American Re-Insurance Co. v. Janklow

• Decision Date: 23 April 1982
• Docket Number: RE-INSURANCE,No. 81-1680,81-1680
• Citation: American Re-Insurance Co. v. Janklow, 676 F.2d 1177 (8th Cir. 1982)
• Parties: AMERICANCOMPANY, a Delaware Corporation, Appellant, v. William J. JANKLOW, individually and as Governor of the State of South Dakota; Vernon L. Larson, individually and as Auditor of the State of South Dakota; Tim Engelhart, individually and as Director of the Bureau of Administration of the State of South Dakota; James E. Brinkman, individually and as Director of the Department of Purchasing and Printing of the State of South Dakota; the Bureau of Administration of the State of South Dakota; and the State of South Dakota, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1177

676 F.2d 1177

AMERICAN RE-INSURANCE COMPANY, a Delaware Corporation, Appellant, v.William J. JANKLOW, individually and as Governor of the State of South Dakota; Vernon L. Larson, individually and as Auditor of the State of South Dakota; Tim Engelhartindividually and as Director of the Bureau of Administration of the State of South Dakota; James E. Brinkmanindividually and as Director of the Department of Purchasing and Printing of the State of South Dakota; the Bureau of Administration of the State of South Dakota; and the State of South Dakota, Appellees.

No. 81-1680.

United States Court of Appeals Eighth Circuit.

Submitted Dec. 15, 1981.

Decided April 23, 1982.

Gary E. Davis, C. Rick Johnson, Johnson, Johnson & Eklund, Gregory, S. D., Mark Meierhenry, Atty. Gen., Pierre, S. D., for appellees.

Lawrence L. Piersol, Mark Marshall, Staff Atty., Davenport, Evans, Hurwitz & Smith, Sioux Falls, S. D., James M. Samples, Stephen D. Bell, Faegre & Benson, Minneapolis, Minn., for appellantAmerican Re-Insurance Co.

Before GIBSON, Senior Circuit Judge, BRIGHT, Circuit Judge, and LARSON, Senior District Judge.^*

LARSON, Senior District Judge.

The plaintiff, American Re-Insurance Company, appeals from the district court's sua sponte dismissal of those portions of its complaint that sought injunctive and declaratory relief.The district court determined that such relief was barred by the Eleventh Amendment because the State was the real party in interest and the relief sought was in essence specific performance of a contract, which would require the payment of money from the State treasury.We reverse the district court's decision insofar as it applies to the individual appellees, and reinstate appellant's complaint against them for injunctive and declaratory relief.

I.BACKGROUND

In March 1976 the Bureau of Administration of the State of South Dakota entered into a lease for an IBM 370/158 computer with a company known as CIG Marketing Corporation(CIG).The lease was for an initial term of seven years and provided for annual payments of rent due on July 1 of each year for the following twelve months.¹These rental payments were to be made from the Central Data Processing Fund established by Section 1-14-12.3 of the South Dakota Codified Laws.The revenues of this fund were derived from fees charged by Central Data Processing (CDP) to agencies and political subdivisions that used the data processing services offered by CDP.SeeS.D.Codified Laws Ann. § 1-14-12.5(1980).

After entering into the lease CIG transferred its interest in the computer equipment and the lease to The Connecticut Bank and Trust Company under a trust agreement that named CIG as the sole beneficiary.CIG then caused Connecticut Bank to borrow $1,759,503 from Aetna Casualty and Surety Company to finance a portion of the purchase price of the computer equipment leased to the Bureau.²Aetna took a security interest in the computer equipment and an assignment of Connecticut Bank's rights under the lease as collateral.Thereafter, Aetna assigned its interest in the loan and its right to receive loan payments to appellantAmerican Re-Insurance Company.

The lease was amended twice: the first amendment in June 1976 effected certain changes as a result of the above financing arrangements and made certain revisions in the rental rates and residual values under the terms of the lease.³The second amendment made two minor changes effective July 1, 1976.At the time the lease agreement was signed, Richard Kneip was Governor, William Janklow was Attorney General, and James Brinkman was Director of the Bureau's Department of Purchasing and Printing.The lease and the amendments were signed by James Brinkman in his official capacity, and both the original lease and the first amendment were approved as to form by the Attorney General's office in 1976.⁴In 1978, the Legislature of South Dakota enacted a statute that provided: "The director of purchasing and printing may contract for the lease of automatic data processing equipment for state agencies.Such contracts may not exceed five years."1978 S.D.Sess.Laws, ch. 7, § 1(codified at S.D.Codified Laws Ann. § 1-14-12.6(1980)).Later that same year Janklow was elected Governor and Vernon Larson was elected State Auditor.

