# Alliance of Schools for Cooperative Insurance Programs v. Munich Reinsurance America, Inc.

> District Court, C.D. California · November 20, 2024

URL: https://www.frixlaw.com/law-library/cases/10747628

## Case

- **Court:** District Court, C.D. California
- **Decided:** November 20, 2024
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10747628

## How later opinions describe it (automated extraction)

- stating that there is a “strong presumption” against removal jurisdiction, and that “[f]ederal jurisdiction must be rejected if there is any doubt as to the right of removal in the first instance”
- reaffirming that public school districts as well as public educational agencies like county departments of education are entitled to sovereign immunity

## Opinion text

UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
CIVIL MINUTES — GENERAL

Case No. 2:24-cv-06664-MCS-JC Date November 20, 2024
Title Alliance of Schools for Cooperative Insurance Programs v. Munich
Reinsurance America, Inc.

Present: The Honorable Mark C. Scarsi, United States District Judge

Stephen Montes Kerr Not Reported
Deputy Clerk Court Reporter

Attorney(s) Present for Plaintiff(s): Attorney(s) Present for Defendant(s):
None Present None Present

Proceedings: (IN CHAMBERS) ORDER RE: MOTION TO REMAND (ECF No. 10)
(JS-6)
Plaintiff Alliance of Schools for Cooperative Insurance Programs (“ASCIP”)
filed this case in California state court. Defendant removed it to federal court on the
basis of diversity jurisdiction. (Notice of Removal, ECF No. 1.) Plaintiff moved to
remand, which was fully briefed. (Mot, ECF No. 10; Opp’n, ECF No. 14; Reply,
ECF No. 15). The Court heard argument on the motion on November 4, 2024, and
took it under submission. (Mins., ECF No. 21.)
In its motion, ASCIP argues that diversity jurisdiction 1s improper because, as
a California joint powers authority (“JPA”) organized by California public school
districts and educational agencies, ASCIP is an arm of the state and therefore is not
a citizen of California or any other state. (Mot. 2.) For the reasons below, the Court
agrees and remands the case.
I. BACKGROUND
Plaintiff is a JPA composed of public school districts and public educational
agencies whose primary purpose is to expend state-provided funds of its members
on a risk-sharing basis where all members contribute to indemnify each member

Page 1 of 6 CIVIL MINUTES — GENERAL Initials of Deputy Clerk SMO

against lawsuits. (Birgel Decl. Ex. C, ECF No. 10-3.) Defendant provides
reinsurance coverage to Plaintiff. (Compl. ¶ 1, ECF No. 1-1.) Plaintiff filed an action
in Los Angeles County Superior Court alleging that Defendant failed to provide full
coverage to Plaintiff for its losses, and therefore violated the parties’ reinsurance
agreement. (Id. ¶¶ 36–47.)

Defendant removed the action to this Court claiming that complete diversity
exists because the amount in controversy exceeds $75,000 and because Defendant
is a citizen of Delaware and New Jersey while Plaintiff is a citizen of California.
(Notice of Removal ¶¶ 5–7.) Plaintiff then filed the present motion.

The narrow issue in front of the Court is whether, for the purposes of diversity
jurisdiction, ASCIP is an arm of the state and, therefore, not a citizen for the purpose
of diversity jurisdiction.

II. LEGAL STANDARD

“Federal courts are courts of limited jurisdiction” and “possess only that
power authorized by Constitution and statute.” Kokkonen v. Guardian Life Ins. Co.
of Am., 511 U.S. 375, 377 (1994). A defendant may remove an action to federal court
if the federal court could exercise original jurisdiction over the action. 28 U.S.C.
§ 1441(a). “The removal statute is strictly construed against removal jurisdiction,”
and “[t]he defendant bears the burden of establishing that removal is proper.”
Provincial Gov’t of Marinduque v. Placer Dome, Inc., 582 F.3d 1083, 1087 (9th Cir.
2009). If a defendant fails to meet its burden of establishing subject-matter
jurisdiction, the suit is remanded. 28 U.S.C. § 1447(c); see also Gaus v. Miles, Inc.,
980 F.2d 564, 566 (9th Cir. 1992) (stating that there is a “strong presumption” against
removal jurisdiction, and that “[f]ederal jurisdiction must be rejected if there is any
doubt as to the right of removal in the first instance”).

To invoke diversity jurisdiction, a party must demonstrate that there is
complete diversity of citizenship between the parties and that the amount in
controversy exceeds the sum or value of $75,000, exclusive of interest and costs. 28
U.S.C. § 1332(a).

Regarding citizenship, states are immune from suit in federal court and
therefore are not “citizens” for the purposes of diversity jurisdiction. Moor v. County
of Alameda, 411 U.S. 693, 717 (1973). This immunity extends to state entities that
are considered “arm[s] of the [s]tate.” Mt. Healthy City Sch. Dist. Bd. of Educ. v.
Doyle, 429 U.S. 274, 280 (1977).

