Kagan v. El San Juan Hotel

September 9, 1993 [NOT FOR PUBLICATION]

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 93-1202

MARSHALL J. KAGAN,

Appellant,

v.

EL SAN JUAN HOTEL & CASINO, ET AL.,

Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF PUERTO RICO

[Hon. Jose Antonio Fuste, U.S. District Judge]

Before

Cyr, Boudin and Stahl,
Circuit Judges.

Marshall J. Kagan on brief pro se.

Daniel R. Dominguez, Marie E. Lopez-Adames and Dominguez &

Totti on brief for appellees El San Juan Hotel Corp. & Hans Lopez

Stubbe.
Carlos A. Quilichini and Ramon Lloveras Otero on brief for

appellee Rodrigo Otero Bigles.

Per Curiam. Appellant Marshall J. Kagan appeals the

district court order affirming an order of the bankruptcy

court. The district court found that Kagan's sole remedy for

alleged harm following upon his dismissal from his position

as comptroller of the El San Juan Hotel was pursuant to the

Puerto Rico wrongful termination statute, 29 L.P.R.A. 185a.

The court dismissed his other claims for relief. We affirm.

The factual as well as the procedural background to this

case are complex. We summarize from the facts found below.

See Kagan v. San Juan Hotel Corp., 149 B.R. 263 (D.P.R.

1992).

Kagan was comptroller of the El San Juan Hotel when it

filed for bankruptcy under Chapter 11 in 1980. Kagan

continued in his position under the court appointed

bankruptcy trustee, Hector Rodriguez Estrada. After frequent

disagreements between Kagan and Rodriguez as to how the

estate should be managed, appellant was dismissed for

unsatisfactory performance in December 1982. Kagan asserts

that he was dismissed in retaliation for attempting to have

the trusteeship of Rodriguez investigated.

In March 1983, the Chapter 11 proceeding was converted

to a Chapter 7 proceeding. In September 1983, Rodriguez was

removed from the trusteeship by a unanimous vote of the

creditors and replaced by appellee Lopez. Kagan urged Lopez

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and Otero, the estate's attorney, to file suit against

Rodriguez for abuse of his position. When they refused to

file suit alleging that there was insufficient evidence

against Rodriguez, Kagan accused Lopez and Otero of covering

for Rodriguez. In 1985 suit was filed against Rodriguez by

the United States as one of the estate's creditors.

Rodriguez was found to have abused his trusteeship and a

judgment of over 2 million dollars was imposed on Rodriguez

on behalf of the estate. In Re San Juan Hotel Corp., 71 B.R.

413 (D.P.R. 1987), aff'd in part and rev'd in part, 847 F.2d

931 (1st Cir. 1988). Subsequently Rodriguez was convicted

and sentenced for fraud.

Kagan commenced suit against the estate and Rodriguez in

March 1983. Kagan sought both compensation for wrongful

termination and the removal from his personnel file of a

letter indicating that he had been terminated for poor

performance. When Lopez replaced Rodriguez, Kagan amended

his suit and sought compensation, removal of the negative

letter and a new letter of reference from Lopez and Otero.

Although Lopez agreed to compensation for wrongful

termination, he refused to remove the old letter or write a

new one. Kagan asserts that the failure to remove the old

letter from his file and to provide a new "corrected" letter

prevented him from obtaining new employment for several years

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and then resulted in his being compelled to accept a position

at lower wages than he had previously earned.

Kagan's suit "wend[ed] a torturous path through the

judicial system." Kagan, 149 B.R. at 268. Trial in the

bankruptcy court did not commence until May 1988. In

September 1990 the bankruptcy court dismissed all claims

against Lopez and Otero and allowed Kagan damages against the

estate pursuant to 185a. The final order of the bankruptcy

court did not issue until March 23, 1992. Kagan appealed the

dismissal of his claims other than that under 185(a) to the

district court which affirmed.

On appeal to this court, Kagan seeks damages against

Lopez and Otero for the failure to provide him with a new

letter of reference. He also seeks additional damages from

the estate for his wrongful dismissal.1

Claims Against Lopez and Otero

1. In his prayer for relief, Kagan asks this court to
"[r]emand to the Bankruptcy Court for appropriate action on
the pending motion for Otero to disgorge his fees, and for
Lopez to be removed from office and [to] forfeit[] his fees."
The district court dismissed the claim against Otero on the
ground that Kagan lacked standing to raise this claim in the
context of a wrongful discharge suit. Kagan, 149 B.R. at

270-72. We agree. Moreover, although the district court did
not address the claim against Lopez, that claim would suffer
the same defect. In any event, since Kagan has presented no
argument to support this prayer in his brief, the issue is
waived. Ryan v. Royal Ins. Co., 916 F.2d 731, 734 (1st Cir.

