Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Bala v. Stenehjem

November 30, 2009

SUSAN BALA AND RSI HOLDINGS, INC., PLAINTIFFS,
v.
WAYNE STENEHJEM, PAUL BOWLINGER, HOWARD W. WRIGLEY, AND DREW WRIGLEY, IN THEIR INDIVIDUAL CAPACITIES, AND MICHAEL CICHY, DEFENDANTS.



The opinion of the court was delivered by: Daniel L. Hovland, District Judge United States District Court

ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS

Before the Court are the Defendants' motions to dismiss filed on May 1, 2009; May 27, 2009; June 1, 2009; and June 25, 2009. See Docket Nos. 5, 10, 12, and 15. The Plaintiffs filed responses in opposition to the motions on June 29, 2009; July 6, 2009; and July 16, 2009. See Docket Nos. 18, 21, and 26. The Defendants filed reply briefs on July 8, 2009; July 9, 2009; and July 28, 2009. See Docket Nos. 24, 25, and 30. Oral argument was held in Fargo, North Dakota on November 13, 2009. For the reasons set forth below, the Court grants the Defendants' motions.

I. BACKGROUND

In 1989, the State of North Dakota legalized simulcast parimutuel wagering on horse racing conducted outside the state and simulcast to licensed off-track betting sites. The North Dakota Racing Commission administers this heavily regulated regime. North Dakota statutory law limits the entities that may conduct simulcast parimutuel wagering to charities and other "public-spirited organizations." See N.D.C.C. § 53-06.2-06.

In United States v. Bala, 489 F.3d 334, 336-37 (8th Cir. 2007), the Eighth Circuit Court of Appeals set forth the factual background of Susan Bala's and RSI Holding, Inc.'s involvement in the North Dakota wagering industry:

In 1993, RSI became the sole entity licensed by the [North Dakota Racing] Commission to provide simulcast services to the charities licensed as [off-track betting] operators. RSI as simulcast service provider contracted with out-of-state race tracks to provide satellite broadcast signals of live racing events to licensed [off-track betting] locations in North Dakota. RSI also established and maintained the combined parimutuel pools of North Dakota wagers and performed many record-keeping functions.

In 2001, Bala, the Commission, and interested North Dakota constituents such as horse breeders and the racing industry persuaded the North Dakota Legislature to amend its parimutuel wagering statutes to permit parimutuel "account wagering." Before account wagering, parimutuel bettors placed bets with [off-track betting] operators before the simulcast horse race, usually appearing in person and paying the [off-track betting] operator's teller in cash. The various wagers were combined into a parimutuel pool. After the race, approximately 80% of the pool was paid to winning bettors. The remaining 20% was divided between the race track, the [off-track betting] operator, North Dakota taxes and fees, and RSI, the simulcast service provider. With account wagering, bettors may establish accounts and place simulcast parimutuel wagers electronically, eliminating the need for cash-handling tellers. Rather than authorize multiple [off-track betting] operators to establish bettor accounts and receive account wagers, the account wagering statute provided that account wagers "may only be made through the licensed simulcast service provider," RSI. N.D. Cent. Code § 53-06.2-10.1. The way RSI conducted account wagering resulted in this prosecution.

On December 10, 2003, Bala, RSI, and others were charged in a twelve-count indictment in federal district court for conspiring to conduct and conducting an "illegal gambling business" within the meaning of 18 U.S.C. §§ 1955 and 371; violating 18 U.S.C. § 1084(a) when, being engaged in the business of betting and wagering, they knowingly made interstate wire transmissions of bets, wagers, and the information assisting in the placing of bets and wagers; and conspiring to use and using the proceeds of an illegal gambling business for the purpose of promoting the business and concealing their unlawful activity in violation of 18 U.S.C. §§ 1956(a)(1)(A)(i) and (B)(i). See Case No. 3:03-cr-112, Docket No. 1. Trial commenced in federal court on January 18, 2005. On February 4, 2005, a jury found Bala and RSI guilty on all twelve counts. See Case No. 3:03-cr-112, Docket No. 88. On July 20, 2005, Bala was sentenced to twenty-seven months imprisonment and ordered to forfeit $19,719,186 joint and several with the co-defendants. See Case No. 3:03-cr-112, Docket No. 118. RSI was ordered to pay a special assessment of $4,800 and forfeit $99,013,200. See Case No. 3:03-cr-112, Docket No. 117. Bala and RSI appealed to the Eighth Circuit Court of Appeals, and the Eighth Circuit reversed the Plaintiffs' convictions, finding:

