Stidham v. Texas Commission on Private Security

United States Court of Appeals
Fifth Circuit
F I L E D
REVISED JULY 28, 2005
July 22, 2005
IN THE UNITED STATES COURT OF APPEALS
Charles R. Fulbruge III
FOR THE FIFTH CIRCUIT Clerk
_____________________

No. 04-50775
_____________________

GENE STIDHAM,

Plaintiff - Appellant,

versus

TEXAS COMMISSION ON PRIVATE SECURITY; ET AL.,

Defendants,

JERRY L. McGLASSON, Executive Director, in
his individual and official capacity; E. D.
BIGGS, Investigator, in her individual and
official capacity; LARRY SHIMEK, in his
individual and official capacity; CLIFF
GRUMBLES, Executive Director, in his
individual and official capacity,

Defendants - Appellees.
__________________________________________________________________

Appeal from the United States District Court
for the Western District of Texas, Austin

_________________________________________________________________

Before JOLLY, SMITH, and DeMOSS, Circuit Judges.

E. GRADY JOLLY, Circuit Judge:

Gene Stidham (“Stidham”) owned a motorcycle funeral escort

business. He sued the individual defendants, who are officials of

the Texas Commission on Private Security (“TCPS”). The basis of

his § 1983 action is that, after he refused to apply for a TCPS

license, the defendants, in violation of his right to due process
of law, sent letters to his funeral home clients telling them that

Stidham was operating in violation of the law and that they could

be prosecuted if they continued to contract with him. He claims

that this conduct destroyed his business, thus depriving him of

property and his liberty right to engage in a chosen profession.

Stidham also contends that the defendants furthered their

unconstitutional conduct and damage by refusing to notify Stidham’s

clients when the authorities exonerated him. The district court

granted the defendants qualified immunity and dismissed the suit on

summary judgment. Because we find that the defendants deprived

Stidham of his clearly established rights in an objectively

unreasonable manner, we vacate the district court’s grant of

qualified immunity and remand the case for further proceedings.

I

A

Stidham is a former police officer who, from 1989 to September

2001, operated Stidham Motorcycle Escorts.1 He provided uniformed

motorcycle escort services to control traffic and provide traffic

safety for funeral processions. Stidham had oral contracts with

1
In 1996, Stidham had operated a company called Triumph
Security that provided security guard services. The TCPS had
issued a complaint against him for providing guard services without
the requisite owner’s license. An Administrative Law Judge found
in favor of the TCPS and required Stidham to obtain the license
within 100 days. Stidham instead chose to discontinue guard
services.

2
several funeral homes in Tarrant County and with one funeral home

in Dallas County.

In June 2001, after reading a newspaper article about an

accident in which an employee of Stidham Motorcycle Escorts was

killed, Jerry McGlasson (“McGlasson”), the Executive Director of

TCPS, directed E. D. Biggs, a TCPS investigator, to contact

Stidham. Biggs told Stidham that he needed a license to operate

his business because his business was a “guard company” under Texas

Occupations Code §§ 1702.102 and 1702.108.2 Stidham replied that

2
Section 1702.102 reads:

(a) Unless the person holds a license as
a security services contractor, a person may
not:

(1) act as an alarm systems company,
armored car company, courier company,
guard company, or guard dog company;

(2) offer to perform the services of
a company in Subdivision (1); or

(3) engage in business activity for
which a license is required under this
chapter.

(b) A person licensed only as a security
services contractor may not conduct an
investigation other than an investigation
incidental to the loss, misappropriation, or
concealment of property that the person has
been engaged to protect.

(Emphasis added.)

Section 1702.108 reads:

A person acts as a guard company for the
purposes of this chapter if the person employs

3
he did not need a license and that he would not get one. Biggs

then telephoned Stidham a second time, urging him to apply for a

license. She also faxed him a copy of the Occupations Code

provisions on security guards. Stidham took no action to obtain a

license.

an individual described by Section 1702.323(d)
or engages in the business of or undertakes to
provide a private watchman, guard, or street
patrol service on a contractual basis for
another person to:

(1) prevent entry, larceny, vandalism,
abuse, fire, or trespass on private property;

(2) prevent, observe, or detect
unauthorized activity on private property;

(3) control, regulate, or direct the
movement of the public, whether by vehicle or
otherwise, only to the extent and for the time
directly and specifically required to ensure
the protection of property;

(4) protect an individual from bodily
harm including through the use of a personal
protection officer; or

(5) perform a function similar to a
function listed in this section.

