Miller-Davis Co. v. Illinois State Toll Highway Authority

• Decision Date: 02 November 1977
• Docket Number: MILLER-DAVIS,No. 76-2213,76-2213
• Citation: 567 F.2d 323
• Parties: COMPANY, a Michigan Corporation, Plaintiff-Appellant, v. ILLINOIS STATE TOLL HIGHWAY AUTHORITY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 323

567 F.2d 323

MILLER-DAVIS COMPANY, a Michigan Corporation, Plaintiff-Appellant, v. ILLINOIS STATE TOLL HIGHWAY AUTHORITY, Defendant-Appellee.

No. 76-2213.

United States Court of Appeals,

Seventh Circuit.

Argued May 25, 1977.

Decided Nov. 2, 1977.

Peter M. Sfikas, Chicago, Ill., for plaintiff-appellant.

Tanya K. Dietrich, Asst. Atty. Gen., Oak Brook, Ill., William J. Scott, Atty. Gen., Chicago, Ill., for defendant-appellee.

Before FAIRCHILD, Chief Judge, MARKEY, Chief Judge, ^* and WOOD, Circuit Judge.

FAIRCHILD, Chief Judge.

On this appeal, we are asked to consider whether it was proper for the district court to abstain from considering an Eleventh Amendment challenge to federal jurisdiction because of an unclear state issue as to waiver of sovereign immunity. We find that such abstention was not proper in this case and therefore reverse the district court's decision. We further find that the Eleventh Amendment does not bar this suit. Accordingly, we remand this case for further proceedings.

I. The Basis of the District Court's Decision to Abstain

Plaintiff, Miller-Davis Company, brought this suit to recover damages for alleged contract violations by defendant, the Illinois State Toll Highway Authority. Federal jurisdiction was based on 28 U.S.C. § 1332 by virtue of the diverse citizenship of the parties and the amount in controversy. Defendant moved to dismiss and for summary judgment on the ground, inter alia, that it was protected by sovereign immunity. The Eleventh Amendment to the Constitution recognizes sovereign immunity as a bar to the exercise of federal jurisdiction:

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 or Subjects of any Foreign State.

U.S.Const. Amend. XI. The district court sought to avoid the constitutional issue of whether the Amendment applied in this case by abstaining from any ruling as to jurisdiction while the parties sought state court clarification of whether a consent to suit clause in the Illinois statute creating the State Toll Highway Authority amounted to a waiver of immunity applicable in the instant case. ¹ Ill.Rev.Stats. Ch. 121, § 100-31 provides:

The State of Illinois hereby consents to suits against the Authority solely as in this section provided:

(a) The holder or holders of any bonds or coupons issued by the Authority may bring suits at law or proceedings in equity to compel the observance by the Authority or by any of its officers, agents, or employees of any contract or covenant made by the Authority with the holders of such bonds or coupons, and to compel the Authority and any of its officers, agents or employees, to perform any duties required to be performed for the benefit of the holders of said bonds or coupons by the provisions of the resolution authorizing their issuance, or by this Act, or to enjoin the Authority and any of its officers, agents or employees from taking any action in conflict with such contract or covenant.

(b) Any person or persons may bring suit at law to recover damages for injury to his person or property caused by any act of any of its officers, agents or employees done under its discretion.

Presumably, if the Illinois courts find the above waiver applicable to suits for breach of contract, it would be unnecessary for the federal court to consider defendant's Eleventh Amendment jurisdictional challenge. Thus, the district court concluded the case posed a classic situation for federal abstention, i.e., where a state court interpretation of unclear state law would avoid the need for a federal constitutional determination. Railroad Com'n of Texas v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1941).

II. The Basis for Federal Appellate Jurisdiction

Though appellee does not expressly challenge this court's jurisdiction to review a decision to stay based on abstention, we nevertheless begin by noting that this court has already considered the problems inherent in reviewing such a decision and has concluded that jurisdiction is present by virtue of 28 U.S.C. § 1291. Drexler v. Southwest Dubois School Corporation, 504 F.2d 836, 838 (7th Cir. 1974) (en banc ); accord, Vickers v. Trainor, 546 F.2d 739, 741 (7th Cir. 1976); but see Calvert Fire Insurance Co. v. Honorable Hubert L. Will, 560 F.2d 792 (7th Cir. 1977).

