TAMATHA HENNESSEY v. UNIVERSITY OF KANSAS HOSPITAL AUTHORITY
No. 22-3000
UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT
November 9, 2022
Appellate Case: 22-3000 Document: 010110766276 PUBLISH FILED Christopher M. Wolpert Clerk of Court
TAMATHA HENNESSEY, Plaintiff - Appellant, v. UNIVERSITY OF KANSAS HOSPITAL AUTHORITY, Defendant - Appellee.
Appeal from the United States District Court for the District of Kansas (D.C. No. 2:21-CV-02231-EFM-TJJ)
Mary Beth Beasley and April Fortner, University of Colorado Law School Appellate Advocacy Practicum (Matthew Cushing on the briefs), Boulder, Colorado, for Plaintiff – Appellant.
J. Wesley Smith, Simpson, Logback, Lynch, Norris, P.A. (Trevin E. Wray with him on the brief), Overland Park, Kansas, for Defendant – Appellee.
Before BACHARACH, McHUGH, and MORITZ, Circuit Judges.
Tamatha Hennessey alleges a radiology technician sexually assaulted her during her visit to the University of Kansas hospital for emergency medical care. Proceeding pro se, Ms. Hennessey brought a civil action for negligent supervision against the University of Kansas Hospital Authority (“UKHA“), which oversees operation of the hospital. UKHA moved to dismiss the action, arguing Ms. Hennessey failed to plead facts supporting subject matter/diversity jurisdiction and that it is entitled to sovereign immunity. UKHA premised both arguments on it being an arm of the state of Kansas and therefore entitled to the same immunities as the state. But UKHA failed to support its motion with any evidence demonstrating it is an arm of the state or any analysis of the factors governing whether a state-created entity is an arm of the state. The district court, relying on the statutory scheme creating UKHA,
Ms. Hennessey appeals, raising three arguments: (1) a procedural argument that the burden is on UKHA to demonstrate it is an arm of the state and it failed to meet this burden by not presenting any evidence and not arguing the factors governing the arm-of-the-state analysis; (2) a substantive argument that, regardless of the burden, the University of Kansas Hospital Authority Act supports the conclusion that UKHA is not an arm of the state; and (3) a
We now join every other circuit to consider the issue and hold the burden falls on the entity asserting it is an arm of the state. UKHA did not meet its burden. Furthermore, while our precedent permits a district court to raise the arm-of-the-state issue sua sponte, the district court erred in concluding that UKHA is not autonomous under the language of the University of Kansas Hospital Authority Act. Accordingly, we vacate the district court‘s order granting UKHA‘s motion to dismiss and remand for further proceedings.
I. BACKGROUND
A. Factual Allegations
Ms. Hennessey alleges the following facts in her pro se complaint.1 See Moore v. Guthrie, 438 F.3d 1036, 1039 (10th Cir. 2006) (“[A]ll well-pleaded factual allegations in the complaint are accepted as true and viewed in the light most favorable to the nonmoving party.” (quotation marks and ellipsis omitted)).
After suffering from right shoulder and left jaw pain for a few weeks, Ms. Hennessey sought treatment at the University of Kansas Hospital Emergency Room. A nurse ordered an MRI and CT scan. Jonathan McIntire, a radiology technician, was assigned to perform the tests. Mr. McIntire took Ms. Hennessey to a radiology room in a new part of the hospital far removed from the ER. Once there, Mr. McIntire instructed Ms. Hennessey to change into a different hospital gown and then strapped Ms. Hennessey‘s arms and legs to the MRI board. Mr. McIntire commenced the MRI.
During the MRI, Ms. Hennessey fell asleep, possibly from Ativan medication administered by ER staff. Ms. Hennessey awoke to Mr. McIntire “pinching her nipples.” ROA at 12. Mr. McIntire then “groped one breast” and “put his mouth over [Ms. Hennessey‘s] breasts.” Id. at 13.
It was not until four hours after the nurse ordered the MRI and CT scan that Mr. McIntire completed the tests and returned Ms. Hennessey to the ER. Ms. Hennessey contends a radiology technician could complete the tests in an hour and alleges hospital personnel were unaware she was out of the ER for a longer period than necessary to complete the tests.
B. Procedural History
Ms. Hennessey, through counsel, initially filed a civil suit in a Wyandotte County, Kansas district court, naming UKHA and Mr. McIntire as defendants. UKHA moved for judgment on the pleadings, raising various immunity and failure-to-state-a-claim defenses. Before the state district court ruled on the motion, Ms. Hennessey and UKHA stipulated to the voluntary dismissal of the action without prejudice.
