Puerto Rico Ports Authority v. Federal Maritime Commission

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 26, 2007 Decided July 8, 2008

No. 06-1407

PUERTO RICO PORTS AUTHORITY,

PETITIONER

v.

FEDERAL MARITIME COMMISSION AND

UNITED STATES OF AMERICA,

RESPONDENTS

ODYSSEA STEVEDORING OF PUERTO RICO, INC. AND

INTERNATIONAL SHIPPING AGENCY, INC.,

INTERVENORS

On Petition for Review of an Order of the

Federal Maritime Commission

Gene C. Schaerr argued the cause for petitioner. With

him on the briefs were Lawrence I. Kiern and Gerald A.

Morrissey III.

Salvador J. Antonetti-Stutts, Solicitor General of Puerto

Rico, Department of Justice of the Commonwealth of Puerto

Rico, was on the brief for amicus curiae Commonwealth of

Puerto Rico in support of petitioner.

2

Cory R. Cinque, Attorney, Federal Maritime

Commission, argued the cause for respondents. With him on

the brief were Thomas O. Barnett, Assistant Attorney

General, U.S. Department of Justice, Robert B. Nicholson and

Robert J. Wiggers, Attorneys, Amy W. Larson, General

Counsel, Federal Maritime Commission, and Christopher

Hughey, Deputy General Counsel.

Anne E. Mickey argued the cause for intervenors. With

her on the brief were Heather M. Spring and Rick A. Rude.

Before: SENTELLE, Chief Judge, KAVANAUGH, Circuit

Judge, and WILLIAMS, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge

KAVANAUGH, in which Chief Judge SENTELLE and Senior

Circuit Judge WILLIAMS join.

Concurring opinion filed by Senior Circuit Judge

WILLIAMS.

KAVANAUGH, Circuit Judge: Several commercial marine

terminal operators filed complaints with the Federal Maritime

Commission against the Puerto Rico Ports Authority. The

Authority, which is known as PRPA, asserted sovereign

immunity. A divided panel of the Federal Maritime

Commission ruled that PRPA is not an arm of the

Commonwealth of Puerto Rico and thus not entitled to

sovereign immunity. We disagree.

PRPA was created by Puerto Rico law as a “government

instrumentality of the Commonwealth of Puerto Rico.” P.R.

LAWS ANN. tit. 23, § 333(a). By statute, PRPA operates as a

“government controlled corporation.” § 333(b). It performs

governmental functions “for the benefit of the people of

3

Puerto Rico,” including managing Puerto Rico’s ports and

airports and regulating navigation in Puerto Rico’s harbors.

§ 348(a). Four of PRPA’s five directors are high-ranking

Commonwealth officials who automatically serve on PRPA’s

Board by virtue of their government positions. The Governor

of Puerto Rico controls the appointment of the directors; the

Governor also possesses the power to remove four of the five

directors at will and can remove the fifth for cause. The

Board of Directors in turn appoints (and can remove at will)

PRPA’s Executive Director, who is currently Puerto Rico’s

Secretary of State. By law, moreover, the Commonwealth of

Puerto Rico is responsible for paying certain potentially

significant judgments arising from lawsuits targeting PRPA.

Considering those facts under the arm-of-the-state

precedents of the Supreme Court and this Court, we hold that

the Puerto Rico Ports Authority is an arm of the

Commonwealth of Puerto Rico and is immune from suit

absent its consent.

I

The Puerto Rico Ports Authority is a “government

controlled corporation” and “government instrumentality of

the Commonwealth of Puerto Rico” that owns and operates

Puerto Rico’s air and marine mass-transportation facilities

and develops Puerto Rico’s waterfront lands. P.R. LAWS

ANN. tit. 23, §§ 333, 336, 2603. PRPA controls the

movement of ships, passengers, and cargo in Puerto Rico’s

ports, docks, and harbor zones; regulates navigation and

marine trade; issues pilot licenses; inspects ships; and leases

its facilities to commercial marine terminal operators.

§§ 2201, 2501, 2301, 2403, 336(l)(1).

In 1996, Puerto Rico’s Governor decided that tourism

could enhance Puerto Rico’s future economic growth. The

4

Governor launched an economic development project; the

goal was to redevelop San Juan’s waterfront and harbor by

replacing cargo operations with a new convention center and

cruise-ship terminals. To further the Governor’s objectives,

PRPA cleared facilities along the San Juan harbor and

waterfront and relocated shipping operations to other ports.

The complaints at issue here stem from PRPA’s

relocation of private marine terminal operators, as well as

certain post-relocation practices and conditions at the new

facilities. Three commercial marine terminal operators –

Odyssea Stevedoring of Puerto Rico, the International

Shipping Agency, and San Antonio Maritime Corporation –

filed separate complaints with the Federal Maritime

Commission, an agency within the Executive Branch of the

U.S. Government. The marine terminal operators alleged that

PRPA’s marine terminal leasing practices violated the federal

Shipping Act of 1984, 46 U.S.C. §§ 41102(c), 41104, 41106.

They contended that PRPA: (1) failed to establish reasonable

receiving, handling, storing, or delivering practices; (2) gave

other customers undue or unreasonable preferences; and (3)

unreasonably refused to deal or negotiate with them. The

marine terminal operators sought more than $100 million in

total damages and a cease-and-desist order prohibiting PRPA

from continuing to violate the Shipping Act.

PRPA filed motions for summary judgment, arguing that

it is an arm of the Commonwealth and that sovereign

immunity therefore barred adjudication of the complaints.

By a 3-2 vote, a divided Federal Maritime Commission

held that PRPA is not “an arm of the Commonwealth, and is

therefore not entitled to sovereign immunity from the

regulatory adjudication of privately-filed complaints before

the Federal Maritime Commission.” Odyssea Stevedoring of

5

P.R., Inc. v. PRPA, at 1, Nos. 02-08, 04-01, 04-06 (Fed. Mar.

Comm’n Nov. 30, 2006) (Order), Joint Appendix (“J.A.”)

