United States Court of Appeals
For the First Circuit
No. 01-2612
PRISMA ZONA EXPLORATORIA DE PUERTO RICO, INC.,
Plaintiff, Appellant,
v.
HON. SILA MARIA CALDERON, personally and in her official capacity
as Governor of Puerto Rico and as President of the Children's
Trust Fund; JUAN AGOSTO-ALICEA, personally and in his official
capacity as President of the Government Development Bank of
Puerto Rico and as Vice-President of the Children's Trust Fund;
JORGE PESQUERA, personally; MILTON SEGARRA-PANCORBO, personally
and in his official capacity as Executive Director of the Puerto
Rico Tourism Company; JOSE V. PAGAN, personally and in his
official capacity as Executive Director of the Children's Trust
Fund; THE CHILDREN'S TRUST FUND; GOVERNMENT DEVELOPMENT BANK FOR
PUERTO RICO; JOHN DOE; GEORGE DOE 01CV1836; JANE DOE,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Juan M. Pérez-Giménez, U.S. District Judge]
Before
Boudin, Chief Judge,
Bownes, Senior Circuit Judge,
and Selya, Circuit Judge.
Luis G. Rullan-Marin with whom Zoraida Buxo-Santiago, Rullan
& Buxo, PSC, Jane Becker-Whitaker and Law Offices of Jane Becker
Whitaker, PSC were on brief for appellant.
Rafael Escalera-Rodriguez with whom Nestor J. Navas and
Reichard & Escalera were on brief for institutional defendants.
Camella Fernandez-Romeu, Assistant Solicitor General, with
whom Roberto J. Sanchez-Ramos, Solicitor General, and Vanessa Lugo
Flores, Deputy Solicitor General, were on brief for individual
defendants.
October 16, 2002
BOUDIN, Chief Judge. Plaintiff Prisma Zona Exploratoria
de Puerto Rico, Inc. ("Prisma Zona") sued the Children's Trust Fund
of Puerto Rico (the "Trust Fund") and others (including several
high officials in the Puerto Rican government) under 42 U.S.C.
§ 1983 (2000). Prisma Zona claims that the defendants
discriminated against it because of its affiliation with a rival
political party, in violation of its rights under the First
Amendment and to due process and equal protection. The district
court dismissed the suit under Rule 12(b)(6) for failure to state
a claim. Prisma Zona Exploratoria de P.R., Inc. v. Calderón, 162
F. Supp. 2d 1, 9-10 (D.P.R. 2001). This appeal followed.
The background facts are largely uncontested. For
present purposes, we assume the truth of the allegations in the
complaint and draw inferences in favor of the non-moving party,
here Prisma Zona. Aulson v. Blanchard, 83 F.3d 1, 3 (1st Cir.
1996). However, we also draw where necessary upon undisputed
documents that are in substance cross-referenced in the complaint.
Watterson v. Page, 987 F.2d 1, 3-4 (1st Cir. 1993); accord Beddall
v. State St. Bank & Trust Co., 137 F.3d 12, 16-17 (1st Cir. 1998).
At oral argument, both sides said that the case could be treated as
one for summary judgment.
In January 1999, then Governor Pedro Rosselló of Puerto
Rico, a member of the New Progressive Party ("NPP"), announced a
plan to create a children's museum in Puerto Rico. The museum,
-3-
modeled on similar initiatives in Boston and elsewhere, was to
include interactive exhibits, a theater and other attractions. It
was to be built and operated using a portion of Puerto Rico's share
of the master tobacco settlement of November 1998.
In April 1999, the Tourism Company, a state agency,
created a public corporation, Prisma El Exploratorio, Inc.
("Exploratorio"), to develop the preliminary phase of the
children's museum. Prisma Zona says the plan was eventually to
turn over ownership and control of the museum to a private non-
profit entity to free it from "political partisanship." The
following month Exploratorio secured a $20 million line of credit
with the Government Development Bank (the "Bank")--another state
entity--to help pay for the design and construction of the museum
facilities; the line of credit was to be repaid using the tobacco
settlement proceeds. Ground breaking for the museum was held on
October 7, 1999.
