No. 00-152 

In the Supreme Court of the United States 

ARTHUR S. LUJAN, LABOR COMMISSIONER OF 
CALIFORNIA, ET AL., PETITIONERS 

v. 
G & G FIRE SPRINKLERS, INC. 

ON WRIT OF CERTIORARI TO 
THE UNITED STATES COURT OF APPEALS 
FOR THE NINTH CIRCUIT 

BRIEF FOR THE UNITED STATES AS AMICUS 
CURIAE SUPPORTING PETITIONERS 

SETH P. WAXMAN 

Solicitor General 

Counsel of Record 
DAVID W. OGDEN 

Assistant Attorney General 
EDWIN S. KNEEDLER 

Deputy Solicitor General 
JEFFREY A. LAMKEN 

Assistant to the Solicitor 

General 
MARK B. STERN 
JACOB M. LEWIS 
DANIEL L. KAPLAN 

Attorneys 
Department of Justice 
Washington, D.C. 20530-0001 
(202) 514-2217 

QUESTIONS PRESENTED 

California’s Labor Code includes provisions requiring 
workers on publicly funded construction projects to be paid 
no less than the prevailing rates determined by the State’s 
Labor Commissioner. The Code specifies that, if a prime 
contractor or one of its subcontractors fails to pay its 
workers the specified wages, the amount of the underpay- 
ment plus penalties must be withheld from contract pay- 
ments to the prime contractor on the project. A prime con- 
tractor subject to such withholding may, in turn, withhold 
the same amounts from contract payments to any sub- 
contractor that has failed to pay its employees the prevailing 
wage. Respondent, a subcontractor that has been subject to 
withholding by prime contractors on three public works 
contracts, filed this action against various state officials, 
seeking a declaration that the withholding procedures vio- 
late due process. The questions presented are: 

1. Whether respondent is deprived of a protected pro- 
perty interest, for Fourteenth Amendment Due Process 
Clause purposes, when a prime contractor withholds from 
respondent contract payments because of respondent’s 
alleged failure to pay its employees the prevailing rate as 
required by respondent’s contract. 

2. Whether respondent has shown state action such that 
the alleged deprivation may be fairly chargeable to the 
State. 

(I) 

TABLE OF CONTENTS 

Page 

Interest of the United States ...................................................... 
1 

Statement ........................................................................................ 2 

Summary of argument .................................................................. 

9 

Argument: 

I. Respondent has not established a violation of 
its Fourteenth Amendment due process 

rights ............................................................................... 11 

A. Respondent has no constitutionally protect- 
ed property interest in full payment under 

its public works contracts .................................... 
11 

B. The State has not deprived respondent of 
any property interest in claims for with- 
held payments ........................................................ 
21 

II. The court of appeals’ state action analysis is 
unpersuasive .................................................................. 27 

Conclusion ...................................................................................... 30 

TABLE OF AUTHORITIES 

Cases: 

American Mfrs. Mut. Ins. Co. 
v. Sullivan, 526 U.S. 

40 (1999) ........................................................................... 

passim 

Arizonans For Official English v. Arizona, 
520 U.S. 43 (1997) ................................................................. 
26-27 

Arnett v. Kennedy, 416 U.S. 134 (1974) .............................. 
20 

Atkin v. Kansas, 191 U.S. 207 (1903) ....................... 
2, 20, 21 

Babbitt v. United Farm Workers, 442 U.S. 289 
(1979) ........................................................................................ 26 

Bart Arconti & Sons, Inc. v. Ames-Ennis, Inc., 
340 A.2d 255 (Md. 1975) ........................................................ 

16 

Blum v. Yaretsky, 457 U.S. 991 (1982) .............................. 
30 

Board of Regents v. Roth, 408 U.S. 564 (1972) ............. 11, 21 

(III) 

IV 

Cases—Continued: Page 

California Div. of Labor Standards Enforcement v. 

Dillingham Constr., N.A., Inc., 519 U.S. 316 
(1997) ........................................................................................ 2 

Carey v. Sugar, 425 U.S. 73 (1976) ..................................... 

26 

City of Torrance v. Workers’ Compensation 

Appeals Bd., 185 Cal. Rptr. 645 (1982) ............................. 

15 

Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 
532 (1985) ................................................................................. 
20 

Department of the Army v. Blue Fox, Inc., 525 

U.S. 255 (1999) ........................................................................ 

23 

Department of Indus. Relations v. Fidelity Roof 

Co., 70 Cal. Rptr. 2d 465 (Ct. App. 1997) .......................... 

24 

Diffenderfer v. Central Baptist Church, 404 U.S. 
412 (1972) ................................................................................. 
2 

Flagg Bros. v. Brooks, 436 U.S. 149 (1978) ....................... 
28 

Gilbert v. Homar, 520 U.S. 924 (1997) ............................... 
21 

Green v. Mansour, 474 U.S. 64 (1985) ................................ 
2 

Harman v. Forssenius, 380 U.S. 528 (1965) ...................... 
26 

Home Bldg. & Loan Ass’n v. Blaisdell, 290 U.S. 398 
(1934) ........................................................................................ 15 

Howard S. Lease Constr. Co. v. Holly, 725 P.2d 
712 (Alaska 1986) ................................................................... 

16 

J & K Painting Co. v. Bradshaw, 53 Cal. Rptr. 2d 
496 (Ct. App. 1996) ................................................................ 
24 

K & G Constr. Co. v. Harris, 164 A.2d 451 (Md. 
1960) ......................................................................................... 16 

Lake Carriers’ Ass’n v. MacMullan, 406 U.S. 948 
(1972) ........................................................................................ 26 

Logan v. Zimmerman Brush Co., 455 U.S. 422 
(1982) ........................................................................................ 22 

Lujan v. Defenders of Wildlife, 504 U.S. 555 
(1992) ........................................................................................ 28 

Morgan v. Singley, 560 S.W.2d 746 (Tex. Civ. App. 
1977) ......................................................................................... 16 

V 

Cases—Continued: Page 

O’Bannon v. Town Court Nursing Ctr., 447 U.S. 
773 (1980) ................................................................................. 
29 

OPM v. Richmond, 496 U.S. 414 (1990) ............................ 
18 

Ogden v. Saunders, 25 U.S. (12 Wheat.) 213 (1827) ......... 
15 

Perkins v. Lukens Steel Co., 310 U.S. 113 (1940) ........ 
20, 21 

Railroad Comm’n v. Pullman Co., 312 U.S. 496 
(1941) ........................................................................................ 25 

Shvartsman v. Apfel, 138 F.3d 1196 (7th Cir. 
1998) ......................................................................................... 22 

Sniadach v. Family Fin. Corp., 395 U.S. 337 
(1969) ........................................................................................ 17 

Thompson v. Railroad Cos., 73 U.S. (6 Wall.) 134 
(1867) ........................................................................................ 18 

United States v. Alire, 73 U.S. (6 Wall.) 573 
(1867) ........................................................................................ 18 

United States v. Testan, 424 U.S. 392 (1976) .................... 

18 

United States Trust Co. v. New Jersey, 431 U.S. 1 
(1977) ........................................................................................ 15 

United States v. Winstar Corp., 518 U.S. 839 
(1996) ........................................................................................ 18 

Von Hoffman v. City of Quincy, 71 U.S. (4 Wall.) 
535 (1867) ................................................................................. 

15 

Williamson County Reg’l Planning Comm’n v. 

Hamilton Bank, 473 U.S. 172 (1985) ................................ 

25 

Constitution, statutes, regulation, and rule: 

U.S. Const.: 

Amend. XI .............................................................................. 

2 

Amend. XIV (Due Process Clause) ......................... 
11, 12, 27 

Davis-Bacon Act, ch. 411, 46 Stat. 1494, 40 U.S.C. 
276a et seq. ............................................................................... 
1, 2 

Service Contract Act, 41 U.S.C. 351 et seq. ......................... 
1 

Tucker Act: 
28 U.S.C. 1346 ........................................................................ 
18 

28 U.S.C. 1491 ........................................................................ 
18 

42 U.S.C. 1983 ............................................................................ 6 

VI 

Statutes, regulation, and rule—Continued: 
Page 

Cal. Civ. Code § 3210 (West 1993) ......................................... 
24 

Cal. Civ. Proc. Code § 1085 ..................................................... 
24 

Cal. Lab. Code (West 1989): 
§ 1720 ...................................................................................... 
2 

§ 1727 ................................................................. 
3, 4, 13, 15, 19 

§ 1729 .............................................. 
3, 4, 13, 15, 24, 26, 28, 29 

§§ 1730-1733 ............................................................................ 

