Opinion ID: 166064
Heading Depth: 2
Heading Rank: 3

Heading: Private Defendants' Ability to Assert Qualified Immunity

Text: 15 On appeal, the Defendants do not distinguish between Sunflower as a corporate entity and Mr. Johnson in his individual capacity in arguing that public policy concerns warrant permitting them to assert qualified immunity. As such, we consider the arguments for qualified immunity as applying to both Defendants. The Defendants provide two grounds to support the notion that they can assert qualified immunity: (1) Qualified immunity may be asserted because Sunflower is substantially overseen by SRS; and (2) Policy considerations warrant extending qualified immunity to them. These arguments must be addressed in light of the Supreme Court's most recent decision on whether private parties can assert qualified immunity, Richardson v. McKnight, 521 U.S. 399, 117 S.Ct. 2100, 138 L.Ed.2d 540 (1997). 16 In Richardson, the Supreme Court held that prison guards at a private, for-profit prison could not assert qualified immunity. The Court held that a private individual is only entitled to qualified immunity if a claim of immunity is supported by historical practice or based on public policy considerations. Id. at 403-04, 117 S.Ct. 2100. In discussing the policy considerations, the Court recognized three purposes served by qualified immunity. First, by reducing the threat of litigation, qualified immunity protect[s] the public from unwarranted timidity on the part of public officials. Id. at 408, 117 S.Ct. 2100. Second, qualified immunity helps 'to ensure that talented candidates [are] not deterred by the threat of damages suits from entering public service.' Id. (quoting Wyatt v. Cole, 504 U.S. 158, 167, 1.12 S.Ct. 1827, 118 L.Ed.2d 504 (1992)). Third, qualified immunity reduces the chance that lawsuits will distract officials from their governmental duties. Id. The Court determined that these considerations did not weigh in favor of permitting private prison guards to assert qualified immunity, and because there was no historical evidence that private prison guards were granted immunity, the Richardson Court refused to allow the defendants to claim qualified immunity. Id. at 412, 117 S.Ct. 2100. 17 After concluding that the defendants could not claim qualified immunity, the Court narrowed the scope of its holding. Id. at 413. It noted that Richardson arose in the context where a private firm, systematically organized to assume a major lengthy task (managing an institution) with limited direct supervision by the government, undertakes that task for profit and potentially in competition with other firms. Id. The Court then clarified that Richardson does not involve a private individual briefly associated with a government body, serving as an adjunct to government in an essential governmental activity, or acting under close official supervision. Id. 18 In light of this substantial-supervision caveat, the courts of appeals have allowed private individuals to assert qualified immunity when the defendants were closely supervised by the government. See, e.g., Bartell v. Lohiser, 215 F.3d 550, 557 (6th Cir.2000). Similarly here, the Defendants argue that they should be allowed to assert qualified immunity because they are closely supervised by SRS. Consequently, Richardson is distinguishable, the Defendants argue, and qualified immunity may be asserted. 19 This may be true. CDDOs may be entitled to qualified immunity based on the oversight they receive from SRS. This case, however, does not present an opportunity to decide this issue because the Defendants failed to raise this argument below. Indeed, the District Court recognized the limited nature of Richardson's holding, but noted that the Defendants in this case do not attempt to explain how this case falls outside the realm of Richardson's.  Rosewood Servs., 2003 WL 22090897 at  n. 7. Because this substantial supervision argument was not made below, it is waived on appeal. See Cummings v. Norton, 393 F.3d 1186, 1190-91 (10th Cir.2005). 20 Therefore, the Defendant's sole argument on appeal is that policy considerations warrant permitting them to assert qualified immunity. 4 Although the Richardson Court listed three purposes served by qualified immunity, only the first—unwarranted timidity—is at issue in this case. The Defendants do not argue that the second purpose—ensuring that talented candidates are not deterred from seeking such employment—is applicable in this case. And we need not consider the third purpose—the distractive effect of litigation—because the Richardson Court expressly held that the risk of `distraction' alone cannot be sufficient grounds for an immunity. 521 U.S. at 411, 117 S.Ct. 2100. We thus limit our review to whether extending qualified immunity to these Defendants is necessary to avoid unwarranted timidity in the performance of their duties. 