Earl Patterson v. Pennsylvania Liquor Control Bo

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 17-2742
_____________
EARL PATTERSON
Appellant
v.
PENNSYLVANIA LIQUOR CONTROL BOARD
______________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. Action No. 2-16-cv-05687)
District Judge: Honorable J. Curtis Joyner
______________
Argued: June 19, 2018
______________
Before: GREENAWAY, JR., RESTREPO, BIBAS, Circuit
Judges.
(Opinion Filed: February 12, 2019)
__
Wayne A. Ely,
Timothy M. Kolman,
W. Charles Sipio, [ARGUED]
Kolman Ely
414 Hulmeville Avenue
Penndel, PA 19047
Counsel for Appellant
J. Bart DeLone
Josh Shapiro
Claudia M. Tesoro [ARGUED]
Office of Attorney General of Pennsylvania
1600 Arch Street
Suite 300
Philadelphia, PA 19103
Counsel for Appellee
______________
OPINION OF THE COURT
______________
RESTREPO, Circuit Judge.
Earl Patterson was employed as a maintenance person
for the Pennsylvania Liquor Control Board (“PLCB”) when he
reported for duty at a PLCB-operated liquor store in
Eddystone, Pennsylvania. Shortly after his arrival, the
location’s assistant manager accused him of attempting to rob
the store. Patterson was detained by the police as a result of the
PLCB employee’s accusation. Patterson filed a Complaint
pursuant to 42 U.S.C. §§ 1981 and 1983 against the PLCB
alleging race discrimination and violations of Fourteenth
Amendment Equal Protection in connection with these events.
Patterson now appeals the District Court’s Order granting the
PLCB’s motion to dismiss his Complaint on Eleventh
Amendment sovereign immunity grounds.1 For the reasons
that follow, we will affirm.
I.
On the morning of November 17, 2014, Patterson—an
African-American male and a longtime PLCB employee
performing maintenance—arrived at a PLCB-run store in
Eddystone, Pennsylvania to inquire about the store’s operating
1
Patterson has withdrawn his claim under 42 U.S.C. § 1981,
and now bases his appeal on the District Court’s
determination that his claim under 42 U.S.C. § 1983 is barred
on Eleventh Amendment sovereign immunity grounds.
2
condition. Upon his arrival, Patterson asked for a manager and
was directed by a store clerk to the assistant manager. Patterson
then identified himself to the assistant manager as a
maintenance worker for the PLCB and asked whether the
store’s electricity and plumbing were in working order or if the
store might otherwise be in need of repairs. The assistant
manager became “very rude” to Patterson, so he exited the
liquor store, entered his “state-owned van, and reported the
assistant manager to his foreman over the phone.” App. 11. Per
his foreman’s instruction, Patterson left the Eddystone store
and drove towards another PLCB store in Newtown Square,
Pennsylvania.
En route to the Newtown Square store, Patterson was
stopped by the police and questioned about “robbing” the
Eddystone store. Id. During the stop, an officer informed
Patterson that the Eddystone assistant manager had called to
report a “black guy” in a “state van” who was trying to “rob
her store.” App. 11-12.
Patterson filed a Complaint against the PLCB alleging
race discrimination and violations of the Fourteenth
Amendment’s Equal Protection Clause, pursuant to 42 U.S.C.
§§ 1981 and 1983. The PLCB filed a motion to dismiss for
failure to state a claim pursuant to Federal Rule of Civil
Procedure 12(b)(6), which the District Court granted upon a
finding that the PLCB was entitled to Eleventh Amendment
sovereign immunity from suit. Patterson appeals, arguing that
the District Court erred in finding that the PLCB was an “arm”
of the Commonwealth of Pennsylvania. Patterson contends
that, in reaching its conclusion that the PLCB is immunized
from suit under the Eleventh Amendment, the District Court
improperly weighed this Court’s three-factor test, established
in Fitchik v. N.J. Transit Rail Operations, Inc., 873 F.2d 655,
659 (3d Cir. 1989) (en banc).