Proceeding pro se, Ms. Hennessey turned to federal court, filing the action underlying this appeal in the United States District Court for the District of Kansas.2
Supported by a three-page memorandum of law, UKHA moved to dismiss for lack of subject matter jurisdiction and based on sovereign immunity. In pertinent part, the memorandum of law read:
While the Petition generally states that Plaintiff is a citizen of Missouri, she does not explicitly assert diversity jurisdiction. If she did assert diversity jurisdiction, however, sovereign immunity would similarly prevent the Court from allowing the case to proceed. The University of Kansas Hospital Authority is an instrumentality of the State of Kansas, and Eleventh Amendment immunity would prohibit a federal exercise of personal jurisdiction as to this Defendant. See
K.S.A. 76-3304(a) ; Perkins v. Univ. of Kan. Med. Ctr., 2014 U.S. Dist. LEXIS 47491, *9-10 (D. Kan. Apr. 7, 2014), citing Ellis v. University of Kansas Medical Center, 163 F.3d 1186, 1196 (10th Cir. 1998).
Id. at 26–27. UKHA neither submitted any evidence in support of its motion nor identified or analyzed the factors governing whether an entity is an arm of the state. Ms. Hennessey responded to UKHA‘s motion to dismiss by arguing she (1) pleaded the elements of diversity jurisdiction by identifying the state of residence of each party and (2) could overcome sovereign immunity because UKHA was a corporate entity and a political subdivision of the state. Ms. Hennessey, however, did not request any discovery on the arm-of-the-state issue underlying UKHA‘s subject matter jurisdiction and sovereign immunity defenses.
UKHA filed a reply. On the issue of subject matter jurisdiction, UKHA contended it was an instrumentality and arm of the state such that it was therefore not a citizen of any state for purposes of diversity jurisdiction. But, once again, UKHA provided no factual support and no real analysis on this point, stating only:
Plaintiff argues she invoked the jurisdiction of the United States District Court based upon diversity of citizenship as provided for in
28 U.S.C. § 1332 . “To sustain diversity jurisdiction there must exist an ‘actual‘, ‘substantial‘, controversy between citizens of different states from all parties on the other side.” City of Indianapolis v. Chase Nat‘l Bank of City of N.Y., 314 U.S. 63, 69 (1941). First and foremost, a state is not a citizen for purposes of diversity jurisdiction. Moor v. Cty. of Alameda, 411 U.S. 693, 717, 93 S. Ct. 1785, 1800 (1973). Defendant University of Kansas Hospital Authority is an instrumentality of the State of Kansas; therefore, it is not a citizen of the State for diversity purposes. See Wilkins v. Kan. Dep‘t of Labor, No. 6:12-CV-01363-JAR-KMH, 2013 U.S. Dist. LEXIS 19912, at *5 (D. Kan. Feb. 14, 2013); Perkins v. Univ. of Kan. Med. Ctr., No. 13-2530-JTM, 2014 U.S. Dist. LEXIS 47491, at *6 (D. Kan. Apr. 7, 2014). Therefore, this Court lacks diversity jurisdiction over Plaintiff‘s claims.
Id. at 89. As to sovereign immunity, UKHA argued (1) entities created by and serving as alter egos of the state are entitled to sovereign immunity; and (2) it had not waived its right to sovereign immunity. UKHA supported the former argument with the following passage:
The University of Kansas Hospital Authority . . . was created by the University of Kansas Hospital Act . . . in 1998.
K.S.A. 76-3304(a) . The act established the Authority as “a body politic and corporate, with corporate succession” whose exercise of rights, powers, and privileges are “deemed and held to be the performance of an essential government function.” Id. A nineteen-member board of directors, thirteen of which are appointed by the governor and subject to confirmation by the senate, governs the Authority.K.S.A. 77-3304(b) . Additionally, the Act grants the Authority the “duties, privileges, immunities, rights, liabilities, and disabilities of a body corporate and a political instrumentality of the state.”K.S.A 77-3308(a)(1) . Therefore, the immunity to suit in federal court granted to the State of Kansas by the Eleventh Amendment to the United States Constitution has been bestowed upon the Authority.
Id. at 90.
The district court undertook the heavy lifting that UKHA did not undertake in its motion to dismiss. The district court began by identifying the four factors from Steadfast Ins. Co. v. Agriculture Ins. Co., 507 F.3d 1250, 1253 (10th Cir. 2007), that govern the initial inquiry in the arm-of-the-state analysis—(1) state law characterization of the entity, (2) the entity‘s autonomy from the state, (3) the entity‘s finances and financial independence from the state, and (4) whether the entity addresses matters of local or state-wide concern. Although recognizing UKHA failed to present any evidence, the district court attempted to sua sponte analyze the four Steadfast factors by turning to the language of the University of Kansas Hospital Authority Act. The district court concluded the Act characterized UKHA as an arm of the state, entitled to the “privileges” and “immunities” of a “body corporate and a political instrumentality of the state.” Id. at 112 (quoting
On appeal, Ms. Hennessey is now represented by the University of Colorado Law
II. DISCUSSION
We start by providing the standard of review. Then we discuss sovereign immunity and the analytical framework and factors governing the arm-of-the-state analysis. Next, we consider the legal question of whether a plaintiff or the entity asserting it is an arm of the state has the burden of proof relative to the arm-of-the-state factors. Finally, after concluding this burden falls on the entity asserting it is an arm of the state, we assess whether UKHA met its burden.
