Puerto Rico Ports Authority v. Federal Maritime Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 26, 2007 Decided July 8, 2008

No. 06-1407

PUERTO RICO PORTS AUTHORITY,
PETITIONER

v.

FEDERAL MARITIME COMMISSION AND
UNITED STATES OF AMERICA,
RESPONDENTS

ODYSSEA STEVEDORING OF PUERTO RICO, INC. AND
INTERNATIONAL SHIPPING AGENCY, INC.,
INTERVENORS

On Petition for Review of an Order of the
Federal Maritime Commission

Gene C. Schaerr argued the cause for petitioner. With
him on the briefs were Lawrence I. Kiern and Gerald A.
Morrissey III.

Salvador J. Antonetti-Stutts, Solicitor General of Puerto
Rico, Department of Justice of the Commonwealth of Puerto
Rico, was on the brief for amicus curiae Commonwealth of
Puerto Rico in support of petitioner.
 2
Cory R. Cinque, Attorney, Federal Maritime
Commission, argued the cause for respondents. With him on
the brief were Thomas O. Barnett, Assistant Attorney
General, U.S. Department of Justice, Robert B. Nicholson and
Robert J. Wiggers, Attorneys, Amy W. Larson, General
Counsel, Federal Maritime Commission, and Christopher
Hughey, Deputy General Counsel.

Anne E. Mickey argued the cause for intervenors. With
her on the brief were Heather M. Spring and Rick A. Rude.

Before: SENTELLE, Chief Judge, KAVANAUGH, Circuit
Judge, and WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge
KAVANAUGH, in which Chief Judge SENTELLE and Senior
Circuit Judge WILLIAMS join.

Concurring opinion filed by Senior Circuit Judge
WILLIAMS.

KAVANAUGH, Circuit Judge: Several commercial marine
terminal operators filed complaints with the Federal Maritime
Commission against the Puerto Rico Ports Authority. The
Authority, which is known as PRPA, asserted sovereign
immunity. A divided panel of the Federal Maritime
Commission ruled that PRPA is not an arm of the
Commonwealth of Puerto Rico and thus not entitled to
sovereign immunity. We disagree.

PRPA was created by Puerto Rico law as a “government
instrumentality of the Commonwealth of Puerto Rico.” P.R.
LAWS ANN. tit. 23, § 333(a). By statute, PRPA operates as a
“government controlled corporation.” § 333(b). It performs
governmental functions “for the benefit of the people of
 3
Puerto Rico,” including managing Puerto Rico’s ports and
airports and regulating navigation in Puerto Rico’s harbors.
§ 348(a). Four of PRPA’s five directors are high-ranking
Commonwealth officials who automatically serve on PRPA’s
Board by virtue of their government positions. The Governor
of Puerto Rico controls the appointment of the directors; the
Governor also possesses the power to remove four of the five
directors at will and can remove the fifth for cause. The
Board of Directors in turn appoints (and can remove at will)
PRPA’s Executive Director, who is currently Puerto Rico’s
Secretary of State. By law, moreover, the Commonwealth of
Puerto Rico is responsible for paying certain potentially
significant judgments arising from lawsuits targeting PRPA.

Considering those facts under the arm-of-the-state
precedents of the Supreme Court and this Court, we hold that
the Puerto Rico Ports Authority is an arm of the
Commonwealth of Puerto Rico and is immune from suit
absent its consent.

I

The Puerto Rico Ports Authority is a “government
controlled corporation” and “government instrumentality of
the Commonwealth of Puerto Rico” that owns and operates
Puerto Rico’s air and marine mass-transportation facilities
and develops Puerto Rico’s waterfront lands. P.R. LAWS
ANN. tit. 23, §§ 333, 336, 2603. PRPA controls the
movement of ships, passengers, and cargo in Puerto Rico’s
ports, docks, and harbor zones; regulates navigation and
marine trade; issues pilot licenses; inspects ships; and leases
its facilities to commercial marine terminal operators.
§§ 2201, 2501, 2301, 2403, 336(l)(1).

In 1996, Puerto Rico’s Governor decided that tourism
could enhance Puerto Rico’s future economic growth. The
 4
Governor launched an economic development project; the
goal was to redevelop San Juan’s waterfront and harbor by
replacing cargo operations with a new convention center and
cruise-ship terminals. To further the Governor’s objectives,
PRPA cleared facilities along the San Juan harbor and
waterfront and relocated shipping operations to other ports.

The complaints at issue here stem from PRPA’s
relocation of private marine terminal operators, as well as
certain post-relocation practices and conditions at the new
facilities. Three commercial marine terminal operators –
Odyssea Stevedoring of Puerto Rico, the International
Shipping Agency, and San Antonio Maritime Corporation –
filed separate complaints with the Federal Maritime
Commission, an agency within the Executive Branch of the
U.S. Government. The marine terminal operators alleged that
PRPA’s marine terminal leasing practices violated the federal
Shipping Act of 1984, 46 U.S.C. §§ 41102(c), 41104, 41106.
They contended that PRPA: (1) failed to establish reasonable
receiving, handling, storing, or delivering practices; (2) gave
other customers undue or unreasonable preferences; and (3)
unreasonably refused to deal or negotiate with them. The
marine terminal operators sought more than $100 million in
total damages and a cease-and-desist order prohibiting PRPA
from continuing to violate the Shipping Act.

PRPA filed motions for summary judgment, arguing that
it is an arm of the Commonwealth and that sovereign
immunity therefore barred adjudication of the complaints.

By a 3-2 vote, a divided Federal Maritime Commission
held that PRPA is not “an arm of the Commonwealth, and is
therefore not entitled to sovereign immunity from the
regulatory adjudication of privately-filed complaints before
the Federal Maritime Commission.” Odyssea Stevedoring of
 5
P.R., Inc. v. PRPA, at 1, Nos. 02-08, 04-01, 04-06 (Fed. Mar.
Comm’n Nov. 30, 2006) (Order), Joint Appendix (“J.A.”)
158. Commissioners Brennan and Creel dissented, stating
that “the facts relating to control, statewide concerns, and
state-law treatment of the entity,” among other things,
established that PRPA is an “arm of the Commonwealth of
Puerto Rico.” Order at 47 (Brennan and Creel,
Commissioners, dissenting), J.A. 204.

