STC.UNM v. Quest Diagnostics Incorporated et al
Filing
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MEMORANDUM OPINION AND ORDER by District Judge Martha Vazquez OVERRULING 39 Objections. IT IS THEREFORE ORDERED that STC.UNM's Objection to Order Permitting Limited Discovery (Doc. 38 ) [Doc. 39 ] is OVERRULED. (gr)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
STC.UNM,
Plaintiff,
v.
CV 17-1123 MV/KBM
QUEST DIAGNOSTICS INCORPORATED
and QUEST DIAGNOSTICS CLINICAL
LABORATORIES, INC.,
Defendants.
MEMORANDUM OPINION AND ORDER
THIS MATTER comes before the Court on STC.UNM’s Objection to Order Permitting
Limited Discovery (Doc. 38) (“Objection”) [Doc. 39].
The Court, having considered the
objection, briefs, and relevant law, and being otherwise fully informed, finds that the Objection
is not well-taken and will be overruled.
BACKGROUND
Plaintiff commenced this action in New Mexico State District Court, Second Judicial
District Court, in Bernalillo County, and asserted contract claims against Defendants based on a
2006 License Agreement.
Defendants then removed the action to this Court, asserting federal
question and diversity jurisdiction. Thereafter, Defendants filed declaratory judgment
counterclaims regarding patent issues.
Plaintiff filed a motion to dismiss and a motion to remand on December 7, 2017 and
December 8, 2017, respectively.
Both motions are based in part on Plaintiff’s argument that it
is an arm of the State of New Mexico, and thus is entitled to sovereign immunity under the
Eleventh Amendment.
Docs. 10, 12.
In support of its motion to dismiss, Plaintiff filed a
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declaration of Elizabeth Kuuttila, Chief Executive Officer and Chief Economic Development
Officer of STC.UNM, and attached several exhibits, which address the issue of Plaintiff’s
Eleventh Amendment immunity.
Doc. 11.
In response to Plaintiff’s motions, on December
13, 2017, Defendants filed a motion requesting discovery “limited to the issues of establishing
that STC.UNM is not entitled to either common law or Eleventh Amendment sovereign
immunity (and/or has waived any claim to such immunity).”
Doc. 17.
According to
Defendants, such discovery is necessary in order to respond to Plaintiff’s motions to dismiss and
to remand.
Id.
On January 31, 2018, this Court referred to Magistrate Judge Karen B. Molzen Plaintiff’s
motion to remand.
Doc. 37.
On March 7, 2018, Judge Molzen entered an Order Permitting
Limited Discovery by Deposition (“the Order”), determining that Defendants’ motion for
discovery, as limited in her Order, was well-taken. Doc. 38. Specifically, the Order
authorizes limited discovery in the form of a deposition of Ms. Kuuttila regarding the contents of
her declaration and attached exhibits and the day-to-day activities of STC.UNM that bear on its
autonomy from the state.
Id.
On the instant Objection, Plaintiff argues that by granting
Defendants limited discovery, the Order “misapplies the law on sovereign immunity and
constitutes clear legal error.”
Doc. 39 at 2.
STANDARD
Because the Order granting discovery is not dispositive of this case, under Rule 72(a) of
the Federal Rules of Civil Procedure and 28 U.S.C. Section 636(b)(1)(A), this Court must defer
to Judge Molzen’s “ruling unless it is clearly erroneous or contrary to law.” Hutchinson v. Pfeil,
105 F.3d 562, 566 (10th Cir. 1997) (holding that “[d]iscovery is a nondispositive matter”).
Specifically, Rule 72(a) provides that, on “timely objections” to a magistrate judge’s order on a
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non-dispositive matter, “the district court must . . . modify or set aside any part of the order that is
clearly erroneous or is contrary to law.”
Fed. R. Civ. P. 72(a); see also 28 U.S.C. §
636(b)(1)(A) (district judge may “reconsider any pretrial matter . . . where it has been shown that
the magistrate judge’s order is clearly erroneous or contrary to law”). 28 U.S.C. §
636(b)(1)(A).
The clearly erroneous standard “requires that the reviewing court affirm unless it
on the entire evidence is left with the definite and firm conviction that a mistake has been
committed.” Ocelot Oil Corp. v. Sparrow Indus., 847 F.2d 1458, 1464 (10th Cir. 1988) (citation
omitted). As the Seventh Circuit has articulated the standard, to be clearly erroneous “a decision
must strike [the court] as more than just maybe or probably wrong; it must . . . strike [the court] as
wrong with the force of a five-week-old, unrefrigerated dead fish.” Parts & Elec. Motors, Inc. v.
Sterling Elec., Inc., 866 F.2d 228, 233 (7th Cir. 1988).
DISCUSSION
In its Objection, Plaintiff argues that the Order permitting Defendants limited discovery
is clearly erroneous and contrary to law because Eleventh Amendment immunity is a question of
federal law reviewed de novo, and thus the Court need make no factual inquiry in determining
whether Plaintiffs are entitled to remand and dismissal of Defendants’ counterclaims.
at 7.
