UNIVERSITY OF RHODE ISLAND, Plaintiff, Appellant, v. A.W. CHESTERTON COMPANY, Defendant, Appellee.
No. 92-1034.
United States Court of Appeals, First Circuit.
Heard July 28, 1993. Decided Aug. 16, 1993.
2 F.3d 1200
See also 721 F.Supp. 400.
Steven E. Snow with whom Partridge, Snow & Hahn, Providence, RI, was on brief, for defendant, appellee.
Before CYR and BOUDIN, Circuit Judges, and HORNBY,* District Judge.
CYR, Circuit Judge.
The University of Rhode Island (“URI“) appeals a judgment disallowing its breach of
I
BACKGROUND
We recite only those record facts essential to an understanding of the issues raised on appeal, drawing all reasonable inferences in favor of plaintiff-appellant URI. Richmond Steel, Inc. v. Puerto Rican American Ins. Co., 954 F.2d 19, 20 (1st Cir.1992). The R/V Endeavor is a vessel chartered by the National Science Foundation to URI‘s Graduate School of Oceanography (GSO) for research purposes. In the summer of 1985, John Metz, the GSO‘s port engineer, discovered serious rust corrosion on the inside of the Endeavor‘s steel ballast tanks, which are submerged in salt water during normal operation of the vessel. Responding to a Chesterton advertisement, Metz received test samples of “Rust Transformer,” a Chesterton product which purportedly converts surface corrosion into a rust-inhibitor, which in turn serves as a base for further coats of paint. Satisfied with the test-sample results, Metz invited Chesterton sales representatives aboard the Endeavor. After inspecting the Endeavor‘s ballast tank corrosion, Chesterton‘s representatives recommended that Metz use Chesterton‘s 1-2-3 System (using Rust Transformer, a primer, and a final enamel coat) to rehabilitate the tanks. Metz ordered the 1-2-3 System on September 11, 1985.1 Six months after URI completed the 1-2-3 System application, the new coating on the ballast tanks began to loosen and flake off. URI allegedly expended $100,000 to correct the problem.
URI brought suit against Chesterton in Rhode Island state court on May 4, 1989, alleging negligence, strict liability, and breaches of an express warranty and implied warranties of merchantability and fitness for
This court declined to entertain URI‘s interlocutory appeal from the jurisdictional ruling but noted disagreement among the circuits as to the proper criteria for determining the citizenship of state universities for diversity purposes. We recommended that the district court conduct “limited factfinding” on remand relating to several factors pertinent to URI‘s citizenship, including (1) “the degree of URI‘s dependence on and functional integration with the state treasury,” (2) “the percentage of URI‘s annual budget that derives from state appropriations,” and (3) “whether the legislature bases levels of such appropriations in part on the amount of nonappropriated funds available to URI.”2 On remand, the district court denied URI‘s motion for a pretrial evidentiary hearing relating to these jurisdictional matters. The jury trial began on December 3, 1991. After the district court excluded the testimony of URI‘s only expert witness on the issue of contract damages, URI abruptly rested its case. Judgment was entered for Chesterton on all counts, as a matter of law, pursuant to
II
DISCUSSION
A. Subject Matter Jurisdiction
URI urges us to set aside the judgment and remand the case to state court on the ground that Chesterton, a Massachusetts corporation, has not established diversity. URI contends that it is not a Rhode Island “citizen,” but a mere “arm” or “alter ego” of the State. See Gibbs v. Buck, 307 U.S. 66, 69, 59 S.Ct. 725, 727-28, 83 L.Ed. 1111 (1939) (holding that party invoking diversity jurisdiction must establish sufficient facts to warrant its exercise); Bank One, Texas, N.A. v. Montle, 964 F.2d 48, 50 (1st Cir.1992) (same); see also Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 108-09, 61 S.Ct. 868, 872, 85 L.Ed. 1214 (1941) (removal statute should be strictly construed against removal); McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 187, 56 S.Ct. 780, 784, 80 L.Ed. 1135 (1936); Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97, 42 S.Ct. 35, 37, 66 L.Ed. 144 (1921).
