Ping Lu v. Education Trust Board , 3 N.M. 243 ( 2012 )

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New Mexico Compilation
Commission, Santa Fe, NM
'00'05- 14:27:21 2013.01.16
IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO
Opinion Number: 2013-NMCA-010Filing Date: October 22, 2012
Docket No. 31,363
PING LU, JILL MCKEON, RICHARD
MCKEON, STEPHEN SPENCER, SPENCER
STOPA, and JUDY C. WINNEGAR, on their
own behalf and on behalf of a class of similarly
situated persons,
Plaintiffs-Appellants,
v.
THE EDUCATION TRUST BOARD OF
NEW MEXICO, THE EDUCATION PLAN
TRUST OF NEW MEXICO, and THE STATE
OF NEW MEXICO,
Defendants-Appellees.
APPEAL FROM THE DISTRICT COURT OF SANTA FE COUNTY
Stephen D. Pfeffer, District Judge
Rothstein, Donatelli, Hughes, Dahlstrom,
Schoenburg & Bienvenu, LLP
John C. Bienvenu
Kristina Martinez
Brendan K. Egan
Santa Fe, NM
Keller Rohrback LLP
Benjamin Gould
Seattle, WA
for Appellants
Gary K. King, Attorney General
Matthew E. Jackson, Assistant Attorney General
Santa Fe, NM
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for Appellees
Freedman Boyd Hollander Goldberg
Ives & Duncan, P.A.
Joseph Goldberg
John W. Boyd
Vincent J. Ward
for Amici Curiae
OPINION
VANZI, Judge.
{1} In this appeal, we consider whether the district court properly dismissed the State of
New Mexico as a defendant in a class action suit for breach of contract on the basis of
sovereign immunity. The district court dismissed the State after determining that a specific
statutory provision of the Education Trust Act (the Act), NMSA 1978, Sections 21-21K-1
to -7 (1997, as amended through 2011), addressing sources of monetary recovery for
liabilities or contractual obligations arising under the Act amounted to sovereign immunity
for the State. See § 21-21K-3(C). We conclude that the district court erred in granting the
State’s motion to dismiss on this basis. Accordingly, we reverse.
BACKGROUND
{2} Plaintiffs represent a class of investors in the State of New Mexico’s qualified higher
education tuition programs. Established by the Act, these programs are tax-advantaged
college savings plans established in compliance with Section 529 of the Internal Revenue
Code of 1986 and are thus commonly known as “529 plans.” In New Mexico, the Education
Trust Board (the Board) is the entity responsible for administering the State’s 529 plans, and
the Education Trust Fund (the Fund), located within the State treasury, holds “all money
received pursuant to college investment agreements and prepaid tuition contracts” under the
State’s 529 plans. Sections 21-21K-3(A), -4(A). In addition, the Board has established a
trust (the Trust) which is “a vehicle for the [B]oard to carry out the provisions of the [A]ct
and . . . to protect the financial integrity of the . . . [F]und.” 5.7.30.8(A) NMAC
(11/15/2001) (internal quotation marks omitted).
{3} In 2009, Plaintiffs initiated a class action lawsuit for breach of contract against the
Board and the Education Plan Trust of New Mexico. Plaintiffs later amended their
complaint to add the State of New Mexico as a defendant. Plaintiffs alleged in their
amended complaint that they had entered into written contracts with Defendants in order to
participate in the State’s 529 plans and that Defendants breached these contracts by
mismanaging Plaintiffs’ investments and wrongfully investing in high risk ventures rather
than the conservative fixed-income investments that Plaintiffs had contracted for. In
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addition to seeking compensatory damages for the breach of contract claim, Plaintiffs sought
injunctive and declaratory relief.
{4} After it was added as a defendant, the State moved to dismiss by filing a Rule 1-
012(B)(1) NMRA motion for lack of subject matter jurisdiction. The State’s primary
argument for dismissal involved a sentence within Section 21-21K-3(C) of the Act providing
that “[n]othing in the . . . Act creates any obligation, legal, moral or otherwise, to fulfill the
terms of any college investment agreement or prepaid tuition contract out of any source other
than the . . . [F]und.” The State argued that this language in Section 21-21K-3(C) overrides
NMSA 1978, Section 37-1-23(A) (1976), the statute granting governmental immunity from
contract actions not “based on a valid written contract.” The State also made arguments
grounded in public policy, contending that the Act should be read to limit the State’s liability
in order to protect the public fisc.
{5} After a hearing, the district court granted the State’s motion. In its oral ruling from
the bench, the district court explained that:
I agree with the State there’s no purpose in that second sentence [of Section
21-21K-3(C)] other than to make it clear that it is only the . . . [F]und that is
a source for a recovery. . . . It’s the [c]ourt’s belief and finding that [Section]
21-21K-3[(C)] is a specific statute regarding liabilities of the State which
overrides any general provision such as [Section] 37-1-23. And as such,
there is no waiver of sovereign immunity.
