Ristow v. South Carolina Ports Authority

Decision Date20 July 1995
Docket NumberNo. 93-1861,93-1861
Citation58 F.3d 1051
PartiesFred W. RISTOW; Susan M. Ristow, Plaintiffs-Appellants, v. SOUTH CAROLINA PORTS AUTHORITY, an Agency of the State of South Carolina, The SS Unknown, an Unknown Ocean Going Ship, Defendants-Appellees.
CourtU.S. Court of Appeals — Fourth Circuit

Leonard William Schulz, Big Bend, WI, for appellants. William H. Vaughan, Jr., Vaughan & Lawrence, P.A., Charleston, SC, for appellees.

Before WILKINS, Circuit Judge, and SPROUSE and CHAPMAN, Senior Circuit Judges.

Affirmed by published opinion. Senior Circuit Judge SPROUSE wrote the opinion, in which Judge WILKINS and Senior Circuit Judge CHAPMAN joined.

OPINION

SPROUSE, Senior Circuit Judge:

On June 13, 1994, we affirmed the decision of the United States District Court for the District of South Carolina dismissing this personal injury action against the South Carolina Ports Authority on the basis of Eleventh Amendment immunity. Ristow v. South Carolina Ports Auth., 27 F.3d 84 (4th Cir.1994) (" Ristow I "). The Supreme Court of the United States granted certiorari and remanded to us for reconsideration under the principles announced in Hess v. Port Authority Trans-Hudson, --- U.S.----, 115 S.Ct. 394, 130 L.Ed.2d 245 (1994). We have done so and under those principles again affirm. The relevant facts are restated.

Fred W. Ristow is a long-haul truck driver. On December 20, 1988, he drove a load of steel pipes to the South Carolina State Ports Authority ("Ports Authority") terminal in Charleston, South Carolina. While Ristow was standing atop a bundle of pipes on his truck, a forklift operator employed by the Ports Authority began to lift the truck's cargo. Ristow was forced to jump from the truck and suffered serious injuries.

In December 1991, Ristow and his wife brought suit in federal district court in South Carolina against the Ports Authority, 1 asserting federal jurisdiction based on diversity of citizenship and admiralty. The Ristows claimed negligence, Fred demanding compensation for his injuries and his wife alleging loss of consortium. They also sued for breach of contract in connection with an alleged $75,000 settlement offer. With the parties' consent, this case was referred to a United States Magistrate pursuant to 28 U.S.C.A. Sec. 636(c) (1993). After briefing and a hearing, the magistrate granted the Ports Authority's motion to dismiss the case on the ground that the Ports Authority was immune from suit under the Eleventh Amendment. The Ristows appeal. 2

I

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 or Subjects of any Foreign State." The plain language of the amendment provides immunity only for suits against "one of the United States." Nearly fifty years ago, however, the Supreme Court stated, "[W]hen 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." Ford Motor Co. v. Department of Treasury, 323 U.S. 459, 464, 65 S.Ct. 347, 350, 89 L.Ed. 389 (1945).

As we stated in Ristow I, the Supreme Court has held that a suit against an entity that is an arm of the state may also be barred by the Eleventh Amendment. See e.g., Mt. Healthy City Bd. of Educ. v. Doyle, 429 U.S. 274, 280, 97 S.Ct. 568, 572, 50 L.Ed.2d 471 (1977). The Ports Authority maintains that it is a state entity--more particularly, that it is the alter ego of the State of South Carolina--and claims Eleventh Amendment immunity from suit. In Lake Country Estates, Inc. v. Tahoe Regional Planning Agency, 440 U.S. 391, 401, 99 S.Ct. 1171, 1177, 59 L.Ed.2d 401 (1979), the Supreme Court identified six factors considered useful in determining Eleventh Amendment immunity issues: (1) the characterization of the entity by the language of its creating statutes; (2) the origin of the entity's funding; (3) whether the state is financially responsible for the liabilities and obligations incurred by the entity; (4) the source of the power to appoint the entity's officers or members; (5) whether the function performed by the entity is traditionally state or municipal; and (6) whether the entity's actions are subject to a veto by the state. 3 The Court in Hess, however, made it abundantly clear that one factor dominates the inquiry--whether the state treasury is "obligated" for "the losses and debts" of the entity under scrutiny. This is so because the "impetus" for the Eleventh Amendment is "the prevention of federal court judgments that must be paid out of a state's treasury." Hess, --- U.S. at ----, 115 S.Ct. at 404, 130 L.Ed.2d at 260. 4 The Supreme Court's Hess teachings, of course, guide our inquiry on this remand. 5

In Hess, the Court said:

The proper focus is not on the use of profits or surplus, but rather is on losses and debts. If the expenditures of the enterprise exceed receipts, is the State in fact obligated to bear and pay the resulting indebtedness of the enterprise? When the answer is "No"--both legally and practically--then the Eleventh Amendment's core concern is not implicated.