On July 30, 1999, Puerto Rico created the Children's
Trust Fund, a public corporation, and assigned to it Puerto Rico's
share of the tobacco settlement. Act No. 173 of July 30, 1999
(codified at 24 LPRA § 3121 et seq. (2002)). The statute created
a board of directors for the Trust Fund, consisting of four ex
officio members (the Governor, the Secretary of Justice, the
President of the Bank, and the Director of the Office of Management
and Budget) and three private persons appointed by the Governor,
-4-
and gave it broad authority to allocate trust funds to improve the
welfare of Puerto Rico's children. Id. §§ 4-5. The Bank provides
all of the Trust Fund's staffing, conducts its day-to-day
management, and serves as its disbursement agent and financial
advisor. Id. §§ 12, 14.
On September 29, 1999, the Trust Fund board adopted
regulations, pursuant to its statutory authority, establishing
requirements for the receipt and use of trust funds. In addition,
the board approved Exploratorio's request for up to $60 million to
cover museum expenses. Prisma Zona says the board also resolved to
transfer the grant to the private entity that would eventually
succeed to the project.
Earlier in that same month, several private citizens
formed Prisma Zona Exploratoria de Puerto Rico, Inc. ("Prisma
Zona"), the plaintiff in this action, to take over the
construction, ownership, and operation of the children's museum.
The company's founders and management had close ties to the NPP and
its board of directors was selected by Governor Rosselló. The
present case revolves around this new entity's effort to secure
control over the children's museum and its funds and the rebuff of
those efforts by a new administration under a different party.
In May 2000, Prisma Zona began negotiations with the
Tourism Company and its subsidiary Exploratorio to acquire the
museum assets and to assume the responsibility for its development.
-5-
On June 16, 2000, it requested $60 million from the Trust Fund to
pay for the museum assets and to complete its construction and an
additional $17.5 million to operate it for three years. The Trust
Fund board approved Prisma Zona's requests on August 30, 2000.
That day, Governor Rosselló (as president of the Trust Fund board)
sent Prisma Zona a letter informing it of the board's approval but
noting additional required steps, including review of Prisma Zona's
budget and finalization of a contract containing "details on the
procedures for the disbursement of funds."
On November 15, 2000, the Trust Fund issued $400 million
in bonds to fund its projects and transferred nearly $10 million to
the Bank to cancel Exploratorio's outstanding line of credit. Both
the Trust Fund and the Bank (which managed the bond sale)
represented in various documents (including a prospectus, tax
certificate, and bond contract) that a portion of the bond sale
proceeds would be used for the "acquisition, construction, and
equipping of a children's museum . . . in Isla Grande, Santurce,
Puerto Rico, to be owned and operated by [Prisma Zona]."
On November 29, 2000, Prisma Zona reached an
understanding with the Tourism Company and Exploratorio to acquire
the museum project (the "Transfer Agreement"). The following month
Prisma Zona began negotiating a service contract with the Trust
Fund. The Trust Fund prepared two form contracts (one each for the
capital and operational grants) and sent them to Prisma Zona for
-6-
its review on December 28, 2000. Prisma Zona says it made only
"minor" changes to these documents before faxing them back to the
Trust Fund the same day. The Trust Fund never responded.
Nonetheless, Prisma Zona alleges that at this time "the parties had
agreed to the terms of the [service contracts] and the only action
needed was the non-discretionary ministerial act of signing the
agreement."
As these events were unfolding, Puerto Rico was holding
its 2000 elections. During the campaign for Governor, Sila
Calderón, the Popular Democratic Party ("PDP") candidate, promised
to investigate a number of Rosselló administration projects,
including the children's museum, for corruption and misuse of
public monies. Calderón defeated the NPP candidate at the polls on
November 7, 2000, and took office on January 2, 2001.