The evidence at trial established that the North Dakota Racing Commission knew charities must receive the "net proceeds" of the account wagering that RSI, and only RSI, was authorized to conduct. Yet the Commission neither drafted regulations prescribing how this complex task should be accomplished nor adequately monitored RSI's compliance. Issues predictably arose. Rather than pursue possible violations in state court, the Commission brought the complicated situation to federal authorities, who then commenced a federal prosecution based upon flawed interpretations of state law, of 18 U.S.C. § 1955, and of 18 U.S.C. § 1084. The result was a trial at which the government failed to prove any of the offenses charged. Bala, 489 F.3d at 343.

In 2003, the State of North Dakota brought civil and criminal actions against the Plaintiffs. See Docket Nos. 9-1 (State v. Racing Services, Inc., Cass County District Court, Case No. 09-03-C-2331) and 9-2 (State v. Bala et al., Cass County District Court, Case No. 09-03-K-4297). In the civil action, the State alleged that RSI "had 'underreported' handle from October 2, 2002, through April 2003, in an amount of $98,975,620.00"; that RSI was in arrears in the amount of $1,336,841.84 in its payment of special funds due to the North Dakota Racing Commission; that RSI was in arrears in the amount of $840,635.98 in its payment of State general fund taxes; that RSI was in arrears in the amount of $6,329,463.06 to the North Dakota Racing Commission and the State's general fund. See Docket No. 9-1 (State v. Racing Services, Inc., Cass County District Court, Case No. 09-03-C- 2331). In the criminal action, the State alleged that Bala and RSI operated an illegal gambling business under North Dakota law. See Docket No. 9-2 (State v. Bala et al., Cass County District Court, Case No. 09-03-K-4297). On August 1, 2005, the state district court dismissed the civil action without prejudice. See Docket No. 9-3 (Order of Dismissal). On September 14, 2005, the state district court dismissed the criminal action with prejudice, finding "that the State of North Dakota is [barred] from prosecution in the present matter pursuant to N.D.C.C. 29-03-13 as a result of the conviction for the acts charged and convicted in Federal District Court...." See Docket No. 9-4 (Order of Cass County District Court).

On April 7, 2009, Bala and RSI filed an action in federal district court, alleging violations of 42 U.S.C. § 1983, liability under Bivens v. Six Unknown Named Agents of Fed. Bureau of Narcotics, 403 U.S. 388 (1971), and interference with business and prospective advantage. RSI was formed as a Delaware corporation with its principle place of business located in Fargo, North Dakota. Defendant Wayne Stenehjem is the Attorney General for the State of North Dakota. Defendant Paul Bowlinger is the former Director of Racing for the North Dakota Racing Commission, an administrative agency of the State of North Dakota. Defendant Drew Wrigley is the former United States Attorney for the State of North Dakota. Defendant Howard W. Wrigley is the father of Drew Wrigley and a former commissioner and Chair of the Racing Commission from July 1, 2002 until he resigned in October 2003. Defendant Michael Cichy is the former Simulcast Coordinator and Lead Race Control Manager for RSI.

On May 1, 2009; May 27, 2009; June 1, 2009; and June 25, 2009, the Defendants filed motions to dismiss the Plaintiffs' complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The Defendants contend that the Plaintiffs have failed to plead facts that state a claim as a matter of law.

II. STANDARD OF REVIEW

Rule 8 of the Federal Rules of Civil Procedure sets forth the federal pleading requirements for civil cases. Rule 8(a) provides that pleadings must contain: "(1) a short and plain statement of the grounds for the court's jurisdiction"; (2) "a short and plain statement of the claim showing that the pleader is entitled to relief"; and (3) "a demand for the relief sought." Fed. R. Civ. P. 8(a).

