MARYLAND STADIUM AUTHORITY; Univеrsity System Of Maryland, Plaintiffs-Appellants, v. ELLERBE BECKET INCORPORATED, a Delaware Corporation, Defendant-Appellee. Maryland Stadium Authority; University System Of Maryland, Plaintiffs-Appellants, v. Ellerbe Becket Incorporated, a Delaware Corporation, Defendant-Appellee.
No. 04-1743
No. 04-2083
United States Court of Appeals, Fourth Circuit
Argued: March 16, 2005. Decided: May 11, 2005.
407 F.3d 255
Before LUTTIG, WILLIAMS, and GREGORY, Circuit Judges.
Reversed and remanded with instructions by published opinion. Judge WILLIAMS wrote the opinion, in which Judge LUTTIG and Judge GREGORY joined.
OPINION
WILLIAMS, Circuit Judge:
The Maryland Stadium Authority (Stadium Authority) and the University System of Maryland (the University) filed a law suit against Ellerbe Becket, Inc., an architectural and engineering firm, in Maryland state court alleging state law claims for breach of contract, negligence, and indemnification. The claims arose from Ellerbe Becket‘s provision of architectural and engineering services for the construction of a new basketball arena at the University of Maryland, College Park. Ellerbe Becket timely removed the case to federal court, and before us is the Stadium Authority and the University‘s interlocutory appeal of the district court‘s denial of their motion to remand.1 We conclude that the district court lacked removal jurisdiction because the University is an alter ego of Maryland and, therefore, is not a “citizen” for purposes of diversity jurisdiction under
The University System of Maryland
Because the question of whether аn entity is an alter ego of the state is a highly fact-intensive undertaking, we go into some detail regarding the University‘s structure and operations. The University was established “to foster the development of a consolidated system of public higher education, to improve the quality of education, to extend its benefits and to encourage the economical use of the State‘s resources.”
The University‘s governance is entrusted to a Board of Regents (the Board), which is composed of seventeen members, all but one of whom are directly appointed by the Governor with the advice and consent of the Maryland Senate.
The Board is responsible for proposing budgets for the University, and for requesting appropriations from the General Assembly.
The University is not subject to the State Personnel Management System or the State Finance and Procurement Article.
Under state law, tort clаims made against the University are covered under the Maryland Tort Claims Act, with the reservation that “[n]othing in this subsection shall be construed to waive or abrogate the immunity of the University System of Maryland under the Eleventh Amendment to the United States Constitution.”
The Comcast Arena Project
The current litigation stems from the construction of the Comcast Arena, a new basketball arena for the Terrapins of the University of Maryland, College Park. The total projected cost for the arena was $126,845,000. The Legislature issued a mandate that the Stadium Authority4 should “manage the preparation of the detailed plans” for constructing the new arena. 1998 Md. Laws 138. In accordance with that mandate, the Stadium Authority entered into a contract with Ellerbe Becket to provide “all necessary and customary architectural and engineering services” required in constructing the arena. (J.A. at 35.) The University alleges that a design defect discovered during construction required it to expend $1,800,000.
Procedural History
On November 3, 1999, the Stadium Authority and the University filed a complaint in their own names against Ellеrbe Becket in the Circuit Court for Baltimore City alleging claims for negligence, breach of contract, and indemnification. The parties were represented, not by private counsel, but by the Maryland Attorney General‘s office. Ellerbe Becket removed the case to federal court on the basis of diversity of citizenship,5 and it filed a counterclaim against the Stadium Authority for fees it alleged it was owed under the contract. No counterclaim was filed against the University.
On January 5, 2004, the Stadium Authority moved to dismiss the counterclaim under the Eleventh Amendment, and both the Stadium Authority and thе University moved to remand the case to the state court. Both alleged that they were “alter egos” or “arms” of the State of Maryland and, accordingly, were not “citizens” for the purpose of § 1332. Because diversity jurisdiction was lacking, both argued, the case should be remanded to state court.
II.
A.