4 

§ 1732 ....................................................................... 
4, 23, 24, 26 

§ 1733 .................................................... 
2, 4, 13, 22, 23, 24, 26 

§ 1771 ............................................................................ 
2, 15, 19 

§ 1774 .................................................................................... 
2, 19 

§ 1775 (1989) .......................................................................... 
19 

§ 1775 (1989 & Supp. 2000) .................................. 
3, 15, 19, 29 

§ 1775(a) (Supp. 2000) .......................................................... 
3, 19 

§ 1775(b) (Supp. 2000) .......................................................... 
3 

§ 1775(b)(1) (Supp. 2000) ..................................................... 
15 

§ 1775(b)(2) (Supp. 2000) ..................................................... 
29 

§ 1775(b)(3) (Supp. 2000) ..................................................... 
29 

§ 1775(b)(4) (Supp. 2000) ..................................................... 
13 

§ 1775(c) (Supp. 2000) ...................................................... 
3, 30 

§ 1775(d) (Supp. 2000) .................................................. 
3, 19, 29 

2000 Cal. Legis. Serv. Ch. 954 (A.B. 1646) (West) ............ 
4, 30 

Cal. Pub. Cont. Code (West Supp. 2000): 
§ 7107(c) ................................................................................... 
13 

§ 9203 ....................................................................................... 
13 

29 C.F.R. 5.1(a) (1998) .............................................................. 
1 

Cal. Rules of Court 29.5(a) ...................................................... 
26 

Miscellaneous: 

A. Corbin, Corbin on Contracts: 

Vol. 3A (1960) ......................................................................... 

16 

Vol. 5A (1964) ......................................................................... 
18 

3 E.A. Farnsworth, Farnsworth on Contracts 
(1990) ........................................................................................ 18 

11 R. Lord, Williston on Contracts (4th ed. 1999) .............. 

15 

Restatement (Second) of Contracts (1979) ...................... 16, 18 

In the Supreme Court of the United States 
NO. 00-152 
ARTHUR S. LUJAN, LABOR COMMISSIONER OF 
CALIFORNIA, ET AL., PETITIONERS 

v. 
G & G FIRE SPRINKLERS, INC. 

ON WRIT OF CERTIORARI TO 
THE UNITED STATES COURT OF APPEALS 
FOR THE NINTH CIRCUIT 

BRIEF FOR THE UNITED STATES AS AMICUS 
CURIAE SUPPORTING PETITIONERS 

INTEREST OF THE UNITED STATES 

This case concerns the constitutionality of provisions of 
California law that authorize state agencies to withhold 
payments from prime contractors on public works projects 
where a subcontractor fails to pay the mandated prevailing 
wages to its employees, and that permit the prime contrac- 
tor, in turn, to withhold similar sums from the subcontractor. 
A number of federal statutes require employees on federally 
funded projects to be paid the prevailing wage and authorize 
federal officials to withhold underpayments from the con- 
tractor. See Davis-Bacon Act, 40 U.S.C. 276a et seq.; Service 
Contract Act, 41 U.S.C. 351 et seq.; 29 C.F.R. 5.1(a) (1998) 
(collecting related statutes). Although the court of appeals 
stated that its holding would not extend to the Davis-Bacon 
Act because of the Department of Labor’s “extensive 
hearing and appeal structure,” Pet. App. A37 n.11, the 
United States has an interest in whether, and in what 
fashion, constitutional due process requirements apply to 
government contract activities and the withholding of 
payments pending resolution of compliance disputes. 

(1) 

2 

STATEMENT 

1. For over a century, States have sought to ensure that 
workers employed on the public works projects they fund, 
like workers employed on similar private projects, are paid 
the locally prevailing wage for their labor. See, e.g., Atkin v. 
Kansas, 191 U.S. 207, 208 (1903) (addressing 1891 Kansas 
statute). Congress adopted such a requirement in 1931. 
Davis-Bacon Act, ch. 411, 46 Stat. 1494, 40 U.S.C. 276a et seq. 
California’s prevailing wage statute dates from 1937, and is 
patterned on the Davis-Bacon Act. See California Div. of 
Labor Standards Enforcement v. Dillingham Constr., N.A., 
Inc., 519 U.S. 316, 319 (1997); Pet. App. A37 n.11. 

Under the California Labor Code, workers on “public 
works” projects must be paid “not less than the general pre- 
vailing rate of per diem wages for work of a similar character 
in the locality in which the public work is performed.” Cal. 
Lab. Code § 1771; see id. § 1720 (defining public works).1 
The required prevailing wages are set by the Director of the 
Department of Industrial Relations. Id. § 1773. The obliga- 
tion to pay no less than the specified rates extends both to 
the prime contractor, which has a direct contractual relation- 
ship with the contract-awarding body, and to any subcon- 
tractors the prime contractor hires. Id. § 1774. 

When a prime contractor or its subcontractor fails to pay 
an employee the required prevailing wage, the prime 

1 Certain provisions of the California Labor Code were altered effec- 
tive January 1, 1998. Because respondent seeks only prospective relief (a 
declaratory judgment and an injunction)—and is precluded by the Elev- 
enth Amendment from using this suit to obtain an award of money from 
the State Treasury for past wrongs, see Green v. Mansour, 474 U.S. 64, 
72-73 (1985)—we believe that the current version of the California Labor 
Code is relevant for present purposes. See Diffenderfer v. Central Baptist 
Church, 404 U.S. 412, 414 (1972) (where plaintiff seeks prospective relief, 
Court “must review the judgment * * * in light of [the] law as it now 
stands”). Where the Code has changed over time, we have attempted to 
indicate whether we are citing the pre-1998 or the current version. 

3 

contractor “forfeit[s]” a penalty of up to $50 per calendar day 
(or portion thereof ) per affected worker. Cal. Lab. Code 
§ 1775 (West 1989 & Supp. 2000). In addition, the difference 
between the prevailing wage and the amount actually paid 
must “be paid to each worker by the [prime] contractor”; and 
every public works contract must contain a stipulation to 
that effect. Ibid.2 State law, moreover, expressly provides 
that, “[b]efore making payments to the contractor of money 
due under a contract for public work,” the contracting 
agency “shall withhold and retain therefrom” the amount of 
any prevailing wage underpayments by the contractor or its 
subcontractor, plus penalties, as provided by law and the 
“contract for public work.” Id. § 1727. Where money is with- 
held from a prime contractor on account of a subcontractor’s 
failure to pay prevailing wages, California law makes it 
“lawful” for the prime contractor, in turn, to withhold like 
amounts from payments otherwise due to the subcontractor. 
Id. § 1729; see Pet. App. A22; Pet. 5. Contracting agencies 
generally may not withhold payments under Section 1727 
“without a full investigation by either the Division of Labor 

2 Section 1775 was amended in 1998 to revise, among other things, the 
provisions regarding a subcontractor’s failure to pay prevailing wages. 
See Pet. App. A115-A119; Cal. Lab. Code § 1775 (West Supp. 2000). The 
amended section provides: where the subcontractor fails to pay prevailing 
wages, the amount of underpaid wages shall be paid to the employees by 
either the contractor or the subcontractor (id. § 1775(a)); in order to avoid 
liability for the subcontractor’s actions, the contractor must monitor the 
subcontractor’s performance and take corrective action (including with- 
holding funds from the subcontractor) if the prime contractor becomes 
aware of the subcontractor’s failure to pay the wages (id. § 1775(b)); the 
contractor must withhold payments from the subcontractor if the Division 
determines that the subcontractor did not pay prevailing wages and the 
contract-awarding agency did not retain sufficient money to pay the 
employees (id. § 1775(c)); and, to the extent there is insufficient money due 
a contractor to cover all penalties and unpaid wages, the contractor and 
subcontractor are jointly and severally liable for the amount of the 
shortfall in any collection action brought by the Division, although collec- 
tion efforts are to be brought first against subcontractors (id. § 1775(d)). 

4 

Standards Enforcement” or the contracting agency, except 
with respect to the final contract payment. Cal. Lab. Code 
§ 1729. 

If a contracting agency withholds payments from a prime 
contractor under Section 1727, the “contractor or [its] as- 
signee” may bring suit against the awarding body to recover 
withheld wages and penalties. Cal. Lab. Code § 1733. Such a 
suit must be brought “within the 90-day period” following 
the “completion of the contract and the formal acceptance of 
the job” by the contracting agency, id. §§ 1730-1733, and the 
contractor or assignee has the burden “to establish [its] right 
to the wages or penalties withheld,” id. § 1733. The Code 
provides that such a suit “on the contract for alleged breach 
thereof in not making the payment is the exclusive remedy 
of the contractor or [its] assignees with reference to those 
wages or penalties.” Id. § 1732. 

