Opinion ID: 3030204
Heading Depth: 3
Heading Rank: 1

Heading: State Funds

Text: [4] The first prong of the Mitchell test—whether a money judgment would be satisfied out of state funds—is the predominant factor. Id. This factor is given additional weight because “the impetus of the Eleventh Amendment is the prevention of federal-court judgments that must be paid out of a state’s treasury . . . .” Savage, 343 F.3d at 1041. Here, a review of the applicable state law and the funding scheme for air pollution control districts leads us to conclude that the State is not responsible for paying a money judgment against the District. [5] First, as a “local public entity” under California law, the District, and not the State, must pay money judgments against it. California Health & Safety Code § 40707 provides that all claims for money damages against air pollution control districts are governed by Parts 3 and 4 of Division 3.6 of the California Government Code, §§ 900-962, which pertain to claims and actions against public entities. In turn, the definitional provisions of Part 3 of Division 3.6 of the Government Code (1) define a “local public entity” to include a “district,” (2) distinguish a “local public entity” from “the State,” and (3) specify that the “State” is responsible for paying money judgments against the State. Cal. Gov’t Code § 900.4 (providing that a “local public entity” includes “a county, city, district, public authority, public agency, and any other political subdivision or public corporation in the State, but does not include the State”) (emphasis added); id. § 900.6 (defining “State” as “the State and any office, officer, department, division, bureau, board, commission or agency of the State claims against which are paid by warrants drawn by the Controller”) (emphasis added). Taken together, these provisions establish that under California law, local public entities, including air pollution control districts, are responsible for paying their own money judgments. This conclusion is bolstered by additional provisions of the Government Code pertaining to the payment of judgments BEENTJES v. PLACER COUNTY AIR POLLUTION CONTROL 1549 against local public entities. See id. § 970 (“ ‘Local public entity’ includes a county, city, district, public authority, public agency, and any other political subdivision or public corporation in the state, but does not include . . . the state or any office, officer, department, division, bureau, board, commission or agency of the state claims against which are paid by warrants drawn by the Controller.”) (emphasis added); id. § 970.2 (providing that “[a] local public entity shall pay any judgment in the manner provided in this article” and giving a judgment creditor the right to obtain a writ of mandate to compel a local public entity to pay a judgment against it). Although the District does not dispute that it must pay a judgment obtained against it, the District emphasizes that it has two million dollars in liability insurance coverage that would suffice to satisfy a judgment in this case. However, “it is the entity’s potential legal liability, rather than its ability or inability to require a third party to reimburse it, or to discharge the liability in the first instance, that is relevant.” Regents of the Univ. of Cal., 519 U.S. at 431. Nonetheless, the District claims that a money judgment against it would be paid out of state funds because “state revenue” constitutes a significant portion of the District’s annual budget, from which it pays its insurance premiums. This claim is misleading, however, because the bulk of the monies demarcated as “state revenue” in the District’s annual budget comes from a vehicle surcharge that does not actually represent state funds. Although this surcharge is collected by the State through the Department of Motor Vehicles, see Cal. Health & Safety Code § 44227, it is imposed at the discretion of the District, levied against vehicles registered within the District, and returned to the District to further its goal of reducing air pollution. See id. §§ 40701.5(a)(5), 44223, 44229. The district court properly determined that the “state vehicle surcharge” is more appropriately considered a local tax. 1550 BEENTJES v. PLACER COUNTY AIR POLLUTION CONTROL Further, a former District officer testified that the nextlargest source of District revenue, the “Air Toxics ‘Hot Spots’ Information and Assessment Act,”2 is taken from local industries and therefore is not state funding. Taking these undisputed facts into account, between 1994 and 1999, local funds accounted for the vast majority of the District’s annual budget, while funds from the state treasury comprised no more than 10% of its annual budget. The District, relying on Belanger, argues that local funds that are commingled with (even a small amount of) state funds should no longer be deemed local in nature. See Belanger, 963 F.2d at 252 (holding that a judgment against a school district would be satisfied from state funds). State funds, however, comprised 75% of the school district’s budget in Belanger, id. (“[T]he bulk of the school district’s budget comes directly from the state school fund . . . .” ), whereas here they accounted for only a small percentage of the District’s budget. In addition, in Belanger we emphasized that the State of California exerts substantial control over the budgets of school districts. For example, the State imposes a revenue limit for each school district, determines the maximum amount of funding each district receives (and spends on students), and provides the necessary funds. Id. Therefore, “it was not commingling per se,”3 but rather the unique level of state control over the budgets of school districts that led us to conclude in Belanger that local funds were interchangeable with state funds. Id. In Belanger, it was the fact that “the state controlled the budget and would be required to make up any 2 See Cal. Health & Safety Code §§ 44300-44394. 