United States Court of Appeals
For the First Circuit
No. 02-1763
FRESENIUS MEDICAL CARE CARDIOVASCULAR RESOURCES, INC.,
Plaintiff, Appellee,
v.
PUERTO RICO AND THE CARIBBEAN CARDIOVASCULAR CENTER CORP.,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Juan M. Pérez-Giménez, U.S. District Judge]
Before
Lynch, Circuit Judge, and
Coffin and Campbell, Senior Circuit Judges.
Manuel R. Suarez Jiménez for appellant.
Robert P. Mallory, with whom Jennifer J. Waldner,
McDermott, Will & Emery, Néstor M. Méndez Gómez, Oreste R. Ramos,
and Pietrantoni Méndez & Alvarez LLP were on brief for appellee.
March 6, 2003
LYNCH, Circuit Judge. This case raises the issue of
whether the defendant public corporation is an arm of the
Commonwealth of Puerto Rico and so entitled to assert immunity
under the Eleventh Amendment. It causes us to reshape this
circuit's arm-of-the-state test in light of intervening Supreme
Court precedent.
Our analysis under the reshaped test leads us to affirm
the district court's conclusion that the defendant, Puerto Rico and
the Carribean Cardiovascular Center Corp. (PRCCCC), is not an arm
of the Commonwealth and so is not entitled to immunity. We also
uphold the district court's finding that PRCCCC was adequately
served with process. The underlying lawsuit involves a claim by
Fresenius Medical Care Cardiovascular Resources, Inc. (FMC) against
PRCCCC for breach of contract, the details of which are not germane
to the issues on appeal.
I.
On September 28, 2001, FMC filed a federal court
complaint against PRCCCC, asserting diversity jurisdiction under 28
U.S.C. § 1332(a)(1), (d) (2000). It sought over $7,000,000 in
damages for breach of contract and of the implied covenant of good
faith and fair dealing. It also sought an order requiring specific
performance of the contract by PRCCCC and a declaratory judgment
that FMC was not in material breach of the agreement.
-2-
PRCCCC moved to dismiss the complaint on November 13,
2001. It moved to dismiss on the grounds that PRCCCC is an arm of
the state entitled to Eleventh Amendment immunity; that PRCCCC is
not a citizen of Puerto Rico for diversity purposes since it is an
arm of the state; that FMC lacked standing; and that there was
defective service of process. PRCCCC attached to its motion an
unauthenticated chart listing the hospital's total revenues and
legislative appropriations as well as a statement under penalty of
perjury by José Soler Zapata, Acting Medical Director of PRCCCC and
former Secretary of Health of the Commonwealth of Puerto Rico.
FMC, in its opposition, submitted a statement under penalty of
perjury by Bill Watson, its executive responsible for dealing with
PRCCCC, and objected to the Zapata statement on evidentiary
grounds. After receiving two extensions, PRCCCC eventually filed
an untimely reply.
The district court denied PRCCCC's motion in an opinion
and order dated March 18, 2002. The court applied the multi-factor
arm-of-the-state test set forth in Metcalf & Eddy, Inc. v. Puerto
Rico Aqueduct & Sewer Authority, 991 F.2d 935, 939-40 (1st Cir.
1993). Noting that the most important factor is the entity's
relationship to the public fisc, the district court held that this
factor weighed against a finding of immunity because the
Commonwealth would not be obligated to pay a judgment against
PRCCCC and because PRCCCC receives a relatively small share of its
-3-
funds from the Commonwealth. It also rejected PRCCCC's argument of
inadequate service of process.
PRCCCC filed two motions for reconsideration of the
district court's March 18 decision. PRCCCC produced new evidence
in support of its second motion for reconsideration: statements by
Luisa Rivera Lúgaro, the former Executive Director of PRCCCC, and
Miguel Bustelo, the Chief Financial Officer of PRCCCC. Bustelo's
affidavit attached a new income statement identifying sources of
government funding apart from legislative appropriations.
Plaintiff again objected to consideration of the evidence. The
district court, without providing plaintiff the opportunity to
produce more evidence, considered this late-filed information but
denied the motion in a six page opinion and order dated May 7,
2002.1
On May 21, 2002, PRCCCC filed an interlocutory appeal.
See P.R. Acqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S.
139, 147 (1993) (entities claiming to be arms of the state may
immediately appeal a district court order denying a claim of
Eleventh Amendment immunity under the collateral order doctrine).
It also filed a motion in the district court to stay proceedings
while its appeal was pending. The district court denied the stay
1
In its opinion and order denying the second motion for
reconsideration, the district court also correctly found that FMC
did not, as defendant charges, provide misleading adjusted budget
percentages about PRCCCC's operations.
-4-
request on June 4, 2002 and denied a motion for reconsideration of
that order on July 1, 2002.2
PRCCCC finally sought a stay from this court on October
15, 2002, more than four months after the district court denied its
stay request. On November 6, 2002, this court denied the request.3
2
At the same time, PRCCCC failed to meet its obligations to
move forward either its appeal or the trial court proceedings. In
its appeal of the district court's March 18 and May 7 rulings,
PRCCCC missed the deadlines to file counsel's appearance form, its
docketing statement, and its brief, after those deadlines were
extended. In the district court, it disregarded a September 23,
2002 court order requiring PRCCCC to comply with discovery requests
that had been pending for over six months.
In its appeal of the district court's Eleventh Amendment
finding, PRCCCC again failed to meet its obligations when it
submitted its reply brief to this court. The reply brief was late
and longer than our rules permit. In addition, the reply brief
repeatedly made new and unsupported factual allegations. See Fed.
R. App. P. 28(a)(7). Plaintiff opposed the filing of the reply
brief on the grounds that it was untimely, oversized, and made
irrelevant factual accusations. We strike the statement of facts
and new factual references in the reply brief but have considered
the legal arguments made.
3
This court's order denying the stay said:
A request for a stay essentially invokes the equitable
powers of this court. Here, the conduct of [PRCCCC]
evidences a pattern of causing delay in this litigation, both
in this court and the district court, including missing
filing deadlines after those deadlines were extended.
Accordingly, we think the Hospital is in a poor position to
claim that it will suffer injury if the stay is not granted.
We therefore deny the motion for a stay.
We will, however, expedite this appeal. . . . Should
the trial date in the district court arrive before this court
has decided the appeal, then the Hospital may reapply for a
stay.
A month later, PRCCCC filed an "urgent motion for
reconsideration" of this court's denial of the stay request,
claiming that the trial date had in fact arrived before this court
-5-
II.
A. Standards for Arm-of-the-State Analysis
We review de novo the conclusion that PRCCCC is not
entitled to Eleventh Amendment immunity. Arecibo Cmty. Health
Care, Inc. v. Puerto Rico, 270 F.3d 17, 22 (1st Cir. 2001).