California has recently revised its Labor Code, effective 
July 1, 2001. See 2000 Cal. Legis. Serv. Ch. 954 (A.B. 1646) 
(West). Those amendments repeal Sections 1730-1733 (ad- 
dressing the manner in which withholding may be chal- 
lenged), and add a new Section 1742, which entitles both 
prime contractors and subcontractors to challenge a notice of 
assessment regarding failure to pay the prevailing wage 
through administrative proceedings, with a right of judicial 
review. 

2. Respondent is a fire-protection firm that has worked 
as a prime contractor or subcontractor on a number of Cali- 
fornia public works projects. The Division of Labor Stan- 
dards Enforcement concluded that respondent had, as 
subcontractor on three such projects, failed to pay its em- 
ployees the required prevailing wages. The Division issued 
notices to the contracting agencies on those projects direct- 
ing them to withhold payments from the prime contractors 
pursuant to Labor Code Section 1727. The prime contrac- 
tors in turn withheld at least $120,000 from respondent. Pet. 
App. A23. 

5 

Respondent filed a complaint in federal district court 
against the California Labor Commissioner and other public 
officials and state agencies. The complaint alleged that, by 
issuing notices directing contracting agencies to withhold 
money from prime contractors on the affected projects, peti- 
tioners deprived respondent of a property interest without 
due process of law. Respondent sought declaratory and in- 
junctive relief. Pet. App. A90-A106. The district court 
granted respondent’s motion for summary judgment, holding 
that the pertinent provisions of the California Labor Code 
violate respondent’s due process rights. Id. at A86. 

3. The court of appeals affirmed that holding. Pet. App. 
A14-A48. The court first rejected petitioners’ argument that 
respondent had failed to satisfy the causation and redress- 
ability elements of standing. The court found the causation 
element satisfied because, in its view, the State’s action 
“targeted” respondent and “the prime contractors’ only role 
in the dispute is that of a conduit.” Id. at A26. The court 
also concluded that respondent’s injury in any event “can be 
directly traced to the state’s conduct” in issuing the notices 
that caused contracting agencies to withhold payments from 
prime contractors, and prime contractors to withhold 
payments from respondent. See id. at A28. The court 
further found that injury to be redressable because, if 
respondent prevails, withheld money must be released to 
prime contractors “who will be obligated by contract to pay 
it to [respondent].” Ibid. 

Turning to the due process issue, the court of appeals 
found that respondent had a constitutionally protected prop- 
erty interest “aris[ing] from its public works contract * * * 
in being paid in full for the construction work it has 
completed.” Pet. App. A30. And the court found that the 
withholding of payments from prime contractors had caused 
respondent to be deprived of that “interest in full payment 
for services rendered.” Ibid. According to the court of ap- 
peals, the State’s procedures were unconstitutional because 

6 

they afforded respondent no pre-deprivation or prompt post- 
deprivation hearing at which it could challenge the withhold- 
ing. In particular, the court concluded that, under California 
law, subcontractors “are not given the right to bring suit,” 
id. at A22, and thus “have no opportunity to be heard” on 
whether the violations occurred, id. at A36. In reaching that 
conclusion, the court did not rely on California state court 
decisions. It instead relied on its own construction of the 
relevant statutes, rejecting petitioners’ contention that 
California law provides subcontractors with means of 
redress. Id. at A36-A37 & n.9. 

Judge Kozinski dissented. The State, he explained, had 
included a prevailing-wage requirement as a term of its con- 
tracts. Pet. App. A48. When the State concluded that the 
prevailing-wage term had been breached, it was entitled— 
like any other contracting party—to withhold progress pay- 
ments for that failure of performance. Id. at A49-A50. Nor 
had the State deprived respondent of a means through which 
it could challenge the withholding. Respondent, Judge Koz- 
inski concluded, could sue the contract-awarding body under 
a theory of equitable subrogation. Id. at A50. 

4. Following the court of appeals’ decision, this Court 
decided American Manufacturers Mutual Insurance Co. v. 
Sullivan, 526 U.S. 40 (1999). Sullivan concerned the consti- 
tutionality of a Pennsylvania workers’ compensation statute 
that authorized insurers to withhold payments for the treat- 
ment of work-related injuries pending independent review of 
whether the treatment was “reasonable” and “necessary.” 
Id. at 44-47. This Court held that a private insurer’s decision 
to withhold payment for a disputed medical treatment 
pending review did not constitute action “under color of 
state law” covered by 42 U.S.C. 1983. See 526 U.S. at 49-58. 
The Court also held that the procedure permitting with- 
holding did not violate due process. The Pennsylvania law 
did not give employees an unconditional right to payment for 
medical treatments, but rather made payment conditional on 

7 

the employee “establish[ing]” that the treatment was “rea- 
sonable and necessary.” Id. at 60-61. Accordingly, the Court 
held, employees who are temporarily denied payment pend- 
ing an inquiry into reasonableness and necessity were not 
deprived of anything in which they had a protected property 
interest. 

This Court then granted a petition for a writ of certiorari 
in this case, vacated the judgment of the court of appeals, 
and remanded the case for further consideration in light of 
Sullivan. 526 U.S. 1061 (1999). On remand, the court of 
appeals reinstated its judgment and opinion, declaring that 
this Court’s Sullivan decision was “fully consistent” with its 
analysis. Pet. App. A3. With regard to state action, the 
court noted that Sullivan’s holding pertained to actions 
“carried out by a private insurer exercising its discretion in a 
way permitted by State law.” Id. at A6. In this case, the 
court stated, the withholding of money was “specifically di- 
rected by State officials in an environment where the 
withholding party has no discretion at all,” and respondent’s 
complaint had “directly attack[ed] the notices of withholding 
issued by the state agency.” Id. at A6-A7. 

The court of appeals also distinguished Sullivan’s due pro- 
cess analysis. The court of appeals declared that its prior 
opinion in fact was predicated on a theory that this Court 
had “preserved” in footnote 13 of Sullivan. In that footnote, 
the Court declined to address (as waived) the argument that 
employees might have “a property interest in their claims 
for payment, as distinct from the payments themselves,” 
such that the State might be precluded from “finally 
reject[ing] their claims without affording them appropriate 
procedural protections.” 526 U.S. at 61 n.13. In this case, 
the court of appeals stated, respondent had a property right 
in its “claim for payment.” Pet. App. A5-A6; see id. at A6 
(respondent does “not have a right to payment of the dis- 
puted funds pending the outcome of whatever kind of hear- 
ing would be afforded”). There was a due process violation 

8 

here, the court declared, not because respondent was denied 
immediate payment, but because “the California statutory 
scheme afforded no hearing at all when state officials 
directed that payments be withheld.” Ibid. 

Judge Kozinski dissented again, finding the majority’s 
new opinion irreconcilable with Sullivan. Pet. App. A7-A13. 
Under Sullivan, Judge Kozinski maintained, there is no 
state action here, because the California Labor Code leaves 
prime contractors “free to pay [respondent] the full amount 
specified by the contract,” even if the contracting agency 
withholds payments from the prime contractor. Id. at A8. 
Sullivan, in his view, also precludes respondent from 
claiming a property interest. Just as Pennsylvania employ- 
ees could have no property interest in payment for treat- 
ments not yet shown to have been “reasonable” and “neces- 
sary,” respondent in this case could have no protected prop- 
erty interest in payment for work not shown to have 
satisfied “the contractual condition that it be completed in 
accordance with prevailing wage requirements.” Id. at A11. 

Judge Kozinski also rejected the majority’s reliance on the 
proposition that respondent had been deprived of a pro- 
tected property interest in its claims for payment, as distinct 
from the payments themselves. Even if respondent had a 
property interest in claims for payment, he explained, the 
majority’s judgment amounted to “premature remediation,” 
because respondent had not been finally deprived of any 
such claim. Pet. App. A11. The reason such claims had not 
been adjudicated, Judge Kozinski noted, is that respondent 
had not attempted to assert them. Until such time as it was 
clear that respondent could exercise none of several possible 
options, he stated, “it simply cannot be said that the state 
has ‘finally reject[ed]’ ” respondent’s “claims without afford- 
ing [it] appropriate procedural protections.” Id. at A13. 

