Hutto et al v. South Carolina Retirement System, The et al
ORDER granting 32 Motion to Dismiss. Signed by Honorable J Michelle Childs on 9/27/2012.(hcic, ) (Main Document 43 replaced on 9/27/2012 with corrected document as provided by Chambers) (hcic, ).
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
Gail M. Hutto, Debra J. Andrews, Elizabeth
W. Hodge, Margaret B. Lineberger, Lynn
R. Rogers, Nancy G. Sullivan, Jane P.
Terwilliger, Julian W. Walls, and all others
The South Carolina Retirement System, the
Police Officers Retirement System, the
South Carolina Retirement Systems Group
Trust, Mark Sanford, Governor of South
Carolina, in his official capacity as ex officio
Chairman of the South Carolina Budget and
Control Board, Richard Eckstrom, Comptroller )
General of the State of South Carolina, in
his official capacity as an ex officio member
of the South Carolina Budget and Control
Board, Hugh K. Leatherman, Chairman of
the South Carolina House of Representatives
Ways and Means Committee, in his official
capacity as an ex officio member of the South )
Carolina Budget and Control Board, Daniel
T. Cooper, Chairman of the South Carolina
Ways and Means Committee, in his official
capacity as Executive Director of the South
Carolina Budget and Control Board, and
Peggy G. Boykin, in her official capacity as
Director of the Retirement Division of the
South Carolina Budget and Control Board,
Civil Action No.: 4:10-cv-02018-JMC
ORDER AND OPINION
Plaintiffs are retired members of a pension trust plan1 administered by the South Carolina
Retirement Systems (“Retirement Systems”) who were rehired on or after July 1, 2005, by
employers participating in the Retirement Systems. Plaintiffs bring this action, on behalf of
themselves and others similarly situated, challenging the constitutionality of South Carolina’s
State Retirement Systems Preservation and Investment Reform Act (“Act 153”).
specifically allege Act 153 violates their constitutional rights under the Fifth and Fourteenth
Amendments to the United States Constitution by requiring them to contribute to the Retirement
Systems upon their rehiring without providing them with any additional benefits or service
credit. Currently before the court is Defendants’ Supplemental Motion to Dismiss [Dkt. No. 32]
under Federal Rules of Civil Procedure 12(b)(1), (3), and (6). Defendants contend in their
motion that, among other things, Plaintiffs’ action is barred in federal court by the doctrine of
sovereign immunity. For the reasons set forth below, the court grants Defendants’ motion.
FACTUAL AND PROCEDURAL BACKGROUND
Prior to July 1, 2005, all South Carolina State employees were eligible to retire, collect
their pension benefits, and later return to work for the State. After returning to work, the
employees would be paid a salary and continue to receive pension benefits from their retirement.
These “working retirees” were not required to contribute any further to the Retirement Systems
upon their return to work.2 However, the General Assembly enacted Act 153, which became
The pension trust plans at issue in this case are (1) the South Carolina Retirement System
(“SCRS”), which provides retirement benefits to employees of the State and its political
subdivisions; and (2) the South Carolina Police Officers Retirement System (“PORS”), which
provides retirement benefits to police officers. See S.C. Code Ann. §§ 9-1-20, 9-11-20 (Supp.
2010). The SCRS and the PORS along with other pension trusts are managed by the South
Carolina Retirement Systems.
Prior to the Act 153 amendments, South Carolina would withhold the normal pension benefits
due to participants in the Teacher and Employee Retention Incentive Program (“TERI”);
effective on July 1, 2005, amending several statutes relating to the operation of the SCRS and the
PORS. The relevant statutes affected by Act 153 require:
A retired member [to] pay to the [retirement] system the employee contribution as if the
member were an active contributing member if an employer participating in the system
employs the retired member. The retired member does not accrue additional service
credit in the system by reason of the contributions required . . . .
S.C. Code Ann. §§ 9-1-1790(C), 9-11-90(4)(c) (2012).3
This change in the law spawned two lawsuits in the South Carolina state courts. The
first, Layman v. State of South Carolina, 368 S.C. 631, 630 S.E.2d 265 (2006), involved retired
State employees who had returned to work for the State prior to July 1, 2005. Each Layman
plaintiff participated either in the TERI retirement program, the SCRS, or the PORS. The
Layman plaintiffs alleged Act 153 was facially invalid for violating the Takings and Due Process
Clauses of the South Carolina and United States Constitutions. They also alleged Act 153 was
invalid as applied to them because the amendments constituted a breach of the terms of their
employment contracts formed when they returned to work under the old version of the laws
governing the Retirement Systems.
The Layman plaintiffs therefore requested that South
Carolina be estopped from applying Act 153 to the plaintiffs who had relied on the previous
versions of the laws.
The Supreme Court of South Carolina held Act 153 unconstitutional only as applied to
the retirees who participated in the TERI retirement program. Id. at 642, 630 S.E.2d at 271. In
doing so, it ruled that the South Carolina General Assembly created a binding employment
however, it would either pay these accrued benefits as a lump sum or roll the benefits over into a
qualifying retirement fund. Layman, 368 S.C. at 635, 630 S.E.2d at 267. For all other State
retirement programs, the working retiree was not required to make further contributions into the
system but was also limited to making no more than $50,000 per year in salary. Id.
Plaintiffs specifically challenge these two statutes in the present action.
contract through the old version of the TERI statute; therefore, the Act 153 amendments
breached that contract by retroactively changing the terms of employment to require a retiree
participating in the TERI program to pay additional sums into the Retirement Systems. Id. at
268-71. The South Carolina Supreme Court additionally held that working retirees under the
SCRS and the PORS had no such similar contract created by the retirement statutes.
