Stuart Stein was employed as a bus driver by A.C.J. Transportation, Inc. ("ACJ") from 1979 to 1982. The exclusive business of ACJ was to provide bus transportation for handicapped children as directed by the New York City Board of Education.

By the terms of his written contract with ACJ, Stein could not be discharged from his employment except for just cause. A written agreement between ACJ and the Board of Education, however, provided that ACJ "shall only employ persons of good moral character to serve as vehicle operators." Certification that a vehicle operator had received appropriate training was a prerequisite to a driver operating on a Board of Education route. The agreement further provided that, after determination by the Director of the Bureau of Pupil Transportation that a driver's competency "falls below acceptable standards ... [ACJ], upon receiving written notice from the Director to that effect, shall not again employ this operator on any part of the work to be performed hereunder, or on any part of the work the contractor may perform for the Board of Education under any other contract."

In early April, 1982, the Chief of Staff at the Bureau of Pupil Transportation of the Board of Education ("Bureau") received anonymous telephone calls reporting that a school bus driver had fondled himself on the bus. The Bureau asked ACJ to investigate the complaints. On April 2, Anthony DiDomenico, the president of ACJ, reported to the Bureau that a chaperone1 who rode the bus with Stein had complained that Stein had exposed himself while driving the bus. The Bureau instructed DiDomenico not to allow Stein to drive on Board of Education routes until a hearing could be held. Accordingly, when Stein returned to the ACJ garage that evening after completing his route, he was informed that he would not be permitted to drive for ACJ in the future. No explanation was given.

On April 3, ACJ sent the Bureau a written report containing allegations by several female chaperones that Stein had made sexual advances to them. One of the chaperones, Maxine Brown, sent a letter to the Bureau alleging that Stein had brought women on the bus "who looked very much like prostitutes," and that Stein had asked Brown to buy marijuana for him. Alarmed by these reports, Leonard David, Director of Compliance for the Bureau, decided to conduct a hearing. David testified that he instructed a member of his staff to send a notice of hearing to ACJ, with a request that a copy of the notice be forwarded to Stein.

The only notice Stein received, however, was a handwritten note from David with the date and the time of the hearing, and verbal instructions from an employee of ACJ to appear at the hearing office of the Bureau on Monday, April 12, 1982.

Stein went to the April 12 meeting with his union representative. For the first time, Stein was shown the letters written by the chaperones, none of whom were present at the hearing. Stein submitted letters attesting to his good character. Nonetheless, the following day, David informed ACJ that Stein was barred from driving on Board of Education routes because he fell below the standards of "good moral character" required by the contract between the Board of Education and ACJ.

Shortly thereafter Stein was discharged by ACJ. He filed a grievance with his union, and the matter went to arbitration. Both sides submitted evidence, and the arbitrator declined to overturn the decision by ACJ to fire Stein.

On December 22, 1982, Stein brought an action in federal district court pursuant to 42 U.S.C. Sec. 1983, alleging a deprivation of due process because he did not receive adequate notice or a fair hearing before his disqualification by the Board of Education. Leonard David, the New York City Board of Education, ACJ and DiDomenico were named defendants. After a four-day jury trial, Judge Nickerson charged the jury that "Mr. Stein's job is protected by due process of law," rejecting defendants' request that the jury be instructed that in New York the decertification of a school bus driver is not a constitutionally protected property right. In addition, the district judge denied defense counsel's requested charges that Leonard David might be entitled to a good faith defense, and that the jury should award only nominal damages if it found that Stein would have been discharged by ACJ even if he had received adequate notice.

In response to four special interrogatories, the jury found Stein had not received adequate notice of the charges against him, but that defendants ACJ and DiDomenico did not conspire with the state to deprive Stein of his constitutional rights. Accordingly, it found only defendants Leonard David and the Board of Education liable for lost wages. Judgment was entered on January 24, 1986, awarding Stein $15,000 in compensatory damages plus attorneys' fees, and directing the Board of Education to hold a new hearing to determine whether Stein should be permitted to drive school buses on Board of Education routes. Leonard David and the Board of Education now appeal.