(Emphasis added.)

4
 On August 10, 2001, pursuant to the TCPS Manual’s provisions,3

Biggs obtained a misdemeanor arrest warrant in Tarrant County for

Stidham based on his operation of a guard company without an

owner’s license.4 Then, in September 2001, while the criminal case

in Tarrant County was still pending, Biggs sent letters to four

funeral homes in Tarrant County and one in Dallas County with which

Stidham had been doing business. These letters stated:

This agency has received information that
you are contracting with or employing Stidham
Motorcycle Escorts to provide a service
(funeral escort) that requires a license,
registration, certificate, or commission, and
this company/person does not hold a license,
registration, certificate, or commission.
Section 1702.102 and 1702.108 of the
Occupations Code requires that funeral escort
services be licensed and regulated by the
Texas Commission on Private Security.

Please be advised that contracting with
or employing a person (company) who is
required to hold a license, registration,

3
The Manual provides that it is appropriate to initiate
criminal proceedings in a case involving:

(a) Unlicensed activity in which the
investigation reveals that any person in the
company or organization, who has any ownership
or supervisory position, has been previously
registered in any capacity or licensed in any
category by the Commission[;]

(b) Unlicensed activity that continues
after violation is served in person or by mail
with a notice of violation and order to cease
and desist.
4
The record is unclear as to whether he was actually
arrested.

5
 certificate, or commission by the Texas
Commission on Private Security, knowing that
that person or company is required to hold a
license, registration, certificate or
commission is a Class A Misdemeanor,
punishable by up to (1) year confinement
and/or a $4000.00 fine. However, the offense
is a Felony of the 3rd degree if you have been
previously convicted of an offense under this
Act, and the offense consisted of failing to
hold a registration, certificate, license or
commission, as stated in 1702.386 of the
Occupations Code.

One of the recipients of these letters, Roger Marshall (Marshall),

managing director of Greenwood Funeral Home, stated in a deposition

that he called McGlasson to discuss the letter. He said that

McGlasson threatened to report Marshall’s funeral home to the Texas

Funeral Commission if Marshall continued to use Stidham Motorcycle

Escort Service. Stidham maintains that these letters and the

subsequent threats effectively put an end to his business.

On October 19, 2001, the Tarrant County District Attorney’s

Office declined to prosecute Stidham based on its determination

that Stidham’s activity did not rise to the level of operating a

guard company. Stidham wrote to Larry Shimek (Shimek), TCPS Chief

of Investigations, and Cliff Grumbles (Grumbles), TCPS Deputy

Director, requesting that they inform his former clients of Tarrant

County’s refusal to prosecute him. Shimek and Grumbles declined to

do so.

Biggs also filed charges against Stidham in Dallas County

after receiving advice from her supervisor, Ryan Finch, that the

6
Dallas County prosecutor might be more informed as to the scope of

TCPS’s authority to regulate businesses like Stidham’s.

On January 6, 2003, the Texas Attorney General issued an

opinion that the TCPS lacked authority to regulate funeral

motorcycle escort businesses. The record indicates that the TCPS

defendants did not inform Stidham’s former clients that the

Attorney General had issued an opinion affirming that the TCPS did

not have the authority to regulate funeral escort services.

B

Stidham sued the TCPS and four of its officers5 under 42

U.S.C. § 1983, the Texas Constitution, Texas common law, and the

Texas Uniform Declaratory Judgment Act. He alleged that the

defendants, acting under color of state law but without lawful

authority from the Occupations Code, deprived him of property and

liberty without procedural and substantive due process, tortiously

interfered with his contracts, and intentionally inflicted

emotional distress. On May 2, 2004, the district court granted the

defendants’ motion to dismiss as to the intentional infliction of

emotion distress claim.6

At summary judgment, the district court dismissed on Eleventh

Amendment grounds Stidham’s claims against TCPS and the defendants

5
The four TCPS employees named in the suit were Biggs; Jerry
McGlasson, TCPS Executive Director; Larry Shimek, Chief of
Investigations at TCPS; and Cliff Grumbles, who later became the
Executive Director of TCPS.
6
Stidham does not appeal this ruling.

