United States Court of Appeals
For the First Circuit
No. 03-1587
REDONDO CONSTRUCTION CORP.,
Plaintiff, Appellee,
v.
PUERTO RICO HIGHWAY AND TRANSPORTATION AUTHORITY,
Defendant, Appellant,
HON. JOSÉ M. IZQUIERDO, Secretary of the Department of
Transportation and Public Works in his Official Capacity; Puerto
Rico Public Buildings Authority; HON. ILEANA ECHEGOYEN, in her
Individual and Official Capacity as Secretary of the Puerto Rico
Department of Housing; Conjugal Partnership Doe-Echegoyen; HON.
CARLOS G. LABOY, in his Individual and Official Capacity as
Administrator of the Puerto Rico Housing Administration; Conjugal
Partnership Laboy-Doe; HON. YOLANDA ZAYAS, Secretary of the
Puerto Rico Department of the Family in her Official Capacity;
THE HON. GOVERNOR OF THE COMMONWEALTH OF PUERTO RICO;
DR. FERNANDO FAGUNDO; Conjugal Partnership Fagundo-Doe;
DAVID MONTAÑEZ-DONES; Conjugal Partnership Montañez-Doe;
JOSÉ LLUCH-GARCÍA; Conjugal Partnership Lluch-Doe,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Juan M. Pérez-Giménez, U.S. District Judge]
Before
Torruella, Lynch and Howard,
Circuit Judges.
María P. García-Incera, with whom Luis A. Rivera-Cabrera and
Luis A. Rivera-Cabrera, P.S.C., were on brief, for appellant.
Luis Cotto-Román, with whom Yolanda Benítez de Alegría and
Yolanda Benítez Law Offices, P.S.C., were on brief, for appellee.
February 6, 2004
TORRUELLA, Circuit Judge. Defendant-Appellant Puerto
Rico Highway and Transportation Authority ("the Authority") appeals
the district court's denial of its claim of Eleventh Amendment
immunity as an arm of the state.1 After careful review, we affirm.
I. Background
On December 14, 2001, plaintiff-appellee Redondo
Construction Company ("Redondo") filed a complaint against the
Authority and other defendants in the district court, alleging
numerous constitutional violations and breach of contract under
state law. The factual background of this underlying lawsuit,
which is but one action amongst an array of administrative
proceedings and litigation in both Commonwealth and federal courts,
is irrelevant to the single issue of Eleventh Amendment immunity
before us.
On October 30, 2002, the district court denied injunctive
relief and dismissed all of Redondo's constitutional claims except
those relating to interference with present contractual relations.
Regarding the Authority's sovereign immunity claim, the district
court analyzed the factors outlined in Metcalf & Eddy, Inc. v.
Puerto Rico Aqueduct & Sewer Auth., 991 F.2d 935 (1st Cir. 1993)
and Univ. of Rhode Island v. A.W. Chesterton Co., 2 F.3d 1200 (1st
1
The Commonwealth of Puerto Rico is treated as a state for
purposes of the Eleventh Amendment. De León López v. Corporación
Insular de Seguros, 931 F.2d 116, 121 (1st Cir. 1991).
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Cir. 1993), and concluded that the Authority was not entitled to
immunity as an arm of the state.
The Authority sought reconsideration of the district
court's opinion in a Motion to Amend Judgment filed on November 12,
2002, which was denied by the district court on February 25, 2003.
Meanwhile, on January 15, 2003, the district court partially
granted the Authority's request to stay the federal court
proceedings in response to a November 12, 2002 decision of the
Puerto Rico Court of Appeals confirming that the Department of
Transportation and Public Works had primary jurisdiction in the
administrative proceedings under way.
In the interim, the Authority has filed this appeal to
request review of the district court's sovereign immunity decision
under the collateral order doctrine. Puerto Rico Aqueduct & Sewer
Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 147 (1993) (state
entity claiming to be arm of the state may take advantage of
collateral order doctrine to appeal a district court order denying
a claim of Eleventh Amendment immunity).
II. Analysis
We review de novo the district court's denial of Eleventh
Amendment immunity. Arecibo Cmty. Health Care, Inc. v. Puerto
Rico, 270 F.3d 17, 22 (1st Cir. 2001).
After the district court opinion was issued, this court
reformulated its arm-of-the-state analysis for Eleventh Amendment
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immunity in response to intervening Supreme Court precedent.
Fresenius Med. Care Cardiovascular Resources, Inc. v. Puerto Rico
& the Caribbean Cardiovascular Ctr. Corp., 322 F.3d 56 (1st Cir.
2003), cert. denied, 124 S.Ct. 296 (2003) ("Fresenius"). Fresenius
applied the two-stage framework of Hess v. Port Auth. Trans-Hudson
Corp., 513 U.S. 30 (1994), to the question of whether a special-
purpose public corporation established by a state should enjoy
Eleventh Amendment immunity. Fresenius, 322 F.3d at 64-68. Under
Fresenius, a court must first determine whether the state has
indicated an intention -- either explicitly by statute or
implicitly through the structure of the entity -- that the entity
share the state's sovereign immunity. Id. at 65. If no explicit
indication exists, the court must consider the structural
indicators of the state's intention. If these point in different
directions, the court must proceed to the second stage and consider
whether the state's treasury would be at risk in the event of an
adverse judgment. Id.
This two-stage framework thus "explicitly recognizes the
Eleventh Amendment's twin interests: protection of the fisc and the
dignity of the states." Id. at 64-65 (citing Hess, 513 U.S. at 39-
40). The Supreme Court has recently stressed that, distinct from
financial concerns, the state "also has a 'dignity' interest as a
sovereign in not being haled into federal court." Id. at 63
(citing Federal Marine Comm'n v. S.C. State Ports Auth., 535 U.S.