PRPA now petitions for review of the Commission’s
order.

II

A

The text of the Eleventh Amendment does not expressly
provide for state sovereign immunity; the text merely denies
federal court jurisdiction over suits against one State by
citizens of another State. But under long-standing Supreme
Court precedent, the Constitution has been interpreted to
encompass a principle of state sovereign immunity and to
largely shield States from suit without their consent. See
Alden v. Maine, 527 U.S. 706, 745-46 (1999); Seminole Tribe
of Fla. v. Florida, 517 U.S. 44, 54 (1996); P.R. Aqueduct &
Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 144
(1993); Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S.
89, 100 (1984); Hans v. Louisiana, 134 U.S. 1, 20-21 (1890).
The Supreme Court has held that sovereign immunity bars not
only the courts but also federal agencies such as the Federal
Maritime Commission from adjudicating complaints against
non-consenting States. Fed. Mar. Comm’n v. S.C. State Ports
Auth., 535 U.S. 743, 751 n.6, 760 (2002). As we have held
and as the parties here agree, moreover, the Puerto Rican
Federal Relations Act grants Puerto Rico the same sovereign
immunity that the States possess from suits arising under
 6
federal law. Rodriguez v. P.R. Fed. Affairs Admin., 435 F.3d
378, 381-82 (D.C. Cir. 2006); see also 48 U.S.C. § 734.1

Even where, as here, the State itself is not a named party,
sovereign immunity bars suits against an arm of the State.
See, e.g., Regents of the Univ. of Cal. v. Doe, 519 U.S. 425,
429 (1997); Hess v. Port Auth. Trans-Hudson Corp., 513 U.S.
30, 32-34 (1994); Mt. Healthy City Sch. Dist. Bd. of Educ. v.
Doyle, 429 U.S. 274, 280 (1977). Courts have held that state
entities as varied as universities, transportation authorities,
and port authorities can be arms of the State immune from
suit. See, e.g., Doe, 519 U.S. at 429, 431 (university); Morris
v. Wash. Metro. Area Transit Auth., 781 F.2d 218, 219-20
(D.C. Cir. 1986) (transportation authority); Ristow v. S.C.
Ports Auth., 58 F.3d 1051, 1054-55 (4th Cir. 1995) (port
authority). Whether an entity is an arm of the State for
purposes of sovereign immunity under the U.S. Constitution
is a question of federal law. See Doe, 519 U.S. at 429 n.5.

Determining whether a particular entity is an arm of the
State can be a difficult exercise. The cases generally arise in
three different factual settings involving: (1) agencies that are
either arms of the State or political subdivisions, such as cities
or counties, that are not entitled to sovereign immunity; (2)
special-purpose public corporations (like PRPA) established

1
As a result, the parties agree that we need not decide whether
Puerto Rico, absent the Puerto Rican Federal Relations Act and
solely by virtue of its status as an American territory, otherwise
would be entitled to sovereign immunity under the U.S.
Constitution. Cf. P.R. Aqueduct & Sewer Auth., 506 U.S. at 141 n.1
(expressing no view on whether the Commonwealth is treated as a
State for purposes of sovereign immunity); Ramirez v. P.R. Fire
Serv., 715 F.2d 694, 697 (1st Cir. 1983) (“Puerto Rico, despite the
lack of formal statehood, enjoys the shelter of the Eleventh
Amendment in all respects.”).
 7
by States to perform specific functions; these may be either
arms of the State or non-governmental corporations not
entitled to sovereign immunity; and (3) Compact Clause
entities established by two or more States by compact and
approved by Congress; these are sometimes considered arms
of their constituent States for sovereign immunity purposes,
although the Supreme Court has recognized a presumption
against sovereign immunity for Compact Clause entities, see
Hess, 513 U.S. at 42.2

The courts’ arm-of-the-state analysis “has moved freely
amongst these three categories, applying common principles.”
Fresenius Med. Care Cardiovascular Res., Inc. v. P.R. & the
Caribbean Cardiovascular Ctr., 322 F.3d 56, 61 (1st Cir.
2003). To determine whether an entity is an arm of the State,
the Supreme Court and this Court have generally focused on
the “nature of the entity created by state law” and whether the
State “structured” the entity to enjoy its immunity from suit.
Mt. Healthy, 429 U.S. at 280; Hess, 513 U.S. at 43-44; Lake
Country Estates, Inc. v. Tahoe Reg’l Planning Agency, 440
U.S. 391, 401 (1979); see also Morris, 781 F.2d at 225. That
inquiry requires examination of three factors: (1) the State’s
intent as to the status of the entity, including the functions
performed by the entity; (2) the State’s control over the entity;
and (3) the entity’s overall effects on the state treasury. See,
e.g., Hess, 513 U.S. at 44-46; Lake Country Estates, 440 U.S.
at 401-02; Mt. Healthy, 429 U.S. at 280-81; Morris, 781 F.2d
at 224-28.

Under the three-factor test, an entity either is or is not an
arm of the State: The status of an entity does not change from
one case to the next based on the nature of the suit, the State’s
2
None of the Supreme Court’s arm-of-the-state cases has
considered a special-purpose public corporation like PRPA that was
created by the State.
 8
financial responsibility in one case as compared to another, or
other variable factors. Rather, once an entity is determined to
be an arm of the State under the three-factor test, that
conclusion applies unless and until there are relevant changes
in the state law governing the entity.

B

We applied this three-factor test in Morris v. Washington
Metropolitan Area Transit Authority, 781 F.2d 218 (D.C. Cir.
1986). The marine terminal operators and the Commission
suggest that the Morris approach does not apply in the same
way after the Supreme Court’s later decision in Hess v. Port
Authority Trans-Hudson Corp., 513 U.S. 30 (1994). They
contend that the arm-of-the-state inquiry now focuses largely
if not entirely on the entity’s financial impact on the state
treasury and whether the State must pay judgments against the
entity. That argument misreads Hess, however.