However, because some working retirees may have had written contracts that specifically
promised that they would not have to make further contributions to the Retirement Systems, the
breach of contract issue was remanded for specific factual determinations. Id. at 271-72. The
Layman Court declined to address the facial challenges to Act 153, but it did recognize that the
Act 153 amendments to the retirement statutes “continue to be valid and all those participants
joining after July 1, 2005, are subject to the entirety of the requirements outlining the new
[working retiree programs]. It is fully within the power of the legislature to make changes to
laws that impact future participants . . . .” Id. at 272.
On remand, the action continued under the caption Ahrens v. State of South Carolina, 392
S.C. 340, 709 S.E.2d 54 (2011), and only involved working retirees in the SCRS and the PORS
who were rehired before July 1, 2005. There, the South Carolina Supreme Court held that there
was no contract between the SCRS or the PORS and the working retiree plaintiffs. Id. at 58-60.
It found this in part because, even if there was a contract formed, the Retirement Systems did not
have the authority to enter into such a contract. Accordingly, any contract that may have been
formed was found to be invalid. Id. at 60-61.
The Ahrens Court further held that South Carolina could not be estopped from requiring
the plaintiffs to contribute to the SCRS or the PORS, despite the plaintiffs having retired prior to
the effective date of the Act 153 amendments. Id. at 60-64. In making this determination, the
South Carolina Supreme Court observed that a working retiree did not incur a substantial
economic burden from the additional contributions. The Court calculated the lifetime pension
benefits received by two different State employees. Id. at 62. One, Employee A, was a working
retiree who did not accrue any additional service credit once he returned to work but who did
receive his full pension benefits from his original retirement while working his new job. Id. The
other, Employee B, was an employee who accrued service credit until Employee A retired for a
second time. Id. The Court concluded it would take at least twenty-five (25) years for Employee
B to receive a higher lifetime benefit than Employee A, despite accruing more service credit. Id.
Again, the South Carolina Supreme Court did not discuss the constitutional issues, but it
did affirm the lower court’s grant of summary judgment denying relief on the takings and due
process claims. Id. at 63 (“Accordingly, we conclude that summary judgment was proper as to
the constitutional issues raised by” the plaintiffs.); see also Ahrens v. South Carolina, No. 05CP-40-2785 (S.C. Ct. C.P. 15th Jud. Cir. Sept. 3, 2009) (amending its order because “Defendants
argued that the existing Orders on the merits did not expressly rule on the theories of relief
pleaded by Plaintiffs other than breach of contract and estoppel. The Court agrees with the
Defendants’ position as to [the takings and due process] claims and, therefore, denies relief to
Plaintiffs on all theories other than estoppel.”).
Despite the unfavorable rulings in Layman and Ahrens with respect to the constitutional
claims, Plaintiffs pursued this federal lawsuit making substantially similar claims. To contrast
this action with the state court actions, the court notes that the Layman and Ahrens plaintiffs
retired prior to Act 153’s enactment and were nonetheless required to pay additional money into
the Retirement Systems without accruing additional service credit.
Here, Plaintiffs are
employees who retired after July 1, 2005, the effective date of the Act 153 amendments, and
therefore should have known that the South Carolina retirement laws mandated the controverted
payment for those who chose to return to work for the State.4
In the instant case, Plaintiffs assert that they have suffered a taking5 and an infringement
of their due process rights in violation of the Fifth and Fourteenth Amendments. They assert that
the differences in the date they retired as opposed to the Layman and Ahrens plaintiffs raise
different constitutional issues that were not decided at the state court level. [Dkt. No. 33, at 10;
Since the advent of this case, and even after the Layman and Ahrens decisions, the
General Assembly has made further changes to the SCRS and the PORS statutes that more
clearly evidence its motivation in requiring working retirees to continue to pay into the
Retirement Systems. Under the current version of Act 153 and S.C. Code Ann. § 9-1-1790(A),
working retirees like Plaintiffs may receive their full retirement benefits while working their new
jobs. However, on June 26, 2012, the South Carolina General Assembly amended Subsection
(A) so that, starting January 2, 2013, working retirees receive their full retirement benefits only
until they earn up to $10,000 in one calendar year. Act of June 26, 2012, 2012 S.C. Acts 278,
Sec. 14.A (amending S.C. Code Ann. § 9-1-1790(A) (2012)). Once they earn $10,000, their
retirement allowance is discontinued for the remainder of that calendar year. Id.
In enacting these additional changes to Act 153, the South Carolina General Assembly
found that the financial stability and long-term viability of the Retirement Systems are being
threatened by the funding ratio of the pension plans, which has eroded over the past ten years and
is now in the lowest third of state-defined benefit plans in the United States. Id. at Sec. 1(B).
The General Assembly stated that system stability and certainty of benefits to participants are
“paramount,” and all parties therefore must share the costs of assuring the systems’ sustainability
over the long term. Id. Additionally, it found that “addressing the threats to the long-term
sustainability of the system requires shared sacrifice by employers, employees, and system
retirees. Thus, employers and employees must pay more to fund the system, and system retirees
must understand that future prospective benefit adjustments and other post-retirement
prospective benefit adjustments are not inevitable.” Id. at Sec. 1(C). Finally, the General
Assembly stated that the recent changes were “intended to satisfy the principle of
intergenerational equity, that is, pension costs should be allocated among employees, employers
and taxpayers on an equitable basis over time and not perpetually pushed into the future or
immediately imposed on current taxpayers.” Id. at Sec. 1(D).
Plaintiffs argue that the taking is a result of South Carolina deducting 6.5% of their wages to
fund the Retirement Systems allegedly without giving Plaintiffs anything in exchange for their
Dkt. No. 16, at 7]. Plaintiffs seek declaratory and injunctive relief requesting this court to (1)
determine that the statutes in question are unconstitutional; (2) order Defendants to provide an
accounting of all contributions made by Plaintiffs to the Retirement Systems since July 1, 2005;
(3) require Defendants to return the money received; and (4) prohibit Defendants from enforcing
the statutes in the future. Plaintiffs additionally seek attorney’s fees and costs associated with the
In their initial Motion to Dismiss [Dkt. No. 11], Defendants contended the court should
abstain from hearing the action. Defendants further argued that the court should exercise its
discretion to decline to hear the action under the Declaratory Judgment Act. Defendants also
asserted various grounds for dismissal, including Eleventh Amendment sovereign immunity,
failure to exhaust administrative remedies, res judicata, collateral estoppel, laches, improper
venue, and failure to state a claim upon which relief could be granted.
