Opinion ID: 2972923
Heading Depth: 3
Heading Rank: 1

Heading: Protection of the State Treasury

Text: “[T]he impetus for the Eleventh Amendment” is “the prevention of federal-court judgments that must be paid out of a State’s treasury,” Hess v. Port Auth. Trans-Hudson Corp., 513 U.S. 30, 48 (1994); therefore, the starting point for determining whether the JRS is entitled to assert Eleventh Amendment immunity is to ask who would be responsible for a judgment against the JRS. See S.J. v. Hamilton County, 374 F.3d 416, 422 (6th Cir. 2004); see also Hess, 513 U.S. at 48 (“Courts of Appeals have recognized the vulnerability of the State’s purse as the most salient factor in Eleventh Amendment determinations.”); Dubuc v. Mich. Bd. of Law Exam’rs, 342 F.3d 610, 615 (6th Cir. 2003) (“[T]he primary issue is whether the state would ultimately be liable for any money judgment against the entity.”); Alkire v. Irving, 330 F.3d 802, 811 (6th Cir. 2003) (citing Regents of the Univ. of Cal. v. Doe, 519 U.S. 425, 430 (1997)) (“The Supreme Court has now explicitly told us that [the issue of who would pay for a damage judgment against the defendant] is the most important factor bearing on the Eleventh Amendment question.”). In performing this inquiry, both this Court and the Supreme Court have emphasized that state law is important to the Eleventh Amendment analysis, because state law defines the nature of the entity claiming immunity. See, e.g., Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 280 (1977) (stating that the “answer” to whether an entity is considered an arm of the state or a political subdivision “depends, at least in part, upon the nature of the entity created by state law”); Hall v. Med. Coll. of Ohio, 742 F.2d 299, 303-04 (6th Cir. 1984) (noting that state “decisions and laws shedding light on the relationship of the [entity] to the state government are important, and potentially controlling”). In Musselman, the Michigan Supreme Court held that State courts lack the power to compel the State legislature to appropriate funds to fulfill the obligation set forth in Art. IX, § 24 of the Michigan Constitution to satisfy the accrued financial benefits of each State pension plan. See 533 No. 02-2287 Ernst, et al. v. Rising, et al. Page 19 N.W.2d at 246 (holding that “[t]he only defendant with authority to appropriate funds from the treasury is the Legislature,” and in the context of funding State pension plans, the court “lacks the power to require the Legislature to appropriate funds”). As explained by the Musselman court, This was the understanding of the drafters of art. 9, § 24, who likewise did not contemplate that the prefunding requirement could be enforced by a court. They expected that the decision to comply rested ultimately with the Legislature, whom the people would have to trust: It is the intention that we will put in each year enough in every fund to take care of the liability occurring during that year, so it will not go farther and farther behind. . . . [But] there is no way to compel the legislature to appropriate money. There is no way that I know of to compel a city council to raise more money. We have to put some faith in somebody, and this is being put in the legislature. [1 Official Record, Constitutional Convention of 1961, p. 773 (delegate Brake).] In other words, insofar as the plaintiffs are asking us to require the Legislature to appropriate funds for retirement health care benefits, we understand that the intention of the drafters was that the second sentence of Const. 1963, art. 9, § 24 is not self-executing. Because the provision is necessary to appropriate funds, it fails to “lay down rules by means of which [its] principles may be given the force of law.” Id. (quoting Davis v. Burke, 179 U.S. 399, 403 (1900) (quotation and citation omitted)). Thus, Musselman stands for the principle that a legal action cannot be maintained in a Michigan state court to compel the State to use treasury funds to fulfill the mandate of Art. IX, § 24. It follows, then, that Art. IX, § 24 cannot provide the basis for any subsequent legal action in federal court to compel the State to devote treasury funds towards fulfilling a judgment against a retirement system such as the JRS. The Eleventh Amendment would clearly bar any action to compel the State legislature to act, inasmuch as the legislature is an arm of the State. Cf. Eldridge v. Gibson, 332 F.3d 1019, 1021-22 (6th Cir. 2003) (state court “is clearly a branch of the state and as such is protected from suit by the Eleventh Amendment”); Johns v. Supreme