Hutto v. South Carolina Retirement System

PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 13-1523

GAIL M. HUTTO; ELIZABETH W. HODGE; MARGARET B. LINEBERGER;

LYNN R. ROGERS; NANCY G. SULLIVAN; JANE P. TERWILLIGER;

JULIAN W. WALLS; DEBRA J. ANDREWS, and all others similarly

situated,

Plaintiffs - Appellants,

v.

THE SOUTH CAROLINA RETIREMENT SYSTEM; THE POLICE OFFICERS

RETIREMENT SYSTEM; THE SOUTH CAROLINA RETIREMENT SYSTEMS

GROUP TRUST; NIKKI R. HALEY, Governor of South Carolina, in

her official capacity as ex officio Chairwoman of the South

Carolina Budget and Control Board; CURTIS M. LOFTIS, JR.,

Treasurer of the State of South Carolina, in his official

capacity as an ex officio member of the South Carolina

Budget and Control Board; RICHARD ECKSTROM, Comptroller

General of the State of South Carolina, in his official

capacity as an ex officio member of the South Carolina

Budget and Control Board; HUGH K. LEATHERMAN, Chairman of

the South Carolina Senate Finance Committee, in his

official capacity as an ex officio member of the South

Carolina Budget and Control Board; W. BRIAN WHITE, Chairman

of the South Carolina House of Representatives Ways and

Means Committee, in his official capacity as an ex officio

member of the South Carolina Budget and Control Board;

MARCIA S. ADAMS, in her official capacity as Executive

Director of the South Carolina Budget and Control Board;

DAVID K. AVANT, in his official capacity as Executive

Director of the South Carolina Public Employee Benefit

Authority,

Defendants - Appellees.

Appeal from the United States District Court for the District of

South Carolina, at Florence. J. Michelle Childs, District

Judge. (4:10-cv-02018-JMC)

Argued: October 29, 2014 Decided: December 5, 2014

Before NIEMEYER, WYNN, and THACKER, Circuit Judges.

Affirmed by published opinion. Judge Niemeyer wrote the

opinion, in which Judge Wynn and Judge Thacker joined.

ARGUED: Richard Harpootlian, RICHARD A. HARPOOTLIAN, PA,

Columbia, South Carolina, for Appellants. Tina Marie Cundari,

SOWELL, GRAY, STEPP, & LAFFITTE, LLC, Columbia, South Carolina,

for Appellees. ON BRIEF: Graham L. Newman, Christopher P.

Kenney, RICHARD A. HARPOOTLIAN, PA, Columbia, South Carolina;

James M. Griffin, Margaret N. Fox, LEWIS, BABCOCK & GRIFFIN,

LLP, Columbia, South Carolina, for Appellants. Robert E. Stepp,

SOWELL, GRAY, STEPP, & LAFFITTE, LLC, Columbia, South Carolina,

for Appellees.

2

NIEMEYER, Circuit Judge:

South Carolina public employees commenced this class action

challenging the constitutionality of the South Carolina State

Retirement System Preservation and Investment Reform Act, 2005

S.C. Acts 1697 (“the 2005 Act”). That Act amended South

Carolina’s retirement laws by requiring public employees who

retire and then return to work to make, beginning on July 1,

2005, the same contributions to state-created pension plans as

pre-retirement employees but without receiving further pension

benefits. The plaintiffs claimed that the 2005 Act effected a

taking of their private property, in violation of the Takings

Clause of the Fifth Amendment and the Due Process Clause of the

Fourteenth Amendment. They named as defendants two state-

created pension plans, in which they are participants; the South

Carolina Retirement Systems Group Trust (“the Trust”), which

holds the pension plans’ assets; and state officials serving as

trustees and administrators of the pension plans. For relief,

they sought repayment of all contributions withheld since

July 1, 2005, and injunctive relief prohibiting the future

collection of such contributions.

Pursuant to the defendants’ motion, the district court

dismissed the complaint on the ground that all of the defendants

are entitled to sovereign immunity.

3

We affirm, albeit on reasoning slightly different from that

given by the district court. We conclude, as did the district

court, that the pension plans and the Trust are arms of the

State of South Carolina and therefore have sovereign immunity.

Likewise, we conclude that the state officials sued in their

official capacities for repayment of pension-plan contributions

have sovereign immunity. Finally, we conclude that the state

officials sued in their official capacities for prospective

injunctive relief have sovereign immunity because their duties

bear no relation to the collection of the public employees’

contributions to the pension plans, precluding application of Ex

parte Young, 209 U.S. 123 (1908). In reaching these

conclusions, we reject the plaintiffs’ argument that their

claims under the Takings Clause of the Fifth Amendment are

exempt from the protection of the Eleventh Amendment.

I

The plaintiffs are public employees and participants in two

pension plans created by South Carolina in 1962 -- the South

Carolina Retirement System and the South Carolina Police

Officers Retirement System (collectively, “the Retirement

System”). 1 See S.C. Code Ann. §§ 9-1-20, 9-11-20(1). In their

1

In all, South Carolina has created five pension plans for

public employees, each referred to as a “Retirement System” --

4

complaint, they alleged that they and others similarly situated

are “retired contributing members” of the Retirement System, who

returned to work on or after July 1, 2005, when the 2005 Act

went into effect, and who are, by reason of the 2005 Act,

required “to contribute a portion of their gross earnings” to

the Retirement System “without receiving any additional service

credit or interest on their retirement accounts.” Before

July 1, 2005, retired participants could return to work for a

salary of up to $50,000 without forfeiting the right to receive

retirement benefits and without having to make further

contributions to the Retirement System. See Ahrens v. State,

709 S.E.2d 54, 56-57 (S.C. 2011). But this changed with the

enactment of the 2005 Act, and retired participants who return

to work are now required to make the same contributions to the

Retirement System as pre-retirement employees but without

accruing additional service credit for pension benefits. See

S.C. Code Ann. §§ 9-1-1790(C), 9-11-90(4)(c). The South

Carolina General Assembly made the change to help fund the

the South Carolina Retirement System, the Retirement System for

Judges and Solicitors of the State of South Carolina, the

Retirement System for members of the General Assembly of the

State of South Carolina, the National Guard Retirement System,

and the South Carolina Police Officers Retirement System. S.C.

