Hutto v. South Carolina Retirement System , 773 F.3d 536 ( 2014 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-1523
GAIL M. HUTTO; ELIZABETH W. HODGE; MARGARET B. LINEBERGER;
LYNN R. ROGERS; NANCY G. SULLIVAN; JANE P. TERWILLIGER;
JULIAN W. WALLS; DEBRA J. ANDREWS, and all others similarly
situated,
Plaintiffs - Appellants,
v.
THE SOUTH CAROLINA RETIREMENT SYSTEM; THE POLICE OFFICERS
RETIREMENT SYSTEM; THE SOUTH CAROLINA RETIREMENT SYSTEMS
GROUP TRUST; NIKKI R. HALEY, Governor of South Carolina, in
her official capacity as ex officio Chairwoman of the South
Carolina Budget and Control Board; CURTIS M. LOFTIS, JR.,
Treasurer of the State of South Carolina, in his official
capacity as an ex officio member of the South Carolina
Budget and Control Board; RICHARD ECKSTROM, Comptroller
General of the State of South Carolina, in his official
capacity as an ex officio member of the South Carolina
Budget and Control Board; HUGH K. LEATHERMAN, Chairman of
the South Carolina Senate Finance Committee, in his
official capacity as an ex officio member of the South
Carolina Budget and Control Board; W. BRIAN WHITE, Chairman
of the South Carolina House of Representatives Ways and
Means Committee, in his official capacity as an ex officio
member of the South Carolina Budget and Control Board;
MARCIA S. ADAMS, in her official capacity as Executive
Director of the South Carolina Budget and Control Board;
DAVID K. AVANT, in his official capacity as Executive
Director of the South Carolina Public Employee Benefit
Authority,
Defendants - Appellees.
Appeal from the United States District Court for the District of
South Carolina, at Florence. J. Michelle Childs, District
Judge. (4:10-cv-02018-JMC)
Argued: October 29, 2014 Decided: December 5, 2014
Before NIEMEYER, WYNN, and THACKER, Circuit Judges.
Affirmed by published opinion. Judge Niemeyer wrote the
opinion, in which Judge Wynn and Judge Thacker joined.
ARGUED: Richard Harpootlian, RICHARD A. HARPOOTLIAN, PA,
Columbia, South Carolina, for Appellants. Tina Marie Cundari,
SOWELL, GRAY, STEPP, & LAFFITTE, LLC, Columbia, South Carolina,
for Appellees. ON BRIEF: Graham L. Newman, Christopher P.
Kenney, RICHARD A. HARPOOTLIAN, PA, Columbia, South Carolina;
James M. Griffin, Margaret N. Fox, LEWIS, BABCOCK & GRIFFIN,
LLP, Columbia, South Carolina, for Appellants. Robert E. Stepp,
SOWELL, GRAY, STEPP, & LAFFITTE, LLC, Columbia, South Carolina,
for Appellees.
2
NIEMEYER, Circuit Judge:
South Carolina public employees commenced this class action
challenging the constitutionality of the South Carolina State
Retirement System Preservation and Investment Reform Act, 2005
S.C. Acts 1697 (“the 2005 Act”). That Act amended South
Carolina’s retirement laws by requiring public employees who
retire and then return to work to make, beginning on July 1,
2005, the same contributions to state-created pension plans as
pre-retirement employees but without receiving further pension
benefits. The plaintiffs claimed that the 2005 Act effected a
taking of their private property, in violation of the Takings
Clause of the Fifth Amendment and the Due Process Clause of the
Fourteenth Amendment. They named as defendants two state-
created pension plans, in which they are participants; the South
Carolina Retirement Systems Group Trust (“the Trust”), which
holds the pension plans’ assets; and state officials serving as
trustees and administrators of the pension plans. For relief,
they sought repayment of all contributions withheld since
July 1, 2005, and injunctive relief prohibiting the future
collection of such contributions.
Pursuant to the defendants’ motion, the district court
dismissed the complaint on the ground that all of the defendants
are entitled to sovereign immunity.
3
We affirm, albeit on reasoning slightly different from that
given by the district court. We conclude, as did the district
court, that the pension plans and the Trust are arms of the
State of South Carolina and therefore have sovereign immunity.
Likewise, we conclude that the state officials sued in their
official capacities for repayment of pension-plan contributions
have sovereign immunity. Finally, we conclude that the state
officials sued in their official capacities for prospective
injunctive relief have sovereign immunity because their duties
bear no relation to the collection of the public employees’
contributions to the pension plans, precluding application of Ex
parte Young, 209 U.S. 123 (1908). In reaching these
conclusions, we reject the plaintiffs’ argument that their
claims under the Takings Clause of the Fifth Amendment are
exempt from the protection of the Eleventh Amendment.
I
The plaintiffs are public employees and participants in two
pension plans created by South Carolina in 1962 -- the South
Carolina Retirement System and the South Carolina Police
Officers Retirement System (collectively, “the Retirement
System”). 1 See S.C. Code Ann. §§ 9-1-20, 9-11-20(1). In their
1
In all, South Carolina has created five pension plans for
public employees, each referred to as a “Retirement System” --
4
complaint, they alleged that they and others similarly situated
are “retired contributing members” of the Retirement System, who
returned to work on or after July 1, 2005, when the 2005 Act
went into effect, and who are, by reason of the 2005 Act,
required “to contribute a portion of their gross earnings” to
the Retirement System “without receiving any additional service
credit or interest on their retirement accounts.” Before
July 1, 2005, retired participants could return to work for a
salary of up to $50,000 without forfeiting the right to receive
retirement benefits and without having to make further
contributions to the Retirement System. See Ahrens v. State,
709 S.E.2d 54, 56-57 (S.C. 2011). But this changed with the
enactment of the 2005 Act, and retired participants who return
to work are now required to make the same contributions to the
Retirement System as pre-retirement employees but without
accruing additional service credit for pension benefits. See
S.C. Code Ann. §§ 9-1-1790(C), 9-11-90(4)(c). The South
Carolina General Assembly made the change to help fund the
the South Carolina Retirement System, the Retirement System for
Judges and Solicitors of the State of South Carolina, the
Retirement System for members of the General Assembly of the
State of South Carolina, the National Guard Retirement System,
and the South Carolina Police Officers Retirement System. S.C.