We begin with first principles. A State cannot be a “citizen” of itself for purposes of diversity jurisdiction.3 Moor v. County of Alameda, 411 U.S. 693, 717, 93 S.Ct. 1785, 1799, 36 L.Ed.2d 596 (1973); Postal Tel. Cable Co. v. Alabama, 155 U.S. 482, 487, 15 S.Ct. 192, 194, 39 L.Ed. 231 (1894). On the other hand, a political subdivision possessing the formal status of a “body politic and corporate,” such as a county or municipality, is presumed a “citizen” for diversity purposes “unless it is simply ‘the arm or alter ego of the State.‘” Moor, 411 U.S. at 717, 721, 93 S.Ct. at 1799, 1801-02 (finding that Alameda County had a “sufficiently independent corporate character” to be a “citizen” of California for diversity purposes) (citation omitted) (emphasis in original); Illinois v. City of Milwaukee, 406 U.S. 91, 97, 92 S.Ct. 1385, 1389, 31 L.Ed.2d 712 (1972); Cowles v. Mercer County, 74 U.S. (7 Wall.) 118, 121-22, 19 L.Ed. 86 (1869).4 Thus, in principle at least, public and private corporations are accorded similar treatment as “citi-
The Rhode Island Board of Higher Education (“Board“) is nominally constituted by the State of Rhode Island as the legal entity which acts in behalf of URI and other public postsecondary educational institutions in Rhode Island.5 The Board has been constituted a “public corporation,”
Several ancillary principles derive from Moor. The criteria are substantially similar for evaluating whether an entity is a citizen of the State for diversity purposes, or a State for Eleventh Amendment sovereign immunity purposes, see Northeast Fed. Credit Union v. Neves, 837 F.2d 531, 534 (1st Cir.1988) (tests “pretty much the same“); see supra note 4, and present the same ultimate question for decision: whether the State of Rhode Island remains the real party in interest, notwithstanding URI‘s designation as the nominal plaintiff. See id. at 533 (“For the purpose of diversity jurisdiction, the determinative factor is whether the state is the real
On the other hand, though the State‘s formal incorporation of a State-related entity is not necessarily dispositive on the issue of its autonomy, either for immunity or diversity purposes, see, e.g., Jagnandan, 538 F.2d at 1174, 1176; Krieger, 765 F.Supp. at 760, 762, the legislative act of incorporation should prompt a thorough examination into the precise nature of the entity established under state law. See Moor, 411 U.S. at 719, 93 S.Ct. at 1800 (undertaking “a detailed examination of the relevant provisions of California law” in order to rule out Alameda County‘s “mere agency“); id. at 721 n. 54, 93 S.Ct. at 1801 n. 54 (generally repudiating resort to “conclusory” determinations as to entity‘s legal character); see also Lake Country Estates, Inc. v. Tahoe Regional Planning Agency, 440 U.S. 391, 401, 99 S.Ct. 1171, 1177, 59 L.Ed.2d 401 (1979); Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 280, 97 S.Ct. 568, 572, 50 L.Ed.2d 471 (1977); Kovats, 822 F.2d at 1307; Goss v. San Jacinto Junior College, 588 F.2d 96, 98 (5th Cir. 1979). Accordingly, comparing the incorporated public entity to the polar extremes (the State on the one hand, and political subdivisions on the other), we must determine whether the nominal public corporation possesses “a sufficiently independent corporate character to dictate that it be treated as a citizen of [the State of incorporation].” Moor, 411 U.S. at 721, 93 S.Ct. at 1802. See Mt. Healthy, 429 U.S. at 280, 97 S.Ct. at 572 (finding city board “more like a county or city than it is like an arm of the State“) (emphasis added); see also Kashani v. Purdue Univ., 813 F.2d 843, 845 (7th Cir.), cert. denied, 484 U.S. 846, 108 S.Ct. 141, 98 L.Ed.2d 97 (1987); Goss, 588 F.2d at 98.