Consistent with prior cases, the Hess Court stated that an
entity is an arm of the State entitled to sovereign immunity if
the State “structured” the entity to be an arm of the State – a
question determined by looking at state intent, including the
entity’s functions; state control; and the entity’s overall effects
on the state treasury. Id. at 43-46. In considering the status of
a Compact Clause entity formed by New York and New
Jersey, the Hess Court found some indicators of state control
of the Port Authority, but it found neither the requisite state
intent to treat the Port Authority as an arm of the State nor any
effect on the state treasury from the Port Authority. See id. at
44-46. As to intent, the Court pointed out that “[t]he compact
and its implementing legislation do not type the Authority as a
state agency.” Id. at 44. As to effect on the treasury, the
Court noted that “the States lack financial responsibility for
the Port Authority. Conceived as a fiscally independent entity
 9
financed predominantly by private funds, the Authority
generates its own revenues, and for decades has received no
money from the States. . . . The States . . . bear no legal
liability for Port Authority debts; they are not responsible for
the payment of judgments against the Port Authority . . . .” Id.
at 45-46 (citation omitted). Based on its examination of the
factors of intent, control, and overall effects on the treasury,
and applying the presumption against sovereign immunity for
Compact Clause entities, the Court concluded that the
indicators were sufficiently mixed as not to mean the Port
Authority was an arm of the States of New York and New
Jersey.

We thus read Hess in much the same way as did Judge
Lynch’s thorough First Circuit opinion in Fresenius Medical
Care Cardiovascular Resources, Inc. v. P.R. & the Caribbean
Cardiovascular Ctr., 322 F.3d 56 (1st Cir. 2003). Applying
Hess, the Fresenius court examined multiple factors,
including state intent and control, in assessing whether the
State “clearly structured the entity to share its sovereignty.”
Id. at 68. As the Fresenius court correctly stated, Hess does
not require a focus solely on the financial impact of the entity
on the State. Rather, Hess “pays considerable deference to the
dignity interests of the state, focusing on both explicit and
implicit indications that the state sought to cloak an entity in
its Eleventh Amendment immunity.” Id. at 67.3

3
The marine terminal operators and the Commission point to
older First Circuit precedents holding that PRPA’s immunity turns
on the nature of its activities giving rise to the case, whether
proprietary or governmental functions. See Royal Caribbean Corp.
v. PRPA, 973 F.2d 8, 9 (1st Cir. 1992); PRPA v. M/V Manhattan
Prince, 897 F.2d 1, 12 (1st Cir. 1990). But the First Circuit has
expressly departed from that narrow focus on governmental-versus-
proprietary functions as the test for assessing the sovereign
 10
In sum, Hess confirms that we must apply the three-factor
arm-of-the-state test and look to state intent, state control, and
overall effects on the state treasury.

III

To determine whether PRPA qualifies as an arm of the
Commonwealth under the sovereign immunity precedents, we
now turn to the three relevant factors – the Commonwealth’s
intent as to the status of PRPA, the Commonwealth’s control
over PRPA, and PRPA’s overall effects on the
Commonwealth’s treasury. See, e.g., Hess v. Port Auth.
Trans-Hudson Corp., 513 U.S. 30, 44-46 (1994); Lake
Country Estates, Inc. v. Tahoe Reg’l Planning Agency, 440
U.S. 391, 401-02 (1979); Mt. Healthy City Sch. Dist. Bd. of
Educ. v. Doyle, 429 U.S. 274, 280-81 (1977); Morris v. Wash.
Metro. Area Transit Auth., 781 F.2d 218, 224-28 (D.C. Cir.
1986).

A

We begin by considering Puerto Rico’s intent with
respect to PRPA. We assess Puerto Rico’s intent by
examining whether Puerto Rico law expressly characterizes
PRPA as a governmental instrumentality rather than as a local
governmental or non-governmental entity; whether PRPA
performs state governmental functions; whether PRPA is
treated as a governmental instrumentality for purposes of

immunity of a special-purpose corporation. In Fresenius, the First
Circuit stated that it had “reshaped” its arm-of-the-state analysis
since those earlier cases. 322 F.3d at 59; see also Pastrana-Torres
v. Corp. de P.R. Para La Difusión Pública, 460 F.3d 124, 126 (1st
Cir. 2006); Breneman v. United States ex rel. FAA, 381 F.3d 33, 39
(1st Cir. 2004); Redondo Constr. Corp. v. P.R. Highway & Transp.
Auth., 357 F.3d 124, 126 (1st Cir. 2004).
 11
other Puerto Rico laws; and Puerto Rico’s representations in
this case about PRPA’s status. See Hess, 513 U.S. at 44-45;
Lake Country Estates, 440 U.S. at 401-02; Mt. Healthy, 429
U.S. at 280; Morris, 781 F.2d at 224-25.

Whether Puerto Rico Law Expressly Characterizes PRPA
as a Governmental Instrumentality: In assessing Puerto
Rico’s intent as to this special-purpose public corporation, we
first examine whether Commonwealth law expressly
characterizes PRPA as a governmental instrumentality or
instead as a local or non-governmental entity. See Hess, 513
U.S. at 44-45; Lake Country Estates, 440 U.S. at 401; Mt.
Healthy, 429 U.S. at 280; Morris, 781 F.2d at 225. That’s an
easy inquiry. PRPA’s enabling act describes PRPA as a
“government instrumentality of the Commonwealth of Puerto
Rico” and “government controlled corporation.” P.R. LAWS
ANN. tit. 23, § 333(a), (b). That statutory language plainly
demonstrates Puerto Rico’s intent to create a governmental
instrumentality of the Commonwealth and thus strongly
suggests that PRPA is an arm of the Commonwealth entitled
to sovereign immunity. See Fresenius Med. Care
Cardiovascular Res., Inc. v. P.R. & the Caribbean
Cardiovascular Ctr., 322 F.3d 56, 69-70 (1st Cir. 2003)
(recognizing that Puerto Rico statutes use term
“instrumentality” when Puerto Rico intends to create entity as
arm of the Commonwealth); Morris, 781 F.2d at 225 (fact that
compact labels WMATA a “regional instrumentality, as a
common agency of each signatory party” indicated that
signatory States intended to confer immunity) (internal
quotation marks omitted); cf. Hess, 513 U.S. 44-45 (noting
that implementing legislation did not characterize entity as a
state agency).4

4
In the Supreme Court’s three leading arm-of-the-state cases,
unlike this case, the relevant law did not label the entity a state
 12
Whether PRPA Performs State Governmental Functions:
In considering Puerto Rico’s intent, we also look to whether
PRPA performs functions typically performed by state
governments, as opposed to functions ordinarily performed by
local governments or non-governmental entities. See Hess,
513 U.S. at 45; Lake Country Estates, 440 U.S. at 402.

