DocketNumber： 92-1034
Filed Date： 8/27/1993
Status： Precedential
Modified Date： 9/21/2015
August 26, 1993 UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 92-1034
UNIVERSITY OF RHODE ISLAND,
Plaintiff, Appellant,
v.
A. W. CHESTERTON COMPANY,
Defendant, Appellee.
____________________
ERRATA SHEET
ERRATA SHEET
The opinion of this Court issued on August 16, 1993, is
amended as follows:
Page 8, line 5, should read: as the nominal plaintiff
. . .
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
____________________
No. 92-1034
UNIVERSITY OF RHODE ISLAND,
Plaintiff, Appellant,
v.
A. W. CHESTERTON COMPANY,
Defendant, Appellee.
____________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Ronald R. Lagueux, U.S. District Judge]
___________________
____________________
Before
Cyr and Boudin, Circuit Judges,
______________
and Hornby,* District Judge.
______________
____________________
Louis J. Saccoccio with whom Merlyn P. O'Keefe and Packer &
____________________ ___________________ ________
O'Keefe were on brief for appellant.
_______
Steven E. Snow with whom Partridge, Snow & Hahn was on brief for
______________ ______________________
appellee.
____________________
August 16, 1993
____________________
__________________
*Of the District of Maine, sitting by designation
CYR, Circuit Judge. The University of Rhode Island
CYR, Circuit Judge.
_____________
("URI") appeals a judgment disallowing its breach of warranty
claims against A.W. Chesterton Company ("Chesterton"), contending
that the district court lacked subject matter jurisdiction, and
challenging various rulings at trial. Finding no error, we
affirm.
I
I
BACKGROUND
BACKGROUND
__________
We recite only those record facts essential to an
understanding of the issues raised on appeal, drawing all reason-
able inferences in favor of plaintiff-appellant URI. Richmond
________
Steel, Inc. v. Puerto Rican American Ins. Co., 954 F.2d 19, 20
____________ _______________________________
(1st Cir. 1992). The R/V Endeavor is a vessel chartered by the
National Science Foundation to URI's Graduate School of Oceanog-
raphy (GSO) for research purposes. In the summer of 1985, John
Metz, the GSO's port engineer, discovered serious rust corrosion
on the inside of the Endeavor's steel ballast tanks, which are
submerged in salt water during normal operation of the vessel.
Responding to a Chesterton advertisement, Metz received test
samples of "Rust Transformer," a Chesterton product which pur-
portedly converts surface corrosion into a rust-inhibitor, which
in turn serves as a base for further coats of paint. Satisfied
with the test-sample results, Metz invited Chesterton sales
representatives aboard the Endeavor. After inspecting the
2
Endeavor's ballast tank corrosion, Chesterton's representatives
recommended that Metz use Chesterton's 1-2-3 System (using Rust
Transformer, a primer, and a final enamel coat) to rehabilitate
the tanks. Metz ordered the 1-2-3 System on September 11,
1985.1 Six months after URI completed the 1-2-3 System applica-
tion, the new coating on the ballast tanks began to loosen and
flake off. URI allegedly expended $100,000 to correct the
problem.
URI brought suit against Chesterton in Rhode Island
state court on May 4, 1989, alleging negligence, strict
liability, and breaches of an express warranty and implied
warranties of merchantability and fitness for a particular
purpose. Chesterton promptly removed the action to federal
district court. URI moved for remand on the ground that URI, as
an "alter ego, arm, or agent" of the State of Rhode Island, is
not a "citizen" of Rhode Island for diversity purposes. The
district court denied URI's remand motion without an evidentiary
hearing, relying on an earlier district court decision, see
___
Vanlaarhoven v. Newman, 564 F. Supp. 145 (D.R.I. 1983) (Selya,
____________ ______
J.), which determined that URI was not an "arm" of the State for
sovereign immunity purposes.
____________________
1The original URI complaint alleged that Metz was reassured
by Chesterton that the 1-2-3 System would work on Endeavor's
ballast tanks. On the other hand, the product's written instruc-
tions advised that the system was not recommended for surfaces
regularly immersed in sea water. In an amended complaint, URI
alleged that Chesterton representatives observed the URI crew
applying the 1-2-3 System to the ballast tanks, but said nothing
to URI representatives about the unsuitability of the system or
its improper application.
3
This court declined to entertain URI's interlocutory
appeal from the jurisdictional ruling but noted disagreement
among the circuits as to the proper criteria for determining the
citizenship of state universities for diversity purposes. We
recommended that the district court conduct "limited factfinding"
on remand relating to several factors pertinent to URI's citizen-
ship, including (1) "the degree of URI's dependence on and
functional integration with the state treasury," (2) "the per-
centage of URI's annual budget that derives from state appropria-
tions," and (3) "whether the legislature bases levels of such
appropriations in part on the amount of nonappropriated funds
available to URI."2 On remand, the district court denied URI's
motion for a pretrial evidentiary hearing relating to these
jurisdictional matters. The jury trial began on December 3,
1991. After the district court excluded the testimony of URI's
only expert witness on the issue of contract damages, URI abrupt-
ly rested its case. Judgment was entered for Chesterton on all
counts, as a matter of law, pursuant to Fed. R. Civ. P. 50(a),
and URI appealed.
II
II
DISCUSSION
DISCUSSION
__________
____________________
2As an alternate and independent reason for declining to
entertain the interlocutory appeal, this court noted that the
litigation was unlikely to be so protracted as to warrant appel-
late interruption, given the nature and scope of URI's contract
claims.
4
A. Subject Matter Jurisdiction
A. Subject Matter Jurisdiction
___________________________
URI urges us to set aside the judgment and remand the
case to state court on the ground that Chesterton, a Massachu-
setts corporation, has not established diversity. URI contends
that it is not a Rhode Island "citizen," but a mere "arm" or
"alter ego" of the State. See Gibbs v. Buck, 307 U.S. 66, 69
___ _____ ____
(1939) (holding that party invoking diversity jurisdiction must
establish sufficient facts to warrant its exercise); Bank One,
_________
Texas, N.A. v. Montle, 964 F.2d 48, 50 (1st Cir. 1992) (same);
___________ ______
see also Shamrock Oil Corp. & Gas Co. v. Sheets, 313 U.S. 100,
___ ____ _____________________________ ______
108-09 (1941) (removal statute should be strictly construed
against removal); McNutt v. General Motors Acceptance Corp., 298
______ _______________________________
U.S. 178, 187 (1936); Wilson v. Republic Iron & Steel Co., 257
______ __________________________
U.S. 92, 97 (1921).
We begin with first principles. A State cannot be a
"citizen" of itself for purposes of diversity jurisdiction.3
Moor v. County of Alameda, 411 U.S. 693, 717 (1973); Postal Tel.
____ _________________ ___________
Cable Co. v. Alabama, 155 U.S. 482, 487 (1894). On the other
_________ _______
hand, a political subdivision possessing the formal status of a
"body politic and corporate," such as a county or municipality,
is presumed a "citizen" for diversity purposes "unless it is
simply 'the arm or alter ego of the State.'" Moor, 411 U.S. at
_________ ____
717, 721 (finding that Alameda County had a "sufficiently inde-
____________________
3Section 1332(a) provides that "[t]he district courts shall
have original jurisdiction of all civil actions . . . [involving
over $50,000] . . . between . . . citizens of different States
. . . ." 28 U.S.C. 1332(a)(1).
5
pendent corporate character" to be a "citizen" of California for
diversity purposes) (citation omitted) (emphasis in original);
Illinois v. City of Milwaukee, 406 U.S. 91, 97 (1972); Cowles v.
________ _________________ ______
Mercer County, 74 U.S. (7 Wall.) 118, 121-22 (1869).4 Thus, in
_____________
____________________
4A political subdivision's "detachment" from the State
generally will deprive it of the right to partake of the State's
sovereign immunity under the Eleventh Amendment. See U.S. Const.
___
amend. XI ("The judicial power of the United States shall not be
construed to extend to any suit in law or equity, commenced or
prosecuted against one of the United States by citizens of
another state . . . ."). Although we have noted the essential
similarity between the immunity and diversity tests, see George
___ ______
R. Whitten, Jr. Inc. v. State Univ. Constr. Fund, 493 F.2d 177,
____________________ ________________________
179 n.2 (1st Cir. 1974) (tests "closely allied and yet not
identical"); cf. Krieger v. Trane Co., 765 F. Supp. 756, 758 (D.
___ _______ _________
D.C. 1991) (rejecting any distinction between the two tests), we
have not had occasion to identify the precise nature of any
differences. In this case, however, we address, and reject, two
proposed distinctions. First, Eleventh Amendment analysis
normally would focus primary attention on any financial drain on
_____
the State treasury caused by a judgment adverse to URI, see Quern
___ _____
v. Jordan, 440 U.S. 332, 337 (1979); Edelman v. Jordan, 415 U.S.
______ _______ ______
651, 663 (1974), a concern which obviously does not arise in a
diversity case where the State-related plaintiff seeks to recover
_______
a monetary judgment. Significantly, however, courts have not
accepted the notion that sovereign immunity exists only if the
____
State treasury is threatened. See Cory v. White, 457 U.S. 85,
___ ____ _____
90-91 (1982); Kroll v. Board of Trustees of Univ. of Illinois,
_____ ________________________________________
934 F.2d 904, 908 (7th Cir.), cert. denied, 112 S. Ct. 377
_____ ______
(1991); Harden v. Adams, 760 F.2d 1158, 1163 (11th Cir.) (Troy
______ _____
State University), cert. denied, 474 U.S. 1007 (1985). Whether
_____ ______
in the diversity or the immunity context, the analysis must
center on the State-related party's enduring legal identity as a
juridical entity separate from the State.
The second possible distinction we must consider is that,
unlike sovereign immunity, nondiversity cannot be waived by the
State. See State Highway Comm'n of Wyoming v. Utah Constr. Co.,
___ ________________________________ ________________
278 U.S. 194, 199 (1929); George R. Whitten, Jr., Inc., 493 F.2d
_____________________________
at 179. Generally, however, the "waiver of immunity" inquiry
would follow the initial determination that the State-related
______
entity was not sufficiently autonomous to escape characterization
as an "alter ego" of the State. For example, in Vanlaarhoven,
____________
the court based its holding on the alternate ground that, even
if URI were merely an "alter ego" of the State, the State had
expressly waived URI's immunity under state law by granting it
the authority to "sue or be sued" in its own name. Vanlaarhoven,
__________ ____________
564 F. Supp. at 149; see also infra note 7. While such a bypass
___ ____ _____
6
principle at least, public and private corporations are accorded
similar treatment as "citizens" for diversity purposes. See 28
___
U.S.C. 1332(c)(1) ("For purposes of this section . . . a
corporation shall be deemed to be a citizen of any State by which
it has been incorporated . . . ."); see also Media Duplication
___ ____ _________________
Servs., Ltd. v. HDG Software, Inc., 928 F.2d 1228, 1236 (1st Cir.
____________ __________________
1991).
The Rhode Island Board of Higher Education ("Board") is
nominally constituted by the State of Rhode Island as the legal
entity which acts in behalf of URI and other public postsecondary
educational institutions in Rhode Island.5 The Board has been
constituted a "public corporation," R.I. Gen. Laws 16-59-1,6
see infra note 10, just as the County of Alameda is a "body
___ _____
____________________
argument is impermissible where the sole issue is URI's citizen-
ship for diversity purposes, sovereign immunity case law, and its
identification of the relevant attributes of autonomy, is no less
probative in diversity cases; hence, we cite to these cases as
apposite.
5The complaint mistakenly designates URI as the plaintiff.
Since URI is not a distinct legal entity under Rhode Island law,
we treat the Board as the real party in interest, as did the
district court.
