Opinion ID: 221516
Heading Depth: 2
Heading Rank: 2

Heading: Application of the Arm-of-the-State Test

Text: The distinctive, public-oriented role that a state university typically plays in its state's higher education landscape undoubtedly accounts for the fact that the vast majority of state universities ... have been found to be `arms' of the State. See Univ. of R.I. v. A.W. Chesterton Co., 2 F.3d 1200, 1204 (1st Cir.1993); see also 13 Charles Alan Wright, Arthur R. Miller, Edward H. Cooper & Richard D. Freer, Federal Practice & Procedure § 3524.2, at 325-32 (2008) (noting that state universities usually are considered arms of the state). Each state university nonetheless must be evaluated in light of its unique characteristics. A.W. Chesterton, 2 F.3d at 1204. Although Puerto Rico law contains no explicit statement of intention that the University share the Commonwealth's sovereign immunity, statutory provisions and case law together describe a public role for the University consistent with such a relationship. By statute, the UPR has an obligation of service to the people of Puerto Rico, P.R. Laws Ann., tit. 18, § 601(a), and it is exempted from the payment of taxes because it achieves a public purpose of the Commonwealth. Id. § 612(f). The UPR's important public role also has been acknowledged by the Puerto Rico Supreme Court. In University of Puerto Rico v. Puerto Rico Association of University Professors, 136 P.R. Dec. 335, No. JR-91-103 (June 13, 1994), [5] the court noted the UPR's obligation [a]s a university of the State ... to serve the People of Puerto Rico, Unoff. Trans. at 44 (quotation marks omitted), and it rejected a suggestion that the UPR could increase fees to the same extent as could a private university in order to raise revenue: For evident reasons, increasing the costs of registration so substantially would create very serious problems concerning the role played by U.P.R. in Puerto Rico's society, not to mention those related to its implementation. An increase like the Board suggests, sufficiently high so as to convert the U.P.R. into a profitable operation, would cause serious problems, for example, concerning students. It would affect both the capacity of our young ones to obtain good quality higher education as well as the U.P.R.'s capacity to fulfill its statutory mission of developing the intellectual and spiritual wealth of our people, especially those less favored in terms of financial resources. 18 L.P.R.A. sec. 601(b)(4). [6] Id. at 45 (emphasis omitted). [7] The Commonwealth's reliance on the UPR to make higher education accessible to students for whom the government feels a special responsibility is also shown by a specific UPR tuition exemption for the children of Puerto Rico military members who have died in action, remain missing, or are prisoners of war. See P.R. Laws Ann. tit. 18, § 612(b). In further support of the proposition that the University is an arm of the Commonwealth, we note that ten of the thirteen members of its governing board are appointed by the governor, with the advice and consent of the Puerto Rico Senate, P.R. Laws Ann. tit. 18, § 602(b)(1), [8] and the Board originally was convened by the Secretary of Education, id. § 602(b)(4). See Pastrana-Torres v. Corporación de P.R. para la Difusión Pública, 460 F.3d 124, 127 (1st Cir.2006) (noting that Commonwealth control is indicated where board comprised of government officials and private citizens is appointed by the governor and confirmed by the Senate); A.W. Chesterton Co., 2 F.3d at 1207 (noting that appointment of ten of thirteen board members by the governor with consent of Senate is a legislative design most courts routinely view as evidence of an entity's lack of independence from State control) (citing cases). [9] The Board of Trustees plays a significant role in governing the University, including appointing the President and Chancellors, in consultation with academic senates, P.R. Laws Ann. tit. 18, § 602(e)(7), and supervis[ing] the general progress of the institution, id. § 602(d). The Board also approves the university system's annual budget and the appointment of the Finance Director, and it is charged with [r]ender[ing] a yearly report to the Governor and the Legislature concerning its activities and the status and finances of the University. Id. § 602(e)(8), (9), (10). These structural signals strongly indicate that the Commonwealth's `dignity' interest as a sovereign in not being haled into federal court embraces the University. See Fresenius, 322 F.3d at 63. Yet we acknowledge that the UPR also possesses attributes of an autonomous agency. It controls and may acquire its own properties, it may create subsidiary corporations, and its debts are by law not considered those of the Commonwealth. See P.R. Laws Ann. tit. 18, §§ 612(a), 602(e)(19), 612(f), 822. As appellant argues, the