United States Court of Appeals For the First Circuit No. 15-1278
DANIEL GRAJALES, WANDA I. GONZÁLEZ, CONJUGAL PARTNERSHIP GRAJALES-GONZÁLEZ,
PUERTO RICO PORTS AUTHORITY,
MIGUEL ALCOVER; ELMER EMERIC; GONZALO GONZÁLEZ-SANTINI; ÁLVARO PILAR-VILAGRÁN; CARLOS TRAVIESO; and MANUEL VILLÁZAN-LIG-LONG, each in his personal and official capacities,
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF PUERTO RICO
[Hon. Pedro A. Delgado-Hernández, U.S. District Judge]
Before Thompson, Hawkins,* and Barron, Circuit Judges.
Eugenio W.A. Géigel-Simounet, with whom Géigel-Simounet Law Offices C.S.P. was on brief, for appellants. Jorge Martínez-Luciano, with whom Martínez-Luciano & Rodríguez-Escudero Law Office was on brief, for appellee.
July 26, 2016
* Of the Ninth Circuit, sitting by designation.
BARRON, Circuit Judge. State-created public
corporations serve a range of special purposes. Sometimes states
structure these entities to be so closely tied to the state
government -- in terms, among other things, of how they are funded
and how they are supervised -- that they are properly understood
to be "arms" of the state itself. As a result, such entities may
claim the very same sovereign immunity from suit that the state
enjoys under the Eleventh Amendment of the United States
Constitution. Sometimes, however, states structure these entities
to operate at such a remove from the state government that they
are not properly understood to be arms of the state. When states
set up such entities in that way, they are not entitled to share
in the state's immunity.
What is true of states is also true of the Commonwealth
of Puerto Rico. It, too, we have held, is entitled to assert the
sovereign immunity that states enjoy. It, too, has created a
number of special-purpose public corporations. And, it, too, has
structured some of them to be very closely tied to the Commonwealth
government and some to operate separate and apart from it.
Unfortunately, it is not always easy to tell whether a
sovereign has structured one of its special-purpose public
corporations to be an "arm." Disputes over classification thus
frequently arise, such as this one, in which we must decide whether
one of the Commonwealth's special-purpose public corporations, the
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Puerto Rico Ports Authority ("PRPA"), is an arm of the
We have twice before -- albeit decades ago -- addressed
PRPA's status. In each case, we reached a different conclusion
based on the distinct nature of the particular function that PRPA
was performing that gave rise to the underlying suit. After we
decided those cases, however, we refined our arm-of-the-state
analysis in response to intervening Supreme Court precedent. In
this case, based on that refined analysis and the arguments that
PRPA makes to us, we conclude that PRPA is not entitled to assert
the Commonwealth's immunity as an arm of the Commonwealth.
Accordingly, we reverse the District Court's order of dismissal
and remand for further proceedings.
Puerto Rico law established the Puerto Rico
Transportation Authority as a public corporation in 1942. P.R.
Laws Ann. tit. 23 § 331. In 1955, Puerto Rico renamed the entity
the Puerto Rico Ports Authority. Id. § 332(a). The special
purposes that PRPA is charged with performing are "to develop and
improve, own, operate, and manage any and all types of air and
marine transportation facilities and services, as well as to
establish and manage mass marine transportation systems in, to and
from the Commonwealth of Puerto Rico on its own, or in coordination
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with other government, corporate or municipal entities."
Id. § 336.
The plaintiffs are Daniel Grajales and his family. Their
suit arises from events that allegedly occurred after PRPA
transferred Grajales, who had served as PRPA's Interagency
Coordinator for Emergency Management, to the position of
Supervisor of Security at the Aguadilla Airport in Aguadilla,
The plaintiffs allege that from 2009 to 2011, the
defendants -- which include not only PRPA, but also various PRPA
officials who are not parties to this appeal -- subjected Grajales
to "persecution, prosecution, harassment, unfair working
conditions and a hostile working environment" due to his political
affiliation.1 The plaintiffs also allege that Grajales was
unlawfully terminated from his employment with PRPA on May 20,
2011, for reasons related to political discrimination and
retaliation. As to retaliation, the plaintiffs allege that
Grajales was terminated on account of his perceived involvement in
the filing of a complaint with the Occupational Safety and Health
1 Grajales is a member of the Popular Democratic Party and the individual defendants are allegedly members of the New Progressive Party. The PDP lost the general election in November 2008 and the NPP assumed office thereafter. See Grajales v. P.R. Ports Auth., 682 F.3d 40 , 43 (1st Cir. 2012).
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Administration about the procedures used by airport personnel to
fix lights at the airport.
This case has a lengthy and complicated procedural
history, with many twists and turns. These include the plaintiffs'
filing of four complaints, each of which raised a variety of
federal and Puerto Rico law claims; the reversal by this Court of
the District Court's grant of the defendants' motion for judgment
on the pleadings, see Grajales v. P.R. Ports Auth., 682 F.3d 40 ,
50 (1st Cir. 2012); the District Court's subsequent denial of the
defendants' motion for summary judgment; a trial that resulted in
jury deadlock as to the retaliation claim; the entry of default
against PRPA; and the transfer of the case from one judge to
Notably, PRPA did not assert Eleventh Amendment immunity
until March 27, 2014, after default was entered against PRPA but
before the entry of default judgment. PRPA asserted its immunity
in a motion to dismiss the plaintiffs' then remaining claims
against PRPA. The District Court granted that motion on January
12, 2015. See Grajales v. P.R. Ports Auth. ("Grajales II"), 81 F.
Supp. 3d 158, 166 (D.P.R. 2015).2
2 The District Court concluded that the plaintiffs' only remaining claims were a federal political discrimination claim under 42 U.S.C. § 1983 and a Puerto Rico law retaliation claim. See Grajales II, 81 F. Supp. 3d at 166 n.7. The parties do not challenge this characterization of the remaining claims.
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The District Court relied primarily on Puerto Rico Ports
Authority v. Federal Maritime Commission ("FMC"), 531 F.3d 868
(D.C. Cir. 2008), cert. denied, 555 U.S. 1170 (2009). Grajales
II, 81 F. Supp. 3d at 163-65. In FMC, the D.C. Circuit concluded
that PRPA was an arm of the Commonwealth and was thus immune from
suit under Eleventh Amendment immunity principles. FMC, 531 F.3d
at 880. The District Court agreed, Grajales II, 81 F. Supp. 3d at
162-65, and also concluded that PRPA did not, through its course
of conduct in litigation, waive its right to claim immunity, id.
This appeal followed. The plaintiffs do not challenge
the District Court's conclusion that PRPA did not waive its right
to assert immunity. The plaintiffs do challenge the District
Court's conclusion that PRPA is an arm of the Commonwealth entitled
to assert the Commonwealth's immunity from suit.
The Eleventh Amendment provides that "[t]he 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. The
Supreme Court has explained that "[a]lthough the text of the
Amendment would appear to restrict only the Article III diversity
jurisdiction of the federal courts, 'we have understood the
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Eleventh Amendment to stand not so much for what it says, but for
the presupposition . . . which it confirms.'" Seminole Tribe of
Fla. v. Florida, 517 U.S. 44 , 54 (1996) (omission in original)
(quoting Blatchford v. Native Vill. of Noatak, 501 U.S. 775 , 779
This "presupposition . . . has two parts: first, that
each State is a sovereign entity in our federal system; and second,
that '[i]t is inherent in the nature of sovereignty not to be
amenable to the suit of an individual without its consent.'" Id.
(second alteration in original) (quoting Hans v. Louisiana, 134
U.S. 1 , 13 (1890)). As a result, states are shielded from suit in
federal court even when sued by their own citizens. See Edelman
v. Jordan, 415 U.S. 651 , 662-63 (1974).
