Hill v. Blind Industries and Services of Maryland

Citation179 F.3d 754
Decision Date04 June 1999
Docket NumberNo. 97-55382.,97-55382.
PartiesJerry HILL d/b/a American Sewing & Bag Company, Plaintiff-Appellee, v. BLIND INDUSTRIES AND SERVICES OF MARYLAND, Defendant-Appellant.
CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)

C. Stephen Howard and Scott Vick, Milbank, Tweed, Hadley & McCloy, Los Angeles, California, for defendant-appellant.

Frederick J. Wood, Atascadero, California, for plaintiff-appellee.

Before: KOZINSKI and KLEINFELD, Circuit Judges, and PANNER, District Judge.*

PANNER, District Judge:

Defendant Blind Industries & Services of Maryland ("BISM") appeals from a judgment in favor of plaintiff Jerry Hill (dba American Sewing & Bag Company) ("Hill") on Hill's breach of contract claim. We affirm.

The sole issue on appeal is whether the district court properly denied BISM's motion to dismiss this action pursuant to the Eleventh Amendment. We hold that BISM consented to jurisdiction in federal court by actively litigating this action on the merits, while waiting until trial to first assert Eleventh Amendment immunity. We therefore do not decide whether BISM is an "arm of the state" for Eleventh Amendment purposes.

BACKGROUND

BISM contracted to purchase a substantial portion of the assets of Hill's business. When BISM failed to make payments allegedly due him, Hill brought this action in federal court for fraud and breach of contract. BISM moved to dismiss for lack of personal jurisdiction in California. The motion was denied. BISM filed an answer, and then unsuccessfully moved to dismiss the action on the ground that the amount in controversy was less than the jurisdictional minimum for diversity cases. BISM did not mention the Eleventh Amendment or sovereign immunity in either motion to dismiss and did not assert those defenses in its answer.

BISM filed a written consent to have a United States Magistrate Judge try the case and enter final orders and judgment. BISM conducted discovery, and moved to compel discovery and for sanctions. BISM participated in the pre-trial conference and filed trial materials including witness and exhibit lists, proposed jury instructions, and a trial memorandum.

On the opening day of trial, BISM asserted for the first time that it is an arm of the state and thus the Eleventh Amendment bars this action. The motion was taken under advisement and trial proceeded. The jury returned a verdict for Hill on his breach of contract claim, but found for BISM on the fraud claim. The trial court subsequently denied the motion to dismiss. In a thorough opinion, the Magistrate Judge considered the five factors we identified in Durning v. Citibank, N.A., 950 F.2d 1419, 1423 (9th Cir.1991), and concluded that BISM is not an arm of the state entitled to Eleventh Amendment immunity. BISM appeals from that decision.

STANDARD OF REVIEW

We review de novo questions of Eleventh Amendment immunity. Micomonaco v. Washington, 45 F.3d 316, 319 (9th Cir.1995).

DISCUSSION
I.

Hill contends that BISM waived any Eleventh Amendment immunity it might possess by participating in extensive pre-trial activities and waiting until the first day of trial before objecting to the federal court's jurisdiction on Eleventh Amendment grounds. We agree.

By waiting until the first day of trial, BISM hedged its bet on the trial's outcome. Rather than send jurors and witnesses home while the parties briefed and argued the merits of BISM's Eleventh Amendment defense, the trial court properly took the motion under advisement and proceeded with trial. BISM thus had the best of both worlds. If BISM prevailed at trial, it could withdraw its motion and let the jury verdict stand. If BISM lost at trial, it could ask to have the verdict set aside on the ground that the action was barred by the Eleventh Amendment. BISM contends it could even have waited until after the verdict was returned before first asserting this defense.

Such conduct undermines the integrity of the judicial system. It also wastes judicial resources, burdens jurors and witnesses, and imposes substantial costs upon the litigants. In addition, when an Eleventh Amendment defense is first raised late in the case, the record may be inadequate to permit informed appellate review, and the plaintiff may have difficulty obtaining evidence necessary to oppose the motion.

A party may gain an improper advantage through this tactic even without waiting until the first day of trial. The ruling on a motion for summary judgment, or on pre-trial matters such as motions in limine, can signal the probable outcome of the case. The integrity of the judicial process is undermined if a party, unhappy with the trial court's rulings or anticipating defeat, can unilaterally void the entire proceeding and begin anew in a different forum.