On appeal, both the Stadium Authority and the University argue that they are not “citizens” of Maryland under § 1332 and, accordingly, no diversity jurisdiction exists in this case to support removal jurisdiction.7 We review questions of subject matter jurisdiction de novo, “including those relating to the propriety of removal.” Mayes v. Rapoport, 198 F.3d 457, 460 (4th Cir.1999). The burden of demonstrating jurisdiction resides with “the party seeking removal.” Mulcahey v. Columbia Organic Chems. Co., 29 F.3d 148, 151 (4th Cir. 1994). We are obliged to construe removal jurisdiction strictly because of the “significant federalism concerns” implicated. Id. Therefore, “[i]f federal jurisdiction is doubtful, a remand [to state court] is necessary.” Id.
Section 1441 of Title 28 provides that “any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.”
In determining if a public entity is an alter ego of the state, and therefore not a “citizen” under § 1332, courts have generally looked to the standards announced in cases addressing whether governmental entities are entitlеd to Eleventh Amendment immunity as an arm of the state.8 See, e.g., Univ. of S. Ala. v. Am. Tobacco Co., 168 F.3d 405, 412 (11th Cir.1999); Univ. of R.I. v. A.W. Chesterton Co., 2 F.3d 1200, 1202 n. 4, 1203 (1st Cir.1993). In this case, neither the University nor Ellerbe Becket disputes application of Eleventh Amendment standards in determining whether the University is a “citizen” of Maryland for purposes of § 1332.
Typically, we apply a four factor test, first announced in Ram Ditta v. Md. Nat‘l Capital Park & Planning Comm‘n, 822 F.2d 456 (4th Cir.1987), to determine whether a governmental entity is an “arm of the state” under the Eleventh Amendment. Accordingly, we will apply the same multi-factored test in this case to determine if the University is an alter ego of the state and therefore not a “citizen” under § 1332.
Under the framework provided by Ram Ditta, in determining an entity‘s status as an arm of the state, “the most important consideration is whether the state treasury will be rеsponsible for paying any judgment that might be awarded.” Id. at 457; see also Cash v. Granville County Bd. of Educ., 242 F.3d 219, 223 (4th Cir.2001) (“The principal factor ... is whether a judgment against the governmental entity would have to be paid from the State‘s treasury.“). After resolving this inquiry, we examine three other factors, “includ[ing], but ... not necessarily limited to, whether the entity exercises a significant degree of autonomy from the state, whether it is involved with local versus statewide concerns, and how it is treated as a matter of state law.”9 Ram Ditta, 822 F.2d at 457-58 (footnotes omitted); see also Gray v. Laws, 51 F.3d 426, 434 (4th Cir.1995) (noting arm of the state status may “be determined by resort to the other relevant considerations referenced by the Court, chief among whiсh are whether the suit will jeopardize `the integrity retained by a State in our federal system,’ and whether the state possesses such control over the entity ... that it can legitimately be considered an `arm of the state‘.“) (internal citation omitted).
We analyze the second Ram Ditta factor, the operational autonomy of the entity, by considering whether the state retains a veto over the entity‘s actions, the origins of the entity‘s funding, and who appoints the entity‘s directors. See Ristow v. S.C. Ports Auth., 58 F.3d 1051, 1052 (4th Cir. 1995).10 As to the fourth factor, although “[a] state court‘s view of the status of a state political entity is, of course, an important factor, . . . questions of eleventh amendment immunity are ultimately governed by federal law.” Ram Ditta, 822 F.2d at 459-60. These factors elucidate whether the “relationship between the governmental entity and the State [is] sufficiently close to make the entity an arm of the State.” Cash, 242 F.3d at 224.11
applying the same principles of construction to the removal acts [as to the Eleventh Amendment] and to cases in which it is claimed that the state, though not the nominal, is in fact the real, party plaintiff, it may fairly be held that the state is such real party when the relief sought is that which inures to it alone, and in its favor the judgment or decree, if for the plaintiff, will effectively operate.
Mo., Kan., & Tex. Ry. Co. v. Hickman, 183 U.S. 53, 59 (1901). With this framework in place, we turn to the question of whether the University is an alter ego of Maryland.
III.