The parties agree that, because the Commonwealth enjoys
this immunity,3 the only question that we must decide is whether
3 See Jusino Mercado v. Com. of P.R., 214 F.3d 34 , 39 (1st Cir. 2000) (detailing Puerto Rico's autonomous history and stating that "we consistently have held that Puerto Rico's sovereign immunity in federal courts parallels the states' Eleventh Amendment immunity"); cf. Porto Rico v. Rosaly y Castillo, 227 U.S. 270 , 274 (1913) (concluding that the Puerto Rican government's "immunity from suit without it[s] consent is necessarily inferable from a mere consideration of the nature of the P[ue]rto Rican government" and explaining that the purpose of the Foraker Act in regard to Puerto Rico was to "'confer an autonomy similar to that of the states'" (quoting Gromer v. Standard Dredging Co., 224 U.S. 362 , 370 (1912))). We note that the Supreme Court has expressly reserved on the question whether Eleventh Amendment immunity principles apply to Puerto Rico. See P.R. Aqueduct & Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139 , 141 n.1 (1993).
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PRPA may claim it. The parties further agree that the answer turns
on whether PRPA's relationship to the Commonwealth is such that
PRPA is an "arm of the Commonwealth." See Pastrana-Torres v.
Corporación de P.R. para la Difusión PÚBLICA, 460 F.3d 124 , 125
(1st Cir. 2006). Our review is de novo. Id. PRPA bears the
burden of proving that it is an "arm." Wojcik v. Mass. State
Lottery Comm'n, 300 F.3d 92 , 99 (1st Cir. 2002).
Before turning to an examination of PRPA's status, we
need to review the substantial precedent that potentially bears on
how we should conduct our analysis. We thus start with our two
prior decisions that directly addressed whether PRPA is an arm of
the Commonwealth but that reached opposite, case-specific
outcomes. We then describe how, in light of subsequent Supreme
Court decisions, our arm-of-the-state precedent has developed in
the years since we decided those cases. Finally, we describe both
the D.C. Circuit case that the District Court relied on in
concluding that PRPA is an arm of the Commonwealth and the District
Court decision itself. Both the D.C. Circuit and the District
Court concluded that our prior precedents examining PRPA's status
deployed an analysis that no longer is applicable.
We first addressed whether PRPA qualifies as an arm of
the Commonwealth in Puerto Rico Ports Authority v. M/V Manhattan
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Prince ("Prince"), 897 F.2d 1 (1st Cir. 1990). We did so in
connection with a suit that sought to hold PRPA vicariously liable
for the negligence of a certain type of ship pilot who had been
involved in a ship's collision into a dock. Id. at 2-3.4
To determine PRPA's status, we relied on a multi-factor
framework drawn from our decision in Ainsworth Aristocrat Int'l
Party Ltd. v. Tourism Co. of P.R. ("Ainsworth"), 818 F.2d 1034 ,
1037 (1st Cir. 1987). See Prince, 897 F.2d at 9. Accordingly, we
described how Puerto Rico law characterized PRPA's status, listed
the various powers and functions of PRPA, and provided a brief
account of PRPA's fiscal relationship to the Commonwealth. Id. at
9-10. After reviewing those aspects of PRPA, we concluded that
"whether the PRPA is entitled to eleventh amendment protection
depends upon the type of activity it engages in and the nature of
the claim asserted against it." Id. at 10.
Turning to those features of the case, we explained that
the pilot in question was not acting as an agent of PRPA and that
PRPA's relationship to the pilot was like that of a regulator.
Id. at 12. We then held that, in light of the governmental nature
of the function for which the suit was seeking to hold PRPA liable,
PRPA was acting as an arm of the Commonwealth and thus that PRPA
4 The pilot in question was a so-called "compulsory pilot." Prince, 897 F.2d at 3. Compulsory pilots are responsible for coordinating the safe passage of ships into and out of Puerto Rico harbors. See id. at 10; P.R. Laws Ann. tit. 23 §§ 2404, 2412.
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was entitled to assert the Commonwealth's immunity from that suit.
Two years later, in Royal Caribbean Corp. v. Puerto Rico
Ports Authority, 973 F.2d 8 (1st Cir. 1992), we considered PRPA's
claim that it was entitled to immunity, as an arm of the
Commonwealth, from a suit that alleged that PRPA had negligently
maintained a dock. Id. at 9. We again relied on the multi-factor
framework set forth in Ainsworth. Id. (citing Ainsworth, 818 F.2d
We found that PRPA acted as a proprietor rather than as
a regulator in maintaining the docks; that PRPA generally
"operate[d] with a considerable degree of autonomy," id. at 11,
consistent with its denomination as a "public corporation" with a
"legal existence and personality separate and apart from those of
the Government," P.R. Laws Ann. tit. 23 § 333(b); that PRPA (and
not the Commonwealth) would likely pay any adverse judgment in the
event that PRPA were not immune; and that PRPA enjoyed a great
deal of fiscal independence from the Commonwealth. Royal
Caribbean, 973 F.2d at 10-12. We concluded that these facts
weighed against deeming PRPA to be an arm of the Commonwealth.
Id. In particular, we concluded that PRPA's general fiscal
independence from the Commonwealth and the Commonwealth's lack of
potential liability in the suit at hand weighed "heavily" against
deeming PRPA to be an arm of the Commonwealth. Id. at 11. We
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further concluded that these facts outweighed the facts that
favored PRPA's claim to arm-of-the-Commonwealth status -- namely,
the fact that the Commonwealth exercised a meaningful amount of
control and supervision over PRPA and the fact that PRPA was
generally charged with advancing the interests of the
Commonwealth. Id. at 11-12.
We thus held in Royal Caribbean that, notwithstanding
our holding in Prince, PRPA was not entitled to assert immunity,
as an arm of the Commonwealth, from the suit then before us. We
attributed the difference between that holding and the one in
Prince to the fact that the "relevant 'type of activity'" PRPA was
performing was "fundamentally different" in the two cases. Id. at
12 (quoting Prince, 897 F.2d at 10). As we put it, "[t]he
difference between the primarily 'governmental function' at issue
in [Prince], and the basically 'proprietary function' . . . at
issue [in Royal Caribbean] explains the difference in result."
A year later, in Metcalf & Eddy, Inc. v. Puerto Rico
Aqueduct & Sewer Authority, 991 F.2d 935 (1st Cir. 1993), on remand
from 506 U.S. 139 (1993), we elaborated on the framework laid out
in Ainsworth by setting forth a non-exhaustive list of seven
factors that could be "mined" for determining whether an entity is
an arm of the state. Metcalf & Eddy, 991 F.2d at 939-40 (citing
Ainsworth, 818 F.2d at 1037). In doing so, we noted the distinct
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outcomes that we had reached in Prince and Royal Caribbean -- each
decided under the Ainsworth framework -- and "the seeming anomaly
in a single agency being held to possess Eleventh Amendment
immunity for some functions but not for others." Id. at 941 n.6.
We explained that the different outcomes "turned on the nature of
the function involved in each instance, presumably because, in
light of [PRPA]'s portfolio of diverse operations, the question of
access to the Commonwealth's treasury was fuliginous." Id.
For a number of years following our decisions in Prince
and Royal Caribbean, the multi-factored framework that we had set
forth in Metcalf & Eddy -- a framework that accommodated our
divergent (and case-specific, function-based) rulings concerning
PRPA's status -- defined our approach. But, in Fresenius Medical
Care Cardiovascular Resources, Inc. v. Puerto Rico & Caribbean
Cardiovascular Center Corp. ("Fresenius"), 322 F.3d 56 (1st Cir.
2003), we "refined" that approach. Id. at 68. We did so in light
of the Supreme Court's intervening arm-of-the-state decision in
Hess v. Port Authority Trans-Hudson Corp., 513 U.S. 30 (1994),
which concerned whether the Port Authority Trans-Hudson
Corporation was an arm of the states that established it (New York
and New Jersey), id. at 32, 35.