6Section 16-59-1(a) provides, in pertinent part: "There is
hereby created a board of governors for higher education, some-
times hereinafter referred to as the 'board' or the 'board of
governors,' which shall be and hereby is constituted a public
corporation, empowered to sue and be sued in its own name, to
have a corporate seal, and to exercise all the powers, in addi-
tion to those hereinafter specifically enumerated, usually
appertaining to public corporations entrusted with control of
postsecondary educational institutions and functions." R.I. Gen.
Laws 16-59-1(a) (1992). In all significant respects, this
section, enacted in 1988, merely extended the extant powers
possessed by the Board's immediate predecessor, the entity
involved in Vanlaarhoven.
____________
7
corporate and politic" under California law. Moor, 411 U.S. at
____
719 (citing Cal. Gov't Code 23003).
Several ancillary principles derive from Moor. The
____
criteria are substantially similar for evaluating whether an
entity is a citizen of the State for diversity purposes, or a
State for Eleventh Amendment sovereign immunity purposes, see
___
Northeast Fed. Credit Union v. Neves, 837 F.2d 531, 534 (1st Cir.
___________________________ _____
1988) (tests "pretty much the same"); see supra note 4, and
___ _____
present the same ultimate question for decision: whether the
State of Rhode Island remains the real party in interest, not-
____ _____ __ ________
withstanding URI's designation as the nominal plaintiff. See id.
___ ___
at 533 ("For the purpose of diversity jurisdiction, the determi-
native factor is whether the state is the real party in inter-
est.") (quoting Krisel v. Duran, 386 F.2d 179, 181 (2d Cir.),
______ _____
cert. denied, 390 U.S. 1042 (1967)); see also Kovats v. Rutgers,
_____ ______ ___ ____ ______ _______
822 F.2d 1303, 1307 (3d Cir. 1987) (immunity), cert. denied, 489
_____ ______
U.S. 1014 (1987); Ronwin v. Shapiro, 657 F.2d 1071, 1073 (9th
______ _______
Cir. 1981) (Board of Regents of Arizona) (immunity and diversi-
ty); Jagnandan v. Giles, 538 F.2d 1166, 1173 (5th Cir. 1976)
_________ _____
(Mississippi State University) (immunity), cert. denied, 432 U.S.
_____ ______
910 (1977); Krieger v. Trane Co., 765 F. Supp. 756, 757-58
_______ _________
(D.D.C. 1991) (diversity). Thus, most unincorporated state
agencies and departments are readily recognizable as mere "arms"
or "alter egos" of the State.
On the other hand, though the State's formal incorpora-
tion of a State-related entity is not necessarily dispositive on
8
the issue of its autonomy, either for immunity or diversity
purposes, see, e.g., Jagnandan, 538 F.2d at 1174, 1176; Krieger,
___ ____ _________ _______
765 F. Supp. at 760, 762, the legislative act of incorporation
should prompt a thorough examination into the precise nature of
the entity established under state law. See Moor, 411 U.S. at
___ ____
719 (undertaking "a detailed examination of the relevant provi-
sions of California law" in order to rule out Alameda County's
"mere agency"); id. at 721 n.54 (generally repudiating resort to
___
"conclusory" determinations as to entity's legal character); see
___
also Lake Country Estates, Inc. v. Tahoe Regional Planning
____ _____________________________ _________________________
Agency, 440 U.S. 391, 401 (1979); Mt. Healthy City Sch. Dist. Bd.
______ _______________________________
of Educ. v. Doyle, 429 U.S. 274, 280 (1977); Kovats, 822 F.2d at
________ _____ ______
1307; Goss v. San Jacinto Junior College, 588 F.2d 96, 98 (5th
____ ___________________________
Cir. 1979). Accordingly, comparing the incorporated public
entity to the polar extremes (the State on the one hand, and
political subdivisions on the other), we must determine whether
the nominal public corporation possesses "a sufficiently indepen-
dent corporate character to dictate that it be treated as a
citizen of [the State of incorporation]." Moor, 411 U.S. at 721.
____
See Mt. Healthy, 429 U.S. at 280 (finding city board "more like a
___ ___________ ____ ____
county or city than it is like an arm of the State") (emphasis
added); see also Kashani v. Purdue Univ., 813 F.2d 843, 845 (7th
___ ____ _______ ____________
Cir. 1987), cert. denied, 484 U.S. 846 (1988); Goss, 588 F.2d at
_____ ______ ____
98.
Often these comparative appraisals unavoidably lead to
imprecise distinctions in degree, rarely amenable to ready
9
resolution. Cf. Metcalf & Eddy, Inc. v. Puerto Rico Aqueduct &
___ ____________________ ______________________
Sewer Auth., ___ F.2d ___, ___ (1st Cir. 1993) [No. 91-1602, 1993
___________
U.S. App. LEXIS 10064, at 10 (1st Cir. May 3, 1993)] (noting that
agency's entitlement to immunity "poses an essentially functional
__________
inquiry, not easily amenable to bright-line answers or mechanical
solutions") (emphasis added). Like their private counterparts,
public corporations are hardly monolithic, having been vested
with whatever powers, rights, and privileges state legislatures
may bestow to suit the public purpose for which the particular
corporation was commissioned. Although the vast majority of state
universities, incorporated and unincorporated alike, have been
found to be "arms" of the State for immunity and diversity
purposes, each state university must be evaluated in light of its
unique characteristics. See Kovats, 822 F.2d at 1303; Kashani,
___ ______ _______
813 F.2d at 845; Hall v. Medical College of Ohio, 742 F.2d 299,
____ ________________________
302 (6th Cir. 1984), cert. denied, 469 U.S. 1113 (1985); United
_____ ______ ______
Carolina Bank v. Board of Regents, 665 F.2d 553, 557 (5th Cir.
_____________ _________________
1982) (Austin State University); Soni v. Board of Trustees of
____ _____________________
Univ. of Tennessee, 513 F.2d 347, 352 (6th Cir. 1975), cert.
___________________ _____
denied, 426 U.S. 919 (1976); University Sys. of New Hampshire v.
______ ________________________________
United States Gypsum, 756 F. Supp. 640, 645 (D.N.H. 1991).7
____________________
____________________
7Even if it were presumed that the immunity and diversity
standards converge, see supra note 4, Vanlaarhoven was not
___ _____ ____________
conclusive as to URI's citizenship for diversity purposes.
Chesterton argues that URI is barred, by Vanlaarhoven and col-
____________
lateral estoppel, from litigating the diversity jurisdiction
issue. We do not agree. Chesterton did not raise the estoppel
issue in the district court, nor did the court invoke collateral
estoppel by way of reference to Vanlaarhoven. Thus, Chesterton
____________
waived the issue. McCoy v. Massachusetts Inst. of Technology,
_____ __________________________________
10
We have propounded an illustrative list of criteria
by no means exhaustive often germane to the Eleventh Amendment
"arm" or "alter ego" determination, including whether the entity
(1) performs an "essential" or "traditional" governmental func-
tion, as opposed to a nonessential or merely proprietary one; (2)
exercises substantial autonomy over its internal operations; (3)
____________________
950 F.2d 13, 22 (1st Cir. 1991), cert. denied, 112 S. Ct. 1939
_____ ______
(1992) (issues not "squarely" raised before trial court cannot be
raised on appeal). Moreover, the "alter ego" determination in
Vanlaarhoven was not "essential" to the judgment, in at least two
____________
respects. See Restatement (Second) of Judgments 27 ("When an
___ __________________________________
issue of fact or law is actually litigated by a valid and final
judgment, and the determination is essential to the judgment, the
___ ___ _____________ __ _________ __ ___ ________
determination is conclusive . . . .") (emphasis added). First,
the Vanlaarhoven court, as an alternate holding, assumed arguendo
____________ ________
that URI might be an "alter ego" of the State, but went on to
hold that Rhode Island law had recognized similar grants of the
power to sue and be sued as express waivers by the State of an
alter ego's sovereign immunity from unconsented suit. Vanlaar-
________
hoven, 564 F. Supp. at 149; see supra note 4. Second, URI, the
_____ ___ _____
defendant in Vanlaarhoven, prevailed on the merits. Except in
____________
limited circumstances not present here, the party that prevails
on the merits is not obligated to appeal from an adverse ruling
__ ___ _________ __
on a collateral issue. Cf. Deposit Guar. Nat'l Bank v. Roper,
___ _________________________ _____
445 U.S. 326, 334-35 (1980) (noting that adverse ruling presum-
ably would have no effect in later litigation).
Although not binding, Vanlaarhoven nonetheless remains
____________
persuasive precedent in its own right. See Metcalf & Eddy, ___
___ ______________
F.2d at ___ [No. 91-1602, 1993 U.S. App. LEXIS 10064, at 13 n.4
(1st Cir. May 3, 1993)] (noting that immunity of agency need not
always be considered de novo; "[w]here the agency's activity and
__ ____
its relation to the state remain essentially the same, prior
___________ ___ ____
circuit precedent will be controlling") (emphasis added); see
___
also infra note 16. URI argues that much of Vanlaarhoven's
____ _____ ____________
precedential weight was eroded by the later repeal of R.I. Gen.
Laws 16-31-1 to 15 in 1988, and its replacement with the new
statutory scheme. See R.I. Gen. Laws 16-59-1. We agree with
___
the district court that the legislative modifications in 1988
were largely inconsequential, see infra Section II.A.2.a., and
___ _____
that Vanlaarhoven's "lengthy description of the fiscal relation-
____________
ship between the University and the State of Rhode Island is as
accurate today as when it was written in 1983 . . . ." Universi-
_________
ty of Rhode Island v. A.W. Chesterton Co., 721 F. Supp. 400, 402
___________________ ___________________
(D.R.I. 1989).
11
enjoys meaningful access to, and control over, funds not appro-
priated from the State treasury; (4) possesses the status of a
separate "public corporation"; (5) may sue and be sued in its own
name; (6) can enter into contracts in its own name; (7) has been
granted a state tax exemption on its property; or (8) has been
expressly debarred from incurring debts in the State's name or
behalf. See Metcalf & Eddy, ___ F.2d at ___ [No. 91-1602, 1993
___ _______________
U.S. App. LEXIS 10064, at 11-12 (1st Cir. May 3, 1993)]; In re
_____
San Juan DuPont Plaza Hotel Fire Litigation, 888 F.2d 940, 942
_____________________________________________
(1st Cir. 1989); Ainsworth Aristocrat Int'l Pty, Ltd. v. Tourism
____________________________________ _______
Co. of Puerto Rico, 818 F.2d 1034, 1038 (1st Cir. 1987). These
__________________
diverse considerations are designed to disclose the extent to
which state law endows the incorporated State-related entity with
the operational authority, discretion, and proprietary resources
with which to function independently of the State. See George R.
_____________ ___ _________
Whitten, Jr., Inc. v. State Univ. Constr. Fund, 493 F.2d 177, 180
__________________ ________________________
(1st Cir. 1974); cf. Metcalf & Eddy, ___ F.2d at ___ [No. 91-
___ _______________
1602, 1993 U.S. App. LEXIS 10064, at 12 (1st Cir. May 3, 1993)]
("[T]he more tightly the agency and the state are entangled, the
more probable it becomes that the agency shares the state's
Eleventh Amendment immunity.").8
____________________
8URI argues that Rhode Island case law provides a definitive
statement on the functional interdependence of the Board and the
State. See, e.g., State of Maryland Cent. Collection Unit v.