We turn first to the difficult question whether Stein's continued employment by ACJ is a protected property interest such that the state violated his procedural due process rights when it revoked his certification and caused his discharge. The district judge charged the jury that it was. For reasons which we present below, we agree.2

In Board of Regents of State Colleges v. Roth, 408 U.S. 564, 92 S. Ct. 2701, 33 L. Ed. 2d 548 (1972), the Supreme Court wrote:

To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it ...

Property interests, of course, are not created by the Constitution. Rather, they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law--rules or understandings that secure certain benefits and that support claims of entitlement to those benefits.

408 U.S. at 577, 92 S. Ct. at 2709.

In Roth, the Court held that a nontenured state university teacher holding a one-year appointment did not have a "liberty" or "property" interest in continued employment at the school. In the case before us, however, Stein's contract with ACJ provided that Stein would not be discharged except for "good cause." The "good cause" for the discharge was supplied by the state, which by disqualifying the employee foreclosed him from doing his job. Accordingly, Stein's "claim of entitlement" arose from his contract with ACJ.

We have previously noted that "liberty" or "property" protected by due process need not always flow from guaranty under state law or the Constitution. Huntley v. Community School Board of Brooklyn, 543 F.2d 979, 986 n. 8 (2d Cir.1976), cert. denied, 430 U.S. 929, 97 S. Ct. 1547, 51 L. Ed. 2d 773 (1977), appeal after remand, 579 F.2d 738 (2d Cir.1978). Where the independent source of a property interest is a private contract, the state cannot transgress on the claim of entitlement to continued employment without due process of law.3

We need not reach the broad question whether Stein's certification as a vehicle operator by the Board was itself a property interest protected by the constitutional safeguards of due process. Although certification of a driver to work on Board of Education routes might bear some comparison to licensing of professions by the state, see, e.g., Bell v. Burson, 402 U.S. 535, 539, 91 S. Ct. 1586, 1589, 29 L. Ed. 2d 90 (1971) (suspension of driver's license invokes procedural due process protections when it prevents pursuit of chosen employment); Keney v. Derbyshire, 718 F.2d 352, 354 (10th Cir.1983) (medical license is constitutionally protected property right); Herz v. Degnan, 648 F.2d 201, 208 (3d Cir.1981) (license to practice psychology is constitutionally protected property interest), our holding in this case rests on the narrower ground that Stein had a protected property interest in his continued employment with ACJ.

The New York case of Morales v. Board of Education, 125 Misc. 2d 310, 479 N.Y.S.2d 330 (Sup.Ct.Nassau Co.1984), comports with our holding. In Morales, a school district decertified a bus driver who worked for a private contractor. The plaintiff, however, continued to work for her employer and could have driven for other school districts with which the company contracted. Here, we hold that Stein's protected property interest lies in his continued employment by ACJ, not in the certification itself. The court's finding in Morales that the plaintiff suffered no deprivation of property because she was not discharged, therefore, does not conflict with our holding.

Having correctly determined that Stein had a protected property interest in his continued employment, the district judge instructed the jury that due process requires the state to provide adequate notice and a hearing before it expropriates the property of an individual. Accordingly, the jury found that Stein had not received adequate notice of the nature of the charges against him, and awarded Stein $15,000 in compensatory damages against Leonard David and the Board of Education. David contends, however, that the district judge erroneously refused to instruct the jury that they could assess no damages against David if they found him to have acted in good faith in his actions with respect to Stein. We disagree.