Fresenius explained that, although the framework for
determining arm-of-the-state status set forth in Metcalf & Eddy
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was "consistent with Hess," 322 F.3d at 68, we were obliged going
forward to follow the "two-step analysis" that we determined Hess
had established, id. at 65. We then proceeded to describe the two
The first step, Fresenius explained, "pays deference to
the state's dignitary interest in extending or withholding
Eleventh Amendment immunity from an entity" by examining "how the
state has structured the entity." Id. This examination requires
consideration of the broad range of structural indicators that
Hess and Metcalf & Eddy identified as relevant. See id. at 62
n.6, 65 n.7, 68.5 These structural indicators include how state
law characterizes the entity, the nature of the functions performed
by the entity, the entity's overall fiscal relationship to the
Commonwealth (as opposed to whether the Commonwealth is liable for
any judgment in the particular case at hand), and how much control
the state exercises over the operations of the entity. Id.
Fresenius explained that if the analysis of these
structural indicators reveals that "the state clearly structured
the entity to share its sovereignty," then the entity is an arm of
the state and the analysis is at an end. Id. at 68. But, Fresenius
explained, if the structural indicators "point in different
5Fresenius also mentioned the factors described in Lake Country Estates, Inc. v. Tahoe Regional Planning Agency, 440 U.S. 391 , 401-02 (1979), as relevant to the arm-of-the-state analysis. Fresenius, 322 F.3d at 62 n.5, 68.
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directions," id., or, as Fresenius elsewhere put it, "when there
is an ambiguity about the direction in which the structural
analysis points," id. at 66, the structural indicators alone cannot
establish that the entity at issue is an arm of the state
government, see id. at 66, 68. In that event, Fresenius holds, we
must proceed to the second step of the analysis. Any other
approach, we explained, would give insufficient respect to the
dignity interest of the sovereign that created the public
corporation and that may choose not to have that public corporation
share in the sovereign's immunity. Id. at 65, 68.
At the second step, according to Fresenius, the
"dispositive question concerns the risk that the damages will be
paid from the public treasury" and "[t]his analysis focuses on
whether the state has legally or practically obligated itself to
pay the entity's indebtedness" in the pending action. Id. at 68,
72. If the state is so obligated, then the entity may claim the
state's immunity, even though the structural indicators do not
themselves provide a sufficient indication that the entity is an
arm of the state. Id. at 65, 68.6
6Fresenius also noted that in Auer v. Robbins, 519 U.S. 452 (1997), a post-Hess Supreme Court decision involving the arm-of- the-state doctrine, the Court concluded that the entity at issue -- a board of police commissioners -- "was not an arm of the state because the state was not responsible for the Board's financial liabilities and the only form of state control was the governor's power to appoint four of five board members." Fresenius, 322 F.3d at 67 (citing Auer, 519 U.S. at 456 n.1).
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Fresenius did reference Royal Caribbean, 322 F.3d at 69,
just as Hess had done, Hess, 513 U.S. at 50. But Fresenius, like
Hess, did not address Royal Caribbean's emphasis on the proprietary
nature of the function that PRPA was performing in the case at
hand. See generally Hess, 513 U.S. 30 ; Fresenius, 322 F.3d 56 .
And Fresenius, like Hess, also did not mention our Eleventh
Amendment analysis in Prince or the divergence in outcome between
Royal Caribbean and Prince. See generally Hess, 513 U.S. 30 ;
Fresenius, 322 F.3d 56 .
Moreover, Fresenius did not directly address whether an
entity's case-specific function is of any relevance to the analysis
of the structural indicators at the first step. See generally
Fresenius, 322 F.3d 56 . Nor did Fresenius directly address
whether, under its framework, it might be possible for an entity
that, like PRPA, performs some governmental functions and some
proprietary functions, see Metcalf & Eddy, 991 F.2d at 941 n.6, to
be an arm of the state for purposes of suits that target the
entity's performance of the former functions but not the latter
ones. See generally Fresenius, 322 F.3d 56 . We also have had no
occasion to address that issue in subsequent cases.
The question of PRPA's status first arose post-Fresenius
outside of our Circuit. In FMC, 531 F.3d 868 , the D.C. Circuit
addressed PRPA's claim to immunity -- as an arm of the
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Commonwealth -- in an administrative proceeding before the Federal
Maritime Commission. Id. at 871. The D.C. Circuit concluded, on
the basis of Fresenius, that our holdings in Prince and Royal
Caribbean should be accorded little weight. The D.C. Circuit
explained that, in Fresenius, "the First Circuit . . . expressly
departed from that narrow focus on governmental-versus-proprietary
functions as the test for assessing the sovereign immunity of a
special-purpose corporation." Id. at 874 n.3.
In line with the first step of the Fresenius analysis,
FMC assessed the structural indicators of PRPA's status as a whole.
See id. at 874-80. The D.C. Circuit identified the relevant
structural indicators as: "state intent, including the entity's
functions; state control; and the entity's overall effects on the
state treasury." Id. at 873. The D.C. Circuit concluded that all
three of these structural indicators -- including the functions
that PRPA had been assigned to perform, when considered as a
whole -- pointed toward the conclusion that PRPA is an arm of the
Commonwealth. See id. at 874-80. On that basis, the D.C. Circuit
held that PRPA was entitled to assert the Commonwealth's immunity.
Id. at 881.
Consistent with its observation that "once an entity is
determined to be an arm of the State under the three-factor test,
that conclusion applies unless and until there are relevant changes
in the state law governing that entity," the D.C. Circuit did not
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undertake any further analysis. Id. at 873. As a result, the
D.C. Circuit did not address the proper approach to follow in the
event that the structural indicators do not send a sufficiently
clear signal as to an entity's status. Nor, in consequence of its
ruling, did the D.C. Circuit engage in the second step of the
Fresenius analysis, at which the question whether the pending
action places the Commonwealth's fisc at risk is dispositive.7
And that brings us, finally, to this case, in which
PRPA's status is once again in dispute. The District Court, in
addressing whether PRPA is an arm, concluded that FMC was right to
give little weight to our prior holdings about PRPA's status
because they focused too narrowly on the particular function that
PRPA was performing in the case at hand. Grajales II, 81 F. Supp.
3d at 162-63. The District Court thus followed FMC in concluding
7 The D.C. Circuit did state that an entity that does not otherwise qualify as an arm of the state may nevertheless be immune "in a particular case if the entity was acting as an agent of the State or if the State would be obligated to pay a judgment against an entity in that case." FMC, 531 F.3d at 878-89 (citing Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89 , 101 n.11 (1984) (invoking principles of the real-party-in-interest doctrine), and Shands Teaching Hosp. & Clinics, Inc. v. Beech St. Corp., 208 F.3d 1308 , 1311 (11th Cir. 2000) (citing principles of agency law)); see also City of Oakland ex rel Bd. of Port Comm'rs v. Fed. Mar. Comm'n, 724 F.3d 224 , 227 (D.C. Cir. 2013) ("[W]hen the state is not named as a defendant, sovereign immunity attaches only to entities that are functionally equivalent to states (often called 'arms of the state') or when, despite procedural technicalities, the suit effectively operates against the state as the real party in interest."). This inquiry thus may mirror the second step of the Fresenius analysis.