Often these comparative appraisals unavoidably lead to imprecise distinctions in degree, rarely amenable to ready resolution. Cf. Metcalf & Eddy, Inc. v. Puerto Rico Aqueduct & Sewer Auth., 991 F.2d 935, 939 (1st Cir.1993) (noting that agency‘s entitlement to immunity “poses an essentially functional inquiry, not easily amenable to bright-line answers or mechanical solutions“) (emphasis added). Like their private counterparts, public corporations are hardly monolithic, having been vested with whatever powers, rights, and privileges state legislatures may bestow to suit the public purpose for which the particular corporation was commissioned. Although the vast majority of state universities, incorporated and unincorporated alike, have been found to be “arms” of the State for immunity and diversity purposes, each state university must be evaluated in light of its unique characteristics. See Kovats, 822 F.2d at 1303; Kashani, 813 F.2d at 845; Hall v. Medical College of Ohio, 742 F.2d 299, 302 (6th Cir.1984), cert. denied, 469 U.S. 1113, 105 S.Ct. 796, 83 L.Ed.2d 789 (1985); United Carolina Bank v. Board of Regents, 665 F.2d 553, 557 (5th Cir.1982) (Austin State University); Soni v. Board of Trustees of Univ. of Tennessee, 513 F.2d 347, 352 (6th Cir.1975), cert. denied, 426 U.S. 919, 96 S.Ct. 2623, 49 L.Ed.2d 372 (1976); University Sys. of New Hampshire v. United States Gypsum, 756 F.Supp. 640, 645 (D.N.H.1991).7
Although not binding, Vanlaarhoven nonetheless remains persuasive precedent in its own right. See Metcalf & Eddy, 991 F.2d at 940 n. 4 (noting that immunity of agency need not always be considered de novo; “[w]here the agency‘s activity and its relation to the state remain essentially the same, prior circuit precedent will be controlling“) (emphasis added); see also infra note 16. URI argues that much of Vanlaarhoven‘s precedential weight was eroded by the later repeal of
After reviewing many decisions relating to public postsecondary educational institutions, we are impressed, as was the district court in this case and in Vanlaarhoven, by the extraordinary measure of autonomy enjoyed by the Rhode Island Board of Higher Education. As with most “state” universities, the Board is charged with an essential and traditional governmental function—namely, the provision of postsecondary educational facilities to the citizens of Rhode Island. See
From an operational standpoint, the Board is denominated a “public corporation,” Moor, 411 U.S. at 719, 93 S.Ct. at 1800 (county‘s corporate status and powers “most notabl[e]” attributes of citizenship); cf. Hall, 742 F.2d at 305 (noting that school‘s lack of separate corporate status suggests mere agency).10 Similarly, URI is empowered to fix and collect tuitions and fees and enjoys plenary control over these nonappropriated funds, as well as its educational functions. Cf. University of Tennessee v. United States Fidelity & Guar., Co., 670 F.Supp. 1379, 1384 (E.D.Tenn.1987) (legislature‘s control of tuition rates suggests “arm“). We discern from Moor a general rule of thumb: the State‘s delegation of essential governmental functions, together with the power to generate and control the nonappropriated revenues with which to perform those governmental functions, normally will be viewed as supporting, rather than undermining, the entity‘s independent status for citizenship purposes. Cf. Metcalf & Eddy, 991 F.2d at 941 n. 6 (noting that, if all traditional government functions triggered immunity protection, local school boards would have been deemed “arms” of state, and that agencies which derive revenue through “user fees” for performance of “governmental” functions are unlikely to be characterized as “arms” merely by virtue of the traditional nature of their mission) (citing Royal Caribbean Corp. v. Puerto Rico Ports Auth., 973 F.2d 8 (1st Cir.1992)).
Ten of the thirteen Board members are appointed by the Governor,12 with the advice and consent of the senate, see
On the other hand, the Rhode Island statutory scheme is somewhat unusual in the re-
As a corporate entity, the Board‘s supervisory powers are pervasive. It unilaterally appoints, and may dismiss at its pleasure, the commissioner of higher education and the presidents of the individual educational institutions it oversees, see
The Board holds full legal title to all URI real and personal property, with the attendant power to acquire, hold, and dispose of URI property and “other like property as deemed necessary for the execution of its corporate purposes.”
As a natural corollary to its power to control URI property, the Board possesses,14 and freely exercises, its corporate power to enter into contracts in its own name. See State of Maryland Cent. Collection Unit v. Board of Regents, 529 A.2d 144, 145 (R.I.1987); cf. Hughes-Bechtol, 737 F.2d at 544 (lack of power to contract without invoking State as named party indicates entity is “arm“); Tradigrain, Inc. v. Mississippi State Port Auth., 701 F.2d 1131, 1133 (5th Cir.1983) (noting that authority‘s power to enter into contract was limited; any contract in excess of $2500 must be advertised and awarded to lowest bidder); University of Tennessee, 670 F.Supp. at 1384 (entity is “arm” where legislature exerts control over its personal services contracts). But cf. Kashani, 813 F.2d at 847 (power to enter into contracts not conclusive of independent status); Hall, 742 F.2d at 305; Krieger, 765 F.Supp. at 760, 762. The Board‘s capacity to contract for the maintenance and repair of a federally funded GSO research vessel likewise suggests operational autonomy. See Moor, 411 U.S. at 719, 93 S.Ct. at 1800 (county “may contract for the construction and repairs of structures“) (emphasis added); cf. State Highway Comm‘n of Wyoming v. Utah Constr. Co., 278 U.S. 194, 199, 49 S.Ct. 104, 106, 73 L.Ed. 262 (1929) (finding that entity is “arm” where “contract for the construction of the work was between the [defendant] and the State“).
2. The Board‘s Fiscal Autonomy15
a. Statutory Scheme
Like most other public universities, URI‘s operations are financed in part by State appropriations, approved annually by the general assembly (“appropriated” funds),
URI‘s tuition and fees are set by the Board. URI‘s housing, dining, and auxiliary facilities are totally self-supporting, with no State appropriations slated for these purposes after 1987.
