Immunity of Smithsonian Institution From State Insurance Laws ( 1997 )

Immunity of Smithsonian Institution from State Insurance
Laws
T he federal governm ent im m unity arising from the Suprem acy C lause o f the C onstitution renders the
Sm ithsonian Institution constitutionally im m une from state insurance laws and state licensing
requirem ents that w ould otherw ise apply to its issuance o f gift annuities.
April 25, 1997
M e m o r a n d u m O p in io n fo r th e A s s is t a n t G e n e r a l C o u n s e l
S m it h s o n i a n I n s t it u t io n
This responds to your inquiry regarding the applicability of state insurance laws
and licensing requirements to gift annuities that may be issued by the Smithsonian
Institution (“ Smithsonian” ).1 We conclude that the federal governmental immu­
nity arising from the Supremacy Clause of the Constitution renders such laws
and requirements inapplicable to the Smithsonian. U.S. Const, art. VI, cl. 2;
McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819).
I. BACKGROUND
The Smithsonian Institution was established by federal legislation 150 years ago
to carry out the will of James Smithson, who bequeathed his estate to the United
States “ for the increase and diffusion of knowledge.” Revised Statutes, title 73,
§§5579-5594, preamble. Among other things, the Smithsonian maintains
museums, supports scientific research, and serves as a national center for scholar­
ship, culture, and the arts. See Expeditions Unlimited Aquatic Enters., Inc. v.
Smithsonian Inst., 566 F.2d 289, 296 (D.C. Cir. 1977) (en banc), (describing the
Smithsonian’s function “ as a national museum and center of scholarship” ), cert,
denied, 438 U.S. 915 (1978).
The structure, organization, oversight, and management of the Smithsonian are
established and governed by federal statute. 20 U.S.C. §§41-80q (1994). The
Smithsonian Institution is governed by a Board of Regents composed of the Vice
President, the Chief Justice, three members each from the Senate and the House,
and nine other persons appointed by Congress from outside the government. Id.§42. The Smithsonian receives a substantial portion of its funding from federal
appropriations, and a majority of its employees are from the federal civil service.
See Expeditions Unlimited , 566 F.2d at 296 n.4 (noting that approximately 75%
of the Smithsonian’s operating funds came from federal appropriations). Further,
all moneys “ recovered by or accruing to” the Smithsonian are paid into the
' Letter for Edward J Snyder, Chief, Special Litigation, Tax Division, Department of Justice, from Ildiko P
DeAngehs, Assistant General Counsel, Smithsonian Institution (July 18, 1996) (“ Smithsonian Letter” ) Your letter
was referred to this Office by the Tax Division
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Treasury o f the United States, where they are credited to the Smithsonian account.
20 U.S.C. § 53. The Smithsonian is also required to submit various periodic reports
concerning its operations, expenditures, condition, and salaries to Congress, and
is subject to periodic audits by the General Accounting Office. Id. §§49, 57-
58.
Federal courts and this Office have previously recognized the Smithsonian’s
status as an establishment, agency, or authority of the federal government, at least
in certain contexts. In Expeditions Unlimited, for example, the U.S. Court of
Appeals for the D.C. Circuit held that the Smithsonian constituted an “ inde­
pendent establishment” falling within the “ federal agency” definition of the Fed­
eral Tort Claims Act, 28 U.S.C. §2671 (1994) (“ FTCA” ), and was therefore
entitled to immunity against a defamation action under that act. 566 F.2d at 296.2
A ccord Genson v. Ripley, 681 F.2d 1240 (9th Cir.), cert, denied, 459 U.S. 937(1982).3 Some courts have held that the Smithsonian is an “ authority of the United
States” which therefore falls within the definition of an “ agency” subject to the
requirements of the Federal Privacy Act, Dong v. Smithsonian Inst., 878 F. Supp.
244, 245 (D.D.C. 1995),* and that the Smithsonian is “ an authority of the govern­
ment properly subject to the [Freedom of Information Act].” Cotton v. Adams,
798 F. Supp. 22, 24 (D.D.C. 1992). But see Memorandum for Peter Powers, Gen­
eral Counsel, Smithsonian Institution, from Leon Ulman, Deputy Assistant
Attorney General, Office of Legal Counsel, Re: Coverage o f the Smithsonian
Institution by certain Federal Statutes (Feb. 19, 1976) ( “ Ulman Opinion” ) (dis­
cussed below). This Office has similarly concluded that the Smithsonian con­
stitutes an “ executive agency” for purposes of the Federal Property Act, 40
U.S.C. §§471-544 (1994), although we emphasized that we “ express[ed] no
opinion on whether the Smithsonian could be considered to be in the executive
branch for any other purpose.” 4 M ore recently, this Office has characterized the
Smithsonian as a “ congressional agency.” See The Constitutional Separation o f
Pow ers Between the President a n d Congress, 20 Op. O.L.C. 124, 172 (1996).
