opinion filed: December 22, 1994; As Corrected December 30, 1994. As Amended January 23, 1995.
On Appeal From the United States District Court For the Eastern District of Pennsylvania. (D.C. Civil No. 91-cv-05861).
Before: Stapleton, Garth, and Pratt, Circuit Judges*fn*
Plaintiff James C. Feldman claims the defendant Philadelphia Housing Authority ("PHA"), through its agents, defendants Jonathan A. Saidel and John Paone, violated the First and Fourteenth Amendments of the Constitution of the United States, as well as the State of Pennsylvania's "whistleblower" statute, by firing him in retaliation for publishing reports that exposed wrongdoing at PHA. After a jury trial the district court entered judgment for plaintiff on all claims, awarding him $616,696 in compensatory damages and a total of $20,000 in punitive damages. Defendants appeal. We affirm.
Since the jury found for Feldman, we view the facts by drawing from the evidence all reasonable inferences in his favor.
Defendant PHA, a public agency responsible for providing housing for low-income citizens, is the largest housing agency in Pennsylvania and fourth largest in the United States. The agency is governed by a board of commissioners consisting of five members, two each being appointed by the mayor and the city controller, respectively, with the fifth member being selected by the four appointees.
In January 1990 Saidel, exercising his authority as Philadelphia's city controller, appointed himself to the board of commissioners. Three months later, Paone was named as PHA's new executive director, responsible for overseeing the day-to-day activities of the agency. Paone and Saidel worked closely together, routinely discussing the daily management and affairs of PHA.
Feldman had been working at PHA since 1982. From May 1990 until his termination on May 3, 1991, Feldman acted as the director of the agency's Internal Audit Department. In this capacity, Feldman was responsible for investigating, identifying, and exposing waste, inefficiency, fraud, and criminal activity within PHA. In order to carry out this function, Feldman regularly prepared detailed reports of his investigations. Under the internal-audit charter, which specifies the responsibilities of the Internal Audit Department, Feldman was required to present his findings and observations to the executive director and the board of commissioners, i.e. to Paone, as executive director; and to Saidel, as chairman of the board of commissioners as well as to the four other members of the board.
For most of Feldman's career at PHA, his work was considered exemplary. His personnel file contained no reprimands or comments concerning poor job performance. His last performance evaluation, dated April 24, 1990, gave Feldman a rating of "SUPERIOR". However, after Saidel became chairman of the board and Paone became executive director, things changed. In several of his reports on PHA's management and operations over approximately the next twelve months, Feldman revealed numerous improprieties in several key areas at the agency. As required by the internal auditing charter, Feldman made his reports to Paone, Saidel, and the rest of the board. Many of his reports criticized the job PHA's management was doing. On several occasions, Paone and Saidel reprimanded Feldman for preparing the critical reports.
Paone was particularly displeased with Feldman after he reported that management had promoted a PHA employee who was under investigation for corruption. As a result of a tip, the Internal Audit Department had conducted an investigation of PHA's Central Maintenance Department. The investigation revealed that the Central Maintenance Department, which was responsible for the agency's fencing contracts, was involved in an illegal bid-rigging scheme, and several PHA employees were linked to the unlawful activity. Feldman periodically reported to Paone and Saidel on the details of this investigation, including which PHA employees were probably involved. Ultimately, Feldman reported that one of the implicated employees had been promoted despite being under the continuing investigation. Paone challenged Feldman, saying, "I thought you were on our side". Paone then instructed Feldman to remove from his report the reference to the mid-investigation promotion. Feldman complied.
Later, after Feldman circulated a quarterly report to the board that criticized certain other managerial decisions, Paone and Saidel separately reprimanded Feldman and instructed him that in the future he was to report his findings to Paone only. Feldman refused to yield to this direction, because it was contrary to the internal-audit charter, and he continued to circulate his reports to the entire board.
The last matter that Feldman worked on that was to be circulated to the board was a human-resources audit. The purpose of the audit was to determine if PHA management was using its employees in an efficient and economical manner. Feldman had routinely advised the board and Paone of the progress of the audit. The final audit report would have revealed favoritism and other improprieties in personnel decisions made by Paone and Saidel. In general, the audit was very critical of the manner in which PHA was being run.