After review of the parties’ submissions on Defendants’ initial motion, the court
requested additional information [Dkt. No. 30] regarding the sovereign immunity argument and
the impact of Ahrens on the present action.7 In response to the court’s request, Defendants filed
their Supplemental Motion to Dismiss [Dkt. No. 32].
Plaintiffs filed a response to the
supplemental motion [Dkt. No. 33]. The court held a hearing on this matter on September 5,
Although Plaintiffs presented arguments to the court during the hearing on this motion
concerning potential violations of the Internal Revenue Code by Defendants, the Complaint
contains no cause of action asserting a claim for the violation of the Internal Revenue Code.
Accordingly, the court only addresses the causes of action asserted in the Complaint.
Ahrens was pending in the state courts when the initial Motion to Dismiss was filed. However,
it was decided prior to the court’s consideration of the present motion, and the court requested
the additional briefing in order to understand and consider the impact of the South Carolina
Supreme Court’s decision on the issues raised here.
“Eleventh Amendment immunity has attributes of both subject-matter jurisdiction and
personal jurisdiction.” Constantine v. Rectors & Visitors of George Mason Univ., 411 F.3d 474,
480 (4th Cir. 2005). It is like subject matter jurisdiction in that it may be raised at any time, but
resembles personal jurisdiction in that it may be waived by the state. Id. As a result “the
Eleventh Amendment grants the State a legal power to assert a sovereign immunity defense
should it choose to do so.” Id. at 481 (citing Wis. Dep't of Corr. v. Schacht, 524 U.S. 381, 389
(1998) and Idaho v. Coeur d'Alene Tribe of Idaho, 521 U.S. 261, 267 (1997) (“The Amendment,
in other words, enacts a sovereign immunity from suit, rather than a non-waivable limit on the
Federal Judiciary's subject-matter jurisdiction.”)).
"Although subject matter jurisdiction and sovereign immunity do not coincide perfectly,
there is a recent trend among the district courts within the Fourth Circuit to consider sovereign
immunity under Rule 12(b)(1)." Trantham v. Henry Cnty. Sheriff's Office, 4:10-cv-00058, 2011
WL 863498 (W.D. Va. Mar. 10, 2011) aff'd, 435 F. App'x 230 (4th Cir. 2011). Therefore, the
court will consider this motion pursuant to Rule 12(b)(1).
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) examines whether
the court lacks subject-matter jurisdiction. Generally, the burden of proving subject-matter
jurisdiction is on the plaintiff, the party asserting jurisdiction. See Richmond, Fredericksburg &
Potomac R.R. v. United States, 945 F.2d 765, 768 (4th Cir. 1991). However, where a party
challenges the subject-matter jurisdiction of the court on the grounds that the party is an arm of
the state entitled to sovereign immunity, the burden of persuasion lies with the party asserting the
immunity. See Woods v. Rondout Valley Cent. Sch. Dist. Bd. of Educ., 466 F.3d 232, 237 (2d
Cir. 2006) (noting that the majority of federal circuit courts are in agreement with this allocation
of the burden of proof on the issue of sovereign immunity).
In evaluating a defendant's challenge to subject matter jurisdiction, the court is to “regard
the pleadings’ allegations as mere evidence on the issue, and may consider evidence outside the
pleadings without converting the proceeding to one for summary judgment.” Richmond,
Fredericksburg & Potomac R.R., 945 F.2d at 768. The court should grant the motion “only if the
material jurisdictional facts are not in dispute and the moving party is entitled to prevail as a
matter of law.” Evans v. B.F. Perkins Co., 166 F.3d 642, 647 (4th Cir. 1999) (internal quotation
marks and citations omitted).
Eleventh Amendment Immunity
The Eleventh Amendment provides: “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, or by citizens or subjects of any foreign state.” U.S.
Const. amend. XI. Though not explicitly stated in the language of the amendment, courts have
long held that this guarantee also protects a state from federal suits brought by its own citizens,
not only from suits by citizens of other states. Hans. v. Louisiana, 134 U.S. 1 (1890); Port Auth.
Trans–Hudson Corp. v. Feeney, 495 U.S. 299, 304 (1990). “The ultimate guarantee of the
Eleventh Amendment is that non-consenting States may not be sued by private individuals in
federal court.” Bd. of Trustees of Univ. of Ala. v. Garrett, 531 U.S. 356, 363 (2001). Sovereign
immunity under the Eleventh Amendment “is concerned not only with the States' ability to
withstand suit, but with their privilege not to be sued” in the first instance. Alabama v. North
Carolina, 130 U.S. 2295, 2319-20 (2010) (quoting P. R. Aqueduct and Sewer Auth. v. Metcalf &
Eddy, Inc., 506 U.S. 139, 147, n. 5 (1993)).
Accordingly, once the defendant raises the
jurisdictional issue of immunity, the court must resolve this threshold matter prior to addressing
the merits of the plaintiff’s claims. See Steele Co. v. Citizens for a Better Env't., 523 U.S. 83, 9495 (1998) (extensively discussing the importance of establishing proper jurisdiction before
considering the merits of a claim).