Code Ann. §§ 9-1-20, 9-8-20, 9-9-20, 9-10-20(A), 9-11-20(1).

5

Retirement System and, in particular, to secure future cost-of-

living adjustments.

The plaintiffs commenced this class action in August 2010

on behalf of themselves and all other participating employees

who returned to work on or after July 1, 2005, alleging that, by

enforcing the 2005 Act, the defendants “confiscated their

private property,” in violation of the Takings Clause of the

Fifth Amendment and their procedural due process rights under

the Fourteenth Amendment. In addition to naming as defendants

the two pension plans, the plaintiffs named the Trust, which

holds the assets of the Retirement System, and a number of state

officials in their official capacities who, as members or

executive directors of the State Budget and Control Board and

the Public Employee Benefit Authority, serve as trustees and

administrators of the Retirement System. The State Budget and

Control Board and the Public Employee Benefit Authority are the

statutorily designated co-trustees of the Retirement System.

S.C. Code Ann. § 9-1-1310(A).

For relief, the plaintiffs sought (1) a declaratory

judgment that the 2005 Act is unconstitutional; (2) an

injunction against its enforcement; (3) an accounting of all

contributions they made to the Retirement System since July 1,

2005; (4) an injunction compelling the return of all such

6

contributions; and (5) an order awarding them attorneys fees and

costs. 2

The Retirement System, the Trust, and the state officials

filed a motion to dismiss the complaint pursuant to Federal

Rules of Civil Procedure 12(b)(1), 12(b)(3), and 12(b)(6),

asserting numerous grounds for their motion, including sovereign

immunity, claim and issue preclusion based on the prior state

litigation, discretionary abstention, and failure to state a

claim upon which relief can be granted. The district court

granted the motion and dismissed the complaint, relying only on

the defendants’ sovereign immunity under the Eleventh Amendment.

2

Before this action was commenced, public employees who

retired and then returned to work before July 1, 2005, also

commenced an action in state court, alleging that the 2005 Act

breached a legislatively created contract with the “old working

retirees” and violated the Takings Clause and the Due Process

Clause of the U.S. Constitution. The South Carolina Supreme

Court rejected the argument, holding that the “old working

retiree statute [did] not create a binding contract between the

State and the old working retirees,” but the court did remand

the case to the trial court “for a case by case factual

determination of whether any actions of the State with regard to

individual old working retirees constituted a breach of

contract.” Layman v. State, 630 S.E.2d 265, 271-72 (S.C. 2006).

In 2011, the South Carolina Supreme Court affirmed the circuit

court’s conclusion that forms signed by the old working

retirees, stating that they would not be required to pay into

the pension plans, did not create a contract between the State

and the old working retirees. Ahrens, 709 S.E.2d at 58-60.

Because the employees’ claims under the Takings Clause and the

Due Process Clause were “founded on the presumption that a

contractual right ha[d] been unfairly taken away,” the court

also affirmed the circuit court’s grant of summary judgment on

those claims. Id. at 63.

7

With respect to the institutional defendants, the court

determined that “the Retirement Systems should be considered an

arm of the State such that Eleventh Amendment immunity applies

to bar [a federal] court from hearing the claim.” Hutto v. S.C.

Ret. Sys., 899 F. Supp. 2d 457, 473 (D.S.C. 2012). And

“[b]ecause Plaintiffs seek monetary damages,” it held that the

claims against the individual defendants were similarly barred.

Id. at 475 n.14. Having found that all of the defendants were

immune by reason of sovereign immunity, the court declined to

address the defendants’ remaining grounds for seeking dismissal

of the action.

The plaintiffs filed a motion for reconsideration under

Rule 59(e), asserting that the district court erred in

dismissing their claims for a declaratory judgment and

injunctive relief against the state officials serving in their

official capacities. They relied on Ex parte Young, 209 U.S.

123 (1908), which created an exception to Eleventh Amendment

immunity with respect to claims for prospective injunctive

relief to remedy ongoing violations of federal law. The

district court denied the motion because, “in seeking to bar the

enforcement of [the 2005 Act], which requires Plaintiffs to pay

into the Retirement System, Plaintiffs’ requested relief is

undeniably monetary” and because an injunction ordering the

8

return of the contributions already withheld “would ultimately

impact the State treasury.”

This appeal followed.

II

The Eleventh Amendment shields a state entity from suit in

federal court “if, in [the entity’s] operations, the state is

the real party in interest,” in the sense that the “named party

[is] the alter ego of the state.” Ram Ditta v. Md. Nat’l

Capital Park & Planning Comm’n, 822 F.2d 456, 457 (4th Cir.

1987).

The plaintiffs contend that the Retirement System and the

Trust do not have the sovereign immunity afforded a State under

the Eleventh Amendment because they are “non-state entit[ies]”

and that the district court’s contrary conclusion was based on

an erroneous application of the factors articulated in Ram Ditta

for determining whether an entity is an alter ego of the State.

They argue, “[T]he District Court should have given effect to

the express, unambiguous language of [South Carolina’s

retirement laws] and concluded that the Retirement Systems are

independent corporate entities for which the State has no

financial obligation as indemnitor.”

The defendants contend that “State law makes the financial

obligations of the state Retirement Systems obligations of the

State”; that the State controls the Retirement System; that the

9

pension plans of the Retirement System “operate on a statewide

basis and have statewide concerns”; and that South Carolina law

treats the pension plans as state agencies. The defendants thus

maintain that the Retirement System and the Trust are “arms of

the State and [therefore] immune from suit.”

Whether an action is barred by the Eleventh Amendment is a

question of law that we review de novo. Cash v. Granville Cnty.

Bd. of Educ., 242 F.3d 219, 222 (4th Cir. 2001).

At the outset, we address which party has the burden of

proof when sovereign immunity under the Eleventh Amendment is

raised. While the Supreme Court has described sovereign

immunity as a “jurisdictional bar” that can be raised for the

first time on appeal, Seminole Tribe of Fla. v. Florida, 517

U.S. 44, 73 (1996), and “a constitutional limitation on the

federal judicial power established in Art. III,” Pennhurst State

Sch. & Hosp. v. Halderman, 465 U.S. 89, 98 (1984), it “ha[s] not

decided” whether Eleventh Amendment immunity goes to a court’s

subject-matter jurisdiction, Wis. Dep’t of Corr. v. Schacht, 524

U.S. 381, 391 (1998). Unlike subject-matter jurisdiction, which

cannot be waived, a State can always waive its immunity and

consent to be sued in federal court, Atascadero State Hosp. v.

