Kagan v. El San Juan Hotel

Opinion

USCA1 Opinion

September 9, 1993     [NOT FOR PUBLICATION]

UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT

                                 ___________________

No. 93-1202

MARSHALL J. KAGAN,

                                      Appellant,

                                          v.

                         EL SAN JUAN HOTEL & CASINO, ET AL.,

                                      Appellees.

                                  __________________

                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                           FOR THE DISTRICT OF PUERTO RICO

                    [Hon. Jose Antonio Fuste, U.S. District Judge]
                                              ___________________

                                 ___________________

                                        Before

                                Cyr, Boudin and Stahl,
                                   Circuit Judges.
                                   ______________

                                 ___________________

               Marshall J. Kagan on brief pro se.
               _________________
               Daniel R.  Dominguez, Marie E. Lopez-Adames  and Dominguez &
               ____________________  _____________________      ___________
          Totti on brief for appellees El San Juan Hotel Corp. & Hans Lopez
          _____
          Stubbe.
               Carlos A.  Quilichini and Ramon Lloveras Otero  on brief for
               _____________________     ____________________
          appellee Rodrigo Otero Bigles.

__________________

_________________

Per Curiam.    Appellant Marshall J.  Kagan appeals  the
                 __________

            district  court order  affirming an  order of  the bankruptcy

            court.  The district court found that Kagan's sole remedy for

            alleged harm  following upon his dismissal  from his position

            as comptroller of the El San  Juan Hotel was pursuant to  the

            Puerto Rico wrongful termination statute, 29 L.P.R.A.   185a.

            The court dismissed his other claims for relief.  We affirm.

The factual as well as the procedural background to this

            case are complex.   We summarize from the facts  found below.

            See  Kagan  v. San  Juan Hotel  Corp.,  149 B.R.  263 (D.P.R.
            ___  _____    ______________________

            1992).

                 Kagan was comptroller of  the El San Juan Hotel  when it

            filed  for  bankruptcy  under  Chapter 11  in  1980.    Kagan

            continued  in  his   position  under   the  court   appointed

            bankruptcy trustee, Hector Rodriguez Estrada.  After frequent

            disagreements  between  Kagan and  Rodriguez  as  to how  the

            estate   should  be  managed,  appellant  was  dismissed  for

            unsatisfactory performance in December  1982.  Kagan  asserts

            that he was  dismissed in retaliation for attempting  to have

            the trusteeship of Rodriguez investigated.

                 In March  1983, the Chapter 11  proceeding was converted

            to  a Chapter 7 proceeding.  In September 1983, Rodriguez was

            removed  from the  trusteeship  by a  unanimous  vote of  the

            creditors and replaced  by appellee Lopez.  Kagan urged Lopez

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and  Otero,  the  estate's  attorney, to  file  suit  against

            Rodriguez  for abuse of his  position.  When  they refused to

            file  suit  alleging  that  there  was  insufficient evidence

            against Rodriguez, Kagan accused  Lopez and Otero of covering

            for Rodriguez.  In  1985 suit was filed against  Rodriguez by

            the  United   States  as  one  of   the  estate's  creditors.

            Rodriguez  was found  to have  abused his  trusteeship  and a

            judgment of over 2 million  dollars was imposed on  Rodriguez

            on behalf of the estate.  In Re San Juan Hotel Corp., 71 B.R.
                                      _________________________

            413  (D.P.R. 1987), aff'd in part and rev'd in part, 847 F.2d
                                _______________________________

            931 (1st  Cir. 1988).   Subsequently Rodriguez  was convicted

            and sentenced for fraud.

                 Kagan commenced suit against the estate and Rodriguez in

            March  1983.   Kagan  sought both  compensation for  wrongful

            termination  and the  removal  from his  personnel file  of a

            letter  indicating  that  he  had been  terminated  for  poor

            performance.   When Lopez replaced  Rodriguez, Kagan  amended

            his  suit and  sought compensation,  removal of  the negative

            letter  and a new letter  of reference from  Lopez and Otero.

            Although   Lopez   agreed   to   compensation   for  wrongful

            termination, he refused to  remove the old letter or  write a

            new one.   Kagan asserts that  the failure to remove  the old

            letter  from his file and to provide a new "corrected" letter

            prevented him from obtaining new employment for several years

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and then resulted in his being compelled to accept a position

            at lower wages than he had previously earned.