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that, under Fresenius, the proper focus was on the structural
indicators of PRPA's status, broadly considered. Id. The District
Court also followed FMC in concluding that PRPA was an arm of the
Commonwealth in consequence of the evidence of the Commonwealth's
intent, including PRPA's functions; the Commonwealth's control
over PRPA; and the nature of the fiscal relationship between PRPA
and the Commonwealth government. See id. at 162-65. In addition,
the District Court agreed with the D.C. Circuit's conclusion that
an entity determined to be an arm of the Commonwealth on the basis
of the structural indicators could not lose that status in a
particular case. Id. at 162-63.8
With that background in place, we are now in a position
to review PRPA's status. In doing so, we do not treat as
dispositive -- as Prince and Royal Caribbean appear to suggest
that we should -- the nature of the particular function that PRPA
was performing that gave rise to the plaintiffs' claims in this
suit. In fact, neither party asks us to adopt such a limited
focus. Nor does either party even attempt to classify the not-
8 Two other district courts have held, on the basis of FMC, that PRPA is an arm of the Commonwealth. See Del Valle Grp. v. P.R. Ports Auth., 756 F. Supp. 2d 169 , 174-75 (D.P.R. 2010) (citing FMC, 531 F.3d at 874-80); Orocovis Petroleum Corp. v. P.R. Ports Auth., Civil No. 08–2359, 2010 WL 3981665 , at *2 (D.P.R. Oct. 5, 2010) (citing FMC, 531 F.3d at 874-81).
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obviously-classifiable function that PRPA performed here, which
concerns PRPA's employment of an airport security supervisor.
Rather than assert that this function is governmental,
as in Prince, 897 F.2d at 12, or proprietary, as in Royal
Caribbean, 973 F.2d at 10, the parties ask us only to determine
PRPA's status with reference to Fresenius's two-step analysis and
without regard to the particular function that PRPA was performing
here. We proceed accordingly.9
9 With respect to our two prior precedents assessing PRPA's status, PRPA argues only that the structural indicators that Fresenius requires us to consider reveal PRPA to be an arm of the Commonwealth; that Royal Caribbean does not permit us to reach a different conclusion; and that Prince accords with the conclusion that PRPA is an arm (though PRPA does not argue that Prince controls the outcome here). The plaintiffs, by contrast, make no reference to Prince and instead argue only that, under the framework that Fresenius establishes, PRPA was not structured to be an arm of the Commonwealth and that this conclusion accords with our decision in Royal Caribbean. Thus, the parties do not ask us to decide whether it is possible -- as our pre-Fresenius precedents contemplate -- that PRPA could be immune in the performance of functions such as those identified in Prince but not in the performance of functions such as those identified in Royal Caribbean. Nor does either party contend that the outcome here depends on our deciding whether a sovereign may structure an entity to be an arm only when performing certain functions and not when performing others or whether, instead, a sovereign must be deemed to have structured an entity to be an arm in all cases so long as it structures the entity to be an arm in one case. Given the importance of that more general question, and the absence of briefing on it, we decline to resolve it here. We do note, though, that to the extent that dicta in the District Court's decision -- or in FMC -- could be read to suggest that a sovereign may not structure an entity to be a hybrid, see Grajales II, 81 F. Supp. 3d at 162-63; FMC, 531 F.3d at 873, we question why that would be the case, given basic federalism principles and that a sovereign may waive its Eleventh Amendment immunity if it wishes. See Coll. Sav. Bank v. Fla. Prepaid Postsecondary Educ. Expense
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Just as Fresenius instructs, we first consider the full
range of "structural indicators" of PRPA's status, 322 F.3d at 65,
to see whether they demonstrate that the Commonwealth "inten[ded]"
for PRPA to be its arm. See Redondo Constr. Corp. v. P.R. Highway
& Transp. Auth., 357 F.3d 124 , 126 (1st Cir. 2004). We then turn
to the second step of the analysis, as we conclude that the
structural indicators do not show that the Commonwealth "clearly
structured [PRPA] to share its sovereignty." Fresenius, 322 F.3d
at 68. Finally, at this second step, we conclude that the
Commonwealth did not "legally or practically obligate itself to
pay [PRPA's] indebtedness" in the pending action. Id. at 68, 72.
We thus conclude that PRPA may not assert the Commonwealth's
immunity from this suit.
The first structural indicator is Puerto Rico law's
characterization of PRPA. We focus on PRPA's enabling act (the
"Act"). P.R. Laws Ann. tit. 23 § 331, et seq.10 Like the enabling
Bd., 527 U.S. 666 , 675 (1999) ("We have long recognized that a State's sovereign immunity is 'a personal privilege which it may waive at pleasure.'" (quoting Clark v. Barnard, 108 U.S. 436 , 447 (1883))); see also Regents of the Univ. of Cal. v. Doe, 519 U.S. 425 , 427 n.2 (1997) (expressly reserving on the question "whether there may be some state instrumentalities that qualify as 'arms of the State' for some purposes but not others"). 10The parties point to no decisions of the Puerto Rico Supreme Court that purport to characterize PRPA's status, and we are not aware of any. We are aware that, in 2007, the Commonwealth of Puerto Rico filed an amicus brief in the FMC litigation in which it stated that it "specifically agree[d]" with PRPA that PRPA was
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act in Fresenius, this one "does not by its terms structure [PRPA]
to be an arm of the [Commonwealth]." Fresenius, 322 F.3d at 68.
We thus need to determine what signals the Act nevertheless sends.
In Fresenius, we concluded that, far from indicating
that the public corporation at issue was structured to be an "arm,"
the relevant Puerto Rico enabling act characterized the entity in
terms that "suggest[ed] exactly the opposite." Id. There, the
act referred to the entity as one "independent and separate from
any other agency or instrumentality of the Government of the
Commonwealth of Puerto Rico." P.R. Laws Ann. tit. 24 § 343a
Following Fresenius, we addressed another Puerto Rico
enabling act that, like the one in Fresenius, did not expressly
characterize the public corporation at issue as an arm of the
Commonwealth. See Pastrana-Torres, 460 F.3d at 126-27 & n.2.
Rather, the relevant Puerto Rico enabling act referred to the
entity as a "public corporation" and "an instrumentality of the
Commonwealth of Puerto Rico . . . with a juridical personality
that is independent and separate from any other entity, agency,
an arm of the Commonwealth "for purposes of the claims raised against it" in the FMC suit. See Amicus Br. of Com. of P.R. at 3, FMC, 531 F.3d 868 , 2007 WL 2344794 ; see also Lake Country Estates, Inc., 440 U.S. at 401. But the Commonwealth has not expressed a view as to PRPA's status in this suit, and neither party contends that we should interpret the Commonwealth's amicus brief in FMC as an indication that the Commonwealth presently views PRPA to be an arm for purposes of this suit.
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department or instrumentality of the Government of Puerto Rico."
P.R. Laws Ann. tit. 27 § 501. Relying on Fresenius, we concluded
that this language also suggested that the public corporation at
issue was not an arm. Pastrana-Torres, 460 F.3d at 126-27 & n.2.
