Univ. of Fla. Research Found., Inc. v. Medtronic PLC, Medtronic, Inc., CASE NO. 1:16CV183-MW/GRJ

Decision Date15 July 2016
Docket NumberCASE NO. 1:16CV183-MW/GRJ
PartiesUNIVERSITY OF FLORIDA RESEARCH FOUNDATION, INC., Plaintiff, v. MEDTRONIC PLC, MEDTRONIC, INC., AND COVIDIEN LP, Defendants.
CourtU.S. District Court — Northern District of Florida
ORDER REMANDING CASE TO STATE COURT

Plaintiff, the University of Florida Research Foundation, Inc. ("UFRF") filed suit in state court against Defendants alleging breach of a licensing contract. ECF No. 13-1, at 145. It is arguable that UFRF's "right to relief [on the contract claims] necessarily depends on resolution of a substantial question of federal patent law," and that therefore the suit could have been (actually, should have been) filed in federal court. See Holmes Grp., Inc. v. Vernado Air Circulation Sys., Inc., 535 U.S. 826, 830 (2002). It is also possible that, unless UFRF is an arm of the State of Florida, there is complete diversity between the parties and more than $75,000 at stake. See ECF No. 43, at 26-27. Under either of these scenarios, Defendants could have properly removed this case to federal court.

While this case was still in state court, Defendants1 brought a counterclaim seeking a declaratory judgment to the effect that they have not infringed the patent at the center of the licensing agreement. See ECF No. 13-1, at 284-85. Under an odd new removal statute, this counterclaim could be an independent basis for removal. See 28 U.S.C. §1454 ("A civil action in which any party asserts a claim for relief arising under any Act of Congress relating to patents . . . may be removed to the district court of the United States for the district and division embracing the place where the action is pending. . . . The removal of an action under this section shall be made in accordance with section 1446, except that if the removal is based solely on this section . . . the action may be removed by any party.") (emphasis added).

Defendants removed this case in late May, asserting all three of the aforementioned bases for removal. See ECF No. 1, at 1. UFRF timely filed a motion to remand, ECF No. 31, arguing that (1) it is an arm of the State of Florida and therefore cannot be a "diverse" party for purposes of diversity jurisdiction, (2) its claims as pleaded in the amended complaint do not arise under federal law, and (3) Defendants' counterclaim does not form a basis for removal under §1454 because it is not a compulsory counterclaim and because UFRF enjoys Eleventh Amendment immunity from suit in federal court which cannot be overcome by §1454. UFRF also filed a motion to dismiss Defendants' counterclaim in which it argues more forcefully that it is entitled to Eleventh Amendment immunity. ECF No. 23.

If UFRF is entitled to Eleventh Amendment immunity, and if it has not waived that immunity, then this case must be remanded back to state court. For Eleventh Amendment immunity is, in part, an immunity from suit in federal court, not just an immunity from certain types of relief. See, e.g., Stroud v. McIntosh, 722 F.3d 1294, 1301 (11th Cir. 2013). When a state entity finds itself in federal court involuntarily, it may assert its Eleventh Amendment privilege to be free "from being compelled to appear in the courts of another sovereign against [its] will." McClendon v. Ga. Dep't of Cmty. Health, 261 F.3d 1252, 1256 (11th Cir. 2001); see also Lapides v. Bd. of Regents of Univ. Sys. of Ga., 535 U.S. 613, 622 (2002).

Is UFRF Entitled to Eleventh Amendment Immunity?

In determining "whether [an] entity . . . is an arm of the state," the circumstances "must be assessed in light of the particular function in which the [entity] was engaged when taking the actions out of which liability is asserted to arise." Abusaid v. Hillsborough Cty. Bd. of Cty. Comm'rs, 405 F.3d 1298, 1303 (11th Cir. 2005) (quoting Manders v. Lee, 338 F.3d 1304, 1308 (11th Cir. 2003) (en banc)). "To determine whether [an entity], while engaged in the relevant function, acts as an arm of the state, we conduct a four-factor inquiry, taking into account (1) how state law defines the entity; (2) what degree of control the state maintains over the entity; (3) the source of the entity's funds; and (4) who bears financial responsibility for judgments entered against the entity." Id. (citing Manders, 338 F.3d at 1309).

