Alabama Space Science Exhibit Commission v. Odysseia Co Ltd
Filing
104
MEMORANDUM OPINION - ASSEC has established that it is a public entity, but it has not demonstrated that it is an arm of the state of Alabama. The evidence indicates that ASSEC is an entity separate from the state. Therefore, ASSEC is a citizen for pu rposes of diversity of citizenship jurisdiction, and ASSEC and Odysseia are completely diverse. Accordingly, the Court denies ASSEC's motion for summary judgment (Doc. 89 ) as it relates to subject matter jurisdiction. By a separate memorandum opinion and order, the Court will address the remaining issues raised in ASSEC's summary judgment motion. Signed by Judge Madeline Hughes Haikala on 9/16/2019. (KEK)
FILED
2019 Sep-16 AM 09:40
U.S. DISTRICT COURT
N.D. OF ALABAMA
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
NORTHEASTERN DIVISION
ALABAMA SPACE SCIENCE
}
EXHIBIT COMMISSION d/b/a
}
U.S. SPACE & ROCKET CENTER, }
}
Plaintiff,
}
}
v.
}
}
ODYSSEIA CO. LTD.,
}
}
Defendant.
}
Case No.: 5:14-cv-00413-MHH
MEMORANDUM OPINION
This case has been to the moon and back. After lengthy briefing on repeated
motions to remand (three so far) and multiple mediations, including one before a
magistrate judge, the case now has reached the dispositive motion stage. 1 In its
summary judgment motion, the Alabama Space Science Exhibit Commission –
ASSEC, for short – renews its challenge to federal jurisdiction. ASSEC reiterates
its argument that it is an arm of the State of Alabama and hence not a “citizen of a
State” for purposes of diversity jurisdiction under 28 U.S.C.§ 1332(a)(2). ASSEC
rests its updated remand argument on evidence that is new to the record in this case
but that has been available to ASSEC since it filed its first motion to remand.
1
See Docs. 8, 20, 35, 69, 91.
ASSEC also adds to its legal authority in support of its request for remand a recent
decision from the Alabama Supreme Court. Because a district court must examine
its subject matter jurisdiction at every stage of a case, the Court will evaluate
ASSEC’s supplemental evidence and authority and reconsider its rulings on subject
matter jurisdiction.2
PROCEDURAL BACKGROUND
1. ASSEC’s First Motion to Remand
In its first motion to remand, filed in 2014, ASSEC argued that Odysseia
removed this action improperly because the amount in controversy in this action
does not meet the $75,000 jurisdictional threshold in 28 U.S.C. § 1332(a). (Doc. 8).
In its initial remand motion, ASSEC did not “dispute that diversity of citizenship
exists in this matter.” (Doc. 8, p. 2). During a January 12, 2015 hearing regarding
the amount in controversy, ASSEC stated: “we’re ready to just move forward with
this case . . . We think it’s time to get to the merits.” (Doc. 30, p. 2). The Court
See RES-GA Cobblestone, LLC v. Blake Const. & Dev., LLC, 718 F.3d 1308, 1313 (11th Cir.
2013) (“Federal courts operate under a continuing obligation to inquire into the existence of subject
matter jurisdiction whenever it may be lacking.”).
2
2
rejected ASSEC’s challenge to the amount in controversy and denied ASSEC’s
motion to remand. (Docs. 28, 30).
2. ASSEC’s Second Motion to Remand
In its second motion to remand, filed in 2015, ASSEC argued that the Court
lacks subject matter jurisdiction because ASSEC is an arm of the state and therefore
is not a citizen for purposes of diversity jurisdiction. (Doc. 35). The Court issued
an order in which the Court evaluated the evidence available to it concerning
ASSEC’s relationship to the State of Alabama and concluded that ASSEC is not an
arm of the state. (Doc. 52). The Court held that ASSEC is a citizen of Alabama for
purposes of diversity jurisdiction and that because Odysseia is a citizen of a foreign
state, the parties to this action are completely diverse. The Court denied ASSEC’s
second motion to remand. (Doc. 52, pp. 14-15).
3. ASSEC’s Third Motion to Remand
In its third motion to remand, filed in 2017, ASSEC argued that in an
unpublished opinion in Ingalls v. U.S. Space and Rocket Center, 679 Fed. Appx. 935
(11th Cir. 2017), the Eleventh Circuit Court of Appeals implied that ASSEC is a
state agency. (Doc. 69, pp. 1-2). The Ingalls decision did not alter this Court’s
analysis of ASSEC’s citizenship because in Ingalls, the Eleventh Circuit did not
consider the factors necessary to evaluate whether ASSEC is an arm of the state.
(Doc. 72, p. 3). Based on the evidence then in the record, the Court maintained its
3
finding that ASSEC is not an arm of the State of Alabama. The Court denied
ASSEC’s third motion to remand. (Doc. 72, p. 4).
4. ASSEC’s Fourth Motion to Remand
In its motion for summary judgment, on “a more developed record,” ASSEC
argues again that it is an arm of the State of Alabama and therefore is not a “‘citizen
of a State’ for purposes of diversity jurisdiction under 28 U.S.C. § 1332(a)(2).”