For the reasons that follow, we hold that the University is an alter ego of Maryland. Numerous courts have decided whether public state universities are “arms of the state.” Almost universally, the answer has been in the affirmative. See, e.g., Takle v. Univ. of Wis. Hosp. & Clinics Auth., 402 F.3d 768 (7th Cir.2005); Univ. of S. Ala., 168 F.3d at 412; Buchwald v. Univ. of N.M. Sch. of Med., 159 F.3d 487, 494 (10th Cir.1998); Laxey v. La. Bd. of Tr., 22 F.3d 621, 622 (5th Cir.1994); Hutsell v. Sayre, 5 F.3d 996, 999 (6th Cir.1993); Kashani v. Purdue Univ., 813 F.2d 843, 848 (7th Cir. 1987); Hall v. Med. Coll. of Ohio at Toledo, 742 F.2d 299, 307 (6th Cir.1984).
In some circuits, the issue was not even disputed. For instance, in University of South Alabama, the Elеventh Circuit succinctly noted, “[i]n the context of Eleventh Amendment immunity, we have held that state universities are `agencies or instrumentalities’ of the state, and thus are immune from suit in federal court.” Univ. of S. Ala., 168 F.3d at 412. See also Watson v. Univ. of Utah Med. Ctr., 75 F.3d 569, 575 (10th Cir.1996) (“Our cases have consistently found state universities are arms of the state.“). In fact, research reveals only two circuit court opinions concluding that a particular state university was not an arm of the state. See A.W. Chesterton, 2 F.3d at 1211, Kovats v. Rutgers, 822 F.2d 1303, 1312 (3d Cir.1987).12
We, too, have previously treated several public universities as arms of the state. See Litman v. George Mason Univ., 186 F.3d 544, 550 (4th Cir.1999); Huang v. Bd. of Governors of the Univ. of N.C., 902 F.2d 1134, 1139 (4th Cir.1990); Richard Anderson Photography v. Brown, 852 F.2d 114, 122 (4th Cir.1988). Moreover, prior to this litigation, two district courts in Maryland had found that the University System of Maryland wаs an arm of the State of Maryland. See Palotai v. Univ. of Md., 959 F.Supp. 714, 716 (D.Md.1997); Bickley v. Univ. of Md., 527 F.Supp. 174, 181 (D.Md.1981). Despite this overwhelming precedent, “each state university must be evaluated in light of its unique characteristics.” A.W. Chesterton, 2 F.3d at 1204. Accordingly, we will conduct our own inquiry into whether the University is an alter ego of Maryland.
Ellerbe Becket argues that, because this excess revenue does not automatically revеrt to the general state treasury, the state would not directly benefit from a recovery by the University. In the Eleventh Amendment context, the Fifth Circuit, in addressing a similar statutory framework, explained that the “crucial question . . . is whether use of these unappropriated funds to pay a damage award. . . would interfere with the fiscal autonomy and political sovereignty of [the state].” United Carolina Bank v. Bd. of Regents, 665 F.2d 553, 560-61 (5th Cir. Unit A 1982). The separate funds in that case were “either held in the Treasury or restricted as to use. In either event they are subject to audit and budget planning. Thus any award from those funds would directly interfere with the state‘s fisсal autonomy.” Id. at 561. Similarly, any monetary recovery by the University would be reported to the Comptroller. The amount of the recovery would then be set off against any appropriations for the next fiscal year, resulting in a direct benefit to the state — the outlay of less appropriations to the University. In addition, the statutory regime that permits the University to keep excess revenue for the next fiscal year is “a convenience, not . . . an abdication of state control over such funds.” Hutsell, 5 F.3d at 1002; Hall, 742 F.2d at 304.
In sum, we believe that the most important factor, whether the state would directly benefit from any recovery by the University, indicates that the University is an alter ego of the state. Moreover, we conclude that, on balance, the remaining Ram Ditta factors also weigh in favor of finding that the University is an alter ego of Maryland.