Code Ann. §§ 9-1-20, 9-8-20, 9-9-20, 9-10-20(A), 9-11-20(1).
5
Retirement System and, in particular, to secure future cost-of-
living adjustments.
The plaintiffs commenced this class action in August 2010
on behalf of themselves and all other participating employees
who returned to work on or after July 1, 2005, alleging that, by
enforcing the 2005 Act, the defendants “confiscated their
private property,” in violation of the Takings Clause of the
Fifth Amendment and their procedural due process rights under
the Fourteenth Amendment. In addition to naming as defendants
the two pension plans, the plaintiffs named the Trust, which
holds the assets of the Retirement System, and a number of state
officials in their official capacities who, as members or
executive directors of the State Budget and Control Board and
the Public Employee Benefit Authority, serve as trustees and
administrators of the Retirement System. The State Budget and
Control Board and the Public Employee Benefit Authority are the
statutorily designated co-trustees of the Retirement System.
S.C. Code Ann. § 9-1-1310(A).
For relief, the plaintiffs sought (1) a declaratory
judgment that the 2005 Act is unconstitutional; (2) an
injunction against its enforcement; (3) an accounting of all
contributions they made to the Retirement System since July 1,
2005; (4) an injunction compelling the return of all such
6
contributions; and (5) an order awarding them attorneys fees and
costs. 2
The Retirement System, the Trust, and the state officials
filed a motion to dismiss the complaint pursuant to Federal
Rules of Civil Procedure 12(b)(1), 12(b)(3), and 12(b)(6),
asserting numerous grounds for their motion, including sovereign
immunity, claim and issue preclusion based on the prior state
litigation, discretionary abstention, and failure to state a
claim upon which relief can be granted. The district court
granted the motion and dismissed the complaint, relying only on
the defendants’ sovereign immunity under the Eleventh Amendment.
2
Before this action was commenced, public employees who
retired and then returned to work before July 1, 2005, also
commenced an action in state court, alleging that the 2005 Act
breached a legislatively created contract with the “old working
retirees” and violated the Takings Clause and the Due Process
Clause of the U.S. Constitution. The South Carolina Supreme
Court rejected the argument, holding that the “old working
retiree statute [did] not create a binding contract between the
State and the old working retirees,” but the court did remand
the case to the trial court “for a case by case factual
determination of whether any actions of the State with regard to
individual old working retirees constituted a breach of
contract.” Layman v. State, 630 S.E.2d 265, 271-72 (S.C. 2006).
In 2011, the South Carolina Supreme Court affirmed the circuit
court’s conclusion that forms signed by the old working
retirees, stating that they would not be required to pay into
the pension plans, did not create a contract between the State
and the old working retirees. Ahrens, 709 S.E.2d at 58-60.
Because the employees’ claims under the Takings Clause and the
Due Process Clause were “founded on the presumption that a
contractual right ha[d] been unfairly taken away,” the court
also affirmed the circuit court’s grant of summary judgment on
those claims. Id. at 63.
7
With respect to the institutional defendants, the court
determined that “the Retirement Systems should be considered an
arm of the State such that Eleventh Amendment immunity applies
to bar [a federal] court from hearing the claim.” Hutto v. S.C.
Ret. Sys., 899 F. Supp. 2d 457, 473 (D.S.C. 2012). And
“[b]ecause Plaintiffs seek monetary damages,” it held that the
claims against the individual defendants were similarly barred.
Id. at 475 n.14. Having found that all of the defendants were
immune by reason of sovereign immunity, the court declined to
address the defendants’ remaining grounds for seeking dismissal
of the action.
The plaintiffs filed a motion for reconsideration under
Rule 59(e), asserting that the district court erred in
dismissing their claims for a declaratory judgment and
injunctive relief against the state officials serving in their
official capacities. They relied on Ex parte Young, 209 U.S.
123 (1908), which created an exception to Eleventh Amendment
immunity with respect to claims for prospective injunctive
relief to remedy ongoing violations of federal law. The
district court denied the motion because, “in seeking to bar the
enforcement of [the 2005 Act], which requires Plaintiffs to pay
into the Retirement System, Plaintiffs’ requested relief is
undeniably monetary” and because an injunction ordering the
8
return of the contributions already withheld “would ultimately
impact the State treasury.”
This appeal followed.
II
The Eleventh Amendment shields a state entity from suit in
federal court “if, in [the entity’s] operations, the state is
the real party in interest,” in the sense that the “named party
[is] the alter ego of the state.” Ram Ditta v. Md. Nat’l
Capital Park & Planning Comm’n, 822 F.2d 456, 457 (4th Cir.
1987).
The plaintiffs contend that the Retirement System and the
Trust do not have the sovereign immunity afforded a State under
the Eleventh Amendment because they are “non-state entit[ies]”
and that the district court’s contrary conclusion was based on
an erroneous application of the factors articulated in Ram Ditta
for determining whether an entity is an alter ego of the State.
They argue, “[T]he District Court should have given effect to
the express, unambiguous language of [South Carolina’s
retirement laws] and concluded that the Retirement Systems are
independent corporate entities for which the State has no
financial obligation as indemnitor.”
The defendants contend that “State law makes the financial
obligations of the state Retirement Systems obligations of the
State”; that the State controls the Retirement System; that the
9
pension plans of the Retirement System “operate on a statewide
basis and have statewide concerns”; and that South Carolina law
treats the pension plans as state agencies. The defendants thus
maintain that the Retirement System and the Trust are “arms of
the State and [therefore] immune from suit.”
Whether an action is barred by the Eleventh Amendment is a
question of law that we review de novo. Cash v. Granville Cnty.
Bd. of Educ., 242 F.3d 219, 222 (4th Cir. 2001).