The enabling act charges PRPA with developing,
improving, owning, operating, and managing “any and all
types of air and marine transportation facilities and services,”
as well as establishing and managing “mass marine
transportation systems in, to and from the Commonwealth of
Puerto Rico.” § 336. The Dock and Harbor Act further
provides that, with some exceptions, PRPA controls the
waters, ports, docks, and harbor zones, “which are under the
dominion of Puerto Rico.” § 2202. That Act also vests PRPA
with regulatory authority over pilot services in the harbors of
Puerto Rico. §§ 2401-18. Under the Act, PRPA regulates
“navigation and the marine trade” in the navigable waters of
Puerto Rico, “including the inspection of ships to determine
their condition of cleanliness and safety.” §§ 2201, 2301.

As a general matter, these functions are governmental but
“are not readily classified as typically state” as opposed to
local governmental functions. Hess, 513 U.S. at 45. Here,
however, PRPA’s enabling act and Puerto Rico’s Dock and
Harbor Act indicate that PRPA performs its functions to
promote “the general welfare” and to increase “commerce and
prosperity” for the benefit “of the people of Puerto Rico.”
§ 348(a); see also §§ 2109, 2202. This consideration therefore
points in the direction of arm-of-the-Commonwealth status.

instrumentality. See Hess, 513 U.S. at 44-45; Lake Country
Estates, 391 U.S. at 401; Mt. Healthy, 429 U.S. at 280.
 13
Whether PRPA Is Treated as a Governmental
Instrumentality for Purposes of Other Puerto Rico Laws: We
next look to how PRPA is treated under other Puerto Rico
laws. See Hess, 513 U.S. at 44-45; Mt. Healthy, 429 U.S. at
280; Morris, 781 F.2d at 225-28. Like other Commonwealth
agencies, PRPA’s internal operations are governed by Puerto
Rico laws that apply to Commonwealth agencies generally,
such as the Puerto Rico Administrative Procedures Act and
the Puerto Rico Public Service Personnel Act. See
Commonwealth’s Amicus Br. at 8; P.R. LAWS ANN. tit. 23,
§§ 336(l)(3), 337(a). Like other Commonwealth agencies,
PRPA does not have private owners or shareholders and does
not pay taxes; instead, it must submit a yearly financial
statement to the legislature and Governor, and its books are
examined periodically by the Controller of Puerto Rico.
§§ 348, 345, 338. Those statutes, too, therefore suggest that
PRPA is an arm of the Commonwealth.

Puerto Rico’s Representations in This Case About
PRPA’s Status: Finally, in determining Puerto Rico’s intent,
we also must respect Puerto Rico’s representations to this
Court and to the Federal Maritime Commission. See Lake
Country Estates, 440 U.S. at 401; Morris, 781 F.2d at 224-25.

In this Court, the Commonwealth filed an amicus curiae
brief, signed by the Solicitor General of Puerto Rico,
emphatically declaring that PRPA is an arm of the
Commonwealth entitled to sovereign immunity. The
Commonwealth’s brief explains that PRPA is an
“instrumentality of the Commonwealth” that was created in
the “form of an authority, rather than a central government
agency, in order to have greater flexibility” and to avoid
certain restrictions on public funding. Commonwealth’s
Amicus Br. at 5 (internal quotation marks omitted). The
Commonwealth’s brief also describes the ways in which the
 14
Puerto Rico legislature ensured that the Commonwealth
would retain a significant degree of control over PRPA. Id. at
6-9. Before the Federal Maritime Commission, the
Commonwealth similarly asserted that PRPA is an arm of the
Commonwealth. See Odyssea Stevedoring of P.R. v. PRPA, at
46-47, Nos. 02-08, 04-01, 04-06 (Fed. Mar. Comm’n Nov. 30,
2006) (Brennan and Creel, Commissioners, dissenting), J.A.
203-04.

Under the governing precedents, the Commonwealth’s
representations that PRPA was created and intended as an arm
of the Commonwealth further indicates that PRPA is in fact an
arm of the Commonwealth entitled to sovereign immunity.
See Lake Country Estates, 440 U.S. at 401; Morris, 781 F.2d
at 224-25.5

In sum, with respect to the first factor in the arm-of-the-
state analysis – Puerto Rico’s intent – we conclude that Puerto
Rico law’s characterization of PRPA as a government
instrumentality, PRPA’s functions under Puerto Rico law, the
fact that PRPA is treated like other Commonwealth agencies
for purposes of other Puerto Rico laws, and Puerto Rico’s
representations in this case all strongly support the conclusion

5
The marine terminal operators and the Commission cite a
Puerto Rico intermediate court decision stating that PRPA is
independent of the Commonwealth. See Transcaribbean Mar.
Corp. v. Commonwealth, 2002 PR App. LEXIS 595 (P.R. Cir.
2002). But the court in that case did not say, or purport to say, that
PRPA is not a governmental instrumentality or that PRPA is not an
arm of the Commonwealth. In short, we agree with the
Commonwealth’s amicus brief that the Transcaribbean case is
nothing more than “an entirely unremarkable application of the
standard government liability framework established by Puerto
Rico law.” Commonwealth’s Amicus Br. at 10.
 15
that PRPA is an arm of the Commonwealth entitled to
sovereign immunity.