In its subsequent complaint Prisma Zona alleged that from
the outset the new PDP administration attempted to undermine Prisma
Zona's role in the museum project because of its ties to NPP and
former Governor Rosselló. In particular, Prisma Zona said the Bank
(as the Trust Fund's disbursement agent) has refused to pay museum
invoices that Prisma Zona has submitted since January 2001 and that
the Bank subjected it to a sham audit. Prisma Zona also alleged
that in May 2001, the Tourism Company filed a "frivolous" suit in
commonwealth court, seeking to invalidate the Transfer Agreement.
(Thereafter the Puerto Rico Superior Court declared the Transfer
-7-
Agreement void under Puerto Rico law. Compañía de Turismo de
Puerto Rico v. Prisma Zona Exploratoria de PR Inc., KAC2001-3380
(506) (April 4, 2002).)
Prisma Zona filed this civil rights action in district
court on June 22, 2001, naming as defendants the Trust Fund, the
Bank and various individuals in the Calderón administration.1
Prisma Zona says defendants' refusal to carry through with the
transfer of assets and funding was motivated by Prisma Zona's
political ties and violated its First Amendment, due process, and
equal protection rights. For relief, Prisma Zona seeks imposition
of a constructive trust, disbursement of the trust funds, a
generally phrased injunction against the alleged harassment, and
punitive damages. After limited discovery, the district court
dismissed the suit under Rule 12(b)(6). Prisma Zona, 162 F. Supp.
2d at 9-10.
The district court ruled that Prisma Zona did not have a
binding contract with the Trust Fund obligating it to fund Prisma
Zona. Prisma Zona, 162 F. Supp. 2d at 4. The court further held
that absent such a contract or its effective equivalent (e.g., an
1
The individual defendants include Sila Calderón, the Governor
of Puerto Rico and president of the Trust Fund's board; Juan Agosto
Alicea, president of the Bank and vice-president of the Trust
Fund's board; José V. Pagán, vice-president of the Bank and
executive director of the Trust Fund; Jorge Pesquera, the executive
director of the Tourism Company until June 30, 2001; and Milton
Segarra Pancorbo, the current executive director of the Tourism
Company.
-8-
ongoing commercial relationship), the Trust Fund was free not to
contract with Prisma Zona even if political motives prompted that
decision. Id. at 7-8. Finally, the court said that even if First
Amendment precedents were extended to cover new entities seeking to
contract, the defendants had a so-called Mount Healthy defense
because they would for independent reasons have refused to disburse
the funds. Id. at 8; see Mount Healthy City Sch. Dist. Bd. of
Educ. v. Doyle, 429 U.S. 274, 287 (1977).
The legal landscape for Prisma Zona's First Amendment
claim is a set of Supreme Court decisions starting in the 1970s.
Politically motivated hiring, firing and contracting by governments
has a long history in the United States; civil service reform
statutes are largely a response to this tradition. But beginning
with Elrod v. Burns, 427 U.S. 347 (1976), the Supreme Court has
added a new layer of protection based on First Amendment grounds.
See also Rutan v. Republican Party of Ill., 497 U.S. 62 (1990);
Branti v. Finkel, 445 U.S. 507 (1980). How far that protection
extends, often a debatable matter, is an issue of law which we
review de novo.
Prisma Zona claims that a completed contract exists
between it and the Trust Fund. Although a binding contract is not
necessarily a condition of First Amendment protection, it would
give Prisma Zona a much firmer basis in Supreme Court precedent to
argue that it was protected from a politically motivated refusal to
-9-
deal, see, e.g., Bd. of County Comm'rs v. Umbehr, 518 U.S. 668, 685
(1996), quite apart from its use as an independent basis for relief
under local law. We accordingly begin with that question here.
In a nutshell, Prisma Zona applied to the Trust Fund for
funding to buy the museum assets, complete construction and operate
the project for three years. The Trust Fund's president--then
Governor Rosselló--responded on August 30, 2000, that the board had
"favorably considered your proposed initiative," but his letter
continued:
The granting of Assistance Service [i.e.,
funding] is subject to a review of the budget
and the details of the initiative. Prior to
receiving the funds requested, you must meet
with the Officers of the Trust to . . .