The question of whether PRCCCC is an arm of the
Commonwealth and entitled to share its Eleventh Amendment immunity
is a question of federal law. Regents of the Univ. of Cal. v. Doe,
519 U.S. 425, 429 n.5 (1997). The Commonwealth of Puerto Rico is
treated as a state for Eleventh Amendment purposes. P.R. Ports
Auth. v. M/V Manhattan Prince, 897 F.2d 1, 9 (1st Cir. 1990). Here
the Commonwealth itself is not a party nor has it sought to express
its views in this litigation as a party or amicus; PRCCCC is the
party and is attempting to cloak itself in the Commonwealth's
Eleventh Amendment immunity under the theory that it is an arm of
the state. PRCCCC, the entity asserting Eleventh Amendment
immunity, bears the burden of showing it is an arm of the state.
had decided the appeal. PRCCCC's claim was false. PRCCCC
suggested that the parties would engage in arbitration at the
district court's behest, before the appeal was decided, and that
this was the equivalent of a trial date. In fact, no steps had
been taken by either side to initiate arbitration. No date for
arbitration had been set, and an arbitrator had not been contacted.
Because nothing had changed since the issuance of the November 6
order, this court denied the motion for reconsideration on December
19, 2002.
-6-
Wojcik v. Mass. State Lottery Comm'n, 300 F.3d 92, 99 (1st Cir.
2002).
The arm-of-the-state doctrine arises in connection with
at least three types of entities.4 The first is a political
subdivision of the state, such as a city or county. Political
subdivisions are not entitled to Eleventh Amendment immunity. See,
e.g., Bd. of Trustees of Univ. of Ala. v. Garrett, 531 U.S. 356,
369 (2001) (citing Lincoln County v. Luning, 133 U.S. 529, 530-31
(1890)); see also Moor v. County of Alameda, 411 U.S. 693, 717-721
(1973) (political subdivision not arm of the state for diversity
jurisdiction purposes). The second entity is established by two
(or more) states by compact and approved by Congress. The third,
the type at issue here, involves a special-purpose public
corporation established at the behest of a state. Multi-state
compact entities and special-purpose public corporations
established by a state sometimes share the state's Eleventh
Amendment immunity. The arm of the state analytical doctrine has
moved freely amongst these three categories, applying common
principles.
4
PRCCCC does not argue that it is simply acting as an
agent of the state, such as a private corporation acting under
contract as a fiscal intermediary for a health insurance
program for state employees. See Shards Teaching Hosp. &
Clinics, Inc. v. Beech St. Corp., 208 F.3d 1308 (11th Cir.
2000). Nor would the record support any such argument.
-7-
The Supreme Court's modern arm-of-the-state jurisprudence
starts with Mt. Healthy City School District Board of Education v.
Doyle, 429 U.S. 274 (1977), which rejected the school board's claim
that it was an arm of the state and not a political subdivision.
In Mt. Healthy, the Supreme Court looked in part to state law to
consider the "nature of the entity created by law." Id. at 280.
It concluded that state law rendered the board more like a county
or city, and thus not an arm of the state. The court considered a
balance of factors: The board obtained guidance and extensive
monies from the state, but that was offset by the board's revenue-
raising power, including its power to issue bonds and levy taxes.
Id. It was unclear whether "the Court was using state law as an
indication of the state's intention with respect to school bonds or
as a structural feature that the Court would look to regardless of
the state's intention." Morris v. Wash. Metro. Area Transit Auth.,
781 F.2d 218, 223 (D.C. Cir. 1986). This court, as discussed
below, has chosen to ask the question in terms of how the state
structured its relationship to the entity.
The Mt. Healthy decision was followed by Lake Country
Estates, Inc. v. Tahoe Regional Planning Agency, 440 U.S. 391
(1979), which, by contrast, involved a bi-state agency, and thus
raised different concerns, including the interests of the federal
government under the Compact Clause. There the court held:
-8-
[S]ome agencies exercising state power have been
permitted to invoke the Amendment in order to protect the
state treasury from liability that would have had
essentially the same practical consequences as a judgment
against the State itself.
Id. at 400-01. Lake Country also considered several facts as
pertinent to the analysis.5
That was the state of the doctrine in 1993, when this
court decided Metcalf & Eddy, 991 F.2d at 939-40. For the past
decade the courts of this circuit, under Metcalf & Eddy, have
assessed an entity's arm-of-the-state status by focusing on whether
5
The Court in Lake Country identified the following facts as
germane to the arm-of-the-state status of the Tahoe Regional
Planning Agency (TRPA):
1. the designation in the interstate compact of the TRPA
as a "separate legal entity" and a "political
subdivision";
2. the power that resided in counties to appoint six of
the ten governing members of the TRPA whereas the states
appointed only four members;
3. the funding of the TRPA exclusively by the counties;
4. the express pronouncement in the compact that
obligations of the TRPA were not binding on either state;
5. the function of the TRPA, which was to regulate land
use; and
6. the failure of the states to preserve veto power over
rules promulgated by the TRPA.
See 440 U.S. at 401-02. Thus, the analysis considered (a) how the
entity is characterized under state law; (b) the level of control
exercised by the state; (c) the entity's relationship to the public
treasury (both the relative size of its government appropriation
and whether the government is legally liable for the entity's
debts); and (d) whether the entity performs a state function. See
generally A.E. Rogers, Note, Clothing State Governmental
Entities With Sovereign Immunity: Disarray in the Eleventh
Amendment Arm-of-the-State Doctrine, 92 Colum. L. Rev. 1243
(1992) (criticizing the Court's continuing use of a multi-
factor approach).
-9-
the structure established by the state reveals that the agency is
an arm of the state; if the structure does not resolve the
question, then the primary focus is on whether the action is in
essence one for recovery from the state. Because answers are not
always clear, we have encouraged the use of a non-exclusive list of
factors, and identified at least seven areas of inquiry.6 These
multi-factor tests, as we noted in Neo Gen Screening, Inc. v. New
England Newborn Screening Program, 187 F.3d 24, 27 (1st Cir. 1999),
"are not easy to apply." Still, Metcalf & Eddy presciently
predicted the ways in which the Supreme Court would view the issue.
In the intervening decade since Metcalf & Eddy there have
been two Supreme Court decisions addressing arm-of-the-state
issues: Hess v. Port Authority Trans-Hudson Corp., 513 U.S. 30, 33
(1994), involving a bi-state entity, which updated and clarified
6
"These areas, each of which can be mined for information
that might clarify the institution's structure and function,
include:
(1) whether the agency has the funding power to enable it
to satisfy judgments without direct state participation
or guarantees;
(2) whether the agency's function is governmental or
proprietary;
(3) whether the agency is separately incorporated;
(4) whether the state exerts control over the agency, and
if so, to what extent;
(5) whether the agency has the power to sue, be sued, and
enter contracts in its own name and right;
(6) whether the agency's property is subject to state
taxation; and
(7) whether the state has immunized itself from
responsibility for the agency's acts or omissions."
