Ping Lu v. Educ. Trust Bd. of N.M.

• Citation: 293 P.3d 186
• Decision Date: 22 October 2012
• Docket Number: No. 31,363.,31,363.
• Parties: PING LU, Jill McKeon, Richard McKeon, Stephen Spencer, Spencer Stopa, and Judy C. Winnegar, on their own behalf and on behalf of a class of similarly situated persons, Plaintiffs–Appellants, v. The EDUCATION TRUST BOARD OF NEW MEXICO, the Education Plan Trust of New Mexico, and the State of New Mexico, Defendants–Appellees.
• Court: Court of Appeals of New Mexico

293 P.3d 186

PING LU, Jill McKeon, Richard McKeon, Stephen Spencer, Spencer Stopa, and Judy C. Winnegar, on their own behalf and on behalf of a class of similarly situated persons, Plaintiffs–Appellants,

v.The EDUCATION TRUST BOARD OF NEW MEXICO, the Education Plan Trust of New Mexico, and the State of New Mexico, Defendants–Appellees.

No. 31,363.

Court of Appeals of New Mexico.

Oct. 22, 2012.

Rothstein, Donatelli, Hughes, Dahlstrom, Schoenburg & Bienvenu, LLP, John C. Bienvenu, Kristina Martinez, Brendan K. Egan, Santa Fe, NM, Keller Rohrback LLP, Benjamin Gould, Seattle, WA, for Appellants.

Gary K. King, Attorney General, Matthew E. Jackson, Assistant Attorney General, Santa Fe, NM, for Appellees.

Freedman Boyd Hollander Goldberg, Ives & Duncan, P.A., Joseph Goldberg, John W. Boyd, Vincent J. Ward, for Amici Curiae.

OPINION

VANZI, Judge.

{1} In this appeal, we consider whether the district court properly dismissed the State of New Mexico as a defendant in a class action suit for breach of contract on the basis of sovereign immunity. The district court dismissed the State after determining that a specific statutory provision of the Education Trust Act (the Act), NMSA 1978, Sections 21–21K–1 to –7 (1997, as amended through 2011), addressing sources of monetary recovery for liabilities or contractual obligations arising under the Act amounted to sovereign immunity for the State. See§ 21–21K–3(C). We conclude that the district court erred in granting the State's motion to dismiss on this basis. Accordingly, we reverse.

BACKGROUND

{2} Plaintiffs represent a class of investors in the State of New Mexico's qualified higher education tuition programs. Established by the Act, these programs are tax-advantaged college savings plans established in compliance with Section 529 of the Internal Revenue Code of 1986 and are thus commonly known as “529 plans.” In New Mexico, the Education Trust Board (the Board) is the entity responsible for administering the State's 529 plans, and the Education Trust Fund (the Fund), located within the State treasury, holds “all money received pursuant to college investment agreements and prepaid tuition contracts” under the State's 529 plans. Sections 21–21K–3(A), –4(A). In addition, the Board has established a trust (the Trust) which is “a vehicle for the [B]oard to carry out the provisions of the [A]ct and ... to protect the financial integrity of the ... [F]und.” 5.7.30.8(A) NMAC (11/15/2001) (internal quotation marks omitted).

{3} In 2009, Plaintiffs initiated a class action lawsuit for breach of contract against the Board and the Education Plan Trust of New Mexico. Plaintiffs later amended their complaint to add the State of New Mexico as a defendant. Plaintiffs alleged in their amended complaint that they had entered into written contracts with Defendants in order to participate in the State's 529 plans and that Defendants breached these contracts by mismanaging Plaintiffs' investments and wrongfully investing in high risk ventures rather than the conservative fixed-income investments that Plaintiffs had contracted for. In addition to seeking compensatory damages for the breach of contract claim, Plaintiffs sought injunctive and declaratory relief.

{4} After it was added as a defendant, the State moved to dismiss by filing a Rule 1–012(B)(1) NMRA motion for lack of subject matter jurisdiction. The State's primary argument for dismissal involved a sentence within Section 21–21 K–3 (C) of the Act providing that “[n]othing in the ... Act creates any obligation, legal, moral or otherwise, to fulfill the terms of any college investment agreement or prepaid tuition contract out of any source other than the ... [F]und.” The State argued that this language in Section 21–21K–3(C) overrides NMSA 1978, Section 37–1–23(A) (1976), the statute granting governmental immunity from contract actions not “based on a valid written contract.” The State also made arguments grounded in public policy, contending that the Act should be read to limit the State's liability in order to protect the public fisc.

{5} After a hearing, the district court granted the State's motion. In its oral ruling from the bench, the district court explained that:

I agree with the State there's no purpose in that second sentence [of Section 21–21K–3(C) ] other than to make it clear that it is only the ... [F]und that is a source for a recovery.... It's the [c]ourt's belief and finding that [Section] 21–21K–3[ (C) ] is a specific statute regarding liabilities of the State which overrides any general provision such as [Section] 37–1–23. And as such, there is no waiver of sovereign immunity.

The court subsequently entered a written order dismissing the State as a party to the lawsuit and finding that “the ... Fund is the only potential source of recovery from State funds in this case.”