Court of Ohio, 735 F.2d 524, 526 (6th Cir. 1985) (holding that suit against justices of State Supreme Court was barred by Eleventh Amendment as the State was clearly “the real party in interest”). Further, because there can be no legal action to enforce the Michigan Constitution against the State treasury, there can be no such action to enforce any of the relevant Michigan statutes against the State treasury. In other words, there can be no action in any court to force the State treasury to pay any part of a judgment relating to a federal claim in a lawsuit concerning the JRS; therefore, the State treasury is not subject to any potential legal liability. See Doe, 519 U.S. at 431 (holding that the underlying legal question in Eleventh Amendment immunity analysis “is the entity’s potential legal liability”). The majority purports to recognize that, under the Supreme Court’s decisions in Hess and Doe, the State treasury’s potential legal liability is the most important factor in the Eleventh Amendment analysis, yet it rejects Plaintiffs’ argument that, in light of Musselman, the State treasury faces no potential legal liability from an adverse judgment against the JRS. According to the majority, acceptance of Plaintiffs’ argument would preclude sovereign immunity in all cases, No. 02-2287 Ernst, et al. v. Rising, et al. Page 20 including those cases where the State is a named defendant, because most states have constitutions that mandate legislative, rather than judicial, control of the treasury. Therefore, the majority’s argument goes, “the more vigorously a State protected its treasury from judicial encroachment in state court the more vulnerable it would be to money-damages claims in federal court.” See Maj. Op. Part II.C. This argument has facial appeal, but one need not go any further than Hess to see that it is fundamentally flawed. Because the ‘impetus’ for the Eleventh Amendment is protection of the State treasury from federal-court judgments, “[t]he purpose of the immunity . . . largely disappears when a judgment against the entity does not entail a judgment against the state.” Jacintoport Corp. v. Greater Baton Rouge Port Comm’n, 762 F.2d 435, 440 (5th Cir. 1985) (quoted in Hess, 513 U.S. at 49); see also Metcalf & Eddy, Inc. v. Puerto Rico Aqueduct and Sewer Auth., 991 F.2d 935, 94243 (1st Cir. 1993) (quoted in Hess, 513 U.S. at 48) (“First, and most fundamentally, [the entity’s] inability to tap the Commonwealth treasury or pledge the Commonwealth’s credit leaves it unable to exercise the power of the purse. On this basis, [the entity] is ill-deserving of Eleventh Amendment protection.”). Where, as here, a judgment against the entity would not open up the State treasury to any potential legal liability, Hess teaches that the entity is not entitled to assert Eleventh Amendment immunity. B. Importance of Other Factors in Eleventh Amendment Immunity Analysis While the most important factor in Eleventh Amendment immunity analysis is “the prevention of federal-court judgments that must be paid out of a State’s treasury,” Hess, 513 U.S. at 48, the majority relies on the statement that “the sovereign immunity doctrine is about money and dignity,” S.J., supra, 374 F.3d at 421 (emphasis in original).1 While it is undoubtedly true that “current Eleventh Amendment jurisprudence emphasizes the integrity retained by each State in our federal system,” Hess, 513 U.S. at 39, and that there may be other factors in the immunity analysis, this Court’s Eleventh Amendment cases make clear that after Hess and Doe, the most significant factor is the State treasury’s potential legal liability. See Cash, 388 F.3d at 545; Dubuc, 342 F.3d at 615; Alkire, 330 F.3d at 811; Brotherton, 173 F.3d at 560. Further, our post-Hess cases imply that where, as here, it is clear that the State treasury has no potential legal liability, the importance of the other factors in the immunity analysis is diminished. For example, in Dubuc, we concluded that where no evidence was presented regarding the issue of whether the funds to satisfy a judgment would come from the State treasury, the other factors may be considered. See 342 F.3d at 615 (“The parties have not submitted any evidence regarding whether the State of Michigan would be ultimately responsible for any money judgment against the Board or the Bar. The other factors, however, weigh in favor of finding the Board and the Bar immune from this lawsuit.”). By implication, then, if the evidence overwhelmingly demonstrates that the State will not be responsible for a judgment against the defendant