Takle, Joyce v. Univ WI Hosp Clinics

In the
United States Court of Appeals
For the Seventh Circuit
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No. 04-3097
JOYCE TAKLE,
Plaintiff-Appellant,
v.

UNIVERSITY OF WISCONSIN HOSPITAL
AND CLINICS AUTHORITY,

Defendant-Appellee.

____________
Appeal from the United States District Court
for the Western District of Wisconsin.
No. 04-C-0217-S—John C. Shabaz, Judge.
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ARGUED JANUARY 7, 2005—DECIDED MARCH 30, 2005
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Before POSNER, RIPPLE, and ROVNER, Circuit Judges.
POSNER, Circuit Judge. Joyce Takle filed suit in a federal
district court in Wisconsin against the University of Wiscon-
sin Hospital and Clinics Authority, which owns and
operates the University of Wisconsin Hospital and Clinics
in Madison, Wisconsin. (For the sake of brevity, we’ll
usually refer to both the Authority and the University of
Wisconsin Hospital and Clinics as “the hospital.”) A former
nurse at the hospital, Takle sought damages for violation of
2 No. 04-3097

her rights under Title I of the Americans with Disabilities
Act, the alleged violation consisting of the hospital’s having
treated her as if she were disabled by diabetes when she was
not. 42 U.S.C. §§ 12102(2)(C), 12112(a); Sutton v. United Air
Lines, Inc., 527 U.S. 471, 489-90 (1999); Amadio v. Ford Motor
Co., 238 F.3d 919, 925 (7th Cir. 2001). The district judge
dismissed the suit on the hospital’s motion, ruling that the
hospital is an arm of the State of Wisconsin and is therefore
immune from suit in federal court unless it has consented to
be sued there, which it has not. Title I of the ADA does not
abrogate state sovereign immunity. Board of Trustees of
University of Alabama v. Garrett, 531 U.S. 356, 360 (2001);
Erickson v. Board of Governors of State Colleges & Universities
for Northeastern Illinois University, 207 F.3d 945, 952 (7th Cir.
2000).
After the break from England but before the adoption of
the Constitution, the states had sovereign immunity from
suit. The framers did not intend to abrogate that immunity,
although they failed to say so in the Constitution. They
should have, for as a result of Chisholm v. Georgia, 2 U.S. (2
Dall.) 419, 467-68 (1793), which held that a citizen of one
state could sue another state in a federal court, the Eleventh
Amendment had to be added to the Constitution, preclud-
ing such suits. No negative inference was intended by the
narrow wording of the amendment; that is, there was no
intention of authorizing the citizen of a state to sue his own
state in federal court—no intention, in other words, of abro-
gating the states’ sovereign immunity. E.g., Federal Maritime
Comm’n v. South Carolina State Ports Authority, 535 U.S. 743,
752-53 (2002); Alden v. Maine, 527 U.S. 706, 723-24 (1999);
Seminole Tribe v. Florida, 517 U.S. 44, 69-70 (1996).
But what exactly is the “state”? The defendant in this case
is, as we are about to see, a hybrid entity; it has characteris-
tics of both a state agency and a private foundation. Where
No. 04-3097 3

