Maryland Stadium Authority v. Ellerbe Becket Inc.

• Decision Date: 11 May 2005
• Docket Number: No. 04-2083.,No. 04-1743.,04-1743.,04-2083.
• Citation: 407 F.3d 255
• Parties: MARYLAND STADIUM AUTHORITY; University System Of Maryland, Plaintiffs-Appellants, v. ELLERBE BECKET INCORPORATED, a Delaware Corporation, Defendant-Appellee. Maryland Stadium Authority; University System Of Maryland, Plaintiffs-Appellants, v. Ellerbe Becket Incorporated, a Delaware Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

407 F.3d 255

MARYLAND STADIUM AUTHORITY; University System Of Maryland, Plaintiffs-Appellants, v.ELLERBE BECKET INCORPORATED, a Delaware Corporation, Defendant-Appellee.

Maryland Stadium Authority; University System Of Maryland, Plaintiffs-Appellants, v.Ellerbe Becket Incorporated, a Delaware Corporation, Defendant-Appellee.

No. 04-1743.

No. 04-2083.

United States Court of Appeals, Fourth Circuit.

Argued: March 16, 2005.

Decided: May 11, 2005.

ARGUED:

Joel Henry Oleinik, Assistant Attorney General, OFFICE OF THE Attorney General of Maryland, Baltimore, Maryland, for Appellants.Christopher Rowe Mellott, Venable, L.L.P., Baltimore, Maryland, for Appellee.

ON BRIEF:

J. Joseph Curran, Jr., Attorney General of Maryland, Jennifer L. Forrence, Assistant Attorney General, Baltimore, Maryland, for Appellants.Randolph Stuart Sergent, Venable, L.L.P., Baltimore, Maryland, for Appellee.

Before LUTTIG, WILLIAMS, and GREGORY, Circuit Judges.

Reversed and remanded with instructions by published opinion.Judge WILLIAMS wrote the opinion, in which Judge LUTTIG and Judge GREGORY joined.

OPINION

WILLIAMS, Circuit Judge:

The Maryland Stadium Authority (Stadium Authority) and the University System of Maryland (the University) filed a law suit against Ellerbe Becket, Inc., an architectural and engineering firm, in Maryland state court alleging state law claims for breach of contract, negligence, and indemnification.The claims arose from Ellerbe Becket's provision of architectural and engineering services for the construction of a new basketball arena at the University of Maryland, College Park.Ellerbe Becket timely removed the case to federal court, and before us is the Stadium Authority and the University's interlocutory appeal of the district court's denial of their motion to remand.¹We conclude that the district court lacked removal jurisdiction because the University is an alter ego of Maryland and, therefore, is not a "citizen" for purposes of diversity jurisdiction under 28 U.S.C.A. § 1332(West 1993& Supp.2004).Accordingly, we reverse and remand the case to the district court with instructions to remand the case to state court.

I.The University System of Maryland

Because the question of whether an entity is an alter ego of the state is a highly fact-intensive undertaking, we go into some detail regarding the University's structure and operations.The University was established "to foster the development of a consolidated system of public higher education, to improve the quality of education, to extend its benefits and to encourage the economical use of the State's resources."Md.Code Ann., Educ. § 12-101(a)(Supp.2004).It is a body corporate and politic, defined as "an instrumentality of the State and a public corporation."Md.Code Ann., Educ. § 12-102(a)(2)(2004).The University is an independent unit of State government performing an essential public function.Md.Code Ann., Educ. § 12-102(a)(3),(4).The University is composed of numerous campuses located throughout the state.These include: the University of Maryland, Baltimore; University of Maryland, Baltimore County; University of Maryland, College Park; University of Maryland Eastern Shore; University of Maryland University College; Bowie State University; Coppin State University; Frostburg State University; Salisbury University; Towson University; and University of Baltimore.Md.Code Ann., Educ. § 12-101(b)(4)(i)-(xi)(Supp.2004).

The University's governance is entrusted to a Board of Regents(the Board), which is composed of seventeen members, all but one of whom are directly appointed by the Governor with the advice and consent of the Maryland Senate.Md.Code Ann., Educ. § 12-102(e)(2004).The Secretary of Agriculture is designated, by statute, as the other member.²Md.Code Ann., Educ. § 12-102(c)(2)(2004).Persons appointed to the Board serve five year terms.Md.Code Ann., Educ. § 12-102(f)(2004).The University can, through the Board, exercise a broad range of powers.The University can: sue and be sued, enter into contracts, borrow money to purchase personal property, and exercise the powers of Maryland corporations.Md.Code Ann., Educ. §§ 12-104(b)(1)-(7)(Supp.2004).Any contract for services or capital improvements over $500,000 must be approved by the Board of Public Works(BPW).³Md.Code Ann., State Fin. & Proc. § 11-203(e)(3)(ii)(1)(Supp.2004).The University may, subject to the approval of the Governor and General Assembly, create new institutions or merge or close existing institutions.Md.Code Ann., Educ. § 12-104(f)(Supp.2004).The University may, subject to the approval of the BPW, sell and purchase real property.Md.Code Ann., Educ. § 12-104(g),(h)(Supp.2004).The University is also empowered to issue revenue bonds, Md.Code Ann., Educ. § 19-102(a)(2)(Supp.2004), subject to the Legislature's prior approval of both the project that the bonds will finance and the "[m]aximum principal amount of bonds" to be issued.Md.Code Ann., Educ. § 19-102(d)(1)(ii)(Supp.2004).