B

We next consider the Commonwealth’s “control” over
PRPA, the second factor in our arm-of-the-state analysis. In
considering this factor, we look primarily at how the directors
and officers of PRPA are appointed. See Hess, 513 U.S. at
44; Lake Country Estates, 440 U.S. at 401; Morris, 781 F.2d
at 227 (degree of control State exercises over agency is
“significant consideration” in immunity analysis).6

This “control” factor also weighs heavily in the direction
of considering PRPA an arm of the Commonwealth. PRPA is
governed by a Board consisting of five directors. As the
Solicitor General of Puerto Rico has explained in the
Commonwealth’s amicus brief, four directors are high-
ranking governmental officials who are appointed by the
Governor to their positions and who automatically become
members of PRPA’s Board by virtue of their offices: the
Secretary of Transportation and Public Works, the Economic
Development Administrator, the Secretary of Commerce, and
the Executive Director of the Tourism Company.
Commonwealth’s Amicus Br. at 6; P.R. LAWS ANN. tit. 23,
§ 334. Those four officials perform their services for PRPA
as part of their official government duties; they receive no
extra or separate compensation for their Board activities. Tr.
of Oral Arg. at 35. By law, the Chair of the Board is the
Secretary of Transportation and Public Works. § 334. The

6
Even in cases where the directors and officers are not
government appointees or are not removable at will by government
officials, the government’s statutory authority to veto an entity’s
proposed actions can separately indicate governmental control. Cf.
Hess, 513 U.S. at 44; Lake Country Estates, 440 U.S. at 402.
 16
fifth Board member is a “private citizen representing the
public interest” who is appointed by the Governor with the
consent of the Puerto Rico Senate. Id. In short, the Governor
of Puerto Rico controls the appointment of the entire Board.

The fact that a majority of the directors are high officers
of the Commonwealth who hold their directorships because of
their positions in the government suffices to demonstrate that
the Commonwealth (which can act only through its officers)
directly controls PRPA.

And in this case, there is more: As the Solicitor General
of Puerto Rico has explained, the Governor also has the
power to remove at will four of the five members of PRPA’s
Board of Directors from their government offices.
Commonwealth’s Amicus Br. at 6-7. Upon removal, they
automatically lose their seats on PRPA’s Board. Id. The fifth
Board member, the private citizen representing the public
interest, is removable by the Governor for cause. §334. The
Governor’s power to remove a majority of the Board at will
allows him to directly supervise and control PRPA’s ongoing
operations. Cf. Edmond v. United States, 520 U.S. 651, 664
(1997); Myers v. United States, 272 U.S. 52, 135 (1926).7

The Board of Directors in turn appoints PRPA’s
Executive Director, who is PRPA’s chief executive officer.
The Board also can remove the Executive Director at will.
§ 335. The current Executive Director is the
Commonwealth’s Secretary of State, a fact further
demonstrating that PRPA is a part of the Government – not
just on paper, but also in its actual operation.

7
The marine terminal operators and the Commission do not
dispute the Commonwealth’s representations to this Court about
how PRPA’s Board members can be appointed and removed.
 17
And there is still more indicating Commonwealth control
of PRPA: The Puerto Rico Attorney General has previously
opined that the Governor of Puerto Rico retains control of
Puerto Rico’s public corporations. 1992 Op. Atty. Gen. PR
103 (Sept. 21, 1992). That opinion confirms what the power
to appoint and remove already establishes: PRPA operates
subject to the direction of the Governor.

The record in this case shows, in addition, how the
Commonwealth’s legal control of PRPA works in practice. In
1996, Puerto Rico implemented an economic development
strategy to redevelop San Juan’s waterfront and make it more
suitable for tourism. As part of that plan, the Governor
ordered PRPA to demolish some warehouses and cargo
operations in order to make room for a convention center and
cruise-ship terminals. According to a former PRPA official,
the Governor directed the Executive Director of PRPA and
other PRPA executives to tear down certain facilities.
Deposition of Victor M. Carrion (June 5, 2003), J.A. 340-41.
Later, the Governor again ordered PRPA “to expedite the
clearing of certain areas along the San Antonio Channel [and]
the Port of San Juan.” Joint Stipulation of Facts, Odyssea
Stevedoring of P.R. v. PRPA, at *9-10, No. 02-08 (Fed. Mar.
Comm’n), J.A. 228-29. As a result of the Governor’s
directives, the buildings have been demolished, tenants have
been relocated, and the convention center and cruise-ship
terminals have been constructed. Those circumstances well
illustrate the point that PRPA operates subject to the control
of the Governor. Cf. Lake Country Estates, 440 U.S. at 402
(States’ lack of control over entity was “perhaps most
forcefully demonstrated by the fact” that a State had “resorted
to litigation in an unsuccessful attempt to impose its will” on
the entity.).
 18
In sum, the facts in this case more than suffice to
demonstrate that the Commonwealth directly controls PRPA.
The second factor in the analysis therefore strongly supports
the conclusion that PRPA is an arm of the Commonwealth
entitled to sovereign immunity.

C

The third factor we must consider in the arm-of-the-state
analysis is PRPA’s financial relationship with the
Commonwealth and its overall effects on the
Commonwealth’s treasury.

The Hess Court looked to whether the States “structured”
the entity “to enable it to enjoy the special constitutional
protection of the States themselves.” 513 U.S. at 43-44; see
also Lake Country Estates, 440 U.S. at 401; Mt. Healthy, 429
U.S. at 280. That emphasis on structure indicates we must
consider the entity’s overall effects on the state treasury. In
analyzing this third factor, in other words, the relevant issue is
a State’s overall responsibility for funding the entity or paying
the entity’s debts or judgments, not whether the State would
be responsible to pay a judgment in the particular case at
issue. See Hess, 513 U.S. at 45-46; Lake Country Estates, 440
U.S. at 401-02; Mt. Healthy, 429 U.S. at 280.