There is no provision in Rhode Island law permitting State intervention in URI‘s income stream from inception to expenditure. The Board‘s nonappropriated funds are neither “covered into,” nor merged with, the general fund, but are kept in segregated accounts pending discretionary disbursement by the Board “without the necessity of appropriation or reappropriation by the general assembly.”
Finally, the State of Rhode Island engages in but limited monitoring of Board revenues and expenditures, see Harden, 760 F.2d at 1163-64 (the more financial oversight, the more likely the university‘s debts are state‘s debts), though a few statutory provisions serve to keep the State generally apprised of the Board‘s financial decisions, enabling the type of financial monitoring usually considered indicative of a lack of meaningful fiscal autonomy. See, e.g., Lewis, 837 F.2d at 199 (regular auditing of both appropriated and nonappropriated funds suggests “arm“); Kashani, 813 F.2d at 845-46 (entity is “arm” as it submits budget, and “Indiana examines [its] finances carefully“); Harden, 760 F.2d at 1163 (submission of annual financial reports suggests “arm“); United Carolina Bank, 665 F.2d at 558 (“extensive” reporting requirements suggest lack of autonomy); Rutledge, 660 F.2d at 1349-50 (“detailed” report to governor); Krieger, 765 F.Supp. at 756 (annual report to “general public” suggests “alter ego“); University of Tennessee, 670 F.Supp. at 1379 (submission of annual report to governor or legislature, with “detailed statement” of receipts and expenditures, indicates “arm“). On the other hand, the level of State fiscal monitoring of the Board is comparatively unintrusive. For example, though URI‘s treasurer must submit financial reports to the state controller for “preaudit,” the purely “ministerial” audit monitors Board expenditures only for possible illegality and availability of funds, not with a view to the prudence of the Board‘s financial decisions.
With Moor as our benchmark, therefore, we conclude that the Rhode Island statutory scheme demonstrates that the Board, unlike more “typical” state educational entities, possesses the essential attributes of operational and financial autonomy needed to qualify as a Rhode Island “citizen” for diversity purposes.
b. “Functional Integration”
In a resourceful effort to avoid Vanlaarhoven, URI urges its “functional integration” theory, whose genesis apparently lay in our earlier “recommendation” to the district court following dismissal of URI‘s interlocutory appeal. See supra p. 1202. URI ar-
We emphasize that URI does not assert the existence of budgetary data which would demonstrate that the Board enjoys less financial autonomy than the enabling statute indicates. Moreover, notwithstanding its efforts to persuade the district court to conduct a separate evidentiary hearing on diversity jurisdiction, URI has taken no initiative to substantiate its “functional integration” theory, either by way of an evidentiary proffer below, or even by way of the barest allusion to supportive data in its brief or oral argument before this court. Instead, URI insists that Chesterton, as the party requesting removal, see supra Section II.A, was required to bear the entire burden of proof and production on every conceivable fact—even including “negative” facts—which might prove relevant to the Board‘s citizenship status. Thus, even after trial on the merits, URI speculates that there may be evidence which would preclude a reliable determination as to federal diversity jurisdiction. For the reasons hereinafter explained, we think URI inadvisably banked on a cramped view of the proper allocation of the burdens of proof and production relating to the jurisdictional issue, misapprehended the proper role of “functional integration” data, and exaggerated the import of our earlier “recommendation” to the district court for further factfinding on remand.
For some reason, our earlier invitation to engage in additional factfinding on remand went unheeded. URI intimates that it did all it could by requesting a separate evidentiary hearing, and that the district court simply discounted our recommendation as to the possible relevance of “functional integration” evidence. In our view, however, URI mischaracterizes the remand order. While we suggested the desirability of supplementary factfinding, the precise factfinding procedure to be employed always rests within the sound discretion of the trial court. See Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962); O‘Toole v. Arlington Trust Co., 681 F.2d 94, 98 (1st Cir.1982) (finding no abuse of discretion, as “the court was under no obligation to require an evidentiary hearing ... [but] has the right to determine the procedures it will employ to decide a jurisdictional issue“) (citation omitted). At no time did we require a separate evidentiary hearing on the jurisdictional issue. Indeed, given our alternative ground for dismissing URI‘s interlocutory appeal—namely, that it appeared unlikely that a trial on the merits would be prolonged—the district court‘s decision to defer its jurisdictional determination until trial was entirely consistent with the remand order.
Nor did the district court prevent URI from introducing any such statistical evidence at trial. Following an unrecorded pretrial conference with counsel, the district court did deny URI‘s motion for a separate evidentiary hearing. In that connection, URI has provided no indication of the legal contentions advanced by either party at the pretrial conference, nor of the grounds for the district court‘s decision to bypass a pretrial evidentiary hearing. Chesterton, on the other hand, asserts that the conference involved an extended discussion about the appropriateness of a separate pretrial hearing, but that the court opted to permit the presentation of evidence on the jurisdictional issue at trial.