The court subsequently entered a written order dismissing the State as a party to the lawsuit
and finding that “the . . . Fund is the only potential source of recovery from State funds in
this case.”
{6} The court certified the order for interlocutory appeal, noting that the case involved
a “controlling question of law as to which there is substantial ground for difference of
opinion.” See NMSA 1978, § 39-3-4(A) (1999). Plaintiffs subsequently filed an application
for interlocutory appeal with this Court. However, we determined that the district court’s
order of dismissal constituted a final, appealable order with respect to the State and,
therefore, the dismissal conferred an appeal as of right. See Rule 1-054(B)(2) NMRA
(“When multiple parties are involved, judgment may be entered adjudicating all issues as to
one or more, but fewer than all parties. Such judgment shall be a final one unless the court
. . . expressly provides otherwise.”). Plaintiffs and the State thereafter submitted briefing to
this Court, and we permitted the Board to file an amicus brief on its behalf although it is not
a party to this appeal.
DISCUSSION
{7} On appeal, Plaintiffs contend that the district court erroneously granted the State’s
Rule 1-012(B)(1) motion to dismiss based on the State’s claim of sovereign immunity. We
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apply de novo review to a district court’s ruling on a Rule 1-012(B)(1) motion to dismiss for
lack of subject matter jurisdiction. Tri-State Generation & Transmission Ass’n, Inc. v. King,
2003-NMSC-029, ¶ 4, 134 N.M. 467, 78 P.3d 1226; Holguin v. Tsay Corp., 2009-NMCA-
056, ¶ 9, 146 N.M. 346, 210 P.3d 243. In addition, to the extent that this appeal involves
interpretation of the Act, our standard of review is de novo. N.M. Indus. Energy Consumers
v. N.M. Pub. Regulation Comm’n, 2007-NMSC-053, ¶ 19, 142 N.M. 533, 168 P.3d 105(“Statutory interpretation is an issue of law, which we review de novo.”).
{8} It is a well-established and oft-repeated principle in our judicial system that subject
matter jurisdiction is “the power to adjudicate the general questions involved in the claim
and is not dependent upon the state of facts which may appear in a particular case, or the
ultimate existence of a valid cause of action.” Gonzales v. Surgidev Corp., 120 N.M. 133,
138, 899 P.2d 576, 581 (1995); Lyndoe v. D.R. Horton, Inc., 2012-NMCA-___, ¶ 12, ___
P.3d ___, (No. 30,663, July 24, 2012) (defining subject matter jurisdiction as the “power of
a court to hear and determine cases”). Our Supreme Court has directed that “[t]he only
relevant inquiry in determining whether the court has subject matter jurisdiction is to ask
whether the matter before the court falls within the general scope of authority conferred upon
such court by the constitution or statute.” State v. Chavarria, 2009-NMSC-020, ¶ 11, 146
N.M. 251, 208 P.3d 896 (alteration, internal quotation marks, and citation omitted); see
Marchman v. NCNB Tex. Nat’l Bank, 120 N.M. 74, 83, 898 P.2d 709, 718 (1995) (stating
that a “court has subject matter jurisdiction in an action if the case is within the general class
of cases that the court has been empowered, by constitution or statute, to hear and
determine”); see also 2 James W. Moore, Moore’s Federal Practice § 12.30, at 12-35 (3d
ed. 2010) (noting that “subject matter jurisdiction [motions] challenge[] the court’s statutory
or constitutional power to adjudicate the case”).
{9} The source of a district court’s subject matter jurisdiction derives from the New
Mexico Constitution. Lyndoe, 2012-NMCA-___, ¶ 12. “New Mexico district courts are
courts of general jurisdiction having the power to hear all matters not excepted by the
constitution and those matters conferred by law.” Id. In the present case, we are concerned
with the district court’s subject matter jurisdiction over a breach of contract class action
involving the State. With respect to contract actions brought against governmental entities
in New Mexico, the district court and the parties considered Section 37-1-23(A), which was
enacted in response to the Supreme Court’s abolishment of common law sovereign
immunity. Univ. of N.M. Police Officer’s Ass’n v. Univ. of N.M., 2005-NMSC-030, ¶ 8, 138
N.M. 360, 120 P.3d 442 (discussing Hicks v. State, 88 N.M. 588, 544 P.2d 1153 (1976)),
superseded by statute on other grounds as stated in Gallagher v. Albuquerque Metro. Flood
Control Auth., 90 N.M. 309, 563 P.2d 103 (Ct. App. 1977). Section 37-1-23(A) provides
that “[g]overnmental entities are granted immunity from actions based on contract, except
actions based on a valid written contract.” (Emphasis added.) In order to “protect the public
treasury” and “the taxpayer,” Section 37-1-23(A) requires at a minimum that plaintiffs obtain
a valid written contract in order to maintain a lawsuit against the State. Univ. of N.M. Police
Officer’s Ass’n, 2005-NMSC-030, ¶ 21. Because this case is based on valid written
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contracts,1 it seems beyond dispute that the district court, on the basis of its general
jurisdiction, had subject matter jurisdiction over this case with the State as a defendant.