Qualified or "good-faith" immunity is an affirmative defense that shields government officials "from liability for civil damages insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known." Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S. Ct. 2727, 2738, 73 L. Ed. 2d 396 (1982). In Harlow, the Court held that in deciding a motion for summary judgment a judge may determine whether the law was clearly established at the time an action occurred, thereby measuring the objective reasonableness of an official's conduct. 457 U.S. at 818, 102 S.Ct. at 2738. To the extent it eliminated the subjective intent element from the good-faith immunity defense, Harlow implicitly overruled the Court's prior holding in Wood v. Strickland, 420 U.S. 308, 322, 95 S. Ct. 992, 1000, 43 L. Ed. 2d 214 reh'g denied, 421 U.S. 921, 95 S. Ct. 1589, 43 L. Ed. 2d 790 (1975) (good-faith immunity applies if an official "knew or reasonably should have known that the action he took within his sphere of official responsibility would violate the constitutional rights of the [plaintiff], or if he took the action with malicious intention to cause a deprivation of constitutional rights or other injury...." (emphasis added)). Accordingly, the Court rejected preliminary holdings that the good-faith immunity defense required a factual inquiry into whether an official harbored a subjective intent to violate a person's civil rights. See, e.g., O'Connor v. Donaldson, 422 U.S. 563, 577, 95 S. Ct. 2486, 2494, 45 L. Ed. 2d 396 (1975); Landrum v. Moats, 576 F.2d 1320 (8th Cir.1978), cert. denied, 439 U.S. 912, 99 S. Ct. 282, 58 L. Ed. 2d 258 (1978); Duchesne v. Sugarman, 566 F.2d 817, 832-33 (2d Cir.1977).

By omitting the subjective element of the test for "good-faith" immunity, the Supreme Court sought to minimize disruptive judicial inquiries into the motives of government officials exercising discretion in their duties. 457 U.S. at 816-17, 102 S. Ct. 2737-38. Accordingly, whether the law on a particular issue is clearly established is now a question of law to be determined by the court.

We find, however, that this issue was not properly raised in the district court. In their motion for summary judgment before trial, appellants argued only that David was protected by the doctrine of absolute immunity in his role as a hearing officer--an argument that was rejected by the trial judge and is not raised on appeal. After presentation of all the evidence at trial, appellants requested the judge charge the jury on the good-faith immunity defense. As we have already noted, however, this issue is not appropriate for a jury determination, and the district judge correctly declined to include it in the jury instructions.4 David therefore waived his right to raise the good-faith immunity defense.

We now turn to the final issue on appeal, whether the district judge erred by refusing to instruct the jury that only nominal damages were appropriate if they found Stein would have been discharged by ACJ even if he had received proper notice from the school board.

In Carey v. Piphus, 435 U.S. 247, 98 S. Ct. 1042, 55 L. Ed. 2d 252 (1978), the Supreme Court held that students who had been suspended from school without a hearing could receive only nominal damages if the jury found they would have been suspended even if their procedural due process rights had not been violated. The Court stated that a damage award for the suspensions where the failure to accord procedural due process was not the cause of the suspensions would be a windfall to the plaintiffs. 435 U.S. at 260, 98 S.Ct. at 1050. Acknowledging that mental and emotional distress caused by a denial of due process is compensable pursuant to Sec. 1983, the Court held that proof of such injury nonetheless had to be shown to justify an award of damages. 435 U.S. at 264, 98 S.Ct. at 1052.

Here, the special verdict delivered by the jury clearly indicated that $15,000 was awarded to Stein to compensate for lost wages because the Board of Education and Leonard David failed to give Stein adequate notice. The jury did not, nor were they instructed to, determine whether Stein would have been discharged by ACJ regardless of the actions of the state. We recognize that such a determination may involve the taking of additional evidence and create a further imposition on the district court. Nonetheless, we think the Supreme Court's directive in Carey is clear and unequivocal. See Huntley v. Community School Board, 579 F.2d at 740. The district judge, therefore, should have instructed the jury to award only nominal damages if it found Stein would have been discharged by ACJ even had he received adequate notice of his disqualification proceeding from the state.

Accordingly, the judgment is reversed and the case remanded to the district court for proceedings consistent with this opinion.5