The Ninth Circuit has instructed courts to employ a three-factor test to
determine whether an entity is an arm of the state. Kohn v. State Bar of Cal., 87 F.4th
1021, 1030 (9th Cir. 2023). These factors are: “(1) the [s]tate’s intent as to the status
of the entity, including the functions performed by the entity; (2) the [s]tate’s control
over the entity; and (3) the entity’s overall effects on the state treasury.” Id.
(alterations in original) (quoting P.R. Ports Auth. v. Fed. Mar. Comm’n, 531 F.3d
868, 873 (D.C. Cir. 2008)).

III. ANALYSIS

ASCIP argues that it is an arm of the state because (1) ASCIP’s members are
considered arms of the state under Ninth Circuit precedent; and (2) a weighing of
the Kohn factors show that ASCIP is an arm of the state. The Court addresses each
issue in turn.

A. Educational Entities as Arms of the State

JPAs are entities formed pursuant to California Government Code section
6500 et seq. They can only be created by two or more public agencies and may only
exercise powers that are common to the contracting parties. Cal. Gov’t Code § 6502.
In this case, ASCIP is a JPA created by and consisting of California public school
districts and public educational entities. (Birgel Decl. Ex. B (“Bylaws”), arts. II–III,
ECF No. 10-4.)

ASCIP contends that the Ninth Circuit has deemed its members to be arms of
the state, and therefore ASCIP is also an arm of the state. (Mot. 9); see Belanger v.
Madera Unified Sch. Dist., 963 F.2d 248, 253 (9th Cir. 1992); see also Sato v. Orange
Cnty. Dep’t of Educ., 861 F.3d 923, 926 (9th Cir. 2017) (reaffirming that public
school districts as well as public educational agencies like county departments of
education are entitled to sovereign immunity). Defendant disagrees on two grounds:
first, it argues that the Court should only consider the status of ASCIP itself, not its
members; and second, it avers that ASCIP has not met its burden1 of establishing

1 Plaintiff cites no authority that Defendant bears the burden of proof for this. Since
Defendant does not contest the burden issue, the Court only notes that it has not
endorsed Plaintiff’s characterization that Defendant bears the burden on this issue.
that its members are arms of the state because the Ninth Circuit overruled the test it
used in its Belanger ruling. (Opp’n 5–6.)

The Court rejects Defendant’s first contention that the citizenship of ASCIP’s
members does not inform whether ASCIP itself is an arm of the state. Admittedly,
Ninth Circuit courts have not assessed the citizenship of JPAs in depth, but when
they have, they have typically considered the citizenship of the members. Notably,
in Mag US Lounge Management, LLC v. Ontario International Airport Authority,
the Ninth Circuit reversed a district court’s ruling that a JPA was an arm of the state,
in part because the JPA was formed by two entities that were not arms of the state.
No. 22-55230, 2022 U.S. App. LEXIS 34478, at *6–7 (9th Cir. Dec. 14, 2022). While
not binding, the panel’s analysis teaches that the nature of constituent entities of a
JPA informs the arm-of-the-state inquiry. As a result, although the issue is not
dispositive, the Court will certainly consider the citizenship of ASCIP’s members
when assessing if ASCIP is an arm of the state.

The Court also rejects Defendant’s second argument that ASCIP has not
proved that its members are arms of the state. For context, the court in Belanger
employed a multi-factor test from Mitchell v. Los Angeles Community College
District, 861 F.2d 198 (9th Cir. 1988), to conclude that public school districts are
arms of the state. Belanger, 963 F.2d at 254. However, in Kohn, the Ninth Circuit
“reshape[d]” the Mitchell test in favor of the three-factor Kohn test. Kohn, 87 F.4th
at 1027. Therefore, Defendant argues that ASCIP must re-establish that public school
districts are arms of the state for jurisdictional purposes. However, Defendant
overlooks the Ninth Circuit’s commentary in Kohn that the new “framework is
unlikely to lead to different results in cases that previously applied the Mitchell
factors and held an entity entitled to immunity.” Id. at 1031.2 In fact, aside from dicta,
there are no cases that this Court is aware of since Kohn that have overturned the
citizenship status of public school districts or public educational entities.
Accordingly, the Court considers ASCIP’s members to be arms of the state.

2 For this reason, the Court continues to look to cases that predate the Kohn test for
guidance. Mag US Lounge Management, LLC is one of these cases. While Kohn
provides the appropriate test, the Court is not convinced that cases using the Mitchell
test are irrelevant. Indeed, in addition to the Ninth Circuit’s commentary regarding
the validity of precedent under the Mitchell test, a comparison of the Mitchell factors
and the Kohn factors suggests that the Ninth Circuit merely shifted the weight that
different aspects of the arm-of-the-state analysis are to be given.
B. Kohn Factors

As a starting point, the mere fact that ASCIP consists entirely of arms of the
state supports a finding that ASCIP is also an arm of the state. This is likely why
Defendant spills much ink casting doubt over the immunity status of public school
districts. However, even an analysis of the Kohn factors demonstrates ASCIP is an
arm of the state.