entity, consideration of the other factors is unnecessary. This is consistent with our analysis in Brotherton, where, because it was clear that the State would not be responsible for paying a judgment against the defendants, we found it unnecessary to determine whether Hess’ emphasis on the State treasury is “dispositive,” or rather, whether it “plac[es] 1 At least one commentator has persuasively argued that the “dignity” rationale does little to protect state interests, and may actually cut against state sovereign immunity and in favor of civil liability. See Ernest A. Young, State Sovereign Immunity and the Future of Federalism, 1999 SUP. CT. REV. 1, 53-4. Quoting Justice Wilson’s statement in Chisolm v. Georgia (the case that prompted the Eleventh Amendment), that “‘[a] State; useful and valuable as the contrivance is, is the inferior contrivance of man; and from his native dignity derives all its acquired importance.’” Professor Young notes that “[a] state has an interest in preserving the integrity of its internal decision-making processes, for example, because that will insure that it remains responsive and accountable to its citizens and not to some other body.” Id. at 53 (quoting Chisolm v. Georgia, 2 U.S. (2 Dall) 419, 455 (1793) (Opinion of Wilson, J.). Defining dignity “as the credibility of public institutions,” Young concludes that dignity “might cut in favor of civil liability,” because “[i]n our constitutional tradition, confidence in the government arises rather directly from the proposition that the government is subject to the rule of law.” Id. at 54 (citing Andrzej Rapaczynski, From Sovereignty to Process: The Jurisprudence of Federalism After Garcia, 1985 SUP. CT. REV. 341, 357). Thus, “the dignitary argument is far from compelling when placed in the context of modern sovereign immunity doctrine.” Id. No. 02-2287 Ernst, et al. v. Rising, et al. Page 21 significant weight on one factor of a multi-factor test.” 173 F.3d at 561. Not only does this statement demonstrate that the State treasury issue is clearly the most important factor after Hess, it strongly suggests that where it is clear that the State will not be responsible for paying a money judgment against the entity, the other factors are unimportant. Thus, the majority’s reliance on other factors is unavailing given that it is clear the State of Michigan has no potential legal liability for a judgment against the JRS. Even assuming that factors other than the State treasury liability issue have some relevance in the instant case, they still would not cut in favor of immunity, in part because some of those other factors also cut in favor of finding the JRS akin to a municipality rather than a political subdivision. Functionally, the JRS is more aptly characterized as proprietary rather than governmental, because the JRS operates for profit and for the material benefit of itself and its beneficiaries, not for the material benefit of the general public.2 Additionally, the JRS enjoys a fair degree of autonomy. See, e.g., Mich. Comp. Laws § 38.2204(1) (“The retirement board has the rights, authority, and discretion in the proper discharge of retirement board duties pursuant to the executive organization act of 1965, Act No. 380 of the Public Acts of 1965 . . . .”). It is undisputed that the JRS can sue and be sued in state court, and that it has the authority to enter into contracts with private individuals or corporations. See Mich. Comp. Laws § 38.2205. Further, the record reflects that the JRS has contracted with the State and paid the State money for things such as building rentals, technological support, investment services, and fees to the Attorney General. Although other factors in the immunity analysis may weigh in favor of finding that the JRS is an arm of the state, balanced against the state treasury liability issue, the most important factor, as well as the JRS’s proprietary function, autonomy and contracting abilities, it is clear that the JRS is not entitled to assert Eleventh Amendment immunity. The majority’s conclusion to the contrary misses the mark entirely. Finally, the majority’s citation to other cases that it claims “have held that state employee retirement systems are arms of the State” is unpersuasive. See Maj. Op. Part II.B. While on the surface these cases may appear to support the majority’s position, upon closer examination it is clear that most are distinguishable or, at the very least, are of questionable import inasmuch as they fail to recognize that the paramount issue is the State treasury’s potential legal