Fresenius Medical v. Puerto Rico Cardiovascular

• Decision Date: 06 March 2003
• Docket Number: No. 02-1763.,02-1763.
• Citation: 322 F.3d 56
• Parties: FRESENIUS MEDICAL CARE CARDIOVASCULAR RESOURCES, INC., Plaintiff, Appellee, v. PUERTO RICO AND THE CARIBBEAN CARDIOVASCULAR CENTER CORP., Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

322 F.3d 56

FRESENIUS MEDICAL CARE CARDIOVASCULAR RESOURCES, INC., Plaintiff, Appellee, v. PUERTO RICO AND THE CARIBBEAN CARDIOVASCULAR CENTER CORP., Defendant, Appellant.

No. 02-1763.

United States Court of Appeals, First Circuit.

Heard January 9, 2003.

Decided March 6, 2003.

Rehearing and Suggestion for Rehearing En Banc Denied April 25, 2003.

COPYRIGHT MATERIAL OMITTED

Manuel R. Suarez Jiménez for appellant.

Robert P. Mallory, with whom Jennifer J. Waldner, McDermott, Will & Emery, Néstor M. Méndez Gómez, Oreste R. Ramos, and Pietrantoni Méndez & Alvarez LLP were on brief for appellee.

Before LYNCH, Circuit Judge, and COFFIN and CAMPBELL, Senior Circuit Judges.

LYNCH, Circuit Judge.

This case raises the issue of whether the defendant public corporation is an arm of the Commonwealth of Puerto Rico and so entitled to assert immunity under the Eleventh Amendment. It causes us to reshape this circuit's arm-of-the-state test in light of intervening Supreme Court precedent.

Our analysis under the reshaped test leads us to affirm the district court's conclusion that the defendant, Puerto Rico and the Carribean Cardiovascular Center Corp. (PRCCCC), is not an arm of the Commonwealth and so is not entitled to immunity. We also uphold the district court's finding that PRCCCC was adequately served with process. The underlying lawsuit involves a claim by Fresenius Medical Care Cardiovascular Resources, Inc. (FMC) against PRCCCC for breach of contract, the details of which are not germane to the issues on appeal.

I.

On September 28, 2001, FMC filed a federal court complaint against PRCCCC, asserting diversity jurisdiction under 28 U.S.C. § 1332(a)(1), (d) (2000). It sought over $7,000,000 in damages for breach of contract and of the implied covenant of good faith and fair dealing. It also sought an order requiring specific performance of the contract by PRCCCC and a declaratory judgment that FMC was not in material breach of the agreement.

PRCCCC moved to dismiss the complaint on November 13, 2001. It moved to dismiss on the grounds that PRCCCC is an arm of the state entitled to Eleventh Amendment immunity; that PRCCCC is not a citizen of Puerto Rico for diversity purposes since it is an arm of the state; that FMC lacked standing; and that there was defective service of process. PRCCCC attached to its motion an unauthenticated chart listing the hospital's total revenues and legislative appropriations as well as a statement under penalty of perjury by José Soler Zapata, Acting Medical Director of PRCCCC and former Secretary of Health of the Commonwealth of Puerto Rico. FMC, in its opposition, submitted a statement under penalty of perjury by Bill Watson, its executive responsible for dealing with PRCCCC, and objected to the Zapata statement on evidentiary grounds. After receiving two extensions, PRCCCC eventually filed an untimely reply.

The district court denied PRCCCC's motion in an opinion and order dated March 18, 2002. The court applied the multi-factor arm-of-the-state test set forth in Metcalf & Eddy, Inc. v. Puerto Rico Aqueduct & Sewer Authority, 991 F.2d 935, 939-40 (1st Cir.1993). Noting that the most important factor is the entity's relationship to the public fisc, the district court held that this factor weighed against a finding of immunity because the Commonwealth would not be obligated to pay a judgment against PRCCCC and because PRCCCC receives a relatively small share of its funds from the Commonwealth. It also rejected PRCCCC's argument of inadequate service of process.

PRCCCC filed two motions for reconsideration of the district court's March 18 decision. PRCCCC produced new evidence in support of its second motion for reconsideration: statements by Luisa Rivera Lúgaro, the former Executive Director of PRCCCC, and Miguel Bustelo, the Chief Financial Officer of PRCCCC. Bustelo's affidavit attached a new income statement identifying sources of government funding apart from legislative appropriations. Plaintiff again objected to consideration of the evidence. The district court, without providing plaintiff the opportunity to produce more evidence, considered this late-filed information but denied the motion in a six page opinion and order dated May 7, 2002.¹

On May 21, 2002, PRCCCC filed an interlocutory appeal. See P.R. Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 147, 113 S.Ct. 684, 121 L.Ed.2d 605 (1993) (entities claiming to be arms of the state may immediately appeal a district court order denying a claim of Eleventh Amendment immunity under the collateral order doctrine). It also filed a motion in the district court to stay proceedings while its appeal was pending. The district court denied the stay request on June 4, 2002 and denied a motion for reconsideration of that order on July 1, 2002.²

PRCCCC finally sought a stay from this court on October 15, 2002, more than four months after the district court denied its stay request. On November 6, 2002, this court denied the request.³

II.