(Doc. 89, p. 1). The Court will discuss all of the jurisdictional evidence, old and
new (again, new to the Court, not to ASSEC), as it evaluates the factors that govern
its assessment of ASSEC’s status for purposes of federal jurisdiction.
JURISDICTIONAL ANALYSIS
As the Court has explained in previous orders, “if a party is deemed to be ‘an
arm or alter ego of the State,’ then diversity jurisdiction must fail;” however, a
“public entity or political subdivision of a state, unless simply an ‘arm or alter ego
of the State’” is “a citizen of the state for diversity purposes.” Univ. of S. Ala. v. Am.
Tobacco Co., 168 F.3d 405, 412 (11th Cir. 1999) (quoting Moor v. Alameda Cty.,
411 U.S. 693, 717-18 (1973)). To determine whether ASSEC is an “arm of the
state,” the Court must consider: “(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. Ala. State Bar, 815
F.3d 726, 732 (11th Cir. 2016); see also Lightfoot v. Henry Cty. School Dist., 771
4
F.3d 764, 769 (11th Cir. 2014); Manders v. Lee, 338 F. 3d 1304, 1309 (11th Cir.
2003). The Court discusses each factor in turn.
1. Alabama Law Regarding ASSEC’s Status
The Court looks again to the Alabama Code and to decisions from the
Alabama Supreme Court to consider how Alabama law characterizes ASSEC.
In its 2016 order denying ASSEC’s motion to remand, the Court stated that it
had located no opinion in which an Alabama state court had determined whether
ASSEC is an arm of the state. (Doc. 52, pp. 3-4). That is still true, but the Court
has located dicta in which the Alabama Supreme Court indicated that ASSEC’s sister
entity, the Alabama Space Science Exhibit Finance Authority, is not an arm of the
State of Alabama. In Hospital Systems, Inc. v. Hill Rom, Inc., the Alabama Supreme
Court held that the Health Care Authority of Athens and Limestone County is an
entity separate from the State of Alabama even though the Health Care Authority
bears some of the characteristics of an arm of the state. Hospital Systems, Inc. v.
Hill Rom, Inc., 545 So. 2d 1324, 1326 (Ala. 1989). In reaching its decision, the
Alabama Supreme Court analogized the Health Care Authority to the Alabama
Space Science Exhibit Finance Authority.
The Alabama Supreme Court discussed the Health Care Authority’s status as
part of the court’s consideration of the extent to which the Health Care Authority
5
had to comply with Alabama’s Competitive Bid Law. The provision of the bid law
at issue in Hill Rom provided:
All expenditures of funds of whatever nature for labor, services or
work, or for the purchase of materials, equipment, supplies or other
personal property made by ... the county commissions and the
governing bodies of the municipalities of this State ... shall be made
under contractual agreement entered into by free and open competitive
bidding, on sealed bids, to the lowest responsible bidder....
545 So. 2d at 1326 (emphasis in Hill Rom).
The Alabama Supreme Court
determined that the Alabama Legislature separately incorporated the Health Care
Authority and other public entities like the Alabama Space Science Exhibit Finance
Authority so that those entities could function independent of state and local
authorities. The Alabama Supreme Court explained that the Health Care Authority,
which the Supreme Court referred to as the “Hospital,” was:
incorporated pursuant to the provisions of Code 1975, § 22–21–310 et
seq. It is “a separate entity from the state and from any local political
subdivision, including a city or county within which it is organized”
(Opinion of the Justices, 254 Ala. 506, 511, 49 So. 2d 175, 180 (1950));
therefore, it is not one of the governmental entities within the
contemplation of the prohibitions of § 22 of our state constitution or §
41–16–50(a). Furthermore, the § 22–21–335 exemption would apply to
the Hospital even if the directors of the Hospital’s board were appointed
by either the governing body of the City of Athens or that of Limestone
County. Alabama State Florists Association v. Lee County Hospital
Bd., 479 So. 2d 720 (Ala.1985).
The exemption from the Competitive Bid Law enjoyed by the Hospital
is “part and parcel” of legislation creating and maintaining public
authorities in Alabama. See, for example, § 4–3–60 (airport
authorities); § 11–54A–17 (downtown redevelopment authorities); §
6
41–10–212 (Alabama Shakespeare Festival Theatre Finance
Authority); and § 41–10–331 (Alabama Space Science Exhibit Finance
Authority). The necessity for the services provided by the Hospital and
other health care authorities, as well as the services provided by the
myriad of boards and authorities authorized by our state legislature, is
undisputed.
It is, however, equally true that the governmental entities normally
responsible for providing these services too often lack sufficient funds
to justify the expenditure of city or county tax revenues in these areas.
Thus, the “authority,” through its separate existence, provides the
required service with funds obtained from sources other than the tax
revenues of a governmental entity.
545 So. 2d at 1326 (emphasis added).
The Alabama Supreme Court’s description of the Health Care Authority
applies equally to ASSEC and to its sister entity, the Alabama Space Science Exhibit
Finance Authority or ASSFA. The legislation creating ASSFA states:
It is the intent of the Legislature, by the passage of this article, to
authorize the incorporation of a public corporation for the purposes of
acquiring land, constructing and equipping facilities, leasing such
facilities to [ASSEC] (or others, to the extent provided for herein), and
providing financing therefor, and to vest such corporation with all
powers, authority, rights, privileges and titles that may be necessary to
enable it to accomplish such purposes. This article shall be liberally
construed in conformity with the purpose herein stated.