At the outset, we address which party has the burden of
proof when sovereign immunity under the Eleventh Amendment is
raised. While the Supreme Court has described sovereign
immunity as a “jurisdictional bar” that can be raised for the
first time on appeal, Seminole Tribe of Fla. v. Florida, 517
U.S. 44, 73 (1996), and “a constitutional limitation on the
federal judicial power established in Art. III,” Pennhurst State
Sch. & Hosp. v. Halderman, 465 U.S. 89, 98 (1984), it “ha[s] not
decided” whether Eleventh Amendment immunity goes to a court’s
subject-matter jurisdiction, Wis. Dep’t of Corr. v. Schacht, 524
U.S. 381, 391 (1998). Unlike subject-matter jurisdiction, which
cannot be waived, a State can always waive its immunity and
consent to be sued in federal court, Atascadero State Hosp. v.
Scanlon, 473 U.S. 234, 238 (1985), and a court need not raise
the issue on its own initiative, Wis. Dep’t of Corr., 524 U.S.
at 389. Because a defendant otherwise protected by the Eleventh
10
Amendment can waive its protection, it is, as a practical
matter, structurally necessary to require the defendant to
assert the immunity. We therefore conclude that sovereign
immunity is akin to an affirmative defense, which the defendant
bears the burden of demonstrating. In so concluding, we join
every other court of appeals that has addressed the issue. See
Woods v. Rondout Valley Cent. Sch. Dist. Bd. of Educ., 466 F.3d
232, 237-39 (2d Cir. 2006); Fresenius Med. Care Cardiovascular
Res., Inc. v. P.R. & the Caribbean Cardiovascular Ctr. Corp.,
322 F.3d 56, 61 (1st Cir. 2003); 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); Christy v. Pa. Turnpike
Comm’n, 54 F.3d 1140, 1144 (3d Cir. 1995); Baxter v. Vigo Cnty.
Sch. Corp., 26 F.3d 728, 734 n.5 (7th Cir. 1994), superseded by
statute on other grounds as recognized in Holmes v. Marion Cnty.
Office of Family & Children, 349 F.3d 914, 918-19 (7th Cir.
2003); ITSI TV Prods., Inc. v. Agric. Ass’ns, 3 F.3d 1289, 1292
(9th Cir. 1993).
In analyzing whether entities such as the Retirement System
and the Trust are arms of the State, “the most important
consideration is whether the state treasury will be responsible
for paying any judgment that might be awarded.” Ram Ditta, 822
F.2d at 457. Thus, “if the State treasury will be called upon
to pay a judgment against a governmental entity, then Eleventh
11
Amendment immunity applies to that entity.” Cash, 242 F.3d
at 223. If, on the other hand, the State treasury will not be
liable for a judgment, sovereign immunity applies only where the
“governmental entity is so connected to the State that the legal
action against the entity would, despite the fact that the
judgment will not be paid from the State treasury, amount to
‘the indignity of subjecting a State to the coercive process of
judicial tribunals at the instance of private parties.’” Id.
at 224 (quoting Seminole Tribe, 517 U.S. at 58). At bottom,
even though “state sovereign immunity serves the important
function of shielding state treasuries and thus preserving the
States’ ability to govern in accordance with the will of their
citizens, . . . the doctrine’s central purpose is to accord the
States the respect owed them as joint sovereigns.” Fed.
Maritime Comm’n v. S.C. State Ports Auth., 535 U.S. 743, 765
(2002) (internal quotation marks and citations omitted).
A
We address first the most important factor -- whether South
Carolina could be responsible for the payment of a judgment
against the Retirement System and the Trust. A State treasury
is responsible “where the state is functionally liable, even if
not legally liable.” U.S. ex rel. Oberg v. Pa. Higher Educ.
Assistance Agency, 745 F.3d 131, 137 (4th Cir. 2014) (quoting
12
Stoner v. Santa Clara Cnty. Office of Educ., 502 F.3d 1116, 1122
(9th Cir. 2007)) (internal quotation marks omitted); see also
Ristow v. S.C. Ports Auth., 58 F.3d 1051, 1053 (4th Cir. 1995)
(holding that courts must “[c]onsider[] the practical effect of
a putative . . . judgment on the state treasury” (emphasis
added)).
The plaintiffs argue that “the Retirement Systems Act
insulates the state treasury from any judgment entered in this
case” because it provides that “[a]ll agreements or contracts”
with members” of the Retirement System are “solely obligations”
of the individual pension plan and that “the full faith and
credit” of South Carolina or its subdivisions “is not, and shall
not be, pledged or obligated” beyond the State’s contributions
as an employer of participating employees. S.C. Code Ann. §§ 9-
1-1690, 9-11-280.
This statutory language, however, must be read in the
context of Article X, Section 16 of the South Carolina
Constitution, which provides that “[t]he General Assembly shall
annually appropriate funds and prescribe member contributions
for any state-operated retirement system which will insure the
availability of funds to meet all normal and accrued liability
of the system on a sound actuarial basis as determined by the
governing body of the system.” S.C. Const. art. X, § 16
(emphasis added). Any possible ambiguity resulting from reading
13
the retirement laws in the context of the South Carolina
Constitution was put to rest by the South Carolina Supreme Court
in Wehle v. South Carolina Retirement System, 611 S.E.2d 240,
242-43 (S.C. 2005) (per curiam), where the Court stated that,
“should the Board determine that any retirement system is not
funded on a sound actuarial basis, the General Assembly must
provide funding necessary to restore the fiscal integrity of the
System.” Thus, in the event that a judgment in this case were
to render the Retirement System unable to meet its liabilities,
the General Assembly would be obligated to account for any
deficiency by increasing appropriations to the Retirement System
or by requiring employers, including the State itself, to
increase their contributions.
In addition, the State’s ultimate responsibility for the
financial soundness of the Retirement System is reflected by the
fact that the Retirement System’s “actuarial valuation is relied
upon in the preparation of the State’s annual financial
statement and by outside entities in rating the State for
purposes of issuance of bonds.” Wehle, 611 S.E.2d at 242.
Thus, if a judgment in this case were to render the Retirement
System or the Trust insolvent, that insolvency would harm the
State’s credit rating, making it more expensive for the State to
borrow money.
14
Consequently, we conclude that South Carolina remains
functionally liable for any judgment against the Retirement
System and the Trust, which is sufficient to make the Retirement
System and the Trust arms of the State. See Oberg, 745 F.3d
at 137.