9 

SUMMARY OF ARGUMENT 

I. A. Respondent has no constitutionally protected prop- 
erty interest in payment under its public works contracts. 
California’s Labor Code makes it clear that a condition to 
respondent’s right to full payment is compliance with all con- 
tractual requirements, including payment of the prevailing 
wage; that, in cases of dispute, payment will be withheld 
pending a resolution; and that, in such cases, respondent has 
the burden of proving compliance. In this case, respondent 
has not yet shown that it complied with the prevailing-wage 
requirement. As a result, its right to full payment under its 
contracts has yet to attach, and the withholding of payments 
does not deprive respondent of anything to which it is 
entitled. 

Ordinary contract principles lead to the same result. In 
continuing contracts, performance by one party is a con- 
structive condition of the other party’s obligation to pay. In 
this case, respondent voluntarily entered into an agreement 
that, among other things, required it to pay prevailing wages 
and prove its compliance if a dispute arose. Because respon- 
dent’s performance in conformity with those terms is a 
constructive condition of the obligation to pay, neither the 
State’s asserted payment obligation nor respondent’s as- 
serted right to payment has yet attached. Indeed, as a 
historical matter, parties claiming a right to payment on a 
contract have been remitted to a lawsuit—a breach-of-con- 
tract action—in which they must prove entitlement to 
payment. No more process is due simply because one party 
to the contract is the government. 

Respondent, moreover, effectively is seeking to prevent 
the State from exercising its bargained-for contractual self- 
help right to withhold payments from prime contractors for 
breach of the prevailing-wage requirement, simply because 
prime contractors might, in turn, withhold payments from 
subcontractors like respondent. Nothing in the Constitution 

10 

precludes a State from bargaining for and obtaining in its 
commercial contracts the same sort of payment withholding 
rights that private parties may include in their contracts. 
Nor is the State’s right to enforce such contract conditions 
limited when it establishes them by statute. Those who find 
the terms demanded by the State undesirable are free to 
avoid contracting with the State, or to demand greater 
compensation as the price of agreement. 

B. Respondent likewise has not been deprived of a prop- 
erty interest in a “claim” for payment. Respondent has not 
submitted a claim and had it rejected; respondent instead 
never submitted a claim of any variety. As a result, it is 
difficult to conclude that respondent has suffered a depriva- 
tion of any claim it may have. Indeed, although the Ninth 
Circuit decided that California provides no mechanism 
through which respondent can assert its alleged claim for 
payment, respondent may well be able to present any such 
claim through state processes and, upon proving compliance, 
convert it into a right to payment. 

In any event, to the extent the scope of available remedies 
under California law is unclear, declaratory and injunctive 
relief was inappropriate. This Court repeatedly has empha- 
sized that federal courts should not decide federal constitu- 
tional questions that depend on uncertain forecasts regard- 
ing the meaning of state law. Abstention or certification to 
the state supreme court would have been appropriate in 
these circumstances; deciding the case based on questionable 
assumptions about California law was not. 

II. In addition to showing deprivation of a property inter- 
est, respondent must show that the deprivation was fairly 
attributable to the State. To the extent California law leaves 
decisions on whether to withhold payments from a subcon- 
tractor to the business discretion of the prime contractor, 
respondent cannot show state action. The fact that the State 
has authorized private parties to employ traditional self-help 
remedies like withholding disputed payments does not 

11 

convert the essentially private exercise of that right into 
state action. To the extent the State compels prime con- 
tractors to withhold payments from subcontractors, how- 
ever, state action is present. 

ARGUMENT 

I. RESPONDENT HAS NOT ESTABLISHED A VIO- 
LATION OF ITS FOURTEENTH AMENDMENT DUE 
PROCESS RIGHTS 

Because the “requirements of procedural due process ap- 
ply only to the deprivation of interests encompassed by the 
Fourteenth Amendment’s protection of liberty and prop- 
erty,” Board of Regents v. Roth, 408 U.S. 564, 569 (1972), the 
“first inquiry in every due process challenge is whether” the 
interest asserted by the plaintiff, and that was allegedly sub- 
ject to deprivation, constitutes “a protected interest in 
‘property’ or ‘liberty’ ” within the meaning of the Due Proc- 
ess Clause. American Mfrs. Mut. Ins. Co. v. Sullivan, 526 
U.S. 40, 59 (1999). The court of appeals identified two differ- 
ent property interests here—first, respondent’s supposed 
right to full payment under its contracts, and second, its 
“claim” for full payment. As to the first, respondent has no 
present property interest. As to the second, respondent has 
not established a deprivation. 

A. Respondent Has No Constitutionally Protected Prop- 
erty Interest In Full Payment Under Its Public Works 
Contracts 

Consistent with the allegations in respondents’ complaint, 
the court of appeals initially concluded that respondent had a 
“property interest in being paid in full for the construction 
work it ha[d] completed,” declaring that such an interest 
“ar[ose] from [respondent’s] public works contract.” Pet. 
App. A30 (emphasis added). See id. at A98 (complaint’s 
allegation that respondent was “deprived of property in the 
form of substantial sums of money” under its contracts). 

12 

That conclusion is impossible to reconcile with the relevant 
California statutes, is contradicted by respondent’s con- 
tracts, and is inconsistent with general contract principles. 

1. In Sullivan, this Court considered whether Penn- 
sylvania’s workers’ compensation statute created a Four- 
teenth Amendment “property interest” in payment for the 
treatment of work-related injuries. 526 U.S. at 44. Under 
that law, employers and their insurers were required to pay 
—and employees were correspondingly entitled to payment 
for—the cost of reasonable and necessary treatments for 
such injuries. Ibid. Pennsylvania law, however, provided 
that insurers wishing to dispute the reasonableness or 
necessity of treatments (and thus their obligation to pay) 
could request review by a utilization review organization, 
and withhold payment pending that review. See id. at 45-46. 
The plaintiffs in Sullivan argued that permitting such 
withholding of payment denied the employees, without due 
process, a state-created property interest in payment for the 
treatment of their work-related injuries. Id. at 59-60. 

This Court rejected that argument. The Pennsylvania law 
not only conditioned the plaintiffs’ right to payment on “rea- 
sonableness” and “necessity,” but also expressly provided 
that, in disputed cases, reasonableness and necessity had to 
be established before the insurer’s payment obligation would 
attach. 526 U.S. at 58-61. The Court explained: 

Under Pennsylvania law, an employee is not entitled to 
payment for all medical treatment once the employer’s 
initial liability is established * * *. Instead, the law 
expressly limits an employee’s entitlement to “reason- 
able” and “necessary” medical treatment, and requires 
that disputes over the reasonableness and necessity of 
particular treatment must be resolved before an em- 
ployer’s obligation to pay—and an employee’s entitle- 
ment to benefits—arise. * * * Thus, for an employee’s 
property interest in the payment of medical benefits to 

13 

attach under state law, the employee must clear two 
hurdles: First, he must prove that an employer is liable 
for a work-related injury, and second, he must establish 
that the particular medical treatment at issue is 
reasonable and necessary. 

Id. at 60-61. The Court concluded that, because the plaintiffs 
in Sullivan had yet to clear the second hurdle—“to make 
good on their claim that the particular medical treatment 
they received was reasonable and necessary”—they lacked 
“a property interest in” payment and could not assert a due 
process claim for the deprivation thereof. Id. at 61. 

The California laws at issue in this case similarly make it 
clear that respondent has no unconditional entitlement to full 
payment. California law generally makes full performance of 
all material obligations on a public works project, including 
compliance with prevailing-wage requirements, a condition 
precedent to the right to receive full payment. See, e.g., Cal. 
Pub. Cont. Code §§ 7107(c), 9203 (West Supp. 2000); Cal. 
Lab. Code § 1775(b)(4) (West Supp. 2000) (before “making 
final payment to the subcontractor * * * the contractor 
shall obtain an affidavit * * * from the subcontractor that 
the subcontractor has paid the specified general prevailing 
rate of per diem wages”). And California law provides that, 
if the contracting body or the State concludes that the pre- 
vailing-wage requirement has not been met, then “[b]efore 
making payments to the contractor,” the contracting body 
“shall withhold and retain” from any such payments the 
amount by which workers have been underpaid and any 
penalties. Cal. Lab. Code § 1727 (emphasis added). Califor- 
nia law further provides that, if the State withholds payment 
from a prime contractor because of a subcontractor’s failure 
to pay prevailing wages, the prime contractor is authorized, 
before making payment, “to withhold from [the] subcontrac- 
tor under him sufficient sums to cover any penalties with- 
held from him * * * on account of the subcontractor’s 

14 

failure to comply.” Id. § 1729. Finally, California law pro- 
vides that, if the contractor (or its assignee) wishes to 
contest the withholding, it must bring a breach of contract 
action, and that it bears the burden in that action of proving 
full compliance and thus “establish[ing] [its] right to the 
wages or penalties withheld.” Id. § 1733. 