The language of PRPA's enabling act differs in some ways
from the language in the enabling acts in Fresenius and Pastrana-
Torres. The Act describes PRPA as "a government instrumentality
and public corporation with a legal existence and personality
separate and apart from those of the Government and any officials
thereof." P.R. Laws Ann. tit. 23 § 333(b) (emphasis added). But
by describing the entity not only as an instrumentality of
government but also as one that exists "separate and apart" from
the "Government," the Act sends at least as strong a signal that
PRPA is not an arm as the enabling acts in Fresenius and Pastrana-
Torres sent about the status of the public corporations in those
Moreover, in Royal Caribbean, we indicated that the
description of PRPA as a "public corporation" with a legal
existence "separate and apart" from the "Government" was not,
apparently, an insignificant one for purposes of determining
PRPA's status. Rather, we explained that this description fit
with the fact that the Act empowered PRPA to "operate with a
considerable degree of autonomy" relative to other Commonwealth-
created entities and thus accorded with the conclusion that the
- 22 -
Commonwealth did not consider PRPA to be an arm. Royal Caribbean,
973 F.2d at 11.11
In further support of that conclusion, Royal Caribbean
pointed to the Act's express statement that the debts and
obligations of PRPA "shall be deemed to be those of said government
controlled corporation, and not those of the Commonwealth of Puerto
Rico." Id. (quoting P.R. Laws Ann. tit. 23 § 333(b)). And
Fresenius, in considering this first structural indicator,
emphasized that the omission of such language in the enabling act
in that case made it a "closer" one than Royal Caribbean. See
Fresenius, 322 F.3d at 69 (citing Royal Caribbean, 973 F.2d at
Nevertheless, FMC read PRPA's enabling act to
characterize PRPA in terms that sent a different signal. FMC, 531
F.3d at 875. In so concluding, FMC did not mention the Act's
"separate and apart" language. Id. FMC instead placed great
11 PRPA is excluded from the application of the Puerto Rico Public Service Personnel Act that applies to Commonwealth agencies, see P.R. Laws Ann. tit. 23 § 337(a); Reyes Coreano v. Director Ejecutivo, 10 P.R. Offic. Trans. 51 , 56-57 & n.5 (P.R. 1980); must keep its funds in accounts segregated from the Commonwealth's treasury, P.R. Laws Ann. tit. 23 § 338; Univ. of R.I. v. A.W. Chesterton Co., 2 F.3d 1200 , 1210-11 (1st Cir. 1993) (identifying segregation of accounts as an indicator of non-arm status); has the power to sue and be sued; and can enter contracts in its own name and right, P.R. Laws Ann. tit. 23 § 336(a), (e), (f); Metcalf & Eddy, 991 F.2d at 939-40 (identifying "the power to sue, be sued, and enter contracts" as indicating non-arm status); Pastrana-Torres, 460 F.3d at 127 (same).
- 23 -
weight on the fact that the Act refers to PRPA at one point as a
"government instrumentality" and at another point as a "government
controlled corporation." Id. The D.C. Circuit concluded that
those references made clear that PRPA had not been established "as
a local or non-governmental entity" and "plainly demonstrate
Puerto Rico's intent to create a governmental instrumentality of
the Commonwealth." Id. The D.C. Circuit then concluded that, in
consequence of those two references, the Act "strongly suggests
that PRPA is an arm of the Commonwealth entitled to sovereign
But, in keeping with our admonition that we not treat
language like "government instrumentality" as "dispositive on arm-
of-the-state questions," see Pastrana-Torres, 460 F.3d at 126 n.2,
we must read these references in the context of the Act's full
characterization of PRPA. See Fresenius, 322 F.3d at 68-69; Royal
Caribbean, 973 F.2d at 11-12; Metcalf & Eddy, 991 F.2d at 941-42.
After all, not all non-local, governmental entities are "arms" of
the sovereign. See Regents of the Univ. of Cal. v. Doe, 519 U.S.
425 , 429 (1997) ("When deciding whether a state instrumentality
may invoke the State's immunity, our cases have inquired into the
relationship between the State and the entity in question."
(emphases added)). In fact, not even all state-created public
corporations that the state's governor controls qualify for that
status. See Auer v. Robbins, 519 U.S. 452 , 456 n.1 (1997)
- 24 -
(concluding that the entity at issue was not an arm of the state
notwithstanding that four out of five of the entity's board members
were appointed by the state's governor).
When we consider the descriptions of PRPA to which FMC
refers in their full context, they do confirm that PRPA is what it
plainly is: a government-created entity that is subject to
gubernatorial control, exercises some governmental functions, and
is charged with serving the Commonwealth's general welfare. See
Royal Caribbean, 973 F.2d at 11-12. But, on their own, these
descriptions do no more than that. In fact, Fresenius noted that
"when Puerto Rico has chosen to make an entity an arm of the
[Commonwealth]," it has used language that is very different from
the language that we have here, such as language that refers to
the entity not only as one that is an "instrumentality of the
Government" but also as one that is "attached" to a component part
of the Commonwealth "Government" that directly supervises it. See
Fresenius, 322 F.3d at 69-70 (pointing to the description of the
Puerto Rico Medical Services Administration as an "instrumentality
of the Government of the Commonwealth of Puerto Rico, attached to
the Commonwealth Department of Health . . . under the direction
and supervision of the Secretary of Health." (emphases added)
(quoting P.R. Laws Ann. tit. 24 § 342b)).
In light of the Act's description of PRPA as an entity
that exists "separate and apart" from the "Government," and given
- 25 -
how this description matches up with the considerable "autonomy"
that the Act gives PRPA relative to other Commonwealth-created
entities, id. at 11, we conclude that the Act's references to PRPA
on which FMC relied are not strong indicators that PRPA is an arm.
Rather, we conclude that, in accord with our decisions in Royal
Caribbean, Fresenius, and Pastrana-Torres, the Act is best read to
characterize PRPA in terms that point away from it being an arm of
the Commonwealth. This first structural indicator therefore
weighs against finding PRPA to share in the Commonwealth's
Turning to the next structural indicator, we must
consider the nature of the functions that PRPA carries out. Here,
too, we find no indication that Puerto Rico intended PRPA to be an
arm -- or, at least, no clear one.
PRPA is charged with promoting "the general welfare" and
"increas[ing] commerce and prosperity . . . for the benefit of the
people of Puerto Rico." P.R. Laws Ann. tit. 23 § 348(a). That
description of PRPA's function does suggest that PRPA is an arm.
See Royal Caribbean, 973 F.2d at 12 (noting that this aspect of
PRPA's role points in favor of finding PRPA to be an arm of the
Commonwealth); see also FMC, 531 F.3d at 875-76.12 But PRPA also
12 PRPA points out in this regard that PRPA is immune from taxes. See Royal Caribbean, 973 F.2d at 12 (identifying immunity
- 26 -
has a "portfolio of diverse operations," Metcalf & Eddy, 991 F.2d
at 941 n.6, that, as we have previously noted, range from
governmental to proprietary. Compare Prince, 897 F.2d at 12
(describing the regulation of a certain class of ship pilots as
one of PRPA's governmental functions), with Royal Caribbean, 973
F.2d at 10 (describing "dock-operating activities" as one of PRPA's
proprietary functions). And, we have held, the proprietary
functions are not those one expects an arm to perform. See id.
Thus, PRPA, like the port authority at issue in Hess,
performs a mix of functions of which some are characteristic of
arms and others are not. See Hess, 513 U.S. at 45 & n.17 (noting
that the port authority performed functions that could be
classified as state, municipal, and proprietary, even though the
entity was broadly set up to achieve "a better co-ordination of
the . . . facilities of commerce in, about and through the port of
New York" (quoting N.J. Stat. Ann. § 32:1–1 (West 1990))). As a
result, we conclude that, as in Hess, this structural indicator
does not advance the inquiry into PRPA's status. See id. at 45.13
from taxes as a fact weighing in favor of immunity); see also Fresenius, 322 F.3d at 69 n.14 (noting that the entity at issue was immune from taxes and identifying that fact as one that weighs in favor of immunity). 13 As noted above, neither party has attempted to characterize the function that PRPA was performing in this case, and so we do not consider it. See supra note 8.
- 27 -
That brings us to the third structural indicator -- the
Commonwealth's fiscal relationship to PRPA. See Fresenius, 322
F.3d at 65. Fresenius instructs us to look at the overall fiscal
relationship and not narrowly at whether the Commonwealth would be
liable for damages in this action. See id. at 62 nn.5-6, 65 n.7,
68; see also FMC, 531 F.3d at 878. In doing so, we must consider
"whether the agency has the funding power to enable it to satisfy
judgments without direct state participation or guarantees,"
Metcalf & Eddy, 991 F.2d at 939; whether and to what extent the
entity receives state funding and support (i.e., the "relative
size" of the Commonwealth's contribution to PRPA's budget, see
Fresenius, 322 F.3d at 62 n.5), see Lake Country Estates, Inc. v.