{6} The court certified the order for interlocutory appeal, noting that the case involved a “controlling question of law as to which there is substantial ground for difference of opinion.” SeeNMSA 1978, § 39–3–4(A) (1999). Plaintiffs subsequently filed an application for interlocutory appeal with this Court. However, we determined that the district court's order of dismissal constituted a final, appealable order with respect to the State and, therefore, the dismissal conferred an appeal as of right. SeeRule 1–054(B)(2) NMRA (“When multiple parties are involved, judgment may be entered adjudicating all issues as to one or more, but fewer than all parties. Such judgment shall be a final one unless the court ... expressly provides otherwise.”). Plaintiffs and the State thereafter submitted briefing to this Court, and we permitted the Board to file an amicus brief on its behalf although it is not a party to this appeal.

DISCUSSION

{7} On appeal, Plaintiffs contend that the district court erroneously granted the State's Rule 1–012(B)(1) motion to dismiss based on the State's claim of sovereign immunity. We apply de novo review to a district court's ruling on a Rule 1–012(B)(1) motion to dismiss for lack of subject matter jurisdiction. Tri–State Generation & Transmission Ass'n, Inc. v. King, 2003–NMSC–029, ¶ 4, 134 N.M. 467, 78 P.3d 1226;Holguin v. Tsay Corp., 2009–NMCA–056, ¶ 9, 146 N.M. 346, 210 P.3d 243. In addition, to the extent that this appeal involves interpretation of the Act, our standard of review is de novo. N.M. Indus. Energy Consumers v. N.M. Pub. Regulation Comm'n, 2007–NMSC–053, ¶ 19, 142 N.M. 533, 168 P.3d 105 (“Statutory interpretation is an issue of law, which we review de novo.”).

{8} It is a well-established and oft-repeated principle in our judicial system that subject matter jurisdiction is “the power to adjudicate the general questions involved in the claim and is not dependent upon the state of facts which may appear in a particular case, or the ultimate existence of a valid cause of action.” Gonzales v. Surgidev Corp., 120 N.M. 133, 138, 899 P.2d 576, 581 (1995); Lyndoe v. D.R. Horton, Inc., 2012–NMCA–103, ¶ 12, –––N.M. ––––, 287 P.3d 357 (2012) (defining subject matter jurisdiction as the “power of a court to hear and determine cases”). Our Supreme Court has directed that “[t]he only relevant inquiry in determining whether the court has subject matter jurisdiction is to ask whether the matter before the court falls within the general scope of authority conferred upon such court by the constitution or statute.” State v. Chavarria, 2009–NMSC–020, ¶ 11, 146 N.M. 251, 208 P.3d 896 (alteration, internal quotation marks, and citation omitted); see Marchman v. NCNB Tex. Nat'l Bank, 120 N.M. 74, 83, 898 P.2d 709, 718 (1995) (stating that a “court has subject matter jurisdiction in an action if the case is within the general class of cases that the court has been empowered, by constitution or statute, to hear and determine”); see also 2 James W. Moore, Moore's Federal Practice § 12.30, at 12–35 (3d ed. 2010) (noting that “subject matter jurisdiction [motions] challenge[ ] the court's statutory or constitutional power to adjudicate the case”).

{9} The source of a district court's subject matter jurisdiction derives from the New Mexico Constitution. Lyndoe, 2012–NMCA–103, ¶ 12, ––– N.M. ––––, 287 P.3d 357. “New Mexico district courts are courts of general jurisdiction having the power to hear all matters not excepted by the constitution and those matters conferred by law.” Id. In the present case, we are concerned with the district court's subject matter jurisdiction over a breach of contract class action involving the State. With respect to contract actions brought against governmental entities in New Mexico, the district court and the parties considered Section 37–1–23(A), which was enacted in response to the Supreme Court's abolishment of common law sovereign immunity. Univ. of N.M. Police Officer's Ass'n v. Univ. of N.M., 2005–NMSC–030, ¶ 8, 138 N.M. 360, 120 P.3d 442 (discussing Hicks v. State, 88 N.M. 588, 544 P.2d 1153 (1976)), superseded by statute on other grounds as stated in Gallagher v. Albuquerque Metro. Flood Control Auth., 90 N.M. 309, 563 P.2d 103 (Ct.App.1977). Section 37–1–23(A) provides that “[g]overnmental entities are granted immunity from actions based on contract, except actions based on a valid written contract.” (Emphasis added.) In order to “protect the public treasury” and “the taxpayer,” Section 37–1–23(A) requires at a minimum that plaintiffs obtain a valid written contract in order to maintain a lawsuit against the State. Univ. of N.M. Police Officer's Ass'n, 2005–NMSC–030, ¶ 21, 138 N.M. 360, 120 P.3d 442. Because this case is based on valid written contracts,¹ it seems beyond dispute that the district court, on the basis of its general jurisdiction, had subject matter jurisdiction over this case with the State as a defendant.

{10} However, the district court nonetheless relied on a sovereign immunity argument raised by the State on the basis of Section 21–21K–3(C) to divest itself of subject...