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Comsys, Inc. v. Pacetti

United States Court of Appeals, Seventh Circuit

June 20, 2018

Comsys, Inc., and Kathryne L. McAuliffe, Plaintiffs-Appellees,
Frank Pacetti, Edward St. Peter, and Keith G. Bosman, Defendants-Appellants.

          Argued March 30, 2018

          Appeal from the United States District Court for the Eastern District of Wisconsin. No. 16-CV-655-JPS - J.P. Stadtmueller, Judge.

          Before Easterbrook and Rovner, Circuit Judges, and Gilbert, District Judge. [*]

          Easterbrook, Circuit Judge.

         The City of Kenosha, Wionsin, hired Comsys to be its information-technology department. Comsys had its offices inside City Hall and stored all of its electronic information on the City's servers. The contract between Comsys and the City automatically renewed from year to year unless terminated, adding that both Comsys and the City "shall have the right, with or without cause, to terminate the Agreement by written notice delivered to the other party at least twelve (12) calendar months prior to the specified effective date of such termination." The City's Common Council voted on June 2, 2014, to end the contract, and the City's Mayor (Keith G. Bosman) delivered formal notice two days later. The contract ended on June 5, 2015.

         Comsys then sued everyone in sight-the City, the City's Water Utility (for which Comsys also had worked), the Mayor, the City Administrator (Frank Pacetti), the General Manager of the Water Utility (Edward St. Peter), the City's Director of Information Technology (Merril Kerkman, who moved from Comsys to the City on May 1, 2014), and every member of the Common Council who voted to terminate the contract. Comsys asserted that all defendants had violated the First and Fourth Amendments to the Constitution (applied to these defendants through the Due Process Clause of the Fourteenth Amendment), and are liable under state contract and tort law to boot. The district court dismissed several claims on the pleadings, 223 F.Supp.3d 792 (E.D. Wis. 2016), and later dismissed the Council's members on the ground of legislative immunity. 2017 U.S. Dist. Lexis 70518 (E.D. Wis. May 9, 2017). The May 2017 opinion also denied motions for summary judgment on the First and Fourth Amendment claims. Mayor Bosman, Administrator Pacetti, and Manager St. Peter have appealed from the order to the extent it rejected their argument for official immunity. See Mitchell v. Forsyth, 472 U.S. 511 (1985).

         The record (read favorably to Comsys) shows that after Kerkman was appointed as Chief Information Officer of Comsys at the beginning of 2013, Administrator Pacetti began to make plans to get rid of Comsys and take the work in-house, under Kerkman's direction. Kathryne McAuliffe, Comsys's CEO and sole owner, got wind of this plan, and hostilities ensued. Kerkman accessed some of McAuliffe's emails and passed information, which may have included trade secrets and other confidences, to Pacetti. While the Police Department was investigating Kerkman on an unrelated matter, McAuliffe told police about his unauthorized access of her emails. She later filed a criminal complaint against Kerkman and Pacetti, and the Sheriff's Office investigated her charges. In May 2014 the Sheriff's Office confiscated the City's servers on the authority of a search warrant. That step caused bad feelings as well as considerable difficulty in getting work done. Within days Mayor Bosman asked the Common Council to end the City's relation with Comsys. McAuliffe wrote to the Common Council, strongly objecting, but the Council sided with the Mayor.

         Comsys and McAuliffe contend that the contract's termination violated the First Amendment by penalizing three episodes of speech. Plaintiffs call this "retaliation, " but that word does not add anything to the basic claim that the City made protected speech costly by ending a contract that was profitable to Comsys. See Fairley v. Andrews, 578 F.3d 518, 525 (7th Cir. 2009).

         Trying to isolate contract administration from speech may be impossible. Even when a contractor serves at a city's pleasure, the deal is unlikely to be called off without some reason. Terminations follow breakdowns of relations. Dur- ing a breakdown, charges and countercharges are likely; it is impossible to imagine the end to a relation such as the one between Comsys and the City without either side saying something to the other. Words may be harsh and the exchanges acrimonious. If that were enough to permit recovery under the Constitution, however, then the federal courts will have displaced state contract law and effectively nullified agreements allowing termination without cause.

         Considerations of this kind led the Supreme Court to hold in Garcetti v. Ceballos, 547 U.S. 410 (2006), that a public employee cannot use the First Amendment to block (or get damages for) a discharge that follows things the worker said as part of the job. As the Court saw matters, the managers in a public office must be able to maintain discipline and assure that the office functions as elected officials wish. Id. at 422- 23. The Justices concluded that a public employee is not speaking as a citizen, and therefore is not protected by the First Amendment, when speaking as part of the job.

         Neither the Supreme Court nor the Seventh Circuit has considered whether the same principle applies to the administration of public contracts, but every circuit that has addressed the issue has given an affirmative answer. See Decotiis v. Whittemore, 635 F.3d 22, 26 n.1 (1st Cir. 2011); Ma-rez v. Bassett, 595 F.3d 1068, 1074 (9th Cir. 2010); Walden v. Centers for Disease Control & Prevention, 669 F.3d 1277, 1285 (11th Cir. 2012). That conclusion is sound, especially when the contractor is acting as a de facto branch of a public body. Until 2015 Kenosha used a contract, rather than a civil-service system, to provide its information-technology needs. It should have as much freedom to manage that contractual relation as to manage an internal IT department.

         Board of County Commissioners v. Umbehr, 518 U.S. 668 (1996), and O'Hare Truck Service, Inc. v. Northlake, 518 U.S. 712 (1996), reinforce this conclusion. Those decisions hold that public contractors are treated just like public employees with respect to the rule against hiring and firing to carry out political patronage. If contractors and employees are alike in this constitutional respect, why not others? It is hard to see how there could be a difference; after all, the employment relation is itself a matter of contract under state law, which provides the tenure and conditions of public employment.

         At least one aspect of the current suit can be resolved on the basis of the Ceballos principle. The day the Common Council was to vote on terminating the contract, McAuliffe sent it a letter accusing Kerkman (by then a City employee) and Pacetti of unseemly conduct. The letter's stated purpose was to provide the Council's members with "as much information as possible [as] they contemplate[d] options with [Comsys's] contracts." This letter spoke for Comsys as a contractor trying to keep business. True, the letter was not required by the contract, but it dealt with contract administration. If Ceballos, after being told that he was in hot water for what he had written on the job, had penned a letter to his managers protesting his impending discharge, he could not have used the letter's lack of success as the fulcrum of a First Amendment claim. Allowing that step would make Ceballos empty. Our decisions hold that internal memos protesting coworkers' misconduct are not protected by the First Amendment. Forgue v. Chicago, 873 F.3d 962, 966-67 (7th Cir. 2017); Fairley, 578 F.3d at 522. That understanding covers McAuliffe's letter as well.

         Two other matters cannot be resolved on the basis of Ceballos. During the initial probe of Kerkman in winter 2014, McAuliffe met with an investigating officer and made statements adverse to him. Then in May 2014 McAuliffe filed a criminal complaint against Kerkman. Both of these steps may have affected the contract but did not occur as part of its administration. Statements given under oath at trial or before a grand jury fall outside the scope of Ceballos, because the "independent obligation [to tell the truth] renders sworn testimony speech as a citizen and sets it apart from speech made purely in the capacity of an employee." Lane v. Franks, 134 S.Ct. 2369, 2379 (2014); see also Chrzanowski v. Bianchi, 725 F.3d 734, 740 (7th ...

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