PHARMACEUTICAL & DIAGNOSTIC SERVICES v. U. OF UTAH

• Decision Date: 26 June 1990
• Docket Number: Civ. No. 88-C-807 J.
• Citation: 801 F. Supp. 508
• Parties: PHARMACEUTICAL AND DIAGNOSTIC SERVICES, INC., a Utah corporation, Plaintiff, v. The UNIVERSITY OF UTAH, a body politic and corporate, et al., Defendants.
• Court: U.S. District Court — District of Utah

801 F. Supp. 508

PHARMACEUTICAL AND DIAGNOSTIC SERVICES, INC., a Utah corporation, Plaintiff, v. The UNIVERSITY OF UTAH, a body politic and corporate, et al., Defendants.

Civ. No. 88-C-807 J.

United States District Court, D. Utah, C.D.

June 26, 1990.

Stanford B. Owen, Douglas B. Cannon, Fabian & Clendenin, Salt Lake City, Utah, for plaintiff.

Richard D. Burbidge, Stephen B. Mitchell, Burbidge & Mitchell, Salt Lake City, Utah, Robert K. Coulter, U.S. Dept. of Justice, Trial Atty., Tax Div., Washington, D.C., for defendants.

MEMORANDUM OPINION AND ORDER

JENKINS, Chief Judge.

On September 12, 1988, plaintiff Pharmaceutical and Diagnostic Services, Inc. ("PDS") filed a complaint in this court against the University of Utah, Intermountain Radiopharmacy, the Utah State Board of Regents, and David Bragg, Chairman of the Department of Radiology of the University of Utah (the "University defendants"),¹ seeking declaratory relief and damages for alleged federal and state antitrust violations, unfair competition, and other state law violations. On February 17, 1989, PDS filed a first amended complaint,² seeking similar declaratory, injunctive, and monetary relief and adding as defendants additional University officials.³

On July 13, 1989, the University defendants filed a motion to dismiss pursuant to Rule 12 of the Federal Rules of Civil Procedure. Following the parties' submission of supporting, opposing, and reply memoranda, the court, on November 22, 1989, heard oral argument on the University defendants' motion to dismiss and took the motion under advisement. Having considered fully the pleadings, the parties' oral and written arguments, and the relevant law, the court now grants in most aspects the University defendants' motion to dismiss. PDS's remedy, if any, must be found before a state tribunal.

I. Facts

The relevant facts are straightforward. In 1973, the University of Utah Colleges of Pharmacy and Medicine jointly established a program known as Intermountain Radiopharmacy ("IRP"). The University designed IRP to promote teaching and research. IRP is operated presently as a radiopharmacy, which involves the manufacture and sale of radiopharmaceuticals used in diagnostic imaging and therapeutic application by hospitals, clinics, and other institutions. William Baker operated IRP from its inception in 1973 until 1986. In 1986, Baker left IRP to organize PDS, a Utah corporation which has operated as a privately owned radiopharmacy since January 1, 1987. Baker is now President of and a shareholder in PDS.

PDS alleges in its complaint that IRP does not function primarily as a teaching and research institution. Instead, PDS maintains that IRP operates as a commercial, profit-making enterprise, in direct competition with PDS and in violation of federal and state law and University policy. PDS further alleges that the University defendants compete unfairly and illegally against PDS by using state-owned equipment in furthering IRP's "business," by refusing to deal with PDS, by offering goods and services at or below cost in violation of state and federal law, and by using illegal and void contracts to compete.

Based upon these allegations, PDS has brought federal antitrust claims against IRP under section 1 of the Sherman Act, 15 U.S.C. § 1, and sections 3 and 16 of the Clayton Act, 15 U.S.C. §§ 14, 26. PDS has also brought claims under Utah antitrust law, the Utah Administrative Code, the Utah Unfair Practices Act, and the common law of unfair competition and intentional interference with economic relations.

The University defendants have moved to dismiss PDS's claims on a number of separate grounds, including Eleventh Amendment immunity, the Utah Governmental Immunity Act, Parker v. Brown antitrust immunity, failure to exhaust administrative remedies, and failure to state a claim. In this opinion, the court grants the University defendants' motion to dismiss based on Eleventh Amendment immunity and on Parker antitrust immunity.

