Opinion ID: 3022284
Heading Depth: 4
Heading Rank: 1

Heading: State Funds Contributed to the Board’s Budget

Text: Whether an entity claiming immunity has, or can raise, sufficient funds to satisfy a judgment has typically been a factor in our state-treasury analysis. See, e.g., Peters, 16 F.3d at 1350; Fitchik, 873 F.2d at 659-60. In the instant case, the District Court concluded that payment of a judgment would necessarily come from the portion of the Board’s budget received from the state. We find this unsupported. The record before us indicates that Camden schools receive revenue from a number of sources. While non-state funds comprise a relatively small percent of the Board’s budget, they still total a significant sum, with nearly $7.5 million in local taxes and nearly $25 million in federal grants in 2004-2005. (A48.)6 In addition, the Board is 5 While we have consistently explained that the quantity or proportion of state funding received by an entity is not dispositive, we have described it as potentially probative. See Blake v. Kline, 612 F.2d 718, 723 (3d Cir. 1979); see also Carter, 181 F.3d at 348 (reasoning that “[t]he funding factor weighs even more heavily against immunity in this case than it did in Fitchik and Bolden,” where larger portions of the agencies’ funds came from the states); Bolden, 953 F.2d at 819 (similarly comparing the portion of the agency’s funding contributed by the state with the portion contributed in Fitchik). Rutgers illustrates the limited weight that attaches to the size, absolute or relative, of the state’s contribution, 822 F.3d at 1308 (noting that state funding, one of Rutgers’ four sources of funding, composed up to seventy percent of the University’s general operating account). 6 As noted in Camden County Recovery Coalition, the state provides the lion’s share of funding to the Camden schools. The state’s sizeable contribution in part reflects Camden’s status, dating back to the 1990s, as a so-called Abbott district. Cf. Abbott v. Burke, 575 A.2d 359 (N.J. 1990) (authorizing funds to provide remedial programs and services to disadvantaged students); N.J. Admin. Code §§ 6A:24-1.1 et seq. 11 statutorily authorized to raise revenues through taxes, pursuant to the Comprehensive Educational Improvement and Financing Act, N.J. Stat. Ann. § 18A:7F-5(d). Alternatively, to increase funds, the Board could undertake to reduce expenses, cf. Fitchik, 873 F.2d at 661, or, as counsel for the Board acknowledged in the District Court, sell assets (A14-15). Furthermore, we are not persuaded that it is of legal consequence whether Board funds employed to satisfy a judgment were funds which had initially been provided by the state. The record does not suggest that New Jersey retains ownership or control of the funds appropriated to the Board. (A22.) As we noted in Fitchik, “[w]e do not see [the gubernatorial veto] as indicating state ownership of the money already in [an entity’s] accounts. We think it, instead, to be relevant to the third factor . . . [,] autonomy.” 873 F.2d at 660; see also Christy, 54 F.3d at 1146 (finding that the state’s control over the Pennsylvania Turnpike Commission’s “authority to issue bonds, notes, and other obligations falls short of indicating state ownership of funds obtained through the issuance of such bonds, notes, and other obligations” (emphasis in original)). The magnitude of the state’s contribution does not alter the fact that, once deposited in the Board’s accounts, these funds belong to the Board. If then used to pay a judgment, we can say only that the judgment was satisfied with the Board’s monies. Cf. Fitchik, 873 F.2d at 661-62; Rutgers, 822 F.2d at 1308; Blake v. Kline, 612 F.2d 718, 723-24 (3d Cir. 1979); cf. also Metcalf & Eddy, Inc. v. Puerto Rico Aqueduct & Sewer Auth., 991 F.2d 935, 941 (1st Cir. 1993) (reaching the same conclusion). It is undisputed that the Camden Board of Education has a relatively poor tax base and is less financially independent than many of the entities we have previously found not clothed with immunity, such as NJT, SEPTA, and Rutgers University. Nonetheless, given what the record before us discloses with respect to the Board’s varied sources of existing and potential funds, the Board has not established that it cannot satisfy a judgment with its own monies. Cf. Christy, 54 F.3d at 1146-47. 