1990) (issues adverted to on appeal in a perfunctory matter
are deemed waived).

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Kagan concedes that 29 L.P.R.A. 185a is the sole

remedy for his claim of wrongful dismissal under Puerto Rico

law. Weatherly v. International Paper Co., 648 F.Supp. 872,

878 (D.P.R. 1986) (citing cases). However, he notes that

185a does not prohibit recovery when an employee "can

establish that the employer committed an independent tortious

act in the course of terminating employment." Id. at 877-78.

Kagan asserts that in this case Lopez and Otero committed the

"independent tortious act of not correcting the record of

dismissal and giving false bad references."2 He seeks

recovery under 31 L.P.R.A. 5141 which provides that

A person who by an act or omission causes
damage to another through fault or negligence
shall be obliged to repair the damage so
done.

To state a claim for damages under 5141, a plaintiff

must show (1) that the defendants owed him a duty to prevent

the harm suffered; (2) that the duty was negligently

breached; and (3) that the breach caused the plaintiff harm.

Tokio Marine & Fire Ins. Co. v. Grove Mfg. Co., 958 F.2d

1169, 1171 (1st Cir. 1992) (citing cases). In this case,

Kagan has shown no basis for inferring that either Lopez or

Otero had a legal duty to correct his references which had

been given by the previous trustee Rodriguez ten months

2. We assume, without deciding, that the failure to provide
corrected references and the supplying of false ones would be
within "the course of terminating employment."

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before Lopez and Otero arrived on the scene. Even assuming

that Lopez and Otero were employers of Kagan, they were under

no obligation to provide any references to him. See 48

Am.Jur.2d. Labor and Labor Relations 43 (in absence of

statute "employer who discharges an employee is not liable to

the employee for his refusal to give the employee a

'character' or recommendation").3 Therefore, we cannot see

why they would be required to provide "corrected" ones. "It

is axiomatic that the failure to perform an act cannot give

rise to a cause of action unless there was a legal duty to

act." Torres v. United States, 621 F.2d 30, 33 (1st Cir.

1980) (applying Puerto Rico law). Nor would it be reasonable

to require Lopez and Otero to provide "corrected" references

for an employee whom they never employed and whose

performance they were therefore in no position to evaluate.

Finally, while Lopez and Otero owe fiduciary duties to the

bankrupt estate, see In Re Thompson, 965 F.2d 1136, 1145 (1st

Cir. 1992), and to its creditors, In Re Consupak, Inc., 87

B.R. 529, 539 (Bankr.N.D.Ill. 1988); Bankruptcy Code

704(1), 11 U.S.C. 704(a) (duties of trustee), this duty

3. Kagan's reliance on Ackerman v. Thompson, 356 Mo. 558,

202 S.W.2d 795 (1947), is in vain. In Ackerman, a state

statute compelled the employer to provide a "service letter"
upon terminating an employee. Puerto Rico has no such
statute.

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does not extend to Kagan who is seeking damages not as a

creditor of the estate but as a former employee of it.4

On appeal, Kagan also asserts that Lopez and Otero

harmed him by providing false references. However, this

claim was not raised below and therefore is not properly

before us. Johnston v. Holiday Inns, Inc., 595 F.2d 890, 894

(1st Cir. 1979). In any event, Kagan admits that he never

actually sought any references for a prospective employer

from Lopez or Otero and that the uncorrected letter was never

disseminated. His claim to have been harmed by receiving

false references is devoid of merit.

Similarly without merit is Kagan's reliance on 107,

704 and 1106(a) of the Bankruptcy Code. Section 1106(a),

through incorporation of 704, provides that "[t]he trustee

shall . . . unless the court orders otherwise, furnish such

information concerning the estate and the estate's

administration as is requested by a party in interest." 11

U.S.C. 704(7). Section 107 provides that "the bankruptcy

court shall . . . protect a person with respect to scandalous

or defamatory matter contained in a paper filed in a case

4. The district court found that Otero, as the estate's
attorney, owed no duty to the employees of the estate.
Kagan, 149 B.R. at 273. However, the district court did

state that Lopez owed a duty to Kagan to act as a reasonable
employer. Id. Since we find that Lopez owed no duty to Kagan

to provide corrected references, Kagan's claim would be
subject to dismissal under the "reasonable employer" standard
as well.