The phrase “against one of the United States” has long been interpreted to include certain
state agents and state instrumentalities such that these may also be immune from suit in federal
court. Regents of the Univ. of Cal. v. Doe, 519 U.S. 425, 429 (1997). However, courts must
draw a line between state-created entities that are truly arms of the state, which are immune from
suit, and independent political subdivisions such as counties, municipal corporations, and school
boards, which typically cannot take shelter underneath the state’s Eleventh Amendment
immunity. See Mt. Healthy City Sch. Dist. Bd. of Educ. v. Doyle, 429 U.S. 274, 280 (1977). As
a general rule, “[t]he more an entity's independence resembles that of a political subdivision, the
less likely the entity is an arm of a state.” Pub. Sch. Ret. Sys. of Mo. v. State St. Bank & Trust
Co., 640 F.3d 821, 827 (8th Cir. 2011) citing Mt. Healthy, 429 U.S. at 280 (“counties and similar
municipal corporations” are not arms of states).
The ultimate question for the purposes of the Eleventh Amendment immunity is whether
the state is a real, substantial party in interest. Pennhurst State Sch. and Hosp. v. Halderman,
465 U.S. 89, 101 (1984). Therefore, when an instrumentality or agent of the state, named as a
defendant in a case, seeks to take advantage of the state’s Eleventh Amendment immunity, it
becomes necessary to examine the relationship between the state and the entity being sued to
determine whether it should be considered an arm of the state. Doe, 519 U.S. at 429.
The United States Court of Appeals for the Fourth Circuit has articulated a non-exclusive
list of four factors to be considered when determining whether or not a state-created entity is an
arm of the state, and thus protected from suit by the Eleventh Amendment. S.C. Dept. of
Disabilities and Special Needs v. Hoover Univ. Inc., 535 F.3d 300, 303 (4th Cir. 2008).
These factors are:
(1) whether any judgment against the entity as defendant will be paid by the State
or whether any recovery by the entity as plaintiff will inure to the benefit of the
State;8 (2) the degree of autonomy exercised by the entity, including such
circumstances as who appoints the entity's directors or officers, who funds the
entity, and whether the State retains a veto over the entity's actions; (3) whether
the entity is involved with State concerns as distinct from non-state concerns,
including local concerns; and (4) how the entity is treated under state law, such as
whether the entity's relationship with the State is sufficiently close to make the
entity an arm of the State.
Id. (internal citations and alterations omitted). See also U.S. ex rel. Oberg v. Ky. Higher Educ.
Student Loan Corp., 681 F.3d 575, 580 (4th Cir. 2012); Md. Stadium Auth. v. Ellerbe Becket Inc.,
407 F.3d 255, 260 (4th Cir. 2005); Ram Ditta v. Md. Nat’l Capital Park & Planning Comm’n,
822 F.2d 456 (4th Cir. 1987). “These factors endeavor to draw the line between ‘a State-created
entity functioning independently of the State from a State-created entity functioning as an arm of
the State or its alter ego.’” Oberg, 681 F.3d at 580 (quoting Hoover, 535 F.3d at 303). The
district court must explicitly perform this analysis before making a ruling on an Eleventh
Amendment immunity defense. Id. at 581 (vacating a district court’s motions to dismiss because
Traditionally, the “state treasury” factor has been viewed as the most important, if not the
determinative factor. See Cash v. Granville Cnty. Bd. of Educ., 242 F.3d 219, 223 (4th Cir.
2001) (citing agreement among “the vast majority of Circuits” that “the State Treasury factor is
the most important factor to be considered”) (internal citations omitted). The Court of Appeals
for the Fourth Circuit has acknowledged that the first factor may no longer outweigh the
remaining factors. Oberg, 681 F.3d at 580 n.3 (citing Fed. Mar. Comm’n v. S.C. Ports Auth.,
535 U.S. 743, 765 (2002) (“The preeminent purpose of state sovereign immunity is to accord
States the dignity that is consistent with their status as sovereign entities.”).
the court failed to perform the arm-of-the-state analysis and remanding the case for application
of this analysis).9
A. Effect on the State Treasury
The Supreme Court of the United States has stated: “whether a money judgment against a
state instrumentality or official would be enforceable against the State is of considerable
importance to any evaluation of the relationship between the State and the entity or individual
being sued.” Doe, 519 U.S. at 430. “A finding that the State treasury will not be affected by a
judgment against the governmental entity weighs against finding the entity immune.” Cash, 242
F.3d at 224. Alternatively, “when the agency is so structured that . . . a judgment must expend
itself against state treasuries, common sense and the rationale of the Eleventh Amendment
require that sovereign immunity attach to the agency.” Id. (quoting Hess v. Port Auth. TransHudson Corp., 513 U.S. 30, 39 (1994)). Further, the proper inquiry is whether the state treasury
is potentially liable for the judgment and not whether the state treasury will actually have to pay
the judgment in a particular case. See Doe, 519 U.S. at 431 (“[W]ith respect to the underlying
Eleventh Amendment question, it is the entity's potential legal liability, rather than its ability or
inability to require a third party to reimburse it, or to discharge the liability in the first instance,
that is relevant.”); see also Martin v. Clemson Univ., 654 F. Supp. 2d 410, 426 (D.S.C. 2009)
(“[I]mmunity turns on whether the state treasury – consisting of whatever funds comprise it – is
potentially liable, or would otherwise be negatively impacted by a judgment.” (citing Ristow v.
S.C. Ports Auth., 58 F.3d 1051, 1054-55 (4th Cir.1995)).
Plaintiffs encourage the court to allow discovery regarding whether the Retirement Systems
constitute an arm of the State. The need for such discovery is at the discretion of the district
court. Oberg, 681 F.3d at 580, n. 4. Upon review of the statutory scheme, the related portions of
the South Carolina Constitution, and the relevant case law, the court finds that there is sufficient
material evidence currently before the court to determine whether or not Retirement Systems is
an arm of the State and, therefore, finds no need for discovery on this issue.
