The relevant question in a state action inquiry is not simply whether a private group is serving a "public function." The question is whether the function performed has been traditionally the exclusive prerogative of the state. That a private entity performs a function which serves the public does not make its acts state action.
Certain employees were discharged from a private school which specializes in dealing with troubled high school students referred to it by public school officials or by a state drug rehabilitation agency. Public funds account for at least 90 percent of the school's operating budget. The school has contracts with public school committees and with the state agency, and is subject to both state and local regulations. One of the discharged employees filed suit under 42 USCS 1983 in the United States District Court for the District of Massachusetts, alleging that she had been discharged in violation of her constitutional rights. The District Court granted the school's motion for summary judgment, holding that the action of the school in discharging the employee could not be considered state action for purposes of 1983. Five other discharged employees brought a separate suit under 1983. In that suit a different judge of the same District Court held that the school had acted under color of state law, denied a motion to dismiss, and certified its order as immediately appealable pursuant to 28 USCS 1292(b). The United States Court of Appeals for the First Circuit, consolidating the two actions, held that the District Court, in the action brought by the five employees, had erred in concluding that the school had acted under color of state law. The Court of Appeals affirmed the District Court's dismissal of the first employee's action, rejecting her claim that she was discharged under color of state law.
Can a private school, with income derived primarily from public sources and regulated by public authorities, discharge certain employees without complying with the First and Fourteenth Amendment?
The Court determined that the school's actions were not "fairly attributable to the state" and that, therefore, the employees did not have a cognizable § 1983 action. The Court found that the school was like a private contractor dependent upon government contracts and that acts of such private contractors did not become acts of the government by reason of their significant or total engagement in performing public contracts. The Court also found that the personnel regulation of the school by the state was not sufficient to make a decision to discharge state action.