Scanlon, 473 U.S. 234, 238 (1985), and a court need not raise

the issue on its own initiative, Wis. Dep’t of Corr., 524 U.S.

at 389. Because a defendant otherwise protected by the Eleventh

10

Amendment can waive its protection, it is, as a practical

matter, structurally necessary to require the defendant to

assert the immunity. We therefore conclude that sovereign

immunity is akin to an affirmative defense, which the defendant

bears the burden of demonstrating. In so concluding, we join

every other court of appeals that has addressed the issue. See

Woods v. Rondout Valley Cent. Sch. Dist. Bd. of Educ., 466 F.3d

232, 237-39 (2d Cir. 2006); Fresenius Med. Care Cardiovascular

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

322 F.3d 56, 61 (1st Cir. 2003); Gragg v. Ky. Cabinet for

Workforce Dev., 289 F.3d 958, 963 (6th Cir. 2002); Skelton v.

Camp, 234 F.3d 292, 297 (5th Cir. 2000); Christy v. Pa. Turnpike

Comm’n, 54 F.3d 1140, 1144 (3d Cir. 1995); Baxter v. Vigo Cnty.

Sch. Corp., 26 F.3d 728, 734 n.5 (7th Cir. 1994), superseded by

statute on other grounds as recognized in Holmes v. Marion Cnty.

Office of Family & Children, 349 F.3d 914, 918-19 (7th Cir.

2003); ITSI TV Prods., Inc. v. Agric. Ass’ns, 3 F.3d 1289, 1292

(9th Cir. 1993).

In analyzing whether entities such as the Retirement System

and the Trust are arms of the State, “the most important

consideration is whether the state treasury will be responsible

for paying any judgment that might be awarded.” Ram Ditta, 822

F.2d at 457. Thus, “if the State treasury will be called upon

to pay a judgment against a governmental entity, then Eleventh

11

Amendment immunity applies to that entity.” Cash, 242 F.3d

at 223. If, on the other hand, the State treasury will not be

liable for a judgment, sovereign immunity applies only where the

“governmental entity is so connected to the State that the legal

action against the entity would, despite the fact that the

judgment will not be paid from the State treasury, amount to

‘the indignity of subjecting a State to the coercive process of

judicial tribunals at the instance of private parties.’” Id.

at 224 (quoting Seminole Tribe, 517 U.S. at 58). At bottom,

even though “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.” Fed.

Maritime Comm’n v. S.C. State Ports Auth., 535 U.S. 743, 765

(2002) (internal quotation marks and citations omitted).

A

We address first the most important factor -- whether South

Carolina could be responsible for the payment of a judgment

against the Retirement System and the Trust. A State treasury

is responsible “where the state is functionally liable, even if

not legally liable.” U.S. ex rel. Oberg v. Pa. Higher Educ.

Assistance Agency, 745 F.3d 131, 137 (4th Cir. 2014) (quoting

12

Stoner v. Santa Clara Cnty. Office of Educ., 502 F.3d 1116, 1122

(9th Cir. 2007)) (internal quotation marks omitted); see also

Ristow v. S.C. Ports Auth., 58 F.3d 1051, 1053 (4th Cir. 1995)

(holding that courts must “[c]onsider[] the practical effect of

a putative . . . judgment on the state treasury” (emphasis

added)).

The plaintiffs argue that “the Retirement Systems Act

insulates the state treasury from any judgment entered in this

case” because it provides that “[a]ll agreements or contracts”

with members” of the Retirement System are “solely obligations”

of the individual pension plan and that “the full faith and

credit” of South Carolina or its subdivisions “is not, and shall

not be, pledged or obligated” beyond the State’s contributions

as an employer of participating employees. S.C. Code Ann. §§ 9-

1-1690, 9-11-280.

This statutory language, however, must be read in the

context of Article X, Section 16 of the South Carolina

Constitution, which provides that “[t]he General Assembly shall

annually appropriate funds and prescribe member contributions

for any state-operated retirement system which will insure the

availability of funds to meet all normal and accrued liability

of the system on a sound actuarial basis as determined by the

governing body of the system.” S.C. Const. art. X, § 16

(emphasis added). Any possible ambiguity resulting from reading

13

the retirement laws in the context of the South Carolina

Constitution was put to rest by the South Carolina Supreme Court

in Wehle v. South Carolina Retirement System, 611 S.E.2d 240,

242-43 (S.C. 2005) (per curiam), where the Court stated that,

“should the Board determine that any retirement system is not

funded on a sound actuarial basis, the General Assembly must

provide funding necessary to restore the fiscal integrity of the

System.” Thus, in the event that a judgment in this case were

to render the Retirement System unable to meet its liabilities,

the General Assembly would be obligated to account for any

deficiency by increasing appropriations to the Retirement System

or by requiring employers, including the State itself, to

increase their contributions.

In addition, the State’s ultimate responsibility for the

financial soundness of the Retirement System is reflected by the

fact that the Retirement System’s “actuarial valuation is relied

upon in the preparation of the State’s annual financial

statement and by outside entities in rating the State for

purposes of issuance of bonds.” Wehle, 611 S.E.2d at 242.

Thus, if a judgment in this case were to render the Retirement

System or the Trust insolvent, that insolvency would harm the

State’s credit rating, making it more expensive for the State to

borrow money.

14

Consequently, we conclude that South Carolina remains

functionally liable for any judgment against the Retirement

System and the Trust, which is sufficient to make the Retirement

System and the Trust arms of the State. See Oberg, 745 F.3d

at 137.

