Joshua Watters v. Board of School Directors ( 2020 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 19-3061
_____________
JOSHUA WATTERS; MOLLY POPISH; LAURIE
BURDETT,
Appellants
v.
BOARD OF SCHOOL DIRECTORS OF THE CITY OF
SCRANTON;
SCHOOL DISTRICT OF THE CITY OF SCRANTON
_____________
On Appeal from the United States District Court
for the Middle District of Pennsylvania
D.C. Civil No. 3-18-cv-02117
District Judge: Honorable Robert D. Mariani
_____________
Argued June 16, 2020
Before: CHAGARES, PORTER, and FISHER, Circuit
Judges
(Opinion Filed: September 21, 2020)
____________
Marc L. Gelman [ARGUED]
James Goodley
Ryan P. McCarthy
Jennings Sigmond
1835 Market Street
Suite 2800
Philadelphia, PA 19103
Counsel for Appellants
Matthew J. Carmody
Joseph J. Joyce, III
Jennifer Menichini [ARGUED]
Joyce Carmody & Moran
9 North Main Street
Suite 4
Pittston, PA 18640
Counsel for Appellees
____________
OPINION OF THE COURT
____________
CHAGARES, Circuit Judge.
Three Pennsylvania teachers who obtained tenure
contracts under the state’s Public School Code of 1949 brought
a claim under 42 U.S.C. § 1983 against the City of Scranton
Board of School Directors and the City of Scranton School
District (collectively, the “School District”), alleging that the
School District deprived them of a right secured by the United
2
States Constitution’s Contracts Clause when it applied a
Pennsylvania law, Act No. 2017-55 (“Act 55”), to suspend
them from employment. Act 55 amended the Public School
Code to authorize the suspension of tenured teachers for
economic reasons. According to the teachers, the Contracts
Clause forbids their suspensions because Act 55 took effect
after they entered into tenure contracts with the School District,
and the change in the law allowing for their suspensions based
on economic reasons amounted to a substantial impairment of
their tenure contract rights. The teachers further allege that the
School District’s stated justification for impairing their
contracts, a budget shortage that presented serious economic
difficulties, does not pass muster under the Contracts Clause
because their suspensions were not a necessary or reasonable
way to address the School District’s financial problems.
The District Court dismissed the teachers’ claim,
reasoning that they failed to allege a plausible Contracts Clause
violation because the School District did not substantially
impair the teachers’ tenure contract rights. We agree with the
District Court’s dismissal of the teachers’ claim, but we reach
that conclusion based on different grounds. We hold that the
teachers failed to state a § 1983 claim premised on the
Contracts Clause because their complaint and its exhibits show
that the School District’s suspension of the teachers was a
necessary and reasonable measure to advance the School
District’s significant and legitimate public purpose of
combatting the budget shortage that it faced. We therefore will
affirm.
3
I.
A.
The plaintiffs, Joshua Watters, Molly Popish, and
Laurie Burdett, are teachers who brought this action to
challenge their suspensions from employment with the City of
Scranton School District. The teachers’ action against the
School District involves provisions of Pennsylvania’s Public
School Code of 1949, 24 Pa. Cons. Stat. § 1-101 et seq., so we
start by describing relevant aspects of that statute.
The Public School Code affords the status of
professional employee to certified teachers who have served in
a school district for three years. Id. §§ 11-1101(1), 11-
1108(b)(2), 11-1121(b)(2). That status comes with certain
tenure protections. For example, the Public School Code limits
the valid causes for suspending or terminating tenured teachers
from employment. Id. §§ 11-1122 (providing causes for
termination), 11-1124 (providing causes for suspension). As
relevant here, until recently, the Public School Code authorized
four causes for tenured teacher suspensions. See id. § 11-
1124(a)(1)–(4). Those causes allow for suspensions because
of decreases in student enrollment, id. § 11-1124(a)(1), the
curtailment or alteration of educational programs, id. § 11-
1124(a)(2), the consolidation of schools, id. § 11-1124(a)(3),
and the reorganization of school districts, id. § 11-1124(a)(4).
On November 6, 2017, however, Act 55 took effect.