Viewed in proper procedural context, therefore, the present claim hinges entirely on URI‘s unremitting allocation of the burdens of persuasion and production to Chesterton, and not on any lack of opportunity to raise or substantiate its “functional integration” claim. Significantly, our remand order took no position as to which party would be obliged to come forward with evidence of
Of course, Chesterton, the party invoking diversity jurisdiction, bears the ultimate burden of proving diversity of citizenship. See Topp v. Compair, Inc., 814 F.2d 830, 839 (1st Cir.1987). Nevertheless, there is more to be said concerning the burden of production:
[T]he party who invoked diversity jurisdiction has the burden of proving all facts upon which jurisdiction could be sustained. If [the invoking party] does construct a prima facie showing of diversity, [the challenging party] must overcome or rebut this showing in order to dismiss the [removal petition]. Support for [the challenger‘s] position may be derived from affidavits, depositions, and sworn statements filed by the parties from which the Court can examine and evaluate all relevant factors and surrounding circumstances but the exact method of determining the jurisdictional issue lies within the sound discretion of the district court.
United States Fidelity & Guar. Co. v. Di Massa, 561 F.Supp. 348, 350 (E.D.Pa.1983) (citation omitted). Although neither Chesterton nor URI submitted affidavits, depositions, or sworn statements, the district court properly conducted inquiry into the controlling jurisdictional facts, pursuant to Moor, by examining the Rhode Island enabling statute. Under Moor, such an inquiry is designed primarily to provide the court with a competent basis for determining the legal framework within which the relationship between a State and a State-created entity are required to function. In the present case, the Rhode Island enabling statute constituted a sufficient proffer on the issue of the Board‘s financial autonomy. See, e.g., Tradigrain, 701 F.2d at 1132 (“the state‘s constitutional, statutory, and decisional law” comprise source material for the court‘s citizenship analysis); see also Indiana Port Comm‘n v. Bethlehem Steel Corp., 702 F.2d 107, 109 (7th Cir.1983); cf. supra note 8.
As noted, see supra Section II.A.2.a, the enabling statute‘s broad grant of control to the Board over nonappropriated revenues weighs heavily in Chesterton‘s favor and satisfied its prima facie burden on the issue of financial autonomy. Furthermore, financial autonomy is but one component of the fact-intensive citizenship inquiry mandated by Moor, and Chesterton prevailed on most other relevant jurisdictional facts as well. See supra Section II.A.1. It was incumbent on URI, therefore, to mount an effective challenge to the prima facie showing of financial autonomy. See Ohio Nat‘l. Life Ins. Co. v. United States, 922 F.2d 320, 327 n. 7 (6th Cir.1990) (“That the burden of proof is always on the [party asserting jurisdiction] does not mean that a [challenger], without any proof on his part, can put the [party asserting jurisdiction] to proof by affidavit of jurisdictional facts sufficiently alleged in the complaint. The [challenger] must at least submit some proof that the jurisdictional facts so alleged do not exist.“) (citation omitted) (emphasis added). Absent evidence or a compelling argument that the fiscal autonomy permitted the Board under Rhode Island law, as determined by the district court, does not actually obtain, URI failed to overcome Chesterton‘s prima facie showing.16
Furthermore, challenges to subject matter jurisdiction typically arise early in the litigation, and even though Eleventh Amendment immunity and diversity jurisdiction may require fact-intensive inquiries, see Kroll, 934 F.2d at 908 n. 2, we see no justification for requiring the removing party to resort to formal discovery before the opposing party—with readier access to the evidence—raises a
Without statistical evidence, URI‘s rebuttal was exceedingly thin. Nevertheless, because it is clear that the Board is “dependent” on the State for some unknown portion of its revenues, we will assume, arguendo, that certain provisions of the enabling statute cited by URI did give rise to a genuine dispute over an important jurisdictional fact—whether the Board actually enjoys financial autonomy from the State. See, e.g.,
As far as we can discern from the case law, in only three situations has the financial autonomy authorized by an enabling statute been considered illusory. First, “functional integration” may obtain if the State nonetheless bears the ultimate legal responsibility to answer for debts on which the state university defaults. Thus, the very financial independence accorded the Board under the Rhode Island enabling statute ultimately might expose the State treasury to liability for the Board‘s financial obligations. In Kovats, 822 F.2d at 1309, the Third Circuit flatly rejected such a functional integration claim where the legislature‘s decision to answer for the university‘s debts appeared to be purely discretionary and not legally binding. Cf. also Fitchik, 873 F.2d at 661 (the State‘s disclaimer of any obligation to “cover” is the primary consideration, not the relative size (50-70%) of the state appropriation); but cf. Hall, 742 F.2d at 304-05 (no statute prohibits university from incurring debt in state‘s name, and fact that state will have to “cover” debt by law is indicative of “alter ego” status); Krieger, 765 F.Supp. at 761 (where District of Columbia expressly committed itself to funding, agency not wholly “self-supporting” is “mere arm“).