We reject the plaintiffs’ various arguments to the

contrary. First, they insist that Article X, Section 16 of the

South Carolina Constitution “merely compels the State to comply

with its funding obligations as an employer,” a requirement that

the General Assembly could not have imposed on future

legislatures by legislative act. And they complain that “the

District Court unnecessarily construed the state Constitution in

a manner that rendered it irreconcilable with Sections 9-1-1690

and 9-11-280.” But the South Carolina Supreme Court, which, of

course, has the last word on the meaning of the South Carolina

Constitution, rejected the plaintiffs’ posited construction of

Article X, Section 16. See Wehle, 611 S.E.2d at 242-43.

Moreover, the plaintiffs’ argument that we must construe a

constitutional provision so as not to conflict with a statute

turns the concept of constitutional supremacy on its head.

Second, the plaintiffs maintain that there is no evidence

that a judgment in their favor would in fact create a shortfall

in the Retirement System’s funds. Yet, given that the

plaintiffs’ complaint alleges that “the members of the proposed

15

class will exceed tens of thousands of persons,” it is surely

plausible that a favorable judgment could create an actuarial

deficit. More importantly, whether or not a judgment would

render the Retirement System insolvent is of little consequence

to the analysis. As the Supreme Court held in Regents of the

University of California v. Doe, 519 U.S. 425 (1997), “it is the

entity’s potential legal liability . . . that is relevant.” Id.

at 431 (emphasis added); see also Owens v. Balt. City State’s

Att’ys Office, 767 F.3d 379, 412 (4th Cir. 2014) (“When an

entity has both state and local characteristics, ‘the entity’s

potential legal liability’ is relevant to the Eleventh Amendment

inquiry” (emphasis added) (quoting Regents, 519 U.S. at 431));

Oberg, 745 F.3d at 137 (“[I]n assessing [the State treasury]

factor, an entity’s ‘potential legal liability’ is key”

(emphasis added) (quoting Regents, 519 U.S. at 431)).

Consequently, “the proper inquiry is not whether the state

treasury would be liable in this case, but whether,

hypothetically speaking, the state treasury would be subject to

‘potential legal liability’ if the retirement system did not

have the money to cover the judgment.” Ernst v. Rising, 427

F.3d 351, 362 (6th Cir. 2005) (quoting Regents, 519 U.S. at

431)); see also Pub. Sch. Ret. Sys. v. State St. Bank & Trust

Co., 640 F.3d 821, 830 (8th Cir. 2011) (similar). Here, as in

Ernst, the “plaintiffs fail to come to grips with the fiscal

16

reality that the State’s funding requirement assuredly could

increase if the retirement system were to use its current and

future funding to pay off a judgment against it.” 427 F.3d

at 362 (emphasis added).

Third, the plaintiffs read much into the fact that the

funds and assets of the Retirement System “are not funds of the

State,” S.C. Code Ann. § 9-1-1310(C), but instead are held “in a

group trust under Section 401(a)(24) of the Internal Revenue

Code,” id. § 9-16-20(C). Section 401(a)(24) of the Internal

Revenue Code requires that group trust funds not be “used for,

or diverted to, purposes other than for the exclusive benefit

of . . . employees or their beneficiaries in order to qualify

as a group trust.” 26 U.S.C. § 401(a)(24). While we have

recognized that holding funds in a segregated account apart from

general state funds does “counsel[] against establishing arm-of-

the-state status,” Oberg, 745 F.3d at 139, that fact is not

dispositive. The plaintiffs also argue that South Carolina is

violating § 401(a)(24) by diverting the contributions they made

to the Retirement System to benefit pre-retirement employees.

But even if South Carolina were indeed in violation of federal

law by using funds contrary to § 401(a)(24), that fact would be

irrelevant to whether a judgment against the Retirement System

or the Trust could potentially affect the State treasury.

Accord Ernst, 427 F.3d at 365.

17

Fourth, the plaintiffs argue that courts generally, and the

district court in particular, should wait until the completion

of discovery and the development of a factual record before

resolving the sovereign immunity issue. But we have often

affirmed Rule 12(b)(6) motions to dismiss on the basis of

Eleventh Amendment immunity. See, e.g., Antrican v. Odom, 290

F.3d 178, 191 (4th Cir. 2002). In Gray v. Laws, 51 F.3d 426,

434 (4th Cir. 1995), upon which the plaintiffs rely for their

argument, we vacated the district court’s dismissal under the

Eleventh Amendment not because the district court failed to

conduct sufficient factfinding, but rather because the Supreme

Court had changed the applicable Eleventh Amendment standard

while the appeal was pending and “the barrenness of the record”

rendered us ill-suited to apply the new standard.

Finally, the plaintiffs contend that we are bound by our

earlier decision in Almond v. Boyles, 792 F.2d 451 (4th Cir.

1986). In Almond, we rejected, “for the reasons stated by the

district court,” a claim that the Eleventh Amendment barred a

suit by a class of visually handicapped operators of vending

stands to recover employer contributions to the North Carolina

Teachers’ and State Employees’ Retirement System, which they

claimed were collected in violation of federal law. Id. at 456.

The district court had found that a judgment against the

retirement system would not come from State funds for three

18

reasons, the “most important[]” of which was that “the

defendants [had] not shown the court that the relief requested

by the plaintiffs would inevitably lead to an additional

appropriation of state funds.” Almond v. Boyles, 612 F. Supp.

223, 228 (E.D.N.C. 1985) (emphasis added). But Almond’s

requirement that the defendants show that a judgment “would

inevitably” be satisfied by the State is fundamentally at odds

with Regents’ subsequent less demanding standard of potential

liability, and therefore Almond’s framework is no longer

applicable.

As the Supreme Court has framed the Eleventh Amendment

inquiry, the question is whether, “[i]f the expenditures of the

enterprise exceed receipts, is the State in fact obligated to

bear and pay the resulting indebtedness of the enterprise? When

the answer is ‘No’ -- both legally and practically -- then the

Eleventh Amendment’s core concern is not implicated.” Hess v.

Port Auth. Trans-Hudson Corp., 513 U.S. 30, 51 (1994) (emphasis

added). In light of Wehle’s interpretation of Article X,

Section 16, the answer to that question here is undoubtedly yes,

and we therefore conclude that a judgment against the Retirement

System and the Trust would implicate South Carolina’s treasury.

B

In addition to South Carolina’s potential funding

obligation, we also conclude that state-dignity factors weigh in

19

favor of finding that the Retirement System and the Trust are

arms of the State. See Fed. Maritime Comm’n, 535 U.S. at 765.