II.
The District Court had jurisdiction pursuant to 28
U.S.C. § 1331. We have jurisdiction pursuant to 28 U.S.C. §
1291. We exercise plenary review over a District Court’s
dismissal of an action pursuant to Rule 12(b)(6). Estate of
Lagano v. Bergen Cty. Prosecutor’s Office, 769 F.3d 850, 853
(3d Cir. 2014). We review de novo whether an entity is entitled
3
to sovereign immunity. Karns v. Shanahan, 879 F.3d 504, 512
(3d Cir. 2018).
III.
Though, by its terms, the Eleventh Amendment
immunizes only “States” against private actions brought by
citizens of other states, see U.S. Const. amend. XI, it is “well
established” that suits brought by in-state litigants against
“arms” of a state “may nonetheless be barred by the Eleventh
Amendment.” Karns, 879 F.3d at 512–13 (quoting Edelman v.
Jordan, 415 U.S. 651, 663 (1974), and Bowers v. Nat’l
Collegiate Athletic Ass’n, 475 F.3d 524, 545 (3d Cir. 2007));
see also Hans v. Louisiana, 134 U.S. 1, 20 (1890).
A party is an “arm of the state” for sovereign immunity
purposes when “the state is the real, substantial party in
interest.” Ford Motor Co. v. Dep’t of Treasury of Ind., 323 U.S.
459, 464 (1945), overruled on other grounds by Lapides v. Bd.
of Regents of Univ. Sys. of Ga., 535 U.S. 613, 623 (2002).
“[T]he relationship between the State and the entity in
question” is critical to this inquiry. Regents of the Univ. of Cal.
v. Doe, 519 U.S. 425, 429 (1997). We employ a three-factor
test to determine an entity’s sovereign immunity status: “(1)
whether the payment of the judgment would come from the
state; (2) what status the entity has under state law; and (3)
what degree of autonomy the entity has.” Karns, 879 F.3d at
513 (quoting Bowers, 475 F.3d at 546). We regard the three
factors as “co-equal.” Benn v. First Judicial Dist. of Pa., 426
F.3d 233, 239–40 (3d Cir. 2005). Thus after assessing in which
direction each factor points, “we balance them to determine
whether an entity amounts to an arm of the State.” Maliandi,
845 F.3d at 84.
Below, we will assess the factors and their relevant
subfactors. Part III.A. considers whether the state or the PLCB
funds payment of an adverse judgment; Part III.B. reviews
whether state law treats the PLCB as an arm of the state; and
Part III.C. examines the PLCB’s autonomy relative to the state.
A.
When analyzing the funding factor, we first ask
“[w]hether the money that would pay the judgment would
4
come from the state.” Fitchik, 873 F.2d at 659. To evaluate this
question, we consider three subfactors: (1) a state’s legal
obligation to pay a money judgment entered against the entity;
(2) whether the agency has money to satisfy the judgment; and
(3) whether there are specific statutory provisions that
immunize the state from liability for money judgments. Id.; see
also Maliandi, 845 F.3d at 86. We evaluate each subfactor in
turn, below.
i.
The first funding subfactor focuses on “whether the
state treasury is legally responsible for the payment of a
judgment.” Febres v. Camden Bd. of Educ., 445 F.3d 227, 233
(3d Cir. 2006) (emphasis added). Accordingly, if a state
indemnifies an entity voluntarily, the funding factor will likely
disfavor granting sovereign immunity. See Maliandi, 845 F.3d
at 87. Pennsylvania is not legally obligated to pay for
judgments entered against the PLCB. After the PLCB pays a
judgment, the Governor may choose to reimburse the PLCB—
but there is no legal obligation to do so. See 47 Pa. Cons. Stat.
§ 744-910 (“The State Treasurer is hereby authorized and
directed to transfer such sums from the General Fund to the
State Stores Fund as the Governor . . . shall direct.”).
Accordingly, this subfactor weighs definitively against
granting the PLCB sovereign immunity.