The rules of procedure in federal courts are structured to prevent such abuses. Defects in personal jurisdiction, venue, or service of process are waived unless asserted in a party's initial pleading. See Fed.R.Civ.P. 12(h)(1). Removal and remand are likewise governed by strict time limits. See 28 U.S.C. §§ 1446(c)(1), 1447(c). The policy against allowing litigants a "free shot" applies equally to plaintiffs and defendants. Cf. Fed.R.Civ.P. 41(a) (limiting plaintiff's right to voluntarily dismiss claim without prejudice).

We have recognized few exceptions to this policy. Lack of subject matter jurisdiction may be raised at any time because the parties cannot, by their consent, confer jurisdiction upon a federal court in excess of that provided by Article III of the United States Constitution. See Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 72 L.Ed.2d 492 (1982). Even this exception is narrowly construed to conserve judicial resources and prevent untoward manipulation. Thus, diversity jurisdiction is determined at the time the action commences, and a federal court is not divested of jurisdiction if a party subsequently moves to another state, see Freeport-McMoRan Inc. v. K N Energy, Inc., 498 U.S. 426, 428, 111 S.Ct. 858, 112 L.Ed.2d 951 (1991) (per curiam), or if the amount in controversy subsequently drops below the minimum jurisdictional level, see St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 293-95, 58 S.Ct. 586, 82 L.Ed. 845 (1938).

Mootness is grounds to dismiss an action at any time, because there is no longer a case or controversy for purposes of Article III, but again the rule is narrowly construed to avoid manipulation. See U.S. Bancorp Mortgage Co. v. Bonner Mall Partnership, 513 U.S. 18, 29, 115 S.Ct. 386, 130 L.Ed.2d 233 (1994) (declining to vacate judgment after losing party voluntarily mooted case by settling while on appeal); City of Mesquite v. Aladdin's Castle, Inc., 455 U.S. 283, 289, 102 S.Ct. 1070, 71 L.Ed.2d 152 (1982) (defendant's voluntary cessation of challenged practice ordinarily does not deprive federal court of jurisdiction).

On occasion, we also have considered abstention arguments raised late in the proceedings. See San Remo Hotel v. City & County of San Francisco, 145 F.3d 1095 (9th Cir.1998). However, the essence of the abstention doctrine is that compelling prudential concerns justify the federal court staying its hand. Abstention "does not exist for the benefit of either of the parties but rather for `the rightful independence of the state governments and for the smooth working of the federal judiciary.'" Id. at 1105 (quoting Railroad Comm'n v. Pullman Co., 312 U.S. 496, 501, 61 S.Ct. 643, 85 L.Ed. 971 (1941)). Since these institutions cannot waive their rights when neither is a party to the case, we sometimes have considered abstention though raised tardily, or have raised that issue sua sponte. But cf. Kleenwell Biohazard Waste & General Ecology Consultants, Inc. v. Nelson, 48 F.3d 391, 393-94 (9th Cir.1995) (refusing to consider abstention argument raised for first time on appeal because state, which was a party, effectively waived that argument by litigating case on the merits in the district court).

We see no valid reason why a party should belatedly be permitted to assert Eleventh Amendment immunity. A party knows whether it purports to be an "arm of the state," and is capable of disclosing early in the proceedings whether it objects to having the matter heard in federal court. Timely disclosure provides fair warning to the plaintiff, who can amend the complaint, dismiss the action and refile it in state court, or request a prompt ruling on the Eleventh Amendment defense before the parties and the court have invested substantial resources in the case. Timely disclosure also facilitates discovery, when appropriate, and allows the parties to establish a full record for appellate review. Requiring the prompt assertion of an Eleventh Amendment defense also minimizes the opportunity for improper manipulation of the judicial process.

If a state or state agency elects to defend on the merits in federal court, it should be held to that choice the same as any other litigant. We find persuasive Justice Kennedy's thoughtful concurrence in Wisconsin Dep't of Corrections v. Schacht, 524 U.S. 381, 118 S.Ct. 2047, 2055-56, 141 L.Ed.2d 364 (1998), which proposes a similar rule. To permit a defendant to litigate the case on the merits, and then belatedly claim Eleventh Amendment immunity to avoid an adverse result, would "work a virtual fraud on the federal court and opposing litigants." Newfield House, Inc. v. Massachusetts Dep't of Pub. Welfare, 651 F.2d 32, 36 n. 3 (1st Cir.1981).

Although the Eleventh Amendment defense arises from the Constitution, even constitutional rights can be waived if not timely asserted. A lack of personal jurisdiction implicates the Due Process Clause, yet that defense is waived if not promptly asserted. See Insurance Corp. of Ireland, 456 U.S. at 702-03, 102 S.Ct. 2099. Similarly, the Seventh Amendment right to a jury trial is waived unless...

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