Ala. Code § 41-10-301. The legislation creating the ASSEC states:
There is hereby created and established a state agency to be known as
the Alabama Space Science Exhibit Commission, which shall be a
public body corporate with all the powers and privileges of a
corporation, for the purpose of providing for and participating in the
management and control of facilities to house and display such visual
7
exhibits of space exploration and hardware used therefor as may be
made available by the National Aeronautics and Space Administration.
Ala. Code § 41-9-430.3 Like the Health Care Authority in Hill Rom, ASSFA and
ASSEC work in tandem as public corporations to raise money and provide services
to the citizens of Alabama “with funds obtained from sources other than the tax
revenues of a governmental entity.” Hill Rom, 545 So. 2d at 1326.
Toward this end, the Alabama Legislature has conferred on ASSEC broad,
substantial powers that resemble powers held by private corporations. Among other
things, ASSEC may:
• enter contracts with “private individuals, corporations, associations and other
organizations;”
• borrow money “from private sources . . . as may be acceptable to the
commission under such terms and conditions as may be provided by law and,
in order to provide security for the repayment of any such private loans, to
pledge such future revenues from admissions and any other sources;”4
See Stallings & Sons, Inc. v. Ala. Bldg. Renovation Fin. Auth., 689 So. 2d 790, 792-93 (Ala. 1997)
(“‘It has been repeatedly held that a public corporation is an entity separate and distinct from the
State, and that debts of such corporation are not debts of the State, within the purview of Section
213.’ Opinion of the Justices, 270 Ala. 147, 148, 116 So. 2d 588 (1959). In Edmonson v. State
Industrial Development Authority, 279 Ala. 206, 210, 184 So. 2d 115, 119 (1966), this Court said:
‘Bonds issued by a public corporation that is a separate entity from the State will not constitute a
new debt of the State within the meaning of Section 213, as amended.’ (Emphasis added.) See also
Knight v. West Alabama Environmental Improvement Auth., 287 Ala. 15, 246 So. 2d 903 (1971).
‘A public corporation is a separate entity from the state and from any local political subdivision.’
Coxe v. Water Works Bd., 288 Ala. 332, 337, 261 So. 2d 12 (1972).”).
3
Significantly, the Alabama Legislature has provided that these private loans would be backed by
ASSEC revenues, not by the State of Alabama. Ala. Code § 41-9-432 (4).
4
8
• sell, mortgage, lease, or transfer “any property, franchise, grant, easement,
license or lease or interest therein which it may own and to transfer, assign,
sell, mortgage, convey or donate any right, title or interest which it may have
in any lease, contract, agreement, license or property;”5
• “allocate and expend funds from all donations, income and revenue from any
source whatsoever coming into its treasury for the fulfillment and
accomplishment of its duties and responsibilities in such manner as may be
necessary and appropriate for the perfection of the purposes of this article;”
• and spend ASSEC funds “in the development, operation, promotion and
expansion of the programs and activities of the commission including the
franchising, nationally and internationally, of the United States Space Camp,
a youth science program developed and owned by the commission.”
Ala. Code § 41-9-432 (3), (4), (11), (12), & (15).
The private contracts that ASSEC may enter are contracts like the ones at issue
in this litigation: a $1.75 million contract for the opportunity to obtain a Space
Significantly, the Alabama Legislature has provided that ASSEC may own property, franchises,
and licenses, and, as noted below, the Alabama Legislature has provided specifically that ASSEC
owns the Space Camp® program at issue in this litigation. Ala. Code § 41-9-432 (_), (15); see
also Doc. 1-1, p. 3, ¶ 7 (ASSEC complaint alleging that ASSEC holds title to the registered
trademarks at issue in this litigation), and Stallings & Sons, 689 So. 2d at 793 (in determining that
the Alabama Building Renovation Finance Authority was not an arm of the state, the Alabama
Supreme Court weighed the fact that the Authority “holds title to the property it is charged with
maintaining and, in effect, has rights separate from the state, affecting that property and those
rights are subject only to the dissolution of the Authority. The conveyance in Section 41–10–470,
Ala. Code 1975, provides that the Authority ‘shall be invested with all rights and title that the State
of Alabama had in the property conveyed [the real property on which the following buildings are
located: the Alabama State House, the Folsom Administrative Building, the Public Health
Building, the former Judicial Building, the Public Safety Building, the Archives and History
Building, and the State Office Building], thereby, subject to the right of reverter to the state upon
dissolution of the authority.’”). Like ASSEC, ASSFA may “acquire and hold title” to personal
property. Ala. Code § 41-10-307 (5). ASSFA also may “acquire and hold title” to real property.
Ala. Code § 41-10-307 (5).
5
9
Camp® license. (Doc. 1-3). ASSEC has described some of its private business
activities this way:
Since the beginning of the Space Camp® and Aviation Challenge®
programs, ASSEC has partnered with groups around the world to bring
the Space Camp® and Aviation Challenge® experiences to youth
outside of the United States. ASSEC licenses the Space Camp® and
Aviation Challenge® trademarks, designs, processes, and materials to
select
groups
outside
of
the
United
States.