A close examination of the statutory scheme that creates and regulates South Carolina’s
Retirement Systems as well as related portions of the South Carolina Constitution suggests that
the State treasury may be impacted by a judgment for Plaintiffs in this case. Of particular
relevance is how the State finances the Retirement Systems and the implications the funding
scheme has on whether a judgment against the system would impact the State treasury. See State
St. Bank & Trust, 640 F.3d at 830.
Title Nine of the South Carolina Code of Laws sets out the statutory scheme governing
the Retirement Systems of which the SCRS and the PORS are a part. The system is primarily
funded by contributions from employers and employees. S.C. Code Ann. §§ 9-1-1020 (Supp.
2010), 9-1-1050 (Supp. 2010), 9-11-210 (Supp. 2010), 9-11-220 (1986). However, the State
Constitution requires the South Carolina General Assembly to “annually appropriate funds and
prescribe member contributions for any state-operated retirement system which will insure the
availability of funds to meet all normal and accrued liability of the system on a sound actuarial
basis as determined by the governing body of the system.” S.C. Const. Art. X, § 16. Further, the
“[a]ssets and funds established, created and accruing for the purpose of paying obligations to
members of the several retirement systems of the State and political subdivisions shall not be
diverted or used for any other purpose.” Id.; see also Wehle v. S.C. Ret. Sys., 363 S.C. 394, 398,
611 S.E.2d 240, 242-43 (2005) (interpreting S.C. Const. Art. X, § 16 as giving the South
Carolina Budget and Control Board “broad powers to protect the fiscal integrity of the retirement
funds” and further noting that “should the Board determine that any retirement system is not
funded on a sound actuarial basis, the General Assembly must provide funding necessary to
restore the fiscal integrity of the System”). Thus, though fundamentally a member-funded
system, the State is required to appropriate funds to protect the fiscal integrity of the system.
The Retirement Systems also receives funds directly from the State when South Carolina,
as an employer, makes its annual appropriation. S.C. Code Ann. § 9-1-10(14) (Supp. 2010); S.C.
Code Ann. § 9-1-1350 (Supp. 2010). See Hadley v. N. Arkansas Cnty. Technical Coll., 76 F.3d
1437, 1439-41 (8th Cir. 1996) (finding that a state's appropriations for part of an entity's annual
budget suggested the entity was an arm of the state).
Here, a judgment against the Retirement Systems has the potential to impact the State
treasury. In the event that an award of a monetary judgment would create a shortfall in the
Retirement Systems’ funds, the State may have to make up the difference in accordance with its
constitutional duty to ensure the availability of funds in the system to meet liabilities.10 It is
possible that the State would account for any deficit by making additional appropriations to the
Retirement Systems, in which case the State treasury would be directly impacted. Alternatively,
the General Assembly could require members to increase their contributions to the system to
make up any shortfall. In this instance, the State of South Carolina, as an employer would have
to increase its annual appropriation. Here again, a monetary judgment could impact the treasury.
Plaintiffs rely on Fitchik v. New Jersey Transit Rail Operations, Inc., 873 F.2d 655, 661 (3d
Cir. 1989), for the proposition that an entity is not entitled to immunity as an arm of the state
where there is only an ancillary effect on the state treasury. However, the Fitchik court only
determined that sovereign immunity was not triggered by the mere fact that the state might
appropriate funds or make other voluntary payments to address shortfalls caused by judgments
against the Transit Rail Operations. (emphasis added). The circumstances of Fitchik are
distinguishable from the instant case because South Carolina actually has a constitutional duty to
appropriate funds to address shortfalls in the Retirement Systems. Moreover, the autonomy
factor and state law treatment as addressed in Fitchik weighed against a finding of sovereign
immunity, whereas the opposite is true in this case. Plaintiff also relies upon In re Lyons, 118
B.R. 634, 636 (1990), a case in which a district court in Illinois upheld a bankruptcy court
decision that the Eleventh Amendment did not bar the turnover of the Debtor's interest in the
State Employees' Retirement System (“SERS”). The court determined that the small amount
sought could be paid by the SERS without implicating the state treasury. Id. at 44. Additionally,
under the Third Circuit’s version of the arm-of-the-state test, the Lyons court found that the
factors related to the entity’s autonomy and its treatment under state law were not compelling.
Id. In this case, these elements strongly suggest that the Retirement Systems is an arm of the
B. The Entity’s Autonomy
The court must also consider whether the Retirement Systems functions independently of
the State. In making this determination, the court can look to both the political independence and
the operational independence of the Retirement Systems. See, e.g., State St. Bank & Trust, 640
F.3d at 827.
The Retirement Systems appears to lack significant political autonomy. State officials
from the legislative and executive branches are involved in the administration and operation of
the Retirement Systems through their participation on the South Carolina Budget and Control
Board. The Retirement Systems’ funds are administered and operated by the Budget and Control
Board, which is also the trustee of the Retirement Systems. S.C. Code Ann. § 9-1-1310 (Supp.
2010); S.C. Code Ann. § 9-1-210 (1986). The Budget and Control Board is “comprised of the
Governor, ex officio, who shall be chairman, the State Treasurer, ex officio, the Comptroller
General, ex officio, and the chairman of the Senate Finance Committee, ex officio, and the
chairman of the Ways and Means Committee of the House of Representatives, ex officio.” S.C.
Code Ann. § 1-11-10 (2005). The State Treasurer is the custodian of all funds in the Retirement
Systems. S.C. Code Ann. § 9-1-1320 (1986). The State Treasurer also serves on a sevenmember Retirement System Investment Commission, which has the exclusive authority, subject
to State law and Article X, § 16, of the South Carolina Constitution, to invest and manage the
assets of the Retirement Systems. S.C. Code Ann. § 9-16-20; § 9-1-1310. The commissioners on
the Retirement System Investment Commission are each appointed by various high-ranking State
officials, with the exception of the State Treasurer who sits on the Commission pursuant to
statute. S.C. Code Ann § 9-16-315. The Commission provides investment reports at least
quarterly during the fiscal year to the State Budget and Control Board, the Speaker of the House
of Representatives, the President Pro Tempore of the Senate, and other appropriate officials and
entities. S.C. Code Ann. § 9-16-90. The General Assembly then determines the amount of
money to be paid by the employers and the amount to be deducted from the paychecks of the
members. S.C. Code Ann. § 9-1-1020 and -50 (Supp. 2010). There is little doubt then that the
State, through its top officials, retains significant control over the Retirement Systems.