Thus, just as the employees in Sullivan were not entitled 
to full payment for the medical treatments unless they were 
“reasonable” and “necessary,” 526 U.S. at 61, respondent is 
not entitled to full payment on its subcontracts unless it fully 
complies with California’s prevailing-wage requirement. 
Just as the Pennsylvania law in Sullivan “require[d] that 
disputes over the reasonableness or necessity of particular 
treatment * * * be resolved before an employer’s obligation 
to pay—and an employee’s entitlement to benefits— 
ar[o]se,” ibid., so too California law requires that disputes 
over respondents’ compliance with the prevailing-wage law 
be resolved before the contracting body’s and the prime 
contractor’s obligations to pay (and thus respondent’s right 
to be paid) arise. And, just as the employees in Sullivan had 
yet to prove their entitlement by establishing reasonable- 
ness and necessity, respondent here has yet to make good on 
its claim that it complied with the prevailing-wage law that 
is a condition to final payment. See Pet. App. A11 (Kozinski, 
J., dissenting). 

2. Respondent in any event does not contend that Cali- 
fornia statutory law provides it with a property interest in 
full payment. Instead, respondent contends—and the Ninth 
Circuit in its now-reinstated pre-Sullivan opinion held— 
that respondent’s contracts with prime contractors provided 
respondent with a property interest. See Pet. App. A30 
(respondent’s “interest arises from its public works con- 
tract”). But neither respondent nor the court of appeals 
identified the relevant contractual provisions giving rise to 
that alleged property right. It is difficult to see how respon- 
dent could claim (and the Ninth Circuit could find) the dep- 

15 

rivation of a property right arising from a contract without 
reference to the terms and conditions of the contract itself. 

Besides, it is well established that “the laws which subsist 
at the time and place of the making of a contract, and where 
it is to be performed, enter into and form a part of it, as if 
they were expressly referred to or incorporated in its 
terms.” United States Trust Co. v. New Jersey, 431 U.S. 1, 
20 n.17 (1977) (quoting Home Bldg. & Loan Ass’n v. 
Blaisdell, 290 U.S. 398, 429-430 (1934), and Von Hoffman v. 
City of Quincy, 71 U.S. (4 Wall.) 535, 550 (1867)).3 Conse- 
quently, as a matter of law, the relevant portions of Califor- 
nia’s labor statutes are part of respondent’s contracts. And 
as explained above, those statutes preclude respondent from 
claiming an unqualified right to full and final payment from 
the prime contractor, since they make respondent’s compli- 
ance with the prevailing-wage law a condition precedent to 
its right to receive full payment, and authorize the with- 
holding of payment in disputed cases until respondent has 
established entitlement. Moreover, in this case, the Ninth 
Circuit did not disagree with petitioners’ contention that 
“the withholding procedure” respondent challenges as de- 
priving it of property “is contained in” respondent’s subcon- 
tracts, Pet. App. A31, and it noted respondent’s “con- 
ce[ssion] that the express terms of the contract grant the 
state the authority to withhold funds for wage violations,” id. 
at A32.4 Surely respondent cannot claim that it has a 

3 See also Ogden v. Saunders, 25 U.S. (12 Wheat.) 213, 259-260, 297- 
298 (1827) (opinions of Washington and Thompson, JJ.). That principle is 
well accepted both as a matter of standard contract law, 11 R. Lord, 
Williston on Contracts § 30:19, at 203-204 (4th ed. 1999), and as a matter of 
California law, City of Torrance v. Workers’ Compensation Appeals Bd., 
185 Cal. Rptr. 645, 648 (1982). 

4 See Pet. App. A32 (withholding provisions “incorporated by state 
law into all public works contracts”); id. at A22 (Sections 1771, 1727, 1729, 
and 1775 “must be incorporated into all public works contracts”). See also 
Cal. Lab. Code § 1775(b)(1) (West. Supp. 2000) (for prime contractor to 
avoid penalties for subcontractor’s failure to pay prevailing wage, it must 

16 

protected property right to full payment under its contracts 
where those very contracts permit prime contractors to 
withhold the payments; as in Sullivan, “[t]o state the 
argument is to refute it.” 526 U.S. at 61. 

3. Respondent’s claim that it has a protected property 
right in payment under its subcontracts, moreover, cannot 
be reconciled with general principles of contract law. It is by 
now well settled that one party’s fulfillment of its obligations 
under a contract is a constructive condition of the other 
party’s obligation to pay. See Restatement (Second) of Con- 
tracts § 237 cmt. a (1979) (“[A] material failure of perform- 
ance * * * operates as the non-occurrence of condition” and 
thus “prevent[s]” the corresponding “performance” of the 
other party “from becoming due, at least temporarily.”); 3A 
A. Corbin, Corbin on Contracts § 708, at 333 (1960) (“If the 
refusal to pay an installment is justified” by the failure of 
substantial performance, the unpaid party cannot declare 
breach.).5 In this case, after respondent voluntarily agreed 
to a contract term requiring it to “pay a prevailing wage to 
[its] employees,” the State “determined that [respondent] 
did not comply with its prevailing wage obligation, and thus 
withheld payments.” Pet. App. A49 (Kozinski, J., dissent- 
ing). Because respondent’s performance in conformity with 

comply with requirement that “[t]he contract executed between the 
contractor and the subcontractor for the performance of work * * * shall 
include a copy of the provisions of Sections 1771, 1775, 1776, [and] 1777.5”). 

5 This rule repeatedly has been applied in the context of progress 
payments on construction contracts. See, e.g., Howard S. Lease Constr. 
Co. v. Holly, 725 P.2d 712 (Alaska 1986) (contractor entitled to withhold 
amount of back charge for fine grading, which had been contractual 
obligation of subcontractor, from progress payments); Morgan v. Singley, 
560 S.W.2d 746 (Tex. Civ. App. 1977) (affirming finding that defective 
performance of subcontractor justified withholding of payment); Bart 
Arconti & Sons, Inc. v. Ames-Ennis, Inc., 340 A.2d 225 (Md. 1975) 
(affirming finding that withholding was justified where subcontractor 
breached contract); K & G Constr. Co. v. Harris, 164 A.2d 451 (Md. 1960) 
(subcontractor’s negligent operation of heavy equipment a material breach 
justifying suspension of progress payments). 

17 

that term (and in cases of dispute, proof of performance) was 
a constructive condition of the obligation to pay, the with- 
holding did not deny respondent a property right guaranteed 
by the contract. See Sullivan, 526 U.S. at 57 (noting 
traditional rule that, although one can “become liable * * * 
if the refusal to pay breached the contract,” the “obligation 
to pay would only arise after” the claimant had “initiated a 
claim and reduced it to a judgment”). 

In that respect, the State’s withholding of payment here is 
“no different from a builder’s refusal to make progress pay- 
ments” on any other commercial construction contract “when 
he discovers (or believes he has discovered) a failure of per- 
formance on any other term.” Pet. App. A49 (Kozinski, J., 
dissenting). Where a private builder refuses to pay because 
of an alleged breach, the party claiming injury is generally 
remitted to a lawsuit, in which it must prove performance 
and entitlement to payment. We see no reason why the 
Constitution should forbid a similar approach in the context 
of voluntarily undertaken commercial construction contracts, 
like those at issue here, merely because they concern public 
works.6 

4. For the same reasons, even if there were a consti- 
tutionally protected interest in payment, there is no due 
process violation so long as the State provides some form of 
post-deprivation process, in the form of a breach of contract 
action or otherwise. At common law, the only remedy for 

6 Because respondent’s entitlement to payment has not been legally 
established, the court of appeals’ reliance (Pet. App. A30) on Sniadach v. 
Family Fin. Corp., 395 U.S. 337 (1969), was misplaced. In Sniadach, the 
State permitted third-party creditors to garnish employee wages. Be- 
cause the employee had already become entitled to payment from the 
employer—garnishment effectively intercepts payments that not only 
have been earned by the employee, but that the employer in fact is making 
to the employee—the procedure did deprive the employee of a present 
property interest in payment. Here, in contrast, respondent has not 
established entitlement to payment under its contracts, and it is for that 
very reason that the payor itself has chosen to withhold payment. 