                 Kagan's  suit "wend[ed]  a  torturous path  through  the

            judicial  system."   Kagan, 149 B.R.  at 268.   Trial  in the
                                 _____

            bankruptcy  court  did  not  commence until  May  1988.    In

            September  1990 the  bankruptcy  court  dismissed all  claims

            against Lopez and Otero and allowed Kagan damages against the

            estate pursuant to   185a.  The final order of the bankruptcy

            court did not issue until March 23, 1992.  Kagan appealed the

            dismissal  of his claims other than that under  185(a) to the

            district court which affirmed.

                 On  appeal to  this court,  Kagan seeks  damages against

            Lopez  and Otero  for the failure  to provide him  with a new

            letter of reference.   He also seeks  additional damages from

            the estate for his wrongful dismissal.1

Claims Against Lopez and Otero
            ______________________________

____________________

            1.    In  his prayer  for relief,  Kagan  asks this  court to
            "[r]emand to  the Bankruptcy Court for  appropriate action on
            the  pending motion for Otero  to disgorge his  fees, and for
            Lopez to be removed from office and [to] forfeit[] his fees."
            The  district court dismissed the  claim against Otero on the
            ground  that Kagan lacked standing to raise this claim in the
            context of a  wrongful discharge  suit.  Kagan,  149 B.R.  at
                                                     _____
            270-72.  We agree.  Moreover, although the district court did
            not address  the claim against Lopez, that claim would suffer
            the same defect.  In any  event, since Kagan has presented no
            argument  to support this prayer  in his brief,  the issue is
            waived.  Ryan v. Royal Ins.  Co., 916 F.2d 731, 734 (1st Cir.
                     ____    _______________
            1990) (issues adverted  to on appeal in a  perfunctory matter
            are deemed waived).

                                         -4-

Kagan  concedes  that 29  L.P.R.A.    185a  is  the sole

            remedy  for his claim of wrongful dismissal under Puerto Rico

            law.  Weatherly v. International  Paper Co., 648 F.Supp. 872,
                  _________    _______________________

            878 (D.P.R. 1986) (citing  cases).  However, he notes  that  

            185a  does  not  prohibit  recovery  when  an  employee  "can

            establish that the employer committed an independent tortious

            act in the course of terminating employment."  Id. at 877-78.
                                                           __

            Kagan asserts that in this case Lopez and Otero committed the

            "independent  tortious act  of not  correcting the  record of

            dismissal  and  giving false  bad  references."2     He seeks

            recovery under 31 L.P.R.A.   5141 which provides that

                    A  person who  by an  act or  omission causes
                    damage to another through fault or negligence
                    shall  be obliged  to  repair  the damage  so
                    done.

                 To state a claim  for damages under   5141,  a plaintiff

            must  show (1) that the defendants owed him a duty to prevent

            the  harm  suffered;  (2)   that  the  duty  was  negligently

            breached; and (3) that the breach caused the plaintiff  harm.

            Tokio Marine  & Fire  Ins. Co.  v. Grove Mfg.  Co., 958  F.2d
            ______________________________     ______________

            1169, 1171 (1st  Cir. 1992)  (citing cases).   In this  case,

            Kagan has shown no  basis for inferring that either  Lopez or

            Otero  had a legal duty  to correct his  references which had

            been  given  by the  previous  trustee  Rodriguez ten  months

____________________

            2.   We assume, without deciding, that the failure to provide
            corrected references and the supplying of false ones would be
            within "the course of terminating employment."

                                         -5-

before Lopez and Otero  arrived on the scene.   Even assuming

            that Lopez and Otero were employers of Kagan, they were under

            no  obligation  to provide  any references  to  him.   See 48
                                                                   ___

            Am.Jur.2d. Labor  and Labor  Relations    43  (in absence  of

            statute "employer who discharges an employee is not liable to

            the  employee  for  his  refusal  to  give  the   employee  a

            'character' or  recommendation").3  Therefore, we  cannot see

            why  they would be required to provide "corrected" ones.  "It

            is axiomatic that the  failure to perform an act  cannot give

            rise to  a cause of action  unless there was a  legal duty to

            act."   Torres v. United  States, 621  F.2d 30, 33  (1st Cir.
                    ______    ______________

            1980) (applying Puerto Rico law).  Nor would it be reasonable

            to require Lopez and  Otero to provide "corrected" references

            for  an   employee  whom   they  never  employed   and  whose

            performance they  were therefore in no  position to evaluate.