We reject the plaintiffs’ various arguments to the
contrary. First, they insist that Article X, Section 16 of the
South Carolina Constitution “merely compels the State to comply
with its funding obligations as an employer,” a requirement that
the General Assembly could not have imposed on future
legislatures by legislative act. And they complain that “the
District Court unnecessarily construed the state Constitution in
a manner that rendered it irreconcilable with Sections 9-1-1690
and 9-11-280.” But the South Carolina Supreme Court, which, of
course, has the last word on the meaning of the South Carolina
Constitution, rejected the plaintiffs’ posited construction of
Article X, Section 16. See Wehle, 611 S.E.2d at 242-43.
Moreover, the plaintiffs’ argument that we must construe a
constitutional provision so as not to conflict with a statute
turns the concept of constitutional supremacy on its head.
Second, the plaintiffs maintain that there is no evidence
that a judgment in their favor would in fact create a shortfall
in the Retirement System’s funds. Yet, given that the
plaintiffs’ complaint alleges that “the members of the proposed
15
class will exceed tens of thousands of persons,” it is surely
plausible that a favorable judgment could create an actuarial
deficit. More importantly, whether or not a judgment would
render the Retirement System insolvent is of little consequence
to the analysis. As the Supreme Court held in Regents of the
University of California v. Doe, 519 U.S. 425 (1997), “it is the
entity’s potential legal liability . . . that is relevant.” Id.
at 431 (emphasis added); see also Owens v. Balt. City State’s
Att’ys Office, 767 F.3d 379, 412 (4th Cir. 2014) (“When an
entity has both state and local characteristics, ‘the entity’s
potential legal liability’ is relevant to the Eleventh Amendment
inquiry” (emphasis added) (quoting Regents, 519 U.S. at 431));
Oberg, 745 F.3d at 137 (“[I]n assessing [the State treasury]
factor, an entity’s ‘potential legal liability’ is key”
(emphasis added) (quoting Regents, 519 U.S. at 431)).
Consequently, “the proper inquiry is not whether the state
treasury would be liable in this case, but whether,
hypothetically speaking, the state treasury would be subject to
‘potential legal liability’ if the retirement system did not
have the money to cover the judgment.” Ernst v. Rising, 427
F.3d 351, 362 (6th Cir. 2005) (quoting Regents, 519 U.S. at
431)); see also Pub. Sch. Ret. Sys. v. State St. Bank & Trust
Co., 640 F.3d 821, 830 (8th Cir. 2011) (similar). Here, as in
Ernst, the “plaintiffs fail to come to grips with the fiscal
16
reality that the State’s funding requirement assuredly could
increase if the retirement system were to use its current and
future funding to pay off a judgment against it.” 427 F.3d
at 362 (emphasis added).
Third, the plaintiffs read much into the fact that the
funds and assets of the Retirement System “are not funds of the
State,” S.C. Code Ann. § 9-1-1310(C), but instead are held “in a
group trust under Section 401(a)(24) of the Internal Revenue
Code,” id. § 9-16-20(C). Section 401(a)(24) of the Internal
Revenue Code requires that group trust funds not be “used for,
or diverted to, purposes other than for the exclusive benefit
of . . . employees or their beneficiaries in order to qualify
as a group trust.” 26 U.S.C. § 401(a)(24). While we have
recognized that holding funds in a segregated account apart from
general state funds does “counsel[] against establishing arm-of-
the-state status,” Oberg, 745 F.3d at 139, that fact is not
dispositive. The plaintiffs also argue that South Carolina is
violating § 401(a)(24) by diverting the contributions they made
to the Retirement System to benefit pre-retirement employees.
But even if South Carolina were indeed in violation of federal
law by using funds contrary to § 401(a)(24), that fact would be
irrelevant to whether a judgment against the Retirement System
or the Trust could potentially affect the State treasury.
Accord Ernst, 427 F.3d at 365.
17
Fourth, the plaintiffs argue that courts generally, and the
district court in particular, should wait until the completion
of discovery and the development of a factual record before
resolving the sovereign immunity issue. But we have often
affirmed Rule 12(b)(6) motions to dismiss on the basis of
Eleventh Amendment immunity. See, e.g., Antrican v. Odom, 290
F.3d 178, 191 (4th Cir. 2002). In Gray v. Laws, 51 F.3d 426,
434 (4th Cir. 1995), upon which the plaintiffs rely for their
argument, we vacated the district court’s dismissal under the
Eleventh Amendment not because the district court failed to
conduct sufficient factfinding, but rather because the Supreme
Court had changed the applicable Eleventh Amendment standard
while the appeal was pending and “the barrenness of the record”
rendered us ill-suited to apply the new standard.
Finally, the plaintiffs contend that we are bound by our
earlier decision in Almond v. Boyles, 792 F.2d 451 (4th Cir.
1986). In Almond, we rejected, “for the reasons stated by the
district court,” a claim that the Eleventh Amendment barred a
suit by a class of visually handicapped operators of vending
stands to recover employer contributions to the North Carolina
Teachers’ and State Employees’ Retirement System, which they
claimed were collected in violation of federal law. Id. at 456.
The district court had found that a judgment against the
retirement system would not come from State funds for three
18
reasons, the “most important[]” of which was that “the
defendants [had] not shown the court that the relief requested
by the plaintiffs would inevitably lead to an additional
appropriation of state funds.” Almond v. Boyles, 612 F. Supp.
223, 228 (E.D.N.C. 1985) (emphasis added). But Almond’s
requirement that the defendants show that a judgment “would
inevitably” be satisfied by the State is fundamentally at odds
with Regents’ subsequent less demanding standard of potential
liability, and therefore Almond’s framework is no longer
applicable.
As the Supreme Court has framed the Eleventh Amendment
inquiry, the question is whether, “[i]f 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.” Hess v.
Port Auth. Trans-Hudson Corp., 513 U.S. 30, 51 (1994) (emphasis
added). In light of Wehle’s interpretation of Article X,
Section 16, the answer to that question here is undoubtedly yes,
and we therefore conclude that a judgment against the Retirement
System and the Trust would implicate South Carolina’s treasury.
B
In addition to South Carolina’s potential funding
obligation, we also conclude that state-dignity factors weigh in
19
favor of finding that the Retirement System and the Trust are
arms of the State. See Fed. Maritime Comm’n, 535 U.S. at 765.
