Carpenters Pension Fund v. Maryland Department of Health & Mental Hygiene , 721 F.3d 217 ( 2013 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-1480
CARPENTERS PENSION FUND OF BALTIMORE, MARYLAND, by its
Trustee, Augustus L. Lester; MID−ATLANTIC REGIONAL COUNCIL
OF CARPENTERS HEALTH AND WELFARE FUND, by its Trustee,
Augustus L. Lester; MID−ATLANTIC REGIONAL COUNCIL OF
CARPENTERS SEVERANCE AND ANNUITY FUND, by its Trustee,
Augustus L. Lester; MID−ATLANTIC REGIONAL COUNCIL OF
CARPENTERS, BALTIMORE DISTRICT; CARPENTERS VACATION FUND OF
BALTIMORE, MARYLAND, by its Trustee, Augustus L. Lester;
BALTIMORE CARPENTERS' JOINT APPRENTICESHIP AND TRAINING
COMMITTEE, by its Trustee, Augustus L. Lester,
Plaintiffs – Appellees,
v.
MARYLAND DEPARTMENT OF HEALTH AND MENTAL HYGIENE,
Garnishee – Appellant,
and
TAO CONSTRUCTION COMPANY, INC.,
Defendant,
WACHOVIA BANK,
Garnishee.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. Benson Everett Legg, Senior District
Judge. (1:07-cv-01414-BEL)
Argued: March 22, 2013 Decided: June 26, 2013
Before DUNCAN and DIAZ, Circuit Judges, and HAMILTON, Senior
Circuit Judge.
Reversed and remanded by published opinion. Judge Diaz wrote
the opinion, in which Judge Duncan and Senior Judge Hamilton
joined.
ARGUED: William F. Brockman, OFFICE OF THE ATTORNEY GENERAL OF
MARYLAND, Baltimore, Maryland, for Appellant. Brian G. Esders,
ABATO, RUBENSTEIN & ABATO, PA, Baltimore, Maryland, for
Appellees. ON BRIEF: Douglas F. Gansler, Attorney General of
Maryland, Baltimore, Maryland, for Appellant. Kimberly L.
Bradley, ABATO, RUBENSTEIN & ABATO, PA, Baltimore, Maryland, for
Appellees.
2
DIAZ, Circuit Judge:
We consider whether the jurisdictional shield of the
Eleventh Amendment 1 insulates a state from a writ of garnishment
under Federal Rule of Civil Procedure 69(a). Carpenters Pension
Fund of Baltimore, Maryland, and co-plaintiffs (collectively
“the Fund”) filed this garnishment proceeding against the
Maryland Department of Health and Mental Hygiene (the
“Department”) to collect monies owed to a debtor construction
company. The Department moved to quash the writ of garnishment
on grounds of sovereign immunity and Maryland public policy.
The district court denied the motion, and the Department filed
this interlocutory appeal.
We conclude that a federal proceeding that seeks to attach
the property of a state to satisfy a debt, whether styled as a
garnishment action or an analogous common law writ, violates the
Eleventh Amendment. As the Department is immune from suit, we
reverse and remand with instructions to quash the writ of
garnishment.
1
While this appeal nominally arises under the Eleventh
Amendment, we note “that the sovereign immunity enjoyed by the
States extends beyond the literal text of the Eleventh
Amendment,” Fed. Mar. Comm’n v. S.C. State Ports Auth., 535 U.S.
743, 754 (2002), deriving from the common law immunity that the
states possessed before ratification and which the Constitution
should merely be seen “as evidencing and exemplifying,” Alden v.
Maine, 527 U.S. 706, 728 (1999).
3
I.
The instant litigation originates from an Employee
Retirement Income Security Act action filed by the Fund in May
2007, against Tao Construction Company, Inc. (“Tao”) alleging
deficient employer contributions. When Tao failed to answer the
summons, the district court entered a $16,140.64 default
judgment for the Fund.
In an effort to collect the judgment, the Fund filed an
enforcement action in the federal district court for the
District of Maryland. After failed attempts to locate any
assets owned by Tao, the Fund discovered that Tao’s CEO had
contracted with the Department to perform construction work
under the trade name “Pharoah Building and Construction.”
