Opinion ID: 6333580
Heading Depth: 2
Heading Rank: 2

Heading: Where NICA derives its funds

Text: Next, the Court must determine “the source of [NICA’s] funding.” Manders, 338 F.3d at 1344. When it was created, NICA received an initial $20 million appropriation and has since been funded exclusively by assessments and investment income. The legislature set aside an additional $20 million reserve in the state Insurance Regulatory Trust Fund to be used if NICA ever becomes not actuarily sound. Fla. Stat. § 766.314(5)(b). And as we have noted, Florida statutes provide that “[f]unds held on behalf of the plan are funds of the State of Florida.” Id. § 766.315(5)(f). NICA argues that it is funded “exclusively by the State.” It cites to Williams v. District Board of Trustees of Edison Community College, Florida, 421 F.3d 1190, 1194 (11th Cir. 2005), to show that state funding points to a finding that an entity is an arm of the state. [Id.]. While that proposition is no doubt true, the Williams Court focused more on the fact that the state had to approve the budget of the community college there in determining that this factor weighed in favor of finding that it was an arm of the state. 421 F.3d at 1194. It acknowledged, “Although [the community college] is not exclusively funded by the state, state approval of institutional budgets evidences state control.” Id. But as we have noted, NICA’s budget is not subject to state approval. USCA11 Case: 20-13448 Date Filed: 04/21/2022 Page: 16 of 21 16 Opinion of the Court 20-13448 Next, we consider the role the assessments play in funding NICA—both the mandatory ones that all physicians must pay and the voluntary ones that obstetricians pay to participate in the Plan. In Coy, the Florida Supreme Court considered whether the mandatory assessments were valid and decided they were valid “taxes” under state law. See Coy, 595 So. 2d at 945. The court did not specifically consider the nature of the voluntary assessments. But we note that all the assessments are paid directly to NICA, never passing though the State treasury. Fla. Stat. § 766.314(3). NICA argues that the rationale of Coy applies to both the mandatory and voluntary assessments; they are all “taxes,” so NICA is state-funded. We disagree. In holding that the mandatory assessments were taxes, the Coy court explained, Initially, we find that the [mandatory] $250 assessment in this case constitutes a “tax” within the meaning of Florida law. In the past, we have defined a tax as an enforced pecuniary burden laid on individuals or property to support government. . . . Here, the $250 assessment is levied upon physicians to support a governmental enterprise, i.e., a state-created system for compensating certain individuals for certain types of birth-related injuries. The assessment is collected under authority of state law, and the Plan can sue to enforce the assessment. . . . It thus is a tax and is subject to the requirements of law applicable to taxes. USCA11 Case: 20-13448 Date Filed: 04/21/2022 Page: 17 of 21 20-13448 Opinion of the Court 17 595 So. 2d at 945 (emphases added). Both assessments are of course “collected under authority of state law,” but the voluntary assessments are not “enforced” or “levied.” They are voluntary for obstetricians who would prefer the no-fault liability system to regular tort liability. If an obstetrician doesn’t want to pay the assessment and participate in NICA, she isn’t obligated to do so. So the Coy court’s reasoning for characterizing the mandatory payments as “taxes” does not apply to the obstetricians’ payments. Nor is it even consistent with the common sense understanding of “taxes” as mandatory. Rather, as the district court found, the voluntary assessments are more like insurance premiums that the obstetricians would otherwise pay to a malpractice insurer than they are like taxes. Providing insurance is traditionally a private enterprise, so the government’s decision to wade into that field suggests that NICA does not act as an arm of the state. In any event, NICA is funded far more by its investment income than by assessments. In 2019, NICA earned more than $103 million from its investments, which was almost 4 times its revenue from assessments. The Arvens argue that this makes this factor weigh against finding that NICA is an arm of the state. NICA responds that the initial appropriation and the assessments are state funds, and they generated the investment income, so the investment income shouldn’t weigh against an arm-of-the-state finding. We are not persuaded. In Hess v. Port Authority TransHudson Corp., 513 U.S. 30 (1994), the Supreme Court considered whether the Port Authority Trans-Hudson Corporation was an USCA11 Case: 20-13448 Date Filed: 04/21/2022 Page: 18 of 21 18 Opinion of the Court 20-13448 arm of the state and enjoyed Eleventh Amendment immunity. It concluded it did not. In reaching this decision, the Court