A. Standard of Review
We review a district court‘s grant of a motion to dismiss de novo. Albers v. Bd. of Cnty. Comm’rs, 771 F.3d 697, 700 (10th Cir. 2014). Specific to a dismissal for lack of subject matter jurisdiction pursuant to
B. Sovereign Immunity and Legal Framework for Arm-of-the-State Analysis
The Eleventh Amendment states that “[t]he Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State.”
“In terms of scope, Eleventh Amendment immunity extends to states and state entities but not to counties, municipalities, or other local government entities.” Steadfast Ins. Co., 507 F.3d at 1253; see also Sturdevant v. Paulsen, 218 F.3d 1160, 1164 (10th Cir. 2000) (“[T]he arm-of-the-state doctrine bestows immunity on entities created by state governments that operate as alter egos or instrumentalities of the states.” (quotation marks omitted)). “If a state entity is more like a political subdivision—such as a county or city—
In assessing whether an entity is an arm of the state, we employ a two-step process. Duke, 127 F.3d at 978; see also Hess v. Port Auth. Trans-Hudson Corp., 513 U.S. 30, 47 (1994) (“When indicators of immunity point in different directions, the Eleventh Amendment‘s twin reasons for being remain our prime guide.“).3 As an initial, sometimes dispositive, step, we evaluate four “primary factors“:
First, we assess the character ascribed to the entity under state law. Simply stated, we conduct a formalistic survey of state law to ascertain whether the entity is identified as an agency of the state. Second, we consider the autonomy accorded the entity under state law. This determination hinges upon the degree of control the state exercises over the entity. Third, we study the entity‘s finances. Here, we look to the amount of state funding the entity receives and consider whether the entity has the ability to issue bonds or levy taxes on its own behalf. Fourth, we ask whether the entity in question is concerned primarily with local or state affairs. In answering this question, we examine the agency‘s function, composition, and purpose.
Steadfast Ins. Co., 507 F.3d at 1253 (double emphasis added).
If these factors are in conflict and point in different directions, a court should proceed to the second step and consider the “twin reasons” underlying the Eleventh Amendment—avoiding an afront to the dignity of the state and the impact of a judgment on the state treasury. Duke, 127 F.3d at 978 (quoting Hess, 513 U.S. at 47); see also Fresenius Med. Care Cardiovascular Res., Inc. v. Puerto Rico & Caribbean Cardiovascular Ctr. Corp., 322 F.3d 56, 65 (1st Cir. 2003) (“If the structural indicators point in different directions, then the second stage of analysis comes into play.“). Of these twin reasons, the “foremost” reason for sovereign immunity is avoiding state liability for any judgment against the entity. U.S. ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702, 718 (10th Cir. 2006), abrogated on other grounds by Cochise Consultancy, Inc. v. U.S. ex rel. Hunt, 139 S. Ct. 1507, 1511 n.* (2019); see also Fresenius Med. Care Cardiovascular Res., Inc., 322 F.3d at 66 (“[T]he circuits almost uniformly find that, when there is an ambiguity about the direction in which the structural analysis points, the potential payment from the state treasury is the most critical factor in determining whether an entity is operating as an arm of the state.” (citing 17A J.W. Moore, Moore‘s Federal Practice § 123.23(4)(b), a 123–60 & n.51 (3d ed. 2000))); Duke, 127 F.3d at 974 (“The Supreme Court has indicated more recently that ‘the vulnerability of the State‘s purse is the most salient factor in Eleventh Amendment determinations‘” (brackets omitted) (quoting Hess, 513 U.S. at 48)).
The focus of this judgment liability issue is on direct legal liability and not on any indirect or practical loss of funds to the state. Sikkenga, 472 F.3d at 718; see also Duke, 127 F.3d at 981 (“We interpret Doe to require us to focus on legal liability for a judgment, rather than practical, or indirect, impact a judgment would have on a state‘s treasury.” (citing Doe, 519 U.S. at 429–30)). While focusing on legal liability rather than practical effect may “ignore[] economic reality,” it “provides a clear and workable test in this very confused area of the law. It directs courts away from having to make case-by-case fact-specific determinations of the practical impact on state treasuries.” Duke, 127 F.3d at 981. “Where it is clear that the state treasury is not at risk, then the control exercised by the state over the entity does not entitle the entity to Eleventh Amendment immunity.” Fresenius Med. Care Cardiovascular Res., Inc., 322 F.3d at 65.
As to the dignity of the state, a court must remember that where “the state has not clearly demarcated the entity as sharing its sovereignty, there is great reason for caution” because “[i]t would be every bit as much an affront to the state‘s dignity and fiscal interests were a federal court to find erroneously that an entity was an arm of the state, when the state did not structure the entity to share its sovereignty.” Id. at 63. To this point, “[n]ot all entities created by states are meant to share state sovereignty. Some entities may be part of an effort at privatization, representing an assessment by the state that the private sector may perform a function better than the state.” Id. at 64. In fact, incorrectly designating an entity as an arm of the state may have negative consequences on the state‘s goal of creating an entity with better commercial and employee hiring bargaining power based on its independent structure. Id.