158. Commissioners Brennan and Creel dissented, stating

that “the facts relating to control, statewide concerns, and

state-law treatment of the entity,” among other things,

established that PRPA is an “arm of the Commonwealth of

Puerto Rico.” Order at 47 (Brennan and Creel,

Commissioners, dissenting), J.A. 204.

PRPA now petitions for review of the Commission’s

order.

II

A

The text of the Eleventh Amendment does not expressly

provide for state sovereign immunity; the text merely denies

federal court jurisdiction over suits against one State by

citizens of another State. But under long-standing Supreme

Court precedent, the Constitution has been interpreted to

encompass a principle of state sovereign immunity and to

largely shield States from suit without their consent. See

Alden v. Maine, 527 U.S. 706, 745-46 (1999); Seminole Tribe

of Fla. v. Florida, 517 U.S. 44, 54 (1996); P.R. Aqueduct &

Sewer Auth. v. Metcalf & Eddy, Inc., 506 U.S. 139, 144

(1993); Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S.

89, 100 (1984); Hans v. Louisiana, 134 U.S. 1, 20-21 (1890).

The Supreme Court has held that sovereign immunity bars not

only the courts but also federal agencies such as the Federal

Maritime Commission from adjudicating complaints against

non-consenting States. Fed. Mar. Comm’n v. S.C. State Ports

Auth., 535 U.S. 743, 751 n.6, 760 (2002). As we have held

and as the parties here agree, moreover, the Puerto Rican

Federal Relations Act grants Puerto Rico the same sovereign

immunity that the States possess from suits arising under

6

federal law. Rodriguez v. P.R. Fed. Affairs Admin., 435 F.3d

378, 381-82 (D.C. Cir. 2006); see also 48 U.S.C. § 734.1

Even where, as here, the State itself is not a named party,

sovereign immunity bars suits against an arm of the State.

See, e.g., Regents of the Univ. of Cal. v. Doe, 519 U.S. 425,

429 (1997); Hess v. Port Auth. Trans-Hudson Corp., 513 U.S.

30, 32-34 (1994); Mt. Healthy City Sch. Dist. Bd. of Educ. v.

Doyle, 429 U.S. 274, 280 (1977). Courts have held that state

entities as varied as universities, transportation authorities,

and port authorities can be arms of the State immune from

suit. See, e.g., Doe, 519 U.S. at 429, 431 (university); Morris

v. Wash. Metro. Area Transit Auth., 781 F.2d 218, 219-20

(D.C. Cir. 1986) (transportation authority); Ristow v. S.C.

Ports Auth., 58 F.3d 1051, 1054-55 (4th Cir. 1995) (port

authority). Whether an entity is an arm of the State for

purposes of sovereign immunity under the U.S. Constitution

is a question of federal law. See Doe, 519 U.S. at 429 n.5.

Determining whether a particular entity is an arm of the

State can be a difficult exercise. The cases generally arise in

three different factual settings involving: (1) agencies that are

either arms of the State or political subdivisions, such as cities

or counties, that are not entitled to sovereign immunity; (2)

special-purpose public corporations (like PRPA) established

1

As a result, the parties agree that we need not decide whether

Puerto Rico, absent the Puerto Rican Federal Relations Act and

solely by virtue of its status as an American territory, otherwise

would be entitled to sovereign immunity under the U.S.

Constitution. Cf. P.R. Aqueduct & Sewer Auth., 506 U.S. at 141 n.1

(expressing no view on whether the Commonwealth is treated as a

State for purposes of sovereign immunity); Ramirez v. P.R. Fire

Serv., 715 F.2d 694, 697 (1st Cir. 1983) (“Puerto Rico, despite the

lack of formal statehood, enjoys the shelter of the Eleventh

Amendment in all respects.”).

7

by States to perform specific functions; these may be either

arms of the State or non-governmental corporations not

entitled to sovereign immunity; and (3) Compact Clause

entities established by two or more States by compact and

approved by Congress; these are sometimes considered arms

of their constituent States for sovereign immunity purposes,

although the Supreme Court has recognized a presumption

against sovereign immunity for Compact Clause entities, see

Hess, 513 U.S. at 42.2

The courts’ arm-of-the-state analysis “has moved freely

amongst these three categories, applying common principles.”

Fresenius Med. Care Cardiovascular Res., Inc. v. P.R. & the

Caribbean Cardiovascular Ctr., 322 F.3d 56, 61 (1st Cir.

2003). To determine whether an entity is an arm of the State,

the Supreme Court and this Court have generally focused on

the “nature of the entity created by state law” and whether the

State “structured” the entity to enjoy its immunity from suit.

Mt. Healthy, 429 U.S. at 280; Hess, 513 U.S. at 43-44; Lake

Country Estates, Inc. v. Tahoe Reg’l Planning Agency, 440

U.S. 391, 401 (1979); see also Morris, 781 F.2d at 225. That

inquiry requires examination of three factors: (1) the State’s

intent as to the status of the entity, including the functions

performed by the entity; (2) the State’s control over the entity;

and (3) the entity’s overall effects on the state treasury. See,

e.g., Hess, 513 U.S. at 44-46; Lake Country Estates, 440 U.S.

at 401-02; Mt. Healthy, 429 U.S. at 280-81; Morris, 781 F.2d

at 224-28.

Under the three-factor test, an entity either is or is not an

arm of the State: The status of an entity does not change from

one case to the next based on the nature of the suit, the State’s

2

None of the Supreme Court’s arm-of-the-state cases has

considered a special-purpose public corporation like PRPA that was

created by the State.

8

financial responsibility in one case as compared to another, or

other variable factors. Rather, 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 the entity.

B

We applied this three-factor test in Morris v. Washington

Metropolitan Area Transit Authority, 781 F.2d 218 (D.C. Cir.

1986). The marine terminal operators and the Commission

suggest that the Morris approach does not apply in the same

way after the Supreme Court’s later decision in Hess v. Port

Authority Trans-Hudson Corp., 513 U.S. 30 (1994). They

contend that the arm-of-the-state inquiry now focuses largely

if not entirely on the entity’s financial impact on the state

treasury and whether the State must pay judgments against the

entity. That argument misreads Hess, however.