University has a significant degree of autonomy to set policy, see id. §§ 602(d), 603(a), [10] and the UPR is authorized to borrow money for any of its purposes and activities by issuing bonds or notes, id. § 612(e). It also has authority to raise revenue by charging tuition and other fees, id. § 612(b), [11] and to spend the proceeds generated from such sources, as well as from the sale of property and donations, in the best interest of the University, id. § 612(c). Although the University is expressly authorized to issue bonds for the purpose of acquiring or constructing any project, such revenue bonds shall not constitute a debt of the Commonwealth of Puerto Rico and shall not pledge the good faith and credit of the Commonwealth. Id. § 822. The authority to conduct day-to-day operations is not necessarily inconsistent with a conclusion that the Commonwealth intends the UPR to share its sovereign status. See, e.g., Kashani v. Purdue Univ., 813 F.2d 843, 847 (7th Cir.1987) ([T]hese powers are granted the university only so that it is able to carry out its primary purpose of education, in contrast to a city or county, whose exercise of such powers ... is its very raison d'etre.). Yet, some of the structural indicators unquestionably point in the other direction. We thus think it prudent to proceed to the second stage of the Eleventh Amendment inquiry and consider whether the state's treasury would be at risk in the event of an adverse judgment. Redondo Constr. Corp., 357 F.3d at 126.
It is undisputed that the Commonwealth provides the bulk of the funding for the University's operations. By law, the Commonwealth must dedicate 9.6% of its general fund revenues to the UPR. P.R. Laws Ann. tit. 18, § 621-1. The parties debate what percentage of the University's budget those funds represent, but even appellant acknowledges that more than sixty percent of the UPR's funding comes from the government. He argues that the institution's non-government funds are more than sufficient to satisfy any judgments, asserting that in one recent year the UPR had nearly $579 million in non-Commonwealth income. [12] Appellant's calculations, however, patently overestimate the University's available resources by including funds that are identified as restricted in the budget document on which he relies. Indeed, in the reported year, 2008-2009, only about one-fifth of the non-Commonwealth funds appear to have been unrestricted, [13] leaving the Commonwealth as the source for nearly ninety percent of the University's general fund. See P.R. Ass'n of Univ. Profs., 136 P.R. Dec. 335, Unoff. Trans. at 42 (observing that, at the time of the decision in 1994, eighty-six percent of the University's budget came from the General Fund of the Commonwealth). More importantly, however, the University's status cannot turn on whether its budget shows enough non-Commonwealth income to allow it, in theory, to pay a court judgment. Allocating any portion of the University's general fund revenues to court judgments not only would dilute the impact of the public funds the UPR receives, but such damage awards also would diminish the University's ability to comply with its statutory mission to provide good quality higher education for all residents of Puerto Rico. Id. at 45. [14] The UPR does not have the flexibility to offset unanticipated expenses by passing the additional costs on to its customers. See id.; cf. Metcalf & Eddy, 991 F.2d at 940 (Although the central government subsidizes the agency to some extent, [the agency] relies mostly on user fees and bonds to support its operations.). Because providing affordable higher education for Puerto Rico residents is the Commonwealth's goal, the Commonwealth must as a practical matter ensure the University's financial viabilityregardless of its responsibility for particular University debts. We suggested as much in Fresenius, where we observed that the Commonwealth may indirectly assume the obligation for an entity's debts by providing virtually all the funds needed for [its] operation. 322 F.3d at 72; see also Pastrana-Torres, 460 F.3d at 128 (same); Metcalf & Eddy, 991 F.2d at 941 (quoting Blake v. Kline, 612 F.2d 718, 723 (3d Cir.1979), for the proposition that `the nature of the state's obligation to contribute may be more important than the size of the contribution'). In sum, the Commonwealth's investment, financial and otherwise, in the UPR's ability to fulfill its obligation of service to the people of Puerto Rico, P.R. Laws Ann. tit. 18, § 601(a), puts Commonwealth funds at risk when University funds are at risk. Hence, we are comfortable that our longstanding precedent remains consistent with current Eleventh Amendment principles. Accordingly, we affirm the district court's judgment dismissing this action on the ground that appellant's claims are foreclosed by the Eleventh Amendment. So ordered.