II. Eleventh Amendment Immunity

The University defendants' motion to dismiss hinges primarily on the Eleventh Amendment to the United States Constitution.⁴ The Eleventh Amendment long has stood for the principle that federal courts are without authority to entertain suits by private parties against a state or its agencies without the state's consent. See Ford Motor Co. v. Department of Treasury of Indiana, 323 U.S. 459, 462, 65 S.Ct. 347, 349, 89 L.Ed. 389 (1945); Hans v. Louisiana, 134 U.S. 1, 14-15, 10 S.Ct. 504, 507, 33 L.Ed. 842 (1890). In their motion to dismiss, the University defendants argue that IRP, the Board of Regents, and other University officials sued in their official capacities are arms of the State of Utah and are thus immune from suit in federal court. PDS concedes the Eleventh Amendment's general effect, but insists that the University of Utah is not an arm of the state for purposes of Eleventh Amendment immunity. In the alternative, PDS argues that, before passing upon whether the University is an arm of the state, the court should allow further discovery into the nature of the relationship between the University of Utah, the Board of Regents, IRP, and the state.

As is noted above, both sides agree that the Eleventh Amendment generally protects a state from suit in federal court without the state's consent.⁵ This court, then, must resolve the specific question whether the University of Utah is "the state" for purposes of the Eleventh Amendment. It is well-settled that the Eleventh Amendment applies to a "state agency, functioning as an arm, an alter ego of the state." Brennan v. University of Kansas, 451 F.2d 1287, 1290 (10th Cir.1971) (University of Kansas is the state for purposes of Eleventh Amendment immunity). And in determining the status of the state agency, the court must look to applicable state law. Id. Thus, this court looks to Utah law and finds that the University of Utah is an arm of the state for Eleventh Amendment purposes.

This court's review of Utah law clearly indicates that the University of Utah should be considered an arm of the state. The statutory foundation upon which the University is constructed gives the state virtually exclusive control over University governance.⁶ The State Board of Regents is endowed with "the power to govern the state system of higher education consistent with state law" and, to that end, "is vested with the control, management, and supervision of the University of Utah." Utah Code Ann. §§ 53B-1-101(2), -103(2) (1989). The governor of the state, with the consent of the Senate, appoints fifteen of the Board's sixteen members. Utah Code Ann. § 53B-1-104(1) (1989). The Board is required by law to account to the state by submitting "an annual report of its activities to the governor and to the Legislature." Utah Code Ann. § 53B-1-107 (1989). In addition, eight of ten members of the University of Utah's Institutional Council (and of each state institution of higher education) are appointed by the governor, and the Council is charged with fund-raising, public relations, and other administrative responsibilities. Utah Code Ann. §§ 53B-2-103, -104(1) (1989). The Institutional Council, in turn, consults with the Board of Regents before the Board takes action on matters pertaining to the University of Utah. Utah Code Ann. § 53B-2-105 (1989). Thus, the Utah Legislature has established the University of Utah as an institution squarely within the state's control. The University is not, as PDS suggests, akin to a municipal corporation or political subdivision of the state. Cf. Mount Healthy City Board of Educ. v. Doyle, 429 U.S. 274, 97 S.Ct. 568, 50 L.Ed.2d 471 (1977) (Ohio law provides that local Board of Education is treated as political subdivision and not as an arm of the state).

The Utah Supreme Court also has taken the view that the University of Utah is an institution firmly within the state's control. In University of Utah v. Board of Examiners, 4 Utah 2d 408, 295 P.2d 348 (1956), the Supreme Court examined the intent of the Utah Constitution's framers and reversed the district court's ruling that the Utah Constitution establishes the University as a constitutional corporation free from the Legislature's control. The Court relied upon one of its earlier opinions and reasoned that:

When all of the provisions of law, which in some way relate to and affect the government of the university are considered and construed together, it is made very clear that the corporation designated the University of Utah was created and exists for the sole purpose of more conveniently governing and conducting the educational institution called the "University." The university is clearly a state institution, and is so treated, since the members constituting its governing board are all appointed by the Governor with the consent of the senate, and the board regularly reports to the Governor. Moreover, the corporation holds all the property in trust merely. In fact the property belongs to the state of Utah.

Id. 295 P.2d at 364 (quoting State v. Candland, 36 Utah 406, 104 P. 285, 293 (1909)) (emphasis added). Thus, the state's highest court⁷ has indicated in unequivocal terms that the University acts as a state-created, state-financed entity with a severely constricted degree of autonomy. Any judgment against the University necessarily would be satisfied, even if indirectly, from state resources. And "where the recovery sought by the parties would `expend itself on the public treasury or domain ...,' the action is essentially one against the State...."⁸ Prebble v. Brodrick, 535 F.2d 605, 610 (10th Cir.1976) (citations omitted) (University of Wyoming is a state instrumentality for purposes of Eleventh Amendment immunity).

Given the University's status under Utah law,⁹ this court is bound by the view of the Tenth Circuit¹⁰ and adopts the view of a majority of other courts¹¹ that have treated state universities as arms of the state f...