TERRY L. ARCOREN, PETITIONER V. WENTON PETERS AND JOHN SCHOOLER No. 87-1069 In the Supreme Court of the United States October Term, 1987 On Petition for a Writ of Certiorari to the United States Court of Appeals for the Eighth Circuit Brief for the Respondents in Opposition TABLE OF CONTENTS Question presented Opinions below Jurisdiction Statement Argument Conclusion OPINIONS BELOW The opinion of the en banc court of appeals (Pet. App. 1-29) is reported at 829 F.2d 671. The opinion of the court of appeals' panel (Pet. App. 30-47) is reported at 811 F.2d 392. The opinion of the district court (Pet. App. 48-60) is reported at 627 F. Supp. 1513. JURISDICTION The judgment of the court of appeals was entered on September 25, 1987. The petition for a writ of certiorari was filed on December 24, 1987. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). QUESTION PRESENTED Whether in March 1980 it was "clearly established," within the meaning of Harlow v. Fitzgeral, 457 U.S. 800, 818 (1982), that the Due Process Clause bars the Farmers Home Administration from using self-help remedies available to private secured creditors to repossess and sell property that secures a debt. STATEMENT 1. Petitioner owned a ranch in South Dakota during the time period relevant in this case. He received two operating loans from the Farmers Home Administration (FmHA), one in 1976 and one in 1978, and used some of the proceeds of the loans to purchase cattle. In order to obtain the loans, petitioner signed a security agreement giving the FmHA a security interest in the cattle. Pet. App. 2, 49. The security agreement provided that petitioner would be in dafault if he failed to "'observe or perform any covenants or agreements (contained in the security agreement)'"; one of those obligations was to "'care for and maintain the collateral in a good and husband-like manner * * * (and) not abandon the collateral'" (id. at 3 n.2 (citation omitted)). The security agreement further provided that, in the event of a default, the FmHA, "'at its option, with or without notice as permitted by law, may * * * enter upon the premises and take possession of (the collateral and) exercise any sale or other rights accorded by law'" (ibid. (citation omitted)). During the winter months, petitioner kept his cattle on land belonging to his father and uncle and on land belonging to Richard Hand, who was one of petitioner's neighbors. In March 1980, petitioner's uncle and Hand visited respondent Wenton Peters, the FmHA county supervisor, and "complained to Peters that they were providing all of the care for (petitioner's) cattle and had been doing so for some months. They told Peters that they would turn (petitioner's) cattle out onto the road if FmHA did not take some action" (Pet. App. 2-3). These individuals returned to Peters' office one week later and informed Peters that they had placed the cattle in a corral for repossession by the FmHA. Peters and his supervisor, respondent John Schooler, decided that the FmHA should repossess the cattle. They did not attempt to reach petitioner to verify the allegations regarding petitioner's failure to care for the cattle. The cattle were repossessed on March 27, 1980, and sold the following day. Petitioner first learned of the repossession on April 1 when he received a copy of the bill of sale for the cattle. Id. at 3, 49. Petitioner pursued administrative remedies within the FmHA for redress of what he believed to be an improper repossession of the loan collateral. See 7 C.F.R. 1900.53 (1980). When petitioner failed to obtain relief, he commenced this action against Peters and Schooler seeking damages for alleged violations of due process rights guaranteed by the Fifth Amendment. Cf. Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics, 403 U.S. 388 (1971). Petitioner claimed that he had a constitutional right to a hearing prior to the repossession and sale of property covered by the security agreement and that Peters and Schooler had violated that right by repossessing and selling the cattle without notice. The district court held that the two FmHA officials were entitled to immunity under the standard set forth in this Court's decision in Harlow v. Fitzgerald, 457 U.S. 800 (1982). /1/ It concluded that "(a)lthough the law was apparently headed in the direction of requiring notice and a hearing prior to FmHA repossession of collateral, it cannot be said that the law was 'clearly established' on that point in March, 1980" (Pet. App. 60). The court observed that the Uniform Commercial Code authorizes a creditor to use self-help to take possession of collateral in the event that a debtor defaults on his obligations under a security agreement and that prior notice to the defaulting party is not required in some circumstances (see id. at 55-56 n.5). The court concluded that at the time of the events at issue in this case the FmHA had "reasonably relied upon its status as a quasi-commercial lender in order to take advantage of the self-help provisions of the U.C.C. Even if the requirement of pre-seizure notice and a hearing is a 'logical extension' of Goldberg (v. Kelly, 397 U.S. 254 (1970)), the FmHA was entitled to 'gamble' that as far as its farm lending practices were concerned, it would be treated as a commercial lender, rather than a Goldberg-type welfare agency" (Pet. App. 58 (citation omitted)). Even if the FmHA employees were wrong about the correct constitutional rule, the court stated, "that does not deprive (them) of qualified immunity" (ibid. (footnote omitted)). 