Steadfast Insurance v. Agricultural Insurance

FILED
United States Court of Appeals
Tenth Circuit

November 20, 2007
PUBLISH Elisabeth A. Shumaker
Clerk of Court
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

STEADFAST INSURANCE
COMPANY,

Plaintiff-Counter-Defendant-
Appellee,
v. No. 06-5212
AGRICULTURAL INSURANCE
COMPANY, now known as Great
American Assurance Company,

Defendant-Counter-Claimant-
Cross-Claimant-Appellant,

GRAND RIVER DAM AUTHORITY,

Defendant-Cross-Defendant-
Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OKLAHOMA
(D.C. No. 05-CV-0126-CVE-SAJ)

George W. Dahnke (Sarah J. Timberlake with him on the brief), Abowitz, Timberlake &
Dahnke, P.C., Oklahoma City, Oklahoma, for Appellant.

Galen L. Brittingham (Michael P. Atkinson with him on the brief), Atkinson, Haskins, Nellis,
Brittingham, Gladd & Carwile, Tulsa, Oklahoma, for Appellee.

Before KELLY, BALDOCK, and BRISCOE, Circuit Judges.
BALDOCK, Circuit Judge.

In several underlying actions, multiple claimants brought suit against the Grand River

Dam Authority (GRDA) for damages related to a series of flood incidents, which began in

1992. Plaintiff Steadfast Insurance Company (Steadfast) serves as the GRDA’s primary

insurer. Steadfast filed this declaratory judgment action in federal court under 28 U.S.C.

§ 1332, seeking a ruling that it had no obligation to cover these underlying claims.

Subsequently, Steadfast added Defendant Agricultural Insurance Company (Agricultural),

the GRDA’s excess liability insurer, to this action, alleging the possibility that the GRDA’s

excess liability policy might come into play.

Agricultural filed a counter-claim against Steadfast, and a cross-claim against the

GRDA, requesting a declaratory judgment that it had no duty to indemnify the GRDA. The

GRDA moved to dismiss both Steadfast’s complaint and Agricultural’s cross-claim based

on its entitlement to Eleventh Amendment immunity. The district court ruled the GRDA was

entitled to sovereign immunity and granted its motion to dismiss. The question presented on

appeal is whether the GRDA is a state agency entitled to Eleventh Amendment immunity.

See U.S. Const. amend. XI. We have jurisdiction under 28 U.S.C. § 1291, and affirm.1

1
The district court entered a Fed. R. Civ. P. 54(b) certification order concluding
no reason exists to delay appellate review of its final judgment dismissing a single party,
the GRDA, from this lawsuit. We, therefore, have appellate jurisdiction under 28 U.S.C.
§ 1291.

2
The Eleventh Amendment states: “The Judicial power of the United States shall not

be construed to extend to any suit in law or equity, commenced or prosecuted against one of

the United States by Citizens of another State, or by Citizens or Subjects of any Foreign

State.” U.S. Const. amend. XI. Eleventh Amendment immunity’s primary purpose is to

accord states the respect owed them as joint sovereigns. See Fed. Mar. Comm’n v. S.C. State

Ports Auth., 535 U.S. 743, 765 (2002). Consequently, state sovereign immunity applies to

any action brought against a state in federal court, including suits initiated by a state’s own

citizens. See Edelman v. Jordan, 415 U.S. 651, 662-63 (1974). Eleventh Amendment

immunity applies regardless of whether a plaintiff seeks declaratory or injunctive relief, or

money damages. See Fed. Mar. Comm’n, 535 U.S. at 765-66.

The Eleventh Amendment does not automatically destroy a federal court’s jurisdiction

to decide lawsuits brought against a state. See Wis. Dept. of Corrs. v. Schacht, 524 U.S. 381,

389 (1998). Rather, the Eleventh Amendment grants states a legal power to assert sovereign

immunity as a defense. See id. A state may, therefore, waive its sovereign immunity. See

id. The decision to waive Eleventh Amendment immunity is, however, “altogether

voluntary” and we will not readily find such a waiver. Coll. Sav. Bank v. Fla. Prepaid

Postsecondary Educ. Expense Bd., 527 U.S. 666, 675 (1999). In most cases, waiver of

sovereign immunity occurs either when a state voluntarily invokes the jurisdiction of a

federal court, or when a state makes a “clear declaration” that it intends to submit itself to a

federal court’s jurisdiction. Id. at 675-76. A state’s removal of a case to federal court is a

voluntary invocation of federal jurisdiction sufficient to waive that state’s Eleventh