Finding sufficient evidence that Pharoah was indeed the alter
ego of Tao, the district court issued a writ of garnishment
against the Department for amounts due ($9,963.52) to “Tao d/b/a
Pharoah Building and Construction.” J.A. 41.
The Department moved to quash the writ on grounds of
sovereign immunity and Maryland public policy. In a preliminary
memorandum opinion and order, the district court concluded that
sovereign immunity did not apply because by providing for
immunity from suit only under a public policy doctrine, Maryland
had implicitly waived its sovereign immunity under the Eleventh
Amendment. The court further concluded that Maryland public
4
policy did not foreclose the garnishment action because it
sought “wages” rather than property. Nevertheless, the court
deferred a final ruling on the Department’s motion in
anticipation of a joint status report regarding disputes about
the payment obligations of the underlying contract.
The court subsequently held a hearing, during which the
Department renewed its Eleventh Amendment objection. The court
reaffirmed its conclusion that sovereign immunity did not bar
the writ, but on different grounds. It concluded that the
garnishment action was not a “suit” against a state entity,
noting that although the garnishment action resembled a suit in
the procedural sense, in substance it was not because the
Department was not a real party in interest--but rather a “mere
custodian” of the contract sums. J.A. 99. Accordingly, the
court denied the Department’s motion to quash.
We have jurisdiction 2 under the collateral order doctrine to
review this interlocutory order inasmuch as it involves the
2
We deferred action on the Fund’s motion to dismiss for
lack of subject matter jurisdiction pending arguments. We now
deny that motion.
We do, however, agree with the Fund that we lack appellate
jurisdiction to consider whether Maryland “public policy”
supplies an independent basis for quashing the writ. The
district court’s analysis on that issue in its preliminary
memorandum was advisory, as the court postponed its ruling on
the Department’s motion until its final order. The final order
(Continued)
5
denial of an immunity from suit. See P.R. Aqueduct & Sewer
Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 144-46 (1993).
II.
A.
We review the denial of sovereign immunity de novo. S.C.
Wildlife Fed’n v. Limehouse, 549 F.3d 324, 332 (4th Cir. 2008).
“[T]he States’ immunity from suit is a fundamental aspect
of the sovereignty which the States enjoyed before the
ratification of the Constitution.” Alden, 527 U.S. at 713.
Because that protection inheres with the constitutional notion
of sovereignty that the states retained, Seminole Tribe of Fla.
v. Florida, 517 U.S. 44, 54 (1996), it “extends beyond the
literal text of the Eleventh Amendment,” Fed. Mar. Comm’n, 535
U.S. at 754, to any “suit” that “subject[s] a State to the
coercive process of judicial tribunals,” Seminole Tribe, 517
U.S. at 58. Thus, we consider here whether “the federal
judicial action must fairly be deemed a ‘suit’” against the
state. In re NVR, LP, 189 F.3d 442, 450 (4th Cir. 1999).
In a case testing the Supreme Court’s jurisdiction to
review state court criminal judgments in which the state is a
in this case addressed only the Eleventh Amendment question,
which is the sole issue before us.
6
party, Chief Justice Marshall remarked: “What is a suit? We
understand it to be the prosecution, or pursuit, of some claim,
demand, or request.” Cohens v. Virginia, 19 U.S. (6 Wheat.)
264, 407 (1821). The Supreme Court has scarcely elaborated
since, stating only that a “suit” is to be determined “‘by the
essential nature and effect of the proceeding.’” Idaho v. Coeur
d’Alene Tribe, 521 U.S. 261, 277 (1997) (quoting In re State of
New York, 256 U.S. 490, 500 (1921)).
For our part, we have outlined a more technical analysis
based on “both the procedural posture and substantive nature of
the proceeding.” In re NVR, 189 F.3d at 450. And although our
decision in In re NVR likely does not survive Central Virginia
Community College v. Katz, 546 U.S. 356 (2006), 3 we believe its
general test for determining a “suit”--which the Supreme Court
did not disturb--is nonetheless instructive. Accordingly, we
examine whether the procedural means and substantive end of the
instant writ of garnishment involve the compulsory exercise of
3
In Katz, the Supreme Court held that the Eleventh
Amendment has limited application in the arena of federal
bankruptcy jurisdiction, for the Bankruptcy Clause, U.S. Const.
art. I, § 8, cl. 4, represented a partial cession by the states
of their sovereign immunity. See Katz, 546 U.S. at 373.