When assessing whether allowing suit against a state entity

would offend a State’s dignity, we consider “(1) the degree of

control that the State exercises over the entity or the degree

of autonomy from the State that the entity enjoys; (2) the scope

of the entity’s concerns -- whether local or statewide -- with

which the entity is involved; and (3) the manner in which State

law treats the entity.” Cash, 242 F.3d at 224.

Under the degree-of-state-control factor, we consider “who

appoints the entity’s directors or officers, who funds the

entity, and whether the State retains a veto over the entity’s

actions,” Oberg, 745 F.3d at 137 (quoting U.S. ex rel. Oberg v.

Ky. Higher Educ. Student Loan Corp., 681 F.3d 575, 580 (4th Cir.

2012)) (internal quotation marks omitted), as well as “whether

an entity has the ability to contract, sue and be sued, and

purchase and sell property, and whether it is represented in

legal matters by the state attorney general,” id. (citations

omitted).

In this case, the Retirement System does have the “power

and privileges of a corporation,” S.C. Code. Ann. §§ 9-1-20, 9-

11-20, including the powers to “sue and be sued,” to “make

contracts,” and to buy and sell property, id. § 33-3-102. But,

contrary to the plaintiffs’ argument, the designation of an

20

entity as a corporation with the power to sue and be sued is not

conclusive in establishing its autonomy. See Oberg, 745 F.3d

at 139 (finding that the autonomy factor “cut both ways,” even

though the entity had the “power to enter into contracts, sue

and be sued, and purchase and sell property in its own name”);

see also State Highway Comm’n v. Utah Const. Co., 278 U.S. 194,

199 (1929) (“It is unnecessary for us to consider the effect of

the general grant of power to sue or be sued . . . -- this suit,

in effect, is against the state and must be so treated”).

And other factors point to state control. The means by

which the entities’ officers are appointed suggest that the

Retirement System is beholden to the State. The State Budget

and Control Board and the Public Employee Benefit Authority,

which are the co-trustees of the Retirement System, and the

Retirement System Investment Commission, which has exclusive

authority to invest the Trust’s assets, see S.C. Code Ann. § 9-

16-20(A), are comprised almost entirely of the Governor of South

Carolina, the State Treasurer, the Comptroller General, the

Chairman of the Senate Finance Committee, the Chairman of the

House Ways and Means Committee, the President Pro Tempore of the

Senate, the Speaker of the House of Representatives, and persons

appointed by these officials. Id. §§ 1-11-10, 9-4-10(B)(1), 9-

16-315(A). Although several of the appointees are required to

be participants in the Retirement System, even those members are

21

selected by state officials. While the trustees and

administrators of the Trust are, of course, required to

discharge their fiduciary duties “solely in the interest of the

retirement systems, participants, and beneficiaries,” id. § 9-

16-40, one would have to be naive to conclude that the State

lacks any influence or control when it has the power of

appointment. State control is further evidenced by the facts

that: (1) the State Treasurer is the custodian of the Trust’s

funds and has sole authority to issue payments from the funds,

id. §§ 9-1-1320, 9-11-250; (2) the Retirement System Investment

Commission must provide quarterly reports to, among others, the

Speaker of the House of Representatives and the President Pro

Tempore of the Senate, id. § 9-16-90(A); (3) the State must

defend and indemnify the members of the Retirement System

Investment Commission, id. § 9-16-370; and (4) an entire title

of the Code of Laws of South Carolina is devoted to the

extensive regulation of the Retirement System and the Trust.

In sum, because of the mixed indications as to control, we

conclude that application of the control factor, if not favoring

sovereign immunity, is inconclusive. Accord Oberg, 745 F.3d at

141 (finding that the control factor “present[ed] a close

question” in light of the fact that the board of directors was

largely composed of “state officials or gubernatorial

appointees” but also “exercise[d] corporate powers including the

22

capacity to contract and sue and be sued”); Almond, 612 F. Supp.

at 227 (holding that the control factor did “not weigh heavily

in favor of either party,” after noting the detailed statutory

regime, the political nature of the appointment of the members

of the board of trustees, the retirement system’s corporate

status, and the board’s powers to sue and be sued and to buy and

sell property).

Turning to the factor considering whether the entities’

concerns are local or statewide, we conclude that this factor

counsels in favor of sovereign immunity. In assessing this

factor, courts must consider whether the entity has statewide or

localized jurisdiction, Cash, 242 F.3d at 226, and “whether an

entity’s functions are ‘classified as typically state or

unquestionably local,’” Harter v. Vernon, 101 F.3d 334, 341 (4th

Cir. 1996) (quoting Hess, 513 U.S. at 45). The Retirement

System covers public employees throughout the State. And like

“educating the [State’s] youth,” Md. Stadium Auth. v. Ellerbe

Becket, Inc., 407 F.3d 255, 265 (4th Cir. 2005), providing for

public employees -- many of whom work for the State -- upon

retirement is an area of statewide concern. Accord Pub. Sch.

Ret. Sys., 640 F.3d at 829 (“[T]he Retirement Systems do not

furnish the type of local services that political subdivisions

typically furnish, such as ‘water service, flood control, [or]

rubbish disposal’” (quoting Moor v. Cnty. of Alameda, 411 U.S.

23

693, 720 (1973))); Ernst, 427 F.3d at 361 (“[W]hen, as in this

case, the retirement system is funded by annual appropriations

from the state legislature, operates in part through the

Michigan Treasury and in part through the State’s Department of

Management and Budget, operates on a statewide basis and

serves . . . state-wide officials, it is fair to say that the

retirement system performs a traditional state function”);

McGinty v. New York, 251 F.3d 84, 98 (2d Cir. 2001) (“Although

the Retirement System does not service state employees

exclusively, it assists in the business of the state by enabling

the state to meet its pension and benefits obligations . . .”).

Finally, the factor assessing how South Carolina treats the

entities points strongly in favor of sovereign immunity. This

factor requires courts to consider “the relevant state statutes,

regulations, and constitutional provisions which characterize

the entity, and the holdings of state courts on the question.”