Hess, --- U.S. at ----, 115 S.Ct. at 406, 130 L.Ed.2d at 262 (emphasis added). The dissent characterized the majority's opinion as holding "[i]f a State does not fund judgments against an entity, that entity is not within the ambit of the Eleventh Amendment, and suits in federal court may proceed unimpeded." Hess, --- U.S. at ----, 115 S.Ct. at 408, 130 L.Ed.2d at 265. 6

If the Hess test were as sharply delineated as its dissenting opinion suggests, our resolution of the immunity issue would be simple. We find nothing in the South Carolina statutes or case law imposing liability per se on the state for judgments against its Ports Authority. The South Carolina Code does not obligate the General Assembly to appropriate funds for the operation of the Ports Authority nor does it make the state explicitly responsible for judgments against the Ports Authority. The only clear source of money from which a judgment would legally be required to be paid is the revenue retained by the Ports Authority in its bank accounts, see S.C.Code Ann. Secs. 54-3-1020 (Law. Co-op.1977), or funds borrowed by the Ports Authority under the authority of Sec. 54-3-1010.

As we understand the Hess majority opinion, however, the inquiry it compels is somewhat broader than suggested by the dissent. The majority, in the language quoted above, requires us to employ not only a legal test, but a practical analysis. Considering the practical effect of a putative Ristow judgment on the state treasury sways us to conclude that the Ports Authority, from an Eleventh Amendment perspective, is the alter ego of the State of South Carolina.

The South Carolina legislature created the Ports Authority in 1942 and heavily supported it through direct annual appropriations through 1959. While, as Hess makes clear, initial funding carries minimal weight in the controlling Eleventh Amendment equation, this is the first frame of a continuing picture that shows the state immersing itself in the pecuniary affairs of the Ports Authority. Periodically since 1959, South Carolina has decided that extensive capital improvements were necessary to maintain the Ports Authority as a viable player in national and international trade. It has authorized and issued several series of general obligation bonds totalling $132 million for that purpose, including $32 million issued during the pendency of this action. The resulting funds were deposited in the Ports Authority's account. All of the indebtedness, however, both principal and interest, is repaid out of South Carolina's general tax revenues.

Conversely, South Carolina has withdrawn over $1.5 million from the Ports Authority during its lifetime. It has done so under South Carolina law that provides, "[a]ny and all net revenues or earnings not necessary or desirable for operation of [the Ports Authority's] business shall be held subject to the further action of the General Assembly." S.C.Code Ann. Sec. 54-3-1020 (Law. Co-op.1977). Thus, the Ports Authority is not legislatively structured to retain unlimited profits or surplus. Rather, it is the South Carolina General Assembly that has the power to determine the Ports Authority balance available to meet operational costs, presumably including funds necessary to pay putative judgments against it. On the other hand, the state has shown its willingness to contribute to the maintenance and expansion of the Ports Authority, as evidenced by the $132 million in capital improvements paid ultimately from the state treasury. 7

All of this convinces us that, unlike Port Authority Trans-Hudson, the entity considered in Hess, the Ports Authority is not self-sufficient. 8 It is true that a judgment against the Ports Authority cannot be legally enforced against the state. The practical effect of South Carolina's treatment of the fiscal affairs of the Ports Authority, however, definitively implicates the state treasury. Obviously, the legislature will not be able to withdraw net revenues "not necessary or desirable for operation" if the Ports Authority's operational funds have been depleted by judgments against it. 9 Likewise, to the extent that a judgment would deplete its resources, the Ports Authority would be unable to utilize earnings for necessary capital improvements, and so would continue to depend on the state treasury for these required expenditures. To deny Eleventh Amendment immunity in these circumstances would ignore economic reality.

To summarize, in the strictest sense there is no legal obligation by the State of South Carolina to cover the Ports Authority's debts....

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