Alabama Space Science Exhibit Commission v. Merkel American Ins. Co.

          MEMORANDUM OPINION AND ORDER

          LILES C. BURKE UNITED STATES DISTRICT JUDGE

         Plaintiff Alabama Space Science Exhibit Commission d/b/a U.S. Space & Rocket Center (“ASSEC” or “plaintiff”) has filed a Motion to Remand (doc. 5) on the basis that the Court lacks subject matter jurisdiction because there is no diversity of citizenship between the parties. Defendant Merkel American Insurance Company (“Merkel”) filed a response (doc. 7), and ASSEC filed a reply (doc. 8). Therefore, the Motion to Remand is ready for review. For the reasons stated herein, the Motion to Remand is denied.

         I. BACKGROUND

         This insurance coverage dispute was initially filed by ASSEC in the Circuit Court of Madison County. (Doc. 1-1, pp. 3-11). Merkel removed the action to this Court on April 18, 2019. (Doc. 1). ASSEC subsequently filed the Motion to Remand. ASSEC argues that the Court lacks subject matter jurisdiction because it is an arm of the State of Alabama - not a citizen of the State of Alabama - and therefore there is no diversity jurisdiction. In particular, ASSEC, applying a four-factor test, argues that it is an arm of the state. ASSEC does not contest the amount in controversy.

         In response, Merkel notes, among other things, that ASSEC has raised and lost the same argument (i.e., that it is an arm of the state) multiple times in another case in the Northern District of Alabama, Alabama Space Science Exhibit Commission v. Odysseia Co., Ltd., 5:14-cv-413-MHH. Applying the same four factors as ASSEC, Merkel argues that ASSEC is not an arm of the state.

         In its reply, ASSEC argues at least two things have changed since the motions to remand in Odysseia were decided. First, ASSEC states that the Alabama Supreme Court's opinion in Barnhart v. Ingalls, No. 1170253, 2018 WL 6074918 (Ala. Nov. 21, 2018), sheds light on the issue. Second, ASSEC states that the prior opinions in Odysseia were based on a limited factual record and that it has filed a motion for summary judgment in Odysseia with respect to the diversity jurisdiction issue that includes the factual record present in this action.

         The Court will address these arguments, as well as other arguments made by the parties, to the extent necessary, in the next section.

         II. DISCUSSION

         Section 1332(a) states that district courts shall have original jurisdiction of all civil actions where the matter in controversy exceeds $75, 000 and is between “citizens of different States.” Id. at § 1332(a)(1). The burden of establishing subject matter jurisdiction falls on the party invoking removal. Univ. of S. Alabama v. Am. Tobacco Co., 168 F.3d 405, 411-12 (11th Cir. 1999). Furthermore, federalism dictates that “all doubts about jurisdiction should be resolved in favor of remand to state court.” Id. at 411.

         “[I]t is well established that a state is not a citizen of a state for the purpose of diversity jurisdiction under 28 U.S.C. § 1332.” Id. at 412. “A public entity or political subdivision of a state, unless simply an ‘arm or alter ego of the State,' however, is a citizen of the state for diversity purposes.” Id. (quoting, in part, Moor v. Alameda County, 411 U.S. 693, 71-18 (1973)). Therefore, if a party is deemed to be an arm or alter ego of the State, diversity jurisdiction does not exist. Id. As noted, plaintiff contends that it is not a citizen for purposes of Section 1332 because it is an arm of the State of Alabama.

         “Although the question of diversity jurisdiction is distinct from that of immunity, see Parks v. Carriere Consol. Sch. Dist., 12 F.2d 37, 38 (5th Cir. 1926), we have also held that the Eleventh Amendment immunity analysis is applicable to determinations of citizenship for the purpose of diversity jurisdiction.” Id. at 412. To determine whether a party is an arm of the state in the Eleventh Circuit, a court must consider four factors: “(1) how the state law defines the entity; (2) the degree of state control over the entity; (3) where the entity derives its funds; and (4) who is responsible for judgments against the entity.” Nichols v. Alabama State Bar, 815 F.3d 726, 732 (11th Cir. 2016). Indeed, the parties agree on the four factors to be applied. (Doc. 5, p. 8; Doc. 7, p. 8).

         Whether an agency is an arm of the state is a federal question; however, “whether that standard is met will be determined by carefully reviewing how the agency is defined by state law.” Versiglio v. Bd. of Dental Examiners of Alabama, 686 F.3d 1290, 1291 (11th Cir. 2012); see also Manders, 338 F.3d 1304, 1309 (11th Cir. 2003) (“The issue of whether an entity is an ‘arm of the State' for Eleventh Amendment purposes is ultimately a question of federal law. But the federal question can be answered only after considering provisions of state law.”). Furthermore, “[w]hether a defendant is an ‘arm of the State' must be assessed in light of the particular function in which the defendant was engaged when taking the actions out of which liability is asserted to arise.” Manders, 338 F.3d at 1308. Thus, although ASSEC is not the defendant in this action, the Court considers its analysis in the context of the lawsuit before it, i.e., a lawsuit by ASSEC against its insurance company, Merkel, with respect to Merkel's alleged duty to defend and indemnify it for a dispute related to payment for production of an animated television series by non-party Space Race, LLC.^[1]