When assessing whether allowing suit against a state entity
would offend a State’s dignity, we consider “(1) the degree of
control that the State exercises over the entity or the degree
of autonomy from the State that the entity enjoys; (2) the scope
of the entity’s concerns -- whether local or statewide -- with
which the entity is involved; and (3) the manner in which State
law treats the entity.” Cash, 242 F.3d at 224.
Under the degree-of-state-control factor, we consider “who
appoints the entity’s directors or officers, who funds the
entity, and whether the State retains a veto over the entity’s
actions,” Oberg, 745 F.3d at 137 (quoting U.S. ex rel. Oberg v.
Ky. Higher Educ. Student Loan Corp., 681 F.3d 575, 580 (4th Cir.
2012)) (internal quotation marks omitted), as well as “whether
an entity has the ability to contract, sue and be sued, and
purchase and sell property, and whether it is represented in
legal matters by the state attorney general,” id. (citations
omitted).
In this case, the Retirement System does have the “power
and privileges of a corporation,” S.C. Code. Ann. §§ 9-1-20, 9-
11-20, including the powers to “sue and be sued,” to “make
contracts,” and to buy and sell property, id. § 33-3-102. But,
contrary to the plaintiffs’ argument, the designation of an
20
entity as a corporation with the power to sue and be sued is not
conclusive in establishing its autonomy. See Oberg, 745 F.3d
at 139 (finding that the autonomy factor “cut both ways,” even
though the entity had the “power to enter into contracts, sue
and be sued, and purchase and sell property in its own name”);
see also State Highway Comm’n v. Utah Const. Co., 278 U.S. 194,
199 (1929) (“It is unnecessary for us to consider the effect of
the general grant of power to sue or be sued . . . -- this suit,
in effect, is against the state and must be so treated”).
And other factors point to state control. The means by
which the entities’ officers are appointed suggest that the
Retirement System is beholden to the State. The State Budget
and Control Board and the Public Employee Benefit Authority,
which are the co-trustees of the Retirement System, and the
Retirement System Investment Commission, which has exclusive
authority to invest the Trust’s assets, see S.C. Code Ann. § 9-
16-20(A), are comprised almost entirely of the Governor of South
Carolina, the State Treasurer, the Comptroller General, the
Chairman of the Senate Finance Committee, the Chairman of the
House Ways and Means Committee, the President Pro Tempore of the
Senate, the Speaker of the House of Representatives, and persons
appointed by these officials. Id. §§ 1-11-10, 9-4-10(B)(1), 9-
16-315(A). Although several of the appointees are required to
be participants in the Retirement System, even those members are
21
selected by state officials. While the trustees and
administrators of the Trust are, of course, required to
discharge their fiduciary duties “solely in the interest of the
retirement systems, participants, and beneficiaries,” id. § 9-
16-40, one would have to be naive to conclude that the State
lacks any influence or control when it has the power of
appointment. State control is further evidenced by the facts
that: (1) the State Treasurer is the custodian of the Trust’s
funds and has sole authority to issue payments from the funds,
id. §§ 9-1-1320, 9-11-250; (2) the Retirement System Investment
Commission must provide quarterly reports to, among others, the
Speaker of the House of Representatives and the President Pro
Tempore of the Senate, id. § 9-16-90(A); (3) the State must
defend and indemnify the members of the Retirement System
Investment Commission, id. § 9-16-370; and (4) an entire title
of the Code of Laws of South Carolina is devoted to the
extensive regulation of the Retirement System and the Trust.
In sum, because of the mixed indications as to control, we
conclude that application of the control factor, if not favoring
sovereign immunity, is inconclusive. Accord Oberg, 745 F.3d at
141 (finding that the control factor “present[ed] a close
question” in light of the fact that the board of directors was
largely composed of “state officials or gubernatorial
appointees” but also “exercise[d] corporate powers including the
22
capacity to contract and sue and be sued”); Almond, 612 F. Supp.
at 227 (holding that the control factor did “not weigh heavily
in favor of either party,” after noting the detailed statutory
regime, the political nature of the appointment of the members
of the board of trustees, the retirement system’s corporate
status, and the board’s powers to sue and be sued and to buy and
sell property).
Turning to the factor considering whether the entities’
concerns are local or statewide, we conclude that this factor
counsels in favor of sovereign immunity. In assessing this
factor, courts must consider whether the entity has statewide or
localized jurisdiction, Cash, 242 F.3d at 226, and “whether an
entity’s functions are ‘classified as typically state or
unquestionably local,’” Harter v. Vernon, 101 F.3d 334, 341 (4th
Cir. 1996) (quoting Hess, 513 U.S. at 45). The Retirement
System covers public employees throughout the State. And like
“educating the [State’s] youth,” Md. Stadium Auth. v. Ellerbe
Becket, Inc., 407 F.3d 255, 265 (4th Cir. 2005), providing for
public employees -- many of whom work for the State -- upon
retirement is an area of statewide concern. Accord Pub. Sch.
Ret. Sys., 640 F.3d at 829 (“[T]he Retirement Systems do not
furnish the type of local services that political subdivisions
typically furnish, such as ‘water service, flood control, [or]
rubbish disposal’” (quoting Moor v. Cnty. of Alameda, 411 U.S.
23
693, 720 (1973))); Ernst, 427 F.3d at 361 (“[W]hen, as in this
case, the retirement system is funded by annual appropriations
from the state legislature, operates in part through the
Michigan Treasury and in part through the State’s Department of
Management and Budget, operates on a statewide basis and
serves . . . state-wide officials, it is fair to say that the
retirement system performs a traditional state function”);
McGinty v. New York, 251 F.3d 84, 98 (2d Cir. 2001) (“Although
the Retirement System does not service state employees
exclusively, it assists in the business of the state by enabling
the state to meet its pension and benefits obligations . . .”).
Finally, the factor assessing how South Carolina treats the
entities points strongly in favor of sovereign immunity. This
factor requires courts to consider “the relevant state statutes,
regulations, and constitutional provisions which characterize
the entity, and the holdings of state courts on the question.”