2017 Pa. Legis. Serv. Act 2017-55 (H.B. 178) (West). That
Act amended the Public School Code to add a fifth cause for
suspension: “economic reasons” requiring a reduction in
teachers. 24 Pa. Cons. Stat. § 11-1124(a)(5). The Act allows
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for such suspensions only if certain procedures are followed.
For example, a school district’s board of school directors must
approve suspensions under Act 55 “by a majority vote of all
school directors at a public meeting.” Id. § 11-1124(d)(1). In
addition, Act 55 requires the board of school directors to
“adopt[] a resolution of intent to suspend” the teachers in the
next fiscal year. Id. § 11-1124(d)(2). That resolution must
describe, inter alia, “[t]he economic conditions of the school
district making the proposed suspensions necessary,” id. § 11-
1124(d)(2)(i), “how those economic conditions will be
alleviated by the proposed suspensions,” id., “[t]he impact of
the proposed suspensions on academic programs to be offered
to students” if the suspensions are carried out, id. § 11-
1124(d)(2)(v), and the impact on such programs “if the
proposed suspensions are not undertaken,” id.
The Public School Code also entitles tenured teachers
to written employment contracts, and it supplies certain
mandatory language to be used in those contracts. Id. § 11-
1121(a)–(c). The Code requires such contracts to include that
they are “subject to the provisions of the ‘Public School Code
of 1949’ and the amendments thereto.” Id. § 11-1121(c).
These features of the Public School Code’s tenure system — a
delimited set of permissible causes for suspensions, Act 55’s
addition of an “economic reasons” cause for suspension, and
mandatory employment contracts — are the focus of the
teachers’ claim in this case.
B.
The teachers allege that they entered into tenure
contracts with the School District and that those contracts took
“substantially the same form” required by the Public School
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Code. Appendix (“App.”) 53. The Public School Code
contained four permissible causes for suspension at that time.
But on January 25, 2018 — after Act 55 amended the Code —
the City of Scranton Board of School Directors held a special
meeting, where it considered a “Resolution of the Intent to
Suspend of the Scranton Board of Education.” App. 54–55.
Through that resolution, the Board of Education sought
authorization for the School District’s superintendent to send
notices of the intention to suspend twenty-eight tenured
teachers, including the three plaintiffs here, and all seventy-one
of the School District’s non-tenured teachers.
The Board of Education, in the resolution, explained the
financial backdrop for the proposal to suspend some tenured
teachers. It projected an approximately $4.5 million deficit for
the next fiscal year, and the tenured teacher suspensions were
expected to save $691,033. The Board of Education also noted
that the proposal for suspensions came after it had “undertaken
other cost saving measures,” such as fifty layoffs of
maintenance and clerical staff, “healthcare savings,” “vendor
savings,” and “other savings.” App. 66. Those cost-saving
measures, however, would not provide enough money for
students to “continue to receive a full complement of academic
programs,” and without the proposed tenured teacher
suspensions, “deeper suspensions and program cuts [would] be
necessary.” App. 67. By a unanimous vote, the Board of
School Directors passed the resolution.
On the evening that the resolution passed, the School
District issued a press release about its passage of the
resolution. There, the School District expressed its belief that
the suspensions were “necessary for the survival and
advancement of the district.” App. 86. The School District
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also recounted that “the Board of Education combed the budget
for every and all cost-saving measures short of personnel
actions,” that “[t]he savings from this over haul [sic] of the
budget was unfortunately not enough,” and that the
suspensions would “avoid[] more drastic educational impacts
in the future.” Id.
The next day, on January 26, 2018, the School District
sent letters informing the tenured and non-tenured teachers
subject to the resolution, including the three plaintiffs in this
case, of the intention to suspend them from employment. As
to the tenured teachers, the School District’s letter informed
them that they would be suspended at the end of August 2018
“due to the economic reasons that require a reduction of
professionals.” App. 55. In the meantime, the teachers could
“remain on [the School District’s] call back list” in case a job
became available. App. 85.
In May and June 2018, the School District “engaged in
a posting and bidding process designed to benefit displaced,
tenured teachers.” App. 56. Because of that process and other
teacher resignations, the School District “was able to ‘call-
back’” some of the tenured teachers who had received
suspension notices. Id. But as of June 22, 2018, the School
District determined that seven of the twenty-eight tenured
teachers who received suspension notices, including the three
plaintiffs, would be suspended.