The Bureau made five annual rental payments under its lease with CIG in 1976, 1977, 1978, 1979, and 1980.On February 24, 1981, with two years remaining on the seven year lease, Larson wrote a letter to American indicating that he had issued a stop-order on further rental payments under the lease.Larson stated:

The grounds for issuance of this stop-order are that the undersigned, based upon the advice of legal counsel, has determined that the lease agreement which is the basis for said payment is illegal, unauthorized and improper.This determination is made based upon my counsel's finding and advice that:

(a) The Bureau of Administration did not have the lawful power or authority to enter into the agreement.

(b) The Bureau of Administration did not have, in 1976, the lawful and constitutional authority to enter into long term contracts which would interfere with the ability of subsequent administrations to properly handle the needs of government.In this case, I am advised that the data system has proved to be inadequate to permit the present administration to efficiently operate its programs.

(c)The legislature did not authorize the Bureau of Administration to enter into any long term contracts until after 1976, and they authorized only five year leases.

(d) It further appears that in the absence of a specific appropriation pursuant to law for the lease payments, that further payments upon the same would violate Section 9 of Article XI of our State Constitution and Section 3 of Article XII of our State Constitution.

(e) From my review of the situation, it appears that the Attorney General did not approve the term of this lease at the time that it was signed by the Bureau of Administration.

On March 17, 1981, American filed a notice appealing Larson's stop-order to the State Board of Finance.⁵Governor Janklow ratified Larson's action in a letter to Aetna dated April 24, 1981, in which Janklow stated that he was "convinced that the alleged contract entered into between the state and CIG has been void since its inception."

On June 1, 1981, the Bureau issued a letter of intent to purchase replacement computer equipment from Comdisco, Inc.This sale was closed on June 3, ⁶ the same date that American commenced this action against the State of South Dakota, the Bureau of Administration, and Governor William Janklow, State AuditorVernon Larson, Director of the Bureau of Administration Tim Engelhart, and Director of the Bureau's Department of Purchasing and PrintingJames Brinkman, in their individual and official capacities.In Count I of its complaint, American alleged that the actions of Janklow, Larson, Engelhart, and Brinkman have resulted in the violation of American's constitutional rights, specifically its rights to equal protection, due process, and freedom from the impairment of contract.In Count II American alleged a violation of its civil rights under 42 U.S.C. § 1983.In Count III American sought a declaration that the CIG lease is valid, lawful, and binding and that the 1978 S.D.Sess.Laws, ch. 7, § 1(codified at S.D.Codified Laws Ann. § 1-14-12.6(1980)) is unconstitutional as applied to the lease.Finally, American alleged in Count IV that Janklow and Larson have tortiously interfered with a valid contract.As relief for this conduct, American sought an injunction restraining the appellees from violating American's rights, a declaration that the lease is valid, lawful, and binding and that S.D.Codified Laws Ann. § 1-14-12.6(1980) is unconstitutional as applied to the lease, damages against the individual appellees, and attorneys' fees.

American filed a petition for a temporary restraining order, and the district court heard American's petition on June 11, 1981.Later that same day the district court issued an Order and Memorandum Order denying the motion for a TRO and dismissing those portions of American's complaint that sought injunctive and declaratory relief.⁷The district court determined that its jurisdiction was barred by the Eleventh Amendment since "the injunctive and declarative remedies which (American) seeks are ones which would result in a monetary liability for the State of South Dakota rather than for the individual (State officials)."American Re-Insurance Co. v. Janklow, No. 81-4090, slip op. at 8(D.S.D., filed June 11, 1981).American appeals from this dismissal of its complaint, alleging that the district court erred because its claims for injunctive and declaratory relief are not barred by the Eleventh Amendment, the district court should not have acted sua sponte but rather should have given American an opportunity to address fully the Eleventh Amendment issues, and, finally, the Eleventh Amendment does not apply because there has been a waiver and in any event no funds from the State treasury are directly involved because of the structure of the funding mechanism under the CDP Fund.

II.DISCUSSION

The issue presented in this appeal is whether the Eleventh Amendment⁸ bars the type of relief sought by the appellant in this case.The district court reasoned that the object of the injunctive and declaratory aspects of American's suit was to compel specific performance of the CIG lease, including the continued payment of rent, ⁹ which would impose on the State"a liability which must be paid from public funds in the state treasury."American Re-Insurance Co. v. Janklow, supra, slip op. at 6(citingEdelman v. Jordan, 415 U.S. 651, 663, 94 S.Ct. 1347, 1355-1356, 39 L.Ed.2d 662(1974)).Of course, "the nature of a suit as one against the state is to be determined by the essential nature and effect of the proceeding,"Ford...