2. Additional State Funds to Compensate for Payment of a Judgment 12 While the parties agree that New Jersey is not legally responsible for the Board’s unassumed debts, the Board presses us to consider the likely impact of an adverse judgement: The Board alleges that New Jersey would be forced, as a practical matter, to increase its appropriations to refill the Board’s coffers, following the Board’s payment of a judgment. Since the state is under no legal obligation to do so, such appropriations––if they were to be made––would constitute a voluntary or discretionary subsidy. (The fact that such a contribution might be sorely needed and greatly appreciated by the Board, would not alter the nature of the state treasury’s obligations.) We have long held that a state’s voluntary contributions to an entity do not create an Eleventh Amendment jurisdictional bar: “Although the [state] might well choose to appropriate money to [an entity] to enable it to meet a shortfall caused by an adverse judgment, such voluntary payments by a state simply do not trigger Eleventh Amendment immunity.” Christy, 54 F.3d at 1147 (internal quotation marks omitted) (emphasis in original); see, e.g., Fitchik, 873 F.2d at 661; Blake, 612 F.2d at 726.7 At the same time, we recognize that some of our case discussions can be read as intimating that attention may properly be given to the derivative consequences for the state that might flow from a substantial judgment against the sued entity. See, e.g., Carter, 181 F.3d at 348 & n.25 (observing that any judgment would not be paid “directly or indirectly” by the state); Bolden, 953 F.2d at 819 (commenting that a state “might feel compelled as a practical matter to subsidize . . . financially pressed municipalities,” but concluding that this “would not necessarily transform the recipients into alter egos of the state” (emphasis added)). In Hess, the Supreme Court emphasized the import of 7 Other circuits have reached the same conclusion. See, e.g., Barket, Levy & Fine, Inc. v. St. Louis Thermal Energy Corp., 948 F.2d 1084, 1087 (8th Cir. 1991). 13 legal liability, without disavowing practical considerations.8 The Court queried, for example: “Is the State in fact obligated to bear and pay the resulting indebtedness of the enterprise? When the answer is “No”––both legally and practically––then the Eleventh Amendment’s core concern is not implicated.” Hess, 513 U.S. at 51; id. at 45-46 (assessing the Port Authority’s financial independence, as well as the states’ legal liability for its debts).9 8 In an earlier decision, the Supreme Court also explained that an agency may “invoke the [Eleventh] Amendment in order to protect the state treasury from liability that would have . . . essentially the same practical consequences as a judgment against the State itself.” Lake Country Estates, Inc., 440 U.S. at 401. 9 The Hess Court acknowledged, in dicta, that immunity properly attaches where an agency in question “‘is so structured that, as a practical matter, if the agency is to survive, a judgment must expend itself against state treasuries . . . .’” Id. at 50 (quoting Morris v. Wash. Metro. Area Transit Auth., 781 F.2d 218, 227 (D.C. Cir. 1986), and citing Alaska Cargo Transp., Inc. v. Alaska R.R. Corp., 5 F.3d 378 (9th Cir. 1993)). The facts of the two cases cited by the Court suggest the types of limited circumstances in which the Court might expect such concerns to require immunity, regardless of the state’s legal liability. In Morris, immunity was accorded to an interstate transit system. Analysis of both the entity’s status under state law and its limited autonomy suggested it was an arm of the two states the transit system served. Morris, 781 F.2d at 226-28. While the states involved were not directly liable, Congressional funding for the system was made contingent upon the states’ agreement to meet the system’s operating deficits, which could include adverse judgments. And, from the beginning it was fully anticipated that the entity would have large deficits and thus continually be dependent on the states for its financial survival. Id. at 225-26. Alaska Cargo Transport held that the railroad at issue was entitled to immunity as an alter ego of the state, even though the state had expressly disclaimed liability for it by statute. The case turned on the critical function performed by the railroad in Alaska, and federal laws which essentially required the state to keep the railroad afloat. Alaska Cargo Transp., Inc., 5 F.3d at 381. 14 More recent Supreme Court opinions, such as Auer v. Robbins, 519 U.S. 452, 456 n.1 (1997) and Regents of the University of California v. Doe, 519 U.S. 425 (1997), shed some further light on the role of state funding in arm-of-the-state analysis. Doe, in particular, illustrates the Court’s emphasis on the question of legal liability. There, the Supreme Court, confronting a “narrow question,” held that the University of California––an entity for which the state was legally liable and which had previously been deemed an arm of the state––retained immunity even when the state had been indemnified, such that a final judgment would actually be paid by the federal government. Doe, 519 U.S. at 426, 430-31. The case thus stands, at least, for the proposition that an