Consistent with prior cases, the Hess Court stated that an

entity is an arm of the State entitled to sovereign immunity if

the State “structured” the entity to be an arm of the State – a

question determined by looking at state intent, including the

entity’s functions; state control; and the entity’s overall effects

on the state treasury. Id. at 43-46. In considering the status of

a Compact Clause entity formed by New York and New

Jersey, the Hess Court found some indicators of state control

of the Port Authority, but it found neither the requisite state

intent to treat the Port Authority as an arm of the State nor any

effect on the state treasury from the Port Authority. See id. at

44-46. As to intent, the Court pointed out that “[t]he compact

and its implementing legislation do not type the Authority as a

state agency.” Id. at 44. As to effect on the treasury, the

Court noted that “the States lack financial responsibility for

the Port Authority. Conceived as a fiscally independent entity

9

financed predominantly by private funds, the Authority

generates its own revenues, and for decades has received no

money from the States. . . . The States . . . bear no legal

liability for Port Authority debts; they are not responsible for

the payment of judgments against the Port Authority . . . .” Id.

at 45-46 (citation omitted). Based on its examination of the

factors of intent, control, and overall effects on the treasury,

and applying the presumption against sovereign immunity for

Compact Clause entities, the Court concluded that the

indicators were sufficiently mixed as not to mean the Port

Authority was an arm of the States of New York and New

Jersey.

We thus read Hess in much the same way as did Judge

Lynch’s thorough First Circuit opinion in Fresenius Medical

Care Cardiovascular Resources, Inc. v. P.R. & the Caribbean

Cardiovascular Ctr., 322 F.3d 56 (1st Cir. 2003). Applying

Hess, the Fresenius court examined multiple factors,

including state intent and control, in assessing whether the

State “clearly structured the entity to share its sovereignty.”

Id. at 68. As the Fresenius court correctly stated, Hess does

not require a focus solely on the financial impact of the entity

on the State. Rather, Hess “pays considerable deference to the

dignity interests of the state, focusing on both explicit and

implicit indications that the state sought to cloak an entity in

its Eleventh Amendment immunity.” Id. at 67.3

3

The marine terminal operators and the Commission point to

older First Circuit precedents holding that PRPA’s immunity turns

on the nature of its activities giving rise to the case, whether

proprietary or governmental functions. See Royal Caribbean Corp.

v. PRPA, 973 F.2d 8, 9 (1st Cir. 1992); PRPA v. M/V Manhattan

Prince, 897 F.2d 1, 12 (1st Cir. 1990). But the First Circuit has

expressly departed from that narrow focus on governmental-versus-

proprietary functions as the test for assessing the sovereign

10

In sum, Hess confirms that we must apply the three-factor

arm-of-the-state test and look to state intent, state control, and

overall effects on the state treasury.

III

To determine whether PRPA qualifies as an arm of the

Commonwealth under the sovereign immunity precedents, we

now turn to the three relevant factors – the Commonwealth’s

intent as to the status of PRPA, the Commonwealth’s control

over PRPA, and PRPA’s overall effects on the

Commonwealth’s treasury. See, e.g., Hess v. Port Auth.

Trans-Hudson Corp., 513 U.S. 30, 44-46 (1994); Lake

Country Estates, Inc. v. Tahoe Reg’l Planning Agency, 440

U.S. 391, 401-02 (1979); Mt. Healthy City Sch. Dist. Bd. of

Educ. v. Doyle, 429 U.S. 274, 280-81 (1977); Morris v. Wash.

Metro. Area Transit Auth., 781 F.2d 218, 224-28 (D.C. Cir.

1986).

A

We begin by considering Puerto Rico’s intent with

respect to PRPA. We assess Puerto Rico’s intent by

examining whether Puerto Rico law expressly characterizes

PRPA as a governmental instrumentality rather than as a local

governmental or non-governmental entity; whether PRPA

performs state governmental functions; whether PRPA is

treated as a governmental instrumentality for purposes of

immunity of a special-purpose corporation. In Fresenius, the First

Circuit stated that it had “reshaped” its arm-of-the-state analysis

since those earlier cases. 322 F.3d at 59; see also Pastrana-Torres

v. Corp. de P.R. Para La Difusión Pública, 460 F.3d 124, 126 (1st

Cir. 2006); Breneman v. United States ex rel. FAA, 381 F.3d 33, 39

(1st Cir. 2004); Redondo Constr. Corp. v. P.R. Highway & Transp.

Auth., 357 F.3d 124, 126 (1st Cir. 2004).

11

other Puerto Rico laws; and Puerto Rico’s representations in

this case about PRPA’s status. See Hess, 513 U.S. at 44-45;

Lake Country Estates, 440 U.S. at 401-02; Mt. Healthy, 429

U.S. at 280; Morris, 781 F.2d at 224-25.

Whether Puerto Rico Law Expressly Characterizes PRPA

as a Governmental Instrumentality: In assessing Puerto

Rico’s intent as to this special-purpose public corporation, we

first examine whether Commonwealth law expressly

characterizes PRPA as a governmental instrumentality or

instead as a local or non-governmental entity. See Hess, 513

U.S. at 44-45; Lake Country Estates, 440 U.S. at 401; Mt.