(Doc. 1-1, p. 3, ¶ 8). As indicated, ASSEC has its own treasury where, according to
the Alabama Legislature, ASSEC should hold the proceeds from these private
contracts and all other revenues that ASSEC generates. Ala. Code § 41-9-432 (11).
The contract documents at issue in this litigation indicate that if Odysseia had
obtained a Space Camp® license, then the company would have had to make license
payments to ASSEC by direct deposit to an AmSouth bank account in ASSEC’s
name. (Doc. 1-3, p. 10).6
In addition to contract revenues, ASSEC may accept private gifts, grants, and
donations. Ala. Code § 41-9-432 (9). The Alabama Legislature has expressly
authorized ASSFA and ASSEC to convey real property between themselves to
accomplish the overall purpose of housing NASA exhibits, Ala. Code § 41-10-322,
and the Legislature has provided that the statutes authorizing the existence and work
6
Although the Alabama Legislature has not expressly given ASSEC the right to open bank
accounts, the Legislature has empowered ASSFA to do so. Ala. Code § 41-10-307 (10). The
license contract that ASSEC and Odysseia were negotiating indicates that the depository account
that Odysseia would have used is in ASSEC’s name. (Doc. 1-3, p. 10).
10
of ASSFA and ASSEC should be “construed liberally” to enable the entities to
accomplish the tasks assigned to them, Ala. Code §§ 41-9-439, 41-10-301.
Consistent with the Alabama Supreme Court’s expectations for public
corporations like the Health Care Authority, ASSFA, and ASSEC, ASSEC operates
primarily “with funds obtained from sources other than the tax revenues of a
governmental entity.” Hill Rom, 545 So. 2d at 1326. ASSFA and ASSEC report
their income and expenses jointly. (Doc. 88-11).7 For 2015, less than 3% of
ASSEC/ASSFA’s revenue came from the State of Alabama. More than 80% of
revenue came from “Sales & Charges for Services.” (Doc. 88-11, p. 13). By
directive of the Alabama Legislature, that revenue funds the salaries of the executive
director and other personnel of ASSEC.
Ala. Code § 41-9-432 (13) (“The
commission shall fix the compensation of the executive director, and such additional
personnel and such compensation shall be paid from the funds of the commission.”).
Citing Ex parte Greater Mobile Washington Cty. Mental Health-Mental
Retardation Bd., Inc., 940 So. 2d 990 (Ala. 2006), ASSEC argues that its enabling
legislation evidences its status as a state agency because § 41-9-430 incorporates the
term “state agency.” (Compare Doc. 35, p. 3; with Doc. 90, p. 15). In Greater
For FY 2015, ASSEC’s accountant prepared joint financial statements for “the Alabama Space
Science Exhibit Commission (a component unit of the State of Alabama), the Alabama Space
Science Exhibit Financial Authority (a component unit of the State of Alabama), and the U.S.
Space & Rocket Center Education Foundation (a nonprofit organization), collectively
ASSEC/ASSFA . . .” (Doc. 88-11, p. 6).
7
11
Mobile, the Alabama Supreme Court explained that when a court examines a public
entity’s status, “[w]e have previously noted as pertinent, but not determinative, that
the legislation creating or authorizing the entity in question expressly characterizes
the entity as an agency of the State.” Greater Mobile, 940 So. 2d at 1005 (citing
State Docks Comm’n v. Barnes, 225 Ala. 403 (1932), Deal v. Tannehill Furnace &
Foundry Comm’n, 443 So. 2d 1213 (Ala.1983), Tallaseehatchie Creek Watershed
Conservancy District v. Allred, 620 So. 2d 628 (Ala. 1993), and Stallings & Sons,
Inc. v. Ala. Bldg. Renovation Fin. Auth., 689 So. 2d 790 (Ala. 1997)).
Thus, ASSEC’s enabling statute’s reference to ASSEC as a “state agency” is
“pertinent” to the Court’s analysis but “not determinative.” In Greater Mobile, the
Alabama Supreme Court went on to explain that an entity may not be an arm of the
state, even though the statute creating the entity characterizes the entity as an
“agency of the State.” 940 So. 2d at 1001. What matters, the Alabama Supreme
Court explained, is the “complete relationship” between the State of Alabama and
the entity at issue. Greater Mobile, 940 So. 2d at 1001 (“Having examined ‘the
complete relationship’ between the State and the Authority, the Court concluded that
it was ‘clear that the Authority was created as a separate entity’ and ‘not as an arm
of the State,’ despite the fact that the legislation creating it expressly declared that it
was ‘an agency of the State.’”) (quoting Stallings & Sons, 689 So. 2d at 792); see
12
also Deal, 443 So. 2d at 1216 (“state agency” label does not determine whether an
entity is an arm of the state).
