Morrison-Knudsen Co. v. Massachusetts Bay Transp.

• Decision Date: 07 November 1983
• Docket Number: Civ. No. 83-1124.
• Citation: 573 F. Supp. 698
• Parties: MORRISON-KNUDSEN COMPANY INC., a Delaware corporation, Plaintiff, v. MASSACHUSETTS BAY TRANSPORTATION AUTHORITY, a body politic and corporate organized under the laws of Massachusetts, Defendant.
• Court: U.S. District Court — District of Idaho

573 F. Supp. 698

MORRISON-KNUDSEN COMPANY INC., a Delaware corporation, Plaintiff, v. MASSACHUSETTS BAY TRANSPORTATION AUTHORITY, a body politic and corporate organized under the laws of Massachusetts, Defendant.

Civ. No. 83-1124.

United States District Court, D. Idaho.

November 7, 1983.

John T. Hawley, and P. Craig Storti, Hawley, Troxell, Ennis & Hawley, Richard J. McCain, Asst. General Counsel, Morrison-Knudsen Company, Boise, Idaho, for plaintiff.

Blaine Evans, John S. Simko, Elam, Burke, Evans, Boyd & Koontz, Boise, Idaho, for defendant.

MEMORANDUM OPINION AND ORDER

RYAN, District Judge.

Defendant's Motion to Dismiss is properly before this court. Defendant, Massachusetts Bay Transportation Authority ("the Authority"), brings this motion to dismiss Plaintiff Morrison-Knudsen's ("MK") suit asserting this court lacks proper federal jurisdiction. Defendant posits two arguments in support of its motion. First, defendant asserts that it is a dependent arm of the sovereign Commonwealth of Massachusetts and that the immunity afforded the Commonwealth under the eleventh amendment of the federal constitution bars this court from exercising jurisdiction over defendant. Second, defendant maintains that it is not a "citizen" for purposes of diversity jurisdiction within the meaning of 28 U.S.C. § 1332. Both parties filed briefs before this court arguing their respective positions. In addition, defendant submitted an affidavit with accompanying exhibits in support of its motion. Motions to dismiss filed pursuant to Fed.R.Civ.P. 12(b)(6) are to be submitted on the pleadings alone. Lodge 1380, Brotherhood of Railway, Etc., v. Dennis, 625 F.2d 819 (9th Cir.1980). The affidavit and exhibits submitted by defendant in support of its motion are not properly before the court at the present time and the court specifically excludes them from its consideration. Oral argument was heard before the court on September 16, 1983, during which both parties were represented by counsel. It is the judgment of the court that defendant's Motion to Dismiss must be denied.

I. FACTS

For purposes of this motion, the relevant facts are as follows: Plaintiff M-K is a worldwide construction company organized under the corporate laws of the State of Delaware with its principal place of business, operational base, and world headquarters located in Boise, Idaho. Defendant Authority is a body politic created and constituted pursuant to Chapter 161A of the General Laws of Massachusetts. See Mass.Ann.Laws ch. 161A (Michie/Law.Coop.1964). The Authority is charged with maintaining and operating a public mass transit system for the greater Boston area, including its surrounding seventy-nine cities and municipalities.

In October 1980, the Authority solicited bids for the rebuilding and converting of twenty-six Budd Rail Diesel Cars into locomotive-drawn passenger coaches for use in the subway and rail systems owned and operated by the Authority. M-K was the successful bidder and the refurbishing contract was awarded to it. A dispute has arisen under the terms of the contract concerning the amount owed M-K by the Authority. The parties have been unable to resolve their dispute resulting in the present action.

II. ISSUES BEFORE THE COURT

The Authority attacks the jurisdiction of this court by asserting two distinct and independent theories. The success or failure of both theories depends upon how this court classifies the nature of the Authority's position and function vis-a-vis the Commonwealth. The Authority may be classified as a dependent arm of the Commonwealth or as an independent political subdivision, separate and apart from the Commonwealth. If it is determined that the Authority is in actuality a governmental arm of the Commonwealth, then the Authority is not a citizen for 28 U.S.C. § 1332 diversity jurisdiction purposes. In addition, such a determination would cloak the Authority with the eleventh amendment immunity enjoyed by the Commonwealth. Conversely, if it is determined that the Authority is not a dependent arm of the Commonwealth, then the Authority is a citizen for purposes of diversity jurisdiction and does not partake in the Commonwealth's eleventh amendment immunity.

