Maryland Stadium Authority v. Ellerbe Becket Inc.Maryland Stadium Authority v. Ellerbe Becket Inc.
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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 lawsuit 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 an 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.
All of the University’s income is either deposited “[i]n the State Treasury” or “[a]s the State Treasurer directs.”
The University is not subject to the State Personnel Management System or the State Finance and Procurement Article.
Under state law, tort claims made against the University are covered under the Maryland Tort Claims Act, with the reservation that “[njothing 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
Procedural History
On November 3, 1999, the Stadium Authority and the University filed a complaint in their own names against Ellerbe 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 the 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
The district court noted that “the questions presented [were] close ones as to which there [we]re reasonable arguments on both sides,” but it denied the motion to dismiss the counterclaim and the motion to remand, concluding that neither the University nor the Stadium Authority were arms or alter egos of Maryland. (J.A. at 284.) To reach this conclusion, the district court determined that both the University and Stadium Authority possessed a great deal of fiscal and operational autonomy. The district court recognized that both entities were engaged in statewide, as opposed to local, activities, and that state law generally treated both as arms of the state. On balance, however, the district court concluded that the entities’ respective autonomy indicated that neither was properly characterized as an arm of the state. With respect to the University, the district court was particularly persuaded by the fact that many of the University’s employees received a salary in excess of other State officials, including the Governor of Maryland.6 The Stadium Authority, under the collateral order doctrine, immediately appealed the ruling on the Eleventh Amendment. See P.R. Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 147, 113 S.Ct. 684, 121 L.Ed.2d 605 (1993) (holding “States and state entities that claim to be ‘arms of the State’ may take advantage of the collateral order doctrine to appeal a district court order denying a claim of Eleventh Amendment immunity”). The district court then certi
II.
A.
On appeal, both the Stadium Authority and the University argue that they are not “citizens” of Maryland under
B.
In determining if a public entity is an alter ego of the state, and therefore not a “citizen” under
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
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 responsible 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, “including], 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 which 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
One slight modification of Ram Ditta is necessary in the context of this case. The University is the plaintiff in this action and no claims are asserted against it. There is no possibility that, even if the University is an alter ego of the state, Maryland will be responsible for paying a judgment in this case. Thus, while the impact of the litigation on the state treasury remains the most salient factor in determining whether the University is an alter ego of the state for purposes of
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, 22 S.Ct. 18, 46 L.Ed. 78 (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.
In some circuits, the issue was not even disputed. For instance, in University of South Alabama, the Eleventh Circuit succinctly noted, “[i]n the context of Eleventh Amendment immunity, we have held that state universities are ‘agencies or instru-mentalities’ 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 was 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.
First, and most importantly, the State of Maryland would directly benefit from any recovery by the University in this case. Quite simply, by statute all income generated by the University is deposited into the state treasury or as directed by the state treasurer and all property of the University is property of the state. See
Ellerbe Becket argues that, because this excess revenue does not automatically revert 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
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[sj 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).
In addition, the State retains a veto over most of the University’s actions. The University can purchase and sell real property and enter into contracts over $500,000 only with prior approval from either the Legislature or the BPW. The State retains oversight ability over every aspect of the University, and the University is subject to an annual audit by the Legislative Auditor. See Hall, 742 F.2d at 306 (noting as relevant that all receipts and expenditures were subject to state audit). As discussed, the University receives appropriations on an annual basis and requires a budget amendment to spend any excess revenue it receives in a given year. See Hutsell, 5. F.3d at 1002 (noting as relevant that University of Kentucky receives yearly budget and appropriation). The University’s income is handled as directed by the State Treasurer and all University property is deemed property of the State. See Hall, 742 F.2d at 306.
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 like 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
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 personal 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 education 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 Kashard, 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 statutes, 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
IV.
Because the district court did not have original jurisdiction of this action under
REVERSED AND REMANDED WITH INSTRUCTIONS
Notes
. Also before this court is an interlocutory appeal from the Stadium Authority, alleging that the district court erred in denying its motion to dismiss a counterclaim filed by Ellerbe Becket on the ground of Eleventh Amendment immunity. Because we find that no diversity jurisdiction exists in this case, we do not need to reach this question.