Tahoe Reg'l Planning Agency, 440 U.S. 391 , 401-02 (1979); "whether
the state has immunized itself from responsibility for the agency's
acts or omissions," Metcalf & Eddy, 991 F.2d at 940; and whether
the Commonwealth bears legal liability for the entity's debts, see
Hess, 513 U.S. at 45-46.
Starting at the top of this list, PRPA has "the funding
power to enable it to satisfy judgments without direct state
participation or guarantees." Metcalf & Eddy, 991 F.2d at 939.
The Commonwealth gave PRPA the capacity to raise its own revenue
through the issuance of bonds and fees. See P.R. Laws Ann. tit.
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23 § 336(l)(1). The Act also requires PRPA to issue fees that
"shall be sufficient, at least to . . . cover the expenses incurred
by [PRPA]," which presumably include PRPA's litigation expenses;14
to "pay principal and interests [sic] on any of [PRPA's] bonds;"
and to "encourage the use of [PRPA's] facilities and services in
the most ample and varied manner that is financially feasible."
14 We note that the 2013 and 2014 financial statements for PRPA indicate that PRPA had reserved approximately $21.5 million and $22.9 million, respectively, to cover anticipated litigation costs. Puerto Rico Ports Authority, Notes to Basic Financial Statements for the Fiscal Year Ended June 30, 2013, 47, http://www2.pr.gov/presupuestos/RecommendedBudget2014- 2015/Estados%20Financieros/EF%20168.pdf; Puerto Rico Ports Authority, Notes to Basic Financial Statements for the Fiscal Year Ended June 30, 2014, 47, http://www2.pr.gov/presupuestos/PresupuestoAprobado2015- 2016/Estados%20Financieros/Autoridad%20de%20los%20Puertos.pdf; see also Royal Caribbean, 973 F.2d at 10 (noting, in finding that PRPA would likely pay any adverse judgment in the event that it were not immune from suit, that PRPA's director stated that PRPA's expenses included the payment of judgments against it and that PRPA's financial statements showed that PRPA deducted $1.2 million and $76,000 for "litigation claims and settlements" in 1988 and 1989, respectively). 15 The Act also provides that, funds permitting, PRPA must pay $400,000 per year to the government of the Commonwealth of Puerto Rico. P.R. Laws Ann. tit. 23 § 354. This provision governs the use of PRPA's profits or surplus, and the Supreme Court has made clear that for arm-of-the-state purposes "[t]he proper focus is not on the use of profits or surplus, but rather is on losses and debts." Hess, 513 U.S. at 51. Moreover, PRPA generally is entitled to retain any profits or surplus it generates. In that sense, PRPA is not like the port authority found to be an arm of the state in Ristow v. South Carolina Ports Authority, 58 F.3d 1051 , 1054 (4th Cir. 1995) (citing S.C. Code Ann. § 54-3-1020, which provides that "[a]ny and all net revenues or earnings not necessary or desirable for operation of [the South Carolina Ports
- 29 -
In addition, as we concluded in Royal Caribbean, PRPA
"normally . . . has not received substantial Commonwealth
financing." Royal Caribbean, 973 F.2d at 10. And we have no basis
for concluding otherwise here, given that PRPA has provided us
with no indication that this statement no longer holds true. On
this record, then, this case is not one in which the entity
receives "virtually all the funds needed for [its] operation" from
the Commonwealth. Fresenius, 322 F.3d at 72; see also Pastrana-
Torres, 460 F.3d at 128 ("[The entity seeking immunity] has offered
no materials substantiating its assertion [that the entity's
entire budget comes from a Commonwealth fund] and . . . it has the
burden of proof."). Nor is it one in which the public corporation
gets a majority of its funding from the Commonwealth. See, e.g.,
In re San Juan Dupont Plaza Hotel Fire Litig., 888 F.2d 940 , 943-
44 (1st Cir. 1989) (noting that, according to the record, "roughly
70-75 percent of the funds available to the [entity at issue] are
provided by taxpayers of the Commonwealth").
Finally, PRPA generally "has immunized itself from
responsibility for the agency's acts or omissions," Metcalf & Eddy,
991 F.2d at 940, and the Commonwealth generally bears no legal
liability for the entity's debts, see Hess, 513 U.S. at 46. See
P.R. Laws Ann. tit. 23 § 333(b); id. § 2303(b). Thus, these last
Authority's] business shall be held subject to the further action of the General Assembly").
- 30 -
two features of the fiscal relationship that we must consider also
strongly suggest that this relationship is marked by a high degree
PRPA does not dispute these aspects of its fiscal
relationship to the Commonwealth. PRPA nevertheless contends that
PRPA's fiscal connection to the Commonwealth is of a kind that
indicates that PRPA was structured to be an arm. We are not
First, PRPA notes that it has received special,
discretionary appropriations from the Commonwealth. See P.R. Laws
Ann. tit. 23 § 6861. But the fact that PRPA receives one-off,
discretionary appropriations from the Commonwealth from time to
time does not demonstrate fiscal entwinement or dependence. See
Metcalf & Eddy, 991 F.2d at 940-41 & n.5.
Second, PRPA points out that the Commonwealth has
provided a mechanism by which it may "act as a source of financing
for PRPA's acquisition of property" and may transfer property to
PRPA "under the terms and conditions . . . fixed by the Governor
of Puerto Rico." P.R. Laws Ann. tit. 23 §§ 339-339a. But, again,
the Commonwealth's willingness to provide PRPA discrete amounts of
fiscal support, at its discretion, does not itself suffice to
indicate that the fiscal relationship between the Commonwealth and
- 31 -
PRPA is one that reveals PRPA to be an arm. See Metcalf & Eddy,
991 F.2d at 940-41 & n.5.
Finally, PRPA relies on the same fact on which the D.C.
Circuit and the District Court relied: under the Dock and Harbor
Act of 1968 (the "Dock and Harbor Act"), P.R. Laws Ann. tit. 23
§ 2101, et seq., the Commonwealth is exclusively liable for paying
damages for judgments that are imposed by the Commonwealth's own
courts for certain actions that are taken by agents of PRPA while
in the exercise of certain PRPA functions. See id. § 2303(b).16
The Commonwealth's responsibility to pay for such damages under
§ 2303(b) is not discretionary. Nor is it discrete in a one-off
sense. Rather, § 2303(b) imposes a mandatory, continuous, and
open-ended obligation (albeit one that appears to be capped in any
16 In the FMC litigation, the Commonwealth represented that § 2303(b) "waives [the Commonwealth's] sovereign immunity in its own courts with respect to tort claims [arising under the provisions of the Dock and Harbor Act] based on the actions of Ports Authority employees who were acting as agents of the Commonwealth." Amicus Br. of Com. of P.R. at 10, FMC, 531 F.3d 868 , 2007 WL 2344794 . 17 In the FMC litigation, the Commonwealth represented that the government's exposure to judgments under § 2303(b) would be limited by a general damages cap of $75,000. See Amicus Br. of Com. of P.R. at 10-11, FMC, 531 F.3d 868 , 2007 WL 2344794 (indicating that § 2303(b) operates within the sovereign immunity framework established by P.R. Laws Ann. tit. 32 § 3077(c), which generally caps the Commonwealth's liability in authorized suits brought against the Commonwealth in Commonwealth courts).
- 32 -
We are not aware of a case that presents a fact pattern
involving a fiscal tie of this kind. Nonetheless, we believe that
this obligation is best understood to be simply a limited exception
to the general fiscal independence that PRPA enjoys. In this
respect, the specific assistance that the Commonwealth must give
to PRPA under § 2303(b) is best analogized to the significant but
still limited fiscal support that sovereigns sometimes provide
public corporations without thereby indicating an intent to make
them into arms. Cf. Metcalf & Eddy, 991 F.2d at 940 & n.5 (finding
the entity at issue not to be an arm of the Commonwealth, where
the entity's enabling act insulated the Commonwealth from
responsibility for the entity's debts and where the Commonwealth
merely "demonstrated that, when it wishes to do so, it knows
exactly how to pledge the Commonwealth's resources in security for
[the entity's] debts," citing discrete examples contained in P.R.