{10} However, the district court nonetheless relied on a sovereign immunity argument
raised by the State on the basis of Section 21-21K-3(C) to divest itself of subject matter
jurisdiction as to the State. See 5B Charles Alan Wright and Arthur R. Miller, Federal
Practice and Procedure: Civil § 1350, at 70-79 (3d ed. 2004) (explaining that the Rule
12(B)(1) motion to dismiss may be appropriate “when the plaintiff’s claim is barred by one
of the various aspects of the doctrine of sovereign immunity”); see also Doe v. Santa Clara
Pueblo, 2007-NMSC-008, ¶ 27 n.6, 141 N.M. 269, 154 P.3d 644 (noting in the context of
a claim of tribal sovereign immunity that “[a] waiver of immunity in state court inherently
involves a state court’s subject matter jurisdiction, and immunity waiver claims are often
phrased as subject matter jurisdiction claims”); Handmaker v. Henney, 1999-NMSC-043,
¶ 14, 128 N.M. 328, 992 P.2d 879 (holding that “the issue of governmental immunity under
Section 37-1-23(A) is jurisdictional in nature” (alteration, internal quotation marks, and
citation omitted)). Section 21-21K-3(C) states:
In no event shall any liability of, or contractual obligation incurred by, the
program established pursuant to the provisions of the . . . Act obligate or
encumber any of the [S]tate’s land grant permanent funds, the severance tax
permanent fund or any money that is a part of a [S]tate-funded financial aid
program. Nothing in the . . . Act creates any obligation, legal, moral or
otherwise, to fulfill the terms of any college investment agreement or prepaid
tuition contract out of any source other than the . . . [F]und.
The State argued and the district court agreed that the second sentence of Section 21-21K-
3(C) limited the source of monetary recovery to the Fund and that this language gave rise
to the State’s immunity from suit. As we explain below, we conclude that the district court’s
reasoning and holding were erroneous.
{11} Initially, we determine that Section 21-21K-3(C) includes no express grant of
immunity for governmental entities in breach of contract actions. This is evident from the
lack of any express reference in the provision to immunity or to Section 37-1-23(A). We
presume that the Legislature was aware of “Hicks’s sweeping abolition of [common-law]
sovereign immunity,” Torrance Cnty. Mental Health Program, Inc. v. N.M. Health & Env’t
Dep’t, 113 N.M. 593, 597, 830 P.2d 145, 149 (1992), and of Section 37-1-23(A) when it
enacted the Act. See State v. Maestas, 2007-NMSC-001, ¶ 21, 140 N.M. 836, 149 P.3d 9331
For purposes of this appeal, it is undisputed that the parties entered into valid written
contracts. The district court denied an earlier motion to dismiss filed by the Board in which
the Board had argued that the plan agreements entered into between the parties were not
contracts. No challenge to this ruling has been raised in this appeal, and we therefore
assume that this case is based on the existence of valid written contracts.
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(noting that when the Legislature enacts a statute, we presume that it is aware of existing
statutes); Inc. Cnty. of Los Alamos v. Johnson, 108 N.M. 633, 634, 776 P.2d 1252, 1253
(1989) (“We presume that the [L]egislature is well informed as to existing statutory and
common law.”). We therefore find it significant that the Legislature included no express
grant of immunity from suit for breach of contract actions involving New Mexico’s 529
plans.
{12} We are also not persuaded that the language of Section 21-21K-3(C) implies, or is
tantamount to, an immunity from suit for governmental entities in the context of contract
actions involving the State’s 529 plans. Although the parties have raised several arguments
before this Court as to the correct interpretation of Section 21-21K-3(C), we need not engage
in extensive statutory construction to delineate that the language of Section 21-21K-3(C)
concerns, at most, limits on monetary sources of recovery for various aspects of the Act.
