On Remand from the United States Supreme CourtApril 19, 1999Argued and SubmittedSeptember 14, 1999--Pasadena, CaliforniaFiled February 23, 2000Before: Stephen Reinhardt, Alex Kozinski andMichael Daly Hawkins, Circuit Judges.Order; Dissent by Judge Kozinski
_____________________________ORDER In G&G Fire Sprinklers, Inc. v. Bradshaw, 156 F.3d 893(9th Cir. 1998), we held that California Labor Code provi-sions authorizing the state to seize money and impose penal-ties for a subcontractor's failure to comply with prevailingwage requirements violated the Due Process Clause of theFourteenth Amendment. See id. at 904. The Supreme Courtgranted certiorari, vacated our judgment, and remanded "forfurther consideration in light of American ManufacturersMutual Insurance Company v. Sullivan, 119 S. Ct. 977(1999)." Bradshaw v. G&G Fire Sprinklers, Inc., 119 S. Ct.1450 (1999). Having determined that Sullivan is fully consis-tent with our analysis, we reinstate the judgment and opinion.DISCUSSIONSullivan involved the Pennsylvania Workers' Compensa-tion Act, under which an employer or its insurer must pay forall "reasonable" and "necessary" medical treatment for work-related injuries. See 119 S. Ct. at 982. Under the Pennsylvaniascheme, an insurance company could withhold payment formedical treatment if it disputed the reasonableness or neces-sity of that treatment. See Pa. Stat. Ann.S 531(5) ("All pay-ments to providers for treatment . . . shall be made withinthirty (30) days of receipt of such bills and records unless theemployer or insurer disputes the reasonableness or necessityof the treatment."). The Sullivan plaintiffs claimed that thefailure to pay their contested benefit claims within thirty days,before a process was provided to resolve the dispute about the"reasonableness" of their treatment, amounted to a depriva-tion of due process.Sullivan dealt with two questions: (1) whether the insurancecompany's decision to withhold payment for disputed medicaltreatment was fairly attributable to the State so as to subjectinsurers to the constraints of the Fourteenth Amendment, 119S. Ct. at 984; and (2) whether the Due Process Clause requiresworkers' compensation insurers to immediately pay disputedmedical bills prior to a determination that the medical treat-ment was reasonable and necessary. Id. at 985.The first question concerns whether there is state action,since the Fourteenth Amendment does not reach private actsor actors. Sullivan repeats a familiar calculus to determine thepresence of state action: there must be some deprivation of aconstitutional right and the party charged with the deprivationmust be fairly said to be a state actor. Id. at 986. The secondquestion turns on whether the claimant has a property interestin the matter complained of.The Supreme Court found that the Sullivan plaintiffs didnot possess a property interest in the immediate , unconditionalpayment for all medical treatment under the Pennsylvaniastatute. Nevertheless, the Court stated that the plaintiffs didhave an interest in payment of "reasonable" medical costs, seeSullivan, 119 S. Ct. at 990, and went out of its way to makeclear that its holding did not upset previous Supreme Courtprecedent supporting the conclusion that the plaintiffs had aproperty interest in their claims for payment. See id. at n.13("Respondents do not contend that they have a property inter-est in their claims for payment, as distinct from the paymentsthemselves, such that the State, the arguments goes, could notfinally reject their claims without affording them appropriateprocedural protections.") (citing Logan v. Zimmerman BrushCo.,
45 U.S. 422, 430
-31 (1982)). Justice Ginsburg, who pro-vided the fifth vote necessary to make the due process discus-sion in Sullivan an opinion of the Court, further clarified thisdistinction in her concurrence: I join Part III of the Court's opinion on the under- standing that the Court rejects specifically, and only, respondent's demands for constant payment of each medical bill, within 30 days of receipt, pending determination of the necessity or reasonableness of the medical treatment. I do not doubt, however, that due process requires fair procedures for the adjudica- tion of respondents' claims for workers' compensa- tion benefits, including medical care.Sullivan, 119 S. Ct. at 991 (emphasis added) (citation omit-ted).Our opinion adopts the approach explicitly preserved by theSullivan majority and unequivocally adopted in Justice Gins-burg's concurrence. We specifically held that G&G did nothave a right to payment of the disputed funds pending the out-come of whatever kind of hearing would be afforded to deter-mine whether G&G complied with the California prevailingwage laws. See G&G Fire Sprinklers, 156 F.3d at 903-04. Tothe contrary, we explicitly authorized the withholding of pay-ments pending the hearing. See id. G&G's due process rightswere violated, we held, not because it was denied immediatepayment, but because the California statutory schemeafforded no hearing at all when state officials directed thatpayments be withheld.1 See id. at 904. Nor can there be anydoubt whether the action at issue here was compelled by theState. The withholding in Sullivan was carried out by a pri-vate insurer exercising its discretion in a way permitted byState law. The withholding here was specifically directed byState officials in an environment where the withholding partyhas no discretion at all. Moreover, in their complaint theplaintiffs directly attack the notices of withholding issued bythe state agency, alleging that they were issued "arbitrarilyand unreasonably."Because our holding is not contrary to the Court's ruling inSullivan, and because our opinion's reasoning fits comfort-ably within the analytic framework set forth in Sullivan, weREINSTATE the judgment and the opinion reported at 156F.3d 893 (9th Cir. 1998).
