SD State Cement Plant v. WAUSAU UNDERWRITERS INS., Civ. No. 91-3027.

• Decision Date: 27 November 1991
• Docket Number: Civ. No. 91-3027.
• Citation: 778 F. Supp. 1515
• Parties: SOUTH DAKOTA STATE CEMENT PLANT COMMISSION, d/b/a South Dakota Cement Plant, for the Use and Benefit of the STATE OF SOUTH DAKOTA, Plaintiff, v. WAUSAU UNDERWRITERS INSURANCE COMPANY, a Member of Wausau Insurance Companies, Defendant.
• Court: U.S. District Court — District of South Dakota

778 F. Supp. 1515

SOUTH DAKOTA STATE CEMENT PLANT COMMISSION, d/b/a South Dakota Cement Plant, for the Use and Benefit of the STATE OF SOUTH DAKOTA, Plaintiff, v. WAUSAU UNDERWRITERS INSURANCE COMPANY, a Member of Wausau Insurance Companies, Defendant.

Civ. No. 91-3027.

United States District Court, D. South Dakota.

November 27, 1991.

Ronald W. Banks, Banks, Johnson, Johnson, Colbath & Huffman, P.C., Rapid City, S.D., for plaintiff.

James C. Robbennolt, Olinger, Lovald, Robbennolt & McCahren, P.C., Pierre, S.D., and Patricia St. Peter, Brooks F. Poley, Zelle & Larson, Minneapolis, Minn., for defendant.

AMENDED MEMORANDUM OPINION

DONALD J. PORTER, District Judge.

On June 20, 1991, plaintiff sued Employers Insurance of Wausau,¹ in the Sixth Judicial Circuit Court of South Dakota. Plaintiff seeks judicial determination of the extent of the liability coverage provided by defendant and recovery for breach of defendant's alleged contractual duty to defend plaintiff in an action brought against the Cement Plant in Wyoming.

Under 28 U.S.C. § 1441, defendant removed the case to this Court, alleging that this Court has jurisdiction under 28 U.S.C. § 1332 on the ground that diversity of citizenship exists between plaintiff and defendant and that the amount in controversy exceeds $50,000.00.

Plaintiff has moved to remand the case to the State court, contending the Cement Plant is not a citizen of the State of South Dakota for diversity purposes and this Court thus lacks jurisdiction under 28 U.S.C. § 1332.

DISCUSSION

The issue before this Court is one of subject matter jurisdiction. A U.S. district court may accept a case upon removal from a State court only if the case is one that originally could have been brought in federal court. Caterpillar, Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 2429, 96 L.Ed.2d 318 (1987) (citing 28 U.S.C. § 1441(a)). The governing removal statute reads in part:

Except as otherwise expressly provided by Act of congress, any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.

28 U.S.C. § 1441(a). In this case, the defendant removed the suit to this Court under 28 U.S.C. § 1332, which grants federal district courts original jurisdiction over:

(a) ... all civil actions where the matter in controversy exceeds the sum or value of $50,000, exclusive of interest and costs, and is between—

(1) citizens of different States; ...

28 U.S.C. § 1332(a)(1).

Neither side disputes the amount in controversy requirement. The diversity of citizenship requirement is, however, at the heart of the parties' disagreement. Plaintiff contends that, as an arm of the executive branch of the South Dakota State government, it brought suit against defendant in the name of the State of South Dakota. Defendant maintains that the Cement Plant is in fact a commercial entity independent of the State of South Dakota and thus a "citizen" for diversity purposes.

A State is not a "citizen" for the purposes of diversity jurisdiction. Moor v. County of Alameda, 411 U.S. 693, 717, 93 S.Ct. 1785, 1799, 36 L.Ed.2d 596 (1973). And if an agency, commission, or political subdivision that is party to a suit is an arm of the State, that entity similarly does not qualify as a "citizen" who can sue and be sued in federal court under 28 U.S.C. § 1332. Id. at 693, 93 S.Ct. at 1785. Thus, if the Cement Plant is an alter ego of the State of South Dakota, this Court lacks diversity jurisdiction.