___ ____ __________________________________________
Board of Regents, 529 A.2d 144, 145 (R.I. 1987); Opinion to the
_________________ ______________
Governor, 181 A.2d 618 (R.I. 1962). State court decisions are
________
entitled to great deference in our diversity and sovereign
immunity determination. See Ainsworth, 818 F.2d at 1037; see
___ _________ ___
also Harden, 760 F.2d at 1163; Jackson v. Hayakawa, 682 F.2d
____ ______ _______ ________
1344, 1350 (9th Cir. 1982) (California State University); Jag-
____
12
1. The Board's Operational Autonomy
1. The Board's Operational Autonomy
________________________________
After reviewing many decisions relating to public
postsecondary educational institutions, we are impressed, as was
the district court in this case and in Vanlaarhoven, by the
____________
extraordinary measure of autonomy enjoyed by the Rhode Island
Board of Higher Education. As with most "state" universities,
the Board is charged with an essential and traditional governmen-
____________________
nandan, 538 F.2d at 1175-76; Brennan v. University of Kansas, 451
______ _______ ____________________
F.2d 1287, 1290 (10th Cir. 1971). But see Kovats, 822 F.2d at
___ ___ ______
1310 (state case law treating entity as "arm" does not undermine
autonomy for diversity purposes). Nevertheless, the "real party
in interest" analysis is ultimately a matter of federal law. See
_______ ___
Moor, 411 U.S. at 720 (looking to California state court deci-
____
sions merely to confirm Court's independent diversity determina-
_______
tion, based on California statutes); Hughes-Bechtol, Inc. v. West
____________________ ____
Va. Bd. of Regents, 737 F.2d 540, 543 (6th Cir.) (diversity),
___________________
cert. denied, 469 U.S. 1018 (1984); Long v. Richardson, 525 F.2d
_____ ______ ____ __________
74, 79 (6th Cir. 1975) (Memphis State University); cf. Jacin-
___ ______
toport Corp. v. Greater Baton Rouge Port Comm'n, 762 F.2d 435,
_____________ ________________________________
439 (5th Cir. 1985).
In the instant case, we find the State of Maryland and its
__________________
predecessor decisions inconclusive. First, State of Maryland
__________________
involved the distinct question of the United States Supreme
Court's original jurisdiction, not the issue of diversity juris-
diction. State of Maryland, 529 A.2d at 147. Second, the court's
_________________
finding that URI and the State were the same "party" is dictum,
the State of Maryland having conceded the point. Id. Finally,
___
although State of Maryland cites to prior state case law, see
__________________ ___
Opinion to the Governor, 181 A.2d 618, 621 (R.I. 1962), neither
_______________________
case engages in an extended analysis of the Board's corporate
powers or characteristics. See Moor, 411 U.S. at 721 n.54
___ ____
(expressing disfavor for "conclusory" determinations of entity's
legal character); Jacintoport Corp., 762 F.2d at 438 (refusing to
_________________
follow state case law on immunity question where cited cases "did
not deal with the precise question before us, nor was their
inquiry based on even analogous jurisprudential concerns"). Thus,
unlike the situation in Moor, where the Court was able to find
____
"the clearest indication possible from California's Supreme Court
________ __________ ________
of the status of California's counties," Moor, 411 U.S. at 720
____
(emphasis added), neither the focus nor the nature of the analy-
sis in State of Maryland enables us to derive a clear indication
_________________
as to the Rhode Island Supreme Court's views on the critical
factors controlling the "real party in interest" determination in
the context of federal diversity jurisdiction.
13
tal function namely, the provision of postsecondary education-
al facilities to the citizens of Rhode Island. See R.I. Const.
___
art. XII, 1; Chang v. University of Rhode Island, 375 A.2d 925,
_____ __________________________
933-34 (R.I. 1977); see also Kovats, 822 F.2d at 1310 (providing
___ ____ ______
educational facilities is an essential or traditional governmen-
tal function, not a proprietary one); Hall, 742 F.2d at 305
____
(same); Rutledge v. Arizona Bd. of Regents, 660 F.2d 1345, 1349
________ _______________________
(9th Cir. 1981) (same); cf. also Kashani, 813 F.2d at 847-48 (if
___ ____ _______
entity serves entire state, instead of one region, more likely an
"arm" of State). As a general rule, therefore, it may well be
that an entity established to conduct a core governmental func-
tion is less likely to be vested with meaningful freedom from
governance by the State's elected officials. Nevertheless, this
isolated factor is seldom dispositive.9 An exception must lie
____________________
9For example, in Moor the county's responsibility for many
____
traditional and essential governmental functions, including the
provision of water services, flood control, rubbish disposal, and
harbor and airport facilities, appears to have been accepted by
the Court as affirmative evidence of citizenship. See Moor, 411
___ ____
U.S. at 720. These governmental responsibilities were noted by
the Court in acknowledging the county's power to levy taxes to
finance its functions. Similarly, URI is empowered to fix and
collect tuitions and fees and enjoys plenary control over these
nonappropriated funds, as well as its educational functions. Cf.
___
University of Tennessee v. United States Fidelity & Guar., Co.,
_______________________ ____________________________________
670 F. Supp. 1379, 1384 (E.D. Tenn. 1987) (legislature's control
of tuition rates suggests "arm"). We discern from Moor a general
____
rule of thumb: the State's delegation of essential governmental
functions, together with the power to generate and control the
nonappropriated revenues with which to perform those governmental
functions, normally will be viewed as supporting, rather than
undermining, the entity's independent status for citizenship
purposes. Cf. Metcalf & Eddy, ___ F.2d at ___ [No. 91-1602, 1993
___ _______________
U.S. App. LEXIS 10064, at 17, 17 n.6 (1st Cir. May 3, 1993)]
(noting that, if all traditional government functions triggered
immunity protection, local school boards would have been deemed
"arms" of state, and that agencies which derive revenue through
14
where the statutory scheme, as a whole, confutes any legislative
__ _ _____
intent to establish the entity as a mere "arm" of the State. See
___
Kovats, 822 F.2d at 1312 (performance of governmental, nonpropri-
______
etary function not necessarily indicative of lack of autonomy).
Accordingly, we must examine the particular powers with which the
Board is endowed under its statute of "incorporation."
From an operational standpoint, the Board is denominat-
ed a "public corporation," Moor, 411 U.S. at 719 (county's
____
corporate status and powers "most notabl[e]" attributes of
citizenship); cf. Hall, 742 F.2d at 305 (noting that school's
___ ____
lack of separate corporate status suggests mere agency),10
which may "sue and be sued in its own name." R.I. Gen. Laws 16-
59-1(a).11 The Rhode Island statutes elsewhere define the term
____________________
"user fees" for performance of "governmental" functions are
unlikely to be characterized as "arms" merely by virtue of the
traditional nature of their mission) (citing Royal Caribbean
________________
Corp. v. Puerto Rico Ports Auth., 973 F.2d 8 (1st Cir. 1992)).
_____ _______________________
10Some courts have held that corporate status ought not be
regarded as probative unless the legislature expresses its intent
to confer perpetual corporate status upon the entity. See, e.g.,
_________ ___ ____
Hall, 742 F.2d at 299. The rationale of these cases appears to
____
be that the legislature reserves the right to revoke all delegat-
ed powers to such a nonperpetual entity, at any time. Id. See
____________ ___ ___
also Kashani, 813 F.2d at 847; Jackson, 682 F.2d at 1350; Bren-
____ _______ _______ _____
nan, 451 F.2d at 1290. As we are unable to accept the premise
___
that legislative enactments can be immunized from amendment by
succeeding legislatures, let alone be perpetuated, we respectful-
ly decline to follow these decisions. We note also that these
decisions conflict with Moor, insofar as they suggest that most
____
political subdivisions cannot be "citizens" because succeeding
legislatures retain the power to alter or rescind prior delega-
tions of the State's police power.
11It is not always clear in the Eleventh Amendment context
whether the court has already determined that the entity is an
"arm" of the State, and is referring to this provision (power to
sue and be sued) only as evidence of an explicit waiver of the
15
"public corporation" as "a corporate entity which is considered a
governmental agency but which has a distinct legal existence from
___ _____ ___ _ ________ _____ _________ ____
the state or any municipality, [and] does not constitute a
___ _____ __ ___ ____________
department of state or municipal government . . . ." Id. 16-
___
62-4 (emphasis added). See Harden v. Adams, 760 F.2d 1158, 1163
___ ______ _____
(11th Cir. 1985) (Troy State University) (holding that statutory
definitions of "state" and "political subdivision" may be rele-
vant factors); compare Kovats, 822 F.2d at 1310 (evidence that
_______ ______
entity is "instrumentality," but otherwise excluded from some
statutory definitions of "state," is probative of citizenship)
with United Carolina Bank, 665 F.2d at 557 (noting that entity
____ ____________________
falls clearly within statutory definition of "state"). But cf.
___ ___
____________________
dependent entity's sovereign immunity. See, e.g., Rozek v.
____ ____ _____
Topolnicki, 865 F.2d 1154, 1158 (10th Cir. 1989); Long, 525 F.2d
__________ ____
at 77; Soni, 513 F.2d at 352; see also supra notes 4 & 7 (discus-
____ ___ ____ _____
sing Vanlaarhoven's alternative "waiver" holding). The bare
____________
power to sue is unlikely to hold complete sway in the threshold
"alter ego" determination either in diversity or immunity cases.
See Kashani, 813 F.2d at 847 (power to sue and be sued not
___ _______
conclusive of autonomy); Jagnandan, 538 F.2d at 1174, 1176;
_________
Krieger, 765 F. Supp. at 760, 762; cf. Hall, 742 F.2d at 305
_______ ___ ____
(deliberate withholding of power to sue highly probative of lack
of autonomy). But the power to sue in the entity's own name,
when coupled with other powers of self-determination typically
held by distinct juridical entities (power to contract, power to
buy, hold, and sell property), undeniably affords the entity some
additional independence from the State, since the entity need not
seek the State's consent to bring, defend, or settle a lawsuit.
In this case, we note in particular that (1) URI brought suit
exclusively in its own name, and (2) its counsel of record is not
a legal officer of the State of Rhode Island. See Jacintoport
___ ___________
Corp., 762 F.2d at 442 (noting commission's right to "employ
_____
private attorneys to represent it" as evidence that it has
separate legal identity from State); Tradigrain, Inc. v. Missis-
________________ _______
sippi State Port Auth., 701 F.2d 1131, 1136 (5th Cir. 1983)
________________________
(Thornberry, J., dissenting) (noting as evidence of citizenship
that Authority "employs its own counsel, and is not represented
by the State of Mississippi in this action"); cf. Hall, 742 F.2d
___ ____
at 305 (university's counsel is state attorney general).
16
Lewis v. Midwestern State Univ., 837 F.2d 197, 198 (5th Cir.),
_____ ______________________
cert. denied, 488 U.S. 849 (1988) (mere statutory definition as
_____ ______
"agency" suggests "alter ego"); Kashani, 813 F.2d at 847 (holding
_______
that entity's designation as "separate" from State for some
purposes is inconclusive of autonomy); Krieger, 765 F. Supp. at
_______
759(findingterm"independent
agency"inconclusiveevidenceofautonomy).
Ten of the thirteen Board members are appointed by the
Governor,12 with the advice and consent of the senate, see R.I.
___
Gen. Laws 16-59-2(a), a legislative design most courts routine-
ly view as evidence of an entity's lack of independence from
State control. See, e.g., Lewis, 837 F.2d at 198; Kashani, 813
___ ____ _____ _______
F.2d at 847 (7 of 10 members appointed); Harden, 760 F.2d at
______
1163; Hall, 742 F.2d at 306; Gay Students Servs. v. Texas A & M
____ ___________________ ___________
Univ., 737 F.2d 1317, 1333 n.28 (5th Cir. 1984), cert. denied,
_____ _____ ______
471 U.S. 1001 (1985); United Carolina Bank, 665 F.2d at 558;
_____________________
Rutledge, 660 F.2d at 1347 (all 8 appointed); Prebble v. Brod-
________ _______ _____
rick, 535 F.2d 605, 610 (10th Cir. 1976) (University of Wyoming).
____
But see Kovats, 822 F.2d at 1311 (concluding that, even if
___ ___ ______
majority is appointed by governor, that fact is not conclusive of
"alter ego" status). The power of appointment (and reappoint-
ment) is significant, and may entail risks of subtle or indirect
manipulation of the entity's decisionmaking processes by elected
officials.
____________________
12The Governor appoints the chairperson as well, and two ex
__
officio positions on the Board are occupied by members of the
_______
legislative branch. Cf. Harden, 760 F.2d at 1163 (noting the fact
__ ______
that executive branch officials serve as ex officio members of
__ _______
Board as evidence of "alter ego" status).