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743 (2002)). Similarly, the state has both dignitary and fiscal
interests in identifying which state entities are not to share its
immunity. Id. ("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."). A state's
choice to establish an entity excluded from the protection of its
sovereign immunity implicates important policy concerns:
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. 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 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. In Puerto Rico, a breach of
contract action against the Commonwealth is
capped at $75,000.
. . . 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.
Id. at 64 (internal citations omitted). The first stage of the
arm-of-the-state analysis thus "pays deference to the state's
dignitary interest in extending or withholding Eleventh Amendment
immunity from an entity." Id. at 65.
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The Authority argues that, inter alia, the extent of the
Commonwealth's control over the Authority and the Authority's
involvement in the traditional governmental function of building
public roads clearly indicate a legislative intention to structure
the Authority as an arm of the state, despite the Authority's
ability to make expenditures, to charge tolls and fees, to own and
dispose of property, to make contracts, to sue and be sued, and to
issue bonds that create no obligation on the part of the
Commonwealth. The district court considered these, and other,
indicators of the Authority's relationship to the Commonwealth and
concluded that the Authority's administrative and financial
independence excluded it from Eleventh Amendment protection.
On appeal, Redondo contends that the Commonwealth's
intention to deny the Authority the protection of state sovereign
immunity has been clearly established by two decisions in which the
Supreme Court of Puerto Rico held that the statutory structure of
the Authority indicates that it was designed to operate as a
private enterprise, not as an instrumentality of the state.
Morales Morales v. Autoridad de Carreteras, 140 D.P.R. 1 (1996);
Unión Asociación de Empleados Profesionales y Clericales de la
Autoridad de Carreteras v. Labor Relations Bd. of Puerto Rico, 19
P.R. Offic. Trans. 139 (1987). We agree.
The precise role of state court decisions in determining
an entity's entitlement to Eleventh Amendment immunity has not been
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defined. Fresenius, 322 F.3d at 68 n.12. While Eleventh Amendment
immunity is without doubt a question of federal law, "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. v. Doe, 519 U.S. 425, 429 n.5 (1997). In a similar
context, the Supreme Court has found the opinion of the state's
highest court highly persuasive: "But even if our own examination
[of the status of counties under California state law] were not
sufficient for present purposes, we have the clearest indication
possible from California's Supreme Court of the status of
California's counties." Moor v. County of Alameda, 411 U.S. 693,
720 (1973) (holding that counties have sufficiently independent
corporate character to be treated as citizens of California for
diversity purposes).
This court has previously stated that "[w]hile not
dispositive, consistent decisions of a state's highest court
construing an agency's or institution's relationship with the
central government are important guideposts in a reasoned attempt
to locate the agency's or institution's place within the scheme of
things." Metcalf & Eddy, 991 F.2d at 942. In the context of state
waivers of Eleventh Amendment immunity, we have confirmed that
"legislative intent is a matter of state law, on which the highest
court of a state speaks with finality." Della Grotta v. Rhode
Island, 781 F.2d 343, 347 (1st Cir. 1986)(citing Mullaney v.
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Wilbur, 421 U.S. 684, 690-91 (1975)). "Where the highest court of
a state has construed a state statute as intending to waive the
state's immunity to suit in federal court, the state's intent is
just as clear as if the waiver were made explicit in the state
statute." Id. Here, the Supreme Court of Puerto Rico has twice
held that the statutory structure of the Authority clearly
indicates a legislative intent that the Authority act as a private
enterprise outside the protection of the Commonwealth's immunity.
Morales Morales, 140 D.P.R. 1; Unión Asociación de Empleados, 19
P.R. Offic. Trans. 139.2 The Commonwealth's intention thus clearly
expressed, and the first part of the Fresenius test thus met, we
need not proceed to consider the structural indicators of the
entity's status or the risk to the Commonwealth's treasury. The
Commonwealth's highest court has held that the statutory structure
of the Authority indicates that Puerto Rico did not intend it to be
2
State court decisions offering only conclusory determinations of
an entity's legal character or failing to engage in an inquiry
based on analogous jurisprudential concerns might prove less
persuasive. Univ. of Rhode Island, 2 F.3d at 1205 n.8 (treating as
inconclusive state court decisions failing to "engage[] in an
extended analysis of the Board's corporate powers or
characteristics"); Moor, 411 U.S. at 721 n.54 (questioning the
persuasive power of state court decision that failed to undertake
an independent analysis of the legal character of the entity);
Jacintoport Corp. v. Greater Baton Rouge Port Comm'n, 762 F.2d 435,
438 (5th Cir. 1985)(refusing to follow state court opinions because
they "did not deal with the precise question before us, nor was
their inquiry based on even analogous jurisprudential concerns").
However, that is not the case here.
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treated as an arm of the state, and we see no reason to decide
otherwise.3
III. Conclusion
For the reasons stated above, we affirm the district
court's decision that the Puerto Rico Highway and Transportation
Authority is not an arm of the state and thus is not entitled to
immunity from suit under the Eleventh Amendment.
Affirmed.
3
The deference here afforded to the determination of state
legislative intent by the state's highest court does not suggest
that a similar deference would be merited in the converse scenario
of a state court determination that an entity shares the state's
immunity. When the vindication of federal rights is at issue, a
state court determination that the state intends an entity to share
its immunity, while worthy of consideration among other indicators,
does not substitute for an independent analysis under the federal
standard to determine whether the entity should indeed benefit from
the Eleventh Amendment's protection. See, e.g., Hess, 513 U.S. at
45 (denying immunity to a bi-state entity despite state court
decisions describing it as an agency of the states).
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