III. THE AUTHORITY'S ELEVENTH AMENDMENT IMMUNITY

It is well-settled that where the state is the real party defendant, absent its consent, the eleventh amendment bars suits brought against it by its citizens or citizens of other states in federal court. Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974); Quern v. Jordan, 440 U.S. 332, 99 S.Ct. 1139, 59 L.Ed.2d 358 (1979). Whether a particular agency, such as the defendant Authority, is a dependent arm of the state so as to partake in its eleventh amendment immunity has been the subject of legion cases. The answer to the inquiry is determined by reference to federal law. A court must pay particular attention to the statutory scheme creating the agency and to the case law delineating the agency's functions. DeLong Corporation v. Oregon State Highway Commission, 233 F.Supp. 7 (D.Or.1964), aff'd, 343 F.2d 911 (9th Cir.), cert. denied, 382 U.S. 877, 86 S.Ct. 161, 15 L.Ed.2d 119 (1965). Numerous tests have been formulated which identify the various agency characteristics which are important when determining whether an agency should be classified as an arm of the state or as an independent political subdivision thereof. In Idaho Potato Commission v. Washington Potato Commission, 410 F.Supp. 171 (D.Idaho 1975), then District Judge J. Blaine Anderson set forth the test to be adopted by federal courts in the District of Idaho when making this determination. The court held that, "two factors are of primary importance, namely, performance of a governmental function and the financial connection or independence between the agency and the sovereign." Id. at 175. The court further identified other characteristics for consideration, including the agency's ability to sue and be sued in its own name, the power of the agency to take property in its own name, and the corporate status or lack thereof of the agency. In Hutchison v. Lake Oswego School Dist. No. 7, 519 F.2d 961 (9th Cir. 1975), cert. denied, 429 U.S. 1037, 97 S.Ct. 731, 50 L.Ed.2d 748 (1977), the Court of Appeals for the Ninth Circuit affirmed the importance of the financial relationship between the agency and the state treasury. The court stated:

The most important factor in determining whether a particular agency is the "alter ego" of the State for Eleventh Amendment purposes is "whether payment of a judgment will have to be made out of the state treasury, i.e., whether the fund in question has both the independent power and resources to pay the judgment without further action by the state legislature or other governmental officer." Bowen v. Hackett, 387 F.Supp. 1212, 1221 (D.R.I.1975). Also important to our decision are the following factors: performance by the entity of an essential government function, ability to sue or be sued, power to take property in its own name or in the name of the State, and corporate status of the entity. George R. Whitten, Jr., Inc. v. State University Construction Fund, 493 F.2d 177 (1 Cir.1974). (emphasis added)

Id. at 966. The Supreme Court has likewise emphasized the importance the financial status of the agency plays. In Edelman, the Court stated:

"When the action is in essence one for the recovery of money from the state, the state is the real, substantial party in interest and is entitled to invoke its sovereign immunity from suit even though individual officials are nominal defendants."

Edelman v. Jordan, 415 U.S. 651, 663, 94 S.Ct. 1347, 1355, 39 L.Ed.2d 662 (1974) (quoting Ford Motor Co. v. Department of Treasury, 323 U.S. 459, 65 S.Ct. 347, 89 L.Ed. 389 (1945)).

The various agency characteristics identified by the courts as important considerations are delegated unequal degrees of importance. A careful reading of the cases discloses the weight which should be afforded each characteristic. The most important characteristic is the financial nexus between the agency and the state treasury. The focus of this inquiry is whether the state will be ultimately and necessarily liable for any judgment entered against the agency. Whether the agency performs an essential governmental function (as opposed to a proprietary function) should also be afforded significant consideration. Finally, and of approximately equal importance as between themselves, whether the agency may sue and be sued in its own name, take property by eminent domain, and whether it has independent corporate status should be considered.

(A) Independent Financial Status of the Authority

The Authority's financial relationship to the state treasury is established by Chapter 161A of the General Laws of Massachusetts see Mass.Ann.Laws ch. 161A (Michie/Law.Coop.1964), and by the case law of the Supreme Judicial Court of the State of Massachusetts. The scheme of Chapter 161A anticipates the probability that the Authority will incur financial budget deficits and provides a mechanism to pass the cost of the deficits on to the seventy-nine cities and municipalities served by the Authority.

Section 1 defines the "net cost of service" as:

The difference between (a) all income received by the authority ... and gifts and grants for current purposes, and (b) all current expenses incurred by the authority ... and all other expenses which the authority determines not to capitalize, when such expenses exceed such income.

In years when the Authority incurs a deficit as defined by the "net cost of service," Section 12 requires the Authority to notify the state treasurer of the amount of the deficit. The Commonwealth is then required to pay to the Authority the amount of the deficit. At this stage of the statutory scheme, it appears that the Commonwealth is financially accountable for any deficits incurred by the Authority. However, Sections 8 through 11...