17
On the other hand, the Rhode Island statutory scheme is
somewhat unusual in the respect that it attempts to protect the
Board from "partisan or personal" pressures. R.I. Gen. Laws
16-59-3 ("removal solely for partisan or personal reasons unre-
lated to capacity or fitness for the office shall be unlawful").
Although individual Board members might be vulnerable to pres-
sure, the Board as a whole is insulated to some degree from
sudden "reversal[s] of policy" by fixed (three-year) and stag-
_____
gered terms. Id. 16-59-1. Cf. Jacintoport Corp. v. Greater
___ ___ __________________ _______
Baton Rouge Port Comm'n, 762 F.2d 435, 442 (5th Cir. 1985)
_________________________
(focusing on autonomy of Commission as an entity, not only on
__ __ ______
independence of the individual commissioners). Board members
receive minimal compensation ($50 per day of actual service, not
to exceed $3000 annually). Since it is highly unlikely that
members would depend on their Board compensation as a primary
source of income, the economic coercion attending the threat of
removal would be minimal. R.I. Gen. Laws 16-59-1(e). Aside
from the power of appointment, the governor has no direct voice
in Board decisionmaking. Cf., e.g., Fitchik v. New Jersey
___ ____ _______ ___________
Transit Rail Operations, Inc., 873 F.2d 655, 663 (3d Cir.)
_______________________________
(finding entity not "alter ego," despite gubernatorial veto
power), cert. denied, 493 U.S. 850 (1989). Finally, and most
_____ ______
significantly, individual Board members are provided with signi-
ficant insulation from partisan or personal pressure, in that no
Board member may be removed except for cause, after a full
___ _____
hearing and appellate review. R.I. Gen. Laws 16-59-2, 3.
18
As a corporate entity, the Board's supervisory powers
are pervasive. It unilaterally appoints, and may dismiss at its
pleasure, the commissioner of higher education and the presidents
of the individual educational institutions it oversees, see id.
___ ___
16-59-4(5), (6). It possesses plenary power over the post-
secondary school organizational structure, accounting procedures,
the creation and abolition of all postsecondary school depart-
ments and programs of study, as well as their affirmative action
hiring practices. Id. 16-59-4(10), (11). See Kovats, 822 F.2d
___ ___ ______
at 1311-12 (finding that minimal state supervision over entity's
operations suggests autonomy); cf. Hall, 742 F.2d at 306 (noting
___ ____
that state control through mandated programs of study suggests
lack of independence); University of Tennessee v. United States
_______________________ _____________
Fidelity & Guar, Co., 670 F. Supp. 1379, 1384 (E.D. Tenn. 1987)
____________________
(observing that entity must comply with controller's regulations,
and legislature controls physical plant operations). But see
___ ___
Kashani, 813 F.2d at 847 (finding entity's power to prescribe
_______
curricula not probative of its autonomy). The Board is expressly
exempted from compliance with the Rhode Island Administrative
Procedures Act, R.I. Gen. Laws 16-59-12, see Kovats, 822 F.2d
___ ______
at 1312 (APA exemption suggests autonomy); cf. Fitchik, 873 F.2d
___ _______
at 663 (APA applicability suggests "arm"); Jackson v. Hayakawa,
_______ ________
682 F.2d 1344, 1350 (9th Cir. 1982) (California State University)
(same); Krieger, 765 F. Supp. at 760 (same), as well as from
_______
certain personnel employment and equipment requisition regula-
tions, R.I. Gen. Laws 16-59-21 (providing Board with exemption
19
from R.I. Gen. Laws 35-3-1(5), (6) in "the interest of educa-
tional efficiency"). See Kovats, 822 F.2d at 1313 (exemption
___ ______
from civil service rules suggests autonomy); cf. United Carolina
___ _______________
Bank, 665 F.2d at 558 (applicability of employment regulations
____
suggests dependence); Krieger, 765 F. Supp. at 759-60 (lack of
_______
exemption from general budget controls and procurement rules
suggests "arm"); University of Tennessee, 670 F. Supp. at 1384
________________________
(legislature's control of employee compensation suggests "arm").
The Board holds full legal title to all URI real and
personal property, with the attendant power to acquire, hold, and
dispose of URI property and "other like property as deemed
necessary for the execution of its corporate purposes." R.I.
Gen. Laws 16-59-1. See Moor, 411 U.S. at 719 (noting that
___ ____
county may "sell, hold, or otherwise deal in property"); see also
___ ____
Fitchik, 873 F.2d at 663 (power to purchase property suggests
_______
citizenship); cf. Hall, 742 F.2d at 306 (unlike community college
___ ____
which holds title to property, no independence where educational
entity may sell property only with State's approval); University
__________
of Tennessee, 670 F. Supp. at 1384 (legislature's control over
____________
all physical plants and leases indicates lack of indepen-
dence).13 Although URI's real and personal property is exempt
____________________
13Since the Board's legal title to URI property is held "in
trust" for the State, R.I. Gen. Laws 16-59-1(a), URI argues
that the Board's fiduciary duty to the State, the equitable owner
of the property, inhibits its discretion to administer the
property as record owner. The language of the statute neverthe-
less suggests that the Board's business decisions to purchase,
administer, and dispose of URI property are largely unrestricted,
and absent misfeasance would be impervious to challenge by the
State. See Kovats, 822 F.2d at 1309 (legal title to property,
___ ______
20
from taxation, see R.I. Gen. Laws 44-3-3(1); Powers v. Harvey,
___ ______ ______
103 A.2d 551, 552 (R.I. 1954), in many cases this factor is
considered minimally probative. Often, tax policy is used by
States to encourage certain types of activity even though the
target entities are otherwise entirely independent of state
government. Rhode Island is no exception in this respect. See,
___
e.g., R.I. Gen. Laws 44-3-3(11) (cemeteries), (12) (incor-
____
porated or free libraries), (13) (veterans' organizations), (15)
(volunteer fire departments), (21) (water treatment facilities).
Moreover, nonpublic educational institutions in Rhode Island
_________
partake of a similar tax exemption, albeit narrower than that of
the Board. R.I. Gen. Laws 44-3-3(8) (private school property
is tax exempt to the extent it is used "exclusively for educa-
tional purposes"). Arguably, of course, tax exemption may be
attributable to the State's equitable title to the URI property.
_________
We think it at least as plausible, however, that the general
assembly exempts Board property from taxation as a means of
fostering performance of the Board's corporate functions. See
___
Kovats, 822 F.2d at 1311 (autonomy not fatally undermined by tax
______
exemption); Kashani, 813 F.2d at 846 (less probative where State
_______
grants tax exemption to political subdivisions); Hall, 742 F.2d
____
at 307 (tax exemption relevant only if it is not accorded other
entities which are not "alter egos"). But see University of
___ ___ _____________
____________________
though held in trust, coupled with discretionary power to dis-
pose, and to control both proceeds and income therefrom, suggests
independence); cf. Hall, 742 F.2d at 306 (entity is "arm" if
___ ____
property held in State's name).
21
Tennessee, 670 F. Supp. at 1384 (university is an "arm" because
_________
it is fully tax exempt, while private schools enjoy a partial
exemption only).
As a natural corollary to its power to control URI
property, the Board possesses,14 and freely exercises, its
corporate power to enter into contracts in its own name. See
___
State of Maryland Cent. Collection Unit v. Board of Regents, 529
________________________________________ ________________
A.2d 144, 145 (R.I. 1987); cf. Hughes-Bechtol, 737 F.2d at 544
___ ______________
(lack of power to contract without invoking State as named party
indicates entity is "arm"); Tradigrain, Inc. v. Mississippi State
________________ _________________
Port Auth., 701 F.2d 1131, 1133 (5th Cir. 1983) (noting that
___________
authority's power to enter into contract was limited; any con-
tract in excess of $2500 must be advertised and awarded to lowest
bidder); University of Tennessee, 670 F. Supp. at 1384 (entity is
_______________________
"arm" where legislature exerts control over its personal services
contracts). But cf. Kashani, 813 F.2d at 847 (power to enter into
___ ___ _______
contracts not conclusive of independent status); Hall, 742 F.2d
__________ ____
____________________
14The Board's power to contract is not specifically
enumerated in the statute, but is implicit in the grant of "all
the [other] powers . . . usually pertaining to public corpora-
tions . . . ." R.I. Gen. Laws 16-59-1. Contrary to URI's
contention, we see no reason to infer that this general grant of
corporate power is contradicted by other statutory provisions
which specifically authorize the Board to guarantee particular
loans in the state's name, see, e.g., R.I. Gen. Laws 16-32-11
___ ____
(Board empowered to guarantee student loans), 16-32-12, 14 (Board
empowered to guarantee, "in the name of the state," loans to
"societies of students" up to a total of $1.2 million; at de-
fault, loans "shall become state obligations in like manner as
any state bond"); Jacintoport Corp., 762 F.2d at 439, 441 (State-
_________________
's mere guarantee of agency's bonds is too "ancillary" an effect
to subvert agency's independence from State); see also infra note
___ ____ _____
17.
22
at 305 (same); Krieger, 765 F. Supp. at 760, 762 (same). The
_______
Board's capacity to contract for the maintenance and repair of a
federally funded GSO research vessel likewise suggests opera-
tional autonomy. See Moor, 411 U.S. at 719 (county "may contract
___ ____
for the construction and repairs of structures") (emphasis
_______________________
added); cf. State Highway Comm'n of Wyoming v. Utah Constr. Co.,
___ _______________________________ ________________
278 U.S. 194, 199 (1929) (finding that entity is "arm" where
"contract for the construction of the work was between the
[defendant] and the State").
Thus, the Board's operational autonomy, approximating
that of the political subdivision in Moor, sets it apart from
____
most entities with similar educational missions and tips the
balance in favor of the district court's finding that the Board
is a "citizen" of Rhode Island for diversity purposes.
2. The Board's Fiscal Autonomy15
2. The Board's Fiscal Autonomy15
___________________________
a. Statutory Scheme
a. Statutory Scheme
________________
Like most other public universities, URI's operations
are financed in part by State appropriations, approved annually
by the general assembly ("appropriated" funds), R.I. Gen. Laws
16-59-9 (such appropriations as the general assembly "deems
necessary"), and in part by non-State sources, such as tuition
____________________
15Although the multi-factor test is nonweighted, courts
generally agree on the primacy of the financial autonomy factor
in the overall balance. See Ainsworth, 818 F.2d at 1038 (finan-
___ _________
cial accountability who pays or gets paid is the most
____
important factor in test); see also Fitchik, 873 F.2d at 664;
___ ____ _______
Kashani, 813 F.2d at 846 (same); Hall, 742 F.2d at 304; Rutledge,
_______ ____ ________
660 F.2d at 1349.
23
charges, fees, and donations ("nonappropriated" funds). As with
all state universities, the legislature has the final say as to
the size of the annual appropriation. The Board, on the other
hand, prepares the five-year funding plan and budget for submis-
sion to the general assembly, and the Board alone "determines
priorities of expenditures." Id. 16-59-4(4). Cf. United
___ ___ ______
Carolina Bank, 665 F.2d at 558 (legislature's "comprehensive"
______________
control of appropriated funds suggests entity's financial depen-
dence); Prebble, 535 F.2d at 610 ("No expenditure may be made in
_______
excess of an appropriation and no money appropriated may be used
for any purpose other than for which it is appropriated.").
Furthermore, the Board has plenary authority to reallocate
appropriated funds among its various programs, facilities, and
agencies. R.I. Gen. Laws 16-59-9(c). Cf. Krieger, 765 F. Supp.
___ _______
at 760 (lack of power to reallocate appropriated funds suggests
entity is "arm"). And, as noted, the Board has substantial
income from sources other than State appropriations, see Kroll,
___ _____
934 F.2d at 908 n.3 (availability of substantial revenue from
other sources may be very relevant to autonomy inquiry), includ-
ing tuition charges, housing, dining and administrative fees,
donations, bequests and devises, the income and proceeds from URI
property, and federal grants.