Healthy, 429 U.S. at 280; Morris, 781 F.2d at 225. That’s an

easy inquiry. PRPA’s enabling act describes PRPA as a

“government instrumentality of the Commonwealth of Puerto

Rico” and “government controlled corporation.” P.R. LAWS

ANN. tit. 23, § 333(a), (b). That statutory language plainly

demonstrates Puerto Rico’s intent to create a governmental

instrumentality of the Commonwealth and thus strongly

suggests that PRPA is an arm of the Commonwealth entitled

to sovereign immunity. See Fresenius Med. Care

Cardiovascular Res., Inc. v. P.R. & the Caribbean

Cardiovascular Ctr., 322 F.3d 56, 69-70 (1st Cir. 2003)

(recognizing that Puerto Rico statutes use term

“instrumentality” when Puerto Rico intends to create entity as

arm of the Commonwealth); Morris, 781 F.2d at 225 (fact that

compact labels WMATA a “regional instrumentality, as a

common agency of each signatory party” indicated that

signatory States intended to confer immunity) (internal

quotation marks omitted); cf. Hess, 513 U.S. 44-45 (noting

that implementing legislation did not characterize entity as a

state agency).4

4

In the Supreme Court’s three leading arm-of-the-state cases,

unlike this case, the relevant law did not label the entity a state

12

Whether PRPA Performs State Governmental Functions:

In considering Puerto Rico’s intent, we also look to whether

PRPA performs functions typically performed by state

governments, as opposed to functions ordinarily performed by

local governments or non-governmental entities. See Hess,

513 U.S. at 45; Lake Country Estates, 440 U.S. at 402.

The enabling act charges PRPA with developing,

improving, owning, operating, and managing “any and all

types of air and marine transportation facilities and services,”

as well as establishing and managing “mass marine

transportation systems in, to and from the Commonwealth of

Puerto Rico.” § 336. The Dock and Harbor Act further

provides that, with some exceptions, PRPA controls the

waters, ports, docks, and harbor zones, “which are under the

dominion of Puerto Rico.” § 2202. That Act also vests PRPA

with regulatory authority over pilot services in the harbors of

Puerto Rico. §§ 2401-18. Under the Act, PRPA regulates

“navigation and the marine trade” in the navigable waters of

Puerto Rico, “including the inspection of ships to determine

their condition of cleanliness and safety.” §§ 2201, 2301.

As a general matter, these functions are governmental but

“are not readily classified as typically state” as opposed to

local governmental functions. Hess, 513 U.S. at 45. Here,

however, PRPA’s enabling act and Puerto Rico’s Dock and

Harbor Act indicate that PRPA performs its functions to

promote “the general welfare” and to increase “commerce and

prosperity” for the benefit “of the people of Puerto Rico.”

§ 348(a); see also §§ 2109, 2202. This consideration therefore

points in the direction of arm-of-the-Commonwealth status.

instrumentality. See Hess, 513 U.S. at 44-45; Lake Country

Estates, 391 U.S. at 401; Mt. Healthy, 429 U.S. at 280.

13

Whether PRPA Is Treated as a Governmental

Instrumentality for Purposes of Other Puerto Rico Laws: We

next look to how PRPA is treated under other Puerto Rico

laws. See Hess, 513 U.S. at 44-45; Mt. Healthy, 429 U.S. at

280; Morris, 781 F.2d at 225-28. Like other Commonwealth

agencies, PRPA’s internal operations are governed by Puerto

Rico laws that apply to Commonwealth agencies generally,

such as the Puerto Rico Administrative Procedures Act and

the Puerto Rico Public Service Personnel Act. See

Commonwealth’s Amicus Br. at 8; P.R. LAWS ANN. tit. 23,

§§ 336(l)(3), 337(a). Like other Commonwealth agencies,

PRPA does not have private owners or shareholders and does

not pay taxes; instead, it must submit a yearly financial

statement to the legislature and Governor, and its books are

examined periodically by the Controller of Puerto Rico.

§§ 348, 345, 338. Those statutes, too, therefore suggest that

PRPA is an arm of the Commonwealth.

Puerto Rico’s Representations in This Case About

PRPA’s Status: Finally, in determining Puerto Rico’s intent,

we also must respect Puerto Rico’s representations to this

Court and to the Federal Maritime Commission. See Lake

Country Estates, 440 U.S. at 401; Morris, 781 F.2d at 224-25.

In this Court, the Commonwealth filed an amicus curiae

brief, signed by the Solicitor General of Puerto Rico,

emphatically declaring that PRPA is an arm of the

Commonwealth entitled to sovereign immunity. The

Commonwealth’s brief explains that PRPA is an

“instrumentality of the Commonwealth” that was created in

the “form of an authority, rather than a central government

agency, in order to have greater flexibility” and to avoid

certain restrictions on public funding. Commonwealth’s

Amicus Br. at 5 (internal quotation marks omitted). The

Commonwealth’s brief also describes the ways in which the

14

Puerto Rico legislature ensured that the Commonwealth

would retain a significant degree of control over PRPA. Id. at

6-9. Before the Federal Maritime Commission, the

Commonwealth similarly asserted that PRPA is an arm of the

Commonwealth. See Odyssea Stevedoring of P.R. v. PRPA, at

46-47, Nos. 02-08, 04-01, 04-06 (Fed. Mar. Comm’n Nov. 30,

2006) (Brennan and Creel, Commissioners, dissenting), J.A.

203-04.

Under the governing precedents, the Commonwealth’s

representations that PRPA was created and intended as an arm

of the Commonwealth further indicates that PRPA is in fact an

arm of the Commonwealth entitled to sovereign immunity.

See Lake Country Estates, 440 U.S. at 401; Morris, 781 F.2d

at 224-25.5

In sum, with respect to the first factor in the arm-of-the-

state analysis – Puerto Rico’s intent – we conclude that Puerto

Rico law’s characterization of PRPA as a government

instrumentality, PRPA’s functions under Puerto Rico law, the

fact that PRPA is treated like other Commonwealth agencies

for purposes of other Puerto Rico laws, and Puerto Rico’s

representations in this case all strongly support the conclusion

5

The marine terminal operators and the Commission cite a

Puerto Rico intermediate court decision stating that PRPA is

independent of the Commonwealth. See Transcaribbean Mar.

Corp. v. Commonwealth, 2002 PR App. LEXIS 595 (P.R. Cir.

2002). But the court in that case did not say, or purport to say, that

PRPA is not a governmental instrumentality or that PRPA is not an

arm of the Commonwealth. In short, we agree with the

Commonwealth’s amicus brief that the Transcaribbean case is

nothing more than “an entirely unremarkable application of the

standard government liability framework established by Puerto

Rico law.” Commonwealth’s Amicus Br. at 10.