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under this title." 11 U.S.C. 107(b)(2). Alleging that the

uncorrected reference was defamatory, Kagan seeks to find in

these provisions a duty on the part of the trustee to provide

proper references and to revise false ones. However (1) any

duty under the Bankruptcy Code to prevent the dissemination

of defamatory material is imposed on the court not the

trustee; (2) the allegedly defamatory letter is not a "paper

filed" in a bankruptcy case; and (3) as noted above, Kagan

concedes that the letter was never disseminated.

Claim Against the Estate

Kagan asserts that he is entitled to relief under the

federal common law for his wrongful dismissal. According to

Kagan, he was dismissed because he tried to stop the

bankruptcy trustee from violating federal law. Moreover, he

alleges that the Puerto Rico wrongful dismissal statute

provides insufficient protection because of the limited

amount of compensation the statute provides. Citing the

federal interest in seeing that federal law is not violated,

Kagan asks this court to formulate federal common law based

on analogous state court decisions which have found a "public

policy" exception to the employment-at-will doctrine where an

employee is terminated for refusing to participate in illegal

acts.

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The instances in which a federal court has the authority

to formulate a federal common law remedy are "few and

restricted." Wheeldin v. Wheeler, 373 U.S. 647, 651 (1963).

Absent some statutory authorization to formulate substantive

rules of decision, and none is alleged here, the court has

authority to create a federal common law remedy only when it

is "necessary to protect uniquely federal interests." Texas

Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630,

640 (1981) (quoting Banco Nacional de Cuba v. Sabbatino, 376

U.S. 398, 426 (1964)). It is not enough that a remedy

"supplements federal enforcement and fulfills the object of

the statutory scheme." Id. at 642. Federal common law is

appropriate only where "the authority and duties of the

United States as sovereign are intimately involved or because

the interstate or international nature of the controversy

makes it inappropriate for state law to control." Id. at

641. Moreover, "[i]n deciding whether rules of federal

common law should be fashioned, normally the guiding

principle is that a significant conflict between some federal

policy or interest and the use of state law . . . must first

be specifically shown." Wallis v. Pan American Petroleum

Corp., 384 U.S 63, 68 (1966).

We find no such "uniquely federal interests" in this

case which would warrant the formulation of federal common

law. Furthermore, no conflict exists here between the

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federal policy to be promoted and the application of state

law. The Commonwealth of Puerto Rico, like most states,

already provides protection for those dismissed for acting in

accordance with law. Finally, the rationale on which Kagan

relies--i.e., that the court ought to formulate a federal

common law remedy to protect those dismissed for upholding

federal law--would apply to all federal regulatory schemes.

Yet, Congress has chosen to enact specific protections for

"whistle-blowers" where it has thought appropriate. See

Note, Protecting Employees at Will Against Wrongful

Discharge: the Public Policy Exception, 96 Harv.L.Rev. 1931,

1934 (1983) (listing federal statutes). In adopting Kagan's

rationale, we would not only be extending this protection

into areas where Congress has not thought appropriate but we

would be ignoring the Supreme Court's advisory that the

appropriate occasions for the formulation of federal common

law are "few and restricted." Wheeldin, 373 U.S. at 651. We

decline to do so.

Kagan calls our attention to Barany v. Buller, 670 F.2d

726 (7th Cir. 1982). In Barany, the court formulated a

federal common law remedy for reinstatement of federal credit

union employees allegedly dismissed in violation of federal

laws. This case is distinguishable from Barany in two ways.

First, the decision in Barany was based in part on the

congressional desire to "insure uniform development in credit

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unions." Id. at 733. In contrast, no similar desire for

national uniformity is found in congressional control over

bankruptcy law. Butner v. United States, 440 U.S. 48, 54 n.9

(1979) (bankruptcy law frequently recognizes state

substantive law). Second, the rationale of Barany--that the

federalization of the governance of an institution makes it

of "uniquely federal interest"--was limited to federal credit

unions and similar federal institutions. Barany, 670 F.2d at

734. We see no principled way to limit the rationale for the

remedy sought in the present case.5

The opinion of the district court is affirmed.

5. We also note that the Fourth Circuit has disagreed with
the Barany holding. Ridenour v. Andrews Federal Credit

Union, 897 F.2d 715, 721-22 (4th Cir. 1990) (declining to

fashion federal remedy as a matter of federal common law to
create cause of action for federal credit union employees
challenging adverse employment actions).

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