[verify information and budget] and to
finalize the Contract of Assistance Service.
The contract must contain details on the
procedures for the disbursement of funds.
The letter set forth other conditions that would govern the grant
and said that if Prisma Zona indicated its agreement, the Trust
Fund would arrange for a further meeting.
Prisma Zona indicated its agreement and in December the
parties moved toward adoption of two detailed "service" contracts,
one to fund capital commitments and the other for operating
expenses. (From the government's standpoint, a private provider
such as Prisma Zona agrees to provide services in exchange for the
grant.) However, the Trust Fund's drafts were delivered only on
December 28, 2000, they were returned with suggested changes by
-10-
Prisma Zona, and no final service contracts were signed. Instead,
on January 2, 2001, a new administration took power in Puerto Rico
and the Trust Fund declined to proceed.
On this appeal, Prisma Zona says that the original August
30 letter and its acceptance constituted a binding contract
promising funding, that this contract was not "conditioned" on the
adoption of service contracts, and in any event the latter were
virtually complete by the end of December save for a few details
that were not "material." Prisma Zona argues that under Puerto
Rico law, contract formation is a question of fact, turning on the
intent of the parties, and at the very least the fact question
could not be resolved on a motion to dismiss but entitled Prisma
Zona to a jury trial.
Whether or not one calls the August 30 letter and reply
a "contract," the critical question (given the relief sought) is
whether the Trust Fund ever assumed a binding obligation to make
grants to Prisma Zona. As to this, the August 30 letter is
explicit on its face: that--other conditions aside--no funds could
be provided until the parties had "finalized" the service
contracts. Further, as the district court pointed out, the Trust
Fund's own formal regulations provide that "[a] service contract
will be entered into between the Trust Fund and the beneficiary
entity" and set forth issues that had to be addressed (e.g.,
"specific clauses delineating the responsibilities of the
-11-
parties"). Prisma Zona, 162 F. Supp. 2d at 4; accord Regulations
for the Requisites of Eligibility and the Criteria for Statutory
Monitoring under the Statute for the Children's Fund, art. 5(c)
("Trust Fund Regulations").
Alternatively, Prisma Zona suggests that the letter and
reply were "a contract to make a contract." This assumes, as we
will do at this stage, that Prisma Zona could develop factual
evidence of such an intent on both sides. But even if (assuming
further) this theory is allowable despite the Trust Fund
Regulations just quoted--and this is far from clear--a contract to
make a contract is enforceable only where all material terms have
been agreed upon. 1 Corbin, Contracts, § 2.8, at 131, 133-34
(Perillo ed. 1993). Prisma Zona's own statements, and the service
contract drafts which it attaches, show that material issues were
still open.
Most obviously, the service contract drafts left blank a
number of important terms, such as the amount of the grant. In
addition, in returning the service contract drafts with proposed
changes, Prisma Zona asked for a number of substantive changes. It
wanted to limit the Trust Fund's ability to terminate the grant for
cause to an exercise of reasonable discretion. The Trust Fund
drafts required Prisma Zona to indemnify the Trust Fund for legal
expenses arising out of the grant--hardly a trivial matter, as this
case illustrates. In response, Prisma Zona's mark-ups required the
-12-
Trust Fund to use the government's legal representation before
incurring separate expenses that Prisma Zona would have to cover.
Parties still short of agreement as to such substantive terms have
not completed their bargaining.
Nor is Prisma Zona's position helped by the surrounding
circumstances that it says bear out the claim of an existing
contract. For example, the bond prospectus apparently said that
funds would go to Prisma Zona to operate the museum; but--whatever
the securities law implications--this is a statement as to what was
intended, not a statement that the necessary contracts had already
been negotiated. Similarly, Prisma Zona says that the Trust Fund
in fact paid out almost $10 million for Prisma Zona's acquisition
of the museum, but this appears to have been an intra-governmental
payment from the Trust Fund to the Tourism Company to reimburse it
for funding the museum's initial investment.