3
Amendment immunity. See Lapides v. Bd. of Regents, 535 U.S. 613, 624 (2002).

In terms of scope, Eleventh Amendment immunity extends to states and state entities

but not to counties, municipalities, or other local government entities. See Mt. Healthy City

Sch. Dist. v. Doyle, 429 U.S. 274, 280 (1977). To determine the category into which a given

entity falls, we consider whether that entity is, or is not, an “arm of the state.” Id. The

answer to this question depends, in large part, upon our analysis of the “nature of the entity

created by state law.” Regents of the Univ. of Cal. v. Doe, 519 U.S. 425, 429 & n.5 (1997);

Sturdevant v. Paulsen, 218 F.3d 1160, 1164 (10th Cir. 2000). If a state entity is more like

a political subdivision – such as a county or city – than it is like an instrumentality of the

state, that entity is not entitled to Eleventh Amendment immunity. See Mt. Healthy, 429

U.S. at 280; Sturdevant, 218 F.3d at 1164-65.

We look to four primary factors in determining whether an entity constitutes an “arm

of the state.” Mt. Healthy, 429 U.S. at 280. First, we assess the character ascribed to the

entity under state law. Simply stated, we conduct a formalistic survey of state law to

ascertain whether the entity is identified as an agency of the state. See Sturdevant, 218 F.3d

at 1164, 1166. Second, we consider the autonomy accorded the entity under state law. This

determination hinges upon the degree of control the state exercises over the entity. See id.

at 1162, 1164, 1166. Third, we study the entity’s finances. Here, we look to the amount of

state funding the entity receives and consider whether the entity has the ability to issue bonds

or levy taxes on its own behalf. See id. Fourth, we ask whether the entity in question is

concerned primarily with local or state affairs. In answering this question, we examine the

4
agency’s function, composition, and purpose. See id. at 1166, 1168-69.

II.

We recognize that we are not writing on a blank slate. The GRDA has been in

existence since 1935. In the intervening period, the agency has been a party to multiple

lawsuits in both state and federal courts. For example, in Wyoming v. Oklahoma, 502 U.S.

437, 437 (1992), the Supreme Court referred to the GRDA as “a state agency.” We ourselves

have stated the GRDA is an “agency of the State of Oklahoma.” Grand River Dam Auth. v.

Fed. Power Comm’n, 246 F.2d 453, 454 (10th Cir. 1957); see also Dalrymple v. Grand River

Dam Auth., 145 F.3d 1180, 1182 (10th Cir. 1998) (referring to the GRDA as “a state

agency”). Because these categorizations of the GRDA are all likely dicta, however, we

proceed to consider the status of the GRDA anew. Eleventh Amendment immunity is a

question of federal law and our review is de novo. See Sturdevant, 218 F.3d at 1164. We

give deference to state court decisions regarding whether a given entity is an arm of the state,

but we do not view these rulings as dispositive. See id.

First, we examine the character of the GRDA under Oklahoma law. The GRDA’s

foundational statute describes the GRDA as “a governmental agency of the State of

Oklahoma.” 82 Okla. Stat. § 861. Other Oklahoma statutes also explicitly classify the

GRDA as a state entity. See 62 Okla. Stat. § 695.3(4) (“‘State Governmental Entity’ means

the State of Oklahoma or any agency . . . or other instrumentality of state government . . .

including . . . [the] Grand River Dam Authority.”); 82 Okla. Stat. § 861A(A) (“The Grand

5
River Dam Authority . . . is a nonappropriated agency of the State of Oklahoma.”). In

addition, the Supreme Court of Oklahoma has declared, on more than one occasion, that the

GRDA is an agency of the state. See Mustain v. Grand River Dam Auth., 68 P.3d 991, 1000

(Okla. 2003) (stating the GRDA “is a state agency”); Sheldon v. Grand River Dam Auth.,

76 P.2d 355, 361 (Okla. 1938) (finding the GRDA was created “for the purpose of

conducting a state function”). Both Oklahoma statutory and case law, therefore, expressly

identify the GRDA as an agency of the state of Oklahoma.2

Second, we assess the extent of the State of Oklahoma’s control over the GRDA.