The operation of the Retirement Systems is also highly regulated by a comprehensive
statutory scheme, giving it little operational independence. For example, the statute describes the
operational functions of the Retirement Systems including the general administration of the
system, S.C. Code Ann. § 9-1-210 et seq.; how membership is determined, S.C. Code Ann. 9-1410 et seq.; how service credits are calculated, S.C. Code Ann. § 9-1-810 et seq.; how
contributions are determined, collected, and accounted for, S.C. Code Ann. § 9-1-1010 et seq.;
how the funds are managed, held, and disbursed, S.C. Code Ann. § 9-1-1310 et seq.; the age of
retirement, the conditions of retirement, including when and how retirement benefits are paid,
S.C. Code Ann. § 9-1-1510 et seq.; and how the funds are invested, managed, and reported, S.C.
Code Ann. § 9-16-10 et seq. Similar provisions control the PORS. S.C. Code Ann. § 9-11-10 et
Other parts of the statutory scheme suggest that the system is more independent. For
example, the assets of the Retirement Systems are held in trust. S.C. Code Ann. § 9-16-20
(Supp. 2010). As a result, the funds are not considered funds belonging to the State. S.C. Code
Ann. § 9-1-1310(C) (Supp. 2010).
However, these shades of apparent autonomy do not
overcome the general impression that the system is very much an arm of the State.
Plaintiffs make much of this point, noting that the relief sought is from the fund itself, not
the State treasury.
The Retirement Systems counters that Plaintiffs’ suit seeking both
reimbursement and attorney’s fees will necessarily exceed Plaintiffs’ contribution to the funds,
requiring the State treasury to make up the shortfall. In Layman v. State of South Carolina
(“Layman II”), 376 S.C. 434, 447, 658 S.E.2d 320, 327 (2008), the court found that either the
State or the retirement system could be liable for attorney’s fees. To the extent that there would
be a similar result in this case, the Eleventh Amendment would be implicated and would bar suit
in federal court.11 The interplay between the funds sequestered in trust and State treasury funds
that may be implicated in the judgment here suggests a lack of independence between the State
and the Retirement Systems that this court’s arm-of-the-state analysis has thus far established.
Plaintiffs also point to S.C. Code Ann. § 9-1-20, establishing that the Retirement Systems
“shall have the power and privileges of a corporation,” which Plaintiffs argue conveys the State’s
intent to create an independent entity responsible for its own debts.
That view is further
bolstered by S.C. Code Ann. § 9-1-1690, which provides that:
All agreements or contracts with members of the System pursuant to any of the
provisions of this chapter shall be deemed solely obligations of the Retirement
System and the full faith and credit of this State and of its departments,
institutions and political subdivisions and of any other employer is not, and shall
not be pledged or obligated beyond the amounts which may be hereafter annually
appropriated by such employers in the annual appropriations act, county
appropriations acts and other periodic appropriations for the purpose of this
However, statutory language that establishes a state entity as a body corporate or
corporation does not necessarily operate to waive an immunity defense under the Eleventh
Amendment. See Patsy v. Bd. of Regents of State of Fla., 457 U.S. 496, 522 (1982) (Powell, J.,
Plaintiffs conceded during their oral arguments on this motion that, should they prevail, any
attorney’s fees would be paid from a common fund established with the moneys recovered by
Plaintiffs from the Retirement Systems. Plaintiffs contend that this arrangement would eliminate
any concern that the State could be held responsible for the payment of attorney’s fees in this
case. However, the court is not persuaded by this argument because it still ignores the potential
effect on the treasury by any shortfall resulting from the Retirement Systems’ payment of a
judgment in this case.
dissenting) (noting that ”[a]lthough the Board of Regents was created as a body corporate with
power ‘to sue and be sued . . . to plead and be impleaded in all courts of law and equity,’ . . . it is
well established that language such as this does not operate to waive the defense of the Eleventh
Amendment.” (citing Fla. Dept. of Health v. Fla. Nursing Home Ass’n, 450 U.S. 147, 150,
(1981) and Petty v. Tennessee-Missouri Bridge Comm'n, 359 U.S. 275, 276-277 (1959)). See
also McGinty v. New York, 251 F.3d 84, 96 (2d Cir. 2001) (finding that New York State
Retirement System was shielded by Eleventh Amendment immunity notwithstanding its
designation as “a corporation, endowed with the powers and privileges that inhere to that kind of
entity.”). Moreover, to the extent this section relieves the State of the Retirement Systems’
contractual obligations, it does not relieve the State of its constitutional requirement to
appropriate funds to “insure the availability of funds to meet all normal and accrued liability of
the system on a sound actuarial basis.” See S.C. Const. Art. X, § 16.
C. The Entity’s Treatment Under State Law
Another important consideration is the treatment of the Retirement Systems in South
Carolina statutory and case law. While federal courts must now “consider how an entity is
treated under state law, ‘the question of whether an agency is an alter ego of the state . . . is a
question of federal, not state, law.’” Ram Ditta at 458 n. 5 (quoting Blake v. Kline, 612 F.2d 718,
722 (3rd Cir.1979)). As a result, the court is not bound by state law decisions, nor do these
decisions determine the ultimate issue of whether an entity is an arm of the state. However, state
court decisions shed some light on how the entity operates in relation to state law.
The court initially observes that the statutory scheme as described above suggests a close
relationship between the State and the Retirement Systems in terms of its administration, its
operation and its State-wide purpose.