C. Burden on Entity Asserting Arm-of-the-State Status
Before analyzing whether UKHA is an arm of the state, it is necessary to determine whether Ms. Hennessey or UKHA bore the burden on this matter. This question is a matter of first impression for our circuit. See Patterson v. Rural Water Dist. 2, 438 F. Supp. 3d 1258, 1268 (W.D. Okla. 2020) (“Neither the Supreme Court nor the Tenth Circuit has decided who carries the burden of persuasion regarding Eleventh Amendment immunity.“); see also Ross v. Colo. Dep‘t of Transp., No. 11-cv-02603-REB-KMT, 2012 WL 5975086, at *5 (D. Colo. Nov. 14, 2012). Other circuits, however, unanimously agree that the burden falls on the entity asserting it is an arm of the state when the issue arises solely in the context of sovereign immunity.4 See Woods v. Rondout Valley Central Sch. Dist. Bd. of Educ., 466 F.3d 232, 237 (2d Cir. 2006)
(collecting cases from Third, Fifth, Sixth, Seventh, and Ninth Circuits and stating, “[w]e now join these sister courts in holding that the governmental entity invoking the Eleventh Amendment bears the burden of demonstrating that it qualifies as an arm of the state entitled to share in its immunity“); Fresenius Med. Care Cardiovascular Res., Inc. v. Puerto Rico & Caribbean Cardiovascular Ctr. Corp., 322 F.3d 56, 61 (1st Cir. 2003) (“[T]he entity asserting Eleventh Amendment immunity[] bears the burden of showing it is an arm of the state.“). For four reasons, we adopt the position advanced by this persuasive authority.
First, we have described sovereign immunity as a “defense” that a state or a state-formed entity may assert. Steadfast Ins. Co., 507 F.3d at 1252. Although some exceptions exist, the defendant typically bears the burden when asserting a defense.
Second, in assigning the burden, we are cognizant of which party possesses the evidence on the issue. As stated by the Ninth Circuit when assigning the burden to the entity asserting arm-of-the-state status, it is a “familiar principle that, ‘when the true facts relating to a disputed issue lie peculiarly within the knowledge of one party, the burden of proof may properly be assigned to that party ‘in the interest of fairness.‘” ITSI T.V. Prods., Inc. v. Agric. Assocs., 3 F.3d 1289, 1292 (9th Cir. 1993) (brackets omitted) (quoting United States v. Hayes, 369 F.2d 671, 676 (9th Cir. 1966)). Here, while the text of the University of Kansas Hospital Authority Act is readily available to a would-be plaintiff, UKHA is in possession of key evidence regarding its finances, day-to-day operations, and operating procedures. Accordingly, it makes sense to assign the burden to UKHA.5
Third, placing the burden on the party asserting sovereign immunity indirectly advances one of the primary purposes of sovereign immunity. “Sovereign immunity does not merely constitute a defense to monetary liability or even to all types of liability. Rather, it provides an immunity from suit.” Fed. Maritime Commʼn v. S.C. State Ports Auth., 535 U.S. 743, 766 (2002). If the burden is placed on the plaintiff to rebut a blanket and cursory assertion of sovereign immunity like the
Fourth, assigning the burden to the entity asserting it is an arm of the state is consistent with our precedent assigning the burden in a similar sovereign immunity context. Within the context of the Foreign Sovereign Immunities Act (“FSIA“) and the right of a foreign sovereign to assert immunity from suit, we have held the foreign sovereign bears the initial burden of making a prima facie showing of immunity, and a burden of rebutting evidence presented by a plaintiff to overcome that prima facie showing. Southway v. Cent. Bank of Nigeria, 328 F.3d 1267, 1271 (10th Cir. 2003). Indeed, other courts have found the assignment of the burden in the foreign sovereign immunity context instructive when placing the burden on the entity asserting sovereign immunity under the Eleventh Amendment. Woods, 466 F.3d at 238; ITSI T.V. Prods., Inc., 3 F.3d at 1292.
For these four reasons, and given the weight of persuasive authority, we conclude the burden falls on UKHA to establish it is an arm of the state and, therefore, entitled to sovereign immunity. In concluding the burden in this case falls on UKHA, we recognize but dispel two countervailing points.