Even if a state‘s ultimate legal obligation to “cover” a university‘s financial obligations were the controlling consideration in the diversity context, however, but see Moor, 411 U.S. at 719, 93 S.Ct. at 1800 (noting that the county, “and from all that appears the county alone, is liable for the judgments against it“) (emphasis added), the Rhode Island statutory scheme evinces no conclusive answer as to whether the State is so obligated. We have neither been cited to, cf. supra note 8, nor have we found, statutory language governing whether the State of Rhode Island ultimately is responsible for the Board‘s corporate financial obligations. Cf. Metcalf & Eddy, 991 F.2d at 940 (statute explicitly divested Puerto Rico Aqueduct and Sewer Authority of power “to pledge the credit or taxing power of the Commonwealth,” thereby “erect[ing] a wall between the agency‘s appetite and the public fisc.“).17
Second, the amount of the Board‘s nonappropriated funding, either in absolute or relative terms, might be considered so insubstantial as to leave the Board financially dependent on the State. But even assuming, arguendo, that an entity receiving any State funding or subsidy is thereby inevitably rendered susceptible to State pressure, two principles remain constant. First, an incorporated entity dependent entirely on State appropriations rarely (if ever) would escape characterization as the State‘s “alter ego,” since the hand that holds all the purse strings presumably controls the dependent entity. See, e.g., State Highway Comm‘n, 278 U.S. at 199, 49 S.Ct. at 106 (finding no diversity where Highway Commission, de-
On the other hand, mere receipt of state appropriations is not conclusive evidence of the recipient entity‘s “alter ego” status. Many (if not most) political subdivisions routinely receive significant state appropriations, but are characterized as autonomous entities for immunity and diversity purposes. See, e.g., Mt. Healthy, 429 U.S. at 280-81, 97 S.Ct. at 572-73 (city board of education, which received “significant amount” of state funding, not entitled to immunity where State granted board the power to raise its own revenue); Gary A. v. New Trier High Sch. Dist., 796 F.2d 940, 945 (7th Cir.1986) (noting that the “fact that a local school district receives ‘a significant amount of money from the state’ does not mean that it is an arm of the state“) (emphasis added) (citation omitted). In the Eleventh Amendment immunity context, we recently rejected just such a contention:
We think [that the Puerto Rico Aqueduct and Sewer Authority‘s] situation is not unlike that of a typical political subdivision. Such an entity often receives part of its budget from the state and raises the rest independently. Despite this dual funding, such entities do not automatically (or even usually) come within the zone of protection demarcated by the Eleventh Amendment ... despite the “significant amount of money” [they] received from the state.
Metcalf & Eddy, 991 F.2d at 941 (citations omitted).
Nevertheless, under Moor, the courts are expected to consider available statistical evidence in arriving at a more precise assessment of the relative “significance” of the appropriated and nonappropriated funding which goes into the university budget. See Kovats, 822 F.2d at 1308 (entity is “citizen” even though state appropriation is “large,” or approximately 50 to 70% of budget). But see Kashani, 813 F.2d at 845 (33% appropriation suggests “arm“); Hall, 742 F.2d at 304 (average 64% state appropriation suggests “arm“); Jagnandan, 538 F.2d at 1175 (maximum 72% state appropriation suggests “alter ego“). In the present case, however, neither the amount nor the percentage of the Board‘s nonappropriated revenues can be ascertained from the record. Thus, argues URI, the district court was compelled to find that Chesterton did not sustain its burden of proof on the Board‘s financial autonomy.
In characterizing such statistical data as indispensable jurisdictional “facts,” however, URI misconstrues our case law,18 as well as
In considering whether Chesterton carried its burden of persuasion on the issue of financial autonomy, we think it is inescapable that the Board‘s nonappropriated revenues represent a substantial budget component; tuition, housing, dining and administrative fees, donations, bequests, federal grants, and the proceeds from discretionary sales and leases of URI property are not insubstantial revenue sources. Thus, on its face, the enabling statute demonstrates Board access to, and control over, substantial amounts of nonappropriated revenues. Following a trial on the merits, and absent any indication that URI did not have a fair opportunity to identify and produce statistical evidence which might rebut Chesterton‘s demonstration that the enabling statute confers the requisite financial autonomy to qualify the Board for citizenship under Moor, we conclude that URI‘s appellate challenge comes too late.
