Ristow v. South Carolina Ports Authority

• Decision Date: 13 June 1994
• Docket Number: No. 93-1861,93-1861
• Citation: 27 F.3d 84
• Parties: Fred 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.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 84

27 F.3d 84

Fred 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.

No. 93-1861.

United States Court of Appeals Fourth Circuit.

Argued March 9, 1994.

Decided June 13, 1994.

ARGUED: Leonard William Schulz, Big Bend, WI, for appellants.

William H. Vaughan, Jr., Vaughan & Lawrence, P.A., Charleston, SC, for appellee.

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

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

OPINION

SPROUSE, Senior Circuit Judge:

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. The Ports Authority notified its insurance carrier, Lloyds of London, of the incident. The Ports Authority and Lloyds retained Carter & Co., a local insurance adjustment firm, to represent their interests. Ristow claims that an employee of Carter & Co. offered him and his wife a $75,000 settlement which they accepted, but Carter & Co. refuses to pay the $75,000.

In December 1990, 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 the $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.

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 only provides immunity 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). The Supreme Court has subsequently made clear 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).

In this case, the Ports Authority maintains that it is a state entity--more particularly, that it is the alter ego of the State of South Carolina. It claims Eleventh Amendment immunity from suit. In Ram Ditta v. Maryland Nat'l Capital Park & Planning Comm'n, 822 F.2d 456, 457-58 (4th Cir.1987), we set forth the following four-part, nonexclusive inquiry for determining when an entity is the alter ego of a state for Eleventh Amendment purposes: (1) whether the state treasury will be responsible for paying any judgment that might be awarded; (2) whether the entity exercises a significant degree of autonomy from the state; (3) whether it is involved with local versus statewide concerns; and (4) how the entity is treated as a matter of state law. The existence of Eleventh Amendment immunity is a question of law, and the facts to be considered in applying the Ram Ditta factors to the Ports Authority are undisputed. See United States v. Parke, Davis & Co., 362 U.S. 29, 44, 80 S.Ct. 503, 511, 4 L.Ed.2d 505 (1960). We, therefore, consider this immunity issue de novo.

A

The first Ram Ditta factor, the responsibility of the state treasury for the judgment, is generally the most important. This notion stems from the Supreme Court's statement in Ford Motor Co. that the state is the real party in interest "when the action is in essence one for the recovery of money from the state." Ford Motor Co., 323 U.S. at 464, 65 S.Ct. at 350. Here, to determine whether a tort recovery from the Ports Authority would in essence be one from the state, it is important to understand the role of the state treasury in the formation and operation of the Ports Authority. The Ports Authority was created by the State of South Carolina in 1942, and the state's General Assembly appropriated $750,000 in initial capital expenditures and maintenance costs. Annual appropriations of funds continued through 1959. While the Ports Authority no longer receives direct funding for its daily operations from the state, the General Assembly continues to make annual appropriations to pay the principal and interest on the $132,000,000 in general obligation bonds issued over the years to finance capital improvements for the Ports Authority. It is clear that the Ports Authority owes its very existence and current financial position to the state's coffers.

The close relationship has extended beyond the initial formation of the Ports Authority. Under South Carolina law, "[a]ny and all net revenues or earnings not necessary or desirable for operation of [the Ports Authority's] business shall be subject to the further action of the General Assembly." S.C.Code Ann. Sec. 54-3-1020 (Law. Co-op.1977). Under this authority, the State of South Carolina has withdrawn over $1.5 million in funds from the Ports Authority to the state treasury since 1942. In 1992, the State entered into an agreement with BMW under which the German automaker would construct a manufacturing plant in Spartanburg County. To purchase the land and prepare the site for BMW's use, the state transferred over $40 million from its treasury to the Ports Authority so that the Ports Authority could acquire the land on behalf of the state. The state's withdrawal of excess Ports Authority funds and its commingling of state funds with those of the Ports Authority in transactions like the BMW transaction are a strong indication that the funds of the Ports Authority belong to the state and that a tort recovery out of those funds would constitute one from the state treasury.

Without denying these facts, the Ristows contend nonetheless that numerous other factors support a finding that a recovery in this case would not be paid out of the state treasury. In particular, the appellants rely on Sec. 54-3-140(9) of the South Carolina Code which provides:

In order to enable it to carry out the purposes of this chapter, the Authority ... [m]ay apply for and accept loans and grants of money from any Federal agency for any and all of the purposes authorized in this chapter and expend such moneys in accordance with the directions and requirements attached thereto or imposed thereon by any such Federal agency and give such evidence of indebtedness as shall be required by any such Federal agency, except that no indebtedness of any kind incurred or created by the Authority shall constitute an indebtedness of the State, or any political subdivision thereof, and no such indebtedness shall be secured by the faith, credit or taxing power of the State, or any political subdivision thereof[.]

S.C.Code Ann. Sec. 54-3-140(9) (Law. Co-op.1977) (emphasis added). The Ristows assert that the phrase "no indebtedness of any kind" means precisely what it says: the State of South Carolina may not be held responsible for any debt, including money owed by the Ports Authority due to a tort recovery against it. Such an interpretation would insulate the state treasury from any payment of a recovery in favor of the Ristows in this case. We are unpersuaded.

The Ristows' view of Sec. 54-3-140(9) cannot be squared with the language and structure of the other parts of the South Carolina Code relating to the fiscal prerogatives and responsibilities of the Ports Authority. Subsection (9) solely concerns the power of the Ports Authority to borrow money from agencies of the United States government. Other statutory provisions enable the Ports Authority to incur debt generally but contain no debt insulation provisions. For example, Sec. 54-3-140(2) ² empowers the Ports Authority to mortgage or lease real and personal property but does not insulate the state from any indebtedness arising from such mortgages or leases, nor does it refer to Sec. 54-3-140(9). Similarly, Sec. 54-3-1010 ³ enables the Ports Authority to issue bonds to finance its operations. No language in Sec. 54-3-1010 shields the state from responsibility for funds owed under such debt financing, nor is there any cross-reference to Sec. 54-3-140(9).

The Ristows also make an "insurance" argument in asserting that the first Ram Ditta factor compels a finding in their favor. They claim that the Ports Authority is covered by a Lloyds of London policy that is large enough to satisfy the $430,000 in damages and costs which they seek. Further, they argue, even should the policy not cover the entire tort judgment, any excess liability would be paid by the Ports Authority, not the state treasury. The Ristows point out that 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...