Here, the "relevant function" is the licensing of patents and the collection of royalties from those license agreements. UFRF undertakes this function "for the benefit of a state university in Florida"—namely, the University of Florida—and pursuant to a certification by the University of Florida Board of Trustees that it is "operating in a manner consistent with the goals of the university and in the best interest of the state." §1004.28(1)(a), Fla. Stat. (2015). And UFRF does not have free reign—"[t]he board of trustees, in accordance with rules and guidelines of the Board of Governors, . . . prescribe[s] by rule conditions with which [UFRF] must comply in order to use property, facilities, or personal services at any state university. Such rules . . . provide for budget and audit review and oversight by the board of trustees." Id. §1004.28(2)(b).

The University of Florida Board of Trustees has made such rules. For instance, it requires UFRF (and all other organizations of its kind) to "have Articles of Incorporation and Bylaws that together . . . [p]rovide that the chief executive officer or director . . . shall be selected and appointed by the governing board . . . with prior approval of the President of the University, and that the chief executive officer or director shall report to the President or a designee reporting directly to the President." Fla. Admin. Code R. 6C1-1.300.(2)(b).

UFRF's bylaws further limit its independence from the University and the State of Florida. For instance, the "annual operating budget . . . must be approved by . . . the President of the University or his or her designee who shall be a Vice President or other senior finance or business officer of the University reporting directly to the President or to a senior official who reports to the President." ECF No. 23-1, at 14.2 And "[a]ny Director may be removed for cause by the President of the University or his or her designee after consulting with the nonaffected Directors of the corporation or the Board's authorized designee acting in an executive capacity." Id. at 8.

All of this suggests that UFRF is controlled by the state. Indeed, the Florida Supreme Court recently held that the University of Central Florida Athletics Association—like UFRF, an entity organized under §1004.28—was entitled to limited sovereign immunity under §768.28, Florida Statutes as "an instrumentality of the state." Plancher v. UCF Athletics Ass'n, Inc., 175 So. 3d 724, 729 (Fla. 2015). In reaching this conclusion, the court relied on many of the same features that are present in this case, including the university's control over the entity's board of directors, id. at 728, and the university's control over the entity's bylaws, id. It's true that the court in Plancher was not determining the entity's Eleventh Amendment immunity, but, as it noted, its analysis of sovereign immunity under state law was similar to that employed in the Eleventh Amendment context; the "focus [in each case is] upon governmental control over the" entity. Id. at 727.

The Plancher decision is important not only because of the parallels between the factual situation in that case and in this case—which bears on the "degree of control" factor—but also because it makes clear that entities like UFRF are considered arms of the state under state law. If UFRF would be afforded sovereign immunity under §768.28, that suggests that it is considered under Florida law to be an instrumentality of the state. It's true that "an entity may be a state establishment for purposes of the state constitution and state statutes, [but] may also exercise sufficient independence so that it cannot claim [E]leventh [A]mendment immunity as an arm of the state under federal law." Magula v. Broward Gen. Med. Ctr., 742 F. Supp. 645, 648 (S.D. Fla. 1990). But the state's characterization is still relevant to the Eleventh Amendment analysis.

There is not a tremendous amount of evidence in the record that bears on the other two factors. It appears that UFRF derives much of its income from "development and commercialization of University work products." ECF No. 23-1, at 28. In the patent context, this means that UFRF takes the inventions of UF researchers,3 profits from them, and then feeds some, perhaps most, of that money back into the school. So in a sense UFRF is "funded" by the state, in that it relies on the raw input of patents, etc. from state employees to make money. Admittedly, this is not state "funding" in the traditional sense—the state legislature does not appear to be appropriating money to fund UFRF. Cf. Wojcik v. Mass. State Lottery Comm'n, 300 F.3d 92, 101 (1st Cir. 2002) (state lottery commission an arm of the state in part because "the state government[] . . . approve[d] and appropriate[d] [its] annual budget"). But it also involves more reliance on the state than the case of, say, a city or county school board that can raise revenue through bonds and taxes. See, e.g., Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 280 (1977) ("[The school board] . . . receives a significant amount of money from the State. . . . But local school boards have extensive powers to issue bonds . . . and to levy taxes within certain restrictions of state law.").

As for who would pay a money judgment against UFRF, there is simply no indication in the record. It should be said, though, that any financial harm to UFRF would harm the University of Florida, which is indisputably an arm of the state.

Putting all this together, this Court is convinced that UFRF is an arm of the state—at least for the purposes of this case—and that it is entitled to Eleventh Amendment immunity.

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