Doc. 39
According to Plaintiff, the law is clear that nothing beyond state law is relevant to the
immunity determination, “including deposition testimony, policies, procedures, and course of
conduct evidence.” Id. at 8. Further, Plaintiff argues that under Tenth Circuit law, “discovery
is prohibited pending determination of [the immunity] jurisdictional challenge.” Id. at 10.
The Court agrees that “Eleventh Amendment immunity is a question of federal law and
[the appellate court’s] review is de novo,” and that, while the court gives “deference to state
court decisions regarding whether a given entity is an arm of the state,” it does “not view these
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rulings as dispositive.” Steadfast Ins. Co. v. Agric. Ins. Co., 507 F.3d 1250, 1253 (10th Cir.
2007).
The Court, however, does not equally agree that it follows that, when making its
immunity determination, the district court is prohibited either from considering the factual
circumstances of the case before it or from ordering limited discovery to aid in its
determination.1
Plaintiff has not cited, and the Court has not found, any authority to support its
position that the court not only need not, but may not engage in a factual inquiry in determining
whether it is entitled to Eleventh Amendment immunity or permit limited discovery to aid in its
determination.
Indeed, in Steadfast, the Tenth Circuit explained that the analysis of whether an entity is
an arm of the state for Eleventh Amendment immunity purposes “depends, in large part, upon
[the court’s] analysis of the nature of the entity created by state law,” and the court must
“consider the status of the [entity] anew.” Id. at 1253-54.
In determining whether an entity
constitutes an arm of the state, the court looks to four primary factors:
1 Indeed, the point of the Tenth Circuit’s holding that the immunity issue is one of federal law
appears to be addressing whether the court must defer to the state’s own determination of
whether the entity at issue is an arm of the state. See Duke v. Grady Mun. Schs., 127 F.3d 972,
978 (10th Cir. 1997) (explaining that while the court “must view the issue of Eleventh
Amendment immunity as a federal question, [it] cannot ignore the fact that the answer to the
question requires a detailed analysis of New Mexico constitutional and statutory materials.
And, the State’s highest court is the best authority on its own law.”). Similarly, the de novo
standard of review applies to the “legal effect” of the facts, i.e., “whether the relevant statutes
and facts developed during discovery establish that” an entity is the arm of the state. U.S. ex
rel. Oberg v. Penn. Higher Educ. Assistance Agency, 804 F.3d 646, 654 (4th Cir. 2015). That
the district court’s immunity determination is reviewed de novo has no bearing on whether the
court first must resolve issues of fact in order to make that determination. Indeed, fact finding
is expressly permitted on a motion to dismiss for subject matter jurisdiction, and the court’s
determination as to whether it has subject matter jurisdiction is reviewed de novo. Holt v.
United States, 46 F.3d 1000, 1003 (10th Cir. 1995) (where motion to dismiss for subject matter
jurisdiction involves challenge to actual facts upon which subject matter jurisdiction is based, the
“court has wide discretion to allow affidavits, other documents, and a limited evidentiary hearing
to resolve disputed jurisdictional facts under Rule 12(b)(1)”; Becker v. Ute Indian Tribe of
Uintah and Ouray Reservation, 770 F.3d 944, 946 (10th Cir. 2014) (“Our review of the district
court’s dismissal for lack of subject matter jurisdiction is de novo.”).
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First, [the court] assess[es] the character ascribed to the entity under state law.
Simply stated, [the court] conduct[s] a formalistic survey of state law to ascertain
whether the entity is identified as an agency of the state. Second, [the court]
consider[s] the autonomy accorded the entity under state law. This
determination hinges upon the degree of control the state exercises over the entity.
Third, [the court] stud[ies] the entity’s finances. Here, [the court] look[s] to the
amount of state funding the entity receives and consider[s] whether the entity has
the ability to issue bonds or levy taxes on its own behalf. Fourth, [the court]
ask[s] whether the entity in question is concerned primarily with local or state
affairs. In answering this question, [the court] examine[s] the agency’s function,
composition, and purpose.
Id. at 1253. By necessity, the third and fourth factors of this test, namely, the entity’s finances
and the entity’s focus on local versus state affairs, involve factual inquiries.
In applying the Steadfast analysis, other courts in this circuit have recognized the need
for factual inquiry and accordingly, have permitted limited discovery similar to the discovery
ordered here. See Moore v. Univ. of Kansas, 124 F. Supp. 3d 1159, 1170 (D. Kan. 2015)
(granting plaintiff’s request for discovery relevant to Eleventh Amendment immunity issues
because the court was “simply not convinced that it [could] make a final determination” on
defendant’s motion to dismiss without a more fully developed factual record); Schwartz v.
Jefferson Cty. Dep’t of Human Servs., No. 09-cv-915, 2010 WL 1350832 (D. Colo. Mar. 31,
2010) (where defendants moved to dismiss on the basis of Eleventh Amendment immunity,
granting plaintiffs’ request for discovery limited to the Steadfast factors, “given that the question
necessary to resolve [], whether the Defendants qualify as an arm of the state, is a fact intensive
inquiry that involves issues of state law”).