First, our precedent allows a district court to raise Eleventh Amendment sovereign immunity sua sponte. U.S. ex rel. Burlbaw v. Orenduff, 548 F.3d 931, 942 (10th Cir. 2008);
see also Colby v. Herrick, 849 F.3d 1273, 1276–78 (10th Cir. 2017) (raising arm-of-the-state issue within sovereign immunity sua sponte); Elam Const., Inc. v. Reg. Transp. Dist., 129 F.3d 1343, 1345 (10th Cir. 1997) (raising sovereign immunity sua sponte where defendant contended it was an arm of the state and not a citizen for purposes of
Second, an arm-of-the-state determination not only implicates sovereign immunity but may also impact whether the district court has subject matter jurisdiction over the cause of action. Ms. Hennessey, in advancing only a state law
It is well established that “[i]t is incumbent upon the plaintiff properly to allege the jurisdictional facts, according to the nature of the case.” McNutt v. Gen. Motors Acceptance Corp. of Ind., Inc., 298 U.S. 178, 182 (1936). This includes the “party invoking diversity jurisdiction bear[ing] the burden of proving its existence.” Middleton v. Stephenson, 749 F.3d 1197, 1200 (10th Cir. 2014). From this, one might conclude that even though the burden is on UKHA to prove it is an arm of the state for purposes of sovereign immunity, the burden is on Ms. Hennessey to establish UKHA is not an arm of the state for purposes of subject matter jurisdiction. But the burden on the plaintiff to establish jurisdiction does not extend this far. Rather, once the plaintiff sufficiently alleges and adequately supports that an entity was created in and principally operates within a state, the plaintiff has met her burden and the burden shifts to the entity to demonstrate it is an arm of the state. We reach this conclusion in part because, like in the sovereign immunity context, it is the defendant, not the plaintiff, that possesses the evidence essential to the arm-of-the-state inquiry. Cf. ITSI T.V. Prods., Inc., 3 F.3d at 1292. Furthermore, although the Supreme Court has stated sovereign immunity “partakes of the nature of a jurisdictional bar,” Welch v. Tex. Dep‘t of Highways & Pub. Transp., 483 U.S. 468, 476 n.6 (1987) (quoting Edelman v. Jordan, 415 U.S. 651, 678 (1974)), courts have already shifted the burden to the defendant on the arm-of-the-state inquiry in the sovereign immunity context such that it is natural to also do so where the identical inquiry impacts the diversity-of-citizenship basis for subject matter jurisdiction. Finally, placing a burden on the entity claiming arm-of-the-state status is similar to the placement of burdens in the foreign sovereign context, where the FSIA provides the “exclusive source of jurisdiction for claims against foreign states or their instrumentalities,” but the ““foreign state [must] make[] a prima facie showing of immunity” and may be required to “meet its ultimate burden of proving that [an exception allowing for suit] does not apply.” Southway, 328 F.3d at 1271 (quoting Gen. Elec. Capital Corp. v. Grossman, 991 F.2d 1376, 1382 (8th Cir. 1993)). For these reasons, we conclude the burden is on the entity asserting it is an arm of the state, both for purposes of sovereign immunity and for purposes of an attack on a
prima facie showing of diversity jurisdiction. We now turn to whether UKHA met its burden.
D. UKHA did not Meet its Burden and Remand is Required
Review of UKHA‘s memorandum in support of its motion to dismiss and its reply brief on its motion to dismiss clearly demonstrates UKHA did not even attempt to meet its burden. Neither document so
Under the framework discussed earlier, a district court may sua sponte raise and resolve the arm-of-the-state inquiry only where judicially noticeable evidence clearly resolves the inquiry. This is not such a case. While the Act may provide a sufficient basis to resolve two of the Steadfast factors—the state‘s characterization of UKHA and UKHA‘s focus on matters of state-wide concern—in favor of UKHA being an arm of the state, it does not support such a conclusion on the finances factor or, as we discuss later, the autonomy factor. Accordingly, we assume the state‘s characterization of UKHA and UKHA‘s focus on state-wide concerns support the district court‘s decision and address only the Steadfast factors we conclude weigh against the district court‘s ruling.
- Finances Factor
In considering the finances factor a court must look to “the amount of state funding the entity receives and consider whether the entity has the ability to issue bonds or levy taxes on its own behalf.” Steadfast Ins. Co., 507 F.3d at 1253; see also Sikkenga, 472 F.3d at 721 (considering whether the bulk of an entity‘s operating funds come from its own revenues or from the state). The inability of an entity to levy taxes, combined with its receipt of all or most of its funding from the state, will serve as a strong indicator that the entity is an arm of the state. Duke, 127 F.3d at 980. Likewise, if an entity cannot levy taxes and its ability to issue bonds is subject to state review or state procedures, this is also an indicator that the entity is an arm of the state. Sturdevant, 218 F.3d at 1170. Conversely, an entity‘s ability to generate its own revenue so as not to need financial assistance from the state supports a finding that the entity is not an arm of the state. Hess, 513 U.S. at 45. Finally, we consider the existence, or lack thereof, of regulations on how an entity may handle its finances and whether the entity‘s funds are “classified as ‘public funds.‘” Steadfast Ins. Co., 507 F.3d at 1254 (quoting
Without evidence of UKHA‘s financing and revenue streams we are unable to fully assess the factor. But what we do know from the text of the University of Kansas Hospital Authority Act supports the conclusion that UKHA is not an arm of the state. The “Findings, purpose” provision of the Act indicates the hospital needed to have a means of earning revenues necessary for operation so as “to remain economically viable to earn revenues necessary for its operation and to engage in arrangements with public and private entities” and to compete with private healthcare providers.
The Act also gives UKHA wide authority to open and maintain bank accounts. For instance, the Act, when describing UKHA‘s powers and duties, instructs that UKHA has the power to “deposit moneys
all moneys of [UKHA] shall be deposited in one or more bank or trust companies in one or more special accounts. All banks and trust companies are authorized to give security for such deposits if required by [UKHA]. The moneys in such accounts shall be paid out on a warrant or other orders of the treasurer of [UKHA] or any such other person or persons as [UKHA] may authorize to execute such warrants or orders.