URI's tuition and fees are set by the Board. URI's
housing, dining, and auxiliary facilities are totally self-
supporting, with no State appropriations slated for these purpos-
es after 1987. R.I. Gen. Laws 16-59-9(d). Thus, much of its
24
nonappropriated funding is roughly analogous to revenues raised
by means of a political subdivision's power to impose taxes upon
its constituents to defray the costs of the public services it
provides, a power delegated by the State to enable the political
subdivision to finance its "corporate" public service mission.
See Moor, 411 U.S. at 719-20 (county "authorized to levy taxes"
___ ____
and to "issue general obligation bonds payable from county
taxes"); Metcalf & Eddy, ___ F.2d at ___ [No. 91-1602, 1993 U.S.
_______________
App. LEXIS 10064, at 19 (1st Cir. May 3, 1993)] (in immunity
context, "[t]he power and opportunity to generate a revenue
stream [through user fees] and thereby finance an agency's
operations is an important attribute of the agency's separate
identity"); Fitchik, 873 F.2d at 663 (power to set and collect
_______
fares and fees tilts balance toward autonomy); see also supra
___ ____ _____
note 9; cf. Kashani, 813 F.2d at 846 (lack of power to impose
___ _______
taxes is equivalent to ultimate financial dependence on the
State); Hall, 742 F.2d at 304 (same); United Carolina Bank, 665
____ _____________________
F.2d at 558 (same); University of Tennessee, 670 F. Supp. at 1384
_______________________
(legislature's control of tuition fees suggests "arm").
There is no provision in Rhode Island law permitting
State intervention in URI's income stream from inception to
expenditure. The Board's nonappropriated funds are neither
"covered into," nor merged with, the general fund, but are kept
in segregated accounts pending discretionary disbursement by the
Board "without the necessity of appropriation or reappropriation
by the general assembly." R.I. Gen. Laws 16-59-18. Compare
_______
25
Kovats, 822 F.2d at 1308-09 (financial accounts not "within"
______
control of State treasury indicate autonomy), with Lewis, 837
____ _____
F.2d at 197 (finding evidence of lack of autonomy in the fact
that funds must go back into State treasury, their expenditure
extremely restricted); Hall, 742 F.2d at 304 (entity is an "arm"
____
of the State if it has power to issue bonds, but disbursements of
bond proceeds are restricted, and if State merely "permits"
formal segregation as matter of convenience); United Carolina
________________
Bank, 665 F.2d at 558 (nonappropriated funds deposited into State
____
treasury, then reappropriated for disbursement); Jagnandan, 538
_________
F.2d at 1176 (nonappropriated funds go directly into commingled
treasury account); Krieger, 765 F. Supp. at 760 (where entity
_______
does not "control" expenditure of funds, segregation not proba-
tive of autonomy); University of Tennessee, 670 F. Supp. at 1383-
_______________________
84 (all university funds commingled in one account, subject to
state comptroller's regulations and "regular" audits). Unexpend-
ed balances in the Board's segregated nonappropriated funds
account are carried forward from year to year, awaiting discre-
tionary disbursement by the Board for "nonrecurring" items, a
practice which effectively allows the Board to exceed its annual
appropriation and its annual budget if necessary. R.I. Gen. Laws
16-59-9(b). Cf. Jagnandan, 538 F.2d at 1175 (lack of authority
___ _________
to "exceed" budgeted expenditures, even from nonappropriated
funds, without approval of executive or legislature, indicates
dependency); Prebble, 535 F.2d at 610 (same).
_______
26
Finally, the State of Rhode Island engages in but
limited monitoring of Board revenues and expenditures, see
___
Harden, 760 F.2d at 1163-64 (the more financial oversight, the
______
more likely the university's debts are state's debts), though a
few statutory provisions serve to keep the State generally
apprised of the Board's financial decisions, enabling the type of
____
financial monitoring usually considered indicative of a lack of
meaningful fiscal autonomy. See, e.g., Lewis, 837 F.2d at 199
___ ____ _____
(regular auditing of both appropriated and nonappropriated funds
suggests "arm"); Kashani, 813 F.2d at 845-46 (entity is "arm" as
_______
it submits budget, and "Indiana examines [its] finances care-
fully"); Harden, 760 F.2d at 1163 (submission of annual financial
______
reports suggests "arm"); United Carolina Bank, 665 F.2d at 558
____________________
("extensive" reporting requirements suggest lack of autonomy);
Rutledge, 660 F.2d at 1349-50 ("detailed" report to governor);
________
Krieger, 765 F. Supp. at 756 (annual report to "general public"
_______
suggests "alter ego"); University of Tennessee, 670 F. Supp. at
_______________________
1379 (submission of annual report to governor or legislature,
with "detailed statement" of receipts and expenditures, indicates
"arm"). On the other hand, the level of State fiscal monitoring
_____
of the Board is comparatively unintrusive. For example, though
URI's treasurer must submit financial reports to the state
controller for "preaudit," the purely "ministerial" audit moni-
tors Board expenditures only for possible illegality and avail-
ability of funds, not with a view to the prudence of the Board's
financial decisions. R.I. Gen. Laws 16-59-20. See Kovats, 822
___ ______
27
F.2d at 1311 (mere "reporting" of spending decisions not indica-
tive of lack of autonomy). URI makes a rather wan attempt to
undermine Vanlaarhoven by citing a subsequently enacted "limita-
____________
tion" on the Board's purchasing power. See R.I. Gen. Laws 37-
___
2-1 and 37-2-7(11) (Board's purchases can be made only through
State Purchasing agent's office). As the district court found,
however, nothing in this statutory requirement portends quality
review or rejection of purchase orders by the purchasing agent.
R.I. Gen. Laws 16-59-20 ("controller [shall not] interpose his
or her judgment"). See supra note 7. Far from a meaningful
___ _____
limitation on the Board's power to disburse its funds, this
measure appears to have been designed solely to enable the Board
to avail itself of the financial savings associated with pooled
purchasing power.
With Moor as our benchmark, therefore, we conclude that
____
the Rhode Island statutory scheme demonstrates that the Board,
unlike more "typical" state educational entities, possesses the
essential attributes of operational and financial autonomy needed
to qualify as a Rhode Island "citizen" for diversity purposes.
b. "Functional Integration"
b. "Functional Integration"
______________________
In a resourceful effort to avoid Vanlaarhoven, URI
____________
urges its "functional integration" theory, whose genesis appar-
ently lay in our earlier "recommendation" to the district court
following dismissal of URI's interlocutory appeal. See supra p.
___ _____
4. URI argues, for example, that the Board's ostensible indepen-
dence in financial matters would prove illusory if, in fact, (1)
28
the Board's annual budget were funded by State-appropriated
monies to such an extent that its nonappropriated revenues were
rendered functionally insignificant, or (2) the Rhode Island
general assembly were to employ its statutory pre-audit proce-
dures to attune the Board's annual State appropriation so as to
force the Board to expend its anticipated and accumulated nonap-
propriated revenues in lieu of a more ample annual State appro-
priation. See, e.g., Krieger, 765 F. Supp. at 761 (evidence of
___ ____ _______
actual control by State would trump evidence of formal autonomy).
We emphasize that URI does not assert the existence of
___ _________
budgetary data which would demonstrate that the Board enjoys less
financial autonomy than the enabling statute indicates. More-
over, notwithstanding its efforts to persuade the district court
to conduct a separate evidentiary hearing on diversity jurisdic-
tion, URI has taken no initiative to substantiate its "functional
integration" theory, either by way of an evidentiary proffer
below, or even by way of the barest allusion to supportive data
in its brief or oral argument before this court. Instead, URI
insists that Chesterton, as the party requesting removal, see
___
supra Section II.A, was required to bear the entire burden of
_____ ______
proof and production on every conceivable fact even including
"negative" facts which might prove relevant to the Board's
_____ _____
citizenship status. Thus, even after trial on the merits, URI
speculates that there may be evidence which would preclude a
reliable determination as to federal diversity jurisdiction. For
the reasons hereinafter explained, we think URI inadvisably
29
banked on a cramped view of the proper allocation of the burdens
of proof and production relating to the jurisdictional issue,
misapprehended the proper role of "functional integration" data,
and exaggerated the import of our earlier "recommendation" to the
district court for further factfinding on remand.
For some reason, our earlier invitation to engage in
additional factfinding on remand went unheeded. URI intimates
that it did all it could by requesting a separate evidentiary
________
hearing, and that the district court simply discounted our
recommendation as to the possible relevance of "functional
integration" evidence. In our view, however, URI mischarac-
terizes the remand order. While we suggested the desirability of
supplementary factfinding, the precise factfinding procedure to
___________ _________
be employed always rests within the sound discretion of the trial
court. See Foman v. Davis, 371 U.S. 178, 182 (1962); O'Toole v.
___ _____ _____ _______
Arlington Trust Co., 681 F.2d 94, 98 (1st Cir. 1982) (finding no
___________________
abuse of discretion, as "the court was under no obligation to
require an evidentiary hearing . . . [but] has the right to
determine the procedures it will employ to decide a jurisdiction-
al issue") (citation omitted). At no time did we require a
separate evidentiary hearing on the jurisdictional issue.
________
Indeed, given our alternative ground for dismissing URI's inter-
locutory appeal namely, that it appeared unlikely that a trial
on the merits would be prolonged the district court's decision
to defer its jurisdictional determination until trial was entire-
ly consistent with the remand order.
30
Nor did the district court prevent URI from introducing
_______
any such statistical evidence at trial. Following an unrecorded
pretrial conference with counsel, the district court did deny
URI's motion for a separate evidentiary hearing. In that connec-
tion, URI has provided no indication of the legal contentions
advanced by either party at the pretrial conference, nor of the
grounds for the district court's decision to bypass a pretrial
evidentiary hearing. Chesterton, on the other hand, asserts that
the conference involved an extended discussion about the appro-
priateness of a separate pretrial hearing, but that the court
opted to permit the presentation of evidence on the jurisdiction-
al issue at trial.
__ _____
Viewed in proper procedural context, therefore, the
present claim hinges entirely on URI's unremitting allocation of
the burdens of persuasion and production to Chesterton, and not
on any lack of opportunity to raise or substantiate its "func-
tional integration" claim. Significantly, our remand order took
no position as to which party would be obliged to come forward
_____
with evidence of functional integration, nor did it suggest that
proof of lack of functional integration was required in every
case.
Of course, Chesterton, the party invoking diversity
jurisdiction, bears the ultimate burden of proving diversity of
________
citizenship. See Topp v. Compair, Inc., 814 F.2d 830, 839 (1st
___ ____ _____________
Cir. 1987). Nevertheless, there is more to be said concerning
the burden of production:
31
[T]he party who invoked diversity juris-
diction has the burden of proving all facts
upon which jurisdiction could be sustained.
If [the invoking party] does construct a
prima facie showing of diversity, [the chal-
lenging party] must overcome or rebut this
showing in order to dismiss the [removal
petition]. Support for [the challenger's]
position may be derived from affidavits,
depositions, and sworn statements filed by
the parties from which the Court can examine
and evaluate all relevant factors and sur-
rounding circumstances but the exact method
of determining the jurisdictional issue lies
within the sound discretion of the district
court.
United States Fidelity & Guar. Co. v. Di Massa, 561 F. Supp. 348,
__________________________________ ________
350 (E.D. Pa. 1983) (citation omitted). Although neither
Chesterton nor URI submitted affidavits, depositions, or sworn
statements, the district court properly conducted inquiry into
the controlling jurisdictional facts, pursuant to Moor, by
____
examining the Rhode Island enabling statute. Under Moor, such an
____
inquiry is designed primarily to provide the court with a compe-
tent basis for determining the legal framework within which the
relationship between a State and a State-created entity are
required to function. In the present case, the Rhode Island
enabling statute constituted a sufficient proffer on the issue of
the Board's financial autonomy. See, e.g., Tradigrain, 701 F.2d
___ ____ __________
at 1132 ("the state's constitutional, statutory, and decisional
law" comprise source material for the court's citizenship analy-
sis); see also Indiana Port Comm'n v. Bethlehem Steel Corp., 702
___ ____ ___________________ _____________________
F.2d 107, 109 (7th Cir. 1983); cf. supra note 8.