entity’s immunity is not vitiated when the state, which is legally liable, does not actually pay a judgment. Although, as a California court later observed, it does “not follow that the converse is also true, i.e., that if an entity uses funds provided by the state to pay a judgment for which the state is not legally liable, there can be no immunity,” Kirchmann v. Lake Elsinore Unified Sch. Dist., 83 Cal. App. 4th 1098 (Cal. Ct. App. 2000), Doe effectively conveyed the centrality of legal liability: “Of course, the question whether a money judgment against a state instrumentality or official would be enforceable against the State is of considerable importance to any evaluation of the relationship between the State and the entity or individual being sued.” Doe, 519 U.S. at 430.10 The Court further explained: Just as with the arm-of-the state inquiry, . . . with respect to the underlying Eleventh Amendment question 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. Id. at 431; see Benn, 426 F.3d at 239 (quoting Doe for this proposition); Cash v. Granville County Bd. of Educ., 242 F.3d 10 We do not mean to suggest that Doe was a departure from Hess. To the contrary, Doe here draws upon Hess, including the portion we have quoted, supra. 15 219, 224-25 (4th Cir. 2001); Duke v. Grady Municipal Schs., 127 F.3d 972, 980-82 (10th Cir. 1997). In view of the controlling Supreme Court jurisprudence, as well as our own conforming case law, we find that the practical or indirect financial effects of a judgment may enter a court’s calculus, but rarely have significant bearing on a determination of an entity’s status as an arm of the state. A state’s legal liability (or lack thereof) for an entity’s debts merits far greater weight, and is therefore the key factor in our assessment of the state-treasury prong of the Fitchik analysis. In the case before us, the Board does not point to any evidence demonstrating that additional funds would, in fact, be provided by the state (as opposed to the Board finding it necessary to draw on the sources discussed supra, such as additional tax levies or sales of assets).11 While we have little doubt that the state has an interest in seeing that Camden’s schools remain operational, it would be improper to confer immunity based on our conjecture about the steps New Jersey might take following a judgment. The absence of any legal obligation on the part of New Jersey to provide funds in response to an adverse judgment against the Board is a compelling indicator that the state-treasury criterion––the first prong of the Fitchik test––weighs against immunity. Further, while the record shows that the Board receives very substantial 11 In support of its position, the Board reminds us of Camden’s weak tax base and of the large portion of total revenue provided by the state. Neither of these facts tells us how the state is likely, let alone obliged, to respond to a Board shortfall. We note that state aid to the Camden school district is calculated using a statutory formula, and that a process for applying for supplemental aid is also provided by state statute. See Comprehensive Educational Improvement and Financing Act of 1996, N.J. Stat. Ann. § 18A:7F-1 et seq. No argument has been made, nor evidence presented, that applying for funds to cover or to reimburse a liability would qualify for supplemental aid. The state retains the option to reject supplemental requests. See N.J. Stat. Ann. § 18A:7F-6. 16 state funding, the Board possesses some alternative sources of revenue, and has not demonstrated that it would be incapable of satisfying a judgment against it, see supra Subsection II.C.1. Thus, we are not in accord with the District Court’s view that the state-treasury criterion weighs in favor of finding the Board to be an arm of the state. D. The Totality of the Factors The Board’s legal status under state law supports the conclusion that it is not an arm of the state of New Jersey. The Board’s somewhat constrained autonomy, on the other hand, slightly favors its classification as an arm of the state. Therefore, the state-treasury analysis is decisive in this case, and it counsels against the Board’s immunity as an arm of the state. On balance, we hold that the Board has failed to show that it is entitled to Eleventh Amendment immunity. Accordingly, we find that the Board is subject to suit in federal court. The judgment of the District Court will therefore be reversed, and the case remanded for further proceedings.12 12 Because we so conclude we need not reach the issue of whether Congress has abrogated the state’s immunity under the self-care provision of the FMLA. In addition, in accordance with the appellants’ stated position, we need not address the District Court’s denial of appellants’ request for leave to amend their complaint. 17