To be sure, even for entities that are not arms of the State,
sovereign immunity can apply in a particular case if the entity
was acting as an agent of the State or if the State would be
obligated to pay a judgment against an entity in that case. See
Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 101
n.11 (1984); Shands Teaching Hosp. & Clinics, Inc. v. Beech
St. Corp., 208 F.3d 1308, 1311 (11th Cir. 2000). The marine
terminal operators and the Commission seek to stretch that
principle to also mean that there is no sovereign immunity if
the State is not obligated to pay a judgment in the particular
 19
case at issue. But that approach would inappropriately
convert a sufficient condition for sovereign immunity into the
single necessary condition for arm-of-the-state status. That is
not the law; rather, we must apply the three-factor test to
determine arm-of-the-state status, and the third factor
considers the entity’s overall effects on the state treasury. See
Hess, 513 U.S. at 45-46; Lake Country Estates, 440 U.S. at
401-02; Mt. Healthy, 429 U.S. at 280.8

We turn then to examining PRPA’s overall effects on the
Commonwealth’s treasury. Unlike non-governmental
corporations, PRPA has no equity shareholders or private
owners. Unlike some governmental agencies, however,
PRPA is not financed out of the Commonwealth’s general
revenues. Instead, like many similarly created governmental
entities, PRPA is financed largely through user fees and
bonds; it was created in part to avoid Commonwealth-law
limits on how much debt the Commonwealth itself can
sustain. P.R. LAWS ANN. tit. 23, § 336(l)(1), (n);
Commonwealth’s Amicus Br. at 5-6; Alex E. Rogers,
Clothing State Governmental Entities with Sovereign
Immunity: Disarray in the Eleventh Amendment Arm-of-the-
State Doctrine, 92 COLUM. L. REV. 1243, 1249-50 (1992).

8
Several other circuits also examined an entity’s overall
effects on the state treasury when considering whether an entity was
an arm of the State and gave no indication that a more case-specific
determination was required. See Ernst v. Rising, 427 F.3d 351,
359-65 (6th Cir. 2005) (en banc); Benn v. First Judicial Dist., 426
F.3d 233, 239-41 (3d Cir. 2005); Fresenius, 322 F.3d at 68-75;
Sturdevant v. Paulsen, 218 F.3d 1160, 1164-66 (10th Cir. 2000);
Thiel v. State Bar of Wis., 94 F.3d 399, 401 (7th Cir. 1996);
Mancuso v. N.Y. State Thruway Auth., 86 F.3d 289, 293-96 (2d Cir.
1996).
 20
The marine terminal operators and the Commission argue
that PRPA has no effect on the Commonwealth’s treasury.
They point to language in PRPA’s enabling act that says
PRPA is a “government instrumentality and public
corporation with a legal existence and personality separate
and apart from those of the Government and any officials
thereof.” P.R. LAWS ANN. tit. 23, § 333(b). They note that
PRPA can “sue and be sued” and enter contracts. § 336(e),
(f). They refer to a statutory provision giving PRPA
“complete control and supervision of any undertaking
constructed or acquired by it.” § 336(d). They explain that
under Puerto Rico law, PRPA’s “debts, obligations, contracts,
bonds, notes, debentures, receipts, expenditures, accounts,
funds, undertakings and properties . . . shall be deemed to be
those of said government controlled corporation, and not
those of the Commonwealth of Puerto Rico.” § 333(b). They
cite the fact that the Commonwealth is not legally liable “for
the payment of the principal or of interest on any bonds issued
by the Authority.” § 336(v). And they point out that PRPA
does not have the power “at any time or in any manner to
pledge the credit or taxing power of the Commonwealth of
Puerto Rico.” Id.

But the marine terminal operators and the Commission
ignore the fact that the Commonwealth is legally liable for
some of PRPA’s actions. In particular, the Dock and Harbor
Act makes the Commonwealth directly liable for certain torts
committed by PRPA’s officers, employees, or agents when
they are acting in their official capacity and within the scope
of their function, employment, or agency relationship.
§ 2303. This provision demonstrates that the Commonwealth
itself has some significant financial responsibility for PRPA:
Some of PRPA’s actions can give rise to legal liability for the
Commonwealth, and payment for judgments in those suits
comes out of the Commonwealth’s coffers. Indeed, the
 21
structure here indicates a closer relationship between PRPA
and the Commonwealth than if the Commonwealth were only
a financial backstop to PRPA: By law, the Commonwealth is
substituted for PRPA and directly responsible for PRPA’s
actions in certain cases. Therefore, the marine terminal
operators and the Commission are factually incorrect in
suggesting that PRPA’s actions do not affect the state
treasury.

Under governing arm-of-the-state precedents, the third
factor in the analysis – PRPA’s overall effects on the
Commonwealth treasury – weighs in favor of finding PRPA
to be an arm of the Commonwealth. Cf. Hess, 513 U.S. at 45-
46 (“Pointing away from Eleventh Amendment immunity, the
States lack financial responsibility for the Port
Authority. . . . [T]hey are not responsible for the payment of
judgments against the Port Authority . . . .”); Lake Country
Estates, 440 U.S. at 402 (States not directly responsible for
judgments). 9

IV

When considered together, the three arm-of-the-state
factors – intent, control, and overall effects on the treasury –
lead us to conclude that PRPA is an arm of the
Commonwealth entitled to sovereign immunity.10 The marine

9
We recognize that there is no bright line for determining the
point at which a State’s responsibility for an entity’s funds, debts,
or judgments suffices to weigh in favor of arm-of-the-state status.
Here, however, we think the potentially significant exposure of the
Commonwealth’s treasury to legal judgments points toward such
status.
10
The First Circuit in Fresenius found that the Puerto Rico
entity in question in that case was not an arm of the
Commonwealth. See Fresenius Med. Care Cardiovascular Res.,
 22
terminal operators and the Commission do not argue that
PRPA has waived its immunity, either because of the
Commonwealth’s statutory responsibility to pay certain
judgments against PRPA in Commonwealth court or because
of the statutory sue-and-be-sued clause. Nor would such a
waiver argument prevail. Coll. Sav. Bank v. Fla. Prepaid
Secondary Educ. Expense Bd., 527 U.S. 666, 676 (1999)
(“State does not consent to suit in federal court merely by
consenting to suit in the courts of its own creation” or “merely
by stating its intention to ‘sue and be sued.’”).

