Blake v. Kline

• Decision Date: 20 December 1979
• Docket Number: No. 79-1161,79-1161
• Parties: BLAKE, Margaret Anne, a minor, by Blake, James, her Guardian, Appellant, v. KLINE, Caryl M.; Casey, Robert E.; Heddinger, Fred M.; Jacobs, William F. Jr.; Killian, John D.; Angle, Jacque D.; Moran, Francis; Eisenhart, J. Henry; Stackowski, Benjamin L.; Corrado, Samuel; Harris, Richard C.; and the Public School Employees' Retirement Board, Appellees.
• Court: U.S. Court of Appeals — Third Circuit

Page 718

612 F.2d 718

BLAKE, Margaret Anne, a minor, by Blake, James, her Guardian, Appellant, v. KLINE, Caryl M.; Casey, Robert E.; Heddinger, Fred M.;

Jacobs, William F. Jr.; Killian, John D.; Angle, Jacque D.;

Moran, Francis; Eisenhart, J. Henry; Stackowski, Benjamin

L.; Corrado, Samuel; Harris, Richard C.; and the Public

School Employees' Retirement Board, Appellees.

No. 79-1161.

United States Court of Appeals,

Third Circuit.

Argued Oct. 9, 1979.

Decided Dec. 20, 1979.

Gordon W. Gerber, Arthur H. Rainey, Fred T. Magaziner (Argued), Dechert, Price & Rhoads, Philadelphia, Pa., for appellant.

David H. Allshouse, Deputy Atty. Gen. (Argued), Norman J. Watkins, Deputy Atty. Gen. Chief, Civil Litigation, Edward G. Biester, Jr., Atty. Gen., Dept. of Justice, Commonwealth of Pennsylvania, Harrisburg, Pa., for appellees.

Before ADAMS, ROSENN and WEIS, Circuit Judges.

OPINION OF THE COURT

ROSENN, Circuit Judge.

This appeal primarily raises the complex issue of whether the Public School Employees' Retirement Board of Pennsylvania is an Alter ego of the state so as to preclude the exercise of federal subject matter jurisdiction under the eleventh amendment, the diversity statute, and principles of state sovereign immunity. Because we conclude the record is deficient, we vacate the judgment of the district court and remand.

I.

Plaintiff Margaret Anne Blake, a minor, ("Margaret") by James Blake, her guardian, both New Jersey residents, initiated this diversity action in the United States District Court for the Eastern District of Pennsylvania against the Public School Employees' Retirement Board and its officers ("PSERB" or "Board"), seeking damages in contract and tort. The complaint alleged that Margaret was entitled to $57,014.70 in benefits from the PSERB, accruing upon the death of her mother, Marie, a Philadelphia school teacher. The district court dismissed the complaint as barred by the eleventh amendment.

The complaint alleged that during the course of her employment Marie paid premiums to the PSERB and had an agreement which contractually bound the Board to pay certain death benefits to Marie's designated beneficiary in the event of Marie's death. The complaint further alleged that upon Marie's death on November 7, 1976, the PSERB became obligated to pay Margaret $57,014.70. The plaintiff claimed the PSERB purported to satisfy its obligation by issuing a check payable to "TILLIE BOONE GDN OF MARGARET BOONE" although no person named "Margaret Boone" had any interest in or right to the proceeds of Marie's policy and Tillie Boone was not Margaret's guardian. The plaintiff sought damages on the grounds that the PSERB breached contractual and fiduciary duties owed to Margaret and that the Board's conduct was negligent.

Prior to discovery, the PSERB moved to dismiss the action on the ground the court lacked subject matter jurisdiction because of the eleventh amendment. The district court, although it asserted that it weighed the factors we enunciated in Urbano v. Board of Managers of New Jersey State Prison, 415 F.2d 247 (3d Cir. 1969), Cert. denied, 397 U.S. 948, 90 S.Ct. 967, 25 L.Ed.2d 128 (1970), appeared to have relied heavily on the similarity it found between the PSERB and the State Employees' Retirement Board considered in United Brokers Mtg. Co. v. Fidelity Philadelphia Trust Co., 26 Pa.Cmwlth. 260, 363 A.2d 817 (1976). It concluded that "(t)he statutory scheme establishing SERB (State Employees' Retirement Board) and the fund it administers is virtually identical in all material respects to the statutory scheme adopted for the PSERB and the fund here in question." 462 F.Supp. 825, 827 (E.D.Pa.1978). The district court granted the motion to dismiss. The plaintiff appeals.