Harter, 101 F.3d at 342. Title 9 of the Code of Laws of South

Carolina repeatedly uses the term “State agency” to refer to the

South Carolina Retirement System and the term “State agent” to

refer to the Director of the Retirement System. S.C. Code Ann.

§§ 9-3-20(4), 9-5-30(5) to –30(6). The Code also describes the

South Carolina Public Employee Benefit Authority as “an

administrative agency of state government.” Id. § 9-4-10(H).

Similarly, in Layman, the South Carolina Supreme Court

24

characterized the Retirement System as a “state agency” for

purposes of S.C. Code Ann. § 15-77-300, which permits an award

of attorneys fees to the prevailing party in an action brought

by or against the State or any political subdivision thereof.

658 S.E.2d at 326. And in Ahrens, the Court analyzed whether,

as an “agency,” the Retirement System created a contract with

the working retirees. 709 S.E.2d at 58–60. Indeed, South

Carolina courts have frequently referred to the individual

pension plans of the Retirement System as agencies. See, e.g.,

Kennedy v. S.C. Ret. Sys., 549 S.E.2d 243, 251 (S.C. 2001); S.C.

Police Officers Ret. Sys. v. City of Spartanburg, 391 S.E.2d

239, 241 (S.C. 1990).

At bottom, we conclude that the relevant indicators

strongly indicate that the Retirement System and the Trust are

arms of the State of South Carolina and are therefore protected

under the Eleventh Amendment. This conclusion is consistent

with the holdings of the overwhelming number of federal courts

that have held that similar retirement systems in other States

are arms of the State. See Pub. Sch. Ret. Sys., 640 F.3d

at 827–33; Ernst, 427 F.3d at 359–66; McGinty, 251 F.3d at 100;

Mo. State Employees’ Ret. Sys. v. Credit Suisse, N.Y. Branch,

No. 09–4224–CV–C–NKL, 2010 WL 318652, at *6 (W.D. Mo. Jan. 21,

2010); N.M. ex rel. Nat’l Educ. Ass’n of N.M. v. Austin Capital

Mgmt. Ltd., 671 F. Supp. 2d 1248, 1253 (D.N.M. 2009); Cal. Pub.

25

Emps. Ret. Sys. v. Moody’s Corp., Nos. C 09–03628 SI, C 09–03629

JCS, 2009 WL 3809816, at *6 (N.D. Cal. Nov. 10, 2009); Turner v.

Ind. Teachers’ Ret. Fund, No. 1:07–cv–1637–DFH–JMS, 2008 WL

2324114, at *1 (S.D. Ind. June 5, 2008); Larsen v. State

Employees’ Ret. Sys., 553 F. Supp. 2d 403, 420 (M.D. Pa. 2008);

JMB Grp. Trust IV v. Pa. Mun. Ret. Sys., 986 F. Supp. 534, 538

(N.D. Ill. 1997); Sculthorpe v. Va. Ret. Sys., 952 F. Supp. 307,

309–10 (E.D. Va. 1997); Hair v. Tenn. Consol. Ret. Sys., 790 F.

Supp. 1358, 1364 (M.D. Tenn. 1992); Mello v. Woodhouse, 755 F.

Supp. 923, 930 (D. Nev. 1991); Reiger v. Kan. Pub. Emps. Ret.

Sys., 755 F. Supp. 360, 361 (D. Kan. 1990); Retired Pub.

Employees’ Ass’n of Cal., Chapter 22 v. California, 614 F. Supp.

571, 573, 581 (N.D. Cal. 1984); United States v. South Carolina,

445 F. Supp. 1094, 1099–1100 (D.S.C. 1977); 21 Props., Inc. v.

Romney, 360 F. Supp. 1322, 1326 (N.D. Tex. 1973).

III

Turning to the claims against the state officials, the

plaintiffs alleged in their complaint that “[a]s a result of

Defendants’ deduction from [Plaintiffs’] earnings, Plaintiffs

and the class have suffered and will continue to suffer

irreparable and immediate harm and injury to their property and

rights under the laws and Constitution of the United States.”

Accordingly, they requested, among other relief, injunctions

26

(1) “compelling Defendants to immediately return to Plaintiffs

and the class all monies Defendants have deducted as

contributions to the Retirement Systems since July 1, 2005,” and

(2) “preventing for all time enforcement of [the 2005 Act].”

The plaintiffs contend that their requests for injunctive relief

against the state officials are excepted from Eleventh Amendment

protection under Ex parte Young.

First, we interpret the plaintiffs’ request for an

injunction compelling the return of “all monies Defendants have

deducted as contributions to the Retirement Systems” as a claim

for money damages. State officials sued in their official

capacities for retrospective money damages have the same

sovereign immunity accorded to the State. See Buckhannon Bd. &

Care Home, Inc. v. W. Va. Dep’t of Health & Human Res., 532 U.S.

598, 609 n.10 (2001); Edelman v. Jordan, 415 U.S. 651 (1974);

Martin v. Wood, ___ F.3d ___, No. 13-2283 (4th Cir. Nov. 18,

2014). Therefore, as did the district court, we hold that the

plaintiffs’ claim against the state officials for the return of

their contributions is barred by the Eleventh Amendment.

Second, we agree with plaintiffs that their claim for the

second injunction -- to prevent “for all time” the enforcement

of the 2005 Act -- is prospective and seeks to remedy an ongoing

violation of federal law. See Verizon Md., Inc. v. Pub. Serv.

Comm’n, 535 U.S. 635, 645 (2002) (“In determining whether the

27

doctrine of Ex parte Young avoids an Eleventh Amendment bar to

suit, a court need only conduct a “straightforward inquiry into

whether [the] Complaint [1] alleges an ongoing violation of

federal law and [2] seeks relief properly characterized as

prospective’” (first alteration in original) (quoting Coeur

d’Alene Tribe, 521 U.S. at 296 (O’Connor, J., concurring in part

and concurring in the judgment))); see also Va. Office for

Protection & Advocacy v. Stewart, 131 S. Ct. 1632, 1639 (2011);

Constantine v. Rectors & Visitors of George Mason Univ., 411

F.3d 474, 496 (4th Cir. 2005).