Id. at 939-940.
-10-
the arm-of-the-state doctrine; and Auer v. Robbins, 519 U.S. 452,
456 n.1 (1997), which briefly applied Hess to an intra-state
entity. Additionally, in that time, a number of important Supreme
Court decisions have reshaped Eleventh Amendment doctrine. The
question is raised then as to whether those opinions cause us to
reshape the Metcalf & Eddy test.
We start with the larger Eleventh Amendment doctrine.
Several points, at least, are informative to our analysis. The
first is that the Supreme Court has said that it is not just the
state's interest in its public treasury which is at stake in the
assertion of Eleventh Amendment immunity. The state also has a
"dignity" interest as a sovereign in not being haled into federal
court. Fed. Mar. Comm'n v. S.C. State Ports Auth., 535 U.S. 743,
122 S. Ct. 1864, 1874-75 (2002). These twin goals of the Eleventh
Amendment -- protection of the state's treasury and of its
dignitary interests -- explicitly govern the arm-of-the-state
analysis. Hess, 513 U.S. at 39-41.
The changes in Eleventh Amendment doctrine have created
different consequences for a finding that an entity partakes of
Eleventh Amendment immunity as an arm of the state. The Eleventh
Amendment has always acted to restrict the jurisdiction of the
federal courts to entertain claims against the state when the
underlying source of federal jurisdiction is diversity
jurisdiction. See Univ. of R.I. v. A.W. Chesterton Co., 2 F.3d
-11-
1200, 1202-03 (1st Cir. 1993). The Amendment also restricts the
jurisdiction of the federal courts to hear private claims based on
federal causes of action created by the Congress, see Edelman v.
Jordan, 415 U.S. 651, 662-64 (1974), subject to the Ex Parte Young
exception for injunctions against state officers, Ex Parte Young,
209 U.S. 123, 159 (1908). Importantly, the Court has recently held
that the Amendment's inherent notions of state sovereign immunity
impose restrictions on the power of Congress, acting under certain
Article I powers, to create privately enforced federal causes of
action against the states. Seminole Tribe v. Florida, 517 U.S. 44
(1996). Where the Eleventh Amendment bars jurisdiction over a
claim in federal court, the states may decline on sovereign
immunity grounds to entertain such an action. Alden v. Maine, 527
U.S. 706, 731-32 (1999).
While this case is a diversity action for breach of
contract, the criteria for rules about what is an arm of the
state have not varied with whether the basis for federal
jurisdiction is diversity or federal question. Accordingly,
any arm-of-the-state conclusion here has implications for the
enforceability of federal laws enacted under Article I in
suits by private persons against PRCCCC.
Thus, where an entity claims to share a state's
sovereignty and the state has not clearly demarcated the entity as
-12-
sharing its sovereignty, there is great reason for caution. It
would be every bit as much an affront to the state's dignity and
fiscal interests were a federal court to find erroneously that an
entity was an arm of the state, when the state did not structure
the entity to share its sovereignty. The consequences of an arm-
of-the-state finding are considerable. For example, where a state
consents to suit in its own courts, such an arm-of-the-state
finding may pose a threat to the state treasury, even if the state
has not structured the entity so as to put its treasury at risk.
In an era when many states face budget crises and impose cutbacks
on recognized state agencies, yet another claimant on the treasury
may not be welcomed.
Not all entities created by states are meant to share
state sovereignty. Some entities may be part of an effort at
privatization, representing an assessment by the state that the
private sector may perform a function better than the state. Cf.
Richardson v. McKnight, 521 U.S. 399, 405-07 (1997) (discussing
advantages of private sector entities performing government
functions and role of private contractors in prison
administration). Some entities may be meant to be commercial
enterprises, viable and competitive in the marketplace in which
they operate. Such enterprises may need incentives to encourage
others to contract with them, such as the incentives of application
of usual legal standards between private contracting parties. The
-13-
dollar cap on recovery found in many state sovereign immunity
statutes would be a powerful disincentive to a private party to
contract with an entity, unless the private party first obtained a
waiver of immunity from the entity. See generally Defendini
Collazo v. Commonwealth of P.R., 134 D.P.R. 28 (1993), available at
1993 WL 839857 (discussing limited waivers of sovereign immunity
under Puerto Rico law). In Puerto Rico, a breach of contract
action against the Commonwealth is capped at $75,000. 32 P.R. Laws
Ann. § 3077(c) (2001).
A conclusion that the entity is beyond the control of
privately enforced Article I legislation enacted by the Congress
may also be undesirable to a state. A state may not have intended,
for example, that the employees of the entity be unable to
privately enforce the Fair Labor Standards Act, 29 U.S.C. §§ 201-
219 (2000), see Alden, 527 U.S. at 712 (dismissing FLSA lawsuit by
state employees on grounds that Congress, acting pursuant to its
Article I powers, could not abrogate the sovereign immunity of
states in state court); or Title I of the Americans with
Disabilities Act, 42 U.S.C. §§ 12111-12117 (2000), see Garrett, 531
U.S. at 360 (holding that suits by state employees to recover money
damages for a state's failure to comply with the provisions of
Title I of the ADA are barred by the Eleventh Amendment); or the
Age Discrimination in Employment Act, 29 U.S.C. §§ 621-634, see
Kimel v. Fla. Bd. of Regents, 528 U.S. 62, 82-83 (2000) (holding
-14-
that ADEA's purported abrogation of the states' sovereign immunity
is invalid because ADEA is not "appropriate legislation" under
section five of the Fourteenth Amendment); or provisions of the
Family and Medical Leave Act, 29 U.S.C. §§ 2601-2654, see Laro v.
New Hampshire, 259 F.3d 1, 4 (1st Cir. 2001) (invalidating on
Eleventh Amendment grounds a private cause of action for money
damages against the state under the personal medical leave
provision of the FMLA). A state could adjudge that those effects
may be unwanted disincentives to people who might otherwise seek
employment with the entity, or that it is unwise to differentiate
the entity's employees from those in the private sector. In sum,
states set up entities for many reasons. An erroneous arm-of-the-
state decision may frustrate, not advance, a state's dignity and
its interests.
Against that context of the serious consequences on both
sides of this issue, it is the developments in the arm-of-the-state
case law from the Supreme Court which bind us here. The most
recent full discussion of the doctrine is in Hess. Hess, like Lake
Country before it, involves an entity created by two states under
the Compact Clause of the Constitution. A closely divided court in
Hess held that the Port Authority Trans-Hudson Corporation was not
an arm of the state. As noted above, the Hess analysis explicitly
recognizes the Eleventh Amendment's twin interests: protection of
the fisc and the dignity of the states. 513 U.S. at 39-40, 47.