Evidencing the rather obvious fact that UKHA generates revenues, the Act authorizes UKHA to hire one or more “collection services provider[s].”
Even if UKHA‘s ability to generate revenues and control those monies was insufficient for the finance factor to counsel against an arm-of-the-state finding, UKHA additionally has seemingly unconstrained authority to issue bonds. An entire section of the University of Kansas Hospital Authority Act addresses the issuance of bonds, with the lead provision stating that UKHA
has the power and is authorized to issue from time to time [UKHA‘s] bonds in such principal amounts as the authority determines to be necessary to provide sufficient funds for achieving any of [UKHA‘s] corporate purposes, including the payment of interest on bonds of [UKHA], the establishment of reserves to secure such bonds, refunding any outstanding bonds and all other expenditures of [UKHA] incident to and necessary or convenient to carry out its corporate purposes and powers.
It is also abundantly clear that any bond issued by UKHA is the sole responsibility of UKHA and not backed by the State of Kansas. Specifically, a provision of the Act says that “every issue of [UKHA‘s] bonds shall be obligations of [UKHA] payable out of any revenues or moneys of [UKHA].”
Against this weighty and voluminous evidence that UKHA generates revenue, controls its own finances, and can issue bonds, UKHA presents two less persuasive arguments. First, UKHA argues its financial structure supports an arm-of-the-state finding because it cannot levy taxes. But, under our precedent, an entity‘s inability to levy taxes is emblematic of it being an arm of the state only if the entity also cannot issue bonds without state oversight and cannot generate its own revenue. Sturdevant, 218 F.3d at 1169-1170; Duke, 127 F.3d at 980. Accordingly, UKHA‘s inability to levy taxes is of minimal weight in the calculus.
Second, UKHA notes it is subject to reporting and review requirements. It is true that an entity being subject to reporting and auditing requirements favors an arm-of-the-state finding. Steadfast Ins. Co., 507 F.3d at 1254-55. And the Act does require UKHA to submit financial information for review to various state actors, in that UKHA
shall submit to the regents, the governor and the legislature within six months after the end of the fiscal year a report which shall set forth a complete and detailed operating and financial statement of [UKHA] during such year. Also included in the report shall be comprehensive information regarding all audit reports performed in such year.
Thus, without any evidence in the record demonstrating UKHA receives subsidies, not to be confused with revenue streams, from the State of Kansas, the finances factor cuts against UKHA being an arm of the state.7 This conclusion alone is sufficient
- UKHA‘s Reliance on Sturdevant is Misplaced
To overcome this conclusion, UKHA attempts to rely upon Sturdevant. There, we indicated a court may conclude an entity is an arm of the state where there is ambiguity regarding the entity‘s legal liability for judgment but other factors all favor an arm-of-the-state conclusion. Sturdevant, 218 F.3d at 1166, 1171. Three things distinguish the present case from Sturdevant. First, as discussed, the text of the University of Hospital Kansas Authority Act supports the conclusion that the finances factor favors a finding that UKHA is not an arm of the state.
Second, even if one were to determine the factor was neutral, such a conclusion would still require remand. From an evidentiary standpoint, in Sturdevant, the ambiguity regarding the liability for any judgment arose from the presentation of conflicting evidence, not from the absence of evidence. Id. at 1165-66. Thus, the entity asserting it was an arm of the state attempted to meet its burden. Here, there is no reason to conclude ambiguity exists regarding UKHA‘s finances where UKHA merely failed to present any evidence on the subject.8
Third, and most problematic for UKHA‘s reliance on Sturdevant, exercising de novo review, we are unable to concur with the district court‘s assessment that, based exclusively on the language of the University of Kansas Hospital Authority Act, the autonomy factor favors UKHA being an arm of the state. We begin by providing a brief overview of how to approach the autonomy factor. We then apply that analysis, relying on six considerations apparent from the text of the Act.9
- Autonomy factor basics
The autonomy factor is the most complex of the four factors because it spans a broad range of considerations. In analyzing this factor, a court must remain cognizant that some ties and oversight will always remain between the state and an entity created by the state. Takle v. Univ. of Wis. Hosp. & Clinics Auth., 402 F.3d 768, 771 (7th Cir. 2005). This is true even where it was the state‘s intent to privatize an entity. See id. To this point, the Seventh Circuit, when considering a very similar set of circumstances as those underlying the formation and operation of UKHA, pointedly opined,
[t]he strings that tie the hospital to the state are found in many cases in which a state decides to privatize a formerly state function. They do not require the privatization be treated as a farce in which the privatized entity enjoys the benefits both of not being the state and so being freed from the regulations that constrain state agencies, and of being the state and so being immune from suit in federal court.