The defendant, in support of its motion to dismiss, relied exclusively on the various provisions of the Public School Employees' Retirement Code ("the Code"). Plaintiff contends that an analysis of the Code reveals that the PSERB is not the Alter ego of the State for eleventh amendment purposes. Alternatively he argues that even assuming Arguendo that the Code does not affirmatively establish the PSERB's independence, it does not establish the contrary that it is the State's Alter ego. The Board responds that the Code establishes it as the State's Alter ego and also contends that the district court lacks jurisdiction under the diversity statute and principles of state sovereign immunity. Furthermore, it claims the action should be dismissed against the individual defendants because of official immunity. In the alternative, the Board argues, the abstention doctrine should be applied to prevent the district court from entertaining the claim. Because we conclude the district court should have developed a record beyond the skeletal language of the Code, we vacate the judgment and remand for further proceedings not inconsistent with this opinion.

II.

The eleventh amendment has been interpreted to bar jurisdictionally the federal courts from entertaining suits for damages when a state is the real party in interest. ¹ Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974); Ford Motor Co. v. Department of Treasury, 323 U.S. 459, 65 S.Ct. 347, 89 L.Ed. 389 (1945). It is not necessary that the state be named as a party, only that the named party is, in actuality, the Alter ego of the state.

In Urbano v. Board of Managers of New Jersey State Prison, supra 415 F.2d at 250-51, this court adopted the following criteria to determine whether an agency, commission or board which is related to the state should be regarded as the sovereign's Alter ego for eleventh amendment purposes.

* * * (L)ocal law and decisions defining the status and nature of the agency involved in its relation to the sovereign are factors to be considered, but only one of a number that are of significance.

Among the other factors, no one of which is conclusive, perhaps the most important is whether, in the event plaintiff prevails, the payment of the judgment will have to be made out of the state treasury; significant here also is whether the agency has the funds or the power to satisfy the judgment. Other relevant factors are whether the agency is performing a governmental or proprietary function; whether it has been separately incorporated; the degree of autonomy over its operations; whether it has the power to sue and be sued and to enter into contracts; whether its property is immune from state taxation, and whether the sovereign has immunized itself from responsibility for the agency's operations.

We again look to these nine factors for guidance in deciding whether the eleventh amendment precludes this suit from federal court.

A. How does local law define the status and nature of the PSERB and its relation to Pennsylvania? (Urbano Factor 1)

The question of whether an agency is the Alter ego of a state and thereby immune from federal jurisdiction under the eleventh amendment is a question of federal, not state, law. Harris v. Pennsylvania Turnpike Commission, 410 F.2d 1332, 1334 n. 1 (3d Cir. 1969), Cert. denied, 396 U.S. 1005, 90 S.Ct. 558, 24 L.Ed.2d 497 (1970). However, state decisions concerning the relationship of an agency to the state may be an important, and under certain circumstances a controlling factor in the determination of immunity. Skehan v. Board of Bloomsburg State College, 538 F.2d 53, 62 (3d Cir.) (en banc), Cert. denied, 429 U.S. 979, 97 S.Ct. 490, 50 L.Ed.2d 588 (1976).

In United Brokers Mtg. Co. v. Fidelity Philadelphia Trust Co., 26 Pa.Cmwlth. 260, 363 A.2d 817 (1976), the Commonwealth Court, sitting as a court of original jurisdiction, considered whether the PSERB and the State Employees' Retirement Board were so integrated with the State as to be immune from suit under principles of state sovereign immunity. The court analyzed the design of the State Employees' Retirement Board and concluded it was sufficiently integrated with the State so as to be shielded from liability under the doctrine of state sovereign immunity. It then turned to the PSERB and without analysis summarily concluded it was "analogous in relevant parts" to the State Employees' Retirement Board "so as to make further discussion superfluous." 26 Pa.Cmwlth. at 265, 363 A.2d at 820. ²

As we have already noted, the district court in this case relied heavily on United Brokers in concluding the PSERB was an Alter ego of the State for eleventh amendment purposes. We believe this reliance was misplaced. ³

In deciding the precise issue before us, United Brokers carries little weight for several reasons. First, although a federal court in a diversity suit may not ignore a decision of an intermediate state court as to matters of state law, it is not bound by it, if after analysis it believes the state's highest court would hold otherwise. This is especially true when the intermediate court is sitting as a court of original jurisdiction. National Surety Corp. v. Midland Bank, 551 F.2d 21, 29-30 (3d Cir. 1977). Second, the reasoning in United Brokers on this issue fails to consider in detail the relationship of the PSERB to the Commonwealth. Third, the opinion equates the State Employees' Retirement Board to the PSERB without considering their substantial differences. For eleventh amendment purposes, the most significant differences are that the funding for the State Employees' Retirement Board is derived almost exclusively from the state and a majority of its directors are state appointees. By contrast, it appears that a substantial portion of the PSERB's funding is derived from non-state sources and its board is not controlled by state appointees. These differences are significant.

B. Whether payment of the judgment will be made from the state treasury or from PSERB funds? (Urbano factors 2 and 3)

The most important factor in the determination of eleventh amendment immunity is whether judgment will have to be paid from the state treasury. Urbano, supra, ...