Laws Ann. tit. 22 § 168 involving pledges in the amount of $33.7
million and $14.7 million).
The limitations built into § 2303(b) of the Dock and
Harbor Act supports this understanding. By its terms, the act
does not establish a mechanism for providing funds to satisfy
PRPA's judgments without regard to the particular types of
judgments of the entity or without regard to the particular aspects
of the entity's operations that result in such judgments. Rather,
the act generally preserves the "wall" between PRPA's liabilities
- 33 -
and the Commonwealth's fisc, see Metcalf & Eddy, 991 F.2d at 940,
by making the Commonwealth liable for damages incurred by PRPA
only for a specially delineated subset of PRPA's operations. See
P.R. Laws Ann. tit. 23 § 2303(b).18
Thus, although we have held that a sovereign's general
pledge to backstop the entity's debts or liabilities may properly
give rise to the inference that the sovereign intends for the
entity to share in its immunity,19 such an inference is not
similarly warranted here. Indeed, the Act expressly gives PRPA
the means to pay for judgments not implicating § 2303(b) and
18 See also Transcaribbean Mar. Corp. v. Commonwealth, 2002 P.R. App. LEXIS 595, at *9-17 (P.R. App. 2002) (certified translation at 6-10) (dismissing the Commonwealth from a suit involving actions taken under the Dock and Harbor Act because the plaintiffs' allegations concerned the exercise of the property rights of PRPA, "did not indicate that the causer of the damage was acting as an agent or officer of [the Commonwealth]," and did not otherwise sound in tort law). A certified translation of Transcaribbean can be found in the addendum to the respondents' brief in the FMC litigation. See Resp'ts Br. at 1a-10a, FMC, 531 F.3d 868 , 2007 WL 2344793 . 19 See United States v. Univ. of Mass., Worcester, 812 F.3d 35 , 41 (1st Cir. 2016) (noting, in the context of finding the entity at issue to be an arm of the state, that the state has "a mechanism for providing funds to satisfy judgments or settlements for which [the entity] is responsible" (citing 815 Mass. Code Regs. 5.01-.11, which establishes procedures for the payment of any settlements and judgments against the Commonwealth and its agencies)); see also Stoner v. Santa Clara Cty. Office of Educ., 502 F.3d 1116 , 1123 (9th Cir. 2007) (noting that entities' entitlement to immunity was "due in part to their statutorily mandated relationship with the state, which (among other things) ma[de] the state treasury unconditionally liable to make up any budgetary shortfall encountered by either entity as a result of an adverse judgment" (emphases added)).
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provides that, outside of the context of § 2303(b), the debts and
obligations of PRPA are not those of the Commonwealth. See P.R.
Laws Ann. tit. 23 §§ 333(b), 336(l)(1).
PRPA also has given us no reason to conclude that the
limited direct liability of the Commonwealth under § 2303(b)
represents -- in practical terms -- the kind of substantial fiscal
commitment that indicates that PRPA was structured to be an arm.
See Irizarry-Mora v. Univ. of P.R., 647 F.3d 9 , 16 (1st Cir. 2011)
(finding entity at issue to be an arm of the Commonwealth where
"more than sixty percent of [the entity's] funding c[ame] from the
government" and where the general mission of the entity was such
that the Commonwealth would do what was necessary to "ensure the
[entity's] financial viability"); Pastrana-Torres, 460 F.3d at
128. In fact, PRPA has not even given us any insight into the
size of the Commonwealth's obligations under § 2303(b) as compared
to the size of PRPA's own obligations to pay judgments against it.
Finally, we question the notion that, by virtue of making
the Commonwealth liable for certain of PRPA's actions, § 2303(b)
necessarily says something about the Commonwealth's intent with
regard to whether PRPA shares its sovereign immunity.
Section 2303(b) merely represents the Commonwealth's waiver of its
sovereign immunity in its own courts for the damages that the
Commonwealth is required to pay in a limited set of suits under
the Dock and Harbor Act. Cf. Great N. Life Ins. Co. v. Read, 322
- 35 -
U.S. 47, 54 (1944) (emphasizing that courts should not read into
a state's waiver of the sovereign immunity it possesses in state
court an intent to waive Eleventh Amendment immunity in federal
court, as that "is not consonant with our dual system" of
government). And it appears that the Commonwealth itself -- and
not PRPA -- would be the proper defendant in any actions in which
§ 2303(b) could make the Commonwealth liable for damages in its
own courts, thus apparently making an inquiry into PRPA's status
as an arm of the Commonwealth an unnecessary one were it to arise
in any such cases.20
For these reasons, we conclude that the nature of the
fiscal relationship between the Commonwealth and PRPA is, overall,
marked by a high degree of separation. The fiscal indicator
therefore points against the conclusion that PRPA is an arm of the
20 See FMC, 531 F.3d at 880 ("By law, the Commonwealth is substituted for PRPA [in such actions]."); Getty Ref. & Mktg. Co. v. P.R. Ports Auth., 531 F. Supp. 396 , 398 (D.P.R. 1982), vacated and remanded, 698 F.2d 1213 (1st Cir. 1982) (dismissing PRPA from action that triggered the Commonwealth's payment obligation under § 2303(b) because "those damages are recoverable only from the Commonwealth of Puerto Rico"); Amicus Br. of Com. of P.R. at 5, FMC, 531 F.3d 868 , 2007 WL 2344794 ("Pursuant to [§ 2303(b)], allegations of fault or negligence of [PRPA] in its administration of the [Dock and Harbor] Act are answerable by the Commonwealth, not the PRPA.").
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The last structural indicator concerns the extent to
which the Commonwealth government exerts control over PRPA. Unlike
the other indicators that we have considered, this one does weigh
rather strongly in favor of concluding that PRPA is an arm of the
As we concluded in Royal Caribbean, and as the D.C.
Circuit correctly concluded in FMC, the Commonwealth -- and
particularly the governor of Puerto Rico -- exercises a meaningful
degree of control and supervision over PRPA. See Royal Caribbean,
973 F.2d at 11-12; FMC, 531 F.3d at 877-78. The governor retains
formal control over PRPA through his power to appoint and remove
a majority of PRPA's board members. See FMC, 531 F.3d at 877.21
21Four out of five of the members of PRPA's board of directors are heads of Commonwealth agencies. P.R. Laws Ann. tit. 23 § 334. These ex officio members are the Secretary of Transportation, the Secretary of Commerce, the Executive Director of the Puerto Rico Industrial Development Company ("PRIDCO"), and the Executive Director of the Tourism Company. Id.; id. § 272 (indicating that the Economic Development Administration was merged into PRIDCO). The governor appoints the Secretary of Transportation, the Secretary of Commerce, and the Executive Director of PRIDCO with the advice and consent of the Puerto Rico Senate and can remove these officers at will. P.R. Laws Ann. tit. 3 § 6 (providing that the governor "shall have the power to remove any officer whom he may appoint," save for an exception not applicable here); P.R. Const. art. IV §§ 5-6 (providing that the governor appoints the Secretary of Commerce and the Secretary of Transportation and Public Works); P.R. Laws Ann. tit. 23 § 280 (providing that the governor appoints the Executive Director of PRIDCO). The Executive Director of the Tourism Company, by contrast, is neither appointed by nor subject to removal by the governor. Instead, the seven- member board of the Tourism Company -- six of whom are private
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The Commonwealth also appears to exert a great deal of control
over PRPA in practice. See id. at 878. Finally, notwithstanding
the "considerable degree of autonomy" afforded to PRPA relative to
other Commonwealth-created entities, Royal Caribbean, 973 F.2d at
11, PRPA is subject to a variety of other means of control that
point toward an entity being deemed an arm of the Commonwealth.22
citizens appointed by the governor to four-year terms -- appoints the Executive Director and that board has the power to remove him. See P.R. Laws Ann. tit. 23 §§ 671b-c. The remaining PRPA board member is a private citizen whom the governor appoints with the advice and consent of the Puerto Rico Senate and who is removable only "for negligence in the performance of his/her duties, conviction of a felony or a misdemeanor that implies moral turpitude, repeated and unjustified absences from Board meetings, conflicts of interest or total and permanent disability to perform the functions of the office." Id. § 334. PRPA's chief executive director is appointed by and holds office at the will of PRPA's board. Id. § 335. 22 PRPA is bound by Puerto Rico's Uniform Administrative Procedures Act ("APA"), P.R. Laws Ann. tit. 23 § 336(l)(3); must submit various reports to the governor of Puerto Rico and the legislature, id. § 345; Pastrana-Torres, 460 F.3d at 127 (noting that mandatory compliance with the APA and mandatory submission of reports to the Puerto Rico governor and legislature indicate Commonwealth control); must maintain its funds in Commonwealth- approved depositories, P.R. Laws Ann. tit. 23 § 338; must submit its accounts and books for periodic examination by the Comptroller of Puerto Rico, id.; Univ. of R.I., 2 F.3d at 1211 (noting that fiscal monitoring may indicate state control); and can have its rights "limit[ed] or restrict[ed]" until certain bonds "are fully met and discharged," P.R. Laws Ann. tit. 23 § 350. Moreover, PRPA contends that the fact that the Commonwealth "has chosen to share its eminent  domain authority with the PRPA, in a scheme that directly involves the Governor and other members of the Executive Branch," is also suggestive of Commonwealth control. P.R. Laws Ann. tit. 23 §§ 339-339a.
