Sato v. Orange Cnty. Dep't of Educ.

• Decision Date: 28 June 2017
• Docket Number: No. 15-56402,15-56402
• Citation: 861 F.3d 923
• Parties: Michael M. SATO, Plaintiff-Appellant, v. ORANGE COUNTY DEPARTMENT OF EDUCATION, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

861 F.3d 923

Michael M. SATO, Plaintiff-Appellant,

v.ORANGE COUNTY DEPARTMENT OF EDUCATION, Defendant-Appellee.

No. 15-56402

United States Court of Appeals, Ninth Circuit.

Argued and Submitted February 16, 2017 Pasadena, California

Filed June 28, 2017

Douglas A. Ames (argued), Ames Law Office, Fountain Valley, California, for Plaintiff-Appellant.

Jeffrey P. Thompson (argued) and Gregory A. Wille, Declues Burkett & Thompson APC, Huntington Beach, California, for Defendant-Appellee.

Robert J. Feldhake and Joseph K. Jeffrey, The Feldhake Law Firm APC, Costa Mesa, California, for Amicus Curiae Alliance of Schools for Cooperative Insurance Programs, a California Joint Powers Authority.

Deborah B. Caplan and Richard C. Miadich, Olson Hagel & Fishburn LLP, Sacramento, California; Keith J. Bray, California School Board Association/Education Legal Alliance, West Sacramento, California; for Amici Curiae California School Boards Association and California School Boards Association's Education Legal Alliance.

Before: Richard C. Tallman and N. Randy Smith, Circuit Judges, and Stephen Joseph Murphy III,^* District Judge.

OPINION

TALLMAN, Circuit Judge:

In 2013, the California legislature enacted Assembly Bill 97 (AB 97), a massive reform package designed to streamline public education financing and decentralize education governance. 2013 Cal. Legis. Serv. ch. 47 (A.B. 97). This appeal asks us to consider whether AB 97 abrogated our decisions in Belanger v. Madera Unified School District , 963 F.2d 248 (9th Cir. 1992), and Eaglesmith v. Ward , 73 F.3d 857 (9th Cir. 1995), in which we held that California school districts and county offices of education (COEs) are "arms of the state" entitled to state sovereign immunity. We hold that the passage of AB 97 had no such effect. School districts and COEs in California remain arms of the state and cannot face suit.

I

Defendant Orange County Department of Education (OCDE) hired plaintiff Michael Sato as a Systems Database Architect in August 2014. Within a matter of weeks after Sato started working at OCDE, Sato's supervisors informed him that he would be terminated immediately. OCDE offered no explanation as to why Sato was being terminated, and Sato insisted that he had performed his duties satisfactorily during his brief period of probationary employment with OCDE. Before he was fired, Sato received no oral or written notice of his termination, and he was given no opportunity to be heard at a pre- or post-termination proceeding.

Sato sued OCDE for damages in federal district court, asserting claims under 42 U.S.C. § 1983 and state law. In his complaint, Sato alleged that, under his employment contract with OCDE, Sato could only be fired for cause, even during his initial one-year probationary period.¹ Sato claimed that his termination without prior notice or a pre- or post-termination hearing therefore violated his Fourteenth Amendment substantive and procedural due process rights and constituted breach of contract.

OCDE moved to dismiss Sato's complaint under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6),² arguing that, pursuant to our decision in Belanger , OCDE is an arm of the state and enjoys Eleventh Amendment immunity from suit.³ Sato responded that "the California Legislature's massive 2013 enactment of Assembly Bill 97 completely replaces the prior statutory basis for, and upends the analysis of, Belanger ." According to Sato, after the passage of AB 97, OCDE is no longer an arm of the state for sovereign immunity purposes.

The district court granted OCDE's Rule 12(b)(6) motion with respect to Sato's constitutional claims, but denied OCDE's motion with respect to the breach of contract claim.⁴ On the issue of sovereign immunity, the district court held that while the passage of AB 97 had perhaps decentralized state control over school funding and governance to some extent, Sato failed to show that AB 97 undermined our reasoning in Belanger . Recognizing that OCDE's sovereign immunity defense applied equally to his federal and state claims, Sato then voluntarily dismissed his state breach of contract claim. After granting Sato's voluntary dismissal motion, the district court entered final judgment in favor of OCDE. We have jurisdiction under 28 U.S.C. § 1291, and we affirm.

II

A

We review the district court's grant of OCDE's Rule 12(b)(6) motion de novo, "accepting as true all well-pleaded allegations of fact in the complaint and construing them in the light most favorable to the plaintiffs." Eason v. Clark Cty. Sch. Dist. , 303 F.3d 1137, 1140 (9th Cir. 2002) (quoting Zimmerman v. City of Oakland , 255 F.3d 734, 737 (9th Cir. 2001) ). We also review de novo whether a party is entitled to Eleventh Amendment sovereign immunity. Id. "[A]n entity invoking Eleventh Amendment immunity bears the burden of asserting and proving those matters necessary to establish its defense." Del Campo v. Kennedy , 517 F.3d 1070, 1075 (9th Cir. 2008) (internal quotation mark omitted) (quoting In re Lazar , 237 F.3d 967, 974 (9th Cir. 2001) ).

