Court Opinion

ID: 6976033
Source: CourtListenerOpinion
Date Created: 2022-07-24 02:11:07.915695+00
Date Added: 2024-06-11T16:08:58.637696
License: Public Domain

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 “[i]t 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 property interest, we held that this alone is not a basis for invoking the protections of due process. Rather, the interest 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 quintessential *909example. See id. (citing Board of Regents v. Roth, 408 U.S. 564, 92 S.Ct. 2701, 33 L.Ed.2d 548 (1972), and Perry v. Sindermann, 408 U.S. 593, 92 S.Ct. 2694, 33 L.Ed.2d 570 (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 work it has completed.” Maj. op. at 901. 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 construction 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 construction contracts, it is not an exercise of the state’s regulatory power; rather, it is a term that any private party could equally well put into its contract. If the contractor or subcontractor doesn’t like the term, he can refuse to do business with the state.1
Here the state determined that G & G did not comply with its prevailing wage obligation, and thus withheld payments. This is no different from a builder’s refusal to make progress payments when he discovers (or believes he has discovered) a failure of performance on any other term of a standard construction contract — for example, that the plumbing isn’t up to code. Withholding payments under such circumstances is the standard remedy. Even if the general contractor were to take the position that the subcontractor could not recover from it because of Cal. Labor Code § 1729, see maj. op. at 904 n.9, the subcontractor would be able to proceed against the state. Labor Code § 1733 provides that suit may be brought by the contractor or the contractor’s assignee against the awarding body to recover sums withheld. If the contractor refuses to assign its right to sue for the money withheld to the subcontractor, the subcontractor could sue under the theory of equitable subrogation, which the California Supreme Court has held “is broad enough to include every instance in which one person, not acting as a mere volunteer or intruder, pays a debt for which another is primarily liable, and which in equity and good conscience should have been discharged by the latter.” Caito v. United California Bank, 20 Cal.3d 694, 704, 144 Cal.Rptr. 751, 576 P.2d 466 (1978) (quoting Rhine v. Kemmerrer, 114 Cal.App.2d 810, 814, 251 P.2d 345 (1952)) (internal quotation marks omitted). This is a run-of-the-mill contract dispute just like thousands routinely handled by the state courts without federal intervention.
In lieu of this common sense solution— which also complies with binding precedent— the majority invokes the full panoply of federal due process, including the requirement of a pre-deprivation or prompt (whatever that litigation-inviting term means) post-deprivation hearing, whenever the state wishes to withhold payments for what it believes is defective performance under the contract. While the opinion addresses only the prevailing wage term, its logic carries much farther: If the state discovers any other type of breach — for example, failure to complete the project on time or to comply with applicable safety codes — it must provide such a hearing as an added price for the standard remedy of *910withholding payment. This gravely burdens the state’s most potent remedy for dealing with recalcitrant contractors and subcontractors. Why the state should be saddled with this yoke when it engages in the purely commercial activity of construction — a burden not suffered by private builders — is beyond me.2 San Bernardino clearly teaches that commercial contract rights must be vindicated in state court using state remedies. By ignoring this teaching the majority creates not just an intra-circuit and inter-circuit conflict but also a wholly unwarranted burden on the thousands of states, counties, cities and special use districts governed by our law. Government is too unwieldy already; there is no justification for adding this heavy layer of red tape. I respectfully dissent.

. That the prevailing wage term appears in the California Labor Code doesn't matter. No one is forced to comply unless he agrees to do business with the stale.

. We can’t always expect the government to act with unbounded compassion, patience and generosity. Indeed, when the government is acting as a commercial entity, taxpayers cajole it to act with all the ferociousness the marketplace demands. Certain limits must always apply: The government cannot, for example, use public works contracts to discriminate on the basis of race or sex. But when the government bargains over the commercial terms of the contract it should enjoy the same ability as private builders to draw up the deal as it likes and seek the best price and the best terms the marketplace allows.