___ _____
As noted, see supra Section II.A.2.a, the enabling
___ _____
statute's broad grant of control to the Board over non-
32
appropriated revenues weighs heavily in Chesterton's favor and
satisfied its prima facie burden on the issue of financial
autonomy. Furthermore, financial autonomy is but one component
of the fact-intensive citizenship inquiry mandated by Moor, and
____
Chesterton prevailed on most other relevant jurisdictional facts
as well. See supra Section II.A.1. It was incumbent on URI,
___ _____
therefore, to mount an effective challenge to the prima facie
showing of financial autonomy. See Ohio Nat'l. Life Ins. Co. v.
___ _________________________
United States, 922 F.2d 320, 327 n.7 (6th Cir. 1990) ("That the
_____________
burden of proof is always on the [party asserting jurisdiction]
does not mean that a [challenger], without any proof on his part,
can put the [party asserting jurisdiction] to proof by affidavit
of jurisdictional facts sufficiently alleged in the complaint.
The [challenger] must at least submit some proof that the juris-
____ _____
dictional facts so alleged do not exist.") (citation omitted)
(emphasis added). Absent evidence or a compelling argument that
the fiscal autonomy permitted the Board under Rhode Island law,
as determined by the district court, does not actually obtain,
URI failed to overcome Chesterton's prima facie showing.16
____________________
16Moreover, in view of the presumptive deference due
Vanlaarhoven in the present context, see supra note 7, URI's
____________ ___ _____
"functional integration" theory was not being written on a blank
slate. See, e.g., Rollins v. Board of Governors for Higher
___ ____ _______ _______________________________
Educ., 761 F. Supp. 930, 931 (D.R.I. 1990) (citing Vanlaarhoven
_____ ____________
as precedent); cf. Cowan v. University of Louisville Sch. of
___ _____ __________________________________
Medicine, 900 F.2d 936, 940 (6th Cir. 1990) (proper to rely on
________
federal court precedent finding school not autonomous); Dube v.
____
State Univ. of New York, 900 F.2d 587, 594 (2d Cir. 1990) (SUNY)
________________________
(same), cert. denied, 111 S. Ct. 2814 (1991); Thompson v. City of
_____ ______ ________ _______
Los Angeles, 885 F.2d 1439, 1443 (9th Cir. 1989) (University of
___________
California) (same); Schuler v. University of Minnesota, 788 F.2d
_______ _______________________
510, 516 (8th Cir. 1986) (same), cert. denied, 479 U.S. 1056
_____ ______
33
Furthermore, challenges to subject matter jurisdiction
typically arise early in the litigation, and even though Eleventh
Amendment immunity and diversity jurisdiction may require fact-
intensive inquiries, see Kroll, 934 F.2d at 908 n.2, we see no
___ _____
justification for requiring the removing party to resort to
formal discovery before the opposing party with readier access
______
to the evidence raises a specific dispute relating to a duly
alleged jurisdictional fact. Such a requirement would invite
needless waste of judicial resources on a threshold issue which
must be resolved as expeditiously as practicable. See Tanzymore
___ _________
v. Bethlehem Steel Corp., 457 F.2d 1320, 1323 (3d Cir. 1972) (no
_____________________
need for evidentiary hearing on jurisdictional question if no
facts are in genuine dispute).
Without statistical evidence, URI's rebuttal was
exceedingly thin. Nevertheless, because it is clear that the
Board is "dependent" on the State for some unknown portion of its
revenues, we will assume, arguendo, that certain provisions of
________
the enabling statute cited by URI did give rise to a genuine
dispute over an important jurisdictional fact whether the
Board actually enjoys financial autonomy from the State. See,
___
e.g., R.I. Gen. Laws 16-59-5 (Board must hold annual meeting to
____
discuss budget and "invite" members of general assembly); id.
___
16-59-9(c) (all proposals for tuition increases must be made
before State appropriates funds for fiscal year).
______
____________________
(1987); Goss, 588 F.2d at 98-99 (same).
____
34
As far as we can discern from the case law, in only
three situations has the financial autonomy authorized by an
enabling statute been considered illusory. First, "functional
integration" may obtain if the State nonetheless bears the
ultimate legal responsibility to answer for debts on which the
________
state university defaults. Thus, the very financial independence
accorded the Board under the Rhode Island enabling statute
ultimately might expose the State treasury to liability for the
Board's financial obligations. In Kovats, 822 F.2d at 1309, the
______
Third Circuit flatly rejected such a functional integration claim
where the legislature's decision to answer for the university's
debts appeared to be purely discretionary and not legally bind-
ing. Cf. also Fitchik, 873 F.2d at 661 (the State's disclaimer
___ ____ _______
of any obligation to "cover" is the primary consideration, not
the relative size (50-70%) of the state appropriation); but cf.
___ ___
Hall, 742 F.2d at 304-05 (no statute prohibits university from
____
incurring debt in state's name, and fact that state will have to
__ _______ ____
"cover" debt by law is indicative of "alter ego" status); Krie-
_____
ger, 765 F. Supp at 761 (where District of Columbia expressly
___
committed itself to funding, agency not wholly "self-supporting"
is "mere arm").
Even if a state's ultimate legal obligation to "cover"
a university's financial obligations were the controlling consi-
deration in the diversity context, however, but see Moor, 411
___ ___ ____
U.S. at 719 (noting that the county, "and from all that appears
____ ___ ____ _______
the county alone, is liable for the judgments against it")
35
(emphasis added), the Rhode Island statutory scheme evinces no
conclusive answer as to whether the State is so obligated. We
have neither been cited to, cf. supra note 8, nor have we found,
___ _____
statutory language governing whether the State of Rhode Island
ultimately is responsible for the Board's corporate financial
obligations. Cf. Metcalf & Eddy, ___ F.2d at ___ [No. 91-1602,
___ ______________
1993 U.S. App. LEXIS 10064, at 13-14 (1st Cir. May 3, 1993)]
(statute explicitly divested Puerto Rico Aqueduct and Sewer
Authority of power "to pledge the credit or taxing power of the
Commonwealth," thereby "erect[ing] a wall between the agency's
appetite and the public fisc.").17
Second, the amount of the Board's nonappropriated
funding, either in absolute or relative terms, might be consid-
ered so insubstantial as to leave the Board financially dependent
on the State. But even assuming, arguendo, that an entity
________
receiving any State funding or subsidy is thereby inevitably
rendered susceptible to State pressure, two principles remain
constant. First, an incorporated entity dependent entirely on
________
State appropriations rarely (if ever) would escape characteriza-
tion as the State's "alter ego," since the hand that holds all
___
the purse strings presumably controls the dependent entity. See,
___
____________________
17The only provision remotely on point empowers the general
assembly to appropriate such funds to the Board as the general
assembly "deems necessary," R.I. Gen. Laws 16-59-9 (emphasis
_____ _________
added), as distinguished from such amount as "is necessary."
Furthermore, as we have noted, the general assembly purposively
delineated narrow categories of Board "debts" (e.g., student loan
____
guarantees) which would become "state obligations," a seemingly
superfluous undertaking if the State implicitly underwrites all
Board financial obligations. See supra note 14.
___ _____
36
e.g., State Highway Comm'n, 278 U.S. at 199 (finding no diversity
____ ____________________
where Highway Commission, despite its power to sue and be sued,
"had no funds or ability to respond in damages"); Neves, 837 F.2d
_____
at 534 (where monies "will inure exclusively to the benefit of
the public fisc," the diversity inquiry is at an end); Culebras
________
Enters. Corp. v. Rios, 813 F.2d 506, 517 (1st Cir. 1987) (Puerto
_____________ ____
Rico conservation authority is "alter ego" notwithstanding its
power to sue and be sued, where agency directors attested, and
plaintiffs did not dispute, that "the agency would not have the
funds to satisfy a judgment and that such would have to be
satisfied from the general budget of [Puerto Rico]"); see also
___ ____
Kashani, 813 F.2d at 846 (lack of other funding "ensures ultimate
_______
fiscal reliance on state"); Gay Students Servs., 737 F.2d at 1333
___________________
n.28 (same); Hughes-Bechtol, 737 F.2d at 543 ("board has no funds
______________
or ability to respond in damages"); Ronwin, 657 F.2d at 1073
______
(given State's comprehensive provisions for risk management, "no
evidence that the Board, acting in its corporate capacity, could
satisfy a libel judgment in any way other than by turning to the
state of Arizona"). URI must concede that the Board does not
fall within this bright-line category.
On the other hand, mere receipt of state appropriations
is not conclusive evidence of the recipient entity's "alter ego"
___
status. Many (if not most) political subdivisions routinely
receive significant state appropriations, but are characterized
___________
as autonomous entities for immunity and diversity purposes. See,
___
e.g., Mount Healthy, 429 U.S. at 280-81 (city board of education,
____ _____________
37
which received "significant amount" of state funding, not enti-
tled to immunity where State granted board the power to raise its
own revenue); Gary A. v. New Trier High Sch. Dist., 796 F.2d 940,
_______ _________________________
945 (7th Cir. 1986) (noting that the "fact that a local school
district receives 'a significant amount of money from the state'
___________ ______ __ _____
does not mean that it is an arm of the state") (emphasis added)
(citation omitted). In the Eleventh Amendment immunity context,
we recently rejected just such a contention:
We think [that the Puerto Rico Aqueduct and
Sewer Authority's] situation is not unlike
that of a typical political subdivision. Such
an entity often receives part of its budget
from the state and raises the rest indepen-
dently. Despite this dual funding, such enti-
ties do not automatically (or even usually)
come within the zone of protection demarcated
by the Eleventh Amendment . . . despite the
"significant amount of money" [they] received
from the state.
Metcalf & Eddy, ___ F.2d at ___ [No. 91-1602, 1993 U.S. App.
_______________
LEXIS 10064, at 15 (1st Cir. May 3, 1993)] (citations omitted).
Nevertheless, under Moor, the courts are expected to
____
consider available statistical evidence in arriving at a more
_________
precise assessment of the relative "significance" of the appro-
priated and nonappropriated funding which goes into the universi-
ty budget. See Kovats, 822 F.2d at 1308 (entity is "citizen"
___ ______
even though state appropriation is "large," or approximately 50
to 70% of budget). But see Kashani, 813 F.2d at 845 (33% appro-
___ ___ _______
priation suggests "arm"); Hall, 742 F.2d at 304 (average 64%
____
state appropriation suggests "arm"); Jagnandan, 538 F.2d at 1175
_________
(maximum 72% state appropriation suggests "alter ego"). In the
38
present case, however, neither the amount nor the percentage of
the Board's nonappropriated revenues can be ascertained from the
record. Thus, argues URI, the district court was compelled to
find that Chesterton did not sustain its burden of proof on the
Board's financial autonomy.
In characterizing such statistical data as indispens-
able jurisdictional "facts," however, URI misconstrues our case
law,18 as well as Supreme Court precedent. We have never inti-
mated that such statistical information is itself a jurisdiction-
al fact, the absence of which would invariably defeat diversity
jurisdiction. The core jurisdictional fact, after all, is
financial autonomy. Under the seminal Supreme Court decisions
____________________
18On occasion, we have adverted to this kind of statistical
evidence in the appellate record, as confirmation that a party
__ ___ _________ ______
could not establish diversity. See Perez v. Rodriguez Bou, 575
___ _____ ______________
F.2d 21, 25 (1st Cir. 1978) (in dicta, noting that the "extent
and nature" of the Commonwealth's support for the University of
Puerto Rico suggested lack of autonomy, but without describing
precise statistics, or stating whether University had other forms
of substantial nonappropriated income). On other occasions, we
have remanded for further factfinding where it appeared that the
autonomy equation was so evenly balanced that the proponent on
the jurisdictional issue could not meet its ultimate burden of
proof without resort to such statistical information, see, e.g.,
_______ ______ __ ____ ___________ ___________ ___ ____
Ainsworth, 818 F.2d at 1038-39 (noting various factors supporting
_________
and undermining autonomy, and remanding to district court for
hearing on whether entity receives "significant funding" from the
Commonwealth), and that the parties had not been afforded a full
and fair opportunity to present evidence in the trial court. Id.