Rule 12(b)(6) of the Federal Rules of Civil Procedure mandates the dismissal of a claim if there has been a failure to state a claim upon which relief can be granted. When considering a motion to dismiss under Rule 12(b)(6), the court must accept all factual allegations in the complaint as true. "'However, the complaint must contain sufficient facts, as opposed to mere conclusions, to satisfy the legal requirements of the claim to avoid dismissal.'" Levy v. Ohl, 477 F.3d 988, 991 (8th Cir. 2007) (quoting DuBois v. Ford Motor Credit Co., 276 F.3d 1019, 1022 (8th Cir. 2002)). The court may generally only look to the allegations contained in the complaint to make a Rule 12(b)(6) determination. McAuley v. Fed. Ins. Co., 500 F.3d 784, 787 (8th Cir. 2007). "[I]n considering a motion to dismiss, the district court may sometimes consider materials outside the pleadings, such as materials that are necessarily embraced by the pleadings and exhibits attached to the complaint." Mattes v. ABC Plastics, Inc., 323 F.3d 695, 697 n.4 (8th Cir. 2003) (citing Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999)). "A complaint shall not be dismissed for its failure to state a claim upon which relief can be granted unless it appears beyond a reasonable doubt that plaintiff can prove no set of facts in support of a claim entitling him to relief." Young v. City of St. Charles, Mo., 244 F.3d 623, 627 (8th Cir. 2001).

In the recent decision, Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009), the United States Supreme Court clarified the pleading requirements under the Federal Rules of Civil Procedure necessary to survive a motion to dismiss for failure to state a claim. The United States Supreme Court stated,

Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." As the Court held in [Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)], the pleading standard Rule 8 announces does not require "detailed factual allegations," but it demands more than an unadorned, the defendant-unlawfully-harmed-me accusation. A pleading that offers "labels and conclusions" or a "formulaic recitation of the elements of a cause of action will not do." Nor does a complaint suffice if it tenders "naked assertion[s]" devoid of "further factual enhancement."

To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a "probability requirement," but it asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility of 'entitlement to relief.'" Iqbal, 129 S.Ct. at 1949 (internal citations omitted).

III. LEGAL DISCUSSION

A. ATTORNEY GENERAL WAYNE STENEHJEM

The Plaintiffs allege that North Dakota Attorney General Wayne Stenehjem violated their constitutional rights under 42 U.S.C. § 1983. The Plaintiffs allege that Attorney General Stenehjem conspired with the other Defendants to violate the Plaintiffs' rights against unreasonable searches and seizures without probable cause, rights against malicious prosecution, rights to substantive due process for filing indictments and charges based on false evidence, rights against taking without just compensation, right to counsel, and right to due process. Attorney General Stenehjem contends that the amended complaint fails to allege that he personally violated their constitutional rights, and that absolute and qualified immunity bars the claims against him.

The amended complaint provides the following allegations regarding Attorney General Stenehjem:

39. Defendants conspired and agreed that DREW WRIGLEY would engage agents from the Federal Bureau of Investigation ("FBI") and the Internal Revenue Service ("IRS") to investigate what CICHY had falsely reported.

40. On or about April 22, 2003, CICHY, BOWLINGER, DREW WRIGLEY and/or STENEHJEM provided or caused to be provided the aforementioned false information -- that RSI was not properly licensed, that RSI had failed to pay excise taxes, and that RSI violated [North Dakota] Racing Commission regulations -- to the FBI.Based upon that information, on or about April 28, 2003, search warrants were obtained to search RSI facilities including the 1318 Office.

41. On or about April 28, 2003 RSI facilities including the 1318 Office were raided by agents from various state and federal agencies including the FBI, the IRS, and the Office of the Attorney General of the State of North Dakota searching for evidence of alleged illegal gambling activities. During the raid, numerous items of RSI property... were confiscated and held by the various governmental agencies involved.

...

44. On or about August 20, 2003, STENEHJEM threatened BALA that if she did not turn over control of RSI to STENEHJEM by the next day and agree to the immediate appointment of a receiver whom STENEHJEM had already selected and instructed, STENEHJEM would ruin BALA and RSI. So coerced, on or about August 21, 2003, BALA stipulated to the appointment of a receiver.

45. On or about August 21, 2003, STENEHJEM commenced a civil law suit titled State ex rel Wayne Stenehjem v. Racing Services, Inc, et al, Cass County, North Dakota District Court Case No. 09-03-C-02331 ("Stenehjem v. RSI"), against BALA personally and against RSI seeking to collect the excise taxes alleged to be due on the account wagering activity. In addition, the law suit directed the appointment of a receiver to take over the operations of RSI. The State District Court appointed Wayne Drewes as receiver who took over management of RSI....