- Autonomy factor considerations
- Control of entity by governor & legislature
Turning to specifics, a common consideration in analyzing the autonomy factor is the role the state executive branch, specifically the governor, and the state legislature play in the operations of the entity. See id. at 770; see also Steadfast Ins. Co., 507 F.3d at 1254; Fresenius Med. Care Cardiovascular Res., Inc., 322 F.3d at 71-72; Sturdevant, 218 F.3d at 1168-69. In many cases involving entities asserting arm-of-the-state status, the governor and legislature respectively appoint and confirm members of the board that oversees the entity, and this structure weighs against the entity‘s autonomy from the state. Steadfast Ins. Co., 507 F.3d at 1254; Fresenius Med. Care Cardiovascular Res., Inc., 322 F.3d at 71-72; Sturdevant, 218 F.3d at 1169. However, “the power to appoint is not the power to control.” Takle, 402 F.3d at 770. As such, this is but one consideration and a governor‘s appointment power is not sufficient to establish that the autonomy factor favors an arm-of-the-state finding. Fresenius Med. Care Cardiovascular Res., Inc., 322 F.3d at 71. Rather, courts also look at (1) the ability of the governor to remove appointees, Steadfast Ins. Co., 507 F.3d at 1254; Fresenius Med. Care Cardiovascular Res., Inc., 322 F.3d at 71; and (2) the governor‘s power to block or veto action taken by the board of the entity, Hess, 513 U.S. at 44; Fresenius Med. Care Cardiovascular Res., Inc., 322 F.3d at 72.
While the district court concluded this consideration favored UKHA not being autonomous from the state, we conclude the consideration produces mixed results that favor a finding of autonomy. The board governing UKHA is composed of nineteen members, of which thirteen were appointed by the governor and confirmed by the legislature at UKHA‘s inception.
- Classification of employees
Another common consideration within the autonomy factor is how employees of the entity are classified, including whether they are “state” employees, whether they must partake in state retirement and benefit programs, and whether they are subject to a state merit system for purposes of hiring.10 Steadfast Ins. Co., 507 F.3d at 1254; see also Takle, 402 F.3d at 771 (noting that employees remained “state employees” but not counting this consideration significantly against autonomy where the structure was established only to permit employees to take part in retirement system); cf. Fresenius Med. Care Cardiovascular Res., Inc., 322 F.3d at 64 (hypothesizing that entity might gain advantage in employment market if it is not an arm of the state and subject to state regulations and systems on hiring and firing of employees and benefits). This consideration favors a finding of autonomy.
In multiple places, the University of Kansas Hospital Authority Act explicitly declares that employees of the hospital and UKHA “shall not be considered state employees” both for purposes of the Act and for purposes of any other state law or regulation.
may employ such employees as it may require and upon such terms and conditions as it may establish. [UKHA] shall establish personnel, payroll, benefit and other such systems as authorized by the board . . .. [UKHA] shall determine the qualifications and duties of its employees subject to any statutes concerning licensure, certification or registration under state law. The board shall develop and adopt policies and procedures that will afford its employees grievance rights, ensure that employment decisions shall be based upon merit and fitness or applicants and shall prohibit discrimination because of race, religion, color, sex, or national origin.
The Act‘s classification and parameters for UKHA hiring and managing employees have all the hallmarks of UKHA being autonomous. And, through its brief on appeal, UKHA does not identify a single provision of the Act contradicting this conclusion. Nor have we located any such provision. Accordingly, consideration of the classification of employees strongly favors a finding of autonomy.
- Ownership & control of property
A third consideration in the autonomy factor analysis is whether the entity has ownership and control over property. Steadfast Ins. Co., 507 F.3d at 1254; Takle, 402 F.3d at 771. Unlike the prior two considerations, this consideration demonstrates a degree of control by the state over UKHA and favors UKHA being an arm of the state.
As a starting point, nothing in the University of Kansas Hospital Authority Act transfers ownership of any of the buildings or facilities in which UKHA operates from the University of Kansas to UKHA. This, on its own, might not be of great significance, as “[m]any private entities operate on public land or in public buildings,” including clearly private commercial entities like “concessionaires in airports.” Takle, 402 F.3d at 771. However, UKHA also has no hope of ever owning any new buildings or facilities because the Act instructs that even if UKHA finances the construction of buildings and facilities, “the buildings and facilities constructed shall become the property of Kansas upon completion and acceptance by the secretary of administration.”
Provisions of the Act governing UKHA‘s control over intangible property and over tangible and real properties that are not buildings or facilities take a generally different tack. The Act envisioned properties of this nature might be transferred from the University of Kansas to UKHA on the date that responsibility for operation of the hospital was transferred from the regents to UKHA.11
purchase, lease, trade, exchange, or otherwise acquire, maintain, hold, improve, mortgage, sell, lease and dispose of personal property, whether tangible or intangible, and any interest therein; and to purchase, lease, trade, exchange or otherwise acquire real property or any interest therein, and to maintain, hold, improve, mortgage, lease and otherwise transfer such real property, so long as such transactions do not conflict with the mission of the authority as specified in th[e] act.