7
in their official capacities. The court further found that the

defendants were shielded from suit in their individual capacities

by the doctrine of qualified immunity. The court reasoned that the

defendants’ actions were objectively reasonable because they relied

on legal advice and because of their history of regulating conduct

similar to Stidham’s.7 After dismissing the § 1983 claims over

which it had original jurisdiction, the district court declined to

assert supplemental jurisdiction over the remaining state law

claims. Stidham appeals, arguing that the district court erred in

granting summary judgment based on qualified immunity. He asks us

to vacate the grant of summary judgment and to remand this case for

trial on both his § 1983 claim and his remaining state law claims.

II

We review de novo the district court’s grant of summary

judgment based on qualified immunity. Johnson v. Deep East Texas

Regional Narcotics Trafficking Task Force, 379 F.3d 293, 301 (5th

Cir. 2004). Qualified immunity shields state officials from

personal suits when they act in their official capacity “insofar as

[their] conduct does not violate clearly established statutory or

7
The district court stated in a footnote of its Order that it
“does not condone the sending of the letters after the obtainment
of the misdemeanor arrest warrant. Further, when Defendants knew
the Tarrant County District Attorney’s Office had declined to
prosecute Stidham, Defendants should have filed for injunctive
relief and advised Stidham and his clients of the Tarrant County
District Attorney’s Office’s decision. This conduct is unbecoming
of public officials with law enforcement powers.”

8
constitutional rights of which a reasonable person would have

known.” Harlow v. Fitzgerald, 457 U.S. 800, 818 (1982).

We apply a two-part test to determine whether qualified

immunity should apply: “(1) whether the plaintiff has alleged a

violation of a clearly established constitutional right; and (2) if

so, whether the defendant’s conduct was objectively unreasonable in

the light of the clearly established law at the time of the

incident.” Domino v. Texas Dep’t of Crim. Justice, 239 F.3d 752,

755 (5th Cir. 2001). If we, after considering the summary judgment

evidence in the light most favorable to the plaintiff, answer

either of the above questions in the negative, then the defendant

is entitled to qualified immunity. Id.

III

A

1

Stidham contends that the TCPS defendants’ actions deprived

him of his clearly established property and liberty interests

without due process of law. He asserts that the letters sent by

Biggs and the threats made by McGlasson to Marshall violated his

right to due process of law by announcing his guilt before lawful

proceedings determined whether he was in violation of the law.

This conduct, he contends, destroyed his business. Given that he

only had oral, at-will contracts with the funeral homes, he

characterizes his constitutionally protected property interest as

the profits from his business. He also contends that

9
constitutional due process protected his liberty interest in

operating his business as his chosen occupation. Stidham maintains

that these constitutional rights were clearly established. Stidham

further contends that Grumbles’s and Shimek’s intentional failure

to clear his name constituted part of the same deprivation of

property and liberty that resulted from the violation of his right

to due process of law.

The TCPS defendants counter that Stidham has not pointed to a

clearly established right that was violated by the defendants’

actions. They argue that he has no written contracts and thus no

protectible property interest in his business; furthermore, his

interest in the profits from his business is too speculative, in

the absence of a contract, to support a protected property

interest. His claim of a property interest is at best arguable and

is certainly not clearly established. The defendants further

contend that an interest that is merely arguable cannot support a

due process claim based on property rights. Therefore, the

defendants could not reasonably have known that they were violating

that interest when they sent the advisory letters, threatened a

funeral home director with prosecution, and subsequently failed to

clear Stidham’s name.

The defendants next argue that Stidham was not arbitrarily

deprived of his right to pursue his chosen occupation. This is

true, it is said, because he refused to initiate the licensing

process after Biggs informed him that he was required to do so.

10
They further characterize Stidham’s claim as one of damage to

reputation and contend that Stidham must therefore meet the “stigma

plus infringement” test, which, they argue, requires that a

plaintiff demonstrate that the defendant made a false statement in

harming the plaintiff’s reputation; and Stidham cannot point to

evidence of any false statement.8 Finally, the TCPS defendants

contend that Stidham’s rights were not clearly established because

the TCPS had successfully prosecuted cases involving conduct

similar to Stidham’s in the past. Therefore, because Stidham’s

right to conduct his business without a license was not clearly

established, neither was a constitutional right arising therefrom.