In Greater Mobile, the Alabama Supreme Court also explained that an entity’s
ability to sue and be sued is “strongly probative” that the Alabama Legislature
intended to create an entity separate from the state. Greater Mobile, 940 So. 2d at
1005. The Alabama Supreme Court stated:
We have held that language in the empowering statute providing that
the subject entity has the power “to sue and to be sued” is strongly
probative of “the intent of the legislature to create a separate entity
rather than an agency or arm of the state,” Stallings & Sons, 689 So. 2d
at 792. We have stated that such language is “incompatible with the
constitutional immunity with which state agencies are cloaked,”
Wassman [v. Mobile County Communications Dist., ]665 So. 2d [941,]
943 [(Ala. 1995)]; Rodgers [v. Hopper,] 768 So. 2d [963,] 967 [(Ala.
2000)].
Greater Mobile, 940 So. 2d at 1005. ASSEC filed this lawsuit; ASSEC is merely
fighting Odysseia’s effort to litigate this matter in federal court rather than state
court. At the request of ASSEC (Doc. 98-1, pp. 7-8), the state Attorney General’s
Office has appointed the law firm that represents ASSEC in this lawsuit. (Doc.
98-1).
ASSEC argues that the Alabama Supreme Court’s recent opinion in Barnhart
v. Ingalls, 2018 WL 6074918 (Ala. Nov. 21, 2018), indicates that the Alabama
Supreme Court views ASSEC as a state agency. (Doc. 99). The argument is
partially accurate and mostly incomplete. In Barnhart, the Alabama Supreme Court
13
assumed that ASSEC was a state agency; the Alabama Supreme Court did not
examine evidence regarding the status of ASSEC relative to the State of Alabama.
The defendants, officers of ASSEC, argued that they should be absolutely immune
from claims against them in their official capacities for retrospective benefit
payments. Barnhart, 2018 WL 6074918 at *6. The Alabama Supreme Court
explained an action against a state officer in effect is an action against the state if a
result favorable to a plaintiff would “directly affect a contract or property right of
the State,” the state officer “is simply a ‘conduit’” for the recovery of damages from
the State, or “a judgment against the officer would directly affect the financial status
of the State treasury.” Barnhart, 2018 WL 6074918 at *6 (internal citations
omitted); see also Barnhart, 2018 WL 6074918 at *9 (“whether an action nominally
asserted against a State official [is] truly one against the State” often turns partially
or entirely on “whether any damages that might be awarded would flow from the
State”). Had the Alabama Supreme Court examined evidence relating to those three
factors and had that evidence been consistent with the evidence in the record in this
action, the evidence would have revealed that ASSEC’s contract rights belong to
ASSEC, not the State of Alabama (see p. 8 above; Ala. Code § 41-9-432 (3)), and a
judgment against ASSEC for damages would be paid from ASSEC’s treasury, not
from Alabama’s state treasury.
14
Significantly, in Barnhart, ASSEC has taken the position that “the legislation
pursuant to which the Commission was created [] removed the Commission from
the purview of certain state employment laws, including the benefit statutes.”
Barnhart, 2018 WL 6074918 at *2. When the Alabama Department of Examiners
of Public Accounts told ASSEC that the it (ASSEC) had not complied with state law
concerning longevity bonuses and paid holidays, ASSEC notified the Department of
Examiners that it disagreed with the audit findings, and ASSEC refrained from
providing longevity bonuses or paid holidays. Barnhart, 2018 WL 6074918 at *2.
Barnhart is a class action by current and former ASSEC employees who hope to
compel ASSEC to provide the benefits that the Department of Examiners identified.8
In sum, both the relevant provisions of the Alabama Code and Alabama case
law support the conclusion that ASSEC is not an arm of the Stare of Alabama.
2. ASSEC Operates with Very Little State Control
For the most part, ASSEC operates like a private corporation. As noted above,
ASSEC owns the Space Camp® program. Ala. Code § 41-9-432 (15). ASSEC
In that regard, Alabama Code § 41-9-437(13) states that ASSEC’s “executive director and such
additional personnel shall not be subject to the provisions of the state Merit System Act; provided,
however, that they shall be eligible for participation in the state health insurance plan and benefits
as provided in Sections 36-29-1 through 36-29-12, and they shall be eligible for participation in
the State Employees’ Retirement System under the provisions of Section 36-27-6 governing
counties, cities, towns and other quasi-public organizations of the state.” The Department of
Examiners cited Alabama Code § 36-6-11(a) for the proposition that ASSEC must pay annual
longevity bonuses. Barnhart, 2018 WL 6074918 at *1. Alabama Code § 41-9-437(13) does not
mention Alabama Code § 36-6-11(a).
8
15
franchises that program nationally and internationally. Ala. Code § 41-9-432 (15).
ASSEC advertises its products “within and without the state.” Ala. Code § 41-9-436
(1). As noted above and in previous opinions, ASSEC can acquire, sell, convey,
transfer, mortgage, lease, or donate property in its own name without approval from
the State of Alabama.
(Doc. 52, p. 10).
“All revenue bonds issued by the
commission shall be solely and exclusively the obligations of the commission and
shall not create an obligation or debt of the state . . .” Ala. Code § 41-9-435.
According to the ASSEC/ASSFA financial statement for fiscal years 2015 and 2016,
“ASSEC/ASSFA prepares an internal operations budget for management purposes,
which is not subject to state approval.” (Doc. 88-11, p. 23). The financial statement
explains that in preparing the budget for fiscal year 2016, ASSEC/ASSFA, like a
private business, considered the economic horizon:
[ASSEC/ASSFA] considered many factors when setting the FY
2016 budget. These factors include the economy of both the United
States and foreign countries, continued introduction of year-round
schools, spending restrictions on public schools, and the ability of
the reporting units to successfully market products to consumers.