on the public-private spectrum to locate it depends on the
purpose of the doctrine of sovereign immunity, and that
purpose is obscure because “sovereignty” is an obscure
concept when applied to a state of the United States. Is
Wisconsin’s “sovereignty” impaired if the hospital is suable
in a federal court? It would be if the hospital were financed
by the state, e.g., Hess v. Port Authority Trans-Hudson Corp.,
513 U.S. 30, 48-51 (1994); Kashani v. Purdue University, 813
F.2d 843, 845 (7th Cir. 1987); Cash v. Granville County Board
of Education, 242 F.3d 219, 223-24 (4th Cir. 2001), so that any
judgment against it would be paid out of state funds, unless
the state had taken out some form of liability insurance,
Regents of University of California v. Doe, 519 U.S. 425, 430-31
(1997)—but that would not negate its liability; it would be
the premise of its liability, for unless it were liable it would-
n’t need liability insurance.
The hospital is not financed by the state, however, and
this leaves us rather at sea. We are mindful of the cases that
say that the purpose of sovereign immunity is to protect not
only the state’s fiscal independence but also its “dignity.”
E.g., Federal Maritime Comm’n v. South Carolina State Ports
Authority, supra, 535 U.S. at 765-66; S.J. v. Hamilton County, 374
F.3d 416, 420-22 (6th Cir. 2004). But the notion of state
dignity is difficult to translate into an operational legal
standard.
About all that is clear on the level of doctrine is the futility
of the hospital’s pointing out that a judgment against it might
impair its ability to continue to provide benefits that reduce
the burdens on the state treasury; for example, the hospital
provides charity care that the state would otherwise be
under strong pressure to provide. Were the loss of a benefit
to the state enough to confer sovereign immunity on the
provider of the benefit, an ordinary taxpayer would be
covered by sovereign immunity, at least if a judgment
4 No. 04-3097

against him would be deductible from state income tax but
not taxable to a state-resident recipient of the judgment; for
then the state treasury would be diminished by the amount
of the tax saving. It is no surprise that the Supreme Court
has rejected the state-benefit theory of sovereign immunity.
Hess v. Port Authority Trans-Hudson Corp., supra, 513 U.S. at
50-51 and n. 21.
Until 1996 the hospital was a part of the University of
Wisconsin, a state university conceded to be part of the
state. That year the legislature, having the previous year
created the University of Wisconsin Hospital and Clinics
Authority, 1995 Wis. Laws 27, § 6301 (codified at Wis. Stat.
§ 233.01 et seq.), spun off the hospital to the Authority. It did
so because the hospital was finding it difficult to compete
with private hospitals. It was hampered by restrictions
imposed by state law on hiring, tenure, and compensation
of state employees and on the making of state contracts
relating to construction and procurement.
The hospital—which is described in a report titled An
Evaluation: University of Wisconsin Hospital and Clinics
Authority (June 2001), prepared (as required by Wis. Stat.
§ 13.94) for the Wisconsin legislature by Wisconsin’s Joint
Legislative Audit Committee, as an “independent, nonprofit
entity”—is authorized by its organic statute to sue and be
sued in its own name, to own property and borrow against
it, to make contracts, including employment contracts, to
issue bonds, and, in short, to operate as a private hospital
operates. Wis. Stat. § 233.03. And the state is not liable for
the hospital’s debts, at least if it doesn’t prevent the hospital
from discharging those debts. § 233.23. So, should the
hospital default on its bonds, the state would not be re-
quired to bail out the bondholders. §§ 233.17(1), 233.22.
So far, there is nothing to indicate that the hospital should
be viewed as a part of state government. So far, we are
No. 04-3097 5

describing the privatization of a formerly public function.
There is nothing inherently governmental about a hospital.
Most hospitals are private, though that cannot be the
complete test; there are more private security guards in the
United States than there are police officers, but it is hard to
imagine a state privatizing the state police. Wisconsin’s own
courts would classify the hospital as private; we know this
from a comparison between Walker v. University of Wisconsin
Hospitals, 542 N.W.2d 207, 209-12 (Wis. App. 1995) (reversed
in part on other grounds in Bicknese v. Sutula, 660 N.W.2d
289 (Wis. 2003)), which held that the hospital authority’s
predecessor was an arm of the state, and Majerus v. Milwau-
kee County, 159 N.W.2d 86, 87-88 (Wis. 1968), which held
that the state’s Armory Board was not part of state govern-
ment—held that because of features of the board equally
possessed by the hospital, such as financial autonomy and
the authority to sue and be sued in its own name.
It would be nice if the hospital’s organic statute stated
outright that the hospital is a private entity rather than an
arm of the state—that would resolve the issue—but it does
not say that. Not quite, at any rate. The hospital points out
that some members of its board of directors are appointed
by the governor and others are members by virtue of hold-
ing a public office, such as the dean of the University of
Wisconsin’s medical school. Wis. Stat. § 233.02(1). But as we
noted recently in another case involving whether an entity
was state or private, Illinois Clean Energy Community Founda-
tion v. Filan, 392 F.3d 934, 937-38 (7th Cir. 2004), the power
to appoint is not the power to control. See also Auer v.
Robbins, 519 U.S. 452, 456 n. 1 (1997); Hess v. Port Authority
Trans-Hudson Corp., supra, 513 U.S. at 47-48; Fresenius Medical
Care Cardiovascular Resources, Inc. v. Puerto Rico & Carribean
Cardiovascular Center Corp., 322 F.3d 56, 68 (1st Cir. 2003);
Mancuso v. New York State Thruway Authority, 86 F.3d 289,
6 No. 04-3097