-15-
As to bi-state Compact Clause entities, the Hess court
continued the general approach taken in Lake Country:
We would presume the Compact Clause agency does not
qualify for Eleventh Amendment immunity "unless there is
good reason to believe that the States structured the new
agency to enable it to enjoy the special constitutional
protection of the states themselves and that Congress
concurred in that purpose."
Id. at 43-44 (quoting Lake Country, 440 U.S. at 401). Putting
aside the question of presumption, Hess requires a two-step
analysis. Accord Harter v. Vernon, 101 F.3d 334, 337 (4th Cir.
1996). The first step of the analysis concerns how the state has
structured the entity. This step, we think, pays deference to the
state's dignitary interest in extending or withholding Eleventh
Amendment immunity from an entity. After all, a state may easily
make clear by statute its view that an entity is to share the
state's immunity. Where the state has not made a clear statement,
its dignity interests are nonetheless protected by an examination
of the structure the state has chosen to establish. In evaluating
whether the state had structured an agency to be an arm of the
state, Hess looked at "various indicators of immunity or the
absence thereof."7 513 U.S. at 44.
7
Among the indicators Hess considered were:
1. extent of state control including through the appointment
of board members and the state's power to veto board actions or
enlarge the entity's responsibilities;
2. how the enabling and implementing legislation characterized
the entity and how the state courts have viewed the entity;
3. whether the entity's functions are readily classifiable as
state functions or local or non-governmental functions; and
-16-
If the structural indicators point in different
directions, then the second stage of analysis comes into play. At
this stage, the vulnerability of the state's purse is the most
salient factor in the Eleventh Amendment determination.8 Where it
is clear that the state treasury is not at risk, then the control
exercised by the state over the entity does not entitle the entity
to Eleventh Amendment immunity. See id. at 47-49.9
4. whether the state bore legal liability for the entity's
debts. See 513 U.S. at 44-46.
8
This Hess vulnerability inquiry includes examination of
these, among other, factors: whether the state laws impose an
obligation on the state to be responsible for payment of judgments
against the entity (on this point federal courts are not free to
assume that a state will voluntarily assume the payment of the
entity's debts if the entity is in need); other sources of revenue
for the entity; and whether the agency is so structured that, as a
practical matter, the state anticipated budget shortfalls that
would render the entity constantly dependent on the state. Id. at
49-50.
9
Although the dissent in Hess would reach a different
conclusion on the facts there, it agrees that the key initial
question is whether "the State has structured the entity in the
expectation that immunity will inhere." Id. at 58 (O'Connor, J.,
dissenting). The dissent also agrees that if the entity's
liabilities are funded by the taxpayers' dollars, then there is
Eleventh Amendment immunity. Id. at 60-61. The Hess dissent did
not agree that the converse was true: that if the state treasury
was not directly implicated, then there would be no immunity. The
dissent would then ask whether the state "possesses sufficient
control over an entity performing governmental functions that the
entity may properly be called an extension of the State itself."
Id. at 61. If "the lines of oversight are clear and substantial --
for example, if the state appoints and removes an entity's
governing personnel and retains veto or approval power over an
entity's undertakings" -- then, on the dissent's reasoning, the
entity should be deemed an arm of the state for Eleventh Amendment
purposes. Id.
-17-
In the aftermath of Hess, the circuits almost uniformly
find that, when there is an ambiguity about the direction in which
the structural analysis points, the potential payment from the
state treasury is the most critical factor in determining whether
an entity is operating as an arm of the state. See 17A J.W. Moore
et al., Moore's Federal Practice § 123.23(4)(b), at 123-60 & n.51
(3d ed. 2000) [hereinafter Moore's] (collecting cases).
The question for the lower federal courts becomes what
parts of Hess govern the analysis of an intra-state entity such as
PRCCCC. Compact Clause entities by their nature involve different
federalism concerns than intra-state entities. Several objections
might be made to applying Hess here. The presumption announced in
Hess may be limited to multi-state entities. It might also be
thought that the two-step Hess analysis applies only to multi-state
Compact Clause entities, and so not to a public corporation formed
by the Commonwealth alone. Or it might be thought, more generally,
that Hess is inconsistent with later Eleventh Amendment case law,
and so should not be taken as establishing doctrine controlling
now.
Hess itself noted there was reason to treat Compact
Clause entities somewhat differently. 513 U.S. at 42 ("There is
good reason not to amalgamate Compact Clause entities with agencies
of one of the United States for Eleventh Amendment purposes.")
(internal quotation omitted); accord Hadley v. N. Ark. Cmty.
-18-
Technical Coll., 76 F.3d 1437, 1439 (8th Cir. 1996) (interpreting
Hess). "As part of the federal plan prescribed by the
Constitution, the States agreed to the power sharing, coordination,
and unified action that typify Compact Clause creations. . . .
[T]he federal tribunal cannot be regarded as alien in this
cooperative, tri-governmental arrangement." Hess, 513 U.S. at 41-
42. Here, by contrast, the federal government is not a party to
the arrangement. As a result, we think the presumption announced
in Hess -- a presumption against an entity being an arm of the
state -- applies only to Compact Clause entities, and the logic of
it does not extend to the two other categories of cases.
We conclude, however, that the two-step analysis of Hess
is not limited to Compact Clause entities. Several reasons support
this conclusion. First, Hess is founded on the twin reasons
underlying the Eleventh Amendment, reasons common to all categories
of cases. Further, the Hess court cited Metcalf & Eddy, which did
not involve a multi-state Compact Clause entity, among cases
supporting the point that "the vulnerability of the State's purse
[is] the most salient factor in Eleventh Amendment determinations."
Hess, 513 U.S. at 48. Hess also cited cases from four other
circuits adhering to that principle when the entities involved
included intra-state authorities, as well as political subdivisions
and bi-state entities. Id. at 48-49. There is no indication the
court intended to differentiate in the application of its major
-19-
tests depending on the nature of the entity. Thus, Metcalf & Eddy
foreshadowed Hess's determination that when there is ambiguity from
the structure about whether an entity is an arm of the state, the
primary focus is on the risk to the state treasury.
Next, the circuits have also viewed Hess as applying to
political subdivision and intra-state corporation cases. Mancuso
v. N.Y. State Thruway Auth., 86 F.3d 289, 293 (2d Cir. 1996)
("Although Hess involved a bi-state entity, we nevertheless believe
that it is the proper starting place for our Eleventh Amendment
inquiry in this case," involving an intra-state entity); see, e.g.,
Harter, 101 F.3d at 337-40 (applying Hess to determine whether an
entity should be characterized as a political subdivision or a
state agency).
Finally, Auer v. Robbins, a case involving an intra-state
entity, the Board of Police Commissioners, supports our reading
that the two-step analysis applies beyond Compact Clause entities.