III. The Inappropriateness of Abstention in the Instant Case

We cannot agree with the district court that this case poses a classic situation for the exercise of Pullman abstention. In Pullman, the federal constitutional questions raised went directly to the merits of the case. Here, the "constitutional" issue raised goes to the procedural question whether or not the federal court has jurisdiction over the parties. We think this makes an important difference. Abstention is an exercise of discretion by the district court, and, as such, it cannot occur until the court has resolved any problems as to its jurisdiction. Otherwise, dismissal would be required. We conclude then that a federal court cannot abstain until it is satisfied as to its jurisdiction, even though such may require resolution of a constitutional issue on which an interpretation of state law has a bearing.

The distinction makes sense in light of the fact that abstention on a jurisdictional question would do little to further the policy underlying Pullman of avoiding unnecessary federal questions. In the instant case, it is clear that if a state court ruling on the waiver question determines that there has been no waiver of immunity and dismisses the suit, the federal court will still have to decide whether defendant is indeed the State of Illinois for Eleventh Amendment purposes such that the absence of any waiver would bar suit in the federal courts as well. More significantly, if the state court finds that there has been a waiver of immunity such that the Eleventh Amendment issue need not be addressed, plaintiff, who met all the requisites of diversity jurisdiction and who was, therefore, entitled to have the merits of his case resolved by a neutral federal forum, will find himself unable to return to that forum. For surely, once the state court determines that defendant can be sued, it will proceed to resolve the merits of the case. A diversity plaintiff cannot "reserve" the merits of his case for district court resolution the way a federal question plaintiff can reserve his federal claims. Cf. England v. Louisiana State Bd. of Medical Exam'rs., 375 U.S. 411, 84 S.Ct. 461, 11 L.Ed.2d 440 (1964). Nor does Illinois have procedures which would allow the federal court to certify a single issue of state law to the Illinois Supreme Court. And we have reason to think that the Illinois courts would decline to consider an attempt by plaintiff to obtain declaratory relief limited to the waiver issue. See generally, 28 East Jackson Enterprises, Inc. v. Rosewell, 65 Ill.2d 420, 3 Ill.Dec. 454, 358 N.E.2d 1139 (1976).

The resultant loss of the federal forum on all merits questions has resulted in some caution as to abstention in diversity cases. Compare Kaiser Steel Corp. v. W. S. Ranch Co., 391 U.S. 593, 88 S.Ct. 1753, 20 L.Ed.2d 835 (1968) and Louisiana Power & Light Co. v. City of Thibodaux, 360 U.S. 25, 79 S.Ct. 1070, 3 L.Ed.2d 1058 (1959) with County of Allegheny v. Frank Mashuda Co., 360 U.S. 185, 79 S.Ct. 1060, 3 L.Ed.2d 1163 (1959). See generally P. Bator, P. Mishkin, D. Shapiro & H. Wechsler, Hart & Wechsler's The Federal Courts & the Federal System at 998-99 (2d ed. 1973); Currie, The Federal Courts & the American Law Institute (Part II), 36 U.Chi.L.Rev. 268 (1969). It seems that before a federal court abstains in a diversity case, and forces a plaintiff to sacrifice completely his right to a federal forum, it should be convinced that the state issues which are unclear are considerably complex and that their incorrect resolution will threaten an important state policy. For example, in Kaiser Steel, supra, a case involving a dispute over rights to water on private land, the Supreme Court ordered abstention on the question then already pending in New Mexico state courts as to whether defendant was authorized by statute to take the water in question and whether such a statute was constitutional under the state constitution. The Court stated:

The state law issue . . . in this case is one of vital concern in the arid State of New Mexico where water is one of the most valuable natural resources. The issue, moreover, is a truly novel one. The question will eventually have to be resolved by the New Mexico Courts . . . . Sound judicial administration requires that the parties in this case be given the benefit of the same rule of law which will apply to all other businesses and landowners concerned with the use of this vital state resource.

391 U.S. 593, 594, 88 S.Ct. 1753, 1754, 20 L.Ed.2d 835 (1968).

We do not think a question as to waiver of immunity, which arises in this case not because of the merits, but because of a jurisdictional challenge raised by defendants poses a complex question of that degree, especially in light of our discussion, supra, that a state court finding of no waiver would not be dispositive as to whether defendant can be sued in federal court while a state court finding of waiver would in effect be telling plaintiff that although it was right all along in assuming it could sue defendant, the cost of finding that out was the loss of a federal forum to resolve the merits.

Accordingly, we find it was erroneous for the district court to abstain prior to assuming jurisdiction, and we see no sound policy reason for abstaining pending state court resolution of the waiver claim even after federal jurisdiction is assumed.

IV. Whether the Instant Suit Against Defendant is Barred by the Eleventh Amendment

Whether the Illinois State Toll Highway Authority acts as the alter ego of the State of...