Overall, while the legislature‘s decision not to transfer existing buildings and facilities to UKHA may not be surprising, UKHA‘s inability to own buildings and facilities it constructs with funds from its revenues cuts against UKHA having autonomy from the state. And while UKHA has authority over other types of property, its authority here is not so vast as to swing the consideration against an arm-of-the-state conclusion.
- Ability to form contracts
Another consideration, albeit one discussed with less frequency, is an entity‘s ability to form its own contracts with government entities and commercial enterprises. Sikkenga, 472 F.3d at 719-20. This consideration overwhelmingly favors UKHA having autonomy from the state because the University of Kansas Hospital Authority Act contains at least five separate provisions giving the board and UKHA power to form contracts without approval or oversight from the state or any state agency. First, the “Findings, purpose” section of the Act indicates that, to provide the desired level of care, the hospital needed freedom “to engage in arrangements with public and private entities.”
make and execute contracts, guarantees or any other instruments and agreements necessary or convenient for the exercise of its powers and functions including, without limitation, to make and execute contracts with hospitals or other health care businesses to operate and manage any or all of the hospital facilities or operations and to incur liabilities and secure the obligations of any entity or individual.
Similar to the classification-of-employees consideration, UKHA‘s brief on appeal does not identify a single statutory provision placing any direct limit or any state oversight on UKHA‘s ability to enter into contracts. And our review of the Act identifies no such provision. Accordingly, consideration of UKHA‘s ability to form contracts
- Ability to set policies
An entity‘s ability to set its own policies, without oversight and control from the state or a state agency, is instrumental in the entity being autonomous from the state. Sikkenga, 472 F.3d at 720. Conversely, if day-to-day operations of an entity were controlled by the state, autonomy would almost certainly not exist. The University of Kansas Hospital Authority Act unambiguously provides UKHA unrestricted power to set policies governing its day-to-day operations. For instance, UKHA has the power to “establish policies and procedures regarding any services rendered for the use, occupancy or operation of any [UKHA] facility” and the policies established are “not to be subject to supervision or regulation by any commission board, bureau or agency of the state.”
- Ability to bring suit on own behalf
A final consideration courts have looked at is the ability of the entity to sue and be sued, with the existence of such ability supporting a finding that the entity is autonomous. Sikkenga, 472 F.3d at 719; see also U.S. ex rel. Oberg v. Penn. Higher Educ. Assistance Agency, 804 F.3d 646, 668 (4th Cir. 2015); cf. Daniel v. Univ. of Tex. SW Med. Ctr., 960 F.3d 253, 259 (5th Cir. 2020) (considering whether an entity can sue or be sued as a standalone fifth factor rather than as part of the autonomy analysis). Here, the University of Kansas Hospital Authority Act directly speaks to this consideration as UKHA “shall have all the powers necessary to carry out the purposes and provision of th[e] act, including, without limitation, the [power] to . . . sue and be sued in its own name.”
- Totality of considerations
When viewing the considerations together, we conclude the autonomy factor, based only on the language of the University of Kansas Hospital Authority Act, favors concluding that UKHA is an autonomous entity and not an arm of the state. Alternatively, at best, this factor is neutral for UKHA‘s arm-of-the-state position. The considerations surrounding the classification of employees, the ability to form contracts, the ability to establish policies and govern day-to-day affairs without interference from the state, and the ability to sue all unquestionably favor autonomy. Meanwhile, the remaining two considerations—control by the governor and legislature and ownership of property—have mixed analyses, with some aspects favoring a finding of autonomy and other aspects countenancing against such a finding. Furthermore, the aspects weighing against a finding of autonomy are ones on which other courts, when analyzing whether a healthcare provider was an arm of the state, have placed limited importance. See Takle, 402 F.3d at 771 (observing that there will always be strings between state and entity created by the state and downplaying importance of state owning property used by entity); see also Oberg, 804 F.3d at 672 (placing minimal weight on annual reporting requirement placed on entity); Fresenius Med. Care Cardiovascular Res., Inc., 322 F.3d at 71-72 (concluding entity autonomous and not arm of the state even though governor had wide authority to appoint board members). Therefore, we conclude this is not a case where an entity asserting arm-of-the-state status can overcome uncertainty regarding its finances. As a result, the approach we employed in Sturdevant is inapplicable.
E. Summation & Disposition
As discussed above, we conclude the burden was on UKHA to present evidence and argument demonstrating it is an arm of the state. UKHA failed to meet this burden. Although the district court attempted to undertake that burden it erred in conducting sua sponte review of the University of Kansas Hospital Authority Act because, applying the Steadfast factors, (1) the finances factor appears to weigh against an arm-of-the-state conclusion; (2) any uncertainty regarding UKHA‘s finances weighs against UKHA‘s position given it bore the burden; and (3) de novo review of the Act supports the conclusion UKHA is autonomous from the state such that UKHA could not overcome any uncertainty regarding the finances factor.
This leads us to the appropriate disposition and to how the litigation should proceed on remand.13 We could reverse the
III. CONCLUSION
We VACATE the district court‘s order granting UKHA‘s motion to dismiss and REMAND for further proceedings consistent with this opinion.