* Editor’s Note' Subsequent to the issuance of this opinion, the U.S Court of Appeals for the D.C Circuit reversed
the District Court opinion in D ong , holding that the Smithsonian Institution is not an “ agency” for purposes of
the Privacy Act. See D ong v. Smithsonian !nst.t 125 F 3d 877 (D.C. Cir. 1997), cert, denied , 524 U S 922 (1998).
2The court wrote.
Although the Smithsonian has a substantial private dimension, we conclude that the nature of its func­
tion as a national museum and center o f scholarship, coupled with the substantial governmental role
in funding and oversight, make the institution an "independent establishment of the United States,”
within the “ federal agency” definition
Id at 296 (footnotes omitted). The court further explained “ The substantial federal funding and the important super­
visory role played by governmental officials are the most important factors linking it to the government” Id at
296 n.6.
3See also Polcari v John F. Kennedy Center f o r the Performing Arts, 712 F. Supp. 230, 231 (D.DC. 1989),
holding that the Kennedy Center, established by statute as a bureau of the Smithsonian, see 20 US.C. §§76h-
76q, also constitutes a federal agency for purposes of the FTCA.
4The Status o f the Smithsonian Institution U nder the Federal Property a nd Administrative Services Act, 12 Op.
O.L.C. 122, 124 n.l (1988).
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Immunity o f Smithsonian Institution from State Insurance Laws
Other historical and legal precedents, however, treat the Smithsonian quite dif­
ferently. For example, Chief Justice Taft, speaking as Chancellor of the Smithso­
nian Board of Regents, asserted “ that the Smithsonian Institution is not, and has
never been considered a government bureau. It is a private institution under the
guardianship of the Government.” William H. Taft, The Smithsonian Institution —
Parent o f American Science 16 (1927), quoted in Ulman Opinion at 8. Moreover,
this Office has opined that the Smithsonian is not an “ agency” within the
meaning of the Administrative Procedure Act, the Freedom of Information Act,
the Federal Advisory Committee Act, or the Privacy Act. See Ulman Opinion.
In reaching that conclusion, we observed that the Smithsonian “ performs none
of the purely operational functions of government which have been given such
significant weight in determinations of agency status in other cases” and that “ it
plays no part in the process of administration, regulation, and government.” Id.
at 10.
We are advised that the Smithsonian is now considering the establishment of
a gift annuity program as a funding resource. A gift annuity is an arrangement
whereby a person donates a certain amount of principal to be held in trust by
a non-profit or charitable organization, receiving in return an actuarially calculated
annuity for the remainder of the donor’s life. See Ozee v. American Council on
Gift Annuities, 888 F. Supp. 1318, 1321-22 (N.D. Tex. 1995). Although the
issuance of gift annuities is generally subject to state regulation and licensing
requirements, you indicate your understanding that both the American Red Cross
and the U.S. Holocaust Museum currently operate gift annuity programs “ outside
the various state licensing schemes.” Smithsonian Letter at l.5 You also note
that the Smithsonian has received requests from various states in the past to reg­
ister under their charitable solicitation laws, but has declined to do so on the
ground that it is a federal instrumentality that is immune from such regulation
and registration requirements. Id. at 2.
Against this background, you have asked for our opinion (1) whether the
Smithsonian may properly be subjected to state laws and licensing requirements
regulating gift annuities; and (2) whether the Smithsonian may implement a gift
annuity program without first obtaining prior recognition from individual state
authorities that such state laws do not apply to the Smithsonian.
II. ANALYSIS
Under the intergovernmental immunity doctrine, the states may not directly
regulate the federal government’s operations or property. See Hancock v. Train,
426 U.S. 167, 178-80 (1976); Mayo v. United States, 319 U.S. 441 (1943);
5 For example, the California Department of Insurance has acknowledged that the American Red Cross constitutes
a “ federal instrumentality” and is therefore exempt from California insurance laws and the related requirement
to obtain a state license in order to issue gift annuities in California Letter for U S Department of Justice from
John M. Fogg, Senior Counsel, California Department of Insurance (Oct 15, 1986) (enclosure to Smithsonian Letter)
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M cCulloch v. M aryland, 17 U.S. at 426; Arizona v. Bowsher, 935 F.2d 332, 334
(D.C. Cir.), cert, denied , 502 U.S. 981 (1991). As explained in the Supreme
Court’s landmark decision in M cCulloch, this rule is firmly rooted in the
Supremacy Clause:
It is of the very essence o f supremacy to remove all obstacles to
its action within its own sphere, and so to modify every power
vested in subordinate governments, as to exempt its own operations
from their own influence.