The PLCB instead argues that this subfactor only
slightly disfavors a finding of sovereign immunity. Appellee’s
Br. 19. Specifically, the PLCB contends that its funds
effectively “morph into Commonwealth funds” because the
funds are subject to a high level of oversight from state
officials. Id. Therefore, an adverse judgment’s practical effect
would constitute a state legal obligation to keep the PLCB
afloat. Id.
We do not agree. Although practical effects arguments
have, on occasion, “enter[ed] [our] calculus,” Febres, 445 F.3d
at 236, such instances have been limited to situations where
“Congress has put a proverbial ‘gun to the head’ of the State to
sustain the entity even without a legal obligation.” Maliandi,
845 F.3d at 87 n.7 (citing Alaska Cargo Transp., Inc. v. Alaska
R.R. Corp., 5 F.3d 378 (9th Cir. 1993) (holding that an adverse
judgment against the state agency had the practical effect of
5
impacting the state’s treasury because federal law effectively
required Alaska to keep the entity operational); Morris v.
Wash. Metro. Area Transit Auth., 781 F.2d 218 (D.C. Cir.
1986) (finding that a judgment against the Washington
Metropolitan Area Transit Authority would directly affect
Maryland and Virginia’s treasuries because of their practical
financial commitments to the entity)).
Here, we find the PLCB’s argument unavailing, as the
state is not legally obligated to pay for an adverse judgment,
and there is no legislative coercion for the state to do so.
Though the practical effects argument is not convincing in
terms of this subfactor, the state’s high level of control over the
PLCB is relevant to the third subfactor—the PLCB’s
autonomy—and, accordingly, we will discuss it below. Fitchik,
873 F.2d at 660 (reasoning that New Jersey’s veto power over
New Jersey Transit’s operations indicated a lack of autonomy
from the state, not financial dependency).
In sum, as the PLCB is responsible for the payment of
judgments, and the state has no legal obligation to indemnify
it, this subfactor points definitively against affording the PLCB
sovereign immunity.
ii.
The second subfactor requires us to determine whether
the entity has money to pay an adverse judgment, and whether
“the entity has sources of funding aside from state
appropriations” that could satisfy the judgment. Maliandi, 845
F.3d at 88; accord Fitchik, 873 F.2d at 660–62. We also
consider the degree of control the state maintains over any
funds it appropriates to the entity. See Fitchik, 873 F.2d at 661.
The PLCB obtains revenue from the sale of liquor,
which is then deposited into the State Stores Fund, a “separate
fund from the State Treasury.” Heppler v. Pa. Liquor Control
Bd., No. 10-3430, 2011 WL 2881221, at *5 (E.D. Pa. July 18,
2011). Money in the State Stores Fund is appropriated by the
Pennsylvania General Assembly to the PLCB for its daily
operations, and for “otherwise administering and enforcing the
Pennsylvania Liquor Control Act.” 47 Pa. Cons. Stat. § 744–
907. This includes the payment of judgments entered against
the PLCB. Heppler, 2011 WL 2881221, at *5 (finding that a
6
“payment of a judgment against the PLCB would be paid out
of the State Stores Fund”). In the event that the PLCB did not
have sufficient funds to satisfy a judgment, it could “obtain
sufficient funds by raising its revenues.” Id.; accord Christy v.
Pa. Turnpike Comm’n, 54 F.3d 1140, 1146–47 (3d Cir. 1995)
(holding that the Pennsylvania Turnpike Commission could
pay for a judgment through its “power to raise revenue levels
by increasing the toll rates”).
Alternatively, if the PLCB was unable to satisfy a
judgment, the state could transfer funds to it as directed by the
Governor; however, the PLCB would be required to reimburse
the state “no[] later than thirty days after the end of such fiscal
year or period.” 47 Pa. Cons. Stat. § 744–911. Funds
appropriated to the PLCB effectively operate as a loan,
indicating that the state exerts some financial control over it.