2. A panel of the court of appeals reversed the district court's decision by a divided vote, holding that the FmHA employees were not entitled to immunity (Pet. App. 30-47). The full court of appeals granted rehearing en banc, however, and affirmed the district court's determination by a divided vote (id. at 1-29). The full court stated that the "central issue in this case is whether it was clearly established in 1980 that the FmHA officials could not, consistent with the fifth amendment, use the self-help remedy permitted under South Dakota's Uniform Commercial Code * * * in repossessing (petitioner's) cattle when they believed he was in default on his FmHA loan" (id. at 2 (citation omitted)). The court observed that "(t)he qualified immunity defense fails when the official acts in a manner that disregards undisputed constitutional guarantees," but that "(a)n official is not expected to anticipate the law's development or its possible application to a unique situation. * * * Thus, an official does not forfeit his immunity because he 'gambled and lost on the resolution of (an) open question'" (id. at 4-5 (citation omitted)). The court of appeals noted that this Court in Fuentes v. Shevin, 407 U.S. 67 (1972), invalidated on constitutional grounds two state statutes authorizing the prejudgment seizure of property without notice to the property holder. This Court concluded that "due process requires 'an opportunity for a hearing before the State authorizes its agents to seize property in the possession of a person upon the application of another'" (Pet. App. 6, quoting Fuentes, 407 U.S. at 80 (emphasis in original)). The court of appeals observed that subsequent decisions had declined to extend Fuentes to self-help repossession by private creditors; "(t)hus, if a private creditor had financed (petitioner's) loan, the creditor would have been entitled under (state law) to take possession of the property without notice or a hearing in the event of default, and (petitioner) would have no claim that his constitutional rights were violated" (Pet. App. 7 (footnote omitted)). The court then proceeded to reject petitioner's argument that the law in 1980 clearly established that the FmHA could not invoke the self-help statute to the same extent as a private creditor: "We do not believe that the cases clearly establish this proposition even as of today, much less as of 1980" (Pet. App. 7). The court stated that "strong authority" supported the FmHA employees' position that "when the FmHA acted as a lender, it acted in a commercial rather than a sovereign capacity." Ibid., citing United States v. Kimball Foods, Inc., 440 J.S. 715 (1979). The court acknowledged that the Due Process Clause applies to the FmHA's actions, but concluded that the nature of the governmental function and the fact that the agency was exercising its authority under the security agreement distinguished the present situation from Fuentes. It added that in cases involving government-owned corporations, courts had concluded that selp-help remedies could be utilized without prior notice. Because there was a "'legitimate question' as to what process was due (petitioner) in these circumstances," the court concluded that the FmHA employees did not violate clearly established law by invoking the statutory self-help remedy. Pet. App. 12. /2/ Two judges dissented. They concluded that petitioner had a clearly established right to a pre-possession hearing at the time of the events at issue in this case. Pet. App. 15-29. ARGUMENT Petitioner's arguments before this Court are based on a complete misreading of the court of appeals' opinion. Contrary to petitioner's repeated claims (see, e.g., Pet. 7, 8, 17), the court of appeals did not hold that an individual in petitioner's position has no due process right to a hearing prior to repossession of goods by the FmHA. The court simply held that such a right was not clearly established in 1980 (Pet. App. 2, 12). That narrow determination does not conflict with any decision of this Court or another court of appeals. Review by this Court is not warranted. 1. The scope of the immunity from personal liability available to executive government officials such as respondents is well established: "(G)overnment officials performing discretionary functions, generally are shielded from liability for civil damages insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known." Harlow v. Fitzgerald, 457 U.S. 800, 818 (1982); see also Anderson v. Creighton, No. 85-1520 (June 25, 1987), slip op. 3. The Court recently defined the circumstances in which a right is "clearly established," explaining that "(t)he contours of the right must be sufficiently clear that a reasonable official would understand that what he is doing violates that right" (Anderson v. Creighton, slip op. 4). Although the precise conduct need not have previously been held unlawful, "in the light of preexisting law the unlawfulness must be apparent" (id. at 5). /3/ The court of appeals correctly applied that standard to the constitutional claim asserted by petitioner in this case. As a threshold matter, petitioner has pointed to no decision issued prior to March 1980 that addresses the precise question presented in this case. Indeed, petitioner acknowledges that no decision "explicitly (struck) down self-help repossession by government officials as unconstitutional" (Pet. 15). Neither was the unlawfulness of respondents' actions "apparent" in light of then-settled legal principles. At the time of the events at issue here, an unreconciled tension existed between two generally recognized propositions. First, this Court had held that prior notice and an opportunity to be heard were constitutionally required in connection with some government actions effecting a deprivation