Cypress Insurance Company v. Clark

PUBLISH

IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT

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No. 97-2584
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D. C. Docket No. 4-96-CV-359-WS

CYPRESS INSURANCE COMPANY,

Plaintiff-Appellant,

versus

HERBERT F. CLARK,

Defendant-Appellee.

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Appeal from the United States District Court for the
Northern District of Florida
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(July 1, 1998)

Before HATCHETT, Chief Judge, RONEY and LAY*, Senior Circuit Judges.

RONEY, Senior Circuit Judge:

The district court decided that an insurance company, damaged by defamatory statements

made by an employee of the Florida Department of Insurance, could not state a claim under 42

U.S.C. § 1983 for constitutional deprivation of liberty or property without due process of law.

Concluding that Supreme Court precedent forecloses such an alleged cause of action, we affirm.

________________
*Honorable Donald P. Lay, Senior U. S. Circuit Judge for the Eighth Circuit, sitting by
designation.
 Cypress Insurance Company, the plaintiff in this case, reinsured flood insurance policies

written in Florida by the National Casualty Company. Cypress alleges in its papers that Herbert

Clark, the Chief of Staff of the Florida Department of Insurance, launched a campaign to drive

Cypress out of business by disseminating false and defamatory statements. According to Cypress,

Clark’s campaign succeeded in convincing National Casualty, Cypress’s only customer, to withdraw

from the Florida insurance market. After National Casualty terminated its Florida flood insurance

program, Cypress no longer had any business. Cypress therefore brought suit under 42 U.S.C. §

1983, claiming that Clark’s statements had deprived it of its property—business goodwill—without

due process of law.

The district court correctly recognized that Cypress did not properly allege the deprivation

of a constitutionally protected property or liberty interest. To establish a procedural due process

claim, a plaintiff must first show the deprivation of a liberty or property interest protected by the

Due Process Clause. Board of Regents v. Roth, 408 U.S. 564 (1972). In defamation cases brought

under section 1983, allegations of injury to reputation alone do not support a section 1983 claim for

violation of due process, and therefore must be accompanied by a constitutionally recognized injury.

Paul v. Davis, 424 U.S. 693, 712 (1976). This rule, labeled the “stigma-plus” standard, requires

a plaintiff to show that the government official’s conduct deprived the plaintiff of a previously

recognized property or liberty interest in addition to damaging the plaintiff’s reputation. Id. at 712.

The rule is designed to prevent the Due Process Clause from becoming an all-purpose

constitutionalization of state tort law. Id. at 701.

Because Cypress has not alleged the deprivation of any legal rights or tangible property

interests, such as the revocation of its license to engage in the business of insurance, a

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straightforward application of Paul v. Davis would seem to defeat any constitutional due process

claim. Cypress, however, points to our prior opinion in Marrero v. City of Hialeah, 625 F.2d 499

(5th Cir. 1980), cert. denied, 450 U.S. 913 (1981) in support of its argument that its business

reputation was protected by the Fourteenth Amendment. Marrero held that Florida law recognizes

a property interest in business reputation, and that this state-created property right is protected by

the Due Process Clause. In Marrero, however, the state not only defamed the plaintiff’s business,

but also deprived the plaintiff of more tangible property interests: the Hialeah Police Department

illegally seized most of the plaintiff’s inventory in violation of the Fourth Amendment.

The Marrero decision has resulted in some confusion regarding the extent of section 1983

in this Circuit. On the one hand, we have cited Marrero for the proposition that Florida law

recognizes business goodwill as an interest protected by the Due Process Clause. In Espanola Way

Corp. v. Meyerson, 690 F.2d 827 (11th Cir. 1982), we held that a city commission’s plan to combat

illegal Cuban immigration by harassing hotels catering to Cuban Refugees implicated the hotels’

constitutionally protected interest in their business reputations. In Economic Development Corp. of

Dade County v. Stierheim, 782 F.2d 952 (11th Cir. 1986), we held that statements made by the

manager of Dade County that injured a business’s goodwill and reputation affected liberty and

property interests protected by the Fourteenth Amendment. And in Little v. City of North Miami,

805 F.2d 962 (11th Cir. 1986), we held that damage to an attorney’s professional reputation caused

by a defamatory city counsel resolution implicated liberty and property interests protected by the

Constitution. We have also stated, however, that “[w]e do not think the law of this Circuit has

established that defamation occurring other than in the course of dismissal from a job or in the

termination or significant alteration of some other legal right or status will suffice to constitute a

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deprivation sufficient to state a claim under section 1983." Von Stein v. Brescher, 904 F.2d 572, 582

(11th Cir. 1990).

Although the Marrerro line of precedent suggests that allegations of damage to business

reputation by official state action may occasionally rise to the level of a deprivation of constitutional

due process rights, this case is governed by the most recent pronouncement by the Supreme Court

on this issue. In Siegert v. Gilley, 500 U.S. 226 (1991), the Court held that a psychologist who had

lost his job at an army hospital due to an allegedly defamatory letter written by the psychologist’s

previous supervisor at another government hospital could not allege the deprivation of a

constitutionally protected right. Indeed, the Court specifically rejected the notion that defamation

by a government actor that causes injury to professional reputation violates procedural due process.

The Court suggested that although injury to business reputation may be relevant to damages in a

section 1983 action, these damages would only be available in a case involving the deprivation of

a more tangible liberty or property right:

The statements contained in the [defamatory] letter would undoubtedly damage the
reputation of one in his position, and impair his future employment prospects. But the
plaintiff in Paul v. Davis similarly alleged serious impairment of his future employment
opportunities as well as other harm. Most defamation plaintiffs attempt to show some sort
of special damage and out-of-pocket loss which flows from the injury to their reputation.
But so long as such damage flows from injury caused by the defendant to a plaintiff’s
reputation, it may be recoverable under state tort law but it is not recoverable in a Bivens
action.
Id. at 234.

The Supreme Court’s message in Siegert is clear and unmistakable: Section 1983 did not

make every tort committed by a state official a violation of constitutional rights. In particular,

damages to a plaintiff’s business reputation are only recoverable in a section 1983 action if those

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damages were incurred as a result of government action significantly altering the plaintiff’s

constitutionally recognized legal rights.

In this case, Cypress has alleged no government action other than false statements made by

Herbert Clark, the Chief of Staff of the Florida Department of Insurance. This may well be a tort,

but it is not a violation of the right to due process of law.

AFFIRMED.

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