In addition to the comprehensive statutory scheme
described above, case law also suggests that South Carolina courts treat the Retirement Systems
as an arm of the State.
In Layman II, the South Carolina Supreme Court viewed the Retirement Systems as a
State agency for the purposes of the state action statute, S.C. Code Ann. § 15-77-300, which
allows successful plaintiffs to collect attorney’s fees when the losing party is a state or a political
subdivision of the state. 376 S.C. at 446-7, 658 S.E.2d at 326. The court explicitly referred to
the Retirement Systems as a State agency and found the state action doctrine applicable. Id. The
decision in Layman II supports the notion that a suit against the Retirement Systems could in fact
impact the treasury since, in that case, both the retirement system proper and the State were
considered potentially liable.
In Ahrens, the South Carolina Supreme Court treated the Retirement Systems as a State
agency in analyzing whether forms used by the Retirement Systems and signed by retirees
created binding contracts. 392 S.C. at 350, 709 S.E.2d at 59. The court held that the Retirement
Systems did not have “the authority to create contracts without the statutory directive of the
legislature,” reasoning that an executive agency “cannot convert a statutory right to a contractual
right” without necessarily usurping the power of the legislative branch. Id. at 351, 709 S.E.2d at
59. This holding not only suggests that the South Carolina courts treat the Retirement Systems
as an arm of the State, but it also demonstrates the limited operational powers of the Retirement
D. The Entity’s State-wide Reach
The fourth factor most often considered by the courts concerns whether the claims
presented involve state-wide, rather than purely local concerns. The Retirement Systems has
members throughout the State, and a judgment for Plaintiffs in this case could have
repercussions on other Retirement Systems’ members throughout the State. In addition, the State
of South Carolina, as an employer and as a guarantor of the funds’ fiscal soundness, contributes
to the funding of the system, making the Retirement Systems a truly State-wide concern.
For the reasons stated above, the court holds that the Retirement Systems should be
considered an arm of the State such that Eleventh Amendment immunity applies to bar this court
from hearing the claim. This decision comports with similar decisions by courts both within and
beyond this district. The United States District Court for the District of South Carolina has, on
two prior occasions, ruled that the South Carolina Retirement System was shielded from suit by
the Eleventh Amendment. See Pringle v. S.C. Ret. Sys., No. 2:06-3294-PMD, 2007 WL 295626
(D.S.C. Jan. 29, 2007); and United States v. State of S.C., 445 F. Supp. 1094, 1099-1100 (D.S.C.
1978). In both instances, the courts assumed, without discussion, that the Retirement Systems
was a state agency without actually addressing the arm-of-the-state factors listed above. Here,
the court has elected to elaborate on the immunity issue as it applies to the Retirement Systems.
In so doing, the court has arrived at the same result as the prior rulings in this district.
Courts beyond our circuit have also repeatedly found state retirement systems to be arms
of the state. See, e.g., State St. Bank & Trust, 640 F.3d at 827-30 (holding that the Missouri
retirement systems are arms of the state); Ernst, 427 F.3d at 359-60 (holding that the Michigan
retirement system for state court judges and state officials is an arm of the state); McGinty, 251
F.3d at 100 (2d Cir. 2001) (holding that the New York Retirement System is an arm of the state);
Fitzpatrick v. Bitzer, 519 F.2d 559, 561 (2d Cir. 1975) (holding that the Connecticut State
Employees’ Retirement System is an arm of the state); Larsen v. State Employees Ret. Sys., 553
F. Supp. 2d 403, 420 (M.D. Pa. 2008) (holding that the claims against the Pennsylvania
retirement system and the individual defendants are barred by the Eleventh Amendment);
Sculthorpe v. Va. Ret. Sys., 952 F. Supp. 307, 309-10 (E.D. Va. 1997) (holding that the Virginia
Retirement System is an arm of the state); Hair v. Tenn. Consol. Ret. Sys., 790 F. Supp. 1358,
1364 (M.D. Tenn. 1992) (holding that the Tennessee Consolidated Retirement System is a state
agency for Eleventh Amendment purposes); Mello v. Woodhouse, 755 F. Supp. 923, 930 (D.
Nev. 1991) (holding that a suit against the Nevada Public Employees’ Retirement Board was
barred by the Eleventh Amendment); Reiger v. Kan. Pub. Employees Ret. Sys., 755 F. Supp. 360,
361 (D. Kan. 1990) (finding the Kansas Public Employees Retirement System to be a state
agency and granting its motion to dismiss on Eleventh Amendment grounds.)
Plaintiffs challenge to the Retirement Systems’ Eleventh Amendment immunity defense
relies on the Fourth Circuit’s decision in Almond v. Boyles, 792 F.2d 451 (4th Cir. 1986). In
Almond, the Fourth Circuit affirmed a ruling by the United States District Court for the Eastern
District of North Carolina that granted summary judgment to plaintiffs who were suing the North
Carolina Teachers’ and State Employees’ Retirement System (“NC Retirement System”). Id. at
456. The district court rejected the NC Retirement System’s defense that it was immune from
suit under the Eleventh Amendment. See Almond v. Boyles, 612 F. Supp. 223, 228 (E.D.N.C.
1985). In its analysis, the district court employed a two-part test, which examined “(1) the
degree of autonomy given to the agency and (2) whether recovery against it would come from
state funds.” Id. at 227. The district court found that the “autonomy factor” did not favor either
side, noting on the one hand “detailed statutory provisions governing the Retirement System,”
the appointment of members of the governing board, and the treasury department’s management
and administrative functions, all of which suggested state control, while on the other hand noting
the NC Retirement System’s designation as a body corporate with rights to sue and be sued as
well as acquire and hold property. Id. On the issue of whether recovery would come from state
funds, the district court determined that “a substantial portion of the money held by the
retirement system was not appropriated by the General Assembly,” but instead came from
employers, employees, and investment income. Id. The district court further noted “state funds
appropriated to the Retirement System lose their identity as general revenue funds and become
earmarked for a particular purpose.” Id. Finally, the district court found that the defendants
could not show that the requested relief “would inevitably lead to an additional appropriation of
state funds.” Id. Specifically, the defendants were not able to “rebut plaintiffs’ contention that
the requested relief may be satisfied by investment income or a slight decrease in the amount of
benefits paid to other beneficiaries of the Retirement System.” Id.