15

that PRPA is an arm of the Commonwealth entitled to

sovereign immunity.

B

We next consider the Commonwealth’s “control” over

PRPA, the second factor in our arm-of-the-state analysis. In

considering this factor, we look primarily at how the directors

and officers of PRPA are appointed. See Hess, 513 U.S. at

44; Lake Country Estates, 440 U.S. at 401; Morris, 781 F.2d

at 227 (degree of control State exercises over agency is

“significant consideration” in immunity analysis).6

This “control” factor also weighs heavily in the direction

of considering PRPA an arm of the Commonwealth. PRPA is

governed by a Board consisting of five directors. As the

Solicitor General of Puerto Rico has explained in the

Commonwealth’s amicus brief, four directors are high-

ranking governmental officials who are appointed by the

Governor to their positions and who automatically become

members of PRPA’s Board by virtue of their offices: the

Secretary of Transportation and Public Works, the Economic

Development Administrator, the Secretary of Commerce, and

the Executive Director of the Tourism Company.

Commonwealth’s Amicus Br. at 6; P.R. LAWS ANN. tit. 23,

§ 334. Those four officials perform their services for PRPA

as part of their official government duties; they receive no

extra or separate compensation for their Board activities. Tr.

of Oral Arg. at 35. By law, the Chair of the Board is the

Secretary of Transportation and Public Works. § 334. The

6

Even in cases where the directors and officers are not

government appointees or are not removable at will by government

officials, the government’s statutory authority to veto an entity’s

proposed actions can separately indicate governmental control. Cf.

Hess, 513 U.S. at 44; Lake Country Estates, 440 U.S. at 402.

16

fifth Board member is a “private citizen representing the

public interest” who is appointed by the Governor with the

consent of the Puerto Rico Senate. Id. In short, the Governor

of Puerto Rico controls the appointment of the entire Board.

The fact that a majority of the directors are high officers

of the Commonwealth who hold their directorships because of

their positions in the government suffices to demonstrate that

the Commonwealth (which can act only through its officers)

directly controls PRPA.

And in this case, there is more: As the Solicitor General

of Puerto Rico has explained, the Governor also has the

power to remove at will four of the five members of PRPA’s

Board of Directors from their government offices.

Commonwealth’s Amicus Br. at 6-7. Upon removal, they

automatically lose their seats on PRPA’s Board. Id. The fifth

Board member, the private citizen representing the public

interest, is removable by the Governor for cause. §334. The

Governor’s power to remove a majority of the Board at will

allows him to directly supervise and control PRPA’s ongoing

operations. Cf. Edmond v. United States, 520 U.S. 651, 664

(1997); Myers v. United States, 272 U.S. 52, 135 (1926).7

The Board of Directors in turn appoints PRPA’s

Executive Director, who is PRPA’s chief executive officer.

The Board also can remove the Executive Director at will.

§ 335. The current Executive Director is the

Commonwealth’s Secretary of State, a fact further

demonstrating that PRPA is a part of the Government – not

just on paper, but also in its actual operation.

7

The marine terminal operators and the Commission do not

dispute the Commonwealth’s representations to this Court about

how PRPA’s Board members can be appointed and removed.

17

And there is still more indicating Commonwealth control

of PRPA: The Puerto Rico Attorney General has previously

opined that the Governor of Puerto Rico retains control of

Puerto Rico’s public corporations. 1992 Op. Atty. Gen. PR

103 (Sept. 21, 1992). That opinion confirms what the power

to appoint and remove already establishes: PRPA operates

subject to the direction of the Governor.

The record in this case shows, in addition, how the

Commonwealth’s legal control of PRPA works in practice. In

1996, Puerto Rico implemented an economic development

strategy to redevelop San Juan’s waterfront and make it more

suitable for tourism. As part of that plan, the Governor

ordered PRPA to demolish some warehouses and cargo

operations in order to make room for a convention center and

cruise-ship terminals. According to a former PRPA official,

the Governor directed the Executive Director of PRPA and

other PRPA executives to tear down certain facilities.

Deposition of Victor M. Carrion (June 5, 2003), J.A. 340-41.

Later, the Governor again ordered PRPA “to expedite the

clearing of certain areas along the San Antonio Channel [and]

the Port of San Juan.” Joint Stipulation of Facts, Odyssea

Stevedoring of P.R. v. PRPA, at *9-10, No. 02-08 (Fed. Mar.

Comm’n), J.A. 228-29. As a result of the Governor’s

directives, the buildings have been demolished, tenants have

been relocated, and the convention center and cruise-ship

terminals have been constructed. Those circumstances well

illustrate the point that PRPA operates subject to the control

of the Governor. Cf. Lake Country Estates, 440 U.S. at 402

(States’ lack of control over entity was “perhaps most

forcefully demonstrated by the fact” that a State had “resorted

to litigation in an unsuccessful attempt to impose its will” on

the entity.).

18

In sum, the facts in this case more than suffice to

demonstrate that the Commonwealth directly controls PRPA.

The second factor in the analysis therefore strongly supports

the conclusion that PRPA is an arm of the Commonwealth

entitled to sovereign immunity.

C

The third factor we must consider in the arm-of-the-state

analysis is PRPA’s financial relationship with the

Commonwealth and its overall effects on the

Commonwealth’s treasury.

The Hess Court looked to whether the States “structured”

the entity “to enable it to enjoy the special constitutional

protection of the States themselves.” 513 U.S. at 43-44; see

also Lake Country Estates, 440 U.S. at 401; Mt. Healthy, 429

U.S. at 280. That emphasis on structure indicates we must

consider the entity’s overall effects on the state treasury. In

analyzing this third factor, in other words, the relevant issue is

a State’s overall responsibility for funding the entity or paying

the entity’s debts or judgments, not whether the State would

be responsible to pay a judgment in the particular case at

issue. See Hess, 513 U.S. at 45-46; Lake Country Estates, 440

U.S. at 401-02; Mt. Healthy, 429 U.S. at 280.