46. From the time of the April 28, 2003 raid on the 1318 Office up to the appointment of STENEHJEM'S receiver, STENEHJEM, and/or other Defendants named herein, while acting under the color of State law, demanded and took payments totaling in excess of $1,482,189.64 from RSI in payment of excise taxes allegedly due on the account wagering activities. After the receiver was appointed, STENEHJEM, and/or other Defendants named herein, while acting under the color of State law, demanded and took an additional $450,000 in payments from RSI for excise taxes allegedly due on account wagering activities. Those exactions were taken even though the statutes and regulations in place at the time did not establish either an obligation to pay such taxes on account wagering activities or a due date for payment of parimutuel taxes on the activity.

...

50. On or about December 18, 2003, STENEHJEM caused the State of North Dakota to commence a state criminal action titled State v. Bala, et al, Cass County, North Dakota, District Court Case No. 09-03-K-4297 ("State v. Bala"), against BALA, RSI, and others alleging one count each of operating a gambling business illegal under state law....

...

52. On or about February 2, 2004, BALA was informed that STENEHJEM had instructed the receiver not to pay the winning wagers of RSI patrons or RSI's operating expenses and to shut down the business operations of RSI.

53. On or about February 3, 2004, Plaintiffs filed for Chapter 11 Bankruptcy protection on behalf of RSI seeking to become debtor in possession in order to protect RSI's interests from the receivership and control imposed by STENEHJEM, and/or other Defendants named herein. STENEHJEM, acting through the State of North Dakota, moved to convert the bankruptcy from a Chapter 11 reorganization to a Chapter 7 liquidation. On or about June 15, 2004, the Bankruptcy Court granted the motion to convert the case to a Chapter 7 liquidation and appointing a Chapter 7 trustee to take over the bankruptcy estate of RSI. From that point on, Plaintiffs were denied the right to have any further involvement in the operations of RSI.

54. Furthermore, STENEHJEM and DREW WRIGLEY instructed the receiver not to hire legal counsel to defend RSI in the criminal proceedings. STENEHJEM, DREW WRIGLEY, and/or other Defendants continued to oppose the use of RSI resources to retain legal counsel in the ongoing criminal and bankruptcy proceedings. Ultimately, Defendants succeeded in causing the corporate entity, RSI, to become unable to obtain adequate representation in all of the legal proceedings it was a party to.

See Docket No. 9.

1) 42 U.S.C. § 1983

42 U.S.C. § 1983 establishes a cause of action against "[e]very person who, under color of any statute, ordinance, regulation, custom, or usage" deprives another of any rights, privileges, or immunities secured by the Constitution and laws of the United States. "The traditional definition of acting under color of state law requires that a defendant in a § 1983 action have exercised power 'possessed by virtue of state law and made possible only because the wrongdoer is clothed with the authority of state law.'" Neighborhood Enterprises, Inc. v. City of St. Louis, 540 F.3d 882, 885 (8th Cir. 2008) (quoting United States v. Classic, 313 U.S. 299, 326 (1941)). "'[A] defendant in a § 1983 suit acts under color of state law when he abuses the position given to him by the State.'" Ottman v. City of Independence, Mo., 341 F.3d 751, 761 (8th Cir. 2003) (quoting Roe v. Humke, 128 F.3d 1213, 1215 (8th Cir. 1997)).

"To prove a § 1983 conspiracy claim against a particular defendant, the plaintiff must show: that the defendant conspired with others to deprive him or her of a constitutional right; that at least one of the alleged co-conspirators engaged in an overt act in furtherance of the conspiracy; and that the overt act injured the plaintiff." Askew v. Millerd, 191 F.3d 953, 957 (8th Cir. 1999). The plaintiff must also show a deprivation of a constitutional right or privilege in order to prevail on a Section 1983 civil conspiracy claim. White v. McKinley, 519 F.3d 806, 814 (8th Cir. 2008). "'The question of the existence of a conspiracy to deprive the plaintiffs of their constitutional rights should not be taken from the jury if there is a possibility the jury could infer from the circumstances a 'meeting of the minds' or understanding among the coconspirators to achieve the conspiracy's aims.'" Id. at 816 (quoting Larson by Larson v. Miller, 76 F.3d 1446, 1458 (8th Cir. 1996)). "In order to state a conspiracy claim, the plaintiff must at least allege that 'the defendants had directed themselves toward an unconstitutional action by virtue of a mutual understanding,' and [provide] some facts suggesting such a 'meeting of the minds.'" Haley v. Dormire, 845 F.2d 1488, 1490 (8th Cir. 1988) (quoting White v. Walsh, 649 F.2d 560, 561 (8th Cir. 1981)). A complaint that sets forth vague, conclusory, or general allegations that the defendants engaged in a conspiracy cannot withstand a motion to dismiss for failure to state a claim. See Powell v. Tordoff, 911 F. Supp. 1184, 1196 n.8 (N.D. Iowa 1995).