___
at 1038 n.23 (as an alternative reason for remand, noting fact
that proponent had not raised the "alter ego" issue until its
appellate reply brief, denying opponent "the opportunity to argue
. . . or to rebut" the proponent's contentions). Thus, in our
earlier denial of the interlocutory appeal in this case, we acted
on the side of caution and judicial economy in recommending that
the district court allow the parties an opportunity to present
___________
this kind of evidence, on the chance that it might be needed to
tip the "alter ego" balance in the final analysis.
39
dealing with both immunity and diversity, there is a noticeable
lack of reliance on such statistical data, a fact which confutes
____
its indispensability. See, e.g., Mount Healthy, 429 U.S. at 280-
___ ____ _____________
81 (noting only "significant amount of money" received from
___________
State) (emphasis added); Moor, 411 U.S. at 719-20 (discussing
____
county's ability to raise its own funds, not whether county
received any funds from State); see also Metcalf & Eddy, ___ F.2d
___ ____
at ___ [No. 91-1602, 1993 U.S. App. LEXIS 10064, at 15 (1st Cir.
May 3, 1993)]. Unsurprisingly, as the divergent conclusions
reached on essentially similar "statistical" evidence suggest,
see supra pp. 37-38, a closely calibrated" statistical" approach
___ _____
in these cases entails its own impediments to reliable decision-
making; namely, at what levels should the absolute or relative
size of an entity's appropriated funding be considered so sub-
stantial, or its nonappropriated funding so insubstantial, that
"functional integration" is to be presumed, or a previous judi-
cial determination of the entity's citizenship set aside? We
believe a wide margin of variance would need to be demonstrated
before it could be found to have effected a sea change in the
entity's jurisdictional status. After all, while not immutable,
the citizenship of a public corporation, like its domicile,
should be accorded a reasonable measure of permanence; at the
very least, ordinary fluctuations in the university's budget
ought not occasion continual judicial reevaluation. Thus, trial
court rulings on subject matter jurisdiction normally ought not
await budgetary data and oscillations absent an evidentiary
40
proffer of sufficient import to alter a determination based on an
analysis of state statutory and decisional law. In our view,
this approach best comports with the analysis contemplated in
Moor.
____
In considering whether Chesterton carried its burden of
persuasion on the issue of financial autonomy, we think it is
inescapable that the Board's nonappropriated revenues represent a
substantial budget component; tuition, housing, dining and admin-
istrative fees, donations, bequests, federal grants, and the
proceeds from discretionary sales and leases of URI property are
not insubstantial revenue sources. Thus, on its face, the
enabling statute demonstrates Board access to, and control over,
substantial amounts of nonappropriated revenues. Following a
trial on the merits, and absent any indication that URI did not
have a fair opportunity to identify and produce statistical
evidence which might rebut Chesterton's demonstration that the
enabling statute confers the requisite financial autonomy to
qualify the Board for citizenship under Moor, we conclude that
____
URI's appellate challenge comes too late.
Finally, in a similar vein, URI suggests that it might
_____
be that the State routinely attunes its annual appropriation to
the Board in response to the total amount of nonappropriated
funds available to the Board, including the nonappropriated funds
accumulated from prior fiscal years and those anticipated in the
current fiscal year. Under this "linkage" theory, the State
could compel the Board to expend all accumulated and anticipated
______
41
nonappropriated funds merely by limiting its annual appropria-
tions to the difference between the Board's fiscal year revenue
requirements and the total available nonappropriated funds.
URI's contention that the State might link its appro-
priations to the availability of nonappropriated Board funds is
pure conjecture. Arrayed against URI's conjecture are the
explicit provisions of the enabling statute, as amended in 1988,
which expressly state that all nonappropriated funds, including
accumulated nonappropriated funds, are to be deposited in a
segregated account under the exclusive control of the Board. See
___
Kovats, 822 F.2d at 1308-09 (mere possibility of offset by state
______
appropriations not especially probative of "alter ego" status).
Appropriated funds, on the other hand, are to be set apart in a
separate account, and all unexpended balances in the appropriated
____________
funds account are to be redeposited to the general fund. Unex-
_______ ____
pended nonappropriated funds, however, are carried over from year
_______________
to year in the Board's nonappropriated funds account. This
separate treatment of appropriated and nonappropriated funds,
deliberately mandated by the general assembly, would have been
both superfluous and contraindicated had routine "linkage" been
intended. Cf. Allende v. Shultz, 845 F.2d 1111, 1117 (1st Cir.
___ _______ ______
1988) (in general, courts should avoid interpretations which
would render a statutory provision meaningless). In the absence
of any countervailing showing, the Board's financial autonomy, as
ordained by the general assembly in the enabling statute, was
42
sufficient to sustain Chesterton's burden of proof on the central
jurisdictional fact at issue under 28 U.S.C. 1332.
Accordingly, having weighed the myriad factors contem-
plated by Moor, we conclude that the district court correctly
____
determined that Chesterton met its ultimate burden of estab-
lishing that the Board enjoys "a sufficiently independent corpo-
rate character to dictate that it be treated as a citizen of
[Rhode Island]." Moor, 411 U.S. at 721.
____
B. Evidence of Damages
B. Evidence of Damages
___________________
In a ruling that proved fatal to URI's claims for
damages for breach of warranties, the district court excluded the
testimony of URI's longtime controller, Ronald Osborne, a certi-
fied public accountant in charge of all URI financial information
and accounting practices. URI called Osborne as an expert
witness to establish the amount of money it spent to correct the
corrosion problem allegedly left unremedied by Chesterton's 1-2-3
System. URI proffered no other evidence on damages. Osborne
testified on direct examination that he previously had performed
cost assessments on various URI projects, and that his usual
procedure was to consult URI financial records and conduct
interviews with URI personnel involved in the particular project.
He consulted GSO records to ascertain the overtime hours worked
in 1985, and conducted several interviews with URI employees and
various "private vendors" to ascertain which overtime hours were
attributable to the correction of Endeavor's corrosion problem.
To these figures he added the cost of fringe benefits (22%) for
43
overtime employees, and "indirect costs," at an unspecified
percentage rate, which included expenses for "accounting, pur-
chasing, maintenance, [and] utilities." Before Osborne could
state an opinion concerning the total monetary damages sustained
by URI, Chesterton objected on the grounds that (1) Osborne was
not a qualified expert on damages calculation, (2) the factual
bases for his calculation included inadmissible hearsay, and (3)
the damages calculation included inappropriate factors, such as
"indirect costs."
URI relied on Federal Rules of Evidence 703 and 705 as
grounds for the admission of Osborne's expert opinion. Rule 703
provides that "[t]he facts or data . . . upon which an expert
bases an opinion or inference . . . [,] [i]f of a type reasonably
relied upon by experts in the particular field in forming opin-
ions or inferences upon the subject, . . . need not be admissible
in evidence." Fed. R. Evid. 703. Rule 705 provides that "[t]he
expert may testify in terms of opinion or inference and give
reasons therefor without prior disclosure of the underlying facts
or data, unless the court requires otherwise. The expert may in
______ ___ _____ ________ _________
any event be required to disclose the underlying facts or data on
cross-examination." Fed. R. Evid. 705 (emphasis added). The
court sustained Chesterton's objection on the ground that URI had
not demonstrated that the facts relied on by Osborne were of a
type reasonably relied on by experts in damages assessment.19
____________________
19The court also expressed a firm preference for requiring
preliminary disclosure of the factual "background" for an ex-
pert's opinion on direct examination. The court considered this
44
URI's central arguments on appeal are: (1) Rules 703
and 705 afford the right to present unsubstantiated expert testi-
_____
mony on direct examination without first disclosing its factual
underpinnings, and (2) the district court abused its discretion
by adhering to its self-imposed rule of exclusion, a per se rule
___ __
which, according to URI, runs counter to the "burden shifting"
implicit in Rule 705 and disregards the obligation to predicate
its exclusionary ruling on the particular circumstances.
We have no doubt that Rules 703 and 705 permitted the
_________
district court to admit Osborne's opinion testimony, see
___
International Adhesive Coating Co. v. Bolton Emerson Int'l, 851
___________________________________ _____________________
F.2d 540, 545 (1st Cir. 1988) (business and financial records are
"obvious" sources relied on by accountants in ascertaining
damages), subject of course to Chesterton's right to probe the
premises of the opinion on cross-examination. But that is not
the question presented. Rather, the issue on appeal is whether
the district court abused its considerable discretion by exclud-
ing the evidence. We think not.
Rules 703 and 705 normally relieve the proponent of
expert testimony from engaging in the awkward art of hypothetical
questioning, which involves the somewhat meticulous, and often
tedious, process of laying a full factual foundation prior to
_____
____________________
procedure preferable to the alternatives, which were (1) to allow
the evidence in on direct, then exclude it later if it were found
wholly unreliable, or (2) to permit Chesterton to shoulder the
burden of testing the reliability of Osborne's methods on cross-
examination, leaving the ultimate weight of the evidence to the
jury.
45
asking the expert to state an opinion. In the interests of
efficiency, the Federal Rules of Evidence deliberately shift the
burden to the cross-examiner to ferret out whatever empirical
deficiencies may lurk in the expert opinion. Nevertheless, Rules
703 and 705 do not afford automatic entitlements to proponents of
expert testimony. Rule 703 requires the trial court to give
"careful consideration" to any inadmissible facts upon which the
expert will rely, in order to determine whether reliance is
"reasonable." Id. at 545. Similarly, under the broad exception
___
to Rule 705 ("unless the court otherwise requires"), the trial
court is given considerable latitude over the order in which
evidence will be presented to the jury. See Fed. R. Evid. 705
___
advisory committee's note ("[S]afeguards [to minimize 'unfair'
burden on cross-examiner] are reinforced by the discretionary
power of the judge to require preliminary disclosure in any
__ ___
event.") (emphasis added). While the trial court's discretion is
_____
not unfettered, at a minimum the rules suggest that the proponent
must be prepared, if the court so requires, to make a limited
offer of proof to aid the court in its assessment. Cf. Ambrosini
___ _________
v. Labarraque, 966 F.2d 1464, 1469 (D.C. Cir. 1992) ("A court
__________
must know the basis for an expert's opinion before it can deter-
mine that the basis is not of a type reasonably relied on by
experts in the field."); Head v. Lithonia Corp., 881 F.2d 941,
____ ______________
944 (10th Cir. 1989) (despite the liberality of Rule 703, court
must not abdicate its responsibility to assure "minimum stan-
dards" for admissibility as required by Rule 104(a)).
46
Even though URI's threshold burden was minimal, and may
have been readily met, it made no attempt whatever to assuage the
district court's legitimate concerns, but chose instead to rely
on its perceived "right" to have Osborne's opinion admitted under
Rule 703. Apparently, URI came to trial with no supporting
documentation whatever to substantiate Osborne's assessment of
damages. Based on what can be gleaned from Osborne's preliminary
testimony, URI's apparent unpreparedness and recalcitrance may
have given the district court real concerns as to Osborne's
methodology. Unlike the expert witness in International Adhe-
___________________
sive, Osborne's "damages" assessment was not based solely on the
____
conventional examination and compilation of documents from which
an expert objectively might ascertain the overtime labor costs
incurred in repairing Endeavor's ballast tanks, as distinguished
from various other projects at URI and the GSO. Rather, Osborne
relied on "interviews" with undisclosed URI employees and "out-
side vendors," conducted either by himself or other URI officials
who reported to him. The trial court quite reasonably expected
URI to explain, out of the presence of the jury, the basic
assumptions undergirding its witness's seemingly unorthodox
method of reconstruction.