Finally, in a similar vein, URI suggests that it might be that the State routinely attunes its annual appropriation to the Board in response to the total amount of nonappropriated funds available to the Board, including the nonappropriated funds accumulated from prior fiscal years and those anticipated in the current fiscal year. Under this “linkage” theory, the State could compel the Board to expend all accumulated and anticipated nonappropriated funds merely by limiting its annual appropriations to the difference between the Board‘s fiscal year revenue requirements and the total available nonappropriated funds.
URI‘s contention that the State might link its appropriations to the availability of nonappropriated Board funds is pure conjecture. Arrayed against URI‘s conjecture are the explicit provisions of the enabling statute, as amended in 1988, which expressly state that all nonappropriated funds, including accumulated nonappropriated funds, are to be deposited in a segregated account under the exclusive control of the Board. See Kovats, 822
Accordingly, having weighed the myriad factors contemplated by Moor, we conclude that the district court correctly determined that Chesterton met its ultimate burden of establishing that the Board enjoys “a sufficiently independent corporate character to dictate that it be treated as a citizen of [Rhode Island].” Moor, 411 U.S. at 721, 93 S.Ct. at 1802.
B. Evidence of Damages
In a ruling that proved fatal to URI‘s claims for damages for breach of warranties, the district court excluded the testimony of URI‘s longtime controller, Ronald Osborne, a certified public accountant in charge of all URI financial information and accounting practices. URI called Osborne as an expert witness to establish the amount of money it spent to correct the corrosion problem allegedly left unremedied by Chesterton‘s 1-2-3 System. URI proffered no other evidence on damages. Osborne testified on
URI relied on Federal Rules of Evidence 703 and 705 as grounds for the admission of Osborne‘s expert opinion. Rule 703 provides that “[t]he facts or data ... upon which an expert bases an opinion or inference ... [i]f of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject, ... need not be admissible in evidence.” Fed.R.Evid. 703. Rule 705 provides that “[t]he expert may testify in terms of opinion or inference and give reasons therefor without prior disclosure of the underlying facts or data, unless the court requires otherwise. The expert may in any event be required to disclose the underlying facts or data on cross-examination.” Fed.R.Evid. 705 (emphasis added). The court sustained Chesterton‘s objection on the ground that URI had not demonstrated that the facts relied on by Osborne were of a type reasonably relied on by experts in damages assessment.19
URI‘s central arguments on appeal are: (1) Rules 703 and 705 afford the right to present unsubstantiated expert testimony on direct examination without first disclosing its factual underpinnings, and (2) the district court abused its discretion by adhering to its self-imposed rule of exclusion, a per se rule which, according to URI, runs counter to the “burden shifting” implicit in Rule 705 and disregards the obligation to predicate its exclusionary ruling on the particular circumstances.
We have no doubt that Rules 703 and 705 permitted the district court to admit Osborne‘s opinion testimony, see International Adhesive Coating Co. v. Bolton Emerson Int‘l, 851 F.2d 540, 545 (1st Cir.1988) (business and financial records are “obvious” sources relied on by accountants in ascertaining damages), subject of course to Chesterton‘s right to probe the premises of the opinion on cross-examination. But that is not the question presented. Rather, the issue on appeal is whether the district court abused its considerable discretion by excluding the evidence. We think not.
Rules 703 and 705 normally relieve the proponent of expert testimony from engaging in the awkward art of hypothetical questioning, which involves the somewhat meticulous, and often tedious, process of laying a full factual foundation prior to asking the expert to state an opinion. In the interests of efficiency, the Federal Rules of Evidence deliberately shift the burden to the cross-examiner to ferret out whatever empirical deficiencies may lurk in the expert opinion. Nevertheless, Rules 703 and 705 do not afford automatic entitlements to proponents of expert testimony. Rule 703 requires the trial court to give “careful consideration” to any inadmissible facts upon which the expert will rely, in order to determine whether reliance is “reasonable.” Id. at 545. Similarly, under the broad exception to Rule 705 (“unless the court otherwise requires“), the trial court is given considerable latitude over the order in which evidence will be presented to the jury. See Fed.R.Evid. 705 advisory committee‘s note (“[S]afeguards [to minimize ‘unfair’ burden on cross-examiner] are reinforced by the discretionary power of the judge to require preliminary disclosure in any event.“) (emphasis added). While the trial court‘s discretion is not unfettered, at a minimum the rules suggest that the proponent must be prepared, if the court so requires, to make a limited offer of proof to aid the court in its assessment. Cf. Ambrosini v. Labarraque, 966 F.2d 1464, 1469 (D.C.Cir.1992) (“A court must know the basis for an expert‘s opinion before it can determine that the basis is not of a type reasonably relied on by experts in the field.“); Head v. Lithonia Corp., 881 F.2d 941, 944 (10th Cir.1989) (despite the liberality of Rule 703, court must not abdicate its responsibility to assure “minimum standards” for admissibility as required by Rule 104(a)).