_____________________________KOZINSKI, Circuit Judge, dissenting:I dissented from the original opinion in this case because Ido not believe that relations among contracting parties aregoverned by the Due Process Clause merely because one ofthe parties happens to be a state. See G&G Fire Sprinklers,Inc. v. Bradshaw, 156 F.3d 893, 908 (1998) (Kozinski, J., dis-senting). I continue to adhere to that view. But the SupremeCourt has now directed us to reconsider our opinion in lightof American Mfrs. Mut. Ins. Co. v. Sullivan, 119 S. Ct. 977(1999). See Bradshaw v. G&G Fire Sprinklers, Inc., 119S. Ct. 1450 (1999). In response, the majority reinstates itsoriginal opinion without amendment, claiming that its reason-ing "fits comfortably within the analytic framework set forthin Sullivan." Reinstatement Order at 1970. I must dissent onceagain, because Sullivan fits the majority's rationale about ascomfortably as Cinderella's slipper on the wicked step-sister'sfoot.Sullivan teaches that, to state a claim for relief under sec-tion 1983, G&G must identify both an alleged constitutionaldeprivation and a state actor who is responsible for it. SeeSullivan, 119 S. Ct. at 985 (rejecting the argument that "weneed not concern ourselves with `the identity of thedefendant' "). In deciding whether G&G has succeeded inthis, Sullivan explains that we must begin "by identifying `thespecific conduct of which the plaintiff complains.' " Id. at 985(quoting Blum v. Yaretsky,
457 U.S. 991, 1004
(1982)). Herethe only deprivation alleged by G&G was effected by theprime contractor, who withheld funds which G&G claimsunder a contract.1 There's no state action.The majority waves a magic wand by asserting that"[t]hewithholding here was specifically directed by state officials inan environment where the withholding party has no discretionat all." Reinstatement Order at 1970. This would be true hadthe prime contractor been ordered, under penalty of law, towithhold funds from G&G. It was not. The only entity"specifically directed" to withhold funds was the awardingbody, which withheld funds only from the prime contractor,not from G&G. While the challenged provision authorized--even encouraged--the prime to withhold an equivalentamount from G&G, the prime was free to pay G&G the fullamount specified by the contract. Sullivan clearly holds thatmere authorization and encouragement do not render a privateentity's decisions "fairly attributable" to the state. 119 S. Ct.at 986. Under Sullivan, then, the prime contractor who choseto deprive G&G of its alleged property was not a state actor.This presents the same problem for G&G as it did for theplaintiffs in Sullivan. The Court's description of the Sullivanplaintiffs' attempt to get around this problem is equally apthere: "Perhaps hoping to avoid the traditional application ofour state-action cases, respondents attempt to characterizetheir claim as a `facial' or `direct' challenge to the [provisionsin question.]" Id. at 985. In like manner, G&G's claim comesto us in the garb of a "direct constitutional challenge to thestate's regulatory power as embodied in these statutes . . . ."G&G, 156 F.3d at 902. The reinstated opinion assumes that,so long as standing requirements are satisfied, G&G maybring such a challenge. It then goes on to find a "causal linkbetween G&G's injury and the state's action" sufficient tosupport standing. Id. at 900.The problem is that standing deals only with whether theplaintiff "is a proper party to request an adjudication of a par-ticular issue and not whether the issue itself is justiciable."Flast v. Cohen,
392 U.S. 83, 100
(1968). If the state's conductdoes not violate the Constitution, there can be no question ofstanding--standing to challenge what? The violation allegedhere is an unconstitutional deprivation of property. Sullivantells us that the deprivation at issue cannot be attributed to thestate. Therefore, the state cannot have violated G&G's rightto due process. G&G is left with two alternatives: suing adepriver who is not a state actor, or suing a state actor whohas committed no deprivation. The panel's opinion lets G&Gget away with the latter, by substituting the normal causationprong of standing analysis for the more intimate causal rela-tionship required by the state action doctrine. 2 Were it permis-coercive power' " or provided such significant encouragement that " `thechoice must in law be deemed to be that of the State' ") (quoting Blum,
457 U.S. at 1004
).sible to thus turn a pumpkin into a carriage, the Court shouldhave allowed the Sullivan plaintiffs to bring their "facialchallenge," on the theory that, while the private insurers inthat case were not state actors, the state bureau's authorizationof their withholding created a "causal link" sufficient to sup-port standing.3In addition to ignoring Sullivan's state action holding, themajority fails to apply the other teaching of the case--thatbefore finding a deprivation, we must carefully identify thenature of the property interest at stake. See Sullivan, 119S. Ct. at 989-90 (holding that a statutory entitlement to pay-ment for "reasonable" and "necessary" medical treatment can-not give rise to a property interest until the payments inquestion have been proven to be reasonable and necessary).The opinion reinstated today asserts that G&G has a protect-ible property interest "in being paid in full for the constructionwork it has completed." G&G, 156 F.3d at 901. This cannotbe so, for just as the Sullivan plaintiffs had no property inter-est in receiving payment for medical treatments that had notbeen shown to be "reasonable" and "necessary," G&G canhave no property interest in being paid for work that has notbeen shown to satisfy the contractual condition that it be com-pleted in accordance with prevailing wage requirements. Nev-ertheless, though the majority now attempts to recharacterizeits position, see Reinstatement Order at 1969, its opinionremains unambiguous in holding that G&G has alreadysuffered a deprivation for which the state is required to pro-vide a post-deprivation hearing. See G&G, 156 F.3d at 903-04.Even if the reinstated opinion actually rested on the ratio-nale now attributed to it, we would still have a case of prema-ture remediation. The majority's current position is that itsholding is in line with previous Supreme Court precedent pro-tecting plaintiffs' "property interest in their claims forpayment." Reinstatement Order at 1968. If the property inter-est at stake here is G&G's claim for payment, however, whenand how G&G was deprived of it? This is not a case likeLogan v. Zimmerman Brush Co.,
455 U.S. 422
(1982), wherethe plaintiff had filed a timely claim that was dismissedbecause of a procedural default committed by the state. See id.at 426-27. G&G has yet to attempt to file a claim in statecourt. How can the state have deprived G&G of a legal claimit has never asked the state to enforce?4 The reinstated opinion forces the state to create an entirelynew administrative machinery if it wishes to withhold fundsin accordance with the terms of its contract. See G&G, 156F.3d at 905-06. The majority appears to believe this is justi-fied by Justice Ginsburg's concurring statement in Sullivanthat " `due process requires fair procedures for the adjudica-tion [of claims.]' " Reinstatement Order at 1969 (quotingSullivan, 119 S. Ct. at 991 (Ginsburg, J., concurring)). Nodoubt it does. But this is not a case like Goldberg v. Kelly,
397 U.S. 254
(1970), where the Court, having identified a pre-viously unrecognized property interest in welfare benefits,was obliged to create a new procedural regime to protect it.This is a claim for payment on a contract. There is a well-established "fair procedure" for dealing with such claims: anaction for breach of contract in state court. It seems unlikelythat Justice Ginsburg would regard such a time-honored pro-cedure as inadequate to satisfy the demands of due process.The majority has not explained why working on a governmentcontract heightens one's interest in receiving prompt paymentso as to require procedural safeguards not available to otherparties that have a disputed claim under a contract.It is true that the law does not on its face guarantee that asubcontractor will attain an assignment enabling it to sue theawarding body. But G&G has not tried to obtain such anassignment from the prime contractor, nor has it given thestate courts a chance to decide whether a subcontractor whohas been denied such assignment nevertheless has an equita-ble right to sue under state law. Until these questions havebeen resolved against G&G, it simply cannot be said that thestate has " `finally reject[ed] their claims without affordingthem appropriate procedural protections.' " ReinstatementOrder at 1968 (quoting Sullivan, 119 S. Ct. at 990 n.13).To sum up, the reinstated opinion papers over a state actiondeficiency with standing analysis, identifies a property inter-est the Court has told us can't yet exist, and holds that dueprocess entitles G&G to the creation of a new procedurebypassing the one all other unpaid contractors are required touse. A fairy godmother could do no more. Once again, I mustrespectfully dissent.
___________________________FOOTNOTES 1 It is true that our opinion addressed the withholding of payments pend-ing the outcome of the hearing to determine contractor compliance in itsdiscussion of the "process due" to a protected property interest, and notin its discussion of the nature of the property interest protected. In con-trast, the above discussion in Sullivan is situated in the Supreme Court'sdiscussion of the existence or nonexistence of a protected property inter-est. But this does not reduce the relevance of Sullivan's reasoning. As theCourt recognized in the seminal due process case Matthews v. Eldridge,the definition of a protected property interest often includes a temporalcomponent. See
424 U.S. 319
(1976) (identifying the property interest atstake as the beneficiary's interest in continuing to receive benefits forapproximately one year). For this reason, issues of timing can arise ateither the property-determination or the process-determination stage.1 See G&G, 156 F.3d at 901 n.4 ("Here, G&G was not paid by itsrespective principal obligor, the prime contractor, and it is asking for anopportunity to contest that deprivation.")2 Compare G&G, 156 F.3d at 899-900 (causation requirement for stand-ing satisfied where choices of third party have been made " `in such amanner as to produce causation and permit redressability' ") (quoting3 Like G&G, the Sullivan plaintiffs had also named as defendants thestate officials who administered the challenged act. See Sullivan, 119S. Ct. at 984. Yet after holding that the private insurers regulated by theact were not state actors, the Court held that this alone would be sufficientto reverse the Third Circuit's holding that the act violated due process. Seeid. at 989. The Court nevertheless went on to address the merits of theclaim, because it thought the question an important one. See id.4 Cf. Sullivan, 119 S. Ct. at 988 (noting that the legal obligation to payon a contract arises only after one has "initiated a claim and reduced it toa judgment").