These factors taken into consideration required a modest growth in
anticipated revenue with a focus on controlling labor, cost of goods
sold, and outside services costs.
(Doc. 88-11, p. 14). ASSEC’s position in the Barnhart case illustrates that ASSEC,
like a private corporation, actively avoids state control.
Because ASSEC receives a small portion of its funding from the State of
Alabama, it has reporting obligations to the state. Ala. Code § 41-9-437. And
16
because ASSEC receives a small portion of its funding from the State of Alabama,
ASSEC may take advantage of certain benefits like the opportunity to request stateappointed counsel. (Doc. 98-1). But ASSEC operates independently of the State so
that “through its separate existence,” it may provide benefits to citizens of the State
of Alabama through the programs that ASSEC operates “with funds obtained from
sources other than the tax revenues of a governmental entity.” Hill Rom, 545 So. 2d
at 1326.
3. Most of ASSEC’s Funds are not Appropriated by the State of
Alabama
As discussed above and as the Court previously has found, ASSEC generates
most of its funding through its business operations. (Doc. 52, p. 6). According to
the ASSEC/ASSFA combined financial statement for fiscal year 2015,
ASSEC/ASSFA had $26,260,069 in operating revenues and $28,162,502 in total
revenues. (Doc. 88-11, p. 12). Of that total, $25,918,114 came from “Sales &
Charges for Services;” $1,131,155 came from “Operating Grants & Contributions;”
$532,028 came from “State of Alabama Appropriation;” $1,086,316 came from
lodging tax; and $618,829 came from capital contributions.” (Doc. 88-11, p. 13).9
ASSEC can pay its expenses with the revenue that ASSEC generates from its business operations.
For fiscal year 2015, ASSEC/ASSFA had approximately $28 million in total operating expenses.
(Doc. 88-11, pp. 13-14). Of that amount, ASSEC/ASSFA had $5,856,507 in expenses for Space
Camp. (Doc. 88-11, p. 13). ASSEC/ASSFA had $13,264,916 in expenses for “Personnel
Services.” (Doc. 88-11, p. 14).
9
17
A comment in the ASSEC/ASSFA financial statement for fiscal years 2015 and 2016
makes clear that ASSEC and ASSFA operate a business, and that business uses a
relatively small appropriation from the state Education Trust Fund to provide
programs to Alabama teachers and students.10 According to the financial statement:
Operating revenues for FY 2016 increased by $5,495,528 over FY 2015
due to an increase in revenue for all the major revenue lines of business.
Most notably, camp programs, merchandise and other sales increased
by 15%. In addition, operating grants grew by 145% in support of
NASA’s Sally Ride EarthKam payload in the Space Racers Saturday
morning cartoon effort supported with a NASA grant. Operating
expenses for FY 2016 increased proportionally to the growth in
revenue. It should also be noted, the State of Alabama appropriations
from the Education Trust Fund increased by $371,973.11 This increase
provided additional programs for Alabama educators and students.
(Doc. 88-11, p. 12).
Information in the State of Alabama Executive Budget report is in accord with
ASSEC/ASSFA’s financial report for fiscal years 2015 and 2016. The Executive
Budget report indicates that for fiscal year 2015, ASSEC received $26,420,591 from
“Admissions/Sales/Miscellaneous,” $1,046,000 from “Lodging Tax,” and $582,348
from the Education Trust Fund. (Doc. 87-11, p. 284).12
ASSEC’s 2015 appropriation from the Education Trust Fund of $533,028 is small relative to
ASSEC/ASSFA’s overall revenues for 2015 of more than $28 million and relative to the Education
Trust Fund’s appropriations to other entities in 2015. For 2015, the Alabama Education Trust
Fund appropriated a total of more than $5.91 billion to dozens of entities. (Doc. 87-11, pp. 2830).
10
The narrative portion of the financial statement states the increase was $371,973, but the
accounting portion of the statement indicates an increase of $317,973. (Doc. 88-11, pp. 12-13).
11
12
The State of Alabama reported that ASSEC had total receipts of $28,028,939 for fiscal year
18
ASSEC asserts that it is an arm of the state because its “finances are
entrenched in the State of Alabama’s budgeting process from start to finish.” (Doc.
90, p. 18). ASSEC states that it “submits its budget goals to Alabama’s Department
of Finance annually”; it “updates the Department quarterly” on its [ASSEC’s]
financial status; the Department of Finance considers requests from ASSEC “when
helping the Governor prepare the annual executive budget;” the Governor reports
ASSEC’s financial status “as a ‘discretely presented component unit’” in an annual
financial report; ASSEC’s financial books may be audited by the Alabama
Department of Examiners of Public Accounts; and “the State includes ASSEC’s total
receipts, regardless of the source, within the Education Trust Fund.” (Doc. 90, pp.
20-21). These reporting obligations and the state’s accounting practices do not alter
the fact that most of the revenue that ASSEC reports comes from its business
operations, not the State of Alabama. Those business operations concern the
marketing and sale of products that ASSEC owns independently.