This control is, however, outweighed by the PLCB’s ability to
satisfy a judgment with its own source of revenue and to raise
additional funds without significant state involvement. This
demonstrates a level of financial independence not
characteristic of an entity considered an arm of the state.
Accordingly, this subfactor tilts away from a finding of
sovereign immunity.
iii.
The third subfactor instructs us to determine whether
the state has immunized itself from the entity’s debts. Fitchik,
873 F.2d at 659. If the state has absolved itself of
responsibility, this suggests that the entity is not considered an
arm of the state. Maliandi, 845 F.3d at 90.
There is no specific provision in the Liquor Code that
immunizes the state from the PLCB’s liabilities. When
assessing this subfactor, the Heppler Court found that the
PLCB is likely expected to pay off its own debts because there
is a provision in the Liquor Code, see 47 Pa. Cons. Stat. § 744-
910, that instructs the PLCB to transfer any surplus revenue to
the state, “indicating solvency beyond its operating budget.”
Heppler, 2011 WL 2881221, at *5. Moreover, any temporary
loans to the PLCB must be repaid within the fiscal year. Id.;
see 47 Pa. Cons. Stat. § 744-911. Thus, this subfactor weighs
slightly against affording immunity.
7
In summary, because the state is not legally responsible
for adverse judgments, the PLCB can satisfy a judgment using
revenue obtained from liquor sales, and the PLCB is
responsible for its own debts, the funding factor weights
definitively against granting the PLCB sovereign immunity.
B.
The second factor requires us to examine whether state
law treats the PLCB as an arm of the state. Fitchik, 873 F.2d at
659. We consider four subfactors: (1) how the law treats the
agency generally; (2) whether the agency is separately
incorporated; (3) whether the agency can sue and be sued in its
own right; (4) and whether it is immune from state taxation. Id.
i.
Pennsylvania statutory and case law indicate that the
PLCB is considered an arm of the state for sovereign immunity
purposes. First, Pennsylvania’s state sovereign immunity
statute grants the PLCB state sovereign immunity except under
specific circumstances. See 42 Pa. Cons. Stat. § 8522(b)(7)
(excepting sovereign immunity for the sale of liquor to “any
minor, or to any person visibly intoxicated, or to any insane
person, or to any person known as an habitual drunkard, or of
known intemperate habit”); see also Heppler, 2011 WL
2881221, at *6 (citing that the “PLCB is an agency which is
entitled to sovereign immunity pursuant to the state sovereign
immunity statute, 42 Pa. Cons. Stat. § 8522(a)”).
Furthermore, Pennsylvania state courts have
consistently found that the PLCB is an arm of the state entitled
to state sovereign immunity. See Merchs.’ Warehouse Co. v.
Gelder, 36 A.2d 444, 448 (Pa. 1944) (“The [PLCB] is an
agency of this Commonwealth created by it for the purpose of
carrying out a state function and for this reason is clothed with
immunity from suit.”); Biello v. Pa. Liquor Control Bd., 301
A.2d 849, 852 (Pa. 1973) (reaffirming the holding in Gelder);
Brey v. Commonwealth, 381 A.2d 228, 229 (Pa. Commw. Ct.
1978).
Finally, in Karns, we considered the extent to which
New Jersey Transit officers are vested with “general authority,
without limitation, to exercise police powers.” Karns, 879 F.3d
8
at 517. We concluded that “New Jersey law regards NJ Transit
as exercising the official police powers of the state.” Id. Here,
the PLCB was created under the Liquor Code as “an exercise
of the police power of the Commonwealth for the protection of
the public welfare, health, peace and morals of the people of
the Commonwealth.” 47 Pa. Cons. Stat. § 1-104(a). This too
supports the view that Pennsylvania law regards the PLCB as
an arm of the state.
Though general treatment under state law is
informative, it is not dispositive; this subfactor “does not
necessarily overshadow the other relevant subfactors.” Cooper
v. Se. Pa. Transp. Auth., 548 F.3d 296, 308 (3d Cir. 2008).