of property. In Goldberg v. Kelly, 397 U.S. 254 (1970), the Court held that a recipient of welfare benefits must be afforded an evidentiary hearing prior to the termination of such benefits. And in Fuentes v. Shevin, 407 U.S. 67 (1972), the Court invalidated two state statutes authorizing the seizure of property without notice to the property holder, holding that due process required notice and an opportunity for a hearing prior to the seizure of the property. /4/ Second, it was well established that, in some circumstances, a secured creditor may use self-help to repossess collateral from a defaulting debtor. See U.C.C. Section 9-503; Pet. App. 6-7. Several courts, including the Eighth Circuit, had concluded that Fuentes did not apply in this context and that private creditors were therefore free to use self-help remedies without providing prior notice and an opportunity for a hearing. Bichel Optical Laboratories, Inc. v. Marquette National Bank, 487 F.2d 906 (8th Cir. 1973); Pet. App. 6-7. Petitioner has not pointed to any authority that made it "apparent" in March 1980 that the FmHA's use of the self-help remedy should have been analyzed under the first of these principles rather than the second. /5/ Indeed, what authority there was at the time indicated that the FmHA could make use of the self-help remedy to the same extent and in the same manner as a private creditor. In United States v. Kimball Foods, Inc., 440 U.S. 715, 737 (1979) (citation omitted), this Court characterized the FmHA as a "'quasi-commercial lender,'" and held that the priority to be accorded an FmHA lien should be determined by reference to general state priority rules; the Court declined to create a special priority rule similar to that accorded to tax liens because the "(g)overnment * * * is in substantially the same position as private lenders" (ibid.). Although the characterization of the FmHA's actions for due process purposes is obviously a different question from the issue before the Court in Kimball Foods, the Court's conclusion that the FmHA closely resembles a private lender and therefore should be governed by the priority rules applicable to private lenders certainly makes less "apparent" the conclusion that self-help remedies available to private creditors would not be available to the FmHA. /6/ Perhaps the most striking evidence that the right asserted by petitioner was not clearly established in March 1980 comes from the views of the judges who considered this case below. Nine of eleven judges of the court of appeals and district court concluded that the constitutional right asserted by petitioner was not clearly established at the relevant time, and the court of appeals stated that "it would be easier for us to hold that in 1980 the law was clearly established that the FmHA officials could act as they did" (Pet. App. 12). It is implausible in the extreme that the overwhelming majority of a group of sitting federal judges should fail to recognize a legal right so clearly established as to be chargeable to the knowledge of a reasonable public official. /7/ 2. Petitioner contneds (Pet. 17-18) that the decision below conflicts with Johnson v. United States Dep't of Agriculture, 734 F.2d 774 (11th Cir. 1984). Johnson was a class action challenging the procedures employed by the FmHA in non-judicial mortgage foreclosures. The court of appeals held that the district court should have granted a preliminary injunction barring such foreclosures while the litigation was underway. In connection with that determination, the court of appeals found that the plaintiffs were likely to succeed on the merits of their claim that the foreclosures violated due process because the plaintiffs had not been provided with prior notice and an opportunity to be heard (see 734 F.2d at 782). The issues in Johnson bear no relationship to the question in the present case. Johnson addressed the merits of the application of the Due Process Clause in the mortgage foreclosure context; the issue in the present case is whether the due process rule applicable to self-help repossession was clearly established in 1980. The difference in the two factual contexts -- mortgage foreclosure as against repossession -- is sufficient to distinguish the two cases. But there is a much more fundamental distinction. Johnson concerns the merits of a particular constitutional claim, holding that the plaintiffs were likely to succeed on the merits. The decision in the present case is limited to the question whether respondents are entitled to immunity; that question is answered not by determining the correct constitutional rule, the course taken by the court in Johnson, but by ascertaining the state of the law in March 1980, whether or not the 1980 rule would be found to be correct today. For these reasons, there is plainly no conflict between the two decisions. CONCLUSION The petition for a writ of certiorari should be denied. Respectfully submitted. CHARLES FRIED Solicitor General JAMES M. SPEARS Acting Assistant Attorney General BARBARA L. HERWIG Attorney MARCH 1988 /1/ The district court initially held that petitioner could not maintain a Bivens action because the administrative remedies available to petitioner precluded the recognition of a Bivens action (see Pet. App. 50). The court of appeals reversed that determination, holding that the availability of administrative remedies, "under the unique circumstances of this case, does not defeat an action brought directly under the fifth amendment to the United States constitution" (770 F.2d 137, 141 (1985)). The court of appeals remanded the case for further proceedings. /2/ The court of appeals also