liability. For example, Fitzpatrick v. Bitzer is distinguishable because unlike the JRS, the Connecticut Retirement Fund at issue in that case had “none of the indicia of independence from the state, such as separate incorporation or a power to sue in its own name.” 519 F.2d 559, 565 (2d Cir.), rev’d in part on other grounds, 427 U.S. 445 (1976). In Fitzpatrick, “[a] judgment against the fund would thus automatically increase the obligations of the general state treasury and amount to a judgment against the state.” Id. (emphasis added). Far from being automatic, the State’s potential legal liability here is entirely hypothetical, given that the State legislature has no enforceable obligation to fund the JRS. Cf. Boatmen’s First Nat’l Bank of Kansas City v. Kan. Pub. Employees Ret. Sys., 915 F. Supp. 131, 137-38 (W.D. Mo. 1996) (“[T]o show a greater connection to the state treasury, KPERS relies on a more attenuated scenario–the theoretical possibility that someday KPERS will incur an enormous judgment that will require it to increase the rate of employer contributions to make up the shortfall. KPERS asserts that this hypothetical and roundabout connection to the Kansas state treasury is sufficient to satisfy the Hess standard. The Court disagrees. The mere possibility of having to pay for a judgment is simply not good enough.”); Bowen v. Hackett, 387 F. Supp. 1212, 1221 (D.R.I. 1975) (“The fact that the General Assembly may feel morally obligated to replenish the funds in time of emergency is of no consequence. Such a possible ancillary effect on the state’s 2 A “governmental function” is defined as the legally authorized conduct of a government agency “that is carried out for the benefit of the general public.” BLACK’S LAW DICTIONARY (7th ed. 1999). Conversely, a “proprietary function” is “[a] municipality’s conduct that is performed for the profit or benefit of the municipality rather than for the benefit of the general public.” Id. at 1235. Although one could argue that a financially stable judicial retirement system benefits the public to the extent that it contributes to the retention of judges and the smooth functioning of the judiciary, the JRS nevertheless is primarily proprietary in nature. No. 02-2287 Ernst, et al. v. Rising, et al. Page 22 general treasury is simply too attenuated to bring the Eleventh Amendment into play.”) (citation omitted). Similarly, in Hair v. Tenn. Consol. Ret. Sys., another case cited by the majority, the retirement system at issue had to submit a budget request to the State legislature for its annual operating expenses, and thus a judgment against the entity “would require a special appropriation from the [Tennessee] General Assembly.” 790 F. Supp. 1358, 1364 (M.D. Tenn. 1992). Again, this situation is distinguishable from the JRS, which pays its own operating expenses. Other cases cited by the majority fail to perform any meaningful analysis of Eleventh Amendment immunity, or rely on altogether faulty reasoning. See, e.g., JMB Group Trust IV v. Penn. Mun. Ret. Sys., 986 F. Supp. 534, 538 (N.D. Ill. 1997) (holding, in contravention of Hess, that because retirement system is “subject to the direction and control” of the State, “the court need not address whether a judgment against the PMRS would have an effect upon the Pennsylvania State Treasury”); Sculthorpe v. Va. Ret. Sys., 952 F. Supp. 307, 309-10 (E.D. Va. 1997) (finding without analysis that retirement system is an arm of the state); Mello v. Woodhouse, 755 F. Supp. 923, 926 (D. Nev. 1991) (same); Reiger v. Kan. Pub. Employees Ret. Sys., 755 F. Supp. 360 (D. Kan. 1990) (short memorandum and order finding, without analysis, that retirement system is an arm of the state); United States v. South Carolina, 445 F. Supp. 1094, 1099-1100 (D.S.C. 1977) (finding without analysis that retirement system is an arm of the state). The majority impermissibly departs from clear Supreme Court and Sixth Circuit precedent by holding that the JRS is entitled to assert Eleventh Amendment immunity. Under existing case law, most notably Hess, the most important factor in the Eleventh Amendment analysis–the State treasury’s potential legal liability–is clearly not implicated here. Neither the other possible factors in the Eleventh Amendment immunity analysis, nor the other retirement system cases cited by the majority, alter the fact that Musselman makes clear that the State has no obligation to fund the JRS, and it could not be forced to pay a judgment on the JRS’ behalf. Therefore, the JRS is not entitled to assert Eleventh Amendment immunity.