The Plaintiffs' amended complaint fails to allege that Attorney General Stenehjem violated their federal rights. The amended complaint sets forth vague, conclusory, and general allegations of misconduct by the Attorney General. The basis for the complaint is that Attorney General Stenehjem initiated civil and criminal actions against the Plaintiffs and was involved in the bankruptcy action filed by RSI. Attorney General Stenehjem, as the chief law enforcement officer of the State of North Dakota, has broad powers to investigate alleged illegal gambling operations and to institute and prosecute actions relating to the illegal gambling operations. See N.D.C.C. § 53-06.2-13.*fn1 Attorney General Stenehjem's participation in investigating alleged illegal gambling operations at RSI is consistent with the authority vested to him by N.D.C.C. § 53-06.2-13. Any communications that the Attorney General had with the receiver during the bankruptcy proceedings did not violate the Plaintiffs' federal rights because he (the Attorney General) was not a legal advisor for the receiver, but rather was an advocate for the State. The Court finds that the Plaintiffs have failed to state a claim under 42 U.S.C. § 1983 upon which relief can be granted. More important, even if the Plaintiffs' complaint had alleged a violation of their federal rights, Attorney General Stenehjem's actions were protected under principles of immunity.

2) ABSOLUTE AND QUALIFIED IMMUNITY

When considering claims of governmental immunity, "[t]he presumption is that qualified rather than absolute immunity is sufficient to protect government officials in the exercise of their duties." Burns v. Reed, 500 U.S. 478, 486 (1991). However, the United States Supreme Court has granted some government officials absolute immunity: the president, judges, prosecutors, witnesses, and officials performing "quasi-judicial" functions. Mitchell v. Forsyth, 472 U.S. 511, 520 (1985). The differences between absolute immunity and qualified immunity are significant. Absolute immunity disposes of the action at the outset. Qualified immunity protects government officials from civil lawsuits unless "'their conduct violates a clearly established constitutional or statutory right of which a reasonable person would have known.'" Anderson v. Larson, 327 F.3d 762, 769 (8th Cir. 2003) (quoting Harlow v. Fitzgerald, 457 U.S. 800, 818 (1982)). While absolute immunity protects the acts of a prosecutor for conduct that is adversarial in nature, such as initiating and pursuing a criminal prosecution and presenting the state's case at trial, prosecutors are entitled to qualified immunity for conduct that is investigative or administrative in nature. Buckley v. Fitzsimmons, 509 U.S. 259, 272-74 (1993).

"Qualified immunity balances two important interests -- the need to hold public officials accountable when they exercise power irresponsibly and the need to shield officials from harassment, distraction, and liability when they perform their duties reasonably." Pearson v. Callahan, 129 S.Ct. 808, 815 (2009). The United States Supreme Court has generally interpreted qualified immunity as shielding "'all but the plainly incompetent or those who knowingly violate the law.' In other words, 'officials are not liable for bad guesses in gray areas; they are liable for transgressing bright lines.'" Littrell v. Franklin, 388 F.3d 578, 582 (8th Cir. 2004) (quoting Malley v. Briggs, 475 U.S. 335, 341 (1986); Maciariello v. Sumner, 973 F.2d 295, 298 (4th Cir. 1992)). Courts conduct a two-part inquiry to determine whether a public official is entitled to qualified immunity. "To overcome the defense of qualified immunity, a plaintiff must show: (1) the facts, viewed in the light most favorable to the plaintiff, demonstrate the deprivation of a constitutional or statutory right; and (2) the right was clearly established at the time of the deprivation.*fn2 Howard v. Kansas City Police Dep't, 570 F.3d 984, 988 (8th Cir. 2009).

It is well-established that prosecutors are absolutely immune from civil liability for the actions taken in their role as quasi-judicial officers. See Imbler v. Pachtman, 424 U.S. 409 (1976). In Imbler, the United States Supreme Court stated,

The common-law immunity of a prosecutor is based upon the same considerations that underlie the common-law immunities of judges and grant jurors acting within the scope of their duties. These include concern that harassment by unfounded litigation would cause a deflection of the prosecutor's energies from his public duties, and the possibility that he would shade his decisions instead of exercising the independence of judgment required by his public trust....