To be sure, even for entities that are not arms of the State,

sovereign immunity can apply 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. See

Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S. 89, 101

n.11 (1984); Shands Teaching Hosp. & Clinics, Inc. v. Beech

St. Corp., 208 F.3d 1308, 1311 (11th Cir. 2000). The marine

terminal operators and the Commission seek to stretch that

principle to also mean that there is no sovereign immunity if

the State is not obligated to pay a judgment in the particular

19

case at issue. But that approach would inappropriately

convert a sufficient condition for sovereign immunity into the

single necessary condition for arm-of-the-state status. That is

not the law; rather, we must apply the three-factor test to

determine arm-of-the-state status, and the third factor

considers the entity’s overall effects on the state treasury. See

Hess, 513 U.S. at 45-46; Lake Country Estates, 440 U.S. at

401-02; Mt. Healthy, 429 U.S. at 280.8

We turn then to examining PRPA’s overall effects on the

Commonwealth’s treasury. Unlike non-governmental

corporations, PRPA has no equity shareholders or private

owners. Unlike some governmental agencies, however,

PRPA is not financed out of the Commonwealth’s general

revenues. Instead, like many similarly created governmental

entities, PRPA is financed largely through user fees and

bonds; it was created in part to avoid Commonwealth-law

limits on how much debt the Commonwealth itself can

sustain. P.R. LAWS ANN. tit. 23, § 336(l)(1), (n);

Commonwealth’s Amicus Br. at 5-6; Alex E. Rogers,

Clothing State Governmental Entities with Sovereign

Immunity: Disarray in the Eleventh Amendment Arm-of-the-

State Doctrine, 92 COLUM. L. REV. 1243, 1249-50 (1992).

8

Several other circuits also examined an entity’s overall

effects on the state treasury when considering whether an entity was

an arm of the State and gave no indication that a more case-specific

determination was required. See Ernst v. Rising, 427 F.3d 351,

359-65 (6th Cir. 2005) (en banc); Benn v. First Judicial Dist., 426

F.3d 233, 239-41 (3d Cir. 2005); Fresenius, 322 F.3d at 68-75;

Sturdevant v. Paulsen, 218 F.3d 1160, 1164-66 (10th Cir. 2000);

Thiel v. State Bar of Wis., 94 F.3d 399, 401 (7th Cir. 1996);

Mancuso v. N.Y. State Thruway Auth., 86 F.3d 289, 293-96 (2d Cir.

1996).

20

The marine terminal operators and the Commission argue

that PRPA has no effect on the Commonwealth’s treasury.

They point to language in PRPA’s enabling act that says

PRPA is 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). They note that

PRPA can “sue and be sued” and enter contracts. § 336(e),

(f). They refer to a statutory provision giving PRPA

“complete control and supervision of any undertaking

constructed or acquired by it.” § 336(d). They explain that

under Puerto Rico law, PRPA’s “debts, obligations, contracts,

bonds, notes, debentures, receipts, expenditures, accounts,

funds, undertakings and properties . . . shall be deemed to be

those of said government controlled corporation, and not

those of the Commonwealth of Puerto Rico.” § 333(b). They

cite the fact that the Commonwealth is not legally liable “for

the payment of the principal or of interest on any bonds issued

by the Authority.” § 336(v). And they point out that PRPA

does not have the power “at any time or in any manner to

pledge the credit or taxing power of the Commonwealth of

Puerto Rico.” Id.

But the marine terminal operators and the Commission

ignore the fact that the Commonwealth is legally liable for

some of PRPA’s actions. In particular, the Dock and Harbor

Act makes the Commonwealth directly liable for certain torts

committed by PRPA’s officers, employees, or agents when

they are acting in their official capacity and within the scope

of their function, employment, or agency relationship.

§ 2303. This provision demonstrates that the Commonwealth

itself has some significant financial responsibility for PRPA:

Some of PRPA’s actions can give rise to legal liability for the

Commonwealth, and payment for judgments in those suits

comes out of the Commonwealth’s coffers. Indeed, the

21

structure here indicates a closer relationship between PRPA

and the Commonwealth than if the Commonwealth were only

a financial backstop to PRPA: By law, the Commonwealth is

substituted for PRPA and directly responsible for PRPA’s

actions in certain cases. Therefore, the marine terminal

operators and the Commission are factually incorrect in

suggesting that PRPA’s actions do not affect the state

treasury.

Under governing arm-of-the-state precedents, the third

factor in the analysis – PRPA’s overall effects on the

Commonwealth treasury – weighs in favor of finding PRPA

to be an arm of the Commonwealth. Cf. Hess, 513 U.S. at 45-

46 (“Pointing away from Eleventh Amendment immunity, the

States lack financial responsibility for the Port

Authority. . . . [T]hey are not responsible for the payment of

judgments against the Port Authority . . . .”); Lake Country

Estates, 440 U.S. at 402 (States not directly responsible for

judgments). 9

IV

When considered together, the three arm-of-the-state

factors – intent, control, and overall effects on the treasury –

lead us to conclude that PRPA is an arm of the

Commonwealth entitled to sovereign immunity.10 The marine

9

We recognize that there is no bright line for determining the

point at which a State’s responsibility for an entity’s funds, debts,

or judgments suffices to weigh in favor of arm-of-the-state status.

Here, however, we think the potentially significant exposure of the

Commonwealth’s treasury to legal judgments points toward such

status.

10

The First Circuit in Fresenius found that the Puerto Rico

entity in question in that case was not an arm of the

Commonwealth. See Fresenius Med. Care Cardiovascular Res.,

22

terminal operators and the Commission do not argue that

PRPA has waived its immunity, either because of the

Commonwealth’s statutory responsibility to pay certain

judgments against PRPA in Commonwealth court or because

of the statutory sue-and-be-sued clause. Nor would such a

waiver argument prevail. Coll. Sav. Bank v. Fla. Prepaid

Secondary Educ. Expense Bd., 527 U.S. 666, 676 (1999)

(“State does not consent to suit in federal court merely by

consenting to suit in the courts of its own creation” or “merely

by stating its intention to ‘sue and be sued.’”).