Although the University retains some operational independence in its day to day activities, it is still closely tied to the state. All of the members of the University‘s governing body, the Board, are either appointed by the Governor with the advice and consent of the Maryland Senate or are state officers. The fact that all of the University‘s decisionmakers are appointed by the Governor is a key indicator of state control. See Lewis v. Midwestern State Univ., 837 F.2d 197, 198-99 (5th Cir.1988) (gubernatorial appointment of governing body “argue[s] strongly” in favor of finding that entity is arm of the state); Kashani, 813 F.2d at 847 (finding it “[v]ery significant” that “the majority of the members of Purdue‘s governing council, the Board of Trustees, are selected by the Governor“); Harden v. Adams, 760 F.2d 1158, 1163 (11th Cir.1985) (“Troy State University is subject to substantial state control: its Board of Trustees . . . is composed in part of state officials and in part of gubernatorial appointees.“). But see A.W. Chesterton, 2 F.3d at 1207-08 (discounting importance of appointment power because members were given staggered terms and minimal compensation in order to minimize state control).
While the University can issue revenue bonds, it may do so only after receiving legislative approval, and it lacks the power to tax. “The absence of the power to tax is a strong indication that an entity is more like an arm of the state than likе a county or city, because that enablement gives an entity an important kind of independence.” Kashani, 813 F.2d at 846. In addition, the University is represented by the Attorney General in this litigation. See Cash, 242 F.3d at 225 (noting lack of control indicated by fact that local school board was represented by private counsel instead of the Attorney General); Hall, 742 F.2d at 306 (noting fact that “State attorney general [wa]s `the attorney for each state college‘“).
In contrast, the First Circuit, when concluding the University of Rhode Island was not an arm of Rhode Island, found relevant that the University held full legal title to all real and persоnal property, could enter into contracts without limitation, and kept all of its funds in segregated accounts for discretionary disbursement absent any state control. A.W. Chesterton, 2 F.3d at 1209-11. The First Circuit also noted that the state retained very limited oversight of the University of Rhode Island. Id. at 1211.
The final two Ram Ditta factors also favor a finding that the University is an alter ego of Maryland. It is undisputed that the University is engaged in an area of statewide concern — educating the youth of Maryland. The University has branch campuses located across the state, from Frostburg State in the Cumberland Valley to the University of Maryland Eastern Shore. Higher еducation is an area of quintessential state concern and a traditional state governmental function. See Hutsell, 5 F.3d at 1002; A.W. Chesterton, 2 F.3d at 1206. And the University‘s mission, providing higher education for Maryland‘s youth, is clearly an area of statewide concern. See Kashani, 813 F.2d at 848 (“Purdue educates students from all parts of the state.“).
Moreover, state law unambiguously treats the University as an alter ego of Maryland. Although the question of whether an entity is an alter ego of the state is a question of federal, not state, law, the manner in which state law addresses the entity remains “important, and potentially controlling.” Hall, 742 F.2d at 304. In addressing this factor, “a court may consider both the relevant state statutеs, regulations, and constitutional provisions which characterize the entity, and the holdings of state courts on the question.” Harter v. Vernon, 101 F.3d 334, 342 (4th Cir.1996). Here, the University is defined as an “instrumentality” of the state, and its implementing statute specifically states that nothing in it shall be construed as waiving the University‘s Eleventh Amendment immunity.
In sum, we believe that the University is an alter ego of Maryland. As discussed, Maryland would directly benefit from any judgment rendered in favor of the University. This factor is the “most important” in determining if an entity is an alter ego of the state. Ram Ditta, 822 F.2d at 457. Furthermore, the University lacks operational autonomy, is performing an essential state-wide function, and is viewed as an alter ego of the state by Maryland law. Because we hold that the University is an alter ego of Maryland, it is not a “citizen” of Maryland under § 1332. Because the University is not a “citizen” of Maryland, it is not “competent to sue, or liable to be sued, in [federal court]” under § 1332, and the district court did not have original jurisdiction of this action. Strawbridge, 7 U.S. at 267. Accordingly, removal was improper.
Because the district сourt did not have original jurisdiction of this action under § 1332, it should have remanded the case to state court. Accordingly, we reverse and remand this case to the district court with instructions to remand the case to Maryland state court.
REVERSED AND REMANDED WITH INSTRUCTIONS