Oklahoma law circumscribes the GRDA’s ability to deal freely with the property under its

control. For example, Oklahoma law specifically prohibits the GRDA from encumbering its

property. See 82 Okla. Stat. § 874. State law regulates the GRDA’s acquisition and sale of

property, as well as the GRDA’s ability to lease the property it administers. See id. The

Oklahoma Legislature has further precluded the GRDA from preventing the “free public use

of its lands and lakes” for recreational purposes. Id. § 875(A).

Oklahoma law also regulates the GRDA’s relationship with its employees. All GRDA

employees are “state employees” generally “subject to the same benefits and restrictions”

that apply to the employees of other state agencies. Id. § 861A(A). Various members of

2
We note that in 62 Okla. Stat. § 695.3(4) & (5) the Oklahoma Legislature draws
a clear distinction between a “State Governmental Entity,” such as the “Grand River Dam
Authority,” and a “Local Governmental Entity,” such as a county or city.

6
Oklahoma’s executive and legislative branches have the power to appoint five of the

GRDA’s seven-member board of directors. See id. § 863.2(F). The Governor of Oklahoma

retains the power to remove any director for “just cause.” Id. § 863.2(M). Other GRDA

employees are brought under the protection of the State of Oklahoma’s Merit System. See

74 Okla. Stat. § 840-5.7. In addition, Oklahoma law requires the GRDA, and certain GRDA

employees, to participate in the Oklahoma Law Enforcement Retirement System. See 47

Okla. Stat. § 2-315(B).

The State of Oklahoma also places restrictions on the GRDA’s handling of its

finances. Funds “generated, received and expended” by the GRDA are classified as “public

funds.” 82 Okla. Stat. § 861A(A). The GRDA’s treatment of these funds is circumscribed

by the same “state laws and regulations” that apply to the use of public funds by “all other

state agencies.” Id. In particular, Oklahoma imposes strict requirements for both the

investment and disbursal of the GRDA’s surplus funds. See id. § 865.

The GRDA is further subject to various auditing and reporting requirements. All state

agencies, including the GRDA, must provide the Director of State Finance with information

related to their income, disbursements, and other transfers of funds. See 62 Okla. Stat.

§ 7.3(A). More specifically, Oklahoma law prescribes the manner in which the GRDA’s

records must be kept and requires that all of the GRDA’s accounts and contracts “be open

to public inspection.” 82 Okla. Stat. § 866; see also id. § 861A(C). Furthermore, Oklahoma

law establishes the time and manner in which audits of the GRDA’s accounts are performed.

See id. § 866. The GRDA is required to provide the results of these audits to Oklahoma’s

7
Governor, State Treasurer, State Auditor, and Director of State Finance. See id. All of this,

suffice it to say, demonstrates that the State of Oklahoma exercises significant supervision

and control over the GRDA’s internal and external affairs.

Third, we survey the GRDA’s finances. The GRDA is an “unappropriated agency,”

which simply means the state’s annual budget does not provide money for the agency’s

operations. 82 Okla. Stat. § 861A(A). Annual appropriations are unnecessary because the

GRDA generates revenue. These revenues constitute “public funds . . . subject to state laws

and regulations governing the receipt and expenditure of public funds in the same manner

as all other state agencies.” Id. Oklahoma law thus categorizes the GRDA’s revenues as

state funds. That these revenues never enter the confines of the state treasury is immaterial.

Oklahoma law provides that the GRDA is liable for any damages it may cause. See id.

§ 862(s). Any judgment entered against the GRDA must be paid out of the GRDA’s

revenues. See id. § 869(A). These revenues are state funds.3 See id. § 861A(A).

3
Agricultural suggests the GRDA’s revenues do not constitute state funds because
they are not issued from the state treasury. This argument rests on the faulty assumption
that all state funds must be held in the state treasury. A state may, however, choose to
retain state funds elsewhere. In this case, Oklahoma allows the GRDA to retain most of
the revenue it generates to fund its operations. This decision makes sense. Otherwise, the
State of Oklahoma would have to engage in two additional actions to achieve the same
result. First, the GRDA would have to send its revenues to the state treasury. Second, the
state treasury would have to send these funds back to the GRDA. The focus of our
financial analysis is on whether state funds are at stake, not on where such funds are held.
See Regents of the Univ. of Cal., 519 U.S. at 430; Sturdevant, 218 F.3d at 1165.