18 

breach of contractual obligations was a suit for monetary 
compensation, 3 E.A. Farnsworth, Farnsworth on Contracts 
§ 12.4, at 159 (1990), and the suit for such a judgment is still 
“usually regarded as adequate to satisfy the requirements of 
justice,” 5A A. Corbin, supra, § 1139, at 111 (1964). Thus, 
courts generally will not grant other relief for breach of con- 
tract if a suit for monetary relief is adequate. See Restate- 
ment (Second) of Contracts, supra, § 359. See also United 
States v. Winstar Corp., 518 U.S. 839, 885 (1996) (opinion of 
Souter, J.) (“[D]amages are always the default remedy for 
breach of contract.”); Thompson v. Railroad Cos., 73 U.S. (6 
Wall.) 134, 137 (1867) (suit in equity barred where “an action 
at law * * * to recover damages for a breach of contract” 
would have permitted “the railroad companies to collect 
their debt”). Thus, even in clear cases of breaches of con- 
tractual rights, historical practice has been to remit the 
party claiming breach to a suit seeking compensation after 
the fact. There is no reason why the Constitution should 
require any more process for parties who voluntarily enter 
into a commercial contract with the government. Thus, for 
example, Congress—although providing a specialized forum 
and waiver of immunity for breach-of-contract suits against 
the United States under the Tucker Act, 28 U.S.C. 1346, 
1491—still largely precludes relief other than monetary com- 
pensation after a breach has occurred. See United States v. 
Testan, 424 U.S. 392, 397-398 (1976); United States v. Alire, 
73 U.S. (6 Wall.) 573, 575-577 (1867).7 

That rule is especially sound here, since respondent does 
not so much seek to prevent the State from breaching a 
contractual obligation as it attempts to preclude the State 
from exercising its own bargained-for contract rights. When 

7 Indeed, before the Tucker Act, a contractor seeking to recover on a 
breach-of-contract claim against the United States had no automatic right 
to a judicial forum, and was remitted instead to seeking a private bill. See 

OPM v. Richmond, 496 U.S. 414, 430-431 (1990). 

19 

prime contractors enter into public works projects in Califor- 
nia, they undertake an obligation to ensure that all workers 
on the project are paid the prevailing wage. See Cal. Lab. 
Code §§ 1771, 1774. Thus, when project employees are not 
paid that wage—whether the employees are the prime con- 
tractor’s or those of its subcontractor—the prime contractor 
is contractually obligated to pay them the difference itself. 
See id. § 1775 (West 1989) (“The difference between the 
prevailing wage rates and the amount paid to each worker 

* * * shall be paid to each worker by the contractor, and 
the body awarding the contract shall cause to be inserted in 
the contract a stipulation that this section will be complied 
with.”) (pre-1998 statute); id. § 1775(a) (West Supp. 2000) 
(same, but payment must be made by prime contractor or 
subcontractor); id. § 1775(d) (West Supp. 2000) (prime 
contractor jointly and severally liable for nonpayment). 
And, if the prime contractor fails to do so, the State has a 
right to withhold payment to the prime contractor on 
account of that breach. See id. §§ 1727, 1775. We fail to see 
how the State’s enforcement of its bargained-for contractual 
right—to withhold payment on account of the prime con- 
tractor’s breach of an obligation to ensure that all project 
employees are paid the prevailing wage—could conceivably 
violate the subcontractor’s constitutional rights. 

Perhaps recognizing as much, the Ninth Circuit attempted 
to recharacterize this suit as a challenge to the State’s 
exercise of its “regulatory power,” because California law 
mandates inclusion of the prevailing-wage requirement and 
the withholding provisions in all of the State’s public works 
contracts. Pet. App. A32. But the fact that the State has 
statutorily established the terms on which it is willing to 
enter into commercial contracts for public works (rather 
than leaving the terms to the discretion of individual state 
contracting bodies) does not make a constitutional differ- 
ence. Private parties too may declare in advance certain 
contract conditions that are not subject to negotiation. In 

20 

either event, those who find the required conditions undesir- 
able can decline to contract or insist on greater compensa- 
tion. Id. at A49, A51 (Kozinski J., dissenting). As this Court 
explained in upholding a similar statutory scheme almost a 
century ago, “we can imagine no possible ground to dispute 
the power of the State to declare that no one undertaking 
work for it” must undertake particular obligations, for it is 
not “part of the liberty of any contractor that he be allowed 
to do public work in any mode he may choose to adopt, 
without regard to the wishes of the State.” Atkin v. Kansas, 
191 U.S. 207, 222 (1903). Instead, each State has the unques- 
tioned power “to prescribe the conditions upon which it will 
permit public work to be done on its behalf * * *. No court 
has authority to review its action in that respect.” Id. at 222- 
223. Accord Perkins v. Lukens Steel Co., 310 U.S. 113, 127 
(1940) (“Like private individuals and businesses, the Gov- 
ernment enjoys the unrestricted power * * * to determine 
those with whom it will deal, and to fix the terms and 
conditions upon which it will make needed purchases.”). In 
this case, respondent voluntarily chose to enter into a con- 
tract containing the terms and conditions the State requires 
for all public works contracts. Having done so, respondent 
cannot complain that it has been deprived of a contract- 
based property right to full payment where the contract 
itself simply does not provide that right.8 

8 This case does not implicate the Court’s previous rejection of the 
principle that, “where the grant of a substantive right is inextricably 
intertwined with the limitations on the procedures which are to be 
employed in determining that right, a litigant * * * must take the bitter 
with the sweet” for due process purposes. Cleveland Bd. of Educ. v. 
Loudermill, 470 U.S. 532, 540 (1985) (quoting Arnett v. Kennedy, 416 U.S. 
134, 153-154 (1974) (plurality opinion)). For one thing, this case does not 
involve the distribution of entitlements or statutory benefits, nor the 
provision of state jobs to individuals; instead, it concerns construction 
contracts for public works, an area in which the State traditionally has had 

21 

B. The State Has Not Deprived Respondent Of Any 
Property Interest In Claims For Withheld Payments 

Following this Court’s grant, vacatur, and remand of the 
Ninth Circuit’s initial decision in light of Sullivan, see pp. 6- 
7, supra, the Ninth Circuit identified a different property 
interest. Although the Ninth Circuit reinstated its earlier 
opinion, it acknowledged that respondent does not “have a 
right to payment of the disputed funds pending the outcome 
of whatever kind of hearing would be afforded to determine 
whether [respondent] complied with the California pre- 
vailing wage laws.” Pet. App. A6. But it concluded that 
respondent had a property interest in a “claim” for payment. 
Ibid. The Ninth Circuit explained that this Court, in Sulli- 
van, 526 U.S. at 61 n.13, had reserved judgment on whether 
plaintiffs could have a property interest in their claims for 

greater discretion to establish the terms under which it is willing to do 
business. See Atkin, supra; Lukens Steel, supra. 

More fundamentally, recognizing that a property interest in actual 
receipt of a payment does not “attach under state law,” Sullivan, 526 U.S. 
at 60, until the claimant’s entitlement thereto has been determined 
through State-specified procedures is not an invocation of the bitter-with- 
the-sweet principle. In Sullivan, this Court recognized that no property 
interest in the receipt of even a statutory benefit can arise until the 
claimant’s entitlement to the benefit has been established. Id. at 60-61. 
Before the State has satisfied itself of an individual’s entitlement to a 
benefit, the individual has at most a mere “unilateral expectation” of re- 
ceiving it, which does not constitute “property.” Roth, 408 U.S. at 577. By 
contrast, an individual’s expectation of continued receipt of a benefit to 
which the State has already found him or her entitled may constitute a 
reasonable, non-unilateral reliance interest of the sort “upon which people 
rely in their daily lives,” and which “[i]t is a purpose of the ancient 
institution of property to protect.” Ibid. See also Sullivan, 526 U.S. at 60 
(respondents’ property interest was “fundamentally different” from those 
involved in cases in which the individuals’ “entitlement to benefits had 
been established,” and which involved the procedures necessary in connec- 
tion with terminating the “continued payment of benefits”); Gilbert v. 
Homar, 520 U.S. 924, 928 (1997). In this case, standard contract principles 
condition respondent’s right to receive full payment on its full perform- 
ance; because respondent failed to perform as required, its right to receive 
the corresponding full payment never matured. 

22 

benefits, as distinguished from the benefits themselves, 
“such that the State, the argument goes, could not finally re- 
ject their claims without affording them appropriate proce- 
dural protections.” 