We therefore hold that PRPA is an arm of the
Commonwealth of Puerto Rico entitled to sovereign
immunity. We grant the petition for review of the Federal
Maritime Commission’s order, and we remand to the
Commission with instructions to dismiss the complaints on the
ground of sovereign immunity.

So ordered.

Inc. v. P.R. & the Caribbean Cardiovascular Ctr., 322 F.3d 56, 75
(1st Cir. 2003). The entity considered in Fresenius differed in
important ways from PRPA, however. In Fresenius, the enabling
act did not label the entity a government instrumentality or
corporation; here, the enabling act describes PRPA as a government
instrumentality, and the Fresenius court itself noted that Puerto
Rico has previously used the word “instrumentality” when
describing an entity it intended to be an arm of the Commonwealth.
Id. at 68-70. In Fresenius, the entity did not perform governmental
functions; here, PRPA performs Commonwealth-wide
governmental functions by managing the Commonwealth’s ports
and airports. See id. at 70-71. In Fresenius, the entity’s employees
were not covered by relevant statutory definitions of public
employees; here, PRPA’s employees are so covered. Id. at 70. In
Fresenius, the Governor did not have the power to remove Board
members; here, the Governor has the power to remove all five
board members, four of them at will. See id. at 71.
 WILLIAMS, Senior Circuit Judge, concurring: I join the
majority’s opinion in full; on the basis of the currently
prevailing authorities it is entirely sound. I question,
however, whether this whole trip was necessary. If I read the
Court’s precedents correctly, the answer is no; under the law
prevailing until the 1970s, we would be rather handily finding
that the Puerto Rico Ports Authority lacks sovereign
immunity.

Puerto Rico created the Authority as a separate legal
person with the capacity “[t]o sue and be sued.” P.R. Laws
Ann. tit. 23, § 336(e). One might think that this language
means what it says, so that the Authority would be amenable
to suit in any court of competent jurisdiction. Until fairly
recently, that thought would have been correct.

Sovereign immunity has its roots in a doctrine of personal
jurisdiction. See Caleb Nelson, Sovereign Immunity as a
Doctrine of Personal Jurisdiction, 115 Harv. L. Rev. 1559
(2002). A sovereign state may choose to waive its personal
immunity or to create separate legal persons that do not share
the immunity. Under the old learning, courts saw such a
separate legal person as obviously subject to suit.

At the time of our founding, the existence of a separate
legal person, with the capacity to sue and be sued, was
precisely what set certain non-immune state entities apart
from the state itself. Cities, towns, and counties were all
recognized as particular types of corporations, known as
municipal or “public” corporations. See Trs. of Dartmouth
Coll. v. Woodward, 17 U.S. (4 Wheat.) 518, 668-69 (1819)
(opinion of Story, J.). As corporations, they were “artificial
person[s], existing in contemplation of law” and possessing
“the capacity . . . of suing and being sued in all things
touching [their] corporate rights and duties.” Id. at 667. It
was this corporate status that, at common law, had made them
 2

amenable to suit. See, e.g., Russell v. Men Dwelling in the
County of Devon, (1788) 100 Eng. Rep. 359, 362 (K.B.)
(opinion of Kenyon, C.J.); see also id. at 360 (argument of
counsel). Such a corporation maintained its separate identity
(and thus its suability) even if the state held an unqualified
financial interest in the corporation’s success, see Bank of the
Commonwealth of Ky. v. Wister, 27 U.S. (2 Pet.) 318, 323
(1829), or had delegated to it the broadest imaginable
sovereign powers, see Barnes v. District of Columbia, 91 U.S.
(1 Otto) 540, 544-45 (1875). In a decision rendered the same
day as Hans v. Louisiana, 134 U.S. 1 (1890), the Supreme
Court found it “beyond question” that Lincoln County,
Nevada, was outside the scope of the state’s immunity.
Lincoln County v. Luning, 133 U.S. 529, 530 (1890). Despite
a claim that the county was an “integral part of the State,” id.,
the Court held it amenable to suit because “politically it is also
a corporation created by and with such powers as are given to
it by the State,” including the power to “sue and be sued in all
courts in like manner as individuals.” Id. at 530-31. (Of
course requests for some kinds of relief, such as for an order
of specific action on state property, may render the state itself
a necessary party. Hopkins v. Clemson Agricultural College,
221 U.S. 636, 648-49 (1911); see also Osborn v. Bank of the
United States, 22 U.S. (9 Wheat.) 738, 842-43, 858 (1824)
(Marshall, C.J.); Paul M. Bator et al., Hart & Wechsler’s The
Federal Courts and the Federal System 1370-71 (2d ed.
1973).)

Lincoln County was only one in a long train of cases
holding that sovereign immunity does not extend to
corporations that the sovereign (i.e., a state or the federal
government) has created as separate legal persons. See, e.g.,
Sloan Shipyards Corp. v. U.S. Shipping Bd. Emergency Fleet
Corp., 258 U.S. 549, 567 (1922) (“The meaning of
incorporation is that you have a person, and as a person one
that presumably is subject to the general rules of law.”);
 3

Hopkins, 221 U.S. at 645 (“[N]either public corporations nor
political subdivisions are clothed with that immunity from suit
which belongs to the State alone by virtue of its
sovereignty.”); see also id. at 646; Workman v. New York City,
179 U.S. 552, 565 (1900); Loeb v. Columbia Twp. Trs., 179
U.S. 472, 485-86 (1900); Chicot County v. Sherwood, 148
U.S. 529, 533-34 (1893); Metro. R.R. Co. v. District of
Columbia, 132 U.S. 1, 6, 9 (1889); Cowles v. Mercer County,
74 U.S. (7 Wall.) 118, 121-22 (1868); Weightman v. Corp. of
Washington, 66 U.S. (1 Black) 39, 49-50 (1861). Though the
defendants were municipal or local corporations in the last six
cases in this group, the Emergency Fleet Corporation was
nationwide and Clemson appears to have been the state
agricultural college for the entirety of South Carolina. Even
the cases involving local corporations manifested no interest
in the fact of locality, and the decision concerning Clemson
cited Lincoln County without suggesting that it was in any
way extending that case’s doctrine.