In a footnote, the Court held the Board was not an arm of the state
because the state was not responsible for the Board's financial
liabilities and the only form of state control was the governor's
power to appoint four of five Board members. 519 U.S. at 456 n.1.
The Court did not cite to its earlier precedent, such as Mt.
-20-
Healthy, but rather to its bi-state compact cases, Hess and Lake
Country.10
As to the more general concern, some have questioned
Hess's viability in light of Seminole and its aftermath. See Thiel
v. State Bar, 94 F.3d 399, 401-03 (7th Cir. 1996) (viewing Hess as
implicitly limited by Seminole). Hess's emphasis on protection of
the state fisc as a primary component of an arm-of-the-state
analysis has been criticized as not entirely consistent with the
broader Eleventh Amendment interests established by other and later
cases. See C.M. Vazquez, What Is Eleventh Amendment
Immunity?, 106 Yale L.J. 1683, 1731-32 (1997); see also Thiel,
94 F.3d at 401-02.
One response would be that Hess was concerned with an
entirely different problem. Seminole and its progeny are addressed
to what protection is given the state by the Eleventh Amendment.
Hess is concerned with who is entitled to share that protection.
When the state has not made it clear through structure that an
entity is to share its immunity, there is reason not to reach a
10
In Regents of the University of California v. Doe, the Court
said generally:
Of course, the question of whether a money judgment against a
state instrumentality or official would be enforceable against
the State is of considerable importance to any evaluation of
the relationship between the State and the entity being sued.
519 U.S. at 430.
-21-
result inconsistent with what the state has apparently hoped to
effectuate (that is, an independent entity) unless there is a risk
to the state fisc.
Another response would be that Seminole and its progeny
affirm the longstanding view, operationalized in Hess, that the
Eleventh Amendment exists to protect the fiscal and dignity
interests of the state. Seminole, 517 U.S. at 58. The first prong
of 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.
Finally, even were the criticism to have force, Hess
binds us and has not been overruled. To the contrary, it has been
consistently cited by the Court.11 We must follow it until the
Supreme Court decides otherwise. State Oil Co. v. Khan, 522 U.S.
3, 20 (1997) ("[I]t is this Court's prerogative alone to overrule
one of its precedents."); Rodriguez de Quijas v. Shearson/Am.
Express, Inc., 490 U.S. 477, 484 (1989).
Accordingly, in the aftermath of Hess, Auer and Regents
of the University of California, we think the Hess analysis governs
and has refined the Metcalf & Eddy analysis, which is consistent
11
E.g., Solid Waste Agency v. U.S. Army Corps of Eng'rs,
531 U.S. 159, 174 (2001); Alden, 527 U.S. at 746; Seminole,
517 U.S. at 58.
-22-
with Hess. We view Hess as involving two key questions, with many
factors instructive on each:
1. Has the state clearly structured the entity to share
its sovereignty? This evaluation is undertaken12 in light of the
different factors described in Hess, Lake Country and Metcalf &
Eddy.
2. If the factors assessed in analyzing the structure
point in different directions, then the dispositive question
concerns the risk that the damages will be paid from the public
treasury. This is the rule of Metcalf & Eddy, valid today as well.
12
Lest our focus on the structure created by the state be
misunderstood, whether an entity is entitled to partake of a
state's Eleventh Amendment immunity is a question of federal law,
not state law:
Ultimately, of course, the question whether a particular
state agency has the same kind of independent status as
a county or is instead an arm of the State, and therefore
"one of the United States" within the meaning of the
Eleventh Amendment, is a question of federal law. But
that federal question can be answered only after
considering the provisions of state law that define the
agency's character.
Regents of the Univ. of Cal., 519 U.S. at 429 n.5. The Supreme
Court has adverted to state law, but has not defined what role it
is to play. See, e.g., Mt. Healthy, 429 U.S. at 280. In Hess
itself the majority declined to adopt the state court's
characterization of the agency. See 513 U.S. at 45 (holding that
the Port Authority does not enjoy Eleventh Amendment immunity
despite the fact that "[s]tate courts . . . repeatedly have typed
the Port Authority an agency of the States rather than a municipal
unit or local district").
-23-
This analysis focuses on whether the state has legally or
practically obligated itself to pay the entity's indebtedness.
The control asserted by the state is an important guide
to the initial inquiry. But where the evidence is that the state
did not structure the entity to put the state treasury at risk of
paying the judgment, then the fact that the state appoints the
majority of the governing board of the agency does not itself lead
to the conclusion that the entity is an arm of the state.
B. Application of Standards
We now apply these standards to the facts of this case.
There are no factual findings of disputed facts by the district
court, as the issue was decided under Rules 56 and 12(b)(6).13
PRCCCC does not claim that there were disputed facts requiring
resolution by the trial court. The parties do draw different
conclusions from the undisputed financial records of PRCCCC.
We consider the facts from admissible evidence that are germane to
Eleventh Amendment immunity in the light most favorable to the non-
moving party, drawing all reasonable inferences in that party's
favor. Wojcik, 300 F.3d at 96.
13
We treat the Fed. R. Civ. P. 12(b)(6) motion raising
PRCCCC's Eleventh Amendment defense as a motion for summary
judgment, since both parties presented and the court did not
exclude evidence outside the pleadings. Fed. R. Civ. P. 12(b).
-24-
1. Structuring of PRCCCC
a. The Enabling Act
The enabling act that created PRCCCC, 24 P.R. Laws Ann.
§§ 343-343k (2000), does not by its terms structure PRCCCC to be an
arm of the state. In fact, it suggests exactly the opposite. The
act creates an "entity which is independent and separate from any
other agency or instrumentality of the Government of the
Commonwealth of Puerto Rico." Id. § 343a. Moreover, PRCCCC is
explicitly empowered to enter into contracts with the state,
specifically the Commonwealth's Department of Health, the
University of Puerto Rico, and "any other bodies or
instrumentalities of the Commonwealth of Puerto Rico."14 Id. §
434b(n). Further, the act provides that PRCCCC may "borrow" money
from the Commonwealth, id. § 343b(g), and that the Commonwealth
will charge it rent for use of its building, which "shall help to
amortize the debt for a period of thirty (30) years," id. § 343g.
The Board is authorized to create a budget, which it must submit to
the legislature, but the budget is required to stay "within the
limits of [PRCCCC's] estimated income so as to keep from incurring
14
In PRCCCC's favor is that it has been exempted from all
taxes and fees collected by the government of Puerto Rico and its
political subdivisions. Id. § 343e. By like token, that very
language indicates it is not a political subdivision. In reference
to PRCCCC's tax exempt status, FMC executive Watson observes that
many of the private hospitals he has dealt with are also exempt
from local taxes and duties.