Nonetheless, for a reason supported by the record but not

relied on by the district court, we conclude that the district

court was also correct in dismissing the claim seeking the

second injunction against state officials. See Greenhouse v.

MCG Capital Corp., 392 F.3d 650, 660 (4th Cir. 2004) (“[W]e ‘may

affirm the dismissal by the district court upon the basis of any

ground supported by the record even if it is not the basis

relied upon by the district court’” (quoting Ostrzenski v.

Seigel, 177 F.3d 245, 253 (4th Cir. 1999))).

The Ex parte Young exception to Eleventh Amendment immunity

applies only where a party “defendant in a suit to enjoin the

enforcement of an act alleged to be unconstitutional” has “some

connection with the enforcement of the act.” 209 U.S. at 157;

see also S.C. Wildlife Fed’n v. Limehouse, 549 F.3d 324, 333

28

(4th Cir. 2008); Lytle v. Griffith, 240 F.3d 404, 410 (4th Cir.

2001). Thus, we have held that a governor cannot be enjoined by

virtue of his general duty to enforce the laws, Waste Mgmt.

Holdings, Inc. v. Gilmore, 252 F.3d 316, 331 (4th Cir. 2001),

and that an attorney general cannot be enjoined where he has no

specific statutory authority to enforce the statute at issue,

McBurney v. Cuccinelli, 616 F.3d 393, 400 (4th Cir. 2010). In

contrast, we have held that a circuit court clerk bore the

requisite connection to the enforcement of state marriage laws

to be enjoined from enforcing them, because the clerk was

responsible for granting and denying applications for marriage

licenses. See Bostic v. Schaefer, 760 F.3d 352, 371 n.3 (4th

Cir.), cert. denied, 135 S. Ct. 308 (2014).

The requirement that there be a relationship between the

state officials sought to be enjoined and the enforcement of the

state statute prevents parties from circumventing a State’s

Eleventh Amendment immunity. See McBurney, 616 F.3d at 399;

Lytle, 240 F.3d at 412 (Wilkinson, C.J., dissenting). As the

Court explained in Ex parte Young, if the “constitutionality of

every act passed by the legislature could be tested by a suit

against the governor and attorney general, based upon the theory

that the former, as the executive of the State, was, in a

general sense, charged with the execution of all its laws, and

the latter, as attorney general, might represent the state in

29

litigation involving the enforcement of its statutes,” it would

eviscerate “the fundamental principle that [States] cannot,

without their assent, be brought into any court at the suit of

private persons.” 209 U.S. at 157 (quoting Fitts v. McGhee, 172

U.S. 516, 530 (1899)).

In this case, the plaintiffs named as defendants members of

the State Budget and Control Board, the Executive Director of

the State Budget and Control Board, and the Executive Director

of the Public Employee Benefit Authority, seeking to enjoin them

from deducting from the plaintiffs’ paychecks the contributions

mandated by the 2005 Act. The State Budget and Control Board

and the Public Employee Benefit Authority serve as co-trustees

of the Retirement System, S.C. Code Ann. § 9-1-1310, and South

Carolina law vests “general administration and responsibility

for the proper operation” of the Retirement System in the Public

Employee Benefit Authority, id. §§ 9-1-210, 9-11-30. But

neither the State Budget and Control Board nor the Public

Employee Benefit Authority has responsibility for ensuring that

employee contributions to the Retirement System be deducted from

the employees’ paychecks and transmitted to the Retirement

System. Employers of covered employees are required to deduct

the requisite contributions from the employees’ paychecks and

furnish the withheld amounts to the Retirement System, and any

person who fails to remit withheld contributions to the

30

Retirement System is “guilty of a misdemeanor and must be

punished by fine or imprisonment, or both.” Id. § 9-11-210(7);

see also id. § 9-1-1160(A). The Code of Laws of South Carolina

nowhere gives the Retirement System, the Trust, or the trustees

and administrators of the Retirement System the authority to

deduct or refuse to deduct funds from participating employees’

paychecks or to prosecute employers who violate their duties.

Instead, the role of the state officials named in the complaint

is merely to wait passively for the funds to be transmitted to

the Retirement System and, once the funds have arrived, to

manage and invest them. As such, the complaint seeks to enjoin

the Retirement System’s trustees and administrators from

participating in a process in which they actually have no role.

Because the state officials named as defendants have no

connection with the enforcement of the 2005 Act -- specifically

S.C. Code Ann. § 9-1-1790(C) and § 9-11-90(4)(c) -- we hold that

the Ex parte Young exception does not apply and that the state

officials are thus entitled to Eleventh Amendment immunity on

the claims seeking prospective injunctive relief.

IV

The plaintiffs contend that notwithstanding any Eleventh

Amendment protection to which the defendants may be entitled,

“sovereign immunity never bars a constitutional takings claim.”

They maintain that the Takings Clause provides an absolute

31

guarantee of just compensation when private property is taken

for public use and argue that if the States were immune from

takings claims in federal court, the Fifth Amendment would be

“effectively abrogated” by the Eleventh Amendment.

It is true that under the Eleventh Amendment, States enjoy

sovereign immunity except “where there has been ‘a surrender of

this immunity in the plan of the convention.’” Coeur d’Alene

Tribe of Idaho, 521 U.S. at 267 (quoting Principality of Monaco

v. Mississippi, 292 U.S. 313, 322-23 (1934)). But the Supreme

Court has recognized that “the plan of the convention” or the

States themselves have surrendered sovereign immunity in only

six contexts: (1) when a State consents to suit; (2) when a case

is brought by the United States or another State; (3) when

Congress abrogates sovereign immunity pursuant to Section 5 of

the Fourteenth Amendment or pursuant to the Bankruptcy Clause;

(4) when a suit is brought against an entity that is not an arm

of the State; (5) when a private party sues a state official in

his official capacity to prevent an ongoing violation of federal

law; and (6) when an individual sues a state official in his

individual capacity for ultra vires conduct. See S.C. State

Ports Auth. v. Fed. Maritime Comm’n, 243 F.3d 165, 176-77 (4th

Cir. 2001), aff’d, 535 U.S. 743 (2002). The plaintiffs now

invite us to recognize a seventh exception for claims brought

under the Takings Clause of the Fifth Amendment.