8
The Oklahoma legislature has also invested the GRDA with the power “to issue

revenue bonds for its corporate purposes,” subject to the oversight of the State Bond

Oversight Commission. Id. § 870; see also 62 Okla. Stat. § 695.2 et seq. Oklahoma law,

however, specifically precludes the GRDA from levying taxes. See 82 Okla. Stat. § 861.

We have previously held that the absence of taxing authority and the ability to issue bonds,

with certain state guidance, renders an agency more like an arm of the state than a political

subdivision. See Sturdevant, 218 F.3d at 1169-70. Consequently, we conclude that the

GRDA’s finances also indicate that it is an arm of the state.

Fourth, we consider whether the GRDA is concerned primarily with local or state

affairs. The Oklahoma Legislature created the GRDA as a “conservation and reclamation

district,” composed of sections of twenty four Oklahoma counties. 82 Okla. Stat. § 861. The

GRDA’s geographical scope, in tandem with its conservation function, suggests the agency

was designed to fulfill a state purpose. In addition, employees of the GRDA are both

classified and treated as state employees. See 82 Okla. Stat. § 861A(A); supra Part II.B.

Thus, the GRDA’s composition also indicates that it is an arm of the state.

Further, the GRDA oversees “the control, storing, preservation and distribution of the

waters of the Grand River and its tributaries, for irrigation, power and other useful purposes.”

82 Okla. Stat. § 861. The agency also regulates “the conservation and development of the

forests, minerals, land, water and other resources” within its boundaries. Id. Oklahoma law

grants the GRDA authority to promulgate safety rules for the lakes it administers, and allows

9
the agency to issue certain water-related permits and licenses. See 63 Okla. Stat. § 4204;

id. § 4205; 82 Okla. Stat. § 875; id. § 889. The GRDA’s functions thus mirror the

conservation and regulatory missions of state-run utilities, parks, and recreation areas across

the nation.4 We have no difficulty in concluding the GRDA is primarily concerned with

state, rather than local, affairs.

III.

Based on the foregoing analysis, we hold the GRDA is an agency of the State of

Oklahoma and is thus entitled to claim Eleventh Amendment immunity from suit in federal

court. Of course, this immunity may be waived. See Lapides, 535 U.S. at 618. Agricultural

alleges the GRDA waived its sovereign immunity in the present case when it removed an

underlying action to federal court. Consequently, we proceed to determine whether the

GRDA has effectively waived its sovereign immunity.

An arm of the state may waive its sovereign immunity by removing a case to federal

court. See Schrier v. Univ. of Colo., 427 F.3d 1253, 1268 (10th Cir. 2005). Waiver-by-

removal, only occurs, however, when a state “purposefully seeks a federal forum.” Id. The

case before us originated in federal court. As a result, the GRDA never had the opportunity

4
We find no merit in Agricultural’s assertion that the GRDA does not function
as a state sovereign because the Federal Government heavily regulates some of its
activities. Many state pursuits are subject to federal regulation. Absent a valid waiver of
state sovereign immunity – either by Congress or the state – federal regulation has no
impact on a state’s, or its agencies’, sovereign status. See MCI Telecomms. Corp. v. Pub.
Servs. Admin., 216 F.3d 929, 935-37 (10th Cir. 2000); see also MCI Telecomms. Corp v.
Bell Atlantic-Pennsylvania, 271 F.3d 491, 504-06 (3d Cir. 2001).

10
to seek out a federal forum. The waiver-by-removal doctrine, therefore, cannot apply.5

A state entity may also waive its sovereign immunity by voluntarily invoking federal

court jurisdiction. See McLaughlin v. Bd. of Trustees of State Colls., 215 F.3d 1168, 1170

(10th Cir. 2000). Litigating the merits of a claim may serve as a voluntary invocation of

federal court jurisdiction sufficient to waive a state entity’s sovereign immunity. See id.;

Estes v. Wyo. Dept. of Transp., 302 F.3d 1200, 1205 (10th Cir. 2002). Here, the GRDA

immediately contested federal court jurisdiction based on its right to Eleventh Amendment

immunity. We, therefore, hold that the GRDA has not waived its sovereign immunity in the

present case.

AFFIRMED.

5
Agricultural’s waiver argument is similarly without merit. Whether the GRDA
has occasionally chosen to remove a lawsuit filed in state court to federal court – or
decided not to assert its sovereign immunity when faced with other suits filed in federal
court – has no bearing on whether the GRDA has waived its sovereign immunity in the
case now before us. See Schacht, 524 U.S. at 389.