17 U.S. at 427. See also United States v. Montana, 699 F. Supp. 835, 837 (D.
Mont. 1988) ( “ Absent congressional consent, the property and functions of the
United States are immune from regulation or taxation by the several states.” ).
Although the scope o f federal government immunity from state regulation and
taxation has been considerably narrowed over the past several decades, the doc­
trine applies with full force where a state seeks directly to regulate the federal
government. See, e.g., California State Bd. o f Equalization v. Sierra Summit, Inc.,
490 U.S. 844, 848-49 (1989); United States v. New Mexico, 455 U.S. 720, 735
(1982) (excluding certain government contractors from coverage of federal
governmental immunity from state taxation). In North Dakota v. United States,
495 U.S. 423 (1990), the Supreme Court summarized the current state of the law,
as follows:
The Court has more recently adopted a functional approach to
claims o f governmental immunity, accommodating of the full range
of each sovereign’s legislative authority and respectful of the pri­
mary role of Congress in resolving conflicts between the National
and State Governments. Whatever burdens are imposed on the Fed­
eral Government by a neutral state law regulating its suppliers “ are
but normal incidents of the organization within the same territory
of two governments.” A sta te regulation is invalid only if it regu­
lates the United States directly or discrim inates against the Federal
Government o r those with whom it deals.
Id. at 435 (citations omitted; emphasis added). Thus, to the extent that the applica­
tion o f state insurance laws or licensing requirements to the Smithsonian may
be said to “ regulate[] the United States directly,” they are invalid under the fed­
eral governmental immunity doctrine as explained in North Dakota v. United
States ,6
6 Although we have not been provided detailed information on how the various state insurance laws would affect
the proposed gift annuities, we have no indication that they would discriminate against the United States or those
dealing with it within the meaning of the North Dakota standard.
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Immunity o f Smithsonian Institution from State Insurance Laws
In determining whether a state law seeks to “ regulate the United States
directly,” the courts look to whether the provision merely imposes an obligation
or burden on a government contractor, supplier, or employee, see, e.g., id. at 436-
37, or whether it seeks to regulate the federal function itself. As the Supreme
Court explained in holding that North Dakota’s liquor distribution laws, as applied
to suppliers of U.S. military facilities, did not violate the immunity doctrine:
Both the reporting requirement and the labeling regulation operate
against suppliers, not the Government, and concerns about direct
interference with the Federal Government, see City o f D etroit v.
Murray Corp. o f America, 355 U.S. 489, 504—505 (1958) (opinion
of Frankfurter, J.), therefore are not implicated.
Id. at 437. Such state laws do not regulate the Government directly, and are valid
as long as they are not discriminatory against the United States. Id. In contrast,
state laws purporting to regulate the functions or operations of the Defense Depart­
ment or the Internal Revenue Service themselves, for example, would constitute
direct regulation of the United States under the North Dakota formula.
As the Supreme Court further explained in Mayo v. United States:
These inspection fees are laid directly upon the United States.
They are money exactions the payment of which, if they are
enforceable, would be required before executing a function of
government. Such a requirement is prohibited by the supremacy
clause. We are not dealing . . . with a tax upon the salary of an
employee, or . . . with a tax upon the purchases of a supplier, or
. . . with price control exercised over a contractor with the United
States. In these cases the exactions directly affected persons who
were acting for themselves and not for the United States. These
fees are like a tax upon the right to carry on the business of the
post office or upon the privilege of selling United States bonds
through federal officials.
319 U.S. at 447 (citations omitted).
Because the state insurance laws and licensing requirements in question here
would operate directly upon the Smithsonian, the only remaining question is
whether the Smithsonian is a part of the federal government itself. In our view,
the answer to this question is relatively clear.
In an analogous case, the Ninth Circuit held that the American Red Cross was
immune from local taxation based on its status as an instrumentality of the United
States. See United States v. City o f Spokane, 918 F.2d 84 (9th Cir. 1990), cert,
denied, 501 U.S. 1250 (1991). In so holding, the court stressed that the Red Cross
“ is no mere private contractor” but, rather, is “ imbedded in the structure of the
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government” to the extent that it is “ ‘virtually . . . an arm of the Government.’ ”
Id. at 87-88 (quoting Department o f Employment v. United States, 385 U.S. 355,
359-60 (1966)).