Courts in other circuits similarly have recognized
that the multi-factored, arm of the state analysis necessarily involves a factual inquiry, and as a
result, have permitted limited discovery on Eleventh Amendment immunity before deciding a
motion to dismiss on that basis. See Oberg, 804 F.3d at 653 (explaining that, in its prior
decision, it had “vacated the district court’s order dismissing Oberg’s complaint, and []
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instructed the district court on remand to permit limited discovery on the question of whether
PHEAA [was] truly subject to sufficient state control to render it a part of the state,” and that,
“[o]n remand, the parties engaged in discovery, and PHEAA field a motion for summary
judgment on the arm-of-the-state issue,” which the district court granted “in light of the
post-remand factual development of the case”); Lang v. Penn. Higher Educ. Assistance Agency,
610 F. App’x 158, 162 (3d Cir. 2015) (explaining that applying the arm of the state “factors
requires a fact-intensive review that calls for individualized determinations,” and vacating the
district court’s judgment of dismissal and remanding for further development of the factual
record) (citing Blake v. Kline, 612 F.2d 718 (3d Cir. 1979) (vacating and remanding on Eleventh
Amendment immunity question where, “in a close case . . ., evidence beyond the mere statutory
language is required”); Strykowski v. N.E. Ill. Reg’l Commuter R.R. Corp., 30 F.3d 136, 1994
WL 287395, *2 (7th Cir. June 28, 1994) (holding that whether the defendant “is vested with
sufficient state characteristics to qualify for sovereign immunity under the Eleventh Amendment
is a factual determination, and that the “district court must undergo a fact-specific factor-driven
analysis,” which is “a close question and will no doubt require additional briefing, discovery, and
a hearing to develop facts sufficient to decide the issue”).
Admittedly, other courts have
determined that, in the particular case before it, the arm of the state determination was so clear
that discovery was not necessary; those courts, however, did not suggest that discovery relevant
to Eleventh Amendment immunity would not be useful under different circumstances, or that
such discovery was somehow legally prohibited. See Pharm. & Diagnostic Servs., Inc. v. Univ.
of Utah, 801 F. Supp. 508, 512 n. 9 (D. Utah 1990) (recognizing that “each state university exists
in a unique governmental context, and each must be considered on the basis of its own peculiar
circumstances,” but finding that, in the particular case before it, the court needed “only look to
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the peculiarities of Utah law,” which “as distinguished from any detailed factual inquiry, clearly
render[e]d the University of Utah an arm of the state,” and thus declining to award discovery);
South Carolina Dep’t of Disabilities & Special Needs v. Hoover Univ. Inc., 535 F.3d 300, 308
(4th Cir. 208) (holding that, where plaintiff agencies “were created as state agencies and [were]
operated by state employees in furtherance of a state-wide mission,” were “funded by the State
and [were] financially accountable to the State,” and “any recovery by these two agencies in this
case would be returned to the State’s general fund,” “[n]o discovery, as Hoover claim[ed] it
should have received, could change their status”).
Nor is Plaintiff correct that in the qualified immunity context, discovery is prohibited
pending determination of whether such immunity applies.
To the contrary, the Tenth Circuit
has specifically held that “qualified immunity does not shield government officials from all
discovery but only from discovery which is either avoidable or overly broad.” Maxey ex rel.
Maxey v. Fulton, 890 F.2d 279, 282 (10th Cir. 1989) (citation omitted). And discovery orders
“entered when the defendant’s immunity claim turns at least partially on a factual question; when
the district court is unable to rule on the immunity defense without further clarification of the
facts; and which are narrowly tailored to uncover only those facts needed to rule on the immunity
claim are neither avoidable or overly broad.” Id.
Here, Judge Molzen determined that Plaintiff’s immunity claim turns at least partially on
factual questions, namely whether STC and its Board of Directors are independent from the
University of New Mexico, and the characterization of STC under the University Research Park
Act, and that further clarification of these issues is necessary in order to determine whether
Plaintiff is an arm of the state.
Doc. 38 at 3. Further, the Order, which allows discovery in the
limited form of a deposition of Ms. Kuuttila as to certain discrete topics, is narrowly tailored to
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uncover only those facts that are needed to rule on Plaintiff’s immunity claim.
Accordingly,
Plaintiff’s “immunity claim fits squarely within this rule of permissible discovery.” Maxey, 890
F.3d at 282.
There is simply no authority for Plaintiff’s position that allowing limited discovery on the
issue of Eleventh Amendment immunity is contrary to law.
Nor is this Court left with “the
definite and firm conviction” that, by ordering limited discovery in the form of the deposition of
Ms. Kuuttila, “a mistake has been committed.” Ocelot, 847 F.2d at 1464. Accordingly,
Plaintiff’s objection is not well-taken and will be overruled.
CONCLUSION
The Order permitting Defendants limited discovery is neither clearly erroneous nor
contrary to law.
There thus is no basis for this Court to sustain Plaintiff’s Objection to the
Order.
IT IS THEREFORE ORDERED that STC.UNM’s Objection to Order Permitting
Limited Discovery (Doc. 38) [Doc. 39] is OVERRULED.
DATED this 23rd day of July, 2018.
MARTHA VÁZQUEZ
United States District Judge
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