The Board is responsible for proposing budgets for the University, and for requesting appropriations from the General Assembly.Md.Code Ann., Educ. § 12-105(a)(1)(2004).The University may borrow money without creating a debt obligation for the State.Md.Code Ann., Educ. § 12-105(c)(2004).However, the title of any real property obtained by the University is in the name of the State, and "[a]ll property of the University is the property of the State."Md.Code Ann., Educ. § 12-105(b)(2)(2004).The University submits "requests for appropriations" each fiscal year.Md.Code Ann., Educ. § 12-105(a)(1)(iii)(2004).These requests are "recommendations" and are not binding upon the Legislature.Md.Code Ann., Educ. § 12-105(a)(2)(ii)(2004).In 2002, approximately 36% of the University's revenue was received from the state, with around 30% of the University's revenue coming in the form of a state appropriation.About 47% of the University's revenue came from non-governmental sources.

All of the University's income is either deposited "[i]n the State Treasury" or "[a]s the State Treasurer directs."Md. Code Ann., Educ. § 12-105(d)(i),(ii)(2004).The University may spend revenues in excess of those estimated in a fiscal year, but only "[b]y an approved budget amendment."Md.Code Ann., Educ. § 12-105(d)(2)(2004).Unexpended and unencumbered balances held by the University at the close of a fiscal year do not revert to the general state treasury.Md.Code Ann., Educ. § 12-105(d)(3)(2004).Such balances must, however, "be reported to the Comptroller at the end of the fiscal year" and may be expended "through an appropriation contained in a budget bill or through an approved budget amendment."Id.

The University is not subject to the State Personnel Management System or the State Finance and Procurement Article.Md.Code Ann., Educ. §§ 12-111,12 (2004).It is charged with implementing its own procurement policies and receiving approval for those policies from both the BPW and the Administrative, Executive, and Legislative Review Committee in the Maryland Legislature.Md.Code Ann., State Fin. & Proc. § 11-203(e)(3)(ii)(1).The BPW and Legislature may inquire into any aspect of the University's activities at any time, Md.Code Ann., Educ. § 12-105(e)(2004), and the Legislative Auditor is responsible for auditing the University's finances each fiscal year.Md.Code Ann., Educ. § 12-105(f)(2004).

Under state law, tort claims made against the University are covered under the Maryland Tort Claims Act, with the reservation that "[n]othing in this subsection shall be construed to waive or abrogate the immunity of the University System of Maryland under the Eleventh Amendment to the United States Constitution."Md.Code Ann., Educ. § 12-104(i)(4)(Supp.2004).The University's state sovereign immunity is waived to the extent of "any applicable liability insurance purchased by the University or the State Treasurer."Md.Code Ann., Educ. § 12-104(i)(2)(Supp.2004).

The Comcast Arena Project

The current litigation stems from the construction of the Comcast Arena, a new basketball arena for the Terrapins of the University of Maryland, College Park.The total projected cost for the arena was $126,845,000.The Legislature issued a mandate that the Stadium Authority⁴ should "manage the preparation of the detailed plans" for constructing the new arena.1998 Md. Laws 138.In accordance with that mandate, the Stadium Authority entered into a contract with Ellerbe Becket to provide "all necessary and customary architectural and engineering services" required in constructing the arena.(J.A.at 35.)The University alleges that a design defect discovered during construction required it to expend $1,800,000.

Procedural History

On November 3, 1999, the Stadium Authority and the University filed a complaint in their own names against Ellerbe Becket in the Circuit Court for Baltimore City alleging claims for negligence, breach of contract, and indemnification.The parties were represented, not by private counsel, but by the Maryland Attorney General's office.Ellerbe Becket removed the case to federal court on the basis of diversity of citizenship,⁵ and it filed a counterclaim against the Stadium Authority for fees it alleged it was owed under the contract.No counterclaim was filed against the University.

On January 5, 2004, the Stadium Authority moved to dismiss the counterclaim under the Eleventh Amendment, and both the Stadium Authority and the University moved to remand the case to the state court.Both alleged that they were "alter egos" or "arms" of the State of Maryland and, accordingly, were not "citizens" for the purpose of § 1332.Because diversity jurisdiction was lacking, both argued, the case should be remanded to state court.

The district court noted that "the questions presented [were] close ones as to which there [we]re reasonable arguments on both sides," but it denied the...