Harter, 101 F.3d at 342. Title 9 of the Code of Laws of South
Carolina repeatedly uses the term “State agency” to refer to the
South Carolina Retirement System and the term “State agent” to
refer to the Director of the Retirement System. S.C. Code Ann.
§§ 9-3-20(4), 9-5-30(5) to –30(6). The Code also describes the
South Carolina Public Employee Benefit Authority as “an
administrative agency of state government.” Id. § 9-4-10(H).
Similarly, in Layman, the South Carolina Supreme Court
24
characterized the Retirement System as a “state agency” for
purposes of S.C. Code Ann. § 15-77-300, which permits an award
of attorneys fees to the prevailing party in an action brought
by or against the State or any political subdivision thereof.
658 S.E.2d at 326. And in Ahrens, the Court analyzed whether,
as an “agency,” the Retirement System created a contract with
the working retirees. 709 S.E.2d at 58–60. Indeed, South
Carolina courts have frequently referred to the individual
pension plans of the Retirement System as agencies. See, e.g.,
Kennedy v. S.C. Ret. Sys., 549 S.E.2d 243, 251 (S.C. 2001); S.C.
Police Officers Ret. Sys. v. City of Spartanburg, 391 S.E.2d
239, 241 (S.C. 1990).
At bottom, we conclude that the relevant indicators
strongly indicate that the Retirement System and the Trust are
arms of the State of South Carolina and are therefore protected
under the Eleventh Amendment. This conclusion is consistent
with the holdings of the overwhelming number of federal courts
that have held that similar retirement systems in other States
are arms of the State. See Pub. Sch. Ret. Sys., 640 F.3d
at 827–33; Ernst, 427 F.3d at 359–66; McGinty, 251 F.3d at 100;
Mo. State Employees’ Ret. Sys. v. Credit Suisse, N.Y. Branch,
No. 09–4224–CV–C–NKL, 2010 WL 318652, at *6 (W.D. Mo. Jan. 21,
2010); N.M. ex rel. Nat’l Educ. Ass’n of N.M. v. Austin Capital
Mgmt. Ltd., 671 F. Supp. 2d 1248, 1253 (D.N.M. 2009); Cal. Pub.
25
Emps. Ret. Sys. v. Moody’s Corp., Nos. C 09–03628 SI, C 09–03629
JCS, 2009 WL 3809816, at *6 (N.D. Cal. Nov. 10, 2009); Turner v.
Ind. Teachers’ Ret. Fund, No. 1:07–cv–1637–DFH–JMS, 2008 WL
2324114, at *1 (S.D. Ind. June 5, 2008); Larsen v. State
Employees’ Ret. Sys., 553 F. Supp. 2d 403, 420 (M.D. Pa. 2008);
JMB Grp. Trust IV v. Pa. Mun. Ret. Sys., 986 F. Supp. 534, 538
(N.D. Ill. 1997); Sculthorpe v. Va. Ret. Sys., 952 F. Supp. 307,
309–10 (E.D. Va. 1997); Hair v. Tenn. Consol. Ret. Sys., 790 F.
Supp. 1358, 1364 (M.D. Tenn. 1992); Mello v. Woodhouse, 755 F.
Supp. 923, 930 (D. Nev. 1991); Reiger v. Kan. Pub. Emps. Ret.
Sys., 755 F. Supp. 360, 361 (D. Kan. 1990); Retired Pub.
Employees’ Ass’n of Cal., Chapter 22 v. California, 614 F. Supp.
571, 573, 581 (N.D. Cal. 1984); United States v. South Carolina,
445 F. Supp. 1094, 1099–1100 (D.S.C. 1977); 21 Props., Inc. v.
Romney, 360 F. Supp. 1322, 1326 (N.D. Tex. 1973).
III
Turning to the claims against the state officials, the
plaintiffs alleged in their complaint that “[a]s a result of
Defendants’ deduction from [Plaintiffs’] earnings, Plaintiffs
and the class have suffered and will continue to suffer
irreparable and immediate harm and injury to their property and
rights under the laws and Constitution of the United States.”
Accordingly, they requested, among other relief, injunctions
26
(1) “compelling Defendants to immediately return to Plaintiffs
and the class all monies Defendants have deducted as
contributions to the Retirement Systems since July 1, 2005,” and
(2) “preventing for all time enforcement of [the 2005 Act].”
The plaintiffs contend that their requests for injunctive relief
against the state officials are excepted from Eleventh Amendment
protection under Ex parte Young.
First, we interpret the plaintiffs’ request for an
injunction compelling the return of “all monies Defendants have
deducted as contributions to the Retirement Systems” as a claim
for money damages. State officials sued in their official
capacities for retrospective money damages have the same
sovereign immunity accorded to the State. See Buckhannon Bd. &
Care Home, Inc. v. W. Va. Dep’t of Health & Human Res., 532 U.S.
598, 609 n.10 (2001); Edelman v. Jordan, 415 U.S. 651 (1974);
Martin v. Wood, ___ F.3d ___, No. 13-2283 (4th Cir. Nov. 18,
2014). Therefore, as did the district court, we hold that the
plaintiffs’ claim against the state officials for the return of
their contributions is barred by the Eleventh Amendment.
Second, we agree with plaintiffs that their claim for the
second injunction -- to prevent “for all time” the enforcement
of the 2005 Act -- is prospective and seeks to remedy an ongoing
violation of federal law. See Verizon Md., Inc. v. Pub. Serv.
Comm’n, 535 U.S. 635, 645 (2002) (“In determining whether the
27
doctrine of Ex parte Young avoids an Eleventh Amendment bar to
suit, a court need only conduct a “straightforward inquiry into
whether [the] Complaint [1] alleges an ongoing violation of
federal law and [2] seeks relief properly characterized as
prospective’” (first alteration in original) (quoting Coeur
d’Alene Tribe, 521 U.S. at 296 (O’Connor, J., concurring in part
and concurring in the judgment))); see also Va. Office for
Protection & Advocacy v. Stewart, 131 S. Ct. 1632, 1639 (2011);
Constantine v. Rectors & Visitors of George Mason Univ., 411
F.3d 474, 496 (4th Cir. 2005).
Nonetheless, for a reason supported by the record but not
relied on by the district court, we conclude that the district
court was also correct in dismissing the claim seeking the
second injunction against state officials. See Greenhouse v.