Accordingly, it is doubtful that In re NVR, which applied the
Eleventh Amendment to a bankruptcy reorganization that sought
refunds of exempted taxes paid to Maryland and Pennsylvania,
remains viable.
7
federal jurisdiction over the state of Maryland. See In re NVR,
189 F.3d at 450, 452-53.
The procedural inquiry compares the process of the legal
action to that of a typical suit, see Fed. Mar. Comm’n, 535 U.S.
at 756-59 (comparing putative “suit” to “civil litigation”), but
principally as a measure of “the degree of coercion exercised by
the federal court in compelling the state to attend,” In re NVR,
189 F.3d at 452. For a suit qua “suit” involves “[t]he specific
indignity against which sovereign immunity protects[:] the
insult to a State of being haled into court without its
consent.” Va. Office for Prot. & Advocacy v. Stewart, 131 S.
Ct. 1632, 1640 (2011).
The substantive inquiry asks whether the proceeding
“demand[s] something [from the state] by the institution of
process in a Court of justice,” Cohens, 19 U.S. (6 Wheat.) at
408, and “[t]he demand for money from a state is a strong
indication that a federal judicial proceeding is indeed a
‘suit’” as a substantive matter. In re NVR, 189 F.3d at 454;
see also Coeur d’Alene Tribe, 521 U.S. at 277 (“[W]hen the
action is in essence one for the recovery of money from the
state, the state is the real, substantial party in
interest . . . .”). Where relief is premised on federal
jurisdiction over the state, as opposed to where the state is
merely an adjunct to a dispute that “collaterally affects” its
8
interests, 4 id., the proceeding is a suit in the substantive
sense.
B.
We now apply these principles to the instant proceeding,
which is a federal enforcement action by the Fund under Federal
Rule of Civil Procedure 69 to execute their legal judgment
against Tao. The law of the forum state governs such ancillary
proceedings. See Fed. R. Civ. P. 69. As a result, the district
court in this case issued a writ of garnishment, which is a
valid procedural device in Maryland for enforcing a judgment.
See Parkville Fed. Sav. Bank v. Md. Nat’l Bank, 681 A.2d 521,
524 (Md. 1996) (“A writ of garnishment is a means of enforcing a
judgment. It allows a judgment creditor to recover property
owned by the debtor but held by a third party.”).
We begin by noting that procedurally this action resembles
a conventional “suit.” The garnishment proceeding commences
upon the issuance of a writ, see Md. R. 2-645(b)-(c), at which
point the garnishee must file an answer admitting or denying
indebtedness and asserting any applicable defenses “within the
4
An example is a purely in rem proceeding in which “the
state is not in possession of the property.” Tenn. Student
Assistance Corp. v. Hood, 541 U.S. 440, 446-50 (2004). In this
context, “jurisdiction is premised on the res, not on the
persona” of the states, Hood, 541 U.S. at 450, while the remedy
does not involve recovery from the state treasury, Cf. In re
NVR, 189 F.3d at 453-54.
9
time provided by Rule 2-321”--a period which coincides with
answering a complaint in a civil action. See Md. R. 2-645(e).
If the garnishee timely answers and the creditor timely replies,
“the matter shall proceed as if it were an original action
between the judgment creditor as plaintiff and the garnishee as
defendant and shall be governed by the rules applicable to civil
actions.” Md. R. 2-645(g).
It is therefore not surprising that Maryland courts have
designated garnishment actions as “separate cases, even though
filed in the underlying action.” Mayor & City Council of
Baltimore v. Utica Mut. Ins. Co., 802 A.2d 1070, 1083 (Md. Ct.
Spec. App. 2002). In fact, the Maryland Court of Appeals has
“established that garnishment is, in essence, a suit by the
debtor against the garnishee for the use and benefit of the
attaching creditor, and that the rights of the creditor against
the garnishee cannot rise above those of the debtor.” Peninsula
Ins. Co. v. Houser, 238 A.2d 95, 97 (Md. 1968) (emphasis added).
Perhaps most importantly, a garnishee who fails to file an
answer to the writ risks default judgment. See Md. R. 2-645(f).