rejected petitioner's claims for damages based upon the provisions of the security agreement, the FmHA regulations, and South Dakota law, observing that "(a) Bivens action for damages * * * must be founded upon a violation of constitutional rights" (Pet. App. 12). It further stated that "there is no provision (in the statutes, regulations, or security agreement) that clearly establishes the right to notice and hearing before FmHA officials could determine that (petitioner) was in default" (id. at 13 (emphasis in original)). Therefore, "the provisions cited by (petitioner) do not bear upon the constitutional analysis concerning what process was due" (id. at 15). /3/ Petitioner asserts (Pet. 19-23) that the court below applied the wrong standard in assessing respondents' entitlement to immunity, but petitioner has confused the immunity standard with the application of that standard to the particular facts of this case. The court of appeals plainly applied the correct standard. It quoted the pertinent portion of Harlow (see Pet. App. 4-5), and proceeded to determine whether the right claimed by petitioner was clearly established at the time of the challenged conduct (see id. at 5-12). Petitioner asserts (Pet. 21) that the court of appeals created a new immunity rule that "depends upon whether the nature of (the official's) actions is sufficiently 'private' so as to relieve him of an obligation to comply with the Constitution." But the court of appeals created no new immunity rule. It found the quasi-commercial nature of the challenged conduct germane in assessing the scope of the relevant constitutional right, concluding that the manner in which the Due Process Clause applied to commercial activities undertaken by a government entity was uncertain in March 1980 and that, therefore, respondents were entitled to immunity (Pet. App. 7-12). Petitioner also states (Pet. 22) that respondents should not be entitled to immunity on the court of appeals' view of the case because immunity is available only for government actions. Contrary to petitioner's contention, the court of appeals recognized that respondents' conduct amounted to governmental action (see, e.g., Pet. App. 8); the court simply concluded that the Due Process Clause might apply differently to quasi-commercial activities such as those at issue here. /4/ On the other hand, in Mitchell v. W.T. Grant Co., 416 U.S. 600 (1974), the Court upheld the constitutionality of a state statute authorizing the issuance of an ex parte sequestration order that deprived a property owner of the possession of personal property without any prior notice or opportunity for a hearing. Thus, the scope of the Fuentes rule was not completely clear. /5/ Petitioner cites (Pet. 14-15) several district court decisions, but none of those decisions addresses the process due in connection with the FmHA's use of self-help repossession remedies; they all concern the due process requirements applicable to mortgage foreclosures. Accordingly, those cases do not supply clear guidance as to the applicable rule in the self-help repossession context. The relevance of those cases is further diminished by the fact, recognized by the court below (Pet. App. 8-10), that several courts of appeals had reached the contrary conclusion regarding the need for prior notice and an opportunity to be heard in the related context of mortgage foreclosures by government-owned corporations. See note 6, infra. Finally, one of the cases cited by petitioner -- Rau v. Cavenaugh, 500 F. Supp. 204 (D.S.D.) -- was not decided until November 1980, more than seven months after the events at issue in this case. /6/ As the court of appeals found (Pet. App. 8-10), this conclusion is further buttressed by several appellate decisions analogizing government-owned corporations to private lenders for the purpose of determining the requisites of due process in connection with those entities' non-judicial mortgage foreclosures. See Warren v. Government National Mortgage Ass'n, 611 F.2d 1229 (8th Cir.), cert. denied, 449 U.S. 847 (1980); Roberts v. Cameron-Brown Co., 556 F.2d 356 (5th Cir. 1977); Northrip v. Federal National Mortgage Ass'n, 527 F.2d 23 (6th Cir. 1975). These courts relied in large part upon the fact that the foreclosures were performed by government-owned corporations rather than by the government itself. But they also found significant the fact that the right to foreclose flowed from a provision contained in the deed of trust: "As a party to the contract, and even though it was a governmentally-owned and authorized entity, (the government-owned corporation) had a right to resort to its contractual remedies just as a purely private entity had." Warren, 611 F.2d at 1234; see also Northrip, 527 F.2d at 32. Officials such as respondents could reasonably believe that the same rule applied to the quasi-commercial activities of the FmHA, especially in the absence of any authoritative decision distinguishing the two situations. /7/ Petitioner contends (Pet. 14 n.2) that factual disputes regarding the propriety of repossession in this case precluded an award of summary judgment in favor of respondents. The district court correctly concluded, however, that it is immaterial whether petitioner was actually in default, because "(petitioner) seeks relief for deprivation of his property without prior notice and hearing. It is undisputed that no such notice and hearing were provided" (Pet. App. 49 n.2 (emphasis in original)). To put it another way, the fact that the repossession might have been wrongful has no bearing upon whether petitioner's constitutional right to prior notice and hearing was clearly established.