MCG Capital Corp., 392 F.3d 650, 660 (4th Cir. 2004) (“[W]e ‘may
affirm the dismissal by the district court upon the basis of any
ground supported by the record even if it is not the basis
relied upon by the district court’” (quoting Ostrzenski v.
Seigel, 177 F.3d 245, 253 (4th Cir. 1999))).
The Ex parte Young exception to Eleventh Amendment immunity
applies only where a party “defendant in a suit to enjoin the
enforcement of an act alleged to be unconstitutional” has “some
connection with the enforcement of the act.” 209 U.S. at 157;
see also S.C. Wildlife Fed’n v. Limehouse, 549 F.3d 324, 333
28
(4th Cir. 2008); Lytle v. Griffith, 240 F.3d 404, 410 (4th Cir.
2001). Thus, we have held that a governor cannot be enjoined by
virtue of his general duty to enforce the laws, Waste Mgmt.
Holdings, Inc. v. Gilmore, 252 F.3d 316, 331 (4th Cir. 2001),
and that an attorney general cannot be enjoined where he has no
specific statutory authority to enforce the statute at issue,
McBurney v. Cuccinelli, 616 F.3d 393, 400 (4th Cir. 2010). In
contrast, we have held that a circuit court clerk bore the
requisite connection to the enforcement of state marriage laws
to be enjoined from enforcing them, because the clerk was
responsible for granting and denying applications for marriage
licenses. See Bostic v. Schaefer, 760 F.3d 352, 371 n.3 (4th
Cir.), cert. denied, 135 S. Ct. 308 (2014).
The requirement that there be a relationship between the
state officials sought to be enjoined and the enforcement of the
state statute prevents parties from circumventing a State’s
Eleventh Amendment immunity. See McBurney, 616 F.3d at 399;
Lytle, 240 F.3d at 412 (Wilkinson, C.J., dissenting). As the
Court explained in Ex parte Young, if the “constitutionality of
every act passed by the legislature could be tested by a suit
against the governor and attorney general, based upon the theory
that the former, as the executive of the State, was, in a
general sense, charged with the execution of all its laws, and
the latter, as attorney general, might represent the state in
29
litigation involving the enforcement of its statutes,” it would
eviscerate “the fundamental principle that [States] cannot,
without their assent, be brought into any court at the suit of
private persons.” 209 U.S. at 157 (quoting Fitts v. McGhee, 172
U.S. 516, 530 (1899)).
In this case, the plaintiffs named as defendants members of
the State Budget and Control Board, the Executive Director of
the State Budget and Control Board, and the Executive Director
of the Public Employee Benefit Authority, seeking to enjoin them
from deducting from the plaintiffs’ paychecks the contributions
mandated by the 2005 Act. The State Budget and Control Board
and the Public Employee Benefit Authority serve as co-trustees
of the Retirement System, S.C. Code Ann. § 9-1-1310, and South
Carolina law vests “general administration and responsibility
for the proper operation” of the Retirement System in the Public
Employee Benefit Authority, id. §§ 9-1-210, 9-11-30. But
neither the State Budget and Control Board nor the Public
Employee Benefit Authority has responsibility for ensuring that
employee contributions to the Retirement System be deducted from
the employees’ paychecks and transmitted to the Retirement
System. Employers of covered employees are required to deduct
the requisite contributions from the employees’ paychecks and
furnish the withheld amounts to the Retirement System, and any
person who fails to remit withheld contributions to the
30
Retirement System is “guilty of a misdemeanor and must be
punished by fine or imprisonment, or both.” Id. § 9-11-210(7);
see also id. § 9-1-1160(A). The Code of Laws of South Carolina
nowhere gives the Retirement System, the Trust, or the trustees
and administrators of the Retirement System the authority to
deduct or refuse to deduct funds from participating employees’
paychecks or to prosecute employers who violate their duties.
Instead, the role of the state officials named in the complaint
is merely to wait passively for the funds to be transmitted to
the Retirement System and, once the funds have arrived, to
manage and invest them. As such, the complaint seeks to enjoin
the Retirement System’s trustees and administrators from
participating in a process in which they actually have no role.
Because the state officials named as defendants have no
connection with the enforcement of the 2005 Act -- specifically
S.C. Code Ann. § 9-1-1790(C) and § 9-11-90(4)(c) -- we hold that
the Ex parte Young exception does not apply and that the state
officials are thus entitled to Eleventh Amendment immunity on
the claims seeking prospective injunctive relief.
IV
The plaintiffs contend that notwithstanding any Eleventh
Amendment protection to which the defendants may be entitled,
“sovereign immunity never bars a constitutional takings claim.”
They maintain that the Takings Clause provides an absolute
31
guarantee of just compensation when private property is taken
for public use and argue that if the States were immune from
takings claims in federal court, the Fifth Amendment would be
“effectively abrogated” by the Eleventh Amendment.
It is true that under the Eleventh Amendment, States enjoy
sovereign immunity except “where there has been ‘a surrender of
this immunity in the plan of the convention.’” Coeur d’Alene
Tribe of Idaho, 521 U.S. at 267 (quoting Principality of Monaco
v. Mississippi, 292 U.S. 313, 322-23 (1934)). But the Supreme
Court has recognized that “the plan of the convention” or the
States themselves have surrendered sovereign immunity in only
six contexts: (1) when a State consents to suit; (2) when a case
is brought by the United States or another State; (3) when
Congress abrogates sovereign immunity pursuant to Section 5 of
the Fourteenth Amendment or pursuant to the Bankruptcy Clause;
(4) when a suit is brought against an entity that is not an arm
of the State; (5) when a private party sues a state official in
his official capacity to prevent an ongoing violation of federal
law; and (6) when an individual sues a state official in his
individual capacity for ultra vires conduct. See S.C. State
Ports Auth. v. Fed. Maritime Comm’n, 243 F.3d 165, 176-77 (4th
Cir. 2001), aff’d, 535 U.S. 743 (2002). The plaintiffs now
invite us to recognize a seventh exception for claims brought
under the Takings Clause of the Fifth Amendment.