21 In Richardson, the Supreme Court noted that unwarranted timidity, which it called the most important special government immunity-producing concern[,] ... is less likely present, or at least is not special, when a private company subject to competitive market pressures operates a prison. Id. at 409, 117 S.Ct. 2100. The Court noted two effects that competitive market pressures have on private firms. First, competitive pressures create incentives for private firms to avoid damages suits, which would reduce profits. Id. Second, because of these pressures, a firm whose employees are too timid will face threats of replacement by other firms with records that demonstrate their ability to do both a safer and a more effective job. Id. 22 The Defendants seek to distinguish Sunflower from the firm in Richardson on the ground that Sunflower is a non-profit entity while Richardson involved a for-profit corporation. The Defendants argue that, because a firm's profit motive creates incentives to reduce its exposure to damages suits, a non-profit firm does not face similar competitive market pressures. The District Court rejected this argument, reasoning that non-profit organizations must also be concerned with their profit levels because insufficient financial resources can hinder and potentially even cripple an organization's ability to function. Rosewood Servs., 2003 WL 22090897 at . We agree. Because non-profits must also seek to minimize their expenses, a firm's non-profit status does not shield it from this competitive pressure. See, e.g., Payton v. Rush-Presbyterian-St. Luke's Med. Ctr., 82 F.Supp.2d 901, 906 (N.D.Ill.2000) (noting that a corporation's non-profit status does not negate the competitive pressures to minimize expenses). We therefore hold that the fact that a private firm is a non-profit entity is insufficient to shield it from market pressures such that qualified immunity is necessary to protect against unwarranted timidity by the firm and its employees. 23 Nonetheless, the Defendants argue that the procedures for replacing a CDDO are so burdensome that the threat of replacement by other firms is insufficient and therefore they should be permitted to claim qualified immunity. Consequently, the competitive pressures faced by Sunflower are less than those faced by firms operating in a free market. The Defendants argue that this means that Sunflower is not really a market participant. The Defendants admit, however, that CDDOs can be replaced. Moreover, at oral argument, the Defendants conceded that Sunflower had in fact been replaced as CDDO in the relevant five counties. We conclude, for the following reasons, that the procedures for replacing a CDDO, while cumbersome, sufficiently introduce market forces to avoid the need for qualified immunity. 24 In Richardson, the state of Tennessee was permitted by statute to cancel its contract with the private prison management firm. 521 U.S. at 410, 117 S.Ct. 2100. Consequently, the Supreme Court recognized that this firm was subject to pressure from potentially competing firms who can try to take its place. Id. Similarly, a CDDO may be replaced. Under regulations adopted by SRS, a prospective CDDO must submit the equivalent of a business plan, detailing the existing problems in the service area and how it will improve upon them. Kan. Admin. Regs. § 30-64-12(a)(2)—(3). The applicant's plan must also include a long-range financial plan as well as written comments from the public concerning the services received in that area. Kan. Admin. Regs. § 30-64-12(a)(7) & (10). Once this application is submitted, the Division of Mental Health and Developmental Disabilities, a subdivision of SRS, decides whether the applicant should replace the existing CDDO. Kan. Admin. Regs. § 30-64-13(b). 25 These replacement procedures create significant barriers to entry into the CDDO industry. Consequently, the competitive pressures faced by Sunflower are less than those faced by firms operating in a free market. Our inquiry for determining whether to allow a defendant to claim qualified immunity, however, cannot turn on whether a free market exists. As the dissent in Richardson notes, whenever government officials play such a key role in an industry, a competitive free market is unlikely to exist. 421 U.S. at 418-19, 95 S.Ct. 1733 (Scalia, J., dissenting) ([I]t is fanciful to speak of the consequences of `market' pressures in a regime where public officials are the only purchaser, and other people's money the medium of payment.). Instead, to determine whether to permit a claim of qualified immunity, we merely consider whether competitive market forces are sufficiently present such that the threat of replacement reduces employees' timidity. 26 The Kansas regulatory scheme is designed so that CDDOs that are not doing an adequate job will be replaced. In order to replace the existing CDDO, a prospective CDDO must submit an application to SRS that details the ineffectiveness of the current CDDO and how the applicant plans to improve services to the developmentally disabled. While these regulations may be burdensome, they are not so burdensome that CDDOs do not face the threat of replacement—as is evidenced by the fact that Sunflower has been replaced as CDDO. Because the competitive pressures associated with the threat of being replaced exist in this case, we hold that the policy considerations concerning unwarranted timidity do not favor extending qualified immunity to these Defendants.