Rather than provide an explanation, however, URI simply
accepted a directed verdict on the issue of damages. Moreover,
when pressed by the district court, URI indicated no inclination
to pursue a claim for nominal damages. Although we are given
some pause by the district court's blanket statement that it
47
"always requires" the proponent to disclose on direct examination
the factual basis for an expert opinion, cf., e.g., Lis v. Robert
___ ____ ___ ______
Packer Hosp., 579 F.2d 819, 822, 822-23 (3d Cir.) (expressing
____________
disapproval of trial court's statement that it invariably exer-
cises its discretion to invoke the Rule 611(b) exception), cert.
_____
denied, 439 U.S. 955 (1978), there was no abuse of the court's
______
broad discretion in this case, as a sound basis existed for
requiring disclosure.
III
III
CONCLUSION
CONCLUSION
__________
We need proceed no further with this endeavor.20
____________________
20URI raises two other arguments on appeal. First, it
contends that the district court abused its discretion by denying
its motion to file a second amended complaint in November 1991
eighteen months after the filing of its original complaint, and
following jury impanelment since URI asserted valid reasons
for its lack of diligence. See Quaker State Oil Refining Corp.
___ ________________________________
v. Garrity Oil Co., 884 F.2d 1510, 1517 (1st Cir. 1989) (due
________________
diligence required for amendments). As far as we can discern,
the amendment's only significant factual supplementation to the
original complaint would allege that Chesterton's representatives
"came aboard the Research vessel Endeavor while the Chesterton 1-
2-3 System was actually being applied and said nothing as to its
not being equal to the task of painting the ballast tanks." The
amended complaint generally shifted the focus of URI's allega-
tions from Chesterton's defective manufacture of a product to
Chesterton's negligence in recommending an ill-suited product, or
its failure to give adequate or continuing instructions on its
use. Chesterton suffered no prejudice, however, as most of these
new factual matters were in fact "tried by express or implied
__ ____
consent of the parties," Fed. R. Civ. P. 15(b). In any event, as
the substance of the proposed amendments was wholly unrelated to
the issue of damages, amendment would have been futile. See
___
Arzuaga-Collazo v. Oriental Fed. Sav. Bank, 913 F.2d 5, 7 (1st
_______________ ________________________
Cir. 1990) (amendment futile if there is no "meaningful indica-
tion" that amendment would make a "dispositive difference")
(citing The Dartmouth Review v. Dartmouth College, 889 F.2d 13,
____________________ _________________
48
Absent competent evidence of damages, the district court properly
granted judgment as a matter of law in favor of Chesterton on
URI's breach of warranty claims.
The judgment of the district court is affirmed.
The judgment of the district court is affirmed.
______________________________________________
- Concurring Opinion Follows -
____________________
22-23 (1st Cir. 1989)).
Similarly, URI contends that the district court improperly
directed a verdict for Chesterton on Count III of the complaint,
which alleged Chesterton's breach of a warranty of fitness for a
particular purpose. URI merely argues that it presented suffi-
cient evidence to establish that Chesterton had reason to know
that URI intended to use the product on salt water ballast tanks,
and that URI specifically relied on Chesterton's assurances of
suitability. Once again, however, absent proof of damages, URI's
argument is to no avail.
49
HORNBY, District Judge, concurring. It takes the court
HORNBY, District Judge, concurring.
__________________________
38 typed pages (8-1/2 x 11") of closely reasoned text to decide
whether the University of Rhode Island is a citizen -- a determi-
nation that has nothing to do with the substance of the real
world dispute between these parties, but simply resolves where to
try their lawsuit. Is this approach really essential for deter-
mining whether a federal court has jurisdiction? Granted that
our system limits the jurisdiction of federal courts, a rational
observer might nevertheless expect simple gatekeeping rules for
what gets in and what is kept out. A litigant should be able to
ascertain, with relatively modest effort and legal fees, where to
bring its lawsuit. But if the court's analysis of a "myriad
factors" -- which are "by no means exhaustive" -- is to be the
governing standard, future litigants in cases involving similar
state agencies had better be prepared to pay a lot of legal fees
for their lawyers to (1) read and digest the prose; (2) gather
the relevant information and apply the legal analysis to their
client or opponent; (3) litigate the issues at pretrial, trial
and on appeal. Those litigants had also better be prepared for
delays in decisionmaking as lawyers and judges ponder the issue:
the "myriad factors" will seldom yield a certain outcome until a
court actually decides the issue.
To be sure, this court is not alone in adopting this
approach. Other courts have also applied a multitude of factors
(with no particular weight assigned), in determining the status
50
of a particular state agency. See, e.g., Hughes-Bechtol, Inc. v.
___ ____ _______________________
West Virginia Bd. of Regents, 737 F.2d 540, 543-44 (6th Cir.),
_____________________________
cert. denied, 469 U.S. 1018 (1984) (looking at several factors);
_____________
Krieger v. Trane Co., 765 F. Supp. 756, 758 (D.D.C. 1991) (exam-
_____________________
ining seven factors); University Sys. of New Hampshire v. United
___________________________________________
States Gypsum Co., 756 F. Supp. 640, 645 (D.N.H. 1991) (citing
__________________
eight factors); University of Tennessee v. United States Fidelity
_________________________________________________
& Guar. Co., 670 F. Supp. 1379, 1386-87 (E.D. Tenn. 1987) (con-
___________
sidering, arguendo, a nine-factor approach). The result is great
________
unpredictability. As the commentaries recognize, "[t]here is no
unanimity among the decisions as to whether state agencies or
departments are citizens within the meaning of 28 U.S.C.S.
1332, with some decisions holding that they are while others
hold that they are not." 1 Federal Proc. L. Ed. 1:200. The
ensuing extensive litigation over jurisdiction has undoubtedly
caused substantial delay and consumed thousands of dollars in
attorney fees where the real goal should have been speedy and
inexpensive resolution of the merits of the underlying dispute.
The question is whether United States Supreme Court
precedents really require such a complex analysis. I think not.
I will concede that this court's approach is one plausible
reading of the precedents, but there is another plausible reading
that keeps the subject matter jurisdiction issue in proper
perspective as only a preliminary issue in the underlying econom-
ic dispute between the parties.
51
As the court recognizes, a couple of propositions are
beyond debate, given United States Supreme Court decisions.
First, a State cannot be a citizen of itself: "There is no
question that a State is not a `citizen' for purposes of the
diversity jurisdiction." Moor v. County of Alameda, 411 U.S.
___________________________
693, 717 (1973). Second, incorporated branches of state govern-
ment (for example, cities and counties) are citizens of the state
___
of their incorporation. See Cowles v. Mercer County, 74 U.S. (7
___ ________________________
Wall.) 118, 122 (1869). This resulting principle of independent
citizenship for a public corporation had become so "well settled"
by 1972 that the Supreme Court no longer stopped to question it.
See Moor, 411 U.S. at 718, quoting Illinois v. City of Milwaukee,
___ ____ _______ _____________________________
406 U.S. 91, 97 (1972).
Here, the Rhode Island Board of Higher Education1 is
separately incorporated with the power to sue and be sued. The
diversity statute provides: "[A] corporation shall be deemed a
citizen of any state by which it has been incorporated . . . ."
28 U.S.C. 1332(c). What more need be said to conclude that the
Rhode Island Board is a citizen for diversity purposes? The
court apparently believes that its lengthy and complex analysis
is required by Moor. But in Moor the Supreme Court spent only
____ ____
one paragraph summarizing California statutes to conclude that
the county was a corporation with important powers independent of
the state and a second paragraph summarizing a California Supreme
____________________
1I agree with the court that there is no legal entity under
Rhode Island law known as the University of Rhode Island.
52
Court decision finding California counties to be corporations.
Based on those two summary paragraphs, the Supreme Court conclud-
ed that "the county has a sufficiently independent corporate
character to dictate that it be treated as a citizen of Califor-
nia under our decision in Cowles v. Mercer County, supra." 411
_______________________ _____
U.S. at 721.
A parallel short treatment of Rhode Island law can dispose
of the jurisdictional issue in this case. The Board that governs
the University of Rhode Island is a "public corporation, empow-
ered to sue and be sued in its own name, to have a corporate
seal, and to exercise all the powers, in addition to those
hereinafter specifically enumerated, usually appertaining to
public corporations entrusted with control of post-secondary
educational institutions and functions." R.I. General Laws 16-
_________________
59-1-(a) (1992). Under Rhode Island law, a "public corporation"
is "a corporate entity which is considered a governmental agency
but which has a distinct legal existence from the state or any
municipality, [and] does not constitute a department of state or
municipal government . . . ." Id. 22-10-2(f). The Board has the
__
corporate power to acquire, hold, and dispose of real and person-
al property (albeit in trust for the state). Id. 16-59-1(b).
__
The Board is entitled to levy tuition and other fees in order to
obtain funds to carry out its activities. Id. 16-59-9. Its
__
receipts from sources other than state appropriations do not go
into the state's general fund and are subject to use at the
Board's order. Id. 16-59-18. It appoints the presidents of
__
53
postsecondary institutions and has a great deal of authority in
determining what postsecondary education will be available to
Rhode Island citizens. Id. 16-59-4, 8. This summary paints a
__
picture of a "sufficiently independent corporate character" to
match that of the California county at issue in Moor. No more
____
should be necessary.2 I therefore concur in the court's evalua-
tion that jurisdiction exists, but not in the prolonged reasoning
by which it reaches that conclusion.
I add one postscript: The careful reader will observe
that neither I nor the court have articulated any jurisdictional
policy arguments in determining the citizenship of the Board.
The policy interests behind the court's myriad factor approach
are borrowed -- I believe ill-advisedly -- from Eleventh Amend-
ment cases where the primary goal is to protect the state trea-
sury. Perhaps the court's complex analysis and case-by-case
approach are justified there. The policy goals in diversity
jurisdiction analysis are somewhat different, involving avail-
ability of an unbiased forum. The Supreme Court has not ad-
____________________
2Since the Board is a public corporation, it seems unneces-
sary to pursue the "arm or alter ego" alternative set forth in
_____ ___
State Highway Comm'n of Wyoming v. Utah Constr. Co., 278 U.S.
______________________________________________________
194, 199 (1929). There, a lawsuit was brought against the
Wyoming State Highway Commission (an unincorporated state agency)
and its individual members, premised on diversity of citizenship.
The Supreme Court found no diversity jurisdiction. Primarily,
the Court determined that the suit was not really against the
Highway Commission but against the State of Wyoming itself,
because it was the State that was actually a party to the con-
tract in dispute and neither the Commission nor any of its
members had assumed any responsibility. The sentence most often
quoted (and referred to in Moor) states: "The Commission was but
____
the arm or alter ego of the State with no funds or ability to
_____ ___
respond in damages." 278 U.S. at 199.
54
dressed them in its analysis of what is a citizen and neither do
I. In any event, such interests can best be served by clear
rules for the generality of cases; every single piece of litiga-
tion need not require a return to first principles. Probably,
the major policy interest at stake lies in how the conclusion is
___
reached. Simplicity from the courts of appeals (and the Supreme
Court) on these gatekeeping and procedural issues will permit
lawyers and judges -- and most importantly, the parties -- to
deal with the merits of disputes in a simple and less costly
manner. Needlessly complex jurisdictional rules like those the
court advances here can only perplex the litigants as they pay
mounting attorney fees and suffer through procedural delays.
Congress has ordered district courts to pay heed to such concerns
in the Civil Justice Reform Act of 1990, 28 U.S.C. 471-482.
Appellate courts can make that task easier by resisting unneces-
sary subtleties and focusing instead on rules that ensure pre-
dictability and certainty, as well as fairness.
In all other respects, I join the court's opinion.
55
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