            Finally, while Lopez  and Otero owe  fiduciary duties to  the

            bankrupt estate, see In Re Thompson, 965 F.2d 1136, 1145 (1st
                             ___ ______________

            Cir.  1992), and to its  creditors, In Re  Consupak, Inc., 87
                                                ____________________

            B.R.  529,  539  (Bankr.N.D.Ill.  1988);  Bankruptcy  Code   

            704(1), 11  U.S.C.    704(a) (duties of  trustee), this  duty

____________________

            3.   Kagan's reliance  on Ackerman v. Thompson,  356 Mo. 558,
                                      ________    ________
            202  S.W.2d 795 (1947),  is in  vain.   In Ackerman,  a state
                                                       ________
            statute compelled the employer  to provide a "service letter"
            upon  terminating  an employee.    Puerto  Rico  has no  such
            statute. 

                                         -6-

does not  extend to Kagan  who is  seeking damages  not as  a

            creditor of the estate but as a former employee of it.4

                 On  appeal,  Kagan also  asserts  that  Lopez and  Otero

            harmed  him by  providing  false references.   However,  this

            claim  was not  raised below  and therefore  is not  properly

            before  us. Johnston v. Holiday Inns, Inc., 595 F.2d 890, 894
                        ________    _________________

            (1st Cir. 1979).   In any event,  Kagan admits that he  never

            actually  sought  any references  for a  prospective employer

            from Lopez or Otero and that the uncorrected letter was never

            disseminated.  His  claim to  have been  harmed by  receiving

            false references is devoid of merit.

                 Similarly without  merit is Kagan's reliance  on    107,

            704  and 1106(a)  of the Bankruptcy  Code.   Section 1106(a),

            through incorporation of    704, provides that "[t]he trustee

            shall . . .  unless the court orders otherwise,  furnish such

            information   concerning  the   estate   and   the   estate's

            administration  as is requested  by a party  in interest." 11

            U.S.C.    704(7).   Section 107 provides that "the bankruptcy

            court shall . . . protect a person with respect to scandalous

            or defamatory matter  contained in  a paper filed  in a  case

____________________

            4.     The district court  found that Otero,  as the estate's
            attorney,  owed no  duty  to  the  employees of  the  estate.
            Kagan,  149 B.R.  at 273.   However,  the district  court did
            _____
            state that  Lopez owed a duty to Kagan to act as a reasonable
            employer. Id.  Since we find that Lopez owed no duty to Kagan
                      __
            to  provide  corrected  references, Kagan's  claim  would  be
            subject to dismissal under the "reasonable employer" standard
            as well.

                                         -7-

under  this title." 11 U.S.C.   107(b)(2).  Alleging that the

            uncorrected reference was defamatory,  Kagan seeks to find in

            these provisions a duty on the part of the trustee to provide

            proper  references and to revise false ones.  However (1) any

            duty under  the Bankruptcy Code to  prevent the dissemination

            of defamatory  material  is  imposed  on the  court  not  the

            trustee; (2) the  allegedly defamatory letter is not a "paper

            filed"  in a bankruptcy case;  and (3) as  noted above, Kagan

            concedes that the letter was never disseminated.

Claim Against the Estate
            ________________________

                 Kagan asserts  that he is  entitled to relief  under the

            federal common law for his wrongful dismissal.  According  to

            Kagan,  he  was  dismissed  because  he  tried  to  stop  the

            bankruptcy trustee from violating  federal law.  Moreover, he

            alleges  that  the  Puerto  Rico  wrongful dismissal  statute

            provides  insufficient  protection  because  of  the  limited

            amount  of compensation  the  statute provides.   Citing  the

            federal interest in seeing that federal  law is not violated,

            Kagan asks this  court to formulate federal common  law based

            on analogous state court decisions which have found a "public

            policy" exception to the employment-at-will doctrine where an

            employee is terminated for refusing to participate in illegal

            acts.