Thus, we note that the PLCB is generally treated as an arm of
the state under state law, and continue our analysis of the
second factor.
ii.
Next, we review the entity’s corporation status. When
an entity is separately incorporated, this weighs against
affording the entity sovereign immunity. Febres, 445 F.3d at
230–31.
The PLCB argues that it does not have a separate
corporate existence because the Liquor Code does not
explicitly state whether the PLCB is separately incorporated.
Appellee’s Br. 20. Patterson argues, however, that the PLCB is
separately incorporated because the Liquor Code defines it as
an “independent administrative board.” Appellant’s Br. 11
(quoting 47 Pa. Cons. Stat. § 2-201).
We have repeatedly held that an entity is separately
incorporated when there is statutory language explicitly stating
the same. See Cooper, 548 F.3d at 307 (citing 74 Pa. Cons.
Stat. § 1711(a)) (finding an entity to be separately incorporated
under its enabling statute, which stated that it has “a separate
corporate existence”); Febres, 445 F.3d at 230 (citing N.J. Stat.
Ann. § 18A:10-1) (considering a New Jersey entity separately
incorporated based on a state statute’s language stating “under
the supervision of a board of education, which shall be a body
corporate”); Fitchik, 873 F.2d at 663 (citing N.J. Stat. Ann. §
27:25-4(a) (creating NJ Transit as “a body corporate and politic
with corporate succession”)).
9
Here, there is no explicit statutory provision stating that
the PLCB is separately incorporated, and Patterson does not
offer any evidence as to why the PLCB being an “independent
agency” is relevant to its incorporation status. Therefore, we
find Patterson’s argument unconvincing, and that this
subfactor favors a finding of sovereign immunity.
iii.
The Liquor Code does not give the PLCB power to sue
or be sued as a separate entity from the Commonwealth, setting
the PLCB apart from many other entities created by
Pennsylvania law. Compare 47 Pa. Cons. Stat. § 2-207
(demonstrating that enumerated powers of the PLCB do not
include ability to sue or be sued); with 4 Pa. Cons. Stat. §
1202(b)(3) (listing capacity to sue or be sued under general
powers of Pennsylvania Gaming Control Board); and 36 Pa.
Cons. Stat. § 652d (powers of Pennsylvania Turnpike
Commission include ability to sue and be sued); and 40 Pa.
Cons. Stat. § 4103 (stating that the Pennsylvania Interstate
Insurance Product Regulation Compact can “bring and
prosecute legal proceedings or actions in its name as the
Commission”). Accordingly, the fact that the Liquor Code
does not state that the PLCB can sue and be sued as its own
agency indicates that PLCB does not have this power.
Patterson argues that the PLCB has the ability to sue and
be sued as its own entity due to the Supreme Court of
Pennsylvania’s holding in Pennsylvania Liquor Control
Board. v. Rapistan, Inc., 371 A.2d 178 (Pa. 1976). Appellant’s
Br. 10-11. This argument is misguided. In Rapistan, the court
stated that the “PLCB could institute an action before [a
Commonwealth Court]. However, [the court] stated that the
suit should be brought by the Commonwealth and not by the
individual agency.” Rapistan, 371 A.2d at 185 n.10. Thus, it is
clear that Rapistan did not permit the PLCB to bring suit as an
individual agency; rather, Rapistan allowed the PLCB to sue
under the name of Commonwealth.
Thus, we find that this subfactor also leans towards a
finding of sovereign immunity.
10
iv.
There is no statutory indication that the PLCB is
immune from state taxation. Compare 47 Pa. Cons. Stat. § 8-
803 (failing to discuss taxation requirements under the general
duties of the PLCB), with 36 Pa. Cons. Stat. § 653(m) (stating
that the Pennsylvania Turnpike Commission “shall not be
required to pay any taxes or assessments on any property
acquired or used by it.”). The PLCB does not, however, pay
taxes on its revenues, property, or bonds, “suggest[ing] that
Pennsylvania state law considers the PLCB an arm of the
state.” Heppler, 2011 WL 2881221, at *7. Thus, this subfactor
factor slightly favors sovereign immunity.
v.