Even though URI‘s threshold burden was minimal, and may have been readily met, it made no attempt whatever to assuage the district court‘s legitimate concerns, but chose instead to rely on its perceived “right” to have Osborne‘s opinion admitted under Rule 703. Apparently, URI came to trial with no supporting documentation whatever to substantiate Osborne‘s assessment of damages. Based on what can be gleaned from Osborne‘s preliminary testimony, URI‘s apparent unpreparedness and recalcitrance may have given the district court real concerns as to Osborne‘s methodology. Unlike the expert witness in International Adhesive, Osborne‘s “damages” assessment was not based solely on the conventional examination and compilation of documents from which an expert objectively might ascertain the overtime labor costs incurred in repairing Endeavor‘s ballast tanks, as distinguished from various other projects at URI and the GSO. Rather, Osborne relied on “interviews” with undisclosed URI employees and “outside vendors,” conducted either by himself or other URI officials who reported to him. The trial court quite reasonably expected URI to explain, out of the presence of the jury, the basic assumptions undergirding its witness‘s seemingly unorthodox method of reconstruction.
III
CONCLUSION
We need proceed no further with this endeavor.20 Absent competent evidence of damages, the district court properly granted judgment as a matter of law in favor of Chesterton on URI‘s breach of warranty claims.
The judgment of the district court is affirmed.
HORNBY, District Judge, concurring.
It takes the court 38 typed pages (8% × 11“) of closely reasoned text to decide whether the University of Rhode Island is a citizen—a determination that has nothing to do with the substance of the real world dispute between these parties, but simply resolves where to try their lawsuit. Is this approach really essential for determining whether a federal court has jurisdiction? Granted that our system limits the jurisdiction of federal courts, a rational observer might nevertheless expect simple gatekeeping rules for what gets in and what is kept out. A litigant should be able to ascertain, with relatively modest effort and legal fees, where to bring its lawsuit. But if the court‘s analysis of a “myriad factors“—which are “by no means exhaustive“—is to be the governing standard, future litigants in cases involving similar state agencies had better be prepared to pay a lot of legal fees for their lawyers to (1) read and digest the prose; (2) gather the relevant information and apply the legal analysis to their client or opponent; (3) litigate the issues at pretrial, trial and on appeal. Those litigants had also better be prepared for delays in decisionmaking as lawyers and judges ponder the issue: the “myriad factors” will seldom yield a certain outcome until a court actually decides the issue.
To be sure, this court is not alone in adopting this approach. Other courts have
The question is whether United States Supreme Court precedents really require such a complex analysis. I think not. I will concede that this court‘s approach is one plausible reading of the precedents, but there is another plausible reading that keeps the subject matter jurisdiction issue in proper perspective as only a preliminary issue in the underlying economic dispute between the parties.
As the court recognizes, a couple of propositions are beyond debate, given United States Supreme Court decisions. First, a State cannot be a citizen of itself: “There is no question that a State is not a ‘citizen’ for purposes of the diversity jurisdiction.” Moor v. County of Alameda, 411 U.S. 693, 717, 93 S.Ct. 1785, 1800, 36 L.Ed.2d 596 (1973). Second, incorporated branches of state government (for example, cities and counties) are citizens of the state of their incorporation. See Cowles v. Mercer County, 74 U.S. (7 Wall.) 118, 122, 19 L:Ed. 86 (1869). This resulting principle of independent citizenship for a public corporation had become so “well settled” by 1972 that the Supreme Court no longer stopped to question it. See Moor, 411 U.S. at 718, 93 S.Ct. at 1800, quoting Illinois v. City of Milwaukee, 406 U.S. 91, 97, 92 S.Ct. 1385, 1389, 31 L.Ed.2d 712 (1972).
Here, the Rhode Island Board of Higher Education1 is separately incorporated with the power to sue and be sued. The diversity statute provides: “[A] corporation shall be deemed a citizen of any state by which it has been incorporated....”
A parallel short treatment of Rhode Island law can dispose of the jurisdictional issue in this case. The Board that governs the University of Rhode Island is a “public corporation, empowered to sue and be sued in its own name, to have a corporate seal, and to exercise all the powers, in addition to those hereinafter specifically enumerated, usually appertaining to public corporations entrusted with control of post-secondary educational institutions and functions.”
In all other respects, I join the court‘s opinion.