Iowa Valley Community Coll. v. Plastech Ext. Sys.

• Citation: 256 F.Supp.2d 959
• Decision Date: 01 April 2003
• Docket Number: No. 4:02-CV-40025.,4:02-CV-40025.
• Parties: IOWA VALLEY COMMUNITY COLLEGE DISTRICT, Plaintiff, v. PLASTECH EXTERIOR SYSTEMS, INC. f/k/a UNITED SCREW AND BOLT CORPORATION, Defendant. Plastech Exterior Systems, Inc. F/K/A United Screw and Bolt Corporation, Third-Party Plaintiff, v. Iowa Department of Revenue and Finance, Third-Party Defendant.
• Court: U.S. District Court — Southern District of Iowa

Page 959

256 F.Supp.2d 959

IOWA VALLEY COMMUNITY COLLEGE DISTRICT, Plaintiff, v. PLASTECH EXTERIOR SYSTEMS, INC. f/k/a UNITED SCREW AND BOLT CORPORATION, Defendant.

Plastech Exterior Systems, Inc. F/K/A United Screw and Bolt Corporation, Third-Party Plaintiff, v. Iowa Department of Revenue and Finance, Third-Party Defendant.

No. 4:02-CV-40025.

United States District Court, S.D. Iowa, Central Division.

April 1, 2003.

Joel T. Greer, Cartwright Druker & Ryden, Marshalltown, IA, for Plaintiff.

Patrick M. Roby, Robert M. Hogg, Elderkin & Pirnie PLC, Cedar Rapids, IA, for Defendant.

AMENDED ^* RULING ON THIRD-PARTY DEFENDANT'S MOTION TO DISMISS

GRITZNER, District Judge.

This matter is before the Court on Third-Party Defendant's Motion to Dismiss. Third-Party Plaintiff resists, and Third-Party Defendant filed a reply. Oral argument was not requested by either party. The motion is fully submitted.

I. BACKGROUND

On October 9, 1996, pursuant to Iowa Code Chapter 260E, Iowa Valley Community College District a/k/a Merged Area VI ("IVCCD") and the Iowa Department of Revenue and Finance ("Department") entered into an Industrial New Jobs Training Agreement ("Agreement") with Plastech Exterior Systems, Inc. f/k/a United Screw and Bolt Corporation ("Plastech"). Under the Agreement, IVCCD would educate and train new Plastech employees in new jobs in connection with the expansion of Plastech's business operations within Merged Area VI. As part of the Agreement, the Department approved supplemental new job credits from Plastech's state withholding taxes pursuant to Section 15.331 of the Iowa Code. In addition, the Department approved new job credits from Plastech's state withholding taxes set forth pursuant to Iowa Code Chapter 260E.5. Project costs of the Agreement would be funded from both of these state withholding tax payments which were to be diverted directly to IVCCD.¹

On December 20, 2001, IVCCD filed a petition at law against Plastech in the Iowa District Court in and for Marshall County. In its petition, IVCCD alleged it was a "political subdivision" of the State. IVCCD's complaint alleged that Plastech had breached the contract by, among other things, its nonpayment of $465,798 due under the contract.

On January 10, 2002, Plastech removed the action pending in the Iowa District Court to the United States District Court for the Southern District of Iowa pursuant to 28 U.S.C. § 1441. According to Plastech's notice of removal, the basis of federal jurisdiction was diversity jurisdiction under 28 U.S.C. § 1332. IVCCD did not object to the removal.

On October 7, 2002, Plastech filed a third-party complaint against the Department involving a claim of indemnity based upon breach of contract, estoppel, and unjust enrichment. Plastech alleges that under the terms of the Agreement, the withholding taxes Plastech paid to the State of Iowa should have been diverted directly to IVCCD, and, if that had been done, it would have substantially reduced Plastech's contractual obligation. Plastech further contends that if IVCCD recovers against Plastech, it will seek indemnification from the Department in the amount that should have been diverted to IVCCD.²

On October 31, 2002, the Department filed a motion to dismiss the third-party complaint, contending there is a lack of subject matter jurisdiction based upon Eleventh Amendment immunity, the Tax Injunction Act, and principles of comity.

All claims and counterclaims between Plastech and IVCCD were subsequently settled. Those claims were dismissed with prejudice on March 27, 2003. Only the claim between Plastech and the Department remains.