This Court considered a somewhat similar question in Board of Regents v. Hoops, 624 F.Supp. 1179 (D.S.D.1986). In Hoops, the status of the State Board of Regents, which governs the state-supported educational institutions, was examined upon removal of the case from state court. The several factors considered in determining whether this agency was a "citizen" included the agency's right to hold and use property; its authority to sue and be sued in its corporate name; the extent of its independent management authority; the treatment of the agency by the State's courts; whether the State was responsible for the agency's debt; the agency's concern with statewide, as opposed to local problems; and the degree of financial autonomy of the agency. Id. at 1181 (citing Tradigrain Inc. v. Mississippi State Port Auth., 701 F.2d 1131, 1132 (5th Cir. 1983)). No one factor standing alone is conclusive as to the citizenship status of a state agency or commission. Rather, the relative weight of each of these listed factors is considered by examining the state constitution, applicable statutes, and pertinent case law. See Tradigrain, 701 F.2d at 1132.² See also Peter Kiewit Sons Co. v. South Dakota State Highway Comm'n, 269 F.Supp. 333, 337 (D.S.D.1967) (in deciding that South Dakota Highway Commission is "arm of the state," district court stated "although the federal court makes an independent determination of the character and status of a state agency, it is influenced by state decisions").

The Cement Plant's management powers granted by the statute suggest that it enjoys a certain degree of autonomy. The South Dakota Cement Plant Commission controls the management of the Plant, SDCL 5-17-2.3, and its members are compensated from the cement plant fund. SDCL 5-17-4. The Commission also has the power to hire employees and other professionals, including attorneys. SDCL 5-17-5. The Cement Plant Commission can acquire property, SDCL 5-17-8, can sell or lease real and personal property, SDCL 5-17-18, and can borrow money and issue bonds, SDCL 5-17-19. The legislature has also given the Commission the specific authorization to operate the Rapid City Plant, including the power to sell the cement products, to establish the prices, to repair, maintain, and improve the facilities, and to purchase equipment. SDCL 5-7-10. Indeed, the statutory provisions appear to grant the Commission, comprised of persons expert in a variety of skills,³ a significant degree of autonomy to make management decisions regarding the efficient operation of the State Cement Plant. To a great extent, the State Cement Plant enjoys significant "independent management authority."

The applicable statutory provisions, while granting the Commission freedom to manage and operate the Plant, also provide substantial links to the State government.⁴ For example, the Cement Plant's proprietary powers are qualified by significant State involvement. Specifically, the Plant has the power of eminent domain. SDCL 5-17-8. When the Commission deems it necessary, the Attorney General institutes the condemnation proceedings in the name of the State. Id. The Cement Plant Commission has the general authority to purchase real property; but when it sells, leases, or exchanges surplus real property, those transactions must be made in the name of the State of South Dakota and approved by the Governor. SDCL 5-17-8; SDCL 5-17-17. And if the Commission acquires property outside the State, title is to be held in the name of the State of South Dakota. SDCL 5-17-8.

In determining the Cement Plant's status in relation to the State, the extent of the Plant's financial autonomy is an influential factor. See Tradigrain Inc. v. Mississippi State Port Auth., 701 F.2d 1131 (5th Cir. 1983); Board of Regents v. Hoops, 624 F.Supp. 1179 (D.S.D.1986). The Plant can borrow money and issue bonds. These bonds, however, "shall be executed in the name and on behalf of the state," must be imprinted with the words "Internal Improvement Bonds of South Dakota," and will have affixed to them the State seal. SDCL 5-17-19. Furthermore, the state constitution authorizes the State to pledge the Cement Plant its credit to provide for the operation of the Plant and the manufacture of cement products. S.D.Const. art. XIII, § 11. The State not only pledges its "good faith and credit" to the redemption of the bonds, but also authorizes a tax to be levied to pay the bonded indebtedness. SDCL 5-17-23. The Commission is further authorized to issue "negotiable coupon general obligation bonds of the state" for the specific purpose of enlarging the Rapid City plant. SDCL 5-17-23. These bonds are, in the first instance, to be secured by the revenues of the Cement Plant. SDCL 5-17-24. But the State again pledges its full faith and credit to make up the difference whenever those revenues are insufficient to meet the immediate payments of principal and interest. Id. Financially, the Cement Plant enjoys significant State support.

Examination of the general characteristics of the Cement Plant also suggests that the Plant is ultimately closely linked to the State of South Dakota in its governmental capacity. Both the South Dakota Constitution and corresponding statutory provisions declare that the operation of the Cement Plant is considered a governmental function as well as a public necessity. The South Dakota Constitution states that "the manufacture, distribution and sale of cement and cement products are hereby declared to be works of public necessity and importance in which the state may engage...." S.D.Const. art. XIII, § 10. Furthermore, this section grants the legislature the authority to empower the state "to acquire, by purchase or appropriation, all lands, easements, rights of way, tracks, structures, equipment, cars, motive power, implements, facilities, instrumentalities and material, incident or necessary to carry the provisions of this section into effect...." Id. In accordance with this grant of authority, the legislature also determined that "the manufacture, distribution, and sale of cement and cement products are public purposes impressed with a public use and as such governmental functions subject to regulation by the state." SDCL 5-17-1.

These constitutional and statutory declarations indicate...