Eldeco, Inc. v. Skanska Usa Bldg., Inc.

• Decision Date: 23 March 2006
• Docket Number: C.A. No. 2:05-cv-2329-PMD.
• Citation: 447 F.Supp.2d 521
• Parties: ELDECO, INC., Plaintiff, v. SKANSKA USA BUILDING, INC., f/k/a Beers Skanska, Inc., American Home Assurance Company, Federal Insurance Company, Defendants, and Skanska USA Building, Inc., f/k/a Beers Skanska, Inc., Third-Party Plaintiff, v. Charleston County School District, Third-Party Defendant.
• Court: U.S. District Court — District of South Carolina

447 F.Supp.2d 521

ELDECO, INC., Plaintiff, v. SKANSKA USA BUILDING, INC., f/k/a Beers Skanska, Inc., American Home Assurance Company, Federal Insurance Company, Defendants, and Skanska USA Building, Inc., f/k/a Beers Skanska, Inc., Third-Party Plaintiff, v. Charleston County School District, Third-Party Defendant.

C.A. No. 2:05-cv-2329-PMD.

United States District Court, D. South Carolina, Charleston Division.

March 23, 2006.

Frank M. Cisa, Cisa and Dodds LLP, Mt. Pleasant, SC, for Plaintiff.

Ryan Earhart, Christopher J, Blake, Nelson Mullins Riley and Scarborough, Raleigh, NC, Hugh Willcox Buyck, Buyck Law Firm, Charleston, SC, for Defendants.

ORDER

DUFFY, District Judge.

This matter is before the court on Third-Party Defendant Charleston County School District's Motion to Dismiss pursuant to Rule 12(b)(1).

BACKGROUND

This is an action by Plaintiff Eldeco, Inc. ("Eldeco") alleging breach of subcontract against Skanska and claims under payment and performance bonds against Federal and American Home Assurance Company ("AHA"), all related to the construction of the new Wando High School ("the Project"). Skanska was the general contractor for the construction of the Project, and Federal and AHA were Skanska's sureties on the Project. Charleston County School District ("CCSD") is the owner of the new Wando High School. Eldeco filed this lawsuit on July 6, 2005 in the Circuit Court for Charleston County, naming Skanska, Federal, and AHA as defendants. The case was removed to this court on August 12, 2005, and Defendants were granted leave to add CCSD as a Third Party Defendant on the basis that, to the extent that Eldeco is entitled to any recovery, CCSD owes indemnity for any recovery pursuant to CCSD's contract with Skanska.

CCSD now moves that the complaint against it be dismissed as the court has no jurisdiction over it. CCSD claims that it is an arm of the State of South Carolina and thus is immune from suit in federal court under the Eleventh Amendment.

ANALYSIS

Standard of Review

When evaluating a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) on the grounds that the complaint fails to state facts upon which jurisdiction can be founded, "all the facts alleged in the complaint are assumed to be true and the plaintiff, in effect, is afforded the same procedural protection as he would receive under a Rule 12(b)(6) consideration." Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir.1982). The plaintiff has the burden of proving jurisdiction, and the court may go beyond the face of the complaint and consider evidence without converting the motion into one for summary judgment. See Williams v. United States, 50 F.3d 299, 304 (4th Cir.1995); Richmond, Fredericksburg & Potomac R. Co. v. U.S., 945 F.2d 765, 768 (4th Cir.1991).

The Eleventh Amendment

An unconsenting state is immune from suit brought in federal court by her own citizens as well as those of another state. Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347, 1355, 39 L.Ed.2d 662 (1974). Even when the state is not a named party to the suit, the Eleventh Amendment bars the action if it is "in essence one for the recovery of money from the state" or would "adversely affect the dignity of the state as a sovereign." Edelman, at 663, 94 S.Ct. at 1356; Cash v. Granville County Board of Education, 242 F.3d 219, 224 (4th Cir.2001). The Eleventh Amendment does not bar suits against local government entities or local government officials sued in their official capacity. Gray v. Laws, 51 F.3d 426, 431 (4th Cir.1995).

In determining whether a government entity with both state and local characteristics constitutes an "arm of the state" for Eleventh Amendment purposes, the court must look to whether maintenance of the suit will (1) deplete the state treasury or (2) otherwise threaten the state's sovereign "dignity." Gray, 51 F.3d at 431, citing Hess v. Port Auth. Trans-Hudson Corp., 513 U.S. 30, 51, 115 S.Ct. 394, 406, 130 L.Ed.2d 245 (1994). In Cash v. Granville County Board of Education, 242 F.3d at 224, the Fourth Circuit further explained this bipartite test. The first part of the test is to establish whether the state treasury will be affected.