2

We are persuaded that, for the purposes of overcoming

qualified immunity, Stidham has properly demonstrated the violation

of a clearly established right by showing that the defendants

deprived him of his liberty interest without due process of law.

The Supreme Court has said that “the right to work for a living in

the common occupations of the community is of the very essence of

the personal freedom and opportunity that it was the purpose of the

[Fourteenth] Amendment to secure.” Truax v. Raich, 239 U.S. 33, 41

8
The allegations in the advisory letters, the defendants
argue, were not willfully false because Biggs believed, based on
legal advice, that the TCPS had authority to regulate motorcycle
escort services and, consequently, authority to prosecute
unlicensed entities and those that contract with them. However,
Biggs did not act on legal advice in sending the letters before
lawful proceedings had been conducted.

11
(1915). We have confirmed the principle that one has a

constitutionally protected liberty interest in pursuing a chosen

occupation. See Ferrell v. Dallas Independent School District, 392

F.2d 697, 703 (5th Cir. 1968) (noting that the right of

professional musicians to follow their chosen occupation free from

unreasonable governmental interference comes within the liberty

concept of the Fifth Amendment); Shaw v. Hospital Authority, 507

F.2d 625, 628 (5th Cir. 1975) (holding that a podiatrist's

application for staff privileges at a public hospital for purposes

of engaging in his occupation as a podiatrist involved a liberty

interest protected by the Fourteenth Amendment); San Jacinto

Savings & Loan v. Kacal, 928 F.2d 627, 704 (5th Cir. 1991) (finding

that the owner of an arcade had a protectible liberty interest in

operating her business).

Thus we find that Stidham has identified a protectible liberty

interest in pursuing an occupation of his choice. We further find

that his claim that the defendants deprived him of this liberty

interest without due process of law states a violation of his

clearly established rights.9

9
With respect to property rights relating to contracts, our
precedent is clear that there must be an enforceable contract
between the parties. See Board of Regents v. Roth, 408 U.S. 564,
577 (1972) (noting that a claimant asserting a property interest
must show more than a “unilateral expectation of it[]” and must
“have a legitimate claim of entitlement to it.”). Property
interests based on at-will contracts do not rise to the level of
protectible property interests. See Farias v. Bexar County Board
of Trustees for Mental Health Mental Retardation Services, 925 F.2d
866, 877 (5th Cir. 1991) (holding that because an employee could be

12
 Having answered this question, we now turn to the second prong

of our analysis, which requires us to determine whether the conduct

of the defendants was objectively unreasonable.

B

1

Stidham maintains that the TCPS defendants’ conduct was

objectively unreasonable because it was perfectly clear that such

acts constitute a blatant violation of his right to due process of

law. He argues that the district court erred in focusing on the

objective reasonableness of the TCPS’s assertion of regulatory

authority over his business, instead of addressing whether the

individual defendants acted unreasonably in their specific conduct.

discharged at will, he had no protectible property interest and no
right to a due process hearing). Here, Stidham has failed to
provide evidence of an enforceable contract. It appears that the
arrangement between him and the funeral homes was based on oral, at
will agreements, which either party could terminate at will without
consequences. We recognize that Kacal also indicated that the
arcade owner had a protected property interest in the lost profits
of her business which was destroyed. However, it is unclear in
Kacal whether lost profits were considered a protected property
interest or only a measure of damages. Given that Stidham had no
constitutionally protected property right in his business
arrangements with the funeral homes, we agree with the defendants
that the profits from unenforceable contracts are not property
interests protected under the Due Process Clause. Nevertheless, we
are persuaded, if not required, by Kacal to conclude that
anticipated profits from this arrangement may be considered as a
measure of damages from the deprivation of a liberty interest.
Such a conclusion is obviously buttressed by the fact that the
elements of a constitutional liberty interest claim embody no
property requirements as does the property prong of the Due Process
Clause. Consequently, using profits as a measure of damages is a
completely different use of the thing from its use to determine the
constitutional claim itself.

13
In his view, it is irrelevant whether the TCPS defendants

reasonably, if erroneously, assumed that the TCPS had regulatory

control over his business; the acts he complains of were carried

out in the absence of any established legal authority. He asserts

that in their unjustified zeal, they skirted the requirements of

the Due Process Clause when they sent the advisory letters and

threatened his clients with criminal prosecution without waiting

for the criminal proceedings against him to resolve whether he was

required to obtain a TCPS license. Stidham concludes that when the

focus is on this specific conduct, it is clear that the TCPS

defendants were objectively unreasonable in their conduct, because

any reasonable officer would have known that a lawful adjudication

must precede a finding of guilt.