Here, we believe that the Smithsonian, like the Red Cross, is best regarded
as an instrumentality of the United States that is “ imbedded in the structure of
the government” — or a “ constituent part” thereof, see United States v. New
Mexico, 455 U.S. at 736 — rather than as a private entity that merely acts on
the Government’s behalf pursuant to contract or agency arrangements. The domi­
nant federal governmental role in the Smithsonian’s governance, funding, oper­
ations, and oversight is critical in this regard. See 41 U.S.C. §§41-58 (1994).
Given these factors, we believe the Smithsonian is “ so closely connected to the
Government that the two cannot realistically be viewed as separate entities,” see
United States v. N ew Mexico, 455 U.S. at 735, for purposes of the intergovern­
mental immunities in question.7 W e therefore believe that the application of state
insurance and licensing laws to the Smithsonian Institution’s operations would
“ regulatef] the United States directly” within the meaning of North Dakota v.
United States, 495 U.S. at 435.
The Supreme Court’s decision in Lebron v. National R.R. Passenger Corp., 513
U.S. 374 (1995), lends additional support to our conclusion. In Lebron, the Court
held that the National Railroad Passenger Corporation ( “ Amtrak” ) constituted an
agency or instrumentality of the United States for purposes o f determining the
constitutional rights of citizens affected by its actions. In so holding, the Court
reasoned that an entity qualifies as “ what the Constitution regards as the Govern­
ment” if it is government-created and government-controlled. Id. at 392. The
Court held that Amtrak was government-created because it was established “ by
special law for the furtherance of governmental objectives,” and held that it was
government-controlled because federally appointed members of Amtrak’s gov­
erning board hold voting control over it. Id. at 400.
The Smithsonian is similarly government-created and government-controlled. It
is established by federal statute to carry out a wide range of educational, cultural,
and scientific functions supported by the Government. See, e.g.. Cotton v. Adams,
798 F. Supp. at 24. Further, all members of its Board of Regents hold their posi­
tions either by virtue of other federal government posts they hold or through
congressional appointment. 20 U.S.C. §§ 42—43. At least for purposes of the inter­
governmental immunity at issue here, we conclude that the Smithsonian must also
be considered “ what the Constitution regards as the Government.” 8
7 In reaching this conclusion, we reiterate our view that the unique, hybrid nature of the Smithsonian requires
that its legal or governmental status must be assessed from the particular standpoint of the constitutional, statutory
or regulatory scheme in which questions arise and that broad generalizations regarding the Smithsonian’s status
are inappropriate. See 12 Op. O.L.C at 123-24
8 We acknowledge that Lebron is distinguishable in at least one essential respect from the question presented
here. In Lebron, even an express congressional declaration that Amtrak was not a government agency or instrumen­
tality, see 49 U.S.C § 24301 (a)(2)-{3) (1994), could not override Amtrak’s functional status as a government entity
because, as the Court stated, “ it is not for Congress to make the final determination of Amtrak’s status as a Govern­
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Immunity o f Smithsonian Institution from State Insurance Laws
CONCLUSION
In light of all the foregoing considerations, we conclude that the Smithsonian
cannot be separated from the United States for purposes of intergovernmental
immunity and is entitled to immunity from state insurance laws and licensing
requirements with respect to its proposed gift annuity program. On the basis of
that immunity, which derives from the Supremacy Clause, we believe the Smithso­
nian may lawfully implement its gift annuity program without first obtaining prior
confirmation from state authorities that such state laws and requirements do not
apply to it. See Johnson v. Maryland, 254 U.S. 51 (1920);9 United States v. M on­
tana, 699 F. Supp. at 836-37. We express no view on the separate issue of
whether it would be prudent or practical to proceed with such programs without
first consulting with state officials asserting a regulatory interest in those pro­
grams.
RANDOLPH D. MOSS
Deputy Assistant Attorney General
Office o f Legal Counsel
ment entity for purposes of determining the constitutional rights of citizens affected by its actions." S13 U.S at
392. In contrast. Congress is free to enact a statutory waiver of the inter-governmental immunity that would otherwise
protect a federal governmental entity. E g , Hancock v. Train, 426 U.S. at 179; Department o f Employment v. United
States, 38S U.S. at 358. However, we find no indication that it has done so with respect to the Smithsonian in
this context.
9 As Justice Holmes stated in his opinion for the Court in Johnson:
It seems to us that the immunity of the instruments of (he United States from state control in the perform­
ance of their duties extends to a requirement that they desist from performance until they satisfy a state
officer upon examination that they are competent for a necessary part of them and pay a fee for permission
to go on
254 U.S. at 57
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