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Summing up, the control indicator favors finding PRPA to
be an arm of the Commonwealth while the other structural indicators
of PRPA's status either point affirmatively against that
conclusion (in the case of how Puerto Rico law characterizes PRPA
and in the case of the fiscal relationship between PRPA and the
Commonwealth) or are neutral (in the case of an overall assessment
of PRPA's functions). Because the structural indicators of PRPA's
status do not show that the Commonwealth "clearly structured [PRPA]
to share its sovereignty," Fresenius, 322 F.3d at 68, we must
proceed to the second step of the analysis that Fresenius requires
us to undertake, id. at 68, 72.
Here, the picture is quite clear. PRPA has failed to
show that this action poses any risk to the Commonwealth's fisc.
PRPA does not contend, and we see no basis for concluding, that
the Commonwealth would, as a legal matter, be liable for a judgment
against PRPA in this case. See P.R. Laws Ann. tit. 23 § 333(b).
In addition, the Commonwealth did not structure PRPA so that the
Commonwealth would be liable, as a practical matter, for any such
In this regard, we note that the Commonwealth designed
PRPA to raise enough revenue to shoulder its own costs, including
its litigation costs, and to bear its own debts, including
- 39 -
(generally) any judgments against it.23 Moreover, PRPA has done
nothing to meet its burden to show that the Commonwealth's limited
exposure in other courts under the Dock and Harbor Act renders any
judgment in this action one that, in practical effect, likely would
be paid out of the Commonwealth's fisc. Compare Fresenius, 322
F.3d at 72-75 (finding insufficient case-specific risk to the
public fisc even though the Commonwealth had provided
approximately 26% of the entity's revenue in recent years), with
Irizarry-Mora, 647 F.3d at 16-17 (finding sufficient case-specific
risk to the public fisc in part because the Commonwealth
contributed at least 60% of the entity's funding).
Thus, the second step of the Fresenius analysis does not
show PRPA to be entitled to claim the Commonwealth's immunity.
And so, given the mixed signals sent by the structural indicators
of PRPA's status at the first step of the Fresenius analysis, we
conclude that PRPA has not met its burden to show that it is an
arm of the Commonwealth entitled to immunity from this suit. See
Fresenius, 322 F.3d at 68 ("[W]here the evidence is that the state
did not structure the entity to put the state treasury at risk of
23 PRPA does not contend -- by virtue of P.R. Laws Ann. tit. 23 § 2303(b) or otherwise -- that PRPA was "so structured that, as a practical matter, the [Commonwealth] anticipated budget shortfalls that would render [PRPA] constantly dependent on [the Commonwealth]," such that that the Commonwealth would be forced to refill PRPA's coffers in the event of any adverse judgment here. Fresenius, 322 F.3d at 65 n.8.
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paying the judgment, then the fact that the state appoints the
majority of the governing board of the agency does not itself lead
to the conclusion that the entity is an arm of the state.").
We close by addressing PRPA's final argument. PRPA
relies on language in the Supreme Court's decision in Federal
Maritime Commission v. South Carolina Ports Authority ("SCPA"),
535 U.S. 743 (2002).
That case did not involve a dispute over whether the
port authority there at issue was an arm of the state. That case
involved a dispute over whether the sovereign immunity that the
Eleventh Amendment presupposes protects sovereigns from appearing
in federal administrative proceedings.
PRPA relies on the following statement that the Court
made in resolving that distinct question:
While state sovereign immunity serves the important function of shielding state treasuries and thus preserving the States' ability to govern in accordance with the will of their citizens, the doctrine's central purpose is to accord the States the respect owed them as joint sovereigns.
Id. at 765 (quotation marks and citations omitted). PRPA contends
that this same logic supports its position here. PRPA argues that
just as a sovereign may assert immunity from federal administrative
proceedings even though those proceedings pose no obvious threat
to the sovereign's fisc, PRPA should not be barred from asserting
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the Commonwealth's immunity in this case simply because this suit
poses no risk to the Commonwealth's fisc. But PRPA appears to
misapprehend the reason that it may not claim arm-of-the-
The fact that this suit poses no fiscal risk to the
Commonwealth dooms PRPA's claim to immunity only because -- as our
analysis of the structural indicators reveals -- the Commonwealth
has sent mixed signals about PRPA's status. By declining to read
those mixed signals to express the Commonwealth's intent to make
PRPA an "arm," we do not give short shrift to the Commonwealth's
dignity. Rather, in exercising such caution, see Fresenius, 322
F.3d at 63 ("[W]here an entity claims to share a state's
sovereignty and the state has not clearly demarcated the entity as
sharing its sovereignty, there is great reason for caution."), we
simply ensure that we do not wrongly confer immunity that
ultimately belongs to the Commonwealth on an entity that the
Commonwealth did not intend to benefit in that way, see id. ("It
would be every bit as much an affront to the state's dignity and
fiscal interests were a federal court to find erroneously that an
entity was an arm of the state [as it would be were a federal court
to find erroneously that an entity was not], when the state did
not structure the entity to share its sovereignty.").24
24 To the extent that PRPA means to argue that we must make the control indicator dispositive in order to honor the spirit of
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For the reasons given, the judgment of the District Court
is reversed and the case is remanded for further proceedings
consistent with this opinion.
SCPA, we disagree. The Supreme Court considered and rejected that approach in Hess, see 513 U.S. at 48; see also Auer, 519 U.S. at 456 n.1, and because SCPA did not concern a dispute about which entities qualify as arms of the state, it cannot possibly be read to have overruled Hess in this regard. See Medeiros v. Vincent, 431 F.3d 25 , 36 (1st Cir. 2005) ("In the event [the Supreme Court decision at issue] is no longer good law, it should be for the Supreme Court explicitly to overrule it."); Woods v. Rondout Valley Cent. Sch. Dist. Bd. of Educ., 466 F.3d 232 , 242 (2d Cir. 2006) (describing the inquiries in Hess and SCPA as "distinct," as the former involved "what entities are entitled to partake of the State's immunity" and the latter involved "what protections are afforded the state under the Eleventh Amendment").
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