appeal, this court affirmed. Initially, we rejected the district court's conclusion that a property interest may not be created by a written contract.¹  Recognizing that federal constitutional law determines whether a state created right constitutes a protected property interest under the due process clause, see Memphis Light, 436 U.S. at 9, we went on to state that not every contract with a governmental entity creates a property interest protected under the due process clause. San Bernardino, 820 F.2d at 1408-09. In attempting to determine what kinds of contracts with the state create rights protected under the fourteenth amendment, we noted that nearly all of the successful contract claims under section 1983 involved employment contracts.²  Although emphasizing that employment contracts are not the only type of contract that might be entitled to due process protection, we held that "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." Id. at 1409-10. We concluded that the physicians group's contract to provide medical services was, for purposes of the fourteenth amendment, no different than a construction contract or a material supply contract, and therefore did not confer a constitutionally protected interest on the physician's group. Id. at 1410.

Oceanside's contractual claim is even further from an interest as central to an individual as employment than the contract in San Bernardino. In San Bernardino, the contract to provide medical services was not technically an employment contract, but it nevertheless indirectly involved the employment of the doctors employed by the group. Here, the contract involves the leasing of real estate for profit. Moreover, the contract is even more analogous to a typical construction contract than the contract in San Bernardino.

Oceanside's attempts to distinguish San Bernardino are unavailing. Oceanside first contends that unlike San Bernardino, its contract grants it a leasehold interest which the common law considers a property interest. Simply because state law defines an interest as "property," however, is not dispositive. See Reed v. Village of Shorewood, 704 F.2d 943, 948 (7th Cir. 1983) ("property" under the Illinois Liquor Control Act need not mean the same thing as "property" under the due process clause). The appropriate question is whether the state-defined property interest should be protected by the due process clause. As indicated above, Oceanside's leasehold interest does not come any closer to approximating the type of interest generated by an individual's employment than did the physicians group's contractual interest.³  As the City properly points out, converting every breach of lease claim against a public entity into a federal claim would present the same danger which the court in San Bernardino attempted to avoid in the context of state law public contract claims.

Oceanside also argues that its contract differs from the one in San Bernardino because it grants Oceanside the right to operate its own business. Oceanside's interest in the golf course is no different than the physicians group's contractually granted right to offer medical services to the medical center. Oceanside cites Chalmers v. City of Los Angeles, 762 F.2d 753 (9th Cir. 1985), for the proposition that the right to operate a business has traditionally been constitutionally protected. Chalmers did not involve a contract, however, but rather the authority of the city of Los Angeles to prohibit the activities of vendors. Id. at 757.

Finally, Oceanside argues that its agreement is for a definite term and can be terminated only for cause unlike most contracts that have been held insufficient to create a protected property interest. The termination of the contract in San Bernardino, however, was also limited to just cause. Id. at 1405-06.

Oceanside also relies on Reed and Baja Contractors, Inc. v. City of Chicago, 830 F.2d 667 (7th Cir. 1987), cert. denied, 108 S. Ct. 1301 (1988), for the proposition that the contract created a protected property interest. These cases are easily distinguished, however, because neither case involved a contract with a governmental entity. Reed involved the revocation of a liquor license and Baja the revocation of a construction certification. In each of these cases the public entity had the right unilaterally to grant or deny a right defined by statute or ordinance. Whether a license or certification creates a protected property interest has no bearing on whether a negotiated contract such as the one in this case creates a protected property interest.

Finally, Parks v. Watson, 716 F.2d 646 (9th Cir. 1983) (per curiam), is also inapplicable to this case. In Parks, the court found that certain Oregon state regulations placing significant limitations on an agency's ability to deny a hearing on a petition to vacate certain streets to permit further construction created a protected property interest in having the streets vacated. Id. at 656-57. A contract was not involved. The court did state in passing that had such a contract existed a protected property interest would have been created. This statement appears to conflict with the holding in San Bernardino. Nevertheless, because no contract existed the statement was not essential to the court's ultimate ruling, and we need not follow it.

We accordingly conclude that the contract did not create a property interest protected by the due process clause. We need not determine, therefore, what process was due.

Substantive Due Process

Oceanside also appears to allege a substantive due process claim. Although the analysis of a procedural due process claim differs in several respects from the analysis of a substantive due process claim, the requirement that a life, liberty, or property interest be triggered is a prerequisite to the invocation of both types of claims.⁴  See, e.g., Blaylock v. Schwinden, 862 F.2d 1352, 1354 (9th Cir. 1988) (substantive due process claim based on alleged deprivation of vested property rights in the form of mature and accrued claims for workers' compensation). Having concluded that the lease agreement does not create a constitutionally protected property interest, Oceanside's substantive due process claim must also be rejected.

On appeal, the City bases its request for attorneys' fees solely on section 42.9 of its lease agreement with Oceanside. That section permits the prevailing party in any legal action brought "because of the breach of any term, covenant or condition" of the agreement to collect costs and reasonable attorneys' fees from the losing party.

The interpretation of a contract is a mixed question of fact and law. Marchese v. Shearson Hayden Stone, Inc., 734 F.2d 414, 417 (9th Cir. 1984). When a district court's decision is based on an analysis of the contract language and the application of principles of contract interpretation, the decision is reviewed de novo. Miller v. Safeco Title Ins. Co., 758 F.2d 364, 367 (9th Cir. 1985). If a district court focuses on extrinsic evidence of what the parties said and did, however, then the court's conclusions will not be reversed unless clearly erroneous. Id.; Marchese, 734 F.2d at 417.

The interpretation of the contract is not disputed. Rather, the parties disagree over whether Oceanside's claim should be characterized as a breach of contract claim or a civil rights claim. Resolution of this issue involves a legal interpretation of undisputed facts in light of the clear terms of the contract. We therefore review the district court's characterization of Oceanside's claim under the de novo standard.

We agree with Oceanside that section 42.9 is inapplicable because the suit was not one for breach of contract, but was brought because of an alleged scheme to force Oceanside to forfeit its contractual rights. The City's motion for attorneys' fees was therefore properly denied.

CONCLUSION

Because the contract between Oceanside and the City did not confer a property right upon Oceanside, Oceanside's due process claims were properly dismissed. The City's motion for attorneys' fees was also properly denied.

AFFIRMED.