State v. Johnson, 2009-NMSC-049, ¶ 10, 147 N.M. 177, 218 P.3d 863 (“The primary
indicator of legislative intent is the plain language of the statute.”). The first sentence of
Section 21-21K-3(C) indicates that “liabilit[ies] of, or contractual obligation[s] incurred by,
the program established” under the Act shall not “obligate or encumber” three specific state
funds. The second sentence states that “[n]othing in the . . . Act creates any obligation” to
fulfill the terms of investment agreements or prepaid tuition contracts out of any source
except for the Fund. Section 21-21K-3(C). In our view, Section 21-21K-3(C) places limits
on liability and identifies sources of recovery. This does not, however, wholly foreclose the
possibility of a suit for breach of contract, as the State contends. See Handmaker, 1999-
NMSC-043, ¶¶ 13-14 (describing immunity from suit as “an entitlement not to stand trial or
face the other burdens of litigation” (internal quotation marks and citation omitted)). We
disagree with the State’s position that these limits give rise to governmental immunity from
suit; the mere fact that recovery may be limited does not mean that the State is entitled to
complete immunity from suit.
{13} Furthermore, we agree with Plaintiffs’ argument that the district court’s reasoning
was flawed in that the court improperly applied the specific/general rule of statutory
construction to Section 21-21K-3(C) as a basis for granting immunity to the State. The
general/specific rule provides that when two statutes deal with the same subject matter, the
“statute dealing with a specific subject will be considered an exception to, and given effect
over, [the] more general statute.” Albuquerque Commons P’ship v. City Council of City of
Albuquerque, 2011-NMSC-002, ¶ 23, 149 N.M. 308, 248 P.3d 856 (internal quotation marks
and citation omitted); Stinbrink v. Farmers Ins. Co. of Ariz., 111 N.M. 179, 182, 803 P.2d
664, 667 (1990). In addition, the general/specific rule applies only when the two statutory
provisions are in conflict. State ex rel. Madrid v. UU Bar Ranch Ltd. P’ship,
2005-NMCA-079, ¶ 20, 137 N.M. 719, 114 P.3d 399; see State v. Santillanes,
2001-NMSC-018, ¶ 11, 130 N.M. 464, 27 P.3d 456 (stating that the “primary goal of the
general/specific statute rule is to determine legislative intent in the context of potentially
conflicting laws” and that the rule “provides a method to resolve an otherwise irreconcilable
conflict between statutes” (emphasis added)). Here, the district court indicated in its oral
ruling that it found that Section 21-21K-3(C) was a specific statute that overrode Section 37-
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1-23(A), the general statute regarding governmental immunity for contract actions. We
conclude that it was improper for the district court to apply the general/specific rule because
the statutes do not deal with the same subject matter, nor are the statutes in conflict.
{14} We acknowledge that the State has raised a number of arguments grounded in public
policy and legislative intent in an effort to argue that Section 21-21K-3(C) gives rise to
sovereign immunity in this case. In particular, the State has argued in its answer brief and
at oral argument before this Court that imposing liability on the State in this matter would
be against public policy, leads to inequitable results by requiring conversion of funds of non-
party investors, contravenes legislative intent, and implicates separation of power issues by
ultimately requiring an appropriation from the Legislature in order to satisfy an adverse
judgment. After careful consideration of the State’s arguments, we conclude that these
arguments are grounded in liability and not in governmental immunity from suit. That is,
whether Plaintiffs have stated a claim for which relief can be granted, or as here, for which
there is no remedy because the State alleges that it has immunity from liability, is a legally
different question from whether sovereign immunity exists or whether the district court has
subject matter jurisdiction over the case. Only the latter question is properly before us in this
appeal, and we therefore decline, at this juncture, to delve into an inquiry of whether
dismissal of the State is appropriate because Plaintiffs cannot obtain any relief from the
State.
{15} Based on the foregoing, we conclude that Section 21-21K-3(C) includes neither an
express nor an implied grant of sovereign immunity. Under the arguments advanced by the
State in its Rule 1-012(B)(1) motion to dismiss, we see no other basis for the district court
to lack subject matter jurisdiction over this case. We therefore hold that the district court
erroneously dismissed the State as a defendant on the basis of sovereign immunity.
CONCLUSION
{16} We reverse the district court’s order in its entirety and remand for further proceedings
consistent with this Opinion.
{17} IT IS SO ORDERED.
____________________________________
LINDA M. VANZI, Judge
WE CONCUR:
____________________________________
JONATHAN B. SUTIN, Judge
____________________________________
J. MILES HANISEE, Judge
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Topic Index for Lu v. Educ. Trust Bd. of N.M., No. 31,363
APPEAL AND ERROR
Standard of Review
CIVIL PROCEDURE
Class Action
Motion to Dismiss
CONTRACTS
Breach
GOVERNMENT
Education and Schools
Sovereign Immunity
JURISDICTION
Subject Matter
STATUTES
Interpretation
Legislative Intent
Rules of Construction
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