If a prosecutor had only a qualified immunity, the threat of § 1983 suits would undermine performance of his duties no less than would the threat of common-law suits for malicious prosecution. A prosecutor is duty bound to exercise his best judgment both in deciding which suits to bring and in conducting them in court. The public trust of the prosecutor's office would suffer if he were constrained in making every decision by the consequences in terms of his own potential liability in a suit for damages. Such suits could be expected with some frequency, for a defendant often will transform his resentment at being prosecuted into the ascription of improper and malicious actions to the State's advocate.

Id. at 422-23, 424-45. Absolute immunity also extends to state attorneys general and assistant state attorneys general. See Murphy v. Morris, 849 F.2d 1101, 1105 (8th Cir. 1988) (finding that absolute immunity extended to an assistant state attorney general defending state officials in prisoner civil rights litigation). State attorneys general and assistant state attorneys general are absolutely immune "in 'initiating a prosecution and in presenting the State's case' insofar as that conduct is 'intimately associated with the judicial phase of the criminal process.'" Zar v. South Dakota Bd. of Examiners of Psychologists, 976 F.2d 459, 466 (8th Cir. 1992) (quoting Burns, 500 U.S. at 486). However, where the conduct of the state attorneys general and assistant state attorneys general is more akin to that of an investigator, the attorneys are protected by qualified immunity rather than absolute immunity: while some of a prosecuting attorney's preliminary investigative work may be analogous to a police detective's investigation, and should therefore be only qualifiedly immune, investigation necessary to the prosecutor's decision to initiate criminal proceedings is within the quasi-judicial aspect of the prosecutor's job and therefore is absolutely immune from a civil suit for money damages.

Zar, 976 F.2d at 466 (quoting Williams v. Hartje, 827 F.2d 1203, 1210 (8th Cir. 1987)).

Absolute prosecutorial immunity also applies to federal government attorneys who participate in administrative proceedings. See Butz v. Economou, 438 U.S. 478 (1978). In Butz, the United States Supreme Court analogized government administrative proceedings to criminal prosecutions and held that a Department of Agriculture attorney, who prosecuted an enforcement proceeding against a commodity future commission merchant, performed functions similar to that of a prosecutor and, therefore, was entitled to absolute immunity in a damages action for Bivens liability. The United States Supreme Court stated,

We also believe that agency officials performing certain functions analogous to those of a prosecutor should be able to claim absolute immunity with respect to such acts. The decision to initiate administrative proceedings against an individual or corporation is very much like the prosecutor's decision to initiate or move forward with a criminal prosecution. An agency official, like a prosecutor, may have broad discretion in deciding whether a proceeding should be brought and what sanctions should be sought....

The discretion which executive officials exercise with respect to the initiation of administrative proceedings might be distorted if their immunity from damages arising from that decision was less than complete. While there is not likely to be anyone willing and legally able to seek damages from the officials if they do not authorize the administrative proceedings, there is a serious danger that the decision to authorize proceedings will provoke a retaliatory response. An individual targeted by an administrative proceeding will react angrily and may seek vengeance in the courts. A corporation will muster all of its financial and legal resources in an effort to prevent administrative sanctions. "When millions may turn on regulatory decisions, there is a strong incentive to counter-attack."

Butz, 438 U.S. at 515-16 (internal citations omitted) (emphasis in original).

Federal courts of appeal have extended absolute immunity to the conduct of prosecutors in civil actions. See Mendenhall v. Goldsmith, 59 F.3d 685 (7th Cir. 1995) (finding that a prosecuting attorney was entitled to absolute immunity for administrating civil forfeiture proceedings because the attorney was functioning in an enforcement role analogous to that of a prosecutor); Schrob v. Catterson, 948 F.2d 1402 (3d Cir. 1991) (finding that a prosecutor was entitled to absolute immunity for his conduct in filing a complaint and applying for a warrant to seize a business in a civil forfeiture proceeding); Fry v. Melaragno, 939 F.2d 832 (9th Cir. 1991) (finding that attorneys for the Internal Revenue Service who handled a tax deficiency claim were entitled to absolute immunity because the conduct of the attorneys was intimately associated with the judicial phase of the tax litigation).