In sum, three of the four subfactors only slightly tilt
toward granting immunity: separate incorporation, power to
sue and be sued, and immunity from state taxes. The remaining
subfactor, consideration of the PLCB as an arm of the state
under Pennsylvania statutory and case law, tips the balance in
favor of granting the PLCB sovereign immunity under the
second factor.
C.
The third factor instructs us to examine the degree to
which an entity is autonomous from the state, while “focusing
on the entity’s governing structure and the oversight and
control exerted by a State’s governor and legislature.”
Maliandi, 845 F.3d at 96 (citing Febres, 445 F.3d at 231–32;
accord Fitchik, 873 F.2d at 663–64).
There are numerous statutory provisions in the Liquor
Code that indicate the PLCB is subject to substantial oversight
from the state. First, the executive and legislative branches
have significant control over the PLCB in terms of the
composition of the Board. See 47 Pa. Cons. Stat. §§ 2-201–
204. For example, the Governor appoints the members of the
Board with consent of the Senate, id. § 2-201; appoints the
chairman of the Board, id. § 2-203; and can appoint a secretary
of the Board, id. § 2-204.
11
Additionally, the state imposes several constraints on
the members of the Board: the Liquor Code proscribes how
long they may serve on the Board, id. § 2-201; denotes how old
Board members must be, id. § 2-202(a); prohibits members
from holding any other office or position while serving on the
Board, id. § 2-202(b); and requires Board members to follow
the State Public Official and Employee Ethics Law, id. § 2-
206.1.
The state also prescribes the general powers of the
Board and specifies how it shall operate, including the general
powers of the Board; id. § 2-207; the types of regulations the
PLCB is permitted to create are predefined by state statute; id.
§ 2-208; and the state directs the PLCB to transfer two percent
of its annual profits from the sale of liquor to the Department
of Health; id. § 8-802(c).
The PLCB does have some autonomy, however, in that
it has the power to grant and revoke liquor licenses, lease
buildings for liquor stores, and make certain regulations that it
deems necessary for the efficient administration of the Liquor
Code. Heppler, 2011 WL 2881221, at *7. Nonetheless, these
powers were ascribed by the state and are still subject to the
Administrative Code. 47 Pa. Cons. Stat. § 2-206.
In sum, the PLCB is subject to substantial oversight
from the state. Therefore, we find that this factor weighs
definitively in favor of finding that the PLCB is an arm of the
state.
D.
We now balance the three factors to determine whether
the PLCB is an arm of the state. Maliandi, 845 F.3d at 84.
Again, it is important to note that “courts should not simply
engage in a formulaic or mechanical counting up of the
factors.” Karns, 879 F.3d at 513–14. Rather, we must assess
“the qualitative strength of each factor in the context of the
circumstances presented.” Id. at 519.
The funding factor strongly weighs against affording
sovereign immunity, as the PLCB has significant financial
independence from the state. The “status under the law” factor,
though less definitive, tips in favor of immunity because
Pennsylvania statutory and case law overwhelmingly views the
12
PLCB as an arm of the state. The autonomy factor weighs
strongly in favor of immunity because the PLCB is subject to
substantial oversight and control from the state’s executive and
legislative branches. On balance, the first and third factors
effectively cancel each other out, as they point in opposite
directions. The PLCB’s status under Pennsylvania law tips the
scale in favor of the PLCB being considered an arm of the state.
We therefore conclude the PLCB is an arm of the state that is
entitled to Eleventh Amendment sovereign immunity.2
***
For the foregoing reasons, we will affirm the order of
the District Court granting the PLCB’s motion to dismiss.
2
In so holding, Patterson's claim fails for a separate reason: a
state, including an entity that is an arm of the state, is not a
"person" under 42 U.S.C. § 1983, and therefore cannot be sued
for damages under that statute. See Will v. Michigan Dept. of
State Police, 491 U.S. 58, 64, 70-71 (1989).
13