As it is the compulsory aspect of one sovereign exerting its
jurisdiction over another that concerns the Eleventh Amendment,
see Alden, 527 U.S. at 749, a proceeding that encumbers the
property of a sovereign unless it participates certainly amounts
10
to unconstitutional “coercion exercised by the federal court in
compelling the state to attend,” In re NVR, 189 F.3d at 452.
The Fund’s service of the writ left the Department with two
options: (1) answer the writ and appear before the court to
assert its defenses, or (2) ignore the writ and have a default
judgment imposed against the state treasury. When a similar
ultimatum was present in Federal Maritime Commission, the
Supreme Court stated: “To conclude that this choice does not
coerce a State to participate in an . . . adjudication would be
to blind ourselves to reality.” 535 U.S. at 763-64.
The Fund’s claim that the Department has admitted its
indebtedness to Pharoah is immaterial. The Eleventh Amendment
is a matter of jurisdiction, not liability. See In re NVR, 189
F.3d at 452 (“The Eleventh Amendment, of course, does not free
Maryland from federal law, but simply the jurisdiction of
federal courts.”). It is the mere imposition of federal
jurisdiction on a state, thereby offending its dignity as a
sovereign, that violates this constitutional protection. See
Fed. Mar. Comm’n, 535 U.S. at 769; Alden, 527 U.S. at 715. This
injury results “regardless of the relief sought,” Metcalf and
Eddy, 506 U.S. at 146, and regardless of whether the relief is
actually owed, see Automatic Sprinkler Corp. of Am. V. Darla
Env’t Specialists Inc., 53 F.3d 181, 182 (7th Cir. 1995)
(“Automatic Sprinkler believes that sovereign immunity is
11
inapplicable because it is trying to collect money that the
United States concededly owes to Darla. This does not cut much
ice.”).
Accordingly, we conclude that this garnishment action is a
“suit” in the procedural sense. The state is the named
garnishee, the adversarial posture of the action “demands
affirmative action by Maryland,” In re NVR, 189 F.3d at 453, and
the action is indisputably premised on jurisdiction over the
sovereign.
We also find that the underlying garnishment action
satisfies the substantive criteria of a “suit” because it
demands recovery from the state treasury. See Gray v. Laws, 51
F.3d 426, 433 (4th Cir. 1995). From the outset of the Republic
a sovereign has enjoyed immunity from suits to attach its
property, see The Schooner Exch. v. McFaddon, 11 U.S. (7 Cranch)
116 (1812) (attachment of foreign vessel), and this principle
applies equally to efforts to attach the funds of the sovereign
to satisfy the debt of another, see Mine Safety Appliances Co.
v. Forrestal, 326 U.S. 371, 375 (1945) (“In effect . . . this is
an indirect effort to collect a debt allegedly owed by the
government in a proceeding to which the government has not
consented.”).
As early as 1846, the Supreme Court rejected efforts by
creditors to garnish the wages of navy seamen from the federal
12
treasury. Buchanan v. Alexander, 45 U.S. 20 (1845). The Court
acknowledged that the disbursements were owed, yet applied
sovereign immunity to prevent the disruption on government
functions that would attend the garnishment of public funds held
in the Treasury. Id.
Later in Federal Housing Administration, Region No. 4 v.
Burr, 309 U.S. 242, 245 (1940), the Supreme Court affirmed that
a sovereign is immune from garnishment, but confronted the
separate question of whether Congress waived that immunity in
the National Housing Act, 12 U.S.C. § 1702, by allowing the
Federal Housing Administrator to “sue or be sued.” In
determining “whether or not garnishment comes within the scope
of that authorization,” Burr, 309 U.S. at 244, the Court
concluded:
Clearly the words ‘sue and be sued’ in their normal
connotation embrace all civil process incident to the
commencement or continuance of legal proceedings.
Garnishment and attachment commonly are part and
parcel of the process, provided by statute, for the
collection of debts. In Michigan a writ of
garnishment is a civil process at law, in the nature
of an equitable attachment. But however it may be
denominated, whether legal or equitable, and whenever
it may be available, whether prior to or after final
judgment, garnishment is a well-known remedy available
to suitors.
Id. at 245-46 (emphasis added). The analysis in Burr mirrors
our own. If a waiver from “suit” includes post-judgment
13
garnishment, then certainly the scope of immunity from “suit”
does as well.