Because the State treasury factor is the most salient factor in Eleventh Amendment determinations, a finding that the State treasury will not be affected by a judgment against the governmental entity weighs against finding that entity immune. Nonetheless, the entity may still enjoy sovereign immunity if the judgment would adversely affect the dignity of the State as a sovereign and as one of the United States.

Id. Stated differently, since there are no "relative weights ascribed to these factors," the Fourth Circuit has held that "a determination that the state treasury will be liable for a particular judgment is largely, if not wholly, dispositive of entitlement to Eleventh Amendment immunity in the single state context." Gray, 51 F.3d at 433. "If, on the other hand, the state's treasury will not be affected by a judgment in the action, then the availability of immunity ... must be determined by resort to the other relevant considerations referenced by the Court." Id. at 434.

After Cash was decided, the Supreme Court decided Federal Maritime Commission v. South Carolina State Ports Authority, 535 U.S. 743, 765, 122 S.Ct. 1864, 152 L.Ed.2d 962 (2002). In that case, the Court made clear that "[s]overeign immunity does not merely constitute a defense to monetary liability or even to all types of liability. Rather, it provides an immunity from suit." Id. at 766, 535 U.S. 743, 122 S.Ct. 1864, 152 L.Ed.2d 962 (emphasis added); see also Regents of the University of California v. Doe, 519 U.S. 425, 431, 117 S.Ct. 900, 904-905, 137 L.Ed.2d 55 (1997) ("[W]e reject respondent's principal contention—that the Eleventh Amendment does not apply to this litigation because any award of damages would be paid by the Department of Energy, and therefore have no impact upon the treasury of the State of California. The Eleventh Amendment protects the State from the risk of adverse judgments even though the State may be indemnified by a third party."). Accordingly, even if a judgment will not affect the treasury of the State, the court must decide if the relationship between the entity and the State is sufficiently close to render the entity an arm of the state. In this analysis, the court is to weigh such considerations as (1) the extent of control that the state exerts over the entity or the degree of autonomy that the entity enjoys from the state, (2) the range of the entity's concerns, and (3) the manner in which the laws of the state treat the entity. Cask 242 F.3d at 224. The Fourth Circuit recognized that these factors require an individualized inquiry into each state's legislative authority to control the entity in question.

School Districts as Arms of the State

Most courts to address the issue of whether a school district is a state entity have found that it is not.¹ However, this District has had varying opinions on whether South Carolina school districts are arms of the State.² In the most recent case from this District, following a reasoned and thorough analysis of the above-listed factors, Judge Floyd held in Smith v. School District of Greenville County, 324 F.Supp.2d 786 (D.S.C.2004), that South Carolina county school districts are arms of the state for the purposes of Eleventh Amendment sovereign immunity. He found that, although the defendant school districts could not show that the State treasury would be affected by a judgment against them, the State sufficiently controlled a broad range of school districts' management such that these districts could properly be considered a part of the State. As to the first of the above listed factors, the Smith court noted that the South Carolina Constitution mandated that the legislature provide for the maintenance and support of the schools and that the State's statutory scheme prohibited school districts in the state from purchasing or selling any property without prior approval from state-level administrators. The court observed that the statutory scheme further required approval from the state for all school districts' construction plans and specifications before seeking bids for construction and that the South Carolina Department of Education retained control over school transportation in that it was responsible for all operational and maintenance expenses for state-owned buses. The court further pointed to the school districts' statutorily-required submission to audits by the state board of education and to the State's Accountability Act, which empowered the state superintendent of education to assume management over schools which did not meet the mandates provided for by law. In addition, the court relied on the state's control over school districts required by the federal No Child Left Behind Act. Finally, the court recited a litany of statutes which, in its judgment, evidenced the state control over the defendant-school districts. The court concluded that these statutes and regulations demonstrated South Carolina's "pervasive control over school districts[,]" thereby satisfying the first criterion of the state-dignity test. 324 F.Supp.2d at 795. It said:

Plaintiffs argue that heavy government regulation over the school districts is not indicative of control by the government. The Court disagrees. There are many examples of businesses that are extensively regulated by the government: the drug industry, the medical device industry, the tobacco industry, the railroad industry, the insurance industry and the utility industry, to name a few. However, in these industries, unlike in the instant case, the government does not generally control the hiring and firing of employees, the purchase and acquisition of property, and the construction of buildings. Nor does the government have the power to assume the management of such industries. That is, as a...