In reaching its conclusion, the district court distinguished Fitzpatrick v. Bitzer, 519 F.2d
559 (2d Cir. 1975), a case involving a suit against the Connecticut State Employees’ Retirement
Commission. Almond, 612 F. Supp. at 228. The Fitzpatrick court found that “a judgment
against the fund would automatically increase the obligation of the general state treasury” due to
a requirement that at least 75% of the total retirement income payment of each year had to be
made by the state.” Fitzpatrick, 519 F.2d at 565. The Fourth Circuit implicitly adopted the
district court’s findings by rejecting the defendants’ appeal on Eleventh Amendment immunity
as “meritless . . . for the reasons stated by the district court.” Almond, 792 F.2d at 456.
The Almond decisions are distinguishable from the case currently before this court.12 On
the question of autonomy, the district court in Almond found that the NC Retirement System had
at least some compelling characteristics of an independent body leading the court to find that the
entity was autonomous rather than an arm of the state. 612 F. Supp. at 227. In this case,
This court does not have the benefit of the full statutory scheme of the North Carolina
Retirement System as it existed in 1985 when the Almond suit was brought. As such, the court
does not make a detailed comparison between the systems.
however, the court finds that the Retirement Systems are significantly constrained by the
governing statutes despite the fact that it too is created with the “powers and privileges of a
corporation.”13 S.C. Code Ann. § 9-1-20. The statutory scheme details virtually all of the
administrative functions of the system, from who can be members, to how, where, and when the
funds can be distributed. In addition, high-ranking political figures sit on the State Budget and
Control Board and appoint Commissioners to invest the retirement funds who, in turn, report
quarterly to the same high-ranking officials. In addition, the General Assembly has the power to
appropriate funds and prescribe member contributions. The South Carolina statutory scheme
strongly supports the court’s finding that both the operational and political independence of the
Retirement Systems is extremely limited.
The district court in Almond also gave little weight, if any, to relevant state court
decisions, stating “the question of Eleventh Amendment immunity is ultimately one of federal
law.” 612 F. Supp. at 227. Interestingly, the court mentioned, but declined to accord any weight
to a then-recent North Carolina Court of Appeals decision, which suggested that the Eleventh
Amendment would likely bar an award of money damages against the NC Retirement System.
Id. (discussing Stanley v. Retirement and Health Benefits Div., 66 N.C. App. 122, 310 S.E.2d
637 (1984)). The Fourth Circuit’s more recent jurisprudence regarding the armof-the-state
analysis explicitly requires district courts to consider how the state entity is treated by state law
and state courts. See Oberg, 681 F.3d at 580; Hoover Univ. Inc., 535 F.3d at 303. As noted
above, the South Carolina Code of Laws provides a comprehensive statutory scheme governing
the Retirement Systems. Furthermore, very recent decisions by the South Carolina Supreme
As discussed above, the fact that a state entity is designated within the statute as a corporation
or body corporate does not negate the fact that it is a state entity and potentially protected under
the state’s Eleventh Amendment immunity.
Court treat the Retirement Systems as an arm of the State, not simply by virtue of the fact that
the cases refer to the Retirement Systems as a State agency, but also by the treatment of the
Retirement Systems in relation to the State and State laws.
In addition, the Almond district court decision did not give explicit attention to the stateversus-local-concern prong of the test. This is a separate and distinct requirement of the Fourth
Circuit’s current analytical framework. As noted above, the State-wide scope of the Retirement
Systems lends credence to the finding that it is an arm of the State.
Furthermore, the district court in Almond found that “a substantial portion of the money
held by the retirement system was not appropriated by the general assembly,” and thus, “an
award of monetary relief would not infringe on the state’s ‘general revenue funds’” Id. at 277.
For purposes of the Eleventh Amendment, it is not apparent that the amount contributed by the
state to the fund should matter in the analysis. The analysis in this circuit and in other circuits
looks at whether the state treasury might be affected with no requirement that the impact be
substantial or even assured. See Martin, 654 F. Supp. 2d at 418, Ernst 427 F.3d at 359.
For these reasons, the Fourth Circuit’s decision in Almond is not determinative in this
case. In merely affirming a district court’s decision regarding a retirement system in North
Carolina, the decision makes no sweeping statement regarding the application of Eleventh
Amendment immunity to retirement systems generally. Using the Fourth Circuit’s most recent
analysis in Hoover Univ. Inc., 535 F.3d at 303, this court finds that South Carolina’s Retirement
Systems should be considered an arm of the State. As a result, the Eleventh Amendment applies,
and this court is barred from hearing the case.14
Because Plaintiffs seek monetary damages, the claims against the individual Defendants are
also barred. See Harter v. Vernon, 101 F.3d 334, 337 (4th Cir. 1996) (observing that the
Having found that Defendants are immune from suit, the court determines that it lacks the
requisite subject matter jurisdiction to address the merits of Plaintiffs’ claims. Accordingly, the
court GRANTS Defendants’ Supplemental Motion to Dismiss [Dkt. No. 32] pursuant to Federal
Rule of Civil Procedure 12(b)(1) and declines to address the remaining issues raised in the
motion. This case is dismissed in its entirety.
IT IS SO ORDERED.
United States District Court
September 27, 2012
Greenville, South Carolina
Eleventh Amendment immunity extends to entities considered “arms of the state” and its
employees acting in their official capacity.)