296 (2d Cir. 1996); Christy v. Pennsylvania Turnpike Comm’n,
54 F.3d 1140, 1149-50 (3d Cir. 1995); Durning v. Citibank,
N.A., 950 F.2d 1419, 1427 (9th Cir. 1991). Especially when
that power is diffused among different public officials who
may hold quite different views of how the entity should
conduct itself.
Certain other public-entity characteristics of the hospital
are merely incidental to the transition from public to private,
rather than being indicative of continued state control. For
example, most of the hospital’s employees continue to be
deemed state employees, though stripped of the usual
privileges and protections of such employees. Their con-
tinued classification as state employees mainly enables them
to remain in the state’s pension system. That’s simpler than
creating a new pension system that would have to be inte-
grated with the old one because many of the employees
acquired vested rights under the old. It may also enable the
hospital to bargain with the employees without subjecting
itself to the jurisdiction of the National Labor Relations
Board, 29 U.S.C. § 152(2); NLRB v. Natural Gas Utility District
of Hawkins County, 402 U.S. 600, 604-05 (1971), further
assuring continuity with the hospital’s labor set-up before
the spin off.
Ignoring such really minor strings as the subjection of
the board of directors to the state’s open-meeting laws, see
Durning v. Citibank, N.A., supra, 950 F.2d at 1427, we are left
to consider the significance of the twin facts that the state
owns the hospital’s existing buildings, although the hospital
can acquire additional buildings that it will own, and that
it’s required by state law to finance the university’s medical
school and to provide health services required by the state.
Neither point is significant. Many private entities operate on
public land or in public buildings; consider concessionaires
in airports. And we noted earlier that the fact that an entity
No. 04-3097 7

provides, willingly or not, benefits to the state does not
make it the state; here we add that the hospital was financ-
ing the university’s medical school before it was spun off, so
naturally the state requires it to continue to do so. The state
is not going to sell a valuable property without requiring
compensation in some form, in this case continued financial
support of the state’s medical school. Similarly, the provi-
sion of mandated health services is a subsidy demanded by
the state in exchange for privatizing the hospital.
What we have, then—making this indeed much like the
Illinois Clean Energy Community Foundation case—is a state’s
creation of a private entity, with the state using its leverage
as the creator of the entity to insist that it serve the state’s
interests as well as its own. The strings that tie the hospital
to the state are found in many cases in which a state decides
to privatize a formerly state function. They do not require
that privatization be treated as a farce in which the privat-
ized entity enjoys the benefits both of not being the state
and so being freed from the regulations that constrain state
agencies, and of being the state and so being immune from
suit in federal court.
Our conclusion that the hospital does not have sovereign
immunity is in accord with the other decisions that deal
with similar hybrid entities. See United States ex rel. Barron
v. Deloitte & Touche, L.L.P., 381 F.3d 438, 439-42 (5th Cir. 2004);
United States ex rel. Ali v. Daniel, Mann, Johnson & Mendenhall,
355 F.3d 1140, 1147-48 (9th Cir. 2004); Fresenius Medical Care
Cardiovascular Resources, Inc. v. Puerto Rico & Caribbean
Cardiovascular Center Corp., supra, 322 F.3d at 68-75; Durning
v. Citibank, N.A., supra, 950 F.2d at 1423-28. (Fresenius is
particularly close.) But we must consider the bearing of our
decision in Thiel v. State Bar of Wisconsin, 94 F.3d 399 (7th
Cir. 1996), the principal decision on which the district court
relied. In the course of ruling that the Wisconsin State Bar is
8 No. 04-3097