Around the same time, however, Paone and Saidel were portraying their management of PHA to the public in a different light. Saidel prepared a Letter from the Chairman" that was featured in PHA's 1991 annual report. The letter stated that although the agency had previously been "financially floundering", when he became chairman and Paone became executive director, "things had to change fast -- and they did". He went on to say that the board of commissioners "began to reorganize PHA management and restore the Authority to a viable condition". Moreover, in the "Letter from the Executive Director", also featured in the annual report, Paone said that PHA's greatest challenge was "to win the hearts, minds and respect of our residents and to develop a team approach with them in resolving other major issues". Had it been published, Feldman's human resources audit report would have severely undercut the annual report's glowing portrayal of management's success.
The same day the human-resources report was to be circulated to the board, Paone, after conferring with Saidel, fired Feldman. He told Feldman that, effective immediately, his services were no longer needed, because the agency had decided to reorganize the Internal Audit Department. Feldman was then promptly escorted out of his office by two police officers, without being given an opportunity to retrieve his work or publish the audit report.
Four months later, Feldman instituted this action in district court against PHA, Paone, and Saidel, and against other PHA board members who were dismissed from the action as defendants at the completion of plaintiff's case-in-chief. Feldman alleged that defendants had fired him for "whistleblowing" in violation of the first and fourteenth amendments, 42 U.S.C. § 1983, and 43 Pa. Cons. Stat. Ann. § 1423(a) and (b) (the Pennsylvania "Whistle-blower" Law).
The case was tried before the Honorable William H. Yohn, Jr. and a jury, which returned a verdict in favor of Feldman and against defendants PHA, Saidel, and Paone. The jury awarded Feldman $616,696 in compensatory damages, of which $500,000 was for front pay. It also awarded Feldman punitive damages against Paone and Saidel in their individual capacities, In the amount of $10,000 each. Defendants now appeal. We have jurisdiction under 28 U.S.C. § 1291.
Defendant PHA raises three issues on appeal: 1) whether the district court erred in not granting judgment as a matter of law dismissing the first amendment and "whistleblower" claims; 2) whether the district court erred by allowing an award of front pay instead of reinstating plaintiff at PHA; and 3) whether the jury's $500,000 award for front pay was excessive.
Both Paone and Saidel argue that the evidence was insufficient to justify punitive damages. Saidel also challenges the award of punitive damages against him, claiming a lack of evidence to establish that he personally participated in Feldman's firing.
Review of a denial of a directed verdict is plenary, and we invoke the same standard that the district court applies. Thus, viewing the evidence in the light most favorable to Feldman, the nonmoving party, we determine whether there is evidence reasonably tending to support his claim. See Bielevicz v. Dubinon, 915 F.2d 845, 849 (3d Cir. 1990). While the role of an appellate court, in a first amendment case, requires an enhanced examination of the entire record, see Bose Corp. v. Consumers Union of U.S. Inc., 466 U.S. 485, 499, 80 L. Ed. 2d 502, 104 S. Ct. 1949 (1984), "[a] jury verdict will not be overturned unless the record is critically deficient of that quantum of evidence from which a jury could have rationally reached its verdict". Swineford v. Snyder County, 15 F.3d 1258, 1265 (3d Cir. 1994).
Feldman recovered, in part, on a theory that his firing was in retaliation for his having engaged in speech protected under the first amendment. Determining whether PHA's dismissal of Feldman violated the first amendment requires a three-step analysis. See Swineford, 15 F.3d at 1270; Czurlanis v. Albanese, 721 F.2d 98, 103 (3d Cir. 1983). Feldman was first required to show that his speech constituted protected activity. See Pickering v. Board of Educ., 391 U.S. 563, 568, 20 L. Ed. 2d 811, 88 S. Ct. 1731 (1968). If protected, Feldman then had to establish that the speech was a substantial or motivating factor for his discharge. See Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 287, 50 L. Ed. 2d 471, 97 S. Ct. 568 (1977). If Feldman satisfied the first two steps, then defendants could avoid liability by showing that they would have fired Feldman anyway. Id.
1. Constitutionally Protected Activity
A state cannot lawfully discharge an employee for reasons that infringe upon that employee's constitutionally protected interest in freedom of speech. Rankin v. McPherson, 483 U.S. 378, 383, 97 L. Ed. 2d 315, 107 S. Ct. 2891 (1987). A public employee's freedom of speech, however, does have its limits. The court must weigh the employee's interest in free speech against the government's interest in promoting efficiency among its employees. See Versarge v. Township of Clinton New Jersey, 984 F.2d 1359, 1364 (3d Cir. 1993). As the Supreme Court explained in Pickering:
The problem in any case is to arrive at a balance between the interests of the [employee], as a citizen, in commenting upon matters of public concern and the interest of the State, as an employer, in promoting the efficiency of the public services it performs through its employees.