         A. How Alabama law defines ASSEC

         The Court has found no Alabama law expressly declaring ASSEC an arm of the state. Other courts in this district, however, have determined that ASSEC is not an arm of the state. See, e.g., Alabama Space Science Exhibit Comm'n v. Odysseia Co., Ltd., 5:14-cv-413-MHH, Mem. Op. and Order, Doc. 52 (N.D. Ala. Aug. 10, 2016) (finding that ASSEC is not an arm of the state and is therefore a citizen of Alabama for purposes of diversity jurisdiction, Order, Doc. 72 (N.D. Ala. April 26, 2017) (declining to disturb its prior decision that ASSEC is a citizen of Alabama for purposes of diversity jurisdiction); see also Parker v. Alabama Space Science Exhibit Comm'n, 5:15-cv-2261-AKK, Mem. Op. and Order, Doc. 12 (N.D. Ala. June 6, 2016) (finding that the U.S. Space & Rocket Center operated by ASSEC is not an arm of the state for Eleventh Amendment sovereign immunity purposes). But cf. Ingalls v. U.S. Space & Rocket Ctr., No. 2:14-CV-699-WKW, 2015 WL 4528687, at *6 (M.D. Ala. July 27, 2015) (“Based upon an examination of the Commission's founding legislation and Alabama case law, the court finds that Alabama courts would determine that the Commission functions as an arm of the state and is, therefore, entitled to Eleventh Amendment immunity.”). While the Court realizes that it is not bound by the decisions of other judges in this district, it does find them persuasive. Likely anticipating this possibility, plaintiff, while making many of the same arguments that it did in the other cases, primarily argues that a recent Alabama Supreme Court case, Barnhart v. Ingalls, __ So. 3d, 2018 WL 6074918 (Ala. Nov. 21, 2018), demonstrates that Alabama law conclusively establishes that ASSEC is an arm of the State of Alabama and, as a result, this Court should do the same. The Court will therefore examine Barnhart.

         In Barnhart, the Alabama Supreme Court considered what it construed as an appeal by three ASSEC officers in their official and individual capacities. The basis of Barnhart was an audit of ASSEC conducted by the Department of Examiners of Public Accounts (“DEPA”) in which DEPA discovered that ASSEC had not complied with Alabama law in (1) its payment of annual longevity bonuses to ASSEC employees; and (2) in the manner it compensated ASSEC employees for working on certain state holidays. Id. at *1 (citing Ala. Code § 36-6-11(a) and § 1-3-8). Representatives of ASSEC maintained, among other things, that the legislation pursuant to which it was created removed it from the purview of certain state employment laws, including the benefits statutes. Plaintiffs, former employees of ASSEC, filed suit against ASSEC and several ASSEC officers, alleging that they had not received all compensation to which they were entitled by statute during their tenures as ASSEC employees. In particular, plaintiffs alleged that they had not been paid the amount of longevity bonuses to which they were entitled when they were ASSEC employees and that they had not been properly compensated for working on state holidays that were not observed at ASSEC.

         Plaintiff requested the following: (1) judgment declaring that ASSEC's existing policies and compensation plan did not comply with the terms of the Alabama benefits statutes (“the declaratory-relief claim”); (2) an injunction requiring ASSEC officers to comply with those statutes (“the prospective-relief claim”); (3) an award of money previously earned, but not paid, because of the failure to comply with the statutes (“the retrospective-relief claim”); and (4) various negligence/wantonness and breach-of-fiduciary duty claims against the ASSEC officers in their individual capacities (“the individual-capacity claims”). The circuit court certified for class-action treatment the declaratory-relief claim, the retrospective-relief claim, and the individual-capacity claims; the circuit court dismissed the claim against ASSEC on state immunity grounds. The ASSEC officers petitioned the Alabama Supreme Court for a writ of mandamus directing the circuit court to vacate its order certifying the class and dismissing the claims against them. For reasons not pertinent here, the Alabama Supreme Court treated the petition for writ of mandamus as an appeal.

         The Alabama Supreme Court then considered whether claims against the three ASSEC officers should be dismissed, or, in the alternative, whether to vacate the circuit court's order certifying those claims for class-action treatment. The Alabama Supreme Court first considered the issue of whether the claims against the ASSEC officers were barred by state immunity. The Alabama Supreme Court concluded that plaintiffs' retrospective-relief claim for money owed was not barred by state-agent immunity because, “if the benefit statutes obligated [ASSEC] officers to pay the named plaintiffs compensation they were not paid, the [ASSEC] officers had no discretion to avoid that requirement; obedience to the statute is mandatory.” Id. at *8. The Alabama Supreme Court concluded, “In sum, if it is ultimately determined that the named plaintiffs should have received additional compensation pursuant to the benefit statutes, the [ASSEC] officers had a legal duty to make those payments all along, and in finally doing so they are merely performing a ministerial act. Accordingly, the named ...