32

The Fifth Amendment provides that “private property [shall

not] be taken for public use, without just compensation,” U.S.

Const. amend. V, and the Eleventh Amendment provides that “[t]he

judicial power of the United States shall not be construed to

extend to any suit . . . , commenced or prosecuted against one

of the United States” by citizens of that State or another

State, id. amend. XI. While there is arguably some tension

between the protections of these amendments, that tension is not

irreconcilable.

Just as the Constitution guarantees the payment of just

compensation for a taking, so too does the Due Process Clause

provide the right to a remedy for taxes collected in violation

of federal law. See, e.g., McKesson Corp. v. Div. of Alcoholic

Beverages & Tobacco, 496 U.S. 18, 51 (1990). But despite the

constitutional requirement that there be a remedy, the Supreme

Court expressly noted in Reich v. Collins, 513 U.S. 106 (1994),

that “the sovereign immunity [that] States enjoy in federal

court, under the Eleventh Amendment, does generally bar tax

refund claims from being brought in that forum.” Id. at 110

(second emphasis added). To ensure that taxpayers possess an

avenue for relief, the Court held that state courts must hear

suits to recover taxes unlawfully exacted, the “sovereign

immunity [that] States traditionally enjoy in their own courts

notwithstanding.” Id.; cf. Alden v. Maine, 527 U.S. 706, 740

33

(1999) (holding that Congress cannot subject States to suits in

state courts but taking care not to overrule Reich). Reasoning

analogously, we conclude that the Eleventh Amendment bars Fifth

Amendment taking claims against States in federal court when the

State’s courts remain open to adjudicate such claims.

South Carolina courts have long recognized a right of

persons to sue the State for unconstitutional takings. See

Graham v. Charleston Cnty. Sch. Bd., 204 S.E.2d 384, 386 (S.C.

1974) (“In this jurisdiction neither the State nor any of its

political subdivisions is liable in an action ex delicto unless

by express enactment of the General Assembly, except where the

acts complained of, in effect, constitute a taking of private

property for public use without just compensation” (emphasis

added)), overruled on other grounds by McCall v. Batson, 329

S.E.2d 741 (S.C. 1985). Because the plaintiffs can have their

takings claims heard in South Carolina state courts, the

Eleventh Amendment does not render the Takings Clause an empty

promise. But in concluding that the Fifth Amendment Takings

Clause does not, in this case, trump the Eleventh Amendment, we

do not decide the question whether a State can close its doors

to a takings claim or the question whether the Eleventh

Amendment would ban a takings claim in federal court if the

State courts were to refuse to hear such a claim.

34

The plaintiffs direct our attention to numerous cases in

which suits to recover property illegally seized by the

government were held not to have been barred by sovereign

immunity. But in none of those cases did the plaintiffs sue

either the sovereign itself or its alter ego. For example, in

United States v. Lee, 106 U.S. 196, 222 (1882), the Court

permitted an ejectment action to proceed against federal

officers who served as custodians of the estate of General

Robert E. Lee because the suit was not against the United

States. In Tindal v. Wesley, 167 U.S. 204 (1897), the Court

permitted a suit against two state officials to recover property

wrongly held by them on behalf of the State, because the case

was “a suit against individuals,” id. at 221, and the Court

could not perceive how it could “be regarded as one against the

state,” id. at 218. And in Hopkins v. Clemson Agricultural

College of South Carolina, 221 U.S. 636, 648-49 (1911), the

Court permitted a suit alleging a takings claim to proceed

against a university, but under the law in effect at the time,

the fact that the university was set up as a corporation meant

that it was not an arm of the State, see P.R. Ports Auth. v.

Fed. Mar. Comm’n, 531 F.3d 868, 884 (D.C. Cir. 2008). By

contrast, in Larson v. Domestic & Foreign Commerce Corp., 337

U.S. 682, 689 (1949), the Court dismissed an action brought

against the head of the War Assets Administration alleging that

35

he had refused to deliver coal that he had contracted to sell to

the plaintiff and seeking an injunction prohibiting him from

selling or delivering that coal to anyone else, because the

relief sought was “against the sovereign.” And while the Court

has sometimes decided takings claims without considering

Eleventh Amendment immunity, see, e.g., Brown v. Legal Found. of

Wash., 538 U.S. 216 (2003); Lucas v. S.C. Coastal Council, 505

U.S. 1003 (1992), we cannot glean much from that fact given that

a State can waive its Eleventh Amendment protection.

Finally, we note that every other court of appeals to have

decided the question has held that the Takings Clause does not

override the Eleventh Amendment. See Seven Up Pete Venture v.

Schweitzer, 523 F.3d 948, 954 (9th Cir. 2008) (“[W]e conclude

that the constitutionally grounded self-executing nature of the

Takings Clause does not alter the conventional application of

the Eleventh Amendment”); DLX, Inc. v. Kentucky, 381 F.3d 511,

526 (6th Cir. 2004) (“Treating DLX’s claim as a self-executing

reverse condemnation claim, . . . we conclude that the Eleventh

Amendment’s grant of immunity protects Kentucky from that

claim . . .”); Harbert Int’l, Inc. v. James, 157 F.3d 1271, 1279

(11th Cir. 1998) (holding that a takings claim was barred under

the Eleventh Amendment, where state courts provided a means of

redress for such claims); John G. & Marie Stella Kenedy Mem’l

Found. v. Mauro, 21 F.3d 667, 674 (5th Cir. 1994) (holding that

36

the district court “correctly determined that the Foundation’s

Fifth Amendment inverse condemnation claim brought directly

against the State of Texas” was barred by the Eleventh

Amendment); Citadel Corp. v. P.R. Highway Auth., 695 F.2d 31, 33

n.4 (1st Cir. 1982) (“Even if the constitution is read to

require compensation in an inverse condemnation case, the

Eleventh Amendment should prevent a federal court from awarding

it”); Garrett v. Illinois, 612 F.2d 1038, 1040 (7th Cir. 1980)

(“Even though the Fifth Amendment alone may support a cause of

action for damages against the United States, the Eleventh

Amendment stands as an express bar to federal power when a

similar action is brought against one of the states” (citation

omitted)).

* * *

For the reasons given, the judgment of the district court

is

AFFIRMED.

37