. The Governor appoints an individual to the position of Secretary of Agriculture with the advice and consent of the Senate.
. The Board of Public Works is composed of the Governor, the Comptroller, and the Treasurer.
. The Stadium Authority was created in order to facilitate the development of sports stadiums and performing arts centers in Maryland. The Stadium Authority is a “body corporate and politic” under Maryland law, as well as an “instrumentality of the State and a public corporation.”
. Ellerbe Becket is a Delaware corporation; it alleged that the University and Stadium Authority are citizens of Maryland.
. The Governor receives an annual salary of $140,000. The district court found that the University paid 43 employees more than $250,000 in annual salary. In addition, the district court found that the head basketball and football coaches at the University of Maryland at College Park received a minimum yearly salary of $1,300,000 and $1,100,000 respectively.
. Because we conclude that the University is not a citizen of Maryland under
. The Eleventh Amendment provides, “[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.”
. The factors in Ram Ditta were crafted from the Supreme Court‘s opinion in Lake Country Estates, Inc. v. Tahoe Reg‘l Planning Agency, 440 U.S. 391, 99 S.Ct. 1171, 59 L.Ed.2d 401 (1979). The Court in Lake Country Estates examined the following six factors in this context: (1) how the entity is characterized in its creating statutes; (2) who originates funding for the entity; (3) whether the state is liable for obligations incurred by the entity; (4) who has the power to appoint the entity’s officers; (5) whether the entity’s functions are traditionally state or municipal; and (6) whether the state retains a veto over the entity‘s actions. Id. at 400-02, 99 S.Ct. 1171. See also Ristow v. S.C. Ports Auth., 58 F.3d 1051, 1052 & n. 3 (4th Cir.1995) (explaining that Ram Ditta adopted the Lake Country Estates factors).
. The Supreme Court has noted that ”[g]auging actual control ... can be a ‘perilous inquiry,’ ‘an uncertain and unreliable exercise.’ ” Hess v. Port-Auth. Trans-Hudson Corp., 513 U.S. 30, 47, 115 S.Ct. 394, 130 L.Ed.2d 245 (1994). We believe the three factors analyzed in Lake Country Estates make for a less perilous journey. We encourage district courts to analyze these three factors rather than engaging in a free-wheeling inquiry into the “autonomy” of the state entity in question.
. In the Eleventh Amendment context, this four-factor test has recently undergone a modification. The primacy of the state treasury factor under Ram Ditta served as a recognition that the Eleventh Amendment is concerned with a state‘s monetary liability in lawsuits. See Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 151, 104 S.Ct. 900, 79 L.Ed.2d 67 (1984) (Stevens, 1., dissenting) (noting that states feared “federal courts would force them to pay their Revolutionary War debts, leading to their financial ruin”). In 1994, the Supreme Court reaffirmed that “the Eleventh Amendment’s twin reasons for being” were that federal court judgments not deplete the state treasury, and that the “dignity” of the states be preserved. Hess, 513 U.S. at 39, 115 S.Ct. 394. Thus, “[w]hen indicators of immunity point in different directions, the Eleventh Amendment’s twin reasons for being remain [the] prime guide.” Id. Because of this language, later cases have indicated that, in the context of the Eleventh Amendment, the effect of a suit on the state treasury “is largely, if not wholly, dispositive of entitlement to Eleventh Amendment immunity in the single state context.” Gray v. Laws, 51 F.3d 426, 433 (4th Cir.1995); see also Ristow, 58 F.3d at 1055 n. 10 (4th Cir.1995) (“Hess, despite emphasizing the state treasury factor as critical, left standing the other ... factors when the state treasury issue presents a close question.”). In the context of reviewing the status of an entity under
. Kovats v. Rutgers, 822 F.2d 1303, 1310 (3d Cir.1987), involves a somewhat unique situation because Rutgers University was originally a private university that was converted to a state university in 1956. Id. at 1310.