We therefore hold that PRPA is an arm of the

Commonwealth of Puerto Rico entitled to sovereign

immunity. We grant the petition for review of the Federal

Maritime Commission’s order, and we remand to the

Commission with instructions to dismiss the complaints on the

ground of sovereign immunity.

So ordered.

Inc. v. P.R. & the Caribbean Cardiovascular Ctr., 322 F.3d 56, 75

(1st Cir. 2003). The entity considered in Fresenius differed in

important ways from PRPA, however. In Fresenius, the enabling

act did not label the entity a government instrumentality or

corporation; here, the enabling act describes PRPA as a government

instrumentality, and the Fresenius court itself noted that Puerto

Rico has previously used the word “instrumentality” when

describing an entity it intended to be an arm of the Commonwealth.

Id. at 68-70. In Fresenius, the entity did not perform governmental

functions; here, PRPA performs Commonwealth-wide

governmental functions by managing the Commonwealth’s ports

and airports. See id. at 70-71. In Fresenius, the entity’s employees

were not covered by relevant statutory definitions of public

employees; here, PRPA’s employees are so covered. Id. at 70. In

Fresenius, the Governor did not have the power to remove Board

members; here, the Governor has the power to remove all five

board members, four of them at will. See id. at 71.

WILLIAMS, Senior Circuit Judge, concurring: I join the

majority’s opinion in full; on the basis of the currently

prevailing authorities it is entirely sound. I question,

however, whether this whole trip was necessary. If I read the

Court’s precedents correctly, the answer is no; under the law

prevailing until the 1970s, we would be rather handily finding

that the Puerto Rico Ports Authority lacks sovereign

immunity.

Puerto Rico created the Authority as a separate legal

person with the capacity “[t]o sue and be sued.” P.R. Laws

Ann. tit. 23, § 336(e). One might think that this language

means what it says, so that the Authority would be amenable

to suit in any court of competent jurisdiction. Until fairly

recently, that thought would have been correct.

Sovereign immunity has its roots in a doctrine of personal

jurisdiction. See Caleb Nelson, Sovereign Immunity as a

Doctrine of Personal Jurisdiction, 115 Harv. L. Rev. 1559

(2002). A sovereign state may choose to waive its personal

immunity or to create separate legal persons that do not share

the immunity. Under the old learning, courts saw such a

separate legal person as obviously subject to suit.

At the time of our founding, the existence of a separate

legal person, with the capacity to sue and be sued, was

precisely what set certain non-immune state entities apart

from the state itself. Cities, towns, and counties were all

recognized as particular types of corporations, known as

municipal or “public” corporations. See Trs. of Dartmouth

Coll. v. Woodward, 17 U.S. (4 Wheat.) 518, 668-69 (1819)

(opinion of Story, J.). As corporations, they were “artificial

person[s], existing in contemplation of law” and possessing

“the capacity . . . of suing and being sued in all things

touching [their] corporate rights and duties.” Id. at 667. It

was this corporate status that, at common law, had made them

2

amenable to suit. See, e.g., Russell v. Men Dwelling in the

County of Devon, (1788) 100 Eng. Rep. 359, 362 (K.B.)

(opinion of Kenyon, C.J.); see also id. at 360 (argument of

counsel). Such a corporation maintained its separate identity

(and thus its suability) even if the state held an unqualified

financial interest in the corporation’s success, see Bank of the

Commonwealth of Ky. v. Wister, 27 U.S. (2 Pet.) 318, 323

(1829), or had delegated to it the broadest imaginable

sovereign powers, see Barnes v. District of Columbia, 91 U.S.

(1 Otto) 540, 544-45 (1875). In a decision rendered the same

day as Hans v. Louisiana, 134 U.S. 1 (1890), the Supreme

Court found it “beyond question” that Lincoln County,

Nevada, was outside the scope of the state’s immunity.

Lincoln County v. Luning, 133 U.S. 529, 530 (1890). Despite

a claim that the county was an “integral part of the State,” id.,

the Court held it amenable to suit because “politically it is also

a corporation created by and with such powers as are given to

it by the State,” including the power to “sue and be sued in all

courts in like manner as individuals.” Id. at 530-31. (Of

course requests for some kinds of relief, such as for an order

of specific action on state property, may render the state itself

a necessary party. Hopkins v. Clemson Agricultural College,

221 U.S. 636, 648-49 (1911); see also Osborn v. Bank of the

United States, 22 U.S. (9 Wheat.) 738, 842-43, 858 (1824)

(Marshall, C.J.); Paul M. Bator et al., Hart & Wechsler’s The

Federal Courts and the Federal System 1370-71 (2d ed.

1973).)

Lincoln County was only one in a long train of cases

holding that sovereign immunity does not extend to

corporations that the sovereign (i.e., a state or the federal

government) has created as separate legal persons. See, e.g.,

Sloan Shipyards Corp. v. U.S. Shipping Bd. Emergency Fleet

Corp., 258 U.S. 549, 567 (1922) (“The meaning of

incorporation is that you have a person, and as a person one

that presumably is subject to the general rules of law.”);

3

Hopkins, 221 U.S. at 645 (“[N]either public corporations nor

political subdivisions are clothed with that immunity from suit

which belongs to the State alone by virtue of its

sovereignty.”); see also id. at 646; Workman v. New York City,

179 U.S. 552, 565 (1900); Loeb v. Columbia Twp. Trs., 179

U.S. 472, 485-86 (1900); Chicot County v. Sherwood, 148

U.S. 529, 533-34 (1893); Metro. R.R. Co. v. District of

Columbia, 132 U.S. 1, 6, 9 (1889); Cowles v. Mercer County,

74 U.S. (7 Wall.) 118, 121-22 (1868); Weightman v. Corp. of

Washington, 66 U.S. (1 Black) 39, 49-50 (1861). Though the

defendants were municipal or local corporations in the last six

cases in this group, the Emergency Fleet Corporation was

nationwide and Clemson appears to have been the state

agricultural college for the entirety of South Carolina. Even

the cases involving local corporations manifested no interest

in the fact of locality, and the decision concerning Clemson

cited Lincoln County without suggesting that it was in any

way extending that case’s doctrine.