an arm of the state, the court in Thiel said that the most
important factors to consider in deciding whether a hybrid
entity is the state for purposes of sovereign immunity are
the extent of state control and whether the entity was acting
as the state’s agent in conducting the activity that gave rise
to the suit (in the present case that activity is dealing with
the federal disability rights of the hospital’s employees);
it said that the impact of the relief sought by the plaintiff
on the state treasury was much less important because
sovereign immunity extends to suits for injunctive relief as
well as damages. Id. at 401; see also Crosetto v. State Bar of
Wisconsin, 12 F.3d 1396, 1402 (7th Cir. 1993).
The first two factors are certainly sound and the decision
in Thiel is unquestionably correct. The state bar is a limb of
the Supreme Court of Wisconsin and the rule challenged in
the case dealt with the method of determining the dues paid
by the members of the bar. Moreover, though enforced by
the state bar, the rule had been promulgated by the supreme
court. Had the rule been enjoined, the bar’s performance of
duties directly related to the administration of justice would
have been impeded. See also Kaimowitz v. Florida Bar, 996
F.2d 1151, 1155 (11th Cir. 1993) (per curiam); Lewis v. Louisi-
ana State Bar Ass’n, 792 F.2d 493, 497-98 (5th Cir. 1986);
Ginter v. State Bar, 625 F.2d 829, 830 (9th Cir. 1980) (per
curiam).
In such a case, the fact that a judgment against the state
treasury is not sought is of no importance. But Thiel does not
hold that it is never of any importance. The issue was not
presented; and to say that the effect of a judgment on state
finances is never important would be inconsistent with
numerous decisions of the Supreme Court and the courts of
appeals, including this court. E.g., Regents of University of
California v. Doe, supra, 519 U.S. at 430; Hess v. Port Authority
Trans-Hudson Corp., supra, 513 U.S. at 48-49; Luder v.
No. 04-3097 9

Endicott, 253 F.3d 1020, 1023 (7th Cir. 2001); Kashani v.
Purdue University, supra, 813 F.2d at 845; Beentjes v. Placer
County Air Pollution Control District, 397 F.3d 775, 778 (9th
Cir. 2005); United States ex rel. Barron v. Deloitte & Touche,
L.L.P., supra, 381 F.3d at 440; Cash v. Granville County Board
of Education, supra, 242 F.3d at 223-24. In fact though not in
legal fiction, damages suits and injunctive suits against a
state are treated differently. The former are barred, but the
latter are permitted under the doctrine of Ex parte Young by
the device of the plaintiff’s naming as the defendants the
responsible state officials rather than the state itself; for
pertinent illustrations see Board of Trustees of University of
Alabama v. Garrett, supra, 531 U.S. at 374 n. 9; Radaszewski
ex rel. Radaszewski v. Maram, 383 F.3d 599, 606 (7th Cir. 2004);
Bruggeman ex rel. Bruggeman v. Blagojevich, 324 F.3d 906, 912-
13 (7th Cir. 2003). Such a suit has the identical effect as
enjoining the state itself would have, and this shows that on
a practical level the law treats injunctive actions against a
state differently from damages actions. In a case such as
this, in which a privatized “independent” entity for which
the state bears no financial responsibility is being sued over
its personnel policies, which are entirely within its discre-
tion, the fact that the suit can have no adverse effect on the
state’s finances is highly relevant.
The grant of the motion to dismiss is REVERSED and the
case REMANDED.
10 No. 04-3097

A true Copy:
Teste:

_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit

USCA-02-C-0072—3-30-05