Those teachers requested hearings to challenge their
suspensions. In July 2018, the Board of School Directors held
evidentiary hearings on those challenges, and post-hearing
briefs were submitted. The Board of School Directors later
convened a special meeting on August 27, 2018 to vote on a
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resolution approving the intended teacher suspensions, to be
effective on August 30, 2018. By that time, the three plaintiff
teachers were the only tenured teachers who remained subject
to suspension because the other tenured teachers had found
work outside the School District or were called back by the
School District. The vote on the resolution approving the three
teachers’ suspensions initially failed, but the Board of School
Directors reconvened on August 30, 2018 to hold another vote.
The resolution approving the teachers’ suspensions passed
unanimously this time. On the same day, the School District’s
solicitor, who served as the hearing officer during the July
evidentiary hearings, issued “Findings of Fact and Conclusions
of Law.” App. 57. He concluded that the “proposed
suspensions should be sustained.” Id.
The three teachers filed this action in the Pennsylvania
Court of Common Pleas of Lackawanna County to contest their
suspensions. Their challenges included two state law claims
under Pennsylvania’s Local Agency Law, a state law claim for
a violation of the Pennsylvania Constitution’s Contracts
Clause, and a federal claim under 42 U.S.C. § 1983. The
federal claim alleged that when the teachers obtained tenure,
their contracts permitted the School District to suspend them
based only on the four causes for suspension extant in the
Public School Code at that time. So, the teachers asserted, the
School District’s reliance on Act 55’s later-added “economic
reasons” cause for suspension contravened their reasonable
expectations about the permissible causes for suspension and
thereby substantially impaired their tenure contract rights, in
violation of the Contracts Clause. The teachers also claimed
that the alleged impairment of their tenure contract rights could
not withstand scrutiny under the Contracts Clause because that
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measure “was not reasonable and necessary to serve an
important public purpose.” App. 61.
The School District removed the case to the District
Court and successfully moved to dismiss with prejudice the
§ 1983 claim for failure to state a claim under Federal Rule of
Civil Procedure 12(b)(6). The District Court, in dismissing the
federal claim, reasoned that although § 1983 confers a private
right of action for Contracts Clause claims, the teachers failed
to allege a Contracts Clause violation because the teachers’
tenure contracts were not substantially impaired. It explained
that the teachers’ contracts, by their terms, were subject to the
Public School Code of 1949 and its amendments, so their
contracts authorized the School District to rely on the
“economic reasons” cause for suspension in Act 55, an
amendment to the Public School Code. The District Court thus
did not reach the alternative grounds that the parties had
briefed: whether the teachers’ suspensions could withstand
scrutiny under the Contracts Clause because they were
necessary and reasonable means to advance a significant and
legitimate public purpose. The court also declined to exercise
supplemental jurisdiction over the teachers’ remaining state
law claims. The teachers timely appealed, challenging only the
District Court’s dismissal of their federal claim.
II.
The District Court had jurisdiction over the teachers’
federal claim under 28 U.S.C. § 1331, and we have jurisdiction
under 28 U.S.C. § 1291. We review de novo a district court’s
grant of a Rule 12(b)(6) motion to dismiss for failure to state a
claim, Fischbein v. Olson Rsch. Grp., Inc., 959 F.3d 559, 561
(3d Cir. 2020), and we may affirm based “on any ground
9
supported by the record,” Owner Operator Indep. Drivers
Ass’n v. Pa. Tpk. Comm’n, 934 F.3d 283, 294 n.13 (3d Cir.
2019) (quotation marks omitted), cert. denied, 140 S. Ct. 959(2020).
When reviewing a district court’s order on a Rule
12(b)(6) motion, we accept the factual allegations in the
complaint as true, draw all reasonable inferences in favor of
the plaintiff, and assess whether the complaint and the exhibits
attached to it “contain enough facts to state a claim to relief
that is plausible on its face.” Vorchheimer v. Philadelphian
Owners Ass’n, 903 F.3d 100, 105 (3d Cir. 2018) (quotation
marks omitted). The facial plausibility standard requires
sufficient factual content in the complaint to “allow[] [us] to
draw the reasonable inference that the defendant is liable for
the misconduct alleged.” Fischbein, 959 F.3d at 561 (quotation
marks omitted).
III.