Recent precedent has confirmed that “sovereign immunity
bars creditors from attaching or garnishing funds in the
Treasury.” Dep’t of Army v. Blue Fox, Inc., 525 U.S. 255, 264
(1999); see Franchise Tax Bd. of Cal. v. U.S. Postal Serv., 467
U.S. 512, 516-17 (1984) (“[U]nless waived, sovereign immunity
prevents the creditor . . . from collecting a debt through a
judicial order requiring the United States to garnishee the
employee’s salary.”). 5 And we implicitly endorsed this rule
when we noted that Congress needed to legislatively annul
federal sovereign immunity from garnishment. See Diaz v. Diaz,
586 F.2d 1061, 1063 (4th Cir. 1977) (“Indeed, it appears that
the purpose and effect of 42 U.S.C. § 659 is to waive the
sovereign immunity of the United States for garnishment and like
purposes in a limited class of State court actions . . . .”).
Even though the relevant cases mostly concern the immunity
of the federal government from post-judgment attachment, we see
no reason why a state should not enjoy this immunity as well.
5
Our sister circuits have also affirmed this principle.
See Watters v. Wash. Metro. Area Transit Auth., 295 F.3d 36, 40
(D.C. Cir. 2002); Shaw v. United States, 213 F.3d 545, 548 (10th
Cir. 2000); Neukirchin v. Wood Cnty. Head Start, Inc., 53 F.3d
809, 812 (7th Cir. 1995); Ramsdell v. G.H. Coffey Co., 632 F.2d
162, 163 (1st Cir. 1980); May Dep’t Stores Co. v. Smith, 572
F.2d 1275, 1277 (8th Cir. 1978).
14
State and federal immunity from suit are coextensive inasmuch as
both sovereigns derive their immunity from the same common law
heritage. See Maxwell v. Cnty. of San Diego, 708 F.3d 1075,
1087-88 (9th Cir. 2013) (“Tribal sovereign immunity derives from
the same common law immunity principles that shape state and
federal sovereign immunity.”).
Swimming against the current of this precedent, the Fund
can only repeat the reasoning of the district court that the
instant proceeding is not a suit because the Department is a
“mere custodian” for sums it admittedly owes to Pharoah. 6 But
this characterization is true of all monies held in the state
treasury in the sense that they are all allocated for some
governmental purpose or obligation.
At bottom, the Fund’s effort to distinguish the specific
money it requests from the rest of Maryland’s treasury is an
unsuccessful attempt to characterize its garnishment action as
an in rem proceeding. But “[w]hile garnishment has been said to
be a proceeding in rem, it is not, strictly speaking, in rem.
It partakes both of the nature of a proceeding in personam and a
6
The principle precedent the Fund relies on for this
proposition is inapposite. In re Visiting Home Services did not
involve a writ of garnishment issued against a state in federal
court, but rather sought to enjoin a garnishment judgment that
had already been executed against a state agency in state court.
643 F.2d 1356, 1361 (9th Cir. 1981).
15
proceeding in rem.” 38 C.J.S. Garnishment § 2; see also Shaffer
v. Heitner, 433 U.S. 186, 211 n.38 (1977) (“[G]arnishment or
foreign attachment is a proceeding quasi in rem.”).
In this case, the garnishment proceeding has an in personam
character in that it requires jurisdiction over the sovereign
and its treasury. And it is clear that “an action--otherwise
barred as an in personam action against the State--cannot be
maintained through seizure of property owned by the State.
Otherwise, the Eleventh Amendment could easily be circumvented;
an action for damages could be brought simply by first attaching
property that belonged to the State and then proceeding in rem.”
Fla. Dep’t of State v. Treasure Salvors, Inc., 458 U.S. 670, 699
(1982) (plurality).
Regardless of how the Fund characterizes its claim in this
case, it is ultimately seeking recovery from the Maryland
treasury. Accordingly, the Fund’s post-judgment garnishment
action is a suit in the substantive sense.
III.
As a matter of procedure and substance, the garnishment
proceeding we consider here is a “suit” under the Eleventh
Amendment. As a result, the Department is entitled to sovereign
16
immunity. We therefore reverse the district court’s order and
remand with instructions to quash the writ of garnishment.
REVERSED AND REMANDED
17