32
The Fifth Amendment provides that “private property [shall
not] be taken for public use, without just compensation,” U.S.
Const. amend. V, and the Eleventh Amendment provides that “[t]he
judicial power of the United States shall not be construed to
extend to any suit . . . , commenced or prosecuted against one
of the United States” by citizens of that State or another
State, id. amend. XI. While there is arguably some tension
between the protections of these amendments, that tension is not
irreconcilable.
Just as the Constitution guarantees the payment of just
compensation for a taking, so too does the Due Process Clause
provide the right to a remedy for taxes collected in violation
of federal law. See, e.g., McKesson Corp. v. Div. of Alcoholic
Beverages & Tobacco, 496 U.S. 18, 51 (1990). But despite the
constitutional requirement that there be a remedy, the Supreme
Court expressly noted in Reich v. Collins, 513 U.S. 106 (1994),
that “the sovereign immunity [that] States enjoy in federal
court, under the Eleventh Amendment, does generally bar tax
refund claims from being brought in that forum.” Id. at 110
(second emphasis added). To ensure that taxpayers possess an
avenue for relief, the Court held that state courts must hear
suits to recover taxes unlawfully exacted, the “sovereign
immunity [that] States traditionally enjoy in their own courts
notwithstanding.” Id.; cf. Alden v. Maine, 527 U.S. 706, 740
33
(1999) (holding that Congress cannot subject States to suits in
state courts but taking care not to overrule Reich). Reasoning
analogously, we conclude that the Eleventh Amendment bars Fifth
Amendment taking claims against States in federal court when the
State’s courts remain open to adjudicate such claims.
South Carolina courts have long recognized a right of
persons to sue the State for unconstitutional takings. See
Graham v. Charleston Cnty. Sch. Bd., 204 S.E.2d 384, 386 (S.C.
1974) (“In this jurisdiction neither the State nor any of its
political subdivisions is liable in an action ex delicto unless
by express enactment of the General Assembly, except where the
acts complained of, in effect, constitute a taking of private
property for public use without just compensation” (emphasis
added)), overruled on other grounds by McCall v. Batson, 329
S.E.2d 741 (S.C. 1985). Because the plaintiffs can have their
takings claims heard in South Carolina state courts, the
Eleventh Amendment does not render the Takings Clause an empty
promise. But in concluding that the Fifth Amendment Takings
Clause does not, in this case, trump the Eleventh Amendment, we
do not decide the question whether a State can close its doors
to a takings claim or the question whether the Eleventh
Amendment would ban a takings claim in federal court if the
State courts were to refuse to hear such a claim.
34
The plaintiffs direct our attention to numerous cases in
which suits to recover property illegally seized by the
government were held not to have been barred by sovereign
immunity. But in none of those cases did the plaintiffs sue
either the sovereign itself or its alter ego. For example, in
United States v. Lee, 106 U.S. 196, 222 (1882), the Court
permitted an ejectment action to proceed against federal
officers who served as custodians of the estate of General
Robert E. Lee because the suit was not against the United
States. In Tindal v. Wesley, 167 U.S. 204 (1897), the Court
permitted a suit against two state officials to recover property
wrongly held by them on behalf of the State, because the case
was “a suit against individuals,” id. at 221, and the Court
could not perceive how it could “be regarded as one against the
state,” id. at 218. And in Hopkins v. Clemson Agricultural
College of South Carolina, 221 U.S. 636, 648-49 (1911), the
Court permitted a suit alleging a takings claim to proceed
against a university, but under the law in effect at the time,
the fact that the university was set up as a corporation meant
that it was not an arm of the State, see P.R. Ports Auth. v.
Fed. Mar. Comm’n, 531 F.3d 868, 884 (D.C. Cir. 2008). By
contrast, in Larson v. Domestic & Foreign Commerce Corp., 337
U.S. 682, 689 (1949), the Court dismissed an action brought
against the head of the War Assets Administration alleging that
35
he had refused to deliver coal that he had contracted to sell to
the plaintiff and seeking an injunction prohibiting him from
selling or delivering that coal to anyone else, because the
relief sought was “against the sovereign.” And while the Court
has sometimes decided takings claims without considering
Eleventh Amendment immunity, see, e.g., Brown v. Legal Found. of
Wash., 538 U.S. 216 (2003); Lucas v. S.C. Coastal Council, 505
U.S. 1003 (1992), we cannot glean much from that fact given that
a State can waive its Eleventh Amendment protection.
Finally, we note that every other court of appeals to have
decided the question has held that the Takings Clause does not
override the Eleventh Amendment. See Seven Up Pete Venture v.
Schweitzer, 523 F.3d 948, 954 (9th Cir. 2008) (“[W]e conclude
that the constitutionally grounded self-executing nature of the
Takings Clause does not alter the conventional application of
the Eleventh Amendment”); DLX, Inc. v. Kentucky, 381 F.3d 511,
526 (6th Cir. 2004) (“Treating DLX’s claim as a self-executing
reverse condemnation claim, . . . we conclude that the Eleventh
Amendment’s grant of immunity protects Kentucky from that
claim . . .”); Harbert Int’l, Inc. v. James, 157 F.3d 1271, 1279
(11th Cir. 1998) (holding that a takings claim was barred under
the Eleventh Amendment, where state courts provided a means of
redress for such claims); John G. & Marie Stella Kenedy Mem’l
Found. v. Mauro, 21 F.3d 667, 674 (5th Cir. 1994) (holding that
36
the district court “correctly determined that the Foundation’s
Fifth Amendment inverse condemnation claim brought directly
against the State of Texas” was barred by the Eleventh
Amendment); Citadel Corp. v. P.R. Highway Auth., 695 F.2d 31, 33
n.4 (1st Cir. 1982) (“Even if the constitution is read to
require compensation in an inverse condemnation case, the
Eleventh Amendment should prevent a federal court from awarding
it”); Garrett v. Illinois, 612 F.2d 1038, 1040 (7th Cir. 1980)
(“Even though the Fifth Amendment alone may support a cause of
action for damages against the United States, the Eleventh
Amendment stands as an express bar to federal power when a
similar action is brought against one of the states” (citation
omitted)).
* * *
For the reasons given, the judgment of the district court
is
AFFIRMED.
37