“The Contracts Clause restricts the power of States to
disrupt contractual arrangements.” Sveen v. Melin, 138 S. Ct.
1815, 1821 (2018). That Clause directs that “[n]o State shall
. . . pass any . . . Law impairing the Obligation of Contracts.”
U.S. Const. art. I, § 10, cl. 1. Even though “the language of the
Contract[s] Clause is facially absolute, its prohibition must be
accommodated to the inherent police power of the State to
safeguard the vital interests of its people.” Energy Rsrvs. Grp.,
Inc. v. Kan. Power & Light Co., 459 U.S. 400, 410 (1983)
(quotation marks omitted). So, to determine when a state law
affecting pre-existing contracts “crosses the constitutional
line,” we analyze “whether the state law has operated as a
substantial impairment of a contractual relationship.” Sveen,
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138 S. Ct. at 1821–22 (quotation marks omitted). If so, our
“inquiry turns to the means and ends of the legislation,” and
we evaluate whether the state law has “a significant and
legitimate public purpose,” as well as whether the law “is
drawn in an appropriate and reasonable way to advance” that
purpose. Id. at 1822 (quotation marks omitted).
The teachers allege that the School District violated 42
U.S.C. § 1983 by depriving them of a right secured by the
United States Constitution’s Contracts Clause when it
suspended them pursuant to Act 55. They frame their claim as
a challenge to the School District’s “official legislative actions
as-applied to” them, and they make clear that they “are not
raising a facial constitutional challenge to Act 55.” Teachers
Reply Br. 1–2. Because the teachers bring an as-applied claim,
we must assess whether the School District’s application of Act
55 to their “particular circumstances deprived [them] of a
constitutional right” secured by the Contracts Clause. Tineo v.
Att’y Gen., 937 F.3d 200, 210 (3d Cir. 2019) (quotation marks
omitted).
We decline to decide some of the issues presented by
the teachers’ claim. The parties debate whether § 1983
supplies a private right of action for Contracts Clause
violations and whether the School District’s reliance on Act
55’s “economic reasons” cause for suspension amounted to a
substantial impairment of the teachers’ tenure contract rights,
given that Act 55 added that new cause after the teachers
entered into their contracts.1 We will assume for purposes of
1
At oral argument, we asked counsel to file supplemental
papers addressing whether the teachers’ complaint supports the
11
this appeal that § 1983 confers a private right of action
premised on the type of Contracts Clause claim that the
teachers bring2 and that the School District’s application of Act
allegation that the Public School Code was amended and
applied to them after they had achieved tenure because it
appeared, on the face of the complaint, that at least one of the
teachers had not obtained tenure until after Act 55’s enactment.
Although the School District, in its supplemental filing, raised
some factual disputes bearing on that question, we need not
address them because we will resolve this case on different
grounds.
2
The School District posits that the teachers’ § 1983
claim fails because § 1983 does not provide a private right of
action for Contracts Clause violations. Our sister Courts of
Appeals are divided on that issue. Compare Kaminski v.
Coulter, 865 F.3d 339, 346, 347 (6th Cir. 2017) (holding that
the Contracts Clause is “a structural limitation placed upon the
power of the States,” so “an alleged Contracts Clause violation
cannot give rise to a cause of action under § 1983”), with
Crosby v. City of Gastonia, 635 F.3d 634, 640 (4th Cir. 2011)
(concluding that “recourse to § 1983 for the deprivation of
rights secured by the Contracts Clause is limited to the discrete
instances where a state has denied a citizen the opportunity to
seek adjudication through the courts as to whether a
constitutional impairment of a contract has occurred, or has
foreclosed the imposition of an adequate remedy for an
established impairment”), and S. Cal. Gas Co. v. City of Santa
Ana, 336 F.3d 885, 887 (9th Cir. 2003) (ruling that § 1983
provides a private right of action premised on a Contracts
Clause violation when “a State, or a political subdivision
thereof, impair[s] its obligations of contract”); see also Elliott
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55 to the teachers substantially impaired the teachers’ tenure
contract rights. Further, there is no dispute that the teachers’
suspensions under Act 55 advanced a significant and legitimate
public purpose by mitigating the School District’s “serious
economic difficulties.” School District Br. 50; see also Oral
Arg. Tr. 17:2–15; cf. Energy Rsrvs., 459 U.S. at 411–12
(observing that “a significant and legitimate public purpose
behind [a] regulation” includes “the remedying of a broad and
general social or economic problem”). Rather than rely upon
those bases, we reach different grounds addressed by the
parties on appeal. We conclude that the teachers failed to state
a § 1983 claim premised on a Contracts Clause violation
because the School District’s suspensions of the teachers under
Act 55 were an “appropriate and reasonable way to advance”
the School District’s purpose of alleviating its budget
difficulties. Sveen, 138 S. Ct. at 1822 (quotation marks
omitted).