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The instances in which a federal court has the authority

            to formulate  a  federal  common  law  remedy  are  "few  and

            restricted."  Wheeldin v. Wheeler,  373 U.S. 647, 651 (1963).
                          ________    _______

            Absent  some statutory authorization to formulate substantive

            rules  of decision, and none  is alleged here,  the court has

            authority  to create a federal common law remedy only when it

            is "necessary to protect  uniquely federal interests."  Texas
                                                                    _____

            Industries, Inc.  v. Radcliff Materials, Inc.,  451 U.S. 630,
            _______________      _______________________

            640 (1981)  (quoting Banco Nacional de Cuba v. Sabbatino, 376
                                 ______________________    _________

            U.S.  398, 426  (1964)).   It  is  not enough  that  a remedy

            "supplements federal enforcement  and fulfills the  object of

            the statutory  scheme."  Id.  at 642.  Federal  common law is
                                     __

            appropriate  only  where "the  authority  and  duties of  the

            United States as sovereign are intimately involved or because

            the  interstate  or international  nature of  the controversy

            makes it inappropriate  for state  law to control."   Id.  at
                                                                  __

            641.    Moreover, "[i]n  deciding  whether  rules of  federal

            common  law  should   be  fashioned,  normally   the  guiding

            principle is that a significant conflict between some federal

            policy or interest and the  use of state law . . . must first

            be  specifically shown."   Wallis  v. Pan  American Petroleum
                                       ______     _______________________

            Corp., 384 U.S 63, 68 (1966).
            ____

                 We  find no  such "uniquely  federal interests"  in this

            case which  would warrant  the formulation of  federal common

            law.    Furthermore,  no  conflict exists  here  between  the

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federal policy to  be promoted and  the application of  state

            law.   The  Commonwealth of  Puerto  Rico, like  most states,

            already provides protection for those dismissed for acting in

            accordance with  law.  Finally, the rationale  on which Kagan

            relies--i.e.,  that the  court ought  to formulate  a federal

            common law  remedy to  protect those dismissed  for upholding

            federal law--would  apply to all federal  regulatory schemes.

            Yet, Congress  has chosen  to enact specific  protections for

            "whistle-blowers" where  it  has thought  appropriate.    See
                                                                      ___

            Note,   Protecting   Employees  at   Will   Against  Wrongful
                    _____________________________________________________

            Discharge:  the Public Policy Exception, 96 Harv.L.Rev. 1931,
            _______________________________________

            1934 (1983) (listing federal  statutes).  In adopting Kagan's

            rationale,  we would  not only  be extending  this protection

            into areas where Congress has  not thought appropriate but we

            would  be  ignoring the  Supreme  Court's  advisory that  the

            appropriate  occasions for the  formulation of federal common

            law are "few and restricted."  Wheeldin, 373 U.S. at 651.  We
                                           ________

            decline to do so.

                 Kagan calls our attention to Barany  v. Buller, 670 F.2d
                                              ______     ______

            726  (7th  Cir. 1982).   In  Barany,  the court  formulated a
                                         ______

            federal common law remedy for reinstatement of federal credit

            union employees allegedly  dismissed in violation of  federal

            laws.   This case is distinguishable from Barany in two ways.
                                                      ______

            First,  the decision  in  Barany was  based  in part  on  the
                                      ______

            congressional desire to "insure uniform development in credit

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unions."   Id. at 733.   In contrast,  no similar  desire for
                       __

            national  uniformity is found  in congressional  control over

            bankruptcy law.  Butner v. United States, 440 U.S. 48, 54 n.9
                             ______    _____________

            (1979)   (bankruptcy   law   frequently    recognizes   state

            substantive law).  Second,  the rationale of Barany--that the
                                                         ______

            federalization of  the governance of an  institution makes it

            of "uniquely federal interest"--was limited to federal credit

            unions and similar federal institutions.  Barany, 670 F.2d at
                                                      ______

            734.  We see no principled way to limit the rationale for the

            remedy sought in the present case.5  

                 The opinion of the district court is affirmed.
                                                      ________

____________________

            5.    We also note that the Fourth Circuit has disagreed with
            the  Barany  holding.   Ridenour  v.  Andrews Federal  Credit
                 ______             ________      _______________________
            Union, 897 F.2d  715, 721-22  (4th Cir.  1990) (declining  to
            _____
            fashion federal remedy as  a matter of federal common  law to
            create  cause of  action for  federal credit  union employees
            challenging adverse employment actions).

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