As for ASSEC’s contention that its funds are state funds because “Executive
Budget Office records reflect that the State keeps all of ASSEC’s income in the
2015, and ASSEC used more than $13 million of its receipts to fund personnel costs and employee
benefits for 346 employees. (Doc. 87-11, p. 284). According to the state report, for fiscal year
2015, ASSEC spent more than $1 million for outside professional fees and services and just over
$800,000 to service ASSEC’s debt. (Doc. 87-11, p. 284). Given the fact that the data in the
ASSFA/ASSEC fiscal year 2015 financial statement and the data in the State Executive Budget
report regarding 2015 is virtually identical, it appears that the State of Alabama follows ASSEC’s
lead and combines the operating expenses and revenues of ASSEC and ASSFA.
19
Education Trust Fund as earmarked funds,” (Doc. 90, p. 22), the record confirms
that the State of Alabama Executive Budget report indicates that ASSEC’s revenues
are held in the Education Trust Fund as “earmarked funds.” (Doc. 87-11, p. 29).
But if the State of Alabama is requiring ASSEC to place commission revenues in the
Education Trust Fund and if the State regards those revenues as state funds rather
than funds belonging to ASSEC, then the State’s conduct appears inconsistent with
state law which states that ASSEC’s “funds from all donations, income and revenue
from any source whatsoever” should come into “its [i.e. ASSEC’s] treasury.” Ala.
Code § 41-9-432 (11).
Based on its assertion that ASSEC’s revenues from all sources are held in
Alabama’s Education Trust Fund as earmarked funds, ASSEC likens itself to the
Alabama State Bar, an entity which the Eleventh Circuit Court of Appeals has held
is an arm of the State of Alabama. (Doc. 90, pp. 21-22) (citing Nichols, 815 F.3d at
732). In holding that the Alabama State Bar is an arm of the state, the Eleventh
Circuit considered the fact that:
[t]he State Bar’s collection of fees is authorized by the Alabama
legislature, those fees are deposited into the state treasury and can be
spent only as appropriated by the Alabama legislature, and the Alabama
Department of Finance supervises the State Bar’s finances. See Ala.
Code §§ 34–3–3, 34–3–4, 34–3–44, 41–4–2.
Nichols, 815 F.3d at 732. ASSEC operates very differently from the Alabama State
Bar. As discussed, the Alabama Legislature requires ASSEC to place its revenue in
20
its own treasury, not in the state treasury. Ala. Code § 41-9-432 (11).13 ASSEC
creates its own budget without state oversight and spends its revenue as it sees fit.
Thus, the Nichols opinion does not warrant a finding that ASSEC is an arm of the
state.
ASSEC also cites Fouche v. Jekyll Island-State Park Authority, 713 F.2d 1518
(11th Cir. 1983), to support its argument that it is an arm of the state. (Doc. 90, pp.
22-23). In Fouche, the Eleventh Circuit, applying Georgia law, held that a Georgia
park authority was an arm of the State of Georgia. 713 F.2d at 1522. As in Nichols,
in reaching its holding, the Eleventh Circuit evaluated the extent to which the park
authority operated independently of the State of Georgia. The Court of Appeals
stated: “Even though the Park Authority can raise money through the issuance of
bonds and from the operation of Jekyll Island State Park, its fiscal life is controlled
by the state.” Fouche, 713 F.2d at 1522.
As to fiscal control, the Eleventh Circuit considered the State of Georgia’s
involvement in the park authority’s budget process. Like ASSEC, the park authority
had to submit its budget for review by the State of Georgia. 713 F.2d at 1520. Unlike
ASSEC, the park authority’s budget was “submitted to the General Assembly as part
Although ASSEC argues that the Governor reports ASSEC’s revenues as earmarked funds in
the Education Trust Fund and provides evidence that supports the reporting argument, (Docs.
87-11, 87-12), ASSEC has not stated that it actually places its revenue in the Education Trust Fund.
The omission suggests that ASSEC may, in fact, follow the directive of the Alabama Legislature
and hold its revenues in the ASSEC treasury.
13
21
of the Department of Natural Resources’ budget.” 713 F.2d at 1520. Again, ASSEC
does not have to submit its budget to the State of Alabama for approval. The
Eleventh Circuit also considered the extent to which the State of Georgia was
involved in contracts to which the park authority was a party. The Court of Appeals
explained: “All leases granted by the Park Authority are deemed to be contracts
between the individual lessee, the Authority, and the state of Georgia. O.C.G.A. §
12–3–249(d). The General Assembly must approve the sale of specified lands on
Jekyll Island. O.C.G.A. § 12–3–248.” 713 F.2d at 1521. The State of Alabama is
not a party to ASSEC leases, and ASSEC can sell property without the approval of
the State. Ala. Code § 41-9-432.