When assessing the appropriateness and reasonableness
of a state’s alleged impairment of contracts, we consider
whether the state’s action was “necessary” and “reasonable.”
U.S. Tr. Co. v. New Jersey, 431 U.S. 1, 25 (1977); see also
United Steel Paper & Forestry Rubber Mfg. Allied Indus. &
Serv. Workers Int’l Union v. Gov’t of V.I., 842 F.3d 201, 211
(3d Cir. 2016) (“Once a legitimate public purpose has been
identified, we must then decide whether the impairment is both
necessary and reasonable to meet the purpose advanced by the
[state] in justification.”). If a state impairs a contract between
private parties, “the [s]tate is ordinarily entitled to deference in
v. Bd. of Sch. Trs. of Madison Consol. Schs., 876 F.3d 926,
931–32 (7th Cir. 2017) (acknowledging the split in the Courts
of Appeals but declining to answer the question).
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its legislative judgment.” United Steel, 842 F.3d at 212. But
where, as here, a state actor is a party to the contract at issue,
“complete deference to a legislative assessment of
reasonableness and necessity is not appropriate because the
[s]tate’s self-interest is at stake.” U.S. Tr., 431 U.S. at 26. So
when a state actor “is a contracting party,” its “judgment is
subject to stricter scrutiny than when the legislation affects
only private contracts.” United Steel, 842 F.3d at 212
(quotation marks omitted). Even with that “more exacting
scrutiny, some deference is appropriate.” Id.
A.
We first consider whether the School District’s
application of Act 55 to suspend the teachers was necessary.
In determining whether an alleged “impairment was necessary,
our task is two-fold.” United Steel, 842 F.3d at 212. We must
ensure that the School District did not (1) “consider impairing
the obligations of [its] contracts on a par with other policy
alternatives,” or (2) “impose[] a drastic impairment when an
evident and more moderate course would serve its purposes
equally well.” Id. (quotation marks omitted).
The teachers argue that their suspensions under Act 55
were not necessary, reasoning that the School District could
have resorted to “any one of an innumerable amount of cost
saving measures that would not substantially impair” the
teachers’ tenure contracts. Teachers Reply Br. 27. We are not
convinced. The teachers’ complaint illustrates that the
suspensions were “necessary for the survival and advancement
of the district” because the “Board of Education [had] combed
the budget for every and all cost-saving measures short of
personnel actions,” only to find that the “savings” from that
14
“over haul [sic] of the budget was . . . not enough.” App. 86.
According to the complaint, then, the School District did not
consider impairing the teachers’ contracts on a par with other
policy alternatives, and it did not resort to that measure when a
more moderate course would serve its purposes equally well.
Based on the complaint and its exhibits, the School District’s
application of Act 55 to the teachers was necessary for the
School District to alleviate its budget shortage.
B.
We turn to whether the School District’s application of
Act 55 to the teachers was reasonable “in light of the
surrounding circumstances.” U.S. Tr., 431 U.S. at 31. The
School District contends that its actions were reasonable
because it followed Act 55’s procedures, which reflected the
Pennsylvania legislature’s judgment about the care that must
be given before suspending tenured teachers from employment
for economic reasons. For example, the School District points
out that it provided “detailed information regarding the
economic reasons for the [suspensions],” “identified a number
of proposed revenue and expenditure adjustments” besides
tenured teacher suspensions, and gave careful consideration to
the suspension of tenured teachers before embarking on that
course. School District Br. 49–50.