Unfortunately, this longstanding bright-line rule was not

to last. The first step in its demolition was a series of

decisions in the 1940s establishing a clear statement rule

against federal jurisdiction. Previously, the Court had

construed state laws consenting to suits against a particular

state officer or department to permit suits in federal courts as

well, unless the terms of the consent indicated otherwise. See,

e.g., Smith v. Reeves, 178 U.S. 436, 441 (1900) (reading

California’s conditional consent to suits against the state

treasurer—which enabled the treasurer to insist that the action

be tried in a particular state court—as naturally excluding

federal suits). In 1944, however, in a suit against state tax

collectors, the Court reversed this statute-specific approach in

favor of a clear statement rule, requiring “a clear declaration

of the state’s intention to submit its fiscal problems to other

courts than those of its own creation.” Great Northern Life

Ins. Co. v. Read, 322 U.S. 47, 54 (1944); see also id. at 55

4

(citing Reeves); Ford Motor Co. v. Dep’t of Treasury of Ind.,

323 U.S. 459, 465 (1945) (applying Read). In Kennecott

Copper Corp. v. State Tax Comm’n, 327 U.S. 573 (1946), the

Court went so far as to read a consent to suit “in any court of

competent jurisdiction” as excluding federal courts, simply

because another state statute had consented to suits on a

different matter “in any court of this state or of the United

States.” Id. at 575 n.1, 580.1

The Court took the second and critical step in Mt. Healthy

City School District Board of Education v. Doyle, 429 U.S.

274 (1977). There for the first time it passed in silence over

its former rule that a state’s government corporations, with a

general capacity of suing and being sued in their own names,

were ipso facto completely bereft of sovereign immunity. The

defendant Board of Education conceded that state law made it

a corporate body capable “of suing and being sued.” See

Ohio Rev. Code § 3313.17, cited in Brief of Petitioners, Mt.

1

The Court established no such rule, of course, for cases

concerning entities endowed by the federal government with the

capacity to sue and be sued. See, e.g., Larson v. Domestic &

Foreign Commerce Corp., 337 U.S. 682, 705 (1949) (noting that

Congress had provided for amenability to suit by different means, in

some cases “entrust[ing] the business of the Government to

agencies which may contract in their own names and which are

subject to suit in their own names,” and in others “permitt[ing] suits

for damages . . . in the Court of Claims”); Reconstruction Fin.

Corp. v. J.G. Menihan Corp., 312 U.S. 81, 83 (1941); Fed. Hous.

Admin. v. Burr, 309 U.S. 242, 245 (1940); Keifer & Keifer v.

Reconstruction Fin. Corp., 306 U.S. 381, 389 (1939). Since then

the rule has become somewhat more confused, see Galvan v. Fed.

Prison Indus., Inc., 199 F.3d 461, 466-67 (D.C. Cir. 1999) (noting

changes to the doctrine), but an applicable sue-and-be-sued

provision remains fully effective, see FDIC v. Meyer, 510 U.S. 471,

475 (1994).

5

Healthy, 1976 WL 181610, at *28. The Court nonetheless

doubted whether Ohio “had consented to suit against entities

such as the Board in the federal courts,” Mt. Healthy, 429 U.S.

at 279-80, citing a case from the Great Northern line (namely

Ford Motor), and thus implicitly extending its cautious rule

for state waivers into the context of state government

corporations. 2

Yet the Court remembered that cities and other political

subdivisions were subject to suit, see id. at 280 (citing Lincoln

County), even as it forgot the underlying reason for their being

so. To fill the gap, Mt. Healthy produced a multi-factor test of

family resemblance, asking whether the school board in the

case at hand was “more like a county or city than it is like an

arm of the State.” Id. (emphasis added). It is unclear why the

answer to this perhaps metaphysical question should help

resolve the scope of governmental corporate persons’

immunity. But by 1981 the Court took it as given that a state

governmental corporate body’s general capacity to sue and be

sued did not exclude the entity from the state’s personal

immunity. See Fla. Dep’t of Health & Rehabilitative Servs. v.

Fla. Nursing Home Ass’n, 450 U.S. 147, 150 (1981) (citing

Smith v. Reeves); see also Coll. Sav. Bank v. Fla. Prepaid

Postsecondary Educ. Expense Bd., 527 U.S. 666, 676 (1999).3

2

Ford Motor had concerned a special authorization of tax

refund suits against the Indiana Department of the Treasury. See

323 U.S. at 465 & n.8.

3

Mt. Healthy thus created a divergence in the treatment of

state and federal entities. Federal ones are generally governed by

the previous doctrine, see supra note 1, while a wholly separate

principle applies to state entities.

6

Since then, the law of arm-of-the-state immunity has only

become more labyrinthine. See generally Hess v. Port Auth.

Trans-Hudson Corp., 513 U.S. 30 (1994); Morris v. Wash.

Metro. Area Transp. Auth., 781 F.2d 218 (D.C. Cir. 1986).

Under the old rule of Hopkins, by contrast, the only

jurisdictional inquiry necessary in such a case would be to

examine the entity’s organic statute and determine whether it

was a corporation and legal person capable of appearing in its

own name. As it happens, not only was the Authority given

the power to sue and be sued, it was established as a “public

corporation with a legal existence and personality separate

and apart from those of the Government [of Puerto Rico] and

any officials thereof.” P.R. Laws Ann. tit. 23, § 333(b). So in

the days before Mt. Healthy the jurisdictional issue here

would have been easy.

As an inferior tribunal, however, we are bound by the

Court’s decisions no matter how much unwelcome complexity

they produce. I therefore concur in the majority opinion.