1. As we explained in our brief as amicus curiae in 
Sullivan (97-2000 U.S. Br. at 21-22), an individual who has 
applied for statutory benefits, but who has not yet received a 
determination of entitlement, may well enjoy a constitu- 
tionally protected property interest in his or her claim for 
benefits (so long as the statute providing the benefits re- 
mains in effect), even though he or she has no protected 
interest in the immediate receipt of the benefits themselves. 
Such a claim for payment is akin to a “chose in action,” which 
may be a species of property. See, e.g., Logan v. Zimmer- 
man Brush Co., 455 U.S. 422, 431 (1982); see Shvartsman v. 
Apfel, 138 F.3d 1196, 1199 (7th Cir. 1998) (discussing Zim- 
merman). Thus, state action bringing about the final and 
irrevocable denial of the claim for the benefit—as distin- 
guished from regulating the individual’s access to the benefit 
in a manner that does not destroy the value of the claim 
altogether—is subject to due process scrutiny. 

We do not believe, however, that invocation of such a 
property interest supports the Ninth Circuit’s judgment 
here. This is not a case in which a party actually filed a claim 
of some variety—or a lawsuit—only to have it rejected arbi- 
trarily or adjudicated through unfair procedures. Pet. App. 
A11 (Kozinski, J., dissenting) (contrasting Logan, 455 U.S. 
422). Instead, respondent has yet to file a claim of any 
variety; nor has respondent established the absence of a 
practicable forum to which such a claim could be submitted. 
Under these circumstances, it cannot be said that the State 
has deprived respondent of a “claim” for payment. 

The Ninth Circuit appears to have assumed that respon- 
dent need not submit a claim for payment through state 
processes because California has not provided a mechanism 
by which such claims may be adjudicated. But Section 1733 

23 

of the California Labor Code provides a specialized breach- 
of-contract action through which the prime “contractor or 
[its] assignee” may challenge withholding and obtain funds 
mistakenly withheld. Cal. Lab. Code § 1733 (emphasis 
added). Respondent nowhere alleges that it sought an as- 
signment from the prime contractor to permit it to bring suit 
under Section 1733. Pet. App. A12-A13 (Kozinski, J., dis- 
senting). Nor does respondent explain why a prime con- 
tractor that withheld payments from its subcontractor would 
resist such an assignment.9 Indeed, respondent nowhere 
claims that such assignments are difficult to obtain, or that 
respondent cannot protect itself from the prospect of a 
refusal to assign by requiring assignment as a condition of its 
contracts. Finally, it is far from clear that state courts would 
refuse to require an express assignment in the event that a 
prime contractor unreasonably refused to assign the right, or 
effect an “equitable assignment” through the doctrine of 
subrogation. 

10 It is difficult to credit the contention that 
respondent’s purported “claim” for payment has been unlaw- 
fully extinguished when respondent does not allege that it 
has made any effort to assert it. 

Moreover, the Ninth Circuit assumed—without citation to 
California case law—that Section 1732 makes Section 1733 

9 Respondent observes that a prime contractor subjected to with- 
holding that has in turn withheld payments from a subcontractor “has no 
financial incentive to contest the” State’s “action.” Br. in Opp. 16. By the 
same token, however, such a prime contractor loses nothing by assigning 
the right to sue to its subcontractor, and presumably would be willing to 
do so in order to preserve its relationship with its contracting partner, as 
well as its reputation in the industry, and to avoid the prospect of a 
breach-of-contract action for unreasonably withholding assignment (see p. 
23, supra) or for failing to make final payment (see p. 24 & note 12, infra). 

10 Federal courts could not effect such an equitable assignment of 
rights against the federal government under the Tucker Act. The Tucker 
Act strictly limits the causes of action that may be brought, and sub- 
rogation suits are not among those listed. See, e.g., Department of the 

Army v. Blue Fox, Inc., 525 U.S. 255 (1999). 

24 

the exclusive remedy for any person seeking to challenge 
withholding. Pet. App. A22. But Section 1732 makes suit 
under Section 1733 “the exclusive remedy of the [prime] 
contractor or [its] assignees,” Cal. Lab. Code § 1732 (empha- 
sis added), and thus does not, by its terms, preclude suit by a 
subcontractor that has not obtained an assignment of the 
prime contractor’s rights. See J & K Painting Co. v. Brad- 
shaw, 53 Cal. Rptr. 2d 496, 500 (Ct. App. 1996). For that 
very reason, at least one California appellate court has per- 
mitted a subcontractor to bring a challenge through a writ of 
mandate under Cal. Civ. Proc. Code § 1085. J & K Painting 
Co., 53 Cal. Rptr. 2d at 499-501. 

11 Finally, the Ninth Cir- 
cuit’s conclusion that the Labor Code would preclude the 
subcontractor from bringing a common-law breach-of-con- 
tract action against the prime contractor (Pet. App. A28, 
A37 n.9) is not a self-evidently correct reading of California 
law. 

12 Thus, given the general reluctance of California courts 
to read legislation as providing only a “patently inadequate” 
remedy, J & K Painting, 53 Cal. Rptr. 2d at 501 n.7, there is 
reason to doubt that respondent lacks any mechanisms 
through which it may assert a “claim” for payment. 

11 As the petition explains (at 6), a subcontractor also could seek to 
recover withheld payments under California’s statutory “stop notice” 
procedure. See Cal. Civ. Code § 3210 (West 1993); Department of Indus. 

Relations v. Fidelity Roof Co., 70 Cal. Rptr. 2d 465, 470 (Ct. App. 1997). 

12 The Ninth Circuit read Section 1729 of the California Labor Code as 
providing prime contractors with an absolute defense against such actions. 
Pet. App. A28, A37 n.9. By its terms, however, Section 1729 makes it 
“lawful” for a prime contractor to withhold payments from a subcontractor 
where sums have been “withheld from [the prime contractor] by the 
awarding body on account of the subcontractor’s failure to comply” with 
prevailing-wage requirements. Where the subcontractor in fact has 
complied with those requirements, withholding by the State could be 
regarded as not “on account of the subcontractor’s failure to comply,” but 
rather on account of the State’s mistake regarding compliance, and the 
prime contractor’s failure—by neither challenging the error itself nor 
assigning the right to do so—to seek a correction. 

25 

For present purposes, however, it is sufficient to note that 
the burden is on respondent to establish a violation of its due 
process rights, and that respondent has failed to carry that 
burden. Simply put, any violation of respondent’s rights 
would not be complete until the State has both deprived 
respondent of its interest in “property,” and the process that 
is respondent’s due has been denied. Cf. Williamson County 
Reg’l Planning Comm’n v. Hamilton Bank, 473 U.S. 172, 
193-195 (1985). Here, respondent cannot argue that either 
has occurred with respect to its purported property interest 
in a claim for payment. There has been no deprivation of any 
such interest because the claim has yet to be asserted in any 
state forum, much less rejected or terminated by the State. 
And, although state law in this area is not certain, 
respondent may well be able to present its claim through 
state processes and, upon proving compliance, convert that 
claim into the payment that is its ultimate goal. Only if 
respondent makes an effort to do so and is rebuffed, or has 
affirmatively established that no procedure is available, will 
it be possible to conclude with assurance that respondent has 
been deprived of any claim for payment it may have, and 
that any such deprivation occurred without the process that 
is constitutionally due. That respondent has not done. 

2. There is an additional infirmity in the court of appeals’ 
reliance on suppositions regarding California law to invali- 
date this important statutory scheme. As this Court ex- 
plained over half a century ago, “important considerations of 
policy in the administration of federal equity jurisdiction” 
weigh against federal court relief against state action on 
constitutional grounds where the ultimate holding rests on a 
“forecast” as to how state courts would resolve particular 
questions of state law. Railroad Comm’n v. Pullman Co., 
312 U.S. 496, 499-501 (1941). Indeed, this Court repeatedly 
has relied on the strong federal interests in avoiding “unnec- 
essary friction” in federal-state relations, preventing inter- 
ference with “important state functions,” and avoiding both 

26 

“tentative decisions on questions of state law” and “pre- 
mature constitutional adjudication” as grounds for refusing 
federal decision on constitutional questions where the state 
laws in question are “fairly subject to an interpretation 
which w[ould] render unnecessary or substantially modify 
the federal constitutional question.” Harman v. Forssenius, 
380 U.S. 528, 534, 535 (1965). See, e.g., Babbitt v. United 
Farm Workers, 442 U.S. 289, 305-312 (1979); Lake Carriers’ 
Ass’n v. MacMullan, 406 U.S. 498, 510-513 (1972). 