In the present case, Attorney General Stenehjem prosecuted a civil action in state district court to recover $6,329,463.06 from the Plaintiffs pursuant to N.D.C.C. § 52-06-33. As such, the Court finds that this conduct is clearly protected by absolute immunity. However, the Plaintiffs allege that the conduct of Attorney General Stenehjem was investigatory, rather than prosecutorial, which would provide the Attorney General with qualified, rather than absolute, immunity.

a) COMMUNICATIONS WITH THE RECEIVER

The amended complaint alleges that Attorney General Stenehjem instructed the receiver of RSI to make tax payments even though North Dakota law did not require the payments, to not pay the winning wagers of RSI patrons, to not pay RSI's operating expenses, to shut down the business operations of RSI, and to not hire legal counsel in the criminal proceedings. See Docket No. 9, ¶¶ 46, 52, and 54. In the state civil law action, State v. Racing Services, Inc., Case No. 09-03-C-2331, the state district court appointed a receiver to manage RSI. See Docket No. 9, ¶ 45. "A receiver is an officer or arm of the court and acts under the discretion and supervision of the court." Perry Ctr., Inc. v. Heitkamp, 576 N.W.2d 505, 511 (N.D. 1998). Even if Attorney General Stenehjem had instructed the receiver of RSI to act in a particular manner, the receiver was under the complete control of the state district court. Attorney General Stenehjem did not possess the power to control the receiver's actions. Therefore, the receiver had no allegiance to the Attorney General or the State and, without evidence to show otherwise, is presumed to have been under the supervision of the state district court.

The Court is without sufficient information to determine whether Attorney General Stenehjem was functioning in an enforcement role analogous to that of a prosecutor when communicating with RSI's receiver. Nonetheless, even if Attorney General Stenehjem is not shielded by absolute immunity for communicating with the receiver, he is at least protected by qualified immunity. Because the receiver was required to act under the discretion of the state district court, and not the State, the Court finds that Attorney General Stenehjem's communications with the receiver did not violate a clearly established constitutional or statutory right of which a reasonable person would have known. Accordingly, Attorney General Stenehjem's conduct of communicating with RSI's receiver is protected by qualified immunity.

b) NEGOTIATIONS

The Plaintiffs allege that Attorney General Stenehjem threatened Bala that if she did not turn over the control of RSI to him and agree to an appointment of a receiver, that he would "ruin" the Plaintiffs. See Docket No. 9, ¶ 44. In Arnold v. McClain, 926 F.2d 963 (10th Cir. 1991), the Tenth Circuit Court of Appeals determined that a prosecutor's conduct of negotiating with the plaintiff was subject to absolute immunity. In Arnold, the prosecutor gave the plaintiff the choice of resigning from his position as a police officer or having criminal perjury charges filed against the plaintiff for testifying inconsistently under oath. The court stated,

As stated by the Supreme Court in Santobello v. New York, 404 U.S. 257, 260 (1971): "[t]he disposition of criminal charges by agreement between the prosecutor and the accused, sometimes loosely called 'plea bargaining,' is an essential component of the administration of justice. Properly administered, it is to be encouraged." We find the "agreement" between the two parties herein to be sufficiently analogous to a plea bargain to warrant the same deference to the prosecutor's discretion. Accordingly, we find Defendant is entitled to absolute prosecutorial immunity for his actions in securing the resignation of [the plaintiff]. Arnold, 926 F.2d at 967.

Other circuits have also determined that a prosecutor's conduct of negotiating is entitled to absolute immunity. See Schloss v. Bouse, 876 F.2d 287 (2d Cir. 1989) (finding that a prosecutor's action of negotiating a release from civil liability in exchange for promising not to file criminal charges was entitled to absolute immunity); McGruder v. Necaise, 733 F.2d 1146 (5th Cir. 1984) (finding that a prosecutor was protected by absolute immunity for dismissing a criminal prosecution in exchange for a civil settlement); but see Schrob v. Catterson, 948 F.2d 1402 (3d Cir. 1991) (finding that a prosecutor's actions in managing and negotiating the return of seized property were not entitled to absolute immunity because the prosecutor was acting in an administrative role). The Court finds that Attorney General Stenehjem's conduct of negotiating with Bala is protected by absolute immunity because such conduct was inextricably linked to the prosecution of the civil or criminal actions and was neither investigative nor administrative in nature.