-25-
shortfalls." Id. § 343h. Importantly, the act does not say the
treasury of the Commonwealth will pay for those shortfalls.15
Nonetheless, in PRCCCC's favor, the act does not contain
language declaring that the Commonwealth is not responsible for
PRCCCC's debt, as was true of the statutory schemes in Metcalf &
Eddy, see 991 F.2d at 940, and Royal Caribbean Corp. v. Puerto Rico
Ports Authority, 973 F. 2d 8, 11 (1st Cir. 1992). In that sense,
this is a closer case.
b. Other State Statutes
PRCCCC relies on statutes outside its own enabling act to
argue that it is an arm of the state. It points to the definition
of public funds set forth in 33 P.R. Laws Ann. § 3022(11), (14),
which provide:
(11) Commonwealth of Puerto Rico -- Comprises its
municipalities, agencies, public corporations, political
subdivisions and other dependencies or instrumentalities.
(14) Public funds or public treasury -- Means all bonds
or liabilities and evidences of indebtedness and all
moneys belonging to the Government of the Commonwealth of
Puerto Rico, the municipalities, agencies, public,
municipal and state corporations, political subdivisions
15
Interestingly, PRCCCC's own evidence showed that one of
the purposes of creating the public corporation was that
public funds allocated to the hospital "could be insulated
from the budgetary constraints the [Commonwealth's] Health
Department always had." Another purpose was to serve as
"justification to 'privatize' the health system." These are
also indicia that the Commonwealth wanted PRCCCC to be at
arm's length, not to be an arm of the state.
-26-
and other dependencies, and all moneys, securities, bonds
and evidences of indebtedness received and kept by
officials or employees of the aforementioned entities, in
their official character.
We reject for four reasons the contention that this definition of
public funds is a statement that all "public corporations"
established by Puerto Rico are arms of the state. First, the
definitions are explicitly limited to the subtitle in which they
appear, a part of the Penal Code of Puerto Rico. See id. § 3022.
Second, when Puerto Rico has chosen to make an entity an arm of the
state, it has used other language. For example, the Medical
Services Administration (MSA), another health care entity created
by the Commonwealth,16 was "created as an instrumentality of the
Government of the Commonwealth of Puerto Rico, attached to the
Commonwealth Department of Health . . . under the direction and
supervision of the Secretary of Health." 24 P.R. Laws Ann. § 342b;
see Rodriguez Diaz v. Sierra Martinez, 717 F. Supp. 27, 29-31
(D.P.R. 1989). Third, it is a maxim of statutory construction that
the more specific statute, here PRCCCC's enabling act, governs over
the more general, such as the definitions in § 3022. See In re
16
PRCCCC witness Zapata asserts claims that the structure of
the PRCCCC is "similar, if not identical" to that of the public
medical center known (in English) as the Medical Services
Administration (MSA). This is untrue, as discussed above.
Furthermore, unlike the PRCCCC enabling legislation, see 24 P.R.
Laws Ann. §§ 343-343k, the MSA enabling legislation provides that
civil litigants against the MSA are subject to the cap on recovery
established under the Commonwealth's state sovereign immunity, 24
P.R. Laws Ann. § 343g.
-27-
Weinstein, 272 F.3d 39, 43 (1st Cir. 2001). Fourth, such a
construction would be inconsistent with a number of our cases
finding various public authorities and corporations created by
Puerto Rico not to be arms of the state. See, e.g., Metcalf &
Eddy, 991 F.2d 935; Royal Carribean Corp., 973 F.2d 8 (Breyer,
C.J.).
c. State Court Decisions
Apart from the statutory schemes, we consider how the
state courts have treated PRCCCC. The Supreme Court has found
state court decisions a useful resource. See Hess, 513 U.S. at 45;
Moor, 411 U.S. at 720-721. PRCCCC has not provided us with a
single opinion from a court of Puerto Rico holding that PRCCCC is
part of the government of Puerto Rico, or, for that matter, that
the Commonwealth will stand behind PRCCCC's debt.17 It is PRCCCC's
burden to do so. See Wojcik, 300 F.3d at 99; Gragg v. Ky. Cabinet
for Workforce Dev., 289 F.3d 958, 963 (6th Cir. 2002); Skelton v.
Camp, 234 F.3d 292, 297 (5th Cir. 2000).
PRCCCC points to the Penal Code, stating that PRCCCC
employees are considered public employees under the Penal Code of
Puerto Rico. The Penal Code's definition of a public employee,
which is expressly limited to the subtitle in which it appears, see
17
PRCCCC refers to a 1987 opinion by the Attorney
General; we do not read that opinion as supporting PRCCCC even
assuming, dubitante, that it has some authoritative value.
-28-
33 P.R. Laws Ann. § 3022, includes persons working for municipal
and local government bodies and other entities that do not enjoy
Eleventh Amendment immunity, see id. § 3022(16). Meanwhile, other
statutory definitions of public employee seem to exclude PRCCCC
employees. See, e.g., 3 P.R. Laws Ann. § 729c(b) (chapter on
compensation and benefits of government personnel adopts definition
of employee that specifically excludes "the officials and employees
of the public corporations and of the University of Puerto Rico").
d. Functions of PRCCCC
PRCCCC contends that its functions are those of a
government. If true, that would assist its structural argument.
PRCCCC points to no judicial authority to support its proposition.
Instead, it offers three arguments.
First, Zapata contends that PRCCCC is an essential
component of the Commonwealth's strategy to comply with its
obligation, under the Constitution of Puerto Rico, Article II,
Section 20, to provide health care to indigent residents. It
appears Section 20 is not binding. The Constitution of Puerto Rico
had to be approved by the U.S. Congress before going into effect.
Figueroa v. People of P.R., 232 F.2d 615, 620 (1st Cir. 1956).
Congress conditioned its approval of the Puerto Rico Constitution
partly on deletion of Article II, Section 20. See Pub. L. No. 82-
447, 66 Stat. 327, 327 (1952). Furthermore, Article II, Section 20
appears to have been intended as an aspirational statement, modeled
-29-
on language in the Universal Declaration of Human Rights, rather
than as a basis for legal obligations. The Section enumerates a
list of human rights including the right to work, the right to an
adequate standard of living, and the right to medical care; it then
states, "The rights set forth in this section . . . require, for
their full effectiveness, sufficient resources and an agricultural
and industrial development not yet attained by the Puerto Rican
community." (emphasis added).
Second, PRCCCC's enabling legislation says that it will
be responsible for public policy relating to the provision of
cardiovascular services in Puerto Rico. 24 P.R. Laws Ann. § 343b.
PRCCCC presents no evidence indicating that it has helped set
policies applicable to other facilities in Puerto Rico. It
acknowledges, moreover, that since the Commonwealth carried out a
major health reform in 1993, PRCCCC has competed with private
hospitals for legislative appropriations and other pubic funds
allocated for cardiovascular surgery.18 This reform presumably
diminished any policymaking function of PRCCCC.