Whether the passage of AB 97 abrogates our arm-of-the-state analysis in Belanger presents us with an issue of first impression. While we have applied Belanger and dismissed suits against California school districts since AB 97 was enacted, none of those cases considered AB 97's potential effects on Belanger . See, e.g. , Davis v. Folsom Cordova Unified Sch. Dist. , 674 Fed.Appx. 699, 701 (9th Cir. 2017) ; Chadam v. Palo Alto Unified Sch. Dist. , 666 Fed.Appx. 615, 618 (9th Cir. 2016) ; Pierce v. Santa Maria Joint Union High Sch. Dist. , 612 Fed.Appx. 897, 898 (9th Cir. 2015) ; C.W. v. Capistrano Unified Sch. Dist. , 784 F.3d 1237, 1247 (9th Cir. 2015) ; Brynjolfsson v. State Agency L.A. Unified Sch. Dist. , 576 Fed.Appx. 697, 698 (9th Cir. 2014). Because none of those cases raised the particular question that confronts us today, we are not bound by them. Cf. Minority Television Project, Inc. v. FCC , 736 F.3d 1192, 1211 (9th Cir. 2013) ("Courts ‘are not bound by a prior exercise of jurisdiction in a case where it was not questioned and it was passed sub silentio.’ " (quoting United States v. L.A. Tucker Truck Lines, Inc. , 344 U.S. 33, 38, 73 S.Ct. 67, 97 L.Ed. 54 (1952) )).

B

The Eleventh Amendment provides that "[t]he Judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens or Subjects of any Foreign State." U.S. Const. amend. XI. "It is well established that agencies of the state are immune under the Eleventh Amendment from private damages or suits for injunctive relief brought in federal court." Savage v. Glendale Union High Sch. , 343 F.3d 1036, 1040 (9th Cir. 2003). State sovereign immunity does not extend to county and municipal governments, unless state law treats them as arms of the state. Id. at 1040–41. The question before us is thus whether, after AB 97, OCDE "is to be treated as an arm of the State partaking of the State's Eleventh Amendment immunity, or instead is to be treated as a municipal corporation or other political subdivision to which the Eleventh Amendment does not extend."See Holz v. Nenana City Pub. Sch. Dist. , 347 F.3d 1176, 1180 (9th Cir. 2003) (internal quotation mark omitted) (quoting Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle , 429 U.S. 274, 280, 97 S.Ct. 568, 50 L.Ed.2d 471 (1977) ).

To determine whether a government entity is an arm of the state, we examine the five factors set forth in Mitchell v. Los Angeles Community College District , 861 F.2d 198 (9th Cir. 1988) :

[1] whether a money judgment would be satisfied out of state funds, [2] whether the entity performs central government functions, [3] whether the entity may sue or be sued, [4] whether the entity has the power to take property in its own name or only the name of the state, and [5] the corporate status of the entity.

Belanger , 963 F.2d at 250–51 (quoting Mitchell , 861 F.2d at 201 ). We apply these factors to the question at hand.

AB 97 reformed education funding and governance in California in two key respects. First, it replaced the old mechanism by which the state funded public education, which relied on a combination of "revenue limits" funding and "categorical funding grants," with the Local Control Funding Formula (LCFF). The LCFF streamlined the number of state funding sources and increased K-12 spending, particularly for low-income and English-language-learner (ELL) student populations. Second, AB 97 required that school districts and COEs develop Local Control and Accountability Plans (LCAPs) to measure progress toward state and district goals for student achievement.

Under the Mitchell factors, we conclude that AB 97 did not upend Belanger and Eaglesmith , and we affirm dismissal of Sato's complaint.

The first Mitchell factor—whether a money judgment against the government entity would be satisfied out of state funds—is the most important. Eason , 303 F.3d at 1141 ; see also Savage , 343 F.3d at 1041 ("Because the impetus of the Eleventh Amendment is the prevention of federal-court judgments that must be paid out of a state's treasury, ‘[t]he vulnerability of the State's purse [is] the most salient factor in Eleventh Amendment determinations.’ " (alterations in original) (quoting Hess v. Port Auth. Trans-Hudson Corp. , 513 U.S. 30, 48, 115 S.Ct. 394, 130 L.Ed.2d 245 (1994) )). In evaluating this factor, "the relevant inquiry is whether [the state] will be legally required to satisfy any monetary judgment obtained against the [d]istrict," not whether state funds will actually be used. Eason , 303 F.3d at 1142 ; see also Holz , 347 F.3d at 1182 (finding the first Mitchell factor disfavored immunity for the defendant school district, even though the district received 98% of its funding from the state, because Alaska law disclaimed the state's responsibility for school district debts).

In Belanger , we...