There are similarities between the way in which the park authority operated
relative to the State of Georgia and the way in which ASSEC operates relative to the
State of Alabama, but there are important differences too. Perhaps the most
important difference between Fouche and this case is the fact that Alabama law
governs ASSEC’s status. In Fouche, the Eleventh Circuit pointed out that although
no court had examined the park authority’s status for purposes of sovereign
immunity under Georgia law, courts had examined the status of other state
authorities and had determined that the Georgia Building Authority and the Hospital
Authority were arms of the State of Georgia. Fouche, 713 F.2d at 1522. The Court
of Appeals stated: “Although Georgia authorities are both instrumentalities and
22
public corporations, case law demonstrates that they are assumed to possess
sovereign immunity.” 713 F.2d at 1522. As discussed, the Alabama Supreme Court
has reached an opposite conclusion. The Alabama Supreme Court has held that
Alabama’s Hospital Authority is separate from the State of Alabama, Hill Rom, 545
So. 2d at 1326; the Alabama Building Renovation Finance Authority is separate
from the State of Alabama, Stallings & Sons, 689 So. 2d at 793; and the Alabama
Legislature separately incorporated public entities like the Health Care Authority
and the Alabama Space Science Exhibit Finance Authority, so that those entities
could function independent of state and local authorities, Hill Rom, 545 So. 2d at
1326; Stallings & Sons, 689 So. 2d at 792-93. The Eleventh Circuit’s decision in
Fouche does not dictate a finding here that ASSEC is an arm of the State of Alabama.
ASSEC generates the vast majority of its operating revenues, and ASSEC
pays all of its significant operating expenses with those revenues so that ASSEC, a
public entity separate from the State of Alabama, may serve the citizens of Alabama
without reliance on state funding. Hill Rom, 545 So. 2d at 1326. This financial
independence indicates that ASSEC is not an arm of the State of Alabama.
4. A Judgment Against ASSEC will not Affect the State of Alabama
In the 2016 Order, the Court stated:
ASSEC’s enabling statue does not state explicitly whether
ASSEC or the State of Alabama is responsible for judgments against
the Commission; however, ASSEC has its own treasury and may
‘allocate and expend funds from all donations, income and revenue
23
from any source whatsoever coming into its treasury for the fulfillment
and accomplishment of its duties and responsibilities . . . .” Ala Code.
§ 41-9-432(11). This provision suggests, and ASSEC has not disputed,
that the Commission, and not the State of Alabama, is responsible for
judgments against ASSEC. The Court has no information before it to
suggest that any entity other than ASSEC would be responsible for
paying a judgment against the Commission. Accordingly, the Court
finds that a judgment against ASSEC would not “adversely affect the
state treasury.” [Armory Commission of Alabama v.] Staudt, 338 So. 2d
[991,] 994 [(Ala. 1980)]; but see Nichols, 815 F.3d at 732-33 (11th Cir.
2016) (“Judgments against the State Bar will be paid out of its state
treasury fund, but only ‘as budgeted and allotted’ by the Alabama
legislature, potentially affecting the treasury as a whole.”) (internal
citation omitted).
(Doc. 52, pp. 13-14).
On the current record, ASSEC argues that because its “finances and property
are intertwined with the State budget, any money judgment against the agency would
adversely affect the State treasury.” (Doc. 90, p. 21). The Court has discussed at
length the difference between paper accounting and ASSEC’s statutory obligations
with respect to its revenues. The current record does not change the Court’s analysis.
If Odysseia were to successfully litigate its counterclaims against ASSEC, ASSEC
could pay that judgment from its operating revenues. The State of Alabama would
not be liable for a judgment for damages against ASSEC.14
14
ASSEC cites University of South Florida Bd. of Trustees v. CoMentis, Inc., 861 F.3d 1234 (11th
Cir. 2017), for the proposition that the State of Alabama would have to pay a damages judgment
against ASSEC. (Doc. 90, pp. 21-22). In University of South Florida, the Eleventh Circuit held
that the State of Florida ultimately paid for the judgments against the University of South Florida
Board of Trustees. 861 F.3d at 1236-37. The Eleventh Circuit stated that despite the board of
trustees’ ability to “enter into contracts, sue and be sued, implead and be implead, and therefore
hold property and have judgments entered against them,” the state “ultimately” paid for such
24
CONCLUSION
ASSEC has established that it is a public entity, but it has not demonstrated
that it is an arm of the state of Alabama. The evidence indicates that ASSEC is an
entity separate from the state. Therefore, ASSEC is a citizen for purposes of
diversity of citizenship jurisdiction, and ASSEC and Odysseia are completely
diverse. Accordingly, the Court denies ASSEC’s motion for summary judgment
(Doc. 89) as it relates to subject matter jurisdiction. By a separate memorandum
opinion and order, the Court will address the remaining issues raised in ASSEC’s
summary judgment motion.
DONE and ORDERED this September 16, 2019.
_________________________________
MADELINE HUGHES HAIKALA
UNITED STATES DISTRICT JUDGE
judgments by funding the university’s activities in general and mandating the university’s
enrollment in risk-management insurance. Univ. of S. Fla., 861 F.3d at 1236-37. The Court of
Appeals explained that the Florida Legislature funded the university’s budget, and the Florida
Board of Governors secured a comprehensive general liability insurance for state universities.
Univ. of S. Fla., 861 F.3d at 1236. By statute, the board of trustees had to maintain coverage under
a “State Risk Management Trust Fund.” Univ. of S. Fla., 861 F.3d at 1236-37. As discussed at
length, the State of Alabama funds only a very small part of ASSEC’s activities, and ASSEC has
no similar obligation to participate in a state risk fund.
25
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