Third, Zapata observes that PRCCCC's mission includes
training medical students, interns, and residents from the
University of Puerto Rico (a public university). But many
hospitals unaffiliated with state governments (or the Commonwealth)
18
Further, Watson notes that PRCCCC functions with respect to
its vendors like a private, rather than a government, hospital.
-30-
employ (and train) interns and residents from state medical
schools.
The provision of medical care, in our economy, is not
primarily a state function. Even medical care for the poor is a
responsibility often imposed on private hospitals, through free
care pools, Medicaid, and other devices. The difficulty of
containing costs for these services may be exactly why Puerto Rico
has chosen in PRCCCC's enabling act not to make its treasury
accountable for PRCCCC's debts. That PRCCCC receives Medicaid
funding does not distinguish it from a private sector hospital,
either not-for-profit or for-profit. A mosaic of medical providers
serves the poor and the uninsured, and nothing about PRCCCC marks
it as serving a uniquely governmental function.
e. Control by the State
PRCCCC also argues that it is subject to a fair degree of
control by the Commonwealth. Under the enabling act, the Board is
composed of seven members, three of whom are ex officio members and
are high-ranking state officials. 33 P.R. Laws Ann. § 343(c). The
governor appoints the remaining four members to four-year terms.
The Secretary of Health of Puerto Rico is chairman of the Board.
The votes of four members are needed for action; thus the ex
officio members presumably vote.
-31-
The governor's appointment power over the board is not
enough in itself to establish that PRCCCC is an arm of the state.
See Auer, 519 U.S. at 456 n.1. The statute itself does not give
the governor power to remove Board members, and it is unclear where
such power resides.19 Nor does the statute give the Commonwealth
veto power over the decisions of the Board, a key element of
control.
In her statement, Lúgaro asserts that the governor
intervenes periodically in PRCCCC management and personnel issues.
She asserts that the Commonwealth's Comptroller audits PRCCCC. She
also says that the Executive Director and other key PRCCCC
personnel have to file annual reports with the Government Ethics
Office. These are indicia of control, but hardly determinative in
view of the statutory structure.20
19
PRCCCC, which bears the burden of proof, offers only
inadmissible hearsay evidence on this point. See Vazquez v.
Lopez-Rosario, 134 F.3d 28, 33 (1st Cir. 1998) ("Evidence that
is inadmissible at trial, such as inadmissible hearsay, may
not be considered on summary judgment.").
20
Even the view of the dissent in Hess on the importance of
control does not assist PRCCCC. Though it does not propose a
bright-line rule demarcating the level of control necessary to
warrant a finding that an entity is an arm of the state, the Hess
dissent does observe that such a finding is warranted "if the State
appoints and removes an entity's governing personnel and retains
veto or approval power over an entity's undertakings." Hess, 513
U.S. at 61 (O'Connor, J., dissenting); see Brotherton v. Cleveland,
173 F.3d 552, 561 n.5 (6th Cir. 1999). Key elements of control,
such as veto power, are absent here.
-32-
We cannot say the indicia all point in the direction of
PRCCCC being an arm of the state and so reach the second stage of
the analysis.
2. Would the Commonwealth's Treasury Be Obligated to Pay a
Judgment Against PRCCCC?
Our next inquiry is whether any judgment in this action
would be paid by the Commonwealth's treasury. As Hess explained,
"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." 513 U.S. at 51. Thus we examine two areas: what is
said by state law on the topic21 and what in fact has happened.
The enabling act does not, as we have said, make the
Commonwealth liable for the debts of PRCCCC. Still, it could be
that the Commonwealth has assumed that obligation in fact, either
directly or indirectly, by providing virtually all the funds needed
for the operation of PRCCCC. The facts, discussed below, show that
the Commonwealth has not done that. Rather, the Commonwealth has
21
Zapata states that the team of experts which advised the
legislature on the creation of PRCCCC concluded that sixty percent
of the hospital's revenues would need to come from legislative
appropriations. If that is so, then the fact that PRCCCC's
enabling legislation does not require the legislature to provide a
fixed percentage (or other level) of support for PRCCCC is telling.
-33-
left itself free to provide or not provide funds to PRCCCC as it
sees fit, and it has not come close to obligating itself to assume
the burden of paying PRCCCC's debt. The Commonwealth has provided
for PRCCCC to have independent sources of revenue and, indeed, the
majority of PRCCCC's funding now comes from sources other than the
Commonwealth's treasury.
We start with the statutory scheme and consider two
factors: the provisions as to funding of debts and any provisions
for raising revenues. There are no provisions for funding of
PRCCCC's debts, just an admonition in the enabling act that PRCCCC
must live within its means. The legislative intent seems to be
that PRCCCC not incur debts that it cannot pay from budgeted sums.
As to revenue, the statutory scheme contemplates a number of
sources of income. The statute provides that PRCCCC may
1. borrow money from any funding source, 24 P.R.
Laws Ann. § 343b(g);
2. sell its services to private entities, id. §
343b(k);
3. sell materials to private entities, id. §
343b(m);
4. request and accept federal, state, or other funds
and grants, § 343b(o); and
5. enter with others into a corporation,
partnership, joint venture, or association, id. §
343b(r).
In addition, the statute provides that PRCCCC may issue bonds, id.
§ 343k. It is noteworthy that the Commonwealth is not a guarantor
on the bonds.
-34-
PRCCCC replies that the capacity to issue bonds and raise
revenues is a "dead letter." That is because private lenders will
not provide financing "unless the Commonwealth funds are pledged as
warranty of payment through the Office of Management and Budget.
With an operating deficit that exceeds an [annual] average of $7
million . . . PRCCCC does not have the credit that will enable it
to borrow money and obtain loans, much less issue bonds." Though
relevant, this evidence does not show that PRCCCC's debts would
become the Commonwealth's.
PRCCCC also points to the language of the 1986
appropriations act, which provided PRCCCC with $500,000 in initial
working capital. Act of June 30, 1986, No. 51, at p. 170, § 13,
quoted in 24 P.R. Laws Ann. § 343, history. The bill also said:
The funds needed in subsequent years to carry out the
purposes of this act [chapter] shall be consigned in the
General Expense Budget of the Government of Puerto Rico.
Id. There are three responses to the argument. First, this is
language in an appropriations act for a particular year. Such acts
normally expire within the year, and PRCCCC has not presented any
argument that the language must be read to extend to all future
years. See Minis v. United States, 40 U.S. (15 Pet.) 423, 445
(1841). Second, this language was not put into the codified law
enacted in 1986, nor has it been added since then. Third, in
-35-
practice the legislature did not consider itself bound by that
language in years after 1986.