391 U.S. at 568. It is for the court, not the jury, to perform the Pickering balancing test. See Czurlanis, 721 F.2d at 105 ("As the Supreme Court made clear in Connick, it is the role of the court in a case alleging retaliatory action which violates the First Amendment to decide not only whether the speech at issue related to a matter of public concern, but also to conduct the necessary Pickering balancing.").
Thus, in order to determine whether Feldman's speech was protected, we must first determine if the speech related to matters of public concern, or constituted merely personal grievances, see Connick v. Myers, 461 U.S. 138, 147, 75 L. Ed. 2d 708, 103 S. Ct. 1684 (1983); Pickering, 391 U.S. at 568, and looking at the entire record, we must consider the content, form, and context of the speech for which Feldman contends he was fired. See Connick, 461 U.S. at 147-48.
An employee's speech addresses a matter of public concern when it can be fairly considered as relating to any matter of political, social or other concerns of the community". Id. at 146. Feldman's speech was not related in any way to personal grievances; on the contrary, it clearly pertained to matters of important public concern. The very purpose of his auditing reports was to ferret out and highlight any improprieties that he found at PHA. Disclosing corruption, fraud, and illegality in a government agency is a matter of significant public concern. See Swineford, 15 F.3d at 1274.
Next we must balance Feldman's interests in engaging in the speech, together with the public's interest in listening, against defendants' interest in promoting efficiency at PHA. Id. The interests of Feldman, as well as the public, in exposing governmental wrongdoing of the nature and magnitude that Feldman's reports exposed, is very strong. We have recently recognized:
Speech involving government impropriety occupies the highest rung of First Amendment protection. Moreover, the public's substantial interest in unearthing governmental improprieties requires courts to foster legitimate whistleblowing.
Swineford, 15 F.3d at 1274.
Defendants, however, stress in opposition the disruptive impact of Feldman's speech which, they argue, was sufficient to deprive it of constitutional protection. This argument is misplaced. We have previously explained:
The First Amendment balancing test [of Pickering] can hardly be controlled by finding that disruption did occur. An employee who accurately exposes rampant corruption in her office no doubt may disrupt and demoralize much of the office. But it would be absurd to hold that the First Amendment generally authorizes corrupt officials to punish subordinates who blow the whistle simply because the speech somewhat disrupted the office ***. The point is simply that the balancing test articulated in Pickering is truly a balancing test, with office disruption or breached confidences being only weights on the scales.
Czurlanis, 721 F.2d at 107 (quoting Porter v. Califano, 592 F.2d 770, 773-74 (5th Cir. 1979)) (emphasis in original). Moreover, revelations of misconduct at PHA by Feldman stand in a unique position. Feldman was not the typical employee exposing fraud within one's work environment; he was the head of a department whose very job it was to uncover improprieties. Feldman's conduct was not only permitted, but required by the Internal Audit Department's charter, which provided:
It is the policy of the Philadelphia Housing Authority (PHA) to determine the adequacy and effectiveness of management policies, controls and procedures with respect to all activities within PHA, and to insure full compliance with such policies, controls and procedures.
In order to implement this objective, it is the policy of PHA to provide and support an Internal Audit Department to determine the adequacy and effectiveness of management policies, controls and procedures in discharging management's responsibilities for the control of assets and operations ***.
As director of the Internal Audit Department, Feldman was responsible for uncovering and reporting any wrongdoing that he discovered at PHA. If done correctly, Feldman's very job was to be disruptive. His responsibility to investigate and ferret out improprieties extended not only to Feldman's co-workers, but also to Paone, the executive director, and yes, even Saidel, the chairman of the board. The charter specifically provided that the Internal Audit Department must determine the adequacy and effectiveness of management policies, controls and procedures in discharging management's responsibilities for the control of assets and operations". (emphasis added).
Exposing waste, fraud, and corruption within an agency will likely cause disruption, particularly when done by a person whose responsibility it is to unveil such conduct. This type of ...