The TCPS defendants see the case differently. They maintain

that because their assertion of regulatory authority over Stidham’s

motorcycle escort business was a result of a reasonable reading of

the relevant statutes and was supported by legal advice, their

actions were not objectively unreasonable. They further contend

that it was reasonable for them to send the advisory letters

because it was an effective way of informing entities of the TCPS’s

licensing requirements. Finally, they argue that they had sent

similar letters in the past and it was therefore not unreasonable

for them to follow that practice in this instance.

2

14
 We do not dispute that the TCPS defendants may have reasonably

believed that the TCPS had regulatory authority over motorcycle

escort businesses such as Stidham’s. The record shows that their

interpretation was supported by legal advice, although the Texas

Attorney General ultimately rejected that interpretation.

Consistently with their interpretation and with the provisions of

the TCPS Manual quoted above, the TCPS defendants initiated

criminal proceedings against Stidham for his failure to obtain the

requisite guard company license. The district court held that the

TCPS defendants’ actions were objectively reasonable because they

had prosecuted similar conduct in the past and relied on legal

advice in initiating criminal proceedings against Stidham.

The TCPS defendants, however, mischaracterize the thrust of

Stidham’s claim as an assertion of the right to operate his

business without interference from the TCPS. We repeat ourselves

to say that Stidham’s core argument is that his right to due

process of law was violated, not by the defendants’ attempt to

assert regulatory control over his business, but by the defendants’

writing unauthorized and threatening letters to Stidham’s clients,

declaring him and them to be in violation of law -- all before

their regulatory authority had been established by a lawful

procedure. In the vernacular, Stidham’s claim is that the

defendants publicly pronounced him guilty before he was tried.

This conduct by public officials destroyed his business. Such

15
conduct, Stidham urges, is not objectively reasonable by any

standard.

The TCPS official, Biggs, further suggested to Stidham’s

clients that they were violating the law and she threatened them

with prosecution. In this connection, Biggs does not contend that

she relied on either legal authority or advice in sending the

letters to the funeral homes. Further, she has not clearly

demonstrated that sending such advisory letters was a common

practice on which she might have relied.10 The record shows that

McGlasson and Biggs deviated from the procedures established in the

TCPS Manual for penalizing entities not in compliance with the

TCPS’s licensing requirements. Those procedures would have

provided Stidham with due process, but in disregarding them, Biggs

and McGlasson denied adequate process to Stidham.

Shimek and Grumbles, by wilfully declining to notify Stidham’s

clients of Tarrant County’s refusal to prosecute Stidham and of the

Attorney General’s pronouncement that the TCPS did not have

authority to regulate motorcycle funeral escort businesses,

furthered the damage to Stidham’s business caused by Biggs’s

letters and McGlasson’s threats. They were aware of the damage

done to Stidham’s business because Stidham had complained to them

on several occasions. Thus, we find that Shimek’s and Grumbles’s

10
The only other instance of such a letter in the record was
a December 2001 letter in which no company is singled out by name.
We do not suggest that following an unlawful “common practice”
justifies the unlawful practice as objectively reasonable conduct.

16
refusal to mitigate the harm to Stidham’s business was objectively

unreasonable.

Finally, in concluding that the defendants’ conduct was

objectively unreasonable, we note that the liberty interest

transgressed was clearly established and should have been known to

a reasonable officer. See Vandygriff, 724 F.2d at 493 (concluding

that “due process guarantees to an applicant facing a licensing

process notice and an opportunity to be heard[]”). Consequently,

the defendants are not, and cannot be, entitled to qualified

immunity.

IV

For purposes of qualified immunity, defendants Biggs,

McGlasson, Shimek, and Grumbles violated Stidham’s clearly

established liberty interest in pursuing his chosen occupation

without providing due process of law. For the reasons stated,

their conduct was not objectively reasonable. Therefore, they are

not entitled to the protection of qualified immunity, and we VACATE

the district court’s grant of summary judgment and REMAND this case

for further proceedings not inconsistent with this opinion.

VACATED and REMANDED.

17