c) PARTICIPATING IN RSI'S BANKRUPTCY

The Plaintiffs contend that Attorney General Stenehjem participated in RSI's bankruptcy proceedings in violation of their federal rights. The Plaintiffs allege that Attorney General Stenehjem moved to convert RSI's chapter 11 reorganization to a chapter 7 liquidation. See Docket No. 9, ¶ 53. The bankruptcy court granted Attorney General Stenehjem's motion and converted RSI's chapter 11 reorganization to a chapter 7 liquidation and appointed a trustee to take over RSI, which denied the Plaintiffs any further involvement in the operations of RSI. Attorney General Stenehjem participated in RSI's bankruptcy proceedings as an advocate for the State of North Dakota. 11 U.S.C. § 1112(b)(1) allows a court "on request of a party in interest, and after notice and a hearing" to convert a chapter 11 bankruptcy action to a chapter 7 action, or dismiss it, whichever is in the "best interests of creditors and the estate." The record is devoid of any evidence that the conversion of the bankruptcy from a chapter 11 reorganization to a chapter 7 liquidation violated 11 U.S.C. § 1112(b)(1). The Court finds that Attorney General Stenehjem did not violate the Plaintiffs' federal constitutional or statutory rights when he moved to convert RSI's bankruptcy proceeding from a chapter 11 reorganization to a chapter 7 liquidation. As such, he is entitled to qualified immunity.

d) CONSPIRACY

The Plaintiffs argue that the "Defendants conspired and agreed that DREW WRIGLEY would engage agents from the Federal Bureau of Investigation ("FBI") and the Internal Revenue Service ("IRS") to investigate" Cichy's false allegations. See Docket No. 9, ¶ 39. To establish a conspiracy, the Plaintiffs must allege that "'the defendants had directed themselves toward an unconstitutional action by virtue of a mutual understanding,' and [provide] some facts suggesting such a 'meeting of the minds.'" Haley v. Dormire, 845 F.2d 1488, 1490 (8th Cir. 1988) (quoting White v. Walsh, 649 F.2d 560, 561 (8th Cir. 1981)). The Plaintiffs have failed to allege any specific facts to suggest a meeting of the minds towards an unconstitutional action. The United States Supreme Court has clarified that a pleading which provides "labels and conclusions" and only "'naked assertion[s]' devoid of 'further factual enhancement'" fails to satisfy the pleading requirements under Rule 8 of the Federal Rules of Civil Procedure. Iqbal, 129 S.Ct. at 1949 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 557 (2007)). The Court finds that the Plaintiffs' vague, general, and conclusory allegations of a conspiracy are insufficient to satisfy Rule 8 of the Federal Rules of Civil Procedure and Iqbal.

B. PAUL BOWLINGER

The Plaintiffs allege that Paul Bowlinger, the former Director of Racing for the North Dakota Racing Commission, violated their constitutional rights under 42 U.S.C. § 1983. The Plaintiffs allege that Bowlinger conspired with the other Defendants to violate the Plaintiffs' rights against unreasonable searches and seizures without probable cause, rights against malicious prosecution, rights to substantive due process for filing indictments and charges based on false evidence, rights against taking without just compensation, right to counsel, and right to due process. Bowlinger contends that the complaint fails to allege that he personally violated their constitutional rights, and that absolute and qualified immunity bars the claims against him.

The amended complaint provides the following allegations regarding Bowlinger:

20. At a regular meeting of the Racing Commission held on or about September 12, 2002, in which both BOWLINGER and HOWARD WRIGLEY participated, BOWLINGER was directed to draft proposed administrative regulations with the assistance of the Attorney General's office to control account wagering activities authorized by the legislature.

...

22. Moreover, if the 1995 version of the Take-Out Statute -- § 53-06.2-11 -- were applied to account wagering, it would result in a violation of the Commerce Clause contained in Article I, Section 8 of the United States Constitution because it would subject account wagering, as interstate commerce, to the risk of double taxation and to discriminatory taxation.... The 1995 Take-out Statute would also discriminate against interstate commerce because the tax rates set forth therein are overly burdensome on interstate account wagering due to the lower margins available to cover the expenses involved in account wagering. The 2007 Legislature corrected the Commerce Clause problems as well by decreasing the tax burden for account wagering to rates substantially lower than the rates for intrastate live-race and off-track simulcast wagering.

23. To make matters worse, BOWLINGER and HOWARD WRIGLEY failed to draft and promulgate account wagering regulations or to cause account wagering regulations to be drafted and promulgated. In fact, the Racing Commission did not adopt regulations to address account wagering until 2007. Until then, N.D. Admin. Code. § 69.5-01-11-04(3) stated "[a] service provider may not be licensed as a simulcast operator." Furthermore, § 69.5-01-11-06(5) left the ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.