noted that the Port Authority had once received appropriations from the states but hadn’t for a long time because it was so well-funded by its investment income, tolls, and fees. Indeed, the Court observed that the Port Authority was “[c]onceived as a fiscally independent entity financed predominantly by private funds, . . . [so] the Authority generate[d] its own revenues, and for decades ha[d] received no money from the States.” Hess, 513 U.S. at 45. We also emphasized this point in Manders, when we distinguished Hess. We explained that the Port Authority “was financially independent, with funds from private investors, tolls, fees, and investment income.” Manders, 338 F.3d at 1325 (citing Hess, 513 U.S. at 36, 49–50). To be sure, NICA differs from the Port Authority in that, at one point, the Port Authority (unlike NICA) had also been funded by private investors. But that’s not what the Supreme Court found significant. Rather, when the Supreme Court concluded that the Port Authority was not an arm of the state, the Court emphasized that the Port Authority “generate[d] its own revenues” and “for decades ha[d] received no money from the States,” Hess, 513 U.S. at 45. As we have explained, NICA shares these qualities. So on balance, this factor weighs against a finding that NICA is an arm of the state. NICA’s budget is not subject to approval by the state (like the budget in Williams, 421 F.3d at 1194), the voluntary assessments NICA collects are more like malpractice insurance USCA11 Case: 20-13448 Date Filed: 04/21/2022 Page: 19 of 21 20-13448 Opinion of the Court 19 premiums (which are traditionally collected by private insurance companies) than like taxes, and NICA’s primary source of funding comes from investment income rather than state funds (like for the Port Authority in Hess, 513 U.S. at 45). IV. Who Is Responsible for Judgments Against NICA? Last, and “most important,” Freyre v. Chronister, 910 F.3d 1371, 1384 (11th Cir. 2018), we must determine whether Florida’s state treasury would have to pay a judgment against NICA. See Manders, 338 F.3d at 1324–27. NICA argues that, because its funds are “funds of the State of Florida,” Fla. Stat. § 766.315(5)(f), any judgment against NICA is necessarily against the state. It also argues that if “judgments against NICA become large enough, the State would be able to preserve the Plan’s actuarial soundness only by raising the taxes which fund the Plan or appropriating general treasury funds.” In support, NICA relies on Lesinski. There, we held that a judgment against the South Florida Water Management District implicated the state’s treasury because “[s]hould judgment creditors deplete the District’s funds to the point that it can no longer effectively function, the State would ultimately have to choose between increasing its appropriation to make up the shortfall or shirking its constitutionally mandated duty to ‘conserve and protect [the State’s] natural resources and scenic beauty.’” 739 F.3d at 605. We do not agree with NICA’s conclusion. For starters, the mere fact that the legislature called NICA’s funds the state’s funds USCA11 Case: 20-13448 Date Filed: 04/21/2022 Page: 20 of 21 20 Opinion of the Court 20-13448 in a statute can’t circumvent the Manders-factors analysis if a functional analysis of the reality shows that the state is not responsible for judgments against NICA. So the language from the Florida statute isn’t dispositive. And here, NICA’s argument that the state treasury would have to step in if the judgment is large enough is too speculative. That contention ignores NICA’s very solvent position. Indeed, it’s unlikely that the judgments would ever be high enough to drain all NICA’s funds. But perhaps even more significantly, we don’t even know whether the state would pay the judgments if NICA didn’t have enough money. Based on the information submitted by the parties, it’s just as likely that the legislature would let NICA go insolvent and abandon the whole program. Unlike in Lesinski, the state’s under no constitutional duty to operate NICA. Other circuits have also rejected reasoning much like NICA’s. See Fresenius Med. Care Cardiovascular Res., Inc. v. P.R. & Caribbean Cardiovascular Ctr. Corp., 322 F.3d 56, 75 (1st Cir. 2003) (“In the end, [the entity’s] argument is simply that a judgment would deplete its operating funds, that the Commonwealth might choose to rescue it, and that this would indirectly deplete the state treasury. We rejected this very argument [previously], and do so here.”); Bolden v. Se. Pa. Transp. Auth., 953 F.2d 807, 819 (3d Cir. 1991) (“discretionary subsidies [by the state] committed in reaction to a judgment, however, would not necessarily transform the recipients into alter egos of the state”). USCA11 Case: 20-13448 Date Filed: 04/21/2022 Page: 21 of 21 20-13448 Opinion of the Court 21 In short, this factor weighs against finding that NICA is an arm of the state.