Unfortunately, this longstanding bright-line rule was not
to last. The first step in its demolition was a series of
decisions in the 1940s establishing a clear statement rule
against federal jurisdiction. Previously, the Court had
construed state laws consenting to suits against a particular
state officer or department to permit suits in federal courts as
well, unless the terms of the consent indicated otherwise. See,
e.g., Smith v. Reeves, 178 U.S. 436, 441 (1900) (reading
California’s conditional consent to suits against the state
treasurer—which enabled the treasurer to insist that the action
be tried in a particular state court—as naturally excluding
federal suits). In 1944, however, in a suit against state tax
collectors, the Court reversed this statute-specific approach in
favor of a clear statement rule, requiring “a clear declaration
of the state’s intention to submit its fiscal problems to other
courts than those of its own creation.” Great Northern Life
Ins. Co. v. Read, 322 U.S. 47, 54 (1944); see also id. at 55
 4

(citing Reeves); Ford Motor Co. v. Dep’t of Treasury of Ind.,
323 U.S. 459, 465 (1945) (applying Read). In Kennecott
Copper Corp. v. State Tax Comm’n, 327 U.S. 573 (1946), the
Court went so far as to read a consent to suit “in any court of
competent jurisdiction” as excluding federal courts, simply
because another state statute had consented to suits on a
different matter “in any court of this state or of the United
States.” Id. at 575 n.1, 580.1

The Court took the second and critical step in Mt. Healthy
City School District Board of Education v. Doyle, 429 U.S.
274 (1977). There for the first time it passed in silence over
its former rule that a state’s government corporations, with a
general capacity of suing and being sued in their own names,
were ipso facto completely bereft of sovereign immunity. The
defendant Board of Education conceded that state law made it
a corporate body capable “of suing and being sued.” See
Ohio Rev. Code § 3313.17, cited in Brief of Petitioners, Mt.

1
The Court established no such rule, of course, for cases
concerning entities endowed by the federal government with the
capacity to sue and be sued. See, e.g., Larson v. Domestic &
Foreign Commerce Corp., 337 U.S. 682, 705 (1949) (noting that
Congress had provided for amenability to suit by different means, in
some cases “entrust[ing] the business of the Government to
agencies which may contract in their own names and which are
subject to suit in their own names,” and in others “permitt[ing] suits
for damages . . . in the Court of Claims”); Reconstruction Fin.
Corp. v. J.G. Menihan Corp., 312 U.S. 81, 83 (1941); Fed. Hous.
Admin. v. Burr, 309 U.S. 242, 245 (1940); Keifer & Keifer v.
Reconstruction Fin. Corp., 306 U.S. 381, 389 (1939). Since then
the rule has become somewhat more confused, see Galvan v. Fed.
Prison Indus., Inc., 199 F.3d 461, 466-67 (D.C. Cir. 1999) (noting
changes to the doctrine), but an applicable sue-and-be-sued
provision remains fully effective, see FDIC v. Meyer, 510 U.S. 471,
475 (1994).
 5

Healthy, 1976 WL 181610, at *28. The Court nonetheless
doubted whether Ohio “had consented to suit against entities
such as the Board in the federal courts,” Mt. Healthy, 429 U.S.
at 279-80, citing a case from the Great Northern line (namely
Ford Motor), and thus implicitly extending its cautious rule
for state waivers into the context of state government
corporations. 2

Yet the Court remembered that cities and other political
subdivisions were subject to suit, see id. at 280 (citing Lincoln
County), even as it forgot the underlying reason for their being
so. To fill the gap, Mt. Healthy produced a multi-factor test of
family resemblance, asking whether the school board in the
case at hand was “more like a county or city than it is like an
arm of the State.” Id. (emphasis added). It is unclear why the
answer to this perhaps metaphysical question should help
resolve the scope of governmental corporate persons’
immunity. But by 1981 the Court took it as given that a state
governmental corporate body’s general capacity to sue and be
sued did not exclude the entity from the state’s personal
immunity. See Fla. Dep’t of Health & Rehabilitative Servs. v.
Fla. Nursing Home Ass’n, 450 U.S. 147, 150 (1981) (citing
Smith v. Reeves); see also Coll. Sav. Bank v. Fla. Prepaid
Postsecondary Educ. Expense Bd., 527 U.S. 666, 676 (1999).3

2
Ford Motor had concerned a special authorization of tax
refund suits against the Indiana Department of the Treasury. See
323 U.S. at 465 & n.8.
3
Mt. Healthy thus created a divergence in the treatment of
state and federal entities. Federal ones are generally governed by
the previous doctrine, see supra note 1, while a wholly separate
principle applies to state entities.
 6

Since then, the law of arm-of-the-state immunity has only
become more labyrinthine. See generally Hess v. Port Auth.
Trans-Hudson Corp., 513 U.S. 30 (1994); Morris v. Wash.
Metro. Area Transp. Auth., 781 F.2d 218 (D.C. Cir. 1986).
Under the old rule of Hopkins, by contrast, the only
jurisdictional inquiry necessary in such a case would be to
examine the entity’s organic statute and determine whether it
was a corporation and legal person capable of appearing in its
own name. As it happens, not only was the Authority given
the power to sue and be sued, it was established as a “public
corporation with a legal existence and personality separate
and apart from those of the Government [of Puerto Rico] and
any officials thereof.” P.R. Laws Ann. tit. 23, § 333(b). So in
the days before Mt. Healthy the jurisdictional issue here
would have been easy.

As an inferior tribunal, however, we are bound by the
Court’s decisions no matter how much unwelcome complexity
they produce. I therefore concur in the majority opinion.