All such events show is what is already conceded, namely,
that the Rosselló administration intended that the various agencies
involved cooperate to transfer the museum and additional funding to
Prisma Zona. Indeed, the process was not only intended, but steps
just short of a final legal commitment continued even after the
November 2000 election. Nevertheless, the service contracts were
not completed, let alone signed, before the new administration took
-13-
office in January 2001. Thus, there was no binding legal
obligation to fund Prisma Zona.2
Prisma Zona has another string to its bow. It says that
it need not have a right to a benefit (in this case, the
contractual right to funding) to be protected under the First
Amendment against a politically motivated denial of that benefit.
As an abstraction, this is so: several early cases involved
political firings of low-level employees who lacked civil service
or contract protection. Branti, 445 U.S. at 515; Elrod, 427 U.S.
at 350-51 (plurality opinion). Today's protection also extends
beyond discharging current employees to employee hiring and
promotion decisions. Rutan, 497 U.S. at 79.
Although current or would-be employees have been
specially favored, the Court has also afforded some protection to
businesses that deal with the government, O'Hare Truck Serv., Inc.
v. City of Northlake, 518 U.S. 712, 714-15 (1996) (removal from
list of private towing services); Umbehr, 518 U.S. at 686 (non-
renewal of trash hauling contract), although here the coverage is
2
Prisma Zona also asks us to imply equitably a quasi-contract
or constructive trust between it and the Trust Fund. We decline,
not only because the theory is only adverted to perfunctorily on
appeal, United States v. Zannino, 895 F.2d 1, 17 (1st Cir.), cert.
denied 494 U.S. 1082 (1990), but also because its argument fails
entirely to demonstrate the unjust enrichment that would invoke
this court's equitable powers, see Corporación Insular de Seguros
v. Reyes Munoz, 849 F. Supp. 126, 135 (D.P.R. 1994) (discussing the
requirements of constructive trust under both Puerto Rican and
general contract law).
-14-
less certain once one goes beyond existing commercial
relationships, see id. at 685. The next area of contest appears to
revolve around those who wish for the first time to bid for
government contracts. On this issue, the Supreme Court has not yet
spoken definitively, and the circuits appear to be divided.3
Happily, such large questions as to whether the Elrod
line will continue to expand need not be decided to dispose of this
case. We will assume, purely arguendo, that a state government
could not invite bids to supply pencils to the state with the
caveat that no company headed by a Democrat could apply. Further,
at this stage of fact development, Prisma Zona is entitled to the
assumption--which may or may not be correct--that party politics
played a role in the Calderón administration's refusal to make the
previously intended grant.
Nevertheless, whatever may be true of pencil contracts,
we decline to hold that the First Amendment requires politically
immaculate state decision-making in cases like this. Even in core
cases involving politically motivated hirings and firings, the
Supreme Court has itself recognized that a wholly antiseptic
application of the Elrod principle is unrealistic. Instead, party
3
See, e.g. Lucas v. Monroe County, 203 F.3d 964, 972 (6th Cir.
2000) (tow truck operator who had never been called was protected
from removal from the call list), McClintock v. Eichelberger, 169
F.3d 812, 817 (3d Cir.) (limiting Umbehr and O'Hare to ongoing
commercial relationships), cert. denied, 528 U.S. 876 (1999);
Tarpley v. Jeffers, 96 F.3d 921, 924 (7th Cir. 1996) ("The First
Amendment bars patronage hiring of independent contractors.").
-15-
affiliation is an appropriate consideration in hiring and firing
decisions with respect to government positions that may be
characterized as "policymaking" or "confidential." Branti, 445
U.S. at 517-18; see also Durieux-Gauthier v. Lopez-Nieves, 274 F.3d
4, 9-10 (1st Cir. 2001); cf. Walker v. City of Lakewood, 272 F.3d
1114, 1132 (9th Cir. 2001), cert. denied, 122 S. Ct. 1607 (2002).