3 Were commingling of funds the only requirement for immunity from suit, there would be few limits to the doctrine of sovereign immunity. See Savage, 343 F.3d at 1041 (“[I]f mere commingling were enough to bestow governmental agency status upon the School District, then it would also be an arm of the federal government, as well as an arm of the [County].”). BEENTJES v. PLACER COUNTY AIR POLLUTION CONTROL 1551 budgetary shortfalls” that made the state treasury vulnerable. Savage, 343 F.3d at 1042. By contrast, the District is required by California law to turn to local cities and counties, and not the State of California, to make up any budgetary shortfalls. Cal. Health & Safety Code § 40701.5(b) (stating that expenses not met by funding sources shall be provided by an assessment on cities that have a member on the district board and on counties within the district); see also id. § 40101(a)(1) (explaining that an air pollution control district’s funds may be appropriated from local counties and deposited in the district treasury). Moreover, the District has the discretion to replenish its budget by leasing, selling, or disposing of any property that it no longer uses and paying any resulting proceeds into the District’s general fund. Id. § 40701(e). With the authority to raise its own funds, the District bears a closer resemblance to the entities in Holz and Mt. Healthy than the school district in Belanger. In Holz, the fact that Alaska provided a set amount of state funds to local school districts suggested that the school districts could supplement those funds with their own revenues and, therefore, that a money judgment would not necessarily be paid with state funds. 347 F.3d at 1184. In Mt. Healthy, the Supreme Court held that the local school board was not an arm of the state, despite receiving a significant amount of money from the State of Ohio, because it had extensive powers to issue bonds and to levy taxes. 429 U.S. at 280; see also Hess v. Port Auth. Trans-Hudson Corp., 513 U.S. 30, 45 (1994) (noting the fact that the Port Authority generated its own revenues in concluding that it was not an arm of the state); Vierling v. Celebrity Cruises, Inc., 339 F.3d 1309, 1315 (11th Cir. 2003) (holding that an entity that was “financially self-sufficient, generate[d] its own revenues, and pa[id] its own debts” was not an arm of the state). The authority to raise independent revenue is a relevant consideration because “the fact that the state has given the entity the authority to generate revenue provides compelling evidence that the state has created an autonomous entity rather than an alter ego 1552 BEENTJES v. PLACER COUNTY AIR POLLUTION CONTROL or instrumentality that operates at the state’s behest and relies exclusively on state appropriations.” Alex E. Rogers, Note, Clothing State Governmental Entities with Sovereign Immunity: Disarray in the Eleventh Amendment Arm-of-the-State Doctrine, 92 Colum. L. Rev. 1243, 1308 (1992). The District finally argues that, even if it has other sources of funding, the State of California is ultimately responsible in the event that a money judgment threatens the District’s survival. The District relies on two cases in which we held that the first Mitchell factor weighed in favor of finding sovereign immunity even though the state was not legally responsible for a money judgment against the entity. See Aguon v. Commonwealth Ports Auth., 316 F.3d 899, 902-04 (9th Cir. 2003) (concluding that the Commonwealth Ports Authority (CPA) was an arm of the Commonwealth of the Northern Mariana Islands even though the Commonwealth was “not directly liable for a judgment against the CPA”)4; Alaska Cargo Transp., Inc. v. Alaska R.R. Corp., 5 F.3d 378, 380, 382 (9th Cir. 1993) (holding that a state-run railroad was an arm of the state despite a state law providing that the railroad, and not the state, was liable for a judgment against it).5 4 Although Eleventh Amendment sovereign immunity was not directly at issue in Aguon, we applied the Mitchell test to guide our analysis of whether the CPA was a “person” subject to suit under 42 U.S.C. § 1983. Aguon, 316 F.3d at 901-02. 5 In both Aguon and Alaska Cargo, we considered the first Mitchell factor together with the second—whether the entity performs a central governmental function—and concluded that the State was the “real, substantial party in interest” despite the fact that it was not legally obligated to satisfy a judgment against the entity. Aguon, 316 F.3d at 902 (stating that “we cannot divorce the second Mitchell factor . . . from our assessment of the first factor” in determining whether the Commonwealth, though not directly liable for a judgment against the CPA, was nonetheless the real party in interest (quoting Alaska Cargo, 5 F.3d at 380)); Alaska Cargo, 5 F.3d at 380 (“[W]e cannot divorce the second Mitchell factor, the governmental function [the railroad] performs, from our assessment of the first factor, which is the impact on the State of Alaska of a judgment against [the railroad].”). BEENTJES v. PLACER COUNTY AIR POLLUTION CONTROL 1553 In Alaska Cargo, however, we relied on a state statute that required the railroad to seek funding from the state legislature if a particular service was not self-sustaining. 5 F.3d at 381. Furthermore, “[w]e emphasized the unique role of the Alaska Railroad as the ‘life-support system for thousands of Alaskans’ that made it a central governmental function.’ ” Holz, 347 F.3d at 1184 (quoting Alaska Cargo, 5 F.3d at 381). Likewise, in Aguon, we noted that the Commonwealth would be forced to pay an unsatisfied money judgment against the CPA “to protect its island economy” because the CPA provided “essential seaport and airport services.” Aguon, 316 F.3d at 903. We also noted that the function of the CPA in the Commonwealth was “equally indispensable to the role of [the railroad] in Alaska.” Id. at 902. [6] Unlike in Alaska Cargo and Aguon, here the first Mitchell factor weighs against a finding of sovereign immunity because the District “is not a single, unique entity upon which a great part of the state depends for its lifeline, and there is no comparable structure of compulsion thrusting the State into the role of real, substantial party in interest.” Holz, 347 F.3d at 1185 (distinguishing the railroad at issue in Alaska Cargo from the public school district at issue in Holz). We held in Holz that in the absence of a showing that money used to pay a judgment will necessarily be replaced with state funds, “we adhere to our basic proposition that ‘the fact that the state may ultimately volunteer to pay the judgment . . . is immaterial; the question is whether the state treasury is legally obligated’ ” to do so. Id. (quoting Durning v. Citibank, N.A., 950 F.2d 1419, 1425 n.3 (9th Cir. 1991) (internal quotation marks omitted) (emphasis in original)). Because here, the applicable state law provides that the State has no legal obligation to pay a money judgment against the District, and because there is no evidence that the State would replace funds used to satisfy a judgment,6 the first Mitchell factor—the one given most 6 In its discovery responses, the District stated that it did not know whether it had a right of reimbursement from the State in the event that it was required to pay a judgment against it, because the District would first seek reimbursement from the county. 1554 BEENTJES v. PLACER COUNTY AIR POLLUTION CONTROL weight—favors a finding that the District is not an arm of the state.