Since the Court presumes that ASCIP’s members are arms of the state,
consistent with decades of precedent, the Court analyzes the Kohn factors from the
perspective of ASCIP’s members rather than the State of California or its
government. It makes little sense to assess California’s intent or control regarding
the creation of ASCIP because the state government itself played virtually no role in
creating ASCIP. And, while California did endow its public agencies with the power
to create JPAs more broadly, the Court does not find it necessary to consider whether
the state intended all JPAs to be arms of the state or not. Relevantly, in Mag US
Lounge Management, the Ninth Circuit did not expressly reject the possibility that a
JPA could be an arm of the state. Instead, the panel conducted an individualized
inquiry into the relevant characteristics and formation of the JPA in question. See
2022 U.S. App. LEXIS 34478, at *5–8. Therefore, the Court finds it proper to view
Kohn factors from the perspective of ASCIP’s members rather than the state itself.

The first factor, which looks at the members’ intent in creating ASCIP and
ASCIP’s governmental functions, leans slightly toward ASCIP being an arm of the
state. First, California law only permits JPAs like ASCIP to exercise power common
to the contracting parties. Cal. Gov’t Code § 6502. Therefore, ASCIP’s powers are
limited to the functions of its members. In this case, ASCIP’s members are
considered arms of the state, so whatever functions ASCIP exercises are, at
minimum, derivative of governmental functions. Logically, since ASCIP’s powers
are the same as those of its members, ASCIP’s members intended for ASCIP to
possess the same powers and status as they do.

The second factor, which assesses who controls and supervises ASCIP, also
weighs in favor of finding ASCIP an arm of the state. While ASCIP is a legally
distinct entity, it is firmly controlled by its members. ASCIP’s bylaws clearly provide
that ASCIP “shall be under the direction and control of, and shall be governed by, an
Executive Committee.” (Bylaws art. IV(1).) ASCIP’s members elect the Executive
Committee from its constituent agencies’ full-time employees, and those who sit on
the committee are unpaid. (Id. art. IV(2)–(3), (5)–(8).) The Bylaws further state the
Committee “shall have the authority to exercise the powers of ASCIP as set forth in
the Joint Powers Agreement.” (Id. art. V.) These are hardly the characteristics of an
independent entity. Instead, a reasonable interpretation of these provisions suggests
that ASCIP operates at the discretion of its members and is subject to oversight and
control by its members, which are arms of the state.

The third factor, which considers ASCIP’s financial relationship to its
members and the treasury, also suggests that ASCIP is an arm of the state. California
law states that any “debts, liabilities, and obligations of the [JPA] shall be the debts,
liabilities, and obligations of the parties to the agreement.” Cal. Gov’t Code
§ 6508.1(a). The parties to the agreement, in this case, are entities that are funded by
the state. ASCIP, in turn, is entirely funded by its members, and while it is strictly
accountable for all funds received and disbursed, if the total liabilities of ASCIP
exceed the total assets in a given year, its members are assessed a pro rata share of
the additional contribution required. (Bylaws art. VIII(1)–(2), (7).) The financial
structure of ASCIP is perhaps the strongest indicator that ASCIP is an entity whose
powers and finances are derivative of its members.

Therefore, the Court concludes that the balance of the Kohn factors leans in
favor of ASCIP being an arm of the state. The Court again looks to Mag US Lounge
Management for further support. There, the Ninth Circuit concluded that a JPA was
not an arm of the state because (1) it was formed and controlled by entities that were
not arms of the state and (2) there was no indication that the JPA’s debts or liabilities
passed through to its members, so the JPA was solely responsible for its debts and
liabilities. 2022 U.S. App. LEXIS 34478, at *6–8. Here, unlike in Mag US Lounge
Management, ASCIP is formed and controlled by entities that are arms of the state,
and there is evidence that ASCIP’s debts and liabilities pass through to its members,
who are solely responsible for its funding and financial operations.

IV. CONCLUSION

Accordingly, the Court finds that it does not have subject-matter jurisdiction
over the case because ASCIP is not a citizen of any state for the purpose of diversity
jurisdiction. Remand is therefore appropriate. 28 U.S.C. § 1447(c). The motion is
granted. The case is remanded to Los Angeles County Superior Court, Case No.
24NWCV02052. The Court directs the Clerk to effect the remand immediately and
close the case.

IT IS SO ORDERED.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10747628. Public record. Not legal advice.