The complaint and its exhibits indeed explain that the
School District gave effect to the teachers’ suspensions only
after holding a public meeting and vote on the issue,
accounting for the economic conditions that made the teachers’
suspensions necessary, and considering how the proposed
suspensions would alleviate those conditions. The complaint
also illustrates that the School District afforded the teachers the
15
opportunity to contest their suspensions through evidentiary
hearings and post-hearing submissions. The steps that the
School District took before suspending the teachers, geared
toward ensuring that its financial condition, in fact, justified
those suspensions, counsel in favor of concluding that the
School District acted reasonably in advancing its significant
and legitimate public purpose of reducing its budget deficit.
The teachers dispute that the School District acted
reasonably for one reason. They contend that “[w]hen the
problem which [the state] seeks to redress significantly pre-
dates the change in state law causing the contractual
impairment,” then a state’s substantial impairment of a
contractual relationship is not reasonable and violates the
Contracts Clause. Teachers Reply Br. 26. From that legal
premise, the teachers argue that the School District’s
application of Act 55 to them cannot be justified as reasonable
because the School District’s “claims of budgetary difficulties
predate” the enactment of Act 55 in 2017 and their suspensions
in 2018. Id. (capitalization omitted).
The legal premise of the teachers’ argument is incorrect.
The argument presumes that for the reasonableness inquiry, we
look to whether the problem that the School District sought to
remedy preceded the alleged contractual impairment. The
relevant question, however, is different. We consider whether
“the problem sought to be resolved by an impairment of the
contract existed at the time the contractual obligation was
incurred.” United Steel, 842 F.3d at 213 (emphasis added); see
also U.S. Tr., 431 U.S. at 31–32 (considering whether changed
circumstances caused a “covenant to have a substantially
different impact” than those impacts that were foreseen when
the covenant “was adopted”).
16
The teachers’ complaint indicates that it was not until
2018 — after the teachers had obtained tenure contracts — that
the School District faced a substantial budget deficit, creating
a financial crisis for it. So it was in 2018 when the Board of
Education concluded that reducing that deficit through tenured
teacher suspensions would be necessary to “avoid[] more
drastic educational impacts in the future.” App. 86; cf. United
Steel, 842 F.3d at 214 (reasoning that a budget “crisis” could
not justify the Virgin Islands government’s substantial
impairment of contracts because when the government entered
into the contracts at issue, it “knew it was facing severe budget
deficits and that the financial condition of the Virgin Islands
was precarious”). Even more, the teachers concede that,
notwithstanding the Rule 12(b)(6) posture of this case,
additional factual development is not necessary to evaluate
their claim. Yet the complaint and its exhibits do not support
that when the School District adopted the teachers’ tenure
contracts, it could foresee that its contractual obligations might
create the kind of budget crisis it encountered in 2018, putting
a strain on its ability to provide a full swath of academic
programs to its students. The School District’s application of
Act 55 to the teachers was reasonable in light of the
surrounding circumstances.3
3
The teachers cite Elliott v. Board of School Trustees of
Madison Consolidated Schools, 876 F.3d 926 (7th Cir. 2017),
to support their claim that the School District’s application of
Act 55 to them violated the Contracts Clause. In that decision,
the Court of Appeals for the Seventh Circuit held that an
Indiana statute, which “cut back on the rights of tenured
teachers in layoffs,” violated the Contracts Clause when
applied to a teacher who achieved tenure before the statute took
17
* * * * *
We conclude, based on the complaint and its exhibits,
that the School District’s application of Act 55 to the teachers
was an appropriate and reasonable way to advance its
significant and legitimate public purpose of addressing its
budget shortfall, a determination buttressed by the limited
deference that we must give to the School District’s judgment.
Accordingly, the teachers’ complaint fails to state a § 1983
claim premised on a Contracts Clause violation.
IV.
For the foregoing reasons, we will affirm the District
Court’s order dismissing with prejudice the teachers’ § 1983
claim pursuant to Federal Rule of Civil Procedure 12(b)(6).
effect. Id. at 928, 931, 939. The Elliott case is inapposite
because there, the state of Indiana failed to show, in the
circumstances of that case, that it “need[ed] to impose [a]
retroactive impairment of its earlier promises of job security,”
and the “impairment” was “not reasonable” because there were
“no changed circumstances that impose[d] unforeseen ad-
vantages or burdens on the parties.” Id. at 938–39 (quotation
marks omitted). For the reasons that we have given, here, the
School District’s application of Act 55 was necessary and
reasonable.
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