A. Standards for Arm-of-the-State Analysis

We review de novo the conclusion that PRCCCC is not entitled to Eleventh Amendment immunity. Arecibo Cmty Health Care, Inc. v. Puerto Rico, 270 F.3d 17, 22 (1st Cir.2001).

The question of whether PRCCCC is an arm of the Commonwealth and entitled to share its Eleventh Amendment immunity is a question of federal law. Regents of the Univ. of Cal. v. Doe, 519 U.S. 425, 429 n. 5, 117 S.Ct. 900, 137 L.Ed.2d 55 (1997). The Commonwealth of Puerto Rico is treated as a state for Eleventh Amendment purposes. P.R. Ports Auth. v. M/V Manhattan Prince, 897 F.2d 1, 9 (1st Cir.1990). Here the Commonwealth itself is not a party nor has it sought to express its views in this litigation as a party or amicus; PRCCCC is the party and is attempting to cloak itself in the Commonwealth's Eleventh Amendment immunity under the theory that it is an arm of the state. PRCCCC, the entity asserting Eleventh Amendment immunity, bears the burden of showing it is an arm of the state. Wojcik v. Mass. State Lottery Comm'n, 300 F.3d 92, 99 (1st Cir.2002).

The arm-of-the-state doctrine arises in connection with at least three types of entities.⁴ The first is a political subdivision of the state, such as a city or county. Political subdivisions are not entitled to Eleventh Amendment immunity. See, e.g., Bd. of Trustees of Univ. of Ala. v. Garrett, 531 U.S. 356, 369, 121 S.Ct. 955, 148 L.Ed.2d 866 (2001) (citing Lincoln County v. Luning, 133 U.S. 529, 530-31, 10 S.Ct. 363, 33 L.Ed. 766 (1890)); see also Moor v. County of Alameda, 411 U.S. 693, 717-721, 93 S.Ct. 1785, 36 L.Ed.2d 596 (1973) (political subdivision not arm of the state for diversity jurisdiction purposes). The second entity is established by two (or more) states by compact and approved by Congress. The third, the type at issue here, involves a special-purpose public corporation established at the behest of a state. Multi-state compact entities and special-purpose public corporations established by a state sometimes share the state's Eleventh Amendment immunity. The arm of the state analytical doctrine has moved freely amongst these three categories, applying common principles.

The Supreme Court's modern arm-of-the-state jurisprudence starts with Mt. Healthy City School District Board of Education v. Doyle, 429 U.S. 274, 97 S.Ct. 568, 50 L.Ed.2d 471 (1977), which rejected the school board's claim that it was an arm of the state and not a political subdivision. In Mt. Healthy, the Supreme Court looked in part to state law to consider the "nature of the entity created by law." Id. at 280, 97 S.Ct. 568. It concluded that state law rendered the board more like a county or city, and thus not an arm of the state. The court considered a balance of factors: The board obtained guidance and extensive monies from the state, but that was offset by the board's revenue-raising power, including its power to issue bonds and levy taxes. Id. It was unclear whether "the Court was using state law as an indication of the state's intention with respect to school bonds or as a structural feature that the Court would look to regardless of the state's intention." Morris v. Wash. Metro. Area Transit Auth., 781 F.2d 218, 223 (D.C.Cir.1986). This court, as discussed below, has chosen to ask the question in terms of how the state structured its relationship to the entity.

The Mt. Healthy decision was followed by Lake Country Estates, Inc. v. Tahoe Regional Planning Agency, 440 U.S. 391, 99 S.Ct. 1171, 59 L.Ed.2d 401 (1979) which, by contrast, involved a bi-state agency, and thus raised different concerns, including the interests of the federal government under the Compact Clause. There the court held:

[S]ome agencies exercising state power have been permitted to invoke the Amendment in order to protect the state treasury from liability that would have had essentially the same practical consequences as a judgment against the State itself.

Id. at 400-01, 99 S.Ct. 1171. Lake Country also considered several facts as pertinent to the analysis.⁵

That was the state of the doctrine in 1993, when this court decided Metcalf & Eddy, 991 F.2d at 939-40. For the past decade the courts of this circuit, under Metcalf & Eddy, have assessed an entity's arm-of-the-state status by focusing on whether the structure established by the state reveals that the agency is an arm of the state; if the structure does not resolve the question, then the primary focus is on whether the action is in essence one for recovery from the state. Because answers are not always clear, we have encouraged the use of a non-exclusive list of factors, and identified at least seven areas of inquiry.⁶ These multi-factor tests, as we noted in Neo Gen Screening, Inc. v. New England Newborn Screening Program, 187 F.3d 24, 27 (1st Cir.1999), "are not easy to apply." Still, Metcalf & Eddy presciently predicted the ways in which the Supreme Court would view the issue.

In the intervening...