PRCCCC's other argument is that it is required to submit
an operating expenses and capital investments budget to the
legislature. 24 P.R. Laws Ann. § 343h. That alone does not show
that PRCCCC's debts will be paid by the Commonwealth; it is better
read as imposing discipline meant to discourage PRCCCC from
building up unpaid debts. There is, moreover, no evidence in the
record (and the burden is on PRCCCC) that PRCCCC took any steps to
comply with this requirement before February 25, 2002, more than
three months after it formally asserted an Eleventh Amendment
defense to FMC's lawsuit.22
We turn to what in practice has happened. "If the state
substantially funds the entity, those funds would be a probable
source to satisfy any judgment against the entity. On the
contrary, if the entity has taxing powers and can issue bonds,
state funds might not be at risk in litigation against the entity."
Moore's, supra, § 123.23[4][b], at 123-57 to 123-58.
PRCCCC witness Bustelo states that PRCCCC receives
several types of financial support from government entities: (a)
legislative appropriations; (b) reimbursements from insurance
22
On February 25, 2002, Lúgaro requested a legislative
appropriation to pay the rent during FY 2001 and FY 2002 and cover
the rest of PRCCCC's deficit.
-36-
companies linked to the Department of Health; (c) payments from the
City of San Juan; and (d) "indirect subsidies," which are
effectively short-term loans, from public utilities and other
public corporations. Because of PRCCCC's relationship to the
state, Bustelo contends, public corporations such as PRCCCC's
landlord have not initiated eviction proceedings or otherwise
denied services when PRCCCC's payments were late.
We start with the most recent history. In FY 2001,
PRCCCC received over $50 million in revenues. It received nothing
in legislative appropriations, although it was running a $12
million deficit. In FY 2002, it again received no legislative
appropriation. Most of PRCCCC's revenues are from fees for patient
services received from private insurance companies, patients,
Medicare, Medicaid, or the Commonwealth's public health system,23
just as revenues come in to private hospitals in Puerto Rico.
Looking back further, PRCCCC's legislative appropriations amounted
to less than 14 percent of its total revenues from fiscal years
1993 to 2001.
23
Although the Commonwealth participates in Medicare and
Medicaid, it also has a separate public health system. Medicare is
a federally funded program overseen by part of the federal
government; Medicaid is a jointly funded federal-state program
overseen by federal and state entities but usually administered at
the county level. By contrast, the Commonwealth's own public
health system receives no federal funding.
-37-
In its role as an insurer, the Commonwealth also
reimbursed PRCCCC for particular medical procedures. Even counting
these reimbursements, the share of PRCCCC revenues coming from the
Puerto Rico government between FY 1993 and 2001 was about 41
percent. These reimbursements were presumably made under the
Commonwealth's public health system and the Medicaid program.
Since private, for-profit hospitals receive these reimbursements as
a matter of course, it is doubtful whether they should be counted
for Eleventh Amendment purposes. We do not count payments made by
the municipality of San Juan as revenue from the state treasury.
Overall, the share of funding provided by the legislature
and by the Commonwealth as a whole has diminished sharply over
time. In FY 1993 and 1994, the first two years for which figures
are available, the legislature provided approximately 21 percent of
PRCCCC's revenues by appropriation. Counting insurance
reimbursements as well as appropriations, the Commonwealth provided
over 64 percent of PRCCCC's revenues during that period. In FY
2000 and 2001, the last two years for which complete figures are
available, the legislature provided approximately 8 percent and the
Commonwealth in toto provided approximately 26 percent of its
revenue. As noted above, the legislature provided no appropriation
whatsoever during FY 2001 or FY 2002. The elimination of any
legislative appropriations presumably reflects the fact that
PRCCCC's operational revenues -- that is, its fees from providing
-38-
cardiovascular medical care to patients -- increased by
approximately 400 percent between FY 1993 and FY 2001.
PRCCCC argues that this accounting understates the
Commonwealth's actual contribution to PRCCCC because public
utilities and other allegedly government-controlled public
corporations have allowed PRCCCC to receive services without paying
for them. The record refutes this argument. Like virtually all
businesses, PRCCCC has accounts payable: bills from suppliers for
goods and services purchased on credit. There is every indication
that, as a general practice, PRCCCC pays its accounts to public
utilities and other public corporations. For example, Bustelo
stated that the legislative appropriation has been used mainly to
pay PRCCCC's largest account payable: its debt to the Public
Housing Administration (PHA), the state agency that owns its
physical plant. PRCCCC has not shown that it has failed to pay any
debt, apart from its FY 2001 debt to the PHA, in a timely fashion.
Moreover, the FY 2001 PHA debt was only unpaid as of March 2002,
and accounts payable are typically due within 12 months.
Between FY 1993 and FY 2001, PRCCCC's operational
expenses exceeded its total revenues by approximately $18 million.
The income statement does not provide any detail on the hospital's
debt structure; nevertheless, there is no evidence distinguishing
this level of debt for an institution whose operational revenues
now exceed $50 million per year from private sector debt. PRCCCC's
-39-
operational revenues have grown at a substantially steeper rate
than its operational expenses between FY 1993 and FY 2001.
The fact that PRCCCC receives significant, but
diminishing, state funding (now less than thirty percent counting
all sources, including insurance) is simply not enough to enable it
to claim Eleventh Amendment immunity. Mt. Healthy, 429 U.S. at
280. In the end, PRCCCC's argument is simply that a judgment would
deplete its operating funds, that the Commonwealth might choose to
rescue it, and that this would indirectly deplete the state
treasury. We rejected this very argument in Metcalf & Eddy, 991
F.2d at 941, and do so here.
C. Insufficiency of Service of Process
The district court made factual findings regarding the
Rule 12(b)(2) and the associated Rule 12(b)(5) claims. See Rivera-
Flores v. P.R. Tel. Co., 64 F.3d 742, 748 (1st Cir. 1995).
Findings of fact by the district court may not be set aside unless
they are clearly erroneous. Fed. R. Civ. P. 52(a); Anderson v.
City of Bessemer, 470 U.S. 564, 573 (1985). There was no error.
Rule 4(h)(1) governs service of process upon
corporations. Proper service under Puerto Rico law satisfies Rule
4(h)(1). See Sea-Land Serv., Inc. v. Ceramica Europa II, Inc., 160
F.3d 849, 853 (1st Cir. 1998). Under Puerto Rico law, process can
be served by "leaving [a copy of the summons and complaint] at the
-40-
registered office or other place of business of the corporation in
the Commonwealth." 14 P.R. Laws Ann. § 3126 (2000). Plaintiff
unquestionably met this requirement.
III.
We affirm the district court's decisions that PRCCCC is
not an arm of the state and so is not entitled to Eleventh
Amendment immunity and that there was adequate service of process.
Costs are awarded to plaintiff.
-41-
Fresenius Medical Care Cardiovascular Resources, Inc. v. Puerto Rico & the Caribbean Cardiovascular Center Corp.
Court: Court of Appeals for the First Circuit
Date filed: 2003-04-24
Citations: 322 F.3d 56
Copy CitationsCombined Opinion