To the extent state law regarding the availability of 
remedies is unclear, this is precisely the sort of case in which 
Pullman abstention is appropriate, since any decision 
invalidating California’s statutory scheme would necessarily 
rest on the questionable “forecast” that no state remedies 
exist. The court of appeals in this case nonetheless invali- 
dated a prevailing wage enforcement scheme that has been 
in place in California for over 60 years. In so doing, the court 
took at face value respondent’s assertions as to the meaning 
of the California Labor Code §§ 1729, 1732, and 1733, see Pet. 
App. A22, A28, A37 n.9; relied on the very absence of 
controlling judicial precedent as a basis for concluding that 
respondent had no available remedies under state law, see 
id. at A37 n.9; and disregarded the position of the state 
agency responsible for enforcing the Labor Code that other 
remedies were available. See generally pp. 22-24 & notes 11- 
12, supra. This Court itself has abstained in such circum- 
stances. See Carey v. Sugar, 425 U.S. 73 (1976) (per curiam) 
(abstaining in procedural due process challenge to state pre- 
judgment attachment statute, noting that injunctive relief 
was “particularly inappropriate” in light of state officials’ 
claim that state law made available procedures of the sort 
the plaintiffs demanded). 

Nor did the court of appeals consider the ordinary alter- 
native to Pullman abstention, which is certification of the 
relevant state law questions to the state supreme court. See 
California Rules of Court 29.5(a); Arizonans For Official 

27 

English v. Arizona, 520 U.S. 43, 76 (1997). Invocation of that 
procedure would have been superior to premature adjudica- 
tion of a federal constitutional question (and invalidation of 
an important state statute) based on what may have been an 
inappropriately parsimonious construction of the relevant 
state laws. Moreover, we note that California has recently 
revised its Labor Code, effective July 1, 2001, to add a new 
Section 1742, which entitles both prime contractors and 
subcontractors to challenge a notice of assessment of unpaid 
wages through administrative proceedings, with a right of 
judicial review. See p. 4, supra. That new provision will 
eliminate (as of its imminent effective date) any basis for the 
court of appeals’ belief that a subcontractor like respondent 
has no means of challenging the State’s withholding of pay- 
ments from a prime contractor, where the prime contractor 
in turn withholds payments from the subcontractor. 

For the foregoing reasons, if this Court does not reverse 
the judgment of the court of appeals, it may wish to consider 
vacating that court’s judgment and remanding with direc- 
tions to dismiss the case, in view of the absence of any sig- 
nificant continuing justification for an award of prospective 
equitable relief, and the presence of uncertain questions of 
state law that would otherwise appear to call either for 
Pullman abstention or for a certification to the California 
Supreme Court that probably could not be completed before 
the new law becomes effective on July 1, 2001. 

II. THE COURT OF APPEALS’ STATE ACTION 
ANALYSIS IS UNPERSUASIVE 

In order to state a claim for the deprivation of a right 
protected by the Fourteenth Amendment, respondent must 
establish “state action” implicating the due process guaran- 
tee. Sullivan, 526 U.S. at 49-50. Respondent’s primary 
contention is that it suffers injury when prime contractors 
withhold final payments from respondent under its public 
works contracts. According to petitioners, however, Section 

28 

1729 of the California Labor Code permits but does not 
compel prime contractors to withhold those payments; prime 
contractors, petitioners therefore argue, are not properly 
characterized as “state actors.” To the extent that descrip- 
tion of prime contractors’ discretion is correct, we agree. As 
this Court explained in Sullivan, the fact that the State has 
authorized private parties (like the prime contractors here) 
to employ traditional self-help remedies (such as withholding 
disputed payments) “without participation by any public 
official” does not itself convert essentially private conduct 
into state action. 526 U.S. at 57 (quoting Flagg Bros. v. 
Brooks, 436 U.S. 149, 162 n.12 (1978)). Nor do we think that 
Sullivan can be meaningfully distinguished on the ground 
that, in this case, respondent has sued only state officials, 
and has challenged their withholding of payments from the 
prime contractor in the first instance. The conduct of state 
officials did not injure respondent; the prime contractor’s 
independent decision to withhold payments from respondent 
did. At least so long as the prime contractor was free to pay 
respondent notwithstanding the State’s action of withhold- 
ing payment (as the prime contractor might do to ensure 
respondent’s continued performance despite a breach), and 
so long as the prime contractor was free to withhold 
payments even if the State did not do so first (as the prime 
contractor might do in the event of breach), respondent’s 
injury would appear to be properly attributed to the prime 
contractor’s business judgment, not to action of the State. 
Cf. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-561 
(1992) (standing requires the injury to be “fairly traceable” 
to the defendant’s conduct rather than to “independent 
action of some third party not before the court”). 

We likewise do not agree with the court of appeals’ 
conclusion that state action exists here because respondent 
was the “target of the state’s action” of withholding payment 
from prime contractors. Pet. App. A67. Although this Court 
has left open the possibility that state action could be 

29 

established by a plaintiff who is indirectly affected when the 
government “act[s] against” a third party “for the purpose of 
punishing or restraining” the plaintiff, O’Bannon v. Town 
Court Nursing Ctr., 447 U.S. 773, 789 n.22 (1980), the 
operation of Section 1729 does not depend on such a purpose. 
The State’s withholding of payment from the prime con- 
tractor is justified by—and designed to redress—the prime 
contractor’s breach of its own obligation to ensure that its 
subcontractors comply; and the State’s withholding also 
serves to isolate project funds that can be used to com- 
pensate the underpaid workers on the project, without 
regard to whether those funds are withheld in the end only 
from the prime contractor or whether the prime contractor 
in turn withholds payments from the subcontractor. See Cal. 
Lab. Code § 1775(b)(2) (West Supp. 2000) (prime contractor 
obligated to monitor subcontractor’s compliance with pre- 
vailing wage law); id. § 1775(d) (withheld funds paid to un- 
dercompensated workers); p. 19, supra (prime contractor’s 
obligation to ensure payment). 

Nonetheless, there are two provisions of the California 
Labor Code that might now support a finding of state action. 
Although Section 1729 of the Labor Code does not require 
prime contractors to withhold payments from subcontractors 
—and nothing in the pre-1998 version of the California Labor 
Code appears to have done so either—an amendment to Sec- 
tion 1775 of that Code, effective January 1, 1998, suggests 
that California law in fact may require prime contractors to 
withhold payments from subcontractors under certain 
circumstances. In particular, the currently effective Section 
1775(b)(3) of the Labor Code states that, when a contractor 
becomes aware of a subcontractor’s failure to comply with 
prevailing-wage requirements, “the contractor shall dili- 
gently take corrective action to halt or rectify the failure, 
including, but not limited to, retaining sufficient funds due 
the subcontractor for work performed on the public works 
project.” Cal. Lab. Code 1775(b)(3) (West Supp. 2000) (em- 

30 

phasis added). In addition, a new Section 1775(c) provides 
that, if a subcontractor has not paid the prevailing wage and 
the contracting agency does not retain sufficient funds to pay 
those employees the balance of their wages, “the contractor 
shall withhold” from the subcontractor “an amount * * * 
sufficient to pay those employees the general prevailing rate 

* * * if requested by the Division of Labor Standards 
Enforcement.” Id. § 1775(c) (emphasis added). To the ex- 
tent those provisions are at issue here and compel prime 
contractors to withhold payments once the State notifies the 
prime contractor of a subcontractor’s noncompliance, we 
believe that state action is present. As this Court has 
explained, a State can be held responsible for a private deci- 
sion when it “has exercised coercive power or has provided 
such significant encouragement, either overt or covert, that 
the choice must in law be deemed to be that of the State.” 
Sullivan, 526 U.S. at 52 (quoting Blum v. Yaretsky, 457 U.S. 
991, 1004 (1982)). 

CONCLUSION 

The judgment of the court of appeals should be reversed. 
In the alternative, the Court may wish to vacate the 
judgment of the court of appeals and remand the case with 
directions to vacate the judgment of the district court and 
remand the case to that court with directions to dismiss the 
complaint for want of a basis for prospective equitable relief 
in light of the enactment of 2000 Cal. Legis. Serv. Ch. 954 
(A.B. 1646) (West), and the presence of uncertain questions 
of state law. 

Respectfully submitted. 

31 

SETH P. WAXMAN 

Solicitor General 
DAVID W. OGDEN 

Assistant Attorney General 
EDWIN S. KNEEDLER 

Deputy Solicitor General 
JEFFREY A. LAMKEN 

Assistant to the Solicitor 

General 
MARK B. STERN 
JACOB M. LEWIS 
DANIEL L. KAPLAN 

Attorneys 

DECEMBER 2000