State university is an arm of the state, immune from FMLA suit

Montclair State University (MSU) is an arm of the state of New Jersey and, as such, is immune from federal suit under the FMLA, the Third Circuit held in a case of first impression, resolving a split among its district courts and dismissing a university employee’s FMLA suit on Eleventh Amendment immunity grounds. Citing the “near unanimity” among the federal circuits that state-affiliated colleges enjoy immunity, the appeals court detailed the “constitutional underpinnings” and case law that have shaped its own arm-of-the-state analysis in a lengthy decision. Left unanswered: whether Congress has abrogated Eleventh Amendment immunity for FMLA claims, or whether New Jersey has waived its Eleventh Amendment immunity from suit in federal court with regard to the employee’s state-law claim under the New Jersey Law Against Discrimination (NJLAD).

After the employee took FMLA leave for breast cancer treatment, MSU refused to restore her to her original position or an equivalent one. The employee rejected the offer to be placed in an inferior position, and filed suit under the FMLA’s self-care and retaliation provisions. She also asserted a claim under the NJLAD. The district court rejected MSU’s motion to dismiss her federal claim based on Eleventh Amendment immunity, finding that the university is not an alter ego of the state and so can be sued in federal court. Applying the fact-intensive, co-equal Fitchik factors—which differ slightly from the analogous factors considered by its sister circuits—the Third Circuit reversed in what it deemed a “close case.”

Funding factor. Is the state treasury legally responsible for an adverse judgment entered against the university? If so, then MSU is an arm of the state. In deciding, courts are to consider the state’s legal obligation to pay such a money judgment, whether there are alternative sources of nonstate funding from which such a judgment could be paid; and any specific statutory provisions that immunize the state from liability for money judgments. Here, the appeals court found the funding factor weighed against a finding of immunity for MSU.

The court rejected the university’s argument that MSU’s financial statements are included in the state’s financial accounting—implying that, consequently, the state would have to increase appropriations to the university to cover losses incurred as a result of a money judgment against it. But such an indirect cost—a voluntary choice on the state’s part in order to keep the college afloat—is not enough to warrant Eleventh Amendment immunity, the court said.

As for alternative sources of funding, courts look to the percentage of an entity’s funds that come from nonstate sources. When alternative funding sources make up even a small part of the college’s overall budget, courts typically hold such funding weighs against immunity; in MSU’s case, in the years 2012 through 2014, while 49 to 50 percent of funding came from tuition and fees, only 18.8-21.8 percent of its annual revenues came from state appropriations. MSU has “minimal” constraints in how to spend those funds, but is largely autonomous to spend them as it deems fit. Moreover, MSU retains any leftover state funds; they are not returned to the state, so it can’t be said that the state retains ownership over those funds, once allocated to MSU. Also, MSU has control over the tuition and fees it charges; it also may invest funds and retain the profits of those investments. Thus, the alternative sources of funding also weigh against a finding of immunity.

The “specific statutory provisions” subfactor simply means that when the state has “expressly immunized itself from the entity’s liabilities,” it explicitly indicates that the entity in question is not an arm of the state, and is not protected by Eleventh Amendment immunity. Indeed, New Jersey has expressly immunized itself as to state colleges in two isolated circumstances—of little significance here. So this subfactor suggests MSU is immune. The other subfactors cut against immunity, though, so the appeals court held the funding factor weighs against a finding of immunity.

Status under state law factor. Is MSU treated as an arm of the state under state case law and statutes? On the whole, yes, the appeals court answered, finding this factor supported a finding of immunity, although numerous subfactors were not so clear-cut either way (and some, such as the power to enter into contracts, leaned against immunity). However, MSU’s inability to sue and be sued favored immunity, along with the fact that the school is immune from state taxes and from municipal and county ordinances, tipped the scales toward immunity. Moreover, the fact that MSU is subject to the state’s administrative procedure and civil service laws, and can exercise the power of eminent domain, clearly favored a finding of immunity.

Autonomy factor. At issue here is the extent to which an entity enjoys autonomy from state control, based on the structure of an entity’s internal governance. “The lesser the autonomy of the entity and greater the control by the State, the greater the likelihood the entity will share in the State’s Eleventh Amendment immunity,” the Third Circuit explained. And while the state code offered “inconsistent signals,” the appeals court found it imposed enough constraints on MSU’s institutional autonomy to favor immunity as an arm of the state. By way of illustration, the court offered the opposite extremes of the “largely autonomous” Rutgers (also a New Jersey state school) and the inhibited University of Iowa, and noted that MSU’s governing characteristics were more akin to the latter.

For example, the state’s Secretary of Higher Education can issue master plans for higher education and also has authority to license and accredit institutions of higher education, impose ethics rules, approve new academic programs, review budget requests, and regulate licensing, outside employment, tuition, personnel, tenure, and retirement programs. The state official can visit a school at any time to review its financials and compliance with laws and regulations, and may issue subpoenas to investigate wrongdoing. The colleges must spend their budgets in accordance with general provisions of the state budget and appropriations, and are subject to audit at any time to ensure conformance. Furthermore, the entity is subject under New Jersey law to the Administrative Procedure Act, the State College Contracts Law, and the civil service laws. They also must comply with certain restrictions on their ability to make deposits in financial institutions absent security from the institution; their government relations and lobbying activities are subject to statutory bounds; and their contractual obligations are tied to the state coffers. The state colleges are also subject to substantial reporting requirements and internal governance rules. While MSU bears some countervailing “hallmarks of an autonomous entity,” the appeals court ultimately was not persuaded that these attributes made up for the significant “indicia of state control” present here.

MSU immune from suit in federal court. The upshot? Although a “close call,” MSU’s status under state law and autonomy factors “tilt in favor of immunity,” the appeals court found. Thus, on balance, two of the three co-equal Fitchik factors support a finding that MSU is an arm of the state of New Jersey, and thus enjoys Eleventh Amendment immunity from federal suit.

SOURCE: Maliandi v. Montclair State University, No. 14-3812, December 27, 2016.

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