II. ANALYSIS

A. Eleventh Amendment Immunity

The Eleventh Amendment to the United States Constitution provides: "The judicial power of the United States shall not be construed to extend to any suit in law or equity, commenced or prosecuted against one of the United States by Citizens of another State, or by Citizens of Subjects of any Foreign State." The United States Supreme Court has consistently held that "an unconsenting State is immune from suits brought in federal courts by her own citizens as well as by citizens of another State." Edelman v. Jordan, 415 U.S. 651, 663, 94 S.Ct. 1347, 1355, 39 L.Ed.2d 662 (1974). The Eleventh Amendment has been interpreted to ban almost entirely suits in federal court against unconsenting States. Raper v. Iowa, 940 F.Supp. 1421, 1424 (S.D.Iowa 1996) (quoting Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 116 S.Ct. 1114, 134 L.Ed.2d 252 (1996)). The Eleventh Amendment's immunity "encompasses not only actions in which a State is actually named as the defendant, but also certain actions against state agents and state instrumentalities." Regents of the Univ. of Cal. v. Doe, 519 U.S. 425, 429, 117 S.Ct. 900, 903, 137 L.Ed.2d 55 (1997); see also Pennhurst State Sch. & Hosp. v. Haiderman, 465 U.S. 89, 100, 104 S.Ct. 900, 908, 79 L.Ed.2d 67 (1984) (holding that "in the absence of consent a suit in which the State or one of its agencies or departments is named as the defendant is proscribed by the Eleventh Amendment"). A suit against a State or one of its agencies or departments brought in federal court is proscribed by the Eleventh Amendment regardless of the nature of the relief sought. Van Pilsum v. Iowa State Univ. of Sci. & Tech., 863 F.Supp. 935, 939-40 (S.D.Iowa 1994). As a result, the rule is "that a suit by private parties seeking to impose a liability which must be paid from public funds in the state treasury is barred by the Eleventh Amendment." Edelman, 415 U.S. at 663, 94 S.Ct. 1347.

In the present case, Plastech filed a third-party suit against the Iowa Department of Revenue and Finance, clearly a state agency. See In re Palm, 286 B.R. 710, 714 (Bankr.N.D.Iowa 2002) (holding that the Illinois "Department of Revenue is entitled to the same Eleventh Amendment immunity enjoyed by the State of Illinois"). Moreover, the relief requested, indemnification, will be paid from public funds in the state treasury. Consequently, the State is the real party in interest, and the Court finds the Department would be protected from Plastech's suit in federal court under Eleventh Amendment immunity.

B. Waiver of Eleventh Amendment Immunity by Department Contracting with Plastech

Plastech alleges even if the Eleventh Amendment would immunize the Department from suit in federal court, the Department waived this immunity and consented to suit in federal court by contracting with Plastech. While it is true that a State may waive its Eleventh Amendment immunity, the test is stringent. See Coll. Sav. Bank v. Fla. Prepaid Postsecondary Education Expense Bd., 527 U.S. 666, 675-76, 119 S.Ct. 2219, 2226, 144 L.Ed.2d 605 (1999). Although a State's general waiver of sovereign or governmental immunity may subject it to suit in state court, it is not enough to waive the constitutional immunity guaranteed by the Eleventh Amendment. Fla. Dept. of Health v. Fla. Nursing Home Assn., 450 U.S. 147, 150, 101 S.Ct. 1032, 1034, 67 L.Ed.2d 132 (1981). "Thus, a State does not consent to suit in federal court merely by consenting to suit in the courts of its own creation." Coll. Sav. Bank, 527 U.S. at 676, 119 S.Ct. 2219; Pennhurst, 465 U.S. at 99 n. 9, 104 S.Ct. 900. "A State's constitutional interest in immunity encompasses not merely whether it may be sued, but where it may be sued." Pennhurst, 465 U.S. at 99, 104 S.Ct. 900.

Plastech urges this Court to follow Greiner v. Gunnar A. Olsen Corp., which held that by entering into a contract, the State of Iowa consented to federal court jurisdiction for claims arising out of that contract. Greiner v. Gunnar A. Olsen Corp., 498 F.Supp. 908, 909 (N.D.Iowa 1976). However, more recently, this Court expressly disagreed with the holding and rationale of Greiner and held that the State did not waive its Eleventh Amendment immunity or consent to suit in federal court by entering into a contract. Prueitt v. Boone County, 599 F.Supp. 278, 279-80 (S.D.Iowa 1984) (dismissing defendant's third-party complaint seeking indemnity against the State of Iowa). This Court finds the more recent and better supported and reasoned decision of Prueitt to be controlling.

First, Greiner relied upon Kersten Co. v. Department of Social Services, which held that "the State, by entering into a contract, waives its defense of governmental immunity and consents to be sued." Kersten Co. v. Dept. of Soc. Servs., 207 N.W.2d 117, 122 (Iowa 1973). However, Kersten only reached the waiver of governmental immunity in state court; it did not consider whether waiving sovereign immunity thereby waives Eleventh Amendment immunity. Id. at 122; see also Prueitt, 599 F.Supp. at 280.

Second, the court in Greiner also relied on Kersten's citation to Na-Ja Construction Corp. v. Roberts, which held that the defendant county government waived its sovereign immunity. Na-Ja Constr. Corp. v. Roberts, 259 F.Supp. 895, 896 (D.Del. 1966). According to Greiner, "[t]he citation of Na-Ja would indicate [Kersten's] understanding that the new remedy would also be available in federal court." Greiner, 498 F.Supp. at 909. However, the defendant in Na-Ja was a county government, which is not entitled to Eleventh Amendment immunity. Greenwood v. Ross, 778 F.2d 448, 453 (8th Cir. 1985); see also Prueitt, 599 F.Supp. at 280. "Recognizing this, the Na-Ja court implied that, if the defendant had been an arm of state government, it would not have found a waiver of immunity from suit for breach of contract to include a waiver of immunity from suit in federal court." Prueitt, 599 F.Supp. at 280 (citing Na-Ja, 259 F.Supp. at 899). It is clear that in the present case the Department is an arm of the state that under Na-Ja would not have waived its immunity from suit in federal court.

Finally, Greiner also relied on Markham v. City of Newport News, which stated that "whenever a state provides a substantive right and a remedy for its enforcement in a...