Here, Prisma seeks to attack a set of decisions related
to the possible privatization (whether to do so and through whom)
of the operation of a children's museum and directing to it
millions of dollars of public monies. Where policy choices of this
magnitude are presented, courts ought not be second-guessing how
much party politics in the narrower sense may also have played a
role. Cf. Bogan v. Scott-Harris, 523 U.S. 44, 54-55 (1998). If
political considerations are permissible in the hiring and firing
of upper-level government employees, surely they are also
appropriate in a case like this one.
Imagine that the President of the United States were
considering whether a new federally supported billion-dollar
pipeline were to run through one state or another. Numerous policy
and technical arguments exist on both sides; it also happens that
one state supported the President in the last election and the
other did not. Only an extreme enthusiast could suppose that the
First Amendment would license an inquisition into the question
whether politics played some part in the deliberations. Firing a
-16-
street sweeper who voted for the loser is one thing; turning over
a publicly funded $70 million museum to the opposition party is
quite another.
Prisma Zona asserts that even without a contract its
interest goes beyond that of a mere job applicant or contract
bidder. It says that it has started a relationship with the Trust
Fund and has committed substantial resources to the endeavor,
reasonably anticipating that it would receive the grant. But the
concern that underlies the exception as to policymaking functions--
and which we apply here by analogy--is not limited to new
applicants. Policymakers can be replaced, despite reliance, absent
legal tenure or contract.
If the complaint's facts are assumed as true, it is at
least likely that Prisma Zona's own selection as the prospective
grantee under the NPP administration--and perhaps the decision to
privatize the museum in the first place--was not uninfluenced by
party politics. Prisma Zona seems to think that this is fine for
selection but not for de-selection. Others might think that turn-
about is fair play. Our own concern is exhausted by finding that
Prisma Zona has not set forth a First Amendment violation even if
the facts are as alleged.
Prisma Zona makes three other constitutional claims, none
of which requires much discussion. First, it says that its efforts
to secure and its expectation of receiving the grant funds
-17-
constituted a property interest, which would at least qualify for
protection under Puerto Rico statutes related to quasi-contract and
constructive trust, and that this interest in turn is protected
against impairment by the Due Process Clause. Prisma Zona makes no
serious effort to establish that either state-law doctrine applies
on the facts of this case. Mass. Sch. of Law v. Am. Bar Ass'n, 142
F.3d 26, 43 (1st Cir. 1998) (undeveloped arguments are deemed
abandoned).
Next, in two paragraphs, Prisma Zona says that its right
to procedural due process was violated because it was denied "some
kind of hearing." See, e.g., United States v. Fla. East Coast Ry.
Co., 410 U.S. 224, 239 & n.7 (1973). Prisma Zona appears (the
argument is quite unclear) to be claiming that it was entitled to
make some kind of presentation to the Trust Fund before the grant
was set aside. But its brief is silent about its efforts to secure
a hearing, what it wanted to demonstrate at such a hearing, and
what purpose a hearing would have served. Again, the argument is
not seriously developed and we mention it only to say that it has
not been overlooked.
Finally, Prisma Zona relies upon equal protection
principles. It says that other grants made by the Trust Fund were
carried out and that the refusal to complete the grants to Prisma
Zona was an irrational discrimination motivated solely by political
affiliation. To the extent that this claim pretends to be anything
-18-
more than a restatement of the failed First Amendment claim, it too
is undeveloped and abandoned. Prisma Zona does not point to any
similarly situated grantee, let alone a context so similar to this
one as to suggest that it was irrational to treat that grantee and
Prisma Zona differently.
Our conclusion that Prisma Zona has failed to state a
claim under section 1983 makes it unnecessary for us to address the
remaining issues noted by the parties: these include the district
court's finding of a Mount Healthy defense (which Prisma Zona
attacks), Prisma Zona, 162 F. Supp. 2d at 8; 11th amendment and
qualified immunity claims (presented by some of the defendants as
an alternative ground for affirmance); and the significance of the
intervening decision of the Puerto Rico Superior Court, discussed
above, invalidating as ultra vires the original decision by the
Tourism Company and Exploratorio to empower Prisma Zona to operate
the children's museum, Compañía de Turismo, KAC2001-3380 (506).
Affirmed.
-19-